REG - City of Lon Inv Grp - HALF YEAR RESULTS TO 31ST DECEMBER 2021
18/02/2022 07:00
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RNS Number : 0556C City of London Investment Group PLC 18 February 2022
18th February 2022
CITY OF LONDON INVESTMENT GROUP PLC
("City of London", "the Group" or "the Company")
HALF YEAR RESULTS TO 31ST DECEMBER 2021
City of London (LSE: CLIG) announces that it has today made available on its
website, https://www.clig.com/ (https://www.clig.com/) , the Half Year Report
and Financial Statements for the six months ended 31st December 2021.
The above document has been uploaded to the National Storage Mechanism, in
accordance with Listing Rule 9.6.1 R, and will shortly be available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
HALF YEAR SUMMARY
- Funds under Management (FuM) of US$11.1 billion (£8.2 billion) at 31st
December 2021. This compares with US$11.4 billion (£8.3 billion) at the
beginning of this financial year on 1st July 2021 and US$10.9 billion (£8.0
billion) at 31st December 2020.
- FuM at 31st January 2022 of US$10.8 billion (£8.0 billion)
- Net fee income representing the Group's management fees on FuM was £29.8
million (31st December 2020: £22.6 million)
- Underlying profit before tax* was £15.5 million (31st December 2020: £11.2
million). Profit before tax was £13.6 million (31st December 2020: £8.8
million)
- Maintained interim dividend of 11p per share (31st December 2020: 11p) payable
on 25th March 2022 to shareholders on the register on 25th February 2022
- Special dividend of 13.5p per share (31st December 2020: nil) payable on 25th
March 2022 to shareholders on the register on 25th February 2022
*This is an Alternative Performance Measure (APM). Please refer to the CEO
review for more details on APMs.
For access to the full interim report, please follow the link below:
http://www.rns-pdf.londonstockexchange.com/rns/0556C_1-2022-2-17.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0556C_1-2022-2-17.pdf)
This release includes forward-looking statements, which may differ from actual
results. Any forward-looking statements are based on certain factors and
assumptions, which may prove incorrect, and are subject to risks,
uncertainties and assumptions relating to future events, the Group's
operations, results of operations, growth strategy and liquidity.
For further information, please visit www.clig.co.uk or contact:
Tom Griffith, CEO
City of London Investment Group PLC
Tel: 001-610-380-0435
Martin Green
Zeus Capital Limited
Financial Adviser & Broker
Tel: +44 (0)20 3829 5000
CHAIR'S STATEMENT
The familiar refrain that "it ain't over, till it's over" has often been used
in connection with sporting contests but the events of recent months show that
it has at least equal validity to global pandemics. Just as the world was
recovering some level of normality in the autumn of 2021, courtesy of a global
vaccination campaign that now totals 10.4 billion doses, the Omicron variant
brought that progress to an abrupt but temporary halt in the closing weeks of
the year. The good news for investors is that markets have become less
"COVID-sensitive" with each wave recognising perhaps that, over time,
vaccine-led herd immunity will outweigh any risk of a return to the extreme
social disruption of the last two years.
While the ripple effects of the pandemic will continue to reverberate for some
time, particularly in relation to supply chain bottlenecks, equity markets are
increasingly directing their focus back to the more traditional issues of
growth, inflation, monetary policy and geopolitics, each of which present
potential challenges in 2022. Meanwhile, as CEO Tom Griffith explains in his
report, both CLIG operating subsidiaries have continued to navigate the
challenges posed by on/off remote working requirements with full functionality
and, on behalf of your Board, I would like to extend our sincere thanks once
again to our hard-working employees across all the offices.
Assets and performance
Funds under Management (FuM) fell by 2.6% in the six months ended 31st
December 2021 to US$11.1 billion due to mixed conditions across the Group's
products but were still 2% ahead of the comparable figure at the end of 2020.
Although the more defensive, value-driven characteristics of closed-end funds
(CEFs) provided positive attribution for the Emerging Markets (EM) strategy in
the half year, the 23% fall in Chinese equities, which accounts for around
one-third of the index, proved a major drag on both the benchmark and FuM,
with an 11% fall over the period to US$4.8 billion. Despite lacklustre markets
in the International strategy, this product has continued to attract
impressive inflows. The strategy FuM stands at US$2.1 billion, a 14.2%
increase in FuM as compared to 30th June 2021 and a 26.3% increase in FuM as
compared to 31st December 2020. While the aggregate FuM numbers at CLIM were
little changed over the half-year period at US$7.2 billion, each of the major
strategies recorded robust outperformance against their respective benchmarks.
Looking forward, the combination of this strong relative performance and an
ability to re-commence face-to-face meetings with clients and consultants are
anticipated to translate into further inflows in the coming months.
KIM's FuM grew by c.1% to US$3.9 billion as compared to 30th June 2021 despite
the normal seasonal withdrawals that arise in the final weeks of the calendar
year. In comparison with 31st December 2020, however, FuM was 7% higher,
thanks mainly to very strong relative performance, particularly in the
dominant fixed income space. The issuance of approximately 250 Special Purpose
Acquisition Companies (SPACs), represents an addition of US$54 billion to
KIM's investable universe. SPACs can offer a fixed income return profile with
lower risk, and potential for upside. Pre-merger SPAC investments were an
important contributor to returns for KIM in the first half of the financial
year. With c.60% of KIM's assets invested in fixed income securities, it is
very encouraging to note that they have been able to show strong performance
through a period of rising inflation and interest rate expectations and this
bodes well for both client retention and new business potential in the coming
year.
Results
For CLIG, the six months ended December 2021 showed solid progress and it was
pleasing to see the positive impact of the merger with KIM in terms of both
profits and earnings per share (EPS). Profit before tax for the six months to
31st December 2021 was £13.6 million (31st December 2020: £8.8 million).
Following previous practice, I will comment on our results by reference to an
Alternative Performance Measure (APM) of "Underlying" profits and EPS, which
exclude exceptional or non-recurring items, as we believe that these provide
shareholders with a more accurate measure of the Group's financial
performance.
Underlying profit before tax of £15.5 million was 38.4% up on the equivalent
period of 2020, but this figure translates to a 7.8% gain when adjusted for
the limited three-month contribution from KIM in the previous period. KIM's
underlying profit before tax of £6.9 million was marginally ahead of the
previous period on a comparable basis, having absorbed increased costs
associated with upgrades to KIM's operating infrastructure. The 11% increase
in CLIM's contribution to £8.6 million owes much to the buoyancy of global
equity markets in the early months of 2021, which partially reversed in the EM
space in the second half of calendar year 2021. The combination of a 10% fall
in the MXEF EM index coupled with a 3% rise in the average rate for sterling
(vs. US$) in the six months to 31st December 2021 pared growth somewhat but,
pleasingly, the blended net fee margin across both operating subsidiaries
remained steady at an average rate of 74 bps. Diluted EPS for the first half
of the financial year was 21.2p per share on a statutory basis, while
underlying EPS rose 3% to 24.1p (2020: 23.4p) on a fully diluted basis.
Dividends
Inflationary pressures and a near-term tapering of quantitative easing signal
a clear tightening bias from Central Banks and, mindful that economic activity
remains "COVID-constrained" in many countries, the outlook for global equities
is far from assured in 2022. Against this uncertain background, your Board has
declared an unchanged interim dividend of 11p per share, a level which leaves
a small degree of "headroom" within the stated dividend cover policy of 1.2/1
over a rolling five-year period. At the same time, the Board is conscious that
any accumulation of capital over and above that which is needed for capital
investment, regulatory requirements and a prudential cash buffer should be
returned to shareholders. Accordingly, the Board has also declared a special
dividend of 13.5p per share, making this the second such special distribution
in the last three years. Both dividends will be paid on 25th March 2022 to
those shareholders registered at the close of business on 25th February 2022.
The Board
There were no changes to the Board's membership during the half-year period.
However, as acknowledged in our 2021 Annual Report & Accounts, compliance
with the UK Corporate Governance Code in respect of independence, together
with upcoming rules concerning diversity and inclusion, will necessitate
significant changes to the Board's composition going forward. Following a
thorough review of these issues, later this year we will present shareholders
with a road map towards compliance, recognising the need to reconcile an
appropriate level of continuity with adherence to our governance obligations
as a UK-listed entity.
ESG
The proposed changes to the Board composition, referred to above, form only
part of CLIG's commitment to address ESG challenges both within the business
and in the wider communities in which we operate. While many of the criteria
being codified to measure ESG performance have been a natural part of our
culture over many years, it is important for us to record our "ESG modus
operandi" in a more formal way in order to apprise shareholders of our ongoing
commitment to good governance. To that end, our website has been updated with
an Anti-Slavery statement and regular engagement meetings between employees
and independent Directors have been established on a rotational basis.
Increased emphasis on employee training and initiatives to prioritise
diversity and inclusion through each layer of the business also form part of
this process. CLIG is firmly committed to the goal of high attainment in the
ESG sphere.
Outlook
As mentioned earlier, global markets will be confronted this year with
progressive reductions in monetary stimulus as pandemic support measures are
gradually withdrawn and this is likely to create headwinds for both equity and
debt markets. Indeed, benchmarks such as the tech-heavy NASDAQ, which rose by
c.130% in the 20 months to November 2021, have appeared more vulnerable to a
correction recently with a 9% fall over the last two months. While
international equity markets may be less vulnerable to these tech valuation
bubbles, the tapering of monetary support, ongoing supply disruptions and
geopolitical tensions each have the capacity to destabilise markets in the
months ahead and point to the need for a cautious stance. Within the EM space,
China will continue to exert a strong influence and the recent tightening of
the regulatory environment, coupled with large-scale mobility restrictions
arising from China's zero-tolerance COVID policy will constrain both the pace
and timing of an economic recovery.
It is now 15 months since the merger with KIM and we believe that the results
during this period demonstrate the benefits of a more diversified revenue base
in terms of both clients and market segments. Thus, despite the clear
challenges ahead, we remain optimistic that the value-driven characteristics
of CEFs, supported by a macro-economic research focus, will continue to offer
enhanced relative performance for our clients and shareholders over the longer
term.
Barry Aling
Chair
17th February 2022
CHIEF EXECUTIVE OFFICER'S REVIEW
Diversification
Diversification has been a long-standing theme in our reports over many years
in recognition of the need to expand our product offerings, opportunities for
employees and our revenue stream. Whilst our unique focus on closed-end funds
(CEFs) has enabled us to deliver relative outperformance against a relevant
benchmark to our clients over multiple investment cycles, capacity limitations
in the CEF universe of available securities have constrained growth.
Our approach to this constraint for CLIM has been to apply our team's
expertise in CEFs to additional market segments. Sustained CLIM
diversification has reached a major milestone over the period with CLIM's
International Equity strategy (INTL) surpassing US$2 billion in Funds under
Management (FuM) representing 30% of CLIM FuM as of 31st December 2021. As
many of our shareholders will recognise, this "overnight success" has taken
over a decade to achieve and was only possible as a result of the relentless
efforts of the INTL team. Reaching this milestone is a reflection of the hard
work by many of our colleagues along with the patience of shareholders.
Further, and as a result of top quartile relative performance of the INTL
strategy, clients and consultants have shown interest in a Global product, to
offer exposure to US and non-US equities. In December 2021, a new product
managed by the INTL team was seeded with US$2.5 million, which we expect will
attract client assets over the next two years.
We refer to the second part of our diversification efforts as CLIG
diversification. As indicated in our most recent annual report, the evolution
of your company featured the merger with Karpus Investment Management (KIM) in
the prior financial year which progressed our diversification efforts.
We have expanded our reporting in the below table from previous reporting
periods to include both the percentage of FuM for CLIM & KIM strategies
along with the percentage of FuM for CLIG. This further breakdown of reporting
provides shareholders with an additional data point to follow our
diversification efforts, inclusive of the relative growth of the CLIM INTL
strategy mentioned previously, over the past five years.
FuM flows
Although CLIM's net client flows remain negative for the financial year to
date to 31st December 2021 at (US$58.7 million) we have seen this recent trend
over the past several quarters begin to reverse. Quarterly inflows increased
to US$311 million in the second quarter of the financial year relative to
US$123.8 million in the first quarter of the financial year, while outflows
reduced to (US$198.5 million) from (US$295 million) respectively.
CLIG - FUM by line of business (US$m)
CLIM 30 Jun 2018 30 Jun 2019 30 Jun 2020 30 Jun 2021 31 Dec 2021
US$m % of CLIM total* US$m % of CLIM total* US$m % of CLIM total* US$m % of CLIM total % of CLIG total US$m % of CLIM total % of CLIG total
Emerging Markets 4,207 83% 4,221 78% 3,828 69% 5,393 72% 47% 4,800 67% 43%
International 480 9% 729 14% 1,244 23% 1,880 25% 17% 2,147 30% 19%
Opportunistic Value 174 3% 233 4% 256 5% 231 3% 2% 232 3% 2%
Frontier 245 5% 206 4% 175 3% 13 0% 0% 10 0% 0%
Other/REIT 1 0% 7 0% 9 0% 13 0% 0% 12 0% 0%
CLIM total 5,107 100% 5,396 100% 5,512 100% 7,530 100% 66% 7,201 100% 64%
KIM 30 Jun 2018 30 Jun 2019 30 Jun 2020 30 Jun 2021 31 Dec 2021
US$m % of KIM total* US$m % of KIM total* US$m % of KIM total* US$m % of KIM total % of CLIG total US$m % of KIM total % of CLIG total
Retail 2,098 67% 2,291 67% 2,401 69% 2,804 72% 24% 2,830 72% 26%
Institutional 1,019 33% 1,105 33% 1,087 31% 1,115 28% 10% 1,119 28% 10%
KIM total 3,117 100% 3,396 100% 3,488 100% 3,919 100% 34% 3,949 100% 36%
CLIG total 11,449 100% 11,150 100%
*Pre-merger
Net investment flows (US$000's)
CLIM FYE Jun 2018 FYE Jun 2019 FYE Jun 2020 FYE Jun 2021 FY 2022, as of Dec 2021
Emerging Markets (215,083) (183,521) (279,459) (275,493) (279,104)
International 279,394 252,883 551,102 (14,145) 231,705
Opportunistic Value 54,251 48,236 45,914 (102,663) (6,700)
Frontier 67,000 (21,336) 16,178 (168,843) (4,575)
REIT - 6,000 4,600 - -
CLIM total 185,562 102,262 338,335 (561,144) (58,674)
KIM FYE Jun 2018 FYE Jun 2019 FYE Jun 2020 FYE Jun 2021* FY 2022, as of Dec 2021
Retail 46,550 33,701 26,323 (104,222) (34,452)
Institutional (107,410) 9,050 (67,087) (130,911) (19,033)
KIM total (60,860) 42,751 (40,764) (235,133) (53,485)
*Includes net investment flows for Retail - (24,407) and Institutional -
(20,264) pertaining to period before 1st October 2020 (pre-merger).
The above shift resulted from increased CLIM marketing efforts in calendar
year 2021 that began to turn the tide of flows positive in the second quarter
of this financial year with US$112.5 million of net inflows. Re-opening our
INTL strategy to new investors contributed significantly to net inflows after
being closed to new investors for the year to December 2020 following a period
of strong growth. Currently, we are projecting this positive trend of net
inflows to continue through the remainder of the financial year.
A handful of CLIM clients in the past six months transferred their account
balance from the Emerging Market (EM) strategy to the INTL strategy,
illustrating another positive effect of CLIM diversification. Whilst the EM
equity asset class may be out of favour, client assets remained at CLIM.
Year-end tax planning led to outflows from the KIM strategies.
Both CLIM and KIM remain constrained by clients and prospects limiting their
access via in-person marketing; we believe in-person marketing and client
discussions are a strength of both operating subsidiaries, as investment
management remains a relationship-driven business. With this said, we are
prepared moving forward with the ability to provide in-person or virtual
meetings with clients, consultants and prospective clients depending on their
preference.
Relative investment performance at both CLIM and KIM was strong during the six
months ending 31st December 2021 and for calendar year 2021. All strategies
with impactful FuM at both CLIM and KIM outperformed their respective
benchmarks in calendar year 2021. These strong returns should buoy marketing
efforts in 2022. On the downside, the underperformance of EM equities over the
past six months compared to other asset classes did weigh on the ability for
CLIM's FuM to grow during what otherwise was a strong equity rally, in
particular in US equities.
Business integration
While the investment personnel at each subsidiary remain separate and
distinct, there is ongoing integration of non-investment management resources
to allow for both subsidiaries to benefit from the experience and expertise of
colleagues. Both CLIM and KIM have strong brands and reputations in the United
States, and operational teams who support the investment personnel are being
leveraged to work together.
Information Technology (IT) infrastructure integration is ongoing, linking the
two networks together and allowing for failover and other synergies to exist.
We expect this infrastructure integration to be complete by financial year end
at the latest. Additionally, when acting on behalf of the larger, combined
entity, there are economies of scale available with IT vendors and contracts
for services required by both operating subsidiaries.
CLIM Dubai office
CLIM's Dubai office opened in 2007 to allow CLIM to research investment
opportunities in the region as well as to increase the Group's visibility in
the area. As a number of frontier (pre-emerging) markets were in the region,
the office was staffed by two employees to conduct research on the underlying
portfolio investments and was critical to the initial development and
marketing of the CLIM Frontier strategy. At that time, the weight of the
Middle Eastern markets was approximately 12% and 70% of the EM and Frontier
equity indices respectively, but are now in the single digits. As a result of
the shift in markets that make up the frontier indices from the Middle East
and Africa to Asia, we are letting the Dubai office lease expire in March
2022. One employee from the Dubai office has already transferred to CLIM's
office in Pennsylvania, while the remaining employee will end his tenure with
CLIM in March after taking the necessary steps with regulators, local
authorities and vendors to close the office.
Financial results
Group FuM as at 31st December 2021 was US$11.1 billion (£8.2 billion). Net
fee income currently accrues at a weighted average rate of approximately 74
basis points of FuM. The Group's net fee income for the six months ended 31st
December 2021 was £29.8 million, with £10.9 million coming from KIM (31st
December 2020: £22.6 million, with £5.1 million coming from KIM for the
three months ended 31st December 2020).
Profit before tax for the six months ended 31st December 2021 increased to
£13.6 million (31st December 2020: £8.8 million). EPS increased by 21% to
21.5p per share for the six months ended 31st December 2021 from 17.7p per
share for the six months ended 31st December 2020.
Currency exposure
The Group's revenue is almost entirely US dollar based whilst its costs are
incurred in US dollars, sterling, and to a lesser degree Singapore dollars and
UAE dirhams (which will no longer be applicable after 31st March 2022). The
following table aims to illustrate the effect of a change in the US
dollar/sterling exchange rate on the Group's post-tax profits at various FuM
levels, based on the assumptions given, which are a close approximation of the
Group's current operating parameters. It is evident that a stronger US dollar
increases sterling post-tax profits, whilst a weaker US dollar causes the
opposite. During the six months ended 31st December 2021, the average FX rate
was 1.3612, with a closing FX rate of 1.3532 as compared to the average FX
rate of 1.3219 for the six months ended 31st December 2020 and a closing FX
rate of 1.367 as 31st December 2020.
FX/Post-tax profit matrix
Illustration of US$/£ rate effect:
FuM US$bn: 9.3 10.2 11.1 11.7 12.2
US$/£ Post-tax, £m
1.26 16.6 19.5 22.5 24.4 26.2
1.31 15.7 18.5 21.4 23.2 24.9
1.36 14.9 17.6 20.3 22.1 23.8
1.41 14.1 16.7 19.4 21.0 22.7
1.46 13.4 15.9 18.5 20.1 21.7
Assumptions: CLIM KIM
1. Average net fee 72bps 76bps
2. Annual operating costs £6.7m plus US$8.5m plus S$0.6m (£1 = S$1.82) US$8.3m
3. Average tax 21% 24%
4. Amortisation of intangible £3m per annum
Note: The above table is intended to illustrate the approximate impact of
movement in US$/£, given an assumed set of trading conditions. It is not
intended to be interpreted or used as a profit forecast.
Cash and dividends
The CLIG Board reviews its cash position and overall distribution policy on a
regular basis and believes that our policy of a rolling five year dividend
cover of 1.2x remains appropriate. Our cash position has grown to £24.5
million at calendar year end in addition to the seed investments of £6.1
million (including £4.0 million in REITs and £1.9 million in the Global
product funded in December 2021). After considering the alternatives for
returning a portion of this cash to shareholders, the Board has announced an
interim dividend of 11p per share in line with last year amounting to c.£5.4
million and a 13.5p special dividend amounting to c.£6.6 million.
The first special dividend was paid to shareholders in March 2019, which was
13 years from our original listing date. This second special dividend comes a
relatively short three years later due to strong cash generation and was made
possible by the support and patience of our shareholders through the recent
merger and other diversification efforts. After both the interim and special
dividend, and inclusive of seed investments, the Group meets regulatory and
statutory requirements with significant operating capital. The option of
increasing the final dividend at year end, dependent upon market conditions,
remains open.
Dividend cover chart
We have provided an illustrative framework which we update twice a year to
enable shareholders and other interested parties to calculate our post-tax
profits based upon some key assumptions. This dividend cover chart can be
found on our website at https://www.clig.com/dividend-cover.php, and is also
shown on page 10 of our interim accounts, and shows the quarterly estimated
cost of a maintained dividend against actual post-tax profits for last year,
the current six months ended 31st December 2021 and the assumed post-tax
profit for the six months ended 30th June 2022 and the next financial year
based upon assumptions included in the chart.
Alternative Performance Measures
The Directors use the following Alternative Performance Measures (APMs) to
evaluate the performance of the Group as a whole:
Underlying profit before tax - Profit before tax, adjusted for gain/loss on
investments, acquisition-related costs and amortisation of acquired
intangibles. This provides a measure of the profitability of the Group for
management's decision-making.
Underlying earnings per share - Underlying profit before tax, adjusted for tax
as per income statement, tax effect of adjustments and non-controlling
interest, divided by the weighted average number of shares in issue as at the
period end. Refer to note 4 in the interim financial statements for
reconciliation.
Alternative Performance Measures
Underlying profit and profit before tax Six months ended Dec 21 Six months ended Dec 20 Year ended
Jun 21
£ £ £
Net fee income 29,839,500 22,599,770 52,450,936
Administrative expenses (14,282,692) (11,355,646) (25,631,432)
Net interest paid (72,107) (54,479) (117,063)
Underlying profit before tax 15,484,701 11,189,645 26,702,441
(Deduct)/add back:
(Loss)/gain on investments (33,142) 454,278 540,172
Acquisition-related costs - (1,743,424) (1,743,424)
Amortisation on acquired intangibles (1,876,979) (1,083,395) (3,250,185)
Profit before tax 13,574,580 8,817,104 22,249,004
Cybersecurity update
In order to counter evolving cybersecurity threats, the Group has recently
engaged an external vendor to assess our overall program's operating
effectiveness, identify gaps and recommend enhancements.
All employees will continue to receive training on a variety of cybersecurity
topics throughout the year. We are also expanding the
Diversity/Equality/Inclusion training provided in 2021 to include additional
related topics.
CLIG KPI
As noted in the 2021 Annual Report and Accounts, due to the continued
diversification of CLIG's business away from CLIM's core EM strategy, the
comparison to MXEF (MSCI EM Index) as a Key Performance Indicator (KPI) is no
longer relevant. We retain the share price KPI to show the total return of
CLIG over a market cycle. The goal of this KPI is for the total return (share
price plus dividends) to compound annually in a range of 7.5% to 12.5% over a
five-year period. This KPI is meant to stretch the management team, without
incentivising managers to take undue levels of risk.
For the five years ended 31st December 2021, CLIG's cumulative total return
was 108.7%, or 15.8% annualised, which exceeded the KPI by 3.3 percentage
points on an annualised basis. Since listing in April 2006, the annualised
return of a CLIG share is 14.4%. All values are sourced from Bloomberg.
CLIG outlook
Efforts to diversify from CLIM's EM-centric strategy via development of the
INTL strategy proved timely with the underperformance of EM equities over the
past five years relative to other equity asset classes. We believe that
ongoing growth via diversification, including the merger with KIM, will
continue to benefit all stakeholders by reducing the volatility of earnings
and broadening our client base. The support of our stakeholders is appreciated
as we continue to grow the combined business.
We remain guided in our decision-making by considering the best interests of
our three major stakeholders - Clients, Employees, and Shareholders. We
operate in a global market environment which remains volatile. Investors are
concerned by a variety of factors including inflationary pressures, the
response of central banks, geopolitical risks and the ongoing nature of the
pandemic. Nevertheless, our continued strong cash position, while allowing for
the payment of a special dividend, maintains a margin of safety for the Group
in the face of any sustained downturn in markets and FuM.
Additionally, the efforts of our colleagues at both CLIM and KIM during
another challenging six-month period is a key differentiator. They remain
committed to the business and their responsibilities in the face of ongoing
volatility and uncertainty caused by the ongoing pandemic. The Group has
largely been spared from the impact of "The Great Resignation", and we hope
that our colleagues continue to feel supported and valued, while also
recognising the impact and contribution of their hard work being reflected in
the strong position of the larger Group. Their attitude, perseverance, and
determination are the engine room that continue to drive this Group forward.
Tom Griffith
Chief Executive Officer
17th February 2022
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2021
Six months ended Six months ended
Year ended
31st Dec 2021 31st Dec 2020 30th June 2021
(unaudited) (unaudited) (audited)
Note £ £ £
Revenue
Gross fee income 2 31,444,729 23,733,759 55,123,274
Commissions payable (782,728) (358,662) (1,100,708)
Custody fees payable (822,501) (775,327) (1,571,630)
Net fee income 29,839,500 22,599,770 52,450,936
Administrative expenses
Employee costs 11,162,624 8,853,182 20,045,406
Other administrative expenses 2,767,044 2,139,428 4,866,625
Depreciation and amortisation 2,230,003 1,446,431 3,969,586
(16,159,671) (12,439,041) (28,881,617)
Operating profit before exceptional item 13,679,829 10,160,729 23,569,319
Exceptional item
Acquisition-related costs - (1,743,424) (1,743,424)
Operating profit 13,679,829 8,417,305 21,825,895
Net interest (payable)/receivable and similar (losses)/gains 3 (105,249) 399,799 423,109
Profit before taxation 13,574,580 8,817,104 22,249,004
Income tax expense (3,021,473) (2,241,835) (5,258,486)
Profit for the period 10,553,107 6,575,269 16,990,518
Profit attributable to:
Non-controlling interests (4,093) 12,330 19,285
Equity shareholders of the parent 10,557,200 6,562,939 16,971,233
Basic earnings per share 4 21.5p 17.7p 39.4p
Diluted earnings per share 4 21.2p 17.4p 38.8p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2021
Six months ended Six months ended
Year ended
31st Dec 2021 31st Dec 2020 30th June 2021
(unaudited) (unaudited) (audited)
£ £ £
Profit for the period 10,553,107 6,575,269 16,990,518
Other comprehensive income:
Items that may be subsequently reclassified to income statement
Foreign currency translation difference 2,064,275 (175,923) (6,675,136)
Total comprehensive income for the period 12,617,382 6,399,346 10,315,382
Attributable to:
Equity shareholders of the parent 12,621,475 6,387,016 10,296,097
Non-controlling interests (4,093) 12,330 19,285
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31ST DECEMBER 2021
31st Dec 2021 31st Dec 2020 30th June 2021
(unaudited) (unaudited) (audited)
Note £ £ £
Non‐current assets
Property and equipment 2 541,920 512,846 455,983
Right-of-use assets 2 2,483,666 1,863,368 2,757,179
Intangible assets 2,5 101,119,637 110,260,241 100,961,992
Other financial assets 6,210,092 4,326,183 4,373,485
Deferred tax asset 370,265 317,371 366,405
110,725,580 117,280,009 108,915,044
Current assets
Trade and other receivables 6,484,325 7,011,563 6,953,470
Cash and cash equivalents 24,506,056 17,545,110 25,514,619
30,990,381 24,556,673 32,468,089
Current liabilities
Trade and other payables (7,031,598) (5,910,861) (8,260,597)
Lease liabilities (402,151) (584,404) (392,954)
Current tax payable (1,374,356) (2,061,263) (1,367,564)
Creditors, amounts falling due within one year (8,808,105) (8,556,528) (10,021,115)
Net current assets 22,182,276 16,000,145 22,446,974
Total assets less current liabilities 132,907,856 133,280,154 131,362,018
Non‐current liabilities
Lease liabilities (2,126,921) (1,301,128) (2,348,101)
Deferred tax liability (8,389,334) (9,809,808) (8,696,813)
Net assets 122,391,601 122,169,218 120,317,104
Capital and reserves
Share capital 506,791 506,791 506,791
Share premium account 2,256,104 2,256,104 2,256,104
Merger relief reserve 101,538,413 101,538,413 101,538,413
Investment in own shares 6 (6,926,039) (4,575,581) (6,068,431)
Share option reserve 168,935 186,470 195,436
EIP share reserve 1,071,618 900,795 1,282.884
Foreign currency differences reserve (4,564,976) (130,038) (6,629,251)
Capital redemption reserve 26,107 26,107 26,107
Retained earnings 28,129,274 21,277,645 27,019,584
Attributable to:
Equity shareholders of the parent 122,206,227 121,986,706 120,127,637
Non-controlling interests 185,374 182,512 189,467
Total equity 122,391,601 122,169,218 120,317,104
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2021
Total
Foreign currency diff Capital redemption attributable
Share premium account Merger relief reserve Investment Share option reserve EIP reserve reserve to
Share capital £ £ in own £ share £ £ Retained share-
£ shares reserve earnings holders NCI Total
£ £ £ £ £ £
At 1st July 2021 506,791 2,256,104 101,538,413 (6,068,431) 195,436 1,282,884 (6,629,251) 26,107 27,019,584 120,127,637 189,467 120,317,104
Profit for the period - - - - - - - - 10,557,200 10,557,200 (4,093) 10,553,107
Other comprehensive income - - - - - - 2,064,275 - - 2,064,275 - 2,064,275
Total comprehensive income
- - - - - 2,064,275 - 10,557,200 12,621,475 (4,093) 12,617,382
Transactions with owners
Share option exercise - - - 124,250 (12,787) - - - 12,787 124,250 - 124,250
Purchase of own shares - - - (2,349,321) - - - - - (2,349,321) - (2,349,321)
Share-based payment - - - - 17,285 465,900 - - - 483,185 - 483,185
EIP vesting/forfeiture - - - 1,367,463 - (677,166) - - - 690,297 - 690,297
Deferred tax on share options - - - - (30,999) - - - (2,992) (33,991) - (33,991)
Current tax on share options - - - - - - - - 12,890 12,890 - 12,890
Dividends paid - - - - - - - - (9,470,195) (9,470,195) - (9,470,195)
Total transactions with owners
- - - (857,608) (26,501) (211,266) - - (9,447,510) (10,542,885) - (10,542,885)
As at
31st December 2021 506,791 2,256,104 101,538,413 (6,926,039) 168,935 1,071,618 (4,564,976) 26,107 28,129,274 122,206,227 185,374 122,391,601
Total
Foreign currency diff attributable
Share capital Share premium account Merger relief reserve Investment Share option reserve EIP reserve Capital redemption to
£ £ £ in own £ share £ reserve Retained share-
shares reserve £ earnings holders NCI Total
£ £ £ £ £ £
At 1st July 2020 265,607 2,256,104 - (5,765,993) 241,467 1,232,064 45,885 26,107 20,626,405 18,927,646 170,182 19,097,828
Profit for the period - - - - - - - - 6,562,939 6,562,939 12,330 6,575,269
Other comprehensive income - - - - - - (175,923) - - (175,923) - (175,923)
Total comprehensive income
- - - - - (175,923) - 6,562,939 6,387,016 12,330 6,399,346
Transactions with owners
Issue of ordinary shares on merger
241,184 - 101,538,413 - - - - - - 101,779,597 - 101,779,597
Share issue costs - - - - - - - - (967,880) (967,880) - (967,880)
Share option exercise - - - 221,712 (34,709) - - - 34,709 221,712 - 221,712
Purchase of own shares - - - (401,288) - - - - - (401,288) - (401,288)
Share-based payment - - - - (20,288) 371,035 - - - 350,747 - 350,747
EIP vesting/forfeiture - - - 1,369,988 - (702,304) - - - 667,684 - 667,684
Deferred tax on share options - - - - - - - - 1,777 1,777 - 1,777
Dividends paid - - - - - - - - (4,980,305) (4,980,305) - (4,980,305)
Total transactions with owners
241,184 - 101,538,413 1,190,412 (54,997) (331,269) - - (5,911,699) 96,672,044 - 96,672,044
As at
31st December 2020 506,791 2,256,104 101,538,413 (4,575,581) 186,470 900,795 (130,038) 26,107 21,277,645 121,986,706 182,512 122,169,218
Total
attributable
Share premium account Investment Share option reserve EIP Foreign Capital redemption to
Share capital £ in own £ share exchange reserve Retained share-
£ Merger shares reserve reserve £ earnings holders NCI Total
reserve £ £ £ £ £ £ £
£
As at 1st July 2020 265,607 2,256,104 - (5,765,993) 241,467 1,232,064 45,885 26,107 20,626,405 18,927,646 170,182 19,097,828
Profit for the period - - - - - - - - 16,971,233 16,971,233 19,285 16,990,518
Other comprehensive income - - - - - - (6,675,136) - - (6,675,136) - (6,675,136)
Total comprehensive income - - - - - - (6,675,136) - 16,971,233 10,296,097 19,285 10,315,382
Transactions with owners
Issue of ordinary shares on merger 241,184 - 101,538,413 - - - - - - 101,779,597 - 101,779,597
Share issue costs - - - - - - - - (967,881) (967,881) - (967,881)
Share option exercise - - - 830,819 (119,787) - - - 119,787 830,819 - 830,819
Purchase of own shares - - - (2,503,244) - - - - - (2,503,244) - (2,503,244)
Share-based payment - - - - (12,023) 760,645 - - - 748,622 - 748,622
EIP vesting/forfeiture - - - 1,369,987 - (709,825) - - - 660,162 - 660,162
Deferred tax on share options - - - - 85,779 - - - (20,574) 65,205 - 65,205
Current tax on share options - - - - - - - - 33,738 33,738 - 33,738
Dividends paid - - - - - - - (9,743,124) (9,743,124) - (9,743,124)
Total transactions with owners 241,184 - 101,538,413 (302,438) (46,031) 50,820 - - (10,578,054) 90,903,894 - 90,903,894
As at 30th June 2021 506,791 2,256,104 101,538,413 (6,068,431) 195,436 1,282,884 (6,629,251) 26,107 27,019,584 120,127,637 189,467 120,317,104
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2021
Six months ended Six months ended
Year ended
31st Dec 2021 31st Dec 2020 30th June 2021
(unaudited) (unaudited)** (audited)
Note £ £ £
Cash flow from operating activities
Profit before taxation 13,574,580 8,817,104 22,249,004
Adjustments for:
Depreciation of property and equipment 89,650 95,595 187,714
Depreciation of right-of-use assets 259,144 242,037 492,730
Amortisation of intangible assets 5 1,881,209 1,108,799 3,289,142
Share-based payment charge/(credit) 17,285 (20,288) (12,023)
EIP-related charge 466,945 548,098 802,314
Loss/(gain) on investments 3 33,142 (454,278) (540,172)
Interest receivable 3 (4,926) (12,823) (17,689)
Interest payable 3 77,033 67,302 134,752
Translation adjustments 185,970 (35,628) 33,529
Cash generated from operations before changes in working capital
16,580,032 10,355,918 26,619,301
Decrease/(increase) in trade and other receivables 469,138 (235,649) (439,607)
(Decrease)/(increase) in trade and other payables (540,999) 140,932 2,800,465
Cash generated from operations 16,508,171 12,261,201 28,980,159
Interest received 3 4,926 12,823 17,689
Interest paid on leased assets 3 (77,033) (67,302) (133,827)
Interest paid - - (925)
Taxation paid (3,496,583) (1,646,534) (5,841,493)
Net cash generated from operating activities 12,939,481 8,560,188 23,021,603
Cash flow from investing activities
Purchase of property and equipment and intangibles (173,807) (55,314) (93,342)
Purchase of non-current financial assets (1,889,216) - (715)
Proceeds from sale of non-current financial assets 7,080 - -
Cash consideration paid on merger net of cash acquired - 946,773 946,773
Net cash (used in)/generated from investing activities (2,055,943) 891,459 852,716
Cash flow from financing activities
Ordinary dividends paid 8 (9,470,195) (4,980,305) (9,743,124)
Purchase of own shares by employee benefit trust (2,349,321) (401,288) (2,503,244)
Proceeds from sale of own shares by employee benefit trust 124,250 221,712 830,819
Payment of lease liabilities (243,459) (247,139) (486,680)
Share issue costs - (967,881) (967,881)
Net cash used in financing activities (11,938,725) (6,374,901) (12,870,110)
Net (decrease)/increase in cash and cash equivalents (1,055,187) 3,076,746 11,004,209
Cash and cash equivalents at start of period 25,514,619 14,594,333 14,594,333
Cash held in funds* 41,574 12,588 20,357
Effect of exchange rate changes 5,050 (138,557) (104,280)
Cash and cash equivalents at end of period 24,506,056 17,545,110 25,514,619
*Cash held in funds was consolidated using accounts drawn up as at end of
period.
**Following an FRC corporate reporting review of the Group's 2020 Annual
Report and Accounts, in accordance with IAS 7 paragraph 16,
acquisition-related costs and share issue costs disclosed as cash flows from
investing activities in the 2020/2021 half year report have been restated as
cash flows from operating and financing activities within the 2020 comparative
above. This restatement does not impact closing cash; it solely relates to the
classification of these 2020 exceptional cash outflows as operating activities
and net cash used in financing activities respectively as opposed to investing
activities as previously reported. Refer note 11 'Restatement of comparative
cash flow information'.
NOTES
1 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING
POLICIES
The financial information contained herein is unaudited and does not comprise
statutory financial information within the meaning of section 434 of the
Companies Act 2006. The information for the year ended 30th June 2021 has been
extracted from the latest published audited accounts and delivered to the
Registrar of Companies. The report of the independent auditor on those
financial statements contained no qualification or statement under s498(2) or
(3) of the Companies Act 2006.
These interim financial statements have been prepared in accordance with the
UK-adopted International Accounting Standard 34 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority. The accounting policies adopted and the
estimates and judgements used in the preparation of the unaudited consolidated
financial statements are consistent with those set out and applied in the
statutory accounts of the Group for the year ended 30th June 2021, which were
prepared in accordance with International Financial Reporting Standards
(IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006.
The consolidated financial information contained within this report
incorporates the results, cash flows and financial position of the Company and
its subsidiaries for the period to 31st December 2021.
Group companies are regulated and perform annual capital adequacy and
liquidity assessments, which incorporates a series of stress tests on the
Group's financial position over a three-year period from 30th November 2021.
These forecasts have been prepared taking into account the potential impact of
COVID-19 on the Group's operations.
The Group's financial projections and the capital adequacy and liquidity
assessments provide comfort that the Group has adequate financial and
regulatory resources to continue in operational existence for the foreseeable
future. Accordingly, the Directors continue to adopt the going concern basis
of accounting in preparing the interim financial statements.
New or amended accounting standards and interpretations adopted
The Group has adopted all relevant new or amended International Accounting
Standards and interpretations as adopted by the UK that are mandatory for the
current reporting period. Any new or amended accounting standards that are not
mandatory have not been early adopted. None of the standards not yet effective
are expected to have a material impact on the Group's financial statements.
2 SEGMENTAL ANALYSIS
The Directors consider that the Group has only one reportable segment, namely
asset management, and hence only analysis by geographical location is given.
Europe (ex UK)
USA Canada UK £ Other Total
£ £ £ £ £
Six months to 31st Dec 2021
Gross fee income 29,950,594 739,166 160,150 594,819 - 31,444,729
Non-current assets:
Property and equipment 262,246 - 255,745 - 23,929 541,920
Right-of-use assets 1,278,965 - 1,174,344 - 30,357 2,483,666
Intangible assets 101,116,490 - 3,147 - - 101,119,637
Six months to 31st Dec 2020
Gross fee income 22,387,190 699,921 163,838 482,810 - 23,733,759
Non-current assets:
Property and equipment 184,989 - 296,693 - 31,164 512,846
Right-of-use assets 394,820 - 1,352,725 - 115,823 1,863,368
Intangible assets 110,248,634 - 11,607 - - 110,260,241
Year to 30th June 2021
Gross fee income 52,215,280 1,458,957 356,462 1,092,575 - 55,123,274
Non-current assets:
Property and equipment 175,387 - 254,197 - 26,399 455,983
Right-of-use assets 1,421,279 - 1,263,534 - 72,366 2,757,179
Intangible assets 100,954,615 - 7,377 - - 100,961,992
The Group has classified gross fee income based on the domicile of its clients
and non-current assets based on where the assets are held.
Included in gross fee income are fees of £2,966,412 (year to 30th June 2021 -
£5,470,051; six months to 31st December 2020 - £2,488,298) which arose from
fee income from the Group's largest customer. No other single customer
contributed 10 per cent or more to the Group's revenue in any of the reporting
periods.
3 NET INTEREST (PAYABLE)/RECEIVABLE AND SIMILAR (LOSSES)/GAINS
Six months ended Six months ended Year ended
31st Dec 2021 31st Dec 2020 30th June 2021
(unaudited) (unaudited) (audited)
£ £ £
Interest on bank deposit 4,926 12,823 17,689
Unrealised (loss)/gain on investments (36,511) 454,278 540,172
Realised gain on investments 3,369 - -
Interest payable on lease liabilities (77,033) (67,302) (133,827)
Interest payable on restated US tax returns - - (925)
(105,249) 399,799 423,109
4 EARNINGS PER SHARE
The calculation of earnings per share is based on the profit for the period
attributable to the equity shareholders of the parent divided by the weighted
average number of ordinary shares in issue for the six months ended 31st
December 2021.
As set out in note 6 the Employee Benefit Trust held 1,689,428 ordinary shares
in the Company as at 31st December 2021. The Trustees of the Trust have waived
all rights to dividends associated with these shares. In accordance with IAS
33 "Earnings per share", the ordinary shares held by the Employee Benefit
Trust have been excluded from the calculation of the weighted average number
of ordinary shares in issue.
The calculation of diluted earnings per share is based on the profit for the
period attributable to the equity shareholders of the parent divided by the
diluted weighted average number of ordinary shares in issue for the six months
ended 31st December 2021.
Reported earnings per share
Six months ended Six months ended Year ended
31st Dec 2021 31st Dec 2020 30th June 2021
(unaudited) (unaudited) (audited)
£ £ £
Profit attributable to the equity shareholders of the parent for basic 10,557,200 6,562,939 16,971,233
earnings
Number of shares Number of shares Number of shares
Issued ordinary shares as at 1st July 50,679,095 26,560,707 26,560,707
Effect of own shares held by EBT (1,558,012) (1,537,864) (1,502,266)
Effect of shares issued in the period - 12,059,194 18,039,233
Weighted average shares in issue 49,121,083 37,082,037 43,097,674
Effect of movements in share options and EIP awards 636,718 615,017 677,739
Diluted weighted average shares in issue 49,757,801 37,697,054 43,775,413
Basic earnings per share (pence) 21.5 17.7 39.4
Diluted earnings per share (pence) 21.2 17.4 38.8
Underlying earnings per share*
Underlying earnings per share is based on the underlying profit after tax*,
where profit after tax is adjusted for gain/loss on investments,
acquisition-related costs, amortisation of acquired intangibles, their related
tax impact and non-controlling interest.
Underlying profit for calculating underlying earnings per share
Six months ended Six months ended Year ended
31st Dec 2021 31st Dec 2020 30th June 2021
(unaudited) (unaudited) (audited)
£ £ £
Profit before tax 13,574,580 8,817,104 22,249,004
Add back/(deduct):
- Loss/(gain) on investments 33,142 (454,278) (540,172)
- Acquisition-related costs - 1,743,424 1,743,424
- Amortisation on acquired intangibles 1,876,979 1,083,395 3,250,185
Underlying profit before tax 15,484,701 11,189,645 26,702,441
Tax expense as per the consolidated income statement (3,021,473) (2,241,835) (5,258,486)
Tax effect of acquisition-related costs and amortisation of acquired (456,805) (117,190) (677,412)
intangibles
Adjustment for NCI 4,093 (12,330) (19,285)
Underlying profit after tax for the calculation of underlying earnings per 12,010,516 8,818,290 20,747,258
share
Underlying earnings per share (pence) 24.5 23.8 48.1
Underlying diluted earnings per share (pence) 24.1 23.4 47.4
* This is an Alternative Performance Measure (APM). Please refer to the CEO
review for more details on APMs.
5 INTANGIBLE ASSETS
31st December 2021 31st Dec 2020 30th Jun 2021
Goodwill Direct customer relationships Distribution channels Trade name Long term software Total Total Total
£ £ £ £ £ £ £ £
Cost
At start of period 65,123,297 33,472,334 4,590,186 1,018,983 689,100 104,893,900 761,971 761,971
Acquired on acquisition - - - - - - 111,323,195 111,323,195
Currency translation 1,438,949 559,626 66,246 18,856 (4,865) 2,078,812 (65,428) (7,191,266)
At close of period 66,562,246 34,031,960 4,656,432 1,037,839 684,235 106,972,712 112,019,738 104,893,900
Amortisation charge
At start of period - 2,673,300 522,535 54,350 681,723 3,931,908 714,662 714,662
Charge for the period - 1,543,828 301,764 31,387 4,230 2,061,955 1,108,799 3,289,142
Currency translation - 36,867 7,207 749 (4,865) (140,788) (63,964) (71,896)
At close of period - 4,253,995 831,506 86,486 681,088 5,853,075 1,759,497 3,931,908
Net book value 66,562,246 29,777,965 3,824,926 951,353 3,147 101,119,637 110,260,241 100,961,992
Goodwill, direct client relationships, distribution channels and trade name
acquired through business combination relates to the merger with KIM on 1st
October 2020 (see note 7).
The fair values of KIM's direct customer relationships and the distribution
channels have been measured using a multi-period excess earnings method. The
model uses estimates of annual attrition driving revenue from existing
customers to derive a forecast series of cash flows, which are discounted to a
present value to determine the fair values of KIM's direct customer
relationships and the distribution channels.
The fair value of KIM's trade name has been measured using a relief from
royalty method. The model uses estimates of royalty rate and percentage of
revenue attributable to trade name to derive a forecast series of cash flows,
which are discounted to a present value to determine the fair value of KIM's
trade name.
The total amortisation charged to the income statement for the six months
ended 31st December 2021 in relation to direct client relationships,
distribution channels and trade name, was £1,876,979 (nine-month period from
the date of the merger to 30th June 2021 - £3,250,185, three-month period
from the date of the merger to 31st December 2020 - £1,083,395).
Impairment
Goodwill acquired through business combination is in relation to the merger
with KIM and relates to the acquired workforce and future expected growth of
the Cash Generating Unit (CGU).
The Group's policy is to test goodwill arising on acquisition for impairment
annually, or more frequently if changes in circumstances indicate a possible
impairment. The Group has considered whether there have been any indicators of
impairment during the six months ended 31st December 2021, which would require
an impairment review to be performed. The Group has considered indicators of
impairment with regard to a number of factors, including those outlined in IAS
36 'Impairment of assets'. Based upon this review, the Group has concluded
that there are no such indicators of impairment as at 31st December 2021.
6 INVESTMENT IN OWN SHARES
Investment in own shares relates to City of London Investment Group PLC shares
held by an Employee Benefit Trust on behalf of City of London Investment Group
PLC.
At 31st December 2021 the Trust held 1,001,315 ordinary 1p shares (30th June
2021 - 913,038; 31st December 2020 - 679,038), of which 366,750 ordinary 1p
shares (30th June 2021 - 405,750; 31st December 2020 - 420,750) were subject
to options in issue.
The Trust also held in custody 688,113 ordinary 1p shares (30th June 2021 -
678,120; 31st December 2020 - 678,120) for employees in relation to restricted
share awards granted under the Group's Employee Incentive Plan (EIP).
The Trust has waived its entitlement to receive dividends in respect of the
total shares held (31st December 2021 - 1,689,428; 30th June 2021 - 1,591,158;
31st December 2020 - 1,357,138).
7 BUSINESS COMBINATIONS
On 1st October 2020 City of London Investment Group PLC completed the merger
of Snowball Merger Sub, Inc. with and into Karpus Management Inc. dba Karpus
Investment Management (KIM), a US-based investment management business, on a
debt free basis, by way of a scheme of arrangement in accordance with the New
York Business Corporation Law, with KIM being the surviving entity in the
Merger. CLIG acquired 100% of voting equity interest in KIM and the merger was
satisfied by issue of new ordinary shares and cash for a total consideration
of £101,887,540. KIM uses closed-end funds (CEFs) amongst other securities as
a means to gain exposure for its client base comprising of US high net worth
clients and corporate accounts. It qualifies as a business as defined in IFRS
3 "Business Combinations". The merger is considered to be of substantial
strategic and financial benefit to the Group and its shareholders.
Details of the net assets acquired, goodwill and purchase consideration are
detailed in note 6 on pages 107 to 108 of the Annual Report and Accounts for
the year ended 30th June 2021.
8 DIVIDENDS
A final dividend of 22p per share (gross amount payable £11,149,401; net
amount paid £9,470,195*) in respect of the year ended 30th June 2021 was paid
on 29th October 2021.
An interim dividend of 11p per share (2021 - 11p) (gross amount payable
£5,574,700; net amount payable £5,388,863*) in respect of the year ending
30th June 2022 will be paid on 25th March 2022 to members registered at the
close of business on 25th February 2022.
In addition, a special dividend of 13.5p per share (2021 - nil) (gross amount
payable £6,841,678; net amount payable £6,613,605*) in respect of the year
ending 30th June 2022 will be paid on 25th March 2022 to members registered at
the close of business on 25th February 2022.
* Difference between gross and net amounts is on account of shares held at EBT
that do not receive dividend and 25% waived dividend on new shares issued upon
merger in accordance with the lockup deed (applicable for dividends for the
year ended 30th June 2021 only).
9 PRINCIPAL RISKS AND UNCERTAINTIES
In the course of conducting its business operations, the Group is exposed to a
variety of risks including market, liquidity, operational and other risks that
may be material and require appropriate controls and on-going oversight.
The principal risks to which the Group will be exposed in the second half of
the financial year are substantially the same as those described in the last
annual report (see page 28 and 29 of the Annual Report and Accounts for the
year ended 30th June 2021), being the impact of the COVID-19 pandemic, the
potential for loss of FuM as a result of poor investment performance, client
redemptions, breach of mandate guidelines or material error, loss of key
personnel, Technology/IT, cybersecurity and business continuity, legal and
regulatory risks.
Changes in market prices, such as foreign exchange rates and equity prices
will affect the Group's income and the value of its investments.
Most of the Group's revenues, and a significant part of its expenses, are
denominated in currencies other than sterling, principally US dollars. These
revenues are derived from fee income which is based upon the net asset value
of accounts managed, and have the benefit of a natural hedge by reference to
the underlying currencies in which investments are held. Inevitably, debtor
and creditor balances arise which in turn give rise to currency exposures.
10 FINANCIAL INSTRUMENTS
The Group's financial assets include cash and cash equivalents, investments
and other receivables.
Its financial liabilities include accruals and other payables. The fair value
of the Group's financial assets and liabilities is materially the same as the
book value.
Fair value measurements recognised in the statement of financial position
The following table provides an analysis of financial instruments that are
measured subsequent to initial recognition at fair value, grouped into levels
1 to 3 based on the degree to which the fair value is observable.
- Level 1: fair value derived from quoted prices (unadjusted) in active markets
for identical assets and liabilities.
- Level 2: fair value derived from inputs other than quoted prices included
within level 1 that are observable for the assets or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3: fair value derived from valuation techniques that include inputs for
the asset or liability that are not based on observable market data.
The fair values of the financial instruments are determined as follows:
- Investments for hedging purposes are valued using the quoted bid price and
shown under level 1.
- Investments in own funds are determined with reference to the net asset value
(NAV) of the fund. Where the NAV is a quoted price the fair value is shown
under level 1, where the NAV is not a quoted price the fair value is shown
under level 2.
- Forward currency trades are valued using the forward exchange bid rates and
are shown under level 2.
- Unlisted equity securities are valued using the net assets of the underlying
companies and are shown under Level 3.
The level within which the financial asset or liability is classified is
determined based on the lowest level of significant input to the fair value
measurement.
31st December 2021 Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Investment in other non-current financial assets 4,366,296 1,843,796 - 6,210,092
Forward currency trades - 37,650 - 37,650
Total 4,366,296 1,881,446 - 6,247,742
There are no financial liabilities at fair value at 31st December 2021.
31st December 2020 Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Investment in other non-current financial assets 2,424,277 1,901,906 - 4,326,183
Forward currency trades - 261,379 - 261,379
Total 2,424,277 2,163,285 - 4,587,562
There are no financial liabilities at fair value at 31st December 2020.
30th June 2021 Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Investment in other non-current financial assets 2,498,719 1,874,766 - 4,373,485
Total 2,498,719 1,874,766 - 4,373,485
Financial liabilities at fair value through profit or loss
Forward currency trades - 69,558 - 69,558
Total - 69,558 - 69,558
There were no transfers between any of the levels in the reporting period.
All fair value gains and losses included in other comprehensive income relate
to the investment in own funds.
Where there is an impairment in the investment in own funds, the loss is
reported in the income statement. No impairment was recognised during the
period or the preceding year.
The fair value gain on the forward currency trades is offset in the income
statement by the foreign exchange losses on other currency assets and
liabilities held during the period and at the period end. The net loss
reported for the period is £19,116 (30th June 2021: net loss £60,607; 31st
December 2020: net loss £3,416).
11 RESTATEMENT OF COMPARATIVE CASH FLOW INFORMATION
The FRC's corporate reporting review of the Group's Annual Report and Accounts
to 30th June 2020 highlighted that IAS 7 Statement of cash flows paragraph 16
prevents items being classified as investing activities unless a corresponding
asset is also capitalised. Acquisition-related costs were incurred over both
the year ended 30th June 2020 and in the six months ended 31st December 2020.
The FRC's review was completed after the publication of the interim financial
statements for the six months ended 31st December 2020 and thus the same
restatement made to the full year 2020 financial statements has been made to
correct the comparative cash flow statement for the six months ended 31st
December 2020.
Cash outflows related to acquisition-related costs of £1,743,424 and share
issue costs of £967,881 have now been presented within cash flows from
operating activities and financing activities respectively as opposed to cash
flows from investing activities in the Consolidated cash flow statement.
Net cash generated from operating activities for the six months ended 31st
December 2020 has decreased by £1,743,424 from £10,303,612 to £8,560,188,
net cash used in investing activities has decreased by £2,711,304 from cash
used in investing activities of £1,819,845 to cash generated of £891,459,
and net cash used in financing activities has increased by £967,881 from
£5,407,020 to £6,374,901.
Previously reported Restatement Restated
£ £ £
Cash flow statement line item
Net cash generated from operating activities 10,303,612 (1,743,424) 8,560,188
Acquisition-related costs (1,743,424) - (1,743,424)
Share issue costs (967,881) - (967,881)
Net cash (used in)/generated by investing activities (1,819,845) 2,711,304 891,459
Net cash used in financing activities (5,407,020) (967,881) (6,374,901)
The FRC's enquiries regarding this matter are now complete. It must be noted
that the FRC's review is limited to the published 2020 Annual Report and
Accounts; it does not benefit from a detailed understanding of underlying
transactions and provides no assurance that the Annual Report and Accounts are
correct in all material respects. Further details are provided within the
Audit and Risk Committee report included in Annual Report and Accounts for the
year ended 30th June 2021.
12 GENERAL
The interim financial statements for the six months ended 31st December 2021
were approved by the Board on 17th February 2022. These financial statements
are unaudited, but they have been reviewed by the auditors, having regard to
International Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board.
Copies of this statement are available on our website www.clig.co.uk.
STATEMENT OF DIRECTOR'S RESPONSIBILITIES
The Directors confirm that to the best of our knowledge:
- The condensed set of financial statements has been prepared in accordance with
IAS34 Interim Financial Reporting as adopted by the UK; and
- The Half Year Report includes a fair review of the information required by:
- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the Group during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
The Directors of City of London Investment Group PLC are as listed in the
Annual Report and Accounts 2020-2021. A list of current Directors is
maintained at www.clig.co.uk.
By order of the Board
Tom Griffith
Chief Executive Officer
INDEPENDENT REVIEW REPORT TO CITY OF LONDON INVESTMENT GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31st
December 2021 which comprises the Consolidated Income Statement, Consolidated
Statement of Comprehensive Income, Consolidated Statement of Financial
Position, Consolidated Statement of Changes in Equity, Consolidated Cash Flow
Statement and the related explanatory notes. We have read the other
information contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial statements.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing and
presenting the half-yearly financial report in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 1, the annual financial statements of the Group will be
prepared in accordance with UK-adopted International Accounting Standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting" as contained in UK-adopted International
Accounting Standards.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31st December 2021 is not prepared,
in all material respects, in accordance with International Accounting Standard
34, "Interim Financial Reporting" as contained in UK-adopted International
Accounting Standards, and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board and for the purpose of the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial Conduct
Authority. Our review work has been undertaken so that we might state to the
Company those matters we are required to state to them in an independent
review report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the
Company, for our review work, for this report, or for the conclusions we have
formed.
RSM UK Audit LLP
Chartered Accountants
25 Farringdon Street
London EC4A 4AB
17th February 2022
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