REG - City of Lon Inv Grp - HALF YEAR RESULTS TO 31ST DECEMBER 2022
22/02/2023 07:00
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RNS Number : 6239Q City of London Investment Group PLC 22 February 2023
22nd February 2023
CITY OF LONDON INVESTMENT GROUP PLC
("City of London", "the Group" or "the Company")
HALF YEAR RESULTS TO 31ST DECEMBER 2022
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 2022.
The above document will 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$9.2 billion (£7.6 billion) at 31st
December 2022. This compares with US$9.2 billion (£7.6 billion) at the
beginning of this financial year on 1st July 2022 and US$11.1 billion (£8.2
billion) at 31st December 2021
- FuM at 31st January 2023 of US$9.8 billion (£8.0 billion)
- Net fee income representing the Group's management fees on FuM was £27.3
million (31st December 2021: £29.8 million)
- Underlying profit before tax* was £11.7 million (31st December 2021: £15.5
million). Profit before tax was £9.5 million (31st December 2021: £13.6
million)
- Maintained interim dividend of 11p per share (31st December 2021: 11p) payable
on 31st March 2023 to shareholders on the register on 3rd March 2023
*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/6239Q_1-2023-2-21.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/6239Q_1-2023-2-21.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
There can be no sugar-coating the fact that the second half of calendar year
2022 was a challenging time for the global economy with the combination of
rising interest rates, COVID-related disruption in China and supply-chain
bottlenecks elsewhere each having a negative impact. However, the relaxation
of China's restrictive COVID policies in December and something of a winter
stalemate in the Ukrainian conflict helped calm markets towards year-end,
recovering all the ground lost in the August-October 2022 period. More
recently, the milder winter weather in Europe and reduced dependence on
Russian gas supplies have allowed energy prices to fall sharply from their
autumn highs back towards longer term pricing trends.
A strong upward move in the US dollar that accompanied the US Federal
Reserve's tighter monetary stance exerted particular pressure on the emerging
markets (EM) in the late summer/autumn period with the MXEF falling 16%
between the end of June 2022 to its 24th October 2022 low of 843. While
developed and debt markets were less affected, the fact that EM assets still
account for nearly 39% of the Group's total Funds under Management (FuM) had
an inevitable impact on revenues for part of the six-month period, as outlined
in the following pages. Once again, however, the greater diversity of clients
and assets that derive from KIM enabled the Group to manage these headwinds
with greater confidence than would have been the case in previous years.
In times of choppy markets, such as those witnessed in 2022, it is vital that
maximum effort is devoted to "looking after the shop", namely our
stakeholders. To that end, I am pleased to report that we have maintained very
strong client and employee retention across both operating entities despite
the challenges of volatile markets and remote working. It is to the credit of
Tom Griffith and the teams across all our offices that this is the case and on
behalf of the Board and our shareholders I would like to thank them.
Assets and performance
Group FuM fell by US$73 million, or slightly less than 1%, in the six months
ended 31st December 2022 to US$9.2 billion. CLIM's FuM was barely changed at
US$5.8 billion while KIM saw net outflows of US$102.6 million. The neutral
movement in CLIM's FuM over the period masks the encouraging gross inflows
into each of CLIM's strategies. Given the market falls of 2022, all of CLIM's
strategies have the capacity to take additional funds and with face-to-face
meetings now possible, the marketing effort in the institutional space will be
given renewed impetus in the coming months. New business development at KIM
remains a high priority and, as CEO Tom Griffith will explain later in this
report, additional resources have been mobilised with the objective of winning
new business in the wealth management space in 2023.
The key driver in attracting additional assets across all strategies is
performance and results for the most recent six-month period across both
operating entities were highly encouraging. Each of CLIM's core strategies
registered relative outperformance against their respective benchmarks while
all but two of KIM's seven strategies registered both positive returns and
relative outperformance against their benchmarks, maintaining an excellent
record through the full cycle of rising and falling markets of recent years.
Of particular note once again was the strong returns generated in KIM's fixed
income assets despite a widening of discounts in closed-end funds (CEFs)
through most of 2022.
Results
In contrast to the modest movements in FuM during the last six months,
comparison of the financial results year-on-year (YoY) present a quite
different picture due to lower equity markets in 2022 (vs. 2021) and sharp
swings in the sterling/US dollar (£/US$) exchange rate. Profit before tax for
the six months to 31st December 2022 was £9.5 million (31st December 2021:
£13.6 million), representing a fall of 30%. Using the preferred Alternative
Performance Measure (APM)*, underlying profit before tax fell by c.25% to
£11.7 million in the first half (31st December 2021: £15.5 million). While
net fee income fell by a modest c.8% YoY to £27.3 million, administrative
expenses rose by c.12% to £18.1 million, reflecting a combination of higher
payroll costs, ongoing investment in IT systems and business development. It
is important to note, however, that c.64% of Group overheads arise in US
dollars so the average 14% fall in the £/US$ exchange rate YoY translates to
correspondingly higher costs when expressed in sterling terms.
Statutory fully diluted earnings per share for the six months to 31st December
2022 were 14.7p (31st December 2021: 21.2p), while underlying fully diluted
earnings per share were 18.1p (31st December 2021: 24.1p) (Refer note 4).
While a degree of uncertainty continues to weigh on capital markets in the
early weeks of 2023, the expectation that both inflation and interest rates
will stabilise in the nearer term is gaining traction among forecasters.
Equally important for CLIG is the fact that, following the sharp swings in the
£/US$ rate towards the end of 2022, a degree of calm appears to have
returned.
Dividends
While it is prudent to retain a cautious approach to the coming year, the more
stable conditions of recent weeks provide a degree of encouragement and it is
with this in mind that your Board is declaring an unchanged interim dividend
of 11p per share, despite lower profits for the period. Dividend policy over a
number of years has been predicated on the objective of providing shareholders
with a relatively stable pattern to distributions, while avoiding an undue
build up in excess capital. Shareholders will appreciate that this can be a
challenging goal from time to time, given the underlying volatility in the
markets in which we are invested and, to that end, payouts are calibrated over
rolling five-year periods rather than any single year. This can result in
quite wide variations in the payout ratio between single years, as
demonstrated in these results when underlying profits have fallen by c.25%.
Whereas the results in the six months to 31st December 2021 gave considerable
"headroom" between earnings and dividends, the most recent results show that
headroom to be much reduced.
By adopting a five-year rolling policy, shareholders enjoy a degree of
insulation from market volatility, which we believe is in the best interests
of shareholder value over the longer term. However, it is important to clarify
how this policy is applied since the 2020 merger with KIM. Whereas our
Generally Accepted Accounting Principles (GAAP) results include amortisation
of intangibles arising from acquisition and gains or losses from investments,
underlying profits* exclude these non-cash items and, in the view of your
Board, provide a more accurate presentation of financial performance. By way
of clarification, the Board applies the rolling five-year dividend cover
policy using the latter metric, namely underlying profit*. The interim
dividend will be paid on 31st March 2023 to those shareholders registered at
the close of business on 3rd March 2023.
* This is an Alternative Performance Measure (APM).
ESG
The focus of the Group's "green" initiatives is to secure renewable energy for
all our offices, a goal which has already been achieved in London. In the US,
we have signed up for a local "catch the wind" programme in Rochester while
plans are in place to contract a renewable energy provider for CLIM's US
office. Continued emphasis to use video conferencing for both internal and
client meetings will also help minimise the Group's carbon footprint and we
have appointed a third party ESG consultant to perform a gap analysis on the
journey towards net zero.
In July 2022, CLIG adopted a group-wide hybrid "work from home" (WFH) policy
following employee feedback while all employees have attended training
programmes directed towards diversity, equity and inclusion, which will be
ongoing in nature. With regard to the critical issue of cybersecurity, all
employees receive monthly training to reinforce awareness of the growing
threats emanating from online crime.
Alongside adherence to the Group's governance obligations at Board level,
which are discussed below, the Group is strongly committed to regular
workforce engagement sessions to develop a closer relationship between
employees and the independent Directors who are not involved in the business
on a day-to-day basis. Importantly, these sessions are structured so as to
encourage a rapport between the independent Directors and employees.
The Board
Following the Board changes which I outlined in my report to shareholders in
September 2022, the Group believes it is now fully compliant with the UK
Corporate Governance Code (the Code) and no further changes to its composition
are expected in the current financial year. At the same time, close attention
is being devoted to the issue of succession planning in light of the changes
that will arise in the medium term as Directors reach the end of their tenure.
Jane Stabile and her colleagues on the Nomination Committee will be addressing
this question in detail in the coming months with a view to formalising
selection criteria that embrace the Code's objectives, particularly in respect
of diversity and inclusion.
Outlook
While I may have been a little premature in my September statement to
shareholders in expressing a degree of optimism that supply bottlenecks might
ease "in the coming months" the most recent data suggests that, as we pass the
first anniversary of the Ukraine conflict, YoY inflation numbers will moderate
progressively. Although Ukraine remains a concern for markets, the initial
economic disruption which arose in 2022 appears unlikely to recur in the
absence of the conflict proliferating beyond Ukraine's borders. If, as
indicated in recent weeks, inflation subsides in the coming months, policy
makers are likely to be more willing to rein back from further monetary
tightening, thereby easing the growing wage inflation pressures that otherwise
threaten a return to trend growth in 2023. Thus, while it may be premature to
voice optimism for the year ahead, there are sufficient green shoots to
suggest that the significant dislocation to the global economy, which was the
feature of 2022, will prove transitory.
Barry Aling
Chair
21st February 2023
CHIEF EXECUTIVE OFFICER'S REVIEW
Change is the only constant
A number of forces were set in motion during the COVID-19 pandemic and ensuing
global quarantines: technology use accelerated, workforce expectations
changed, while historically low unemployment and supply chain disruptions
created shortages that manifested in inflation. Each of these impacted your
Company during the interim period.
Advancements in the technology industry became necessary during the pandemic
for a number of reasons, from an increased volume of consumers ordering goods
online to business communications. Late adopters of solutions like video
conferencing were pushed to adapt, resulting in an influx of end users forcing
providers of these technology solutions to upgrade their offerings. These
provider upgrades impacted not just the end user applications but also the
devices and networks used to deliver these solutions. To meet the demand,
upgrades were initiated over the interim period that will simplify the
operation and maintenance of our network and related devices while lowering
the ongoing costs significantly.
Expectations about how and where work is undertaken changed in the
post-pandemic period and has continued to impact both employees returning to
the office and hiring, creating the need for "compromise" solutions. Whether
this is a transitory period of modified working habits or a paradigm shift to
a new normal is an ongoing debate that will only resolve in the months and
years ahead. In the shorter term, the rate of unemployment in the US remained
at historically low levels resulting in fewer candidates for open positions.
That, along with inflationary pressures, had an impact on increased salary
levels. All of this uncertainty transpired during a market downturn, which
impacted revenues for financial services companies.
Internally, employee longevity is a factor impacting the business. As
indicated in our June 2022 Annual Report & Accounts (ARA), 68% of our
employees have been with the Group for more than ten years, with 15% exceeding
twenty years. Ultimately, successful employee retention results in
retirements, particularly for firms established in 1986 and 1991 as with KIM
and CLIM respectively. As with Founders, the retirement of senior executives
requires significant time for succession planning to achieve a smooth
transition period generating short-term overlaps. A number of retirements have
successfully occurred over the interim period along with planning for pending
retirements.
We have taken the opportunity in these six months to continue to invest in our
two subsidiaries, CLIM and KIM at a time in the market cycle when other,
less-conservatively run companies, may be under pressure. We have hired
talented individuals at both Companies to support investment management,
business development, and marketing. We are investing in system improvements
and upgrades, operations employees, and software engineers in order to help
the businesses run more smoothly with increased capabilities.
We continue to run your Group in a fiscally conservative manner, with no debt
and a strong balance sheet. We are structured to take advantage of
opportunities as they arise for the benefit of our shareholders. While our
operating environment has evolved, as explained above, our patient and
conservative approach allows us to capitalise on opportunities when presented.
Market commentary and client performance
We highlighted the negative annual returns of various equity and fixed income
asset classes over the previous year in the June 2022 ARA, along with
highlights of the headwinds confronted by your Company during the financial
year, including geopolitical events, labour shortages and supply chain
disruptions. The table below provides an update on the returns of those asset
classes over the past six months. As shown, the sharp declines during the
first half of the calendar year were not replicated in the second half.
Asset class returns
Index Index Name Strategy 1H 2022 Return 2H 2022 Return 2022 Return
MXEF MSCI EM Index Emerging -17.5% -2.9% -20.0%
MXWO MSCI World Index International -20.3% 3.2% -17.8%
MXWOU MSCI World Ex US Index Global -18.4% 5.7% -13.8%
LMBITR Bloomberg Muni Bond Total Return Index Municipal Bond -9.0% 0.5% -8.6%
VBINX Vanguard Balanced Index ETF Balanced -17.1% 0.2% -17.0%
LEGATRUU Bloomberg Global-Agg Total Return Index Global Bond -13.9% -2.7% -16.3%
LBUSTRUU Bloomberg US Aggregate Bond Index US Bond -10.4% -3.0% -13.0%
SPX S&P 500 Index Domestic US -20.0% 2.3% -18.1%
The point-to-point returns don't tell the whole story though and could use
some additional context. Emerging Market (EM) equity fell the furthest
relative to the other asset classes and rebounded later. While CLIG's
diversification efforts have been significant, CLIG shareholders remain
significantly exposed to the EM asset class comprising circa 39% of CLIG's
Funds under Management (FuM). These further falls, and delay in the rebound,
had a negative impact on CLIG's revenue whilst changes in our operating
environment created short-term increases in labour and technology expenses.
During the interim period ended 31st December 2022, all CLIM strategies with
material external assets outperformed their respective benchmarks. The
outperformance was led by the NAV performances of the underlying closed-end
funds (CEFs), whilst discounts remained wide. At KIM, the Balanced and Fixed
Income strategies, which consist of the majority of KIM's FuM, outperformed
their respective benchmarks over the six-month period. The outperformance was
led by increased exposure to municipal fixed income CEFs.
FuM & flows
FuM as at 31st December 2022 was US$9.2 billion, which is a 0.8% decrease from
the beginning of the financial year. The percentage breakdown between the
various lines of business shown in the chart below remain relatively unchanged
from the financial year-end.
CLIG - FuM by line of business (US$m)
CLIM 30 Jun 2019 30 Jun 2020 30 Jun 2021 30 Jun 2022 31 Dec 2022
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 US$m % of CLIM total % of CLIG total
Emerging Markets 4,221 78% 3,828 69% 5,393 72% 47% 3,703 64% 40% 3,571 62% 39%
International 729 14% 1,244 23% 1,880 25% 17% 1,812 32% 20% 1,894 33% 21%
Opportunistic Value 233 4% 256 5% 231 3% 2% 193 3% 2% 240 4% 2%
Frontier 206 4% 175 3% 13 0% 0% 9 0% 0% 8 0% 0%
Other/REIT 7 0% 9 0% 13 0% 0% 74 1% 1% 69 1% 1%
CLIM total 5,396 100% 5,512 100% 7,530 100% 66% 5,791 100% 63% 5,782 100% 63%
KIM 30 Jun 2019 30 Jun 2020 30 Jun 2021 30 Jun 2022 31 Dec 2022
US$m % of KIM total* US$m % of KIM total* US$m % of KIM total % of CLIG total US$m % of KIM total % of CLIG total US$m % of KIM total % of CLIG total
Retail 2,291 67% 2,401 69% 2,804 72% 24% 2,419 70% 26% 2,341 69% 26%
Institutional 1,105 33% 1,087 31% 1,115 28% 10% 1,014 30% 11% 1,028 31% 11%
KIM total 3,396 100% 3,488 100% 3,919 100% 34% 3,433 100% 37% 3,369 100% 37%
CLIG total 11,449 100% 9,224 100% 9,151 100%
*Pre-merger
Net investment flows (US$000's)
CLIM FYE Jun 2019 FYE Jun 2020 FYE Jun 2021 FYE Jun 2022 HYE Dec 2022
Emerging Markets (183,521) (279,459) (275,493) (315,770) (65,501)
International 252,883 551,102 (14,145) 452,554 13,323
Opportunistic Value 48,236 45,914 (102,663) 617 47,362
Frontier (21,336) 16,178 (168,843) (4,748) -
Other/REIT 6,000 4,600 - 79,133 -
CLIM total 102,262 338,335 (561,144) 211,786 (4,816)
KIM FYE Jun 2019 FYE Jun 2020 FYE Jun 2021* FYE Jun 2022 HYE Dec 2022
Retail 33,701 26,323 (104,222) (106,444) (108,514)
Institutional 9,050 (67,087) (130,911) (3,302) 5,927
KIM total 42,751 (40,764) (235,133) (109,746) (102,587)
*Includes net investment flows for Retail - (24,407) and Institutional -
(20,264) pertaining to period before 1st October 2020 (pre-merger)
CLIM's International (INTL) and Opportunistic Value (OV) strategies
experienced net inflows over the interim period. While there were net outflows
in the EM business driven by asset class rebalancing and pension plan
de-risking, the magnitude of outflows reduced. At KIM, outflows were
particularly focused on retail investors, who can be susceptible to different
drivers versus institutional. In particular, loss aversion is higher in retail
investors, which can trigger greater redemptions in uncertain times, such as
experienced in 2022.
Don't miss the wood for the trees
While we recognise that CLIG's financial results in our interim report are
based on quarterly and half-yearly results, we resist the inherent conflict
with long-term objectives that can yield lasting results. By way of an
example, if we had focused only on short-term results we may never have
launched or continued the INTL strategy at CLIM. After c.8 years with marginal
success, our persistence paid off with a diversified revenue stream for our
Shareholders, career advancement and jobs for Employees and a product
benefiting Clients. Investment flows at KIM are another example of the need to
remain focused on our long-term goals.
While this is an interim report, the calendar year 2022 flows are relevant in
evaluating progress. Snapshots can be useful if the results are evaluated in
the context of trends and long-term planning. To this end, we have provided
the actual flows, by quarter, for the 2022 calendar year in addition to the
net flows normally reported.
During a challenging year of declining asset values, rising inflation and
concerns of a pending recession, US households saved less in 2022 relative to
previous years, per the US Bureau of Economic Analysis (see chart on p.9 of
full interim report). Against this backdrop, the KIM team had a successful
year raising assets of US$233.5 million. This is a trend that we expect to
continue into 2023.
Quarterly Flows CLIM KIM CLIG Total
Flows (US$m) Inflows Outflows Net Flows Inflows Outflows Net Flows Inflows Outflows Net Flows
01-Jan-22 to 31-Mar-22 204.1 (43.6) 160.5 58.2 (74.1) (15.9) 262.3 (117.7) 144.6
01-Apr-22 to 30-Jun-22 224.2 (114.2) 110.0 67.6 (109.5) (41.9) 291.8 (223.7) 68.1
01-Jul-22 to 30-Sep-22 105.5 (59.1) 46.4 74.6 (80.7) (6.1) 180.1 (139.8) 40.3
01-Oct-22 to 31-Dec-22 84.5 (135.7) (51.2) 33.1 (129.6) (96.5) 117.6 (265.3) (147.7)
Total for calendar year 2022: 618.3 (352.6) 265.7 233.5 (393.9) (160.4) 851.8 (746.5) 105.3
New business development remains a high priority for the KIM team in 2023 as
mentioned in the Chair's statement. A number of seasoned professionals have
been added to the client-facing area of the firm who can leverage the improved
systems and reporting capabilities that have been a focus of the integration
post-merger. Client communications have been upgraded, along with a redesigned
website, to improve KIM's ability to share its story. KIM's investment
performance continues to be excellent and thus a compelling story for existing
and potential new clients. Consultant databases used by potential clients to
screen managers are now fully populated and returns are Global Investment
Performance Standards® (GIPS) ** compliant, resulting in greater search
visibility and inbound enquiries.
** GIPS is a registered trademark owned by the CFA Institute.
Despite reporting net outflows for the financial year to date through 31st
December 2022, CLIG (via the CLIM and KIM operating subsidiaries) generated
inflows of US$851.8 million during calendar year 2022. We believe this is a
strong indicator that our marketing and new business efforts are progressing.
For calendar year 2022, CLIG's operating subsidiaries had net inflows of
US$105.3 million as shown in the table above. Clearly more effort is required
on client retention - this remains a Group-wide priority.
The outflows at KIM over the past twelve months were not outside the norms
relative to other US investment managers. Morningstar reported "US funds
suffered their first calendar year of outflows since Morningstar started
tracking, a total of US$370 billion", with the data starting in 1993*.
Additionally, per Morningstar, actively managed fixed income funds saw
elevated redemptions, which occurred during a rising interest rate
environment.
*Source:
https://www.morningstar.com/articles/1129741/us-fund-flows-net-redemptions-in-november
(https://www.morningstar.com/articles/1129741/us-fund-flows-net-redemptions-in-november)
KIM will traditionally have increased withdrawals at calendar year ends due to
the timing of US Government required minimum distributions from retirement
accounts of US retail investors. Additionally, due to the increase in interest
rates in the US, financial institutions can offer Certificates of Deposit
directly to retail investors at higher interest rates compared to recent
history.
Business integration update
Your management team continues to make incremental improvements within the two
subsidiaries. The primary focus of the integration has been via projects in
finance, operations, information technology, and marketing. Specifically,
during the past six months, we have upgraded our accounting software and
implemented it groupwide to improve financial reporting and productivity.
Financial results
Net fee income currently accrues at a weighted average rate of approximately
73 basis points (31st December 2021: 74 basis points) of FuM. The Group's net
fee income for the six months ended 31st December 2022 decreased by c.8% to
£27.3 million (31st December 2021: £29.8 million). The decrease in net
revenue is primarily due to lower average FuM offset by a stronger US dollar
against sterling during the period, with an average GBP/USD rate of 1.18
during the six months ended 31st December 2022 compared with 1.36 for the same
period last year, an increase of c.14% over last year's average rate.
Administrative expenses during the six months ended 31st December 2022 were
c.12% higher than last year primarily due to the impact of a stronger US
dollar against sterling, compensation related to current market conditions,
one-off integration costs, infrastructure investment and increased business
travel during this period.
As a result, profit before tax for the six months ended 31st December 2022
reduced by c.30% to £9.5 million (31st December 2021: £13.6 million).
Underlying profit before tax* for the six months ended 31st December 2022
reduced by c.25% to £11.7 million (31st December 2021: £15.5 million). EPS
decreased by c.30% to 15p per share for the six months ended 31st December
2022 from 21.5p per share for the six months ended 31st December 2021.
Underlying EPS* also decreased by c.25% to 18.4p per share for the six months
ended 31st December 2022 from 24.5p per share for the six months ended 31st
December 2021.
* This is an Alternative Performance Measure (APM).
Currency exposure
The Group's revenue is almost entirely US dollar based, whilst its costs are
incurred in US dollars, sterling, and to a much lesser extent, Singapore
dollars. 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 2022, the average FX
rate was 1.1759, with a closing FX rate of 1.2083 as compared to the average
FX rate of 1.3612 for the six months ended 31st December 2021 and a closing FX
rate of 1.3532 as at 31st December 2021.
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. As explained in the Chair's statement, in
light of the merger with KIM in 2020, the Board applies the rolling five-year
dividend cover policy using the underlying profits. The Board has announced an
interim dividend of 11p per share in line with last year amounting to c.£5.4
million. After the payment of the interim dividend, and inclusive of seed
investments, the Group exceeds regulatory and statutory requirements.
During the last financial year, the CLIG Board recommended a 13.5p special
dividend, in addition to the interim dividend of 11p per share. This was the
second special dividend in CLIG's history, coming three years after our
initial special dividend in March 2019. The short time between these
distributions was due to the strong cash generation supported by the merger,
along with the internal diversification efforts.
FX/Post-tax profit matrix
Illustration of US$/£ rate effect:
FuM US$bn: 8.1 8.6 9.2 9.7 10.4
US$/£ Post-tax, £m
1.12 12.5 14.1 16.1 18.0 20.2
1.16 11.8 13.3 15.2 17.1 19.2
1.21 11.0 12.5 14.3 16.1 18.1
1.24 10.5 12.0 13.8 15.6 17.5
1.28 10.0 11.4 13.1 14.8 16.7
Assumptions: CLIM KIM
1. Average net fee 71bps 76bps
2. Annual operating costs £7m plus US$9.6m plus S$1.0m (£1 = S$1.62) US$7.9m
3. Average tax 22% 24%
4. Amortisation of intangible £3.6m per annum
Note: The above table is intended to illustrate the approximate impact of
movement in US$/£, given an assumed set of trading conditions. It is not
intended to be interpreted or used as a profit forecast.
Dividend cover chart
We have provided an illustrative framework to enable shareholders and other
interested parties to calculate our post-tax profits based upon some key
assumptions. The dividend cover chart on page 12 of the full interim report
shows the quarterly estimated cost of a maintained dividend against actual
post-tax profits for last year, the current six months ended 31st December
2022 and the assumed post-tax profit for the six months ended 30th June 2023
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 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 22 Six months ended Dec 21 Year ended
Jun 22
£ £ £
Net fee income 27,305,523 29,839,500 58,203,284
Administrative expenses (15,722,562) (14,282,692) (30,199,393)
Net interest earned/(paid) 109,221 (72,107) (121,054)
Underlying profit before tax 11,692,182 15,484,701 27,882,837
(Deduct)/add back:
Gain/(loss) on investments 165,734 (33,142) (659,231)
Amortisation on acquired intangibles (2,382,447) (1,876,979) (4,051,223)
Profit before tax 9,475,469 13,574,580 23,172,383
CLIG KPI
CLIG's management team has a share price Key Performance Indicator (KPI),
which is for the total return (share price plus dividends) of a CLIG share to
compound annually in a range of 7.5% to 12.5% over a rolling 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
2022, CLIG's cumulative total return in GBP was 51.0%, or 8.6% annualised.
Since listing in April 2006, the annualised return is 13.0%.
Corporate Governance and Stakeholders
As detailed in the June 2022 Annual Report and Accounts, the CLIG Board was
restructured at the end of the last financial year. The CLIG Board created the
Group Executive Committee (GEC) to provide executive oversight of the Group's
operating businesses, CLIM and KIM.
The GEC is comprised of myself as CEO, Carlos Yuste (Head of Business
Development), Deepranjan Agrawal (Group Chief Financial Officer), Mark Dwyer
(Chief Investment Officer- CLIM) and Dan Lippincott (President & Chief
Investment Officer- KIM). Each member of the GEC is responsible for reporting
directly to the CLIG Board and may participate in any Board discussions or
presentations as necessary and/or requested. There has been no change to the
GEC members since it was created in April 2022, and there has been no change
in the management or oversight of the Group's operating activities. The GEC
regularly receives input from department heads on their business units.
Environmental reporting update
The June 2022 ARA included our climate-related financial disclosures
consistent with the Taskforce on Climate-Related Financial Disclosures (TCFD)
recommendations. We committed to develop our understanding of climate-related
risks and our path towards a net zero transition in financial year 2023. We
will provide an update on this in our June 2023 ARA.
In the meantime, as an update on our environmental priorities over the past
six months, we have been focusing on acquiring renewable energy for all our
offices. London is powered by renewable energy sources, and the landlord has
provided us a certificate as confirmation. For our Rochester office, we signed
up for the local "Catch the Wind" program, which leverages the wind power
generated by turbines in New York State, to source all energy for the office.
For our remaining offices, we are researching options and timing for
converting to renewable energy. Recently, we have appointed an environmental
consultant to help CLIG on our journey to net zero.
As a reminder, CLIG closed its Dubai and Seattle offices in our last financial
year, reducing our overall carbon footprint.
Cybersecurity update
We continue to focus on providing training to our employees on cybersecurity
threats. As we attempt to push back against the training becoming stale, this
year we introduced a new "Netflix-styled" series on cybersecurity to our
programme, where employees will watch a new episode every month. We will also
test our employees with a Security Awareness Proficiency Assessment twice in
2023. This is the same assessment provided in July 2021, and we are looking
forward to seeing both where our employees are strongest in their defence
against cyber criminals, but also where we can improve our training in
calendar year 2024.
CLIG outlook
The Group's two operating subsidiaries, CLIM and KIM, have similar histories
as entrepreneurial businesses run by founders. Your management team is
focused on supporting the Group and building on the strong foundation created
by the merger. We will also continue to evaluate external business
opportunities that may appear in the aftermath of a challenging 2022 for many
investment advisers.
In closing, I would like to thank our colleagues for continuing to work
closely with our clients to meet their needs in a challenging market
environment.
Tom Griffith
Chief Executive Officer
21st February 2023
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2022
Six months ended Six months ended
Year ended
31st Dec 2022 31st Dec 2021 30th June 2022
(unaudited) (unaudited) (audited)
Note £ £ £
Revenue
Gross fee income 2 28,677,395 31,444,729 61,293,627
Commissions payable (780,820) (782,728) (1,598,421)
Custody fees payable (591,052) (822,501) (1,491,922)
Net fee income 27,305,523 29,839,500 58,203,284
Administrative expenses
Employee costs 12,005,268 11,162,624 23,532,973
Other administrative expenses 3,397,828 2,767,044 5,970,527
Depreciation and amortisation 2,701,913 2,230,003 4,747,116
(18,105,009) (16,159,671) (34,250,616)
Operating profit 9,200,514 13,679,829 23,952,668
Finance income 3 347,528 8,295 32,136
Finance expense 3 (72,573) (113,544) (812,421)
Profit before taxation 9,475,469 13,574,580 23,172,383
Income tax expense (2,161,865) (3,021,473) (5,081,232)
Profit for the period 7,313,604 10,553,107 18,091,151
Profit attributable to:
Non-controlling interests - (4,093) -
Equity shareholders of the parent 7,313,604 10,557,200 18,091,151
Basic earnings per share 4 15.0p 21.5p 36.9p
Diluted earnings per share 4 14.7p 21.2p 36.4p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2022
Six months ended Six months ended
Year ended
31st Dec 2022 31st Dec 2021 30th June 2021
(unaudited) (unaudited) (audited)
£ £ £
Profit for the period 7,313,604 10,553,107 18,091,151
Other comprehensive income:
Items that may be subsequently reclassified to income statement
Foreign currency translation difference 892,599 2,064,275 12,826,714
Total comprehensive income for the period 8,206,203 12,617,382 30,917,865
Attributable to:
Equity shareholders of the parent 8,206,203 12,621,475 30,917,865
Non-controlling interests - (4,093) -
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31ST DECEMBER 2022
31st Dec 2022 31st Dec 2021 30th June 2022
(unaudited) (unaudited) (audited)
Note £ £ £
Non‐current assets
Property and equipment 2 599,758 541,920 511,208
Right-of-use assets 2 2,287,037 2,483,666 2,418,745
Intangible assets 2,5 108,635,842 101,119,637 110,078,091
Other financial assets 7,613,462 6,210,092 7,434,586
Deferred tax asset 371,755 370,265 394,831
119,507,854 110,725,580 120,837,461
Current assets
Trade and other receivables 5,846,338 6,484,325 6,498,019
Cash and cash equivalents 19,078,489 24,506,056 22,677,893
24,924,827 30,990,381 29,175,912
Current liabilities
Trade and other payables (7,091,602) (7,031,598) (9,461,606)
Lease liabilities (270,263) (402,151) (388,986)
Current tax payable (806,057) (1,374,356) (538,158)
Creditors, amounts falling due within one year (8,167,922) (8,808,105) (10,388,750)
Net current assets 16,756,905 22,182,276 18,787,162
Total assets less current liabilities 136,264,759 132,907,856 139,624,623
Non‐current liabilities
Lease liabilities (2,139,653) (2,126,921) (2,213,854)
Deferred tax liability (8,154,423) (8,389,334) (8,642,208)
Net assets 125,970,683 122,391,601 128,768,561
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 (7,133,894) (6,926,039) (7,045,817)
Share option reserve 136,704 168,935 126,181
EIP share reserve 1,284,536 1,071,618 1,481,107
Foreign currency translation reserve 7,090,062 (4,564,976) 6,197,463
Capital redemption reserve 26,107 26,107 26,107
Retained earnings 20,265,860 28,129,274 23,682,212
Attributable to:
Equity shareholders of the parent 125,970,683 122,206,227 128,768,561
Non-controlling interests - 185,374 -
Total equity 125,970,683 122,391,601 128,768,561
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2022
Total
Foreign currency translation 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 2022 506,791 2,256,104 101,538,413 (7,045,817) 126,181 1,481,107 6,197,463 26,107 23,682,212 128,768,561 - 128,768,561
Profit for the period - - - - - - - - 7,313,604 7,313,604 - 7,313,604
Other comprehensive income - - - - - - 892,599 - - 892,599 - 892,599
Total comprehensive income
- - - - - 892,599 - 7,313,604 8,206,203 - 8,206,203
Purchase of own shares - - - (1,510,862) - - - - - (1,510,862) - (1,510,862)
Share-based payment - - - - 14,904 521,534 - - - 536,438 - 536,438
EIP vesting/forfeiture - - - 1,422,785 - (718,105) - - - 704,680 - 704,680
Deferred tax on share options - - - - (4,381) - - - - (4,381) - (4,381)
Dividends paid - - - - - - - - (10,729,956) (10,729,956) - (10,729,956)
Total transactions with owners -
- - - (88,077) 10,523 (196,571) - - (10,729,956) (11,004,081) (11,004,081)
As at -
31st December 2022 506,791 2,256,104 101,538,413 (7,133,894) 136,704 1,284,536 7,090,062 26,107 20,265,860 125,970,683 125,970,683
Total
Foreign currency translation 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 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 translation Capital redemption attributable
Share premium account Merger relief Investment Share option reserve EIP reserve reserve to
Share capital £ reserve in own £ share £ £ Retained share-
£ £ shares reserve earnings holders NCI Total
£ £ £ £ £ £
As 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 - - - - - - - - 18,091,151 18,091,151 - 18,091,151
Other comprehensive income - - - - - - 12,826,714 - - 12,826,714 - 12,826,714
Total comprehensive income - - - - - - 12,826,714 - 18,091,151 30,917,865 - 30,917,865
Transactions with owners
Derecognisation of NCI holding - - - - - - - - - - (189,467) (189,467)
Share option exercise - - - 320,193 (38,435) - - - 38,435 320,193 - 320,193
Purchase of own shares - - - (2,665,042) - - - - - (2,665,042) - (2,665,042)
Share-based payment - - - - 34,291 884,265 - - - 918,556 - 918,556
EIP vesting/forfeiture - - - 1,367,463 - (686,042) - - - 681,421 - 681,421
Deferred tax on share options - - - - (65,111) - - - (7,902) (73,013) - (73,013)
Current tax on share options - - - - - - - - 25,853 25,853 - 25,853
Dividends paid - - - - - - - (21,484,909) (21,484,909) - (21,484,909)
Total transactions with owners - - - (977,386) (69,255) 198,223 - - (21,428,523) (22,276,941) (189,467) (22,466,408)
As at 30th June 2022 506,791 2,256,104 101,538,413 (7,045,817) 126,181 1,481,107 6,197,463 26,107 23,682,212 128,768,561 - 128,768,561
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2022
Six months ended Six months ended
Year ended
31st Dec 2022 31st Dec 2021 30th June 2022
(unaudited) (unaudited) (audited)
Note £ £ £
Cash flow from operating activities
Profit before taxation 9,475,469 13,574,580 23,172,383
Adjustments for:
Depreciation of property and equipment 83,857 89,650 191,149
Depreciation of right-of-use assets 232,668 259,144 496,367
Amortisation of intangible assets 5 2,385,388 1,881,209 4,059,600
Loss on disposal of property and equipment - - 4,296
Share-based payment charge 14,904 17,285 33,440
EIP-related charge 563,268 466,945 892,097
(Gain)/loss on investments 3 (165,734) 33,142 659,231
Interest receivable 3 (181,794) (4,926) (32,136)
Interest payable on lease liabilities 3 72,573 77,033 153,190
Translation adjustments (140,366) 185,970 98,684
Cash generated from operations before changes in working capital
12,340,233 16,580,032 29,728,301
Decrease in trade and other receivables 639,054 469,138 458.199
(Decrease)/increase in trade and other payables (1,650,394) (540,999) 1,886,245
Cash generated from operations 11,328,893 16,508,171 32,072,745
Interest received 3 181,794 4,926 32,136
Interest paid on leased assets 3 (72,573) (77,033) (153,190)
Taxation paid (2,438,335) (3,496,583) (7,004,074)
Net cash generated from operating activities 8,999,779 12,939,481 24,947,617
Cash flow from investing activities
Purchase of property and equipment and intangibles (185,168) (173,807) (258,852)
Purchase of non-current financial assets - (1,889,216) (3,877,446)
Proceeds from sale of non-current financial assets - 7,080 8,442
Net cash used in investing activities (185,168) (2,055,943) (4,127,856)
Cash flow from financing activities
Ordinary dividends paid 7 (10,729,956) (9,470,195) (21,484,909)
Purchase of own shares by employee benefit trust (1,510,862) (2,349,321) (2,665,042)
Proceeds from sale of own shares by employee benefit trust - 124,250 320,193
Payment of lease liabilities (211,931) (243,459) (407,772)
Net cash used in financing activities (12,452,749) (11,938,725) (24,237,530)
Net decrease in cash and cash equivalents (3,638,138) (1,055,187) (3,417,769)
Cash and cash equivalents at start of period 22,677,893 25,514,619 25,514,619
Cash held in funds* 41,284 41,574 40,936
Effect of exchange rate changes (2,550) 5,050 540,107
Cash and cash equivalents at end of period 19,078,489 24,506,056 22,677,893
*Cash held in funds was consolidated using accounts drawn up as at end of
period.
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 2022 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
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. 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 2022, which were prepared in accordance
with UK-adopted International Accounting Standards.
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 2022.
Group companies are regulated and perform annual capital adequacy and
liquidity assessments, which incorporate a series of stress tests on the
Group's financial position over a three-year period from 31st December 2022.
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 the new or amended accounting standards and
interpretations issued by the International Accounting Standards Board (IASB)
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 2022
Gross fee income 27,593,625 590,975 - 459,243 33,552 28,677,395
Non-current assets:
Property and equipment 368,638 - 217,067 - 14,053 599,758
Right-of-use assets 1,226,074 - 995,962 - 65,001 2,287,037
Intangible assets 108,608,663 - 27,179 - - 108,635,842
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
Year to 30th June 2022
Gross fee income 58,502,020 1,400,160 279,802 1,082,660 28,985 61,293,627
Non-current assets:
Property and equipment 263,376 - 233,693 - 14,139 511,208
Right-of-use assets 1,245,649 - 1,085,153 - 87,943 2,418,745
Intangible assets 110,060,224 - 17,867 - - 110,078,091
During the period, the Group has entered into a long-term lease for its new
West Chester office which will commence from 1st March 2023. On commencement
date, the Group will recognise a right-of-use asset and a corresponding lease
liability.
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
revenues are fees of £2,711,686 (year to 30th June 2022 - £5,825,226; six
months to 31st December 2021 - £2,966,412) which arose from fee income from
the Group's largest client. No other single client contributed 10% or more to
the Group's revenue in any of the reporting periods.
3 FINANCE INCOME AND FINANCE EXPENSE
Six months ended Six months ended Year ended
31st Dec 2022 31st Dec 2021 30th June 2022
(unaudited) (unaudited) (audited)
£ £ £
Finance income:
Interest on bank deposits 181,794 4,926 32,136
Unrealised gain on investments 165,734 - -
Realised gain on investments - 3,369 -
Total finance income 347,528 8,295 32,136
Finance expense:
Unrealised loss on investments - (36,511) (659,231)
Interest payable on lease liabilities (72,573) (77,033) (153,190)
Total finance expense (72,573) (113,544) (812,421)
Net finance income/(expense) 274,955 (105,249) (780,285)
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 2022.
As set out in note 6 the Employee Benefit Trust held 1,773,258 ordinary shares
in the Company as at 31st December 2022. 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 2022.
Reported earnings per share
Six months ended Six months ended Year ended
31st Dec 2022 31st Dec 2021 30th June 2022
(unaudited) (unaudited) (audited)
£ £ £
Profit attributable to the equity shareholders of the parent for basic 7,313,604 10,557,200 18,091,151
earnings
Number of shares Number of shares Number of shares
Issued ordinary shares as at 1st July 50,679,095 50,679,095 50,679,095
Effect of own shares held by EBT (1,839,546) (1,558,012) (1,614,063)
Weighted average shares in issue 48,839,549 49,121,083 49,065,032
Effect of movements in share options and EIP awards 823,114 636,718 647,134
Diluted weighted average shares in issue 49,662,663 49,757,801 49,712,166
Basic earnings per share (pence) 15.0 21.5 36.9
Diluted earnings per share (pence) 14.7 21.2 36.4
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, 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 2022 31st Dec 2021 30th June 2022
(unaudited) (unaudited) (audited)
£ £ £
Profit before tax 9,475,469 13,574,580 23,172,383
Add back/(deduct):
- (Gain)/loss on investments (165,734) 33,142 659,231
- Amortisation on acquired intangibles 2,382,447 1,876,979 4,051,223
Underlying profit before tax 11,692,182 15,484,701 27,882,837
Tax expense as per the consolidated income statement (2,161,865) (3,021,473) (5,081,232)
Tax effect on fair value adjustment 35,136 (6,330) (125,253)
Unwinding of deferred tax liability (571,787) (450,475) (972,294)
Adjustment for NCI - 4,093 -
Underlying profit after tax for the calculation of underlying earnings per 8,993,666 12,010,516 21,704,058
share
Underlying earnings per share (pence) 18.4 24.5 44.2
Underlying diluted earnings per share (pence) 18.1 24.1 43.7
* This is an Alternative Performance Measure (APM). Please refer to the CEO
review for more details on APMs.
5 INTANGIBLE ASSETS
31st December 2022 31st Dec 2021 30th Jun 2022
Goodwill Direct customer relationships Distribution channels Trade name Long term software Total Total Total
£ £ £ £ £ £ £ £
Cost
At start of period 73,962,910 37,815,773 5,174,153 1,153,230 707,967 118,814,033 104,893,900 104,893,900
Additions - - - - 12,253 12,253 - 18,867
Currency translation 581,517 297,319 40,681 9,067 - 928,584 2,078,812 13,901,266
At close of period 74,544,427 38,113,092 5,214,834 1,162,297 720,220 119,754,870 106,972,712 118,814,033
Amortisation charge
At start of period - 6,617,761 1,293,538 134,543 690,100 8,735,942 3,931,908 3,931,908
Charge for the period - 1,959,579 383,028 39,840 2,941 2,385,388 1,881,209 4,059,600
Currency translation - (1,894) (370) (38) - (2,302) 39,958 744,434
At close of period - 8,575,446 1,676,196 174,345 693,041 11,119,028 5,853,075 8,735,942
Net book value 74,544,427 29,537,646 3,538,638 987,952 27,179 108,635,842 101,119,637 110,078,091
Goodwill, direct client relationships, distribution channels and trade name
acquired through a business combination relate to the merger with KIM on 1st
October 2020.
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 the 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 2022 in relation to direct client relationships,
distribution channels and trade name, was £2,382,447 (year ended 30th June
2022 - £4,051,223; six months ended 31st December 2021 - £1,876,979).
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 2022, 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'.
A higher discount rate and the CGU's actual results being slightly behind the
forecast, due to the unexpected reduction of FuM as a result of a decline in
global financial markets, have been considered as potential indicators of
impairment as at 31st December 2022 and thus the Group has reassessed the
recoverable amount of the CGU as at 31st December 2022.
The Group has calculated the recoverable amount of the CGU based on fair value
less costs of disposal (FVLCD). FVLCD was calculated using a revenue multiple
model based on trailing twelve months net revenue and is therefore considered
a level 3 measurement. The revenue multiple was estimated based on the implied
multiple of KIM's acquisition as at 1st October 2020 judgementally adjusted
down for potential changes in the market conditions since the acquisition. The
revenue multiple used is within the industry expected multiple range and thus
was considerate appropriate.
Level 3 measurements are based on inputs which are normally unobservable to
market participants. Costs of disposal have been assumed to be US$2 million
based on the relevant actual costs incurred at the time of KIM's acquisition.
The recoverable amount as at 31st December 2022 exceeded the carrying amount
of the CGU by £2,438,083 (30 June 2022: £1,391,854) and therefore the Group
has not revised its value in use calculation and no impairment was required at
31st December 2022.
Sensitivity analysis was applied to the key assumption of revenue multiple to
measure the impact on the headroom in existence under the current impairment
review. Following the sensitivity review, the recoverable amount of the CGU
would equal its carrying amount if the revenue multiple was to change from
4.7x to 4.6x.
Current economic circumstances are uncertain due to events outside the control
of the business. The potential impact on global markets cannot be reliably
estimated and if they result in a sustained period of weakness in financial
markets this could result in a future impairment.
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 2022 the Trust held 763,636 ordinary 1p shares (30th June
2022 - 1,026,326; 31st December 2021 - 1,001,315), of which 321,250 ordinary
1p shares (30th June 2022 - 328,750; 31st December 2021 - 366,750) were
subject to options in issue.
The Trust also held in custody 1,009,622 ordinary 1p shares (30th June 2022 -
682,437; 31st December 2021 - 688,113) 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 2022 - 1,773,258; 30th June 2022 - 1,708,763;
31st December 2021 - 1,689,428).
7 DIVIDENDS
A final dividend of 22p per share (2021 - 22p) (gross amount payable
£11,149,401; net amount paid £10,729,956*) in respect of the year ended 30th
June 2022 was paid on 4th November 2022.
An interim dividend of 11p per share (2022 - 11p) (gross amount payable
£5,574,700; net amount payable £5,379,642*) in respect of the year ending
30th June 2023 will be paid on 31st March 2023 to members registered at the
close of business on 3rd March 2023.
* Difference between gross and net amounts is due to shares held at EBT that
do not receive dividend.
8 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 2022), being 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 and 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,
receivables and payables balances arise which in turn give rise to currency
exposures.
9 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.
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 2022 Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Investment in other non-current financial assets 5,703,421 1,910,041 - 7,613,462
Total 5,703,421 1,910,041 - 7,613,462
Financial liabilities at fair value through profit or loss
Forward currency trades - 364,723 - 364,723
Total - 364,723 - 364,723
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 were no financial liabilities at fair value at 31st December 2021.
30th June 2022 Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Investment in other non-current financial assets 5,616,419 1,818,167 - 7,434,586
Total 5,616,419 1,818,167 - 7,434,586
Financial liabilities at fair value through profit or loss
Forward currency trades - 945,898 - 945,898
Total - 945,898 - 945,898
There were no transfers between any of the levels in the reporting period.
All fair value gains and losses included in the income statement 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 (within gross fee income) 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 £181,809 (30th June 2022: net loss
£519,633; 31st December 2021: net loss £19,116).
10 GENERAL
The interim financial statements for the six months ended 31st December 2022
were approved by the Board on 21st February 2023. 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 2021-2022. A list of current Directors is
maintained at www.clig.co.uk.
By order of the Board
Tom Griffith
Chief Executive Officer
21st February 2023
INDEPENDENT REVIEW REPORT TO CITY OF LONDON INVESTMENT GROUP PLC
Conclusion
We have been engaged by City of London Investment Group PLC ('the Company') to
review the condensed set of financial statements of the Company and its
subsidiaries (the 'Group') in the half-yearly financial report for the six
months ended 31 December 2022 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 material misstatements of fact or
material inconsistencies with the information in the condensed set of
financial statements.
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 31 December 2022 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.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ('ISRE (UK) 2410') issued 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.
As disclosed in note 1, the annual financial statements of the Group are
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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management has
inappropriately adopted the going concern basis of accounting or that
management has identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the Group and
the Company to cease to continue as a going concern.
Responsibilities of Directors
The half-yearly financial report, is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half-yearly financial report 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.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the Group's and the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend to
liquidate the Group or the Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the Company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our conclusion, including our
Conclusions Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim Financial
Information performed by the Independent Auditor of the Entity". 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
21st February 2023
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