TIDMCLIG

RNS Number : 9255Z

City of London Investment Group PLC

20 September 2022

20th September 2022

CITY OF LONDON INVESTMENT GROUP PLC (LSE: CLIG)

("City of London", "the Group" or "the Company")

FINAL RESULTS FOR THE YEAR TO 30TH JUNE 2022

The Company announces that it has today made available on its website, https://www.clig.com/ , the following documents:

 
 - Annual Report and Financial Statements for the year ended 
  30th June 2022 (the 2022 Annual Report); and 
 - Notice of 2022 Annual General Meeting (the Notice of AGM). 
 

The above documents will be uploaded to the National Storage Mechanism for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism in due course, in accordance with Listing Rule 9.6.1 R.

The 2022 Annual Report and the Notice of AGM, which will be held on 31st October 2022, will be posted to shareholders on 23rd September 2022.

The Appendix to this announcement contains additional information which has been extracted from the 2022 Annual Report for the purposes of compliance with DTR 6.3.5 only and should be read in conjunction with this announcement. Together, these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This announcement should be read in conjunction with, and is not a substitute for reading, the full 2022 Annual Report.

SUMMARY

 
 -    Funds under Management (FuM) of US$9.2 billion (GBP7.6 
       billion) at 30th June 2022. This compares with US$11.4 
       billion (GBP8.3 billion) at the beginning of this financial 
       year on 1st July 2021 
 -    Net fee income was GBP58.2 million (2021: GBP52.5 million) 
 -    Underlying profit before tax* was GBP27.9 million (2021: 
       GBP26.7 million). Profit before tax was GBP23.2 million 
       (2021: GBP22.2 million) 
 -    Underlying basic earnings per share* were 44.2p (2021: 
       48.1p). Basic earnings per share were 36.9p (2021: 39.4p) 
       after an effective tax charge of 22% (2021: 24%) of profit 
       before taxation 
 -    Recommended final dividend of 22p per share (2021: 22p) 
       payable on 4th November 2022 to shareholders on the register 
       on 30th September 2022, making a total for the year of 
       46.5p (2021: 33p), including the special dividend of 13.5p 
       paid on 25th March 2022 (2021: nil) 
 *This is an Alternative Performance Measure (APM). Please 
  refer to the Financial Review for more details on APMs. 
 
  Tom Griffith said on the results and outlook: 
  "The past year was a successful one for your Company in the 
  face of the macroeconomic headwinds. This success resulted 
  from the combined strength of the merged entity. We enter 
  the new financial year focused on delivering continued growth 
  driven by strong investment performance and the high quality 
  of services supporting our institutional and high net worth 
  (HNW) clients. 
  CLIG remains well-positioned in the current market environment. 
  Our conservative management style will not change, nor will 
  our investment-led approach with a view to ensuring strong 
  investment performance for our clients. We will continue to 
  strengthen the operational and investment capabilities of 
  the Group by building out the distribution pipeline for institutional 
  investment and wealth management products. We will also continue 
  to be selective in identifying potential acquisitions, which 
  we believe will inevitably appear given the difficult market 
  conditions of the past year." 
 

For access to the full report, please follow the link below:

http://www.rns-pdf.londonstockexchange.com/rns/9255Z_1-2022-9-19.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.citlon.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

At the start of 2022, it was already clear that global markets faced challenges from tightening monetary policy and simmering tensions in Eastern Europe, as noted in my 17th February 2022 interim statement. However, the Russian invasion of Ukraine just one week later served to magnify dramatically these headwinds in terms of both intensity and time-scale. The emergence of open warfare in Eastern Europe and rising geopolitical tensions elsewhere is prompting a fundamental re-think of strategic planning both in terms of security and defence arrangements as well as supply patterns of strategic materials, including energy and food. Arguably, it is the monetary and inflationary consequences of supply disruptions, rather than overt conflict that have most troubled global markets in 2022, as evidenced by the 20%+ falls in most developed markets in the first half of the year. Although the MSCI emerging market index (MXEF) fell by less than 20% in the period, it has now fallen by more than 30% since its 2021 high, placing it firmly in bear market territory. A paradigm shift in US monetary policy in response to the inflation surge has meant that fixed income markets have provided limited shelter with the US 10-year Treasury benchmark falling 12% and the 30-year Treasury by no less than 21% in the year to June 2022.

Despite this plethora of negative news, corporate balance sheets are relatively healthy as evidenced by the rising level of shareholder distributions and buy-backs. Should supply bottlenecks ease in the coming months, there are grounds for a degree of optimism that the surge in price inflation and monetary tightening will prove to be of limited duration. Once again, the high level of market volatility has illustrated the benefits gained from the Karpus merger in 2020 in terms of the diversified revenue base derived from the transaction and, as always, we view the defensive qualities of closed-end funds (CEFs) across each of the CLIG strategies as an effective means to participate in a recovery in markets in due course.

Assets and performance

Inevitably, the marked falls across all market segments have reduced CLIG's Funds under Management (FuM) with a 19% fall in the year as a whole, nearly all of which occurred in the second half of the year. Within these figures, CLIM's FuM fell 23% to US$5.8 billion while KIM's FuM fell by 12% to US$3.4 billion, underlining the defensive nature of KIM's higher exposure to fixed income markets. Shareholders will appreciate that these figures are due in large part to matters beyond our control and are mirrored across the asset management industry as a whole. Importantly, it was pleasing to note that fund flows improved markedly in the second half of the year as a number of CLIM's institutional clients chose to increase equity exposure, in contrast to the withdrawals that occurred during the more buoyant conditions of 2021. Particularly strong inflows to the International CEF strategy in the second half of the year mean that this product now accounts for more than 30% of CLIM's FuM. Across the year as a whole, net Group inflows totalled US$102 million, compared with net outflows of US$752 million in the previous year and with a resumption of more active marketing opportunities in the post-pandemic world, we are hopeful that the healthy pipeline will translate into further inflows in the months ahead.

Relative performance of the main CLIM strategies was impacted in the immediate aftermath of the Ukraine invasion following a mandatory write-down of all Russian exposure and a widening of discounts in the CEF universe. More recently, however, some recovery in relative performance has been achieved as market volatility returns to more typical levels and we expect that, over time, strict adherence to our investment process will enable a resumption of the long-term track record of outperformance. Relative performance at KIM has again been outstanding with strong outperformance across six of the seven strategies. Reduced weightings to CEFs at a time of widening discounts, allied to a shift to the more defensive shorter maturities at a time of rising interest rates proved key to maintaining KIM's excellent long-term track record.

Results

Group statutory pre-tax profits rose by 4% in the year ended 30th June 2022 to GBP23.2 million (2021: GBP22.2 million) while underlying pre-tax profits, which exclude exceptional or non-recurrent items, also rose by 4% to GBP27.9 million (2021: GBP26.7 million). Since results for the prior year included only a nine-month contribution from KIM, a more accurate year-on-year (YoY) comparison is provided by earnings per share (EPS). On this basis, fully diluted statutory EPS fell 6% to 36.4p (2021: 38.8p) and underlying fully-diluted EPS fell by 7% to 43.7p (2021: 47.4p). Despite the ongoing competitive pressure on fees in the institutional market-place, the Group's average revenue margin declined slightly to 73bp (2021: 74bp).

In parallel to the "Ukraine" impact on equity and fixed income markets, the conflict has also prompted strong capital flows into US dollars, due to its traditional safe-haven characteristics. The fact that 100% of CLIG's revenues are earned in US dollars, therefore, provides a significant cushion to revenues and profits when translated into sterling and represents a useful hedge against sterling weakness. The benefit of this "hedge" has been reduced somewhat by the Karpus acquisition, with non-sterling costs rising from 56% to 66% of total operating expenses. Nevertheless an 8% reduction in average monthly US$ revenues between the three-month period leading up to the conflict and the three-month period thereafter, was reduced to just a 3% decline when expressed in sterling terms.

Dividends

Shareholders will have noted from my interim statement a note of prudence with regard to normal distributions (i.e. excluding special dividends) notwithstanding a buoyant result for the first half of the financial year. While a build-up of surplus cash allowed the payment of a 13.5p special dividend in March, it was already clear at the interim stage that the second half of the year would be more challenging and events since have certainly vindicated the earlier caution. In light of this, the Board has declared an unchanged final dividend of 22p to be paid on 4th November 2022 to those shareholders on the register at 30th September 2022. Taken together with the interim payment of 11p, total dividends of 33p for the year (excluding the special dividend) will be covered 1.13 times by this year's post-tax earnings or 1.22 times on a rolling five-year average basis, slightly ahead of the Group's five-year dividend cover policy of 1.2 times.

Board

Shareholders were informed at the interim stage that a full review of Board composition was underway with a view to meeting (as far as possible) the requirements of the UK Corporate Governance Code (the Code) in terms of both independence and diversity. Following this review, led by the Chair of the Nomination Committee, Jane Stabile, a reorganisation of the Board was agreed, to take effect from the close of the financial year on 30th June 2022, involving the resignation of three Executive Directors, Carlos Yuste, Dan Lippincott and Mark Dwyer, who have joined the new Group Executive Committee (GEC) to oversee the day-to-day running of both operating companies. CEO Tom Griffith's report in later pages will provide shareholders with additional detail regarding the GEC's functions while Jane's Nomination Committee Report will also address these changes and the ongoing plans for diversity and inclusion but I am pleased to be able to report to shareholders this significant progress in our governance architecture less than two years after the transformative Karpus merger.

I am very grateful to the three Executive Directors for their invaluable contributions to the Board's deliberations over a number of years as well as their agreement to a corporate restructuring, which will facilitate our compliance with the Code in a timely fashion. The devolution of operational management to the GEC will help streamline decision-making on a day-to-day basis, while providing clearer demarcation between executive management and an independent Board.

I am sure that all shareholders will wish to join me in offering a special thank you to Barry Olliff, CLIG's founder and architect over more than thirty years. As I said in our April announcement, Barry's laser-like focus on value to both shareholders and clients lies at the core of CLIG's culture and permeates everything we do for all stakeholders. Barry's willingness to challenge entrenched orthodoxy in the investment universe is well recognised and represents a hugely positive long-term legacy. The issue of founder succession is fraught with challenges and can often be a disruptive process but thanks to Barry's support throughout the management transition, I am pleased to report that it has been seamless. On behalf of the Board and all our shareholders, I would like to say a heartfelt thank you to Barry and wish him the very best in his well-deserved retirement.

ESG

One of the positives arising from the COVID-19 pandemic was the acceleration in the use of technology to drive reductions in the environmental impact of business and CLIG has been active in capitalising on the gains to be realised in this important area. Inevitably, a network of six offices across three continents meant that, historically, air travel was a significant component of CLIG's otherwise low carbon footprint. The decision to streamline CLIG's office network this year, therefore, with the closure of the Seattle and Dubai offices, has helped reduce CLIG's carbon footprint materially. Similarly, an increase in client briefings via video conferences and additional investment in technology solutions has enabled greater use of video conferencing for internal communication and meetings.

A concerted effort to reduce paper usage using web-based alternatives for the Annual Report, portfolio reports and other research-based publications is helping reduce the Group's waste output and the Group remains committed to further reductions in our environmental impact wherever possible.

Many commercial businesses have had to adjust to new working practices in the post-COVID world and CLIG is no exception. The necessity of remote working during the pandemic provided a template for potential longer term solutions and to that end, a hybrid "work-from-home" (WFH) policy for all employees has been implemented. Group-wide policies have also been established on a range of social issues, including anti-slavery, human trafficking, anti-corruption, bribery and health and safety, while all employees will receive two training sessions on diversity, equity and inclusion (D/E/I) in the course of calendar year 2022. We regard these initiatives as central to the goal of good corporate citizenship and will continue to encourage the widest possible level of employee awareness in the social dimension.

Since the appointment of Prism Cosec Ltd as Corporate Secretary in 2021 and the formation of the Corporate Governance Working Group (CGWG), a series of changes have been made to CLIG's working practices and these are detailed in the Governance section of this report. Alongside the measures taken for Board-level Code compliance detailed earlier, a programme of regular engagement with employees has been established with video conference meetings across all offices. These meetings provide employees with the opportunity to raise any issues with Board members but they also give Independent Non-Executive Directors the ability to gain greater insight into the organisation at all levels, thereby assisting them in their oversight role.

Outlook

Over the course of the last two years, we have witnessed extreme volatility in capital markets and with the threat of long-term conflict in Europe and double-digit inflation ever present, it would be foolish to paint too optimistic a picture for the year ahead. Nevertheless, at the risk of sounding "glass-half-full", I believe there are some early signs of a more stable market environment. The economic dislocation created by reduced energy and food supplies together with supply bottlenecks in industry will take time to be fully resolved but, just as the pandemic forced technological change in a condensed time-frame, so economies and companies will develop alternative trade patterns over time. While it appears unlikely that we will see the "V-shaped" bounce that followed the 2020 COVID-19 lockdowns, central bankers and businesses alike can see that the current constraints are largely supply-driven and not permanent in nature. Since markets look well beyond the near horizon, and provided geopolitical friction does not proliferate beyond the existing conflict, there are grounds to support the view that the July 2022 "mini-bounce" may not be a flash in the pan.

Irrespective of the macro-economic outlook, the CLIG business model, focused on value-orientated CEFs and encompassing a mix of institutional and wealth management clients, is stronger than in previous periods of difficult markets. Furthermore, bear markets also bring opportunities, be it in the investment universe or the asset management industry more generally and, with this in mind, we continue to view the future with cautious optimism. Finally and most importantly, I would like to thank all of our employees for their continued and sustained efforts in helping us navigate another challenging year with typical dedication, loyalty and commitment.

Barry Aling

Chair

15th September 2022

CHIEF EXECUTIVE OFFICER'S STATEMENT

Stronger together

The past year was a successful one for your Company in the face of the macroeconomic headwinds outlined in Barry Aling's comprehensive Chair's Statement. This success resulted from the combined strength of the merged entity for reasons which will be detailed below. We enter the new financial year focused on delivering continued growth driven by strong investment performance and the high quality of services supporting our institutional and high net worth (HNW) clients.

A number of headwinds confronted us during the past year. In addition to pandemic-related quarantines, labour shortages and supply-chain disruptions, the outbreak of war in Ukraine in February 2022 led to steep declines in global stock and bond markets while causing the US dollar to soar as a haven asset.

To illustrate the extent of the market falls over the year ending 30th June 2022, the US bond market, as measured by the Bloomberg US Aggregate Bond Index, had its worst twelve-month period since 1976. Further, and for the first time in over 20 years, all eight main asset categories managed at the Group's two subsidiaries delivered negative annual returns.

As a result of the Karpus Investment Management (KIM) merger your Company now demonstrates a dramatically more diversified asset base, with 40% of Funds under Management (FuM) in Emerging Markets (EM), down from 69% at the point of the merger, along with significantly reduced volatility in the earnings stream. The reduction of EM-specific risk to shareholders is a significant benefit of the merger and supports the dividend policy of the Company.

Through the merger, our commitment to our Clients and their Consultants was that the investment teams would not be impacted by corporate changes in order to safeguard our well-honed investment processes. This stability of people and process is critical to both institutional investors and HNW clients.

Equally importantly, our expanded group of colleagues at CLIG see opportunities for career growth within the Group as new opportunities arise. We anticipate that more such opportunities will arise as we continue to conservatively build upon sharing services across the subsidiary companies.

The past financial year demonstrates why diversification has been prioritised. Executive management will continue to evaluate opportunities for consideration by your Board.

FuM & flows

FuM as at 30th June 2022 was US$9.2 billion, which is a 19.4% decrease over the financial year, reflecting weakness in the underlying asset classes.

While it is difficult to tout the importance of diversification after a year when both fixed income and equity markets fell, the smaller decline in fixed income relative to EM equities is a good reminder that diversification remains beneficial, and that CLIG shareholders receive exposure to a broad variety of asset classes. This broad asset class exposure was achieved after years of organic growth within City of London Investment Management (CLIM), and bolstered by the KIM merger in October 2020, as shown in the table below.

CLIG - FUM by line of business (US$m)

 
 
 CLIM                  30 Jun            30 Jun              30 Jun 2021                30 Jun 2022 
                         2019              2020 
                  ----------------  ----------------  -------------------------  ------------------------ 
                    US$m      % of    US$m      % of     US$m     % of     % of    US$m     % of     % of 
                              CLIM              CLIM              CLIM     CLIG             CLIM     CLIG 
                            total*            total*             total    total            total    total 
                  ------            ------  --------  -------  -------  -------  ------  -------  ------- 
 Emerging 
  Markets          4,221       78%   3,828       69%    5,393      72%      47%   3,703      64%      40% 
                  ------  --------  ------  --------  -------  -------  -------  ------  -------  ------- 
 International       729       14%   1,244       23%    1,880      25%      17%   1,812      32%      20% 
                  ------  --------  ------  --------  -------  -------  -------  ------  -------  ------- 
 Opportunistic 
 Value               233        4%     256        5%      231       3%       2%     193       3%       2% 
                  ------  --------  ------  --------  -------  -------  -------  ------  -------  ------- 
 Frontier            206        4%     175        3%       13       0%       0%       9       0%       0% 
                  ------  --------  ------  --------  -------  -------  -------  ------  -------  ------- 
 Other/REIT            7        0%       9        0%       13       0%       0%      74       1%       1% 
                  ------  --------  ------  --------  -------  -------  -------  ------  -------  ------- 
 CLIM total        5,396      100%   5,512      100%    7,530     100%      66%   5,791     100%      63% 
                  ------  --------  ------  --------  -------  -------  -------  ------  -------  ------- 
 
 KIM                   30 Jun            30 Jun              30 Jun 2021                30 Jun 2022 
                         2019              2020 
                  ----------------  ----------------  -------------------------  ------------------------ 
                    US$m      % of    US$m      % of     US$m     % of     % of    US$m     % of     % of 
                               KIM               KIM               KIM     CLIG              KIM     CLIG 
                            total*            total*             total    total            total    total 
                  ------  --------  ------  --------  -------  -------  -------  ------  -------  ------- 
 Retail            2,291       67%   2,401       69%    2,804      72%      24%   2,419      70%      26% 
 Institutional     1,105       33%   1,087       31%    1,115      28%      10%   1,014      30%      11% 
                  ------  --------  ------  --------  -------  -------  -------  ------  -------  ------- 
 KIM total         3,396      100%   3,488      100%    3,919     100%      34%   3,433     100%      37% 
                  ------  --------  ------  --------  -------  -------  -------  ------  -------  ------- 
 
 CLIG total                                            11,449              100%   9,224              100% 
----------------  ------  --------  ------  --------  -------  -------  -------  ------  -------  ------- 
 *Pre-merger 
 
 

CLIG had net inflows during the financial year, despite a challenging market environment. At CLIM, the International (INTL) strategy has been the main driver of inflows during this financial year after re-opening to new clients earlier in 2022. The INTL strategy has now seen net inflows for five of the last six financial years.

KIM had net outflows for the financial year, as their primarily HNW client base reduced exposure to markets given the higher volatility, especially in the second half of the financial year.

Net outflows at CLIM's flagship EM strategy continued. As the table below shows, CLIM's EM strategy has now had net outflows for each of the last four financial years, despite strong relative performance for the majority of this period. The geopolitical concerns that have arisen in EM countries, including Russia/Ukraine, North Korea/South Korea, and China/Taiwan, have given some investors pause, despite attractive valuations and wide discounts. The underperformance of EM vs Developed equities over the past ten years, shown in the chart on the following page, has also had a negative effect on investor sentiment towards the asset class. EM equities as shown by the MSCI EM Index have significantly lagged two widely used proxies of Developed Market equities: 1) The US market, as shown by the S&P 500 Index, and 2) Non-US Developed Markets, as shown by the MSCI World Ex-US Index. While the US market has driven overall Developed market outperformance, non-US markets have also outperformed their EM peers.

 
 
 Net investment 
  flows (US$000's) 
 CLIM                      FYE Jun     FYE Jun     FYE Jun     FYE Jun 
                              2019        2020        2021        2022 
----------------------  ----------  ----------  ----------  ---------- 
 Emerging Markets        (183,521)   (279,459)   (275,493)   (315,770) 
 International             252,883     551,102    (14,145)     452,554 
 Opportunistic Value        48,236      45,914   (102,663)         617 
 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 
----------------------  ----------  ----------  ----------  ---------- 
 
 KIM                       FYE Jun     FYE Jun     FYE Jun     FYE Jun 
                              2019        2020       2021*        2022 
----------------------  ----------  ----------  ----------  ---------- 
 Retail                     33,701      26,323   (104,222)   (106,444) 
 Institutional               9,050    (67,087)   (130,911)     (3,302) 
----------------------  ----------  ----------  ----------  ---------- 
 KIM total                  42,751    (40,764)   (235,133)   (109,746) 
----------------------  ----------  ----------  ----------  ---------- 
 
 
 

*Includes net investment flows for Retail - (24,407) and Institutional - (20,264) pertaining to period before 1st October 2020 (pre-merger)

The investment and business development reviews below further explain factors impacting global equity and fixed income markets over the period.

Business integration update

Your management team spent the past financial year continuing the integration of the KIM business via projects in Finance, Operations, Information Technology, and Marketing. An updated version of KIM's website was rolled out in October 2021 to improve the client experience. The Group is benefiting directly from sharing services across Finance and Information Technology departments. We intend to continue to develop synergies as appropriate.

Group's financial results

The Group's average net fee margin for the year was 73bp (2021: 74bp). The Group's net fee income over the period was GBP58.2 million. Coupled with the US dollar strengthening versus sterling throughout the year from 1.39 to 1.21, Group earnings were buoyed by a full year of KIM fee income which is 100% US dollar denominated.

CLIG profitability, cash and dividends

Operating profit before profit-share, EIP, share option (charge)/credit and investment gains/(losses) grew by 7.7% to GBP38.4 million (2021: GBP35.6 million) primarily as a result of full year results for KIM in FY 2022 as against nine months (since merger) in FY 2021. Profit before tax increased to GBP23.2 million (2021: GBP22.2 million). Please refer to the Financial Review for additional financial results.

The Board has recommended a final dividend of 22p per share (2021: 22p), subject to approval by shareholders at the Company's Annual General Meeting to be held on 31st October 2022. This would bring the total dividend payment for the year to 46.5p, including the special dividend of 13.5p paid in March 2022 (2021: 33p, special dividend nil). Rolling five-year dividend cover, excluding the special dividend equates to 1.22 times (2021: 1.29 times) in line with our target. Please refer to page 22 of the full report for the dividend cover chart, which provides an overview of our dividend policy.

Inclusive of our regulatory and statutory capital requirements, cash in the bank was GBP22.7 million as at 30th June 2022 as compared to GBP25.5 million at 30th June 2021, in addition to the seed and other own investments of US$9.1 million (GBP7.4 million) (2021: US$5.8 million (GBP4.4 million)). Our cash reserves will allow us to continue managing the business conservatively through volatile markets while following our dividend policy. The CLIG Board continues to review the appropriate cash reserves needed to run the larger, but more diversified business, and assesses variables such as the impact of future revenue projections in case of a broad retreat in underlying asset prices.

A review of CLIG's Share Price KPI can be found on page 23 of the full report. Over the past five years, the average annualised return to shareholders is 9.2%, within the 7.5% - 12.5% target range.

EIP

The Employee Incentive Plan (EIP) continues to be an integral part of our remuneration package in order to align employee and shareholder interests. This is highlighted by the ongoing take-up by employees across the Group who continue to benefit from 1) being part of, and 2) owning, a public company. As at 30th June 2022, CLIG employees owned 7% (2021: 6.4%) of CLIG's issued share capital.

Corporate Governance & Stakeholders

As Barry Aling stated in his Chair's statement, on 26th April 2022 our Board announced the restructure of the CLIG Board, and the creation of 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), Mark Dwyer (Chief Investment Officer - CLIM), Dan Lippincott (Chief Investment Officer - KIM), and Deepranjan Agrawal (Group Chief Financial Officer). Simply stated, the GEC is responsible for the management and oversight of Group operating activities, including the executive management of CLIG's subsidiary companies. Each member of the GEC is responsible for reporting directly to the CLIG Board, and may participate in CLIG Board presentations and discussions as necessary. One of our goals over the past two financial years was to determine how to best become compliant with Provision 11 of the UK Corporate Governance Code, and this restructuring allows us to achieve that objective.

The CLIG Board was helped directly from the skills, expertise, and on-the-ground oversight by the Executive Directors during the pandemic, when travel and in-person engagement was limited. With pandemic-related restrictions lifting, we have more recently benefited from opportunities for Board members to meet CLIG employees in-person in London (October 2021), Coatesville (April 2022), and Rochester (July 2022) at off-site events. You can find additional details on the Board's engagement with stakeholders in our Section 172 (1) statement, on page 40 of the full report.

Cybersecurity update

Information Security remains a critical area of concern within the financial services industry. In the US, the Securities Exchange Commission (SEC) is increasingly focused on data issues, recently proposing new regulations governing cybersecurity and data privacy and protection designed to improve the industry's ability to respond to threats. Each year, the number of cybersecurity attacks and breaches increases.

To best position CLIG's defences against potential threats, the Group undertook an assessment with a leading organisation in the Information Security industry to gauge our overall cybersecurity framework. This follows an ongoing multi-year effort to bolster our internal systems, controls and procedures, inclusive of penetration testing, employee training, and threat detection.

We received an above average assessment of our programme based on the size of our organisation within the financial services industry. We also received several suggestions to further strengthen our defences mainly based on reporting and incident response protocols. Efforts are underway to implement changes designed to further strengthen the Group's programme. We are focused on constant improvement, and we are committed in our approach to safeguarding the Group's data and infrastructure from criminal attacks.

Retirement of CTO

CLIG's Chief Technology Officer, Alan Hoyt, retired on 30th June 2022. Over his tenure at CLIG, Alan guided the development of our global infrastructure and the related implementation of systems, applications and data sharing necessary in a continuously evolving technology environment. Alan's transition includes a six-month post-retirement consultancy arrangement with CLIG. We wish Alan the best of luck in his retirement, and extend our gratitude for his work on CLIG's IT and Cybersecurity efforts over the past 12+ years. Matt Szoke was promoted to the Head of IT role on 1st July 2022.

Environmental reporting update

The Taskforce on Climate-Related Financial Disclosures (TCFD) developed guidance in relation to consistent climate-related financial disclosures. CLIG welcomes the TCFD recommendations and have included our report on page 38 in alignment with them.

Retirement of Barry Olliff, CLIG Founder

Finally, with CLIG Founder Barry Olliff's retirement from the Board on 31st July 2022, I'd like to extend my thanks and appreciation for his work on behalf of all stakeholders. Specifically, Barry's counsel as the Founder and long-time CEO has been invaluable during the management transition. Barry's passion for the business, and clear eye towards the future growth opportunities via diversification, are woven into the culture of CLIG, and will continue into the future.

CLIG outlook

CLIG remains well-positioned in the current market environment. Our conservative management style will not change, nor will our investment-led approach with a view to ensuring strong investment performance for our clients. We will continue to strengthen the operational and investment capabilities of the Group by building out the distribution pipeline for institutional investment and wealth management products. We will also continue to be selective in identifying potential acquisitions, which we believe will inevitably appear given the difficult market conditions of the past year.

Tom Griffith

Chief Executive Officer

15th September 2022

INVESTMENT REVIEW - CLIM

Our focus on exploiting discount volatility has served clients well for over thirty years in both bull and bear markets.

Risk assets fell over the twelve-month period ending 30th June 2022 as elevated US valuations met sharply higher interest rates, reducing the value of future cash flows. Most risk assets declined in a relatively correlated manner, reducing the benefits of diversification.

Active equity managers generally struggled to outperform over the period. In CLIM's case this was noticeable through weaker net asset value (NAV) performance at the underlying closed-end funds (CEFs) - and particularly visible in the International (INTL) CEF Strategy (underperformed by 4.2%) as the funds we own in aggregate had a bias to smaller, higher growth equities. In the core Emerging Market (EM) strategy (underperformed by 2.4%) a modest, long held overweight to Russia was negative as Russian equities were marked to zero. Discounts generally widened over the period, particularly for the INTL CEF strategy as retail investors, typically the marginal CEF buyer, turned cautious after a decade of strong returns. CLIM's smaller strategies Opportunistic Value (OV) and Frontier had a mixed year - OV suffered from the same NAV underperformance trend as the INTL strategy and ended the year 2.6% behind benchmark. The Frontier strategy outperformed by 8.2% with good returns from country allocation and NAV performance.

CLIM's REIT team delivered another year of solid relative performance. The strategy, which incepted in January 2019, ended the period with a strong three-year track record which bodes well for asset growth in the medium term. Unfortunately the EM REIT asset class remains out of favour with allocators given the long-term absolute performance. Indeed EM REITs, with a total return of minus 23% over the ten years ending June 2022, have proved the exception to the "Everything Rally" of the past decade. Although this weak performance does not imply imminent mean reversion the value characteristics of the asset class - a dividend yield of 5.4%, price to book value of 0.7x and P/E ratio of 7.8x - speak for themselves.

Despite the relative underperformance over the period, over 95% of CLIM's assets remain ahead of benchmark and peer group over the five years ended June 2022 (see CLIM Composite Returns chart on page 12 of the full report).

Net flows were positive over the year following the reopening of the INTL CEF strategy in December 2020. Outflows continued in the EM CEF strategy as the ten-year downtrend in relative performance between developed market and EM equities remained in place. On a positive note outflows slowed markedly in H2 coincident with a reversal in this trend.

Robust new CEF issuance increased the universe by over US$30 billion in the twelve months ending June 2022. An enlarged universe of global CEFs (funds that invest in world markets including the USA) and US equity focused CEFs encouraged CLIG to seed a Global CEF strategy. This product invests in global equity markets including the USA (in contrast to the INTL CEF strategy which excludes the USA) and fills a niche for US institutions that prefer a "one stop shop" solution for their global equity exposure. The INTL, Global, OV and EM REIT strategies have significant capacity and will remain a focus for marketing.

CLIM continues to develop proprietary solutions to enhance and refine the investment process; typically this involves further development of our research database to improve productivity and client outcomes. The ability to fully look through CLIM's portfolios to the underlying securities was an important development in 2020/21. Subsequently we have partnered with StyleAnalytics to better understand style factors and ESG risks in CLIM's portfolios.

CEF discounts are the overriding consideration in CLIM's investment process but our manager due diligence does include a review of how ESG risk is managed by the underlying managers. We undertake this work in order to encourage managers to improve their ESG disclosures and also to keep our clients better informed about their portfolios. We believe that improved transparency will result in better management of ESG risks by CEF managers and ultimately in better returns for our clients. The raw scores for MSCI ACWI suggest that companies are improving their ESG performance. In addition, based on Sustainalytics' analysis, CLIM's CEF portfolios have slightly lower overall ESG risk than their benchmarks on average, though this is not a targeted outcome. Our detailed annual stewardship report is available here: https://www.citlon.com/esg-reports/ AnnualStewardshipReport3_22.pdf

The direction of equity markets is important for fund management companies. Additionally, for CLIM, higher markets in a bullish environment typically result in tighter discounts which benefits performance - the same can also be true in reverse. That said the factors that have negatively impacted our investment performance over the last six months - widespread active manager underperformance and significant geopolitically driven asset dislocations - are fortunately rare events. Our focus on exploiting discount volatility has served clients well for over thirty years in both bull and bear markets. Wide discounts and persistent discount volatility give us confidence that our CEF strategies will continue to meet our clients' longer term performance expectations.

INVESTMENT REVIEW - KIM

The war in Ukraine, global inflationary concerns, and global economic growth prospects are three major conditions that have rattled both the stock and bond markets so far this year.

Recap and outlook

On 13th June 2022 the S&P 500 Index close marked a greater than 20% decline from the recent peak on 3rd January 2022 and the Bloomberg US Government/ Credit Bond Index and Bloomberg Municipal Bond Index both continued losses from the first quarter at a historic pace rarely seen.

Aggregate supply continues to be restricted (largely due to COVID and global pressures tied to Ukraine) and demand has been elevated (due to improved personal balance sheets and pent up demand post-COVID reopening). The US Federal Reserve (Fed) was also extremely accommodative since the pandemic and heading into this year, with low borrowing costs aiding both consumers and businesses.

Coupled with other government aid and borrowing, some fear that the Fed may have waited too long to steer the US economy toward a soft landing (i.e. away from a recession). Nevertheless, the Fed has thus far raised rates by 2.25% and markets expect the Fed funds rate to peak at 3.5% by year-end. The Fed has also begun to unwind its balance sheet by allowing some of the proceeds of maturing bonds to roll-off. In addition to this, balance sheet reductions were announced to scale up to US$95 billion each month by the end of September 2022.

Two consecutive quarters of negative GDP in the US coupled with an inverted yield curve are signalling that a recession is likely on the horizon. At the forefront for investors is whether the Fed will continue on its quest to quell inflation or whether it will pivot at any sign of market stress and turn dovish. Either way, we foresee returns below historic norms and anticipate continued volatility.

Performance

KIM's strategies performed well over the past twelve months driven in large part by our tactical reduction of closed-end funds (CEFs) and our significant allocation to special purpose acquisition companies (pre-acquisition) (SPACs) trading at discounts to trust value.

Our discipline calls for us to lower our exposure to CEFs when discounts are narrow. This allows us to lock in the added value and affords us "dry powder" to purchase CEFs when discounts widen. Our approach worked well as CEF discounts widened significantly year over year. Additionally, CEF net asset value performance was generally poor throughout the year.

Where applicable, we opportunistically allocated a significant portion of our fixed income and balanced accounts to SPACs. Our conservative approach is based on utilising SPACs as a short-term fixed income alternative. Among other reasons, we like SPACs because they can trade at a premium or discount to the cash value of the trust account (similar to CEFs). By purchasing shares below the cash value of the trust account, we view our approach as buying cash at a discount. Moreover, if the SPAC management company finds what the market perceives to be an attractive acquisition, shares of the SPAC could trade above cash value.

Clients benefited from our allocation to SPACs as they were one of the few asset classes that produced positive returns over the twelve months ended 30th June 2022. With all of this said, we continue to favour the risk/reward proposition offered by SPACs.

Despite solid short and long-term performance, flows were net negative as high net worth clients withdrew funds to pay taxes and institutional clients sought to rebalance. While markets have been challenging, we feel that our strategy has held up very well. With volatility comes opportunity and we feel our strategy is positioned well to capitalise on market inefficiencies.

BUSINESS DEVELOPMENT REVIEW

CLIG's FuM were US$9.2 billion (GBP7.6 billion) as at 30th June 2022. This compares with US$11.4 billion (GBP8.3 billion) as at 30th June 2021.

Despite volatile asset markets, net investment flows were US$102 million for the Group over the period, with City of London Investment Management (CLIM) posting net gains, while Karpus Investment Management (KIM) saw net outflows as clients reduced exposure to markets in the second half of the year. After a pause in 2020, recently renewed marketing emphasis for the International closed-end fund (CEF) strategy was rewarded, in combination with the excellent long-term track record.

A key reason for the merger was to diversify FuM, with Emerging Market (EM) CEF strategies now accounting for 40% of Group FuM at 30th June 2022, as compared to 47% at 30th June 2021. KIM provides balanced mandates for high net worth and wealth management clients in the US, with both equity and fixed income investments. At 30th June 2022, KIM strategies comprised 37% of Group FuM, while International CEF strategies totaled 20% of Group FuM.

With regard to business development, the Group continues to develop an active pipeline across all of its major CEF offerings.

Performance

Long-term investment performance across the EM and INTL CEF strategy, as well as Conservative Balanced mandates, remains strong, with first or second quartile results versus manager peers over the three, five and ten-year rolling periods ending 30th June 2022.

For the year ended 30th June 2022, investment performance was behind relevant benchmarks for the bulk of CLIM's assets due to a combination of country allocation in the EM strategy and NAV performance at the underlying CEFs in the INTL and OV strategies. KIM's equity and fixed-income strategies outperformed their market indices over the period, while US equity lagged its benchmark.

The Global Emerging Markets Composite net investment returns for the rolling one year ended 30th June 2022 were -27.9% vs. -25.3% for the MSCI Emerging Markets Index in USD, and -24.6% for the S&P Emerging Frontier Super BMI Index in USD.

The KIM Conservative Balanced Composite net investment returns for the rolling one year ended 30th June 2022 were -9.7% vs. -11.3% for the Morningstar US Fund Allocation - 30% to 50% Equity Category in USD.

The International CEF Composite net investment returns for the rolling one year ended 30th June 2022 were -23.7% vs. -19.4% for the MSCI ACWI ex US in USD.

The Frontier Markets Composite net investment returns for the rolling one year ended 30th June 2022 were -8.6% vs. -15.6% for the S&P Frontier EM 150 benchmark in USD.

The Opportunistic Value Composite net investment returns for the rolling one year ended 30th June 2022 were -18% vs. -15.2% for the 50/50 MSCI ACWI/Barclays Global Aggregate Bond benchmark in USD.

Outlook

Marketing efforts will continue to be targeted at investment consultants, foundations, endowments and pension funds. We will also continue to introduce our capabilities to family offices, outsourced CIO firms, and alternative consultants.

Our International CEF, Balanced mandates, Opportunistic Value capabilities and REIT strategies will be the focus of our product diversification and business development activities.

FINANCIAL REVIEW

The Group income statement is presented in line with UK-adopted International Accounting Standards on page 94 of the full report but the financial information is reviewed by the management and the Board in a slightly different way, as in the table provided below. This makes it easier to understand the Group's operating results and shows the profits to which the Group's profit-share provision applies.

 
 Consolidated income for financial years 
  ended 30th June 
                                                     2022       2021 
                                                  GBP'000    GBP'000 
----------------------------------------------  ---------  --------- 
 Gross fee income                                  61,294     55,123 
 Commissions                                      (1,599)    (1,101) 
 Custody fees                                     (1,492)    (1,572) 
----------------------------------------------  ---------  --------- 
 Net fee income                                    58,203     52,450 
 Interest                                           (121)      (117) 
----------------------------------------------  ---------  --------- 
 Total net income                                  58,082     52,333 
----------------------------------------------  ---------  --------- 
 Employee costs                                  (13,229)   (11,126) 
 Other administrative expenses                    (5,781)    (4,867) 
 Depreciation and amortisation                      (696)      (719) 
----------------------------------------------  ---------  --------- 
 Total overheads                                 (19,706)   (16,712) 
----------------------------------------------  ---------  --------- 
 Profit before profit-share/EIP/share options 
  - operating profit                               38,376     35,621 
 Profit-share                                     (9,162)    (7,923) 
 EIP                                              (1,298)    (1,008) 
 Share option (charge)/credit                        (34)         12 
 Investment (loss)/gain                             (659)        540 
----------------------------------------------  ---------  --------- 
 Pre-tax profit before exceptional item 
  and amortisation of intangibles acquired 
  on acquisition                                   27,223     27,242 
 Acquisition - related costs                            -    (1,743) 
 Amortisation of intangibles                      (4,051)    (3,250) 
----------------------------------------------  ---------  --------- 
 Pre-tax profit                                    23,172     22,249 
 Tax                                              (5,081)    (5,259) 
----------------------------------------------  ---------  --------- 
 Post-tax profit                                   18,091     16,990 
----------------------------------------------  ---------  --------- 
 

Group income statement and statement of comprehensive income

For the first time the financial results for KIM for the full twelve-month period have been included in the consolidated income statement ended 30th June 2022. The merger with KIM was completed on 1st October 2020 and thus the consolidated income statement for the year ended 30th June 2021 only included the results for KIM over the nine-month period.

FuM

FuM at 30th June 2022 were US$9.2 billion compared with US$11.4 billion at the end of the prior financial year. The decrease was due to a combination of investment flows, market movements and performance. Refer to the FuM by line of business table within the CEO statement. Average FuM for the year increased by 9% from US$9.7 billion in FY 2021 to US$10.5 billion in FY 2022.

Revenue

The Group's gross revenue comprises management fees charged as a percentage of FuM. The Group's gross revenue has increased YoY by 11% to GBP61.3 million (2021: GBP55.1 million). The increase in revenue is primarily due to a full year of revenue for KIM in FY 2022 (nine months in 2021), higher average FuM during the year and by a stronger US dollar against sterling, with an average GBP/USD rate of 1.33 this year compared with 1.35 last year, an increase of c.2% over last year's average rate.

Commission payable of GBP1.6 million (2021: GBP1.1 million) relates to fees due to US registered investment advisers for the introduction of wealth management clients. The increase is primarily due to a full year of results for KIM being included in FY 2022.

The Group's net fee income, after custody charges of GBP1.5 million (2021: GBP1.6 million), is GBP58.2 million (2021: GBP52.5 million), an increase of 11% on last year. The Group's average net fee margin for the year was 73bp as compared to 74bp for the year ended June 2021.

Net interest paid is made up of interest earned on bank deposits offset by interest paid on lease obligations. Refer to page 104 of the full report for our lease accounting policy and page 107 of the full report for details of net interest paid.

Costs

Total overheads before profit share, EIP, share option charge and investments (losses)/gains for the year totalling GBP19.7 million (2021: GBP16.7 million) were 18% higher than 2021, which was primarily on account of the inclusion of full year results for KIM.

The Group's cost/income ratio, arrived at by comparing total overheads with net fee income, was 34% in FY 2022 (2021: 32%).

The largest component of overheads continues to be employee-related at GBP13.2 million (2021: GBP11.1 million), an increase of 19% over last year. This is mainly on account of the full year of KIM employee costs in FY 2022 (as compared to nine months of costs in FY 2021) and a stronger US dollar during the second half of FY 2022. Average headcount in FY 2022 was 114 as compared to 99 in FY 2021. Other administrative overheads have increased by a similar 19% to GBP5.8 million (2021: GBP4.9 million) mainly due to a full year of KIM costs included in FY 2022, a stronger US dollar during the second half of FY 2022 as well as an increase in travel and marketing costs post-COVID.

Total net fee income less overheads resulted in a profit before profit-share/ EIP/share options charge and investment (losses)/gain of GBP38.4 million (2021: GBP35.6 million).

The total variable profit-share amounted to GBP9.2 million as compared with GBP7.9 million in 2021, an increase of 15.6% mainly on account of the full year of KIM costs included in FY 2022 as well as the impact of a stronger US dollar during the second half of FY 2022.

The Group's Employee Incentive Plan (EIP) charges amounted to GBP1.3 million (2021: GBP1.0 million), the increase is a result of the impact of a stronger US dollar during the second half of FY 2022 and KIM employees' full year participation in the current year's plan. The Group's EIP was offered to KIM employees from 1st January 2021 and thus FY 2021 only included a charge for six months.

Investment (losses)/gains

Investment losses of GBP0.7 million (2021: gain of GBP0.5 million) relate to the unrealised (losses)/gains on the Group's seed and other investments.

Amortisation of intangibles

Intangible assets relating to direct customer relationships, distribution channels and KIM's trade name recognised on the merger with KIM are being amortised over 7-15 years (refer to note 1.6 of the financial statements) and have resulted in an amortisation charge of GBP4.1 million for the year (2021: GBP3.3 million). Deferred tax liability as at 30th June 2022 amounted to GBP8.6 million based on the relevant tax rate, which will unwind over the useful economic life to the associated assets. Goodwill amounting to GBP69.7 million was also recognised on the completion of the merger. Foreign currency translation differences on the closing balances of intangibles have been recognised in other comprehensive income. Refer to note 12 of the full report financial statements for more details.

Taxation

The pre-tax profit of GBP23.2 million (2021: GBP22.2 million), after a corporation tax charge of GBP5.1 million in FY 2022 (2021: GBP5.3 million), at an effective rate of 22% (2021: 24%), results in a post-tax profit of GBP18.1 million (2021: GBP17.0 million), which is all attributable to the equity shareholders of the Company.

Group statement of financial position

The Group's financial position continues to be strong and liquid, with cash resources of GBP22.7 million as at 30th June 2022 as compared with GBP25.5 million as at 30th June 2021. As a result of the merger with KIM in October 2020, as at 30th June 2022, c.53% of the Group's shareholders are now based in North America. Although the Group continues to declare dividends in sterling, from October 2022, we have provided the option for shareholders to receive dividends either in sterling or US dollars, at a pre-determined exchange rate. Further, post-merger c.66% of Group's operating expenses are incurred in non-sterling currencies. In order to pay the anticipated US dollar dividends and non-sterling expenses, c.58% of the Group's cash resources are held in US dollars as at 30th June 2022.

The Group invested US$5 million (GBP3.9 million) in seeding its two REIT funds at the start of January 2019. By the end of June 2022, these investments were valued at GBP3.8 million (2021: GBP4.2 million), with the unrealised loss (2021: gains) taken to the income statement.

During the year the Group has invested US$2.5 million (GBP1.9 million) in seeding a new Global Equity CEF Fund in December 2021 and US$2.5 million (GBP1.9 million) in a Special Purpose Acquisition Company (SPAC) strategy in March 2022. By the end of June 2022, these investments were valued at GBP3.6 million (2021: nil), with the unrealised loss of GBP0.2m (2021: nil) taken to the income statement.

The International REIT and Global Equity CEF funds are assessed to be under the Group's control and are thus consolidated using accounts drawn up as of 30th June 2022. There were no third party investments, collectively known as the non-controlling interest (NCI) in these funds as at 30th June 2022 (2021: GBP0.2 million).

The Group's right-of-use assets (net of amortisation) amounted to GBP2.4 million as at 30th June 2022 as compared with GBP2.8 million as at 30th June 2021. Additions to the right-of-use assets during the year are on account of the Singapore office lease being modified and extended during the period.

The EBT purchased 552,730 shares (2021: 496,354 shares) at a cost of GBP2.7 million (2021: GBP2.5 million) in preparation for the annual EIP awards due at the end of October 2022.

The EIP has had a consistently high level of participation each year since inception (>60% of Group employees), with the first tranche of awards vesting in October 2018. Only 23.5% (2021: 21.1%) of the shares vesting during the year were sold in order to help cover the employees' resulting tax liabilities, leading to a very healthy 76.5% (2021: 78.9%) share retention within the Group.

In addition, Directors and employees exercised 92,000 (2021: 226,875) options over shares held by the EBT, raising GBP0.3 million (2021: GBP0.8 million) which was used to pay down part of the loan to the EBT.

Dividends paid during the year totalled GBP21.5 million (2021: GBP9.7 million). The total dividend of 46.5p per share comprised: the 22p per share final dividend for 2020/21, 11p per share interim dividend for the current year and a special dividend of 13.5p per share paid on 25th March 2022 (2021: 20p per share final for 2019/20 and 11p per share interim). The Group's dividend policy is set out on page 22 of the full report.

The Group is well capitalised and its regulated entities complied at all times with their local regulatory capital requirements. In the UK, the Group's principal operating subsidiary, CLIM, is regulated by the FCA. As required under the Capital Requirements Directive, the underlying risk management controls and capital position are disclosed on CLIM's website www.citlon.co.uk .

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. The table presented below 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. You can see from the illustration that a change in exchange rate from 1.25 to 1.16 increases post-tax profits by GBP1.8 million from GBP15.6 million to GBP17.4 million on FuM of US$9.4 billion.

 
 FX/Post-tax profit 
  matrix 
 Illustration of US$/GBP 
  rate effect: 
--------------------------------------  -------------  ----------  ----------  --------- 
 FuM US$bn:                        8.2            9.2         9.4         9.9       10.4 
                           -----------  -------------  ----------  ----------  --------- 
 US$/GBP                                           Post-tax, GBPm 
                           ------------------------------------------------------------- 
 1.16                             13.2           16.5        17.4        19.0       20.7 
 1.20                             12.5           15.8        16.6        18.2       19.7 
 1.25                             11.7           14.8        15.6        17.1       18.7 
 1.28                             11.3           14.3        15.1        16.6       18.1 
 1.32                             10.7           13.7        14.4        15.9       17.3 
                           -----------  -------------  ----------  ----------  --------- 
 Assumptions:                            CLIM                                   KIM 
--------------------------------------  -------------------------------------  --------- 
 1. Average net fee                      71bps                                  76bps 
 2. Annual operating                     GBP6.7m plus US$9.4m plus S$0.8m       US$7.9m 
  costs                                   (GBP1 = S$1.68) 
 3. Average tax                          22%                                    24% 
 4. Amortisation of intangible GBP3.4m per annum 
 Note: The above table is intended to illustrate the approximate 
  impact of movement in US$/GBP, given an assumed set of trading 
  conditions. It is not intended to be interpreted or used as 
  a profit forecast. 
 

It is worth noting though that while the Group's fee income is assessed by reference to FuM expressed in US dollars, almost 40% of the underlying investments are primarily in emerging market-related stocks, and therefore the US dollar market value is sensitive to the movement in the US dollar rate against the currencies of the underlying countries.

To a degree this provides a natural hedge against the movement in the US dollar given that as the US dollar weakens (strengthens) against these underlying currencies the value of the FuM in US dollar terms rises (falls).

The Group's currency exposure also relates to its subsidiaries' non-sterling assets and liabilities, which are again to a great extent in US dollars. For the UK incorporated entities, the exchange rate differences arising on their translation into sterling for reporting purposes each month is recognised in the income statement. In order to minimise the foreign exchange impact, the Group monitors its net currency position and offsets it by forward sales of US dollars for sterling. At 30th June 2022, these forward sales totalled US$24.5 million, with a weighted average exchange rate of US$1.29 to GBP1 (2021: US$8.3 million at a weighted average rate of US$1.40 to GBP1).

The exchange rate differences arising from translating functional currency to presentation currency for KIM are recognised in the Group's other comprehensive income.

Viability statement

In accordance with the provisions of the UK Corporate Governance Code, the Directors have assessed the viability of the Group over a three-year period, taking into account the Group's current position and prospects, Internal Capital Adequacy Assessment Process (ICAAP) and the potential impact of principal risks and how they are managed as detailed in the risk management report on pages 28 to 29 of the full report. The Group will produce its first Internal Capital and Risk Assessment (ICARA) in FY 2023.

Period of assessment

While the Directors have no reason to believe that the Group will not be viable over a longer period, given the uncertainties still associated with the global pandemic, as well as economic and political factors and their potential impact on financial markets, any longer time horizon assessments are subject to a level of more uncertainty due to external factors.

Taking into account the recommendations of the Financial Reporting Council in their 2021 thematic review publication, the Board has therefore determined that a three-year period to 30th June 2025 constitutes an appropriate and prudent timeframe for its viability assessment. This three year view is also more aligned to the Group's detailed stress testing.

Assessment of viability

As part of its viability statement, the Board has conducted a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. This assessment includes continuous monitoring of both internal and external environments to identify new and emerging risks, which in turn are analysed to determine how they can best be mitigated and managed.

The primary risk is the potential for loss of FuM as a result of poor investment performance, client redemptions, breach of mandate guidelines or market volatility. The Directors review the principal risks regularly and consider the options available to the Group to mitigate these risks so as to ensure the ongoing viability of the Group is sustained.

The ICAAP is reviewed by the Board and incorporates a series of stress tests on the Group's financial position over a three-year period. The level of scenarios included within the ICAAP are significantly more severe than our risk appetite, which include:

--significant fall in FuM

--significant fall in net fee margin

--combined stress (significant fall both in FuM and net fee margin)

Having reviewed the results of the stress tests, the Directors have concluded that the Group would have sufficient resources in the stressed scenario and that the Group's ongoing viability would be sustained. The stress scenario assumptions would be reassessed if necessary over the longer term. An example of a mitigating action in such scenarios would be a reduction in costs along with a reduction in dividend.

Based on the results of this analysis, the Board confirms it has a reasonable expectation that the Company and the Group will be able to continue in operation and meet their liabilities as they fall due over the next three years.

On that basis, the Directors also considered it appropriate to prepare the financial statements on the going concern basis as set out on page 84 of the full report.

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 (loss)/gain 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 9 in the full report financial statements for reconciliation.

 
Alternative Performance Measures 
 
Underlying profit and profit                 Jun 22        Jun 21 
 before tax 
------------------------------------- 
                                                GBP           GBP 
-------------------------------------  ------------  ------------ 
Net fee income                           58,203,284    52,450,936 
Administrative expenses                (30,199,393)  (25,631,432) 
Net interest paid*                        (121,054)     (117,063) 
-------------------------------------  ------------  ------------ 
Underlying profit before tax             27,882,837    26,702,441 
-------------------------------------  ------------  ------------ 
Add back/(deduct): 
Gain/(loss) on investments                (659,231)       540,172 
Acquisition-related costs                         -   (1,743,424) 
Amortisation on acquired intangibles    (4,051,223)   (3,250,185) 
-------------------------------------  ------------  ------------ 
Profit before tax                        23,172,383    22,249,004 
-------------------------------------  ------------  ------------ 
 

* Net interest paid is made up of interest earned on bank deposits offset by interest paid on lease obligations. Refer to page 104 of our full report for our lease accounting policy and page 107 of our full report for details of net interest paid.

FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

FOR THE YEARED 30TH JUNE 2022

 
 
                                                 Year to       Year to 
                                               30th June     30th June 
                                      Note          2022          2021 
                                                     GBP           GBP 
----------------------------------  ------  ------------  ------------ 
Revenue 
 Gross fee income                      2      61,293,627    55,123,274 
Commissions payable                          (1,598,421)   (1,100,708) 
Custody fees payable                         (1,491,922)   (1,571,630) 
----------------------------------  ------  ------------  ------------ 
Net fee income                                58,203,284    52,450,936 
----------------------------------  ------  ------------  ------------ 
Administrative expenses 
 Employee costs                               23,532,973    20,045,406 
Other administrative expenses                  5,970,527     4,866,625 
Depreciation and amortisation                  4,747,116     3,969,586 
----------------------------------  ------  ------------  ------------ 
                                            (34,250,616)  (28,881,617) 
----------------------------------  ------  ------------  ------------ 
Underlying operating profit           3       23,952,668    23,569,319 
Exceptional item 
Acquisition-related costs                              -   (1,743,424) 
Operating profit                      3       23,952,668    21,825,895 
Finance income                        5           32,136       557,861 
Finance expense                       5        (812,421)     (134,752) 
----------------------------------  ------  ------------  ------------ 
Profit before taxation                        23,172,383    22,249,004 
Income tax expense                    6      (5,081,232)   (5,258,486) 
----------------------------------  ------  ------------  ------------ 
Profit for the period                         18,091,151    16,990,518 
----------------------------------  ------  ------------  ------------ 
Profit attributable to: 
 Non-controlling interests (NCI)                       -        19,285 
Equity shareholders of the parent             18,091,151    16,971,233 
----------------------------------  ------  ------------  ------------ 
Basic earnings per share              7            36.9p         39.4p 
----------------------------------  ------  ------------  ------------ 
Diluted earnings per share            7            36.4p         38.8p 
----------------------------------  ------  ------------  ------------ 
 

CONSOLIDATED AND COMPANY STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARED 30TH JUNE 2022

 
                                                Group               Company 
                                                                               ------------ 
 
                                          Year to       Year to       Year to       Year to 
                                        30th June     30th June     30th June     30th June 
                                             2022          2021          2022          2021 
                                              GBP           GBP           GBP           GBP 
-----------------------------------  ------------  ------------  ------------  ------------ 
Profit for the period                  18,091,151    16,990,518    26,303,606    11,157,096 
-----------------------------------  ------------  ------------  ------------  ------------ 
Other comprehensive income: 
Foreign currency translation 
 differences                           12,826,714   (6,675,136)             -             - 
-----------------------------------  ------------  ------------  ------------  ------------ 
Total comprehensive income for 
 the period                            30,917,865    10,315,382    26,303,606    11,157,096 
-----------------------------------  ------------  ------------  ------------  ------------ 
Attributable to: 
 Equity shareholders of the parent     30,917,865    10,296,097    26,303,606    11,157,096 
Non-controlling interests                       -        19,285             -             - 
 
 

CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

30TH JUNE 2022

 
 Group   Company 
------  -------- 
 
 
                                         30th June     30th June    30th June      30th June 
                                              2022          2021         2022           2021 
                                Note           GBP           GBP          GBP            GBP 
-----------------------------  -----  ------------  ------------  -----------  ------------- 
 
Non-current assets 
Property and equipment                     511,208       455,983      247,832      280,596 
Right-of-use assets                      2,418,745     2,757,179    1,085,153    1,263,534 
Intangible assets                8     110,078,091   100,961,992       17,867        7,377 
Other financial assets                   7,434,586     4,373,485  108,912,203  106,962,140 
Deferred tax asset                         394,831       366,405        5,066        9,458 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
                                       120,837,461   108,915,044  110,268,121  108,523,105 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
Current assets 
Trade and other receivables              6,498,019     6,953,470    5,180,722    6,662,266 
Current tax receivable                           -             -    1,132,209    1,005,736 
Cash and cash equivalents               22,677,893    25,514,619    6,919,935    2,905,184 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
                                        29,175,912    32,468,089   13,232,866   10,573,186 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
Current liabilities 
Trade and other payables               (9,461,606)   (8,260,597)  (3,749,598)  (3,281,116) 
Lease liabilities                        (388,986)     (392,954)    (121,573)    (131,180) 
Current tax payable                      (538,158)   (1,367,564)            -            - 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
Creditors, amounts falling 
 due within one year                  (10,388,750)  (10,021,115)  (3,871,171)  (3,412,296) 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
Net current assets                      18,787,162    22,446,974    9,361,695    7,160,890 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
Total assets less current 
 liabilities                           139,624,623   131,362,018  119,629,816  115,683,995 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
Non-current liabilities 
Lease liabilities                      (2,213,854)   (2,348,101)  (1,026,248)  (1,148,549) 
Deferred tax liability                 (8,642,208)   (8,696,813)     (21,178)     (24,141) 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
Net assets                             128,768,561   120,317,104  118,582,390  114,511,305 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
 
  Capital and reserves 
Share capital                    9         506,791       506,791      506,791      506,791 
Share premium account                    2,256,104     2,256,104    2,256,104    2,256,104 
Merger relief reserve            9     101,538,413   101,538,413  101,538,413  101,538,413 
Investment in own shares               (7,045,817)   (6,068,431)  (7,045,817)  (6,068,431) 
Share option reserve                       126,181       195,436      105,513      109,657 
EIP share reserve                        1,481,107     1,282,884    1,481,107    1,282,884 
Foreign currency differences 
 reserve                                 6,197,463   (6,629,251)            -            - 
Capital redemption reserve                  26,107        26,107       26,107       26,107 
Retained earnings                       23,682,212    27,019,584   19,714,172   14,859,780 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
Attributable to: 
Equity shareholders 
 of the parent                         128,768,561   120,127,637  118,582,390  114,511,305 
Non-controlling interests                        -       189,467            -            - 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
Total equity                           128,768,561   120,317,104  118,582,390  114,511,305 
-----------------------------  -----  ------------  ------------  -----------  ----------- 
 

As permitted by section 408 of the Companies Act 2006, the income statement of the Parent Company is not presented as part of these financial statements. The Parent Company's profit for the financial period amounted to GBP26,303,606 (2021: GBP11,157,096).

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

30TH JUNE 2022

 
                                                                                              Foreign     Capital                       Total 
                                   Share                Investment      Share        EIP     currency  redemption                attributable 
                        Share    premium       Merger       in own     option      Share  differences     reserve      Retained     to share- 
                      capital    account       relief       shares    reserve    reserve      reserve         GBP      earnings       holders        NCI         Total 
                          GBP        GBP      reserve          GBP        GBP        GBP          GBP                       GBP           GBP        GBP           GBP 
                                                  GBP 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ----------  ------------  ------------  ---------  ------------ 
As at 30th 
 June 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 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ----------  ------------  ------------  ---------  ------------ 
 
  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 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ----------  ------------  ------------  ---------  ------------ 
 

COMPANY STATEMENT OF CHANGES IN EQUITY

30TH JUNE 2022

 
 
                                   Share                                Share        EIP      Capital                        Total 
                                 premium       Merger   Investment     option      share   redemption      Retained   attributable 
                        Share    account      reserve       in own    reserve    reserve      reserve      earnings             to 
                      capital        GBP          GBP       shares        GBP        GBP          GBP           GBP   shareholders 
                          GBP                                  GBP                                                             GBP 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
As at 30th June 
 2020                 265,607  2,256,104            -  (5,765,993)    241,467  1,232,064       26,107    14,363,024     12,618,380 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
 
  Profit for the 
  period                    -          -            -            -          -          -            -    11,157,096     11,157,096 
Other comprehensive         -          -            -            -          -          -            -             -              - 
 income 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
Total comprehensive 
 income                     -          -            -            -          -          -            -    11,157,096     11,157,096 
Transactions 
 with owners 
Issue of ordinary 
 shares on merger     241,184          -  101,538,413            -          -          -            -             -    101,779,597 
Share issue 
 costs                      -          -            -            -          -          -            -     (967,881)      (967,881) 
Share option 
 exercise                   -          -            -      830,819  (119,787)          -            -        43,546        754,578 
Purchase of 
 own shares                 -          -            -  (2,503,244)          -          -            -             -    (2,503,244) 
Share-based 
 payment                    -          -            -            -   (12,023)    760,645            -             -        748,622 
EIP 
 vesting/forfeiture         -          -            -    1,369,987          -  (709,825)            -             -        660,162 
Deferred tax 
 on share options           -          -            -            -          -          -            -       (3,142)        (3,142) 
Current tax 
 on share options           -          -            -            -          -          -            -        10,261         10,261 
Dividends paid              -          -            -            -          -          -            -   (9,743,124)    (9,743,124) 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
Total transactions 
 with owners          241,184          -  101,538,413    (302,438)  (131,810)     50,820            -  (10,660,340)     90,735,829 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
As at 30th June 
 2021                 506,791  2,256,104  101,538,413  (6,068,431)    109,657  1,282,884       26,107    14,859,780    114,511,305 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
 
  Profit for the 
  period                    -          -            -            -          -          -            -    26,303,606     26,303,606 
Other comprehensive         -          -            -            -          -          -            -             -              - 
 income 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
Total comprehensive 
 income                     -          -            -            -          -          -            -    26,303,606     26,303,606 
Transactions 
 with owners 
Share option 
 exercise                   -          -            -      320,193   (38,435)          -            -        26,587        308,345 
Purchase of 
 own shares                 -          -            -  (2,665,042)          -          -            -             -    (2,665,042) 
Share-based 
 payment                    -          -            -            -     34,291    884,265            -             -        918,556 
EIP 
 vesting/forfeiture         -          -            -    1,367,463          -  (686,042)            -             -        681,421 
Deferred tax 
 on share options           -          -            -            -          -          -            -       (5,052)        (5,052) 
Current tax 
 on share options           -          -            -            -          -          -            -        14,160         14,160 
Dividends paid              -          -            -            -          -          -            -  (21,484,909)   (21,484,909) 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
Total transactions 
 with owners                -          -            -    (977,386)    (4,144)    198,223            -  (21,449,214)   (22,232,521) 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
As at 30th June 
 2022                 506,791  2,256,104  101,538,413  (7,045,817)    105,513  1,481,107       26,107    19,714,172    118,582,390 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
 

CONSOLIDATED AND COMPANY CASH FLOW STATEMENT

FOR THE YEARED 30TH JUNE 2022

 
                                                           Group                      Company 
--------------------------------------  ------  ---------------------------  -------------------------- 
                                                    30th June     30th June     30th June     30th June 
                                          Note           2022          2021          2022          2021 
                                                          GBP           GBP           GBP           GBP 
--------------------------------------  ------  -------------  ------------  ------------  ------------ 
Cash flow from operating activities 
Profit/(Loss) before taxation                      23,172,383    22,249,004       181,843     (888,940) 
Adjustments for: 
Depreciation of property and 
 equipment                                            191,149       187,714        99,157       107,667 
Depreciation of right-of-use 
 assets                                               496,367       492,730       178,381       178,382 
Amortisation of intangible assets                   4,059,600     3,289,142         8,377        11,375 
Loss on disposal of fixed assets                        4,296             -         4,296             - 
Share-based payment charge/(credit)                    33,440      (12,023)         3,474         (697) 
EIP-related charge                                    892,097       802,314       392,458       325,971 
Unrealised loss/(gain) on investments     5           659,231     (540,172)        47,963     (282,169) 
Interest receivable                       5          (32,136)      (17,689)       (8,539)         (253) 
Interest payable on leased assets         5           153,190       133,827        87,111        97,444 
Interest payable                          5                 -           925             -             - 
Translation adjustments                                98,684        33,529     (141,847)       184,313 
--------------------------------------  ------  ------------- 
Cash generated from/(used in) 
 operations before changes 
in working capital                                 29,728,301    26,619,301       852,674     (266,907) 
Decrease/(increase) in trade 
 and other receivables                                458,199     (439,607)     1,868,752       556,716 
Increase in trade and other 
 payables                                           1,886,245     2,800,465     1,156,028     3,251,325 
--------------------------------------  ------  -------------  ------------  ------------  ------------ 
Cash generated from operations                     32,072,745    28,980,159     3,877,454     3,541,134 
Interest received                         5            32,136        17,689         8,539           253 
Interest paid on leased assets            5         (153,190)     (133,827)      (87,111)      (97,444) 
Interest paid                             5                 -         (925)             -             - 
Taxation paid                                     (7,004,074)   (5,841,493)     (154,496)     (240,142) 
Net cash generated from operating 
 activities                                        24,947,617    23,021,603     3,644,386     3,203,801 
--------------------------------------  ------  -------------  ------------  ------------  ------------ 
 
  Cash flow from investing activities 
Dividends received from subsidiaries                        -             -    26,160,323    12,200,000 
Purchase of property and equipment 
 and intangibles                                    (258,852)      (93,342)      (89,557)      (47,176) 
Purchase of non-current financial 
 assets                                           (3,877,446)         (715)   (1,889,216)         (724) 
Proceeds from sale of current 
 financial assets                                       8,442             -         8,442             - 
Cash consideration paid on merger 
 net of cash acquired                                       -       946,773             -     (107,943) 
Net cash (used in)/generated 
 from investing activities                        (4,127,856)       852,716    24,189,992    12,044,157 
--------------------------------------  ------  -------------  ------------  ------------  ------------ 
 
  Cash flow from financing activities 
Ordinary dividends paid                   10     (21,484,909)   (9,743,124)  (21,484,909)   (9,743,124) 
Purchase of own shares by employee 
 share option trust                               (2,665,042)   (2,503,244)   (2,665,042)   (2,503,244) 
Proceeds from sale of own shares 
 by employee 
share option trust                                    320,193       830,819       320,193       830,819 
Payment of lease liabilities                        (407,772)     (486,680)     (131,908)     (168,367) 
Share issue costs                                           -     (967,881)             -     (967,881) 
Net cash used in financing activities            (24,237,530)  (12,870,110)  (23,961,666)  (12,551,797) 
--------------------------------------  ------  -------------  ------------  ------------  ------------ 
 
  Net (decrease)/increase in cash 
  and cash equivalents                            (3,417,769)    11,004,209     3,872,712     2,696,161 
Cash and cash equivalents at 
 start of period                                   25,514,619    14,594,333     2,905,184       213,510 
Cash held in funds*                                    40,936        20,357             -             - 
Effect of exchange rate changes                       540,107     (104,280)       142,039       (4,487) 
--------------------------------------  ------  -------------  ------------  ------------  ------------ 
Cash and cash equivalents at 
 end of period                                     22,677,893    25,514,619     6,919,935     2,905,184 
--------------------------------------  ------  -------------  ------------  ------------  ------------ 
 

Notes:

* Cash held in International REIT and Global Equity CEF funds are consolidated using accounts drawn up as of 30th June.

NOTES TO THE FINANCIAL STATEMENTS

The contents of this preliminary announcement have been extracted from the Company's Annual Report, which is currently in print and will be distributed within the week. The information shown for the years ended 30th June 2022 and 30th June 2021 does not constitute statutory accounts and has been extracted from the full accounts for the years ended 30th June 2022 and 30th June 2021. The reports of the auditors on those accounts were unqualified and did not contain adverse statements under sections 498(2) or (3) of the Companies Act 2006. The accounts for the year ended 30th June 2021 have been filed with the Registrar of Companies. The accounts for the year ended 30th June 2022 will be delivered to the Registrar of Companies in due course.

1. SIGNIFICANT ACCOUNTING POLICIES

City of London Investment Group PLC (the Company) is a public limited company which listed on the London Stock Exchange on 29th October 2010 and is domiciled and incorporated in the United Kingdom under the Companies Act 2006.

   1.1   Basis of preparation 

The financial statements have been prepared in accordance with UK-adopted International Accounting Standards.

The Group financial statements have been prepared under the historical cost convention, except for certain financial assets held by the Group that are reported at fair value. The Group and Company financial statements have been prepared on a going concern basis.

The principal accounting policies adopted are set out below and have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.

1.2 New or amended accounting standards and interpretations

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.

The following amendments to standards have been adopted in the current period and have not had a material impact on the Group's financial statements:

--IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reforms

--IFRS 16 - COVID-19 Related rent concessions

The following amended standards and interpretations are in issue but not yet effective:

--IAS 16 (amendments) - Property, Plant and Equipment - Proceeds before Intended Use (effective 1 January 2022)

--Annual Improvements 2018-2020 Cycle - Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 4) (effective 1 January 2022)

--IFRS 3 (amendments) - Reference to the Conceptual Framework (effective 1 January 2022)

--IAS 37 (amendments) - Onerous Contracts - Cost of Fulfilling a Contract (effective 1 January 2022)

--IAS 1 (amendments) - Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current and Classification of Liabilities as Current or Non-Current - Deferral of Effect Date (effective 1 January 2024)

The Directors do not expect the adoption of these standards and amendments to have a material impact on the Financial Statements.

1.3 Accounting estimates and assumptions

The preparation of these financial statements in conformity with UK-adopted International Accounting Standards requires management to make estimates and judgments that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Whilst estimates are based on management's best knowledge and judgement using information and financial data available to them, the actual outcome may differ from those estimates.

The most significant areas of the financial statements that are subject to the use of estimates and judgments are noted below:

(i) Share-based payments

Share-based payments relate to equity settled awards and are based on the fair value of those awards at the date of grant. In order to calculate the charge for share-based compensation as required by IFRS 2 Share-based payments, the Group is required to estimate the fair value of the Employee Incentive Plan (EIP) awards due to be granted in October 2022. This cost is estimated during the financial year and at the point when the actual award is made the share-based payment charge is re-calculated and any difference is taken to the profit or loss. Refer to note 1.13 for accounting policy.

(ii) EM REIT fund

The Company has a c.20% ownership interest in the EM REIT fund. However, it does not have any voting powers and its decision-making powers are held in the capacity of an agent of the investors as a group. The Company has exercised judgement and have concluded that it does not control or have significant influence over this fund.

(iii) Impairment of Goodwill

The recognition of goodwill in a business combination and subsequent impairment assessments are based on significant accounting estimates. Note 8 details our estimates and assumptions in relation to the impairment assessment of goodwill.

1.4 Basis of consolidation

The consolidated financial statements are based on the financial statements of the Company and all of its subsidiary undertakings. The Group's subsidiaries are those entities which it directly or indirectly controls. Control over an entity is evidenced by the Group's ability to exercise its power in order to affect any variable returns that the Group is exposed to through its involvement with the entity. The consolidated financial statements also incorporate the results of the business combination using the acquisition method. The acquiree's identifiable net assets are initially recognised at their fair values at the acquisition date. The results of the acquired business are included in the consolidated statement of comprehensive income from the date on which control is obtained.

When assessing whether to consolidate an entity, the Group evaluates a range of control factors as defined under IFRS 10 Consolidated financial statements, namely:

--the purpose and design of the entity;

--the relevant activities and how these are determined;

--whether the Group's rights result in the ability to direct the relevant activities;

--whether the Group has exposure or rights to variable returns; and

--whether the Group has the ability to use its power to affect the amount of its returns.

Subsidiaries are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date that control ceases.

The Group's subsidiary undertakings as at 30th June 2022 are detailed below:

City of London Investment Group PLC holds a controlling interest in the following:

 
                                                     Controlling  Country of 
Subsidiary undertakings        Activity              interest     incorporation 
-----------------------------  --------------------  -----------  ------------- 
City of London Investment      Management of funds   100%         UK 
 Management Company Limited 
City of London US Investments  Holding company       100%         UK 
 Limited 
 Karpus Management Inc.         Management of funds   100%         USA 
 International REIT Fund *      Delaware Statutory    100%         USA 
                                 Trust Fund 
Global Equity CEF Fund         Delaware Statutory    100%         USA 
                                Trust Fund 
-----------------------------  --------------------  -----------  ------------- 
 

City of London Investment Management Company Limited holds 100% of the ordinary shares in the following:

 
City of London Investment                        Management of funds      Singapore 
 Management (Singapore) PTE 
 Ltd 
City of London Latin America                     Dormant Company          UK 
 Limited 
 
 City of London US Investments Limited holds 
  100% of the ordinary shares in the following: 
-------------------------------------------------  ---------------------  --------- 
 City of London US Services Limited                 Service company        UK 
-------------------------------------------------  ---------------------  --------- 
 
 

* International REIT fund has a year-end of 31st December. As this fund has a financial year end that differs from that of the Company, it is consolidated using accounts drawn up as of 30th June.

The registered addresses of the subsidiary companies are as follows:

 
 City of London Investment Management    77 Gracechurch Street, London 
  Company Limited                         EC3V 0AS, UK 
  City of London US Investments 
  Limited 
  City of London US Services Limited 
  City of London Latin America Limited 
--------------------------------------  ----------------------------------- 
 City of London Investment Management    20 Collyer Quay, #10-04, Singapore 
  Company (Singapore) PTE Ltd             049319 
--------------------------------------  ----------------------------------- 
 Karpus Management Inc.                  183 Sully's Trail, Pittsford, 
                                          New York 14534, USA 
--------------------------------------  ----------------------------------- 
 International REIT fund                 4005 Kennett Pike, Suite 250, 
  Global Equity CEF Fund                  Greenville, DE 19807, USA 
--------------------------------------  ----------------------------------- 
 

City of London Latin America Limited is dormant and as such is not subject to audit.

1.5 Property and equipment

For all property and equipment depreciation is calculated to write off their cost to their estimated residual values by equal annual instalments over the period of their estimated useful lives, which are considered to be:

Short leasehold property improvements-over the remaining life of the lease

Furniture and equipment-4 to 10 years

Computer and telephone equipment-4 to 10 years

1.6 Intangible assets

Intangible assets acquired separately are initially recognised at cost. Intangible assets acquired through a business combination other than goodwill, are initially measured at fair value at the date of the acquisition.

(i) Goodwill

Goodwill arises through a business combination. Goodwill represents the excess of the purchase consideration paid over the fair value of the identifiable assets, liabilities and contingent liabilities of the business at the date of the acquisition.

Goodwill is measured at cost less accumulated impairment losses. Goodwill on acquisition is allocated to a cash generating unit (CGU) that is expected to benefit from the acquisition, for the purpose of impairment testing. The CGU to which goodwill is allocated represents the lowest level at which goodwill is monitored for internal management purposes. A CGU is identified as a group of assets generating cash inflows which are independent from cash inflows from other Group cash generating assets and are not larger than the Group's operating segments.

(ii) Direct customer relationships and distribution channels

The fair values of direct customer relationships and distribution channels acquired in the business combination have been measured using a multi-period excess earnings method. These are amortised on a straight line basis over the period of their expected benefit, being a finite life of 10 years for direct customer relationships and a finite life of 7 years for distribution channels.

(iii) Trade name

The fair value of the trade name acquired in the business combination has been measured using a relief from royalty method. This is amortised on a straight line basis over the period of its expected benefit, being a finite life of 15 years.

(iv) Software licences

Software licences are capitalised at cost and amortised on a straight line basis over the useful life of the asset. Costs are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Costs also include directly attributable overheads. The estimated useful life over which the software is depreciated is between 4 to 10 years. Software integral to a related item of hardware equipment is accounted for as property and equipment. Costs associated with maintaining computer software programs are expensed to the income statement as incurred.

1.7 Impairment of goodwill and other assets

Goodwill arising on acquisition is not subject to annual amortisation and other assets listed in 1.6 (ii) and (iii) above which are amortised on a straight line basis are tested annually for impairment, or more frequently if changes in circumstances indicate a possible impairment. The Group annually reviews the carrying value of its CGU to ensure that those assets have not suffered from any impairment loss. The review compares the recoverable amount of the CGU to which goodwill is allocated against its carrying amount. Where the recoverable amount is higher than the carrying amount, no impairment is required. The recoverable amount is defined as the higher of (a) fair value less costs to sell or (b) value in use, which is based on the present value of future cash flows expected to derive from the CGU.

Any impairment loss is recognised immediately through the income statement.

1.8 Business Combinations

The Group accounts for business combinations using the acquisition method. A business combination is determined where in a transaction, the asset acquired and the liabilities assumed constitute a business.

The consideration transferred on the date of the transaction is measured at fair value as are the identifiable assets acquired and liabilities assumed. Intangible assets are recognised separately from goodwill at the acquisition date only when they are identifiable.

1.9 Financial instruments

Financial instruments are only recognised in the financial statements and measured at fair value when the Group becomes party to the contractual provisions of the instrument.

Under IFRS 9 Financial Instruments, financial assets are classified as either:

--amortised at cost;

--at fair value through the profit or loss; or

--at fair value through other comprehensive income.

Financial liabilities must be classified at fair value through profit or loss or at amortised cost.

The Group's investments in securities and derivatives are classified as financial assets or liabilities at fair value through profit or loss. Such investments are initially recognised at fair value, and are subsequently re-measured at fair value, with any movement recognised in the income statement. The fair value of the Group's investments is determined as follows:

Shares-priced using the quoted market mid-price*

Options-priced using the quoted market bid price

Forward currency trades-priced using the forward exchange bid rates from Bloomberg

*The funds managed by the Group are valued at the mid-price in accordance with US GAAP. Therefore, where the Group has identified investments in those funds as subsidiaries, the fair value consolidated is the net asset values as provided by the administrator of the funds. The underlying investments in these funds are liquid companies with a small bid-ask spread.

The consolidated Group assesses and would recognise a loss allowance for expected credit losses on financial assets which are measured at amortised cost. The measurement of the loss allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.

Where there has not been a significant increase in exposure to credit risk since initial recognition, a twelve-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next twelve months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.

Under the expected credit loss model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This model is applicable to assets amortised at cost or at fair value through other comprehensive income. The assets on the Group's balance sheet to which the expected loss applies to are fees receivable. At the end of each reporting period, the Group assesses whether the credit risk of these trade receivables has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.

1.10 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and on-demand deposits with an original maturity of three months or less from inception, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

1.11 Trade payables

Trade payables are measured at initial recognition at fair value and subsequently measured at amortised cost.

1.12 Current and deferred taxation

The Group provides for current tax according to the tax regulations in each jurisdiction in which it operates, using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. However, deferred tax is not accounted for if it arises from goodwill or the initial recognition (other than in a business combination) of other assets or liabilities in a transaction that affects neither the accounting nor the taxable profit or loss.

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. The tax rates used are those that have been enacted, or substantively enacted, by the end of the reporting period. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly as part of other comprehensive income, in which case the deferred tax is also dealt with as part of other comprehensive income. For share-based payments, where the estimated future tax deduction exceeds the amount of the related cumulative remuneration expense, the excess deferred tax is recognised directly in equity.

1.13 Share-based payments

The Company operates an Employee Incentive Plan (EIP) which is open to all employees in the Group. Awards are made to participating employees over shares under the EIP where they have duly waived an element of their annual profit-share before the required waiver date, in general before the start of the relevant financial year.

The awards are made up of two elements: Deferred Shares and Bonus Shares. The Deferred Shares represent the waived profit-share and the Bonus Shares represent the additional award made by the Company as a reward for participating in the EIP. Awards will vest (i.e. no longer be forfeitable) over a three-year period with one-third vesting each year for all employees, other than Executive Directors of CLIG. Awards granted from October 2021 onwards will vest (i.e. no longer be forfeitable) over a five-year period with one-fifth vesting each year for the Executive Directors of CLIG.

The full cost of the Deferred Shares is recognised in the year to which the profit-share relates. The value of the Bonus Shares is expensed on a straight line basis over the period from the date the employees elect to participate to the date that the awards vest. This cost is estimated during the financial year and at the point when the actual award is made, the share-based payment charge is re-calculated and any difference is taken to the profit or loss.

The Company operates an Employee Share Option Plan. The fair value of the employee services received in exchange for share options is recognised as an expense. The fair value has been calculated using the Black-Scholes pricing model, and is being expensed on a straight line basis over the vesting period, based on the Company's estimate of the number of shares that will actually vest. At the end of the three-year period when the actual number of shares vesting is known, the share-based payment charge is re-calculated and any difference is taken to the profit or loss.

1.14 Revenue recognition

Revenue is recognised within the financial statements based on the services that are provided in accordance with current investment management agreements (IMAs). The fees are charged as a percentage of Funds under Management. The performance obligations encompassed within these agreements are based on daily/monthly asset management of funds. Payment terms are monthly/quarterly in advance or in arrears. The Group has an enforceable right to the payment of these fees for services provided, in accordance with the underlying IMAs.

For each contract, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of services promised.

1.15 Commissions payable

A portion of the Group's revenue is subject to commissions payable under third party marketing agreements. Commissions payable are recognised in the same period as the revenue to which they relate.

1.16 Foreign currency translation

Foreign currency transactions are translated using the exchange rates prevailing at the transaction date. Monetary assets held in a currency other than the functional currency are translated at the end of each financial period at the period end closing rates.

The functional currency of the Group's subsidiaries, City of London Investment Management Company Limited, Karpus Investment Management and City of London US Services Limited, is US dollars.

The functional currency of City of London Investment Group PLC (the Company) is sterling. The Group uses sterling as the presentation currency and under IAS 21 'The Effects of Changes in Foreign Exchange Rates', exchange rate differences arising from translating a subsidiary company's functional currency to presentation currency have to be recognised in the Group's other comprehensive income.

Accordingly, on consolidation, exchange rate differences arising from translating functional currency to presentation currency for Karpus Investment Management are recognised in the Group's other comprehensive income.

However, for its other subsidiaries, the Group operates a policy whereby it manages foreign exchange exposure of subsidiary monetary assets through its inter-company accounts. Any gains or losses are recognised within the Company's own income statement. Therefore, on consolidation, there are no exchange differences arising from the translation of monetary items from the subsidiary functional currency to its presentational currency. This means that all such exchange differences are included in the income statement and no split is required between other comprehensive income and the income statement.

The subsidiaries translate the non-monetary assets at the period end rate and any movement is reflected in other comprehensive income.

1.17 Leases

The total outstanding lease cost, discounted at the Group's weighted average incremental borrowing rate to its present value, is shown as a lease liability in the statement of financial position. The payment of the lease charge is allocated between the lease liability and an interest charge in the income statement.

On recognition of the lease liability, the associated asset is shown as a right-of-use asset. This is further adjusted for any lease payments made prior to adoption and any future restoration costs as implicit within the lease contract. The resulting total value of the right-of-use asset is depreciated on a straight line basis over the term of the lease period.

The Group re-measures the lease liability whenever:

--there is a change in the lease term;

--there is a change in the lease payments; and

--a lease contract is modified and the lease modification is not accounted for as a separate lease.

Where there is a change in the lease term or lease payments, the lease liability is re-measured by discounting the revised lease payments at the current or revised discount rate depending on the nature of the event. Where the lease liability is re-measured, a corresponding adjustment is made to the right-of-use assets.

Where extension/termination options exists within a lease, the Group would assess at the lease commencement date as to whether it is reasonably certain that it will exercise these options. The Group would reassess these option if there was a significant event or significant change in circumstances within its control, which would warrant the Group with reasonable certainty to exercise these options.

Payments in relation to short-term leases, those that are less than twelve months in duration continue to be expensed to the income statement on a straight line basis. At the end of the year, all of the Group's leases were recognised as right-of-use assets.

1.18 Pensions

The Group operates defined contribution pension schemes covering the majority of its employees. The costs of the pension schemes are charged to the income statement as they are incurred. Any amounts unpaid at the end of the period are reflected in other creditors.

1.19 Exceptional items

Exceptional items are significant items of non-recurring expenditure that have been separately presented by virtue of their nature to enable a better understanding of the Group's financial performance. Exceptional items relate to acquisition-related costs incurred by the Group in relation to its merger. There were no exceptional items in the current financial year.

   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.

 
                                 USA     Canada         UK  Europe (ex   Other        Total 
                                 GBP        GBP        GBP         UK)     GBP          GBP 
                                                                   GBP 
-----------------------  -----------  ---------  ---------  ----------  ------  ----------- 
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 
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 its 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 GBP5,825,226 (2021: GBP5,470,051) 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 either of the reporting periods.

 
3.   OPERATING PROFIT 
 
 
                                                         Year to    Year to 
                                                  30th June 2022  30th June 
       The operating profit is arrived at after              GBP       2021 
       charging:                                                        GBP 
     -------------------------------------------  --------------  --------- 
 Depreciation of property and equipment                  191,149    187,714 
 Depreciation of right-of-use assets                     496,367    492,730 
 Amortisation of intangible assets                     4,059,600  3,289,142 
     Auditor's remuneration: 
 - Statutory audit                                       141,984    122,318 
 - Audit related assurance services                       25,000     20,297 
 - Under/(over)-accrual of prior year audit 
  fees                                                     5,143      (168) 
 Short-term lease expense                                 13,196      7,891 
 -----------------------------------------------  --------------  --------- 
 
 
 
   4    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. doing business as 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 GBP101,887,540. 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 and 108 of the Annual Report and Accounts for the year ended 30th June 2021.

 
5 FINANCE INCOME AND FINANCE EXPENSE 
                                                Year to     Year to 
                                         30th June 2022   30th June 
                                                    GBP        2021 
                                                                GBP 
--------------------------------------  ---------------  ---------- 
Finance income: 
Interest on bank deposits                        32,136      17,689 
Unrealised gain on investments                        -     540,172 
--------------------------------------  ---------------  ---------- 
Total finance income                             32,136     557,861 
--------------------------------------  ---------------  ---------- 
Finance expense: 
Unrealised loss on investments                (659,231)           - 
Interest payable on lease liabilities         (153,190)   (133,827) 
Other interest payable                                -       (925) 
--------------------------------------  ---------------  ---------- 
Total finance expense                         (812,421)   (134,752) 
--------------------------------------  ---------------  ---------- 
 
Net finance (expense)/income                  (780,285)     423,109 
--------------------------------------  ---------------  ---------- 
 
 
6   TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES 
 
 
                                                                  Year to    Year to 
                                                           30th June 2022  30th June 
      (a) Analysis of tax charge on ordinary activities:              GBP       2021 
                                                                                 GBP 
    -----------------------------------------------------  --------------  --------- 
    Current tax: 
 UK corporation tax at 19% (2021: 19%) based 
  on the profit for the period                                  4,533,109  4,510,249 
 Double taxation relief                                         (909,780)  (947,061) 
 Adjustments in respect of prior years                           (53,810)     35,246 
 --------------------------------------------------------  --------------  --------- 
 UK tax total                                                   3,569,519  3,598,434 
 --------------------------------------------------------  --------------  --------- 
 Foreign tax                                                    2,720,112  2,435,832 
 Adjustments in respect of prior years                           (54,854)   (81,966) 
 Foreign tax total                                              2,665,258  2,353,866 
 --------------------------------------------------------  --------------  --------- 
 Total current tax charge                                       6,234,777  5,952,300 
 --------------------------------------------------------  --------------  --------- 
    Deferred tax: 
 UK - origination and reversal of temporary 
  differences                                                   (119,105)     39,423 
 Foreign - origination and reversal of temporary 
  differences                                                 (1,034,440)  (733,237) 
 --------------------------------------------------------  --------------  --------- 
 Total deferred tax credit                                    (1,153,545)  (693,814) 
 --------------------------------------------------------  --------------  --------- 
 Total tax charge in income statement                           5,081,232  5,258,486 
 --------------------------------------------------------  --------------  --------- 
 

(b) Factors affecting tax charge for the current period:

The tax charge on profit for the year is different to that resulting from applying the standard rate of corporation tax in the UK - 19% (prior year - 19%). The differences are explained below:

 
 
                                                            Year to      Year to 
                                                     30th June 2022    30th June 
                                                                GBP         2021 
                                                                             GBP 
-------------------------------------------------  ----------------  ----------- 
Profit on ordinary activities before tax                 23,172,383   22,249,004 
-------------------------------------------------  ----------------  ----------- 
Tax on profit from ordinary activities at 
 the standard rate                                      (4,402,753)  (4,227,311) 
Effects of: 
Unrelieved overseas tax                                 (3,614,710)  (2,793,433) 
Foreign profits taxed at rates different to 
 those of the UK                                          2,574,111    1,922,253 
Expenses not deductible for tax purposes                  (774,538)    (947,021) 
(Losses)/gains not eligible for tax                       (115,481)       49,022 
Capital allowances less than depreciation                  (14,177)     (19,255) 
Prior period adjustments                                    108,664       46,720 
Deferred tax originating from timing differences          1,153,545      693,814 
Other                                                         4,107       16,725 
-------------------------------------------------  ----------------  ----------- 
Total tax charge in income statement                    (5,081,232)  (5,258,486) 
-------------------------------------------------  ----------------  ----------- 
 

7 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 period ended 30th June 2022.

As set out in the Directors' report on page 84 of the full report the Employee Benefit Trust held 1,708,763 (2021: 1,591,158) ordinary shares in the Company as at 30th June 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 period ended 30th June 2022.

Reported earnings per share

 
                                                                  Year to                             Year to 
------------------------------------- 
                                                           30th June 2022                      30th June 2021 
------------------------------------- 
                                                                      GBP                                 GBP 
-------------------------------------  ----------------------------------  ---------------------------------- 
Profit attributable to the equity 
 shareholders of the parent for 
 basic earnings                                                18,091,151                          16,971,233 
-------------------------------------  ----------------------------------  ---------------------------------- 
 
                                                         Number of shares                    Number of shares 
Issued ordinary shares as at 1st 
 July                                                          50,679,095                          26,560,707 
Effect of own shares held by EBT                              (1,614,063)                         (1,502,266) 
Effect of shares issued in the 
 period                                                                 -                          18,039,233 
Weighted average shares in issue                               49,065,032                          43,097,674 
Effect of movements in share options 
 and EIP awards                                                   647,134                             677,739 
Diluted weighted average shares 
 in issue                                                      49,712,166                          43,775,413 
Basic earnings per share (pence)                                     36.9                                39.4 
Diluted earnings per share (pence)                                   36.4                                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 relating tax impact and non-controlling interest.

Underlying profit for calculating underlying earnings per share

 
                                                                  Year to                           Year to 
                                                                30th June                    30th June 2021 
                                                                     2022 
                                                                      GBP                               GBP 
Profit before tax                                              23,172,383                        22,249,004 
Add back: 
- Loss/(gain) on investments                                      659,231                         (540,172) 
- Acquisition-related costs                                             -                         1,743,424 
- Amortisation on acquired intangibles                          4,051,223                         3,250,185 
Underlying profit before tax                                   27,882,837                        26,702,441 
Tax expense as per the consolidated 
 income statement                                             (5,081,232)                       (5,258,486) 
Tax effect of fair value adjustments                            (125,253)                           102,633 
Unwinding of deferred tax liability                             (972,294)                         (780,045) 
Adjustment for NCI                                                      -                          (19,285) 
Underlying profit after tax for the 
 calculation of underlying earnings 
 per share                                                     21,704,058                        20,747,258 
Underlying earnings per share (pence)                                44.2                              48.1 
Underlying diluted earnings per share 
 (pence)                                                             43.7                              47.4 
 

* This is an Alternative Performance Measure (APM). Please refer to the Financial Review for more details on APMs.

   8    INTANGIBLE ASSETS 
 
Group                                       Direct 
                          Goodwill        customer  Distribution        Trade  Long term                          30th 
                                     relationships      channels         name   software          Total      June 2021 
                               GBP             GBP           GBP          GBP        GBP            GBP            GBP 
Cost 
At start of period      65,123,297      33,472,334     4,590,186    1,018,983    689,100    104,893,900        761,971 
Acquired on 
 acquisition                     -               -             -            -          -              -    111,323,195 
Additions                        -               -             -            -     18,867         18,867              - 
Currency translation     8,839,613       4,343,439       583,967      134,247          -     13,901,266    (7,191,266) 
At close of period      73,962,910      37,815,773     5,174,153    1,153,230    707,967    118,814,033    104,893,900 
Amortisation charge 
At start of period               -       2,673,300       522,535       54,350    681,723      3,931,908        714,662 
Currency translation             -         612,302       119,684       12,448          -        744,434       (71,896) 
Charge for the 
 period                          -       3,332,159       651,319       67,745      8,377      4,059,600      3,289,142 
At close of period               -       6,617,761     1,293,538      134,543    690,100      8,735,942      3,931,908 
Net book value: 
 At close of period     73,962,910      31,198,012     3,880,615    1,018,687     17,867    110,078,091    100,961,992 
 
  Company 
Cost 
At start of period                                                                57,162         57,162         57,162 
Additions                                                                         18,867         18,867              - 
At close of period                                                                76,029         76,029         57,162 
Amortisation charge 
At start of period                                                                49,785         49,785         38,410 
Charge for the 
 period                                                                            8,377          8,377         11,375 
At close of period                                                                58,162         58,162         49,785 
 
  Net book value                                                                  17,867         17,867          7,377 
 

Goodwill, direct customer relationships, distribution channels and trade name acquired through 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 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 during the financial year in relation to direct client relationships, distribution channels and trade name was GBP4,051,223 (2021: GBP3,250,185).

Impairment

Goodwill acquired through the business combination is in relation to the merger with KIM and relates to the acquired workforce and future expected growth of the CGU.

The Group has carried out an annual review of the carrying value of the CGU to which the goodwill is allocated to see if it has suffered any impairment. The recoverable amount of the CGU is determined by its value in use. This income-based approach model is based on the estimates of future cash flows, over a four-year period plus a terminal value, discounted to its present value.

The Group's cash flow forecasts are based on its most recent and current trading activity and on current financial budgets for twelve months that are approved by the Board. The key assumptions underlying the budgets are based on the most recent trading activity with built in organic growth, revenue and cost margins. The Board approved budget is extrapolated for a total of three years and then a terminal value is calculated. The annual growth rate used for extrapolating revenue forecasts was 4.1% and for direct costs was 3.0% based on the Group's expectation of future growth of the business.

A Gordon growth model was applied to estimate the terminal value based on a long-term growth rate of 3.0% and is based on both economic and industry growth outlooks. The pre-tax discount rate used to measure the value in use of the cash generating unit was 17.4% which reflects specific risks relating to the CGU and is based on the risk adjusted weighted average cost of capital.

The goodwill impairment assessment date of 30th April 2022 was different to the current reporting date. The performance of the CGU is reviewed for the period between the assessment date and the reporting date to determine whether any changes in circumstances or impairment indicators have occurred since the assessment date. Following our review, it was determined that there were no changes in circumstances or impairment indicators that would require the CGU to be impaired at the reporting date.

The recoverable amount of the CGU exceeded the carrying amount of the CGU at 30th April 2022 by GBP1,391,854 (2021: GBP6,745,000).

Sensitivity analysis was applied to the key assumptions to measure the impact on the headroom in existence under the current impairment review. The areas where the sensitivity analysis was tested related to discount rates used, movements in FuM, and impact on margins.

Following the sensitivity review, the recoverable amount of this CGU would equal its carrying amount if the key assumptions were to change as follows:

 
                              2022 
                           From     To 
Pre-tax discount rate     17.4%  17.6% 
Average FuM growth rate    2.5%   1.5% 
Average EBIT margin       54.5%    54% 
 

The Directors and management have considered and assessed possible changes to other key assumptions and have not identified any instances that could cause the carrying amount of the CGU to exceed its recoverable amount. Current economic circumstances have become more uncertain due to events outside the control of the business such as the impact of the war in Ukraine. The potential impact on global markets cannot be reliably estimated and if these result in a sustained period of weakness in financial markets this could result in a future impairment.

Based on the recoverable amount, using the value in use model, no impairment was required at 30th June 2022.

   9    SHARE CAPITAL AND MERGER RELIEF RESERVE 
 
                                        Share capital  Merger relief 
                                                             reserve 
Group and Company                                 GBP            GBP 
                                        ------------- 
At start and end of period 50,679,095 
 ordinary shares of 1p each                   506,791    101,538,413 
                                        ------------- 
 
 
10 DIVID 
                                                    30th June    30th June 
                                                         2022         2021 
                                                          GBP          GBP 
                                                  ----------- 
Dividends paid: 
Interim dividend of 11p per share (2021: 11p)       5,394,361    4,762,818 
Special dividend of 13.5p per share (2021: nil)     6,620,352            - 
30th June 2021 of 22p per share (2020: 20p)         9,470,196    4,980,306 
                                                   21,484,909    9,743,124 
 

A final dividend of 22p per share (gross amount payable GBP11,149,401; net amount payable GBP10,773,473) has been proposed, payable on 4th November 2022, subject to shareholder approval, to shareholders who are on the register of members on 30th September 2022.

*Difference between gross and net amounts is due to shares held at EBT that do not receive dividend.

11 FINANCIAL INSTRUMENTS

The Group's financial assets include cash and cash equivalents, investments and other receivables. Its financial liabilities include accruals, lease liabilities and other payables. The fair value of the Group's financial assets and liabilities is materially the same as the book value.

(i) Financial instruments by category

The tables below show the Group and Company's financial assets and liabilities as classified under IFRS 9 Financial Instruments:

 
Group 
                                                   Assets at 
                                    Financial     fair value 
                                       assets        through 
30th June 2022                   at amortised      profit or       Total 
                                         cost           loss 
Assets as per statement of                GBP            GBP         GBP 
 financial position 
Other non-current financial 
 assets                                     -      7,434,586   7,434,586 
Trade and other receivables         5,210,164              _   5,210,164 
Cash and cash equivalents          22,677,893              _  22,677,893 
Total                              27,888,057      7,434,586  35,322,643 
 
                                                 Liabilities 
                                                          at 
                                                  fair value 
                                    Financial        through 
                                  liabilities 
                                 at amortised      profit or       Total 
                                         cost           loss 
Liabilities as per statement              GBP            GBP         GBP 
 of financial position 
Trade and other payables            8,350,276        945,898   9,296,174 
Current lease liabilities             388,986              -     388,986 
Non-current lease liabilities       2,213,854              -   2,213,854 
Total                              10,953,116        945,898  11,899,014 
 
 
                                                   Assets at 
                                                        fair 
                                    Financial  value through 
  30th June 2021                    assets at      profit or       Total 
                                    amortised           loss 
                                         cost 
Assets as per statement of                GBP            GBP         GBP 
 financial position 
Other non-current financial 
 assets                                     -      4,373,485   4,373,485 
Trade and other receivables         5,871,731              _   5,871,731 
Cash and cash equivalents          25,514,619              _  25,514,619 
Total                              31,386,350      4,373,485  35,759,835 
 
 
                                                 Liabilities 
                                                          at 
                                                  fair value 
                                    Financial        through 
                                  liabilities 
                                 at amortised      profit or       Total 
                                         cost           loss 
Liabilities as per statement              GBP            GBP         GBP 
 of financial position 
Trade and other payables            8,040,676         69,558   8,110,234 
Current lease liabilities             392,954              -     392,954 
Non-current lease liabilities       2,348,101              -   2,348,101 
Total                              10,781,731         69,558  10,851,289 
 
 
Company 
                                                                Assets at 
                                  Investment     Financial     fair value 
                                          in        assets        through 
30th June 2022                  subsidiaries  at amortised      profit or        Total 
                                                      cost           loss 
Assets as per statement of               GBP           GBP            GBP          GBP 
 financial position 
Other non-current financial 
 assets                          103,244,651     3,849,385      1,818,167  108,912,203 
Trade and other receivables                -     4,764,485              -    4,764,485 
Cash and cash equivalents                  -     6,919,935              -    6,919,935 
Total                            103,244,651    15,533,805      1,818,167  120,596,623 
 
 
                                                              Liabilities 
                                                                       at 
                                                               fair value 
                                                 Financial        through 
                                               liabilities 
                                              at amortised      profit or        Total 
                                                      cost           loss 
Liabilities as per statement                           GBP            GBP          GBP 
 of financial position 
Trade and other payables                         3,530,682         76,196    3,606,878 
Current lease liabilities                          121,573              -      121,573 
Non-current lease liabilities                    1,026,248              -    1,026,248 
Total                                            4,678,503         76,196    4,754,699 
 
                                                                Assets at 
                                  Investment     Financial     fair value 
                                          in        assets        through 
30th June 2021                  subsidiaries  at amortised      profit or        Total 
                                                      cost           loss 
Assets as per statement of               GBP           GBP            GBP          GBP 
 financial position 
Other non-current financial 
 assets                          103,127,205     1,960,169      1,874,766  106,962,140 
Trade and other receivables                -     6,322,463              -    6,322,463 
Cash and cash equivalents                  -     2,905,184              -    2,905,184 
Total                            103,127,205    11,187,816      1,874,766  116,189,787 
 
 
                                                              Liabilities 
                                                                       at 
                                                               fair value 
                                                 Financial        through 
                                               liabilities 
                                              at amortised      profit or        Total 
                                                      cost           loss 
Liabilities as per statement                           GBP            GBP          GBP 
 of financial position 
Trade and other payables                         3,149,674              -    3,149,674 
Current lease liabilities                          131,180              -      131,180 
Non-current lease liabilities                    1,148,549              -    1,148,549 
Total                                            4,429,403              -    4,429,403 
 

(ii) 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.

 
Group 
                                    Level 1    Level 2    Level 3      Total 
30th June 2022                          GBP        GBP        GBP        GBP 
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 
 
 
                                    Level 1    Level 2    Level 3      Total 
  30th June 2021                        GBP        GBP        GBP        GBP 
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 
 
  Company 
                                    Level 1    Level 2    Level 3      Total 
  30th June 2022                        GBP        GBP        GBP        GBP 
Investment in other non-current 
 financial assets                         -  1,818,167          -  1,818,167 
Total                                     -  1,818,167          -  1,818,167 
 
 
                                    Level 1    Level 2    Level 3      Total 
  30th June 2021                        GBP        GBP        GBP        GBP 
Investment in other non-current 
 financial assets                         -  1,874,766          -  1,874,766 
Total                                     -  1,874,766          -  1,874,766 
 

Level 3

Level 3 assets as at 30th June 2022 are nil (2021: nil).

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 GBP519,633 (2021: net loss GBP60,607).

(iii) Foreign currency risk

Almost all 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 exposure.

The Group assesses its hedging requirements and executes forward foreign exchange transactions so as to substantially reduce the Group's exposure to currency market movements. The level of forward currency hedging is such as is judged by the Directors to be consistent with market conditions.

As at 30th June 2022, the Group had net asset balances of US$23,917,936 (2021: US$9,211,328), offset by forward sales totalling US$24,500,000 (2021: US$8,300,000). Other significant net asset balances were C$499,036 (2021: C$648,301), and SGD1,736,510 (2021: SGD1,924,212).

Had the US dollar strengthened or weakened against sterling as at 30th June 2022 by 10%, with all other variables held constant, the Group's net assets would have increased or decreased (respectively) by less than 1%, because the US dollar position is hedged by the forward sales.

(iv) Market risk

Changes in market prices, such as foreign exchange rates and equity prices will affect the Group's income and the value of its investments.

Where the Group holds investments in its own funds categorised as unlisted investments, and in other listed investments, the market price risk is managed through diversification of the portfolio. A 10% increase or decrease in the price level of the funds' relevant benchmarks, with all other variables held constant, would result in an increase or decrease of approximately GBP0.3 million in the value of the investments and profit before tax.

The Group's International REIT and Global Equity CEF funds have been consolidated as controlled entities, and therefore the securities held by the funds are reported in the consolidated statement of financial position under investments. At 30th June 2022, all those securities were listed on a recognised exchange. A 10% increase or decrease in the price level of the securities would result in a gain or loss respectively of approximately GBP0.4 million to the Group.

The Group is also exposed to market risk indirectly via its Funds under Management, from which its fee income is derived. To hedge against potential losses in fee income, the Group may look to invest in securities or derivatives that should increase in value in the event of a fall in the markets. The purchase and sale of these securities are subject to limits established by the Board and are monitored on a regular basis. The investment management and settlement functions are totally segregated.

The profit from hedging recognised in the Group income statement for the period is GBPnil (2021: GBPnil).

(v) Credit risk

The majority of debtors relate to management fees due from funds and segregated account holders. As such, the Group is able to assess the credit risk of these debtors as minimal. For other debtors a credit evaluation is undertaken on a case by case basis.

The Group has zero experience of bad or overdue debts.

The majority of cash and cash equivalents held by the Group are with leading UK and US banks. The credit risk is managed by carrying out regular reviews of each institution's credit rating and of their published financial position. Given their high credit ratings, management does not expect any counterparty to fail to meet its obligations.

(vi) Liquidity risk

The Group's liquidity risk is minimal because commission payable forms the major part of trade creditors, and payment is made only upon receipt of the related fee income plus the Group's strategy is to maximise its cash position. In addition, the Group's investments in funds that it manages can be liquidated immediately if required.

(vii) Interest rate risk

The Group has no borrowings, and therefore has no exposure to interest rate risk other than that which attaches to its interest earning cash balances and forward currency contracts. The Group's strategy is to maximise the amount of cash which is maintained in interest bearing accounts, and to ensure that those accounts attract a competitive interest rate. At 30th June 2022, the Group held GBP22,677,893 (2021: GBP25,514,619) in cash balances, of which GBP19,381,084 (2021: GBP23,911,707) was held in bank accounts which attract variable interest rates. The effect of a 100 basis points increase/decrease in interest rates on the Group's net assets would not be material.

(viii) Capital risk management

The Group manages its capital to ensure that all entities within the Group are able to operate as going concerns and exceed any minimum externally imposed capital requirements. The capital of the Group and Company consists of equity attributable to the equity holders of the Parent Company, comprising issued share capital, share premium, retained earnings and other reserves as disclosed in the statement of changes in equity.

The Group's operating subsidiary company in the UK, City of London Investment Management Company Ltd is subject to the minimum capital requirements of the Financial Conduct Authority (FCA) in the UK. This subsidiary held surplus capital over its requirements throughout the period.

The Group is required to undertake an Internal Capital Adequacy Assessment Process (ICAAP), under which the Board quantifies the level of capital required to meet operational risks. The Group will produce its first Internal Capital and Risk Assessment (ICARA) in FY 2023. The objective of this is to ensure that the Group has adequate capital to enable it to manage risks which are not adequately covered under the Pillar 1 requirements. This process includes stress testing for the effects of major risks, such as a significant market downturn, and includes an assessment of the Group's ability to mitigate the risks.

12 POST BALANCE SHEET EVENTS

There have been no material events occurring between the balance sheet date and the date of signing this report.

APPIX

1. Key risks

The Board has conducted a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. This assessment includes continuous monitoring of both internal and external environments to identify new and emerging risks, which in turn are analysed to determine how they can best be mitigated and managed. The primary risk is the potential for loss of FuM as a result of poor investment performance, client redemptions, a breach of mandate guidelines or market volatility. The Group seeks to attract and retain clients through consistent outperformance supplemented by first class client servicing.

In addition to the above key business risk, the Group has outlined what it considers to be its other principal risks, including the controls in place and any mitigating factors.

 
                      Principal risk               Controls / mitigation 
Key person risk       Risk that key employees      Team approach, internal 
                       across the business          procedures, knowledge 
                       leave/significant            sharing. Remuneration 
                       reliance on a small          packages reviewed 
                       number of key employees.     as needed to ensure 
                                                    talent/key employees 
                                                    are retained. 
Technology, IT /      Risk that technology         IT monitors developments 
 cybersecurity and     systems and support          in this area and ensures 
 business continuity   are inadequate or            that systems are adequately 
 risks                 fail to adapt to changing    protected. Additional 
                       requirements; systems        IT spend has resulted 
                       are vulnerable to            in a number of ongoing 
                       third party penetration      systems vulnerability 
                       or that the business         testing that has taken 
                       cannot continue in           place on the network, 
                       a disaster.                  along with ongoing 
                                                    monitoring of the 
                                                    network to reduce 
                                                    our vulnerabilities. 
                                                    The Group actively 
                                                    maintains a Disaster 
                                                    Recovery/Business 
                                                    Continuity plan. All 
                                                    offices maintain backups 
                                                    of all local servers, 
                                                    applications and data. 
                                                    The US replicates 
                                                    its backup to the 
                                                    UK cloud provider 
                                                    and vice versa. Employees 
                                                    across its four offices 
                                                    are able to work remotely, 
                                                    accessing information 
                                                    and maintaining operations. 
Material error /      Risk of a material           Mandate guidelines 
 mandate breach        error or investment          are coded (where possible) 
                       mandate breach occurring.    into the order management 
                                                    system by the Investment 
                                                    Management/Compliance 
                                                    teams of each operating 
                                                    subsidiary. 
Regulatory and legal  Risk of legal or regulatory  Compliance teams of 
 risk                  action resulting in          each subsidiary monitor 
                       fines, penalties,            relevant regulatory 
                       censure or legal action      developments - both 
                       arising from failure         new regulations as 
                       to identify or meet          well as changes to 
                       regulatory and legislative   existing regulations 
                       requirements in the          that impact their 
                       jurisdictions in which       respective subsidiary. 
                       the Group and its            Implementation is 
                       operating subsidiaries       done as practicably 
                       operate, including           as possible taking 
                       those as a result            into account the size 
                       of being a listed            and nature of the 
                       entity on the London         business. 
                       Stock Exchange. Risk         The finance team keeps 
                       that new regulation          abreast of any changes 
                       or changes to the            to Listing Rules, 
                       interpretation of            accounting and other 
                       existing regulation          standards that may 
                       affects the Group's          have an impact on 
                       operations and cost          the Group. 
                       base.                        Finance and both the 
                                                    compliance teams receive 
                                                    regular updates from 
                                                    a variety of external 
                                                    sources including 
                                                    regulators, law firms, 
                                                    consultancies etc. 
 

2. Related party transactions

In the ordinary course of business, the Company and its subsidiary undertakings carry out transactions with related parties as defined under IAS 24 Related Party Disclosures. Material transactions are set out below.

(i) Transactions with key management personnel

Key management personnel are defined as Directors (both Executive and Non-Executive) of City of London Investment Group PLC.

(a) Details of compensation paid to the Directors as well as their shareholdings in the Group is provided in the Remuneration report on pages 68, 76 and 77 and in note 4 of the full report.

(b) One of the Group's subsidiaries manages funds for some of its key management personnel, for which it receives a fee. All transactions between key management and their close family members and the Group's subsidiary are on terms that are available to all employees of that Company. The amount received in fees during the year was GBP58,232 (2021: GBP39,300). There were no fees outstanding as at the year end.

(ii) Summary of transactions and balances

During the period, the Company received from its subsidiaries GBP11,840,471 (2021: GBP11,154,306) in respect of management service charges and dividends of GBP26,160,323 (2021: GBP12,200,000).

Amounts outstanding between the Company and its subsidiaries as at 30th June 2022 are given in notes 15 and 16 of the full report.

M Dwyer, a Director of the Company until 30th June 2022, is also a Director of the World Markets Umbrella Fund plc, a fund managed by City of London Investment Management Company Ltd. The management fees earned by the Group during the year from this fund totalled GBP1,082,662 (2021: GBP1,092,575), with GBP92,295 (2021: GBP117,128) outstanding at the year end.

3. Statement of Directors' responsibilities

The Directors are responsible for preparing the Strategic report, the Directors' report, the Directors' remuneration report, the separate Corporate governance statement and the Financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Company financial statements for each financial year. The Directors have elected under Company law and are required under the Listing Rules of the Financial Conduct Authority to prepare Group financial statements in accordance with UK-adopted International Accounting Standards. The Directors have elected under Company law to prepare the Company financial statements in accordance with UK-adopted International Accounting Standards.

The Group and Company financial statements are required by law and UK-adopted International Accounting Standards to present fairly the financial position of the Group and the Company and the financial performance of the Group; the Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.

Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

In preparing each of the Group and Company financial statements, the Directors are required to:

 
 - select suitable accounting policies and then apply them 
  consistently; 
 - make judgements and accounting estimates that are reasonable 
  and prudent; 
 - state whether they have been prepared in accordance with 
  UK-adopted International Accounting Standards; and 
 - prepare the financial statements on the going concern basis 
  unless it is inappropriate to presume that the Group and the 
  Company will continue in business. 
 
 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and the Directors' remuneration report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Directors' statement pursuant to the Disclosure and Transparency Rules

Each of the Directors, whose names and functions are listed on pages 42 and 45 of the full report confirm that, to the best of each person's knowledge:

 
 - the financial statements, prepared in accordance with the 
  applicable set of accounting standards, give a true and fair 
  view of the assets, liabilities, financial position and profit 
  of the Company and the undertakings included in the consolidation 
  taken as a whole, and; 
 - the Strategic Report and Directors' report contained in 
  the Annual Report includes a fair review of the development 
  and performance of the business and the position of the Company 
  and the undertakings included in the consolidation taken as 
  a whole, together with a description of the principal risks 
  and uncertainties that they face. 
 
 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the City of London Investment Group's website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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