TIDMCLIG

RNS Number : 4835L

City of London Investment Group PLC

13 September 2021

13th September 2021

CITY OF LONDON INVESTMENT GROUP PLC (LSE: CLIG)

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

FINAL RESULTS FOR THE YEAR TO 30TH JUNE 2021

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 2021 (the 2021 Annual Report); and 
 - Notice of 2021 Annual General Meeting (the Notice of AGM). 
 

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

The 2021 Annual Report and the Notice of AGM, which will be held on 18th October 2021, will be posted to shareholders on 17th September 2021.

The Appendix to this announcement contains additional information which has been extracted from the 2021 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 2021 Annual Report.

SUMMARY

 
 -   Funds under Management (FuM) of US$11.4 billion (GBP8.3 
      billion) at 30th June 2021. This compares with US$5.5 
      billion (GBP4.4 billion) at the beginning of this financial 
      year on 1st July 2020 (pre-merger) 
 -   Net fee income was GBP52.5 million (2020: GBP31.7 million) 
 -   Underlying profit before tax* was GBP26.7 million (2020: 
      GBP11.5 million). Profit before tax was GBP22.2 million 
      (2020: GBP9.4 million) 
 -   Underlying basic earnings per share* were 48.1p (2020: 
      38.2p). Basic earnings per share were 39.4p (2020: 30.3p) 
      after an effective tax charge of 24% (2020: 22%) of profit 
      before taxation 
 -   Increased final dividend to 22p per share (2020: 20p) 
      payable on 29th October 2021 to shareholders on the register 
      on 8th October 2021, making a total for the year of 33p 
      (2020: 30p) 
 *This is an Alternative Performance Measure (APM). Please 
  refer to the Financial Review for more details on APMs. 
 

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

http://www.rns-pdf.londonstockexchange.com/rns/4835L_1-2021-9-12.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/Pippa Hamnett

Zeus Capital Limited

Financial Adviser & Broker

Tel: +44 (0)20 3829 5000

CHAIR'S STATEMENT

Most businesses are well prepared for interruptions to working practices with sophisticated disaster recovery contingencies but few, if any, could have foreseen dislocation on the scale and for as long a period as that witnessed over the last 18 months. I am very pleased to report, therefore, that both operating entities, CLIM and KIM, have sustained full and uninterrupted remote working functionality throughout the COVID-19 pandemic and, as I will detail later, CLIG finished the year in rude health with assets, revenues and profits at the highest levels in the Group's history.

In addition to maintaining 'business as usual', significant progress has been made in the operational integration of the two businesses in order to streamline systems and administrative functions and realise efficiencies. Completion of the integration process is ongoing, as outlined later in this report, but already we can see the benefits of the merger in terms of both results and revenue diversity. While we are geared inevitably to both equity and debt market levels, the KIM merger has served to insulate the Group to a significant degree from past levels of revenue volatility. On behalf of all our shareholders, I would like to thank our CEO, Tom Griffith, and all of his executive colleagues for their resolve and dedication in managing these challenges so successfully.

Assets and performance

Combined Funds under Management (FuM) rose nearly 5% to US$11.4 billion in the six months to 30th June 2021 and by 20% since the merger closing date of 1st October 2020. For the year as a whole, CLIM funds grew by c.37% to US$7.5 billion while KIM's FuM grew by c.9% to US$3.9 billion from the date of the merger, an impressive rate of growth given that c.60% of KIM's client assets are invested in fixed income securities.

The Group's success in growing FuM was due in no small part to excellent investment performance, as detailed later in this report, with ten of the eleven investment strategies across the combined Group achieving first or second quartile relative performance. Equally important is the significant change in the balance of assets over the last five years as a result of the rapid growth in the International equity strategies and the KIM merger. Although Emerging Markets (EM) assets have grown by nearly 50% over the last five years to US$5.4 billion, they now represent less than 50% of total FuM compared with 91% in 2016, giving the Group a far more diversified asset base. Given the capacity constraints existent within the EM closed-end fund (CEF) space, further development of both the diversified strategies and KIM's wealth management business is a key objective in realising long-term asset growth.

Results

Group statutory pre-tax profits rose by 137% in the year ending 30th June 2021 to GBP22.2 million (2020: GBP9.4 million), which include a first-time post-merger contribution from KIM. In order to present a more accurate picture of our financial performance, however, I propose to focus on an Alternative Performance Measure of 'Underlying' profits and earnings per share (EPS), which exclude exceptional or non-recurrent items, mainly associated with the KIM merger. On this basis, underlying pre-tax profits were GBP26.7 million, (2020: GBP11.5 million), with CLIM contributing GBP16.6 million, a 44% YOY increase, and KIM contributing GBP10.1 million in the nine months to 30th June 2021.

Net fee income of GBP52.5 million, which included GBP37.0 million attributable to CLIM and GBP15.5 million to KIM (for nine months), was 66% higher than the previous year despite a slight decline in the average Group revenue margin for the year to 74bp (2020: 75bp). The c.8% gain over the year in the average GBP/US$ exchange rate served to pare the growth in fee income when expressed in sterling terms as almost all revenues are generated in US dollars. Since an absolute comparison of profits YOY is distorted by the absence of a full-year contribution from KIM, the more appropriate comparative measure of our financial performance is provided by our underlying earnings per share (EPS) which, on a fully diluted basis, rose by 27% to 47.4p (2020: 37.2p) for the year.

I am pleased to report that the Employee Incentive Plan (EIP) continues to attract wide support from employees across the Group, this being the first year in which KIM employees were invited to participate. The most recent elections by employees for the coming financial year resulted in an overall participation rate of 77%, with no less than 92% of our new colleagues at KIM taking their entitlements. This high level of employee support for the EIP is a key factor in increasing employee ownership over time, thereby aligning CLIG's stakeholder interests.

Dividends

In line with the Group's management philosophy over many years, we remain committed to rewarding shareholders within the parameters of cautious balance sheet management. With this in mind and as a result of the continued growth in profits through the second half of the year to June 2021, the Board is able to recommend a final dividend to shareholders of 22p per share. Taken together with the increased interim payment, this brings total dividends for the year to 33p, equivalent to a 10% increase YOY. While these payments will result in dividend cover of 1.2 for the year based on our statutory results, that figure rises to 1.29 on a rolling five-year basis, compared with a target cover of 1.2. Having regard to the buoyancy of markets over the last year, the Board believes that a modest degree of headroom above the target level is prudent. The final dividend of 22p will be paid on 29th October 2021 to those shareholders on the register at 8th October 2021.

Board

As noted in my report to shareholders at the interim stage, there have been a number of changes to the Board this year, which included the appointment of two new Directors in the wake of the KIM merger, George Karpus as a Non-Independent Non-Executive Director (NED) and Dan Lippincott as an Executive Director. In addition, following Susannah Nicklin's resignation in September 2020, Rian Dartnell was appointed as the replacement Independent NED and in February 2021, Tazim Essani was appointed as a fourth Independent NED.

Arguably for a company of our size, a Board complement of eleven people is excessive and we are conscious also that, at present, the ratio of Independent Directors falls short of the recommendation contained in the UK Corporate Governance Code (the Code) for Boards to have a majority of Independent Directors (or at least parity). More recently, the Financial Conduct Authority (FCA), in its capacity as The Listing Authority, has issued a consultation paper outlining proposals to address gender and ethnic diversity issues for UK-listed companies that will take effect from 2023. The issue of diversity in public companies has become an increasingly important component of UK corporate governance and we fully support the need for raising standards as part of the overall focus on Environmental, Social & Governance (ESG) protocols, a subject to which I will return later. Under the new proposals, Boards will be required to have female representation of at least 40% and one member 'of colour', targets which go well beyond those set out in the 2019 industry-led Hampton-Alexander Review on female representation. Taken together these requirements will necessitate significant changes to the CLIG Board, which we acknowledge will not be addressed immediately in what is a post-merger transitional period. Going forward, however, in order to comply with the requirements by the target date of 2023, we intend to set out proposals for a fully compliant composition of the Board to shareholders by the October 2022 Annual General Meeting.

ESG

The adoption of best practice in formulating corporate ESG policies is gaining increasing focus by both clients and shareholders and is a trend that we strongly support. The data for CLIG over the last year, which is set out in detail on page 36 of this report, is distorted inevitably by the opposing effects of COVID-19 restrictions, which have reduced carbon emissions and social initiatives, versus the 50% growth in our employee headcount since the KIM merger. CLIG's environmental impact has been dominated historically by the necessity of air travel, given our international network of offices and the needs of client visits and new business development but for internal purposes, we have relied on video conferencing as a matter of policy for some years. Post-pandemic, our goal is to continue the downward trend in our carbon footprint on a per capita basis.

At the social level, while the Group does not make donations to charities or political parties, we do encourage employees to participate in community support activities across a broad spectrum in each of the locations where we operate. Despite the severe constraints imposed by lockdowns, we have continued to promote community initiatives, examples of which are included in the full report on page 36. Similarly, we have formalised a series of internal policies this year that are designed to codify the fair treatment of employees in order to promote diversity, equity and inclusion with regular training across the Group.

In order to better conform to best practice in corporate governance, a Corporate Governance Working Group (CGWG) was formed in 2020 with a remit to review our policies in relation to the Code and advise the Board of any changes that were needed. Among CGWG's findings was a recommendation that we appoint Prism Cosec Ltd (PC) as our new Corporate Secretary, which took effect in May 2021. In the course of the last five months, PC has been actively involved at every level of our governance processes and a summary of the progress that has been made is shown in the Governance section of the full report on pages 40 to 86. Although I have already touched on the subject of Board composition as it relates to the Code, the need to review Code compliance across the full gamut of our activities and, where necessary or advisable, make changes to our governance procedures is a core objective of your Board. Cognisant of this, the various reports included in the later pages have been significantly revamped this year to provide more detail on our ESG initiatives and I would encourage shareholders to take the time to read them.

Outlook

Despite the proliferation of new COVID-19 variants, the global vaccination effort, with more than five billion doses having been administered to date, appears to be successful in curbing hospitalisations and allowing a gradual return to normality. While most central banks have indicated corresponding reductions in fiscal support as the extreme health threat subsides, overall policy, led by the US Federal Reserve, remains accommodative and markets have behaved accordingly. The level of support intervention over the last 18 months has enabled macro economic indicators and asset markets generally to weather the pandemic with comparative ease, despite the disproportionate impact on specific sectors such as tourism and hospitality. In the year to 30th June 2021, the S&P 500 rose 36% while the MXEF EM index rose by 33%, albeit at a slower pace in the most recent six months.

Although this year's gains take the S&P rating towards the higher end of its historical range with a forward P/E ratio of 21, the comparable MXEF rating of 14 remains undemanding from a longer-term perspective, providing some 'value comfort' as markets confront inflationary pressures and possible 'taper tantrums' in 2022. Indeed the 'rating ratio' between these two indices (S&P P/E vs. MXEF P/E), which stands presently at 1.5, is very much towards the upper range of relative value.

The consensus Bloomberg forecast for GDP growth this year is 5.3% for developed economies and 6.6% for the emerging economies and, while this will slow a little in 2022, the existing consensus is for growth to remain above the long-term averages. While it may be unrealistic to expect markets to continue their sharp climb over the last year, the recovery in economic activity should ensure that any correction will be a 'soft landing' rather than a full-blown bear market. Given the more diversified revenue base now enjoyed by the Group, as highlighted earlier, we are therefore cautiously optimistic for the year ahead and believe we are prepared to manage any headwinds that may arise.

Barry Aling

Chair

9th September 2021

CHIEF EXECUTIVE OFFICER'S STATEMENT

This has been a transformational year in the continued evolution of your company which featured the merger with Karpus Investment Management (KIM), creating an enlarged Group with two operating subsidiaries and US$11.4 billion (GBP8.3 billion) in Funds under Management (FuM) at 30th June 2021. We are excited about the future and believe that we are stronger and can go further together than would have been possible separately.

The addition of KIM as a second operating subsidiary to City of London Investment Management Company Limited (CLIM) increased Group client assets by US$3.6 billion or 60%. The summary table below details the FuM at the CLIG level, plus the subsidiaries, over the past financial year:

 
 FuM summary 2020-2021 (US$ millions) 
------------------------------------------------------------------------- 
 Period end dates           30-Jun-20   30-Sep-20   31-Dec-20   30-Jun-21 
-------------------------  ----------  ----------  ----------  ---------- 
 CLIG FuM                       5,512       9,515      10,936      11,449 
 CLIG % change by period            -         73%         15%          5% 
 CLIG % change since 
  merger                            -           -           -         20% 
 CLIG % change YoY                  -           -           -        108% 
-------------------------  ----------  ----------  ----------  ---------- 
 CLIM FuM                       5,512       5,935       7,229       7,530 
 CLIM % change by period            -          8%         22%          4% 
 CLIM % change since 
  merger                            -           -           -         27% 
 CLIM % change YoY                  -           -           -         37% 
-------------------------  ----------  ----------  ----------  ---------- 
 KIM FuM                          N/A       3,580       3,707       3,919 
 KIM % change by period             -           -          4%          6% 
 KIM % change since 
  merger                            -           -           -          9% 
 KIM % change YoY                   -           -           -         N/A 
-------------------------  ----------  ----------  ----------  ---------- 
 

Merger and FuM update

Each operating subsidiary is first and foremost an investment management business with a track record of outperformance over multiple market cycles. The common denominator between them is that both CLIM and KIM focus on investing on behalf of their clients via closed-end funds (CEFs), while the complementary nature of the merged entities includes both an expanded client type and focus of the underlying investment strategies available. The CLIM client base is predominantly institutional while KIM has primarily high net worth (HNW) clients. CLIM is primarily equity focussed while KIM focuses on fixed income and a balanced approach to investing on behalf of clients. The merger has resulted in achieving many of the intended benefits of CLIG diversification efforts.

Over the years, CLIG Founder and former CEO, Barry Olliff, frequently discussed the corporate goal of diversifying the Group's income by building strategies complementary to the flagship Emerging Markets (EM) CEF strategy. KIM's Founder, George Karpus, shared many of the same corporate values which became the catalyst for bringing the two Companies together.

Through the patience, fortitude, and effort of the management team and employees, and due to the growth in the International equity strategy, the percentage of client assets invested in CLIM's EM strategy was reduced to c.70% as of 30th September 2020 (immediately prior to the merger), compared with c.90% five years ago. CLIM diversification continues to be a goal of the management team by providing support and resources to the other investment teams within CLIM.

At a CLIG level, the merger with KIM has allowed that diversification to occur much more quickly; as shown in the chart and graph following, the EM strategy at CLIM has been reduced to 47% of the combined entity as of 30th June 2021. As a result of this CLIG-level diversification, shareholders should note that, going forward, we will not include a comparison to MXEF (the commonly known EM Equity Benchmark) in our Share Price KPIs. Please refer to page 23 of the full report for a review of the Share Price KPIs over the past year, including a comparison with MXEF.

Through 30th June 2021 financial year end, the merger has resulted in an increase in CLIG's FuM of 108% from US$5.5 billion at 30th June 2020 to US$11.4 billion and 131% increase in profit after tax to GBP17.0 million (2020: GBP7.4 million) before the exclusion of underlying expenses related to the merger. Reducing the EM strategy percentage of FuM is intended to produce a reduced level of volatility in net fees and profitability. CLIG's market capitalisation has increased to c.GBP270 million as at 30th June 2021 from a pre-merger level of c.GBP112 million.

 
 Net investment flows (US$000's) 
 
 CLIM                            FYE 2018     FYE 2019     FYE 2020     FYE 2021 
---------------------------  ------------  -----------  -----------  ----------- 
 Emerging Markets               (215,083)    (183,521)    (279,459)    (275,493) 
 International                    279,394      252,883      551,102     (14,145) 
 Opportunistic Value               54,251       48,236       45,914    (102,663) 
 Frontier                          67,000     (21,336)       16,178    (168,843) 
 REIT                                   -        6,000        4,600            - 
---------------------------  ------------  -----------  -----------  ----------- 
 CLIM total                       185,562      102,262      338,335    (561,144) 
---------------------------  ------------  -----------  -----------  ----------- 
 
 KIM                             FYE 2018     FYE 2019     FYE 2020    FYE 2021* 
---------------------------  ------------  -----------  -----------  ----------- 
 Retail                            46,550       33,701       26,323    (104,222) 
 Institutional                  (107,410)        9,050     (67,087)    (130,911) 
---------------------------  ------------  -----------  -----------  ----------- 
 KIM total                       (60,860)       42,751     (40,764)    (235,133) 
---------------------------  ------------  -----------  -----------  ----------- 
 
 *Includes net investment flows for Retail - (24,407) and Institutional 
  - (20,264) pertaining to period before 1st October 2020 (pre-merger). 
 

Earnings enhancement, an increased dividend per share and an ongoing reduction in the volatility of earnings along with an increased market capitalisation are all positive signs that CLIG diversification plans intended to increase shareholder value are headed in the right direction. However, the net outflow of client assets over the financial year as shown above is noteworthy. While net flows were negative over the year, CLIM's total inflows of over US$500 million were significant, and signals that the market is still receptive to our product offerings and investment management solutions. A number of factors, mixed with cancelled or postponed client investment committees and a lack of in-person marketing efforts due to the pandemic and resulting quarantine environment, contributed to net outflows. These factors will be discussed further in the investment and business development reviews.

 
 CLIG - FUM by line of business (US$m) 
 
 CLIM                     30 Jun 18             30 Jun 19             30 Jun 20           30 Jun 21 
                    --------------------  --------------------  --------------------  ---------------- 
                      US$m          % of    US$m          % of    US$m          % of     US$m     % of 
                                    CLIM                  CLIM                  CLIM              CLIG 
                                  total*                total*                total*             total 
                    ------                ------  ------------  ------  ------------  -------  ------- 
 Emerging Markets    4,207           83%   4,221           78%   3,828           69%    5,393      47% 
 International         480            9%     729           14%   1,244           23%    1,880      16% 
 Opportunistic 
  Value                174            3%     233            4%     256            5%      231       2% 
 Frontier              245            5%     206            4%     175            3%       13       0% 
 Other/REIT              1            0%       7            0%       9            0%       13       0% 
                    ------  ------------  ------  ------------  ------  ------------  -------  ------- 
 CLIM total          5,107          100%   5,396          100%   5,512          100%    7,530      66% 
                    ------  ------------  ------  ------------  ------  ------------  -------  ------- 
 
 KIM                      30 Jun 18             30 Jun 19             30 Jun 20           30 Jun 21 
                    --------------------  --------------------  --------------------  ---------------- 
                      US$m          % of    US$m          % of    US$m          % of     US$m     % of 
                              KIM total*            KIM total*            KIM total*              CLIG 
                                                                                                 total 
                    ------  ------------  ------  ------------  ------  ------------  -------  ------- 
 Retail              2,098           67%   2,291           67%   2,401           69%    2,804      24% 
 Institutional       1,019           33%   1,105           33%   1,087           31%    1,115      10% 
                    ------  ------------  ------  ------------  ------  ------------  -------  ------- 
 KIM total           3,117          100%   3,396          100%   3,488          100%    3,919      34% 
                    ------  ------------  ------  ------------  ------  ------------  -------  ------- 
 
 CLIG total                                                                            11,449     100% 
------------------  ------  ------------  ------  ------------  ------  ------------  -------  ------- 
 
 *Pre-merger 
 

Business integration update

Progress has been made in three primary areas of integration - 1) Information Technology (IT), 2) Finance, and 3) Human Resources. This was reflected in the February announcement that Deepranjan Agrawal is now the Group Chief Financial Officer, and Alan Hoyt is the Group Chief Technology Officer, and both Deep and Alan have reporting lines from both subsidiaries. CLIG's operational, systems and software development standards have been incorporated into KIM processes, with the subsidiary now supported by newly hired full-time employees in both IT infrastructure and software development. System projects that are ongoing at KIM include an upgrade to the portfolio accounting software and order management system. CLIG's combined IT resources support the system development and infrastructure for the investment management teams at both subsidiaries, offering a consistent development plan for systems, while our colleagues in operations are able to assist with process improvements and addressing other challenges. We are working with KIM management on revising the benefits package for all KIM employees, which now includes the ability to participate in the CLIG's Employee Incentive Plan (EIP) as detailed later in my statement.

CLIM's Seattle office update

The Seattle office was opened in 2015 and staffed with two employees to better service local clients and to develop a marketing presence on the West Coast of the US. After six years, we have decided to close the office as increased acceptance of video conference meetings as a result of the pandemic have rendered office location of less importance.

Group financial results

The Group's net fee income currently accrues at a weighted average rate of approximately 74 basis points of FuM. This is in line with the weighted average fee rate realised during financial year 2020. The Group's net fee income over the period was GBP52.5 million, with GBP15.5 million from the KIM business, reflecting three-quarters of earnings since the merger on 1st October 2020. Additionally, the dollar weakened during this period by c.8%; over 97% of CLIM's fee income is USD denominated, whilst 100% of KIM's fee income is USD denominated, resulting in a weaker dollar providing reduced GBP denominated income.

CLIG profitability, cash and dividends

Operating profit before bonus, EIP, share option credit and investment gains/losses grew by 91% to GBP35.6 million (2020: GBP18.7 million, CLIM only) as a result of increased net fee income from the incorporation of KIM revenues for nine months (since merger) in addition to higher fee income from increased FuM for CLIM. Profit before tax at the Group level increased to GBP22.2 million (2020: GBP9.4 million). Underlying EPS increased by 26% from 38.2p in FY 2020 to 48.1p in FY 2021. Please refer to the Financial Review for additional financial results.

In conjunction with the increase of the interim dividend by 1p to 11p per share, the Board has recommended to shareholders that the final dividend be increased by 2p per share to 22p per share. This increase is on the back of the improved results and cash generated by both subsidiaries during a period of strong appreciation of the underlying asset values managed by the teams. Please refer to page 22 of the full report for the dividend cover chart, which provides an overview of our policy of distributing a proportion of net profits to shareholders by way of ordinary dividends with a target of 1.2x coverage ratio over a rolling five-year period.

Inclusive of our regulatory and statutory capital requirements, cash in the bank has risen from GBP14.6 million at 30th June 2020 to GBP25.5 million at 30th June 2021, in addition to the seed investments of US$5.8 million (GBP4.2 million) in the two CLIM-managed REIT funds. Our cash reserves will allow us to continue managing the business conservatively through volatile markets while following our dividend policy for shareholders. The CLIG Board continues to review the appropriate cash reserves needed to run a larger, but more diversified business, and assessing variables such as the impact of future revenue projections in case of a broad retreat in underlying asset prices. Additionally, the CLIG Board constantly reviews investment needed to build out additional capabilities and offerings at the two operating subsidiaries to find new clients or underserved markets where solutions can be provided.

EIP

The Employee Incentive Plan (EIP) continues to be a positive part of our remuneration package, as was highlighted by the recent strong take-up by the KIM employees who were able to participate for the first time in this past financial year. As mentioned by Barry Aling in his Chair's statement, c.92% of KIM employees elected to participate, paving the way for ownership of CLIG shares over the next three years and continued alignment of employee and shareholder interests.

Corporate governance and stakeholders

As Barry Aling mentions in his Chair's statement, we appointed Prism Cosec Ltd as Company Secretary, having had the benefit of working with them on some corporate governance projects over the past year, and look forward to reaping the benefits of their knowledge and experience in this area of increasing focus. On a separate note, I would like to point shareholders to our Section 172 Statement on page 38 of the full report, which highlights (amongst other areas) the engagement achieved between CLIG Directors and employees at both operating subsidiaries. Despite being hindered by COVID-19 travel restrictions, the Board has prioritised employee outreach and engagement via multiple video conference question and answer sessions, as well as focussed training from CLIM and KIM managers (separately) to the Non-Executive Directors.

On the note of Board composition, I agree with the views of our Chair as it relates to the projected changes to occur within the Board membership over the next two years. While Barry Aling has laid out the plan for the future, I would like to highlight that over the past year, your Board has benefited from the experience and expertise of the founders of the two operating subsidiaries, Barry Olliff (CLIM) and George Karpus (KIM), as well as the additional Executive Directors - Dan Lippincott, Mark Dwyer, and Carlos Yuste. In a year when on-the-ground oversight by Non-Executive Directors was limited, the Board needed those individuals to provide direct insights on the operations and culture within the two subsidiaries. We know at first glance, the size and composition of the Board is unexpected for a company of our size, but we are currently in a time where it makes sense to have more oversight and direct communication. In my final point, I would like to note that Barry Olliff's counsel as the previous CEO has been instrumental to me over the past two years as the company has navigated a pandemic, volatile markets, and a merger.

Cybersecurity update

CLIG subscribes to the belief that defending against cybersecurity risks require a multi-pronged approach. One prong of this approach is the focus via the IT department, including investment in infrastructure, oversight of system upgrades and patching, restricting access to systems/servers, and ongoing penetration testing by a third party vendor. Outside of IT, we are aware that employees will always be a target of cybercriminals, and historically have proven at other organisations to be an easier access point to an organisation's systems. All employees are required to complete monthly training on a variety of cybersecurity topics, by watching videos and answering questions on the training. Our CLIM colleagues have been receiving this training for four years, and KIM employees started to receive the monthly training in the fourth calendar quarter of 2020.

In July 2021, all employees received a 'Security Awareness Proficiency Assessment' from our third party cybersecurity education vendor. The assessment consisted of 23 questions and covered multiple topics including internet use, email security and incident reporting, and we received assessments on seven topics, plus an overall score, compared against other Financial Services Companies with less than 250 employees. We are proud to say that CLIG employees outperformed the industry average in overall security awareness. CLIM employees, having received training over the years, received higher marks than their KIM peers, but that helps reinforce the benefit of the frequent, monthly, training sessions. Finally, we are using the results of the assessment to focus future training on topics where employees have less awareness.

CLIG outlook

Financial year 2021 was a transformative year for CLIG and its three primary stakeholders - Clients, Shareholders, and Employees. In regards to Clients, their underlying assets were exposed to volatile markets due to geopolitical events across the globe, as economies were impacted by the COVID-19 pandemic and eventual roll-out of vaccines. In regards to Shareholders, CLIG is now a more diversified investment holding company with expanded expertise in CEF trading and management. Our colleagues at both CLIM and KIM have worked through a corporate level merger, Board-level changes, the aforementioned volatile markets, all while working remotely and managing the real-world implications of working throughout a constantly evolving pandemic. The patience of our stakeholders is appreciated and admired.

The investment teams at CLIM and KIM employ hard working investment professionals who seek to consistently outperform their benchmarks and peers over market cycles. They are supported by colleagues in operational areas of the firm to deliver quality client service and a focus on client needs.

We are excited about the ongoing integration of the KIM business under the CLIG umbrella, and continuing to work with the teams who drive that business forward. With the end of travel restrictions, we are looking forward to spending more time with our new colleagues. Additionally, international travel restrictions have hindered the ability for our UK-based NEDs and colleagues to meet the KIM team in-person in Rochester, which I know is high on their to-do list. As most people can attest, meetings over video conference are just not the same.

To all of our colleagues at CLIG, thank you for your hard work, dedication, and positive attitude during a trying twelve months. The Groups collective ability to be comfortable in chaos is a competitive advantage. Your attitude of 'whatever it takes' is unstoppable. I look forward to our next in-person meeting.

Tom Griffith

Chief Executive Officer

9th September 2021

INVESTMENT REVIEW - CLIM

Risk assets recovered strongly from the losses of H1 2020 as investors judged that the pandemic would eventually burn out, helped by the rapid deployment of healthcare solutions. It was also evident that governments and their central banks stood ready to supply unlimited bridging stimulus. After months of debate over the 'shape' of the recovery, the 'V' followed the precedent of most recessions since WWII. Overall, CLIM's strategies performed well.

Significant equity market volatility provided ample discount trading opportunities and discounts tightened, providing a further tailwind. Aggregate CEF relative net asset value (NAV) performance was positive as active management exploited the greater market volatility. CEF managers further benefited from a number of themes including the outperformance of small and mid cap stocks and some well-timed value tilts augmented with moderate gearing. Over 95% of CLIM's assets are ahead of benchmark and peer group over the five years ending June 2021.

Despite winning new business exceeding US$500 million, net flows were negative over the period, explained by three factors:

 
 (1) the International CEF strategy was closed to new investors 
  for the year to December 2020 following a period of strong 
  growth; 
 (2) the Opportunistic Value (OV) and Frontier CEF strategies 
  lost two larger clients over the period; and 
 (3) we experienced disproportionate rebalancing from our institutional 
  clients following a period of significant outperformance. 
 

Institutional interest in the Frontier asset class is low, following ten years of returns that have trailed both EM and International. This can attract contrarian investors but our own relative performance has been weak and client retention difficult. The OV strategy lost its largest client after the institution outsourced management. We are redoubling our efforts to replace these assets. Our International strategy is open again to new investors and CLIM's REIT strategies will have the three-year track record necessary for institutional interest in January 2022. International, OV and the REIT strategies remain a focus for growth in the medium term.

CLIM continues to invest in systems and people. Our in-house proprietary research database now gives us a full, live 'see through' of our CEF portfolios. This provides better insights to portfolio risk factors and helps CLIM meet regulatory change (e.g. exposure to sanctioned securities). As we learn more about our portfolios on a see through basis so we can better analyse ESG characteristics and engage fully with CEFs to understand their management and mitigation of ESG risks. This engagement, which is part of our regular manager due diligence and Board engagement, is aimed at encouraging managers to improve their ESG disclosures. We believe that improved transparency will result in better management of ESG risks by CEF managers and ultimately in better returns for our clients. Our detailed annual stewardship report is available here: https://www.citlon.com/esg-reports /AnnualStewardshipReport3_21.pdf.

Investment staff turnover was minimal over the period, however we did hire two new data analysts to maintain coverage of a growing CEF investment universe. Indeed, we saw one of the strongest years of growth for the CEF industry on record. Over US$40 billion was raised globally including US$16 billion in Europe, US$13 billion in the US and US$12 billion in Asia Pacific. We have maintained adequate coverage of the broadening opportunities by sticking to our proven strategy of constantly upgrading our IT infrastructure and hiring high quality, junior analysts.

With the benefit of hindsight, markets started to discount the eventual passing of the pandemic on 23rd March 2020. Given the remarkably rapid vaccine development and roll out, the worst is now likely behind us. Inflation has become the new investment dilemma - namely is the current burst of higher prices transitory or will it persist? The truth is that no-one knows, however our base case is that inflation is unlikely to be a major issue in the short term. We do, however, discuss the arguments for and against in a recent macro commentary, available here - https://www.citlon.co.uk/special-reports/InflationDilemma2-21.pdf

Equities (MSCI World) delivered an annualised rate of return of 16% over the five years ending June 2021, almost double the average five-year return over the past 30 years. The US economy is booming and this will likely spread to the rest of the world, including EM, in the months ahead. This, along with recent stimulus, explains investors' exuberance. However, with the trailing P/E of the global index approaching 25x, expectations for the next five-year period should be moderated.

Regardless of the future direction of equity markets, our clients pay us for, and expect to receive, index outperformance. Significant CEF issuance in 2020/21, increased retail participation and ongoing equity market volatility underpin CEF discount anomalies. CLIM has an edge in exploiting these anomalies via a time tested and disciplined investment process implemented by a highly experienced investment team. This provides the key support to long-term alpha generation across our strategies and bodes well for the future.

INVESTMENT REVIEW - KIM

Despite forward momentum, inflation is a primary concern for both investors and central banks. Indeed, economic activity continues to ramp up but could face challenges if the Delta variant (or others) causes a spike in infection rates in the coming months. The balancing act central banks are facing is essentially to make sure that a transitory inflation situation doesn't become a permanent one.

Over the past twelve months, markets were propelled higher by:

 
 -- significant monetary and/or fiscal stimulus in many countries 
  around the world; 
 -- a re-opening of many parts of the economy; and 
 -- consumers flush with savings and pent-up demand. 
 

To be sure, while borrowing to support the economy can have positive short-term effects, too much debt as a percentage of gross domestic product (GDP) can have negative long-run effects on economic growth. With so much debt, it could become difficult to sustain growth due to the interest burden. As growth picks up, interest rates will generally rise. As rates rise, interest payments eat into the federal budget, reducing productive spending. This, in turn, could slow growth and actually put downward pressure on interest rates.

Our perspective is that since interest rates are no more predictable than stock prices or how foreign markets may perform in comparison to domestic markets, it is always important for investors to remember that they should not try to time the markets. Instead, they should choose a suitable asset allocation based on their risk tolerance and stay invested based on that strategy. This lesson is critical to helping investors achieve their long-term goals and setting a path that is most likely to get them there. In a nutshell, this is what we aim to do for our clients.

With this said, KIM's strategies performed well over the past twelve months, driven in large part by our CEF selection across each of our strategies. Generally speaking, many of our CEF holdings saw strong NAV performance, as well as significant discount narrowing. On top of this, we were able to accent our fund selection by working with CEF management teams, fund boards and trustees to unlock additional value through discount narrowing measures.

In the second half of 2020, we identified special purpose acquisition companies (pre-acquisition) (SPACs) trading at discounts to trust value. Our approach to investing in SPACs is very different than we have seen from other investment managers. 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 when euphoria hit this particular segment of the market in Q1 2021. Even after this period though, we continue to favour the short-term nature with which we utilise these securities for clients' portfolios.

Despite solid short and long-term performance, flows were net negative as institutional clients looked to rebalance. Additionally, several fully funded defined benefit plans were closed and distributed to their respective participants.

BUSINESS DEVELOPMENT REVIEW

A key reason for the merger with KIM was to diversify FuM with EM CEF strategies now accounting for 47% of Group FuM at 30th June 2021, as compared with 69% at 30th June 2020. KIM provides balanced mandates for high net worth and wealth management clients in the US, with both equity and fixed income investments. As at 30th June 2021, KIM strategies comprised 34% of Group FuM, while International CEF strategy totalled 16% of Group FuM.

Market appreciation, and some new client inflows, pushed strategy assets in the Emerging Markets CEF, Conservative Balanced and International CEF strategies to all-time highs of US$5.4 billion, US$3.9 billion and US$1.9 billion respectively.

After strong inflows last year, there were net outflows of US$752 million across the Group as a result of both client rebalancing, due to market gains over the period, and some client liquidations in the Frontier and Opportunistic Value strategies.

Performance

Long-term investment performance across the EM and INTL CEF strategies, as well as Conservative Balanced, remains strong, with first or second quartile results versus manager peers over the three, five and ten-year rolling periods ending 30th June 2021.

The EM, Conservative Balanced, INTL, and OV strategies outperformed over the year net of fees, while the Frontier strategies underperformed. Strong NAV performance at the underlying CEFs and positive discount effects were the main contributors to performance. The Frontier strategy suffered from weak NAV performance.

The Global Emerging Markets Composite net investment returns for the rolling one year ending 30th June 2021 were 47.3% vs. 40.9% for the MSCI Emerging Markets Index in USD, and 43% for the S&P Emerging Frontier Super BMI Index in USD.

The KIM Conservative Balanced Composite net investment returns for the rolling one year ending 30th June 2021 were 22.4% vs. 18.3% 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 ending 30th June 2021 were 53.3% vs. 35.7% for the MSCI ACWI ex-US in USD.

The Frontier Markets Composite net investment returns for the rolling one year ending 30th June 2021 were 43.7% vs. 45.4% for the S&P Extended Frontier 150 benchmark in USD.

The Opportunistic Value Composite net investment returns for the rolling one year ending 30th June 2021 were 38.9% vs. 19.8% 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. An institutional marketing resource was hired to introduce KIM investment strategies to US registered investment advisers. We will also continue to introduce our capabilities to family offices, outsourced CIO firms, and alternative consultants.

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

FINANCIAL REVIEW

The Group income statement is presented in line with International Financial Reporting Standards (IFRS) within the Financial Statements 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 apply.

 
 Consolidated income for financial years 
  ended 30th June 
                                                     2021       2020 
                                                  GBP'000    GBP'000 
----------------------------------------------  ---------  --------- 
 Gross fee income                                  55,123     33,263 
 Finder's commission                              (1,101)      (167) 
 Custody & administration                         (1,572)    (1,425) 
----------------------------------------------  ---------  --------- 
 Net fee income                                    52,450     31,671 
 Interest                                           (117)       (57) 
----------------------------------------------  ---------  --------- 
 Total net income                                  52,333     31,614 
----------------------------------------------  ---------  --------- 
 Employee costs before profit-share/EIP/share 
  options                                        (11,126)    (8,572) 
 Other administrative expenses                    (4,867)    (3,762) 
 Depreciation and amortisation                      (719)      (633) 
----------------------------------------------  ---------  --------- 
 Total overheads                                 (16,712)   (12,967) 
----------------------------------------------  ---------  --------- 
 Profit before profit-share/EIP/share options 
  - operating profit                               35,621     18,647 
 Profit-share                                     (7,923)    (6,180) 
 EIP                                              (1,008)      (925) 
 Share option credit                                   12          - 
 Investment gain/(loss)                               540      (887) 
----------------------------------------------  ---------  --------- 
 Pre-tax profit before exceptional item 
  and amortisation of intangibles acquired 
  on acquisition                                   27,242     10,655 
 Acquisition - related costs                      (1,743)    (1,248) 
 Amortisation of intangibles                      (3,250)          - 
----------------------------------------------  ---------  --------- 
 Pre-tax profit                                    22,249      9,407 
 Tax                                              (5,259)    (2,041) 
----------------------------------------------  ---------  --------- 
 Post-tax profit                                   16,990      7,366 
 Other comprehensive income                       (6,675)       (48) 
----------------------------------------------  ---------  --------- 
 Total comprehensive income                        10,315      7,318 
----------------------------------------------  ---------  --------- 
 

Group income statement and statement of comprehensive income

The merger with KIM was completed on 1st October 2020. KIM is a 100% wholly owned subsidiary of CLIG and the financial results of KIM for the nine-month period ended 30th June 2021 have been included in the consolidated income statement.

FuM

FuM at 30th June 2021 were US$11.4 billion compared with US$5.5 billion at the end of the prior financial year. The increase was predominantly due to the merger with KIM, which added US$3.6 billion of FuM on 1st October 2020. Further, CLIM's FuM grew 37% from US$5.5 billion as at 30th June 2020 to US$7.5 billion as at 30th June 2021 whereas KIM's FuM grew 9% from US$3.6 billion as at 1st October 2020 to US$3.9 billion as at 30th June 2021. Refer to the FuM summary within the CEO statement. Average FuM for the year increased by 82% from US$5.3 billion in 2020 to US$9.7 billion in 2021.

Revenue

The Group's gross revenue comprises management fees charged as a percentage of FuM. The Group's gross revenue has increased YOY by 66% to GBP55.1 million (2020: GBP33.3 million). The increase in revenue is primarily due to higher average FuM during the year, however this has been partially offset by a stronger sterling against the US dollar, with an average GBP/USD rate of 1.35 this year compared with 1.26 last year, an increase of c.8% over last year.

Commission payable of GBP1.1 million (2020: GBP0.2 million) relates to fees due to US registered investment advisers for the introduction of clients at KIM. The 2020 amount related to commission payable to third party marketing agents for introduction of clients to CLIM but this contract was settled in 2020 and there are no further commissions payable by CLIM.

The Group's net fee income, after custody charges of GBP1.6 million (2020: GBP1.4 million), is GBP52.5 million (2020: GBP31.7 million), an increase of 66% on last year. The Group's average net fee margin for the year was 74bp as compared to 75bp for the year ended June 2020.

Costs

Overheads for the year totalling GBP16.7 million (2020: GBP13.0 million) were 29% higher than 2020, which was on account of the inclusion of nine months of overheads for KIM from the date of merger. The Group cost/income ratio is arrived at by comparing total overheads with our net fee income, and has reduced significantly by 22% to 32% in 2021 from 41% in 2020, as a result of contribution from the higher margin and lower cost KIM business.

The largest component of overheads continues to be employee related at GBP11.1 million (2020: GBP8.6 million), an increase of 30% over last year. This is mainly on account of the increase in average headcount from 72 in FY 2020 to 99 in FY 2021 due to the merger. Other administrative overheads have increased by a similar 30% to GBP4.9 million (2020: GBP3.8 million).

Total net fee income less overheads resulted in a profit before profit-share/ EIP/share options of GBP35.6 million (2020: GBP18.6 million).

The total variable profit-share amounted to GBP7.9 million as compared with GBP6.2 million in 2020, an increase of 28% mainly on account of the higher headcount due to the merger.

The Group's Employee Incentive Plan (EIP) was offered to all KIM employees from 1st January 2021 and 73% of them participated in the FY 2021 plan. The total EIP charges amounted to GBP1.0 million (2020: GBP0.9 million), the increase a result of KIM employees participating in the current year's plan.

During the year, the Group has granted share options to certain Executive Directors and employees under the Group's Employee Share Option Plan. The total share option credit booked in the current year is GBP12,023 (2020: nil), which comprises of GBP10,358 charge in relation to share options issued in the current year, offset by GBP22,381 of credit on account of forfeited options.

Investment gains/(losses)

Investment gains of GBP0.5 million (2020: loss of GBP0.9 million) relates to the unrealised gains/(losses) on the Group's seed investments in its two REIT funds, and other investments of GBP0.5 million (2020: GBP0.7 million loss). It also includes the unrealised gains relating to minority third party interests in the REIT funds of GBP19,285 (2020: GBP193,602 loss).

Acquisition-related costs

Exceptional items are items of income or expenditure that are significant in size and that are not expected to recur. Such exceptional items have been separately presented by virtue of their nature to enable a better understanding of the Group's financial performance. Total merger-related acquisition costs amounted to c.GBP4.0 million. Of this total, GBP1.2 million was incurred in 2020 and was charged to the last year's income statement as an exceptional item, GBP1.7 million has been charged to the current year's income statement as an exceptional item and the balance of GBP1.0 million of share issuance costs has been charged directly to retained earnings.

Merger with KIM

The merger with KIM was effected by way of a scheme of arrangement and satisfied through issuance of new ordinary shares. The fair value of the equity consideration is reflected in the shareholders' equity with the creation of a merger reserve. In accordance with IFRS 3 'Business Combinations', the Group has recognised intangible assets of GBP41.6 million relating to direct customer relationships, distribution channels and KIM's trade name. These intangible assets are being amortised over 7-15 years (refer to note 1.6 of the financial statements) and have resulted in an amortisation charge of GBP3.2 million for the year (2020: nil). Deferred tax liability amounting to GBP9.9 million has been recognised against these intangible assets based on the relevant tax rate, which will unwind over the useful economic life to the associated assets. Goodwill amounting to GBP69.7 million has also been recognised on the completion of the merger. Foreign currency translation on the closing balances of intangibles has been recognised in other comprehensive income. Refer to note 4 of the financial statements for Business Combinations.

Taxation

The pre-tax profit of GBP22.2 million (2020: GBP9.4 million), after a corporation tax charge of GBP5.3 million in 2021 (2020: GBP2.0 million), at an effective rate of 24% (2020: 22%), results in a post-tax profit of GBP17.0 million (2020: GBP7.4 million), of which GBP17.0 million (2020: GBP7.6 million) is attributable to 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 GBP25.5 million as at 30th June 2021 as compared with GBP14.6 million as at 30th June 2020.

The Group had invested US$5 million (GBP3.9 million) in seeding its two REIT funds at the start of January 2019. By the end of June 2021, these investments were valued at GBP4.2 million (2020: GBP3.8 million), with the unrealised gains (2020: losses) taken to current year's income statement.

The International REIT fund is assessed to be under the Group's control and is thus consolidated using accounts drawn up as of 30th June and includes third party investments, collectively known as the non-controlling interest (NCI). An external investment was received in the EM REIT fund in 2020 and it was assessed to be no longer under the Group's control and thus it is not consolidated in the Group's financial statements. Fair value of the EM REIT fund is included as other investments along with the Group's other investments in its own funds.

Following the adoption of IFRS 16 Leases, the Group's right-of-use assets (net of amortisation) amounted to GBP2.8 million as at 30th June 2021 as compared with GBP1.9 million as at 30th June 2020. Additions to the right-of use assets during the year are on account of leasing of office equipment and KIM's property lease, acquired on merger, which has since been modified and extended during the period.

The EBT purchased 496,354 shares (2020: 483,250 shares) at a cost of GBP2.5 million (2020: GBP2.0 million) in preparation for the annual EIP awards due at the end of October 2021.

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 21.1% (2020: 16.5%) of the shares vesting during the year were sold in order to help cover the employees' resulting tax liabilities, leading to a very healthy 78.9% (2020: 83.5%) share retention within the Group.

In addition, Directors and employees exercised 226,875 (2020: 108,875) options over shares held by the EBT, raising GBP0.8 million (2020: GBP0.4 million) which was used to pay down part of the loan to the EBT.

Dividends paid during the year totalled GBP9.7 million (2020: GBP7.0 million). The total dividend of 31p per share comprised: the 20p per share final dividend for 2019/20 and 11p per share interim dividend for the current year (2020:18p per share final for 2018/19 and 10p 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 and UAE dirhams. The table presented opposite 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 1.38 to 1.28 increases post-tax profits by GBP2.2 million from GBP21.3 million to GBP23.5 million on FuM of US$11.4 billion.

 
 FX/Post-tax profit 
  matrix 
 Illustration of US$/GBP 
  rate effect: 
--------------------------------------  -----------  ---------  ---------  --------- 
 FuM US$bn:                 9.5          10.5         11.4       12.0       12.5 
                           -----------  -----------  ---------  ---------  --------- 
 US$/GBP                    Post-tax, GBPm 
                           --------------------------------------------------------- 
 1.28                       17.4         20.4         23.5       25.4       27.3 
 1.33                       16.5         19.4         22.3       24.2       26.0 
 1.38                       15.6         18.4         21.3       23.0       24.8 
 1.43                       14.8         17.6         20.3       22.0       23.7 
 1.48                       14.1         16.7         19.4       21.0       22.6 
                           -----------  -----------  ---------  ---------  --------- 
 Assumptions:                            CLIM                               KIM 
--------------------------------------  ---------------------------------  --------- 
 1. Average net fee                      73bps                              77bps 
 2. Annual operating                     GBP6.3m plus US$8m plus S$1m       US$8.3m 
  costs                                   (GBP1 = S$1.90) 
 3. Average tax                          21%                                24% 
 4. Amortisation of intangible GBP3.3m per annum 
 Note: The above table is intended to illustrate the approximate 
  impact of movement in US$/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 47% 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 non-sterling assets and liabilities, which are again to a great extent in US dollars. 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 2021, these forward sales totalled US$8.3 million, with a weighted average exchange rate of US$1.40 to GBP1 (2020: US$5.0 million at a weighted average rate of US$1.24 to GBP1).

Viability statement

In accordance with the provisions of the UK Corporate Governance Code, the Directors have assessed the viability of the Group with reference to the COVID-19 pandemic, taking into account the Group's current position and prospects, Internal Capital Adequacy Assessment Process (ICAAP) and principal risks as detailed in the risk management report on pages 28 to 29 of the full report.

The ICAAP is reviewed by the Board semi-annually and incorporates a series of stress tests on the Group's financial position over a three-year period. It is prepared to identify and quantify the Group's risks and level of capital which should be held to cover those risks. The level of scenarios included within the ICAAP are significantly more severe than the ongoing and potential future impact of COVID-19 pandemic.

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 its liabilities as they fall due over the next three years.

While the Directors have no reason to believe that the Group will not be viable over a longer period, any future assessments are subject to a level of uncertainty that increases with time.

The Board has therefore determined that a three-year period constitutes an appropriate timeframe for its viability assessment.

Given the above, 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 gain/loss on investments, acquisition-related costs and amortisation of acquired intangibles. This provides a measure of the profitability of the Group for management's decision-making.

Underlying earnings per share - Underlying profit before tax, adjusted for tax as per income statement, tax effect of adjustments and non-controlling interest, divided by the weighted average number of shares in issue as at the period end. Refer to note 7 in the financial statements for reconciliation.

 
Alternative Performance Measures 
 
Underlying profit and profit                 Jun 21        Jun 20 
 before tax 
------------------------------------- 
                                                GBP           GBP 
-------------------------------------  ------------  ------------ 
Net fee income                           52,450,936    31,671,002 
Administrative expenses                (25,631,432)  (20,072,617) 
Net interest paid                         (117,063)      (56,146) 
-------------------------------------  ------------  ------------ 
Underlying profit before tax             26,702,441    11,542,239 
-------------------------------------  ------------  ------------ 
Add back/(deduct): 
Gain/(loss) on investments                  540,172     (887,543) 
Acquisition-related costs               (1,743,424)   (1,248,195) 
Amortisation on acquired intangibles    (3,250,185)             - 
-------------------------------------  ------------  ------------ 
Profit before tax                        22,249,004     9,406,501 
-------------------------------------  ------------  ------------ 
 

FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

FOR THE YEARED 30TH JUNE 2021

 
 
                                                 Year to       Year to 
                                               30th June     30th June 
                                      Note          2021          2020 
                                                     GBP           GBP 
----------------------------------  ------  ------------  ------------ 
Revenue 
 Gross fee income                      2      55,123,274    33,263,192 
Commissions payable                          (1,100,708)     (167,158) 
Custody fees payable                         (1,571,630)   (1,425,032) 
----------------------------------  ------  ------------  ------------ 
Net fee income                                52,450,936    31,671,002 
----------------------------------  ------  ------------  ------------ 
Administrative expenses 
 Employee costs                               20,045,406    15,677,364 
Other administrative expenses                  4,866,625     3,762,170 
Depreciation and amortisation                  3,969,586       633,083 
----------------------------------  ------  ------------  ------------ 
                                            (28,881,617)  (20,072,617) 
----------------------------------  ------  ------------  ------------ 
Underlying operating profit           3       23,569,319    11,598,385 
Exceptional item 
Acquisition-related costs                    (1,743,424)   (1,248,195) 
Operating profit                      3       21,825,895    10,350,190 
Interest receivable/(payable) 
 and similar gains/(losses)           5          423,109     (943,689) 
----------------------------------  ------  ------------  ------------ 
Profit before taxation                        22,249,004     9,406,501 
Income tax expense                    6      (5,258,486)   (2,040,523) 
----------------------------------  ------  ------------  ------------ 
Profit for the period                         16,990,518     7,365,978 
----------------------------------  ------  ------------  ------------ 
Profit attributable to: 
 Non-controlling interests (NCI)                  19,285     (193,602) 
Equity shareholders of the parent             16,971,233     7,559,580 
----------------------------------  ------  ------------  ------------ 
Basic earnings per share              7            39.4p         30.3p 
----------------------------------  ------  ------------  ------------ 
Diluted earnings per share            7            38.8p         29.5p 
----------------------------------  ------  ------------  ------------ 
 

CONSOLIDATED AND COMPANY STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARED 30TH JUNE 2021

 
                                               Group               Company 
                                                                              ----------- 
 
                                          Year to      Year to       Year to      Year to 
                                        30th June    30th June     30th June    30th June 
                                             2021         2020          2021         2020 
                                              GBP          GBP           GBP          GBP 
-----------------------------------  ------------  -----------  ------------  ----------- 
Profit for the period                  16,990,518    7,365,978    11,157,096    7,579,920 
-----------------------------------  ------------  -----------  ------------  ----------- 
Other comprehensive income: 
Foreign currency translation 
 difference                           (6,675,136)     (48,494)             -            - 
-----------------------------------  ------------  -----------  ------------  ----------- 
Total comprehensive income for 
 the period                            10,315,382    7,317,484    11,157,096    7,579,920 
-----------------------------------  ------------  -----------  ------------  ----------- 
Attributable to: 
 Equity shareholders of the parent     10,296,097    7,511,086    11,157,096    7,579,920 
Non-controlling interests                  19,285    (193,602)             -            - 
 
 

CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

30TH JUNE 2021

 
 Group   Company 
------  -------- 
 
 
                                         30th June    30th June    30th June      30th June 
                                              2021         2020         2021           2020 
                                Note           GBP          GBP          GBP            GBP 
-----------------------------  -----  ------------  -----------  -----------  ------------- 
 
Non-current assets 
Property and equipment                     455,983      542,918      280,596      341,087 
Right-of-use assets                      2,757,179    1,933,411    1,263,534    1,441,916 
Intangible assets                      100,961,992       47,309        7,377       18,752 
Other financial assets                   4,373,485    3,994,727  106,962,140    5,025,382 
Deferred tax asset                         366,405      348,008        9,458       12,600 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
                                       108,915,044    6,866,373  108,523,105    6,839,737 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
Current assets 
Trade and other receivables              6,953,470    6,133,878    6,662,266   11,611,160 
Current tax receivable                           -            -    1,005,736      905,406 
Cash and cash equivalents               25,514,619   14,594,333    2,905,184      213,510 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
                                        32,468,089   20,728,211   10,573,186   12,730,076 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
Current liabilities 
Trade and other payables               (8,260,597)  (5,644,635)  (3,281,116)  (5,473,262) 
Lease liabilities                        (392,954)    (406,179)    (131,180)    (168,367) 
Current tax payable                    (1,367,564)    (835,849)            -            - 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
Creditors, amounts falling 
 due within one year                  (10,021,115)  (6,886,663)  (3,412,296)  (5,641,629) 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
Net current assets                      22,446,974   13,841,548    7,160,890    7,088,447 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
Total assets less current 
 liabilities                           131,362,018   20,707,921  115,683,995   13,928,184 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
Non-current liabilities 
Lease liabilities                      (2,348,101)  (1,552,219)  (1,148,549)  (1,279,729) 
Deferred tax liability                 (8,696,813)     (57,874)     (24,141)     (30,075) 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
Net assets                             120,317,104   19,097,828  114,511,305   12,618,380 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
 
  Capital and reserves 
Share capital                    8         506,791      265,607      506,791      265,607 
Share premium account                    2,256,104    2,256,104    2,256,104    2,256,104 
Merger relief reserve            8     101,538,413            -  101,538,413            - 
Investment in own shares               (6,068,431)  (5,765,993)  (6,068,431)  (5,765,993) 
 
Share option reserve              1        195,436      241,467      109,657      241,467 
EIP share reserve                        1,282,884    1,232,064    1,282,884    1,232,064 
Foreign currency differences 
 reserve                               (6,629,251)       45,885            -            - 
Capital redemption reserve                  26,107       26,107       26,107       26,107 
Retained earnings                       27,019,584   20,626,405   14,859,780   14,363,024 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
Attributable to: 
Equity shareholders 
 of the parent                         120,127,637   18,927,646  114,511,305   12,618,380 
Non-controlling interests                  189,467      170,182            -            - 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
Total equity                           120,317,104   19,097,828  114,511,305   12,618,380 
-----------------------------  -----  ------------  -----------  -----------  ----------- 
 

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 GBP11,157,096 (2020: GBP7,579,920).

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

30TH JUNE 2021

 
                                                                                                 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 
----------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ----------  ------------  ------------  -----------  ------------ 
At 1st July 
 2019                    265,607  2,256,104            -  (5,029,063)    299,011  1,015,316       94,379      26,107    20,075,712    19,003,173    3,405,928    22,409,101 
----------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ----------  ------------  ------------  -----------  ------------ 
 
  Profit for 
  the period                   -          -            -            -          -          -            -           -     7,559,580     7,559,580    (193,602)     7,365,978 
Other comprehensive 
 income                        -          -            -            -          -          -     (48,494)           -             -      (48,494)            -      (48,494) 
----------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ----------  ------------  ------------  -----------  ------------ 
Total comprehensive 
 income                        -          -            -            -          -          -     (48,494)           -     7,559,580     7,511,086    (193,602)     7,317,484 
Transactions 
 with owners 
Derecognisation 
 of NCI investment             -          -            -            -          -          -            -           -             -             -  (2,767,519)   (2,767,519) 
NCI 
 investment/redemption         -          -            -            -          -          -            -           -             -             -    (274,625)     (274,625) 
Share option 
 exercise                      -          -            -      359,431   (57,544)          -            -           -        57,544       359,431            -       359,431 
Purchase 
 of own shares                 -          -            -  (2,044,150)          -          -            -           -             -   (2,044,150)            -   (2,044,150) 
Share-based 
 payment                       -          -            -            -          -    695,099            -           -             -       695,099            -       695,099 
EIP vesting/forfeiture         -          -            -      947,789          -  (478,351)            -           -             -       469,438            -       469,438 
Deferred 
 tax on share 
 options                       -          -            -            -          -          -            -           -      (79,409)      (79,409)            -      (79,409) 
Current tax 
 on share 
 options                       -          -            -            -          -          -            -           -         6,073         6,073            -         6,073 
Dividends 
 paid                          -          -            -            -          -                       -           -   (6,993,095)   (6,993,095)            -   (6,993,095) 
----------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ----------  ------------  ------------  -----------  ------------ 
Total transactions 
 with owners                   -          -            -    (736,930)   (57,544)    216,748            -           -   (7,008,887)   (7,586,613)  (3,042,144)  (10,628,757) 
----------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ----------  ------------  ------------  -----------  ------------ 
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 
----------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ----------  ------------  ------------  -----------  ------------ 
 

COMPANY STATEMENT OF CHANGES IN EQUITY

30TH JUNE 2021

 
 
                                   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 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
At 1st July 
 2019                 265,607  2,256,104            -  (5,029,063)    299,011  1,015,316       26,107    13,776,698     12,609,780 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
 
  Profit for the 
  period                    -          -            -            -          -          -            -     7,579,920      7,579,920 
Other comprehensive         -          -            -            -          -          -            -             -              - 
 income 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
Total comprehensive 
 income                     -          -            -            -          -          -            -     7,579,920      7,579,920 
Transactions 
 with owners 
Share option 
 exercise                   -          -            -      359,431   (57,544)          -            -        24,465        326,352 
Purchase of 
 own shares                 -          -            -  (2,044,150)          -          -            -             -    (2,044,150) 
Share-based 
 payment                    -          -            -            -          -    695,099            -             -        695,099 
EIP 
 vesting/forfeiture         -          -            -      947,789          -  (478,351)            -             -        469,438 
Deferred tax 
 on share options           -          -            -            -          -          -            -      (27,021)       (27,021) 
Current tax 
 on share options           -          -            -            -          -          -            -         2,057          2,057 
Dividends paid              -          -            -            -          -          -            -   (6,993,095)    (6,993,095) 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
Total transactions 
 with owners                -          -            -    (736,930)   (57,544)    216,748            -   (6,993,594)    (7,571,320) 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
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 
-------------------  --------  ---------  -----------  -----------  ---------  ---------  -----------  ------------  ------------- 
 

CONSOLIDATED AND COMPANY CASH FLOW STATEMENT

FOR THE YEARED 30TH JUNE 2021

 
                                                          Group                     Company 
--------------------------------------  ------  -------------------------  ------------------------- 
                                                   30th June    30th June     30th June    30th June 
                                          Note          2021       2020**          2021       2020** 
                                                         GBP          GBP           GBP          GBP 
--------------------------------------  ------  ------------  -----------  ------------  ----------- 
Cash flow from operating activities 
Profit/(Loss) before taxation                     22,249,004    9,406,501     (888,940)  (1,284,600) 
Adjustments for: 
Depreciation of property and 
 equipment                                           187,714      205,144       107,667      116,579 
Depreciation of right-of-use 
 assets                                              492,730      341,247       178,382      178,381 
Amortisation of intangible assets                  3,289,142       86,691        11,375       14,291 
Share-based payment credit                          (12,023)            -         (697)            - 
EIP-related charge                                   802,314      685,606       325,971      329,187 
Unrealised (gain)/loss on investments   5          (540,172)      887,543     (282,169)      244,356 
Net interest receivable                              117,063       56,146        97,191       85,274 
Translation adjustments                               33,529     (86,860)       184,313     (23,937) 
Cash generated from/(used in) 
 operations before changes 
in working capital                                26,619,301   11,582,018     (266,907)    (340,469) 
(Increase)/decrease in trade 
 and other receivables                             (439,607)     (71,359)       556,716      125,026 
Increase/(decrease) in trade 
 and other payables                                2,800,465      139,889     3,251,325    1,812,083 
                                                ------------  -----------  ------------  ----------- 
Cash generated from/(used in) 
 operations                                       28,980,159   11,650,548     3,541,134  (1,596,640) 
Interest received                       5             17,689       74,033           253        1,812 
Interest paid on leased assets          5          (133,827)    (116,958)      (97,444)     (87,086) 
Interest paid                           5              (925)     (13,221)             -            - 
Taxation paid                                    (5,841,493)  (2,035,690)     (240,142)  (1,474,279) 
Net cash generated from operating 
 activities                                       23,021,603    9,558,712     3,203,801       37,087 
--------------------------------------  ------  ------------  -----------  ------------  ----------- 
 
  Cash flow from investing activities 
Dividends received from subsidiaries                       -            -    12,200,000    8,800,000 
Purchase of property and equipment 
 and intangibles                                    (93,342)     (78,551)      (47,176)     (43,111) 
Purchase of non-current financial 
 assets                                                (715)      (1,218)         (724)      (1,218) 
Proceeds from sale of current 
 financial assets                                          -      124,209             -      124,209 
Cash consideration paid on merger 
 net of cash acquired                   4            946,773            -     (107,943)            - 
Net cash generated from investing 
 activities                                          852,716       44,440    12,044,157    8,879,880 
--------------------------------------  ------  ------------  -----------  ------------  ----------- 
 
  Cash flow from financing activities 
Ordinary dividends paid                 9        (9,743,124)  (6,993,095)   (9,743,124)  (6,993,095) 
Purchase of own shares by employee 
 share option trust                              (2,503,244)  (2,044,150)   (2,503,244)  (2,044,150) 
Proceeds from sale of own shares 
 by employee 
share option trust                                   830,819      359,431       830,819      359,431 
Payment of lease liabilities                       (486,680)    (303,243)     (168,367)    (178,725) 
Share issue costs                                  (967,881)            -     (967,881)            - 
Net cash used in financing activities           (12,870,110)  (8,981,057)  (12,551,797)  (8,856,539) 
--------------------------------------  ------  ------------  -----------  ------------  ----------- 
 
  Net increase in cash and cash 
  equivalents                                     11,004,209      622,095     2,696,161       60,428 
Cash and cash equivalents at 
 start of period                                  14,594,333   13,813,089       213,510      146,836 
Cash held in funds*                                   20,357       53,819             -            - 
Effect of exchange rate changes                    (104,280)      105,330       (4,487)        6,246 
--------------------------------------  ------  ------------  -----------  ------------  ----------- 
Cash and cash equivalents at 
 end of period                                    25,514,619   14,594,333     2,905,184      213,510 
--------------------------------------  ------  ------------  -----------  ------------  ----------- 
 

Notes:

* Cash held in International REIT fund was consolidated using accounts drawn up as of 30th June.

** Following an FRC corporate reporting review of the Group's 2020 Annual Report and Accounts, in accordance with IAS 7 paragraph 16, acquisition-related costs disclosed as cash flows from investing activities in the 2020 financial statements have been restated as cash flows from operating activities within the 2020 comparative above. This restatement does not impact closing cash; it solely relates to the classification of these 2020 exceptional cash outflows as operating activities as opposed to investing activities as previously reported. Refer note 10 'Restatement of cash flow information' .

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 2021 and 30th June 2020 does not constitute statutory accounts and has been extracted from the full accounts for the years ended 30th June 2021 and 30th June 2020. 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 2020 have been filed with the Registrar of Companies. The accounts for the year ended 30th June 2021 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 International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

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 amended standards and interpretations are in issue but not yet effective and considered not to have a material impact on the Group's financial statements:

 
 --IFRS 3 - Definition of a Business 
 --IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reforms 
 --IFRS 16 - COVID-19 Related rent concessions 
 

1.3 Accounting estimates and assumptions

The preparation of these financial statements in conformity with IFRS requires management to make estimates and assumptions 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 area of the financial statements that are subject to the use of estimates and assumptions 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 payment, the Group is required to estimate the fair value of the EIP awards due to be granted in October 2021. 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) Acquisition-related costs

The Group has incurred combined transaction costs of GBP4.0 million in relation to its merger with KIM, comprising acquisition-related and share issuance costs. Based on discussions with our advisers and in our management judgement, we have allocated the various combined transaction costs between acquisition-related amounting to GBP3.0 million and share issuance costs amounting to GBP1.0 million on a rational and consistent basis as per IAS 32.38. Out of this, acquisition-related costs amounting to GBP1.2 million were recognised in the year ended 30th June 2020. Acquisition-related costs are recognised in profit or loss and share issuance costs are recognised in retained earnings. Refer to note 1.19 for accounting policy.

(iii) EM REIT fund

The Company has a c.21% 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 therefore concluded that it does not control or have significant influence over this fund.

(iv) Acquisition accounting, and valuation of other intangible assets and goodwill

The Directors have concluded that the merger with KIM has to be treated as an acquisition and consolidated in the Group's financial statements in accordance with the guidance in IFRS 3 Business Combinations. The determination of the value of goodwill and other intangible assets at the date of acquisition requires elements of judgement. Details of judgements and estimates in assessing the fair value of goodwill and other intangible acquired at acquisition are included in notes 1.6 - accounting policies, and note 4 - business combinations.

(v) Impairment of Goodwill

The recognition of goodwill in a business combination and subsequent impairment assessments are based on significant accounting estimates. Note 1.7 details our estimates and assumptions in relation to the impairment assessment of goodwill.

1.4 Basis of consolidation

These financial statements consolidate 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 2021 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 Investment Management   Management of funds   100%         USA 
  Inc. 
 International REIT 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.

**Controlling interest is based on the interest held directly and with a related party.

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, 
                                          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 seven years for distribution channels.

(iii) Trade name

The fair value of trade name acquired in the business combination has been measured using a relief 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 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 deprecated 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

Goodwill arising on acquisition is not subject to annual amortisation and is 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 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. 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 main trading 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. Under IAS 21 The Effects of Changes in Foreign Exchange Rates this means that exchange differences caused from translating the functional currency to presentational currency for the main trading subsidiaries would be recognised in equity. However, the Group operates a policy whereby it manages the exposure of foreign exchange positions of its subsidiaries 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 subsidiaries 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.

--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 treated as operating leases and the costs are 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.

   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 
 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 
Year to 30th June 
 2020 
Gross fee income          30,893,843  1,166,649    330,992     871,708        -   33,263,192 
Non-current assets: 
Property and equipment       201,831          -    317,522           -   23,565      542,918 
Right-of-use assets          323,813          -  1,441,916           -  167,682    1,933,411 
Intangible assets             28,557          -     18,752           -        -       47,309 
-----------------------  -----------  ---------  ---------  ----------  -------  ----------- 
 

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 GBP5,470,051 (2020: GBP4,392,106) 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 2021  30th June 
      The operating profit is arrived at after                     GBP       2020 
      charging:                                                               GBP 
    --------------------------------------------------  --------------  --------- 
 Depreciation of property and equipment                        187,714    205,144 
 Depreciation of right-of-use assets                           492,730    341,247 
 Amortisation of intangible assets                           3,289,142     86,691 
    Auditor's remuneration: 
 - Statutory audit                                             122,318     90,115 
 - Audit related assurance services                             20,297     10,630 
 - (Over)/under-accrual of prior year audit 
  fees                                                           (168)        274 
 - Non-audit services relating to KIM transaction*                   -    150,608 
 Short-term lease expense                                        7,891     46,568 
 
 
 

* GBP37,652 out of this amount was included in exceptional costs for the year ended 30th June 2020 and the balance was included in other receivables as at 30th June 2020. On completion of the merger in FY 2021, the share issuance cost has been deducted from retained earnings.

   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 as follows:

 
                                                                GBP 
----------------------------------------------------  ------------- 
 Cash and cash equivalents                                1,054,716 
 Right-of-use assets                                        156,405 
 Property and equipment                                      31,560 
 Intangibles: direct customer relationships              35,644,000 
 Intangibles: distribution channels                       4,877,000 
 Intangibles: trade name                                  1,087,000 
 Trade and other receivables                                380,038 
 Trade and other payables                                 (677,879) 
 Net corporation tax liability                            (379,580) 
 Deferred tax liability                                (10,000,915) 
----------------------------------------------------  ------------- 
 Total identifiable assets acquired and liabilities 
  assumed                                                32,172,345 
 Goodwill                                                69,715,195 
----------------------------------------------------  ------------- 
 Net assets acquired                                    101,887,540 
----------------------------------------------------  ------------- 
 Satisfied by: 
 Cash                                                       107,943 
 Issue of 24,118,388 new ordinary shares                101,779,597 
----------------------------------------------------  ------------- 
 Total consideration transferred                        101,887,540 
----------------------------------------------------  ------------- 
 Net cash inflow arising on merger 
 Cash consideration paid                                  (107,943) 
 Less: cash and cash equivalent balance acquired          1,054,716 
----------------------------------------------------  ------------- 
                                                            946,773 
----------------------------------------------------  ------------- 
 

The 30th September 2020 closing exchange rate of 1.292 was used to translate the US dollar acquired assets to our reporting currency.

The intangible assets recognised on completion of the merger of GBP41,608,000 relate to direct customer relationships, distribution channels and KIM's trade name.

The goodwill of GBP69,715,195 (including deferred tax liability of GBP9,985,920) arises as a result of acquired workforce and expected future growth. Goodwill is not deductible for income tax purposes.

The fair value of the 24,118,388 new ordinary shares issued as part of the consideration paid for KIM was based on the 30th September 2020 closing market price per share of GBP4.22. An amount of GBP101,538,413 was recognised as a merger relief reserve in relation to this new issue of shares. Share issue costs amounting to GBP967,881 were deducted from retained earnings.

Acquisition-related costs of GBP1,743,424 (year ending 2020 - GBP1,248,195) were charged to the income statement and shown under exceptional items.

The gross contractual amount of trade and other receivables acquired is equal to their fair value of GBP380,038 and was considered to be fully recoverable at the date of the merger. The fair value of all other net assets acquired were equal to their carrying value.

During the nine months to 30th June 2021, KIM contributed GBP15,488,810 of net fee income and GBP7,574,756 of profit after tax to the Group's consolidated income statement.

If the merger was completed at the beginning of the current financial year, the Group's net fee income would have been GBP57,602,430 and Group's profit after tax would have been GBP17,916,183 for the current reporting period.

 
5 INTEREST RECEIVABLE/(PAYABLE) AND SIMILAR 
 GAINS/(LOSSES) 
                                                      Year to     Year to 
                                               30th June 2021   30th June 
                                                          GBP        2020 
                                                                      GBP 
--------------------------------------------  ---------------  ---------- 
Interest on bank deposits                              17,689      74,033 
Unrealised gain/(loss) on investments                 540,172   (886,256) 
Loss on hedging investments                                 -     (1,287) 
Interest payable on lease liabilities               (133,827)   (116,958) 
Interest payable on restated US tax returns             (925)    (13,221) 
--------------------------------------------  ---------------  ---------- 
                                                      423,109   (943,689) 
--------------------------------------------  ---------------  ---------- 
 
 
6   TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES 
 
 
                                                                  Year to    Year to 
                                                           30th June 2021  30th June 
      (a) Analysis of tax charge on ordinary activities:              GBP       2020 
                                                                                 GBP 
    -----------------------------------------------------  --------------  --------- 
    Current tax: 
 UK corporation tax at 19% (2020: 19%) based 
  on the profit for the period                                  4,510,249  2,169,283 
 Double taxation relief                                         (947,061)  (497,843) 
 Adjustments in respect of prior years                             35,246   (58,985) 
 --------------------------------------------------------  --------------  --------- 
 UK tax total                                                   3,598,434  1,612,455 
 --------------------------------------------------------  --------------  --------- 
 Foreign tax                                                    2,435,832    659,394 
 Adjustments in respect of prior years                           (81,966)   (98,722) 
 Foreign tax total                                              2,353,866    560,672 
 --------------------------------------------------------  --------------  --------- 
 Total current tax charge                                       5,952,300  2,173,127 
 --------------------------------------------------------  --------------  --------- 
    Deferred tax: 
 UK - origination and reversal of temporary 
  differences                                                      39,423  (126,714) 
 Foreign - origination and reversal of temporary 
  differences                                                   (733,237)    (5,890) 
 --------------------------------------------------------  --------------  --------- 
 Total deferred tax credit                                      (693,814)  (132,604) 
 --------------------------------------------------------  --------------  --------- 
 Total tax charge in income statement                           5,258,486  2,040,523 
 --------------------------------------------------------  --------------  --------- 
 

(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 2021    30th June 
                                                                GBP         2020 
                                                                             GBP 
-------------------------------------------------  ----------------  ----------- 
Profit on ordinary activities before tax                 22,249,004    9,406,501 
-------------------------------------------------  ----------------  ----------- 
Tax on profit from ordinary activities at 
 the standard rate                                      (4,227,311)  (1,787,235) 
Effects of: 
Unrelieved overseas tax                                 (2,793,433)    (161,551) 
Foreign profits taxed at rates different to 
 those of the UK                                          1,922,253            - 
Expenses not deductible for tax purposes                  (947,021)    (236,574) 
Gains/(losses) not eligible for tax                          49,022    (122,206) 
Capital allowances less than depreciation                  (19,255)     (27,774) 
Prior period adjustments                                     46,720      157,707 
Deferred tax originating from timing differences            693,814      132,604 
Other                                                        16,725        4,506 
-------------------------------------------------  ----------------  ----------- 
Total tax charge in income statement                    (5,258,486)  (2,040,523) 
-------------------------------------------------  ----------------  ----------- 
 

The UK Government announced on 3rd March 2021 its intention to increase the UK rate of corporation tax to 25% from 19% from 1st April 2023. As this rate was not substantively enacted at the year end, deferred tax on future UK taxable profits has been calculated based on the prevailing rate of 19%. The net UK group deferred tax asset comprises a mixture of separate deferred tax assets and liabilities. Due to timing differences as to when these deferred tax assets and liabilities will realise into current tax, the estimated impact of the new 25% rate on the deferred tax asset would be immaterial.

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 2021.

As set out in the Directors' report on page 84 of the full report the Employee Benefit Trust held 1,591,158 ordinary shares in the Company as at 30th June 2021. The Trustees of the Trust have waived all rights to dividends associated with these shares. In accordance with IAS 33 Earnings per share, the ordinary shares held by the Employee Benefit Trust have been excluded from the calculation of the weighted average number of ordinary shares in issue.

The calculation of diluted earnings per share is based on the profit for the period attributable to the equity shareholders of the parent divided by the diluted weighted average number of ordinary shares in issue for the period ended 30th June 2021.

Reported earnings per share

 
                                                                  Year to           Year to 
------------------------------------- 
                                                           30th June 2021    30th June 2020 
------------------------------------- 
                                                                      GBP               GBP 
-------------------------------------  ----------------------------------  ---------------- 
Profit attributable to the equity 
 shareholders of the parent for 
 basic earnings                                                16,971,233         7,559,580 
-------------------------------------  ----------------------------------  ---------------- 
 
                                                         Number of shares  Number of shares 
-------------------------------------  ----------------------------------  ---------------- 
Issued ordinary shares as at 1st 
 July                                                          26,560,707        26,560,707 
Effect of own shares held by EBT                              (1,502,266)       (1,595,866) 
Effect of shares issued in the 
 period                                                        18,039,233                 - 
-------------------------------------  ----------------------------------  ---------------- 
Weighted average shares in issue                               43,097,674        24,964,841 
Effect of movements in share options 
 and EIP awards                                                   677,739           658,251 
-------------------------------------  ----------------------------------  ---------------- 
Diluted weighted average shares 
 in issue                                                      43,775,413        25,623,092 
-------------------------------------  ----------------------------------  ---------------- 
Basic earnings per share (pence)                                     39.4              30.3 
Diluted earnings per share (pence)                                   38.8              29.5 
-------------------------------------  ----------------------------------  ---------------- 
 

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 2020 
                                                                     2021 
--------------------------------------- 
                                                                      GBP             GBP 
---------------------------------------  --------------------------------  -------------- 
Profit before tax                                              22,249,004       9,406,501 
Add back: 
- (Gain)/loss on investments                                    (540,172)         887,543 
- Acquisition-related costs                                     1,743,424       1,248,195 
- Amortisation on acquired intangibles                          3,250,185               - 
---------------------------------------  --------------------------------  -------------- 
Underlying profit before tax                                   26,702,441      11,542,239 
Tax expense as per the consolidated 
 income statement                                             (5,258,486)     (2,040,523) 
Tax effect on adjustments                                       (677,412)       (168,633) 
Adjustment for NCI                                               (19,285)         193,602 
---------------------------------------  --------------------------------  -------------- 
Underlying profit after tax for the 
 calculation of underlying earnings 
 per share                                                     20,747,258       9,526,685 
---------------------------------------  --------------------------------  -------------- 
Underlying earnings per share (pence)                                48.1            38.2 
Underlying diluted earnings per share 
 (pence)                                                             47.4            37.2 
---------------------------------------  --------------------------------  -------------- 
 

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

   8    SHARE CAPITAL AND MERGER RELIEF RESERVE 
 
                                            Share capital   Merger relief 
                                                                  reserve 
 Group and Company                                    GBP             GBP 
-----------------------------------------  --------------  -------------- 
 Allotted, called up and fully paid 
 At start of period 26,560,707 ordinary           265,607               - 
  shares of 1p each 
 New issue of 24,118,388 ordinary shares 
  of 1p each upon merger with KIM                 241,184     101,538,413 
-----------------------------------------  --------------  -------------- 
 At end of period 50,679,095 ordinary 
  shares of 1p each                               506,791     101,538,413 
-----------------------------------------  --------------  -------------- 
 

Merger relief reserve has been created as the issue of ordinary shares on 1st October 2020 by the Company upon the merger with KIM meets the requirements of merger relief under Companies Act 2006 (see note 4 for details of the business combination).

 
9 DIVID 
                                                  30th June    30th June 
                                                       2021         2020 
                                                        GBP          GBP 
----------------------------------------------  -----------  ----------- 
Dividends paid: 
Interim dividend of 11p per share (2020: 10p)     4,762,818    2,488,116 
Final dividend in respect of year ended: 
30th June 2020 of 20p per share (2019: 18p)       4,980,306    4,504,979 
----------------------------------------------  ----------- 
                                                  9,743,124    6,993,095 
 

A final dividend of 22p per share (gross amount payable GBP11,149,401; net amount payable GBP9,472,835*) has been proposed, payable on 29th October 2021, subject to shareholder approval, to shareholders who are on the register of members on 8th October 2021.

*Difference between gross and net amounts is on account of shares held at EBT that do not receive dividend and 25% waived dividend on new shares issued upon merger in accordance with the lockup deed.

10 RESTATEMENT OF COMPARATIVE CASH FLOW INFORMATION

The FRC's corporate reporting review of the Group's Annual Report and Accounts to 30th June 2020 highlighted that IAS 7 Statement of cash flows paragraph 16 prevents items being classified as investing activities unless a corresponding asset is also capitalised.

As a result of this review, the comparative Consolidated and Company cash flow statement has been restated. Cash outflows related to acquisition-related costs of GBP1,248,195 have now been presented within cash flows from operating activities as opposed to cash flows from investing activities in the Consolidated and Company cash flow statement.

Net cash generated from operating activities in 2020 has decreased by GBP1,248,195 from GBP10,806,907 to GBP9,558,712 and net cash used in investing activities has decreased by GBP1,248,195 from cash used in of GBP1,203,755 to cash generated of GBP44,440.

 
                                          Previously 
                                            reported    Restatement     Restated 
                                                 GBP            GBP          GBP 
Cash Flow statement line item 
Net cash generated from operating 
 activities                               10,806,907    (1,248,195)    9,558,712 
Acquisition-related costs                (1,248,195)              0  (1,248,195) 
Net cash (used in)/generated investing 
 activities                              (1,203,755)      1,248,195       44,440 
 

The FRC's enquiries regarding this matter are now complete. It must be noted that the FRC's review is limited to the published 2020 Annual Report and Accounts; it does not benefit from a detailed understanding of underlying transactions and provides no assurance that the Annual Report and Accounts are correct in all material respects. Further details are provided within the Audit & Risk Committee report.

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 2021                   at amortised      profit or       Total 
                                         cost           loss 
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 
 
 
                                                   Assets at 
                                                        fair 
                                    Financial  value through 
  30th June 2020                    assets at      profit or       Total 
                                    amortised           loss 
                                         cost 
Assets as per statement of                GBP            GBP         GBP 
 financial position 
Other non-current financial 
 assets                                     -      3,994,727   3,994,727 
Trade and other receivables         5,441,340              _   5,441,340 
Cash and cash equivalents          14,594,333              _  14,594,333 
Total                              20,035,673      3,994,727  24,030,400 
 
 
                                                 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            5,472,692         18,063   5,490,755 
Current lease liabilities             406,179              -     406,179 
Non-current lease liabilities       1,552,219              -   1,552,219 
Total                               7,431,090         18,063   7,449,153 
 
 
Company 
                                                                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 
 
                                                                Assets at 
                                  Investment     Financial     fair value 
                                          in        assets        through 
30th June 2020                  subsidiaries  at amortised      profit or        Total 
                                                      cost           loss 
Assets as per statement of               GBP           GBP            GBP          GBP 
 financial position 
Other non-current financial 
 assets                            1,283,481     1,960,169      1,781,732    5,025,382 
Trade and other receivables                -    11,321,019              _   11,321,019 
Cash and cash equivalents                  -       213,510              _      213,510 
Total                              1,283,481    13,494,698      1,781,732   16,559,911 
 
 
                                                              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                         5,366,290              -    5,366,290 
Current lease liabilities                          168,367              -      168,367 
Non-current lease liabilities                    1,279,729              -    1,279,729 
Total                                            6,814,386              -    6,814,386 
 

(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 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 
 
 
                                    Level 1    Level 2    Level 3      Total 
  30th June 2020                        GBP        GBP        GBP        GBP 
Financial assets at fair value 
 through profit or loss 
Investment in other non-current 
 financial assets                 2,212,986  1,781,741          -  3,994,727 
Total                             2,212,986  1,781,741          -  3,994,727 
Financial liabilities at fair 
 value through profit or loss 
 Forward currency trades                  -     18,063          -     18,063 
Total                                     -     18,063          -     18,063 
 
  Company 
                                    Level 1    Level 2    Level 3      Total 
  30th June 2021                        GBP        GBP        GBP        GBP 
Investment in own funds                   -  1,874,766          -  1,874,766 
Total                                     -  1,874,766          -  1,874,766 
 
 
                                    Level 1    Level 2    Level 3      Total 
  30th June 2020                        GBP        GBP        GBP        GBP 
Investment in own funds                   -  1,781,741          -  1,781,741 
Total                                     -  1,781,741          -  1,781,741 
 

Level 3

Level 3 assets as at 30th June 2021 are nil (2020: 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 GBP60,607 (2020: net profit GBP29,935).

(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 2021, the Group had net asset balances of US$9,211,328 (2020: US$6,820,219), offset by forward sales totalling US$8,300,000 (2020: US$5,000,000). Other significant net asset balances were C$648,301 (2020: C$503,545), AED291,521 (2020: net liabilities AED110,217), and SGD1,924,212 (2020: SGD176,699).

Had the US dollar strengthened or weakened against sterling as at 30th June 2021 by 10%, with all other variables held constant, the Group's net assets would have increased or decreased (respectively) by less than 2%, 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, 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 GBP0.2 million in the value of the investments and profit before tax.

The Group's International REIT fund has been consolidated as a controlled entity, and therefore the securities held by the fund are reported in the consolidated statement of financial position under investments. At 30th June 2021, 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 GBP0.2 million, of which 93% would be attributable to the Group and 7% to the non-controlling interest.

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 (2020: loss GBP1,287).

(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 2021, the Group held GBP25,514,619 (2020: GBP14,594,333) in cash balances, of which GBP23,911,707 (2020: GBP14,170,849) 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 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 / cybersecurity  Risk that technology         IT monitors developments 
 and business continuity         systems and support          in this area and ensures 
 risks                           are inadequate or            that systems are adequately 
                                 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 (DR)/ 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 five offices 
                                                              are able to work remotely, 
                                                              accessing information 
                                                              and maintaining operations. 
Material error / mandate        Risk of a material           Mandate guidelines 
 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. 
COVID-19                        The Group acknowledges       The Group has contended 
                                 that COVID-19 poses          with several challenges 
                                 a risk to the level          posed by the COVID-19 
                                 of FuM it manages.           pandemic, including 
                                 The Group's profitability    market volatility 
                                 is directly linked           and new ways of working. 
                                 to the level of FuM          Remotely, we were 
                                 and a sustained fall         fully operational 
                                 in                           throughout the pandemic. 
                                 financial markets            We continue to manage 
                                 as a result of COVID-19      our assets as if our 
                                 will directly affect         employees were in 
                                 the Group's FuM and          the 
                                 profitability.               office, no changes 
                                                              have been made to 
                                                              the existing investment 
                                                              process and oversight 
                                                              of the investment 
                                                              teams and the business 
                                                              as a whole 
                                                              from Compliance has 
                                                              continued as business 
                                                              as usual. 
                                                              It is too early to 
                                                              reach a meaningful 
                                                              conclusion on the 
                                                              longer-term 
                                                              impacts of the COVID-19 
                                                              pandemic. We continue 
                                                              to monitor the 
                                                              situation and are 
                                                              confident that we 
                                                              are able to adapt 
                                                              and develop plans 
                                                              as necessary. 
 

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 69, 77 and 106 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 nine-month period from the date of merger was 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 GBP11,154,306 (2020: GBP9,475,698) in respect of management service charges and dividends of GBP12,200,000 (2020: GBP8,800,000).

Amounts outstanding between the Company and its subsidiaries as at 30th June 2021 are shown on pages 115 and 116 of the full report.

M Dwyer, a Director of the Company, 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 GBP1,092,575 (2020: GBP871,709), with GBP117,128 (2020: GBP81,757) 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 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 to prepare Group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and are additionally required under the Listing Rules of the Financial Conduct Authority to prepare the Group financial statements in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

The Directors have elected under Company law to prepare the Company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

The Group and Company financial statements are required by law and international accounting standards in conformity with the requirements of the Companies Act 2006, and additionally for the Group financial statements International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union 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 international accounting standards in conformity 
             with the requirements of the Companies Act 2006, and 
             additionally for the Group financial statements 
             International Financial Reporting Standards adopted 
             pursuant to Regulation (EC) No 1606/2002 as it 
             applies in the European Union; 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 and, as regards the Group financial statements, Article 4 of the IAS Regulation. 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.

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END

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September 13, 2021 02:00 ET (06:00 GMT)

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