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
FR DKBBPABKDPCD
(END) Dow Jones Newswires
September 13, 2021 02:00 ET (06:00 GMT)
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