FINAL RESULTS FOR THE YEAR TO 30TH JUNE 2016

RNS Number : 4922J

City of London Investment Group PLC

12 September 2016

 

12th September 2016

CITY OF LONDON INVESTMENT GROUP PLC (LSE:CLIG)

 ("City of London" or "the Group")

FINAL RESULTS FOR THE YEAR TO 30TH JUNE 2016

SUMMARY

•Funds under Management (FuM) at 30th June 2016 were US$4.0 billion (2015: US$4.2 billion), a fall of 5%. In sterling terms, FuM increased by 11% to £3.0 billion (2015: £2.7 billion) as a result of the exchange rate moving from 1.57 to 1.33 over the period. The MSCI Emerging Markets TR Net Index fell 12% over the same period.

•Revenues, representing the Group's management charges on FuM, were £24.4 million 2015: £25.4 million). Profit before tax was £8.0 million (2015: £8.9 million).

•Basic earnings per share were 23.3p (2015: 26.4p) after a tax charge of 27% (2015: 26%) of pre-tax profits.

•A maintained final dividend of 16p per share is recommended, payable on 31st October 2016 to shareholders on the register on 14th October 2016, making a total for the year of 24p (2015: 24p).

For a copy of the full report or further information, please visit the shareholders page of our website http://www.citlon.co.uk or contact:

Barry Olliff (CEO)
City of London Investment Group PLC
Tel: [phone]

Martin R Green
Zeus Capital Limited
Financial Adviser & Broker
Tel: [phone] 
 

CHAIRMAN'S STATEMENT

Before addressing this, my fourth Statement as Chairman, I looked back at what I had written a year ago. At that time the long awaited US interest rates recovery was seen as, if not imminent, at least in prospect with consequences more favourable for Developed Markets than for our region of focus, the Emerging Markets (EM). How times have changed - apart from the miniscule 0.25 percent target increase last December, the Fed has yet to embark in any material way on the anticipated rate lift off, falling commodity prices have now at least stabilised (and in some cases recovered) and concern over the Chinese economy has abated considerably.  Prospects for Brazil, following the appointment of Michel Temer as acting President, have improved such that we increased our exposure to Brazil adding to existing successful overweights to India and Russia.

Most importantly, what was not anticipated was the UK vote for BREXIT. For your Company this is something of a double-edged sword consequent upon the accompanying fall in the value of sterling. Little of our income is UK derived whereas a substantial percentage of our costs are sterling based. At the interim stage in February this year following the earlier period of relative US$ strength, I included in my report a matrix table we provide to investors to illustrate the impact of the US$/£ movement on profits. Below is the same matrix but this time with the US$/£ midpoint reduced from 1.45 to 1.3:

FX/Post-tax profit Matrix: Illustration of US$/£ rate effect

FuM US$bn:           3.0           3.5           4.0           4.5           5.0

US$/£                      Post -tax, £m

1.20                         4.8           6.7           8.5           10.4         12.2

1.25                         4.5           6.3           8.1           9.8           11.6

1.30                         4.2           5.9           7.6           9.4           11.1

1.35                         4.0           5.6           7.3           8.9           10.6

1.40                         3.7           5.3           6.9           8.5           10.1

Assumes:

1. Average net fee 86 bp's

2. Annual operating costs £5.0m plus US$8m plus S$1m (£1 = S$1.8)

3. Profit-share 30%

4. Average tax rate 26%

It is clear that a weak pound vs the US$ has a very material effect on our profits.

At the time of writing the final outcome from the BREXIT negotiations is far from clear so the one certainty is that we have uncertainty and that will, hopefully only short term and to a limited extent, have a detrimental effect on both the UK economy and the EU as a whole with some adverse consequences for the EMs given the important trade and financial linkages. I am optimistic, however, that common sense will overcome political spitefulness and that post BREXIT there will be little change from current trade flows with the possibility that at least the UK, albeit small in global terms, will be more open to trade from the EM economies.

Results

Over the year to 30th June 2016 investment performance in our core product, the Emerging Markets closed-end fund strategy, continued to perform well with results in the first or  second quartile versus manager peers for the year. Although markets were difficult and volatile with the MSCI Emerging Markets Index (MXEF) averaging only 816 during the year, clients encouraged by our strong relative performance ensured that we received a net increase in our Funds under Management ("FuM").

At 30th June 2016 we had FuM of US$4.0 billion (£3.0 billion), (2015: US$4.2 billion or £2.7 billion), representing a 5% decrease in US$ terms and an 11% increase in sterling terms as a result of the US$/sterling exchange rate moving from 1.57 to 1.33 over the period. Over the same period, the MSCI Emerging Markets TR Net Index fell by 12% in US$ terms, resulting in a relative change in FuM of +7% versus the benchmark, a product of both positive investment performance and new and existing client inflows.

In commenting on our interim results on 12th February this year when the MXEF was 711  (the low point being 689 on 21st January 2016) I stated that "I am confident that we will continue to make the best of very uncertain markets and that we will again weather the storms just as we have in previous downturns". I can report that we have taken full advantage of the subsequent rebound.

We have again seen an increase in our diversification products, which are now 9.1% of total FuM (2015: 8.5%), despite some redemptions and profit-taking.

Gross revenue for the year was £24.4 million (2015: £25.4 million). Pre-tax profits were £8.0 million (2015: £8.9 million), and profits after an anticipated tax charge of £2.1 million (27% of pre-tax profits) will be £5.9 million (2015: profits of £6.6 million after a tax charge of £2.3 million, representing 26% of pre-tax profit).  Basic and fully diluted earnings per share are 23.3p and 23.1p respectively (2015: 26.4p and 26.0p).

Dividends

As already noted at the interim stage your Board, when appropriate, will take advantage of the flexibility included in your Company's dividend policy to ensure shareholders enjoy a consistent and predictable dividend income. Although the maintained final dividend income of 16p per share making a total for the year of 24p will not be covered, the much improved outlook, noting in particular the beneficial effect on our profits illustrated in our FX Matrix of the post-BREXIT decline in the value of sterling, together with the Group's strong cash position, fully justify this payment.

This would bring the total for the year to 30th June 2016 to 24p (2015: 24p), giving a cover of 0.97 x earnings per share (2015: 1.1 x).

Your Board

This has been a year of unprecedented change at board level; we have lost two directors and gained three. Firstly Carlos Yuste, our Business Development Director, who had been with the Group for 15 years and a Director for 10 years left as of 31st December 2015. Secondly Rian Dartnell, non-executive and chair of the Nominations Committee resigned as of the financial year end due to the pressure of his other work commitments. On a more positive note, Mark Dwyer, CIO Emerging Markets CEF and Tracy Rodrigues, Finance Director joined the CLIG Board and as of 1st July 2016 we have also welcomed Mark Driver to the Board as a non-executive Director.  I have now been a non-executive Director for 10 years and Chairman of the Board for the last four, and had originally intended to step down at this time.  In view of the recent changes on the Board, however, I have agreed to stay on until June 2018 in order to provide continuity over this period. 

Following this year's annual evaluation of the Board and its members, I can confirm that each Director is operating effectively and I therefore recommend that all Directors be re-elected.

Outlook

Over the 2015/16 year the average month end FuM (the relevant dates for fee determination) was US$3.8 billion. To date in the current year the average has been US$4.3 billion. Costs have been contained and so the outcome for the year will be determined by the direction of markets (on which I am not expressing an opinion but note our proactive stance in ensuring that our cost base does not increase in tandem with rising markets), our investment performance and client wins and redemptions. As regards the latter we are grateful to the loyalty shown by clients during a period when Emerging Markets have been volatile and only really appealed to contrarians. I have every reason to believe that our well-honed investment process for our core products will continue to deliver returns superior to our peer group and thereby reward both longstanding and new clients for putting their trust in this firm.

As in previous years all shareholders are most welcome at our AGM in October and your Directors will be available to meet and talk with individual shareholders following the meeting's formal business.

David Cardale
Chairman
8th September 2016

START OF STRATEGIC REPORT

CHIEF EXECUTIVE OFFICER'S STATEMENT

At our firms last annual Strategy Meeting (which celebrated our 25th year), the theme was "Constant Improvement".  This, as our shareholders will be aware, has also been a theme as it relates to our annual Accounts. New areas of disclosure this year within the Overview part of my Statement relate to US Taxes, Environmental, Social and Governance (ESG) principles, and BREXIT, which is also referenced in the Chairman's Statement and where you will find a table that we have provided for many years now. We believe this table will be helpful to shareholders when they estimate our P&L in a volatile foreign exchange market.

This year Tom Griffith has written the Business Development Review which, while covering similar topics to last year, also includes a paragraph regarding Operational Support which is a very important part of Business Development.

In my opinion, progress this year at CLIG should not be measured in terms of our investment performance, assets gained and lost or even via the MSCI Emerging Markets Index (Total  Return) (Benchmark). Rather it should be measured via the CLIG share price - this being our preferred measure of "Management Performance".

In a way, this is a very high risk strategy as it assumes that our shareholders are the ultimate arbiter of whether CLIG is "working" well, but having said that, they are the owners so isn't this the best way for us to be measured - i.e., by the owners of the business?

As referenced above, investment performance and our benchmark are good tools of measurement but it's also interesting to review some of the other ingredients that contribute to the valuation that shareholders place upon our business - ultimately demonstrated via the share price.  Client longevity, staff longevity and FuM vs. our benchmark are all contributing factors.

US State Taxation

While this is well outside my area of expertise, what follows should be of interest to our peers who practice in the US.

As a result of opening an office in Seattle (actually for marketing purposes) we found out that Washington State considers that a nexus is created as a result of any client exposure in that State. This tax, whilst not onerous in terms of its quantum, led us to research if we had liabilities in other States. The amount and the principles associated with these gross revenue taxes, the calculation of which goes back four years and is fully accounted for within the figures that were disclosed on 18th July and in these Accounts, are regressive. This type of levy does no good in terms of encouraging firms such as ours and our peers to practice in the US as they increase the cost of doing business. There are a number of other States that currently charge such a tax in addition to Washington and as of today, advice received is that none of these taxes can be offset in terms of any treaty involving DTR.

Diversification and 25 years

When we started our business back in 1991 we just invested in Emerging Markets via Closed-End Funds (CEFs). Since that time our business has diversified both within the EM Asset Class and also outside it.

In the EM space we now manage CEF assets that invest in Special Situations, China A share CEF's and we also have China Specific CEF mandates.

In terms of our diversification away from the Emerging Markets we manage Developed, Frontier, Global Tactical Asset Allocation, and Private Equity closed-end fund assets.

Environmental, Social and Governance (ESG)

If you have been an active watcher of our web site you will not have failed to have noticed its increasing focus on ESG issues over the past two years.

Going back ten years there was a focus on Socially Responsible Investing (SRI). This did not gain any traction, at least not in the US, and it seemed to us to be unduly prescriptive and actually unlikely to change anything.

A few years ago however, we became aware of a new movement which was gathering momentum.

As you will be aware we have significant exposure to Colleges, both Foundations as well as Endowments. Within the ESG movement, it seems to us that from a bottom up perspective the students, those attending the colleges, were asking more and more questions regarding how investments were being made by their relevant Investment Committees. Separate from their interest in the "Process" was the outcome of those investments. In addition, and you could reference this as the top down, philanthropists were increasingly providing "conditional" gifts. These "strings" often related to sensitive areas such as the environment, sustainability, correctness, ethics governance or the oversight of companies.

In addition, and this is a very separate point, we were being asked to tick a box regarding how we were either making our investment decisions or how we were influencing with our client's assets the managers with whom we were investing. As a result, just over two years ago we started to develop the research part of our Investment Process to include questions regarding E, S and also G.

As we have developed this process so we have been able to punch well above our weight because whereas we run cUS$4billion, we were able to talk to managers with FuM of many trillions of dollars. The influence that we have therefore brought to bear with regard to these issues is substantial. At the core of our commitment to this subject is not just the fact that our clients are interested in this area but also that ESG indices have outperformed regular indices.

Investment Performance and the CLIG P&L

Investment performance across the Group has been satisfactory. As mentioned in previous years we go out of our way to find sticky clients. This has the effect of ensuring that earnings are as stable as possible even when markets are volatile.

The most important part of our process in terms of the identification of clients is that they are well educated in terms of what we do, also how we deliver our returns. Money that can come in and out based upon circumstances that are beyond the managers control should not be considered "good" cash flow from a shareholders perspective.

As it is, the major impediment to recent performance within the Emerging Markets CEF business has been a widening of the Size-Weighted Average Discount (SWAD) at which the shares within our portfolios trade. This has been an area of education for our clients since their inception.

BREXIT

More by luck than judgement CLIG was perfectly positioned for BREXIT.
• Virtually all CLIM income is USD based - this is good for the bottom line.
• Zero FuM effect from BREXIT - the US attitude to the EM's seems to be unchanged
• Over 90% of income comes from the EM's - our asset class seems to be in good shape specifically within an EM currency / GBP context.
• Approximately 40% of Group costs are in GBP - this assists the P&L.
• Approximately 2.5% of CLIM assets are UCIT'S - no vulnerability there.

In the context of a personal view, I would suggest that the outcome from BREXIT will to a great extent be business as usual from a CLIG perspective. I don't see any significant reduction in terms of the type, style or focus of financial regulation. This is primarily because it would seem as if the FCA has been the main sponsor of the legislation that we are presently reviewing from Europe.

Obviously our P&L is at present benefiting substantially as a result of significant UK costs exposure and from the translation of US dollar earnings into sterling.

CLIG Dividend

As you are aware, this has been a tough time for the EM's. As a result the CLIG Board has been very flexible in its application of our dividend policy which is to target cover of 1.2x through a cycle.

With profits receiving the tail wind of a significant reduction in the valuation of GBP it would seem as if, other things being equal, we will be in a very different position when the Board considers next year's dividend.

Employee Share Ownership Plan (ESOP)

In a fund management company, clients attach a significant level of importance to employee share ownership in terms of their commitment to the company for which they work.

It's also in the interest of shareholders for staff to be 'owners' rather than 'renters', to use a housing analogy, thereby ensuring the maximum degree of alignment between employees and shareholders.

While CLIG has had an ESOP in place for many years, the shares held for the ESOP by the Trustees on behalf of staff have not received dividends. This has meant that the annualised rate of total return of approximately 11% received by an initial investor at the point of CLIG's IPO has been reduced very significantly for ESOP holders. Specifically over the past few years the dividends have made up a very significant percentage of the total return.

In an attempt to broaden the base of employee ownership, encourage direct staff participation and make CLIG shares more attractive to staff, we will be bringing forward to shareholders a proposal at the forthcoming AGM. This proposal will include, for a four year period, an increase in the staff bonus pool from 30% to 35%. This increase will only apply while the dividend payable to shareholders is at least maintained at 24p.

The additional 5% from the bonus pool will be offered to staff as a contribution towards the new Employee Incentive Plan, on condition that they put up matching funds.

This will have the effect of incentivising participating staff by matching their investment with an equivalent contribution from the company.

Regarding my Share Stake

For obvious reasons I will not be participating in the aforementioned scheme.

In terms of my CLIG shares I will continue to sell them into strength. My intention therefore (as last year) remains to sell 500,000 at 400p and 500,000 at 450p.

Outlook

Since the year end FuM have risen from US$4.0 billion to US$4.4 billion, at the time of writing.  In addition, the firm continues to have a robust pipeline of potential future business across all asset classes.

CLIM continues to see robust institutional activity across Closed-End Fund asset classes and has every reason to believe that it will at least maintain its position in terms of the provision of Closed-End Fund solutions.

I would again like to thank staff for their hard work over many years in what has been a very difficult market environment. It's very good news that at long last sentiment seems to have changed towards our asset class.

Barry Olliff
Chief Executive Officer
8th September 2016

BUSINESS DEVELOPMENT REVIEW

Overview

Relative investment performance in the emerging markets closed-end fund (CEF) strategy remains strong, with first or second quartile results versus manager peers over the period.

There were new inflows of US$374 million in our core emerging market strategies, which were countered by outflows of US$259 million, leading to net inflows of US$115 million as investors were attracted by the significant value that has continued to be reflected in the relatively large size-weighted average discount (SWAD) of c14-15% across client portfolios, as well as the increasing attractiveness of emerging markets overall.

Fundraising in the diversification products resulted in inflows of US$102 million and outflows of US$92 million. Diversification products continued to increase as a percentage of Group Assets Under Management (AUM) at 9.1%, compared with 8.5% last year. These additional assets will assist in efforts to raise the profile of our extension CEF products with institutional consultants and plan sponsors.

Products

Our diversification products attracted additional AUM even as some investors in the Global Tactical Asset Allocation CEF Strategy took some initial funding and profits off the table. The Global Tactical Asset Allocation Strategy encompasses a variety of asset classes via closed-end funds, which is desirable to asset allocators and other investors looking for exposure to a specific market. This strategy adopts a "go-anywhere" approach and is managed as part of the Developed closed-end fund strategy team. While this is a separate team from that managing client assets in the emerging markets, both teams use the same methodology and internal resources. Both taxable and tax-exempt products are available.

Continued strong performance led to additional funding in the Frontier Emerging Markets CEF Strategy, which is an extension of the Emerging Markets core equity product focusing on the smallest (pre-emerging) markets with high growth potential.

Performance

Global composite investment returns for the Emerging Market closed-end fund strategy for the rolling one year ending June 30, 2016 were -9.64% vs. -12.05% for the MSCI Emerging Markets Index in USD and 6.30% vs. 3.46% for the benchmark in GBP.

Global composite investment returns for the Developed Market closed-end fund strategy for the rolling one year ending June 30, 2016 were -11.34% vs. -10.25% for the MSCI ACWI ex US in USD and 4.30% vs. 5.59% for the benchmark in GBP.

Composite investment returns for the Frontier Emerging Market closed-end fund strategy for the rolling one year ending June 30, 2016 were -8.78% vs. -12.05% for the S&P Frontier EM 150 benchmark in USD and 7.31% vs. 3.47% for the benchmark in GBP.

Outlook

Marketing efforts will be targeted at investment consultants, foundations, endowments and pension funds. We will also continue to introduce our capabilities to family offices, outsourced CIO firms and alternative consultants. With the addition of our Seattle office in 2015, we now have dedicated resources on both the east and west coast to drive marketing efforts in the US. Our Developed, Global Tactical Asset Allocation, and Frontier Emerging Market capability will continue to be a focus of our product diversification and business development activities. 

Operational Support

Over the past year we have opportunistically placed additional resources in the Operations group which we view as the engine room for creating additional technology related efficiencies. These resources enhance our ability to leverage both vendor and internally developed applications, manage data, deliver information and communicate globally while maintaining a low risk profile and keeping overhead costs down. Our infrastructure is robust to provide significant economies of scale that allows product diversification, an increase in the number of accounts, a significant increase in trading volume and a new office to be added at minimal cost and without adding additional staff.

FINANCIAL REVIEW

Consolidated income statement and statement of comprehensive income

The average Funds under Management (FuM) for the year was US$3.8 billion compared with US$4.1 billion in 2014/2015 (based on the month end values), a fall of approximately 7%, due to negative market movements offset in part by net inflows during the financial year. Group turnover comprises management fees charged as a percentage of FuM and as a result is also down year on year but by less than 4% to £24.4 million (2015: £25.4 million) bolstered by sterling weakening against the US dollar, especially in the latter part of the year.

As expected, commissions payable are down from 9% of gross fees last year to 6% this year. These commissions relate to fees due to third party marketing agents for the introduction of clients. The contract to which all but a small proportion of these commissions relate expired in October 2010. Under the agreement, commission is based on a period of ten years from the date of the client's initial investment. As a guide, the table presented illustrates the rate of the commission run-off relating to the expired contract, based upon FuM and market levels at the year end.

Marketing commission run-off
(based on FuM at 30th June 2016)
Financial year      £m (@ $1.33/£1)
2016-17                   1.4
2017-18                   1.2
2018-19                   0.8
2019-20                   0.1                         

Assumptions:
- No change in client holding
- Constant market level
- Indexed investment performance
- No change in management fees 

The Group's net fee income, after custody charges of £0.7 million (2015: £0.7 million), is £22.2 million (2015: £22.3 million). As a percentage of FuM, net fee income is currently around 86 basis points and has been between 85-86bp for the last two years.

Administrative expenses have increased approximately 6% from £13.6 million to £14.4 million. The largest component of this is staff costs of £10.6 million (2015: £10.4 million), a slight year on year rise attributable to a weaker pound, as the increase in higher wage costs was offset by a lower profit-share payment for the year, charged at 30% (2015: 30%) of pre-bonus operating profit, reflecting the reduction in Group profits. 

Interest receivable and similar gains of £0.2 million includes bank interest on deposits, but primarily relates to the increase in fair value of the funds in which the Group has a controlling interest.

The net of the above results in a pre-tax profit of £8.0 million (2015: £8.9 million). Corporation tax this year amounts to £2.1 million, an effective rate of 27% compared to 26% last period (2015: £2.3 million) as a result of an increase in the sterling equivalent of the Group's US corporation tax provision.

Consolidated statement of financial position and statement of changes in equity 

Cash remains the major part of net assets at £10.2 million representing 72% (2015: £10.2 million, 72%). There were no significant movements in the other principal components of net assets namely: other financial assets of £2.2 million (2015: £2.1 million) which are essentially the Group's seed investments at fair value and the excess of trade and other receivables over trade and other payables £1.9 million (2015: £1.9 million).

Non-current assets comprise property and equipment of £0.4 million (2015: £0.4 million), capitalised software licences of £0.2 million (2015: £0.2 million), and the deferred tax asset of £0.1 million (2015: £0.4 million). The latter is an estimate of the future corporation tax savings to be derived from the exercise of share options in issue at the financial year end. 

The major changes in equity attributable to shareholders this year is profit of £5.9 million (2015: £6.6 million) and the dividends paid during the year of £6.0 million (2015: £6.0 million). The dividend comprised the 16p final dividend for 2014/15 plus the 8p interim dividend for the current year. 

Halfway through the year, the Group took the opportunity to use some of its surplus cash to fund the buyback and cancellation of 115,000 Company shares at a weighted average price of £3.26. Directors and employees exercised 99,436 dilutive options and 55,700 ESOP held options, raising £0.5 million. There are no further dilutive options outstanding.

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, City of London Investment Management Company Ltd, is regulated by the FCA. As required under the Capital Requirements Directive, the underlying risk management controls and capital position are disclosed on our website www.citlon.co.uk. 

Currency exposure

As a result of the UK's referendum vote to leave the European Union on 23rd June 2016, sterling fell to a 30 year low against the US dollar. Given the Group's revenue is almost entirely US dollar based whereas c40% of its costs are incurred in sterling, a weak pound has a very positive influence on reported earnings, as illustrated in the FX table presented in the Chairman's statement.

It is worth noting though that while the Group's fee income is assessed by reference to FuM expressed in US dollars, the underlying investments are primarily in emerging market related stock, 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).

Another aspect of the Group's currency exposure 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 2016 these forward sales totalled US$4.3 million, with a weighted average exchange rate of US$1.45 to £1 (2015: US$5.3 million at a weighted average rate of US$1.57 to £1).

Viability statement

In accordance with the provisions of the UK Corporate Governance Code, the Directors have assessed the viability of the Group, taking into account the Group's current position and prospects, Internal Capital Adequacy Assessment Process ("ICAAP") and principal risks.

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.

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 have therefore determined that a three year period constitutes an appropriate timeframe for its viability assessment.

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30TH JUNE 2016

	Note	Year to 30th June 2016 £	Year to 30th June 2015 £
Revenue Gross fee income	4	24,412,826	25,356,009
Commissions payable		(1,514,707)	(2,274,745)
Custody  fees payable		(735,200)	(737,513)
Net fee income		22,162,919	22,343,751
Administrative expenses Staff costs		10,606,490	10,418,571
Other administrative expenses		3,631,993	3,027,637
Depreciation and amortisation		168,298	170,852
		(14,406,781)	(13,617,060)
Operating profit	5	7,756,138	8,726,691
Interest receivable and similar gains	6	212,595	204,979
Profit before taxation		7,968,733	8,931,670
Income tax expense	7	(2,115,404)	(2,318,004)
Profit for the period		5,853,329	6,613,666
Profit attributable to:  Non-controlling interests		61,975	35,821
Equity shareholders of the parent		5,791,354	6,577,845
Basic earnings per share	8	23.3p	26.4p
Diluted earnings per share	8	23.1p	26.0p

CONSOLIDATED AND COMPANY STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30TH JUNE 2016

Group                                               Company

	Year to 30th June 2016 £	Year to 30th June 2015 £	Year to 30th June 2016 £	Year to 30th June 2015 £
Profit for the period	5,853,329	6,613,666	9,395,022	5,446,205
Items which may be realised through the profit or loss: Fair value (losses)/gains on available-for-sale investments*	(542)	2,117	(869)	2,117
Release of fair value losses/(gains) on disposal of available-for-sale investments*	-	40	-	40
Foreign exchange gains on non-monetary assets	83,058	50,988	-	-
Other comprehensive income/(loss)	82,516	53,145	(869)	2,157
Total comprehensive income for the period	5,935,845	6,666,811	9,394,153	5,448,362
Attributable to: Equity shareholders of the parent	5,873,870	6,630,990	9,394,153	5,448,362
Non-controlling interests	61,975	35,821	-	-
*Net of deferred tax.

CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

30TH JUNE 2016    

        Group                                       Company

	Note	30th June 2016 £	30th June 2015 £	30th June 2016 £	30th June 2015 £
Non-current assets
Property and equipment		431,017	384,083	72,275	88,643
Intangible assets		201,801	196,343	-	-
Other financial assets		2,200,099	2,075,954	1,734,670	1,810,792
Deferred tax asset		86,106	395,354	19,101	34,674
		2,919,023	3,051,734	1,826,046	1,934,109
Current assets
Trade and other receivables		5,044,107	4,509,184	5,597,427	1,935,076
Current tax receivable		-	-	306,547	317,095
Cash and cash equivalents		10,150,799	10,226,705	74,755	82,804
		15,194,906	14,735,889	5,978,729	2,334,975
Current liabilities
Trade and other payables		(3,122,371)	(2,609,944)	(1,626,909)	(1,601,947)
Current tax payable		(732,795)	(814,638)	-	-
Creditors, amounts falling due within one year		(3,855,166)	(3,424,582)	(1,626,909)	(1,601,947)
Net current assets		11,339,740	11,311,307	4,351,820	733,028
Total assets less current liabilities		14,258,763	14,363,041	6,177,866	2,667,137
Non-current liabilities
Deferred tax liability		(137,514)	(115,525)	(2,019)	(2,154)
Net assets		14,121,249	14,247,516	6,175,847	2,664,983
Capital and reserves
Share capital	9	268,967	269,123	268,967	269,123
Share premium account		2,256,104	2,117,888	2,256,104	2,117,888
Investment in own shares		(5,298,916)	(5,692,430)	(5,298,916)	(5,692,430)
Fair value reserve		8,077	8,619	7,750	8,619
Share option reserve		563,350	807,106	563,350	620,541
Foreign exchange reserve		75,407	(7,651)	-	-
Capital redemption reserve		22,747	21,597	22,747	21,597
Retained earnings		15,593,570	16,127,877	8,355,845	5,319,645
Shareholders interest		13,489,306	13,652,129	6,175,847	2,664,983
Non-controlling interest		631,943	595,387	-	-
Total equity		14,121,249	14,247,516	6,175,847	2,664,983

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

30TH JUNE 2016

	Share capital £	Share premium account £	Investment in own shares £	Fair value reserve £	Foreign exchange reserve £	Share option reserve £	Capital redemp-tion reserve £	Retained earnings £	Total attributable to share- holders £	Non- control-ling interest £	Total £
At 1st July 2014	269,727	2,060,809	(4,884,025)	6,462	(58,639)	732,651	20,582	15,759,107	13,906,674	518,494	14,425,168
Profit for the period	-	-	-	-	-	-	-	6,577,845	6,577,845	35,821	6,613,666
Comprehensive income	-	-	-	2,157	50,988	-	-	-	53,145	-	53,145
Total comprehensive income	-	-	-	2,157	50,988	-	-	6,577,845	6,630,990	35,821	6,666,811
Transactions with owners Forex movement on NCI investment	-	-	-	-	-	-	-	-	-	41,072	41,072
Share option exercise	411	57,079	188,536	-	-	(36,358)	-	36,358	246,026	-	246,026
Share cancellation	(1,015)	-	-	-	-	-	1,015	(325,054)	(325,054)	-	(325,054)
Purchase of own shares	-	-	(996,941)	-	-	-	-	-	(996,941)	-	(996,941)
Share-based payment	-	-	-	-	-	10,037	-	-	10,037	-	10,037
Deferred tax	-	-	-	-	-	100,776	-	8,737	109,513	-	109,513
Current tax on share options	-	-	-	-	-	-	-	30,711	30,711	-	30,711
Dividends paid	-	-	-	-	-	-	-	(5,959,827)	(5,959,827)	-	(5,959,827)
Total transactions with owners	(604)	57,079	(808,405)	-	-	74,455	1,015	(6,209,075)	(6,885,535)	41,072	(6,844,463)
At 30th June 2015	269,123	2,117,888	(5,692,430)	8,619	(7,651)	807,106	21,597	16,127,877	13,652,129	595,387	14,247,516
Profit for the period	-	-	-	-	-	-	-	5,791,354	5,791,354	61,975	5,853,329
Comprehensive income	-	-	-	(542)	83,058	-	-	-	82,516	-	82,516
Total comprehensive income	-	-	-	(542)	83,058	-	-	5,791,354	5,873,870	61,975	5,935,845
Transactions with owners Forex movement on NCI investment	-	-	-	-	-	-	-	-	-	(25,419)	(25,419)
Share option exercise	994	138,216	393,514	-	-	(74,059)	-	74,059	532,724	-	532,724
Share cancellation	(1,150)	-	-	-	-	-	1,150	(375,502)	(375,502)	-	(375,502)
Share-based payment	-	-	-	-	-	16,868	-	-	16,868	-	16,868
Deferred tax	-	-	-	-	-	(186,565)	-	(129,958)	(316,523)	-	(316,523)
Current tax on share options	-	-	-	-	-	-	-	87,461	87,461	-	87,461
Dividends paid	-	-	-	-	-	-	-	(5,981,721)	(5,981,721)	-	(5,981,721)
Total transactions with owners	(156)	138,216	393,514	-	-	(243,756)	1,150	(6,325,661)	(6,036,693)	(25,419)	(6,062,112)
At 30th June 2016	268,967	2,256,104	(5,298,916)	8,077	75,407	563,350	22,747	15,593,570	13,489,306	631,943	14,121,249

COMPANY STATEMENT OF CHANGES IN EQUITY

30TH JUNE 2016

	Share capital £	Share premium account £	Investment in own shares £	Fair value reserve £	Share option reserve £	Capital redemption reserve £	Retained earnings £	Total attributable to shareholders £
At 1st July 2014	269,727	2,060,809	(4,884,025)	6,462	646,862	20,582	6,115,264	4,235,681
Profit for the period	-	-	-	-	-	-	5,446,205	5,446,205
Comprehensive income	-	-	-	2,157	-	-	-	2,157
Total comprehensive income	-	-	-	2,157	-	-	5,446,205	5,448,362
Transactions with owners
Share option exercise	411	57,079	188,536	-	(36,358)	-	16,943	226,611
Share cancellation	(1,015)	-	-	-	-	1,015	(325,054)	(325,054)
Purchase of own shares	-	-	(996,941)	-	-	-	-	(996,941)
Share-based payment	-	-	-	-	10,037	-	-	10,037
Deferred tax	-	-	-	-	-	-	17,280	17,280
Current tax on share options	-	-	-	-	-	-	8,834	8,834
Dividends paid	-	-	-	-	-	-	(5,959,827)	(5,959,827)
Total transactions with owners	(604)	57,079	(808,405)	-	(26,321)	1,015	(6,241,824)	(7,019,060)
At 30th June 2015	269,123	2,117,888	(5,692,430)	8,619	620,541	21,597	5,319,645	2,664,983
Profit for the period	-	-	-	-	-	-	9,395,022	9,395,022
Comprehensive income	-	-	-	(869)	-	-	-	(869)
Total comprehensive income	-	-	-	(869)	-	-	9,395,022	9,394,153
Transactions with owners
Share option exercise	994	138,216	393,514	-	(74,059)	-	18,133	476,798
Share cancellation	(1,150)	-	-	-	-	1,150	(375,502)	(375,502)
Share-based payment	-	-	-	-	16,868	-	-	16,868
Deferred tax	-	-	-	-	-	-	(22,848)	(22,848)
Current tax on share options	-	-	-	-	-	-	3,116	3,116
Dividends paid	-	-	-	-	-	-	(5,981,721)	(5,981,721)
Total transactions with owners	(156)	138,216	393,514	-	(57,191)	1,150	(6,358,822)	(5,883,289)
At 30th June 2016	268,967	2,256,104	(5,298,916)	7,750	563,350	22,747	8,355,845	6,175,847

CONSOLIDATED AND COMPANY CASH FLOW STATEMENT

FOR THE YEAR ENDED 30TH JUNE 2016

      Group                                       Company

	Note	30th June 2016 £	30th June 2015 £	30th June 2016 £	30th June 2015 £
Cash flow from operating activities
Operating profit		7,756,138	8,726,691	154,546	183,428
Adjustments for:
(Loss)/profit on disposal of assets		(515)	-	185
Depreciation charges		118,742	125,392	42,943	56,919
Amortisation of intangible assets		49,556	45,460	-	-
Share-based payment charge		16,868	10,037	36,374	8,090
Translation adjustments		(243,072)	(154,153)	(8,903)	(70,383)
(Profit)/loss on disposal of fixed assets		-	-	-	-
Cash generated from operations before changes
in working capital		7,697,717	8,753,427	225,145	178,054
(Increase)/decrease in trade and other receivables		(534,923)	(873,707)	(3,662,351)	353,408
Increase/(decrease) in trade and other payables		512,427	1,315,488	24,962	1,163,677
Cash generated from/(used in) operations		7,675,221	9,195,208	(3,412,244)	1,695,139
Interest received		40,195	57,482	74	404
Interest paid		-	-	-	-
Taxation (paid)/received		(2,094,937)	(2,219,304)	(22,012)	52,439
Net cash generated from/(used in) operating activities		5,620,479	7,033,386	(3,434,182)	1,747,982
Cash flow from investing activities
Dividends received from subsidiaries		-	-	9,269,000	5,292,000
Purchase of property and equipment		(139,164)	(108,136)	(26,760)	(19,517)
Proceeds from sale of property and equipment		2,047	-	-	-
Purchase of non-current financial assets		-	-	-	-
Proceeds from sale of non-current financial assets		23,098	5,960	310	3,168
Purchase of current financial assets		-	(328,962)	-	(328,962)
Proceeds from sale of current financial assets		-	329,382	-	329,382
Net cash (used in)/generated from investing activities		(114,019)	(101,756)	9,242,550	5,276,071
Cash flow from financing activities
Proceeds from issue of ordinary shares		139,210	57,490	139,210	57,490
Ordinary dividends paid	10	(5,981,721)	(5,959,827)	(5,981,721)	(5,959,827)
Purchase and cancellation of own shares		(375,502)	(325,054)	(375,502)	(325,054)
Purchase of own shares by employee share option trust		-	(996,941)	-	(996,941)
Proceeds from sale of own shares by employee
share option trust		393,514	188,536	393,514	188,536
Capital from non-controlling interest		-	-	-	-
Net cash used in financing activities		(5,824,499)	(7,035,796)	(5,824,499)	(7,035,796)
Net (decrease)/increase in cash and cash equivalents		(318,039)	(104,166)	(16,131)	(11,743)
Cash and cash equivalents at start of period		10,226,705	10,242,906	82,804	90,045
Effect of exchange rate changes		242,133	87,965	8,082	4,502
Cash and cash equivalents at end of period		10,150,799	10,226,705	74,755	82,804

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30TH JUNE 2016

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 2016 and 30th June 2015 does not constitute statutory accounts and has been extracted from the full accounts for the years ended 30th June 2016 and 30th June 2015. 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 2015 have been filed with the Registrar of Companies. The accounts for the year ended 30th June 2016 will be delivered to the Registrar of Companies in due course.

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.

The Group financial statements for the year ended 30th June 2016 comprise the Company and its subsidiaries ("the Group"). The significant accounting policies applied in the preparation of the Group financial statements are summarised below. These policies have been consistently applied to all the financial periods presented, unless otherwise stated.

1    BASIS OF PREPARATION

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union ("EU") and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. 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.

New IFRS Standards and Interpretations

As at 30th June 2016, the following Standards and Interpretations, which are relevant to the Group, were in issue but subject to EU endorsement:

IFRS 9 replaces the classification and measurement models for financial instruments in IAS 39 with three classification categories: amortised cost, fair value through profit or loss and fair value through other comprehensive income. The Group's business model and the contractual cash flows arising from its investments in financial instruments determine the classification. Equity instruments will be recorded at fair value, with gains or losses reported either in the income statement or through equity. However, where fair value gains and losses are recorded through equity there will no longer be a requirement to transfer gains or losses to the Income statement on impairment or disposal.

IFRS 9 also introduces an expected loss model for the assessment of impairment. The current incurred loss model (under IAS 39) requires the Group to recognise impairment losses when there is objective evidence that an asset is impaired; under the expected loss model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This standard is currently expected to become effective in 2018.

IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of goods or service and thus has the ability to direct the use and obtain the benefits from the goods or service. The Standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The Standard is expected to become effective for annual periods beginning on or after 1st January 2018 and earlier application is permitted subject to EU endorsement.

IFRS 16 requires a lessee to recognise lease assets and liabilities, currently accounted for as operating leases, on the statement of financial position and recognise amortisation of the lease assets and interest on the lease liabilities over the term of the lease. This Standard is currently expected to become effective in 2019.

The Group is assessing the impact of the above Standards on its future financial statements. In relation to IFRS 16, the majority of the Group's leases will expire before the Standard is effective and therefore it is not possible at this time to assess the extent of the Standard's impact in the year of adoption.

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:

Share-based payments

In order to calculate the charge for share-based compensation as required by IFRS 2, the Group makes estimates principally relating to the assumptions used in its option pricing model.

2    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.

When assessing whether to consolidate an entity, the Group evaluates a range of control factors, 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
•  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 2016 are detailed below.

		Controlling	Country of inc./ Principal place
Subsidiary undertakings	Activity	interest	of business
City of London Investment Management Company Limited	Management of funds	100%	UK
City of London US Investments Limited	Holding company for US companies	100%	UK
World Markets Umbrella Global Equity Fund	Open-end offshore sub-fund	100%	Rep. Ireland
International Equity CEF Fund	Delaware Statutory Trust fund	52%	USA

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

   City of London Investment Management (Singapore) PTE Ltd                     Management of funds                                               Singapore

   City of London Latin America Limited                                                           Dormant company                                                    UK

   City of London US Investments Limited holds 100% of the ordinary shares in the following:

   City of London US Services Limited                                                                Service company                                                      UK

The consolidated financial statements are prepared on the historical cost basis except for the revaluation of certain financial instruments as outlined in note 3 (iii).

3    SIGNIFICANT ACCOUNTING POLICIES

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. In addition, where presentational changes are made in the current period, the prior year figures are also updated to present a true comparative.

(i) 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                        -   four years
Computer and telephone equipment       -   four years

(ii) Intangible assets

Intangible assets acquired separately are capitalised at cost and amortised on a straight line basis. Amortisation charges are spread over the useful life of the asset as follows:

Long term software licences                       -   ten years 

This represents a perpetual licence for the Group's fund accounting system. The Directors consider ten years as a reasonable estimate of useful life given the improved control and flexibility to manage and develop the software in-house.

An additional software licence purchased during the year was assessed and will be amortised over five years.

The assets are reviewed for impairment each year.

(iii) Financial instruments

Under IAS 39, "Financial Instruments: Recognition and Measurement", financial assets must be classified as either: 

• Loans and receivables
• Held-to-maturity investments
• Available-for-sale financial assets
• At fair value through profit or loss 

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

Except where investments in funds are identified as subsidiaries, the Group's investments in the funds that it manages are designated as available-for-sale financial assets. Such investments are initially recognised at fair value, being the consideration given together with any acquisition costs associated with the investment. They are subsequently carried at fair value, with any gains or losses arising from changes in fair value included as part of other comprehensive income. Fair value is determined using the price based on the net asset value of the fund. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred all risks and rewards of ownership. When derecognition occurs a realised profit or loss is recognised in the income statement, calculated as the difference between the net sales proceeds and the original cost of the financial asset. Any fair value gains or losses previously recognised as part of other comprehensive income are recycled into the income statement as part of this calculation of the profit or loss arising on derecognition.

The Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of an investment classified as available-for-sale, a significant or prolonged decline in the fair value of the investment below its cost is considered as an indicator that the investment is impaired. If any such evidence exists for available-for-sale investments, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement - is removed from other comprehensive income and recognised in the income statement. 

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 remeasured at fair value, with any movement recognised in the income statement. The fair value of the derivatives held by the Group 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 predominantly in blue chip companies and as such are very tradable with a small bid-ask spread.

The Group's investments have been classified here for recognition and measurement purposes under IAS39 but are not necessarily reported in the statement of financial position under those headings. 

(iv) Trade receivables

Trade receivables are measured on initial recognition at fair value, and are subsequently carried at the lower of original fair value and their recoverable amount. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired.

(v) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and 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. 

(vi) Trade payables

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

 (vii) 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. 

(viii) Share-based payments

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 Binomial pricing model, and has then been 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.

(ix) Revenue

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and such revenue can be reliably measured.  Revenue is recognised as services are provided and comprises investment management fees based on a percentage of Funds under Management, in accordance with the underlying agreements. 

(x) Commissions payable

A significant 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.

(xi) 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 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 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 the foreign exchange positions of the subsidiaries in relation to the income statement and monetary assets are sold to the Company. As such any exchange differences arising in the Company are "real" in that the functional currency matches the 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.

(xii) Leases

The cost of operating leases is charged to the income statement in equal periodic instalments over the period of the leases. 

(xiii) 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.

4    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 UK) £	Other £	Total £
Year to 30th June 2016
Gross fee income	22,609,241	798,158	344,259	661,168	-	24,412,826
Non-current assets:
Property and equipment	358,742	-	63,715	-	8,560	431,017
Intangible assets	201,801	-	-	-	-	201,801
Year to 30th June 2015
Gross fee income	23,607,743	789,710	185,731	772,825	-	25,356,009
Non-current assets:
Property and equipment	295,440	-	84,635	-	4,008	384,083
Intangible assets	196,343	-	-	-	-	196,343

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. Any individual client generating revenue of 10% or more would be disclosed separately, as would assets in a foreign country if they were material. 

5	OPERATING PROFIT	Year to	Year to
	The operating profit is arrived at after charging:	30th June 2016 £	30th June 2015 £
	Depreciation of owned assets	118,742	125,392
	Amortisation of intangible assets	49,556	45,460
	Auditors' remuneration:
	- Statutory audit	75,160	80,347
	- Taxation services	-	10,562
	- Audit related assurance services	7,968	7,572
	- Other services	-	1,937
	Operating lease rentals:
	- Land and buildings	429,995	377,837
	- Other	81	1,527

6    INTEREST RECEIVABLE AND  SIMILAR GAINS
	Year to 30th June 2016 £	Year to 30th June 2015 £
Interest on bank deposit	40,195	57,482
Gain on sale of investments	(197)	7,205
Unrealised gain on investments	172,597	140,292
	212,595	204,979

	7   TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES	Year to	Year to
	(a) Analysis of tax charge on ordinary activities:	30th June 2016 £	30th June 2015 £
	Tax at 20% (2015: 21%) based on the profit for the period	1,586,907	1,862,091
	Double taxation relief	(911,452)	(1,163,081)
	Deferred tax	14,849	13,795
	Change in tax rate to 20%	-	(8,214)
	Adjustments in respect of prior years	134	(1,689)
	Domestic tax total	690,438	702,902
	Foreign tax for the current period	1,509,277	1,634,366
	Adjustments in respect of prior years	(84,311)	(19,264)
	Foreign tax total	1,424,966	1,615,102
	Total tax charge in income statement	2,115,404	2,318,004

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

The tax assessed for the period is different to that resulting from applying the standard rate of corporation tax in the UK - 20% (prior year - 21%). The differences are explained below:

	Year to 30th June 2016 £	Year to 30th June 2015 £
Profit on ordinary activities before tax	7,968,733	8,931,670
Tax at 20% (2015: 21%) thereon	(1,593,747)	(1,875,651)
Effects of:
Unrelieved overseas tax	(597,825)	(471,285)
Expenses not deductible for tax purposes	(8,605)	1,415
Income ineligible for tax	34,519	29,461
Capital allowances  less than depreciation	(21,705)	(21,290)
Prior period adjustments	84,177	20,953
Deferred tax on share based-payments and investments	(14,849)	(13,795)
Change in tax rate to 20%	-	8,214
Other	2,631	3,974
Total tax charge in income statement	(2,115,404)	(2,318,004)

8 EARNINGS PER SHARE

 The calculation of earnings per share is based on the profit attributable to shareholders of the parent for the period of £5,791,354 (2015: £6,577,845) divided by the weighted average number of ordinary shares in issue for the period ended 30th June 2016 of 24,903,965 (2015: 24,907,864).

The Employee Benefit Trust held 1,852,213 ordinary shares in the Company as at 30th June 2016. The Trustees of the Trust have waived all rights to dividends associated with these shares. In accordance with IAS 33 the ordinary shares held by the Employee Benefit Trust have been excluded from the calculation of the weighted average of ordinary shares in issue. 

The calculation of diluted earnings per share is based on the profit attributable to shareholders of the parent for the period of £5,791,354 (2015: £6,577,845) divided by the diluted weighted average of ordinary shares for the period ended 30th June 2016 of 25,045,522 (2015: 25,272,704).

Reconciliation of the figures used in calculating basic and diluted earnings per share:	30th June 2016	30th June 2015
	Number of shares	Number of shares
Weighted average number of shares - basic earnings per share	24,903,965	24,907,864
Effect of dilutive potential shares - share options	141,557	364,840
Weighted average number of shares - diluted earnings per share	25,045,522	25,272,704

9  SHARE CAPITAL	30th June 2015	30th June 2014
Group and Company	£	£
Allotted, called up and fully paid
At start of period 26,912,271 (2015: 26,972,707) Ordinary shares of 1p each	269,123	269,727
Dilutive share options exercised; 99,436 (2015: 41,064)	994	411
Shares repurchased and cancelled; 115,000 (2015: 101,500)	(1,150)	(1,015)
At end of period 26,896,707 (2015: 26,912,271) Ordinary shares of 1p each	268,967	269,123
Fully paid ordinary shares carry one vote per share and carry a right to dividends.

10  DIVIDEND	30th June 2015	30th June 2014
	£	£
Dividends paid:
Interim dividend of 8p per share (2015: 8p)	1,996,704	1,985,039
Final dividend in respect of year ended:
30th June 2015 of 16p per share (2014: 16p)	3,985,017	3,974,788
	5,981,721	5,959,827

A final dividend of 16p per share has been proposed, payable on 31st October 2016, subject to shareholder approval, to shareholders who are on the register of members on 14th October 2016.

11  FINANCIAL INSTRUMENTS

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

(i) Financial instruments by category

The tables below show the Group and Company's financial assets and liabilities as classified under IAS39:

Group	Loans and	Assets at fair value through	Available-
30th June 2016	receivables	profit or loss	for-sale	Total
Assets as per statement of financial position	£	£	£	£
Other financial assets	-	2,172,645	27,454	2,200,099
Trade and other receivables	5,044,107	-	-	5,044,107
Cash and cash equivalents	10,150,799	-	-	10,150,799
Total	15,194,906	2,172,645	27,454	17,395,005
		Liabilities at	Financial
		fair value	liabilities at
		through	amortised
		profit or loss	cost	Total
Liabilities as per statement of financial position		£	£	£
Trade and other payables		276,743	2,845,628	3,122,371
Total		276,743	2,845,628	3,122,371
		Assets at fair
30th June 2015	Loans and receivables	value through profit or loss	Available- for-sale	Total
Assets as per statement of financial position	£	£	£	£
Other financial assets	-	2,049,170	26,784	2,075,954
Trade and other receivables	4,505,655	3,529	-	4,509,184
Cash and cash equivalents	10,226,705	-	-	10,226,705
Total	14,732,360	2,052,699	26,784	16,811,843
		Liabilities at	Financial
		fair value	liabilities at
		through	amortised
		profit or loss	cost	Total
Liabilities as per statement of financial position		£	£	£
Trade and other payables		-	2,609,944	2,609,944
Total		-	2,609,944	2,609,944

Company	Investment	Loans and	Assets at fair value through	Available-
30th June 2016	in subsidiaries	receivables	profit or loss	for-sale	Total
Assets as per statement of financial position	£	£	£	£	£
Other financial assets	1,707,216	-	-	27,454	1,734,670
Trade and other receivables	-	5,597,427	-	-	5,597,427
Cash and cash equivalents	-	74,755	-	-	74,755
Total	1,707,216	5,672,182	-	27,454	7,406,852
		Liabilities at		Financial
		fair value		liabilities at
		through		amortised
		profit or loss		cost	Total
Liabilities as per statement of financial position		£		£	£
Trade and other payables		-		1,626,909	1,626,909
Total		-		1,626,909	1,626,909
		Assets at fair
30th June 2015	Investment in subsidiaries	Loans and        value through receivables      profit or loss		Available- for-sale	Total
Assets as per statement of financial position	£	£                            £		£	£
Other financial assets	1,784,645	-                                      -		26,147	1,810,792
Trade and other receivables	-	1,935,076                       -		-	1,935,076
Cash and cash equivalents	-	82,804                            -		-	82,804
Total	1,784,645	2,017,880                       -		26,147	3,828,672
		Liabilities at		Financial
		fair value		liabilities at
		through		amortised
		profit or loss		cost	Total
Liabilities as per statement of financial position		£		£	£
Trade and other payables		-		1,601,947	1,601,947
Total		-		1,601,947	1,601,947

(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 in own funds are determined with reference to the net asset value (NAV) of the fund. Where the NAV is a quoted price the fair value is shown under level 1, where the NAV is not a quoted price the fair value is shown under level 2.

•  Forward currency trades are valued using the forward exchange bid rates and are shown under level 2.

The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.

Group	Level 1	Level 2	Level 3	Total
30th June 2016	£	£	£	£
Available-for-sale financial assets
Investment in own funds	-	27,454	-	27,454
Total	-	27,454	-	27,454
Financial assets at fair value through profit or loss
Investment in other financial assets	2,160,174	12,457	14	2,172,645
Forward currency trades	-	-	-	-
Total	2,160,174	12,457	14	2,172,645
Financial liabilities at fair value through profit or loss Forward currency trades	-	276,743	-	276,743
Total	-	276,743	-	276,743
30th June 2015	Level 1 £	Level 2 £	Level 3 £	Total £
Available-for-sale financial assets
Investment in own funds	-	26,784	-	26,784
Total	-	26,784	-	26,784
Financial assets at fair value through profit or loss
Investment in other financial assets	2,020,615	28,542	13	2,049,170
Forward currency trades	-	3,529	-	3,529
Total	2,020,615	32,071	13	2,052,699
Company
30th June 2016	Level 1 £	Level 2 £	Level 3 £	Total £
Available-for-sale financial assets
Investment in own funds	-	27,454	-	27,454
Total	-	27,454	-	27,454
30th June 2015	Level 1 £	Level 2 £	Level 3 £	Total £
Available-for-sale financial assets
Investment in own funds	-	26,147	-	26,147
Total	-	26,147	-	26,147

Level 3

Assets as of 30th June 2016 consist of one security valued at £14 (2015: £13). The Level 3 asset is an investment fund where significant unobservable inputs are being used to assign value as the investment fund is in liquidation. Previously quoted prices in active markets were being used in the valuation of the security. When the shares were placed into liquidation and market activity ceased, significant unobservable inputs were used to assign a value to the security as of year end.

The Fund establishes valuation processes and procedures to ensure that the valuation techniques for investments that are categorized within Level 3 of the fair value hierarchy are fair, consistent, and verifiable. The Group is responsible for overseeing the implementation of the valuation policies and procedures, which includes the valuation process of the Fund's Level 3 investments.

There were no transfers between any of the levels in the reporting period.

All fair value gains and losses included in other comprehensive income relate to the investment in own funds. 

Where there is an impairment in the investment in own funds, the loss is reported in the income statement. No impairment was recognised during the period or the preceding year.

The fair value gain on the forward currency trades is offset in the income statement by the foreign exchange losses on other currency assets and liabilities held during the period and at the period end. The net loss reported for the period is £179,495 (2015: net loss £94,670). 

(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 and Canadian 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 30 June 2016, the Group had net asset balances of US$5,399,570 (2015: US$4,819,332), offset by forward sales totalling US$4,250,000 (2015: US$5,250,000). Other significant net asset balances were C$387,803 (2015: C$325,558), AED248,149 (2015: AED290,456), and SGD196,587 (2015: net liabilities of SGD651,590).

Had the US dollar strengthened or weakened against sterling as at 30th June 2016 by 10%, with all other variables held constant, the Group's net assets would have increased or decreased (respectively) by approximately 2.5%, because the US dollar position is hedged by the forward sales. 

Further details on the effects on the Group's post-tax profits due to movements in the US dollar/sterling exchange rate have been demonstrated in the Chairman's statement.

(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, 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 £0.2 million in the value of the investments and profit before tax. 

The Group is also exposed to market risk indirectly via its assets under management, from which its fee income is derived. To hedge against any potential loss in fee income due to a fall in the markets, the Group will look to invest in out-of-the-money put options on the emerging markets index. The purchase and sale of these options 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 income from hedging recognised in the Group income statement for the period is £Nil (2015: 7,604). 

Further details on the effects on the Group's post-tax profits due to movements in market prices have been demonstrated in the post-tax profits table in the Chairman's statement.

(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 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 2016 the Group held £10,150,799 (2015: £10,226,705) in cash balances, of which £9,899,916 (2015: £9,977,221) 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 principal operating subsidiary company, 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 firm 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.

 

END

 

 

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