Final Results
9th September 2013
CITY OF LONDON INVESTMENT GROUP PLC (LSE: CLIG)
("City of London" or "the Group")
FINAL RESULTS FOR THE YEAR TO 31st MAY 2013
SUMMARY
· Funds under management ("FuM") at 31st May 2013 were US$3.7 billion (2012: US$4.5 billion), a decline of 17%. In sterling terms, FuM fell by 16% to £2.4 billion (2012: £2.9 billion). The MSCI Emerging Markets Index ("MXEF") registered an 11% increase over the same period.
• We are now open to new investors, with a view to accepting up to US$500 million by 31st December 2014
· Revenues, representing the Group's management charges on FuM, were £29.4 million (2012: £34.1 million). Profit before tax was £8.9 million (2012: £11.5 million).
• Basic earnings per share were 24.9p (2012: 33.8p) after a tax charge of 29% (2012: 26%) of pre-tax profits.
• A maintained final dividend of 16p per share is recommended, payable on 25th October 2013 to shareholders on the register on 11th October 2013, making a total for the year of 24p (2012: 24p).
• Cash and cash equivalents at 31st May 2013 were £10.1 million (2012: £5.4 million).
For further information, please visit www.citlon.co.uk or contact:
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Barry Olliff - CIO/CEO |
Martin Green |
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City of London Investment Group Plc |
Canaccord Genuity Limited |
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Tel: 001 610 380 2911 |
Tel: +44 (0)20 7523 8000 |
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Chairman's statement
When I was appointed your chairman on 1st October 2012, succeeding Andrew Davison who had been in the chair for some 13 years, little did I know what an eventful six months lay ahead for City of London.
In the light of this, before dealing with our financial performance, I owe shareholders an explanation of the board and management changes that it has been my responsibility to oversee.
For some time now under our previous chairman the board has endeavoured to grapple with the problems of succession which all successful founder-managed businesses have to address over the course of their development. We are fortunate in that we are in an industry where certain key management, in particular the CIO, frequently have far greater longevity than in almost any other industry; you don't need me to cite well known examples ranging from Warren Buffet to Mark Mobius, who continues to manage emerging market money for Templeton after more than 25 years. The approach we took to succession planning was, in the first instance, for Barry Olliff, our founder CEO and CIO, to transfer his CEO duties to a successor CEO. In order to minimise transition risk we agreed on an internal candidate, Doug Allison. He had, as Finance Director since 1997, been very much part of the CLIG team which had so successfully built the firm over the past two decades.
Unfortunately both Doug Allison and Valerie Tannahill, who replaced him as Finance Director having worked for City of London for over 15 years, resigned with immediate effect on 15th April 2013. All of the Directors, including those who stepped down, were of the view that these changes reflected the best interests of the Group. We have, however, been greatly encouraged by the energy and knowledge demonstrated by the Finance team in picking up the reins and ensuring that business continued as normal whilst some welcome cost savings have also been achieved. Barry has stepped back into the role of CEO on an interim basis and your board continues to seek transition solutions.
Our results
Over the course of the year the MXEF index, our principal benchmark, has fluctuated between 882 and 1,083 having started the year at 906 and finishing at 1,009. Furthermore, sentiment towards the emerging markets amongst certain sections of the investment community has cooled at best and in certain instances has become positively bearish. We have seen redemptions on an almost unprecedented scale although it appears that we are now over the worst and instead are seeing some very welcome new money being subscribed by existing clients.
Our Funds under Management ("FuM") declined by 13% in the first half of our financial year to 30th November 2012 and ended the year at US$3.7.billion, representing an annual decline of 17% in US$ terms from the US$4.5 billion recorded at 31st May 2012. In sterling terms, FuM declined by 16% to £2.4 billion (2012: £2.9 billion).
Revenues, representing the Group's management charges on FuM, for the year to 31st May 2013 were £29.4 million (2012: £34.1 million). Profit before tax was £8.9 million (2012: £11.5 million). The tax charge for the year was 29% of pre-tax profits (2012: 26% of pre-tax profits). Basic earnings per share were 24.9p (2012: 33.8p) and fully diluted earnings per share were 24.6p (2012: 32.8p). Cash and cash equivalents at 31st May 2013 were £10.1.million (2012: £5.4 million).
Dividends
The Board has recommended the payment of a maintained final dividend of 16p per share to be paid on 25th October 2013 to shareholders on the register on 11th October 2013. Together with the interim dividend of 8p per share (2012: 8p) paid in December 2012, this makes a total for the year of 24p per share (2012: 24p), covered 1.04 times by earnings per share (2012: 1.41 times).
Your Board
In addition to the changes referred to earlier, we have lost one non-executive director and gained another. Lynn Ruddick's resignation, to enable her to devote more time to her other business commitments, was announced in February. As I said at the time we were very sorry to see Lynn leave, but understood and
respected her need to balance her commitments. On behalf of the Board I would like formally to express our gratitude for her insightful and professional contribution to our deliberations.
On 1st August 2013 we were pleased to welcome Barry Aling to the Board. Barry has worked extensively in international equity markets over a 40-year period and will add important strength to our board with his direct in depth experience of emerging markets over very many years.
Outlook
Whilst a comment on outlook is expected from a Chairman, when it comes to predicting market movements I have always been a sceptical crystal ball gazer. However, following stabilisation of our
business, the improved investment performance and with the recent operational efficiencies working through to the bottom line, then based on current market levels and assuming reasonable trading activity, I anticipate a satisfactory outcome for the current year.
Lastly, I would like to thank all of our hardworking staff in London, the US, Singapore and Dubai for their efforts in these challenging times. I will update shareholders on our progress in the first part of our financial year at the time of the Annual General Meeting, which will be held on Monday 7th October 2013.
David Cardale
Chairman
4th September 2013
Chief Executive Officer's review
I have gone into a number of issues in more depth than usual as it seems to me that I/we owe shareholders a detailed explanation regarding a number of aspects of our business as it has evolved over the past year.
Board changes
Shareholders will be aware of the departures of our CEO and Finance Director earlier this year as addressed
by the Chairman in his statement. Following this I have felt it right to take a reduction in what otherwise would have been my total remuneration for the year by accepting one half of my contractual bonus.
The CLIG team
With the above referenced exceptions, we have been successful over many years in retaining Group talent, experience, and DNA, and have been able to present to clients, potential clients, consultants and to shareholders a very consistent team.
Notwithstanding the Board departures earlier this year, it is important to emphasise the in-depth strength of the firm's staff. The core modus operandi of the CLIG team is akin to a partnership which functions in a collegiate manner that is designed to encourage continuity of employment for staff, while harnessing and developing employee potential.
This has been one of the strengths of the firm and is one of the reasons that clients and consultants have been so loyal to the firm during a difficult period in terms of our investment performance.
CLIM investment performance and investment process
In recent quarterly trading updates we have referred to the turnaround that has occurred in terms of our investment performance.
This has continued to improve and while not as yet coming through in the three year numbers it is certainly demonstrated via YTD outperformance of the order of 3% depending on the relevant EM fund and benchmark.
Looking back and after analysing previous investment decisions there have been a number of reasons for our underperformance. Examples would include poor investment decisions (poor stock picking), buying securities too early (at too narrow a discount), and not focusing on trading natural discount ranges (by reducing that natural trading range from say 500/600bpts to say 400bpts).
These examples are all process weaknesses, and the fortunate thing about technology today is that with number crunching, time, and an open mind, it's possible to both find the issues (weaknesses) and put in place long term remedies that ensure future compliance with what has been over the years a very successful and consistent investment process.
Historically through a cycle via our Investment Process we have established the following:
1) Our alpha has been generated approximately 1/3 from Country Allocation and 2/3 from trading Discount Volatility.
2) Securities demonstrate around 500 to 600bpts of discount volatility.
3) NAVs (from the securities within our Investible Universe) keep up with or marginally outperform their benchmarks.
There is one additional variable that we have to deal with and that is the SWAD. This is the Size Weighted Average Discount of a given portfolio on a specific day.
The net result of a 5% increase in the SWAD, other things being equal, (with neutral country allocation, and also index tracking NAV's) leads to 5% underperformance. This has been an additional headwind for us to deal with.
I have gone into some detail regarding our Process because it's our Process that has led to the previous underperformance. Having identified and corrected the weakness[es] we have now had a period of significant outperformance.
Reopening
Recent outperformance offers us an opportunity to reopen to new investors within our EM CEF strategy from the beginning of September.
This reopening will take some time to show results as we will need to establish some new relationships with consultants and potential clients.
In addition there are going to be some conditions attaching to our reopening and these are as follows:
• We will take in a maximum of US$100m per month.
• We will prioritise segregated accounts (US$25m+) over commingled account investors.
• We will accept only a total of US$500m in the first year (this is our target for the calendar year 2014).
• We will only remain open to new investors while the SWAD of our portfolios is in excess of 10%.
You will appreciate from the above that we have learnt from some of our past mistakes.
The message though is that we are getting back onto the front foot and are intending to start to replace some of the assets lost over the past few years.
Our reopening to new investors is a reflection of the fact that we have lost assets (approximately US$1.3bn) during FY 2012 and 2013.
Dividend
In maintaining the dividend we accept that this is a statement of faith in the future.
If there was a feeling that we were not now on the right track then the logical thing would have been to have cut the dividend and to conserve resources. As it is, with performance improving, and having the opportunity to reopen, there are a number of reasons why we are becoming optimistic.
Costs
As with any small firm we have to focus on the bottom line.
In addition, while we believe that our diversification plans will be successful, we remain for the present in effect a single product company.
This focus on the bottom line from the perspective of our firm investing in a volatile asset class therefore means that our salaries are kept towards the bottom end of relevant salary scales.
Focusing as we do on keeping the fixed overhead down means that we have as our major retention tool significant bonuses and equity participation when times are good. This is the trade-off for when times are bad.
I would have thought that this was the way to respond to potential volatility (risk) but it seems that what we are actually being encouraged to undertake by Eurocrats is to increase our fixed overhead so that bonuses will relate to an increased denominator!
Euro legislation
Returning to the topic of pay, as a Brit watching from the US what is going on in Europe, American corporations involved in investment management are rubbing their hands together.
Here we are with UCITS fund managers now potentially being threatened with the arbitrary remuneration rules that were introduced by the EU for bankers and/or prop desk traders.
Can EU bureaucrats (those that put together the proposed UCITS V legislation) not understand the difference between trading as principal and agent?
Bankers and prop desk traders can trade as principal (they use their firm's capital when they trade). Fund managers trade as agent (on behalf of their clients) and therefore do not.
Bankers and prop desk traders can cause systemic risk to banks. Fund managers cannot.
This was best said by Dougie Ferrans (Chairman of the IMA) in his December 2012 review:
"First, we are an agency business. Our clients assets are segregated and are not held on our balance sheets. We do not pose a systemic risk to financial markets or the wider economy. We play a critical role in the investment chain where we allocate capital from those who have it (savers and investors) to those who require it (corporations and governments). Regrettably, these basic facts are often unrecognized by those who shape the regulatory agenda. Here we are faced with relentless challenges that may be appropriate for sectors of the financial service industry that carry systemic risk - but one size does not fit all."
Possibly the proposal which is being considered as a part of the UCITS V directive will fail, but this issue, in my opinion, demonstrates that European lawmakers have little understanding of even the most rudimentary principles associated with supply and demand.
Sitting here in the US it will be interesting to watch as UCITS funds are closed and their fund managers are poached.
Alternatively salaries will be increased thus effectively legitimising the very increase in remuneration that lawmakers are attempting to oppose.
EU bureaucrats want to change the numerator whereas the response in the real world will be to increase the denominator!
Neither however is it just UCITS legislation that we have to bother with. There are other EU regulatory developments that will impact how investment managers determine remuneration, such as AIFMD, MiFID II, CRD IV. Again, what are the actual risks these initiatives are trying to manage?
As if this wasn't enough muddled thinking, the next area that we are seemingly going to have to deal with is an assumed relationship between bonuses and investment performance. It seems to me that there are three points here:
1) As with car manufacturers, TV makers and house builders, if you make a poor product that is uncompetitively priced you lose market share. This is the way that markets work. You effectively find that consumers will not buy your product in the first place or they will take their money away by investing elsewhere in someone else's product.
2) In the case of fund managers however, should it be different? We are actually meant to give back. How does that work? Why don't designers and production-staff at car manufacturers and TV makers potentially have to give back their remuneration, too? Or with a poorly constructed house, does the house builder recompense the owner for shoddy work? Surely it's the marketplace that should discriminate?
3) With regard to investment performance, let's accept that European bureaucrats have taken on the role of an Investment Consultant or an Actuary and have mastered the skill set of how fund managers should be measured in terms of their investment performance. Are they going to use one year performance, or two
year or three year performance? Are they going to measure volatility or risk adjusted returns or are they going to undertake peer group analysis? Are they going to measure those returns gross or net of fees?
Whilst some of the above intentions in some instances might seem to be good, in my opinion we should not forget that politicians and bureaucrats are not effective allocators of capital. Consumers are the best people to undertake that.
All that seems to be happening in this case is that market forces are being undermined as a result of politicians' need to show that they are doing "something". Remember, our industry was not the cause of the financial crisis and we pose no systemic risk to the banking system.
The bottom line is that, in my opinion, these proposals will weaken London as a financial centre and make Europe less relevant in terms of the provision of certain financial services.
Future prospects
New products (particularly those that use a similar Process such as Frontier or Developed) are difficult to sell in the event that your present (single) product has underperformed.
In addition, when there are significant Management changes in one year, potential clients could say that there must be some type of underlying instability.
In fact nothing could be further from the truth and as this is the first real chance that I have had to explain where the firm stands vis a vis recent Management changes the following is relevant:
The Investment Management team, as referenced earlier in this statement, is very stable.
Many of us have grown up together within a partnership environment and we are to a great extent a homogenous unit.
From a Shareholder perspective this is very important because if there were cracks within this structure, past performance would definitely be no guide to potential future returns.
In addition, and with the benefit of time, new potential clients and consultants will appreciate that with recently improved performance and a stable team, we should be considered for new mandates.
A different point, but certainly one of interest to Shareholders is the fact that significant savings in salaries have been made as a result of the two departures referenced above.
In addition, further savings have been made by closing under performing funds that were being supported using Group assets and subsidies. We have also saved money via providing technology solutions that have taken the place of employees. These savings overall total c. £1m on an annualised basis.
As a result of the above I would suggest that it would be fair to say that prospects are significantly better than a few months ago and that as a firm we are relatively optimistic.
Barry Olliff,
Chief Executive Officer
4th September 2013
Business review
Over the period, investment performance of the emerging market strategies has continued to improve which provides scope for additional marketing of the firm's capabilities in this area.
In addition, the underperformance of emerging markets versus developed markets over the preceding two years has given rise to attractive valuations in the asset class which may prove a good entry point for institutional investors who are typically underweight their target benchmarks.
With the improvement in investment performance, we are focused on marketing to new institutional prospects and, as we noted in last year's annual report, we have adopted a deliberate approach in our marketing that focuses on good investment performance, which then makes it possible to establish long-term relationships with the most sophisticated consultants. Over time, this has proven to be an excellent means of attracting and retaining client assets resulting in significantly higher fee margins and longer client retention.
Products
Our diversification efforts have not yielded the results we had hoped for at the time of writing this report last year. We have confronted this issue in two ways. First, in those cases where we could not expect to field a first or second quartile product, we have closed underperforming funds thus cancelling the operating subsidy provided by the firm. Second, with good investment performance restored in our core emerging
markets product, we now feel confident that this headwind has been removed from marketing the key diversification products which are extensions of our closed end fund investment approach.
The Frontier Emerging Markets Fund has performed well since its inception in 2005, and is now beginning to attract the attention of investment consultants and institutional prospects. Composite investment returns for the Frontier Emerging Market closed end fund strategy for the rolling one year ending 31st May 2013 were 30.7% vs 32.2% for the benchmark in US dollars (USD) and 32.7% vs 34.2% for the benchmark in sterling (GBP).
Over the period, CLIM placed its US$100 million of Qualified Foreign Institutional Investor (QFII) quota and we have now applied for an additional US$100 million of QFII quota for the China A Share CEF Strategy which has been invested in Chinese A Shares since 2003 and has generated first quartile performance over all annualised periods since inception.
We continue to advance the Developed closed end fund strategy, with the fourth anniversary of the launch of this product in September 2013 representing a significant milestone with respect to marketing opportunities, particularly within the context of the consultant universe. The product continues to exhibit consistent outperformance. Global composite investment returns for the developed market closed end fund strategy for the rolling one year ending 31st May 2013 were 27% vs 25.8% for the benchmark in USD and 28.9% vs 27.7% for the benchmark in GBP.
Performance
Global composite investment returns for the emerging market closed end fund strategy for the rolling one year ending 31st May 2013 were 14.7% vs 14.1% for the MSCI Emerging Markets Index in USD and 16.4% vs 15.8% for the index in GBP. Outperformance was attributable to country allocation and NAV outperformance.
The investment team continues to engage with boards of directors in order to improve corporate governance and reduce the number of shares in issue as a means to narrow historically wide discounts.
Outlook
Marketing efforts will be targeted at investment consultants, foundations, endowments and pension funds in the US and Europe. Our growing Frontier Emerging Market, China A Share and Developed closed end fund capability will be the focus of our product diversification and business development activities.
Carlos Yuste
Business Development Director
4th September 2013
Financial review
Consolidated income statement and statement of comprehensive income
The Group income statement is presented in line with International Accounting Standards but perhaps it is easier to understand the Group's results if we were to present them in a slightly differently way, as in table 1. From here it is clear to see the Group's net fee income, which is a more useful measure of the Group's income, and the operating profit to which the Group profit-share provision is applied.
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Consolidated profit and loss for year ended 31st May |
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£'000 |
2013 |
2012 |
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Gross fee income |
29,364 |
34,143 |
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Finder's commission |
(4,194) |
(5,195) |
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Custody and administration |
(1,244) |
(1,433) |
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Net fee income |
23,926 |
27,515 |
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Interest |
61 |
63 |
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Total net income |
23,987 |
27,578 |
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Staff costs |
7,611 |
6,753 |
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Other administrative expenses |
3,678 |
3,956 |
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Depreciation and amortisation |
223 |
348 |
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Total overheads |
11,512 |
11,057 |
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Operating profit |
12,475 |
16,521 |
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Profit-share |
(4,055) |
(5,424) |
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Investment income |
440 |
365 |
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Pre-tax profit |
8,860 |
11,462 |
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Tax |
(2,594) |
(2,964) |
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Post-tax profit |
6,266 |
8,498 |
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Other comprehensive income |
369 |
(735) |
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Total comprehensive income |
6,635 |
7,763 |
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Table 1 |
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Starting from the top, the gross fee income relates to management fees charged as a percentage of funds under management ("FuM") and decreased over the year under review by 14% to £29.4 million as a result
of a fall in FuM, which ended the year at US$3.7 billion, compared to US$4.5 billion at the start. This was primarily due to a large redemption in November 2012, from a single client that took the strategic decision to manage its emerging market exposure in-house, having been a client of ours for nearly five years.
The commissions payable of £4.2 million (2012: £5.2 million) relates to fees due to third party marketing agents for the introduction of clients. The contract to which all but a small portion of these commissions relate expired in October 2010. Under the agreement, commission is based on a period of ten years from
the date of initial investment.
Custody fees of £1.2 million (2012: £1.4 million) are the fees that we pay to custodian banks for the safekeeping and administration of the assets of the commingled funds (segregated account clients pay their own custody fees).
The net fee income for the year therefore rounds to £24.0 million (2012: £27.5 million). The weighted average net fee, or operating margin, is currently around 92 basis points, which compares to 87 basis points last year. The margin increase is primarily due to the single client redemption mentioned earlier, who was paying a lower fee due to the size of their investment.
The other contributing factors to the increase in the operating margin are:
1) as new money is invested we earn the full management fee as there is no introduction fee to pay
2) as clients subject to the marketing agreement reach their ten year anniversary no further commission
is payable and we retain 100% of the management fee
With reference to point 2, the table below illustrates the rate of commission run-off relating to the expired contract, based upon current FuM and market levels.
Marketing commission run-off (based on FUM at 31st July 2013)
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Financial year |
£m (@US$1.55/£1) |
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2013-2014 |
2.9 |
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2014-2015 |
2.5 |
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2015-2016 |
2.0 |
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2016-2017 |
1.7 |
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2017-2018 |
1.4 |
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2018-2019 |
0.9 |
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2019-2020 |
0.2 |
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2020-2021 |
0.0 |
The overheads for the year amount to £11.5 million (2012: 11.0 million), the largest component of which is staff costs at £7.6 million (2012: £6.8 million). This year staff costs include an exceptional charge of £0.7 million in connection with termination arrangements agreed with former executives Doug Allison and Valerie Tannahill, with the balance of payments to them on termination being covered by the profit-share provision. If we exclude this one-off cost, overheads become £10.8 million, which gives a monthly average of £0.9 million (2012: £0.9 million). As reported in the CEO interim review, we are focused on reducing costs and have put in place various initiatives which will result in an annualised saving of around £1.0 million. These savings kick in over various timeframes but looking specifically at the impact on overheads for the next financial year, and taking into account the additional cost savings from the recent executive departures, the monthly run-rate for overheads is expected to be closer to £0.8 million.
Total net income less overheads gives an operating profit of £12.5 million (2012: £16.5 million) to which the 30% profit-share provision is applied, which including related payroll taxes amounted to £4.1 million (2012: £5.4 million).
Investment income of £0.4 million (2012: £0.4 million) relates to the gain on sale of a number of our seed investments, approximately 60% of which was the result of partial redemptions and the balance due to closure of funds as a result of the rationalisation of our equity products.
This gives a pre-tax profit of £8.9 million (2012: £11.5 million). Corporation tax at £2.6 million (2012: £3.0 million) represents an average tax rate of 29% compared to 26% in 2012, which was somewhat reduced by one-off adjustments with respect to prior year accruals for taxes on the Group's US and Singapore operations, each at around £0.2 million.
Post-tax profit of £6.3 million (2012: £8.5 million) is adjusted by £0.3 million to arrive at total comprehensive income of £6.6 million (2012: £7.8 million), the adjustment being an increase of £0.5 million in the valuation of the Group's seed investments less £0.2 million taken as a realised gain on disposal (2012: downward revaluation of £0.7 million).
Consolidated statement of financial position and statement of changes in equity
Net assets have remained relatively stable at £14.6 million (2012: £15.3 million) however there have been some substantial movements in the underlying components during the year. Year on year the value of non-current assets has fallen by approximately 44% primarily due to deferred tax. In the UK (and US, although the rules are slightly different), a corporation tax deduction is available when share options are exercised and the tax deduction is based on the intrinsic value of those options at the date of exercise. When preparing our financial statements we are required to calculate the expected tax deduction based on our share price at the reporting date. At 31st May 2013 our share price was £2.585 (2012: £3.50) which meant that most of the options were out of the money and this therefore resulted in a lower intrinsic value and a reduced deferred tax asset. All bar a very small element of this is charged against reserves.
There is also a small deferred tax liability of £0.1 million this year that relates to the unrealised gain on our seed investments.
Trade and other receivables of £3.5 million (2012: £5.3 million) are down year on year mainly due to a combination of the prompt settlement of the first quarter fees this year (2012: £0.5 million receivable) and client redemptions during the year (2012: £1.3 million receivable), although the bulk of this relates to one single client. "Available-for-sale financial assets" of £3.8 million (2012: £6.9 million) represents our seed investments in fledgling products and this year we took the decision to rationalise our business development activities by liquidating several of our emerging market and natural resource equity products.
In addition, we reduced our holdings in products that are now being actively marketed and the fair value gain on these remaining holdings has been taken to reserves. The offsetting, and rather significant increase, is in cash which ended the year at £10.1 million (2012: £5.4 million).
Creditors falling due within one year are down from last year by £0.5 million as a result of a reduction in the profit-share provision and commissions payable of roughly £0.4 million each, offset by a year on year increase in corporation tax payable of £0.3 million. This is primarily due to accrual adjustments made in 2011-12 relating to prior years, as mentioned earlier.
The major movement in capital and reserves is obviously this year's profit of £6.3 million (2012: £8.5 million) and the dividends paid during the year which, rounded up totalled £6.1 million (2012: £6.1 million). The dividend comprised the 16p final dividend for 2011/12 plus the 8p interim dividend for the current year.
Half way through the year, the Group took the opportunity to use some of its surplus cash to fund the purchase of 404,086 Company shares at a price of £2.55. Half the shares were cancelled and the £0.5 million cost set against retained earnings. The other half were taken up by the Company ESOP thereby increasing its loan from the Company by £0.5 million. As the ESOP has waived its right to dividends, both transactions effectively enhance earnings per share for the remaining shareholders, albeit only the cancellation does so on a permanent basis. During the year Directors and employees exercised 261,300 dilutive options and 70,627 ESOP held options, raising £0.2 million.
Currency exposure
The movement of sterling against the US dollar has a significant influence on the Group's reported results as its income is almost entirely US dollar denominated whereas in the main, expenses are incurred locally by each office in sterling, Singapore dollars, United Arab Emirates dirhams as well as US dollars. During the year the US dollar/sterling exchange rate moved within an approximate range of US$1.50 - 1.60 to £1 (2012: US$1.55 -US$1.65 to £1). The following table illustrates the effect of a change in the US dollar/sterling exchange rate on the Group's post-tax profits at various FuM levels, based on the assumptions given, which are a close approximation of the Group's current operating parameters.
Post-tax profit: Illustration of US$/£ rate effect:
FuM US$bn: 3.0 3.5 4.0 4.5 5.0
US$/£ Post -tax, £m
1.45 4.1 5.7 7.3 8.8 10.4
1.50 3.9 5.4 6.9 8.5 10.0
1.55 3.7 5.1 6.6 8.1 9.6
1.60 3.5 4.9 6.3 7.8 9.2
1.65 3.3 4.7 6.1 7.4 8.8
Assumes:
1. Average net fee 0.92%
2. Annual operating costs £4.6m plus US$7.7m plus S$1.7m (£1 = S$2.00)
3. Profit-share 30% of operating profit
4. Average tax rate 29%
This illustration only deals with the US dollar/sterling impact but the movement of the US dollar against other currencies is also very relevant to the Group as it provides a natural hedge within the context of fee income. The Group's FuM, on which the fee income is based, is valued in US dollars but the underlying assets represent a broad range of currencies (principally in emerging markets) so as the US dollar weakens (strengthens) against these underlying currencies the value of the FuM in US dollar terms rises (falls).
In terms of currency exposure relating to the Group's balance sheet, it is still only the net US dollar position that is of any consequence and we look to eliminate or minimise this through a series of forward sales of US dollars for sterling. At 31st May these forward sales totalled US$10.9 million, with a weighted average
exchange rate of 1.586 to £1 (2012: US$11.8 million at a weighted average rate of 1.594 to £1).
Tracy Rodrigues
Financial Controller
4th September 2013
Consolidated income statement
For the year ended 31st May 2013
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|
|
Total 2013 |
Total 2012 |
|
Note |
£ |
£ |
|
|
Revenue |
4 |
29,363,734 |
34,142,706 |
|
Administrative expenses Staff costs |
|
11,665,656 |
12,177,561 |
|
Commissions payable |
|
4,194,097 |
5,194,630 |
|
Custody fees payable |
|
1,244,318 |
1,433,342 |
|
Other administrative expenses |
|
3,678,097 |
3,955,738 |
|
Depreciation and amortisation |
|
222,556 |
347,591 |
|
|
|
(21,004,724) |
(23,108,862) |
|
Operating profit |
5 |
8,359,010 |
11,033,844 |
|
Interest receivable and similar gains |
6 |
501,107 |
427,670 |
|
Profit before taxation |
|
8,860,117 |
11,461,514 |
|
Income tax expense |
7 |
(2,593,675) |
(2,963,660) |
|
Profit for the year |
|
6,266,442 |
8,497,854 |
|
Basic earnings per share |
8 |
24.9p |
33.8p |
|
Diluted earnings per share |
8 |
24.6p |
32.8p |
Consolidated statement of comprehensive income
For the year ended 31st May 2013
|
|
Group |
|
|
2013 |
2012 |
|
|
£ |
£ |
|
|
Profit for the year |
6,266,442 |
8,497,854 |
|
Fair value gains/(losses) on available-for-sale investments* |
534,357 |
(720,952) |
|
Release of fair value gains on disposal of |
|
|
|
available-for-sale investments* |
(165,621) |
(14,128) |
|
Other comprehensive income |
368,736 |
(735,080) |
|
Total comprehensive income for the year |
|
|
|
attributable to equity holders of the company |
6,635,178 |
7,762,774 |
*Net of deferred tax.
Consolidated statement of financial position
31st May 2013
|
|
Group |
|
|
|
2013 |
2012 |
||
|
|
Note |
£ |
£ |
|
Non-current assets |
|
|
|
|
Property and equipment |
|
490,658 |
607,437 |
|
Intangible assets |
|
306,858 |
352,319 |
|
Other financial assets |
|
37,897 |
31,354 |
|
Deferred tax asset |
|
239,980 |
929,692 |
|
|
|
1,075,393 |
1,920,802 |
|
Current assets |
|
|
|
|
Trade and other receivables |
|
3,538,726 |
5,345,334 |
|
Current tax receivable |
|
- |
- |
|
Available-for-sale financial assets |
|
3,847,526 |
6,924,552 |
|
Cash and cash equivalents |
|
10,061,185 |
5,399,869 |
|
|
|
17,447,437 |
17,669,755 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
(3,130,923) |
(3,891,267) |
|
Current tax payable |
|
(671,404) |
(410,705) |
|
Creditors, amounts falling due within one year |
|
(3,802,327) |
(4,301,972) |
|
Net current assets |
|
13,645,110 |
13,367,783 |
|
Total assets less current liabilities |
|
14,720,503 |
15,288,585 |
|
Non-current liabilities |
|
|
|
|
Deferred tax liability |
|
(90,467) |
- |
|
Net assets |
|
14,630,036 |
15,288,585 |
|
Capital and reserves |
|
|
|
|
Share capital |
9 |
269,377 |
268,784 |
|
Share premium account |
|
2,045,409 |
1,980,084 |
|
Investment in own shares |
|
(4,910,800) |
(4,560,603) |
|
Fair value reserve |
|
302,867 |
(65,869) |
|
Share option reserve |
|
716,660 |
1,267,553 |
|
Capital redemption reserve |
|
20,582 |
18,562 |
|
Retained earnings |
|
16,185,941 |
16,380,074 |
|
Total equity |
|
14,630,036 |
15,288,585 |
The Board of Directors approve and authorise for issue these financial statementson 4th September 2013.
Signed on behalf of the Board of Directors of City of London Investment Group PLC, company number 2685257.
B M Olliff
Chief Executive Officer
Consolidated statement of changes in equity
31st May 2013
|
# |
Share Capital |
Share Premium Account |
Investment in Own Shares |
Revaluation Reserve |
Share Option Reserve |
Capital Redemption Reserve |
Retained Earnings |
Total attributable to shareholders |
|
|
£ |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
|
At 1st June 2011 |
268,584 |
1,975,084 |
(4,183,659) |
669,211 |
1,621,936 |
18,562 |
13,890,478 |
14,260,196 |
|
Profit for the year |
- |
- |
- |
- |
- |
- |
8,497,854 |
8,497,854 |
|
Comprehensive income |
- |
- |
- |
(735,080) |
- |
- |
- |
(735,080) |
|
Total comprehensive income |
- |
- |
- |
(735,080) |
- |
- |
8,497,854 |
7,762,774 |
|
Transaction with owners |
|
|
|
|
|
|
|
|
|
Share option exercise |
200 |
5,000 |
136,632 |
- |
(18,685) |
- |
18,685 |
141,832 |
|
Purchase of own shares |
|
|
(513,576) |
|
|
|
|
(513,576) |
|
Share Based payment |
- |
- |
- |
- |
195,940 |
- |
- |
195,940 |
|
Deferred tax |
- |
- |
- |
- |
(531,638) |
- |
(8,267) |
(539,905) |
|
Current tax on share options |
- |
- |
- |
- |
- |
- |
33,392 |
33,392 |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
(6,052,068) |
(6,052,068) |
|
Total transactions with owners |
200 |
5,000 |
(376,944) |
- |
(354,383) |
- |
(6,008,258) |
(6,734,385) |
|
At 1st June 2012 |
268,784 |
1,980,084 |
(4,560,603) |
(65,869) |
1,267,553 |
18,562 |
16,380,074 |
15,288,585 |
|
Profit for the year |
- |
- |
- |
- |
- |
- |
6,266,442 |
6,266,442 |
|
Comprehensive Income |
|
|
|
368,736 |
- |
- |
- |
368,736 |
|
Total comprehensive income |
|
|
|
368,736 |
|
|
6,266,442 |
6,635,178 |
|
Transaction with owners |
|
|
|
|
|
|
|
|
|
Share option exercise |
2,613 |
65,325 |
168,625 |
- |
(37,159) |
- |
37,159 |
236,563 |
|
Share cancellation |
(2,020) |
|
|
|
2,020 |
(516,241) |
|
516,241) |
|
Purchase of own shares |
|
|
(518,822) |
|
|
|
|
(518,822) |
|
Share based payment |
|
|
|
|
135,872 |
|
|
135,872 |
|
Deferred tax |
|
|
|
|
(649,606) |
|
(57,325) |
(706,931) |
|
Current tax on share options |
|
|
|
|
|
|
122,544 |
122,544 |
|
Dividends paid |
|
|
|
|
|
|
(6,046,712) |
(6,046,712) |
|
Total transactions with owners |
593 |
65,325 |
(350,197) |
|
(550,893) |
2,020 |
(6,460,575) |
(7,293,727) |
|
At 31st May 2013 |
269,377 |
2,045,409 |
(4,910,800) |
302,867 |
716,660 |
20,582 |
16,185,941 |
14,630,036 |
Consolidated cash flow statement
For the year ended 31st May 2013
|
|
Group |
|
|
|
2013 |
2012 |
||
|
|
Note |
£ |
£ |
|
Cash flow from operating activities |
|
|
|
|
Operating profit |
|
8,359,010 |
11,033,844 |
|
Adjustments for: |
|
|
|
|
Depreciation charges |
|
177,095 |
336,226 |
|
Amortisation of intangible assets |
|
45,461 |
11,365 |
|
Share-based payment charge |
|
135,872 |
195,941 |
|
Translation adjustments |
|
(8,539) |
(108,680) |
|
(Profit)/loss on disposal of fixed assets |
|
- |
(72) |
|
Cash generated from operations before changes |
|
|
|
|
in working capital |
|
8,708,899 |
11,468,624 |
|
Decrease/(increase) in trade and other receivables |
|
1,806,608 |
230,677 |
|
(Decrease)/increase in trade and other payables |
|
(760,344) |
(122,152) |
|
Cash generated from operations |
|
9,755,163 |
11,577,149 |
|
Interest received |
|
60,898 |
62,875 |
|
Taxation (paid)/received |
|
(2,248,450) |
(3,928,729) |
|
Net cash generated from/(used in) operating activities |
|
7,567,611 |
7,711,295 |
|
Cash flow from investing activities |
|
|
|
|
Dividends received from subsidiaries |
|
- |
- |
|
Purchase of property and equipment |
|
(60,316) |
(400,163) |
|
Proceeds from sale of property and equipment |
|
- |
320 |
|
Purchase of non-current financial assets |
|
(3,811) |
(6,491) |
|
Proceeds from sale of non-current financial assets |
|
- |
483,434 |
|
Purchase of current financial assets |
|
(328,991) |
(2,132,613) |
|
Proceeds from sale of current financial assets |
|
4,332,466 |
178,438 |
|
Net cash generated from/(used in) investing activities |
|
3,939,348 |
(1,877,075) |
|
Cash flow from financing activities |
|
|
|
|
Proceeds from issue of ordinary shares |
|
67,938 |
5,200 |
|
Ordinary dividends paid |
10 |
(6,046,712) |
(6,052,068) |
|
Purchase and cancellation of own shares |
|
(516,241) |
- |
|
Purchase of own shares by employee share option trust |
|
(518,822) |
(513,576) |
|
Proceeds from sale of own shares by employee share option trust |
|
168,625 |
136,632 |
|
Net cash used in financing activities |
|
(6,845,212) |
(6,423,812) |
|
Net increase/(decrease) in cash and cash equivalents |
|
4,661,747 |
(589,592) |
|
Cash and cash equivalents at start of period |
|
5,399,869 |
6,104,673 |
|
Effect of exchange rate changes |
|
(431) |
(115,212) |
|
Cash and cash equivalents at end of period |
|
10,061,185 |
5,399,869 |
Notes
For the year ended 31st May 2013
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 31st May 2013 and 31st May 2012 does not constitute statutory accounts and has been extracted from the full accounts for the years ended 31st May 2013 and 31st May 2012. 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 31st May 2012 have been filed with the Registrar of Companies. The accounts for the year ended 31st May 2013 will be delivered to the Registrar of Companies in due course.
1 Basis of preparation
The financial statementshave been prepared in accordancewith International FinancialReporting Standards (IFRS) as adopted by the European Union ("EU") and with those parts of the CompaniesAct 2006 applicable to companiesreporting under IFRS.
The Group financialstatements have been prepared under the historical cost convention, except for certain financial assets held by theGroup that are reported at fair value. The Group financial statements have been prepared on a going concernbasis.
New IFRS Standardsand Interpretations
At the date of authorisation of these financialstatements, the followingStandards and Interpretations as adopted by the EU, whichare relevant to the Group, were in issue but not yet effective:
IFRS 10 Consolidated FinancialStatements - Effective for annual periods beginning on or after 1st January 2013. This replaces the portion of IAS 27 'Consolidated and Separate FinancialStatements' that addressesthe accounting for consolidated financial statements. The changes introducedby IFRS 10 will require management to exercise a degree of judgement to determine which entities it controls, and are thus required to consolidate, compared with the requirements that were in IAS 27. The standard defines control as being exercised when an investor is exposed, or has rights, to variable returns from his involvement with the investee and has the ability to affect those returns through his power over the investee.The Group has considered the principle of control in relation to its investees, and the adoption of this standard is not expected to have a material impact on the Group's financialstatements.
IFRS 12 Disclosure of Interests in Other Entities - Effective for annual periods beginning on or after 1st January 2013. The Standard is intended to complement IFRS 10 and requires disclosures about the judgementused by management in determining which entities it controls as well as the financial effects of, and risks associatedwith, an entity's investments in subsidiaries, joint arrangements, associatesand unconsolidated structuredentities. IFRS 12 is not expected to have a material impact on the Group's financialstatements.
At 31st May 2013 there are no other Standardsand Interpretations in issue but not in force that would be expected to have a materialimpact on the Group.
The preparation of these financial statementsin conformity with IFRS requires management to make estimatesand assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.Whilst estimates are basedon management's best knowledge and judgement using information and financial data available to them, the actual outcome may differ from those estimates.
The most significant areas of the financial statementsthat 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.
Intangible assets
The useful economic life of intangibleassets, such as computer software, is determined on acquisition using
value in use calculations based on management's assumptions and estimates of future cash flows.
2 Basis of consolidation
These financial statementsconsolidate the financialstatements of the Company and all of its subsidiaryundertakings.
The Company's principal subsidiaries as at 31st May 2013 are City of London Investment ManagementCompany Limited and City of London US Services Limited.
The consolidated financial statementsare prepared on the historicalcost 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 year, the prior year figures are also updated to present a true comparative.
(i) Property and equipment
For all property and equipmentdepreciation 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
Furnitureand equipment - four years
Computer and telephoneequipment - four years
(ii) Intangible assets
Intangible assets acquired separatelyare 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 representsa perpetual licence for the Group's fund accounting system. The Directorsconsider ten years as a reasonable estimate of useful life given the improved control and flexibility to manage and develop the software in-house.
(iii) Financial instruments
Under IAS 39, "Financial Instruments: Recognition and Measurement", financial assets must be classifiedas 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.
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 theinvestment. They are subsequently carried at fair value, with any gains or losses arising from
changes in fair value included aspart 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 isrecognised in the income statement, calculatedas 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 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 remeasuredat fair value, with any movement recognised in the income statement.The fair value of the derivatives held by the Group is determined as follows:
Options - priced using the quoted market bid price
Forward currency trades - priced using the forward exchange bid rates from Bloomberg
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. A table showing how they are reportedis shown in note 11.
(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 estimate dirrecoverable 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 amortisedcost.
(vii) Deferred taxation
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 recognisedfor 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 nolonger probable that sufficient taxable profits will be availableto 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 cumulativeremuneration expense, the excess deferred tax is recogniseddirectly 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
shareoptions 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.
(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 recognisedas services are provided and comprises investmentmanagement fees based on a percentage of Funds under Management, in accordance with the underlyingagreements.
(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 prevailingat the transaction date. Monetary assets
held in a currency other than the functional currency are translated each year end at the year end closing rates. Non-monetary assets are translated at the date of the transaction and held at historic costs with any gains or losses recognised in the income statement.
The functional currency of the Group's main trading subsidiaries, City of London Investment ManagementCompany Limited and City of London US Services Limited, is US dollars. The functionalcurrency 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 from 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 are sold to the Company and therefore it is the only entity with any exchange differences. 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
exchangedifferences are included in the income statement and no split is required between other comprehensive
income and the income statement.
(xii) Leases
The cost of operating leases is charged to the income statementin equal periodic instalments over the periods 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 reportablesegment, namely asset management, and hence only analysis by geographical location is given.
Europe
|
|
USA £ |
Canada £ |
UK £ |
(ex UK) £ |
Other £ |
Total £ |
|
Year to 31st May 2013 |
|
|
|
|
|
|
|
Revenue |
25,411,693 |
699,249 |
1,551,037 |
1,701,755 |
- |
29,363,734 |
|
Non-current assets: |
|
|
|
|
|
|
|
Property and equipment |
319,595 |
- |
158,353 |
- |
12,710 |
490,658 |
|
Intangible assets |
306,858 |
- |
- |
- |
- |
306,858 |
|
Year to 31st May 2012 |
|
|
|
|
|
|
|
Revenue |
29,050,781 |
654,182 |
2,680,574 |
1,757,169 |
- |
34,142,706 |
|
Non-current assets: |
|
|
|
|
|
|
|
Property and equipment |
389,771 |
- |
191,794 |
- |
25,872 |
607,437 |
|
Intangible assets |
352,319 |
- |
- |
- |
- |
352,319 |
The Group has classified revenue 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 |
|
|
|
|
|
2013 |
2012 |
|
|
The operating profit is arrived at after charging/(crediting): |
£ |
£ |
|
|
Depreciation of owned assets |
177,095 |
336,226 |
|
|
Amortisation of intangible assets |
45,461 |
11,365 |
|
|
Auditors' remuneration: |
|
|
|
|
- Statutory audit |
75,901 |
65,470 |
|
|
- Taxation services |
23,539 |
18,123 |
|
|
- Other services |
8,287 |
7,211 |
|
|
Operating lease rentals: |
|
|
|
|
- Land and buildings |
344,207 |
349,858 |
|
|
Foreign exchange (gains)/losses |
(47,681) |
25,091 |
|
|
(Profit) on disposal of fixed assets |
- |
(72) |
|
6 |
Interest receivable and similar gains |
|
|
|
|
|
2013 |
2012 |
|
|
|
£ |
£ |
|
|
Interest on bank deposit |
60,898 |
62,875 |
|
|
Gain on sale of investments |
440,209 |
364,795 |
|
|
|
501,107 |
427,670 |
|
7 |
Tax charge on profit on ordinary activities |
|
|
|
|
|
2013 |
2012 |
|
|
(a) Analysis of tax charge on ordinary activities: |
£ |
£ |
|
|
Tax at 24% (2012: 26%) based on the profit for the year |
2,191,803 |
3,074,714 |
|
|
Double taxation relief |
(1,103,164) |
(1,656,439) |
|
|
Deferred tax |
(38,019) |
(68,780) |
|
|
Change in tax rate to 23% |
(6,962) |
(18,097) |
|
|
Adjustments in respect of prior years |
(20,075) |
(270,210) |
|
|
Domestic tax total |
1,023,583 |
1,061,188 |
|
|
Foreign tax for the current period |
1,539,724 |
2,137,395 |
|
|
Adjustments in respect of prior years |
30,368 |
(234,923) |
|
|
Foreign tax total |
1,570,092 |
1,902,472 |
|
|
Total tax charge in income statement |
2,593,675 |
2,963,660 |
(b) Factors affecting tax charge for the current period:
The tax assessed for the period is differentto that resulting from applying the standard rate of corporation tax in the UK - 24% (prior year - 26%). The differences are explained below:
|
|
2013 |
2012 |
|
£ |
£ |
|
|
Profit on ordinary activities before tax |
8,860,117 |
11,461,514 |
|
Tax at 24% (2012: 26%) thereon |
(2,126,428) |
(2,979,994) |
|
Effects of: |
|
|
|
Unrelieved overseas tax |
(436,560) |
(480,956) |
|
Expenses not deductible for tax purposes |
(42,587) |
(45,870) |
|
Capital allowances less than depreciation |
(27,299) |
(50,886) |
|
Prior period adjustments |
(10,293) |
505,133 |
|
Deferred tax on share based-payments and impairment |
38,019 |
68,780 |
|
Change in tax rate to 23% |
6,962 |
18,097 |
|
Other |
4,511 |
2,036 |
|
Total tax charge in income statement |
(2,593,675) |
(2,963,660) |
The reduction in the main rate of UK corporation tax to 23% with effect from 1st April 2013 is substantively enacted for accounting purposes.The effect of the rate reduction has been reflectedin the figures above.
8 Earnings per share
The calculation of earnings per share is based on the profit for the period of £6,266,442(2012: £8,497,854) divided by
theweighted average number of ordinary shares in issue for the year ended 31st May 2013 of 25,152,921 (2012:
25,171,389).
The Employee Benefit Trust held 1,843,283 ordinary shares in the Company as at 31st May 2013. The Trustees of the Trust
have waived all rights to dividends associated with these shares. In accordancewith 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 for the year of £6,266,442 (2012: £8,497,854) divided by the diluted weighted average of ordinary shares for the year ended 31st May 2013 of 25,432,704 (2012: 25,917,327).
|
Reconciliation of the figures used in calculating basic and diluted earnings per share: |
2013 |
2012 |
|
|
Number of shares |
Number of shares |
|
Weighted average number of shares - basic earnings per share |
25,152,921 |
25,171,389 |
|
Effect of dilutive potential shares - share options |
279,783 |
745,938 |
|
Weighted average number of shares - diluted earnings per share |
25,432,704 |
25,917,327 |
9 Share capital
|
|
2013 Number |
2012 Number |
|
Group |
of shares |
of shares |
|
Authorised |
|
|
|
Ordinary shares of 1p each (2012 - 1p each) |
90,000,000 |
90,000,000 |
|
|
£ |
£ |
|
Ordinary shares of 1p each (2012 - 1p each) |
90,000 |
90,000 |
|
|
2013 |
2012 |
|
Group |
£ |
£ |
|
Allotted, called up and fully paid At start of year 26,878,450 (2012: 26,858,450) Ordinary shares of 1p each |
268,784 |
268,584 |
|
Dilutive share options exercised; 59,257 (2012: 20,000) |
593 |
200 |
|
At end of year 26,937,707 (2012: 26,878,450) Ordinary shares of 1p each |
269,377 |
268,784 |
|
Fully paid ordinary shares carry one vote per share and carry a right to dividends. |
|
|
10 Dividend
|
|
2013 |
2012 |
|
£ |
£ |
|
|
Dividends paid: Interim dividend of 8p per share (2012: 8p) |
1,996,394 |
2,010,607 |
|
Final dividend in respect of year ended: 31st May 2012 of 16p per share (2011: 16p) |
4,050,318 |
4,041,461 |
|
|
6,046,712 |
6,052,068 |
A final dividend of 16p per share has been proposed, payable on 25th October 2013, subject to shareholder
approval, to shareholders who are on the register of members on 11th October 2013.
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 financialassets and liabilities is materially the same as the book value.
(i) Financial instruments by category
The tables below show the Group's financialassets and liabilities as classified under IAS39:
|
|
Loans and |
Assets at fair value through |
Available- |
|
|
31st May 2013 |
receivables |
profit or loss |
for-sale |
Total |
|
Assets as per statement of financial position |
£ |
£ |
£ |
£ |
|
Other financial assets |
- |
- |
37,897 |
37,897 |
|
Trade and other receivables |
3,538,726 |
- |
- |
3,538,726 |
|
Available-for-sale financial assets |
- |
- |
3,847,526 |
3,847,526 |
|
Cash and cash equivalents |
10,061,185 |
- |
- |
10,061,185 |
|
Total |
13,599,911 |
- |
3,885,423 |
17,485,334 |
|
|
|
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 |
|
306,571 |
2,824,352 |
3,130,923 |
|
Total |
|
306,571 |
2,824,352 |
3,130,923 |
|
|
Loans and |
Assets at fair value through |
Available - |
|
|
|
31st May 2012 |
|
receivables |
profit or loss |
for-sale |
Total |
|
Assets as per statement of financial position |
|
£ |
£ |
£ |
£ |
|
Other financial assets |
|
- |
- |
31,354 |
31,354 |
|
Trade and other receivables |
|
5,345,334 |
- |
- |
5,345,334 |
|
Available-for-sale financial assets |
|
- |
- |
6,924,552 |
6,924,552 |
|
Cash and cash equivalents |
|
5,399,869 |
- |
- |
5,399,869 |
|
Total |
|
10,745,203 |
- |
6,955,906 |
17,701,109 |
|
|
|
|
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 |
|
|
264,859 |
3,626,408 |
3,891,267 |
|
Total |
|
|
264,859 |
3,626,408 |
3,891,267 |
(ii) Fair value measurements recognised in the statement of financial position
The following table provides an analysis of financialinstruments 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 identicalassets 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 valuationtechniques 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 determinedwith 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 financialasset or liability is classified is determined based on the lowest level of
significant input to the fair value measurement.
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
31st May 2013 |
£ |
£ |
£ |
£ |
|
Available-for-sale financial assets |
|
|
|
|
|
Investment in own funds |
666,248 |
3,219,175 |
- |
3,885,423 |
|
Total |
666,248 |
3,219,175 |
- |
3,885,423 |
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
Forward currency trades |
- |
306,571 |
- |
306,571 |
|
Total |
- |
306,571 |
- |
306,571 |
|
31st May 2012 |
Level 1 £ |
Level 2 £ |
Level 3 £ |
Total £ |
|
Available-for-sale financial assets |
|
|
|
|
|
Investment in own funds |
2,319,341 |
4,636,565 |
- |
6,955,906 |
|
Total |
2,319,341 |
4,636,565 |
- |
6,955,906 |
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
Forward currency trades |
- |
264,859 |
- |
264,859 |
|
Total |
- |
264,859 |
- |
264,859 |
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 investmentin own funds.
Where there is an impairment in the investmentin own funds, the loss is reported in the income statement.No impairment was recognised during the year 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 year and at year end. The net gain reported for the year is £47,681
(2012: net loss £25,091).
(iii) Foreign currency risk
Most 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. Each of
the Group's subsidiaries eliminates its currency exposure by transfer to the holding company. All hedging activity is
therefore assessed at the Group level.Forward foreign exchange transactions are executed 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 31st May 2013, the Group had net asset balances of US$11,441,867 (2012: US$12,792,210), offset by forward sales totalling US$10,900,000 (2012: US$11,750,000), and net asset balances of SGD543,000 (2012: SGD227,728), C$164,198(2012: C$157,387), EUR56,056 (2012: EUR67,218) and AED153,159 (2012: AED95,217).
Had the US dollar strengthened or weakened against sterling as at 31st May 2013 by 10%, with all other variablesheld constant, there would have been approximately 0.5% increase or decrease (respectively) to the Group's net assets, because the US dollar position is minimised 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 Financial review.
(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.
Further details on the effects on the Group's post-tax profits due to movements in market prices have been demonstrated
in the Financial review.
The Group is, from time to time, exposed to market risk directly via its investment holdings and 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 managementand settlement functions are totally segregated.
The Group did not conduct any hedging activity during the period (2012: the cost of hedging recognisedin the income statement was £71,575).
(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 evaluationis undertaken on a case by
case basis.
The Group has zero experienceof 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 financialposition. 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 commissionpayable 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 current available-for-sale assets represent investments in funds that it manages and can be liquidated mmediately 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 31st May 2013 the Group held £10,061,185 (2012: £5,399,869) in cash balances,of which £9,245,610 (2012: £4,534,050) 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 operatingsubsidiary company, City of London Investment ManagementCompany Ltd is subject to the minimum capital requirements of the FinancialConduct Authority ("FCA") in the UK. This subsidiary held surplus capital over its requirements throughout the year.
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of City of London Investment Group PLC (the "Company")will be held at 77 Gracechurch Street, London EC3V 0AS on Monday 7th October 2013 at 11.30am for the followingpurposes:
Ordinary business
1. To receive and adopt the financial statementsfor the year ended 31st May 2013 together with the reports of the
Directors and auditors thereon.
2. To approve the Directors'remuneration report for the year ended 31st May 2013.
3. To declare a final dividend of 16p per ordinary share for the year ended 31st May 2013 payable on 25th October 2013.
4. Having been appointed by the Board since the last Annual General Meeting, to re-appointBarry Alan Aling as a Director of
the Company in accordance with article 137 of the Company's articles of association.
5. Having last been re-elected at the 2010 Annual General Meeting, to re-elect Carlos Manuel Yuste as a Director of the
Company in accordance with article 132(a) of the Company'sarticles of association.
6. Having last been re-elected at the 2010 Annual General Meeting, to re-elect David Michael Cardale as a Director of the
Company in accordance with article 132(a) of the Company'sarticles of association.
7. To re-appoint Moore Stephens LLP as auditors of the Company to hold office from the conclusion of the meeting
until the conclusion of the next general meeting of the Company at which accounts are laid before the Company
8. To authorise the Board to determine the auditors' remuneration.
Special business
To consider, and, if thought fit, pass resolutions 9 and 10 as ordinary resolutions and resolutions 11 and 12 as special resolutions.
9. THAT, in accordance with sections 551 of the Companies Act 2006, the Directors be generally and unconditionally authorised to exercise all powers conferred pursuant to Article 10 of the Company'sArticles of Association to allot shares in the
Company (which for this purpose includes grants of rights to subscribe for or to convert any security into shares) up to a
maximum nominalamount of £89,909 (representing approximately one third of the Company's issued ordinary capital at
the date of this notice), provided that this authorityshall, unless renewed, varied or revoked by the Company, expire at
the conclusion of the Company's next Annual General Meeting, or on 30th November 2014 (whichever is earlier), save that
the Company may, before such expiry,make an offer or agreement which would or might require shares to be allotted
(or rights to be granted) and the Directors may allot shares (or grant rights) in pursuance of such offer or agreement notwithstanding that the authority conferredby this resolution has expired.
This authority is in substitution for all previous authorities conferredon the Directors in accordancewith section 551 of the
CompaniesAct 2006.
10. THAT, the trustees from time to time of the City of London Employee Benefit Trust (the "EBT") be and are hereby authorised to hold ordinary shares in the capital of the Company, for and on behalf of the ESOP, up to a maximum in aggregateequal to 10% of the issued ordinary share capital of the capital from time to time.
11. THAT, subject to the passing of resolution 9 and in accordance with section 570 and section 573 of the CompaniesAct 2006, the Directors be generally and unconditionally authorisedto exercise all powers conferredpursuant to Article 10 of the Company's Articles of Association to allot equity securities (as defined in section 560 of the Companies Act 2006) pursuant to the authority conferred by resolution 9, as if the pre-emption provisionsof section 5(1) of the Companies Act 2006 did not apply to such
allotment, provided that this power shall be limited to the allotment of equity securitiesup to a maximum nominal
amount of £13,486 epresenting approximately 5% of the Company's issued ordinary capital at the date of this notice),
provided that thisauthority shall, unless renewed, varied or revoked by the Company, expire at the conclusion of the
Company'snext AnnualGeneral Meeting, or on 30th November 2014 (whicheveris earlier) save that the Company may,
before such expiry, make an offer or agreement which would or might require shares to be allotted (or rights to be
granted) and the Directors may allotshares (or grant rights) in pursuance of such offer or agreement notwithstanding
that the authority conferredby this resolution has expired.
12. THAT, in accordance with section 701 of the Companies Act 2006, the Company be generally and unconditionally authorised to make market purchases (within the meaning of section 693(4) of the Companies Act 2006) of any of its ordinary shares
of £0.01 (1p) provided that:
(a) the maximum number of ordinary shares which may be purchasedis 2,697,270 (representing approximately 10% of the
Company'sissued ordinary share capital at the date of this notice);
(b) the minimum price which may be paid for each ordinary share is £0.01 (1p) which amount shall be exclusiveof
expenses, if any;
(c) the maximum price, exclusiveof any expenses, which may be paid for any ordinary share shall be higher of:
(i) an amount equal to 105% of the average of the middle market quotations for the ordinary shares of the Company
as derived from the Daily Official List of the London Stock Exchange plc for the five business days immediately
preceding the date on which such ordinary share is contracted to be purchased;and
(ii) the higher of the price quoted for
(a) the last independent trade of; and
(b) the highest current independent bid for,
any number of ordinary shares on the trading venue where the purchase is carried out, and
(d) unless previously renewed, revoked or varied, this authority shall expire at the conclusionof the Company's next
Annual General Meeting, or on 30th November 2014 (whichever is earlier),
under this authority the Company may make a contract to purchase ordinary shares which would or might be executed
wholly or partly after the expiry of this authorityand may make purchases of ordinary shares pursuant to it as if this
authority had not expired.
By order of the Board
P A Keith
Company Secretary
4th September 2013
Registered office: 77 Gracechurch Street, London EC3V 0AS Registered in England and Wales No 2685257
Notes to the Notice of Annual General Meeting
1. Information about this meeting is availableon the Company's website - www.citlon.co.uk
2. A member entitled to receive notice, attend and vote at the annual general meeting is entitled to appoint a proxy or proxies to attend and, on a poll, vote instead of him. Such proxy need not be a member of the Company. Completion of a form of proxy does not preclude the member attending the meeting and voting in person if they so wish. To be valid, the instrument appointing a proxy, together if appropriate, with a power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such authority, must be deposited at the offices of the Company's registrars, Capita Registrars, 34 Beckenham Road, Beckenham, Kent, BR3 4TU no later than 11:30 am on 3rd October 2013. A form of proxy accompanies this notice.
3. Pursuant to Regulation 41 of the Uncertificated SecuritiesRegulations 2001, the time by which a person must be entered
on theregister of members of the Company in order to have the right to attend and vote at the annual general meeting
(and for the purposes of the determination by the Company of the numbers of votes they may cast) is 11:30 am on 3rd
October 2013.
The rights of members to attend and vote at the meeting will be determined by reference to entries on the register of members
at 11:30 am on 3rd October 2013. Changes to entries on the register of members of the Company after that time will be
disregarded in determining the rights of any person to attend or vote at the meeting.
4. The right to appoint a proxy does not apply to persons whose ordinary shares are held on their behalf by another
person andwho have been nominated to receive communications from the Company in accordancewith section 146 of
the Companies Act2006 ("nominated persons").Nominated persons may have a right under an agreementwith the
registered shareholder who holds shares on their behalf to be appointed(or to have someone else appointed) as a
proxy. Alternatively, if nominated personsdonot have such a right, or do not wish to exercise it, they may have a right
under such an agreement to instructions to the person holding the ordinary shares as to the exercise of voting rights.
5. In the case of joint holders, the signature of only one of the joint holders is required on the form of proxy, but the vote
of the first named on the register of members will be accepted to the exclusion of the other joint holders.
6. The following documents are available for inspection between 10.00 am and 12.00 noon at the registered office of the
Company on any weekday and will also be available for inspection at the place of the annual general meeting from the commencement of the meeting until the conclusion thereof:
(a) The register of interestsof the Directors (and their families) in the share capital of the Company.
(b) Copies of the Directors' contractsof service and letters of appointment of the non-executive Directors.
(c) Terms of reference of the Audit, Remuneration and Nominations Committees.
(d) Copies of the Company's articles of association.
Explanation of the business of the Annual General Meeting
Report and accounts(Resolution 1)
The first item on the agenda requires that the Directors must present the accounts of the Company for the year ended 31st May 2013,together with the Directors' report and the independent auditors'report thereon.
Directors' remuneration (Resolution 2)
In line with regulations relating to the preparation and approval of a Directors'remuneration report, resolution 2 is to be
proposed at the AGM. The resolution will provide shareholders with the opportunity to comment on the remuneration
matters and policy, although shareholders should note that in accordance with the regulations the vote will be advisory in
nature.
Declaration of final dividend (Resolution 3)
Your Directors are recommending a final dividend of 16p per ordinary share for the year ended 31st May 2013 which will be paid on 25th October 2013 to shareholders on the register at the close of business on 11th October 2013. The Company's shares will
trade ex-dividend from 9th October 2013 until the payment date.
Re-appointment of Directors (Resolution 4)
Article 137 of the Company's articles of association requires that any Director who has been appointed by the Directors since
the last annual general meeting of the Company will stand for re-appointment at the next general meeting.
Re-election of Directors (Resolutions 5 - 6)
Article 132 of the Company's articles of association requires that at each annual general meeting, any Director who has been in office for more than three years shall retire by rotation and will stand for re-appointment. In addition, such further Directors(if any) shallretire by rotation as would bring the number retiring by rotation up to one third of the number of Directors in office as at 31st August 2013 (or if their number is not a multiple of three, the number nearest to but not greater than one third).
Article 138 of the Company's articles of association requires that a resolution for the appointment or re-appointment of two or more persons as Directors by a single resolution may not be moved unless a resolution that it shall be so moved has first been agreed to by the meeting without any vote being given against it. Consequently separate resolutions will be put to the
meeting.
Re-appointment of auditors (Resolution 7)
The Company is required at each general meeting at which its annual accounts and reports are laid before the shareholders (an "Accounts Meeting") to appoint auditors for the next financialyear to hold office from the conclusionof that accounts meeting until theconclusion of the next accounts meeting. Moore Stephens LLP are the current auditors and have indicated their willingness to continue in office. If resolution 7 is passed, Moore Stephens LLP will be re-appointed as auditors to the Company for the
financial year ending 31st May 2014.
Remuneration of auditors (Resolution 8)
In accordance with the Companies Act 2006, the remuneration of the auditors appointed by the shareholders may be fixed in such manner as the shareholders in general meeting may determine.It is normal practice for a company'sDirectors to be authorised to agree the auditors' fees. If this resolution is passed, the Audit Committeewill review and approve the auditors' fees for recommendation to the Board.
Authority to allot shares (Resolution 9)
Resolution 9 will be proposed as an ordinary resolution in accordance with section 551 of the Companies Act 2006, to authorise the Directors generally to allot shares and rights over shares up to a maximum nominal amount of £89,909 representing approximately one third of the existing issued ordinary share capital as at the date of this notice.
Such authority will expire at the conclusion of the Company'snext Annual General Meeting, or on 30th November 2014
(whichever is the earlier), unless renewed, varied or revoked by the Company prior to or on that date.
The City of London Employee Benefit Trust (the "EBT") (Resolution 10)
In accordance with the Association of British Insurers'Principles of Remuneration, the prior approval of shareholders should be obtained before 5% or more of the Company'sissued share capital is held on behalf of the EBT.
Your Board of Directors therefore seeks the approval of shareholders by ordinary resolution to permit the trustees of the EBT
to hold up to a maximum of 10% of the Company'sissued ordinary share capital from time to time. Your Directors believe that
granting such approval would be in the best interestsof shareholders because it will offer the opportunity to align more
closely the interests of staff and shareholders, will extend the Company's opportunities with respect to attracting new talent
and thereby diversifying its product range, and will promote confidence in the stabilityof the Company's investment process
from a client perspective.
Disapplication of pre-emption rights (Resolution 11)
Resolution 11 will be proposed as a special resolution in accordance with section 570 of the Companies Act 2006, to authorise the Directors of the Company to allot a limited number of shares for cash other than on a pre-emptive basis, up to an aggregate nominal value of £13,486 representing approximately 5% of the issued ordinary share capital at the date of this notice. This
authority willexpire at the conclusion of the Company'snext Annual general meeting, or on 30th November 2014 (whichever is
earlier), unless renewed, varied or revoked by the Company prior to or on that date.
Your Board of Directorsis aware of the institutional guidelines which state that no more than 7.5% of a company's ordinary
share capital should be issued for cash on a non pre-emptive basis in any three year rolling period. Over the last three years
the Directors have not allotted shares for cash on a non pre-emptive basis other than pursuant to employee share schemes.
Purchase by the Company of its own shares (Resolution 12)
Under section 701 of the CompaniesAct 2006, the Directors of a company may make market purchasesof that company's shares if authorised to do so. The Company's articles of association give a general authority to the Directorsto purchase shares on the
market but that authority is subject to the approval of shareholders. Your Directors believe that granting such approval would
be in the best interests of the shareholders in allowing Directorsthe flexibility to react promptly to circumstances requiring
market purchases.
Accordingly Resolution 12, which will be proposed as a special resolution, will give the Directors the authority to purchase
issued shares of the Company under section 701 of the CompaniesAct 2006. The authority containedin this Resolution will be
limited to an aggregate nominal value of £26,972 which representsapproximately 10% of the issued ordinary share capital of
the Company at the date of this notice. The price which may be paid for those shares is also restricted as set out in the
Resolution. This authority willexpire at the conclusion of the Company's next Annual General Meeting, or on 30th November
2014 (whichever is earlier).
The Board has no present intention of exercising this authority. However, this will be kept under review, and the Board will
use this power only if and when, taking account of market conditions prevailing at the time, other investment opportunities,
appropriate gearing levels and the overall financial position of the Group, they believe that the effect of such purchases will
be in the best interests of shareholders generallyand that they will result in an increase in earnings per share.
Shares purchased under this authority may be held as treasury shares. The Company may purchase and hold shares as
treasury shares up to a maximum amount equal to 10% of the nominal value of the issued ordinary share capital at that time,
rather than cancelling them. Shares held in treasury do not carry voting rights and no dividendswill be paid on such shares.
Shares held in treasury in this way can be sold for cash or cancelled. This would allow the Company to manage its capital
base more effectively and to replenish its distributable reserves.
If and when the Board resolves to exercise its authority to make market purchases, it will at that time decide whether
shares purchased are to be cancelled or held in treasury.
This information is provided by RNS
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