Final Results

RNS Number : 6051R

City of London Investment Group PLC

15 September 2014

 



15th September 2014

CITY OF LONDON INVESTMENT GROUP PLC (LSE:CLIG)

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

FINAL RESULTS FOR THE THIRTEEN MONTHS TO 30TH JUNE 2014

SUMMARY

• Funds under management (FuM) at 30th June 2014 were US$3.9 billion (2013: US$3.7 billion), an increase of 6%. In sterling terms, FuM fell by 6% to £2.3 billion (2013: £2.4 billion) as a result of the cross rate moving from 1.52 to 1.71 over the period.  The MSCI Emerging Markets TR Net Index registered a 7% increase over the same period.

• Revenues, representing the Group's management charges on FuM, were £24.2 million (2013: £29.4 million). Profit before tax was £7.2 million (2013: £8.9 million).

• Basic earnings per share were 20.7p (2013: 24.9p) after a tax charge of 28% (2013: 29%) of pre-tax profits.

• A maintained final dividend of 16p  per share is recommended, payable on 31st October 2014  to shareholders on the register on 10th October 2014, making a total for the period of 24p (2013: 24p).

• Cash and cash equivalents at 30th June 2014 were £10.2 million (2013: £10.1 million).

• Change of financial year end from 31st May to 30th June, resulting in a thirteen month period.

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 Green

Canaccord Genuity Limited

Financial Adviser and Broker

Tel: [phone]

CHAIRMAN'S STATEMENT

Looking back to over a year ago when I wrote my previous, and first, Chairman's statement at City of London, I am delighted by the transformation over the last 13 months. Last year not only did we have falling profits but in addition we had a number of challenging management issues. By contrast this period I am now able to report rising monthly profits, albeit having gyrated through a deep trough, together with a stabilised management team.

Notwithstanding the almost relentless onslaught of often terrible news from the emerging and frontier world, ranging from the shamefully almost forgotten Boko Haram kidnapped girls, through political unrest in Thailand, to the disgraceful failure of the guilty to take responsibility for the most tragic, almost certainly mistaken, shooting down of flight MH 17, not to mention the hugely worrying rise of the Islamic State or the continuing Israel/Gaza conflict, sentiment towards the emerging economies has more recently been surprisingly positive. Furthermore, whilst not immune to QE tapering, emerging markets appear to be more ready to withstand it, and in India and Indonesia recent elections have had market favourable outcomes.

At City of London, Funds under Management ("FuM") have risen from a low of little over US$3 billion to close to US$4 billion at the June 2014 period end. This has been driven by positive emerging markets together with significant net new subscriptions during the latter half of the period. Whilst our core emerging market closed-end fund products have been the main beneficiaries, as will be reported later, the diversification products are making encouraging progress.

Our results

Over the course of the 13 month period the MXEF price index, our principal benchmark, has gyrated between 883 and 1058, having started the year at 1009 and finishing at 1051, with sentiment improving markedly in the final quarter. Our FuM over the first 6 months to end November 2013 declined by 6% to US$3.5 billion, having been as low as US$3.2 billion, but ended the year on a positive note at US$3.9 billion thanks to improved market conditions and net new client subscriptions.

Revenues, representing the Group's management charges on FuM, for the 13 months to 30th June 2014 were £24.2 million (2013: £29.4m for 12 months). Profit before tax was £7.2 million (2013: £8.9m). The tax charge for the period was 28% of pre-tax profits (2013: 29% of pre-tax profits). Basic earnings per share were 20.7p (2013:24.9p) and fully diluted earnings per share were 20.6p (2013: 24.6p). Cash and cash equivalents at 30th June 2014 were £10.2 million (2013: £10.1 million).

Dividends

As previously indicated, in light of the historic volatility of earnings and limited need to retain substantial amounts of capital in the business, your Board has reviewed its dividend policy. A fuller explanation is set out in the Strategic Report but in summary the objective is to achieve a dividend cover of c1.2x over a rolling 5 year period with quite wide flexibility annually dependent on historic results and the outlook. Based on this policy your Board has recommended the payment of a maintained final dividend of 16p per share to be paid on 31st October 2014 to shareholders on the register on 10th October 2014 - this timing is in line with previous years notwithstanding the year end change from May to June. Together with the interim dividend of 8p per share (2013: 8p) paid in February 2014, this makes a total for the period of 24p per share (2013: 24p), covered 0.86 times by earnings per share (2013: 1.04 times).

Your Board

Following the disruptive challenges at director level in 2012/13, your Board has settled down well with Barry Olliff agreeing to continue in the CEO role for a further 5 years and arrangements having been put in place for the Emerging Markets CIO role responsibilities to be devolved to Mark Dwyer. Shareholders will be asked at the AGM to vote on an amendment to our Articles to allow for annual re-election of all Directors enabling us to comply with the Pensions & Investment Research Consultants (PIRC) guidelines. In this context it has been your Board's policy to appraise annually the effectiveness of the Board and its members. I am pleased to report that each of the Directors are operating effectively and I can therefore recommend that those Directors standing for re-election at this year's AGM be so elected.

Outlook

It has always been your Board's policy to be as open as possible with shareholders informing them on a timely basis of the performance of their business.   As detailed in this year's Strategic Report, in addition to the disclosure of monthly management accounts information and month end FuM figures, shareholders are now able, using assumptions from the Forward Guidance that we provide together with their own assumptions on the direction of markets and other factors, to reach their own informed view on the likely outcome for the year. Our investment performance is obviously a key factor and I am happy to report that a 1st quartile performance for the overwhelming majority of our funds, over a one year period (as at 30th June 2014), has underwritten the growth of net new subscriptions. The resultant higher level of FuM is driving increased income whilst costs have been well contained. However, after the recent good performance our markets have become relatively unpredictable; nevertheless your Board is taking a positive stance on the likely outcome for the current year.

Finally, as in previous years, your Directors will be available to meet individual shareholders at our AGM in October following the completion of the meeting's formal business.

David Cardale

Chairman

12th September 2014

START OF STRATEGIC REPORT

CHIEF EXECUTIVE OFFICER'S STATEMENT

The following statement attempts to provide shareholders with even more information with regard to City of London Investment Group (CLIG), and specifically its major operating subsidiary City of London Investment Management (CLIM), than in the past.

We have followed the guidelines discussed and approved in Parliament and set out in The Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 which we believe provides good guidance for listed companies and enables companies to demonstrate to their shareholders (who own these companies) what they do, how they do it and, most importantly, attempt to define the risks associated with that investment.

As a small company we consider ourselves at the leading edge in terms of shareholder disclosure.

Over five years ago we started to periodically provide CLIG shareholders with monthly data from our management accounts. This information was provided to our shareholders via Shareholder Presentations which were placed on our web site subsequent to a relevant announcement.

This enabled our shareholders to see that while our costs were very stable our income was variable and demonstrated a very close correlation with the MSCI Emerging Markets T/R Index and the more widely available MXEF Index.

Just over a year ago we started to provide additional monthly data with regard to FuM via our web site. Based upon a consistent overhead this effectively allows CLIG shareholders to calculate our P&L on a monthly basis.

In a further attempt to provide additional information, in the last Interim Statement we started to provide Forward Guidance for shareholders based upon a number of assumptions.

Obviously stock markets, both developed and even more so in the case of the emerging markets, are volatile, and over the years the CLIG share price has exaggerated this volatility. Recently, and specifically subsequent to our starting to provide Forward Guidance, we have seen a significant reduction in that share price volatility.

This is what we hoped would happen. Obviously one of the good things about Forward Guidance is that shareholders will see each month's FuM in both good times as well as bad. The net result of this is that they will be much more aware of when things are going badly as well as going well, much earlier than in the past.

Continuing in the vein of transparency, I would like to restate my intention regarding potential future sales of shares in the Company. I founded CLIG as an asset management business in 1991 and from the outset, I have always sought to align my interests with those of the Group's shareholders, both before and subsequent to the public listing in 2006.  The consequence of this is that, as the largest shareholder and the Chief Executive of CLIG, a significant proportion of my personal resources remain invested in the Company and I believe it is appropriate and prudent, for both the Company and me personally, that I should gradually reduce my holding. Accordingly, I propose:

• Selling 500,000 at £3.50; 500,000 at £4.00 and 500,000 at £4.50. These are the same amounts and prices as referenced in the July Trading update.

I hope that you will find the following interesting and informative.

OUR STRATEGY AND OBJECTIVES

We believe that both our strategy and our objectives should be to support the three stakeholders in our business:

THE CLIENTS (PAY THE BILLS)

Expect: Superior investment performance, Openness and accountability, Ethical treatment

THE EMPLOYEES (MANAGE THE BUSINESS)

Expect: Fair treatment, Open communications, To share in success

THE SHAREHOLDERS  (OWN  THE BUSINESS)

Expect: Relevant risk controls, Quality earnings, Cost controls

Our responsibility is to keep these three stakeholders in balance (avoid conflicts) and to ensure that each of their interests is safeguarded.

Additionally we have responsibilities to regulators, the community and the environment.

What follows is background information regarding CLIM, what we are attempting to achieve in terms of growth, how we can achieve this and how we deal with our shareholders.

We address this under the following five headings:

1. OUTPERFORM

2. RETAIN STAFF

3. INCREASE FUM FROM LONG-TERM INSTITUTIONAL INVESTORS

4. REMAIN OPEN IN OUR DEALINGS WITH SHAREHOLDERS, AVAILABLE AND ACCOUNTABLE

5. KEEP COSTS DOWN

1. OUTPERFORM

Our job as an active manager is to add value over and above a relevant benchmark through an investment cycle which we define as four to five years.

As we have documented, over the past few years the main driver of recent underperformance has been a significant increase in the Size-Weighted Average Discount of the closed-end funds in our portfolios.

This figure has now stabilised which has benefitted recent investment performance. Our view is that it will either narrow (which, other things being equal, will contribute alpha) or else it will remain around present levels. In the event that it is the latter we should continue to benefit from buy backs, tender offers, open endings and liquidations.

 2. RETAIN STAFF

As shareholders would expect, in a firm that has always used a partnership approach, there is a very long term view taken regarding remuneration.

One of the proofs of our approach is that CLIM's thirteen fund managers have an average tenure of over ten years.

Our remuneration policy is made more difficult as a result of having to undertake our work in a volatile market environment.

3. INCREASE FUM FROM LONG TERM INSTITUTIONAL INVESTORS

City of London's client base is, and always has been, overwhelmingly institutional. Our clients include pension funds, foundations, endowments and other professional money managers.

What they have in common is a desire to access the returns available in 'difficult' emerging markets. We have provided that access over many years and cycles and have generated long term outperformance for our clients. Clients can then focus on their asset class allocation decisions.

We have 161 institutional clients, many of whom have been clients of CLIM for many years. The table below shows our largest ten clients along with the date they initially invested with us.

                Client                    Market Value 30th June 2014     Inception Date

1              Public Pension                  $365,056,103                      Sep 2009

2              Endowment                       $215,577,907                      Nov 1996

3              Foundation                        $202,738,398                      May 2014

4              Endowment                       $171,742,061                      Jun 2004

5              Public Pension                  $165,597,313                      Oct 2013

6              Corporate Pension          $129,859,049                      Mar 1997

7              Endowment                       $129,716,436                      Jul 2007

8              Corporate Pension          $127,042,661                     Jun 2006

9              Union Pension                  $112,512,448                      Apr 2009

10           Healthcare                          $105,883,233                      Dec 2010

Subsequent to reopening our emerging markets business in September 2013 we have set out in a template how we would like to grow funds under management as follows:

We are restricting our growth by limiting the amount of new emerging market closed-end fund (EM CEF) money to US$100 million per month with an original target of US$500 million by 31st December 2014 and a further US$500 million by 31st December 2015. The funds we have raised since reopening in September 2013 to 30th June 2014 have been offset by client redemptions but we are still working to the original target and therefore the plan for the next 18 months from 1st July 2014 is to raise US$750 million in the EM CEF strategy.

In addition, during this financial year we are targeting US$250 million in new mandates for our non-EM CEF strategies which are now attracting interest and are described in more detail in the Business Development Review.

We have also assumed market growth at 10% per annum.

As a result of assumed further expansion with regard to the diversification products, it is our intention to add a US West Coast marketing resource, in addition to our current East Coast marketing presence.

The principal risk that the Group faces is the potential loss of funds under management as a result of either client redemptions or market volatility. The Group seeks to attract and retain clients through consistent outperformance supplemented by first class client servicing, and the Directors have implemented a diversification strategy, as described in the Business Development Review, which should further mitigate these risks. In addition to this key business risk, there are a number of less significant financial risks as outlined in note 11.

4. REMAIN OPEN IN OUR DEALINGS WITH SHAREHOLDERS, AVAILABLE AND ACCOUNTABLE

We seek to communicate with our shareholders in a transparent and open manner.  Where possible, we take the opportunity to meet shareholders, whether at one-to-one meetings with our larger institutional holders or at group meetings with advisers and individual shareholders.

We believe that our shareholders have a right to know what to expect from us.  For this reason, we try to make all of our announcements simple and accessible. We also provide supplementary data from our management accounts, which is updated on the website after relevant announcements.

Furthermore we have sought to make our dividend policy - the most direct way we have of rewarding shareholders - as clear as we can. We will continue to pay out the major part of post-tax profits in dividends, but have revised the Group's dividend policy as detailed below. This is going to be applied with flexibility, with one third payable as an interim dividend and two thirds as a final.

NEW DIVIDEND POLICY

This policy is designed to incorporate the required flexibility to deal with the potential volatility of CLIG's P&L:

• This is not a long term policy. Rather it will be reviewed after five years and every five years thereafter.

• This policy specifically takes account of the implicit volatility in CLIG's earnings as a result of its significant present exposure to the emerging markets.

• Once this reliance upon the emerging markets is reduced the cover could be further reduced.

• The intention should be to put around £1 million to reserves in a normal year.  For guidance a normal year would be considered the average of the previous five years.

• This would imply a cover ratio of circa 1.2 times (1.2x).

• While the cover is targeted as 1.2x this will be applied flexibly and the annual dividend will approximate to this cover on a rolling five year average.

• The Board will take into account both the CLIG budget for the next year and market outlook when determining the current year's dividend.

5. KEEP COSTS DOWN

We keep costs down because we believe that the assets over which we provide stewardship are, by definition, not ours but are owned by CLIG shareholders.

We do not have expensive offices and when we travel we do not stay in five star hotels. We do not need expensive offices to undertake our work and most of the time we are in a hotel to sleep rather than it be a part of our life style.

Keeping the overhead down is good business practice as it provides more money for dividends, bonuses and reserves and thus assists with relative job security.

In addition all efforts are made to limit inter-office air travel, with internal meetings almost exclusively conducted by teleconference.

BUSINESS DEVELOPMENT REVIEW

Diversify the business

Over the period, investment performance in our emerging markets closed-end fund (CEF) strategy remained strong, with first or second quartile results versus manager peers. The relatively large size-weighted average discount (SWAD) of c12-13% across client portfolios indicates value in the strategy. The investment approach adds value beyond this by exploiting volatility of the underlying discounts in the CEF universe, from which portfolios are constructed with their specific SWAD characteristics.  As we said last year, 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.

Products

We are pleased to note that our diversification efforts are beginning to attract new funds under management. During the period, mandates for two new strategies, the Special Situations CEF Strategy and the Global Tactical Asset Allocation CEF Strategy were funded. This will assist in efforts to raise the profile of our extension CEF products with institutional consultants and plan sponsors.

The Special Situations CEF Strategy is a more concentrated extension of the Emerging Markets core equity product, but may also include private equity funds. This strategy will have a three year track record in February 2015.

The Global Tactical Asset Allocation Strategy encompasses a variety of asset classes via closed-end funds and adopts a go anywhere approach which is managed as part of the Developed closed-end fund strategy team, which is a separate team from that managing client assets in the emerging markets. Both taxable and tax-exempt products are available.

Our niche investment strategies include the Frontier Emerging Markets Fund, and the

Natural Resource Fund.

Over the period, CLIM placed the second US$100 million tranche of Qualified Foreign Institutional Investor (QFII) quota awarded by the China Securities Regulatory Commission, for the China A Share CEF Strategy.

Performance

Global composite investment returns for the emerging market closed-end fund strategy for the rolling twelve months ending June 30, 2014 were 18.14% vs. 14.31% for the MSCI Emerging Markets Index in USD and 4.8% vs. 1.4% for the benchmark in GBP.

Global composite investment returns for the developed market closed-end fund strategy for the rolling twelve months ending June 30, 2014 were 27.24 % vs. 21.75% for the MSCI ACWI ex US in USD and 12.87% vs. 8% for the benchmark in GBP.

Composite investment returns for the Frontier Emerging Market closed-end fund strategy for the rolling twelve months ending June 30, 2014 were 27.73% vs. 26.98% for the S&P Frontier EM 150 benchmark in USD and 13.31% vs. 12.63% for the benchmark in GBP.

Composite investment returns for the Natural Resource equity strategy for the rolling twelve months ending June 30, 2014 were 28.82% vs. 19.12% for the Euromoney Global Mining 100 Index in USD and 14.26% vs. 5.66% for the benchmark in GBP.

Outlook

Marketing efforts will be targeted at investment consultants, foundations, endowments and pension funds in the US and Europe. We will also be introducing our capabilities to family offices, outsourced CIO firms and alternative consultants. Our Developed, Global Tactical Asset Allocation, Frontier Emerging Market and Natural Resource equity capability will be the focus of our product diversification and business development activities.

FINANCIAL REVIEW

Consolidated income statement and statement of comprehensive income

As you will be aware the Group has changed its financial year end from 31st May to 30th June therefore the results presented in the consolidated accounts are for thirteen months (the "period") and are comparable to the previous twelve month period to only a limited extent. For that reason, where appropriate a pro-rated comparison figure will be provided.

Gross revenue for the period was £24.2 million (2013: £29.4 million) and relates to management  fees charged as a percentage of funds under management ("FuM") which fluctuated during the period from a low of US$3.2 billion to close on 30th June 2014 at US$3.9 billion (2013: US$ 3.7 billion). The subscriptions and redemptions for the period netted out to almost zero with the first six months showing net outflows. A net inflow resulted in the latter half of the period as potential mandates came to fruition and client re-balancing and redemptions slowed.

The commissions payable of £3.1 million (2013: £4.2 million) relate primarily to a third party marketing agent whose contract expired in October 2010. Under the terms of the agreement, commission is based on a period of ten years from the date of initial investment. A table illustrating the projected run-off of these commissions is shown below.

Marketing commission run-off

(based on FuM at 30th June 2014)

Financial year                                £m (@ $1.71/£1)

2013-14*                                                    2.6

2014-15                                                      2.2

2015-16                                                      1.7

2016-17                                                      1.5

2017-18                                                      1.2

2018-19                                                      0.8

2019-20                                                      0.1

* 12 months commission to 30th June 2014 at 1.71

Custody fees relating to the safekeeping and administration of the assets of our commingled funds amounted to £0.8 million (2013: £1.2 million).

The net of the above is £20.3 million (2013: £24.0 million) and represents the Group's net fee income.  As a percentage of FuM, net fee income is currently running at 86 basis points which compares to 92 basis points this time last year.

Overheads for the thirteen month period amount to £10.3 million, which on an annualised basis equates to £9.5 million and compares to £10.8 million in 2013 (excluding exceptional costs of £0.7 million). From this it is clear to see that the savings from the cost efficiencies instigated in the latter half of the last financial year have been realised.  In addition a further saving of £0.2 million was made by temporarily reducing the profit share pool from 30% to 28%. Including payroll related taxes, the cost of profit share for the period is £3.0 million (2013: £4.1 million).

Interest receivable and similar gains of £0.2 million includes bank interest on deposits of £0.1 million and £0.1 million on the sale of investments. The sale of investments relates primarily to a partial sale of the Company's seed investment in the CLIM International CEF Fund.

The net of all the components above results in a pre-tax profit of £7.2 million (2013: £8.9 million). This resulted in corporation tax of £2.0 million (2013: £2.6 million) representing an average tax rate of 28% compared to 29% in 2013, which is due in part to the reduction in the UK corporation tax rate but principally to the geographical mix of the business.

Total comprehensive income is essentially the same as the post-tax profit at £5.2 million (2013: £6.6 million and £6.3 million respectively). However, this is after a gain of £0.2 million in the value of the Group's seed investments less £0.1 million taken as a realised gain on the partial disposal mentioned above (2013: £0.5 million and £0.2 million respectively). Also included for the first time this financial period is the impact of the US dollar/sterling exchange rate movement on the US non-monetary assets from the date of purchase to the date of reporting, which amounted to a loss of £0.1 million. The prior year value was negligible and no restatement was therefore required.

Consolidated statement of financial position and statement of changes in equity

The Group's financial position remains relatively healthy with no borrowings and net assets of £13.9 million (2013: £14.6 million), the major part of that being cash of £10.2 million (2013: £10.1 million).

The movement in net assets during the period is primarily attributable to:

•  A decrease in available-for-sale financial assets of £2.6 million which reflects the partial redemption of our seed investment in the CLIM International CEF fund and the liquidation of the Absolute Return fund.

•  A reduction in non-current assets of £0.2 million mainly due to depreciation and amortisation, the currency translation of US non-monetary assets and no major capital expenditure during the period.

•  An increase in net assets of £0.4 million relating to the revaluation of our outstanding forward value US dollar/sterling trades against the forward market rate available at 30th June 2014.

•  A decrease in accruals of £1.7 million, of which £1.6 million relates to the release of the

2013 profit share provision upon payment. The final payment of the Group's annual bonus has historically been in June so with the change of financial year from 31st May to 30th June, no provision was required at the end of the period, except for a small amount relating to deferred payments to Directors.

The major movement in capital and reserves is the reduction in retained earnings of £0.8 million which is the net of this period's profit of £5.2 million (2013: £6.3 million) and the dividends paid during the period which totalled £6.0 million (2013: £6.0 million). The dividend comprised the 16p final dividend for 2012/13 plus the 8p interim dividend for the current financial period.

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.

Consolidated cash flow

Cash generated from operating activities is generally reflective of the Group's profits, but the change in financial year end has created a few timing differences, the main one being profit share. As mentioned earlier, a provision for profit share would usually be made at year end and the cash payment would flow through the following year. Consequently, the cash flow for this thirteen month period captures the profit share payments made in both June 2013 and 2014.

In addition to cash generated from operating activities of £3.7 million (2013: £7.6 million) the Group raised £2.7 million (2013: £4.0 million) through the sale of investments (net of purchases). The cost of dividend payments to shareholders of £6.0 million (2013: £6.0 million) brought the net cash raised to £0.4 million. The effect of exchange rate differences on foreign currency bank deposits for the financial period was a loss of £0.2 million (2013: nil). It should be noted that the overall impact on the consolidated income from translating the Group's foreign currency assets and liabilities into sterling was minimal, due to the Group's hedging strategy which is detailed below and in note 11 to the accounts.

Currency exposure

The Group's revenue is almost entirely US dollar based whilst its costs are incurred in US dollars, sterling and to a lesser degree Singapore dollars and UAE dirhams. The US dollar/sterling exchange rate was 1.52 at the end of May 2013 and sterling has steadily strengthened against the dollar during the period to close at 1.71 on 30th June 2014. The table below aims to illustrate the effect of a change in the US dollar/sterling exchange rate on the Group's post-tax profits at various FuM levels, based on the assumptions given, which are a close approximation of the Group's current operating parameters. You can see from the table that a change in exchange rate from 1.55 to 1.70 on FuM of US $3.5 billion reduces post-tax profits by £0.7 million.

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

1.55                        3.8          5.2          6.6          8.0          9.5

1.60                        3.6          5.0          6.3          7.7          9.1

1.65                        3.4          4.8          6.1          7.4          8.7

1.70                        3.2          4.5          5.8          7.1          8.4

1.75                        3.1          4.3          5.6          6.9          8.1

Assumes:

1. Average net fee 86 bp's

2. Annual operating costs £4.0m plus $7m plus S$1.4m (£1 = S$2)

3. Profit-share 30%        

4. Average tax rate 27%                               

It is worth noting though that whilst the Group's FuM is reported 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 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 this impact the Group monitors its net currency position and offsets it by forward sales of US dollars for sterling. At 30th June 2014 these forward sales totalled US$ 5.3 million, with a weighted average exchange rate of 1.65 to £1 (2013: US$ 10.9 million at a weighted average rate of 1.586 to £1).

END OF STRATEGIC REPORT

CONSOLIDATED INCOME STATEMENT

FOR THE 13 MONTHS ENDED 30TH JUNE 2014              

	Note	13 months to 30th June 2014 £	Year to 31st May 2013 £
Revenue Gross fee income	4	24,215,277	29,363,734
Commissions payable		(3,068,001)	(4,194,097)
Custody  fees payable		(844,663)	(1,244,318)
Net fee income		20,302,613	23,925,319
Administrative expenses Staff costs		9,549,686	11,665,656
Other administrative expenses		3,569,791	3,678,097
Depreciation and amortisation		185,264	222,556
		(13,304,741)	(15,566,309)
Operating profit	5	6,997,872	8,359,010
Interest receivable and similar gains	6	244,412	501,107
Profit before taxation		7,242,284	8,860,117
Income tax expense	7	(2,042,771)	(2,593,675)
Profit for the period		5,199,513	6,266,442
Basic earnings per share	8	20.7p	24.9p
Diluted earnings per share	8	20.6p	24.6p

CONSOLIDATED AND COMPANY STATEMENT OF COMPREHENSIVE INCOME

FOR THE 13 MONTHS ENDED 30TH JUNE 2014

	13 months to 30th June 2014 £	Year to 31st May 2013 £	13 months to 30th June 2014 £	Year to 31st May 2013 £
Profit for the period	5,199,513	6,266,442	6,700,608	7,457,808
Items which may be realised through the profit or loss: Fair value gains on available-for-sale investments*	169,605	534,357	169,605	534,357
Release of fair value gains on disposal of available-for-sale investments*	(100,727)	(165,621)	(100,727)	(165,621)
Foreign exchange losses on non-monetary assets	(58,639)	-	-	-
Other comprehensive income	10,239	368,736	68,878	368,736
Total comprehensive income for the period attributable to equity holders of the company	5,209,752	6,635,178	6,769,486	7,826,544

*Net of deferred tax           

CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

30TH JUNE 2014

	Note	30th June 2014 £	31st May 2013 £	30th June 2014 £	31st May 2013 £
Non-current assets
Property and equipment		376,831	490,658	126,045	171,063
Intangible assets		215,323	306,858	-	-
Other financial assets		28,782	37,897	940,457	940,802
Deferred tax asset		283,366	239,980	15,776	8,480
		904,302	1,075,393	1,082,278	1,120,345
Current assets
Trade and other receivables		3,635,477	3,538,726	2,288,484	2,206,188
Current tax receivable		-	-	399,537	493,690
Available-for-sale financial assets		1,277,708	3,847,526	1,277,708	3,847,526
Cash and cash equivalents		10,242,906	10,061,185	90,045	146,416
		15,156,091	17,447,437	4,055,774	6,693,820
Current liabilities
Trade and other payables		(1,294,456)	(3,130,923)	(438,270)	(3,892,078)
Current tax payable		(760,445)	(671,404)	-	-
Creditors, amounts falling due within one year		(2,054,901)	(3,802,327)	(438,270)	(3,892,078)
Net current assets		13,101,190	13,645,110	3,617,504	2,801,742
Total assets less current liabilities		14,005,492	14,720,503	4,699,782	3,922,087
Non-current liabilities
Deferred tax liability		(98,818)	(90,467)	(98,818)	(90,467)
Net assets		13,906,674	14,630,036	4,600,964	3,831,620
Capital and reserves
Share capital	9	269,727	269,377	269,727	269,377
Share premium account		2,060,809	2,045,409	2,060,809	2,045,409
Investment in own shares		(4,884,025)	(4,910,800)	(4,884,025)	(4,910,800)
Fair value reserve		371,745	302,867	371,745	302,867
Share option reserve		732,651	716,660	646,862	666,191
Foreign exchange reserve		(58,639)	-	-	-
Capital redemption reserve		20,582	20,582	20,582	20,582
Retained earnings		15,393,824	16,185,941	6,115,264	5,437,994
Total equity		13,906,674	14,630,036	4,600,964	3,831,620

Approved and authorised for issue by the Board on 12th September 2014.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

30TH JUNE 2014

	Share capital £	Share premium account £	Investment in own shares £	Fair value reserve £	Foreign exchange reserve £	Share option reserve £	Capital redemption reserve £	Retained earnings £	Total attributable to share- holders £
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 period	-	-	-	-	-	-	-	6,266,442	6,266,442
Comprehensive income	-	-	-	368,736	-	-	-	-	368,736
Total comprehensive income	-	-	-	368,736	-	-	-	6,266,442	6,635,178
Transactions 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 1st June 2013	269,377	2,045,409	(4,910,800)	302,867	-	716,660	20,582	16,185,941	14,630,036
Profit for the period	-	-	-	-	-	-	-	5,199,513	5,199,513
Comprehensive income	-	-	-	68,878	(58,639)	-	-	-	10,239
Total comprehensive income	-	-	-	68,878	(58,639)	-	-	5,199,513	5,209,752
Transactions with owners
Share option exercise	350	15,400	26,775	-	-	(4,145)	-	4,145	42,525
Share-based payment	-	-	-	-	-	(15,184)	-	-	(15,184)
Deferred tax	-	-	-	-	-	35,320	-	5,660	40,980
Current tax on share options	-	-	-	-	-	-	-	29,627	29,627
Dividends paid	-	-	-	-	-	-	-	(6,031,062)	(6,031,062)
Total transactions with owners	350	15,400	26,775	-	-	15,991	-	(5,991,630)	(5,933,114)
At 30th June 2014	269,727	2,060,809	(4,884,025)	371,745	(58,639)	732,651	20,582	15,393,824	13,906,674

COMPANY STATEMENT OF CHANGES IN EQUITY

30TH JUNE 2014

	Share capital £	Share premium account £	Investment in own shares £	Fair value reserve £	Share option reserve £	Capital redemption reserve £	Retained earnings £	Total attributable to share- holders £
At 1st June 2012	268,784	1,980,084	(4,560,603)	(65,869)	680,509	18,562	4,485,272	2,806,739
Profit for the period	-	-	-	-	-	-	7,457,808	7,457,808
Comprehensive income	-	-	-	368,736	-	-	-	368,736
Total comprehensive income	-	-	-	368,736	-	-	7,457,808	7,826,544
Transactions with owners Share option exercise	2,613	65,325	168,625	-	(37,159)	-	18,353	217,757
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	-	-	-	-	(113,031)	-	(49,049)	(162,080)
Current tax on share options	-	-	-	-	-	-	88,563	88,563
Dividends paid	-	-	-	-	-	-	(6,046,712)	(6,046,712)
Total transactions with owners	593	65,325	(350,197)	-	(14,318)	2,020	(6,505,086)	(6,801,663)
At 1st June 2013	269,377	2,045,409	(4,910,800)	302,867	666,191	20,582	5,437,994	3,831,620
Profit for the period	-	-	-	-	-	-	6,700,608	6,700,608
Comprehensive income	-	-	-	68,878	-	-	-	68,878
Total comprehensive income	-	-	-	68,878	-	-	6,700,608	6,769,486
Transactions with owners Share option exercise	350	15,400	26,775	-	(4,145)	-	428	38,808
Share-based payment	-	-	-	-	(15,184)	-	-	(15,184)
Deferred tax	-	-	-	-	-	-	7,296	7,296
Dividends paid	-	-	-	-	-	-	(6,031,062)	(6,031,062)
Total transactions with owners	350	15,400	26,775	-	(19,329)	-	(6,023,338)	(6,000,142)
At 30th June 2014	269,727	2,060,809	(4,884,025)	371,745	646,862	20,582	6,115,264	4,600,964

CONSOLIDATED AND COMPANY CASH FLOW STATEMENT

FOR THE 13 MONTHS ENDED 30TH JUNE 2014

	Note	30th June 2014 £	31st May 2013 £	30th June 2014 £	31st May 2013 £
Cash flow from operating activities
Operating profit		6,997,872	8,359,010	204,465	159,250
Adjustments for:
Depreciation charges		136,015	177,095	68,533	73,761
Amortisation of intangible assets		49,249	45,461	-	-
Share-based payment charge		(15,184)	135,872	(20,651)	68,739
Translation adjustments		294,202	(8,539)	121,706	(10,594)
(Profit)/loss on disposal of fixed assets		(363)	-	-	-
Cash generated from operations before changes
in working capital		7,461,791	8,708,899	374,053	291,156
(Increase)/decrease in trade and other receivables		(96,751)	1,806,608	(82,296)	(1,926,697)
Decrease in trade and other payables		(1,836,467)	(760,344)	(3,453,808)	(2,597,490)
Cash generated from operations		5,528,573	9,755,163	(3,162,051)	(4,233,031)
Interest received		97,369	60,898	713	38
Interest paid		(384)	-	(384)	-
Taxation (paid)/received		(1,926,509)	(2,248,450)	21,540	117,414
Net cash generated from/(used in) operating activities		3,699,049	7,567,611	(3,140,182)	(4,115,579)
Cash flow from investing activities
Dividends received from subsidiaries		-	-	6,421,000	6,985,000
Purchase of property and equipment		(38,960)	(60,316)	(23,515)	(27,158)
Proceeds from sale of property and equipment		782	-	-	-
Purchase of non-current financial assets		(2,923)	(3,811)	(2,923)	(3,811)
Proceeds from sale of non-current financial assets		10,521	-	4,072	-
Purchase of current financial assets		(1,105,022)	(328,991)	(1,105,022)	(328,991)
Proceeds from sale of current financial assets		3,781,765	4,332,466	3,781,765	4,332,466
Net cash generated from investing activities		2,646,163	3,939,348	9,075,377	10,957,506
Cash flow from financing activities
Proceeds from issue of ordinary shares		15,750	67,938	15,750	67,938
Ordinary dividends paid	10	(6,031,062)	(6,046,712)	(6,031,062)	(6,046,712)
Purchase and cancellation of own shares		-	(516,241)	-	(516,241)
Purchase of own shares by employee share option trust		-	(518,822)	-	(518,822)
Proceeds from sale of own shares by employee
share option trust		26,775	168,625	26,775	168,625
Net cash used in financing activities		(5,988,537)	(6,845,212)	(5,988,537)	(6,845,212)
Net increase/(decrease) in cash and cash equivalents		356,675	4,661,747	(53,342)	(3,285)
Cash and cash equivalents at start of period		10,061,185	5,399,869	146,416	147,933
Effect of exchange rate changes		(174,954)	(431)	(3,029)	1,768
Cash and cash equivalents at end of period		10,242,906	10,061,185	90,045	146,416

NOTES TO THE FINANCIAL STATEMENTS

FOR THE 13 MONTHS ENDED 30TH JUNE 2014

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 13 months ended 30th June 2014 and the year ended 31st May 2013 does not constitute statutory accounts and has been extracted from the full accounts for the 13 months ended 30th June 2014 and the year ended 31st May 2013. 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 2013 have been filed with the Registrar of Companies. The accounts for the 13 months ended 30th June 2014 will be delivered to the Registrar of Companies in due course.

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

The following IFRS standards, amendments and revisions, which are relevant to the Group have been adopted in the current reporting period.

IAS 1          Presentation of items of Other Comprehensive Income (revised) - The Group has adopted this amendment which requires the items presented in Other Comprehensive Income (OCI) to be split between those items which maybe realised (or recycled) through the profit or loss in the future and those that may not. The amendments do not change the nature of items that are recognised in OCI, nor do they impact the determination of whether items in OCI are reclassified through profit or loss in future periods.

IFRS 13     Fair value measurement  - IFRS 13 sets out a single framework for measuring fair value and the required disclosures.  It does not change when an entity is required to use fair value, but rather provides guidance on how to measure the fair value under IFRS when fair value is required or permitted, while also requiring additional disclosures. The adoption of this amendment has had no impact on the fair value measurements carried out by the Group.

As at 30th June 2014, the following Standards and Interpretations, which are relevant to the Group, were in issue and EU endorsed but not yet effective:

IFRS 10     Consolidated financial statements (revised) - Effective for financial periods beginning on or after 1st January 2014.  This standard establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. It replaces the consolidation requirements in IAS 27 - Consolidated and Separate Financial Statements and builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The Group has considered the principle of control and the adoption of this standard is not expected to have a material impact on the Group's financial statements.

IFRS 12     Disclosure of Interests in Other Entities (revised) - Effective for annual periods beginning on or after 1st January 2014. The Standard is intended to complement IFRS 10 and requires disclosures about the judgement used by management in determining which entities it controls  as well as the financial effects of, and risks associated with, an entity's investments in subsidiaries, joint arrangements, associates and unconsolidated structured entities. IFRS 12 is not expected to have a material impact on the Group's financial statements.

At 30th June 2014 there are no other Standards and Interpretations in issue but not in force that would be expected to have a material impact on the Group.

2    BASIS OF CONSOLIDATION

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.  

These financial statements consolidate the financial statements of the Company and all of its subsidiary undertakings.

The Company's principal subsidiaries as at 30th June 2014 are City of London Investment Management Company Limited and City of London US Services Limited.

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.

(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.

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 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:

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 reported is 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 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) 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 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. 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 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 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 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 £	(ex UK) £	Other £	Total £
13 months to 30th June 2014
Gross fee income	22,212,008	764,445	287,139	951,685	-	24,215,277
Non-current assets:
Property and equipment	250,786	-	119,958	-	6,087	376,831
Intangible assets	215,323	-	-	-	-	215,323
Year to 31st May 2013
Gross fee income	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

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	13 months to	Year to
	The operating profit is arrived at after charging:		30th June 2014 £	31st May 2013 £
	Depreciation of owned assets		136,015	177,095
	Amortisation of intangible assets		49,249	45,461
	Auditors' remuneration:
	- Statutory audit		69,138	75,901
	- Audit related assurance services		7,398	7,292
	- Taxation services (to affiliate of auditor)		6,152	23,539
	- Other services		3,817	995
	Operating lease rentals:
	- Land and buildings		385,351	344,207
	- Other		888	-

6		INTEREST RECEIVABLE AND  SIMILAR GAINS	13 months to	Year to
			30th June 2014 £	31st May 2013 £
	Interest on bank deposit		96,985	60,898
	Gain on sale of investments		147,427	440,209
			244,412	501,107

7		TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES	13 months to	Year to
	(a) Analysis of tax charge on ordinary activities:		30th June 2014 £	31st May 2013 £
	Tax at 23% (2013: 24%) based on the profit for the period		1,717,136	2,191,803
	Double taxation relief		(1,057,311)	(1,103,164)
	Deferred tax		(2,406)	(38,019)
	Change in tax rate to 21%		(13,209)	(6,962)
	Adjustments in respect of prior years		(1,681)	(20,075)
	Domestic tax total		642,529	1,023,583
	Foreign tax for the current period		1,378,365	1,539,724
	Adjustments in respect of prior years		21,877	30,368
	Foreign tax total		1,400,242	1,570,092
	Total tax charge in income statement		2,042,771	2,593,675

(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 - 23% (prior year - 24%). The differences are explained below:

		13 months to 30th June 2014 £	Year to 31st May 2013 £
Profit on ordinary activities before tax		7,242,284	8,860,117
Tax at 23% (2013: 24%) thereon		(1,665,725)	(2,126,428)
Effects of:
Unrelieved overseas tax		(321,054)	(436,560)
Expenses not deductible for tax purposes		(25,294)	(42,587)
Capital allowances  less than depreciation		(26,029)	(27,299)
Prior period adjustments		(20,196)	(10,293)
Deferred tax on share based-payments and impairment		2,406	38,019
Change in tax rate to 21%		13,209	6,962
Other		(88)	4,511
Total tax charge in income statement		(2,042,771)	(2,593,675)

The reduction in the main rate of UK corporation tax to 21% with effect from 1st April 2014 is substantively enacted for accounting purposes. The effect of the rate reduction has been reflected in the figures above.

8  EARNINGS  PER SHARE

The calculation of earnings per share is based on the profit for the period of £5,199,513 (2013: £6,266,442) divided by the weighted average number of ordinary shares in issue for the period ended 30th June 2014 of 25,128,462 (2013: 25,152,921).

The Employee Benefit Trust held 1,832,783 ordinary shares in the Company as at 30th June 2014. 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 for the period of £5,199,513 (2013: £6,266,442) divided by the diluted weighted average of ordinary shares for the period ended 30th June 2014 of 25,305,973 (2013: 25,432,704).

Reconciliation of the figures used in calculating basic and diluted earnings per share:

	30th June 2014	31st May 2013
	Number of shares	Number of shares
Weighted average number of shares - basic earnings per share	25,128,462	25,152,921
Effect of dilutive potential shares - share options	177,511	279,783
Weighted average number of shares - diluted earnings per share	25,305,973	25,432,704

9  SHARE CAPITAL

			30th June 2014		31st May 2013
Group and Company			Number of shares		Number of shares
Authorised
Ordinary shares of 1p each (2013 - 1p each)			£90,000,000		£90,000,000
Ordinary shares of 1p each (2013 - 1p each)			90,000		90,000
	Group and Company			£			£
	Allotted, called up and fully paid
	At start of period 26,937,707 (2013: 26,878,450) Ordinary shares of 1p each			269,377			268,784
	Dilutive share options exercised; 35,000 (2013: 59,257)			350			593
	At end of period 26,972,707 (2013: 26,937,707) Ordinary shares of 1p each			269,727			269,377
	Fully paid ordinary shares carry one vote per share and carry a right to dividends.
10		DIVIDEND
				30th June 2014			31st May 2013
				£			£
	Dividends paid:
	Interim dividend of 8p per share (2013: 8p)			2,010,354			1,996,394
	Final dividend in respect of year ended:
	31st May 2013 of 16p per share (2012: 16p)			4,020,708			4,050,318
				6,031,062			6,046,712

A final dividend of 16p per share has been proposed, payable on 31st October 2014, subject to shareholder approval, to shareholders who are on the register of members on 10th October 2014.

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 2014	receivables	profit or loss	for-sale	Total
Assets as per statement of financial position	£	£	£	£
Other financial assets	-	-	28,782	28,782
Trade and other receivables	3,529,728	105,749	-	3,635,477
Available-for-sale financial assets	-	-	1,277,708	1,277,708
Cash and cash equivalents	10,242,906	-	-	10,242,906
Total	13,772,634	105,749	1,306,490	15,184,873
		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)		-	1,294,456	1,294,456
Total		-	1,294,456	1,294,456
		Assets at fair
31st May 2013	Loans and receivables	value through profit or loss	Available- 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 fair value		Financial liabilities at
			through		amortised
			profit or loss		cost	Total
	Liabilities as per statement of financial position		£		£	£
	Trade and other payables (1)		306,571		2,824,352	3,130,923
	Total		306,571		2,824,352	3,130,923
Company				Assets at fair
Company
30th June 2014		Investment in subsidiaries	Loans and receivables	Assets at fair value through profit or loss	Available- for-sale	Total
Assets as per statement of financial position		£	£	£	£	£
Other financial assets		915,184	-	-	25,273	940,457
Trade and other receivables		-	2,288,484	-	-	2,288,484
Available-for-sale financial assets		-	-	-	1,277,708	1,277,708
Cash and cash equivalents		-	90,045	-	-	90,045
Total		915,184	2,378,529	-	1,302,981	4,596,694
			Liabilities at fair value		Financial liabilities at
			through		amortised
			profit or loss		cost	Total
Liabilities as per statement of financial position			£		£	£
Trade and other payables (1)			-		438,270	438,270
Total			-		438,270	438,270
				Assets at fair
31st May 2013		Investment in subsidiaries	Loans and receivables	Assets at fair value through profit or loss	Available- for-sale	Total
Assets as per statement of financial position		£	£	£	£	£
Other financial assets		913,434	-	-	27,368	940,802
Trade and other receivables		-	2,206,188	-	-	2,206,188
Available-for-sale financial assets		-	-	-	3,847,526	3,847,526
Cash and cash equivalents		-	146,416	-	-	146,416
Total		913,434	2,352,604	-	3,874,894	7,140,932
			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)			-		3,892,078	3,892,078
Total			-		3,892,078	3,892,078
Note (1) Trade and other payables are due within 3 months Note (1) Trade and other payables are due within three months.

(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 2014	£	£	£	£
Available-for-sale financial assets
Investment in own funds	724,933	581,555	-	1,306,488
Total	724,933	581,555	-	1,306,488
Financial assets at fair value through profit or loss
Forward currency trades	-	105,749	-	105,749
Total	-	105,749	-	105,749
31st May 2013	Level 1	Level 2	Level 3	Total
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

	Company
	30th June 2014	Level 1         £	Level 2 £	Level 3 £	Total £
	Available-for-sale financial assets
	Investment in own funds	724,933	578,047	-	1,302,980
	Total	724,933	578,047	-	1,302,980
31st May 2013 31st May 2013		Level 1         £	Level 2 £	Level 3 £	Total £
Available-for-sale financial assets
Investment in own funds		666,248	3,208,646	-	3,874,894
Total		666,248	3,208,646	-	3,874,894

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 £26,563 (2013: net gain £47,681).

(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 30th June 2014, the Group had net asset balances of US$5,180,291 (2013: US$11,441,867), offset by forward sales totalling US$5,250,000 (2013: US$10,900,000), and net asset balances of SGD389,947 (2013: SGD543,000), C$287,421 (2013: C$164,198), EUR Nil (2013: EUR56,056) and AED363,558 (2013: AED153,159).

Had the US dollar strengthened or weakened against sterling as at 30th June 2014 by 10%, with all other variables held constant, there would have been approximately 0.2% increase or decrease (respectively) to the Group's net assets, 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 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 management and settlement functions are totally segregated.

The Group did not conduct any hedging activity during the period (2013: no hedging activity).

(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 current available-for-sale assets represent investments in funds that it manages and 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 2014 the Group held £10,242,906 (2013: £10,061,185) in cash balances, of which £9,650,902 (2013: £9,245,610) 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.

 

END

 

 

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