Final Results

City of London Investment Group PLC 17 September 2007 For release at 0700h, 17 September 2007 CITY OF LONDON INVESTMENT GROUP PLC ('City of London', 'the Group', or 'the Company') PRELIMINARY RESULTS FOR THE YEAR TO 31 MAY 2007 SUMMARY City of London Investment Group PLC (AIM: CLIG), a leading emerging market asset management group, announces preliminary results for the year to 31 May 2007. • First full year as a publicly listed company following Admission to AIM in April 2006 • Funds under management increased by 38% to US$3.79 billion • Profit before tax up 55% to £7.3 million • Basic earnings per share up 47% to 19.9p, fully diluted earnings per share up 50% to 17.5p • Recommended final dividend of 7p per share payable on 15 November 2007 to shareholders on the register on 2 November, making a total for the year of 10p • Funds under management up by a further 8% to US$4.09 billion at the end of the first quarter (31 August 2007) Andrew Davison, Chairman, said, 'These record results demonstrate the strength and cash generation characteristics of the Group. Together with the strong ungeared balance sheet, they provide us with a secure platform from which to grow our traditional business lines and to diversify carefully and cautiously into new ones.' Barry Olliff, Chief Executive, added, 'Since its inception, we have run our business in a manner that is both conservative and relatively unfashionable. We don't manage hedge funds. We don't manage any money from an absolute return perspective, preferring to manage money relative to a benchmark. We manage money using a team approach. We do not encourage the cult of the individual. We have developed our diversification plans significantly over the past year and would expect them to continue to develop and bear fruit during the next year. Both FUM and pre-tax profit for the first quarter of the new financial year are significantly ahead of budget.' Enquiries to: Doug Allison, Finance Director John West / Andrew Dunn City of London Investment Group PLC Tavistock Communications Tel: 020 7711 0771 Tel: 020 7920 3150 Jeff Keating / Fred Walsh / Simon Brown Landsbanki Securities (UK) Limited Nominated Adviser & Broker Tel: 020 7426 9000 For further information about City of London, please visit www.citlon.co.uk The pages that follow are extracted from the Company's Annual Report, which is currently in print and will be distributed within the next two weeks Chairman's Statement I am pleased once again to report a year of good progress for City of London Investment Group, the first full year for which the Group's shares have been quoted on the AIM market of the London Stock Exchange. Since the financial year end in May, the volatility in all markets in which we invest for our clients has increased significantly as a result of the problems first encountered in US credit markets. Although this additional volatility has affected our investment activities in the first quarter of the current financial year, Funds under Management at the end of August totalled some US$4.093 billion compared to the 31st May figure of US$3.793 billion. Our markets have always been volatile and our performance to date in the new financial year provides, I believe, endorsement that our business model is sufficiently robust to continue to generate outperformance against benchmarks even in recent market conditions. In order to provide some financial protection to the Group from the worst of the volatility, we have this year instituted a limited hedging programme which is described more fully, along with our view of the Group's target investment markets, in the Chief Executive's Review and the Accounts that follow my statement. Results Funds under management during the period under review increased by 38% to US$3.8 billion (2006: US$2.8 billion) reflecting both our outperformance in growing emerging markets and additional funds from existing and new clients. As a result of the growth in funds under management, turnover increased by almost 30% to £18.3 million (2006: £14.1 million). The higher turnover figure translated, due to the operational gearing inherent in our business, into a 55% increase in profit before tax to £7.3 million (2006: £4.7 million after AIM listing costs of £483,000). Net profit for the period after a 34% tax charge (2006: 38%) was £4.9 million (2006: £2.9 million), producing basic earnings per share up 47% to 19.9p (2006: 13.5p) and fully diluted earnings per share of 17.5p (2006: 11.7p). Retained profit for the year, after the paid and proposed dividend payments set out below was £4.1 million (2006: £0.7 million). As a result of the substantially higher level of retained profits for the year, shareholders' funds almost doubled to £8.6 million (2006: £4.3 million), including cash balances at the year end of £6.6 million (2006: £2.7 million). The Group has no borrowings. A more detailed explanation of the accounts for the year is contained in the Financial Review. Dividends The Board is recommending a final dividend in respect of the financial year to 31st May 2007 of 7p per share. Subject to approval by shareholders at the Annual General Meeting, the dividend will be paid on 15th November 2007 to shareholders on the register on 2nd November 2007. Together with the interim dividend of 3p per share paid in March, this makes a total for the year of 10p. No dividend was paid as a publicly listed company in 2006 reflecting the fact that City of London listed on AIM less than two months before the financial year end. The Group's dividend policy is based on paying dividends to shareholders that are twice covered by earnings and to pay one third of the annual total as an interim dividend and two thirds as a final dividend. This year's interim dividend of 3p per share therefore implied a final dividend of 6p. In the event, the Board decided to recommend a final dividend of 7p per share taking into account the year end cash balances and the continuing satisfactory financial performance of the Group. Going forward, we intend to maintain our current dividend policy and to declare or recommend dividends with the interim and full year results announced in January and September respectively followed by payments in February and November. Review City of London's investment management services, provided predominantly to institutional clients, are focused on closed-end funds investing in the world's emerging markets. In addition, the Group manages investments in direct equities in both emerging and natural resource markets. We provide our services currently from three offices in the United States, London and Singapore. The emerging market universe in which we principally invest began the financial year at relatively depressed levels but recovered strongly during the first half and this momentum was maintained during the second half as investment fundamentals in many of the territories remained strong. The positive emerging market performance ended abruptly after the year end as international investors shied away from perceived higher risk investments and markets, following the problems disclosed by lenders in the US mortgage markets. Shareholders should take comfort from the fact that the higher volatility of markets now is an environment we are used to and have successfully dealt with over our history as an investment manager specialising in emerging markets. Good progress has been made towards our strategic objective to diversify our business. A number of new mandates were won during the period and it is pleasing to report that such success is continuing not only in our traditional core market of North America but also in Europe where we have invested in increased marketing of the Group's services. At the same time, we have been planning the addition - when market conditions are appropriate - of two new funds for European distribution, a natural resources fund and an emerging markets high yield fund. These will provide further diversification from our original investment management activities. The Group's geographical presence will be expanded with the planned opening of an office in the increasingly important emerging markets of the Middle East. Subject to the necessary regulatory approvals, we expect to open an office in Dubai by the end of the fourth quarter of calendar 2007. Initially this office will have a staff of two. Investor Relations and Corporate Governance As a Company we set great store by being as open as possible with our shareholders and one of the principal means of communication is, of course, the web site (www.citlon.co.uk). This has recently been upgraded so that the Investor Relations section now complies fully with AIM Rule 26, which came into force in August. Outlook We expect to continue to grow City of London Investment Group for the benefit of its clients and shareholders, managers and staff around the world. These record results demonstrate the strength and cash generation characteristics of the Group. Together with the strong ungeared balance sheet, they provide us with a secure platform from which to grow our traditional business lines and to diversify carefully and cautiously into new ones. The current year has started positively with the Group in good shape to deliver further progress, subject only, and always, to the performance of our investment markets. I am confident that the excellence of our staff combined with the strength of our process will enable us to continue to capitalise to the maximum extent on the opportunities that lie ahead. Andrew Davison Chairman 14th September 2007 Chief Executive Officer's Review The listing This is our first full year as a listed company and it's been a surprise to me the extent that, as far as our company is concerned, it's been business as usual. We have not found being listed a distraction. Possibly this was as a result of us having most of the required internal controls in place for many years prior to listing. Neither have there been changes in our Governance. The Board appointed a further Independent Director, David Cardale at the point of listing, but apart from this there has been no noticeable difference in the way we are running the Group. One item of City of London Investment Management Company's publications that might be of interest to Group shareholders is our Statement on Corporate Governance and Voting Policy for Closed-End Funds, 2007. This is the sixth edition of this document that was first issued in 1999. Where relevant we follow the principles within this document in the running of the Group. The past financial year The past year has been eventful. Funds under management ('FUM') have increased from $2.750bn to $3.793bn. Or measured in sterling from £1.471bn to £1.916bn. Due to the ongoing out performance of the emerging market asset class we have experienced significant rebalancing. These rebalancings totalled approximately $269mn. Fortunately as a result of ongoing good investment performance these lost assets were replaced. In my opinion this puts us in a good position for a bear market because this will mean that clients are, to a significant extent, presently adjusting their exposure to emerging markets, reducing the need for this to occur when markets are falling. Please refer to the Financial review below for more information regarding our currency hedging strategy, together with a table showing the sensitivity of our income to moves in the $/£ exchange rate. In April we started to hedge (you could say) our P&L, but in reality we were hedging our FUM against a fall in world stock markets. Rather than believing that our asset class was expensive we were attempting to take into account that world stock markets seemed expensive (the emerging markets are to some extent priced off world markets), that the move upwards had been very sharp and that our profits were significantly ahead of budget. Our concern was to get a significant percentage of these profits into shareholders hands in the form of dividends. Whilst believing that we remain in an emerging markets secular bull market, we decided to place $100,000 at the end of April and May (and we continued with this program with similar amounts in June and July) into the purchasing of out of the money puts. As at the end of August the profit on this investment was $171,325. We review this exposure and value it daily, reflecting its valuation on a monthly basis through our management accounts. At the point of listing we did not make a forecast regarding dividends for y/e 2007. At the interim stage we declared a dividend of 3p and stated that based upon present conditions we intended to pay a twice covered dividend. At that time that could have been projected as a potential final dividend of 6p. In the event as a result of increased FUM and profits, and subject to ratification by shareholders it is intended to pay a final dividend of 7p. Diversification We have developed our diversification plans significantly over the past year and would expect them to continue to develop and bear fruit during the next year. The basis of our diversification plans relate to risk. At the beginning of the decade (31st December 1999), 89% of our assets were US based. If we were to go back even two years, close to 81% of our business was US based and nearly all of the growth was coming from the US too. A further risk was that we had all of our eggs, you might say, in the Emerging Markets basket. However, I would point out that when we say we are going to diversify we are not setting targets, we are not going to spend a lot of shareholders' money attempting to achieve an objective in a given time frame, or in a difficult (stock) marketplace. Rather we are going to be opportunistic and, most important, we are not going to market products that are not either first or second quartile, for to do so would mean that we would be undermining the reputation of the company we work for. As a result of the above our present diversification, which we plan to be organic, falls into three categories: 1) To diversify our core emerging markets business geographically. Since January 2006, the percentage of assets that are sourced outside of the US has increased from 17% to 23%. 2) To use our investment trust discipline in other areas separate from the emerging markets. We have recently (in our new financial year) been awarded our first ACWI (ex US) mandate. 3) To develop our emerging markets equities (as compared with closed end funds) business. A possible new office In my previous review I mentioned that we were considering the opening of an office in Dubai. This was principally to add value to our investment process but, I stated, we would hope that over a period of time it could assist in the selling of City of London products. These plans have developed over the past year to the extent that this office will, other things being equal, open during October this year. It will be staffed initially by two existing City of London employees. This office will round out for the foreseeable future our coverage geographically, effectively allowing us to trade in all of the various emerging markets efficiently. Business continuity plans Another year of testing was successfully completed at our off-site disaster recovery centre in London. We extensively tested recovery of mission critical servers from backup tape onto different hardware platforms following our previously tried and tested procedures. We are also in the process of signing up with a leading disaster recovery centre based in Philadelphia, which would provide us with instant desk space for our US office in the event of a disaster type scenario, replicating the London arrangements. Cost income ratio As our FUM grows, so we expect our cost income ratio to fall, and so it has this year, from 56% in fiscal 2006 to 52% in the current year (treating third party marketing commission and custody as a deduction from fees rather than as an expense). We take some pride in the fact that this level is significantly lower than the average for our sector, and it is a fundamental element of our strategy to maintain the focus on costs that enables us to consistently differentiate City of London in this respect. I make no apology for repetition on this point; our ethos would simply not allow us to relax our stance on cost control. Operational leverage As I reported last year we are focused on developing our business in such a way that enables a significant percentage of any increase in income to flow through to shareholders. We do not spend large amounts of shareholders' money on fancy offices, or on travel, or accommodation when on the road. As I mentioned earlier, neither do we intend to throw shareholders' money at diversification. Over many years I've watched financial service companies do this often with very little added value being achieved in terms of measurable success. The other point about operational leverage that I would like to make is that if you don't spend frivolously you don't have to change habits in the event of a bear market. In other words, keeping expenses low results in higher dividends for shareholders. Authorisation and regulation It seems to me that we, by which I mean our wholly owned subsidiary City of London Investment Management Company Limited ('CoLIM'), are one of the most regulated firms of our size. CoLIM is authorised and regulated by the Financial Services Authority in the UK, is registered as an adviser with the US Securities and Exchange Commission, and is also registered as required by the regulatory authorities in Singapore and Canada. Additionally, CoLIM is currently seeking authorisation from the Dubai Financial Services Authority against the background of the Dubai office intentions as outlined above. End of first quarter FUM At the end of August total FUM were $4.093bn. This compares with $2.815bn at the same point last year. Both FUM and pre-tax profit for the quarter are significantly ahead of our budget. CoL core values By now you will be aware of the fact that since our company's inception, we have run our business in a manner that is both conservative and might seem relatively unfashionable. We don't manage Hedge Funds. We don't manage any money from an Absolute return perspective (neither do we participate in out performance), preferring to manage money Relative to a benchmark. We manage money using a team approach. We do not encourage the cult of the individual. The reason that we maintain these core values is that we believe that by doing so we provide better returns for our clients which leads to employment continuity for employees and better returns for our shareholders. Thanks to CoL employees Finally I would like to thank all of my colleagues for their hard work over the past year in what remains a challenging environment. Barry Olliff Chief Executive Officer 14th September 2007 Financial Review Profit and Loss Account Group turnover, management fees charged as a percentage of funds under management (FUM), increased by almost 30%, reflecting the 38% uplift in FUM to a period end figure of US$3.793 billion. As last year, by far the largest proportion of turnover - £16.8 million (2006: £13.2 million) representing 92% (2006: 93%) of the total - was generated in North America. However, progress was made in growing the level of business derived from Europe and turnover generated here doubled to £1.1 million, representing 6% (2006: 4%) of the total for the year. Administrative Expenses increased by 18% to £11.2 million (2006: £9.5 million). The increase is principally accounted for by higher wage costs resulting from six additional members of staff and the higher levels of bonuses paid during the year, reflecting the Group's increased profitability. Over 50% of Administrative Expenses for the period (2006: 46%) are represented by costs that vary with turnover levels, principally commissions payable to marketing agents at £2.72 million (2006: £2.18 million) and staff profit sharing at £3.15 million (2006: £2.20 million), representing 53% (2006: 47%) of total staff costs. The dividend for 2007 is the £735,864 cost of the interim dividend of 3p per share paid in March 2007, while the 2006 figure comprises the final dividend for 2005 and the interim and final dividends for 2006, paid before the Company was listed on AIM, which together total £2,282,675. The Group's tax charge is normally higher than the 30% prevailing rate of UK corporation tax because net income attributable to the US operations attracts the higher US corporate tax rate of marginally in excess of 40%. The overall charge rate this year was 34% (2006: 38% restated), reflecting that most of our managed funds and segregated accounts had a higher weighting towards non-US investments during the period. Recognised gains and losses The revaluation reserve increased by £511,323 to a year end balance sheet figure of £645,829 (2006: £134,506), reflecting the increase in the value of investments made by the Group in order to seed new funds, plus the investment in the options hedging programme referred to in the Chairman's Statement and the Chief Executive's Review. These investments had a market value of £2.30 million (2006: £1.36 million) at the year end, with the increase of £940,000 being attributable approximately 50:50 to net new investments and to the increase in market value. Balance sheet The major change in the consolidated balance sheet compared to last year is the higher level of retained profit, and consequently cash, arising from the Group's increased profitability during the year. As is historically the case for the Group, net current assets of £8.3 million (2006: £4.0 million) represent, at 97% (2006: 93%), by far the largest proportion of total net assets of £8.6 million (2006: £4.3 million). Debtors and creditors both increased roughly in proportion with the growth in turnover. Cash at bank and in hand at £6.6 million (2006: £2.7 million) represented 77% (2006: 63%) of total net assets. Investment in own shares increased by £0.55 million to a year end figure of £1.57 million (2006: £1.03 million), representing loans made by the Company to the employee benefit trust to acquire shares for the share option schemes. These loans are repaid on the exercise of options issued by the trust. Currency exposure In line with previous years, some 90% of the Group's income is sourced in US$, but its expenses are roughly evenly divided between sterling and US dollars (with a small Singapore dollar element). As a result, reported sterling net income is significantly exposed to movements in the sterling/US dollar exchange rate, which during the year moved within an approximate range of US$1.80 - 2.00 to £1 (2006: US$1.70 - 1.90 to £1). The following table illustrates the approximate effect across a range of funds under management assumptions, given the current geographical distribution of the expense base: Average FUM - US$billion -------------------------------------- 3.0 3.5 4.0 4.5 --------------------------------------------- US$/£ Pre-tax, £million --------------------------------------------- 1.90 6.4 8.0 9.7 11.3 1.95 6.2 7.8 9.4 11.0 2.00 6.0 7.5 9.1 10.7 2.05 5.8 7.3 8.8 10.4 2.10 5.6 7.1 8.6 10.1 --------------------------------------------- Assumes: 1. Average net fee 0.90%. 2. Annual operating costs of £2.5 million plus US$4.2 million plus Singapore $1.2 million. 3. Profit share equivalent to 30% of operating profits. For example, if funds under management were constant at US$4.0 billion throughout the year, then the impact on sterling pre-tax profit of a move in the exchange rate from US$2.00 to US$2.05 to £1 would be approximately £0.3 million on an annualised basis, if one assumes that none of the exposure is hedged. That said, it is worth repeating that there is a significant degree of natural hedge inherent in our investment process, given that a weaker US dollar gives uplift to our funds under management. As in previous years, we continue to hedge our balance sheet currency exposure by forward sales, with a total of US$4.5million sold forward at the balance sheet date. Share options The Group regards share options as a vital tool in recruiting, motivating and retaining staff and management. At the period end there were 4,797,675 options on ordinary shares outstanding (2006: 4,747,050), representing 17.9% of the current issued share capital. 2,297,675 of the outstanding options (48% of the total) are over shares held by the Employee Share Option Trust and their eventual exercise will therefore result in no dilution to existing shareholders' interests. Change in accounting policy The Group has adopted accounting standard FRS 20, Share-based Payments. The effect of this was to increase Administrative Expenses in the year to 31st May 2007 by £124,520 and by £64,026 for 2006, which has meant that the 2006 comparative figures have been restated to reflect the adoption. Corresponding amounts have been credited to a Share Option Reserve on the Consolidated Balance Sheet. The charges arise because under FRS 20, the fair value of the employee services received in exchange for share options is recognised as an expense. More detail on the adoption of FRS 20 is contained in Note 1 to the Accounts. International Financial Reporting Standards City of London Investment Group is required to adopt International Financial Reporting Standards (IFRS) for the year ended 31st May 2008. These accounts have been produced in line with UK GAAP. The interim results for the six months to 30th November 2007 will be the first results prepared under IFRS. D F Allison Finance Director 14th September 2007 Consolidated profit & loss account For the year ended 31st May 2007 2006 2007 (as restated) --------------------------------------------------------------------------- Note £ £ --------------------------------------------------------------------------- Turnover 2 18,304,881 14,118,639 Administrative expenses Staff costs 5,954,730 4,568,763 Other administrative expenses 5,139,946 4,350,907 AIM listing costs - 482,708 Depreciation 120,494 108,112 --------------------------------------------------------------------------- (11,215,170) (9,510,490) Other operating income - 9,520 --------------------------------------------------------------------------- Operating profit 7,089,711 4,617,669 Interest receivable and similar income 242,103 109,562 --------------------------------------------------------------------------- Profit on ordinary activities before taxation 7,331,814 4,727,231 Tax charge on profit on ordinary activities 3 (2,457,856) (1,784,138) --------------------------------------------------------------------------- Profit on ordinary activities after taxation 4,873,958 2,943,093 Dividends 4 (735,864) (2,282,675) --------------------------------------------------------------------------- Retained profit for the financial year 6 4,138,094 660,418 --------------------------------------------------------------------------- Basic profit per share 5 19.9p 13.5p --------------------------------------------------------------------------- Diluted profit per share 5 17.5p 11.7p --------------------------------------------------------------------------- Consolidated statement of total recognised gains and losses For the year ended 31st May 2007 2006 2007 (as restated) Note £ £ --------------------------------------------------------------------------- Retained profit for the period 4,138,094 660,418 Increase in revaluation reserve 511,323 134,506 --------------------------------------------------------------------------- Total recognised gains and losses for the 4,649,417 794,924 period --------- Prior year adjustment 6 (106,325) --------------------------------------------------------------------------- Total gains and losses recognised since the last annual report 4,543,092 --------------------------------------------------------------------------- Consolidated balance sheet 31st May 2007 2006 2007 (as restated) Note £ £ ----------------------------------------------------------------------------- Fixed assets Tangible assets 193,362 225,939 Investments 46,859 61,253 ----------------------------------------------------------------------------- 240,221 287,192 ----------------------------------------------------------------------------- Current assets Debtors 2,613,212 2,136,312 Investments 2,299,325 1,359,563 Cash at bank and in hand 6,616,824 2,708,915 ----------------------------------------------------------------------------- 11,529,361 6,204,790 Creditors, amounts falling due within one (3,210,074) (2,160,169) year ----------------------------------------------------------------------------- Net current assets 8,319,287 4,044,621 ----------------------------------------------------------------------------- Total assets less current liabilities 8,559,508 4,331,813 ----------------------------------------------------------------------------- Capital and reserves Called up share capital 267,777 267,777 Share premium account 6 1,357,283 1,357,283 Investment in own shares 6 (1,573,525) (1,027,283) Revaluation reserve 6 645,829 134,506 Share option reserve 6 230,845 106,325 Profit and loss account 6 7,631,299 3,493,205 ----------------------------------------------------------------------------- Shareholders' funds 6 8,559,508 4,331,813 ----------------------------------------------------------------------------- The Board of directors approved these financial statements on 14th September 2007. Cash flow statement For the year ended 31st May 2007 2007 2006 Note £ £ ----------------------------------------------------------------------------- Consolidated cash flow statement Net cash inflow from operating activities 7 7,708,693 4,145,424 Returns on investments and servicing of finance 196,487 109,562 Taxation (2,190,642) (1,643,687) Capital expenditure and financial investment (58,545) (164,267) Equity dividends paid (735,864) (2,282,675) Financing (546,242) 907,685 Management of liquid resources (465,978) (761,167) ----------------------------------------------------------------------------- Increase in cash 9 3,907,909 310,875 ----------------------------------------------------------------------------- Notes to the financial statements For the year ended 31st May 2007 1. Basis of preparation and financial information The financial information set out in this preliminary announcement has been prepared on the same basis as the accounting policies used in the Company's 2006 statutory accounts. This is with the exception of the adoption of FRS20 'Share-based payments'. The information shown for the years ended 31st May 2007 and 31st May 2006 does not constitute statutory accounts within the meaning of S240 of the Companies Act 1985 and has been extracted from the full accounts for the years ended 31st May 2007 and 31st May 2006. The reports of the auditors on those accounts were unqualified and did not contain a statement under either S237(2) or S237(3) of the Companies Act 1985. The accounts for the year ended 31st May 2006 have been filed with the Registrar of Companies. The accounts for the year ended 31st May 2007 will be delivered to the Registrar of Companies in due course. Change in accounting policies In preparing the financial information for the current period, the Group has adopted FRS20 'share-based payments'. The effect of this change in policy on the results is to increase the administrative costs as detailed below. A corresponding amount is credited to a share option reserve in accordance with FRS20. Share-based Total share End of accounting period payment option reserve -------------------------------------------------------------------------- 31st May 2005 42,299 42,299 30th November 2005 27,301 69,600 31st May 2006 36,725 106,325 30th November 2006 56,657 162,982 31st May 2007 67,863 230,845 -------------------------------------------------------------------------- Share-based payments The Company operates an Employee Share Option Plan. In accordance with FRS20, 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 been expensed on a straight line basis over the vesting period of three years, based on the Company's estimate of the number of shares that will actually vest. 2. Analysis of turnover, operating profit and net assets The directors consider that the group only undertakes one class of business, and hence only analysis by geographical location is given. Turnover Operating Net profit assets 2006 2006 2007 2006 2007 (as 2007 (as restated) restated) £ £ £ £ £ £ ---------------------------------------------------------------------------------------- Europe 1,130,223 585,206 601,146 855,197 6,606,459 2,367,636 North America 16,780,057 13,185,903 6,301,978 3,538,613 1,923,885 1,921,165 South America - 298,173 - 205,660 1,643 2,973 Other 394,601 49,357 186,587 18,199 27,520 40,039 ---------------------------------------------------------------------------------------- 18,304,881 14,118,639 7,089,711 4,617,669 8,559,508 4,331,813 ---------------------------------------------------------------------------------------- 3. Tax charge on profit on ordinary activities (a) Analysis of tax charge on ordinary activities: 2007 2006 £ £ ----------------------------------------------------------------------- Tax at 30% (2006 - 30%) based on the profit 2,260,228 1,538,223 for the year Double taxation relief (542,228) (415,360) Adjustments in respect of prior years (11,518) (3,148) ----------------------------------------------------------------------- 1,706,482 1,119,715 Foreign tax for the current period 778,144 652,983 Adjustments in respect of prior years (26,770) 11,440 ----------------------------------------------------------------------- 751,374 664,423 ----------------------------------------------------------------------- 2,457,856 1,784,138 ----------------------------------------------------------------------- (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: 30% (prior year: 30%). The differences are explained below: 2007 2006 (as restated) £ £ ------------------------------------------------------------------ Profit on ordinary activities before tax 7,331,814 4,727,231 ------------------------------------------------------------------ Tax at 30% thereon (2,199,544) (1,418,169) Effects of: Expenses not deductible for tax purposes (41,353) (119,208) Capital allowances less than depreciation (16,733) - Unrelieved overseas tax (235,916) (237,623) Prior period adjustments 38,288 (8,292) Other (2,598) (846) ------------------------------------------------------------------ (2,457,856) (1,784,138) ------------------------------------------------------------------ The Company has revalued its current asset investments to market value. Deferred tax has not been recognised on this revaluation, but the estimated tax payable if the investments were sold at the values shown is £193,749 (2006 - £40,352). 4. Dividend 2007 2006 £ £ ------------------------------------------------------------------ Dividends paid: Interim dividend of £0.03 per share (2006 - 735,864 1,982,662 £0.09) Final dividend in respect of year ended: 31st May 2005 of £0.36 per share - 300,013 ------------------------------------------------------------------ 735,864 2,282,675 ------------------------------------------------------------------ 5. Earnings per share The calculation of basic earnings per share is based on the profit for the year of £4,873,958 (2006 restated - £2,943,093) divided by the weighted average number of ordinary shares in issue for the year ended 31st May 2007 of 24,432,528 (2006 - 21,855,212). As set out in Note 6 the Employee Benefit Trust held 2,303,125 ordinary shares in the Company as at 31st May 2007. The Trustees of the Trust have waived all rights to dividends associated with these shares. In accordance with FRS22 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 £4,873,958 (2006 restated - £2,943,093) divided by the diluted weighted average of ordinary shares for the year ended 31st May 2007 of 27,823,144 (2006 - 25,272,459). 6. Combined statement of movement in reserves and reconciliation of shareholders' funds GROUP Year ended 31st May Share Investment Share Profit 2006 Share premium in own Revaluation option and loss Total capital account shares reserve reserve account Total (as restated) £ £ £ £ £ £ £ £ ---------------------------------------------------------------------------------------------------------- At 1st June 2006 - as 267,777 1,357,283 (1,027,283) 134,506 - 3,599,530 4,331,813 2,565,178 previously stated Prior year adjustment FRS 20 - - - - 106,325 (106,325) - - ---------------------------------------------------------------------------------------------------------- At 1st June 2006 - as restated 267,777 1,357,283 (1,027,283) 134,506 106,325 3,493,205 4,331,813 2,565,178 Purchase of own shares - - (670,948) - - - (670,948) - Share allotment - - 124,706 - - - 124,706 907,685 Revaluation reserve - - - 511,323 - - 511,323 134,506 Share option reserve - - - - 124,520 - 124,520 64,026 Profit retained for the period - - - - - 4,138,094 4,138,094 660,418 ---------------------------------------------------------------------------------------------------------- At 31st May 2007 267,777 1,357,283 (1,573,525) 645,829 230,845 7,631,299 8,559,508 4,331,813 ---------------------------------------------------------------------------------------------------------- Investment in own shares relates to City of London Investment Group Plc shares held by an Employee Benefit Trust on behalf of City of London Investment Group Plc. At 31st May 2007 the Trust held 2,303,125 ordinary 1p shares (2006 - 2,262,750), of which 2,297,675 ordinary 1p shares (2006 - 2,247,050) were subject to options in issue. In total, the Company has granted options over 4,797,675 ordinary shares at exercise prices from £0.26 to £2.73. These options have a range of exercise dates from September 2000 to March 2017. 7. Reconciliation of operating profit to net cash inflow from operating activities 2006 2007 (as restated) £ £ ------------------------------------------------------------------------ Operating profit 7,089,711 4,617,669 Profit on sale of fixed assets - (9,519) Depreciation charges 120,494 108,112 Increase in debtors (476,900) (1,043,783) Increase in creditors 782,691 408,417 Translation adjustments on investments 68,177 502 Share-based payment charge 124,520 64,026 ------------------------------------------------------------------------ Net cash inflow from operating activities 7,708,693 4,145,424 ------------------------------------------------------------------------ 8. Reconciliation of net cash flow to movement in net funds 2007 2006 £ £ ------------------------------------------------------------------------ Increase in cash in the year 3,907,909 310,875 Increase in liquid assets 465,978 761,167 Other non cash changes 30,816 - Changes in market value and exchange rate movement 442,968 134,506 ------------------------------------------------------------------------ Change in net funds 4,847,671 1,206,548 Net funds at 1st June 4,068,478 2,861,930 ------------------------------------------------------------------------ Net funds at 31st May 8,916,149 4,068,478 ------------------------------------------------------------------------ 9. Analysis of changes in net funds Changes At in market Other At 1st June Cash value and non-cash 31st May 2006 flows exchange changes 2007 rates £ £ £ £ £ --------------------------------------------------------------------------- Cash at bank and in hand 2,708,915 3,907,909 - - 6,616,824 Current asset investments 1,359,563 465,978 442,968 30,816 2,299,325 --------------------------------------------------------------------------- 4,068,478 4,373,887 442,968 30,816 8,916,149 --------------------------------------------------------------------------- 10. Copies of the Annual Report for the year ended 31st May 2007 are available from the Company's Registered office at 10 Eastcheap, London EC3M 1LX, and will be sent to shareholders shortly. This information is provided by RNS The company news service from the London Stock Exchange
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