Interim Results

City of London Investment Group PLC 29 January 2007 For release at 0700h, 29 January 2007 CITY OF LONDON INVESTMENT GROUP PLC ('City of London', 'the Group', or 'the Company') INTERIM RESULTS FOR THE SIX MONTHS TO 30 NOVEMBER 2006 City of London Investment Group PLC (AIM: CLIG), a leading emerging market and natural resource asset management group, announces interim results for the six months to 30 November 2006. SUMMARY •There was a strong recovery during the period in the performance of emerging markets, and City of London also experienced net inflows which increased funds under management. •Funds under management were US$3.1 billion at the half year end in November (2005: US$2.2 billion), and increased to US$3.3 billion as at 31st December 2006. •Turnover increased by 41% to £8.3 million (2005: £5.9 million). •Profit before tax of £3.1 million (2005: £2.2 million), represented an increase of 44%. Earnings per share were up 29% to 8.5p (2005: 6.6p). •A maiden interim dividend as a publicly quoted company of 3p per share has been declared, payable on 5th March 2007 to shareholders on the register on 9th February 2007. A final dividend will be recommended at the time of the preliminary results for the current year, in September 2007. Subject to the Company's and current market expectations being achieved, a final dividend of around 6p is anticipated. Andrew Davison, Chairman, said, 'City of London aims to produce outperformance against benchmarks for clients and profits - and dividends - for shareholders. I am pleased to report, in our first interim report to shareholders, that we achieved both objectives in the six months to 30th November 2006.' Barry Olliff, CEO, added, ' We wish to diversify our business. Separate from our natural resources business, we are at the early stages of planning to grow our activities in the area of closed end funds that invest in the developed stockmarkets of the world.' Enquiries to: Doug Allison, Finance Director Simon Hudson / Clemmie Carr City of London Investment Group PLC Tavistock Communications Tel: 020 7711 0771 Tel: 020 7920 3150 City of London Investment Group PLC (AIM: CLIG) is a provider of emerging market and natural resource asset management products and services predominantly to institutional investors via its principal operating company City of London Investment Management Company Limited. The Group is based in the UK but also has offices in the US and Singapore. Clients include some of the US's leading blue chip institutions and endowment funds. The Group seeks to provide capital growth for clients through active country allocation and stock selection. For more information about City of London, please visit www.citlon.co.uk Chairman's Statement The world's emerging markets continue, as ever, to be volatile. The beginning of our current financial year saw many of these markets at relatively low valuations but this was followed by a strong recovery as positive investment fundamentals reasserted themselves. City of London is used to managing such volatility so as to produce outperformance against benchmarks for clients and profits for shareholders. I am pleased to report, in our first interim report to shareholders, that we achieved both objectives in the six months to 30th November 2006. Results During the period, funds under management increased from US$2.8 billion to a half year end figure of US$3.1 billion (2005: US$2.2 billion). This increase reflected both rising markets and net inflows from our client base. As a result, turnover rose by 41% to £8.3 million (2005: £5.9 million) and profit before taxation increased by 44% to £3.1 million (2005: £2.2 million). The tax charge for the period was £1.0 million representing 33% of pre-tax profits (2005: £0.8 million, 36%), producing post tax profits of £2.1 million (2005: £1.4 million). The tax charge rate is higher than the prevailing UK rate of corporation tax because net income attributable to the US operations attracts the US tax, which is higher. Dividends and tax status I reported in my Statement in the Annual Report that the Board intends to pay dividends to shareholders - from this financial year - based on a policy of post tax earnings twice covering full year payments. The Board has declared a maiden interim dividend as a publicly quoted company of 3p per ordinary share, payable on 5th March 2007 to shareholders on the register on 9th February 2007. If current market forecasts for the financial year to 31st May 2007 are met, our dividend policy implies a final dividend of some 6p per share. The Board will recommend the actual level of the final dividend at the time of the preliminary results in September 2007. The intention is to maintain a pattern approximating to one third interim dividend and two thirds as a final dividend. Shareholders may be interested to learn that, having taken expert advice, we understand that an investment in City of London's shares qualifies, under current legislation, as a business asset for the purposes of InheritanceTax (IHT) and Capital GainsTax (CGT) relief. Outlook City of London has made good progress during this first interim accounting period as a public company. We have successfully mitigated client rebalancings of their assets by acquiring additional funds to manage from a pipeline of replacement monies. In addition, we are beginning to leverage our track record, expertise and reputation as successful managers of US institutional funds in emerging markets to diversify our business into closed end funds generally as well as discrete sectors such as natural resources. The Group also seeks to broaden its client base and is actively marketing to new institutions in Europe and the Pacific Rim. Clearly, a presence in the Middle East - if the Board determines it is the right move - would help both investment activity and new mandate acquisition. We are currently confident that we can achieve our own and the Stockmarket's estimates for the full year and I look forward to updating shareholders on further progress. Andrew Davison Chairman 29 January 2007 Chief Executive Officer's Review In this our first set of interim results as a publicly quoted company, I am going to follow the layout from my Review in our Report and Accounts for the year to 31st May 2006. The past half year At the end of November, funds under management ('FUM') were US$3,111 million compared with US$2,751 million at the end of our financial year, on 31st May 2006. Alternatively this could be compared with US$2,186 million at the same point last year. When converted into sterling, the figures are £1,581 million, £1,472 million and £1,263 million respectively. One of the features of the past six months has been the volatility of the US$/£ exchange rate which has, at the extreme, ranged between 1.82 and 1.96. With most of our fee revenues being received in US$ our income in sterling has reflected this reduction in US$ value. However as can be seen from my remarks below, under cost-income ratio, we have actually increased our net margin. We have also continued to develop our business during this period notwithstanding some rebalancing from some of our US accounts. Most of our US clients have target ranges of exposure they are prepared to countenance in each of the asset classes where they invest, but with the emerging markets performing so well when compared to other asset classes, some of our clients have rebalanced to levels closer to these target ranges. However, whilst we have experienced some rebalancing this has been more than made up by the winning of new mandates. The other side of this equation is that we would hope under reverse circumstances to benefit in the event that the emerging markets were to underperform other asset classes. Diversification In my Review in our Report and Accounts I mentioned our wish to diversify our business. Separate from our natural resources business we are at the early stages of planning to grow our business in the area of closed end funds that invest in the developed stockmarkets of the world. In the same way that emerging market closed end funds demonstrate share price volatility greater than their underlying net asset values, so the same inefficiency is demonstrated by the developed markets closed end funds. It's worth making the point that the developed markets closed end fund universe is many times larger than the emerging markets universe. As referenced in my year end review 'we are positioned at the performance end of the marketplace which focuses on relative return products for institutional clients'. A possible new office We are making progress with our plans for the opening of a new office in the Middle East, probably in Dubai. Since last writing, whilst oil revenues have continued to grow significantly, the local stock markets of the Gulf Cooperation Council region (GCC) have fallen by around 25%. We continue to consider prospects in the region to be very good for the development of our business and have noted with interest the recent filing of the first Sharia compliant fund that will be closed for the first five years of its life. Cost-income ratio In the financial services industry, keeping overheads down when in a bull market can be quite difficult, and there is a very real need for management to understand the conflict between a company's employees and shareholders. We attempt to coincide the interests of our employees and our shareholders by keeping our core overhead as low as possible and by the operation of a formula based upon our profits in terms of the payment of dividends (to shareholders) and bonuses (to staff ). For the record, for the first six months of this year, our cost-income ratio was 33% vs 38% for the year ended 31st May 2006. The major components of our costs include: personnel (excluding bonuses), marketing, communication, information technology, business development and premises. We work very hard to deliberately keep these items as low as possible whilst continuing to take a very long-term view regarding the development of our business. Including employee bonus the cost-income ratio figure was 54%, vs 56% for the year ending 31st May 2006. We understand that the industry average is around 65%. Operational leverage As can be seen from the above figures, the operational leverage within our business is significant, and as I see it, it is our responsibility, as management, to ensure, as we go through this cycle, that we maintain this position. We continue to believe that some of our more recently created funds will over the next few years provide us with opportunities to develop our business. Update regarding FUM As at the end of December our FUM totalled US$3,285 million and our investment performance has been maintained. Thanks to City of London employees I would like to thank my colleagues again for their hard work and commitment in what continues to be a very challenging environment. B M Olliff Chief Executive Officer 29 January 2007 CITY OF LONDON INVESTMENT GROUP PLC Consolidated profit and loss account For the six months ended 30th November 2006 Six months Six months Year ended ended ended 31 May 2006 30 Nov 2006 30 Nov 2005 (as restated) (unaudited) (unaudited) (audited) Note £ £ £ -------------------------------------------------------------------------------- Turnover 2 8,298,109 5,875,598 14,118,639 Administrative expenses Staff costs 2,780,547 1,863,671 4,568,763 Other administrative expenses 2,444,495 1,869,945 4,350,907 AIM listing costs - - 482,708 Depreciation 53,299 52,109 108,112 -------------------------------------------------------------------------------- (5,278,341) (3,785,725) (9,510,490) Other operating income - 1,109 9,520 -------------------------------------------------------------------------------- Operating profit 3,019,768 2,090,982 4,617,669 Interest receivable and similar income 81,818 61,542 109,562 -------------------------------------------------------------------------------- Profit on ordinary activities before taxation 3,101,586 2,152,524 4,727,231 Tax charge on profit on ordinary activities (1,025,140) (778,000) (1,784,138) -------------------------------------------------------------------------------- Profit on ordinary activities after taxation 2,076,446 1,374,524 2,943,093 Dividends - (300,049) (2,282,675) -------------------------------------------------------------------------------- Retained profit for the period 4 2,076,446 1,074,475 660,418 -------------------------------------------------------------------------------- Basic profit per share 3 8.5p 6.6p 13.5p -------------------------------------------------------------------------------- Diluted profit per share 3 7.5p 5.1p 11.7p -------------------------------------------------------------------------------- Consolidated statement of total recognised gains and losses For the six months ended 30 November 2006 Six months Six months Year ended ended ended 31 May 2006 30 Nov 2006 30 Nov 2005 (as restated) (unaudited) (unaudited) (audited) Note £ £ £ -------------------------------------------------------------------------------- Retained profit for the period 2,076,446 1,074,475 660,418 Increase in revaluation reserve 226,807 4,213 134,506 -------------------------------------------------------------------------------- Total recognised gains and losses for the period 2,303,253 1,078,688 794,924 Prior year adjustment 4 (106,325) - - -------------------------------------------------------------------------------- Total gains and losses recognised since the last annual report 2,196,928 1,078,688 794,924 -------------------------------------------------------------------------------- CITY OF LONDON INVESTMENT GROUP PLC Consolidated balance sheet 30th November 2006 31 May 2006 30 Nov 2006 30 Nov 2005 (as restated) (unaudited) (unaudited) (audited) Note £ £ £ -------------------------------------------------------------------------------- Fixed assets Tangible assets 190,099 210,078 225,939 Investments 46,605 65,508 61,253 236,704 275,586 287,192 -------------------------------------------------------------------------------- Current assets Debtors 2,487,130 1,620,157 2,136,312 Investments 2,033,316 1,325,926 1,359,563 Cash at bank and in hand 4,660,164 2,792,274 2,708,915 -------------------------------------------------------------------------------- 9,180,610 5,738,357 6,204,790 Creditors amounts falling due within one year (2,982,744) (2,260,126) (2,160,169) -------------------------------------------------------------------------------- Net current assets 6,197,866 3,478,231 4,044,621 -------------------------------------------------------------------------------- Total assets less current liabilities 6,434,570 3,753,817 4,331,813 -------------------------------------------------------------------------------- Capital and reserves Called up share capital 4 267,777 236,252 267,777 Share premium account 4 1,357,283 716,008 1,357,283 Investment in own shares 4 (1,284,436) (1,179,518) (1,027,283) Revaluation reserve 4 361,313 4,213 134,506 Share option reserve 4 162,982 69,600 106,325 Profit and loss account 4 5,569,651 3,907,262 3,493,205 -------------------------------------------------------------------------------- Shareholders' funds 4 6,434,570 3,753,817 4,331,813 -------------------------------------------------------------------------------- CITY OF LONDON INVESTMENT GROUP PLC Cash flow statement For the six months ended 30th November 2006 Six months Six months ended ended Year ended 30 Nov 2006 30 Nov 2005 31 May 2006 (unaudited) (unaudited) (audited) Note £ £ £ -------------------------------------------------------------------------------- Consolidated cash flow statement Net cash inflow from operating activities 5 3,557,840 2,054,490 4,145,424 Returns on investments and servicing of finance 81,818 61,542 109,562 Taxation (981,499) (543,053) (1,643,687) Capital expenditure and financial investment (2,811) (103,523) (164,267) Equity dividends paid - (300,049) (2,282,675) Financing (257,153) 82,650 907,685 Management of liquid resources (446,946) (857,823) (761,167) -------------------------------------------------------------------------------- Increase in cash 1,951,249 394,234 310,875 -------------------------------------------------------------------------------- Notes 1. Basis of accounting The interim financial statements have been prepared on the basis of the accounting policies set out in the statutory accounts of the group for the period ended 31st May 2006. This is with the exception of the adoption of FRS20 'Share-based payments'. Change in accounting policies In preparing the financial statements for the current period, the group has adopted FRS20. The effect of this change in policy on the financial statements 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 payment option reserve £ £ -------------------------------------------------------------------------------- End of accounting period 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 -------------------------------------------------------------------------------- Share-based payments The company operates an Employee Share Option Plan. Under 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 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. The volatility of the company's share price at each date of grant has been calculated as the average of the standard deviations of daily continuously compounded returns on the stock of a group of comparable companies. The expected life of the options has been assumed to be three years based upon the empirical evidence available. The risk-free rate has been assumed to be represented by the yield to maturity at the date of grant of a UK Gilt strip with term to maturity equal to the expected life of the option. A dividend yield of 4.5% has been assumed. In accordance with the transitional provisions, FRS20 has been applied only to grants of the share options after 7th November 2002 that had not vested as at 1st June 2006. 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. Six months Six months Year ended ended ended 31st May 2006 30th Nov 2006 30th Nov 2005 (as restated) (unaudited) (unaudited) (audited) £ £ £ -------------------------------------------------------------------------------- Turnover Europe 448,245 323,967 585,206 North America 7,667,009 5,338,458 13,185,903 South America - 213,173 298,173 Other 182,855 - 49,357 -------------------------------------------------------------------------------- 8,298,109 5,875,598 14,118,639 -------------------------------------------------------------------------------- Operating profit Europe 268,213 110,449 855,197 North America 2,665,396 1,841,472 3,538,613 South America - 139,061 205,660 Other 86,159 - 18,199 -------------------------------------------------------------------------------- 3,019,768 2,090,982 4,617,669 -------------------------------------------------------------------------------- Net assets Europe 4,614,251 2,680,532 2,367,636 North America 1,790,010 1,050,042 1,921,165 South America 1,108 (20,045) 2,973 Other 29,201 43,288 40,039 -------------------------------------------------------------------------------- 6,434,570 3,753,817 4,331,813 -------------------------------------------------------------------------------- 3. Earnings per share The calculation of earnings per share is based on the profit for the period of £2,076,446 (31st May 2006 restated - £2,943,093; 30th November 2005 - £1,374,524) divided by the weighted average of ordinary shares in issue for the six months ended 30th November 2006 of 24,385,294 (31st May 2006 restated - 21,855,212; 30th November 2005 - 20,903,867). As set out in note 4 the Employee Benefit Trust held 2,249,000 ordinary shares in the company as at 30th November 2006. 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 period of £2,076,446 (31st May 2006 restated - £2,943,093; 30th November 2005 - £1,374,524) divided by the diluted weighted average of ordinary shares in issue for the six months ended 30th November 2006 of 27,591,992 (31st May 2006 restated - 25,272,459; 30th November 2005 - 27,172,630). 4. Combined statement of movement in reserves and reconciliation of shareholders' funds Share Investment Share Profit Share premium in own Revaluation option and loss capital account shares reserve reserve account Total £ £ £ £ £ £ £ ------------------------------------------------------------------------------------------------------- At 1st June 2006 as previously stated 267,777 1,357,283 (1,027,283) 134,506 - 3,599,530 4,331,813 Prior year adjustment FRS20 - - - - 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 Purchase of own shares - - (349,966) - - - (349,966) Share option exercise - - 92,813 - - - 92,813 Revaluation reserve - - - 226,807 - - 226,807 Share option reserve - - - - 56,657 - 56,657 Profit retained for the period - - - - - 2,076,446 2,076,446 ------------------------------------------------------------------------------------------------------- At 30th November 2006 267,777 1,357,283 (1,284,436) 361,313 162,982 5,569,651 6,434,570 ------------------------------------------------------------------------------------------------------- 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 30th November 2006 the Trust held 2,249,000 ordinary 1p shares (31st May 2006 - 2,262,750; 30th November 2005 - 104,042 ordinary 25p shares), of which 2,084,550 ordinary 1p shares (31st May 2006 - 2,247,050; 30th November 2005 - 104,042 ordinary 25p shares) were subject to options in issue. In total, the company has granted options over 4,584,550 ordinary shares at exercise prices from £0.26 to £1.80. These options have a range of exercise dates from September 2000 to October 2016. 5. Reconciliation of operating profit to net cash inflow from operating activities Six months Six months Year ended ended ended 31st May 2006 30th Nov 2006 30th Nov 2005 (as restated) (unaudited) (unaudited) (audited) £ £ £ -------------------------------------------------------------------------------- Operating profit 3,019,768 2,090,982 4,617,669 Profit on sale of fixed assets - (1,109) (9,519) Depreciation charges 53,299 52,109 108,112 Decrease in debtors (350,818) (527,628) (1,043,783) Increase in creditors 778,934 413,877 408,417 Translation adjustments on investments - (1,042) 502 Share-based payment charge (note 1) 56,657 27,301 64,026 -------------------------------------------------------------------------------- Net cash inflow from operating activities 3,557,840 2,054,490 4,145,424 -------------------------------------------------------------------------------- 6. Dividends The interim dividend of 3p per share will be paid on 5th March 2007 to members registered at the close of business on 9th February 2007. 7. General The interim financial statements for the six months to 30th November 2006 were approved by the Board on 24th January 2007. These financial statements are unaudited, but they have been reviewed by the auditors, having regard to the bulletin 'Review of Interim Financial Information' issued by the Auditing Practices Board. The comparative figures for the twelve month period ended 31st May 2006 have been extracted from the group's statutory accounts which have been delivered to the Registrar of Companies, and have been restated where appropriate to comply with FRS20. The auditors' report on those statements was unqualified and did not include a statement under Section 237 (2) or (3) of the Companies Act 1985. Copies of this statement are available on our website, www.citlon.co.uk This information is provided by RNS The company news service from the London Stock Exchange

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