Trading Update

RNS Number : 2785M

City of London Investment Group PLC

15 July 2014

RNS Number:

City of London Investment Group PLC

15 July 2014

City of London Investment Group PLC

15 July 2014

CITY OF LONDON INVESTMENT GROUP PLC

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

TRADING UPDATE

for the 13 months to 30 June 2014 ("financial period")

City of London (LSE: CLIG), a leading emerging markets asset management group, provides a trading update for its financial period ended 30 June 2014. The numbers that follow are all unaudited.

Funds under management were US$3.9 billion (£2.3 billion) at 30 June 2014 (2013: US$3.7 billion or £2.4 billion), representing a 5.4% increase in US$ terms and a 4.2% decrease in GBP terms, as a result of the cross rate moving from 1.52 to 1.71 over the period. Over the same period (31 May 2013 to 30 June 2014) the MSCI Emerging Markets Index (MXEF) increased by 4.2% in US$ terms. Since the interim announcement on 30 November 2013, funds under management have increased 11.4% in US$ versus an increase of 3.2% in MXEF.

For the 13 months to 30 June 2014, City of London expects that pre-tax profits will be approximately £7.2 million (2013: £8.9 million), and that profits after an anticipated tax charge of £2.0 million (28% of pre-tax profits) will be approximately £5.2 million (2013: profits of £6.3 million after a tax charge of £2.6 million, representing 29% of pre-tax profit). Basic and fully diluted earnings per share are expected to be 20.7p and 20.6p respectively (2013: 24.9p and 24.6p).

With revenues mainly in US$ whilst a substantial proportion of our costs are in GBP, the strengthening of the currency over the period resulted in a headwind of some £500,000.

As a result of both falls in Emerging Markets, and client redemptions during the first half of the financial period, earnings cover will be reduced for the 13 months to 30 June 2014 but given the Group's strong cash position and optimism with regard to the future, the Board is recommending a final dividend of 16p per share (2013: 16p). This would bring the total for the 13 months to 30 June 2014 to 24p (2013: 24p), making cover 0.86 times earnings per share (2013: 1.04 times). As previously announced your board is reviewing the historic dividend policy of 1.5 times earnings cover and has in recent years applied it flexibly.

Overheads for the 13 months to 30 June 2014 are expected to be £10.3 million (2013: £10.8 million excluding exceptional/one-off costs of £0.7 million) and the current monthly run-rate is c£0.8 million (2013: monthly average £0.9 million) reflecting the cost efficiencies instigated in the latter half of the last financial year. In addition, the profit-share pool has been reduced from 30% to c28% this financial period resulting in a saving of c£0.2 million.

Investment performance in the emerging markets closed end fund strategy remains strong, with first or second quartile results versus manager peers year to date in 2014. As stated last year, the present wide 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.

During the period, mandates for two new strategies, the Special Situations CEF Strategy and the 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 China A Share Strategy received a mandate for $25 million in June 2014 which closed the second Qualified Foreign Institutional Investor account quota of $100 million approved by the China Securities Regulatory Commission.

City of London Investment Group expects to announce final results for the 13 months to 30 June 2014 on 15 September 2014. The Company's Annual General Meeting date and final dividend payment dates are expected to be 22 October 2014 and 31 October 2014 respectively.

As previously announced, $500 million is targeted for the emerging market strategy in calendar year 2014, with an additional $500 million for calendar year 2015. We are also targeting $250 million for financial year 2015 in non-emerging market products. To date, since January 2014, over $200 million has been raised for the EM strategy.

In line with his previous commitment Barry Olliff has notified the company that subject to regulatory requirements he would intend to sell 500,000 CLIG shares at 350p followed by 500,000 shares at 400p and then 500,000 at 450p. Following these sales he will continue to be interested in 1,630,000 shares.

Summary and unaudited trading update

	13 months to 30 June 2014	Year to 31 May 2013
Funds under Management (at period end)	US$3.9bn	US$3.7bn
Turnover (plus investment income)	£24.4m	£29.9m
Administrative expenses, commission payable, and profit-share	£17.2m	£21.0m
Profit before tax	£7.2m	£8.9m
Profit after tax	£5.2m	£6.3m
Profit per share, basic	20.7p	24.9p
Profit per share, diluted	20.6p	24.6p

Financials - consolidated income statement
£'000	13 months to 30 June 2014	Year to 31 May 2013
Fee income	24,215	29,363
Interest & other	244	501
Finder's commission	(3,068)	(4,194)
Custody & Administration	(845)	(1,244)
Total net income	20,546	24,426

Costs:
Human resources	6,559	7,629
Premises	671	612
Communications & IT	1,464	1,534
Business development	529	695
General	1,075	1,041
Total costs	10,298	11,511
Operating profit	10,248	12,915
Profit-share	3,005	4,055
Pre-tax profit	7,243	8,860
Tax	(2,043)	(2,594)
Post-tax profit	5,200	6,266
Dividends (prior year final plus current period interim)	(6,031)	(6,046)
(Used)/Retained	(831)	220

Table with assumptions (below) including the quarterly estimated cost of a maintained dividend:

Dividend cover - actual and assumed 2013 -2015

	2012/2013 - £0.2m to Reserves				2013/2014 - £0.8m from Reserves				2014/2015 - £0.8m to Reserves
£'000s	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Post Tax Profit (£)	1,735	1,574	1,675	1,282	1,157	1,263	1,087	1,690	1,465	1,615	1,795	1,960
Present Dividend Breakeven (£)	1,515	1,515	1,515	1,515	1,508	1,508	1,508	1,508	1,508	1,508	1,508	1,508

To/(From) Reserves (£)	220	59	160	(233)	(351)	(245)	(421)	182	(43)	107	287	452

Assumed profit previously reported (£)							1,176	1,588	1,423	1,534	1,734	1,869