TIDMCLIG
RNS Number : 8961A
City of London Investment Group PLC
17 September 2018
17th September 2018
CITY OF LONDON INVESTMENT GROUP PLC (LSE:CLIG)
("City of London" or "the Group")
FINAL RESULTS FOR THE YEAR TO 30TH JUNE 2018
SUMMARY
-- Funds under management (FuM) at 30th June 2018 were US$5.1
billion (2017: US$4.7 billion), an increase of 10%. In sterling
terms, FuM increased by 8% to GBP3.9 billion (2017: GBP3.6
billion).
-- Revenues, representing the Group's management charges on FuM,
were GBP33.9 million (2017: GBP31.3 million). Profit before tax was
GBP12.8 million (2017: GBP11.6 million).
-- Basic earnings per share were 39.5p (2017: 36.9p) after a tax
charge of 21% (2017: 21%) of pre-tax profits.
-- An increased final dividend of 18p per share is recommended,
payable on 30th October 2018 to shareholders on the register on
12th October 2018, making a total for the year of 27p (2017:
25p).
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: 001 215 313 3774
Martin R Green
Zeus Capital Limited
Financial Adviser & Broker
Tel: +44 (0)20 3829 5000
CHAIRMAN'S STATEMENT
As the retiring Chairman after 12 years on your Board I am bound
to reflect on where did we come from, how did we get to where we
are today and how well prepared are we to face the inevitable
challenges that tomorrow will bring?
When I joined the Board on flotation in 2006, we floated at a
price of 180p giving a market capitalisation of GBP48.2 million.
Funds under Management (FuM) were GBP2.8 billion, and profit before
tax was GBP4.8 million at the financial year end. The core Emerging
Markets Closed-End Fund (EM CEF) strategy accounted for close to
100 percent of both FuM and profits. We had c.130 clients, almost
all in the US and already the quality of our client list was the
envy of many of our competitors.
At 30th June 2018 FuM were just short of $4.0 billion and
pre-tax profits for the 12 months were GBP12.8 million. The total
return to shareholders since listing has been 377 per cent, a
figure that compares very favourably with our industry.
How was this impressive result achieved particularly in the
light of the rather variable performance of the Emerging Markets on
which our business has historically been very dependent? Numerous
factors are relevant but three drivers are worth listing: a focus
on a well-established investment methodology, efficient and highly
cost effective operations and a fair treatment of staff encouraging
continuity and therefore operational consistency.
What of the future? Over the years we have invested heavily in
nurturing new strategies in order to diversify away from the core
EM CEF cash cow. New products take time to become established and
be saleable to institutional clients. There is a chicken and egg
dilemma - without investors a track record cannot be established
but the investors won't invest until they can be comforted by an
impressive historic record. One can seed a new strategy with a few
million dollars but then clients say they don't want to be the
first outside investor, and in any event the track record should be
demonstrated with a fund of at least US$50 million - too big for us
to seed.
It is against this background that we are delighted to be able
to report that the diversification strategies now represent over 20
per cent of our FuM (18% at 30th June 2018) and are growing faster
than the EM CEF product. It should be noted and understood that the
investment methodology employed for the diversification products is
closely related to that which we have developed and honed over many
years for our core strategy. A combination of the new products with
the still very profitable and viable core EM CEF strategy should
ensure a rewarding future for all CLIG stakeholders including our
shareholders.
Results
For the year ended 30th June 2018 pre-tax profits were GBP12.8
million (2017: GBP11.6 million) and profits after a tax charge of
GBP2.7 million (21% of pre-tax profits) were GBP10.1 million (2017:
profits of GBP9.1 million after a tax charge of GBP2.5 million,
representing 21% of pre-tax profit). Basic and fully diluted
earnings per share were 39.5p and 39.3p respectively (2017: 36.9p
and 36.7p).
Funds under Management, the key driver of our profits, were
US$5.1 billion (GBP3.9 billion) at 30th June 2018 (2017: US$4.7
billion or GBP3.6 billion), representing a 10% increase in US$
terms for the year.
As already noted, we are greatly encouraged by the extent to
which our new, albeit in terms of methodology closely related,
products are now a very meaningful percentage of our total FuM.
The core EM strategy underperformed net of fees for the full
year whilst longer-term the record remains impressive. For the EM
strategy discounts widened costing approximately 200bps and an
underweight to China, specifically the IT sector, also detracted
from performance. Frontier performance was close to the benchmark.
The Developed and Opportunistic Value (formerly GTAA) strategies
both recorded positive relative performance due to a combination of
positive discount and allocation effects.
The Group's overhead for the year to 30th June 2018 was GBP12.5
million (2017: GBP11.9 million) and the current monthly run-rate is
c. GBP1.1m. With largely US dollar based income and substantial
sterling costs the exchange rate continues to be a key factor in
determining profits; compared to the previous year's rate averaging
1.27 this represented a significant headwind with sterling
strengthening to an average rate of US$1.35 to the pound over the
year.
Dividends
Following on from last year's 1p increase in the total dividend
for the year to June 2017 and the 1p increase for this year's
interim dividend, your Board is recommending a further 1p increase
for the final to 18p per share (2017: 17p) bringing the total for
the year to 27p (2017: 25p), for dividend cover of 1.47 times
(2017: 1.46 times). This is in line with your Board's
well-established policy of targeting a 1.2 times dividend cover
over a rolling 5 year period taking into account years during that
period when cover was well below 1.2 times.
Board
In anticipation of our founder and CEO, Barry Olliff, stepping
down in 2019, Tom Griffith, who has been on our Board for 14 years
with responsibility for Operations, was appointed Deputy CEO from
February 2018. This has provided for a lengthy transition and
handover period before Tom takes over the reins from Barry in early
2019. Again in anticipation, this time of my retirement from the
Board as of the October AGM, we were delighted to welcome Jane
Stabile as a new Non-Executive Director (NED) from 1st July 2018.
Not only does this appointment ensure that we will continue to have
the right balance on the Board between Executive Directors and
NEDs, but Jane has already been able to provide more focus at Board
level to the increasingly important area of Operations.
Following my retirement it has been agreed that Barry Aling will
take over as Chairman. People seem to be obsessed these days with
"upgrades" whether it's their mobile phone or their seat on a
flight. In this case I can confidently say that your Board will be
getting a chairman upgrade! Barry, over his five years on your
Board, has consistently demonstrated his understanding of the key
issues and invariably applies both common sense and wisdom in his
contributions to Board discussions. With important changes on the
road ahead we will be fortunate to have Barry in the chair. We are
also fortunate that Barry Olliff has agreed to discuss retaining an
involvement with CLIG post 2019 through a consultancy role. The
goal will be to combine a degree of continuity along with the
inevitable change that is almost always required when a founder
retires.
As in previous years we carried out a formal evaluation of the
performance of the Board and its members. This confirmed that both
the Board and its members had continued to operate effectively and
I therefore recommend that all Directors standing for re-election
be re-elected.
Outlook
As readers of my previous Chairman's Statements will know,
predicting the future direction of markets is above my pay grade. I
can however observe that the Emerging Markets, which underlie our
core product, are currently out of favour. Fortunately our
increasingly important diversified products are largely focussed on
Developed markets, including the US which is enjoying the Trump
stimulus. EM problems are various and range from Argentina (debt)
to Turkey (politics) to China (trade wars), with Donald Trump's
policies creating significant uncertainty. Having feet in both
camps I take a sanguine view and leave it to shareholders to decide
whether to sell EMs and buy into Developed markets or do the
reverse. At City of London I believe we are well placed other than
if there were a general downturn in markets worldwide and even then
our flexible cost structure will stand us in good stead.
This year our AGM is on Monday 22nd October at our Gracechurch
Street offices and all shareholders are most welcome. Following the
meeting's formal business your Directors look forward to having the
opportunity to meet and talk to individual shareholders.
In the meantime I do encourage all stakeholders, especially
clients and shareholders, to read on (see link below for access to
the full annual report) as I believe that this report again
presents a quite exceptional level of relevant information and
transparency on our business underlining our commitment to
excellence in all that we do.
http://www.rns-pdf.londonstockexchange.com/rns/8961A_1-2018-9-16.pdf
David Cardale
Chairman
13th September 2018
START OF STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER'S STATEMENT
In terms of the Group's progress, the most significant event of
the past financial year has related to the increased assets gained
by our Diversification products.
Between Developed, Global Tactical Asset Allocation (now renamed
Opportunistic Value), Tactical Income and Frontier, assets under
management have increased from 10% to 18% of total Group FuM. While
a response could be that this has been a long time coming, my reply
would be that in the post 2008 world, everything takes longer as
consultants and potential clients undertake deeper due diligence
prior to making a commitment. Having said that, once a commitment
is made it is likely to be long-term thus diversifying our sources
of revenue and improving the quality of our earnings. While most of
this new business will accrue fees at lower than EM rates, it would
seem likely that we are now on track for this part of our business
to grow significantly.
Investment performance
While the Diversification products have generally outperformed
their relative benchmarks, I have gone into greater detail
regarding our EM performance which has lagged the benchmark over
the 12 month period ending June 2018. This was a result of widening
discounts and to a lesser extent poor NAV performance from the
underlying closed-end funds in which we invest. Our country
allocation was positive over the period, led by an overweight to
Russia. NAV performance was impacted by the strong performance of
the IT sector, particularly in China. Many global, regional and
China specific funds have maintained underweights to this sector
due to valuation and/or corporate governance concerns as well as
structural limitations. A further headwind to NAV performance
relates to small cap exposure. For the past two years EM small cap
has underperformed large cap by a significant margin; partly the
flip side to the very strong IT sector which now constitutes over
28% of the index - for reference, this is the largest EM Sector
index weight for at least 20 years. These structural headwinds will
eventually mean revert, along with discounts. In the meantime we
take comfort from the average size weighted discount on our
portfolios at 16% which represents the widest level for at least 10
years. EM client flows have been broadly stable with modest
outflows reflecting asset allocation rebalancing. Longer term (3-5
years), as referenced in the chart above, gross returns of the EM
CEF strategy returns remain above average when compared with the US
institutional peer group.
REIT's
After a search lasting over a year, in July 2018 a team of two
joined us to create a new REIT department. Our belief is that our
investment process, as originally used with EM CEF's, and now our
other Diversification products, could also be used with REIT's
which also demonstrate the capacity for disproportionate alpha
generation via pricing anomalies.
We are designing an EM REIT Fund with a relevant index to be
used as a benchmark. As with our other Diversification products
this will be a long term commitment and we will be seeding a fund
prior to marketing.
CLIG diversification
We are continuing to consider corporate diversification
opportunities. Having looked at many companies over the past ten or
so years, we have found none that were suitable. Egos, investment
performance, costs and culture differences were the main reason for
our lack of success in terms of closure. With close to GBP20
million in the bank, if we found the right company we would be in a
very good position to undertake a transaction that could enhance
the Group's earnings and share price. In the event that we don't,
my assumption is that the Board would give consideration to a share
buy-back or the distribution of a special dividend.
Closed-end fund corporate governance
As you are probably aware just about 100% of our mandates
require that we invest in closed-end funds. We therefore have a
very real incentive to encourage the Boards of Directors who
oversee the managers of these funds that they do demonstrate
relevant oversight. Our view is that correct oversight will lead to
a competitive product in what is increasingly becoming a
competitive marketplace. As a result of this focus, we have been
producing a Statement on Corporate Governance for Closed-End Funds
since 1999 - this document articulates our position regarding
certain principles that we believe will assist the Board of a fund
not just with its governance, but with its overall profile in the
marketplace. The next edition of this document will be released at
the beginning of 2019. With the SWAD remaining so very wide,
corporate governance is an increasingly relevant part of our
work.
China fund
Having first invested in the China Fund Inc. (CHN) in the first
quarter of 1998, we have watched as the corporate governance has
gradually deteriorated. Whilst the earlier performance under Martin
Currie was both relevant and ahead of the benchmark, recent events
gave us cause for concern. While some of these were investment
related, to a greater extent we were worried regarding governance
issues - the Chairman had been in place for over 20 years, we were
concerned regarding the manner in which a new manager had been
selected and we were concerned regarding what seemed to be an
increasing Management Expense Ratio (MER). As a result we very
unusually proposed the appointment of two new Directors and
suggested the contract be terminated under the Investment Act of
1940. Most of our concerns were voiced via regulatory filings -
fortunately shareholders were very supportive, resulting in two
votes that were approximately two thirds for our proposals and one
third against.
In the middle of the transaction CLIM and I were sued by CHN for
our actions, and, even though we won in both State and Federal
Court, also on appeal, the legal costs of defending our position
were c.$300,000. While many shareholders will have watched these
events real time there are a couple of points worth noting. In the
US the loser of a Court action does not pay the winners legal
expenses. CLIM has been invited and is in the process of making
suggestions that we believe will improve the Corporate Governance
of CHN and expect the outcome to be a slimmed down Board, reduced
MER, a significant return of assets at close to NAV, plus a change
of manager. This is the first time that we have been sued, but I
believe that the outcome vindicated our position - US CEF's are
there to provide requisite exposure for shareholders, not to go
around suing shareholders (the owners).
Targets, margins and FuM
As shareholders will be aware, CLIM does not use targets. This
is because over an extended period history shows us that they
provide the seeds of their own destruction. Targets imply /
encourage growth, and in an environment of declining index levels
or changed circumstance they can, and regular as clockwork do, lead
to unnecessary risk taking. Risk taking (and a focus on targets)
invariably leads to reduced margins. If margins are reduced, staff
cannot be paid adequate bonuses thus leading to employee insecurity
and potentially reduced tenure. The approach that I have advocated
for 30 years is to learn from my past experience and to gradually
develop the business. This approach while quite slow and possibly
giving the impression of being ponderous has served shareholders
well, as can be demonstrated by comparing the total return of our
share price compared with selected peers since CLIG's listing in
2006. The Total Shareholder Return graph can be viewed in the Key
Performance Indicator section on pages 20 to 24 of the full
Financial Statements (see Chairman's Statement for link).
Our operating margin, which is the weighted average net fee rate
earned by the Group, has reduced from 0.86% in June 2016 to 0.80%
at June 2018. While to a small extent this reflects a change in our
Emerging Market fees, the major influence is from the changing mix
of business. We receive lower fees for our Diversification products
thus while the overall margin has been reduced their growth has
benefited the P&L.
Business plans
Many small companies want to become big. My view is that it's
better to keep each of the components of the business relatively
small - it being better to have an increasing number of divisions
or small units. I would add that in the fund management business
many firms become too "large" and then suffer as they receive
redemption requests based on poor investment performance. After
reviewing the eVestment Alliance database of Emerging Market
managers, starting in December 1991, over 30% have removed an
Emerging Markets product from their database. The average product
life was 9 years. During this period we have closed to new
investors on 3 occasions while all of our products remain in the
database.
Board changes
You will probably be aware from our interim report of Tom
Griffith's appointment as Deputy CEO. Tom will be appointed Group
CEO in early 2019. I would like to wish Tom all the best both
during the transition, and also with his future appointment. Tom
and I have worked closely together for nearly 20 years. Tom will
head a very experienced management team.
In addition, and on behalf of the Board, I would like to thank
David who has been a part of our Board's deliberations for twelve
years. David will be standing down as Chairman during the
forthcoming AGM.
Having taken on the Chairmanship from Andrew Davison in 2012,
David has overseen our deliberations with patience and pragmatism.
He has also been very successful in creating a consensus when this
seemed most unlikely. I look forward to welcoming Barry Aling as
our new Chairman. Barry is well-versed in the ways of the City and
is well equipped to continue David's good stewardship.
My intended CLIG share sales
As in previous years I would like to advise shareholders of my
current intentions regarding share sales.
As I approach retirement on 31st December 2019, my intention is
to sell 500,000 shares at each of 450p, 475p, and 500p subject to
close periods etc.
In my opinion this is an accountable way to proceed and is in
keeping with the way that I have attempted to run the firm since
its inception.
CLIG outlook
From a CLIG perspective the outlook for our business has
improved from last year. Our Diversification products are gaining
traction and while US markets have recently outperformed, our EM
exposure has underperformed. CLIM's Emerging Market CEF's SWAD is
the widest for over a decade and as implied earlier in my
statement, we are actively urging many funds to improve their
corporate governance.
Also as mentioned earlier, we have a lot of cash on our balance
sheet which will need to find a good home.
Barry Olliff
Chief Executive Officer
13th September 2018
BUSINESS DEVELOPMENT REVIEW
Overview
Long-term investment performance in the emerging markets
closed-end fund (CEF) strategy remains strong, with first or second
quartile results versus manager peers over the 3 and 5-year rolling
periods ending 30th June 2018.
There were new inflows of $319 million in our core emerging
market strategies, which were countered by outflows of $534
million, leading to net outflows of $215 million as clients
rebalanced after strong gains in emerging markets over 2017.
Fundraising in the diversification products resulted in inflows
of $474 million and outflows of $74 million for a net gain of $400
million. Inflows by product were $279 million in Developed Markets
strategies, $67 million in Frontier Emerging Markets strategies and
$54 million in Opportunistic Value strategies.
Diversification products now represent circa 18% of Group Assets
Under Management (AUM), compared with 10% last year. These
additional assets will assist in efforts to raise the profile of
our extension CEF products with institutional consultants and plan
sponsors.
Products
A combination of strong performance and additional AUM into our
diversification products resulted in assets growing in these
strategies by 95% over the year.
The Developed Markets CEF Strategy utilises our experience with
closed-end funds in our core emerging markets strategy to provide
exposure to global developed markets.
Opportunistic Value CEF Strategy, formerly known as Global
Tactical Asset Allocation CEF Strategy (GTAA), was renamed as it
encompasses a variety of asset classes via closed-end funds and
adopts a go anywhere approach. While this is a separate team from
the team managing client assets in the emerging markets, both teams
use a similar methodology and share internal resources. Both
taxable and tax-exempt products are available.
The Frontier Emerging Markets CEF Strategy, which is an
extension of the emerging markets core equity product focusing on
the smallest or pre-emerging markets with high growth
potential.
Performance
Relative performance over the period was negative for the
Emerging Markets strategy due to negative NAV and discount effects.
The Developed and Opportunistic Value (formerly GTAA) strategies
all recorded positive relative performance due to a combination of
positive discount, NAV and allocation effects. The Frontier
strategy had slight underperformance vs the S&P Frontier Index
due to negative NAV and currency effects, but outperformed the MSCI
Frontier Index over the period.
The Global Emerging Markets Composite investment returns for the
rolling one year ending 30th June 2018 were 4.3% vs. 8.2% for the
MSCI Emerging Markets Index in USD and 8.1% for the S&P
Emerging Frontier Super BMI Index in USD.
The Global Developed Composite investment returns for the
rolling one year ending 30th June 2018 were 11.2% vs. 7.3% for the
MSCI ACWI ex US in USD.
The Frontier Markets Composite investment returns for the
rolling one year ending 30th June 2018 were 4.2% vs. 4.5% for the
S&P Frontier EM 150 benchmark in USD.
The Opportunistic Value Composite investment returns for the
rolling one year ending 30th June 2018 were 8.3% vs. 6% for the
50/50 MSCI ACWI/Barclays Global Aggregate Bond index in USD.
Outlook
Marketing efforts will continue to be targeted at investment
consultants, foundations, endowments and pension funds. We will
also continue to introduce our capabilities to family offices,
outsourced CIO firms and alternative consultants. Our Developed and
Opportunistic Value capabilities will be the focus of our product
diversification and business development activities.
FINANCIAL REVIEW
Consolidated income statement and statement of comprehensive
income
The average Funds under Management (FuM) for the year was US$5.2
billion compared with US$4.3 billion in 2016/2017 (based on the
month end values), an increase of approximately 21%. The Group's
gross revenue comprises management fees charged as a percentage of
FuM and as a result is also up year on year but by only 8% to
GBP33.9 million (2017: GBP31.3 million). Revenue did not increase
in line with FuM in part due to the significant increase in
non-Emerging Market (EM) assets, now representing c.18% of FuM
(2017: c.10%). Average fee rates for non-EM products are in general
lower than EM products. However, sterling strengthening against the
US dollar this year was the major contributor, with an average
USD/GBP rate of 1.35 compared to 1.27 last year.
Commissions payable of GBP1.1 million (2017: GBP1.4 million)
relates to fees due to third party marketing agents for the
introduction of clients. The contract to which all but a small
proportion of these commissions relate expired in October 2010.
Under the agreement, commission is based on a period of ten years
from the date of the client's initial investment.
The Group's net fee income, after custody charges of GBP1.2
million (2017: GBP0.9 million), is GBP31.6 million (2017: GBP29.0
million), up 9% on last year. As a weighted average percentage of
FuM, net fee income is currently around 80 basis points compared to
84 basis points at the end of last year.
Administrative expenses of GBP19.1 million (2017: GBP17.5
million) includes: the 30% of operating profit that forms the
profit-share pool, GBP6.1 million including payroll taxes (2017:
GBP5.5 million) plus the charge this period of the Company matching
the employees' participation in the Employee Incentive Plan (EIP)
of GBP0.5 million (2017: GBP0.1 million), representing less than 3%
(2017:<1%) of pre-bonus operating profit which is within the 5%
limit approved by shareholders.
Stripping these variable costs out leaves a core overhead of
GBP12.5 million (2017: GBP11.9 million), up 5% on last year. This
increase primarily relates to one-off legal costs for the proxy
solicitation/defence costs relating to the China Fund investment as
detailed in the CEO's statement, the set-up of new funds for our
diversification products and for the implementation of MiFID
II.
The largest component of core overhead continues to be Human
Resource (HR) related at GBP7.5 million (2017: GBP7.5 million); the
mid-year employee salary increase was offset by FX savings due to
sterling strengthening against the US dollar.
The overall cost-income ratio this year is 39% (arrived at by
comparing core overhead to net fee income) and compares to 41% last
year.
Interest receivable and similar gains of GBP0.3 million (2017:
GBP0.1 million) is principally realised gains on sales of our seed
investments this period but also includes bank interest on
deposits, fair value losses on hedging and a small write-back of an
overestimated interest charge in relation to prior years' US state
taxes.
The net of the above results in a pre-tax profit of GBP12.8
million (2017: GBP11.6 million).
Corporation tax this year amounts to GBP2.7 million (2017:
GBP2.4 million), an effective rate of 21%, the same as last year.
This reflects the reduction in the US Federal tax rate from 34% to
21% which took effect halfway through the year, as of 1st January
2018. Whilst this year's charge is reflective of a reduced tax
rate, last year's tax charge was unusually low due to a provision
of GBP0.4 million in respect of an estimated net refund of prior
years' US taxes, 50% of which has now been settled.
Post tax profits plus the release of the fair value gains on the
Group's seed investments sold during the year of GBP0.2 million
(2017: GBP0.2 million increase) results in a total comprehensive
income attributable to equity shareholders for the period of GBP9.9
million (2017: 9.5 million).
Consolidated statement of financial position and statement of
changes in equity
The Group's financial position continues to be strong and liquid
with cash the major part of net assets at GBP19.7 million
representing 92% (2017: GBP13.9 million, 77%).
Aside from the GBP5.8 million increase in cash during the
period, which is analysed in the cash flow report on page 68, the
other significant movements in net assets are:
-- A decrease in available-for-sale financial assets of GBP0.9
million which reflects the sale of our seed investment in the CLIM
International Equity CEF.
-- An increase in liabilities of GBP0.8 million relating to
employee waived profit share in respect of participation in the
EIP. These funds are held on account until such time the awards
vest or are forfeited. On vesting they will off-set the investment
in own shares. On forfeiture the lower of the waived bonus or the
market value of the deferred shares at that time will be paid to
the employee.
-- An increase in liabilities of GBP0.4 million relating to
unbilled custody charges.
-- An increase in liabilities of GBP0.3 million relating to the
revaluation of our outstanding forward value foreign exchange
trades against the forward market rate available as at 30th June
2018.
The major changes in equity this year are comprehensive income
of GBP9.9 million (2017: GBP9.5 million) and the dividends paid
during the year of GBP6.6 million (2017: GBP6.0 million). The
dividend comprised the 17p final dividend for 2016/17 plus the 9p
interim dividend for the current year (2017:16p final and 8p
interim).
During the year, Directors and employees exercised 220,487
options over shares held by the Employee Benefit Trust (EBT),
raising GBP0.6 million. The EBT purchased 227,742 shares at a cost
of GBP1.0 million in preparation for the EIP awards due at the end
of October 2018.
A provision for the charge this period of the Company matching
the employees' participation in the EIP of GBP0.5 million is
recorded in the EIP share reserve.
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.
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 table presented 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 illustration that a change in exchange rate from 1.35
to 1.25 on FuM of US$5.5 billion increases post-tax profits by
GBP1.0 million.
FX/Post-tax profit Matrix: Illustration of US$/GBP rate
effect
FuM US$bn: 4.0 4.5 5.0 5.5 6.0
US$/GBP Post -tax, GBPm
1.20 7.2 9.0 10.8 12.5 14.3
1.25 6.9 8.5 10.2 11.9 13.6
1.30 6.5 8.1 9.7 11.4 13.0
1.35 6.1 7.7 9.3 10.9 12.4
1.40 5.8 7.3 8.9 10.4 11.9
Assumes:
1. Average net fee 80 bp's
2. Annual operating costs GBP4.5m plus US$9.5m plus S$1m (GBP1 =
S$1.8)
3. Profit-share 30%
4. EIP 3%
5. Average tax rate 21%
It is worth noting though that while the Group's fee income is
assessed by reference to FuM expressed 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 against the movement
in the US dollar given that as the US dollar weakens (strengthens)
against these underlying currencies the value of the FuM in US
dollar terms rises (falls).
The Group's currency exposure also 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 the foreign exchange
impact the Group monitors its net currency position and offsets it
by forward sales of US dollars for sterling. At 30th June 2018
these forward sales totalled US$9.0 million, with a weighted
average exchange rate of US$1.38 to GBP1 (2017: US$4.8 million at a
weighted average rate of US$1.28 to GBP1).
Viability statement
In accordance with the provisions of the UK Corporate Governance
Code, the Directors have assessed the viability of the Group,
taking into account the Group's current position and prospects,
Internal Capital Adequacy Assessment Process ("ICAAP") and
principal risks.
The ICAAP is reviewed by the Board semi-annually and
incorporates a series of stress tests on the Group's financial
position over a three year period. It is prepared to identify and
quantify the Group's risks and level of capital which should be
held to cover those risks.
Based on the results of this analysis, the Board confirms it has
a reasonable expectation that the Company and the Group will be
able to continue in operation and meet its liabilities as they fall
due over the next three years.
While the Directors have no reason to believe that the Group
will not be viable over a longer period, any future assessments are
subject to a level of uncertainty that increases with time. The
Board have therefore determined that a three year period
constitutes an appropriate timeframe for its viability
assessment.
OF STRATEGIC REPORT
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 30TH JUNE 2018
Year to Year to
30th June 30th June
Note 2018 2017
GBP GBP
---------------------------------- ------ ------------ ------------
Revenue
Gross fee income 4 33,930,846 31,294,370
Commissions payable (1,159,580) (1,444,787)
Custody fees payable (1,164,477) (880,840)
---------------------------------- ------ ------------ ------------
Net fee income 31,606,789 28,968,743
---------------------------------- ------ ------------ ------------
Administrative expenses
Staff costs 14,066,857 13,153,914
Other administrative expenses 4,717,139 4,074,975
Depreciation and amortisation 294,799 230,635
---------------------------------- ------ ------------ ------------
(19,078,795) (17,459,524)
---------------------------------- ------ ------------ ------------
Operating profit 5 12,527,994 11,509,219
Interest receivable and similar
gains 6 264,501 81,135
---------------------------------- ------ ------------ ------------
Profit before taxation 12,792,495 11,590,354
Income tax expense 7 (2,732,152) (2,449,217)
---------------------------------- ------ ------------ ------------
Profit for the period 10,060,343 9,141,137
---------------------------------- ------ ------------ ------------
Profit attributable to:
Non-controlling interests - (148,618)
Equity shareholders of the parent 10,060,343 9,289,755
---------------------------------- ------ ------------ ------------
Basic earnings per share 8 39.5p 36.9p
---------------------------------- ------ ------------ ------------
Diluted earnings per share 8 39.3p 36.7p
---------------------------------- ------ ------------ ------------
CONSOLIDATED AND COMPANY STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30TH JUNE 2018
Group Company
Year to Year to Year to Year to
30th June 30th June 30th June 30th June
2018 2017 2018 2017
GBP GBP GBP GBP
---------------------------------------- ----------- ----------- ----------- -----------
Profit for the period 10,060,343 9,141,137 9,888,536 8,629,630
---------------------------------------- ----------- ----------- ----------- -----------
Items which may be reclassified through
the profit or loss:
Fair value gains on available-for-sale
investments* 1,694 158,597 1,826 158,227
Release of fair value gains on disposal
of
available-for-sale investments* (154,384) (253) (153,819) (253)
Foreign exchange (losses)/gains on
non-monetary assets (20,884) 33,732 - -
---------------------------------------- ----------- ----------- ----------- -----------
Other comprehensive (loss)/income (173,574) 192,076 (151,993) 157,974
---------------------------------------- ----------- ----------- ----------- -----------
Total comprehensive income for the
period 9,886,769 9,333,213 9,736,543 8,787,604
---------------------------------------- ----------- ----------- ----------- -----------
Attributable to:
Equity shareholders of the parent 9,886,769 9,481,831 9,736,543 8,787,604
Non-controlling interests - (148,618) - -
---------------------------------------- ----------- ----------- ----------- -----------
*Net of deferred tax.
CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
30TH JUNE 2018
Group Company
30th June 30th June 30th June 30th June
2018 2017 2018 2017
Note GBP GBP GBP GBP
----------------------------- ------ ----------- ----------- ----------- -----------
Non-current assets
Property and equipment 450,241 560,774 125,917 147,517
Intangible assets 292,037 360,283 47,333 20,407
Other financial assets 38,170 34,660 1,069,930 834,105
Deferred tax asset 119,078 216,693 40,011 64,719
----------------------------- ------ ----------- ----------- ----------- -----------
899,526 1,172,410 1,283,191 1,066,748
----------------------------- ------ ----------- ----------- ----------- -----------
Current assets
Trade and other receivables 5,833,160 5,857,896 14,397,266 8,248,782
Available-for-sale financial
assets - 915,649 - 915,649
Other financial assets 195,112 135,547 195,112 135,547
Current tax receivable - - 835,385 634,890
Cash and cash equivalents 19,704,111 13,936,558 225,806 180,938
----------------------------- ------ ----------- ----------- ----------- -----------
25,732,383 20,845,650 15,653,569 10,115,806
----------------------------- ------ ----------- ----------- ----------- -----------
Current liabilities
Trade and other payables (4,801,433) (3,402,681) (3,843,071) (1,219,878)
Current tax payable (361,021) (418,513) - -
----------------------------- ------ ----------- ----------- ----------- -----------
Creditors, amounts falling
due within one year (5,162,454) (3,821,194) (3,843,071) (1,219,878)
----------------------------- ------ ----------- ----------- ----------- -----------
Net current assets 20,569,929 17,024,456 11,810,498 8,895,928
----------------------------- ------ ----------- ----------- ----------- -----------
Total assets less current
liabilities 21,469,455 18,196,866 13,093,689 9,962,676
----------------------------- ------ ----------- ----------- ----------- -----------
Non-current liabilities
Deferred tax liability (3,221) (115,774) (3,221) (115,774)
----------------------------- ------ ----------- ----------- ----------- -----------
Net assets 21,466,234 18,081,092 13,090,468 9,846,902
----------------------------- ------ ----------- ----------- ----------- -----------
Capital and reserves
Share capital 9 268,617 268,617 268,617 268,617
Share premium account 2,256,104 2,256,104 2,256,104 2,256,104
Investment in own shares (4,699,115) (4,355,887) (4,699,115) (4,355,887)
Fair value reserve 13,731 166,421 13,731 165,724
Share option reserve 372,762 442,379 372,762 442,379
EIP share reserve 605,707 101,497 605,707 101,497
Foreign exchange reserve 88,255 109,139 - -
Capital redemption reserve 23,097 23,097 23,097 23,097
Retained earnings 22,537,076 19,069,725 14,249,565 10,945,371
----------------------------- ------ ----------- ----------- ----------- -----------
Total equity 21,466,234 18,081,092 13,090,468 9,846,902
----------------------------- ------ ----------- ----------- ----------- -----------
As permitted by section 408 of the Companies Act 2006, the
income statement of the Parent Company is not presented as part of
these financial statements. The Parent Company's profit for the
financial period amounted to GBP9,888,536 (2017: GBP8,629,630).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
30TH JUNE 2018
Capital Total Non-
Share Investment Share EIP Foreign redemption attributable controlling
Share premium in own Fair option Share exchange reserve Retained to share- interest
capital account shares value reserve reserve reserve GBP earnings holders GBP Total
GBP GBP GBP reserve GBP GBP GBP GBP GBP GBP
GBP
---------------- -------- --------- ----------- --------- --------- -------- --------- ---------- ------------ ------------ ----------- ------------
At 30th June
2016 268,967 2,256,104 (5,298,916) 8,077 563,350 - 75,407 22,747 15,593,570 13,489,306 631,943 14,121,249
---------------- -------- --------- ----------- --------- --------- -------- --------- ---------- ------------ ------------ ----------- ------------
Profit for
the period - - - - - - - - 9,289,755 9,289,755 (148,618) 9,141,137
Comprehensive
income - - - 158,344 - - 33,732 - - 192,076 - 192,076
---------------- -------- --------- ----------- --------- --------- -------- --------- ---------- ------------ ------------ ----------- ------------
Total
comprehensive
income - - - 158,344 - - 33,732 - 9,289,755 9,481,831 (148,618) 9,333,213
Transactions
with owners
Derecognisation
of
NCI investment - - - - - - - - - - (483,325) (483,325)
Share option
exercise - - 1,132,727 - (147,464) - - - 147,464 1,132,727 - 1,132,727
Share
cancellation (350) - - - - - - 350 (128,007) (128,007) - (128,007)
Share-based
payment - - - - 26,493 - - - - 26,493 - 26,493
EIP provision - - - - - 101,497 - - - 101,497 - 101,497
Deferred tax - - - - - - - - 124,750 124,750 - 124,750
Current tax
on share
options - - - - - - - - 90,158 90,158 - 90,158
Dividends
paid - - - - - - - - (6,047,965) (6,047,965) - (6,047,965)
---------------- -------- --------- ----------- --------- --------- -------- --------- ---------- ------------ ------------ ----------- ------------
Total
transactions
with owners (350) - 943,029 - (120,971) 101,497 - 350 (5,813,600) (4,890,045) (483,325) (5,373,370)
---------------- -------- --------- ----------- --------- --------- -------- --------- ---------- ------------ ------------ ----------- ------------
At 30th June
2017 268,617 2,256,104 (4,355,887) 166,421 442,379 101,497 109,139 23,097 19,069,725 18,081,092 - 18,081,092
---------------- -------- --------- ----------- --------- --------- -------- --------- ---------- ------------ ------------ ----------- ------------
Profit for
the period - - - - - - - - 10,060,343 10,060,343 - 10,060,343
Comprehensive
income - - - (152,690) - - (20,884) - - (173,574) - (173,574)
---------------- -------- --------- ----------- --------- --------- -------- --------- ---------- ------------ ------------ ----------- ------------
Total
comprehensive
income - - - (152,690) - - (20,884) - 10,060,343 9,886,769 - 9,886,769
Transactions
with owners
Share option
exercise - - 637,799 - (83,312) - - - 83,312 637,799 - 637,799
Purchase of
own shares - - (981,027) - - - - - - (981,027) - (981,027)
Share-based
payment - - - - 13,695 - - - - 13,695 - 13,695
EIP provision - - - - - 504,210 - - - 504,210 - 504,210
Deferred tax - - - - - - - - (100,430) (100,430) - (100,430)
Current tax
on share
options - - - - - - - - 50,204 50,204 - 50,204
Dividends
paid - - - - - - - (6,626,078) (6,626,078) - (6,626,078)
---------------- -------- --------- ----------- --------- --------- -------- --------- ---------- ------------ ------------ ----------- ------------
Total
transactions
with owners - - (343,228) - (69,617) 504,210 - - (6,592,992) (6,501,627) - (6,501,627)
---------------- -------- --------- ----------- --------- --------- -------- --------- ---------- ------------ ------------ ----------- ------------
At 30th June
2018 268,617 2,256,104 (4,699,115) 13,731 372,762 605,707 88,255 23,097 22,537,076 21,466,234 - 21,466,234
---------------- -------- --------- ----------- --------- --------- -------- --------- ---------- ------------ ------------ ----------- ------------
COMPANY STATEMENT OF CHANGES IN EQUITY
30TH JUNE 2018
Share Share EIP Capital Total
premium Investment Fair option share redemption Retained attributable
Share account in own value reserve reserve reserve earnings to
capital GBP shares reserve GBP GBP GBP GBP shareholders
GBP GBP GBP GBP
-------------- -------- --------- ----------- --------- --------- -------- ----------- ----------- -------------
At 30th June
2016 268,967 2,256,104 (5,298,916) 7,750 563,350 - 22,747 8,355,845 6,175,847
-------------- -------- --------- ----------- --------- --------- -------- ----------- ----------- -------------
Profit for the
period - - - - - - - 8,629,630 8,629,630
Comprehensive
income - - - 157,974 - - - - 157,974
-------------- -------- --------- ----------- --------- --------- -------- ----------- ----------- -------------
Total
comprehensive
income - - - 157,974 - - - 8,629,630 8,787,604
Transactions
with owners
Share option
exercise - - 1,132,727 - (147,464) - - 69,349 1,054,612
Purchase of
own shares - - (189,698) - - - - - (189,698)
Share
cancellation (350) - - - - - 350 (128,007) (128,007)
Share-based
payment - - - - 26,493 - - - 26,493
EIP provision - - - - - 101,497 - - 101,497
Deferred tax - - - - - - - 41,603 41,603
Current tax
on share
options - - - - - - - 24,916 24,916
Dividends paid - - - - - - - (6,047,965) (6,047,965)
-------------- -------- --------- ----------- --------- --------- -------- ----------- ----------- -------------
Total
transactions
with owners (350) - 943,029 - (120,971) 101,497 350 (6,040,104) (5,116,549)
-------------- -------- --------- ----------- --------- --------- -------- ----------- ----------- -------------
At 30th June
2017 268,617 2,256,104 (4,355,887) 165,724 442,379 101,497 23,097 10,945,371 9,846,902
-------------- -------- --------- ----------- --------- --------- -------- ----------- ----------- -------------
Profit for
the
period - - - - - - - 9,888,536 9,888,536
Comprehensive
income - - - (151,993) - - - - (151,993)
-------------- -------- --------- ----------- --------- --------- -------- ----------- ----------- -------------
Total
comprehensive
income - - - (151,993) - - - 9,888,536 9,736,543
Transactions
with owners
Share option
exercise - - 637,799 - (83,312) - - 46,014 600,501
Purchase of
own shares - - (981,027) - - - - - (981,027)
Share-based
payment - - - - 13,695 - - - 13,695
EIP provision - - - - - 504,210 - - 504,210
Deferred tax - - - - - - (25,286) (25,286)
Current tax
on share
options - - - - - - 21,008 21,008
Dividends paid - - - - - - (6,626,078) (6,626,078)
-------------- -------- --------- ----------- --------- --------- -------- ----------- ----------- -------------
Total
transactions
with owners - - (343,228) - (69,617) 504,210 - (6,584,342) (6,492,977)
-------------- -------- --------- ----------- --------- --------- -------- ----------- ----------- -------------
At 30th June
2018 268,617 2,256,104 (4,699,115) 13,731 372,762 605,707 23,097 14,249,565 13,090,468
-------------- -------- --------- ----------- --------- --------- -------- ----------- ----------- -------------
CONSOLIDATED AND COMPANY CASH FLOW STATEMENT
FOR THE YEARED 30TH JUNE 2018
Group Company
30th June 30th June 30th June 30th June
Note 2018 2017 2018 2017
GBP GBP GBP GBP
-------------------------------------- ------ ----------- ----------- ----------- -----------
Cash flow from operating activities
Operating profit 12,527,994 11,509,219 276,936 217,567
Adjustments for:
Profit on disposal of assets - 202 - 202
Depreciation charges 200,332 167,748 83,394 57,492
Amortisation of intangible assets 94,467 62,886 6,914 2,915
Share-based payment charge 13,695 26,493 3,042 21,134
EIP charge 504,210 101,497 246,715 50,114
Fair value gain on investments - 35,367 - -
Translation adjustments 100,657 (57,966) 47,621 44,963
Cash generated from operations
before changes
in working capital 13,441,355 11,845,446 664,622 394,387
Decrease/(Increase) in trade
and other receivables 24,735 (813,789) (6,148,484) (2,651,355)
Increase/(decrease) in trade
and other payables 1,398,752 280,310 2,623,193 (407,031)
Cash generated from/(used in)
operations 14,864,842 11,311,967 (2,860,669) (2,663,999)
Interest received 47,105 28,925 187 76
Interest paid 8,615 (64,064) - -
Taxation paid (2,818,992) (2,764,001) (253,292) (461,085)
-------------------------------------- ------ ----------- ----------- ----------- -----------
Net cash generated from/(used
in) operating activities 12,101,570 8,512,827 (3,113,774) (3,125,008)
-------------------------------------- ------ ----------- ----------- ----------- -----------
Cash flow from investing activities
Dividends received from subsidiaries - - 9,400,000 7,700,000
Purchase of property and equipment
and intangibles (136,903) (485,345) (95,634) (156,258)
Proceeds from sale of property - - - -
and equipment
Purchase of non-current financial
assets (2,272) (768) (2,272) (768)
Proceeds from sale of non-current
financial assets 1,654 2,538 71 2,538
Proceeds from sale of subsidiary - 1,073,438 - 1,073,438
Purchase of current financial
assets (151,467) (155,963) (151,467) (155,963)
Proceeds from sale of current
financial assets 978,356 - 978,356 -
-------------------------------------- ------ ----------- ----------- ----------- -----------
Net cash generated from/(used
in) investing activities 689,368 433,900 10,129,054 8,462,987
-------------------------------------- ------ ----------- ----------- ----------- -----------
Cash flow from financing activities
Ordinary dividends paid 10 (6,626,078) (6,047,965) (6,626,078) (6,047,965)
Purchase and cancellation of
own shares - (128,007) - (128,007)
Purchase of own shares by employee
share option trust (981,027) (189,698) (981,027) (189,698)
Proceeds from sale of own shares
by employee
share option trust 637,799 1,132,727 637,799 1,132,727
Net cash used in financing activities (6,969,306) (5,232,943) (6,969,306) (5,232,943)
-------------------------------------- ------ ----------- ----------- ----------- -----------
Net increase in cash and cash
equivalents 5,821,632 3,713,784 45,974 105,036
Cash and cash equivalents at
start of period 13,936,558 10,150,799 180,938 74,755
Effect of exchange rate changes (54,079) 71,975 (1,106) 1,147
-------------------------------------- ------ ----------- ----------- ----------- -----------
Cash and cash equivalents at
end of period 19,704,111 13,936,558 225,806 180,938
-------------------------------------- ------ ----------- ----------- ----------- -----------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 30TH JUNE 2018
The contents of this preliminary announcement have been
extracted from the Company's Annual Report, which is currently in
print and will be distributed within the week. The information
shown for the years ended 30th June 2018 and 30th June 2017 does
not constitute statutory accounts and has been extracted from the
full accounts for the years ended 30th June 2018 and 30th June
2017. 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 30th June 2017 have been filed with the Registrar of
Companies. The accounts for the year ended 30th June 2018 will be
delivered to the Registrar of Companies in due course.
City of London Investment Group PLC ("the Company") is a public
limited company which listed on the London Stock Exchange on 29th
October 2010 and is domiciled and incorporated in the United
Kingdom under the Companies Act 2006.
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
As at 30th June 2018, the following Standards and
Interpretations as adopted by the EU, which are relevant to the
Group, were in issue but applicable to future annual accounting
periods:
IFRS 9 replaces the classification and measurement models for
financial instruments in IAS 39 with three classification
categories: amortised cost, fair value through profit or loss and
fair value through other comprehensive income. The Group's business
model and the contractual cash flows arising from its investments
in financial instruments determine the classification. Equity
instruments will be recorded at fair value, with gains or losses
reported either in the income statement or through equity. However,
where fair value gains and losses are recorded through equity there
will no longer be a requirement to transfer gains or losses to the
Income statement on impairment or disposal.
IFRS 9 also introduces an expected loss model for the assessment
of impairment. The current incurred loss model (under IAS 39)
requires the Group to recognise impairment losses when there is
objective evidence that an asset is impaired; under the expected
loss model, impairment losses are recorded if there is an
expectation of credit losses, even in the absence of a default
event.
This standard is effective for annual periods beginning on or
after 1st January 2018 so applicable to the Group from 1st July
2018. The Group has assessed its financial instruments held as 30th
June 2018, and there will be no change to their measurement except
for a number of small investments currently classified as
available-for-sale, measured at fair value through other
comprehensive income, which will going forward be measured at fair
value through profit or loss. The Group does not anticipate the
impact of the new expected loss model on those assets to be
classified as amortised at cost to be material as a result of the
nature of assets held and no previous experience of defaults.
IFRS 15 deals with revenue recognition and establishes
principles for reporting useful information to users of financial
statements about the nature, amount, timing and uncertainty of
revenue and cash flows arising from an entity's contracts with
customers. Revenue is recognised when a customer obtains control of
goods or service and thus has the ability to direct the use and
obtain the benefits from the goods or service. The Standard
replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and
related interpretations.
This standard is effective for annual periods beginning on or
after 1st January 2018 so applicable to the Group from 1st July
2018. The Group has assessed that IFRS 15 will not have a material
impact on its results or a material change to the estimation of
management fees.
IFRS 16 requires a lessee to recognise lease assets and
liabilities, currently accounted for as operating leases, on the
statement of financial position and recognise amortisation of the
lease assets and interest on the lease liabilities over the term of
the lease. On transition, a lessee may elect not to apply the
requirements to leases for which the lease term ends within 12
months of the date of initial application.
This Standard is effective for annual periods beginning on or
after 1st January 2019, so applicable to the Group from 1st July
2019. The majority of the Group's leases will expire within 12
months of the date of initial application of the Standard and
therefore on transition the Group will continue to account for them
as operating leases until such time they expire. For those leases
that will be recognised as a right-of-use asset and related lease
liability from 1st July 2019, the Group estimates the discounted
value of those lease commitments to be approximately GBP1.7 million
based on current discount values and foreign exchange rates.
No other standards or interpretations issued and not yet
effective are expected to have an impact on the Group's
consolidated financial statements.
Accounting estimates and assumptions
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.
2 BASIS OF CONSOLIDATION
These financial statements consolidate the financial statements
of the Company and all of its subsidiary undertakings. The Group's
subsidiaries are those entities which it directly or indirectly
controls. Control over an entity is evidenced by the Group's
ability to exercise its power in order to affect any variable
returns that the Group is exposed to through its involvement with
the entity.
When assessing whether to consolidate an entity, the Group
evaluates a range of control factors as defined under IFRS 10,
namely:
-- the purpose and design of the entity
-- the relevant activities and how these are determined
-- whether the Group's rights result in the ability to direct
the relevant activities
-- whether the Group has exposure or rights to variable
returns
-- whether the Group has the ability to use its power to affect
the amount of its returns
Subsidiaries are consolidated from the date on which control is
transferred to the Group and are deconsolidated from the date that
control ceases.
The Group's subsidiary undertakings as at 30th June 2018 are
detailed below:
Controlling Country of
Subsidiary undertakings Activity interest incorporation
----------------------------- ------------------- ------------- -------------
City of London Investment Management of funds 100% UK
Management Company Limited
City of London US Investments Holding company 100% UK
Limited
----------------------------- ------------------- ------------- -------------
City of London Investment Management Company Limited holds 100%
of the ordinary shares in the following:
City of London Investment Management (Singapore) PTE Ltd
Management of funds
Singapore
City of London Latin America Limited Dormant company
UK
City of London US Investments Limited holds 100% of the ordinary
shares in the following:
City of London US Services Limited Service company
UK
The registered address of all the UK incorporated companies is
77 Gracechurch Street, London EC3V 0AS. The registered address of
City of London Investment Management Company (Singapore) PTE Ltd is
20 Collyer Quay, #10-04, Singapore 049319.
City of London Latin America Limited is dormant and as such is
not subject to audit.
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 are capitalised at cost and amortised on a
straight line basis over the estimated useful life of the asset.
The Group's only intangible assets are computer software licences,
which are capitalised on the basis of the costs incurred to acquire
and bring into use the specific software. Costs include directly
attributable overheads.
The estimated useful lives range from 4 to 10 years.
The assets are reviewed for impairment each year.
Software integral to a related item of hardware equipment is
accounted for as property, plant and equipment.
Costs associated with maintaining computer software programs are
recognised as an expense when they are incurred.
(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.
Except where investments in funds are identified as
subsidiaries, 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 securities and 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:
Shares - priced using the quoted market mid price*
Options - priced using the quoted market bid price
Forward currency trades - priced using the forward exchange bid
rates from Bloomberg
*The funds managed by the Group are valued at the mid price in
accordance with US GAAP. Therefore, where the Group has identified
investments in those funds as subsidiaries, the fair value
consolidated is the net asset values as provided by the
administrator of the funds. The underlying investments in these
funds are predominantly in blue chip companies and as such are very
tradable with a small bid-ask spread.
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.
(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) Current and deferred taxation
The Group provides for current tax according to the tax
regulations in each jurisdiction in which it operates, using tax
rates that have been enacted or substantively enacted by the
reporting date.
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 Incentive Plan (EIP) which is
open to all employees in the Group. Awards are made to
participating employees over shares under the EIP where they have
duly waived an element of their annual profit-share before the
required waiver date, in general before the start of the relevant
financial year.
The Awards are made up of two elements: Deferred Shares and
Bonus Shares. The Deferred Shares represent the waived profit share
and the Bonus Shares represent the additional award made by the
Company as a reward for participating in the EIP. Awards will vest
(i.e. no longer be forfeitable) over a three year period with
one-third vesting each year.
The full cost of the Deferred Shares is recognised in the year
to which the profit share relates. The value of the Bonus Shares is
expensed on a straight line basis over the period from the date the
employees elect to participate to the date that the awards vest.
This cost is estimated during the financial year and at the point
when the actual award is made, the share-based payment charge is
re-calculated and any difference is taken to the profit or
loss.
Prior to the implementation of the EIP, the Company operated 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 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.
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 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 Europe (ex Other Total
GBP GBP GBP UK) GBP GBP
GBP
----------------------- ---------- ------- ------- ---------- ------ ----------
Year to 30th June
2018
Gross fee income 31,334,283 968,724 453,443 1,174,396 - 33,930,846
Non-current assets:
Property and equipment 324,324 - 85,907 - 40,010 450,241
Intangible assets 244,704 - 47,333 - - 292,037
----------------------- ---------- ------- ------- ---------- ------ ----------
Year to 30th June
2017
Gross fee income 28,893,685 983,509 463,821 953,355 - 31,294,370
Non-current assets:
Property and equipment 413,257 - 107,080 - 40,437 560,774
Intangible assets 339,876 - 20,407 - - 360,283
----------------------- ---------- ------- ------- ---------- ------ ----------
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
Year to Year to
30th June 2018 30th June
The operating profit is arrived at GBP 2017
after charging: GBP
------------------------------------- -------------- ---------
Depreciation of owned assets 200,332 167,748
Amortisation of intangible assets 94,467 62,886
Auditors' remuneration:
- Statutory audit 89,399 75,319
- Audit related assurance services 8,348 8,471
- Under-accrual of prior year audit
fees 1,276 -
Operating lease rentals:
- Land and buildings 434,469 436,617
- Other - 1,886
---------------------------------------- -------------- ---------
6 INTEREST RECEIVABLE AND SIMILAR GAINS
Year to Year to
30th June 2018 30th June
GBP 2017
GBP
------------------------------------------ --------------- ----------
Interest on bank deposit 47,105 28,925
Gain on sale of investments 298,534 187,142
Unrealised loss on investments (89,753) (70,868)
Interest receivable/(payable) on restated
US state tax returns 8,615 (64,064)
------------------------------------------ --------------- ----------
264,501 81,135
------------------------------------------ --------------- ----------
7 TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES
Year to Year to
30th June 2018 30th June
(a) Analysis of tax charge on ordinary GBP 2017
activities: GBP
-------------------------------------------- -------------- ---------
Tax at 19% (2017: 20%) based on the profit
for the period 2,465,715 2,447,718
Double taxation relief (853,093) (966,380)
Deferred tax (79,552) (64,595)
Change in tax rate to 19% - (17,964)
Adjustments in respect of prior years (11,818) 11,312
----------------------------------------------- -------------- ---------
Domestic tax total 1,521,252 1,410,091
----------------------------------------------- -------------- ---------
Foreign tax for the current period 1,195,561 1,396,861
Adjustments in respect of prior years 15,339 (357,735)
----------------------------------------------- -------------- ---------
Foreign tax total 1,210,900 1,039,126
----------------------------------------------- -------------- ---------
Total tax charge in income statement 2,732,152 2,449,217
----------------------------------------------- -------------- ---------
(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 - 19%
(prior year - 20%). The differences are explained below:
Year to Year to
30th June 2018 30th June
GBP 2017
GBP
------------------------------------------ ---------------- -----------
Profit on ordinary activities before
tax 12,792,495 11,590,354
------------------------------------------ ---------------- -----------
Tax at 19% (2017: 20%) thereon (2,430,574) (2,318,071)
Effects of:
Unrelieved overseas tax (342,468) (430,480)
Expenses not deductible for tax purposes (11,757) (28,513)
(Losses)/gains ineligible for tax - (88,482)
Capital allowances less than depreciation (38,884) (9,397)
Prior period adjustments (3,521) 346,423
Deferred tax on share based payments
and investments 79,552 64,595
Change in tax rate to 19% - 17,964
Other 15,500 (3,256)
------------------------------------------ ---------------- -----------
Total tax charge in income statement (2,732,152) (2,449,217)
------------------------------------------ ---------------- -----------
8 EARNINGS PER SHARE
The calculation of earnings per share is based on the profit
attributable to shareholders of the parent for the period of
GBP10,060,343 (2017: GBP9,289,755) divided by the weighted average
number of ordinary shares in issue for the period ended 30th June
2018 of 25,456,382 (2017: 25,188,897).
The Employee Benefit Trust held 1,485,190 ordinary shares in the
Company as at 30th June 2018. 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 attributable to shareholders of the parent for the period of
GBP10,060,343 (2017: GBP9,289,755) divided by the diluted weighted
average of ordinary shares for the period ended 30th June 2018 of
25,617,939 (2017: 25,316,917).
Reconciliation of the figures used in calculating
basic and diluted earnings per share:
30th June 30th June
2018 2017
Number of Number of
shares shares
--------------------------------------------------- ----------- -----------
Weighted average number of shares - basic earnings
per share 25,456,382 25,188,897
Effect of dilutive potential shares - share
options 161,557 128,020
Weighted average number of shares - diluted
earnings per share 25,617,939 25,316,917
--------------------------------------------------- ----------- -----------
9 SHARE CAPITAL
30th June 2018 30th June
2017
Group and Company GBP GBP
------------------------------------------------- ---------------- -----------
Allotted, called up and fully paid
At start of period 26,861,707 (2017: 26,896,707)
Ordinary shares of 1p each 268,617 268,967
Shares repurchased and cancelled; Nil (2017:
35,000) - (350)
------------------------------------------------- ---------------- -----------
At end of period 26,861,707 (2017: 26,861,707)
Ordinary shares of 1p each 268,617 268,617
------------------------------------------------- ---------------- -----------
Fully paid ordinary shares carry one vote per
share and carry a right to dividends.
10 DIVID
30th June 30th June
2018 2017
GBP GBP
-------------------------------------------- ----------- -----------
Dividends paid:
Interim dividend of 9p per share (2017: 8p) 2,295,452 2,026,846
Final dividend in respect of year ended:
30th June 2017 of 17p per share (2016: 16p) 4,330,626 4,021,119
-------------------------------------------- ----------- -----------
6,626,078 6,047,965
-------------------------------------------- ----------- -----------
A final dividend of 18p per share has been proposed, payable on
30th October 2018, subject to shareholder approval, to shareholders
who are on the register of members on 12th October 2018.
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
Assets at
Loans and fair value Available-
through
30th June 2018 receivables profit or for-sale Total
loss
Assets as per statement of GBP GBP GBP GBP
financial position
----------------------------- ------------ ------------- ------------ -----------
Other financial assets - 195,112 38,170 233,282
Trade and other receivables 5,131,938 - - 5,131,938
Available-for-sale financial
assets - - - -
Cash and cash equivalents 19,704,111 - - 19,704,111
----------------------------- ------------ ------------- ------------ -----------
Total 24,836,049 195,112 38,170 25,069,331
----------------------------- ------------ ------------- ------------ -----------
Liabilities Financial
at
fair value liabilities
at
through amortised
profit or cost Total
loss
Liabilities as per statement GBP GBP GBP
of financial position
----------------------------- ------------ ------------- ------------ -----------
Trade and other payables 264,790 4,413,011 4,677,801
----------------------------- ------------ ------------- ------------ -----------
Total 264,790 4,413,011 4,677,801
----------------------------- ------------ ------------- ------------ -----------
Assets at
fair
Loans and value through Available-
30th June 2017 receivables profit or for-sale Total
loss
Assets as per statement of GBP GBP GBP GBP
financial position
----------------------------- ------------ ------------- ------------ -----------
Other financial assets - 135,547 34,660 170,207
Trade and other receivables 5,046,231 65,151 - 5,111,382
Available-for-sale financial
assets - - 915,649 915,649
Cash and cash equivalents 13,936,558 - - 13,936,558
----------------------------- ------------ ------------- ------------ -----------
Total 18,982,789 200,698 950,309 20,133,796
----------------------------- ------------ ------------- ------------ -----------
Liabilities Financial
at
fair value liabilities
at
through amortised
profit or cost Total
loss
Liabilities as per statement GBP GBP GBP
of financial position
----------------------------- ------------ ------------- ------------ -----------
Trade and other payables - 3,284,762 3,284,762
----------------------------- ------------ ------------- ------------ -----------
Total - 3,284,762 3,284,762
----------------------------- ------------ ------------- ------------ -----------
Company
Assets
Investment Loans and at fair Available-
value through
30th June 2018 in subsidiaries receivables profit for-sale Total
or loss
Assets as per statement of GBP GBP GBP GBP GBP
financial position
----------------------------- ---------------- ----------- --------------- ------------ ----------
Other financial assets 1,031,760 - 195,112 38,170 1,265,042
Trade and other receivables - 14,127,536 - - 14,127,536
Available-for-sale financial
assets - - - -- -
Cash and cash equivalents - 225,806 - - 225,806
Total 1,031,760 14,353,342 195,112 38,170 15,618,384
----------------------------- ---------------- ----------- --------------- ------------ ----------
Liabilities at Financial
fair value liabilities
at
through amortised
profit or loss cost Total
Liabilities as per statement GBP GBP GBP
of financial position
----------------------------- ---------------- ---------------------------- ------------ ----------
Trade and other payables - 3,755,555 3,755,555
----------------------------- ---------------- ---------------------------- ------------ ----------
Total - 3,755,555 3,755,555
----------------------------- ---------------- ---------------------------- ------------ ----------
Assets at fair
Investment Loans and value Available-
30th June 2017 in subsidiaries through for-sale Total
receivables profit
or loss
Assets as per statement of GBP GBP GBP GBP GBP
financial position
----------------------------- ---------------- ---------------------------- ------------ ----------
Other financial assets 800,911 - 135,547 33,194 969,652
Trade and other receivables - 7,960,401 - - 7,960,401
Cash and cash equivalents - - - 915,649 915,649
Cash and cash equivalents - 180,938 - - 180,938
----------------------------- ---------------- ---------------------------- ------------ ----------
Total 800,911 8,141,339 135,547 948,843 10,026,640
----------------------------- ---------------- ---------------------------- ------------ ----------
Liabilities at Financial
fair value liabilities
at
through amortised
profit or loss cost Total
Liabilities as per statement GBP GBP GBP
of financial position
----------------------------- ---------------- ---------------------------- ------------ ----------
Trade and other payables - 1,134,436 1,134,436
----------------------------- ---------------- ---------------------------- ------------ ----------
Total - 1,134,436 1,134,436
----------------------------- ---------------- ---------------------------- ------------ ----------
(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 for hedging purposes are valued using the quoted
bid price and shown under level 1.
-- 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 2018 GBP GBP GBP GBP
------------------------------- --------- ----------------------------- --------- ---------
Available-for-sale financial
assets
Investment in own funds - 38,170 - 38,170
------------------------------- --------- ----------------------------- --------- ---------
Total - 38,170 - 38,170
------------------------------- --------- ----------------------------- --------- ---------
Financial assets at fair value
through profit or loss
Investment in other financial
assets 195,112 - - 195,112
Forward currency trades - - - -
------------------------------- --------- ----------------------------- --------- ---------
Total 195,112 - - 195,112
------------------------------- --------- ----------------------------- --------- ---------
Financial liabilities at fair
value through profit or loss
Forward currency trades - 264,790 - 264,790
------------------------------- --------- ----------------------------- --------- ---------
Total - 264,790 - 264,790
------------------------------- --------- ----------------------------- --------- ---------
Level 1 Level 2 Level 3 Total
30th June 2017 GBP GBP GBP GBP
------------------------------- --------- ----------------------------- --------- ---------
Available-for-sale financial
assets
Investment in own funds - 950,309 - 950,309
------------------------------- --------- ----------------------------- --------- ---------
Total - 950,309 - 950,309
------------------------------- --------- ----------------------------- --------- ---------
Financial assets at fair value
through profit or loss
Investment in other financial
assets 135,547 - - 135,547
Forward currency trades - 65,151 - 65,151
------------------------------- --------- ----------------------------- --------- ---------
Total 135,547 65,151 - 200,698
------------------------------- --------- ----------------------------- --------- ---------
Financial liabilities at fair
value through profit or loss - - - -
Forward currency trades
Total - - - -
Company
Level 1 Level 2 Level 3 Total
30th June 2018 GBP GBP GBP GBP
------------------------------- --------- ----------------------------- --------- ---------
Financial assets at fair value
through profit or loss
Investment in other financial
assets 195,112 - - 195,112
Total 195,112 - - 195,112
Available-for-sale financial
assets
Investment in own funds - 38,170 - 38,170
------------------------------- --------- ----------------------------- --------- ---------
Total - 38,170 - 38,170
------------------------------- --------- ----------------------------- --------- ---------
Level 1 Level 2 Level 3 Total
30th June 2017 GBP GBP GBP GBP
------------------------------- --------- ----------------------------- --------- ---------
Financial assets at fair value
through profit or loss
Investment in other financial
assets 135,547 - - 135,547
Total 135,547 - - 135,547
Available-for-sale financial
assets
Investment in own funds - 948,843 - 948,843
------------------------------- --------- ----------------------------- --------- ---------
Total - 948,843 - 948,843
------------------------------- --------- ----------------------------- --------- ---------
Level 3
Level 3 assets as at 30th June 2018 are nil (2017: nil).
The Fund establishes valuation processes and procedures to
ensure that the valuation techniques for investments that are
categorised within Level 3 of the fair value hierarchy are fair,
consistent, and verifiable. The Group is responsible for overseeing
the implementation of the valuation policies and procedures, which
includes the valuation process of the Fund's Level 3
investments.
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 profit reported for the period is GBP1,480
(2017: net loss GBP90,181).
(iii) Foreign currency risk
Almost all of the Group's revenues, and a significant part of
its expenses, are denominated in currencies other than sterling,
principally US 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.
The Group assesses its hedging requirements and executes forward
foreign exchange transactions 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 2018, the Group had net asset balances of
US$5,656,900 (2017: US$5,463,807), offset by forward sales
totalling US$9,000,000 (2017: US$4,750,000). Other significant net
asset balances were C$414,997 (2017: C$452,927), AED299,698 (2017:
AED246,996), and SGD249,673 (2017: SGD159,498).
Had the US dollar strengthened or weakened against sterling as
at 30th June 2018 by 10%, with all other variables held constant,
the Group's net assets would have increased or decreased
(respectively) by approximately 7%, because the US dollar position
is hedged by the forward sales.
(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.
Where the Group holds investments in its own funds, the market
price risk is managed through diversification of the portfolio. A
10% increase or decrease in the price level of the funds' relevant
benchmarks, with all other variables held constant, would not make
a material increase or decrease in the value of the investments and
profit before tax.
The Group is also exposed to market risk 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 loss from hedging recognised in the Group income statement
for the period is GBP89,753 (2017: GBP20,416).
(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 investments
in funds that it manages 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 2018 the Group
held GBP19,704,111 (2017: GBP13,936,558) in cash balances, of which
GBP19,523,996 (2017: GBP13,799,951) 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.
The Group is required to undertake an Internal Capital Adequacy
Assessment Process ("ICAAP"), under which the Board quantifies the
level of capital required to meet operational risks. The objective
of this is to ensure that the firm has adequate capital to enable
it to manage risks which are not adequately covered under the
Pillar 1 requirements. This process includes stress testing for the
effects of major risks, such as a significant market downturn, and
includes an assessment of the Group's ability to mitigate the
risks.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR KQLFFVKFFBBV
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