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City of Lon Inv Grp (CLIG)

  Print          Annual reports

Friday 18 February, 2022

City of Lon Inv Grp

HALF YEAR RESULTS TO 31ST DECEMBER 2021

RNS Number : 0556C
City of London Investment Group PLC
18 February 2022
 

18th February 2022

 

CITY OF LONDON INVESTMENT GROUP PLC

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

 

HALF YEAR RESULTS TO 31ST DECEMBER 2021

 

City of London (LSE: CLIG) announces that it has today made available on its website, https://www.clig.com/ , the Half Year Report and Financial Statements for the six months ended 31st December 2021.

 

The above document has been uploaded to the National Storage Mechanism, in accordance with Listing Rule 9.6.1 R, and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

 

 

HALF YEAR SUMMARY

 

-

Funds under Management (FuM) of US$11.1 billion (£8.2 billion) at 31st December 2021. This compares with US$11.4 billion (£8.3 billion) at the beginning of this financial year on 1st July 2021 and US$10.9 billion (£8.0 billion) at 31st December 2020.

 

-

FuM at 31st January 2022 of US$10.8 billion (£8.0 billion)

 

-

Net fee income representing the Group's management fees on FuM was £29.8 million (31st December 2020: £22.6 million) 

 

-

Underlying profit before tax* was £15.5 million (31st December 2020: £11.2 million).  Profit before tax was £13.6 million (31st December 2020: £8.8 million)

 

-

Maintained interim dividend of 11p per share (31st December 2020: 11p) payable on 25th March 2022 to shareholders on the register on 25th February 2022

 

-

Special dividend of 13.5p per share (31st December 2020: nil) payable on 25th March 2022 to shareholders on the register on 25th February 2022

 

 

 

*This is an Alternative Performance Measure (APM).  Please refer to the CEO review for more details on APMs.

 

 

 

For access to the full interim report, please follow the link below:

 

http://www.rns-pdf.londonstockexchange.com/rns/0556C_1-2022-2-17.pdf

 

This release includes forward-looking statements, which may differ from actual results. Any forward-looking statements are based on certain factors and assumptions, which may prove incorrect, and are subject to risks, uncertainties and assumptions relating to future events, the Group's operations, results of operations, growth strategy and liquidity.

 

 

For further information, please visit www.clig.co.uk or contact:

 

Tom Griffith, CEO

City of London Investment Group PLC

Tel: 001-610-380-0435

 

Martin Green

Zeus Capital Limited

Financial Adviser & Broker

Tel: +44 (0)20 3829 5000

 

 

CHAIR'S STATEMENT

 

The familiar refrain that "it ain't over, till it's over" has often been used in connection with sporting contests but the events of recent months show that it has at least equal validity to global pandemics. Just as the world was recovering some level of normality in the autumn of 2021, courtesy of a global vaccination campaign that now totals 10.4 billion doses, the Omicron variant brought that progress to an abrupt but temporary halt in the closing weeks of the year. The good news for investors is that markets have become less "COVID-sensitive" with each wave recognising perhaps that, over time, vaccine-led herd immunity will outweigh any risk of a return to the extreme social disruption of the last two years.

 

While the ripple effects of the pandemic will continue to reverberate for some time, particularly in relation to supply chain bottlenecks, equity markets are increasingly directing their focus back to the more traditional issues of growth, inflation, monetary policy and geopolitics, each of which present potential challenges in 2022. Meanwhile, as CEO Tom Griffith explains in his report, both CLIG operating subsidiaries have continued to navigate the challenges posed by on/off remote working requirements with full functionality and, on behalf of your Board, I would like to extend our sincere thanks once again to our hard-working employees across all the offices.

 

Assets and performance

Funds under Management (FuM) fell by 2.6% in the six months ended 31st December 2021 to US$11.1 billion due to mixed conditions across the Group's products but were still 2% ahead of the comparable figure at the end of 2020. Although the more defensive, value-driven characteristics of closed-end funds (CEFs) provided positive attribution for the Emerging Markets (EM) strategy in the half year, the 23% fall in Chinese equities, which accounts for around one-third of the index, proved a major drag on both the benchmark and FuM, with an 11% fall over the period to US$4.8 billion. Despite lacklustre markets in the International strategy, this product has continued to attract impressive inflows. The strategy FuM stands at  US$2.1 billion, a 14.2% increase in FuM as compared to 30th June 2021 and a 26.3% increase in FuM as compared to 31st December 2020. While the aggregate FuM numbers at CLIM were little changed over the half-year period at US$7.2 billion, each of the major strategies recorded robust outperformance against their respective benchmarks. Looking forward, the combination of this strong relative performance and an ability to re-commence face-to-face meetings with clients and consultants are anticipated to translate into further inflows in the coming months.

 

KIM's FuM grew by c.1% to US$3.9 billion as compared to 30th June 2021 despite the normal seasonal withdrawals that arise in the final weeks of the calendar year. In comparison with 31st December 2020, however, FuM was 7% higher, thanks mainly to very strong relative performance, particularly in the dominant fixed income space. The issuance of approximately 250 Special Purpose Acquisition Companies (SPACs), represents an addition of US$54 billion to KIM's investable universe. SPACs can offer a fixed income return profile with lower risk, and potential for upside. Pre-merger SPAC investments were an important contributor to returns for KIM in the first half of the financial year. With c.60% of KIM's assets invested in fixed income securities, it is very encouraging to note that they have been able to show strong performance through a period of rising inflation and interest rate expectations and this bodes well for both client retention and new business potential in the coming year.

 

Results

For CLIG, the six months ended December 2021 showed solid progress and it was pleasing to see the positive impact of the merger with KIM in terms of both profits and earnings per share (EPS). Profit before tax for the six months to 31st December 2021 was £13.6 million (31st December 2020: £8.8 million). Following previous practice, I will comment on our results by reference to an Alternative Performance Measure (APM) of "Underlying" profits and EPS, which exclude exceptional or non-recurring items, as we believe that these provide shareholders with a more accurate measure of the Group's financial performance.

 

Underlying profit before tax of £15.5 million was 38.4% up on the equivalent period of 2020, but this figure translates to a 7.8% gain when adjusted for the limited three-month contribution from KIM in the previous period. KIM's underlying profit before tax of £6.9 million was marginally ahead of the previous period on a comparable basis, having absorbed increased costs associated with upgrades to KIM's operating infrastructure. The 11% increase in CLIM's contribution to £8.6 million owes much to the buoyancy of global equity markets in the early months of 2021, which partially reversed in the EM space in the second half of calendar year 2021. The combination of a 10% fall in the MXEF EM index coupled with a 3% rise in the average rate for sterling (vs. US$) in the six months to 31st December 2021 pared growth somewhat but, pleasingly, the blended net fee margin across both operating subsidiaries remained steady at an average rate of 74 bps. Diluted EPS for the first half of the financial year was 21.2p per share on a statutory basis, while underlying EPS rose 3% to 24.1p (2020: 23.4p) on a fully diluted basis.

 

Dividends

Inflationary pressures and a near-term tapering of quantitative easing signal a clear tightening bias from Central Banks and, mindful that economic activity remains "COVID-constrained" in many countries, the outlook for global equities is far from assured in 2022. Against this uncertain background, your Board has declared an unchanged interim dividend of 11p per share, a level which leaves a small degree of "headroom" within the stated dividend cover policy of 1.2/1 over a rolling five-year period. At the same time, the Board is conscious that any accumulation of capital over and above that which is needed for capital investment, regulatory requirements and a prudential cash buffer should be returned to shareholders. Accordingly, the Board has also declared a special dividend of 13.5p per share, making this the second such special distribution in the last three years. Both dividends will be paid on 25th March 2022 to those shareholders registered at the close of business on 25th February 2022.

 

The Board

There were no changes to the Board's membership during the half-year period. However, as acknowledged in our 2021 Annual Report & Accounts, compliance with the UK Corporate Governance Code in respect of independence, together with upcoming rules concerning diversity and inclusion, will necessitate significant changes to the Board's composition going forward. Following a thorough review of these issues, later this year we will present shareholders with a road map towards compliance, recognising the need to reconcile an appropriate level of continuity with adherence to our governance obligations as a UK-listed entity.

 

ESG

The proposed changes to the Board composition, referred to above, form only part of CLIG's commitment to address ESG challenges both within the business and in the wider communities in which we operate. While many of the criteria being codified to measure ESG performance have been a natural part of our culture over many years, it is important for us to record our "ESG modus operandi" in a more formal way in order to apprise shareholders of our ongoing commitment to good governance. To that end, our website has been updated with an Anti-Slavery statement and regular engagement meetings between employees and independent Directors have been established on a rotational basis. Increased emphasis on employee training and initiatives to prioritise diversity and inclusion through each layer of the business also form part of this process. CLIG is firmly committed to the goal of high attainment in the ESG sphere.

 

Outlook

As mentioned earlier, global markets will be confronted this year with progressive reductions in monetary stimulus as pandemic support measures are gradually withdrawn and this is likely to create headwinds for both equity and debt markets. Indeed, benchmarks such as the tech-heavy NASDAQ, which rose by c.130% in the 20 months to November 2021, have appeared more vulnerable to a correction recently with a 9% fall over the last two months. While international equity markets may be less vulnerable to these tech valuation bubbles, the tapering of monetary support, ongoing supply disruptions and geopolitical tensions each have the capacity to destabilise markets in the months ahead and point to the need for a cautious stance. Within the EM space, China will continue to exert a strong influence and the recent tightening of the regulatory environment, coupled with large-scale mobility restrictions arising from China's zero-tolerance COVID policy will constrain both the pace and timing of an economic recovery.

 

It is now 15 months since the merger with KIM and we believe that the results during this period demonstrate the benefits of a more diversified revenue base in terms of both clients and market segments. Thus, despite the clear challenges ahead, we remain optimistic that the value-driven characteristics of CEFs, supported by a macro-economic research focus, will continue to offer enhanced relative performance for our clients and shareholders over the longer term.

 

Barry Aling

Chair

17th February 2022

 

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Diversification

Diversification has been a long-standing theme in our reports over many years in recognition of the need to expand our product offerings, opportunities for employees and our revenue stream. Whilst our unique focus on closed-end funds (CEFs) has enabled us to deliver relative outperformance against a relevant benchmark to our clients over multiple investment cycles, capacity limitations in the CEF universe of available securities have constrained growth.

 

Our approach to this constraint for CLIM has been to apply our team's expertise in CEFs to additional market segments. Sustained CLIM diversification has reached a major milestone over the period with CLIM's International Equity strategy (INTL) surpassing US$2 billion in Funds under Management (FuM) representing 30% of CLIM FuM as of 31st December 2021. As many of our shareholders will recognise, this "overnight success" has taken over a decade to achieve and was only possible as a result of the relentless efforts of the INTL team. Reaching this milestone is a reflection of the hard work by many of our colleagues along with the patience of shareholders.

 

Further, and as a result of top quartile relative performance of the INTL strategy, clients and consultants have shown interest in a Global product, to offer exposure to US and non-US equities. In December 2021, a new product managed by the INTL team was seeded with US$2.5 million, which we expect will attract client assets over the next two years.

 

We refer to the second part of our diversification efforts as CLIG diversification. As indicated in our most recent annual report, the evolution of your company featured the merger with Karpus Investment Management (KIM) in the prior financial year which progressed our diversification efforts.

 

We have expanded our reporting in the below table from previous reporting periods to include both the percentage of FuM for CLIM & KIM strategies along with the percentage of FuM for CLIG. This further breakdown of reporting provides shareholders with an additional data point to follow our diversification efforts, inclusive of the relative growth of the CLIM INTL strategy mentioned previously, over the past five years.

 

FuM flows

Although CLIM's net client flows remain negative for the financial year to date to 31st December 2021 at (US$58.7 million) we have seen this recent trend over the past several quarters begin to reverse. Quarterly inflows increased to US$311 million in the second quarter of the financial year relative to US$123.8 million in the first quarter of the financial year, while outflows reduced to (US$198.5 million) from (US$295 million) respectively.

 

CLIG - FUM by line of business (US$m)

 

 

 

 

 

CLIM

30 Jun 2018

30 Jun 2019

30 Jun 2020

30 Jun 2021

31 Dec 2021

 

US$m

% of CLIM total*

US$m

% of CLIM total*

US$m

% of CLIM total*

US$m

% of CLIM total

% of CLIG total

US$m

% of CLIM total

% of CLIG total

Emerging Markets

4,207

83%

4,221

78%

3,828

69%

5,393

72%

47%

4,800

67%

43%

International

480

9%

729

14%

1,244

23%

1,880

25%

17%

2,147

30%

19%

Opportunistic Value

174

3%

233

4%

256

5%

231

3%

2%

232

3%

2%

Frontier

245

5%

206

4%

175

3%

13

0%

0%

10

0%

0%

Other/REIT

1

0%

7

0%

9

0%

13

0%

0%

12

0%

0%

CLIM total

5,107

100%

5,396

100%

5,512

100%

7,530

100%

66%

7,201

100%

64%

 

 

 

 

 

 

 

 

 

 

 

 

 

KIM

30 Jun 2018

30 Jun 2019

30 Jun 2020

30 Jun 2021

31 Dec 2021

 

US$m

% of KIM total*

US$m

% of KIM total*

US$m

% of KIM total*

US$m

% of KIM total

% of CLIG total

US$m

% of KIM total

% of CLIG total

Retail

2,098

67%

2,291

67%

2,401

69%

2,804

72%

24%

2,830

72%

26%

Institutional

1,019

33%

1,105

33%

1,087

31%

1,115

28%

10%

1,119

28%

10%

KIM total

3,117

100%

3,396

100%

3,488

100%

3,919

100%

34%

3,949

100%

36%

 

 

 

 

 

 

 

 

 

 

 

 

 

CLIG total

 

 

 

 

 

 

11,449

 

100%

11,150

 

100%

*Pre-merger

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment flows (US$000's)

 

 

 

 

 

 

 

 

 

 

CLIM

FYE Jun 2018

FYE Jun 2019

FYE Jun 2020

FYE Jun 2021

FY 2022, as of Dec 2021

Emerging Markets

(215,083)

(183,521)

(279,459)

(275,493)

(279,104)

International

279,394

252,883

551,102

(14,145)

231,705

Opportunistic Value

54,251

48,236

45,914

(102,663)

(6,700)

Frontier

67,000

(21,336)

16,178

(168,843)

(4,575)

REIT

-

6,000

4,600

-

-

CLIM total

185,562

102,262

338,335

(561,144)

(58,674)

 

 

 

 

 

 

KIM

FYE Jun 2018

FYE Jun 2019

FYE Jun 2020

FYE Jun 2021*

FY 2022, as of Dec 2021

Retail

46,550

33,701

26,323

(104,222)

(34,452)

Institutional

(107,410)

9,050

(67,087)

(130,911)

(19,033)

KIM total

(60,860)

42,751

(40,764)

(235,133)

(53,485)

 

 

 

 

 

 

*Includes net investment flows for Retail - (24,407) and Institutional - (20,264) pertaining to period before 1st October 2020 (pre-merger).

 

The above shift resulted from increased CLIM marketing efforts in calendar year 2021 that began to turn the tide of flows positive in the second quarter of this financial year with US$112.5 million of net inflows. Re-opening our INTL strategy to new investors contributed significantly to net inflows after being closed to new investors for the year to December 2020 following a period of strong growth. Currently, we are projecting this positive trend of net inflows to continue through the remainder of the financial year.

 

A handful of CLIM clients in the past six months transferred their account balance from the Emerging Market (EM) strategy to the INTL strategy, illustrating another positive effect of CLIM diversification. Whilst the EM equity asset class may be out of favour, client assets remained at CLIM. Year-end tax planning led to outflows from the KIM strategies.

 

Both CLIM and KIM remain constrained by clients and prospects limiting their access via in-person marketing; we believe in-person marketing and client discussions are a strength of both operating subsidiaries, as investment management remains a relationship-driven business. With this said, we are prepared moving forward with the ability to provide in-person or virtual meetings with clients, consultants and prospective clients depending on their preference.

 

Relative investment performance at both CLIM and KIM was strong during the six months ending 31st December 2021 and for calendar year 2021. All strategies with impactful FuM at both CLIM and KIM outperformed their respective benchmarks in calendar year 2021. These strong returns should buoy marketing efforts in 2022. On the downside, the underperformance of EM equities over the past six months compared to other asset classes did weigh on the ability for CLIM's FuM to grow during what otherwise was a strong equity rally, in particular in US equities.

 

Business integration

While the investment personnel at each subsidiary remain separate and distinct, there is ongoing integration of non-investment management resources to allow for both subsidiaries to benefit from the experience and expertise of colleagues. Both CLIM and KIM have strong brands and reputations in the United States, and operational teams who support the investment personnel are being leveraged to work together.

 

Information Technology (IT) infrastructure integration is ongoing, linking the two networks together and allowing for failover and other synergies to exist. We expect this infrastructure integration to be complete by financial year end at the latest. Additionally, when acting on behalf of the larger, combined entity, there are economies of scale available with IT vendors and contracts for services required by both operating subsidiaries.

 

CLIM Dubai office

CLIM's Dubai office opened in 2007 to allow CLIM to research investment opportunities in the region as well as to increase the Group's visibility in the area. As a number of frontier (pre-emerging) markets were in the region, the office was staffed by two employees to conduct research on the underlying portfolio investments and was critical to the initial development and marketing of the CLIM Frontier strategy. At that time, the weight of the Middle Eastern markets was approximately 12% and 70% of the EM and Frontier equity indices respectively, but are now in the single digits. As a result of the shift in markets that make up the frontier indices from the Middle East and Africa to Asia, we are letting the Dubai office lease expire in March 2022. One employee from the Dubai office has already transferred to CLIM's office in Pennsylvania, while the remaining employee will end his tenure with CLIM in March after taking the necessary steps with regulators, local authorities and vendors to close the office.

 

Financial results

Group FuM as at 31st December 2021 was US$11.1 billion (£8.2 billion). Net fee income currently accrues at a weighted average rate of approximately 74 basis points of FuM. The Group's net fee income for the six months ended 31st December 2021 was £29.8 million, with £10.9 million coming from KIM (31st December 2020: £22.6 million, with £5.1 million coming from KIM for the three months ended 31st December 2020).

 

Profit before tax for the six months ended 31st December 2021 increased to £13.6 million (31st December 2020: £8.8 million). EPS increased by 21% to 21.5p per share for the six months ended 31st December 2021 from 17.7p per share for the six months ended 31st December 2020.

 

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 (which will no longer be applicable after 31st March 2022). The following table 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. It is evident that a stronger US dollar increases sterling post-tax profits, whilst a weaker US dollar causes the opposite. During the six months ended 31st December 2021, the average FX rate was 1.3612, with a closing FX rate of 1.3532 as compared to the average FX rate of 1.3219 for the six months ended 31st December 2020 and a closing FX rate of 1.367 as 31st December 2020.

 

FX/Post-tax profit matrix

 

 

 

 

Illustration of US$/£ rate effect:

 

 

 

 

FuM US$bn:

9.3

10.2

11.1

11.7

12.2

US$/£

Post-tax, £m

1.26

16.6

19.5

22.5

24.4

26.2

1.31

15.7

18.5

21.4

23.2

24.9

1.36

14.9

17.6

20.3

22.1

23.8

1.41

14.1

16.7

19.4

21.0

22.7

1.46

13.4

15.9

18.5

20.1

21.7

Assumptions:

CLIM

KIM

1. Average net fee

72bps

76bps

2. Annual operating costs

£6.7m plus US$8.5m plus S$0.6m (£1 = S$1.82)

US$8.3m

3. Average tax

21%

24%

4. Amortisation of intangible £3m per annum

 

Note: The above table is intended to illustrate the approximate impact of movement in US$/£, given an assumed set of trading conditions. It is not intended to be interpreted or used as a profit forecast.

 

Cash and dividends

The CLIG Board reviews its cash position and overall distribution policy on a regular basis and believes that our policy of a rolling five year dividend cover of 1.2x remains appropriate. Our cash position has grown to £24.5 million at calendar year end in addition to the seed investments of £6.1 million (including £4.0 million in REITs and £1.9 million in the Global product funded in December 2021). After considering the alternatives for returning a portion of this cash to shareholders, the Board has announced an interim dividend of 11p per share in line with last year amounting to c.£5.4 million and a 13.5p special dividend amounting to c.£6.6 million.

 

The first special dividend was paid to shareholders in March 2019, which was 13 years from our original listing date. This second special dividend comes a relatively short three years later due to strong cash generation and was made possible by the support and patience of our shareholders through the recent merger and other diversification efforts. After both the interim and special dividend, and inclusive of seed investments, the Group meets regulatory and statutory requirements with significant operating capital. The option of increasing the final dividend at year end, dependent upon market conditions, remains open.

 

Dividend cover chart

We have provided an illustrative framework which we update twice a year to enable shareholders and other interested parties to calculate our post-tax profits based upon some key assumptions. This dividend cover chart can be found on our website at https://www.clig.com/dividend-cover.php, and is also shown on page 10 of our interim accounts, and shows the quarterly estimated cost of a maintained dividend against actual post-tax profits for last year, the current six months ended 31st December 2021 and the assumed post-tax profit for the six months ended 30th June 2022 and the next financial year based upon assumptions included in the chart.

 

Alternative Performance Measures

The Directors use the following Alternative Performance Measures (APMs) to evaluate the performance of the Group as a whole:

Underlying profit before tax - Profit before tax, adjusted for gain/loss on investments, acquisition-related costs and amortisation of acquired intangibles. This provides a measure of the profitability of the Group for management's decision-making.

Underlying earnings per share - Underlying profit before tax, adjusted for tax as per income statement, tax effect of adjustments and non-controlling interest, divided by the weighted average number of shares in issue as at the period end. Refer to note 4 in the interim financial statements for reconciliation.

 

 

Alternative Performance Measures

 

 

 

 

 

 

 

Underlying profit and profit before tax

Six months ended Dec 21

Six months ended Dec 20

Year ended

 Jun 21

£

£

£

Net fee income

29,839,500

22,599,770

52,450,936

Administrative expenses

(14,282,692)

(11,355,646)

(25,631,432)

Net interest paid

(72,107)

(54,479)

(117,063)

Underlying profit before tax

15,484,701

11,189,645

26,702,441

(Deduct)/add back:

 

 

 

(Loss)/gain on investments

(33,142)

454,278

540,172

Acquisition-related costs

-

(1,743,424)

(1,743,424)

Amortisation on acquired intangibles

(1,876,979)

(1,083,395)

(3,250,185)

Profit before tax

13,574,580

8,817,104

22,249,004

 

Cybersecurity update

In order to counter evolving cybersecurity threats, the Group has recently engaged an external vendor to assess our overall program's operating effectiveness, identify gaps and recommend enhancements.

 

All employees will continue to receive training on a variety of cybersecurity topics throughout the year. We are also expanding the Diversity/Equality/Inclusion training provided in 2021 to include additional related topics.

 

CLIG KPI

As noted in the 2021 Annual Report and Accounts, due to the continued diversification of CLIG's business away from CLIM's core EM strategy, the comparison to MXEF (MSCI EM Index) as a Key Performance Indicator (KPI) is no longer relevant. We retain the share price KPI to show the total return of CLIG over a market cycle. The goal of this KPI is for the total return (share price plus dividends) to compound annually in a range of 7.5% to 12.5% over a five-year period. This KPI is meant to stretch the management team, without incentivising managers to take undue levels of risk.

 

For the five years ended 31st December 2021, CLIG's cumulative total return was 108.7%, or 15.8% annualised, which exceeded the KPI by 3.3 percentage points on an annualised basis. Since listing in April 2006, the annualised return of a CLIG share is 14.4%. All values are sourced from Bloomberg.

 

CLIG outlook

Efforts to diversify from CLIM's EM-centric strategy via development of the INTL strategy proved timely with the underperformance of EM equities over the past five years relative to other equity asset classes. We believe that ongoing growth via diversification, including the merger with KIM, will continue to benefit all stakeholders by reducing the volatility of earnings and broadening our client base. The support of our stakeholders is appreciated as we continue to grow the combined business.

 

We remain guided in our decision-making by considering the best interests of our three major stakeholders - Clients, Employees, and Shareholders. We operate in a global market environment which remains volatile. Investors are concerned by a variety of factors including inflationary pressures, the response of central banks, geopolitical risks and the ongoing nature of the pandemic. Nevertheless, our continued strong cash position, while allowing for the payment of a special dividend, maintains a margin of safety for the Group in the face of any sustained downturn in markets and FuM.

 

Additionally, the efforts of our colleagues at both CLIM and KIM during another challenging six-month period is a key differentiator. They remain committed to the business and their responsibilities in the face of ongoing volatility and uncertainty caused by the ongoing pandemic. The Group has largely been spared from the impact of "The Great Resignation", and we hope that our colleagues continue to feel supported and valued, while also recognising the impact and contribution of their hard work being reflected in the strong position of the larger Group. Their attitude, perseverance, and determination are the engine room that continue to drive this Group forward.

 

Tom Griffith

Chief Executive Officer

17th February 2022

 

 

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2021

 

 

 

Six months ended

 

Six months ended

 

 

Year ended

31st Dec 2021

31st Dec 2020

30th June 2021

(unaudited)

(unaudited)

(audited)

 

Note

£

£

£

Revenue

Gross fee income

 

2

 

31,444,729

 

23,733,759

 

55,123,274

Commissions payable

 

(782,728)

(358,662)

(1,100,708)

Custody fees payable

 

(822,501)

(775,327)

(1,571,630)

Net fee income

 

29,839,500

22,599,770

52,450,936

Administrative expenses

Employee costs

 

 

11,162,624

 

8,853,182

 

20,045,406

Other administrative expenses

 

2,767,044

2,139,428

4,866,625

Depreciation and amortisation

 

2,230,003

1,446,431

3,969,586

 

 

(16,159,671)

(12,439,041)

(28,881,617)

Operating profit before exceptional item

 

13,679,829

10,160,729

23,569,319

Exceptional item

 

 

 

 

Acquisition-related costs

 

-

(1,743,424)

(1,743,424)

Operating profit

 

13,679,829

8,417,305

21,825,895

Net interest (payable)/receivable and similar (losses)/gains

3

(105,249)

399,799

423,109

Profit before taxation

 

13,574,580

8,817,104

22,249,004

Income tax expense

 

(3,021,473)

(2,241,835)

(5,258,486)

Profit for the period

 

10,553,107

6,575,269

16,990,518

Profit attributable to:

Non-controlling interests

 

 

(4,093)

 

12,330

 

19,285

Equity shareholders of the parent

 

10,557,200

6,562,939

16,971,233

Basic earnings per share

4

21.5p

17.7p

39.4p

Diluted earnings per share

4

21.2p

17.4p

38.8p

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2021

 

 

Six months ended

Six months ended

 

Year ended

31st Dec 2021

31st Dec 2020

30th June 2021

(unaudited)

(unaudited)

(audited)

£

£

£

Profit for the period

10,553,107

6,575,269

16,990,518

Other comprehensive income:

 

 

 

Items that may be subsequently reclassified to income statement

 

 

 

Foreign currency translation difference

2,064,275

(175,923)

(6,675,136)

Total comprehensive income for the period

12,617,382

6,399,346

10,315,382

Attributable to:

Equity shareholders of the parent

 

12,621,475

 

6,387,016

 

10,296,097

Non-controlling interests

(4,093)

12,330

19,285

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31ST DECEMBER 2021

 

 

 

31st Dec 2021

(unaudited)

31st Dec 2020

(unaudited)

30th June 2021

(audited)

Note

£

£

£

Non‐current assets

Property and equipment

 

2

 

541,920

 

512,846

 

455,983

Right-of-use assets

2

2,483,666

1,863,368

2,757,179

Intangible assets

2,5

101,119,637

110,260,241

100,961,992

Other financial assets

 

6,210,092

4,326,183

4,373,485

Deferred tax asset

 

370,265

317,371

366,405

 

 

110,725,580

117,280,009

108,915,044

Current assets

Trade and other receivables

 

 

6,484,325

 

7,011,563

 

6,953,470

Cash and cash equivalents

 

24,506,056

17,545,110

25,514,619

 

 

30,990,381

24,556,673

32,468,089

Current liabilities

Trade and other payables

 

 

(7,031,598)

 

(5,910,861)

 

(8,260,597)

Lease liabilities

 

(402,151)

(584,404)

(392,954)

Current tax payable

 

(1,374,356)

(2,061,263)

(1,367,564)

 

Creditors, amounts falling due within one year

 

 

(8,808,105)

 

(8,556,528)

 

(10,021,115)

Net current assets

 

22,182,276

16,000,145

22,446,974

Total assets less current liabilities

 

132,907,856

133,280,154

131,362,018

Non‐current liabilities

 

 

 

 

Lease liabilities

 

(2,126,921)

(1,301,128)

(2,348,101)

Deferred tax liability

 

(8,389,334)

(9,809,808)

(8,696,813)

Net assets

 

122,391,601

122,169,218

120,317,104

Capital and reserves

 

 

 

 

Share capital

 

506,791

506,791

506,791

Share premium account

 

2,256,104

2,256,104

2,256,104

Merger relief reserve

 

101,538,413

101,538,413

101,538,413

Investment in own shares

6

(6,926,039)

(4,575,581)

(6,068,431)

Share option reserve

 

168,935

186,470

195,436

EIP share reserve

 

1,071,618

900,795

1,282.884

Foreign currency differences reserve

 

(4,564,976)

(130,038)

(6,629,251)

Capital redemption reserve

 

26,107

26,107

26,107

Retained earnings

 

28,129,274

21,277,645

27,019,584

Attributable to:

Equity shareholders of the parent

 

 

122,206,227

 

121,986,706

 

120,127,637

Non-controlling interests

 

185,374

182,512

189,467

Total equity

 

122,391,601

122,169,218

120,317,104

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2021

 

 

 

 

 

Share capital

£

 

 

Share premium account

£

 

 

Merger relief reserve

£

 

 

Investment

in own

shares

£

 

 

Share option reserve

£

 

 

EIP

share

reserve

£

 

Foreign currency diff

reserve

£

 

Capital redemption

reserve

£

 

 

 

Retained

earnings

£

Total

attributable

to

share-

holders

£

 

 

 

 

NCI

£

 

 

 

 

Total

£

At 1st July 2021

506,791

2,256,104

101,538,413

(6,068,431)

195,436

1,282,884

(6,629,251)

26,107

27,019,584

120,127,637

189,467

120,317,104

Profit for the period

-

-

-

-

-

-

-

-

10,557,200

10,557,200

(4,093)

10,553,107

Other comprehensive income

-

-

-

-

-

-

2,064,275

-

-

2,064,275

-

2,064,275

Total comprehensive income

 

-

 

-

 

 

-

 

-

 

-

 

2,064,275

 

-

 

10,557,200

 

12,621,475

 

(4,093)

 

12,617,382

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

Share option exercise

-

-

-

124,250

(12,787)

-

-

-

12,787

124,250

-

124,250

Purchase of own shares

-

-

-

(2,349,321)

-

-

-

-

-

(2,349,321)

-

(2,349,321)

Share-based payment

-

-

-

-

17,285

465,900

-

-

-

483,185

-

483,185

EIP vesting/forfeiture

-

-

-

1,367,463

-

(677,166)

-

-

-

690,297

-

690,297

Deferred tax on share options

-

-

-

-

(30,999)

-

-

-

(2,992)

(33,991)

-

(33,991)

Current tax on share options

-

-

-

-

-

-

-

-

12,890

12,890

-

12,890

Dividends paid

-

-

-

-

-

-

-

-

(9,470,195)

(9,470,195)

-

(9,470,195)

Total transactions with owners

 

-

 

-

 

-

 

(857,608)

 

(26,501)

 

(211,266)

 

-

 

-

 

(9,447,510)

 

(10,542,885)

 

-

 

(10,542,885)

As at

31st December 2021

 

506,791

 

2,256,104

 

101,538,413

 

(6,926,039)

 

168,935

 

1,071,618

 

(4,564,976)

 

26,107

 

28,129,274

 

122,206,227

 

185,374

 

122,391,601

 

 

 

 

 

 

 

 

 

 

 

  Share capital

  £

 

 

 

Share premium account

£

 

 

 

Merger relief reserve

£

 

 

 

Investment

in own

shares

£

 

 

 

Share option reserve

£

 

 

 

EIP

share

reserve

£

 

 

Foreign currency diff

reserve

£

 

 

 

Capital redemption

reserve

£

 

 

 

 

Retained

earnings

£

 

Total

attributable

to

share-

holders

£

 

 

 

 

 

NCI

£

 

 

 

 

 

Total

£

At 1st July 2020

265,607

2,256,104

-

(5,765,993)

241,467

1,232,064

45,885

26,107

20,626,405

18,927,646

170,182

19,097,828

Profit for the period

-

-

-

-

-

-

-

-

6,562,939

6,562,939

12,330

6,575,269

Other comprehensive income

-

-

-

-

-

-

(175,923)

-

-

(175,923)

-

(175,923)

Total comprehensive income

 

-

 

-

 

-

 

(175,923)

 

6,562,939

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue of ordinary shares on merger

 

241,184

 

-

 

101,538,413

 

-

 

-

 

-

 

-

 

-

 

-

 

101,779,597

 

-

 

101,779,597

Share issue costs

-

-

-

-

-

-

-

-

(967,880)

(967,880)

-

(967,880)

Share option exercise

-

-

-

221,712

(34,709)

-

-

-

34,709

221,712

-

221,712

Purchase of own shares

-

-

-

(401,288)

-

-

-

-

-

(401,288)

-

(401,288)

Share-based payment

-

-

-

-

(20,288)

371,035

-

-

-

350,747

-

350,747

EIP vesting/forfeiture

-

-

-

1,369,988

-

(702,304)

-

-

-

667,684

-

667,684

Deferred tax on share options

-

-

-

-

-

-

-

-

1,777

1,777

-

1,777

Dividends paid

-

-

-

-

-

-

-

-

(4,980,305)

(4,980,305)

-

(4,980,305)

Total transactions with owners

 

241,184

 

-

 

101,538,413

 

1,190,412

 

(54,997)

 

(331,269)

 

-

 

-

 

(5,911,699)

 

96,672,044

 

-

 

96,672,044

As at

31st December 2020

 

506,791

 

2,256,104

 

101,538,413

 

(4,575,581)

 

186,470

 

900,795

 

(130,038)

 

26,107

 

21,277,645

 

121,986,706

 

182,512

 

122,169,218

 

 

 

 

 

 

 

Share capital

£

 

 

Share premium account

£

 

 

 

 

Merger

reserve

£

 

 

Investment

in own

shares

£

 

 

Share option reserve

£

 

 

EIP

share

reserve

£

 

 

Foreign

exchange

reserve

£

 

 

Capital redemption

reserve

£

 

 

 

Retained

earnings

£

Total

attributable

to

share-

holders

£

 

 

 

 

NCI

£

 

 

 

 

Total

£

As at 1st July 2020

265,607

2,256,104

-

(5,765,993)

241,467

1,232,064

45,885

26,107

20,626,405

18,927,646

170,182

19,097,828

 

Profit for the period

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

16,971,233

 

16,971,233

 

19,285

 

16,990,518

Other comprehensive income

-

-

-

-

-

-

(6,675,136)

-

-

(6,675,136)

-

(6,675,136)

Total comprehensive income

-

-

-

-

(6,675,136)

-

16,971,233

19,285

10,315,382

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

Issue of ordinary shares on merger

241,184

-

101,538,413

-

-

-

-

-

-

101,779,597

-

101,779,597

Share issue costs

-

-

-

-

-

-

-

-

(967,881)

(967,881)

-

(967,881)

Share option exercise

-

-

-

830,819

(119,787)

-

-

-

119,787

830,819

-

830,819

Purchase of own shares

-

-

-

(2,503,244)

-

-

-

-

-

(2,503,244)

-

(2,503,244)

Share-based payment

-

-

-

-

(12,023)

760,645

-

-

-

748,622

-

748,622

EIP vesting/forfeiture

-

-

-

1,369,987

-

(709,825)

-

-

-

660,162

-

660,162

Deferred tax on share options

-

-

-

-

85,779

-

-

-

(20,574)

65,205

-

65,205

Current tax on share options

-

-

-

-

-

-

-

-

33,738

33,738

-

33,738

Dividends paid

-

-

-

-

-

 

-

-

(9,743,124)

(9,743,124)

-

(9,743,124)

Total transactions with owners

241,184

-

101,538,413

(302,438)

(46,031)

50,820

-

-

(10,578,054)

90,903,894

-

90,903,894

As at 30th June 2021

506,791

2,256,104

101,538,413

(6,068,431)

195,436

1,282,884

(6,629,251)

26,107

27,019,584

120,127,637

189,467

120,317,104

 

 

 

CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2021

 

 

Six months ended

Six months ended

 

Year ended

 

31st Dec 2021

31st Dec 2020

30th June 2021

 

(unaudited)

(unaudited)**

(audited)

Note

£

£

£

Cash flow from operating activities

Profit before taxation

 

 

13,574,580

 

8,817,104

 

22,249,004

Adjustments for:

 

 

 

 

Depreciation of property and equipment

 

89,650

95,595

187,714

Depreciation of right-of-use assets

 

259,144

242,037

492,730

Amortisation of intangible assets

5

1,881,209

1,108,799

3,289,142

Share-based payment charge/(credit)

 

17,285

(20,288)

(12,023)

EIP-related charge

 

466,945

548,098

802,314

Loss/(gain) on investments

3

33,142

(454,278)

(540,172)

Interest receivable

3

(4,926)

(12,823)

(17,689)

Interest payable

3

77,033

67,302

134,752

Translation adjustments

 

185,970

(35,628)

33,529

Cash generated from operations before changes in working capital

 

 

16,580,032

 

10,355,918

 

26,619,301

Decrease/(increase) in trade and other receivables

 

469,138

(235,649)

(439,607)

(Decrease)/(increase) in trade and other payables

 

(540,999)

140,932

2,800,465

Cash generated from operations

 

16,508,171

12,261,201

28,980,159

Interest received

3

4,926

12,823

17,689

Interest paid on leased assets

3

(77,033)

(67,302)

(133,827)

Interest paid

 

-

-

(925)

Taxation paid

 

(3,496,583)

(1,646,534)

(5,841,493)

Net cash generated from operating activities

 

12,939,481

8,560,188

23,021,603

Cash flow from investing activities

Purchase of property and equipment and intangibles

 

 

(173,807)

 

(55,314)

 

(93,342)

Purchase of non-current financial assets

 

(1,889,216)

-

(715)

Proceeds from sale of non-current financial assets

 

7,080

-

-

Cash consideration paid on merger net of cash acquired

 

-

946,773

946,773

Net cash (used in)/generated from investing activities

 

(2,055,943)

891,459

852,716

Cash flow from financing activities

Ordinary dividends paid

 

8

 

(9,470,195)

 

(4,980,305)

 

(9,743,124)

Purchase of own shares by employee benefit trust

 

(2,349,321)

(401,288)

(2,503,244)

Proceeds from sale of own shares by employee benefit trust

 

124,250

221,712

830,819

Payment of lease liabilities

 

(243,459)

(247,139)

(486,680)

Share issue costs

 

-

(967,881)

(967,881)

Net cash used in financing activities

 

(11,938,725)

(6,374,901)

(12,870,110)

Net (decrease)/increase in cash and cash equivalents

 

(1,055,187)

3,076,746

11,004,209

Cash and cash equivalents at start of period

 

25,514,619

14,594,333

14,594,333

Cash held in funds*

 

41,574

12,588

20,357

Effect of exchange rate changes

 

5,050

(138,557)

(104,280)

Cash and cash equivalents at end of period

 

24,506,056

17,545,110

25,514,619

 

 *Cash held in funds was consolidated using accounts drawn up as at end of period.

 **Following an FRC corporate reporting review of the Group's 2020 Annual Report and Accounts, in accordance with IAS 7 paragraph 16,  acquisition-related costs and share issue costs disclosed as cash flows from investing activities in the 2020/2021 half year report have been restated as cash flows from operating and financing activities within the 2020 comparative above. This restatement does not impact closing cash; it solely relates to the classification of these 2020 exceptional cash outflows as operating activities and net cash used in financing activities respectively as opposed to investing activities as previously reported. Refer note 11 'Restatement of comparative cash flow information'.

 

 

NOTES

 

1  BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES 

 

The financial information contained herein is unaudited and does not comprise statutory financial information within the meaning of section 434 of the Companies Act 2006. The information for the year ended 30th June 2021 has been extracted from the latest published audited accounts and delivered to the Registrar of Companies. The report of the independent auditor on those financial statements contained no qualification or statement under s498(2) or (3) of the Companies Act 2006.

 

These interim financial statements have been prepared in accordance with the UK-adopted International Accounting Standard 34 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. The accounting policies adopted and the estimates and judgements used in the preparation of the unaudited consolidated financial statements are consistent with those set out and applied in the statutory accounts of the Group for the year ended 30th June 2021, which were prepared in accordance with International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

 

The consolidated financial information contained within this report incorporates the results, cash flows and financial position of the Company and its subsidiaries for the period to 31st December 2021.

 

Group companies are regulated and perform annual capital adequacy and liquidity assessments, which incorporates a series of stress tests on the Group's financial position over a three-year period from 30th November 2021. These forecasts have been prepared taking into account the potential impact of COVID-19 on the Group's operations.

 

The Group's financial projections and the capital adequacy and liquidity assessments provide comfort that the Group has adequate financial and regulatory resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis of accounting in preparing the interim financial statements.

 

New or amended accounting standards and interpretations adopted

The Group has adopted all relevant new or amended International Accounting Standards and interpretations as adopted by the UK that are mandatory for the current reporting period. Any new or amended accounting standards that are not mandatory have not been early adopted. None of the standards not yet effective are expected to have a material impact on the Group's financial statements.

 

 

2  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 UK)

£

 

Other

£

 

Total

£

Six months to 31st Dec 2021

Gross fee income

 

29,950,594

 

739,166

 

160,150

 

594,819

 

-

 

31,444,729

Non-current assets:

 

 

 

 

 

 

Property and equipment

262,246

-

255,745

-

23,929

541,920

Right-of-use assets

1,278,965

-

1,174,344

-

30,357

2,483,666

Intangible assets

101,116,490

-

3,147

-

-

101,119,637

Six months to 31st Dec 2020

Gross fee income

 

22,387,190

 

699,921

 

163,838

 

482,810

 

-

 

23,733,759

Non-current assets:

 

 

 

 

 

 

Property and equipment

184,989

-

296,693

-

31,164

512,846

Right-of-use assets

394,820

-

1,352,725

-

115,823

1,863,368

Intangible assets

110,248,634

-

11,607

-

-

110,260,241

Year to 30th June 2021

Gross fee income

 

52,215,280

 

1,458,957

 

356,462

 

1,092,575

 

-

 

55,123,274

Non-current assets:

 

 

 

 

 

 

Property and equipment

175,387

-

-

26,399

455,983

Right-of-use assets

1,421,279

-

1,263,534

-

72,366

2,757,179

Intangible assets

100,954,615

-

7,377

-

-

100,961,992

 

The Group has classified gross fee income based on the domicile of its clients and non-current assets based on where the assets are held.

 

Included in gross fee income are fees of £2,966,412 (year to 30th June 2021 - £5,470,051; six months to 31st December 2020 - £2,488,298) which arose from fee income from the Group's largest customer. No other single customer contributed 10 per cent or more to the Group's revenue in any of the reporting periods.

 

 

 3  NET INTEREST (PAYABLE)/RECEIVABLE AND SIMILAR (LOSSES)/GAINS 

 

 

 

Six months ended

 

Six months ended

 

Year ended

31st Dec 2021

31st Dec 2020

30th June 2021

(unaudited)

(unaudited)

(audited)

£

£

£

Interest on bank deposit

4,926

12,823

17,689

Unrealised (loss)/gain on investments

(36,511)

454,278

540,172

Realised gain on investments

3,369

-

-

Interest payable on lease liabilities

(77,033)

(67,302)

(133,827)

Interest payable on restated US tax returns

  -

  -

(925)

 

(105,249)

399,799

423,109

 

 

4  EARNINGS PER SHARE

 

The calculation of earnings per share is based on the profit for the period attributable to the equity shareholders of the parent divided by the weighted average number of ordinary shares in issue for the six months ended 31st December 2021.

 

As set out in note 6 the Employee Benefit Trust held 1,689,428 ordinary shares in the Company as at 31st December 2021. The Trustees of the Trust have waived all rights to dividends associated with these shares. In accordance with IAS 33 "Earnings per share", the ordinary shares held by the Employee Benefit Trust have been excluded from the calculation of the weighted average number of ordinary shares in issue.

 

The calculation of diluted earnings per share is based on the profit for the period attributable to the equity shareholders of the parent divided by the diluted weighted average number of ordinary shares in issue for the six months ended 31st December 2021.

 

Reported earnings per share

 

 

Six months ended

 

Six months ended

 

Year ended

31st Dec 2021

31st Dec 2020

30th June 2021

(unaudited)

(unaudited)

(audited)

£

£

£

Profit attributable to the equity shareholders of the parent for basic earnings

10,557,200

6,562,939

16,971,233

 

 

 

 

 

Number of shares

Number of shares

Number of shares

Issued ordinary shares as at 1st July

  50,679,095

  26,560,707

26,560,707

Effect of own shares held by EBT

  (1,558,012)

  (1,537,864)

(1,502,266)

Effect of shares issued in the period

  -

  12,059,194

18,039,233

Weighted average shares in issue

49,121,083

37,082,037

43,097,674

Effect of movements in share options and EIP awards

636,718

615,017

677,739

Diluted weighted average shares in issue

49,757,801

37,697,054

43,775,413

Basic earnings per share (pence)

21.5

17.7

39.4

Diluted earnings per share (pence)

21.2

17.4

38.8

 

Underlying earnings per share*

Underlying earnings per share is based on the underlying profit after tax*, where profit after tax is adjusted for gain/loss on investments, acquisition-related costs, amortisation of acquired intangibles, their related tax impact and non-controlling interest.

 

Underlying profit for calculating underlying earnings per share

 

 

Six months ended

 

Six months ended

 

Year ended

31st Dec 2021

31st Dec 2020

30th June 2021

(unaudited)

(unaudited)

(audited)

£

£

£

Profit before tax

13,574,580

8,817,104

22,249,004

Add back/(deduct):

 

 

 

-  Loss/(gain) on investments

  33,142

  (454,278)

(540,172)

- Acquisition-related costs

  -

  1,743,424

1,743,424

- Amortisation on acquired intangibles

  1,876,979

  1,083,395

3,250,185

Underlying profit before tax

15,484,701

11,189,645

26,702,441

Tax expense as per the consolidated income statement

(3,021,473)

(2,241,835)

(5,258,486)

Tax effect of acquisition-related costs and amortisation of acquired intangibles

(456,805)

(117,190)

(677,412)

Adjustment for NCI

4,093

(12,330)

(19,285)

Underlying profit after tax for the calculation of underlying earnings per share

12,010,516

8,818,290

20,747,258

Underlying earnings per share (pence)

24.5

23.8

48.1

Underlying diluted earnings per share (pence)

24.1

23.4

47.4

 

* This is an Alternative Performance Measure (APM). Please refer to the CEO review for more details on APMs.

 

 

 5  INTANGIBLE ASSETS  

 

31st December 2021

31st Dec 2020

30th Jun 2021

 

Goodwill

Direct customer relationships

Distribution channels

Trade name

Long term software

Total

Total

Total

 

£

£

£

£

£

£

£

£

Cost

 

 

 

 

 

 

 

 

At start of period

65,123,297

33,472,334

4,590,186

1,018,983

689,100

104,893,900

761,971

761,971

Acquired on acquisition

-

-

-

-

-

-

111,323,195

111,323,195

Currency translation

1,438,949

559,626

66,246

18,856

(4,865)

2,078,812

(65,428)

(7,191,266)

At close of period

66,562,246

34,031,960

4,656,432

1,037,839

684,235

106,972,712

112,019,738

104,893,900

Amortisation charge

 

 

 

 

 

 

 

 

At start of period

-

2,673,300

522,535

54,350

681,723

3,931,908

714,662

714,662

Charge for the period

-

1,543,828

301,764

31,387

4,230

2,061,955

1,108,799

3,289,142

Currency translation

-

36,867

7,207

749

(4,865)

(140,788)

(63,964)

(71,896)

At close of period

-

4,253,995

831,506

86,486

681,088

5,853,075

1,759,497

3,931,908

Net book value

66,562,246

29,777,965

3,824,926

951,353

3,147

101,119,637

110,260,241

100,961,992

                   

 

Goodwill, direct client relationships, distribution channels and trade name acquired through business combination relates to the merger with KIM on 1st October 2020 (see note 7).

 

The fair values of KIM's direct customer relationships and the distribution channels have been measured using a multi-period excess earnings method. The model uses estimates of annual attrition driving revenue from existing customers to derive a forecast series of cash flows, which are discounted to a present value to determine the fair values of KIM's direct customer relationships and the distribution channels.

 

The fair value of KIM's trade name has been measured using a relief from royalty method. The model uses estimates of royalty rate and percentage of revenue attributable to trade name to derive a forecast series of cash flows, which are discounted to a present value to determine the fair value of KIM's trade name.

 

The total amortisation charged to the income statement for the six months ended 31st December 2021 in relation to direct client relationships, distribution channels and trade name, was £1,876,979 (nine-month period from the date of the merger to 30th June 2021 - £3,250,185, three-month period from the date of the merger to 31st December 2020 - £1,083,395).

 

Impairment 

Goodwill acquired through business combination is in relation to the merger with KIM and relates to the acquired workforce and future expected growth of the Cash Generating Unit (CGU).

 

The Group's policy is to test goodwill arising on acquisition for impairment annually, or more frequently if changes in circumstances indicate a possible impairment. The Group has considered whether there have been any indicators of impairment during the six months ended 31st December 2021, which would require an impairment review to be performed. The Group has considered indicators of impairment with regard to a number of factors, including those outlined in IAS 36 'Impairment of assets'. Based upon this review, the Group has concluded that there are no such indicators of impairment as at 31st December 2021.

 

 

6  INVESTMENT IN OWN SHARES

 

Investment in own shares relates to City of London Investment Group PLC shares held by an Employee Benefit Trust on behalf of City of London Investment Group PLC.

 

At 31st December 2021 the Trust held 1,001,315 ordinary 1p shares (30th June 2021 - 913,038; 31st December 2020 - 679,038), of which 366,750 ordinary 1p shares (30th June 2021 - 405,750; 31st December 2020 - 420,750) were subject to options in issue.

 

The Trust also held in custody 688,113 ordinary 1p shares (30th June 2021 - 678,120; 31st December 2020 - 678,120) for employees in relation to restricted share awards granted under the Group's Employee Incentive Plan (EIP).

 

The Trust has waived its entitlement to receive dividends in respect of the total shares held (31st December 2021 - 1,689,428; 30th June 2021 - 1,591,158; 31st December 2020 - 1,357,138).

 

 

7  BUSINESS COMBINATIONS

 

On 1st October 2020 City of London Investment Group PLC completed the merger of Snowball Merger Sub, Inc. with and into Karpus Management Inc. dba Karpus Investment Management (KIM), a US-based investment management business, on a debt free basis, by way of a scheme of arrangement in accordance with the New York Business Corporation Law, with KIM being the surviving entity in the Merger. CLIG acquired 100% of voting equity interest in KIM and the merger was satisfied by issue of new ordinary shares and cash for a total consideration of £101,887,540. KIM uses closed-end funds (CEFs) amongst other securities as a means to gain exposure for its client base comprising of US high net worth clients and corporate accounts. It qualifies as a business as defined in IFRS 3 "Business Combinations". The merger is considered to be of substantial strategic and financial benefit to the Group and its shareholders.

 

Details of the net assets acquired, goodwill and purchase consideration are detailed in note 6 on pages 107 to 108 of the Annual Report and Accounts for the year ended 30th June 2021.

 

 

 8  DIVIDENDS 

 

A final dividend of 22p per share (gross amount payable £11,149,401; net amount paid £9,470,195*) in respect of the year ended 30th June 2021 was paid on 29th October 2021.

 

An interim dividend of 11p per share (2021 - 11p) (gross amount payable £5,574,700; net amount payable £5,388,863*) in respect of the year ending 30th June 2022 will be paid on 25th March 2022 to members registered at the close of business on 25th February 2022.

 

In addition, a special dividend of 13.5p per share (2021 - nil) (gross amount payable £6,841,678; net amount payable £6,613,605*) in respect of the year ending 30th June 2022 will be paid on 25th March 2022 to members registered at the close of business on 25th February 2022.

 

* Difference between gross and net amounts is on account of shares held at EBT that do not receive dividend and 25% waived dividend on new shares issued upon merger in accordance with the lockup deed (applicable for dividends for the year ended 30th June 2021 only).

 

 

 9  PRINCIPAL RISKS AND UNCERTAINTIES

 

In the course of conducting its business operations, the Group is exposed to a variety of risks including market, liquidity, operational and other risks that may be material and require appropriate controls and on-going oversight.

 

The principal risks to which the Group will be exposed in the second half of the financial year are substantially the same as those described in the last annual report (see page 28 and 29 of the Annual Report and Accounts for the year ended 30th June 2021), being the impact of the COVID-19 pandemic, the potential for loss of FuM as a result of poor investment performance, client redemptions, breach of mandate guidelines or material error, loss of key personnel, Technology/IT, cybersecurity and business continuity, legal and regulatory risks.

 

Changes in market prices, such as foreign exchange rates and equity prices will affect the Group's income and the value of its investments.

 

Most 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 exposures.

 

 

 10  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.

 

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.

-

Unlisted equity securities are valued using the net assets of the underlying companies and are shown under Level 3.

 

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.

 

31st December 2021

Level 1

£

Level 2

£

Level 3

£

Total

£

Financial assets at fair value through profit or loss

 

 

 

 

Investment in other non-current financial assets

4,366,296

1,843,796

-

6,210,092

Forward currency trades

-

37,650

-

37,650

Total

4,366,296

1,881,446

-

6,247,742

 

There are no financial liabilities at fair value at 31st December 2021.

 

 

31st December 2020

Level 1

£

Level 2

£

Level 3

£

Total

£

Financial assets at fair value through profit or loss

 

 

 

 

Investment in other non-current financial assets

2,424,277

1,901,906

-

4,326,183

Forward currency trades

-

261,379

-

261,379

Total

2,424,277

2,163,285

-

4,587,562

 

 

 

 

 

 

 

 

There are no financial liabilities at fair value at 31st December 2020.

 

 

 

 

 

 

30th June 2021

Level 1

£

Level 2

£

Level 3

£

Total

£

Financial assets at fair value through profit or loss

 

 

 

 

Investment in other non-current financial assets

2,498,719

1,874,766

-

4,373,485

Total

2,498,719

1,874,766

-

4,373,485

Financial liabilities at fair value through profit or loss

 

 

 

 

Forward currency trades

-

69,558

-

69,558

Total

-

69,558

-

69,558

 

 

 

 

 

 

 

 

 

 

 

 

There were no transfers between any of the levels in the reporting period.

 

All fair value gains and losses included in other comprehensive income relate to the investment in own funds.

 

Where there is an impairment in the investment in own funds, the loss is reported in the income statement. No impairment was recognised during the period or the preceding year.

 

The fair value gain on the forward currency trades is offset in the income statement by the foreign exchange losses on other currency assets and liabilities held during the period and at the period end. The net loss reported for the period is £19,116 (30th June 2021: net loss £60,607; 31st December 2020: net loss £3,416).

 

 

11  RESTATEMENT OF COMPARATIVE CASH FLOW INFORMATION

 

The FRC's corporate reporting review of the Group's Annual Report and Accounts to 30th June 2020 highlighted that IAS 7 Statement of cash flows paragraph 16 prevents items being classified as investing activities unless a corresponding asset is also capitalised. Acquisition-related costs were incurred over both the year ended 30th June 2020 and in the six months ended 31st December 2020. The FRC's review was completed after the publication of the interim financial statements for the six months ended 31st December 2020 and thus the same restatement made to the full year 2020 financial statements has been made to correct the comparative cash flow statement for the six months ended 31st December 2020.

 

Cash outflows related to acquisition-related costs of £1,743,424 and share issue costs of £967,881 have now been presented within cash flows from operating activities and financing activities respectively as opposed to cash flows from investing activities in the Consolidated cash flow statement.

 

Net cash generated from operating activities for the six months ended 31st December 2020 has decreased by £1,743,424 from £10,303,612 to £8,560,188, net cash used in investing activities has decreased by £2,711,304 from cash used in investing activities of £1,819,845 to cash generated of £891,459, and net cash used in financing activities has increased by £967,881 from £5,407,020 to £6,374,901.

 

 

 

Previously reported

Restatement

Restated

£

£

£

Cash flow statement line item

 

 

 

Net cash generated from operating activities

10,303,612

(1,743,424)

8,560,188

Acquisition-related costs

(1,743,424)

-

(1,743,424)

Share issue costs

(967,881)

-

(967,881)

Net cash (used in)/generated by investing activities

(1,819,845)

2,711,304

891,459

Net cash used in financing activities

(5,407,020)

(967,881)

(6,374,901)

 

The FRC's enquiries regarding this matter are now complete. It must be noted that the FRC's review is limited to the published 2020 Annual Report and Accounts; it does not benefit from a detailed understanding of underlying transactions and provides no assurance that the Annual Report and Accounts are correct in all material respects. Further details are provided within the Audit and Risk Committee report included in Annual Report and Accounts for the year ended 30th June 2021.

 

 

12  GENERAL

 

The interim financial statements for the six months ended 31st December 2021 were approved by the Board on 17th February 2022. These financial statements are unaudited, but they have been reviewed by the auditors, having regard to International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. 

 

Copies of this statement are available on our website www.clig.co.uk.

 

 

STATEMENT OF DIRECTOR'S RESPONSIBILITIES

 

The Directors confirm that to the best of our knowledge:

 

-

The condensed set of financial statements has been prepared in accordance with IAS34 Interim Financial Reporting as adopted by the UK; and

 

-

The Half Year Report includes a fair review of the information required by:

 

-

DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and 

 

-

DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

The Directors of City of London Investment Group PLC are as listed in the Annual Report and Accounts 2020-2021. A list of current Directors is maintained at www.clig.co.uk.

 

By order of the Board

 

Tom Griffith

Chief Executive Officer

 

 

 

INDEPENDENT REVIEW REPORT TO CITY OF LONDON INVESTMENT GROUP PLC

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31st December 2021 which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing and presenting the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the Group will be prepared in accordance with UK-adopted International Accounting Standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as contained in UK-adopted International Accounting Standards.

 

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31st December 2021 is not prepared, in all material respects, in accordance with International Accounting Standard 34, "Interim Financial Reporting" as contained in UK-adopted International Accounting Standards, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Use of our report

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board and for the purpose of the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority. Our review work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

 

 

RSM UK Audit LLP

Chartered Accountants

25 Farringdon Street

London EC4A 4AB

 

17th February 2022

 

 

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