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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| City Of London Investment Group Plc | LSE:CLIG | London | Ordinary Share | GB00B104RS51 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -5.00 | -1.44% | 343.00 | 344.00 | 357.00 | 356.00 | 349.00 | 349.00 | 44,893 | 16:35:18 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | 58.48M | 14.74M | 0.2908 | 12.24 | 180.42M |
From May 2019 to May 2024
TIDMCLIG
RNS Number : 0243P
City of London Investment Group PLC
15 February 2021
15th February 2021
CITY OF LONDON INVESTMENT GROUP PLC
("City of London", "the Group" or "the Company")
HALF YEAR RESULTS TO 31ST DECEMBER 2020 AND SENIOR MANAGEMENT CHANGES
City of London (LSE: CLIG) announces half year results for the six months to 31st December 2020.
HALF YEAR SUMMARY
Hot Features
Premium
- Funds under Management (FuM) of US$10.9 billion (GBP8.0
billion) at 31st December 2020 (post-merger). This compares
with US$5.5 billion (GBP4.4 billion) at the beginning
of this financial year on 1st July 2020 and US$6.0 billion
(GBP4.5 billion) at 31st December 2019 (pre-merger).
- FuM at 31st January 2021 of US$11.1 billion (GBP8.1 billion)
- Net fee income representing the Group's management fees
on FuM was GBP22.6 million (31st December 2019: GBP16.4
million)
- Underlying profit before tax* was GBP11.2 million (31st
December 2019: GBP6.2 million). Profit before tax was
GBP8.8 million (31st December 2019: GBP6.3 million)
- Increased interim dividend to 11p per share (31st December
2019: 10p) payable on 19th March 2021 to shareholders
on the register on 5th March 2021
*This is an Alternative Performance Measure (APM). Please
refer to CEO statement for more details on APMs.
For access to the full interim report, please follow the link below:
http://www.rns-pdf.londonstockexchange.com/rns/0243P_1-2021-2-14.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 .
SENIOR MANAGEMENT CHANGES
City of London Investment Group is pleased to announce that Deepranjan Agrawal has been appointed as the Chief Financial Officer (CFO) and Alan Hoyt has been appointed as the Chief Technology Officer (CTO) with immediate effect. Both individuals will continue to report to Tom Griffith, Chief Executive Officer of the Group.
Deep Agrawal joined the Company in January 2020 and has been managing the Group's finance function. Deep's experience includes over sixteen years in public practice with Deloitte and, more recently, three years with RSM, serving clients within the asset management industry. Deep has a wealth of relevant knowledge having served a range of asset management companies including large and small investment managers, Investment Trusts and UK authorised funds. Deep completed his Master of Commerce degree from the University of Pune, India and is a Chartered Accountant.
Alan Hoyt joined the Company in 2009 and has over 25 years of experience in the IT industry. Prior to joining CLIM, Alan worked as the Chief Technology Officer for PLANCO, a Hartford Life Company, where his role was expanded to include Vice President. Before PLANCO, Alan held positions at The Vanguard Group, New York Life Benefit Services, and as a Technology Consultant in Boston. Alan holds a Masters in Computer Information Services from Bentley College and a Bachelors in Science from the University of Massachusetts as well as certificates from the Wharton Executive Management program.
Barry Aling, Chairman of City of London Investment Group, said: "In the wake of our merger with Karpus Management Inc. towards the end of 2020, the integration of the Group finance and IT functions is a key element to realising the benefits of the transaction. In that regard, both Deep and Alan's contribution take on additional importance and we welcome them in their new roles."
For further information, please visit www.citlon.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
CHAIRMAN'S STATEMENT
If a salutary reminder was needed of the degree to which globalisation has made the world economically interdependent, the COVID-19 pandemic of 2020 has provided it like no other in the post-war era. Re-reading my last interim statement, written just four weeks before global lockdowns led to a free-fall in equity markets, provides an emphatic reminder that managing extreme volatility is integral to the investment philosophy that we employ in managing clients' assets. This value-driven philosophy underpins the rationale that we employed on behalf of our shareholders, as we successfully completed the KIM merger in October, an event to which I will return below. For reasons of consistency and comparison, commentary in this report relating to assets and performance will refer to our two post-merger operating companies separately, City of London Investment Management (CLIM) and Karpus Investment Management (KIM), while financial and shareholder-related information will refer generally to the holding company, CLIG.
CLIG & COVID
Our CEO, Tom Griffith, will set out in his report some of the challenges and achievements that were addressed over the last six months in confronting the need for remote working for extended periods across our entire business. Although much preparatory groundwork was in place to handle "conventional" disaster recovery events, no one could have foreseen the scale and length of disruption caused by COVID-19. The positive results for the half-year period, which are detailed in this report, are due in no small measure to a working philosophy of "going the extra mile" across the whole Group. To that end, I want to extend the Board's sincere thanks and appreciation to Tom and all of our employees, including those at KIM, for their superb efforts in navigating these challenges with such dedication and professionalism.
Cautious optimism for 2021
Thankfully, the evolution of co-ordinated central bank intervention in the major OECD economies has helped mitigate the immediate domino effect of economic contraction in terms of employment and socio-economic hardship, albeit at considerable cost. In turn, these measures have allowed asset markets to look beyond the current hiatus to the recovery potential that will emerge in the post-vaccine medium term. The ironic outcome is that while governments across the globe battled with unprecedented threats to public health in 2020, fiscal pump-priming propelled many equity markets to all-time highs. In comparison with Europe and North America, the impact of COVID-19 on many emerging economies was more modest, which may help to explain the strong relative performance of the MXEF emerging market index which closed the year at 1291, up 31% from the June closing level, outstripping the recovery in the key global equity indices.
While many will hope that the new US President will encourage a less polarised political discourse in both the domestic and international arenas, there is little doubt that he faces many of the same challenges as his predecessor, be it COVID-19, trade friction or an unsustainable deficit. While a de-escalation in trade friction will assist the post-pandemic global recovery, the possibility of higher taxes and anti-trust policies towards the tech giants from a Democratic administration could test inflated US equity valuations, notably in the Nasdaq universe. Although debt markets remain subdued, the slight rise on US Treasury yields over the last six months suggests early signs that asset price inflation could seep into the wider economy later in the year. But while emerging equity and domestic debt markets cannot be immune to these challenges, the EM space in particular continues to represent compelling value with consensus estimates of an MXEF forward price earnings ratio of 15.6, less than half the equivalent rating for Nasdaq.
Assets and performance
The rebound in CLIM assets from the March 2020 lows continued apace virtually throughout the half year to 31st December 2020 with total funds under management (FuM) rising 31% to an all-time high of US$7.2 billion with strong gains made in both the emerging and international products. FuM level in international strategies reached US$1.7 billion at the end of 2020. Likewise, relative performance of all strategies, which suffered from a dramatic widening of closed-end fund (CEF) discounts in March/April, made excellent progress in the latest half year. The emerging market product posted a relative gain of 6.4%, developed 14.6% and opportunistic value 11.6% against their respective benchmarks over the last six months with the result that more than 95% of CLIM's FuM achieved above average performance for 2020 as a whole. Undoubtedly, a major contributor to this success lies in the sharp narrowing of discounts in the CEF universe over recent months. In the EM strategy for example, the size weighted average discount (SWAD) narrowed from a March high of 22.8% to 14.6% at year-end. While it is true that this rate of discount narrowing is, by definition, unsustainable, a year-end SWAD in the mid-teens is still well above the longer term averages, suggesting that further upside is still possible from this single metric.
Although the KIM merger was only completed on 1st October 2020, it is important for shareholders to view its performance over that three-month period against 2020 as a whole in order to see the underlying trends in the business. KIM's FuM over the last six months rose 6% to US$3.7 billion, an all-time record level and an increase of 34% from the 2020 lows in March. The pace of recovery in KIM's FuM during 2020 reflects the more muted trading conditions in US debt markets, which account for c.60% of KIM's assets but it was particularly pleasing to note that more than 98% of KIM's client assets were retained in the wake of the merger, signalling a very high level of client loyalty to the KIM brand. Of equal importance is the fact that the range of overall FuM levels at KIM across calendar 2020 was just 34% between the March lows and year-end (US$2.8 - US$3.7 billion), compared with 91% (US$3.8 - US$7.2 billion) for CLIM. This countervailing trend in asset volatility represents a central positive factor in the long-term benefits that should derive from the merger.
Results
Profit before tax for the combined entity for the six months to 31st December 2020 was GBP8.8 million (31st December 2019: GBP6.3 million). Underlying profit before tax* for the combined entity for the six months to 31st December 2020 was GBP11.2 million (31st December 2019: GBP6.2 million). These results include a robust three-month contribution from KIM of GBP3.4 million in the latest quarter and GBP7.8 million from CLIM over the full period, the latter equating to a 26% year-on-year increase. Net fee income of GBP22.6 million included GBP5.1 million from KIM and GBP17.5 million from CLIM, the latter a 6% YOY increase. Although CLIM's FuM rose 31% over the six months, average FuM across the six-month period was only 14% ahead of the comparable figure for 2019, in addition to which US dollar weakness and a slightly lower average fee margin of 74bp pared the gain somewhat in sterling terms. Once again, an encouragingly high level of participation in the Employee Incentive Plan (EIP) served to further align the interests of shareholders and employees while access to this Plan will be extended to KIM employees for the first time in the current year. Fully diluted earnings per share for the first half were 17.4p per share on a statutory basis, while underlying fully diluted earnings per share* were 23.4p, an increase of 24% YOY.
Dividends
The recovery momentum achieved in the first half of our financial year, added to the impetus provided by the KIM merger from October provides grounds for cautious optimism for the year as a whole. To that end, your Board is pleased to announce a 1p increase in the interim dividend to 11p per share, equivalent to a 10% increase. This increase makes full provision for the merger-related costs that will impact reported profits in the current year and, within the policy parameters of 1.2 times cover on a five-year rolling basis, leaves the Group with a prudent margin of "headroom" for any unforeseen events in the second half of the year.
The Board
Following the KIM merger, we were delighted to welcome George Karpus as a non-independent, Non-Executive Director (NED) and Dan Lippincott as an Executive Director in October. Although the pandemic has restricted our ability to meet physically in the early post-merger period, George and Dan have already participated actively in the Board's deliberations.
Susannah Nicklin resigned from the Board in September 2020 after serving three years as a NED and we would like to thank Susannah for her valuable contribution to the Group during a transformative period in its development. Rian Dartnell, who served as a Director for five years from 2011 to 2016, rejoined the Board following Susannah's departure. Given Rian's extensive experience in the asset management industry and his familiarity with CLIG over many years, we are pleased to welcome him back into the fold. In the wake of Susannah's departure, Peter Roth was appointed Senior Independent Director while Rian has assumed Chair of the Remuneration Committee and Jane Stabile has replaced Susannah as Chair of the Nomination Committee.
Following these changes, we anticipate a transitional period before we are able to restore the appropriate level of independent representation at the Board level, as defined in the UK Corporate Governance Code. Post 31st December 2020, Tazim Essani has joined the Board as an independent NED from 1st February 2021. Tazim has over 30 years of experience and has a significant track record in strategy and M&A in financial services in the UK and internationally covering integration, management transition and realisation of synergy benefits.
Outlook
Disruptive though the pandemic has been for so many, it has in some ways accelerated the development of technology-led working practices that might otherwise have taken several years. We believe that these trends can assist us in harnessing the potential gains that can flow from the KIM merger more quickly than might otherwise have been the case as we address operational integration of the two businesses. At the same time, rigorous attention to value-driven investment processes for institutional and wealth management clients alike, together with prudential cost controls will remain core drivers in meeting our performance objectives. Our results through the very testing conditions of the last six months and the increasingly diverse business mix that will flow from the KIM merger, provide a sound basis for cautious optimism.
Barry Aling
Chairman
12th February 2021
* This is an Alternative Performance Measure (APM). Please refer to CEO statement for more details on APMs.
CHIEF EXECUTIVE OFFICER'S REVIEW
Merger details
On 13th July 2020, CLIG shareholders approved the acquisition of the entire issued share capital of KIM, a US-based investment management business, on a debt free basis, satisfied through the issuance of newly created CLIG shares. As announced on 1st October 2020, the merger of CLIG with KIM was completed and KIM's client approval process resulted in approximately 98% of client assets being retained.
On a consolidated basis, as of 1st October 2020 CLIG managed client assets of US$9.5 billion via the two wholly-owned subsidiaries. As of 31st December 2020, the combined FuM was US$10.9 billion (31st December 2019: US$6.0 billion).
Integration update
The integration of the Finance and Information Technology functions of the KIM business has been a focus for your management team. From a Finance perspective, KIM's professionals are working with CLIG's Head of Finance, Deepranjan Agrawal, to achieve the enhanced reporting required by a London-listed plc. From an IT perspective, CLIG's cybersecurity, acceptable use, and other related policies are being implemented at KIM, with corresponding modifications of KIM's infrastructure.
COVID-19 update
As highlighted in the 4th January 2021 "Letter from the CEO" published to the citlon.co.uk website, over 90% of our colleagues are currently working remotely. We intend to continue to work remotely in order to reduce the risk of virus transmission, and we do not expect employees back in their local offices in any meaningful number until the summer of 2021. Team members are able to securely connect to all systems and have been provided with additional hardware where necessary. We continue to provide employees with a weekly newsletter summarising virus-related updates, cybersecurity threats, and personal stories. To foster interaction between colleagues, and to combat any feelings of professional isolation as the remote working environment moves towards a full calendar year, we have contracted with a third-party vendor to provide a series of virtual "team connection events" during the winter and spring.
The extended period of quarantines and necessity to work remotely has focused our team on implementing solutions to further enhance the efficiency of the remote working experience for our colleagues. Many of the solutions being implemented have the dual effect of reducing our carbon footprint. For example, electronic signatures, notarisation and facsimile solutions and transitioning pay-slips to electronic platforms all significantly reduce paper usage, peripheral equipment requirements and the energy to produce the paper and power the equipment.
The extended period of quarantines has also forced many constituents in the financial industry to adapt to remote working. In many cases, the industry's resistance/reluctance to change has been a barrier. The broad industry adoption of "green" solutions such as meetings via video conference rather than in-person and electronic signatures rather than wet signatures has moved forward adoption of these solutions and enhanced the technological advancement in these areas.
Current events have emphasised the need for companies in the financial service industry to effectively work remotely. While the technology enables robust and secure remote working capabilities across the organisation, the collegiate culture of my CLIG colleagues is the secret sauce that pulls it all together. While some suggest that the improved ability to work remotely may change working practices in the post-pandemic world, we believe that interaction with colleagues, knowledge transfer, oversight and risk mitigation are all enhanced by being together in the same location.
FuM update
At the end of December, CLIG managed, via the two subsidiaries, US$10.9 billion for their clients. As the KIM business is now under the CLIG umbrella, our reporting on FuM will reflect the two entities, so that our shareholders are able to understand the evolution of the two businesses under different market conditions - for example, KIM manages a mix of equity and fixed income assets for their clients, with approximately 60% of FuM in fixed income securities which are less volatile. As such, in this recent "risk rally", KIM's asset growth was relatively stable, while CLIM's FuM grew by 31% reflecting the circa 72% of client assets in Emerging Market equities. Additional details can be found in the tables and commentary following.
CLIG - FUM by line of business (US$m)
CLIM 30 Jun 18 30 Jun 19 30 Jun 20 31 Dec 20
-------------------- -------------------- -------------------- ----------------
US$m % of US$m % of US$m % of US$m % of
CLIM CLIM CLIM CLIG
total* total* total* total
------ ------ ------------ ------ ------------ ------- -------
Emerging Markets 4,207 83% 4,221 78% 3,828 69% 5,196 47%
International 480 9% 729 14% 1,244 23% 1,700 16%
Opportunistic
Value 174 3% 233 4% 256 5% 306 3%
Frontier 245 5% 206 4% 175 3% 14 0%
Other/REIT 1 0% 7 0% 9 0% 13 0%
------ ------------ ------ ------------ ------ ------------ ------- -------
CLIM total 5,107 100% 5,396 100% 5,512 100% 7,229 66%
------ ------------ ------ ------------ ------ ------------ ------- -------
KIM 30 Jun 18 30 Jun 19 30 Jun 20 31 Dec 20
-------------------- -------------------- -------------------- ----------------
US$m % of US$m % of US$m % of US$m % of
KIM total* KIM total* KIM total* CLIG
total
------ ------------ ------ ------------ ------ ------------ ------- -------
Retail 2,098 67% 2,291 67% 2,401 69% 2,630 24%
Institutional 1,019 33% 1,105 33% 1,087 31% 1,077 10%
------ ------------ ------ ------------ ------ ------------ ------- -------
KIM total 3,117 100% 3,396 100% 3,488 100% 3,707 34%
------ ------------ ------ ------------ ------ ------------ ------- -------
CLIG total 10,936 100%
------------------ ------ ------------ ------ ------------ ------ ------------ ------- -------
*Pre-merger
FuM flows
As mentioned by the Chairman, the second half of 2020 saw global equity markets, and risk assets generally, appreciate, as investors viewed the ongoing COVID-19 vaccine approvals and then inoculations positively from an economic recovery perspective. Fixed income securities, especially US dollar denominated, underperformed equities as the US Federal Reserve pledged to keep short-term rates near zero into 2023. This equity market appreciation boosted CLIG's FuM, specifically as the MSCI Emerging Markets Index increased by 31% over the past six months.
Both CLIM and KIM saw net redemptions over the six-month period. After a period of strong absolute and relative performance, clients rebalanced in order to meet asset allocation targets. In the 2020 Annual Report & Accounts, I highlighted that we expected future outflows from the CLIM Frontier strategy post financial year end - these outflows have now occurred, as the strategy lost US$169 million over the six months.
Net investment flows (US$000's)
CLIM FYE Jun 2018 FYE Jun 2019 FYE Jun 2020 FY 2021,
as of Dec
2020
--------------------- -------------- -------------- -------------- -----------
Emerging Markets (215,083) (183,521) (279,459) (46,600)
International 279,394 252,883 551,102 (11,867)
Opportunistic Value 54,251 48,236 45,914 (5,015)
Frontier 67,000 (21,336) 16,178 (169,443)
REIT - 6,000 4,600 -
--------------------- -------------- -------------- -------------- -----------
CLIM total 185,562 102,262 338,335 (232,925)
--------------------- -------------- -------------- -------------- -----------
KIM FYE Jun 2018* FYE Jun 2019* FYE Jun 2020* FY 2021,
as of Dec
2020**
--------------------- -------------- -------------- -------------- -----------
Retail 46,550 33,701 26,323 (62,441)
Institutional (107,410) 9,050 (67,087) (99,245)
--------------------- -------------- -------------- -------------- -----------
KIM total (60,860) 42,751 (40,764) (161,686)
--------------------- -------------- -------------- -------------- -----------
*Pre-merger
**Includes net investment flows for Retail - (24,407) and
Institutional - (20,264) pertaining to period before 1st October
2020 (pre-merger).
Financial results
This is the first period whereby KIM's financial results are consolidated as a Group company. The Group's net fee income over the period was GBP22.6m, with GBP5.1m from the KIM business, reflecting only one quarter of earnings since the merger on 1st October 2020. Additionally, the dollar weakened during this period - over 95% of CLIM's fee income is USD denominated, whilst 100% of KIM's fee income is USD denominated, so the weaker dollar provided less GBP compared to six months ago. The chart below shows the effect of converting US dollars to sterling at various exchange rates in terms of annual after-tax income based on varying levels of FuM.
FX/Post-tax profit
matrix
Illustration of US$/GBP
rate effect:
--------------------------------------- ------------- ---------- ---------- --------
FuM US$bn: 9.5 10.2 10.9 11.6 12.3
----------- ------------- ---------- ---------- --------
US$/GBP Post-tax, GBPm
------------------------------------------------------------
1.26 21.7 24.2 26.7 29.2 31.7
1.31 20.7 23.1 25.5 27.9 30.3
1.36 19.8 22.1 24.5 26.8 29.1
1.41 19.0 21.2 23.5 25.7 27.9
1.46 18.2 20.4 22.5 24.7 26.8
----------- ------------- ---------- ---------- --------
Assumptions: CLIM KIM
1. Average net fee 73bps 77bps
2. Annual operating GBP6m plus US$8m plus S$1m (GBP1 US$8m
costs = S$1.80)
3. Average tax 21% 24%
Note: The above table is intended to illustrate the approximate
impact of movement in US$/GBP, given an assumed set of trading
conditions.
It is not intended to be interpreted or used as a profit forecast.
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.
Underlying profit and Dec 20 Dec 19 Jun 20
profit before tax
---------------------------
GBP000's GBP000's GBP000's
--------------------------- ------------ ------------ ------------
Net fee income 22,599,770 16,442,291 31,671,002
Administrative expenses (11,355,646) (10,266,420) (20,072,617)
Net interest paid (54,479) (11,470) (56,146)
--------------------------- ------------ ------------ ------------
Underlying profit before
tax 11,189,645 6,164,401 11,542,239
--------------------------- ------------ ------------ ------------
Add back:
Gain/(loss) on investments 454,278 168,559 (887,543)
Acquisition-related costs (1,743,424) - (1,248,195)
Amortisation on acquired
intangibles (1,083,395) - -
--------------------------- ------------ ------------ ------------
Profit before tax 8,817,104 6,332,960 9,406,501
--------------------------- ------------ ------------ ------------
Investment performance
Relative investment performance at both CLIM and KIM was strong for a majority of strategies, as the volatility in the markets provided a favourable trading environment for the respective portfolio management teams. Additional tailwinds were provided by closed-end fund (CEF) discounts narrowing, as investors increased their demand for exposure to equity markets on the back of the continued accommodative monetary policy by central banks globally.
For CLIM, the EM and International CEF products outperformed for the six-month period due to discount narrowing and NAV performance. CLIM's Opportunistic Value strategy also saw narrowing discounts and outperformed due to a tactical overweight to equities. Both of CLIM's relatively new REIT strategies (International & EM) outperformed due to country allocation and stock selection. CLIM's Frontier strategy was an outlier, underperforming during the period due to country allocation. As of 31st December 2020, the Frontier strategy makes up less than 1% of CLIM's FuM.
For KIM, commentary is focused on the three- month performance since the merger completed on 1st October 2020. Five of KIM's six strategies outperformed over the quarter, with only the International Equities strategy underperforming by less than one percentage point. Outperformance over the quarter in the taxable and tax-sensitive fixed income strategies was generated from multiple sources. In equity-based strategies, an overweight to small-caps, combined with discount narrowing in the CEFs, drove relative outperformance.
Dividend and cash
In recognition of the improved results and having regard to the current dividend cover policy the Board has decided to increase the interim dividend by 1 pence to 11 pence per share, which will be paid on 19th March 2021 to shareholders registered at the close of business on 5th March 2021 (2019: 10 pence).
Inclusive of our regulatory and statutory capital requirements, cash in the bank has risen from GBP14.6 million at 30th June 2020 to GBP17.5 million at the end of the calendar year, in addition to the seed investment of GBP4.1 million in the two REIT funds. Our cash reserves will allow us to continue managing the business conservatively through volatile markets while following our dividend policy for our shareholders.
Dividend cover template
The Board retains the policy of distributing a proportion of net profits by way of ordinary dividends, with a target of a 1.2x coverage ratio over a rolling five-year period. The dividend coverage ratio over the rolling five years is 1.32x, ahead of the policy. Our dividend cover template can be found at https://www.citlon.com/ investor-relations/dividend-cover.php, and is also shown on page 10 of our interim accounts. As mentioned in the 2020 Annual Report & Accounts, we strive to be transparent in our approach to managing the balance between maintaining adequate cash reserves to weather shocks to the business, and maintaining an attractive dividend stream for our shareholders. We will monitor, and report upon, the appropriateness of the 1.2x coverage ratio policy over the coming years as we integrate the KIM business.
CLIG share price KPI
CLIG management has adopted two Key Performance Indicators (KPIs) based on the total return of CLIG over a market cycle, which are designed to provide shareholders with an indication of the return they should expect from owning the CLIG business. The KPIs are:
Our share price to compound annually at between 7.5% to 12.5%
-OR-
Our share price to double the cumulative return of the M1EF
Our goal is to achieve one of the two over rolling five-year periods. These measures are meant to stretch the management team, without incentivising managers to take undue levels of risk.
For the five years ending 31st December 2020, CLIG's cumulative total return was 82.5% (12.8% per annum). We therefore meet the first KPI, as the annualised total return outperformed the desired range. We do not meet the second KPI, as the cumulative return of M1EF was 97.2% over the past five years. Since listing in April 2006, the annualised return of a CLIG share is 13.9%.
Due to the ongoing diversification of the CLIG business away from the original Emerging Markets strategy, the management team at CLIG is reviewing the appropriateness of our second KPI. CLIG shareholders now own a business that provides exposures, primarily via closed-end funds, to a wide range of asset classes, including emerging market equities, developed market equities, US taxable and municipal fixed income securities, and REITs. An update will be provided in the 2021 Annual Report & Accounts.
Barry Olliff intended share sales
Subject to being in an open period, Barry Olliff's, Founder and Director, present intention is to sell 250,000 shares at each of 475p, 500p and 525p. In addition, the Company will no longer provide trading intentions for Mr. Olliff post 30th June 2021, which is the Company's year-end.
CLIG outlook
CLIG's three main stakeholders - clients, employees and shareholders - continue to drive our decisions and the strategy behind our business. 2020 was a milestone calendar year for CLIG, as we completed the merger and we look forward to the ongoing impact that George Karpus will have as a NED on the Board, due to his knowledge of the US wealth management space, as well as Executive Director Dan Lippincott, who serves as CIO of KIM.
Global markets remain volatile due to tensions between the US and China and the slow pace of vaccine roll-outs, however with the addition of the KIM team, shareholders should receive the benefits of a more diversified Group via asset class exposure and a mix of retail and institutional clients. The investment management teams at each subsidiary are skilled and experienced in investing on behalf of their respective clients through market cycles, with attractive long-term relative performance figures reflecting those abilities.
On behalf of my colleagues at CLIG, we appreciate your support, and hope that you and your families have a healthy and prosperous 2021. To my fellow CLIG colleagues, thank you for your dedication over the past six months and throughout the COVID-19 pandemic. Your flexibility, hard work, and commitment to our stakeholders has been readily apparent during these challenging times.
Tom Griffith
Chief Executive Officer
12th February 2021
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHSED 31ST DECEMBER 2020
Six months Six months
ended ended Year ended
31st Dec 31st Dec 30th June
2020 2019 2020
(unaudited) (unaudited) (audited)
Note GBP GBP GBP
================================== ==== ============ ============ ============
Revenue
Gross fee income 2 23,733,759 17,317,850 33,263,192
Commissions payable (358,662) (152,665) (167,158)
Custody fees payable (775,327) (722,894) (1,425,032)
================================== ==== ============ ============ ============
Net fee income 22,599,770 16,442,291 31,671,002
================================== ==== ============ ============ ============
Administrative expenses
Employee costs 8,853,182 7,919,480 15,677,364
Other administrative
expenses 2,139,428 2,027,406 3,762,170
Depreciation and amortisation 1,446,431 319,534 633,083
================================== ==== ============ ============ ============
(12,439,041) (10,266,420) (20,072,617)
Operating profit 10,160,729 6,175,871 11,598,385
Net interest receivable/(payable)
and similar gains/(losses) 3 399,799 157,089 (943,689)
================================== ==== ============ ============ ============
Profit before tax and
exceptional items 10,560,528 6,332,960 10,654,696
Exceptional item
Acquisition-related costs (1,743,424) - (1,248,195)
================================== ==== ============ ============ ============
Profit before tax 8,817,104 6,332,960 9,406,501
Income tax expense (2,241,835) (1,276,045) (2,040,523) ================================== ==== ============ ============ ============ Profit for the period 6,575,269 5,056,915 7,365,978 ================================== ==== ============ ============ ============ Profit attributable to: Non-controlling interests 12,330 61,970 (193,602) Equity shareholders of the parent 6,562,939 4,994,945 7,559,580 ================================== ==== ============ ============ ============ Basic earnings per share 4 17.7p 19.9p 30.3p ================================== ==== ============ ============ ============ Diluted earnings per share 4 17.4p 19.4p 29.5p ================================== ==== ============ ============ ============
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHSED 31ST DECEMBER 2020
Six months Six months
ended ended Year ended
==================================
31st Dec 31st Dec 30th June
2020 2019 2020
==================================
(unaudited) (unaudited) (audited)
GBP GBP GBP
================================== =========== =========== ============
Profit for the period 6,575,269 5,056,915 7,365,978
Other comprehensive income:
Items that may be subsequently
reclassified to income statement
Foreign currency translation
difference (175,923) (39,963) (48,494)
---------------------------------- ----------- ----------- ------------
Total comprehensive income
for the period 6,399,346 5,016,952 7,317,484
================================== =========== =========== ============
Attributable to:
Equity shareholders of the
parent 6,387,016 4,954,982 7,511,086
Non-controlling interests 12,330 61,970 (193,602)
---------------------------------- ----------- ----------- ------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31ST DECEMBER 2020
31st Dec 31st Dec 30th June
2020 2019 2020
(unaudited) (unaudited) (audited)
=============================
Note GBP GBP GBP
============================= ==== ============= ============= =============
Non--current assets
Property and equipment 512,846 619,941 542,918
Right-of-use assets 1,863,368 1,977,740 1,933,411
Intangible assets 5 110,260,241 114,882 47,309
Other financial assets 4,326,183 7,744,392 3,994,727
Deferred tax asset 317,371 369,173 348,008
============================= ==== ============= ============= =============
117,280,009 10,826,128 6,866,373
============================= ==== ============= ============= =============
Current assets
Trade and other receivables 7,011,563 6,338,920 6,133,878
Other financial assets - 87,414 -
Cash and cash equivalents 17,545,110 12,509,221 14,594,333
============================= ==== ============= ============= =============
24,556,673 18,935,555 20,728,211
============================= ==== ============= ============= =============
Current liabilities
Trade and other payables (5,910,861) (4,998,307) (5,644,635)
Lease liabilities (584,404) (315,026) (406,179)
Current tax payable (2,061,263) (938,027) (835,849)
============================= ==== ============= ============= =============
Creditors, amounts
falling due within
one year (8,556,528) (6,251,360) (6,886,663)
============================= ==== ============= ============= =============
Net current assets 16,000,145 12,684,195 13,841,548
============================= ==== ============= ============= =============
Total assets less
current liabilities 133,280,154 23,510,323 20,707,921
----------------------------- ---- ------------- ------------- -------------
Non--current liabilities
Lease liabilities (1,301,128) (1,583,762) (1,552,219)
Deferred tax liability (9,809,808) (166,710) (57,874)
Net assets 122,169,218 21,759,851 19,097,828
============================= ==== ============= ============= =============
Capital and reserves
Share capital 6 506,791 265,607 265,607
Share premium account 2,256,104 2,256,104 2,256,104
Merger relief reserve 6 101,538,413 - -
Investment in own
shares 7 (4,575,581) (5,814,037) (5,765,993)
Share option reserve 186,470 245,440 241,467
EIP share reserve 900,795 975,593 1,232,064
Foreign currency differences
reserve (130,038) 54,416 45,885
Capital redemption
reserve 26,107 26,107 26,107
Retained earnings 21,277,645 20,598,471 20,626,405
============================= ==== ============= ============= =============
Attributable to:
Equity shareholders
of the parent 121,986,706 18,607,701 18,927,646
Non-controlling interests 182,512 3,152,150 170,182
----------------------------- ---- ------------- ------------- -------------
Total equity 122,169,218 21,759,851 19,097,828
============================= ==== ============= ============= =============
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHSED 31ST DECEMBER 2020
Total
Foreign attributable
Share Merger Investment Share EIP currency Capital to
Share premium relief in own option share diff redemption Retained share-
capital account reserve shares reserve reserve reserve reserve earnings holders NCI Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
------------------- --------- ----------- ------------- ------------- ---------- ----------- ----------- ----------- ------------- ------------- --------- -------------
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 6,387,016 12,330 6,399,346
Transactions
with owners
Issue of
ordinary
shares on
merger (note
6) 241,184 - 101,538,413 - - - - - - 101,779,597 - 101,779,597
Share issue
costs (note
8) - - - - - - - - (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
------------------- --------- ----------- ------------- ------------- ---------- ----------- ----------- ----------- ------------- ------------- --------- -------------
Total
Foreign attributable
Share Share Merger Investment Share EIP currency Capital to
capital premium relief in own option share diff redemption Retained share-
GBP account reserve shares reserve reserve reserve reserve earnings holders NCI Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
------------------- --------- ----------- -------- ------------- ---------- ---------- ---------- ----------- ------------- ------------- ----------- -------------
At 1st July
2019 265,607 2,256,104 - (5,029,063) 299,011 1,015,316 94,379 26,107 20,075,712 19,003,173 3,405,928 22,409,101
Profit for
the period - - - - - - - - 4,994,945 4,994,945 61,970 5,056,915
Other comprehensive
income - - - - - - (39,963) - - (39,963) - (39,963)
------------------- --------- ----------- -------- ------------- ---------- ---------- ---------- ----------- ------------- ------------- ----------- -------------
Total comprehensive
income - - - - - - (39,963) - 4,994,945 4,954,982 61,970 5,016,952
Transactions
with owners
NCI investment/
redemption - - - - - - - - - - (315,748) (315,748)
Share option
exercise - - - 323,676 (53,571) - - - 53,571 323,676 - 323,676
Purchase
of own shares - - - (2,044,150) - - - - - (2,044,150) - (2,044,150)
Share-based
payment - - - - - 421,739 - - - 421,739 - 421,739
EIP
vesting/forfeiture - - - 935,500 - (461,462) - - - 474,038 - 474,038
Deferred
tax on share
options - - - - - - - - (26,634) (26,634) - (26,634)
Current tax
on share
options - - - - - - - - 5,856 5,856 - 5,856
Dividends
paid - - - - - - - - (4,504,979) (4,504,979) - (4,504,979)
------------------- --------- ----------- -------- ------------- ---------- ---------- ---------- ----------- ------------- ------------- ----------- -------------
Total transactions
with owners - - - (784,974) (53,571) (39,723) - - (4,472,186) (5,350,454) (315,748) (5,666,202)
------------------- --------- ----------- -------- ------------- ---------- ---------- ---------- ----------- ------------- ------------- ----------- -------------
As at
31st December
2019 265,607 2,256,104 - (5,814,037) 245,440 975,593 54,416 26,107 20,598,471 18,607,701 3,152,150 21,759,851
------------------- --------- ----------- -------- ------------- ---------- ---------- ---------- ----------- ------------- ------------- ----------- -------------
Total
attributable
Share Investment Share EIP Foreign Capital to
Share premium in own option share exchange redemption Retained share-
capital account Merger shares reserve reserve reserve reserve earnings holders NCI Total
GBP GBP reserve GBP GBP GBP GBP GBP GBP GBP GBP GBP
GBP
---------------------- -------- --------- -------- ----------- -------- --------- --------- ----------- ----------- ------------ ----------- ------------
At 1st July
2019 265,607 2,256,104 - (5,029,063) 299,011 1,015,316 94,379 26,107 20,075,712 19,003,173 3,405,928 22,409,101
Profit for
the period - - - - - - - - 7,559,580 7,559,580 (193,602) 7,365,978
Comprehensive
income - - - - - (48,494) - - (48,494) - (48,494)
---------------------- -------- --------- -------- ----------- -------- --------- --------- ----------- ----------- ------------ ----------- ------------
Total comprehensive
income - - - - - - (48,494) - 7,559,580 7,511,086 (193,602) 7,317,484
Transactions -
with owners
Derecognisation
of NCI investment - - - - - - - - - - (2,767,519) (2,767,519)
NCI
investment/redemption - - - - - - - - - - (274,625) (274,625)
Share option
exercise - - - 359,431 (57,544) - - - 57,544 359,431 - 359,431
Purchase
of own shares - - - (2,044,150) - - - - - (2,044,150) - (2,044,150)
Share-based
payment - - - - - 695,099 - - - 695,099 - 695,099
EIP vesting/forfeiture - - - 947,789 - (478,351) - - - 469,438 - 469,438
Deferred
tax on share
options - - - - - - - - (79,409) (79,409) - (79,409)
Current tax
on share
options - - - - - - - 6,073 6,073 - 6,073
Dividends
paid - - - - - - - (6,993,095) (6,993,095) - (6,993,095)
---------------------- -------- --------- -------- ----------- -------- --------- --------- ----------- ----------- ------------ ----------- ------------
Total transactions
with owners - - - (736,930) (57,544) 216,748 - - (7,008,887) (7,586,613) (3,042,144) (10,628,757)
---------------------- -------- --------- -------- ----------- -------- --------- --------- ----------- ----------- ------------ ----------- ------------
At 30th June
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 ---------------------- -------- --------- -------- ----------- -------- --------- --------- ----------- ----------- ------------ ----------- ------------
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHSED 31ST DECEMBER 2020
Six months Six months
ended ended Year ended
==================================
31st Dec 31st Dec 30th June
2020 2019 2020
==================================
(unaudited) (unaudited) (audited)
GBP GBP GBP
================================== ============= ============= =============
Cash flow from operating
activities
Operating profit 10,160,729 6,175,871 11,598,385
Adjustments for:
Depreciation of property
and equipment 95,595 268,611 205,144
Depreciation of right-of-use
assets 242,037 - 341,247
Amortisation of intangible
assets 1,108,799 50,923 86,691
Share-based payment credit (20,288) - -
EIP charge 548,098 421,740 685,606
Translation adjustments (35,629) 56,873 (86,860)
---------------------------------- ------------- ------------- -------------
Cash generated from operations
before changes in working
capital 12,099,341 6,974,018 12,830,213
Increase in trade and other
receivables (235,649) (442,543) (71,359)
Increase/(decrease) in trade
and other payables 140,932 (114,393) 139,889
---------------------------------- ------------- ------------- -------------
Cash generated from operations 12,004,624 6,417,082 12,898,743
Interest received 12,823 41,080 74,033
Interest paid on leased
assets (67,302) - (116,958)
Interest paid - (52,550) (13,221)
Taxation paid (1,646,534) (1,017,160) (2,035,690)
================================== ============= ============= =============
Net cash generated from
operating activities 10,303,611 5,388,452 10,806,907
================================== ============= ============= =============
Cash flow from investing
activities
Purchase of property and
equipment (55,314) (62,973) (78,551)
Purchase of non-current
financial assets - - (1,218)
Proceeds from sale of current
financial assets - - 124,209
Acquisition-related costs (1,743,424) - (1,248,195)
Share issue costs (967,880) - -
Cash consideration paid
upon merger (107,943) - -
Cash acquired upon merger 1,054,716 - -
================================== ============= ============= =============
Net cash used in investing
activities (1,819,845) (62,973) (1,203,755)
================================== ============= ============= =============
Cash flow from financing
activities
Ordinary dividends paid (4,980,305) (4,504,979) (6,993,095)
Purchase of own shares by
employee benefit trust (401,288) (2,044,150) (2,044,150)
Proceeds from sale of own
shares by employee
benefit trust 221,712 323,676 359,431
Payment of lease liabilities (247,139) (166,648) (303,243)
Capital (to)/from non-controlling
interest - (315,748) -
================================== ============= ============= =============
Net cash used in financing
activities (5,407,020) (6,707,849) (8,981,057)
================================== ============= ============= =============
Net increase/(decrease)
in cash and cash equivalents 3,076,746 (1,382,370) 622,095
Cash and cash equivalents
at start of period 14,594,333 13,813,089 13,813,089
Cash held in funds* 12,588 88,349 53,819
Effect of exchange rate
changes (138,557) (9,847) 105,330
================================== ============= ============= =============
Cash and cash equivalents
at end of period 17,545,110 12,509,221 14,594,333
================================== ============= ============= =============
* Cash held in International REIT fund consolidated on a net asset basis
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 2020 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 Disclosure and Transparency Rules of the Financial Conduct Authority and International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The accounting policies are consistent with those set out and applied in the statutory accounts of the Group for the year ended 30th June 2020, which were prepared in accordance with IFRSs as adopted by the European Union.
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 2020.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. They therefore continue to adopt the going concern basis in preparing these interim financial statements, having considered the potential impact of COVID-19 on the Group's operations.
New or amended accounting standards and interpretations adopted
The Group has adopted all relevant new or amended accounting standards and interpretations issued by the International Accounting Standards Board (IASB) that are mandatory for the current reporting period. Any new or amended accounting standards that are not mandatory have not been early adopted.
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.
Europe
USA Canada UK (ex UK) Other Total
GBP GBP GBP GBP GBP GBP
======================= ============ =========== ========= ========= ======= ============
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
Six months to 31st
Dec 2019
Gross fee income 16,064,433 603,950 192,163 457,304 - 17,317,850
Non-current assets:
Property and equipment 226,702 - 359,922 - 33,317 619,941
Right-of-use assets 359,717 - 1,531,107 - 86,916 1,977,740
Intangible assets 88,985 - 25,897 - - 114,882
======================= ============ =========== ========= ========= ======= ============
Year to 30th June
2020
Gross fee income 30,893,843 1,166,649 330,992 871,708 - 33,263,192
Non-current assets:
Property and equipment 201,831 - 317,522 - 23,565 542,918
Right-of-use assets 323,813 - 1,441,916 - 167,682 1,933,411
Intangible assets 28,557 - 18,752 - - 47,309
----------------------- ------------ ----------- --------- --------- ------- ------------
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 GBP2,488,298 (30th June 2020 - GBP4,392,106; 31st December 2019 - GBP2,214,410) 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 either of the reporting periods.
3 NET INTEREST RECEIVABLE/(PAYABLE) AND SIMILAR GAINS/(LOSSES)
Six months Six months Year ended
ended ended
==============================
31st Dec 31st Dec 30th June
2020 2019 2020
==============================
(unaudited) (unaudited) (audited)
GBP GBP GBP
============================== ================ ================ ============
Interest on bank deposit 12,823 41,080 74,033
Unrealised gain/(loss)
on investments 454,278 197,026 (886,256)
Unrealised loss on hedging
investments - (28,467) (1,287)
Interest payable on restated
US tax returns - - (13,221)
Interest payable - (952) -
Interest on lease liabilities (67,302) (51,598) (116,958)
399,799 157,089 (943,689)
============================== ================ ================ ============
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 2020.
As set out in note 7 the Employee Benefit Trust held 1,357,158 ordinary shares in the Company as at 31st December 2020. 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 2020.
Reported earnings per share
Six months Six months Year ended
ended ended
==============================
31st Dec 2020 31st Dec 2019 30th June
2020
==============================
(unaudited) (unaudited) (audited)
GBP GBP GBP
============================== ========================== ========================== ============
Profit attributable to
the equity shareholders
of the parent for basic
earnings 6,562,939 4,994,945 7,559,580
------------------------------ -------------------------- -------------------------- ------------
Number of shares Number of Number of
shares shares
------------------------------ -------------------------- -------------------------- ------------
Issued ordinary shares
as at 1st July 26,560,707 26,560,707 26,560,707
Effect of own shares held
by EBT (1,537,864) (1,516,552) (1,595,866)
Effect of shares issued
in the period 12,059,194 - -
------------------------------ -------------------------- -------------------------- ------------
Weighted average shares
in issue 37,082,037 25,044,155 24,964,841
Effect of movements in
share options and EIP awards 615,017 668,253 658,251
------------------------------ -------------------------- -------------------------- ------------
Diluted weighted average
shares in issue 37,697,054 25,712,408 25,623,092
------------------------------ -------------------------- -------------------------- ------------
Basic earnings per share
(pence) 17.7 19.9 30.3
Diluted earnings per share
(pence) 17.4 19.4 29.5
------------------------------ -------------------------- -------------------------- ------------
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 relating tax impact and non-controlling interest.
Underlying profit for calculating underlying earnings per share
Six months Six months Year ended
ended ended
-------------------------------
31st Dec 2020 31st Dec 2019 30th June
2020
-------------------------------
(unaudited) (unaudited) (audited)
GBP GBP GBP
------------------------------- ------------------------ ---------------- ------------
Profit before tax 8,817,104 6,332,960 9,406,501
Add back:
- (Gain)/loss on investments (454,278) (168,559) 887,543
- Acquisition-related costs 1,743,424 - 1,248,195
- Amortisation on acquired
intangibles 1,083,395 - -
------------------------------- ------------------------ ---------------- ------------
Underlying profit before
tax 11,189,645 6,164,401 11,542,239
Tax expense as per the
consolidated income statement (2,241,835) (1,276,045) (2,040,523)
Tax effect on adjustments (117,190) 43,801 (205,418)
Adjustment for NCI (12,330) (61,970) 193,602
------------------------------- ------------------------ ---------------- ------------
Underlying profit after
tax for the calculation
of underlying earnings
per share 8,818,290 4,870,187 9,489,900
------------------------------- ------------------------ ---------------- ------------
Underlying earnings per
share (pence) 23.8 19.4 38.0
Underlying diluted earnings
per share (pence) 23.4 18.9 37.0
------------------------------- ------------------------ ---------------- ------------
* This is an Alternative Performance Measure (APM). Please refer to CEO statement for more details on APMs.
5 INTANGIBLE ASSETS
Direct Long
customer Distribution term
Goodwill relationships channels Trade name software Total
GBP GBP GBP GBP GBP GBP
---------------------- ------------- --------------- ------------- ------------ ---------- --------------
Cost
At 1st July
2020 - - - - 761,971 761,971
Currency translation - - - - (65,428) (65,428)
Additions 69,715,195 35,644,000 4,877,000 1,087,000 - 111,323,195
---------------------- ------------- --------------- ------------- ------------ ---------- --------------
At close of
period 69,715,195 35,644,000 4,877,000 1,087,000 696,543 112,019,738
---------------------- ------------- --------------- ------------- ------------ ---------- --------------
Amortisation
charge
At 1st July
2020 - - - - 714,662 714,662
Currency translation - - - - (63,964) (63,964)
Charge for
the period - 891,100 174,179 18,117 25,403 1,108,799
---------------------- ------------- --------------- ------------- ------------ ---------- --------------
At close of
period - 891,100 174,179 18,117 676,101 1,759,497
---------------------- ------------- --------------- ------------- ------------ ---------- -------------- Net book value: At 31st December 2020 69,715,195 34,752,900 4,702,821 1,068,883 20,442 110,260,241 ---------------------- ------------- --------------- ------------- ------------ ---------- -------------- At 31st December 2019 - - - - 114,882 114,882 ---------------------- ------------- --------------- ------------- ------------ ---------- -------------- At 30th June 2020 - - - - 47,309 47,309 ---------------------- ------------- --------------- ------------- ------------ ---------- --------------
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 8).
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 (see note 8).
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 (see note 8).
The total amortisation charged to the income statement for the three-month period from the date of the merger in relation to direct client relationships, distribution channels and trade name, was GBP1,083,395 (30th June 2020 - n/a, 31st December 2019 - n/a).
Impairment
Goodwill acquired through business combination of GBP69,715,195 relates to the acquired workforce and future expected growth (see note 8).
The Group will review the carrying amount of its cash generating unit (CGU) to which goodwill is allocated annually at each financial year-end (30th June). As at 31st December 2020, there were no factors we considered that indicated an impairment of the goodwill during the period.
6 SHARE CAPITAL AND MERGER RESERVE RELIEF
Share capital Merger relief
reserve
Group and Company GBP GBP
---------------------------------------- -------------- --------------
Allotted, called up and fully paid
At start of period 26,560,707 Ordinary 265,607 -
shares of 1p each
Issue of 24,118,388 Ordinary shares
upon merger with KIM 241,184 101,538,413
---------------------------------------- -------------- --------------
At end of period 50,679,095 Ordinary
shares of 1p each 506,791 101,538,413
---------------------------------------- -------------- --------------
Merger relief reserve - has been created as the issue of ordinary shares by the Company upon the merger with KIM meets the requirements of merger relief under Companies Act 2006 (see note 8).
7 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 2020 the Trust held 679,038 ordinary 1p shares (30th June 2020 - 986,234; 31st December 2019 - 989,449), of which 420,750 ordinary 1p shares (30th June 2020 - 521,875; 31st December 2019 - 534,375) were subject to options in issue.
The Trust also held in custody 678,120 ordinary 1p shares (30th June 2020 - 677,821; 31st December 2019 - 690,094) 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 2020 - 1,357,138; 30th June 2020 - 1,664,055; 31st December 2019 - 1,679,543).
8 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 GBP101,887,540. 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 as follows:
GBP
---------------------------------------------------- -------------
Cash and cash equivalents 1,054,716
Right-of-use assets 156,405
Property and equipment 31,621
Intangibles: direct customer relationships
(note 5) 35,644,000
Intangibles: distribution channels (note 5) 4,877,000
Intangibles: trade name (note 5) 1,087,000
Trade and other receivables 379,977
Trade and other payables (677,879)
Net corporation tax liability (379,580)
Deferred tax liability (10,000,915)
---------------------------------------------------- -------------
Total identifiable assets acquired and liabilities
assumed 32,172,345
Goodwill (note 5) 69,715,195
---------------------------------------------------- -------------
Net assets acquired 101,887,540
---------------------------------------------------- -------------
Satisfied by:
Cash 107,943
Issue of 24,118,388 new ordinary shares 101,779,597
---------------------------------------------------- -------------
Total consideration transferred 101,887,540
---------------------------------------------------- -------------
Net cash inflow arising on merger
Cash consideration paid (107,943)
Less: cash and cash equivalent balance acquired 1,054,716
---------------------------------------------------- -------------
946,773
---------------------------------------------------- -------------
The 30th September 2020 closing exchange rate of 1.292 was used to translate the US dollar acquired assets to our reporting currency.
The intangible assets recognised on completion of the merger of GBP41,608,000 relates to direct customer relationships, distribution channels and KIM's trade name (note 5).
The goodwill of GBP69,715,195 arises as a result of acquired workforce and expected future growth. Any impairment of goodwill in future periods is not expected to be deductible for income tax purposes.
The fair value of the 24,118,388 new ordinary shares issued as part of the consideration paid for KIM was based on the 30th September 2020 closing market price per share of GBP4.22. An amount of GBP101,538,413 was recognised as a merger relief reserve in relation to this new issue of shares. Share issue costs amounting to GBP967,880 were deducted from retained earnings.
Acquisition-related costs of GBP1,743,424 (year ending 2020 - GBP1,248,195) were charged to the income statement and shown under exceptional items.
The gross contractual amount of trade and other receivables acquired is equal to their fair value of GBP379,977 and was considered to be fully recoverable at the date of the merger. The fair value of all other net assets acquired were equal to their carrying value.
During the three months to 31st December 2020, KIM contributed GBP5,137,233 of net fee income and GBP2,637,815 to the Group's consolidated profit for the six months to 31st December 2020.
If the merger was completed at the beginning of the current financial year, KIM would have contributed GBP10,288,727 to the Group's net income and GBP3,563,480 to the Group's profit for the current reporting period.
9 DIVIDS
A final dividend of 20p per share in respect of the year ended 30th June 2020 was paid on 30th October 2020.
An interim dividend of 11p per share (2019 - 10p) in respect of the year ended 30th June 2021 will be paid on 19th March 2021 to members registered at the close of business on 5th March 2021.
10 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 to in the second half of the financial year are substantially the same as those described in the last annual report (see pages 31 to 33), 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 market volatility, loss of key personnel, 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.
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.
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 2020 Level 1 Level 2 Level Total
GBP GBP 3 GBP
GBP
-------------------------------- --------- --------- ----- ---------
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.
31st December 2019 Level 1 Level 2 Level Total
GBP GBP 3 GBP
GBP
=================================== ========= ======= ===== =========
Financial assets at fair value
through profit or loss Investment
in other financial assets 87,414 - - 87,414
Investment in other non-current
financial assets 7,696,378 47,558 456 7,744,392
Forward currency trades - 163,365 - 163,365
=================================== ========= ======= ===== =========
Total 7,783,792 210,923 456 7,995,171
=================================== ========= ======= ===== =========
There are no financial liabilities at fair value at 31st December 2019.
30th June 2020 Level 1 Level 2 Level Total
GBP GBP 3 GBP
GBP
-------------------------------- --------- --------- ----- ---------
Financial assets at fair value
through profit or loss
Investment in other non-current
financial assets 2,212,986 1,781,741 - 3,994,727
-------------------------------- --------- --------- ----- ---------
Total 2,212,986 1,781,741 - 3,994,727
-------------------------------- --------- --------- ----- ---------
Financial liabilities at fair
value through profit or loss
Forward currency trades - 18,063 - 18,063
-------------------------------- --------- --------- ----- ---------
Total - 18,063 - 18,063
-------------------------------- --------- --------- ----- ---------
Level 3
Level 3 assets as of 31st December 2020 were nil (30th June 2020: nil; 31st December 2019: GBP456).
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 GBP3,416 (30th June 2020: net profit GBP29,935; 31st December 2019: net profit GBP126,526).
12 GENERAL
The interim financial statements for the six months to 31st December 2020 were approved by the Board on 12th February 2021. 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.citlon.co.uk.
STATEMENT OF DIRECTOR'S RESPONSIBILITIES
The Directors are responsible for preparing the condensed interim financial statements, in accordance with applicable law and regulations and confirm that, to the best of their knowledge:
- this condensed set of financial statements has been prepared
in accordance with International Accounting Standards
in conformity with the requirements of the Companies Act
2006 and International Financial Reporting Standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies
in the European Union, and
- this condensed set of financial statements includes a
fair review of the information required by Sections DTR
4.2.7R and DTR 4.2.8R of the Disclosure and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
By order of the Board
Tom Griffith
Chief Executive Officer
INDEPENT 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 2020 which comprises 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 and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. 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" adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
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 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34, "Interim Financial Reporting" adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, and the Disclosure 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 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
12th February 2021
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