17th Sep 2007 07:01
City of London Investment Group PLC17 September 2007 For release at 0700h, 17 September 2007 CITY OF LONDON INVESTMENT GROUP PLC ("City of London", "the Group", or "the Company") PRELIMINARY RESULTS FOR THE YEAR TO 31 MAY 2007 SUMMARY City of London Investment Group PLC (AIM: CLIG), a leading emerging market assetmanagement group, announces preliminary results for the year to 31 May 2007. • First full year as a publicly listed company following Admission to AIM in April 2006 • Funds under management increased by 38% to US$3.79 billion • Profit before tax up 55% to £7.3 million • Basic earnings per share up 47% to 19.9p, fully diluted earnings per share up 50% to 17.5p • Recommended final dividend of 7p per share payable on 15 November 2007 to shareholders on the register on 2 November, making a total for the year of 10p • Funds under management up by a further 8% to US$4.09 billion at the end of the first quarter (31 August 2007) Andrew Davison, Chairman, said, "These record results demonstrate the strengthand cash generation characteristics of the Group. Together with the strongungeared balance sheet, they provide us with a secure platform from which togrow our traditional business lines and to diversify carefully and cautiouslyinto new ones." Barry Olliff, Chief Executive, added, "Since its inception, we have run ourbusiness in a manner that is both conservative and relatively unfashionable. Wedon't manage hedge funds. We don't manage any money from an absolute returnperspective, preferring to manage money relative to a benchmark. We manage moneyusing a team approach. We do not encourage the cult of the individual. We have developed our diversification plans significantly over the past year andwould expect them to continue to develop and bear fruit during the next year. Both FUM and pre-tax profit for the first quarter of the new financial year aresignificantly ahead of budget." Enquiries to: Doug Allison, Finance Director John West / Andrew DunnCity of London Investment Group PLC Tavistock CommunicationsTel: 020 7711 0771 Tel: 020 7920 3150 Jeff Keating / Fred Walsh / Simon BrownLandsbanki Securities (UK) LimitedNominated Adviser & BrokerTel: 020 7426 9000 For further information about City of London, please visit www.citlon.co.uk The pages that follow are extracted from the Company's Annual Report, which iscurrently in print and will be distributed within the next two weeks Chairman's Statement I am pleased once again to report a year of good progress for City of LondonInvestment Group, the first full year for which the Group's shares have beenquoted on the AIM market of the London Stock Exchange. Since the financial yearend in May, the volatility in all markets in which we invest for our clients hasincreased significantly as a result of the problems first encountered in UScredit markets. Although this additional volatility has affected our investmentactivities in the first quarter of the current financial year, Funds underManagement at the end of August totalled some US$4.093 billion compared to the31st May figure of US$3.793 billion. Our markets have always been volatile and our performance to date in the newfinancial year provides, I believe, endorsement that our business model issufficiently robust to continue to generate outperformance against benchmarkseven in recent market conditions. In order to provide some financial protectionto the Group from the worst of the volatility, we have this year instituted alimited hedging programme which is described more fully, along with our view ofthe Group's target investment markets, in the Chief Executive's Review and theAccounts that follow my statement. Results Funds under management during the period under review increased by 38% to US$3.8billion (2006: US$2.8 billion) reflecting both our outperformance in growingemerging markets and additional funds from existing and new clients. As a resultof the growth in funds under management, turnover increased by almost 30% to£18.3 million (2006: £14.1 million). The higher turnover figure translated, dueto the operational gearing inherent in our business, into a 55% increase inprofit before tax to £7.3 million (2006: £4.7 million after AIM listing costs of£483,000). Net profit for the period after a 34% tax charge (2006: 38%) was £4.9million (2006: £2.9 million), producing basic earnings per share up 47% to 19.9p(2006: 13.5p) and fully diluted earnings per share of 17.5p (2006: 11.7p). Retained profit for the year, after the paid and proposed dividend payments setout below was £4.1 million (2006: £0.7 million). As a result of thesubstantially higher level of retained profits for the year, shareholders' fundsalmost doubled to £8.6 million (2006: £4.3 million), including cash balances atthe year end of £6.6 million (2006: £2.7 million). The Group has no borrowings.A more detailed explanation of the accounts for the year is contained in theFinancial Review. Dividends The Board is recommending a final dividend in respect of the financial year to31st May 2007 of 7p per share. Subject to approval by shareholders at the AnnualGeneral Meeting, the dividend will be paid on 15th November 2007 to shareholderson the register on 2nd November 2007. Together with the interim dividend of 3pper share paid in March, this makes a total for the year of 10p. No dividend waspaid as a publicly listed company in 2006 reflecting the fact that City ofLondon listed on AIM less than two months before the financial year end. The Group's dividend policy is based on paying dividends to shareholders thatare twice covered by earnings and to pay one third of the annual total as aninterim dividend and two thirds as a final dividend. This year's interimdividend of 3p per share therefore implied a final dividend of 6p. In the event,the Board decided to recommend a final dividend of 7p per share taking intoaccount the year end cash balances and the continuing satisfactory financialperformance of the Group. Going forward, we intend to maintain our currentdividend policy and to declare or recommend dividends with the interim and fullyear results announced in January and September respectively followed bypayments in February and November. Review City of London's investment management services, provided predominantly toinstitutional clients, are focused on closed-end funds investing in the world'semerging markets. In addition, the Group manages investments in direct equitiesin both emerging and natural resource markets. We provide our services currentlyfrom three offices in the United States, London and Singapore. The emerging market universe in which we principally invest began the financialyear at relatively depressed levels but recovered strongly during the first halfand this momentum was maintained during the second half as investmentfundamentals in many of the territories remained strong. The positive emergingmarket performance ended abruptly after the year end as international investorsshied away from perceived higher risk investments and markets, following theproblems disclosed by lenders in the US mortgage markets. Shareholders shouldtake comfort from the fact that the higher volatility of markets now is anenvironment we are used to and have successfully dealt with over our history asan investment manager specialising in emerging markets. Good progress has been made towards our strategic objective to diversify ourbusiness. A number of new mandates were won during the period and it is pleasingto report that such success is continuing not only in our traditional coremarket of North America but also in Europe where we have invested in increasedmarketing of the Group's services. At the same time, we have been planning theaddition - when market conditions are appropriate - of two new funds forEuropean distribution, a natural resources fund and an emerging markets highyield fund. These will provide further diversification from our originalinvestment management activities. The Group's geographical presence will be expanded with the planned opening ofan office in the increasingly important emerging markets of the Middle East.Subject to the necessary regulatory approvals, we expect to open an office inDubai by the end of the fourth quarter of calendar 2007. Initially this officewill have a staff of two. Investor Relations and Corporate Governance As a Company we set great store by being as open as possible with ourshareholders and one of the principal means of communication is, of course, theweb site (www.citlon.co.uk). This has recently been upgraded so that theInvestor Relations section now complies fully with AIM Rule 26, which came intoforce in August. Outlook We expect to continue to grow City of London Investment Group for the benefit ofits clients and shareholders, managers and staff around the world. These recordresults demonstrate the strength and cash generation characteristics of theGroup. Together with the strong ungeared balance sheet, they provide us with asecure platform from which to grow our traditional business lines and todiversify carefully and cautiously into new ones. The current year has startedpositively with the Group in good shape to deliver further progress, subjectonly, and always, to the performance of our investment markets. I am confidentthat the excellence of our staff combined with the strength of our process willenable us to continue to capitalise to the maximum extent on the opportunitiesthat lie ahead. Andrew DavisonChairman 14th September 2007 Chief Executive Officer's Review The listing This is our first full year as a listed company and it's been a surprise to methe extent that, as far as our company is concerned, it's been business asusual. We have not found being listed a distraction. Possibly this was as aresult of us having most of the required internal controls in place for manyyears prior to listing. Neither have there been changes in our Governance. TheBoard appointed a further Independent Director, David Cardale at the point oflisting, but apart from this there has been no noticeable difference in the waywe are running the Group. One item of City of London Investment Management Company's publications thatmight be of interest to Group shareholders is our Statement on CorporateGovernance and Voting Policy for Closed-End Funds, 2007. This is the sixthedition of this document that was first issued in 1999. Where relevant we followthe principles within this document in the running of the Group. The past financial year The past year has been eventful. Funds under management ("FUM") have increasedfrom $2.750bn to $3.793bn. Or measured in sterling from £1.471bn to £1.916bn.Due to the ongoing out performance of the emerging market asset class we haveexperienced significant rebalancing. These rebalancings totalled approximately$269mn. Fortunately as a result of ongoing good investment performance theselost assets were replaced. In my opinion this puts us in a good position for abear market because this will mean that clients are, to a significant extent,presently adjusting their exposure to emerging markets, reducing the need forthis to occur when markets are falling. Please refer to the Financial reviewbelow for more information regarding our currency hedging strategy, togetherwith a table showing the sensitivity of our income to moves in the $/£ exchangerate. In April we started to hedge (you could say) our P&L, but in reality we werehedging our FUM against a fall in world stock markets. Rather than believingthat our asset class was expensive we were attempting to take into account thatworld stock markets seemed expensive (the emerging markets are to some extentpriced off world markets), that the move upwards had been very sharp and thatour profits were significantly ahead of budget. Our concern was to get asignificant percentage of these profits into shareholders hands in the form ofdividends. Whilst believing that we remain in an emerging markets secular bullmarket, we decided to place $100,000 at the end of April and May (and wecontinued with this program with similar amounts in June and July) into thepurchasing of out of the money puts. As at the end of August the profit on thisinvestment was $171,325. We review this exposure and value it daily, reflectingits valuation on a monthly basis through our management accounts. At the point of listing we did not make a forecast regarding dividends for y/e2007. At the interim stage we declared a dividend of 3p and stated that basedupon present conditions we intended to pay a twice covered dividend. At thattime that could have been projected as a potential final dividend of 6p. In theevent as a result of increased FUM and profits, and subject to ratification byshareholders it is intended to pay a final dividend of 7p. Diversification We have developed our diversification plans significantly over the past year andwould expect them to continue to develop and bear fruit during the next year.The basis of our diversification plans relate to risk. At the beginning of thedecade (31st December 1999), 89% of our assets were US based. If we were to goback even two years, close to 81% of our business was US based and nearly all ofthe growth was coming from the US too. A further risk was that we had all of oureggs, you might say, in the Emerging Markets basket. However, I would point outthat when we say we are going to diversify we are not setting targets, we arenot going to spend a lot of shareholders' money attempting to achieve anobjective in a given time frame, or in a difficult (stock) marketplace. Ratherwe are going to be opportunistic and, most important, we are not going to marketproducts that are not either first or second quartile, for to do so would meanthat we would be undermining the reputation of the company we work for. As a result of the above our present diversification, which we plan to beorganic, falls into three categories: 1) To diversify our core emerging markets business geographically. Since January2006, the percentage of assets that are sourced outside of the US has increasedfrom 17% to 23%. 2) To use our investment trust discipline in other areas separate from theemerging markets. We have recently (in our new financial year) been awarded ourfirst ACWI (ex US) mandate. 3) To develop our emerging markets equities (as compared with closed end funds)business. A possible new office In my previous review I mentioned that we were considering the opening of anoffice in Dubai. This was principally to add value to our investment processbut, I stated, we would hope that over a period of time it could assist in theselling of City of London products. These plans have developed over the pastyear to the extent that this office will, other things being equal, open duringOctober this year. It will be staffed initially by two existing City of Londonemployees. This office will round out for the foreseeable future our coveragegeographically, effectively allowing us to trade in all of the various emergingmarkets efficiently. Business continuity plans Another year of testing was successfully completed at our off-site disasterrecovery centre in London. We extensively tested recovery of mission criticalservers from backup tape onto different hardware platforms following ourpreviously tried and tested procedures. We are also in the process of signing upwith a leading disaster recovery centre based in Philadelphia, which wouldprovide us with instant desk space for our US office in the event of a disastertype scenario, replicating the London arrangements. Cost income ratio As our FUM grows, so we expect our cost income ratio to fall, and so it has thisyear, from 56% in fiscal 2006 to 52% in the current year (treating third partymarketing commission and custody as a deduction from fees rather than as anexpense). We take some pride in the fact that this level is significantly lowerthan the average for our sector, and it is a fundamental element of our strategyto maintain the focus on costs that enables us to consistently differentiateCity of London in this respect. I make no apology for repetition on this point;our ethos would simply not allow us to relax our stance on cost control. Operational leverage As I reported last year we are focused on developing our business in such a waythat enables a significant percentage of any increase in income to flow throughto shareholders. We do not spend large amounts of shareholders' money on fancyoffices, or on travel, or accommodation when on the road. As I mentionedearlier, neither do we intend to throw shareholders' money at diversification.Over many years I've watched financial service companies do this often with verylittle added value being achieved in terms of measurable success. The other point about operational leverage that I would like to make is that ifyou don't spend frivolously you don't have to change habits in the event of abear market. In other words, keeping expenses low results in higher dividendsfor shareholders. Authorisation and regulation It seems to me that we, by which I mean our wholly owned subsidiary City ofLondon Investment Management Company Limited ("CoLIM"), are one of the mostregulated firms of our size. CoLIM is authorised and regulated by the FinancialServices Authority in the UK, is registered as an adviser with the US Securitiesand Exchange Commission, and is also registered as required by the regulatoryauthorities in Singapore and Canada. Additionally, CoLIM is currently seekingauthorisation from the Dubai Financial Services Authority against the backgroundof the Dubai office intentions as outlined above. End of first quarter FUM At the end of August total FUM were $4.093bn. This compares with $2.815bn at thesame point last year. Both FUM and pre-tax profit for the quarter aresignificantly ahead of our budget. CoL core values By now you will be aware of the fact that since our company's inception, we haverun our business in a manner that is both conservative and might seem relativelyunfashionable. We don't manage Hedge Funds. We don't manage any money from anAbsolute return perspective (neither do we participate in out performance),preferring to manage money Relative to a benchmark. We manage money using a teamapproach. We do not encourage the cult of the individual. The reason that wemaintain these core values is that we believe that by doing so we provide betterreturns for our clients which leads to employment continuity for employees andbetter returns for our shareholders. Thanks to CoL employees Finally I would like to thank all of my colleagues for their hard work over thepast year in what remains a challenging environment. Barry OlliffChief Executive Officer 14th September 2007 Financial Review Profit and Loss Account Group turnover, management fees charged as a percentage of funds undermanagement (FUM), increased by almost 30%, reflecting the 38% uplift in FUM to aperiod end figure of US$3.793 billion. As last year, by far the largestproportion of turnover - £16.8 million (2006: £13.2 million) representing 92%(2006: 93%) of the total - was generated in North America. However, progress wasmade in growing the level of business derived from Europe and turnover generatedhere doubled to £1.1 million, representing 6% (2006: 4%) of the total for theyear. Administrative Expenses increased by 18% to £11.2 million (2006: £9.5 million).The increase is principally accounted for by higher wage costs resulting fromsix additional members of staff and the higher levels of bonuses paid during theyear, reflecting the Group's increased profitability. Over 50% of AdministrativeExpenses for the period (2006: 46%) are represented by costs that vary withturnover levels, principally commissions payable to marketing agents at £2.72million (2006: £2.18 million) and staff profit sharing at £3.15 million (2006:£2.20 million), representing 53% (2006: 47%) of total staff costs. The dividend for 2007 is the £735,864 cost of the interim dividend of 3p pershare paid in March 2007, while the 2006 figure comprises the final dividend for2005 and the interim and final dividends for 2006, paid before the Company waslisted on AIM, which together total £2,282,675. The Group's tax charge is normally higher than the 30% prevailing rate of UKcorporation tax because net income attributable to the US operations attractsthe higher US corporate tax rate of marginally in excess of 40%. The overallcharge rate this year was 34% (2006: 38% restated), reflecting that most of ourmanaged funds and segregated accounts had a higher weighting towards non-USinvestments during the period. Recognised gains and losses The revaluation reserve increased by £511,323 to a year end balance sheet figureof £645,829 (2006: £134,506), reflecting the increase in the value ofinvestments made by the Group in order to seed new funds, plus the investment inthe options hedging programme referred to in the Chairman's Statement and theChief Executive's Review. These investments had a market value of £2.30 million(2006: £1.36 million) at the year end, with the increase of £940,000 beingattributable approximately 50:50 to net new investments and to the increase inmarket value. Balance sheet The major change in the consolidated balance sheet compared to last year is thehigher level of retained profit, and consequently cash, arising from the Group'sincreased profitability during the year. As is historically the case for theGroup, net current assets of £8.3 million (2006: £4.0 million) represent, at 97%(2006: 93%), by far the largest proportion of total net assets of £8.6 million(2006: £4.3 million). Debtors and creditors both increased roughly in proportion with the growth inturnover. Cash at bank and in hand at £6.6 million (2006: £2.7 million)represented 77% (2006: 63%) of total net assets. Investment in own shares increased by £0.55 million to a year end figure of£1.57 million (2006: £1.03 million), representing loans made by the Company tothe employee benefit trust to acquire shares for the share option schemes. Theseloans are repaid on the exercise of options issued by the trust. Currency exposure In line with previous years, some 90% of the Group's income is sourced in US$,but its expenses are roughly evenly divided between sterling and US dollars(with a small Singapore dollar element). As a result, reported sterling netincome is significantly exposed to movements in the sterling/US dollar exchangerate, which during the year moved within an approximate range of US$1.80 - 2.00to £1 (2006: US$1.70 - 1.90 to £1). The following table illustrates the approximate effect across a range of fundsunder management assumptions, given the current geographical distribution of theexpense base: Average FUM - US$billion -------------------------------------- 3.0 3.5 4.0 4.5---------------------------------------------US$/£ Pre-tax, £million---------------------------------------------1.90 6.4 8.0 9.7 11.31.95 6.2 7.8 9.4 11.02.00 6.0 7.5 9.1 10.72.05 5.8 7.3 8.8 10.42.10 5.6 7.1 8.6 10.1--------------------------------------------- Assumes: 1. Average net fee 0.90%. 2. Annual operating costs of £2.5 million plus US$4.2 million plus Singapore $1.2 million. 3. Profit share equivalent to 30% of operating profits. For example, if funds under management were constant at US$4.0 billionthroughout the year, then the impact on sterling pre-tax profit of a move in theexchange rate from US$2.00 to US$2.05 to £1 would be approximately £0.3 millionon an annualised basis, if one assumes that none of the exposure is hedged. Thatsaid, it is worth repeating that there is a significant degree of natural hedgeinherent in our investment process, given that a weaker US dollar gives upliftto our funds under management. As in previous years, we continue to hedge our balance sheet currency exposureby forward sales, with a total of US$4.5million sold forward at the balancesheet date. Share options The Group regards share options as a vital tool in recruiting, motivating andretaining staff and management. At the period end there were 4,797,675 optionson ordinary shares outstanding (2006: 4,747,050), representing 17.9% of thecurrent issued share capital. 2,297,675 of the outstanding options (48% of thetotal) are over shares held by the Employee Share Option Trust and theireventual exercise will therefore result in no dilution to existing shareholders'interests. Change in accounting policy The Group has adopted accounting standard FRS 20, Share-based Payments. Theeffect of this was to increase Administrative Expenses in the year to 31st May2007 by £124,520 and by £64,026 for 2006, which has meant that the 2006comparative figures have been restated to reflect the adoption. Correspondingamounts have been credited to a Share Option Reserve on the Consolidated BalanceSheet. The charges arise because under FRS 20, the fair value of the employeeservices received in exchange for share options is recognised as an expense.More detail on the adoption of FRS 20 is contained in Note 1 to the Accounts. International Financial Reporting Standards City of London Investment Group is required to adopt International FinancialReporting Standards (IFRS) for the year ended 31st May 2008. These accounts havebeen produced in line with UK GAAP. The interim results for the six months to30th November 2007 will be the first results prepared under IFRS. D F AllisonFinance Director 14th September 2007 Consolidated profit & loss accountFor the year ended 31st May 2007 2006 2007 (as restated)--------------------------------------------------------------------------- Note £ £---------------------------------------------------------------------------Turnover 2 18,304,881 14,118,639 Administrative expensesStaff costs 5,954,730 4,568,763Other administrative expenses 5,139,946 4,350,907AIM listing costs - 482,708Depreciation 120,494 108,112--------------------------------------------------------------------------- (11,215,170) (9,510,490)Other operating income - 9,520---------------------------------------------------------------------------Operating profit 7,089,711 4,617,669Interest receivable and similar income 242,103 109,562---------------------------------------------------------------------------Profit on ordinary activities before taxation 7,331,814 4,727,231Tax charge on profit on ordinary activities 3 (2,457,856) (1,784,138)---------------------------------------------------------------------------Profit on ordinary activities after taxation 4,873,958 2,943,093Dividends 4 (735,864) (2,282,675)---------------------------------------------------------------------------Retained profit for the financial year 6 4,138,094 660,418---------------------------------------------------------------------------Basic profit per share 5 19.9p 13.5p---------------------------------------------------------------------------Diluted profit per share 5 17.5p 11.7p--------------------------------------------------------------------------- Consolidated statement of total recognised gains and lossesFor the year ended 31st May 2007 2006 2007 (as restated) Note £ £---------------------------------------------------------------------------Retained profit for the period 4,138,094 660,418Increase in revaluation reserve 511,323 134,506---------------------------------------------------------------------------Total recognised gains and losses for the 4,649,417 794,924period ---------Prior year adjustment 6 (106,325)---------------------------------------------------------------------------Total gains and losses recognised since thelast annual report 4,543,092--------------------------------------------------------------------------- Consolidated balance sheet31st May 2007 2006 2007 (as restated) Note £ £-----------------------------------------------------------------------------Fixed assetsTangible assets 193,362 225,939Investments 46,859 61,253----------------------------------------------------------------------------- 240,221 287,192-----------------------------------------------------------------------------Current assetsDebtors 2,613,212 2,136,312Investments 2,299,325 1,359,563Cash at bank and in hand 6,616,824 2,708,915----------------------------------------------------------------------------- 11,529,361 6,204,790Creditors, amounts falling due within one (3,210,074) (2,160,169)year-----------------------------------------------------------------------------Net current assets 8,319,287 4,044,621-----------------------------------------------------------------------------Total assets less current liabilities 8,559,508 4,331,813-----------------------------------------------------------------------------Capital and reservesCalled up share capital 267,777 267,777Share premium account 6 1,357,283 1,357,283Investment in own shares 6 (1,573,525) (1,027,283)Revaluation reserve 6 645,829 134,506Share option reserve 6 230,845 106,325Profit and loss account 6 7,631,299 3,493,205-----------------------------------------------------------------------------Shareholders' funds 6 8,559,508 4,331,813----------------------------------------------------------------------------- The Board of directors approved these financial statements on 14th September2007. Cash flow statementFor the year ended 31st May 2007 2007 2006 Note £ £-----------------------------------------------------------------------------Consolidated cash flow statement Net cash inflow from operating activities 7 7,708,693 4,145,424Returns on investments and servicing of finance 196,487 109,562Taxation (2,190,642) (1,643,687)Capital expenditure and financial investment (58,545) (164,267)Equity dividends paid (735,864) (2,282,675)Financing (546,242) 907,685Management of liquid resources (465,978) (761,167)-----------------------------------------------------------------------------Increase in cash 9 3,907,909 310,875----------------------------------------------------------------------------- Notes to the financial statementsFor the year ended 31st May 2007 1. Basis of preparation and financial information The financial information set out in this preliminary announcement has beenprepared on the same basis as the accounting policies used in the Company's 2006statutory accounts. This is with the exception of the adoption of FRS20"Share-based payments". The information shown for the years ended 31st May 2007 and 31st May 2006 doesnot constitute statutory accounts within the meaning of S240 of the CompaniesAct 1985 and has been extracted from the full accounts for the years ended 31stMay 2007 and 31st May 2006. The reports of the auditors on those accounts were unqualified and did notcontain a statement under either S237(2) or S237(3) of the Companies Act 1985. The accounts for the year ended 31st May 2006 have been filed with the Registrarof Companies. The accounts for the year ended 31st May 2007 will be delivered tothe Registrar of Companies in due course. Change in accounting policies In preparing the financial information for the current period, the Group hasadopted FRS20 "share-based payments". The effect of this change in policy on theresults is to increase the administrative costs as detailed below. Acorresponding amount is credited to a share option reserve in accordance withFRS20. Share-based Total shareEnd of accounting period payment option reserve--------------------------------------------------------------------------31st May 2005 42,299 42,29930th November 2005 27,301 69,60031st May 2006 36,725 106,32530th November 2006 56,657 162,98231st May 2007 67,863 230,845-------------------------------------------------------------------------- Share-based payments The Company operates an Employee Share Option Plan. In accordance with FRS20,the fair value of the employee services received in exchange for share optionsis recognised as an expense. The fair value has been calculated using theBinomial pricing model, and has been expensed on a straight line basis over thevesting period of three years, based on the Company's estimate of the number ofshares that will actually vest. 2. Analysis of turnover, operating profit and net assets The directors consider that the group only undertakes one class of business, andhence only analysis by geographical location is given. Turnover Operating Net profit assets 2006 2006 2007 2006 2007 (as 2007 (as restated) restated) £ £ £ £ £ £----------------------------------------------------------------------------------------Europe 1,130,223 585,206 601,146 855,197 6,606,459 2,367,636North America 16,780,057 13,185,903 6,301,978 3,538,613 1,923,885 1,921,165South America - 298,173 - 205,660 1,643 2,973Other 394,601 49,357 186,587 18,199 27,520 40,039---------------------------------------------------------------------------------------- 18,304,881 14,118,639 7,089,711 4,617,669 8,559,508 4,331,813---------------------------------------------------------------------------------------- 3. Tax charge on profit on ordinary activities (a) Analysis of tax charge on ordinary activities: 2007 2006 £ £-----------------------------------------------------------------------Tax at 30% (2006 - 30%) based on the profit 2,260,228 1,538,223for the yearDouble taxation relief (542,228) (415,360)Adjustments in respect of prior years (11,518) (3,148)----------------------------------------------------------------------- 1,706,482 1,119,715Foreign tax for the current period 778,144 652,983Adjustments in respect of prior years (26,770) 11,440----------------------------------------------------------------------- 751,374 664,423----------------------------------------------------------------------- 2,457,856 1,784,138----------------------------------------------------------------------- (b) Factors affecting tax charge for the current period: The tax assessed for the period is different to that resulting from applying thestandard rate of corporation tax in the UK: 30% (prior year: 30%). Thedifferences are explained below: 2007 2006 (as restated) £ £------------------------------------------------------------------Profit on ordinary activities before tax 7,331,814 4,727,231------------------------------------------------------------------Tax at 30% thereon (2,199,544) (1,418,169)Effects of: Expenses not deductible for tax purposes (41,353) (119,208)Capital allowances less than depreciation (16,733) -Unrelieved overseas tax (235,916) (237,623)Prior period adjustments 38,288 (8,292)Other (2,598) (846)------------------------------------------------------------------ (2,457,856) (1,784,138)------------------------------------------------------------------ The Company has revalued its current asset investments to market value. Deferredtax has not been recognised on this revaluation, but the estimated tax payableif the investments were sold at the values shown is £193,749 (2006 - £40,352). 4. Dividend 2007 2006 £ £------------------------------------------------------------------Dividends paid:Interim dividend of £0.03 per share (2006 - 735,864 1,982,662£0.09)Final dividend in respect of year ended:31st May 2005 of £0.36 per share - 300,013------------------------------------------------------------------ 735,864 2,282,675------------------------------------------------------------------ 5. Earnings per share The calculation of basic earnings per share is based on the profit for the yearof £4,873,958 (2006 restated - £2,943,093) divided by the weighted averagenumber of ordinary shares in issue for the year ended 31st May 2007 of24,432,528 (2006 - 21,855,212). As set out in Note 6 the Employee Benefit Trust held 2,303,125 ordinary sharesin the Company as at 31st May 2007. The Trustees of the Trust have waived allrights to dividends associated with these shares. In accordance with FRS22 theordinary shares held by the Employee Benefit Trust have been excluded from thecalculation of the weighted average of ordinary shares in issue. The calculation of diluted earnings per share is based on the profit for theyear of £4,873,958 (2006 restated - £2,943,093) divided by the diluted weightedaverage of ordinary shares for the year ended 31st May 2007 of 27,823,144 (2006- 25,272,459). 6. Combined statement of movement in reserves and reconciliation of shareholders' funds GROUP Year ended 31st May Share Investment Share Profit 2006 Share premium in own Revaluation option and loss Total capital account shares reserve reserve account Total (as restated) £ £ £ £ £ £ £ £----------------------------------------------------------------------------------------------------------At 1st June2006 -as 267,777 1,357,283 (1,027,283) 134,506 - 3,599,530 4,331,813 2,565,178previouslystatedPrior yearadjustmentFRS 20 - - - - 106,325 (106,325) - -----------------------------------------------------------------------------------------------------------At 1st June2006 -as restated 267,777 1,357,283 (1,027,283) 134,506 106,325 3,493,205 4,331,813 2,565,178Purchase ofown shares - - (670,948) - - - (670,948) -Shareallotment - - 124,706 - - - 124,706 907,685Revaluationreserve - - - 511,323 - - 511,323 134,506Shareoptionreserve - - - - 124,520 - 124,520 64,026Profitretainedfor theperiod - - - - - 4,138,094 4,138,094 660,418----------------------------------------------------------------------------------------------------------At 31st May2007 267,777 1,357,283 (1,573,525) 645,829 230,845 7,631,299 8,559,508 4,331,813---------------------------------------------------------------------------------------------------------- Investment in own shares relates to City of London Investment Group Plc sharesheld by an Employee Benefit Trust on behalf of City of London Investment GroupPlc. At 31st May 2007 the Trust held 2,303,125 ordinary 1p shares (2006 - 2,262,750),of which 2,297,675 ordinary 1p shares (2006 - 2,247,050) were subject to optionsin issue. In total, the Company has granted options over 4,797,675 ordinary shares atexercise prices from £0.26 to £2.73. These options have a range of exercisedates from September 2000 to March 2017. 7. Reconciliation of operating profit to net cash inflow from operating activities 2006 2007 (as restated) £ £------------------------------------------------------------------------Operating profit 7,089,711 4,617,669Profit on sale of fixed assets - (9,519)Depreciation charges 120,494 108,112Increase in debtors (476,900) (1,043,783)Increase in creditors 782,691 408,417Translation adjustments on investments 68,177 502Share-based payment charge 124,520 64,026------------------------------------------------------------------------Net cash inflow from operating activities 7,708,693 4,145,424------------------------------------------------------------------------ 8. Reconciliation of net cash flow to movement in net funds 2007 2006 £ £------------------------------------------------------------------------Increase in cash in the year 3,907,909 310,875Increase in liquid assets 465,978 761,167Other non cash changes 30,816 -Changes in market valueand exchange rate movement 442,968 134,506------------------------------------------------------------------------Change in net funds 4,847,671 1,206,548Net funds at 1st June 4,068,478 2,861,930------------------------------------------------------------------------Net funds at 31st May 8,916,149 4,068,478------------------------------------------------------------------------ 9. Analysis of changes in net funds Changes At in market Other At 1st June Cash value and non-cash 31st May 2006 flows exchange changes 2007 rates £ £ £ £ £---------------------------------------------------------------------------Cash at bank andin hand 2,708,915 3,907,909 - - 6,616,824Current assetinvestments 1,359,563 465,978 442,968 30,816 2,299,325--------------------------------------------------------------------------- 4,068,478 4,373,887 442,968 30,816 8,916,149--------------------------------------------------------------------------- 10. Copies of the Annual Report for the year ended 31st May 2007 are available from the Company's Registered office at 10 Eastcheap, London EC3M 1LX, and will be sent to shareholders shortly. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
City Lon Inv