29th Jan 2007 07:01
City of London Investment Group PLC29 January 2007 For release at 0700h, 29 January 2007 CITY OF LONDON INVESTMENT GROUP PLC ("City of London", "the Group", or "the Company") INTERIM RESULTS FOR THE SIX MONTHS TO 30 NOVEMBER 2006 City of London Investment Group PLC (AIM: CLIG), a leading emerging market andnatural resource asset management group, announces interim results for the sixmonths to 30 November 2006. SUMMARY •There was a strong recovery during the period in the performance of emerging markets, and City of London also experienced net inflows which increased funds under management. •Funds under management were US$3.1 billion at the half year end in November (2005: US$2.2 billion), and increased to US$3.3 billion as at 31st December 2006. •Turnover increased by 41% to £8.3 million (2005: £5.9 million). •Profit before tax of £3.1 million (2005: £2.2 million), represented an increase of 44%. Earnings per share were up 29% to 8.5p (2005: 6.6p). •A maiden interim dividend as a publicly quoted company of 3p per share has been declared, payable on 5th March 2007 to shareholders on the register on 9th February 2007. A final dividend will be recommended at the time of the preliminary results for the current year, in September 2007. Subject to the Company's and current market expectations being achieved, a final dividend of around 6p is anticipated. Andrew Davison, Chairman, said, "City of London aims to produce outperformanceagainst benchmarks for clients and profits - and dividends - for shareholders. Iam pleased to report, in our first interim report to shareholders, that weachieved both objectives in the six months to 30th November 2006." Barry Olliff, CEO, added, " We wish to diversify our business. Separate from ournatural resources business, we are at the early stages of planning to grow ouractivities in the area of closed end funds that invest in the developedstockmarkets of the world." Enquiries to:Doug Allison, Finance Director Simon Hudson / Clemmie CarrCity of London Investment Group PLC Tavistock CommunicationsTel: 020 7711 0771 Tel: 020 7920 3150 City of London Investment Group PLC (AIM: CLIG) is a provider of emerging marketand natural resource asset management products and services predominantly toinstitutional investors via its principal operating company City of LondonInvestment Management Company Limited. The Group is based in the UK but also hasoffices in the US and Singapore. Clients include some of the US's leading bluechip institutions and endowment funds. The Group seeks to provide capital growthfor clients through active country allocation and stock selection. For more information about City of London, please visit www.citlon.co.uk Chairman's Statement The world's emerging markets continue, as ever, to be volatile. The beginning ofour current financial year saw many of these markets at relatively lowvaluations but this was followed by a strong recovery as positive investmentfundamentals reasserted themselves. City of London is used to managing such volatility so as to produceoutperformance against benchmarks for clients and profits for shareholders. I ampleased to report, in our first interim report to shareholders, that we achievedboth objectives in the six months to 30th November 2006. Results During the period, funds under management increased from US$2.8 billion to ahalf year end figure of US$3.1 billion (2005: US$2.2 billion). This increasereflected both rising markets and net inflows from our client base. As a result,turnover rose by 41% to £8.3 million (2005: £5.9 million) and profit beforetaxation increased by 44% to £3.1 million (2005: £2.2 million). The tax chargefor the period was £1.0 million representing 33% of pre-tax profits (2005: £0.8million, 36%), producing post tax profits of £2.1 million (2005: £1.4 million).The tax charge rate is higher than the prevailing UK rate of corporation taxbecause net income attributable to the US operations attracts the US tax, whichis higher. Dividends and tax status I reported in my Statement in the Annual Report that the Board intends to paydividends to shareholders - from this financial year - based on a policy of posttax earnings twice covering full year payments. The Board has declared a maideninterim dividend as a publicly quoted company of 3p per ordinary share, payableon 5th March 2007 to shareholders on the register on 9th February 2007. Ifcurrent market forecasts for the financial year to 31st May 2007 are met, ourdividend policy implies a final dividend of some 6p per share. The Board willrecommend the actual level of the final dividend at the time of the preliminaryresults in September 2007. The intention is to maintain a pattern approximatingto one third interim dividend and two thirds as a final dividend. Shareholders may be interested to learn that, having taken expert advice, weunderstand that an investment in City of London's shares qualifies, undercurrent legislation, as a business asset for the purposes of InheritanceTax(IHT) and Capital GainsTax (CGT) relief. Outlook City of London has made good progress during this first interim accountingperiod as a public company. We have successfully mitigated client rebalancingsof their assets by acquiring additional funds to manage from a pipeline ofreplacement monies. In addition, we are beginning to leverage our track record,expertise and reputation as successful managers of US institutional funds inemerging markets to diversify our business into closed end funds generally aswell as discrete sectors such as natural resources. The Group also seeks tobroaden its client base and is actively marketing to new institutions in Europeand the Pacific Rim. Clearly, a presence in the Middle East - if the Boarddetermines it is the right move - would help both investment activity and newmandate acquisition. We are currently confident that we can achieve our own and the Stockmarket'sestimates for the full year and I look forward to updating shareholders onfurther progress. Andrew Davison Chairman 29 January 2007 Chief Executive Officer's Review In this our first set of interim results as a publicly quoted company, I amgoing to follow the layout from my Review in our Report and Accounts for theyear to 31st May 2006. The past half year At the end of November, funds under management ("FUM") were US$3,111 millioncompared with US$2,751 million at the end of our financial year, on 31st May2006. Alternatively this could be compared with US$2,186 million at the samepoint last year. When converted into sterling, the figures are £1,581 million,£1,472 million and £1,263 million respectively. One of the features of the past six months has been the volatility of the US$/£exchange rate which has, at the extreme, ranged between 1.82 and 1.96. With mostof our fee revenues being received in US$ our income in sterling has reflectedthis reduction in US$ value. However as can be seen from my remarks below, undercost-income ratio, we have actually increased our net margin. We have also continued to develop our business during this periodnotwithstanding some rebalancing from some of our US accounts. Most of our USclients have target ranges of exposure they are prepared to countenance in eachof the asset classes where they invest, but with the emerging markets performingso well when compared to other asset classes, some of our clients haverebalanced to levels closer to these target ranges. However, whilst we haveexperienced some rebalancing this has been more than made up by the winning ofnew mandates. The other side of this equation is that we would hope under reversecircumstances to benefit in the event that the emerging markets were tounderperform other asset classes. Diversification In my Review in our Report and Accounts I mentioned our wish to diversify ourbusiness. Separate from our natural resources business we are at the earlystages of planning to grow our business in the area of closed end funds thatinvest in the developed stockmarkets of the world. In the same way that emerging market closed end funds demonstrate share pricevolatility greater than their underlying net asset values, so the sameinefficiency is demonstrated by the developed markets closed end funds. It'sworth making the point that the developed markets closed end fund universe ismany times larger than the emerging markets universe. As referenced in my yearend review "we are positioned at the performance end of the marketplace whichfocuses on relative return products for institutional clients". A possible new office We are making progress with our plans for the opening of a new office in theMiddle East, probably in Dubai. Since last writing, whilst oil revenues havecontinued to grow significantly, the local stock markets of the Gulf CooperationCouncil region (GCC) have fallen by around 25%. We continue to consider prospects in the region to be very good for thedevelopment of our business and have noted with interest the recent filing ofthe first Sharia compliant fund that will be closed for the first five years ofits life. Cost-income ratio In the financial services industry, keeping overheads down when in a bull marketcan be quite difficult, and there is a very real need for management tounderstand the conflict between a company's employees and shareholders. We attempt to coincide the interests of our employees and our shareholders bykeeping our core overhead as low as possible and by the operation of a formulabased upon our profits in terms of the payment of dividends (to shareholders)and bonuses (to staff ). For the record, for the first six months of this year, our cost-income ratio was33% vs 38% for the year ended 31st May 2006. The major components of our costsinclude: personnel (excluding bonuses), marketing, communication, informationtechnology, business development and premises. We work very hard to deliberatelykeep these items as low as possible whilst continuing to take a very long-termview regarding the development of our business. Including employee bonus thecost-income ratio figure was 54%, vs 56% for the year ending 31st May 2006. Weunderstand that the industry average is around 65%. Operational leverage As can be seen from the above figures, the operational leverage within ourbusiness is significant, and as I see it, it is our responsibility, asmanagement, to ensure, as we go through this cycle, that we maintain thisposition. We continue to believe that some of our more recently created fundswill over the next few years provide us with opportunities to develop ourbusiness. Update regarding FUM As at the end of December our FUM totalled US$3,285 million and our investmentperformance has been maintained. Thanks to City of London employees I would like to thank my colleagues again for their hard work and commitment inwhat continues to be a very challenging environment. B M Olliff Chief Executive Officer 29 January 2007 CITY OF LONDON INVESTMENT GROUP PLC Consolidated profit and loss accountFor the six months ended 30th November 2006 Six months Six months Year ended ended ended 31 May 2006 30 Nov 2006 30 Nov 2005 (as restated) (unaudited) (unaudited) (audited) Note £ £ £--------------------------------------------------------------------------------Turnover 2 8,298,109 5,875,598 14,118,639 Administrative expensesStaff costs 2,780,547 1,863,671 4,568,763Other administrativeexpenses 2,444,495 1,869,945 4,350,907AIM listing costs - - 482,708Depreciation 53,299 52,109 108,112-------------------------------------------------------------------------------- (5,278,341) (3,785,725) (9,510,490)Other operating income - 1,109 9,520--------------------------------------------------------------------------------Operating profit 3,019,768 2,090,982 4,617,669 Interest receivable andsimilar income 81,818 61,542 109,562--------------------------------------------------------------------------------Profit on ordinaryactivities beforetaxation 3,101,586 2,152,524 4,727,231Tax charge on profit onordinary activities (1,025,140) (778,000) (1,784,138)--------------------------------------------------------------------------------Profit on ordinaryactivities aftertaxation 2,076,446 1,374,524 2,943,093Dividends - (300,049) (2,282,675)--------------------------------------------------------------------------------Retained profit for theperiod 4 2,076,446 1,074,475 660,418-------------------------------------------------------------------------------- Basic profit per share 3 8.5p 6.6p 13.5p--------------------------------------------------------------------------------Diluted profit per share 3 7.5p 5.1p 11.7p-------------------------------------------------------------------------------- Consolidated statement of total recognised gains and lossesFor the six months ended 30 November 2006 Six months Six months Year ended ended ended 31 May 2006 30 Nov 2006 30 Nov 2005 (as restated) (unaudited) (unaudited) (audited) Note £ £ £--------------------------------------------------------------------------------Retained profit for theperiod 2,076,446 1,074,475 660,418Increase in revaluationreserve 226,807 4,213 134,506--------------------------------------------------------------------------------Total recognised gainsand losses for theperiod 2,303,253 1,078,688 794,924Prior year adjustment 4 (106,325) - ---------------------------------------------------------------------------------Total gains and lossesrecognised since thelast annual report 2,196,928 1,078,688 794,924-------------------------------------------------------------------------------- CITY OF LONDON INVESTMENT GROUP PLC Consolidated balance sheet30th November 2006 31 May 2006 30 Nov 2006 30 Nov 2005 (as restated) (unaudited) (unaudited) (audited) Note £ £ £--------------------------------------------------------------------------------Fixed assets Tangible assets 190,099 210,078 225,939Investments 46,605 65,508 61,253 236,704 275,586 287,192--------------------------------------------------------------------------------Current assets Debtors 2,487,130 1,620,157 2,136,312Investments 2,033,316 1,325,926 1,359,563Cash at bank and in hand 4,660,164 2,792,274 2,708,915-------------------------------------------------------------------------------- 9,180,610 5,738,357 6,204,790Creditors amounts fallingdue within one year (2,982,744) (2,260,126) (2,160,169)--------------------------------------------------------------------------------Net current assets 6,197,866 3,478,231 4,044,621--------------------------------------------------------------------------------Total assets less currentliabilities 6,434,570 3,753,817 4,331,813--------------------------------------------------------------------------------Capital and reserves Called up share capital 4 267,777 236,252 267,777Share premium account 4 1,357,283 716,008 1,357,283Investment in own shares 4 (1,284,436) (1,179,518) (1,027,283)Revaluation reserve 4 361,313 4,213 134,506Share option reserve 4 162,982 69,600 106,325Profit and loss account 4 5,569,651 3,907,262 3,493,205--------------------------------------------------------------------------------Shareholders' funds 4 6,434,570 3,753,817 4,331,813-------------------------------------------------------------------------------- CITY OF LONDON INVESTMENT GROUP PLC Cash flow statementFor the six months ended 30th November 2006 Six months Six months ended ended Year ended 30 Nov 2006 30 Nov 2005 31 May 2006 (unaudited) (unaudited) (audited) Note £ £ £--------------------------------------------------------------------------------Consolidated cash flowstatement Net cash inflow fromoperating activities 5 3,557,840 2,054,490 4,145,424Returns on investmentsand servicing of finance 81,818 61,542 109,562Taxation (981,499) (543,053) (1,643,687)Capital expenditure andfinancial investment (2,811) (103,523) (164,267)Equity dividends paid - (300,049) (2,282,675)Financing (257,153) 82,650 907,685Management of liquidresources (446,946) (857,823) (761,167)--------------------------------------------------------------------------------Increase in cash 1,951,249 394,234 310,875-------------------------------------------------------------------------------- Notes 1. Basis of accounting The interim financial statements have been prepared on the basis of theaccounting policies set out in the statutory accounts of the group for theperiod ended 31st May 2006. This is with the exception of the adoption of FRS20"Share-based payments". Change in accounting policies In preparing the financial statements for the current period, the group hasadopted FRS20. The effect of this change in policy on the financial statementsis to increase the administrative costs as detailed below. A correspondingamount is credited to a share option reserve in accordance with FRS20. Share-based Total share payment option reserve £ £--------------------------------------------------------------------------------End of accounting period31st May 2005 42,299 42,29930th November 2005 27,301 69,60031st May 2006 36,725 106,32530th November 2006 56,657 162,982-------------------------------------------------------------------------------- Share-based payments The company operates an Employee Share Option Plan. Under FRS20, the fair valueof the employee services received in exchange for share options is recognised asan expense. The fair value has been calculated using the Binomial pricing model,and has then been expensed on a straight line basis over the vesting period,based on the company's estimate of the number of shares that will actually vest. The volatility of the company's share price at each date of grant has beencalculated as the average of the standard deviations of daily continuouslycompounded returns on the stock of a group of comparable companies. The expectedlife of the options has been assumed to be three years based upon the empiricalevidence available. The risk-free rate has been assumed to be represented by theyield to maturity at the date of grant of a UK Gilt strip with term to maturityequal to the expected life of the option. A dividend yield of 4.5% has beenassumed. In accordance with the transitional provisions, FRS20 has been applied only togrants of the share options after 7th November 2002 that had not vested as at1st June 2006. 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. Six months Six months Year ended ended ended 31st May 2006 30th Nov 2006 30th Nov 2005 (as restated) (unaudited) (unaudited) (audited) £ £ £--------------------------------------------------------------------------------TurnoverEurope 448,245 323,967 585,206North America 7,667,009 5,338,458 13,185,903South America - 213,173 298,173Other 182,855 - 49,357-------------------------------------------------------------------------------- 8,298,109 5,875,598 14,118,639--------------------------------------------------------------------------------Operating profitEurope 268,213 110,449 855,197North America 2,665,396 1,841,472 3,538,613South America - 139,061 205,660Other 86,159 - 18,199-------------------------------------------------------------------------------- 3,019,768 2,090,982 4,617,669--------------------------------------------------------------------------------Net assetsEurope 4,614,251 2,680,532 2,367,636North America 1,790,010 1,050,042 1,921,165South America 1,108 (20,045) 2,973Other 29,201 43,288 40,039-------------------------------------------------------------------------------- 6,434,570 3,753,817 4,331,813-------------------------------------------------------------------------------- 3. Earnings per share The calculation of earnings per share is based on the profit for the period of£2,076,446 (31st May 2006 restated - £2,943,093; 30th November 2005 -£1,374,524) divided by the weighted average of ordinary shares in issue for thesix months ended 30th November 2006 of 24,385,294 (31st May 2006 restated -21,855,212; 30th November 2005 - 20,903,867). As set out in note 4 the Employee Benefit Trust held 2,249,000 ordinary sharesin the company as at 30th November 2006. The Trustees of the Trust have waivedall rights to dividends associated with these shares. In accordance with FRS22the ordinary shares held by the Employee Benefit Trust have been excluded fromthe calculation of the weighted average of ordinary shares in issue. The calculation of diluted earnings per share is based on the profit for theperiod of £2,076,446 (31st May 2006 restated - £2,943,093; 30th November 2005 -£1,374,524) divided by the diluted weighted average of ordinary shares in issuefor the six months ended 30th November 2006 of 27,591,992 (31st May 2006restated - 25,272,459; 30th November 2005 - 27,172,630). 4. Combined statement of movement in reserves and reconciliation ofshareholders' funds Share Investment Share Profit Share premium in own Revaluation option and loss capital account shares reserve reserve account Total £ £ £ £ £ £ £-------------------------------------------------------------------------------------------------------At 1st June2006 as previouslystated 267,777 1,357,283 (1,027,283) 134,506 - 3,599,530 4,331,813Prior yearadjustmentFRS20 - - - - 106,325 (106,325) -------------------------------------------------------------------------------------------------------- At 1st June2006as restated 267,777 1,357,283 (1,027,283) 134,506 106,325 3,493,205 4,331,813Purchase ofown shares - - (349,966) - - - (349,966)Share optionexercise - - 92,813 - - - 92,813Revaluationreserve - - - 226,807 - - 226,807Share optionreserve - - - - 56,657 - 56,657Profitretained forthe period - - - - - 2,076,446 2,076,446-------------------------------------------------------------------------------------------------------At 30thNovember 2006 267,777 1,357,283 (1,284,436) 361,313 162,982 5,569,651 6,434,570------------------------------------------------------------------------------------------------------- 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 30th November 2006 the Trust held 2,249,000 ordinary 1p shares (31st May 2006- 2,262,750; 30th November 2005 - 104,042 ordinary 25p shares), of which2,084,550 ordinary 1p shares (31st May 2006 - 2,247,050; 30th November 2005 -104,042 ordinary 25p shares) were subject to options in issue. In total, the company has granted options over 4,584,550 ordinary shares atexercise prices from £0.26 to £1.80. These options have a range of exercisedates from September 2000 to October 2016. 5. Reconciliation of operating profit to net cash inflow from operatingactivities Six months Six months Year ended ended ended 31st May 2006 30th Nov 2006 30th Nov 2005 (as restated) (unaudited) (unaudited) (audited) £ £ £--------------------------------------------------------------------------------Operating profit 3,019,768 2,090,982 4,617,669Profit on sale of fixed assets - (1,109) (9,519)Depreciation charges 53,299 52,109 108,112Decrease in debtors (350,818) (527,628) (1,043,783)Increase in creditors 778,934 413,877 408,417Translation adjustments oninvestments - (1,042) 502Share-based payment charge(note 1) 56,657 27,301 64,026--------------------------------------------------------------------------------Net cash inflow from operatingactivities 3,557,840 2,054,490 4,145,424-------------------------------------------------------------------------------- 6. Dividends The interim dividend of 3p per share will be paid on 5th March 2007 to membersregistered at the close of business on 9th February 2007. 7. General The interim financial statements for the six months to 30th November 2006 wereapproved by the Board on 24th January 2007. These financial statements areunaudited, but they have been reviewed by the auditors, having regard to thebulletin "Review of Interim Financial Information" issued by the AuditingPractices Board. The comparative figures for the twelve month period ended 31stMay 2006 have been extracted from the group's statutory accounts which have beendelivered to the Registrar of Companies, and have been restated whereappropriate to comply with FRS20. The auditors' report on those statements wasunqualified and did not include a statement under Section 237 (2) or (3) of theCompanies Act 1985. Copies of this statement are available on our website, www.citlon.co.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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