29th Jan 2008 07:00
City of London Investment Group PLC29 January 2008 29 January 2008 CITY OF LONDON INVESTMENT GROUP PLC ("City of London" or "the Group") HALF YEAR RESULTS FOR THE SIX MONTHS TO 30 NOVEMBER 2007 City of London Investment Group PLC (AIM: CLIG), a leading emerging market andnatural resource asset management group, announces half year results for the six months to 30 November 2007. SUMMARY • During the six months to November 2007, emerging markets continued to perform strongly and City of London met or exceeded client benchmarks once again. • Dubai office opened in January 2008. • Funds under management of US$4.59 billion at the half year end (2006: US$3.1 billion and US$3.8 billion at the year end on 31st May 2007). • First time adoption of IFRS - no material restatements. • Revenue up 46% to £12.1 million (2006: £8.3 million). • Profit before tax up 72% to £5.3 million (2006: £3.1 million). • Basic profit per share up 69% to 14.5p (2006: 8.6p) and fully diluted profit per share up 68% to 12.8p (2006: 7.6p). • New more generous dividend policy based on profit per share cover of one and a half times instead of two times. Interim dividend for the period of 6p per share payable on 3rd March 2008 to shareholders on the register on 15th February 2008, implying a final dividend of 12p per share, subject to the Group meeting current market forecasts for the year as a whole. Andrew Davison, Chairman, said, "Continued growth in funds under management, amaintained focus on control of costs and the operational gearing inherent in the business, fed through to a sharp increase in profitability for the first half." Barry Olliff, CEO, added, " We are making good progress with our diversification strategy - first in terms of expanding our core emerging markets business geographically, second using our investment trust discipline in other areas separate from emerging markets and third developing our emergingmarkets equities (as compared with closed end funds) business." For further information contact:Doug Allison,Finance Director Jeff Keating/ Fred Walsh/ Simon Hudson City of London Simon Brown Andrew DunnInvestment Landsbanki Securities (UK) Tavistock Communications Group plc Tel: 020 7426 9000 Tel: 020 7920 3150 Tel: 020 7711 0771 City of London Investment Group PLC (AIM: CLIG) is a leading emerging market and natural resource asset management group. The Group services predominantlyinstitutional clients, including some of the world's most prominentinstitutions. City of London operates its business from offices in London, theUS, Singapore and most recently Dubai. For more information about City of London, please visit www.citlon.co.uk Chairman's Statement In the trading update at the Annual General meeting at the end of October 2007,I advised shareholders that continued growth in funds under management, a maintained focus on control of costs and the operational gearing inherent in the business had fed through to a sharp increase in profitability for the firstfive months of the current financial year. I am pleased to report that results for November, the final month of the period under review, showed a continuationof this progress and that the outturn for the half year as a whole producedrecord levels of turnover, profit before tax and profit per share for the Group. ResultsThese results are the first prepared by City of London under policies consistentwith International Financial Reporting Standards ("IFRS"). As a consequence,results for comparative periods have been restated to reflect this adoption.None of the IFRS restatements are material. Funds under management increased from US$3.8 billion at the last year end in May2007 to a half year end figure of US$4.6 billion (2006: US$3.1 billion).Out-performance of client benchmarks in the rising emerging markets experiencedin the period and the addition of net new funds both contributed to thisincrease. Revenue, representing our fees charged on funds under management,increased by 46% to £12.1 million (2006: £8.3 million). Administrative expensesrose to £7.4 million (2006: £5.3 million) with 73% of the increase beingattributable to rises in variable costs: commission payments on our higher feesand profit related staff payments. Profit before taxation increased by 72% to £5.3 million (2005: £3.1 million),reflecting the operational gearing of the Group's business, together with thesubstantial increase in interest receivable as a result of higher cash balancesand some £0.3 million (2006: nil) of profits on the disposal of seedshareholdings in new funds. Basic profit per share, after a 33% tax charge of£1.8 million (2006: £1.0 million representing 33% of pre-tax profit), was 14.5p(2006: 8.6p) and fully diluted profit per share was 12.8p (2006: 7.6p). DividendsCity of London is a cash generative business with little requirement forsignificant additional capital or operating expenditure and cash balances at thehalf year end amounted to £8.1 million, almost double the level at the end ofthe first half of last year. As a result, the Directors have determined torevise the dividend policy from paying dividends twice covered by full yearprofit per share to one based closer to one and a half times cover, whilst stillintending to maintain a total anticipated annual distribution patternapproximating to one third as an interim dividend and two thirds as a finaldividend. The Board has declared an interim dividend of 6p per share, payable on 3rd March2008 to shareholders on the register on 15th February 2008. The new dividendpolicy thus implies a final dividend of approximately 12p per share, subject ofcourse to the Group meeting current market forecasts for the year as a whole. OutlookThis statement is written during a period of dramatic and global falls in marketvalue. The extent of the volatility makes precise measurement of funds undermanagement of only transitory value. The last funds under management beforegoing to press was US$4.25 billion. City of London has again made good progress towards its strategic goals ofdiversifying the business in terms of clients, investment products andgeographical reach and a more detailed description of this progress is containedin the Chief Executive Officer's Review below. As always, we are prepared for, and expecting, the volatility that ischaracteristic of the emerging markets in which we principally invest. However,we believe that their investment fundamentals - both long and short term - aresufficiently attractive to ensure that institutional investors increasinglyregard exposure to them as a mandatory component of well rounded portfolios.This, together with the continuing trend towards multi-mandate awards by fundtrustees, gives us confidence in the outlook for City of London. We remain verywell positioned to continue to grow the Group for the benefit of our clients andshareholders. Andrew DavisonChairman24th January 2008 Chief Executive Officer's Review This is our second interim statement since our listing. I have followed the sameformat in this document as in the first interim statement and also our AnnualReport and Accounts. The six months to November 2007Funds Under Management ("FUM") increased from $3.793 billion (£1.916 billion) to$4.592 billion (+21%) (£2.231 billion) (+16%) during the past six months to theend of November (the period under review). Our total FUM have continued tobenefit from out-performance versus our benchmarks. For the calendar year 2007,16 out of the 19 emerging market funds or segregated accounts (97% of FUM)out-performed their benchmarks, with 7 ranked as top decile performers in a USuniverse of institutional emerging market funds, and a further 4 as top quartileperformers. For the fourth quarter of 2007, all 19 were top quartile performers,and of these 12 were top decile. In the past six months we have received rebalancing requests totalling $236million from 43 clients. The figure for the calendar year 2007 was $568 millionfrom 74 clients. As referenced in previous reviews we consider this to be ahealthy development as it puts us in a good position in the event that we entera bear market. This is because clients are, to a significant extent, presentlyadjusting their exposure (i.e. "rebalancing") to emerging markets reducing theneed for this to occur as markets are falling. All of these assets have beenmore than replaced with new mandates (please see below under New mandates). Asof writing this review, 24th January 2008, we have not lost any institutionalclient accounts in 2008. In fact, we lost only one institutional client accountin the entire calendar year 2007. We have continued with both our FUM hedging program and our current US$ hedgingstrategy. In both cases these have assisted in stabilising our P&L. From theperspective of our FUM, after the recent falls we have reduced our hedges as webelieve that the emerging markets are now, at least compared to the developedmarkets, relatively good value. Having said that, our client portfolios at present have betas of around 0.9 ascompared to their respective indices and we have cash across our portfolios ofaround 11/2% at the time of writing. This has been reduced from 41/2% inDecember. We do not buy into the view that there can be a significant level of emergingmarkets decoupling from the developed markets at the present time for tworeasons: 1) We do not anticipate market participants will buy into a significant level of emerging market decoupling, thus this would seem unlikely to occur. In reality securities are sold as well as bought and there is a great propensity to sell what you own representing the greatest profit over book cost. 2) Established correlations take years to break down and it would seem as if the emerging markets will have to go through an entire developed markets bear market before finally coming of age. Having said this, the correlation between the developed and the emerging markets, whilst remaining close over the past few years, has still allowed significant emerging markets out-performance and in the recent turmoil they would seem, even in the recent down markets, to be continuing with this out-performance. We continue to believe that the emerging markets remain in an extended bullmarket. As a result, we would continue to suggest that whilst there will bebumps along the way that for as long as China, India and a number of otheremerging market economies continue to grow at in excess of four times the paceof developed economies we will continue to experience significant growth in ourbusiness for as long as our investment performance is maintained. We are well used to dealing with volatility both from an emerging market as wellas a Group P&L perspective. We are very significantly ahead of our budget for2008 and have shown our confidence in the future in terms of our interimdividend recommendation of 6p which is double last year's interim payment.Whilst this should not be taken as a forecast we have a stated dividend policywhich is, to the extent that this is possible, that the interim dividend willequate to one third of the total dividend for the year. DiversificationWe are continuing to diversify our business. As an institutional firm we do not have the ability to put new products out inthe market place in the hope of attracting external support. Instead wegenerally use our own (i.e. shareholders') cash to seed new funds. In the eventthat these funds then perform well relative to their chosen benchmarks, we willintroduce them to consultants and/or potential clients. Over the past six monthsfour such funds have received external support, and as a result our seed moneyhas been withdrawn. Overall we have withdrawn $1.5 million from theseinvestments in our own funds during the first half year, giving rise to atransfer of £0.3 million from the revaluation reserve for unrealised gains tothe consolidated income statement. As I stated in our Report and Accounts, our present diversification, which weplan to be organic, falls into three categories: 1) To diversify our core emerging markets business geographically. Since January 2006, the percentage of assets that are sourced outside the US has increased from 17% to 24%. I would estimate that this figure will be around 27%within the next two months. 2) To use our investment trust discipline in other areas separate from the emerging markets. 3) To develop our emerging markets equities (as compared with closed end funds) business. Dubai officeThis office is now operational. It is adding significant additional value to ourinvestment process. Towards the end of the last (calendar) year we added asignificant amount of GCC (Gulf Cooperation Council) exposure to our portfolios.We have added additional exposure during January 2008 as well. Coincidentally wewon our first local mandate in December. I would suggest that this is around twoyears ahead of our planned schedule! Cost income ratioWe have made further progress regarding reducing our cost income ratio. Whilst ahalf year is a short period of measurement this has fallen from 52% at the endof our fiscal year end 2007 to 50% at the end of the half year under review. New mandatesAs of 21st January, FUM totalled $4.25 billion. To this figure should be added afurther $300 million still to be funded from recent mandates that have been won,including two significant emerging market mandates, one in the US and the otherin the UK. Through to the end of February 2008, net inflows are projected to bein excess of $270 million. I would make the additional point that the MXEF (MSCIEmerging Markets Index) is now down around 22.5% from its recent high. Strategic PositioningI would like to make shareholders aware of some of CoL's strategicdifferentiating factors: Most fund managers encourage the cult of the Individual. CoL presents a TeamApproach to Fund Management. Many fund managers focus on gathering assets. CoL focuses on InvestmentPerformance. Certain fund managers manage Hedge Funds. CoL does not. Some fund managers focus on Retail. CoL focuses on Institutional Clients. A few fund managers have encouraged hot money. CoL avoids it. From a strategic perspective many fund managers manage money on an Absolutebasis. CoL manages all Client assets on a relative basis against a Benchmark. Barry OlliffChief Executive Officer24th January 2008 Consolidated income statementFor the six months ended 30th November 2007 ------------------------------------------------------------------------------ Six months ended Year ended Six months ended 30th Nov 2006 31st May 2007 30th Nov 2007 (as restated) (as restated) (unaudited) (unaudited) (unaudited) Note £ £ £ ------------------------------------------------------------------------------ Revenue 2 12,131,322 8,298,109 18,304,881 Administrative expensesStaff costs 4,104,808 2,780,547 5,954,730Other administrative expenses 3,201,153 2,444,495 5,139,946Depreciation 67,628 53,299 120,494------------------------------------------------------------------------------ (7,373,589) (5,278,341) (11,215,170)Operating profit 4,757,733 3,019,768 7,089,711Interest receivable and similar income 568,849 81,818 226,731------------------------------------------------------------------------------Profit before tax 5,326,582 3,101,586 7,316,442Income tax expense (1,765,999) (1,008,143) (2,420,500)------------------------------------------------------------------------------Profit for the period 3,560,583 2,093,443 4,895,942------------------------------------------------------------------------------Basic profitper share 3 14.5p 8.6p 20.0p------------------------------------------------------------------------------Diluted profit per share 3 12.8p 7.6p 17.6p------------------------------------------------------------------------------ Group balance sheet30th November 2007 ------------------------------------------------------------------------------ 30th Nov 2006 31st May 2007 30th Nov 2007 (as restated) (as restated) (unaudited) (unaudited) (unaudited) Note £ £ £ ------------------------------------------------------------------------------ Non-current assets Property and equipment 222,083 190,099 193,362Other financial assets 49,327 46,605 46,859------------------------------------------------------------------------------ 271,410 236,704 240,221------------------------------------------------------------------------------ Current assets Trade and otherreceivables 4,324,836 2,487,130 2,613,212Available- for - sale financial assets 2,221,397 2,033,316 2,231,989Other financialassets 163,677 - 59,665Cash andcash equivalents 8,103,454 4,660,164 6,616,824 14,813,364 9,180,610 11,521,690 CurrentliabilitiesTrade andother payables (3,397,988) (2,158,411) (2,162,168)Current tax payable (1,320,525) (824,333) (1,047,906)------------------------------------------------------------------------------ (4,718,513) (2,982,744) (3,210,074)------------------------------------------------------------------------------Net current assets 10,094,851 6,197,866 8,311,616------------------------------------------------------------------------------Total assets less currentliabilities 10,366,261 6,434,570 8,551,837------------------------------------------------------------------------------ Non-current liabilitiesDeferred tax (112,567) (59,499) (126,805)------------------------------------------------------------------------------Net assets 10,253,694 6,375,071 8,425,032------------------------------------------------------------------------------ Capital andreservesCalled up share capital 267,777 267,777 267,777Share premium account 1,357,283 1,357,283 1,357,283Investmentin own shares 4 (1,682,667) (1,284,436) (1,573,525)Revaluation reserve 481,175 252,919 457,471Share option reserve 312,170 162,982 230,845Retained earnings 9,517,956 5,618,546 7,685,181------------------------------------------------------------------------------Total equity 10,253,694 6,375,071 8,425,032------------------------------------------------------------------------------ Consolidated statement of changes in shareholders' equityFor the six months ended 30th November 2007 ---------------------------------------------------------------------------------------------------------------------- Share Investment Share Profit Share premium in own Revaluation option and loss capital account shares reserve reserve account Total £ £ £ £ £ £ £---------------------------------------------------------------------------------------------------------------------- At 1st June 2007 267,777 1,357,283 (1,573,525) 457,471 230,845 7,685,181 8,425,032 Purchase of own shares - - (301,681) - - - (301,681)Share option exercise - - 192,539 - - - 192,539Revaluation reserve (net of deferredtax) - - - 23,704 - - 23,704Share option reserve - - - - 81,325 - 81,325Profit for the period - - - - - 3,560,583 3,560,583Dividends paid - - - - - (1,727,808) (1,727,808)----------------------------------------------------------------------------------------------------------------------As at 30th November 2007 267,777 1,357,283 (1,682,667) 481,175 312,170 9,517,956 10,253,694---------------------------------------------------------------------------------------------------------------------- Share Investment Share Profit Share premium in own Revaluation option and loss capital account shares reserve reserve account Total £ £ £ £ £ £ £----------------------------------------------------------------------------------------------------------------------At 1st June 2006 267,777 1,357,283 ( 1,027,283) 94,154 106,325 3,525,103 4,323,359 Purchase of own shares - - (349,966) - - - (349,966)Share option exercise - - 92,813 - - - 92,813Revaluation reserve (net of deferredtax) - - - 158,765 - - 158,765Share option reserve - - - - 56,657 - 56,657Profit for the period - - - - - 2,093,443 2,093,443Dividends paid - - - - - - -----------------------------------------------------------------------------------------------------------------------As at 30th November 2006 267,777 1,357,283 (1,284,436) 252,919 162,982 5,618,546 6,375,071---------------------------------------------------------------------------------------------------------------------- Cash flow statementFor the six months ended 30th November 2007 ------------------------------------------------------------------------------ six months ended Year ended Six months ended 30th Nov 2006 31st May 2007 30th Nov 2007 (as restated) (as restated) (unaudited) (unaudited) (unaudited) £ £ £------------------------------------------------------------------------------Cash flow from operatingactivitiesProfit before tax 5,326,582 3,101,586 7,316,442Adjustments for:Interest and profiton sale of investments (568,849) (81,818) (226,731)Depreciation charges 67,628 53,299 120,494Share based paymentcharge 81,325 56,657 124,520Translation adjustmentson investments 72,903 61,084 68,177Cash generatedfrom operations before changes inworking capital 4,979,589 3,190,808 7,402,902Increase in tradeand other receivables (1,711,624) (350,818) (476,900)Increase in tradeand other payables 1,235,820 778,934 782,691Cash generated from operations 4,503,785 3,618,924 7,708,693Taxation paid (1,517,777) (981,499) (2,190,642)------------------------------------------------------------------------------Net cash generatedfrom operating activities 2,986,008 2,637,425 5,518,051------------------------------------------------------------------------------Cash flow from investingactivities Purchase of propertyand equipment (96,349) (17,459) (87,917)Proceeds from sale ofproperty and equipment - - - Purchase ofnon-current financial assets - - (255)Proceeds from sale of non-current financial assets 14,424 29,627 29,627 Purchase of currentfinancial assets (1,115,762) (508,208) (580,139)Proceeds from saleof currentfinancial assets 1,284,288 - 114,161Interest received 250,971 67,017 196,487------------------------------------------------------------------------------Net cash generated/used in investing activities 337,572 (429,023) (328,036)------------------------------------------------------------------------------Cash flow generated/fromfinancing activities Ordinary dividends paid (1,727,808) - (735,864)Purchase of own shares by employee share option trust (301,681) (349,966) (670,948)Proceeds fromsale of own shares by employee shareoption trust 192,539 92,813 124,706Net cash used infinancing activities (1,836,950) (257,153) (1,282,106)------------------------------------------------------------------------------Net increase incash and cash equivalents 1,486,630 1,951,249 3,907,909------------------------------------------------------------------------------Cash and cash equivalents at start of period 6,616,824 2,708,915 2,708,915------------------------------------------------------------------------------Cash and cash equivalents at end of period 8,103,454 4,660,164 6,616,824------------------------------------------------------------------------------ Notes 1 Basis of accountingAs an AIM listed company, the Group is required to prepare financial statementsin accordance with International Financial Reporting Standards ("IFRS") foraccounting periods commencing on or after 1st January 2007. The Group's firstcomplete set of annual financial statements under IFRS will be for the financialyear ending 31st May 2008. As a result of the change in accounting policy, theseinterim financial statements have been prepared using policies that areconsistent with IFRS and in accordance with International Accounting Standard("IAS") 34, "Interim Financial Reporting". These interim financial statements are unaudited and do not comprise statutoryfinancial information within the meaning of section 240 of the Companies Act1985. The information for the year ended 31st May 2007 has been extracted fromthe latest published audited accounts, which have been filed with the Registrarof Companies, subject to amendments reflecting the changes in accountingstandards from UK GAAP to IFRS. The report of the independent auditor on thosefinancial statements contained no qualification or statement under s237(2) or(3) of the Companies Act 1985. (a) Adoption of IFRSUnder the procedures set out in IFRS 1 - "First-time adoption of IFRS", theGroup is required to establish its IFRS accounting policies as at 1st June 2007and to apply these retrospectively to determine prior period comparatives from1st June 2006, the date of transition to IFRS. The Group has taken advantage oftwo exemptions from this general principle. These are outlined below: (i) Share-based Payments - IFRS 2The Group has elected to apply IFRS 2 to all share-based awards and paymentsgranted after 7th November 2002 but which had not vested at 1st June 2006. (ii) Business Combinations - IFRS 3The Group hasnot applied IFRS 3 retrospectively to business combinations thatoccurred prior to the date of transition to IFRS. As the transition date to IFRS was 1st June 2006, financial information for thehalf year financial period ended 30th November 2006 and that of the financialyear ended 31st May 2007 has been re-stated to comply with the new standards.The impact of IFRS on the Group's opening balance sheet at 1st June 2006 hasbeen shown by re-stating the Group's equity on that date. The principal impactsof the adoption of IFRS on the comparative results are set out in Note 6. (b) Accounting policiesThe significant accounting policies under IFRS that are relevant to thefinancial statements of the Group are outlined below: (i) GoodwillUnder IFRS 3 "Business Combinations", goodwill is no longer amortised but isinstead tested annually for impairment. In accordance with the transitionalprovisions of IFRS 1 the Group has not applied IFRS 3 Business Combinationsretrospectively to business combinations that occurred before 1st June 2006. Goodwill of £25,023 arising on the acquisition of the subsidiary undertakings,being the excess of cost over the fair value of the net tangible assetsacquired, was written off directly to reserves in the year of acquisition forthose acquisitions prior to 23rd December 1998. Any subsequent goodwill will be measured at cost less any accumulated impairmentlosses. (ii) Financial instrumentsUnder IAS 39, "Financial Instruments: Recognition and Measurement", financialinstruments must be classified as either: • Loans and receivables• Held-to-maturity investments• Available-for-sale financial assets• A financial asset or liability at fair value through profit or loss The Group has identified those assets that need to be re-classified under thenew standards and these are outlined below: The Group's investments in the funds that it manages are designated asavailable-for-sale financial assets. Such investments are initially recognisedat fair value, being the consideration given together with any acquisition costsassociated with the investment. They are subsequently carried at fair value,with any gains or losses arising from changes in fair value being recognised inequity. Fair value is determined using the price based on the net asset value ofthe fund. Investments are derecognised when the rights to receive cash flowsfrom the investments have expired or have been transferred and the Group hastransferred all risks and rewards of ownership. When derecognition occurs arealised gain or loss is recognised in the income statement, calculated as thedifference between the net sales proceeds and the original cost of the financialasset. Any fair value gains or losses previously recognised directly in equityare recycled into the income statement as part of this calculation of the gainor loss arising on derecognition. The Group assesses at each reporting date whether there is objective evidencethat an investment or a group of investments is impaired. In the case of aninvestment classified as available-for-sale, a significant or prolonged declinein the fair value of the investment below its cost is considered as an indicatorthat the investment is impaired. If any such evidence exists foravailable-for-sale investments, the cumulative loss - measured as the differencebetween the acquisition cost and the current fair value, less any impairmentloss on that investment previously recognised in the income statement, - isremoved from equity and recognised in the income statement. Impairment lossesrecognised in the income statement, which if subsequently reversed, are takenthrough reserves and not the income statement. The Group's investments in options are classified as financial assets at fairvalue through profit or loss. Such investments are accounted for in the same wayas available-for-sale assets but any gains or losses arising from changes infair value are recognised in the income statement. Fair value is determinedusing the quoted market bid price. The only exception is where the Group holds an investment in options on unquotedequity instruments, whose fair value cannot be reliably measured. Suchinvestments are measured at cost less impairment. The Group's investments have been classified here for recognition andmeasurement purposes under IAS39 but are not necessarily reported in the balancesheet under those headings. The Group's investments are reported in the balance sheet as follows: 30th Nov 2007 30th Nov 2006 31st May 2007 £ £ £------------------------------------------------------------------------------Non-current assetsOther financial Investment in assets funds 12,887 6,483 6,737 Investment in unquoted options 36,440 40,122 40,122------------------------------------------------------------------------------ 49,327 46,605 46,859------------------------------------------------------------------------------Current assetsAvailable-for-sale financial assets Investment in funds 2,221,397 2,033,316 2,231,989 Investment in Other financial assets quoted options 163,677 - 59,665------------------------------------------------------------------------------ Where the Group has invested in Delaware Statutory Trust funds there is arequirement to nominate a tax partner and as Investment Manager, the Group hasadopted this role which requires that a nominal investment be held in each fundfor the life of the fund. Therefore, such nominal investments are reported asother financial assets under non-current assets. Where the Group has used its own cash to seed new funds, the investment isgenerally held until the fund's performance is established. Such investments arereported as available-for-sale financial assets under current assets. (iii) Trade receivablesTrade receivables are measured at initial recognition at fair value, and aresubsequently carried at the lower of original fair value and their recoverableamount. Appropriate allowances for estimated irrecoverable amounts arerecognised in the income statement when there is objective evidence that theasset is impaired. (iv) Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand, deposits with anoriginal maturity of six months or less, and other short-term highly liquidinvestments that are readily convertible to a known amount of cash and aresubject to an insignificant risk of changes in value. (v) Trade payablesTrade payables are measured at initial recognition at fair value andsubsequently measured at amortised cost. (vi) Share-based paymentsEquity-settled share-based payments are measured at fair value at the date ofgrant. The fair value at the grant date of the equity-settled share-basedinstrument is expensed on a straight-line basis over the vesting period, basedon the Group's estimate of the shares that will eventually vest. (vii) Foreign currency translationForeign currency transactions are translated using the exchange rates prevailingat the transaction date. Foreign exchange gains and losses resulting from thesettlement of such transactions, and from the translation of period-end monetaryassets and liabilities are recognised in the income statement. (viii) Deferred taxationDeferred tax is recognised on differences between the carrying amounts of assetsand liabilities in the financial statements and the corresponding tax bases usedin the computation of taxable profit, and is accounted for using the balancesheet liability method. However, deferred tax is not accounted for if it arisesfrom goodwill or the initial recognition of an asset or liability in atransaction other than a business combination that at the time of thetransaction affects neither accounting nor taxable profit or loss. Deferred tax liabilities are generally recognised for all taxable temporarydifferences and deferred tax assets are recognised to the extent that it isprobable that taxable profits will be available against which deductibletemporary differences can be utilised. The carrying amount of deferred taxassets is reviewed at each balance sheet date and reduced to the extent that itis no longer probable that sufficient taxable profits will be available to allowall or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset realised. Deferred tax ischarged or credited to the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when thereis a legally enforceable right to set off current tax assets against current taxliabilities and when they relate to income taxes levied by the same taxationauthority and the Group intends to settle its current tax assets and liabilitieson a net basis. 2 Analysis of revenue, operating profit and net assets The directors consider that the group only undertakes one class of business, and hence only analysis by geographical location is given. Six months ended Year ended Six months ended 30th Nov 2006 31st May 2007 30th Nov 2007 (as restated) (as restated) (unaudited) (unaudited) (unaudited) £ £ £------------------------------------------------------------------------------ TurnoverEurope 1,200,495 448,245 1,426,195North America 10,681,834 7,667,009 16,484,085Other 248,993 182,855 394,601------------------------------------------------------------------------------ 12,131,322 8,298,109 18,304,881------------------------------------------------------------------------------Operating profitEurope 559,013 268,213 601,146North America 4,082,231 2,665,396 6,301,978Other 116,489 86,159 186,587------------------------------------------------------------------------------ 4,757,733 3,019,768 7,089,711------------------------------------------------------------------------------ Net assetsEurope 8,550,247 4,611,037 6,586,928North America 1,673,448 1,735,036 1,811,674Other 29,999 28,998 26,430------------------------------------------------------------------------------ 10,253,694 6,375,071 8,425,032------------------------------------------------------------------------------ 3 Earnings per shareThe calculation of earnings per share is based on the profit for the period of£3,560,583 (31st May 2007 restated - £4,895,942; 30th November 2006 restated -£2,093,443) divided by the weighted average of ordinary shares in issue for thesix months ended 30th November 2007 of 24,553,437 (31st May 2007 - 24,432,528;30th November 2006 - 24,385,294). As set out in note 4 the Employee Benefit Trust held 1,968,085 ordinary sharesin the company as at 30th November 2007. The Trustees of the Trust have waivedall rights to dividends associated with these shares. In accordance with IAS33"Earnings per share", the ordinary shares held by the Employee Benefit Trusthave been excluded from the calculation of the weighted average of ordinaryshares in issue. The calculation of diluted earnings per share is based on the profit for theperiod of £3,560,583 (31st May 2007 restated - £4,895,942; 30th November 2006restated - £2,093,443) divided by the diluted weighted average of ordinaryshares in issue for the six months ended 30th November 2007 of 27,853,801 (31stMay 2007 - 27,823,144; 30th November 2006 - 27,591,992). 4 Investment in own sharesInvestment 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 2007 the Trust held 1,968,085 ordinary 1p shares (31st May 2007- 2,303,125; 30th November 2006 - 2,249,000), of which 1,857,310 ordinary 1pshares (31st May 2007 - 2,297,675; 30th November 2006 - 2,084,550) were subjectto options in issue. In total, the company has granted options over 4,357,310 ordinary shares atexercise prices from £0.26 to £2.73. These options have a range of exercisedates from September 2001 to March 2017. 5 DividendsThe final dividend of 7p per share in respect of the year ended 31st May 2007was paid on 15th November 2007. The interim dividend of 6p per share (2007 - 3p) will be paid on 3rd March tomembers registered at the close of business on 15th February 2008. 6 IFRS transitionThe transition date from UK GAAP to IFRS was 1st June 2006. (a)Reconciliation from UK GAAP to IFRSThe tables below reconcile total shareholders' funds at 1st June 2006, 30thNovember 2006 and 31st May 2007 under UK GAAP to total equity under IFRS, andthe profit after taxation for the six months ended 30th November 2006 and theyear ended 31st May 2007 from UK GAAP to IFRS. Reconciliation of shareholders' funds under UK GAAP to shareholders' equityunder IFRS 1st June 2006 30th Nov 2006 31st May 2007 £ £ £------------------------------------------------------------------------------UK GAAP - Shareholders' funds 4,331,813 6,434,570 8,559,508IFRS transition adjustments:IAS 12 - Deferred tax on share options 31,898 48,895 69,254IAS 12 - Deferred tax on revaluation reserve (40,352) (108,394) (196,059)IAS 39 - Fair value of investments - - (7,671)------------------------------------------------------------------------------IFRS - Total equity 4,323,359 6,375,071 8,425,032------------------------------------------------------------------------------ Reconciliation of profit after taxation under UK GAAP to profit after taxationunder IFRS Six months ended Year ended 30th Nov 2006 31st May 2007 £ £------------------------------------------------------------------------------UK GAAP - Profit on ordinary activities after taxation 2,076,446 4,873,958IFRS transition adjustments:IAS 12 - Deferred tax on share options 16,997 37,356IAS 39 - Fair value of investments - (15,372)------------------------------------------------------------------------------IFRS - Profit for the period 2,093,443 4,895,942------------------------------------------------------------------------------ 7 GeneralThe interim financial statements for the six months to 30th November 2007 wereapproved by the Board on 24th January 2008. 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. Copies of this statement are available on our website. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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