CIN.L Regulatory News (CIN)

City of London Group plc ("COLG" or the "Company")

Preliminary announcement of the final results

The Company is pleased to announce its audited final results for the year ended 31 March 2012.

Highlights

·; Turnover for the year increased to £15.5m (2011: £0.8m)

·; Third party funding increased to £35m (2011: £5m) with a further £20m agreed in principle

·; Loss of £2.1m of which £1.4m from planned revenue investment in platforms

·; Trade Finance Partners Limited ("TFPL") financing with Macquarie Bank Limited validates the value created

·; TFPL trading profitably and other platforms expected to follow in near term

·; Therium Capital Management Limited secures first institutional mandate and is no longer dependent on COLG for seed funding

·; FX Capital Limited, an early stage investment, has demonstrated value creation in recent fund raise

·; Sales of 'available-for-sale' investments total £2.3m (2011: £3.9m) with realised profits of £1m (2011: £1.6m)

·; NAV per share 62.3p (2011: 87.8p)

·; Unaudited proforma NAV per share including directors' valuation 99.2p

·; Final dividend recommended 0.5p (2011: 1.0p)

Eric Anstee, Chief Executive, commented:

"Our platforms have reached critical mass and with further third party funding having been put in place the coming year should see significant advancement of our business.

"Whilst the economic environment remains tough we are seeing attractive opportunities to finance high quality SME transactions and companies which the high street banks are ignoring."

25 June 2012

Enquiries:

Notes to Editors

City of London Group plc (COLG) has virtually completed its transition to a financial services investment company. A public company since 1986, COLG has had a full London Stock Exchange listing since August 1996 (LSE symbol CIN).

The Company's strategy is to build a quality Financial Services Group centred on Specialist Financing and Alternative Fund Management. The Company believes there are particular opportunities in the SME and professional services sectors as major national and foreign banks limit new lending to these borrowers. It therefore seeks to identify and exploit product niches and business models in these sectors where they are supported by strong day to day management teams, providing initial equity, working capital and seed funding for those teams.

Since the final quarter of 2009, COLG has developed four specialist financing funds, pledging significant seed funds to: Therium Capital Management Limited, a third party Litigation Funder; Credit Asset Management Limited and Professions Funding Limited, which respectively provides asset backed finance and working capital loans to professional practice firms; and finally Trade Finance Partners Limited, a trade finance provider to the SME market.

To find out more about COLG's strategy and its businesses please click on the attached link www.cityoflondongroup.com/about.asp

Chairman's statement

The transformation of the Group from a public relations company into a financial services investment group is now virtually complete. Four new platforms are now established and provide a well balanced business which is focused on lending to the SME market. The legacy mining and energy equity investment portfolio will continue to be steadily unwound to fund the development of these new platforms. Our target is to apply our investment policy to this equity portfolio so that it represents no more than 20% of gross assets of the Company.

There has been wide coverage in the media around the need for UK business to seek alternative sources of funding to ensure it can grow in spite of the constraints on bank lending. In particular an industry led working group was set up by the Department for Business, Innovation & Skills and led by Tim Breedon to address the question: "In light of the need to find new sources of capital to support the future financing needs for UK businesses, what are the barriers to the development and growth of sustainable non-bank lending channels in the UK".

This working group concluded that there remains a significant funding challenge for banks as a result of regulation at national and international level which is likely to restrict further the availability of credit. In particular, they estimated that over the next five years there would be an SME funding requirement of £26-59bn of which some may be met from growth in bank lending. They also concluded that the arguments for developing alternative sources of finance are strong and pointed out that the US experience shows there is potential for much greater uptake of asset based finance in the UK.

This industry background is important to the repositioned City of London Group because our strategy is to invest in platforms targeted at providing alternative sources of finance including asset based finance to the SME market. The Group intends to grow both its existing platforms through third party funding including managed accounts as well as invest in or acquire new platforms as opportunities are identified. The demand from SME customers for all of our platforms has remained strong and indeed our principal challenge in the development of these platforms has been providing them with sufficient funding to grow their lending portfolios.

In addition to the placing which raised £5.3m at the start of the financial year, I am pleased to be able to report that the executive team's focus in this area during the year has yielded significant results. In particular, new third party funding has been secured from a range of sources for each of our four platforms including most recently a three year £15m trade finance facility with Macquarie Bank Ltd with the option to increase by mutual agreement to £25m. Also a managed account for our litigation funding business of £5m was recently secured with a stated intention to increase the fund to £15m.This takes the current total third party funding from £5m at the start of the year to £35m with two of the existing facilities having the potential to increase by mutual agreement by a total further £20m. The plan for the Company is to build on this momentum in growing third party funds for each of our platforms and thereby provide them with much greater scale and therefore improved profitability.

Financial

The Group has reported a turnover of £15.5m and a loss before tax for the year of £ 2.1m. Each of the four newly established platforms are developing well but they have incurred losses as most of the set-up costs have been written off and the operations were sub-scale during this development stage. Our trade finance business, however, was profitable in its first full year of operation. Our seed investment of the litigation funding business produced a net loss of £725k but we are confident about the remaining direct investment in legal cases. No further City of London Group seed funding is required by that business as the level of third party funds under management has now increased to a sufficient size to fund the pipeline of cases.

Board

The main developments on the Board this year have been the appointment of two new independent non-executive directors and the appointment of an executive finance director who between them bring a wealth of finance, legal and corporate governance experience and help us address the challenges of a fast growing financial services business in an increasingly regulated environment. I warmly welcome them to the Board. I would also like to extend my thanks to all the staff of the Group for their considerable efforts during the year in getting the platforms well established.

Outlook

I expect the impact of the developments achieved in 2011/12 to become apparent during 2012/13 as our platforms gain traction in each of their markets. I am confident that as a direct result of the progress made in the year the City of London Group is in a stronger position now than at any time over the past three years. We still see a challenging economic environment ahead, with a difficult market for raising third party funds but the solid foundation of the platforms and the newly secured sources of funding provide momentum and the increased scale needed to show improved financial performance.

Henry Lafferty

25 June 2012

Chief Executive's Review

Investment climate

The City of London Group has made some good progress in the year against a backdrop of very difficult economic conditions for the UK and world economy. We have continued to invest heavily in our core investment platforms and I now feel confident that we are well positioned to attract further investment funds and bank facilities to enhance the equity value of the platforms. There is no doubt that financing for small and medium sized companies and professional firms, in which three of our alternative investment platforms operate, is in high demand and core to the UK growth agenda. The UK Chancellor has announced initiatives to provide assistance via credit easing and we hope to participate in this scheme in the coming year.

Growth

I am delighted to welcome Howard Goodbourn to our management team who joined in the year as Group Finance Director. I am also delighted that my colleague John Kent has agreed to step up to the role of my deputy and I anticipate that we will continue to grow our Executive team as the business expands.

Our loss for the year reflects the continued investment we have made in supporting our core platforms and in the expansion of our group resources to increase our financial capabilities including raising third party funds under management. The costs of this expansion to build significant businesses cannot unfortunately be attributed to goodwill in our accounts, which would have been the case had we acquired them, and this has been a principal factor in the loss for this year. These costs also have the effect of reducing our net asset value which continues to be the measure by which our share price is rated. The other contributory factor to the loss for the year was an adverse finding on one of our seed funded litigation investments for which a full provision was taken at the half year. We are confident about the remaining investments in legal cases but do not anticipate any need for further seed funding of cases in that business. I hope that the recent events described below and elsewhere in the report and accounts demonstrate to shareholders the real value that is being created in addition to the balance sheet values.

Strategy

Our strategy, which remains unchanged, is to invest in alternative investment platforms where we see opportunities for creating shareholder value and co-invest with experienced management teams, provide them with seed funding to get started and then seek third party funding to facilitate their growth.

Investment platforms

Our investment platforms continue to expand and I am delighted that since the year end, we have closed the first institutional investment mandate for our litigation funding platform, Therium Capital Management Limited. We have also recently agreed a significant new bank facility and co-investment partnership with Macquarie Bank Limited for our trade finance platform, Trade Finance Partners Limited. Both of these initiatives offer significant long term value for our shareholders. Our leasing platform, Credit Asset Management Limited, continues to expand with new banking facilities but the growth of funds under management for this business remains painfully slow compared with the very strong demand we see for their leasing products. Lending through our professional loans platform, Professions Funding Limited, has also seen some expansion in third party funding through block banking lines as well as growth in demand for its loan products. The business we launched last year as a joint venture, Novitas Futures Limited, which lends to law firm clients has grown significantly in the year and we successfully raised £1million of bank funding specifically as seed funding for this business. That business is now raising its own third party fund as we reduce our seed funding commitment. Each of the main investment platforms has produced their own review for shareholders this year which are included in the report and accounts document.

Investment report

We have continued to shrink our share portfolio, as planned, by making sales of stocks when appropriate in the market and re-deploying the funds in the platforms. Despite these sales we continue to hold significant investments in some mining and energy stocks with some success. In particular, I would mention the reversal of Flow Energy Limited, an unlisted investment held last year, into Far Limited which is listed on the Australian Stock Exchange. Since that time it has increased in value and we have been able to realise some worthwhile gains. More recently some of our mining investments listed in the UK have suffered price falls but we remain very confident in the underlying values within the individual companies.

Principal Holdings as at 31 March 2012

Other investments

Finally, I have provided below a brief update on our other investments including the Munro Fund, managed by FTIM Limited, FX Capital Limited and Array Management Limited. The Munro fund has continued to struggle to attract the scale of funds under management needed for profitability despite favourable press comment. We continue to increase the marketing of this fund particularly in the light of the forthcoming changes proposed by the Regulators for the selling of Retail Funds where we expect passive tracker funds such as Munro to find more favour with advisers. On the other hand, our investment in FX Capital Limited now trading as "The Currency Cloud" continues to attract new third party funding at values which demonstrate the success of this investment. Our investment in Array Management Limited has completed all the business modelling necessary for the launch of an inflation linked bond and we continue to discuss with third parties suitable structures and distribution capabilities. It has encountered some challenges during the year from reorganisations and takeovers of the parties we have been working with but we remain optimistic that this product will produce shareholder value.

Dividend

We are recommending to continue with our dividend payments but in view of the continued pressure on our cash resources we propose to restrict the final dividend to 0.5p per share making a full year dividend of 1.0p per share (2011: 1.5p).

Outlook

We will continue raising third party funds for our existing platforms and so far we are encouraged by the number of discussions we are holding. As mentioned above, we hope to participate in the credit easing scheme announced by the UK Chancellor. We will continue to focus on ways we can build or acquire new platforms in the area of Finance for growing businesses. There are also synergies we can gain across the platforms in technology and specialist expertise which we will pursue. We will realise investments when appropriate and we also plan to strengthen our core people resources particularly for raising third party funds. I am confident that we are well placed to develop profitable businesses in the coming year.

Eric Anstee

25 June 2012

Unaudited directors' valuation

Following our policy in the interim accounts, the directors provide an indication of the incremental value they attribute to the investment platforms which in aggregate show additional value of between £5.1m and £8.1m. This equates to between 28.5p and 45.3p of additional NAV per share.

Consolidated statement of comprehensive income for the year ended 31 March 2012

Consolidated statement of changes in equity 2012

Consolidated balance sheet as at 31 March 2012

Consolidated statement of cash flows for the year ended 31 March 2012

Notes

1. Basis of preparation

The financial information contained in this preliminary announcement does not constitute full accounts as defined in section 434 of the Companies Act 2006 and has been extracted from the statutory accounts for the year ended 31 March 2012. The auditors have issued an unqualified report on these statutory accounts. The statutory accounts for the year ended 31 March 2011 have been filed with the Registrar of Companies and the statutory accounts for the year ended 31 March 2012 will be filed with the Registrar of Companies in due course.

2. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the year, less those held in treasury and in the Employee Benefit Trust. 472,886 shares were held in the Employee Benefit Trust. No shares were held in treasury by the Company at 31 March 2012 (2011:190,273). The calculation of the diluted earnings per share divides this profit by a revised weighted average number of shares 17,506,689 (2011: 11,115,199). The increase relates to dilutive share options.

3. Dividends

The directors recommend the payment of a final dividend for the year of 0.5p per ordinary share (2011: 1.0p).

4. Segmental reporting

The principal trading subsidiaries are considered to operate in business segments other than the principal activity of the parent company.

5. Administrative expenses

Directors' emoluments are shown in the report of the Remuneration Committee. The notional value of the non-vested portion of the award is £179,251 (2011: £258,972).

The additional audit costs are due to new subsidiaries requiring audits for the first time and overall growth of the Group.

6. Related party transactions and directors' remuneration

Directors' emoluments are disclosed in the part of the directors' remuneration report subject to audit. The aggregate emoluments paid to directors during the year were £454,499 (2011: £223,931) and there were no awards under the incentive scheme for 2011/12 (2011: £388,465). There are no other persons having the authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. Accordingly, the aggregate amounts payable to directors equate to the aggregate compensation to key management personnel. As all directors' emoluments are paid by the Company, the figure relates both to the Company and the Group.

P Tinkler, chairman of Trade Finance Partners Limited, is regarded as a related party as he is a director and non-controlling interest holder of City of London Confirming House Limited.

The following related parties have invested in funds managed by Therium Capital Management Limited:

J Anstee an employee of the Company is considered a related party as he is the son of the chief executive E E Anstee. J Anstee received remuneration of £33,186 during the year to 31 March 2012.

The table of intercompany balances and transactions is included in the financial statements to 31 March 2012.

A summary of total remuneration is as follows:

(a) Howard Goodbourn was appointed on 24 October 2011

(b) John Williams was appointed on 1 November 2011

(c) Tony Brierley was appointed on 1 December 2011

(d) The amounts vested in the year related to the deferred incentive from the 2009/10 scheme.

The directors' interests in the deferred elements of the long term incentive scheme were as follows:

There were no awards under the 2011/12 incentive scheme year and claw back under the scheme was effective over the first element of the 2010/11 scheme and part of the 2009/10 scheme award.

7. 'Available for sale' assets

8. Called-up share capital

The Company did not hold any shares in treasury at 31 March 2012 (2011: 190,273). 472,886 shares were held by the Employee Benefit Trust at the 31 March 2012 (2011: nil).

During the year the Company did not sell any shares (2011: 16,826 £0.10 ordinary shares with an aggregate nominal value of £1,683) but the Company did transfer 190,273 shares from treasury to the directors and accordingly distributable reserves have been increased by £55,811 (2011: £4,935) being consideration originally paid on the purchase of these shares.

9. Unrecognised deferred taxation

Total unrecognised deferred tax assets were £1,033k (2011: £524k) for the Group.

10. Risk statement

The key risk factors faced by the Group are set out in the financial statements to 31 March 2012 and are summarised below. The Board reviews and agrees policies for managing each of these risks.

Price risk

The Group is subject to price risk on its 'available-for-sale' financial assets, in particular its investment share portfolio which is predominantly in the natural resource sector. The price risk in respect of investments in unlisted companies and legal funds is managed by the Group having an overall investment portfolio which limits its exposure to unlisted investments individually and collectively.

Foreign exchange risk

The Group's earnings and liquidity are affected by fluctuations in currency exchange rates, principally in respect of 'available-for-sale' financial assets denominated in overseas currencies. The Group holds a limited amount of overseas currencies in bank accounts.

Credit risk

The Group is subject to credit risk of counterparties to which it has lent or to which it has cash on deposit. This risk is mitigated by upfront credit checks, asset security, guarantees and credit insurance. All cash deposits are made with major financial institutions and the directors are of the opinion that credit risk in relation to cash and cash equivalents is minimal.

Liquidity risk

The Company has arranged a £1.6m bank overdraft facility secured on its investment portfolio. The actual facility size available is, however, restricted to half the value of the Company's listed investment portfolio. The facility size at 31 March 2012 was approximately £1m and this is expected to be sufficient to meet its current requirements. A considerable portion of the investment portfolio would be easily realisable if the need arose, but half of any disposals would be applied to reduce the overdraft facility. There is also a portfolio of Australian shares which could be realised.

Fair value estimation

The fair value of listed financial assets is established by reference to current bid market prices.

The fair value of unlisted investments is estimated based on historical experience and other various factors that are believed to be reasonable. The fair value of investments in legal funds is based on the opinion of legal counsel on the prospects of cases financed by the funds.

Legal and regulatory risk

The Company may fail to comply with its legal and regulatory obligations, which could have a material adverse effect on its business or lead to its shares being suspended from trading. External advisers are used extensively to provide specialist advice and training is also provided for directors and senior management.

Interest rate risk

Investee companies are financed through third party borrowings which may lead to an increase in investment risk and exposure to interest rate fluctuations. This is mitigated where possible by passing this risk on to clients in the nature of trade of the underlying business.

Litigation risk in funding legal cases

There can be no guarantee that legal cases will be successful or will pay the returns targeted by the Board. The risk is mitigated by a screening process, restricting investment levels in any one case and insurance covering costs awarded to the other side if the case is lost.

Competition risk

The company may become subject to increased competition in sourcing and making investments which could lead to, amongst other things, the company finding it difficult to invest. This is mitigated by the investment platforms being in niche and complex areas and also by demonstrating superior returns.

Statement of directors' responsibilities

The directors are responsible for preparing the Annual Report, the Remuneration Report and the financial statements in accordance with applicable laws and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and have also elected to prepare financial statements for the Company in accordance with IFRS as adopted by the European Union ('EU'). Company law requires the directors to prepare such financial statements in accordance with IFRS, the Companies Act 2006 and Article 4 of the IAS Regulation. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

International Accounting Standard 1 requires that financial statements present fairly for each financial year the company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and Presentation of Financial Statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. Directors are also required to:

·; properly select and apply accounting policies and then apply then consistently;

·; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·; make judgements and accounting estimates which are reasonable and prudent;

·; state whether applicable IFRS as adopted by the EU have been followed subject to any material departures disclosed and explained in the financial statements; and

·; provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a directors' report and directors' remuneration report which comply with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.

Responsibility statement

Each of the directors, whose names and functions are listed in the Directors' Report, confirm that to the best of each person's knowledge and belief:

·; the financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position of the Group and the Company and of the loss of the Group; and

·; the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncertainties that they face.

By order of the Board

H Lafferty

Chairman

25 June 2012

Annual General Meeting

The Annual General Meeting will take place at 10am on Monday 17 September 2012 at Wax Chandlers' Hall, 6 Gresham Street, London, EC2V 7AD.

Disclaimer

This report may contain certain statements about the future outlook for COLG and its subsidiaries. Although the directors believe their expectations are based on reasonable assumptions, any statement about the future outlook may be influenced by factors that could cause actual outcomes to be materially different. This report has been drawn up and presented with the purpose of complying with English law. Any liability arising out of or in connection with it will be determined in accordance with English law.

25 June 2012