CIN.L Regulatory News (CIN)

21 December 2021

City of London Group plc

("COLG" or "the Company" and, together with its subsidiaries, "the Group")

Results for the six-month period ended 30 September 2021

The Company announces its unaudited interim results for the six-month period from 1 April 2021 to 30 September 2021, along with an update on business developments.

Business developments

· Recognise Bank fully licensed in September

After receiving its Authorisation with Restriction (AwR) in November 2020, Recognise Bank became fully authorised in September 2021 when restrictions set by the PRA were lifted after all mobilisation conditions were met, allowing the Bank to accept savings deposits.

· Successful savings launch within two working days

Recognise Bank launched its first personal savings products within two working days of receiving its full licence. Both the market leading 5-Year Fixed Rate account and 95-Day Notice account proved popular with depositors, attracting deposits of over £60m.

· Lending momentum building with over £1bn lending proposals received

Since Recognise Bank commenced operations in November 2020 it has received over £1bn of lending proposals and partnered with over 60 commercial finance brokers, who provide a strong pipeline of new lending opportunities.

· Technology driven by unique Recognise Digital Ecosystem

Recognise Bank's technology harnesses world class technology partners, including Mambu and nCino, with our own proprietary systems, to provide immediate speed and convenience for customers, while also creating an infinitely scalable 'Lego-Bank' platform to support fast-paced development and new product launches.

· Recognise Bank is already winning awards

Recognise Bank won the top honour in the Fintech Finance Awards, 'Wow! We can build a bank' and has also been named 'Best SME Bank 2021' in the SME News Finance Awards.

· Successful cash raise in September to support Recognise Bank growth

The Company raised £11.6m before expenses in September from shareholders, including two of its major shareholders who continue to support the Group. The net proceeds, together with funds generated from the sale of non-core businesses and internally, have been invested in Recognise Bank to support its capital base and allow it to continue to focus on building its lending portfolio.

Financial results

· Loss before tax £5.8m, including £5.6m from Recognise Bank, in line with its business plan, as it develops its business (2020/21 first half loss before tax £2.6m after absorbing costs of £2.8m associated with the UK banking licence application).

Philip Jenks, Chair, commented:

"We are delighted that our subsidiary, Recognise Bank, became a fully licensed UK SME bank in September when the PRA lifted all restrictions, so allowing entry to the UK savings market. Recognise Bank successfully launched its first savings products within 2 days of this and is now in a position to drive forward its business plan and focus on meeting the future needs of the UK SME business sector.

In achieving a UK banking licence, we are indebted to the hard work and vision of the Recognise Bank team and also to the continuing support from engaged shareholders who understand the SME market and share our vision to deliver a successful, safe and sustainable bank deploying the latest technology.

The results for the six months reflect the costs incurred in developing the Recognise Bank business and are in line with the business plan.

During the six months, the divestment of the Group's non-core businesses has been completed, subject to regulatory approval for the sale of Milton Homes. The run-off of the PFS and CAML/PFL portfolios continues to progress smoothly with future customer lending requirements being considered through Recognise Bank.

While uncertainties on the continuing impact of the COVID-19 pandemic remain, we believe the fundamentals in the UK continue to point to steady economic recovery.

Recognise Bank, which has no legacy book and a highly experienced management team, is well positioned to capitalise upon the opportunities this will offer. The funds invested in Recognise Bank to date will support future balance sheet growth as Recognise Bank implements its business plan and moves towards break even."

For further information:

LEI: 2138003UW63TMQ5ZFD85

Notes to Editors:

City of London Group plc is quoted on AIM (TIDM: CIN) and is a forward-thinking organisation which is focused on serving the UK SME market through its subsidiary, Recognise Bank. While grounded in traditional values, it is primed for future growth through the strength and depth of expertise in its expanding team.

www.cityoflondongroup.com

Chair's review

I am pleased to present this review which covers the period from 1 April 2021.

Business review

The Group achieved a major milestone in September 2021 when the PRA lifted the restrictions imposed on Recognise Bank after capital adequacy requirements had been met. With the ability to access the UK savings market, Recognise Bank is now in a position to drive forward its business plan as explained in more detail below. The Group has achieved this goal as a result of the hard work and vision of the Recognise Bank team over the last three years and the Group is indebted to everyone involved.

Since April 2021, the Company has invested a further £21.95m in Recognise Bank Limited to support its continuing growth, with the funds coming from the September cash raise, the disposal of our non-core businesses and internally generated funds.

In September we raised £10.35m from two of our major shareholders and £1.2m from other existing shareholders, before expenses. We greatly appreciate the continuing support of our shareholders which will enable us to deliver our strategy of meeting the needs of the SME business market. We are fortunate to have highly experienced and engaged shareholders who understand the SME sector and share our vision.

With all new lending activities being undertaken through Recognise Bank, the run-off of the existing loan and lease portfolios of CAML and PFS is proceeding to plan with funds being redeployed in Recognise Bank as they become available.

The results for the six month period reflect the costs incurred by Recognise Bank in developing its business. The results are in line with its business plan as, in anticipation of being granted a full UK banking licence, it expanded its headcount to support its development and ensure it could take advantage of the opportunities afforded by having a full licence.

Recognise Bank Limited ("Recognise Bank")

The receipt of a full UK banking licence in September was a great achievement for everyone connected to Recognise Bank and not least the incredible colleagues who worked so hard to deliver a fresh and competitive new banking proposition for UK SMEs. The Recognise Bank team have, over the past three years, developed an enviable reputation for business execution, cost management and extracting maximum value and flexibility from the cloud based technology platform which remains ahead of the market.

A summary of the financial performance of the business is set out in the table below:

By the end of September 2021, the business had grown to 60 FTE with additional front line recruitment over the period to support our ambitious growth plans and fully operational business hubs in London, Manchester, Leeds and Birmingham. The Recognise Bank team of 15 Business Development managers are located in these offices. They do not only generate their own lending opportunities but also work closely with over 60 highly experienced commercial finance brokers who refer lending opportunities from their own networks of highly valued partners. This allows Recognise Bank to access a much wider target market. Since commencing lending operations in November 2020, Recognise Bank has received over £1bn in lending applications.

Recognise Bank's cloud-based lending platform has been fully operational since November 2020 and we continue to develop and enhance its capability to support our key strengths of speed of decision making, flexible structuring, fast paced drawdowns and, most importantly, genuine relationship management. This combination of versatile, state of the art technology and experienced relationship managers are the keys to our success, and we are already seeing a very positive customer response and repeat business from customers who recognise the difference we deliver. Recognise Bank launched with four lending products, commercial property, working capital, bridging and professional practice loans. In November 2021 we also launched a very competitive Professional Buy to Let loan product targeted at the UK's growing army of professional landlords.

As a further demonstration of the management team's track record of detailed planning and successful execution, Recognise Bank delivered its first two personal savings products within two working days of receiving authorisation from the PRA. The 5-Year Fixed Rate bond and the 95-Day Notice account both enjoyed a smooth market launch, testimony to nearly 18 months of detailed preparation. All savings are protected by the Financial Services Compensation Scheme (FSCS) and, in line with our strategy, we plan to launch Business Savings early in the first quarter of 2022.

As delighted as we are to have reached this important stage in the bank's development, the market opportunity for a new UK SME bank dedicated to delivering what business owners really need is just as strong as ever and we remain equally ambitious to build and grow over the coming years. The lending and savings platforms are fully operational, and we believe Recognise Bank now has a unique opportunity to accelerate its digital capability and breakthrough thinking by harnessing intellectual resource from within the UK and globally. Our vision is to deliver a successful, safe and sustainable bank deploying the latest technology to lead, not follow, its competitors, and to open up new markets whilst controlling risk and costs.

Property & Funding Solutions Ltd ("PFS")

The run-off of the loan portfolio of PFS continued during the period as existing short-term property loans matured and were repaid. Future customer funding requirements will be considered through Recognise Bank as bridging lending is one of its core products.

A summary of the financial performance of the PFS business is set out in the table below:

While the COVID-19 pandemic and resultant lockdown restrictions initially impacted both the residential and commercial property markets, the PFS loan book has proved resilient with no impairment or losses experienced, although there has been a need to extend certain loans to give customers more time to deliver their business plan, including debt repayment. PFS management maintains regular contact with its customers to keep abreast of business plan execution and identify any potential early warning indicators of financial stress. The run-off process has gone smoothly to date. The loan book of £3.23m at 30 September 2021 comprised six loans.

Credit Asset Management Limited ("CAML") and Professions Funding Limited ("PFL")

The run-off of the existing CAML and PFL loan and lease portfolios continued during the period as individual loans and leases move towards maturity and are repaid. Future SME customer funding requirements for asset backed finance and loans (whether commercial or to professional practice firms) will be considered by Recognise Bank.

CAML has maintained its customer contact programme which commenced in early March 2020 when the likely effect of the COVID-19 pandemic became apparent. Where appropriate, CAML has provided tailored support to customers to help them through a difficult period. Moratorium extensions were offered to businesses in those sectors more severely impacted by imposed trading restrictions. This programme, which has been well received by customers, continued throughout the period to September 2021. No further moratorium requests were received in the six-month period.

The information obtained from this on-going direct customer contact programme was used to inform the IFRS 9 provisioning exercise undertaken as at 31 March 2021: the provisions for anticipated bad and doubtful debts made at that time ensured actual movements in the reporting period ended 30 September 2021 could be fully absorbed.

A summary of the financial performance of the business is set out in the table below:

CAML made an operating profit before shareholder capital charges of £95k in the period. The loss of £134k in the corresponding prior year period arose from one off business restructuring costs following the decision to place the business in formal wind down.

The run-off process has gone smoothly to date as CAML management maintains contact with customers to identify any potential early warning indicators of financial stress. The outstanding combined CAML and PFL loan and lease portfolios have decreased by around one third over this 6-month period to £4.0m while the funds released have been redeployed to support the development of Recognise Bank.

COLG

Since the year end, COLG has invested a further £21.95m in Recognise Bank to support its on-going development. Some 50% of the funds came from shareholders in the September cash raise exercise while the balance was generated from Milton Homes and funds arising as the CAML loan portfolio runs off.

The cash raise in September realised £11.6m before expenses with 20.93m shares being issued in September and October. Shareholders subscribing for the shares also received warrants on the basis of 1 warrant for every 2 shares subscribed for, which entitle warrant holders to subscribe for ordinary shares at 69p each within 3 years from the date of issue.

The Group has divested itself of its non-core businesses following the sale by COLG of Acorn to Oaks Financial Services Limited on 1 April 2021 and the sale of Milton Homes Limited announced on 3 September 2021, subject to FCA approval, which is anticipated to be received in the next few months. As per the sale agreement, profits arising after 31 March 2021 are being retained in Milton Homes for the benefit of the purchaser, no review of this business has been included. Under the sale arrangements for Milton Homes, the Company received cash of £9.0m in September on the repayment of the Milton Homes Deep Discount Bonds.

Risks

The principal risks of the Group are reviewed by the Board, which reviews and agrees policies for managing these risks. The key risks described in the Strategic Report in the 2021 Annual Report are still appropriate.

The 2021 Annual Report also included information on financial risk management in Notes 32 and 33 of the financial statements. This also remains relevant.

Outlook

The strategy of the Group to build a new UK bank focused on the SME business sector has remained consistent since 2017 and we have reached an exciting point in its delivery. While uncertainties on the continuing impact of the COVID-19 pandemic remain, we believe the fundamentals in the UK continue to point to steady economic recovery which, Recognise Bank, having no legacy book and a highly experienced management team, is well positioned to capitalise upon. The investment the Group has made in Recognise Bank over recent years has been deployed prudently and carefully. The funds from the most recent fundraise will support future balance sheet growth which we confidently anticipate as Recognise Bank implements its business plan and moves towards break even.

Philip Jenks

Chair

This half-yearly 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 statements about the future outlook may be influenced by factors that could cause actual outcomes to be materially different. Such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward looking statements.

This half-yearly report has been drawn up and presented with the purpose of complying with English law. Any liability arising out of or in connection with the half-yearly report for the six months to 30 September 2021 will be determined in accordance with English law. The half-yearly results for 2021 and 2020 have neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board.

21 December 2021

Unaudited interim results

Condensed consolidated income statement

The loss in each period is wholly attributable to the owners of the parent.

Condensed consolidated statement of comprehensive income

Condensed consolidated balance sheet

Condensed consolidated statement of changes in equity

There were no non-controlling interests during the period to 30 September 2021.

Condensed consolidated statement of cash flows

Changes in liabilities arising from financing activities

Notes to condensed financial statements

1 Basis of preparation

1.1 These interim financial results do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006 and have been neither audited nor reviewed pursuant to guidance issued by the Auditing Practices Board. Statutory accounts for the year ended 31 March 2021 were approved by the directors on 9 September 2021 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain any statement within the meaning of section 498 of the Companies Act 2006.

Going concern

The condensed consolidated financial statements have been prepared on a going concern basis which the directors consider to be appropriate following their assessment of the Group's financial position and its ability to meet its obligations as and when they fall due. The directors have reviewed in detail the monthly cash flow forecast for the period to 31 December 2022 and challenged the assumptions in the forecast, including those relating to the raising of additional capital to support the growth of banking activities.

1.2 Accounting policies

These condensed consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting". The condensed consolidated financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 March 2021, which were prepared in accordance with IFRS in conformity with the requirements of the Companies Act 2006. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed consolidated financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 March 2021, except in relation to the presentation of information on Discontinued operations and disposal groups (see note 1.5).

1.3 Adoption of new standards and interpretations

The adoption of new standards and amendments to standards remains as set out in note 2.2 of the Annual Report 2021 with none falling to be adopted in the current financial period:

1.4 Consistency

The interim report, including the financial information contained therein is the responsibility of, and was approved by, the directors on 21 December 2021. The AIM Rules require that accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing annual accounts except where any changes, and the reason for them, are disclosed.

There have been no changes to the Group's accounting policies in the period to 30 September 2021.

1.5 Discontinued operations and disposal groups

During the year ended 31 March 2021, the Company decided the Group should focus its activities on the development and growth of Recognise Bank and divest itself of its other activities. Accordingly, Milton Homes Limited ("Milton Homes"), which administers a portfolio of home reversion plans, and Acorn to Oaks Financial Services Limited ("Acorn to Oaks"), a financial services intermediary, were reclassified as disposal groups as at 31 March 2021.

In order to focus on the Group's continuing operations, information on continuing and discontinued operations has been disclosed separately with information on discontinued operations and the disposal groups being given in note 9. As a consequence, the presentation of certain information in prior periods differs from that in the 2021 Annual Report and the 2020 Interim Report.

2 Revenue and cost of sales

All revenue arises in the United Kingdom.

The revenue and cost of sales of discontinued operations are shown in note 9.

3 Segmental reporting

A reportable segment is identified based on the nature and size of its business and risk specific to its operations. It is reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the full Board of the Company.

The Group is managed through its operating businesses. Information on the activities of each business is given in the Chair's review. The COLG segment includes the Group's central functions.

(a) Quasi-equity intra group payments comprise interest payable to Recognise Bank and dividends on preference shares payable to COLG.

(b) See note 9. The operating profit of discontinued operations principally comprises the net increase in the value of the Milton Homes disposal group following the conditional agreement for its sale on 3 September 2021.

(a) Quasi-equity intra group payments comprise interest payable to COLG.

(b) See note 9.

Consolidated Net Assets at 30/09/21 (unaudited)

Consolidated Net Assets at 31/03/21 (audited)

Consolidated Net Assets at 30/09/20 (unaudited)

The Board reviews the assets and liabilities of the Group on a net basis.

4 Administrative expenses

The above table relates to continuing operations. Administrative expenses for discontinued operations are shown in note 9.

5 Taxation

The provision for the six month period to 30 September 2021 of nil is based on the best estimate of the effective rate for the full year, as the charge for taxation is for a period of less than one year.

The provision in respect of discontinued operations is included in note 9.

6 Dividends

The directors have not declared an interim dividend for the year ending 31 March 2022 (Interim 2021: nil). The directors did not recommend payment of a final dividend for the year ended 31 March 2021.

7 Earnings per share

Basic and diluted earnings per share is calculated by dividing the loss attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the period less those held in treasury and in the Employee Benefit Trust.

The basic and diluted earnings per share are the same as, given the loss for the period, the outstanding share options would reduce the loss per share.

8 Intangible Assets

9 Discontinued operations and disposal groups

There were no Assets classified as held for sale at 30 September 2020.

As explained in note 1.5, Milton Homes Limited ("Milton Homes") and Acorn to Oaks Financial Services Limited ("Acorn to Oaks") were reclassified as disposal groups as at 31 March 2021. The assets of each business, including the goodwill arising on consolidation, and the liabilities directly related to those assets were reclassified as "assets in disposal groups classified as held for sale" and "liabilities directly associated with assets in disposal groups classified as held for sale" respectively and included within current assets and liabilities at 31 March 2021.

Acorn to Oaks was sold on 1 April 2021 to Jason Oakley and his wife, Claire Oakley, who controlled the majority of the shares in Acorn to Oaks when it was purchased by the Company in January 2019. The disposal was deemed to be a related party transaction under Rule 13 of the AIM Rules as Jason Oakley is deemed to be a related party of the Company as he is a director of Recognise Bank, a wholly-owned subsidiary. The fair value of Acorn to Oaks as at 31 March 2021 was assessed by reference to the net consideration of £1,114,000 realised on its sale, which was satisfied by:

(a) The Rollover Loan Notes 2021 were issued to the buyers at the time of the purchase of Acorn to Oaks in January 2019.

The sale of Milton Homes to Max Barney Investments Limited, a related party of the Company, was agreed on 3 September 2021, subject to regulatory approval for the change in control from the FCA. An application for such approval has been submitted to the FCA and the sale of the ordinary shares will be completed when this is received.

As part of the arrangements for the sale of Milton Homes, Milton Homes paid the Company £1,200,000 in respect of the Deep Discount Bonds held by the Company on 2 September 2021 and a further £7,846,002 on 3 September 2021 to redeem the Deep Discount Bonds in full. The latter payment was made from the proceeds of an issue of new bonds issued to HPB Pension Trust, an entity associated with Max Barney Investments Limited. Accordingly, as at 30 September 2021, the only asset held for disposal by the Company was its holding of ordinary shares in Milton Homes Limited. The fair value of the assets and associated liabilities of Milton Homes held in the balance sheet as at 30 September 2021 is £250,000, the amount that will be payable on completion.

A charge of £6,657,000 arising on the remeasurement of the carrying amounts of assets transferred to disposal groups was recognised in the consolidated income statement for the year to 31 March 2021. Following a reassessment of the charge of £6,543,000 relating to Milton Homes as at 30 September 2021, a credit of £339,000 has been included in the results from discontinued operations in the current six month period.

Under the terms of the sale agreement, profits of Milton Homes arising after 31 March 2021 are being retained in Milton Homes for the benefit of the purchaser.

The results of discontinued operations are as follows:

(a) Revenue

The carrying amounts of assets and liabilities in the Milton Homes disposal group at 30 September 2021 after remeasurement of assets were:

10 Movements in equity