CIN.L Regulatory News (CIN)

22 December 2016

City of London Group plc

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

Results for the six month period ended 30 September 2016

The Company announces its unaudited interim results for the six month period ended 30 September 2016.

Financial Results

· Loss before tax £0.7m (2015/16 first half profit before tax £0.8m)

· Underlying loss £0.4m * (2015/16 first half underlying loss £0.4m **)

· CAML operating profit before shareholder charges £23k (2015/16 operating loss before shareholder charges £95k)

· Consolidated NAV per share attributable to shareholders 4p (31 March 2016 6p)

Business developments

· Wider strategic options for CAML to help it achieve scale continue to be examined and may result in the sale of the business

· CAML increased its 'own book' portfolio from £13.7m to £14.6m over the half year although new business volumes were constrained by the capital available in the latter part of the period.

· Continuing efforts to reduce overhead costs.

* Underlying loss in 2015/16 is before the £0.2m cost of strategic review and £0.1m executive termination costs.

** Underlying loss in 2015/16 is before the £1.4m profit on disposal of Therium and before £0.1m of costs directly associated with the fund raise.

For further information:

Notes to Editors:

City of London Group plc is quoted on AIM (TIDM: CIN) and is an investment company focused on providing finance to the SME sector, including professional services firms. It does this through investments in companies providing lease finance and loan finance.

www.cityoflondongroup.com

Chairman's review

Business review

The Group is focusing on maximising recoveries on its remaining investments, particularly in relation to Credit Asset Management Limited ('CAML') where the Group's strategic options continue to be examined. The objective is to enable CAML to achieve the scale of activity required to provide a financially stable platform that can underpin future business expansion. The options could involve the addition of potential investors or a sale of the business and/or loan book.

As reported in the 2016 Annual Report, Trade Finance Partners Limited ('TFPL') has, for some months, restricted its activities to maximising the recovery of advances previously made. It is now clear that no amounts are expected to be available for equity and loan note holders or other unsecured creditors or to its preference shareholders. As TFPL operated as a stand-alone business with no cross-guarantees or other financial obligations from either COLG or CAML, the Group continues to be insulated from TFPL. Full provision has been made against all amounts owed to the Group by TFPL.

COLG itself has continued to keep a tight control on its underlying cost base. The half year included one-off costs of £168k for the strategic review carried out by FCFM Group Limited and £148k for executive termination costs which arose in April. We are continuing to tidy up the few remaining non-core investments on our balance sheet.

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

Over the half year, CAML grew its 'own book' portfolio from £13.7m to £14.6m. As the joint venture fund between COLG and British Business Bank Investments Ltd entered its amortisation phase from 1 April 2016 when it stopped accepting new business, the size of the fund reduced from £7.5m to £4.8m over the six month period. New business volumes were strong in the first months of the year with a peak of £2.6m in April, but subsequently declined to less than £1m per month in August and September. Yields also held up particularly for loans, with continuing pressure on lease yields. The results for the business are set out in the following table.

CAML had a significant increase in revenue over the period and showed an operating profit of £23k against a loss of £95k for the same period last year. The improvement is due to the increase in the 'own book' portfolio together with the strict control of costs in the six month period.

Other investments

COLG's 'available for sale' investments in natural resources and other equities were valued at £164k at the period end. The remaining investments in litigation funds managed by Therium total £132k.

A further £127k has been received since the period end in respect of the deferred consideration payable for the sale of Therium, leaving a balance of £1m which will be receivable within the period to 29 April 2017.

COLG overhead costs

COLG overhead costs in the period included £168k for the strategic review carried out by FCFM Group Limited and £148k for executive termination costs.

Risks

The principal risks of the Group are reviewed by the Board, which reviews and agrees policies for managing these risks. The summary of key risks set out in the Strategic Report in the 2016 Annual Report are still appropriate. The 2016 Annual Report also included information on financial risk management in Notes 31 and 32 of the financial statements.

Liquidity and going concern

The directors have reviewed the cash flow forecast for the period to 31 March 2018 and are satisfied the Company will have adequate working capital at that date.

The debt facilities of the Company currently comprise:

(i) £4.4m loan facility of which £1.0m is drawn down. This facility expires on 30 September 2017; and

(ii) loan from City of London SME Leasing Ltd of £1.45m.

The key assumptions around the cash flow are that all amounts drawn by the Company under its current debt facilities will be repaid by March 2018 from funds received on repayment of existing loans, including receipt of the balance of the deferred consideration for Therium, and proceeds from the realisation in full or part of its interest in CAML.

Other key assumptions include the disposal of the remaining share portfolio at a 10% discount to current prices. The legal case investments held by the Company of £132k are assumed to be repaid at book value during the year.

It has also been assumed the Company will not be required to provide any further working capital to CAML and that there will be no recovery of amounts invested in TFPL.

The main risk factors around the cash flow forecast are:

· the realisation of all or part of the Company's interest in CAML is not achieved,

· the non-repayment of loans outstanding and the legal case investments

· the inability to dispose of the share portfolio at the assumed prices. A discount of 10% has been assumed.

After consideration of the above cash flow risk factors and the projected position in March 2018 together with possible mitigations, including the realisation of CAML's existing loan and lease books, the directors are satisfied that the Company has and will maintain sufficient financial resources to enable it to continue operating for the foreseeable future and therefore continue to adopt the going concern basis in preparing the interim financial statements.

Outlook

The Group will continue its present focus on maximising recoveries on its remaining investments, while recognising the impact of on-going parent company costs. The Group's strategic options for CAML, which could involve the addition of potential investors or a sale of the business and/or loan book, continue to be examined.

Paul Milner

Chairman

This half-yearly report may contain certain statements about the future outlook for COLG and its subsidiaries and associates. 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 2016 will be determined in accordance with English law. The half-yearly results for 2016 and 2015 have neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board.

22 December 2016

Unaudited interim results

Condensed consolidated income statement

All the operations in both the six months to 30 September 2016 and the year to 31 March 2016 are continuing.

Unaudited interim results

Condensed consolidated statement of comprehensive income

Unaudited interim results

Condensed consolidated balance sheet

Unaudited interim results

Condensed consolidated statement of changes in equity

(i) The fair value reserve shows the movement in the fair value of the 'available-for-sale' financial assets.

Unaudited interim results

Condensed consolidated statement of changes in equity continued

(i) The fair value reserve shows the movement in the fair value of the 'available-for-sale' financial assets.

Unaudited interim results

Condensed consolidated statement of cash flows

Unaudited interim results

Condensed consolidated statement of cash flows continued

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 neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board. Statutory accounts for the year ended 31 March 2016 were approved by the directors on 23 September 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement within the meaning of section 498 of the Companies Act 2006.

1.2 Accounting policies

These condensed consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union. 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 2016, which were prepared in accordance with IFRS as adopted by the European Union. 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 2016.

1.3 Adoption of new standards and interpretations

The following amendments to existing standards became effective for the first time for the financial statements for the year ended 31 March 2016:

IFRS 8 - (Annual improvements) - Operating Segments; and

IFRS 13 - (Annual improvements) - Fair Value Measurement

Neither had a material effect on the disclosures or presentation of information in the financial statements.

1.4 Consistency

The interim report, including the financial information contained therein is the responsibility of, and was approved by, the directors on 22 December 2016. 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 for the period ended 30 September 2016.

2 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 operating platforms: lease and professions funding and, in prior periods, trade financing and legal case funding. The COLG segment includes the Group's central functions and an investment portfolio.

Notes to condensed financial statements

Continued

2 Segmental reporting continued

The Loss from operations in the Consolidated income statement of £66,000 comprises the loss of £139,000 less the profit of £73,000 as shown above. 

* Revenue represents interest earned on loans to Trade Finance Partners Limited.

The Profit from operations in the Consolidated income statement of £1,439,000 is the sum of £100,000 and £1,398,000 less £59,000 as shown above. 

Notes to condensed financial statements

Continued

2 Segmental reporting continued

Consolidated Net Assets at 30/09/16

Consolidated Net Assets at 31/03/16

Consolidated Net Assets at 30/09/15

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

Notes to condensed financial statements

Continued

3 Administrative expenses

4 Profit on the disposal of assets classified as held for sale

The profit of £1,398,000 in the prior period arose from the disposal on 29 April 2015 of the Company's associate Therium, together with its 50% associate Novitas Loans Limited and its subsidiary Novitas Futures Limited, for a total consideration of £3,390,000.

As at that date, the carrying value of assets and liabilities comprising the interest in Therium in the Group's consolidated financial statements, which reflected the Group's share of post-acquisition losses included, was £1,831,000. The profit of £1,398,000 in the consolidated accounts took account of costs associated with the disposal, including a provision for non-recovery of a commercial loan made through Novitas Futures Limited.

5 Taxation

Because the charge for taxation is for a period of less than one year, the provision is based on the best estimate of the effective rate for the full year.

6 Dividends

The directors have not declared an interim dividend for the year ending 31 March 2017 (2015/16: nil). The directors did not recommend payment of a dividend for the year ended 31 March 2016.

Notes to condensed financial statements

Continued

7 Earnings per share

The basic earnings per share is calculated by dividing the (loss)/ profit 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 earnings per share is as follows:

8 Non-controlling interests

 (a) The transfer to equity in the prior year arose from the capital restructuring of Credit Asset Management Limited ("CAML") in July 2015 when, as part of the restructuring plan, the Company sold its wholly-owned subsidiary, Professions Funding Limited ("PFL) to CAML in exchange for newly-issued ordinary shares and, in addition, converted the preference shares it held in CAML to ordinary shares. As a consequence, the Company increased its ordinary shareholding in CAML from 51% to 85%, with a corresponding reduction in the percentage of the ordinary shares held by the non-controlling interest.

Under IFRS3, such an increase in a parent's ownership interest in a subsidiary was accounted for as an equity transaction. The difference between the cost of acquiring the additional ownership interest and the increase in the attributable net assets of the subsidiary was written off to equity as a reserve movement. The amount of £1,218,000 written off to equity included goodwill of £46,000 previously carried in relation to PFL.

Notes to condensed financial statements

Continued

9 Related party transactions

Amounts due from associates

All the provisions relate to amounts due from Trade Finance Partners Limited ("TFPL"). As full provision has been made against amounts arising in the six months to 30 September 2016, the income arising has not been recognised in the consolidated income statement for the period.

10 Commitments

The holder of the £3,000,000 7% Redeemable Preference Shares issued by a subsidiary, Credit Asset Management Limited, on 15 July 2015 may require the Company to purchase these shares at their face value and accrued but unpaid dividend if the shares are not redeemed after 7 years or in the event of a change of control in either the Company or Credit Asset Management Limited.

11 Financial risk management

Notes 31 and 32 to the annual financial statements to 31 March 2016 include the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit risk, interest rate risk, price risk, foreign exchange risk and liquidity risk.

The 2016 Annual Report identified the main risk factors around the cash flow forecast in the Strategic Report. The risk factors are broadly unchanged as are the key assumptions made in the cash flow forecast for the period to the end of March 2018 which forecast working capital headroom of c£0.22m at that date.

The Company has a revolving credit facility of £4.8m with a maturity of 30 September 2017. £3.5m of the facility was undrawn at 30 September 2016.

Notes to condensed financial statements

Continued

12 Financial instruments

Price risk

The Group is subject to price risk on its 'available-for-sale' financial assets, including its legal case investments as well as its portfolio of financial assets. There is a concentration risk in the natural resources and technology sectors as the majority of the investment portfolio of £164,000 is invested in these sectors. At 30 September 2016, 8% of the Group's portfolio was invested in unlisted equity securities. There is no material sensitivity on the valuation of the 'available-for-sale' financial assets and the legal case investments.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

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

The fair value of unlisted investments is determined using the valuation techniques described in note 3 of the annual financial statements to 31 March 2016.

The fair value of investments in legal funds is taken to be cost because at 30 September 2016 there was not a sufficient track record on which to base a valuation. Due to their short maturity profiles, management is of the opinion that there is no material difference between the fair value and carrying value of trade and other receivables, cash and cash equivalents, and trade and other payables. The directors therefore consider that the carrying value of financial instruments equates to fair value.

The following table presents the Group's assets that are measured at fair value at 30 September 2016:

The following table presents the Group's assets that are measured at fair value at 31 March 2016:

Level 1 assets are quoted ordinary shares. There are no Level 2 assets.

Notes to condensed financial statements

Continued

12 Financial instruments continued

The movement on level 3 assets is as follows:

By order of the Board

Paul Milner

Director

22 December 2016