30 Nov 2011 07:00
City of London Group plc ("COLG" or "the Company")
Half-year results for the six months ended 30 September 2011
KEY POINTS
·; Turnover increased to £5.6m (2010: £0.2m)
·; Interim dividend maintained at 0.5p per share
·; Loss before tax £1.4m (2010: profit £0.1m) after provision for legal case costs of £1.5m
·; NAV per share 62.9p (30 September 2010: 78.1p), excluding directors' valuation
·; Significant progress on the three new major investment platforms
·; Therium continues to grow strongly with substantial additional funding secured
·; Group's investment portfolio saw market value reduction of c. £1.5m
Henry Lafferty, Chairman, said:
"The Company's strategy of investing in the SME and professions markets, where traditional funding sources have dried up, is proving to be very sound. Customer demand from all of COLG's key investment platforms is strong and we are now focused on seeking third party funding to enable us to take full advantage of these opportunities.
I am pleased to welcome three new directors to the Board, namely Howard Goodbourn who has joined as our Group Finance Director, John Williams who has joined as a non-executive director and Tony Brierley who will shortly be joining us as a non-executive director. This marks a significant juncture in the development of the business into a fully fledged financial investment group.
In the first half of the year the three new platforms Trade Finance Partners Ltd ("TFPL"), Credit Asset Management Ltd ("CAML") and Professions Funding Ltd ("PFL") have performed well, with TFPL achieving break-even in the period, having only commenced writing business at the end of January. This is a very pleasing result. CAML and PFL have also performed well having started writing business in July, but still need to access new funding lines.
The Therium business model is now producing good returns to investors. The first limited liability partnership, which closed in May 2010, has increased its NAV before distributions to 164% of opening capital. The second limited liability partnership, which only closed in May 2011, is already at 119% of opening capital (before distribution). Therium has now closed its third limited liability partnership, attracting £4.3m of third party investment and further funding proposals are being evaluated. Therium has seen early results on a number of its investments including one particular case which saw an adverse judgement. This case is expected to go to appeal but the Board considers it prudent to provide for the Company's full investment of £1.5m at this stage resulting in an overall loss for the Company's investment in seed funding legal cases of £843,000 over the six month period.
Taking this all together, the Company has continued to develop solid foundations for all of its investment platforms and with leverage from additional third party funds these platforms are expected to deliver significant shareholder value."
MANAGEMENT REPORT
Whilst investing for future value growth, some of the investment platforms are incurring losses during the start up phase. Substantial progress has been made during the period in transforming the business from one based largely on a natural resources investment portfolio to one providing a range of specialist financing to the SME and professions markets. These are markets that continue to show very strong demand for funding as traditional sources of lending from the major banks have fallen dramatically since 2008. The share placing in the first half of 2011 raised £5.3m net for the Company which has been invested in the new and existing platforms. Management is now focused on accessing a wide range of third party funding for our investment platforms and so the prospects for the second half are looking strong. The Company seeks to ensure a focus on risk reduction through insurance, security over assets and guarantees across each of its operating investment platforms.
Operational review
Therium Capital Management Limited - Litigation funding
Our litigation funding business is progressing well despite challenging fundraising conditions in the early part of the year. In the period, a second LLP was established with funding of £3.3m and a third LLP has been set up since the period end for £4.3m. We are at an advanced stage of negotiating a first institutional mandate and progress has also been made with a number of other institutions and family offices which is expected to result in further funding in the second half-year. In the meantime, demand for funding from Therium for cases continues to grow markedly.
A strongly positive result on one claim resulted in profits to the Company of £0.8m which are offset by the provision as noted in the summary above and other minor movements, resulting in a loss for the Company's investment in seed funding legal cases of £843,000 over the six month period.
Trade Finance Partners Ltd ("TFPL") - trade finance
TFPL commenced writing business at the beginning of 2011 and continues to exceed the Board's expectations. In particular the business achieved monthly 'run-rate' break even ahead of plan in July and cumulative break even by the end of the period. TFPL has recently had its £10m bank loan extended and is negotiating facilities with a number of potential investors. The loan book has rapidly built to over £7m and the demand from customers as well as new clients is strong.
Credit Asset Management Ltd ("CAML") - lease finance
This new business was started in July and is progressing well. It has secured lending facilities from three major financial institutions amounting to an initial £2m and is actively in discussion with a number of others to provide more funding. The actual monthly loss during the start-up phase is close to original forecasts and it is expected to reach 'run-rate' break even when it has reached a loan portfolio size of c. £10m. It has a target portfolio size of c. £5m by the end of the financial year. The market remains under-funded from traditional bank participants and therefore the demand remains strong.
Professions Funding Ltd ("PFL") - professions funding
This business was established to provide financing to the professions of law and accountancy for both short term working capital loans on either a secured or unsecured basis and longer term leasing for capital equipment acquisition. It is managed by the same, experienced team that manages CAML. The business, which started trading in July, had a book size of approximately £1.2m at 30 September and is expected to reach a loan portfolio of c. £5m by the end of the year and has recently obtained its first bank funding line of £1.5m.
Listed and unlisted investment portfolio
Our portfolio of stocks which amounts to £4.3m saw a significant reduction in value over the period. Included within this portfolio are natural resource stocks of £2.9m. The company continues to unwind the portfolio by "top-slicing" our stocks as appropriate and the proceeds are used to fund the development of our other key platforms. A book value of some £236,000 of stocks was sold in the period at a profit of £469,000.
Other investments
(i) The Munro Fund (FTIM)
Over the period, the performance of the Munro Fund has improved reflecting both its focus on income and the improvement in the underlying market. New business, however, continues to be challenging and the business has therefore not yet reached critical mass. COLG continues to fund its operating deficit of approximately £100,000 per annum.
(ii) FX Capital Ltd
Our investment in FX Capital has performed well and the company has announced plans to raise further equity to support its growth. We have not taken part in this fundraising and will consequently see our holding reduced to approximately 12%. The price of the fundraising does underpin our value in this investment and the future prospects are positive.
(iii) Array Management Ltd
In the period, the company has invested c. £200,000 in developing an index-linked, asset-backed, fixed coupon product for sale to institutional investors. The development of this product has progressed well and discussions are taking place with major distributors. The prospect for the second half year for this product is encouraging.
Related party transactions
Related party transactions are disclosed in note 8.
Risks
Risks to the Company's business, financial condition and operations are set out in note 9.
Liquidity and going concern
The Company had an overdraft of c. £800,000 at the period end and undrawn facilities on its overdraft of c. £400,000. In addition, the Company holds a portfolio of listed and unlisted investments valued at £4.3m at 30 September of which £2.4m are listed and can be sold at short notice (50% of any sales of UK listed stocks would be applied in reducing the overdraft facilities). These financial resources are expected to meet the foreseeable needs of the company, taking into account the risks set out in note 9. The condensed financial statements have therefore been prepared on a going concern basis.
Outlook
Despite a background of considerable economic uncertainty particularly around a number of European countries, the demand for our core services remains resilient. The future outlook for the platforms looks very positive as the evidence continues to show substantial demand from SME customers and professions as well as strong demand for litigation funding. The primary constraint to even more rapid progress of the platforms has been third party funding. The Company has now devoted considerable extra resources in this area to source funds from a wide range of investors; this looks to be having positive results already and bodes well for the second half of the year. We continue to receive approaches from third parties wishing to acquire or partner with us on the platforms and we continue to progress these discussions as appropriate. Accordingly, the directors have provided an indication of the incremental value they attribute to these investment platforms in their current, early phases of development of £6.6m to £12.8m for Therium, TFPL, CAML and PFL. This equates to an additional NAV per share of between 36.9p to 71.5p per share.
Interim dividend
The directors propose to maintain an interim share dividend of 0.5p per share (2010: 0.5p) payable on 30 December 2011 to shareholders on the register on 9 December 2011.
Henry Lafferty Eric Anstee
Chairman Chief Executive
30 November 2011
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. 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 2011 will be determined in accordance with English law. The half-yearly results for 2011 and 2010 are unaudited.
For Further information:
City of London Group plc | 020 7628 5518 |
Eric Anstee, Chief Executive | |
College Hill | 020 7457 2020 |
Roddy Watt | 07766 998 915 |
Tony Friend | |
Singer Capital Markets | 020 3205 7500 |
Jonathan Marren |
Unaudited Interim Results Condensed
Consolidated Income Statement
6 months to 30/9/2011 £000 | 6 months to 30/9/2010 £000 | Year to 31/03/2011 £000 | ||||
Revenue | 5,644 | 203 | 792 | |||
Cost of sales | (4,588) | - | (333) | |||
Gross profit | 1,056 | 203 | 459 | |||
Administrative expenses | (2,025) | (839) | (2,414) | |||
Profit on sale of investments | 469 | 732 | 1,610 | |||
Provision for impairment of investments | - | - | (215) | |||
(Loss)/profit on legal cases | (843) | - | 31 | |||
Share of loss of associate | (22) | - | - | |||
Other operating income | 14 | 15 | 23 | |||
Operating (loss)/profit | (1,351) | 111 | (506) | |||
Financial expenses | (58) | (17) | (45) | |||
(Loss)/profit before tax | (1,409) | 94 | (551) | |||
Tax | (101) | (2) | 99 | |||
(Loss)/profit after tax | (1,510) | 92 | (452) | |||
Profit attributable to: | ||||||
Equity holders | (1,303) | 258 | 13 | |||
Non-controlling interests | (207) | (166) | (465) | |||
(1,510) | 92 | (452) | ||||
Earnings per share: | ||||||
Basic | (7.78p) | 2.54p | 0.12p | |||
Diluted | (7.53p) | 2.52p | 0.12p |
Condensed consolidated statement of
comprehensive income
6 months to 30/9/2011 | 6 months to 30/9/2010 | Year to 31/03/2011 | |||||
£000 | £000 | £000 | |||||
(Loss)/profit after tax | (1,510) | 92 | (452) | ||||
Revaluation | (1,534) | 791 | 3,564 | ||||
Realised on disposals | (469) | (732) | (1,610) | ||||
Deferred tax | 397 | - | (397) | ||||
Total comprehensive income | (3,116) | 151 | 1,105 | ||||
Total comprehensive income attributable to: | |||||||
Equity holders | (2,909) | 317 | 1,570 | ||||
Non-controlling interests | (207) | (166) | (465) | ||||
(3,116) | 151 | 1,105 | |||||
Unaudited Interim Results
Condensed Consolidated Balance Sheet
As at | As at | As at | ||||
30/09/2011 | 30/09/2010 | 31/03/2011 | ||||
£000 | £000 | £000 | ||||
Non-current assets | ||||||
Intangible assets | 1,244 | 583 | 921 | |||
Property, plant and equipment | 80 | 57 | 86 | |||
Available-for-sale financial assets | 4,323 | 5,787 | 6,963 | |||
Operating investments | 930 | 412 | 387 | |||
Loans and leases receivable | 970 | 300 | - | |||
Investment in legal funds | 6,353 | 1,909 | 4,020 | |||
13,900 | 9,048 | 12,377 | ||||
Current assets | ||||||
Inventories | 280 | - | 15 | |||
Trade and other receivables | 5,088 | 1,136 | 2,235 | |||
Cash and cash equivalents | 2,677 | 547 | 2,255 | |||
8,045 | 1,683 | 4,505 | ||||
Total assets | 21,945 | 10,731 | 16,882 | |||
Current liabilities | ||||||
Borrowings | (3,579) | - | (2,950) | |||
Trade and other payables | (6,785) | (1,689) | (3,701) | |||
Total current liabilities | (10,364) | (1,689) | (6,651) | |||
Non-current liabilities | ||||||
Borrowings | - | (552) | - | |||
Trade and other payables | (1) | (93) | (17) | |||
Deferred taxation | - | - | (297) | |||
Derivative financial instrument | (315) | - | (303) | |||
(316) | (645) | (617) | ||||
Total liabilities | (10,680) | (2,334) | (7,268) | |||
Net assets | 11,265 | 8,397 | 9,614 | |||
Equity | ||||||
Share capital | 1,837 | 1,094 | 1,114 | |||
Share premium | 10,428 | 5,649 | 5,797 | |||
Retained earnings | (980) | 1,037 | 913 | |||
Fair value reserve | 946 | 1,054 | 2,552 | |||
Derivative reserve | (242) | - | (242) | |||
11,989 | 8,834 | 10,134 | ||||
Non-controlling interest | (724) | (437) | (520) | |||
Total equity | 11,265 | 8,397 | 9,614 |
Unaudited Interim Results
Condensed Consolidated Statement of Changes in Equity
6 months to 30/9/2011 | 6 months to 30/9/2010 | 6 months to 31/03/2011 | ||||
£000 | £000 | £000 | ||||
Opening equity | 9,614 | 7,728 | 7,728 | |||
Available-for-sale investments | ||||||
- Valuation (losses)/gains taken to equity | (1,534) | 791 | 3,564 | |||
- Transferred to profit or loss on sale | (469) | (732) | (1,610) | |||
- Deferred tax provision | 397 | - | (397) | |||
(Loss)/profit for the period | (1,510) | 92 | (452) | |||
Movement for share based payments | (78) | 10 | 185 | |||
Arising on business combination | - | - | (26) | |||
Dividends | (184) | (50) | (104) | |||
Issue of shares | 5,275 | 546 | 714 | |||
(Purchase)/sale of own shares | (249) | 12 | 12 | |||
Additional investment by non-controlling interests | 3 | - | - | |||
Closing equity | 11,265 | 8,397 | 9,614 |
Unaudited Interim Results
Condensed Consolidated Statement of Cash Flows
6 months to 30/9/2011 £000 | 6 months to 30/9/2010 £000 | Year to 31/03/2011 £000 | |
Net cash used in operating activities | (2,821) | (303) | (621) |
Net cash flows (used in)/from investing activities | |||
Interest received | 189 | 19 | 68 |
Acquisition of intangible assets | (325) | - | (28) |
Acquisition of property, plant and equipment | (12) | (41) | (87) |
Acquisition of non-current investments | (2,443) | (2,227) | (5,469) |
Acquisition of subsidiary company | (5) | - | 200 |
Investment by non-controlling interest | 3 | - | - |
Dividends received | 65 | 134 | 125 |
Proceeds from legal case investments | 703 | - | 682 |
Proceeds from sale of non-current investments | 705 | 2,145 | 3,908 |
Advance of loans and leases | (2,035) | (1,055) | (1,210) |
Repayment of loans and leases | 958 | - | 350 |
(2,197) | (1,025) | (1,461) | |
Net cash generated from/(used in) financing activities | |||
Interest paid | (31) | (3) | (4) |
Dividends paid | (184) | (50) | (104) |
Proceeds from issue of loan notes | - | - | 1,600 |
Repayment of loan notes | (1,600) | - | - |
Shares issued | 5,275 | 546 | 714 |
(Purchase)/sale of own shares | (249) | 12 | 12 |
3,211 | 505 | 2,218 | |
Net (decrease)/increase is cash and cash equivalents | (1,807) | (823) | 136 |
Net cash and cash equivalents at beginning of period | 1,506 | 1,370 | 1,370 |
Net cash and cash equivalents at end of period | (301) | 547 | 1,506 |
Cash and cash equivalents at end of period | 2,677 | 547 | 2,255 |
Bank overdraft | (2,978) | - | (749) |
Net cash and cash equivalents at end of period | (301) | 547 | 1,506 |
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. Statutory accounts for the year ended 31 March 2011 were approved by the Board of Directors on 27 June 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 This condensed consolidated information for the half-year ended 30 September 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The half-yearly condensed consolidated financial report should be read in conjunction with the annual financial statements for the year ended 31 March 2011, which were prepared in accordance with IFRS as adopted by the European Union.
1.3 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.
1.4 On 28 April 2011 the company made a placing of 7,233,015 10p ordinary shares
at a premium of 73p. After costs the placing raised £5,274,632.
1.5 The calculation of earnings per ordinary share is based on the loss attributable to equity shareholders of £1,303,000 (2010: profit £258,000; 2010/11 full year: profit £13,000) and on the number of shares in issue being the weighted average number of shares in issue during the period (excluding those held in treasury and the employee share ownership trust) of 16,757,641 (2010: 10,173,623; 2010/11 full year: 10,510,308). Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares relate to share options and shares that may be granted under the incentive award. The number is 17,299,733 (2010: 10,257,829; 2010/11 full year: 11,115,199).
1.6 The directors have declared an interim dividend for the year ended 31 March 2012 of 0.5p per ordinary share (2010/11: 0.5p per ordinary share). The directors recommended a final dividend of 1.0p per ordinary share for the year ended 31 March 2011 and this was paid on 23 September 2011.
1.7 The interim report, including the financial information contained therein, is the responsibility of, and was approved by the directors on 29 November 2011. The Listing 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 reasons for them, are disclosed. There have been no changes to the Group's accounting policies for the period ended 30 September 2011.
1.8 Each of the persons who is a director confirms that as far as they are aware:
- the condensed set of financial statements, which has been prepared in accordance with the applicable accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the undertakings included in the consolidation as a whole as required by DTR 4.2.4.
- the interim management report includes a fair review of the information required to be included as required by DTR 4.2.7 and 4.2.8
2. Available-for-sale financial assets
As at 30/09/2011 £000 | As at 30/09/2010 £000 | As at 31/03/2011 £000 | |||
Listed securities | |||||
- Equity Securities - Australia | 665 | 1,075 | 1,212 | ||
- Equity Securities - US and Canada | 7 | 257 | 8 | ||
- Equity Securities - UK | 1,726 | 2,492 | 3,347 | ||
- Debentures - UK | - | 15 | 15 | ||
Cumulative non-redeemable preference shares - UK | 46 | 49 | 49 | ||
Non-cumulative non-redeemable preference shares - UK | 280 | 335 | 344 | ||
Equity fund - UK | 369 | 397 | 423 | ||
Convertible loan - UK | 125 | 436 | 174 | ||
Convertible loan - Australia | 150 | - | 173 | ||
3,368 | 5,056 | 5,745 | |||
Unlisted securities - equity securities traded on inactive markets | 955 | 731 | 1,218 | ||
4,323 | 5,787 | 6,963 |
Principal holdings at 30 September 2011
Holding | Security | Book Cost | Value |
£000 | £000 | ||
878,000 | Flow Energy | 522 | 608 |
500,300 | Munro UK Funds | 500 | 369 |
7,766,666 | Tertiary Minerals | 359 | 369 |
28,334 | Hurricane Exploration | 120 | 315 |
240,000 | Barclays 14% Prefs | 234 | 247 |
672,600 | AFC Energy | 105 | 225 |
354,000 | Prime People | 178 | 219 |
19,500,000 | Sunrise Resources | 207 | 205 |
2,310,347 | SIPA Resources | 100 | 187 |
150,000 | Target Energy Loan Notes | 92 | 150 |
2,750,000 | Red Rock Resources | 28 | 138 |
165,000 | Vatukoula Gold | 103 | 127 |
125,000 | SUSD Loan Notes | 125 | 125 |
293,640 | TPT | 18 | 101 |
104,422 | Gryphon | 19 | 84 |
600,000 | Orogen Gold | 12 | 61 |
171,819 | Dart Energy | 72 | 55 |
2,794 | 3,585 |
3. Administrative expenses
6 months | 6 months | Year to | |||
to 30/9/2011 | to 30/9/2010 | 31/03/2011 | |||
£000 | £000 | £000 | |||
Staff costs | |||||
Payroll incentive | (37) | 138 | 296 | ||
Other payroll | 903 | 394 | 1,122 | ||
Other | 96 | 45 | 105 | ||
Establishment costs | |||||
Operating lease rentals (land and buildings) | 67 | 42 | 160 | ||
Other establishment costs | 483 | 81 | 211 | ||
Professional fees | |||||
Audit fee for the company | 22 | 13 | 26 | ||
Audit of subsidiaries pursuant to legislation | 19 | 2 | 18 | ||
FSA reporting | 6 | 3 | 4 | ||
Tax services | 10 | 4 | 14 | ||
Other professional fees | 433 | 131 | 459 | ||
Depreciation and amortisation | 30 | 6 | 22 | ||
Foreign exchange gain | (7) | (20) | (23) | ||
2,025 | 839 | 2,414 |
4. Operating segments
Pre-tax profit and loss
Operating | Financial | Pre-tax | |||
Revenue | Profit/(loss) | Expenses | Profit/(loss) | ||
£000 | £000 | £000 | £000 | ||
COLG | Portfolio sales | - | 469 | - | 469 |
Legal cases | - | (843) | - | (843) | |
Group | 114 | 203 | - | 203 | |
Other | 109 | (782) | (3) | (785) | |
223 | (953) | (3) | (956) | ||
Litigation Financing | (Therium) | 255 | (125) | (44) | (169) |
Trade Financing | (TFP) | 5,213 | 73 | (91) | (18) |
Lease Financing | (CAML) | 6 | (185) | (6) | (191) |
Profession Financing | (PFL & COLLF) | 49 | 30 | (28) | 2 |
(Share of Novitas) | - | (22) | - | (22) | |
Fund Management | (FTIM) | 12 | (55) | - | (55) |
Inter Company | (114) | (114) | 114 | - | |
5,644 | (1,351) | (58) | (1,409) |
Net assets
| |||||
Total | |||||
£000 | |||||
COLG | Investment portfolio | 4,323 | |||
Legal cases (net of provision) | 1,565 | ||||
Group companies: Therium | 780 | ||||
TFPL | 2,951 | ||||
CAML | 955 | ||||
PFL | 850 | ||||
COL LF | 299 | ||||
FTIM | 117 | ||||
Other | 189 | ||||
6,141 | |||||
FX Capital | 949 | ||||
Other | 437 | ||||
Net assets per entity balance sheet | 13,415 | ||||
Post-acquisition losses of subsidiaries | (1,622) | ||||
Derivative reserve | (242) | ||||
COLG shares held by Employee share ownership trust | (384) | ||||
Net assets of subsidiary companies | 98 | ||||
Consolidated net assets | 11,265 |
5. Capital commitments
| |||||
As at | As at | As at | |||
30/09/2011 | 30/09/2010 | 31/03/2011 | |||
£000 | £000 | £000 | |||
Investments in legal funds | 382 | 600 | 1,786 | ||
Leasehold improvements | - | 30 | - | ||
Trade finance | 138 | - | 630 | ||
Leases | 939 | - | - | ||
Loans | 143 | - | - | ||
1,602 | 630 | 2,416 |
6. Directors' remuneration for the six months ended 30 September 2011
Incentive Scheme | |||||||||
Salary | Benefits | Fees | Current | Deferred (see note) | Total | ||||
£ | £ | £ | £ | £ |
£ | ||||
H Lafferty | - | - | 27,400 | - | - | 27,400 | |||
E E Anstee | 52,638 | - | - | - | - | 52,638 | |||
J C W Kent | 48,567 | - | - | - | - | 48,567 | |||
J W Greenhalgh | - | 1,181 | 9,500 | - | - | 10,681 | |||
101,205 | 1,181 | 36,900 | - | - | 139,286 | ||||
On the basis of the half-year results no incentive award would be granted for the 2011/12 year. The fair value of the award credit recognised in the six months to 30 September 2011 was £31,515. This consisted of a part write-back of the prior year charge in respect of the 2010/11 award amounting to an anticipated claw back of £72,202. It includes current year charges of £16,461 and £24,731 in respect of the 2009/10 and 2010/11 awards. £18,167 of the net credit related to E E Anstee and £13,348 related to J W C Kent.
7. Directors' share options
Date of grant | 01/04/11 | Grant in period | Exercised in period | 30/09/11 | Exercisable from | Exercisable to | Exercise price |
11/2/10 | 100,000 | - | - | 100,000 | 11/11/12 | 11/11/19 | 55.8 p |
11/2/10 | 70,000 | - | - | 70,000 | 11/11/12 | 11/11/19 | 55.8 p |
There are no persons other than the directors having the authority and responsibility for planning, directing and controlling the activities of the Group directly or indirectly.
8. Related party transactions
EE Anstee, a director of City of London Group plc, had, at 30 September 2011, an amount of £30,000 invested in funds managed by Therium Capital Management Limited ("TCML").
'The Energy Group Employee Benefit Trust, a trust of which Eric Anstee is a beneficiary, subscribed for 120,482 ordinary shares at 83p per share pursuant to the firm placing and open offer announced on 1 April 2011. Total consideration paid was £100,000.06.'
9. Risks statement
The key risk factors faced by the group are set out in the financial statements to 31 March 2011 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 is currently approximately £1.2m 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.
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.
Independent Review Report to City of London Group plc
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2011 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated balance sheet, the condensed consolidated statement of cash flows and the related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2011 is not prepared, in all material aspects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
Rees Pollock
Chartered Accountants and Registered Auditors
London
30 November 2011