CIN.L Regulatory News (CIN)

LSE:CIN

17 February 2014

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

Interim Management Statement

Key events

· £5m new funding facility arranged

· Agreement in principle for funding expansion of the trade finance business

£5m new funding facility arranged

The Board is pleased to announce that it has arranged a new funding facility of £5m. As mentioned in the announcement of 29 November, a working capital loan facility of £4.8m (£3.5m plus refinancing of existing facilities) was arranged to provide additional working capital for the Group but that further funding would be required to continue the growth of the platforms.

The Company has now agreed a further funding facility of £5m which has been arranged by way of an unsecured 7% convertible loan which is convertible into 8% redeemable preference shares at the Company's option. Approximately £2m of these funds will be available to provide additional subordinated capital into the trade finance business to enable an increase in its loan facilities and to facilitate the continued expansion of that platform. The remaining £3m will be reserved for selective growth initiatives in the Group's platforms.

Agreement in principle for funding the trade finance business

The Board is pleased to announce that it has reached agreement in principle with its existing funding partners to support the next stage of growth of the Company's trade finance platform, Trade Finance Partners Limited. It is anticipated that the agreement will be finalised before the financial year end when a further announcement will be made with full details.

Trading in the period

Trade Finance Partners Limited ("TFPL") - trade finance

The trade finance business has continued its growth in volumes of business and in the period has firmly established itself in the area of commodity trade finance. Although this area of business is lower margin than the more traditional trade finance deals the average deal size is considerably greater. This volume growth has had an adverse impact on profit margins of the business. Drawings on the facility have continued to be volatile based on cycles of customer demand but cash drawings on the Macquarie facility have mostly been above £10m in the period and letter of credit drawings have been around £5m for most of the period. As a result the loan facility with Macquarie was extended from £15m to £18m in November 2013.

In order to ensure the business remains well positioned to take advantage of the growth opportunities an agreement has been reached in principle with its existing funders to extend and increase its loan facilities.

Credit Asset Management Limited ("CAML") - lease finance; Professions Funding Limited ("PFL") - professions funding

CAML is continuing to deploy funds from the £10m SME fund that was established in conjunction with the Department for Business Innovation & Skills ("BIS") and the £10m Swiss institutional fund managed by PFL. The aggregate deployment level of these funds is £12.4m. Both funds have performed well in the period following continuing strong demand from SME's. The 'own book' on portfolio of leases and loans has remained fairly static throughout the period with its growth being constrained by capital.

COLG is reviewing the opportunities for sourcing £15m of funding which would enable the business to apply for matched funding from Government on the same terms. Under current Government initiatives this would translate into total additional funding of £30m which is expected to enable CAML/PFL to become profitable.

The business has seen competition developing in the markets putting yields under pressure but there remains plenty of depth to the market and therefore sufficient demand to deploy funding at rates attractive to the business.

Therium Capital Management Limited ("Therium") - litigation funding

During the period Therium has continued to see strong demand for case funding and consequently has been easily able to allocate capital from the funds raised in 2013.

The outlook on the portfolio of cases remains encouraging despite encountering significant delays in case resolutions.

Therium is continuing discussions in order to establish a material international joint venture to fund commercial litigation cases but concluding this venture has taken longer than initially expected. Therium is in active discussions with two groups of investors to establish its next two litigation funds.

Novitas Loans Limited which is 50% owned by Therium continues to expand profitably and has been successful in attracting new forms of finance and launching new lending products to law firms and their clients. The loan book continues to grow significantly.

Results for 2013/2014

Although there are still some weeks to go before the year end, the loss in the second half of the year is likely to be in excess of the loss for the first half. The main reasons for this are:

· Continued losses in Therium. Although the outlook for the portfolio of cases remains encouraging there have been no significant case resolutions in the period and therefore no performance fees.

· Continued losses in CAML/PFL due to the business remaining sub-scale

· Substantial loss in the trade finance business due to lower margins and accounting changes relating to revenue recognition and the effective interest rate as referred to in the interim statement. It is not expected that there will be any net benefit from the step up in the facility this financial year.

· Write off of costs in relation to the aborted fund raising transaction at the end of 2013

Board

The Board is aware that as a result of the Board changes at the end of last year there is a need to appoint new directors to comply with the corporate governance code. Progress is being made to identify potential new independent directors.

The results for the year to 31 March 2014 are expected to be announced in the week beginning 23 June 2014.

Enquiries:

Note on forward looking statements

This interim management statement 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 statement has been drawn up and presented with the purposes of complying with English law. Any liability arising out of or in connection with it will be determined in accordance with English law.

Notes to Editors

City of London Group plc is fully listed on the London Stock Exchange plc (LSE symbol CIN).

COLG is a financial services group focused on providing merchant banking services to finance the SME and professional services sectors. It does this by financing trade and securing specialist funding throughout the supply chain to help fuel growth in these sectors, as major national and foreign banks limit new lending to these borrowers. COLG 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 2009, COLG has focused on Specialist Financing and Alternative Fund Management. As part of its strategy to build a quality Financial Services Group, 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 provide asset backed finance to SMEs and working capital loans to professional practice firms and finally Trade Finance Partners Limited, a trade finance provider to the SME market.