CIN.L Regulatory News (CIN)

3 December 2015

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 2015

The Company announces its unaudited interim results for the six month period ended 30 September 2015.

Financial Results

· Profit before tax £0.8m (2014/15 first half loss before tax £0.8m)

· Underlying loss halved to £0.4m*

· COLG central costs halved to £252k, excluding direct costs of fund raising

· As previously announced, the Company completed the sale of Therium Capital Management Limited in April for a profit of £1.4m

· Consolidated NAV per share attributable to shareholders 26p (31 March 2015 28p)

Developments

· As announced in October, the Company raised £5m (before expenses) and transferred to AIM

· CAML raised £5m in 7% preference shares in July and also completed a restructuring resulting in COLG increasing its interest in CAML from 51% to 85%

· The Company has applied £2m of the net proceeds in buying 7% preference shares in CAML and repaid debt with the balance. There is now approximately £4.1m of capacity to fund growth in the platforms, taking into account existing debt facilities

· TFPL is seeking a replacement for its existing Macquarie facility

· COLG increased its holding in TFPL from 44.1% to 48.9%

· CAML has increased its own book investment from £3.8m to £9.2m over the half year and increased its committed block funding facilities from £12.5m to the current level of £18.1m

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

John Kent, Chief Executive, commented:

"The completion of our £5m placing and the transfer of the Company to AIM have given us a robust foundation on which to build. We will now spend the next 18 months helping our platforms to build scale. This will not be without challenges and risks, particularly in the second half, as we seek to renew TFPL's sales growth and sources of financing and further extend CAML's loan book. "

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 trade finance, lease finance and loan finance.

www.cityoflondongroup.com

Chief Executive's review

Operational review

We have now resolved the issue of the shortage of capital to fund the planned growth of the businesses in which we invest but each business still has to achieve profitable scale. TFPL, which showed a major leap forward in the second half of last year, has seen relatively subdued sales growth in the first half of this year. It will now be seeking to replace its facility with Macquarie. CAML has more than doubled its loan book since the beginning of the year; additionally it has further increased third party facilities from £12.5m to the current level of £18.1m.

From COLG's point of view we have continued to keep a tight control on costs, reducing our central overhead from £646k in the first half of 2014/15 to £252k in this half. Our run rate cost is now around £500k pa which we predicted in November 2014, reflecting largely the step down in executive time since the completion of the placing in October. Otherwise we are tidying up the few remaining non-core investments and loans on our balance sheet.

Trade Finance Partners Limited ("TFPL")

As mentioned in the circular sent to shareholders in August, TFPL has been undergoing a period of consolidation following management changes; gross profit has been broadly flat. In the actual results for the half year revenue and gross profit show a modest increase compared with the previous half year which has fed through to a corresponding increase in EBITDA and a reduction in the loss before tax, as set out in the table below.

* Year to 31/03/15: amounts are stated before exceptionals of £0.2m restructuring costs.

Management changes during the period include the appointment of the new co-CEO and the departure of TFPL's Commercial Director in April, and the appointment of a new Operations Director in September. In addition, TFPL's sales effort has been revitalised between July and September through the recruitment of a new sales team tasked with achieving greater penetration amongst the business introducer community as well as broadening the business to include 'flow trade' and 'floor plan' business in order to reduce TFPL's reliance on bespoke structured trades.

The principal borrowing facility from Macquarie remained at £30.5m throughout the period and the actual drawings were in the range £20m to £25m. Macquarie has recently indicated that it wishes TFPL to refinance this facility in due course. TFPL and Macquarie are discussing how this should best be achieved and in the meantime TFPL has initiated discussions with a number of potential alternative funders. After subdued growth in the first half, TFPL's management are now in a position to anticipate significant new business. The changeover in funder will provide an opportunity to obtain new finance at lower rates, although it will be important to procure a seamless transition to avoid any drag on revenue.

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

Over the half year, CAML grew its 'own book' portfolio from £3.8m to £9.2m. Part of the growth arose from buying out the remaining portfolio of its Swiss institutional investor; this accounted for £1.7m of the portfolio in September. The growth was funded by additional block funding facilities as well as a preference share issue. The joint venture fund between COLG and British Business Bank Investments Ltd reduced slightly from £9.0m to £8.5m, as expected. New business volumes held up well in the period overall with loans above plan and leases below plan. Yields also held up particularly for loans with some pressure on lease yields. The results for the business are set out in the following table.

The overall results for CAML for the period show a significant increase in revenue as a result of the growth in the 'own book' portfolio. However, the operating loss before preference share interest is flat at £95k. The loss includes a collective impairment provision, as required under IFRS, of £63k (2014/15 nil). The actual loss performance of the existing portfolio to date has been much better than expected but the collective impairment provisioning assumes future losses based on historical loss rates. The historic level of bad debt provisioning, as required by IFRS, has proved to be very prudent as evidenced by a net credit of £63k in the year ended 31 March 2015.

As previously announced, CAML completed the issue of £5m 7% preference shares in July. The additional capitalisation of CAML has facilitated encouraging developments in the provision of further debt funding facilities from new block funders as well as the renewal of facilities from existing funders. As a result, at the period end there were c£14.5m of committed block funding facilities and these have since increased to £18.1m.

Also, as explained further in note 8 to this interim report, CAML was restructured in the period. As part of this restructuring, the Company sold its wholly-owned subsidiary, Professions Funding Limited ("PFL"), (which has been managed by CAML), to CAML in exchange for newly-issued ordinary shares and, in addition, converted the existing preference shares that it held in CAML to ordinary shares. As a consequence, the Company increased its ordinary shareholding in CAML from 51% to 85% in July 2015. Whilst the effect of this is to increase COLG's share of CAML's results going forwards, it also increased COLG's share of the accumulated losses at the date of the acquisition and so reduced the net asset value attributable to shareholders by £1.2m as at that date.

Therium Capital Management Limited ("Therium")

As previously announced, Therium was sold in April 2015 for £3.4m of which £1.75m was received in cash on completion with the balance of £1.65m being a guaranteed loan. The loan balance has since been reduced by £300k, with £150k received in September and a further £150k since the period end.

Other investments

COLG's 'available for sale' investments in natural resources and other equities were valued at £163k at the period end. There have been no significant movements in the other loan investments in the period. The remaining investments in litigation funds managed by Therium total £219k. A loan of £132k plus interest has been repaid in full since the period end.

COLG overhead costs

After allowing for the direct costs associated with the fund raise, COLG overhead costs were further reduced to £252k (£646k in the first half of 2014/15). Given the reduction in working hours for the executive team commencing on 1 October, we have now achieved our target annual run rate costs of £500k.

Risks

The principal risks of the Group are reviewed by the Board, which reviews and agrees policies for managing these risks. A summary of the key risks was set out in the Strategic Report in the 2015 Annual Report which are still appropriate. The 2015 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 2017. As a result of the recent fund raise there is currently approximately £3.9m of headroom on the existing loan facility which currently expires on 30 September 2017, together with £0.2m of surplus cash. The significantly reduced outgoings of the holding company together with expected receipts from further disposals of 'available-for-sale' investments and recent loan repayments ensure that there is sufficient working capital available to the Group for the foreseeable future. The directors therefore continue to adopt the going concern basis of accounting in preparing the interim financial statements.

Statement by directors

The directors confirm that so 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 Disclosure and Transparency Rule 4.2.4

· The interim management report includes a fair review of the information required to be included as required by Disclosure and Transparency Rules 4.2.7 and 4.2.8.

· These condensed consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union. They do not include all of 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 2015, 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 2015.

Outlook

We are still on an 18 months' programme to get our investee companies, and thus COLG, to profitable scale. CAML is now well placed to deliver this as a result of its recent refinancing and TFPL should be similarly positioned with a successful refinancing.

John Kent

Chief Executive

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 2015 will be determined in accordance with English law. The half-yearly results for 2015 and 2014 have neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board.

3 December 2015

Unaudited interim results

Condensed consolidated income statement

(a) The restatement arises only from the Company's sale of TFP Trading Company Limited ("TFP Trading") on 31 December 2014. Under IFRS, its results for the six months to 30 September 2014 must be disclosed separately as "Discontinued operations" (see note 1.4). There is no change in the results previously reported.

(b) Discontinued operations in the prior periods comprise the consolidated results of TFP Trading. The shares owned by the Company were sold to Trade Finance Partners Limited on 31 December 2014.

All the operations in the six months to 30 September 2015 are continuing.

Condensed consolidated statement of comprehensive income

Condensed consolidated balance sheet

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.

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

Condensed consolidated statement of cash flows

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 2015 were approved by the directors on 16 July 2015 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 2015, 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 2015. The interim financial results for the six months to 30 September 2014 have been restated to conform to the changes in presentation made in the Company's published consolidated financial statements for the year ended 31 March 2015.

The restatement does not change the amount of the loss attributed to the equity holders of the parent company previously reported nor the equity attributed to the equity holders of the parent company at 30 September 2014. Accordingly there is no change in the basic or diluted earnings per share previously reported.

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 2015:

IAS 36 (Amendments) - Recoverable amounts disclosures for non-financial assets; and

IAS 32 (Amendments) - Offsetting Financial Assets and Financial Liabilities

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

1.4 Presentation changes

Restatement of prior period figures

In December 2014 the Company sold its 51% equity investment in TFP Trading Company Limited ("TFP Trading") to its associate Trade Finance Partners Limited ("TFPL") for £9,947. At that date TFP Trading ceased to be a subsidiary of the Group and became an associate, being wholly owned by TFPL. Under IFRS 5 TFP Trading was required to be classified as a "discontinued operation" in the consolidated financial statements. The figures in the interim financial statements for the six months ended 30 September 2014 have accordingly been restated on this basis.

The following table shows changes in the individual figures in the consolidated income statement for the six months ended 30 September 2014 as a result of the restatement. There were no changes in balance sheet figures.

Restatement of prior period figures

The restatement does not change the amount of the loss attributed to the equity holders of the parent company previously reported nor the equity attributed to the equity holders of the parent company at either 31 March 2014 or 30 September 2014. Accordingly, there is no change in the basic or diluted earnings per share previously reported.

1.5 Consistency

The interim report, including the financial information contained therein is the responsibility of, and was approved by, the directors on 2 December 2015. 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 reason for them, are disclosed. There have been no changes to the Group's accounting policies for the period ended 30 September 2015.

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 Executive Committee manages the Group by each operating platform namely: trade financing and lease and professions financing. A description of the activities of each of these platforms is given in the Strategic report. The COLG segment includes the Group's central functions and an investment portfolio.

* 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. 

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

The Loss from operations in the Consolidated income statement of £390,000 is the sum of £238,000 and £152,000 shown above.The revenue in "Trade financing - other" arose from one customer.

Consolidated Net Assets at 30/09/15

Consolidated Net Assets at 31/03/15

Consolidated Net Assets at 30/09/14 (restated)

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

3 Administrative expenses

(a) Payroll expenses for the 6 months to 30 September 2015 include £125,000 of additional executive director costs in relation to the equity capital raise (see note 13).

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

Following the Company's decision to dispose of its interest in Therium, its litigation fund manager associate, in June 2014, the Group's interest, including loans and receivables, was classified as an asset held for sale and presented separately in the balance sheet. The Group's share of the results of Therium was not included in the consolidated income statement from that date.

The Company completed the sale of its interest in Therium, including its 50% associate Novitas Loans Limited and its subsidiary Novitas Futures Limited, on 29 April 2015 for a total consideration of £3,390,000 of which £1,750,000 was received in cash on completion and £1,640,000 was deferred. The deferred consideration will be received within two years.

As at the date of disposal, the carrying value of the assets and liabilities comprising the interest in Therium in the Group's consolidated accounts was £1,831,000. This carrying value reflects the Group's share of post-acquisition losses which had been included in the Group's consolidated financial statements in previous years: After taking account of costs associated with the disposal, including a provision for non-recovery of a commercial loan made through Novitas Futures Limited, a profit of £1,398,000 arose in the consolidated accounts.

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 2016 (2014/15: nil). The directors did not recommend payment of a final dividend for the year ended 31 March 2015.

7 Earnings per share

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

The diluted earnings per share for the six months ended 30 September 2014 and the year ended 31 March 2015 were the same as the basic earnings per share shown above.

For the six months ended 30 September 2015, the diluted earnings per share is 4.58p which is calculated by dividing the adjusted profit attributable to equity holders of the Group (£930,000) by the adjusted weighted average number of ordinary shares in issue of 20,294,000, assuming all options were exercised on 1 April 2015.

8 Non-controlling interests

(a) The transfer to equity arises from the capital restructuring of Credit Asset Management Limited ("CAML") in July 2015. As part of this restructuring plan, on the Company sold its wholly-owned subsidiary, Professions Funding Limited ("PFL"), which has been managed by CAML for some years, to CAML in exchange for newly-issued ordinary shares and, in addition, converted the preference shares that 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 is 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 has been written off to equity as a reserve movement. The amount of £1,218,000 written off to equity also includes goodwill of £46,000 which was previously carried in relation to PFL.

As part of its overall capital restructuring plan, CAML also issued £5 million 7% preference shares to Citymain Limited, a related party of the Company on 16 July 2015. The Company purchased £2m of these 7% preference shares after the end of the period (see note 13).

9 Related party transactions

(a) Amounts due from associates

(b) Additional investment in associates

In May 2015, the Group increased its shareholding in its associate, Trade Finance Partners Limited, from 44.1% to 48.9% when it purchased additional shares from a minority shareholder at a total cost of £192,735.

10 Commitments

11 Financial risk management

Notes 31 and 32 to the annual financial statements to 31 March 2015 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 2015 Annual Report identified the main risk factors around the cash flow forecast in the Strategic Report. Since then, the Group has completed its equity capital raise (see note 13) and has made good progress towards obtaining additional debt funding for its lease and professions finance platform. The other risk factors are broadly unchanged.

The Company has a revolving credit facility of £4.8m with a maturity of 30 September 2017, to cover its liquidity requirements for the foreseeable future. £3.9m of the facility was undrawn at 30 September 2015.

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 £163,000 is invested in these sectors. At 30 September 2015, 23% 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 2015.

The principal assumptions used when assessing the fair value of legal funds are as follows:

· best estimate of duration of each claim; and

· best estimate of anticipated outcome.

The value will be adjusted to allow for a number of factors as appropriate, because valuation techniques cannot appropriately reflect all factors market participants may take into account when entering into a transaction. Valuation adjustments are recorded to allow for factors relating to each case. Management believes the valuation adjustments are necessary and appropriate to fairly state financial instruments at fair value in the balance sheet. It is management's further belief that the techniques employed when estimating the fair value of an investment in each claim should incorporate irrevocable evidence as to the success of the claim as a fundamental input. Should this input not be available then it is expected that the fair value will equate to the amounts funded given the fundamental uncertainty as to the case outcome.

The fair value of investments in legal funds is taken to be cost because at 30 September 2015 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 2015:

The following table presents the Group's assets that are measured at fair value at 31 March 2015:

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

The movement on level 3 assets is as follows:

13 Post balance sheet events

On 19 October 2015, the Company's Ordinary Shares of 10 pence each ("Ordinary Shares") were admitted to trading on AIM. The Ordinary Shares were removed from trading on the Main Market of London Stock Exchange plc and their listing on the Official List cancelled on that date.

The Company also completed the subscription of 16,646,064 new Ordinary Shares at a price of 30 pence each on 19 October 2015. This subscription, which was fully detailed in the shareholder circular dated 26 August 2015, raised £5.0 million before expenses of approximately £0.6 million.

£2.0 million of the net proceeds were used to acquire £2.0m of the recently issued Credit Asset Management Limited 7% preference shares from Citymain Limited with a further £2.5m being used to repay debt. At 30 September, the Company had approximately £3.9 million capable of being drawn down under its revolving credit facility for future investment.

By order of the Board

H Goodbourn

Director

2 December 2015