CIN.L Regulatory News (CIN)

LSE: CIN

26 November 2014

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 2014

The Company announces its unaudited interim results for the six month period ended 30 September 2014.

Financial Results

· Loss before tax £796k compared with 2013/14 first half loss before tax £1,920k*

· Underlying loss reduced by £458k (loss before tax £796k compared with 2013/14 first half underlying loss before tax £1,254k*)

· COLG central costs reduced by over £700k

· Therium Capital Management Limited and Credit Asset Management Limited reported improved results against last year

· Revenue growth of 31% in Trade Finance Partners Limited ("TFPL") compared with last year, offset by increased bad debt provisions and higher shareholder capital charges

Developments

· Discussions with new investors for sale of Therium progressing well and the Board hopes these will reach a conclusion shortly

· Continued delay in securing senior debt finance for CAML and the Board is now pursuing other strategic options in parallel

· Encouraging business growth in TFPL and step up in facility to be accompanied by steps to broaden the management team

*As restated for 2013. Underlying loss in 2013 - loss before exceptional provisions for the impairment of a loan (£459,000) and system development costs (£207,000).

John Kent, acting Chief Executive, commented

"It is pleasing that all of our platforms have traded creditably in difficult circumstances whilst we have managed to make significant cuts in Group overheads. All the platforms and management teams we have developed remain of the highest quality but require greater capital backing than we can currently offer. We are making good progress to resolve this strategic challenge and expect to achieve resolution before too long."

For further information:

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 finance to 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.

Since 2009, COLG has focused on specialist financing and alternative fund management. As part of its strategy, COLG 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. COLG has since decided to seek a new investor for Therium Capital Management Limited to acquire COLG's stake in that business.

www.cityoflondongroup.com 

Chief Executive's review

Operational review

Our platforms and teams have continued to perform creditably in the face of our capital constraints. In the case of Therium this has been evidenced by a number of good case wins in the period, accompanied by a new €7m mandate. CAML has reduced its loss by £118k as a result of lower administration costs and an improved bad debt record. TFPL has increased gross revenues by 31% compared with last year but has recorded a pre-tax loss as a result of higher impairment provisions and higher shareholder capital charges arising from the increased level of capital deployed in the business. In the meantime we have made good progress on central costs, reducing overheads by over £700k*. Our financing position allows us sufficient headroom to implement the strategic changes we believe necessary to demonstrate the value of the platforms in the Group.

Trade Finance Partners Limited ("TFPL")

TFPL has stepped up its business volumes in the period both through a mix of traditional SME business and small scale commodity trades. It is now fully utilising its £28m facility with Macquarie Bank Limited ("Macquarie"). The business now has 79 clients in 15 countries ranging from the USA through to Hong Kong and it is financing trades ranging from timber exports from the US through to railway engine parts to Pakistan. In the meantime headcount has increased to 25 primarily through the addition of new sales staff. Notwithstanding this, there is a need to broaden operational management to enable the business to scale up to the next level.

The gross revenues of trade finance have grown from £2.3m in the first half of last year to £3.0m in the same period this year, reflecting significantly higher volumes offset by some margin compression associated with commodity trades. To reflect the business' exposure to larger trades, a specific provision for impairment has been established, which has led to a charge of £322k for the period (£50k for the 2013/14 financial year) and this, together with an increase in shareholder capital charges from £328k to £438k, resulted in a loss before tax of £375k for the first half year, compared with a pre-tax profit of £32k in the first half of 2013/14. Whilst this is disappointing the Board is encouraged by TFPL's growth and believes the business is now better positioned to take advantage of strong market demand. TFPL's infrastructure should now be scaleable and further growth in revenues should benefit thebottom line. COLG's share of its associate's loss is £170k: the pre-tax profit of £32k was consolidated in the first half of 2013/14 as TFPL was then a subsidiary.

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

CAML has continued to manage funds for its Swiss institutional investor and the joint venture fund with the Department for Business Innovation & Skills ("BIS"). The BIS fund grew from £6.5m to £7.7m in the first half whilst the Swiss managed fund reduced from £5.1m to £3.8m reflecting the run off of the first tranche of that fund. CAML's own lease book and the professional loans book of PFL, which CAML manages, declined from £3.9m in aggregate to £3.0m in the first half, reflecting the reduced capital available to the business.

CAML's financial results improved from a loss before tax of £347k in the first half of last year to a loss before tax of £229k in the same period this year. Yields were maintained and given that own book and managed funds have remained largely flat, the improvement mainly reflects a better performance on bad debts, profit share from the Swiss managed fund and lower administration costs.

*after adjusting for the exceptional provision for impairment of a loan made in 2013

The search for senior debt to complement a conditional commitment for £10m of equity continues with frustrating lack of progress. Whilst this avenue is still being pursued the Board has decided to explore other strategic options for CAML in parallel. The business has an excellent management team and operates in a good sector: it needs access to capital which COLG has not yet been able to provide.

Therium Capital Management Limited ("Therium")

As announced at the time of our 2013/14 final results COLG has been working with the management of Therium to identify a new investor to acquire COLG's stake in Therium and to develop further the litigation funding business. Good progress has been made in this search and exclusive negotiations with a potential new investor are at an advanced stage. We hope that a transaction will be concluded shortly.

In the six months to 30 September 2014 Therium has had four cases resolved, winning three and settling one with a partial loss. The amount invested in these cases by Therium's investors was £4.5m and these cases have generated a return of £8.8m. Therium's profit before tax for the period was £304k (2013/14 first half: loss of £240k), the improvement reflecting performance fees earned in the period on positive case results. In August 2014 Therium was pleased to be appointed as litigation advisor to a newly established fund of €7m.

In COLG's consolidated interim accounts, Therium has been treated as an 'asset held for sale' with effect from 13 June 2014. Accordingly, COLG's share of Therium's results has not been included in the consolidated results from 13 June 2014. Therium has been included in the consolidated balance sheet at 30 September 2014 at the lower of carrying value and fair value as required by IFRS 5. In the comparative period, Therium's results have been included within discontinued operations and the accounts have been restated on the basis that it is an associate (as explained in the accounts for the year to 31 March 2014).

Novitas, Therium's 50% owned associate, which extends secured lending to law firms and their clients has continued to deliver strong growth in its loan book and profits.

Other investments

COLG's 'available for sale' investments in natural resources and other equities reduced from £383k to £292k, mainly as a result of further disposals in the period. There have been no significant movements in the other loan investments in the period.

COLG overhead costs

COLG overhead costs were reduced to £646k in the first half of this year compared to £1.4m* in the first half of last year. This was offset by higher interest charges of £190k (£98k in the first half of 2013/14). Given the reduction in headcount and working hours for the executive team which occurred mid-way through the first half, we are now well on the way to achieving our target run rate of £500k pa by the year end.

*excluding exceptional provision for impairment of a loan

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 2014 Annual Report and are still appropriate. The 2014 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 December 2015. There is currently £872k of headroom on the existing loan facility plus a further £325k on the refinancing tranche of the facility. The facility has been extended to 30 September 2016. The significantly reduced outgoings together with expected receipts from further disposals of 'available-for-sale' investments, loan repayments from Novitas and income from the platforms indicate that there is sufficient working capital available to the Group for the foreseeable future. Further it is expected that this would be supplemented by the proceeds of the sale of Therium, which it is expected would provide a material addition to cash. 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 2014, 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 2014.

Outlook

The potential sale of Therium will simplify the Group and supplement cash resources. The Board intends to demonstrate the underlying value of the remaining parts of the Group over the next six months.

John Kent

Acting 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 2014 will be determined in accordance with English law. The half-yearly results for 2014 and 2013 are unaudited.

26 November 2014

Unaudited interim results

Condensed consolidated income statement

* These represent the consolidated results of TFPL up to 19 March 2014 when that subsidiary became an associate and the results of Therium, which is now classified as "held for sale" (see note 8). The results of TFPL from 20 March 2014 are included in continuing operations within Share of profits and losses of associates, under the equity method of accounting.

All the operations in the six months to 30 September 2014 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. Statutory accounts for the year ended 31 March 2014 were approved by the directors on 2 July 2014 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 2014, 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 2014. The interim financial results for the six months to 30 September 2013 have been restated to conform to accounting policies adopted and changes in presentation made in the Company's published consolidated financial statements for the year ended 31 March 2014. A summary of the new standards and interpretations adopted and the changes in presentation is given below.

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 2013 or 30 September 2013. Accordingly there is no change in the basic or diluted earnings per share previously reported.

1.3 Adoption of new standards and interpretations

A number of new standards, interpretations and amendments to existing standards which became effective for the first time for accounting periods beginning on or after 1 January 2014, unless otherwise stated, were adopted in the financial statements for the year ended 31 March 2014. The nature and effect of adopting these is given below.

IAS 1 - Presentation of items of Other Comprehensive Income - Amendments to IAS 1

The amendment requires that items of other comprehensive income must be grouped together in two sections - those that will or may be reclassified into profit or loss and those that will not.

The amendment affects presentation only and hence there is no effect on the Group's financial position.

IFRS 10 - Consolidated Financial Statements (Adopted early)

IFRS 10 supersedes IAS 27 (2008) Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities, and introduces a single 'control model' for all entities, whereby control exists when all of the following conditions are present:

- power over investee

- exposure, or rights, to variable returns from investee

- ability to use power over investee to affect the entity's returns from investee

An entity is required to consider all relevant facts and circumstances when assessing whether it controls the investee.

Other changes introduced by IFRS 10 include:

- The introduction of the concept of 'de facto' control for entities with less than a 50% ownership interest in an entity, but which have a large shareholding compared to other shareholders

- Potential voting rights are only considered when determining if there is control when they are substantive (holder has practical ability to exercise) and the rights are exercisable when decisions about the investee's activities that affect the investor's return will or can be made.

Following the adoption of IFRS 10, the Board reassessed the status of its investment in Therium Capital Management Limited ("Therium") in which it holds a 50% interest and concluded that, having regard to all relevant facts and circumstances, including the disposition of shareholdings, it did not meet the control criteria in the standard. Accordingly, Therium should be considered as an associate rather than a subsidiary of the Group. The figures in the interim financial statements for the 6 months ended 30 September 2013 have been restated (see note 1.4(a)).

IAS 28 - Investments in Associates and Joint Ventures (Amendments adopted early)

IAS 28 defines "associate" and sets out the required accounting for both associates and joint ventures. The standard requires investments in associates and joint ventures to be accounted for using the equity method of accounting in consolidated accounts. The adoption of this standard has had no effect on the Group's financial position or performance as the equity method of accounting is used in the consolidated financial statements.

1.4 Presentation changes

(a) Restatement of prior period figures

As stated above, following the adoption of IFRS 10, the Board considered the status of its investment in Therium Capital Management Limited ("Therium") in which it holds a 50% interest and, having regard to all relevant facts and circumstances, concluded that Therium should be considered an associate and not a subsidiary. The figures in the interim financial statements for the six months ended 30 September 2013 have accordingly been restated on this basis. The table below shows changes in the individual balance sheet figures at 30 September 2013 as a result of the restatement. 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 2013 or 30 September 2013. Accordingly, there is no change in the basic or diluted earnings per share previously reported.

(b) Discontinued operations

The Group's equity shareholding in Trade Finance Partners Limited ("TFPL") reduced from 60.3% to 44.1% (44% to 43% effective participation) on the issue of new shares by TFPL on 19 March 2014, resulting in TFPL being recognised as a discontinued operation until 19 March 2014 and thereafter as an associate, with the Group's share of results being recognised under the equity method.

The Board's decision to seek a new investor for Therium, its litigation fund manager associate, and dispose of the Company's interest in Therium (see note 8), resulted in this interest being classified as an asset held for sale in the current period with effect from 13 June 2014 and as discontinued operations in the previous periods.

1.5 Consistency

The interim report, including the financial information contained therein is the responsibility of, and was approved by, the directors on 26 November 2014. 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 2014.

2 Segmental reporting

The Group is managed by each operating platform namely: trade financing, litigation funding and leasing and lending to professional firms. The COLG segment includes the Group's central functions and a mining investment portfolio.

A reportable segment is identified based on the nature and size of its business and risk specific to its operations.

Consolidated Net Assets at 30/09/14

Consolidated Net Assets at 31/03/14

Consolidated Net Assets at 30/09/13 (restated)

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

3 Administrative expenses

(a) Array Management Limited: full provision made due to the delay in finding an opportunity from which to derive future benefits from the system development project.

(b) Repayment of this loan was primarily expected to be made from the result of litigation on a specific case. The amounts owed are secured on intellectual property. The case was awarded against the client during the year ended 31 March 2014 and therefore recovery became dependent on exploitation of the intellectual property. Full provision was accordingly made against the amount owed.

Items (a) and (b) above were exceptional items, being non-recurring items that by their nature could distort the Group's underlying annual results. In accordance with IAS 1 Presentation of Financial Statements such items are disclosed separately on the face of the condensed consolidated income statement. Management believes the identification of exceptional costs on the face of condensed consolidated income statement provides an enhanced understanding of the underlying performance of the business.

4 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.

5 Dividends

The directors have not declared an interim dividend for the year ending 31 March 2015 (2013/14: nil). The directors did not recommend payment of a final dividend for the year ended 31 March 2014.

6 Earnings per share

The 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.

7 'Available-for-sale' financial assets

8 Assets classified as held for sale

As previously announced, the Board has taken the decision to seek a new investor for Therium, its litigation fund manager associate, and dispose of the Company's interest in that business. Subsequent to the decision to seek a new investor for Therium, discussions have been held with several parties and it is currently anticipated the Group will dispose of its interest shortly.

The Group's interest, including loans and receivables, has been classified as an asset held for sale with effect from 13 June 2014 and, in accordance with the requirements of IFRS 5, the Group's interest is presented separately in the balance sheet at 30 September 2014 and the Group's share of the results of Therium are not included in the condensed consolidated income statement from 13 June 2014. In addition, the Group's share of the results of Therium and its associate, Novitas, for the six months to 30 September 2013 (loss of £82,000) and for the year to 31 March 2014 (loss of £222,000) are included within "discontinued operations".

The proceeds of disposal are expected to exceed the book value of the related net assets shown in the consolidated financial statements and accordingly no impairment losses have been recognised on the classification of the Group's interest as held for sale.

The major classes of assets and liabilities comprising the Group's interest in Therium classified as held for sale are:

9 Related party transactions

10 Capital commitments

11 Financial risk management

Notes 31 and 32 to the annual financial statements to 31 March 2014 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 2014 Annual Report identified the main risk factors around the cash flow forecast in the Strategic Report. Since that date, the spare accommodation has been sublet and good progress made towards achieving significant cost reductions. In addition, the Board has taken the decision to seek to secure a new investor for Therium, and dispose of its interest in that business (see note 8). The other risk factors are broadly unchanged.

The Company has extended its current working capital facilities of £4.8m to 30 September 2016, to cover liquidity requirements for the foreseeable future.

12 Financial instruments

Price risk

The Group is subject to price risk on its 'available-for-sale' financial assets, including its operating investments and investments in legal funds as well as its portfolio of financial assets. There is a concentration of risk in the mining sector as the majority of the investment portfolio of £292,000 is invested in this sector. At 30 September 2014, 16% of the Group's portfolio was invested in unlisted equity securities.

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 2014.

The fair value of investments in legal funds is taken to be cost, as at 30 September 2014 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 2014:

The following table presents the Group's assets that are measured at fair value at 31 March 2014:

Level 1 assets are quoted ordinary shares. There are no Level 2 assets. Level 3 assets increased by additions of £11,000 over the period from £720,000 to £731,000.

£411,000 of the investments in legal cases has been invested directly in case funding while the balance of £272,000 is invested in a portfolio of cases. The value of the direct investment is dependent on the final outcome of the cases and, in the event of adverse rulings, the loss could be up to 100% of the carrying value: conversely, favourable rulings might generate significantly more than the carrying value.

By order of the Board

H Goodbourn

Director

26 November 2014

Independent Review Report to City of London Group plc

Introduction

We have been engaged by the company to review the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 September 2014 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated statement in changes of 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 consolidated 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 International Financial Reporting Standards (IFRSs) 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.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

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 consolidated financial statements in the half-yearly financial report for the six months ended 30 September 2014 is not prepared, in all material respects, 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 Conduct Authority.

BDO LLP

Chartered Accountants and Registered Auditors, London, United Kingdom

26 November 2014

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).