19 Nov 2012 07:00
Half-year results 2012
LSE: CIN
19 November 2012
City of London Group plc ("COLG" or "the Company" or "the Group")
Results for the six month period ended 30 September 2012
The Company is a financial services group focused on providing finance to the SME and professional sectors, is pleased to announce its unaudited interim results for the six month period ended 30 September 2012.
Highlights
Financial
·; Revenue increased by 169% to £15.2 million
·; Gross profit increased by 25% to £1.3 million
·; Operating losses reduced to £143,000 after £733,000 profit on sale of FX Capital
·; Third party funds under management up by 125% to £51.4 million, with a further £20 million committed in principle
·; Sales of 'available-for-sale' investments of £1.8 million with realised profits of £950,000 (includes FX Capital)
·; Successful placing of 10% of issued share capital, raising £1.3 million to fund further growth of business platforms
·; Interim dividend 0.33p (2011:0.5p) - rebalanced
·; NAV per share attributable to owners of the Company 59.1p (31 March 2012 68.8p)
·; Unaudited proforma NAV per share of COLG and including directors' valuation of subsidiaries 111.5p (31 March 2012 114.8p)
Platforms
Trade Finance Partners (trade finance)
·; rapidly becoming one of the leading providers of transactional trade finance to the SME sector in the UK
·; business now trading at a level which is expected to generate revenues of around £24 million per year
Therium Capital Management (litigation funding)
·; signed first managed account with an institutional investor for £5 million, with a view to increasing the fund to £15 million
·; launching its fourth fund
Professions Funding (lending to professional firms)
·; in August won a mandate to manage £10 million
·; now manages more than 150 loan agreements, with a book value of £3.2 million
Credit Asset Management (SME equipment leasing)
·; now manages a book of £2.6 million, spread across 215 loans
Eric Anstee, Chief Executive, commented:
"Our strategy of providing specialist financing to high quality SMEs and the professional services market is proving to be a sound one as traditional bank finance and other funding sources remain challenging. The Group now has the business platforms required to facilitate its ongoing development into a traditional merchant bank model."
For further information:
City of London Group plc | |
Eric Anstee | 0207 628 5518 |
John Kent |
N+1 Singer | |
Jonny Franklin-Adams Matt Thomas |
0203 205 7500 |
FTI Consulting | |
Ed Gascoigne-Pees |
0207 269 7132 |
Notes to Editors:
City of London Group plc is fully listed on the London Stock Exchange plc (LSE symbol CIN).
The Company's strategy is to build a quality financial services group centred on specialist financing and alternative fund management. The Company believes there are particular opportunities in the SME and professional services sectors as major national and foreign banks limit new lending to these borrowers. It therefore 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 developed four specialist financing funds, pledging significant seed capital to Trade Finance Partners Limited, a trade finance provider to the SME market; Therium Capital Management Limited, a third party litigation funder; and Credit Asset Management Limited and Professions Funding Limited, which respectively provide asset backed finance to SME's and working capital loans to professional practice firms.
www.cityoflondongroup.com
Chairman and Chief Executive's review
Operational review
Our strategy of providing specialist financing to high quality SMEs and the professional services market is proving to be a sound one as traditional bank finance and other funding sources remain challenging.
Following further major disposals from our share portfolio during the period, the transition from an investment company with holdings in listed and unlisted natural resources companies to a backer of a series of focused investment platforms providing a range of specialist financing to the SME and professional services markets, is virtually complete. The Group now has the business platforms required to facilitate its ongoing development into a traditional merchant bank model.
In September, the Company successfully completed a placing of 10% of its share capital, which raised £1.3m before expenses. These new funds, together with the sale proceeds from the disposal of our early stage investment in FX Capital, have provided liquidity to continue this progress.
Since the start of the financial year third party funds available to the Group's platforms have increased from £22.8m to £51.4m with a further £20m agreed in principle. Management continues to seek additional third party funding to take its investment platforms to optimum scale and to exploit new opportunities.
Each of our investment platforms is capable of developing into a major business in its own right and substantial progress has been made in this period in growing both the scale of operations and the funds to be deployed within them. A review of the progress of each of the platforms is set out below:
Trade Finance Partners Limited (TFP)
TFP provides medium to large scale trade finance facilities to SME's. It has continued its robust development during the period and is rapidly becoming one of the leading providers of transactional trade finance to the SME sector in the UK. The withdrawal of funding from the sector by the major banks continues to create strong demand for TFP's products and services. More recently, it has started to receive an increasing number of enquiries regarding commodity trade finance.
Following completion of TFP's three year revolving, multi-option facility with Macquarie Bank in June, the business has the necessary capacity to expand its activities further over the coming year. The facility has a non-utilisation fee which has had an adverse impact on the second quarter trading performance. However, since the facility has 'bedded down', TFP has performed strongly. Compared with the year to 31 March 2012, gross revenues have almost doubled, with annual turnover expected to reach around £24 million if current levels of trading are maintained. Although the loss before tax for the period was £68k, the profit before shareholders' loan interest for the period was £103k.
Therium Capital Management Limited (Therium)
Therium is one of the leading third party litigation funding businesses in the UK market. The business is progressing well and signed its first managed account with an institutional investor in the period. This mandate is for an initial £5 million, with the party's stated intention, in due course, to increase the size of the fund up to £15 million. Work has commenced on a Therium fund to be launched in Jersey and all the necessary regulatory approvals have now been received. At the same time Therium is continuing to explore opportunities with a number of other institutions and family offices for managed accounts. This is expected to result in further funding, although progress has been slower than originally anticipated. In the meantime, while none of the existing funded cases settled during the period, applications to Therium for new case funding continue to grow and are significantly up on last year. During the period a number of new cases were funded.
The management team at Therium has also worked to build up the Novitas joint venture which provides funds to clients of law firms. The Novitas loan book is currently at £2.7 million and demand continues to be strong.
Professions Funding Limited (PFL)
PFL provides loans to professional firms such as solicitors and accountants, mainly for short term requirements such as the payment of insurance premiums for professional indemnity cover. Its loan book consists of more than 150 loan agreements, with a book value of £3.2 million. It also won a £10 million managed account in August, of which some £2.5 million has so far been deployed.
Credit Asset Management Limited (CAM)
CAM provides equipment leasing to SMEs and accesses the market largely through brokers and intermediaries. Its leasing book currently stands at £2.6 million spread across 215 leases. It has unutilised facilities of £1.5m and is in advanced discussions with third party funders with the objective of significantly increasing the funds it can deploy.
Taken together, PFL and CAM have facilities and managed accounts amounting to £17.5 million of which £9.2 million has been deployed. The activities are now close to breaking even on a month by month basis before paying the dividends due on their preference shares. Bad debts are running below anticipated levels and are no more than 1% of the average outstanding balance. Demand for both professional loans and leases remains high.
Other investments
(a) Listed and unlisted investments for resale
COLG's equity portfolio reduced from £4.1 million (excluding £1.2 million relating to FX Capital) to £2.8 million at 30 September 2012. This decrease of £1.3 million was as a result of sales of £0.7 million and a reduction in value of the remaining portfolio of £0.6 million. Two of our larger value holdings, FAR Ltd and Tertiary Minerals plc suffered from falls in market value of 27% and 22% respectively although their values are still well above cost. The Company aims to release further substantial capital from its listed investment portfolio in order to fund the development of existing and new platforms.
(b) Fundamental Tracker Investment Management Limited (FTIM)/The Munro Fund
Over the period the investment performance of the fund has improved slightly. However, attracting new funds under management has continued to prove difficult against its three year performance and it continues to be below the critical mass needed to achieve break even. COLG has continued to fund FTIM's operating deficit of c.£100,000 per annum but is undertaking a strategic review of this business.
(c) Array Management Limited
The objective of this investment is to launch an index-linked, asset-backed product for sale to institutional or high net worth investors. We continue to look for an appropriate asset on which to base a first fund.
(d) FX Capital Limited
As previously reported, we successfully sold our entire holding in this early stage investment for £1,175,000 cash representing 2.7 times the original cost and £50,000 over the carrying value at 31 March 2012.
Related party transactions
Related party transactions are disclosed in note 6.
Risks
The key risk factors faced by the Group are set out in the financial statements to 31 March 2012 and are summarised in note 7.
Liquidity and going concern
The Company has renewed its bank overdraft facility at £1m through to 30 September 2013, secured on its UK listed investment portfolio. The actual facility size available is restricted to half the value of the Company's UK listed investment portfolio. This is currently around £0.8m which is expected to be sufficient to meet current liquidity requirements. Since the period end the Company has received the proceeds from the share placing of £1.3 million. The Company continues to hold a total portfolio of "available for sale" investments (valued at £2.8 million at 30 September) of which £2.4 million are listed and can be sold at relatively short notice.
Liquidity is managed by approving annual budgets for each platform and reviewing monthly performance against those budgets. Rolling 12 month cashflow forecasts for the Group are produced and updated monthly. The financial resources available are expected to meet the needs of the Group for the foreseeable future. The condensed financial statements have therefore been prepared on a going concern basis.
Outlook
The considerable economic uncertainty in Europe and deleveraging by the banks in the UK and the rest of Europe has continued to make finance in the UK market extremely tight. Therefore the rationale for the Company's strategy of developing investment platforms to provide specialist finance to the SME market remains as sound as ever. However, the uncertain economic climate has meant that attracting third party monies to new investment platforms has been slower than originally envisaged. Despite this, the Company is pursuing a number of opportunities with the aim of increasing third party funds available to the investment platforms in the second half and beyond.
Unaudited directors' valuation
The directors have included an indication of the incremental value they attribute to the investment platforms which in aggregate show additional value (over book value) of £8.5 million made up of £4.6 million for TFP, £3.1 million for Therium and £0.8 million for Credit Asset Management and Professions Funding combined. This equates to an additional value of 42.0p per share. This valuation is a judgment based on market comparatives.
Interim dividend
The directors have declared an interim dividend of 0.33p per share (2011: 0.5p) payable on 4 January 2013 to shareholders on the register on 7 December 2012.This reflects the Boards intention to rebalance the payout of potential dividends for the year to market norms of one third at the interim stage.
Henry Lafferty Eric Anstee
Chairman Chief Executive
This half-yearly report may contain certain statements about 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 2012 will be determined in accordance with English law. The half-yearly results for 2012 and 2011 are unaudited.
19 November 2012
Unaudited interim results
Condensed consolidated income statement
6 months to 30/09/12 | 6 months to 30/09/11 | Year to 31/03/12 | |
£'000 | £'000 | £'000 | |
Revenue | 15,177 | 5,644 | 15,540 |
Cost of sales | (13,860) | (4,588) | (13,773) |
Gross profit | 1,317 | 1,056 | 1,767 |
Administrative expenses | (2,436) | (2,025) | (4,159) |
Profit on sale of 'available for sale' investments | 950 | 469 | 1,001 |
Provision for impairment of investments | - | - | (65) |
Loss on legal cases | (43) | (843) | (725) |
Share of profit / (loss) of associate | 22 | (22) | - |
Other operating income | 47 | 14 | 208 |
Operating loss | (143) | (1,351) | (1,973) |
Financial expenses | (309) | (58) | (157) |
Loss before tax | (452) | (1,409) | (2,130) |
Income tax (expense)/credit | (158) | (101) | 54 |
Loss for the period | (610) | (1,510) | (2,076) |
Loss for the year attributable to: | |||
Owners of the parent | (300) | (1,303) | (1,433) |
Non-controlling interest | (310) | (207) | (643) |
(610) | (1,510) | (2,076) | |
Earnings per share: | |||
Basic total earnings per share | (1.67p) | (7.78p) | (8.24p) |
Diluted total earnings per share | (1.67p) | (7.78p) | (8.24p) |
Condensed consolidated statement of comprehensive income
6 months to 30/09/12 | 6 months to 30/09/11 | Year to 31/03/12 | |
£'000 | £'000 | £'000 | |
Loss after tax | (610) | (1,510) | (2,076) |
Valuation losses on 'available for sale' investments | (619) | (1,534) | (297) |
Transferred to profit or loss on sale | (950) | (469) | (1,001) |
Deferred tax provision | 158 | 397 | 239 |
Total comprehensive expense | (2,021) | (3,116) | (3,135) |
Total comprehensive expense attributable to: | |||
Owners of the parent | (1,711) | (2,909) | (2,492) |
Non-controlling interest | (310) | (207) | (643) |
(2,021) | (3,116) | (3,135) |
Condensed consolidated balance sheet
As at 30/09/12 | As at 31/03/12 | As at 30/09/11 | |
£'000 | £'000 | £'000 | |
Non-current assets | |||
Intangible assets | 1,264 | 1,295 | 1,244 |
Property, plant and equipment | 187 | 107 | 80 |
'Available-for-sale' financial assets | 2,848 | 5,237 | 4,323 |
Operating investments | 59 | 37 | 930 |
Investments in legal cases | 3,534 | 2,409 | 6,353 |
Loans and leases receivable | 3,127 | 2,201 | 970 |
Total non-current assets | 11,019 | 11,286 | 13,900 |
Current assets | |||
Inventories | 69 | 156 | 280 |
Trade and other receivables | 16,351 | 12,071 | 5,088 |
Cash and cash equivalents | 3,613 | 2,194 | 2,677 |
Total current assets | 20,033 | 14,421 | 8,045 |
Total assets | 31,052 | 25,707 | 21,945 |
Current liabilities | |||
Borrowings | (6,000) | (4,415) | (3,579) |
Trade and other payables | (8,437) | (7,314) | (6,785) |
Total current liabilities | (14,437) | (11,729) | (10,364) |
Non-current liabilities | |||
Borrowings | (5,897) | (2,587) | - |
Trade and other payables | - | - | (1) |
Derivative | - | (244) | (315) |
Total non-current liabilities | (5,897) | (2,831) | (316) |
Total liabilities | (20,334) | (14,560) | (10,680) |
Net assets | 10,718 | 11,147 | 11,265 |
Equity | |||
Share capital | 2,021 | 1,837 | 1,837 |
Share premium | 11,531 | 10,424 | 10,428 |
Fair value reserve on investments | 82 | 1,493 | 946 |
Derivative reserve | - | (197) | (242) |
Retained earnings | (1,952) | (1,237) | (980) |
Owners of the parent | 11,682 | 12,320 | 11,989 |
Non-controlling interests | (964) | (1,173) | (724) |
Total equity | 10,718 | 11,147 | 11,265 |
Condensed consolidated statement of changes in equity
Attributable to owners of the parent company | |||||||||
Attributable to | |||||||||
Fair value | Derivative | Retained | Share | Share | non-controlling | Total | |||
reserve | reserve | earnings |
premium | capital | Total | interest | equity | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
At 31 March 2012 | 1,493 | (197) | (1,237) | 10,424 | 1,837 |
12,320 | (1,173) | 11,147 | |
Available for sale investments | |||||||||
-Valuation gains taken to equity | (619) | - | - | - | - | (619) | - | (619) | |
-Transferred to profit or loss on sale | (950) | - | - | - | - | (950) | - | (950) | |
-Deferred tax provision writeback | 158 | - | - | - | - | 158 | - | 158 | |
Total other comprehensive income | (1,411) | - | - | - | - | (1,411) | - | (1,411) | |
Profit for the period | - | (300) | (300) | (310) | (610) | ||||
Total other comprehensive income | (1,411) | - | (300) | - | - | (1,711) | (310) | (2,021) | |
Value of employee services | - | - | (19) | - | - | (19) | - | (19) | |
Arising on business combination | - | 197 | (345) | - | - | (148) | 519 | 371 | |
Dividend paid | - | - | (89) | - | - | (89) | - | (89) | |
Issue of shares | - | - | - | 1,107 | 184 | 1,291 | 1,291 | ||
Disposal of own shares | - | - | 38 | - | - | 38 | - | 38 | |
At 30 September 2012 | 82 | - | (1,952) | 11,531 | 2,021 | 11,682 | (964) | 10,718 | |
Attributable to owners of the parent company | |||||||||
Attributable to | |||||||||
Fair value | Derivative | Retained | Share | Share | non-controlling | Total | |||
reserve | reserve | earnings |
premium | capital | Total | interest | equity | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
At 31 March 2011 | 2,552 | (242) | 913 | 5,797 | 1,114 |
10,134 | (520) | 9,614 | |
Available for sale investments | |||||||||
Valuation gains taken to equity | (1,534) | - | - | - | - | (1,534) | - | (1,534) | |
Transferred to profit or loss on sale | (469) | - | - | - | - | (469) | - | (469) | |
Deferred tax position | 397 | - | - | - | - | 397 | - | 397 | |
Total other comprehensive income | (1,606) | - | - | - | - | (1,606) | - | (1,606) | |
Profit for the period | - | - | (1,303) | - | - | (1,303) | (207) | (1,510) | |
Total other comprehensive income | (1,606) | - | (1,303) | - | - | (2,909) | (207) | (3,116) | |
Value of employee services | - | - | (78) | - | - | (78) | - | (78) | |
investment in subsidiaries | - | - | - | - | - | - | 3 | 3 | |
Dividends | - | - | (184) | - | - | (184) | - | (184) | |
Issue of shares | 4,552 | 723 | 5,275 | 5,275 | |||||
Sale of treasury shares | - | - | 56 | 79 | - | 135 | - | 135 | |
Purchase of shares by ESOT | - | - | (384) | - | - | (384) | - | (384) | |
At 30 September 2012 | 946 | (242) | (980) | (10,428) | 1,837 | 11,989 | (724) | 11,265 | |
Condensed consolidated statement of cash flows
6 months to 30/09/12 | 6 months to 30/09/11 | Year to 31/03/12 | |
£'000 | £'000 | £'000 | |
Loss before taxation | (452) | (1,409) | (2,120) |
Adjustments for | |||
Depreciation and amortisation | 52 | 25 | 74 |
Share based payments | (19) | (85) | (504) |
Dividends receivable | (15) | (65) | (104) |
Impairment of 'available for sale' assets | - | - | 65 |
Profit/loss on disposal of investments | (950) | 469 | (1,001) |
Profit and loss of associates | (22) | 22 | - |
Loss on legal cases | 43 | 843 | 725 |
Interest receivable | (106) | (85) | (148) |
Interest payable | 141 | 58 | 55 |
Decrease/(increase) in stock | 87 | (265) | (142) |
Increase in trade and other receivables | (2,679) | (2,807) | (6,654) |
Increase in trade and other payables | 2,867 | 478 | 1,285 |
Cash used in operations | (1,053) | (2,821) | (8,469) |
Income taxes | - | - | - |
Net cash used in operating activities | (1,053) | (2,821) | (8,469) |
Cash flow from investing activities | |||
Interest received | 16 | 189 | 100 |
Purchase of intangible assets | (44) | (325) | (415) |
Purchase of property, plant and equipment | (107) | (12) | (63) |
Purchase of non-current investments | (1,243) | (2,443) | (3,762) |
Investment by non-controlling interest | - | 3 | - |
Proceeds from investment in legal cases | - | 703 | 4,068 |
Acquisition of subsidiary companies | (85) | (5) | (3) |
Dividends received | 15 | 65 | 104 |
Proceeds from sale of 'available-for-sale' investments | 1,845 | 705 | 2,332 |
Loans advanced | (5,670) | (2,035) | (6,874) |
Loans repaid | 4,523 | 958 | 1,522 |
Net cash used in investing activities | (750) | (2,197) | (2,991) |
Cash flow from financing activities | |||
Interest paid | (141) | (31) | (39) |
Dividends paid to company's shareholders | (89) | (184) | (268) |
Proceeds from issue of loans | 5,509 | - | 1,698 |
Repayment of loans and loan notes | (2,298) | (1,600) | - |
Proceeds from block discounting loans | 867 | - | 3,322 |
Proceeds from issue of ordinary shares | - | 5,275 | 5,272 |
Proceeds from issue of preference shares | - | - | 970 |
Proceeds from shares issued by subsidiary | 263 | - | - |
Sale of treasury shares | - | (249) | 135 |
Net cash from financing activities | 4,111 | 3,211 | 11,090 |
Net increase/(decrease) in cash and cash equivalents | 2,308 | (1,807) | (380) |
Cash and cash equivalents brought forward | 1,126 | 1,506 | 1,506 |
Net cash and cash equivalents | 3,434 | (301) | 1,126 |
Cash and cash equivalents | 3,613 | 2,677 | 2,194 |
Bank overdraft | (179) | (2,978) | (1,068) |
Net cash and cash equivalents | 3,434 | (301) | 1,126 |
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 end 31 March 2012 were approved by the directors on 25 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 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 2012, which were prepared in accordance with IFRS as adopted by the European Union. As required by the Disclosure and Transparency Rules of the Financial Services 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 2012.
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 September 2012 the Company placed 1,836,960 ordinary shares of 10p ("Ordinary Shares") at 70p per share. Before costs the placing raised £1,285,872.
1.5 The calculation of earnings per Ordinary Share is based on the loss attributable to equity shareholders of £300,000 (2011: loss £1,303,000; 2011/12 full year: loss £1,433,000) 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 employee benefit trust) of 17,943,192 (2011: 16,757,641; 2011/12 full year: 17,400,547). 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 incentive award. The number is 18,285,713 (2011: 17,299,733; 2011/12 full year: 17,564,453). In accordance with convention, as the EPS is negative, the diluted EPS is deemed to be the same as the undiluted EPS.
1.6 The directors have declared an interim dividend for the year ended 31 March 2013 of 0.33p per Ordinary Share (2011/12: 0.5p per Ordinary Share). The directors recommended a final dividend of 0.5p per Ordinary Share for the year ended 31 March 2012 and this was paid on 2 October 2012.
1.7 The interim report, including the financial information contained therein is the responsibility of, and was approved by, the directors on 19 November 2012. 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 2012.
1.8 Each of the persons who is 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 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 2012, which were prepared in accordance with IFRS as adopted by the European Union. As required by the Disclosure and Transparency Rules of the Financial Services 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 2012.
2 Available for sale' financial assets
| As at 30/09/12 £000 | As at 31/03/12 £000 | As at 30/09/11 £000 |
Listed securities | |||
Equity | |||
Equity securities - Australia | 769 | 1,258 | 665 |
- US and Canada | 44 | 63 | 7 |
- UK | 1,195 | 1,685 | 1,726 |
Cumulative non-redeemable preference shares - UK |
- |
51 |
46 |
Non-cumulative non-redeemable preference shares - UK |
- |
46 |
280 |
Equity fund - UK | 414 | 410 | 369 |
Debt | |||
Convertible loan stock - UK | - | - | 125 |
Convertible loan notes - Australia | - | 172 | 150 |
2,422 | 3,685 | 3,368 | |
Unlisted securities Equity securities traded on inactive markets |
426 |
1,552 |
955
|
2,848 | 5,237 | 4,323 |
Principal holdings at 30 September 2012
Holding | Security | Cost £'000 | Value £'000 |
20,055,480 | FAR Ltd | 279 | 452 |
500,300 | Munro UK Funds | 500 | 414 |
7,680,000 | Tertiary Minerals plc | 351 | 403 |
283,340 | Hurricane Exploration | 120 | 383 |
19,500,000 | Sunrise Resources plc | 210 | 263 |
2,100,000 | Target Energy Ltd | 71 | 156 |
472,600 | AFC Energy plc | 74 | 121 |
2,729,583 | Netalogue Technologies plc | 62 | 62 |
Other | 1,098 | 594 | |
Total | 2,765 | 2,848 |
Principal holdings at 31 March 2012
Holding | Security | Cost | Value | |
£'000 | £'000 | |||
702,874 | FX Capital Limited | 387 | 1,125 | |
25,055,480 | FAR Limited | 349 | 812 | |
6,500,000 | Tertiary Minerals Plc | 301 | 439 | |
500,300 | Munro UK Funds | 500 | 410 | |
283,340 | Hurricane Exploration | 120 | 383 | |
22,000,000 | Sunrise Resources plc | 237 | 275 | |
20,000 | Secure Trust Bank plc | 144 | 208 | |
3,408,075 | Target Energy ltd | 115 | 196 | |
672,600 | AFC Energy plc | 105 | 175 | |
1,910,397 | SIPA Resources | 83 | 129 | |
1,103,570 | Platinum Australia | 204 | 123 | |
Other | 1,041 | 962 | ||
Total | 3,586 | 5,237 |
Principal holdings at 30 September 2011
Holding | Security | Cost | Value | |
£'000 | £'000 | |||
878,000 | Flow Energy | 522 | 608 | |
500,300 | Munro UK Funds | 500 | 369 | |
7,766,666 | Tertiary Minerals plc | 359 | 369 | |
28,334 | Hurricane Exploration | 120 | 315 | |
240,000 | Barclays 14% Prefs | 234 | 247 | |
672,600 | AFC Energy plc | 105 | 225 | |
354,000 | Prime People | 178 | 219 | |
19,500,000 | Sunrise Resources plc | 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 | |
Other | 1,266 | 1,039 | ||
Total | 3,939 | 4,323 |
3 Administrative expenses | |||||
6 months to 30/09/12
| 6 months to 30/09/11
| Year to 31/03/12
| |||
£'000 | £'000 | £'000 | |||
Staff costs | |||||
Payroll expenses | 1,416 | 903 | 2,174 | ||
Payroll incentive award | 61 | (37) | (95) | ||
Other staff costs | 29 | 96 | 212 | ||
Establishment costs | |||||
Property costs | 75 | 105 | 192 | ||
Other | 256 | 455 | 449 | ||
Fees due to auditors | 48 | 57 | 113 | ||
Legal fees | 229 | 153 | 446 | ||
Consultancy fees | 149 | 102 | 291 | ||
Other professional fees | 213 | 168 | 249 | ||
Depreciation | 24 | 23 | 43 | ||
Amortisation | 28 | 7 | 78 | ||
Foreign exchange loss / (gain) | (92) | (7) | 7 | ||
Total | 2,436 | 2,025 | 4,159 | ||
4 Segmental reporting
The principal trading subsidiaries are considered to operate in business segments other than the principal activity of the parent company.
Pre-tax profit and loss Half-year to September 2012 | Revenue | Operating profit / (loss) | Financial expenses | Pre-tax profit/(loss) | |
£'000 | £'000 | £'000 | £'000 | ||
COLG | Investment portfolio sales | - | 950 | - | 950 |
Legal cases | - | (43) | - | (43) | |
| Intra-group | 405 | 405 | - | 405 |
Other | 35 | (1,048) | (61) | (1,109) | |
|
| 440 | 264 | (61) | 203 |
Platforms |
|
|
|
|
|
| Litigation fund management | 120 | (316) | (35) | (351) |
| Trade financing | 14,410 | 103 | (171) | (68) |
| Lease financing | 176 | (59) | (119) | (178) |
| Professions financing | 268 | 141 | (141) | - |
| Legal case financing | 99 | 121 | (86) | 35 |
| Other | 69 | (30) | (63) | (93) |
| Inter company | (405) | (367) | 367 | - |
15,177 | (143) | (309) | (452) |
Pre-tax profit and loss Half-year to September 2011 | Revenue | Operating profit / (loss) | Financial expenses | Pre-tax profit/(loss) | |
£'000 | £'000 | £'000 | £'000 | ||
COLG | Investment portfolio sales | - | 469 | - | 469 |
Legal cases | - | (843) | - | (843) | |
| Intra-group | 114 | 203 | - | 203 |
Other | 109 | (782) | (3) | (785) | |
|
| 223 | (953) | (3) | (956) |
Platforms |
|
|
|
|
|
| Litigation fund management | 255 | (125) | (44) | (169) |
| Trade financing | 5,213 | 73 | (91) | (18) |
| Lease financing | 6 | (185) | (6) | (191) |
| Professions financing | 49 | 30 | (28) | 2 |
| Legal case financing | - | (22) | - | (22) |
| Other | 12 | (55) | - | (55) |
| Inter company | (114) | (114) | 114 | - |
5,644 | (1,351) | (58) | (1,409) |
Net assets at 30/09/12
Total | |||||
£'000 | £'000 | ||||
COLG | Investment portfolio | 2,848 | |||
Investment in legal cases | 759 | ||||
Platforms | |||||
Litigation fund management | 1,650 | ||||
Trade financing | 3,446 | ||||
Lease financing | 1,255 | ||||
Professions financing | 1,095 | ||||
Legal case financing | 1,324 | ||||
Other | 431 | ||||
9,201 | |||||
12,808 | |||||
Amount due re share placing | 1,291 | ||||
Other net liabilities | (345) | ||||
Net assets per entity balance sheet | 13,754 | ||||
Net liabilities of subsidiary companies | (3,036) | ||||
Consolidated net assets | 10,718 | ||||
Net assets as at 31/03/12
Total | |||||
£'000 | £'000 | ||||
COLG | Investment portfolio | 5,237 | |||
Investment in legal cases | 916 | ||||
Platforms | |||||
Litigation fund management | 1,100 | ||||
Trade financing | 2,650 | ||||
Lease financing | 1,255 | ||||
Professions financing | 1,075 | ||||
Legal case financing | 1,489 | ||||
Other | 908 | ||||
8,477 | |||||
14,630 | |||||
Amount due re share placing | - | ||||
Other net liabilities | (694) | ||||
Net assets per entity balance sheet | 13,936 | ||||
Net liabilities of subsidiary companies | (2,789) | ||||
Consolidated net assets | 11,147 | ||||
Net assets at 30/09/11
Total | |||||
£'000 | £'000 | ||||
COLG | Investment portfolio | 4,323 | |||
Investment in legal cases | 1,565 | ||||
Platforms | |||||
Litigation fund management | 780 | ||||
Trade financing | 2,951 | ||||
Lease financing | 955 | ||||
Professions financing | 850 | ||||
Legal case financing | 299 | ||||
Other | 306 | ||||
6,141 | |||||
12,029 | |||||
FX Capital |
| 949 | |||
Other net assets | 437 | ||||
Net assets per entity balance sheet | 13,415 | ||||
Net liabilities of subsidiary companies | (2,150) | ||||
Consolidated net assets | 11,265 | ||||
5 Capital commitments
As at | As at | As at | ||||
30/09/12 | 31/03/12 | 30/09/11 | ||||
£'000 | £'000 | £'000 | ||||
Investment in legal funds | 488 | 807 | 382 | |||
Trade financing | 737 | 1,358 | 138 | |||
Leases | - | - | 939 | |||
Loans | - | 100 | 143 | |||
1,225 | 2,265 | 1,602 | ||||
6 Related parties
J Anstee, an employee of the Company, is considered a related party as he is the son of the Chief Executive, E Anstee. J Anstee received remuneration of £19,345 during the six months to 30 September 2012. A payment of £110,000 was made to the Company by John Greenhalgh in August in connection with a proposed share placing which did not proceed. The payment was repaid three weeks later with an interest at a rate of 4.25% per annum.
7 Risks statement
The key risk factors faced by the Group are set out in financial statements to 31 March 2012 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 is managed by the Group having an overall investment portfolio which limits its exposure to unlisted investments. The value of the unlisted investments at 30 September 2012 was £426,000. The Group is mitigating the risk on the total portfolio by steadily unwinding it to invest in the new platforms.
Credit risk
The Group is subject to credit risk of counterparties to which it has lent or to which it has cash on deposit. The 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.
Cashflow risk
The Company has renewed its bank overdraft facility at £1m through to 30 September 2013, secured on its UK listed investment portfolio. The actual facility size available is, however, restricted to half the value of the Company's UK listed investment portfolio. The facility size is currently approximately £0.8m and this is expected to be sufficient to meet current requirements. A considerable portion of the total investment portfolio would be easily realisable if the need arose, but half of any disposals of UK listed investments would be applied to reduce the overdraft facility. Also, there is a risk that if platforms are unable to raise third party funds this would restrict their development. This is mitigated by Group support for attracting third party funds.
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 prospect of cases financed by the funds.
Legal and regulatory risks
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 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 to no more than £1m and insurance against costs awarded to the other side if the case is lost. With the asset management model the direct risk for the Company is primarily in relation to its remaining seed investments in legal cases of £759k at 30 September 2012. Indirectly, however, poor outcomes would likely restrict third part fund raising and therefore the development of the business.
Competition
The Company may become subject to increased competition in sourcing and making investments. This could lead to the Company finding it difficult to raise funds and find attractive investment opportunities. The mitigation is to remain focussed in niche and complex areas where the barriers to entry are higher. Our ability to demonstrate superior returns from investing in the platforms is our best mitigation.
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. This risk is mitigated by the gradual unwinding of the investment portfolio. The Group holds a limited amount of overseas currencies in bank accounts.
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 2012 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 2012 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 Services Authority.
BDO LLP
Chartered Accountants and Registered Auditors, London, United Kingdom
19 November 2012
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).