Last checked at 13 Sep 2010 07:00
13 September 2010
CITY OF LONDON INVESTMENT GROUP PLC
("City of London", "the Group", or "the Company")
FINAL RESULTS FOR THE YEAR TO 31st MAY 2010
Intention to Transfer from AIM to the Main Market
City of London Investment Group Plc (AIM: CLIG) is an established asset management group which has built its reputation, with an institutional client focus, by specialising in emerging market closed-end fund investment. In recent years the Group has, by way of diversification, successfully added natural resource and developed market strategies to its product range. City of London operates its business from offices in London, the US, Singapore and Dubai.
SUMMARY
·; Funds under management (FuM) at 31st May 2010 increased by 25% in US$ terms to US$4.38 billion (2009: US$3.50 billion) and by 39% in sterling terms to £3.01 billion (2009: £2.17 billion). The rise in the MSCI Emerging Markets Index (MXEF) was 20%.
·; FuM at 31st August 2010 were US$4.86 billion, a rise of 10% since the financial year end. The rise in the MXEF was 5%.
·; Profit before tax was up 93% to £10.4 million (2009: £5.4 million) with basic earnings per share up 77% to 28.5p (2009: 16.1p).
·; Recommended final dividend of 15p per share (2009: 10p), payable on 19th November 2010, subject to shareholder approval, to shareholders on the register on 29th October 2010, making a total for the year of 22p (2009: 15p), an increase of 47%.
·; Our focus on diversification continues successfully regarding the direct equity business, global developed closed end funds and the frontier emerging markets strategy.
·; Intention to list Ordinary shares on the main market of the London Stock Exchange following granting of shareholder approval on 14th July 2010.
"The Board believes that a transfer to the main market in London will widen the potential universe of investors in City of London, both institutional and private individuals. We also believe that a main market listing could enhance the Group's reputation and brand with the large and sophisticated institutional investors that account for the largest proportion of our current client base."
Andrew Davison, Chairman
"The past six months, running up to the most recent month end of 31st August, have been the most profitable period that we have experienced. Operating profit, measured before profit-share, share option charges and tax, has averaged close to £1.4 million per month."
Barry Olliff, Chief Executive Officer
This announcement and supporting presentation will be posted to the Company's web-site, www.citlon.co.uk. For further information, please contact:
| Doug Allison (Finance Director) | Simon Hudson / Andrew Dunn |
| City of London Investment Group PLC | Tavistock Communications |
| Tel: +44 (0) 20 7860 8347 | Tel: +44 (0)20 7920 3150 |
|
|
|
| Jeff Keating | Simon Bridges |
| Singer Capital Markets Ltd | Canaccord Genuity Limited |
| Nominated Adviser & Joint Broker | Joint Broker |
| Tel: +44 (0)20 3205 7500 | Tel: +44 (0)20 7050 6500 |
Chairman's Statement
Our financial year to 31st May 2010 saw a marked and sustained recovery in our principal markets from the lows recorded in the prior year following the end of the credit boom and the collapse of financial markets around the world. Measured by the MSCI Emerging Markets Index (MXEF), emerging markets increased by some 20% during the year under review as global investors increased their exposure to countries growing, and forecast to continue to grow, at rates considerably ahead of developed economies. City of London's funds under management (FuM) grew over the same period by 25% to a year-end total of US$4.38 billion, reflecting performance in line with the benchmark and the addition of net new money from clients as they increased their weighting in emerging markets.
Since the year end, the MXEF has continued to strengthen and at 31st August the index was 5% higher than at 31st May. FuM have also continued to increase, ending August at US$4.86 billion, a rise of 11% over the financial year-end figure.
Due to the weakness of sterling against the US dollar in particular (a topic covered in more detail in the Financial Review), the increase in FuM in sterling terms has been even stronger with a 39% rise to £3.01 billion being recorded in the year to 31st May 2010. FuM in sterling increased by a further 5% to £3.16 billion during the three months to 31st August 2010, less than the US dollar increase as sterling weakness continued to unwind.
Results
The substantial improvement in the Group's financial results principally reflects the sustained recovery in emerging markets during the period and the consequent increase in FuM, together with new monies received from existing clients and the award of new mandates.
Gross fee income for the year to 31st May 2010 (being the revenues derived from the Group's management charges on FuM) increased by 49% to £30.0 million (2009: £20.2 million). Profit before profit share, investment losses and tax was up 77% to £15.2 million (2009: £8.6 million), demonstrating once again the operational leverage inherent in the Group's business. Profit before tax increased by 93% to £10.4 million (2009: £5.4 million) and after a tax charge of £3.4 million, representing 33% of pre-tax profits (2009: £1.5 million or 28% of pre-tax profits), profit for the period was up by 82% to £7.0 million (2009: £3.8 million).
Basic earnings per share were up 77% to 28.5p (2009: 16.1p) and fully diluted earnings per share, reflecting dilutive options held by directors and employees, increased by 79% to 26.9p (2009: 15.0p). Cash and cash equivalents at the year-end were £4.8 million (2009: £4.7 million).
Dividends
The Group's dividend policy is essentially unchanged. We pay dividends to shareholders that are covered approximately 1.5 times by earnings per share, split one third: two thirds between the interim and final payments. Following the exceptional, and volatile market conditions experienced last year, the level of cover was temporarily reduced to reflect the Board's belief that these conditions were unlikely to be repeated. It is our intention to restore dividend cover to the long term level over the next two years.
The Board is recommending a final dividend for the year to 31st May 2010 of 15p per share (2009: 10p) to be paid on 19th November 2010 to shareholders on the register on 29th October 2010. Taken together with the interim dividend of 7p paid in March, this makes a total for the year of 22p (2009: 15p), an increase of 47%. This level of payout is covered 1.30 times by basic earnings per share compared to 1.07 times last year.
Transfer from AIM to the main market
I advised shareholders in my statement accompanying the half year results that we were revisiting our plans to migrate our share listing from AIM to the main market of the London Stock Exchange. We determined that these plans should be implemented this year and shareholders received a notice convening a meeting to approve the move together with a letter explaining the benefits to the Company and its owners. Approval was granted at the meeting (held in July) and the next step in the process will be the publication, and despatch to shareholders, of Listing Particulars ahead of the grant of listing and delisting from AIM. We currently expect this to take place around the end of October.
The Board believes that a main market listing in London will widen the potential universe of investors in City of London, both institutional and private individuals - who will be able, for instance, to hold our shares in an ISA. We also believe that a main market listing could enhance the Group's reputation and brand with the large and sophisticated institutional investors that account for the largest proportion of our current client base.
There are a limited number of current private shareholders who have expressly invested in the Company as an AIM stock in order to take advantage of UK Inheritance Tax benefits. Hopefully they will feel that they have received adequate notice of our intentions.
Operations
We have continued to develop and progress our strategy to diversify our client base, the type of funds we run and our geographical coverage. This strategy is long term in its execution and reflects the Group's core tenet of risk aversion. During the year under review our focus has been on the recruitment of experienced individuals who bring new skills to the Group and who are able to help us implement our plans to offer additional investment products to existing and potential clients. These new products include funds investing directly in equities, in frontier emerging markets and in global closed-end funds.
The process of internalising the Group's marketing functions is now almost complete. We are extending and strengthening our contacts and relationships with the consultant community worldwide that forms our principal source of new business. We are optimistic that the dedicated marketing resources in place in the US, London and Singapore will not only generate high quality new business for us in due course but also ultimately improve net margins as payments to present external new business finders decrease. A more detailed review of the Group's operations and strategy is provided by our Chief Executive Officer, Barry Olliff, below.
Board Change
In August 2010, we announced the resignation of Omar Ashur as a non-executive director to devote more time to his business interests in Dubai. Omar had been a director of the Company since 2001 and has been a source of wise and commercially experienced advice for many years. On behalf of the Board, I wish him success and happiness in the future.
Outlook
Developed economies remain difficult to forecast as government finances continue to worsen prompting near universal cutbacks in public spending that may well reduce or extinguish the recovery in activity seen in the last 12 months. The outlook for emerging markets appears to be more hopeful with relatively high growth in GDP forecast, at least compared to the developed economies. If this translates into increased weightings towards emerging markets and if we maintain our investment performance, then the current financial year should see further growth in revenues for the Group. Increased revenues, given our low cost base and loyal and experienced staff, should result in increased profitability.
I will update shareholders on progress in this financial year at the time of the AGM.
Andrew Davison
Chairman
9th September 2010
Chief Executive Officer's Review
Significantly less emotional behaviour this year
For us this was a boring year. Our index hardly moved! Whereas in 2008/9, moves of the order of magnitude of over 20% in MXEF were common (there were at least six), in 2009/10 there was one!
Our business was very stable as well. Clients seem to be happy and the asset class seems to be well supported at around current levels. Looking out a few years, at least at present, the Emerging asset class seems likely to be one of the few listed asset classes of choice potentially for many years to come.
Credit Default Swap (CDS) Spreads are now higher for Developed than Emerging countries. This has to be one of the most remarkable turnarounds in terms of reversal of roles within our industry over the past twenty years. The interesting thing is that where the CDS relationship went over the past year, P/E's could easily follow next. Imagine that - paying a higher P/E for exposure to a basket of Emerging countries (say Brazil, China, Korea and Taiwan) than for a Developed basket (say US, UK, Germany and France). We are not only fortunate to be exposed to this asset class at this point in its development but it is worth pointing out that the Developed world is now suffering from many of the same problems that the Emerging countries had to deal with a few years ago. Many of our shareholders will recall the advice given out at that time by the US: confront the problem, reduce deficits, eliminate excess capacity and pay down or renegotiate leverage. Now that the boot is on the other foot it seems likely that, as a result of this advice being too painful to heed, the adjustment process will be extended.
Diversification
We have continued to develop our diversification plans over the past year.
Current areas of focus include Natural Resources and the Developed CEF (Closed-End Fund) Products. Both have performed well from an investment perspective and there seems to be significant appetite for our Developed CEF expertise which effectively does what we presently undertake within the Emerging space. Since winning our first mandate in September 2009 this account has outperformed its benchmark by around 300bps. Obviously shareholders are not interested in the investment performance of a specific fund but this performance has afforded us the opportunity to significantly short-circuit the normal time required to create a relevant record. We will start marketing this product in November and I'll provide more information regarding progress in the Interim Statement. In all cases, the different businesses that we are attempting to develop are part of our diversification plans. Apart from the Developed CEF Fund and Natural Resources we are expecting these products to take around two to three years to build adequate track records. Each of these areas of business is being developed on a stand-alone basis with separate staffing and the creation of a team environment from their beginning.
North Bridge Capital
As referenced in earlier CEO's statements, and apart from one consultant where there was a one year extension, as of 13th October 2009 the agreement that we had with North Bridge Capital with regard to marketing came to an end. As of 13th October 2010 we will be responsible for all of our US Marketing, having internalised this process. Todd Fawaz, who is in charge of our US Marketing effort, having now been with the firm for two years, has effectively started again regarding our attempts at diversification. One of the issues that we have had to confront is that while we consider that there is a significant need to diversify our business for reasons I'll go into later, North Bridge in retrospect seem to have been keener to focus on our old business, that of Emerging Markets CEF's. This effectively has meant that while we had assumed that the relevant profile building was proceeding, it would now appear that it was not. The bottom line is that in our experience third party marketing works very well when small and having a single product to sell. It does not work, or at least is unlikely to work, when there is an established wish to grow and market a number of products. Obviously from our perspective it is not until a contract of this type comes to an end that it is possible to take a new direction.
Regarding our need to diversify our business, in my opinion there are three main reasons for this:
1. Staff. In my opinion employees thrive in a growing business. In fact I would suggest that it's difficult to keep good employees if you do not intend to grow a business. Staff have needs, they are ambitious and they have a need for security. If they consider that they are in a dead end job they will move on to another business where there are plans for growth.
2. Clients. For similar reasons clients should expect continuity of staffing. Changing staff leads to risk. For example the Investment Process would potentially alter in the event that investment staff were to change. In my opinion, while it used to be argued that diversification was a risk, I would suggest that recent experience amongst our peer group would imply that zero plans for growth leads to staff departures which leads to insecurity in terms of investment performance.
3. Competitive Pressure.In my opinion there is going to be ongoing pressure on margins, salaries and the costs associated with the general infrastructure of doing business. Not surprisingly the regulatory responsibilities of doing business are increasing too. In my opinion there is a need to ensure that these costs are spread over increased assets, otherwise there is the potential appearance of reduced profitability.
Thus while I would not accept that we are on a treadmill, there is a very real need to grow our business via diversification and at the core of delivering in that regard is our decision to internalise marketing.
I have produced below the projected run off payments to North Bridge Capital over the next ten years, this being the extent of their participation. These figures are based upon two key assumptions: first that the clients remain and second a constant index level. Obviously there are additional variables as well including investment performance and currency rates, but in terms of the big picture as these ten year trails run out so we start to receive those fees that otherwise would be paid to North Bridge Capital. In all cases this relates to an increase of 20% in our fees received.
North Bridge Capital commission run-off
(based on end July 2010 funds under management)
| Financial year | £m (at $1.55/£1) |
| 2010-11 | 5.2 |
| 2011-12 | 5.2 |
| 2012-13 | 5.2 |
| 2013-14 | 5.0 |
| 2014-15 | 4.4 |
| 2015-16 | 3.3 |
| 2016-17 | 2.7 |
| 2017-18 | 2.2 |
| 2018-19 | 1.2 |
| 2019-20 | 0.4 |
| 2020-21 | - |
Migration to main market listing
There are many additional responsibilities that we assume as a result of moving from AIM to the main market. These not only include a number of existing differences that are well established, but in addition from 1st June 2011 we will have to meet the requirements of the new Corporate Governance Code.
Rather than attempt to achieve all of the relevant changes this year (within this Annual Report and Accounts) we will complete most of the other requirements next year, leaving a few of our responsibilities for the year after. The main difference in this set of accounts is the new Corporate Governance Report, which I'm sure will be expanded over time. Within this context, I would like to draw particular attention to our Remuneration Policy, as it is very different in many respects from recently released guidelines, and I think it is important for shareholders to understand why we believe that our way is better, at any rate for us. What follows is some background plus some core values:
From my experience of the City, when I consider remuneration and remuneration packages, I'm taken in the direction of instability, greed and selfishness. I'm also taken away from the creation and the maintenance of a brand.
Picking up on these three points:
Instability, because the existing system seems to be broken. Turnover of staff around the City implies that employees do not get job satisfaction and / or that existing remuneration packages do not create loyalty.
Greed, the City is made up of many selfish people who are encouraged by management, and management's approach to remuneration, to develop egotistical tendencies. This culture of greed, in my opinion, manifests itself often via a lack of risk awareness, poor team spirit and significant key man risk.
Selfishness creates an attitude of negotiation at the point of salary, bonus and option notification. At City of London we do not negotiate any aspect of remuneration. Selfishness can also be observed when analysing the extent to which colleagues train the rest of their team. Again our senior employees are encouraged to take responsibility for the training of their team.
If we are genuine in wishing to create a team culture then there is a need to treat employees as a team. This in effect means that we do not pit them one against another. Rather we attempt to instil in them that the competition is outside the firm, which actually is where it is.
The net result of the above is that there is little intrigue at the point of salary and general compensation disclosures. Staff accept that the way it is, is the way it is. If they do not like it they can leave which sometimes happens within a year of joining.
I would make the point that directors' remuneration is disclosed via the Report and Accounts.
In essence, we are not looking for freedom fighters. Rather we would say it is better to appoint decent people, who can genuinely work in a team environment, than appoint just no1's. We often say, better to appoint a good no2 who is a decent person than a no1 who is greedy, political and does not consider the maintenance and development of the brand.
The net result of the above is that the Group salary, bonus, and option pool to a great extent reflects seniority and loyalty.
From time to time, usually quarterly, we review these three but sometimes two components. Our recommendations are forwarded to the Remuneration Committee which requests substantiation for recommendations that involve salary levels in excess of £100,000. Most quarters we will make a change or two to reflect changes to our perception of seniority and loyalty, but I would emphasise that these are gradualist alterations and are relatively rare.
In conclusion, and as referenced earlier, I would suggest that remuneration packages and the system via which they are arrived at in the City is broken. Our system however is not broken.
Our approach has been developed by management using many years of experience in the UK and the US. Like our Risk Controls, our Bonus Formula and our Dividend and Bonus relationship, I hope that elements of what we undertake might one day be considered best practice.
Recent recommendations regarding best practice as it relates to Remuneration include deferred bonus. Is this really the way to go? Why not pay someone on time for their work. Or, is this meant to delay their departure, a sort of enforced loyalty? Or is it that there is insecurity regarding the profits that the individual has created? If this is so then surely the focus should be on the quantum, measurement and the quality of the corporation's earnings. Either way I would suggest that deferral of remuneration is irrelevant in our case. We are running a cash business where clients pay us for work undertaken calculated on a monthly basis.
The other structural weakness that I would suggest needs to be confronted in the City is the cult of the individual. This seems to me to embody the very volatility of earnings and the extreme risk taking that was displayed by parts of our industry over the past few years. Unfortunately the passage of time does not seem to have altered what seems to have become considered best practice.
Staffing and outlook
Over the past year we have taken on around a dozen additional staff. Staff have been added primarily in the areas of Compliance, Fund Management, Fund Accounting and Performance and Attribution. In most cases this has been to accommodate further growth.
As a small boutique with a number of conservative Core Values, as we grow it would be very easy to not only compromise but in some cases forget those Values. We remain committed to our brand. We are a small specialist fund manager positioned at the Performance end of our industry. We are not seeking to grow fast, we do not want hot money and we are as a result not only committed to but are able to maintain our margins. To preserve a culture you have to recruit and keep the right people, and that applies at every level because if you get recruitment right at the junior level you build for the future. We remain committed to our team approach and more specifically, not employing greedy, selfish people. The employees at City of London have remained very loyal over a significant period of time and at the end of another testing year have much to be proud of. On behalf of the shareholders I would like to say that we would like more of the same over the next few years. Suffice it to say, the new financial year has started very well and I would hope that we will have further progress to report in a few months time.
The past six months, running up to the most recent month end of 31st August, have been the most profitable period that we have experienced. Operating profit, measured before profit-share, share option charges and tax, has averaged close to £1.4 million per month.
I would like to reiterate my intentions regarding any sale of shares which remain unchanged, that is to say that I would intend, subject to close periods and other regulatory requirements to sell 375,000 shares at 310p, 500,000 at 350p and 500,000 at 400p. Should these intentions alter, perhaps as a result of a material change in market conditions, I will inform the Board and an appropriate announcement will be released.
Barry Olliff
Chief Executive Officer
9th September 2010
Financial Review
Consolidated income statement
The financial year started with funds under management (FuM) of US$3.5 billion, and the market recovery which had started in early 2009 continued pretty much uninterrupted through to the end of November, our half year end, at which point FuM had reached US$4.9 billion (including of course the effect of net new money over the period). Thereafter, FuM moved within the range US$4.4 billion to US$4.9 billion for the remainder of the year, finishing in May at the lower end of that range. Sterling continued to weaken against the US dollar as the year progressed, maintaining a trend that had started back in January 2008. The average rate for the year was around 1.59, compared to around 1.63 for 2008-9 (both figures representing a straight average of twelve month-end rates), with the effect that, in sterling terms, FuM rose almost as a straight line from February 2009 to May 2010. With margins unchanged from the previous year, this combination delivered gross fee income of £30.0 million as against last year's £20.2 million, an increase of 49%.
The weighted average net fee margin (net of finder's commission and of custody and administration fees as applicable) across all of the client accounts was stable at around 85 basis points throughout the year, a small reduction from the 87 basis points average for the previous year. This was due not to any form of fee erosion but rather to the relative weightings of segregated accounts versus commingled funds within the overall portfolio, the former tending to attract slightly lower fees in recognition of the size of the investments.
There is very little to say about investment income this year, with realised losses of £0.1m from the liquidation of one seed investment being offset by a recovery of similar size against the impairment previously recognised against another one, leading to a net zero in rounded terms (2009: £0.4 million loss). Interest income rounds up to £0.1 million, having last year rounded down to that figure.
Administrative expenses of £19.7 million (2009: £14.5 million) includes the commissions that we pay against our fee income, as noted above, which this year totalled £4.8 million (2009: £3.0 million), and it includes the 30% of operating profit that forms the profit-share pool, at £4.9 million including payroll taxes (2009: £2.8 million). Stripping out these, plus custody and administration charges of £1.1 million (2009: £0.9 million), leaves core overhead of £8.9 million (2009:£7.8 million), representing a cost-income ratio of 37% (arrived at by comparing core overhead to net fee income), a marked improvement against the previous year's figure of 48%, which had of course been inflated by the extreme market conditions of September 2008 to March 2009. Human resource costs continued to form some 56% of overheads, a percentage unchanged from 2009 despite a marginal increase in headcount from 58 to 64, the latter attributable in part to supporting new products and in part to the strengthening of the firm's Singapore and Dubai offices.
Pre-tax profit of £10.4 million compares to £5.4 million for the previous year, the increase of 93% effectively restoring profitability to the pre September 2008 level. Tax accounts for nearly 33% of profit, significantly higher than the 29% level in 2008-9 as a result of an increased level of investment activity in the United States, where federal and state taxes combined can exceed 40%. Profit after tax of £7.0 million is up 82% from the previous year's £3.8 million.
Consolidated statement of financial position and statement of changes in equity
Net assets rose during the year from £8.7 million to £10.6 million, with the main components offsetting the profit for the period being the payment of dividends and the repurchase by the company of a number of its own shares.
The final dividend for 2008/9 was 10p per share (2007/8: 13.5p), and the interim for 2009/10 was 7p per share (2008/9: 5p). In cash terms these dividends amounted to £2.5 million and £1.7 million respectively (2008/9: £3.2 million and £1.2 million respectively), making a total paid in the year of £4.2 million (2009: £4.4 million).
Opportunities arose during the year to apply some of the cash which was considered surplus to the Company's needs to the buyback of shares. The following repurchases were undertaken:
| November 2009 | 143,350 shares at £2.95 |
| November 2009 | 100,000 shares at £3.0175 |
| April 2010 | 439,000 shares at £2.65 |
The first two purchases were undertaken by the Company's ESOP, whereas the shares purchased in April were bought by the Company itself and were cancelled, thereby enhancing earnings per share for the remaining shareholders. In total, including transaction costs, the cash outlay on shares was £1.9 million, of which £0.7 million was in the form of an increase in the loan from the Company to the ESOP.
With respect to share options, the exercise by directors and employees of 426,200 dilutive options and 271,842 ESOP held options during the course of the year generated £0.4 million (2009: £0.3 million), and left at the end of the year 1,446,447 dilutive options and 1,427,533 ESOP options outstanding (2009: 1,872,647 and 1,262,375 respectively).
The increase in net assets was applied, in the main, to the diversification of the business, by setting aside a further £2.8 million (net) as seed funding for new products. Three new funds were created, two as US Delaware Statutory Trusts and one as a new sub fund under the Dublin Open End Investment Company umbrella structure. As at 31st May these new funds, plus the pre-existing Natural Resources sub fund in Dublin, represented a total investment of £3.6 million (2009: £0.4 million), with the balance of the increase over the year representing an uplift in market value of £0.4 million, which is reflected in the increase in the revaluation reserve.
Cash was virtually unchanged year on year at £4.8 million (2009: £4.7 million), and similarly the deferred tax asset of £1.5 million and share option reserve of £1.7 million were only marginally different from the prior year's figures of £1.6 million and £1.8 million respectively, despite the increase in the Company's share price from £2.285 to £2.81 over the year.
Currency exposure
The Company's approach to currency exposure is unchanged from previous years but it is worth revisiting the parameters each year and so I make no apologies for doing so again.
At first glance, the starting point would appear to be that as the Group's income is earned almost exclusively in US$, based as it is upon a percentage of FuM which is itself US$ denominated (with minor exceptions), there is a significant exposure to the value of the US$. In truth though, it is worth going back one stage, to see that the level of FuM in US$ terms is itself a function of the predominantly emerging market currencies that underlie the investments of our managed funds and client accounts. Accordingly, as the US$ strengthens against these currencies the level of FuM will tend to fall, and of course conversely as the US$ weakens FuM in US$ terms will rise.
The significance from an earnings perspective is that, at a given level of FuM in US$ terms, the fee income generated in reported sterling terms will rise and fall as the US$ strengthens and weakens respectively. The net effect of this is that in very general terms a weak US$ will provide uplift to FuM but the effect on fee income will be offset or perhaps nullified by the translation to sterling. To put this another way, it is in reality the relationship of sterling to the underlying investment currencies that influences the reported earnings, with the US$ being principally a conduit for the transaction. As emerging currencies strengthen relative to sterling, reported earnings will tend to rise, and of course the reverse is true.
Despite this, given that FuM is denominated and presented in US$, it is still relevant to consider the table below, which is included in this statement every year, as a guide to how the fluctuation of the US$/£ rate potentially impacts earnings at any given level of FuM:
| Post-Tax Profit: illustration of US$/£ rate effect: | ||||
|
| FuM - US$bn | |||
|
| 4.0 | 4.5 | 5.0 | 5.5 |
| US$/£ | Post-Tax, £m: | |||
| 1.45 | 6.2 | 7.6 | 9.0 | 10.4 |
| 1.50 | 6.0 | 7.3 | 8.6 | 9.9 |
| 1.55 | 5.7 | 7.0 | 8.3 | 9.6 |
| 1.60 | 5.5 | 6.7 | 7.9 | 9.2 |
| 1.65 | 5.2 | 6.4 | 7.6 | 8.8 |
Assumes:
1. Average net fee 85 bp's
2. Annual operating costs £4.5m plus US$8.2m
3. Profit-share 30%
4. Average tax of 33%
The table shows annualised profit figures given the assumptions/conditions described, which approximate very closely to the Company's operating environment. To take an example, at FuM of US$5.0 billion and an exchange rate of 1.50 the annualised profit would be expected to be around £8.6 million, whereas at an exchange rate of 1.40 the expectation would increase to around £9.4 million.
As a separate point on currency exposure, the Company maintains a programme of forward sales of US$ with a view to eliminating or minimising the Group's balance sheet exposure to exchange rate risk, and at 31st May these forward sales amounted to a total of US$6.5 million at an average rate of 1.5973 (2009: US$3.6 million at an average of 1.7694).
Doug Allison
Finance Director
9th September 2010
Consolidated income statement
For the year ended 31st May 2010
|
|
| Total | Total |
|
|
| 2010 | 2009 |
|
| Note | £ | £ |
| Revenue | 1,2 | 29,969,539 | 20,151,149 |
| Administrative expenses |
|
|
|
| Staff costs |
| 9,378,107 | 6,716,230 |
| Commissions payable |
| 4,768,780 | 3,036,462 |
| Other administrative expenses |
| 5,184,733 | 4,426,140 |
| Depreciation and amortisation |
| 348,196 | 288,918 |
|
|
| (19,679,816) | (14,467,750) |
| Operating profit | 4 | 10,289,723 | 5,683,399 |
| Interest receivable and similar income | 5 | (70,066) | (60,177) |
| Impairment of seed investments | 6 | 159,418 | (238,790) |
| Profit before taxation |
| 10,379,075 | 5,384,432 |
| Income tax expense | 7 | (3,396,293) | (1,537,649) |
| Profit for the period |
| 6,982,782 | 3,846,783 |
| Basic earnings per share | 8 | 28.5p | 16.1p |
| Diluted earnings per share | 8 | 26.9p | 15.0p |
Consolidated statement of comprehensive income
For the year ended 31st May 2010
|
| 2010 | 2009 |
|
| £ | £ |
| Fair value gains/(losses) on available-for-sale investments * | 266,790 | (446,414) |
| Release of fair value gains/(losses) on disposal of available-for-sale investments* | - | (672) |
| Other comprehensive income | 266,790 | (447,086) |
| Profit for the period | 6,982,782 | 3,846,783 |
| Total comprehensive income for the period attributable to equity holders of the company | 7,249,572 | 3,399,697 |
* Net of deferred tax
Consolidated statement of financial position
31st May 2010
|
|
| 2010 | 2009 |
|
| Note | £ | £ |
| Non-current assets |
|
|
|
| Property and equipment |
| 687,657 | 801,554 |
| Intangible assets |
| 409,144 | - |
| Other financial assets |
| 76,679 | 57,535 |
| Deferred tax asset |
| 1,503,498 | 1,605,855 |
|
|
| 2,676,978 | 2,464,944 |
| Current assets |
|
|
|
| Trade and other receivables |
| 4,365,999 | 2,868,398 |
| Current tax receivable |
| - | 608,965 |
| Available-for-sale financial assets |
| 3,595,873 | 431,365 |
| Cash and cash equivalents |
| 4,774,473 | 4,718,766 |
|
|
| 12,736,345 | 8,627,494 |
| Current liabilities |
|
|
|
| Trade and other payables |
| (3,887,781) | (2,349,334) |
| Current tax payable |
| (811,983) | - |
| Creditors, amounts falling due within one year |
| (4,699,764) | (2,349,334) |
| Net current assets |
| 8,036,581 | 6,278,160 |
| Total assets less current liabilities |
| 10,713,559 | 8,743,104 |
| Non-current liabilities |
|
|
|
| Deferred tax liability |
| (105,203) | (1,424) |
| Net assets |
| 10,608,356 | 8,741,680 |
|
|
|
|
|
| Capital and reserves |
|
|
|
| Called up share capital | 9 | 259,688 | 259,816 |
| Share premium account |
| 1,640,667 | 1,518,441 |
| Investment in own shares | 10 | (3,071,259) | (2,633,932) |
| Revaluation reserve |
| 270,451 | 3,661 |
| Share option reserve |
| 1,721,492 | 1,767,730 |
| Capital redemption reserve |
| 18,562 | 14,172 |
| Retained earnings |
| 9,768,755 | 7,811,792 |
| Total equity |
| 10,608,356 | 8,741,680 |
Consolidated statement of changes in equity
31st May 2010
|
| Share capital | Share premium account | Investment in own shares | Revaluation reserve | Share option reserve | Capital redemption reserve | Retained earnings | Total attributable to shareholders |
|
| £ | £ | £ | £ | £ | £ | £ | £ |
| At 1st June 2008 | 253,605 | 1,357,283 | (2,811,878) | 450,747 | 3,468,673 | 14,172 | 7,038,774 | 9,771,376 |
| Total comprehensive income | - | - | - | (447,086) | - | - | 3,846,783 | 3,399,697 |
| Share option exercise | 6,211 | 161,158 | 177,946 | - | - | - | - | 345,315 |
| Share-based payment | - | - | - | - | 7,113 | - | 81,136 | 88,249 |
| Deferred tax | - | - | - | - | (1,708,056) | - | (7,663) | (1,715,719) |
| Current tax on share options | - | - | - | - | - | - | 1,270,841 | 1,270,841 |
| Dividends paid | - | - | - | - | - | - | (4,418,079) | (4,418,079) |
| At 1st June 2009 | 259,816 | 1,518,441 | (2,633,932) | 3,661 | 1,767,730 | 14,172 | 7,811,792 | 8,741,680 |
| Total comprehensive income | - | - | - | 266,790 | - | - | 6,982,782 | 7,249,572 |
| Share option exercise | 4,262 | 122,226 | 293,512 | - | - | - | - | 420,000 |
| Share cancellation | (4,390) | - | - | - | - | 4,390 | (1,165,678) | (1,165,678) |
| Purchase of own shares | - | - | (730,839) | - | - | - | - | (730,839) |
| Share-based payment | - | - | - | - | 11,943 | - | 72,962 | 84,905 |
| Deferred tax | - | - | - | - | (58,181) | - | (31,099) | (89,280) |
| Current tax on share options | - | - | - | - | - | - | 280,688 | 280,688 |
| Dividends paid | - | - | - | - | - | - | (4,182,692) | (4,182,692) |
| At 31st May 2010 | 259,688 | 1,640,667 | (3,071,259) | 270,451 | 1,721,492 | 18,562 | 9,768,755 | 10,608,356 |
Consolidated cash flow statement
For the year ended 31st May 2010
|
|
| 2010 | 2009 |
|
| Note | £ | £ |
| Cash flow from operating activities |
|
|
|
| Operating profit |
| 10,289,723 | 5,683,399 |
| Adjustments for: |
|
|
|
| Depreciation charges |
| 302,735 | 288,918 |
| Amortisation of intangible assets |
| 45,461 | - |
| Share based payment charge |
| 84,905 | 88,249 |
| Translation adjustments |
| (293,254) | (462,181) |
| (Profit)/loss on disposal of fixed assets |
| (342) | 5,418 |
| Cash generated/(used) in operations before changes in working capital |
| 10,429,228 | 5,603,803 |
| (Increase)/decrease in trade and other receivables |
| (1,497,601) | 704,816 |
| Increase/(decrease) in trade and other payables |
| 1,538,447 | (719,487) |
| Cash generated from operations |
| 10,470,074 | 5,589,132 |
| Interest received |
| 66,579 | 145,604 |
| Interest paid |
| - | - |
| Taxation (paid)/received |
| (1,681,580) | (2,476,595) |
| Net cash generated from operating activities |
| 8,855,073 | 3,258,141 |
|
|
|
|
|
| Cash flow from investing activities |
|
|
|
| Purchase of property and equipment |
| (189,408) | (799,943) |
| Proceeds from sale of property and equipment |
| 911 | 793 |
| Purchase of intangible assets |
| (454,605) | - |
| Purchase of non-current financial assets |
| (10,318) | (663) |
| Proceeds from sale of non-current financial assets |
| - | 663 |
| Purchase of current financial assets |
| (3,146,241) | - |
| Proceeds from sale of current financial assets |
| 379,853 | 744,207 |
| Net cash (used) in investing activities |
| (3,419,808) | (54,943) |
|
|
|
|
|
| Cash flow from financing activities |
|
|
|
| Proceeds from issue of ordinary shares |
| 126,488 | 167,369 |
| Ordinary dividends paid | 11 | (4,182,692) | (4,418,079) |
| Purchase and cancellation of own shares |
| (1,165,678) | - |
| Purchase of own shares by employee share option trust |
| (730,838) | - |
| Proceeds from sale of own shares by employee share option trust |
| 293,511 | 177,946 |
| Net cash (used) in financing activities |
| (5,659,209) | (4,072,764) |
|
|
|
|
|
| Net (decrease) in cash and cash equivalents |
| (223,944) | (869,566) |
| Cash and cash equivalents at start of period |
| 4,718,766 | 5,498,910 |
| Effect of exchange rate changes |
| 279,651 | 89,422 |
| Cash and cash equivalents at end of period |
| 4,774,473 | 4,718,766 |
Notes
For the year ended 31st May 2010
The contents of this preliminary announcement have been extracted from the Company's Annual Report, which is currently in print and will be distributed within the next two weeks. The information shown for the years ended 31st May 2010 and 31st May 2009 does not constitute statutory accounts and has been extracted from the full accounts for the years ended 31st May 2010 and 31st May 2009. The reports of the auditors on those accounts were unqualified and did not contain adverse statements under sections 498(2) or (3) of the Companies Act 2006. The accounts for the year ended 31st May 2009 have been filed with the Registrar of Companies. The accounts for the year ended 31st May 2010 will be delivered to the Registrar of Companies in due course.
1. Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
(a) New IFRS Standards and Interpretations
The Group adopted the following during the year:
IAS 1 (revised 2007) "Presentation of financial statements". The amendments make certain changes to the format and titles of the primary financial statements and to the presentation of some items within these statements. Some items that were recognised directly in equity are now recognised in other comprehensive income. IAS 1 affects the presentation of owner changes in equity and introduces a "Statement of comprehensive income".
IFRS 7 "Improving Disclosures about Financial Instruments". The amendments to IFRS 7 expand the disclosures required in respect of the fair value measurements of financial instruments recognised in the statement of financial position. The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs offered in these amendments.
IFRS 8 "Operating Segments". The adoption of IFRS 8 requires the disclosure of segment reporting as reviewed by management. The Group is managed as a single business unit, namely asset management, and therefore only has a single reportable segment.
There is also a requirement for an entity-wide disclosure of revenues from external customers and certain non-current assets attributable to the Group's country of domicile and foreign countries. The Group allocates revenue based on the domicile of its clients and non-current assets based on where the assets are held. Any individual client generating revenue of 10% or more would be disclosed separately, as would assets in a foreign country if they are material.
Under IFRS 8 the only change for the Group is a more detailed analysis of the countries to which revenue is attributed. Previously just three geographical locations were reported; Europe, North America and Other.
Comparative segmental information has been restated accordingly.
At the date of authorisation of these financial statements, the following Standards and Interpretations, which are relevant to the Group, were in issue but not yet effective:
| IAS 1 (revised) | Presentation of financial statements - Minor changes to reporting of other comprehensive income effective for annual periods beginning on or after 1st January 2011. IAS 1 will also be amended by the changes noted below in IFRS 9. |
| IFRS 7 | Financial instruments: disclosures - Amendments effective for annual periods beginning on or after 1st January 2011 relating to clarification of qualitative and quantitative disclosures and removal of references to materiality in relation to risk. In addition, IFRS 7 will also be amended by the changes noted below in IFRS 9. In particular, the disclosures by category of financial asset will be altered to reflect the new categorisation. |
| IFRS 9 | Financial instruments - Effective for annual periods beginning on or after 1st January 2013. This is the first part of a new standard on classification and measurement of financial assets that will replace IAS 39. IFRS 9 replaces the four categories of financial assets with two; those carried at amortised cost and those at fair value. The group will need to consider how it wishes to reclassify its financial assets, in particular those currently classified as available-for-sale. The group's approach will determine the impact of the new standard on the financial instruments. |
There are a number of other Standards and Interpretations, and revisions to existing Standards and Interpretations, including the 2008 improvements project, in issue but not in force at 31st May 2010. These are not considered likely to have a material impact on the Group's financial statements.
(b) Basis of consolidation and preparation
These financial statements consolidate the financial statements of the Company and all of its subsidiary undertakings. The Company's principal subsidiaries are City of London Investment Management Company Limited and City of London US Services Limited, all other subsidiaries being dormant at 31st May 2010.
The Company is domiciled in the UK and its shares are issued in sterling. The functional currency of the business is however US Dollars. Management have decided that the presentational currency of the financial statements should be sterling rather than the functional currency due to the Company being a UK registered entity.
The consolidated financial statements are prepared on the historical cost basis except for the revaluation of certain financial instruments as outlined in point (c) (iii) below.
The preparation of these financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Whilst estimates are based on management's best knowledge and judgement using information and financial data available to them, the actual outcome may differ from those estimates.
The most significant areas of the financial statements that are subject to the use of estimates and assumptions are noted below:
Income taxes
The Group is subject to income taxes in different jurisdictions. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Share-based payments
In order to calculate the charge for share-based compensation as required by IFRS 2, the Group makes estimates principally relating to the assumptions used in its option pricing model.
Intangible assets
The useful economic life of intangible assets, such as computer software, is determined on acquisition using value in use calculations based on management's assumptions and estimates of future cash flows as well as other cost/benefit factors.
The principal accounting policies adopted are set out below and have, unless otherwise stated, been applied consistently to all periods presented in these accounts. In addition, where presentational changes are made in the current year, the prior year figures are also updated to present a true comparative.
(c) Significant accounting policies
(i) Property and equipment
For all property and equipment depreciation is calculated to write off their cost to their estimated residual values by equal annual instalments over the period of their estimated useful lives, which are considered to be:
Short leasehold property improvements - over the remaining life of the lease
Furniture and equipment - four years
Computer and telephone equipment - four years
(ii) Intangible assets
Intangible assets acquired separately are capitalised at cost and amortised on a straight line basis. Amortisation charges are spread over the useful life of the asset as follows:
Long term software licences - ten years
This represents a perpetual licence for the Group's fund accounting system which is being brought in-house. The directors consider ten years as a reasonable estimate of useful life given the improved control and flexibility to manage and develop the software in-house.
(iii) Financial instruments
Under IAS 39, "Financial Instruments: Recognition and Measurement", financial assets must be classified as either:
• Loans and receivables
• Held-to-maturity investments
• Available-for-sale financial assets
• At fair value through profit or loss
Financial liabilities must be classified at fair value through profit or loss or at amortised cost.
The Group's investments in the funds that it manages are designated as available-for-sale financial assets. Such investments are initially recognised at fair value, being the consideration given together with any acquisition costs associated with the investment. They are subsequently carried at fair value, with any gains or losses arising from changes in fair value included as part of other comprehensive income. Fair value is determined using the price based on the net asset value of the fund. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred all risks and rewards of ownership. When derecognition occurs a realised profit or loss is recognised in the income statement, calculated as the difference between the net sales proceeds and the original cost of the financial asset. Any fair value gains or losses previously recognised as part of other comprehensive income are recycled into the income statement as part of this calculation of the profit or loss arising on derecognition.
The Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of an investment classified as available-for-sale, a significant or prolonged decline in the fair value of the investment below its cost is considered as an indicator that the investment is impaired. If any such evidence exists for available-for-sale investments, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement - is removed from other comprehensive income and recognised in the income statement.
The Group's investments in derivatives are designated as financial assets or liabilities at fair value through profit or loss. Such investments are initially recognised at fair value, and are subsequently remeasured at fair value, with any movement recognised in the income statement. The fair value of the derivatives held by the Group is determined as follows:
• Options - priced using the quoted market bid price
• Forward currency trades - priced using prevailing exchange rates
The only exception is where the Group holds an investment in options on unquoted equity instruments. Such investments are designated as available-for-sale financial assets and are measured at cost less impairment on the grounds that the fair value cannot be reliably measured and the cost of the investment of $75,000 is not considered to be material.
The Group's investments have been classified here for recognition and measurement purposes under IAS39 but are not necessarily reported in the balance sheet under those headings. A table showing how they are reported is shown in Note 12.
(iv) Trade receivables
Trade receivables are measured at initial recognition at fair value, and are subsequently carried at the lower of original fair value and their recoverable amount. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired.
(v) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand, deposits with an original maturity of three months or less, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
(vi) Trade payables
Trade payables are measured at initial recognition at fair value and subsequently measured at amortised cost.
(vii) Deferred taxation
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. However, deferred tax is not accounted for if it arises from goodwill or the initial recognition (other than in a business combination) of other assets or liabilities in a transaction that affects neither the accounting nor the taxable profit or loss.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. The tax rates used are those that have been enacted, or substantially enacted, by the end of the reporting period. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly as part of other comprehensive income, in which case the deferred tax is also dealt with as part of other comprehensive income. For share-based payments, where the estimated future tax deduction exceeds the amount of the related cumulative remuneration expense, the excess deferred tax is recognised directly in equity.
(viii) Share-based payments
The Company operates an Employee Share Option Plan. The fair value of the employee services received in exchange for share options is recognised as an expense. The fair value has been calculated using the Binomial pricing model, and has then been expensed on a straight line basis over the vesting period, based on the Company's estimate of the number of shares that will actually vest.
In accordance with the transitional provisions of IFRS2, the above treatment has been applied only to grants of share options after 7th November 2002 that had not vested as at 1st June 2006.
(ix) Revenue
Revenue comprises investment management fees earned. Fees are based on a percentage of Funds under management and are recognised in revenue as the investment management services are provided, in accordance with the underlying agreements.
(x) Foreign currency translation
Foreign currency transactions are translated using the exchange rates prevailing at the transaction date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of period-end monetary assets and liabilities are recognised in the income statement.
The functional currency of the Group's main trading subsidiaries, City of London Investment Management Company Limited and City of London US Services Limited, is US dollars. The functional currency of City of London Investment Group Plc (the "Company") is sterling. The Group uses sterling as the presentation currency. Under IAS 21 this means that exchange differences caused from translating from the functional currency to presentational currency for the main trading subsidiaries would be recognised in equity. However, the Group operates a policy whereby the foreign exchange positions of the subsidiaries are sold to the Company and therefore it is the only entity with any exchange differences. As such any exchange differences arising in the Company are "real" in that the functional currency matches the presentational currency. This means that all such exchange differences are included in the income statement and no split is required between other comprehensive income and the income statement.
(xi) Leases
The cost of operating leases is charged to the income statement in equal periodic instalments over the periods of the leases.
(xii) Pensions
The Group operates defined contribution pension schemes covering the majority of its employees. The costs of the pension schemes are charged to the income statement as they are incurred.
2. Revenue
|
| 2010 | 2009 |
|
| £ | £ |
| Management fees earned by subsidiary companies charged as a percentage of funds under management | 29,969,539 | 20,151,149 |
3. Segmental analysis
The directors consider that the Group has only one reportable segment, namely asset management, and hence only analysis by geographical location is given.
|
| USA | Canada | Europe (ex-UK) | UK | Other | Total |
|
| £ | £ | £ |
| £ | £ |
| Year to 31st May 2010 |
|
|
|
|
|
|
| Revenue | 24,185,206 | 1,702,328 | 1,909,388 | 2,026,138 | 146,479 | 29,969,539 |
| Non-current assets: |
|
|
|
|
|
|
| Property and equipment | 328,191 | - | - | 239,529 | 119,937 | 687,657 |
| Intangible assets | 409,144 | - | - | - | - | 409,144 |
| Year to 31st May 2009 |
|
|
|
|
|
|
| Revenue | 16,008,991 | 1,337,978 | 1,464,309 | 900,300 | 439,571 | 20,151,149 |
| Non-current assets: |
|
|
|
|
|
|
| Property and equipment | 325,100 | - | - | 302,026 | 174,428 | 801,554 |
| Intangible assets | - | - | - | - | - | - |
The Group has classified revenue based on the domicile of its clients and non-current assets based on where the assets are held. Any individual client generating revenue of 10% or more would be disclosed separately, as would assets in a foreign country if they are material.
4. Operating profit
|
| 2010 | 2009 |
| The operating profit is arrived at after charging: | £ | £ |
| Depreciation of owned assets | 302,735 | 288,918 |
| Amortisation of intangible assets | 45,461 | - |
| Auditors' remuneration: |
|
|
| - Statutory audit | 44,227 | 45,271 |
| - Taxation services | 19,057 | 23,629 |
| - Other services | 14,097 | 23,852 |
| Operating lease rentals: |
|
|
| - Land and buildings | 373,955 | 363,746 |
| - Other | 12,187 | 16,914 |
| Operating sublease rentals: |
|
|
| - Land and buildings | - | 6,091 |
| Foreign exchange (gains)/losses | (177,664) | 94,256 |
| (Profit)/loss on disposal of fixed assets | (342) | 5,418 |
5. Interest receivable and similar income
|
| 2010 | 2009 |
|
| £ | £ |
| Interest on bank deposit | 66,579 | 145,604 |
| (Loss) on sale of investments | (136,645) | (214,981) |
| Fair value of investments | - | 9,200 |
|
| (70,066) | (60,177) |
6. Impairment of seed investments
Due to improved market conditions, the Group has written back £159,418 of the £238,790 impairment charge recognised in 2009 against the fair value of its seed investments in new funds in-line with IAS 39.
7. Tax charge on profit on ordinary activities
|
| 2010 | 2009 |
| (a) Analysis of tax charge on ordinary activities: | £ | £ |
| Tax at 28% (2009 - 28%) based on the profit for the year | 2,938,223 | 1,634,820 |
| Double taxation relief | (951,584) | (422,174) |
| Deferred tax | 13,077 | (113,251) |
| Adjustments in respect of prior years | 12,957 | (39,037) |
|
| 2,012,673 | 1,060,358 |
| Foreign tax for the current period | 1,422,908 | 610,544 |
| Adjustments in respect of prior years | (39,288) | (133,253) |
|
| 1,383,620 | 477,291 |
|
| 3,396,293 | 1,537,649 |
(b) Factors affecting tax charge for the current period:
The tax assessed for the period is different to that resulting from applying the standard rate of corporation tax in the UK - 28% (prior year - 28%). The differences are explained below:
|
| 2010 | 2009 |
|
| £ | £ |
| Profit on ordinary activities before tax | 10,379,075 | 5,384,432 |
| Tax at 28% (2008 - 28%) thereon | (2,906,141) | (1,507,641) |
| Effects of: |
|
|
| Expenses not deductible for tax purposes | (30,979) | (35,685) |
| Capital allowances less than depreciation | (63,911) | (15,706) |
| Unrelieved overseas tax | (471,324) | (188,370) |
| Impairment in seed investments not tax deductible | 44,637 | (66,861) |
| Deferred tax on share based-payments and impairment | (13,077) | 113,251 |
| Prior period adjustments | 26,331 | 172,290 |
| Other | 18,171 | (8,927) |
|
| (3,396,293) | (1,537,649) |
8. Earnings per share
The calculation of earnings per share is based on the profit for the period of £6,982,782 (2009 - £3,846,783) divided by the weighted average number of ordinary shares in issue for the year ended 31st May 2010 of 24,491,592 (2009 - 23,844,801).
The Employee Benefit Trust held 1,589,158 ordinary shares in the Company as at 31st May 2010. The Trustees of the Trust have waived all rights to dividends associated with these shares. In accordance with IAS 33 the ordinary shares held by the Employee Benefit Trust have been excluded from the calculation of the weighted average of ordinary shares in issue.
The calculation of diluted earnings per share is based on the profit for the year of £6,982,782 (2009 - £3,846,783) divided by the diluted weighted average of ordinary shares for the year ended 31st May 2010 of 25,953,758 (2009 - 25,587,418).
Reconciliation of the figures used in calculating basic and diluted earnings per share:
|
| 2010 | 2009 |
|
| Number of shares | Number of shares |
| Weighted average number of shares - basic earnings per share | 24,491,592 | 23,844,801 |
| Effect of dilutive potential shares - share options | 1,462,166 | 1,742,617 |
| Weighted average number of shares - diluted earnings per share | 25,953,758 | 25,587,418 |
9. Share capital
|
| 2010 | 2009 |
|
| £ | £ |
| Allotted, called up and fully paid |
|
|
| At start of year 25,981,603 (2009 - 25,360,500) Ordinary shares of 1p each | 259,816 | 253,605 |
| Dilutive share options exercised; 426,200 (2009 - 621,103) | 4,262 | 6,211 |
| Shares repurchased and cancelled; 439,000 (2009 - nil) | (4,390) | - |
| At end of year 25,968,803 (2009 - 25, 981,603) Ordinary shares of 1p each | 259,688 | 259,816 |
Fully paid ordinary shares carry one vote per share and carry a right to dividends.
10. Investment in own shares
Investment in own shares relates to City of London Investment Group Plc shares held by an Employee Benefit Trust on behalf of City of London Investment Group Plc.
At 31st May 2010 the Trust held 1,589,158 ordinary 1p shares (2009 - 1,617,650), of which 1,427,533 ordinary 1p shares (2009 - 1,262,375) were subject to options in issue.
11. Dividends
|
| 2010 | 2009 |
|
| £ | £ |
| Dividends paid: |
|
|
| Interim dividend of 7p per share (2009 - 5p) | 1,727,652 | 1,197,492 |
| Final dividend in respect of year ended: |
|
|
| 31st May 2009 of 10p per share (2008 - 13.5p) | 2,455,040 | 3,220,587 |
|
| 4,182,692 | 4,418,079 |
A final dividend of 15p per share has been proposed, payable on 19th November 2010, subject to shareholder approval, to shareholders who are on the register of members on 29th October 2010.
12. Financial instruments by category
The tables below show the Group's financial assets and liabilities as classified under IAS39:
| 31st May 2010 Assets as per statement of financial position | Loans and receivables £ | Assets at fair value through profit or loss £ | Available-for-sale £ | Total £ |
| Other financial assets | - | - | 76,679 | 76,679 |
| Trade and other receivables | 4,365,999 | - | - | 4,365,999 |
| Available-for-sale financial assets | - | - | 3,595,873 | 3,595,873 |
| Cash and cash equivalents | 4,774,473 | - | - | 4,774,473 |
| Total | 9,140,472 | - | 3,672,552 | 12,813,024 |
| Liabilities as per statement of financial position | Liabilities at fair value through profit or loss £ | Financial liabilities at amortised cost £ | Total £ |
| Trade and other payables | 401,660 | 3,486,121 | 3,887,781 |
| Total | 401,660 | 3,486,121 | 3,887,781 |
| 31st May 2009 Assets as per statement of financial position | Loans and receivables £ | Assets at fair value through profit or loss £ | Available-for-sale £ | Total £ |
| Other financial assets | - | - | 57,535 | 57,535 |
| Trade and other receivables | 2,868,398 | - | - | 2,868,398 |
| Available-for-sale financial assets | - | - | 431,365 | 431,365 |
| Cash and cash equivalents | 4,718,766 | - | - | 4,718,766 |
| Total | 7,587,164 | - | 488,900 | 8,076,064 |
| Liabilities as per statement of financial position | Liabilities at fair value through profit or loss £ | Financial liabilities at amortised cost £ | Total £ |
| Trade and other payables | 193,908 | 2,155,426 | 2,349,334 |
| Total | 193,908 | 2,155,426 | 2,349,334 |
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