City Lon Inv Regulatory News (CLIG)

13th September 2021

CITY OF LONDON INVESTMENT GROUP PLC (LSE: CLIG)

("City of London", "the Group" or "the Company")

FINAL RESULTS FOR THE YEAR TO 30TH JUNE 2021

The Company announces that it has today made available on its website, https://www.clig.com/, the following documents:

The above documents have been uploaded to the National Storage Mechanism, in accordance with Listing Rule 9.6.1 R, and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The 2021 Annual Report and the Notice of AGM, which will be held on 18th October 2021, will be posted to shareholders on 17th September 2021.

The Appendix to this announcement contains additional information which has been extracted from the 2021 Annual Report for the purposes of compliance with DTR 6.3.5 only and should be read in conjunction with this announcement. Together, these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This announcement should be read in conjunction with, and is not a substitute for reading, the full 2021 Annual Report.

SUMMARY

For access to the full report, please follow the link below:

 http://www.rns-pdf.londonstockexchange.com/rns/4835L_1-2021-9-12.pdf

This release includes forward-looking statements, which may differ from actual results. Any forward-looking statements are based on certain factors and assumptions, which may prove incorrect, and are subject to risks, uncertainties and assumptions relating to future events, the Group's operations, results of operations, growth strategy and liquidity.

For further information, please visit www.citlon.co.uk or contact:

Tom Griffith, CEO

City of London Investment Group PLC

Tel: 001-610-380-0435

Martin Green/Pippa Hamnett

Zeus Capital Limited

Financial Adviser & Broker

Tel: +44 (0)20 3829 5000

CHAIR'S STATEMENT

Most businesses are well prepared for interruptions to working practices with sophisticated disaster recovery contingencies but few, if any, could have foreseen dislocation on the scale and for as long a period as that witnessed over the last 18 months. I am very pleased to report, therefore, that both operating entities, CLIM and KIM, have sustained full and uninterrupted remote working functionality throughout the COVID-19 pandemic and, as I will detail later, CLIG finished the year in rude health with assets, revenues and profits at the highest levels in the Group's history.

In addition to maintaining 'business as usual', significant progress has been made in the operational integration of the two businesses in order to streamline systems and administrative functions and realise efficiencies. Completion of the integration process is ongoing, as outlined later in this report, but already we can see the benefits of the merger in terms of both results and revenue diversity. While we are geared inevitably to both equity and debt market levels, the KIM merger has served to insulate the Group to a significant degree from past levels of revenue volatility. On behalf of all our shareholders, I would like to thank our CEO, Tom Griffith, and all of his executive colleagues for their resolve and dedication in managing these challenges so successfully.

Assets and performance

Combined Funds under Management (FuM) rose nearly 5% to US$11.4 billion in the six months to 30th June 2021 and by 20% since the merger closing date of 1st October 2020. For the year as a whole, CLIM funds grew by c.37% to US$7.5 billion while KIM's FuM grew by c.9% to US$3.9 billion from the date of the merger, an impressive rate of growth given that c.60% of KIM's client assets are invested in fixed income securities.

The Group's success in growing FuM was due in no small part to excellent investment performance, as detailed later in this report, with ten of the eleven investment strategies across the combined Group achieving first or second quartile relative performance. Equally important is the significant change in the balance of assets over the last five years as a result of the rapid growth in the International equity strategies and the KIM merger. Although Emerging Markets (EM) assets have grown by nearly 50% over the last five years to US$5.4 billion, they now represent less than 50% of total FuM compared with 91% in 2016, giving the Group a far more diversified asset base. Given the capacity constraints existent within the EM closed-end fund (CEF) space, further development of both the diversified strategies and KIM's wealth management business is a key objective in realising long-term asset growth.

Results

Group statutory pre-tax profits rose by 137% in the year ending 30th June 2021 to £22.2 million (2020: £9.4 million), which include a first-time post-merger contribution from KIM. In order to present a more accurate picture of our financial performance, however, I propose to focus on an Alternative Performance Measure of 'Underlying' profits and earnings per share (EPS), which exclude exceptional or non-recurrent items, mainly associated with the KIM merger. On this basis, underlying pre-tax profits were £26.7 million, (2020: £11.5 million), with CLIM contributing £16.6 million, a 44% YOY increase, and KIM contributing £10.1 million in the nine months to 30th June 2021.

Net fee income of £52.5 million, which included £37.0 million attributable to CLIM and £15.5 million to KIM (for nine months), was 66% higher than the previous year despite a slight decline in the average Group revenue margin for the year to 74bp (2020: 75bp). The c.8% gain over the year in the average £/US$ exchange rate served to pare the growth in fee income when expressed in sterling terms as almost all revenues are generated in US dollars. Since an absolute comparison of profits YOY is distorted by the absence of a full-year contribution from KIM, the more appropriate comparative measure of our financial performance is provided by our underlying earnings per share (EPS) which, on a fully diluted basis, rose by 27% to 47.4p (2020: 37.2p) for the year.

I am pleased to report that the Employee Incentive Plan (EIP) continues to attract wide support from employees across the Group, this being the first year in which KIM employees were invited to participate. The most recent elections by employees for the coming financial year resulted in an overall participation rate of 77%, with no less than 92% of our new colleagues at KIM taking their entitlements. This high level of employee support for the EIP is a key factor in increasing employee ownership over time, thereby aligning CLIG's stakeholder interests.

Dividends

In line with the Group's management philosophy over many years, we remain committed to rewarding shareholders within the parameters of cautious balance sheet management. With this in mind and as a result of the continued growth in profits through the second half of the year to June 2021, the Board is able to recommend a final dividend to shareholders of 22p per share. Taken together with the increased interim payment, this brings total dividends for the year to 33p, equivalent to a 10% increase YOY. While these payments will result in dividend cover of 1.2 for the year based on our statutory results, that figure rises to 1.29 on a rolling five-year basis, compared with a target cover of 1.2. Having regard to the buoyancy of markets over the last year, the Board believes that a modest degree of headroom above the target level is prudent. The final dividend of 22p will be paid on 29th October 2021 to those shareholders on the register at 8th October 2021.

Board

As noted in my report to shareholders at the interim stage, there have been a number of changes to the Board this year, which included the appointment of two new Directors in the wake of the KIM merger, George Karpus as a Non-Independent Non-Executive Director (NED) and Dan Lippincott as an Executive Director. In addition, following Susannah Nicklin's resignation in September 2020, Rian Dartnell was appointed as the replacement Independent NED and in February 2021, Tazim Essani was appointed as a fourth Independent NED.

Arguably for a company of our size, a Board complement of eleven people is excessive and we are conscious also that, at present, the ratio of Independent Directors falls short of the recommendation contained in the UK Corporate Governance Code (the Code) for Boards to have a majority of Independent Directors (or at least parity). More recently, the Financial Conduct Authority (FCA), in its capacity as The Listing Authority, has issued a consultation paper outlining proposals to address gender and ethnic diversity issues for UK-listed companies that will take effect from 2023. The issue of diversity in public companies has become an increasingly important component of UK corporate governance and we fully support the need for raising standards as part of the overall focus on Environmental, Social & Governance (ESG) protocols, a subject to which I will return later. Under the new proposals, Boards will be required to have female representation of at least 40% and one member 'of colour', targets which go well beyond those set out in the 2019 industry-led Hampton-Alexander Review on female representation. Taken together these requirements will necessitate significant changes to the CLIG Board, which we acknowledge will not be addressed immediately in what is a post-merger transitional period. Going forward, however, in order to comply with the requirements by the target date of 2023, we intend to set out proposals for a fully compliant composition of the Board to shareholders by the October 2022 Annual General Meeting.

ESG

The adoption of best practice in formulating corporate ESG policies is gaining increasing focus by both clients and shareholders and is a trend that we strongly support. The data for CLIG over the last year, which is set out in detail on page 36 of this report, is distorted inevitably by the opposing effects of COVID-19 restrictions, which have reduced carbon emissions and social initiatives, versus the 50% growth in our employee headcount since the KIM merger. CLIG's environmental impact has been dominated historically by the necessity of air travel, given our international network of offices and the needs of client visits and new business development but for internal purposes, we have relied on video conferencing as a matter of policy for some years. Post-pandemic, our goal is to continue the downward trend in our carbon footprint on a per capita basis.

At the social level, while the Group does not make donations to charities or political parties, we do encourage employees to participate in community support activities across a broad spectrum in each of the locations where we operate. Despite the severe constraints imposed by lockdowns, we have continued to promote community initiatives, examples of which are included in the full report on page 36. Similarly, we have formalised a series of internal policies this year that are designed to codify the fair treatment of employees in order to promote diversity, equity and inclusion with regular training across the Group.

In order to better conform to best practice in corporate governance, a Corporate Governance Working Group (CGWG) was formed in 2020 with a remit to review our policies in relation to the Code and advise the Board of any changes that were needed. Among CGWG's findings was a recommendation that we appoint Prism Cosec Ltd (PC) as our new Corporate Secretary, which took effect in May 2021. In the course of the last five months, PC has been actively involved at every level of our governance processes and a summary of the progress that has been made is shown in the Governance section of the full report on pages 40 to 86. Although I have already touched on the subject of Board composition as it relates to the Code, the need to review Code compliance across the full gamut of our activities and, where necessary or advisable, make changes to our governance procedures is a core objective of your Board. Cognisant of this, the various reports included in the later pages have been significantly revamped this year to provide more detail on our ESG initiatives and I would encourage shareholders to take the time to read them.

Outlook

Despite the proliferation of new COVID-19 variants, the global vaccination effort, with more than five billion doses having been administered to date, appears to be successful in curbing hospitalisations and allowing a gradual return to normality. While most central banks have indicated corresponding reductions in fiscal support as the extreme health threat subsides, overall policy, led by the US Federal Reserve, remains accommodative and markets have behaved accordingly. The level of support intervention over the last 18 months has enabled macro economic indicators and asset markets generally to weather the pandemic with comparative ease, despite the disproportionate impact on specific sectors such as tourism and hospitality. In the year to 30th June 2021, the S&P 500 rose 36% while the MXEF EM index rose by 33%, albeit at a slower pace in the most recent six months.

Although this year's gains take the S&P rating towards the higher end of its historical range with a forward P/E ratio of 21, the comparable MXEF rating of 14 remains undemanding from a longer-term perspective, providing some 'value comfort' as markets confront inflationary pressures and possible 'taper tantrums' in 2022. Indeed the 'rating ratio' between these two indices (S&P P/E vs. MXEF P/E), which stands presently at 1.5, is very much towards the upper range of relative value.

The consensus Bloomberg forecast for GDP growth this year is 5.3% for developed economies and 6.6% for the emerging economies and, while this will slow a little in 2022, the existing consensus is for growth to remain above the long-term averages. While it may be unrealistic to expect markets to continue their sharp climb over the last year, the recovery in economic activity should ensure that any correction will be a 'soft landing' rather than a full-blown bear market. Given the more diversified revenue base now enjoyed by the Group, as highlighted earlier, we are therefore cautiously optimistic for the year ahead and believe we are prepared to manage any headwinds that may arise.

Barry Aling

Chair

9th September 2021

CHIEF EXECUTIVE OFFICER'S STATEMENT

This has been a transformational year in the continued evolution of your company which featured the merger with Karpus Investment Management (KIM), creating an enlarged Group with two operating subsidiaries and US$11.4 billion (£8.3 billion) in Funds under Management (FuM) at 30th June 2021. We are excited about the future and believe that we are stronger and can go further together than would have been possible separately.

The addition of KIM as a second operating subsidiary to City of London Investment Management Company Limited (CLIM) increased Group client assets by US$3.6 billion or 60%. The summary table below details the FuM at the CLIG level, plus the subsidiaries, over the past financial year:

Merger and FuM update

Each operating subsidiary is first and foremost an investment management business with a track record of outperformance over multiple market cycles. The common denominator between them is that both CLIM and KIM focus on investing on behalf of their clients via closed-end funds (CEFs), while the complementary nature of the merged entities includes both an expanded client type and focus of the underlying investment strategies available. The CLIM client base is predominantly institutional while KIM has primarily high net worth (HNW) clients. CLIM is primarily equity focussed while KIM focuses on fixed income and a balanced approach to investing on behalf of clients. The merger has resulted in achieving many of the intended benefits of CLIG diversification efforts.

Over the years, CLIG Founder and former CEO, Barry Olliff, frequently discussed the corporate goal of diversifying the Group's income by building strategies complementary to the flagship Emerging Markets (EM) CEF strategy. KIM's Founder, George Karpus, shared many of the same corporate values which became the catalyst for bringing the two Companies together.

Through the patience, fortitude, and effort of the management team and employees, and due to the growth in the International equity strategy, the percentage of client assets invested in CLIM's EM strategy was reduced to c.70% as of 30th September 2020 (immediately prior to the merger), compared with c.90% five years ago. CLIM diversification continues to be a goal of the management team by providing support and resources to the other investment teams within CLIM.

At a CLIG level, the merger with KIM has allowed that diversification to occur much more quickly; as shown in the chart and graph following, the EM strategy at CLIM has been reduced to 47% of the combined entity as of 30th June 2021. As a result of this CLIG-level diversification, shareholders should note that, going forward, we will not include a comparison to MXEF (the commonly known EM Equity Benchmark) in our Share Price KPIs. Please refer to page 23 of the full report for a review of the Share Price KPIs over the past year, including a comparison with MXEF.

Through 30th June 2021 financial year end, the merger has resulted in an increase in CLIG's FuM of 108% from US$5.5 billion at 30th June 2020 to US$11.4 billion and 131% increase in profit after tax to £17.0 million (2020: £7.4 million) before the exclusion of underlying expenses related to the merger. Reducing the EM strategy percentage of FuM is intended to produce a reduced level of volatility in net fees and profitability. CLIG's market capitalisation has increased to c.£270 million as at 30th June 2021 from a pre-merger level of c.£112 million.

Earnings enhancement, an increased dividend per share and an ongoing reduction in the volatility of earnings along with an increased market capitalisation are all positive signs that CLIG diversification plans intended to increase shareholder value are headed in the right direction. However, the net outflow of client assets over the financial year as shown above is noteworthy. While net flows were negative over the year, CLIM's total inflows of over US$500 million were significant, and signals that the market is still receptive to our product offerings and investment management solutions. A number of factors, mixed with cancelled or postponed client investment committees and a lack of in-person marketing efforts due to the pandemic and resulting quarantine environment, contributed to net outflows. These factors will be discussed further in the investment and business development reviews.

Business integration update

Progress has been made in three primary areas of integration - 1) Information Technology (IT), 2) Finance, and 3) Human Resources. This was reflected in the February announcement that Deepranjan Agrawal is now the Group Chief Financial Officer, and Alan Hoyt is the Group Chief Technology Officer, and both Deep and Alan have reporting lines from both subsidiaries. CLIG's operational, systems and software development standards have been incorporated into KIM processes, with the subsidiary now supported by newly hired full-time employees in both IT infrastructure and software development. System projects that are ongoing at KIM include an upgrade to the portfolio accounting software and order management system. CLIG's combined IT resources support the system development and infrastructure for the investment management teams at both subsidiaries, offering a consistent development plan for systems, while our colleagues in operations are able to assist with process improvements and addressing other challenges. We are working with KIM management on revising the benefits package for all KIM employees, which now includes the ability to participate in the CLIG's Employee Incentive Plan (EIP) as detailed later in my statement.

CLIM's Seattle office update

The Seattle office was opened in 2015 and staffed with two employees to better service local clients and to develop a marketing presence on the West Coast of the US. After six years, we have decided to close the office as increased acceptance of video conference meetings as a result of the pandemic have rendered office location of less importance.

Group financial results

The Group's net fee income currently accrues at a weighted average rate of approximately 74 basis points of FuM. This is in line with the weighted average fee rate realised during financial year 2020. The Group's net fee income over the period was £52.5 million, with £15.5 million from the KIM business, reflecting three-quarters of earnings since the merger on 1st October 2020. Additionally, the dollar weakened during this period by c.8%; over 97% of CLIM's fee income is USD denominated, whilst 100% of KIM's fee income is USD denominated, resulting in a weaker dollar providing reduced GBP denominated income.

CLIG profitability, cash and dividends

Operating profit before bonus, EIP, share option credit and investment gains/losses grew by 91% to £35.6 million (2020: £18.7 million, CLIM only) as a result of increased net fee income from the incorporation of KIM revenues for nine months (since merger) in addition to higher fee income from increased FuM for CLIM. Profit before tax at the Group level increased to £22.2 million (2020: £9.4 million). Underlying EPS increased by 26% from 38.2p in FY 2020 to 48.1p in FY 2021. Please refer to the Financial Review for additional financial results.

In conjunction with the increase of the interim dividend by 1p to 11p per share, the Board has recommended to shareholders that the final dividend be increased by 2p per share to 22p per share. This increase is on the back of the improved results and cash generated by both subsidiaries during a period of strong appreciation of the underlying asset values managed by the teams. Please refer to page 22 of the full report for the dividend cover chart, which provides an overview of our policy of distributing a proportion of net profits to shareholders by way of ordinary dividends with a target of 1.2x coverage ratio over a rolling five-year period.

Inclusive of our regulatory and statutory capital requirements, cash in the bank has risen from £14.6 million at 30th June 2020 to £25.5 million at 30th June 2021, in addition to the seed investments of US$5.8 million (£4.2 million) in the two CLIM-managed REIT funds. Our cash reserves will allow us to continue managing the business conservatively through volatile markets while following our dividend policy for shareholders. The CLIG Board continues to review the appropriate cash reserves needed to run a larger, but more diversified business, and assessing variables such as the impact of future revenue projections in case of a broad retreat in underlying asset prices. Additionally, the CLIG Board constantly reviews investment needed to build out additional capabilities and offerings at the two operating subsidiaries to find new clients or underserved markets where solutions can be provided.

EIP

The Employee Incentive Plan (EIP) continues to be a positive part of our remuneration package, as was highlighted by the recent strong take-up by the KIM employees who were able to participate for the first time in this past financial year. As mentioned by Barry Aling in his Chair's statement, c.92% of KIM employees elected to participate, paving the way for ownership of CLIG shares over the next three years and continued alignment of employee and shareholder interests.

Corporate governance and stakeholders

As Barry Aling mentions in his Chair's statement, we appointed Prism Cosec Ltd as Company Secretary, having had the benefit of working with them on some corporate governance projects over the past year, and look forward to reaping the benefits of their knowledge and experience in this area of increasing focus. On a separate note, I would like to point shareholders to our Section 172 Statement on page 38 of the full report, which highlights (amongst other areas) the engagement achieved between CLIG Directors and employees at both operating subsidiaries. Despite being hindered by COVID-19 travel restrictions, the Board has prioritised employee outreach and engagement via multiple video conference question and answer sessions, as well as focussed training from CLIM and KIM managers (separately) to the Non-Executive Directors.

On the note of Board composition, I agree with the views of our Chair as it relates to the projected changes to occur within the Board membership over the next two years. While Barry Aling has laid out the plan for the future, I would like to highlight that over the past year, your Board has benefited from the experience and expertise of the founders of the two operating subsidiaries, Barry Olliff (CLIM) and George Karpus (KIM), as well as the additional Executive Directors - Dan Lippincott, Mark Dwyer, and Carlos Yuste. In a year when on-the-ground oversight by Non-Executive Directors was limited, the Board needed those individuals to provide direct insights on the operations and culture within the two subsidiaries. We know at first glance, the size and composition of the Board is unexpected for a company of our size, but we are currently in a time where it makes sense to have more oversight and direct communication. In my final point, I would like to note that Barry Olliff's counsel as the previous CEO has been instrumental to me over the past two years as the company has navigated a pandemic, volatile markets, and a merger.

Cybersecurity update

CLIG subscribes to the belief that defending against cybersecurity risks require a multi-pronged approach. One prong of this approach is the focus via the IT department, including investment in infrastructure, oversight of system upgrades and patching, restricting access to systems/servers, and ongoing penetration testing by a third party vendor. Outside of IT, we are aware that employees will always be a target of cybercriminals, and historically have proven at other organisations to be an easier access point to an organisation's systems. All employees are required to complete monthly training on a variety of cybersecurity topics, by watching videos and answering questions on the training. Our CLIM colleagues have been receiving this training for four years, and KIM employees started to receive the monthly training in the fourth calendar quarter of 2020.

 In July 2021, all employees received a 'Security Awareness Proficiency Assessment' from our third party cybersecurity education vendor. The assessment consisted of 23 questions and covered multiple topics including internet use, email security and incident reporting, and we received assessments on seven topics, plus an overall score, compared against other Financial Services Companies with less than 250 employees. We are proud to say that CLIG employees outperformed the industry average in overall security awareness. CLIM employees, having received training over the years, received higher marks than their KIM peers, but that helps reinforce the benefit of the frequent, monthly, training sessions. Finally, we are using the results of the assessment to focus future training on topics where employees have less awareness.

CLIG outlook

Financial year 2021 was a transformative year for CLIG and its three primary stakeholders - Clients, Shareholders, and Employees. In regards to Clients, their underlying assets were exposed to volatile markets due to geopolitical events across the globe, as economies were impacted by the COVID-19 pandemic and eventual roll-out of vaccines. In regards to Shareholders, CLIG is now a more diversified investment holding company with expanded expertise in CEF trading and management. Our colleagues at both CLIM and KIM have worked through a corporate level merger, Board-level changes, the aforementioned volatile markets, all while working remotely and managing the real-world implications of working throughout a constantly evolving pandemic. The patience of our stakeholders is appreciated and admired.

The investment teams at CLIM and KIM employ hard working investment professionals who seek to consistently outperform their benchmarks and peers over market cycles. They are supported by colleagues in operational areas of the firm to deliver quality client service and a focus on client needs.

We are excited about the ongoing integration of the KIM business under the CLIG umbrella, and continuing to work with the teams who drive that business forward. With the end of travel restrictions, we are looking forward to spending more time with our new colleagues. Additionally, international travel restrictions have hindered the ability for our UK-based NEDs and colleagues to meet the KIM team in-person in Rochester, which I know is high on their to-do list. As most people can attest, meetings over video conference are just not the same.

To all of our colleagues at CLIG, thank you for your hard work, dedication, and positive attitude during a trying twelve months. The Groups collective ability to be comfortable in chaos is a competitive advantage. Your attitude of 'whatever it takes' is unstoppable. I look forward to our next in-person meeting.

Tom Griffith

Chief Executive Officer

9th September 2021

INVESTMENT REVIEW - CLIM

Risk assets recovered strongly from the losses of H1 2020 as investors judged that the pandemic would eventually burn out, helped by the rapid deployment of healthcare solutions. It was also evident that governments and their central banks stood ready to supply unlimited bridging stimulus. After months of debate over the 'shape' of the recovery, the 'V' followed the precedent of most recessions since WWII. Overall, CLIM's strategies performed well.

Significant equity market volatility provided ample discount trading opportunities and discounts tightened, providing a further tailwind. Aggregate CEF relative net asset value (NAV) performance was positive as active management exploited the greater market volatility. CEF managers further benefited from a number of themes including the outperformance of small and mid cap stocks and some well-timed value tilts augmented with moderate gearing. Over 95% of CLIM's assets are ahead of benchmark and peer group over the five years ending June 2021.

Despite winning new business exceeding US$500 million, net flows were negative over the period, explained by three factors:

Institutional interest in the Frontier asset class is low, following ten years of returns that have trailed both EM and International. This can attract contrarian investors but our own relative performance has been weak and client retention difficult. The OV strategy lost its largest client after the institution outsourced management. We are redoubling our efforts to replace these assets. Our International strategy is open again to new investors and CLIM's REIT strategies will have the three-year track record necessary for institutional interest in January 2022. International, OV and the REIT strategies remain a focus for growth in the medium term.

CLIM continues to invest in systems and people. Our in-house proprietary research database now gives us a full, live 'see through' of our CEF portfolios. This provides better insights to portfolio risk factors and helps CLIM meet regulatory change (e.g. exposure to sanctioned securities). As we learn more about our portfolios on a see through basis so we can better analyse ESG characteristics and engage fully with CEFs to understand their management and mitigation of ESG risks. This engagement, which is part of our regular manager due diligence and Board engagement, is aimed at encouraging managers to improve their ESG disclosures. We believe that improved transparency will result in better management of ESG risks by CEF managers and ultimately in better returns for our clients. Our detailed annual stewardship report is available here: https://www.citlon.com/esg-reports /AnnualStewardshipReport3_21.pdf.

Investment staff turnover was minimal over the period, however we did hire two new data analysts to maintain coverage of a growing CEF investment universe. Indeed, we saw one of the strongest years of growth for the CEF industry on record. Over US$40 billion was raised globally including US$16 billion in Europe, US$13 billion in the US and US$12 billion in Asia Pacific. We have maintained adequate coverage of the broadening opportunities by sticking to our proven strategy of constantly upgrading our IT infrastructure and hiring high quality, junior analysts.

With the benefit of hindsight, markets started to discount the eventual passing of the pandemic on 23rd March 2020. Given the remarkably rapid vaccine development and roll out, the worst is now likely behind us. Inflation has become the new investment dilemma - namely is the current burst of higher prices transitory or will it persist? The truth is that no-one knows, however our base case is that inflation is unlikely to be a major issue in the short term. We do, however, discuss the arguments for and against in a recent macro commentary, available here - https://www.citlon.co.uk/special-reports/InflationDilemma2-21.pdf

Equities (MSCI World) delivered an annualised rate of return of 16% over the five years ending June 2021, almost double the average five-year return over the past 30 years. The US economy is booming and this will likely spread to the rest of the world, including EM, in the months ahead. This, along with recent stimulus, explains investors' exuberance. However, with the trailing P/E of the global index approaching 25x, expectations for the next five-year period should be moderated.

Regardless of the future direction of equity markets, our clients pay us for, and expect to receive, index outperformance. Significant CEF issuance in 2020/21, increased retail participation and ongoing equity market volatility underpin CEF discount anomalies. CLIM has an edge in exploiting these anomalies via a time tested and disciplined investment process implemented by a highly experienced investment team. This provides the key support to long-term alpha generation across our strategies and bodes well for the future.

INVESTMENT REVIEW - KIM

Despite forward momentum, inflation is a primary concern for both investors and central banks. Indeed, economic activity continues to ramp up but could face challenges if the Delta variant (or others) causes a spike in infection rates in the coming months. The balancing act central banks are facing is essentially to make sure that a transitory inflation situation doesn't become a permanent one.

Over the past twelve months, markets were propelled higher by:

To be sure, while borrowing to support the economy can have positive short-term effects, too much debt as a percentage of gross domestic product (GDP) can have negative long-run effects on economic growth. With so much debt, it could become difficult to sustain growth due to the interest burden. As growth picks up, interest rates will generally rise. As rates rise, interest payments eat into the federal budget, reducing productive spending. This, in turn, could slow growth and actually put downward pressure on interest rates.

Our perspective is that since interest rates are no more predictable than stock prices or how foreign markets may perform in comparison to domestic markets, it is always important for investors to remember that they should not try to time the markets. Instead, they should choose a suitable asset allocation based on their risk tolerance and stay invested based on that strategy. This lesson is critical to helping investors achieve their long-term goals and setting a path that is most likely to get them there. In a nutshell, this is what we aim to do for our clients.

With this said, KIM's strategies performed well over the past twelve months, driven in large part by our CEF selection across each of our strategies. Generally speaking, many of our CEF holdings saw strong NAV performance, as well as significant discount narrowing. On top of this, we were able to accent our fund selection by working with CEF management teams, fund boards and trustees to unlock additional value through discount narrowing measures.

In the second half of 2020, we identified special purpose acquisition companies (pre-acquisition) (SPACs) trading at discounts to trust value. Our approach to investing in SPACs is very different than we have seen from other investment managers. Our conservative approach is based on utilising SPACs as a short-term fixed income alternative.

Among other reasons, we like SPACs because they can trade at a premium or discount to the cash value of the trust account (similar to CEFs). By purchasing shares below the cash value of the trust account, we view our approach as buying cash at a discount. Moreover, if the SPAC management company finds what the market perceives to be an attractive acquisition, shares of the SPAC could trade above cash value.

Clients benefited from our allocation to SPACs when euphoria hit this particular segment of the market in Q1 2021. Even after this period though, we continue to favour the short-term nature with which we utilise these securities for clients' portfolios.

Despite solid short and long-term performance, flows were net negative as institutional clients looked to rebalance. Additionally, several fully funded defined benefit plans were closed and distributed to their respective participants.

BUSINESS DEVELOPMENT REVIEW

A key reason for the merger with KIM was to diversify FuM with EM CEF strategies now accounting for 47% of Group FuM at 30th June 2021, as compared with 69% at 30th June 2020. KIM provides balanced mandates for high net worth and wealth management clients in the US, with both equity and fixed income investments. As at 30th June 2021, KIM strategies comprised 34% of Group FuM, while International CEF strategy totalled 16% of Group FuM.

Market appreciation, and some new client inflows, pushed strategy assets in the Emerging Markets CEF, Conservative Balanced and International CEF strategies to all-time highs of US$5.4 billion, US$3.9 billion and US$1.9 billion respectively.

After strong inflows last year, there were net outflows of US$752 million across the Group as a result of both client rebalancing, due to market gains over the period, and some client liquidations in the Frontier and Opportunistic Value strategies.

Performance

Long-term investment performance across the EM and INTL CEF strategies, as well as Conservative Balanced, remains strong, with first or second quartile results versus manager peers over the three, five and ten-year rolling periods ending 30th June 2021.

The EM, Conservative Balanced, INTL, and OV strategies outperformed over the year net of fees, while the Frontier strategies underperformed. Strong NAV performance at the underlying CEFs and positive discount effects were the main contributors to performance. The Frontier strategy suffered from weak NAV performance.

The Global Emerging Markets Composite net investment returns for the rolling one year ending 30th June 2021 were 47.3% vs. 40.9% for the MSCI Emerging Markets Index in USD, and 43% for the S&P Emerging Frontier Super BMI Index in USD.

The KIM Conservative Balanced Composite net investment returns for the rolling one year ending 30th June 2021 were 22.4% vs. 18.3% for the Morningstar US Fund Allocation - 30% to 50% Equity Category in USD.

The International CEF Composite net investment returns for the rolling one year ending 30th June 2021 were 53.3% vs. 35.7% for the MSCI ACWI ex-US in USD.

The Frontier Markets Composite net investment returns for the rolling one year ending 30th June 2021 were 43.7% vs. 45.4% for the S&P Extended Frontier 150 benchmark in USD.

The Opportunistic Value Composite net investment returns for the rolling one year ending 30th June 2021 were 38.9% vs. 19.8% for the 50/50 MSCI ACWI/Barclays Global Aggregate Bond benchmark in USD.

Outlook

Marketing efforts will continue to be targeted at investment consultants, foundations, endowments and pension funds. An institutional marketing resource was hired to introduce KIM investment strategies to US registered investment advisers. We will also continue to introduce our capabilities to family offices, outsourced CIO firms, and alternative consultants.

Our International CEF, Balanced mandates and Opportunistic Value capabilities will be the focus of our product diversification and business development activities.

FINANCIAL REVIEW

The Group income statement is presented in line with International Financial Reporting Standards (IFRS) within the Financial Statements but the financial information is reviewed by the management and the Board in a slightly different way, as in the table provided below. This makes it easier to understand the Group's operating results and shows the profits to which the Group's profit-share provision apply.

Group income statement and statement of comprehensive income

The merger with KIM was completed on 1st October 2020. KIM is a 100% wholly owned subsidiary of CLIG and the financial results of KIM for the nine-month period ended 30th June 2021 have been included in the consolidated income statement.

FuM

FuM at 30th June 2021 were US$11.4 billion compared with US$5.5 billion at the end of the prior financial year. The increase was predominantly due to the merger with KIM, which added US$3.6 billion of FuM on 1st October 2020. Further, CLIM's FuM grew 37% from US$5.5 billion as at 30th June 2020 to US$7.5 billion as at 30th June 2021 whereas KIM's FuM grew 9% from US$3.6 billion as at 1st October 2020 to US$3.9 billion as at 30th June 2021. Refer to the FuM summary within the CEO statement. Average FuM for the year increased by 82% from US$5.3 billion in 2020 to US$9.7 billion in 2021.

Revenue

The Group's gross revenue comprises management fees charged as a percentage of FuM. The Group's gross revenue has increased YOY by 66% to £55.1 million (2020: £33.3 million). The increase in revenue is primarily due to higher average FuM during the year, however this has been partially offset by a stronger sterling against the US dollar, with an average GBP/USD rate of 1.35 this year compared with 1.26 last year, an increase of c.8% over last year.

Commission payable of £1.1 million (2020: £0.2 million) relates to fees due to US registered investment advisers for the introduction of clients at KIM. The 2020 amount related to commission payable to third party marketing agents for introduction of clients to CLIM but this contract was settled in 2020 and there are no further commissions payable by CLIM.

The Group's net fee income, after custody charges of £1.6 million (2020: £1.4 million), is £52.5 million (2020: £31.7 million), an increase of 66% on last year. The Group's average net fee margin for the year was 74bp as compared to 75bp for the year ended June 2020.

Costs

Overheads for the year totalling £16.7 million (2020: £13.0 million) were 29% higher than 2020, which was on account of the inclusion of nine months of overheads for KIM from the date of merger. The Group cost/income ratio is arrived at by comparing total overheads with our net fee income, and has reduced significantly by 22% to 32% in 2021 from 41% in 2020, as a result of contribution from the higher margin and lower cost KIM business.

The largest component of overheads continues to be employee related at £11.1 million (2020: £8.6 million), an increase of 30% over last year. This is mainly on account of the increase in average headcount from 72 in FY 2020 to 99 in FY 2021 due to the merger. Other administrative overheads have increased by a similar 30% to £4.9 million (2020: £3.8 million).

Total net fee income less overheads resulted in a profit before profit-share/ EIP/share options of £35.6 million (2020: £18.6 million).

The total variable profit-share amounted to £7.9 million as compared with £6.2 million in 2020, an increase of 28% mainly on account of the higher headcount due to the merger.

The Group's Employee Incentive Plan (EIP) was offered to all KIM employees from 1st January 2021 and 73% of them participated in the FY 2021 plan. The total EIP charges amounted to £1.0 million (2020: £0.9 million), the increase a result of KIM employees participating in the current year's plan.

During the year, the Group has granted share options to certain Executive Directors and employees under the Group's Employee Share Option Plan. The total share option credit booked in the current year is £12,023 (2020: nil), which comprises of £10,358 charge in relation to share options issued in the current year, offset by £22,381 of credit on account of forfeited options.

Investment gains/(losses)

Investment gains of £0.5 million (2020: loss of £0.9 million) relates to the unrealised gains/(losses) on the Group's seed investments in its two REIT funds, and other investments of £0.5 million (2020: £0.7 million loss). It also includes the unrealised gains relating to minority third party interests in the REIT funds of £19,285 (2020: £193,602 loss).

Acquisition-related costs

Exceptional items are items of income or expenditure that are significant in size and that are not expected to recur. Such exceptional items have been separately presented by virtue of their nature to enable a better understanding of the Group's financial performance. Total merger-related acquisition costs amounted to c.£4.0 million. Of this total, £1.2 million was incurred in 2020 and was charged to the last year's income statement as an exceptional item, £1.7 million has been charged to the current year's income statement as an exceptional item and the balance of £1.0 million of share issuance costs has been charged directly to retained earnings.

Merger with KIM

The merger with KIM was effected by way of a scheme of arrangement and satisfied through issuance of new ordinary shares. The fair value of the equity consideration is reflected in the shareholders' equity with the creation of a merger reserve. In accordance with IFRS 3 'Business Combinations', the Group has recognised intangible assets of £41.6 million relating to direct customer relationships, distribution channels and KIM's trade name. These intangible assets are being amortised over 7-15 years (refer to note 1.6 of the financial statements) and have resulted in an amortisation charge of £3.2 million for the year (2020: nil). Deferred tax liability amounting to £9.9 million has been recognised against these intangible assets based on the relevant tax rate, which will unwind over the useful economic life to the associated assets. Goodwill amounting to £69.7 million has also been recognised on the completion of the merger. Foreign currency translation on the closing balances of intangibles has been recognised in other comprehensive income. Refer to note 4 of the financial statements for Business Combinations.

Taxation

The pre-tax profit of £22.2 million (2020: £9.4 million), after a corporation tax charge of £5.3 million in 2021 (2020: £2.0 million), at an effective rate of 24% (2020: 22%), results in a post-tax profit of £17.0 million (2020: £7.4 million), of which £17.0 million (2020: £7.6 million) is attributable to equity shareholders of the Company.

Group statement of financial position

The Group's financial position continues to be strong and liquid, with cash resources of £25.5 million as at 30th June 2021 as compared with £14.6 million as at 30th June 2020.

The Group had invested US$5 million (£3.9 million) in seeding its two REIT funds at the start of January 2019. By the end of June 2021, these investments were valued at £4.2 million (2020: £3.8 million), with the unrealised gains (2020: losses) taken to current year's income statement.

The International REIT fund is assessed to be under the Group's control and is thus consolidated using accounts drawn up as of 30th June and includes third party investments, collectively known as the non-controlling interest (NCI). An external investment was received in the EM REIT fund in 2020 and it was assessed to be no longer under the Group's control and thus it is not consolidated in the Group's financial statements. Fair value of the EM REIT fund is included as other investments along with the Group's other investments in its own funds.

Following the adoption of IFRS 16 Leases, the Group's right-of-use assets (net of amortisation) amounted to £2.8 million as at 30th June 2021 as compared with £1.9 million as at 30th June 2020. Additions to the right-of use assets during the year are on account of leasing of office equipment and KIM's property lease, acquired on merger, which has since been modified and extended during the period.

The EBT purchased 496,354 shares (2020: 483,250 shares) at a cost of £2.5 million (2020: £2.0 million) in preparation for the annual EIP awards due at the end of October 2021.

The EIP has had a consistently high level of participation each year since inception (>60% of Group employees), with the first tranche of awards vesting in October 2018. Only 21.1% (2020: 16.5%) of the shares vesting during the year were sold in order to help cover the employees' resulting tax liabilities, leading to a very healthy 78.9% (2020: 83.5%) share retention within the Group.

In addition, Directors and employees exercised 226,875 (2020: 108,875) options over shares held by the EBT, raising £0.8 million (2020: £0.4 million) which was used to pay down part of the loan to the EBT.

Dividends paid during the year totalled £9.7 million (2020: £7.0 million). The total dividend of 31p per share comprised: the 20p per share final dividend for 2019/20 and 11p per share interim dividend for the current year (2020:18p per share final for 2018/19 and 10p per share interim). The Group's dividend policy is set out on page 22 of the full report.

The Group is well capitalised and its regulated entities complied at all times with their local regulatory capital requirements. In the UK, the Group's principal operating subsidiary, CLIM, is regulated by the FCA. As required under the Capital Requirements Directive, the underlying risk management controls and capital position are disclosed on CLIM's website www.citlon.co.uk.

Currency exposure

The Group's revenue is almost entirely US dollar based whilst its costs are incurred in US dollars, sterling and to a lesser degree Singapore dollars and UAE dirhams. The table presented opposite aims to illustrate the effect of a change in the US dollar/sterling exchange rate on the Group's post-tax profits at various FuM levels, based on the assumptions given, which are a close approximation of the Group's current operating parameters. You can see from the illustration that a change in exchange rate from 1.38 to 1.28 increases post-tax profits by £2.2 million from £21.3 million to £23.5 million on FuM of US$11.4 billion.

It is worth noting though that while the Group's fee income is assessed by reference to FuM expressed in US dollars, almost 47% of the underlying investments are primarily in emerging market-related stocks, and therefore the US dollar market value is sensitive to the movement in the US dollar rate against the currencies of the underlying countries.

To a degree this provides a natural hedge against the movement in the US dollar given that as the US dollar weakens (strengthens) against these underlying currencies the value of the FuM in US dollar terms rises (falls).

The Group's currency exposure also relates to its non-sterling assets and liabilities, which are again to a great extent in US dollars. The exchange rate differences arising on their translation into sterling for reporting purposes each month is recognised in the income statement. In order to minimise the foreign exchange impact, the Group monitors its net currency position and offsets it by forward sales of US dollars for sterling. At 30th June 2021, these forward sales totalled US$8.3 million, with a weighted average exchange rate of US$1.40 to £1 (2020: US$5.0 million at a weighted average rate of US$1.24 to £1).

Viability statement

In accordance with the provisions of the UK Corporate Governance Code, the Directors have assessed the viability of the Group with reference to the COVID-19 pandemic, taking into account the Group's current position and prospects, Internal Capital Adequacy Assessment Process (ICAAP) and principal risks as detailed in the risk management report on pages 28 to 29 of the full report.

The ICAAP is reviewed by the Board semi-annually and incorporates a series of stress tests on the Group's financial position over a three-year period. It is prepared to identify and quantify the Group's risks and level of capital which should be held to cover those risks. The level of scenarios included within the ICAAP are significantly more severe than the ongoing and potential future impact of COVID-19 pandemic.

Based on the results of this analysis, the Board confirms it has a reasonable expectation that the Company and the Group will be able to continue in operation and meet its liabilities as they fall due over the next three years.

While the Directors have no reason to believe that the Group will not be viable over a longer period, any future assessments are subject to a level of uncertainty that increases with time.

The Board has therefore determined that a three-year period constitutes an appropriate timeframe for its viability assessment.

Given the above, the Directors also considered it appropriate to prepare the financial statements on the going concern basis as set out on page 84 of the full report.

Alternative Performance Measures

The Directors use the following Alternative Performance Measures (APMs) to evaluate the performance of the Group as a whole:

Underlying profit before tax - Profit before tax, adjusted for gain/loss on investments, acquisition-related costs and amortisation of acquired intangibles. This provides a measure of the profitability of the Group for management's decision-making.

Underlying earnings per share - Underlying profit before tax, adjusted for tax as per income statement, tax effect of adjustments and non-controlling interest, divided by the weighted average number of shares in issue as at the period end. Refer to note 7 in the financial statements for reconciliation.

FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30TH JUNE 2021

CONSOLIDATED AND COMPANY STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30TH JUNE 2021

CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

30TH JUNE 2021

As permitted by section 408 of the Companies Act 2006, the income statement of the Parent Company is not presented as part of these financial statements. The Parent Company's profit for the financial period amounted to £11,157,096 (2020: £7,579,920).

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

30TH JUNE 2021

COMPANY STATEMENT OF CHANGES IN EQUITY

30TH JUNE 2021

CONSOLIDATED AND COMPANY CASH FLOW STATEMENT

FOR THE YEAR ENDED 30TH JUNE 2021

Notes:

* Cash held in International REIT fund was consolidated using accounts drawn up as of 30th June.

** Following an FRC corporate reporting review of the Group's 2020 Annual Report and Accounts, in accordance with IAS 7 paragraph 16, acquisition-related costs disclosed as cash flows from investing activities in the 2020 financial statements have been restated as cash flows from operating activities within the 2020 comparative above. This restatement does not impact closing cash; it solely relates to the classification of these 2020 exceptional cash outflows as operating activities as opposed to investing activities as previously reported. Refer note 10 'Restatement of cash flow information'.

NOTES TO THE FINANCIAL STATEMENTS

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 week. The information shown for the years ended 30th June 2021 and 30th June 2020 does not constitute statutory accounts and has been extracted from the full accounts for the years ended 30th June 2021 and 30th June 2020. 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 30th June 2020 have been filed with the Registrar of Companies. The accounts for the year ended 30th June 2021 will be delivered to the Registrar of Companies in due course.

1. SIGNIFICANT ACCOUNTING POLICIES

City of London Investment Group PLC (the Company) is a public limited company which listed on the London Stock Exchange on 29th October 2010 and is domiciled and incorporated in the United Kingdom under the Companies Act 2006.

1.1 Basis of preparation

The financial statements have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

The Group financial statements have been prepared under the historical cost convention, except for certain financial assets held by the Group that are reported at fair value. The Group and Company financial statements have been prepared on a going concern basis.

The principal accounting policies adopted are set out below and have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.

1.2 New or amended accounting standards and interpretations

The Group has adopted all the new or amended accounting standards and interpretations issued by the International Accounting Standards Board (IASB) that are mandatory for the current reporting period. Any new or amended accounting standards that are not mandatory have not been early adopted.

The following amended standards and interpretations are in issue but not yet effective and considered not to have a material impact on the Group's financial statements:

1.3 Accounting estimates and assumptions

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 area of the financial statements that are subject to the use of estimates and assumptions are noted below:

(i) Share-based payments

Share-based payments relate to equity settled awards and are based on the fair value of those awards at the date of grant. In order to calculate the charge for share-based compensation as required by IFRS 2 Share-based payment, the Group is required to estimate the fair value of the EIP awards due to be granted in October 2021. This cost is estimated during the financial year and at the point when the actual award is made the share-based payment charge is re-calculated and any difference is taken to the profit or loss. Refer to note 1.13 for accounting policy.

(ii) Acquisition-related costs

The Group has incurred combined transaction costs of £4.0 million in relation to its merger with KIM, comprising acquisition-related and share issuance costs. Based on discussions with our advisers and in our management judgement, we have allocated the various combined transaction costs between acquisition-related amounting to £3.0 million and share issuance costs amounting to £1.0 million on a rational and consistent basis as per IAS 32.38. Out of this, acquisition-related costs amounting to £1.2 million were recognised in the year ended 30th June 2020. Acquisition-related costs are recognised in profit or loss and share issuance costs are recognised in retained earnings. Refer to note 1.19 for accounting policy.

(iii) EM REIT fund

The Company has a c.21% ownership interest in the EM REIT fund. However, it does not have any voting powers and its decision-making powers are held in the capacity of an agent of the investors as a group. The Company has therefore concluded that it does not control or have significant influence over this fund.

(iv) Acquisition accounting, and valuation of other intangible assets and goodwill

The Directors have concluded that the merger with KIM has to be treated as an acquisition and consolidated in the Group's financial statements in accordance with the guidance in IFRS 3 Business Combinations. The determination of the value of goodwill and other intangible assets at the date of acquisition requires elements of judgement. Details of judgements and estimates in assessing the fair value of goodwill and other intangible acquired at acquisition are included in notes 1.6 - accounting policies, and note 4 - business combinations.

(v) Impairment of Goodwill

The recognition of goodwill in a business combination and subsequent impairment assessments are based on significant accounting estimates. Note 1.7 details our estimates and assumptions in relation to the impairment assessment of goodwill.

1.4 Basis of consolidation

These financial statements consolidate the financial statements of the company, and all of its subsidiary undertakings. The Group's subsidiaries are those entities which it directly or indirectly controls. Control over an entity is evidenced by the Group's ability to exercise its power in order to affect any variable returns that the Group is exposed to through its involvement with the entity. The consolidated financial statements also incorporate the results of the business combination using the acquisition method. The acquiree's identifiable net assets are initially recognised at their fair values at the acquisition date. The results of the acquired business are included in the consolidated statement of comprehensive income from the date on which control is obtained.

When assessing whether to consolidate an entity, the Group evaluates a range of control factors as defined under IFRS 10 Consolidated financial statements, namely:

Subsidiaries are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date that control ceases.

The Group's subsidiary undertakings as at 30th June 2021 are detailed below:

City of London Investment Group PLC holds a controlling interest in the following:

City of London Investment Management Company Limited holds 100% of the ordinary shares in the following:

* International REIT fund has a year-end of 31st December. As this fund has a financial year end that differs from that of the Company, it is consolidated using accounts drawn up as of 30th June.

**Controlling interest is based on the interest held directly and with a related party.

City of London Latin America Limited is dormant and as such is not subject to audit.

1.5 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-4 to 10 years

Computer and telephone equipment-4 to 10 years

1.6 Intangible assets

Intangible assets acquired separately are initially recognised at cost. Intangible assets acquired through a business combination other than goodwill, are initially measured at fair value at the date of the acquisition.

(i) Goodwill

Goodwill arises through a business combination. Goodwill represents the excess of the purchase consideration paid over the fair value of the identifiable assets, liabilities and contingent liabilities of the business at the date of the acquisition.

Goodwill is measured at cost less accumulated impairment losses. Goodwill on acquisition is allocated to a cash generating unit (CGU), that is expected to benefit from the acquisition, for the purpose of impairment testing. The CGU to which goodwill is allocated represents the lowest level at which goodwill is monitored for internal management purposes. A CGU is identified as a group of assets generating cash inflows which are independent from cash inflows from other Group cash generating assets and are not larger than the Group's operating segments.

(ii) Direct customer relationships and distribution channels

The fair values of direct customer relationships and distribution channels acquired in the business combination have been measured using a multi-period excess earnings method. These are amortised on a straight line basis over the period of their expected benefit, being a finite life of 10 years for direct customer relationships and a finite life of seven years for distribution channels.

(iii) Trade name

The fair value of trade name acquired in the business combination has been measured using a relief royalty method. This is amortised on a straight line basis over the period of its expected benefit, being a finite life of 15 years.

(iv) Software licences

Software licences are capitalised at cost and amortised on a straight basis over the useful life of the asset. Costs are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Costs also include directly attributable overheads. The estimated useful life over which the software is deprecated is between 4 to 10 years. Software integral to a related item of hardware equipment is accounted for as property and equipment. Costs associated with maintaining computer software programs are expensed to the income statement as incurred.

1.7 Impairment of goodwill

Goodwill arising on acquisition is not subject to annual amortisation and is tested annually for impairment, or more frequently if changes in circumstances indicate a possible impairment. The Group annually reviews the carrying value of its CGU to ensure that those assets have not suffered from any impairment loss. The review compares the recoverable amount of the CGU to which goodwill is allocated against its carrying amount. Where the recoverable amount is higher than the carrying amount, no impairment is required. The recoverable amount is defined as the higher of (a) fair value less costs to sell or (b) value in use, which is based on the present value of future cash flows expected to derive from the CGU.

Any impairment loss is recognised immediately through the income statement.

1.8 Business Combinations

The Group accounts for business combinations using the acquisition method. A business combination is determined where in a transaction, the asset acquired and the liabilities assumed constitute a business.

The consideration transferred on the date of the transaction is measured at fair value as are the identifiable assets acquired and liabilities assumed. Intangible assets are recognised separately from goodwill at the acquisition date only when they are identifiable.

1.9 Financial instruments

Financial instruments are only recognised in the financial statements and measured at fair value when the Group becomes party to the contractual provisions of the instrument.

Under IFRS 9 Financial Instruments financial assets are classified as either:

Financial liabilities must be classified at fair value through profit or loss or at amortised cost.

The Group's investments in securities and derivatives are classified as financial assets or liabilities at fair value through profit or loss. Such investments are initially recognised at fair value, and are subsequently re-measured at fair value, with any movement recognised in the income statement. The fair value of the Group's investments is determined as follows:

 \* The funds managed by the Group are valued at the mid price in accordance with US GAAP. Therefore, where the Group has identified investments in those funds as subsidiaries, the fair value consolidated is the net asset values as provided by the administrator of the funds. The underlying investments in these funds are liquid companies with a small bid-ask spread.

The consolidated Group assesses and would recognise a loss allowance for expected credit losses on financial assets which are measured at amortised cost. The measurement of the loss allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.

Where there has not been a significant increase in exposure to credit risk since initial recognition, a twelve-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next twelve months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.

Under the expected credit loss model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This model is applicable to assets amortised at cost or at fair value through other comprehensive income. The assets on the Group's balance sheet to which the expected loss applies to are fees receivable. At the end of each reporting period, the Group assesses whether the credit risk of these trade receivables has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.

1.10 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and on-demand deposits with an original maturity of three months or less from inception, 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.

1.11 Trade payables

Trade payables are measured at initial recognition at fair value and subsequently measured at amortised cost.

1.12 Current and deferred taxation

The Group provides for current tax according to the tax regulations in each jurisdiction in which it operates, using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying 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 substantively 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.

1.13 Share-based payments

The Company operates an Employee Incentive Plan (EIP) which is open to all employees in the Group. Awards are made to participating employees over shares under the EIP where they have duly waived an element of their annual profit-share before the required waiver date, in general before the start of the relevant financial year.

The awards are made up of two elements: Deferred Shares and Bonus Shares. The Deferred Shares represent the waived profit-share and the Bonus Shares represent the additional award made by the Company as a reward for participating in the EIP. Awards will vest (i.e. no longer be forfeitable) over a three-year period with one-third vesting each year for all employees, other than Executive Directors of CLIG. Awards granted from October 2021 onwards will vest (i.e. no longer be forfeitable) over a five-year period with one-fifth vesting each year for Executive Directors of CLIG.

The full cost of the Deferred Shares is recognised in the year to which the profit-share relates. The value of the Bonus Shares is expensed on a straight line basis over the period from the date the employees elect to participate to the date that the awards vest. This cost is estimated during the financial year and at the point when the actual award is made, the share-based payment charge is re-calculated and any difference is taken to the profit or loss.

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 Black-Scholes pricing model, and is being 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. At the end of the three-year period when the actual number of shares vesting is known, the share-based payment charge is re-calculated and any difference is taken to the profit or loss.

1.14 Revenue recognition

Revenue is recognised within the financial statements based on the services that are provided in accordance with current investment management agreements (IMAs). The fees are charged as a percentage of Funds under Management. The performance obligations encompassed within these agreements are based on daily/monthly asset management of funds. The Group has an enforceable right to the payment of these fees for services provided, in accordance with the underlying IMAs.

For each contract, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of services promised.

1.15 Commissions payable

A portion of the Group's revenue is subject to commissions payable under third party marketing agreements. Commissions payable are recognised in the same period as the revenue to which they relate.

1.16 Foreign currency translation

Foreign currency transactions are translated using the exchange rates prevailing at the transaction date. Monetary assets held in a currency other than the functional currency are translated at the end of each financial period at the period end closing rates.

The functional currency of the Group's main trading subsidiaries, City of London Investment Management Company Limited, Karpus Investment Management 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 The Effects of Changes in Foreign Exchange Rates this means that exchange differences caused from translating the functional currency to presentational currency for the main trading subsidiaries would be recognised in equity. However, the Group operates a policy whereby it manages the exposure of foreign exchange positions of its subsidiaries monetary assets through its inter-company accounts. Any gains or losses are recognised within the Company's own income statement. Therefore, on consolidation, there are no exchange differences arising from the translation of monetary items from the subsidiaries functional currency to its 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. The subsidiaries translate the non-monetary assets at the period end rate and any movement is reflected in other comprehensive income.

1.17 Leases

The total outstanding lease cost, discounted at the Group's weighted average incremental borrowing rate to its present value, is shown as a lease liability in the statement of financial position. The payment of the lease charge is allocated between the lease liability and an interest charge in the income statement.

On recognition of the lease liability, the associated asset is shown as a right-of-use asset. This is further adjusted for any lease payments made prior to adoption and any future restoration costs as implicit within the lease contract. The resulting total value of the right-of-use asset is depreciated on a straight line basis over the term of the lease period.

The Group re-measures the lease liability whenever:

•there is a change in the lease term.

•there is a change in the lease payments.

•a lease contract is modified and the lease modification is not accounted for as a separate lease.

Where there is a change in the lease term or lease payments, the lease liability is re-measured by discounting the revised lease payments at the current or revised discount rate depending on the nature of the event. Where the lease liability is re-measured, a corresponding adjustment is made to the right-of-use assets.

Where extension/termination options exists within a lease, the Group would assess at the lease commencement date as to whether it is reasonably certain that it will exercise these options. The Group would reassess these option if there was a significant event or significant change in circumstances within its control, which would warrant the Group with reasonable certainty to exercise these options.

Payments in relation to short-term leases, those that are less than twelve months in duration continue to be treated as operating leases and the costs are expensed to the income statement on a straight line basis. At the end of the year, all of the Group's leases were recognised as right-of-use assets.

1.18 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. Any amounts unpaid at the end of the period are reflected in other creditors.

1.19 Exceptional items

Exceptional items are significant items of non-recurring expenditure that have been separately presented by virtue of their nature to enable a better understanding of the Group's financial performance. Exceptional items relate to acquisition-related costs incurred by the Group in relation to its merger.

2 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.

The Group has classified its fee income based on the domicile of its clients and non-current assets based on where the assets are held. Included in revenues are fees of £5,470,051 (2020: £4,392,106) which arose from fee income from the Group's largest client. No other single client contributed 10% or more to the Group's revenue in either of the reporting periods.