City Lon Inv Regulatory News (CLIG)

15th February 2021

CITY OF LONDON INVESTMENT GROUP PLC

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

HALF YEAR RESULTS TO 31ST DECEMBER 2020 AND SENIOR MANAGEMENT CHANGES

City of London (LSE: CLIG) announces half year results for the six months to 31st December 2020.

HALF YEAR SUMMARY

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

 http://www.rns-pdf.londonstockexchange.com/rns/0243P_1-2021-2-14.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.

SENIOR MANAGEMENT CHANGES

City of London Investment Group is pleased to announce that Deepranjan Agrawal has been appointed as the Chief Financial Officer (CFO) and Alan Hoyt has been appointed as the Chief Technology Officer (CTO) with immediate effect. Both individuals will continue to report to Tom Griffith, Chief Executive Officer of the Group.

Deep Agrawal joined the Company in January 2020 and has been managing the Group's finance function. Deep's experience includes over sixteen years in public practice with Deloitte and, more recently, three years with RSM, serving clients within the asset management industry. Deep has a wealth of relevant knowledge having served a range of asset management companies including large and small investment managers, Investment Trusts and UK authorised funds. Deep completed his Master of Commerce degree from the University of Pune, India and is a Chartered Accountant.

Alan Hoyt joined the Company in 2009 and has over 25 years of experience in the IT industry. Prior to joining CLIM, Alan worked as the Chief Technology Officer for PLANCO, a Hartford Life Company, where his role was expanded to include Vice President. Before PLANCO, Alan held positions at The Vanguard Group, New York Life Benefit Services, and as a Technology Consultant in Boston. Alan holds a Masters in Computer Information Services from Bentley College and a Bachelors in Science from the University of Massachusetts as well as certificates from the Wharton Executive Management program.

Barry Aling, Chairman of City of London Investment Group, said: "In the wake of our merger with Karpus Management Inc. towards the end of 2020, the integration of the Group finance and IT functions is a key element to realising the benefits of the transaction. In that regard, both Deep and Alan's contribution take on additional importance and we welcome them in their new roles."

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

Zeus Capital Limited

Financial Adviser & Broker

Tel: +44 (0)20 3829 5000

CHAIRMAN'S STATEMENT

If a salutary reminder was needed of the degree to which globalisation has made the world economically interdependent, the COVID-19 pandemic of 2020 has provided it like no other in the post-war era. Re-reading my last interim statement, written just four weeks before global lockdowns led to a free-fall in equity markets, provides an emphatic reminder that managing extreme volatility is integral to the investment philosophy that we employ in managing clients' assets. This value-driven philosophy underpins the rationale that we employed on behalf of our shareholders, as we successfully completed the KIM merger in October, an event to which I will return below. For reasons of consistency and comparison, commentary in this report relating to assets and performance will refer to our two post-merger operating companies separately, City of London Investment Management (CLIM) and Karpus Investment Management (KIM), while financial and shareholder-related information will refer generally to the holding company, CLIG.

CLIG & COVID

Our CEO, Tom Griffith, will set out in his report some of the challenges and achievements that were addressed over the last six months in confronting the need for remote working for extended periods across our entire business. Although much preparatory groundwork was in place to handle "conventional" disaster recovery events, no one could have foreseen the scale and length of disruption caused by COVID-19. The positive results for the half-year period, which are detailed in this report, are due in no small measure to a working philosophy of "going the extra mile" across the whole Group. To that end, I want to extend the Board's sincere thanks and appreciation to Tom and all of our employees, including those at KIM, for their superb efforts in navigating these challenges with such dedication and professionalism.

Cautious optimism for 2021

Thankfully, the evolution of co-ordinated central bank intervention in the major OECD economies has helped mitigate the immediate domino effect of economic contraction in terms of employment and socio-economic hardship, albeit at considerable cost. In turn, these measures have allowed asset markets to look beyond the current hiatus to the recovery potential that will emerge in the post-vaccine medium term. The ironic outcome is that while governments across the globe battled with unprecedented threats to public health in 2020, fiscal pump-priming propelled many equity markets to all-time highs. In comparison with Europe and North America, the impact of COVID-19 on many emerging economies was more modest, which may help to explain the strong relative performance of the MXEF emerging market index which closed the year at 1291, up 31% from the June closing level, outstripping the recovery in the key global equity indices.

While many will hope that the new US President will encourage a less polarised political discourse in both the domestic and international arenas, there is little doubt that he faces many of the same challenges as his predecessor, be it COVID-19, trade friction or an unsustainable deficit. While a de-escalation in trade friction will assist the post-pandemic global recovery, the possibility of higher taxes and anti-trust policies towards the tech giants from a Democratic administration could test inflated US equity valuations, notably in the Nasdaq universe. Although debt markets remain subdued, the slight rise on US Treasury yields over the last six months suggests early signs that asset price inflation could seep into the wider economy later in the year. But while emerging equity and domestic debt markets cannot be immune to these challenges, the EM space in particular continues to represent compelling value with consensus estimates of an MXEF forward price earnings ratio of 15.6, less than half the equivalent rating for Nasdaq.

Assets and performance

The rebound in CLIM assets from the March 2020 lows continued apace virtually throughout the half year to 31st December 2020 with total funds under management (FuM) rising 31% to an all-time high of US$7.2 billion with strong gains made in both the emerging and international products. FuM level in international strategies reached US$1.7 billion at the end of 2020. Likewise, relative performance of all strategies, which suffered from a dramatic widening of closed-end fund (CEF) discounts in March/April, made excellent progress in the latest half year. The emerging market product posted a relative gain of 6.4%, developed 14.6% and opportunistic value 11.6% against their respective benchmarks over the last six months with the result that more than 95% of CLIM's FuM achieved above average performance for 2020 as a whole. Undoubtedly, a major contributor to this success lies in the sharp narrowing of discounts in the CEF universe over recent months. In the EM strategy for example, the size weighted average discount (SWAD) narrowed from a March high of 22.8% to 14.6% at year-end. While it is true that this rate of discount narrowing is, by definition, unsustainable, a year-end SWAD in the mid-teens is still well above the longer term averages, suggesting that further upside is still possible from this single metric.

Although the KIM merger was only completed on 1st October 2020, it is important for shareholders to view its performance over that three-month period against 2020 as a whole in order to see the underlying trends in the business. KIM's FuM over the last six months rose 6% to US$3.7 billion, an all-time record level and an increase of 34% from the 2020 lows in March. The pace of recovery in KIM's FuM during 2020 reflects the more muted trading conditions in US debt markets, which account for c.60% of KIM's assets but it was particularly pleasing to note that more than 98% of KIM's client assets were retained in the wake of the merger, signalling a very high level of client loyalty to the KIM brand. Of equal importance is the fact that the range of overall FuM levels at KIM across calendar 2020 was just 34% between the March lows and year-end (US$2.8 - US$3.7 billion), compared with 91% (US$3.8 - US$7.2 billion) for CLIM. This countervailing trend in asset volatility represents a central positive factor in the long-term benefits that should derive from the merger.

Results

Profit before tax for the combined entity for the six months to 31st December 2020 was £8.8 million (31st December 2019: £6.3 million). Underlying profit before tax* for the combined entity for the six months to 31st December 2020 was £11.2 million (31st December 2019: £6.2 million). These results include a robust three-month contribution from KIM of £3.4 million in the latest quarter and £7.8 million from CLIM over the full period, the latter equating to a 26% year-on-year increase. Net fee income of £22.6 million included £5.1 million from KIM and £17.5 million from CLIM, the latter a 6% YOY increase. Although CLIM's FuM rose 31% over the six months, average FuM across the six-month period was only 14% ahead of the comparable figure for 2019, in addition to which US dollar weakness and a slightly lower average fee margin of 74bp pared the gain somewhat in sterling terms. Once again, an encouragingly high level of participation in the Employee Incentive Plan (EIP) served to further align the interests of shareholders and employees while access to this Plan will be extended to KIM employees for the first time in the current year. Fully diluted earnings per share for the first half were 17.4p per share on a statutory basis, while underlying fully diluted earnings per share* were 23.4p, an increase of 24% YOY.

Dividends

The recovery momentum achieved in the first half of our financial year, added to the impetus provided by the KIM merger from October provides grounds for cautious optimism for the year as a whole. To that end, your Board is pleased to announce a 1p increase in the interim dividend to 11p per share, equivalent to a 10% increase. This increase makes full provision for the merger-related costs that will impact reported profits in the current year and, within the policy parameters of 1.2 times cover on a five-year rolling basis, leaves the Group with a prudent margin of "headroom" for any unforeseen events in the second half of the year.

The Board

Following the KIM merger, we were delighted to welcome George Karpus as a non-independent, Non-Executive Director (NED) and Dan Lippincott as an Executive Director in October. Although the pandemic has restricted our ability to meet physically in the early post-merger period, George and Dan have already participated actively in the Board's deliberations.

Susannah Nicklin resigned from the Board in September 2020 after serving three years as a NED and we would like to thank Susannah for her valuable contribution to the Group during a transformative period in its development. Rian Dartnell, who served as a Director for five years from 2011 to 2016, rejoined the Board following Susannah's departure. Given Rian's extensive experience in the asset management industry and his familiarity with CLIG over many years, we are pleased to welcome him back into the fold. In the wake of Susannah's departure, Peter Roth was appointed Senior Independent Director while Rian has assumed Chair of the Remuneration Committee and Jane Stabile has replaced Susannah as Chair of the Nomination Committee.

Following these changes, we anticipate a transitional period before we are able to restore the appropriate level of independent representation at the Board level, as defined in the UK Corporate Governance Code. Post 31st December 2020, Tazim Essani has joined the Board as an independent NED from 1st February 2021. Tazim has over 30 years of experience and has a significant track record in strategy and M&A in financial services in the UK and internationally covering integration, management transition and realisation of synergy benefits.

Outlook

Disruptive though the pandemic has been for so many, it has in some ways accelerated the development of technology-led working practices that might otherwise have taken several years. We believe that these trends can assist us in harnessing the potential gains that can flow from the KIM merger more quickly than might otherwise have been the case as we address operational integration of the two businesses. At the same time, rigorous attention to value-driven investment processes for institutional and wealth management clients alike, together with prudential cost controls will remain core drivers in meeting our performance objectives. Our results through the very testing conditions of the last six months and the increasingly diverse business mix that will flow from the KIM merger, provide a sound basis for cautious optimism.

Barry Aling

Chairman

12th February 2021

* This is an Alternative Performance Measure (APM). Please refer to CEO statement for more details on APMs.

CHIEF EXECUTIVE OFFICER'S REVIEW

Merger details

On 13th July 2020, CLIG shareholders approved the acquisition of the entire issued share capital of KIM, a US-based investment management business, on a debt free basis, satisfied through the issuance of newly created CLIG shares. As announced on 1st October 2020, the merger of CLIG with KIM was completed and KIM's client approval process resulted in approximately 98% of client assets being retained.

On a consolidated basis, as of 1st October 2020 CLIG managed client assets of US$9.5 billion via the two wholly-owned subsidiaries. As of 31st December 2020, the combined FuM was US$10.9 billion (31st December 2019: US$6.0 billion).

Integration update

The integration of the Finance and Information Technology functions of the KIM business has been a focus for your management team. From a Finance perspective, KIM's professionals are working with CLIG's Head of Finance, Deepranjan Agrawal, to achieve the enhanced reporting required by a London-listed plc. From an IT perspective, CLIG's cybersecurity, acceptable use, and other related policies are being implemented at KIM, with corresponding modifications of KIM's infrastructure.

COVID-19 update

As highlighted in the 4th January 2021 "Letter from the CEO" published to the citlon.co.uk website, over 90% of our colleagues are currently working remotely. We intend to continue to work remotely in order to reduce the risk of virus transmission, and we do not expect employees back in their local offices in any meaningful number until the summer of 2021. Team members are able to securely connect to all systems and have been provided with additional hardware where necessary. We continue to provide employees with a weekly newsletter summarising virus-related updates, cybersecurity threats, and personal stories. To foster interaction between colleagues, and to combat any feelings of professional isolation as the remote working environment moves towards a full calendar year, we have contracted with a third-party vendor to provide a series of virtual "team connection events" during the winter and spring.

The extended period of quarantines and necessity to work remotely has focused our team on implementing solutions to further enhance the efficiency of the remote working experience for our colleagues. Many of the solutions being implemented have the dual effect of reducing our carbon footprint. For example, electronic signatures, notarisation and facsimile solutions and transitioning pay-slips to electronic platforms all significantly reduce paper usage, peripheral equipment requirements and the energy to produce the paper and power the equipment.

The extended period of quarantines has also forced many constituents in the financial industry to adapt to remote working. In many cases, the industry's resistance/reluctance to change has been a barrier. The broad industry adoption of "green" solutions such as meetings via video conference rather than in-person and electronic signatures rather than wet signatures has moved forward adoption of these solutions and enhanced the technological advancement in these areas.

Current events have emphasised the need for companies in the financial service industry to effectively work remotely. While the technology enables robust and secure remote working capabilities across the organisation, the collegiate culture of my CLIG colleagues is the secret sauce that pulls it all together. While some suggest that the improved ability to work remotely may change working practices in the post-pandemic world, we believe that interaction with colleagues, knowledge transfer, oversight and risk mitigation are all enhanced by being together in the same location.

FuM update

At the end of December, CLIG managed, via the two subsidiaries, US$10.9 billion for their clients. As the KIM business is now under the CLIG umbrella, our reporting on FuM will reflect the two entities, so that our shareholders are able to understand the evolution of the two businesses under different market conditions - for example, KIM manages a mix of equity and fixed income assets for their clients, with approximately 60% of FuM in fixed income securities which are less volatile. As such, in this recent "risk rally", KIM's asset growth was relatively stable, while CLIM's FuM grew by 31% reflecting the circa 72% of client assets in Emerging Market equities. Additional details can be found in the tables and commentary following.

FuM flows

As mentioned by the Chairman, the second half of 2020 saw global equity markets, and risk assets generally, appreciate, as investors viewed the ongoing COVID-19 vaccine approvals and then inoculations positively from an economic recovery perspective. Fixed income securities, especially US dollar denominated, underperformed equities as the US Federal Reserve pledged to keep short-term rates near zero into 2023. This equity market appreciation boosted CLIG's FuM, specifically as the MSCI Emerging Markets Index increased by 31% over the past six months.

Both CLIM and KIM saw net redemptions over the six-month period. After a period of strong absolute and relative performance, clients rebalanced in order to meet asset allocation targets. In the 2020 Annual Report & Accounts, I highlighted that we expected future outflows from the CLIM Frontier strategy post financial year end - these outflows have now occurred, as the strategy lost US$169 million over the six months.

Financial results

This is the first period whereby KIM's financial results are consolidated as a Group company. The Group's net fee income over the period was £22.6m, with £5.1m from the KIM business, reflecting only one quarter of earnings since the merger on 1st October 2020. Additionally, the dollar weakened during this period - over 95% of CLIM's fee income is USD denominated, whilst 100% of KIM's fee income is USD denominated, so the weaker dollar provided less GBP compared to six months ago. The chart below shows the effect of converting US dollars to sterling at various exchange rates in terms of annual after-tax income based on varying levels of FuM.

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.

Investment performance

Relative investment performance at both CLIM and KIM was strong for a majority of strategies, as the volatility in the markets provided a favourable trading environment for the respective portfolio management teams. Additional tailwinds were provided by closed-end fund (CEF) discounts narrowing, as investors increased their demand for exposure to equity markets on the back of the continued accommodative monetary policy by central banks globally.

For CLIM, the EM and International CEF products outperformed for the six-month period due to discount narrowing and NAV performance. CLIM's Opportunistic Value strategy also saw narrowing discounts and outperformed due to a tactical overweight to equities. Both of CLIM's relatively new REIT strategies (International & EM) outperformed due to country allocation and stock selection. CLIM's Frontier strategy was an outlier, underperforming during the period due to country allocation. As of 31st December 2020, the Frontier strategy makes up less than 1% of CLIM's FuM.

For KIM, commentary is focused on the three- month performance since the merger completed on 1st October 2020. Five of KIM's six strategies outperformed over the quarter, with only the International Equities strategy underperforming by less than one percentage point. Outperformance over the quarter in the taxable and tax-sensitive fixed income strategies was generated from multiple sources. In equity-based strategies, an overweight to small-caps, combined with discount narrowing in the CEFs, drove relative outperformance.

Dividend and cash

In recognition of the improved results and having regard to the current dividend cover policy the Board has decided to increase the interim dividend by 1 pence to 11 pence per share, which will be paid on 19th March 2021 to shareholders registered at the close of business on 5th March 2021 (2019: 10 pence).

Inclusive of our regulatory and statutory capital requirements, cash in the bank has risen from £14.6 million at 30th June 2020 to £17.5 million at the end of the calendar year, in addition to the seed investment of £4.1 million in the two REIT funds. Our cash reserves will allow us to continue managing the business conservatively through volatile markets while following our dividend policy for our shareholders.

Dividend cover template

The Board retains the policy of distributing a proportion of net profits by way of ordinary dividends, with a target of a 1.2x coverage ratio over a rolling five-year period. The dividend coverage ratio over the rolling five years is 1.32x, ahead of the policy. Our dividend cover template can be found at https://www.citlon.com/ investor-relations/dividend-cover.php, and is also shown on page 10 of our interim accounts. As mentioned in the 2020 Annual Report & Accounts, we strive to be transparent in our approach to managing the balance between maintaining adequate cash reserves to weather shocks to the business, and maintaining an attractive dividend stream for our shareholders. We will monitor, and report upon, the appropriateness of the 1.2x coverage ratio policy over the coming years as we integrate the KIM business.

CLIG share price KPI

CLIG management has adopted two Key Performance Indicators (KPIs) based on the total return of CLIG over a market cycle, which are designed to provide shareholders with an indication of the return they should expect from owning the CLIG business. The KPIs are:

Our share price to compound annually at between 7.5% to 12.5%

-OR-

Our share price to double the cumulative return of the M1EF

Our goal is to achieve one of the two over rolling five-year periods. These measures are meant to stretch the management team, without incentivising managers to take undue levels of risk.

For the five years ending 31st December 2020, CLIG's cumulative total return was 82.5% (12.8% per annum). We therefore meet the first KPI, as the annualised total return outperformed the desired range. We do not meet the second KPI, as the cumulative return of M1EF was 97.2% over the past five years. Since listing in April 2006, the annualised return of a CLIG share is 13.9%.

Due to the ongoing diversification of the CLIG business away from the original Emerging Markets strategy, the management team at CLIG is reviewing the appropriateness of our second KPI. CLIG shareholders now own a business that provides exposures, primarily via closed-end funds, to a wide range of asset classes, including emerging market equities, developed market equities, US taxable and municipal fixed income securities, and REITs. An update will be provided in the 2021 Annual Report & Accounts.

Barry Olliff intended share sales

Subject to being in an open period, Barry Olliff's, Founder and Director, present intention is to sell 250,000 shares at each of 475p, 500p and 525p. In addition, the Company will no longer provide trading intentions for Mr. Olliff post 30th June 2021, which is the Company's year-end.

CLIG outlook

CLIG's three main stakeholders - clients, employees and shareholders - continue to drive our decisions and the strategy behind our business. 2020 was a milestone calendar year for CLIG, as we completed the merger and we look forward to the ongoing impact that George Karpus will have as a NED on the Board, due to his knowledge of the US wealth management space, as well as Executive Director Dan Lippincott, who serves as CIO of KIM.

Global markets remain volatile due to tensions between the US and China and the slow pace of vaccine roll-outs, however with the addition of the KIM team, shareholders should receive the benefits of a more diversified Group via asset class exposure and a mix of retail and institutional clients. The investment management teams at each subsidiary are skilled and experienced in investing on behalf of their respective clients through market cycles, with attractive long-term relative performance figures reflecting those abilities.

On behalf of my colleagues at CLIG, we appreciate your support, and hope that you and your families have a healthy and prosperous 2021. To my fellow CLIG colleagues, thank you for your dedication over the past six months and throughout the COVID-19 pandemic. Your flexibility, hard work, and commitment to our stakeholders has been readily apparent during these challenging times.

Tom Griffith

Chief Executive Officer

12th February 2021

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2020

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31ST DECEMBER 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2020

CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2020

*Cash held in International REIT fund consolidated on a net asset basis

NOTES

1 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

The financial information contained herein is unaudited and does not comprise statutory financial information within the meaning of section 434 of the Companies Act 2006. The information for the year ended 30th June 2020 has been extracted from the latest published audited accounts and delivered to the Registrar of Companies. The report of the independent auditor on those financial statements contained no qualification or statement under s498(2) or (3) of the Companies Act 2006.

These interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and 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 accounting policies are consistent with those set out and applied in the statutory accounts of the Group for the year ended 30th June 2020, which were prepared in accordance with IFRSs as adopted by the European Union.

The consolidated financial information contained within this report incorporates the results, cash flows and financial position of the Company and its subsidiaries for the period to 31st December 2020.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. They therefore continue to adopt the going concern basis in preparing these interim financial statements, having considered the potential impact of COVID-19 on the Group's operations.

New or amended accounting standards and interpretations adopted

The Group has adopted all relevant 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.

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 gross fee income based on the domicile of its clients and non-current assets based on where the assets are held.

Included in gross fee income are fees of £2,488,298 (30th June 2020 - £4,392,106; 31st December 2019 - £2,214,410) which arose from fee income from the Group's largest customer. No other single customer contributed 10 per cent or more to the Group's revenue in either of the reporting periods.

 3 NET INTEREST RECEIVABLE/(PAYABLE) AND SIMILAR GAINS/(LOSSES)

4 EARNINGS PER SHARE

The calculation of earnings per share is based on the profit for the period attributable to the equity shareholders of the parent divided by the weighted average number of ordinary shares in issue for the six months ended 31st December 2020.

As set out in note 7 the Employee Benefit Trust held 1,357,158 ordinary shares in the Company as at 31st December 2020. The Trustees of the Trust have waived all rights to dividends associated with these shares. In accordance with IAS 33 "Earnings per share", the ordinary shares held by the Employee Benefit Trust have been excluded from the calculation of the weighted average number of ordinary shares in issue.

The calculation of diluted earnings per share is based on the profit for the period attributable to the equity shareholders of the parent divided by the diluted weighted average number of ordinary shares in issue for the six months ended 31st December 2020.

Reported earnings per share

Underlying earnings per share*

Underlying earnings per share is based on the underlying profit after tax*, where profit after tax is adjusted for gain/loss on investments, acquisition-related costs, amortisation of acquired intangibles, their relating tax impact and non-controlling interest.

Underlying profit for calculating underlying earnings per share

* This is an Alternative Performance Measure (APM). Please refer to CEO statement for more details on APMs.

 5 INTANGIBLE ASSETS

Goodwill, direct client relationships, distribution channels and trade name acquired through business combination relates to the merger with KIM on 1st October 2020 (see note 8).

The fair values of KIM's direct customer relationships and the distribution channels have been measured using a multi-period excess earnings method. The model uses estimates of annual attrition driving revenue from existing customers to derive a forecast series of cash flows, which are discounted to a present value to determine the fair values of KIM's direct customer relationships and the distribution channels (see note 8).

The fair value of KIM's trade name has been measured using a relief from royalty method. The model uses estimates of royalty rate and percentage of revenue attributable to trade name to derive a forecast series of cash flows, which are discounted to a present value to determine the fair value of KIM's trade name (see note 8).

The total amortisation charged to the income statement for the three-month period from the date of the merger in relation to direct client relationships, distribution channels and trade name, was £1,083,395 (30th June 2020 - n/a, 31st December 2019 - n/a).

Impairment

Goodwill acquired through business combination of £69,715,195 relates to the acquired workforce and future expected growth (see note 8).

The Group will review the carrying amount of its cash generating unit (CGU) to which goodwill is allocated annually at each financial year-end (30th June). As at 31st December 2020, there were no factors we considered that indicated an impairment of the goodwill during the period.

6 SHARE CAPITAL AND MERGER RESERVE RELIEF

Merger relief reserve - has been created as the issue of ordinary shares by the Company upon the merger with KIM meets the requirements of merger relief under Companies Act 2006 (see note 8).

 7 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 December 2020 the Trust held 679,038 ordinary 1p shares (30th June 2020 - 986,234; 31st December 2019 - 989,449), of which 420,750 ordinary 1p shares (30th June 2020 - 521,875; 31st December 2019 - 534,375) were subject to options in issue.

The Trust also held in custody 678,120 ordinary 1p shares (30th June 2020 - 677,821; 31st December 2019 - 690,094) for employees in relation to restricted share awards granted under the Group's Employee Incentive Plan (EIP).

The Trust has waived its entitlement to receive dividends in respect of the total shares held (31st December 2020 - 1,357,138; 30th June 2020 - 1,664,055; 31st December 2019 - 1,679,543).

8 BUSINESS COMBINATIONS

On 1st October 2020 City of London Investment Group PLC completed the merger of Snowball Merger Sub, Inc. with and into Karpus Management Inc. dba Karpus Investment Management (KIM), a US based investment management business, on a debt free basis, by way of a scheme of arrangement in accordance with the New York Business Corporation Law, with KIM being the surviving entity in the Merger. CLIG acquired 100% of voting equity interest in KIM and the merger was satisfied by issue of new ordinary shares and cash for a total consideration of £101,887,540. KIM uses closed-end funds (CEFs) amongst other securities as a means to gain exposure for its client base comprising of US high net worth clients and corporate accounts. It qualifies as a business as defined in IFRS 3 "Business Combinations". The merger is considered to be of substantial strategic and financial benefit to the Group and its shareholders.

Details of the net assets acquired, goodwill and purchase consideration are as follows:

The 30th September 2020 closing exchange rate of 1.292 was used to translate the US dollar acquired assets to our reporting currency.

The intangible assets recognised on completion of the merger of £41,608,000 relates to direct customer relationships, distribution channels and KIM's trade name (note 5).

The goodwill of £69,715,195 arises as a result of acquired workforce and expected future growth. Any impairment of goodwill in future periods is not expected to be deductible for income tax purposes.

The fair value of the 24,118,388 new ordinary shares issued as part of the consideration paid for KIM was based on the 30th September 2020 closing market price per share of £4.22. An amount of £101,538,413 was recognised as a merger relief reserve in relation to this new issue of shares. Share issue costs amounting to £967,880 were deducted from retained earnings.

Acquisition-related costs of £1,743,424 (year ending 2020 - £1,248,195) were charged to the income statement and shown under exceptional items.

The gross contractual amount of trade and other receivables acquired is equal to their fair value of £379,977 and was considered to be fully recoverable at the date of the merger. The fair value of all other net assets acquired were equal to their carrying value.

During the three months to 31st December 2020, KIM contributed £5,137,233 of net fee income and £2,637,815 to the Group's consolidated profit for the six months to 31st December 2020.

If the merger was completed at the beginning of the current financial year, KIM would have contributed £10,288,727 to the Group's net income and £3,563,480 to the Group's profit for the current reporting period.

 9 DIVIDENDS

A final dividend of 20p per share in respect of the year ended 30th June 2020 was paid on 30th October 2020.

An interim dividend of 11p per share (2019 - 10p) in respect of the year ended 30th June 2021 will be paid on 19th March 2021 to members registered at the close of business on 5th March 2021.

 10 PRINCIPAL RISKS AND UNCERTAINTIES

In the course of conducting its business operations, the Group is exposed to a variety of risks including market, liquidity, operational and other risks that may be material and require appropriate controls and on-going oversight.

The principal risks to which the Group will be exposed to in the second half of the financial year are substantially the same as those described in the last annual report (see pages 31 to 33), being the impact of the COVID-19 pandemic, the potential for loss of FuM as a result of poor investment performance, client redemptions, breach of mandate guidelines or market volatility, loss of key personnel, cybersecurity and business continuity, legal and regulatory risks.

Changes in market prices, such as foreign exchange rates and equity prices will affect the Group's income and the value of its investments.

Most of the Group's revenues, and a significant part of its expenses, are denominated in currencies other than sterling, principally US dollars. These revenues are derived from fee income which is based upon the net asset value of accounts managed, and have the benefit of a natural hedge by reference to the underlying currencies in which investments are held. Inevitably, debtor and creditor balances arise which in turn give rise to currency exposures.

 11 FINANCIAL INSTRUMENTS

The Group's financial assets include cash and cash equivalents, investments and other receivables.

Its financial liabilities include accruals and other payables. The fair value of the Group's financial assets and liabilities is materially the same as the book value.

Fair value measurements recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree to which the fair value is observable.

The fair values of the financial instruments are determined as follows:

The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.

 There are no financial liabilities at fair value at 31st December 2020.

There are no financial liabilities at fair value at 31st December 2019.