City Lon Inv Regulatory News (CLIG)

21st January 2013

CITY OF LONDON INVESTMENT GROUP PLC

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

HALF YEAR RESULTS TO 30th NOVEMBER 2012

City of London (LSE: CLIG) announces half year results for the six months to 30th November 2012.

SUMMARY

• Funds under Management ("FuM") of US$3.9 billion (£2.4 billion) at 30th November 2012. This compares to US$4.5 billion (£2.9 billion) at the beginning of this financial year on 1st June 2012 and US$4.8 billion (£3.0 billion) at 30th November 2011.

• FuM at 31st December 2012 of US$4.1 billion (£2.5 billion)

• Revenues, representing the Group's management charges on FuM, were £15.1 million (2011: £17.2 million)

• Profit before tax of £4.7 million (2011: £5.7 million, excluding a one-off gain on the sale of an investment)

• Maintained interim dividend of 8p per share paid on 28th December 2012 to shareholders on the register on 14th December 2012

• Cash and cash equivalents at the period end of £5.8 million (2011: £5.9 million)

David Cardale, Chairman, said, "We anticipate that global investors will re-commit to our core emerging and frontier investment markets - the MXEF has increased by about 7% from 30th November 2012 to date. If we can benefit from a continuation of this trend, then the operational gearing inherent in City of London's business model, together with the reduced costs and commissions, will produce a welcome uplift in revenues, profitability, dividend cover and ultimately, dividends themselves."

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

Chairman's statement

This is my first statement to shareholders since becoming Chairman on Andrew Davison's retirement at the conclusion of the Annual General Meeting in October 2012. I have been a non-executive director of the Company since the IPO in 2006 and was the Senior Independent Non-executive Director from 2008 until my appointment as Chairman.

The six month period to 30th November 2012 was not an easy one for City of London. Global investors remained nervous of prospects for both developed and emerging economies, and this resulted in an environment in which there was little or no interest from investors in taking up any new strategies or products, including our own. We have taken the opportunity to rationalise our portfolio of equity products and this is discussed in more detail in the Chief Executive Officer's (CEO) review below.

On top of these challenges, the Group has also had to deal with the very large redemption from a single client that took the management of its emerging market exposure in-house, having been a client of ours for nearly five years. The decision was based on a change in the client's strategic objectives.

Total funds under management ("FuM") at the Company's half-year end on 30th November 2012 were US$3.9 billion (£2.4 billion), a decline of 13% in US$ terms, compared to the US$4.5 billion (£2.9 billion) at 31st May 2012. The decrease of US$0.6 billion over the period reflected almost entirely the client redemption mentioned above, which totalled US$0.5 billion.

Results - unaudited

As a result of the decline in FuM, revenues for the half-year were 12% lower at £15.1 million (2011: £17.2 million). Our practice of keeping our ratio of fixed costs to variable costs to a minimum meant that overall costs declined with revenues, producing a 9% reduction in administrative expenses to £10.5 million for the period (2011: £11.6 million). Profit before tax was £4.7 million compared to £5.7 million for the six months to 30th November 2011 (excluding a gain of £0.4 million on the sale of an investment in options on unquoted equity), representing a decline of 18%.

Variable costs within administrative expenses represented approximately 49% of the total (2011: 53%). The principal components are profit-share of £2.3 million (2011: £2.8 million), and the commission payable to our ex-third party marketing consultant of £2.2 million (2011: £2.7 million).

Basic earnings per share, after a 29% tax charge of £1.4 million (2011: £2.0 million representing 33% of profit before tax), were 13.1p (2011: 16.2p). Diluted earnings per share were 12.9p (2011: 15.7p).

Dividends

We stated in an update announced on 15th November 2012, that it was the Board's intention to maintain the interim dividend at last year's level of 8p per share, albeit with a reduced (and we hope temporary) level of cover. The Board has subsequently confirmed the payment of a maintained interim dividend of 8p per share. The dividend was paid on 28th December 2012 to shareholders on the register on 14th December 2012. That we can do this is a reflection of the Group's conservative financial management philosophy and careful management of the balance between fixed and variable costs. Our dividend payment policy has normally been based on a split of one third/two thirds between the interim and the final, and currently there are no plans for this to change.

Board

Andrew Davison stepped down as Chairman and retired from the Board at the beginning of October 2012. Andrew had been Chairman since 1999 and for over thirteen years provided wise and valued counsel to the Board and the Group. On behalf of the Directors, staff and shareholders, I thank him for his contribution and wish him a long and happy retirement.

In line with our policy of putting in place long term succession planning, there have been two other changes to the Board since the period end. As we advised shareholders over a year ago, City of London's founder, Barry Olliff, planned to relinquish his role as Chief Executive in favour of Doug Allison, our Finance Director since 1998, but would retain his role as Chief Investment Officer. These changes were duly announced on 31st December 2012, along with the appointment of Valerie Tannahill as Finance Director to replace Doug. Valerie joined City of London in 1997 as Finance Manager, and is a director of The World Markets Umbrella Fund plc, City of London's Dublin listed UCITS product. I congratulate both Doug and Valerie on their appointments and welcome Valerie to the Board.

Outlook

The Group's business model is built to withstand shocks and to cope with volatility, nevertheless we constantly strive both to improve efficiencies and to cut fixed and variable costs. The Board and management have recently instituted a review focusing on product restructuring and process improvement including technology driven efficiencies in order to enhance the core investment management function; we are currently in the process of implementing the improvements identified. We expect this programme to result in annualised cost savings of at least £1 million, to be reflected fully in our 2013/14 financial year. In addition, next year will see the first of the significant reductions in run-off commissions payable to our previous third party marketing consultants, as further detailed in the CEO review. Both of these factors can be expected to have a positive impact on Group profitability.

We anticipate that global investors will re-commit to our core emerging and frontier investment markets - the MXEF has increased by about 7% from 30th November 2012 to date. If we can benefit from a continuation of this trend, then the operational gearing inherent in City of London's business model, together with the reduced costs and commissions, will produce a welcome uplift in revenues, profitability, dividend cover and ultimately, dividends themselves.

David Cardale

Chairman

16th January 2013

Chief Executive Officer's review

This will be my last Review for shareholders as Chief Executive Officer of City of London. As previously advised, I stood down as CEO at the end of 2012 but will continue in my role as Chief Investment Officer.

Funds under Management ("FuM") at the Group's half year end, 30th November 2012 were US$3.9bn (£2.4bn). This should be compared with US$4.8bn (£3.0bn) at 30th November 2011 and US$4.5bn ($2.9bn) as at May 31st 2012. As an update, FuM at the end of December were US$4.1bn (£2.5bn).

MXEF, (which we use as a proxy via which our FuM can be measured and compared), was 1007 at the end of November 2012, 928 at the end of November 2011 and 906 at the end of May 2012. MXEF at the end of December 2012 was 1055. These price index levels should be compared with the all-time high in MXEF of 1340 at the end of October 2007 and our all-time high assets under management of US$6.2bn at the end of April 2011.

Results - unaudited

Our pretax profits for the half year were £4.7 million compared with £5.7 million for the equivalent period to 30th November 2011 (excluding a gain in the prior period of £0.4 million on the sale of an investment in options on an unlisted investment). At the same time an interim dividend of 8p was announced for Y/E 2013 (2012: 8p).

Investment performance

I thought that it would be helpful for shareholders if I was to drill down into certain aspects of our investment performance.

The Size Weighted Average Discount (SWAD) of our largest commingled fund has increased from 7.7% to 13.4% over the past five years. This significant head wind has adversely, particularly over the last two years affected the investment performance of our Emerging Markets closed-end fund business. While significant moves over long periods can be countered via good country allocation relative to the funds' benchmark, and opportunities to trade discount volatility, moves in the SWAD of the order of magnitude, between October 2010 (8.7%) and end September 2012 (13.4%) are virtually impossible to counter. As of the end of December the SWAD was 13.1%.

The SWAD, particularly when it increases or decreases significantly in a short period of time, is therefore a headwind or a tailwind in terms of our investment performance. However, by far and away the greater contribution to investment performance through extended cycles is trading the various securities that we consider to be within our investible universe, taking advantage of discount volatility, country allocation and also corporate actions. These parts of our process have continued to do very well through this period of underperformance.

The recent narrowing of the SWAD from 13.4% to 13.1% referenced earlier has provided us with some modest outperformance, and in addition is beginning to reflect a significant number of transactions that had been announced by CEF's over the recent period. With discounts remaining so wide for so long it would seem likely that there will continue to be buy- backs, tender offers, in specie distributions along with the odd liquidation and open ending. Thus we believe that our investment performance will continue to improve.

As was referenced in previous CEO Reports (both the Half Year report for 2012 and the Report and Accounts for 2012), in our opinion, a wide discount to NAV reflects either over supply or a poorly performing or constructed product. To the extent that supply is reduced as has been happening recently, not only will discounts narrow, but our performance will improve. I would make the point that we have gone through many such cycles and this one seems to be no different from those that have gone before.

Diversification

Fortunately we are well advanced in our diversification plans which have recently started to generate significant interest. Emerging Asia Small Cap, Global Absolute Return Fund (GARF) and GARF Plus, Frontier and Global Developed all outperformed their relevant benchmarks last year and are now being actively marketed. In many instances we have provided additional infrastructure or personnel to these areas of our business to ensure that as they develop they are adequately resourced.

We decided to rationalise our Equity products. Brazil, Chile and Mexico plus EM Value and Growth have been liquidated. We have started a new Emerging Markets Equities Small Cap fund based upon the process developed within our Asia Small Cap Fund.

Cost controls

As referenced in the announcement on 15th November we have continued to focus on cost controls. We consider that we are pretty lean to start with but we have taken a look at many of our support functions and where it has been possible we have reduced costs, significantly in aggregate. In many instances we have taken advantage of advances in technology that we have recently introduced. This has enabled us to reduce our headcount. Total savings as a result of our reductions in expenses on an annual basis are expected to exceed £1 million.

Our Operating Margin has increased from 0.85% in December 2010 to 0.91% as of December 2012, based on monthly data which includes estimated accruals.

One of the contributing factors leading to this increase in margin was that after our third party marketing agreement ended, all new business was written at our full fee (without 20% being paid out as commission).

The large majority of departing clients therefore had effectively been paying us 80% of our fee with the other 20% going to the marketing agent. The effect of this on our present margin, our ongoing commission liabilities, and the potential for retained earnings is shown in the table following.

This reduction in commission payments is very noticeable in the higher margin referenced above. The most recent uptick reflects the loss of our largest client who was paying us a lower fee as a result of their size.

All data in the following table, with the exception of the last column, is from previous Report and Accounts. The table estimates the commission payable annually through to final run-off, using the level of FuM and US$/£ rate at each data point, most recently 31st December 2012.

Responsibilities

Having worked in the City for 50 years, it's been 25 years since I started a new business, Olliff and Partners (O&P), back in 1987. City of London Investment Group which was an outgrowth of O&P has been developed over the past 21 years and I would like to thank all present and past employees for the assistance that they have provided in the growth of that business.

As referenced in the announcement on 31st December, from 1st January 2013 Doug Allison became CEO. I continue in the role of Chief Investment Officer. I would like to wish Doug all the best with his new responsibilities.

Barry Olliff

Chief Investment Officer

16th January 2012

For further information please see the most recent presentation to CLIG shareholders released today. This is on our website www.citlon.co.uk

Consolidated income statement

For the six months ended 30th November 2012

Consolidated statement of comprehensive income

For the six months ended 30th November 2012

*Net of deferred tax

Consolidated statement of financial position

30th November 2012

Consolidated statement of changes in equity

For the six months ended 30th November 2012

Consolidated cash flow statement

For the six months ended 30th November 2012

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 31st May 2012 has been extracted from the latest published audited accounts. 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 Services Authority and IAS 34 "Interim Financial Reporting" as adopted by the European Union. The accounting policies are consistent with those set out and applied in the statutory accounts of the Group for the period ended 31st May 2012.

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 revenue based on the domicile of its clients and non-current assets based on where the assets are held. Any individual client generating revenue of 10% or more would be disclosed separately, as would assets in a foreign country if they are material.

3. Interest receivable and similar income

Last year's interim figure includes a gain of US$675,000 (£435,091) on the sale of an investment in options on unquoted equity.

4. Earnings per share

The calculation of earnings per share is based on the profit for the period of £3,309,550 (31st May 2012- £8,497,854; 30th November 2011 - £4,082,138) divided by the weighted average number of ordinary shares in issue for the six months ended 30th November 2012 of 25,254,902 (31st May 2012 -25,171,389; 30th November 2011 - 25,203,351).

As set out in note 5 the Employee Benefit Trust held 1,877,783 ordinary shares in the company as at 30th November 2012. The Trustees of the Trust have waived all rights to dividends associated with these shares. In accordance with IAS33 "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 of £3,309,550 (31st May 2012 - £8,497,854; 30th November 2011 - £4,082,138) divided by the diluted weighted average number of ordinary shares in issue for the six months ended 30th November 2012 of 25,697,187 (31st May 2012 - 25,917,327; 30th November 2011 - 26,018,983).

5. 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 30th November 2012 the Trust held 1,877,783 ordinary 1p shares (31st May 2012 - 1,711,867; 30th November 2011 - 1,746,117), of which 1,585,115 ordinary 1p shares (31st May 2012 - 1,654,242; 30th November 2011 - 1,667,492) were subject to options in issue.

6. Dividends

A final dividend of 16p per share in respect of the year ended 31st May 2012 was paid on 19th October 2012.

An interim dividend of 8p per share (2012 - 8p) in respect of the year ended 31st May 2013 was paid on 28th December 2012 to members registered at the close of business on 14th December 2012. This interim dividend was paid earlier than usual to accommodate US resident shareholders.

7. General

The interim financial statements for the six months to 30th November 2012 were approved by the Board on 16th January 2013. These financial statements are unaudited, but they have been reviewed by the auditors, having regard to the bulletin "Review of Interim Financial Information" issued by the Auditing Practices Board.

Copies of this statement are available on our website, www.citlon.co.uk

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