City Lon Inv Regulatory News (CLIG)

8 Jun 2009 07:00



CITY OF LONDON INVESTMENT GROUP PLC

("City of London" or "the Group")

tRADING UPDATE FOR THE YEAR TO 31 MAY 2009

City of London (AIM: CLIG), a leading emerging markets asset management group, provides a trading update for the financial year ended 31 May 2009. The numbers that follow are all unaudited.

The Group has added new clients over the period despite the significant market declines. Funds under management ("FuM") were $3.50 billion (£2.17 billion) at 31 May 2009. This compares with $4.71 billion (£2.38 billion) at 31 May 2008, a decline of 26%, versus a fall of 36% in the MSCI Emerging Markets Index (MXEF) over the same period. With revenues almost entirely dollar denominated, the Group has benefitted throughout most of the period under review from the relative weakness of sterling.

A measure of the group's success in growing FuM during what most would see as an exceptionally difficult year can be found by referencing the opening and closing FuM to the index, MXEF. At 31st May 2008, the group was managing $4.7 billion, with MXEF at 1,207. The equivalent FuM re-based to the 31st May 2009 MXEF level of 773 would be $3.0 billion, so the additional $0.5 billion represents an underlying growth rate of just under 17%. Looked at in the same way, since the apparent peak of $4.95 billion in October 2007, underlying FuM have actually grown by 24%. In addition to the stated year end FuM, awarded but unfunded mandates total a further $517 million.

For the year to 31 May 2009, City of London expects that pre-tax profits will be approximately £5.4 million (2008: £10.7 million) and that profits after an anticipated tax charge of £1.6 million (29% of pre-tax profits) will be approximately £3.8 million (2008: profits of £7.1 million after a tax charge of £3.6 million, representing 34% of pre-tax profit). Basic and fully diluted earnings per share are expected to be 15.9p and 14.8p respectively (2008: 29.3p and 26.1p).

With FuM at significantly lower levels through the second and third quarters, fee income at an expected £20.3 million represents a decrease of around 19% compared to last year's £24.9 million, the fall having been cushioned by sterling weakness. That weakness however has had an adverse impact on costs, with overheads approximately 29% higher, but variable costs, which this year should form circa 46% of the total cost base (2008: 60%), fall from £9.0 million to around £6.7 million, and as a result total "administrative expenses" are expected to be £14.5 million as compared to last year's £15.0 million.

The Group's dividend policy is unchanged, based on paying dividends that are covered approximately one and a half times by full year earnings per share, but a temporary reduction in earnings cover is intended this year in recognition of exceptional market conditions, and within the context of a strong cash position and an improving outlook. An interim dividend of 5p (2007/8: 6p) was paid in March, and in line with this and based upon the customary one thirds/two thirds split, the Board is recommending a final dividend of 10p per share (2008: 13.5p), making a total for the year of 15p (2008: 19.5p), covered 1.06 times by earnings per share (2008: 1.50 times). It is relevant to note that a substantial recovery of corporation tax, not far short of £1 million, has been accrued to reflect the allowable cost of share option exercises, but that in accordance with IAS12 this credit has for the most part been taken directly to reserves. While this tax adjustment therefore provides no earnings cover, it will upon receipt increase cash cover, and the Board proposes to take this into account when considering next year's interim dividend.

In keeping with the optimism expressed at the interim stage, the Group has continued to progress organic expansion with four senior appointments during the year. In the US, a fund manager was appointed to support the first mandate for a product investing via closed end funds in developed markets, which is expected to total US$100 million once funded. To implement the Group's decision to bring its US marketing in-house and reduce third party commissions, a marketing manager has been appointed to develop our direct relationship with the consultant industry which advises institutional investors.

* prior year final plus current year interim

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