TIDMCLIG
RNS Number : 6239Q
City of London Investment Group PLC
22 February 2023
22nd February 2023
CITY OF LONDON INVESTMENT GROUP PLC
("City of London", "the Group" or "the Company")
HALF YEAR RESULTS TO 31ST DECEMBER 2022
City of London (LSE: CLIG) announces that it has today made
available on its website, https://www.clig.com/ , the Half Year
Report and Financial Statements for the six months ended 31st
December 2022.
The above document will 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 .
HALF YEAR SUMMARY
- Funds under Management (FuM) of US$9.2 billion (GBP7.6
billion) at 31st December 2022. This compares with US$9.2
billion (GBP7.6 billion) at the beginning of this financial
year on 1st July 2022 and US$11.1 billion (GBP8.2 billion)
at 31st December 2021
- FuM at 31st January 2023 of US$9.8 billion (GBP8.0 billion)
- Net fee income representing the Group's management fees
on FuM was GBP27.3 million (31st December 2021: GBP29.8
million)
- Underlying profit before tax* was GBP11.7 million (31st
December 2021: GBP15.5 million). Profit before tax was
GBP9.5 million (31st December 2021: GBP13.6 million)
- Maintained interim dividend of 11p per share (31st December
2021: 11p) payable on 31st March 2023 to shareholders
on the register on 3rd March 2023
*This is an Alternative Performance Measure (APM). Please
refer to the CEO review for more details on APMs.
For access to the full interim report, please follow the link
below:
http://www.rns-pdf.londonstockexchange.com/rns/6239Q_1-2023-2-21.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.clig.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
CHAIR'S STATEMENT
There can be no sugar-coating the fact that the second half of
calendar year 2022 was a challenging time for the global economy
with the combination of rising interest rates, COVID-related
disruption in China and supply-chain bottlenecks elsewhere each
having a negative impact. However, the relaxation of China's
restrictive COVID policies in December and something of a winter
stalemate in the Ukrainian conflict helped calm markets towards
year-end, recovering all the ground lost in the August-October 2022
period. More recently, the milder winter weather in Europe and
reduced dependence on Russian gas supplies have allowed energy
prices to fall sharply from their autumn highs back towards longer
term pricing trends.
A strong upward move in the US dollar that accompanied the US
Federal Reserve's tighter monetary stance exerted particular
pressure on the emerging markets (EM) in the late summer/autumn
period with the MXEF falling 16% between the end of June 2022 to
its 24th October 2022 low of 843. While developed and debt markets
were less affected, the fact that EM assets still account for
nearly 39% of the Group's total Funds under Management (FuM) had an
inevitable impact on revenues for part of the six-month period, as
outlined in the following pages. Once again, however, the greater
diversity of clients and assets that derive from KIM enabled the
Group to manage these headwinds with greater confidence than would
have been the case in previous years.
In times of choppy markets, such as those witnessed in 2022, it
is vital that maximum effort is devoted to "looking after the
shop", namely our stakeholders. To that end, I am pleased to report
that we have maintained very strong client and employee retention
across both operating entities despite the challenges of volatile
markets and remote working. It is to the credit of Tom Griffith and
the teams across all our offices that this is the case and on
behalf of the Board and our shareholders I would like to thank
them.
Assets and performance
Group FuM fell by US$73 million, or slightly less than 1%, in
the six months ended 31st December 2022 to US$9.2 billion. CLIM's
FuM was barely changed at US$5.8 billion while KIM saw net outflows
of US$102.6 million. The neutral movement in CLIM's FuM over the
period masks the encouraging gross inflows into each of CLIM's
strategies. Given the market falls of 2022, all of CLIM's
strategies have the capacity to take additional funds and with
face-to-face meetings now possible, the marketing effort in the
institutional space will be given renewed impetus in the coming
months. New business development at KIM remains a high priority
and, as CEO Tom Griffith will explain later in this report,
additional resources have been mobilised with the objective of
winning new business in the wealth management space in 2023.
The key driver in attracting additional assets across all
strategies is performance and results for the most recent six-month
period across both operating entities were highly encouraging. Each
of CLIM's core strategies registered relative outperformance
against their respective benchmarks while all but two of KIM's
seven strategies registered both positive returns and relative
outperformance against their benchmarks, maintaining an excellent
record through the full cycle of rising and falling markets of
recent years. Of particular note once again was the strong returns
generated in KIM's fixed income assets despite a widening of
discounts in closed-end funds (CEFs) through most of 2022.
Results
In contrast to the modest movements in FuM during the last six
months, comparison of the financial results year-on-year (YoY)
present a quite different picture due to lower equity markets in
2022 (vs. 2021) and sharp swings in the sterling/US dollar
(GBP/US$) exchange rate. Profit before tax for the six months to
31st December 2022 was GBP9.5 million (31st December 2021: GBP13.6
million), representing a fall of 30%. Using the preferred
Alternative Performance Measure (APM)*, underlying profit before
tax fell by c.25% to GBP11.7 million in the first half (31st
December 2021: GBP15.5 million). While net fee income fell by a
modest c.8% YoY to GBP27.3 million, administrative expenses rose by
c.12% to GBP18.1 million, reflecting a combination of higher
payroll costs, ongoing investment in IT systems and business
development. It is important to note, however, that c.64% of Group
overheads arise in US dollars so the average 14% fall in the
GBP/US$ exchange rate YoY translates to correspondingly higher
costs when expressed in sterling terms.
Statutory fully diluted earnings per share for the six months to
31st December 2022 were 14.7p (31st December 2021: 21.2p), while
underlying fully diluted earnings per share were 18.1p (31st
December 2021: 24.1p) (Refer note 4). While a degree of uncertainty
continues to weigh on capital markets in the early weeks of 2023,
the expectation that both inflation and interest rates will
stabilise in the nearer term is gaining traction among forecasters.
Equally important for CLIG is the fact that, following the sharp
swings in the GBP/US$ rate towards the end of 2022, a degree of
calm appears to have returned.
Dividends
While it is prudent to retain a cautious approach to the coming
year, the more stable conditions of recent weeks provide a degree
of encouragement and it is with this in mind that your Board is
declaring an unchanged interim dividend of 11p per share, despite
lower profits for the period. Dividend policy over a number of
years has been predicated on the objective of providing
shareholders with a relatively stable pattern to distributions,
while avoiding an undue build up in excess capital. Shareholders
will appreciate that this can be a challenging goal from time to
time, given the underlying volatility in the markets in which we
are invested and, to that end, payouts are calibrated over rolling
five-year periods rather than any single year. This can result in
quite wide variations in the payout ratio between single years, as
demonstrated in these results when underlying profits have fallen
by c.25%. Whereas the results in the six months to 31st December
2021 gave considerable "headroom" between earnings and dividends,
the most recent results show that headroom to be much reduced.
By adopting a five-year rolling policy, shareholders enjoy a
degree of insulation from market volatility, which we believe is in
the best interests of shareholder value over the longer term.
However, it is important to clarify how this policy is applied
since the 2020 merger with KIM. Whereas our Generally Accepted
Accounting Principles (GAAP) results include amortisation of
intangibles arising from acquisition and gains or losses from
investments, underlying profits* exclude these non-cash items and,
in the view of your Board, provide a more accurate presentation of
financial performance. By way of clarification, the Board applies
the rolling five-year dividend cover policy using the latter
metric, namely underlying profit*. The interim dividend will be
paid on 31st March 2023 to those shareholders registered at the
close of business on 3rd March 2023.
* This is an Alternative Performance Measure (APM).
ESG
The focus of the Group's "green" initiatives is to secure
renewable energy for all our offices, a goal which has already been
achieved in London. In the US, we have signed up for a local "catch
the wind" programme in Rochester while plans are in place to
contract a renewable energy provider for CLIM's US office.
Continued emphasis to use video conferencing for both internal and
client meetings will also help minimise the Group's carbon
footprint and we have appointed a third party ESG consultant to
perform a gap analysis on the journey towards net zero.
In July 2022, CLIG adopted a group-wide hybrid "work from home"
(WFH) policy following employee feedback while all employees have
attended training programmes directed towards diversity, equity and
inclusion, which will be ongoing in nature. With regard to the
critical issue of cybersecurity, all employees receive monthly
training to reinforce awareness of the growing threats emanating
from online crime.
Alongside adherence to the Group's governance obligations at
Board level, which are discussed below, the Group is strongly
committed to regular workforce engagement sessions to develop a
closer relationship between employees and the independent Directors
who are not involved in the business on a day-to-day basis.
Importantly, these sessions are structured so as to encourage a
rapport between the independent Directors and employees.
The Board
Following the Board changes which I outlined in my report to
shareholders in September 2022, the Group believes it is now fully
compliant with the UK Corporate Governance Code (the Code) and no
further changes to its composition are expected in the current
financial year. At the same time, close attention is being devoted
to the issue of succession planning in light of the changes that
will arise in the medium term as Directors reach the end of their
tenure. Jane Stabile and her colleagues on the Nomination Committee
will be addressing this question in detail in the coming months
with a view to formalising selection criteria that embrace the
Code's objectives, particularly in respect of diversity and
inclusion.
Outlook
While I may have been a little premature in my September
statement to shareholders in expressing a degree of optimism that
supply bottlenecks might ease "in the coming months" the most
recent data suggests that, as we pass the first anniversary of the
Ukraine conflict, YoY inflation numbers will moderate
progressively. Although Ukraine remains a concern for markets, the
initial economic disruption which arose in 2022 appears unlikely to
recur in the absence of the conflict proliferating beyond Ukraine's
borders. If, as indicated in recent weeks, inflation subsides in
the coming months, policy makers are likely to be more willing to
rein back from further monetary tightening, thereby easing the
growing wage inflation pressures that otherwise threaten a return
to trend growth in 2023. Thus, while it may be premature to voice
optimism for the year ahead, there are sufficient green shoots to
suggest that the significant dislocation to the global economy,
which was the feature of 2022, will prove transitory.
Barry Aling
Chair
21st February 2023
CHIEF EXECUTIVE OFFICER'S REVIEW
Change is the only constant
A number of forces were set in motion during the COVID-19
pandemic and ensuing global quarantines: technology use
accelerated, workforce expectations changed, while historically low
unemployment and supply chain disruptions created shortages that
manifested in inflation. Each of these impacted your Company during
the interim period.
Advancements in the technology industry became necessary during
the pandemic for a number of reasons, from an increased volume of
consumers ordering goods online to business communications. Late
adopters of solutions like video conferencing were pushed to adapt,
resulting in an influx of end users forcing providers of these
technology solutions to upgrade their offerings. These provider
upgrades impacted not just the end user applications but also the
devices and networks used to deliver these solutions. To meet the
demand, upgrades were initiated over the interim period that will
simplify the operation and maintenance of our network and related
devices while lowering the ongoing costs significantly.
Expectations about how and where work is undertaken changed in
the post-pandemic period and has continued to impact both employees
returning to the office and hiring, creating the need for
"compromise" solutions. Whether this is a transitory period of
modified working habits or a paradigm shift to a new normal is an
ongoing debate that will only resolve in the months and years
ahead. In the shorter term, the rate of unemployment in the US
remained at historically low levels resulting in fewer candidates
for open positions. That, along with inflationary pressures, had an
impact on increased salary levels. All of this uncertainty
transpired during a market downturn, which impacted revenues for
financial services companies.
Internally, employee longevity is a factor impacting the
business. As indicated in our June 2022 Annual Report &
Accounts (ARA), 68% of our employees have been with the Group for
more than ten years, with 15% exceeding twenty years. Ultimately,
successful employee retention results in retirements, particularly
for firms established in 1986 and 1991 as with KIM and CLIM
respectively. As with Founders, the retirement of senior executives
requires significant time for succession planning to achieve a
smooth transition period generating short-term overlaps. A number
of retirements have successfully occurred over the interim period
along with planning for pending retirements.
We have taken the opportunity in these six months to continue to
invest in our two subsidiaries, CLIM and KIM at a time in the
market cycle when other, less-conservatively run companies, may be
under pressure. We have hired talented individuals at both
Companies to support investment management, business development,
and marketing. We are investing in system improvements and
upgrades, operations employees, and software engineers in order to
help the businesses run more smoothly with increased
capabilities.
We continue to run your Group in a fiscally conservative manner,
with no debt and a strong balance sheet. We are structured to take
advantage of opportunities as they arise for the benefit of our
shareholders. While our operating environment has evolved, as
explained above, our patient and conservative approach allows us to
capitalise on opportunities when presented.
Market commentary and client performance
We highlighted the negative annual returns of various equity and
fixed income asset classes over the previous year in the June 2022
ARA, along with highlights of the headwinds confronted by your
Company during the financial year, including geopolitical events,
labour shortages and supply chain disruptions. The table below
provides an update on the returns of those asset classes over the
past six months. As shown, the sharp declines during the first half
of the calendar year were not replicated in the second half.
Asset class returns
Index Index Name Strategy 1H 2022 Return 2H 2022 Return 2022 Return
---------------------- --------------- --------------- ---------------
MXEF MSCI EM Index Emerging -17.5% -2.9% -20.0%
---------- ---------------------- --------------- --------------- --------------- ------------
MSCI World
MXWO Index International -20.3% 3.2% -17.8%
---------- ---------------------- --------------- --------------- --------------- ------------
MSCI World
MXWOU Ex US Index Global -18.4% 5.7% -13.8%
---------- ---------------------- --------------- --------------- --------------- ------------
Bloomberg Muni
Bond Total Municipal
LMBITR Return Index Bond -9.0% 0.5% -8.6%
---------- ---------------------- --------------- --------------- --------------- ------------
Vanguard Balanced
VBINX Index ETF Balanced -17.1% 0.2% -17.0%
---------- ---------------------- --------------- --------------- --------------- ------------
Bloomberg Global-Agg
Total Return
LEGATRUU Index Global Bond -13.9% -2.7% -16.3%
---------- ---------------------- --------------- --------------- --------------- ------------
Bloomberg US
Aggregate Bond
LBUSTRUU Index US Bond -10.4% -3.0% -13.0%
---------- ---------------------- --------------- --------------- --------------- ------------
Domestic
SPX S&P 500 Index US -20.0% 2.3% -18.1%
---------- ---------------------- --------------- --------------- --------------- ------------
The point-to-point returns don't tell the whole story though and
could use some additional context. Emerging Market (EM) equity fell
the furthest relative to the other asset classes and rebounded
later. While CLIG's diversification efforts have been significant,
CLIG shareholders remain significantly exposed to the EM asset
class comprising circa 39% of CLIG's Funds under Management (FuM).
These further falls, and delay in the rebound, had a negative
impact on CLIG's revenue whilst changes in our operating
environment created short-term increases in labour and technology
expenses.
During the interim period ended 31st December 2022, all CLIM
strategies with material external assets outperformed their
respective benchmarks. The outperformance was led by the NAV
performances of the underlying closed-end funds (CEFs), whilst
discounts remained wide. At KIM, the Balanced and Fixed Income
strategies, which consist of the majority of KIM's FuM,
outperformed their respective benchmarks over the six-month period.
The outperformance was led by increased exposure to municipal fixed
income CEFs.
FuM & flows
FuM as at 31st December 2022 was US$9.2 billion, which is a 0.8%
decrease from the beginning of the financial year. The percentage
breakdown between the various lines of business shown in the chart
below remain relatively unchanged from the financial year-end.
CLIG - FuM by line of business (US$m)
CLIM 30 Jun 30 Jun 30 Jun 2021 30 Jun 2022 31 Dec 2022
2019 2020
US$m % US$m % US$m % % US$m % % US$m % %
of of of of of of of of
CLIM CLIM CLIM CLIG CLIM CLIG CLIM CLIG
total* total* total total total total total total
------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Emerging
Markets 4,221 78% 3,828 69% 5,393 72% 47% 3,703 64% 40% 3,571 62% 39%
------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
International 729 14% 1,244 23% 1,880 25% 17% 1,812 32% 20% 1,894 33% 21%
------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Opportunistic
Value 233 4% 256 5% 231 3% 2% 193 3% 2% 240 4% 2%
------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Frontier 206 4% 175 3% 13 0% 0% 9 0% 0% 8 0% 0%
------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Other/REIT 7 0% 9 0% 13 0% 0% 74 1% 1% 69 1% 1%
------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
CLIM total 5,396 100% 5,512 100% 7,530 100% 66% 5,791 100% 63% 5,782 100% 63%
------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
KIM 30 Jun 30 Jun 30 Jun 2021 30 Jun 2022 31 Dec 2022
2019 2020
--------------- --------------- ----------------------- ---------------------- ----------------------
US$m % US$m % US$m % % US$m % % US$m % %
of of of of of of of of
KIM KIM KIM CLIG KIM CLIG KIM CLIG
total* total* total total total total total total
------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Retail 2,291 67% 2,401 69% 2,804 72% 24% 2,419 70% 26% 2,341 69% 26%
Institutional 1,105 33% 1,087 31% 1,115 28% 10% 1,014 30% 11% 1,028 31% 11%
------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
KIM total 3,396 100% 3,488 100% 3,919 100% 34% 3,433 100% 37% 3,369 100% 37%
------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
CLIG total 11,449 100% 9,224 100% 9,151 100%
--------------- ------ ------- ------ ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
*Pre-merger
Net investment
flows (US$000's)
------------------- ---------- ---------- ---------- ---------- ----------
CLIM FYE Jun FYE Jun FYE Jun FYE Jun HYE Dec
2019 2020 2021 2022 2022
------------------- ---------- ---------- ---------- ---------- ----------
Emerging Markets (183,521) (279,459) (275,493) (315,770) (65,501)
International 252,883 551,102 (14,145) 452,554 13,323
Opportunistic
Value 48,236 45,914 (102,663) 617 47,362
Frontier (21,336) 16,178 (168,843) (4,748) -
Other/REIT 6,000 4,600 - 79,133 -
------------------- ---------- ---------- ---------- ---------- ----------
CLIM total 102,262 338,335 (561,144) 211,786 (4,816)
------------------- ---------- ---------- ---------- ---------- ----------
KIM FYE Jun FYE Jun FYE Jun FYE Jun HYE Dec
2019 2020 2021* 2022 2022
------------------- ---------- ---------- ---------- ---------- ----------
Retail 33,701 26,323 (104,222) (106,444) (108,514)
Institutional 9,050 (67,087) (130,911) (3,302) 5,927
------------------- ---------- ---------- ---------- ---------- ----------
KIM total 42,751 (40,764) (235,133) (109,746) (102,587)
------------------- ---------- ---------- ---------- ---------- ----------
*Includes net investment flows for Retail - (24,407) and
Institutional - (20,264) pertaining to period before 1st October
2020 (pre-merger)
CLIM's International (INTL) and Opportunistic Value (OV)
strategies experienced net inflows over the interim period. While
there were net outflows in the EM business driven by asset class
rebalancing and pension plan de-risking, the magnitude of outflows
reduced. At KIM, outflows were particularly focused on retail
investors, who can be susceptible to different drivers versus
institutional. In particular, loss aversion is higher in retail
investors, which can trigger greater redemptions in uncertain
times, such as experienced in 2022.
Don't miss the wood for the trees
While we recognise that CLIG's financial results in our interim
report are based on quarterly and half-yearly results, we resist
the inherent conflict with long-term objectives that can yield
lasting results. By way of an example, if we had focused only on
short-term results we may never have launched or continued the INTL
strategy at CLIM. After c.8 years with marginal success, our
persistence paid off with a diversified revenue stream for our
Shareholders, career advancement and jobs for Employees and a
product benefiting Clients. Investment flows at KIM are another
example of the need to remain focused on our long-term goals.
While this is an interim report, the calendar year 2022 flows
are relevant in evaluating progress. Snapshots can be useful if the
results are evaluated in the context of trends and long-term
planning. To this end, we have provided the actual flows, by
quarter, for the 2022 calendar year in addition to the net flows
normally reported.
During a challenging year of declining asset values, rising
inflation and concerns of a pending recession, US households saved
less in 2022 relative to previous years, per the US Bureau of
Economic Analysis (see chart on p.9 of full interim report).
Against this backdrop, the KIM team had a successful year raising
assets of US$233.5 million. This is a trend that we expect to
continue into 2023.
Quarterly CLIM KIM CLIG Total
Flows
Flows (US$m) Inflows Outflows Net Inflows Outflows Net Inflows Outflows Net
Flows Flows Flows
-------- --------- ------- -------- --------- -------- -------- --------- --------
01-Jan-22
to 31-Mar-22 204.1 (43.6) 160.5 58.2 (74.1) (15.9) 262.3 (117.7) 144.6
01-Apr-22
to 30-Jun-22 224.2 (114.2) 110.0 67.6 (109.5) (41.9) 291.8 (223.7) 68.1
01-Jul-22
to 30-Sep-22 105.5 (59.1) 46.4 74.6 (80.7) (6.1) 180.1 (139.8) 40.3
01-Oct-22
to 31-Dec-22 84.5 (135.7) (51.2) 33.1 (129.6) (96.5) 117.6 (265.3) (147.7)
-------- --------- ------- -------- --------- -------- -------- --------- --------
Total for
calendar
year 2022: 618.3 (352.6) 265.7 233.5 (393.9) (160.4) 851.8 (746.5) 105.3
-------- --------- ------- -------- --------- -------- -------- --------- --------
New business development remains a high priority for the KIM
team in 2023 as mentioned in the Chair's statement. A number of
seasoned professionals have been added to the client-facing area of
the firm who can leverage the improved systems and reporting
capabilities that have been a focus of the integration post-merger.
Client communications have been upgraded, along with a redesigned
website, to improve KIM's ability to share its story. KIM's
investment performance continues to be excellent and thus a
compelling story for existing and potential new clients. Consultant
databases used by potential clients to screen managers are now
fully populated and returns are Global Investment Performance
Standards(R) (GIPS) ** compliant, resulting in greater search
visibility and inbound enquiries.
** GIPS is a registered trademark owned by the CFA
Institute.
Despite reporting net outflows for the financial year to date
through 31st December 2022, CLIG (via the CLIM and KIM operating
subsidiaries) generated inflows of US$851.8 million during calendar
year 2022. We believe this is a strong indicator that our marketing
and new business efforts are progressing. For calendar year 2022,
CLIG's operating subsidiaries had net inflows of US$105.3 million
as shown in the table above. Clearly more effort is required on
client retention - this remains a Group-wide priority.
The outflows at KIM over the past twelve months were not outside
the norms relative to other US investment managers. Morningstar
reported "US funds suffered their first calendar year of outflows
since Morningstar started tracking, a total of US$370 billion",
with the data starting in 1993*. Additionally, per Morningstar,
actively managed fixed income funds saw elevated redemptions, which
occurred during a rising interest rate environment.
*Source:
https://www.morningstar.com/articles/1129741/us-fund-flows-net-redemptions-in-november
KIM will traditionally have increased withdrawals at calendar
year ends due to the timing of US Government required minimum
distributions from retirement accounts of US retail investors.
Additionally, due to the increase in interest rates in the US,
financial institutions can offer Certificates of Deposit directly
to retail investors at higher interest rates compared to recent
history.
Business integration update
Your management team continues to make incremental improvements
within the two subsidiaries. The primary focus of the integration
has been via projects in finance, operations, information
technology, and marketing. Specifically, during the past six
months, we have upgraded our accounting software and implemented it
groupwide to improve financial reporting and productivity.
Financial results
Net fee income currently accrues at a weighted average rate of
approximately 73 basis points (31st December 2021: 74 basis points)
of FuM. The Group's net fee income for the six months ended 31st
December 2022 decreased by c.8% to GBP27.3 million (31st December
2021: GBP29.8 million). The decrease in net revenue is primarily
due to lower average FuM offset by a stronger US dollar against
sterling during the period, with an average GBP/USD rate of 1.18
during the six months ended 31st December 2022 compared with 1.36
for the same period last year, an increase of c.14% over last
year's average rate.
Administrative expenses during the six months ended 31st
December 2022 were c.12% higher than last year primarily due to the
impact of a stronger US dollar against sterling, compensation
related to current market conditions, one-off integration costs,
infrastructure investment and increased business travel during this
period.
As a result, profit before tax for the six months ended 31st
December 2022 reduced by c.30% to GBP9.5 million (31st December
2021: GBP13.6 million). Underlying profit before tax* for the six
months ended 31st December 2022 reduced by c.25% to GBP11.7 million
(31st December 2021: GBP15.5 million). EPS decreased by c.30% to
15p per share for the six months ended 31st December 2022 from
21.5p per share for the six months ended 31st December 2021.
Underlying EPS* also decreased by c.25% to 18.4p per share for the
six months ended 31st December 2022 from 24.5p per share for the
six months ended 31st December 2021.
* This is an Alternative Performance Measure (APM).
Currency exposure
The Group's revenue is almost entirely US dollar based, whilst
its costs are incurred in US dollars, sterling, and to a much
lesser extent, Singapore dollars. The following table 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. It is
evident that a stronger US dollar increases sterling post-tax
profits, whilst a weaker US dollar causes the opposite. During the
six months ended 31st December 2022, the average FX rate was
1.1759, with a closing FX rate of 1.2083 as compared to the average
FX rate of 1.3612 for the six months ended 31st December 2021 and a
closing FX rate of 1.3532 as at 31st December 2021.
Dividends
The CLIG Board reviews its cash position and overall
distribution policy on a regular basis and believes that our policy
of a rolling five-year dividend cover of 1.2x remains appropriate.
As explained in the Chair's statement, in light of the merger with
KIM in 2020, the Board applies the rolling five-year dividend cover
policy using the underlying profits. The Board has announced an
interim dividend of 11p per share in line with last year amounting
to c.GBP5.4 million. After the payment of the interim dividend, and
inclusive of seed investments, the Group exceeds regulatory and
statutory requirements.
During the last financial year, the CLIG Board recommended a
13.5p special dividend, in addition to the interim dividend of 11p
per share. This was the second special dividend in CLIG's history,
coming three years after our initial special dividend in March
2019. The short time between these distributions was due to the
strong cash generation supported by the merger, along with the
internal diversification efforts.
FX/Post-tax profit
matrix
Illustration of US$/GBP
rate effect:
-------------------------------------- ------------ ---------- --------- ---------
FuM US$bn: 8.1 8.6 9.2 9.7 10.4
----------- ------------ ---------- --------- ---------
US$/GBP Post-tax, GBPm
-----------------------------------------------------------
1.12 12.5 14.1 16.1 18.0 20.2
1.16 11.8 13.3 15.2 17.1 19.2
1.21 11.0 12.5 14.3 16.1 18.1
1.24 10.5 12.0 13.8 15.6 17.5
1.28 10.0 11.4 13.1 14.8 16.7
----------- ------------ ---------- --------- ---------
Assumptions: CLIM KIM
-------------------------------------- ----------------------------------- ---------
1. Average net fee 71bps 76bps
2. Annual operating GBP7m plus US$9.6m plus S$1.0m US$7.9m
costs (GBP1 = S$1.62)
3. Average tax 22% 24%
4. Amortisation of intangible GBP3.6m per annum
Note: The above table is intended to illustrate the approximate
impact of movement in US$/GBP, given an assumed set of trading
conditions. It is not intended to be interpreted or used as
a profit forecast.
Dividend cover chart
We have provided an illustrative framework to enable
shareholders and other interested parties to calculate our post-tax
profits based upon some key assumptions. The dividend cover chart
on page 12 of the full interim report shows the quarterly estimated
cost of a maintained dividend against actual post-tax profits for
last year, the current six months ended 31st December 2022 and the
assumed post-tax profit for the six months ended 30th June 2023 and
the next financial year based upon assumptions included in the
chart.
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 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 4 in
the interim financial statements for reconciliation.
Alternative Performance Measures
Underlying profit and profit before Six months Six months Year ended
tax ended Dec ended Dec Jun 22
22 21
-------------------------------------
GBP GBP GBP
------------------------------------- ------------ ------------ ------------
Net fee income 27,305,523 29,839,500 58,203,284
Administrative expenses (15,722,562) (14,282,692) (30,199,393)
Net interest earned/(paid) 109,221 (72,107) (121,054)
------------------------------------- ------------ ------------ ------------
Underlying profit before tax 11,692,182 15,484,701 27,882,837
------------------------------------- ------------ ------------ ------------
(Deduct)/add back:
Gain/(loss) on investments 165,734 (33,142) (659,231)
Amortisation on acquired intangibles (2,382,447) (1,876,979) (4,051,223)
------------------------------------- ------------ ------------ ------------
Profit before tax 9,475,469 13,574,580 23,172,383
------------------------------------- ------------ ------------ ------------
CLIG KPI
CLIG's management team has a share price Key Performance
Indicator (KPI), which is for the total return (share price plus
dividends) of a CLIG share to compound annually in a range of 7.5%
to 12.5% over a rolling five-year period. This KPI is meant to
stretch the management team, without incentivising managers to take
undue levels of risk. For the five years ended 31st December 2022,
CLIG's cumulative total return in GBP was 51.0%, or 8.6%
annualised. Since listing in April 2006, the annualised return is
13.0%.
Corporate Governance and Stakeholders
As detailed in the June 2022 Annual Report and Accounts, the
CLIG Board was restructured at the end of the last financial year.
The CLIG Board created the Group Executive Committee (GEC) to
provide executive oversight of the Group's operating businesses,
CLIM and KIM.
The GEC is comprised of myself as CEO, Carlos Yuste (Head of
Business Development), Deepranjan Agrawal (Group Chief Financial
Officer), Mark Dwyer (Chief Investment Officer- CLIM) and Dan
Lippincott (President & Chief Investment Officer- KIM). Each
member of the GEC is responsible for reporting directly to the CLIG
Board and may participate in any Board discussions or presentations
as necessary and/or requested. There has been no change to the GEC
members since it was created in April 2022, and there has been no
change in the management or oversight of the Group's operating
activities. The GEC regularly receives input from department heads
on their business units.
Environmental reporting update
The June 2022 ARA included our climate-related financial
disclosures consistent with the Taskforce on Climate-Related
Financial Disclosures (TCFD) recommendations. We committed to
develop our understanding of climate-related risks and our path
towards a net zero transition in financial year 2023. We will
provide an update on this in our June 2023 ARA.
In the meantime, as an update on our environmental priorities
over the past six months, we have been focusing on acquiring
renewable energy for all our offices. London is powered by
renewable energy sources, and the landlord has provided us a
certificate as confirmation. For our Rochester office, we signed up
for the local "Catch the Wind" program, which leverages the wind
power generated by turbines in New York State, to source all energy
for the office. For our remaining offices, we are researching
options and timing for converting to renewable energy. Recently, we
have appointed an environmental consultant to help CLIG on our
journey to net zero.
As a reminder, CLIG closed its Dubai and Seattle offices in our
last financial year, reducing our overall carbon footprint.
Cybersecurity update
We continue to focus on providing training to our employees on
cybersecurity threats. As we attempt to push back against the
training becoming stale, this year we introduced a new
"Netflix-styled" series on cybersecurity to our programme, where
employees will watch a new episode every month. We will also test
our employees with a Security Awareness Proficiency Assessment
twice in 2023. This is the same assessment provided in July 2021,
and we are looking forward to seeing both where our employees are
strongest in their defence against cyber criminals, but also where
we can improve our training in calendar year 2024.
CLIG outlook
The Group's two operating subsidiaries, CLIM and KIM, have
similar histories as entrepreneurial businesses run by founders.
Your management team is focused on supporting the Group and
building on the strong foundation created by the merger. We will
also continue to evaluate external business opportunities that may
appear in the aftermath of a challenging 2022 for many investment
advisers.
In closing, I would like to thank our colleagues for continuing
to work closely with our clients to meet their needs in a
challenging market environment.
Tom Griffith
Chief Executive Officer
21st February 2023
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHSED 31ST DECEMBER 2022
Six months Six months
ended ended Year ended
31st Dec 31st Dec 30th June
2022 2021 2022
(unaudited) (unaudited) (audited)
Note GBP GBP GBP
============================== ==== ============ ============ ============
Revenue
============================== ==== ============ ============ ============
Gross fee income 2 28,677,395 31,444,729 61,293,627
Commissions payable (780,820) (782,728) (1,598,421)
Custody fees payable (591,052) (822,501) (1,491,922)
============================== ==== ============ ============ ============
Net fee income 27,305,523 29,839,500 58,203,284
============================== ==== ============ ============ ============
Administrative expenses
Employee costs 12,005,268 11,162,624 23,532,973
Other administrative
expenses 3,397,828 2,767,044 5,970,527
Depreciation and amortisation 2,701,913 2,230,003 4,747,116
============================== ==== ============ ============ ============
(18,105,009) (16,159,671) (34,250,616)
------------------------------ ---- ------------ ------------ ------------
Operating profit 9,200,514 13,679,829 23,952,668
Finance income 3 347,528 8,295 32,136
Finance expense 3 (72,573) (113,544) (812,421)
------------------------------ ---- ------------ ------------ ------------
Profit before taxation 9,475,469 13,574,580 23,172,383
Income tax expense (2,161,865) (3,021,473) (5,081,232)
============================== ==== ============ ============ ============
Profit for the period 7,313,604 10,553,107 18,091,151
============================== ==== ============ ============ ============
Profit attributable to:
Non-controlling interests - (4,093) -
Equity shareholders of
the parent 7,313,604 10,557,200 18,091,151
============================== ==== ============ ============ ============
Basic earnings per share 4 15.0p 21.5p 36.9p
============================== ==== ============ ============ ============
Diluted earnings per
share 4 14.7p 21.2p 36.4p
============================== ==== ============ ============ ============
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHSED 31ST DECEMBER 2022
Six months Six months
ended ended Year ended
==================================
31st Dec 31st Dec 30th June
2022 2021 2021
==================================
(unaudited) (unaudited) (audited)
GBP GBP GBP
================================== =========== ============ ============
Profit for the period 7,313,604 10,553,107 18,091,151
Other comprehensive income:
Items that may be subsequently
reclassified to income statement
Foreign currency translation
difference 892,599 2,064,275 12,826,714
---------------------------------- ----------- ------------ ------------
Total comprehensive income
for the period 8,206,203 12,617,382 30,917,865
================================== =========== ============ ============
Attributable to:
Equity shareholders of the
parent 8,206,203 12,621,475 30,917,865
Non-controlling interests - (4,093) -
---------------------------------- ----------- ------------ ------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31ST DECEMBER 2022
31st Dec 31st Dec 30th June
2022 2021 2022
(unaudited) (unaudited) (audited)
=============================
Note GBP GBP GBP
============================= ==== ============= ============= ==============
Non--current assets
Property and equipment 2 599,758 541,920 511,208
Right-of-use assets 2 2,287,037 2,483,666 2,418,745
Intangible assets 2,5 108,635,842 101,119,637 110,078,091
Other financial assets 7,613,462 6,210,092 7,434,586
Deferred tax asset 371,755 370,265 394,831
============================= ==== ============= ============= ==============
119,507,854 110,725,580 120,837,461
============================= ==== ============= ============= ==============
Current assets
Trade and other receivables 5,846,338 6,484,325 6,498,019
Cash and cash equivalents 19,078,489 24,506,056 22,677,893
============================= ==== ============= ============= ==============
24,924,827 30,990,381 29,175,912
============================= ==== ============= ============= ==============
Current liabilities
Trade and other payables (7,091,602) (7,031,598) (9,461,606)
Lease liabilities (270,263) (402,151) (388,986)
Current tax payable (806,057) (1,374,356) (538,158)
============================= ==== ============= ============= ==============
Creditors, amounts
falling due within
one year (8,167,922) (8,808,105) (10,388,750)
============================= ==== ============= ============= ==============
Net current assets 16,756,905 22,182,276 18,787,162
============================= ==== ============= ============= ==============
Total assets less
current liabilities 136,264,759 132,907,856 139,624,623
----------------------------- ---- ------------- ------------- --------------
Non--current liabilities
Lease liabilities (2,139,653) (2,126,921) (2,213,854)
Deferred tax liability (8,154,423) (8,389,334) (8,642,208)
Net assets 125,970,683 122,391,601 128,768,561
============================= ==== ============= ============= ==============
Capital and reserves
Share capital 506,791 506,791 506,791
Share premium account 2,256,104 2,256,104 2,256,104
Merger relief reserve 101,538,413 101,538,413 101,538,413
Investment in own
shares 6 (7,133,894) (6,926,039) (7,045,817)
Share option reserve 136,704 168,935 126,181
EIP share reserve 1,284,536 1,071,618 1,481,107
Foreign currency translation
reserve 7,090,062 (4,564,976) 6,197,463
Capital redemption
reserve 26,107 26,107 26,107
Retained earnings 20,265,860 28,129,274 23,682,212
============================= ==== ============= ============= ==============
Attributable to:
Equity shareholders
of the parent 125,970,683 122,206,227 128,768,561
Non-controlling interests - 185,374 -
----------------------------- ---- ------------- ------------- --------------
Total equity 125,970,683 122,391,601 128,768,561
============================= ==== ============= ============= ==============
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHSED 31ST DECEMBER 2022
Total
Foreign Capital attributable
Share Merger Investment Share EIP currency redemption to
Share premium relief in own option share translation reserve Retained share-
capital account reserve shares reserve reserve reserve GBP earnings holders
GBP GBP GBP GBP GBP GBP GBP GBP GBP NCI Total
GBP GBP
------------------- --------- ----------- ------------- ------------- --------- ----------- ------------ ----------- -------------- -------------- ---- --------------
At 1st July
2022 506,791 2,256,104 101,538,413 (7,045,817) 126,181 1,481,107 6,197,463 26,107 23,682,212 128,768,561 - 128,768,561
Profit for
the period - - - - - - - - 7,313,604 7,313,604 - 7,313,604
Other comprehensive
income - - - - - - 892,599 - - 892,599 - 892,599
Total comprehensive
income - - - - - 892,599 - 7,313,604 8,206,203 - 8,206,203
Purchase
of own shares - - - (1,510,862) - - - - - (1,510,862) - (1,510,862)
Share-based
payment - - - - 14,904 521,534 - - - 536,438 - 536,438
EIP
vesting/forfeiture - - - 1,422,785 - (718,105) - - - 704,680 - 704,680
Deferred
tax on share
options - - - - (4,381) - - - - (4,381) - (4,381)
Dividends
paid - - - - - - - - (10,729,956) (10,729,956) - (10,729,956)
------------------- --------- ----------- ------------- ------------- --------- ----------- ------------ ----------- -------------- -------------- ---- --------------
Total transactions
with owners - - - (88,077) 10,523 (196,571) - - (10,729,956) (11,004,081) - (11,004,081)
------------------- --------- ----------- ------------- ------------- --------- ----------- ------------ ----------- -------------- -------------- ---- --------------
As at
31st December
2022 506,791 2,256,104 101,538,413 (7,133,894) 136,704 1,284,536 7,090,062 26,107 20,265,860 125,970,683 - 125,970,683
------------------- --------- ----------- ------------- ------------- --------- ----------- ------------ ----------- -------------- -------------- ---- --------------
Total
Foreign attributable
Share Share Merger Investment Share EIP currency Capital to
capital premium relief in own option share translation redemption Retained share-
GBP account reserve shares reserve reserve reserve reserve earnings holders NCI Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
------------------- --------- ----------- ------------- ------------- ---------- ----------- ------------- ----------- ------------- -------------- --------- --------------
At 1st July
2021 506,791 2,256,104 101,538,413 (6,068,431) 195,436 1,282,884 (6,629,251) 26,107 27,019,584 120,127,637 189,467 120,317,104
Profit for
the period - - - - - - - - 10,557,200 10,557,200 (4,093) 10,553,107
Other comprehensive
income - - - - - - 2,064,275 - - 2,064,275 - 2,064,275
------------------- --------- ----------- ------------- ------------- ---------- ----------- ------------- ----------- ------------- -------------- --------- --------------
Total comprehensive
income - - - - - 2,064,275 - 10,557,200 12,621,475 (4,093) 12,617,382
Transactions
with owners
Share option
exercise - - - 124,250 (12,787) - - - 12,787 124,250 - 124,250
Purchase
of own shares - - - (2,349,321) - - - - - (2,349,321) - (2,349,321)
Share-based
payment - - - - 17,285 465,900 - - - 483,185 - 483,185
EIP
vesting/forfeiture - - - 1,367,463 - (677,166) - - - 690,297 - 690,297
Deferred
tax on share
options - - - - (30,999) - - - (2,992) (33,991) - (33,991)
Current tax
on share
options - - - - - - - - 12,890 12,890 - 12,890
Dividends
paid - - - - - - - - (9,470,195) (9,470,195) - (9,470,195)
------------------- --------- ----------- ------------- ------------- ---------- ----------- ------------- ----------- ------------- -------------- --------- --------------
Total transactions
with owners - - - (857,608) (26,501) (211,266) - - (9,447,510) (10,542,885) - (10,542,885)
------------------- --------- ----------- ------------- ------------- ---------- ----------- ------------- ----------- ------------- -------------- --------- --------------
As at
31st December
2021 506,791 2,256,104 101,538,413 (6,926,039) 168,935 1,071,618 (4,564,976) 26,107 28,129,274 122,206,227 185,374 122,391,601
------------------- --------- ----------- ------------- ------------- ---------- ----------- ------------- ----------- ------------- -------------- --------- --------------
Total
Foreign Capital attributable
Share Merger Investment Share EIP currency redemption to
Share premium relief in own option share translation reserve Retained share-
capital account reserve shares reserve reserve reserve GBP earnings holders NCI Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
------------------- -------- --------- ----------- ----------- -------- --------- ------------ ----------- ------------ ------------ --------- ------------
As at 1st
July 2021 506,791 2,256,104 101,538,413 (6,068,431) 195,436 1,282,884 (6,629,251) 26,107 27,019,584 120,127,637 189,467 120,317,104
Profit for
the period - - - - - - - - 18,091,151 18,091,151 - 18,091,151
Other comprehensive
income - - - - - - 12,826,714 - - 12,826,714 - 12,826,714
------------------- -------- --------- ----------- ----------- -------- --------- ------------ ----------- ------------ ------------ --------- ------------
Total comprehensive
income - - - - - - 12,826,714 - 18,091,151 30,917,865 - 30,917,865
Transactions
with owners
Derecognisation
of NCI holding - - - - - - - - - - (189,467) (189,467)
Share option
exercise - - - 320,193 (38,435) - - - 38,435 320,193 - 320,193
Purchase
of own shares - - - (2,665,042) - - - - - (2,665,042) - (2,665,042)
Share-based
payment - - - - 34,291 884,265 - - - 918,556 - 918,556
EIP
vesting/forfeiture - - - 1,367,463 - (686,042) - - - 681,421 - 681,421
Deferred
tax on share
options - - - - (65,111) - - - (7,902) (73,013) - (73,013)
Current tax
on share
options - - - - - - - - 25,853 25,853 - 25,853
Dividends
paid - - - - - - - (21,484,909) (21,484,909) - (21,484,909)
------------------- -------- --------- ----------- ----------- -------- --------- ------------ ----------- ------------ ------------ --------- ------------
Total transactions
with owners - - - (977,386) (69,255) 198,223 - - (21,428,523) (22,276,941) (189,467) (22,466,408)
------------------- -------- --------- ----------- ----------- -------- --------- ------------ ----------- ------------ ------------ --------- ------------
As at 30th
June 2022 506,791 2,256,104 101,538,413 (7,045,817) 126,181 1,481,107 6,197,463 26,107 23,682,212 128,768,561 - 128,768,561
------------------- -------- --------- ----------- ----------- -------- --------- ------------ ----------- ------------ ------------ --------- ------------
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHSED 31ST DECEMBER 2022
Six months Six months
ended ended Year ended
===============================
31st Dec 31st Dec 30th June
2022 2021 2022
===============================
(unaudited) (unaudited) (audited)
Note GBP GBP GBP
=============================== ==== ============== ============= ==============
Cash flow from operating
activities
Profit before taxation 9,475,469 13,574,580 23,172,383
Adjustments for:
Depreciation of property
and equipment 83,857 89,650 191,149
Depreciation of right-of-use
assets 232,668 259,144 496,367
Amortisation of intangible
assets 5 2,385,388 1,881,209 4,059,600
Loss on disposal of property
and equipment - - 4,296
Share-based payment charge 14,904 17,285 33,440
EIP-related charge 563,268 466,945 892,097
(Gain)/loss on investments 3 (165,734) 33,142 659,231
Interest receivable 3 (181,794) (4,926) (32,136)
Interest payable on lease
liabilities 3 72,573 77,033 153,190
Translation adjustments (140,366) 185,970 98,684
------------------------------- ---- -------------- ------------- --------------
Cash generated from operations
before changes in working
capital 12,340,233 16,580,032 29,728,301
Decrease in trade and
other receivables 639,054 469,138 458.199
(Decrease)/increase in
trade and other payables (1,650,394) (540,999) 1,886,245
------------------------------- ---- -------------- ------------- --------------
Cash generated from operations 11,328,893 16,508,171 32,072,745
Interest received 3 181,794 4,926 32,136
Interest paid on leased
assets 3 (72,573) (77,033) (153,190)
Taxation paid (2,438,335) (3,496,583) (7,004,074)
=============================== ==== ============== ============= ==============
Net cash generated from
operating activities 8,999,779 12,939,481 24,947,617
=============================== ==== ============== ============= ==============
Cash flow from investing
activities
Purchase of property and
equipment and intangibles (185,168) (173,807) (258,852)
Purchase of non-current
financial assets - (1,889,216) (3,877,446)
Proceeds from sale of
non-current financial
assets - 7,080 8,442
Net cash used in investing
activities (185,168) (2,055,943) (4,127,856)
=============================== ==== ============== ============= ==============
Cash flow from financing
activities
Ordinary dividends paid 7 (10,729,956) (9,470,195) (21,484,909)
Purchase of own shares
by employee benefit trust (1,510,862) (2,349,321) (2,665,042)
Proceeds from sale of
own shares by employee
benefit trust - 124,250 320,193
Payment of lease liabilities (211,931) (243,459) (407,772)
Net cash used in financing
activities (12,452,749) (11,938,725) (24,237,530)
=============================== ==== ============== ============= ==============
Net decrease in cash and
cash equivalents (3,638,138) (1,055,187) (3,417,769)
Cash and cash equivalents
at start of period 22,677,893 25,514,619 25,514,619
Cash held in funds* 41,284 41,574 40,936
Effect of exchange rate
changes (2,550) 5,050 540,107
=============================== ==== ============== ============= ==============
Cash and cash equivalents
at end of period 19,078,489 24,506,056 22,677,893
=============================== ==== ============== ============= ==============
*Cash held in funds was consolidated using accounts drawn up as
at end of period.
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 2022 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 International Accounting Standard 34, "Interim
Financial Reporting" as contained in UK-adopted International
Accounting Standards and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority. The
accounting policies adopted and the estimates and judgements used
in the preparation of the unaudited consolidated financial
statements are consistent with those set out and applied in the
statutory accounts of the Group for the year ended 30th June 2022,
which were prepared in accordance with UK-adopted International
Accounting Standards.
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
2022.
Group companies are regulated and perform annual capital
adequacy and liquidity assessments, which incorporate a series of
stress tests on the Group's financial position over a three-year
period from 31st December 2022.
The Group's financial projections and the capital adequacy and
liquidity assessments provide comfort that the Group has adequate
financial and regulatory resources to continue in operational
existence for the foreseeable future. Accordingly, the Directors
continue to adopt the going concern basis of accounting in
preparing the interim financial statements.
New or amended accounting standards and interpretations
adopted
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. None of the
standards not yet effective are expected to have a material impact
on the Group's financial statements.
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.
Europe
USA Canada UK (ex UK) Other Total
GBP GBP GBP GBP GBP GBP
======================= ============ =========== ========= =========== ======== ============
Six months to 31st
Dec 2022
Gross fee income 27,593,625 590,975 - 459,243 33,552 28,677,395
Non-current assets:
Property and equipment 368,638 - 217,067 - 14,053 599,758
Right-of-use assets 1,226,074 - 995,962 - 65,001 2,287,037
Intangible assets 108,608,663 - 27,179 - - 108,635,842
Six months to 31st
Dec 2021
Gross fee income 29,950,594 739,166 160,150 594,819 - 31,444,729
Non-current assets:
Property and equipment 262,246 - 255,745 - 23,929 541,920
Right-of-use assets 1,278,965 - 1,174,344 - 30,357 2,483,666
Intangible assets 101,116,490 - 3,147 - - 101,119,637
======================= ============ =========== ========= =========== ======== ============
Year to 30th June
2022
Gross fee income 58,502,020 1,400,160 279,802 1,082,660 28,985 61,293,627
Non-current assets:
Property and equipment 263,376 - 233,693 - 14,139 511,208
Right-of-use assets 1,245,649 - 1,085,153 - 87,943 2,418,745
Intangible assets 110,060,224 - 17,867 - - 110,078,091
----------------------- ------------ ----------- --------- ----------- -------- ------------
During the period, the Group has entered into a long-term lease
for its new West Chester office which will commence from 1st March
2023. On commencement date, the Group will recognise a right-of-use
asset and a corresponding lease liability.
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 revenues are fees of GBP2,711,686 (year to 30th
June 2022 - GBP5,825,226; six months to 31st December 2021 -
GBP2,966,412) 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 any of the reporting periods.
3 FINANCE INCOME AND FINANCE EXPENSE
Six months Six months Year ended
ended ended
===============================
31st Dec 31st Dec 30th June
2022 2021 2022
===============================
(unaudited) (unaudited) (audited)
GBP GBP GBP
=============================== ============ ============ ============
Finance income:
Interest on bank deposits 181,794 4,926 32,136
Unrealised gain on investments 165,734 - -
Realised gain on investments - 3,369 -
------------------------------- ------------ ------------ ------------
Total finance income 347,528 8,295 32,136
------------------------------- ------------ ------------ ------------
Finance expense:
Unrealised loss on investments - (36,511) (659,231)
Interest payable on lease
liabilities (72,573) (77,033) (153,190)
Total finance expense (72,573) (113,544) (812,421)
=============================== ============ ============ ============
Net finance income/(expense) 274,955 (105,249) (780,285)
=============================== ============ ============ ============
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 2022.
As set out in note 6 the Employee Benefit Trust held 1,773,258
ordinary shares in the Company as at 31st December 2022. 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
2022.
Reported earnings per share
Six months Six months Year ended
ended ended
==============================
31st Dec 2022 31st Dec 2021 30th June
2022
==============================
(unaudited) (unaudited) (audited)
GBP GBP GBP
============================== ================ ========================== ============
Profit attributable to
the equity shareholders
of the parent for basic
earnings 7,313,604 10,557,200 18,091,151
------------------------------ ---------------- -------------------------- ------------
Number of shares Number of Number of
shares shares
------------------------------ ---------------- -------------------------- ------------
Issued ordinary shares
as at 1st July 50,679,095 50,679,095 50,679,095
Effect of own shares held
by EBT (1,839,546) (1,558,012) (1,614,063)
Weighted average shares
in issue 48,839,549 49,121,083 49,065,032
Effect of movements in
share options and EIP awards 823,114 636,718 647,134
------------------------------ ---------------- -------------------------- ------------
Diluted weighted average
shares in issue 49,662,663 49,757,801 49,712,166
------------------------------ ---------------- -------------------------- ------------
Basic earnings per share
(pence) 15.0 21.5 36.9
Diluted earnings per share
(pence) 14.7 21.2 36.4
------------------------------ ---------------- -------------------------- ------------
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, amortisation of acquired intangibles, their related
tax impact and non-controlling interest.
Underlying profit for calculating underlying earnings per
share
Six months Six months Year ended
ended ended
-------------------------------
31st Dec 2022 31st Dec 2021 30th June
2022
-------------------------------
(unaudited) (unaudited) (audited)
GBP GBP GBP
------------------------------- ------------- ------------------------ ------------
Profit before tax 9,475,469 13,574,580 23,172,383
Add back/(deduct):
- (Gain)/loss on investments (165,734) 33,142 659,231
- Amortisation on acquired
intangibles 2,382,447 1,876,979 4,051,223
------------------------------- ------------- ------------------------ ------------
Underlying profit before
tax 11,692,182 15,484,701 27,882,837
Tax expense as per the
consolidated income statement (2,161,865) (3,021,473) (5,081,232)
Tax effect on fair value
adjustment 35,136 (6,330) (125,253)
Unwinding of deferred tax
liability (571,787) (450,475) (972,294)
Adjustment for NCI - 4,093 -
------------------------------- ------------- ------------------------ ------------
Underlying profit after
tax for the calculation
of underlying earnings
per share 8,993,666 12,010,516 21,704,058
------------------------------- ------------- ------------------------ ------------
Underlying earnings per
share (pence) 18.4 24.5 44.2
Underlying diluted earnings
per share (pence) 18.1 24.1 43.7
------------------------------- ------------- ------------------------ ------------
* This is an Alternative Performance Measure (APM). Please refer
to the CEO review for more details on APMs.
5 INTANGIBLE ASSETS
31st 30th
31st December 2022 Dec 2021 Jun 2022
------------------------------------------------------------------------------- ------------ ------------
Direct Long
customer Distribution Trade term
Goodwill relationships channels name software Total Total Total
GBP GBP GBP GBP GBP GBP GBP GBP
-------------- ----------- -------------- ------------- ---------- --------- ------------ ------------ ------------
Cost
At start
of period 73,962,910 37,815,773 5,174,153 1,153,230 707,967 118,814,033 104,893,900 104,893,900
Additions - - - - 12,253 12,253 - 18,867
Currency
translation 581,517 297,319 40,681 9,067 - 928,584 2,078,812 13,901,266
At close
of period 74,544,427 38,113,092 5,214,834 1,162,297 720,220 119,754,870 106,972,712 118,814,033
-------------- ----------- -------------- ------------- ---------- --------- ------------ ------------ ------------
Amortisation
charge
At start
of period - 6,617,761 1,293,538 134,543 690,100 8,735,942 3,931,908 3,931,908
Charge
for the
period - 1,959,579 383,028 39,840 2,941 2,385,388 1,881,209 4,059,600
Currency
translation - (1,894) (370) (38) - (2,302) 39,958 744,434
At close
of period - 8,575,446 1,676,196 174,345 693,041 11,119,028 5,853,075 8,735,942
-------------- ----------- -------------- ------------- ---------- --------- ------------ ------------ ------------
Net book
value 74,544,427 29,537,646 3,538,638 987,952 27,179 108,635,842 101,119,637 110,078,091
-------------- ----------- -------------- ------------- ---------- --------- ------------ ------------ ------------
Goodwill, direct client relationships, distribution channels and
trade name acquired through a business combination relate to the
merger with KIM on 1st October 2020.
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.
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 the 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.
The total amortisation charged to the income statement for the
six months ended 31st December 2022 in relation to direct client
relationships, distribution channels and trade name, was
GBP2,382,447 (year ended 30th June 2022 - GBP4,051,223; six months
ended 31st December 2021 - GBP1,876,979).
Impairment
Goodwill acquired through business combination is in relation to
the merger with KIM and relates to the acquired workforce and
future expected growth of the Cash Generating Unit (CGU).
The Group's policy is to test goodwill arising on acquisition
for impairment annually, or more frequently if changes in
circumstances indicate a possible impairment. The Group has
considered whether there have been any indicators of impairment
during the six months ended 31st December 2022, which would require
an impairment review to be performed. The Group has considered
indicators of impairment with regard to a number of factors,
including those outlined in IAS 36 'Impairment of assets'.
A higher discount rate and the CGU's actual results being
slightly behind the forecast, due to the unexpected reduction of
FuM as a result of a decline in global financial markets, have been
considered as potential indicators of impairment as at 31st
December 2022 and thus the Group has reassessed the recoverable
amount of the CGU as at 31st December 2022.
The Group has calculated the recoverable amount of the CGU based
on fair value less costs of disposal (FVLCD). FVLCD was calculated
using a revenue multiple model based on trailing twelve months net
revenue and is therefore considered a level 3 measurement. The
revenue multiple was estimated based on the implied multiple of
KIM's acquisition as at 1st October 2020 judgementally adjusted
down for potential changes in the market conditions since the
acquisition. The revenue multiple used is within the industry
expected multiple range and thus was considerate appropriate.
Level 3 measurements are based on inputs which are normally
unobservable to market participants. Costs of disposal have been
assumed to be US$2 million based on the relevant actual costs
incurred at the time of KIM's acquisition.
The recoverable amount as at 31st December 2022 exceeded the
carrying amount of the CGU by GBP2,438,083 (30 June 2022:
GBP1,391,854) and therefore the Group has not revised its value in
use calculation and no impairment was required at 31st December
2022.
Sensitivity analysis was applied to the key assumption of
revenue multiple to measure the impact on the headroom in existence
under the current impairment review. Following the sensitivity
review, the recoverable amount of the CGU would equal its carrying
amount if the revenue multiple was to change from 4.7x to 4.6x.
Current economic circumstances are uncertain due to events
outside the control of the business. The potential impact on global
markets cannot be reliably estimated and if they result in a
sustained period of weakness in financial markets this could result
in a future impairment.
6 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 2022 the Trust held 763,636 ordinary 1p shares
(30th June 2022 - 1,026,326; 31st December 2021 - 1,001,315), of
which 321,250 ordinary 1p shares (30th June 2022 - 328,750; 31st
December 2021 - 366,750) were subject to options in issue.
The Trust also held in custody 1,009,622 ordinary 1p shares
(30th June 2022 - 682,437; 31st December 2021 - 688,113) 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 2022 - 1,773,258;
30th June 2022 - 1,708,763; 31st December 2021 - 1,689,428).
7 DIVIDS
A final dividend of 22p per share (2021 - 22p) (gross amount
payable GBP11,149,401; net amount paid GBP10,729,956*) in respect
of the year ended 30th June 2022 was paid on 4th November 2022.
An interim dividend of 11p per share (2022 - 11p) (gross amount
payable GBP5,574,700; net amount payable GBP5,379,642*) in respect
of the year ending 30th June 2023 will be paid on 31st March 2023
to members registered at the close of business on 3rd March
2023.
* Difference between gross and net amounts is due to shares held
at EBT that do not receive dividend.
8 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 in the
second half of the financial year are substantially the same as
those described in the last annual report (see page 28 and 29 of
the Annual Report and Accounts for the year ended 30th June 2022),
being the potential for loss of FuM as a result of poor investment
performance, client redemptions, breach of mandate guidelines or
material error, loss of key personnel, Technology/IT, cybersecurity
and business continuity and 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, receivables
and payables balances arise which in turn give rise to currency
exposures.
9 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.
- Level 1: fair value derived from quoted prices (unadjusted)
in active markets for identical assets and liabilities.
- Level 2: fair value derived from inputs other than quoted
prices included within level 1 that are observable for
the assets or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
- Level 3: fair value derived from valuation techniques
that include inputs for the asset or liability that are
not based on observable market data.
The fair values of the financial instruments are determined as
follows:
- Investments for hedging purposes are valued using the
quoted bid price and shown under level 1.
- Investments in own funds are determined with reference
to the net asset value (NAV) of the fund. Where the NAV
is a quoted price the fair value is shown under level
1, where the NAV is not a quoted price the fair value
is shown under level 2.
- Forward currency trades are valued using the forward exchange
bid rates and are shown under level 2.
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.
31st December 2022 Level 1 Level 2 Level Total
GBP GBP 3 GBP
GBP
-------------------------------- --------- --------- ---------
Financial assets at fair value
through profit or loss
Investment in other non-current
financial assets 5,703,421 1,910,041 - 7,613,462
Total 5,703,421 1,910,041 - 7,613,462
Financial liabilities at fair
value through profit or loss
Forward currency trades -364,723 -364,723
Total -364,723 -364,723
31st December 2021 Level 1 Level 2 Level Total
GBP GBP 3 GBP
GBP
Financial assets at fair value
through profit or loss
Investment in other non-current
financial assets 4,366,296 1,843,796 - 6,210,092
Forward currency trades - 37,650 - 37,650
Total 4,366,296 1,881,446 - 6,247,742
There were no financial liabilities at fair value at 31st
December 2021.
30th June 2022 Level 1 Level 2 Level Total
GBP GBP 3 GBP
GBP
Financial assets at fair value
through profit or loss
Investment in other non-current
financial assets 5,616,419 1,818,167 - 7,434,586
Total 5,616,419 1,818,167 - 7,434,586
Financial liabilities at fair
value through profit or loss
Forward currency trades - 945,898 - 945,898
Total - 945,898 - 945,898
There were no transfers between any of the levels in the
reporting period.
All fair value gains and losses included in the income statement
relate to the investment in own funds.
Where there is an impairment in the investment in own funds, the
loss is reported in the income statement. No impairment was
recognised during the period or the preceding year.
The fair value gain on the forward currency trades is offset in
the income statement (within gross fee income) by the foreign
exchange losses on other currency assets and liabilities held
during the period and at the period end. The net loss reported for
the period is GBP181,809 (30th June 2022: net loss GBP519,633; 31st
December 2021: net loss GBP19,116).
10 GENERAL
The interim financial statements for the six months ended 31st
December 2022 were approved by the Board on 21st February 2023.
These financial statements are unaudited, but they have been
reviewed by the auditors, having regard to International Standard
on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board.
Copies of this statement are available on our website
www.clig.co.uk.
STATEMENT OF DIRECTOR'S RESPONSIBILITIES
The Directors confirm that to the best of our knowledge:
- The condensed set of financial statements has been prepared
in accordance with IAS34 Interim Financial Reporting as
adopted by the UK; and
- The Half Year Report includes a fair review of the information
required by:
- DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have
occurred during the first six months of the financial
year and their impact on the condensed set of financial
statements; and a description of the principal risks and
uncertainties for the remaining six months of the year;
and
- DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken
place in the first six months of the current financial
year and that have materially affected the financial position
or performance of the Group during that period; and any
changes in the related party transactions described in
the last annual report that could do so.
The Directors of City of London Investment Group PLC are as
listed in the Annual Report and Accounts 2021-2022. A list of
current Directors is maintained at www.clig.co.uk.
By order of the Board
Tom Griffith
Chief Executive Officer
21st February 2023
INDEPENT REVIEW REPORT TO CITY OF LONDON INVESTMENT GROUP
PLC
Conclusion
We have been engaged by City of London Investment Group PLC
('the Company') to review the condensed set of financial statements
of the Company and its subsidiaries (the 'Group') in the
half-yearly financial report for the six months ended 31 December
2022 which comprises the Consolidated Income Statement,
Consolidated Statement of Comprehensive Income, Consolidated
Statement of Financial Position, Consolidated Statement of Changes
in Equity, Consolidated Cash Flow Statement and the related
explanatory notes. We have read the other information contained in
the half-yearly financial report and considered whether it contains
any apparent material misstatements of fact or material
inconsistencies with the information in the condensed set of
financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
December 2022 is not prepared, in all material respects, in
accordance with International Accounting Standard 34, "Interim
Financial Reporting" as contained in UK-adopted International
Accounting Standards, and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" ('ISRE (UK) 2410') issued for use in the United Kingdom. A
review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with UK-adopted International
Accounting Standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting" as contained in UK-adopted International
Accounting Standards.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that management has inappropriately adopted
the going concern basis of accounting or that management has
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410, however future events or conditions
may cause the Group and the Company to cease to continue as a going
concern.
Responsibilities of Directors
The half-yearly financial report, is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
International Accounting Standard 34, "Interim Financial Reporting"
as contained in UK-adopted International Accounting Standards and
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are
responsible for assessing the Group's and the Company's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the
Group or the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the Company a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information performed by the Independent Auditor
of the Entity". Our review work has been undertaken so that we
might state to the Company those matters we are required to state
to them in an independent review report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our review
work, for this report, or for the conclusions we have formed.
RSM UK Audit LLP
Chartered Accountants
25 Farringdon Street
London EC4A 4AB
21st February 2023
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