18th September 2023
CITY OF LONDON INVESTMENT GROUP PLC (LSE: CLIG)
("City of London", "the Group" or "the Company")
FINAL RESULTS FOR THE YEAR TO 30TH JUNE 2023
The Company announces that it has today made available on its website, https://www.clig.com/, the following documents:
- Annual Report and Financial Statements for the year ended 30th June 2023 (the 2023 Annual Report); and
- Notice of 2023 Annual General Meeting (the Notice of AGM).
The above documents will be uploaded to the National Storage Mechanism for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism in due course, in accordance with Listing Rule 9.6.1 R.
The 2023 Annual Report and the Notice of AGM, which will be held on 23rd October 2023, will be posted to shareholders on 22nd September 2023.
The Appendix to this announcement contains additional information which has been extracted from the 2023 Annual Report for the purposes of compliance with DTR 6.3.5 only and should be read in conjunction with this announcement. Together, these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This announcement should be read in conjunction with, and is not a substitute for reading, the full 2023 Annual Report.
SUMMARY
| - | Funds under Management (FuM) of US$9.4 billion (£7.4 billion) at 30th June 2023. This compares with US$9.2 billion (£7.6 billion) at the beginning of this financial year on 1st July 2022
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| - | Net fee income was £54.6 million (2022: £58.2 million)
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| - | Underlying profit before tax* was £22.7 million (2022: £27.9 million). Profit before tax was £18.6 million (2022: £23.2 million)
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| - | Underlying basic earnings per share* were 36.5p (2022: 44.2p). Basic earnings per share were 30.2p (2022: 36.9p) after an effective tax charge of 21% (2022: 22%) of profit before taxation
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| - | Recommended final dividend of 22p per share (2022: 22p) payable on 27th October 2023 to shareholders on the register on 29th September 2023, making a total for the year of 33p (2022: 46.5p, including a special dividend of 13.5p). |
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*This is an Alternative Performance Measure (APM). Please refer to the Financial Review for more details on APMs.
For access to the full report, please follow the link below:
http://www.rns-pdf.londonstockexchange.com/rns/6800M_1-2023-9-16.pdf
This release includes forward-looking statements, which may differ from actual results. Any forward-looking statements are based on certain factors and assumptions, which may prove incorrect, and are subject to risks, uncertainties and assumptions relating to future events, the Group's operations, results of operations, growth strategy and liquidity.
For further information, please visit www.citlon.co.uk or contact:
Tom Griffith, CEO
City of London Investment Group PLC
Tel: 001-610-380-0435
Martin Green/
James Hornigold
Zeus Capital Limited
Financial Adviser & Broker
Tel: +44 (0)20 3829 5000
CHAIR'S STATEMENT
In 1989 it was claimed that on the basis of Tokyo land prices at the time, the 284-acre Japanese Imperial Palace was worth more than the entire state of California while frothy valuations drove the Nikkei 225 index to nearly 39,000, a level to which it has not returned in the 34 years since. That episode demonstrated that, while markets generally behave in a rational way, occasionally they do not. Fast forward to today and we find that the "magnificent-seven" stocks*are valued at US$11 trillion or twice the level of the entire Japanese stock market and more than 20% of the entire US stock market. Whether or not this has taken this handful of companies into unsustainable "bubble" territory is for others to decide but in the six months to 30th June 2023, they accounted for more than 70% of the rise in the S&P 500 index, underlining the degree to which the recent strength in US equities has been driven by a narrow and powerful "Artificial Intelligence (AI)-bandwagon".
In contrast, international equity markets have been more muted, particularly in the emerging market (EM) universe, with the MXEF EM index rising by just 2.1% for the year to 30th June 2023. While the relatively high exposure of EM economies to energy and raw materials prices has been a factor, given that many have fallen below pre-Ukraine war levels, it is the sluggish performance of Chinese equities that has been the main contributor. Having been slow to re-open the economy post-Covid, Chinese growth since has been relatively weak despite central bank efforts to stimulate activity. Important questions have also emerged on the country's future growth trajectory as several of China's major trading partners move to diversify supply chains in an era of growing trade and geopolitical friction.
Although much of the initial economic dislocation brought on by the Ukraine war has now dissipated, with supply chains gradually being re-configured, global inflation has remained stubbornly high with tight labour markets continuing to exert upward pressure on wages. Despite some recent signs of a downward trend in prices, the fact that central bank guidance remains relatively hawkish suggests that equities could remain subdued in the coming months (bubbles aside) as investors tap into more attractive fixed income returns. Beyond the immediate horizon, however, the prospect of a more accommodative monetary stance as electoral cycles beckon suggests that, in the absence of geopolitical surprises, 2024 should offer equity investors more opportunities for capital appreciation. Given the relative cheapness of international equities (vs. their US counterparts), the time for a long-awaited "catch-up" may not be far off.
Assets and performance
In the year to 30th June 2023, CLIG's Funds under Management (FuM) rose by 2% to US$9.4 billion and by 3% in the most recent six-month period. Each of the two operating companies, CLIM and KIM, saw modest net outflows over the year of US$228 million and US$129 million respectively but these were more than offset by positive investment performance across all strategies in absolute terms. Relative investment performance in CLIM's EM and Opportunistic Value (OV) strategies was ahead of the respective benchmarks and slightly behind the benchmark in the International (INTL) strategy. KIM continued to record excellent relative performance in the core fixed income strategies, which represent more than 60% of KIM's FuM, with SPACs once again providing additional momentum.
Equity and fixed income markets have faced considerable headwinds over the course of the last eighteen months with sharply rising interest rates and conflict causing closed-end fund (CEF) discounts to widen universally and prompting the need for a relatively defensive investment posture. The fact that most strategies have achieved positive relative performance is therefore encouraging and, with discounts now at comparatively high levels, the ability to capitalise on the inherent value in CEFs, in terms of both investment performance and business development opportunities, should improve as we approach 2024.
Results
Group statutory pre-tax profits fell by 20% to £18.6 million in the year to 30th June 2023 (2022: £23.2 million) while underlying pre-tax profits, which excludes amortisation and gains/(losses) on investments fell by 19% to £22.7 million (2022: £27.9 million). Fully diluted statutory earnings per share (EPS) fell by 19% to 29.6p (2022: 36.4p) while underlying fully diluted EPS also fell by 18% to 35.8p (43.7p). The Group's overall weighted average net fee rate declined slightly over the year from 73bps to 72bps, reflecting a marginal reduction in the proportion of CLIM's assets in the EM strategy to 61%, which is 38% of Group FuM (2022: 64% of CLIM FuM; 40% of Group FuM).
While year-end FuM rose by 2% year-on-year (YOY), as previously noted, revenue metrics are driven by the average FuM across the year as a whole and on this measure, FuM fell by c.12% in US dollar terms YOY due to the more buoyant market conditions that preceded the Ukraine war in February 2022. Partially offsetting this decline in US dollar revenues was a c.9% fall in the average £/US$ exchange rate over the year to 30th June 2023 so that on translation into sterling, net fee income was only 6% lower at £54.6 million (2022: £58.2 million). Total overheads before profit share, EIP, share option charge and investments gains/(losses)* for the year to 30th June 2023 rose by 14% to £22.5 million (2022: £19.7 million), reflecting higher business development spending in comparison with the previous year, when Covid-related travel constraints limited outlays on marketing initiatives, together with ongoing investment in the Group's IT infrastructure and inflation-related increases in payroll costs. Although cost inflation remains a concern, it is anticipated that the rate of growth in the Group's cost base will moderate in the coming year.
Dividends and reporting currency
A clarification of the Group's dividend policy was included in my interim statement to shareholders in February 2023 so I do not propose to repeat the details in this statement. However, as emphasised at the time, your Board believes that the use of a dividend cover policy based on rolling five-year periods provides a prudent template that serves to protect shareholders from the market volatility that can affect profits of asset management companies. The beneficial effects of this policy are illustrated clearly in the year to 30th June 2023 when underlying fully diluted EPS have fallen by 18%. On the basis of unchanged dividend payments totalling 33p for the year as a whole, the cover ratio for the single year is 1.09, whereas the rolling five-year cover ratio, at 1.24, will remain marginally ahead of the 1.2 target level. Accordingly, your Board is recommending the payment of a final dividend of 22p per share, to be paid on 27th October 2023 to those shareholders on the register at 29th September 2023. This brings total distributions for the year to 33p, the same level as the previous year, excluding the 13.5p special dividend paid in March 2022.
Shareholders will be familiar with the fact that volatility in the £/US$ exchange rate can distort the presentation of the Group's financial performance considerably, as evidenced in the past year with the rate fluctuating between an intraday low of £1/US$1.03 in September 2022 and a June 2023 high of £1/US$1.27. Variations on this scale have a magnified impact on CLIG given that we report to shareholders in sterling while virtually all revenues and the majority of costs arise in US dollars. In order to present a more transparent statement of comparative financial performance that effectively neutralises currency fluctuations, the Board has decided to change the Group's financial reporting currency to US dollars with effect from 1st July 2023. However, as a UK-listed entity, dividends will continue to be declared in sterling while shareholders will continue to be given the option to receive distributions in US dollars as is the case at present.
Board
Board composition in UK-listed companies forms an important element in the regulatory oversight of corporate governance, particularly in regard to independence and diversity, and the new rules published by the Financial Conduct Authority (FCA) in April 2022, specifically in relation to diversity ratios, will need to be addressed. Going forward, companies will need to demonstrate a commitment to diversity both at Board level as well as the senior management tier and while it is understood that a degree of leeway will be necessary in terms of the time needed to achieve the regulator's objectives, Boards will need to show an appropriate direction of travel. Jane Stabile, as Chair of the Nomination Committee, together with her Committee colleagues are engaged in creating a succession road map designed to meet these new rules over time and I urge shareholders to read her report on page 64 of the full report.
Other than Barry Olliff stepping down from the Board in July 2022, no changes were made to the Board over the last financial year. Two changes will occur in the current year, namely my retirement in October 2023 and the recent retirement of George Karpus. Subject to shareholder approval, Rian Dartnell will replace me as Board Chair. These changes will also require changes to the composition of the Board Committees, the details of which will be notified to shareholders in due course.
As founder of Karpus Investment Management, George Karpus decided to retire from the Board with effect from 31st July 2023, having served as a CLIG director since the 2020 merger and, on behalf of shareholders and my Board colleagues, I would like to pay a special tribute to George's invaluable contribution in ensuring the success of the merger and helping to steer the Group through the critical post-merger process.
George's career spans a period of more than fifty years, during which time he rose from an early induction into Wall Street through a career in banking to build his own asset management business, specialising in cash management and conservative balanced products for high net worth clients. It was apparent from early discussions between George and CLIG several years ago that he shared many of the core values that had been developed by Barry Olliff since CLIG's inception in the 1990s and this "cultural fit" has been a central factor in the success of the merger on a number of levels.
In tandem with George's achievements in building Karpus over a 35-year period, he has established his own not-for-profit foundation to promote education and help for those in need to live a productive life as well as supporting animal welfare causes. While these philanthropic activities will assume increasing importance for George in his retirement, he remains a significant and valued shareholder of CLIG and on behalf of the Board, I would like to thank him for his ongoing support and wish him well in his retirement.
ESG
I reported to shareholders last year on the series of initiatives that were being put in place to improve the Group's track record on environmental policies and I am pleased to be able to update shareholders on the further progress made this year in realising those objectives. The mandated travel policy introduced during the Covid pandemic, which prioritised the use of video conferencing for both internal and external meetings, has become a permanent feature across all Group offices. We have also engaged an external consultant to enhance future reporting on environmental risks and opportunities with the goal of net zero by 2050. This year, we have produced a stand-alone report on the Task force for Climate-related Financial Disclosures (TCFD) and climate risks, explaining in more detail the Group's plans for progressive improvements in our environmental record. Our disclosures for the current financial year have been prepared with the assistance of our external environmental consultant and start on page 39. By way of example, the Rochester office has now been converted to being primarily powered by the State-sponsored "Catch-the-Wind" programme. Two of our four offices now have a reduced carbon footprint, with Rochester NY and London having procured green energy electricity contracts.
Efforts to enhance social awareness in the workplace continued this year and all employees received two training sessions focusing on diversity, equity and inclusion. Subjects addressed in these sessions were "disrupting our unconscious bias" and "your words matter about disabilities" and similar initiatives will remain an important factor in the Group's commitment to encourage community participation by employees. More recently, a new Pennsylvania office has been commissioned to replace the Barn, which has been our US home for the past 25+ years and, in decommissioning the Barn, a third-party vendor was employed to redeploy the used office furniture within their network of local charities.
Interaction between your Board and Group employees is an important factor for all parties as it allows employees the opportunity to understand better the strategic priorities under discussion at Board level while giving Directors feedback directly from the workplace, whether positive or negative. To that end, Board meetings are now held in London, Rochester NY and Pennsylvania each year to facilitate both formal and informal discussion. In addition to these meetings, video conference engagement sessions are held annually with all employees and the independent Directors in an open forum that are designed to promote two-way exchanges. In terms of working practices post-pandemic, further refinements are being made to the hybrid WFH policy that was introduced in 2022.
Farewell
I shall be stepping down from the CLIG Board in October after serving as a Non-Executive Director for ten years and Chair for the last five. While there have been major changes in the global, political and economic landscape over that decade, it has also been one of significant evolution at CLIG and I am proud to have been a part of a development process which, I believe, will continue to serve shareholders well in the coming years. Chief among these changes was the 2020 merger with Karpus Investment Management, which expanded significantly the Group's geographical and client footprint in the US while enhancing profitability and helping to reduce revenue volatility. In tandem with the merger, we have navigated the management transition of both operating companies from their original founders to a unified executive management group in the midst of stresses imposed by the Covid-19 pandemic.
Subject to shareholder approval, Rian Dartnell will be appointed as my successor in October and I am very confident that he and his Board colleagues will continue to develop CLIG as a profitable asset management business that delivers shareholder value while serving the interests of both clients and employees in a prudent fashion. Rian has been associated with CLIG over many years and brings to the Board a wealth of investment management experience. Together with his Board colleagues and an executive management team led by Tom Griffith, the foundations are in place for the Group to prosper and grow. I wish them well in their endeavours and would like to thank our shareholders, clients, my Board colleagues and all the CLIG employees for their support during my time with the Group.
Before I depart, I would like to add a personal note on a subject that has attracted widespread debate among public market practitioners in the UK in the latter part of my time at CLIG and this relates to corporate governance. Non-Executive Directors have an important role to play in representing the interests of external shareholders in public companies and the UK is leading the way in formulating high standards of corporate governance (ESG) for small and large companies alike. While CLIG is firmly committed to meeting these standards, our UK listing has created a meaningful burden in terms of human and financial resources, as evidenced by the 150 pages that now comprise this annual report to shareholders. The successful development of the UK's public markets needs to be viewed in the context of competing providers of risk capital, whether it is stock exchanges in other jurisdictions or private equity sources. In this regard, I am concerned that both the direction and pace of travel in UK governance policy may result in the relative demise of London as a leading global market for capital. To that end, I would urge regulators, investors and related advisers to exercise due care in the future development of governance policy to ensure that an appropriate balance is maintained between a "one-size-fits-all" ESG regime and the overriding need for stewards of public companies to enhance shareholder value. Throughout my career, the UK has been a prime mover in the development of globalised financial markets but the challenge of retaining that position and the significant economic benefits that go with it demand that the fabric of those markets remains competitive.
Barry Aling
Chair
15th September 2023
CHIEF EXECUTIVE OFFICER'S STATEMENT
Glass half empty or glass half full?
In both the June 2022 Annual Report and the December 2022 Interim Report, we outlined headwinds that confronted the Group over the preceding eighteen months. These included labour shortages, supply chain disruptions, and the war in Ukraine which led to steep declines in global stock and bond markets in 2022. More recently, the impact of higher interest rates and a weakening US commercial real estate market contributed to bank failures and credit rating downgrades of a number of US regional banks.
Despite this economic backdrop, US stocks rose 19.6% for the year ended 30th June 2023 as measured by the S&P 500, driven mainly by the "magnificent-seven" technology stocks. While never the same, there are parallels with the early 2000s, when US markets had performed very well vs. Emerging Markets (EM) which had fallen out of favour with US institutional clients. This is especially true of many pension funds who are de-risking portfolios as their funding positions improve.
Attempting to curb inflation, the US Federal Reserve has raised rates eleven times since March 2022, and in July 2023 raised interest rates to the highest level in 22 years, to a range of 5.25-5.5%. With the volatility and negative twelve-month returns of 3.6% and 9.7% on ten and thirty-year US Treasuries respectively, many US consumers have chosen safety and flexibility earning 4%-5% on money market accounts insured up to US$250,000 by the US Federal Deposit Insurance Corporation (FDIC).
The rise in deposit rates has affected marketing efforts as investors are wary of taking market risk, whether via equity or bonds. This is an industry-wide issue affecting other asset managers, regardless of whether they are publicly listed or privately owned and the Group's share price has fared well relative to listed peers (refer Figure 1 CLIG vs. peers and the FTSE Small Cap Index FSMXX on page 8 of the full report). We are disappointed that inflows have not matched outflows over the period but are optimistic that green shoots are visible.
Do we see the glass as half empty or half full? Answering this question is a fool's game. We view ourselves as entrepreneurial realists seeking to capitalise on inefficiencies created during periods of dislocation. Said another way, when times are difficult, we seek to find the silver lining. To successfully harness these opportunities requires conviction, patience and a great deal of fortitude - qualities that are inherent in our Group culture:
•From the investment approach at KIM and CLIM to the overall development of the business, our colleagues approach opportunities with conviction.
•The Group's culture compels us to operate in team environments, trusting in each other, and having the patience for objectives to be realised.
•Our colleagues are experienced, and they have the internal fortitude to remain calm and focused during market turmoil.
There are no short-cuts, and it takes persistence and hard work from all of our colleagues to achieve success for our Clients, Employees and Shareholders.
Silver linings
There are a number of opportunities identified across the organisation that we expect should begin to benefit the Group over the next financial year. These include:
CLIG opportunities
The integration of KIM is now complete. What remains is to leverage the strengths of the Group in order to raise new FuM across the Group. In this regard, we created a new position - Head of Corporate Partnerships - to deepen our existing client relationships, particularly as baby boomers transfer wealth to the next generation, and build new partnerships with professional organisations. This individual, who has over twenty years of experience in the field, is also responsible for branding opportunities, unique client experiences, and increasing the profile for the Group.
As a result of technology improvements over the past few years, our IT infrastructure network and phone systems have been modified to reduce complexity and improve scalability and security while lowering reliance on third party support and providing ongoing cost savings.
The Group's revenue is almost entirely US dollar based whilst its costs are incurred in US dollars, sterling and to a lesser degree Singapore dollars. Presentation of the Group's financial statements in sterling results in volatility in the income statement because of sterling/US dollar exchange rate movements. The functional currency of the Company and the presentational currency of the Group has changed to US dollars with effect from 1st July 2023. The Board believes that this change will provide investors and other stakeholders with greater transparency of the Group's performance and reduced reported foreign exchange volatility.
CLIM opportunities
Institutional client demand for alternative asset classes and attractive discounts has provided new business opportunities in closed-end funds (CEFs) offering listed alternatives exposure.
EM returns now lag US equities over two decades causing "EM fatigue" resulting in fewer new institutional mandates generated in the US. Historically wide discounts within CLIM's EM strategy, as illustrated in Figure 2 on page 9 of the full report, provides significant value to clients should the asset class perform well. Similarly, CLIM's International (INTL) and Opportunistic Value (OV) strategies have faced discount widening headwinds creating significant value.
We capitalised on a weakening commercial office real estate market in the US by moving CLIM's US office from a more rural setting into the borough of West Chester, Pennsylvania. Our new accommodations are located in a small-town environment with a multitude of amenities within walking distance. The new location is more desirable for our colleagues, and from a recruitment perspective there is a university in town that should provide a pipeline for talent.
KIM opportunities
The KIM CEF strategy provides the investment team with flexibility to vary the percentage weighting of CEFs in client portfolios. CEF exposure has increased significantly over the past year, particularly in municipal bond CEFs that are at an extreme of historical discount. Figure 3 on page 10 of the full report reflects the overall widening of CEF discounts within various investment strategies managed at KIM. The aforementioned municipal debt funds are represented by the yellow-coloured line, which shows the discounts widening over the two years since July 2021 when the average CEF was trading at or around par.
We invested in the KIM business from a Human Resource perspective during the year by realigning existing employees and adding new employees, to build the platform for future growth. A marketing support team was set up to coordinate relationships with investment platforms and assist with onboarding clients from new relationships. A dedicated manager of the Relationship Management team was hired to build a more effective system of oversight and reporting on activities. Two experienced Relationship Managers were hired to develop new client opportunities, including those related to generational wealth strategies.
FuM and flows
With risk-free rates increasing, exposure to riskier asset classes are naturally being reduced by institutions. This is especially the case with EM and INTL, which are much further up the risk scale compared to US fixed income. In the 2022 Annual Report, I highlighted the ten-year underperformance of EM Equity (measured by MXEF) compared to both 1) the US Equity Market and 2) the World ex-US Market. This underperformance continued in the 2022/2023 financial year. In this environment, asset allocators are understandably wary to commit new capital to an asset class that has underperformed US equities for over two full market cycles. That said, the first half of calendar year 2023 saw a return to normalised uplift in asset prices, with a strong 11.7% increase in MSCI World Ex US Index (MXWOU) as a proxy for international equities.
Figure 4: Asset class returns
| Index | Index Name | Exposure | 2H 2022 Return | 1H 2023 Return | 12 Month Return |
| MXEF | MSCI EM Index | Emerging | -2.8% | 5.0% | 2.1% |
| MXWO | MSCI World Index | Global | 3.2% | 15.4% | 19.1% |
| MXWOU | MSCI World Ex US Index | International | 5.7% | 11.7% | 18.0% |
| SPX | S&P 500 Index | Domestic US | 2.3% | 16.9% | 19.6% |
| VBINX | Vanguard Balanced Index ETF | Balanced | 0.2% | 10.4% | 10.6% |
| LEGATRUU | Bloomberg Global-Agg Total Return Index | Global Bond | -2.7% | 1.4% | -1.3% |
| LBUSTRUU | Bloomberg US Aggregate Bond Index | US Bond | -3.0% | 2.1% | -0.9% |
| LMBITR | Bloomberg Muni Bond Total Return Index | Municipal Bond | 0.5% | 2.7% | 3.2% |
During the year, there were net outflows at CLIM across the EM and INTL strategies. The OV strategy saw net inflows, bolstered by a new segregated account that funded in July 2022. In this environment, the OV strategy allows CLIM's institutional clients to take advantage of dislocations in specific markets and/or asset classes via discounted CEFs.
At KIM, flows in the Institutional business were flat. On the Retail side, ongoing outflows occurred via lost accounts to attractive deposit rates that are FDIC-insured, individual expenses, taxes and required minimum distributions from retirement accounts.
The diversification offered by the KIM business has been proven this year, as that business provides primarily exposure to US domestic equity and fixed income markets. As mentioned earlier, the strength of the US equity market has been significant relative to EM.
Figure 5: CLIG - FuM by line of business (US$m)
| CLIM | 30 Jun 2019 | 30 Jun 2020 | 30 Jun 2021 | 30 Jun 2022 | 30 Jun 2023 | ||||||||
| | US$m | % of CLIM total* | US$m | % of CLIM total* | US$m | % of CLIM total | % of CLIG total | US$m | % of CLIM total | % of CLIG total | US$m | % of CLIM total | % of CLIG total |
| Emerging Markets | 4,221 | 78% | 3,828 | 69% | 5,393 | 72% | 47% | 3,703 | 64% | 40% | 3,580 | 61% | 38% |
| International | 729 | 14% | 1,244 | 23% | 1,880 | 25% | 17% | 1,812 | 32% | 20% | 1,983 | 34% | 21% |
| Opportunistic Value | 233 | 4% | 256 | 5% | 231 | 3% | 2% | 193 | 3% | 2% | 244 | 4% | 3% |
| Frontier | 206 | 4% | 175 | 3% | 13 | 0% | 0% | 9 | 0% | 0% | 9 | 0% | 0% |
| Other/REIT | 7 | 0% | 9 | 0% | 13 | 0% | 0% | 74 | 1% | 1% | 88 | 1% | 1% |
| CLIM total | 5,396 | 100% | 5,512 | 100% | 7,530 | 100% | 66% | 5,791 | 100% | 63% | 5,904 | 100% | 63% |
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| KIM | 30 Jun 2019 | 30 Jun 2020 | 30 Jun 2021 | 30 Jun 2022 | 30 Jun 2023 | ||||||||
| | US$m | % of KIM total* | US$m | % of KIM total* | US$m | % of KIM total | % of CLIG total | US$m | % of KIM total | % of CLIG total | US$m | % of KIM total | % of CLIG total |
| Retail | 2,291 | 67% | 2,401 | 69% | 2,804 | 72% | 24% | 2,419 | 70% | 26% | 2,441 | 69% | 26% |
| Institutional | 1,105 | 33% | 1,087 | 31% | 1,115 | 28% | 10% | 1,014 | 30% | 11% | 1,079 | 31% | 11% |
| KIM total | 3,396 | 100% | 3,488 | 100% | 3,919 | 100% | 34% | 3,433 | 100% | 37% | 3,520 | 100% | 37% |
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| CLIG total |
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| 11,449 |
| 100% | 9,224 |
| 100% | 9,424 |
| 100% |
| *Pre-merger | | | | | | | | | | | | | |
Figure 6: Net investment flows (US$000's)
| CLIM |
| FY 2020 | FY 2021 | FY 2022 | FY 2023 |
| Emerging Markets | | (279,459) | (275,493) | (315,770) | (205,924) |
| International | | 551,102 | (14,145) | 452,554 | (50,824) |
| Opportunistic Value | | 45,914 | (102,663) | 617 | 34,942 |
| Frontier | | 16,178 | (168,843) | (4,748) | - |
| Other/REIT | | 4,600 | - | 79,133 | (5,709) |
| CLIM total |
| 338,335 | (561,144) | 211,786 | (227,515) |
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| KIM | | FY 2020 | FY 2021* | FY 2022 | FY 2023 |
| Retail | | 26,323 | (104,222) | (106,444) | (141,952) |
| Institutional | | (67,087) | (130,911) | (3,302) | 12,530 |
| KIM total |
| (40,764) | (235,133) | (109,746) | (129,422) |
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*Includes net investment flows for Retail - (24,407) and Institutional - (20,264) pertaining to period before 1st October 2020 (pre-merger)
Group financial results
The Group's average net fee margin for the year was 72bps (2022: 73bps). The Group's net fee income over the period was £54.6 million as compared to £58.2 million in the prior year. The decrease in net fee income was due to lower average FuM during the year offset by a stronger US dollar against sterling, with an average GBP/US$ rate of 1.21 in FY 2023 as compared with 1.33 in FY 2022, an increase of c.9% over last year's average rate.
The Group's business has always been relatively simple. Pre-merger with KIM, c.49% of our expenses were in non-US dollar currencies (sterling, Singapore dollars and Dubai dirhams) and c.51% of our expenses were in US dollars. Post-merger with KIM, this ratio has changed significantly and now c.65% of our expenses are incurred in US dollars and almost all of our income is in US dollars. This change in the composition of expenses from non-US dollar currencies to US dollars has had the effect of magnifying moves in the sterling/US dollar exchange rate.
As illustrated in Figure 7 below, the strengthening US dollar had a major impact on the Group's expenses in sterling, but US dollar employee costs and total operating expenses actually fell over the year by 4.9% and 2.1% respectively. The move to US dollars as the Group's reporting currency in the new financial year will help provide shareholders with a clearer picture of our income and expenses without the distorting impact of FX translation.
Compounding the issues mentioned above has been the fall in average FuM from US$10.5 billion in FY 2022 to US$9.2 billion in FY 2023, leading to a c.15.4% reduction in net fee income in US dollar terms.
Figure 7: Comparison of CLIG's operating profit GBP vs US$
| | Year to 30th June 2023 | Year to 30th June 2022 |
Change | | Year to 30th June 2023* | Year to 30th June 2022* |
Change | ||
| | £ | £ | £ | % | | $ | $ | $ | % |
| Net fee income | 54,622,286 | 58,203,284 | (3,580,998) | -6.2% | | 65,480,095 | 77,439,355 | (11,959,260) | -15.4% |
| Employee costs | 24,756,241 | 23,532,973 | 1,223,268 | 5.2% | | 29,761,921 | 31,306,147 | (1,544,226) | -4.9% |
| Other admin. expenses | 6,947,901 | 5,970,527 | 977,374 | 16.4% | | 8,382,266 | 7,928,529 | 453,737 | 5.7% |
| Depreciation & amortisation | 5,336,767 | 4,747,116 | 589,651 | 12.4% | | 6,434,400 | 6,284,244 | 150,156 | 2.4% |
| Operating expenses | 37,040,909 | 34,250,616 | 2,790,293 | 8.1% | | 44,578,587 | 45,518,920 | (940,333) | -2.1% |
| Operating profit | 17,581,377 | 23,952,668 | (6,371,291) | -26.6% | | 20,901,508 | 31,920,435 | (11,018,927) | -34.5% |
* Translated into US dollars at average GBP/US$ rates of exchange of 1.33 in FY 2022 and 1.21 in FY 2023. Refer to Note 12 for further details.
CLIG profitability, cash and dividends
Operating profit before profit-share, EIP, share option charge and investment gains/(losses)* of £32.6 million was lower by 15% (2022: £38.4 million) primarily because of US dollar strengthening and a combination of lower average FuM, higher employee-related, travel and marketing and IT costs in FY 2023. Profit before tax decreased to £18.6 million (2022: £23.2 million). Please refer to the Financial Review for additional financial results.
The Board has recommended a final dividend of 22p per share (2022: 22p), subject to approval by shareholders at the Company's Annual General Meeting (AGM) to be held on 23rd October 2023. This would bring the total dividend payment for the year to 33p (2022: 46.5p, including a special dividend of 13.5p). Rolling five-year dividend cover based on underlying profits, excluding the special dividend equates to 1.24 times (2022: 1.32 times) in line with our target. Please refer to page 24 of the full report for the dividend cover chart, which provides an overview of our dividend policy.
Inclusive of our regulatory and statutory capital requirements, cash and cash equivalents were £22.5 million as at 30th June 2023 as compared to £22.7 million at 30th June 2022, in addition to the seed and other own investments of £7.9 million (2022: £7.4 million). Our cash reserves will allow us to continue managing the business conservatively through volatile markets while following our dividend policy. The CLIG Board continues to review the appropriate cash reserves needed to run the larger, but more diversified, business and assesses variables such as the impact of future revenue projections in case of a broad retreat in underlying asset prices.
A review of CLIG's Share Price KPI can be found on page 25 of the full report. Over the past five years, the average annualised return to shareholders is 8.0%, within the 7.5%-12.5% target range.
EIP
The Employee Incentive Plan (EIP) continues to be an integral part of our remuneration package. Employees are able to set aside a portion of their variable compensation, which to incentivise employees is matched by the Company, in order to purchase shares that vest over the following three years (five years for an Executive Director). There is ongoing take-up by employees across the Group, who continue to benefit from being a part of, and owning, a public company.
Cybersecurity update
In April 2023, all CLIG employees were given a Security Awareness Proficiency Assessment. This is similar to an assessment taken by employees in 2021. The assessment covered multiple topics that employees received training on, such as internet use, email security, password management and incident reporting.
Our goal was to uncover what cybersecurity areas we should focus our upcoming training sessions on for the rest of the calendar year 2023. We also received benchmarking against the average score of financial industry employees.
As you can see in Figure 8 on page 13 of the full report, CLIG employees outperformed the industry average in each category. Relative to 2021, CLIG employees scored higher in six of the eight categories. This is exactly what we were hoping to see as the results show that our training approach has led to constant improvement of our employees' information security awareness.
Environmental reporting update
In the 2022 annual report and accounts (ARA), we committed to:
•Continue to develop our understanding of climate-related risk at Board level and across the employee base;
•Identify and review the tools to enhance our understanding of how climate-related risks impact our business;
•Continue to develop our path to a net zero transition; and
•Make a commitment to reach net zero by a particular date.
During the financial year, we engaged with ECO3 Partnership Limited ("ECO3"), an environmental consulting firm based in Edinburgh, to assist us with providing additional and improved disclosures to shareholders, and to meet our commitments from the 2022 ARA.
On 3rd August 2023, we released a Supplemental TCFD/GHG Status Report, produced in collaboration with ECO3. This supplemental report includes information on Governance, Strategy, Risk Management, and Metrics and Targets, and provides further insight into how CLIG is responding to the risks and opportunities from climate change.
Additional actions taken during the financial year include:
•CLIG's Audit & Risk Committee committing to net zero emissions by 2050, at the latest;
•CLIG undergoing a review of obtaining energy for the local offices via renewable sources.
Please see pages 39-47 of the full report for additional information on these important initiatives, and the supplemental report mentioned above can be found at https://clig.com/wp-content/uploads/2023/09/2022-CLIG-TCFD-Supplemental-Report-August-2023.pdf.
Corporate governance and stakeholders
As announced, Barry Aling will retire from the Board in October of 2023. I will miss Barry's counsel and advice, and overall, his "steady hand on the tiller". Barry was invaluable in guiding the Board through the pandemic and the merger with KIM and I am certain shareholders will join me in thanking him for his many and frequent contributions to the Group over the years.
Pending shareholder approval at the AGM in October, Rian Dartnell will succeed Barry as CLIG's new Chair. I look forward to working with Rian in his new role, albeit after many years as a CLIG Non-Executive Director, he needs no introduction to the Group and is well-placed to lead the Board into the future. His immense experience in the investment management industry as both a CEO and CIO will be invaluable as we move forward.
On a day-to-day basis, the Group is led by the Group Executive Committee (GEC), which consists of Carlos Yuste, Dan Lippincott, Deepranjan Agrawal, Mark Dwyer, and me. The GEC regularly receives presentations or updates from leaders or managers at CLIM and KIM. Recent presentations have been provided by members of Investment Management, Operations, Performance & Attribution, Relationship Management, and Information Technology. These presentations keep the GEC focused on, as Barry Olliff used to say, "the risk at the coal face".
Retirement of George Karpus, KIM Founder and CLIG Director
As mentioned in the 26th May 2023 announcement, George Karpus, Non-Executive Director and KIM Founder, has retired from the Board of Directors effective 31st July 2023. George has had a storied investing career and he built Karpus Investment Management into one of the pre-eminent CEF houses. His foresight, tenacity and vision created a lasting legacy in the CEF investment industry. The Board and employees wish him the very best in his retirement.
CLIG outlook
Despite a challenging year, we believe the work done over the past twelve months has laid the foundation for growth. With a following wind, we are optimistic that the Group is well positioned to go further together given the complementary strengths of CLIM and KIM, attractive CEF discounts, and value in a number of asset classes managed by the Group. I would like to thank my colleagues for their contributions over the past year and look forward to working with them to grow the business for our clients and shareholders.
Tom Griffith
Chief Executive Officer
15th September 2023
INVESTMENT REVIEW - CLIM
In combination with the rich absolute value available in CEF discounts and their persistent volatility, our portfolios are well positioned as the headwinds of the last twelve months abate.
Risk assets gained over the twelve-month period ending 30th June 2023. Investor pessimism from mid-2022 dissipated and higher multiples on resilient earnings pushed equity prices higher. Fixed income lagged equity as long-term rates rose, taking their cue from continued central bank tightening.
CLIM's core Emerging Market (EM) strategy outperformed by 0.1% net of fees. NAV performance was favourable, particularly in H2 2022, led by Asian securities. Discounts widened meaningfully over the period, as retail investors, typically the marginal CEF buyer, reduced risk, preferring the safety of risk-free deposit rates topping 5%. CLIM's International (INTL) CEF strategy underperformed by 0.7% net of fees as net asset values underperformed and discounts widened. Good top-down country allocation, specifically an overweight to Japan, underweight to Canada and some modest US exposure were positive. CLIM's smaller strategies had a mixed year. Opportunistic Value (OV) outperformed by 2.1% net of fees, benefitting from its flexible mandate to generate alpha across multiple CEF sectors. The Frontier strategy underperformed due to weak country allocation. Both REIT strategies significantly outperformed their benchmark indices driven by good stock selection.
Discounts have recently expanded in a highly correlated way close to the widest in twenty years excluding the market volatility of 2008/09. Despite these challenging conditions for our CEF strategies a significant majority of CLIM's assets remain ahead of benchmark and in line with peers over the five years ended June 2023 (see Figure 1 on page 14 of the full report).
Net flows at CLIM were negative over the year. There have been several pressure points: firstly, many US-based pension fund clients have benefitted from strong asset returns. As funding positions improve so risk is dialled back. Secondly, government bond yields moving closer to mid-single digit levels provide a further incentive to de-risk. Thirdly, "EM fatigue" and geopolitical uncertainty regarding China continues to influence asset allocation decisions. EM returns now lag US equities over two decades and the relative CAPE P/E ratios between the world market, international equities (ex-US) and EM equities since 2006 are highlighted in Figure 2 on page 15 of the full report. Predicting market direction based on these metrics is difficult, however history consistently shows better returns accrue to cheaper markets in the long run.
CEF issuance was sharply lower in the twelve months ending June 2023. Approximately US$3 billion was issued globally as the IPO market slowed considerably compared with the US$30 billion issued in the previous twelve months. Stake building by value investors has prompted an uptick in corporate actions as Boards attempt to address their discounts and performance concerns. Hitherto, "hot" CEF sectors including technology and public fixed income in the US, listed alternatives and private equity in the UK have seen significant discount widening, providing CLIM with new business opportunities. The INTL, Global, OV and EM REIT strategies have significant capacity and remain the focus for marketing.
CEF discounts are the overriding consideration in CLIM's investment process, but our manager due diligence does include a review of how ESG risk is managed by the underlying managers. We undertake this work to encourage managers to improve their ESG disclosures and also to keep our clients better informed about their portfolios. We believe that improved transparency will result in better management of ESG risks by CEF managers and ultimately in better returns for our clients. The raw scores for MSCI ACWI suggest that companies are improving their ESG performance. In addition, based on Sustainalytics' analysis, CLIM's CEF portfolios have slightly lower overall ESG risk than their benchmarks on average, though this is not a targeted outcome. Our detailed annual stewardship report is available here: https://citlon.com/wp-content/uploads/2023/04/AnnualStewardshipReport3-23.pdf
Global equity markets have performed well considering the headwinds: inflation and associated monetary tightening; geopolitical strains from Taiwan to Ukraine and weaker Chinese growth. Typically, strong equity performance would be reflected in greater investor confidence and tighter discounts. In fact, the opposite has occurred in the key CEF markets of UK, US and Australia. We believe this is unlikely to persist. Figure 3 on page 15 of the full report shows that average discounts are exceptionally wide and, importantly for our strategies, discount volatility remains elevated. Finally, non-US equity markets which comprise the bulk of CLIM's assets offer good value; again Figure 3 puts this into perspective. The upward move in risk-free rates correlates with the de-rating in CEFs - this move is likely nearer the end than the beginning. In combination with the rich absolute value available in CEF discounts and their persistent volatility, our portfolios are well positioned as the headwinds of the last twelve months abate.
INVESTMENT REVIEW - KIM
Investors remain uncertain about the trajectory of inflation and U.S. Federal Reserve policy. The U.S. Federal Reserve continues to face a balancing act of reducing inflation toward their goal without pushing rates so high they hamper economic growth.
Recap and outlook
• Most central banks around the world have significantly tightened monetary policy, highlighted by the US Federal Reserve hiking rates from 0-0.25% to 5-5.25% while decreasing its balance sheet by US$550 billion during the twelve months ended 30th June 2023.
• In the US, several bank failures spooked investors, however the US Federal Reserve took swift and decisive measures to provide liquidity and restore confidence in the banking system.
• US stock market has been very strong, up 19.6% as measured by the S&P 500. However, breadth has been exceptionally narrow with a small number of stocks contributing the bulk of the returns. The equal weight S&P 500 index only returned 13.8% over the past twelve months.
• US Treasuries were volatile and negative over the past twelve months, with the ten-year and thirty-year Treasuries returning -3.6% and -9.7% respectively.
• Looking ahead, major concerns include the lagged effects of unprecedented monetary tightening, growth, inflation, and stretched valuations in many stocks.
Performance
KIM's strategies experienced mixed performance over the past twelve months as our fixed income, conservative balance, and special purpose acquisition companies (pre-acquisition) (SPACs) strategies outperformed, while equity and growth balanced lagged indices.
Our discipline calls for us to increase our exposure to closed-end funds (CEFs) when discounts widen. This is exactly what we have done over the past twelve months as we have increased our CEF exposure by over US$1.3 billion.
SPACs produced solid returns over the twelve months and continue to offer compelling returns, however, we have reduced our exposure in favour of Municipal CEFs as we believe they offer better go-forward returns.
Despite solid short and long-term performance, flows were net negative as high net worth clients withdrew funds for required minimum distributions and institutional clients sought to rebalance. While markets have been challenging, we feel that our strategy has held up very well. With volatility comes opportunity and we feel our strategy is positioned well to capitalise on market inefficiencies.
BUSINESS DEVELOPMENT REVIEW
CLIG's FuM were US$9.4 billion (£7.4 billion) as at 30th June 2023. This compares with US$9.2 billion (£7.6 billion) as at 30th June 2022.
Performance
Despite wider discounts for all CEF strategies, investment performance was ahead of benchmark for the bulk of CLIM's assets for the year ended 30th June 2023 due to strong NAV performance in the Emerging Market (EM) strategy. The International (INTL) strategy was slightly behind benchmark over the period while the Opportunistic Value (OV) strategy outperformed. KIM's taxable fixed income, conservative balanced and SPAC strategies outperformed their market indices over the period, while equity strategies lagged their benchmarks.
The Global EM Composite net investment returns for the rolling one year ended 30th June 2023 were +2.5% vs. +1.7% for the MSCI EM Index in US$.
The KIM Conservative Balanced Composite net investment returns for the rolling one year ended 30th June 2023 were 6.65% vs. 5.03% for the Morningstar US Fund Allocation - 30% to 50% Equity Category in US$.
The KIM Taxable Fixed Income Composite net investment returns for the rolling one year ended 30th June 2023 were 2.52% vs. 0.78% for the Morningstar Average General Bond Fund Category in US$.
The International CEF Composite net investment returns for the rolling one year ended 30th June 2023 were +11.7% vs. +12.7% for the MSCI ACWI ex US in US$.
The Opportunistic Value Composite net investment returns for the rolling one year ended 30th June 2023 were +9.3% vs. +7.5% for the 50/50 MSCI ACWI/Barclays Global Aggregate Bond benchmark in US$.
The Frontier Markets Composite net investment returns for the rolling one year ended 30th June 2023 were +7.5% vs. +12.4% for the S&P Frontier EM 150 benchmark in US$.
Outlook
All investment strategies are open and have capacity at a time when attractive discounts across the closed-end fund universe are the focus of marketing efforts to consultants, institutional and wealth management clients.
We are pleased to note that institutional clients have been particularly interested in private assets, including listed private equity, REITs and listed infrastructure and that our offering continues to develop in this regard.
Investment platforms are a new area of business development for wealth management strategies, including taxable fixed income which has benefitted from strong performance over the period.
Opportunities to cross-sell strategies to qualified institutional or wealth management clients are also being explored.
FINANCIAL REVIEW
The Group income statement is presented in line with UK-adopted International Accounting Standards on page 104 of the full report but the financial information is reviewed by the management and the Board in a slightly different way, as in the table provided below. This makes it easier to understand the Group's operating results and shows the profits which is used to calculate Group's profit-share provision.
|
Consolidated income for financial years ended 30th June | | |
| | 2023 | 2022 |
| | £'000 | £'000 |
| Gross fee income | 57,326 | 61,294 |
| Commissions | (1,522) | (1,599) |
| Custody fees | (1,182) | (1,492) |
| Net fee income | 54,622 | 58,203 |
| Interest | 444 | (121) |
| Total net income | 55,066 | 58,082 |
| Employee costs | (14,809) | (13,229) |
| Other administrative expenses | (6,948) | (5,781) |
| Depreciation and amortisation | (696) | (696) |
| Total overheads | (22,453) | (19,706) |
| Profit before bonus/EIP - operating profit | 32,613 | 38,376 |
| Profit-share | (8,656) | (9,162) |
| EIP | (1,261) | (1,298) |
| Share option charge | (30) | (34) |
| Investment gain/(loss) | 573 | (659) |
| Pre-tax profit before amortisation of intangibles acquired on acquisition | 23,239 | 27,223 |
| Amortisation of intangibles | (4,641) | (4,051) |
| Pre-tax profit | 18,598 | 23,172 |
| Tax | (3,859) | (5,081) |
| Post-tax profit | 14,739 | 18,091 |
FuM
FuM at 30th June 2023 were US$9.4 billion compared with US$9.2 billion at the end of the prior financial year. The small increase was due to a combination of investment flows, market movements and performance. Refer to Figure 5 FuM by line of business table within the CEO statement for more detail. However, average FuM for the year decreased by 12% from US$10.5 billion in FY 2022 to US$9.2 billion in FY 2023.
Revenue
The Group's gross revenue comprises of management fees charged as a percentage of FuM. The Group's gross revenue decreased YoY by 7% to £57.3 million (2022: £61.3 million). The decrease in revenue is primarily due to lower average FuM during the year offset by a stronger US dollar against sterling, with an average £/US$ rate of 1.21 in FY 2023 as compared with 1.33 in FY 2022, an increase of c.9% over last year's average rate.
Commissions payable of £1.5 million (2022: £1.6 million) relate to fees due to US registered investment advisers for the introduction of wealth management clients. The marginal decrease is due to slightly lower activity in FY 2023.
The Group's net fee income, after custody charges of £1.2 million (2022: £1.5 million), is £54.6 million (2022: £58.2 million), a reduction of c.6% as compared to last year. The Group's average net fee margin for FY 2023 was 72bps as compared to 73bps for FY 2022.
Net interest income is made up of interest earned on bank deposits and short-term investments in treasury money market instruments offset by interest paid on lease obligations. Refer to page 114 of the full report for our lease accounting policy and page 117 of the full report for details of net interest earned.
Costs
Total overheads before profit share, EIP, share option charge and investments gains/(losses) for FY 2023 totalling £22.5 million (2022: £19.7 million) were 14% higher than FY 2022, out of which c.6% was due to a stronger US dollar during the year. The US dollar strengthened by an average of 9% during the year as compared to sterling and c.65% of the Group's overheads are incurred in US dollars.
The Group's cost/income ratio, arrived at by comparing total overheads before profit share, EIP, share option charge and investments gains/(losses) with net fee income, was 41% in FY 2023 (2022: 34%).
The largest component of overheads continues to be employee-related at £14.8 million (2022: £13.2 million), an increase of c.12% over last year, out of which c.6% is due to the impact of a stronger average US dollar during the year and salary and related pension cost increases with effect from 1st July 2022. Additionally, employee-related costs increased during the year due to the full year cost of replacing relationship managers and assistants, primarily due to retirements, for the purpose of transitioning client accounts and the full year impact of restoring employee health care benefits at KIM.
Other administrative expenses increased by c.20% to £6.9 million (2022: £5.8 million), out of which c.6% was due to the impact of a stronger average US dollar during the year and the impact of additional spend on travel and marketing. FY 2023 was the first full year post-pandemic after two years in which only limited travel was possible due to Covid restrictions. Board travel to attend meetings and employee engagement sessions as well as employee travel for client meetings, entertainment and briefings resumed during the year.
Other administrative expenses were also impacted by additional IT spend during the year, mainly on infrastructure and network consulting, which will provide additional protection from a cybersecurity perspective, as well as provide opportunities for future savings after implementation across all offices. Additional expenditure increases are from development expenses on improving existing systems, upgrading the core Microsoft applications to the Office 365 SaaS solution, and cost increases by vendors.
Total net fee income less overheads resulted in a profit before profit-share/EIP/share options charge and investment gain/(losses) of £32.6 million (2022: £38.4 million).
The total variable profit-share for FY 2023 decreased by 5% to £8.7 million as compared with £9.2 million in FY 2022 as a result of lower operating profit for the year.
The Group's Employee Incentive Plan (EIP) charge for FY 2023 amounted to £1.3 million (FY 2022: £1.3 million).
Investment gains/(losses)
Gains of £0.6 million (2022: loss of £0.7 million) relate to the realised and unrealised gains/(losses) on the Group's seed investments and other investments in Special Purpose Acquisition Companies (SPACs).
Amortisation of intangibles
Intangible assets relating to direct customer relationships, distribution channels and KIM's trade name recognised on the merger with KIM are being amortised over seven to fifteen years (refer to note 1.6 of the financial statements) and have resulted in an amortisation charge of £4.6 million for the year (2022: £4.1 million). Deferred tax liability on these intangibles as at 30th June 2023 amounted to £7.2 million (2022: £8.7 million) based on the relevant tax rate, which will unwind over the useful economic life of the associated assets. Goodwill amounting to £69.7 million was also initially recognised on the completion of the merger. Foreign currency translation differences on the closing balances of intangibles have been recognised in other comprehensive income. Refer to note 7 of the financial statements for more details.
Taxation
The pre-tax profit of £18.6 million (2022: £23.2 million), after a corporation tax charge of £3.9 million in FY 2023 (2022: £5.1 million), at an effective rate of 21% (2022: 22%), resulted in a post-tax profit of £14.7 million (2022: £18.1 million), which is all attributable to the equity shareholders of the Company.
Group statement of financial position
The Group's financial position continues to be strong and liquid, with cash resources of £22.5 million as at 30th June 2023 as compared with £22.7 million as at 30th June 2022. As at 30th June 2023, c.52% of the Group's shareholders are based in North America. Although the Group continues to declare dividends in sterling, we have provided the option for shareholders to receive dividends either in sterling or US dollars, at a pre-determined exchange rate. Further, c.66% of Group's total expenses are incurred in non-sterling currencies. In order to pay the anticipated US dollar dividends and non-sterling expenses, c.58% of the Group's cash resources are held in US dollars as at 30th June 2023.
The Group had invested US$5 million (£3.9 million) in seeding its two REIT funds at the start of January 2019. By the end of June 2023, these investments were valued at £3.8 million (2022: £3.8 million), with the small unrealised gain (2022: loss) taken to the income statement.
The Group had also invested US$2.5 million (£1.9 million) in seeding the Global Equity CEF in December 2021 and US$2.5 million (£1.9 million) in SPACs in March 2022. By the end of June 2023, these investments were valued at £4.1 million (2022: £3.6 million), with the realised gain of £0.3 million and unrealised gain of £0.2 million (2022: unrealised loss of £0.2 million) taken to the income statement.
The International REIT and Global Equity CEF funds are assessed to be under the Group's control and are thus consolidated using accounts drawn up as of 30th June 2023. There were no third party investors, collectively known as the non-controlling interest (NCI) in these funds as at 30th June 2023 (2022: nil).
The Group's right-of-use assets (net of depreciation) amounted to £2.0 million as at 30th June 2023 as compared with £2.4 million as at 30th June 2022. There were no additions to the right-of-use assets during the year other than the impact of currency translations.
The Employee Benefit Trust (EBT) purchased 622,746 shares (2022: 552,730 shares) at a cost of £2.6 million (2022: £2.7 million) in preparation for the annual EIP awards due at the end of October 2023.
The EIP has had a consistently high level of participation each year since inception (>60% of Group employees), with the first tranche of awards vesting in October 2018. Only 26.2% (2022: 23.5%) of the shares vesting during the year were sold in order to help cover the employees' resulting tax liabilities, leading to a very healthy 73.8% (2022: 76.5%) share retention within the Group.
In addition, Directors and employees exercised 23,350 (2022: 92,000) options over shares held by the EBT, raising £0.1 million (2022: £0.3 million) which was used to pay down part of the loan to the EBT.
Dividends paid during the year totalled £16.1 million (2022: £21.5 million). The total dividend of 33p per share comprised: the 22p per share final dividend for 2021/22 and the 11p per share interim dividend for the current year (2022: 22p per share final for 2020/21, 11p per share interim and a special dividend of 13.5p per share). The Group's dividend policy is set out on page 24 of the full report.
The Group is well capitalised and its regulated entities complied at all times with their local regulatory capital requirements. In the UK, the Group's principal operating subsidiary, CLIM, is regulated by the FCA. As required under the Capital Requirements Directive, the underlying risk management controls and capital position are disclosed on CLIM's website www.citlon.com.
Currency exposure
The Group's revenue is almost entirely US dollar based whilst its costs are incurred in US dollars, sterling and to a lesser degree Singapore dollars. The Group's currency exposure also relates to its subsidiaries' non-sterling assets and liabilities, which are again to a great extent in US dollars. For the UK incorporated entities, the exchange rate differences arising on their translation into sterling for reporting purposes each month is recognised in the income statement. In order to minimise the foreign exchange impact, the Group monitors its net currency position and offsets it by forward sales of US dollars for sterling. At 30th June 2023, these forward sales totalled US$24.8 million, with a weighted average exchange rate of US$1.26 to £1 (2022: US$24.5 million at a weighted average rate of US$1.29 to £1).
The exchange rate differences arising from translating functional currency to presentation currency for KIM are recognised in the Group's other comprehensive income.
Functional and reporting currency change
The functional currency of the Company and the presentational currency of the Group changed to US dollars with effect from 1st July 2023. The Board believes that this change will provide investors and other stakeholders with greater transparency of the Group's performance and reduced foreign exchange volatility.
There will be no change in the Group's dividend policy, and dividends will continue to be declared in sterling with an option for shareholders based in the US to elect to receive dividends in US$.
Following the change in the Group's presentational currency with effect from 1st July 2023, the Group's interim results for the six-month period ended 31st December 2023, and all subsequent financial information, will be prepared using US dollars as the presentational currency. Comparative information will also be provided in US dollars as required by the relevant Accounting Standards. Refer to note 12 for further information.
Viability statement
In accordance with the provisions of the UK Corporate Governance Code, the Directors have assessed the viability of the Group over a three-year period, taking into account the Group's current position and prospects, Internal Capital Adequacy and Risk Assessment (ICARA) and the potential impact of principal risks and how they are managed as detailed in the risk management report on pages 30 to 31 of the full report.
Period of assessment
While the Directors have no reason to believe that the Group will not be viable over a longer period, given the uncertainties still associated with the global economic and political factors and their potential impact on financial markets, any longer time horizon assessments are subject to more uncertainty due to external factors.
Taking into account the recommendations of the Financial Reporting Council in their 2021 thematic review publication, the Board has therefore determined that a three-year period to 30th June 2026 constitutes an appropriate and prudent timeframe for its viability assessment. This three-year view is also more aligned to the Group's detailed stress testing.
Assessment of viability
As part of its viability statement, the Board has conducted a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. This assessment includes continuous monitoring of both internal and external environments to identify new and emerging risks, which in turn are analysed to determine how they can best be mitigated and managed.
The primary risk is the potential for loss of FuM as a result of poor investment performance, client redemptions, breach of mandate guidelines or market volatility. The Directors review the principal risks regularly and consider the options available to the Group to mitigate these risks so as to ensure the ongoing viability of the Group is sustained.
The ICARA is reviewed by the Board and incorporates stress testing based on loss of revenue on the Group's financial position over a three-year period. The Group has performed additional stress tests using several different scenario levels, over a three-year period which are significantly more severe than our acceptable risk appetite, which include:
•a significant fall in FuM;
•a significant fall in net fee margin; and
•combined stress (significant falls both in FuM and net fee margin).
Having reviewed the results of the stress tests, the Directors have concluded that the Group would have sufficient resources in the stressed scenarios and that the Group's ongoing viability would be sustained. The stress scenario assumptions would be reassessed if necessary over the longer term. An example of a mitigating action in such scenarios would be a reduction in costs along with a reduction in dividend.
Based on the results of this analysis, the Board confirms it has a reasonable expectation that the Company and the Group will be able to continue in operation and meet their liabilities as they fall due over the next three years.
On that basis, the Directors also considered it appropriate to prepare the financial statements on the going concern basis as set out on page 94 of the full report.
Alternative Performance Measures
The Directors use the following Alternative Performance Measures (APMs) to evaluate the performance of the Group as a whole:
Underlying profit before tax - Profit before tax, adjusted for gain/(loss) on investments 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 and tax effect of adjustments, divided by the weighted average number of shares in issue as at the period end. Refer to note 6 in the financial statements for reconciliation.
| Alternative Performance Measures | | |
| | | |
| Underlying profit and profit before tax | Jun 23 | Jun 22 |
| £ | £ | |
| Net fee income | 54,622,286 | 58,203,284 |
| Administrative expenses | (32,399,825) | (30,199,393) |
| Net interest received/(paid)* | 444,163 | (121,054) |
| Underlying profit before tax | 22,666,624 | 27,882,837 |
| Add back/(deduct): | | |
| Gain/(loss) on investments | 572,807 | (659,231) |
| Amortisation on acquired intangibles | (4,641,084) | (4,051,223) |
| Profit before tax | 18,598,347 | 23,172,383 |
* Net interest received/(paid) is made up of interest earned on short-term bank deposits, treasuries and money market funds offset by interest paid on lease obligations.
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30TH JUNE 2023
| |
Note |
Year to 30th June 2023 £ |
Year to 30th June 2022 £ |
| Revenue Gross fee income |
2 |
57,326,109 |
61,293,627 |
| Commissions payable | | (1,521,652) | (1,598,421) |
| Custody fees payable | | (1,182,171) | (1,491,922) |
| Net fee income | | 54,622,286 | 58,203,284 |
| Administrative expenses Employee costs |
|
24,756,241 |
23,532,973 |
| Other administrative expenses | | 6,947,901 | 5,970,527 |
| Depreciation and amortisation | | 5,336,767 | 4,747,116 |
| | | (37,040,909) | (34,250,616) |
| Operating profit | 3 | 17,581,377 | 23,952,668 |
| Finance income | 4 | 1,153,653 | 32,136 |
| Finance expense | 4 | (136,683) | (812,421) |
| Profit before taxation | | 18,598,347 | 23,172,383 |
| Income tax expense | 5 | (3,859,611) | (5,081,232) |
| Profit for the period | | 14,738,736 | 18,091,151 |
| Profit attributable to: | | | |
| Equity shareholders of the parent | | 14,738,736 | 18,091,151 |
| Basic earnings per share | 6 | 30.2p | 36.9p |
| Diluted earnings per share | 6 | 29.6p | 36.4p |
CONSOLIDATED AND COMPANY STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30TH JUNE 2023
|
| Group | Company |
| ||
| |
Year to 30th June 2023 £ |
Year to 30th June 2022 £ |
Year to 30th June 2023 £ |
Year to 30th June 2022 £ | |
| Profit for the period | 14,738,736 | 18,091,151 | 18,917,257 | 26,303,606 | |
| Other comprehensive income: | | | | | |
| Foreign currency translation differences | (4,261,592) | 12,826,714 | - | - | |
| Total comprehensive income for the period | 10,477,144 | 30,917,865 | 18,917,257 | 26,303,606 | |
| Attributable to: Equity shareholders of the parent |
10,477,144 |
30,917,865 |
18,917,257 |
26,303,606 | |
CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
30TH JUNE 2023
| Group | Company |
| | | 30th June 2023 | 30th June 2022 | 30th June 2023 | 30th June 2022 | |
| | Note | £ | £ | £ | £ | |
| | | | | | |
|
| Non-current assets | | | | | |
|
| Property and equipment | | 724,842 | 511,208 | 220,055 | 247,832 |
|
| Right-of-use assets | | 1,986,893 | 2,418,745 | 906,772 | 1,085,153 |
|
| Intangible assets | 7 | 101,127,243 | 110,078,091 | 23,288 | 17,867 |
|
| Other financial assets | | 7,887,575 | 7,434,586 | 109,174,428 | 108,912,203 |
|
| Deferred tax asset | | 388,499 | 394,831 | 5,692 | 5,066 |
|
| | | 112,115,052 | 120,837,461 | 110,330,235 | 110,268,121 |
|
| Current assets | | | | | |
|
| Trade and other receivables | | 6,371,417 | 6,498,019 | 3,038,669 | 5,180,722 |
|
| Current tax receivable | | - | - | 771,879 | 1,132,209 |
|
| Cash and cash equivalents | | 22,489,858 | 22,677,893 | 11,634,613 | 6,919,935 |
|
| | | 28,861,275 | 29,175,912 | 15,445,161 | 13,232,866 |
|
| Current liabilities | | | | | |
|
| Trade and other payables | | (8,452,440) | (9,461,606) | (4,124,497) | (3,749,598) |
|
| Lease liabilities | | (197,331) | (388,986) | (34,586) | (121,573) |
|
| Current tax payable | | (794,263) | (538,158) | - | - |
|
| Creditors, amounts falling due within one year | | (9,444,034) | (10,388,750) | (4,159,083) | (3,871,171) |
|
| Net current assets | | 19,417,241 | 18,787,162 | 11,286,078 | 9,361,695 |
|
| Total assets less current liabilities | | 131,532,293 | 139,624,623 | 121,616,313 | 119,629,816 |
|
| Non-current liabilities | | | | | |
|
| Lease liabilities | | (1,966,651) | (2,213,854) | (989,477) | (1,026,248) |
|
| Deferred tax liability |
| (7,222,616) | (8,642,208) | (18,215) | (21,178) |
|
| Net assets | | 122,343,026 | 128,768,561 | 120,608,621 | 118,582,390 |
|
|
Capital and reserves | | | | | |
|
| Share capital | 8 | 506,791 | 506,791 | 506,791 | 506,791 |
|
| Share premium account | | 2,256,104 | 2,256,104 | 2,256,104 | 2,256,104 |
|
| Merger relief reserve | 8 | 101,538,413 | 101,538,413 | 101,538,413 | 101,538,413 |
|
| Investment in own shares | | (8,109,300) | (7,045,817) | (8,109,300) | (7,045,817) |
|
| Share option reserve |
0 | 133,796 | 126,181 | 127,051 | 105,513 |
|
| EIP share reserve | | 1,732,981 | 1,481,107 | 1,732,981 | 1,481,107 |
|
| Foreign currency translation reserve | | 1,935,871 | 6,197,463 | - | - |
|
| Capital redemption reserve | | 26,107 | 26,107 | 26,107 | 26,107 |
|
| Retained earnings | | 22,322,263 | 23,682,212 | 22,530,474 | 19,714,172 |
|
| Attributable to: | | | | | |
|
| Equity shareholders of the parent | | 122,343,026 | 128,768,561 | 120,608,621 | 118,582,390 |
|
| Total equity | | 122,343,026 | 128,768,561 | 120,608,621 | 118,582,390 |
|
As permitted by section 408 of the Companies Act 2006, the income statement of the Parent Company is not presented as part of these financial statements. The Parent Company's profit for the financial period amounted to £18,917,257 (2022: £26,303,606).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
30TH JUNE 2023
|
|
Share capital £ |
Share premium account £ |
Merger relief reserve £ |
Investment in own shares £ |
Share option reserve £ |
EIP Share reserve £ | Foreign currency translation reserve £ | Capital redemption reserve £ |
Retained earnings £ | Total attributable to share- holders £ |
NCI £ |
Total £ |
| As at 30th June 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
| | | | | | | | | | | | |
| Derecognition 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 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
- |
14,738,736 |
14,738,736 |
- |
14,738,736 |
| Other comprehensive income | - | - | - | - | - | - | (4,261,592) | - | - | (4,261,592) | - | (4,261,592) |
| Total comprehensive income | - | - | - | - | - | - | (4,261,592) | - | 14,738,736 | 10,477,144 | - | 10,477,144 |
| Transactions with owners
| | | | | | | | | | | | |
| Share option exercise | - | - | - | 73,269 | (8,290) | - | - | - | 8,290 | 73,269 | - | 73,269 |
| Purchase of own shares | - | - | - | (2,559,537) | - | - | - | - | - | (2,559,537) | - | (2,559,537) |
| Share-based payment | - | - | - | - | 29,828 | 975,847 | - | - | - | 1,005,675 | - | 1,005,675 |
| EIP vesting/forfeiture | - | - | - | 1,422,785 | - | (723,973) | - | - | - | 698,812 | - | 698,812 |
| Deferred tax on share options | - | - | - | - | (13,923) | - | - | - | (435) | (14,358) | - | (14,358) |
| Current tax on share options | - | - | - | - | - | - | - | - | 4,582 | 4,582 | - | 4,582 |
| Dividends paid | - | - | - | - | - | | - | - | (16,111,122) | (16,111,122) | - | (16,111,122) |
| Total transactions with owners | - | - | - | (1,063,483) | 7,615 | 251,874 | - | - | (16,098,685) | (16,902,679) | - | (16,902,679) |
| As at 30th June 2023 | 506,791 | 2,256,104 | 101,538,413 | (8,109,300) | 133,796 | 1,732,981 | 1,935,871 | 26,107 | 22,322,263 | 122,343,026 | - | 122,343,026 |
COMPANY STATEMENT OF CHANGES IN EQUITY
30TH JUNE 2023
| |
Share capital £ |
Share premium account £ |
Merger reserve £ |
Investment in own shares £ |
Share option reserve £ |
EIP share reserve £ |
Capital redemption reserve £ |
Retained earnings £ |
Total attributable to shareholders £ |
| As at 30th June 2021 | 506,791 | 2,256,104 | 101,538,413 | (6,068,431) | 109,657 | 1,282,884 | 26,107 | 14,859,780 | 114,511,305 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
26,303,606 |
26,303,606 |
| Other comprehensive income | - | - | - | - | - | - | - | - | - |
| Total comprehensive income | - | - | - | - | - | - | - | 26,303,606 | 26,303,606 |
| Transactions with owners | | | | | | | | | |
| Share option exercise | - | - | - | 320,193 | (38,435) | - | - | 26,587 | 308,345 |
| Purchase of own shares | - | - | - | (2,665,042) | - | - | - | - | (2,665,042) |
| Share-based payment | - | - | - | - | 34,291 | 884,265 | - | - | 918,556 |
| EIP vesting/forfeiture | - | - | - | 1,367,463 | - | (686,042) | - | - | 681,421 |
| Deferred tax on share options | - | - | - | - | - | - | - | (5,052) | (5,052) |
| Current tax on share options | - | - | - | - | - | - | - | 14,160 | 14,160 |
| Dividends paid | - | - | - | - | - | - | - | (21,484,909) | (21,484,909) |
| Total transactions with owners | - | - | - | (977,386) | (4,144) | 198,223 | - | (21,449,214) | (22,232,521) |
| As at 30th June 2022 | 506,791 | 2,256,104 | 101,538,413 | (7,045,817) | 105,513 | 1,481,107 | 26,107 | 19,714,172 | 118,582,390 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
18,917,257 |
18,917,257 |
| Other comprehensive income | - | - | - | - | - | - | - | - | - |
| Total comprehensive income | - | - | - | - | - | - | - | 18,917,257 | 18,917,257 |
| Transactions with owners | | | | | | | | | |
| Share option exercise | - | - | - | 73,269 | (8,290) | - | - | 7,371 | 72,350 |
| Purchase of own shares | - | - | - | (2,559,537) | - | - | - | - | (2,559,537) |
| Share-based payment | - | - | - | - | 29,828 | 975,847 | - | - | 1,005,675 |
| EIP vesting/forfeiture | - | - | - | 1,422,785 | - | (723,973) | - | - | 698,812 |
| Deferred tax on share options | - | - | - | - | - | - | - | (243) | (243) |
| Current tax on share options | - | - | - | - | - | - | - | 3,039 | 3,039 |
| Dividends paid | - | - | - | - | - | - | - | (16,111,122) | (16,111,122) |
| Total transactions with owners | - | - | - | (1,063,483) | 21,538 | 251,874 | - | (16,100,955) | (16,891,026) |
| As at 30th June 2023 | 506,791 | 2,256,104 | 101,538,413 | (8,109,300) | 127,051 | 1,732,981 | 26,107 | 22,530,474 | 120,608,621 |
CONSOLIDATED AND COMPANY CASH FLOW STATEMENT
FOR THE YEAR ENDED 30TH JUNE 2023
| | | Group | Company | ||
| |
Note | 30th June 2023 £ | 30th June 2022 £ | 30th June 2023 £ | 30th June 2022 £ |
| Cash flow from operating activities | | | | | |
| Profit before taxation | | 18,598,347 | 23,172,383 | 644,891 | 181,843 |
| Adjustments for: | | | | | |
| Depreciation of property and equipment | | 228,235 | 191,149 | 76,939 | 99,157 |
| Depreciation of right-of-use assets | | 460,617 | 496,367 | 178,381 | 178,381 |
| Amortisation of intangible assets | | 4,647,915 | 4,059,600 | 6,831 | 8,377 |
| Loss on disposal of property and equipment | | 488 | 4,296 | 142 | 4,296 |
| Share-based payment charge | | 29,828 | 33,440 | 3,474 | 3,474 |
| EIP-related charge | | 1,053,754 | 892,097 | 456,805 | 392,458 |
| (Gain)/loss on investments | 4 | (572,807) | 659,231 | (95,457) | 47,963 |
| Interest receivable | 4 | (580,846) | (32,136) | (209,178) | (8,539) |
| Interest payable on leased assets | 4 | 136,683 | 153,190 | 76,147 | 87,111 |
| Translation adjustments | | (460,656) | 98,684 | 19,029 | (141,847) |
| Cash generated from operations before changes | | | | | |
| in working capital | | 23,541,558 | 29,728,301 | 1,158,004 | 852,674 |
| Decrease in trade and other receivables | | 127,833 | 458,199 | 3,044,935 | 1,868,752 |
| (Decrease)/Increase in trade and other payables | | (246,315) | 1,886,245 | 2,354,209 | 1,156,028 |
| Cash generated from operations | | 23,423,076 | 32,072,745 | 6,557,148 | 3,877,454 |
| Interest received | 4 | 580,846 | 32,136 | 209,178 | 8,539 |
| Interest paid on leased assets | 4 | (136,683) | (153,190) | (76,147) | (87,111) |
| Taxation paid | | (4,799,115) | (7,004,074) | (1,560,000) | (154,496) |
| Net cash generated from operating activities | | 19,068,124 | 24,947,617 | 5,130,179 | 3,644,386 |
|
Cash flow from investing activities | | | | | |
| Dividends received from subsidiaries | | - | - | 18,399,871 | 26,160,323 |
| Purchase of property and equipment and intangibles | | (479,757) | (258,852) | (61,556) | (89,557) |
| Purchase of non-current financial assets | | (1,127,748) | (3,877,446) | - | (1,889,216) |
| Proceeds from sale of current financial assets | | 1,127,748 | 8,442 | - | 8,442 |
| Net cash (used in)/generated from investing activities | | (479,757) | (4,127,856) | 18,338,315 | 24,189,992 |
|
Cash flow from financing activities | | | | | |
| Ordinary dividends paid | 9 | (16,111,122) | (21,484,909) | (16,111,122) | (21,484,909) |
| Purchase of own shares by employee share option trust | | (2,559,537) | (2,665,042) | (2,559,537) | (2,665,042) |
| Proceeds from sale of own shares by employee | | | | | |
| benefit trust | | 73,269 | 320,193 | 73,269 | 320,193 |
| Payment of lease liabilities | | (396,617) | (407,772) | (123,758) | (131,908) |
| Net cash used in financing activities | | (18,994,007) | (24,237,530) | (18,721,148) | (23,961,666) |
|
Net (decrease)/increase in cash and cash equivalents | |
(405,640) |
(3,417,769) |
4,747,346 |
3,872,712 |
| Cash and cash equivalents at start of period | | 22,677,893 | 25,514,619 | 6,919,935 | 2,905,184 |
| Cash held in funds* | | 60,996 | 40,936 | - | - |
| Effect of exchange rate changes | | 156,609 | 540,107 | (32,668) | 142,039 |
| Cash and cash equivalents at end of period | | 22,489,858 | 22,677,893 | 11,634,613 | 6,919,935 |
Notes:
* Cash held in International REIT and Global Equity CEF funds are consolidated using accounts drawn up as of 30th June.
NOTES TO THE FINANCIAL STATEMENTS
The contents of this preliminary announcement have been extracted from the Company's Annual Report, which is currently in print and will be distributed within the week. The information shown for the years ended 30th June 2023 and 30th June 2022 does not constitute statutory accounts and has been extracted from the full accounts for the years ended 30th June 2023 and 30th June 2022. The reports of the auditors on those accounts were unqualified and did not contain adverse statements under sections 498(2) or (3) of the Companies Act 2006. The accounts for the year ended 30th June 2022 have been filed with the Registrar of Companies. The accounts for the year ended 30th June 2023 will be delivered to the Registrar of Companies in due course.
1. SIGNIFICANT ACCOUNTING POLICIES
City of London Investment Group PLC (the Company) is a public limited company which listed on the London Stock Exchange on 29th October 2010 and is domiciled and incorporated in the United Kingdom under the Companies Act 2006.
1.1 Basis of preparation
The financial statements have been prepared in accordance with UK-adopted International Accounting Standards.
The Group financial statements have been prepared under the historical cost convention, except for certain financial assets held by the Group that are reported at fair value. The Group and Company financial statements have been prepared on a going concern basis.
The principal accounting policies adopted are set out below and have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.
1.2 New or amended accounting standards and interpretations
The Group has adopted all the new or amended accounting standards and interpretations issued by the International Accounting Standards Board (IASB) that are mandatory for the current reporting period. Any new or amended accounting standards that are not mandatory have not been early adopted.
The following amendments to standards have been adopted in the current period and have not had a material impact on the Group's financial statements:
•IAS 16 (amendments) - Property, Plant and Equipment - Proceeds before Intended Use
•Annual Improvements 2018-2020 Cycle - Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 4)
•IAS 37 (amendments) - Onerous Contracts - Cost of Fulfilling a Contract
The following amended standards and interpretations are in issue but not yet effective:
•IFRS 17 Insurance contracts (effective 1 January 2023)
•IAS 1 (amendments) - Disclosure of Accounting Policies (effective 1 January 2023)
•IAS 1 (amendments) - Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current and Classification of Liabilities as Current or Non-Current - Deferral of Effect Date (effective 1 January 2024)
•IAS 8 (amendments) - Definition of Accounting Estimates (effective 1 January 2023)
•IAS 12 (amendments) - Deferred Tax related to Assets and Liabilities arising from a single transaction (effective 1 January 2023)
The Directors do not expect the adoption of these standards and amendments to have a material impact on the Financial Statements.
1.3 Accounting estimates and assumptions
The preparation of these financial statements in conformity with UK-adopted International Accounting Standards requires management to make estimates and judgments that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Whilst estimates are based on management's best knowledge and judgement using information and financial data available to them, the actual outcome may differ from those estimates.
The most significant areas of the financial statements that are subject to the use of estimates and judgments are noted below:
(i) EM REIT fund
The Company has a c.20% ownership interest in the EM REIT fund. However, it does not have any voting powers and its decision-making powers are held in the capacity of an agent of the investors as a group. The Company has exercised judgement and have concluded that it does not control or have significant influence over this fund.
(ii) Impairment of Goodwill
The recognition of goodwill in a business combination and subsequent impairment assessments are based on significant accounting estimates. Note 7 details our estimates and assumptions in relation to the impairment assessment of goodwill.
1.4 Basis of consolidation
The consolidated financial statements are based on the financial statements of the Company and all of its subsidiary undertakings. The Group's subsidiaries are those entities which it directly or indirectly controls. Control over an entity is evidenced by the Group's ability to exercise its power in order to affect any variable returns that the Group is exposed to through its involvement with the entity. The consolidated financial statements also incorporate the results of the business combination using the acquisition method. The acquiree's identifiable net assets are initially recognised at their fair values at the acquisition date. The results of the acquired business are included in the consolidated statement of comprehensive income from the date on which control is obtained.
When assessing whether to consolidate an entity, the Group evaluates a range of control factors as defined under IFRS 10 Consolidated financial statements, namely:
•the purpose and design of the entity;
•the relevant activities and how these are determined;
•whether the Group's rights result in the ability to direct the relevant activities;
•whether the Group has exposure or rights to variable returns; and
•whether the Group has the ability to use its power to affect the amount of its returns.
Subsidiaries are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date that control ceases.
The Group's subsidiary undertakings as at 30th June 2023 are detailed below:
City of London Investment Group PLC holds a controlling interest in the following:
| | | Controlling | Country of |
| Subsidiary undertakings | Activity | interest | incorporation |
| City of London Investment Management Company Limited | Management of funds | 100% | UK |
| City of London US Investments Limited Karpus Management Inc. International REIT Fund * | Holding company Management of funds Delaware Statutory Trust Fund | 100% 100% 100% | UK USA USA
|
| Global Equity CEF Fund | Delaware Statutory Trust Fund | 100% | USA |
City of London Investment Management Company Limited holds 100% of the ordinary shares in the following:
| City of London Investment Management (Singapore) PTE Ltd | Management of funds | | Singapore | ||||
| City of London Latin America Limited | Dormant Company | | UK | ||||
| | | |
| ||||
| City of London US Investments Limited holds 100% of the ordinary shares in the following: | | |
| ||||
| City of London US Services Limited | Service company | UK |
| ||||
* International REIT fund has a year-end of 31st December. As this fund has a financial year end that differs from that of the Company, it is consolidated using accounts drawn up as of 30th June.
The registered addresses of the subsidiary companies are as follows:
| City of London Investment Management Company Limited City of London US Investments Limited City of London US Services Limited City of London Latin America Limited | 77 Gracechurch Street, London EC3V 0AS, UK |
| City of London Investment Management Company (Singapore) PTE Ltd | 20 Collyer Quay, #10-04, Singapore 049319 |
| Karpus Management Inc. | 183 Sully's Trail, Pittsford, New York 14534, USA |
| International REIT fund Global Equity CEF Fund | 4005 Kennett Pike, Suite 250, Greenville, DE 19807, USA |
City of London Latin America Limited is dormant and as such is not subject to audit.
1.5 Property and equipment
For all property and equipment depreciation is calculated to write off their cost to their estimated residual values by equal annual instalments over the period of their estimated useful lives, which are considered to be:
Short leasehold property improvements-over the remaining life of the lease
Furniture and equipment - four to ten years
Computer and telephone equipment - four to ten years
1.6 Intangible assets
Intangible assets acquired separately are initially recognised at cost. Intangible assets acquired through a business combination other than goodwill, are initially measured at fair value at the date of the acquisition.
(i) Goodwill
Goodwill arises through a business combination. Goodwill represents the excess of the purchase consideration paid over the fair value of the identifiable assets, liabilities and contingent liabilities of the business at the date of the acquisition.
Goodwill is measured at cost less accumulated impairment losses. Goodwill on acquisition is allocated to a cash generating unit (CGU) that is expected to benefit from the acquisition, for the purpose of impairment testing. The CGU to which goodwill is allocated represents the lowest level at which goodwill is monitored for internal management purposes. A CGU is identified as a group of assets generating cash inflows which are independent from cash inflows from other Group cash generating assets and are not larger than the Group's operating segments.
(ii) Direct customer relationships and distribution channels
The fair values of direct customer relationships and distribution channels acquired in the business combination have been measured using a multi-period excess earnings method. These are amortised on a straight line basis over the period of their expected benefit, being a finite life of 10 years for direct customer relationships and a finite life of seven years for distribution channels.
(iii) Trade name
The fair value of the trade name acquired in the business combination has been measured using a relief from royalty method. This is amortised on a straight line basis over the period of its expected benefit, being a finite life of fifteen years.
(iv) Software licences
Software licences are capitalised at cost and amortised on a straight line basis over the useful life of the asset. Costs are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Costs also include directly attributable overheads. The estimated useful life over which the software is depreciated is between four to ten years. Software integral to a related item of hardware equipment is accounted for as property and equipment. Costs associated with maintaining computer software programs are expensed to the income statement as incurred.
1.7 Impairment of goodwill and other assets
Goodwill arising on acquisition is not subject to annual amortisation and is tested annually for impairment, or more frequently if changes in circumstances indicate a possible impairment. The Group annually reviews the carrying value of its CGU to ensure that those assets have not suffered from any impairment loss. The review compares the recoverable amount of the CGU to which goodwill is allocated against its carrying amount. Where the recoverable amount is higher than the carrying amount, no impairment is required. The recoverable amount is defined as the higher of (a) fair value less costs to sell or (b) value in use, which is based on the present value of future cash flows expected to derive from the CGU.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units).
Other assets are tested for impairment whenever management identifies any indicators of impairment.
Any impairment loss is recognised immediately through the income statement.
1.8 Business Combinations
The Group accounts for business combinations using the acquisition method. A business combination is determined where in a transaction, the asset acquired and the liabilities assumed constitute a business.
The consideration transferred on the date of the transaction is measured at fair value as are the identifiable assets acquired and liabilities assumed. Intangible assets are recognised separately from goodwill at the acquisition date only when they are identifiable.
1.9 Financial instruments
Financial instruments are only recognised in the financial statements and measured at fair value when the Group becomes party to the contractual provisions of the instrument.
Under IFRS 9 Financial Instruments, financial assets are classified as either:
•amortised at cost;
•at fair value through the profit or loss; or
•at fair value through other comprehensive income.
Financial liabilities must be classified at fair value through profit or loss or at amortised cost.
The Group's investments in securities and derivatives are classified as financial assets or liabilities at fair value through profit or loss. Such investments are initially recognised at fair value, and are subsequently re-measured at fair value, with any movement recognised in the income statement. The fair value of the Group's investments is determined as follows:
Shares-priced using the quoted market mid-price*
Options-priced using the quoted market bid price
Forward currency trades-priced using the forward exchange bid rates from Bloomberg
*The majority of the funds managed by the Group are valued at the mid-price, the exception being the REIT funds which are valued using the official closing price, in accordance with US GAAP. Therefore, where the Group has identified investments in those funds as subsidiaries, the fair value consolidated is the net asset values as provided by the administrator of the funds. The underlying investments in these funds are liquid companies with a small bid-ask spread.
The consolidated Group assesses and would recognise a loss allowance for expected credit losses on financial assets which are measured at amortised cost. The measurement of the loss allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a twelve-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next twelve months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.
Under the expected credit loss model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This model is applicable to assets amortised at cost or at fair value through other comprehensive income. The assets on the Group's balance sheet to which the expected loss applies to are fees receivable. At the end of each reporting period, the Group assesses whether the credit risk of these trade receivables has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.
1.10 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and on-demand deposits with an original maturity of three months or less from inception, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
1.11 Trade payables
Trade payables are measured at initial recognition at fair value and subsequently measured at amortised cost.
1.12 Current and deferred taxation
The Group provides for current tax according to the tax regulations in each jurisdiction in which it operates, using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. However, deferred tax is not accounted for if it arises from goodwill or the initial recognition (other than in a business combination) of other assets or liabilities in a transaction that affects neither the accounting nor the taxable profit or loss.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. The tax rates used are those that have been enacted, or substantively enacted, by the end of the reporting period. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly as part of other comprehensive income, in which case the deferred tax is also dealt with as part of other comprehensive income. For share-based payments, where the estimated future tax deduction exceeds the amount of the related cumulative remuneration expense, the excess deferred tax is recognised directly in equity.
1.13 Share-based payments
The Company operates an Employee Incentive Plan (EIP) which is open to all employees in the Group. Awards are made to participating employees over shares under the EIP where they have duly waived an element of their annual profit-share before the required waiver date, in general before the start of the relevant financial year.
The awards are made up of two elements: Deferred Shares and Bonus Shares. The Deferred Shares represent the waived profit-share and the Bonus Shares represent the additional award made by the Company as a reward for participating in the EIP. Awards will vest (i.e. no longer be forfeitable) over a three-year period with one-third vesting each year for all employees, other than Executive Directors of CLIG. Awards granted from October 2021 onwards for the Executive Directors of CLIG will vest (i.e. no longer be forfeitable) over a five-year period with one-fifth vesting each year, and from October 2024 onwards over a five-year period with one-third vesting each year for the third, fourth and fifth anniversaries following grant.
The full cost of the Deferred Shares is recognised in the year to which the profit-share relates. The value of the Bonus Shares is expensed on a straight line basis over the period from the date the employees elect to participate to the date that the awards vest. This cost is estimated during the financial year and at the point when the actual award is made, the share-based payment charge is re-calculated and any difference is taken to the profit or loss.
The Company operates an Employee Share Option Plan. The fair value of the employee services received in exchange for share options is recognised as an expense. The fair value has been calculated using the Black-Scholes pricing model, and is being expensed on a straight line basis over the vesting period, based on the Company's estimate of the number of shares that will actually vest. At the end of the three-year period when the actual number of shares vesting is known, the share-based payment charge is re-calculated and any difference is taken to the profit or loss.
1.14 Revenue recognition
Revenue is recognised within the financial statements based on the services that are provided in accordance with current investment management agreements (IMAs). The fees are charged as a percentage of Funds under Management. The performance obligations encompassed within these agreements are based on daily/monthly asset management of funds. Payment terms are monthly/quarterly in advance or in arrears. The Group has an enforceable right to the payment of these fees for services provided, in accordance with the underlying IMAs.
For each contract, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of services promised.
1.15 Commissions payable
A portion of the Group's revenue is subject to commissions payable under third party marketing agreements. Commissions payable are recognised in the same period as the revenue to which they relate.
1.16 Foreign currency translation
Foreign currency transactions are translated using the exchange rates prevailing at the transaction date. Monetary assets held in a currency other than the functional currency are translated at the end of each financial period at the period end closing rates.
The functional currency of the Group's subsidiaries, City of London Investment Management Company Limited, Karpus Investment Management and City of London US Services Limited, is US dollars.
The functional currency of City of London Investment Group PLC (the Company) is sterling. The Group uses sterling as the presentation currency and under IAS 21 'The Effects of Changes in Foreign Exchange Rates', exchange rate differences arising from translating a subsidiary company's functional currency to presentation currency have to be recognised in the Group's other comprehensive income.
Accordingly, on consolidation, exchange rate differences arising from translating functional currency to presentation currency for Karpus Investment Management are recognised in the Group's other comprehensive income.
However, for its other subsidiaries, the Group operates a policy whereby it manages foreign exchange exposure of subsidiary monetary assets through its inter-company accounts. Any gains or losses are recognised within the Company's own income statement. Therefore, on consolidation, there are no exchange differences arising from the translation of monetary items from the subsidiary functional currency to its presentational currency. This means that all such exchange differences are included in the income statement and no split is required between other comprehensive income and the income statement.
The subsidiaries translate the non-monetary assets at the period end rate and any exchange differences are reflected in other comprehensive income.
1.17 Leases
The total outstanding lease cost, discounted at the Group's weighted average incremental borrowing rate to its present value, is shown as a lease liability in the statement of financial position. The payment of the lease charge is allocated between the lease liability and an interest charge in the income statement.
On recognition of the lease liability, the associated asset is shown as a right-of-use asset. This is further adjusted for any lease payments made prior to adoption and any future restoration costs as implicit within the lease contract. The resulting total value of the right-of-use asset is depreciated on a straight line basis over the term of the lease period
The Group re-measures the lease liability whenever:
•there is a change in the lease term;
•there is a change in the lease payments; and
•a lease contract is modified and the lease modification is not accounted for as a separate lease.
Where there is a change in the lease term or lease payments, the lease liability is re-measured by discounting the revised lease payments at the current or revised discount rate depending on the nature of the event. Where the lease liability is re-measured, a corresponding adjustment is made to the right-of-use assets.
Where extension/termination options exists within a lease, the Group would assess at the lease commencement date as to whether it is reasonably certain that it will exercise these options. The Group would reassess these option if there was a significant event or significant change in circumstances within its control, which would warrant the Group with reasonable certainty to exercise these options.
Payments in relation to short-term leases, those that are less than twelve months in duration continue to be expensed to the income statement on a straight line basis. At the end of the year, all of the Group's leases were recognised as right-of-use assets.
1.18 Pensions
The Group operates defined contribution pension schemes covering the majority of its employees. The costs of the pension schemes are charged to the income statement as they are incurred. Any amounts unpaid at the end of the period are reflected in other creditors.
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.
| | USA £ | Canada £ | UK £ | Europe (ex UK) £ | Other £ | Total £ |
| Year to 30th June 2023 | | | | | | |
| Gross fee income | 55,144,954 | 1,179,606 | - | 935,016 | 66,533 | 57,326,109 |
| Non-current assets: | | | | | | |
| Property and equipment | 504,787 | - | 207,752 | - | 12,303 | 724,842 |
| Right-of-use assets | 1,038,062 | - | 906,772 | - | 42,059 | 1,986,893 |
| Intangible assets | 101,103,955 | - | 23,288 | - | - | 101,127,243 |
| 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 |
The Group has classified its fee income based on the domicile of its clients and non-current assets based on where the assets are held. Included in revenues are fees of £5,402,756 (2022: £5,825,226) which arose from fee income from the Group's largest client. No other single client contributed 10% or more to the Group's revenue in either of the reporting periods.
| 3. | OPERATING PROFIT |
Year to |
Year to |
| |
The operating profit is arrived at after charging: | 30th June 2023 £ | 30th June 2022 £ |
| | Depreciation of property and equipment | 228,235 | 191,149 |
| | Depreciation of right-of-use assets
| 460,617 | 496,367 |
| | Amortisation of intangible assets
| 4,647,915 | 4,059,600 |
| | Auditor's remuneration: | | |
| | - Statutory audit of the parent and consolidated financial statements | 110,000 | 89,415 |
| | - Statutory audit of subsidiaries of the Company | 83,100 | 57,712 |
| | - Audit related assurance services | 30,000 | 25,000 |
| | Short-term lease expense | 15,032 | 13,196 |
| | | | |
| | | | |
| 4. FINANCE INCOME AND FINANCE EXPENSE | | |
| | Year to 30th June 2023 £ | Year to 30th June 2022 £ |
| Finance income: | | |
| Interest on cash and cash equivalents | 580,846 | 32,136 |
| Unrealised gain on investments | 253,834 | - |
| Realised gain on investments | 318,973 | - |
| Total finance income | 1,153,653 | 32,136 |
| Finance expense: | | |
| Unrealised loss on investments | - | (659,231) |
| Interest payable on lease liabilities | (136,683) | (153,190) |
| Total finance expense | (136,683) | (812,421) |
| | | |
| Net finance income/(expense) | 1,016,970 | (780,285) |
| 5. | TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES |
Year to |
Year to |
| |
(a) Analysis of tax charge on ordinary activities: | 30th June 2023 £ | 30th June 2022 £ |
| | Current tax: | | |
| | UK corporation tax at 19% (2022: 19%) based on the profit for the period | 3,550,909 | 4,533,109 |
| | Double taxation relief | (892,646) | (909,780) |
| | Change in tax rate to 25% | 130,388 | - |
| | Adjustments in respect of prior years | 87,945 | (53,810) |
| | UK tax total | 2,876,596 | 3,569,519 |
| | Foreign tax | 2,607,671 | 2,720,112 |
| | Adjustments in respect of prior years | (485,989) | (54,854) |
| | Foreign tax total | 2,121,682 | 2,665,258 |
| | Total current tax charge | 4,998,278 | 6,234,777 |
| | Deferred tax: | | |
| | UK - origination and reversal of temporary differences | (4,588) | (119,105) |
| | Foreign - origination and reversal of temporary differences | (1,134,079) | (1,034,440) |
| | Total deferred tax credit | (1,138,667) | (1,153,545) |
| | Total tax charge in income statement | 3,859,611 | 5,081,232 |
(b) Factors affecting tax charge for the current period:
The tax charge on profit for the year is different to that resulting from applying the standard rate of corporation tax in the UK - 19% (prior year - 19%). The differences are explained below:
| |
Year to 30th June 2023 £ |
Year to 30th June 2022 £ |
| Profit on ordinary activities before tax | 18,598,347 | 23,172,383 |
| Tax on profit from ordinary activities at the standard rate | (3,533,686) | (4,402,753) |
| Effects of: | | |
| Unrelieved overseas tax | (2,850,516) | (3,614,710) |
| Foreign profits taxed at rates different to those of the UK | 2,016,613 | 2,574,111 |
| Expenses not deductible for tax purposes | (885,267) | (774,538) |
| Gains/(losses) not eligible for tax | 9,585 | (115,481) |
| Capital allowances less than depreciation | (21,947) | (14,177) |
| Prior period adjustments | 398,044 | 108,664 |
| Deferred tax originating from timing differences | 1,138,667 | 1,153,545 |
| Change in tax rate to 25% | (130,388) | - |
| Other | (716) | 4,107 |
| Total tax charge in income statement | (3,859,611) | (5,081,232) |
6. 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 period ended 30th June 2023.
As set out in the Directors' report on page 94 of the full report the Employee Benefit Trust held 1,989,355 (2022: 1,708,763) ordinary shares in the Company as at 30th June 2023. 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 period ended 30th June 2023.
Reported earnings per share
| | Year to | Year to |
| 30th June 2023 | 30th June 2022 | |
| £ | £ | |
| Profit attributable to the equity shareholders of the parent for basic earnings | 14,738,736 | 18,091,151 |
| | | |
| | Number of shares | Number of shares |
| Issued ordinary shares as at 1st July | 50,679,095 | 50,679,095 |
| Effect of own shares held by EBT | (1,842,182) | (1,614,063) |
| Weighted average shares in issue | 48,836,913 | 49,065,032 |
| Effect of movements in share options and EIP awards | 892,422 | 647,134 |
| Diluted weighted average shares in issue | 49,729,335 | 49,712,166 |
| Basic earnings per share (pence) | 30.2 | 36.9 |
| Diluted earnings per share (pence) | 29.6 | 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 and their relating tax impact.
Underlying profit for calculating underlying earnings per share
| | Year to | Year to |
| 30th June 2023 | 30th June 2022 | |
| £ | £ | |
| Profit before tax | 18,598,347 | 23,172,383 |
| Add back/(deduct): | | |
| - (Gain)/loss on investments | (572,807) | 659,231 |
| - Amortisation on acquired intangibles | 4,641,084 | 4,051,223 |
| Underlying profit before tax | 22,666,624 | 27,882,837 |
| Tax expense as per the consolidated income statement | (3,859,611) | (5,081,232) |
| Tax effect of fair value adjustments | 120,289 | (125,253) |
| Unwinding of deferred tax liability | (1,113,860) | (972,294) |
| Underlying profit after tax for the calculation of underlying earnings per share | 17,813,442 | 21,704,058 |
| Underlying earnings per share (pence) | 36.5 | 44.2 |
| Underlying diluted earnings per share (pence) | 35.8 | 43.7 |
* This is an Alternative Performance Measure (APM). Please refer to the Financial Review for more details on APMs.
7. INTANGIBLE ASSETS
| Group |
Goodwill | Direct customer relationships | Distribution channels | Trade name | Long term software | Total | 30th June 2022 |
| | £ | £ | £ | £ | £ | £ | £ |
| 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 |
| Additions | - | - | - | - | 12,252 | 12,252 | 18,867 |
| Currency translation | (3,056,800) | (1,562,882) | (213,841) | (47,661) | - | (4,881,184) | 13,901,266 |
| At close of period | 70,906,110 | 36,252,891 | 4,960,312 | 1,105,569 | 720,219 | 113,945,101 | 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 |
| Currency translation | - | (465,539) | (90,996) | (9,464) | - | (565,999) | 744,434 |
| Charge for the period | - | 3,817,323 | 746,152 | 77,609 | 6,831 | 4,647,915 | 4,059,600 |
| At close of period | - | 9,969,545 | 1,948,694 | 202,688 | 696,931 | 12,817,858 | 8,735,942 |
| Net book value: At close of period |
70,906,110 |
26,283,346 |
3,011,618 |
902,881 |
23,288 |
101,127,243 |
110,078,091 |
|
Company | | | | | | | |
| Cost | | | | | | | |
| At start of period | | | | | 76,029 | 76,029 | 57,162 |
| Additions | | | | | 12,252 | 12,252 | 18,867 |
| At close of period | | | | | 88,281 | 88,281 | 76,029 |
| Amortisation charge | | | | | | | |
| At start of period | | | | | 58,162 | 58,162 | 49,785 |
| Charge for the period | | | | | 6,831 | 6,831 | 8,377 |
| At close of period | | | | | 64,993 | 64,993 | 58,162 |
|
Net book value | | | | |
23,288 |
23,288 |
17,867 |
Goodwill, direct customer relationships, distribution channels and trade name acquired through 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 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 during the financial year in relation to direct client relationships, distribution channels and trade name was £4,641,084 (2022: £4,051,223).
Impairment
Goodwill acquired through the 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 has carried out an annual review of the carrying value of the CGU to which the goodwill is allocated to see if it has suffered any impairment. Management also considered whether there were any indicators of impairment of other intangible assets. The Group had assessed the recoverable amount of the CGU by its value in use, as in the prior period, and found that it was less than the carrying value owing to a higher discount rate and reduced growth forecasts due to changes in market conditions. The Group thus reassessed the recoverable amount by its fair value (Fair Value) less cost of disposal (FVLCOD), which exceeds the carrying value. The Fair Value is based on the Market Comparable Method (or "Comparable Company Analysis") that indicates the value of KIM by comparing it to publicly traded companies in a similar line of business. An analysis of the trading multiples of comparable companies yields insight into investor perceptions and, therefore, the value of the subject company i.e., the value of KIM.
FuM and EBITDA multiples were selected and applied to the historical and forecasted metrics of KIM. The multiples were evaluated and selected based on the relative growth potential, operating margins and risk profile of KIM vis-a-vis the publicly traded comparable companies and also to reflect the degree of control and lack of marketability of the interest held in KIM. As such, FuM multiple of 4.0% and EBITDA multiples of 8.8x and 9.0x (calendar year 2022 and 2023, respectively) were selected based on the Comparable Company Analysis prior to concluding the Fair Value of KIM on a weighted average basis. This Fair Value is classified within Level 3 of IFRS 13 fair value hierarchy.
The Group's forecasts are based on its most recent and current trading activity and on current financial budgets for twelve months that are approved by the Board. The key assumptions underlying the budgets are based on the most recent trading activity with built in organic growth, revenue and cost margins. The annual growth rate used for extrapolating revenue forecasts was 1.5% and for direct costs was 3.0% based on the Group's expectation of future growth of the business.
The goodwill impairment assessment date of 30th April 2023 was different to the current reporting date. The performance of the CGU is reviewed for the period between the assessment date and the reporting date to determine whether any changes in circumstances or impairment indicators have occurred since the assessment date. Following our review, it was determined that there were no changes in circumstances or impairment indicators that would require the CGU to be impaired at the reporting date.
The recoverable amount of the CGU exceeded the carrying amount of the CGU at 30th April 2023 by £4,534,000 (2022: £1,392,000).
Sensitivity analysis was applied to the selected multiples to measure the impact on the headroom in existence under the current impairment review. The following table shows the extent to which each of the selected multiples will be required to be changed in isolation for the recoverable amount of this CGU to be equal to its carrying amount. This highlights that further adverse movements in the selected multiples would be required before an impairment would be recognised. The below sensitivities make no allowance for mitigating actions that management would take if such market conditions persisted.
| | 2023 | |
| | From | To |
| December 2022 FuM Multiple | 4.0% | 3.3% |
| Average FY 24 FuM Multiple | 4.0% | 3.4% |
| Average FY 23 EBITDA Multiple | 8.8x | 7.3x |
| Average FY 24 EBITDA Multiple | 9.0x | 7.4x |
The Directors and management have considered and assessed possible changes to other key assumptions and have not identified any instances that could cause the carrying amount of the CGU to exceed its recoverable amount.
The Group's forecasted FuM and EBITDA are most sensitive to the movements in the global financial markets because they have a direct impact on the CGU's results. The potential impact of the current uncertainties on global financial markets cannot be reliably estimated and if these result in a sustained period of weakness in financial markets this could result in a future impairment.
Based on the recoverable amount, using the fair value model, no impairment was required at 30th June 2023.
8. SHARE CAPITAL AND MERGER RELIEF RESERVE
| | Share capital | Merger relief reserve |
| Group and Company | £ | £ |
| At start and end of period 50,679,095 ordinary shares of 1p each | 506,791 | 101,538,413 |
| 9. DIVIDEND
|
30th June 2023 |
30th June 2022 |
| | £ | £ |
| Dividends paid: | | |
| Interim dividend of 11p per share (2022: 11p) | 5,381,166 | 5,394,361 |
| Special dividend of nil per share (2022: 13.5p) | - | 6,620,352 |
| 30th June 2022 of 22p per share (2021: 22p) | 10,729,956 | 9,470,196 |
| | 16,111,122 | 21,484,909 |
A final dividend of 22p per share (gross amount payable £11,149,401; net amount payable £10,711,743) has been proposed, payable on 27th October 2023, subject to shareholder approval, to shareholders who are on the register of members on 29th September 2023.
*Difference between gross and net amounts is due to shares held at EBT that do not receive dividend.
10. FINANCIAL INSTRUMENTS
The Group's financial assets include cash and cash equivalents, investments and other receivables. Its financial liabilities include accruals, lease liabilities and other payables. The fair value of the Group's financial assets and liabilities is materially the same as the book value.
(i) Financial instruments by category
The tables below show the Group and Company's financial assets and liabilities as classified under IFRS 9 Financial Instruments:
| Group | |
Financial assets |
Assets at fair value through | |
| 30th June 2023 | | at amortised cost | profit or loss | Total |
| Assets as per statement of financial position | | £ | £ | £ |
| Other non-current financial assets | | - | 7,887,575 | 7,887,575 |
| Trade and other receivables | | 4,929,743 | 78,065 | 5,007,808 |
| Cash and cash equivalents | | 22,489,858 | _ | 22,489,858 |
| Total | | 27,419,601 | 7,965,640 | 35,385,241 |
| | | | | |
| | | | Liabilities at | |
| | | | fair value | |
| | | Financial liabilities | through | |
| | | at amortised cost | profit or loss | Total |
| Liabilities as per statement of financial position | | £ | £ | £ |
| Trade and other payables | | 8,141,466 | - | 8,141,466 |
| Current lease liabilities | | 197,331 | - | 197,331 |
| Non-current lease liabilities | | 1,966,651 | - | 1,966,651 |
| Total | | 10,305,448 | - | 10,305,448 |
| | | |
Assets at fair | |
|
30th June 2022 | | Financial assets at amortised cost | value through profit or loss |
Total |
| Assets as per statement of financial position | | £ | £ | £ |
| Other non-current financial assets | | - | 7,434,586 | 7,434,586 |
| Trade and other receivables | | 5,210,164 | _ | 5,210,164 |
| Cash and cash equivalents | | 22,677,893 | _ | 22,677,893 |
| Total | | 27,888,057 | 7,434,586 | 35,322,643 |
| | | | | |
| | | | Liabilities at | |
| | | | fair value | |
| | | Financial liabilities | through | |
| Liabilities as per statement of financial position | | at amortised cost | profit or loss | Total |
| | | £ | £ | £ |
| Trade and other payables | | 8,350,276 | 945,898 | 9,296,174 |
| Current lease liabilities | | 388,986 | - | 388,986 |
| Non-current lease liabilities | | 2,213,854 | - | 2,213,854 |
| Total | | 10,953,116 | 945,898 | 11,899,014 |
| Company |
Investment in |
Financial assets |
Assets at fair value through | |
| 30th June 2023 | subsidiaries | at amortised cost | profit or loss | Total |
| Assets as per statement of financial position | £ | £ | £ | £ |
| Other non-current financial assets | 103,411,426 | 3,849,385 | 1,913,617 | 109,174,428 |
| Trade and other receivables | - | 2,597,455 | 70,893 | 2,668,348 |
| Cash and cash equivalents | - | 11,634,613 | - | 11,634,613 |
| Total | 103,411,426 | 18,081,453 | 1,984,510 | 123,477,389 |
| | | |
Liabilities at | |
| | | | fair value | |
| | | Financial liabilities | through | |
| | | at amortised cost | profit or loss | Total |
| Liabilities as per statement of financial position | | £ | £ | £ |
| Trade and other payables | | 3,983,826 | - | 3,983,826 |
| Current lease liabilities | | 34,586 | - | 34,586 |
| Non-current lease liabilities | | 989,477 | - | 989,477 |
| Total | | 5,007,889 | - | 5,007,889 |
| |
Investment in |
Financial assets |
Assets at fair value through | |
| 30th June 2022 | subsidiaries | at amortised cost | profit or loss | Total |
| Assets as per statement of financial position | £ | £ | £ | £ |
| Other non-current financial assets | 103,244,651 | 3,849,385 | 1,818,167 | 108,912,203 |
| Trade and other receivables | - | 4,764,485 | - | 4,764,485 |
| Cash and cash equivalents | - | 6,919,935 | - | 6,919,935 |
| Total | 103,244,651 | 15,533,805 | 1,818,167 | 120,596,623 |
| | | |
Liabilities at | |
| | | | fair value | |
| | | Financial liabilities | through | |
| | | at amortised cost | profit or loss | Total |
| Liabilities as per statement of financial position | | £ | £ | £ |
| Trade and other payables | | 3,530,682 | 76,196 | 3,606,878 |
| Current lease liabilities | | 121,573 | - | 121,573 |
| Non-current lease liabilities | | 1,026,248 | - | 1,026,248 |
| Total | | 4,678,503 | 76,196 | 4,754,699 |
(ii) 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. |
| - | Unlisted equity securities are valued using the net assets of the underlying companies and are shown under level 3. |
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.
| Group |
Level 1 |
Level 2 |
Level 3 |
Total |
| 30th June 2023 | £ | £ | £ | £ |
| Financial assets at fair value through profit or loss | | | | |
| Investment in other non-current financial assets | 5,973,958 | 1,913,617 | - | 7,887,575 |
| Forward currency trades | - | 78,065 | - | 78,065 |
| Total | 5,973,958 | 1,991,682 | - | 7,965,640 |
| Financial liabilities at fair value through profit or loss Forward currency trades |
- |
- |
- |
- |
| Total | - | - | - | - |
|
30th June 2022 |
Level 1 £ |
Level 2 £ |
Level 3 £ |
Total £ |
| 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 |
|
Company | | | | |
|
30th June 2023 | Level 1 £ | Level 2 £ | Level 3 £ | Total £ |
| Investment in other non-current financial assets | - | 1,913,617 | - | 1,913,617 |
| Forward currency trades | - | 70,893 | - | 70,893 |
| | - | 1,984,510 | - | 1,984,510 |
|
30th June 2022 |
Level 1 £ |
Level 2 £ |
Level 3 £ |
Total £ |
| Investment in other non-current financial assets | - | 1,818,167 | - | 1,818,167 |
| Total | - | 1,818,167 | - | 1,818,167 |
Level 3
Level 3 assets as at 30th June 2023 are nil (2022: nil).
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 by the foreign exchange losses on other currency assets and liabilities held during the period and at the period end. The net profit reported for the period is £45,986 (2022: net loss £519,633).
(iii) Foreign currency risk
Almost all of the Group's revenues, and a significant part of its expenses, are denominated in currencies other than sterling, principally US dollars. These revenues are derived from fee income which is based upon the net asset value of accounts managed, and have the benefit of a natural hedge by reference to the underlying currencies in which investments are held. Inevitably, debtor and creditor balances arise which in turn give rise to currency exposure.
The Group assesses its hedging requirements and executes forward foreign exchange transactions so as to substantially reduce the Group's exposure to currency market movements. The level of forward currency hedging is such as is judged by the Directors to be consistent with market conditions.
As at 30th June 2023, the Group had net asset balances of US$24,741,597 (2022: US$23,917,936), offset by forward sales totalling US$24,750,000 (2022: US$24,500,000). Other significant net asset balances were C$493,899 (2022: C$499,036), and SGD1,913,025 (2022: SGD1,736,510).
Had the US dollar strengthened or weakened against sterling as at 30th June 2023 by 10%, with all other variables held constant, the Group's net assets would have increased or decreased (respectively) by less than 1%, because the US dollar position is hedged by the forward sales.
(iv) Market risk
Changes in market prices, such as foreign exchange rates and equity prices will affect the Group's income and the value of its investments.
Where the Group holds investments in its own funds categorised as unlisted investments, the market price risk is managed through diversification of the portfolio. A 10% increase or decrease in the price level of the funds' relevant benchmarks, with all other variables held constant, would result in an increase or decrease of approximately £0.2 million (2022: £0.3 million) in the value of the investments and profit before tax.
The Group's International REIT and Global Equity CEF funds have been consolidated as controlled entities, and therefore the securities held by the funds are reported in the consolidated statement of financial position under investments. At 30th June 2023, all those securities were listed on a recognised exchange. A 10% increase or decrease in the price level of the securities would result in a gain or loss respectively of approximately £0.4 million (2022: £0.4 million) to the Group.
The Group is also exposed to market risk indirectly via its Funds under Management, from which its fee income is derived. To hedge against potential losses in fee income, the Group may look to invest in securities or derivatives that should increase in value in the event of a fall in the markets. The purchase and sale of these securities are subject to limits established by the Board and are monitored on a regular basis. The investment management and settlement functions are totally segregated.
The profit from hedging recognised in the Group income statement for the period is £nil (2022: £nil).
(v) Credit risk
The majority of debtors relate to management fees due from funds and segregated account holders. As such, the Group is able to assess the credit risk of these debtors as minimal. For other debtors a credit evaluation is undertaken on a case by case basis.
The Group has zero experience of bad or overdue debts.
The majority of cash and cash equivalents held by the Group are with leading UK and US banks. The credit risk is managed by carrying out regular reviews of each institution's credit rating and of their published financial position. Given their high credit ratings, management does not expect any counterparty to fail to meet its obligations.
(vi) Liquidity risk
The Group's liquidity risk is minimal because commissions payable forms the major part of trade creditors, and payment is made only upon receipt of the related fee income plus the Group's strategy is to maximise its cash position. In addition, the Group's investments in funds that it manages can be liquidated immediately if required.
(vii) Interest rate risk
The Group has no borrowings, and therefore has no exposure to interest rate risk other than that which attaches to its interest earning cash balances and forward currency contracts. The Group's strategy is to maximise the amount of cash which is maintained in interest bearing accounts, and to ensure that those accounts attract a competitive interest rate. At 30th June 2023, the Group held £22,489,858 (2022: £22,677,893) in cash balances, of which £21,660,495 (2022: £19,381,084) was held in bank accounts, short-term deposits and short-term treasuries/money market funds, which attract variable interest rates. The effect of a 100 basis points increase/decrease in interest rates on the Group's net assets would not be material.
(viii) Capital risk management
The Group manages its capital to ensure that all entities within the Group are able to operate as going concerns and exceed any minimum externally imposed capital requirements. The capital of the Group and Company consists of equity attributable to the equity holders of the Parent Company, comprising issued share capital, share premium, retained earnings and other reserves as disclosed in the statement of changes in equity.
The Group's operating subsidiary company in the UK, City of London Investment Management Company Ltd is subject to the minimum capital requirements of the Financial Conduct Authority (FCA) in the UK. This subsidiary held surplus capital over its requirements throughout the period.
The Group is required to undertake an Internal Capital and Risk Assessment, which is approved by the Board. The objective of this is to ensure that the Group has adequate capital to enable it to manage risks which are not adequately covered under the Pillar 1 requirements. This process includes stress testing for the effects of major risks, such as a significant market downturn, and includes an assessment of the Group's ability to mitigate the risks.
11. POST BALANCE SHEET EVENTS
As from 1st July 2023 the Group took occupancy of the US office at 17 E. Market Street, West Chester, PA 19382 USA.
12. CHANGE IN PRESENTATIONAL AND FUNCTIONAL CURRENCY
As from 1st July 2023, the Group has changed its presentational currency from sterling to US dollars, to mirror the primary economic environment that it operates in. This will enable both investors and other stakeholders to have more transparency of the Group's performance and reduce foreign exchange volatility on its income and costs. Currently almost all of the Group's revenue and a large portion of its costs are incurred in US dollars. Therefore, for the year ending 30th June 2024 the Group will present its consolidated financial statements in US dollars.
The change in the Group's presentational currency to US dollars will result in a change in the parent company's primary economic environment. Future dividend streams from its subsidiaries will be received and retained by the parent company in US dollars. Hence, this would mean that all the parent company's future income will be in US dollars and a large portion of its costs would also be in US dollars. As a result, the parent company's functional currency will change to US dollars with effect from 1st July 2023.
In accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, the change in presentational currency will have to be applied retrospectively, whereas a change in functional currency will be applied prospectively with effect from 1st July 2023.
Certain elements of historical financial information have been restated in US dollars and will form the basis of the comparative financial information to be included in the Group's Annual Report and Accounts for the year ended 30th June 2024 and all published financial information for periods from 1st July 2023.
In accordance with the provisions of IAS 21, the Effects of Changes in Foreign Exchange Rates, due to the change in presentational currency, financial information has been restated from sterling to US dollars as follows:
•assets and liabilities in non-US denominated currencies were translated into US dollars at the rate of exchange at the relevant balance sheet date;
•non-US dollar income statements and cash flows were translated into US dollars at average rates of exchange for the relevant period;
•share capital, share premium and all other equity items were translated at the historical rates prevailing on 1st June 2007, the date of transition to IFRS or the subsequent rates prevailing on the date of each relevant transaction or average rates as relevant; and
•the cumulative foreign exchange translation reserve was set to zero on 1st June 2007, the date of transition to IFRS, and this reserve has been restated on the basis that the Group has reported in US dollars since that date.
The relevant year-end exchange rates used for the conversion to US dollars from sterling were:
| | 30th June 2023 | 30th June 2022 |
| Average for the year | 1.2028 | 1.3313 |
| Year-end closing | 1.2703 | 1.2178 |
RESTATED CONSOLIDATED INCOME STATEMENT
| |
|
Year to 30th June 2023 $ |
Year to 30th June 2022 $ |
| Revenue Gross fee income |
|
68,725,000 |
81,548,485 |
| Commissions payable | | (1,823,015) | (2,122,985) |
| Custody fees payable | | (1,421,890) | (1,986,145) |
| Net fee income | | 65,480,095 | 77,439,355 |
| Administrative expenses Employee costs |
|
29,761,921 |
31,306,147 |
| Other administrative expenses | | 8,382,266 | 7,928,529 |
| Depreciation and amortisation | | 6,434,400 | 6,284,244 |
| | | (44,578,587) | (45,518,920) |
| Operating profit | | 20,901,508 | 31,920,435 |
| Finance income | | 1,388,993 | 42,603 |
| Finance expense | | (163,935) | (1,081,223) |
| Profit before taxation | | 22,126,566 | 30,881,815 |
| Income tax expense | | (4,629,574) | (6,775,237) |
| Profit for the period | | 17,496,992 | 24,106,578 |
| Profit attributable to: | | | |
| Equity shareholders of the parent | | 17,496,992 | 24,106,578 |
| Basic earnings per share (cents) | | 38.4c | 44.9c |
| Diluted earnings per share (cents) | | 37.6c | 44.3c |
RESTATED CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
| Group | Company |
| | | 30th June 2023 | 30th June 2022 | 30th June 2023 | 30th June 2022 | |
| | | $ | $ | $ | $ | |
| | | | | | |
|
| Non-current assets | | | | | |
|
| Property and equipment | | 920,766 | 622,550 | 279,536 | 301,810 |
|
| Right-of-use assets | | 2,523,950 | 2,945,547 | 1,151,872 | 1,321,499 |
|
| Intangible assets | | 128,461,936 | 134,053,099 | 29,583 | 21,758 |
|
| Other financial assets | | 10,019,586 | 9,053,838 | 139,150,571 | 133,328,023 |
|
| Deferred tax asset | | 493,510 | 480,825 | 7,231 | 6,170 |
|
| | | 142,419,748 | 147,155,859 | 140,618,793 | 134,979,260 |
|
| Current assets | | | | | |
|
| Trade and other receivables | | 8,089,959 | 7,913,288 | 3,860,021 | 6,309,083 |
|
| Current tax receivable | | - | - | 980,518 | 1,378,804 |
|
| Cash and cash equivalents | | 28,568,867 | 27,617,138 | 14,779,449 | 8,427,097 |
|
| | | 36,658,826 | 35,530,426 | 19,619,988 | 16,114,984 |
|
| Current liabilities | | | | | |
|
| Trade and other payables | | (10,733,481) | (11,522,347) | (5,239,348) | (4,566,260) |
|
| Lease liabilities | | (250,670) | (484,189) | (43,935) | (148,052) |
|
| Current tax payable | | (1,008,952) | (655,368) | - | - |
|
| Creditors, amounts falling due within one year | | (11,993,103) | (12,661,904) | (5,283,283) | (4,714,312) |
|
| Net current assets | | 24,665,723 | 22,868,522 | 14,336,705 | 11,400,672 |
|
| Total assets less current liabilities | | 167,085,471 | 170,024,381 | 154,955,498 | 146,379,932 |
|
| Non-current liabilities | | | | | |
|
| Lease liabilities | | (2,498,237) | (2,685,548) | (1,256,932) | (1,249,764) |
|
| Deferred tax liability |
| (9,174,888) | (10,524,480) | (23,139) | (25,791) |
|
| Net assets | | 155,412,346 | 156,814,353 | 153,675,427 | 145,104,377 |
|
|
Capital and reserves | | | | | |
|
| Share capital | | 827,501 | 827,501 | 827,501 | 827,501 |
|
| Share premium account | | 4,080,175 | 4,080,175 | 4,080,175 | 4,080,175 |
|
| Merger relief reserve | | 131,187,630 | 131,187,630 | 131,187,630 | 131,187,630 |
|
| Investment in own shares | | (13,162,265) | (11,883,130) | (13,162,265) | (11,883,130) |
|
| Share option reserve |
| 801,994 | 739,323 | 740,059 | 714,153 |
|
| EIP share reserve | | 2,485,541 | 1,943,599 | 2,246,547 | 1,943,599 |
|
| Capital redemption reserve | | 51,687 | 51,687 | 51,687 | 51,687 |
|
| Retained earnings | | 36,318,793 | 37,996,595 | 32,436,070 | 29,048,698 |
|
| Cumulative foreign exchange translation differences | | (7,178,710) | (8,129,027) | (4,731,977) | (10,865,936) |
|
| Attributable to: | | | | | |
|
| Equity shareholders of the parent | | 155,412,346 | 156,814,353 | 153,675,427 | 145,104,377 |
|
| Total equity | | 155,412,346 | 156,814,353 | 153,675,427 | 145,104,377 |
|
RESTATED CONSOLIDATED AND COMPANY CASH FLOW STATEMENT
| | | Group | Company | ||
| |
| 30th June 2023 $ | 30th June 2022 $ | 30th June 2023 $ | 30th June 2022 $ |
| Cash flow from operating activities | | | | | |
| Profit before taxation | | 22,126,566 | 30,881,815 | 775,661 | 242,081 |
| Adjustments for: | | | | | |
| Depreciation of property and equipment | | 274,521 | 254,477 | 92,542 | 132,008 |
| Depreciation of right-of-use assets | | 554,030 | 660,813 | 214,557 | 237,479 |
| Amortisation of intangible assets | | 5,590,512 | 5,404,546 | 8,216 | 11,152 |
| Loss on disposal of property and equipment | | 587 | 5,719 | 171 | 5,719 |
| Share-based payment charge | | 35,877 | 44,519 | 4,179 | 4,625 |
| EIP-related charge | | 1,267,456 | 1,187,649 | 549,445 | 522,479 |
| (Gain)/loss on investments | | (688,972) | 877,634 | (114,816) | 63,853 |
| Interest receivable | | (698,642) | (42,783) | (251,599) | (11,368) |
| Interest payable on leased assets | | 164,402 | 203,942 | 91,590 | 115,971 |
| Translation adjustments | | (296,580) | (84,187) | 36,873 | (371,977) |
| Cash generated from operations before changes | | | | | |
| in working capital | | 28,329,757 | 39,394,144 | 1,406,819 | 952,022 |
| Decrease in trade and other receivables | | 153,758 | 610,000 | 3,662,448 | 2,756,850 |
| (Decrease)/Increase in trade and other payables | | (296,268) | 2,511,158 | 2,831,643 | 1,270,040 |
| Cash generated from operations | | 28,187,247 | 42,515,302 | 7,900,910 | 4,978,912 |
| Interest received | | 698,642 | 42,783 | 251,599 | 11,368 |
| Interest paid on leased assets | | (164,402) | (203,942) | (91,590) | (115,971) |
| Taxation paid | | (5,772,376) | (9,324,524) | (1,876,368) | (205,681) |
| Net cash generated from operating activities | | 22,949,111 | 33,029,619 | 6,184,551 | 4,668,628 |
|
Cash flow from investing activities | | | | | |
| Dividends received from subsidiaries | | - | - | 22,131,365 | 34,827,238 |
| Purchase of property and equipment and intangibles | | (577,052) | (344,610) | (74,040) | (119,227) |
| Purchase of non-current financial assets | | (1,356,455) | (5,162,044) | - | (2,515,114) |
| Proceeds from sale of current financial assets | | 1,356,455 | 11,239 | - | 11,239 |
| Net cash (used in)/generated from investing activities | | (577,052) | (5,495,415) | 22,057,325 | 32,204,136 |
|
Cash flow from financing activities | | | | | |
| Ordinary dividends paid | | (19,392,429) | (28,419,716) | (19,392,429) | (28,419,716) |
| Purchase of own shares by employee share option trust | | (3,078,611) | (3,547,970) | (3,078,611) | (3,547,970) |
| Proceeds from sale of own shares by employee | | | | | |
| benefit trust | | 88,128 | 426,273 | 88,128 | 426,273 |
| Payment of lease liabilities | | (477,051) | (542,867) | (148,856) | (175,609) |
| Net cash used in financing activities | | (22,859,963) | (32,084,280) | (22,531,768) | (31,717,022) |
|
Net (decrease)/increase in cash and cash equivalents | |
(487,904) |
(4,550,076) |
5,710,108 |
5,155,742 |
| Cash and cash equivalents at start of period | | 27,617,138 | 35,289,270 | 8,427,097 | 4,018,160 |
| Cash held in funds | | 77,483 | 49,852 | - | - |
| Effect of exchange rate changes | | 1,362,150 | (3,171,908) | 642,244 | (746,805) |
| Cash and cash equivalents at end of period | | 28,568,867 | 27,617,138 | 14,779,449 | 8,427,097 |
APPENDIX
1. Key risks
The Board has conducted a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. This assessment includes continuous monitoring of both internal and external environments to identify new and emerging risks, which in turn are analysed to determine how they can best be mitigated and managed. The primary risk is the potential for loss of FuM as a result of poor investment performance, client redemptions, a breach of mandate guidelines or market volatility. The Group seeks to attract and retain clients through consistent outperformance supplemented by first class client servicing.
In addition to the above key business risk, the Group has outlined what it considers to be its other principal risks, including the controls in place and any mitigating factors.
| | Principal risk | Controls / mitigation |
| Key person risk | Risk that key employees across the business leave/significant reliance on a small number of key employees. | Team approach, internal procedures, knowledge sharing. Remuneration packages reviewed as needed to ensure talent/key employees are retained. In addition, the Nomination Committee regularly reviews talent and succession plans for both Board and key senior management positions. |
| Technology, IT / cybersecurity and business continuity risks | Risk that technology systems and support are inadequate or fail to adapt to changing requirements; systems are vulnerable to third party penetration or that the business cannot continue in a disaster. | IT monitors developments in this area and ensures that systems are adequately protected. Additional IT spend has resulted in a number of ongoing systems vulnerability testing that has taken place on the network, along with ongoing monitoring of the network to reduce our vulnerabilities. The Group actively maintains a Disaster Recovery/Business Continuity plan. All offices maintain backups of all local servers, applications and data. The US replicates its backup to the UK cloud provider and vice versa. Employees across its four offices are able to work remotely, accessing information and maintaining operations. |
| Material error / mandate breach | Risk of a material error or investment mandate breach occurring. | Mandate guidelines are coded (where possible) into the order management system by the Investment Management/Compliance teams of each operating subsidiary. |
| Regulatory and legal risk | Risk of legal or regulatory action resulting in fines, penalties, censure or legal action arising from failure to identify or meet regulatory and legislative requirements in the jurisdictions in which the Group and its operating subsidiaries operate, including those as a result of being a listed entity on the London Stock Exchange. Risk that new regulation or changes to the interpretation of existing regulation affects the Group's operations and cost base. | Compliance teams of each subsidiary monitor relevant regulatory developments - both new regulations as well as changes to existing regulations that impact their respective subsidiary. Implementation is done as practicably as possible taking into account the size and nature of the business. The finance team keeps abreast of any changes to Listing Rules, accounting and other standards that may have an impact on the Group. Finance and both the compliance teams receive regular updates from a variety of external sources including regulators, law firms, consultancies etc. |
2. Related party transactions
In the ordinary course of business, the Company and its subsidiary undertakings carry out transactions with related parties as defined under IAS 24 Related Party Disclosures. Material transactions are set out below.
(i) Transactions with key management personnel
Key management personnel are defined as Directors (both Executive and Non-Executive) of City of London Investment Group PLC.
(a) Details of compensation paid to the Directors as well as their shareholdings in the Group is provided in the Remuneration report on pages 78, 86 and 87 and in note 4 of the full report.
(b) One of the Group's subsidiaries manages funds for some of its key management personnel, for which it receives a fee. All transactions between key management and their close family members and the Group's subsidiary are on terms that are available to all employees of that Company. The amount received in fees during the year was £62,371 (2022: £58,232). There were no fees outstanding as at the year end.
(ii) Summary of transactions and balances
During the period, the Company received from its subsidiaries £10,950,859 (2022: £11,840,471) in respect of management service charges and dividends of £18,399,871 (2022: £26,160,323).
Amounts outstanding between the Company and its subsidiaries as at 30th June 2023 are given in notes 14 and 16 of the full report.
3. Statement of Directors' responsibilities
The Directors are responsible for preparing the Strategic report, the Directors' report, the Directors' remuneration report and the Financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Company financial statements for each financial year. The Directors have elected under Company law and are required under the Listing Rules of the Financial Conduct Authority to prepare Group financial statements in accordance with UK- adopted International Accounting Standards. The Directors have elected under Company law to prepare the Company financial statements in accordance with UK-adopted International Accounting Standards.
The Group and Company financial statements are required by law and UK-adopted International Accounting Standards to present fairly the financial position of the Group and the Company and the financial performance of the Group; the Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.
Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.
In preparing each of the Group and Company financial statements, the Directors are required to:
•select suitable accounting policies and then apply them consistently;
•make judgements and accounting estimates that are reasonable and prudent;
•state whether they have been prepared in accordance with UK-adopted International Accounting Standards; and
•prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and the Directors' remuneration report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Directors' statement pursuant to the Disclosure and Transparency Rules
Each of the Directors, whose names and functions are listed on pages 52 and 53 of the full report confirm that, to the best of each person's knowledge:
•the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and
•the Strategic Report and Directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the City of London Investment Group's website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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