24th September 2024
CITY OF LONDON INVESTMENT GROUP PLC (LSE: CLIG)
("City of London", "the Group" or "the Company")
FINAL RESULTS FOR THE YEAR TO 30TH JUNE 2024, DIVIDEND DECLARATION AND BOARD CHANGE
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 2024 (the 2024 Annual Report); and
- Notice of 2024 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 2024 Annual Report and the Notice of AGM, which will be held on 28th October 2024, will be posted to shareholders on 30th September 2024.
The Appendix to this announcement contains additional information which has been extracted from the 2024 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 2024 Annual Report.
SUMMARY
| - | Funds under Management (FuM) of US$10.2 billion at 30th June 2024. This compares with US$9.4 billion at the beginning of this financial year on 1st July 2023
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| - | Net fee income was $66.2 million (2023: $65.5 million)
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| - | Underlying profit before tax* was $27.2 million (2023: $27.0 million). Profit before tax was $22.6 million (2023: $22.1 million)
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| - | Underlying basic earnings per share* were 33.5p (2023: 36.5p). Basic earnings per share were 27.8p (2023: 30.2p) after an effective tax charge of 24% (2023: 21%) of profit before taxation
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| - | Recommended final dividend of 22p per share (2023: 22p) payable on 7th November 2024 to shareholders on the register on 4th October 2024, making a total for the year of 33p (2023: 33p) |
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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/3259F_1-2024-9-23.pdf
Dividend
The Board is proposing to recommend a final dividend of 22p per share (2023: 22p), subject to approval by shareholders at the Company's Annual General Meeting (AGM) to be held on 28th October 2024. This would bring the total dividend payment for the year to 33p (2023: 33p). Rolling five-year dividend cover based on underlying profits equates to 1.19 times (2023: 1.24 times).
The Board confirms the final dividend timetable for the year to 30th June 2024:
· Ex-dividend date: 3rd October 2024
· Dividend record date: 4th October 2024
· DRIP election date: 18th October 2024
· Dividend payment date: 7th November 2024
CLIG no longer offers a currency election for its dividend payment.
Dividend cover template
Please see dividend cover template attached here. http://www.rns-pdf.londonstockexchange.com/rns/3259F_2-2024-9-23.pdf
The dividend cover template shows the quarterly estimated cost of dividend against actual post-tax profits for last year, the current year and the assumed post-tax profit for next financial year based upon specified assumptions.
BOARD CHANGE
Tazim Essani has notified the Board that having completed her three-year term she will not seek re-election at the Company's AGM on 28th October 2024. She will step down as Chair of the Remuneration Committee and as an independent Non-executive Director of the Company at the conclusion of the 2024 AGM.
The search for a new independent Non-Executive Director is progressing well with a shortlist of candidates being considered by the Board with a view to making an appointment in the near future. Sarah Ing will assume the Chair of the Remuneration Committee from the conclusion of the 2024 AGM.
Tazim has been a valued and active member of the Board over the last three years, and we would like to extend our sincere thanks for her tireless efforts throughout that period both as a Director and Chair of the Remuneration Committee. We wish her well in her future endeavours.
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 my February interim statement, I had three objectives: |
| |
| · to remind readers of CLIG's careful and collaborative culture; |
| · to convey the strength of our teams; and |
| · to highlight the attractive opportunity set our portfolio managers were detailing. |
As we begin our 2024/2025 financial year, I am pleased to report Funds under Management (FuM) have grown, recovering to $10.2 billion as of 30th June 2024 and by c.22% from the lows reached last October. At that time, the confluence of weak bond markets and the sudden Middle East violence provoked severe declines in asset prices. International and Emerging Markets (EM) were in decline and closed-end fund (CEF) discounts were wide. Fortunately, our teams were energised and prepared to take advantage of the weakness.
Since late October, we have begun to enjoy positive momentum on a number of fronts. We have experienced the start of discount narrowing in a number of CEFs and lower inflation readings have supported bonds and powered very good performance from our KIM fixed income and municipal bond strategies.
Corporate governance has been a key focus and our teams at CLIM and KIM have been successful in engaging with CEF Boards to support discount control measures.
Performance at CLIG has been strong and our teams have done well on an absolute basis and in their peer group rankings with all strategies in first or second quartiles over five and ten-year timeframes. This strong relative performance provides opportunity for our sales and marketing teams which have been actively engaging with clients and a growing number of prospects. Our Global Strategy, managed by our talented International Developed CEF Equity team led by Mike Edmonds and Mike Sugrue, will have a three-year track record as of December 2024 and moves are underway to grow this strategy.
While our investment teams successfully navigated a complex environment, it was also a year of broad-based accomplishments for our non-investment teams. Our Relationship Managers and Executive Assistants at KIM and Marketing and Client Servicing teams at CLIM increased contact and information flow with clients and prospects, including the production of informative videos to highlight the strong capabilities of our investment teams and the attractive environment for increasing exposure to our strategies.
Our Operations and Information Technology teams set high goals for improving workflows and reducing errors across the Group with an ever-heightened focus on cybersecurity.
Our Finance team worked diligently to improve and streamline processes, including enhancing their budgeting process. As of 30th June 2024, the Group successfully completed its first year using the US dollar as its reporting currency. I would like to thank the Finance team for their diligence in preparing for and executing this transition.
From my vantage point, it was also a year in which the Group Executive Committee (GEC) further solidified its communications and processes. The current members of the GEC are Tom Griffith - CEO, Dan Lippincott - President of Karpus, Deepranjan Agrawal - Group CFO and Carlos Yuste - Head of Business Development. These individuals meet formally each week to assess detailed knowledge of Group activities and set priorities. Group management possess an ethos of continual improvement and are engaged in a series of initiatives to make the business more robust while managing risk and working proactively to enhance long-term returns for shareholders. In addition, at CLIM the Investment Management Resources and Operations Committee (IMROC) was formalised during the year to facilitate even better support and communication within the portfolio management teams.
ESG
The Group continues its commitment to the environment with continual efforts to reduce negative effects. We implemented a carbon offset programme to address our impact related primarily to air travel and other activities.
Diversity, equity and inclusion continue to be important areas of focus across the Group, with two dedicated training sessions per calendar year provided to all employees. Additionally, all employees receive regular monthly training programs to reinforce awareness of their role in protecting our technology network and infrastructure, with an elevated focus on cybersecurity.
The Group continues to be strongly committed to regular workforce engagement events. These sessions ensure the Non-Executive Directors (NEDs) maintain a good understanding of the many elements at play in the Group as well as the teams and individuals working to grow and improve the business. As mentioned in our interim statement, the Board spent over two days with employees last September at our Strategy Meeting in West Chester, Pennsylvania, participating in a mix of formal presentations, social and teambuilding events.
Your Board
Your Board maintained active oversight of Group activities during the year and engaged with employees on a frequent basis both in person on visits to Rochester, West Chester and London as well as during numerous video sessions.
I began my new role as Chairman in October 2023. One of my first activities was to work closely with our Nomination Committee to identify an excellent addition to our Board. Sarah Ing joined us in March of this year and is already making important contributions. Peter Roth continues to work diligently as Senior Independent Director as well as Chair of the Audit & Risk committee. Sarah Ing will become Chair of the Remuneration Committee at the conclusion of the Company's Annual General Meeting (AGM) in October 2024. Tazim Essani has notified the Board that, having completed her three-year term, she will not seek re-election. As we search for a new independent NED, we will ensure that the Board continues to be well-balanced with members possessing a good mix of skills and perspectives. Assuming I am re-elected as Chair at this year's AGM, we will begin the process of reviewing Chair succession as discussed in the Nomination Committee statement later in this report.
Dividends
Your Board formally reviewed the Group dividend policy and discussed it with management as part of our regular process. We continue to believe that the existing dividend policy will serve the Group well and formally voted to extend it. Our dividend policy of maintaining a 1.2 coverage ratio over a rolling five-year period has provided a useful structure and discipline since its adoption in 2014.
Management has plans in place for cost reductions of c.$2.5 million over the next financial year. Subject to approval by shareholders, we recommend a maintained final dividend of 22 pence per share, payable on 7th November 2024. Our annual dividend will therefore total 33 pence, providing an attractive yield for our shareholders. Please refer to the CEO Statement for CLIG's dividend history.
CLIG remains debt-free and has a cash balance of $33.7 million as of 30th June 2024 (2023: $28.6 million) with the final dividend of 22 pence per share to be paid in November 2024.
Shareholder engagement
Since our last AGM on 23rd October 2023, we have pursued a strategy of engagement with our largest shareholder and have had a series of constructive meetings. Discussions on strategy for CLIG's businesses have been ongoing and we welcome the positive engagement. We are making progress on a number of shared priorities, including growth and asset retention, maintaining our commitment to expense control and enhancing our focus on the management of our cash balances. I am pleased to report that relations with our controlling shareholder have been progressing well. All involved are happy to be moving forward steadily and on an even keel. We have also been engaging with our other shareholders and, as always, plan to maintain transparency in our ongoing dialogue.
Outlook
As I assess prospects, it gives me confidence to be a part of a Group with conservative business practices, dedicated and talented teams and a recurring cash flow business model. Positive momentum appears to be building at a time when a number of factors are improving. Discounts in CEFs remain at wide levels and ongoing corporate governance initiatives by our teams are gaining traction. Many CEF Boards have recently adopted share buyback and discount narrowing mechanisms. The level of inquiry and requests for proposals for International and EM mandates have improved markedly over the past six months.
After our AGM twelve months ago, your Board and members of Senior Management met to thank retiring Chairman Barry Aling for his outstanding decade of service to CLIG. Former Board Chairmen David Cardale and Andrew Davison were in attendance, both having supported and ably steered the Group from its early days. Tom Griffith, Carlos Yuste, Deepranjan Agrawal, Dan Lippincott and Mark Dwyer represented management, each with many years of excellent service. Together, this group of individuals embodied a timely reminder of the talent, consistency and determination of the team at CLIG.
CLIG successfully navigated a challenging year by sticking to its team-based approach, relying on process, while emphasising transparency and accountability to our clients and shareholders. The past twelve months have been a period of achievement for the Group and I want to thank our teams for their dedication and hard work.
Rian Dartnell
Chair
23rd September 2024
CHIEF EXECUTIVE OFFICER'S STATEMENT
Game of two halves
"Game of two halves" is a British phrase that is commonly used to describe football (soccer) matches that have very different outcomes in each half. In a wider context, the phrase can refer to a situation or event that is evenly split into two parts or halves, often with contrasting or opposing qualities or outcomes.
We saw an upward momentum swing in the second half of the financial year, making it a true game of two halves as Figure 1 illustrates. Net inflows of c.$42 million at KIM during the second half of the financial year is a significant development showing a change in investor sentiment, which also corresponded with a reduction in net outflows at CLIM. Performance, both on an absolute and relative basis, also improved across the bulk of our main strategies in the second half of the financial year. Funds under Management (FuM), driven primarily by higher market returns, increased by a greater percentage in the second half of the financial year.
| Figure 1. Relative results | | | | |
| |
| Full year | Half year | |
| | FYE 2024 H2 vs H1 | FYE 2024 | FY-H1 2024 | FY-H2 2024 |
| Funds under Management | | | | |
| FuM $ change (billions) | Improved | 0.8 | 0.2 | 0.6 |
| FuM % change | Improved | 8.4% | 2.1% | 6.3% |
| Absolute Performance | | | | |
| CLIM Emerging Markets Strategy | Improved | 12.16% | 4.59% | 7.24% |
| CLIM International Strategy | Improved | 13.00% | 5.70% | 6.90% |
| CLIM Opportunistic Value Strategy | Flat | 13.10% | 6.47% | 6.20% |
| KIM Tax-Sensitive Fixed Income Strategy | Improved | 8.99% | 3.36% | 5.45% |
| KIM Conservative Balanced Strategy | Improved | 11.73% | 4.22% | 7.21% |
| Relative Performance | | | | |
| CLIM Emerging Markets Strategy | Improved | -1.42% | -1.65% | 0.33% |
| CLIM International Strategy | Improved | 1.33% | 0.07% | 1.19% |
| CLIM Opportunistic Value Strategy | Improved | 3.24% | 0.69% | 2.37% |
| KIM Tax-Sensitive Fixed Income Strategy | Improved | 5.77% | -0.28% | 5.85% |
| KIM Conservative Balanced Strategy | Improved | 2.64% | -0.86% | 3.39% |
| Net Flows ($'000) | | | | |
| Group | Improved | (320,095) | (294,301) | (25,794) |
| CLIM | Improved | (316,257) | (248,582) | (67,675) |
| KIM | Improved | (3,838) | (45,719) | 41,881 |
As commented in recent Annual Reports, Emerging Markets (EM) strategies have been out of favour as an asset class for an extended period. However, there appears to be a momentum swing underway with a renewed interest in EM from institutional investors in the US marketplace. Most recently, this is evidenced by Figure 2 on page 8 of the full report, which shows a reversal of net outflows in 2023 from strategies focused on EM to net inflows in the first calendar quarter of 2024.
A leading indicator in the institutional marketplace of potential future mandates and subsequent inflows is the volume of searches performed for a particular asset class. Our data on flows and searches in the investment management universe is from Nasdaq eVestment Advantage.
According to Nasdaq eVestment Advantage, EM strategies were a primary focus area for research undertaken by institutional investors globally and the top strategy researched by institutions in North America during Q1 calendar year (CY) 2024 as compared to Q1 CY 2023 as shown in Figure 3 on page 9 of the full report. Substantiating this trend further, more recent data obtained from eVestment shows a 32% increase in EM product searches across the investment universe from Q2 CY 2023 to Q2 CY 2024.
A positive view towards the asset class is only part of the story; there also needs to be a compelling reason for institutional asset allocators to choose an active manager. Figure 4 on page 9 of the full report reflects the rolling 90-day Size Weighted Average Discount (SWAD) of the largest account in CLIM's longest-tenured EM composite over the past five years. While there has been some discount narrowing from the extremes in 2020 through 2022, the wide discounts reflect the value in EM CEFs.
Figure 5: CLIG - FuM by line of business ($m)
| CLIM | 30 Jun 2021
| 30 Jun 2022 | 30 Jun 2023 | 30 Jun 2024 | ||||||||
| | $m | % of CLIM total | % of CLIG total | $m | % of CLIM total | % of CLIG total | $m | % of CLIM total | % of CLIG total | $m | % of CLIM total | % of CLIG total |
| Emerging Markets | 5,393 | 72% | 47% | 3,703 | 64% | 40% | 3,580 | 61% | 38% | 3,568 | 56% | 35% |
| International | 1,880 | 25% | 17% | 1,812 | 32% | 20% | 1,983 | 34% | 21% | 2,394 | 38% | 23% |
| Opportunistic Value | 231 | 3% | 2% | 193 | 3% | 2% | 244 | 4% | 3% | 251 | 4% | 3% |
| Frontier | 13 | 0% | 0% | 9 | 0% | 0% | 9 | 0% | 0% | 10 | 0% | 0% |
| Other/REIT | 13 | 0% | 0% | 74 | 1% | 1% | 88 | 1% | 1% | 94 | 2% | 1% |
| CLIM total | 7,530 | 100% | 66% | 5,791 | 100% | 63% | 5,904 | 100% | 63% | 6,317 | 100% | 62% |
| | | | | | | | | | | | | |
| KIM | 30 Jun 2021 | 30 Jun 2022 | 30 Jun 2023 | 30 Jun 2024 | ||||||||
| | $m | % of KIM total | % of CLIG total | $m | % of KIM total | % of CLIG total | $m | % of KIM total | % of CLIG total | $m | % of KIM total | % of CLIG total |
| Retail | 2,804 | 72% | 24% | 2,419 | 70% | 26% | 2,441 | 69% | 26% | 2,655 | 68% | 26% |
| Institutional | 1,115 | 28% | 10% | 1,014 | 30% | 11% | 1,079 | 31% | 11% | 1,269 | 32% | 12% |
| KIM total | 3,919 | 100% | 34% | 3,433 | 100% | 37% | 3,520 | 100% | 37% | 3,924 | 100% | 38% |
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| CLIG total | 11,449 |
| 100% | 9,224 |
| 100% | 9,424 |
| 100% | 10,241 |
| 100% |
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Annual results
The Group's FuM increased by 8.8% from $9.4 billion to $10.2 billion, revenue by 1.0% from $65.5 million to $66.2 million, and net client outflows of $320 million. All strategies other than EM had positive relative performance over the financial year.
Profit before profit-share, EIP, share option charge and investment gains was $39.3 million (2023: $39.0 million), profit before tax was $22.6 million (2023: $22.1 million) and profit after tax was $17.1 million ($17.5 million). Underlying profit after tax was $20.6 million (2023: $21.2 million); the difference to the profit after tax was due to the adjustment of gain on investments and amortisation of intangibles (net of tax). Refer to page 30 of the full report for further information.
Inclusive of our regulatory and statutory capital requirements, cash and cash equivalents were $33.7 million (2023: $28.6 million).
As a result of this financial performance, we are happy to announce that the Board has once again recommended a final dividend of 22p per share (2023: 22p), subject to approval by shareholders at the Group's Annual General Meeting (AGM) to be held on 28th October 2024. This would bring the total dividend for the year to 33p per share (2023: 33p). Rolling five-year dividend cover based on underlying profits is 1.19 (2023: 1.24), slightly below our target of 1.20. Please refer to Figure 6 for CLIG's dividend history and our website at https://clig.com/dividend-cover/ for the dividend cover chart, which provides a template for determining cover based on a number of variables.
| Figure 6. Dividend history | | | | | | ||
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| Pence per share | Dividend cover* | Pence per share | ||||
| FY | Interim | Final | Total | 1yr | Rolling 5yr | Special dividend | Total (inc. special dividend) |
| 2005-06 | 8.6 | - | 8.6 | 1.48 | n/a | - | 8.6 |
| 2006-07 | 3.0 | 7.0 | 10.0 | 1.99 | n/a | - | 10.0 |
| 2007-08 | 6.0 | 13.5 | 19.5 | 1.51 | n/a | - | 19.5 |
| 2008-09 | 5.0 | 10.0 | 15.0 | 1.05 | n/a | - | 15.0 |
| 2009-10 | 7.0 | 15.0 | 22.0 | 1.28 | 1.46 | - | 22.0 |
| 2010-11 | 8.0 | 16.0 | 24.0 | 1.44 | 1.45 | - | 24.0 |
| 2011-12 | 8.0 | 16.0 | 24.0 | 1.40 | 1.34 | - | 24.0 |
| 2012-13 | 8.0 | 16.0 | 24.0 | 1.04 | 1.24 | - | 24.0 |
| 2013-14 | 8.0 | 16.0 | 24.0 | 0.87 | 1.24 | - | 24.0 |
| 2014-15 | 8.0 | 16.0 | 24.0 | 1.10 | 1.17 | - | 24.0 |
| 2015-16 | 8.0 | 16.0 | 24.0 | 0.96 | 1.07 | - | 24.0 |
| 2016-17 | 8.0 | 17.0 | 25.0 | 1.46 | 1.09 | - | 25.0 |
| 2017-18 | 9.0 | 18.0 | 27.0 | 1.47 | 1.17 | - | 27.0 |
| 2018-19 | 9.0 | 18.0 | 27.0 | 1.30 | 1.26 | 13.5 | 40.5 |
| 2019-20 | 10.0 | 20.0 | 30.0 | 1.01 | 1.24 | - | 30.0 |
| 2020-21 | 11.0 | 22.0 | 33.0 | 1.46 | 1.34 | - | 33.0 |
| 2021-22 | 11.0 | 22.0 | 33.0 | 1.34 | 1.32 | 13.5 | 46.5 |
| 2022-23 | 11.0 | 22.0 | 33.0 | 1.11 | 1.24 | - | 33.0 |
| 2023-24 | 11.0 | 22.0 | 33.0 | 1.01 | 1.19 | - | 33.0 |
| *Excluding special dividends | | | | | | ||
The Group changed its presentational currency this year, having reported its FY 2023 results in sterling ahead of a switch to US dollars. Consistent with previous years, the Group's revenue is almost entirely in US dollars, whilst the costs are approximately two-thirds in US dollars and the remaining one third are primarily in sterling. A stronger US dollar improves our profit through making the sterling-incurred costs relatively lower. Conversely, a weaker US dollar relatively increases the weight of those sterling costs as well as the impact of the sterling-denominated dividend, while the US dollar revenue is flat.
The US dollar weakened by an average of 4% during the year as compared to sterling and negatively impacted the Group's profit before profit-share, EIP, share option charge and investment gains by c.$0.4 million.
Share Price KPI
CLIG targets a total return (share price plus dividends) to compound annually in a range of 7.5% to 12.5% over a five-year period. For the five years ended 30th June 2024, the total return was 34.7%, or 6.2% annualised (source, Bloomberg). The environment for UK listed asset managers has been negative for the past three years due to the broader shift of underlying investors to passively managed vehicles. We go into additional detail on the underlying investment performance and flows in the Business and Investment Review on page 12 of the full report, which provides additional information to shareholders on our market positioning.
Cybersecurity
On 19th July 2024, a software update by CrowdStrike impacted machines running Microsoft Windows' operating system. This widespread incident demonstrated the vulnerability of global systems to IT and cybersecurity events. In this case there was no malicious actor involved but there often is, and that constitutes one of the most significant and real risks the company faces. CLIG was well prepared to mitigate the CrowdStrike incident, with our Singapore office providing an early warning system and both the London and US teams working out-of-hours to execute our incident response policy. Consequently, all offices were fully functional by the time the US markets opened, minimising the potential impact.
To mitigate the wider cybersecurity risk, we provide monthly training and education to employees. Additionally, our IT department continues to increase their use of cyber defence tools and procedures, working alongside our third-party cybersecurity vendor who leverage their extensive capabilities to oversee our Security Operations Centre.
Environmental reporting update
In the previous years, we have 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 emissions by a particular date, which is 2050 at the latest.
As we reported in our interim statement, CLIG completed its first offset of carbon emissions. The Group purchased carbon credits for the carbon emitted primarily from business travel undertaken by Group employees during the current financial year. CLIG's offset purchases come from the Gold Standard marketplace.
We note recent market developments, specifically from The Integrity Council for the Voluntary Carbon Market and their ongoing carbon-crediting programs that meet the high-integrity criteria set out in its Core Carbon Principles (CCPs). Gold Standard is amongst the programs to become CCP-eligible. For any future offsets, we will also consider CCP labelling. The Group remains open about documenting its emissions and documenting the steps we are taking to avoid, eliminate and reduce where we can, and to offset what we cannot.
One of the perennial themes at CLIG is "constant improvement," and so we look forward to seeing how carbon offset standards evolve and how we can best position ourselves to ensure any offsets we purchase are put towards robust emissions reduction projects.
Please see page 42 of the full report for additional information on these important initiatives.
UK Corporate Governance
As readers may be aware, the Financial Reporting Council (FRC) issued the updated UK Corporate Governance Code in January 2024. The new Provision 29 enhanced the responsibility of the Board to not only establish, but also oversee the monitoring of its effectiveness and review the Group's internal control framework. The Board has formally created an Internal Audit (IA) function to support them in meeting the requirements of Provision 29. During the financial year 2024/25, the IA function will carry out a complete mock process, ahead of it being fully operational and in place, with effect from 1st July 2025.
We welcome the recent changes to the UK Listing Rules published by the Financial Conduct Authority (FCA) in July 2024. These changes are intended to make London a more attractive and competitive place for companies to list and raise capital, while maintaining high standards of governance and investor protection.
Mark Dwyer retirement
As announced on 3rd October 2023, CLIM's Chief Investment Officer Mark Dwyer retired from the Company effective 30th June 2024. We are immensely grateful for Mark's leadership and diligence in over two decades with the Group and wish him a long and happy retirement. CLIM's investment leadership now rests with the senior portfolio managers, all of whom have extensive experience with the Group, with an average tenure of nearly twenty years at CLIM.
Closing thoughts
I would like to thank CLIG's employees across our four offices: London, West Chester, Rochester and Singapore. The Board and management recognise the commitment and loyalty shown by our teams in propelling the Group forward and look forward to new challenges in the year ahead.
Tom Griffith
Chief Executive Officer
23rd September 2024
BUSINESS AND INVESTMENT REVIEW
The ability to capture discount volatility of closed-end funds has proved to be a persistent and exploitable inefficiency over the decades, as evidenced by long-term outperformance versus the benchmark at both CLIM and KIM.
Funds under Management (FuM) were $10.2 billion as at 30th June 2024, an increase of 8.8% as compared to $9.4 billion as at 30th June 2023. The main theme for the year was one of steady progress focused on rebuilding the Emerging Markets (EM) performance track record, client retention - including reducing outflows - and cost synergies across the Group.
Flows & performance
Net investment outflows reduced significantly to $26 million in the second half of the financial year, from $294 million in the six months ended 31st December 2023. Net outflows from the EM strategy included a $100 million transfer of a long-term client who reallocated within CLIM from the EM strategy to the International Equity (INTL) strategy, due to their underlying asset allocation decision. An additional promising development is that KIM saw net inflows of $42 million over the second half of the financial year. Figure 1 shows the underlying data of net investment flows over the first and second half of the financial year, to provide context around the shift in sentiment during the year.
The total net investment outflows of $320 million were in large part down to clients reducing their exposure to EM due to ongoing geopolitical volatility. By contrast, INTL strategies attracted more than $150 million in net new inflows over the twelve-month period. Attractive discounts in the strategies continue to be the focus of marketing efforts across the Group's asset classes.
| Figure 1. Net investment flows ($000's) | | | |||
| | Full year | Half year | |||
| | FY 2022 | FY 2023 | FY 2024 | FY H1 2024 | FY H2 2024 |
| CLIM | | | | | |
| Emerging Markets | (315,770) | (205,924) | (424,101) | (171,151) | (252,950) |
| International | 452,554 | (50,824) | 153,371 | (89,815) | 243,186 |
| Opportunistic Value | 617 | 34,942 | (33,237) | 15,015 | (48,252) |
| Frontier | (4,748) | - | - | - | - |
| Other/REIT | 79,133 | (5,709) | (12,290) | (2,631) | (9,659) |
| CLIM total | 211,786 | (227,515) | (316,257) | (248,582) | (67,675) |
| KIM |
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| Retail | (106,444) | (141,952) | (39,587) | (40,031) | 444 |
| Institutional | (3,302) | 12,530 | 35,749 | (5,688) | 41,437 |
| KIM total | (109,746) | (129,422) | (3,838) | (45,719) | 41,881 |
| CLIG total | 102,040 | (356,937) | (320,095) | (294,301) | (25,794) |
| | | | | | |
Investment performance was ahead of the benchmark for the majority of the Group's strategies during the financial year. CLIM's INTL, Opportunistic Value (OV) and Frontier Markets outperformed, while EM equity lagged its index over the period. On the EM equity side, we have seen improved relative performance since 1st January 2024, as reflected in Figure 2 on page 12 of the full report, showing CLIM vs EM index over the three months, six months and twelve months to 30th June 2024.
After an operational review, the EM and International REIT strategies were closed due to lack of institutional interest in the asset class.
KIM's Fixed Income strategies, International Equity, Conservative Balanced and Cash Management strategies outperformed their market indices over the period, while the US Equity strategy lagged its benchmark.
Closed-end fund (CEF) environment and outlook
The Group's two operating subsidiaries, CLIM and KIM, both invest primarily in CEFs for the benefit of their respective clients. The key driver for both CLIM and KIM is their ability to independently successfully capture the discount volatility inherent in CEFs. The ability to capture discount volatility has proved to be a persistent and exploitable inefficiency over the decades, as evidenced by long-term outperformance versus the benchmark at both CLIM and KIM.
The recent discount cycle has been challenging, with a correlated de-rating across asset classes and jurisdictions. Using the UK-listed market as an example, the discount headwinds of the last two and a half years are clear (see Figure 3 on page 13 of the full report). To put this in context, the last time the sector traded so cheaply was in the weeks immediately post the collapse of Lehman Brothers in 2008. As of 30th June 2024, there had been a slight recovery to a 14.5% discount. The average discount over the last ten years is 6.1%.
Encouragingly, capital markets have noticed these distortions and are starting to fix them, as they did in 2009. Hedge funds and other fast-moving investors have seen the CEF market as a good opportunity to buy low and sell high, using various levers to shrink discounts. Activist investors have also come back to buy solid assets at distressed prices, in structures that can be unwound. Moreover, Boards are actively taking steps to increase shareholder value and reduce discounts. CEF prices have stopped falling but are still far from their historical levels.
The overall CEF market is thus undergoing a regime change. The valuation dislocation of the last two years and the prolonged relative underperformance of active managers has driven a predictable evolution. Specifically:
•Capital is being retired from the sector, after a fifteen-year net issuance cycle.
•The recent trend of take-privates, wind-downs and mergers & acquisitions is well anchored.
•The evolution of shareholder registers from passive to engaged, and activist shareholders, has increased the pace of both of the above.
All of these represent a necessary condition for a more generalised normalisation in valuations.
Capacity
The Group's return to growth strategy continues to focus its marketing efforts on the consultants that dominate the new business flows in the sector. We calculate there to be c.$6 billion of spare capacity at CLIG in the CEF universe ($4 billion between EM, INTL and OV, $1 billion in US Municipal Bonds, $1.2 billion across US Fixed Income and Equity strategies).
Besides the consultant focus, marketing resources for KIM are geared towards high-net-worth individuals, family offices and the Registered Investment Advisor (RIA) channel in the US.
Aiding this outreach is the fact that CLIM's Global Strategy will have a three-year track record in December 2024, and that CLIM's Listed Private Equity strategy is drawing renewed client interest.
KIM strategies
KIM delivered positive returns in FY 2024, with four of its six strategies outperforming their respective benchmarks by more than 250 bps. KIM clients benefited from its opportunistic exposure to US high yield and municipal bond CEFs, which rallied on the back of a strong economic recovery and narrowing discounts (see Figure 5 on page 15 of the full report). KIM also saw gains from its technology and quality factor holdings in US and international equities, as well as from CEF activism and semiconductor-related funds.
The KIM Conservative Balanced composite net investment returns for the rolling one year ended 30th June 2024 were 11.73% vs. 9.12% for the Morningstar US Fund Allocation - 30% to 50% Equity category in USD.
The KIM Growth Balanced composite net investment returns for the rolling one year ended 30th June 2024 were 13.76% vs. 10.93% for the Morningstar Average Balanced Fund category in USD.
The KIM Tax-Sensitive Fixed Income composite net investment returns for the rolling one year ended 30th June 2024 were 8.99% vs. 4.36% for the Morningstar Average Municipal Bond Fund category in USD.
The KIM Taxable Fixed Income composite net investment returns for the rolling one year ended 30th June 2024 were 9.30% vs. 4.75% for the Morningstar Average General Bond Fund category in USD.
The KIM Equity composite net investment returns for the rolling one year ended 30th June 2024 were 16.65% vs. 14.72% for the Morningstar 65% Average Domestic Fund/35% Average International Stock Fund category in USD.
The KIM Cash composite net investment returns for the rolling one year ended 30th June 2024 were 5.97% vs. 4.53% for the BOA ML benchmark in USD.
CLIM strategies
CLIM Emerging Markets (EM)
CLIM's EM strategy returned 12.2% net of fees vs. 13.6% for the S&P EM Frontier Super Composite BMI Index, as it lagged the benchmark by 140 bps due to unfavourable country allocation and weak NAV performance. However, we were able to generate positive discount alpha by exploiting the discount volatility and engaging with Boards to improve shareholder value. We saw several mergers, liquidations and buybacks that helped narrow the discounts in our portfolio. We remain optimistic about the prospects for EM equities, which offer attractive valuations and exposure to growth sectors such as artificial intelligence. We believe that our active and opportunistic approach will benefit from a shift in sentiment towards this underappreciated asset class.
CLIM International (INTL)
Developed Markets performed strongly over the last twelve months, led by the US market, which itself was dominated by the "Magnificent Seven" technology and communication services companies namely Apple, Alphabet, Amazon, Meta, Microsoft, Tesla and Nvidia. Nvidia, in particular, garnered much attention as being the leader in providing semiconductor chips for the Large Language Models that underpin artificial intelligence applications. Within non-US markets these themes were played out in companies such as the ASML and Taiwan Semiconductor, which provided strong, if not magnificent, returns. Other market themes included the growth in the use of obesity drugs whereby Denmark's Novo Nordisk and the US's Eli Lilly were the leading providers and whose share prices benefitted accordingly. Among non-US Developed markets, the local Japanese market was also particularly strong, finally surpassing its previous peak in 1989 following the bursting of its asset price bubble and the subsequent decades of deflation, albeit for international investors roughly half of these gains were eroded due the weakness of the Japanese Yen.
CLIM's INTL strategy returned 13.0% net of fees vs. its benchmark MSCI ACWI ex-US Net TR Index which returned 11.6%, outperforming by 140 bps. Country allocation was positive, aided by out of benchmark exposure to the US market, particularly to the technology sector, as well as underweight exposure to European ex-UK markets. Conversely, our underweight exposure to EM, especially tech-heavy Taiwan, detracted from returns. Mid-and-smaller-company exposure also detracted from returns as large caps continued to outperform. Discounts remained historically wide in the INTL universe but was a positive contributor overall as discount narrowing was captured largely through corporate initiatives, such as tender offers, whereby the CEF returns capital to the shareholders at the fund's net asset value. CLIM's long history of corporate engagement continues to bear fruit for the INTL strategy as we proactively work with CEF Boards to create sustainable discount management policies in a constructive approach focused on creating a fair deal for shareholders and aligned with our long-term approach to investing.
CLIM Opportunistic Value (OV)
The OV strategy delivered strong returns in FY 2024, rising 13.1% net of fees vs. its benchmark Blended 50/50 MSCI ACWI/Barclays Global Agg Index, which returned 9.9%, outperforming by 320 bps. The portfolio benefited from investing in high-conviction, event-driven situations with positive discount alpha and catalysts. The largest gain came from a takeover bid for the Hipgnosis Songs Fund. The strategy is well-positioned to exploit the "Regime Change" theme and attract additional capital. Single-sleeve opportunistic mandates in areas of the fixed income market performed strongly over the period, most notably US High Yield and US Municipal Bond CEF strategies.
FINANCIAL REVIEW
The Group income statement is presented in line with UK-adopted International Accounting Standards on page 106 of the full report, but the financial information is reviewed by the management and the Board as shown in the table 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.
|
Consolidated income for financial years ended 30th June | | |
| | 2024 | 2023 |
| | $'000 | $'000 |
| Gross fee income | 69,453 | 68,725 |
| Commissions | (1,811) | (1,823) |
| Custody fees | (1,475) | (1,422) |
| Net fee income | 66,167 | 65,480 |
| Net interest income | 1,079 | 536 |
| Total net income | 67,246 | 66,016 |
| Employee costs | (18,767) | (17,802) |
| Other administrative expenses | (8,177) | (8,382) |
| Depreciation and amortisation | (975) | (835) |
| Overheads before profit-share, EIP, share option charge and gain on investments | (27,919) | (27,019) |
| Profit before profit-share, EIP, share options charge and gain on investments | 39,327 | 38,997 |
| Profit-share | (10,617) | (10,405) |
| EIP | (1,506) | (1,518) |
| Share option charge | (35) | (37) |
| Investment gain/(loss) | 1,051 | 689 |
| Profit before tax and amortisation on intangibles | 28,220 | 27,726 |
| Amortisation of intangibles | (5,599) | (5,599) |
| Profit before tax | 22,621 | 22,127 |
| Tax | (5,506) | (4,630) |
| Profit after tax | 17,115 | 17,497 |
| | | |
| Alternative Performance Measures | | |
| | 2024 | 2023 |
| | $'000 | $'000 |
| Profit before tax | 22,621 | 22,127 |
| Add back/(deduct): | | |
| Gain on investments | (1,051) | (689) |
| Amortisation of intangibles | 5,599 | 5,599 |
| Underlying profit before tax | 27,169 | 27,037 |
| Tax | (5,506) | (4,630) |
| Tax effect on adjustments | (1,083) | (1,199) |
| Underlying profit after tax | 20,580 | 21,208 |
FuM
FuM as of 30th June 2024 increased by $0.8 billion (8.8%) to $10.2 billion from $9.4 billion at the end of the last financial year. The increase was a result of a combination of investment flows, market movements and performance. Refer to Figure 5 on page 10 - FuM by line of business table within the CEO statement for more details. Average FuM for the year increased by 3.6% from $9.2 billion in FY 2023 to $9.6 billion in FY 2024.
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. Following the change in the Group's presentational currency, the Group's financial statements have been prepared using US dollars. Prior year comparatives have been restated to US dollars using average exchange rate for the period. Refer to note 1.2 in the financial statements on page 111 of the full report for further information.
Alternative Performance Measures
The Directors use the following Alternative Performance Measures (APMs) to evaluate the performance of the Group as a whole:
Earnings per share in pence - Earnings per share in US dollars as per the income statement is converted to sterling using the average exchange rate for the period. Refer to note 8 in the financial statements on page 121 of the full report.
Underlying profit before tax - Profit before tax, adjusted for gain on investments and amortisation of intangibles. This provides a measure of the profitability of the Group for management's decision-making.
Underlying earnings per share in pence - CLIG's shares are quoted and the dividend is declared in sterling. 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.
Underlying earnings per share is converted to sterling using the average exchange rate for the period. Refer to note 8 in the financial statements for reconciliation on page 121 of the full report.
Group income statement and statement of comprehensive income
Revenue
The Group's gross revenue comprises of management fees charged as a percentage of FuM. The Group's gross revenue increased by 1% YoY to $69.5 million (2023: $68.7 million). Increase in revenue is due to higher average FuM during the year, offset by general fee erosion during the year.
Commissions payable of $1.8 million (2023: $1.8 million) relate to fees due to US registered investment advisers for the introduction of wealth management clients, remained at the similar levels as last year.
The Group's net fee income, after custody charges of $1.5 million (2023: $1.4 million), increased by 1% to $66.2 million (2023: $65.5 million). The Group's average net fee margin for FY 2024 was c.69bps as compared to c.72bps for FY 2023.
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 116 of the full report for our lease accounting policy and page 119 of the full report for details of net interest earned.
Costs
Overheads before profit share, EIP, share option charge and gain on investments for FY 2024 totalling $27.9 million (2023: $27.0 million) were 3% higher than FY 2023, of which c.1% was due to the US dollar weakening against sterling during the year. The US dollar weakened by an average of 4% during the year as compared to sterling and c.32% of the Group's overheads are incurred in sterling.
The Group's cost/income ratio is arrived at by comparing overheads before profit share, EIP, share option charge and gain on investments with net fee income, was 42.2% in FY 2024 as compared to 41.2% in FY 2023.
The largest component of overheads continues to be employee-related at $18.8 million (2023: $17.8 million), an increase of c.5% over last year, out of which c.1% is due to the impact of the US dollar weakening against sterling during the year and salary and associated cost increases with effect from 1st July 2023.
Profit before profit-share, EIP, share options charge and gain on investments was $39.3 million (2023: $39.0 million), an increase of c.1% over the last year.
The total variable profit-share for FY 2024 increased slightly to $10.6 million as compared with $10.4 million in FY 2023 in line with the Profit before profit-share, EIP, share options charge and gain on investments for the year.
The Group's Employee Incentive Plan (EIP) charge for FY 2024 remained the same as FY 2023 at $1.5 million.
Gain on investments
Investment gains of $1.1 million (2023: gain 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). During the year, the Group fully redeemed its seed investments in the two REIT funds and subsequently closed the strategy.
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 1.8 on page 113 of the full report) and have resulted in an amortisation charge of $5.6 million for the year (2023: $5.6 million). Deferred tax liability on these intangibles as of 30th June 2024 amounted to $7.9 million (2023: $9.2 million) based on the relevant tax rate, which will unwind over the useful economic life of the associated assets. Goodwill amounting to $90.1 million was also initially recognised on the completion of the merger. Refer to note 11 of the financial statements on page 124 of the full report for more details.
Taxation
Profit before tax of $22.6 million (2023: $22.1 million), after a corporation tax charge of $5.5 million (2023: $4.6 million), with an effective rate of 24% (2023: 21%), resulted in profit after tax of $17.1 million (2023: $17.5 million), which is all attributable to the equity shareholders of the Company. The effective tax rate increased during the year due to the higher UK corporation tax rate of 25% effective from April 2023.
Underlying profits
Underlying profit before tax for the year of $27.2 million was marginally higher than the $27.0 million achieved in FY 2023. Underlying profit after tax for the year was 3% lower at $20.6 million when compared to FY 2023 at $21.2 million, which was mainly due to the full year impact of the increase in the UK corporation tax rate.
Group statement of financial position
The Group's financial position continues to be strong and liquid, with cash resources of $33.7 million as at 30th June 2024, compared with $28.6 million as at 30th June 2023.
The Group had invested $2.5 million in seeding the Global Equity CEF in December 2021 and $2.5 million in SPACs in March 2022. As at the end of June 2024, these investments were valued at $5.7 million (2023: $4.6 million). During the year, the Group fully redeemed its seed investments in the two REIT funds and the strategy was subsequently closed. Total realised gains recognised on the de-seeding of its investments and its SPACs products was $0.9 million (2023: gain $0.4 million) and unrealised gains of $0.2 million (2023: gain $0.3 million) was taken to the income statement.
The Global Equity CEF fund is assessed to be under the Group's control and is thus consolidated using accounts drawn up as of 30th June 2024. There were no third-party investors, collectively known as the non-controlling interest (NCI) in this fund as of 30th June 2024 (2023: nil).
The Group's right-of-use assets (net of depreciation) amounted to $5.1 million as of 30th June 2024 as compared with $2.5 million as of 30th June 2023. The Group took occupancy of the new US office in West Chester on 1st July 2023 and right-of-use assets amounting to $3.0 million were recognised from that date. The Group also extended its current lease for the Singapore office and additional right-of-use assets of $0.2 million were added as a result of lease modifications with effect from January 2024.
The Employee Benefit Trust (EBT) purchased 318,000 shares (2023: 622,746 shares) at a cost of $1.3 million (2023: $3.1 million) in preparation for the annual EIP awards due at the end of October 2024.
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. During the year 35.8% (2023: 26.2%) of the shares vesting were sold to help cover the employees' resulting tax liabilities, leading to a very healthy 64.2% (2023: 73.8%) share retention within the Group.
In addition, Directors and employees exercised 47,400 (2023: 23,350) options over shares held by the EBT, raising $0.1 million (2023: $0.1 million) which was used to pay down part of the loan to the EBT.
Dividends paid during the year totalled $19.9 million (2023: $19.4 million). The total dividend of 33p per share comprised: the 22p per share final dividend for FY 2023 and the 11p per share interim dividend for the current year (2023: 22p per share final for FY 2022 and 11p per share interim dividend). The Group's dividend policy is set out on page 22 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
Following the change in the Group's presentational currency with effect from 1st July 2023, the Group's financial results for the year ended 30th June 2024 have been prepared using US dollars.
While Group's revenue and the bulk of its expenses are now aligned in US dollars, c.32% of Group's overheads are incurred in sterling and to a lesser degree Singapore dollars, that are subject to currency rate fluctuations against US dollars.
The Group's currency exposure also relates to its non-US dollar assets and liabilities, which are mostly in sterling. The exchange rate differences arising on their translation into US dollars for reporting purposes each month is recognised in the income statement.
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, considering 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 28 to 29 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.
Considering the recommendations of the Financial Reporting Council in their 2021 thematic review, the Board has therefore determined that a three-year period to 30th June 2027 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, reputational damage, 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 91 of the full report.
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30TH JUNE 2024
| |
Note |
Year to 30th June 2024 $'000 |
Year to 30th June 2023 (restated) $'000 |
| Revenue Gross fee income |
2 |
69,453 |
68,725 |
| Commissions payable | | (1,811) | (1,823) |
| Custody fees payable | | (1,475) | (1,422) |
| Net fee income | | 66,167 | 65,480 |
| Administrative expenses Employee costs |
|
30,925 |
29,762 |
| Other administrative expenses | | 8,177 | 8.382 |
| Depreciation and amortisation | | 6,574 | 6,434 |
| | | (45,676) | (44,578) |
| Operating profit | 3 | 20,491 | 20,902 |
| Finance income | 4a | 1,460 | 700 |
| Finance expense | 4b | (381) | (164) |
| Gain on investments | 4c | 1,051 | 689 |
| Profit before taxation | | 22,621 | 22,127 |
| Income tax expense | 5 | (5,506) | (4,630) |
| Profit for the period | | 17,115 | 17,497 |
| Profit attributable to: | | | |
| Equity shareholders of the parent | | 17,115 | 17,497 |
| Basic earnings per share (cents) | 6 | 35.1 | 35.8 |
| Diluted earnings per share (cents) | 6 | 34.4 | 35.2 |
CONSOLIDATED AND COMPANY STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30TH JUNE 2024
| |
Year to 30th June 2024 $'000 |
Year to 30th June 2023 (restated) $'000 |
| Profit for the period | 17,115 | 17,497 |
| Other comprehensive income: Items that may be subsequently reclassified to profit or loss if specific conditions are met | | |
| Foreign currency translation differences | (1) | 1,432 |
| Total comprehensive income for the period | 17,114 | 18,929 |
| Attributable to: Equity shareholders of the parent |
17,114 |
18,929 |
CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
30TH JUNE 2024
| Group | Company |
| | | 30th June 2024 | 30th June 2023 | 30th June 2022 | 30th June 2024 | 30th June 2023 | 30th June 2022 | |
| | Note | $'000 | (restated) $'000 | (restated) $'000 | $'000 | (restated) $'000 | (restated) $'000 | |
| | | | | | | | |
|
| Non-current assets | | | | | | | |
|
| Property and equipment | 9 | 1,128 | 921 | 623 | 227 | 280 | 302 |
|
| Right-of-use assets | 10 | 5,076 | 2,524 | 2,946 | 925 | 1,152 | 1,321 |
|
| Intangible assets | 11 | 122,853 | 128,462 | 134,053 | 20 | 30 | 22 |
|
| Other financial assets | 12 | 5,750 | 10,020 | 9,054 | 134,283 | 139,150 | 133,328 |
|
| Deferred tax asset | 13 | 1,879 | 1,162 | 1,164 | 313 | 332 | 272 |
|
| | | 136,686 | 143,089 | 147,840 | 135,768 | 140,944 | 135,245 |
|
| Current assets | | | | | | | |
|
| Trade and other receivables | 14 | 8,380 | 8,090 | 7,913 | 3,654 | 3,860 | 6,309 |
|
| Current tax receivable | | 167 | - | - | 2,426 | 981 | 1,379 |
|
| Cash and cash equivalents | 15 | 33,738 | 28,569 | 27,617 | 20,381 | 14,779 | 8,427 |
|
| | | 42,285 | 36,659 | 35,530 | 26,461 | 19,620 | 16,115 |
|
| Current liabilities | | | | | | | |
|
| Trade and other payables | 16 | (10,432) | (10,733) | (11,523) | (5,519) | (5,239) | (4,566) |
|
| Lease liabilities | 17 | (526) | (251) | (484) | (284) | (44) | (148) |
|
| Current tax payable | | - | (1,009) | (655) | - | - | - |
|
| Creditors, amounts falling due within one year | | (10,958) | (11,993) | (12,662) | (5,803) | (5,283) | (4,714) |
|
| Net current assets | | 31,327 | 24,666 | 22,868 | 20,658 | 14,337 | 11,401 |
|
| Total assets less current liabilities | | 168,013 | 167,755 | 170,708 | 156,426 | 155,281 | 146,646 |
|
| Non-current liabilities | | | | | | | |
|
| Lease liabilities | 17 | (5,207) | (2,498) | (2,686) | (964) | (1,257) | (1,250) |
|
| Deferred tax liability | 18
| (9,162) | (9,789) | (11,158) | (256) | (311) | (277) |
|
| Net assets | | 153,644 | 155,468 | 156,864 | 155,206 | 153,713 | 145,119 |
|
|
Capital and reserves | | | | | | | |
|
| Share capital | 19 | 644 | 828 | 828 | 644 | 828 | 828 |
|
| Share premium account | 20 | 2,866 | 4,080 | 4,080 | 2,866 | 4,080 | 4,080 |
|
| Merger relief reserve | 19 | 128,984 | 131,188 | 131,188 | 128,984 | 131,188 | 131,188 |
|
| Investment in own shares | 20 | (9,227) | (13,162) | (11,883) | (9,227) | (13,162) | (11,883) |
|
| Share option reserve | 20 20 | 187 | 748 | 739 | 187 | 740 | 714 |
|
| EIP share reserve | 20 | 2,046 | 2,246 | 1,943 | 2,046 | 2,246 | 1,943 |
|
| Foreign currency translation reserve | 20 | (1,011) | (6,697) | (8,129) | 466 | (4,732) | (10,866) |
|
| Capital redemption reserve | 20 | 33 | 52 | 52 | 33 | 52 | 52 |
|
| Retained earnings | 20 | 29,122 | 36,185 | 38,046 | 29,207 | 32,473 | 29,063 |
|
| Attributable to: | | | | | | | |
|
| Equity shareholders of the parent | | 153,644 | 155,468 | 156,864 | 155,206 | 153,713 | 145,119 |
|
| Total equity | | 153,644 | 155,468 | 156,864 | 155,206 | 153,713 | 145,119 |
|
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 $20,445k (2023: $22,754k).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
30TH JUNE 2024
|
|
Share capital $'000 |
Share premium account $'000 |
Merger relief reserve $'000 |
Investment in own shares $'000 |
Share option reserve $'000 |
EIP Share reserve $'000 | Foreign currency translation reserve $'000 | Capital redemption reserve $'000 |
Retained earnings $'000 | Total attributable to share- holders $'000 |
| As at 30th June 2022 (restated) | 828 | 4,080 | 131,188 | (11,883) | 739 | 1,943 | (8,129) | 52 | 38,046 | 156,864 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
- |
17,497 |
17,497 |
| Other comprehensive income | - | - | - | - | - | - | 1,432 | - | - | 1,432 |
| Total comprehensive income | - | - | - | - | - | - | 1,432 | - | 17,497 | 18,929 |
| Transactions with owners
| | | | | | | | | | |
| Share option exercise | - | - | - | 88 | (10) | - | - | - | 10 | 88 |
| Purchase of own shares | - | - | - | (3,078) | - | - | - | - | - | (3,078) |
| Share-based payment | - | - | - | - | 36 | 1,174 | - | - | - | 1,210 |
| EIP vesting/forfeiture | - | - | - | 1,711 | - | (871) | - | - | - | 840 |
| Deferred tax on share options | - | - | - | - | (17) | - | - | - | (1) | (18) |
| Current tax on share options | - | - | - | - | - | - | - | - | 5 | 5 |
| Deferred tax on leases | - | - | - | - | - | - | - | - | 6 | 6 |
| Dividends paid | - | - | - | - | - | - | - | - | (19,378) | (19,378) |
| Total transactions with owners | - | - | - | (1,279) | 9 | 303 | - | - | (19,358) | (20,325) |
| As at 30th June 2023 (restated) | 828 | 4,080 | 131,188 | (13,162) | 748 | 2,246 | (6,697) | 52 | 36,185 | 155,468 |
| Effect of change in functional currency | (184) | (1,214) | (2,204) | 2,861 | (578) | (46) | 5,687 | (19) | (4,303) | - |
| As at 1st July 2023 | 644 | 2,866 | 128,984 | (10,301) | 170 | 2,200 | (1,010) | 33 | 31,882 | 155,468 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
- |
17,115 |
17,115 |
| Other comprehensive income | - | - | - | - | - | - | (1) | - | - | (1) |
| Total comprehensive income | - | - | - | - | - | - | (1) | - | 17,115 | 17,114 |
| Transactions with owners
| | | | | | | | | | |
| Share option exercise | - | - | - | 154 | (9) | - | - | - | 9 | 154 |
| Purchase of own shares | - | - | - | (1,315) | - | - | - | - | - | (1,315) |
| Share-based payment | - | - | - | - | 35 | 1,039 | - | - | - | 1,074 |
| EIP vesting/forfeiture | - | - | - | 2,235 | - | (1,193) | - | - | - | 1,042 |
| Deferred tax on share options | - | - | - | - | (9) | - | - | - | (22) | (31) |
| Current tax on share options | - | - | - | - | - | - | - | - | 27 | 27 |
| Dividends paid | - | - | - | - | - | | - | - | (19,889) | (19,889) |
| Total transactions with owners | - | - | - | 1,074 | 17 | (154) | - | - | (19,875) | (18,938) |
| As at 30th June 2024 | 644 | 2,866 | 128,984 | (9,227) | 187 | 2,046 | (1,011) | 33 | 29,122 | 153,644 |
COMPANY STATEMENT OF CHANGES IN EQUITY
30TH JUNE 2024
| |
Share capital $'000 |
Share premium account $'000 |
Merger reserve $'000 |
Investment in own shares $'000 |
Share option reserve $'000 |
EIP share reserve $'000 | Foreign currency translation reserve $'000 |
Capital redemption reserve $'000 |
Retained earnings $'000 |
Total attributable to shareholders $'000 |
| As at 30th June 2022 (restated) | 828 | 4,080 | 131,188 | (11,883) | 714 | 1,943 | (10,866) | 52 | 29,063 | 145,119 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
- |
22,754 |
22,754 |
| Other comprehensive income | - | - | - | - | - | - | 6,134 | - | - | 6,134 |
| Total comprehensive income | - | - | - | - | - | - | 6,134 | - | 22,754 | 28,888 |
| Transactions with owners | | | | | | | | | | |
| Share option exercise | - | - | - | 88 | (10) | - | - | - | 9 | 87 |
| Purchase of own shares | - | - | - | (3,078) | - | - | - | - | - | (3,078) |
| Share-based payment | - | - | - | - | 36 | 1,174 | - | - | - | 1,210 |
| EIP vesting/forfeiture | - | - | - | 1,711 | - | (871) | - | - | - | 840 |
| Current tax on share options | - | - | - | - | - | - | - | - | 3 | 3 |
| Deferred tax on leases | - | - | - | - | - | - | - | - | 22 | 22 |
| Dividends paid | - | - | - | - | - | - | - | - | (19,378) | (19,378) |
| Total transactions with owners | - | - | - | (1,279) | (26) | 303 | - | - | (19,344) | (20,294) |
| As at 30th June 2023 (restated) | 828 | 4,080 | 131,188 | (13,162) | 740 | 2,246 | (4,732) | 52 | 32,473 | 153,713 |
| Effect of change in functional currency | (184) | (1,214) | (2,204) | 2,861 | (579) | (46) | 5,200 | (19) | (3,815) | - |
| As at 1st July 2023 | 644 | 2,866 | 128,984 | (10,301) | 161 | 2,200 | 468 | 33 | 28,658 | 153,713 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
- |
20,445 |
20,445 |
| Other comprehensive income | - | - | - | - | - | - | - | - | - | - |
| Total comprehensive income | - | - | - | - | - | - | - | - | 20,445 | 20,445 |
| Transactions with owners | | | | | | | | | | |
| Share option exercise | - | - | - | 154 | (9) | - | - | - | (1) | 144 |
| Purchase of own shares | - | - | - | (1,315) | - | - | - | - | - | (1,315) |
| Share-based payment | - | - | - | - | 35 | 1,039 | - | - | - | 1,074 |
| EIP vesting/forfeiture | - | - | - | 2,235 | - | (1,193) | - | - | - | 1,042 |
| Deferred tax on share options | - | - | - | - | - | - | - | - | (6) | (6) |
| Foreign exchange translation | - | - | - | - | - | - | (2) | - | - | (2) |
| Dividends paid | - | - | - | - | - | - | - | - | (19,889) | (19,889) |
| Total transactions with owners | - | - | - | (1,074) | 26 | (154) | (2) | - | (19,896) | (18,952) |
| As at 30th June 2024 | 644 | 2,866 | 128,984 | (9,227) | 187 | 2,046 | 466 | 33 | 29,207 | 155,206 |
CONSOLIDATED AND COMPANY CASH FLOW STATEMENT
FOR THE YEAR ENDED 30TH JUNE 2024
| | | Group | Company | ||
| |
Note | 30th June 2024 $'000 | 30th June 2023 (restated) $'000 | 30th June 2024 $'000 | 30th June 2023 (restated) $'000 |
| Cash flow from operating activities | | | | | |
| Profit before taxation | | 22,621 | 22,127 | 1,675 | 776 |
| Adjustments for: | | | | | |
| Depreciation of property and equipment | | 293 | 274 | 97 | 92 |
| Depreciation of right-of-use assets | | 672 | 553 | 227 | 215 |
| Amortisation of intangible assets | | 5,609 | 5,607 | 10 | 8 |
| Loss on disposal of property and equipment | | - | 1 | - | - |
| Share-based payment charge | | 35 | 37 | 4 | 4 |
| EIP-related charge | | 1,438 | 1,267 | 581 | 549 |
| Gain on investments | 4c | (1,051) | (689) | (323) | (115) |
| Interest receivable | 4a | (1,460) | (700) | (898) | (252) |
| Interest payable | 4b | 24 | - | 24 | - |
| Interest payable on leased assets | 4b | 357 | 164 | 17 | 92 |
| Translation adjustments | | 29 | (328) | 149 | 22 |
| Cash generated from operations before changes | | | | | |
| in working capital | | 28,567 | 28,313 | 1,563 | 1,391 |
| (Increase)/decrease in trade and other receivables | | (302) | 154 | 880 | 3,662 |
| Increase/(decrease) in trade and other payables | | 365 | (296) | 3,038 | 2,832 |
| Cash generated from operations | | 28,630 | 28,171 | 5,481 | 7,885 |
| Interest received | 4a | 1,460 | 700 | 898 | 252 |
| Interest payable | 4b 4 | (24) | - | (24) | - |
| Interest paid on leased assets | 4b | (357) | (164) | (17) | (92) |
| Taxation paid | | (8,122) | (5,772) | (3,857) | (1,876) |
| Net cash generated from operating activities | | 21,587 | 22,935 | 2,481 | 6,169 |
|
Cash flow from investing activities | | | | | |
| Dividends received from subsidiaries | | - | - | 19,150 | 22,131 |
| Purchase of property and equipment and intangibles | | (500) | (578) | (44) | (74) |
| Purchase of non-current financial assets | | (4,594) | (1,356) | - | - |
| Proceeds from sale of current financial assets | | 9,997 | 1,356 | 5,203 | - |
| Net cash generated from/(used in) investing activities | | 4,903 | (578) | 24,309 | 22,057 |
|
Cash flow from financing activities | | | | | |
| Ordinary dividends paid | 21 | (19,889) | (19,378) | (19,889) | (19,378) |
| Purchase of own shares by employee share option trust | | (1,315) | (3,078) | (1,315) | (3,078) |
| Proceeds from sale of own shares by employee | | | | | |
| benefit trust | | 154 | 888 | 154 | 88 |
| Payment of lease liabilities | 17(c) | (231) | (476) | (48) | (149) |
| Net cash used in financing activities | | (21,281) | (22,844) | (21,098) | (22,517) |
|
Net increase/(decrease) in cash and cash equivalents | |
5,209 |
(487) |
5,692 |
5,709 |
| Cash and cash equivalents at start of period | | 28,569 | 27,617 | 14,779 | 8,427 |
| Cash held in funds | | - | 77 | - | - |
| Effect of exchange rate changes | | (40) | 1,362 | (90) | 643 |
| Cash and cash equivalents at end of period | | 33,738 | 28,569 | 20,381 | 14,779 |
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 2024 and 30th June 2023 do not constitute statutory accounts and has been extracted from the full accounts for the years ended 30th June 2024 and 30th June 2023. 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 2023 have been filed with the Registrar of Companies. The accounts for the year ended 30th June 2024 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 Changes in presentational and functional currency
With effect 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 change will provide investors and other stakeholders greater transparency of the Group's performance and reduced foreign exchange volatility on its income and costs.
The change in the Group's presentational currency to US dollars has resulted in a change in the parent company's primary economic environment. Dividend streams from its subsidiaries are now received and retained by the parent company in US dollars. Hence, all the parent company's income is now in US dollars and a large portion of its costs are also in US dollars. As a result, the parent company's functional currency has changed 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 has been applied retrospectively, whereas the change in functional currency has been applied prospectively with effect from 1st July 2023.
Certain elements of historical financial information have been restated in US dollars and form the basis of the comparative financial information included in these financial statements for the year ended 30th June 2024.
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 change in functional currency has been applied prospectively. Share capital, share premium and all other equity items were translated at the closing rate of exchange on 30th June 2023 for the relevant entities.
1.3 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.
Amendments to IAS 12 - Income taxes published in May 2021 were adopted as from 1 July 2023. The amendments require companies to recognise deferred tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. The amendments typically apply to transactions where assets and liabilities are recognised from a single transaction, such as leases for the lessee and decommissioning and restoration obligations.
An adjustment has been made to recognise a deferred tax asset on the present value of lease liabilities and a deferred tax liability on the right of use assets. The adjustment have been made retrospectively in 2022 and resulted in a net increase in reserves of $50k for the Group and $15k for the company.
There are no new or amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's consolidated financial statements that would be expected to have a material impact on the Group's consolidated financial statements when they become effective.
1.4 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:
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.
1.5 Investment in subsidiaries
Investments in subsidiaries in the Company only accounts are stated at cost less, where appropriate, provision for impairment.
1.6 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 2024 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. (aka Karpus Investment Management) | Holding company Management of funds | 100% 100% | UK 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 |
| ||||
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 |
| Global Equity CEF Fund | 4005 Kennett Pike, Suite 250, Greenville, DE 19807, USA |
City of London Latin America Limited is dormant and Karpus Management Inc. are not subject to audit.
1.7 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
1.8 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 ten 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.
1.9 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 of disposal 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.
1.10 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.
1.11 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 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 traded in active markets - priced using the quoted closing price
•Unlisted seed capital investments in funds - priced using net asset value at the reporting date
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.
1.12 Cash and cash equivalents
Cash and cash equivalents comprise cash in 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.
1.13 Trade payables
Trade payables are measured at initial recognition at fair value and subsequently measured at amortised cost.
1.14 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.
1.15 Deferred tax related to Assets and Liabilities arising from a Single Transaction (Amendment to IAS 12)
Amendments to IAS 12 - Income taxes published in May 2021 were adopted as from 1 July 2023. The amendments require companies to recognise deferred tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. The amendments typically apply to transactions where assets and liabilities are recognised from a single transaction, such as leases for the lessee and decommissioning and restoration obligations.
An adjustment has been made to recognise a deferred tax asset on the present value of lease liabilities and a deferred tax liability on the right of use assets. The adjustment have been made retrospectively in 2022 and resulted in a net increase in reserves of $50k for the Group and $15k for the company.
1.16 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.
1.17 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.
1.18 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.
1.19 Foreign currency translation
The functional and presentational currency of the company and all its subsidiaries is US dollars.
Transactions in currencies other than the relevant group entity's functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in the profit or loss for the year.
1.20 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 options 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.
1.21 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 $'000 | Canada $'000 | UK $'000 | Europe (ex UK) $'000 | Other $'000 | Total $'000 |
| Year to 30th June 2024 | | | | | | |
| Gross fee income | 66,885 | 1,465 | - | 1,001 | 102 | 69,453 |
| Non-current assets: | | | | | | |
| Property and equipment | 901 | - | 205 | - | 22 | 1,128 |
| Right-of-use assets | 4,030 | - | 925 | - | 121 | 5,076 |
| Intangible assets | 122,833 | - | 20 | - | - | 122,853 |
| Year to 30th June 2023 (restated) | | | | | | |
| Gross fee income | 66,110 | 1,414 | - | 1,121 | 80 | 68,725 |
| Non-current assets: | | | | | | |
| Property and equipment | 641 | - | 264 | - | 16 | 921 |
| Right-of-use assets | 1,319 | - | 1,152 | - | 53 | 2,524 |
| Intangible assets | 128,432 | - | 30 | - | - | 128,462 |
| 3. | OPERATING PROFIT |
|
Year to |
| |
The operating profit is arrived at after charging: | Year to 30th June 2024 $'000 | 30th June 2023 (restated) $'000 |
| | Depreciation of property and equipment | 293 | 274 |
| | Depreciation of right-of-use assets
| 672 | 553 |
| | Amortisation of intangible assets
| 5,609 | 5,607 |
| | Auditor's remuneration: | | |
| | - Statutory audit of the parent and consolidated financial statements | 149 | 132 |
| | - Statutory audit of subsidiaries of the Company | 134 | 100 |
| | - Audit related assurance services | 62 | 36 |
| | Short-term lease expense | 21 | 18 |
| |
| | |
| | | | |
| 4a. FINANCE INCOME | | |
| |
Year to 30th June 2024 $'000 | Year to 30th June 2023 (restated) $'000 |
| Interest on cash and cash equivalents | 1,460 | 700 |
| 4b. FINANCE EXPENSE | | |
| |
Year to 30th June 2024 $'000 | Year to 30th June 2023 (restated) $'000 |
| Interest payable on lease liabilities | 357 | 164 |
| Interest payable other | 24 | - |
| | 381 | 164 |
| 4c. GAIN ON INVESTMENTS | | |
| |
Year to 30th June 2024 $'000 | Year to 30th June 2023 (restated) $'000 |
| Unrealised gain on investments | 180 | 305 |
| Realised gain on investments | 871 | 384 |
| | 1,051 | 689 |
| 5. | TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES |
|
Year to |
| |
(a) Analysis of tax charge on ordinary activities: | Year to 30th June 2024 $'000 | 30th June 2023 (restated) $'000 |
| | Current tax: | | |
| | UK corporation tax at 25% (2023: 19%) based on the profit for the period | 5,417 | 4,225 |
| | Double taxation relief | (887) | (1,074) |
| | Change in tax rate to 25% | - | 157 |
| | Adjustments in respect of prior years | (7) | 106 |
| | UK tax total | 4,523 | 3,414 |
| | Foreign tax | 2,453 | 3,188 |
| | Adjustments in respect of prior years | (123) | (600) |
| | Foreign tax total | 2,330 | 2,588 |
| | Total current tax charge | 6,853 | 6,002 |
| | Deferred tax: | | |
| | UK - origination and reversal of temporary differences | 68 | (5) |
| | Foreign - origination and reversal of temporary differences | (1,415) | (1,367) |
| | Total deferred tax credit | (1,347) | (1,372) |
| | Total tax charge in income statement | 5,506 | 4,630 |
(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 - 25% (prior year - 19%). The differences are explained below:
| |
Year to 30th June 2024 $'000 |
Year to 30th June 2023 (restated) $'000 |
| Profit on ordinary activities before tax | 22,621 | 22,127 |
| Tax on profit from ordinary activities at the standard rate | (5,655) | (4,204) |
| Effects of: | | |
| Unrelieved foreign tax at rates different to those of the UK | (166) | (1,051) |
| Income ineligible for tax | 75 | 315 |
| Capital allowances less than depreciation | 98 | (26) |
| Prior period adjustments | 129 | 494 |
| Change in tax rate to 25% | - | (157) |
| Other | 13 | (1) |
| Total tax charge in income statement | (5,506) | (4,630) |
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 2024.
As set out in the Directors' report on page 92 of the full report the Employee Benefit Trust held 1,829,637 (2023: 1,989,355) ordinary shares in the Company as at 30th June 2024. 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 2024.
Reported earnings per share
| |
Year to 30th June 2024 $'000 |
Year to 30th June 2023 (restated) $'000 |
| Profit attributable to the equity shareholders of the parent for basic earnings | 17,115 | 17,497 |
| | | |
| | 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 | (1,875,340) | (1,842,182) |
| Weighted average shares in issue | 48,803,755 | 48,836,913 |
| Effect of movements in share options and EIP awards | 978,997 | 892,422 |
| Diluted weighted average shares in issue | 49,782,752 | 49,729,335 |
| Basic earnings per share (cents) | 35.1 | 35.8 |
| Diluted earnings per share (cents) | 34.4 | 35.2 |
| Basic earnings per share (pence) | 27.8 | 30.2 |
| Diluted earnings per share (pence) | 27.3 | 29.6 |
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 30th June 2024 $'000 |
Year to 30th June 2023 (restated) $'000 |
| Profit before tax | 22,621 | 22,127 |
| Add back/(deduct): | | |
| - (Gain)/loss on investments | (1,051) | (689) |
| - Amortisation on acquired intangibles | 5,599 | 5,599 |
| Underlying profit before tax | 27,169 | 27,037 |
| Tax expense as per the consolidated income statement | (5,506) | (4,630) |
| Tax effect of fair value adjustments | 261 | 145 |
| Unwinding of deferred tax liability | (1,344) | (1,344) |
| Underlying profit after tax for the calculation of underlying earnings per share | 20,580 | 21,208 |
| Underlying earnings per share (cents) | 42.2 | 43.4 |
| Underlying diluted earnings per share (cents) | 41.3 | 42.6 |
| Underlying earnings per share (pence) | 33.5 | 36.5 |
| Underlying diluted earnings per share (pence) | 32.8 | 35.8 |
* 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 2023 (restated) |
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| Cost | | | | | | | |
| At start of period | 90,072 | 46,052 | 6,301 | 1,405 | 914 | 144,744 | 144,692 |
| Additions | - | - | - | - | - | - | 15 |
| Currency translation | - | - | - | - | - | - | 37 |
| At close of period | 90,072 | 46,052 | 6,301 | 1,405 | 914 | 144,744 | 144,744 |
| Amortisation charge | | | | | | | |
| At start of period | - | 12,665 | 2,476 | 257 | 884 | 16,282 | 10,639 |
| Currency translation | - | - | - | - | - | - | 36 |
| Charge for the period | - | 4,605 | 900 | 94 | 10 | 5,609 | 5,607 |
| At close of period | - | 17,270 | 3,376 | 351 | 894 | 21,891 | 16,282 |
| Net book value: At close of period |
90,072 |
28,782 |
2,925 |
1,054 |
20 |
122,853 |
128,462 |
|
Company | | | | | | | |
| Cost | | | | | | | |
| At start of period | | | | | 112 | 112 | 93 |
| Additions | | | | | - | - | 15 |
| Currency translation | - | - | - | - | - | - | 5 |
| At close of period | | | | | 112 | 112 | 112 |
| Amortisation charge | | | | | | | |
| At start of period | | | | | 82 | 82 | 71 |
| Charge for the period | | | | | 10 | 10 | 8 |
| Currency translation | - | - | - | - | - | - | 3 |
| At close of period | | | | | 92 | 92 | 82 |
|
Net book value | | | | |
20 |
20 |
30 |
Goodwill, direct customer relationships, distribution channels and trade name acquired through business combination relate to the merger with KIM on 1st October 2020.
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 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 3.5% and EBITDA multiples of 9.0x and 10.0x (calendar year 2023 and 2024, 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 1.3% 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 2024 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 2024 by $9,496k (2023: $5,697k).
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.
| | 2024 | |
| | From | To |
| EV / December LYM FuM - (USD Mn) | 3.5% | 2.5% |
| EV / CY 2024 FuM - (USD Mn) | 3.5% | 2.6% |
| EV / CY 2023 EBITDA Post Bonus | 10.0x | 7.4x |
| EV / CY 2024 EBITDA Post Bonus | 9.0x | 6.4x |
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 2024.
8. SHARE CAPITAL AND MERGER RELIEF RESERVE
| | Share capital | Merger relief reserve |
| Group and Company | $'000 | $'000 |
| At start and end of period 50,679,095 ordinary shares of 1p each | 644 | 158,984 |
| 9. DIVIDEND
|
30th June 2024 |
30th June 2023 (restated) |
| | $'000 | $'000
|
| Dividends paid: | | |
| Interim dividend of 11p per share (2023: 11p) | 6,840 | 6,472 |
| 30th June 2023 of 22p per share (2022: 22p) | 13,049 | 12,906 |
| | 19,889 | 19,378 |
A final dividend of 22p per share (gross amount payable $14,098k; net amount payable £13,589k*) has been proposed, payable on 7th November 2024, subject to shareholder approval, to shareholders who are on the register of members on 4th October 2024.
*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 2024 | | at amortised cost | profit or loss | Total |
| Assets as per statement of financial position | | $'000 | $'000 | $'000 |
| Other non-current financial assets | | - | 5,750 | 5,750 |
| Trade and other receivables | | 6,687 | - | 6,687 |
| Cash and cash equivalents | | 33,738 | _ | 33,738 |
| Total | | 40,425 | 5,750 | 46,175 |
| | | | | |
| | | | Liabilities at | |
| | | | fair value | |
| | | Financial liabilities | through | |
| | | at amortised cost | profit or loss | Total |
| Liabilities as per statement of financial position | | $'000 | $'000 | $'000 |
| Trade and other payables | | 10,236 | - | 10,236 |
| Current lease liabilities | | 526 | - | 526 |
| Non-current lease liabilities | | 5,207 | - | 5,207 |
| Total | | 15,969 | - | 15,969 |
| | | |
Assets at fair | |
|
30th June 2023 (restated) | | Financial assets at amortised cost | value through profit or loss |
Total |
| Assets as per statement of financial position | | $'000 | $'000 | $'000 |
| Other non-current financial assets | | - | 10,020 | 10,020 |
| Trade and other receivables | | 6,259 | 99 | 6,358 |
| Cash and cash equivalents | | 28,569 | _ | 28,569 |
| Total | | 34,828 | 10,119 | 44,947 |
| | | | | |
| | | | Liabilities at | |
| | | | fair value | |
| | | Financial liabilities | through | |
| Liabilities as per statement of financial position | | at amortised cost | profit or loss | Total |
| | | $'000 | $'000 | $'000 |
| Trade and other payables | | 10,532 | - | 10,532 |
| Current lease liabilities | | 251 | - | 251 |
| Non-current lease liabilities | | 2,498 | - | 2,498 |
| Total | | 13,281 | - | 13,281 |
| Company |
Investment in |
Financial assets |
Assets at fair value through | |
| 30th June 2024 | subsidiaries | at amortised cost | profit or loss | Total |
| Assets as per statement of financial position | $'000 | $'000 | $'000 | $'000 |
| Other non-current financial assets | 131,733 | 2,500 | 50 | 134,283 |
| Trade and other receivables | - | 3,250 | - | 3,250 |
| Cash and cash equivalents | - | 20,381 | - | 20,381 |
| Total | 131,733 | 26,131 | 50 | 157,914 |
| | | |
Liabilities at | |
| | | | fair value | |
| | | Financial liabilities | through | |
| | | at amortised cost | profit or loss | Total |
| Liabilities as per statement of financial position | | $'000 | $'000 | $'000 |
| Trade and other payables | | 5,339 | - | 5,339 |
| Current lease liabilities | | 284 | - | 284 |
| Non-current lease liabilities | | 964 | - | 964 |
| Total | | 6,587 | - | 6,587 |
| |
Investment in |
Financial assets |
Assets at fair value through | |
| 30th June 2023 (restated) | subsidiaries | at amortised cost | profit or loss | Total |
| Assets as per statement of financial position | $'000 | $'000 | $'000 | $'000 |
| Other non-current financial assets | 131,719 | 5,000 | 2,431 | 139,150 |
| Trade and other receivables | - | 3,300 | 90 | 3,390 |
| Cash and cash equivalents | - | 14,779 | - | 14,779 |
| Total | 131,719 | 23,079 | 2,521 | 157,319 |
| | | |
Liabilities at | |
| | | | fair value | |
| | | Financial liabilities | through | |
| | | at amortised cost | profit or loss | Total |
| Liabilities as per statement of financial position | | $'000 | $'000 | $'000 |
| Trade and other payables | | 5,060 | - | 5,060 |
| Current lease liabilities | | 44 | - | 44 |
| Non-current lease liabilities | | 1,257 | - | 1,257 |
| Total | | 6,361 | - | 6,361 |
(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 2024 | $'000 | $'000 | $'000 | $'000 |
| Financial assets at fair value through profit or loss | | | | |
| Investment in other non-current financial assets | 5,700 | 50 | - | 5,750 |
| Total | 5,700 | 50 | - | 5,750 |
|
30th June 2023 (restated) |
Level 1 $'000 |
Level 2 $'000 |
Level 3 $'000 |
Total $'000 |
| Financial assets at fair value through profit or loss | | | | |
| Investment in other non-current financial assets | 7,589 | 2,431 | - | 10,020 |
| Foreign currency trades | - | 99 | - | 99 |
| Total | 7,589 | 2,530 | - | 10,119 |
|
Company | | | | |
|
30th June 2024 | Level 1 $'000 | Level 2 $'000 | Level 3 $'000 | Total $'000 |
| Investment in other non-current financial assets | - | 50 | - | 50 |
| Forward currency trades | - | - | - | - |
| Total | - | 50 | - | 50 |
|
30th June 2023 (restated) |
Level 1 $'000 |
Level 2 $'000 |
Level 3 $'000 |
Total $'000 |
| Investment in other non-current financial assets | - | 2,431 | - | 2,431 |
| Forward currency trades | - | 90 | - | 90 |
| Total | - | 2,521 | - | 2,521 |
There were no financial liabilities at fair value at any of the reported periods.
Level 3
Level 3 assets as at 30th June 2024 are nil (2023: 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.
(iii) Foreign currency risk
Almost all of the Group's revenues, and a significant part of its expenses, are denominated in US dollars. However, expenses related to UK and Singapore offices are denominated in currencies other than US dollars. As a result, expenses and balances arise which give rise to currency exposure.
As at 30th June 2024, significant net asset balances included within the Group's net asset balances were (£413k) (2023: £4,755k) denominated in sterling, C$520k (2023: C$494k) in Canadian dollars and SGD1,676k (2023: SGD1,943k) in Singapore dollars.
Had the US dollar strengthened or weakened against these currencies as at 30th June 2024 by 10%, with all other variables held constant, the Group's net assets and profit before tax would have increased or decreased (respectively) by $109k (2023: $785k). 10% represents management's assessment of the reasonably possible change in foreign exchange rate.
(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 nil (2023: $0.2 million) in the value of the investments and profit before tax.
The Group's Global Equity CEF funds has been consolidated as controlled entities, and therefore the securities held by the fund are reported in the consolidated statement of financial position under investments. At 30th June 2024, 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 $0.3 million (2023: $0.5 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 (2023: $£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 trade and other sundry payables are immaterial and thus the liquidity risk is minimal. 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 and cash equivalents balances. The Group's strategy is to maximise the amount of cash which is maintained in interest bearing accounts and short-term treasuries/money market funds, and to ensure that those accounts attract a competitive interest rate. At 30th June 2024, the Group held $33,738k (2023: $28,569k) in cash balances, of which $33,245k (2023: $27,515k) 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.
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, reputational damage, 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 occurred on both vulnerability awareness, mitigation, and incident response planning. Each subsidiary of the Group has a Disaster Recovery/Business Continuity plan. Our offices maintain backups of local servers, applications and data. Additionally, back-ups are replicated to other offices and/or an external cloud-based provider. 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 with the support of CLIG's Company Secretary 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 and dividends paid are provided in the Remuneration report on pages 65, 83 and 84 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 $7k. There were no fees outstanding as at the year-end.
(c) A close member of a key management's personnel provides professional services to the Group. The amount paid during the period for these services were $43k. The amount outstanding at the year-end was $11k.
(ii) Person with significant influence
One of the Group's subsidiaries manages funds for a person with significant influence based on his shareholding in the Group. The amount of fees received by the Group during the period was $81k (2023: $70k).
(iii) Summary of transactions and balances
During the period, the Company received from its subsidiaries $13,308k (2023: $13,172k) in respect of management service charges and dividends of $19,150k (2023: $22,131k).
Amounts outstanding between the Company and its subsidiaries as at 30th June 2024 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 50 and 51 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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