CITY OF LONDON
I N V E S T M E N T G R O U P P L C
A N N U A L R E P O R T & A C C O U N T S
2008
CITY OF LONDON INVESTMENT GROUP PLC ANNUAL REPORT & ACCOUNTS 2008
LONDON PHILADELPHIA SINGAPORE DUBAI LONDON PHILADELPHIA SINGAPORE DUBAI
London office
77 Gracechurch Street
London
EC3V 0AS
United Kingdom
Telephone: + 44 (0) 207 711 0771
Facsimile: + 44 (0) 207 711 0772
US office
The Barn
1125 Airport Road
Coatesville
PA 19320
United States
Telephone: + 1 610 380 2110
Facsimile: + 1 610 380 2116
Singapore office
20 Collyer Quay
10-04 T ung Centre
Singapore 049319
Telephone: + 65 6236 9136
Facsimile: + 65 6532 3997
Dubai office
Unit 2, 2nd Floor
The Gate Village Building 1
Dubai International Financial Centre
PO Box 506695
Dubai
United Arab Emirates
Telephone: + 971 (0)4 423 1780
Facsimile: + 971 (0)4 437 0510
www.citlon.co.uk Designed and produced by fourthquarter Printed by SV.two
City of London Investment Group PLC is a
leading emerging market and natural resource
asset management group, specialising in the
provision of products and services predominantly
to institutional clients who include some of the
leading institutions and endowment funds in
the United States. City of London operates
its business from offices in London, the US,
Dubai and Singapore.
Highlights 1
City of London at a glance 2
Chairman’s statement 4
Chief Executive Officer’s review 8
Financial review 14
Board of directors 18
Officers, Board Committees and
professional advisers 20
Report of the directors 21
Statement of directors’
responsibilities 25
Independent auditors’ report 26
Consolidated income statement 28
Consolidated and Company
balance sheet 29
Consolidated and Company statement
of changes in shareholders’ equity 30
Consolidated and Company
cash flow statement 31
Notes to the financial statements 32
Notice of Annual General Meeting 47
Notes to the Notice of Annual
General Meeting 49
Contents •
Funds under management (FUM) increased
by 24% during the year to US$4.706 billion
(2007: US$3.793 billion)
•
Profit before tax up 46% to £10.7 million
•
Basic earnings per share up 46.5% to 29.3p,
fully diluted earnings per share up 47.7% to 26.0p
•
Recommended final dividend of 13.5p per share
(2007: 7p) payable on 21st November 2008 to
shareholders on the register on 31st October, making
a total for the year of 19.5p, up 95% (2007: 10p)
•
Office in Dubai opened
•
Further progress in developing European business
Highlights
“The results for the year provide evidence of the success of the Group’s
strategy in a period of significant market uncertainty and volatility and
illustrate what can be achieved by our focus on investment process
(rather than just talented individuals) to deliver performance for clients,
whilst keeping fixed costs to a minimum.”
Andrew Davison, Chairman
“Whilst in the overall scheme of things we remain a small specialist boutique
manager, we do intend to continue to grow our business as long as we do
not compromise our investment performance. We have been quite successful
in continuing to expand our non-US business which now represents 28%
of our total FUM as compared with 17% in March of 2006. Over the next
year I would hope to be able to report further success with particular
emphasis from a product perspective in areas such as Frontier Markets,
Natural Resources and our Developed Markets closed-end fund business.”
Barry Olliff, Chief Executive
City of London Investment Group Plc Annual Report 2008 1
04 05 06 07 08
909
1558
2,751
3,793
4,706
Funds under management US$m
04 05 06 07 08
Pre-tax profit £m
0.4
2.1
4.8
7.3
10.7 2 City of London Investment Group Plc Annual Report 2008
City of London at a glance
USA
The Group’s second office was
established near Philadelphia in
the United States in 1995 to
better service the growing client
base in North America and to
provide investment management
from the Americas time zone.
25%
27%
8%
2%
9%
29%
Client type
As a percentage of total assets
Endowment
Corporate pension
Foundation
Other institutions
Public pension
Retail
1. Our investment performance drives
our business
2. We use technology to leverage our
capabilities
3. We maintain focus on profits,
margins and costs
4. We have an aversion to risk in the
management of our business
5. By focussing on the first four drivers,
we create opportunities for
further growth
6. We maintain our differentiation
from competitors and continue
to diversify our business.
City of London has developed its simple operating
philosophy over a number of years. This philosophy
can best be represented by the six key drivers we
have identified for our business: City of London Investment Group Plc Annual Report 2008 3
United Kingdom
The London office, our first,
has been based in the City of
London since 1991. In London
we undertake investment
management for our clients
and research into our global
markets from the European
time zone.
Singapore
The third office, to cover
Far East emerging markets in
real time, opened in central
Singapore in 2000, thus
positioning the Group to
cover our worldwide target
investment markets 24 hours
a day.
Dubai
This year we opened our fourth
office, in Dubai. The office is now
located in the Dubai International
Financial Centre and will allow
us to access what we believe will
be some major investment
opportunities in the region over
the next few years. With maintained focus
on our core disciplines
and with further
diversification of our
products and client base,
we hope, subject as always
to the performance of our
investment markets, to
report satisfactory results
for the forthcoming year.
I am pleased to report to you a year of
excellent results for which Barry Olliff
the Chief Executive and his staff deserve
both our thanks and our congratulations.
Pre-tax profit increased 46% to £10.7m
(2007: £7.3m), fully diluted earnings
per share increased 47.7% to 26p from
17.6p, and dividends, subject to
shareholders approval, increased by
95% to 19.5p per share.
City of London Investment Group’s
directors’ and managers’ strategy from
inception to the present day has been to
build a business that could better weather
the volatility inherent in the markets
comprising our investment focus. The
results for the year ended 31st May 2008
provide evidence of the success of this
strategy in a period of significant market
uncertainty and volatility and illustrate
what can be achieved by our focus on
investment process (rather than just
talented individuals) to deliver
performance for clients, whilst keeping
fixed costs to a minimum.
Results
Our Financial Statements for the year
have been prepared under policies
consistent with International Financial
Reporting Standards (“IFRS”). As a
consequence, results for comparative
periods, reported under UK Generally
Accepted Accounting Principles (UK
GAAP), have been restated.
Fee income increased by 36% to £24.9
million (2007: £18.3 million), reflecting
the rise over the year of funds under
management from US$3.8 billion (£1.9
billion) in May 2007 to US$4.7 billion
(£2.4 billion) at this year end. Profit
before profit share, interest and similar
income and tax increased by 42% to
£14.5 million (2007: £10.2 million).
Pre-tax profit increased by 46% to
£10.7 million (2007: £7.3 million),
after £4.7 million of profit related staff
payments (2007: £3.1 million), interest
received of £0.44 million (2007: £0.18
million) and £0.43 million (2007
restated: £0.05 million) of profits on the
disposal of seed shareholdings in new
funds and options traded. Earnings per
share, after a 33% tax charge of £3.6
million (2007 restated: £2.4 million
representing 33% of pre-tax profit), was
29.3p (2007 restated: 20p) and fully
diluted earnings per share was 26p
(2007 restated: 17.6p).
Dividends
City of London’s dividend policy is based
on paying dividends to shareholders that
are covered approximately one and a half
times by full year profit per share with
an annual distribution pattern of roughly
one third as an interim dividend and two
thirds as a final dividend. The Board has
already declared an interim dividend
of 6p per share, which was paid in March
2008 and is now pleased to recommend
a final dividend for the year of 13.5p per
share payable on 21st November 2008
to shareholders on the register on
31st October 2008. This makes a total for
the year of 19.5p per share and represents
a 95% increase over the 10p paid in
respect of the year to end May 2007.
Listing
The Board has reviewed the listing of the
Company’s shares and considers that
a move from AIM to a full listing on the
London Stock Exchange would benefit
both City of London and its existing
shareholders by improving the standing
of the Company, particularly in the USA,
and by broadening the universe of
potential investors in the Company and,
thereby, increasing liquidity. Landsbanki
Securities have been appointed as
sponsors to the Company. Accordingly,
the AGM notice on pages 47 to 52 of
this report includes resolutions covering
Chairman’s statement
4 City of London Investment Group Plc Annual Report 2008 City of London Investment Group Plc Annual Report 2008 5
appropriate changes to the Company’s
Articles of Association and the proposed
delisting from AIM.
Review
We have again made very good progress
in growing the Company through the
careful and cautious diversification of our
business – in terms of clients, investment
products and geographical reach. A detailed
review of this progress is contained in
the Chief Executive Officer’s Review
on pages 8 to 11, but I set out the
highlights here.
Funds under management began the year
at US$3.8 billion and peaked at US$4.9
billion in October 2007 before falling
slightly to US$4.7 billion at the year end
as emerging markets recovered from a
relatively sharp correction in the first
quarter of the calendar year. The
substantial year-on-year increases in our
funds under management include
significant new money from Europe.
However, as a result of strong performance
in the emerging and other market sectors
in which the Company invests, and also
the out performance created by the
Company, a number of clients’ exposures
to the sector have become overweight
within their overall portfolios. This
imbalance was corrected by a series of
rebalancing realisations, largely
replenished in our overall funds under
management by new money. We believe
that rebalancing has been completed and
that further new monies will therefore
increase funds under management.
City of London has also diversified
its geographical base, both for the
management of existing funds and, in
due course, for the sourcing of new
mandates, with the opening in
November of the new Dubai office.
After several months in temporary
serviced accommodation we took
possession of our new offices in the Dubai
International Financial Centre in July,
and are already benefiting from a
presence on the ground at the centre of
the fast growing Middle Eastern markets.
In order to maximise efficiencies
throughout the business and across our
four offices around the world, we have
committed to a programme to upgrade
our IT systems. IT is a critical
component of City of London’s
performance delivery and this year will
see a complete revamp of our network
and communications infrastructure to
be followed by the roll-out of a new
front office and compliance system.
These improvements and upgrades result
from our strategic aim to leverage proven
technology to deliver tangible financial
benefits to clients and shareholders.
Finally, one of our original founder
shareholders, FMH Investments NV ,
decided to realise its investment in the
Company and in February the entire stake,
representing 29.6% of City of London’s
then issued share capital, was placed out.
The majority of the shares were placed
with existing and new institutional
investors by Landsbanki and Evolution
Securities (our newly appointed joint
brokers). The balance of some 30% of the
stake was bought back for cancellation
or acquired by directors and the
Company’s ESOP . Full details of the
transaction are contained in the
Financial Review on page 15.
Board
In May, I was delighted to welcome to
the Board Dr Allan Bufferd, T reasurer
Emeritus of the Massachusetts Institute
of Technology, as a non-executive
director. Dr Bufferd’s directorships and
trusteeships include Och-Ziff Capital
Management Group, Ram Re Holdings,
Bessemer T rust BGO Fund, Boston
Advisors, Controlled Risk Insurance
Company/Risk Management Foundation,
Morgan Stanley Prime Properties Fund
and the Robert Wood Johnson
Foundation. His experience, contacts
and wise counsel will, I am sure,
benefit City of London greatly.
Outlook
In the first three months of the current
financial year, the emerging markets in
which we principally invest have declined
significantly due to the deteriorating global
economic outlook. This has resulted in
funds under management reducing from
the year end figure of US$4.7 billion to a
first quarter end figure of US$3.9 billion
as at 31st August 2008. This is a 16%
fall and compares to a decline of 21%
in the MXEF index. The significant
depreciation of sterling against the dollar
since the year end should have a positive
effect on earnings.
2008/9 results will be earned against a
much more uncertain background than
that of last year. We have already seen
funds under management fall since the
year end to a level closer to that at the start
of last year. We are however fortunate that
the Company’s strategy has positioned us
relatively favourably. With maintained
focus on our core disciplines and further
diversification of our products and client
base, we hope, subject as always to the
performance of our investment markets,
to report satisfactory results for the
current year.
Andrew Davison
Chairman
12th September 2008 6 City of London Investment Group Plc Annual Report 2008
Institutional not retail
Some fund managers focus on retail investors.
City of London does not. As an institutional
manager we are not subjected to the volatility
of subscriptions and redemptions of many retail
houses, resulting in stronger client retention. City of London Investment Group Plc Annual Report 2008 7
Rio de Janeiro, Brazil Chief Executive Officer’s review
In my previous annual review, I referenced
the fact that the year to May 2007 had
been our first full year as a listed company
and that I was surprised that it had, to
a great extent, been business as usual.
This year we have been tested rather more
both by way of markets and also our clients’
reaction to the events in the markets.
Market volatility
First, using the MSCI emerging markets
index (MXEF , as shown below) as a
proxy for about 95% of our business, we
have had to deal with some significant
volatility over the past year. During
August and September as the index rose
towards 1,350 we reduced the beta across
our clients’ portfolios to around 0.7.
In addition we increased cash during this
period, from close to zero to nearly 5%.
As a relative return manager each of our
accounts is obviously measured against a
benchmark and as a result we are not
prepared, or in some mandates allowed,
to increase cash to above 5%.
In terms of our beta management we had
calculated that at the end of October the
index was trading at a standard deviation
of around 4X expensive, this being
the most expensive in around 20 years
according to our calculations. Both
of these risk controls assisted in the
out performance that we achieved over
the next few months and by the end
of March 2008 we had achieved a
significant level of out performance
against all of our Emerging Markets
benchmarks. We maintained this level
of out performance to the end of the
financial year.
Rebalancing
Second, and as referenced in the bar chart
on page 9, we have over the past year
dealt with a significant level of rebalancing
away from our asset class as a result of
our asset class’s out performance when
compared with other asset classes and also
as a result of our own out performance
against the benchmarks. What is shown
on page 9 is inflows (blue), outflows
(yellow) and net (red). Over the financial
year the cumulative net outflow was $224
million (light blue).
Over the past 24 months, the totals were
$1,059 million out and $673 million in,
8 City of London Investment Group Plc Annual Report 2008
800
Source: Bloomberg
900
1,000
1,100
1,200
1,300
1,400
15/1/07
14/2/07
16/3/07
17/4/07
17/5/07
18/6/07
18/7/07
17/8/07
18/9/07
18/10/07
19/11/07
19/12/07
18/1/08
19/2/08
20/3/08
21/4/08
21/5/08
20/6/08
22/7/08
MXEF
40 Day Moving Average
+15.60%
+39.67%
+19.63%
-17.64%
-11.52%
-18.95% -12.69%
+14.77%
MSCI emerging markets index
Whilst in the overall
scheme of things we
remain a small specialist
boutique manager, we do
intend to continue to grow
our business as long as we
do not compromise our
investment performance. City of London Investment Group Plc Annual Report 2008 9
leading to a net outflow of $386 million.
An explanation needs to be provided
to shareholders regarding these events
because the amounts are very
significant in terms of our total funds
under management.
As a relative return manager we are
given an amount of money to manage
for, let us say, an endowment. This
endowment will have decided to place,
let us say, 5% of its assets in an emerging
markets mandate. Let us further assume
that the consultant who has both
screened and assisted in the appointment
of CLIM has suggested that the
allocation to the emerging markets
should be maintained within a band of
4% to 6%, and that this has been agreed
by the endowment’s committee. At the
point that, as a result of the emerging
markets out performing the other asset
classes within the endowment’s portfolio
(further assisted by CLIM’s out
performance), the exposure gets to let
us say 7%, it is quite likely that we
would receive a rebalancing request thus
placing the endowment’s exposure to
emerging markets via CLIM back
within the 4% to 6% range.
In fact as referenced earlier we have
replaced these departing assets with
new client assets of $673 million
over the past two years.
Going forward the outlook is
considerably better as not only have
rebalancing requests (yellow) reduced
significantly recently, but in addition
we are continuing to receive substantial
inflows as shown below. I would further
add that in the event that the Emerging
Markets were to underperform for a
period (as long as our performance was
maintained) we would be likely to be
the beneficiary of rebalancing in the
reverse direction.
Put another way, as an institutional
manager we are not subjected to the
volatility of subscriptions and redemptions
of many retail houses, rather our
subscriptions and redemptions (which
are generally monthly events) are
reflected as above. Obviously, subject
to ongoing satisfactory investment
performance the existing assets should
remain very sticky.
Cost control
As you are aware we try very hard to
run a low cost business. Over the past few
years we have reduced the cost/income
ratio of our business from 53% to 28%
(as measured before profit-share and
treating third party marketing commission
and custody as a deduction from fees
rather than as an expense). Whilst in the
overall scheme of things we remain a
small specialist boutique manager, we
do intend to continue to grow our business
as long as we do not compromise our
investment performance. We have been
quite successful in continuing to expand
our non-US business which now represents
28% of our total FUM as compared with
17% in March of 2006. Over the next
year I would hope to be able to report
further success with particular emphasis
from a product perspective in areas such
as Frontier Markets, Natural Resources
and our Developed Markets closed-end
fund business.
Charles River implementation
In keeping with our strategy for the
continuing development of our business
we have selected The Charles River
Investment Management System (CR
IMS) to further automate front office
processes and streamline the portfolio
management, trading and compliance
monitoring of our global operations.
CLIG will benefit from extensive portfolio
management tools, integrated trade order
management and real-time pre-trade
compliance testing and monitoring on
a scalable platform. Implementation of
the CR IMS has been initiated and we
expect to complete the first phase of this
project early in the 2009 calendar year.
Most fund managers would perhaps
suggest that $10bn was the size at which
this would be justified, but we have
based our decision on our belief that
as a result of superior investment
performance our FUM will continue to
grow. Obviously if we are correct, this
will further reduce the earlier referenced
cost/income ratio.
The financial services industry
We are continuing to watch the
significant reduction in market
capitalisation that is being suffered
by many financial service companies.
Q1 05
Q2 05
Q3 05
Q4 05
Q1 06
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Forecast
Q4 08
Source: City of London Investment Management
Point at which we started to anticipate further rebalancings
Asset flows
Dates
Inflows
Outflows
Net
Cumulative Net
Forecast
-500
-400
-300
-200
-100
0
100
200
300
400
$millions 10 City of London Investment Group Plc Annual Report 2008
Chief Executive Officer’s review
Continued
Many of these have grown very rapidly
in the past into areas that they did not
understand, with inadequate systems and
risk controls in place. In many instances
the pay and other rewards received
by many practitioners would seem to
be out of all proportion to their expertise
or experience. Further the shareholders
who own these businesses do not seem
to have done very well from these events
either. Even now it seems amazing that
many bonuses remain so high when
businesses are losing money. At some
point there has to be a realisation that in
many instances these have been flawed
business models, that shareholders, the
owners, do need to make money, and
that a balance of reward between the
various stakeholders rather than greed
is what this business is all about.
I would point out that the formula that
we employ within CLIG is that the
Employee bonus pool is 30% of the
pre tax, pre bonus profit. Shareholders
receive the balance of the earnings
subject to cover for the dividend being
around 1.5 times. Our established policy
is to pay this dividend approximately one
third as an interim and the other two
thirds as a final dividend.
We believe that our clients pay the bills
and our shareholders own the business.
We believe that we are charged with the
role of managing that business.
A new board member
Recently, Allan Bufferd joined the Board
of CLIG. We were introduced to Allan via
his role as T reasurer of the Massachusetts
Institute of Technology, where he worked
for 34 years. As a result of Allan’s arrival
we now have some experienced US
Institutional Fund Management expertise
on our Board which I believe will assist
us regarding making good strategic
decisions regarding the Group over the
next few years.
Currency hedging and sensitivity
to our US$ exposure
There are two pieces of information that
I would reference in this Statement that
appear elsewhere in this report. First our
currency hedging programme, and second
the sensitivity of our GBP denominated
income to (primarily USD denominated)
fee income. These are described on pages
15 and 45. Obviously, USD/GBP currency
sensitivity is particularly relevant at this
time of significant volatility in currencies.
My retirement
Rather than there be any misunderstanding
regarding my potential retirement
I thought it might be helpful to go
into some detail regarding my present
intentions. Obviously I have zero ability
to impose my will on either Shareholders
or the Group Board, but ideally and
taking into account the previous caveat,
it would be my intention to continue
to work for at least another five years.
Since I reached the age of sixty, three
years ago, I have repeated this each year
I would like to thank
CLIG employees for their
continued hard work in
what has been a difficult
market environment.
The relative success
enjoyed by the Group
is entirely down to your
hard work.
The clients (pay the bills)
The shareholders (own the business)
Expect . . .
Fair treatment
Open communication
To share in success
The employees (manage the business)
Expect . . .
Superior
investment
performance
Openness &
accountability
Ethical
treatment
Expect . . .
Relevant risk
controls
Quality earnings
Cost controls City of London Investment Group Plc Annual Report 2008 11
and would intend to continue to repeat
it in this Statement each year for as long
as the plan was unchanged. I would
however like to make the point that I do
need to start planning for retirement.
To this end it is my present intention to
offer an option for 1m of my CLIG
shares to the CLIG ESOP at a price of,
say, 300p for these shares to be
distributed via the ESOP according to the
rules of the ESOP . Further, separate from
any ESOP transaction, in the event that
the CLIG share price appreciates to 400p
during the next year it would be my
intention, subject to relevant Close Period
restrictions, to sell a further 500,000
shares and to undertake the same at
450p and 500p.
I’m stating this in this review because
many founder employee shareholders
such as myself, come in for a significant
amount of criticism as a result of these
types of transaction. It’s my opinion that
if this is communicated well in advance
of the event, that any criticism would be
unjustified. This should also be seen
within the context of my own personal
financial circumstances. Effectively all
of my wealth is tied up in CLIG shares,
and whilst I have no present intention
of retiring I would like to have the
opportunity for planning for such an
event at some point in the future.
Dubai office
We opened our Dubai office last
November. This office was established
to enable us to continue to develop our
investment process. We were of the opinion
in establishing the office there were going
to be some major investment opportunities
in the region over the next few years. Prior
to the opening of the office we had decided
to overweight the region in our emerging
market portfolios. Subsequent to opening
the office we have further increased our
weighting to the region. This over
weighting is one of the major reasons
for the out performance we have achieved
in comparison to our benchmarks over
the past year.
Continued growth
If one were to index our FUM from the
high of the Index (MXEF 1,340 at the
end October ‘07) our FUM should have
been around $3.17bn at yesterday’s
recent low of 840. Instead, FUM were
$3.52bn, representing both the effects of
our relative out-performance versus the
Index as well as net positive subscription
activity from our clients. Looking
forward to the fourth calendar quarter,
we have at this juncture commitments
for another $325 million in the pipeline
(see Asset Flows chart on page 9).
CLIG employees
I would like to thank CLIG employees
for their continued hard work in what
has been a difficult market environment.
The relative success enjoyed by the Group
is entirely down to your hard work.
I would like to say as a shareholder that
the overall team work displayed by you
all is something of which you should
be very proud.
B M Olliff
Chief Executive Officer
12th September 2008
1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years 8 Years 9 Years 10 Years 11 Years 12 Years
42.0
39.0
36.0
33.0
30.0
27.0
24.0
21.0
18.0
15.0
12.0
9.0
6.0
3.0
0.0
-3.0
-6.0
-9.0
-12.0
-15.0
Annualised Rate of Return (%)
Periods Source: eVestment Alliance
City of London Emerging Markets North American Performance versus Peers ending 30th June 2008
City of London Global EMCF
City of London Investable EMCF
City of London GFMI EMCF
City of London Emerging (Free) Markets Country Fund Relative not absolute
From a strategic perspective, many fund
managers manage money on an absolute basis.
City of London manages all client assets
on a relative basis against a benchmark which
reflects the client’s asset allocation objectives.
12 City of London Investment Group Plc Annual Report 2008 City of London Investment Group Plc Annual Report 2008 13
Taj Mahal, India Financial review
International Financial
Reporting Standards
This is the Group’s first complete set
of annual financial statements prepared
in accordance with the requirements
of International Financial Reporting
Standards (“IFRS”) and their interpretations
issued by the International Accounting
Standards Board as adopted by the
European Union. With the exception of
the exemptions set out below, the Group
is required to establish its IFRS
accounting policies as at 1st June 2007
and to apply these retrospectively to
determine prior period comparatives
from 1st June 2006, the date of
transition to IFRS.
The one material change arising from
the adoption of IFRS is the creation of
a deferred tax asset of £3.2 million
(2007: £2.4 million), to reflect the
potential tax relief available to the
Group as a result of the future exercise
of share options. The resulting reserve is
combined with the existing share option
reserve. There is no material effect on
profit in the current or prior period.
In accordance with the transitional
provisions of IFRS 1, the Group has
taken advantage of two exemptions
available from the general requirement
described above: IFRS 2 – Share-based
Payments has been applied only to share-
based awards granted after 7th November
2002 that had not vested as at 1st June
2006. Second, IFRS 3 – Business
Combinations has not been applied
retrospectively to business combinations
that occurred prior to 1st June 2006.
Consolidated income statement
Group turnover comprises management
fees charged as a percentage of funds
under management (FUM) and increased
by 36% over the period under review
to £24.9 million as a result of the
increase in FUM, which ended the year
at US$4.7 billion, compared to $3.8
billion at the start. While US accounts
continue to provide the major part
of turnover, the proportion generated in
Europe doubled for the second year in a
row to £2.8 million (2007: £1.4 million)
and now represents 11% of Group
turnover (2007: 8%), reflecting the
translation of marketing activity in
Europe to new mandates won.
The operating profit derived from this
increased turnover was £9.8 million
(2007: £7.1 million), an increase of 39%.
Administrative expenses increased in
line with turnover to £15.1m, up 34%.
This is the natural result of the Group’s
strategy which seeks to align a significant
proportion of costs with income and
profit, principally through the
mechanisms of marketing commissions
(up from £2.7 million to £3.6 million)
and profit-share (up from £2.9 million
to £4.3 million). Overall, taking into
account employment taxes on profit-
share payments (including taxes on
share option exercises, which are
charged to the profit-share pool) of
£0.4 million (2007: £0.4 million),
these two variable costs at £8.3 million
in total constituted nearly 55% of
total administrative expenses (2007:
£5.9 million, 52%). Of the balance, the
most significant element was payroll
costs, excluding profit-share, which rose
by 19% to £3.6 million, reflecting an
increase in the average number of
employees during the year to 50
(previously 44), while the balance of
“general overhead” increased from
£2.3 million to £3.2 million, for the
most part due to product structuring
costs in respect of the European market.
Interest receivable and similar income
increased almost fourfold to £0.9 million
(2007: £0.2 million), with close to half
of this figure deriving from profit arising
on “sale of investments” – i.e. gains
realised on the withdrawal of seed funding
provided by the Group in respect of new
products, where third party funding or
market growth has rendered those
investments unnecessary or excessive.
Total income £k
14 City of London Investment Group Plc Annual Report 2008
04 05 06
Fixed costs
Variable costs
Pre-tax profit
Note: excludes
AIM listing costs
3,881
7,762
14,228
18,532
25,748
07 08 City of London Investment Group Plc Annual Report 2008 15
The tax charge for the year was
£3.6 million (2007: £2.4 million)
representing 33% of profit before taxation
(2007: 33%). As usual the charge is
higher than the 30% prevailing rate of
UK corporation tax (28% from 1st April
2008) because net income attributable to
the US operations attracts the higher
US corporate tax rate of around 45%.
Profit for the period, after tax, therefore
rose to £7.1 million (2007: £4.9
million), an increase of 46%.
Consolidated balance sheet and statement
of changes in shareholders’ equity
While the profit after tax contributed
£7.1 million to retained earnings, total
equity declined by 9% to £9.8 million
(2007: £10.7 million) principally because
the Group took advantage of the authority
to purchase its own shares and during the
year invested a total of £6.1 million
(2007: £0.7 million) in ordinary shares,
£5.8 million of this relating to the placing
of the stake held by one of the Group’s
then largest investors, FMH Investments
NV. Out of 1.9 million shares purchased
during the year, 1.4 million were cancelled,
thereby reducing equity by £4.5 million,
while the balance was retained by the
Group’s Employee Share Option T rust
(“the T rust”), funded by a loan from the
Group, and is classified as investment
in own shares. The T rust issues options
to the Group’s employees and the loan,
which at the year end amounted to £2.8
million (2007: £1.6 million), is repaid as
and when these options are exercised.
Dividends paid to shareholders during
the year totalled £3.2 million,
representing the cost of the final
dividend in respect of 2007 of 7p paid
in November 2007 and this year’s
interim dividend of 6p paid in March
2008, the latter reflecting the new
dividend cover policy of approximately
1.5x (previously 2x). The 2007
comparative was the £0.7 million cost
of the interim dividend for that year of
3p per share paid in March 2007.
Despite the share purchase and the
dividends, the balance sheet remains
highly liquid, with cash balances at the
year end of £5.5 million (2007: £6.6
million) representing 56% of net assets
(2007: 62%).
The revaluation reserve, which represents
the unrealised profit on the Group’s seed
investments in new products, stood at an
unchanged £0.5 million, which is of
course net of the £0.4 million of gains
which were realised during the year, as
described above.
Currency exposure
Approximately 90% of the Group’s income
is in US dollars, but its expenses are
roughly evenly divided between sterling
and US dollars (with a small Singapore
dollar and smaller UAE Dirham element).
Consequently, reported sterling income
is significantly exposed to movements
in the sterling/US dollar exchange rate,
which during the year moved within
an approximate range of US$1.93 – 2.10
to £1 (2007: US$1.80 – 2.00 to £1), and
since the year end has dipped beneath 1.80.
The table below illustrates the approximate
effect of moves in the exchange rate on
post tax profits across a range of funds
under management levels, given the
current geographical distribution of
the expense base:
FUM – US$bn
3.5 4.0 4.5 5.0
US$/£ Post-tax, £m
1.75 5.6 6.8 8.0 9.2
1.80 5.4 6.6 7.8 9.0
1.85 5.3 6.4 7.5 8.7
1.90 5.1 6.2 7.3 8.4
1.95 4.9 6.0 7.1 8.2
Assumes:
1. Average net fee 0.90%
2. Annual operating costs £2.8 million
plus $5.6 million
3. Profit share equivalent to 30% of
operating profits
4. Average tax rate of 33%
For example, if funds under management
were constant at US$4.5 billion throughout
the year, then the impact on sterling post-
tax profit of a move in the exchange rate
from US$1.95 to US$1.75 to £1 would
be approximately plus £0.9 million on
an annualised basis, assuming unhedged
exposure. There is of course a significant
degree of natural hedge inherent in the
Group’s investment process, given that a
weaker US dollar gives an uplift to funds
under management as measured in US
dollars, and therefore to US dollar fees,
so it is no coincidence that FUM tends
to move inversely to the $ strength,
ceteris paribus.
As in previous years, balance sheet
currency exposure is hedged by forward
sales, with a total of US$6.2 million sold
forward at the balance sheet date (2007:
US$4.5 million).
Share options
As at 31st May 2008, there were
3,958,310 options on ordinary shares
outstanding (2007: 4,797,675),
representing 15.6% of the current issued
share capital. Of the options outstanding
at the year end, 1,458,310 (2007:
2,297,675) are over shares held by the
Employee Share Option T rust and their
eventual exercise will therefore result in
no dilution to existing shareholders’
interests. Dilutive share options represent
9.9% of issued share capital.
D F Allison
Finance Director
12th September 2008 T eam not individual
16 City of London Investment Group Plc Annual Report 2008 Many fund managers encourage the cult of the
individual. City of London presents a team,
process driven approach to fund management
that produces consistent performance for clients
and low staff turnover.
City of London Investment Group Plc Annual Report 2008 17
Oil refinery, United Arab Emirates 18 City of London Investment Group Plc Annual Report 2008
Board of directors
A J Davison
NON EXECUTIVE
CHAIRMAN
Andrew Davison, a
Chartered Accountant,
joined County Bank
Limited in 1972 and
by 1984 had become
Managing Director of
NatWest Ventures.
In 1987 he became
Chairman and CEO
of Business Mortgages
Bank which was sold in
1991. He subsequently
joined the Boards of a
number of listed and
unlisted companies.
B M Olliff
CHIEF EXECUTIVE
OFFICER
Barry Olliff’s career has
spanned over 40 years
within the investment
trust (closed-end fund)
sector. He began his
career in 1964 with
Denny Brothers,
ultimately Pinchin
Denny, as a market
maker in the sector.
In 1979 he moved to
Laing & Cruickshank
as a member of their
investment trust
department, and became
a director in 1984. In
1987 he established
Olliff & Partners, the
stockbroker business
from which City of
London was founded in
the early 1990’s.
D F Allison
FINANCE
DIRECTOR
Doug Allison graduated
in Economics &
Accountancy at the
University of
Southampton, and
went on to qualify as
a Chartered Accountant
with Ernst & Young in
1980. He moved to
the financial services
sector in 1984, and
joined City of London
in 1997. Doug is also
an Associate of the
Chartered Institute
of Bankers.
C M Yuste
BUSINESS
DEVELOPMENT
DIRECTOR
Carlos Yuste holds a
BS in International
Relations from the
University of Ottawa,
and an MA in
International Political
Economy from Carleton
University, also in
Ottawa. He worked at
the International
Development Research
Centre in Ottawa from
1994 to 1998, leaving
to undertake an
International MBA at
York University, T oronto,
which he completed in
2000 before joining
City of London in the
same year.
T W Griffith
CHIEF OPERATING
OFFICER
Prior to joining City of
London Group in
2000, Thomas Griffith
held various positions
in the institutional
client division of
The Vanguard Group
including roles as both
a Client Relationship
Manager and a
Marketing Executive.
In 1986 he obtained
a bachelor’s degree in
Corporate Finance
and Investment
Management from the
University of Alabama. City of London Investment Group Plc Annual Report 2008 19
O I Ashur
NON EXECUTIVE
DIRECTOR
Omar Ashur is the
chief financial officer
of Future Management
Holdings SA, one of
the founders of the
Company and CFO of
Future Pipe Industries
Group Limited, a
leading fibreglass pipe
manufacturer and has
an MBA and PhD
from the Wharton
School of the University
of Pennsylvania, in
Philadelphia.
D M Cardale
NON EXECUTIVE
DIRECTOR
David Cardale has
worked extensively in
both Corporate Finance
and Private Equity.
He has advised a
number of fund
management groups
including Gartmore,
Ivory & Sime and MIM,
and ran the European
operations of NatWest
Equity Partners. He has
been a director of
two London listed
Investment T rusts.
David Cardale holds an
MBA from INSEAD.
G A Robb
NON EXECUTIVE
DIRECTOR
George Robb qualified
as a solicitor before
becoming fully involved
with the asset
management sector in
1971. In 1994 he
established Asset
Management Investment
Company PLC as a
specialist vehicle
investing in the asset
management sector and
was appointed managing
director on its flotation.
He is a non-executive
director of Integrated
Asset Management plc
and a number of the
companies in which
AMIC is invested.
Dr A S Bufferd
NON EXECUTIVE
DIRECTOR
Allan Bufferd is
T reasurer Emeritus of
Massachusetts Institute
of Technology (“MIT”),
where he served for over
30 years prior to his
retirement in 2006.
At MIT, Allan was an
ex-officio member of
the governing board,
and supervised the
formulation and
implementation of
investment policy for
$12 billion of
endowment and
retirement fund assets.
He is a current or
former member of a
large number of
corporate, foundation
and investment
advisory boards. Officers and Board Committees
Professional advisers
20 City of London Investment Group Plc Annual Report 2008
Audit Remuneration Nominations
Board Committee Committee Committee
D F Allison Executive, and Secretary
O I Ashur Non-executive
•
Chairman
••
A S Bufferd Non-executive
••
D M Cardale* Non-executive
•• •
A J Davison Chairman Non-executive
••
Chairman
T W Griffith Executive
B M Olliff Executive
G A Robb Non-executive
••
Chairman
C M Yuste Executive
*Senior independent non-executive director.
Nominated advisers
and joint brokers
Landsbanki
Beaufort House
15 St Botolph Street
London
EC3A 7QR
Joint brokers
Evolution Securities Ltd
100 Wood Street
London
EC2V 7AN
Auditors
Moore Stephens LLP
Chartered Accountants
St. Paul’s House
Warwick Lane
London
EC4M 7BP
Bankers
The Royal Bank of Scotland plc
London City Office
62-63 Threadneedle Street
London
EC2R 8LA
Financial communications
Tavistock Communications
13 Finsbury Pavement
London
EC2A 1NT
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
10 Eastcheap
London
EC3M 1LX
Note: In connection with the Company’s
move to new offices, the board has resolved
to move the Company’s registered office
address to:
77 Gracechurch Street
London
EC3V 0AS
Notification of this change will be lodged
for registration at Companies House on
1st November 2008
Registered office Report of the directors
City of London Investment Group Plc Annual Report 2008 21
The directors present their annual report and the audited financial statements for the year ended 31st May 2008.
Principal activity and review of business
City of London Investment Group Plc is the holding company for a number of investment management subsidiaries. The principal
operating subsidiary is City of London Investment Management Company Limited, which acts as an investment adviser and which
advises on 30 accounts (2007 – 27 accounts) with a total of £2,379m (2007 – £1,916m) under management as at the end of the year.
Accounts may be commingled or segregated, with the number of underlying clients at 31st May 2008 being approximately 400
institutional and 1,000 retail (2007 – approximately 340 and 1,100 respectively).
The Report of the directors should be read in conjunction with the Chairman’s statement, the Chief Executive Officer’s review, and the
Financial review on pages 4 to 15, which together provide a commentary on the operations of the Group.
Future prospects
The Board is optimistic as to the future and is committed to increasing the Group’s funds under management.
Results and dividend
The results of the Group for the year, together with details of amounts transferred to reserves, are set out on pages 28 and 30. The
Company has paid dividends of £3,237,691 during the year (2007 – £735,864). The final dividend for the year to 31st May 2008 will
be paid in November 2008, subject to approval.
Corporate governance
(a) The Board of directors
The Board recognises the importance of good corporate practice and is committed to maintaining high standards of corporate
governance throughout the Group. The Board comprises four executive directors and five non-executive directors. The directors intend
to comply with the Combined Code in such respects as are appropriate for a company of this size, nature and stage of development.
The Board meets regularly and has overall responsibility for ensuring that the Group is properly led and controlled, and is accountable
to shareholders for financial and operational performance. These responsibilities include the overall strategy of the Group, approval of
significant items of expenditure and consideration of significant financing matters pertaining to the Group.
The Board has established an Audit Committee, a Remuneration Committee and a Nominations Committee (each comprising of at
least three non-executive directors, who will invite other members of the Board to join meetings as appropriate) with formally
delegated duties and responsibilities.
(b) The Remuneration Committee
The Remuneration Committee is chaired by George Robb. It reviews the performance of executive directors and sets the scale and
structure of their remuneration and reviews the basis of their service agreements with due regard to the interests of the shareholders.
The Remuneration Committee also makes recommendations to the Board concerning the allocation of share options to executive
directors and employees. It also reviews individual compensation over £100,000. The remuneration and terms of appointment of non-
executive directors is set by the Board.
The Company has a remuneration policy, the aim of which is to provide, in the context of the Group’s business strategy, remuneration that
will attract and retain high calibre executives and staff. In order to achieve this, total rewards are set at levels that are competitive within the
relevant market. Rewards are earned through the achievement of objectives based on measures consistent with shareholder interests.
(c) The Audit Committee
The audit committee was chaired by Andrew Davison until 11th September 2008 when Omar Ashur took the chair. It meets at least
twice each year and is responsible for monitoring the quality of internal control, ensuring that the financial performance of the
Company is properly measured and reported on, meeting with the auditors and reviewing reports from the auditors relating to
accounting and internal controls.
The finance director is invited to attend meetings but the committee meets with the auditors at least once a year without the finance
director being present. Report of the directors
Continued
22 City of London Investment Group Plc Annual Report 2008
(d) The Nominations Committee
The Nominations Committee is chaired by Andrew Davison. It is responsible for reviewing and proposing appointments to the
Board and the various Board committees. In addition, the committee has responsibility for reviewing the composition of the Board
and for selecting candidates for appointment, to meet the desired composition.
Directors interests and remuneration
(a) Shareholdings
The directors who served throughout the year and their interests in the Company were as follows:
Ordinary Shares of
1p each 1p each
2008 2007
A J Davison (Chairman) (non-executive) 49,000 49,000
B M Olliff 4,888,025 3,763,250
D F Allison 260,625 175,625
T W Griffith 16,575 16,575
C M Yuste 29,575 16,575
O I Ashur (non-executive) 5,000 5,000
D M Cardale (non-executive) 156,250 –
G A Robb (non-executive) – –
A S Bufferd (non-executive, appointed 1st May 2008) – –
(b) Share options
At 31st May 2008 share options were held by the following directors:
Exercise price Date from which
Number £ exercisable Expiry date
B M Olliff 62,500* 0.45 13th September 2004 13th September 2008
189,000 0.29 14th May 2007 14th May 2009
311,000 0.26 14th May 2007 14th May 2014
25,000 1.40 31st March 2009 31st March 2016
5,000 2.61 30th January 2010 30th January 2017
5,000 2.73 30th March 2010 30th March 2017
D F Allison 250,000** 0.26 14th May 2007 14th May 2014
18,750 1.40 31st March 2009 31st March 2016
5,000 2.61 30th January 2010 30th January 2017
5,000 2.73 30th March 2010 30th March 2017
T W Griffith 50,000 0.45 10th January 2004 10th January 2011
33,350* 0.45 13th September 2004 13th September 2008
16,650 0.45 13th September 2004 13th September 2011
250,000 0.26 14th May 2007 14th May 2014
12,500 1.40 31st March 2009 31st March 2016
5,000 2.61 30th January 2010 30th January 2017
5,000 2.73 30th March 2010 30th March 2017 City of London Investment Group Plc Annual Report 2008 23
(b) Share options continued
Exercise price Date from which
Number £ exercisable Expiry date
C M Yuste 50,000 0.45 10th January 2004 10th January 2011
33,350* 0.45 13th September 2004 13th September 2008
16,650 0.45 13th September 2004 13th September 2011
250,000 0.26 14th May 2007 14th May 2014
12,500 1.40 31st March 2009 31st March 2016
5,000 2.61 30th January 2010 30th January 2017
5,000 2.73 30th March 2010 30th March 2017
* Options exercised on 9th June 2008.
** 30,000 options exercised on 9th June 2008.
(c) Remuneration
The remuneration of the directors who held office during the year ended 31st May 2008 is set out below:
Health Total Total Pension Pension
Salary Profit share insurance 2008 2007 2008 2007
£££ £ £ £ £
Non-executive
A J Davison 30,000 –– 30,000 30,000 ––
G A Robb 20,000 –– 20,000 20,000 ––
O I Ashur 20,000 –– 20,000 20,000 ––
D M Cardale 20,000 –– 20,000 20,000 ––
A Bufferd 2,500 –– 2,500 –––
92,500 –– 92,500 90,000 ––
Executive
B M Olliff 174,497 937,300 – 1,111,797 858,941 21,812 22,775
D F Allison 137,000 442,000 1,733 580,733 441,309 17,125 16,875
T W Griffith 101,209 229,340 – 330,549 269,525 12,651 13,014
C M Yuste 101,209 229,340 – 330,549 269,525 12,651 13,014
513,915 1,837,980 1,733 2,353,628 1,839,300 64,239 65,678
Substantial shareholdings
At 25th August 2008, the Company had been notified of the following interests of 3% or more in the Company’s ordinary shares:
Number of Percentage of
Interested party shares issued shares
B M Olliff 5,012,580 19.74
BlackRock Investment Management 3,194,764 12.58
F&C Asset Management 2,862,862 11.28
The City of London Employee Share Option T rust 1,748,900 6.89
Asset Management Investment Company PLC 1,500,000 5.91
Insight Investment 1,363,653 5.37
JP Morgan Asset Management 1,090,800 4.30
Saracen Fund Managers 937,500 3.69 Report of the directors
Continued
24 City of London Investment Group Plc Annual Report 2008
Creditor payment policy
The Company’s current policy concerning the payment of its trade creditors is to:
(a) settle the terms of payment with suppliers when agreeing the terms of each transaction;
(b) ensure that suppliers are made aware of the terms of payment; and
(c) abide by the terms of payment.
The payment policy applies to all payments to suppliers for revenue and capital supplies of goods and services without exception.
As at 31st May 2008, the creditor days were Nil (2007 – Nil).
Donations
During the year the Group made charitable donations of £595 (2007 – £5,000).
Purchase of own shares
During the year the Company repurchased 1,417,300 of its own shares, with a nominal value of £14,173, and representing 5.3%
of the called up share capital, for cancellation. The total consideration paid was £4,535,360. Further details can be found in the
financial review.
Auditors
A resolution to re-appoint Moore Stephens LLP as the Company’s auditor will be put to the forthcoming Annual General Meeting.
Each of the persons who are directors at the time when this report is approved has confirmed that:
(a) so far as each director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and
(b) each director has taken all the steps that ought to have been taken as a director, including making appropriate enquiries of fellow
directors and the Company’s auditors for that purpose, in order to be aware of any information needed by the Company’s
auditors in connection with preparing their report and to establish that the Company’s auditors are aware of that information.
Approved by the Board of directors and signed on behalf of the Board
D F Allison
Company Secretary
12th September 2008 Statement of directors’ responsibilities
City of London Investment Group Plc Annual Report 2008 25
United Kingdom company law requires the directors to prepare financial statements for each financial year which give a true and fair
view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss of the Group for
that year. In preparing those financial statements, the directors are required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– state whether applicable accounting standards have been followed, subject to any material departures disclosed
and explained in the financial statements;
– prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are
also responsible for the system of internal control, for safeguarding the assets of the Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities. Independent auditors’ report to the shareholders
of City of London Investment Group plc
26 City of London Investment Group Plc Annual Report 2008
We have audited the group and parent company financial statements (the “financial statements”) of City of London Investment
Group Plc for the year ended 31st May 2008 which comprise the Consolidated income statement, the Consolidated and Company
balance sheets, the Consolidated and Company statement of changes in shareholders’ equity, the Consolidated and Company cash
flow statements and the related notes. These financial statements have been prepared under the accounting policies set out therein.
This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. T o the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’
Responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements
have been properly prepared in accordance with the Companies Act 1985 and, as regards the group financial statements, Article 4 of
the IAS Regulation. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with
the financial statements.
In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the
information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and
other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial
statements. This other information comprises only the Directors’ Report, the Financial review, the Chairman’s Statement and the
Chief Executive Officer’s review. We consider the implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices
Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the
financial statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to
provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements. City of London Investment Group Plc Annual Report 2008 27
Opinion
In our opinion:
• the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the
state of the group’s affairs as at 31st May 2008 and of its profit for the year then ended;
• the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union
as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at
31st May 2008;
• the financial statements have been properly prepared in accordance with the Companies Act 1985 and, as regards the group
financial statements, Article 4 of the IAS Regulation; and
• the information given in the Directors’ Report is consistent with the financial statements.
Moore Stephens LLP
12th September 2008
Registered Auditors and Chartered Accountants
St Paul’s House, Warwick Lane, London EC4M 7BP Consolidated income statement
For the year ended 31st May 2008
28 City of London Investment Group Plc Annual Report 2008
Total
Total 2007
2008 (as restated)
Note £ £
Revenue 1,2 24,878,839 18,304,881
Administrative expenses
Staff costs 4(b) 7,925,916 5,954,730
Other administrative expenses 6,968,479 5,139,946
Depreciation 158,474 120,494
(15,052,869) (11,215,170)
Operating profit 6 9,825,970 7,089,711
Interest receivable and similar income 7 868,870 226,731
Profit before taxation 10,694,840 7,316,442
Income tax expense 8 (3,559,124) (2,420,500)
Profit for the period 7,135,716 4,895,942
Basic earnings per share 9 29.3p 20.0p
Diluted earnings per share 9 26.0p 17.6p Group Company
2007 2007
2008 (as restated) 2008 (as restated)
Note £ £ £ £
Non-current assets
Property and equipment 11 296,740 193,362 209,179 74,748
Other financial assets 12 52,048 46,859 847,684 760,567
Deferred tax asset 13 3,208,323 2,357,851 811,963 705,669
3,557,111 2,598,072 1,868,826 1,540,984
Current assets
T rade and other receivables 14 3,573,214 2,613,212 2,080,639 2,616,861
Current tax receivable – – 1,142,881 791,011
Available-for-sale financial assets 15 1,861,375 2,231,989 1,861,375 2,231,989
Other financial assets 16 30,335 59,665 30,335 59,665
Cash and cash equivalents 5,498,910 6,616,824 83,135 427,988
10,963,834 11,521,690 5,198,365 6,127,514
Current liabilities
T rade and other payables 17 (3,068,821) (2,162,168) (3,609,604) (3,318,544)
Current tax payable (1,487,571) (1,047,906) – –
Creditors, amounts falling due within one year (4,556,392) (3,210,074) (3,609,604) (3,318,544)
Net current assets 6,407,442 8,311,616 1,588,761 2,808,970
Total assets less current liabilities 9,964,553 10,909,688 3,457,587 4,349,954
Non-current liabilities
Deferred tax liability 18 (193,177) (196,059) (193,177) (196,059)
Net assets 9,771,376 10,713,629 3,264,410 4,153,895
Capital and reserves
Called up share capital 19 253,605 267,777 253,605 267,777
Share premium account 1,357,283 1,357,283 1,357,283 1,357,283
Investment in own shares 20 (2,811,878) (1,573,525) (2,811,878) (1,573,525)
Revaluation reserve 450,747 457,471 450,747 457,471
Share option reserve 3,468,673 2,519,442 1,105,886 910,735
Capital redemption reserve 14,172 – 14,172 –
Retained earnings 7,038,774 7,685,181 2,894,595 2,734,154
Total equity 9,771,376 10,713,629 3,264,410 4,153,895
The Board of directors approved these financial statements on 12th September 2008.
Signed on behalf of the Board of directors
B M Olliff D F Allison
Chief Executive Officer Finance Director
Consolidated and Company balance sheet
31st May 2008
City of London Investment Group Plc Annual Report 2008 29 Consolidated and Company statement of changes in shareholders’ equity
31st May 2008
30 City of London Investment Group Plc Annual Report 2008
Share Investment Share Capital
Share premium in own Revaluation option redemption Retained
capital account shares reserve reserve reserve earnings Total
£ £££ ££££
Group
At 1st June 2006 267,777 1,357,283 (1,027,283) 94,154 1,010,876 – 3,525,103 5,227,910
Purchase of own shares –– (670,948) –– –– (670,948)
Share option exercise –– 124,706 –– –– 124,706
Increase in fair value* –– – 363,317 –– – 363,317
Share-based payment –– –– 124,520 –– 124,520
Deferred tax –– –– 1,384,046 –– 1,384,046
Profit for the period –– ––– – 4,895,942 4,895,942
Dividends paid –– ––– – (735,864) (735,864)
At 1st June 2007 267,777 1,357,283 (1,573,525) 457,471 2,519,442 – 7,685,181 10,713,629
Purchase of own shares –– (1,590,642) –– –– (1,590,642)
Share option exercise –– 352,289 –– –– 352,289
Share cancellation (14,172) –– –– 14,172 (4,544,432) (4,544,432)
Increase in fair value* –– – 202,136 –– – 202,136
Released on disposal* –– – (208,860) –– – (208,860)
Share-based payment –– –– 141,083 –– 141,083
Deferred tax –– –– 808,148 –– 808,148
Profit for the period –– ––– – 7,135,716 7,135,716
Dividends paid –– ––– – (3,237,691) (3,237,691)
At 31st May 2008 253,605 1,357,283 (2,811,878) 450,747 3,468,673 14,172 7,038,774 9,771,376
Company
At 1st June 2006 267,777 1,357,283 (1,027,283) 94,154 379,289 – 869,254 1,940,474
Purchase of own shares –– (670,948) –– –– (670,948)
Share option exercise –– 124,706 –– –– 124,706
Increase in fair value* –– – 363,317 –– – 363,317
Share-based payment –– –– 124,520 –– 124,520
Deferred tax –– –– 406,926 –– 406,926
Profit for the period –– ––– – 2,600,764 2,600,764
Dividends paid –– ––– – (735,864) (735,864)
At 1st June 2007 267,777 1,357,283 (1,573,525) 457,471 910,735 – 2,734,154 4,153,895
Purchase of own shares –– (1,590,642) –– –– (1,590,642)
Share option exercise –– 352,289 –– –– 352,289
Share cancellation (14,172) –– –– 14,172 (4,544,432) (4,544,432)
Increase in fair value* –– – 202,136 –– – 202,136
Released on disposal* –– – (208,860) –– – (208,860)
Share-based payment –– –– 105,188 –– 105,188
Deferred tax –– –– 89,963 –– 89,963
Profit for the period –– ––– – 7,942,564 7,942,564
Dividends paid –– ––– – (3,237,691) (3,237,691)
At 31st May 2008 253,605 1,357,283 (2,811,878) 450,747 1,105,886 14,172 2,894,595 3,264,410
*Net of deferred tax. Consolidated and Company cash flow statement
For the year ended 31st May 2008
City of London Investment Group Plc Annual Report 2008 31
Group Company
2007 2007
2008 (as restated) 2008 (as restated)
Note £ £ £ £
Cash flow from operating activities
Operating profit 9,825,970 7,089,711 126,099 137,992
Adjustments for:
Depreciation charges 158,474 120,494 67,255 43,386
Share based payment charge 141,083 124,520 51,385 47,399
T ranslation adjustments on investments 50,223 68,177 50,166 68,177
Cash generated from operations before changes
in working capital 10,175,750 7,402,902 294,905 296,954
(Increase)/decrease in trade and other receivables (960,002) (476,900) 536,222 (2,325,247)
Increase in trade and other payables 906,653 782,691 291,060 2,225,362
Cash generated from operations 10,122,401 7,708,693 1,122,187 197,069
Interest received 438,109 196,487 23,439 10,655
Interest paid (1,691) – (1,691) –
Taxation paid (3,161,783) (2,190,642) (532,257) (531,407)
Net cash generated/(used) in operating activities 7,397,036 5,714,538 611,678 (323,683)
Cash flow from investing activities
Dividends received from subsidiaries – – 7,500,000 2,490,000
Purchase of property and equipment (261,852) (87,917) (201,686) (54,882)
Purchase of non-current financial assets – (255) (1,747) (251)
Proceeds from sale of non-current financial assets 14,424 29,627 14,424 29,627
Purchase of current financial assets (1,208,121) (580,139) (1,208,121) (580,139)
Proceeds from sale of current financial assets 1,961,075 114,161 1,961,075 114,161
Net cash generated/(used) in investing activities 505,526 (524,523) 8,063,945 1,998,516
Cash flow from financing activities
Ordinary dividends paid 10 (3,237,691) (735,864) (3,237,691) (735,864)
Purchase and cancellation of own shares (4,544,432) – (4,544,432) –
Purchase of own shares by employee share option trust (1,590,642) (670,948) (1,590,642) (670,948)
Proceeds from sale of own shares by employee share option trust 352,289 124,706 352,289 124,706
Net cash used in financing activities (9,020,476) (1,282,106) (9,020,476) (1,282,106)
Net (decrease)/increase in cash and cash equivalents (1,117,914) 3,907,909 (344,853) 392,727
Cash and cash equivalents at start of period 6,616,824 2,708,915 427,988 35,261
Cash and cash equivalents at end of period 5,498,910 6,616,824 83,135 427,988 Notes to the financial statements
For the year ended 31st May 2008
32 City of London Investment Group Plc Annual Report 2008
1 Basis of accounting
As an AIM listed company, the Group is required to prepare financial statements in accordance with the requirements of
International Financial Reporting Standards (“IFRS”) and their interpretations issued by the International Accounting Standards
Board (“IASB”) as adopted by the European Union from 1st June 2007. Therefore, this is the Group’s first complete set of
annual financial statements under IFRS.
(a) Adoption of IFRS
(i) Under the procedures set out in IFRS 1 – “First-time adoption of IFRS”, the Group is required to establish its IFRS accounting
policies as at 1st June 2007 and to apply these retrospectively to determine prior period comparatives from 1st June 2006, the date
of transition to IFRS. The Group has taken advantage of two exemptions from this general principle. These are outlined below:
• Share-based Payments – IFRS 2
The Group has not applied IFRS 2 to share-based awards and payments granted before 7th November 2002 and which had
vested before 1st June 2006.
• Business Combinations – IFRS 3
The Group has not applied IFRS 3 retrospectively to business combinations that occurred prior to the date of transition to IFRS.
As the transition date to IFRS was 1st June 2006, financial information for the financial year ended 31st May 2007 has been
re-stated to comply with the new standards. The impact of IFRS on the Group’s opening balance sheet at 1st June 2006 has
been shown by re-stating the Group’s equity on that date. The principal impacts of the adoption of IFRS on the comparative
results are set out in Note 26.
(ii) New IFRS standards and interpretations
The Group adopted the following during the year:
IFRS 7 “Financial Instruments: Disclosures” and amendment to IAS1, "Presentation of financial statements”. These introduce
new disclosures relating to financial instruments and do not have any impact on the classification and valuation of the Group’s
financial instruments. As required by IFRS 7, comparative disclosures have also been made.
IFRS 2 “Share-based payments”. The Group has applied the requirements of IFRS 2 and has adopted the requirements of
IFRIC 11 in respect of share-based payments.
At the date of authorisation of these financial statements, the following Standards and Interpretations, which are relevant to the
Group, were in issue but not yet effective:
IAS 1 (revised) Presentation of financial statements
IAS 27 (revised) Consolidated financial statements
IAS 28 (revised) Investments in associates
IAS32 (revised) Financial instruments
IFRS 3 (revised) Business combinations
IFRS 8 Operating segments
IFRIC 8 Scope of IFRS 2
IFRIC 10 Interim financial reporting and impairment
In addition to these, the 2007 International Accounting Standards Board improvements project has now been completed with a
number of existing Standards and Interpretations having been amended.
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact
on the financial statements of the Group. City of London Investment Group Plc Annual Report 2008 33
1 Basis of accounting continued
(b) Basis of consolidation and preparation
These financial statements consolidate the financial statements of the Company and all of its subsidiary undertakings.
The Company’s principal subsidiaries are City of London Investment Management Company Limited and City of London
US Services Limited, all other subsidiaries being dormant at 31st May 2008.
The Company is domiciled in the UK and its shares are issued in sterling. The functional currency of the business is however
US Dollars. Management have decided that the presentational currency of the financial statements should be sterling rather than
the functional currency due to the Company being a UK registered entity.
The consolidated financial statements are prepared on the historical cost basis except for the revaluation of certain financial
instruments as outlined in below.
The preparation of these financial statements in conformity with IFRS requires management to make estimates and assumptions
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 assumptions are noted below:
Income taxes
Significant judgement is required in determining provisions for income taxes and in determining deferred tax assets.
Share-based payments
In order to calculate the charge for share-based compensation as required by IFRS 2, the Group makes estimates principally
relating to the assumptions used in its option pricing model.
The principal accounting polices adopted are set out below and have, unless otherwise stated, been applied consistently to
all periods presented in these accounts.
(c) Significant accounting policies
(i) Goodwill
Under IFRS 3 “Business Combinations”, goodwill is no longer amortised but is instead tested annually for impairment.
In accordance with the transitional provisions of IFRS 1 the Group has not applied IFRS 3 Business Combinations
retrospectively to business combinations that occurred before 1st June 2006.
(ii) 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 years
Computer and telephone equipment – four years
(iii) Financial instruments
Under IAS 39, “Financial Instruments: Recognition and Measurement”, financial instruments must be classified as either:
• Loans and receivables
• Held-to-maturity investments
• Available-for-sale financial assets
• A financial asset or liability at fair value through profit or loss Notes to the financial statements
Continued
34 City of London Investment Group Plc Annual Report 2008
1 Basis of accounting continued
The Group has identified those assets that need to be re-classified under the new standards and these are outlined below:
The Group’s investments in the funds that it manages are designated as “available-for-sale” financial assets. Such investments are
initially recognised at fair value, being the consideration given together with any acquisition costs associated with the investment.
They are subsequently carried at fair value, with any gains or losses arising from changes in fair value being recognised in equity.
Fair value is determined using the price based on the net asset value of the fund. Investments are derecognised when the rights
to receive cash flows from the investments have expired or have been transferred and the Group has transferred all risks and rewards
of ownership. When derecognition occurs a realised gain or loss is recognised in the income statement, calculated as the difference
between the net sales proceeds and the original cost of the financial asset. Any fair value gains or losses previously recognised directly
in equity are recycled into the income statement as part of this calculation of the gain or loss arising on derecognition.
The Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.
In the case of an investment classified as available-for-sale, a significant or prolonged decline in the fair value of the investment below its
cost is considered as an indicator that the investment is impaired. If any such evidence exists for available-for-sale investments, the
cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that
investment previously recognised in the income statement- is removed from equity and recognised in the income statement.
The Group’s investments in options are designated as financial assets at fair value through profit and loss. Such investments are
accounted for in the same way as “available-for-sale” assets but any gains or losses arising from changes in fair value are
recognised in the income statement. Fair value is determined using the quoted market bid price.
The only exception is where the Group holds an investment in options on unquoted equity instruments, whose fair value cannot
be reliably measured. Such investments are measured at cost less impairment.
The Group’s investments have been classified here for recognition and measurement purposes under IAS39 but are not
necessarily reported in the balance sheet under those headings.
The Group’s investments are reported in the balance sheet as follows:
2008 2007
£ £
Non-current assets
Other financial assets:
Investment in funds 14,129 6,737
Investment in unquoted options 37,919 40,122
52,048 46,859
Current assets
Available-for-sale financial assets: investment in funds 1,861,375 2,231,989
Other financial assets: investment in quoted options 30,335 59,665
Where the Group has invested in Delaware Statutory T rust funds there is a requirement to nominate a tax partner and as
Investment Manager, the Group has adopted this role which requires that a nominal investment be held in each fund for the
life of the fund. Therefore, such nominal investments are reported as other financial assets under non-current assets.
Where the Group has used its own cash to seed new funds, the investment is generally held until the fund’s performance
is established. Such investments are reported as available-for-sale financial assets under current assets.
(iv) T rade receivables
T rade receivables are measured at initial recognition at fair value, and are subsequently carried at the lower of original fair value
and their recoverable amount. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement
when there is objective evidence that the asset is impaired. City of London Investment Group Plc Annual Report 2008 35
1 Basis of accounting continued
(v) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand, deposits with an original maturity of three months or less, 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.
(vi) T rade payables
T rade payables are measured at initial recognition at fair value and subsequently measured at amortised cost.
(vii) Deferred taxation
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the 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 each balance sheet date 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 substantially 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 to equity, in which case
the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to
set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority
and the Group intends to settle its current tax assets and liabilities on a net basis.
(viii) Share-based payments
The Company operates an Employee Share Option Plan. In accordance with IFRS2, 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 Binomial pricing
model, and has then been expensed on a straight line basis over the vesting period of three years, based on the Company’s estimate
of the number of shares that will actually vest.
In accordance with the transitional provisions, IFRS2 has been applied only to grants of share options after 7th November 2002
that had not vested as at 1st June 2006, although, as required by IFRS2, the disclosures in note 23 include grants of share
options prior to 7th November 2002.
(ix) Revenue
Revenue arises in North America, Europe and Australia and comprises investment management fees earned. Fees are recognised
in revenue as the investment management services are provided, in accordance with the underlying agreements.
(x) Foreign currency translation
Foreign currency transactions are translated using the exchange rates prevailing at the transaction date. Foreign exchange gains
and losses resulting from the settlement of such transactions, and from the translation of period-end monetary assets and
liabilities are recognised in the income statement.
(xi) Leases
The cost of operating leases is charged to the income statement in equal periodic instalments over the periods of the leases.
(xii) 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 accrue. Notes to the financial statements
Continued
36 City of London Investment Group Plc Annual Report 2008
2 Revenue
2008 2007
£ £
Management fees earned by subsidiary companies charged
as a percentage of funds under management 24,878,839 18,304,881
3 Analysis of revenue, operating profit and net assets
The directors consider that the Group only undertakes one class of business, and hence only analysis by geographical location is given.
Revenue Operating profit
2007 2007
2008 (as restated) 2008 (as restated)
£ £ £ £
Europe 2,811,774 1,426,195 1,354,136 601,146
North America 21,541,398 16,484,085 8,216,889 6,301,978
Other 525,667 394,601 254,945 186,587
24,878,839 18,304,881 9,825,970 7,089,711
Total assets Total liabilities Net assets
2007 2007 2007
2008 (as restated) 2008 (as restated) 2008 (as restated)
£ £ £ £ £ £
Europe 7,082,194 7,552,586 (526,660) (250,108) 6,555,534 7,302,478
North America 7,320,819 6,468,813 (4,126,637) (3,086,825) 3,194,182 3,381,988
Other 117,932 98,363 (96,272) (69,200) 21,660 29,163
14,520,945 14,119,762 (4,749,569) (3,406,133) 9,771,376 10,713,629
4 Employees
2008 2007
(a) Average number of persons employed by the Group in the year: Number Number
Investment management staff 11 9
Research staff 10 10
Client Services 6 5
Administration, accounts and settlement staff 23 20
50 44
2008 2007
(b) Staff costs incurred during the year in respect of these employees were: £ £
Wages and salaries 2,600,303 2,256,950
Profit sharing payments 4,287,676 2,923,952
Social security costs 605,905 395,124
Defined contribution pension costs 290,949 254,184
Share options charge 141,083 124,520
7,925,916 5,954,730
The Group made contributions of £290,949 (2007 – £254,184) in the period to individual defined contribution pension
schemes established for directors and employees. There were no outstanding or prepaid contributions at the balance sheet date. City of London Investment Group Plc Annual Report 2008 37
5 Directors
2008 2007
Directors’ emoluments comprise: £ £
Emoluments (excluding pension contributions and awards under share option schemes) 2,446,128 1,929,300
Pension contributions 64,239 65,678
Share option charge 24,346 34,684
Gains on exercise of share options 467,838 13,750
2008 2007
Number Number
Number of directors on whose behalf pension contributions were paid during the year 4 4
Number of directors who exercised share options during the period 2 1
2008 2007
Highest paid director’s remuneration: £ £
Emoluments (excluding pension contributions and awards under share option
schemes and other long-term incentive schemes) 1,111,797 858,941
Pension contributions 21,812 22,775
Share option charge 8,723 13,182
Gains on exercise of share options 176,563 –
6 Operating profit
2008 2007
The operating profit is arrived at after charging: £ £
Depreciation of owned assets 158,474 120,494
Auditors’ remuneration:
– Statutory audit 45,000 31,510
– Taxation services 18,018 12,337
– Other services 15,228 5,575
Operating lease rentals:
– Land and buildings 231,075 135,148
– Other 9,258 6,543
Operating sublease rentals:
– Land and buildings 8,919 –
Foreign exchange (gains)/losses (94,753) 12,373
7 Interest receivable and similar income
2007
2008 (as restated)
£ £
Interest on bank deposit 436,418 196,487
Profit on sale of investments 426,220 45,616
Fair value of investments 6,232 (15,372)
868,870 226,731 Notes to the financial statements
Continued
38 City of London Investment Group Plc Annual Report 2008
8 Tax charge on profit on ordinary activities
2007
2008 (as restated)
(a) Analysis of tax charge on ordinary activities: £ £
Tax at 30% (2007 – 30%) based on the profit for the year 3,255,640 2,260,228
Double taxation relief (637,640) (542,228)
Deferred tax (42,324) (37,356)
Adjustments in respect of prior years (9,882) (11,518)
2,565,794 1,669,126
Foreign tax for the current period 950,355 778,144
Adjustments in respect of prior years 42,975 (26,770)
993,330 751,374
3,559,124 2,420,500
(b) Factors affecting tax charge for the current period:
The tax assessed for the period is different to that resulting from applying the standard rate of corporation tax in the UK: 30%
(prior year: 30%). The differences are explained below:
2007
2008 (as restated)
£ £
Profit on ordinary activities before tax 10,694,840 7,316,442
Tax at 30% thereon (3,208,452) (2,194,933)
Effects of:
Expenses not deductible for tax purposes (20,122) (41,353)
Capital allowances less than depreciation (10,519) (16,733)
Unrelieved overseas tax (312,715) (235,916)
Deferred tax on share based-payments 42,324 37,356
Prior period adjustments (33,093) 38,288
Other (16,547) (7,209)
(3,559,124) (2,420,500) City of London Investment Group Plc Annual Report 2008 39
9 Earnings per share
The calculation of earnings per share is based on the profit for the period of £7,135,716 (2007 restated – £4,895,942) divided
by the weighted average number of ordinary shares in issue for the year ended 31st May 2008 of 24,338,540 (2007 – 24,432,528).
As set out in Note 20 the Employee Benefit T rust held 2,013,085 ordinary shares in the Company as at 31st May 2008. The T rustees
of the T rust have waived all rights to dividends associated with these shares. In accordance with IAS 33 the ordinary shares held
by the Employee Benefit T rust have been excluded from the calculation of the weighted average of ordinary shares in issue.
The calculation of diluted earnings per share is based on the profit for the year of £7,135,716 (2007 restated – £4,895,942)
divided by the diluted weighted average of ordinary shares for the year ended 31st May 2008 of 27,404,870 (2007 – 27,823,144).
Reconciliation of the figures used in calculating basic and diluted earnings per share:
2008 2007
Number of shares Number of shares
Weighted average number of shares – basic earnings per share 24,338,540 24,432,528
Effect of dilutive potential shares – share options 3,066,330 3,390,616
Weighted average number of shares – diluted earnings per share 27,404,870 27,823,144
10 Dividend
2008 2007
£ £
Dividends paid:
Interim dividend of £0.06 per share (2007 – £0.03) 1,509,883 735,864
Final dividend in respect of year ended:
31st May 2007 of £0.07 per share 1,727,808 –
3,237,691 735,864
A final dividend of 13.5p per share has been proposed, payable on 21st November 2008. Notes to the financial statements
Continued
40 City of London Investment Group Plc Annual Report 2008
11 Property and equipment
2008 2007
Computer Computer
Furniture and Short Furniture and Short
and telephone leasehold and telephone leasehold
equipment equipment improvements T otal equipment equipment improvements T otal
£ £££ ££££
Group
Cost
At 1st June 91,427 667,966 159,163 918,556 94,697 587,580 159,163 841,440
Additions 20,425 176,258 65,169 261,852 7,531 80,386 – 87,917
Disposals – (13,843) – (13,843) (10,801) –– (10,801)
At 31st May 111,852 830,381 224,332 1,166,565 91,427 667,966 159,163 918,556
Accumulated depreciation
At 1st June 77,802 493,175 154,217 725,194 81,893 386,394 147,214 615,501
Charge for the year 11,817 140,939 5,718 158,474 6,710 106,781 7,003 120,494
Disposals – (13,843) – (13,843) (10,801) –– (10,801)
At 31st May 89,619 620,271 159,935 869,825 77,802 493,175 154,217 725,194
Net book value
At 31st May 22,233 210,110 64,397 296,740 13,625 174,791 4,946 193,362
Company
Cost
At 1st June 40,878 260,109 132,419 433,406 46,678 207,978 132,419 387,075
Additions 19,491 117,026 65,169 201,686 2,751 52,131 – 54,882
Disposals – (7,016) – (7,016) (8,551) –– (8,551)
At 31st May 60,369 370,119 197,588 628,076 40,878 260,109 132,419 433,406
Accumulated depreciation
At 1st June 36,869 191,908 129,881 358,658 43,459 155,787 124,577 323,823
Charge for the year 6,834 56,403 4,018 67,255 1,961 36,121 5,304 43,386
Disposals – (7,016) – (7,016) (8,551) –– (8,551)
At 31st May 43,703 241,295 133,899 418,897 36,869 191,908 129,881 358,658
Net book value
At 31st May 16,666 128,824 63,689 209,179 4,009 68,201 2,538 74,748 City of London Investment Group Plc Annual Report 2008 41
12 Other financial assets (non-current)
Unlisted
investments
Group £
Cost
At 1st June 2007 46,859
Additions 2,762
Disposals (3,741)
Fair value gains/(losses) transferred to equity 6,168
At 31st May 2008 52,048
Investment in
Unlisted subsidiary
investments undertakings Total
Company £ ££
Cost
At 1st June 2007 (as restated) 45,789 714,778 760,567
Additions 2,762 80,858 83,620
Disposals (2,730) – (2,730)
Fair value gains/(losses) transferred to equity 6,227 – 6,227
At 31st May 2008 52,048 795,636 847,684
The additions in investments in subsidiary undertakings reflect the allocation of share-based payments from the Company to its
subsidiaries under the adoption of IFRIC 11.
Holding of
Subsidiary undertakings Activity ordinary shares
City of London Investment Management Company Limited Management of funds 100%
City of London Unit T rust Managers Limited Dormant company 100%
City of London US Investments Limited Holding company for US companies 100%
City of London US Investments Limited holds 100% of the ordinary shares in the following:
City of London US Services Limited Service company
City of London Quantitative Management Limited Dormant company
City of London Latin America Limited Dormant company
The above companies are incorporated in Great Britain and registered in England and Wales. They are included in the consolidated
financial statements of the Group. In the opinion of the directors, the value of the subsidiaries is at least equal to their cost.
13 Deferred tax asset
Share-based payments
Group Company
At 1st June 2006 (as restated) 936,449 285,471
Credit/(charge) to income 37,356 13,272
Credit/(charge) to equity 1,384,046 406,926
At 1st June 2007 (as restated) 2,357,851 705,669
Credit/(charge) to income 42,324 16,331
Credit/(charge) to equity 808,148 89,963
At 31st May 2008 3,208,323 811,963 Notes to the financial statements
Continued
42 City of London Investment Group Plc Annual Report 2008
14 Trade and other receivables
Group Company
2008 2007 2008 2007
£ £ £ £
T rade debtors 3,258,666 2,352,826 – –
Amounts owed by Group undertakings – – 1,858,061 2,456,417
Other debtors 72,002 111,631 58,278 53,292
Prepayments and accrued income 242,546 148,755 164,300 107,152
3,573,214 2,613,212 2,080,639 2,616,861
15 Available-for-sale financial assets
2007
2008 (as restated)
Group and Company £ £
Unlisted investments at market value 1,861,375 2,231,989
Unlisted investments at cost 1,226,180 1,578,458
16 Other financial assets (current)
2007
2008 (as restated)
Group and Company £ £
Listed investments at market value 30,335 59,665
Listed investments at cost 39,476 75,038
17 Trade and other payables
Group Company
2008 2007 2008 2007
£ £ £ £
T rade creditors 491,321 369,140 – –
Sundry creditors 43,209 366 366 366
Amounts owed to Group undertakings – – 2,468,605 2,445,607
Other taxation and social security 57,385 37,238 57,385 37,238
Accruals and deferred income 2,476,906 1,755,424 1,083,248 835,333
3,068,821 2,162,168 3,609,604 3,318,544 City of London Investment Group Plc Annual Report 2008 43
18 Deferred tax liability
Group Company
2007 2007
2008 (as restated) 2008 (as restated)
£ £ £ £
Deferred tax on revaluation reserve 193,177 196,059 193,177 196,059
19 Share capital
2008 2007
Number of Number of
Group and Company shares shares
Authorised
Ordinary shares of 1p each (2007 – 1p each) 90,000,000 90,000,000
£ £
Ordinary shares of 1p each (2007 – 1p each) 900,000 900,000
2008 2007
Number of Number of
Group and Company shares shares
Allotted, called up and fully paid
Ordinary shares of 1p each (2007 – 1p each) 25,360,500 26,777,800
£ £
Ordinary shares of 1p each (2007 – 1p each) 253,605 267,777
During the year ended 31st May 2008 the Company repurchased 1,417,300 of its own shares at market value for cancellation.
20 Investment in own shares
Investment in own shares relates to City of London Investment Group Plc shares held by an Employee Benefit T rust on behalf of
City of London Investment Group Plc.
At 31st May 2008 the T rust held 2,013,085 ordinary 1p shares (2007 – 2,303,125), of which 1,458,310 ordinary 1p shares
(2007 – 2,297,675) were subject to options in issue.
21 Profit of the Parent Company
As permitted by section 230 of the Companies Act 1985, 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 £7,942,564
(2007 restated – £2,600,764). Notes to the financial statements
Continued
44 City of London Investment Group Plc Annual Report 2008
22 Operating lease commitments
At 31st May 2008 the Group had the following commitments for future minimum lease payments under non-cancellable
operating leases:
Group Company
Land and Land and
Land and Motor buildings Motor Land and Motor buildings Motor
buildings vehicle 2007 vehicle buildings vehicle 2007 vehicle
2008 2008 (as restated) 2007 2008 2008 (as restated) 2007
££ ££ ££ ££
Within one year 145,955 6,988 131,150 3,886 34,115 – 62,550 –
In the second to fifth years inclusive 48,787 6,696 75,516 – –– 28,669 –
194,742 13,684 206,666 3,886 34,115 – 91,219 –
Operating lease payments relating to land and buildings represent rents payable by the Group for its various offices and
apartment rental for staff posted overseas. Included in this category is £6,010 (2007 – nil) relating to a sublease agreement
on part of the London office space. The Group enters into formal occupational property leases ranging from two to ten years.
The Group is also committed to paying a minimum of £165,327 (2007 – £165,169) per annum in respect of a service
agreement which expires in 2009.
23 Share-based payments
The estimated fair values of options which fall under IFRS2, and the inputs used in the Binomial pricing model to calculate
those fair values, are as follows:
Expected Risk-free Share price Exercise Dividend Estimated Number
Date of grant Expiry date life (yrs) rate at grant (£) price (£) Volatility yield fair value (£) outstanding
14/05/2004 14/05/2014 3.00 5.0411% 0.2600 0.2600 33.5589% 4.50% 0.0668 2,000,000
17/12/2004 17/12/2014 3.00 4.5420% 0.4500 0.4500 30.9463% 4.50% 0.1061 536,250
31/03/2006 31/03/2016 3.00 4.5300% 1.4000 1.4000 25.4798% 4.50% 0.2450 818,750
10/10/2006 10/10/2016 3.00 4.9865% 1.8000 1.8000 29.3594% 4.50% 0.3196 50,000
30/01/2007 30/01/2017 3.00 5.4828% 2.6100 2.6100 29.8223% 4.50% 0.4834 140,500
30/03/2007 31/03/2017 3.00 5.4338% 2.7300 2.7300 29.3557% 4.50% 0.4948 143,500
The expected life of the options has been assumed to be three years based upon the empirical evidence available. The risk-free
rate has been assumed to be represented by the yield to maturity at the date of grant of a UK Gilt strip with term to maturity equal
to the expected life of the option. The volatility of the Company’s share price at each date of grant has been calculated as the average
of the standard deviations of daily continuously compounded returns on the stock of a group of comparable companies.
The number and weighted average exercise price of share options for each of the following groups is as follows:
2008 2007
Weighted average Weighted average
Number exercise price Number exercise price
Outstanding at the beginning of the year 4,797,675 0.68 4,747,050 0.54
Granted during the year –– 334,000 2.54
Forfeited during the year 56,500 1.93 6,250 1.40
Exercised during the year 782,865 0.45 277,125 0.45
Expired during the year –– ––
Outstanding at the end of the year 3,958,310 0.71 4,797,675 0.68
Exercisable at the end of the year 2,862,060 0.32 3,108,675 0.33
The weighted average share price at the date of exercise
for share options exercised during the year was 3.12 2.14 City of London Investment Group Plc Annual Report 2008 45
24 Related party transactions
(i) Remuneration of key management personnel
The remuneration of the directors who are the key management personnel of the Group is provided in the directors’ interests
and remuneration report on page 22 and in note 5.
Unconnected with remuneration, the Group held £42,843 on behalf of Barry Olliff at 31st May 2008 (2007: Nil). This amount
is held in creditors and carries no interest. It has been paid to Mr Olliff since year end.
(ii) Intra-group transactions
During the period the Company received from its subsidiaries £5,610,196 (2007: £4,172,297) in respect of management service
charges and dividends of £7,500,000 (2007: £2,490,000).
Amounts outstanding between the Company and its subsidiaries as at 31st May 2008 are given in notes 14 and 17.
25 Financial instruments
The Group’s financial assets include cash and cash equivalents, investments and other receivables. Its financial liabilities include
accruals and other payables. The fair value of the Group’s financial assets and liabilities is materially the same as the book value.
(i) Foreign currency risk
Most of the Group’s revenues, and a significant part of its expenses, are denominated in currencies other than sterling, principally
United States’ and Canadian Dollars. These revenues are derived from fee income which is based upon the net asset value of
accounts managed, and have the benefit of a natural hedge by reference to the underlying currencies in which investments are
held. Inevitably, debtor and creditor balances arise which in turn give rise to currency exposure. Each of the Group’s subsidiaries
eliminates its currency exposure by transfer to the holding company. All hedging activity is therefore assessed at the group level.
Forward foreign exchange transactions are executed so as to substantially reduce the Group’s exposure to currency market
movements. The level of forward currency hedging is such as is judged by the directors to be consistent with market conditions.
As at 31st May 2008, the Group had net asset balances of US $6,625,564 (2007 – US $8,242,038), offset by forward sales
totalling US $6,200,000 (2007 – US $4,500,000), and net asset balances of C $532,661 (2007 – C $574,804).
Had the US Dollar strengthened against Sterling as at 31st May 2008 by 10%, with all other variables held constant, the net
assets of the Group would have decreased both profit and equity by approximately £10,000. A weakening of the US Dollar
against Sterling would have had the opposite effect.
Further details on the effects on the Group’s post-tax profits due to movements in the US Dollar/Sterling exchange rate have
been demonstrated in the Financial review on page 15.
(ii) 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.
The Group is exposed to market risk directly via its investment holdings and indirectly via its assets under management, from which
its fee income is derived. T o hedge against any potential loss in fee income due to a fall in the markets, the Group invests in out of the
money put options on the emerging markets index. The purchase and sale of these options 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 cost of the hedging recognised in the Group income statement for the period is £26,886 (2007 – nil).
Details of the position held as at 31st May 2008 are given in note 16.
(iii) 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. Notes to the financial statements
Continued
46 City of London Investment Group Plc Annual Report 2008
25 Financial instruments continued
The majority of cash and cash equivalents held by the Group are with leading UK 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.
(iv) Liquidity risk
The Group’s liquidity risk is minimal due to its strategy to maximise its cash position. In addition, the Group’s current available-
for-sale assets represent investments in funds that it manages and can be liquidated immediately if required.
(v) Interest rate risk
The Group has no borrowings, and therefore has no exposure to interest rate risk other than that which attaches to its interest earning
cash balances. The Group’s strategy is to maximise the amount of cash which is maintained in interest bearing accounts, and to ensure
that those accounts attract a competitive interest rate. At 31st May 2008 the Group held £5,498,910 (2007 – £6,616,824) in cash
balances, of which £5,492,455 (2007 – £6,581,480) was held in bank accounts which attract variable interest rates. The effect of a
100 basis points increase/decrease in interest rates would not have a material impact on pre-tax profits or equity.
(vi) 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 notes 19-20.
The Group’s principal operating subsidiary company, City of London Investment Management Company Ltd is subject to the requirements
of the Financial Services Authority (“FSA”) in the UK. This subsidiary held surplus capital over its requirements throughout the year.
26 IFRS transition
The transition date from UK GAAP to IFRS was 1st June 2006. The tables below reconcile total shareholders’ funds at 1st June 2006
and 31st May 2007 under UK GAAP to total equity under IFRS, and the proﬁt after taxation for the year ended 31st May 2007
from UK GAAP to IFRS.
Reconciliation of shareholders’ funds under UK GAAP to shareholders’ equity under IFRS
Group Company
1st June 2006 31st May 2007
1st June 2006 31st May 2007 (as restated) (as restated)
££££
UK GAAP – Shareholders’ funds 4,331,813 8,559,508 1,695,355 3,651,956
IFRS transition adjustments:
IAS 12 – Deferred tax on share options 936,449 2,357,851 285,471 705,669
IAS12 – Deferred tax on revaluation reserve (40,352) (196,059) (40,352) (196,059)
IAS 39 – Fair value of investments – (7,671) – (7,671)
IFRS – Total equity 5,227,910 10,713,629 1,940,474 4,153,895
Reconciliation of proﬁt after taxation under UK GAAP to proﬁt after taxation under IFRS
Company
Group 2007
2007 (as restated)
££
UK GAAP – Proﬁt on ordinary activities after taxation 4,873,958 2,602,864
IFRS transition adjustments:
IAS12 – Deferred tax on share options 37,356 13,272
IAS 39 – Fair value of investments (15,372) (15,372)
IFRS – Profit for the period 4,895,942 2,600,764 Notice of Annual General Meeting
City of London Investment Group Plc Annual Report 2008 47
Notice is hereby given that the Annual General Meeting of City of London Investment Group Plc (the "Company") will be held at
77 Gracechurch Street, London EC3V 0AS on Monday 27th October 2008 at 11.30 am for the following purposes:
Ordinary business
1. To receive and adopt the financial statements for the year ended 31st May 2008 together with the reports of the directors and
auditors thereon.
2. Having retired by rotation, to re-elect Andrew John Davison as a director of the Company in accordance with article 132 of the
Company’s articles of association.
3. Having retired by rotation, to re-elect George Alan Robb as a director of the Company in accordance with article 132 of the
Company’s articles of association.
4. Having retired by rotation, to re-elect Douglas Forbes Allison as a director of the Company in accordance with article 132 of the
Company’s articles of association.
5. To re-elect Allan Seymour Bufferd, who was appointed since the last Annual General Meeting, as a director of the Company.
6. To re-appoint Moore Stephens LLP as auditors of the Company to hold office from the conclusion of the meeting until the
conclusion of the next general meeting of the Company at which accounts are laid before the Company and authorise the
directors to determine the auditors’ remuneration.
Special business
To consider and, if thought fit, pass the following resolutions as special resolutions:
7. THAT the Company cancel admission of its ordinary shares from trading on AIM conditional upon the UKLA granting
admission of the ordinary shares to the Official List and the London Stock Exchange confirming that the ordinary shares can
commence trading on the Main Market.
8. THAT the Company be generally and unconditionally authorised to make market purchases (within the meaning of section
163(3) of the Companies Act 1985) of any of its ordinary shares of £0.01 (1p) provided that:
(a) the maximum number of ordinary shares which may be purchased is 2,539,000 (representing approximately 10% of the
Company’s issued ordinary share capital at the time of this resolution);
(b) the minimum price which may be paid for each ordinary share is £0.01 (1p) which amount shall be exclusive of expenses, if any;
(c) the maximum price, exclusive of any expenses, which may be paid for any ordinary share is an amount equal to 105% of the
average of the middle market quotations for the ordinary shares of the Company as derived from the Daily Official List of the
London Stock Exchange plc for the five business days immediately preceding the date on which such ordinary share
is contracted to be purchased;
(d) unless previously renewed, revoked or varied, this authority shall expire at the conclusion of the Company's next annual
general meeting, or on 31st May 2010 (whichever is the earlier),
under this authority the Company may make a contract to purchase ordinary shares which would or might be executed
wholly or partly after the expiry of this authority and may make purchases of ordinary shares pursuant to it as if this authority
had not expired. Notice of Annual General Meeting
Continued
48 City of London Investment Group Plc Annual Report 2008
9. THAT the articles of association produced to the meeting and initialled by the chairman of the meeting for the purpose of
identification be adopted as the articles of association of the Company in substitution for, and to the exclusion of, the existing
articles of association.
By order of the board
D F Allison
Company Secretary
12th September 2008
Registered office
77 Gracecurch Street
London EC3V 0AS
Registered in England and Wales No 2685257
Note: in connection with the Company’s move to new offices the board has resolved to move the Company’s registered office address to:
77 Gracechurch Street,
London EC3V 0AS
Notification of this change will be lodged for registration at Companies House on 1st November 2008 Notes to the Notice of Annual General Meeting
City of London Investment Group Plc Annual Report 2008 49
1. A member entitled to receive notice, attend and vote at the annual general meeting (“AGM”) is entitled to appoint a proxy or
proxies to attend and, on a poll, vote instead of him. Such proxy need not be a member of the Company. Completion of a form
of proxy does not preclude the member attending the meeting and voting in person if they so wish. To be valid, the instrument
appointing a proxy, together, if appropriate, with a power of attorney or other authority (if any) under which it is signed, or a
notarially certified copy of such authority, must be deposited at the offices of the Company’s registrars, Capita Registrars, The
Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 11.30 am on 25th October 2008. A form of proxy
accompanies this notice.
2. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the time by which a person must be entered on
the register of members of the Company in order to have the right to attend and vote at the annual general meeting (and for
the purposes of the determination by the Company of the numbers of votes they may cast) is 6.00 pm on 25th October 2008.
The rights of members to attend and vote at the meeting will be determined by reference to entries on the register of members at
6.00 pm on 25th October 2008. Changes to entries on the register of members of the Company after that time will be disregarded
in determining the rights of any person to attend or vote at the meeting.
3. In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that
(i) if a corporate shareholder has appointed the Chairman of the meeting as its corporate representative with instructions to vote
on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then
on a poll those corporate representatives will give voting directions to the Chairman and the Chairman will vote (or withhold a
vote) as corporate representative in accordance with those directions; and (ii) if more than one corporate representative for the
same corporate shareholder attends the meeting but the corporate shareholder has not appointed the Chairman of the meeting as
its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who
attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate
representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Secretaries and
Administrators on proxies and corporate representatives – www.icsa.org.uk – for further details of this procedure. The guidance
includes a sample form of representation letter if the Chairman is being appointed as described in (i) above.
4. The right to appoint a proxy does not apply to persons whose ordinary shares are held on their behalf by another person and who
have been nominated to receive communication from the Company in accordance with section 146 of the Companies Act 2006
(‘nominated persons’). Nominated persons may have a right under an agreement with the registered shareholder who holds shares
on their behalf to be appointed (or to have someone else appointed) as a proxy. Alternatively, if nominated persons do not have
such a right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the person
holding the ordinary shares as to the exercise of voting rights.
5. In the case of joint holders, the signature of only one of the joint holders is required on the form of proxy, but the vote of the first
named on the register of members will be accepted to the exclusion of the other joint holders.
6. The following documents are available for inspection between 10.00 am and 12.00 noon at the registered office of the Company
on any weekday and will also be available for inspection at the place of the AGM from the commencement of the meeting until
the conclusion thereof:
(a) The register of interests of the directors (and their families) in the share capital of the Company.
(b) Copies of the directors’ contracts of service and letters of appointment of the non-executive directors.
(c) Terms of reference of the Audit, Remuneration and Nominations Committees.
(d) Copies of the current and proposed articles of association of the Company. Explanation of the business of the Annual General Meeting
50 City of London Investment Group Plc Annual Report 2008
Report and accounts (Resolution 1)
The first item on the agenda requires that the directors must present the accounts of the Company for the year ended 31st May 2008
together with the directors’ report and the independent auditors’ report thereon.
Re-appointment of directors (Resolutions 2 - 5)
The Company’s articles of association require that at every annual general meeting, one-third of the directors or, if their number is not
three or a multiple of three, the number nearest to one-third shall retire from office. In addition, the articles of association require that
all directors who have been in office for more than three years or have been appointed by the directors since the last annual general
meeting of the Company will stand for re-appointment.
Article 137 of the Company’s articles of association requires that a resolution for the appointment or re-appointment of two or more
persons as directors by a single motion may not be moved unless a resolution that it shall be so moved has first been agreed to by the
meeting without any vote being given against it. Consequently separate resolutions will be put to the meeting.
Re-appointment of Auditors (Resolution 6)
The Company is required at each general meeting at which accounts are laid before the shareholders to appoint auditors for the next
financial year to hold office from the conclusion of that meeting until the conclusion of the next general meeting at which audited
accounts are laid. Moore Stephens LLP are the current auditors and have indicated their willingness to continue in office. If Resolution
6 is passed, Moore Stephens LLP will be re-appointed as auditors to the Company, at a fee to be agreed by the board of directors.
Migration of the Company from the AIM market of the London Stock Exchange to the Official List and to trading
on the London Stock Exchange (Resolution 7)
The board has recently reviewed the listing of the Company's shares on the AIM market of the London Stock Exchange. The
conclusion of this review was that, subject to regulatory and shareholder approvals, the Group will seek a primary listing of its
ordinary shares on the Official List of the UK Listing Authority and a move to trading on the London Stock Exchange's Main Market
for listed securities. The board considers this to be a logical response to the Company's growing size, profile and shareholder base and
believes that a move to the Main Market will broaden the universe of potential new investors and, in time, increase liquidity in the
Group's ordinary shares.
In order to move to trading on the London Stock Exchange’s Main Market the Company must delist from the London Stock
Exchange’s Alternative Investment Market. It is anticipated that subject to obtaining the necessary regulatory approvals, delisting of
the Company from AIM will occur simultaneously with the move to trading on the Main Market. Under Rule 41 of the AIM Rules
for Companies, in order to delist from AIM the board is required to seek the consent of not less than 75% of votes cast by the
Company’s shareholders at a general meeting. Accordingly, Resolution 7, which will be proposed as a special resolution, will give the
directors the authority to delist the Company from AIM. The board will only exercise this authority if the necessary regulatory
approvals are obtained to move the Company to trading on the Main Market.
Purchase by the Company of its own shares (Resolution 8)
Under section 166 of the Companies Act 1985, the directors of a company may make market purchases of that company’s shares if
authorised to do so. The Company’s articles of association give a general authority to the directors to purchase shares on the market
but that authority is subject to the approval of shareholders. Your directors believe that granting such approval would be in the best
interests of shareholders in allowing directors the flexibility to react promptly to circumstances requiring market purchases.
Accordingly, Resolution 8, which will be proposed as a special resolution, will give the directors the authority to purchase issued shares
of the Company under section 166 of the Companies Act 1985. The authority contained in this Resolution will be limited to an
aggregate nominal value of £25,390 which represents approximately 10% of the issued ordinary share capital of the Company as at
12th September 2008. The price which may be paid for those shares is also restricted as set out in the Resolution. This authority will
expire at the conclusion of the Company’s annual general meeting in 2009 or on 31st May 2010 (whichever is the earlier). City of London Investment Group Plc Annual Report 2008 51
The board has no present intention of exercising this authority. However, this will be kept under review, and the board will use this
power only if and when, taking account of market conditions prevailing at the time, other investment opportunities, appropriate
gearing levels and the overall financial position of the Group, they believe that the effect of such purchases will be in the best interests
of shareholders generally and that they will result in an increase in earnings per share.
Shares purchased under this authority may be held as treasury shares. The Company may purchase and hold shares as treasury shares
up to a maximum amount equal to 10%. of the nominal value of the issued ordinary share capital at that time, rather than cancelling
them. Shares held in treasury do not carry voting rights and no dividends will be paid on any such shares. Shares held in treasury in
this way can be sold for cash or cancelled. This would allow the Company to manage its capital base more effectively and to replenish
its distributable reserves.
If and when the board resolves to exercise its authority to make market purchases, it will at that time decide whether shares purchased
are to be cancelled or held in treasury.
Adoption of new Articles of Association - Principal changes (Resolution 9)
It is proposed in resolution 9 to adopt new articles of association (the "New Articles") in substitution for and in order to update the
Company’s current articles of association (the "Current Articles"), primarily to take account of changes in English company law
brought about by the Companies Act 2006. As the Companies Act 2006 is being implemented in phases, further changes to the
Articles may be proposed in the future.
The principal changes introduced in the New Articles are summarised below. Other changes, which are of a minor, technical or
clarifying nature and also some more minor changes which merely reflect changes made by the Companies Act 2006 have not been
noted. The New Articles are available for inspection, as noted on page 49 of this document.
1. Form of resolution
The concept of extraordinary resolutions has not been retained under the Companies Act 2006 and therefore all such references
have been removed in the New Articles. All resolutions of the Company will therefore be passed as ordinary or special resolutions,
as applicable.
2. Convening annual general meetings and other meetings (New Articles – Article 82 and following)
The provisions in the Current Articles dealing with the convening of general meetings are being changed in line with the relevant
matters provided for in the Companies Act 2006. In particular an extraordinary general meeting (now called a "general meeting")
to consider a special resolution can be convened on 14 days’ notice whereas previously 21 days’ notice was required. The New
Articles reflect this. Under the Companies Act 2006, 21 days' notice is generally still required in respect of the Company's AGM.
3. Votes of members (New Articles – Articles 106, 111 and 115)
Under the Companies Act 2006 proxies are entitled to vote on a show of hands whereas under the Current Articles proxies are
only entitled to vote on a poll. The time limits for the appointment or termination of a proxy appointment have been altered by
the Companies Act 2006 so that articles cannot provide that they should be received more than 48 hours before the meeting or in
the case of a poll taken more than 48 hours after the meeting, more than 24 hours before the time for the taking of a poll, with
weekends and bank holidays being excluded for this purpose. Multiple proxies may be appointed provided that each proxy is
appointed to exercise the rights attached to a different share held by the shareholder. The Companies Act 2006 also allows for
multiple corporate representatives to be appointed, but if they purport to exercise their rights in different ways, the corporation
is deemed to have abstained from exercising its vote. The New Articles reflect these changes. Explanation of the business of the Annual General Meeting
Continued
4. Retirement of directors (New Articles – Article 129)
The Current Articles require that the directors must provide details in the AGM notice of the age of any person who will be
proposed for appointment or re-appointment as a director at the AGM where at the date of the AGM he/she has attained the age
of 70 years or more. Such provision could now fall foul of the Employment Equality (Age) Regulations 2006 and so is not
retained in the New Articles.
5. Conflicts of interest (New Articles – Articles 156 and 157)
The Companies Act 2006 sets out directors’ general duties which largely codify the existing law but with some changes. Under the
Companies Act 2006, from 1st October 2008 a director must avoid a situation where he has, or can have, a direct or indirect
interest that conflicts, or possibly may conflict with the Company’s interests. The requirement is very broad and could apply, for
example, if a director becomes a director of another company or a trustee of another organisation.
The Companies Act 2006 allows directors of public companies to authorise conflicts and potential conflicts, where appropriate,
where the articles of association contain a provision to this effect. The Companies Act 2006 also allows the articles of association
to contain other provisions so that the relevant company's directors may avoid breaching their duties. The New Articles give the
directors authority to approve conflicts and potential conflicts of interest and include other provisions to allow conflicts of interest
to be dealt with in a similar way to that which was set out in the Current Articles.
There are safeguards which will apply when directors decide whether to authorise a conflict or potential conflict. First, only
directors who have no interest in the matter being considered will be able to take the relevant decision, and secondly, in taking
the decision the directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success.
The directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate.
The New Articles also introduce provisions relating to the receipt of confidential information, attendance at board meetings and
availability of board papers in a conflict situation. This takes advantage of a new provision in the Companies Act 2006 which says
that directors will not be in breach of their general duties to the company if they act in accordance with provisions in the
company's articles dealing with conflicts and the conflict has previously been authorised by the directors. Such provisions serve
to protect a director being in breach of duty after such authorisation.
6. Electronic and web communications (New Articles – Article 226 and following)
Provisions of the Companies Act 2006 which came into force in January 2007 enable companies to communicate with members
by electronic and/or website communications. The New Articles allow communications to members in electronic form and,
in addition, they also permit the Company to take advantage of the new provisions relating to website communications. Before
the Company can communicate with a member by means of website communication, the relevant member must be asked
individually by the Company to agree that the Company may send or supply documents or information to him by means of a
website, and the Company must either have received a positive response or have received no response within the period of 28 days
beginning with the date on which the request was sent. The Company will notify the member (either in writing, or by other
permitted means) when a relevant document or information is placed on the website and a member can always request a hard
copy version of the document or information.
52 City of London Investment Group Plc Annual Report 2008 Designed and produced by fourthquarter Printed by SV.two
City of London Investment Group PLC is a
leading emerging market and natural resource
asset management group, specialising in the
provision of products and services predominantly
to institutional clients who include some of the
leading institutions and endowment funds in
the United States. City of London operates
its business from offices in London, the US,
Dubai and Singapore.
Highlights 1
City of London at a glance 2
Chairman’s statement 4
Chief Executive Officer’s review 8
Financial review 14
Board of directors 18
Officers, Board Committees and
professional advisers 20
Report of the directors 21
Statement of directors’
responsibilities 25
Independent auditors’ report 26
Consolidated income statement 28
Consolidated and Company
balance sheet 29
Consolidated and Company statement
of changes in shareholders’ equity 30
Consolidated and Company
cash flow statement 31
Notes to the financial statements 32
Notice of Annual General Meeting 47
Notes to the Notice of Annual
General Meeting 49
Contents CITY OF LONDON
I N V E S T M E N T G R O U P P L C
A N N U A L R E P O R T & A C C O U N T S
2008
CITY OF LONDON INVESTMENT GROUP PLC ANNUAL REPORT & ACCOUNTS 2008
LONDON PHILADELPHIA SINGAPORE DUBAI LONDON PHILADELPHIA SINGAPORE DUBAI
London office
77 Gracechurch Street
London
EC3V 0AS
United Kingdom
Telephone: + 44 (0) 207 711 0771
Facsimile: + 44 (0) 207 711 0772
US office
The Barn
1125 Airport Road
Coatesville
PA 19320
United States
Telephone: + 1 610 380 2110
Facsimile: + 1 610 380 2116
Singapore office
20 Collyer Quay
10-04 T ung Centre
Singapore 049319
Telephone: + 65 6236 9136
Facsimile: + 65 6532 3997
Dubai office
Unit 2, 2nd Floor
The Gate Village Building 1
Dubai International Financial Centre
PO Box 506695
Dubai
United Arab Emirates
Telephone: + 971 (0)4 423 1780
Facsimile: + 971 (0)4 437 0510
www.citlon.co.uk