Annual Report and Financial Statements 2011 City of London AR... · Corporate Governance ... NAV...

Annual Report and Financial Statements 2011

City of London Group plc

Contents

Directors and advisors 01Trading record, Financial calendar, Share price information 02Chairman’s statement 02Chief Executive’s review 04Our platforms 06Statement of risks 08Directors’ biographies 10Directors’ report 12Corporate Governance report 14Remuneration Committee’s report 17Consolidated statement of comprehensive income 23Consolidated statement of changes in equity 24Company statement of changes in equity 25Consolidated balance sheet 26Company balance sheet 27Consolidated statement of cash flows 28Company statement of cash flows 29Notes to the accounts 30Auditors’ report 58Statement of Directors’ responsibilities 59

Designed and produced by The College www.thecollege.uk.com

City of London Group plc Annual Report and Financial Statements 2011

01

Directors and advisors

DirectorsEric E Anstee Chief ExecutiveJohn C W Kent Executive DirectorJohn W Greenhalgh Non-Executive DirectorHenry Lafferty Non-Executive Director/ChairmanAll of:30 Cannon Street, London EC4M 6XHTel: 020 7628 5518 Fax: 020 7628 8555Company Number: 01539241Email: [email protected]: www.cityoflondongroup.com

Secretary and registered officeLorraine Young30 Cannon Street,London EC4M 6XH

StockbrokersSinger Capital MarketsOne Hanover Street, London W1S 1YZ

AuditorsRees Pollock35 New Bridge Street, London EC4V 6BW

Registrar and transfer officeCapita Registrars LimitedThe Registry, 34 Beckenham Road, BeckenhamKent BR3 4TU

BankersLloyds TSB Bank Plc2nd Floor, 25 Gresham Street,London EC2V 7HN


02

Profit year ended 31 March 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Shareholders’ attributable net profit (£’000s) 649 583 568 (3,509) (798) 196 579 442 610 158 143 13Earnings per share 8.01p 6.87p 6.66p (40.62p) (8.82p) 2.05p 6.06p 4.52p 5.99p 1.55p 1.45p 0.12pDividends interim paid 2.02p 2.13p 2.13p 0p 0p 0p 0p 1.00p 1.20p 0p 0.p 0.50pDividends final proposed 4.72p 4.72p 4.72p 0p 0p 0p 0p 1.00p 1.20p 0p 0.50p 1.00pNAV per share 94.2p 98.6p 98.3p 57.9p 50.2p 65.8p 78.4p 78.8p* 81.2p* 63.9p 77.4p* 87.8p*

* Before final dividend. NAV per share is calculated on the number of shares in issue less those held in treasury.

Chairman’s statement

Following the Company’s successful Firm Placing and Open Offer to raise approximately £6 million (gross), we are pleased to present our results for the year ended 31 March 2011. This has been a further year of investment and identifying new investment opportunities to lay the foundations for the future. This is reflected in the scale of costs incurred including those for salaries and professional fees for the start-up of our investment platforms.

Last year we established and invested in fund management companies directed at providing finance to the legal sector. This year we have focused on establishing two more platforms aimed at providing finance for Small and Medium sized Enterprises (SME’s). Each one of these businesses, described further in this report, is capable of growing into a very significant company in its own right.

We are confident now that we have a sufficiently wide set of specialist fund managers to attract significant third party funds.

Investment climateOur cautious outlook that was expressed last year for stock markets generally has proved to be correct. Ongoing weakness in liquidity and financial confidence in the developed economies has continued, such that recovery and growth for most global economies remains very fragile and uncertain.

Concerns over counterparty risk continue to dominate the financial markets and this, combined with major

Trading record

2010/2011 Financial calendar

2011 Annual General Meeting 8 September 2011 Interim Report December 2011 Preliminary June 20122012 Annual General Meeting (tba)

Total number of shares in issue

The number of shares in issue at the financial year end was 11,136,642 (190,273 of which were held in Treasury). At the date of approval of this Annual Report the number of shares in issue had increased to 18,369,657 (190,273 of which were held in treasury).

Henry Lafferty Chairman


03

geographical disasters such as the Japanese earthquake and resultant tsunami earlier this year, has made investment fundraising difficult. With that backdrop I was therefore delighted that our Company was able to raise £6 million of equity funds in April this year to expand and allow us to take advantage of the significant opportunities that exist to provide essential funding to the SME market. We welcome to our shareholder base some major ‘household name’ institutions.

Investment performanceThe Group’s holdings in resource stocks have continued to underpin our financial performance. Continued worldwide demand for key commodities has again driven the rise in our portfolio of investments. Profits on sales of investments have exceeded last year’s by 19% as we continue to fund our strategy of diversification away from stock markets towards alternative investment platforms where we can benefit not only from the deployment of our own funds but also from fees achieved by obtaining superior performance for third party investors.

We have seen strong growth in interest income from loans advanced to £210,391 (2010: £21,481) and have invested these funds in developing new investment platforms for the future.

Our investment into legal cases, via our subsidiary company Therium, has continued using funds released from sales of our investment portfolio. The outcome of these litigation cases can be unpredictable particularly in relation to the time

involved from initial funding to settlement or court judgement. A number of larger cases are now well advanced and we look forward in the coming year to more successes. During our fund raising we reported that, on the four cases completed to date, we have seen returns of 207% on committed funds.

Strategy and outlookOur strategy is to release equity invested in the stock market as necessary to fund our investment platforms. Since 31 March 2011, we have seen some weakness in the price of some of our key portfolio stocks but we continue to look at fundamentals to determine the appropriate time to pursue this strategy.

Our modified investment policy of capping each area of investment up to a maximum of 20% of gross assets will over time also be applied to our investment portfolios.

We remain encouraged by developments within our management platforms and they are trading in line with the Company’s expectations. Prospects for deploying our capital into these core platforms are good and we see substantial growth potential in our new platforms, as bank lending to SME’s remains heavily restricted. Together, the new management platforms provide a good combination of solid foundations to deliver long-term value for shareholders.

Henry Lafferty 27 June 2011

Profit year ended 31 March 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Shareholders’ attributable net profit (£’000s) 649 583 568 (3,509) (798) 196 579 442 610 158 143 13Earnings per share 8.01p 6.87p 6.66p (40.62p) (8.82p) 2.05p 6.06p 4.52p 5.99p 1.55p 1.45p 0.12pDividends interim paid 2.02p 2.13p 2.13p 0p 0p 0p 0p 1.00p 1.20p 0p 0.p 0.50pDividends final proposed 4.72p 4.72p 4.72p 0p 0p 0p 0p 1.00p 1.20p 0p 0.50p 1.00pNAV per share 94.2p 98.6p 98.3p 57.9p 50.2p 65.8p 78.4p 78.8p* 81.2p* 63.9p 77.4p* 87.8p*

* Before final dividend. NAV per share is calculated on the number of shares in issue less those held in treasury.

Share price information

The latest City of London Group share price is published daily in the Financial Times and the Daily Express, as well as appearing on the internet at www.ft.com and on teletext. It can also be found on www.londonstockexchange.com code CIN or via a link on our own website www.cityoflondongroup.com.

Announcements by email

COLG Company announcements are carried on the Group’s website at www.cityoflondongroup.com but shareholders wishing announcements to be emailed to them also should let us know by emailing us at [email protected] or sending us their name and email address.


04

Chief Executive’s review

City of London Group has had an eventful year. We have added two major management teams to create two new significant investment platforms. At the same time we have grown our Net Asset Value by 13.4% to 87.8p, (2010: 77.4p). This has involved us spending £738,000 of payroll costs for the three investment platforms and absorbing the legal establishment fees for them of over £100,000. Similarly, the senior management incentive award of some £295,000 for achieving this growth in value has been deducted.

We now have strong expectations that our three major investment platforms will show good progress in the coming year.

Since 31 March 2011, we have succeeded in raising a gross £6 million of new equity to ensure we can pursue the opportunities in funding SME’s that continue to present themselves to us.

Eric Anstee Chief Executive

Investment reportOur mining investments have continued to be the bedrock of our growth in value this year. As I mentioned last year, our strong knowledge and experience of the resources sector are at the core of our investment philiosophy and we continue to see value in the fundamentals in each of our core holdings shown overleaf. During the year it has been our policy to ‘top slice’ gains in our investment stock portfolio in order to finance the new investment platforms.

Investment platformsOur core investment platforms are now:

• Therium Capital Management Limited (Therium) – litigation funding

• Trade Finance Partners Limited (TFPL) – trade finance

• Credit Asset Management Limited (CAML) – asset backed finance and professions funding

TheriumFor our litigation finance business we have raised new third party funds via Limited Liability Partnerships (LLP’s) in a difficult economic climate. We continue to fund a selective group of litigation cases either directly from our own seed investment or from these partnerships. Our success in selecting cases for funding is reflected in the returns to date achieved on committed funds of 207% as reported to investors in our recent equity raising.

We continue to see a good pipeline of cases coming forward for funding and an increasing number of discussions with third parties who wish to invest funds in such cases.

Trade Finance Partners LimitedThis investment business commenced writing business at the beginning of 2011 and is already exceeding our expectations. We have seen a solid pipeline of trade funding opportunities arise where SME’s have either been unable to obtain bank finance or our facilities can operate in a complementary way to conventional bank facilities. Again we see strong prospects for this business for 2011/12.

Credit Asset Management LimitedI am delighted that following our successful equity fund raising we have been able to finalise our investment with this strong and experienced management team. Their previous track record with Universal Leasing enables them to commence trading quickly and I am delighted to report that we will start making advances from this platform in July this year. CAML is targeting short and long term professional practice lending and asset backed lending to the SME sector. It is led by Michael Hughes and


05

James Frost who were responsible for developing Universal Leasing Limited, a successful SME and professional services leasing business. Chris Boobyer, its Chairman, has over 30 years’ experience in financial services, including senior positions with Barclays Asset Finance.

In addition to these investment platforms we have continued to provide loans to the legal profession and other related parties, and in May this year we also announced a new joint venture named Novitas Futures between City of London Law Funding Limited and Novitas Investments Limited, an independent financial adviser targeting high net worth litigation clients. CAML has also assumed responsibility for managing Professions Funding Limited (previously named St Helen’s Finance Legal Funding Limited) as part of its remit for professional practice lending.

Other investmentsMeanwhile our investment in ‘The Munro Fund’ managed by Fundamental Tracker Investment Management (FTIM) has continued to receive favourable press comment but has only had limited success in attracting new funds to manage under its platform. It did however succeed in attracting its first fund of funds investment from 7IM late last year and we are hopeful of building on that.

Similarly our investment in FX Capital Limited continues to progress and we have recently seen this business attract new capital to support its growth.

DividendGiven our growth in net assets and our continued expectations for the current trading period the board has decided to recommend a dividend of a further 1.0 pence per share making a total dividend of 1.5 pence for the current year.

We intend to improve on this in future years.

Subject to approval at the Annual General Meeting to be held at 10am on Thursday 8 September 2011 at Painters’ Hall, 9 Little Trinity Lane, London, EC4V 2AD, the final dividend will be paid on 23 September 2011 to shareholders on the register of members as at the close of business on 26 August 2011. The ex dividend date will therefore be 24 August 2011.

ProspectsWe are very encouraged in the progress to date in our major investment platforms. Some of our resource stocks have traded down in recent weeks but we are confident in overall valuations against the fundamentals for each stock.

I am sure we can continue to grow our business in the coming year.

Eric Anstee27 June 2011

Principal holdings (as at 31 March 2011)

Holding Security

Book cost(net of

provision) £

Value£

7,766,666 Tertiary Mineral Plc Ordinary 359,305 1,009,667878,000 Flow Energy 521,770 849,34919,500,000 Sunrise Diamonds plc 207,207 546,000384,422 Gryphon 69,186 495,836500,300 Munro UK Fund X Class (Income Shares) 500,000 422,754672,600 AFC Energy 105,142 393,47128,334 Hurricane Exploration 120,243 314,5072,750,000 Red Rock Resources 27,555 309,375240,000 Barclays 14% Var. Sub. Pref. 233,863 300,000165,000 Vatukoula Gold Ordinary 102,925 222,750354,000 Prime People Ordinary 178,186 212,4003,310,397 SIPA Resources International NL 143,966 198,547

SVSD Asset Management (Holdings) Plc:15,875,000 Ord. shares 24,238 24,238125,000 Loan notes 125,000 125,00010,000,000 Medavinci 20,040 110,000801,668 African Eagle Resources 30,063 104,217

2,768,689 5,638,111


06

Therium Capital Management LimitedTherium provides third party funding for individuals, trustees and companies pursuing substantial litigation claims, either in the UK or through international arbitration. Litigation funds have been operating successfully in the USA and Australia for a number of years, but are a relatively new asset class in the UK.

With a focus on claims usually in excess of £1,000,000, Therium funds commercial litigation and arbitration cases in return for a share of the proceeds. Cases are sourced through an extensive network of solicitors as well as through other litigation professionals, such as barristers, with whom the Company has developed strong links. Our funding size for case costs varies between £250,000 and several million pounds.

Therium is managed by John Byrne and Neil Purslow, both of whom are practising solicitors. John was formerly head of the London office of Dorsey & Whitney, the global full-service law firm, where he led the expansion of his department into a full service practice with one of the strongest tax litigation practices in the City of London. Neil was previously litigation counsel in London for Marsh & McLennan Companies, Inc. and has extensive experience across a broad range of commercial litigation and arbitration.

www.therium.com

Our platforms

Business model By seed funding we have created a series of alternative investment platforms which can now manage third party monies to provide strong returns to investment clients.

COLG

• Origination• Process• Oversight• Fund Raising

Seeding

Management Companies

Investment Capital

Third

Par

ty

Inve

stm

ents

Inco

me

and

Equ

ity R

etur

ns

Wor

king

Cap

ital F

undi

ng


07

TFP’s product offerings embrace the entire range of trade finance mechanisms, including letters of credit and supplier guarantees. Clients also benefit from an advisory and back office service, which greatly enhances security in the transactions, and includes access to TFP’s trade credit insurance policy.

TFPL’s management team is led by Chris Ash (CEO) and Glyn Powell (COO), both of whom have many years experience in specialist sales, trade and leasing finance. They are supported by William Tebbit (Commercial Director) who has broad experience in a number of roles and sectors including investment banking and Frances Walsh (Senior Client Manager) who trained as a lawyer and has many years experience in forfaiting and trade finance. The business is chaired by Paul Tinkler, formerly managing director of a division of Carnaud Metal Box Group Plc, who has 30 years experience of global trading.

www.tradefinpartners.com

Credit Asset Management Limited (‘CAML’)Credit Asset Management provides specialist asset finance solutions, with focus on the key areas of Plant & Machinery; IT and Business Equipment to the SME sector, within a total funding market of approximately £10 billion. This is currently inadequately supported by the conventional financiers and demand is expected to exceed supply for the foreseeable future.

CAML is run by a highly experienced management team, led by Chris Boobyer (Chairman), who has over 30 years’ experience in financial services, including senior positions with Barclays Asset Finance. The executive team includes Michael Hughes (CEO) and James Frost (FD), who together, between 2006 and 2009, successfully grew Universal Leasing (“UL”), a professional services leasing business, to over £200 million of assets.

CAML is initially targeting both short and long term professional practice lending. Distribution will be through the intermediaries and contacts developed by Michael Hughes and James Frost at UL. Management believes market conditions to be favourable for new entrants, with demand for asset-backed finance exceeding supply.

www.craml.co.uk

City of London Law Funding (‘COLLF’) City of London Law Funding (COLLF) was established in August 2010 to provide secured loans to certain law firms and their clients. We expect new business to be generated from our litigation funding business, Therium Capital Management Limited and through joint ventures with appropriately skilled advisors. COLLF’s first joint venture, Novitas Futures, started operations in May 2011 and targets lending to high net worth clients undergoing litigation.

A team of the right calibre is presently being put together and we expect it to be trading in the fourth quarter or earlier.

Professions Funding Limited

Professions Funding Limited

Professions Funding Limited (‘PFL’) Professions Funding Limited is a wholly owned subsidiary of City of London Group plc. It has been established to provide financing to the core professions sectors of Accountants; Solicitors; Barristers; Dentists; Pharmacists; Doctors; Opticians and Veterinarians.

PFL’s management have many years of experience in this sector and believe prevailing market conditions are propitious, as the demand in this established and significant sector is not currently being adequately supported by the traditional banking community.

PFL believes that current circumstances are favourable to supporting financing solutions for both short term working capital loans on either a secured or unsecured basis and longer term leasing for capital equipment acquisition. All financing solutions are at fixed interest rates, utilising industry recognised standard documentation.

Trade Finance Partners (‘TFP’) Trade Finance Partners was established in November 2010 with the aim of offering trade finance into the SME market.

Having secured a £10 million revolving line of credit from the Bank of London and The Middle East, it is targeting SMEs with a facility requirement of circa £250-750k, offering all forms of trade credit. City of London Group plc believes TFP fulfils a substantial demand in a market which is significantly under-serviced by the major banks.

TFP buys goods on behalf of clients who have received a confirmed order, by issuing letters of credit or paying for the goods. Once the sale is complete, TFP collects the proceeds from the client’s customer and, after deducting its fees, refunds the balance.


08

Statement of risks

Risk area Potential impact Mitigation strategies

Competition The Company may become subject to increased competition in sourcing and making investments. This could lead to, amongst other things, the Company finding it difficult to invest.

The investment platforms are in niche and complex areas and these mitigate this risk. The impact of competition is mainly in the area of attracting third party funds where demonstrating superior returns is our best mitigating factor.

Legal and regulatory The Company may fail to comply with its legal and regulatory obligations, which could have a material adverse affect on its business or lead to its shares being suspended from trading.

The Company is subject to laws and regulations enacted by national, regional and local governments. The Company is required to comply with certain ongoing notification requirements that are applicable to a closed-ended investment company governed by English law. Additional laws may apply to the vehicles in which the Company makes investments. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on the Company’s business investments and results of operations.

We rely heavily on outside advisers and consultants to provide specialist advice.

In addition training and professional development is encouraged in our senior management employment procedures.

Compliance with the investment policy

There may be circumstances in which the Company is required to dispose of an asset in order to comply with the investment policy and the price achieved on such a sale may not be as favourable as the price that would be achieved on the sale of the asset in the ordinary course of business. If this were the case, there may be an adverse impact on the NAV and/or the share price and ability to pay dividends.

Careful financial control is exercised over this area with daily review of our portfolio values to ensure that our 20% of gross assets is not exceeded. Headrooms are used to ensure price volatility is managed.

Price sensitivity The Group is subject to price risk on its ‘available for sale’ financial assets, including its operating investments and investments in legal funds as well as its portfolio of financial assets.

The Group spreads its market risk in respect of the portfolio through diversification. The Group holds fixed income, preference shares and stocks of micro, small, mid and large capitalisation companies diversified over different countries, sectors and currencies.

Price risk in respect of investments in unlisted operating investments and legal funds is managed by the Group having an overall investment portfolio which limits its exposure to unlisted investments individually and collectively.

Foreign exchange risk The Company’s earnings and liquidity are affected by fluctuations in foreign currency exchange rates principally in respect of the foreign-currency-denominated bank accounts. There is also some exposure in respect of ‘available-for-sale’ financial assets denominated in overseas currencies.

The Company maintains a narrow spread of currencies to minimise exchange fluctuations.

The Company makes efforts to track and consider the exchange rates before asset disposal.

We do not undertake any hedging of this risk.

In accordance with best practice corporate governance the board maintains a close overview of the risks in the business. The table below shows the assessment and appetite for such risks together with the strategies for risk mitigation.


09

Risk area Potential impact Mitigation strategies

Exposure in relation to natural resource investee companies

The nature of the market in which the Company holds a significant percentage of its investment share portfolio is high risk. The natural resource sector is susceptible to regulation by environmental laws; dependency on grant, renewal, or continuance of permits; the speculative nature of exploration in that it could never lead to discovery; political risk is a key issue as many of the projects can occur in politically unstable countries, or where governments no longer support the development of mineral properties by foreign investors.

All such investments are made on the detailed analysis of the fundamental values supporting the stock prices.

Regular meetings and telephone calls are held with investee companies.

Exposure to country and regional risk (political, financial, economic, geographical)

The Group’s investments span several countries, which are subject to certain uncontrollable risks. Aside from political and regulatory changes, geopolitical turmoil such as terrorism and war, natural disasters, and financial fragilities can all have significant consequences on the performance of the Company’s investments.

The Group’s portfolio is diversified by geography, by product, by sector, and by company in order to protect itself against many of these fluctuations.

The Company’s main investment platforms are UK based.

Risks relating to the Group’s investment platforms

The Company relies upon the management of each portfolio company to manage and operate the relevant company on a day-to-day basis and consequently the Company may not always be able to protect its interests fully.

The Company has a director on the board of all the companies in the investment platforms.

The directors of the Company participate in the risk and credit committees of each underlying investment platform.

Interest rate risk Investee companies may be financed through third party borrowings, which may lead to an increase in the investment risk and/or the exposure to interest rate fluctuations.

Where possible this risk is passed on to clients in the nature of trade of the underlying business. Group borrowing is kept under close review.

Litigation risk in funding legal cases There can be no guarantee that cases will be successful or will pay the returns targeted by the board.

In some instances the Company could be liable for the defendants’ costs and fees.

The Company is reliant on the ability of the lawyers representing the claimants in cases to proceed with due skill and care.

Third party litigation funding is currently unregulated but the government has recently launched a consultation, which may lead to statutory regulation of the industry in the future, which could have an adverse impact on the Company’s investments.

Cases are only agreed for funding after a careful and planned screening process. One of our conditions is that insurance must be in place to cover adverse costs awards in the event a case is lost.

Returns are set based on commitments made providing significant margin to cover occasional case losses.

The Group cash flow is dependent upon the performance of investee companies.

The investment platforms rely on future funding from raising third party funds from a number of different sources.

The parent company is reliant on profits and cash distribution from the underlying investment platforms to fund central operating costs and dividends.

Early stage platforms lack significant funding to achieve their business goals and objectives.

The investment platforms receive Group support for attracting third party monies.

Shareholder agreements are in place with the minority interested parties of each platform to allow for payment of managed fees, interest on loans and profit distributions.

Each operating platform is subject to pre-agreed annual budgets and cash-flows to ensure viability and performance.

149260 C of Lond AR11TP2 R pgs.indd 9 26/07/2011 13:19


10

Directors’ biographies

Eric E Anstee, aged 60, was appointed to the Board as Chief Executive on 11 November 2009. He is a Chartered Accountant with a strong City reputation. He is currently a Non-Executive Director of, Insight Asset Management (the UK institutional investment wing of Bank of New York Mellon) and with PayPoint plc, as well as serving on the Takeover Panel Appeals Board. His past non-executive positions include, director of the Financial Reporting Council, Chairman of Mansell plc, SSL International plc and Severn Trent plc. His early career included a period of ten years as a partner with Ernst & Young and a three-year secondment to HM Treasury. Until the end of 2006 he was Chief Executive of The Institute of Chartered Accountants in England & Wales. Prior to that, his executive positions included Chairman and CEO of Old Mutual Financial Services plc. He has been CFO of three FTSE100 companies – Old Mutual plc, The Energy Group plc and Eastern Electricity plc.

Eric E Anstee

John C W Kent

John C W Kent, aged 56, was appointed to the Board as Corporate Development Director on 11 November 2009. He is a corporate development specialist with a background in Government, the City and industry. He is currently Chairman of Penta Capital Partners, a private equity firm and a non-executive director of TTT Moneycorp Ltd, the foreign exchange business. He has led strategy and corporate finance/development for three FTSE 100 groups in the energy and financial services sectors. More recently he has been acting as a corporate development consultant, advising companies such as Close Bros, Filtronic plc and Aga Rangemaster Group plc. His earlier career as a “fast stream” civil servant in DTI (now BIS)/Treasury included the initial privatization programme. This was followed by a successful spell in Lloyds Merchant Bank, where he became a main board director and the largest fee generator during the early 1990s.


11

John W Greenhalgh, MIPR, aged 75, founded City of London PR in the 1970s, after an earlier career in financial and general journalism on three national newspapers. Before setting up City of London PR, he created the financial public relations division of the Exchange Telegraph Company, the UK news wire service now merged with Thomson Financial and Reuters. He was Chairman and Managing Director of the Group on its admission to the London Stock Exchange in 1988 and served in these roles for twenty years until August 2008.

John W Greenhalgh

Henry Lafferty

Henry Lafferty, aged 57, was appointed to the Board in June 2006 and become Non-Executive Chairman on 2 September 2009. He is the Senior Independent Director and also Chairman of the Audit, Nominations and Remuneration Committees. A Fellow of the Chartered Institute of Management Accountants, he has experience in all aspects of corporate finance and financial management. After working for Doulton Glass in the 1970s, he spent fourteen years in senior positions at the National Freight Corporation, six years as Group Finance Director of Jarvis plc during its successful expansionary growth phase and three years as Chief Executive of PatientFirst Partnerships (now Care Capital Ltd). He is currently an Executive Director (part-time) of InvestSelect plc and its associated investee companies.


12

Directors’ report

The directors present their report, together with the audited financial statements, for the year ended 31 March 2011.

Results and dividendsThe results for the Group are set out on page 23. The directors declared an interim dividend of 0.5p per ordinary share (2010: Nil). The directors recommend a final dividend of 1.0p per ordinary share (2010: 0.5p).

Principal activitiesCity of London Group plc is a closed-ended investment company investing in a portfolio of available for sale assets, legal funds and operating investments. The operating investments are companies in the financial services sector. The company has sixteen subsidiaries, the results of three of which were significant to the 2011 assets and results. The 91% owned Fundamental Tracker Investment Management Limited manages an investment fund. The 50% owned subsidiary Therium Capital Management Limited manages funds that finance legal litigation cases. The 40.8% owned Trade Finance Partners Limited provides finance to companies engaged in international trade.

Review of the business and future developmentsA review of the strategy and activities of the Group is contained in the Chairman’s Statement and Chief Executive’s Review on pages 2 to 3 and 4 to 5 respectively.

The Group’s strategy remains focused on developing operating investments in the financial services sector, while maintaining its portfolio of ‘available for sale’ investments.

The Board does not consider that the operation of its business has any direct effect on environmental issues. It does, however, recognize that the companies it invests in, in particular mining companies, can have an impact on the environment. It takes this into account when considering investments, but considers that its main duty has to be to its shareholders.

The directors consider earnings per share, net assets per share and total shareholder return to be the key performance indicators and these are included in the ‘Trading Record’ table on page 2.

Principal risks and uncertaintiesA statement of risks is included on pages 8 and 9 of this report.

Details of the Group’s exposure to risks associated with financial instruments, together with the management of those risks, are given in note 33 to the financial statements.

Events since the year-endSince the end of the financial year the Company has made a placing of 7,233,015 shares at a price of 83p per share raising £5,296,000 after costs. The placing was made in order to finance the expansion of the Company’s subsidiary companies. The Company has reduced its equity share of the previously wholly-owned subsidiaries Credit Asset Management Limited to 51% and Array Management Limited to 52%. The non-controlling interests in these companies have been acquired by their management teams. These companies are expected to start trading in the 2011/12 financial year.

On 18 May 2011 the holders of the loan notes exchanged them for investments in a legal fund managed by Therium Capital Management Limited. City of London Group had transferred part of its investment in legal funds to the fund and paid the balance required to match the loan notes in cash.

On 6 June 2011 the Company received the repayment of its £700,000 loan receivable.

Directors and their interests The interests of the directors, all of whom held office throughout the year, in the share capital of the Company (all beneficially held) on 31 March 2011, 31 March 2010 and 27 June 2011 (the date of this report) were as follows:

31 March 2011

31 March 2010

27 June2011

J W Greenhalgh* 2,301,372 2,166,985 2,662,818H Lafferty* 50,000 50,000 80,120E E Anstee 103,606 89,606 348,070J C W Kent 89,606 72,780 164,305

* Non-executive

There have been no changes to the composition of the Board between the balance sheet date and the date of this report.


13

Directors’ responsibilitiesA statement of directors’ responsibilities is contained on page 59 of this Annual Report and is incorporated into the directors’ report by reference.

Directors’ indemnitiesThe Group has made qualifying third party indemnity provisions for the benefit of its directors which were made during the year and remain in force at the date of this report.

Substantial shareholdersJ W Greenhalgh’s substantial shareholding is disclosed under directors’ interests. Apart from this, as at 27 June 2011 the following had disclosed interests of 3% or more of the Company’s issued share capital:

Number of share

% of issued share

capital

AXA IM UK 1,506,024 8.28Jupiter Asset Management 1,204,819 6.63Mr James Kerr 1,061,000 5.84 Henderson Global Investors 1,003,614 5.52Royal Bank of Canada 561,188 3.09

Payment of creditorsAlthough the Company does not have a formal policy agreed with all its suppliers, it does make every effort to pay them in accordance with their invoice terms.

The average number of days for which creditors are outstanding for the Company is 58 (2010: 5). The high number is due to invoices relating to the share placing being received just before the year end.

AGMThe 2011 annual general meeting will be held in the Court Room, Painters’ Hall, 9 Little Trinity Lane, London EC4V 2AD on 8 September 2011 at 10.00am. The notice of meeting together with details of the business to be transacted are contained in a separate document which will be sent to shareholders with a form of proxy.

Disclosure of information to auditorsEach of the persons who is a director at the date of approval of this annual report confirms that:

• so far as the director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and

• the director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.

AuditorsRees Pollock have expressed their willingness to continue as auditors, and a resolution to reappoint them will be proposed at the forthcoming annual general meeting.

Going concernThe Group had drawn on its bank overdraft and trade finance facilities at the year end to a total amount of £749,349. The Group has raised £5,295,981 net from a share placing since the year end and the Board believes that the Group has adequate resources to continue in operational existence for the foreseeable future.

By order of the Board

Lorraine YoungCompany Secretary27 June 2011


14

Corporate Governance report

IntroductionThe directors recognise the importance of sound corporate governance, while taking into account the size and nature of the Company. The rules of the UK Listing Authority require listed companies to disclose how they have applied the principles and complied with the provisions of the UK Corporate Governance Code (the Code) (previously the Combined Code) issued by the Financial Reporting Council in June 2010. The directors have chosen to report against this updated code, although for the current reporting period the Combined Code still applies to the Company. The Code can be found at www.frc.org.uk.

Application of principlesThe Company has applied the main principles of the Code as follows.

LeadershipThe board is chaired by Henry Lafferty, an independent non-executive director and Eric Anstee is the chief executive. There is a clear division of responsibilities between them. The chairman is responsible for managing the board and ensuring it functions effectively while the chief executive is responsible for running the business within the framework of authority determined by the board. The other directors are John Kent (executive) and John Greenhalgh (non-independent non-executive).

The directors have a duty to promote the success of the Company and to this end the board has clearly defined responsibilities including setting the Company’s strategy. It has also delegated certain functions to the audit, remuneration and nomination committees. Terms of reference for these committees are available on the Company’s website. Further details of the committees are given below.

EffectivenessThe directorsBiographical details of the directors are set out on pages 10 and 11. They have a broad range of skills and experience. The directors recognise that the board could benefit from the addition of further independent non-executive directors and it is the intention to appoint two during the next year. It is also planned to strengthen the board by the appointment of a finance director. The nominations committee will oversee these appointments. A suitable induction programme will be arranged for any new directors, including the provision of information about the Company and the opportunity to meet with other directors, senior managers, the company secretary and advisers as appropriate.

Board proceduresThe board meets each month. Prior to each meeting, comprehensive papers, which include regular business and financial progress reports and discussion documents regarding specific matters, are prepared and issued. To enable the board to function effectively and directors to discharge their responsibilities properly, full and timely access is given to all relevant information. All significant decisions are taken at Board level.

There is an agreed procedure for directors to take independent professional advice if necessary at the Company’s expense. This is in addition to the access, which every director has, to the company secretary. Concerns relating to any director of the Company can be raised with Henry Lafferty, the chairman. This includes ‘whistle-blowing’.

A register of directors’ other business interests (including any actual or potential conflicts of interest) is maintained and reviewed regularly to ensure all details are kept up to date. Authorisation is sought prior to a director taking on a new appointment or if any new conflicts arise.

Performance evaluationThe board evaluates its own performance and that of its committees and individual directors. This year, in line with the best practice guidance in the Code, all directors will retire and stand for re-election at the AGM. Details of the service contracts of the executive directors are provided in the remuneration report on pages 17 to 22. The non-executive directors have letters of appointment, which are not service contracts and can be made available on request. The board confirms that all of the directors continue to demonstrate the necessary commitment and to be fully effective members of the board.

Board committeesThe following committees deal with specific aspects of the Group’s affairs in accordance with the duties and responsibilities formally delegated to them by the board. The terms of reference for each of the committees are available on the Company’s website at www.cityoflondongroup.com.


15

AccountabilityThe board as a whole regularly considers the risks which it is willing to take in order to achieve the Company’s strategic objectives.

Risk management, audit and internal controlsThe respective responsibilities of the directors and the auditors in connection with the financial statements are explained on pages 58 and 59. The directors’ statement on ‘going concern’ is on page 13. The board confirms that it has procedures in place implementing the FRC guidance on internal controls. There is an ongoing process, which is kept under regular review by the board, for identifying, evaluating and managing, rather than eliminating, the significant risks faced by the Group.

The directors acknowledge their responsibility for the Group’s system of internal and financial controls, including suitable monitoring procedures, in order to provide reasonable, but not absolute, assurance of the maintenance of proper accounting records and the reliability of the financial information used within the business. The board has reviewed the effectiveness of the system of internal controls which operated during the period covered by this directors’ report and accounts.

The key controls are:

• Clearly defined organisational responsibilities and limits of authority.

• Established procedures for authorisation of capital expenditure and investment of cash resources.

• Production of monthly management accounts which are compared to budget, and regular reporting of key information to the board including the monitoring of performances of investments.

• The maintenance of a detailed risk register which includes analysis of all main operational risks. The register was prepared by the general manager and reviewed and agreed by the Board.

Audit CommitteeThe audit committee comprises the non-executive directors (Henry Lafferty and John Greenhalgh). Henry Lafferty has recent and relevant financial experience. The committee keeps under regular review the Company’s adherence to the Code including the maintenance of sound systems of internal controls. The whole board regularly reviews the risk management and control processes.

The audit committee believes that the internal financial controls outlined in the section headed “Accountability” below, continue to be sufficient and that an internal audit function is not necessary at this time, producing only marginal benefits at most and involving additional cost.

The audit committee normally meets with the external auditors once a year in order to agree the annual report and financial statements. The independence and objectivity of the external auditors are considered, with particular regard to the level of non-audit fees, which the committee does not regard as being at a level, in comparison to the audit fee, that could influence the auditors’ objectivity. The split between audit and non-audit fees for the year under review appears in note 6 on page 39.

Remuneration CommitteeThe role, composition and activities of the remuneration committee and details of how the Company applies the principles of the Code in respect of directors’ remuneration are set out in the Remuneration Committee’s report on pages 17 to 22.

Nomination CommitteeThe matters which would be dealt with by a nomination committee (such as board composition and succession planning) are dealt with by the main board and, as and when required, are separate agenda items at main board meetings.

Meetings of the board and committeesSixteen meetings of the Board were held during the financial year twelve of which were attended by all of the directors. Henry Lafferty attended all meetings; Eric Anstee was unavailable for one meeting, John Greenhalgh for two and John Kent for three. One meeting of the audit committee, two meetings of the remuneration committee and one meeting of the nominations committee took place during the financial year, these meetings were fully attended.


16

RemunerationThe executive directors abstain from any discussion or voting at full board meetings on remuneration committee recommendations where the recommendations have a direct bearing on their own remuneration package. Remuneration of non-executive directors is determined by the Board. Non-executive directors abstain from discussions or voting concerning their own remuneration. A statement of the Company’s remuneration policy together with details of directors’ remuneration appears in the Remuneration Committee’s report on pages 17 to 22.

Relations with shareholdersThe annual report and financial statements are sent to all shareholders and, upon request, to other parties who have an interest in the Group’s performance. The Company endeavours to send the notice of AGM and supporting papers to shareholders at least 20 working days before the meeting and responds promptly to any enquiries received from shareholders. All shareholders have the opportunity to put forward questions at the Company’s AGM. Dialogue is maintained with major investors.

Compliance with the CodeThe Company is moving towards full compliance with the Code. The main areas of non-compliance are related to the fact that there is currently only one independent non-executive director (whereas two are recommended for smaller companies). In retaining Mr Greenhalgh as a non-executive director, the Board considers that the benefit to the Company in having access to his skills and experience, particularly with investments in resource stocks, outweighs the potential disadvantage of having only one fully independent director. Mr Greenhalgh retains his independent judgement. As noted above, the directors intend to appoint other independent non-executive directors during the next year. The board is in the process of considering the changes introduced by the new Code to ensure that the Company complies as far as possible with the provisions.

Corporate Governance reportcontinued


17

Remuneration Committee’s report

IntroductionThis report has been prepared in accordance with Schedule 8 (Quoted Companies: Directors’ Remuneration Report) to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. The auditors are required to report on the auditable part of this report and to state whether, in their opinion, that part of the report has been properly prepared in accordance with the Companies Act 2006. The report is therefore divided into separate sections for audited and unaudited information.

Unaudited information

Remuneration committeeThe remuneration committee is responsible for developing policy on remuneration for executive directors and senior management and for determining specific remuneration packages for each of the executive directors. The committee members are Henry Lafferty as Chairman of the committee, with John Greenhalgh as a committee member. The remuneration committee is formally constituted with written terms of reference which set out the full remit of the committee. A copy of the terms of reference is available to shareholders by writing to the company secretary. The remuneration committee met two times during the year and all members were in attendance.

Remuneration policy overviewThe Remuneration Committee has adopted a remuneration policy so that total levels of compensation encourage and reward high performance and attract and retain individuals of the right calibre to ensure the Company meets its objectives. It is the opinion of the Remuneration Committee that shareholders’ interests are best served by focusing a greater proportion of total remuneration on performance-related compensation.

Short and long-term incentives are structured so as to align directors’ interests with those of shareholders by rewarding them for enhancing shareholder value, over a benchmark of 8% return for shareholders. It should be noted that the real value received by the executive team under the share incentive arrangements will be dependent upon the degree to which the associated performance conditions have been satisfied each year of the relevant three-year performance period. This ensures that substantial rewards are only received when value has been created in the business.

As intended a new management incentive plan was adopted at the general meeting held on 11 February 2010 to confirm the arrangements agreed to attract the management team.

Service contractsThe Company does not have a rigid policy on the duration of contracts with directors. Similarly, notice periods and termination payments under such contracts are negotiated individually with the director concerned. When deciding on the above the Remuneration Committee will consider issues such as prevailing market conditions and the calibre of the individual concerned.

Details of directors’ contracts are shown below:

DirectorDate

of contractUn-expired

termNoticeperiod

Compensation payable on early

termination

EE AnsteeNovember

2009 12 months

rolling 12 months contractual

JCW KentNovember

200912 months

rolling 6 months contractualJW Greenhalgh*

December 2010 n/a 3 months 3 months

H Lafferty*December

2010 n/a 3 months 3 months

(a) DR Walton Masters resigned on 2 September 2009.

(b) H Lafferty became non-executive Chairman on 2 September 2009; he had previously been a non-executive director.

(c) EE Anstee was appointed on 11 November 2009.

(d) JCW Kent was appointed on 11 November 2009.

(e) PC Doye resigned his directorship on 21 August 2008. Since his resignation as a director he has received consultancy fees of £18,400 in the year to 31 March 2009 and £10,000 in the year to 31 March 2010.

JW Greenhalgh became a non-executive director on 21 August 2008; previously he had been Chairman and Managing Director.

* Non-executive directors have letters of appointment which are not service contracts.


18

Basic salaryThe Remuneration Committee’s policy for senior management is to set base salaries at lower quartile levels. Salaries are reviewed annually. When determining the salary of the executive directors, the Remuneration Committee takes into consideration the levels of base salary for similar positions with comparable status, responsibility and skills, in organisations of broadly similar size and complexity. These factors are considered in parallel with the following:

• The management’s long term incentive scheme

• The individual executive director’s experience and responsibilities: and

• Pay and conditions throughout the Company

Annual performance-related bonusNo formal annual bonus plan has been adopted as an overall management incentive scheme was seen to be most appropriate, whereby remuneration is determined against an improvement in shareholder value ahead of a benchmark return. Two thirds of any resulting incentive payment is made on a deferred basis to ensure long-term retention. In addition a clawback mechanism applies to the deferred element so as to ensure that awards are based upon sustained performance, as best practice recommends.

Annual and deferred incentive planOn 11 February 2010, at a General Meeting, shareholders approved an Annual and Deferred Incentive plan which would be used to provide cash and equity incentives over ordinary shares of 10 pence each in the capital of the Company. This plan would be available to the executive directors and certain senior employees to provide an employment remuneration package that over time best aligns the interests of executives with those of the Company’s shareholders.

Allocations are made to participants in the incentive plan from a bonus pool, the value of which depends on a minimum annual growth in the Company’s net asset value (NAV) or total shareholder return (TSR). The bonus pool in respect of each financial year is calculated as 20% of the higher of the NAV growth during this financial year, which exceeds 8% growth p.a., or the TSR of the Company during the financial year which exceeds 8% p.a.

In the financial year ended 31 March 2011 the available bonus pool was based on the growth in TSR (higher than NAV) in the year from 11 November 2009 (being the date of appointment of the two current executive directors) over a pro rata 8% target per annum. Based upon this calculation, the bonus pool in respect of that period amounts to £457,019. The Remuneration Committee determined that from this fund an immediate special bonus of £10,000 be paid to the Chief Financial Officer Mr White in recognition of the special additional work needed from him during the year and subsequently with the share Placing in 2011. Of the remaining balance of £447,019 one third vests immediately and the remaining two thirds is deferred into conditional equity awards. The deferred awards will be settled by an option over the equivalent number of ordinary shares to be held in an Employee Benefit Trust (EBT) following the announcement of these results, based on the average of the closing share prices for the three consecutive dealing days immediately following the announcement.

The deferred award shall vest in two equal instalments. The first instalment at the end of the first anniversary of the grant and the remainder shall vest on the second anniversary of the grant, provided that the remuneration committee is satisfied that the NAV or TSR of the Company achieved at the end of the financial period relevant to the bonus pool has been sustained over the proceeding financial year(s) comprised in the calculation and that employment conditions are fulfilled to the date of vesting.

In accordance with IFRS2, the fair value of the share options awarded in respect of the deferred element will be spread over the period to which the non-market performance conditions, being continued employment with the Company, apply.

Remuneration Committee’s reportcontinued



19

Option schemes No further options were granted during the year.

At the general meeting on 11 February 2010 two sets of options over shares in the Company were awarded:

Market value optionsA one-off grant of 179,212 ordinary shares was made to two executive directors of the Company. These were granted at a price equal to the closing middle market quotation of a share on the dealing day immediately preceding the date on which the option was exercised. At the date of this report these options had been exercised and shares allocated from Treasury-held stock as follows:

Options granted

Optionsexercised

Price/share

Valuepaid £

Eric Anstee 89,606 89,606 68 pence 60,932John Kent 89,606 89,606 68 pence 60,848

Fixed price optionsOptions over 230,000 shares in the Company were awarded to executive directors and senior employees at a fixed price of 55.8 pence per ordinary shares. These were allocated as shown below:

Number of ordinary shares under option

Eric Anstee 100,000John Kent 70,000Trevor Hanham 30,000Graham White 30,000Total 230,000

These options become exercisable in full on 11 November 2012, being the third anniversary of the appointment date of the executive directors, and are subject to employment conditions during that period. The options lapse on 11 November 2019, if not exercised by that date.

The Company was advised by Norton Rose LLP on the design of the incentive scheme.

Performance graphThe performance graph shows the total shareholder return delivered by the Group over the five years ended 31 March 2011, in comparison to the total shareholder return delivered by the FTSE Fledgling Index. The Board selected the FTSE Fledgling Index to take into account both the size of the Group and the change in mix of operating activities and investments over the period.

Total return analysisTotal return graph – 2006 to 2011 indexed to 100

Audited informationThe following disclosures on directors’ remuneration have been audited as required by section 447 of the Companies Act 2006 and the Listing Rules.

The remuneration of directors who served during 2009-10 and 2010-11 is shown in the table overleaf. Remuneration includes management salaries, fees as directors, taxable benefits and the incentive scheme. Remuneration shown is in respect of each director’s period in office during the year as a Board member of City of London Group plc and includes remuneration from the Company and its subsidiary undertakings. Taxable benefits comprise the provision of private medical health insurance.

200

180

160

140

120

100

80

60

402006 2007 2008 2009 2010 2011

City of London Group plcFTSE Fledgling



20

Total remuneration

Audited Information

Incentive Scheme

Current

Deferredvested in

year(g) Total remuneration

Salary Benefits Fees Sub-total 2011 2010

Executive Chairman DR Walton Masters (a) – – – 69,167Non-executive ChairmanH Lafferty (b) – 49,500 49,500 – – 49,500 37,967Chief ExecutiveEE Anstee (c) 100,980 100,980 74,646 – 175,626 65,272DirectorsJCW Kent (d) 55,670 – 55,670 54,842 – 110,512 37,560Non-executive directorJW Greenhalgh (e) 1,781 16,000 17,781 – – 17,781 24,427

156,650 1,781 65,500 223,931 129,488 – 353,419 234,393

(a) DR Walton Masters resigned on 2 September 2009.(b) H Lafferty became Non-executive Chairman on 2 September 2009. He had previously been a non-executive director.(c) EE Anstee was appointed on 11 November 2009.(d) JCW Kent was appointed on 11 November 2009.(e) JW Greenhalgh became a non-executive director on 21 August 2008; previously he had been Chairman and

Managing Director.

The directors’ interests in the deferred elements of the long terms incentive scheme were as follows:

1 April 2010 Granted Vested

31 March 2011

EE Anstee2009/10 deferred incentive (1st year) 29,913 – – 29,9132009/10 deferred incentive (2nd year) 29,913 – – 29,9132010/11 deferred incentive (1st year) – 74,646 – 74,6462010/11 deferred incentive (2nd year) – 74,646 – 74,646JCW Kent2009/10 deferred incentive (1st year) 21,977 – – 21,9772009/10 deferred incentive (2nd year) 21,977 – – 21,9772010/11 deferred incentive (1st year) – 54,843 – 54,8432010/11 deferred incentive (2nd year) – 54,842 – 54,842Total 103,780 258,977 – 362,757



21

The deferred element of the long-term incentive scheme is charged in the financial statements at fair value as follows:

Notional value

1 April 2010

2011 Granted

Future vested

Total31 March

2011

EE Anstee2009/10 deferred incentive (1st year) 6,393 18,582 4,938 29,9132009/10 deferred incentive (2nd year) 4,433 11,246 14,234 29,9132010/11 deferred incentive (1st year) – 32,878 39,814 72,6922010/11 deferred incentive (2nd year) – 21,718 48,077 69,795JCW Kent2009/10 deferred incentive (1st year) 4,697 13,652 3,628 21,9772009/10 deferred incentive (2nd year) 3,257 8,262 10,458 21,9772010/11 deferred incentive (1st year) – 24,155 29,251 53,4062010/11 deferred incentive (2nd year) – 15,956 35,322 51,278Total 18,780 146,449 185,722 350,951

(f) The non-cash award which will be settled in shares. The fair value of the award recognised in the period ended 31 March 2011 was £219,461 of which £126,513 related to E Anstee and £92,948 related to J Kent. £32,504 of the 2010 award was recognised in the period ended 31 March 2011 of which £18,852 related to E Anstee and £13,652 related to J Kent.

(g) The non-cash award which will be settled in shares. The fair value of the award recognised in the period ended 31 March 2010 was £18,780 (2009: nil) of which £10,826 related to E Anstee and £7,954 related to J Kent.

The directors’ interests in the market value and fixed price share schemes are as follows:

Option tableDate

of grant 01/04/2010Grant

in yearExercised

in year 31/03/2011Exercisable

fromExercisable

toExercise

price

EE Anstee – Chief Executive 11/02/2010 100,000 – 100,000 11/11/2012 11/11/2019 55.8 pence

JCW Kent – Director 11/02/2010 16,826 – 16,826 – 11/02/2010 11/10/2010

Market price on date preceding date exercised

11/02/2010 70,000 – – 70,000 11/11/2012 11/11/2019 55.8 pence

No gains were made on the exercise of the options exercised during the year, all of which related to market price options.

The market price of shares on 31 March 2011 was 95 pence (2010: 72.5 pence) and the average price for the year was 83.5 pence. During the year the highest price reached was 96p and the lowest 67p.


22

The allocation of the 2010/2011 annual and deferred incentive plan to the executive directors is shown below.

Director

Annual bonus element

£

Deferred grant in shares

£

Total value

£

EE Anstee 74,646 149,293 223,939JCW Kent 54,842 109,685 164,527Total 129,488 258,978 388,466

The deferred element of the bonus will be satisfied by the issue of joint share ownership arrangements with an Employee Benefit Trust established over shares based on the share price for the three dealing days following the announcement of these results. The resulting fair value of these shares will be recognised over the service period of one year from the date of the announcement of these results for 50% of the resulting shares and two years from the date of announcement of these results for the remaining 50% of the shares.

Henry LaffertyChairman of the Remuneration Committee 27 June 2011



23

Consolidated statement of comprehensive income for year ended 31 March

Continuing operations Note

Year to 31 March

2011£

Year to 31 March

2010£

Revenue 4 792,451 175,370Cost of sales 4 (333,306) –Gross profit 459,145 175,370Administrative expenses 6 (2,413,898) (927,212)Profit on sale of investments 7 1,609,895 1,352,486Provision for impairment of investments 7 (215,244) (332,727)Profit on legal cases 7 31,625 –Other operating income 8 22,773 26,597Exceptional item 9 – (46,092)Operating (loss)/profit (505,704) 248,422Financial expenses 11 (45,260) (4,783)Loss/(profit) before tax on continuing operations (550,964) 243,639Income tax expense 12 98,749 –(Loss)/profit after tax on continuing operations (452,215) 243,639Loss after tax on discontinued operations 13 – (112,837)(Loss)/profit for the year (452,215) 130,802Other comprehensive incomeAvailable-for-sale investments– Valuation gains taken on equity Investments 3,564,382 2,293,654– Transferred to profit or loss on sale (1,609,895) (829,275)– Deferred tax provision (397,416) –Other comprehensive income for the year 1,557,071 1,464,379Total comprehensive income for the year 1,104,856 1,595,181Profit attributable to:Equity holders 12,867 142,526Minority interest (465,082) (11,724)

(452,215) 130,802Total comprehensive income attributable to:InvestmentsEquity holders 1,569,938 1,606,905Minority interest (465,082) (11,724)

1,104,856 1,595,181Basic and diluted earnings per share: continuing operations 0.12p 2.60pBasic and diluted earnings per share: discontinued operations – (1.15)pBasic and diluted total earnings per share 15 0.12p 1.45p


24

Consolidated statement of changes in equity

Attributable to owners of the parent company

Fair value reserve

£

Derivative reserve

£

Retained earnings

£

Share premium

£

Share capital

£Total

£

Attributable to non-controlling

interest £

Total equity £

At 1 April 2009 (469,515) – 614,665 5,107,329 1,018,663 6,271,142 9,123 6,280,265Changes in equity in year to 31 March 2010Available-for-sale investments– Valuation gains taken to equity 2,293,654 – – – – 2,293,654 – 2,293,654– Transferred to profit or loss on sale (829,275) – – – (829,275) – (829,275)Total other comprehensive income 1,464,379 – – – – 1,464,379 – 1,464,379Profit/(loss) for year – – 142,526 – – 142,526 (11,724) 130,802Total comprehensive income 1,464,379 – 142,526 – – 1,606,905 (11,724) 1,595,181Value of employee services – – 7,119 – – 7,119 – 7,119Arising on business combination (note 16) – – – – – – (268,025) (268,025)Sale of treasury shares (note 27) – – 49,248 64,638 – 113,886 – 113,886At 31 March 2010 994,864 – 813,558 5,171,967 1,018,663 7,999,052 (270,626) 7,728,426Changes in equity in year to 31 March 2011Available-for-sale investments– Valuation gains taken to equity 3,564,382 – – – – 3,564,382 – 3,564,382– Transferred to profit or loss on sale (1,609,895) – – – – (1,609,895) – (1,609,895)– Deferred tax provision (397,416) – – – – (397,416) – (397,416)Total other comprehensive income 1,557,071 – – – – 1,557,071 – 1,557,071Profit/(loss) for year – – 12,867 12,867 (465,082) (452,215)Total comprehensive income 1,557,071 – 12,867 – – 1,569,938 (465,082) 1,104,856Value of employee services – – 185,257 185,257 – 185,257Arising on business combination (note 16) – (242,184) – – – (242,184) 215,940 (26,244)Dividends paid – – (103,714) – – (103,714) – (103,714)Issue of shares – – – 619,281 95,000 714,281 – 714,281Sale of treasury shares (note 27) – – 4,935 6,355 – 11,290 – 11,290At 31 March 2011 2,551,935 (242,184) 912,903 5,797,603 1,113,663 10,133,920 (519,768) 9,614,152

The fair value reserve represents the net gains and losses recognised in respect of ‘available-for-sale’ investments. The reserve is distributable to equity holders except to the extent that gains and losses are treated as unrealised for company law purposes. Gains and losses are considered realised to the extent that they are readily convertible to cash. The derivative reserve represents the discounted fair value attributable to owners of the parent company on inception of the amount payable under a put-option over the non-controlling interest in Trade Finance Partners Limited.


25

Company statement of changes in equity

Fair value reserve

£

Retained earnings

£

Share premium

£

Share capital

£Total

£

At 1 April 2009 (469,515) 643,948 5,107,329 1,018,663 6,300,425Changes in equity in year to 31 March 2010Available-for-sale investments– Valuation gains taken to equity 2,293,654 – – – 2,293,654– Transferred to profit or loss on sale (829,275) – – – (829,275)Total other comprehensive income 1,464,379 – – – 1,464,379Profit for year – 135,818 – – 135,818Total comprehensive income 1,464,379 135,818 – – 1,600,197Value of employee services – 7,119 – – 7,119Sale of treasury shares (note 27) – 49,248 64,638 – 113,886At 31 March 2010 994,864 836,133 5,171,967 1,018,663 8,021,627Changes in equity in year to 31 March 2011Available-for-sale investments– Valuation gains taken to equity 3,564,382 – – – 3,564,382– Transferred to profit or loss on sale (1,609,895) – – – (1,609,895)– Deferred tax provision (397,416) – – – (397,416)Total other comprehensive income 1,557,071 – – – 1,557,071Profit for year – 518,880 – – 518,880Total comprehensive income 1,557,071 518,880 – – 2,075,951Value of employee services – 185,257 – – 185,257Dividends paid – (103,714) – – (103,714)Issue of shares – – 619,281 95,000 714,281Sale of treasury shares (note 27) – 4,935 6,355 – 11,290At 31 March 2011 2,551,935 1,441,491 5,797,603 1,113,663 10,904,692

The fair value reserve represents the net gains and losses recognised in respect of ‘available-for-sale’ investments (see note 2). The reserve is distributable to equity holders except to the extent that gains and losses are treated as unrealised for company law purposes. Gains and losses are considered realised to the extent that they are readily convertible to cash.


26

Consolidated balance sheet as at 31 March

Notes

31 March 2011

£

31 March 2010

£

Non-current assetsIntangible assets 16 920,642 582,707Property, plant and equipment 17 86,595 20,247‘Available-for-sale’ financial assets 18 6,963,019 6,293,347Operating investments 19 386,852 411,852Investments in legal funds 20 4,020,153 530,265Total non-current assets 12,377,261 7,838,418Current assetsInventories 21 14,759 –Trade and other receivables 22 2,235,224 225,162Cash and cash equivalents 23 2,254,812 1,370,278Total current assets 4,504,795 1,595,440Total assets 16,882,056 9,433,858Current liabilitiesBorrowings 24 (2,950,249) (49,000)Trade and other payables 24 (3,700,575) (1,059,732)Total current liabilities (6,650,824) (1,108,732)Non-current liabilities Borrowings 25 – (551,900)Trade and other payables 25 (17,616) (44,800)Deferred taxation 26 (296,734) –Derivative financial instrument 25 (302,730) –Total non-current liabilities (617,080) (596,700)Total liabilities (7,267,904) (1,705,432)Net assets 9,614,152 7,728,426EquityShare capital 27 1,113,663 1,018,663Share premium 5,797,603 5,171,967Retained earnings 912,903 813,558Fair value reserve 2,551,935 994,864Derivative reserve (242,184) –

10,133,920 7,999,052Non-controlling interests 28 (519,768) (270,626)Total equity 9,614,152 7,728,426

The Financial Statements were approved by the Board and authorised for issue on 27 June 2011.

They were signed on its behalf by:

EE AnsteeDirector


27

Company balance sheetas at 31 March 2011

Notes

31 March 2011

£

31 March 2010

£

Non-current assetsProperty, plant and equipment 17 78,369 14,684‘Available-for-sale’ financial assets 18 6,963,019 6,293,347Operating investments 19 1,198,146 988,455Investment in legal funds 20 3,420,315 412,850Total non-current assets 11,659,849 7,709,336Current assetsTrade and other receivables 22 2,340,136 356,803Cash and cash equivalents 23 113,814 545,582Total current assets 2,453,950 902,385Total assets 14,113,799 8,611,721Current liabilitiesBorrowings 24 (2,017,607) –Trade and other payables 24 (877,150) (568,000)Total current liabilities (2,894,757) (568,000)Non-current liabilitiesTrade and other payables 25 (17,616) (22,094)Deferred taxation 26 (296,734) –Total non-current liabilities (314,350) (22,094)Total liabilities (3,209,107) (590,094)Net assets 10,904,692 8,021,627EquityShare capital 27 1,113,663 1,018,663Share premium 5,797,603 5,171,967Retained earnings 1,441,491 836,133Fair value reserve 2,551,935 994,864Total equity 10,904,692 8,021,627

The Financial Statements were approved by the Board and authorised for issue on 27 June 2011.

They were signed on its behalf by:

EE AnsteeDirector


28

Consolidated statement of cash flows for the year ended 31 March 2011

31 March 2011

£

31 March 2010

£

Cash flows from operating activities(Loss)/profit before taxation (550,964) 136,772Adjustments for:Depreciation and amortisation charges 21,779 111,271Share based payment 185,257 7,119Dividends receivable (141,459) (134,026)Impairment of available-for-sale financial assets 215,244 332,727Profit on disposal of investments (1,609,895) (1,352,486)Profit on legal cases (31,625) –Loss on disposal of property, plant and equipment – 70Loss on disposal of trade – 108,329Interest received (210,391) (32,855)Finance costs 45,260 5,172Changes in working capital:Increase in stock (14,759)Increase in trade and other receivables (1,094,251) (50,335)Increase in trade and other payables 2,566,676 102,046Cash used in operations (619,128) (766,196)Income taxes (1,933) (5,970)Net cash used in operating activities (621,061) (772,166)Cash flows from investing activitiesInterest received 67,729 21,481Purchases of intangible assets (27,846)Purchases of property, plant and equipment (87,474) (16,825)Purchases of non-current investments (5,469,140) (2,630,002)Proceeds from legal case investments 682,029 –Acquisition of subsidiary companies 200,040 467,390Dividends received 124,746 134,026Proceeds from sale of non-current investments 3,908,314 2,260,992Advance of loans (1,210,000)Repayment of loans 350,000Net cash (used in)/from investing activities (1,461,602) 237,062Cash flows from financial activitiesInterest paid (4,009) (5,172)Dividends paid to company’s shareholders (103,714) (766)Proceeds from issue of loan notes 1,600,000 –Proceeds from issue of ordinary shares 714,281 –Sale of treasury shares 11,290 113,886Net cash from financing activities 2,217,848 107,948Net increase/(decrease) in cash and cash equivalents 135,185 (427,156)Cash and cash equivalents at 1 April 1,370,278 1,797,434Net cash and cash equivalents at 31 March 1,505,463 1,370,278Cash and cash equivalents at 31 March 2,254,812 1,370,278Bank overdraft (749,349) –Net cash and cash equivalents at 31 March 1,505,463 1,370,278


29

Company statement of cash flows for the year ended 31 March

31 March 2011

£

31 March 2010

£

Cash flows from operating activitiesProfit before taxation 418,198 135,818Adjustments for:Depreciation charges 17,954 3,270Share based payments 185,257 7,119Provision for losses in subsidiaries 90,386 326,223Dividends receivable (141,459) (134,026)Impairment of available-for-sale financial assets 215,244 332,727Profit on disposal of investments (1,609,895) (1,352,486)Profit on legal cases (25,151) –Interest received (221,961) (21,378)Interest paid 1,088 241Changes in working capital:Increase in trade and other receivables (944,602) (196,860)Increase in trade and other payables 304,672 383,024Cash used in operations and net cash used in operating activities (1,710,269) (516,328) Cash flows from investing activitiesInterest received 59,943 21,378Purchases of property, plant and equipment (81,639) (15,782)Purchases of non-current investments (4,919,937) (2,676,557)Acquisition of subsidiaries (200,079) (449,003)Dividends received 124,746 134,026Proceeds from sale of non-current investments 3,908,316 2,260,992Proceeds from investment in legal cases 608,775 –Advance of loans (1,210,000) –Repayment of loans 350,000 –Net cash used in investing activities (1,359,875) (724,946)Cash flows from financial activitiesInterest paid (1,088) (241)Dividends paid to company’s shareholders (103,714) (766)Proceeds from issue of loan notes 1,600,000 –Proceeds from issue of ordinary shares 714,281 –Sale of treasury shares 11,290 113,886Net cash from financing activities 2,220,769 112,879Net decrease in cash and cash equivalents (849,375) (1,128,395)Cash and cash equivalents at 1 April 545,582 1,673,977Net cash and cash equivalents at 31 March (303,793) 545,582Cash and cash equivalents at 31 March 113,814 545,582Borrowings (417,607) –Net cash and cash equivalents at 31 March (303,793) 545,582


30

• IFRS 1 – Severe Hyperinflation and Removal of fixed Date to First-time Adopters Limited Exemption from Comparative IFRS 7 Disclosure for First-time Adopters

• IFRS 7 Disclosures – Transfer of Financial Assets (amended)

• Improvements – Improvements to IFRS 2010 to IFRS 2010

• IFRS 9 – Financial Instruments

• IFRIC 14 – Limit on Defined Benefit Asset (amended)

• IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments

The Group considers that of these standards and interpretations only IFRS 9 will have a material impact on the financial statements of the Group when the respective standards or interpretations come into effect.

2.2 ConsolidationSubsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. In accordance with IAS 27, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets on a transaction by transaction basis.

1 General informationCity of London Group plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of its registered office is 30 Cannon Street, London EC4M 6XH. The Company is listed on the London Stock Exchange.

City of London Group plc is a closed-ended investment company with a portfolio of ‘available for sale’ investments and a number of operating investments in the financial services sector. Details of the activities of the Group are given in the directors’ report.

These consolidated and separate financial statements have been approved for issue by the Board of directors on 27 June 2011.

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparationThe consolidated and separate financial statements of City of London Group plc have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The consolidated and separate financial statements have been prepared under the historical cost convention, as modified by the revaluation of ‘available-for-sale’ financial assets (including operating investments, investment in legal funds) and derivatives. These financial instruments are carried at fair value.

The directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. The Group’s going concern position is further discussed in the directors’ report on page 13.

At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective:

• IAS 12 – Deferred Tax: Recovery of Underlying Assets (amended)

• IAS 24 – Related Party Disclosures – Revised definition of related parties

Notes (forming part of the financial information)


31

2.3 AssociatesAn associate is an entity over which the Group is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments.

Any excess of the cost of acquisition over the Group’s share of the book values of the identified net assets of the associate at the date of acquisition is recognised as goodwill.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

2.4 Business combinationsThe Group uses the acquisition method of accounting to account for business combinations. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related expenses are expensed as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interests in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised.

On an acquisition by acquisition bases, the Group recognises any non-controlling interest in the acquree either at fair value or at the non-controlling interests’ proportion share of the acquiree’s net assets. The Group treats transactions with the non-controlling interest as transactions with equity owners of the Group. For purchases from non-controlling interests the difference between the consideration paid and the relevant share of net assets acquired is recorded in equity.

2.5 Intangible assetsGoodwill arising on consolidation represents the excess of the cost at acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or associate at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually or more frequently when there is an indication it may be impaired. For the purposes of assessing impairment, goodwill is allocated to the cash-generating units expected to benefit from the synergies of the combination. Any impairment is recognised immediately in profit and loss and is not subsequently reversed.

Other intangible assets are stated at historical cost less accumulated amortisation and impairment losses. Amortisation is provided to write off the cost less the estimated residual value of intangible assets by equal annual instalments over their estimated useful economic lives as follows:

Website development 3 years straight-lineSystems development 3 years straight-line

The other intangible assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

2.6 Property, plant and equipmentProperty, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Depreciation is provided to write off the cost less the estimated residual value of property, plant and equipment by equal annual instalments over their estimated useful economic lives as follows:

Fixtures, fittings & equipment 3 years straight-line

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.


2 Summary of significant accounting policies (continued)

2.7 Impairment of non-financial assetsThe carrying value of the non-current assets is reviewed on an on-going basis to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.

The recoverable amount of property, plant and equipment is the greater of its fair value less costs to sell and value in use. The recoverable amount of goodwill is its value in use.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

2.8 Financial assetsThe Group and the Company classify financial assets in the following categories: loans and receivables, ‘available-for-sale’ financial assets, operating investments and investment in legal funds.

The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date.

(a) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as ‘trade and other receivables’ in the balance sheet.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group or Company will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default

or delinquency on payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement within ‘administrative expenses’.

(b) ‘Available-for-sale’ financial assetsAvailable-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories specified by IAS 39 Financial Instruments: Recognition and Measurement.

Purchases and sales of investments are recognised on trade date – the date on which the Group or Company commits to purchase or sell the asset. Investments are initially recognised at fair value, including directly attributable transaction costs. ‘Available-for-sale’ financial assets are subsequently carried at fair value and gains and losses arising from changes in fair value are recognised directly in equity. They are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group or Company has transferred substantially all risks and rewards of ownership.

When securities classified as available-for-sale are sold or permanently impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as ‘profit on sale of investments’ and ‘provision for impairment of investments’ respectively. Interest accrued on available-for-sale securities carrying a fixed interest rate is recognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement when the Group and Company’s right to receive payments is established.

The fair values of quoted investments are based on bid prices prevailing at the balance sheet date. If the market for a financial asset is not active (and for unlisted securities), the Group and Company establish fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.

32

Notes (forming part of the financial information)continued


33

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not subsequently reversed in the income statement unless the underlying instrument is derecognised.

(c) Operating investmentsOperating investments are substantial investments (typically below 20 per cent of the equity of the investee company) that the Group intends to hold for the foreseeable future. Operating investments are initially recorded and subsequently measured in accordance with the principles laid out above for available-for-sale financial assets but are separately disclosed on the face of the balance sheet, as the associated financial risks differ from the portfolio of available-for-sale financial instruments.

(d) Investments in legal fundsSeed funding is made into funds which are used to fund legal cases. Initial recognition of an investment is made when payment to the fund is made. The investments are subsequently carried at fair value and gains and losses arising from changes in fair value of each fund are recognised directly in equity in accordance with the principle outlined above for available-for-sale financial instruments. De-recognition occurs when funds are returned and any profits or losses are taken to the profit and loss account at this time. (e) Investment in subsidiariesInvestments in subsidiaries are accounted for at cost less impairment. Cost also include directly attributable costs of investment.

2.9 InventoriesInventories are stated at cost or net realisable value whichever is the lower.

2.10 Cash and cash equivalentsCash and cash equivalents comprise cash in hand, call deposits with maturity of less than three months, and bank overdrafts. Funds held by brokers are classed as cash if held in an account in a group company name. If held in the brokers’ name, they are included in other debtors. Bank overdrafts are included in borrowings under current liabilities.

2.11 Financial liabilities and equityFinancial liabilities and equity instruments are classified according to the substance of the contractual obligations entered into. An equity instrument is any contract which evidences a residual interest in the assets of the Group after deducting all of its liabilities.

2.12 Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

When the Group purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable issues costs is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. When such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs is included in equity attributable to the Company’s equity holders.

2.13 DividendsDividends declared on the Company’s equity share capital are recognised as a liability when an irrevocable obligation to pay the dividends is established. In the case of interim dividends this arises when the dividend is paid. In the case of final dividends this is the date at which the dividends are approved at a shareholders’ general meeting.

2.14 Preference sharesPreference shares held by non-controlling interests in subsidiary companies are included as borrowings in non-current liabilities. The dividends on these preference shares are recognised in the income statement as interest expense.



34

2 Summary of significant accounting policies (continued)

2.15 Trade payablesLiabilities are recognised as trade payables when an invoice is received. Expenses incurred for which an invoice has not as yet been received are included in accruals and deferred income. Trade payables are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method.

2.16 BorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised at transaction costs of the loan to the extent that it is probable the some or all of the facility will be drawn down.

2.17 LeasesLeases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

2.18 Derivative financial instrumentsAre initially recognised at fair value on the date of the contract is entered into and subsequently re-measured at their fair value.

2.19 Segment reportingOperating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the full board of the Company.

2.20 RevenueRevenue comprises dividend and interest income and investment management fees arrangement fees, trade finance fees and stock sales. Dividend income is recognised when the right to receive payment is established. Interest income is recognised on an accruals basis using the effective interest rate method. Fee income is recognised in the period in which the underlying services are provided. Inventory sales and recognised on the date the title to the goods transfers.

2.21 Foreign currenciesThe functional currency of the Company and its subsidiaries and associates is determined by the primary economic environment in which the entity operates. The functional and presentational currency of the Company a its subsidiaries is pound sterling (£). Transactions denominated in foreign currencies have been translated into sterling at the actual rates of exchange ruling at the date of the transaction or valuation when items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Translation differences on non-monetary financial assets, such as equities classified as ‘available-for-sale’, are included in other comprehensive income, to the extent that they are not considered permanently impaired where the impairment is charged through the profit and loss.

2.22 Employee benefitsShare based paymentThe Group operates a number of equity-settled share-based payment compensation plans under which the entity receives services from employees as consideration for equity instruments of the Group.

The fair value of the employee services received by the Group is recognised as an expense. The total value of the expense is determined by reference to the fair value of the equity award granted including any market performance conditions, but excluding non-market conditions such as continued employee service periods. Non-market conditions are included in the assumptions about the number of equity awards that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all the specified vesting conditions are to be satisfied.



35

Where the employee services are received in advance of the formal grant date of the equity award, as is the case with the deferred element of the Group’s long term incentive plan, the fair value of the award is estimated at each reporting date preceding the grant date and the cumulative recognised charge is adjusted as appropriate when the fair value is ultimately calculated on grant. At each reporting date the Group updates its estimate of the number of options that are expected to vest based on the non-market vesting conditions. It recognised the impact of the revision to original estimates, if any, in the income statement with a corresponding adjustment to equity.

Where relevant the social security contributions payable in connection with the grant of equity awards is considered an integral part of the grant itself, and the charge will be treated as a cash settled transaction.

Annual and deferred incentive schemeThe Group recognises a liability and an expense for bonuses and profit sharing based on the increase in the higher of total shareholder return or increase in net assets per share against a benchmark of 8% per annum. The liability is recognised where there is either a contractual obligation or past practice has established a constructive obligation. Deferred incentive scheme bonuses are treated as equity-settled share-based payments in accordance with the policy outlined above.

2.23 Income taxIncome tax on the result for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.

Deferred income tax assets are recognised to the extent that it is possible that future taxable profit will be available against which the temporary differences can be utilised.

3 Judgements and estimatesThe preparation of financial information in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Impairment of ‘available-for-sale’ financial assetsThe Group and the Company follow the guidance from IAS 39 when determining whether an investment is other than temporarily impaired. This determination requires significant judgement. In making this judgement, the Group and Company evaluate, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health and near–far business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flows.

If the impairments that were considered temporary had been considered permanent, retained earnings would be reduced and the revaluation reserve increased by £274,311 (2010: £553,259). There would be no overall effect on the net assets of the Group or Company. Assessing fair value of unlisted ‘available-for-sale’ financial assetsFair values of unlisted ‘available-for-sale’ financial assets are determined using valuation techniques. The Group and the Company use their judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. The Group’s most significant unlisted investments are those in ‘operating investments’ and ‘investments in legal funds’, both of which are separately disclosed on the balance sheet.


36


3 Judgements and estimates (continued)Operating investments are valued using valuation techniques as described in note 2. Based on their knowledge of the underlying investee companies, management has concluded that no write down of value is appropriate in respect of these investments as the underlying performance is in line with expectations inherent in the Group’s initial investment.

The fair value of investment in legal funds is inherently based on the potential value of the underlying legal claims for which the funds have provided financing. While advice is taken on an on-going basis from legal counsel and extensive due diligence is carried out by the funds prior to providing finance for specific cases, there is an unavoidable risk that the ultimate outcome of the underlying cases will differ from expectations which could adversely affect the fair value of the overall investment. Cases are assessed on a case by case basis and impaired if considered necessary.

Acquisition accounting Goodwill arising on the acquisition of City of London Confirming House Limited and SHF Legal Funding Limited during the year is implicitly a balancing figure based on the calculation of the fair values of identifiable assets and liabilities existing in the acquiree. No intangibles were recognised outside goodwill. As goodwill is not amortised but is instead subject to annual impairment review, any overstatement of goodwill may lead to increased volatility in the Group’s operating results arising from impairment charges. Further details of the fair values of the identifiable assets and liabilities of Therium, City of London Confirming House Limited and SHF Legal Funding Limited and the resulting goodwill may be found in note 16.

Limited Liability PartnershipsTherium has raised two separate Limited Liability Partnerships (LLP’s) in order to supplement monies directly invested in cases. The first of these was in existence at 31 March 2011 with capital raised of £2,400,000. The funds are not controlled or advised by City of London Group and the capital concerned has the litigation risk matched by the cases where the funds are invested. Accordingly these funds are therefore not consolidated as investments in legal cases, except to the extent the Group has invested its money in the LLP’s, nor are the monies managed from third parties accounted for as liabilities.

Impairment of goodwillJudgement as to the impairment of goodwill is based on the forecast profitability of the underlying investments in the foreseeable future. As actual results may deviate from these expectations, and as noted above, there is a risk of increased volatility arising in the Group’s operating results from goodwill impairment if results are lower than anticipated. The goodwill associated with Fundamental Tracker Investment Management Limited was impaired in the previous year, and the investment is now carried at book value. Due to the nature of Therium Capital Management Limited business profits were not expected in the first full year since acquisition, performance is still in accordance with expectations and no impairment was considered necessary. Trade Finance Partners Limited and SHF Legal Funding Limited are recent investments and performance in the short time since the dates of the acquisition have been in line with expectations no impairment was considered necessary.

4 Revenue and cost of sales

31 March 2011

£

31 March 2010

£

Dividends receivable 141,459 134,026Interest receivable 210,391 21,481Income from investments 351,850 155,507Investment management fee income 17,404 19,863Arrangement fees 47,168 –Trade finance fees 42,723 –Stock sales 333,306 –Total 792,451 175,370

The total amount of stock recognised as an expense in generating stock sales was £333,306 (2010: £nil).


37

5 Segment reportingThe principal trading subsidiaries are considered to operate in business segments other than the principal activity of the parent company. These companies are managed by their own directors and therefore information relating to the separate business segments is also disclosed to the chief operating decision-maker.

Operating segments Group 2011Income statement information

General Investment

£

Fund Management

Trade Finance

Investment in Legal Funds

£Total

£

Revenue 346,770 25,024 413,196 7,461 792,451Operating profit/(loss) 471,611 (100,149) (153,813) (723,353) (505,704)Financial expenses (42,339) – (2,921) – (45,260)Pre-tax profit/(loss) 429,272 (100,149) (156,734) (723,353) (550,964) Group 2010Income statement information

General Investment

£

Fund Management

Trade Finance


£Total

£

Revenue 155,430 19,863 – 77 175,370Operating profit/(loss) 458,519 (200,271) – (9,826) 248,422Financial expenses (241) – – (4,542) (4,783)Pre-tax profit/(loss) 458,278 (200,271) – (14,368) 243,639

Group 2011Balance sheet information

General Investment

£

Fund Management

Trade Finance


£Total

£

Assets 10,203,567 82,493 964,799 5,631,197 16,882,056Liabilities (3,354,168) (14,915) (368,301) (3,530,520) (7,267,904)Net assets 6,849,399 67,578 596,498 2,100,677 9,614,152

Group 2010Balance sheet information

General Investment

£

Fund Management

Trade Finance


£Total

£

Assets 7,709,860 128,735 – 1,595,263 9,433,858Liabilities (395,092) (11,017) – (1,299,323) (1,705,432)Net Assets 7,314,768 117,718 – 295,940 7,728,426 Group 2011Additional information

General Investment

£

Fund Management

Trade Finance


£Total

£

Additions to non-current assets 1,761,815 1,531 30,942 3,590,132 5,384,420Depreciation and amortisation 17,954 1,086 620 2,119 21,779Proceeds from sale of non-current assets 3,908,314 – – – 3,908,316Impairment losses recognised in income 215,244 – – – 215,244


38

5 Segment reporting (continued)Group 2010Additional information

General Investment

£

Fund Management

Trade Finance


£Total

£

Additions to non-current assets 1,912,152 1,043 – 266,295 2,179,490Depreciation and amortisation 3,270 107,950 – 51 111,271Proceeds from sale of non-current assets 2,260,992 – – – 2,260,992Impairment losses recognised in income 332,727 – – – 332,727

Information about geographic areasGeographical information is determined by reference to the geographical location of the Group’s customer or underlying investment. The geographical location of ‘available-for-sale’ assets is taken to be that of the exchange on which they are quoted. Cash is shown under the geographical location of the country whose currency it is denominated in.

Group 2011Income statement information

United Kingdom

£Australia

£Europe

£

USA &Canada

£Total

£

Continuing operations Revenue 574,076 10,922 206,065 1,388 792,451Result 1,339,919 604,419 210,013 118,750 2,273.101Unallocated cost of sales (333,306)Unallocated admin expenses (2,445,499)Financial expenses (45,260)Profit from continuing operations (550,964)Profit from discontinued operations –Profit for the year (550,964)

Group 2010Income statement information

United Kingdom

£ Australia

£Europe

£

USA &Canada

£Total

£

Continuing operationsRevenue 166,337 7,656 – 1,377 175,370Result 521,554 773,073 – (56,527) 1,238,100Unallocated admin expenses (943,586)Exceptional item (46,092)Financial expenses (4,783)Profit from continuing operations 243,639Profit from discontinued operations (112,837)Profit for the year 130,802

There are no non-current assets apart from financial instruments. Details of the geographical spit of non-current financial instruments is included in notes 18 and 33.



39

6 Administrative expenses

2011£

2010£

Staff costs Payroll incentive award

(see note 10) 295,820 83,131 Other payroll (see note 10) 1,121,912 230,264 Less exceptional item – (40,000) Other staff costs 105,236 71,124Establishment costs Operating lease rentals

(land and buildings) 160,613 97,351 Other establishment costs 210,844 81,162Fees due to auditors (see below) 62,000 34,750Other professional fees 459,063 274,533Depreciation 21,129 4,066Amortisation 653 35Impairment of goodwill – 107,170Foreign exchange gain (23,372) (16,374)Total 2,413,898 927,212

*Payroll costs do not include fees paid to non-executive directors.

Directors’ emoluments excluding the non-vested portion of the incentive award of £362,420 (2010: £234,393) are shown in the report of the Remuneration Committee. The notional value of the non-vested portion of the award is £258,972 (2010: £103,780).

Fees due to auditors2011

£2010

£

Fees payable to the Company’s auditor for the audit of the parent company and consolidated financial statements 25,500 25,000 Fees payable to the Company’s

auditors for other services: The audit of subsidiaries

pursuant to legislation 18,500 2,000 Less included in discontinued

operations – (1,000) Other services pursuant to

legislation 4,000 1,000 Tax services 14,000 7,750Total 62,000 34,750

7 Gains on financial assetsContinuing operations

Group

31 March 2011

£

31 March 2010

£

Gain recognised on de-recognition of ‘available-

for-sale’ financial assets 1,641,520 1,352,486Impairment loss recognised on ‘available-for-sale’ financial

assets (215,244) (332,727)1,426,276 1,019,759

The impairment loss of £215,244 includes £170,000 write-down of the St Helens Plc convertible loan note.The St Helens Finance plc Board announced on 18 February 2011 that it was running off its present book with no business prospects currently existing, and was withdrawing from the Plus market. In view of this announcement the loan note is considered unlikely to be redeemed. In the segment reporting the impairment loss was included in General Finance and United Kingdom., The other impairment loss relates to the investment in Alpha Universal (formerly Lotus Resources) an investment company in the mining sector. The Company announced that it had sold its major subsidiary and changed its name and investment strategy. This investment has been impaired down to its new Plus market value.

8 Other income

Group

31 March 2011

£

31 March 2010

£

Rental income 2,000 –Commission 773 10,389Director services 12,000 16,208Consultancy 8,000 –

22,773 26,597

9 Exceptional itemThe exceptional item consists of the cost of compensation for loss of office payments made to directors and the associated legal costs.

31 March 2011

£

31 March 2010

£Directors’ compensation for loss of office – (40,000)Associated legal costs – (6,092)

– (46,092)



40

10 Employee numbers and costsThe average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows:

Group31 March

201131 March

2010

Parent Company 6 4Subsidiaries 8 2Total 14 6

The aggregate payroll costs of these employees were as follows:

Group

31 March 2011

£

31 March 2010

£

Wages and salaries 949,799 173,544Bonus 799 –Pension 9,950 –Social security costs 161,364 16,710Incentive scheme: Current 152,340 61,047 Deferred 143,480 22,094Compensation for loss of office – 40,000

1,417,732 313,395

11 Financial expenses

Group

31 March 2011

£

31 March 2010

£

Continuing operations Bank overdraft interest 4,009 241Loan interest 12,442 1,323Subsidiary’s preference dividend 28,809 3,219Continuing operations 45,260 4,783Discontinued operations – 389

45,260 5,172



41

12 Income tax expense

31 March 2011 31 March 2010

Group

Discontinued operations

£

Continuing operations

£ Total

£

Discontinued operations

£

Continuing operations

£Total

£

UK corporation taxCurrent year charge – – – – – –Under provision from prior years – 1,933 1,933 5,970 – 5,970Total current tax – 1,933 1,933 5,970 – 5,970Deferred tax Origination/reversal of timing Differences – (100,682) (100,682) – – –Total tax charge – (98,749) (98,749) 5,970 – 5,970

Factors affecting the tax charge for the yearThe tax charge for the year differs from the theoretical amount that would arise using the standard rate of corporation tax in the UK, which is 28% (2010: 28%). The differences are explained below:

Group

31 March 2011

£

31 March 2010

£

Tax reconciliationProfit on ordinary activities before tax– Continuing operations (550,964) 243,639– Discontinued operations – (106,867)

(550,964) 136,772At standard rate of corporation tax in the UKUK (154,270) 38,296Effects of:Capital allowances in excess of depreciation 1,344 (3,562)Expenses not deductible for tax purposes 89,272 62,040Under-provision from prior years 1,933 5,970Non-taxed dividend income (39,609) (37,527)Movement on un-provided deferred tax 2,581 (59,247)Total tax charge (98,749) 5,970

Deferred tax recognised in incomeThe elements of deferred taxation provided are as follows:

Group

31 March 2011

£

31 March 2010

£

Difference between cost and valuation of available for sale investments – 86,162Excess management charges brought forward (100,682) (86,162)Total income (100,682) –

Deferred tax recognised in equityThe elements of deferred taxation provided are as follows:

Group

31 March 2011

£

31 March 2010

£

Difference between cost and valuation of available for sale investments 397,416 –Total expenses 397,416 –


42

13 Discontinued operationsThe Group sold its public relations business on 1 December 2007 to Lothbury Financial Limited. The business was sold for an initial consideration of £300,000 adjusted by the book value of the current assets and liabilities transferred, with a further £100,000 receivable after six months and a possible additional consideration of up to £100,000 dependent on the results in the twelve months to 30 November 2008. The additional consideration, which the board estimated to be £75,000 at 31 March 2008, was subsequently calculated to be £83,328. In the year to 31 March 2010 it was considered necessary to provide for the outstanding consideration and accrued interest that had not been paid as Lothbury Financial Limited was placed into Administration on 29 March 2010.

31 March 2011

£

31 March 2010

£

Revenue – 11,374Cost of sales – –Gross profit – 11,374Administrative expenses – (9,523)Loss on sale of trade – (108,329)Operating loss – (106,478)Financial expenses – (389)Loss before tax – (106,867)Income tax – (5,970)Loss for the year – (112,837)

The discontinued operation used £nil (2010: £5,970) in operating cash flows, contributed £nil (2010: £nil) to investing cash flows and £nil (2010: £nil) to financing cash flows.

14 Dividends

31 March 2011

£

31 March 2010

£

Paid and recognised during the yearFinal 2010 dividend of 0.5p (2009: Nil) per ordinary share paid 49,982 –Interim 2011 dividend of 0.5p (2010: Nil) per ordinary share paid 53,732Total 103,714Proposed for approval at the AGM and not recognised as a liabilityProposed final dividend of 1.0p (2010: 0.5) per ordinary share 183,697 49,898

The amount shown for the 2011 final includes that in respect of shares issued under the placing.

15 Earnings per shareBasicBasic earnings per share is calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the year less those held in treasury by the Company (see note 27).

31 March 2011

£

31 March 2010

£

Profit attributable to equity holders of the Company 12,867 142,526Weighted average number of ordinary shares in issue 10,510,308 9,814,387Basic earnings per share (pence per share) 0.12p 1.45p

DilutedDiluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares relate to share options and shares that may be granted under the incentive award. For share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. Adjustment is made for the full number of shares that could be granted under the incentive awards, the Company being due no consideration for the shares to be issued. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options and all incentive wards granted.

31 March 2011

£

31 March 2010

£

Profit attributable to equity holders of the Company 12,867 142,526Weighted average number of ordinary shares in issue 10,510,308 9,814,387Adjustment for share options 604,891 –Weighted average number of ordinary shares for diluted

earnings per share 11,115,199 9,814,387Diluted earnings per share (pence per share) 0.12p 1.45p



43

16 Intangible assets

Group Goodwill WebsiteSystems

developmentTotal

£

CostAt 31 March 2009 92,797 – – 92,797Additions (see below) 596,772 – – 596,772Acquired with subsidiary – 923 – 923At 31 March 2010 689,569 923 – 690,492Additions (see below) 310,742 – 27,846 338,588At 31 March 2011 1,000,311 923 27,846 1,029,080Accumulated amortisation and impairmentAt 31 March 2009 – – – –Charge for amortisation in the year 107,170 35 – 107,205Acquired with subsidiary – 580 – 580At 31 March 2010 107,170 615 – 107,785Charge for amortisation in the year 308 345 653At 31 March 2011 107,170 923 345 108,438Carrying amountAt 31 March 2011 893,141 – 27,501 920,642At 31 March 2010 582,399 308 – 582,707

Goodwill associated with the acquisition of SHF Legal Funding Ltd, City of London Confirming House Limited (the holding company of Trade Finance Partners Limited) and Therium Asset Management Limited have been assessed on a value in use basis. As operating results were in line with expectations for the period since acquisition no impairment was required.

The Company has no intangible fixed assets. Goodwill arising in connection with the acquisition on 16 February 2011 of a controlling 99.96% stake in SHF Legal Funding Limited has been calculated as follows:

Book and fair value at16 February

2011£

Trade and other receivables 437,687Cash and cash equivalents 188,291Trade and other payables (546,959)Net assets 79,019Minority interest – share of net assets (17)Net assets acquired 79,002Goodwill arising 45,998Total consideration satisfied by the surrender of convertible loan note 125,000Cash acquired in the Company 188,291Consolidated cash inflow 188,291

The goodwill represents the value to the Group of the business contacts of the Company.


44


16 Intangible assets (continued)City of London Group plc held convertible loan notes issued by SHF Legal Funding Limited to the value of £125,000 repayable on 31 March 2011 to the extent that it had not been converter into ordinary shares before that date. On 16 February it was agreed to exchange this loan note for 99.96% of the equity shares of the Company. City of London Group plc had regarded the loan note as an operating investment.

Costs of £21,788 were incurred in connection with the purchase, these costs being expensed.

If SHF Legal Funding Limited had been consolidated from 1 April 2010 the Group’s turnover would be increased by £106,160 and the Group loss would be increased by £44,902.

Goodwill arising in connection with the acquisition of a 80% stake in City of London Clearing House Limited and its subsidiary on 28 October 2010 has been calculated as follows:

Book and fair value at 28 October

2010£

Cash and cash equivalents 161,749Net assets 161,749Attributable to minority – fair value (276,493)Net liabilities acquired (114,744)Goodwill arising 264,744Total consideration satisfied by cash 150,000Cash paid (150,000)Cash acquired in the Company 161,749Consolidated cash inflow 11,749

The goodwill represents the value of the management team of the Company’s subsidiary Trade Finance Partners Limited. The team have extensive experience and contacts in the trade finance industry.

City of London Confirming House Limited has a put and call option to buy-out the non-controlling interest at fair value at a time between five and seven years from the date of the acquisition.

Costs of £58,805 were incurred in connection with the purchase, these costs being expensed.

Goodwill arising in connection with the acquisition of a controlling 50% stake in Therium Capital Management Limited (‘Therium’) on 17 February 2010 has been calculated as follows:

Book and fair value at17 February

2010£

Intangible assets 343Property, plant and equipment 3,467Investment in legal cases 163,970Trade and other receivables 79,693Cash and cash equivalents 767,390Trade and other payables (1,008,273)Non-current liabilities (571,387)Net liabilities (564,797)Attributable to minority 282,398Net liabilities acquired (282,399)Goodwill arising 582,399Total consideration satisfied by cash 300,000Cash paid (300,000)Cash acquired in the Company 767,390Consolidated cash inflow 467,390

The 50% stake in Therium is deemed to lead to control due to the diverse ownership of the remaining 50% non-controlling interest and the Group’s representation on Therium’s board. The non-controlling interest has been recognised in the acquisition by reference to its proportionate share of the net liabilities acquired. The goodwill represents the value of the Company’s management team, the extensive network of contacts that they have established and the work to date in establishing funds that will enable future cases to be funded. It as been allocated in full to the Therium business segment. Additionally, goodwill of £14,373 arose in connection with the Group’s previous acquisition of Fundamental Tracker Investment Management Limited.


45

17 Property, plant and equipment

Group

Fixtures, fittings &

equipment£

At 31 March 2009 14,240Additions 16,825Acquired with subsidiary (note 16) 5,211Disposals (127)At 31 March 2010 36,149Additions 87,474At 31 March 2011 123,623Accumulated depreciationAt 31 March 2009 10,149Acquired with subsidiary (note 16) 1,744Charge for the year 4,066On disposals (57)At 31 March 2010 15,902Charge for the year 21,126At 31 March 2011 37,028Carrying amountAt 31 March 2011 86,595At 31 March 2010 20,247

Company

Fixtures, fittings &

equipment£

CostAt 1 April 2009 11,257Additions 15,782At 31 March 2010 27,039Additions 81,639At 31 March 2011 108,678Accumulated depreciationAt 1 April 2009 9,085Charge for the year 3,270At 31 March 2010 12,355Charge for the year 17,954At 31 March 2011 30,309Carrying amountAt 31 March 2011 78,369At 31 March 2010 14,684

18 ‘Available-for-sale’ financial assets

Group and Company2011

£2010

£

At 1 April 6,293,347 4,218,346Additions 1,228,848 2,061,858Disposals (3,908,314) (1,737,781)Transferred to operating investments – (210,003)Revaluation surplus transferred to equity 3,564,382 2,293,654Written off to income statement (215,244) (332,727)At 31 March 6,963,019 6,293,347

Historic cost (net of provisions) of disposals 2,298,419 908.506

2011£

2010£

Listed securities:– Equity securities – Australia 1,211,743 1,282,660– Equity securities – USA and

Canada 8,199 536,766– Equity securities – UK 3,346,726 2,737,497– Debentures with fixed interest

of 10% and maturity date in 2011 – UK 14,519 14,519

Cumulative non-redeemable preference shares – UK 49,625 50,250Non-cumulative non- redeemable preference

shares – UK 344,375 754,375Equity fund – UK 422,754 413,748Convertible loan stock – UK 174,000 344,000Convertible loan notes – Australia 172,836 –

5,744,777 6,133,815Unlisted securities – equity securities traded

on inactive markets 1,218,242 159,5326,963,019 6,293,347


46


19 Operating investments and investment in subsidiaries

Group

Operating investments

£

At 1 April 2009 –Transferred from available-for-sale investments 210,003Additions in year 201,849At 31 March 2010 411,852Trade investment becoming subsidiary (125,000)Additions in year 100,000At 31 March 2011 386,852

Company

Cost

Investmentin subs.

£

Operating investments

£Total

£

At 1 April 2009 453,823 – 453,823Transferred from available-for-sale investments – 210,003 210,003Additions 449,003 201,849 650,852At 31 March 2010 902,826 411,852 1,314,678Transfer (trade investment becoming subsidiary) 125,000 (125,000) –Additions in year 200,079 100,000 300,079Disposals (2) – (2)At 31 March 2011 1,227,903 386,852 1,614,755Provision for impairmentAt 31 March 2009 – – –Provided in year 326,223 – 326,223At 31 March 2010 326,223 – 326,223Provided in year 90,386 – 90,386At 31 March 2011 416,609 – 416,609Carrying amountAt 31 March 2011 811,294 386,852 1,198,146At 31 March 2010 576,603 411,852 988,455


47

Details of the investments are as follows:

Name of companySubsidiary undertakings Holding

Proportionheld directly by City of London

Group plcProportion

held indirectlyNature of business

City of London Public Relations Limited Ordinary shares 100% DormantCity of London Financial Services Limited Ordinary shares 100% General financialFundamental Tracker Investment Management Limited Ordinary shares 91%

Investment management

Therium Capital Management Limited Ordinary shares 50% Legal case fundingTherium (UK) Holdings Limited Ordinary shares 100% Legal case fundingTherium Holdings Limited Ordinary shares 100% Holding CompanyTherium ATE Limited Ordinary shares 100% DormantTherium Litigation Funding Limited Ordinary shares 100% Legal case fundingCity of London Confirming House Limited Ordinary shares 80% Holding CompanyTrade Finance Partners Limited Ordinary shares 51% Trade financeCity of London Law Funding Limited Ordinary shares 76% 24% Legal case fundingSHF Legal Funding Limited Ordinary shares 99.96% Holding CompanySHFLF1 PLC Ordinary shares 100% Profession fundingSHFLF2 Limited Ordinary shares 100% Profession fundingCredit Asset Management Ltd Ordinary shares 100% Asset managementArray Management Ltd Ordinary shares 100% ConsultancyOperating investmentsFX Capital Group Ltd Ordinary shares

Convertible loan notes also held

19.84%

Foreign exchange dealer

The shares in Therium (UK) Holdings Limited are held by Therium Capital Management Limited.The shares in Therium Holdings Limited and Therium ATE Limited are held by Therium (UK) Holdings Limited.The shares in Therium Litigation Funding Limited are held by Therium Holdings Limited.The shares in Trade Finance Partners Limited are held by City of London Confirming House Limited.The shares held indirectly in City of London Law Funding Limited are held by Therium Capital Management Limited.The shares in SHFLF 1 PLC and SHFLF 2 Limited are held by SHF Legal Funding Limited.

All subsidiaries have a 31 March year end except SHF Legal Funding Limited, SHFLF 1 PLC and SHFLF 2 Limited which had a 31 December 2010 year end. These companies were acquired on 16 February 2011 and it is intended to change their accounting date to that of the Group, their next accounting period, therefore, being one of 15 months.

All subsidiaries are registered in England and Wales with the exceptions of Fundamental Tracker Investment Management Limited which is registered in Scotland and Therium Holdings Limited, Therium ATE Limited and Therium Litigation Funding Limited which are registered in Guernsey.

SHF Legal Funding Limited changed its name to Professions Funding Limited on 5 May 2011.


48


19 Operating investments and investment in subsidiaries (continued)City of London Group plc acquired the following subsidiaries during the year:

• City of London Confirming House Limited (with its subsidiary Trade Finance Partners Limited)

• SHF Legal Funding Limited ( with its subsidiaries SHFLF 1 PLC and SHFLF 2 Limited)

• Credit Asset Management Limited

• City of London Law Funding Limited

• Array Management Limited

Details of the acquisition of City of London Confirming House Limited and SHF Legal Funding Limited are given in note 16.

The other acquisitions are new companies’ ordinary shares being acquired at par as follows:

• Credit Asset Management Limited 2 shares of £1 each

• City of London Law Funding 76 shares of £1 each

• Array Management Limited 1 share of £1 each

Therium Capital Management Limited acquired the following new subsidiaries, acquiring 100% of the ordinary share capital at par as follows:

Therium (UK) Holdings Limited 100 shares of £1 eachTherium Holdings limited 1 share of £1Therium ATE Limited 1 share of £1Therium Litigation Funding Limited 1 share of £1 20 Investments in legal funds

Group Company

At 31 March 2009 – –Acquired with subsidiary 163,970 –Additions 366,295 412,850As at 31 March 2010 530,265 412,850Additions 4,140,292 3,591,089Return of seed investment (500,000) (500,000)Proceeds from cases settled (150,404) (83,624)As at 31 March 2011 4,020,153 3,420,315

21 Inventories Group Company

2011 2010 2011 2010

Finished goods 14,759 – – –

The inventories relate to the subsidiary engaged in trade finance.



49

22 Trade and other receivables Group Company

2011 2010 2011 2010

Trade receivables 320,227 21,663 7,200 6,975Less: provision – (14,688) – –Trade receivables (net) 320,227 6,975 7,200 6,975Other debtors 581,638 192,552 54,553 121,863Prepayments and accrued income 473,359 25,635 328,305 19,583Loans 860,000 – 860,000 –Amount owed by subsidiaries – – 1,090,078 208,382

2,235,224 225,162 2,340,136 356,803

23 Cash and cash equivalents Group Company

2011£

2010£

2011£

2010£

Cash at bank 1,767,730 1,294,272 101,732 469,576Short-term deposits 487,082 76,006 12,082 76,006

2,254,812 1,370,278 113,814 545,582

24 Borrowings, trade and other payables: due within one year Group Company

2011 2010 2011 2010

BorrowingsBank overdraft 749,349 – 417,607 –Loans payable 1,649,000 49,000 1,600,000 –Preference shares 551,900 – – –Total 2,950,249 49,000 2,017,607 –Trade and other payablesTrade payables 337,207 7,417 178,885 1,980Dividends payable 747 747 747 747Other taxation and social security 30,821 9,452 15,079 9,019Other creditors 2,190,586 666,087 43 43Amounts owed to subsidiaries – – 333,813 205,108Accruals and deferred income 1,141,214 376,029 348,583 351,103Total 3,700,575 1,059,732 877,150 568,000

Loans payable in the Group include a £49,000 loan that carry’s interest at 5% pa. The other £1,600,000 loan carry’s a notional interest rate of 8% payable on redemption. The loan was exchanged for interests in a legal fund after the year end and no interest was payable.


50


25 Non-current liabilities

Group Company2011 2010 2011 2010

BorrowingsPreference shares of subsidiary – 551,900 – –Trade and other payablesAccrued interest on preference shares – 22,706 – –Accruals 17,616 22,094 17,616 22,094Total 17,616 44,800 17,616 22,094Deferred taxationDeferred taxation (note 26) 296,734 – 296,734 –DerivativeDerivative 302,730 – – –Total 617,080 596,700 314,350 22,094

The accruals relate to the deferred element of the incentive award (see Remuneration Committee Report on page 17) The derivative is in respect of a put option to buy-out the minority interest in a subsidiary company at fair value.

26 Deferred tax assets and liabilities

Group and CompanyFair value

gains Tax losses Total

At 1 April 2009 and 31 March 2010 – – –Credit to income statement – (100,682) (100,682)Charge to other comprehensive income 397,416 – 397,416Liability/(asset) at end of year 397,416 (100,682) 296,734

Unrecognised deferred tax assets Group Company

2011 2010 2011 2010

Differences between tax and accounting base of available-for-sale assets – 86,162 – 86,162Non-trading losses – 239,574 – 239,574Trading losses 523,893 274,924 – –Total 523,893 600,660 – 325,736

Temporary differences on available for sale assets will crystallise on the sale of the underlying financial investments. Non trading losses may be offset against such crystallised gains where the gain arises in the same entity. Trading losses will offset against future taxable profits of the same trade. The net unrecognised deferred tax assets are not recognised due to the inherent uncertainties in the quantum and timing of profits against which losses will reverse.


51

27 Called-up share capital

31 March 2011

£

31 March 2010

£

Allotted, called up and fully paid11,136,642 (2010: 10,186,642) ordinary shares of £0.10 1,113,663 1,018,663

The Company holds in treasury 190,273 shares at 31 March 2011 (2010: 207,099).

During the year the Company sold 16,826 (2010: 167,901) £0.10 ordinary shares with an aggregate nominal value of £1,683 (2010: £16,790). Distributable reserves have been increased by £4,935 (2010: £49,248) being consideration originally paid on the purchase of these shares. The movement on the Company’s share capital is as follows:

Shares in issue

Number

Shares in issue

£

As at 1 April 2009 and 31 March 2010 10,186,642 1,018,663Issued in year 950,000 95,000As at 31 March 2011 11,136,642 1,113,663

Details of unissued shares reserved for issuance under options are given in note 32.

28 Non-controlling interest

31 March 2011

£

31 March 2010

£

At 1 April (270,626) 9,123Acquisition of and additional investment in subsidiaries:Share of net assets 276,486 (268,025)Share of derivative put option (60,546) –Share of loss (465,082) (11,724)At 31 March (519,768) (270,626)

29 Operating lease commitmentsNon-cancellable operating lease rentals are payable as follows:

Land and Buildings

Group Company2011

£2010

£2011

£2010

£

Less than one year 134,142 55,946 103,723 52,068Between one and five years 411,192 22,664 363,031 –

545,334 78,610 466,754 52,068


52


30 Capital commitments Group Company

2011£

2010£

2011£

2010£

Loans – – 1,000,000 330,000Investment in legal funds 1,785,917 900,000 1,662,493 2,387,150Trade Finance 630,341 – – – 2,416,258 900,000 2,662,493 2,717,150

The Company is committed to fund a number of legal cases through its subsidiary Therium Capital Management Limited and Therium Capital Management Limited also has a commitment of its own to fund a legal case. In 2010 the Company had commitments to provide monies for legal funds managed by Therium and SHF Legal Funding. In addition the Company has agreed to provide standby working capital facilities to Therium in the event that it does not raise funds under management to cover administration costs. A subsidiary company, Trade Finance Partners Limited, has entered purchasing commitments on behalf of its clients by way of Letters of Credit issued by the Company’s bankers.

31 Related party transactionsKey management personnel compensationDirectors’ emoluments are disclosed in the part of the directors’ remuneration report subject to audit. The aggregate emoluments paid to directors during the year were £223,931 (2010: £145,644), awards under the incentive scheme totalled £388,465 (2010 £152,529) and compensation for loss of office totalled £nil (2010: £40,000). There are no other persons having the authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. Accordingly, the aggregate amounts payable to directors equate to the aggregate compensation to key management personnel. As all directors’ emoluments are paid by the Company, the figure relates both to the Company and the Group.

Directors received the following dividends during the year.

EE Anstee £1,036J C W Kent £896H Lafferty £500J W Greenhalgh £21,799

J Anstee an employee of the Company is considered a related party as he is the son of the chief executive EE Anstee.

J Anstee received remuneration of £21,395 during the year to 31 March 2011.

P Tinkler is regarded as a related party as he is a director and non-controlling interest holder of City of London Confirming House Limited. During the year a short term bridging loan of £50,000 was made by the Company to P Tinkler. The funds used to pay for his shares in City of London Confirming House until arrangements for his SSIP to acquire the shares were completed. The loan was repaid before the year end.



53

Charged by City of London

Group plc in year (prior year)

£

Charged to City of London

Group plc in year (prior year)

£

Loans due to City of London

Group plc at 31 March 2011 (31 March 2010)

£

Other amounts due to

City of LondonGroup plc

at 31 March 2011 (31 March 2010)

£

Due from City of London Group PLC at 31 March 2011

(31 March 2010) £

City of London plcInvestments in

funds managed by the subsidiary at 31 March 2011

(31 March 2010)£

City of London Public Relations Limited – – –

104,397(–)

–(11,108)

––

City of London Financial Services Limited – – – –

95,734(97,726) –

Fundamental Tracker Investment Management Limited

3,000(3,000)

7,620(7,620) – – –

422,754(413,748)

Therium Capital Management Limited – –

120,000(90,000)

––

–(–)

2,920,315(312,850)

City of London Confirming House Limited – –

300,000 (–)

–(–) – –

Trade Finance Partners Limited

28,783–

500,000(–)

28,783(–) – –

City of London Law Funding Limited – – – –

76(–) –

SHL Legal Funding Limited – – – – 228,734 –SHF 1 PLC – – – – – 100,000SHF 2 Limited – – – – – 400,000Credit Asset Management Limited – – – 228,734 – –Array Management Limited – – – – 1 –

The Company charges Fundamental Tracker Investment Management Limited and Trade Finance Partners Limited for director services. It also charges Trade Finance Partners Limited rent and loan interest.

Fundamental Tracker Investment Management Limited charges the Company consultancy fees.

City of London Group plc is committed to advance a further £1,000,000 to Therium Capital Management Limited if Therium Capital Management requires this to meet its working capital requirements.

EE Anstee, a director of City of London Group plc, had at the year end an amount of £30,000 invested in a fund managed by Therium Capital Management Limited (2010: £22,500).


54


32 Share-based paymentsShare options are granted to directors and to selected employees. The exercise price of the granted fixed price options is equal to the market price of the shares at the date of grant. These options are conditional on the employee completing three years’ service (the vesting period). The options have a contractual option term of ten years. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Market Priced options were a one-off set of options granted at market price on the day of exercise to enable Executive Directors to acquire shares in the Company as soon as practical after appointment.

Movements in the number of share options outstanding are as follows:

Date of grant 01/04/2010 Grant in year

Exercised in year 31/03/2011

Exercisable from

Exercisable to

Exercise price

EE Anstee – Chief Executive 11/02/2010 100,000 – – 100,000 11/11/2012 11/11/2019 55.8 pence

J Kent – Director 11/02/2010 16,826 – 16,826 – 11/02/2010 11/10/2010

Market price on date

preceding date

exercised11/02/2010 70,000 – – 70,000 11/11/2012 11/11/2019 55.8 pence

Other staff 20/06/2002 11,300 – – 11,300 20/06/2005 19/06/2012 104.0 pence05/07/2005 58,252 – – 58,252 05/07/2008 04/07/2015 51.5 pence11/02/2010 60,000 – – 60,000 11/11/2012 11/11/2019 55.8 pence

316,378 – 16,826 299,552 City of London Group plc’s share price as at 31 March 2011 was 95p pence (2010: 72.5 pence). The average for the year to 31 March 2011 was 83.5 pence (2010: 49.3 pence).

No value was given to the market price options.

The fixed price options were valued using the Black-Scholes model.

Inputs to the model where as follows:

Sticke price 58.8pShare price 58.8pTime to expiration 2,556 daysVolatility 59.42% Annual risk free interest rate 4.07%

The Company may choose to use treasury shares, purchase shares in the market or issue shares to cover the 179,550 shares awarded to cover the deferred portion of the incentive scheme award in the year to 31 March 2010. The Company may choose to purchase shares in the market or issue new shares to cover the deferred portion of the incentive scheme award (£304,679) in the year to 31 March 2011. The number of shares is dependent on the closing price of the shares on the three consecutive days immediately following the announcement of these results.

The current fair value of the deferred element of the 31 March 2011 award was calculated by adjusting the nominal value of the awards for the dividend yield that was taken to be 2.5%.


55

33 Financial instrumentsThe Company’s and the Group’s financial instruments comprise ‘available-for-sale’ financial assets, trade debtors and other receivables, cash and cash equivalents and trade and other payables.

Financial risk managementThe financial risks faced by the Company include market risk (including price risk, foreign exchange (or currency) risk and fair value interest risk), credit risk, liquidity risk and cash flow interest rate risk. The Board reviews and agrees policies for managing each of these risks. Neither the Company nor the Group uses derivative financial instruments for trading purposes.

The Company’s main objectives in the management financial risk relate to price risk and foreign exchange risk.

Price riskThe Group is subject to price risk on its ‘available-for-sale’ financial assets, including its operating investments and investments in legal funds as well as its portfolio of financial assets. The Group spreads its market risk in respect of the portfolio through diversification. The Group holds fixed income, preference shares and stocks of micro, small, mid and large capitalisation companies diversified over different countries, sectors and currencies. At 31 March 2011 17.5% of the Group’s portfolio was invested in unlisted equity securities. Top value holdings are set out in the Group’s annual and half-yearly reports. Price risk in respect on investments in unlisted operating investments and legal funds is managed by the Group having an overall investment portfolio which limits its exposure to unlisted investments individually and collectively.

Foreign exchange riskThe Group’s earnings and liquidity are affected by fluctuations in foreign currency exchange rates principally in respect of the foreign-currency-denominated bank accounts. There is also some exposure in respect of ‘available-for-sale’ and legal fund financial assets denominated in overseas currencies. The carrying amounts of the Company’s ‘available-for-sale’ financial assets denominated in foreign currencies are shown in note 18.

Carrying value of group investment in legal funds

Currency31 March

201131 March

2010

Sterling 3,320,111 483,189US dollars 217,421 47,076Euros 482,621 –Total 4,020,153 530,265

All trade receivables are denominated in sterling.

The carrying amounts of the Group’s cash and cash equivalents are denominated in the following currencies:

31 March 2011 31 March 2010

Currency

Cash at bank and in hand

£

Short-term investments

£Total

£

Cash at bank and in hand

£

Short-term investments

£Total

£

Sterling 1,649,710 482,794 2,132,504 1,137,194 71,494 1,208,688US dollars 14,475 4,288 18,763 24,589 4,512 29,101Euros 11,862 – 11,862Australian dollars 91,683 – 91,683 132,489 – 132,489Total 1,767,730 487,082 2,254,812 1,294,272 76,006 1,370,278Floating rate 1,767,730 – 1,767,730 1,294,272 – 1,294,272Fixed rate – 487,082 487,082 – 76,006 76,006Total 1,767,730 487,082 2,254,812 1,294,272 76,006 1,370,278


56


33 Financial instruments (continued)Credit riskThe Group had two significant concentrations of credit risk in that it has made two loans on which the amounts outstanding at 31 March 2011 were £700,000 and £160,000. The £700,000 loan was secured by a mortgage on a property, this loan was repaid on 6 June 2011. The £160,000 is expected to be repaid within a year. All cash deposits (as shown above) are made with major financial institutions and the directors are of the opinion that credit risk in relation to cash and cash equivalents is minimal. However, as the Group holds no collateral against the balances, some risk remains.

Liquidity risk The Group has sufficient cash to meet its current requirements. At 31 March 2011 the Company had a £1,200,000 bank overdraft facility and a subsidiary had a £2,500,000 trade finance facilities. The total amount drawn on these facilities at the 31 March 2011 was £749,349, The overdraft facility expires this month (June) and is in the process of being renewed. The £2,500,000 trade finance facility is dependent on the subsidiary company keeping £475.000 on deposit. This facility expires in October 2011 and is expected to be renewed. Since the year end the Company has made a share placing details of which are given in the post balance sheet event note.

Cash flow and fair value interest rate riskThe Group has interest-bearing assets at floating or fixed-for-one-month interest rates. At 31 March 2011 group’s only substantial interest-bearing borrowings were its £1,600,000 loan notes and the £749,349 drawn on its bank overdraft and trade finance facilities. Interest on the loan note was fixed at 8% and is only payable on redemption and 31 March 2011 it was expected the holders would exchange these for an investment in legal funds managed by Therium Asset Management Limited (see post-balance sheet event note). The overdraft and trade credit facility carry floating rate interest.

Fair value estimationThe fair value of listed financial assets is established by relevance to current bid market prices.

The fair value of unlisted investments is determined using valuation techniques as described in note 3.

The fair value of investments in legal funds is based on the opinion of legal council on the prospects of cases financed by the funds.

Due to their short maturity profiles, management is of the opinion that there is no material difference between the fair value and carrying value of trade and other receivables, cash and cash equivalents, and trade and other payables.

The directors therefore consider that carrying value of financial instruments equates to fair value.

The following table presents the Group’s assets that are measured at fair value at 31 March 2011.

Level 1 Level 2 Level 3 Total

Available-for-sale financial assetsEquity securities 4,960,667 422,754 1,218,243 6,601,664Debt investments 361,355 361,355Operating investments 386.852 386,852Investment in legal funds 4,020,153 4,020,153

4,960,667 422,754 5,986,603 11,370,024 Level 1 assets are quoted ordinary shares, non redeemable preference shares and debentures.

Level 2 asset is a UK equity fund.



57

The movement on level 3 assets are as follows:£

Balance at 1 April 2010 1,460,168Additions 4,777,160Disposals (671,806)Became subsidiary (125,000)Transferred from Level 1 24,238Valuation gain taken to comprehensive income 521,843Balance at 31 March 2011 5,986,603 Capital risk managementThe Group is mainly funded from equity share capital which comprises a single class of share (see note 27). At 31 March 2011 the Group had raised £1,600,000 from a loan note issue, a £49,000 short tern loan in a subsidiary company and had drawn down £749,349 on its overdraft and trade credit facilities. The Group intends to renew its overdraft and trade finance facilities. See post-balance sheet events note re additional capital and loan note repayment. 34 Post-balance sheet eventsSince the end of the financial year the Company has made a placing of 7,233,015 shares at a price of 83p raising £5,295,981 after costs. The placing was made in order to finance the expansion of the Company’s subsidiary companies.

The Company has reduced its equity share of Credit Asset Management Limited to 51% and Array Limited to 52%. The non-controlling interests in these companies being acquired by their management teams. These companies are expected to start trading in the 2011/12 financial year.

On 18 May 2011 the holders of the loan notes exchanged them for investments in a legal fund management by Therium Capital Management Limited. City of London Group’s had transferred part of its investment in legal funds to the fund and paid the balance required to match the loan notes in cash.

On 6 June 2011 the Company received the repayment of its £700,000 loan receivable.


58

Report of the Independent Auditors to the members of City of London Group plc

We have audited the financial statements of City of London Group plc for the year ended 31 March 2011 which comprise the consolidated statement of comprehensive income, the consolidated and parent company statements of changes in equity, the consolidated and parent company balance sheets, the consolidated and parent company cash flow statements, and the related notes. The financial framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the Companies Act 2006.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for this report, or the opinions we have formed.

Respective Responsibilities of Directors and AuditorsAs explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practice Board’s Ethical Standards for Auditors.

Scope of the Audit of the Financial StatementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on Financial StatementsIn our opinion:• the financial statements give a true and fair view of the

state of the group’s and of the parent company’s affairs as at 31 March 2011 and of the group’s loss for the year then ended;

• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006In our opinion: • the part of the directors’ Remuneration Report to be

audited has been properly prepared in accordance with the Companies Act 2006; and

• the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:• adequate accounting records have not been kept by the

parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:• the directors’ statement, in relation to going concern; • the part of the corporate governance statement relating to

the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review; and

• certain elements of the report to shareholders by the board on directors’ remuneration.

Jonathan Munday (Senior Statutory Auditor) For and on behalf of Rees Pollock, Statutory AuditorLondon27 June 2011


59

Statement of Directors’ responsibilities

The directors are responsible for preparing the Annual Report, the Remuneration Report and the financial statements in accordance with applicable laws and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and have also elected to prepare financial statements for the Company in accordance with IFRS as adopted by the European Union (‘EU’). Company law requires the directors to prepare such financial statements in accordance with IFRS, the Companies Act 2006 and Article 4 of the IAS Regulation. Under Company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the preparation and Presentation of Financial Statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. Directors are also required to:

• properly select and apply accounting policies and then apply then consistently;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• make judgements and accounting estimates which are reasonable and prudent;

• state whether applicable IFRS as adopted by the EU have been followed subject to any material departures disclosed and explained in the financial statements; and

• provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a directors’ report and directors’ remuneration report which comply with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.

Responsibility statement Each of the directors, whose names and functions are listed on page 1 confirm that, to the best of each person’s knowledge and belief:

• the financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position of the Group and the Company and of the loss of the Group; and

• the management report, which is incorporated into the Directors’ Report, includes a fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncertainties that they face.

By order of the board

H LaffertyChairman 27 June 2011


60

Notes

Contents

Directors and advisors 01Trading record, Financial calendar, Share price information 02Chairman’s statement 02Chief Executive’s review 04Our platforms 06Statement of risks 08Directors’ biographies 10Directors’ report 12Corporate Governance report 14Remuneration Committee’s report 17Consolidated statement of comprehensive income 23Consolidated statement of changes in equity 24Company statement of changes in equity 25Consolidated balance sheet 26Company balance sheet 27Consolidated statement of cash flows 28Company statement of cash flows 29Notes to the accounts 30Auditors’ report 58Statement of Directors’ responsibilities 59

Designed and produced by The College www.thecollege.uk.com

Annual Report and Financial Statements 2011

City of London Group plc

Date post:	08-Apr-2018
Category:	Documents
Upload:	phamtu
View:	215 times
Download:	3 times

Annual Report and Financial Statements 2011 City of London AR... · Corporate Governance ... NAV...

Documents