City of London : COLG Annual Report & Accounts 2016

Key points 1

Strategic report 2

Directors' biographies 10

Corporate governance statement 11

Directors' Remuneration report 14

Directors' report 17

Consolidated income statement 20

Consolidated statement of comprehensive income 21

Consolidated statement of changes in equity 22

Company statement of changes in equity 23

Consolidated balance sheet 24

Company balance sheet 25

Consolidated statement of cash flows 26

Company statement of cash flows 28

Notes to the financial statements 30

Statement of directors' responsibilities 61

Independent Auditor's report 62

Notice of General Meeting 63

Proxy form 65

Investor information and advisers Inside back cover

City of London Group plc 1

Key points

Business developments

• Litigation funding associate, Therium sold in April 2015 for a profit of £1.4m

• CAML raised £5m in 7% preference shares in July and completed a restructuring resulting in COLG increasing its interest in CAML from 51% to 85%

• Company raised £5m (before expenses) and transferred to AIM in October 2015

• Company applied £2m of net proceeds in buying 7% preference shares in CAML and repaid debt with the balance

• CAML increases its portfolio of owned and managed funds overall by 31% to

  £21.3m at year end

• Wider strategic options for CAML are being examined to help it achieve scale. This may result in the sale of the business

• Following a significant deterioration in its financial position, TFPL ceased undertaking new business in the second half of the year and is now focused on recovering advances

  Financial results

• Loss before tax £6.8m after losses of

  £7.2m relating to TFPL and a profit of

  £1.4m on the sale of Therium (2015: loss before tax £1.6m)

• NAV per share of the Company 6p (2015: 42p)

  Overview

• Consolidated NAV per share attributable to shareholders 6p (2015: 28p)

Reports

Pages 2 to 9 comprise the Strategic report, pages 14 to 16 the Directors' Remuneration report and pages 17 to 19 the Directors' report, all of which are presented in accordance with English company law. The liabilities of directors in connection with these reports shall be subject to the limitations and restrictions provided by such law. These reports are intended to provide information to shareholders and are not designed to be relied upon by any other party or for any other purpose.

Disclaimer

This annual report and accounts may contain certain statements about the future outlook for City of London Group plc and its subsidiaries and associates. Although we believe our expectations are based on reasonable assumptions, any statements about the future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

2 Strategy

Strategic report

1. Business review

Overview

The objectives for the year remained consistent: to improve financial performance, to address the need for growth capital, and to simplify the Group through the disposal and orderly wind down of non-core activities.

While some objectives were achieved, the position of the Group has been materially affected by the deterioration in the financial position of its associate Trade Finance Partners Limited ("TFPL"), which became apparent in the second half of the year. As a result, full provision has been made against the Group's equity and loan investments in TFPL, resulting in a charge of £6.3m.

The results for the Group show a loss before tax of

£6.8m (2015: loss of £1.6m), which includes losses of

£7.2m relating to TFPL (for impairment of the Group's investments and its share of losses) and a profit of

£1.4m arising on the sale of Therium.

The sale of our non-core activity Therium and its associated entities was completed in April 2015 for a total consideration of £3.4m of which £1.75m was received in cash with the balance being deferred. Part of the balance was received during the year, with

£1.2m being receivable over the period to April 2017. The disposal gave rise to a profit of £1.4m in the Group results.

Our lease and professions funding platform was restructured in July 2015. As part of this capital restructuring, CAML issued £5m 7% redeemable preference shares for cash to a third party. This additional capital assisted CAML to grow its portfolio of SME leases and loans to £13.7m at year end (being both CAML's and PFL's own books), from

£6.6m prior to these funds becoming available. CAML continued to demonstrate strong growth until the events at TFPL further impacted the availability of funds. As a result the Board is now looking at wider strategic options for CAML to help it achieve scale, including the addition of potential investors or a sale of the business and/or loan book.

In October 2015, the Company raised a net amount of £4.5m by way of a placing of ordinary shares. The proceeds were used to pay down debt and to purchase £2m of the CAML 7% redeemable preference shares issued in July from the third party.

As part of the Group's strategy to contain costs, the Company cancelled its listing on the main market of the London Stock Exchange on 19 October 2015 and since that date the ordinary shares have been traded on the Alternative Investment Market ("AIM").

In light of the events at TFPL and knock on implications for CAML, the Group is now focused on maximising recoveries on its remaining investments.

Trade Finance Partners Limited ("TFPL")

In the first half of the year, the Group's associate, TFPL, underwent a period of consolidation following management changes, which included the appointment of a new co-CEO and the departure of the Commercial Director, with a modest increase in the half year revenue and gross profit.

However, the financial position deteriorated sharply in the second half of the year after TFPL's principal secured lender, Macquarie, which also has a large equity holding, restricted the scope of business it would consider funding and TFPL identified a number of advances which were significantly impaired. Since the resignation of the TFPL directors appointed by Macquarie in November 2015, TFPL has focused on recovering its existing advances. The TFPL directors appointed by the Company resigned in March 2016.

With the change in its activities, TFPL has cut its cost base with staff numbers reducing progressively from 24 to 11 at the year end and now to a single operations director who is working to maximise recovery of advances. There are likely to be minimal, if any, amounts available for equity and loan note holders or other unsecured creditors.

While the effective failure of TFPL is very disappointing, as it is a stand-alone business with no cross-guarantees or other financial obligations from either COLG or CAML, the Group is insulated from the problems specific to this investment.

COLG increased its shareholding in TFPL from 44% to 48.9% at the beginning of the financial year when it acquired shares from a minority shareholder under the terms of the shareholder agreement.

Credit Asset Management Limited ("CAML") and Professions Funding Limited ("PFL")

CAML undertook a significant capital restructuring in July 2015 when it acquired PFL from the Company in exchange for the issue of shares in CAML, so increasing the Group's shareholding in CAML from

City of London Group plc Annual Report & Accounts 2016