## 2021/2022 ## ANNUAL REPORT & ACCOUNTS ## Our Purpose ## The Group exists for the mutual benefit of our three primary ## stakeholders: Clients, Employees and Shareholders ### Corporate statement ### City of London Investment Group PLC (CLIG) is an established asset management ### group which has built its reputation by specialising in global closed-end fund ### investments, via City of London Investment Management Company Limited (CLIM), ### with an institutional client focus. ### The Group has expanded its range by merging with Karpus Investment Management ### (KIM) to provide closed-end fund strategies to wealth management clients. A tribute to Barry Olliff Barry’s career spanned over 50 years within the investment trust (closed-end fund) sector. Barry was the architect and driving force in the development of the business for many years and leaves a legacy of high standards of corporate transparency which is written into the CLIG DNA. He retired as the CEO of CLIG at the end of 2019, and remained on the CLIG Board as a Non-Executive Director until his retirement in July 2022. On behalf of the Board, employees and all our shareholders, we would like to say a heartfelt thank you to Barry and wish him the very best in his well-deserved retirement. ### www.clig.co.uk Overview # SUMMARY Funds under Management (FuM) of US$9.2 billion (£7.6 billion) at 30th June 2022. This compares with US$11.4 billion (£8.3 billion) at the beginning of this financial year on 1st July 2021 Net fee income was £58.2 million (2021: £52.5 million) Underlying profit before tax* was £27.9 million (2021: £26.7 million). Profit before tax was £23.2 million (2021: £22.2 million) Underlying basic earnings per share* were 44.2p (2021: 48.1p). Basic earnings per share were 36.9p (2021: 39.4p) after an effective tax charge of 22% (2021: 24%) of profit before taxation Recommended final dividend of 22p per share (2021: 22p) payable on 4th November 2022 to shareholders on the register on 30th September 2022, making a total for the year of 46.5p (2021: 33p), including the special dividend of 13.5p paid on 25th March 2022 (2021: nil) *This is an Alternative Performance Measure (APM). Please refer to page 33 for more details on APMs. ## Funds under Management Full year ended: US$bn £bn Average FuM: US$bn £bn ![img-0.jpeg](img-0.jpeg) # CONTENTS ## Overview | Summary | 1 | | --- | --- | | Financial highlights | 2 | | At a glance | 3 | ## Strategic report | Chair's statement | 4 | | --- | --- | | Our ESG initiatives | 7 | | Chief Executive Officer's statement | 8 | | Investment review – CLIM | 12 | | Investment review – KIM | 14 | | Business development review | 15 | | Our business model | 17 | | Our strategy and objectives | 20 | | Key performance indicators | 23 | | Risk management | 28 | | Financial review | 30 | | Corporate and social responsibility policy | 34 | | Task Force on Climate-Related Financial Disclosures | 38 | | Section 172 (1) statement | 40 | ## Governance | Chair's introduction | 42 | | --- | --- | | Board of Directors | 44 | | Board activities | 46 | | Stakeholder engagement | 52 | | Corporate governance framework | 54 | | Board evaluation | 55 | | Nomination Committee report | 56 | | Audit & Risk Committee report | 59 | | Chair of the Remuneration Committee's annual statement | 63 | | Remuneration overview | 65 | | Annual report on remuneration | 68 | | Directors' remuneration policy | 79 | | Directors' report | 84 | | Statement of Directors' responsibilities | 86 | ## Financial statements | Independent auditor's report | 88 | | --- | --- | | Consolidated income statement | 94 | | Consolidated and Company statement of comprehensive income | 94 | | Consolidated and Company statement of financial position | 95 | | Consolidated statement of changes in equity | 96 | | Company statement of changes in equity | 97 | | Consolidated and Company cash flow statement | 98 | | Notes to the financial statements | 99 | ## Shareholder information | Notice of Annual General Meeting | 127 | | --- | --- | | Explanatory notes to the Notice of AGM | 130 | | Further notes | 134 | | Company information | IBC | Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 1 Overview ## FINANCIAL HIGHLIGHTS Net fee income £m Dividends paid and proposed per share pence 58.2 52.5 28.4 46.5 29.9 40.5 13.5 13.5 Special 33.0 | 31.6 | | 31.7 | | | | | | | Final | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 29.9 | | | | | 30.0 | | | | | | | | | | | | 22.0 | 22.0 | | | | | | | 27.0 | | | | | Interim | | 15.6 | | 15.3 | | | | 20.0 | | | | | | 15.4 | | 29.8 | | | | | | | | | | | | 18.0 | 18.0 | | | | | 22.6 16.0 16.4 14.5 11.0 11.0 10.0 ## £58.2m 46.5p 9.0 9.0 Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Profit before tax £m Underlying profit before tax* £m 23.2 27.9 22.2 26.7 9.6 12.4 13.4 15.5 12.8 | | 11.4 | | 13.6 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | 6.2 | | | | 12.6 | | | 15.5 | | | | 9.4 | | | | 11.5 | | | | 6.2 | | | | 10.6 | | | 6.1 | | | 3.1 | | | | 5.4 | 11.2 | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 8.8 | | 5.5 | | | | 6.6 | | 6.3 | | | | | | | | 5.2 | | | 6.5 | | 6.1 | | 5.1 ## £23.2m £2 7.9m Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Basic earnings per share pence Underlying earnings per share* pence 39.5 39.4 48.1 36.9 44.2 | 19.3 | 35.0 | | 21.7 | | | | 24.3 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 15.4 | 38.9 | | | 19.7 | | | 18.7 | 30.3 | | | | 38.2 | | | 18.9 32.3 18.8 10.4 16.2 21.5 20.2 19.9 24.5 23.8 17.7 16.3 20.0 19.4 16.1 ## 36.9p 44.2p Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 First half year Second half year * This is an Alternative Performance Measure (APM). Please refer to page 33 for more details on APMs. 2 City of London Investment Group PLC Annual Report 2021/2022 Overview ## AT A GLANCE ### Overview ### Strategic report ### City of London Investment Group PLC (CLIG) is an established asset ### management group listed on the London Stock Exchange, consisting ### of two wholly owned subsidiaries that invest primarily in closed-end ### funds for the benefit of their respective clients ### Governance City of London Investment Management Company Limited (CLIM), historically specialised in Emerging Markets, but now has expanded its range to include International, Opportunistic Value, Frontier, ### Financial statements and Real Estate Investment Trust (REIT) strategies, primarily for institutional clients. ### Shareholder information Karpus Investment Management (KIM) provides closed-end fund strategies across all asset classes to wealth management clients in the ### CLIG United States. $9.2b FuM (£7.6b) ### CLIM KIM $5.8b FuM (£4.8b) $3.4b FuM (£2.8b) City of London Investment Group PLC Annual Report 2021/2022 3 Investment Management Company Limited Strategic report ## CHAIR’S STATEMENT ## “Irrespective of the macro-economic outlook, the CLIG ## business model, focused on value-orientated CEFs ## and encompassing a mix of institutional and wealth ## management clients, is stronger than in previous ## periods of difficult markets. ” Barry Aling Chair | At the start of 2022, it was already clear | of shareholder distributions and buy-backs. | withdrawals that occurred during the more | | --- | --- | --- | | that global markets faced challenges from | Should supply bottlenecks ease in the | buoyant conditions of 2021. Particularly | | tightening monetary policy and simmering | coming months, there are grounds for a | strong inflows to the International CEF | | tensions in Eastern Europe, as noted in my | degree of optimism that the surge in price | strategy in the second half of the year mean | | 17th February 2022 interim statement. | inflation and monetary tightening will | that this product now accounts for more | | However, the Russian invasion of Ukraine | prove to be of limited duration. Once | than 30% of CLIM’s FuM. Across the year | | just one week later served to magnify | again, the high level of market volatility has | as a whole, net Group inflows totalled | | dramatically these headwinds in terms of | illustrated the benefits gained from the | US$102 million, compared with net | | both intensity and time-scale. The | Karpus merger in 2020 in terms of the | | outflows of US$752 million in the previous emergence of open warfare in Eastern diversified revenue base derived from the year and with a resumption of more active Europe and rising geopolitical tensions transaction and, as always, we view the marketing opportunities in the post- elsewhere is prompting a fundamental defensive qualities of closed-end funds pandemic world, we are hopeful that the re-think of strategic planning both in terms (CEFs) across each of the CLIG strategies healthy pipeline will translate into further of security and defence arrangements as as an effective means to participate in a inflows in the months ahead. well as supply patterns of strategic materials, recovery in markets in due course. including energy and food. Arguably, Relative performance of the main CLIM it is the monetary and inflationary Assets and performance strategies was impacted in the immediate consequences of supply disruptions, rather Inevitably, the marked falls across all market aftermath of the Ukraine invasion than overt conflict that have most troubled segments have reduced CLIG’s Funds following a mandatory write-down of all global markets in 2022, as evidenced by under Management (FuM) with a 19% fall Russian exposure and a widening of the 20%+ falls in most developed markets in the year as a whole, nearly all of which discounts in the CEF universe. More in the first half of the year. Although the occurred in the second half of the year. recently, however, some recovery in relative MSCI emerging market index (MXEF) fell Within these figures, CLIM’s FuM fell performance has been achieved as market by less than 20% in the period, it has now 23% to US$5.8 billion while KIM’s FuM volatility returns to more typical levels and fallen by more than 30% since its 2021 fell by 12% to US$3.4 billion, underlining we expect that, over time, strict adherence high, placing it firmly in bear market the defensive nature of KIM’s higher to our investment process will enable a territory. A paradigm shift in US monetary exposure to fixed income markets. resumption of the long-term track record policy in response to the inflation surge has Shareholders will appreciate that these of outperformance. Relative performance meant that fixed income markets have figures are due in large part to matters at KIM has again been outstanding with provided limited shelter with the US beyond our control and are mirrored across strong outperformance across six of the 10-year Treasury benchmark falling 12% | and the 30-year Treasury by no less | the asset management industry as a whole. | seven strategies. Reduced weightings to | | --- | --- | --- | | than 21% in the year to June 2022. | Importantly, it was pleasing to note that | CEFs at a time of widening discounts, | | | fund flows improved markedly in the | allied to a shift to the more defensive | | Despite this plethora of negative news, | second half of the year as a number of | shorter maturities at a time of rising | | corporate balance sheets are relatively | CLIM’s institutional clients chose to | interest rates proved key to maintaining | | healthy as evidenced by the rising level | increase equity exposure, in contrast to the | KIM’s excellent long-term track record. | 4 City of London Investment Group PLC Annual Report 2021/2022 ### Overview | Results | stage that the second half of the year | facilitate our compliance with the Code | | --- | --- | --- | | Group statutory pre-tax profits rose by 4% | would be more challenging and events | in a timely fashion. The devolution of | | in the year ended 30th June 2022 to | since have certainly vindicated the earlier | operational management to the GEC | | £23.2 million (2021: £22.2 million) while | caution. In light of this, the Board has | will help streamline decision-making on | | underlying pre-tax profits*, which exclude | declared an unchanged final dividend of | a day-to-day basis, while providing | | exceptional or non-recurrent items, also | 22p to be paid on 4th November 2022 to | clearer demarcation between executive | | rose by 4% to £27.9 million (2021: £26.7 | those shareholders on the register at | management and an independent Board. | | million). Since results for the prior year | 30th September 2022. Taken together | | | included only a nine-month contribution | with the interim payment of 11p, total | I am sure that all shareholders will wish to | | from KIM, a more accurate year-on-year | dividends of 33p for the year (excluding | join me in offering a special thank you to | Barry Olliff, CLIG’s founder and architect ### (YoY ) comparison is provided by earnings the special dividend) will be covered 1.13 Strategic report over more than thirty years. As I said in per share (EPS). On this basis, fully diluted times by this year’s post-tax earnings or our April announcement, Barry’s laser-like statutory EPS fell 6% to 36.4p (2021: 1.22 times on a rolling five-year average focus on value to both shareholders and 38.8p) and underlying fully-diluted EPS* basis, slightly ahead of the Group’s five-year clients lies at the core of CLIG’s culture fell by 7% to 43.7p (2021: 47.4p). Despite dividend cover policy of 1.2 times. and permeates everything we do for all the ongoing competitive pressure on fees in stakeholders. Barry’s willingness to the institutional market-place, the Group’s Board challenge entrenched orthodoxy in the average revenue margin declined slightly Shareholders were informed at the investment universe is well recognised and to 73bp (2021: 74bp). interim stage that a full review of Board represents a hugely positive long-term composition was underway with a view legacy. The issue of founder succession is In parallel to the “Ukraine” impact on to meeting (as far as possible) the ### fraught with challenges and can often be Governance equity and fixed income markets, the requirements of the UK Corporate a disruptive process but thanks to Barry’s conflict has also prompted strong capital Governance Code (the Code) in terms support throughout the management flows into US dollars, due to its traditional of both independence and diversity. transition, I am pleased to report that it safe-haven characteristics. The fact that Following this review, led by the Chair of has been seamless. On behalf of the 100% of CLIG’s revenues are earned in the Nomination Committee, Jane Stabile, Board and all our shareholders, I would US dollars, therefore, provides a significant a reorganisation of the Board was agreed, like to say a heartfelt thank you to Barry cushion to revenues and profits when to take effect from the close of the financial and wish him the very best in his well- translated into sterling and represents a year on 30th June 2022, involving the deserved retirement. useful hedge against sterling weakness. resignation of three Executive Directors, The benefit of this “hedge” has been Carlos Yuste, Dan Lippincott and Mark ESG ### reduced somewhat by the Karpus Dwyer, who have joined the new Group Financial statements One of the positives arising from the acquisition, with non-sterling costs rising Executive Committee (GEC) to oversee COVID-19 pandemic was the acceleration from 56% to 66% of total operating the day-to-day running of both operating in the use of technology to drive reductions expenses. Nevertheless an 8% reduction in companies. CEO Tom Griffith’s report in in the environmental impact of business average monthly US$ revenues between later pages will provide shareholders with and CLIG has been active in capitalising the three-month period leading up to the additional detail regarding the GEC’s on the gains to be realised in this conflict and the three-month period functions while Jane’s Nomination important area. Inevitably, a network of six thereafter, was reduced to just a 3% Committee Report will also address offices across three continents meant that, decline when expressed in sterling terms. these changes and the ongoing plans for historically, air travel was a significant diversity and inclusion but I am pleased component of CLIG’s otherwise low Dividends to be able to report to shareholders this carbon footprint. The decision to ### Shareholder information | Shareholders will have noted from my | significant progress in our governance | streamline CLIG’s office network this year, | | --- | --- | --- | | interim statement a note of prudence | architecture less than two years after the | therefore, with the closure of the Seattle | | with regard to normal distributions | transformative Karpus merger. | and Dubai offices, has helped reduce | | (i.e. excluding special dividends) | | CLIG’s carbon footprint materially. | | notwithstanding a buoyant result for the | I am very grateful to the three Executive | Similarly, an increase in client briefings | | first half of the financial year. While a | Directors for their invaluable contributions | via video conferences and additional | | build-up of surplus cash allowed the | to the Board’s deliberations over a number | investment in technology solutions has | | payment of a 13.5p special dividend in | of years as well as their agreement to a | enabled greater use of video conferencing | | March, it was already clear at the interim | corporate restructuring, which will | for internal communication and meetings. | * This is an Alternative Performance Measure (APM). Please refer to page 33 for more details on APMs. City of London Investment Group PLC Annual Report 2021/2022 5 Strategic report ## CHAIR’S STATEMENT CONTINUED | A concerted effort to reduce paper usage | engagement with employees has been | Irrespective of the macro-economic | | --- | --- | --- | | using web-based alternatives for the Annual | established with video conference meetings | outlook, the CLIG business model, | | Report, portfolio reports and other | across all offices. These meetings provide | focused on value-orientated CEFs and | | research-based publications is helping | employees with the opportunity to raise | encompassing a mix of institutional and | | reduce the Group’s waste output and the | any issues with Board members but they | wealth management clients, is stronger | | Group remains committed to further | also give Independent Non-Executive | than in previous periods of difficult | | reductions in our environmental impact | Directors the ability to gain greater insight | markets. Furthermore, bear markets | | wherever possible. | into the organisation at all levels, thereby | also bring opportunities, be it in the | | | assisting them in their oversight role. | investment universe or the asset | | Many commercial businesses have had to | | management industry more generally | | adjust to new working practices in the post- | Outlook | and, with this in mind, we continue to | | COVID world and CLIG is no exception. | Over the course of the last two years, we | view the future with cautious optimism. | | The necessity of remote working during the | have witnessed extreme volatility in capital | Finally and most importantly, I would | | pandemic provided a template for potential | markets and with the threat of long-term | like to thank all of our employees for | | longer term solutions and to that end, a | conflict in Europe and double-digit | their continued and sustained efforts | | hybrid “work-from-home” (WFH) policy | inflation ever present, it would be foolish | in helping us navigate another | | for all employees has been implemented. | to paint too optimistic a picture for the | challenging year with typical dedication, | | Group-wide policies have also been | year ahead. Nevertheless, at the risk of | loyalty and commitment. | | established on a range of social issues, | sounding “glass-half-full”, I believe there | | | including anti-slavery, human trafficking, | are some early signs of a more stable | | | anti-corruption, bribery and health and | market environment. The economic | | | safety, while all employees will receive two | dislocation created by reduced energy | | | training sessions on diversity, equity and | and food supplies together with supply | | | inclusion (D/E/I) in the course of calendar | bottlenecks in industry will take time to be | | | year 2022. We regard these initiatives as | fully resolved but, just as the pandemic | | | central to the goal of good corporate | forced technological change in a condensed | Barry Aling | | citizenship and will continue to encourage | time-frame, so economies and companies | Chair | | the widest possible level of employee | will develop alternative trade patterns over | | 15th September 2022 awareness in the social dimension. time. While it appears unlikely that we will see the “V-shaped” bounce that followed | Since the appointment of Prism Cosec Ltd | the 2020 COVID-19 lockdowns, central | | --- | --- | | as Corporate Secretary in 2021 and the | bankers and businesses alike can see that | | formation of the Corporate Governance | the current constraints are largely supply- | | Working Group (CGWG), a series of | driven and not permanent in nature. Since | | changes have been made to CLIG’s | markets look well beyond the near horizon, | | working practices and these are detailed in | and provided geopolitical friction does not | | the Governance section of this report on | proliferate beyond the existing conflict, | | pages 42 to 86. Alongside the measures | there are grounds to support the view | | taken for Board-level Code compliance | that the July 2022 “mini-bounce” may | | detailed earlier, a programme of regular | not be a flash in the pan. | 6 City of London Investment Group PLC Annual Report 2021/2022 Strategic report ## OUR ESG INITIATIVES ### Overview ## Environment Social Governance ### Strategic report ### • Reduction of two offices – Seattle • Introduction of a hybrid WFH • Board size has been reduced to ### & Dubai – which will reduce future policy for all employees meet the UK Corporate Governance ### carbon emissions Code requirements of a majority ### independent Board ### • Established Group level Anti- ### • Investment in further enhancement Slavery and Human Trafficking ### Governance ### of our technology solutions to Policy, Anti-Corruption and • In-person & virtual workforce ### promote regular video conferencing Bribery Policy and reviewed engagement with the Board ### our Health & Safety Policy ### • Continued DocuSign • Enhanced reporting in Annual ### implementation across the Group • All UK employees received Report and on Group website ### training on the UK Equality Act ### 2010 in April 2022 ### • Client briefings conducted via • Risk management – Internal ### video conferencing controls, regulatory compliance ### Financial statements ### • All employees will receive two and data protection and privacy ### focused diversity, equity and ### • Further reduction in printing of ### inclusion training sessions during Please refer to page 40 for our ### annual reports/periodical portfolio section 172 (1) statement. ### calendar year 2022 ### reports and other research-based ### publications Please refer to page 34 for the Group’s social initiatives. Please refer to page 35 for the Group’s environmental policy initiatives. ### Shareholder information City of London Investment Group PLC Annual Report 2021/2022 7 Strategic report ## CHIEF EXECUTIVE OFFICER’S STATEMENT ## “We will continue to strengthen the operational and ## investment capabilities of the Group by building out ## the distribution pipeline for institutional investment ## and wealth management products.” Tom Griffith Chief Executive Officer Stronger together the outbreak of war in Ukraine in February Bloomberg US Aggregate Bond Index The past year was a successful one for your 2022 led to steep declines in global stock Rolling 12 Month Returns Company in the face of the macroeconomic and bond markets while causing the US 1976 to 2022 (US$) headwinds outlined in Barry Aling’s dollar to soar as a haven asset. Worst 12 Months comprehensive Chair’s Statement. This End Date Returns | success resulted from the combined strength | To illustrate the extent of the market falls | | | --- | --- | --- | | of the merged entity for reasons which will | over the year ending 30th June 2022, the | 30/6/2022 -10.29% | | be detailed below. We enter the new financial | US bond market, as measured by the | | 31/3/1980 -9.20% | year focused on delivering continued growth | Bloomberg US Aggregate Bond Index, had | | | --- | --- | --- | | driven by strong investment performance | its worst twelve-month period since 1976, | 29/4/2022 -8.51% | | and the high quality of services supporting | as shown in the table on the right. | | 29/2/1980 -8.34% our institutional and high net worth 31/5/2022 -8.22% | (HNW) clients. | Further, and for the first time in over | | | --- | --- | --- | | | 20 years, all eight main asset categories | 30/6/1981 -5.15% | | A number of headwinds confronted us | managed at the Group’s two subsidiaries | | 31/7/1981 -5.01% during the past year. In addition to delivered negative annual returns, as pandemic-related quarantines, labour illustrated in the asset class returns shortages and supply-chain disruptions, chart below. Asset Class Returns 50% 40% -10% 30% 20% 10% Index Index Name Strategy -20% | | MXEF | MSCI EM Index Emerging | | --- | --- | --- | | 0% | MXWO | MSCI World Index International | | | MXWOU | MSCI World Ex US Index Global | | -10% | LMBITR | Bloomberg Muni Bond Total Return Index Municipal Bond | | | VBINX | Vanguard Balanced Index ETF Balanced | | -20% | LEGATRUU | Bloomberg Global-Agg Total Return Index Global Bond | | | LBUSTRUU | Bloomberg US Aggregate Bond Index US Bond | | -30% | SPX | S&P 500 Index Domestic US | -40% 8 City of London Investment Group PLC Annual Report 2021/2022 30/6/2001 30/6/2002 30/6/2003 30/6/2004 30/6/2005 30/6/2006 30/6/2007 30/6/2008 30/6/2009 30/6/2010 30/6/2011 30/6/2012 30/6/2013 30/6/2014 30/6/2015 30/6/2016 30/6/2017 30/6/2018 30/6/2019 30/6/2020 30/6/2021 30/6/2022 Source: Bloomberg, Annual periods ending 30th June. (US$) terms ### As a result of the Karpus Investment Overview Financial statements Shareholder informationGovernance Net investment flows (US$000’s) Management (KIM) merger your CLIM FYE 2019 FYE 2020 FYE 2021 FYE 2022 Company now demonstrates a Emerging Markets (183,521) (279,459) (275,493) (315,770) dramatically more diversified asset base, | with 40% of Funds under Management | International 252,883 551,102 (14,145) 452,554 | | --- | --- | | (FuM) in Emerging Markets (EM), down | Opportunistic Value 48,236 45,914 (102,663) 617 | | from 69% at the point of the merger, | Frontier (21,336) 16,178 (168,843) (4,748) | along with significantly reduced volatility Other/REIT 6,000 4,600 – 79,133 in the earnings stream. The reduction of CLIM total 102,262 338,335 (561,144) 211,786 EM-specific risk to shareholders is a significant benefit of the merger and ### KIM FYE 2019 FYE 2020 FYE 2021* FYE 2022 Strategic report supports the dividend policy of the Company. Retail 33,701 26,323 (104,222) (106,444) Institutional 9,050 (67,087) (130,911) (3,302) Through the merger, our commitment to KIM total 42,751 (40,764) (235,133) (109,746) our Clients and their Consultants was that * Includes net investment flows for Retail (24,407) and Institutional (20,264) pertaining to period before 1st October (pre-merger). the investment teams would not be impacted by corporate changes in order to safeguard our well-honed investment CLIG – FuM by line of business (US$m) processes. This stability of people and 30 June 2019 30 June 2020 30 June 2021 30 June 2022 % of CLIM % of CLIM % of CLIM % of CLIG % of CLIM % of CLIG process is critical to both institutional CLIM US$m total* US$m total* US$m total* total US$m US$m total investors and HNW clients. Emerging Markets 4,221 78% 3,828 69% 5,393 72% 47% 3,703 64% 40% International 729 14% 1,244 23% 1,880 25% 17% 1,812 32% 20% Equally importantly, our expanded group of Opportunistic Value 233 4% 256 5% 231 3% 2% 193 3% 2% colleagues at CLIG see opportunities for Frontier 206 4% 175 3% 13 0% 0% 9 0% 0% career growth within the Group as new Other/REIT 7 0% 9 0% 13 0% 0% 74 1% 1% opportunities arise. We anticipate that more CLIM total 5,396 100% 5,512 100% 7,530 100% 66% 5,791 100% 63% such opportunities will arise as we continue to conservatively build upon sharing 30 June 2019 30 June 2020 30 June 2021 30 June 2022 services across the subsidiary companies. % of KIM % of KIM % of KIM % of CLIG % of KIM % of CLIG KIM US$m total* US$m total* US$m total* US$m US$m total total Retail 2,291 67% 2,401 69% 2,804 72% 24% 2,419 70% 26% The past financial year demonstrates why Institutional 1,105 33% 1,087 31% 1,115 28% 10% 1,014 30% 11% diversification has been prioritised. KIM total 3,396 100% 3,488 100% 3,919 100% 34% 3,433 100% 37% Executive management will continue to evaluate opportunities for consideration CLIG total 11,449 100% 9,224 100% by your Board. * Denotes pre-merger percentages. FuM & flows | FuM as at 30th June 2022 was US$9.2 | CLIG had net inflows during the financial | net outflows for each of the last four | | --- | --- | --- | | billion, which is a 19.4% decrease over the | year, despite a challenging market | financial years, despite strong relative | | financial year, reflecting weakness in the | environment. At CLIM, the International | performance for the majority of this | | underlying asset classes. | (INTL) strategy has been the main driver of | period. The geopolitical concerns that have | | | inflows during this financial year after re- | arisen in EM countries, including | | While it is difficult to tout the importance | opening to new clients earlier in 2022. The | Russia/Ukraine, North Korea/South | | of diversification after a year when both | INTL strategy has now seen net inflows | Korea, and China/Taiwan, have given | | fixed income and equity markets fell, the | for five of the last six financial years. | some investors pause, despite attractive | | smaller decline in fixed income relative to | | valuations and wide discounts. The | | EM equities is a good reminder that | KIM had net outflows for the financial | underperformance of EM vs Developed | | diversification remains beneficial, and that | year, as their primarily HNW client base | equities over the past ten years, shown in | | CLIG shareholders receive exposure to a | reduced exposure to markets given the | the chart on the following page, has also | | broad variety of asset classes. This broad | higher volatility, especially in the second | had a negative effect on investor sentiment | | asset class exposure was achieved after years | half of the financial year. | towards the asset class. EM equities as | | of organic growth within City of London | | shown by the MSCI EM Index have | | Investment Management (CLIM), and | Net outflows at CLIM’s flagship EM | significantly lagged two widely used | | bolstered by the KIM merger in October | strategy continued. As the table above | proxies of Developed Market equities: | | 2020, as shown in the table above. | shows, CLIM’s EM strategy has now had | 1) The US market, as shown by the S&P | City of London Investment Group PLC Annual Report 2021/2022 9 Strategic report ## CHIEF EXECUTIVE OFFICER’S STATEMENT CONTINUED | 500 Index, and 2) Non-US Developed | £58.2 million. Coupled with the US dollar | the special dividend equates to 1.22 times | | --- | --- | --- | | Markets, as shown by the MSCI World | strengthening versus sterling throughout | (2021: 1.29 times) in line with our target. | | Ex-US Index. While the US market has | the year from 1.39 to 1.21, Group | Please refer to page 22 for the dividend | | driven overall Developed market | earnings were buoyed by a full year of | cover chart, which provides an overview | | outperformance, non-US markets have | KIM fee income which is 100% US | of our dividend policy. | | also outperformed their EM peers. | dollar denominated. | | Inclusive of our regulatory and statutory The investment and business development CLIG profitability, cash and dividends capital requirements, cash in the bank was reviews on pages 12 to 16 further explain Operating profit before profit-share, £22.7 million as at 30th June 2022 as factors impacting global equity and fixed EIP, share option (charge)/credit and compared to £25.5 million at 30th June income markets over the period. investment gains/(losses) grew by 7.7% 2021, in addition to the seed and other to £38.4 million (2021: £35.6 million) own investments of US$9.1 million Business integration update (as set out on page 30) primarily as a result (£7.4 million) (2021: US$5.8 million | | Your management team spent the past | of full year results for KIM in FY 2022 as | | | --- | --- | --- | --- | | 10 Year Underperformance of Emerging Markets Equities (US$, re-based to 100) | | | (£4.4 million)). Our cash reserves will | | | financial year continuing the integration | against nine months (since merger) in FY | | allow us to continue managing the business 500 of the KIM business via projects in 2021. Profit before tax increased to £23.2 conservatively through volatile markets Finance, Operations, Information million (2021: £22.2 million). Please refer while following our dividend policy. The Technology, and Marketing. An updated to the Financial Review on page 30 for CLIG Board continues to review the 400 version of KIM’s website was rolled out additional financial results. appropriate cash reserves needed to run the in October 2021 to improve the client larger, but more diversified business, and experience. The Group is benefiting The Board has recommended a final assesses variables such as the impact of 300 directly from sharing services across dividend of 22p per share (2021: 22p), future revenue projections in case of a | Finance and Information Technology | subject to approval by shareholders at the | | | --- | --- | --- | | departments. We intend to continue | Company’s Annual General Meeting to be | broad retreat in underlying asset prices. | | to develop synergies as appropriate. | held on 31st October 2022. This would | | 200 | | bring the total dividend payment for the | A review of CLIG’s Share Price KPI can | | --- | --- | --- | | Group’s financial results | year to 46.5p, including the special | be found on page 23. Over the past five | | The Group’s average net fee margin for the | dividend of 13.5p paid in March 2022 | years, the average annualised return to | 100 year was 73bp (2021: 74bp). The Group’s (2021: 33p, special dividend nil). shareholders is 9.2%, within the 7.5% – net fee income over the period was Rolling five-year dividend cover, excluding 12.5% target range. 0 30/6/2012 10 City of London Investment Group PLC Annual Report 2021/2022 30/6/2013 30/6/2014 30/6/2015 30/6/2016 30/6/2017 30/6/2018 30/6/2019 30/6/2020 30/6/2021 30/6/2022 Source: Bloomberg MSCI EM IndexMSCI World Ex-US IndexS&P 500 Index | EIP | engagement with stakeholders in our | CLIG’s IT and Cybersecurity efforts over | Overview | | --- | --- | --- | --- | | The Employee Incentive Plan (EIP) | Section 172 (1) statement, on page 40. | the past 12+ years. Matt Szoke was | | | continues to be an integral part of our | | promoted to the Head of IT role on | | | remuneration package in order to align | Cybersecurity update | 1st July 2022. | | | employee and shareholder interests. This is | Information Security remains a critical | | | | highlighted by the ongoing take-up by | area of concern within the financial | Environmental reporting update | | | employees across the Group who continue | services industry. In the US, the Securities | The Taskforce on Climate-Related | | | to benefit from 1) being part of, and 2) | Exchange Commission (SEC) is | Financial Disclosures (TCFD) developed | | | owning, a public company. As at 30th June | increasingly focused on data issues, | guidance in relation to consistent climate- | | | 2022, CLIG employees owned 7% (2021: | recently proposing new regulations | related financial disclosures. CLIG | | | 6.4%) of CLIG’s issued share capital. | governing cybersecurity and data privacy | welcomes the TCFD recommendations | | ### Strategic report | | and protection designed to improve the | and have included our report on page 38 | | --- | --- | --- | | Corporate Governance & Stakeholders | industry’s ability to respond to threats. | in alignment with them. | | As Barry Aling stated in his Chair’s | Each year, the number of cybersecurity | | | statement, on 26th April 2022 our Board | attacks and breaches increases. | Retirement of Barry Olliff, | | announced the restructure of the CLIG | | CLIG Founder | | Board, and the creation of the Group | To best position CLIG’s defences against | Finally, with CLIG Founder Barry Olliff’s | | Executive Committee (GEC) to provide | potential threats, the Group undertook an | retirement from the Board on 31st July | | executive oversight of the Group’s | assessment with a leading organisation in | 2022, I’d like to extend my thanks and | | operating businesses, CLIM and KIM. | the Information Security industry to | appreciation for his work on behalf of all | | | gauge our overall cybersecurity | stakeholders. Specifically, Barry’s counsel as | | The GEC is comprised of myself, | framework. This follows an ongoing | the Founder and long-time CEO has been | ### Governance as CEO, Carlos Yuste (Head of Business multi-year effort to bolster our internal invaluable during the management Development), Mark Dwyer (Chief systems, controls and procedures, transition. Barry’s passion for the business, Investment Officer – CLIM), Dan inclusive of penetration testing, employee and clear eye towards the future growth Lippincott (Chief Investment Officer – training, and threat detection. opportunities via diversification, are woven KIM), and Deepranjan Agrawal (Group into the culture of CLIG, and will Chief Financial Officer). Simply stated, We received an above average assessment continue into the future. the GEC is responsible for the of our programme based on the size of management and oversight of Group our organisation within the financial CLIG outlook operating activities, including the executive services industry. We also received several CLIG remains well-positioned in the management of CLIG’s subsidiary suggestions to further strengthen our current market environment. Our companies. Each member of the GEC is defences mainly based on reporting and conservative management style will not Financial statements responsible for reporting directly to the incident response protocols. Efforts are change, nor will our investment-led CLIG Board, and may participate in underway to implement changes designed approach with a view to ensuring strong CLIG Board presentations and to further strengthen the Group’s investment performance for our clients. discussions as necessary. One of our goals programme. We are focused on constant We will continue to strengthen the over the past two financial years was to improvement, and we are committed in operational and investment capabilities of determine how to best become compliant our approach to safeguarding the the Group by building out the distribution with Provision 11 of the UK Corporate Group’s data and infrastructure from pipeline for institutional investment and Governance Code, and this restructuring criminal attacks. wealth management products. We will also allows us to achieve that objective. continue to be selective in identifying Retirement of CTO potential acquisitions, which we believe ### Shareholder information The CLIG Board was helped directly from CLIG’s Chief Technology Officer, will inevitably appear given the difficult the skills, expertise, and on-the-ground Alan Hoyt, retired on 30th June 2022. market conditions of the past year. | oversight by the Executive Directors during | Over his tenure at CLIG, Alan guided the | | --- | --- | | the pandemic, when travel and in-person | development of our global infrastructure | | engagement was limited. With pandemic- | and the related implementation of systems, | | related restrictions lifting, we have more | applications and data sharing necessary in | | recently benefited from opportunities for | a continuously evolving technology | | Board members to meet CLIG employees | environment. Alan’s transition includes a | | in-person in London (October 2021), | six-month post-retirement consultancy | Tom Griffith Coatesville (April 2022), and Rochester arrangement with CLIG. We wish Alan Chief Executive Officer (July 2022) at off-site events. You can the best of luck in his retirement, and find additional details on the Board’s extend our gratitude for his work on 15th September 2022 City of London Investment Group PLC Annual Report 2021/2022 11 Strategic report ## INVESTMENT REVIEW – CLIM ### Our focus on exploiting discount volatility has served clients well for over ### thirty years in both bull and bear markets. | Risk assets fell over the twelve-month | performance does not imply imminent | Despite the relative underperformance over | | --- | --- | --- | | period ending 30th June 2022 as elevated | mean reversion the value characteristics of | the period, over 95% of CLIM’s assets | | US valuations met sharply higher interest | the asset class – a dividend yield of 5.4%, | remain ahead of benchmark and peer group | | rates, reducing the value of future cash | price to book value of 0.7x and P/E ratio | over the five years ended June 2022 (see | | flows. Most risk assets declined in a | of 7.8x – speak for themselves. | CLIM Composite Returns chart below). | relatively correlated manner, reducing the benefits of diversification. CLIM Composite Returns – Five years ending June 2022 12 Active equity managers generally struggled to outperform over the period. In CLIM’s case this was noticeable through weaker net Frontier asset value (NAV) performance at the 10 underlying closed-end funds (CEFs) – and particularly visible in the International (INTL) CEF Strategy (underperformed by 8 OV 4.2%) as the funds we own in aggregate INTL CEF EM CEF had a bias to smaller, higher growth equities. In the core Emerging Market (EM) strategy (underperformed by 2.4%) a 6 modest, long held overweight to Russia was negative as Russian equities were marked to zero. Discounts generally widened over the period, particularly for the INTL CEF 4 strategy as retail investors, typically the marginal CEF buyer, turned cautious after Rate of return (%) a decade of strong returns. CLIM’s smaller strategies Opportunistic Value (OV) and 2 Frontier had a mixed year – OV suffered from the same NAV underperformance trend as the INTL strategy and ended the 0 year 2.6% behind benchmark. The Frontier strategy outperformed by 8.2% with good returns from country allocation and NAV performance. -2 CLIM’s REIT team delivered another year of solid relative performance. The strategy, | which incepted in January 2019, ended | -4 | | | --- | --- | --- | | the period with a strong three-year track | Emerging (Free) Markets Country Fund Composite | Frontier Markets Composite | | record which bodes well for asset growth | MSCI EM Net TR Index | S&P Extended Frontier 150 Index | | | Global Developed CEF International Equity Composite | Opportunistic Value Composite | in the medium term. Unfortunately the MSCI ACWI ex-US Net TR Index Blended 50/50 MSCI ACWI/Barclays Global Agg Index EM REIT asset class remains out of favour *The above returns are annualized and presented as gross of fees performance figures, which do not reflect the deduction of with allocators given the long-term investment management fees. The Emerging (Free) Markets Country Fund Composite and MSCI EM Net TR Index are shown absolute performance. Indeed EM REITs, against the eVestment Global Emerging Markets Equity Universe. The Global Developed CEF International Equity Composite and MSCI ACWI ex-US Net TR Index are shown against the eVestment All ACWI ex-US Equity Universe. The Frontier Markets Composite with a total return of minus 23% over the and the S&P Extended Frontier 150 Index are shown against the eVestment Frontier Markets Equity Universe. The Opportunistic ten years ending June 2022, have proved Value Composite and the Blended 50/50 MSCI AWCI/Bloomberg Global Agg Index are shown against the eVestment All Global the exception to the “Everything Rally” Balanced/TAA Universe. Data is as of 30th June 2022. Past performance is no guarantee of future results. of the past decade. Although this weak Source: eVestment Analytics System, BNY Mellon, City of London Investment Management, MSCI, S&P, Bloomberg 12 City of London Investment Group PLC Annual Report 2021/2022 | Net flows were positive over the year | CEF discounts are the overriding | Overview | | --- | --- | --- | | following the reopening of the INTL | consideration in CLIM’s investment | | | CEF strategy in December 2020. | process but our manager due diligence | | | Outflows continued in the EM CEF | does include a review of how ESG risk is | | | strategy as the ten-year downtrend in | managed by the underlying managers. | | | relative performance between developed | We undertake this work in order to | | | market and EM equities remained in | encourage managers to improve their ESG | | | place. On a positive note outflows | disclosures and also to keep our clients | | | slowed markedly in H2 coincident | better informed about their portfolios. | | | with a reversal in this trend. | We believe that improved transparency | | will result in better management of ESG ### Strategic report | Robust new CEF issuance increased the | risks by CEF managers and ultimately in | | --- | --- | | universe by over US$30 billion in the | better returns for our clients. The raw | | twelve months ending June 2022. An | scores for MSCI ACWI suggest that | | enlarged universe of global CEFs (funds | companies are improving their ESG | | that invest in world markets including the | performance. In addition, based on | | USA) and US equity focused CEFs | Sustainalytics’ analysis, CLIM’s CEF | | encouraged CLIG to seed a Global CEF | portfolios have slightly lower overall | | strategy. This product invests in global | ESG risk than their benchmarks on | | equity markets including the USA (in | average, though this is not a targeted | | contrast to the INTL CEF strategy which | outcome. Our detailed annual | | excludes the USA) and fills a niche for | stewardship report is available here: | ### Governance US institutions that prefer a “one stop https://www.citlon.com/esg-reports/ shop” solution for their global equity AnnualStewardshipReport3_22.pdf exposure. The INTL, Global, OV and EM REIT strategies have significant capacity The direction of equity markets is and will remain a focus for marketing. important for fund management companies. Additionally, for CLIM, | CLIM continues to develop proprietary | higher markets in a bullish environment | | | --- | --- | --- | | solutions to enhance and refine the | typically result in tighter discounts which | | | investment process; typically this | benefits performance – the same can also | | | involves further development of our | be true in reverse. That said the factors | | | research database to improve | that have negatively impacted our | Financial statements | | productivity and client outcomes. | investment performance over the last six | | | The ability to fully look through | months – widespread active manager | | | CLIM’s portfolios to the underlying | underperformance and significant | | | securities was an important development | geopolitically driven asset dislocations – | | | in 2020/21. Subsequently we have | are fortunately rare events. Our focus on | | | partnered with StyleAnalytics to better | exploiting discount volatility has served | | | understand style factors and ESG risks | clients well for over thirty years in both | | | in CLIM’s portfolios. | bull and bear markets. Wide discounts and | | persistent discount volatility give us confidence that our CEF strategies will ### Shareholder information continue to meet our clients’ longer term performance expectations. City of London Investment Group PLC Annual Report 2021/2022 13 Strategic report ## INVESTMENT REVIEW – KIM ### The war in Ukraine, global inflationary concerns, and global economic growth ### prospects are three major conditions that have rattled both the stock and bond ### markets so far this year. | Recap and outlook | on its quest to quell inflation or whether it | Clients benefited from our allocation to | | --- | --- | --- | | On 13th June 2022 the S&P 500 Index | will pivot at any sign of market stress and | SPACs as they were one of the few asset | | close marked a greater than 20% decline | turn dovish. Either way, we foresee returns | classes that produced positive returns over | | from the recent peak on 3rd January 2022 | below historic norms and anticipate | the twelve months ended 30th June 2022. | | and the Bloomberg US Government/ | continued volatility. | With all of this said, we continue to | | Credit Bond Index and Bloomberg | | favour the risk/reward proposition | | Municipal Bond Index both continued | Performance | offered by SPACs. | | losses from the first quarter at a historic | KIM’s strategies performed well over the | | | pace rarely seen. | past twelve months driven in large part by | Despite solid short and long-term | | | our tactical reduction of closed-end funds | performance, flows were net negative as | | Aggregate supply continues to be | (CEFs) and our significant allocation to | high net worth clients withdrew funds to | | restricted (largely due to COVID and | special purpose acquisition companies | pay taxes and institutional clients sought | | global pressures tied to Ukraine) and | (pre-acquisition) (SPACs) trading at | to rebalance. While markets have been | | demand has been elevated (due to | discounts to trust value. | challenging, we feel that our strategy has | | improved personal balance sheets and pent | | held up very well. With volatility comes | | up demand post-COVID reopening). | Our discipline calls for us to lower our | opportunity and we feel our strategy | | The US Federal Reserve (Fed) was also | exposure to CEFs when discounts are | is positioned well to capitalise on | | extremely accommodative since the | narrow. This allows us to lock in the added | market inefficiencies. | | pandemic and heading into this year, | value and affords us “dry powder” to | | | with low borrowing costs aiding both | purchase CEFs when discounts widen. | | | consumers and businesses. | Our approach worked well as CEF | | discounts widened significantly year over Coupled with other government aid and year. Additionally, CEF net asset value borrowing, some fear that the Fed may performance was generally poor have waited too long to steer the US throughout the year. economy toward a soft landing (i.e. away | from a recession). Nevertheless, the Fed | Where applicable, we opportunistically | | --- | --- | | has thus far raised rates by 2.25% and | allocated a significant portion of our fixed | | markets expect the Fed funds rate to peak | income and balanced accounts to SPACs. | | at 3.5% by year-end. The Fed has also | Our conservative approach is based on | | begun to unwind its balance sheet by | utilising SPACs as a short-term fixed | | allowing some of the proceeds of maturing | income alternative. Among other reasons, | | bonds to roll-off. In addition to this, | we like SPACs because they can trade at | | balance sheet reductions were announced | a premium or discount to the cash value | | to scale up to US$95 billion each month | of the trust account (similar to CEFs). | | by the end of September 2022. | By purchasing shares below the cash value | of the trust account, we view our approach Two consecutive quarters of negative GDP as buying cash at a discount. Moreover, if in the US coupled with an inverted yield the SPAC management company finds curve are signalling that a recession is what the market perceives to be an likely on the horizon. At the forefront for attractive acquisition, shares of the SPAC investors is whether the Fed will continue could trade above cash value. 14 City of London Investment Group PLC Annual Report 2021/2022 Strategic report # BUSINESS DEVELOPMENT REVIEW **CLIG's FuM were US$9.2 billion (£7.6 billion) as at 30th June 2022. This compares with US$11.4 billion (£8.3 billion) as at 30th June 2021.** Despite volatile asset markets, net investment flows were US$102 million for the Group over the period, with City of London Investment Management (CLIM) posting net gains, while Karpus Investment Management (KIM) saw net outflows as clients reduced exposure to markets in the second half of the year. After a pause in 2020, recently renewed marketing emphasis for the International closed-end fund (CEF) strategy was rewarded, in combination with the excellent long-term track record. A key reason for the merger was to diversify FuM, with Emerging Market (EM) CEF strategies now accounting for 40% of Group FuM at 30th June 2022, as compared to 47% at 30th June 2021. KIM provides balanced mandates for high net worth and wealth management clients in the US, with both equity and fixed income investments. At 30th June 2022, KIM strategies comprised 37% of Group FuM, while International CEF strategies totalled 20% of Group FuM. With regard to business development, the Group continues to develop an active pipeline across all of its major CEF offerings. ![img-1.jpeg](img-1.jpeg) ## PRODUCTS **The Emerging Markets CEF strategy (EM)** utilises CEFs to provide exposure to global emerging markets. **The Conservative Balanced strategy** utilises a combination of CEFs and other securities, providing exposure to fixed income and equities in US and global markets. **The International Equity CEF strategy (INTL)** utilises our experience with CEFs in our core EM strategy to provide exposure to global developed markets. **The Opportunistic Value CEF strategy (OV)** provides exposure to a variety of asset classes via CEFs with a go anywhere approach. While this is a separate team from the team managing client assets in the EM, both teams use the same methodology and internal operational resources. Both taxable and tax-exempt products are available. **The Frontier Emerging Markets CEF strategy** is an extension of the EM core equity product focusing on the smallest or pre-emerging markets with high growth potential. **The REIT strategies, EM and International** are focused on finding value within the global universe of listed real estate investment trusts. Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 15 Strategic report ## BUSINESS DEVELOPMENT REVIEW CONTINUED Business diversification – Products map ### Emerging Market International / Global Opportunistic Value KIM Balanced REITs | • Global Emerging | • International Equity – | • Opportunistic Value | • Taxable Fixed Income | • EM REIT | | --- | --- | --- | --- | --- | | Markets – 1991 | 2009 | – 2014 | – 1993 | – 2019 | | • China A Share | • Taxable International | • Tactical Income | • Tax-sensitive Fixed | • | International REIT – 2003 Equity – 2019 – 2014 Income – 1993 – 2019 • Frontier – 2005 • Global Equity – 2021 • US Municipal Bonds – • Equities – 1993 2018 | • Special Situations | • Short-term Fixed | | --- | --- | | – 2012 | Income – 1993 | | • Private Equity | • Growth Balanced | | – 2016 | – 2004 | | | • Conservative Balanced | – 2004 | Performance | The KIM Conservative Balanced | Outlook | | --- | --- | --- | | Long-term investment performance across | Composite net investment returns for | Marketing efforts will continue to be | | the EM and INTL CEF strategy, as well as | the rolling one year ended 30th June | targeted at investment consultants, | | Conservative Balanced mandates, remains | 2022 were -9.7% vs. -11.3% for the | foundations, endowments and pension | | strong, with first or second quartile results | Morningstar US Fund Allocation – | funds. We will also continue to introduce | | versus manager peers over the three, | 30% to 50% Equity Category in USD. | our capabilities to family offices, outsourced | | five and ten-year rolling periods ending | | CIO firms, and alternative consultants. | | 30th June 2022. | The International CEF Composite | | | | net investment returns for the rolling | Our International CEF, Balanced | | For the year ended 30th June 2022, | one year ended 30th June 2022 were | mandates, Opportunistic Value capabilities | | investment performance was behind | -23.7% vs. -19.4% for the MSCI ACWI | and REIT strategies will be the focus of | | relevant benchmarks for the bulk of | ex US in USD. | our product diversification and business | | CLIM's assets due to a combination of | | development activities. | | country allocation in the EM strategy | The Frontier Markets Composite net | | | and NAV performance at the underlying | investment returns for the rolling one | | | CEFs in the INTL and OV strategies. | year ended 30th June 2022 were -8.6% | | | KIM’s equity and fixed-income | vs. -15.6% for the S&P Frontier EM | | | strategies outperformed their market | 150 benchmark in USD. | | indices over the period, while US equity The Opportunistic Value Composite lagged its benchmark. net investment returns for the rolling | The Global Emerging Markets Composite | one year ended 30th June 2022 were | | --- | --- | | net investment returns for the rolling | -18% vs. -15.2% for the 50/50 MSCI | | one year ended 30th June 2022 were | ACWI/Barclays Global Aggregate Bond | | -27.9% vs. -25.3% for the MSCI | benchmark in USD. | Emerging Markets Index in USD, and -24.6% for the S&P Emerging Frontier Super BMI Index in USD. 16 City of London Investment Group PLC Annual Report 2021/2022 ## OUR BUSINESS MODEL ### Overview ### WHAT WE DO: For many years since the Group was founded, CLIM’s expertise was very specific to ### closed-end funds which offered emerging markets exposure. Over time, CLIM has diversified into a ### multi-strategy fund manager. KIM became part of the CLIG Group with effect from 1st October 2020. While we remain both proud and protective of our ‘boutique’ status, we seek to meet client needs across a suite of products anchored by our core expertise in the global universe of CEFs. ### Strategic report ### CLIM (INSTITUTIONAL FOCUS) KIM (HNW FOCUS) ### • Emerging Markets • Taxable Fixed Income ### • International • Tax-Sensitive Fixed Income ### • Opportunistic Value • Equities ### • Frontier • Growth Balanced ### Governance ### • REITS • Conservative Balanced ### • Short-Term Fixed Income ### HOW WE MANAGE: The way in which we manage our business is different too. We are very ### risk-averse. Profits, margins and costs are carefully managed to provide our employees with ### appropriate remuneration and shareholders with significant, sustainable dividends. Financial statements We support teams. What this means is that we discourage the cult of the individual or ‘star’ fund manager, believing that the ### risks associated with a star culture are detrimental to both shareholders and clients. ### CLIM (INSTITUTIONAL FOCUS) KIM (HNW FOCUS) ### Shareholder information ### • Management team of 12 senior managers • Management team of 5 senior managers ### • Average tenure of 13 portfolio managers is 15 years • Average tenure of 8 portfolio managers is 15 years City of London Investment Group PLC Annual Report 2021/2022 17 Strategic report ## OUR BUSINESS MODEL CONTINUED ### HOW WE DO IT: At CLIM, we have developed and nurtured a team investment process ### that does not rely on ‘star’ fund managers, but rather upon experienced fund managers using ### analytical procedures that can produce repeatable and sustainable first or second quartile ### performance versus our peers. ### CLIM’S INVESTMENT PROCESS Macro process (top-down) Country allocation ## Stage 1 Corp. ## Analyse Stage 1 Our process employs an array of activity macroeconomic data proprietary tools for analysing and ### identifying value. These quantitative tools Liquidation dates ### Stage 2 ## Stage 2 supplement both macroeconomic analysis Rank markets according to and over thirty years of trading expertise. macroeconomics, based on 13 key criteria ### Discounts to net asset value This process has delivered long-term ## Stage 3 Stage 3 relative outperformance combined with Re-rank markets based upon relative pricing ### low volatility relative to our clients’ Expertise of the fund managers of country-specific securities benchmarks through both bull and bear markets. ### Stock picking (bottom-up) Stock selection ### CLIM’S COMPETITIVE ADVANTAGE Communication – The 24hr trading and management clock (GMT) ### MIDNIGHT US/Singapore Ad hoc Review We believe that our approach and philosophy differs significantly from our peers. Our investment process identifies S ### 11 12 1 I N opportunities to capture pricing anomalies 10 2 G A | | | T 9 | 3 | | P | | --- | --- | --- | --- | --- | --- | | in securities trading at a discount to their | | S | | | O | | | | A | | | R | | net asset value. Our resolute focus is on | O | | | | E | | | C | 8 | | 4 | | T | generating consistent investment | S | | | | | --- | --- | --- | --- | --- | | | A | | Weekly | | | | 7 | | | 5 | | performance – over time and through | E | | | | | | S | Video Conference | | | | economic cycles within a controlled risk | U | | | | | | 6 | | | 6 | on Monday environment. 5 7 (All offices attend) | 4 | | | | | | | 8 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 3 | | | | | | 9 | | | | | 2 | | | | 10 | | | | | | | 1 | 12 | 11 | | | | Singapore/UK | IM Meeting UK UK/US Plus: ### MIDDAY IM Meeting • Emails • Blogs • Intranet • Video Conference 18 City of London Investment Group PLC Annual Report 2021/2022 ### Overview ### KIM has been an active investment manager since the Company’s inception in 1986. With the focus ### of managing risk, our Investment Committee formulates our economic overview by reviewing the ### economic cycle, analysing historical valuations, analysing growth and policy prospects, and ### analysing liquidity and economic momentum. Once an overview is established, a target investment matrix is then created. Sector weightings, KIM’S INVESTMENT PROCESS yield curve positioning, and duration targets are guided by this research. Analysts continuously conduct a security-by-security analysis to identify and capitalise on market inefficiencies. ### Strategic report Our focus is on the advantages offered by purchasing securities, particularly CEFs, at a discount. However, we also utilise index-based securities if CEFs are not trading at what we believe are attractive discounts. Once purchased, holdings are analysed on an ongoing basis. KIM continuously monitors key investment variables, as well as corporate governance attributes to assess whether shareholder value is being maximised. ### KIM’S COMPETITIVE ADVANTAGE ### Governance IN-HOUSE RESEARCH By conducting our own proprietary, in-house research, our strategists, analysts, portfolio managers, and traders work together to generate independent and unbiased ideas. ### EXTENSIVE EXPERIENCE Financial statements Our insight and extensive experience in closed-end funds identifies opportunities others may miss. It also allows us to avoid pitfalls that others may not be aware of. AGILITY ### Top-down analysis ### Global macroeconomic analysis / country, region Shareholder information Our Company’s size also allows us to and sector analysis / Inflation, interest rates, GDP / capitalise on fundamentally attractive asset allocation targets market inefficiencies as they arise. ### Quantitative Select securities ### Ongoing ### and with attractive Portfolio ### portfolio ### qualitative risk-adjusted construction ### monitoring return potential ### research ### Bottom-up analysis Individual security assessment / Fundamentals City of London Investment Group PLC Annual Report 2021/2022 19 Strategic report ## OUR STRATEGY AND OBJECTIVES ### Our responsibility is to keep ### WHY IT IS IMPORTANTOUR STRATEGIC GOAL ### OUR STRATEGIC GOAL WHY IT IS IMPORTANT ### these three stakeholders in ### balance (avoid conflicts) and ### to ensure that each of their Outperform CLIG’s two operating subsidiaries are active managers, and their ### interests is safeguarded. job is to add value over and above a relevant benchmark through an investment cycle which we define as five years. Retain As shareholders would expect, in a Group that has always used employees a partnership approach, we take a very long-term view with regard to remuneration. Increase FuM The client base of CLIG’s two operating subsidiaries is long-term from long-term and US based, and include pension funds, foundations, investors endowments and other institutional money managers. ### THE CLIENTS: ### PAY THE BILLS Remain open in We believe that our shareholders have a right to know what our dealings with to expect from us. shareholders, available Expect: Superior investment performance, and accountable Openness and accountability, Ethical treatment. Keep costs We keep costs down because we believe that the assets down over which we provide stewardship are, by definition, not ### THE EMPLOYEES: ours but are owned by CLIG shareholders. ### MANAGE THE BUSINESS Expect: Fair treatment, Open communication, To share in success. Corporate citizenship Over the past few years there has been a realisation that THE SHAREHOLDERS: corporations have a responsibility both for, and separately OWN THE BUSINESS within, the community. Expect: Relevant risk controls, Quality earnings, Cost controls. T H E S H L S A R I L E Continue to diversify We see this as an important component of our strategy to make B H E O H L D our business the business more robust, manage risk and enhance long-term T E Y EXPECT. . . EXPECT. . . R A S P • Superior • Relevant risk shareholder return. S controls O T investment W N performance • Quality earnings N E I L • Openness and T C • Cost controls H accountability E E B H • Ethical U T treatment S N I E S S EXPECT. . . • Fair treatment • Open communication • To share in success | T 20 City of London Investment Group PLC Annual Report 2021/2022 H | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | E | | | | | | | S | | | E M | | | | | | E S | | | P | L | | | | S I N | | | | | O Y E | | | B | U | | | | | E | S M A | E T | H E | | | | | | | N | A G | | | | ### Overview ### HOW WE ARE DOING LINK TO ### HOW ARE WE DOING ### ADDITIONAL KPIs | CLIM | Investment | | --- | --- | | • Our investment horizon is five years, and over this period the three strategies that make up ~99% of CLIM’s Funds under | performance | | Management are all outperforming their peers and benchmark. | page 24. | KIM • Long and short-term performance remains solid, with the KIM investment process continuing to add value on behalf of clients in the face of volatile markets. ### Strategic report Our remuneration policy is stress-tested in a number of ways: Employee longevity page 25. • We have to deal with very volatile cash flows, thus our need to keep salaries towards the lower end of market levels. • With four offices (not all of which are in financial centres) in three countries, we have to be aware of different pay scales, policies, costs of living and tax rates. We have always taken great pride in our client retention outreach programme, and remain open and accountable. Client entity longevity page 25. ### Governance We take the opportunity to meet shareholders whenever possible. This might be at one-to-one meetings with our Dividend paid and larger institutional holders or at group meetings with advisers and individual shareholders. We try to make all of our proposed per share announcements clear and accessible. Refer to page 22 for our dividend cover chart and dividend policy. page 2. A stable workforce limits the cost of recruitment and other costs related to employee turnover. Weighted average net fee rate page 26. ### Financial statements We do not work in expensive offices and when we travel we do not stay in five star hotels. Cost/Income ratio Keeping overheads down is good business practice as it provides more money for dividends, bonuses and reserves, page 26. and thus assists with relative job security. In addition, efforts are made to limit inter-office air travel. Internal meetings are almost exclusively conducted by video conferencing. We encourage employee participation in both local events of national and global charities, as well as local community Refer to details on specific events. Additionally, by the nature of our four-office structure, this means that we are able to offer a wide array community contributions of community involvement events to employees, and we have found that a greater variety allows for greater participation referenced within the Shareholder information throughout the year. In turn, this can also provide for meaningful results as some events will be chosen on a personal corporate and social level and will have a greater impact for specific employees and their families. These efforts and services work hand in responsibility policy hand to protect cultures and customs not only within the community outreach programmes but also within the workplace. page 36. The corporate goal of diversifying the Group's income by building strategies complementary to the flagship Emerging FuM & diversification Markets (EM) CEF strategy was, and continues to be, a priority. The merger with KIM has allowed that diversification to page 27. occur more quickly, as the EM strategy at CLIM has been reduced to 40% of the combined entity as of 30th June 2022. Marketing efforts remain focused on all strategies to grow the business. *Refer to pages 24 to 27 of explanation of additional KPIs. City of London Investment Group PLC Annual Report 2021/2022 21 Strategic report ## OUR STRATEGY AND OBJECTIVES CONTINUED Dividend cover chart Dividend cover chart We have provided an illustrative framework 2020/2021 – £5.5m to reserves 2021/2022 – £5.6m to reserves 2022/2023 – £3.9m to reserves which we update twice a year to enable 8,000k interested parties to calculate our post-tax 33p dividend 33p dividend 33p dividend 1 profits based upon some key assumptions. 7,000k The dividend cover chart shows the 6,000k quarterly estimated cost of a maintained dividend against actual post-tax profits for 5,000k last year, the current year and the assumed post-tax profit for next financial year based 4,000k upon assumptions included in the chart. 3,000k Dividends We have communicated and maintained a 2,000k policy of distributing a proportion of net 1,000k profits to shareholders by way of ordinary dividends with a target of 1.2 times (1.2x) 0 coverage ratio over a rolling five-year Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 period. This coverage ratio allows for the 2020/2021 2021/2022 2022/2023 needs of the three primary stakeholders to be balanced. Actual earnings (£) Projected earnings (£) Interim dividend paid at 11p. 1 Proposed final dividend of 22p. Exceptional merger-related cost (£) Present dividend breakeven (£) Excludes 13.5p per share of special dividend paid on 25th March 2022. ### SHAREHOLDERS Key assumptions • Number of CLIG Shares in issue (50.7m) less those held by the Employee Benefit Trust (1.7m) as at 30th June 2022. • Excludes unrealised loss/gains on seed investments. • Excludes amortisation of intangibles arising on the merger. | Receive a predictable and consistent income | | | | | KIMCLIM | | --- | --- | --- | --- | --- | --- | | stream at an attractive yield that drives | • Starting FuM as at 1-Jul-22 1-Jul-22 | | | | | | demand for the shares in the marketplace. | • Net increase in FuM in 2022/2023 (straight- | | lined to June 2023) US$250m US$135m | | | | | • Market grow | th: | | 0% 0% | | • Corporation tax based on an estimated average rate 22% 24% ### MANAGEMENT/EMPLOYEES • Exchange rate assumed to be for entire period £1/$1.25 £1/$1.25 We have sought to make our dividend Details as follows: Retain a conservative amount of cash at the policy – the most direct way we have of corporate level to weather shocks due to the • This is not a long-term policy. Rather, volatility of underlying assets. This allows rewarding shareholders – as clear as we it will be reviewed after five years and for management to take advantage of can. We will continue to pay out the every five years thereafter. opportunities that arise during periods of major part of post-tax profits in dividends. • This policy specifically takes into market dislocations when competitors and The Group’s dividend policy is detailed account CLIG’s earnings as a result of the marketplace are stressed. below. This is going to be applied with its significant present exposure to the flexibility, with approximately one-third emerging markets. CLIENTS payable as an interim dividend and • This would imply a cover ratio of 1.2x. two-thirds as a final. • While the cover is targeted as 1.2x, this Dividend policy will continue to be applied flexibly and Have confidence that the underlying This policy was introduced in 2014 and the annual dividend will approximate to business which they are investing in was reviewed in 2019. No changes were this cover on a rolling five-year average. will be an ongoing entity with stable proposed. It was designed to incorporate ownership/governance/employees. • The Board will take into account both the required flexibility to deal with the the CLIG budget for the next year and potential volatility of CLIG’s income. market outlook when determining the current year’s dividend. 22 City of London Investment Group PLC Annual Report 2021/2022 # KEY PERFORMANCE INDICATORS ## Our focus is to create shareholder value. Due to the continued diversification of CLIG's business away from CLIM's core EM strategy, the comparison to MXEF (MSCI EM Index) as a Key Performance Indicator (KPI) is no longer relevant. We retain the share price KPI to show the total return of CLIG over a market cycle. The goal of this KPI is for the total return (share price plus dividends) to compound annually in a range of 7.5% to 12.5% over a five-year period. This KPI is meant to stretch the management team, without incentivising managers to take undue levels of risk. For the five years ended 30th June 2022, CLIG's cumulative total return was 55% (9.2% annualised). We therefore met the Share Price KPI as the annualised total return was within the 7.5%-12.5% target range. ![img-2.jpeg](img-2.jpeg) Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 23 Strategic report ## KEY PERFORMANCE INDICATORS CONTINUED ### Separate from our main KPI of CLIG’s total return (share price plus dividends) over ### a market cycle, we have selected additional KPIs that we believe will enable ### shareholders to measure the future viability of CLIG. These are as follows: Five-year peer group* quartile chart ## 1 INVESTMENT PERFORMANCE 10 Our reputation depends on consistently strong investment performance versus CLIM both relevant benchmarks and peers. CLIM OV 8 Outperformance drives client retention CLIM Intl CEF EM CEF KIM and provides the opportunity to expand Conservative our client base. Balanced As detailed in the investment reviews, over 6 95% of the underlying strategies managed by CLIM and KIM are ahead of benchmark and peer group averages over five years. 4 Annualised % return 2 0 -2 | Emerging (Free) Markets Country Fund Composite | MSCI EM Net TR Index | | --- | --- | | Global Developed CEF International Equity Composite | MSCI ACWI ex-US Net TR Index | | Opportunistic Value Composite | Blended 50/50 MSCI ACWI/Barclays Global Agg Index | | Conservative Balanced Composite | Morningstar Mod Con Tgt Risk TR USD Index | *CLIM and KIM returns are compared to their respective eVestment and Morningstar universes. The above returns are annualized and presented as gross of fees performance figures, which do not reflect the deduction of investment management fees. The Emerging (Free) Markets Country Fund Composite and MSCI EM Net TR Index are shown against the eVestment Global Emerging Markets Equity Universe of which 90.3% has been updated. The Global Developed CEF International Equity Composite and MSCI ACWI ex-US Net TR Index are shown against the eVestment All ACWI ex-US Equity Universe of which 93.6% has been updated. The Opportunistic Value Composite and the Blended 50/50 MSCI AWCI/Bloomberg Global Agg Index are shown against the eVestment All Global Balanced/TAA Universe of which 81.8% has been updated. The KIM Conservative Balanced Composite and Morningstar Mod Con Tgt Risk TR USD Index are shown against the Morningstar Separate Accounts - U.S. - Allocation--30% to 50% Equity Universe. Data is as of 30th June 2022. Past performance is no guarantee of future results. Source: Vestment Analytics System, BNY Mellon, City of London Investment Management Company Limited, MSCI, Bloomberg, Morningstar, KIM 24 City of London Investment Group PLC Annual Report 2021/2022 ### Overview Employee longevity ## 2. EMPLOYEE LONGEVITY Our employees are a major asset. We spend time ensuring that we recruit, develop and retain the right people to complement the team, which in turn helps to create a stable working environment. 86% of our 21 portfolio managers have ### Strategic report been with the Group* for five or more years, and 48% of all employees have been with the Group* for over ten years. * or with KIM pre-merger ### Governance Client entity longevity ## 3. CLIENT ENTITY LONGEVITY 2000 ### Financial statements We find that stability of investment performance equates to stability of clients, 1500 but in addition there needs to be a belief 100 amongst clients that both our investment process will be maintained and that our 90 employees will remain in place. 1000 80 We have an active client retention programme in place which has both Number of client entities 70 ### educated and ensured that our clients 500 Shareholder information understand even more about our 60 investment process. As at 30th June 2022, the Group had 926 client entities in the 50 over 10 years category (2021: 911), 448 in 0 Headcount 2019 (169)2018 (170) 2020 (173) 2021 (1,999) 2022 (1,967) 5-10 years (2021: 446) and 593 in 0-5 years 40 (2021: 642). 0-5 years 5-10 years Over 10 years 30 20 10 0 | Portfolio | | Other Other Portfolio | | Portfolio | | | Other Portfolio | | Other Portfolio | | Other | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Managers | | | | Managers | | Managers | | Managers | | Managers | | | | 2018 2019 2020 2021 2022 | | City of London Investment Group PLC Annual Report 2021/2022 25 | | | | | | | | | | 0-5 years | | | 5-10 years | | Over 10 years | | | | | | | Strategic report ## KEY PERFORMANCE INDICATORS CONTINUED Weighted average net fee rate based on average FuM (Bp) ## 4 WEIGHTED AVERAGE ### NET FEE RATE This is the weighted average net fee rate earned by the Group. Changes in fee rates, product and investor mix are the principal factors that impact the weighted average rate. The chart opposite shows the annual net fee income measured as a percentage of the average annual FuM. Cost / income ratio ## 5 COST / INCOME RATIO We believe cost control is an important discipline for any business to be successful. We look to balance the cost of growth and development with stakeholder returns. The cost/income ratio for the Group is based on our total overheads to net fee income (as set out on page 30) and was 34% in FY 2022 as compared to 32% in FY 2021. 70% 100 60% 90 50% 80 70 40% 60 30% 50 40 20% 30 10% 20 10 0% 0 26 City of London Investment Group PLC Annual Report 2021/2022 2020 202120192018 2022 20222020 202120192018 Cost/income ratio ## 6. FuM AND DIVERSIFICATION The level of FuM is a key driver in the Group's profitability. Our main business development strategy is to diversify our product range. The merger with KIM in FY 2021 has allowed that diversification to accelerate. ![img-3.jpeg](img-3.jpeg) Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 27 Strategic report ## RISK MANAGEMENT ### In the course of conducting our business operations, we are exposed to a variety of ### risks, including market, liquidity, operational and other current and emerging risks ### that may be material and require appropriate controls and ongoing oversight. Group’s risk management framework clients on-boarded, ongoing screenings, Internal controls The CLIG Board has the ultimate capital adequacy, liquidity, employee The Group maintains a comprehensive responsibility for setting the risk training, outsourcing and key regulatory system of internal controls, including management framework for the Group, updates, as well as approving new or financial, operational and compliance/ including discussing and agreeing what the risk controls. updated CLIM policies. Group’s overall top risks are, which are As mentioned earlier, on a six-monthly reviewed by the Board at each scheduled The RCC via CLIM’s Head of basis each department of business Board meeting. Compliance reports to the CLIG Board within CLIM is required to review and on a quarterly basis and CLIG’s Audit A Group-level risk register has been update their individual risk assessment. & Risk Committee at each of its three established which identifies principal Additionally, each department of business scheduled meetings. current and emerging risks. The risk register within CLIM is subject to an annual provides a measure of the principal risks review by senior management, who are KIM and a Red, Amber, Green (RAG) status required to identify and report on the key The KIM Board has established a based on the level of risk, frequency and controls pertinent to their responsibilities. Compliance Committee which is chaired The senior management team at KIM is mitigating controls in place. by KIM’s Chief Compliance Officer responsible for ensuring adequate internal CLIM’s Risk & Compliance Committee (KIM CCO) and includes three other controls within KIM. (RCC) and KIM’s Compliance Committee members: KIM’s Chief Financial Officer; have the responsibility of the day-to-day The Board reviews the effectiveness of the Senior Vice President & Director of system of internal controls on an ongoing oversight of the risk management process at Operations; and KIM’s Chief Investment basis and this process is subsequently the respective operating subsidiaries. Officer/President. evaluated by the Audit & Risk Committee. CLIM The Board and the Audit & Risk The Committee’s purpose is to review CLIM’s Board has established an RCC, Committee continue to consider the need and assess the Company’s investment which is chaired by CLIM’s Head of for an internal audit function and have adviser compliance programme in the Compliance. The other members of the concluded that, given the size of the following manner: assist the KIM business, the nature of its activities, and RCC are the Executive Directors of CLIM, the US Chief Compliance Officer CCO with administering the investment the other control mechanisms that are in and CLIG’s Internal Counsel. The purpose adviser compliance programme; evaluate place, an internal audit function was not of the RCC is to assist the CLIM Board the Company’s compliance with federal required during the year. in the oversight, maintenance and securities laws; monitor compliance with Key risks development of CLIM’s current and the Company’s policies and procedures The Board has conducted a robust emerging risks and compliance frameworks as set forth in the Compliance Manual assessment of the principal risks facing the in adherence with its risk appetite. and Code of Ethics; oversee and assess Group, including those that would threaten the Company’s Information Security CLIM’s risk management process requires, its business model, future performance, policy and Business Continuity and on a semi-annual basis, that each solvency or liquidity. This assessment department/line of business, via a Disaster Recovery Plan; oversee and includes continuous monitoring of both departmental risk assessment, review its assess the Company’s Identity Theft internal and external environments to current and emerging risks and the business Prevention Programme; and address identify new and emerging risks, which in processes that occur in each and assign other matters that the Management turn are analysed to determine how they both an inherent and residual risk rating, Committee deems appropriate. can best be mitigated and managed. The as whilst we cannot eliminate all risk, our primary risk is the potential for loss of FuM aim is to proactively identify and manage The Committee meets as often as it may as a result of poor investment performance, those risks that have been identified. be deemed necessary or appropriate in client redemptions, a breach of mandate its judgement, either in person or guidelines or market volatility. The Group The RCC meets quarterly to provide the remotely, and at such times and places as seeks to attract and retain clients through members with a regular forum at which to the Committee shall determine; provided, consistent outperformance supplemented ensure any relevant issues are discussed by first class client servicing. however, that the Committee shall meet at and agreed upon. At its meetings, the least quarterly in the discharge of its RCC reviews management information In addition to the above key business such as the CLIM risk register, breaches duties. The Committee, via the KIM CCO, risk, the Group has outlined what it and errors, personal account dealing, other reports to the CLIG Board on a quarterly considers to be its other principal risks, business interests, gifts and hospitality, basis and CLIG’s Audit & Risk Committee including the controls in place and any complaints, AML updates including new at each of its three scheduled meetings. mitigating factors. 28 City of London Investment Group PLC Annual Report 2021/2022 ### Overview Financial statements Shareholder informationGovernance ### PRINCIPAL RISK CONTROLS / MITIGATION Key person Risk that key employees across the business Team approach, internal procedures, knowledge sharing. Remuneration leave/significant reliance on a small number packages reviewed as needed to ensure talent/key employees risk of key employees. are retained. Technology, IT/ Risk that technology systems and support IT monitors developments in this area and ensures that systems are cybersecurity are inadequate or fail to adapt to changing adequately protected. Additional IT spend has resulted in a number of ### Strategic report and business requirements; systems are vulnerable to ongoing systems vulnerability testing that has taken place on the continuity risks third party penetration or that the business network, along with ongoing monitoring of the network to reduce our cannot continue in a disaster. vulnerabilities. The Group actively maintains a Disaster Recovery/ Business Continuity plan. All offices maintain backups of all local servers, applications and data. The US replicates its backup to the UK cloud provider and vice versa. Employees across its four offices are able to work remotely, accessing information and maintaining operations. Material error/ Risk of a material error or investment Mandate guidelines are coded (where possible) into the order mandate breach mandate breach occurring. management system by the Investment Management/Compliance teams of each operating subsidiary. Regulatory and Risk of legal or regulatory action resulting Compliance teams of each subsidiary monitor relevant regulatory in fines, penalties, censure or legal action developments – both new regulations as well as changes to existing legal risk arising from failure to identify or meet regulations that impact their respective subsidiary. Implementation is done as practicably as possible taking into account the size and nature regulatory and legislative requirements in of the business. the jurisdictions in which the Group and its operating subsidiaries operate, including The finance team keeps abreast of any changes to Listing Rules, those as a result of being a listed entity on accounting and other standards that may have an impact on the Group. the London Stock Exchange. Risk that new Finance and both the compliance teams receive regular updates regulation or changes to the interpretation from a variety of external sources including regulators, law firms, of existing regulation affects the Group’s consultancies etc. operations and cost base. In addition, there are a number of less significant financial risks outlined in note 24 on pages 124 to 125. City of London Investment Group PLC Annual Report 2021/2022 29 Strategic report ## FINANCIAL REVIEW ### The Group income statement is presented in line with UK-adopted International ### Accounting Standards on page 94 but the financial information is reviewed by the ### management and the Board in a slightly different way, as in the table provided ### below. This makes it easier to understand the Group’s operating results and ### shows the profits to which the Group’s profit-share provision applies. Revenue Consolidated income for financial years ended 30th June The Group’s gross revenue comprises 2022 2021 management fees charged as a percentage £’000 £’000 of FuM. The Group’s gross revenue has Gross fee income 61,294 55,123 increased YoY by 11% to £61.3 million Commissions (1,599) (1,101) (2021: £55.1 million). The increase in Custody fees (1,492) (1,572) revenue is primarily due to a full year of | Net fee income 58,203 52,450 | revenue for KIM in FY 2022 (nine | | --- | --- | | Interest (121) (117) | months in 2021), higher average FuM | | Total net income 58,082 52,333 | during the year and by a stronger US | dollar against sterling, with an average Employee costs (13,229) (11,126) GBP/USD rate of 1.33 this year compared Other administrative expenses (5,781) (4,867) with 1.35 last year, an increase of c.2% Depreciation and amortisation (696) (719) over last year’s average rate. Total overheads (19,706) (16,712) Commission payable of £1.6 million Profit before bonus/EIP – operating profit 38,376 35,621 (2021: £1.1 million) relates to fees due Profit-share (9,162) (7,923) to US registered investment advisers for EIP (1,298) (1,008) the introduction of wealth management Share option (charge)/credit (34) 12 clients. The increase is primarily due Investment (loss)/gain (659) 540 to a full year of results for KIM being Pre-tax profit before exceptional item and amortisation of included in FY 2022. intangibles acquired on acquisition 27,223 27,242 The Group’s net fee income, after custody Acquisition – related costs – (1,743) Amortisation of intangibles (4,051) (3,250) charges of £1.5 million (2021: £1.6 million), is £58.2 million (2021: £52.5 Pre-tax profit 23,172 22,249 million), an increase of 11% on last year. Tax (5,081) (5,259) The Group’s average net fee margin for the year was 73bp as compared to 74bp Post-tax profit 18,091 16,990 for the year ended June 2021. Net interest paid is made up of interest Group income statement and FuM earned on bank deposits offset by interest statement of comprehensive income FuM at 30th June 2022 were US$9.2 paid on lease obligations. Refer to page 104 For the first time the financial results for billion compared with US$11.4 billion for our lease accounting policy and page | KIM for the full twelve-month period | at the end of the prior financial year. | 107 for details of net interest paid. | | --- | --- | --- | | have been included in the consolidated | The decrease was due to a combination | | | income statement ended 30th June 2022. | of investment flows, market movements | Costs | | The merger with KIM was completed | and performance. Refer to the FuM by | Total overheads before profit share, EIP, share | | on 1st October 2020 and thus the | line of business table on page 9 within | option charge and investments (losses)/gains | | consolidated income statement for the | the CEO statement. Average FuM for | for the year totalling £19.7 million (2021: | | year ended 30th June 2021 only | the year increased by 9% from US$9.7 | £16.7 million) were 18% higher than 2021, | | included the results for KIM over the | billion in FY 2021 to US$10.5 billion | which was primarily on account of the | | nine-month period. | in FY 2022. | inclusion of full year results for KIM. | 30 City of London Investment Group PLC Annual Report 2021/2022 | The Group’s cost/income ratio, arrived | unrealised (losses)/gains on the Group’s | Group’s operating expenses are incurred | Overview | | --- | --- | --- | --- | | at by comparing total overheads with | seed and other investments. | in non-sterling currencies. In order to | | | net fee income, was 34% in FY 2022 | | pay the anticipated US dollar dividends | | | (2021: 32%). | Amortisation of intangibles | and non-sterling expenses, c.58% of the | | | | Intangible assets relating to direct | Group’s cash resources are held in | | | The largest component of overheads | customer relationships, distribution | US dollars as at 30th June 2022. | | | continues to be employee-related at | channels and KIM’s trade name | | | | £13.2 million (2021: £11.1 million), an | recognised on the merger with KIM are | The Group invested US$5 million | | | increase of 19% over last year. This is | being amortised over 7-15 years (refer to | (£3.9 million) in seeding its two REIT | | | mainly on account of the full year of | note 1.6 of the financial statements) and | funds at the start of January 2019. By | | | KIM employee costs in FY 2022 (as | have resulted in an amortisation charge of | the end of June 2022, these investments | | ### Strategic report compared to nine months of costs in £4.1 million for the year (2021: £3.3 were valued at £3.8 million (2021: FY 2021) and a stronger US dollar during £4.2 million), with the unrealised loss million). Deferred tax liability as at 30th the second half of FY 2022. Average (2021: gains) taken to the income June 2022 amounted to £8.6 million headcount in FY 2022 was 114 as statement. based on the relevant tax rate, which will compared to 99 in FY 2021. Other unwind over the useful economic life to administrative overheads have increased During the year the Group has invested the associated assets. Goodwill amounting by a similar 19% to £5.8 million (2021: US$2.5 million (£1.9 million) in seeding to £69.7 million was also recognised on £4.9 million) mainly due to a full year a new Global Equity CEF Fund in the completion of the merger. Foreign of KIM costs included in FY 2022, a December 2021 and US$2.5 million currency translation differences on the stronger US dollar during the second (£1.9 million) in a Special Purpose closing balances of intangibles have been | half of FY 2022 as well as an increase in | | Acquisition Company (SPAC) strategy in | | | --- | --- | --- | --- | | | recognised in other comprehensive | | Governance | | travel and marketing costs post-COVID. | | March 2022. By the end of June 2022, | | income. Refer to note 12 of the financial these investments were valued at £3.6 statements for more details. Total net fee income less overheads million (2021: nil), with the unrealised resulted in a profit before profit-share/ loss of £0.2m (2021: nil) taken to the Taxation EIP/share options charge and investment income statement. The pre-tax profit of £23.2 million (losses)/gain of £38.4 million (2021: (2021: £22.2 million), after a corporation £35.6 million). The International REIT and Global tax charge of £5.1 million in FY 2022 Equity CEF funds are assessed to be (2021: £5.3 million), at an effective rate of The total variable profit-share amounted under the Group’s control and are thus 22% (2021: 24%), results in a post-tax to £9.2 million as compared with £7.9 consolidated using accounts drawn up as profit of £18.1 million (2021: £17.0 million in 2021, an increase of 15.6% ### of 30th June 2022. There were no third Financial statements million), which is all attributable to the mainly on account of the full year of KIM party investments, collectively known as equity shareholders of the Company. costs included in FY 2022 as well as the the non-controlling interest (NCI) in impact of a stronger US dollar during the these funds as at 30th June 2022 (2021: Group statement of financial position second half of FY 2022. £0.2 million). The Group’s financial position continues to be strong and liquid, with cash The Group’s Employee Incentive Plan The Group’s right-of-use assets (net of resources of £22.7 million as at 30th (EIP) charges amounted to £1.3 million amortisation) amounted to £2.4 million June 2022 as compared with £25.5 (2021: £1.0 million), the increase is a as at 30th June 2022 as compared with result of the impact of a stronger US dollar million as at 30th June 2021. As a result £2.8 million as at 30th June 2021. during the second half of FY 2022 and of the merger with KIM in October Additions to the right-of-use assets during ### KIM employees’ full year participation in 2020, as at 30th June 2022, c.53% of Shareholder information the year are on account of the Singapore the current year’s plan. The Group’s EIP the Group’s shareholders are now based office lease being modified and extended was offered to KIM employees from 1st in North America. Although the during the period. January 2021 and thus FY 2021 only Group continues to declare dividends in included a charge for six months. sterling, from October 2022, we have provided the option for shareholders to | Investment (losses)/gains | receive dividends either in sterling or | | --- | --- | | Investment losses of £0.7 million (2021: | US dollars, at a pre-determined exchange | | gain of £0.5 million) relate to the | rate. Further, post-merger c.66% of | City of London Investment Group PLC Annual Report 2021/2022 31 Strategic report # FINANCIAL REVIEW The EBT purchased 552,730 shares (2021: 496,354 shares) at a cost of £2.7 million (2021: £2.5 million) in preparation for the annual EIP awards due at the end of October 2022. The EIP has had a consistently high level of participation each year since inception (>60% of Group employees), with the first tranche of awards vesting in October 2018. Only 23.5% (2021: 21.1%) of the shares vesting during the year were sold in order to help cover the employees' resulting tax liabilities, leading to a very healthy 76.5% (2021: 78.9%) share retention within the Group. In addition, Directors and employees exercised 92,000 (2021: 226,875) options over shares held by the EBT, raising £0.3 million (2021: £0.8 million) which was used to pay down part of the loan to the EBT. Dividends paid during the year totalled £21.5 million (2021: £9.7 million). The total dividend of 46.5p per share comprised: the 22p per share final dividend for 2020/21, 11p per share interim dividend for the current year and a special dividend of 13.5p per share paid on 25th March 2022 (2021: 20p per share final for 2019/20 and 11p per share interim). The Group's dividend policy is set out on page 22. The Group is well capitalised and its regulated entities complied at all times with their local regulatory capital requirements. In the UK, the Group's principal operating subsidiary, CLIM, is regulated by the FCA. As required under the Capital Requirements Directive, the underlying risk management controls and capital position are disclosed on CLIM's website www.citlon.co.uk. ### FX/Post-tax profit matrix Illustration of US$/£ rate effect: | FuM US$bn | 8.2 | 9.2 | 9.4 | 9.9 | 10.4 | | --- | --- | --- | --- | --- | --- | | US$/£ | Post-tax, £m | | | | | | 1.16 | 13.2 | 16.5 | 17.4 | 19.0 | 20.7 | | 1.20 | 12.5 | 15.8 | 16.6 | 18.2 | 19.7 | | 1.25 | 11.7 | 14.8 | 15.6 | 17.1 | 18.7 | | 1.28 | 11.3 | 14.3 | 15.1 | 16.6 | 18.1 | | 1.32 | 10.7 | 13.7 | 14.4 | 15.9 | 17.3 | | Assumptions: | CLIM | KIM | | --- | --- | --- | | 1 Average net fee | 71 bp/s | 76 bp/s | | 2 Annual operating costs | £6.7m plus US$9.4m plus S$0.8m (£1 = S$1.68) | US$7.9m | | 3 Average tax | 22% | 24% | | 4 Amortisation of Intangible £3.4m per annum | | | Note: This table is intended to illustrate the approximate impact of movement in US$/£, given an assumed set of trading conditions. It is not intended to be interpreted or used as a profit forecast. ### Currency exposure The Group's revenue is almost entirely US dollar based whilst its costs are incurred in US dollars, sterling and to a lesser degree Singapore dollars. The table presented above aims to illustrate the effect of a change in the US dollar/sterling exchange rate on the Group's post-tax profits at various FuM levels, based on the assumptions given, which are a close approximation of the Group's current operating parameters. You can see from the illustration that a change in exchange rate from 1.25 to 1.16 increases post-tax profits by £1.8 million from £15.6 million to £17.4 million on FuM of US$9.4 billion. It is worth noting though that while the Group's fee income is assessed by reference to FuM expressed in US dollars, almost 40% of the underlying investments are primarily in emerging market-related stocks, and therefore the US dollar market value is sensitive to the movement in the US dollar rate against the currencies of the underlying countries. To a degree this provides a natural hedge against the movement in the US dollar given that as the US dollar weakens (strengthens) against these underlying currencies the value of the FuM in US dollar terms rises (falls). The Group's currency exposure also relates to its subsidiaries' non-sterling assets and liabilities, which are again to a great extent in US dollars. For the UK incorporated entities, the exchange rate differences arising on their translation into sterling for reporting purposes each month is recognised in the income statement. In order to minimise the foreign exchange impact, the Group monitors its net currency position and offsets it by forward sales of US dollars for sterling. At 30th June 2022, these forward sales totalled US$24.5 million, with a weighted average exchange rate of US$1.29 to £1 (2021: US$8.3 million at a weighted average rate of US$1.40 to £1). The exchange rate differences arising from translating functional currency to presentation currency for KIM are recognised in the Group's other comprehensive income. 32 City of London Investment Group PLC Annual Report 2021/2022 ## Viability statement In accordance with the provisions of the UK Corporate Governance Code, the Directors have assessed the viability of the Group over a three-year period, taking into account the Group's current position and prospects, Internal Capital Adequacy Assessment Process (ICAAP) and the potential impact of principal risks and how they are managed as detailed in the risk management report on pages 28 to 29. The Group will produce its first Internal Capital and Risk Assessment (ICARA) in FY 2023. ## Period of assessment While the Directors have no reason to believe that the Group will not be viable over a longer period, given the uncertainties still associated with the global pandemic, as well as economic and political factors and their potential impact on financial markets, any longer time horizon assessments are subject to a level of more uncertainty due to external factors. Taking into account the recommendations of the Financial Reporting Council in their 2021 thematic review publication, the Board has therefore determined that a three-year period to 30th June 2025 constitutes an appropriate and prudent timeframe for its viability assessment. This three year view is also more aligned to the Group's detailed stress testing. ## Assessment of viability As part of its viability statement, the Board has conducted a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. This assessment includes continuous monitoring of both internal and external environments to identify new and emerging risks, which in turn are analysed to determine how they can best be mitigated and managed. The primary risk is the potential for loss of FuM as a result of poor investment performance, client redemptions, breach ## Alternative Performance Measures | | Jun 22 £ | Jun 21 £ | | --- | --- | --- | | **Underlying profit and profit before tax** | | | | Net fee income | 58,203,284 | 52,450,936 | | Administrative expenses | (30,199,393) | (25,631,432) | | Net interest paid* | (121,054) | (117,063) | | **Underlying profit before tax** | **27,882,837** | **26,702,441** | | **Deduct/add back:** | | | | (Loss)/gain on investments | (659,231) | 540,172 | | Acquisition-related costs | – | (1,743,424) | | Amortisation of acquired intangibles | (4,051,223) | (3,250,185) | | **Profit before tax** | **23,172,383** | **22,249,004** | * Net interest paid is made up of interest earned on bank deposits offset by interest paid on lease obligations. Refer to page 104 for our lease accounting policy and page 107 for details of net interest paid. of mandate guidelines or market volatility. The Directors review the principal risks regularly and consider the options available to the Group to mitigate these risks so as to ensure the ongoing viability of the Group is sustained. The ICAAP is reviewed by the Board and incorporates a series of stress tests on the Group's financial position over a three-year period. The level of scenarios included within the ICAAP are significantly more severe than our risk appetite, which include: - significant fall in FuM - significant fall in net fee margin - combined stress (significant fall both in FuM and net fee margin) Having reviewed the results of the stress tests, the Directors have concluded that the Group would have sufficient resources in the stressed scenario and that the Group's ongoing viability would be sustained. The stress scenario assumptions would be reassessed if necessary over the longer term. An example of a mitigating action in such scenarios would be a reduction in costs along with a reduction in dividend. Based on the results of this analysis, the Board confirms it has a reasonable expectation that the Company and the Group will be able to continue in operation and meet their liabilities as they fall due over the next three years. On that basis, the Directors also considered it appropriate to prepare the financial statements on the going concern basis as set out on page 84. ## Alternative Performance Measures The Directors use the following Alternative Performance Measures (APMs) to evaluate the performance of the Group as a whole: **Underlying profit before tax** – Profit before tax, adjusted for (loss)/gain on investments, acquisition-related costs and amortisation of acquired intangibles. This provides a measure of the profitability of the Group for management's decision-making. ## Underlying earnings per share – Underlying profit before tax, adjusted for tax as per income statement, tax effect of adjustments and non-controlling interest, divided by the weighted average number of shares in issue as at the period end. Refer to note 9 in the financial statements for reconciliation on page 109. Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 33 Strategic report ## CORPORATE AND SOCIAL RESPONSIBILITY POLICY ### CLIG recognises that, within the prime function of managing investment assets on behalf ### of its clients, it has an overriding obligation to meet the highest standards of corporate ### responsibility to all stakeholders, including clients, shareholders, employees and the ### communities in which the Group operates. confidential advice on personal and challenging year and our priority ## 1. WORKPLACE continued to be ensuring their safety professional matters to employees and members of their immediate family. and well-being. Accordingly, during FY 2022, employees were provided flexibility Employee welfare to work from home (WFH) up to a Gender diversity In addition to the statutory obligations, certain number of days. As an employer, CLIG is committed to CLIG is committed to maintaining equality and valuing diversity within its transparent policies in respect of the Our management team and the Board workforce. As noted above, we believe that following: continued to engage ensuring open people should be appointed to their roles • Recognition of diversity through discussion with the wider workforce and based on skills, merit and performance. We recruitment and promotion based on implemented a new hybrid WFH policy recognise that diversity adds value and our with effect from 1st July 2022. We believe merit without regard to ethnicity, goal is to ensure that our commitments, this better achieves the necessary balance gender, religion, sexual orientation, reinforced by our values, are embedded in of employee flexibility with respect to disability, family or marital status, our day-to-day working practices. work/life balance whilst maintaining the language, national origin, political benefits of employees working together affiliation, race, age, or any other Post restructure of the Board on 30th June in the office. characteristic protected by law. 2022 and after the retirement of Barry | • Strict adherence to and compliance with | Olliff on 31st July 2022, the gender ratio | Human rights | | --- | --- | --- | | the regulatory requirements in force by | at Board level as at 31st July 2022 was | CLIG is committed to respecting all | | all employees supported by clear | 29% female to 71% male (30th June 2021: | human rights. Our operations and | | guidelines that enable whistleblowing. | 18% to 82%). | practices relevant to the workplace and | community are aligned with the United • Participation by employees in the Group’s Nations (UN) Universal Declaration of Of our 111 employees, excluding Non- activities through share ownership Human Rights. arrangements that encourage employee Executive Directors, 37% are female retention and minimise turnover. (2021: 36%), including 33% of senior Learning and development management including Executive • Ensuring good practices and creating a Our employees are an asset to us. We Directors (2021: 31%), and 38% of the workplace free of harassment and recognise and support the importance of remaining employees (2021: 37%). bullying and in which all individuals are encouraging all employees to complete professional qualifications relevant to their treated with dignity and respect. 2022 Female Male Total role, in order to progress and realise their Executive Directors* 0 1 1 full potential. We partner with our Under the 2018 Corporate Governance Senior managers 6 11 17 employees and contribute towards their Code (the Code), the Board is required All other employees 35 58 93 development by sponsoring their studies and to agree a mechanism to ensure providing study leave. This year we have 41 70 111 ongoing engagement with the workforce. sponsored employees for their CFA studies. NEDs* 2 4 6 Barry Aling, Chair, has been designated This is in addition to the usual seminars and 43 74 117 as the Non-Executive Director for conferences our employees attend. * as of 31st July 2022 post restructure of the Board on employee engagement. 30th June 2022 and Barry Olliff’s retirement on Mandatory anti-money laundering and 31st July 2022. Code of Ethics training is provided annually Health and Safety to all employees. Employees also take CLIG is committed to maintain a high responsibility for their own development Work/life balance level of Health and Safety (H&S). Internal As the Group continues to adapt with via our annual appraisal process, where H&S audits and risk assessments are advancements in technology, changes in they are able to discuss further training conducted to improve ergonomics culture, and the changing family where they feel it is necessary. throughout its offices. All UK employees circumstances of our employees, we try have access through our Group Income to be fair and flexible while retaining We continue with the CLIG Security Protection policy to the Lifeworks teamwork as one of our core values. Education Programme (CSEP), which Assistance programme, which offers CLIG employees faced another is a multi-faceted cyber security training 34 City of London Investment Group PLC Annual Report 2021/2022 ### programme that includes online courses conduct to ensure that employees act • Where possible, client briefings Overview and videos via a web-based portal. ethically when dealing with our various conducted via video conferencing, We have further increased the use of stakeholders. It also seeks to ensure that all thereby reducing business travel. this web-based portal to disseminate a actual and potential conflicts of interest are • Further reduction in printing of annual number of training modules including identified, mitigated and monitored on an reports/periodical portfolio reports and in relation to diversity, equity and ongoing basis. Any breaches of the Code other research-based publications, inclusion as noted below. are reported to the Board of Directors. thereby reducing paper usage. In addition, the following training sessions Climate-related risks are provided to all employees: | | 2. ENVIRONMENT | At a Group level, we monitor the risks | | | --- | --- | --- | --- | | • Internal training on our investment | | from a ‘stakeholder’ perspective, as our | Strategic report | | management services. | | three main stakeholders (clients, | | Tom Griffith is the Executive employees, and shareholders) are • Awareness sessions on a regular basis to Director responsible for the Group’s intertwined. Risks related to climate keep employees up to date with relevant environmental policy. change, include, but are not limited to: aspects of the business. • The Group’s clients will potentially be Environmental policy initiatives • Induction programme to all new impacted by negative investment Employees and management of the Group employees over a period of several performance of their portfolios if are committed to protect the environment weeks. It is an ongoing process to there are broad-based declines in in which we operate. We provide ensure new employees settle well into the value of the companies or investment management service to our the Group and are confident in carrying investment vehicles due to the ### clients which has a relatively modest direct Governance out the full scope of their duties. impact of climate change; environmental impact. The Group recognises that we must first acknowledge, • The Group’s employees are located in Group wide policies have been established then measure, and then minimise four offices around the globe, each on a range of social issues, including environmental risks and, wherever with their own local risks due to Diversity, Equity & Inclusion, Anti-Slavery commercially possible, improve the Group’s climate change. Pervasive risks & Human Trafficking, Anti-Corruption & overall environmental performance. relevant to our employees include Bribery and Whistleblowing. health & safety risks due to extreme For the last almost two years, our heat, impact on infrastructure, CLIG’s Diversity Working Group which overarching theme was to use the agriculture, water supplies/scarcity, includes Executive Directors and other (unfortunate) catalyst of the pandemic to wildfires and tree disease; and employees (including HR) is responsible for: ### Financial statements help the business’s environmental profile. • The Group’s shareholders are at risk • Reporting and assisting in the We believe these small improvements of lower returns from their investment implementation of diversity, equity & will translate into material, longer-term in CLIG due to lower assets under inclusion-related initiatives. reductions in the environmental management as a result of climate change footprint of the Group. • Researching best practices, discussing and the resultant lower profitability. issues raised by employees and A representative list of initiatives implementing solutions across the Group. The Group is committed to using the completed during the year to help lessons learned during the pandemic to • Reiterating with external recruitment reduce the environmental impact of ensure that we realise material, long-term firms the importance of receiving a our activities, is as follows: improvements in reducing the risks to the ### diverse pool of candidates. Shareholder information • Reduction of two offices – Seattle & environment presented by the Group’s • Identifying training needs for employees Dubai – which will reduce future business operations. and distributing them via a web-based carbon emissions. portal. Specific trainings provided during CLIM’s investment process prioritises • Investment in further enhancement of the year included UK Equality Act 2010 good governance but it also includes an our technology solutions to promote and a wide-ranging review of the terms assessment of the environmental and social regular video conferencing, thereby ‘Diversity, Equity, and Inclusion’. policies of the CEFs’ underlying securities. reducing business travel. We promote greater transparency from the Ethics • Continued DocuSign implementation CEFs of the ESG characteristics of All CLIG employees are required to act in across the Group, thereby reducing the their underlying portfolios. accordance with applicable Code of Ethics. need for signatures of hard copy This lays out minimum standards of documents. City of London Investment Group PLC Annual Report 2021/2022 35 Strategic report ## CORPORATE AND SOCIAL RESPONSIBILITY POLICY CONTINUED We support the work undertaken by Total CO 2 e emissions the TCFD and have produced our Operational scope Greenhouse gas emission source 2022 2021* Units first response in alignment with its recommendations. To meet the listing Energy consumption Electricity – UK 81 79 mWh requirements under LR 9.8.6, we have Electricity – non-UK 348 323 mWh included the climate-related financial disclosures consistent with the TCFD Direct emissions (Scope 1) Fuel combustion in owned sources 0 0 mWh recommendations on pages 38 to 39. We will evolve this through our work Indirect emissions (Scope 2) Purchased electricity – UK 17 19 Tonnes CO 2 e in FY 2023 and improve alignment in Purchased electricity – non-UK 88 86 Tonnes CO 2 e our future disclosures. | | Indirect emissions (Scope 3) Business travel: flights 131 9 Tonnes CO | 2 e | | --- | --- | --- | | Mandatory carbon reporting | Electricity transmission and 6 6 Tonnes CO | 2 e | | Listed companies are required to report | distribution losses | | their annual greenhouse gas emissions. We have used the financial control approach Total greenhouse gas emissions 242 120 Tonnes CO 2 e and utilised the UK Government’s GHG Intensity ratio 2.1 1.2 Tonnes CO 2 e Conversion Factors for Company per FTE Reporting. For international electricity conversion factors this year we have used * restated using US EPA (eGrid) and Singapore EMA conversion factors. the US EPA (eGrid) and Singapore EMA Notes: for the first time and so have restated our • Scope 1 emissions are direct emissions from sources owned or operated by the Group and have a mandatory reporting requirement. • Scope 2 emissions are those associated with electricity consumption and are mandatory to report. prior year emissions for overseas offices for • Scope 3 emissions are voluntary to report but, as they are the largest source of our carbon emissions due to business air travel, comparative purposes. The intensity we deem it important to report them here. In accordance with government guidelines, we have also included an estimate of transmission and distribution losses, common to all buyers of electricity, under Scope 3 emissions. measurement used is tonnes of carbon dioxide equivalent (CO 2 e) per average number of full-time equivalent (FTE) • Engaging in programmes that make Illustrative list of employees’ participation employees during the year. communities better places to live in FY 2022 include: and work. | Our indirect emissions (Scope 3) increased | | • DEC Ukraine Humanitarian Appeal | | --- | --- | --- | | due to the increase in business travel | • Using local suppliers to help support | (UK) & United Ukrainian American | | following the easing of pandemic related | businesses within the community. | Relief Committee (US). | restrictions during the year. While this is a • Raising awareness, sharing efforts • The Elephant Reintegration Trust (UK). significant increase in business travel from and encouraging participation via the previous year, it is well below the pre- • One Warm Coat (US). COLeague news, our internal pandemic levels. newsletter. • Food Bank donations to support underprivileged families and local During FY 2022, CLIG has partnered shelters in the local communities ## 3. COMMUNITY with at least three vendors that are female- (US & UK). led, which provide services across a variety • Salvation Army, a “Socktober” event, CLIG seeks to encourage employees to of sectors including document production, and Community, Youth and Women’s regularly participate in community website design and company secretarial Alliance gift giving and donations support activities across a wide spectrum services. We chose these companies (US & Singapore). of causes that encompass both monetary because they offer best-in-class services and and non-monetary efforts to help raise products. We are also aware of the benefit • Various athletic achievements and awareness. In turn, this fosters a culture of diversity of thought and leadership fundraisers to support various causes of leadership, teamwork and appreciation provided by female-led companies, and (US & UK). within our Group and community. will continue to include the gender and Our long-term goals include: ethnic characteristics of the leadership As a matter of policy, CLIG does not teams in the consideration process for any make donations to any client-related • Encouraging employee volunteer work vendors we look to partner with. charity, event or activity, or to any in community activities. political party or candidate. 36 City of London Investment Group PLC Annual Report 2021/2022 ### Overview Financial statements Shareholder informationGovernance ## 4. RESPONSIBLE INVESTMENT CEF GOVERNANCE UNDERLYING PORTFOLIO: OVERALL ESG RISK Both of CLIG’s operating subsidiaries INDEPENDENT BOARD EXPOSURE TO ESG MANAGEMENT OF invest primarily in closed-end funds ISSUES ESG RISKS (CEFs). CLIM and KIM are committed VS. VS. to promoting responsible investment. CREDIBLE DISCOUNT CONTROL BENCHMARK RELEVANT BENCHM ARK CLIM’s investment process prioritises good governance but it also includes an CLIM is a signatory to the UN-supported ### assessment of the environmental and social Principles for Responsible Investment Strategic report policies of the CEFs’ underlying securities. (PRI). CLIM has partnered with We define ESG in the context of Sustainalytics, a leading independent stewardship policies by which we are provider of ESG research. This partnership committed to responsible allocation, allows CLIM to receive data to monitor management and oversight of capital to the underlying portfolio of the CEF, and create long-term value. In the context of allows CLIM to question the CEF a CEF strategy, we have a two-pronged investment manager on their portfolio and approach to responsible investment: stance on ESG issues. We believe good disclosure requirements by the Board to • We promote effective governance at the the Investment Manager results in more CEFs in which our clients are invested, effective management of ESG risks and both via their Boards and by engaging therefore better outcomes for our clients. with the relevant regulators and policy makers. CLIM’s Proxy Voting Record and Annual • We promote greater transparency from Stewardship Report are available on our the CEFs of the ESG characteristics of website at: https://www.citlon.com/ their underlying portfolios. esg-clients.php. City of London Investment Group PLC Annual Report 2021/2022 37 Strategic report ## TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES ### We are committed to improving our climate-related reporting. We have complied with the ### requirements of LR 9.8.6 during the financial year ended 30th June 2022. These pages ### explain how we applied the 11 principles of the Task Force on Climate-Related Financial ### Disclosures (TCFD) recommendations. ### STRATEGYGOVERNANCE 1. BOARD OVERSIGHT 3. IDENTIFICATION OF CLIMATE RISKS AND OPPORTUNITIES 2. MANAGEMENT OVERSIGHT 4. IMPACT OF CLIMATE RISKS AND OPPORTUNITIES 5. SCENARIO ANALYSIS The Group is exposed to a variety of current and emerging risks which require appropriate controls and ongoing oversight. Climate change is one of the biggest challenges of our time. We believe that every employee including Directors of our Group have a role to play in reducing risks. Climate-related risks are identified and monitored from a stakeholder perspective, which are detailed below: The CLIG Board has the ultimate responsibility for identification and management of climate risk. • The Group’s clients will potentially be impacted by negative investment performance of their portfolios if there are broad-based The Audit & Risk Committee has oversight of our reporting of declines in the value of the companies or investment vehicles due to climate risk including the TCFD report. the impact of climate change. This is a risk over the short, medium, and long-term. The Executive Directors have the responsibility to bring climate • The Group’s employees are located in four offices around the matters to the Audit & Risk Committee and Board. Going forward the globe, each with their own local risks and initiatives due to climate Group Executive Committee will be responsible for bringing climate change. Pervasive risks relevant to our employees include health matters to the Audit & Risk Committee and Board. & safety risks due to extreme heat, impact on infrastructure, agriculture, water supplies/scarcity, wildfires and tree disease. Senior managers within the firm are directly responsible for the – The Mayor of London has set targets for London to become a management of climate-related risks and their associated zero carbon city by 2050 (www.london.gov.uk) to limit future consequences. climate change. – Our Singapore office is subject to the projected rise in sea levels, which is a risk for our Singapore employees. In Singapore, the Ministry of Sustainability and the Environment is responsible for 1) protecting Singapore against the impacts of climate change 2) cooperating with international partners and 3) educating Singaporeans about climate change (www.mse.gov.sg/policies/climate-change). – The city of Rochester, New York, USA, where our KIM business is located, has published a ‘Climate Change Resilience Plan’ (https://www.cityofrochester.gov/CCRP/) for residents “to better prepare our community to adapt to climate change impacts”. In the United States, there are various initiatives between the states, cities, and overall government, to reduce greenhouse gas pollution by 2030 (www.whitehouse.gov – Statement from April 22, 2021). • The Group’s shareholders are at risk of lower returns from their investment in CLIG due to lower assets under management as a result of climate change and the resultant lower profitability. CLIG will start conducting a scenario analysis in FY 2023 on various climate-related risks and opportunities. 38 City of London Investment Group PLC Annual Report 2021/2022 ### Overview ### METRICS AND TARGETSRISK MANAGEMENT ### Strategic report | 6. IDENTIFYING AND ASSESSING CLIMATE RISKS | 9. ALIGNMENT WITH OUR STRATEGY AND RISK MANAGEMENT | | --- | --- | | 7. MANAGING CLIMATE RELATED RISKS | 10. OUR FOOTPRINT | | 8. INTEGRATION INTO OUR RISK MANAGEMENT PROCESSES | 11. OUR TARGETS | We are focused on reducing the emissions of our operations, We acknowledge that our multiple offices are a significant driver of however, as an asset manager, the emissions of our investments our resource use, including carbon and other fossil fuels. We have make up the majority of our carbon footprint and have the greatest reduced two offices in FY 2022 – Seattle & Dubai – which will impact on the environment. reduce future carbon emissions. We have a fiduciary duty to oversee our client’s assets which they We are committed to play a positive role in the transition to a net Governance have entrusted us to manage. To address climate-related risks in our zero economy and align our strategy to the Paris Agreement goal. investments, CLIM’s investment process includes an assessment of the environmental and social policies of the CEFs’ underlying We continue to assess our environmental impact. Refer to page 36 securities. CLIM’s investment process promotes greater transparency for disclosure of our carbon emissions. from the CEFs of the ESG characteristics of their underlying portfolios. In FY 2023, we will: See page 37 for our Responsible Investment Statement. • Continue to develop our understanding of climate-related risk at Board level and across the employee base. CLIG’s risk management of its own risk is included on pages 28 to 29. • Review and identify the tools to enhance our understanding of ### how climate-related risks impact our business. Financial statements • Continue to develop our path towards a net zero transition. • Make a commitment to reach net zero by a particular date. ### Shareholder information City of London Investment Group PLC Annual Report 2021/2022 39 Strategic report ## SECTION 172 (1) STATEMENT ### Section 172 (1) of the Companies Act 2006 requires Directors to act in the way they consider, in good ### faith, would be most likely to promote the success of the Company for the benefit of its shareholders as ### a whole and, in so doing, have regard (amongst other matters) to: • the likely consequences of any decisions in the long term; • the interests of the Company’s employees; • the need to foster the Company’s business relationships with suppliers, customers and others; • the impact of the Company’s operations on the community and environment; • the desirability of the Company maintaining a reputation for high standards of business conduct; and • the need to act fairly to all shareholders of the Company. As part of its decision-making process, the Board considers a broad range of stakeholders however it is acknowledged that, in balancing different perspectives, it may not always be possible to deliver everyone’s desired outcome. Refer to pages 52 to 53 for our engagement with various stakeholders. The Board fulfils its duties in collaboration with the senior management teams of its two operating subsidiaries as detailed on page 17, who manage the day-to-day operations of the business along with the Executive Directors, the Company’s extensive corporate responsibility activities as set out on pages 46 to 51 and through the application of the corporate governance framework as set out in the governance report on page 54. The relationship with the three key stakeholders of our business (shareholders, clients, employees) has been expressly acknowledged by the Board since the Group first became a public company in 2006 and has been a key feature of every Annual Report ever since (see page 20). Signed on behalf of the Board of Directors of City of London Investment Group PLC. Tom Griffith Chief Executive Officer 15th September 2022 Should shareholders have any questions with regard to the content of this report, they are welcome to email us at investorr elations@citlon.co.uk, but we will obviously not be able to answer any questions of a price-sensitive nature. 40 City of London Investment Group PLC Annual Report 2021/2022 ## GOVERNANCE ### Overview ### Contents Board Leadership and Company Purpose – Chair’s introduction 42 – Board of Directors 44 – Board activities 46 – Stakeholder engagement 52 Division of responsibilities ### Strategic report – Corporate governance framework 54 Composition, succession and evaluation – Board evaluation 55 – Nomination Committee report 56 Audit, risk and internal control – Audit & Risk Committee report 59 ### Governance Remuneration – Chair of the Remuneration Committee’s annual statement 63 – Remuneration overview 65 – Annual report on remuneration 68 – Directors’ remuneration policy 79 Statutory, regulatory and other information – Directors’ report 84 ### – Statement of Directors’ responsibilities 86 Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 41 Governance: Board Leadership and Company Purpose ## CHAIR’S INTRODUCTION ## “We believe that the Board has made some positive and ## significant steps forward this year in establishing an ## appropriate governance framework for the Group.” Barry Aling Chair On behalf of the Board I am pleased to introduce the Last year, we approved the appointments to the Board of Rian Company’s corporate governance report for this year. Dartnell and Tazim Essani as Independent Non-Executive Directors. As a result, we now comply with Provision 11 of The past year has been a period of evolution in the Company’s the Code in relation to Board composition, which was an governance framework as we have reflected on the role of the objective we set ourselves last year. Board going forward and worked through the implications of the merger with KIM. While we have made good progress with Looking forward, I have entered my tenth year on the Board this, we are not complacent and recognise that further progress as of 1st August 2022 and we have begun the process of will be necessary to meet the evolving standards of the UK identifying who will succeed me as Chair. In order to give my Corporate Governance Code (the Code). Board colleagues time to undertake this process in a robust and considered manner, I will offer myself for re-election to the Board composition Board at the 2022 Annual General Meeting (AGM) for one Last year, I referred to plans that we were developing with further year with the intention that I will not seek re-election regards to Board composition and I am pleased to report that we at the 2023 AGM. were able to announce those plans in April 2022. The changes included the formation of a Group Executive Committee Diversity and inclusion (GEC), chaired by our Chief Executive Officer, Tom Griffith, In addition to the level of independent representation on the which now consists of Tom and our senior executives – Carlos Board, we are also cognisant of the requirements of the Yuste, Dan Lippincott, Deepranjan Agrawal and Mark Dwyer. Hampton-Alexander Review and the new consultation paper The creation of the GEC provided an opportunity to from the FCA on changes to the Listing Rules, both regarding restructure the Board as a result of which Carlos, Dan and the level of representation of those from diverse backgrounds Mark resigned from the Board on 30th June 2022. We believe on the Board and in senior management positions. Board that the new structure is more efficient for ensuring that changes during the year have helped us move towards executive matters at subsidiary level are given the right level of compliance with the expectations now set and we have begun focus whilst freeing up the Board to oversee the strategic to consider how we will comply with recent updates to the development of the Group. Listing Rules in this regard. On 31st July 2022, Barry Olliff the Company’s Founder retired It is our firm intention to comply fully with best practice in from the Board after more than thirty years’ service. As I said respect of independence, diversity and inclusion both on the when we announced his retirement, Barry was the architect Board and throughout the Group, although shareholders will and driving force in the development of the business for many appreciate that this needs to be planned over time to ensure years and he leaves a legacy of high standards of corporate appropriate continuity in serving our clients’ best interests. transparency which are written into the CLIG DNA. His contribution to the Board’s discussions will be greatly missed. During the year, the Board implemented a Board diversity policy, details of which can be found in the Nomination Committee report on page 58. 42 City of London Investment Group PLC Annual Report 2021/2022 ### Overview Succession planning Looking ahead The Nomination Committee has continued in its work of We believe that the Board has made some positive and reinforcing and elaborating upon our succession plans, with significant steps forward this year in establishing an appropriate focus placed on thoroughly planning out our response in governance framework for the Group. There is still work to do, relation to planned, unplanned and emergency departures. not least in making our Board more diverse. Current macro- Further detail on succession planning can be found in the economic and geo-political situations are creating a challenging Nomination Committee report on page 57. business environment which we as a Board need to navigate carefully; however I believe that we have a Board structure Remuneration Policy which will enable us to focus on and address those challenges As required by the Companies Act, we will be submitting our in the interests of all of our stakeholders. Directors’ Remuneration Policy for shareholder approval at the ### Strategic report 2022 AGM. The Remuneration Committee has undertaken a review of the current policy with two objectives in mind: (i) to ensure that it remains appropriate as a means of incentivising our senior executive team, especially in the light of the merger with KIM; and (ii) to ensure we are clear about our investors’ expectations in designing the new policy. To assist the Barry Aling Remuneration Committee in this task, FIT Remuneration Chair of the Board Consultants were engaged as an adviser to the Remuneration 15th September 2022 Committee and their guidance has been valuable in helping us shape the updated policy which I commend to shareholders for approval. ### Governance UK Corporate Governance Code During the year, the Group complied with the spirit of all principles of the Code, and with all provisions with the exception of provision 11 regarding the composition and independence of the Board. As a result of the changes in the membership of the Board which have occurred during the year, we now expect to comply with provision 11 in future years. Board performance ### Financial statements Shareholder information We delayed our annual assessment of the effectiveness of the Board and its committees by a few months to give members some time to assess how the Board – in its new format – is operating. An internal assessment is currently under way using questionnaires to be completed by each Director. Full details on the Board evaluation process can be found on page 55. Culture, purpose, values and strategy The Board is responsible for setting the Group’s purpose, values and strategy and strives to set a positive tone from the top, leading by example and acting with integrity. We were pleased to be able to resume our visits to the Company’s offices both in the UK and US. These are always valuable opportunities to help us monitor and assess the culture of the Group in person, in addition to our regular reviews of the key performance indicators related to employee retention. Further details on the Group’s culture, purpose and values can be found on page 51 and detail on the Group’s strategy can be found on pages 20 to 22. City of London Investment Group PLC Annual Report 2021/2022 43 Governance: Board Leadership and Company Purpose ## BOARD OF DIRECTORS CHAIR INDEPENDENT NON-EXECUTIVE DIRECTORS Barry Aling Peter Roth Jane Stabile Rian Dartnell CHAIR OF THE BOARD SENIOR INDEPENDENT INDEPENDENT NON- INDEPENDENT NON- NON-EXECUTIVE DIRECTOR EXECUTIVE DIRECTOR EXECUTIVE DIRECTOR | Date of appointment: | Date of appointment: | Date of appointment: | Date of appointment: | | --- | --- | --- | --- | | 1st August 2013 | 1st June 2019 | 2nd July 2018 | 1st October 2020 | | Tenure: >8 years | Tenure: >3 years | Tenure: >4 years | Aggregate tenure: >7 years | | Experience | Experience | Experience | Experience | | Barry Aling has worked | Peter Roth has more than | Jane Stabile is the president and | Rian Dartnell is the Managing | | extensively in international | 35 years of experience in the | founder of IMP Partners LLC, | Partner of PAXIS Key Holdings | | equity markets over a 40-year | financial services industry. | a FinTech consulting firm | and works with endowment, | | period. Within the emerging | During his career, he has held | founded in 2004 that counts | foundation and family | | market universe, Barry has held | senior executive positions with | four of the top ten global asset | relationships to identify and | | senior executive positions with | Fox-Pitt, Kelton and Keefe, | managers amongst their clients. | monitor exceptional managers | | W.I.Carr and Swiss Bank | Bruyette & Woods. Peter | In addition to managing IMP | and investments. He also serves | | Corporation in Asia and the | currently serves as Managing | Partners LLC, Jane provides | as a Trustee, Adviser, or | | UK, and more recently was a | Partner of Rothpoint Group | advisory services to clients | Investment member for high | | Director of Asset Management | LLC, a New York based | making strategic decisions on | quality family, endowment and | | Investment Company plc, | consulting firm focusing on | the use of technology within | institutional investors. Rian | | a listed investment trust | the financial services industry. | their firms. Jane has over | served as a Non-Executive | | specialising in the investment | He also serves as a trustee of the | 30 years of experience in the | Director on the Group Board | | management industry and | Guggenheim Credit Income | financial services industry. | from June 2011 to July 2016. | | Gaffney Cline & Associates | Fund and is chairman of the | | | | | | External listed directorships: | External listed directorships: | | Limited, a leading petroleum | audit committee and a member | | | | | | none | none | | consultancy, prior to its sale to | of the nominating and | | | | Baker Hughes Inc. in 2007. | governance committee and | | | | | | Contributes to the Board: | Contributes to the Board: | independent trustee committee. extensive knowledge of financial strong leadership; extensive External listed directorships: Peter is also a Director of the services industry; leadership; experience of asset management none Stone Point Credit Corporation strategic consulting; and strong industry; experienced investor; and is the Chairman of the audit Contributes to the Board: entrepreneurial skills. and financial and emerging committee and member of the financial and emerging markets knowledge. nomination and governance markets knowledge; asset committee. Finally, he also management; consultancy; serves on the Board of St Mary’s Board and Chair experience. Healthcare System for Children where he Chairs the finance committee and serves on the executive, nomination and development committees. External listed directorships: Audit & Risk Committee none Nomination Committee Contributes to the Board: Remuneration Committee experienced investor; extensive knowledge of financial services Committee Chair industry; Audit Committee Chair experience; and wide-ranging a) Mark Dwyer, Carlos Yuste and Daniel governance experience. Lippincott resigned on 30th June 2022 b) Barry Olliff retired on 31st July 2022 44 City of London Investment Group PLC Annual Report 2021/2022 NON-INDEPENDENT EXECUTIVE DIRECTOR INDEPENDENT NON- EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR Tazim Essani George Karpus Tom Griffith ### Strategic reportOverview Financial statements Shareholder information INDEPENDENT NON- KIM FOUNDER AND CHIEF EXECUTIVE OFFICER EXECUTIVE DIRECTOR NON-INDEPENDENT NON-EXECUTIVE DIRECTOR | Date of appointment: | Date of appointment: | Date of appointment: | | --- | --- | --- | | 1st February 2021 | 19th October 2020 | 1st June 2004 | | Tenure: <2 years | Tenure: <2 years | Aggregate tenure: >18 years | | Experience | Experience | Experience | | Tazim Essani has over 30 years | George Karpus founded KIM in | Tom was the Deputy Chief | | of experience in executive roles | 1986 to improve how client | Executive Officer and COO of | | at Close Brothers Group plc, | value is defined and delivered in | the firm before becoming the | ### Governance | Santander UK plc and GE | the investment industry. For 18 | CEO in March 2019. Prior to | | --- | --- | --- | | Capital. She has a significant | years prior to 1986, George held | joining City of London Group | | track record in strategy and | key positions at two brokerage | in 2000, Tom held various | | M&A in financial services in the | firms, a regional bank and | positions in the institutional | | UK and internationally covering | another investment advisory | client division of The Vanguard | | integration, management | firm. George earned his BSc. | Group including roles as both | | transition and realisation of | (Physics) from St. Lawrence | a Client Relationship Manager | | synergy benefits. She also serves | University and attended | and a Marketing Executive. In | | as a Non-Executive Director on | Rensselaer Polytechnic Institute | 1986, he obtained a bachelor’s | | the Board of Quilter plc where | for the MSc. Programme. | degree in Corporate Finance and | | she sits on the Audit and | | Investment Management from | External listed directorships: Remuneration Committees. the University of Alabama. none In addition, Tazim has External listed directorships: responsibility for employee Contributes to the Board: none engagement focusing founder; strong leadership; particularly on diversity and extensive experience of asset Contributes to the Board: inclusion. Tazim is also a Trustee management industry; experienced strong entrepreneurial leadership; (Council member) of the Royal investor; and financial and asset management experience; Horticultural Society and emerging markets knowledge. proven track record implementing member of the remuneration successful business strategies; and committee of Sovereign Housing. Board experience. External listed directorships: Non-Executive Director Quilter plc Contributes to the Board: extensive knowledge of financial services industry; leadership; strategic consulting; and strong entrepreneurial skills. City of London Investment Group PLC Annual Report 2021/2022 45 Governance: Board Leadership and Company Purpose ## BOARD ACTIVITIES BOARD AND COMMITTEE MEETING AND ATTENDANCE Board Audit & Risk Committee Nomination Committee Remuneration Committee Number of scheduled meetings 6 3 3 4 Current Directors Executive Directors Tom Griffith 6/6 – – – (1) Mark Dwyer 6/6 – – – (1) Carlos Yuste 6/6 – – – (1) Daniel Lippincott 6/6 – – – Non-Executive Directors (2) Barry Olliff 6/6 – – – George Karpus 6/6 – – – Barry Aling 6/6 – – – Peter Roth 6/6 3/3 3/3 4/4 Jane Stabile 6/6 – 3/3 4/4 Rian Dartnell 6/6 3/3 – 4/4 Tazim Essani 6/6 3/3 3/3 4/4 Notes: • Includes scheduled meeting dates that have taken place up until the financial year ended 30th June 2022. 1) Mark Dwyer, Carlos Yuste and Daniel Lippincott resigned from the Board on 30th June 2022. 2) Barry Olliff retired from the Board on 31st July 2022. TOTAL BOARD AND COMMITTEE MEETINGS Board 6 Audit & Risk Committee 3 Nomination Committee 3 Remuneration Committee 4 BOARD STATISTICS* Gender balance Executive vs Tenure Independent vs. Non-Executive Non-Independent (excluding Chair) 1 2 2 2 3 5 4 6 2 0-3 years Female Executive 3-6 years Rian Dartnell’s previous tenure as Independent Male Non-Executive 6-8+ years CLIG’s Director has been included Non-Independent *As at the date of signing of the Annual Report – excluding Mark Dwyer, Carlos Yuste and Daniel Lippincott, who resigned from the Board on 30th June 2022 and Barry Olliff, who retired from the Board on 31st July 2022. 46 City of London Investment Group PLC Annual Report 2021/2022 ### Overview CORPORATE GOVERNANCE ARRANGEMENTS Compliance with the UK Corporate Governance Code Matters reserved to the Board The Board applies and reports against the UK Corporate The Board operates a policy of matters formally reserved for its Governance Code (the Code), a copy of which can be found decision, which includes items that are material in delivering on at www.frc.org.uk. the Group’s strategy and purpose. These matters include: • Setting the Company’s values and standards and monitoring This report has been structured to assist shareholders and progress against them. other stakeholders in interpreting the Company’s application of the Code principles. Appropriate cross-references are made • Approval of strategic aims and objectives. ### where relevant information is disclosed outside of the Strategic report • Approval of budgets, capital expenditure and changes to corporate governance report. the Group’s capital structure. Throughout the financial year and to the date of this report, • Ensuring a sound system of internal controls and risk the Company has complied with all provisions of the Code management. with the exception of the following: • Approval of financial results and trading updates. Provision 11 – Board independence • Approval of dividends and review of dividend policy. The Board did not have a majority of independent Directors • Approval of workforce policies. throughout the financial year but, as reported in the 2021 Annual Report, the Company has been progressing plans to The full schedule of matters reserved can be found on the ### achieve full compliance. Following changes to the Board Governance Company’s website: www.clig.co.uk. composition which were announced in April 2022 and which took effect during June and July 2022 the Board now Board meetings comprises of seven Directors, five of whom are independent. The Group Chief Financial Officer prepares an agenda for each Board meeting in conjunction with the Company Secretary, Please refer to pages 5 and 11 for additional commentary in Chief Executive Officer and Chair of the Board. Agendas are relation to Board independence. structured to allow sufficient time for discussion and debate, and to ensure that the Board covers all items it needs to in order to discharge its duties. The role of the Board The Board is responsible for promoting the Company’s long- ### Conflicts of interest Financial statements Shareholder information term success. It achieves this by setting the Group’s strategy On appointment, Directors are required to disclose conflicts of and monitoring delivery against it. Further details can be interest to the Company. Details of existing conflicts of interest found on pages 20 to 22. Group strategy is guided by the are tabled at each Board meeting and Directors are asked to Company’s purpose and values, further details of which can flag updates where required. Conflicts of interest are also be found on page 51. verified as part of year-end reporting. Director time commitment and external appointments Director time commitments are assessed annually by the Nomination Committee. Directors are required to disclose any significant commitments upon appointment and all external appointments must be approved by the Board before they are accepted. City of London Investment Group PLC Annual Report 2021/2022 47 Governance: Board Leadership and Company Purpose ## BOARD ACTIVITIES CONTINUED Application of Code Principles The table below provides an explanation of how the Board has applied the Code Principles during the year ended 30th June 2022. CODE PRINCIPLE SUMMARY BOARD LEADERSHIP AND COMPANY PURPOSE A A successful Company is led by an effective and entrepreneurial Board, whose role is to promote the long-term sustainable success of the Company, generating value for shareholders and contributing to wider society. The role of the Board is set out on page 47. The section 172 (1) statement on page 40 explains how the Directors carry out their duty to promote the long-term success of the Company, taking into account the outcome of engagement with key stakeholders. B The Board should establish the Company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All Directors must act with integrity, lead by example and promote the desired culture. Please see page 51 for a summary of the Group’s culture, purpose, values and pages 20 to 22 for strategy. C The Board should ensure that the necessary resources are in place for the Company to meet its objectives, and measure performance against them. The Board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed. The Board’s role in ensuring the Group has the necessary resources is stated on page 54. The Audit & Risk Committee report on pages 59 to 62 includes a description of the Group’s approach to risk management and internal control. D In order for the Company to meet its responsibilities to shareholders and stakeholders, the Board should ensure effective engagement with, and encourage participation from, these parties. Commentary about stakeholder engagement can be found on pages 52 to 53. E The Board should ensure that workforce policies and practices are consistent with the Company’s values and support its long-term sustainable success. The workforce should be able to raise any matters of concern. The approval of workforce policies is a matter reserved to the Board. Please see page 52 for more details on the Board’s role in relation to workforce policies and whistleblowing. DIVISION OF RESPONSIBILITIES F The Chair leads the Board and is responsible for its overall effectiveness in directing the Company. He or she should demonstrate effective judgement throughout their tenure and promote a culture of openness and debate. In addition, the Chair facilitates constructive Board relations and the effective contribution of all Non-Executive Directors, and ensures that Directors receive accurate, timely and clear information. Information about the Company’s Board performance evaluation can be found on page 55. G The Board should include an appropriate combination of Executive and Non-Executive (and in particular, Independent Non-Executive) Directors, such that no one individual or small group of individuals dominates the Board’s decision-making. There should be a division of responsibilities between the leadership of the Board and the executive leadership of the Company’s business. The composition of the Board is kept under review. A description of the division of responsibilities between the Board and the Group Executive Committee can be found on page 54. H Non-Executive Directors should have sufficient time to meet their Board responsibilities. They should provide constructive challenge and strategic guidance, offer specialist advice, and hold management to account. Expectations about time commitment and the duties of the role are set on appointment and the Chair of the Board provides support to the Non-Executive Directors as necessary thereafter. Please see pages 47 and 57 for additional commentary . I The Board, supported by the Company Secretary, should ensure that it has the policies, processes, information, time and resources it needs in order to function effectively and efficiently. Information about the Company’s Board performance evaluation, which includes a review of Board processes, can be found on page 55 . 48 City of London Investment Group PLC Annual Report 2021/2022 ### Overview CODE PRINCIPLE SUMMARY COMPOSITION, SUCCESSION AND EVALUATION J Appointments to the Board should be subject to a formal, rigorous and transparent procedure and an effective succession plan should be maintained for Board and senior management. Both appointments and succession plans should be based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths. The approach to Board appointments and succession planning and the Board Diversity policy are described on pages 57 to 58. K The Board and its committees should have a combination of skills, experience and knowledge. Consideration ### Strategic report should be given to the length of service of the Board as a whole and membership regularly refreshed. The Board reviews the balance of skills and experience needed as part of its discussions on succession planning. See page 57 for more information. L Annual evaluation of the Board should consider its composition, diversity and how effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each Director continues to contribute effectively. Information about the annual Board evaluation and the individual evaluation of Directors can be found on page 55. AUDIT, RISK AND INTERNAL CONTROL ### M The Board should establish formal and transparent policies and procedures to ensure the independence Governance and effectiveness of internal and external audit functions and satisfy itself on the integrity of financial and narrative statements. The Board monitors the need for an internal audit function and the policies and processes in place to ensure the independence and effectiveness of the external auditor. Further details can be found in the Audit & Risk Committee Report on pages 59 to 62. N The Board should present a fair, balanced and understandable assessment of the Company’s position and prospects. The Audit & Risk Committee and the Board consider whether the annual report is fair, balanced and understandable and the appropriate statement is included on page 60. ### Financial statements Shareholder information O The Board should establish procedures to manage risk, oversee the internal control framework and determine the nature and extent of the principal risks the Company is willing to take in order to achieve its long-term strategic objectives. Disclosures on the Company’s internal control and risk management systems are included in the Audit & Risk Committee Report on pages 59 to 62 and in the Directors’ Report on page 85. REMUNERATION P Remuneration policies and practices should be designed to support strategy and promote long-term sustainable success. Executive remuneration should be aligned to Company purpose and values, and be clearly linked to the successful delivery of the Company’s long-term strategy. The Remuneration Committee considers the alignment of rewards policies with long-term strategy. Refer page 63. Q A formal and transparent procedure for developing policy on executive remuneration and determining Director and senior management remuneration should be established. No Director should be involved in deciding their own remuneration outcome. Details about the operation of the Remuneration Committee are included in the Chair of the Remuneration Committee’s Annual Statement and the Annual Report on Remuneration on pages 63 to 72. R Directors should exercise independent judgement and discretion when authorising remuneration outcomes, taking account of Company and individual performance, and wider circumstances. The Remuneration Committee exercises appropriate discretion when authorising remuneration outcomes, as described in the Annual Report on Remuneration on pages 68 to 72. City of London Investment Group PLC Annual Report 2021/2022 49 Governance: Board Leadership and Company Purpose ## BOARD ACTIVITIES CONTINUED ### The Board discharges its duties through an annual programme of meetings. ### Some key areas of focus during the financial year are shown below. STRATEGY AND PERFORMANCE AUDIT, RISK AND INTERNAL CONTROL • Received and discussed regular reports from the Executive • Reviewed and approved the Internal Capital Adequacy Directors and senior management on performance. Assessment Process (ICAAP). The Group will produce its first Internal Capital and Risk Assessment (ICARA) in FY 2023. • Reviewed and approved Group strategy and KPIs, as set • Reviewed systems of risk management and internal control. out on pages 20 to 27. • Approved the going concern statement and assessment • Reviewed culture, purpose and values and alignment of viability. with culture. • Carried out a robust assessment of the Company’s principal and emerging risks. FINANCIAL OVERSIGHT Dividends LEGAL AND GOVERNANCE • Reviewed the Group’s dividend policy. Succession and appointments • Considered and declared an interim dividend of 11p per • The Board progressed plans for changes to its composition share and a special dividend of 13.5p per share for payment and structure. on 25th March 2022. • Considered and recommended a final dividend of 22p per Annual General Meeting share for payment on 4th November 2022. • Held an AGM which shareholders were once again able to attend in person following the lifting of COVID restrictions. External reporting • Upon the recommendation of the Audit & Risk Committee, Governance reviewed and approved full and half year results and the • Considered reports from the Committee Chairs. Annual Report and Accounts. • Approved proposed updates to Group policies. • Reviewed and approved quarterly trading statements. • Group’s compliance with corporate governance guidelines and regulations considered. Budget and financial resource • Reviewed and approved the 2021/2022 Group budget. 50 City of London Investment Group PLC Annual Report 2021/2022 ### Overview ### The Board is responsible for setting the Company’s purpose, values and strategy, ### and for satisfying itself that these and its culture are aligned. The Board reviewed its purpose, values and methods for The Board receives updates on employee retention, an assessing and monitoring culture in September 2022. important indicator that the Board has succeeded in embedding a positive culture. The Group boasts a very low level of employee turnover with high levels of employee ### PURPOSE Strategic report satisfaction reported. Employee retention not only remains a The Group exists for the mutual benefit of our three primary key cornerstone of the Group’s strategy, but is also one of the stakeholders: Clients, Employees and Shareholders. Group’s additional key performance indicators. Further details on strategy can be found on pages 20 to 22 and additional key performance indicators can be found on pages 24 to 27. VALUES The Board receives regular updates from CLIM’s Head of • The Clients pay the bills – Clients expect superior Compliance and KIM’s Chief Compliance Officer, which investment performance, openness and accountability, contain details of policy breaches, including in relation to the and ethical treatment. Code of Ethics. The Board monitors such breaches closely • The Employees manage the business – Employees expect with a view to taking action should the reported issues indicate ### Governance fair treatment, open communication and to share in the a trend as opposed to an exception. success of the Group. The Board also reviews and assesses the Company’s culture • The Shareholders own the business – Shareholders expect by directly engaging with the employees at both operating relevant risk and cost controls, quality earnings and within subsidiaries. The following are some examples of such the bounds of prudential balance sheet management, engagement that have taken place during the financial year regular dividend distributions. and up to the date of the Annual Report: October 2021 AGM & Board meetings in London CULTURE • Board visit to London office (limited attendance due to COVID) ### The Board is responsible for setting the cultural tone of Financial statements Shareholder information • Board’s informal interaction with all employees the Group by way of clear policies, procedures and codes designed to set out, and ensure, attainment of stakeholder April 2022 Board meeting in Coatesville, PA expectations. The Board’s goal is to empower employees • CLIM employee presentations to Board through the setting of an appropriate cultural framework to deliver consistently and sustainably against the • Visit by some Board members to Coatesville office strategy it sets. • Formal NED & Employee Engagement Sessions held by video conference with CLIM and KIM employees across all New employees receive an induction including coaching on the Company’s Code of Ethics, which covers behavioural offices on 26th April 2022 expectations around topics such as bribery and corruption, • Board’s informal interaction with all CLIM’s US employees conflicts of interest, insider dealing, confidentiality, personal securities account dealing, inclusion, gifts and hospitality and July 2022 Board meeting in Rochester, NY delegated levels of authority. • KIM employee presentations to Board • Board’s informal interaction with all KIM employees City of London Investment Group PLC Annual Report 2021/2022 51 Governance: Board Leadership and Company Purpose ## STAKEHOLDER ENGAGEMENT ### The Board must act in a way that promotes the success of the Company for the ### benefit of shareholders, whilst having due regard to its wider stakeholders. Details of the Board and wider Group’s engagement with its stakeholders are set out below and the s172 (1) statement can be found on page 40. CLIENTS EMPLOYEES Key considerations Key considerations • Ensure client needs are understood • Ensure employees have an ongoing opportunity to share ideas and raise issues and met. with senior management and the Board of Directors. • Ensure transparency on key issues • Develop employee expertise and provide opportunities for advancement. related to investment products, • Ensure that employees are supported in their lives outside of their work in order including investment performance, to support their families’ and communities’ well-being (see page 34 for further regulatory requirements and detail on employee welfare). ESG considerations. • Clear communication. How the Board engaged • Board meetings are held at Company offices to provide employees with the How the Board engaged opportunity for informal interaction with the Board. • Received regular reports providing • An annual strategy day is held, with all employees and members of the updates on client relationships, Board invited to attend. including details of client calls and engagement. • Regular site visits take place. • Formal NED & Employee Engagement Sessions were held by video conference with CLIM and KIM employees across all offices in April 2022. • Board’s informal interaction with employees from various offices in October 2021, SHAREHOLDERS April 2022 and July 2022. Key considerations • The Board keeps workforce policies under review to ensure they are consistent • Ensure that shareholder interests and with the Group’s values and support the long-term success of the Company. concerns are understood and addressed. How the business engaged • Ensure transparency on key issues and • Refer to page 34 for employee welfare policies. provide clear communications. How the Board engaged Workforce engagement • Annual General Meeting. Provision 5 of the UK Corporate Governance Code The Board is required to agree a mechanism for ensuring ongoing engagement • Regular in-person/video conference with the workforce and has designated Barry Aling, the Chair of the Board, meetings with shareholders. as the Non-Executive Director in charge of employee engagement. This role entails championing strength of communication between the Board and employees, How the business engaged and ensuring appropriate opportunities are created to elicit employee feedback. • Video conference presentations and in-person/virtual roadshows around results announcements. Whistleblowing Provision 6 of the UK Corporate Governance Code The Company’s whistleblowing mechanism enables the workforce to report concerns anonymously. The Board receives details about reports received pursuant to this mechanism at each scheduled meeting and ensures that a proportionate and independent investigation and follow up action is taken in relation to all reports. 52 City of London Investment Group PLC Annual Report 2021/2022 THE ENVIRONMENT OUR COMMUNITIES REGULATORS Key considerations Key considerations Key considerations • The Group is dedicated to ensuring • The Group is dedicated to ensuring • Ensure that the Group is in Strategic reportOverview Financial statements Shareholder information that the environment is protected. that we are good citizens in the compliance with all relevant communities in which we have offices. regulatory requirements. How the Board engaged • Proactively monitor changes in • Receives reports regarding the How the Board engaged regulatory requirements and ensure Group’s carbon footprint and • The Board spearheaded an initiative the Group makes changes as required. sustainability data. to increase the level of applications being received from candidates from • Refer to disclosures recommended How the Board engaged diverse backgrounds by consulting by TCFD on page 38. • Receive and challenge regular reports with recruiters and working with from finance and compliance. Universities to recruit directly. How the business engaged ### • The Group endeavours to limit its How the business engaged Governance How the business engaged carbon footprint through a series of • The compliance function at each • Community outreach and support Group-wide initiatives with an aim to operating subsidiary is integral efforts are a key element of our reduce absolute levels of emissions and to investment management and ongoing business operations. Further waste volumes as detailed on page 35. client functions and reports to details can be found on page 36. the Board. • We utilise Sustainalytics to ensure that the investment process supports ESG initiatives. Refer to page 37 in relation to responsible investment. • Refer to disclosures recommended by TCFD on page 38. VENDORS Key considerations How the Board engaged How the Board engaged • Ensure that vendors adopt and execute • Receive and challenge regular reports • All vendor relationships are managed data security practices consistent with from operations. by senior management with internal Group policies. responsibilities clearly enumerated. • Ensure that arms-length relationships • ESG considerations are applied to exist in order to protect client and all vendors. shareholder interests. • All expense authorisations are approved by an Executive Director, after due consideration of the rationale for choosing a particular vendor. CONSIDERATION OF STAKEHOLDERS IN DECISION-MAKING | Key considerations | Approved the final dividend | | --- | --- | | Approved special dividend | As described in the CEO’s statement, the | | In addition to the interim dividend of | Board is recommending a final dividend | | 11p, the Board approved a special | of 22p, making a total of 46.5p for the | | dividend of 13.5p which was paid on | year, including the special dividend of | | 25th March 2022. | 13.5p. Refer to page 10. | City of London Investment Group PLC Annual Report 2021/2022 53 Governance: Division of responsibilities ## CORPORATE GOVERNANCE FRAMEWORK ### There is a clear division of responsibilities between the Board and its Committees. ### Each role is clearly defined and distinct. BOARD OF DIRECTORS GROUP EXECUTIVE COMMITTEE (GEC) Chaired by Barry Aling Chaired by Tom Griffith Roles and responsibilities Comprised of five members – Carlos Yuste, • Establishes the Company’s purpose, values and strategy, satisfying itself that these Dan Lippincott, Deepranjan Agrawal, and its culture are aligned. Mark Dwyer and Tom Griffith. • Ensures that the Group’s financial structure, resources, talent and culture support Roles and responsibilities its objectives and long-term success. • Provides executive oversight of the • Oversees the framework for risk management and internal control. Group’s operating businesses and day- • Maintains engagement with stakeholders. to-day management of the Group. AUDIT & RISK COMMITTEE NOMINATION COMMITTEE REMUNERATION COMMITTEE Chaired by Peter Roth Chaired by Jane Stabile Chaired by Rian Dartnell Comprised exclusively of three Comprised exclusively of three Comprised exclusively of four Independent Non-Executive Directors. Independent Non-Executive Directors. Independent Non-Executive Directors. Roles and responsibilities Roles and responsibilities Roles and responsibilities • Oversees financial reporting, • Oversees Board composition, • Oversees Group remuneration audit and risk. succession planning and policy and strategy ensuring there governance matters. is an appropriate linkage between See page 59 for the Audit & Risk strategy and reward. Committee report. See page 56 for the Nomination Committee report. See page 63 for the Remuneration Committee report. BOARD ROLES Chair • Leads the Board and ensures its effectiveness. • Supports the CEO in the execution of duties and providing constructive challenge. • Works closely with Executive and Non-Executive Directors, and facilitates a culture of open, robust and effective debate. • Ensures that the Board maintains effective communications with shareholders and other stakeholders. • Ensures stakeholder interests are considered in Board’s decision-making. Chief Executive Officer • Responsible for executive management of the Group. • Formulates and recommends Group strategy for Board approval and responsible for execution of approved strategy. • Runs the business within appropriate delegated authorities, risk management and internal controls. • Communicates and embeds a shared purpose, sets business values and builds management talent. • Develops an effective relationship with the Chair and leverages the knowledge of Non-Executive Directors. Senior Independent Director • Provides a sounding board for the Chair and, if required, acts as an intermediary between Directors and shareholders. • Leads the annual evaluation of the Chair’s performance. • Leads the search for the appointment of a successor to the roles of Chair of the Board and Chair of the Nomination Committee, where required. • Available as an additional point of contact for shareholders and other stakeholders if they feel matters raised have not been appropriately dealt with by the Chair and CEO. 54 City of London Investment Group PLC Annual Report 2021/2022 Governance: Composition, succession and evaluation # BOARD EVALUATION ## EVALUATION PROCESS A review of the effectiveness of the Board, its Committees and individual Directors is conducted on an annual basis. The 2021 effectiveness review generated an in-depth discussion about the governance structure of the Group and the optimal composition of the Board. This culminated in the Board re-structure that was announced in April 2022 and took effect in June 2022. Elements of the Board process e.g. the format of the Board papers and running of the meetings, have also been reviewed in tandem with the Board re-structure. As a result of this change, it was decided to delay the timing of the 2022 Board effectiveness review for a few weeks in order to allow the Board to settle into its new structure and process. The 2022 effectiveness review is currently in progress, and again has been facilitated by the Company Secretary using questionnaires based on but updated from the questionnaires used in the 2021 effectiveness review. Jane Stabile, Chair of Nomination Committee, has been the Board sponsor for the 2022 review. As the Company is not a constituent of the FTSE 350 and given the recent changes, the Board determined that it would not undertake an externally facilitated Board evaluation in 2022. The need to undertake an external evaluation will remain under review by the Board. Questionnaire topics included: - Strategy - The Board and stakeholders - Board discussion and processes - Risk, internal control and the Audit & Risk Committee - Succession and the work of the Nomination Committee - The Remuneration Committee - Chairship ## OUTCOMES As at the date of this report, the outcomes of the 2022 Board effectiveness review have not been finalised. It is anticipated that the findings of the review will be discussed at the Board meeting in December 2022 and reported in the 2022-2023 annual report. ## 2021 EFFECTIVENESS REVIEW OUTCOMES Board's engagement with the Group's strategy focused on growth Develop the Board programme and agenda to allow more time for key strategic and operational matters Continue to develop ESG strategy in line with market expectations Opportunity for Board to engage with the work done in relation to risk and internal controls Development of Board and senior management succession plan taking account of the size, composition and diversity of the Board and the management pipeline ## ACTIONS UNDERTAKEN - Two strategy sessions held by the Board in October 2021 and April 2022 - The format of the Board papers has been reviewed and revamped - More non-Group matters – especially in relation to compliance – are now reviewed at subsidiary Board level or at the Audit & Risk Committee - Board directly engaged with the employees across the four offices on multiple occasions during the year with employee presentations directly to the Board - Recommendations of the Task Force on Climate-Related Financial Disclosures discussed at the Board and Audit and Risk Committee meeting - Group wide policies established on a range of social issues, including anti-slavery, human trafficking, anti-corruption, bribery and health and safety - Training to all employees in relation to diversity, equity and inclusion - Focused discussion on risk and internal controls at each of the three Audit and Risk Committee meetings - Board re-structure announced in April 2022 and took effect in June 2022 - Group Executive Committee (GEC) established to provide executive oversight of Group's operating businesses ## Individual Directors The individual skills, time commitment and independence of each Director, are assessed annually and the Board confirmed that each Director continues to contribute effectively to the Board both within and outside of Board meetings. ## Chair of the Board The Non-Executive Directors met in April 2022 without the Chair of the Board, Barry Aling, present to discuss his performance. It was concluded unanimously that the Chair of the Board had performed strongly during the year, demonstrating a keen understanding of the business and listening well, offering appropriate challenges to the executive team where necessary. He continues to maintain a culture of open communication and foster active participation in meetings. Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 55 Governance: Composition, succession and evaluation # NOMINATION COMMITTEE REPORT ![img-4.jpeg](img-4.jpeg) ## COMMITTEE MEMBERSHIP Jane Stabile (Chair) Tazim Essani Peter Roth I am pleased to present the report of the Nomination Committee (the Committee) for the year ended 30th June 2022. Given that the past twelve months have been a period during which there have not been any new appointments to the Board, it has been a surprisingly busy period for the Nomination Committee as it has sought to work through a Board development and succession plan. We had expanded the Board in 2020-2021 following the merger with KIM to ensure a smooth transition. Following the successful completion of the merger, it became clear that a different structure would be more appropriate. As a consequence and following much discussion, the creation of the Group Executive Committee allowed us to consolidate the membership of the Board and bring the Board composition into line with the requirements of the UK Corporate Governance Code. In tandem, Board succession has been a topic to which we have devoted much time during the year. Our aim has been to allow the Group to prepare for the future whilst optimising the considerable benefits that the Company derives from the individuals who have brought the Group to the place it has reached today. CLIG's Founder, Barry Olliff, retired from the Board in July 2022 with our gratitude for his sage guidance over these many years. Our current Chair, Barry Aling, has indicated that he will serve one more year as Chair before standing down at the 2023 Annual General Meeting. George Karpus will continue to serve on the Board for the 2022-2023 financial year and we will provide an update prior to next year's AGM regarding his future plans. Each of these changes has been agreed following much discussion, and we still have work to do to see these succession plans through. In 2021, our annual Board Evaluation review was immensely useful to the Committee and the Board in establishing some of the priorities for change that have culminated in a number of steps that we and the Board have taken during the year. The 2022 review is currently in progress and we are looking forward to using that exercise to reflect on what has gone well and to identify areas for further attention. I am grateful to my colleagues on the Nomination Committee for their support and efforts during the year as well as the considerable input that we receive from other Board colleagues, in particular our Chair of the Board and Chief Executive Officer. Jane Stabile Chair of the Nomination Committee 15th September 2022 ## KEY ROLES AND RESPONSIBILITIES - Monitor the structure, size and composition of the Board and its principal Committees. - Oversee succession planning for Board and senior management roles. - Identify and nominate candidates to fill Board vacancies. - Review time commitment for Non-Executive Directors. - Approve Directors for re-appointment at the end of their terms and at Annual General Meetings. - Review results of annual Board effectiveness reviews. - Approve Directors' external appointments. Full terms of reference of the Committee can be found on the Company's website: www.clig.co.uk. 56 City of London Investment Group PLC Annual Report 2021/2022 Committee composition and attendance • cover the role, duties and responsibilities of Directors of The Committee held three scheduled meetings during the year, a UK listed company; and all of which were attended by all Committee members. Full • facilitate engagement with employees. attendance details can be found on page 46. The Committee comprises of three Independent Non-Executive Directors. At the Comprehensive and tailored programmes are formulated for invitation of the Committee, meetings are regularly attended by each Director, depending on their individual background and the Chair of the Board, Executive Directors and other Non- experience. New Directors meet members of the Board, Executive Directors. Other members of senior management are including the Chair, as well as Heads of Departments from invited to attend and present at meetings from time to time. around the business. They are given documentation providing The Company Secretary is secretary to the Committee. key information related to the Group, including financial performance, Board policies and procedures and governance Strategic reportOverview Financial statements Shareholder information matters. These documents remain available to Directors as COMMITTEE ACTIVITIES a continuing point of reference. Terms of reference The Committee reviewed its terms of reference in May 2022, The ongoing training needs of Directors are kept under review approving minor administrative changes. and training sessions are planned as necessary. Succession planning Board size and composition The Committee reviewed Board and senior management The Committee keeps under review the size and composition succession plans during the year and concluded that no material of the Board and its Committees, making recommendations changes to plans were required. for change to the Board as necessary. Following a review of the ### Group’s governance arrangements, a series of Board-level Governance Succession and contingency plans are formulated to cover the discussions were held regarding the composition of the following scenarios: Board, and a restructure of the Board was announced. Key elements of the restructure included streamlining the Board • Emergencies. by creating a Group Executive Committee (GEC). Carlos Yuste, • Unplanned departures. Mark Dwyer and Dan Lippincott stepped down from the • Planned departures. Board on 30th June 2022 and became members of the GEC. Succession plans take into account the need to maintain an In addition, on 31st July 2022, Barry Olliff, the Company’s appropriate combination of skills and experience on the Board. Founder, retired as a Director of the Company. The Board has This informs the succession planning process and helps the placed on record its sincere appreciation for Barry’s years of Committee to ensure that any gaps identified in Director skills service to the Group and the Board. and experience are addressed. Where possible, potential successors are identified and, in doing The size of the Board is now more appropriate to the size of the so, diversity of backgrounds of candidates in relation to gender Company, and the proportion of Independent Directors is now and ethnicity are considered. Further details of the Board’s compliant with Provision 11 of the Code. approach to diversity and inclusion is set out on page 58. Appointment of Directors Board and Committee evaluation A formal, rigorous and transparent process is in place for the During the year, the Committee reviewed the process for recruitment of new Directors. Appointments are made on merit the annual Board effectiveness evaluation, which consists of against objective criteria, with due regard to the importance of a questionnaire issued to each Board member and questions promoting diversity of gender, social and ethnic backgrounds, related to the Board and each of its Committees. Given the and cognitive and personal strengths. The Company endeavours priority for bringing the Company into compliance with the to use open advertising and/or a search consultant to recruit for UK Corporate Governance Code with regards to Board size and Board positions. composition, the results of the evaluation were prioritised for full discussion by the Board in July 2021. Full details of the All Directors are subject to annual re-election by shareholders Board evaluation process can be found on page 55. at the Company’s Annual General Meeting. The Committee makes recommendations to the Board regarding Director Director induction and ongoing training re-appointment by reference to the results of the annual Board A formal induction process is in place for new Directors, evaluation and an assessment of Directors’ time commitments which aims to: and tenures. • familiarise Directors with the Group’s business, departments and processes; City of London Investment Group PLC Annual Report 2021/2022 57 Governance: Composition, succession and evaluation ## NOMINATION COMMITTEE REPORT CONTINUED Diversity and inclusion APPOINTMENT PROCESS FOR NEW DIRECTORS The Board is committed to ensuring that its membership reflects diversity in its broadest sense, with a diverse range of demographics, skills, experience, race, age, gender, educational and professional backgrounds and other relevant personal attributes being reflected Draw up an initial list of role requirements on the Board. The Company’s Board diversity policy (Policy) was reviewed and approved by the whole Board in July 2022. A summary of the Policy and its objectives can be found below. Appoint an executive search agency, where necessary With the restructure complete, a key area of focus for the Committee will be to consider the Company’s approach to diversity among the Board and senior management. The introduction of new Listing Rules will require the Company to Draw up long- and short-lists of candidates with support report on whether it has met specified diversity targets. There from the search consultant to conduct screening are currently two female Directors on the Board, representing interviews and take up references 29% of the composition of our Board. Details of the gender breakdown across the Group can be found in the Strategic Report on page 34. Short-listed candidates interviewed by a number of Directors and discussion had as to which candidates to take forward The Company remains committed to fostering diversity when making future Board appointments. Feedback gained from candidates and second interviews undertaken BOARD DIVERSITY POLICY Policy statement Review undertaken of actual or potential conflicts of The Board endorses the benefits of representation of a diversity interest and assessment of the proposed Directors’ of backgrounds, including in relation to age, gender, ethnicity existing commitments and educational or professional background, and is committed to ensuring that the Board reflects a wide range of skills, knowledge, experience, backgrounds and perspectives. All Recommendation made to the Board regarding appointment appointments will be made on merit against objective criteria within the context of the required balance of skills and background the Board requires to function effectively. Objectives To agree measurable objectives for achieving gender, ethnic and cultural diversity on the Board. To ensure that all searches conducted in relation to Board appointments, whether by the Company or external search firms, identify and present an appropriately diverse range of candidates for the relevant vacancy. Monitoring and reporting The Nomination Committee will present annually in its Committee report: • a summary of this policy and progress made against its objectives; • the process used in relation to Board appointments; • its approach to succession planning and the development of a diverse pipeline of candidates; • how diversity helps the Company meet its strategic objectives; and • the gender balance of senior managers and their direct reports. 58 City of London Investment Group PLC Annual Report 2021/2022 Governance: Audit, risk and internal control ## AUDIT & RISK COMMITTEE REPORT ## “The Committee has continued to focus on the ## integration of KIM into the Group and monitor the ## development of processes and procedures in line ## with the Group’s size and complexity.” Peter Roth Chair of the Audit & Risk Committee ### Strategic reportOverview Financial statements Shareholder information COMMITTEE MEMBERSHIP KEY ROLES AND RESPONSIBILITIES Peter Roth (Chair) Financial and narrative reporting • Monitor the integrity of the financial statements of the Tazim Essani Company and report to the Board on significant financial Rian Dartnell reporting issues and judgements. ### Governance I am pleased to present the report of the Audit & Risk Committee • Review the content of the Annual Report and Accounts and (the Committee) for the year ended 30th June 2022, setting out advise the Board on whether, taken as a whole, it is fair, how the Committee has discharged its duties. balanced and understandable. As the Group moved into the second year following the KIM External audit merger, the Committee has continued to focus on the integration of KIM into the Group and monitor the development of • Make recommendations to the Board regarding the processes and procedures in line with the Group’s size and re-appointment of the external auditor. complexity. Overall, this transition has been a smooth one, well • Oversee the relationship with the external auditor. supported by the finance and compliance teams across the Group. The Committee has also received regular reports from the external • Assess the external auditor’s independence and objectivity, auditor, RSM, which also indicated a satisfactory conclusion in including oversight of the policy on non-audit services. extending their audit procedures to the new wider Group. • Assess the effectiveness of the external audit. During the year, the Committee focused particularly on the accounting for impairment and goodwill, including a review Risk management and internal control of work undertaken by BDO US. Overall, the Committee is • Review the adequacy and effectiveness of the Company’s satisfied that the Company is adopting the appropriate accounting judgements in both cases. systems of risk management and internal control. The Committee also spent time during the second half of the • Review and approve statements to be included in the annual year to understand the implications of climate-related risk for report regarding risk management and internal control, the Company’s financial reporting. The Committee has now principal and emerging risks and the viability statement. undertaken responsibility for the Company’s reporting in accordance with the recommendations of the Task Force on • Consider the need for an internal audit function. Climate-Related Financial Disclosures. Compliance, speaking up and fraud The many macro-economic and geo-political challenges • Review the adequacy and security of the Company’s currently impacting on the business environment necessitates whistleblowing arrangements, and procedures related to the Committee is careful in its judgement and assessment of risk fraud, bribery and money laundering. over the coming months and this will be an important priority. With a change in Audit Partner in the next year due to partner rotation, we will be working with RSM to ensure the external Full terms of reference of the Committee can be found on audit process is a smooth and timely one. the Company’s website: www.clig.co.uk. Peter Roth Chair of the Audit & Risk Committee 15th September 2022 City of London Investment Group PLC Annual Report 2021/2022 59 Governance: Audit, risk and internal control ## AUDIT & RISK COMMITTEE REPORT CONTINUED Committee composition and attendance itself that the policies set out in note 1 of the financial The Committee held three meetings during the year, all of statements on pages 99 to 105 are appropriate. which were fully attended by all Committee members. The Committee is composed of three Independent Non-Executive Fair, balanced and understandable Directors. All members have extensive knowledge of the asset The Committee reviewed and concluded that the Annual Report management industry and the analytical tools used in the and Accounts for the year ended 30th June 2022 are representative of appraisal of Company reports and accounts. The Chair of the the year and present a fair, balanced and understandable overview, Committee, Peter Roth, has recent and relevant experience providing the necessary information for shareholders to assess the serving on audit committees in the financial services industry. Group’s position, performance, business model and strategy. At the invitation of the Committee, meetings are regularly Viability and going concern attended by the Chair of the Board, Executive Directors, other The Committee concluded that a three-year assessment period Non-Executive Directors, the Chief Financial Officer and the continued to be appropriate and recommended the viability external auditor. Other members of senior management are statement (found on page 33) to the Board for approval. invited to attend and present at meetings from time to time. The Committee also reviewed the going concern disclosure (see page 84) and recommended to the Board that the Group had adequate resources to continue in operational existence FINANCIAL AND NARRATIVE REPORTING for the foreseeable future and that it was appropriate for the The Committee reviews the Group financial statements, financial statements to be prepared on a going concern basis. including half and full year results and the Annual Report and Accounts, and makes recommendations to the Board for Significant financial judgements, key assumptions and estimates approval. The Committee is responsible for reviewing the The following table sets out the key accounting issues and significant financial judgements, key assumptions and estimates judgements reviewed and monitored by the Committee during employed by management, an analysis of which can be found in the year in accordance with UK Corporate Governance Code the table below. As part of the review, the Committee satisfies provision 26. SIGNIFICANT JUDGEMENTS, KEY ASSUMPTIONS AND ESTIMATES COMMITTEE ACTIONS Share-based payments The Committee has reviewed management’s assumptions in The calculation of share-based payment charges under the relation to the calculation of share options and EIP charge and Group’s Employee Share Option Plan and the Employee is satisfied that such charges are reflected appropriately in the Incentive Plan. financial statements. Further details on share-based payments can be found in note 22 of the financial statements on page 118. Goodwill The services of an independent valuation consultant, BDO Goodwill for the Group’s cash generating unit is tested for USA, LLP (BDO), were retained during the year to perform an impairment at least annually through the application of a assessment of impairment as at 30th April 2022. ‘value in use’ model. This requires estimates concerning future The Committee considered BDO’s report outlining the cash flows, growth rates and associated discount rates to be methodology for the impairment assessment and challenged the taken into account. assumptions underpinning the goodwill valuation model including cash flow projections, discount rates and any other inputs. The Committee also considered whether there were any significant changes or indicators of impairment in the period from the assessment date to 30th June 2022. Further details can be found in note 12 of the financial statements on page 113. Nature of interest in EM REIT fund The Committee reviewed management’s assessment and agreed The Company holds a seed investment in the above fund. with the conclusion that the Company does not have significant Judgement is required to be exercised in assessing whether the influence over the EM REIT fund. Company has significant influence over the fund. Further details can be found in note 1.3 of the financial statements on page 99. 60 City of London Investment Group PLC Annual Report 2021/2022 ### Overview OTHER EXTERNAL AUDIT Terms of reference RSM UK Audit LLP (RSM) is the Company’s appointed The Committee reviewed its terms of reference in February external auditor. RSM attended each scheduled meeting of the 2022 and no changes were made. Committee during the year and reported on the status of the Group external audit process. The Committee met privately Committee evaluation with the external auditor at each meeting to allow for any An internal Board and Committee evaluation exercise is concerns to be flagged by the external auditor. No such concerns currently in progress, which consisted of a questionnaire issued were flagged during the year. to each Board member containing questions on a variety of topics. A section of the questionnaire focusses on the topic of Rotation and re-appointment ### Strategic report the Audit & Risk Committee. Full details of the Board The Statutory EU Audit Directive (the Directive) sets out rules evaluation process can be found on page 55. for public interest entities audit firm tenure and rotation and the provision of non-audit services. The Company last undertook an audit tender in 2017, with the RISK MANAGEMENT AND INTERNAL CONTROL Company’s current external auditor, RSM, being appointed for Audit and Risk Committee the year ended 30th June 2018. RSM has therefore served for The Committee has responsibility for assisting the Board in five consecutive years. In order to comply with the Directive, maintaining an effective internal control environment. In order the Company intends to undertake an audit tender at least to achieve this objective, the Committee receives regular reports every ten years. There are no contractual obligations that restrict on compliance and internal control procedures from CLIM’s the Committee’s choice of external auditor. ### Governance Head of Compliance, KIM’s Chief Compliance Officer and CLIG’s management for managing the Company’s risks. The Malcolm Pirouet completed his fifth year as lead external audit Group maintains a Group risk register which is under constant partner for the year ended 30th June 2022. External auditors are review by the Group’s Executive Directors. required to rotate their lead partner every five years. Therefore, the Company will have a new lead audit partner appointed for CLIM’s Risk & Compliance Committee (RCC) and KIM’s the year ending 30th June 2023. Compliance Committee have the responsibility of the day-to- day oversight of the risk management process at the respective The Committee concluded that the effectiveness of the operating subsidiaries. They are also tasked to identify any external audit process carried out by RSM was satisfactory and areas where there are perceived to be risk exposures for their that their independence and objectivity were sufficiently respective subsidiaries. maintained. Therefore, the Committee recommended to the Financial statements Shareholder information Board the re-appointment of RSM at the Company’s next For the year ended 30th June 2022, the Committee is Annual General Meeting. satisfied that the risk register has been appropriately amended and maintained. The disclosures provided within this report constitute the Company’s statement of compliance with the requirements of Internal audit function the Statutory Audit Services for Large Companies Market The Committee has discussed the need for an internal audit Investigation (Mandatory Use of Competitive Tender Processes function extensively throughout the year. It is satisfied that the and Audit Committee Responsibilities) Order 2014. objectives and activities of an internal audit function are sufficiently fulfilled by the Group’s current systems of risk Assessment of external audit effectiveness management and internal control, as described above, and that During the year, the Committee reviewed the external auditor’s a stand-alone function was not required during the year. In effectiveness in carrying out the year end audit and concluded addition, Prism Cosec Ltd as the Company Secretary reinforces that the audit process had been carried out effectively. the Company’s corporate governance arrangements. The Committee will continue to keep the need for an internal audit function under review and to appropriately challenge and debate the topic. City of London Investment Group PLC Annual Report 2021/2022 61 Governance: Audit, risk and internal control ## AUDIT & RISK COMMITTEE REPORT CONTINUED Independence and objectivity Both the Committee and the external auditor have policies and procedures designed to protect the independence and objectivity of the external auditor. During the year, the Committee was provided with a number of assurances by the external auditor regarding the checks and balances in place to safeguard independence and objectivity. Overall, the Committee has concluded that RSM remain independent. Non-audit services policy The Company’s non-audit services policy sets out a list of non- audit services that the external auditor is either permitted or prohibited from providing to the Group. The policy places a requirement for all non-audit services that the external auditor is engaged for to be approved in advance as follows: Value of non-audit service Approver Up to £25,000 Chair of the Audit & Risk Committee £25,001 and above Audit & Risk Committee The policy further mandates that the total fees for non-audit services provided by the external auditor to the Group shall be limited to no more than 70% of the average of the statutory audit fee for the Company, of its controlled undertakings and of the consolidated financial statements paid to the external auditor in the last three consecutive financial years. Pursuant to the policy, the Committee undertakes to seek annually from the external auditor information about policies and processes for maintaining independence and monitoring compliance with relevant requirements, including those regarding the rotation of audit partners and staff. External auditor fee During the year, the Committee reviewed and approved the external auditor’s fee. Refer note 5 for fees paid to RSM in the years ended 30th June 2022 and 2021. 62 City of London Investment Group PLC Annual Report 2021/2022 Governance: Remuneration ## CHAIR OF THE REMUNERATION COMMITTEE’S ANNUAL STATEMENT ## “There is a growing sense of empowerment and excitement ## among the teams at CLIM & KIM and a clearer vision ## of the budding opportunities in the larger Group.” Rian Dartnell Chair of the Remuneration Committee ### Strategic reportOverview Financial statements Shareholder information COMMITTEE MEMBERSHIP KEY ROLES AND RESPONSIBILITIES Rian Dartnell (Chair) • Determine policy for Directors’ remuneration and set remuneration for the Chair, Executive Directors and Tazim Essani senior management. Peter Roth • Establish remuneration schemes aligning Executive ### Governance Jane Stabile Directors with shareholder interests. • Review workforce remuneration and related policies. On behalf of our Board and the Remuneration Committee, I am pleased to present our report for the year ended 30th June 2022. Full terms of reference of the Committee can be found on the Company’s website: www.clig.co.uk. For those of you who have followed us for many years, you will know of City of London Investment Group’s disciplined, performance-oriented culture and our collegial team-based Code compliance approach. There is a growing sense of empowerment and Recognising that the Company had not previously complied excitement among the teams at CLIM & KIM and a clearer vision with provision 36 of the UK Corporate Governance Code of the budding opportunities in the larger Group. The integration (the Code), the Committee implemented a two year post- of the two firms has been hard work, yet its success enhances employment holding period policy in September 2021, bringing management’s confidence to continue to diversify and grow. it into compliance with provision 36 shortly after the end of the 2021 financial year. The Company also extended the vesting As Tom Griffith mentions in his CEO report, employment period for awards made to Executive Directors under the conditions have been tight and inflation has been an added Employee Incentive Plan (EIP) from three years to five years, complication. Overall, the management team has remained fair and applicable to awards granted from 2021 onwards. These changes pragmatic, while managing to keep salary increases under control. have also been incorporated into the proposed 2022 Remuneration Policy. Following the re-structure announced in April 2022, there is now only one Executive Director (our Chief Executive Officer, The full statement of compliance with the Code is set out on Tom Griffith) on the Board of Directors of the Company page 47. (the Board). This report discusses the remuneration of our Executive Directors which, given the team-based approach that is Group key performance indicator part of the Group’s culture and ethos, are largely aligned with the Our Group’s key performance indicator (KPI) of CLIG’s total principles and practices guiding compensation for the team as a return (share price plus dividends) over a market cycle underpins whole. As a consequence, the changes in Board structure have not our approach to rewarding employees and Executive Directors required the Remuneration Committee to change its approach to alike and is a key cornerstone of our inclusive and team-based executive remuneration more generally. This has enabled the culture, helping to create a common goal for the Group. We Committee to focus on the future and, in particular, think ahead continue to endorse this approach and its ability to help us fulfil to the renewal of the Group’s Directors’ Remuneration Policy (the the requirements of provision 40 of the Code (which we discuss Remuneration Policy) which we reviewed extensively this past year in more detail on page 78). Further detail regarding our rationale and needs to be approved by shareholders at the Company’s for using the Group KPI and its link to remuneration outcomes Annual General Meeting (the AGM) in October 2022. is shown in the flow chart on pages 66 to 67. City of London Investment Group PLC Annual Report 2021/2022 63 Governance: Remuneration ## CHAIR OF THE REMUNERATION COMMITTEE’S ANNUAL STATEMENT CONTINUED Remuneration outcomes ESOP – No further share option awards will be granted to An overview of Executive Director remuneration outcomes and Executive Directors under this scheme. the single total figures of remuneration for all Directors are shown on pages 65 and 68 respectively. Malus and clawback – Material error and reputational damage have been added to the list of exceptional events which could 2022 Remuneration Policy review lead to malus and/or clawback. The malus and/or clawback We continue to believe our Remuneration Policy is structured in period has been extended from 18 months to 24 months an appropriate way given the size, function and culture of the following payment or vesting. Group and thus it supports us in delivering our strategy. The Committee was pleased to note that shareholders have continued Shareholding guidelines – Post-employment shareholding to support the Company’s approach to executive remuneration requirements have been incorporated in the policy. with over 92% of the shareholders who voted at the 2021 AGM endorsing our Remuneration Report. Given this level of support, The Committee intends to undertake a further review of we have not been inclined to make any substantial changes to the Executive Directors and employee pay arrangements over the Remuneration Policy when it is proposed to shareholders for forthcoming year and, if it concludes that changes are required, approval at the 2022 AGM. we will consult with leading shareholders in advance. Nevertheless, we wanted to ensure that the Remuneration Policy And finally… remains appropriate given our Company’s context and is aligned In conclusion, we continue to believe that the Committee’s with the expectations of our shareholders. To assist us in this task, approach to executive remuneration incentivises the right we engaged FIT Remuneration Consultants as the Committee’s priorities for our executive team in a way that aligns well with independent adviser on executive remuneration. As a consequence of the culture of our organisation and the interests of our our discussions with FIT and other advisers, we have concluded that shareholders. I hope that you will agree and give your support to some amendments to the Remuneration Policy would be beneficial the new Remuneration Policy at the forthcoming AGM. whilst retaining the existing structure and its alignment with sustained long-term positive outcomes produced. The Remuneration I am always happy to discuss our approach to remuneration with Policy that we are putting to shareholders for approval at the 2022 shareholders and would be happy to answer any shareholder AGM will be substantially the same as the current one. questions about the work of the Committee. Proposed changes to our Remuneration Policy Base salary/fees – Base salaries and fees will be reviewed annually rather than every six months. Pension – Clarification that the maximum pension contribution rate is no more than the level for the wider workforce. Rian Dartnell Chair of the Remuneration Committee Employee Incentive Plan – The RSAs for Executive Directors will vest one-third each year over a three-year period from the 15th September 2022 end of the third year after participation. This means that RSAs will vest one-third each after three, four and five years. Profit-share payment schedule – financial year 1st July 2021 – 30th June 2022 Q1 Q2 Q3 Q4 September December March July 10% 20% 30% 40% Fee income is received on both a monthly and quarterly basis. For Executive Directors, 10% of this payment is deferred Profit-share payments during the year are based on forecasted annual profit determined using quarterly results. 64 City of London Investment Group PLC Annual Report 2021/2022 until September The fourth and largest payment is made once the final results are known. Percentage splits are therefore approximate. Governance: Remuneration ## REMUNERATION OVERVIEW ### Overview REMUNERATION OVERVIEW Executive Director remuneration components Remuneration Maximum under the current Remuneration Policy Maximum under the proposed 2022 Remuneration Policy Fixed Base salary Aligns with pay adjustments for the Aligns with pay adjustments for the wider employee population wider employee population Fees Market competitive Market competitive Benefits Market competitive Market competitive Pension No higher than workforce contribution ### Variable Bonus 2.5 times aggregate salary and fees 2.5 times aggregate salary and fees Strategic report Employee Incentive Plan One times match on bonus waived One times match on bonus waived Share options No further ESOP awards will be granted to Executive Directors Governance Share ownership guidelines 200% of salary 200% of salary (in and post-employment) Malus and clawback Profit-share and EIP up to 18 months Profit-share and EIP up to 24 months after termination date after payment/vesting date Executive Director remuneration outcomes Executive Directors’ single total remuneration figures ### Governance The chart below compares the single total remuneration figures for FY 2022 for each Executive Director with the maximum total remuneration that could be awarded under the Directors’ remuneration policy as per 30th June 2021 illustrative reward scenario and the single total remuneration figures for FY 2021. Single total remuneration figures Executive Director Single total remuneration figure (£’000) ### Financial statements Shareholder information Tom Griffith 2021 Actual 38% 56% 6% 824 Chief Executive Officer 2022 Maximum 33% 61% 6% 941 2022 Actual 37% 57% 6% 873 Mark Dwyer 2021 Actual 35% 48% 17% 879 CLIM’s Chief Investment 2022 Maximum 28% 39% 33% 1,015 Officer 2022 Actual 32% 45% 23% 950 Carlos Yuste 2021 Actual 36% 47% 17% 689 Head of Business Development 2022 Maximum 27% 39% 34% 940 2022 Actual 33% 44% 23% 802 Daniel Lippincott 2021 Actual 38% 54% 8% 259 KIM’s | Chief Investment | 2022 Maximum | | 30% 57% 13% | 702 | | --- | --- | --- | --- | --- | | Officer | | Assumptions: | | | | | 2022 Actual | 1) Based on the FY 2021 and FY 2022 actual results. | 43% 46% 11% | 563 | 2) 2022 maximum is the level of remuneration that could have been received in FY 2022 in accordance with Group’s Director’s remuneration policy as included in FY 2021’s illustrative reward scenario. This reflects the minimum remuneration plus the maximum bonus opportunity as detailed in the future policy table. The maximum variable Salary and related costs Variable cash bonus Employee Incentive Plan (EIP) cash bonus has been adjusted by the maximum amount of the bonus that can be waived, which in turn is matched by the Company and the total is shown as EIP. 3) Daniel Lippincott joined the Board on 19th October 2020 and his remuneration for 2021 is reflected for the period for which he was a Director. 4) Under the Directors' remuneration policy, the EIP awards once awarded, will vest one-fifth per annum over a five-year period. City of London Investment Group PLC Annual Report 2021/2022 65 Governance: Remuneration ## REMUNERATION OVERVIEW CONTINUED CLIG KPI’S RELATIONSHIP TO OUR REMUNERATION POLICY ### Our Group’s interplay between the legitimate needs of our various constituents ### is exemplified by the relationship between our KPI and our remuneration policy. ### In order to understand our corporate culture and the tone from the top, one ### must understand this key relationship. CLIG share price total return: We continue to believe that a key measure of the management team is the long- best measurement of management term total return of the shares of the Company they manage. Our business model is very simple. We receive fees for managing client assets against a benchmark index. Volatility of earnings Although the business is simple, a large part of the assets are in a volatile asset class – EM. As a result of this volatility our FuM and, therefore, our future fee income are difficult to predict with any level of accuracy. Management team KPI This volatility is also why total return of CLIG over a market cycle which is defined as a (See page 23 for further details) rolling five-year period has been selected as the KPI. This KPI presents a challenge for the management team to achieve, without incentivising managers to take undue risks. We have a conservative approach to risk. We do not charge performance fees and there is no debt on our balance sheet. As a specialist in CEFs, the universe of EM equity investment options is capacity constrained. To address this constraint we have added strategies by market segment that take advantage of our expertise in CEFs. This enables us to grow FuM for clients who support our investment philosophy, which drives increased fee revenues on a more predictable scale. Main business driver: As an active investment manager, our job is to beat the relevant benchmark through an outperformance investment cycle, which we define as five years. We believe that our approach and philosophy differs significantly from our peers. Our investment process identifies opportunities to capture pricing anomalies in securities trading at a discount to their net asset value. Our resolute focus is on generating consistent investment performance – over time and through economic cycles within a controlled risk environment. Delivered through: We have developed and nurtured a team investment process which does not rely on team approach “star” fund managers, but rather upon experienced fund managers using a disciplined analytical process that can produce repeatable and sustainable first or second quartile performance versus our peers. Business managed through: We support teams and a team approach across the Group. What this means is that team approach we discourage the cult of the individual, believing that the risks associated with a star culture are detrimental to both shareholders and clients. Results in: FuM, fee income If we do our job well, our FuM and fee income can grow over time. Proactively and profitability managing operating costs is the lever that allows us to maintain profitability levels. Leads to: dividends, retained earnings Profits lead to shareholder value through dividends, retained earnings and the and share price CLIG share price increases. 66 City of London Investment Group PLC Annual Report 2021/2022 ### Overview CLIG KPI’S RELATIONSHIP TO OUR REMUNERATION POLICY CONTINUED Profit-share pool aligns Employees are compensated through a combination of salary and profit-share. Salaries employees compensation are a fixed cost and are managed to account for the volatility of earnings. The profit- with shareholder value share pool is fixed at a maximum of up to 30% of operating profit of the Group and aligns employees’ variable income component of total compensation with Group profitability and shareholder value. EIP further aligns employees All employees are offered the opportunity to defer a portion of their annual profit-share with shareholder value allocation to purchase CLIG shares through the Employee Incentive Plan (EIP). The Company matches the employees’ deferral 100%. Both the employee deferral and ### Strategic report Company matching amounts vest over a three-year period in equal amounts each year. These amounts vest annually over a five-year period for Executive Directors from FY2021. As per the proposed 2022 Remuneration Policy, for Executive Directors, these amounts will vest one-third each year after the 3rd, 4th and 5th anniversaries of grant from FY2023. Employee share purchases and the vesting schedule further align them with long-term shareholder value. Volatility of earnings Rather than making large numbers of employees redundant during market downturns and requires flexibility negatively impacting the business, the variable component of compensation can take the brunt of reduced revenues. Maintaining a high ratio of variable pay for all employees, but in particular for Directors, underscores the message that we are a team and rewards ### Governance should be reduced when the Group underperforms. Variable pay can be adjusted in line with profitability. Profit-share pool provides On balance, when markets are good, employees share in the increased profits of the single focus Group. We accomplish this through profit sharing. Ingrained in our culture is the belief that all employees contribute to the success of the Group. The Portfolio Manager may have made the right decision on the investment, but he or she was able to do so because the data was correct, the systems were running properly, compliance applied the correct constraints, and so on. ### Financial statements Shareholder information Individual appraisals Allocation of profit-share is a management responsibility. We operate in an open office and evaluation environment. While annual appraisals are completed, the open office environment provides for daily, honest feedback through interactions between colleagues. This allows for an ongoing, real-time evaluation of a number of variable factors that influence performance. Individual KPIs are not appropriate Individual KPIs are not relevant to a business that employs a team-based approach to for CLIG due to our team-based operating a business, which in many respects is similar to a partnership. In fact, individual environment KPIs would not only be divisive, but would introduce unnecessary risks. Our team approach to managing the business, with a profit-share pool based on operating profit, aligns the constituents of our business, as summarised below: Clients expect superior investment performance. Long-term investment performance drives FuM and revenue growth over time. The clients pay the bills. Employees expect to share in the success of the Group as they provide the investment performance that generate the earnings, while managing risks and controlling costs to ensure their sustainability. Employees manage the business. Employees and Directors’ compensation are in alignment with our corporate culture, and these are taken into account when setting the policy for Directors’ compensation. Shareholders expect appropriate risk and cost controls to help deliver quality earnings and dividends. The shareholders own the business. City of London Investment Group PLC Annual Report 2021/2022 67 Governance: Remuneration # ANNUAL REPORT ON REMUNERATION The information provided within the Annual Report on Remuneration has been audited where indicated and summarises how the Directors' remuneration policy was implemented during the financial period under review, as well as setting out total remuneration figures and rationales. ## Committee composition and attendance The Committee comprises of four Independent Non-Executive Directors: Jane Stabile, Peter Roth, Tazim Essani and Rian Dartnell serving as Chair. The Committee is focused on maintaining the entrepreneurial can-do team-based culture of the Group, while at the same time continuing to deepen its processes. Our goal is to be a balanced Group, managing investment mandates with consistent long-term outperformance while empowering a culture of inclusion and an atmosphere in which colleagues strive to do their best work. The Committee held four meetings during the year, all of which were attended by all of the Committee members. At the invitation of the Committee, meetings are regularly attended by the Chair of the Board, Executive Directors, other Non-Executive Directors and the Chief Financial Officer. Other members of senior management are invited to attend and present at meetings from time to time. This section of the Report is made up of four parts: 1) Single total figure of remuneration 2) Future implementation 3) Further remuneration disclosures 4) Governance disclosures The proposed Director's Remuneration Policy is summarised in the future Policy table on pages 79 to 81 and will govern all future remuneration to be awarded to Directors. ## 1) SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED) The table below shows the single total figure of remuneration for each Director in relation to the financial year ending 30th June 2022 (2022) relative to the previous financial year ended 30th June 2021 (2021). | | | Director fees £ | Salary/ advisory fee £ | Pension £ | (1) Taxable benefits £ | Total fixed £ | Profit- share £ | Waived profit- share £ | (2) EIP share awards £ | (3) Dividend equivalent EIP vesting £ | Total variable £ | Total £ | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Current Directors** | | | | | | | | | | | | | | **Executive Directors** | | | | | | | | | | | | | | Mark Dwyer | 2022 | 35,000 | 210,000 | 26,250 | 3,336 | 274,586 | 535,000 | (107,000) | 214,000 | 33,782 | 675,782 | 950,368 | | | 2021 | 35,000 | 206,500 | 25,813 | 3,541 | 270,854 | 500,000 | (75,000) | 150,000 | 33,272 | 608,272 | 879,126 | | Tom Griffith | 2022 | 35,000 | 214,874 | 26,859 | 5,557 | 282,290 | 526,308 | (27,594) | 55,188 | 36,639 | 580,541 | 872,831 | | | 2021 | 35,000 | 211,104 | 26,388 | 6,046 | 278,538 | 486,559 | (24,040) | 48,080 | 34,909 | 545,508 | 824,046 | | Daniel Lippincott^{(4)} | 2022 | 35,000 | 172,702 | 29,697 | 6,018 | 243,417 | 289,712 | (30,142) | 60,284 | — | 319,854 | 563,271 | | | 2021 | 24,680 | 47,250 | 26,270 | 349 | 98,549 | 149,858 | (10,696) | 21,392 | — | 160,554 | 259,103 | | Carlos Yuste | 2022 | 35,000 | 185,301 | 23,163 | 6,707 | 250,171 | 448,634 | (93,951) | 187,902 | 9,471 | 552,056 | 802,227 | | | 2021 | 35,000 | 181,500 | 22,688 | 6,046 | 245,234 | 384,268 | (56,937) | 113,874 | 2,728 | 443,933 | 689,167 | | **Non-Executive Directors** | | | | | | | | | | | | | | Barry Aling^{(5)} | 2022 | 75,000 | — | — | — | 75,000 | — | — | — | — | — | 75,000 | | | 2021 | 105,538 | — | — | — | 105,538 | — | — | — | — | — | 105,538 | | Rian Dartnell^{(6)} | 2022 | 50,000 | — | — | — | 50,000 | — | — | — | — | — | 50,000 | | | 2021 | 33,750 | — | — | — | 33,750 | — | — | — | — | — | 33,750 | | Tazim Essani^{(7)} | 2022 | 40,000 | — | — | — | 40,000 | — | — | — | — | — | 40,000 | | | 2021 | 16,667 | — | — | — | 16,667 | — | — | — | — | — | 16,667 | | George Karpus^{(8)} | 2022 | 40,000 | 77,180 | — | 2,958 | 120,138 | — | — | — | — | — | 120,138 | | | 2021 | 27,179 | 54,400 | — | — | 81,579 | — | — | — | — | — | 81,579 | | Barry Olliff^{(9)} | 2022 | 40,000 | 36,749 | 4,594 | 5,056 | 86,399 | — | — | — | — | — | 86,399 | | | 2021 | 37,500 | 73,872 | 9,234 | 3,377 | 123,983 | — | — | — | — | — | 123,983 | | Peter Roth | 2022 | 55,000 | — | — | — | 55,000 | — | — | — | — | — | 55,000 | | | 2021 | 51,250 | — | — | — | 51,250 | — | — | — | — | — | 51,250 | | Jane Stabile | 2022 | 50,000 | — | — | 933 | 50,933 | — | — | — | — | — | 50,933 | | | 2021 | 47,500 | — | — | — | 47,500 | — | — | — | — | — | 47,500 | | **Past Directors** | | | | | | | | | | | | | | Susannah Nicklin^{(10)} | 2022 | — | — | — | — | — | — | — | — | — | — | — | | | 2021 | 40,449 | — | — | — | 40,449 | — | — | — | — | — | 40,449 | | **Total** | **2022** | **490,000** | **896,806** | **110,563** | **30,565** | **1,527,934** | **1,799,654** | **(258,687)** | **517,374** | **79,892** | **2,138,233** | **3,666,167** | | | 2021 | 489,513 | 774,626 | 110,393 | 19,359 | 1,393,891 | 1,520,685 | (166,673) | 333,346 | 70,909 | 1,758,267 | 3,152,158 | # Notes: 1) Health insurance is offered to all employees but is not considered a taxable benefit in all countries. For comparative purposes we have based our calculations on all health insurance costs incurred, whether a taxable benefit or not. 2) The EIP share awards relate to the current year's waived bonus plus the 100% match by the Company. The combined amount is the value of the awards that will be awarded in October following the year end. For non-UK Directors, the value is subject to movement as a result of currency translation. 3) This represents dividend equivalent on EIP shares vested during the year. 4) Daniel Lippincott was appointed as Director of the Company with effect from 19th October 2020. 5) One-off payment of £35,000 was made to Barry Aling in 2021 in relation to his work on the KIM merger. 6) Rian Dartnell was appointed as Director of the Company with effect from 1st October 2020. 7) Tazim Essani was appointed as Director of the Company with effect from 1st February 2021. 8) George Karpus was appointed as Director of the Company with effect from 19th October 2020. George Karpus receives a corporate advisory fee of $100,000 per annum. 9) In addition to his Non-Executive Directors' fee, Barry Olliff received a corporate advisory fee of $100,000 per annum until 31st December 2021. 10) Susannah Nicklin ceased to be a Director of the Company with effect from 10th September 2020. 68 City of London Investment Group PLC Annual Report 2021/2022 ## 1) SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED) CONTINUED ### Non-Executive Director fees | | 2022 £ | 2021 £ | | --- | --- | --- | | Base fee for services as a Non-Executive Director | 40,000 | 40,000 | | Supplemental fee for services as Chair of the Board | 35,000 | 35,000 | | Supplemental fee for services as Chair of a Committee | 10,000 | 10,000 | | Supplemental fee for services as Senior Independent Director | 5,000 | 5,000 | ### Commentary on single total figure table The Remuneration Committee satisfied itself that the single total figures of remuneration for each Director are appropriate. A commentary on each element of Directors' fixed and variable remuneration is set out below. As previously noted, the Directors' remuneration policy will be put to a binding shareholder vote at the Annual General Meeting in 2022. #### a) Fixed pay ##### Salary/advisory fee Executive Director salaries are kept at the lower end of what may be described as market average to allow the Group to manage fixed remuneration costs. A high proportion of total remuneration is provided by way of variable pay, allowing for remuneration to be trimmed in a timely fashion if market events threaten to impact profitability. The year on year comparison of salaries in the single total figure table reflects movements which have arisen as follows: 1) Tom Griffith, CEO – did not receive a pay rise during the year (2% on 1st January 2021). His salary is paid in US dollars and reported in sterling. The difference is due in part to a stronger US dollar to the pound this year as compared with last year. 2) Mark Dwyer, CLIM's CIO – did not receive a pay rise during the year (3% on 1st January 2021). 3) Carlos Yuste, Head of Business Development – did not receive a pay rise during the year (4% on 1st July 2020 and a further 3% increase on 1st January 2021). His salary is paid in US dollars and reported in sterling. The difference is due in part to a stronger US dollar to the pound this year as compared with last year. 4) Daniel Lippincott, KIM's CIO – Daniel's salary was increased to US$200,000 per annum on 1st July 2021 and then by a further US$50,000 per annum on 1st January 2022 to bring it in line with his role and responsibilities as the CIO and President of KIM and as a Director of KIM and CLIG. His salary is paid in US dollars and reported in sterling. The difference is also due in part to a stronger US dollar to the pound this year as compared with last year. Further, as approved at the 2019 AGM, a separate Director's fee has been carved out from all the Executive Director's current salaries to reflect their Director/governance duties with effect from 1st November 2019, and has been shown separately. Daniel Lippincott received a Director's fee of £35,000 per annum in addition to his salary from the date of his appointment on the CLIG Board with effect from 19th October 2020. #### Benefits Taxable benefits relate to private medical insurance for Executive Directors* and their dependants. It should be noted that although the Group offers private medical insurance to all employees it is not considered a taxable benefit for those resident in the US. Taxable benefits for Non-Executive Directors relate to reimbursed accommodation expenses whilst attending UK Board and Committee meetings. The amounts shown are grossed up as the Group accounts for the tax due on these benefits. As part of his corporate advisory contract, Barry Olliff received private medical insurance in FY 2021. #### Pension All employees*, including Executive Directors, are entitled to membership of the Group's defined contribution pension arrangements. Contributions are capped at 12.5% of annual salary. Employer contributions in respect of all Executive Directors were 12.5% for the period under review. As part of his corporate advisory contract, Barry Olliff also received pension contribution at 12.5%. * As per the merger agreement, compensation and benefits for KIM employees remain consistent with pre-merger practices of KIM. Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 69 Governance: Remuneration # ANNUAL REPORT ON REMUNERATION CONTINUED ## 1) SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED) CONTINUED ### b) Variable pay #### Profit-share The Company operates a profit-share plan for all employees, including the Executive Directors, that is linked to Group profitability. Profit-share constitutes a large part of employee and Executive Director remuneration – being variable, it can be adjusted in line with profitability and can therefore account for inherent volatility in earnings. We have allocated a maximum profit-share of up to 30% of the pre-profit-share, pre-tax, operating profit for this purpose. Such allocation may be reduced infrequently as a result of an assessment of the projected intermediate term financial performance of the Group, and consistent with our fundamental objective of an appropriate balance of interests among all stakeholders, including clients, employees and shareholders. #### Measuring performance We are focused on fostering a team approach across the Group, discouraging the 'cult of the individual' and the risks associated with a star culture. The Group therefore takes the view that individual KPIs are not appropriate for a business that employs a team-based approach, and that individual KPIs could prove divisive and introduce unnecessary risk. Refer to pages 66 to 67 for CLIG's KPI's relationship to our remuneration policy. The profit-share pool aligns employees and Executive Directors variable income with Group profitability. Both employees and Executive Directors are therefore incentivised to drive Group profitability. Driving Group profit leads to shareholder value by way of dividends, retained earnings and Company share price increases. Executive Director performance appraisals are conducted on an annual basis and, in-keeping with the Group's team-based approach, are partly deduced from daily, honest feedback solicited from the open office environment in which the Group operates. Discretion is applied appropriately, with bonus awards being adjusted upwards or downwards depending on the outcome of annual performance appraisals. In the case of market downturns due to extenuating circumstances not linked to poor individual performance, the Committee can use its discretion to reduce profit-share awards for employees and Executive Directors. Being the more accountable parties, Executive Directors take a larger proportion of the reduction in comparison with employees. See 'Executive Director remuneration outcomes' on page 65 for details of profit-share awards for FY2022 compared with the illustrative reward scenario disclosed in the FY 2021 Annual report on remuneration. #### Deferred profit-share payments Profit-share awards in the fourth quarter of each financial year are calculated based upon an estimate of full year operating profits, thus there is the possibility that actual performance could be below expectation. Executive Directors therefore have up to 10% of their annual profit-share awards in the fourth quarter deferred to the following quarter in order that the awards can be adjusted based upon the final figures (that are not available in the fourth quarter). The table below sets out the amounts deferred for payment once the financial statements have been audited and approved. | Deferred profit-share payments | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | £ | % of annual award | £ | % of annual award | | Mark Dwyer | 25,000 | 5% | 21,500 | 4% | | Tom Griffith | 25,675 | 5% | 22,009 | 5% | | Daniel Lippincott^{(1)} | 15,657 | 5% | 16,044 | 11% | | Carlos Yuste | 22,390 | 5% | 16,268 | 4% | Note: 1) Daniel Lippincott became a Director on 19th October 2020 so only his profit-share paid from that date is included. These amounts are included in the profit-share reported in the table on page 68. 70 City of London Investment Group PLC Annual Report 2021/2022 1) SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED) CONTINUED Employee Incentive Plan Summary of Employee Incentive Plan (EIP) interests The EIP was approved by shareholders at the October 2016 AGM and adopted by the Group in December 2016. It is open to employees of all Group companies, including Executive Directors. Participants are invited to waive up to 20% (or up to 30% if there is headroom within the cap agreed by shareholders) of their annual profit-share in return for the right to participate in the EIP for the relevant financial year. Under the EIP, they are granted Restricted Share Awards (RSAs) over shares in the Company equal in value to two times the amount they have waived. Due to high level of employee elections, participation had to be scaled back this year across the Group. In order to encourage maximum employee participation, and ownership of CLIG shares, the Directors elected to reduce their participation so that employees were not Strategic reportOverview Financial statements Shareholder information scaled down below 20%. In respect of bonus earned for FY 2022, Executive Directors restricted their participation in the EIP to between 5% and 20% of bonus earned. A 100% match was provided by the Company on the amount waived. The RSAs in respect of the waived profit-share disclosed in the single total figure of remuneration table on page 68 will be granted in October 2022. The number of shares is calculated based on the average share price over the ten days preceding the grant date. For Executive Directors, the RSAs vest one-third each year over a three-year period following grant for the awards made up until October 2020 and one-fifth each year over a five-year period following grant for awards made from October 2021 onwards. As Executive Directors have already elected to participate under the current policy for FY 2023, the revised vesting period as per the proposed Director’s Remuneration Policy (on page 80) will only take effect from the next round of elections, which will be in June 2023 and relate to the awards to be made in October 2024. ### Governance These awards accrue an amount equal to the dividend that the Director would have received had they owned the shares from the date of grant. The dividend equivalent paid on shares vested during the year is disclosed in the single total figure of remuneration table on page 68. The RSAs are subject to forfeiture upon termination. For further details see the future policy table on pages 79 to 81. EIP Restricted Share Awards | | | | Share | (1) | Market | | --- | --- | --- | --- | --- | --- | | Awards | Awards price price on | | | | | | held Awarded Vested | | held used for date of | | | | Vesting period Date of 30th June during during 30th June award vesting Director Award 2021 the year the year 2022 £ £ From To M Dwyer 26/10/2018 23,806 – (23,806) – 3.873 5.10 26/10/18 26/10/21 26/10/2019 16,022 – (8,011) 8,011 4.258 5.10 26/10/19 26/10/22 26/10/2020 37,240 – (12,413) 24,827 4.028 5.10 26/10/20 26/10/23 26/10/2021 – 28,600 – 28,600 5.245 26/10/21 26/10/26 77,068 28,600 (44,230) 61,438 T Griffith 26/10/2018 25,498 – (25,498) – 3.873 5.10 26/10/18 26/10/21 26/10/2019 18,524 – (9,262) 9,262 4.258 5.10 26/10/19 26/10/22 26/10/2020 40,120 – (13,373) 26,747 4.028 5.10 26/10/20 26/10/23 26/10/2021 – 9,168 – 9,168 5.245 26/10/21 26/10/26 84,142 9,168 (48,133) 45,177 C Yuste 26/10/2019 18,182 – (9,091) 9,091 4.258 5.10 26/10/19 26/10/22 26/10/2020 34,036 – (11,345) 22,691 4.028 5.10 26/10/20 26/10/23 26/10/2021 – 21,712 – 21,712 5.245 26/10/21 26/10/26 52,218 21,712 (20,436) 53,494 D Lippincott 26/10/2021 – 4,080 – 4,080 5.245 26/10/21 26/10/26 – 4,080 – 4,080 213,428 63,560 (112,799) 164,189 1) The number of shares awarded is calculated based on ten day average share price on the day prior to award. City of London Investment Group PLC Annual Report 2021/2022 71 Governance: Remuneration # ANNUAL REPORT ON REMUNERATION CONTINUED ## 1) SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED) CONTINUED ### Summary of share option plan interests The Company operates an Employee Share Option Plan which is open to employees of all Group companies and Executive Directors who work more than 25 hours per week, provided they do not have a material interest in the Company, that is to say the ability to control more than 25% of the ordinary share capital. During the year, options over ordinary shares of the Company were granted to some employees. | | Number of options | | | | | Exercise price £ | Price at grant £ | Face value at grant £ | Vesting period | Vesting date | Expiry date | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Held 2021 | Exercised during the period | Lapsed during the period | Granted during the period | Held 2022 | | | | | | | | Tom Griffith | 6,000 | (6,000) | – | – | – | 3.4875 | 3.4875 | – | 3 yrs | 04/11/14 | 04/11/21 | | | 17,000 | – | – | – | 17,000 | 2.55 | 2.5 | 42,500 | 3 yrs | 30/01/17 | 30/01/24 | | | 23,500 | – | – | – | 23,500 | 3.52 | 3.52 | 82,720 | 3 yrs | 19/06/18 | 19/06/25 | | Total | 46,500 | (6,000) | – | – | 40,500 | | | | | | | | Mark Dwyer | 50,000 | (50,000) | – | – | – | 3.6 | 3.6 | – | 3 yrs | 03/05/15 | 03/05/22 | | | 5,500 | – | – | – | 5,500 | 2.55 | 2.5 | 13,750 | 3 yrs | 30/01/17 | 30/01/24 | | | 17,500 | – | – | – | 17,500 | 3.52 | 3.52 | 61,600 | 3 yrs | 19/06/18 | 19/06/25 | | Total | 73,000 | (50,000) | – | – | 23,000 | | | | | | | | Carlos Yuste | 46,000 | – | – | – | 46,000 | 5.04 | 5.04 | 231,840 | 3 yrs | 16/03/24 | 16/03/31 | | Total | 46,000 | – | – | – | 46,000 | | | | | | | | Daniel Lippincott | 20,000 | – | – | – | 20,000 | 5.04 | 5.04 | 100,800 | 3 yrs | 16/03/24 | 16/03/31 | | Total | 20,000 | – | – | – | 20,000 | | | | | | | The closing market price of the Company's ordinary shares at 30th June 2022 was £4.29 (2021: £5.36) and the price moved during the year between a low of £4.00 to a high of £5.50 (2021: low £3.76 high £5.60). 72 City of London Investment Group PLC Annual Report 2021/2022 Overview Strategic report Governance Financial statements Shareholder information ## 2) FUTURE IMPLEMENTATION The Committee will table a new Directors' remuneration policy at the AGM in 2022. Subject to being approved by shareholders at the 2022 AGM, the Remuneration Policy on pages 79 to 83 will apply. The core aspects of Director remuneration will remain the same, with Executive Directors receiving fixed elements of salary, Director fee, taxable benefits and pension, and the variable element of the profit-share plan. The base salary (including Director's fee) with effect from 1st July 2022 for Tom Griffith is US$332,500. The annual bonus will have a maximum value of 250% of base salary (including Director's fee). The maximum cash bonus will be adjusted by the maximum amount of bonus that can be waived (30%), which in turn is matched by the Company. The fee arrangements for Non-Executive Directors for FY 2023 will remain the same as listed on page 69, subject to the two-year review on 1st January 2023. ## 3) FURTHER REMUNERATION DISCLOSURES ### Total shareholder return The following graph illustrates the total shareholder return of a holding in the Company against an appropriate index for the 10 years to 30th June 2022. We have chosen the MSCI Emerging Markets T/R Net Index which is calculated on a total return basis, i.e. assuming reinvestment of dividends. Total shareholder return (dividends reinvested) for ten years to 30th June 2022 (GBP) ![img-5.jpeg](img-5.jpeg) Source: Bloomberg. City of London Investment Group PLC Annual Report 2021/2022 73 Governance: Remuneration # ANNUAL REPORT ON REMUNERATION CONTINUED ## 3) FURTHER REMUNERATION DISCLOSURES CONTINUED ### Chief Executive Officer single figure of remuneration The following table shows the change in total remuneration for the Chief Executive Officers, Barry Olliff (CEO 1) and Tom Griffith (CEO 2) during the ten years to 30th June 2022. This table is included for the purpose of comparison against total shareholder return as detailed above. | | Year to 31st May 2013 £ | 13 months to 30th June 2014 £ | Year to 30th June 2015 £ | Year to 30th June 2016 £ | Year to 30th June 2017 £ | Year to 30th June 2018 £ | Year to 30th June 2019 Proposed £ | Year to 30th June 2020 £ | Year to 30th June 2021 £ | Year to 30th June 2022 £ | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Single total figure** | | | | | | | | | | | | CEO 1 | 580,922 | 693,550 | 805,430 | 763,686 | 1,008,679 | 1,108,646 | 627,887 | – | – | – | | CEO 2 | – | – | – | – | – | – | 212,036 | 782,762 | 824,046 | 872,831 | | **Annual bonus (as % of current cap)^{(2)}** | | | | | | | | | | | | CEO 1 | 51% | 84% | 85% | 84% | 84% | 84% | 74% | – | – | – | | CEO 2 | – | – | – | – | – | – | 88% | 64% | 79% | 84% | | **EIP – % of maximum opportunity^{(3)}** | | | | | | | | | | | | CEO 1 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | | CEO 2 | – | – | – | – | – | – | 100% | 100% | 100% | 100% | # Notes: 1) Barry Olliff stepped down as CEO on 1st January 2013 and resumed the role on 15th April 2013. During this time, he remained a Director and Chief Investment Officer on the same salary. Therefore, his remuneration for the full year has been included in this table to provide a useful comparative. Barry Olliff subsequently stepped down as CEO on 1st March 2019, being replaced by Tom Griffith. Barry Olliff remained on the Board, serving as Non-Independent Non-Executive Director until his retirement from the Board on 31st July 2022. His total remuneration incurred in accordance with this role is not detailed here but can instead be found in the total single figure of remuneration table on page 68. 2) In 2015, the Directors' remuneration policy was amended to include a cap on bonuses paid to Directors and Barry Olliff's cap was set at 5% of operating profits pre-profit-share and EIP. For comparison purposes prior years' annual bonuses are shown as a percentage of 5% of operating profits pre-profit-share and EIP. The cap on Tom Griffith's bonus was 2.5% of operating profit pre-bonus and EIP until 30th June 2019, when it was changed to 250% of salary and base fee for the year ended 30th June 2020 onwards. 3) As detailed in the single total figure commentary on page 68, EIP awards are made on the basis of the amount of the bonus that has been waived in the scheme year. These awards vest based on continued service and therefore have been shown at 100% in the table. 74 City of London Investment Group PLC Annual Report 2021/2022 3) FURTHER REMUNERATION DISCLOSURES CONTINUED Annual percentage change in the remuneration of Directors and employees The table below shows the change in Director and employee salary/fees, benefits and profit-share over the preceding two years. The average change for employees as a whole is given using a per capita figure based on the average number of employees for the period. Salary/fees Benefits Bonus % % % 2022 (1) 2021 (2) 2022 (1) 2021 (2) 2022 (1) 2021 (2) % % % % % % (3) (3) ### Employees 8% 5% 6% 25% 3% 7% Strategic reportOverview Financial statements Shareholder information Executive Directors | Mark Dwyer | (4) | | 2% 8% -1% 7% 7% 33% | | --- | --- | --- | --- | | Tom Griffith | (4) | | 1% 6% -3% 3% 1% 33% | | Daniel Lippincott | | (5) | 184% n/a 31% n/a 77% n/a | | Carlos Yuste | (4) | | 2% 4% 2% 5% 9% 23% | Non-Executive Directors | Barry Aling | (6) | 6% 18% n/a n/a n/a n/a | | --- | --- | --- | | Rian Dartnell | (7) | 47% n/a n/a n/a n/a n/a | | Tazim Essani | (7) | 135% n/a n/a n/a n/a n/a | ### Governance | George Karpus | | (8) | 43% n/a n/a n/a n/a n/a | | --- | --- | --- | --- | | Barry Olliff | (9) | | -33% -7% 3% -19% n/a -100% | | Peter Roth | (6) | | 8% 13% n/a -100% n/a n/a | | Jane Stabile | (6) | | 6% 4% n/a -100% n/a n/a | Notes: 1) 2022 – June 2022 month end exchange rate has been applied to USD payments for the two accounting periods 2021 to 2022 to eliminate the impact of FX movements. 2) 2021 – June 2021 month end exchange rate has been applied to USD payments for all two accounting periods 2020 to 2021 to eliminate the impact of FX movements. 3) Based on average cost per employee. 4) % increase in 2022 reflects full impact of mid-year salary increase on 1st January 2021 in FY 2021. There was no change in salary in 2022. 5) Daniel Lippincott joined the Board part way during FY2021 on 19th October 2020. He also received salary increases of 123% on 1st July 2021 and a further 25% on 1 January 2022 to bring it in line with his role and responsibilities. 6) Base fee for Non-Executive Directors was increased by 14% and supplemental fee for services as the Chair of the Board was increased by 40% with effect from 1st January 2021. Barry Aling’s one-off payment of £35,000 in FY 2021 for his work on the KIM merger has been excluded for this analysis. 2022 % increase reflects full year impact of mid-year base fee increase for Non-Executive Directors. There was no change in Non-Executive Director fee in 2022. 7) Rian Dartnell and Tazim Essani joined the Board part way FY 2021 and 2022 % increase reflects full year impact of their base fee. 8) George Karpus joined the Board part way in FY 2021 on 19th October 2020. 2022 % increase reflects full year impact of his base and corporate advisory fee. 9) Barry Olliff ceased to receive the corporate advisory fee from 31st December 2021. Relative importance of spend on pay The table below shows the overall expenditure on employee remuneration and shareholder distributions and the percentage change between the current and previous period. 2022 2021 Change £ £ £ Total employee spend 23,532,973 20,045,406 17% Average headcount (number) 114 99 15% Profit after tax 18,091,151 16,971,233 7% Dividends relating to the period (1) 22,788,187 14,233,013 60% Note: 1) The current period includes an estimate of the final dividend based on the number of qualifying shares as at 30th June 2022 excluding those held in the employee benefit trust. The Board are recommending a final dividend of 22p per share (2021: 22p), which would make the total for the year 46.5p per share which includes a special dividend of 13.5p (2021: 33p, special dividend : nil). This is subject to shareholder approval at the AGM in October. The prior period estimate has been restated to include the actual final dividend paid. A breakdown of the employee spend can be found in note 3 to the financial statements on page 106. City of London Investment Group PLC Annual Report 2021/2022 75 Governance: Remuneration ## ANNUAL REPORT ON REMUNERATION CONTINUED 4) GOVERNANCE DISCLOSURES Payments to past Directors No payment or transfer of assets was made during the financial period to any past Director of the Company. Payments for loss of office There were no termination payments made to any person who has served as a Director during the financial period. Beneficial interest of the Directors and their families in the shares of the Company at the period end were as follows: Ordinary shares of 1p each Restricted share awards of 1p each 2022 2021 2022 2021 Executive Directors Mark Dwyer 215,654 133,924 61,438 77,068 Tom Griffith 467,868 413,735 45,177 84,142 Daniel Lippincott (1) 249,347 249,347 4,080 – Carlos Yuste 147,028 76,592 53,494 52,218 Non-Executive Directors Barry Aling 184,300 134,300 – – | Rian Dartnell | (2) | | 50,000 50,000 – – | | --- | --- | --- | --- | | Tazim Essani | (3) | | 5,350 5,350 – – | | George Karpus | (4) | 18,371,205 18,371,205 – – | | Barry Olliff 1,268,410 1,228,018 – – Peter Roth 5,000 5,000 – – Jane Stabile 5,000 – – – Notes: 1) Daniel Lippincott was appointed as Director of the Company with effect from 19th October 2020. 2) Rian Dartnell was appointed as Director of the Company with effect from 1st October 2020. 3) Tazim Essani was appointed as Director of the Company with effect from 1st February 2021. 4) George Karpus was appointed as Director of the Company with effect from 19th October 2020. Executive Director shareholding guidelines All Executive Directors are required to hold shares equivalent in value to 200% of salary within a five-year period from their date of appointment. The below illustration shows the Executive Director’s share ownership against this target as at 30th June 2022. To reduce the impact of share price volatility on this calculation, the closing share price of £4.29 for the financial year ended 30th June 2022 has been used. Shareholding guidelines Tom Griffith 781% 0 100 200 300 400 500 600 700 800 900 Shares held Unvested EIP shares (net of tax) Shareholding guidelines 76 City of London Investment Group PLC Annual Report 2021/2022 Overview Strategic report Governance Financial statements Shareholder information #### 4) GOVERNANCE DISCLOSURES CONTINUED ##### Remuneration Committee None of the Executive Directors are in attendance during discussions regarding their own remuneration. Details of attendance by members of the Remuneration Committee are set out on page 46. Dividends received by Directors and their families from holdings of shares in the Company during the financial year were as follows: | | 2022 £ | 2021 £ | | --- | --- | --- | | **Executive Directors** | | | | Mark Dwyer | 82,299 | 32,264 | | Tom Griffith | 206,969 | 116,852 | | Daniel Lippincott | 102,232 | 20,571 | | Carlos Yuste | 52,872 | 21,925 | | **Non-Executive Directors** | | | | Barry Aling | 74,700 | 33,633 | | Rian Dartnell | 23,250 | 5,500 | | Tazim Essani | 2,488 | 589 | | George Karpus | 7,532,194 | 1,515,624 | | Barry Olliff | 570,723 | 514,519 | | Peter Roth | 2,325 | – | Note: Dividends paid have been included only from the date of appointment until the date of resignation from the Board. ##### Statement of voting at the last Annual General Meeting (AGM) The resolution seeking approval of the Annual report on remuneration at the AGM in October 2021 received the following votes. | | Remuneration report October 2021 | | | --- | --- | --- | | | Number of votes | Percentage of votes cast | | For* | 22,968,627 | 92.9% | | Against | 1,757,125 | 7.1% | | Total votes cast** | 24,725,752 | | | Votes withheld | 17,339 | | * Includes discretionary votes. ** Excludes withheld votes. ##### Consideration of employment conditions elsewhere in the Group The Group has always adopted a partnership approach so in essence this policy is consistent with that applied across the Group. While employees were not directly consulted on the Directors' remuneration, the Group remuneration policy is available to all employees and any feedback or concerns are welcomed. ##### Terms of reference The Committee reviewed its terms of reference in May 2022, approving minor administrative changes. City of London Investment Group PLC Annual Report 2021/2022 77 Governance: Remuneration ## ANNUAL REPORT ON REMUNERATION CONTINUED 4) GOVERNANCE DISCLOSURES CONTINUED Compliance with Provision 40 of the UK Corporate Governance Code CLARITY Remuneration arrangements should be transparent and promote Executive Director remuneration is aligned to employee remuneration, effective engagement with shareholders and the workforce. meaning that both parties have common goals and incentives. The Group remuneration policy is available to all employees and any feedback or concerns are welcomed. The simplicity of Directors’ remuneration assists in effective engagement with shareholders. SIMPLICITY Remuneration structures should avoid complexity and their rationale The Policy for Executive Director remuneration is extremely simple and operation should be easy to understand. and straightforward, with fixed remuneration consisting of salary, Director fees, taxable benefits and pensions, and variable pay consisting of the profit-share plan and Employee Incentive Plan. There are no complex individual KPIs – Executive Directors simply share in the operating profit that their performance helps to generate over the course of the financial year. RISK Remuneration arrangements should ensure reputational and other There are no individual KPIs that introduce the behavioural risks that risks from excessive rewards, and behavioural risks that can arise can arise from target-based forms of incentive. The appropriate risk from target-based incentive plans, are identified and mitigated. and cost controls necessary to deliver high quality earnings and dividends, and thus increased the profit-share pool, robustly aligns the interests of Executive Directors, employees and shareholders. PREDICTABILITY The range of possible values of rewards to individual Directors and Due to its simplicity, both fixed and variable Executive Director any other limits or discretions should be identified and explained at remuneration is very predictable. See page 65 for 2022 the time of approving the policy. remuneration outcomes for Executive Directors, plus a forecast for 2023, on page 82. PROPORTIONALITY The link between individual awards, the delivery of strategy and the The Group’s simple approach to remunerating its Directors means long-term performance of the Company should be clear. Outcomes that it is impossible for poor performance to be rewarded. If the should not reward poor performance. Company’s operating profit is down, then so is the pool from which Director profit-share are paid and Employee Incentive Plan shares are matched. Executive Directors have a greater impact on the Group than other employees, therefore hold themselves more accountable in instances of market downturns, and therefore have their profit- share participation adjusted accordingly. ALIGNMENT TO CULTURE Incentive schemes should drive behaviours consistent with Company The Group has an inclusive and team-based culture. Executive purpose, values and strategy. Directors and employees have a common KPI tied to their variable remuneration, being operating profit, a metric that shareholders value due to its potential to provide increased distributions and Company share price. This alignment of interests is consistent with the Group’s purpose, to exist for the mutual benefit of its three primary stakeholders: client, employees and shareholders, as well as its values. Further detail on Group culture, purpose and values can be found on page 51. 78 City of London Investment Group PLC Annual Report 2021/2022 Governance: Remuneration ## DIRECTORS’ REMUNERATION POLICY ### Overview The Directors’ Remuneration Policy (the Policy) was last put to a binding shareholder vote at the AGM in October 2019 and passed with a vote of 84% in favour. The policy must be presented to shareholders for approval at least every three years. Following a review this year and taking into account feedback from the Company’s largest shareholders and their main representative bodies, the Remuneration Committee proposes the following minor changes: Remuneration element Rationale for changeProposed changes to the Policy Base salary/fees Base salaries and fees will be reviewed annually rather than To align with investor and typical every six months. market practice. Pension Clarification that the Executive Director pension contribution rate is To align with investor ### no more than the level for the wider workforce. expectations. Strategic report Employee Incentive Plan The vesting period for RSAs has been extended so that RSAs for Consolidating changes which Executive Directors will vest one-third each year after the 3rd, 4th comply with the Code and and 5th anniversaries of grant. Previously, RSAs vested one-fifth each investor expectations. year over five years after the 1st, 2nd, 3rd, 4th and 5th anniversaries of grant. Employee Stock Ownership Plan Removed participation in the ESOP as there will be no further grants Simplification of pay (ESOP) to Executive Directors under this scheme. arrangements. Malus and clawback Material error and reputational damage have been added to the list To align with investor ### of exceptional events which could lead to malus and/or clawback. expectations. Governance The malus and/or clawback period has been extended from 18 months to 24 months. Shareholding guidelines Post-employment shareholding requirements have been incorporated Consolidating changes which in the policy. comply with the Code and align with investor expectations. Future Policy table The following table sets out the principal components of the new policy which will be put to shareholders for approval and, if approved, be effective from the conclusion of the AGM on 31st October 2022. ### Financial statements Shareholder information Component Operation Maximum opportunity Performance measures Recovery and purpose and targets EXECUTIVE DIRECTORS Base salary (fixed pay) | To pay a fair base salary, | Reviewed annually, with changes, if any, | The annual pay review does not guarantee | Not applicable. Not applicable. | | --- | --- | --- | --- | | commensurate with the size of | generally effective 1st January or 1st July. The | an increase. The Committee considers it | | | the business and the individual’s | Committee considers salaries in the context of | important to keep fixed costs under tight | | | role and experience. | an overall package with regard to market data, | control and as such salaries are at the | | | | Group performance and individual experience | lower end of what may be described as | | | | and performance. Adjustments may be made at | market average. | | other times to reflect a change of responsibility. There is no set maximum salary, however, the Committee is guided by market data/practice when setting pay awards and the average level of increase across the workforce. Base fee (fixed pay) | Provides a fee allocation to | The fees are equivalent to the Non-Executive | As this fee relates specifically to the Executive | Not applicable. Not applicable. | | --- | --- | --- | --- | | cover UK Director duties. | Directors’ base fee. These are reviewed | Directors’ governance duties, it is capped at | | | | periodically with the last review effective from | no more than the Non-Executive Directors’ | | | | January 2021. It is Company’s intention to | base fee. The aggregate annual fees for | | | | review these fees every two years. | Executive and Non-Executive Directors are | | limited to £450,000. Pension (fixed pay) | To provide defined contribution | Employer contributions are made to defined | The maximum defined pension contribution | Not applicable. Not applicable. | | --- | --- | --- | --- | | pension arrangements to assist | contribution pension arrangements or | or cash equivalent is 12.5% per annum of | | | with recruitment and retention. | equivalent cash allowances are paid, subject to | base salary. It is no higher than the defined | | | | local practice in the relevant country. | pension contribution level of the wider | | employee workforce. City of London Investment Group PLC Annual Report 2021/2022 79 Governance: Remuneration ## DIRECTORS’ REMUNERATION POLICY CONTINUED Component Operation Maximum opportunity Performance measures Recovery and purpose and targets EXECUTIVE DIRECTORS continued Other benefits (fixed pay) To provide market competitive Currently benefits offered include: life insurance, These benefits represent a small element of Not applicable. Benefits are provided up to termination fringe benefits. medical insurance (or a contribution towards the the overall remuneration package and as of employment and any outstanding cost), disability insurance, sabbatical, paid such are not subject to a specific cap. travel season ticket loan is repayable holiday and travel season ticket loans. in full. Directors are entitled to 30 days paid Executives will be eligible for any other benefits holiday, in addition to public holidays. which are introduced for the wider workforce on broadly similar terms. Additional benefits may be provided if required, for example to support international relocation. Bonus (variable pay) | To incentivise and reward | The Company operates a bonus plan for all | The maximum payment for an Executive | Bonuses are not subject | See malus and clawback section below | | --- | --- | --- | --- | --- | | Directors for their contribution to | employees, including the Executive Directors, | Director is capped at 2.5 times the | solely to individual | | | the corporate goals outlined in | which is linked to the Group’s profitability, | aggregate of salary and fees. | performance conditions and | | | the strategic report. | allocating a maximum of up to 30% of | | are paid in cash. The Board | | | | pre-bonus, pre-tax, operating profit for this | | believes that this bonus | | | | purpose. Bonus awards are made by the | | scheme has worked well in | | | | Board following recommendations by the | | motivating employees at all | | | | Remuneration Committee. | | levels within the Company | | and that this is demonstrated Bonuses are paid quarterly in September by the high employee (approximately 10% of the estimated annual retention rates experienced bonus), December (20%), March (30%) by the Group. and July (40%). A minimum of 10% of the July payment is deferred until September once the financial statements have been audited and approved. Employee Incentive Plan (Plan) | To encourage and reward | The Plan is open to employees of all existing | Depending on the level of participation, | Not applicable. See malus and clawback section below. | | --- | --- | --- | --- | | loyalty, and to align the long- | Group companies and Executive Directors. | if there is headroom, employees and | | | term interests of Directors with | Participants will initially be invited to waive up | Executive Directors will be offered the | | | that of shareholders and clients. | to 20% of their annual bonus in return for the | opportunity to increase their participation | | | The Plan is designed to work in | right to participate in the Plan for the financial | up to 30% of their annual bonus. | | | line with the Group’s current | year. Under the Plan, they will be granted | | | Awards held until they vest will receive a annual bonus policy. Restricted Share Awards (RSAs) in the dividend equivalent payment, equal to the Company equal in value to two times the amount that they would have received had amount they have waived. they been entitled to dividends from the The RSAs for Executive Directors will vest in date of grant. equal instalments after the 3rd, 4th and 5th In the event of a change of control of the anniversaries following grant. Company, the RSAs relating to the waived | As the Executive Directors have already elected | bonus will vest in full on an accelerated | | --- | --- | | to participate under the current policy for FY | basis. Only a prorated number of the | | 2023, the revised vesting period will only take | Company matching RSAs will vest on an | | effect from the next round of elections, which | accelerated basis according to the number | | will be in June 2023 and relate to the awards | of days elapsed since grant over the total | | to be made in October 2024. | vesting period. | The RSAs are funded 50% by waived bonus and 50% by the Company. Malus and clawback | To provide a way of recovering | The Committee can seek to recover the annual | The Committee has discretion to determine | Not applicable. Up to 24 months after payment/vesting. | | --- | --- | --- | --- | | payments where there have | bonus and EIP in the exceptional event of: | the amount of any award which it seeks for | | | been exceptional negative events | misstatement or misleading representation of | malus and/or clawback. | | performance; a material error; a significant failure of risk management and control; reputational damage; or serious misconduct of an individual. 80 City of London Investment Group PLC Annual Report 2021/2022 ### Overview Component Operation Maximum opportunity Performance measures Recovery and purpose and targets EXECUTIVE DIRECTORS continued Minimum shareholding | Guidance to encourage Director | The Remuneration Committee will monitor the | The Remuneration Committee expects | Not applicable. Not applicable. | | --- | --- | --- | --- | | share ownership and ensure | Executive Directors share ownership and | Executive Directors to build up a | | | alignment of their long-term | participation in the EIP annually to ensure they | shareholding of at least 200% of salary | | | interests with that of | are on track to meet the minimum shareholding | within a five-year period. | | | shareholders. | requirement within the desired timeframe. | | | Shares that count towards these guidelines include shares that are owned outright, vested and unvested EIP shares (on a net of tax basis). ### Strategic report In addition a post-employment shareholding requirement applies. Executive Directors are required to hold lower of 200% of such Executive Director’s basic salary or the value of shares held by the Executive Director at the date of termination of employment. Only awards granted and shares vested thereof after the introduction of this policy in September 2021 will count against the post cessation guideline. All awards granted or vested or shares acquired before the implementation of the policy (September 2021) are excluded. The Committee retains discretion to allow for the sale of shares by Executive Directors before the second anniversary of termination of ### Governance employment in the event of exceptional circumstances. NON-EXECUTIVE DIRECTORS Fees | To pay a fair fee, commensurate | Fees are normally reviewed every two years | The aggregate annual fees for | Not applicable. Not applicable. | | --- | --- | --- | --- | | with the skills, experience and | taking into account factors such as the time | Non-Executive Directors are limited to | | | time required to undertake | commitment and contribution of the role and | £310,000 in the Company’s Articles | | | the role. | market levels in companies of a comparable | of Association. | | size and complexity. Adjustments may be made at other times to reflect a change of responsibility. ### Financial statements Shareholder information Fees for Non-Executive Directors may include a base fee and additional fees for further responsibilities (for example, chair-ship of Board committees or holding the office of Senior Independent Director or taking up significant additional responsibility). Fees are paid monthly or quarterly in arrears, depending on Director’s preference. Expenses To enable the Non-Executive All reasonable travelling, hotel and other Expenses are not subject to a specific cap Not applicable. Not applicable. Directors to perform their duties. expenses properly incurred in the performance of but they must be reasonable and their duties as Directors, including any expenses appropriate. The Company may settle any incurred in attending meetings of the Board or tax incurred. any committee of the Board or general meetings or separate meetings of the shareholders may be repaid. City of London Investment Group PLC Annual Report 2021/2022 81 Governance: Remuneration # DIRECTORS' REMUNERATION POLICY CONTINUED ## Reward scenarios The chart below illustrates the level of remuneration that would be received by the Director in accordance with the Group Directors' remuneration policy in the first year to which it applies, the first full financial year being that ending 30th June 2023, provided all components of remuneration remain the same as they currently are. ![img-6.jpeg](img-6.jpeg) # Assumptions: 1) Based on FY 2022 results. 2) Minimum – reflects salary as of 1st July 2022, and current pension and taxable benefits, as disclosed in the single figure remuneration table. 3) In line with expectation – reflects the minimum remuneration plus bonus and total EIP awards as disclosed in the single figure remuneration table. It includes expected dividend equivalent payments due on vesting EIP awards. 4) Maximum – reflects the minimum remuneration plus the maximum bonus opportunity as detailed in the future policy table on pages 79 to 81. The maximum variable cash bonus has been adjusted by the maximum amount of bonus that can be waived (30%), which in turn is matched by the Company and the total is shown as EIP. It includes expected dividend equivalent payments due on vesting EIP awards. 5) Under the new Director's remuneration Policy, the EIP awards once awarded, will vest one-third per annum from the end of the third year after participation. This means that RSAs will not vest in years 1 and 2. RSAs will vest one-third each in years 3, 4 & 5. The above reward scenario chart is not a projection and is being provided for guidance only. This chart is based on future remuneration scenarios for the year ending June 2023. ## Share price impact Directors' remuneration is not linked to performance targets or measures relating to more than one financial year. Hence no illustrations are shown in respect of the impact on the Directors' remuneration outcomes based on future share price movements. ## Consideration of employment conditions elsewhere in the Group The Company has always adopted a partnership approach so in essence this policy is consistent with that applied across the Group. While employees were not directly consulted on the Directors' remuneration, the Group remuneration policy is provided to all staff and any feedback or concerns are welcomed. ## Recruitment of new Directors The structure of the package offered to new Directors mirrors that offered to current Directors under the new Director's remuneration policy as detailed in the future policy table. The base salary positioning will take into consideration a number of factors including external market forces, the nature of the role, and the experience, calibre and background of the new Director. Pension contributions, bonus and EIP participation will not exceed the levels set out in the Policy table. In addition, the Group may pay compensation to new Directors for remuneration the individual has forfeited in order to take up the role at CLIG. The Committee may offer additional cash and/or share-based buyout awards when it considers these to be in the best interests of the Company (and therefore shareholders) to take account of remuneration given up at the individual's former employer. 82 City of London Investment Group PLC Annual Report 2021/2022 ### Overview This includes the use of awards made under 9.4.2 of the Listing Rules. Such awards would be capped at a reasonable estimate of the value foregone and would reflect, as far as possible, the delivery mechanism, time horizons and whether performance requirements are attached to that remuneration. Shareholders will be informed of any such payments at the time of appointment and/or in the next published Annual Report. For internal appointments, any outstanding share awards held may continue to vest on their original terms. For external and internal appointments, the Committee may agree that the Company will meet appropriate relocation and/or incidental expenses as appropriate. For the appointment of a new Chair or Non-Executive Director, the fee arrangement would be set in accordance with the approved Remuneration Policy. ### Strategic report Service contracts and letters of appointment and policy on payments for loss of office Executive Directors In line with general market practice, the Executive Director service contracts are based on a rolling twelve-month period. Termination of any service contract requires twelve months written notice by either party, and the Company may terminate the contract with immediate effect with or without cause by making a payment in lieu of notice, typically in monthly instalments equal to the value of one year’s base salary only. No bonus shall be payable for any time after the Director has given or received notice of termination. In respect of the EIP, in the event of termination before the normal vesting date, the RSAs funded by the waived bonus, will be repaid at the lower of the value of those shares on the date of award and the date of forfeiture. The Company-funded RSAs will be ### Governance forfeited upon termination, except in the case of a good leaver, where there will be an entitlement to a prorated amount. A good leaver is a Director who leaves due to ill health or disability, sale of the business, on retirement, through redundancy or in other special circumstances approved by the Remuneration Committee (acting fairly and reasonably). Non-Executive Directors Non-Executive Directors do not have service contracts, but are engaged under letters of appointment. As with all other Directors, they are required to stand for re-election annually in accordance with the UK Corporate Governance Code. Details of Directors’ service contracts and letters of appointment are below: ### Notice period Notice period Financial statements Shareholder information Name Date of appointment from Company from Director Provision of compensation Executive Director Tom Griffith 31st March 2020 One year One year One year’s salary Non-Executive Directors Barry Aling 1st August 2013 Six months Six months Six months’ fees Rian Dartnell 30th September 2020 Six months Six months Six months’ fees Tazim Essani 20th January 2021 Six months Six months Six months’ fees George Karpus 13th October 2020 N/A N/A N/A Peter Roth 1st June 2019 Six months Six months Six months’ fees Jane Stabile 1st June 2018 Six months Six months Six months’ fees Consideration of shareholders views The Committee greatly values and have considered the views of shareholders and proxy advisers in developing this Remuneration Policy. City of London Investment Group PLC Annual Report 2021/2022 83 Governance: Statutory, regulatory and other information # DIRECTORS' REPORT The information contained in the sections of this Annual Report and Accounts identified below forms part of this Directors' report: - Strategic report set out on pages 4 to 40; - Corporate governance section set out on pages 42 to 83; and - Statement of Directors' responsibilities set out on page 86. ## Principal activity City of London Investment Group PLC is the holding company for its two principal operating subsidiaries: City of London Investment Management Company Limited (CLIM) and Karpus Investment Management (KIM). Both CLIM and KIM act as investment managers with a total of US$9.2 billion (£7.6 billion) (2021: US$11.4 billion (£8.3 billion)) under management as at 30th June 2022. ## Branches CLIM has a subsidiary in Singapore. ## Going concern The Directors' report should be read in conjunction with the governance report on pages 42 to 83 and the strategic report on pages 4 to 40, which together provide a commentary on the operations of the Group and include factors likely to affect its future development as well as relevant key performance indicators and principal risks and how they are managed, using the information available to the date of these financial statements. During the year to 30th June 2022, the Group had no external borrowings and is wholly funded by equity. As at 30th June 2022, cash and cash equivalents were £22.7 million (2021: £25.5 million). Accordingly, the Directors are satisfied that the Group and Parent Company have adequate resources to meet their business needs for the foreseeable future, and the Financial Statements have therefore been prepared on the going concern basis. Please see page 33 for the viability statement. ## Results and dividend The results of the Group for the year to 30th June 2022, together with details of amounts transferred to reserves, are set out on pages 94, 96 and 97. The Company has paid dividends of £21,484,909 during the period (2021: £9,743,124). The final dividend for the year to 30th June 2022 of 22p per share (2021: 22p) has been proposed, payable on 4th November 2022, subject to shareholder approval, to shareholders who are on the register of members on 30th September 2022. Refer to page 22 for dividend policy. ## Annual General Meeting The Company's AGM will be held at 11:30am on 31st October 2022 at 77 Gracechurch Street, London EC3V 0AS. All resolutions will be taken on a poll and, accordingly, you are asked to vote by the means as set out in the Notes of the Notice of meeting. ## Directors The names and biographical details of the current Directors of the Company are given on pages 44 to 45. The Directors' interests are set out in the Directors' remuneration report on page 76. ## Directors' indemnity arrangements The Company maintains appropriate Directors' and Officers' insurance. The Directors also have the benefit of the indemnity provisions in the Company's Articles of Association. These provisions, which are qualifying third party indemnity provisions as defined by s236 of the Companies Act 2006 were in force throughout the year and are currently in force. ## Powers of Directors Subject to the Company's Articles. UK legislation and any Directions given by special resolution, the business of the Company is managed by the Directors and they may exercise all the powers of the Company. Provisions relating to the issuing of shares are included in the Articles and shareholders are asked each year at the Company's AGM to renew the Directors' authorities to issue shares. ## Share capital As at 30th June 2022, the issued share capital of the Company was 50,679,095 (2021: 50,679,095) fully paid ordinary shares of 1p each, carrying one vote per share and a right to dividends, amounting to £506,791 (2021: £506,791). The ordinary shares of the Company have a premium listing on the London Stock Exchange. There are no restrictions on the transfer of shares. Following completion of the merger with KIM, the Company entered a relationship agreement with the 'Controlling Shareholder Group' which regulates the ongoing relationship between the Company and the Controlling Shareholder Group. The members of the Controlling Shareholder Group agreed to limit their voting rights at any shareholder meeting, including the Annual General Meeting, to the lower of: (i) the number of shares held by them; and (ii) 24.99% of the votes cast on any resolution by all shareholders. ## Own shares The Company is, until the date of the next AGM on 31st October 2022, generally and unconditionally authorised to buy back up to 5,067,910 of its own ordinary shares of nominal value £0.01, representing approximately 10% of the Company's issued share capital as at the date of the 2021 Notice of AGM. In the year under review, the Company purchased and cancelled nil shares (2021: nil). The Company is seeking a renewal of this authority at the 2022 AGM. The number of own shares purchased by the Company's Employee Benefit Trust during the year was 552,730 (2021: 496,354). The number of own shares held by the Trust as at 30th June 2022 was 1,708,763 (2021: 1,591,158), of which 328,750 shares (2021: 405,750) were subject to options in issue. The Trust has waived its entitlement to receive dividends in respect of the shares held. The trust will abstain from voting on resolutions that concern a change of control in the Company. The Trust also holds 682,437 shares (2021: 678,120) in custody for employees under the terms of the Employee Incentive Plan, see the Directors' remuneration report on page 71 for further details of the plan. 84 City of London Investment Group PLC Annual Report 2021/2022 Overview Strategic report Governance Financial statements Shareholder information ### Substantial shareholdings At 31st August 2022, the Company had been notified of the following interests of 3% or more in the Company's ordinary shares: | Name of shareholder | Number of voting rights | % of total voting rights held | | --- | --- | --- | | Aberforth Partners LLP | 2,560,745 | 5.05 | | George Karpus | 15,948,201 | 31.5 | ### Statement of Directors' responsibilities The statement of Directors' responsibilities for preparing the Annual Report and Accounts is set out on page 86 and is deemed to form part of the Directors' report. ### Corporate governance The UK Corporate Governance Code (Code) is publicly available on the Financial Reporting Council's website: www.frc.org.uk. Refer to the governance report, as set out on pages 42 to 83, for detail regarding the Group's corporate governance arrangements. A full statement of compliance with the Code can be found on page 47. ### Corporate responsibility Details of the Group's employment practices and carbon emissions can be found in the Corporate and Social Responsibility section of the Strategic report on pages 34 to 37. ### Conflict of interests There are no potential conflicts of interest between any duties owed by the Directors or senior managers to the Company and their private interests and/or other duties; and no arrangements or understandings with any of the shareholders of the Company, clients, suppliers or others pursuant to which any Director or senior manager was selected to be a Director or senior manager. The Company tests regularly to ensure awareness of any future potential conflicts of interest and related party transactions. ### Political donations The Company did not make any political donations or incur any political expenditures to candidates or political campaigns during the period. ### Greenhouse gas emissions Information regarding the Group's greenhouse gas emissions can be found on page 36. ### Engagement with Employees Statement The Company is exempted from some reporting requirements, as it has not employed more than 250 employees in the UK during the year under review. ### Engagement with Stakeholders Statement The Company adheres to best-in-class operating standards, with a strong focus on clients, employees, shareholders and the environment. This element of reporting is discussed in the s172 (1) Statement on pages 40. ### Auditors The auditors for the financial year were RSM UK Audit LLP. Each of the persons who are Directors at the time when this report is approved has confirmed that: - (a) so far as each Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and - (b) each Director has taken all the steps that ought to have been taken as a Director, including making appropriate enquiries of fellow Directors and the Company's auditors for that purpose, in order to be aware of any information needed by the Company's auditors in connection with preparing their report and to establish that the Company's auditors are aware of that information. ### Internal control and risk management The Audit & Risk Committee has responsibility for overseeing the framework for risk management and internal control and ensuring it functions appropriately. The Group also has a robust financial controls framework designed to provide assurance that proper accounting records are adequately maintained and that information used within the business and for external publication is reliable and free from material misstatement. This includes segregation of duties, balance sheet reconciliations, and quarterly compliance checks on revenue recognition. The Board reviews the effectiveness of the system of internal control annually and this process is subsequently evaluated by the Audit & Risk Committee. The Board is also responsible for the Internal Capital Adequacy Assessment Process (ICAAP), a process required by the UK regulator, which summarises the risk management framework and regulatory capital requirements of the Group. The Group will produce its first Internal Capital and Risk Assessment (ICARA) in FY 2023. A detailed description of the risk management framework and the principal risks identified is set out on pages 28 to 29. ### Shareholder relations Engagement with shareholders is of paramount importance to the Group. The Directors, including on occasions the Senior Independent Non-Executive Director and the Chair of the Board, endeavour to meet with large shareholders at least twice annually, generally following interim and final results announcements. Following these meetings, the Directors report back to the Board. All of the Directors aim to attend the Annual General Meeting either in person or by video conference. Approved by the Board of Directors and signed on behalf of the Board **Tom Griffith** Chief Executive Officer 15th September 2022 City of London Investment Group PLC Annual Report 2021/2022 85 Governance: Statutory, regulatory and other information ## STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Strategic report, The Directors are responsible for keeping adequate accounting the Directors’ report, the Directors’ remuneration report, the records that are sufficient to show and explain the Group’s and separate Corporate governance statement and the Financial the Company’s transactions and disclose with reasonable statements in accordance with applicable law and regulations. accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial Company law requires the Directors to prepare Group and statements and the Directors’ remuneration report comply with Company financial statements for each financial year. The the Companies Act 2006. They are also responsible for Directors have elected under Company law and are required safeguarding the assets of the Group and the Company and under the Listing Rules of the Financial Conduct Authority to hence for taking reasonable steps for the prevention and prepare Group financial statements in accordance with UK- detection of fraud and other irregularities. adopted International Accounting Standards. The Directors have elected under Company law to prepare the Company financial Directors’ statement pursuant to the Disclosure and statements in accordance with UK-adopted International Transparency Rules Accounting Standards. Each of the Directors, whose names and functions are listed on pages 44 and 45 confirm that, to the best of each person’s The Group and Company financial statements are required by knowledge: law and UK-adopted International Accounting Standards to • the financial statements, prepared in accordance with the present fairly the financial position of the Group and the applicable set of accounting standards, give a true and fair Company and the financial performance of the Group; the view of the assets, liabilities, financial position and profit of Companies Act 2006 provides in relation to such financial the Company and the undertakings included in the statements that references in the relevant part of that Act to consolidation taken as a whole; and financial statements giving a true and fair view are references to their achieving a fair presentation. • the Strategic Report and Directors’ report contained in the Annual Report includes a fair review of the development Under Company law, the Directors must not approve the and performance of the business and the position of the financial statements unless they are satisfied that they give a true Company and the undertakings included in the consolidation and fair view of the state of affairs of the Group and the taken as a whole, together with a description of the principal Company and of the profit or loss of the Group for that period. risks and uncertainties that they face. In preparing each of the Group and Company financial The Directors are responsible for the maintenance and integrity statements, the Directors are required to: of the corporate and financial information included on the City of London Investment Group’s website. • select suitable accounting policies and then apply them consistently; Legislation in the United Kingdom governing the preparation • make judgements and accounting estimates that are and dissemination of financial statements may differ from reasonable and prudent; legislation in other jurisdictions. • state whether they have been prepared in accordance with For and on behalf of the Board UK-adopted International Accounting Standards; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. Tom Griffith Chief Executive Officer 15th September 2022 86 City of London Investment Group PLC Annual Report 2021/2022 ## FINANCIAL STATEMENTS ### Overview ### Contents Independent auditor’s report 88 Consolidated income statement 94 Consolidated and Company statement of comprehensive income 94 ### Strategic report Consolidated and Company statement of financial position 95 Consolidated statement of changes in equity 96 Company statement of changes in equity 97 Consolidated and Company cash flow statement 98 ### Notes to the financial statements 99 Governance ### Financial statements ### Shareholder information City of London Investment Group PLC Annual Report 2021/2022 87 Financial statements: Independent Auditor's report # INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF CITY OF LONDON INVESTMENT GROUP PLC ## Opinion We have audited the financial statements of City of London Investment Group PLC (the 'Parent Company') and its subsidiaries (the 'Group') for the year ended 30th June 2022 which comprise the Consolidated Income Statement, Consolidated and Company Statement of Comprehensive Income, Consolidated and Company Statement of Financial Position, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity, Consolidated and Company Cash Flow Statement and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK-adopted International Accounting Standards. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and UK-adopted International Accounting Standards and as applied in accordance with the provisions of the Companies Act 2006. In 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 30th June 2022 and of the Group's profit for the year then ended; - the Group financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards; - the Parent Company financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards and as applied in accordance with the Companies Act 2006; and - the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. ## Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group and Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ## Summary of our audit approach | **Key audit matters** | **Group** - Accuracy and completeness of management fees - Breach of investment mandates - Regulatory requirements - Impairment of goodwill and intangible assets | | --- | --- | | **Materiality** | **Group** - Overall materiality: £1,150,000 (2021: £1,190,000) - Performance materiality: £868,000 (2021: £899,000)**Parent Company** - Overall materiality: £795,000 (2021: £652,000) - Performance materiality: £596,000 (2021: £489,000) | | **Scope** | Our audit procedures covered 100% of revenue, 100% of total assets and 100% of profit before tax. | ## Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Group and Parent Company financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the Group and Parent Company financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 88 City of London Investment Group PLC Annual Report 2021/2022 Accuracy and completeness of management fees Breach of investment mandates Key audit As described in the accounting policies on Key audit The Group is responsible for managing assets in matter page 103 management fees of £61,293,627 matter accordance with mandates agreed with its clients. description (note 2) are based on a percentage of Funds description There is a risk of financial and reputational loss under Management in accordance with the for the Group if it trades or invests outside the respective management agreements. There is a scope of the mandates and this is therefore risk of management fee income being inaccurate determined to be a key audit matter. or incomplete if incorrect Funds under How the Our audit work included review and testing of the Management or incorrect percentages are matter was design and implementation of controls over reports used and is therefore determined to be a addressed generated by the Group’s trade order management ### key audit matter. Strategic reportOverview Shareholder informationGovernance in the audit system. For a sample of days during the year, we How the Our audit work included analytical review of the checked that the daily control sheets are being matter was total revenue and substantive testing of a sample reviewed on a daily basis and that any breaches addressed of management fees from the fund listing through identified in respect of investment mandates were in the audit to the posting of the income in the general ledger properly recorded and addressed in a timely detail. This testing included: obtaining third party manner. For parts of the Group where specific custodian records of the relevant month-end Net mandates are not applicable, we tested a sample Asset Value (NAV), reviewing the Investment of management fee transactions and confirmed Management Agreements (IMA) in place for key that the fees were calculated in accordance with inputs into the management fee calculation and the investment management agreements. recalculating the expected management fee based Key No issues were identified from review and testing on the NAV and % fee income documented in the observations of the design and implementation of the controls IMA. In addition, our work included consideration over reports generated by the Group’s trade order of the design and implementation of controls over management system and review of breach of the inputs and calculation of management fee mandates. Furthermore, we confirmed that any income with a sample tested to evidence review breaches identified by the controls for a sample of and approval of the management fee calculation. days during the period are being properly addressed. Our review of investment mandates also provided additional evidence of the operation of management controls over fee income. Regulatory requirements Key No significant variances were identified between Key audit The continued compliance of City of London ### Financial statements observations the income recognised by the Group and our matter Investment Management Company Limited recalculation of the expected income. Furthermore, description (“CLIM”) with its FCA registration and Karpus net asset values from the fund administrator Management Inc (“KIM”) with its SEC regulatory records were in line with documentation held requirements represents a key audit matter as by the client. there is a risk associated with non-compliance with either regulatory body. How the Our audit work included reviewing the controls in matter was place to ensure ongoing compliance with the FCA addressed regulatory requirements including reporting to the in the audit Board. In addition, we completed work to review compliance with the FCA laws and regulations. Our audit work in respect of KIM’s compliance with the SEC regulatory requirements included holding discussions with US colleagues, KIM’s Chief Compliance Officer and review of compliance documentation prepared by both management and an external consultant, including the outcome of an SEC regulatory examination. Key Our testing did not identify any issues in respect observations of non-compliance with CLIM’s FCA registration or KIM’s SEC registration. City of London Investment Group PLC Annual Report 2021/2022 89 Financial statements: Independent Auditor’s report ## INDEPENDENT AUDITOR’S REPORT CONTINUED Impairment of goodwill and intangible assets Our application of materiality When establishing our overall audit strategy, we set certain Key audit Goodwill of £73,962,910 and intangible assets thresholds which help us to determine the nature, timing and matter arising on acquisition of £36,097,314 as set out extent of our audit procedures. When evaluating whether the description in note 12 are included in the consolidated effects of misstatements, both individually and on the financial Statement of Financial Position at 30th June 2022. statements as a whole, could reasonably influence the economic Management are required by IAS 36 ‘Impairment decisions of the users we take into account the qualitative nature of assets’ to perform an annual impairment review and the size of the misstatements. Based on our professional for goodwill and for finite-life intangible assets judgement, we determined materiality as follows: where there are indicators of impairment. The test for impairment compares the carrying value of the Group cash generating unit to which the assets are allocated to their recoverable amount which is Overall materiality £1,150,000 (2021: £1,190,000) the higher of their fair value less costs to sell or Basis for determining 5% of profit before tax (2021: 5% of value in use. Calculating the value in use requires overall materiality profit before tax and exceptional items). management judgement as set out in the accounting policies in note 1.3 and the disclosures Rationale for Profitability is considered to be a key in note 12. The headroom in the impairment benchmark applied benchmark monitored by management assessment is sensitive to changes in key and investors. assumptions (see note 12) and thus we consider Performance materiality £868,000 (2021: £899,000) this to represent a key audit matter. Basis for determining 75% of overall materiality. How the Our work on the impairment of goodwill and performance materiality matter was intangible assets included: addressed • Considering management’s assessment of the Reporting of Misstatements in excess of £10,000 in the audit allocation of goodwill and intangible assets to misstatements to the and misstatements below that a cash generating unit. Audit Committee threshold that, in our view, warranted • Testing the value in use calculations for reporting on qualitative grounds. mechanical accuracy and consistency with the requirements of IAS 36. Parent Company • Assessing the length of the forecast period and Overall materiality £795,000 (2021: £652,000) long-term growth rates. | • Challenging management on key assumptions | Basis for determining 5% of profit before tax, adjusted for | | | --- | --- | --- | | in the forecast model including revenue and | overall materiality average dividend income (2021: 5% of | | | AUM growth and EBITDA margins. | | profit before tax and exceptional items). | • Retrospective review of the accuracy of Rationale for Profitability is considered to be a management’s forecasts from the prior year. benchmark applied key benchmark monitored by • Working with our internal valuation specialists management and investors. to determine the appropriateness of the value in use calculation and accuracy of the discount Performance materiality £596,000 (2021: £489,000) rate calculation and basis. Basis for determining 75% of overall materiality. • Evaluating the sensitivity analysis prepared by performance materiality management. • Considering the qualifications, credentials and Reporting of Misstatements in excess of £10,000 independence of the valuation expert engaged misstatements to the and misstatements below that by management to assist with the impairment Audit Committee threshold that, in our view, warranted assessment. reporting on qualitative grounds. • Assessing the completeness and accuracy of disclosures within the financial statements. An overview of the scope of our audit Key Following our work we are satisfied that the The Group consists of 8 components, located in the observations impairment review has been carried out in following countries; accordance with the requirements of IAS 36 and • United Kingdom; with the disclosures that have been made. • United States of America; and • Singapore 90 City of London Investment Group PLC Annual Report 2021/2022 The coverage achieved by our audit procedures was: information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance Number of Total Profit conclusion thereon. components Revenue assets before tax Full scope audit 5 100% 97% 94% Our responsibility is to read the other information and, in doing so, consider whether the other information is materially Specific audit procedures 3 0% 3% 6% inconsistent with the financial statements or our knowledge Total 8 100% 100% 100% obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine The Group’s trading subsidiary in the United States of America whether this gives rise to a material misstatement in the financial was subject to a full scope audit to component materiality Strategic reportOverview Shareholder informationGovernance Financial statements statements themselves. If, based on the work we have performed, because the component was assessed as significant to the Group we conclude that there is a material misstatement of this other based on its individual financial significance and the nature of information, we are required to report that fact. the significant risks identified. We have nothing to report in this regard. RSM UK Audit LLP carried out analytical procedures at Group level on the overseas subsidiary based in Singapore and specific Opinions on other matters prescribed by the Companies Act 2006 audit procedures for the International REIT Fund and Global In our opinion, the part of the Directors’ remuneration report to Equity CEF Fund, based in the United States of America. be audited has been properly prepared in accordance with the Companies Act 2006. Conclusions relating to going concern In auditing the financial statements, we have concluded that the In our opinion, based on the work undertaken in the course of Directors’ use of the going concern basis of accounting in the the audit: preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group’s and • the information given in the Strategic Report and the Parent Company’s ability to continue to adopt the going Directors’ Report for the financial year for which the financial concern basis of accounting included review of financial statements are prepared is consistent with the financial forecasts for a period of at least twelve months from approval of statements; and the financial statements including evaluation of downside • the Strategic Report and the Directors’ Report have been scenarios and stress testing for the assessment period. prepared in accordance with applicable legal requirements. Based on the work we have performed, we have not identified Matters on which we are required to report by exception any material uncertainties relating to events or conditions that, In the light of the knowledge and understanding of the Group individually or collectively, may cast significant doubt on the and the Parent Company and their environment obtained in Group’s or the Parent Company’s ability to continue as a going the course of the audit, we have not identified material concern for a period of at least twelve months from when the misstatements in the Strategic Report or the Directors’ Report. financial statements are authorised for issue. We have nothing to report in respect of the following matters in In relation to the entity reporting on how they have applied the relation to which the Companies Act 2006 requires us to report UK Corporate Governance Code, we have nothing material to to you if, in our opinion: add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered • adequate accounting records have not been kept by the Parent it appropriate to adopt the going concern basis of accounting. Company, or returns adequate for our audit have not been received from branches not visited by us; or Our responsibilities and the responsibilities of the Directors with • the Parent Company financial statements and the part of the respect to going concern are described in the relevant sections of Directors’ remuneration report to be audited are not in this report. agreement with the accounting records and returns; or Other information • certain disclosures of Directors’ remuneration specified by The other information comprises the information included in law are not made; or the annual report other than the financial statements and our • we have not received all the information and explanations auditor’s report thereon. The Directors are responsible for the we require for our audit. other information contained within the annual report. Our opinion on the financial statements does not cover the other City of London Investment Group PLC Annual Report 2021/2022 91 Financial statements: Independent Auditor’s report ## INDEPENDENT AUDITOR’S REPORT CONTINUED Corporate governance statement is a high level of assurance, but is not a guarantee that an audit We have reviewed the Directors’ statement in relation to going conducted in accordance with ISAs (UK) will always detect a concern, longer-term viability and that part of the Corporate material misstatement when it exists. Misstatements can arise Governance Statement relating to the Parent Company’s from fraud or error and are considered material if, individually compliance with the provisions of the UK Corporate or in the aggregate, they could reasonably be expected to Governance Code specified for our review by the Listing Rules. influence the economic decisions of users taken on the basis of these financial statements. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate The extent to which the audit was considered capable of Governance Statement is materially consistent with the financial detecting irregularities, including fraud statements and our knowledge obtained during the audit: Irregularities are instances of non-compliance with laws and regulations. The objectives of our audit are to obtain sufficient • Directors’ statement with regards the appropriateness of appropriate audit evidence regarding compliance with laws and adopting the going concern basis of accounting and any regulations that have a direct effect on the determination of material uncertainties identified set out on page 84; material amounts and disclosures in the financial statements, • Directors’ explanation as to their assessment of the Group’s to perform audit procedures to help identify instances of non- prospects, the period this assessment covers and why the compliance with other laws and regulations that may have a period is appropriate set out on page 33; material effect on the financial statements, and to respond appropriately to identified or suspected non-compliance with • Director’s statement on whether they have a reasonable laws and regulations identified during the audit. expectation that the Group will be able to continue in operation and meets its liabilities set out on page 33; In relation to fraud, the objectives of our audit are to identify • Directors’ statement on fair, balanced and understandable and assess the risk of material misstatement of the financial set out on page 60; statements due to fraud, to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement • Board’s confirmation that it has carried out a robust assessment due to fraud through designing and implementing appropriate of the emerging and principal risks set out on page 28; responses and to respond appropriately to fraud or suspected • Section of the annual report that describes the review of fraud identified during the audit. effectiveness of risk management and internal control systems set out on page 61; and, However, it is the primary responsibility of management, with the oversight of those charged with governance, to ensure that • Section describing the work of the audit committee set out the entity’s operations are conducted in accordance with the on pages 59 to 62. provisions of laws and regulations and for the prevention and detection of fraud. Responsibilities of Directors As explained more fully in the Directors’ responsibilities In identifying and assessing risks of material misstatement in statement set out on page 86, the Directors are responsible for respect of irregularities, including fraud, the Group audit the preparation of the financial statements and for being engagement team: satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the • obtained an understanding of the nature of the industry and preparation of financial statements that are free from material sector, including the legal and regulatory frameworks that the misstatement, whether due to fraud or error. Group and Parent Company operate in and how the Group and Parent Company are complying with the legal and In preparing the financial statements, the Directors are regulatory frameworks; responsible for assessing the Group’s and the Parent Company’s • inquired of management, and those charged with governance, ability to continue as a going concern, disclosing, as applicable, about their own identification and assessment of the risks of matters related to going concern and using the going concern irregularities, including any known actual, suspected or basis of accounting unless the Directors either intend to alleged instances of fraud; and liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. • discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment Auditor’s responsibilities for the audit of the financial statements of how and where the financial statements may be susceptible Our objectives are to obtain reasonable assurance about whether to fraud having obtained an understanding of the the financial statements as a whole are free from material effectiveness of the control environment. misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance 92 City of London Investment Group PLC Annual Report 2021/2022 The most significant laws and regulations were determined The non-audit services prohibited by the FRC’s Ethical as follows: Standard were not provided to the Group or the Parent Company and we remain independent of the Group and the Additional audit procedures performed by Parent Company in conducting our audit. Legislation/Regulation the Group audit engagement team included: Our audit opinion is consistent with the additional report to UK-adopted International Review of the financial statement the audit committee in accordance with ISAs (UK). Accounting Standards disclosures and testing to supporting and Companies Act documentation. 2006 Completion of disclosure checklists to Use of our report identify areas of non-compliance. 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 Tax compliance Inspection of correspondence with Strategic reportOverview Shareholder informationGovernance Financial statements 2006. Our audit work has been undertaken so that we might regulations local tax authorities. state to the Company’s members those matters we are required Consideration of whether any matter to state to them in an auditor’s report and for no other purpose. identified during the audit required To the fullest extent permitted by law, we do not accept or reporting to an appropriate authority assume responsibility to anyone other than the Company and outside the entity. the Company’s members as a body, for our audit work, for this FCA and SEC Refer to the Key Audit Matter in respect report, or for the opinions we have formed. regulations of regulatory requirements for details of the audit procedures performed. In due course, as required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements will form part of the European The areas that we identified as being susceptible to material Single Electronic Format (ESEF) prepared Annual Financial misstatement due to fraud were: Report filed on the National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard Audit procedures performed by the Risk audit engagement team: (‘ESEF RTS’). This auditor’s report provides no assurance over whether the annual financial report has been prepared using the Management override Testing the appropriateness of journal single electronic format specified in the ESEF RTS. of controls entries and other adjustments; Assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and Malcolm Pirouet (Senior Statutory Auditor) Evaluating the business rationale of any For and on behalf of RSM UK Audit LLP, Statutory Auditor significant transactions that are unusual Chartered Accountants or outside the normal course of business. 25 Farringdon Street London A further description of our responsibilities for the audit of the EC4A 4AB financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. 16th September 2022 This description forms part of our auditor’s report. Other matters which we are required to address Following the recommendation of the audit committee, we were appointed by the Board on 23rd October 2017 to audit the financial statements for the year ending 30th June 2018 and subsequent financial periods. The period of total uninterrupted consecutive appointments is five years, covering the years ending 30th June 2018 to 30th June 2022. City of London Investment Group PLC Annual Report 2021/2022 93 Financial statements # CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30TH JUNE 2022 | | Note | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | --- | --- | --- | --- | | **Revenue** | | | | | Gross fee income | 2 | 61,293,627 | 55,123,274 | | Commissions payable | | (1,598,421) | (1,100,708) | | Custody fees payable | | (1,491,922) | (1,571,630) | | Net fee income | | 58,203,284 | 52,450,936 | | **Administrative expenses** | | | | | Employee costs | 3(b) | 23,532,973 | 20,045,406 | | Other administrative expenses | | 5,970,527 | 4,866,625 | | Depreciation and amortisation | | 4,747,116 | 3,969,586 | | | | (34,250,616) | (28,881,617) | | **Underlying operating profit** | 5 | 23,952,668 | 23,569,319 | | Exceptional item | | – | (1,743,424) | | Acquisition-related costs | | – | – | | **Operating profit** | 5 | 23,952,668 | 21,825,895 | | Finance income | 7 | 32,136 | 557,861 | | Finance expense | 7 | (812,421) | (134,752) | | **Profit before taxation** | | 23,172,383 | 22,249,004 | | Income tax expense | 8 | (5,081,232) | (5,258,486) | | **Profit for the period** | | 18,091,151 | 16,990,518 | | Profit attributable to: | | | | | Non-controlling interests (NCI) | | – | 19,285 | | Equity shareholders of the parent | | 18,091,151 | 16,971,233 | | Basic earnings per share | 9 | 36.9p | 39.4p | | Diluted earnings per share | 9 | 36.4p | 38.8p | # CONSOLIDATED AND COMPANY STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30TH JUNE 2022 | | Group | | Company | | | --- | --- | --- | --- | --- | | | Year to 30th June 2022 £ | Year to 30th June 2021 £ | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | **Profit for the period** | 18,091,151 | 16,990,518 | 26,303,606 | 11,157,096 | | Other comprehensive income: | | | | | | Foreign currency translation differences | 12,826,714 | (6,675,136) | – | – | | **Total comprehensive income for the period** | 30,917,865 | 10,315,382 | 26,303,606 | 11,157,096 | | Attributable to: | | | | | | Equity shareholders of the parent | 30,917,865 | 10,296,097 | 26,303,606 | 11,157,096 | | Non-controlling interests | – | 19,285 | – | – | 94 City of London Investment Group PLC Annual Report 2021/2022 Financial statements ## CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION 30TH JUNE 2022 Group Company 30th June 2022 30th June 2021 30th June 2022 30th June 2021 Note £ £ £ £ Non-current assets | Property and equipment | 10 511,208 455,983 247,832 280,596 | | --- | --- | | Right-of-use assets | 11 2,418,745 2,757,179 1,085,153 1,263,534 | | Intangible assets | 12 110,078,091 100,961,992 17,867 7,377 | Other financial assets 13 7,434,586 4,373,485 108,912,203 106,962,140 Deferred tax asset 14 394,831 366,405 5,066 9,458 120,837,461 108,915,044 110,268,121 108,523,105 ### Strategic reportOverview Shareholder informationGovernance Current assets Trade and other receivables 15 6,498,019 6,953,470 5,180,722 6,662,266 Current tax receivable – – 1,132,209 1,005,736 Cash and cash equivalents 22,677,893 25,514,619 6,919,935 2,905,184 29,175,912 32,468,089 13,232,866 10,573,186 Current liabilities Trade and other payables 16 (9,461,606) (8,260,597) (3,749,598) (3,281,116) Lease liabilities 17 (388,986) (392,954) (121,573) (131,180) Current tax payable (538,158) (1,367,564) – – Creditors, amounts falling due within one year (10,388,750) (10,021,115) (3,871,171) (3,412,296) Net current assets 18,787,162 22,446,974 9,361,695 7,160,890 Total assets less current liabilities 139,624,623 131,362,018 119,629,816 115,683,995 Non-current liabilities Lease liabilities 17 (2,213,854) (2,348,101) (1,026,248) (1,148,549) Deferred tax liability 18 (8,642,208) (8,696,813) (21,178) (24,141) Net assets 128,768,561 120,317,104 118,582,390 114,511,305 Capital and reserves Share capital 19 506,791 506,791 506,791 506,791 Share premium account 20 2,256,104 2,256,104 2,256,104 2,256,104 ### Financial statements Merger relief reserve 19 101,538,413 101,538,413 101,538,413 101,538,413 Investment in own shares 20 (7,045,817) (6,068,431) (7,045,817) (6,068,431) Share option reserve 20 126,181 195,436 105,513 109,657 EIP share reserve 20 1,481,107 1,282,884 1,481,107 1,282,884 Foreign currency differences reserve 20 6,197,463 (6,629,251) – – Capital redemption reserve 20 26,107 26,107 26,107 26,107 Retained earnings 20 23,682,212 27,019,584 19,714,172 14,859,780 Attributable to: Equity shareholders of the parent 128,768,561 120,127,637 118,582,390 114,511,305 Non-controlling interests – 189,467 – – Total equity 128,768,561 120,317,104 118,582,390 114,511,305 As permitted by section 408 of the Companies Act 2006, the income statement of the Parent Company is not presented as part of these financial statements. The Parent Company’s profit for the financial period amounted to £26,303,606 (2021: £11,157,096). The Board of Directors approve and authorise for issue these financial statements on 15th September 2022. Signed on behalf of the Board of Directors of City of London Investment Group PLC, company number 2685257. Tom Griffith Chief Executive Officer City of London Investment Group PLC Annual Report 2021/2022 95 Financial statements ## CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 30TH JUNE 2022 Total Share Merger Investment Share EIP Foreign Capital attributable Share premium relief in own option share exchange redemption Retained to capital account reserve shares reserve reserve reserve reserve earnings shareholders NCI Total £ £ £ £ £ £ £ £ £ £ £ £ As at 30th June 2020 265,607 2,256,104 – (5,765,993) 241,467 1,232,064 45,885 26,107 20,626,405 18,927,646 170,182 19,097,828 Profit for the period – – – – – – – – 16,971,233 16,971,233 19,285 16,990,518 Other comprehensive income – – – – – – (6,675,136) – – (6,675,136) – (6,675,136) Total comprehensive income – – – – – – (6,675,136) – 16,971,233 10,296,097 19,285 10,315,382 Transactions with owners Issue of ordinary shares on merger 241,184 – 101,538,413 – – – – – – 101,779,597 – 101,779,597 Share issue costs – – – – – – – – (967,881) (967,881) – (967,881) Share option exercise – – – 830,819 (119,787) – – – 119,787 830,819 – 830,819 Purchase of own shares – – – (2,503,244) – – – – – (2,503,244) – (2,503,244) Share-based payment – – – – (12,023) 760,645 – – – 748,622 – 748,622 EIP vesting/forfeiture – – – 1,369,987 – (709,825) – – – 660,162 – 660,162 Deferred tax on share options – – – – 85,779 – – – (20,574) 65,205 – 65,205 Current tax on share options – – – – – – – – 33,738 33,738 – 33,738 Dividends paid – – – – – – – – (9,743,124) (9,743,124) – (9,743,124) Total transactions with owners 241,184 – 101,538,413 (302,438) (46,031) 50,820 – – (10,578,054) 90,903,894 – 90,903,894 As at 30th June 2021 506,791 2,256,104 101,538,413 (6,068,431) 195,436 1,282,884 (6,629,251) 26,107 27,019,584 120,127,637 189,467 120,317,104 Profit for the period – – – – – – – – 18,091,151 18,091,151 – 18,091,151 Other comprehensive income – – – – – – 12,826,714 – – 12,826,714 – 12,826,714 Total comprehensive income – – – – – – 12,826,714 – 18,091,151 30,917,865 – 30,917,865 Transactions with owners Derecognisation of NCI holding – – – – – – – – – – (189,467) (189,467) Share option exercise – – – 320,193 (38,435) – – – 38,435 320,193 – 320,193 | Purchase of own shares – – – (2,665,042) – – – – – (2,665,042) | – | (2,665,042) | | | --- | --- | --- | --- | | Share-based payment – – – – 34,291 884,265 – – – 918,556 | – | | 918,556 | | EIP vesting/forfeiture – – – 1,367,463 – (686,042) – – – 681,421 | – | | 681,421 | | Deferred tax on share options – – – – (65,111) – – – (7,902) (73,013) | – | | (73,013) | | Current tax on share options – – – – – – – – 25,853 25,853 | – | | 25,853 | | Dividends paid – – – – – – – (21,484,909) (21,484,909) | –– | (21,484,909) | | Total transactions with owners – – – (977,386) (69,255) 198,223 – – (21,428,523) (22,276,941) (189,467) (22,466,408) As at 30th June 2022 506,791 2,256,104 101,538,413 (7,045,817) 126,181 1,481,107 6,197,463 26,107 23,682,212 128,768,561 – 128,768,561 96 City of London Investment Group PLC Annual Report 2021/2022 Financial statements # COMPANY STATEMENT OF CHANGES IN EQUITY 30TH JUNE 2022 | | Share capital £ | Share premium account £ | Merger reserve £ | Investment in own shares £ | Share option reserve £ | EIP share reserve £ | Capital redemption reserve £ | Retained earnings £ | Total attributable to shareholders £ | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | As at 30th June 2020 | 265,607 | 2,256,104 | – | (5,765,993) | 241,467 | 1,232,064 | 26,107 | 14,363,024 | 12,618,380 | | Profit for the period | – | – | – | – | – | – | – | 11,157,096 | 11,157,096 | | Other comprehensive income | – | – | – | – | – | – | – | – | – | | Total comprehensive income | – | – | – | – | – | – | – | 11,157,096 | 11,157,096 | | **Transactions with owners** | | | | | | | | | | | Issue of ordinary shares on merger | 241,184 | – | 101,538,413 | – | – | – | – | – | 101,779,597 | | Share issue costs | – | – | – | – | – | – | – | (967,881) | (967,881) | | Share option exercise | – | – | – | 830,819 | (119,787) | – | – | 43,546 | 754,578 | | Purchase of own shares | – | – | – | (2,503,244) | – | – | – | – | (2,503,244) | | Share-based payment | – | – | – | – | (12,023) | 760,645 | – | – | 748,622 | | EIP vesting/forfeiture | – | – | – | 1,369,987 | – | (709,825) | – | – | 660,162 | | Deferred tax on share options | – | – | – | – | – | – | – | (3,142) | (3,142) | | Current tax on share options | – | – | – | – | – | – | – | 10,261 | 10,261 | | Dividends paid | – | – | – | – | – | – | – | (9,743,124) | (9,743,124) | | Total transactions with owners | 241,184 | – | 101,538,413 | (302,438) | (131,810) | 50,820 | – | (10,660,340) | 90,735,829 | | **As at 30th June 2021** | **506,791** | **2,256,104** | **101,538,413** | **(6,068,431)** | **109,657** | **1,282,884** | **26,107** | **14,859,780** | **114,511,305** | | Profit for the period | – | – | – | – | – | – | – | 26,303,606 | 26,303,606 | | Other comprehensive income | – | – | – | – | – | – | – | – | – | | Total comprehensive income | – | – | – | – | – | – | – | 26,303,606 | 26,303,606 | | **Transactions with owners** | | | | | | | | | | | Share option exercise | – | – | – | 320,193 | (38,435) | – | – | 26,587 | 308,345 | | Purchase of own shares | – | – | – | (2,665,042) | – | – | – | – | (2,665,042) | | Share-based payment | – | – | – | – | 34,291 | 884,265 | – | – | 918,556 | | EIP vesting/forfeiture | – | – | – | 1,367,463 | – | (686,042) | – | – | 681,421 | | Deferred tax on share options | – | – | – | – | – | – | – | (5,052) | (5,052) | | Current tax on share options | – | – | – | – | – | – | – | 14,160 | 14,160 | | Dividends paid | – | – | – | – | – | – | – | (21,484,909) | (21,484,909) | | Total transactions with owners | – | – | – | (977,386) | (4,144) | 198,223 | – | (21,449,214) | (22,232,521) | | **As at 30th June 2022** | **506,791** | **2,256,104** | **101,538,413** | **(7,045,817)** | **105,513** | **1,481,107** | **26,107** | **19,714,172** | **118,582,390** | Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 97 Financial statements # CONSOLIDATED AND COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE 2022 | | Note | Group | | Company | | | --- | --- | --- | --- | --- | --- | | | | 30th June 2022 £ | 30th June 2021 £ | 30th June 2022 £ | 30th June 2021 £ | | **Cash flow from operating activities** | | | | | | | Profit/(Loss) before taxation | | 23,172,383 | 22,249,004 | 181,843 | (888,940) | | Adjustments for: | | | | | | | Depreciation of property and equipment | 10 | 191,149 | 187,714 | 99,157 | 107,667 | | Depreciation of right-of-use assets | 11 | 496,367 | 492,730 | 178,381 | 178,382 | | Amortisation of intangible assets | 12 | 4,059,600 | 3,289,142 | 8,377 | 11,375 | | Loss on disposal of fixed assets | | 4,296 | – | 4,296 | – | | Share-based payment charge/(credit) | 3b | 33,440 | (12,023) | 3,474 | (697) | | EIP-related charge | | 892,097 | 802,314 | 392,458 | 325,971 | | Unrealised loss/(gain) on investments | 7 | 659,231 | (540,172) | 47,963 | (282,169) | | Interest receivable | 7 | (32,136) | (17,689) | (8,539) | (253) | | Interest payable on leased assets | 7 | 153,190 | 133,827 | 87,111 | 97,444 | | Interest payable | 7 | – | 925 | – | – | | Translation adjustments | | 98,684 | 33,529 | (141,847) | 184,313 | | **Cash generated from/(used in) operations before changes in working capital** | | 29,728,301 | 26,619,301 | 852,674 | (266,907) | | Decrease/(increase) in trade and other receivables | | 458,199 | (439,607) | 1,868,752 | 556,716 | | Increase in trade and other payables | | 1,886,245 | 2,800,465 | 1,156,028 | 3,251,325 | | **Cash generated from operations** | | 32,072,745 | 28,980,159 | 3,877,454 | 3,541,134 | | Interest received | 7 | 32,136 | 17,689 | 8,539 | 253 | | Interest paid on leased assets | 7 | (153,190) | (133,827) | (87,111) | (97,444) | | Interest paid | 7 | – | (925) | – | – | | Taxation paid | | (7,004,074) | (5,841,493) | (154,496) | (240,142) | | **Net cash generated from operating activities** | | 24,947,617 | 23,021,603 | 3,644,386 | 3,203,801 | | **Cash flow from investing activities** | | | | | | | Dividends received from subsidiaries | | – | – | 26,160,323 | 12,200,000 | | Purchase of property and equipment and intangibles | 10/12 | (258,852) | (93,342) | (89,557) | (47,176) | | Purchase of non-current financial assets | 13 | (3,877,446) | (715) | (1,889,216) | (724) | | Proceeds from sale of current financial assets | | 8,442 | – | 8,442 | – | | Cash consideration paid on merger net of cash acquired | | – | 946,773 | – | (107,943) | | **Net cash (used in)/generated from investing activities** | | (4,127,856) | 852,716 | 24,189,992 | 12,044,157 | | **Cash flow from financing activities** | | | | | | | Ordinary dividends paid | 21 | (21,484,909) | (9,743,124) | (21,484,909) | (9,743,124) | | Purchase of own shares by employee share option trust | | (2,665,042) | (2,503,244) | (2,665,042) | (2,503,244) | | Proceeds from sale of own shares by employee share option trust | | 320,193 | 830,819 | 320,193 | 830,819 | | Payment of lease liabilities | 17(c) | (407,772) | (486,680) | (131,908) | (168,367) | | Share issue costs | | – | (967,881) | – | (967,881) | | **Net cash used in financing activities** | | (24,237,530) | (12,870,110) | (23,961,666) | (12,551,797) | | **Net (decrease)/increase in cash and cash equivalents** | | (3,417,769) | 11,004,209 | 3,872,712 | 2,696,161 | | Cash and cash equivalents at start of period | | 25,514,619 | 14,594,333 | 2,905,184 | 213,510 | | Cash held in funds* | | 40,936 | 20,357 | – | – | | Effect of exchange rate changes | | 540,107 | (104,280) | 142,039 | (4,487) | | **Cash and cash equivalents at end of period** | | 22,677,893 | 25,514,619 | 6,919,935 | 2,905,184 | Note: * Cash held in International REIT and Global Equity CEF funds was consolidated using accounts drawn up as of 30th June. 98 City of London Investment Group PLC Annual Report 2021/2022 Financial statements # NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE 2022 ## 1. SIGNIFICANT ACCOUNTING POLICIES City of London Investment Group PLC (the Company) is a public limited company which listed on the London Stock Exchange on 29th October 2010 and is domiciled and incorporated in the United Kingdom under the Companies Act 2006. ### 1.1 Basis of preparation The financial statements have been prepared in accordance with UK-adopted International Accounting Standards. The Group financial statements have been prepared under the historical cost convention, except for certain financial assets held by the Group that are reported at fair value. The Group and Company financial statements have been prepared on a going concern basis. The principal accounting policies adopted are set out below and have, unless otherwise stated, been applied consistently to all periods presented in these financial statements. ### 1.2 New or amended accounting standards and interpretations The Group has adopted all the new or amended accounting standards and interpretations issued by the International Accounting Standards Board (IASB) that are mandatory for the current reporting period. Any new or amended accounting standards that are not mandatory have not been early adopted. The following amendments to standards have been adopted in the current period and have not had a material impact on the Group's financial statements: - IFRS 9, IAS 39 and IFRS 7 – Interest Rate Benchmark Reforms - IFRS 16 – COVID-19 Related rent concessions The following amended standards and interpretations are in issue but not yet effective: - IAS 16 (amendments) – Property, Plant and Equipment – Proceeds before Intended Use (effective 1 January 2022) - Annual Improvements 2018-2020 Cycle – Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 4 (effective 1 January 2022) - IFRS 3 (amendments) – Reference to the Conceptual Framework (effective 1 January 2022) - IAS 37 (amendments) – Onerous Contracts – Cost of Fulfilling a Contract (effective 1 January 2022) - IAS 1 (amendments) – Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current and Classification of Liabilities as Current or Non-Current – Deferral of Effect Date (effective 1 January 2024) The Directors do not expect the adoption of these standards and amendments to have a material impact on the Financial Statements. ### 1.3 Accounting estimates and judgments The preparation of these financial statements in conformity with UK-adopted International Accounting Standards requires management to make estimates and judgments that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Whilst estimates are based on management's best knowledge and judgement using information and financial data available to them, the actual outcome may differ from those estimates. The most significant areas of the financial statements that are subject to the use of estimates and judgments are noted below: #### (i) Share-based payments Share-based payments relate to equity settled awards and are based on the fair value of those awards at the date of grant. In order to calculate the charge for share-based compensation as required by IFRS 2 Share-based payments, the Group is required to estimate the fair value of the Employee Incentive Plan (EIP) awards due to be granted in October 2022. This cost is estimated during the financial year and at the point when the actual award is made the share-based payment charge is re-calculated and any difference is taken to the profit or loss. Refer to note 1.13 for accounting policy. #### (ii) EM REIT fund The Company has a c.20% ownership interest in the EM REIT fund. However, it does not have any voting powers and its decision-making powers are held in the capacity of an agent of the investors as a group. The Company has exercised judgement and have concluded that it does not control or have significant influence over this fund. #### (iii) Impairment of Goodwill The recognition of goodwill in a business combination and subsequent impairment assessments are based on significant accounting estimates. Note 12 details our estimates and assumptions in relation to the impairment assessment of goodwill. Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 99 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED ### 1.4 Basis of consolidation The consolidated financial statements are based on the financial statements of the Company and all of its subsidiary undertakings. The Group's subsidiaries are those entities which it directly or indirectly controls. Control over an entity is evidenced by the Group's ability to exercise its power in order to affect any variable returns that the Group is exposed to through its involvement with the entity. The consolidated financial statements also incorporate the results of the business combination using the acquisition method. The acquiree's identifiable net assets are initially recognised at their fair values at the acquisition date. The results of the acquired business are included in the consolidated statement of comprehensive income from the date on which control is obtained. When assessing whether to consolidate an entity, the Group evaluates a range of control factors as defined under IFRS 10 Consolidated financial statements, namely: - the purpose and design of the entity; - the relevant activities and how these are determined; - whether the Group's rights result in the ability to direct the relevant activities; - whether the Group has exposure or rights to variable returns; and - whether the Group has the ability to use its power to affect the amount of its returns. Subsidiaries are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date that control ceases. The Group's subsidiary undertakings as at 30th June 2022 are detailed below: City of London Investment Group PLC holds a controlling interest in the following: | Subsidiary undertakings | Activity | Controlling interest | Country of incorporation | | --- | --- | --- | --- | | City of London Investment Management Company Limited | Management of funds | 100% | UK | | City of London US Investments Limited | Holding company | 100% | UK | | Karpus Management Inc. | Management of funds | 100% | USA | | International REIT Fund * | Delaware Statutory Trust Fund | 100% | USA | | Global Equity CEF Fund | Delaware Statutory Trust Fund | 100% | USA | City of London Investment Management Company Limited holds 100% of the ordinary shares in the following: | City of London Investment Management (Singapore) PTE Ltd | Management of funds | Singapore | | --- | --- | --- | | City of London Latin America Limited | Dormant company | UK | City of London US Investments Limited holds 100% of the ordinary shares in the following: | City of London US Services Limited | Service company | UK | | --- | --- | --- | * International REIT fund has a year-end of 31st December. As this fund has a financial year end that differs from that of the Company, it is consolidated using accounts drawn up as of 30th June. The registered addresses of the subsidiary companies are as follows: | City of London Investment Management Company Limited | 77 Gracechurch Street, London EC3V 0AS, UK | | --- | --- | | City of London US Investments Limited | | | City of London US Services Limited | | | City of London Latin America Limited | | | City of London Investment Management Company (Singapore) PTE Ltd | 20 Collyer Quay, #10-04, Singapore 049319 | | Karpus Management Inc. | 183 Sully's Trail, Pittsford, New York 14534, USA | | International REIT fund | 4005 Kennett Pike, Suite 250, Greenville, DE 19807, USA | | Global Equity CEF fund | | City of London Latin America Limited is dormant and as such is not subject to audit. 100 City of London Investment Group PLC Annual Report 2021/2022 ### Overview 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED 1.5 Property and equipment For all property and equipment, depreciation is calculated to write off their cost to their estimated residual values by equal annual instalments over the period of their estimated useful lives, which are considered to be: Short leasehold property improvements – over the remaining life of the lease Furniture and equipment – 4 to 10 years Computer and telephone equipment – 4 to 10 years 1.6 Intangible assets ### Strategic report Intangible assets acquired separately are initially recognised at cost. Intangible assets acquired through a business combination other than goodwill, are initially measured at fair value at the date of the acquisition. (i) Goodwill Goodwill arises through a business combination. Goodwill represents the excess of the purchase consideration paid over the fair value of the identifiable assets, liabilities and contingent liabilities of the business at the date of the acquisition. Goodwill is measured at cost less accumulated impairment losses. Goodwill on acquisition is allocated to a cash generating unit (CGU) that is expected to benefit from the acquisition, for the purpose of impairment testing. The CGU to which goodwill is allocated represents the lowest level at which goodwill is monitored for internal management purposes. A CGU is identified as a group of assets generating cash inflows which are independent from cash inflows from other Group cash generating assets and are ### Governance not larger than the Group’s operating segments. (ii) Direct customer relationships and distribution channels The fair values of direct customer relationships and distribution channels acquired in the business combination have been measured using a multi-period excess earnings method. These are amortised on a straight line basis over the period of their expected benefit, being a finite life of 10 years for direct customer relationships and a finite life of 7 years for distribution channels. (iii) Trade name The fair value of the trade name acquired in the business combination has been measured using a relief from royalty method. This is amortised on a straight line basis over the period of its expected benefit, being a finite life of 15 years. ### Financial statements (iv) Software licences Software licences are capitalised at cost and amortised on a straight line basis over the useful life of the asset. Costs are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Costs also include directly attributable overheads. The estimated useful life over which the software is depreciated is between 4 to 10 years. Software integral to a related item of hardware equipment is accounted for as property and equipment. Costs associated with maintaining computer software programs are expensed to the income statement as incurred. 1.7 Impairment of goodwill and other assets Goodwill arising on acquisition is not subject to annual amortisation and other assets listed in 1.6 (ii) and (iii) above which are amortised on a straight line basis are tested annually for impairment, or more frequently if changes in circumstances indicate a ### Shareholder information possible impairment. The Group annually reviews the carrying value of its CGU to ensure that those assets have not suffered from any impairment loss. The review compares the recoverable amount of the CGU to which goodwill is allocated against its carrying amount. Where the recoverable amount is higher than the carrying amount, no impairment is required. The recoverable amount is defined as the higher of (a) fair value less costs to sell or (b) value in use, which is based on the present value of future cash flows expected to derive from the CGU. Any impairment loss is recognised immediately through the income statement. City of London Investment Group PLC Annual Report 2021/2022 101 Financial statements ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED 1.8 Business combinations The Group accounts for business combinations using the acquisition method. A business combination is determined where in a transaction, the asset acquired and the liabilities assumed constitute a business. The consideration transferred on the date of the transaction is measured at fair value as are the identifiable assets acquired and liabilities assumed. Intangible assets are recognised separately from goodwill at the acquisition date only when they are identifiable. 1.9 Financial instruments Financial instruments are only recognised in the financial statements and measured at fair value when the Group becomes party to the contractual provisions of the instrument. Under IFRS 9 Financial Instruments, financial assets are classified as either: • amortised at cost; • at fair value through the profit or loss; or • at fair value through other comprehensive income. Financial liabilities must be classified at fair value through profit or loss or at amortised cost. The Group’s investments in securities and derivatives are classified as financial assets or liabilities at fair value through profit or loss. Such investments are initially recognised at fair value, and are subsequently re-measured at fair value, with any movement recognised in the income statement. The fair value of the Group’s investments is determined as follows: Shares – priced using the quoted market mid-price* Options – priced using the quoted market bid price Forward currency trades – priced using the forward exchange bid rates from Bloomberg *The funds managed by the Group are valued at the mid-price in accordance with US GAAP. Therefore, where the Group has identified investments in those funds as subsidiaries, the fair value consolidated is the net asset values as provided by the administrator of the funds. The underlying investments in these funds are liquid companies with a small bid-ask spread. The consolidated Group assesses and would recognise a loss allowance for expected credit losses on financial assets which are measured at amortised cost. The measurement of the loss allowance depends upon the consolidated entity’s assessment at the end of each reporting period as to whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a twelve-month expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses that is attributable to a default event that is possible within the next twelve months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset’s lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. Under the expected credit loss model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This model is applicable to assets amortised at cost or at fair value through other comprehensive income. The assets on the Group’s balance sheet to which the expected loss applies to are fees receivable. At the end of each reporting period, the Group assesses whether the credit risk of these trade receivables has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. 1.10 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and on-demand deposits with an original maturity of three months or less from inception, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. 102 City of London Investment Group PLC Annual Report 2021/2022 ### Overview 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED 1.11 Trade payables Trade payables are measured at initial recognition at fair value and subsequently measured at amortised cost. 1.12 Current and deferred taxation The Group provides for current tax according to the tax regulations in each jurisdiction in which it operates, using tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. However, deferred tax is not accounted for if it arises from goodwill or the initial recognition (other than in a business combination) of other assets or liabilities ### Strategic report in a transaction that affects neither the accounting nor the taxable profit or loss. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. The tax rates used are those that have been enacted, or substantively enacted, by the end of the reporting period. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly as part of other comprehensive income, in which case the deferred tax is also dealt with as part of other comprehensive income. For share-based payments, where the estimated future tax Governance deduction exceeds the amount of the related cumulative remuneration expense, the excess deferred tax is recognised directly in equity. 1.13 Share-based payments The Company operates an Employee Incentive Plan (EIP) which is open to all employees in the Group. Awards are made to participating employees over shares under the EIP where they have duly waived an element of their annual profit-share before the required waiver date, in general before the start of the relevant financial year. The awards are made up of two elements: Deferred Shares and Bonus Shares. The Deferred Shares represent the waived profit-share and the Bonus Shares represent the additional award made by the Company as a reward for participating in the EIP. Awards will vest (i.e. no longer be forfeitable) over a three-year period with one-third vesting each year for all employees, other than Executive Directors of CLIG. Awards granted from October 2021 onwards will vest (i.e. no longer be forfeitable) over a five-year period with Financial statements one-fifth vesting each year for the Executive Directors of CLIG. The full cost of the Deferred Shares is recognised in the year to which the profit-share relates. The value of the Bonus Shares is expensed on a straight line basis over the period from the date the employees elect to participate to the date that the awards vest. This cost is estimated during the financial year and at the point when the actual award is made, the share-based payment charge is re-calculated and any difference is taken to the profit or loss. The Company operates an Employee Share Option Plan. The fair value of the employee services received in exchange for share options is recognised as an expense. The fair value has been calculated using the Black-Scholes pricing model, and is being expensed on a straight line basis over the vesting period, based on the Company’s estimate of the number of shares that will actually vest. At the end of the three-year period when the actual number of shares vesting is known, the share-based payment charge is re- ### Shareholder information calculated and any difference is taken to the profit or loss. 1.14 Revenue recognition Revenue is recognised within the financial statements based on the services that are provided in accordance with current investment management agreements (IMAs). The fees are charged as a percentage of Funds under Management. The performance obligations encompassed within these agreements are based on daily/monthly asset management of funds. Payment terms are monthly/quarterly in advance or in arrears. The Group has an enforceable right to the payment of these fees for services provided, in accordance with the underlying IMAs. For each contract, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of services promised. City of London Investment Group PLC Annual Report 2021/2022 103 Financial statements ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED 1.15 Commissions payable A portion of the Group’s revenue is subject to commissions payable under third party marketing agreements. Commissions payable are recognised in the same period as the revenue to which they relate. 1.16 Foreign currency translation Foreign currency transactions are translated using the exchange rates prevailing at the transaction date. Monetary assets held in a currency other than the functional currency are translated at the end of each financial period at the period end closing rates. The functional currency of the Group’s subsidiaries, City of London Investment Management Company Limited, Karpus Investment Management and City of London US Services Limited, is US dollars. The functional currency of City of London Investment Group PLC (the Company) is sterling. The Group uses sterling as the presentation currency and under IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’, exchange rate differences arising from translating a subsidiary company’s functional currency to presentation currency have to be recognised in the Group’s other comprehensive income. Accordingly, on consolidation, exchange rate differences arising from translating functional currency to presentation currency for Karpus Investment Management are recognised in the Group’s other comprehensive income. However, for its other subsidiaries, the Group operates a policy whereby it manages foreign exchange exposure of subsidiary monetary assets through its inter-company accounts. Any gains or losses are recognised within the Company’s own income statement. Therefore, on consolidation, there are no exchange differences arising from the translation of monetary items from the subsidiary functional currency to its presentational currency. This means that all such exchange differences are included in the income statement and no split is required between other comprehensive income and the income statement. The subsidiaries translate the non-monetary assets at the period end rate and any movement is reflected in other comprehensive income. 1.17 Leases The total outstanding lease cost, discounted at the Group’s weighted average incremental borrowing rate to its present value, is shown as a lease liability in the statement of financial position. The payment of the lease charge is allocated between the lease liability and an interest charge in the income statement. On recognition of the lease liability, the associated asset is shown as a right-of-use asset. This is further adjusted for any lease payments made prior to adoption and any future restoration costs as implicit within the lease contract. The resulting total value of the right-of-use asset is depreciated on a straight line basis over the term of the lease period. The Group re-measures the lease liability whenever: • there is a change in the lease term; • there is a change in the lease payments; and • a lease contract is modified and the lease modification is not accounted for as a separate lease. Where there is a change in the lease term or lease payments, the lease liability is re-measured by discounting the revised lease payments at the current or revised discount rate depending on the nature of the event. Where the lease liability is re-measured, a corresponding adjustment is made to the right-of-use assets. Where extension/termination options exists within a lease, the Group would assess at the lease commencement date as to whether it is reasonably certain that it will exercise these options. The Group would reassess these option if there was a significant event or significant change in circumstances within its control, which would warrant the Group with reasonable certainty to exercise these options. Payments in relation to short-term leases, those that are less than twelve months in duration continue to be expensed to the income statement on a straight line basis. At the end of the year, all of the Group’s leases were recognised as right-of-use assets. 104 City of London Investment Group PLC Annual Report 2021/2022 Overview Strategic report Governance Financial statements Shareholder information ## 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED ### 1.18 Pensions The Group operates defined contribution pension schemes covering the majority of its employees. The costs of the pension schemes are charged to the income statement as they are incurred. Any amounts unpaid at the end of the period are reflected in other creditors. ### 1.19 Exceptional items Exceptional items are significant items of non-recurring expenditure that have been separately presented by virtue of their nature to enable a better understanding of the Group's financial performance. Exceptional items relate to acquisition-related costs incurred by the Group in relation to its merger. There were no exceptional items in the current financial year. ## 2. SEGMENTAL ANALYSIS The Directors consider that the Group has only one reportable segment, namely asset management, and hence only analysis by geographical location is given. | | USA £ | Canada £ | UK £ | Europe (ex UK) £ | Other £ | Total £ | | --- | --- | --- | --- | --- | --- | --- | | **Year to 30th June 2022** | | | | | | | | Gross fee income | 58,502,020 | 1,400,160 | 279,802 | 1,082,660 | 28,985 | 61,293,627 | | Non-current assets: | | | | | | | | Property and equipment | 263,376 | – | 233,693 | – | 14,139 | 511,208 | | Right-of-use assets | 1,245,649 | – | 1,085,153 | – | 87,943 | 2,418,745 | | Intangible assets | 110,060,224 | – | 17,867 | – | – | 110,078,091 | | **Year to 30th June 2021** | | | | | | | | Gross fee income | 52,215,280 | 1,458,957 | 356,462 | 1,092,575 | – | 55,123,274 | | Non-current assets: | | | | | | | | Property and equipment | 175,387 | – | 254,197 | – | 26,399 | 455,983 | | Right-of-use assets | 1,421,279 | – | 1,263,534 | – | 72,366 | 2,757,179 | | Intangible assets | 100,954,615 | – | 7,377 | – | – | 100,961,992 | The Group has classified its fee income based on the domicile of its clients and non-current assets based on where the assets are held. Included in revenues are fees of £5,825,226 (2021: £5,470,051) which arose from fee income from the Group's largest client. No other single client contributed 10% or more to the Group's revenue in either of the reporting periods. ## 3. EMPLOYEES | (a) Average number of persons employed by the Group in the period: | Group | | Company | | | --- | --- | --- | --- | --- | | | Year to 30th June 2022 Number | Year to 30th June 2021 Number | Year to 30th June 2022 Number | Year to 30th June 2021 Number | | Investment Management/Research | 40 | 37 | 19 | 17 | | Performance and Attribution | 4 | 4 | – | – | | Business Development/Marketing | 16 | 12 | 1 | 1 | | Client Services | 11 | 10 | 2 | 2 | | Administration, Accounts and Settlements | 43 | 36 | 8 | 8 | | | 114 | 99 | 30 | 28 | City of London Investment Group PLC Annual Report 2021/2022 105 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 3. EMPLOYEES CONTINUED | (b) The aggregate employment costs of employees and Directors: | Group | | Company | | | --- | --- | --- | --- | --- | | | Year to 30th June 2022 £ | Year to 30th June 2021 £ | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | Wages and salaries | 10,180,500 | 8,695,066 | 3,522,720 | 3,396,654 | | Profit sharing payments | 8,374,697 | 7,426,912 | 3,041,723 | 3,158,650 | | Social security costs | 1,526,894 | 1,283,227 | 917,297 | 796,720 | | Defined contribution pension costs | 1,325,245 | 1,169,045 | 364,448 | 349,649 | | EIP-related charges | 1,201,452 | 950,705 | 559,383 | 460,833 | | Share options charge/(credit) | 33,440 | (12,023) | 3,474 | (697) | | Other staff costs | 890,745 | 532,474 | 250,081 | 149,896 | | | **23,532,973** | **20,045,406** | **8,659,126** | **8,311,705** | ## 4. DIRECTORS | Directors' emoluments comprise: | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | --- | --- | --- | | Emoluments (excluding pension contributions and awards under share option schemes) | 2,927,773 | 2,618,151 | | EIP participation | 258,687 | 166,673 | | Pension contributions | 110,563 | 110,393 | | EIP-related charges | 272,299 | 250,770 | | Gains on exercise of share options | 97,575 | 5,750 | | Other taxable benefits ^ | 30,565 | 19,359 | | | **3,697,462** | **3,171,096** | | Social security costs | 205,256 | 174,144 | | | **3,902,718** | **3,345,240** | | | Year to 30th June 2022 Number | Year to 30th June 2021 Number | | --- | --- | --- | | Number of Directors on whose behalf pension contributions were paid during the period | 5 | 5 | | Number of Directors who exercised share options during the period | 2 | 1 | | Highest paid Director's remuneration: | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | --- | --- | --- | | Emoluments (excluding pension contributions and awards under share option schemes) | 673,000 | 708,623 | | EIP participation | 107,000 | 24,040 | | Pension contributions | 26,250 | 26,388 | | EIP-related charges | 104,645 | 91,011 | | Gains on exercise of share options | 87,000 | 5,750 | | Other taxable benefits ^ | 3,336 | 6,046 | | | **1,001,231** | **861,858** | | Social security costs | 135,007 | 17,618 | | | **1,136,238** | **879,476** | (^) The regulations require us to disclose taxable benefits. Health insurance is offered to all employees but is not considered a taxable benefit in all countries. For comparative purposes, we have based our calculations on all health insurance costs incurred, whether a taxable benefit or not. Further details relating to Directors' emoluments can be found in the Remuneration report on pages 63 to 83. 106 City of London Investment Group PLC Annual Report 2021/2022 Overview Strategic report Governance Financial statements Shareholder information ## 5. OPERATING PROFIT | The operating profit is arrived at after charging: | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | --- | --- | --- | | Depreciation of property and equipment | 191,149 | 187,714 | | Depreciation of right-of-use assets | 496,367 | 492,730 | | Amortisation of intangible assets | 4,059,600 | 3,289,142 | | Auditor's remuneration: | | | | – Statutory audit | 141,984 | 122,318 | | – Audit related assurance services | 25,000 | 20,297 | | – Under/(over) accrual of prior year audit fees | 5,143 | (168) | | Short-term lease expense | 13,196 | 7,891 | ## 6. BUSINESS COMBINATIONS On 1st October 2020, City of London Investment Group PLC completed the merger of Snowball Merger Sub, Inc. with and into Karpus Management Inc. doing business as Karpus Investment Management (KIM), a US-based investment management business, on a debt-free basis, by way of a scheme of arrangement in accordance with the New York Business Corporation Law, with KIM being the surviving entity in the merger. CLIG acquired 100% of voting equity interest in KIM and the merger was satisfied by issue of new ordinary shares and cash for a total consideration of £101,887,540. KIM uses closed-end funds (CEFs) amongst other securities as a means to gain exposure for its client base comprising of US high net worth clients and corporate accounts. It qualifies as a business as defined in IFRS 3 "Business Combinations". The merger is considered to be of substantial strategic and financial benefit to the Group and its shareholders. Details of the net assets acquired, goodwill and purchase consideration are detailed in note 6 on pages 107 and 108 of the Annual Report and Accounts for the year ended 30th June 2021. ## 7. FINANCE INCOME AND FINANCE EXPENSE | | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | --- | --- | --- | | **Finance income:** | | | | Interest on bank deposits | 32,136 | 17,689 | | Unrealised gain on investments | – | 540,172 | | **Total finance income** | **32,136** | **557,861** | | **Finance expense:** | | | | Unrealised loss on investments | (659,231) | – | | Interest payable on lease liabilities | (153,190) | (133,827) | | Other interest payable | – | (925) | | **Total finance expense** | **(812,421)** | **(134,752)** | | **Net finance (expense)/income** | **(780,285)** | **423,109** | City of London Investment Group PLC Annual Report 2021/2022 107 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 8. TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES | | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | --- | --- | --- | | **(a) Analysis of tax charge on ordinary activities:** | | | | **Current tax:** | | | | UK corporation tax at 19% (2021: 19%) based on the profit for the period | 4,533,109 | 4,510,249 | | Double taxation relief | (909,780) | (947,061) | | Adjustments in respect of prior years | (53,810) | 35,246 | | **UK tax total** | **3,569,519** | **3,598,434** | | Foreign tax | 2,720,112 | 2,435,832 | | Adjustments in respect of prior years | (54,854) | (81,966) | | **Foreign tax total** | **2,665,258** | **2,353,866** | | **Total current tax charge** | **6,234,777** | **5,952,300** | | **Deferred tax:** | | | | UK – origination and reversal of temporary differences | (119,105) | 39,423 | | Foreign – origination and reversal of temporary differences | (1,034,440) | (733,237) | | **Total deferred tax credit** | **(1,153,545)** | **(693,814)** | | **Total tax charge in income statement** | **5,081,232** | **5,258,486** | ### (b) Factors affecting tax charge for the current period: The tax charge on profit for the year is different to that resulting from applying the standard rate of corporation tax in the UK – 19% (prior year – 19%). The differences are explained below: | | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | --- | --- | --- | | Profit on ordinary activities before tax | 23,172,383 | 22,249,004 | | Tax on profit from ordinary activities at the standard rate | (4,402,753) | (4,227,311) | | Effects of: | | | | Unrelieved overseas tax | (3,614,710) | (2,793,433) | | Foreign profits taxed at rates different to those of the UK | 2,574,111 | 1,922,253 | | Expenses not deductible for tax purposes | (774,538) | (947,021) | | (Losses)/gains not eligible for tax | (115,481) | 49,022 | | Capital allowances less than depreciation | (14,177) | (19,255) | | Prior period adjustments | 108,664 | 46,720 | | Deferred tax originating from timing differences | 1,153,545 | 693,814 | | Other | 4,107 | 16,725 | | **Total tax charge in income statement** | **(5,081,232)** | **(5,258,486)** | 108 City of London Investment Group PLC Annual Report 2021/2022 Overview Strategic report Governance Financial statements Shareholder information ## 9. EARNINGS PER SHARE The calculation of earnings per share is based on the profit for the period attributable to the equity shareholders of the parent divided by the weighted average number of ordinary shares in issue for the period ended 30th June 2022. As set out in the Directors' report on page 84 the Employee Benefit Trust held 1,708,763 (2021: 1,591,158) ordinary shares in the Company as at 30th June 2022. The Trustees of the Trust have waived all rights to dividends associated with these shares. In accordance with IAS 33 Earnings per share, the ordinary shares held by the Employee Benefit Trust have been excluded from the calculation of the weighted average number of ordinary shares in issue. The calculation of diluted earnings per share is based on the profit for the period attributable to the equity shareholders of the parent divided by the diluted weighted average number of ordinary shares in issue for the period ended 30th June 2022. ### Reported earnings per share | | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | --- | --- | --- | | Profit attributable to the equity shareholders of the parent for basic earnings | 18,091,151 | 16,971,233 | | | Number of shares | Number of shares | | Issued ordinary shares as at 1st July | 50,679,095 | 26,560,707 | | Effect of own shares held by EBT | (1,614,063) | (1,502,266) | | Effect of shares issued in the period | – | 18,039,233 | | Weighted average shares in issue | 49,065,032 | 43,097,674 | | Effect of movements in share options and EIP awards | 647,134 | 677,739 | | Diluted weighted average shares in issue | 49,712,166 | 43,775,413 | | Basic earnings per share (pence) | 36.9 | 39.4 | | Diluted earnings per share (pence) | 36.4 | 38.8 | ### Underlying earnings per share* Underlying earnings per share is based on the underlying profit after tax*, where profit after tax is adjusted for gain/loss on investments, acquisition-related costs, amortisation of acquired intangibles, their relating tax impact and non-controlling interest. ### Underlying profit for calculating underlying earnings per share | | Year to 30th June 2022 £ | Year to 30th June 2021 £ | | --- | --- | --- | | Profit before tax | 23,172,383 | 22,249,004 | | Add back: | | | | – Loss/(gain) on investments | 659,231 | (540,172) | | – Acquisition-related costs | – | 1,743,424 | | – Amortisation on acquired intangibles | 4,051,223 | 3,250,185 | | Underlying profit before tax | 27,882,837 | 26,702,441 | | Tax expense as per the consolidated income statement | (5,081,232) | (5,258,486) | | Tax effect of fair value adjustments | (125,253) | 102,633 | | Unwinding of deferred tax liability | (972,294) | (780,045) | | Adjustment for NCI | – | (19,285) | | Underlying profit after tax for the calculation of underlying earnings per share | 21,704,058 | 20,747,258 | | Underlying earnings per share (pence) | 44.2 | 48.1 | | Underlying diluted earnings per share (pence) | 43.7 | 47.4 | * This is an Alternative Performance Measure (APM). Please refer to page 33 for more details on APMs. City of London Investment Group PLC Annual Report 2021/2022 109 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 10. PROPERTY AND EQUIPMENT | | 30th June 2022 | | | | 30th June 2021 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Furniture and equipment £ | Computer and telephone equipment £ | Short leasehold improvements £ | Total £ | Furniture and equipment £ | Computer and telephone equipment £ | Short leasehold improvements £ | Total £ | | **Group** | | | | | | | | | | **Cost** | | | | | | | | | | At start of period | 383,871 | 1,534,800 | 627,654 | 2,546,325 | 391,426 | 1,597,979 | 661,094 | 2,650,499 | | Acquired on acquisition | – | – | – | – | 7,480 | 9,075 | 15,005 | 31,560 | | Currency translation | 20,579 | 80,289 | 63,280 | 164,148 | (16,945) | (81,259) | (48,445) | (146,649) | | Additions | 6,487 | 214,393 | 19,105 | 239,985 | 1,910 | 91,432 | – | 93,342 | | Disposals | (12,358) | (50,918) | (80,257) | (143,533) | – | (82,427) | – | (82,427) | | At close of period | 398,579 | 1,778,564 | 629,782 | 2,806,925 | 383,871 | 1,534,800 | 627,654 | 2,546,325 | | **Accumulated depreciation** | | | | | | | | | | At start of period | 254,766 | 1,393,522 | 442,054 | 2,090,342 | 245,994 | 1,433,039 | 428,548 | 2,107,581 | | Currency translation | 19,893 | 78,620 | 54,949 | 153,462 | (15,976) | (77,711) | (28,839) | (122,526) | | Charge for the period | 24,348 | 129,818 | 36,983 | 191,149 | 24,748 | 120,621 | 42,345 | 187,714 | | Disposals | (12,358) | (46,621) | (80,257) | (139,236) | – | (82,427) | – | (82,427) | | At close of period | 286,649 | 1,555,339 | 453,729 | 2,295,717 | 254,766 | 1,393,522 | 442,054 | 2,090,342 | | **Net book value** | | | | | | | | | | At close of period | 111,930 | 223,225 | 176,053 | 511,208 | 129,105 | 141,278 | 185,600 | 455,983 | | **Company** | | | | | | | | | | **Cost** | | | | | | | | | | At start of period | 236,141 | 492,792 | 213,321 | 942,254 | 235,371 | 483,498 | 213,321 | 932,190 | | Additions | – | 70,690 | – | 70,690 | 770 | 46,406 | – | 47,176 | | Disposals | (12,358) | (50,918) | (80,257) | (143,533) | – | (37,112) | – | (37,112) | | At close of period | 223,783 | 512,564 | 133,064 | 869,411 | 236,141 | 492,792 | 213,321 | 942,254 | | **Accumulated depreciation** | | | | | | | | | | At start of period | 115,225 | 404,116 | 142,317 | 661,658 | 97,715 | 361,214 | 132,174 | 591,103 | | Charge for the period | 17,510 | 71,503 | 10,144 | 99,157 | 17,510 | 80,014 | 10,143 | 107,667 | | Disposals | (12,358) | (46,621) | (80,257) | (139,236) | – | (37,112) | – | (37,112) | | At close of period | 120,377 | 428,998 | 72,204 | 621,579 | 115,225 | 404,116 | 142,317 | 661,658 | | **Net book value** | | | | | | | | | | At close of period | 103,406 | 83,566 | 60,860 | 247,832 | 120,916 | 88,676 | 71,004 | 280,596 | 110 City of London Investment Group PLC Annual Report 2021/2022 Overview Strategic report Governance Financial statements Shareholder information # **11. RIGHT-OF-USE ASSETS** | | 30th June 2022 | | | 30th June 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Property leases £ | Office equipment leases £ | Total £ | Property leases £ | Office equipment leases £ | Total £ | | **Group** | | | | | | | | **Cost** | | | | | | | | At start of period | 3,529,441 | 59,515 | 3,588,956 | 2,278,892 | – | 2,278,892 | | Acquired on acquisition | – | – | – | 156,405 | – | 156,405 | | Currency translation | 9,208 | 8,078 | 17,286 | (12,240) | – | (12,240) | | Additions | – | – | – | – | 59,515 | 59,515 | | Effect of modification of lease term | 90,567 | – | 90,567 | 1,106,384 | – | 1,106,384 | | Disposals | (195,746) | – | (195,746) | – | – | – | | At close of period | 3,433,470 | 67,593 | 3,501,063 | 3,529,441 | 59,515 | 3,588,956 | | **Depreciation charge** | | | | | | | | At start of period | 822,621 | 9,156 | 831,777 | 345,481 | – | 345,481 | | Currency translation | (53,053) | 2,973 | (50,080) | (6,588) | 154 | (6,434) | | Charge for the period | 477,300 | 19,067 | 496,367 | 483,728 | 9,002 | 492,730 | | Disposals | (195,746) | – | (195,746) | – | – | – | | At close of period | 1,051,122 | 31,196 | 1,082,318 | 822,621 | 9,156 | 831,777 | | **Net book value** | | | | | | | | At close of period | 2,382,348 | 36,397 | 2,418,745 | 2,706,820 | 50,359 | 2,757,179 | | **Company** | | | | | | | | **Cost** | | | | | | | | At start of period | 1,620,297 | – | 1,620,297 | 1,620,297 | – | 1,620,297 | | At close of period | 1,620,297 | – | 1,620,297 | 1,620,297 | – | 1,620,297 | | **Depreciation charge** | | | | | | | | At start of period | 356,763 | – | 356,763 | 178,381 | – | 178,381 | | Charge for the period | 178,381 | – | 178,381 | 178,382 | – | 178,382 | | At close of period | 535,144 | – | 535,144 | 356,763 | – | 356,763 | | **Net book value** | | | | | | | | At close of period | 1,085,153 | – | 1,085,153 | 1,263,534 | – | 1,263,534 | As at the period end, the Group's right-of-use assets consisted of four property leases and one office equipment lease. The current lease periods range between less than one year and ten years, with the average remaining term being 5.4 years. Expenses in relation to short-term leases are shown in note 5. Details of lease liabilities are shown in note 17. City of London Investment Group PLC Annual Report 2021/2022 111 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 12. INTANGIBLE ASSETS | | 30th June 2022 | | | | | | 30th June 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | | | Goodwill £ | Direct customer relationships £ | Distribution channels £ | Trade name £ | Long-term software £ | Total £ | Total £ | | **Group** | | | | | | | | | **Cost** | | | | | | | | | At start of period | 65,123,297 | 33,472,334 | 4,590,186 | 1,018,983 | 689,100 | 104,893,900 | 761,971 | | Acquired on acquisition | – | – | – | – | – | – | 111,323,195 | | Additions | – | – | – | – | 18,867 | 18,867 | – | | Currency translation | 8,839,613 | 4,343,439 | 583,967 | 134,247 | – | 13,901,266 | (7,191,266) | | At close of period | 73,962,910 | 37,815,773 | 5,174,153 | 1,153,230 | 707,967 | 118,814,033 | 104,893,900 | | **Amortisation charge** | | | | | | | | | At start of period | – | 2,673,300 | 522,535 | 54,350 | 681,723 | 3,931,908 | 714,662 | | Currency translation | – | 612,302 | 119,684 | 12,448 | – | 744,434 | (71,896) | | Charge for the period | – | 3,332,159 | 651,319 | 67,745 | 8,377 | 4,059,600 | 3,289,142 | | At close of period | – | 6,617,761 | 1,293,538 | 134,543 | 690,100 | 8,735,942 | 3,931,908 | | Net book value: | | | | | | | | | **At close of period** | 73,962,910 | 31,198,012 | 3,880,615 | 1,018,687 | 17,867 | 110,078,091 | 100,961,992 | | **Company** | | | | | | | | | **Cost** | | | | | | | | | At start of period | – | – | – | – | 57,162 | 57,162 | 57,162 | | Additions | – | – | – | – | 18,867 | 18,867 | – | | At close of period | – | – | – | – | 76,029 | 76,029 | 57,162 | | **Amortisation charge** | | | | | | | | | At start of period | – | – | – | – | 49,785 | 49,785 | 38,410 | | Charge for the period | – | – | – | – | 8,377 | 8,377 | 11,375 | | At close of period | – | – | – | – | 58,162 | 58,162 | 49,785 | | **Net book value** | – | – | – | – | 17,867 | 17,867 | 7,377 | Goodwill, direct customer relationships, distribution channels and trade name acquired through business combination relate to the merger with KIM on 1st October 2020. The fair values of KIM's direct customer relationships and the distribution channels have been measured using a multi-period excess earnings method. The model uses estimates of annual attrition driving revenue from existing customers to derive a forecast series of cash flows, which are discounted to a present value to determine the fair values of KIM's direct customer relationships and the distribution channels. The fair value of KIM's trade name has been measured using a relief from royalty method. The model uses estimates of royalty rate and percentage of revenue attributable to trade name to derive a forecast series of cash flows, which are discounted to a present value to determine the fair value of KIM's trade name. The total amortisation charged to the income statement during the financial year in relation to direct client relationships, distribution channels and trade name was £4,051,223 (2021: £3,250,185). 112 City of London Investment Group PLC Annual Report 2021/2022 ## 12. INTANGIBLE ASSETS CONTINUED ### Impairment Goodwill acquired through the business combination is in relation to the merger with KIM and relates to the acquired workforce and future expected growth of the CGU. The Group has carried out an annual review of the carrying value of the CGU to which the goodwill is allocated to see if it has suffered any impairment. The recoverable amount of the CGU is determined by its value in use. This income-based approach model is based on the estimates of future cash flows, over a four-year period plus a terminal value, discounted to its present value. The Group's cash flow forecasts are based on its most recent and current trading activity and on current financial budgets for twelve months that are approved by the Board. The key assumptions underlying the budgets are based on the most recent trading activity with built in organic growth, revenue and cost margins. The Board approved budget is extrapolated for a total of three years and then a terminal value is calculated. The annual growth rate used for extrapolating revenue forecasts was 4.1% and for direct costs was 3.0% based on the Group's expectation of future growth of the business. A Gordon growth model was applied to estimate the terminal value based on a long-term growth rate of 3.0% and is based on both economic and industry growth outlooks. The pre-tax discount rate used to measure the value in use of the cash generating unit was 17.4% which reflects specific risks relating to the CGU and is based on the risk adjusted weighted average cost of capital. The goodwill impairment assessment date of 30th April 2022 was different to the current reporting date. The performance of the CGU is reviewed for the period between the assessment date and the reporting date to determine whether any changes in circumstances or impairment indicators have occurred since the assessment date. Following our review, it was determined that there were no changes in circumstances or impairment indicators that would require the CGU to be impaired at the reporting date. The recoverable amount of the CGU exceeded the carrying amount of the CGU at 30th April 2022 by £1,391,854 (2021: £6,745,000). Sensitivity analysis was applied to the key assumptions to measure the impact on the headroom in existence under the current impairment review. The areas where the sensitivity analysis was tested related to discount rates used, movements in FuM, and impact on margins. Following the sensitivity review, the recoverable amount of this CGU would equal its carrying amount if the key assumptions were to change as follows: | | 2022 | | | --- | --- | --- | | | From | To | | Pre-tax discount rate | 17.4% | 17.6% | | Average FuM growth rate | 2.5% | 1.5% | | Average EBIT margin | 54.5% | 54% | The Directors and management have considered and assessed possible changes to other key assumptions and have not identified any instances that could cause the carrying amount of the CGU to exceed its recoverable amount. Current economic circumstances have become more uncertain due to events outside the control of the business such as the impact of the war in Ukraine. The potential impact on global markets cannot be reliably estimated and if these result in a sustained period of weakness in financial markets this could result in a future impairment. Based on the recoverable amount, using the value in use model, no impairment was required at 30th June 2022. Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 113 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 13. OTHER FINANCIAL ASSETS (NON-CURRENT) | Group | 30th June 2022 | | | 30th June 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Unlisted investments £ | Listed investments £ | Total £ | Unlisted investments £ | Listed investments £ | Total £ | | At start of period | 1,874,766 | 2,498,719 | 4,373,485 | 1,781,741 | 2,212,986 | 3,994,727 | | Additions | – | 3,877,446 | 3,877,446 | 715 | – | 715 | | Disposals | (13,647) | – | (13,647) | – | – | – | | Fair value (losses)/gains | (42,952) | (570,279) | (613,231) | 92,310 | 285,733 | 378,043 | | Deconsolidation of NCI* | – | (189,467) | (189,467) | – | – | – | | At close of period | 1,818,167 | 5,616,419 | 7,434,586 | 1,874,766 | 2,498,719 | 4,373,485 | \* The Group's external investor liquidated its holding in the International RETT fund during the year and thus there is no NCI at the year end. 1) Differences to unrealised gain/(loss) on investments shown in note 7 are on account of net assets (cash, receivable and payables) of consolidated International RETT and Global Equity CEF funds being included within the respective balance sheet line and the impact of currency translation on unlisted investments. | Company | 30th June 2022 | | | 30th June 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Unlisted investments £ | Investment in subsidiary undertakings £ | Total £ | Unlisted investments £ | Investment in subsidiary undertakings £ | Total £ | | At start of period | 1,874,766 | 105,087,374 | 106,962,140 | 1,781,732 | 3,243,650 | 5,025,382 | | Acquired on acquisition | – | – | – | – | 101,887,540 | 101,887,540 | | Additions | – | 2,020,942 | 2,020,942 | 724 | 53,100 | 53,824 | | Disposals | – | (14,280) | (14,280) | – | (96,916) | (96,916) | | Fair value gains/(losses) | (56,599) | – | (56,599) | 92,310 | – | 92,310 | | At close of period | 1,818,167 | 107,094,036 | 108,912,203 | 1,874,766 | 105,087,374 | 106,962,140 | The additions and disposals in investments in subsidiary undertakings include the allocation of share-based payments from the Company to its subsidiaries under IFRS 2 Share-based payment and investment in the new seed fund 'Global Equity CEF Fund'. All Group companies are listed in note 1.4. 114 City of London Investment Group PLC Annual Report 2021/2022 Overview Strategic report Governance Financial statements Shareholder information # **14. DEFERRED TAX ASSET** | Group | Share-based payments £ | Other £ | Total £ | | --- | --- | --- | --- | | **At 30th June 2020** | 348,008 | – | 348,008 | | (Charged)/credited to income | (74,044) | 27,236 | (46,808) | | Credited to equity | 65,205 | – | 65,205 | | **At 30th June 2021** | 339,169 | 27,236 | 366,405 | | Credited to income | 62,806 | – | 62,806 | | Charged to equity | (73,013) | – | (73,013) | | Currency translation | 35,353 | 3,280 | 38,633 | | **At 30th June 2022** | **364,315** | **30,516** | **394,831** | | Company | Share-based payments £ | Other £ | Total £ | | --- | --- | --- | --- | | **At 30th June 2020** | 12,600 | – | 12,600 | | Charged to equity | (3,142) | – | (3,142) | | **At 30th June 2021** | 9,458 | – | 9,458 | | Credited to income | 660 | – | 660 | | Charged to equity | (5,052) | – | (5,052) | | **At 30th June 2022** | **5,066** | **–** | **5,066** | # **15. TRADE AND OTHER RECEIVABLES** | | Group | | Company | | | --- | --- | --- | --- | --- | | | 30th June 2022 £ | 30th June 2021 £ | 30th June 2022 £ | 30th June 2021 £ | | Trade receivables | 191,444 | 110,293 | – | – | | Accrued income | 4,852,186 | 5,618,878 | – | – | | Amounts owed by Group undertakings | – | – | 4,682,983 | 6,239,676 | | Other receivables | 166,534 | 142,560 | 81,502 | 82,787 | | Prepayments | 1,287,855 | 1,081,739 | 416,237 | 339,803 | | | **6,498,019** | **6,953,470** | **5,180,722** | **6,662,266** | City of London Investment Group PLC Annual Report 2021/2022 115 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 16. TRADE AND OTHER PAYABLES | | Group | | Company | | | --- | --- | --- | --- | --- | | | 30th June 2022 £ | 30th June 2021 £ | 30th June 2022 £ | 30th June 2021 £ | | Trade payables | 3,267 | 98,486 | – | – | | Sundry payables | 1,000,645 | 92,565 | 76,242 | 151 | | Amounts owed to Group undertakings | – | – | 463,546 | 261,503 | | Other taxation and social security | 165,432 | 150,363 | 142,720 | 131,442 | | Accruals and deferred income | 8,292,262 | 7,919,183 | 3,067,090 | 2,888,020 | | | **9,461,606** | **8,260,597** | **3,749,598** | **3,281,116** | ## 17. LEASE LIABILITIES AND COMMITMENTS | | Group | | Company | | | --- | --- | --- | --- | --- | | | 30th June 2022 £ | 30th June 2021 £ | 30th June 2022 £ | 30th June 2021 £ | | **a) Lease liabilities** | | | | | | Current | 388,986 | 392,954 | 121,573 | 131,180 | | Non-current | 2,213,854 | 2,348,101 | 1,026,248 | 1,148,549 | | | **2,602,840** | **2,741,055** | **1,147,821** | **1,279,729** | | | Group | | Company | | | --- | --- | --- | --- | --- | | | Present value of minimum lease payments £ | Undiscounted minimum lease payments £ | Present value of minimum lease payments £ | Undiscounted minimum lease payments £ | | **b) Lease maturities** | | | | | | Within one year | 388,986 | 525,006 | 121,573 | 198,448 | | In the second to fifth year inclusive | 1,271,352 | 1,544,191 | 739,221 | 847,682 | | After five years | 942,502 | 940,681 | 287,027 | 217,383 | | | **2,602,840** | **3,009,878** | **1,147,821** | **1,263,513** | The total cash outflow in respect of lease liabilities for the period to 30th June 2022 was £560,962 (2021: £620,507). | **c) Liabilities from financing activities** | | | | --- | --- | --- | | | Group £ | Company £ | | **Net debt as at 30th June 2020** | 1,958,398 | 1,448,096 | | Cash flows | (486,680) | (168,367) | | New and modified leases | 1,326,857 | – | | Currency translations | (57,520) | – | | **Net debt as at 30th June 2021** | **2,741,055** | **1,279,729** | | Cash flows | (407,772) | (131,908) | | New and modified leases | 90,567 | – | | Currency translations | 178,990 | – | | **Net debt as at 30th June 2022** | **2,602,840** | **1,147,821** | 116 City of London Investment Group PLC Annual Report 2021/2022 Overview Strategic report Governance Financial statements Shareholder information # **18. DEFERRED TAX LIABILITY** | Group | Right-of-use assets £ | Intangible assets £ | Other financial assets £ | Total £ | | --- | --- | --- | --- | --- | | **At 30th June 2020** | 26,854 | – | 31,020 | 57,874 | | Arising upon acquisition | – | 9,985,920 | – | 9,985,920 | | (Credited)/charged to income | (5,934) | (780,045) | 45,357 | (740,622) | | Credited to equity – currency translation | – | (606,359) | – | (606,359) | | **At 30th June 2021** | 20,920 | 8,599,516 | 76,377 | 8,696,813 | | Credited to income | (2,963) | (972,293) | (115,482) | (1,090,738) | | Charged to equity – currency translation | – | 1,036,133 | – | 1,036,133 | | **At 30th June 2022** | 17,957 | 8,663,356 | (39,105) | 8,642,208 | | Company | Right-of-use assets £ | Intangible assets £ | Other financial assets £ | Total £ | | **At 30th June 2020** | 26,854 | – | 3,221 | 30,075 | | Credited to income | (5,934) | – | – | (5,934) | | **At 30th June 2021** | 20,920 | – | 3,221 | 24,141 | | Credited to income | (2,963) | – | – | (2,963) | | **At 30th June 2022** | 17,957 | – | 3,221 | 21,178 | # **19. SHARE CAPITAL AND MERGER RELIEF RESERVE** | Group and Company | Share capital £ | Merger relief reserve £ | | --- | --- | --- | | At start and end of period 50,679,095 ordinary shares of 1p each | 506,791 | 101,538,413 | # **20. RESERVES** **Share premium account** – used to record the issue of share capital at a premium to nominal value. **Merger relief reserve** – created on the business combination (see note 19). **Investments in own shares** – balance with trustees in relation to employee benefit schemes. **Share option reserve** – provision for outstanding options in relation to employee share option scheme. **EIP share reserve** – provision for Company contribution to EIP employee benefit scheme. **Foreign currency differences reserve** – records exchange differences arising from the translation of non-monetary assets and consolidation of foreign subsidiary. **Capital redemption reserve** – created on the cancellation of share capital and reflects the value of share capital redeemed by the Company. **Retained earnings** – includes all current and prior year retained profits and losses. City of London Investment Group PLC Annual Report 2021/2022 117 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 21. DIVIDEND | | 30th June 2022 £ | 30th June 2021 £ | | --- | --- | --- | | Dividends paid: | | | | Interim dividend of 11p per share (2021: 11p) | 5,394,361 | 4,762,818 | | Special dividend of 13.5p per share (2021: nil) | 6,620,352 | – | | 30th June 2021 of 22p per share (2020: 20p) | 9,470,196 | 4,980,306 | | | 21,484,909 | 9,743,124 | A final dividend of 22p per share (gross amount payable £11,149,401; net amount payable £10,773,473) has been proposed, payable on 4th November 2022, subject to shareholder approval, to shareholders who are on the register of members on 30th September 2022. *Difference between gross and net amounts is due to shares held at EBT that do not receive dividend. ## 22. SHARE-BASED PAYMENTS (a) The estimated fair value of options which fall under IFRS 2, and the inputs used in the Black-Scholes model to calculate those values at fair value, are as follows: | Date of grant | Expiry date | Expected life (yrs) | Risk-free rate | Share price at grant (£) | Exercise price (£) | Volatility | Dividend yield | Estimated Fair value (£) | Number originally granted | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 16/03/2021 | 16/03/2021 | 6.5 | 0.5264% | 5.04 | 5.04 | 35.9225% | 6.19% | 0.8111 | 154,000 | | 31/03/2022 | 31/03/2022 | 6.5 | 1.4678% | 4.86 | 4.795 | 35.7981% | 6.79% | 0.8037 | 18,500 | The expected share price volatility is based on historical volatility over the past 6.5 years. The expected life of the options has been assumed to be 6.5 years based upon the empirical evidence available. The risk-free rate has been assumed to be represented by the yield to maturity at the date of grant of a UK Gilt Strip, with term to maturity equal to the expected life of the option. (b) All share options granted are equity settled. The number and weighted average exercise price of share options for each of the following groups is as follows: | | Year to 30th June 2022 | | Year to 30th June 2021 | | | --- | --- | --- | --- | --- | | | Number | Weighted average exercise price £ | Number | Weighted average exercise price £ | | Outstanding at the beginning of the period | 405,750 | 3.94 | 521,875 | 3.47 | | Granted during the period | 18,500 | 4.80 | 154,000 | 5.04 | | Forfeited during the period | 3,500 | 5.04 | 43,250 | 3.60 | | Exercised during the period | 92,000 | 3.46 | 226,875 | 3.66 | | Outstanding at the end of the period | 328,750 | 4.11 | 405,750 | 3.94 | | Exercisable at the end of the period | 159,750 | 3.16 | 251,750 | 3.27 | | The weighted average share price at the date of exercise for share options exercised during the period was | | 5.29 | | 4.92 | The total share-based payment for the period is a charge of £33,440 (2021: credit of £12,023). For outstanding share options the exercise price ranged between £2.55 and £5.04 (2021: between £2.55 and £5.04), and their weighted average contractual life was 5.7 years (2021: 5.3 years). 118 City of London Investment Group PLC Annual Report 2021/2022 ## 22. SHARE-BASED PAYMENTS CONTINUED (c) The Group introduced an Employee Incentive Plan (EIP) in 2016/17 which is open to employees of all Group companies and Executive Directors, details of the EIP can be found in the Directors' Remuneration Report. Awards are made to participating employees over shares under the EIP where they have duly waived an element of their annual profit-share before the required waiver date. Awards under the EIP are made up of two elements: Deferred Shares and Bonus Shares. The Deferred Shares represent the waived profit-share and the Bonus Shares represent the additional award made by the Company as a reward for participating in the EIP. The Deferred Shares are treated as cash settled and the full cost is recognised in the income statement in the year of service. The Bonus Shares are treated as equity settled and as such their estimated fair value is spread over the period from the time the employee elects to participate, to when the award vests (i.e. no longer forfeitable). This will be re-calculated when the awards are granted and any amount under or over the estimated value will be recognised through the income statement at that point in time. The estimated fair value of the Bonus Share awards is based on the cash equivalent at the time of award. | | Estimated charge £'000s | Actual charge £'000s | 2017/18 £'000s | 2018/19 £'000s | 2019/20 £'000s | 2020/21 £'000s | 2021/22 £'000s | 2022/23 £'000s | 2023/24 £'000s | 2024/25 £'000s | 2025/26 £'000s | 2026/27 £'000s | 2027/28 £'000s | Total £'000s | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Awards granted October 2018** | | | | | | | | | | | | | | | | Bonus Shares tranche 1 | Oct-19 | 280 | 269 | 119 | 112 | 38 | – | – | – | – | – | – | – | 269 | | Bonus Shares tranche 2 | Oct-20 | 280 | 269 | 84 | 78 | 81 | 26 | – | – | – | – | – | – | 269 | | Bonus Shares tranche 3 | Oct-21 | 279 | 269 | 65 | 60 | 62 | 62 | 20 | – | – | – | – | – | 269 | | | | 839 | 807 | 268 | 250 | 181 | 88 | 20 | – | – | – | – | – | 807 | | **Awards granted October 2019** | | | | | | | | | | | | | | | | Bonus Shares tranche 1 | Oct-20 | 212 | 215 | – | 91 | 94 | 30 | – | – | – | – | – | – | 215 | | Bonus Shares tranche 2 | Oct-21 | 212 | 214 | – | 63 | 65 | 65 | 21 | – | – | – | – | – | 214 | | Bonus Shares tranche 3 | Oct-22 | 212 | 215 | – | 49 | 50 | 50 | 50 | 16 | – | – | – | – | 215 | | | | 636 | 644 | – | 203 | 209 | 145 | 71 | 16 | – | – | – | – | 644 | | **Awards granted October 2020** | | | | | | | | | | | | | | | | Bonus Shares tranche 1 | Oct-21 | 242 | 241 | – | – | 103 | 103 | 35 | – | – | – | – | – | 241 | | Bonus Shares tranche 2 | Oct-22 | 242 | 240 | – | – | 72 | 72 | 72 | 24 | – | – | – | – | 240 | | Bonus Shares tranche 3 | Oct-23 | 242 | 240 | – | – | 55 | 55 | 56 | 56 | 18 | – | – | – | 240 | | | | 726 | 721 | – | – | 230 | 230 | 163 | 80 | 18 | – | – | – | 721 | | **Awards granted October 2021** | | | | | | | | | | | | | | | | Bonus Shares tranche 1 | Oct-22 | 289 | 281 | – | – | – | 88 | 154 | 39 | – | – | – | – | 281 | | Bonus Shares tranche 2 | Oct-23 | 289 | 281 | – | – | – | 88 | 81 | 85 | 27 | – | – | – | 281 | | Bonus Shares tranche 3 | Oct-24 | 289 | 281 | – | – | – | 88 | 41 | 65 | 66 | 21 | – | – | 281 | | Bonus Shares tranche 4 | Oct-25 | 33 | 32 | – | – | – | 8 | 4 | 6 | 6 | 6 | 2 | – | 32 | | Bonus Shares tranche 5 | Oct-26 | 33 | 32 | – | – | – | 9 | 2 | 8 | 4 | 4 | 4 | 1 | 32 | | | | 933 | 907 | – | – | – | 281 | 282 | 203 | 103 | 31 | 6 | 1 | 907 | | **Awards expected to be granted October 2022** | | | | | | | | | | | | | | | | Bonus Shares tranche 1 | Oct-23 | 360 | – | – | – | – | – | 155 | 155 | 50 | – | – | – | 360 | | Bonus Shares tranche 2 | Oct-24 | 360 | – | – | – | – | – | 108 | 108 | 108 | 36 | – | – | 360 | | Bonus Shares tranche 3 | Oct-25 | 360 | – | – | – | – | – | 83 | 83 | 82 | 83 | 29 | – | 360 | | Bonus Shares tranche 4 | Oct-26 | 52 | – | – | – | – | – | 10 | 10 | 10 | 10 | 9 | 3 | 52 | | Bonus Shares tranche 5 | Oct-27 | 52 | – | – | – | – | – | 9 | 8 | 8 | 8 | 8 | 8 | 52 | | | | 1,184 | – | – | – | – | – | 365 | 364 | 258 | 137 | 46 | 11 | 1,184 | | **Total share-based payment charge** | | | | 268 | 453 | 620 | 744 | 901 | 663 | 379 | 168 | 52 | 12 | 4,263 | Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 119 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 23. RELATED PARTY TRANSACTIONS In the ordinary course of business, the Company and its subsidiary undertakings carry out transactions with related parties as defined under IAS 24 Related Party Disclosures. Material transactions are set out below. ### (i) Transactions with key management personnel Key management personnel are defined as Directors (both Executive and Non-Executive) of City of London Investment Group PLC. (a) Details of compensation paid to the Directors as well as their shareholdings in the Group and dividends paid are provided in the Remuneration report on pages 68, 76 and 77 and in note 4. (b) One of the Group's subsidiaries manages funds for some of its key management personnel, for which it receives a fee. All transactions between key management and their close family members and the Group's subsidiary are on terms that are available to all employees of that Company. The amount received in fees during the year was £58,232 (2021: £39,300). There were no fees outstanding as at the year end. ### (ii) Summary of transactions and balances During the period, the Company received from its subsidiaries £11,840,471 (2021: £11,154,306) in respect of management service charges and dividends of £26,160,323 (2021: £12,200,000). Amounts outstanding between the Company and its subsidiaries as at 30th June 2022 are given in notes 15 and 16. M Dwyer, a Director of the Company until 30th June 2022, is also a Director of the World Markets Umbrella Fund plc, a fund managed by City of London Investment Management Company Ltd. The management fees earned by the Group during the year from this fund totalled £1,082,662 (2021: £1,092,575), with £92,295 (2021: £117,128) outstanding at the year end. ## 24. FINANCIAL INSTRUMENTS The Group's financial assets include cash and cash equivalents, investments and other receivables. Its financial liabilities include accruals, lease liabilities and other payables. The fair value of the Group's financial assets and liabilities is materially the same as the book value. ### (i) Financial instruments by category The tables below show the Group and Company's financial assets and liabilities as classified under IFRS 9 Financial Instruments: #### Group | 30th June 2022 Assets as per statement of financial position | Financial assets at amortised cost £ | Assets at fair value through profit or loss £ | Total £ | | --- | --- | --- | --- | | Other non-current financial assets | – | 7,434,586 | 7,434,586 | | Trade and other receivables | 5,210,164 | – | 5,210,164 | | Cash and cash equivalents | 22,677,893 | – | 22,677,893 | | **Total** | **27,888,057** | **7,434,586** | **35,322,643** | 120 City of London Investment Group PLC Annual Report 2021/2022 ## 24. FINANCIAL INSTRUMENTS CONTINUED | Liabilities as per statement of financial position | Financial liabilities at amortised cost £ | Liabilities at fair value through profit or loss £ | Total £ | | --- | --- | --- | --- | | Trade and other payables | 8,350,276 | 945,898 | 9,296,174 | | Current lease liabilities | 388,986 | – | 388,986 | | Non-current lease liabilities | 2,213,854 | – | 2,213,854 | | **Total** | **10,953,116** | **945,898** | **11,899,014** | | 30th June 2021 Assets as per statement of financial position | Financial assets at amortised cost £ | Assets at fair value through profit or loss £ | Total £ | | --- | --- | --- | --- | | Other non-current financial assets | – | 4,373,485 | 4,373,485 | | Trade and other receivables | 5,871,731 | – | 5,871,731 | | Cash and cash equivalents | 25,514,619 | – | 25,514,619 | | **Total** | **31,386,350** | **4,373,485** | **35,759,835** | | Liabilities as per statement of financial position | Financial liabilities at amortised cost £ | Liabilities at fair value through profit or loss £ | Total £ | | --- | --- | --- | --- | | Trade and other payables | 8,040,676 | 69,558 | 8,110,234 | | Current lease liabilities | 392,954 | – | 392,954 | | Non-current lease liabilities | 2,348,101 | – | 2,348,101 | | **Total** | **10,781,731** | **69,558** | **10,851,289** | ### Company | 30th June 2022 Assets as per statement of financial position | Investment in subsidiaries £ | Financial assets at amortised cost £ | Assets at fair value through profit or loss £ | Total £ | | --- | --- | --- | --- | --- | | Other non-current financial assets | 103,244,651 | 3,849,385 | 1,818,167 | 108,912,203 | | Trade and other receivables | – | 4,764,485 | – | 4,764,485 | | Cash and cash equivalents | – | 6,919,935 | – | 6,919,935 | | **Total** | **103,244,651** | **15,533,805** | **1,818,167** | **120,596,623** | Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 121 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 24. FINANCIAL INSTRUMENTS CONTINUED | Liabilities as per statement of financial position | Financial liabilities at amortised cost £ | Liabilities at fair value through profit or loss £ | Total £ | | --- | --- | --- | --- | | Trade and other payables | 3,530,682 | 76,196 | 3,606,878 | | Current lease liabilities | 121,573 | – | 121,573 | | Non-current lease liabilities | 1,026,248 | – | 1,026,248 | | **Total** | **4,678,503** | **76,196** | **4,754,699** | | 30th June 2021 Assets as per statement of financial position | Investment in subsidiaries £ | Financial assets at amortised cost £ | Assets at fair value through profit or loss £ | Total £ | | --- | --- | --- | --- | --- | | Other non-current financial assets | 103,127,205 | 1,960,169 | 1,874,766 | 106,962,140 | | Trade and other receivables | – | 6,322,463 | – | 6,322,463 | | Cash and cash equivalents | – | 2,905,184 | – | 2,905,184 | | **Total** | **103,127,205** | **11,187,816** | **1,874,766** | **116,189,787** | | Liabilities as per statement of financial position | Financial liabilities at amortised cost £ | Liabilities at fair value through profit or loss £ | Total £ | | --- | --- | --- | --- | | Trade and other payables | 3,149,674 | – | 3,149,674 | | Current lease liabilities | 131,180 | – | 131,180 | | Non-current lease liabilities | 1,148,549 | – | 1,148,549 | | **Total** | **4,429,403** | **–** | **4,429,403** | ### (ii) Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree to which the fair value is observable. - • **Level 1:** fair value derived from quoted prices (unadjusted) in active markets for identical assets and liabilities. - • **Level 2:** fair value derived from inputs other than quoted prices included within level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). - • **Level 3:** fair value derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data. 122 City of London Investment Group PLC Annual Report 2021/2022 Overview Strategic report Governance Financial statements Shareholder information ## 24. FINANCIAL INSTRUMENTS CONTINUED The fair values of the financial instruments are determined as follows: - Investments for hedging purposes are valued using the quoted bid price and shown under level 1. - Investments in own funds are determined with reference to the net asset value (NAV) of the fund. Where the NAV is a quoted price the fair value is shown under level 1, where the NAV is not a quoted price the fair value is shown under level 2. - Forward currency trades are valued using the forward exchange bid rates and are shown under level 2. - Unlisted equity securities are valued using the net assets of the underlying companies and are shown under level 3. The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement. Group | | Level 1 £ | Level 2 £ | Level 3 £ | Total £ | | --- | --- | --- | --- | --- | | **30th June 2022** | | | | | | **Financial assets at fair value through profit or loss** | | | | | | Investment in other non-current financial assets | 5,616,419 | 1,818,167 | – | 7,434,586 | | Total | 5,616,419 | 1,818,167 | – | 7,434,586 | | **Financial liabilities at fair value through profit or loss** | | | | | | Forward currency trades | – | 945,898 | – | 945,898 | | Total | – | 945,898 | – | 945,898 | | | Level 1 £ | Level 2 £ | Level 3 £ | Total £ | | --- | --- | --- | --- | --- | | **30th June 2021** | | | | | | **Financial assets at fair value through profit or loss** | | | | | | Investment in other non-current financial assets | 2,498,719 | 1,874,766 | – | 4,373,485 | | Total | 2,498,719 | 1,874,766 | – | 4,373,485 | | **Financial liabilities at fair value through profit or loss** | | | | | | Forward currency trades | – | 69,558 | – | 69,558 | | Total | – | 69,558 | – | 69,558 | Company | | Level 1 £ | Level 2 £ | Level 3 £ | Total £ | | --- | --- | --- | --- | --- | | **30th June 2022** | | | | | | Investment in other non-current financial assets | – | 1,818,167 | – | 1,818,167 | | Total | – | 1,818,167 | – | 1,818,167 | | | Level 1 £ | Level 2 £ | Level 3 £ | Total £ | | --- | --- | --- | --- | --- | | **30th June 2021** | | | | | | Investment in other non-current financial assets | – | 1,874,766 | – | 1,874,766 | | Total | – | 1,874,766 | – | 1,874,766 | City of London Investment Group PLC Annual Report 2021/2022 123 Financial statements # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 24. FINANCIAL INSTRUMENTS CONTINUED ### Level 3 Level 3 assets as at 30th June 2022 are nil (2021: nil). Where there is an impairment in the investment in own funds, the loss is reported in the income statement. No impairment was recognised during the period or the preceding year. The fair value gain on the forward currency trades is offset in the income statement by the foreign exchange losses on other currency assets and liabilities held during the period and at the period end. The net loss reported for the period is £519,633 (2021: net loss £60,607). #### (iii) Foreign currency risk Almost all of the Group's revenues, and a significant part of its expenses, are denominated in currencies other than sterling, principally US dollars. These revenues are derived from fee income which is based upon the net asset value of accounts managed, and have the benefit of a natural hedge by reference to the underlying currencies in which investments are held. Inevitably, debtor and creditor balances arise which in turn give rise to currency exposure. The Group assesses its hedging requirements and executes forward foreign exchange transactions so as to substantially reduce the Group's exposure to currency market movements. The level of forward currency hedging is such as is judged by the Directors to be consistent with market conditions. As at 30th June 2022, the Group had net asset balances of US$23,917,936 (2021: US$9,211,328), offset by forward sales totalling US$24,500,000 (2021: US$8,300,000). Other significant net asset balances were C$499,036 (2021: C$648,301), and SGD1,736,510 (2021: SGD1,924,212). Had the US dollar strengthened or weakened against sterling as at 30th June 2022 by 10%, with all other variables held constant, the Group's net assets would have increased or decreased (respectively) by less than 1%, because the US dollar position is hedged by the forward sales. #### (iv) Market risk Changes in market prices, such as foreign exchange rates and equity prices will affect the Group's income and the value of its investments. Where the Group holds investments in its own funds categorised as unlisted investments, and in other listed investments, the market price risk is managed through diversification of the portfolio. A 10% increase or decrease in the price level of the funds' relevant benchmarks, with all other variables held constant, would result in an increase or decrease of approximately £0.3 million in the value of the investments and profit before tax. The Group's International REIT and Global Equity CEF funds have been consolidated as controlled entities, and therefore the securities held by the funds are reported in the consolidated statement of financial position under investments. At 30th June 2022, all those securities were listed on a recognised exchange. A 10% increase or decrease in the price level of the securities would result in a gain or loss respectively of approximately £0.4 million to the Group. The Group is also exposed to market risk indirectly via its Funds under Management, from which its fee income is derived. To hedge against potential losses in fee income, the Group may look to invest in securities or derivatives that should increase in value in the event of a fall in the markets. The purchase and sale of these securities are subject to limits established by the Board and are monitored on a regular basis. The investment management and settlement functions are totally segregated. The profit from hedging recognised in the Group income statement for the period is £nil (2021: £nil). 124 City of London Investment Group PLC Annual Report 2021/2022 ## 24. FINANCIAL INSTRUMENTS CONTINUED ### (v) Credit risk The majority of debtors relate to management fees due from funds and segregated account holders. As such, the Group is able to assess the credit risk of these debtors as minimal. For other debtors a credit evaluation is undertaken on a case by case basis. The Group has zero experience of bad or overdue debts. The majority of cash and cash equivalents held by the Group are with leading UK and US banks. The credit risk is managed by carrying out regular reviews of each institution's credit rating and of their published financial position. Given their high credit ratings, management does not expect any counterparty to fail to meet its obligations. ### (vi) Liquidity risk The Group's liquidity risk is minimal because commission payable forms the major part of trade creditors, and payment is made only upon receipt of the related fee income plus the Group's strategy is to maximise its cash position. In addition, the Group's investments in funds that it manages can be liquidated immediately if required. ### (vii) Interest rate risk The Group has no borrowings, and therefore has no exposure to interest rate risk other than that which attaches to its interest earning cash balances and forward currency contracts. The Group's strategy is to maximise the amount of cash which is maintained in interest bearing accounts, and to ensure that those accounts attract a competitive interest rate. At 30th June 2022, the Group held £22,677,893 (2021: £25,514,619) in cash balances, of which £19,381,084 (2021: £23,911,707) was held in bank accounts which attract variable interest rates. The effect of a 100 basis points increase/decrease in interest rates on the Group's net assets would not be material. ### (viii) Capital risk management The Group manages its capital to ensure that all entities within the Group are able to operate as going concerns and exceed any minimum externally imposed capital requirements. The capital of the Group and Company consists of equity attributable to the equity holders of the Parent Company, comprising issued share capital, share premium, retained earnings and other reserves as disclosed in the statement of changes in equity. The Group's operating subsidiary company in the UK, City of London Investment Management Company Ltd is subject to the minimum capital requirements of the Financial Conduct Authority (FCA) in the UK. This subsidiary held surplus capital over its requirements throughout the period. The Group is required to undertake an Internal Capital Adequacy Assessment Process (ICAAP), under which the Board quantifies the level of capital required to meet operational risks. The Group will produce its first Internal Capital and Risk Assessment (ICARA) in FY 2023. The objective of this is to ensure that the Group has adequate capital to enable it to manage risks which are not adequately covered under the Pillar 1 requirements. This process includes stress testing for the effects of major risks, such as a significant market downturn, and includes an assessment of the Group's ability to mitigate the risks. ## 25. POST BALANCE SHEET EVENTS There have been no material events occurring between the balance sheet date and the date of signing this report. Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 125 ## SHAREHOLDER INFORMATION ### Contents Notice of Annual General Meeting – Notice of Annual General Meeting 127 – Explanatory notes to the Notice of AGM 130 – Further notes 134 Company information IBC 126 City of London Investment Group PLC Annual Report 2021/2022 # NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the AGM of the Company will be held on Monday 31st October 2022 at 77 Gracechurch Street, London EC3V 0AS at 11:30am (Greenwich Mean Time) to consider and, if thought appropriate, pass the following resolutions, of which resolutions 1 to 14 will be proposed as ordinary resolutions and resolutions 15 to 19 will be proposed as special resolutions. ## Voting In order to save paper we no longer post hard copy Proxy Forms, and encourage shareholders to vote online by logging on to www.signalshares.com and follow the instructions given. CREST members may also use the CREST electronic proxy appointment service to submit their proxy appointment in respect of the AGM. Full details regarding voting can be found in the Further Notes to the Notice of the AGM on pages 134 to 136. Please note that all proxy and appointments must be received by 11:30am on Thursday 27th October 2022. Voting on the business of the meeting will be conducted by way of a poll. The results of voting on the resolutions will be posted on the Company's website as soon as practicable after the AGM. ## Ordinary Resolutions ### Reports and Accounts 1. To receive the Directors' report and the accounts of the Company for the year ended 30th June 2022. ### Directors' remuneration report 2. To approve the Directors' remuneration report for the year ended 30th June 2022, set out on pages 68 to 78 of the Annual Report and Accounts for the year ended 30th June 2022. 3. To approve the remuneration policy, as set out in the remuneration policy report in the Annual Report and Accounts for the year ended 30th June 2022. ### Dividend 4. To declare a final dividend of 22p per Ordinary Share of 1p each in the Company (Ordinary Share) for the year ended 30th June 2022, payable on 4th November 2022 to members on the register as at 30th September 2022. ### Directors 5. To re-appoint Barry Aling as a Director 6. To re-appoint Thomas Griffith as a Director. 7. To re-appoint Rian Dartnell as a Director. 8. To re-appoint Tazim Essani as a Director. 9. To re-appoint George Karpus as a Director. 10. To re-appoint Peter Roth as a Director. 11. To re-appoint Jane Stabile as a Director. ### Auditors 12. To re-appoint RSM UK Audit LLP as auditors of the Company, to hold office from the conclusion of this AGM until the conclusion of the next AGM at which accounts are laid before the Company. 13. To authorise the Audit & Risk Committee of the Company to fix the remuneration of the auditors. Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 127 Other information # NOTICE OF ANNUAL GENERAL MEETING CONTINUED ## Directors' authority to allot shares 14. To generally and unconditionally authorise the Directors, pursuant to and in accordance with Section 551 of the Companies Act 2006 (the 2006 Act), to exercise all the powers of the Company to allot shares or grant rights to subscribe for or to convert any security into shares in the Company: - (a) up to an aggregate nominal amount of £168,930; and - (b) comprising equity securities (as defined in Section 560(1) of the 2006 Act) up to a further aggregate nominal amount of £168,930 in connection with an offer by way of a rights issue; such authorities to apply in substitution for all previous authorities pursuant to Section 551 of the 2006 Act and to expire at the end of the next Annual General Meeting or on 31st October 2023, whichever is the earlier, but in each case so that the Company may make offers and enter into agreements during the relevant period which would, or might, require shares to be allotted or rights to subscribe for or to convert any security into shares to be granted after the authority ends. For the purposes of this resolution, 'rights issue' means an offer to: - (i) ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and - (ii) holders of other equity securities, if this is required by the rights of those securities or, if the Directors consider it necessary, as permitted by the rights of those securities, to subscribe for further securities by means of the issue of a renounceable letter (or other negotiable document) which may be traded for a period before payment for the securities is due, but subject in both cases to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or legal, regulatory or practical problems in, or under the laws of, any territory. ## Special Resolutions ### Employee benefit trust 15. That the trustees of City of London Employee Benefit Trust (the EBT) be and are hereby authorised to hold ordinary shares in the capital of the Company from time to time, for and on behalf of the Employee Share Ownership Plan and Employee Incentive Plan, up to a maximum in aggregate equal to 10% of the issued Ordinary Share capital of the Company. ### Disapplication of pre-emption rights 16. That, if resolution 14 is passed, the Directors be authorised to allot equity securities (as defined in the 2006 Act) for cash under the authority given by that resolution and/or to sell ordinary shares held by the Company as treasury shares for cash as if section 561 of the 2006 Act did not apply to any such allotment or sale, such authority to be limited: - (a) to allotments for rights issues and other pre-emptive issues; and - (b) to the allotment of equity securities or sale of treasury shares (otherwise than under paragraph (a) above) up to a nominal amount of £25,339: such authority to expire at the end of the next AGM of the Company or, if earlier, at the close of business on 31st October 2023 but, in each case, prior to its expiry the Company may make offers, and enter into agreements, which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the authority expires and the Directors may allot equity securities (and sell treasury shares) under any such offer or agreement as if the authority had not expired. 17. That, if resolution 14 is passed, the Directors be authorised, in addition to any authority granted under resolution 16, to allot equity securities (as defined in the 2006 Act) for cash under the authority given by that resolution and/or to sell ordinary shares held by the Company as treasury shares for cash, as if section 561 of the 2006 Act did not apply to any such allotment or sale, such authority to be: - (a) limited to the allotment of equity securities or sale of treasury shares up to a nominal amount of £25,339; and - (b) used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction which the Directors of the Company determine to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-emption Group prior to the date of this Notice of AGM, such authority to expire at the end of the next AGM of the Company or, if earlier, at the close of business on 31st October 2023 but, in each case, prior to its expiry the Company may make offers, and enter into agreements, which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the authority expires and the Directors may allot equity securities (and sell treasury shares) under any such offer or agreement as if the authority had not expired. 128 City of London Investment Group PLC Annual Report 2021/2022 # Authority to purchase own shares 18. To unconditionally and generally authorise the Company for the purpose of Section 701 of the 2006 Act to make market purchases (as defined in Section 693(4) of the 2006 Act) of ordinary shares, provided that: (a) the maximum number of ordinary shares that may be purchased is 5,067,910; (b) the minimum price that may be paid for each ordinary share is £0.01; (c) the maximum price that may be paid for an ordinary share is an amount equal to the higher of (i) 105% of the average of the closing price of the Company's ordinary shares, as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which such ordinary share is contracted to be purchased, and (ii) an amount equal to the higher of the price of the last independent trade of an ordinary share and the highest current independent bid for an ordinary share as derived from the London Stock Exchange Trading System; and (d) this authority shall expire at the conclusion of the Company's next AGM or, if earlier, 31st October 2023 (except in relation to the purchase of ordinary shares, the contract for which was concluded before the expiry of such authority and which might be executed wholly or partly after such expiry), unless such authority is renewed prior to such time. # Notice of general meetings 19. To authorise the Directors to call a general meeting, other than an Annual General Meeting, on not less than 14 clear days' notice. By order of the Board Prism Cosec Limited Company Secretary 15th September 2022 Registered in England and Wales No. 02685257 Registered Office: 77 Gracechurch Street, London EC3V 0AS Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 129 Other information # EXPLANATORY NOTES TO THE NOTICE OF AGM The notes on the following pages give an explanation of the proposed resolutions Resolutions 1 to 14 are proposed as ordinary resolutions. For each of these resolutions to be passed, more than half of the votes cast must be in favour of the resolution. Resolutions 15 to 19 are proposed as special resolutions. For each of these resolutions to be passed, at least three-quarters of the votes cast must be in favour of the resolution. Resolution 1: Report and Accounts The first item of business is the receipt by the shareholders of the Directors' report and the accounts of the Company for the year ended 30th June 2022. The Directors' report, the accounts, and the Report of the Company's auditors on the accounts and on those parts of the Directors' remuneration report that are capable of being audited, are contained within the 2022 Annual Report. Resolution 2: Directors' remuneration report Resolution 2 seeks shareholder approval of the Directors' remuneration report for the year ended 30th June 2022, which is set out on pages 68 to 78 of the 2022 Annual Report. The Company's auditors, RSM UK Audit LLP, have audited those parts of the Directors' remuneration report that are required to be audited and their report may be found on pages 88 to 93 of the 2021 Annual Report. The vote on this resolution is advisory in nature and Directors' remuneration is not conditional on the passing of this resolution. Resolution 3: Directors' remuneration policy Resolution 3 seeks shareholder approval of the Company's remuneration policy. This policy will replace the policy previously approved by shareholders at the AGM on 21st October 2019. No substantive changes have been made to the policy but it has been generally refreshed and streamlined. The policy can be found in the 2022 Annual Report on pages 79 to 83 together with a summary of the changes proposed. Once the policy is approved, the Company will not be able to make a remuneration payment to a current or future Director or a payment for loss of office to a current or past Director unless that payment is consistent with the policy or has been approved by shareholders. Resolution 4: Dividend Resolution 4 seeks approval for a final dividend of 22p per ordinary share for the year ended 30th June 2022 (Final Dividend). If approved by shareholders, the Final Dividend will be paid on 4th November 2022 to all shareholders on the register at the close of business on 30th September 2022. Resolutions 5 to 11: Re-appointment of Directors The Company's Articles of Association (Articles) require all Directors to stand for re-appointment at each AGM. Therefore, and in line with provision 18 of the UK Corporate Governance Code, all Directors are submitting themselves for re-appointment by shareholders. The Board carries out a review of the independence of its Directors on an annual basis. In considering the independence of the Independent Non-Executive Directors proposed for re-appointment, the Board has taken into consideration the guidance provided by the UK Corporate Governance Code. Accordingly, the Board considers Barry Aling, Rian Dartnell, Tazim Essani, Peter Roth and Jane Stabile to be independent (the Independent Directors). All Directors submit themselves for annual re-appointment by shareholders in accordance with the Articles and the UK Corporate Governance Code. Chair of the Board, Barry Aling, will have served as a Non-Executive Director for a little over 9 years at the date of publication of this Notice of AGM. Typically, a Non-Executive Director would step down after that period of time in line with UK corporate governance best practice. However, the Board believed it to be in the best interests of shareholders to extend Barry Aling's tenure for a further, limited period that would take his beyond the usual 9 years to enable him to see through to completion the Board restructure that was announced in April 2022. On 1st October 2020, the Company completed its merger with Karpus Management Inc. (KIM). Pursuant to the merger, the KIM stockholders received shares in the Company capable of being voted at meetings of the shareholders of the Company. Due to familial relationships, certain of the KIM stockholders are regarded as controlling shareholders and form part of a Controlling Shareholder Group holding, in aggregate, 19,145,215 shares, being 37.8% of the Company's issued share capital, and consisting of: George W. Karpus, Karin Popham Anello, Katie Popham McCormick, William Popham, Alana Heahl, Nicholas Kuszlyk, Douglas Kuszlyk, Barbara Kuszlyk, Donald Heahl, Deborah Haehl, Alexandria Haehl, Dianna Kuszlyk and Rodd Riesenberger (the Controlling Shareholder Group). Under the Listing Rules, because the Controlling Shareholder Group together control in concert more than 30% of the voting rights of the Company (even though they have agreed to limit their voting rights as noted in note 21 of Further Notes to this Notice of AGM), the appointment or re-appointment of any Independent Director by shareholders must be approved by a majority vote of both: - (i) the shareholders of the Company; and - (ii) the independent shareholders of the Company (that is the shareholders of the Company entitled to vote on the election of Directors who are not part of the Controlling Shareholder Group). 130 City of London Investment Group PLC Annual Report 2021/2022 Other information ### Overview Resolutions 5, 7, 8, 10 and 11 are therefore being proposed as Effectiveness: Biographical details of each Director seeking ordinary resolutions which all shareholders may vote on, but in re-appointment, appear on pages 44 to 45 of this document. addition the Company will separately count the number of votes The biographical details also set out each Independent Director’s cast by independent shareholders in favour of the resolution (as a experience. The Board considers, following a formal Board proportion of the total votes of independent shareholders cast on performance evaluation, that each Director seeking re-appointment the resolution) to determine whether the second threshold referred continues to contribute effectively and to demonstrate to in (ii) above has been met. The Company will announce the commitment to his or her role. results of the resolutions on this basis as well as announcing the results of the ordinary resolutions of all shareholders. This consideration of effectiveness is based on, amongst other things, the business skills, industry experience, business model Under the Listing Rules, if a resolution to re-appoint and experiences and other contributions individuals may make ### Strategic report Independent Director is not approved by a majority vote of both (including diversity considerations), both as an individual and also the shareholders as a whole and the independent shareholders of in contributing to the balance of skills, knowledge and capability the Company at the AGM, a further resolution may be put of the Board as a whole, as well as the commitment of time for forward to be approved by the shareholders as a whole at a meeting Board and Committee meetings and other duties. which must be held more than 90 days after the date of the first vote but within 120 days of the first vote. Accordingly, if any of Independence: As previously stated, each Independent Director’s resolutions 5, 7, 8, 10 and 11 are not approved by a majority vote independence was determined by reference to the relevant of the Company’s independent shareholders at the AGM, the provisions of the 2018 UK Corporate Governance Code. The relevant Director(s) will be treated as having been re-appointed Board also considers that each of the Independent Directors is only for the period from the date of the AGM until the earlier of: independent in character and judgement and that there are no (i) the close of any general meeting of the Company, convened for relationships or circumstances which are likely to affect, or could ### Governance a date more than 90 days after the AGM but within 120 days of appear to affect, their judgement. the AGM, to propose a further resolution to re-appoint him or her; (ii) the date that is 120 days after the AGM; and (iii) the Selection: For the selection of Independent Director’s, recruitment date of any announcement by the Board that it does not intend consultants are engaged to assist in conducting a thorough search to hold a second vote. to identify suitable candidates. The selection process involves, amongst other things, giving the recruitment consultants a detailed In the event that the Director’s re-appointment is approved by a brief of the desired candidate profile against objective criteria and a majority vote of all shareholders at a second meeting, the Director rigorous process of interviews and assessments is then carried out. will then be re-appointed until the next AGM. The Company is The Nomination Committee is responsible in each case for also required to provide details of: identifying and nominating, for the approval of the Board, ### candidates to fill Board vacancies. Financial statements (i) any previous or existing relationship, transaction or arrangement between an Independent Director and the Resolution 12: Re-appointment of auditors Company, its Directors, any controlling shareholder or any The auditors of a company must be appointed or re-appointed at associate of a controlling shareholder; each general meeting at which the accounts are laid. Resolution 12 (ii) why the Company considers the proposed Independent proposes, on the recommendation of the Audit & Risk Director will be an effective Director; Committee, the re-appointment of RSM UK Audit LLP as the Company’s auditors, until the conclusion of the next general (iii) how the Company has determined that the proposed meeting of the Company at which accounts are laid. Director is an Independent Director; and (iv) the process by which the Company has selected each Resolution 13: Remuneration of auditors ### Shareholder information Independent Director. This resolution seeks shareholder consent for the Company’s Audit & Risk Committee to set the remuneration of the auditors. This is set out below: Resolution 14: Directors’ authority to allot Previous/existing relationships: The Company has received The purpose of this resolution is to renew the Directors’ power to confirmation from each of the Independent Directors that, except allot shares. The authority in paragraph (a) will allow the Directors as disclosed below, there is no existing or previous relationship, to allot new shares and grant rights to subscribe for, or convert transaction or arrangement that the Independent Directors have other securities into, shares up to approximately one-third or have had with the Company, its Directors, any controlling (33.33%) of the Company’s total issued ordinary share capital shareholder or any associate of a controlling shareholder. (exclusive of treasury shares) which, as at 15th September 2022, being the Latest Practicable Date prior to publication of this Notice of AGM (Latest Practicable Date), is equivalent to a nominal value of £168,930. City of London Investment Group PLC Annual Report 2021/2022 131 Other information # EXPLANATORY NOTES TO THE NOTICE OF AGM CONTINUED The authority in paragraph (b) will allow the Directors to allot new shares and grant rights to subscribe for, or convert other securities into, shares only in connection with a rights issue up to a further nominal value of £168,930, which is equivalent to approximately one-third (33.3%) of the total issued ordinary share capital of the Company (exclusive of treasury shares) as at the Latest Practicable Date. The Company currently holds no shares in treasury. There are no present plans to undertake a rights issue, or to allot new shares. The Directors consider it desirable to have the maximum flexibility permitted by corporate governance guidelines to respond to market developments and to enable allotments to take place to finance business opportunities as they arise. If the resolution is passed, the authority will expire on the earlier of 31st October 2023 or the end of the AGM in 2023. ## Resolution 15: Employee Benefit Trust (EBT) In accordance with the Investment Association's Principles of Remuneration, the prior approval of shareholders should be obtained before 5% or more of the Company's issued share capital is held on behalf of the EBT. Your Board of Directors therefore seeks the approval of shareholders by ordinary resolution to permit the trustees of the EBT to hold a maximum of 10% of the Company's issued ordinary share capital from time to time. Your Directors believe that granting such approval would be in the best interests of shareholders because it will offer the opportunity to align more closely the interests of employees and shareholders, will extend the Company's opportunities with respect to attracting new talent and will promote confidence in the stability of the Company's investment process from a client perspective. ## Resolutions 16 and 17: Disapplication of pre-emption rights If the Directors wish to allot new shares and other equity securities, or sell treasury shares, for cash (other than in connection with an employee share scheme), Company law requires that these shares are offered first to shareholders in proportion to their existing holdings. Resolution 16 deals with the authority of the Directors to allot new shares or other equity securities pursuant to the authority given by resolution 14, or sell treasury shares, for cash without the shares or other equity securities first being offered to shareholders in proportion to their existing holdings. Such authority shall only be used in connection with a pre-emptive offer or, otherwise, up to an aggregate nominal amount of £25,339, being approximately 5% of the total issued ordinary share capital of the Company as at the Latest Practicable Date. The Company does not hold any treasury shares as at the Latest Practicable Date. The Pre-emption Group Statement of Principles supports the annual disapplication of pre-emption rights in respect of allotments of shares and other equity securities (and sales of treasury shares for cash) representing no more than an additional 5% of issued ordinary share capital (exclusive of treasury shares), to be used only in connection with an acquisition or specified capital investment. The Pre-emption Group's Statement of Principles defines 'specified capital investment' as meaning one or more specific capital investment related uses for the proceeds of an issuance of equity securities, in respect of which sufficient information regarding the effect of the transaction on the Company, the assets the subject of the transaction and (where appropriate) the profits attributable to them is made available to shareholders to enable them to reach an assessment of the potential return. Accordingly, and in line with the template resolutions published by the Pre-emption Group, resolution 17 seeks to authorise the Directors to allot new shares and other equity securities pursuant to the authority given by resolution 14, or sell treasury shares, for cash up to a further nominal amount of £25,339, being approximately 5% of the total issued Ordinary Share capital of the Company as at the Latest Practicable Date, only in connection with an acquisition or specified capital investment which is announced contemporaneously with the allotment, or which has taken place in the preceding six-month period and is disclosed in the announcement of the issue. If the authority given in resolution 17 is used, the Company will publish details of the placing in its next annual report. If these resolutions are passed, the authorities will expire at the end of the next AGM, or on 31st October 2023, whichever is the earlier. The Board considers the authorities in resolutions 16 and 17 to be appropriate in order to allow the Company flexibility to finance business opportunities or to conduct a rights issue or other pre-emptive offer without the need to comply with the strict requirements of the statutory pre-emption provisions. The Board intends to adhere to the provisions in the Pre-emption Group's Statement of Principles not to allot shares for cash on a non-pre-emptive basis (other than pursuant to a rights issue or pre-emptive offer) in excess of an amount equal to 7.5% of the total issued ordinary share capital of the Company within a rolling three-year period other than: (i) after prior consultation with shareholders; or (ii) in connection with an acquisition or specified capital investment which is announced contemporaneously with the allotment or which has taken place in the preceding six-month period and is disclosed in the announcement of the allotment. 132 City of London Investment Group PLC Annual Report 2021/2022 ### Overview Resolution 18: Purchase of own shares Resolution 19: Notice of General Meetings The effect of resolution 18 is to grant authority to the Company to Under the 2006 Act, as amended, the notice period required for purchase its own ordinary shares, up to a maximum of 5,067,910 all general meetings of the Company is 21 days, although ordinary shares, until the AGM in 2023 or 31st October 2023, shareholders can approve a shorter notice period for general whichever is the earlier. This represents 10% of the Company’s meetings that are not Annual General Meetings, which cannot ordinary share capital in issue (excluding shares held in treasury) however be less than 14 clear days. Annual General Meetings will as at the Latest Practicable Date. The Company’s exercise of this continue to be held on at least 21 clear days’ notice. The shorter authority is subject to the stated upper and lower limits on the notice period for which shareholder approval is sought under price payable. resolution 19 would not be used as a matter of routine for such meetings, but only where the flexibility is merited by the business Pursuant to the 2006 Act, the Company can hold any shares of the meeting and is thought to be to the advantage of ### Strategic report which are repurchased as treasury shares and either re-sell them for shareholders as a whole. In the event that a general meeting is cash, cancel them, either immediately or at a point in the future, or called on less than 21 days’ notice, the Company will meet the use them for the purposes of its employee share schemes. Holding requirements for electronic voting under The companies the repurchased shares as treasury shares will give the Company the (Shareholders’ Rights) Regulations 2009. Shareholder approval ability to re-sell or transfer them in the future and will provide the will be effective until the Company’s next AGM, when it is Company with additional flexibility in the management of its intended that a similar resolution will be approved. capital base. No dividends will be paid on, and no voting rights will be exercised in respect of, treasury shares. Shares held as treasury shares will not automatically be cancelled and will not be taken into account in future calculations of earnings per share (unless they are subsequently re-sold or transferred out of treasury). ### Governance The Directors consider it desirable and in the Company’s interests for shareholders to grant this authority. The Directors have no present intention to exercise this authority and will only do so if and when conditions are favourable with a view to enhancing net asset value per share. The Company will not, save in accordance with a predetermined, irrevocable and non-discretionary programme, repurchase shares in the period immediately preceding the preliminary announcement ### Financial statements of its annual or interim results as dictated by the Listing Rules or Market Abuse Regulation (as applicable in the UK) (UK MAR) or, if shorter, between the end of the financial period concerned and the time of a relevant announcement or, except in accordance with the Listing Rules and UK MAR, at any other time when the Directors would be prohibited from dealing in shares. ### Shareholder information City of London Investment Group PLC Annual Report 2021/2022 133 Other information ## FURTHER NOTES Entitlement to attend and vote 5. Although shareholders are entitled to appoint another person 1. Only those shareholders registered in the Company’s register as their proxy to exercise all or any of their rights to attend and of members as at close of business on 27th October 2022, to speak and vote at the AGM, shareholders are encouraged or, if this meeting is adjourned, at close of business on the day to appoint the Chair of the meeting as their proxy as the which is two business days’ prior to the adjourned meeting, appointment of any proxy other than the Chair of the shall be entitled to attend and vote at the meeting. Changes to meeting could result in your vote not being cast if the the register of members after the relevant deadline shall be proxy is unable to attend the meeting due to pandemic- disregarded in determining the rights of any person to attend related restrictions. A proxy need not be a shareholder of the and vote at the meeting. Company. A shareholder may appoint more than one proxy in relation to the AGM provided that each proxy is appointed to Entry to the AGM, security arrangements and exercise the rights attached to a different share or shares held conduct of proceedings by that shareholder. 2. If any shareholders or their proxies intend to attend the meeting in person, we request that they advise the Company The appointment of a proxy does not preclude a shareholder at least 48 hours in advance of the meeting by email to from attending and voting in person at the AGM. investorrelations@citlon.co.uk. We will continue to closely monitor any developments in public health guidance in 6. In the case of joint holders, any one holder may vote. If more relation to COVID-19. than one holder is present at the meeting, only the vote of the senior will be accepted, seniority being determined in the order Our website, www.clig.co.uk, contains the latest information in which the names appear on the register. A space has been for shareholders and will be updated before the AGM should included in the Proxy Form to allow members to specify the there be any changes to the arrangements set out above. number of shares in respect of which that proxy is appointed. Where appropriate, we will notify shareholders of the change Shareholders who return the Proxy Form duly executed but via a Regulatory Information Service announcement as early leave this space blank will be deemed to have appointed the as is possible before the date of the meeting. proxy in respect of all of their shares. Where appointing multiple proxies, shareholders should indicate on each Proxy Website giving information regarding the meeting Form the name of the proxy they wish to appoint and the 3. A copy of this Notice of AGM and other information regarding number of Ordinary Shares in respect of which the proxy is the meeting, including the information required by section appointed. All Proxy Forms should be returned together. 311A of the 2006 Act, can be found at www.clig.co.uk. Shareholders may not use any electronic address provided in Shareholders can also appoint multiple proxies by logging on either this Notice of AGM or any related documents to www.signalshares.com and completing the online (including the Proxy Form) to communicate with the instructions. Company for any purposes other than those expressly stated. 7. To appoint a proxy, either: (a) deposit the Proxy Form, and Appointment of proxies any power of attorney or other authority under which it is 4. Hard copy Proxy Forms are not being issued this year to save executed (or a duly certified copy of any such power or paper, however shareholders can request a hard copy directly authority), with the Company’s Registrar, Link Group, PXS1, from the registrar, Link Group, on +44 (0)371 664 0300. 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 Calls are charged at the standard geographic rate and will vary 4DL; or (b) lodge the proxy appointment using the CREST by provider. Calls outside the United Kingdom will be charged Proxy Voting Service in accordance with note 12 below; or at the applicable international rate. Lines are open between (c) lodge online proxies, in accordance with note 10 below, 09:00 – 17:30, Monday to Friday, excluding public holidays in each case so as to be received no later than 48 hours in England and Wales. (excluding non-working days) before the time of the holding of the AGM or any adjournment thereof. Please note that all Proxy Forms and appointments, whether postal or electronic, must be received by 11:30am on 27th October 2022. 134 City of London Investment Group PLC Annual Report 2021/2022 ### Corporate representatives 8. A corporation that is a shareholder can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a shareholder provided that no more than one corporate representative exercises powers over the same share. Under the current circumstances, corporate shareholders are strongly encouraged to complete and return a Proxy Form appointing the Chair of the meeting to ensure their votes are included in the poll. ### Nominated persons 9. The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who have been nominated to receive communications from the Company in accordance with section 146 of the 2006 Act (Nominated Persons). Nominated Persons may have a right under an agreement with the member who holds the shares on their behalf to be appointed (or to have someone else appointed) as a proxy. Alternatively, if Nominated Persons do not have such a right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the person holding the shares as to the exercise of voting rights. ### Voting 10. The website address for online voting is www.signalshares.com. You will need your Shareholder Reference Number to log in and follow the instructions to lodge your votes. You can vote either: - by logging on to www.signalshares.com and following the instructions; - requesting a hard copy form of proxy directly from the registrars, Link Group, on Tel: 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. We are open between 09:00 - 17:30, Monday to Friday, excluding public holidays in England and Wales; or - in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the procedures set out below. ### Total voting rights 11. The total number of issued ordinary shares in the Company on the Latest Practicable Date, is 50,679,095. As described in note 21, the Controlling Shareholder Group's voting is capped at the lower of (i) the number of shares held by them; and (ii) 24.99% of the votes cast on any resolution by all shareholders. Therefore, the total number of votes exercisable as at the Latest Practicable Date is 42,039,568. ### CREST proxy instructions 12. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the meeting (and any adjournments thereof) by following the procedures described in the CREST Manual (available via www.euroclear.com). CREST Personal Members or other CREST sponsored members (and those CREST members who have appointed a voting service provider) should refer to their CREST sponsor or voting service provider, who will be able to take the appropriate action on their behalf. 13. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a CREST Proxy Instruction) must be properly authenticated in accordance with Euroclear's specifications and must contain the information required for such instructions, as described in the CREST Manual. The message (regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy) must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA10) by the latest time(s) for receipt of proxy appointments specified in note 7, above. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 14. CREST members (and, where applicable, their CREST sponsors or voting service providers) should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider, to procure that their CREST sponsor or voting service provider takes) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members (and, where applicable, their CREST sponsors or voting service providers) are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5) (a) of the Uncertificated Securities Regulations 2001. Overview Strategic report Governance Financial statements Shareholder information City of London Investment Group PLC Annual Report 2021/2022 135 Other information # FURTHER NOTES ## Proxy appointment via Proxymity 15. If you are an institutional investor you may be able to appoint a proxy electronically via the Proxymity platform. For further information regarding Proxymity, please go to www.proxymity.io. Your proxy must be lodged 48 hours prior to the time appointed for the Meeting in order to be considered valid. Before you can appoint a proxy via this process you will need to have agreed to Proxymity's associated terms and conditions. It is important that you read these carefully as you will be bound by them and they will govern the electronic appointment of your proxy. ## Automatic poll voting 16. Each of the resolutions to be put to the meeting will be voted on by poll and not by show of hands. A poll reflects the number of voting rights exercisable by each member and so the Board considers it a more democratic method of voting. Members and proxies will be asked to complete a poll card to indicate how they wish to cast their votes. These cards will be collected at the end of the meeting. The results of the poll will be published on the Company's website and notified to the London Stock Exchange once the votes have been counted and verified. ## Publication of audit concerns 17. Under section 527 of the 2006 Act, members meeting the threshold requirements set out in that section have the right to require the Company to publish, on a website, a statement setting out any matter relating to: (a) the audit of the Company's accounts (including the auditors' report and the conduct of the audit) that are to be laid before the AGM; or (b) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with section 437 of the 2006 Act. The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the 2006 Act. Where the Company is required to place a statement on a website under section 527 of the 2006 Act, it must forward the statement to the Company's auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the AGM includes any statement that the Company has been required under section 527 of the 2006 Act to publish on a website. ## Right to request circulation or resolutions 18. Under section 338 and section 338A of the Companies Act 2006, members meeting the threshold requirements in those sections have the right to require the Company: (i) to give, to members of the Company entitled to receive notice of the meeting, notice of a resolution which may properly be moved and is intended to be moved at the meeting; and/or (ii) to include in the business to be dealt with at the meeting any matter (other than a proposed resolution) which may be properly included in the business. A resolution may properly be moved or a matter may properly be included in the business unless (a) (in the case of a resolution only) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company's constitution or otherwise), (b) it is defamatory of any person, or (c) it is frivolous or vexatious. Such a request may be in hard copy form or in electronic form, must identify the resolution of which notice is to be given or the matter to be included in the business, must be authorised by the person or persons making it, must be received by the Company not later than the date which is six clear weeks before the AGM, and (in the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request. ## Questions 19. All shareholders will have the opportunity to ask questions at the AGM. ## Documents on display 20. Copies of Directors' service contracts or letters of appointment will be available upon request during usual business hours on any weekday (Saturdays, Sundays and public holidays excluded) until the date of the AGM. ## Controlling Shareholder Group 21. Following completion of the merger with KIM, the Company entered into a relationship agreement with the Controlling Shareholder Group which regulates the ongoing relationship between the Company and the Controlling Shareholder Group. The members of the Controlling Shareholder Group agreed to limit their voting rights at any shareholder meeting, including the Annual General Meeting, to the lower of: (i) the number of shares held by them; and (ii) 24.99% of the votes cast on any resolution by all shareholders. 136 City of London Investment Group PLC Annual Report 2021/2022 Other information ## COMPANY INFORMATION | Financial adviser and broker | Registrar | Company registered office | | --- | --- | --- | | Zeus Capital | Link Group | City of London Investment Group PLC | | 10 Old Burlington Street | 10th Floor, Central Square | 77 Gracechurch Street | | London | 29 Wellington Street | London | | W1S 3AG | Leeds | EC3V 0AS | LS1 4DL | Auditors | | Company registration number | | --- | --- | --- | | RSM UK Audit LLP | By phone on 0871 664 0300 from the | 2685257 | | Chartered Accountants | UK and +44 371 664 0300 from overseas. | | | 25 Farringdon Street | (Calls cost 12 pence per minute plus | Company Secretary | | London | network extras. Calls outside the United | Prism Cosec Ltd | | EC4A 4AB | Kingdom will be charged at the applicable | enquiries@prismcosec.com | international rate. Lines are open from Bankers 9am to 5:30pm Mon – Fri, excluding The Royal Bank of Scotland plc public holidays in England and Wales). London City Office 62-63 Threadneedle Street By email: London enquiries@linkgroup.co.uk EC2R 8LA Financial calendar Ex-dividend date for the final dividend 29th September 2022 Final dividend record date 30th September 2022 First quarter FuM announcement 17th October 2022 AGM 31st October 2022 Final dividend payment 4th November 2022 Second quarter FuM announcement 18th January 2023 Half year results and interim dividend announcement 17th February 2023 Ex-dividend date for the interim dividend 23rd February 2023 Interim dividend record date 24th February 2023 Interim dividend payment 24th March 2023 Third quarter FuM announcement 25th April 2023 Year end 30th June 2023 For further information, please visit our website www.clig.co.uk The paper used in this document contains materials sourced from responsibly managed and sustainable commercial forests, certified in accordance with the F SC ® (Forest Stewardship Council ® ). Designed and produced byDesigned and produced by ## www.clig.co.uk CLIG office locations London 77 Gracechurch Street London EC3V 0AS United Kingdom Telephone: + 44 (0) 207 711 0771 US The Barn 1125 Airport Road Coatesville, PA 19320 United States Telephone: + 1 610 380 2110 Karpus Investment Management 183 Sully’s Trail Pittsford NY 14534 Telephone: + 1 866 527 7871 Singapore 20 Collyer Quay #10-04 Singapore 049319 Telephone: + 65 6236 9136