City of London confident despite losing major client

21st Jan 2013 07:10

Despite the generally positive - albeit volatile - trend seen in developed world markets in the second half of 2012, and an associated pick-up in fund inflows, funds under Management ("FuM") at emerging markets specialist City of London Investment Group actually fell in the half year ended November 30th, to 3.9bn dollars (2.4bn pounds). However, by the end of the calendar year - December 31st - FuM had recovered slightly, to £2.5bn. Furthermore, the company explained that the Group has also had to deal with a very large redemption from a single client that took the management of its emerging market exposure in-house, having been a client of ours for nearly five years. The decision was based on a change in the client's strategic objectives.In that same vein, David Cardale, Chairman, anticipated that global investors will re-commit to their core emerging and frontier investment markets. To back up his statement he highlighted how the MXEF - the Morgan Stanley Emerging Markets index - has risen by 7% since the end of the company's reporting period. City of London's FuM at the beginning of the current financial year, on June 1st, stood at 2.9bn pounds. That was, itself, also lower than the 4.8bn (3bn pounds) as of November 30th 2011. Cardale also believes that it the firm benefits from the above trend then, "the operational gearing inherent in City of London's business model, together with the reduced costs and commissions, will produce a welcome uplift in revenues, profitability, dividend cover and ultimately, dividends themselves."Revenues, representing the Group's management charges on FuM, were £15.1m, instead of the £17.2m seen a year ago. Profit before tax of £4.7m decreased in comparison to the £5.7m of a year back. Despite all of the above the outfit paid out an interim dividend of 8p per share on December 28th.Cash and cash equivalents at the period stood at £5.8m (2011: £5.9m).Finally, the manager explained that its dividend payment policy has normally been based on a split of one third/two thirds between the interim and the final, and currently there are no plans for that to change, despite the lower (and hopefully temporary) dividend cover. Management is also currently in the process of implementing the findings of a review focused on product restructuring and process improvement. It expects that programme to result in annualised cost savings of at least £1m, to be reflected fully in its 2013/14 financial year. AB