City of London Investment Trust Plc – Annual Financial Report

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual financial results for the year ended 30 June 2021

This announcement contains regulated information

CHAIRMAN'S COMMENT

“City of London's NAV total return was 20.0%, a decent recovery after the 14.6% negative return in the previous year. It increased its dividend for the 55^th consecutive year, by 0.5%.”

INVESTMENT OBJECTIVE

The Company's objective is to provide long-term growth in income and capital, principally by investment in equities listed on the London Stock Exchange. The Board fully recognises the importance of dividend income to shareholders.

PERFORMANCE AT 30 JUNE

1 Net asset value per ordinary share total return with debt at fair value (including dividends reinvested)

2 Share price total return using mid-market closing price

3 AIC UK Equity Income sector size weighted average NAV total return (shareholders' funds)

4 Calculated using the methodology prescribed by the Association of Investment Companies (“AIC”)

Sources: Morningstar Direct, Janus Henderson, Refinitiv Datastream

CHAIRMAN'S STATEMENT

I am pleased, in my first annual statement as Chairman, to report a 20.0% net asset value (“NAV”) total return and the 55^th annual dividend increase. Companies and markets have recovered well from the sharp downturn in 2020.

The Markets

The pivotal moment during the 12 month period came at the end of October 2020, when vaccines against Covid-19 were confirmed to be effective. Stock markets had been drifting sideways and occasionally downwards up to that point. A strong rally developed as investors anticipated an end to economic lockdowns. UK economic growth rebounded, after the sharp fall in 2020, as the economy progressively reopened. The FTSE All-Share Index produced a total return of 21.5% over the 12 month period. Medium-sized and small companies, which tend to be more exposed to the reopening of the economy, led the way, with the FTSE 250 Mid Cap Index returning 33.4% and the FTSE Small Cap Index 50.1%. The FTSE 100 Index of the largest companies, which is more defensive and had held up better in the first stages of the pandemic, returned 18.0%.

Performance

Earnings and Dividends

Following the avalanche of dividend cuts, cancellations and omissions during the second quarter of 2020, there was a marked improvement over the 12 months to 30 June 2021. City of London's revenue earnings per share rose by 8.6% to 17.09p. Special dividends accounted as revenue increased by £0.9 million to £2.4 million.  A further £7.2 million of special dividends were deemed to be capital by nature (largely resulting from business disposals) and were therefore accounted as capital and not revenue.

Expenses remained under tight control, with our ongoing charge of 0.38% very competitive compared with other actively managed funds. Interest charges were reduced by the redemption of the £30 million 8.5% debenture on 31 January 2021 and its replacement with a £30 million Private Placement Note carrying a fixed interest rate of 2.67% for a term of 25 years.

City of London increased its dividend, by 0.5% to 19.1p per ordinary share, for the 55^th consecutive year. Part of the dividend was funded from our revenue reserve, which fell by £8.1 million to £37.6 million. This was an improvement from the previous year, when the draw down from revenue reserves was £14.4 million, and excludes the special dividends accounted as capital (as referred to above) of £7.2 million. The capital reserve arising from capital gains on investments sold, which could also be used to help fund dividend payments, rose by £24.7 million to £296.6 million.

NAV Total Return

City of London's NAV total return was 20.0%, a decent recovery after the 14.6% negative return in the previous year. City of London was behind relative to the FTSE All-Share Index over the year under review by 1.5%, but ahead over the last six months of the period by 1.2%. While City of London is behind the FTSE All-Share Index over periods up to five years, reflecting the underperformance of higher yielding “value” shares, it is 19.0% ahead over 10 years with a 104.5% return.

In general, large capitalisation, defensive stocks, which had performed well in the early stages of the pandemic and continued to pay dividends throughout, disappointed overall during the period under review. City of London has greater exposure to such companies than most competitors and its performance lagged the averages for the AIC UK Equity Income and IA UK Equity Income OEIC sectors over the 12 months. More details on performance can be found in the Fund Manager's Report.

Share Issues

City of London's shares remained in demand during the year, except during a few days in September 2020 when 1,175,000 shares were bought back into Treasury, at a discount to net asset value, for a total cost of £3,736,000. These shares were subsequently reissued at a premium to net asset value, for total proceeds of £3,860,000. A further 29,220,000 ordinary shares were issued at a premium to NAV for proceeds of £109.8 million. Given the extent of demand for new shares and the potential risk of exhausting the authority granted by shareholders for new share issues at last year's Annual General Meeting, the Board convened a General Meeting on 18 June 2021 to authorise a further increase. Over the last 10 years, we have issued 220.8 million shares, at a premium to net asset value, increasing our share capital by 98%.

The Board

Philip Remnant retired as Chairman at the Annual General Meeting in October 2020. As I said in the Update for the half-year ended 31 December 2020, Philip was an outstanding leader of the Company and I know shareholders will join the Board in thanking him and wishing him well for the future.

Having served on the Board for nine years, Martin Morgan will retire at this year's Annual General Meeting. I should like to thank Martin for his wise counsel. Clare Wardle will succeed Martin as Senior Independent Director.

We also welcome Ominder Dhillon as a new Director. Ominder, who joined the Board on 1 September 2021, was Global Head of Institutional Distribution at M&G from 2015 to 2020 and Managing Director of Global Business Development at Impax Asset Management from 2011 to 2015.

Deputy Fund Manager

The Board is pleased to announce that David Smith has been appointed Deputy Fund Manager. David, who has been the Fund Manager of Henderson High Income Trust plc since 2013 and of the UK portfolio of The Bankers Investment Trust PLC since 2017, has regularly attended our Board meetings for the last three years. He has a close working relationship with Job Curtis, our long-standing Fund Manager, having been a member of Janus Henderson's Global Equity Income Team for nine years.

Environmental, Social & Governance

Environmental, social and governance (“ESG”) considerations have become an increasing priority across the investment management sector as the evidence of the destructive impact of climate change and the importance of effective governance, including diversity, has required a proactive response from investors. City of London's position on ESG-related issues has received close attention at our Board meetings over the last year. While the Company will not exclude companies or sectors that can help it to meet its income and capital growth investment objective, the Fund Manager takes ESG-related risks and opportunities into careful consideration in the selection of stocks for the portfolio. An analysis by Sustainalytics, a Morningstar-owned company widely used for ESG analytics, shows that City of London's portfolio rates slightly below average for ESG risks compared with the FTSE All-Share Index.  Please see the Annual Report for more detail of the analysis by Sustainalytics and a description of how ESG considerations feature in the Fund Manager's investment process.

Annual General Meeting

The 2021 Annual General Meeting (“AGM”) will be held, subject to Covid-19 restrictions, at the offices of Janus Henderson Investors, 201 Bishopsgate, London EC2M 3AE, on Thursday, 28 October 2021. The meeting will include a presentation by our Fund Manager, Job Curtis. For any shareholders unable to travel, we invite you to join by Zoom, the conferencing software provider. As is our normal practice, there will be live voting for those physically present at the AGM. Due to technical restrictions, we cannot offer live voting by Zoom, and we therefore request all shareholders, and particularly those who cannot attend physically, to submit their votes by proxy to ensure that their vote counts at the AGM.

Outlook

The improved profits and dividends reported by companies recently in respect of the first half of 2021 demonstrate the strength of the economic recovery after the sharp fall in 2020. This turnabout has been helped by the unprecedented monetary and fiscal stimulus orchestrated by central banks and governments globally. In the UK, the high household savings ratio accumulated as a result of restrictions on activities, such as overseas holidays, is expected to be released through markedly increased consumer spending.

The recent rise in inflation is being interpreted by many commentators as transitory, with higher commodity prices, especially for oil and gas, being a key driver. The global fiscal and monetary stimulus is expected to be wound down as the recovery becomes more established, subject to the continuing success of vaccines against Covid-19, especially if inflation becomes more persistent. Markets have become used to ultra-low interest rates and large-scale central bank buying of government bonds. A change in policy for these measures will be a test and may result in a degree of turbulence.

The UK equity market offers good relative value as can be seen by the large number of takeover bids in recent months, including the approach for Wm Morrison Supermarkets, where City of London has a shareholding. Dividend declarations by some of our investee companies during the last quarter of the 12 month period and during the first two months of the next financial year have been particularly encouraging and, if sustained, will materially improve our full year revenue return next year. Given this, together with the quality of the companies in our portfolio and the advantages of our closed-ended investment trust status, we are confident of building on City of London's unique 55-year record of annual dividend increases and of continuing to provide reliable returns.

Sir Laurie Magnus

Chairman

20 September 2021