TIDMARGO
RNS Number : 5210J
ARGO Group Limited
13 June 2014
Argo Group Limited
("Argo" or the "Company")
Annual Report and Accounts for the Year ended 31 December
2013
Argo today announces its final results for the year ended 31
December 2013.
The Company will today make available its report and accounts
for the year ended 31 December 2013 on the Company's website
www.argogrouplimited.com.
Key highlights for the twelve months ended 31 December 2013
- Revenues US$8.8 million (2012: US$8.9 million)
- Operating profit US$1.0 million (2012: US$0.9 million)
- Profit before tax US$2.1 million (2012: loss before tax
US$14.2 million after a one-off goodwill impairment charge of
US$14.9 million)
- Net assets US$28.5 million (2012: US$27.7 million) after dividend payment of US$1.3 million
Commenting on the results and outlook, Kyriakos Rialas, Chief
Executive of Argo said:
"In 2013 Argo maintained its profitability at a satisfactory
level and we are encouraged by signs of improved valuations in some
of Argo's most important private equity assets. Whilst Argo is
currently conserving liquidity we remain committed to paying a
dividend as soon as possible. I am very pleased to report that the
Argo Distressed Credit Fund was ranked Best Distressed Securities
Fund in Europe by World Finance Hedge Fund Awards 2013 and a top 5
hedge fund over three years in the category of Emerging Markets
Global Funds by BarclayHedge at the end of March 2014."
Enquiries
Argo Group Limited
Andreas Rialas
020 7016 7660
Panmure Gordon
Dominic Morley
020 7886 2500
CHAIRMAN'S STATEMENT
The Group and its objective
Argo's primary business is to deliver a diversified approach to
investing in emerging markets. Its investment objective is to
provide investors with absolute returns in the funds that it
manages by investing in, inter alia, fixed income, special
situations, local currencies and interest rate strategies, private
equity, real estate, quoted equities, high yield corporate debt and
distressed debt, although not every fund invests in each of these
asset classes.
Argo was listed on the AIM market in November 2008 and has a
performance track record dating back to 2000.
Business and operational review
This report sets out the results of Argo Group Limited for the
year ended 31 December 2013.
For the year ended 31 December 2013 the Group generated revenues
of US$8.8 million (2012: US$8.9 million) with management fees
accounting for US$6.9 million (2012: US$7.0 million). The Group
generated incentive fees of US$0.8 million during the year (2012:
US$1.2 million). These incentive fees were mostly derived as a
result of the revaluation of an investment in an Indonesian
petrochemicals refinery, PT Trans-Pacific Petrochemical Industries
("TPPI"), which has not yet been realised. However, a non-binding
offer to purchase the position has been received from Pertamina,
the Indonesian state-owned oil company, although this transaction
is not yet completed. It must be noted that the valuation of TPPI
is held in the Argo funds at the level indicated by the offer
received, even though our third party valuation indicates a higher
valuation.
Total operating costs fell to US$7.7 million (2012: US$8.0
million) after bad debt provision. During the year the Group
provided against management fees of US$2,753,200 (EUR2,000,000)
(2012: US$991,125 (EUR750,000)) due from Argo Real Estate
Opportunities Fund Limited ("AREOF") and US$650,000 (2012: Nil) due
from The Argo Fund ("TAF") and Argo Special Situations Fund LP
("ASSF").
Overall, the financial statements show an operating profit for
the year of US$1.0 million (2012: US$0.9 million) and a profit
before tax of US$2.1 million (2012: loss US$14.2 million after a
one-off goodwill impairment charge of US$ 14.9 million) reflecting
the unrealised gain on current asset investments of US$0.9 million
(2012: unrealised loss US$0.2 million).
The number of employees of the Group at 31 December 2013 was 38
(2012: 40).
At the year end, the Group had net assets of US$28.5 million
(2012: US$27.7 million) and net current assets of US$26.2 million
(2012: US$27.4 million) after paying a dividend of 2.1 cents (1.3
pence) per share on 26 April 2013 (2012: 2.0 cents, 1.3 pence).
Net current assets include investments in TAF, AREOF and ASSF at
fair values of US$19.1 million (2012: US$17.6 million),US$0.2
million (2012: US$0.8 million) and US$0.09 million (2012: US$0.1
million) respectively. Our continued investment in our funds
supports the liquidity of those funds and demonstrates the
commitment of the Group towards its fund investors. This close
alignment results in a high correlation between the performance of
the Company and the performance of its funds. It should be noted,
however, that the Group does not intend to and may not be able to
realise these investments in the immediate future due to assets
held by these funds.
The Group has provided AREOF with a notice of deferral in
relation to amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2013 total US$1,265,791 (EUR919,505) (2012: US$2,597,188
(EUR1,965,333)) after a bad debt provision of US$2,753,200
(EUR2,000,000) (2012: US$991,125 (EUR750,000)). AREOF continues to
meet part of this obligation to the Argo Group as and when
liquidity allows with a further US$476,000 (EUR350,000) being
settled in January 2014. The AREOF management contract has a fixed
term expiring on 31 July 2018. In November 2013 AREOF offered Argo
Group Limited additional security for the continued support in the
form of debentures and guarantees by underlying intermediate
companies.
During the year Argo Group advanced US$1,376,600 (EUR1,000,000)
to Bel Rom Trei ("Bel Rom"), an AREOF Group entity based in Romania
that owns Sibiu Shopping City, in order to assist with its
operational cash requirements. The loan is repayable on demand and
accrues interest at 12%. The full amount of the loan and accrued
interest remains outstanding at the year end. The Directors
consider this loan to be fully recoverable on the basis that
discussions with lending banks and potential purchasers of Sibiu
have yielded offers in excess of the debt associated with the
project banks.
Fund performance
The Argo Funds
Annualised
2013 2012 performance
Launch Year Year Since since Sharpe Down
Fund date total total inception inception ratio months AUM
------------------- -------- ------- ------- ------------ ------------- ------- -------- -----
% % % CAGR % US$m
------------------- -------- ------- ------- ------------ ------------- ------- -------- -----
38
of
The Argo Fund Oct-00 8.49 -0.07 154.23 8.10 0.67 159 94.5
------------------- -------- ------- ------- ------------ ------------- ------- -------- -----
Argo Distressed 23
Credit of
Fund Oct-08 12.64 24.05 74.05 11.72 0.90 63 26.7
------------------- -------- ------- ------- ------------ ------------- ------- -------- -----
Argo Special 20
Situations of
Fund LP Feb-12 -23.3 -2.80 -25.3 -14.10 -1.05 23 90.4
------------------- -------- ------- ------- ------------ ------------- ------- -------- -----
10
Argo Local Markets of
Fund Nov-12 -9.80 1.56 -8.39 -7.16 -1.70 14 5.5
------------------- -------- ------- ------- ------------ ------------- ------- -------- -----
Argo Real Estate 54
Opportunities of
Fund Aug-06 -46.58 -2.26 -94.00 -35.13 N/A 86* 54.2
------------------- -------- ------- ------- ------------ ------------- ------- -------- -----
Total 271.3
----------------------------- ------- ------- ------------ ------------- ------- -------- -----
* NAV only officially measured twice a year, March and
September.
The Argo funds ended the year with Assets under Management
("AUM") at US$271.3 million, 18.1% lower than at the beginning of
the year.
The year started on a positive note with improved sentiment
towards the euro and greater risk appetite amongst investors. The
bailout of Cyprus and its banks gave investors cause to reconsider
their risk appetite by the end of the first quarter and by May
emerging market local bonds had been particularly hard hit by news
from the US that it may begin to rein-in its bond purchases under
the quantitative easing programme. Speculation over US monetary
policy, specifically "tapering", continued until the end of the
year.
Against this backdrop, TAF was ahead by 8.49% and Argo
Distressed Credit Fund ("ADCF") by 12.64% at 31 December 2013. The
main driver in the performance of both of these funds was the
mark-up in their investment in TPPI and in the case of ADCF its
investment in Greek Sovereign Bonds. By comparison, the main hedge
fund indices showed a small positive return of 3.02% for the same
period.
ASSF finished in negative territory at the year end showing a
negative return of 23.3%. The main contributors to this position
were the decline in share price of AREOF; a write down in the value
of an investment in the Greek telecommunications company, On
Telecoms; but with a higher valuation ascribed to the investment in
TPPI.
After a two-year shutdown, TPPI successfully restarted
operations in early November and ran the facility near or at
capacity for much of December, thus demonstrating the viability of
the plant. The Fund previously reported that it was engaged in
discussions regarding the disposal of its unsecured claim in TPPI.
Despite reaching a conditional written agreement with Pertamina,
the Indonesian state-owned oil company, to acquire this interest,
Pertamina has so far not concluded the transaction. We consider
that since the refinery is now operational, the Fund may be well
placed to get a better deal through a more competitive sale
process.
The Argo Local Markets Fund ("ALMF") was particularly hard hit
in May when it felt the impact of higher US interest rates and a
stronger US dollar following on from the change in tone from the US
Federal Reserve. During the year ALMF opened a number of interest
rate swap lines with counterparties and is now better placed to
hedge or short EM rates in accordance with its mandate. At the year
end ALMF finished behind by 9.80%.
AREOF continues to operate in a challenging environment. While
conditions within the markets that AREOF operates have started to
show signs of recovery from the last few years of recession, the
rate and robustness of growth has remained very modest.
The reduced level of cash flow within AREOF, while being
proactively managed, has resulted in breaches of terms and
covenants on certain loans. This situation is being remedied by
regular communication and negotiation with the lending banks with a
view to restructuring the debt commitments to better align these to
the current level of the AREOF Group's cash flow. Several of these
negotiations are ongoing.
AREOF's adjusted Net Asset Value was US$53.3 million (EUR39.4
million) as at 30 September 2013, compared with US$94.8 million
(EUR73.78 million) a year earlier. The adjusted Net Asset Value per
share at 30 September 2013 was US$0.09 (EUR0.06) (2012: US$0.2
(EUR0.12)).
AREOF'S ordinary shares on AIM were suspended on 30 August 2013
following breach of a loan covenant and the subsequent loan
termination by the lending bank. While the lender has agreed to
suspend enforcement action, AREOF's shares remained suspended
pending greater certainty of the various ongoing loan restructuring
discussions. On 3 March 2014 AREOF delisted from AIM to allow loan
restructuring discussions to proceed outside of the extensive
disclosure requirements that an AIM listing entails. The valuation
of Argo Group Limited's investment in AREOF has been based on the
equity price prevailing at the time of the suspension.
Dividends
Argo is working towards the payment of a dividend which will
ultimately depend on the success of the initiatives described
above. The directors do not recommend a final dividend but intend
to pay an interim dividend as soon as these initiatives are
complete. The final dividend for the year ended 31 December 2012 of
US$1,348,288 was paid on 26 April 2013 to ordinary shareholders who
were on the Register of Members on 2 April 2013. Going forward, the
Company intends, subject to its financial performance, to pay a
final dividend each year.
Outlook
The next 12 months will be dominated by the Group's efforts to
grow its AUM in an environment dominated by investor risk
intolerance, reluctance to change hedge fund allocation and a new
regulatory landscape. The top priorities will be to monetise
certain of our investments and review our operational efficiency.
In the very near term our growth rate will be heavily influenced by
the success of our program to monetise some of our investments as
well as events in Europe. Over the longer term the Board believes
there remains significant opportunity for growth in assets and
profits and remains committed to the emerging markets sector.
REPORT OF THE INDEPENDENT AUDITORS, KPMG AUDIT LLC, TO THE
MEMBERS OF ARGO GROUP LIMITED
We have audited the consolidated financial statements of Argo
Group Limited for the year ended 31 December 2013 which comprise
the Consolidated Statement of Comprehensive Income, the
Consolidated Statement of Financial Position, the Consolidated
Statement of Changes in Shareholders' Equity, the Consolidated
Statement of Cash Flows and the related notes. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
(IFRSs), as adopted by the EU.
This report is made solely to the Group's members, as a body.
Our audit work has been undertaken so that we might state to the
Group's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Group and the Group's members as a body, for
our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors' Responsibilities
Statement set out on page 12, the directors are responsible for the
preparation of consolidated financial statements that give a true
and fair view. Our responsibility is to audit, and express an
opinion on, the consolidated financial statements in accordance
with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing
Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the consolidated financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the consolidated financial statements sufficient to
give reasonable assurance that the consolidated financial
statements are free from material misstatement, whether caused by
fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the Group's circumstances
and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the consolidated
financial statements.
Opinion on the consolidated financial statements
In our opinion the consolidated financial statements:
-- give a true and fair view of the state of the Group's affairs
as at 31 December 2013 and of the Group's profit for the year then
ended; and
-- have been properly prepared in accordance with IFRSs, as
adopted by the EU.
Emphasis of matter
In forming our opinion on the consolidated financial statements,
we also wish to draw your attention to the following matters:
Valuation of investment in The Argo Fund Limited
The valuation of the investment in The Argo Fund Limited
("TAF"), as disclosed in note 11 to the financial statements, is
based on various assumptions and limiting conditions, many of which
are difficult to assess given the composition of the investment
portfolio of TAF. The underlying investment portfolio of TAF is
considered illiquid and therefore inherently requires the judgement
of the Directors to value. The audit report for The Argo Fund
Limited for the year end 30 June 2013 was modified in respect of
investment valuation.
The above matters indicate the existence of inherent
uncertainties with regard to the carrying value of the investment
in The Argo Fund Limited in the financial statements of the
Group.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 DECEMBER 2013
Year ended Year ended
31 December 31 December
2013 2012
Note US$'000 US$'000
Management fees 6,920 7,026
Incentive fees 803 1,216
Other income 1,041 690
==================================== ====== ============ ============
2(e),
Revenue 3 8,764 8,932
==================================== ====== ============ ============
Legal and professional expenses (261) (390)
Management and incentive
fees payable 2(f) (308) (71)
Operational expenses (1,212) (1,885)
Employee costs 4 (3,481) (3,530)
Foreign exchange loss (41) (25)
Bad debts 12 (2,332) (1,062)
Amortisation of intangible
assets 9 - (990)
Depreciation 10 (89) (73)
==================================== ====== ============ ============
Operating profit 6 1,040 906
==================================== ====== ============ ============
Impairment of goodwill 9 - (14,945)
Interest income on cash
and cash equivalents 115 15
Unrealised gain/(loss) on
investments 942 (175)
==================================== ====== ============ ============
Profit/(loss) on ordinary
activities before taxation 3 2,097 (14,199)
==================================== ====== ============ ============
Taxation 7 (115) (205)
==================================== ====== ============ ============
Profit/(loss) for the year
after taxation attributable
to members of the Company 8 1,982 (14,404)
Other comprehensive income
Exchange differences on
translation of foreign operations 147 86
==================================== ====== ============ ============
Total comprehensive income/(loss)
for the year 2,129 (14,318)
==================================== ====== ============ ============
Year Year ended
ended
31 December 31 December
2013 2012
US$ US$
Earnings per share (basic) 8 0.03 (0.21)
============================== ============ ============
Earnings per share (diluted) 8 0.03 (0.21)
============================== ============ ============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2013
At 31 December At 31 December
2013 2012
Note US$'000 US$'000
Assets
Non-current assets
Intangible assets 9 - -
Fixtures, fittings and
equipment 10 177 221
Loans and advances receivable 14 2,107 118
=============================== ===== =============== ===============
Total non-current assets 2,284 339
=============================== ===== =============== ===============
Current assets
Investments 11 19,420 18,478
Trade and other receivables 12 3,300 4,284
Cash and cash equivalents 13 3,726 5,139
Loans and advances receivable 14 217 142
=============================== ===== =============== ===============
Total current assets 26,663 28,043
=============================== ===== =============== ===============
Total assets 3 28,947 28,382
=============================== ===== =============== ===============
Equity and liabilities
Equity
Issued share capital 15 674 674
Share premium 30,878 30,878
Revenue reserve (1,040) (1,674)
Foreign currency translation
reserve 2(d) (2,017) (2,164)
=============================== ===== =============== ===============
Total equity 28,495 27,714
=============================== ===== =============== ===============
Current liabilities
Trade and other payables 16 388 467
Taxation payable 7 64 201
=============================== ===== =============== ===============
Total current liabilities 3 452 668
=============================== ===== =============== ===============
Total equity and liabilities 28,947 28,382
=============================== ===== =============== ===============
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED 31 DECEMBER 2013
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2012 2012 2012 2012 2012
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2012 674 30,878 14,123 (2,250) 43,425
Total comprehensive
income
Loss for the period
after taxation - - (14,404) 86 (14,318)
Transactions with
owners recorded
directly in equity
Dividends to equity
holders - - (1,393) - (1,393)
As at 31 December
2012 674 30,878 (1,674) (2,164) 27,714
===================== ========== ========== ========== ============== =========
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2013 2013 2013 2013 2013
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2013 674 30,878 (1,674) (2,164) 27,714
Total comprehensive
income
Profit for the period
after taxation - - 1,982 147 2,129
Transactions with
owners recorded
directly in equity
Dividends to equity
holders (note 15) - - (1,348) - (1,348)
As at 31 December
2013 674 30,878 (1,040) (2,017) 28,495
======================= ========== ========== ========== ============== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2013
Year ended Year ended
31 December 31 December
2013 2012
Note US$'000 US$'000
Net cash (outflow)/inflow
from operating activities 18 (237) 429
Cash flows from investing
activities
Interest received on
cash and cash equivalents 115 15
Purchase of current
asset investments 11 - (2,115)
Purchase of fixtures,
fittings and equipment 10 (46) (225)
Net cash received from/(used
in) investing activities 69 (2,325)
============================== ===== ============ ============
Cash flows from financing
activities
Dividends paid 15 (1,348) (1,393)
============================== ===== ============ ============
Net cash used in financing
activities (1,348) (1,393)
============================== ===== ============ ============
Net decrease in cash
and cash equivalents (1,516) (3,289)
Cash and cash equivalents
at 1 January 2013 and
1 January 2012 5,139 8,358
Foreign exchange gain
on cash and cash
equivalents 103 70
Cash and cash equivalents
as at 31 December 2013
and 31 December 2012 3,726 5,139
============================== ===== ============ ============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
1. CORPORATE INFORMATION
The Company is domiciled in the Isle of Man under the Companies
Act 2006. Its registered office is at 33-37 Athol Street, Douglas,
Isle of Man, IM1 1LB and the principal place of business is at 10
Vasilissis Frederikis Street, 1066 Nicosia, Cyprus. The principal
activity of the Company is that of a holding company and the
principal activity of the wider Group is that of an investment
management business. The functional currencies of the Group
undertakings are US Dollars, Sterling, Euros and Romanian Lei. The
presentational currency is US Dollars. The Group has 38 (2012: 40)
employees.
Wholly owned subsidiaries Country of incorporation
Argo Capital Management (Cyprus) Cyprus
Limited
Argo Capital Management Limited United Kingdom
Argo Capital Management Property Cayman Islands
Limited
Argo Property Management Srl Romania
(formerly
North Asset Management Srl)
North Asset Management Sarl Luxembourg
2. ACCOUNTING POLICIES
(a) Accounting convention
These consolidated financial statements have been prepared on a
historical cost basis, except for the revaluation of certain
financial instruments, and in accordance with International
Financial Reporting Standards, as adopted by the EU.
The Directors have carried out a rigorous assessment of all the
factors affecting the business in deciding to adopt the going
concern basis for the preparation of the accounts. They have
reviewed and examined the Group's financial and other processes
including the annual budgeting process and expect the Group to
generate positive cash flows in the foreseeable future. On the
basis of this review and the liquid assets underpinning the balance
sheet the Directors are confident that the Group has adequate
financial resources to continue in operational existence for the
foreseeable future and therefore continue to adopt the going
concern basis for preparing the accounts.
The Group has prepared forecasts that focus on cash flow
requirements for the period to June 2015. These forecasts reflect
current cost patterns of the Group and take into consideration
current liquidity constraints of funds under management and
therefore their ability to settle management fees and other
receivables (refer to note 12 and 14). The cash flows of the Group
are linked to the liquidity of the funds and the major funds of the
Group (AREOF, TAF, ASSF) have significant liquidity challenges at
present therefore cash inflows to the Group are linked to potential
liquidity events, the timings of which are uncertain.
(b) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries. Subsidiaries are
consolidated from the date upon which control is transferred to the
Company and cease to be consolidated from the date upon which
control is transferred from the Company.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used
into line with those used by the Company. All intra-group
transactions, balances, income and expenses are eliminated on
consolidation.
(c) Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed and equity instruments
issued by the Group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination. The
acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3
are recognised at their fair value at the acquisition date.
Goodwill
Goodwill arising on the consolidation represents the excess of
the cost of the acquisition over the Company's interest in the fair
value of the identifiable assets and liabilities of a subsidiary at
the date of acquisition. Any excess of the Company's interest in
the fair value of the identifiable assets and liabilities over the
cost of the acquisition (negative goodwill) is immediately
recognised in the Consolidated Statement of Comprehensive Income.
Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less any accumulated impairment
losses. Goodwill which is recognised as an asset is reviewed at
least annually for impairment. Any impairment is recognised
immediately in the Consolidated Statement of Comprehensive
Income.
Intangible assets
The Group's principal intangible asset is a fund management
contract recorded at directors' valuation at the date of
acquisition. The directors' valuation is based on the underlying
share price of the vendor and its assets under management at the
time of acquisition. This intangible asset has a finite life and is
amortised on a straight line basis over the period of the contract.
Impairment tests are undertaken annually to determine any
diminution in the recoverable amount below carrying value. The
Group does not capitalise internally generated goodwill or
intangible assets.
Impairment of intangible assets
At each balance sheet date the Group reviews the carrying
amounts of its intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss,
if any.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have been adjusted.
If the recoverable amount of an asset is estimated to be less
than its carrying amount, the carrying amount of the asset is
reduced to its recoverable amount. An impairment loss is recognised
as an expense immediately, unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as
a revaluation decrease.
(d) Foreign currency translation
The consolidated financial statements are expressed in US
dollars. Transactions denominated in currencies other than US
dollars have been translated at the rate of exchange prevailing at
the date of the transaction. Assets and liabilities in other
currencies are translated to US dollars at the rates of exchange
prevailing at the balance sheet date. The resulting profits or
losses are reflected in the Consolidated Statement of Comprehensive
Income.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations are
translated at exchange rates prevailing on the balance sheet date.
Income and expense items are translated at the average exchange
rates for the year. Exchange differences arising, if any, are
classified as equity and transferred to the Group's foreign
currency translation reserve. Such translation differences are
recognised in the Consolidated Statement of Comprehensive Income as
income or as expenses in the year of the operation's disposal.
(e) Revenue
Revenue is recognised to the extent that it is probable that
economic benefit will flow to the Group and the revenue can be
reliably measured.
Management and incentive fees receivable
The Group recognises revenue for providing management services
to mutual funds. Revenue accrues on a monthly basis on completion
of management services and is based on the assets under management
of each mutual fund.
Incentive fees arise monthly, quarterly or on realisation of an
investment. Incentive fees are recognised in the month they arise.
In addition, for the Argo Real Estate Opportunities Fund Ltd
("AREOF") (managed by Argo Capital Management Property Ltd)
incentive fees may be triggered at any time on realisation of a
property asset. The management and incentive fees receivable from
AREOF are defined in the management contract between that company
and Argo Capital Management Property Ltd. The management contract
has a fixed term expiring on 31 July 2018.
During the year ended 31 December 2012 the Group provided AREOF
with a notice of deferral in relation to the amounts due from the
provision of investment management services, under which it will
not demand payment of such amounts until the Group judges that
AREOF is in a position to pay the outstanding liability.
(f) Management and incentive fees payable
The Group pays management and incentive fees based on a
proportion of fees receivable from mutual funds. Fees payable are
accrued on a monthly basis consistent with revenue streams
earned.
(g) Depreciation
Plant and equipment is initially recorded at cost and
depreciated on a straight-line basis over the expected useful lives
of the assets, after taking into account the assets' residual
values, as follows:
Leasehold 20% per annum
Fixtures and fittings 33 1/3% per annum
Office equipment 33 1/3% per annum
Computer equipment and software 33 1/3% per annum
(h) Investments held at fair value through profit or loss
IFRS 13 has been adopted from 1 January 2013. It establishes a
single source of guidance for measuring fair value and requires
disclosures about fair value measurements. Fair value under IFRS 13
is an exit price regardless of whether that price is directly
observable or estimated using another valuation technique. IFRS 13
also includes disclosure requirements. IFRS 13 requires prospective
application from 1 January 2013. The application of IFRS 13 has not
had any material impact on the amounts recognised in the financial
statements.
All investments are classified as held at fair value through
profit or loss. Investments are initially recognised at fair value.
Transaction costs are expensed as incurred.
After initial recognition, investments are measured at fair
value, with unrealised gains and losses on investments and
impairment of investments recognised in the Consolidated Statement
of Comprehensive Income. Investments held at fair value in managed
mutual funds are valued at fair value of the net assets as provided
by the administrators of those funds. Investments in the management
shares of The Argo Fund Limited, Argo Distressed Credit Fund
Limited, Argo Special Situations Fund LP and Argo Local Markets
Fund are stated at fair value, being the recoverable amount.
(i) Trade date accounting
All 'regular way' purchases and sales of financial assets are
recognised on the 'trade date', i.e. the date that the entity
commits to purchase or sell the asset. Regular way purchases or
sales are purchases or sales of financial assets that require
delivery of the asset within the time frame generally established
by regulation or convention in the market place.
(j) Financial instruments
Financial assets and liabilities are recognised on the
Consolidated Statement of Financial Position when the Company
becomes party to the contractual provisions of the instrument.
Non-derivative financial instruments include trade and other
receivables, cash and cash equivalents, loans and borrowings and
trade and other payables. The initial and subsequent measurement of
non-derivative financial instruments is dealt with below.
Trade and other receivables
Trade and other receivables are held at amortised cost and do
not carry any interest. They are stated at their original invoice
amount as reduced by appropriate allowances for estimated
irrecoverable amounts. An estimate for doubtful debts is made when
collection is no longer probable. Bad debts are written off when
identified.
Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits and short-term, highly liquid investments which are
readily convertible to known amounts of cash, subject to
insignificant risk of changes in value, and have a maturity of less
than three months from the date of acquisition.
For the purposes of the cash flow statement, cash and cash
equivalents consist of cash in hand and bank deposits.
Trade payables
Trade payables are not interest bearing and are stated at
amortised cost.
(k) Loans and borrowings
All loans and borrowings payable are initially recognised at
cost, calculated as the fair value of the consideration received
less issue costs where applicable. After initial recognition, all
interest-bearing loans and borrowings are subsequently measured at
amortised cost. Amortised cost is calculated by using the effective
interest method, taking into account any issue costs, and discounts
and premiums on settlement.
All loans and borrowings receivable are initially recognised at
cost and subsequently measured at amortised cost.
(l) Current taxation
Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amounts are those
enacted or substantively enacted by the balance sheet date.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
Consolidated Statement of Comprehensive Income because it excludes
items of income or expense that are taxable or deductible in other
periods or because it excludes items that are never taxable or
deductible.
(m) Deferred taxation
Deferred income tax is provided for using the liability method
on temporary timing differences at the balance sheet date between
the tax basis of assets and liabilities and their carrying amounts
for financial reporting purposes. Deferred tax liabilities are
recognised in full for all temporary differences. Deferred tax
assets are recognised for all deductible temporary differences,
carried forward unused tax credits and unused tax losses to the
extent that it is probable that taxable profit will be available
against which the deductible temporary differences and
carry-forward of unused tax credits and unused losses can be
utilised.
The carrying amount of deferred income tax assets is revalued at
each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each
balance sheet date and are recognised to the extent that is
probable that future taxable profits will allow the deferred tax
asset to be recovered. Deferred income tax assets and liabilities
are measured at the tax rates that are expected to apply in the
year when the asset is realised or the liability settled, based on
tax rates that have been enacted or substantively enacted at the
balance sheet date.
(n) Accounting estimates, assumptions and judgements
The preparation of the consolidated financial statements
necessitates the use of estimates, assumptions and judgements.
These estimates, assumptions and judgements affect the reported
amounts of assets, liabilities and contingent liabilities at the
balance sheet date as well as affecting the reported income and
expenses for the year. Although the estimates are based on
management's knowledge and best judgment of information and
financial data, the actual outcome may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that and prior periods, or in the period of the revision and
future periods if the revision affects both current and future
periods.
In the process of applying the Group's accounting policies,
which are described above, management has made best judgements of
information and financial data that have the most significant
effect on the amounts recognised in the consolidated financial
statements:
- Management and incentive fees
- Intangibles (note 9)
- Trade receivables
It has been assumed that, when available, the audited financial
statements of the funds under the Group's management will confirm
the net asset values used in the calculation of management and
performance fees receivable.
(o) Operating leases
Costs in respect of operating leases are charged on a straight
line basis over the lease term. Benefits, such as rent free
periods, received and receivable as incentives to take on operating
leases are spread on a straight line basis over the lease term, or,
if shorter than the full lease term, over the period to the review
date on which the rent is first expected to be adjusted to the
prevailing market rent.
(p) Financial instruments and fair value hierarchy
The following represents the fair value hierarchy of financial
instruments measured at fair value in the Statement of Financial
Position. The hierarchy groups financial assets and liabilities
into three levels based on the significance of inputs used in
measuring the fair value of the financial assets and liabilities.
The fair value hierarchy has the following levels:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
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.
(q) Future changes in accounting policies
IASB (International Accounting Standards Board) and IFRIC
(International Financial Reporting Interpretations Committee) have
issued the following standards and interpretations with an
effective date after the date of these financial statements:
EU Effective
New/Revised International Financial date
Reporting Standards (IAS/IFRS) (accounting
periods
commencing
on or after)
---------------------------------------------- --------------
IAS 19 Employee Benefits - Amendment 1 January
resulting from the Post-Employment 2014
Benefits and Termination Benefits
projects (as amended in June 2012)
IAS 32 Financial Instruments Presentation 1 January
- Amendments to application guidance 2015
on the offsetting of financial assets
and financial liabilities (December
2012)
IFRS 7 Financial Instruments: Disclosures 1 January
- Amendments enhancing disclosures 2014
about offsetting of financial assets
and financial liabilities (December
2012)
IFRS 9 Financial Instruments - Classification 1 January
and measurement of financial assets 2016
(as amended in December 2012)
IFRS 9 Financial Instruments - Accounting 1 January
for financial liabilities and derecognition 2016
(as amended in December 2012)
IFRS 10 Consolidated Financial Statements 1 January
(May 2012) 2014
IFRS 11 Joint Arrangements (May 1 January
2012) 2014
IFRS 12 Disclosure of Interests 1 January
in Other Entities (May 2012) 2014
---------------------------------------------- --------------
The directors do not expect the adoption of these standards and
interpretations to have a material impact on the Group's financial
statements in the period of initial application, except for IFRS 9
Financial Instruments, which becomes mandatory for the Group's 2015
consolidated financial statements and could change the
classification and measurement of financial assets. The Group does
not plan to adopt this standard early and the extent of the impact
has not been determined.
Any standard adopted during the year has presentational impact
only; it is therefore not necessary to adjust comparative
information.
(r) Dividends payable
Interim and final dividends are recognised when declared.
3. SEGMENTAL ANALYSIS
The Group operates as a single asset management business.
The operating results of the companies set out in note 1 above
are regularly reviewed by the directors of the Group for the
purposes of making decisions about resources to be allocated to
each company and to assess performance. The following summary
analyses revenues, profit or loss, assets and liabilities:
Argo Capital Argo Capital
Argo Management Argo Capital Management Year
Group (Cyprus) Management Property ended
Ltd Limited Limited Limited Other 31 December
2013 2013 2013 2013 2013 2013
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments 414 5,212 2,538 3,546 - 11,710
Intersegment
revenues 408 - 2,538 - - 2,946
Total profit
for reportable
segments 964 445 260 493 - 2,162
Intersegment
profit/(loss) 408 (2,933) 2,539 - - 14
Total assets
for reportable
segments 49,511 2,843 2,701 4,488 - 59,543
Total liabilities
for reportable
segments 69 975 193 164 - 1,401
=================== ======== ============= =============== =============== ======== =============
Revenues, profit or loss, assets and liabilities Year ended
may be reconciled as follows:
31 December
2013
US$'000
Revenues
Total revenues for reportable segments 11,710
Elimination of intersegment revenues (2,946)
================================================== =============
Group revenues 8,764
================================================== =============
Profit or loss
Total profit for reportable segments 2,162
Elimination of total intersegment losses (14)
Other unallocated amounts (51)
================================================== =============
Profit on ordinary activities before taxation 2,097
================================================== =============
Assets
Total assets for reportable segments 59,543
Elimination of intersegment receivables (997)
Elimination of Company's cost of investments (29,599)
================================================== =============
Group assets 28,947
================================================== =============
Liabilities
Total liabilities for reportable segments 1,401
Elimination of intersegment payables (949)
================================================== =============
Group liabilities 452
================================================== =============
Argo Capital Argo Capital
Argo Management Argo Capital Management Year
Group (Cyprus) Management Property ended
Ltd Limited Limited Limited Other 31 December
2012 2012 2012 2012 2012 2012
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments - 5,670 2,793 3,256 234 11,953
Intersegment
revenues - - 2,791 - 230 3,021
Total profit/(loss)
for reportable
segments 1,862 (215) (480) (226) (284) 657
Intersegment
profit/(loss) 2,470 (5,007) 2,562 - (42) (17)
Total assets
for reportable
segments 49,910 2,440 2,381 3,920 123 58,774
Total liabilities
for reportable
segments 84 907 2,356 247 - 3,594
===================== ======== ============= =============== =============== ======== =============
Revenues, profit or loss, assets and liabilities Year ended
may be reconciled as follows:
31 December
2012
US$'000
Revenues
Total revenues for reportable segments 11,953
Elimination of intersegment revenues (3,021)
================================================== =======================
Group revenues 8,932
================================================== =======================
Profit or loss
Total profit for reportable segments 657
Elimination of total intersegment losses 17
Other unallocated amounts (14,873)
================================================== =======================
Loss on ordinary activities before taxation (14,199)
================================================== =======================
Assets
Total assets for reportable segments 58,774
Elimination of intersegment receivables (795)
Elimination of Company's cost of investments (29,597)
================================================== =======================
Group assets 28,382
================================================== =======================
Liabilities
Total liabilities for reportable segments 3,594
Elimination of intersegment payables (2,926)
================================================== =======================
Group liabilities 668
================================================== =======================
4. EMPLOYEE COSTS
Year ended Year ended
31 December 31 December
2013 2012
US$'000 US$'000
Wages and salaries 3,142 3,110
Social security costs 281 316
Other 58 104
======================= ============== ==============
3,481 3,530
======================= ============== ==============
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to the following:
Year ended Year ended
31 December 31 December
2013 2012
US$'000 US$'000
Directors and key management
personnel 1,471 1,518
============================== ============== ==============
The remuneration of the Directors of the Company for the year
was as follows:
Year ended Year ended
Cash 31 December 31 December
Salaries Fees Benefits bonus 2013 2012
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive
Directors
Kyriakos
Rialas 239 - - - 239 222
Andreas
Rialas 226 - 3 - 229 227
Non-Executive
Directors
Michael
Kloter - 83 - - 83 79
David
Fisher - 55 - - 55 54
Ken Watterson - 55 - - 55 54
=============== ============= ========== ============= ========== ============== ==============
6. OPERATING PROFIT
Operating profit is stated after charging:
Year ended Year ended
31 December 31 December
2013 2012
US$'000 US$'000
Auditors' remuneration 90 94
Depreciation 89 73
Amortisation - 990
Directors' fees 1,185 1,258
Operating lease payments 230 509
=========================== ============== ==============
7. TAXATION
Taxation rates applicable to the parent company and the Cypriot,
UK, Luxembourg and Romanian subsidiaries range from 0% to 23.3%
(2012: 0% to 24.5%).
Income Statement
Year ended Year ended
31 December 31 December
2013 2012
US$'000 US$'000
Taxation charge for the year
on Group companies 115 205
Tax on profit/(loss) on ordinary
activities 115 205
================================== ============== ==============
The tax charge for the year can be reconciled to the
profit/(loss) on ordinary activities before taxation shown in the
Consolidated Statement of Comprehensive Income as follows:
Year ended Year ended
31 December 31 December
2013 2012
US$'000 US$'000
Profit/(loss) before tax 2,097 (14,199)
================================== ============== ==============
Applicable Isle of Man tax
rate for Argo Group Limited
of 0% - -
Timing differences (1) (4)
Non-deductible expenses 68 248
Other adjustments (108) 257
Tax effect of different tax
rates of subsidiaries operating
in other jurisdictions 156 (296)
================================== ============== ==============
Tax charge 115 205
================================== ============== ==============
Balance Sheet
At 31 December At 31 December
2013 2012
US$'000 US$'000
Corporation tax payable 64 201
========================= =============== ===============
8. EARNINGS PER SHARE
The Company presents basic and diluted earnings per share (EPS)
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares
outstanding during the period. Diluted EPS is determined by
dividing the profit or loss attributable to ordinary shareholders
of the Company by the weighted average number of ordinary shares
outstanding, adjusted for the effects of all dilutive potential
ordinary shares (see note 21).
Year ended Year ended
31 December 31 December
2013 2012
US$'000 US$'000
Profit/(loss) for the year
after taxation attributable
to members 1,982 (14,404)
============================== ============== ==============
No. of No. of
shares shares
Weighted average number of
ordinary shares for basic
earnings
per share 67,428,494 67,428,494
Effect of dilution (note 21) 4,715,000 5,415,000
============================== ============== ==============
Weighted average number of
ordinary shares for diluted
earnings per share 72,143,494 72,843,494
============================== ============== ==============
Year ended Year ended
31 December 31 December
2013 2012
US$ US$
Earnings per share (basic) 0.03 (0.21)
Earnings per share (diluted) 0.03 (0.21)
============================== ============== ==============
9. INTANGIBLE ASSETS
Fund management
contracts
US$'000
Cost
At 1 January 2012 18,640
Foreign exchange movement 195
========================================== ================
At 31 December 2012 18,835
Foreign exchange movement -
========================================== ================
At 31 December 2013 18,835
========================================== ================
Amortisation and impairment
At 1 January 2012 2,698
Impairment charge 14,945
Amortisation of Argo business intangible
assets 990
Foreign exchange movement 202
========================================== ================
At 31 December 2012 18,835
Foreign exchange movement -
========================================== ================
At 31 December 2013 18,835
========================================== ================
Net book value
At 31 December 2012 -
========================================== ================
At 31 December 2013 -
========================================== ================
In prior years the Group tested intangible assets annually for
impairment, or more frequently if there were indications that the
intangible assets could be impaired. The recoverable amounts of the
intangible assets that were reviewed for impairment were separately
identifiable business units within the Group. The value in use
approach was used as the businesses were not considered saleable in
their current form due to certain factors, the main being reliance
on certain key individuals.
Since the acquisition of the Argo businesses in 2008 the assets
under management attributable to the Group's separately
identifiable business units had decreased significantly due to the
volatility and uncertainty displayed by the global financial
markets. As a result, operations were scaled back and an impairment
review of goodwill was undertaken at 30 June 2012. Following the
review, goodwill of US$14.9 million created on the purchase of the
Argo businesses was written off at 30 June 2012. At the balance
sheet date the carrying value of goodwill is nil (31 December 2012:
Nil).
At the balance sheet date the carrying value of the Argo Real
Estate Opportunities Fund Ltd management contract is nil (31
December 2012: Nil) following its full amortisation during the year
ended 31 December 2012. The Group has successfully renegotiated the
extension of this management contract by five years from 31 July
2013 to 31 July 2018.
10. FIXTURES, FITTINGS AND EQUIPMENT
Fixtures,
fittings
& equipment
US$'000
Cost
At 1 January 2012 357
Additions 225
Disposals (231)
Foreign exchange movement 21
================================ =============
At 31 December 2012 372
Additions 46
Disposals (20)
Foreign exchange movement 10
================================ =============
At 31 December 2013 408
================================ =============
Accumulated Depreciation
At 1 January 2012 287
Depreciation charge for period 73
Disposals (231)
Foreign exchange movement 22
================================ =============
At 31 December 2012 151
Depreciation charge for period 89
Disposals (16)
Foreign exchange movement 7
================================ =============
At 31 December 2013 231
================================ =============
Net book value
At 31 December 2012 221
================================ =============
At 31 December 2013 177
================================ =============
11. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 31 December
2013 2013
Holding Investment in management Total cost Fair value
shares
US$'000 US$'000
10 The Argo Fund Ltd - -
100 Argo Distressed Credit - -
Fund Ltd
1 Argo Special Situations - -
Fund LP
1 Argo Local Markets - -
Fund
======== ========================= ============== ==============
- -
======== ========================= ============== ==============
Holding Investment in ordinary Total cost Fair value
shares
US$'000 US$'000
75,165 The Argo Fund Ltd 16,343 19,109
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 225
Argo Special Situations
115 Fund LP 115 86
=========== ======================== ============= =============
17,446 19,420
=========== ======================== ============= =============
31 December 31 December
2012 2012
Holding Investment in management Total cost Fair value
shares
US$'000 US$'000
10 The Argo Fund Ltd - -
100 Argo Distressed Credit - -
Fund Ltd
1 Argo Special Situations - -
Fund LP
1 Argo Local Markets - -
Fund
======== ========================= ============== ==============
- -
======== ========================= ============== ==============
Holding Investment in ordinary Total cost Fair value
shares
US$'000 US$'000
75,165 The Argo Fund Ltd 16,343 17,613
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 753
Argo Special Situations
115 Fund LP 115 112
=========== ======================== ============= =============
17,446 18,478
=========== ======================== ============= =============
The Argo Fund Limited holds a concentrated portfolio of Level 2
and Level 3 assets that are valued based on inputs other than
quoted prices in active markets. Inherently the assumptions backing
these valuations are subject to additional risks that can have a
positive or negative impact on valuation.
During the year, Argo Real Estate Opportunities Fund Limited was
suspended from trading on AIM, and subsequently delisted on 3 March
2014 as a result of default notices on its loans creating
uncertainty. It is carried at a discount of the last quoted bid
price on AIM from August 2013 at year end. This investment is
classified as level 3 under IFRS fair value hierarchy reflecting
the non-market observable inputs to their valuation.
The investments held by the Group have been made in support of
the Group's funds under management and in support of their
liquidity profiles and as such they may not be realisable in the
immediate future. The valuations are subject to uncertain events,
for example, liquidity events or debt refinancing that may not be
wholly within the Group's control.
12. TRADE AND OTHER RECEIVABLES
At 31 December At 31 December
2013 2012
US$ '000 US$ '000
Trade receivables 2,705 3,625
Other receivables 60 107
Prepayments and accrued
income 535 552
========================= ================= =================
3,300 4,284
========================= ================= =================
The directors consider that the carrying amount of trade and
other receivables approximates their fair value. All trade
receivable balances are recoverable within one year from the
balance sheet date.
The Group has provided Argo Real Estate Opportunities Fund
Limited ("AREOF") with a notice of deferral in relation to the
amounts due from the provision of investment management services,
under which it will not demand payment of such amounts until the
Group judges that AREOF is in a position to pay the outstanding
liability. These amounts accrued or receivable at 31 December 2013
total US$1,265,791 (EUR919,505) (2012: US$2,597,188, EUR1,965,333)
after a bad debt provision of US$2,753,200 (EUR2,000,000) (2012:
US$991,125, EUR750,000). AREOF continues to meet part of this
obligation to the Argo Group as and when liquidity allows with a
further US$476,000 (EUR350,000) being settled in January 2014. In
November 2013 AREOF offered Argo Group Limited additional security
for the continued support in the form of debentures and guarantees
by underlying intermediate companies. In the Directors' view these
amounts are fully recoverable although they have concluded that it
would not be appropriate to continue to recognise income from these
investment management services going forward, as the timing of such
receipts may be outside the control of the Company and AREOF.
At the year end The Argo Fund Limited and Argo Special
Situations Fund LP owed the Group total management fees of
US$1,817,803 (2012: US$341,125) after a bad debt provision of
US$650,000 (2012: US$ Nil). Both Funds have a substantial asset
base with very few liabilities. They are currently facing a short
term liquidity issue which is being remedied and whilst a bad debt
provision has been raised against these management fees the
Directors are confident that they are fully recoverable.
In the audited financial statements of AREOF at 30 September
2013 a material uncertainty surrounding the refinancing of bank
debts was referred to in relation to the basis of preparation of
the financial statements. In the view of the directors of AREOF,
discussions with the banks are continuing satisfactorily and they
have therefore concluded that it is appropriate to prepare those
financial statements on a going concern basis.
13. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is a balance of US$83,000
(2012: US$82,000) which represents a bank guarantee in respect of
credit cards issued to Argo Capital Management Property Limited.
Due to the nature of this balance it is not freely available.
14. LOANS AND ADVANCES RECEIVABLE
At 31 December At 31 December
2013 2012
US$'000 US$'000
Deposits on leased premises 34 -
- current
Deposits on leased premises
- non-current 88 118
Other loans and advances
receivable - current 183 142
Other loans and advances 2,019 -
receivable - non-current
============================= =============== ===============
2,324 260
============================= =============== ===============
The deposits on leased premises are retained by the lessor until
vacation of the premises at the end of the lease term as
follows:
At 31 December At 31 December
2013 2012
US$'000 US$'000
Current:
Lease expiring within 34
one year -
====================== =============== ===============
At 31 December At 31 December
2013 2012
US$'000 US$'000
Non-current:
Lease expiring in second
year after balance sheet
date - 32
Lease expiring in fourth 88 -
year after balance sheet
date
Lease expiring in fifth
year after balance sheet
date - 86
=========================== =============== ===============
88 118
=========================== =============== ===============
During the year Argo Group advanced US$1,376,600 (EUR1,000,000)
to Bel Rom Trei ("Bel Rom"), an AREOF Group entity based in Romania
that owns Sibiu Shopping City, in order to assist with its
operational cash requirements. Challenging trading conditions have
impacted Bel Rom's cash flow and its ability to meet payments due
to lending banks as and when they fall due. The situation is being
remedied by way of discussions with the lending banks with a view
to restructuring these loans. While these discussions are on-going
to find an agreeable solution for both parties, Bel Rom continues
to enjoy the support of its banks. The loan is repayable on demand
and accrues interest at 12%. The full amount of the loan and
accrued interest remains outstanding at the year end. The Directors
consider this loan to be fully recoverable on the basis that
conditional offers to buy the centre have been received that
indicate a value in excess of the debt attached to the project.
Notwithstanding its repayable on demand terms, the Directors have
classified this amount as non-current within the financial
statements as it is not their intention to demand repayment in the
immediate future and it is unlikely that Bel Rom will repay the
amount in the next 12 months even if it were demanded.
15. SHARE CAPITAL
The Company's authorised share capital is unlimited ordinary
shares with a nominal value of US$0.01.
31 December 31 December 31 December 31 December
2013 2013 2012 2012
No. US$'000 No. US$'000
Issued and fully
paid
Ordinary shares
of US$0.01 each 67,428,494 674 67,428,494 674
================== ============= ============ ============= ============
67,428,494 674 67,428,494 674
================== ============= ============ ============= ============
The directors do not recommend the payment of a final dividend
for the year ended 31 December 2013.
The directors recommended a final dividend of 2.1 cents (1.3
pence) per share for the year ended 31 December 2012. The final
dividend for the year ended 31 December 2012 of US$1,348,288
(GBP876,570) was paid on 26 April 2013 to ordinary shareholders who
were on the Register of Members on 2 April 2013. Going forward, the
Company intends, subject to its financial performance, to pay a
final dividend each year.
16. TRADE AND OTHER PAYABLES
At 31 December At 31 December
2013 2012
US$ '000 US$ '000
Trade and other payables 63 103
Other creditors and accruals 325 364
============================== =============== ===============
388 467
============================== =============== ===============
Trade and other payables are normally settled on 30-day
terms.
17. OBLIGATIONS UNDER OPERATING LEASES
Operating lease payments represent rentals payable by the Group
for certain of its business premises. The leases have no escalation
clauses or renewal or purchase options and no restrictions imposed
on them.
As at the balance sheet date, the Group had outstanding future
minimum lease payments under non-cancellable operating leases,
which fall due as follows.
At 31 December At 31 December
2013 2012
US$ '000 US$ '000
Operating lease liabilities:
Within one year 179 163
In the second to fifth
years inclusive 370 560
============================== =============== ===============
Present value of minimum
lease payments 549 723
============================== =============== ===============
18. RECONCILIATION OF NET CASH INFLOW FROM OPERATING ACTIVITIES
TO
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended
31 December 31 December
2013 2012
US$ '000 US$ '000
Profit/(loss) on ordinary
activities before taxation 2,097 (14,199)
Interest income (115) (15)
Amortisation of intangible
assets - 990
Depreciation 89 73
Loss on disposal of 4 -
fixed assets
Impairment of intangible
assets (note 9) - 14,945
Decrease in payables (79) (446)
Increase in receivables (1,080) (952)
(Increase)/decrease
in fair value of current
asset
investments (942) 175
Net foreign exchange
loss 41 25
Income taxes paid (252) (167)
============================= ============== ==============
Net cash (outflow)/inflow
from operating activities (237) 429
============================= ============== ==============
19. RELATED PARTY TRANSACTIONS
All Group revenues derive from funds or entities in which two of
the Company's directors, Andreas Rialas and Kyriakos Rialas, have
an influence through directorships and the provision of investment
advisory services.
At the balance sheet date the Company holds investments in The
Argo Fund Limited, Argo Real Estate Opportunities Fund Limited
("AREOF") and Argo Special Situations Fund LP. These investments
are reflected in the accounts at a fair value of US$19,109,116,
US$225,054 and US$85,707 respectively.
The Group has provided AREOF with a notice of deferral in
relation to the amounts due from the provision of investment
management services, under which it will not demand payment of such
amounts until the Group judges that AREOF is in a position to pay
the outstanding liability. These amounts accrued or receivable at
31 December 2013 total US$1,265,791 (EUR919,505) (2012:
US$2,597,188, EUR1,965,333) after a bad debt provision of
US$2,753,200 (EUR2,000,000) (2012: US$991,125, EUR750,000). AREOF
continues to meet part of this obligation to the Argo Group as and
when liquidity allows with a further US$476,000 (EUR350,000) being
settled in January 2014. In November 2013 AREOF offered Argo Group
Limited additional security for the continued support in the form
of debentures and guarantees by underlying intermediate
companies.
In the audited financial statements of AREOF at 30 September
2013 a material uncertainty surrounding the refinancing of bank
debts was referred to in relation to the basis of preparation of
the financial statements. In the view of the directors of AREOF,
discussions with the banks are continuing satisfactorily and they
have therefore concluded that it is appropriate to prepare those
financial statements on a going concern basis.
During the year Argo Group advanced US$1,376,600 (EUR1,000,000)
to Bel Rom Trei Srl, an AREOF Group entity based in Romania that
owns Sibiu Shopping City, in order to assist with its operational
cash requirements. The loan is repayable on demand and accrues
interest at 12%. The full amount of the loan and accrued interest
remains outstanding at the year end.
Michael Kloter, the non-executive chairman, is also partner in a
legal firm which supplies services to the Group. This firm charged
US$Nil (2012: US$1,529) for services rendered to the Group in the
period.
David Fisher, a non-executive director of the Company, is also a
non-executive director of AREOF.
20. FINANCIAL INSTRUMENTS RISK MANAGEMENT
(a) Use of financial instruments
The wider Group has maintained sufficient cash reserves not to
use alternative financial instruments to finance the Group's
operations. The Group has various financial assets and liabilities
such as trade and other receivables, loans and advances, cash,
short-term deposits, and trade and other payables which arise
directly from its operations.
The Group's non-subsidiary investments in funds were entered
into with the purpose of providing seed capital, supporting
liquidity and demonstrating the commitment of the Group towards its
fund investors.
(b) Market risk
Market risk is the risk that a decline in the value of assets
adversely impacts on the profitability of the Group, either as a
result of an asset not meeting its expected value or through the
decline of assets under management generating lower fees. The
principal exposures of the Group are in respect of its seed
investments in its own funds. Lower management fee and incentive
fee revenues could result from a reduction in asset values.
(c) Capital risk management
The primary objective of the Group's capital management is to
ensure that the Company has sufficient cash and cash equivalents on
hand to finance its ongoing operations. This is achieved by
ensuring that trade receivables are collected on a timely basis and
that excess liquidity is invested in an optimum manner. This is
achieved by placing fixed short-term deposits or using interest
bearing bank accounts.
At the year-end cash balances were held at Royal Bank of
Scotland, Bank of Cyprus and Bancpost.
(d) Credit/counterparty risk
The Group will be exposed to counterparty risk on parties with
whom it trades and will bear the risk of settlement default. Credit
risk is concentrated in the funds under management as detailed in
note 11. Trade receivables are normally settled on 30-day terms
(note 12).
The Group's principal financial assets are bank and cash
balances, trade and other receivables and investments held at fair
value through profit or loss. These represent the Company's maximum
exposure to credit risk in relation to financial assets and are
represented by the carrying amount of each financial asset in the
balance sheet.
(e) Liquidity risk
Liquidity risk is the risk that the Group may be unable to meet
its payment obligations. This would be the risk of insufficient
cash resources and liquid assets, including bank facilities, being
available to meet liabilities as they fall due.
The main liquidity risks of the Group are associated with the
need to satisfy payments to creditors. Trade receivables and trade
payables are normally on 30-day terms (notes 12 and 16).
(f) Foreign exchange risk
Foreign exchange risk is the risk that the Group will sustain
losses through adverse movements in currency exchange rates.
The Group is subject to short-term foreign exchange movements
between the calculation date of fees in currencies other than US
dollars and the date of settlement. The Group holds cash balances
in US Dollars, Sterling, Romanian Lei and Euros.
If there was a 5% increase or decrease in the exchange rate
between the US dollar and the other operating currencies used by
the Group at 31 December 2013 the exposure would be a profit or
loss to the Consolidated Statement of Comprehensive Income of
approximately US$45,000 (2012: US$50,000).
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2013 is as
follows:
Instruments
Total Variable Fixed on which
as per interest interest no interest
balance rate instruments* rate is receivable
sheet instruments
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets
at fair value
through profit
or loss 19,420 - - 19,420
Loans and receivables 5,624 88 2,019 3,517
Cash and cash
equivalents 3,726 107 1,489 2,130
======================= ========== ==================== ============== ===============
28,770 195 3,508 25,067
======================= ========== ==================== ============== ===============
Financial liabilities
Trade and other
payables 388 - - 388
======================= ========== ==================== ============== ===============
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.02%. Any
movement in interest rates would have an immaterial effect on the
profit/(loss) for the period.
The interest rate profile of the Group at 31 December 2012 is as
follows:
Instruments
Total Variable Fixed on which
as per interest interest no interest
balance rate instruments* rate is receivable
sheet instruments
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets
at fair value
through profit
or loss 18,478 - - 18,478
Loans and receivables 4,544 88 - 4,456
Cash and cash
equivalents 5,139 891 3,089 1,159
======================= ========== ==================== ============== ===============
28,161 979 3,089 24,093
======================= ========== ==================== ============== ===============
Financial liabilities
Trade and other
payables 467 - - 467
======================= ========== ==================== ============== ===============
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.10%. Any
movement in interest rates would have an immaterial effect on the
profit/(loss) for the period.
(h) Fair value
The carrying values of the financial assets and liabilities
approximate the fair value of the financial assets and liabilities
and can be summarised as follows:
At 31 December At 31 December
2013 2012
US$ '000 US$ '000
Financial Assets
Financial assets at fair
value through profit or
loss 19,420 18,478
Loans and receivables 5,624 4,544
Cash and cash equivalents 3,726 5,139
============================ ================= =================
28,770 28,161
=========================== ================= =================
Financial Liabilities
Trade and other payables 388 467
============================ ================= =================
Financial assets and liabilities, other than investments, are
either repayable on demand or have short repayment dates. The fair
value of investments is stated at the redemption prices quoted by
fund managers and is based on the fair value of the underlying net
assets of the funds because, although the funds are listed, there
is no active market.
Fair value hierarchy
The table below analyses financial instruments measured at fair
value at the end of the reporting period by the level of the fair
value hierarchy (note 2p).
At 31 December 2013
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss - 19,195 225 19,420
================== ========== ========= ========= =========
At 31 December 2012
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss - 18,478 - 18,478
================== ========== ========= ========= =========
21. SHARE-BASED INCENTIVE PLANS
On 14 March 2011 the Group granted options over 5,900,000 shares
to directors and employees under The Argo Group Limited Employee
Stock Option Plan. All options are exercisable in four equal
tranches over a period of four years at an exercise price of 24p
per share.
The fair value of the options granted was measured at the grant
date using a Black-Scholes model that takes into account the effect
of certain financial assumptions, including the option exercise
price, current share price and volatility, dividend yield and the
risk-free interest rate. The fair value of the options granted is
spread over the vesting period of the scheme and the value is
adjusted to reflect the actual number of shares that are expected
to vest.
The principal assumptions for valuing the options were:
Exercise price (pence) 24.0
Weighted average share
price at grant date
(pence) 12.0
Weighted average option
life (years) 10.0
Expected volatility
(% p.a.) 2.11
Dividend yield (% p.a.) 10.0
Risk-free interest rate
(% p.a.) 5.0
The fair value of options granted is recognised as an employee
expense with a corresponding increase in equity. The total charge
to employee costs in respect of this incentive plan is nil due to
the differential in exercise price and share price.
The number and weighted average exercise price of the share
options during the period is as follows:
Weighted No. of share
average exercise options
price
Outstanding at beginning
of period 24.0p 5,415,000
Granted during the period - -
Forfeited during the period 24.0p (700,000)
============================== ================== =============
Outstanding at end of period 24.0p 4,715,000
============================== ================== =============
Exercisable at end of period 24.0p 2,357,500
============================== ================== =============
The options outstanding at 31 December 2013 have an exercise
price of 24p and a weighted average contractual life of 10 years,
with the third tranche of shares being exercisable on or after 1
May 2014. Outstanding share options are contingent upon the option
holder remaining an employee of the Group. They expire after 10
years.
No share options were issued during the period.
22. EVENTS AFTER THE BALANCE SHEET DATE
The directors consider that there has been no event since the
year end that has a significant effect on the Group's position.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UURVRSBANAAR
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