TIDMARGO
RNS Number : 5714R
ARGO Group Limited
30 June 2015
Argo Group Limited
("Argo" or the "Company")
Annual Report and Accounts for the Year ended 31 December
2014
Argo today announces its final results for the year ended 31
December 2014.
The Company will today post to shareholders and make available
its report and accounts for the year ended 31 December 2014 on the
Company's website www.argogrouplimited.com.
Key highlights for the twelve months ended 31 December 2014
- Revenues US$7.5 million (2013: US$8.8 million)
- Operating loss US$1.2 million (2013: operating profit US$1.0 million)
- Loss before tax US$2.0 million (2013: profit before tax US$2.1 million)
- Net assets US$26.0 million (2013: US$28.5 million)
Commenting on the results and outlook, Kyriakos Rialas, Chief
Executive of Argo said:
"Argo continues to methodically work out its private equity
assets in order to conclude a satisfactory liquidity event and
extract maximum value for the investors. In a slowly recovering
global environment this process requires patience and it is taking
substantial effort and time but at the end management's
perseverance will produce results."
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 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 2014.
For the year ended 31 December 2014 the Group generated revenues
of US$7.5 million (2013: US$8.8 million) with management fees
accounting for US$6.7 million (2013: US$6.9 million). The Group did
not generate incentive fees during the year. In the prior year the
Group derived incentive fees of US$0.8 million as a result of the
revaluation of an investment which has not yet been realised.
Core operating costs for the year fell to US$4.6 million (2013:
US$5.4 million) as a direct result of cost cutting initiatives
implemented in the first half of 2014. Total operating costs have
increased to US$8.7 million (2013: US$7.7 million) after bad debt
provision. During the year the Group provided against management
fees of US$3,414,873 (EUR2,569,505) (2013: US$1,660,000
(EUR1,250,000)) due from Argo Real Estate Opportunities Fund
Limited ("AREOF") and US$650,000 (2013: US$650,000) due from The
Argo Fund Limited ("TAF").
Overall, the financial statements show an operating loss for the
year of US$1.2 million (2013: operating profit US$1.0 million) and
a loss before tax of US$2.0 million (2013: profit before tax US$2.1
million) reflecting the unrealised loss on current asset
investments of US$1.0 million (2013: unrealised profit US$0.9
million).
At the year end, the Group had net assets of US$26.0 million
(2013: US$28.5 million) and net current assets of US$5.1 million
(2013: US$6.8 million) after a reclassification of investments from
current assets to non-current assets. The Group did not pay a
dividend during the year compared to the prior year when a dividend
of 2.1 cents (1.3 pence) per share was paid on 26 April 2013.
Net assets include investments in TAF, AREOF and Argo Special
Situations Fund LP ("ASSF") at fair values of US$18.2 million
(2013: US$19.1 million), US$0.2 million (2013: US$0.2 million) and
US$0.07 million (2013: US$0.09 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.
At the year end the Argo funds (excluding AREOF) owed the Group
total management fees of US$2,361,599 (31 December 2013:
US$1,861,967) after a bad debt provision of US$1,300,000 (31
December 2013: US$650,000). 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.
The Argo funds ended the period with Assets under Management
("AUM") at US$177.4 million, 34.6% lower than at the beginning of
the year. The current level of AUM remains below that required to
ensure sustainable profits on a recurring management fee basis in
the absence of performance fees. This has necessitated a detailed
review of the Group's cost basis and the implementation of a
redundancy programme in the first quarter of the year. The Group
has ensured that the operational framework remains intact and that
it retains the capacity to manage additional fund inflows as and
when they arise.
The number of employees of the Group at 31 December 2014 was 27
(2013: 38).
The Group has provided AREOF with a notice of deferral in
relation to amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2014 total US$ Nil (2013: US$1,265,791 (EUR919,505)) after
a bad debt provision of US$5,554,234 (EUR4,569,505) (2013:
US$2,753,200 (EUR2,000,000)). AREOF continues to meet part of this
obligation to the Argo Group as and when liquidity allows. 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. The AREOF management contract
has a fixed term expiring on 31 July 2018.
During the prior year Argo Group advanced US$1,215,500
(EUR1,000,000) to Bel Rom Trei ("Bel Rom"), an AREOF Group entity
based in Romania that owns Sibiu Shopping City, in order to assist
with its operational cash requirements. The loan is repayable on
demand and accrues interest at 12%. The full amount of the loan and
accrued interest remains outstanding at the year end. The Directors
consider this loan to be fully recoverable on the basis that
discussions with lending banks and potential purchasers of Sibiu
have yielded offers in excess of the debt associated with the
project banks.
Fund performance
The Argo Funds
2014 2013
Launch Year Year Since Annualised Sharpe Down
Fund date total total inception performance ratio months AUM
---------------- -------- --------- -------- ------------ ------------- ------- -------- -------
% % % CAGR US$m
%
---------------- -------- --------- -------- ------------ ------------- ------- -------- -------
48
of
The Argo Fund Oct-00 -4.94 8.49 141.67 7.13 0.61 171 89.2
---------------- -------- --------- -------- ------------ ------------- ------- -------- -------
Argo Distressed 32
Credit of
Fund Oct-08 -4.64 12.64 65.98 8.98 0.75 75 24.6
---------------- -------- --------- -------- ------------ ------------- ------- -------- -------
Argo Special 29
Situations of
Fund LP Feb-12 -17.16 -23.30 -38.08 -15.16 -1.07 35 59.6
---------------- -------- --------- -------- ------------ ------------- ------- -------- -------
18
Argo Local of
Markets Fund Nov-12 -6.19 -9.80 -14.07 -6.68 -1.64 26 4.0
---------------- -------- --------- -------- ------------ ------------- ------- -------- -------
Argo Real
Estate 54
Opportunities of
Fund* Aug-06 -113.43 -46.58 -100.8 n/a n/a 98 0
---------------- -------- --------- -------- ------------ ------------- ------- -------- -------
Total 177.4
-------------------------- --------- -------- ------------ ------------- ------- -------- -------
* NAV only officially measured twice a year, March and
September.
Emerging markets had a difficult start to the year with
currencies being particularly affected. A combination of factors
including bullishness about the US economy, disappointing
manufacturing data in China and ongoing tensions in Ukraine
combined to undermine investor confidence in the earlier part of
the period. Market volatility diminished as tensions eased in
Ukraine following the Russian annexation of Crimea but heightened
once again in response to actions by separatist forces in Eastern
Ukraine. The gains in the first half of the year were reversed in
the second half as Eastern European markets continued to feel the
effects of the Ukraine crisis followed by the plunge in oil
price.
Against this backdrop, fund performance was lacklustre with all
of the Argo funds finishing behind at the year end. By comparison,
the main hedge fund indices showed a small positive return of 1.3%
for the same period.
During the year we progressed our discussions with a number of
investors and despite difficult market conditions we believe that
we are nearer to creating liquidity events for our investors.
In September 2014 ASSF agreed financing arrangements with a
lender to allow settlement of the preferred interests' capital
contributions and accrued returns.
In 2014 Argo Local Markets Fund ("ALMF") saw a continuation of
the negative emerging market theme as currencies weakened in
combination with tumbling commodity prices. The much stronger US
economy coupled with a sharp US dollar rally challenged the decade
long secular growth trend in emerging economies. The currency
depreciation and inflation complicated the central bank's ability
to ease monetary policy to encourage growth while private leverage
caught up to developed market levels (in some instances) and has
therefore been much less able to act as a growth agent this time
around. Added to this is the exhaustion in the Chinese investment
led economic model and the subsequent tacking to a consumer led
economy has meant that there will likely be real differentiation in
emerging markets economic performance going forward. The
Russia/Ukraine conflict has also had a marked impact on the
region's ability to keep growing and developing. At the end of the
year ALMF showed a negative return of -6.19% (-0.98% on a gross fee
basis). The performance has been hindered by the small size of the
fund and its expense base and to that effect the management fee and
performance fee has been reduced to 1.25% and 15%,
respectively.
While macroeconomic conditions continue to improve, the effects
on the two core markets where AREOF operates remain mixed with
subdued growth in the Romanian market and recent political and
economic upheavals impacting the Ukraine market.
AREOF's adjusted Net Asset Value was minus US$6.7 million (minus
EUR5.3 million) as at 30 September 2014, compared with US$53.3
million (EUR39.4 million) a year earlier. The adjusted Net Asset
Value per share at 30 September 2014 was minus US$0.01 (minus
EUR0.01) (30 September 2013: US$0.09 (EUR0.06)). Although AREOF's
balance sheet indicates the company is insolvent on a consolidated
basis, the structural ring-fencing of the underlying SPV's limits
the impact on the Group of negative equity at subsidiary level. On
this basis a restatement of the Net Asset Value would be US$0.05
(EUR0.04) (30 September 2013: US$0.12 (EUR0.09)).
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 addressed 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. While discussions
with the relevant banks are ongoing to find an agreeable solution
for all parties AREOF continues to enjoy the support of its banks.
In the view of the directors discussions with the banks are
continuing satisfactorily and they have therefore concluded that
AREOF is a going concern.
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. 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 of 2.0 cents prevailing at the
time of the suspension with a 25% discount rate applied to that
price. In January 2015 the carrying value of this investment in the
Argo funds was reduced from 2.0 cents to 1.0 cent.
Awards
Argo Distressed Credit Fund ("ADCF") was ranked a top 5 hedge
fund over three years in the category of Emerging Markets Global
Funds by BarclayHedge at the end of March 2014.
Dividends
Argo is working towards the payment of a dividend which will
ultimately depend on the success of the initiatives described
above. The directors did not recommend a final dividend in respect
of the year ended 31 December 2013 and do not recommend a final
dividend for this year but intend to pay an interim dividend as
soon as these initiatives are complete. Going forward, the Company
intends, subject to its financial performance, to pay a final
dividend each year.
Outlook
As much-improved EM sentiment flows through into the second
quarter of 2015 the Board remains optimistic about the Group's
prospects. An increase in AUM is still required to ensure
sustainable profits on a recurring management fee basis and the
Group is well placed with capacity to absorb a significant increase
in AUM with negligible impact on operational costs.
The top priority in the next six months will be to continue with
our program to monetise certain of our investments. In the very
near term our growth rate will be heavily influenced by the success
of this program as well as events in Europe. Over the longer term
the Board believes there is significant opportunity for growth in
assets and profits and remains committed to ensuring the Group's
investment management capabilities and resources are appropriate to
meet its key objective of achieving a consistent positive
investment performance in the emerging markets sector.
REPORT OF THE INDEPENDENT AUDITORS, KPMG AUDIT LLC, TO THE
MEMBERS OF ARGO GROUP LIMITED
We have audited the financial statements of Argo Group Limited
for the year ended 31 December 2014 which comprise the Group
Statement of Comprehensive Income, the Group Statement of Financial
Position, the Group Statement of Cash Flows and the Group Statement
of Changes in Equity 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 Company's members, as a body.
Our audit work has been undertaken so that we might state to the
Company'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 Company and the Company'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 financial statements that give a true and fair view.
Our responsibility is to audit, and express an opinion on, the
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 financial statements sufficient to give
reasonable assurance that the 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 financial statements.
In addition, we read all the financial and non-financial
information in the consolidated financial statements to identify
material inconsistencies with the audited financial statements and
to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
Opinion on the consolidated financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Group's and
Parent Company's affairs as at 31 December 2014 and of the Group's
loss 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 investments in The Argo Fund Limited (TAF), Argo
Real Estate Opportunities Fund Limited (AREOF) and Argo Special
Situations Fund LP (ASSF)
The valuations of the investments in TAF, AREOF and ASSF as
disclosed in note 10 to the financial statements, are based on
various assumptions and limiting conditions, many of which are
difficult to assess given the composition of the associated
investment portfolios. The underlying investment portfolios of each
Fund are considered illiquid and therefore inherently require the
judgement of the Directors to value. The latest available audit
reports of each Fund were modified in respect of investment
valuation. Refer to note 10 for further information.
The above matters indicate the existence of inherent
uncertainties with regard to the carrying value of the investments
in TAF, AREOF and ASSF in the financial statements of the
Group.
Going concern
Without qualifying our opinion, we draw attention to Note 2(a)
in the consolidated financial statements. As described, the Group's
future going concern is linked to the liquidity of its underlying
funds under management. These circumstances indicate the existence
of material uncertainties that may cast doubt on the ability of the
Group to continue as a going concern in the future.
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 2014
Year ended Year ended
31 December 31 December
2014 2013
Note US$'000 US$'000
Management fees 6,660 6,920
Incentive fees - 803
Other income 805 1,041
==================================== ====== ============ ====================
2(e),
Revenue 3 7,465 8,764
==================================== ====== ============ ====================
Legal and professional expenses (387) (261)
Management and incentive
fees payable 2(f) (116) (308)
Operational expenses (1,056) (1,212)
Employee costs 4 (2,935) (3,481)
Foreign exchange loss 24 (41)
Bad debts 11 (4,104) (2,332)
Depreciation 9 (98) (89)
==================================== ====== ============ ====================
Operating (loss)/profit 6 (1,207) 1,040
==================================== ====== ============ ====================
Interest income on cash
and cash equivalents 218 115
Unrealised (loss)/gain on
investments (985) 942
==================================== ====== ============ ====================
(Loss)/profit on ordinary
activities before taxation 3 (1,974) 2,097
==================================== ====== ============ ====================
Taxation 7 (39) (115)
==================================== ====== ============ ====================
(Loss)/profit for the year
after taxation attributable
to members of the Company 8 (2,013) 1,982
Other comprehensive income
Exchange differences on
translation of foreign operations (487) 147
==================================== ====== ============ ====================
Total comprehensive (loss)/income
for the year (2,500) 2,129
==================================== ====== ============ ====================
Year Year ended
ended
31 December 31 December
2014 2013
US$ US$
Earnings per share (basic) 8 -0.03 0.03
============================== ============ ============
Earnings per share (diluted) 8 -0.03 0.03
============================== ============ ============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2014
At 31 December At 31 December
2014 2013
Note US$'000 US$'000
Assets
Non-current assets
Fixtures, fittings and
equipment 9 107 177
Investments 10 18,435 19,420
Loans and advances receivable 13 2,357 2,107
=============================== ===== =============== ===============
Total non-current assets 20,899 21,704
=============================== ===== =============== ===============
Current assets
Trade and other receivables 11 2,517 3,300
Cash and cash equivalents 12 2,821 3,726
Loans and advances receivable 13 132 217
=============================== ===== =============== ===============
Total current assets 5,470 7,243
=============================== ===== =============== ===============
Total assets 3 26,369 28,947
=============================== ===== =============== ===============
Equity and liabilities
Equity
Issued share capital 14 674 674
Share premium 30,878 30,878
Revenue reserve (3,061) (1,048)
Foreign currency translation
reserve 2(d) (2,496) (2,009)
=============================== ===== =============== ===============
Total equity 25,995 28,495
=============================== ===== =============== ===============
Current liabilities
Trade and other payables 15 321 388
Taxation payable 7 53 64
=============================== ===== =============== ===============
Total current liabilities 3 374 452
=============================== ===== =============== ===============
Total equity and liabilities 26,369 28,947
=============================== ===== =============== ===============
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED 31 DECEMBER 2014
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$'000
As at 1 January
2013 674 30,878 (1,682) (2,156) 27,714
Total comprehensive
income
Profit for the period
after taxation - - 1,982 147 2,129
Transactions with
owners recorded
directly in equity
Dividends to equity
holders (Note 14) - - (1,348) - (1,348)
As at 31 December
2013 674 30,878 (1,048) (2,009) 28,495
======================= ========== ========== ========== ============== ========
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2014 2014 2014 2014 2014
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2014 674 30,878 (1,048) (2,009) 28,495
Total comprehensive
income
Loss for the period
after taxation - - (2,013) (487) (2,500)
As at 31 December
2014 674 30,878 (3,061) (2,496) 25,995
===================== ========== ========== ========== ============== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2014
Year ended Year ended
31 December 31 December
2014 2013
Note US$'000 US$'000
Net cash outflow from
operating activities 17 (630) (237)
Cash flows from investing
activities
Interest received on
cash and cash equivalents 1 12
Purchase of fixtures,
fittings and equipment 9 (38) (46)
Net cash used in investing
activities (37) (34)
=============================== ===== ============ ============
Cash flows from financing
activities
Dividends paid 14 - (1,348)
=============================== ===== ============ ============
Net cash used in financing
activities - (1,348)
=============================== ===== ============ ============
Net decrease in cash
and cash equivalents (667) (1,619)
Cash and cash equivalents
at 1 January 2014 and
1 January 2013 3,726 5,139
Foreign exchange (loss)/gain
on cash and cash equivalents (238) 206
Cash and cash equivalents
as at 31 December 2014
and 31 December 2013 2,821 3,726
=============================== ===== ============ ============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2014
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 27 (2013: 38)
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
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.
Going concern
The financial statements have been prepared on a going concern
basis which assumes that the Group will be able to meet its
liabilities as they fall due for the foreseeable future.
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 have
sufficient cash resources available in the foreseeable future. This
has included the preparation of forecast financial information
focussed on cash flow requirements through to at least June 2016.
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 notes 11 and 13).
On the basis of review of this forecast financial information,
the liquid assets currently held and forecast inflows during the
period, the Directors are confident that the Group has adequate
financial resources available to continue in operational existence
for the foreseeable future and therefore continue to adopt the
going concern basis for preparing the accounts. The key assumptions
within the forecast financial information include the settlement of
a portion of management fee arrears and/or loans advances from
funds under management. These cash flows are linked to the
liquidity of the major funds under management of the Group (AREOF,
TAF, ASSF) which have significant liquidity challenges at present
and therefore the timings of cash inflows to the Group are
uncertain. The settlement of receivables may be dependent on the
realisation of assets held or other restrictions which are exposed
to economic and political risks associated with the particular
assets held and the regions in which they are domiciled, outside of
management control. As a result of current trading the Board have
also considered forecast financial information under continued
stressed trading conditions. Should such a scenario arise the Group
would be required to take alternative mitigating actions during the
forecast period.
In the Directors' view activities are continuing on the above
satisfactorily and they have therefore concluded that it is
appropriate to prepare the financial statements on a going concern
basis.
(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.
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 is accrued on a monthly basis on
completion of management services. In the Argo funds revenue is
based on the assets under management of each mutual fund and in the
Argo Real Estate Opportunities Fund Limited ("AREOF") (managed by
Argo Capital Management Property Limited) revenue is based on the
gross proceeds of share placements.
Incentive fees arise monthly, quarterly or on realisation of an
investment. Incentive fees are recognised in the month they arise.
In addition, AREOF 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 Limited.
The management contract has a fixed term expiring on 31 July
2018.
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. 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.
(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. The carrying value of trade receivables equates to
their fair value.
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
- Trade receivables
- Going concern
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 2015
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 2015
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) 2015
IFRS 11 Joint Arrangements (May 1 January
2012) 2015
IFRS 12 Disclosure of Interests 1 January
in Other Entities (May 2012) 2015
---------------------------------------------- --------------
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
2014 2014 2014 2014 2014 2014
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments 250 3,199 2,397 3,455 - 9,301
Intersegment
revenues 250 - 1,586 - - 1,836
Total profit/(loss)
for reportable
segments (1,211) 78 119 (998) - (2,012)
Intersegment
profit/(loss) (250) 1,845 (1,586) - - 9
Total assets
for reportable
segments 48,305 3,621 2,632 3,014 - 57,572
Total liabilities
for reportable
segments 75 1,707 169 103 - 2,054
===================== ======== ============= =============== ================= ======== =============
Revenues, profit or loss, assets and liabilities Year ended
may be reconciled as follows:
31 December
2014
US$'000
Revenues
Total revenues for reportable segments 9,301
Elimination of intersegment revenues (1,836)
================================================== =============
Group revenues 7,465
================================================== =============
Profit or loss
Total loss for reportable segments (2,012)
Elimination of total intersegment profits 9
Other unallocated amounts 29
================================================== =============
Loss on ordinary activities before taxation (1,974)
================================================== =============
Assets
Total assets for reportable segments 57,572
Elimination of intersegment receivables (1,605)
Elimination of Company's cost of investments (29,598)
================================================== =============
Group assets 26,369
================================================== =============
Liabilities
Total liabilities for reportable segments 2,054
Elimination of intersegment payables (1,680)
================================================== =============
Group liabilities 374
================================================== =============
Argo Capital Argo Capital
Argo Management Argo Capital Management Year
Group (Cyprus) Management Property ended
Ltd Limited Limited Limited Other 31 December
2013 2013 2013 2013 2013 2013
US$'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
================================================== =============
4. EMPLOYEE COSTS
Year ended Year ended
31 December 31 December
2014 2013
US$'000 US$'000
Wages and salaries 2,636 3,142
Social security costs 229 281
Other 70 58
======================= ============== ==============
2,935 3,481
======================= ============== ==============
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to the following:
Year ended Year ended
31 December 31 December
2014 2013
US$'000 US$'000
Directors and key management
personnel 1,286 1,471
============================== ============== ==============
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 2014 2013
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive
Directors
Kyriakos
Rialas 240 - - - 240 239
Andreas
Rialas 238 - 4 - 242 229
Non-Executive
Directors
Michael
Kloter - 84 - - 84 83
David
Fisher - 58 - - 58 55
Ken Watterson - 59 - - 59 55
=============== ============= ========== ============= ========== ============== ==============
6. OPERATING (LOSS)/PROFIT
Operating (loss)/profit is stated after charging:
Year ended Year ended
31 December 31 December
2014 2013
US$'000 US$'000
Auditors' remuneration 122 90
Depreciation 98 89
Directors' fees 1,079 1,185
Operating lease payments 243 230
==================================== ============== ==============
7. TAXATION
Taxation rates applicable to the parent company and the Cypriot,
UK, Luxembourg and Romanian subsidiaries range from 0% to 21.5%
(2013: 0% to 23.3%).
Income Statement
Year ended Year ended
31 December 31 December
2014 2013
US$'000 US$'000
Taxation charge for the year
on Group companies 39 115
Tax on (loss)/profit on ordinary
activities 39 115
================================== ============== ==============
The tax charge for the year can be reconciled to the
(loss)/profit on ordinary activities before taxation shown in the
Consolidated Statement of Comprehensive Income as follows:
Year ended Year ended
31 December 31 December
2014 2013
US$'000 US$'000
(Loss)/profit before tax (1,974) 2,097
================================== ============== ==============
Applicable Isle of Man tax
rate for Argo Group Limited
of 0% - -
Timing differences 2 (1)
Non-deductible expenses 14 68
Other adjustments (50) (108)
Tax effect of different tax
rates of subsidiaries operating
in other jurisdictions 73 156
================================== ============== ==============
Tax charge 39 115
================================== ============== ==============
Balance Sheet
At 31 December At 31 December
2014 2013
US$'000 US$'000
Corporation tax payable 53 64
========================= =============== ===============
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
2014 2013
US$'000 US$'000
(Loss)/profit for the year
after taxation attributable
to members (2,013) 1,982
================================= ============== ==============
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) 4,090,000 4,715,000
================================= ============== ==============
Weighted average number
of ordinary shares for diluted
earnings per share 71,518,494 72,143,494
================================= ============== ==============
Year ended Year ended
31 December 31 December
2014 2013
US$ US$
Earnings per share (basic) -0.03 0.03
Earnings per share (diluted) -0.03 0.03
============================== ============== ==============
9. FIXTURES, FITTINGS AND EQUIPMENT
Fixtures,
fittings
& equipment
US$\'000
Cost
At 1 January 2013 372
Additions 46
Disposals (20)
Foreign exchange movement 10
================================ =============
At 31 December 2013 408
Additions 38
Disposals (161)
Foreign exchange movement (31)
================================ =============
At 31 December 2014 254
================================ =============
Accumulated Depreciation
At 1 January 2013 151
Depreciation charge for period 89
Disposals (16)
Foreign exchange movement 7
================================ =============
At 31 December 2013 231
Depreciation charge for period 98
Disposals (159)
Foreign exchange movement (23)
================================ =============
At 31 December 2014 147
================================ =============
Net book value
At 31 December 2013 177
================================ =============
At 31 December 2014 107
================================ =============
10. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 31 December
2014 2014
Holding Investment in management Total cost Fair value
shares
US$'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$'000
75,165 The Argo Fund Ltd 16,343 18,165
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 199
Argo Special Situations
115 Fund LP 115 71
=========== ======================== ============= =============
17,446 18,435
=========== ======================== ============= =============
31 December 31 December
2013 2013
Holding Investment in management Total cost Fair value
shares
US$'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$'000
75,165 The Argo Fund Ltd 16,343 19,109
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 225
Argo Special Situations
115 Fund LP 115 86
=========== ======================== ============= =============
17,446 19,420
=========== ======================== ============= =============
The Argo Fund Limited holds a concentrated portfolio of Level 2
and Level 3 assets that are valued based on inputs other than
quoted prices in active markets. Inherently the assumptions backing
these valuations are subject to additional risks that can have a
positive or negative impact on valuation. The audit report in
respect of The Argo Fund Limited for the year ended 30 June 2014
was modified in respect of investment valuations.
On 3 March 2014 Argo Real Estate Opportunities Fund Limited
("AREOF") delisted from AIM as a result of default notices on its
loans creating uncertainty. At the year end it is carried at a
discount of the last quoted bid price on AIM from August 2013. This
investment is classified as level 3 under IFRS fair value hierarchy
reflecting the non-market observable inputs to their valuation. The
audit report in respect of AREOF for the year ended 30 September
2014 was modified in respect of going concern and qualified in
respect of investment property valuations.
The investments held by the Group have been made in support of
the Group's funds under management and in support of their
liquidity profiles and as such they may not be realisable in the
immediate future. The valuations are subject to uncertain events,
for example, liquidity events or debt refinancing that may not be
wholly within the Group's control.
11. TRADE AND OTHER RECEIVABLES
At 31 December At 31 December
2014 2013
US$ '000 US$ '000
Trade receivables 2,359 2,705
Other receivables 65 60
Prepayments and accrued
income 93 535
========================= ================= =================
2,517 3,300
========================= ================= =================
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 2014
total US$Nil (2013: US$1,265,791, EUR919,505) after a bad debt
provision of US$5,554,234 (EUR4,569,505) (2013: US$2,753,200,
EUR2,000,000). AREOF continues to meet part of this obligation to
the Argo Group as and when liquidity allows. 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, Argo Special Situations
Fund LP, Argo Distressed Credit Fund Limited and Argo Local Markets
Fund Limited owed the Group total management fees of US$2,361,599
(2013: US$1,861,967) after a bad debt provision of US$1,300,000
(2013: US$650,000). These Funds have a substantial asset base with
few liabilities. They are currently facing liquidity issues which
management continue to work to remedy and whilst a bad debt
provision has been raised against these management fees the
Directors are confident that they may be recovered in the
future.
In the audited financial statements of AREOF at 30 September
2014 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.
12. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is a balance of US$79,000
(2013: US$83,000) which represents a bank guarantee in respect of
credit cards issued to Argo Capital Management Property Limited.
Due to the nature of this balance it is not freely available.
13. LOANS AND ADVANCES RECEIVABLE
At 31 December At 31 December
2014 2013
US$'000 US$'000
Deposits on leased premises
- current 6 34
Deposits on leased premises
- non-current 96 88
Other loans and advances
receivable - current 126 183
Other loans and advances
receivable - non-current
(see below) 2,261 2,019
============================= =============== ===============
2,489 2,324
============================= =============== ===============
The non-current other loans and advances receivable
comprise:
At 31 December At 31 December
2014 2013
US$'000 US$'000
Loan to Bel Rom Trei (see
note (a) below) 1,456 1,484
Loan to AREOF (see note
(b) below) 552 535
Loan to The Argo Fund 150 -
Limited (see note (c)
below)
Loans to other AREOF Group 102 -
entities (see note (d)
below)
Other loans 1 -
============================ =============== ===============
2,261 2,019
============================ =============== ===============
The deposits on leased premises are retained by the lessor until
vacation of the premises at the end of the lease term as
follows:
At 31 December At 31 December
2014 2013
US$'000 US$'000
Current:
Lease expiring within
one year 6 34
================================= =============== ===============
At 31 December At 31 December
2014 2013
US$'000 US$'000
Non-current:
Lease expiring in third 96 -
year after balance sheet
date
Lease expiring in fourth
year after balance sheet
date - 88
96 88
=========================== =============== ===============
(a) During the prior year Argo Group advanced US$1,215,500
(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 amounting to USD1,456,069
(EUR1,197,918) 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. Refer to
notes 10 and 11 for further information regarding the financial
position of AREOF.
(b) On 21 November 2013 the Argo Group provided a loan of
US$472,781 (EUR388,960) to AREOF to enable the company to service
interest payments under a bank loan agreement. The loan is
repayable on demand and accrues interest at 10%. The full amount of
the loan and accrued interest amounting to USD525,369 (EUR432,225)
remains outstanding at the year end.
The Argo Group provided further loans of US$26,543 (EUR21,837)
to AREOF to assist with its operational cash requirements. These
loans are repayable on demand and accrue interest at 7%. The full
amount of these loans remain outstanding at the year end.
(c) On 5 December 2014 the Argo Group provided a loan of
USD150,000 to The Argo Fund Limited to assist with its operational
cash requirements. The loan is repayable on demand and accrues
interest at 5%. The full amount of this loan remains outstanding at
the year end.
(d) During the year the Argo Group provided total loans of
USD101,856 (EUR83,798) to various AREOF Group entities to assist
those entities with their operational cash requirements. The loans
are repayable on demand and accrue interest at 7%. The full amount
of these loans remains outstanding at the year end.
14. SHARE CAPITAL
The Company's authorised share capital is unlimited ordinary
shares with a nominal value of US$0.01.
31 December 31 December 31 December 31 December
2014 2014 2013 2013
No. US$'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 2014 (31 December 2013: Nil). The
final dividend of 2.1 cents (1.3 pence) for the year ended 31
December 2012 totalling US$1,348,288 (GBP876,570) was paid on 26
April 2013 to ordinary shareholders who were on the Register of
Members on 2 April 2013. Going forward, the Company intends,
subject to its financial performance, to pay a final dividend each
year.
15. TRADE AND OTHER PAYABLES
At 31 December At 31 December
2014 2013
US$ '000 US$ '000
Trade and other payables 91 63
Other creditors and accruals 230 325
============================== =============== ===============
321 388
============================== =============== ===============
Trade and other payables are normally settled on 30-day
terms.
16. 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
2014 2013
US$ '000 US$ '000
Operating lease liabilities:
Within one year 234 179
In the second to fifth
years inclusive 565 370
============================== =============== ===============
Present value of minimum
lease payments 799 549
============================== =============== ===============
17. RECONCILIATION OF NET CASH OUTLOW FROM OPERATING ACTIVITIES TO
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended
31 December 31 December
2014 2013
US$ '000 US$ '000
(Loss)/profit on ordinary
activities before taxation (1,974) 2,097
Interest income (218) (115)
Depreciation 98 89
Loss on disposal of
fixed assets 2 4
Decrease in payables (67) (79)
Decrease/(increase)
in receivables 618 (1,080)
Decrease/(increase)
in fair value of current
asset Investments 985 (942)
Net foreign exchange
(gain)/loss (24) 41
Income taxes paid (50) (252)
============================= ============== ==============
Net cash outflow from
operating activities (630) (237)
============================= ============== ==============
18. 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$18,164,902,
US$198,716 and US$71,000 respectively.
The Group has provided AREOF with a notice of deferral in
relation to the amounts due from the provision of investment
management services, under which it will not demand payment of such
amounts until the Group judges that AREOF is in a position to pay
the outstanding liability. These amounts accrued or receivable at
31 December 2014 total US$Nil (2013: US$1,265,791, EUR919,505)
after a bad debt provision of US$5,554,234 (EUR4,569,505) (2013:
US$2,753,200, EUR2,000,000). AREOF continues to meet part of this
obligation to the Argo Group as and when liquidity allows. 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. The AREOF management contract
has a fixed term expiring on 31 July 2018.
At the year end Argo Group was owed US$1,456,069 (EUR1,197,918)
including interest of US$240,570 (EUR197,918) by Bel Rom Trei Srl,
an AREOF Group entity based in Romania that owns Sibiu Shopping
City. The loan is repayable on demand and accrues interest at
12%.
At the year end Argo Group was owed a total balance of
US$551,912 (EUR454,062) including interest of US$52,589 (EUR43,265)
by AREOF. This balance comprises various loans that are all
repayable on demand and accrue interest at 7% and 10%. Of this
balance US$525,369 (EUR432,225) is secured by debentures and
guarantees from underlying intermediate companies in the AREOF
Group. At the year end the Argo Group was owed a further USD101,856
(EUR83,798) by various other AREOF Group entities. This balance
comprises loans that are all repayable on demand and accrue
interest at 7%.
At the year end the Argo Group was owed USD150,000 by The Argo
Fund Limited. The loan is repayable on demand and accrues interest
at 5%.
In the audited financial statements of AREOF at 30 September
2014 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.
David Fisher, a non-executive director of the Company, is also a
non-executive director of AREOF.
19. 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 (refer to note 10). 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 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
notes 10, 11 and 13. As explained within these notes the Group is
experiencing collection delays with regard to management fees
receivable and monies advanced. Additionally investments in funds
under management (note 10) are illiquid and may be subject to
events materially impacting recoverable value.
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.
At the reporting date, the financial assets past due but not
impaired amounted to USD4,465,756 (2013:USD4,522,121 ).
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 payables are normally
on 30-day terms (note 15).
As disclosed in note 2(a), Accounting Convention: Going Concern,
the Group has performed an assessment of available liquidity to
meet liabilities as they fall due during the forecast period. The
Group has concluded that it has sufficient resources available to
manage its liquidity risk during the forecast period.
(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 2014 the exposure would be a profit or
loss to the Consolidated Statement of Comprehensive Income of
approximately US$40,000 (2013: US$45,000).
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2014 is as
follows:
Instruments
Total Variable Fixed on which
as per interest interest no interest
balance rate instruments* rate is receivable
sheet instruments
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets
at fair value
through profit
or loss 18,435 - - 18,435
Loans and receivables 5,006 83 1,456 3,467
Cash and cash
equivalents 2,821 160 2,011 650
======================= ========== ==================== ============== ===============
26,262 243 3,467 22,552
======================= ========== ==================== ============== ===============
Financial liabilities
Trade and other
payables 321 - - 321
======================= ========== ==================== ============== ===============
* 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 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.
(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
2014 2013
US$ '000 US$ '000
Financial Assets
Financial assets at fair
value through profit or
loss 18,435 19,420
Loans and receivables 5,006 5,624
Cash and cash equivalents 2,821 3,726
============================ ================= =================
26,262 28,770
=========================== ================= =================
Financial Liabilities
Trade and other payables 321 388
============================ ================= =================
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 administrators and are based on the fair value of the
underlying net assets of the funds because, although the funds are
quoted, there is no active market for any of the investments
held.
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 2014
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss - - 18,435 18,435
================== ========== ========== ========= =========
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
================== ========== ========= ========= =========
20. 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.
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 4,715,000
Granted during the period - -
Forfeited during the period 24.0p (625,000)
============================== ================== =============
Outstanding at end of period 24.0p 4,090,000
============================== ================== =============
Exercisable at end of period 24.0p 3,067,500
============================== ================== =============
The options outstanding at 31 December 2014 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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