TIDMARGO
RNS Number : 4710T
ARGO Group Limited
30 March 2016
Argo Group Limited
("Argo" or the "Company")
Annual Report and Accounts for the Year ended 31 December
2015
Argo today announces its final results for the year ended 31
December 2015.
The Company will today post to shareholders and make available
its report and accounts for the year ended 31 December 2015 on the
Company's website www.argogrouplimited.com.
Key highlights for the twelve months ended 31 December 2015
- Revenues US$5.7 million (2014: US$7.5 million)
- Operating profit US$0.2 million (2014: operating loss US$1.2 million)
- Loss before tax US$2.9 million (2014: loss before tax US$2.0 million)
- Net assets US$22.4 million (2014: US$26.0 million)
Commenting on the results and outlook, Kyriakos Rialas, Chief
Executive of Argo said:
"Following the sale of its largest illiquid position late last
year, Argo has relaunched its flagship fund, The Argo Fund,
modifying its strategy from a multi-strategy fund to a purely
liquid Emerging Markets Fixed Income Fund having excluded level
three assets. The first three months of 2016 look promising. Going
forward the Argo Fund with its 16 year track record will spearhead
the Group's efforts to increase assets under management. At the
same time the Argo Distressed Credit Fund will concentrate on
distressed credit and certain private equity positions."
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 2015.
For the year ended 31 December 2015 the Group generated revenues
of US$5.7 million (2014: US$7.5 million) with management fees
accounting for US$5.1 million (2014: US$6.7 million). The Group did
not generate incentive fees during the year.
Core operating costs for the year fell to US$3.5 million (2014:
US$4.6 million) as a direct result of further cost cutting
initiatives implemented during the year. Total operating costs have
decreased to US$5.5 million (2014: US$8.7 million) after bad debt
provision. During the year the Group provided against management
fees of US$2,220,200 (EUR2,000,000) (2014: US$3,414,873
(EUR2,569,505)) due from Argo Real Estate Opportunities Fund
Limited ("AREOF") and US$1,055,549 (EUR967,861) (2014: Nil) of
loans made to AREOF and its group entities. The Group also
recovered management fee arrears of US$1,300,000 from The Argo Fund
("TAF") against which a provision had been made in prior years.
Since the year end the remuneration committee took the decision to
reduce the level of fees payable to the non-executive
directors.
Overall, the financial statements show an operating profit for
the year of US$0.2 million (2014: operating loss US$1.2 million)
and a loss before tax of US$2.9 million (2014: loss before tax
US$2.0 million) reflecting the realised and unrealised loss on
current asset investments of US$3.3 million (2014: loss US$1.0
million).
At the year end, the Group had net assets of US$22.4 million
(2014: US$26.0 million) and net current assets of US$15.7 million
(2014: US$5.1 million). The Group did not pay a dividend during the
year. This was also the case in 2014.
Net assets include investments in TAF, AREOF, Argo Special
Situations Fund LP ("ASSF"), Argo Local Markets Fund ("ALMF") and
Sudan Recovery Fund Limited ("SRF") at fair values of US$10.2
million (2014: US$18.2 million), US$0.1 million (2014: US$0.2
million), US$0.02 million (2014: US$0.07 million), US$1.7 million
(2014: US$Nil) and US$4.8 million (2014: US$Nil) respectively. In
December 2015 the Group consented to redemption on a pro rata basis
of TAF's interest in SRF receiving SRF shares as payment in kind of
the redemption proceeds. Of the Group's total investments of
US$16.8 million an amount of US$4.9 million, comprising mainly SRF,
has been classed as level 3 in the fair value hierarchy of
financial instruments due to the illiquid nature of the
investments. Since the year end the Group has redeemed its
investment in ALMF for US$1.6 million.
At the year end the Argo funds (excluding AREOF) owed the Group
total management fees of US$819,451 (31 December 2014:
US$2,361,599) after a bad debt provision of US$Nil (31 December
2014: US$1,300,000). Since the year end the Group received
US$480,000 as part settlement of these management fees.
The Argo funds ended the period with Assets under Management
("AUM") at US$93.4 million, 47% lower than at the beginning of the
year. The current level of AUM remains below that required to
ensure sustainable profits on a recurring management fee basis in
the absence of performance fees. This has necessitated an ongoing
review of the Group's cost basis. Nevertheless, the Group has
ensured that the operational framework remains intact and that it
retains the capacity to manage additional fund inflows as and when
they arise.
The number of employees of the Group at 31 December 2015 was 24
(2014: 27).
The Group has provided AREOF with a notice of deferral in
relation to amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2015 total US$Nil (2014: US$Nil) after a bad debt
provision of US$7,164,702 (EUR6,569,505) (2014: US$5,554,234
(EUR4,569,505)). AREOF continues to meet part of this obligation to
the Argo Group as and when liquidity allows. In November 2013,
AREOF offered Argo Group Limited additional security for the
continued support in the form of debentures and guarantees by
underlying intermediate companies. Argo Group Limited retains this
additional security. The AREOF management contract has a fixed term
expiring on 31 July 2018.
Fund performance
The Argo Funds
2015 2014
Launch Year Year Since Annualised Sharpe Down
Fund date total total inception performance ratio months AUM
---------------- -------- -------- -------- ------------ ------------- ------- -------- ------
% % % CAGR US$m
%
---------------- -------- -------- -------- ------------ ------------- ------- -------- ------
57
of
The Argo Fund Oct-00 -17.42 -4.94 99.57 5.4 0.46 183 52.2
---------------- -------- -------- -------- ------------ ------------- ------- -------- ------
Argo Distressed 41
Credit of
Fund Oct-08 -9.71 -4.64 49.86 6.28 0.55 87 22.3
---------------- -------- -------- -------- ------------ ------------- ------- -------- ------
Argo Special 41
Situations of
Fund LP Feb-12 -76.21 -17.16 -85.27 -38.69 0.74 47 14.1
---------------- -------- -------- -------- ------------ ------------- ------- -------- ------
24
Argo Local of
Markets Fund Nov-12 -8.41 -6.19 -21.30 -7.22 -2.00 38 4.8
---------------- -------- -------- -------- ------------ ------------- ------- -------- ------
Argo Real
Estate 66
Opportunities of
Fund* Aug-06 -295.40 -113.43 -103.2 n/a n/a 110 n/a
---------------- -------- -------- -------- ------------ ------------- ------- -------- ------
Total 93.4
-------------------------- -------- -------- ------------ ------------- ------- -------- ------
* NAV only officially measured twice a year, March and
September.
Emerging market indices had another difficult year. The
persistent strength of the US dollar once again played its part.
However, concerns about a slowdown in China's economy, the ongoing
strife in Ukraine and substantial commodity price declines also
took their toll. The slump in the price of oil was particularly
disruptive for emerging markets after the commodity registered a
45% drop in 2015.
(MORE TO FOLLOW) Dow Jones Newswires
March 30, 2016 02:01 ET (06:01 GMT)
This backdrop created an opportunity to reinvest in emerging
markets at lower prices and we are now in a position to take
advantage of the opportunity as a result of the TPPI liquidity
event. In response to the prevailing attitudes towards credit funds
we are relaunching TAF and the Argo Distressed Credit Fund Limited
as two distinct mandates with different liquidity profiles that
will make them more attractive propositions to new investors.
During the second half of the year, the Argo funds successfully
exited the majority of a significant position they held in the
Indonesian refinery, TPPI. Unfortunately, the exit price of the
investment was below the level at which it was carried by the Argo
funds. This contributed to their weak performance. However, the
Indonesia disposal has provided much needed liquidity to the funds.
It has allowed ASSF to repay a significant portion of the debt
financing arrangement put in place in 2014.
TAF is the Group's flagship fund and has a 16 year track record.
Going forward, TAF will focus on liquid bond securities, both
sovereign and corporate, and will be the centre of the Group's
marketing efforts. Following the declines experienced by emerging
markets over the past two years, the Board believes they offer
attractive investment opportunities. Furthermore, the economic
fundamentals in emerging markets are robust. They are expected to
deliver significantly stronger economic growth than developed
markets in 2016 while enjoying attractive risk profiles thanks to
low levels of government indebtedness and high foreign exchange
reserves. The results of the first two months of 2016 for TAF show
a promising future.
The expectations of the first Federal Reserve interest rate hike
since June 2006 also weighed heavily on emerging markets. The
dollar was king for the year and emerging currencies suffered as a
result. Separately, political controversies have also added to
uncertainty in leading economies with the likes of Russia straining
under western imposed sanctions, Brazil suffering from a big
corruption scandal and South Africa dealing with low growth and
popular unrest. All in all it was a painful year for both local
rates and currencies as these economies continued to re-adjust to a
world of lower growth for longer. Many of them have built
sufficient buffers to be able to cope under such a scenario which
is a positive however tough economic reforms await those who have
not taken the opportunity to rebalance their economies during the
good times of the last decade.
The two markets in which AREOF operates were mixed. Conditions
in Romania were largely favourable as the local economy continued
to expand thereby boosting the local property market. Ukraine had
another downbeat year. Although Ukraine's government signed a
ceasefire in hostilities with Russia in February, the economy
endured another negative year and registered a 12% fall in GDP.
AREOF's adjusted Net Asset Value was minus US$23.6 million
(minus EUR20.9 million) as at 30 September 2015, compared with
minus US$6.7 million (minus EUR5.3 million) a year earlier. The
adjusted Net Asset Value per share at 30 September 2015 was minus
US$0.03 (minus EUR0.03) (30 September 2014: minus US$0.01 (minus
EUR0.01)). 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$0.01 (EUR0.01) (30 September 2014: US$0.05
(EUR0.04)).
The majority of AREOF's debt facilities were in default during
the year. 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 forbearance of its
banks and support of its shareholders. In view of this, the
directors of AREOF have concluded that AREOF is a going
concern.
The prevailing equity price of the AREOF shares at the time of
their suspension was 2.0 euro cents. The valuation of Argo Group
Limited's investment in AREOF and that of the Argo funds was 1.0
euro cent as at 31 December 2015.
Dividends and share purchase programme
The directors did not recommend a final dividend in respect of
the year ended 31 December 2014 and do not recommend a final
dividend for this year but intend to restart dividend payments as
soon as the Group returns to profitability.
Since the year end the directors have authorised a share buyback
programme up to a maximum total value of GBP2 million and will
shortly start implementing the programme.
Outlook
The Board remains optimistic about the Group's prospects
particularly in light of the significant increase in the liquidity
of Argo funds following the exit in Indonesia. A significant
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 such an increase in AUM with negligible impact
on operational costs.
Boosting AUM will be Argo's top priority over the coming year.
The Group's marketing efforts will be focused on the re-launch of
TAF which has a 16 year track record as well as identifying
acquisitions that are earnings enhancing. 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 2015 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 within 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 affairs
as at 31 December 2015 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 investment in the Sudan Recovery Fund Limited
(SRF)
The valuation of the investment in the Sudan Recovery Fund as
disclosed in note 10 to the financial statements is based on
various assumptions and limiting conditions, many of which are
difficult to assess given the inherent uncertainties as to the
ultimate outcome. No current audited financial statements could be
obtained for the Sudan Recovery Fund. Refer to note 10 for further
information.
The above matters indicate the existence of inherent
uncertainties with regard to the carrying value of the investment
in the Sudan recovery Fund 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
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March 30, 2016 02:01 ET (06:01 GMT)
YEAR ENDED 31 DECEMBER 2015
Year ended Year ended
31 December 31 December
2015 2014
Note US$'000 US$'000
Management fees 5,091 6,660
Other income 639 805
==================================== ====== ============ =====================
2(e),
Revenue 3 5,730 7,465
==================================== ====== ============ =====================
Legal and professional expenses (388) (387)
Management and incentive
fees payable 2(f) (79) (116)
Operational expenses (910) (1,056)
Employee costs 4 (2,155) (2,935)
Foreign exchange gain 69 24
Bad debts 11 (1,997) (4,104)
Depreciation 9 (46) (98)
==================================== ====== ============ =====================
Operating profit/(loss) 6 224 (1,207)
==================================== ====== ============ =====================
Interest income on cash
and cash equivalents 190 218
Loss on investments (3,342) (985)
==================================== ====== ============ =====================
Loss on ordinary activities
before taxation 3 (2,928) (1,974)
==================================== ====== ============ =====================
Taxation 7 (250) (39)
==================================== ====== ============ =====================
Loss for the year after
taxation attributable to
members of the Company 8 (3,178) (2,013)
Other comprehensive income
Exchange differences on
translation of foreign operations (380) (487)
==================================== ====== ============ =====================
Total comprehensive loss
for the year (3,558) (2,500)
==================================== ====== ============ =====================
Year Year ended
ended
31 December 31 December
2015 2014
US$ US$
Earnings per share (basic) 8 (0.05) (0.03)
============================== ============ ============
Earnings per share (diluted) 8 (0.04) (0.03)
============================== ============ ============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2015
At 31 December At 31 December
2015 2014
Note US$'000 US$'000
Assets
Non-current assets
Fixtures, fittings and
equipment 9 64 107
Investments 10 4,896 18,435
Loans and advances receivable 13 1,783 2,357
=============================== ===== =============== ===============
Total non-current assets 6,743 20,899
=============================== ===== =============== ===============
Current assets
Investments 10 11,896 -
Trade and other receivables 11 966 2,517
Cash and cash equivalents 12 3,126 2,821
Loans and advances receivable 13 - 132
=============================== ===== =============== ===============
Total current assets 15,988 5,470
=============================== ===== =============== ===============
Total assets 3 22,731 26,369
=============================== ===== =============== ===============
Equity and liabilities
Equity
Issued share capital 14 674 674
Share premium 30,878 30,878
Revenue reserve (6,239) (3,061)
Foreign currency translation
reserve 2(d) (2,876) (2,496)
=============================== ===== =============== ===============
Total equity 22,437 25,995
=============================== ===== =============== ===============
Current liabilities
Trade and other payables 15 236 321
Taxation payable 7 58 53
=============================== ===== =============== ===============
Total current liabilities 3 294 374
=============================== ===== =============== ===============
Total equity and liabilities 22,731 26,369
=============================== ===== =============== ===============
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED 31 DECEMBER 2015
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$'000
As at 1 January
2014 674 30,878 (1,048) (2,009) 28,495
Total comprehensive
income
Loss for the period
after taxation - - (2,013) (487) (2,500)
As at 31 December
2014 674 30,878 (3,061) (2,496) 25,995
======================= ========== ========== ========== ============== ========
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2015 2015 2015 2015 2015
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2015 674 30,878 (3,061) (2,496) 25,995
Total comprehensive
income
Loss for the period
after taxation - - (3,178) (380) (3,558)
As at 31 December
2015 674 30,878 (6,239) (2,876) 22,437
===================== ========== ========== ========== ============== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2015
Year ended Year ended
31 December 31 December
2015 2014
Note US$'000 US$'000
Net cash inflow/(outflow)
from operating activities 17 2,128 (630)
Cash flows from investing
activities
Interest received on
cash and cash equivalents 14 1
Purchase of non-current (1,700) -
asset investments
Purchase of fixtures,
fittings and equipment 9 (8) (38)
Net cash used in investing
activities (1,694) (37)
=============================== ===== ============ ============
Net increase/(decrease)
in cash and cash equivalents 434 (667)
Cash and cash equivalents
at 1 January 2015 and
1 January 2014 2,821 3,726
Foreign exchange loss
on cash and cash
equivalents (129) (238)
Cash and cash equivalents
as at 31 December 2015
and 31 December 2014 3,126 2,821
=============================== ===== ============ ============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2015
1. CORPORATE INFORMATION
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March 30, 2016 02:01 ET (06:01 GMT)
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 places of business are at 10
Vasilissis Frederikis Street, 1066 Nicosia, Cyprus and 24-25 New
Bond Street, London, W1S 2RR. 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 24 (2014: 27) 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 March 2017.
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 fees due from funds under management. These
cash flows are linked to the liquidity of the major funds under
management of the Group. AREOF and ASSF 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 has also considered forecast financial
information under continued stressed trading conditions. Should
such a scenario arise the Group may 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
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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. 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. Where funds contain level 3 assets
the Directors will consider the carrying value based on information
regarding future expected cash flows using appropriate valuation
techniques such as discounted cash flow analysis. 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. An estimate for
provision for recovery is made when collection is no longer
probable.
(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:
- Investments fair value
- Management fees
- Trade receivables
- Going concern
- Loans and advances
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
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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)
--------------------------------------- --------------
Annual Improvements to IFRSs 2012-2014 31 December
Cycle - various standards 2016
Amendments to IAS 1 - Disclosure 31 December
Initiative 2016
IFRS 9 Financial Instruments (issued 1 January
on 24 July 2014) 2018
--------------------------------------- --------------
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 2018
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 31 December
2015 2015 2015 2015 2015
US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments 2,250 1,650 2,047 2,859 8,806
Intersegment
revenues (2,250) - (826) - (3,076)
Total profit/(loss)
for reportable
segments (3,743) 1,688 265 (1,098) (2,888)
Intersegment
profit/(loss) - 826 (826) - -
Total assets
for reportable
segments 17,335 1,419 2,525 1,876 23,155
Total liabilities
for reportable
segments 91 89 98 475 753
===================== ======== ============= =============== ================= =============
Revenues, profit or loss, assets and Year ended
liabilities may be reconciled as follows:
31 December
2015
US$'000
Revenues
Total revenues for reportable segments 8,806
Elimination of intersegment revenues (3,076)
============================================ =============
Group revenues 5,730
============================================ =============
Profit or loss
Total loss for reportable segments (2,888)
Other unallocated amounts (40)
============================================ =============
Loss on ordinary activities before
taxation (2,928)
============================================ =============
Assets
Total assets for reportable segments 23,155
Elimination of intersegment receivables (424)
Group assets 22,731
============================================ =============
Liabilities
Total liabilities for reportable segments 753
Elimination of intersegment payables (459)
============================================ =============
Group liabilities 294
============================================ =============
Argo Capital Argo Capital
Argo Management Argo Capital Management Year
Group (Cyprus) Management Property ended
Ltd Limited Limited Limited 31 December
2014 2014 2014 2014 2014
US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments 250 3,199 2,397 3,455 9,301
Intersegment
revenues 250 - 1,586 - 1,836
Total profit/(loss)
for reportable
segments (1,211) 78 119 (998) (2,012)
Intersegment
profit/(loss) (250) 1,845 (1,586) - 9
Total assets
for reportable
segments 18,811 3,621 2,632 2,910 27,974
Total liabilities
for reportable
segments 75 1,707 169 103 2,054
===================== ======== ============= =============== =============== =============
Revenues, profit or loss, assets and Year ended
liabilities may be reconciled as follows:
31 December
2014
US$'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 losses 9
Other unallocated amounts 29
============================================ =============
Loss on ordinary activities before
taxation (1,974)
============================================ =============
Assets
Total assets for reportable segments 27,974
Elimination of intersegment receivables (1,605)
Group assets 26,369
============================================ =============
Liabilities
Total liabilities for reportable segments 2,054
Elimination of intersegment payables (1,680)
============================================ =============
Group liabilities 374
============================================ =============
4. EMPLOYEE COSTS
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Wages and salaries 1,911 2,636
Social security costs 179 229
Other 65 70
======================= ============== ==============
2,155 2,935
======================= ============== ==============
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to the following:
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Directors and key management
personnel 1,047 1,286
============================== ============== ==============
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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 2015 2014
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive
Directors
Kyriakos
Rialas 202 - - - 202 240
Andreas
Rialas 221 - 4 - 225 242
Non-Executive
Directors
Michael
Kloter - 80 - - 80 84
David
Fisher - 54 - - 54 58
Ken Watterson - 55 - - 55 59
=============== ============= ========== ============= ========== ============== ==============
6. OPERATING PROFIT/(LOSS)
Operating profit/(loss) is stated after charging:
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Auditors' remuneration 105 122
Depreciation 46 98
Directors' fees 963 1,079
Operating lease payments 199 243
=========================== ============== ==============
7. TAXATION
Taxation rates applicable to the parent company and the Cypriot,
UK, Luxembourg and Romanian subsidiaries range from 0% to 20.25%
(2014: 0% to 21.5%).
Income Statement
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Taxation charge for the year
on Group companies 250 39
Tax on loss on ordinary activities 250 39
==================================== ============== ==============
The tax charge for the year can be reconciled to the loss on
ordinary activities before taxation shown in the Consolidated
Statement of Comprehensive Income as follows:
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Loss before tax (2,928) (1,974)
================================== ============== ==============
Applicable Isle of Man tax
rate for Argo Group Limited
of 0% - -
Timing differences 5 2
Non-deductible expenses 7 14
Other adjustments (66) (50)
Tax effect of different tax
rates of subsidiaries operating
in
other jurisdictions 304 73
================================== ============== ==============
Tax charge 250 39
================================== ============== ==============
Balance Sheet
At 31 December At 31 December
2015 2014
US$'000 US$'000
Corporation tax payable 58 53
========================= =============== ===============
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
2015 2014
US$'000 US$'000
Loss for the year after
taxation attributable to
members (3,178) (2,013)
================================= ============== ==============
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 4,090,000
================================= ============== ==============
Weighted average number
of ordinary shares for diluted
earnings per share 71,518,494 71,518,494
================================= ============== ==============
Year ended Year ended
31 December 31 December
2015 2014
US$ US$
Earnings per share (basic) (0.05) (0.03)
Earnings per share (diluted) (0.04) (0.03)
============================== ============== ==============
9. FIXTURES, FITTINGS AND EQUIPMENT
Fixtures,
fittings
& equipment
US$'000
Cost
At 1 January 2014 408
Additions 38
Disposals (161)
Foreign exchange movement (31)
================================ =============
At 31 December 2014 254
Additions 8
Foreign exchange movement (17)
================================ =============
At 31 December 2015 245
================================ =============
Accumulated Depreciation
At 1 January 2014 231
Depreciation charge for period 98
Disposals (159)
Foreign exchange movement (23)
================================ =============
At 31 December 2014 147
Depreciation charge for period 46
Foreign exchange movement (12)
================================ =============
At 31 December 2015 181
================================ =============
Net book value
At 31 December 2014 107
================================ =============
At 31 December 2015 64
================================ =============
10. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 31 December
2015 2015
Holding Investment in management Total cost Fair value
shares
US$'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$'000
51,261 The Argo Fund Ltd* 11,159 10,230
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 119
Argo Special Situations
115 Fund LP 115 17
Argo Local Markets
2,117 Fund Limited* 1,700 1,666
Sudan Recovery Fund
40,272 Limited 4,760 4,760
=========== ========================= ============== ==============
18,722 16,792
=========== ========================= ============== ==============
31 December 31 December
2014 2014
Holding Investment in management Total cost Fair value
shares
US$'000 US$'000
10 The Argo Fund Ltd - -
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100 Argo Distressed Credit - -
Fund Ltd
1 Argo Special Situations - -
Fund LP
1 Argo Local Markets - -
Fund
=========== ========================= ============== ==============
- -
=========== ========================= ============== ==============
Holding Investment in ordinary Total cost Fair value
shares
US$'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
=========== ======================== ============= =============
*Classified as current in the Statement of Financial
Position
During the period TAF made a distribution which was settled as a
dividend in specie of Sudan Recovery Fund ("SRF") shares. This
election was made on 29 December 2015 and the shares in SRF were
allotted on 8 January 2016.
The SRF invests solely in Sudan Sovereign debt which is in
default and is highly illiquid. The valuation of the underlying
debt is based on a number of assumptions including the expected
recoverable amount of the Highly Indebted Poor Countries Initiative
(HIPC) debt forgiveness programme that both multilateral and
commercial creditors could potentially provide to Sudan. No active
market or quoted prices for financial instruments exists. Had an
active market existed the fair value of this position may have been
significantly different to that which has been reported in these
financial statements. No current audited financial statements for
the Sudan Recovery Fund were available. These represent inherent
uncertainties to the recoverable value of the investment.
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. The prevailing equity price of AREOF
shares at the time of the suspension in August 2013 was 2.0 euro
cents. The valuation of Argo Group Limited's investment in AREOF
and that of the Argo funds was 1.0 euro cent as at 31 December
2015. This investment is classified as level 3 under IFRS fair
value hierarchy reflecting the non-market observable inputs to its
valuation. The audit report in respect of AREOF for the year ended
30 September 2015 was modified in respect of going concern and
investment property valuations. Since the year end the Group has
redeemed its investment in ALMF for US$1.6 million.
11. TRADE AND OTHER RECEIVABLES
At 31 December At 31 December
2015 2014
US$ '000 US$ '000
Trade receivables 829 2,359
Other receivables 66 65
Prepayments and accrued
income 71 93
========================= ================= =================
966 2,517
========================= ================= =================
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. Since the year end the Group received
US$480,000 as part settlement of these trade receivables.
The Group has provided Argo Real Estate Opportunities Fund
Limited ("AREOF") with a notice of deferral in relation to the
amounts due from the provision of investment management services,
under which it will not demand payment of such amounts until the
Group judges that AREOF is in a position to pay the outstanding
liability. These amounts accrued or receivable at 31 December 2015
total US$Nil (2014:Nil) after a bad debt provision of US$7,164,702
(EUR6,569,505) (2014: US$5,554,234 (EUR4,569,505)). 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.
In the audited financial statements of AREOF at 30 September
2015 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.
At the year end Argo Special Situations Fund LP owed the Group
total management fees of US$689,310 (2014: US$436,838). This Fund
is currently facing liquidity issues due to the debt financing
arrangement put in place in 2014 however management continue to
work to remedy this and the Directors are confident that these fees
may be recovered in the future. Since the year end the Group
received US$350,000 as part settlement of these management
fees.
12. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is a balance of US$30,000
(2014: US$79,000) which represents a bank guarantee in respect of
credit cards issued to Argo Capital Management Property Limited.
Due to the nature of this balance it is not freely available.
13. LOANS AND ADVANCES RECEIVABLE
At 31 At 31 December
December
2015 2014
US$'000 US$'000
Deposits on leased premises
- current - 6
Deposits on leased premises
- non-current 90 96
Other loans and advances
receivable - current - 126
Other loans and advances
receivable - non-current
(see below) 1,693 2,261
============================= =========== ================
1,783 2,489
============================= =========== ================
The non-current other loans and advances receivable
comprise:
At 31 At 31 December
December
2015 2014
US$'000 US$'000
Loan to Bel Rom Trei (see
note (a) below) 1,437 1,456
Loan to AREOF (see note (b)
below) 24 552
Loan to The Argo Fund Limited
(see note (c) below) 22 150
Loans to other AREOF Group
entities (see note (d) below) 208 102
Other loans 2 1
================================ ========== ===============
1,693 2,261
================================ ========== ===============
The deposits on leased premises are retained by the lessor until
vacation of the premises at the end of the lease term as
follows:
At 31 December At 31 December
2015 2014
US$'000 US$'000
Current:
Lease expiring within
one year - 6
======================= ================= ===============
At 31 December At 31 December
2015 2014
US$'000 US$'000
Non-current:
Lease expiring in second 78 -
year after balance sheet
date
Lease expiring in third
year after balance sheet
date - 96
Lease expiring in fourth 12 -
year after balance sheet
date
90 96
=========================== =============== ===============
(a) In 2013 Argo Group advanced US$1,090,600 (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 amounting to US$1,437,321 (EUR1,317,918) 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.
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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$424,200 (EUR388,960) to AREOF at a rate of 10% per annum to
enable the company to service interest payments under a bank loan
agreement. A bad debt provision has been raised against the full
amount of the loan and accrued interest amounting to US$513,804
(EUR471,120).
The Argo Group provided a further loan of US$24,211 (EUR22,200)
to AREOF to assist with its operational cash requirements. The loan
is interest free and repayable on demand. The full amount of the
loan remains outstanding at the year end.
(c) On 5 December 2014 the Argo Group provided a loan of
US$150,000 to The Argo Fund Limited to assist with its operational
cash requirements. This loan with interest accrued at 5% was repaid
in October 2015. During the year a further loan of US$22,203
(GBP15,000) was provided to The Argo Fund Limited which is interest
free and repayable on demand.
(d) The Argo Group has provided total loans of US$207,412
(EUR190,182) to various AREOF Group entities to assist those
entities with their operational cash requirements. The loans are
interest free and repayable on demand. 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$0.01.
31 December 31 December 31 December 31 December
2015 2015 2014 2014
No. US$'000 No. US$'000
Issued and fully
paid
Ordinary shares
of US$0.01 each 67,428,494 674 67,428,494 674
================== ============= ============ ============= ============
67,428,494 674 67,428,494 674
================== ============= ============ ============= ============
The directors do not recommend the payment of a final dividend
for the year ended 31 December 2015 (31 December 2014: Nil). Going
forward, the Company intends, subject to its financial performance,
to pay a final dividend each year.
15. TRADE AND OTHER PAYABLES
At 31 December At 31 December
2015 2014
US$ '000 US$ '000
Trade and other payables 32 91
Other creditors and accruals 204 230
============================== =============== ===============
236 321
============================== =============== ===============
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
2015 2014
US$ '000 US$ '000
Operating lease liabilities:
Within one year 203 234
In the second to fifth
years inclusive 279 565
============================== =============== ===============
Present value of minimum
lease payments 482 799
============================== =============== ===============
17. RECONCILIATION OF NET CASH OUTLOW FROM OPERATING ACTIVITIES
TO
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended
31 December 31 December
2015 2014
US$ '000 US$ '000
Loss on ordinary activities
before taxation (2,928) (1,974)
Interest income (190) (218)
Depreciation 46 98
Loss on disposal of fixed
assets - 2
Decrease in payables (85) (67)
Decrease in receivables 2,257 618
Decrease in fair value
of current asset investments 3,342 985
Net foreign exchange
gain (69) (24)
Income taxes paid (245) (50)
=============================== ============== ==============
Net cash inflow/(outflow)
from operating activities 2,128 (630)
=============================== ============== ==============
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"), Argo Special Situations Fund LP, Argo Local Markets Fund
Limited and Sudan Recovery Fund Limited. These investments are
reflected in the accounts at a fair value of US$10,230,308,
US$118,865, US$16,849, US$1,666,102 and US$4,760,264
respectively.
The Group has provided AREOF with a notice of deferral in
relation to the amounts due from the provision of investment
management services, under which it will not demand payment of such
amounts until the Group judges that AREOF is in a position to pay
the outstanding liability. These amounts accrued or receivable at
31 December 2015 total US$Nil (2014:Nil) after a bad debt provision
of US$7,164,702 (EUR6,569,505) (2014: US$5,554,234 (EUR4,569,505)).
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.
On 21 November 2013 the Argo Group provided a loan of US$424,200
(EUR388,960) to AREOF at a rate of 10% per annum to enable the
company to service interest payments under a bank loan agreement. A
bad debt provision has been raised against the full amount of the
loan and accrued interest amounting to US$513,804 (EUR471,120).
At the year end Argo Group was owed US$1,437,321 (EUR1,317,918)
including interest of US$346,721 (EUR317,917) 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$231,624 (EUR212,381) by other AREOF Group entities. This balance
comprises various loans that are all unsecured, interest free and
repayable on demand.
At the year end the Argo Group was owed US$22,203 (GBP15,000) by
The Argo Fund Limited. The loan is interest free and repayable on
demand.
In addition to the above the Argo Group is owed a further
US$1,055,549 (EUR967,861) by AREOF Group entities against which a
bad debt provision has been raised.
In the audited financial statements of AREOF at 30 September
2015 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
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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 and in which the
Group holds significant investments 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. Some of the 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 net assets past due but not
impaired amounted to US$2,148,606 (2014:US$4,465,756).
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 with carrying
amounts as follows: US dollar - US$2,275,000, Sterling -
US$693,000, Euros - US$123,000 and Romanian Lei - US$35,000.
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 2015 the exposure would be a profit or
loss to the Consolidated Statement of Comprehensive Income of
approximately US$43,000 (2014: US$40,000).
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2015 is as
follows:
Instruments
Total Variable Fixed on which
as per interest interest no interest
balance rate instruments* rate is receivable
sheet instruments
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets
at fair value
through profit
or loss 16,792 - - 16,792
Loans and receivables 2,749 - 1,437 1,312
Cash and cash
equivalents 3,126 602 2,274 250
======================= ========== ==================== ============== ===============
22,667 602 3,711 18,354
======================= ========== ==================== ============== ===============
Financial liabilities
Trade and other
payables 236 - - 236
======================= ========== ==================== ============== ===============
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.01%. 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 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.
(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
2015 2014
US$ '000 US$ '000
Financial Assets
Financial assets at fair
value through profit or
loss 16,792 18,435
Loans and receivables 2,749 5,006
Cash and cash equivalents 3,126 2,821
============================ ================= =================
22,667 26,262
=========================== ================= =================
Financial Liabilities
Trade and other payables 236 321
============================ ================= =================
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 2015
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss - 11,896 4,896 16,792
==================== ========== ========= ========= =========
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
================== ========== ========== ========= =========
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The following table shows a reconciliation from the opening
balances to the closing balances for fair value measurements in
Level 3 of the fair value hierarchy:
Unlisted Listed
closed open ended
ended investment investment
fund fund
Emerging
markets
Real Estate Total
US$ '000 US$ '000 US$ '000
Balance as at 1 January
2015 199 18,236 18,435
Total losses recognized
in profit or loss (80) (3,262) (3,342)
Purchases - 6,461 6,461
Sales - (4,762) (4,762)
Transfer to level
2 (11,896) (11,896)
Balance as at 31
December 2015 119 4,777 4, 896
========================= ==================== ============== ===========
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 4,090,000
Granted during the period - -
Forfeited during the period 24.0p -
============================== ================== =============
Outstanding at end of period 24.0p 4,090,000
============================== ================== =============
Exercisable at end of period 24.0p 4,090,000
============================== ================== =============
The options outstanding at 31 December 2015 have an exercise
price of 24p and a weighted average contractual life of 10 years,
with the fourth and final tranche of shares being exercisable on or
after 1 May 2015.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
FR URVRRNUAOORR
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