TIDMARGO
RNS Number : 4713Y
ARGO Group Limited
03 March 2017
Argo Group Limited
("Argo" or the "Company")
Annual Report and Accounts for the Year ended 31 December
2016
Argo today announces its final results for the year ended 31
December 2016.
The Company will today post to shareholders and make available
its report and accounts for the year ended 31 December 2016 on the
Company's website www.argogrouplimited.com.
Key highlights for the twelve months ended 31 December 2016
- Revenues US$6.4 million (2015: US$5.7 million)
- Operating loss US$0.6 million (2015: operating profit US$0.2 million)
- Profit before tax US$0.6 million (2015: loss before tax US$2.9 million)
- Net assets US$20.1 million (2015: US$22.4 million)
Commenting on the results and outlook, Kyriakos Rialas, Chief
Executive of Argo said:
"We are extremely satisfied with the solid performance of 2016.
Emerging Markets bond funds continue to attract inflows and exhibit
stability and reduced volatility, as they now form a significant
part of any balanced global portfolio. The positive performance of
our fund for the first two months of 2017 confirms this. The
balance sheet of our company is strong and the first buyback
programme has been a success elevating the book value of the
company. The second buyback programme will expire in September
2017. We are investing in the future of the company both in human
resources and IT and we hope to attract additional inflows into our
Argo Fund going forward."
Enquiries
Argo Group Limited
Andreas Rialas
020 7016 7660
Panmure Gordon
Dominic Morley
020 7886 2500
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) No 596/2014.
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 2016.
For the year ended 31 December 2016 the Group generated revenues
of US$6.4 million (2015: US$5.7 million) with management fees
accounting for US$4.3 million (2015: US$5.1 million). The Group
also generated incentive fees of US$1.7 million (2015: US$ Nil)
during the year. The incentive fees earned during the year were
from The Argo Fund and Argo Distressed Credit Fund.
Total operating costs, ignoring bad debt provisions, are US$6.4
million (2015: US$3.5 million). The increase in operating costs is
mainly due to bonuses paid to reflect the excellent work undertaken
by the team over a number of years leading to the sale of a
significant asset and professional costs relating to our share
buyback programme. During the year management fee arrears of US$
2.8 million were recovered from Argo Real Estate Opportunities Fund
Limited ("AREOF") against which a provision had been raised in
prior years. The Group has provided against management fees of
US$2.2 million (EUR2.0 million) (2015: US$2.2 million (EUR2.0
million) due from AREOF and US$1.2 million (2015: US$1.1 million)
of loans made to AREOF and its group entities. In the Directors'
view these amounts are fully recoverable however they have
concluded that it would be appropriate to carry a provision against
these receivables as the timing of the receipts may be outside the
control of the Company and AREOF.
Overall, the financial statements show an operating loss for the
year of US$0.6 million (2015: operating profit US$0.2 million) and
a profit before tax of US$0.6 million (2015: loss before tax US$2.9
million) reflecting the realised and unrealised profit on current
asset investments of US$1.1 million (2015: loss US$3.3
million).
At the year end, the Group had net assets of US$20.1 million
(2015: US$22.4 million) and net current assets of US$19.6 million
(2015: US$15.7 million) including cash reserves of US$6.1 million
(2015: US$3.1 million). The Directors are not declaring a final
dividend.
Net assets include investments in The Argo Fund, AREOF, Argo
Special Situations Fund LP ("ASSF") and Argo Distressed Credit Fund
(together referred to as "the Argo funds" at fair values of US$9.7
million (2015: US$10.2 million), US$0.1 million (2015: US$0.1
million), US$0.01 million (2015: US$0.01 million), and US$2.5
million (2015: US$Nil) respectively.
At the year end the Argo funds (excluding AREOF) owed the Group
total management and performance fees of US$2,441,281 (31 December
2015: US$819,451). Since the year end the Group received
US$1,849,986 as part settlement of these management and performance
fees.
The Argo funds ended the period with Assets under Management
("AUM") at US$110.6 million, 18% higher than at the beginning of
the year. Management believe that the markets in which the Funds
operate have now established a recovery following the 2008 economic
collapse. The current level of AUM remains below that required to
ensure sustainable profits on a recurring management fee basis in
the absence of performance fees. This has necessitated an ongoing
review of the Group's cost basis. Nevertheless, the Group has
ensured that the operational framework remains intact and that it
retains the capacity to manage additional fund inflows as and when
they arise.
The number of employees of the Group at 31 December 2016 was 27
(2015: 24).
The Group has provided AREOF with a notice of deferral in
relation to amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2016 total US$Nil (2015: US$Nil) after a bad debt
provision of US$6,401,507 (EUR6,069,505) (2015: US$7,164,702
(EUR6,569,505)). AREOF continues to meet part of this obligation to
the Argo Group as and when liquidity allows. AREOF settled total
fees of EUR2,776,000 (EUR2,500,000) during the year. In November
2013, AREOF offered Argo Group Limited additional security for the
continued support in the form of debentures and guarantees by
underlying intermediate companies. Argo Group Limited retains this
additional security. The AREOF management contract has a fixed term
expiring on 31 July 2018.
Fund performance
The Argo Funds
2016 2015
Launch Year Year Since Annualised Sharpe Down
Fund date total total inception performance ratio months AUM
---------------- -------- -------- -------- ------------ ------------- ------- -------- -----
% % % CAGR US$m
%
---------------- -------- -------- -------- ------------ ------------- ------- -------- -----
58
of
The Argo Fund Oct-00 52.30 -17.42 203.94 7.95 2.07 195 63.1
---------------- -------- -------- -------- ------------ ------------- ------- -------- -----
Argo Distressed 47
Credit of
Fund Oct-08 32.69 -9.71 98.85 9.37 0.72 99 35.1
---------------- -------- -------- -------- ------------ ------------- ------- -------- -----
Argo Special 51
Situations of
Fund LP Feb-12 -12.03 -76.21 -87.00 -28.22 0.90 59 12.4
---------------- -------- -------- -------- ------------ ------------- ------- -------- -----
Total 110.6
-------------------------- -------- -------- ------------ ------------- ------- -------- -----
AREOF's adjusted Net Asset Value was minus US$25.8 million
(minus EUR24.5 million unaudited) as at 30 September 2016, compared
with minus US$23.4 million (minus EUR20.9 million audited) a year
earlier. The adjusted Net Asset Value per share at 30 September
2016 was minus US$0.04 (minus EUR0.04) (30 September 2015: minus
US$0.03 (minus EUR0.03)). Although AREOF's consolidated statement
of financial position indicates the AREOF group is insolvent on a
consolidated basis, the structural ring-fencing of the underlying
SPVs eliminates the impact on the Group of negative equity at
subsidiary level.
For several years, AREOF has traded with a negative equity
position and significant cash shortages at the holding company
level. In 2017, AREOF hopes to complete a significant restructuring
which will go some way towards reversing its negative equity
position. Initial measures are already underway. The Board hopes
the restructuring will be completed during the first half of 2017.
As part of the restructuring, Argo Group Limited would accept a
reduction in the management fee from AREOF. The reduction will see
the annual fee fall from EUR2m currently to EUR1m. Even after this
reduction, it is still expected by the Board that AREOF will
struggle to meet its management fee obligation to Argo Group
Limited.
2016 proved to be a better year for most emerging economies than
expected. The US postponed its interest rate rise and the greenback
rally stalled. This prompted many emerging market central banks to
cut interest rates, boosting activity. Moreover, investors went
back on the hunt for higher yielding assets and capital flowed back
into emerging markets, bond issuance reaching a record high in
2016.
This favourable backdrop created an opportunity to reinvest in
emerging markets at lower prices. In response to the more positive
prevailing attitudes towards credit funds we have relaunched TAF
and expect to do the same for ADCF soon, as two distinct mandates
with different liquidity profiles that will make them more
attractive propositions to new investors.
Early in the year the Argo funds generated a positive return
from trades linked to the 2015 disposal of their stake in an
Indonesian oil refinery. In June 2016 the Argo funds further
benefited from the sale by AREOF of one of its real estate assets
in Romania. As well as contributing to the strong performance of
TAF and ADCF, this provided much needed liquidity to the funds and
allowed AREOF to repay US$2,776,000 (EUR2,500,000) of management
fee arrears.
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 focus of the Group's
marketing efforts. Following the declines experienced by emerging
markets over the previous two years, the Board believes they offer
attractive investment opportunities. Furthermore, the economic
fundamentals in emerging markets are robust. Emerging Markets
Corporates are expected to deliver significantly stronger economic
growth than those in developed markets in 2017 while enjoying
attractive risk profiles thanks to lower levels of government
indebtedness and relatively high foreign exchange reserves. Both
TAF and ADCF performed well during 2016 with NAV per share
increasing by 52.3% and 32.69% respectively.
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. In Ukraine
the political crisis abated somewhat with the replacement of almost
the entire government and the economy is now on a modest recovery
path.
The Group invested in additional human resources by recruiting a
dedicated investor relations professional and an experienced
research analyst in expectation of increased activity in The Argo
Fund trading and risk management. Furthermore, operational systems
were upgraded with the help of an IT consultant.
Following the growth in assets under management at Argo Capital
Management Limited, the subsidiary has submitted an application to
the Financial Conduct Authority for a full scope Alternative
Investment Fund Manager (AIFM) licence in January 2017.
In January 2017, The Argo Fund, the Company's flagship fund, won
the Eurohedge Award for Best Emerging Manager and Smaller Fund in
2016.
Dividends and share purchase programme
The Directors are not declaring a final dividend, but intend to
restart dividend payments as soon as the Group's performance
provides a consistent track record of profitability.
During the year the Directors undertook a share purchase
programme and authorised the repurchase of 19,330,000 shares at a
total cost of US$2.9 million which provided substantial market
liquidity for share trading.
Under the current Share Buyback Programme II, the Company
intends to use up to GBP2 million to acquire Ordinary Shares in the
market over a twelve month period commencing on 28 September 2016
and expiring no later than 19 September 2017 (one year from the
date of the 2016 AGM which authorised the 2016 Share Buyback
Programme II). The minimum price that Argo will pay is 8p per
Ordinary Share. The aggregate number of Ordinary Shares which may
be acquired on behalf of the Company in connection with the 2016
Share Buyback Programme II will not exceed 23,676,987 Ordinary
Shares, which broadly represents the number of shares in public
hands. The Company has spent US$0.07 million (GBP0.06 million) to
buy back 375,000 Ordinary Shares on this programme so far.
The Directors firmly believe that a return of excess cash to
shareholders through buy-backs will send a positive message to
investors.
Outlook
The Board remains optimistic about the Group's prospects
particularly in light of the significant increase in the liquidity
of Argo funds following the sale of illiquid assets. A significant
increase in AUM is still required to ensure sustainable profits on
a recurring management fee basis and the Group is well placed with
capacity to absorb such an increase in AUM with negligible impact
on operational costs.
Boosting AUM will be Argo's top priority over the coming year.
The Group's marketing efforts will continue to focus on the
re-launch of TAF which has a 16 year track record as well as
identifying acquisitions that are earnings enhancing. TAF's
prospectus was amended on 1 March 2016 to eliminate trading in
level 3 illiquid assets and concentrate trading and investments in
emerging market bonds and other liquid assets.
Over the longer term, the Board believes there is significant
opportunity for growth in assets and profits and remains committed
to ensuring the Group's investment management capabilities and
resources are appropriate to meet its key objective of achieving a
consistent positive investment performance in the emerging markets
sector.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE
INCOME
YEARED 31 DECEMBER 2016
Year ended Year ended
31 December 31 December
2016 2015
Note US$'000 US$'000
Management fees 4,251 5,091
Performance fees 1,685 -
Other income 445 639
==================================== ====== ============ =====================
2(e),
Revenue 3 6,381 5.730
==================================== ====== ============ =====================
Legal and professional expenses (490) (388)
Management and incentive
fees payable 2(f) (68) (79)
Operational expenses (1,007) (910)
Employee costs 4 (4,769) (2,155)
Foreign exchange gain (16) 69
Bad debts 11 (553) (1,997)
Depreciation 9 (42) (46)
==================================== ====== ============ =====================
Operating profit/(loss) 6 (564) 224
==================================== ====== ============ =====================
Interest income on cash
and cash equivalents 137 190
Realised and unrealised
gains/(losses) on investments 1,076 (3,342)
==================================== ====== ============ =====================
Profit/(loss) on ordinary
activities before taxation 3 649 (2,928)
==================================== ====== ============ =====================
Taxation 7 (78) (250)
==================================== ====== ============ =====================
Profit/(loss) for the year
after taxation attributable
to members of the Company 8 571 (3,178)
Other comprehensive income
Items that may be reclassified
subsequently to profit or
loss:
Exchange differences on
translation of foreign operations (79) (380)
==================================== ====== ============ =====================
Total comprehensive income
for the year 492 (3,558)
==================================== ====== ============ =====================
Year Year ended
ended
31 December 31 December
2016 2015
US$ US$
Earnings per share (basic) 8 0.01 (0.05)
============================== ============ ============
Earnings per share (diluted) 8 0.01 (0.04)
============================== ============ ============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2016
At 31 December At 31 December
2016 2015
Note US$'000 US$'000
Assets
Non-current assets
Fixtures, fittings and
equipment 9 50 64
Financial assets at
fair value through profit
or loss 10 134 4,896
Loans and advances receivable 12 264 1,783
=============================== ===== =============== ===============
Total non-current assets 448 6,743
=============================== ===== =============== ===============
Current assets
Financial assets at
fair value through profit
or loss 10 12,267 11,896
Trade and other receivables 11 2,870 966
Loans and advances receivable 12 66 -
Cash and cash equivalents 13 6,126 3,126
Total current assets 21,329 15,988
=============================== ===== =============== ===============
Total assets 3 21,777 22,731
=============================== ===== =============== ===============
Equity and liabilities
Equity
Issued share capital 14 481 674
Share premium 28,211 30,878
Revenue reserve (5,668) (6,239)
Foreign currency translation
reserve 2(d) (2,955) (2,876)
=============================== ===== =============== ===============
Total equity 20,069 22,437
=============================== ===== =============== ===============
Current liabilities
Trade and other payables 15 1,683 236
Taxation payable 7 25 58
=============================== ===== =============== ===============
Total current liabilities 3 1,708 294
=============================== ===== =============== ===============
Total equity and liabilities 21,777 22,731
=============================== ===== =============== ===============
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARED 31 DECEMBER 2016
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$'000
As at 1 January
2015 674 30,878 (3,061) (2,496) 25,995
Total comprehensive
income
Loss for the year
after taxation - - (3,178) - (3,178)
Other comprehensive
income - - - (380) (380)
As at 31 December
2015 674 30,878 (6,239) (2,876) 22,437
======================= ========== ========== ========== ============== ========
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2016 2016 2016 2016 2016
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2016 674 30,878 (6,239) (2,876) 22,437
Total comprehensive
income
Profit for the year
after taxation - - 571 - 571
Other comprehensive
income - - - (79) (79)
Transactions with
owners recorded
directly in equity
Purchase of own
shares (note 14) (193) (2,667) - - (2,860)
As at 31 December
2016 481 28,211 (5,668) (2,955) 20,069
===================== ========== ========== ========== ============== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARED 31 DECEMBER 2016
Year ended Year ended
31 December 31 December
2016 2015
Note US$'000 US$'000
Net cash inflow/(outflow)
from operating activities 17 508 2,128
Cash flows from investing
activities
Interest received on
cash and cash equivalents 7 14
Share buy back (2,860) -
Purchase of financial
assets at fair value
through profit or loss (2,000) (1,700)
Proceeds from sale of 7,467 -
financial assets at
fair value through profit
or loss
Purchase of fixtures,
fittings and equipment 9 (31) (8)
Net cash used in investing
activities 2,583 (1,694)
============================ ===== ============ ============
Net increase in cash
and cash equivalents 3,091 434
Cash and cash equivalents
at 1 January 2016 and
1 January 2015 3,126 2,821
Foreign exchange loss
on cash and cash
equivalents (91) (129)
Cash and cash equivalents
as at 31 December 2016
and 31 December 2015 6,126 3,126
============================ ===== ============ ============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2016
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 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 27 (2015: 24) 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 2018.
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 financial statements.
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.
2. ACCOUNTING POLICIES
(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 profit or loss.
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 profit or loss.
Impairment of intangible assets
At each reporting 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 reporting date. The resulting profits or losses
are reflected in the Consolidated Statement of profit or loss.
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 reporting 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.
(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) Financial assets 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 financial assets 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 profit or
loss.
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 and Argo Special Situations Fund LP are stated
at fair value, being the recoverable amount. The Argo Fund can no
longer trade in Level 3 assets under the terms of its new
prospectus dated 1 March 2016.
(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 reporting 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 profit or loss 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 reporting 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 reporting 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
reporting 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 reporting
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
reporting 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
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 2014-2016 1 January
Cycle - various standards 2018
IFRS 15 Revenue from contracts with 1 January
customers 2018
IFRS 9 Financial Instruments (issued 1 January
on 24 July 2014) 2018
IFRS 16 Leases 1 January
2019
--------------------------------------- --------------
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 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
2016 2016 2016 2016 2016
US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments 600 994 3,525 2,645 7,764
Intersegment
revenues 600 783 - - (1,383)
Total profit/(loss)
for reportable
segments 1,251 (280) (837) 515 649
Intersegment
profit/(loss) 600 183 (783) - -
Total assets
for reportable
segments 15,708 1,035 4,292 3,435 24,470
Total liabilities
for reportable
segments 38 27 2,622 1,714 4,401
===================== ======== ============= =============== ================= =============
Revenues, profit or loss, assets and Year ended
liabilities may be reconciled as follows:
31 December
2016
US$'000
Revenues
Total revenues for reportable segments 7,764
Elimination of intersegment revenues (1,383)
============================================ =============
Group revenues 6,381
============================================ =============
Profit or loss
Total profit for reportable segments 649
Other unallocated amounts (-)
============================================ =============
Profit on ordinary activities before
taxation 649
============================================ =============
Assets
Total assets for reportable segments 24,470
Elimination of intersegment receivables (2,693)
Group assets 21,777
============================================ =============
Liabilities
Total liabilities for reportable segments 4,401
Elimination of intersegment payables (2,693)
============================================ =============
Group liabilities 1,708
============================================ =============
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$'000
Total revenues
for reportable
segments 2,250 1,650 2,047 2,859 8,806
Intersegment
revenues (2,250) - (826) - (3,076)
Total profit/(loss)
for reportable
segments (3743) 1,688 265 (1,098) (2,888)
Intersegment
profit/(loss) - 826 (826) - -
Total assets
for reportable
segments 17,335 1,419 2,525 1,876 23,155
Total liabilities
for reportable
segments 91 89 98 475 753
===================== ======== ============= =============== =============== =============
Revenues, profit or loss, assets and Year ended
liabilities may be reconciled as follows:
31 December
2015
US$'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
============================================ =============
4. EMPLOYEE COSTS
Year ended Year ended
31 December 31 December
2016 2015
US$'000 US$'000
Wages and salaries -under
employment contract 3,334 1,756
Wages and salaries - under
service contract 923 155
Social security costs 407 179
Other 105 65
============================ ============== ==============
4,769 2,155
============================ ============== ==============
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to the following:
Year ended Year ended
31 December 31 December
2016 2015
US$'000 US$'000
Directors and key management
personnel 2,155 1,047
============================== ============== ==============
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 2016 2015
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive
Directors
Kyriakos
Rialas 205 - - 200 404 202
Andreas
Rialas 208 - 6 600 814 225
Non-Executive
Directors
Michael
Kloter - 54 - - 54 80
David
Fisher - 35 - - 35 54
KenWatterson - 35 - - 35 55
--------------- ------------- ---------- ------------- ---------- -------------- --------------
6. OPERATING PROFIT/(LOSS)
Operating profit/(loss) is stated after charging:
Year ended Year ended
31 December 31 December
2016 2015
US$'000 US$'000
Auditors' remuneration 67 105
Depreciation 41 46
Directors' fees 2,155 963
Operating lease payments 172 199
=========================== ============== ==============
7. TAXATION
Taxation rates applicable to the parent company and the Cypriot,
UK, Luxembourg and Romanian subsidiaries range from 0% to 12.5%
(2015: 0% to 20.25%).
Income Statement
Year ended Year ended
31 December 31 December
2016 2015
US$'000 US$'000
Taxation charge for the year
on Group companies 78 250
Tax on profit on ordinary
activities 78 250
============================== ============== ==============
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
2016 2015
US$'000 US$'000
Profit/(loss) before tax 649 (2,928)
================================== ============== ==============
Applicable Isle of Man tax
rate for Argo Group Limited
of 0% - -
Timing differences (1) 5
Non-deductible expenses 9 7
Other adjustments 70 (66)
Tax effect of different tax
rates of subsidiaries operating
in
other jurisdictions - 304
================================== ============== ==============
Tax charge 78 250
================================== ============== ==============
Balance Sheet
At 31 December At 31 December
2016 2015
US$'000 US$'000
Corporation tax payable 25 58
========================= =============== ===============
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
2016 2015
US$'000 US$'000
Profit/(loss) for the year
after taxation attributable
to members 571 (3,178)
================================= ============== ==============
No. of No. of
shares shares
Weighted average number
of ordinary shares for basic
earnings
per share 55,443,494 67,428,494
Effect of dilution (note
21) 4,840,000 4,090,000
================================= ============== ==============
Weighted average number
of ordinary shares for diluted
earnings per share 60,283,494 71,518,494
================================= ============== ==============
Year ended Year ended
31 December 31 December
2016 2015
US$ US$
Earnings per share (basic) 0.01 (0.05)
Earnings per share (diluted) 0.01 (0.04)
============================== ============== ==============
9. FIXTURES, FITTINGS AND EQUIPMENT
Fixtures,
fittings
& equipment
US$'000
Cost
At 1 January 2015 254
Additions 8
Disposals -
Foreign exchange movement (17)
================================ =============
At 31 December 2015 245
Additions 31
Disposals (2)
Foreign exchange movement (24)
================================ =============
At 31 December 2016 250
================================ =============
Accumulated Depreciation
At 1 January 2015 147
Depreciation charge for period 46
Disposals -
Foreign exchange movement (12)
================================ =============
At 31 December 2015 181
Depreciation charge for period 41
Disposals (2)
Foreign exchange movement (20)
================================ =============
At 31 December 2016 200
================================ =============
Net book value
At 31 December 2015 64
================================ =============
At 31 December 2016 50
================================ =============
10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 31 December
2016 2016
Holding Investment in management Total cost Fair value
shares
US$'000 US$'000
10 The Argo Fund Ltd - -
100 Argo Distressed Credit - -
Fund Ltd
1 Argo Special Situations - -
Fund LP
- -
======== ========================= ============== ==============
Holding Investment in ordinary Total cost Fair value
shares
US$'000 US$'000
32,104 The Argo Fund Ltd* 7,159 9,758
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 119
Argo Special Situations
115 Fund LP 115 15
Argo Distressed Credit
1,262 Fund Limited* 2,000 2,509
10,262 12,401
=========== ======================== ============= =============
31 December 31 December
2015 2015
Holding Investment in management Total cost Fair value
shares
US$'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$'000
51,261 The Argo Fund Ltd* 11,159 10,230
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 119
Argo Special Situations
115 Fund LLP 115 17
Argo Local Markets
2,117 Fund Limited* 1,700 1,666
Sudan Recovery Fund
40,272 Limited 4,760 4 4,760
18,722 16,792
=========== ======================== ============= ==== =============
*Classified as current in the consolidated Statement of
Financial Position
11. TRADE AND OTHER RECEIVABLES
At 31 December At 31 December
2016 2015
US$ '000 US$ '000
Trade receivables - Gross 11,078 9,174
Less: provision for impairment
of trade receivables (8,626) (8,345)
-------------------------------- ----------------- -----------------
Trade receivables - Net 2,452 829
Other receivables 354 66
Prepayments and accrued
income 64 71
================================ ================= =================
2,870 966
================================ ================= =================
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
reporting date except as disclosed below. Since the year end the
Group received US$1,850,000 as part settlement of these trade
receivables.
The Group has provided AREOF with a notice of deferral in
relation to amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2016 total US$Nil (2015: US$Nil) after a bad debt
provision of US$6,401,507 (EUR6,069,505) (2015: US$7,164,702
(EUR6,569,505)). AREOF continues to meet part of this obligation to
the Argo Group as and when liquidity allows. AREOF settled total
fees of EUR2,776,000 (EUR2,500,000) during the year. 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.
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$591,295 (2015: US$689,310). 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. During the year, the Group received
US$350,000 as part settlement of these management fees.
12. TRADE AND OTHER RECEIVABLES
The movement in the Group's provision for impairment of trade
receivables is as follows:
At 31 December At 31 December
2016 2015
US$ '000 US$ '000
As at 1 January 8,345 5,687
Bad debt recovered (2,776) -
Provision charged during
the year 3,329 3,302
Foreign exchange movement (272) (644)
As at 31 December 8,626 8,345
=========================== ================= =================
13. LOANS AND ADVANCES RECEIVABLE
At 31 At 31 December
December
2016 2015
US$'000 US$'000
Deposits on leased premises -
- current 66 6
Deposits on leased premises
- non-current 13 90
9
Other loans and advances - -
receivable - current
Other loans and advances
receivable - non-current
(see below) 251 1,693
============================= =========== ===============
330 1,783
============================= =========== ===============
The non-current other loans and advances receivable
comprise:
At 31 December At 31 December
2016 2015
US$'000 US$'000
Loan to Bel Rom Trei (see
note (a) below) - 1,437
Loan to AREOF (see Note 18) 23 24
Loan to The Argo Fund Limited - 22
Loans to other AREOF Group
entities (see Note 18) 226 208
Other loans 2 2
=============================== =============== ===============
251 1,693
=============================== =============== ===============
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
2016 2015
US$'000 US$'000
Current:
Lease expiring within 66
one year -
====================== =============== ===============
At 31 December At 31 December
2016 2015
US$'000 US$'000
Non-current:
Lease expiring in second
year after the reporting
date - 78
Lease expiring in third 13 -
year after the reporting
date
Lease expiring in fourth
year after the reporting
date - 12
13 90
=========================== =============== ===============
(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. The full amount of the loan and
accrued interest amounting to USS1,490,031 (EUR1,337,611) was
repaid during the year
14. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is a balance of US$25,000
(EUR20,000) (2015: US$30,000) 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.
15. SHARE CAPITAL
The Company's authorised share capital is unlimited ordinary
shares with a nominal value of US$0.01.
31 December 31 December 31 December 31 December
2016 2016 2015 2015
No. US$'000 No. US$'000
Issued and fully
paid
Ordinary shares
of US$0.01 each 48,098,494 481 67,428,494 674
================== ============= ============ ============= ============
48,098,494 481 67,428,494 674
================== ============= ============ ============= ============
The Directors do not recommend the payment of a final dividend
for the year ended 31 December 2016 (31 December 2015: Nil).
During the year, the Directors authorised the repurchase of
19,330,000 shares at a total cost of US$2.9 million.
16. TRADE AND OTHER PAYABLES
At 31 December At 31 December
2016 2015
US$ '000 US$ '000
Trade and other payables 122 32
Other creditors and accruals 1,561 204
============================== ========================= ===============
1,683 236
============================== ========================= ===============
Trade and other payables are normally settled on 30-day
terms.
17. OBLIGATIONS UNDER OPERATING LEASES
Operating lease payments represent rentals payable by the Group
for certain of its business premises. The leases have no escalation
clauses or renewal or purchase options and no restrictions imposed
on them.
As at the reporting 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
2016 2015
US$ '000 US$ '000
Operating lease liabilities:
Within one year 149 203
In the second to fifth
years inclusive 116 279
============================== =============== ===============
Present value of minimum
lease payments 265 482
============================== =============== ===============
18. RECONCILIATION OF NET CASH OUTLOW FROM OPERATING ACTIVITIES TO
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended
31 December 31 December
2016 2015
US$ '000 US$ '000
Profit/(loss) on ordinary
activities before taxation 649 (2,928)
Interest income (136) (190)
Depreciation 41 46
Increase/(decrease) in
payables 1,444 (85)
(Increase)/decrease in
receivables (322) 2,257
(Increase)/decrease in
fair value of current
asset investments (1,076) 3,342
Net foreign exchange
loss/(gain) 16 (69)
Income taxes paid (108) (245)
============================= ============== ==============
Net cash inflow/(outflow)
from operating activities 508 2,128
============================= ============== ==============
19. RELATED PARTY TRANSACTIONS
All Group revenues derive from funds or entities in which two of
the Company's directors, Andreas Rialas and Kyriakos Rialas, have
an influence through directorships and the provision of investment
advisory services.
At the reporting date the Company holds investments in The Argo
Fund Limited, Argo Real Estate Opportunities Fund Limited
("AREOF"), Argo Special Situations Fund LP and Argo Distressed
Credit Fund Limited. These investments are reflected in the
consolidated financial statements at a fair value of US$9,757,845,
US$118,866, US$14,823 and US$2,509,697 respectively.
The Group has provided AREOF with a notice of deferral in
relation to amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2016 total US$Nil (2015: US$Nil) after a bad debt
provision of US$6,401,507 (EUR6,069,505) (2015: US$7,164,702
(EUR6,569,505)). AREOF continues to meet part of this obligation to
the Argo Group as and when liquidity allows. AREOF settled total
fees of EUR2,776,000 (EUR2,500,000) during the year. 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
On 21 November 2013 the Argo Group provided a loan of US$410,236
(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$537,915 (EUR510,017).
During the year, the Argo Group made further loans totalling
US$756,472 (EUR717,239) to AREOF at a rate of 10% per annum to
support the company to pay operational and restructuring costs. At
year end, total such loans and interest were US$1,187,320
(EUR1,125,742) (2015:US$370,561 (EUR351,342)). A full provision has
been made in the consolidated financial statements against these
balances at both at the end of the current and prior year.
At the year end, Argo Group was owed a total balance of
US$232,367 (EUR220,316) by other AREOF Group entities. This balance
comprises various loans that are unsecured, interest free and
repayable on demand. A bad debt provision of US$105,043 (EUR99,596)
has been made on the accounts in respect of these balances.
In addition to the above, the Argo Group is owed a further
US$292,676(EUR277,497) by AREOF against which a bad debt provision
for US$267,979 (EUR254,081) has been raised.
In the audited consolidated 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 consolidated financial statements on a
going concern basis.
David Fisher, a non-executive director of the Company, is also a
non-executive director of AREOF.
20. FINANCIAL INSTRUMENTS RISK MANAGEMENT
(a) Use of financial instruments
The wider Group has maintained sufficient cash reserves not to
use alternative financial instruments to finance the Group's
operations. The Group has various financial assets and liabilities
such as trade and other receivables, loans and advances, cash,
short-term deposits, and trade and other payables which arise
directly from its operations.
The Group's non-subsidiary investments in funds were entered
into with the purpose of providing seed capital, supporting
liquidity and demonstrating the commitment of the Group towards its
fund investors.
(b) Market risk
Market risk is the risk that a decline in the value of assets
adversely impacts on the profitability of the Group, either as a
result of an asset not meeting its expected value or through the
decline of assets under management generating lower fees. The
principal exposures of the Group are in respect of its seed
investments in its own funds (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 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
statement of financial position.
At the reporting date, the financial net assets past due but not
impaired amounted to US$746,851 (2015: US$2,148,606).
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$1,960,000, Sterling -
US$1,037,000, Euros - US$3,126,000 and Romanian Lei - US$3,000.
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 2016 the exposure would be a profit or
loss to the Consolidated Statement of Comprehensive Income of
approximately US$208,000 (2015: US$43,000).
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2016 is as
follows:
Instruments
Total Variable Fixed on which
as per interest interest no interest
balance rate instruments* rate is receivable
sheet instruments
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets
at fair value
through profit
or loss 12,401 - - 12,401
Loans and receivables 3,200 - - 3,200
Cash and cash
equivalents 6,126 899 1,927 3,300
======================= ========== ==================== ============== =================
21,727 899 1,927 18,901
======================= ========== ==================== ============== =================
Financial liabilities
Trade and other
payables 1,683 - - 1,683
======================= ========== ==================== ============== =================
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.17%. Any
movement in interest rates would have an immaterial effect on the
profit/(loss) for the year.
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 year.
(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
2016 2015
US$ '000 US$ '000
Financial Assets
Financial assets at fair
value through profit or
loss 12,401 16,792
Loans and receivables 3,200 2,749
Cash and cash equivalents 6,126 3,126
============================ ================= =================
21,727 22,667
=========================== ================= =================
Financial Liabilities
Trade and other payables 1,683 236
============================ ================= =================
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 2016
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss - 12,267 134 12,401
==================== ========== ========= ========= =========
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
================== ========== ========= ========= =========
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
2016 119 4,777 4,896
Total losses recognized
in profit or loss - (2,883) (2,883)
Purchases - - - -
Sales - - (1,879) (1,879)
Transfer to level - - -
2
Balance as at 31
December 2016 119 15 134
========================= ========================= ============== ==========
20. EVENTS AFTER THE REPORTING 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 24.0p 950,000
Forfeited during the period 24.0p (200,000)
============================== ================== =============
Outstanding at end of period 24.0p 4,840,000
============================== ================== =============
Exercisable at end of period 24.0p 4,840,000
============================== ================== =============
The options outstanding at 31 December 2016 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 UOARRBAAORAR
(END) Dow Jones Newswires
March 03, 2017 05:17 ET (10:17 GMT)
Argo (LSE:ARGO)
Historical Stock Chart
From Mar 2024 to Apr 2024
Argo (LSE:ARGO)
Historical Stock Chart
From Apr 2023 to Apr 2024
