TIDMARGO
RNS Number : 5520S
ARGO Group Limited
25 September 2014
Argo Group Limited
("Argo" or the "Company")
Interim Results for the six months ended 30 June 2014
Argo today announces its interim results for the six months
ended 30 June 2014.
The Company will today make available its interim report for the
six month period ended 30 June 2014 on the Company's website
www.argogrouplimited.com.
Key Highlights for the six month period ended 30 June 2014
- Revenues US$3.9 million (six months to 30 June 2013: US$4.7 million)
- Operating loss US$0.5 million (six months to 30 June 2013: profit US$0.8 million)
- Loss before tax US$0.5 million (six months to 30 June 2013: profit US$1.7 million)
- Net assets US$28.0 million (31 December 2013: US$28.5 million)
Commenting on the results and outlook, Kyriakos Rialas, Chief
Executive of Argo said:
"The potential of rising US interest rates is a continuing
negative for emerging markets. Nevertheless Argo's hedge strategy
and the workout of its private equity illiquid assets resulted in
satisfactory comparative fund performance. Since the period end
liquidity has improved at management company level."
Enquiries
Argo Group Limited
Andreas Rialas
020 7016 7660
Panmure Gordon
Dominic Morley
020 7886 2500
CHAIRMAN'S STATEMENT
The Group and its investment 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 interim results of Argo Group Limited
for the half year ended 30 June 2014.
For the six month period ended 30 June 2014 the Group generated
revenues of US$3.9 million (six months to 30 June 2013: US$4.7
million) with management fees accounting for US$3.5 million (six
months to 30 June 2013: US$3.5 million). The Group did not generate
incentive fees during the period. In the prior period to 30 June
2013 the Group derived incentive fees of US$0.8 million as a result
of the revaluation of an investment in an Indonesian petrochemicals
refinery, PT Trans-Pacific Petrochemical Industries ("TPPI"), which
has not yet been realised.
Total core operating costs for the period are US$2.7 million
compared to US$2.6 million for the six months to 30 June 2013.
Costs will however trend lower in the second half of the year as a
result of cost cutting initiatives implemented in the first half of
2014. Total operating costs have increased by US$0.4 million to
US$4.4 million (six months to 30 June 2013: US$4.0 million) after
bad debt provision. During the period the Group provided against
management fees of US$1,371,000 (EUR1,000,000) (six months to 30
June 2013: US$1,323,000 (EUR1,008,000)) due from Argo Real Estate
Opportunities Fund Limited ("AREOF").
Overall, the financial statements show an operating loss for the
period of US$0.5 million (six months to 30 June 2013: profit US$0.8
million) and a loss before tax of US$0.5 million (six months to 30
June 2013: profit US$1.7 million) reflecting the unrealised loss on
non-current asset investments of US$0.1 million (six months to 30
June 2013: unrealised gain US$1.0 million).
At the period end, the Group had net assets of US$28.0 million
(31 December 2013: US$28.5 million). The Group did not pay a
dividend during the period compared to the prior period when a
dividend of 2.1 cents (1.3 pence) per share was paid on 26 April
2013.
Non-current assets include investments in The Argo Fund ("TAF"),
AREOF and Argo Special Situations Fund LP ("ASSF") at fair values
of US$19.0 million (31 December 2013: US$19.1 million), US$0.2
million (31 December 2013: US$0.2 million) and US$0.08 million (31
December 2013: US$0.09 million) respectively. Our continued
investment in our funds supports the liquidity of those funds and
demonstrates the commitment of the Group towards its fund
investors. This close alignment results in a high correlation
between the performance of the Company and the performance of its
funds. It should be noted, however, that the Group does not intend
to and may not be able to realise these investments in the
immediate future due to the illiquid nature of the assets held by
these funds.
At the period end TAF and ASSF together owed the Group total
management fees of US$3,296,017 (31 December 2013: US$1,817,803)
after a bad debt provision of US$1,000,000 (31 December 2013:
US$650,000). They are currently facing a short term liquidity issue
which is being remedied and whilst a bad debt provision has been
raised against these management fees the directors are confident
that they are fully recoverable. Since the period end US$2,388,000
of these arrears have been settled.
The Argo funds ended the period with Assets under Management
("AUM") at US$277.9 million, 2.4% higher than at the beginning of
the period. The current level of AUM remains below that required to
ensure sustainable profits on a recurring management fee basis and
in the absence of performance fees. This has necessitated a
detailed review of the Group's cost basis and the implementation of
a redundancy programme in the first quarter of the period. 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 30 June 2014 was 30 (30
June 2013: 40).
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 30
June 2014 total US$777,090 (EUR569,505) (31 December 2013:
1,265,791 (EUR919,505)) after a bad debt provision of US$4,093,500
(EUR3,000,000) (31 December 2013: US$2,753,200 (EUR2,000,000)).
AREOF continues to meet part of this obligation to the Argo Group
as and when liquidity allows. The AREOF management contract has a
fixed term expiring on 31 July 2018. In November 2013 AREOF offered
Argo Group Limited additional security for the continued support in
the form of debentures and guarantees by underlying intermediate
companies.
During the prior period Argo Group advanced US$1,364,500
(EUR1,000,000) to Bel Rom Trei ("Bel Rom"), an AREOF Group entity
based in Romania that owns Sibiu Shopping City, in order to assist
with its operational cash requirements. The loan is repayable on
demand and accrues interest at 12%. The full amount of the loan and
accrued interest remains outstanding at the period end. The
Directors consider this loan to be fully recoverable on the basis
that discussions with lending banks and potential purchasers of
Sibiu have yielded offers in excess of the debt associated with the
project banks.
Fund performance
Argo Funds
30 30
June June 2013
Launch 2014 2013 year Sharpe Down
Since Annualised
Fund date 6 months 6 months total inception performance ratio months AUM
-------------- -------- ----------- ---------- ------------- --------------- ------------ ------- --------- ------
% % % % CAGR US$m
%
-------------- -------- ----------- ---------- ------------- --------------- ------------ ------- --------- ------
42
The Argo of
Fund Oct-00 -0.51 8.64 8.49 150.93 7.75 0.66 165 93.8
-------------- -------- ----------- ---------- ------------- --------------- ------------ ------- --------- ------
Argo 26
Distressed of
Credit Fund Oct-08 -0.28 11.88 12.64 72.98 10.62 0.85 69 26.3
-------------- -------- ----------- ---------- ------------- --------------- ------------ ------- --------- ------
Argo Special 26
Situations of
Fund LP Feb-12 -5.84 -20.65 -23.30 -29.62 -13.56 -1.15 29 88.1
-------------- -------- ----------- ---------- ------------- --------------- ------------ ------- --------- ------
Argo Local 14
Markets of
Fund Nov-12 -2.14 -5.34 -9.80 -10.34 -6.27 -1.55 20 4.5
-------------- -------- ----------- ---------- ------------- --------------- ------------ ------- --------- ------
Argo Real
Estate 48
Opportunities of
Fund Aug-06 21.30 -7.09 -46.58 -92.70 -31.23 N/A 92 65.2*
-------------- -------- ----------- ---------- ------------- --------------- ------------ ------- --------- ------
Total 277.9
------------------------ ----------- ---------- ------------- --------------- ------------ ------- --------- ------
* NAV only officially measured twice a year, March and
September.
Emerging markets had a difficult start to the period with
currencies being particularly affected. A combination of factors
including bullishness about the US economy, disappointing
manufacturing data in China and ongoing tensions in Ukraine
combined to undermine investor confidence in the earlier part of
the period. Market volatility diminished as tensions eased in
Ukraine following the Russian annexation of Crimea but heightened
once again by the end of the period in response to actions by
separatist forces in Eastern Ukraine. Whilst emerging markets
produced a positive performance overall for the six month period,
Eastern European markets were negative.
Against this backdrop, fund performance was lacklustre with most
of the Argo funds finishing behind at the end of the period. By
comparison, the main hedge fund indices showed a positive return of
5.22% for the same period.
During the period we made very little progress in completing the
previously reported non-binding agreement with Pertamina to acquire
the interest in TPPI. Pertamina has not formally declined but has
suggested that discussions might resume on completion of the
election cycle in Indonesia. The elections took place in July and
it is believed that the victory of Joko Widodo will open the door
to a new reform-minded government that hopefully can implement the
changes the country urgently needs. On 5 August 2014 the
shareholders of TPPI unanimously passed resolutions regarding the
issuance of new shares through unsecured debt to equity conversion.
Consequently, TPPI is now fully authorised to execute all documents
in connection with the implementation of its composition plan. The
new bonds were issued in September 2014 and shares are expected to
be issued in October 2014 once all formalities are complete.
In September 2014 ASSF agreed financing arrangements with a
lender which will ensure that the preferred interests receive
amounts equal in value to their capital contributions and the
amount of the preferred return accrued since the date of issue of
the interests.
The Argo Local Markets Fund ("ALMF") had a difficult first six
months suffering from the broad sell-off in January in response to
the US Federal Reserve's desire to reduce its quantitative easing
programme. The Fund has since recovered due to uncertainties
surrounding the actual date that the Federal Reserve will start to
raise interest rates. The slowdown in global growth seen mostly in
Europe but also in major emerging markets like Brazil, Russia and
even China has raised questions about the medium term growth
prospects for emerging markets and the need to adopt more
accommodative policy through lower interest rates but also weaker
currencies. The strength of the US dollar and further geopolitical
risk has complicated the outlook for growth and the markets remain
at risk of sudden bouts of risk aversion. We continue to believe
that the best way to manage these risks is to invest in a portfolio
of long and short interest rates and FX positions. At the end of
the period ALMF showed a negative return of -2.14%.
While macroeconomic conditions continue to improve, the effects
on the two core markets where AREOF operates remain mixed with
subdued growth in the Romanian market and recent political and
economic upheavals impacting the Ukraine market.
The reduced level of cash flow within AREOF, while being
proactively managed, has resulted in breaches of terms and
covenants on certain loans. This situation is being addressed by
regular communication and negotiation with the lending banks with a
view to restructuring the debt commitments to better align these to
the current level of the AREOF Group's cash flow. While discussions
with the relevant banks are ongoing to find an agreeable solution
for both parties AREOF continues to enjoy the support of its
banks.
AREOF's adjusted Net Asset Value was US$65.7 million (EUR47.8
million) as at 31 March 2014, compared with US$87.8 million
(EUR68.5 million) a year earlier. The adjusted Net Asset Value per
share at 31 March 2014 was US$0.11 (EUR0.08) (30 March 2013:
US$0.14 (EUR0.11)).
AREOF'S ordinary shares on AIM were suspended on 30 August 2013
following breach of a loan covenant and the subsequent loan
termination by the lending bank. On 3 March 2014 AREOF delisted
from AIM to allow loan restructuring discussions to proceed outside
of the extensive disclosure requirements that an AIM listing
entails. The valuation of Argo Group Limited's investment in AREOF
has been based on the equity price prevailing at the time of the
suspension with an additional 25% discount rate applied to that
price.
Awards
Argo Distressed Credit Fund was ranked a top 5 hedge fund over
three years in the category of Emerging Markets Global Funds by
BarclayHedge at the end of March 2014.
Dividends
Argo is working towards the payment of a dividend which will
ultimately depend on the success of the initiatives described
above. The directors did not recommend a final dividend in respect
of the year ended 31 December 2013 but intend to pay an interim
dividend as soon as these initiatives are complete. Going forward,
the Company intends, subject to its financial performance, to pay a
final dividend each year.
Outlook
We enter the second half of the year with a degree of caution
particularly given the continuing conflict in Eastern Ukraine and
uncertainty as to how various markets will respond if the US
Federal Reserve reduces quantitative easing. The top priority in
the next six months will be to continue with our program to
monetise certain of our investments. In the very near term our
growth rate will be heavily influenced by the success of this
program as well as events in Europe. Over the longer term the Board
believes there is significant opportunity for growth in assets and
profits and remains committed to the emerging markets sector.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2014
Six months Six months
ended ended
30 June 30 June
2014 2013
Note US$'000 US$'000
Management fees 3,462 3,453
Incentive fees - 803
Other income 423 459
===================================== ===== =========== ================
Revenue 3,885 4,715
===================================== ===== =========== ================
Legal and professional expenses (164) (120)
Management and incentive
fees payable (62) (116)
Operational expenses (572) (612)
Employee costs (1,663) (1,752)
Bad debt provision 9 (1,749) (1,323)
Foreign exchange (loss)/gain (129) 37
Depreciation 7 (72) (65)
Operating (loss)/profit (526) 764
===================================== ===== =========== ================
Interest income on cash and
cash equivalents 115 9
Unrealised (loss)/gain on
investments (105) 958
===================================== ===== =========== ================
(Loss)/profit on ordinary
activities before taxation (516) 1,731
===================================== ===== =========== ================
Taxation 5 (44) (109)
===================================== ===== =========== ================
(Loss)/profit for the period
after taxation attributable
to members of the Company 6 (560) 1,622
Other comprehensive income
Exchange differences on translation
of foreign operations 98 (137)
===================================== ===== =========== ================
Total comprehensive (loss)/income
for the period (462) 1,485
===================================== ===== =========== ================
Six months Six months
Ended Ended
30 June 30 June
2014 2013
US$ US$
Earnings per share (basic) 6 -0.01 0.02
===================================== ===== =========== ================
Earnings per share (diluted) 6 -0.01 0.02
===================================== ===== =========== ================
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2014
30 June At 31 December
2014 2013
Note US$'000 US$'000
Assets
Non-current assets
Fixtures, fittings and
equipment 7 140 177
Investments 8 19,315 19,420
Loans and advances receivable 10 2,206 2,107
=============================== ===== ========== ===============
Total non-current assets 21,661 21,704
=============================== ===== ========== ===============
Current assets
Trade and other receivables 9 4,414 3,300
Cash and cash equivalents 2,285 3,726
Loans and advances receivable 10 179 217
=============================== ===== ========== ===============
Total current assets 6,878 7,243
=============================== ===== ========== ===============
Total assets 28,539 28,947
=============================== ===== ========== ===============
Equity and liabilities
Equity
Issued share capital 11 674 674
Share premium 30,878 30,878
Revenue reserve (1,608) (1,048)
Foreign currency translation
reserve (1,911) (2,009)
=============================== ===== ========== ===============
Total equity 28,033 28,495
=============================== ===== ========== ===============
Current liabilities
Trade and other payables 406 388
Taxation payable 5 100 64
=============================== ===== ========== ===============
Total current liabilities 506 452
Total equity and liabilities 28,539 28,947
=============================== ===== ========== ===============
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2014
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2013 2013 2013 2013 2013
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2013 674 30,878 (1,674) (2,164) 27,714
Total comprehensive
income
Loss for the period
after taxation - - 1,622 (137) 1,485
Transactions with
owners recorded
directly in equity
Dividends to equity
holders (Note 11) - - (1,348) - (1,348)
As at 30 June 2013 674 30,878 (1,400) (2,301) 27,851
===================== ============== ========== ========== ============== ========
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2014 2014 2014 2014 2014
US$'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
Profit for the
period after taxation - - (560) 98 (462)
Transactions with
owners recorded
directly in equity
Dividends to equity - - - - -
holders (Note 11)
As at 30 June 2014 674 30,878 (1,608) (1,911) 28,033
======================== ========== ========== ========== ============== ========
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2014
Six months Six months
ended ended
30 June 30 June
2014 2013
Note US$'000 US$'000
Net cash (outflow)/inflow
from operating activities 12 (1,490) 619
Cash flows used in investing
activities
Interest received on cash
and cash equivalents 1 9
Purchase of fixtures,
fittings and equipment 7 (34) (27)
Net cash used in investing
activities (33) (18)
=============================== ===== =========== ===========
Cash flows used in financing
activities
Dividends paid 11 - (1,348)
Net cash used in financing
activities - (1,348)
=============================== ===== =========== ===========
Net decrease in cash and
cash equivalents (1,523) (747)
Cash and cash equivalents
at 1 January 2014 and
1 January 2013 3,726 5,139
Foreign exchange gain(loss)
on cash and cash equivalents 82 (94)
Cash and cash equivalents
as at 30 June 2014 and
30 June 2013 2,285 4,298
=============================== ===== =========== ===========
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
For the six months ended 30 June 2014
1. CORPORATE INFORMATION
The Company is domiciled in the Isle of Man under the Companies
Act 2006. Its registered office is at 33-37 Athol Street, Douglas,
Isle of Man, IM1 1LB. The condensed consolidated interim financial
statements of the Company as at and for the six months ended 30
June 2014 comprise the Company and its subsidiaries (together
referred to as the "Group").
The consolidated financial statements of the Group as at and for
the year ended 31 December 2013 are available upon request from the
Company's registered office or at www.argogrouplimited.com.
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 and presentational
currency of the Group undertakings is US dollars. The Group has 30
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) Basis of preparation
These condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 Interim Financial
Reporting. They do not include all the information required for
full annual financial statements and should be read in conjunction
with the consolidated financial statements of the Group as at and
for the year ended 31 December 2013.
The Directors have carried out a rigorous assessment of all the
factors affecting the business in deciding to adopt the going
concern basis for the preparation of the accounts. They have
reviewed and examined the Group's financial and other processes
including the annual budgeting process and expect the Group to
generate positive cash flows in the foreseeable future. On the
basis of this review and the liquid assets underpinning the balance
sheet the Directors are confident that the Group has adequate
financial resources to continue in operational existence for the
foreseeable future and therefore continue to adopt the going
concern basis for preparing the accounts.
The Group has prepared forecasts that focus on cash flow
requirements for the period to September 2015. These forecasts
reflect current cost patterns of the Group and take into
consideration current liquidity constraints of funds under
management and therefore their ability to settle management fees
and other receivables (refer to notes 9 and 10). The cash flows of
the Group are linked to the liquidity of the funds and the major
funds of the Group (AREOF, TAF and ASSF) have significant liquidity
challenges at present therefore cash inflows to the Group are
linked to potential liquidity events, the timings of some of which
are uncertain.
The accounting policies applied by the Group in these condensed
consolidated interim financial statements are the same as those
applied by the Group in its consolidated financial statements as at
and for the year ended 31 December 2013.
These condensed consolidated interim financial statements were
approved by the Board of Directors on 24 September 2014.
(b) 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.
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 Argo Six
Capital Argo Capital months
Argo Management Capital Management ended
Group (Cyprus) Management Property 30
Ltd Ltd Ltd Ltd Other June
2014 2014 2014 2014 2014 2014
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments customers - 2,091 1,042 1,794 - 4,927
Intersegment
revenues - - 1,042 - - 1,042
Total profit/(loss)
for reportable
segments (339) 324 (237) (160) - (412)
Intersegment
profit/(loss) - (1,046) 1,042 - - (4)
Total assets
for reportable
segments assets 49,173 3,891 2,570 4,298 75 60,007
Total liabilities
for reportable
segments 77 1,740 221 172 26 2,236
===================== ======== ============ ============= ============= ======== ========
Revenues, profit or loss, assets and Six months
liabilities may be reconciled as follows:
ended
30 June
2014
US$'000
Revenues
Total revenues for reportable segments 4,927
Elimination of intersegment revenues (1,042)
============================================== ===========
Group revenues 3,885
============================================== ===========
Profit or loss
Total loss for reportable segments (412)
Elimination of intersegment loss 4
Other unallocated amounts (108)
============================================== ===========
Loss on ordinary activities before taxation (516)
============================================== ===========
Assets
Total assets for reportable segments 60,007
Elimination of intersegment receivables (1,869)
Elimination of Company's cost of investments (29,599)
============================================== ===========
Group assets 28,539
============================================== ===========
Liabilities
Total liabilities for reportable segments 2,236
Elimination of intersegment payables (1,730)
)
============================================== ===========
Group liabilities 506
============================================== ===========
Argo Argo Six
Capital Argo Capital months
Argo Management Capital Management ended
Group (Cyprus) Management Property 30
Ltd Ltd Ltd Ltd Other June
2013 2013 2013 2013 2013 2013
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments 400 2,943 1,476 1,772 - 6,591
Intersegment
revenues 400 - 1,476 - - 1,876
Total profit/(loss)
for reportable
segments 1,161 456 468 (306) - 1,779
Intersegment
profit/(loss) 400 (1,871) 1,476 - - 5
Total assets
for reportable
segments 49,695 2,837 2,697 3,546 121 58,896
Total liabilities
for reportable
segments 56 954 175 233 26 1,444
===================== ======== ============ ============= ============= ======== ========
Revenues, profit or loss, assets and liabilities Six months
may be reconciled as follows:
ended
30 June
2013
US$'000
Revenues
Total revenues for reportable segments 6,591
Elimination of intersegment revenues (1,876)
================================================== ===========
Group revenues 4,715
================================================== ===========
Profit or loss
Total profit for reportable segments 1,779
Elimination of intersegment profit (5)
Other unallocated amounts (43)
================================================== ===========
Profit on ordinary activities before taxation 1,731
================================================== ===========
Assets
Total assets for reportable segments 58,896
Elimination of intersegment receivables (798)
Elimination of Company's cost of investments (29,598)
================================================== ===========
Group assets 28,500
================================================== ===========
Liabilities
Total liabilities for reportable segments 1,444
Elimination of intersegment payables (795)
================================================== ===========
Group liabilities 649
================================================== ===========
4. 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 are:
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 options
exercise
price
Outstanding at beginning
of period 24.0p 4,715,000
Granted during the period - -
Forfeited during the period 24.0p 450,000
============================= ========== =============
Outstanding at end of
period 24.0p 4,265,000
============================= ========== =============
Exercisable at end of
period 24.0p 3,198,750
============================= ========== =============
The options outstanding at 30 June 2014 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.
5. TAXATION
Taxation rates applicable to the parent company and the Cypriot,
UK, Luxembourg, Cayman and Romanian subsidiaries range from 0% to
22% (2013: 0% to 23%).
Income Statement Six months Six months
ended ended
30 June 30 June
2014 2013
US$'000 US$'000
Taxation charge for the period
on Group companies 44 109
================================ =========== ===========
The charge for the period can be reconciled to the (loss)/profit
shown on the Condensed Consolidated Statement of Comprehensive
Income as follows:
Six months Six months
ended ended
30 June 30 June
2014 2013
US$'000 US$'000
(Loss)/profit before tax (516) 1,731
================================== =========== ===========
Applicable Isle of Man tax - -
rate for Argo Group Limited
of 0%
Timing differences 3 2
Non-deductible expenses 12 7
Other adjustments 38 -
Tax effect of different tax
rates of subsidiaries operating
in other jurisdictions (9) 100
================================== =========== ===========
Tax charge 44 109
================================== =========== ===========
Balance Sheet
30 June 31 December
2014 2013
US$'000 US$'000
Corporation tax payable 100 64
========================= ======== ============
6. EARNINGS PER SHARE
Earnings per share is calculated by dividing the net
(loss)/profit for the period by the weighted average number of
shares outstanding during the period.
Six months Six months
ended ended
30 June 30 June
2014 2013
US$'000 US$'000
Net (loss)/profit for the
period after taxation attributable
to members (560) 1,622
===================================== ============= =============
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 4) 4,265,000 5,415,000
===================================== ============= =============
Weighted average number of
ordinary shares for diluted
earnings per share 71,693,494 72,843,494
===================================== ============= =============
Six months Six months
ended ended
30 June 30 June
2014 2013
US$ US$
Earnings per share (basic) -0.01 0.02
Earnings per share (diluted) -0.01 0.02
============================== =========== ===========
7. FIXTURES, FITTINGS AND EQUIPMENT
Fixtures,
fittings
& equipment
US$'000
Cost
At 1 January 2013 372
Additions 46
Disposals (20)
Foreign exchange movement 10
================================ ======================
At 31 December 2013 408
Additions 34
Disposal (167)
Foreign exchange movement 9
================================ ======================
At 30 June 2014 284
================================ ======================
Accumulated Depreciation
At 1 January 2013 151
Depreciation charge for period 89
Disposal (16)
Foreign exchange movement 7
================================ ======================
At 31 December 2013 231
Depreciation charge for period 72
Disposal (167)
Foreign exchange movement 8
================================ ======================
At 30 June 2014 144
================================ ======================
Net book value
At 31 December 2013 177
================================ ======================
At 30 June 2014 140
================================ ======================
8. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
30 June 30 June
2014 2014
Holding Investment in management Total cost Fair value
shares
US$'000 US$'000
10 The Argo Fund Ltd 0 0
Argo Distressed Credit
100 Fund Ltd 0 0
Argo Special Situations
1 Fund LP 0 0
Argo Local Markets
1 Fund 0 0
0 0
======== ========================= ============= =============
Holding Investment in ordinary Total cost Fair value
shares
US$'000 US$'000
75,165 The Argo Fund Ltd 16,343 19,011
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 223
Argo Special Situations
115 Fund LP 115 81
=========== ======================== ============= =============
17,446 19,315
=========== ======================== ============= =============
31 December 31 December
2013 2013
Holding Investment in management Total cost Fair value
shares
US$'000 US$'000
10 The Argo Fund Ltd 0 0
Argo Distressed Credit
100 Fund Ltd 0 0
Argo Special Situations
1 Fund LP 0 0
Argo Local Markets
1 Fund 0 0
======== ========================= ============== ==============
0 0
======== ========================= ============== ==============
Holding Investment in ordinary Total cost Fair value
shares
US$'000 US$'000
75,165 The Argo Fund Ltd 16,343 19,109
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 225
Argo Special Situations
115 Fund LP 115 86
=========== ======================== ============= =============
17,446 19,420
=========== ======================== ============= =============
The Argo Fund Limited and Argo Special Situations Fund LP hold
concentrated portfolios of Level 3 assets that are valued based on
inputs other than quoted prices in active markets. Inherently the
assumptions backing these valuations are subject to additional
risks that can have a positive or negative impact on valuation. The
audit reports for the years ended 30 June 2013 and 31 December
2013, respectively, for these funds were modified in respect of the
investment portfolios.
During the prior period, Argo Real Estate Opportunities Fund
Limited ("AREOF") was suspended from trading on AIM, and
subsequently delisted on 3 March 2014 as a result of default
notices on its loans creating uncertainty. The Group's investment
in AREOF is carried at a discount to the last quoted bid price on
AIM from August 2013 at the period end. This investment is
classified as level 3 under IFRS fair value hierarchy reflecting
the non-market observable inputs to its valuation.
The investments held by the Group have been made in support of
the Group's funds under management and in support of their
liquidity profiles and as such they may not be realisable in the
immediate future. The valuations are subject to uncertain events,
for example, liquidity events or debt refinancing that may not be
wholly within the Group's control.
9. TRADE AND OTHER RECEIVABLES
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 except as disclosed below.
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 30 June 2014
total US$777,090 (EUR569,505) (31 December 2013: US$1,265,791,
EUR919,505) after a bad debt provision of US$4,093,500
(EUR3,000,000) (31 December 2013: US$2,753,200, EUR2,000,000).
AREOF continues to meet part of this obligation to the Argo Group
as and when liquidity allows. In November 2013 AREOF offered Argo
Group Limited additional security for the continued support in the
form of debentures and guarantees by underlying intermediate
companies. In the Directors' view these amounts are fully
recoverable although they have concluded that it would not be
appropriate to continue to recognise income without provision from
these investment management services as the timing of such receipts
may be outside the control of the Company and AREOF.
At the period end The Argo Fund Limited and Argo Special
Situations Fund LP together owed the Group total management fees of
US$3,296,017 (31 December 2013: US$1,817,803) after a bad debt
provision of US$1,000,000 (31 December 2013: US$650,000). Both
Funds have a substantial asset base with very few liabilities. They
are currently facing a short term liquidity issue which is being
remedied and whilst a bad debt provision has been raised against
these management fees the directors are confident that they are
fully recoverable. Since the period end US$2,388,000 of these
arrears have been settled.
In the audited financial statements of AREOF at 30 September
2013 and the interim report of AREOF at 31 March 2014, a material
uncertainty surrounding ongoing discussions with its bankers and
the prevailing trading environment 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.
10. LOANS AND ADVANCES RECEIVABLE
During the prior period Argo Group advanced US$1,364,500
(EUR1,000,000) to Bel Rom Trei ("Bel Rom"), an AREOF Group entity
based in Romania that owns Sibiu Shopping City, in order to assist
with its operational cash requirements. Challenging trading
conditions have impacted Bel Rom's cash flow and its ability to
meet payments due to lending banks as and when they fall due. The
situation is being addressed by way of discussions with the lending
banks with a view to restructuring these loans. While these
discussions are on-going to find an agreeable solution for both
parties, Bel Rom continues to enjoy the support of its banks. The
loan is repayable on demand and accrues interest at 12%. The full
amount of the loan and accrued interest remains outstanding at the
year end. The Directors consider this loan to be fully recoverable
on the basis that conditional offers to buy the centre have been
received that indicate a value in excess of the debt attached to
the project. Notwithstanding its repayable on demand terms, the
Directors have classified this amount as non-current within the
financial statements as it is not their intention to demand
repayment in the immediate future and it is unlikely that Bel Rom
will repay the amount in the next 12 months even if it were
demanded.
11. SHARE CAPITAL
The Company's authorised share capital is unlimited with a
nominal value of US$0.01.
30 June 30 June 31 December 31 December
2014 2014 2013 2013
No. US$'000 No. US$'000
Issued and fully
paid
Ordinary shares
of US$0.01 each 67,428,494 674 67,428,494 674
================== ============= ========== ============= ============
67,428,494 674 67,428,494 674
================== ============= ========== ============= ============
The directors did not recommend the payment of a final dividend
for the year ended 31 December 2013 and do not recommend an interim
dividend in respect of the current period. The final dividend for
the year ended 31 December 2012 of US$1,348,287 (GBP876,570) was
paid on 26 April 2013 to ordinary shareholders who were on the
Register of Members on 2 April 2013. Going forward, the Company
intends, subject to its financial performance, to pay a final
dividend each year.
12. RECONCILIATION OF NET CASH (OUTFLOW)/INFLOW FROM OPERATING
ACTIVITIES TO (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION
Six months Six months
ended ended
30 June 30 June
2014 2013
US$'000 US$'000
(Loss)/profit on ordinary
activities before taxation (516) 1,731
Interest income (115) (9)
Depreciation 72 65
Unrealised loss/(gain) on
investments 105 (958)
Net foreign exchange loss/(gain) 129 (37)
Increase/(decrease) in payables 18 (34)
Increase in receivables,
loans and advances (1,175) (45)
Income taxes paid (8) (94)
================================== ============= =============
Net cash (outflow)/inflow
from operating activities (1,490) 619
================================== ============= =============
13. FAIR VALUE HIERARCY
The table below analyses financial instruments measured at fair
value at the end of the reporting period by the level of the fair
value hierarchy (note 2).
At 30 June 2014
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss - - 19,315 19,315
================== ========== ========== ========= =========
At 31 December 2013
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss - 19,195 225 19,420
================== ========== ========= ========= =========
14. RELATED PARTY TRANSACTIONS
All Group revenues derive from funds or entities in which two of
the Company's directors, Andreas Rialas and Kyriakos Rialas, have
an influence through directorships and the provision of investment
advisory services.
At the balance sheet date the Company holds investments in The
Argo Fund Limited, Argo Real Estate Opportunities Fund Limited
("AREOF") and Argo Special Situations Fund LP. These investments
are reflected in the accounts at a fair value of US$19,011,287,
US$223,076 and US$80,702 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
30 June 2014 total US$777,090 (EUR569,505) (31 December 2013:
US$1,265,791, EUR919,505) after a bad debt provision of
US$4,093,500 (EUR3,000,000) (31 December 2013: US$2,753,200,
EUR2,000,000). AREOF continues to meet part of this obligation to
the Argo Group as and when liquidity allows. In November 2013 AREOF
offered Argo Group Limited additional security for the continued
support in the form of debentures and guarantees by underlying
intermediate companies.
In the audited financial statements of AREOF at 30 September
2013 and the interim report of AREOF at 31 March 2014, a material
uncertainty surrounding ongoing discussions with its bankers and
the prevailing trading environment was referred to in relation to
the basis of preparation of the financial statements. In the view
of the directors of AREOF, discussions with the banks are
continuing satisfactorily and they have therefore concluded that it
is appropriate to prepare those financial statements on a going
concern basis.
During the prior period Argo Group advanced US$1,364,500
(EUR1,000,000) to Bel Rom Trei Srl ("Bel Rom"), an AREOF Group
entity based in Romania that owns Sibiu Shopping City, in order to
assist with its operational cash requirements. The loan is
repayable on demand and accrues interest at 12%. The full amount of
the loan and accrued interest remains outstanding at the period
end. The Directors consider this loan to be fully recoverable on
the basis that conditional offers to buy the centre have been
received that indicate a value in excess of the debt attached to
the project. Notwithstanding its repayable on demand terms, the
Directors have classified this amount as non-current within the
financial statements as it is not their intention to demand
repayment in the immediate future and it is unlikely that Bel Rom
will repay the amount in the next 12 months even if it were
demanded.
David Fisher, a non-executive director of the Company, is also a
non-executive director of AREOF.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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