RNS Number : 5584Z
Absolute Capital Mgmt Holdings Ltd
22 July 2008
Absolute Capital Management Holdings Limited
("ACMH" or the "Group")
Preliminary Results for the year ended 31 December 2007
Highlights
* Financial performance was impacted following the sudden departure of Chief Investment Officer, Florian Homm, in September 2007
* Implemented a restructuring plan for the Group's equity funds to stabilise the business
* At an EGM on 13 June 2008, shareholders approved the demerger of the Argo business
* Revenues were EUR87.6 million (2007: EUR52.5 million)
* Operating profit before exceptional items were EUR40.7million (2007: EUR27.3 million)
* Recorded an exceptional cost relating to a EUR74.1 million write down in intangible assets
* As at 31 December 2007, assets under management were US$2.3bn (2006: US$1.5bn). Excluding Argo, assets under management were US$
1.2bn
* Equity fund performance was impacted by the events in September 2007 but a number of the equity funds' core portfolios have shown
encouraging returns since December 2007
Glenn Kennedy Chief Executive Officer, commented: "The Board believes that the actions it has taken so far to stabilise the business
have been successful, reflected in the improved performance of the equity funds since the year end and the addition of high quality asset
management professionals. Looking ahead, we expect to continue the process of moving the Group on from the events of last year and focusing
on delivering attractive returns to investors and growing assets under management."
Enquiries:
Absolute Capital Management Holdings Limited Tel: +41 41 560 9660
Jonathan Treacher
Glenn Kennedy
Panmure Gordon Tel: +44 (0)20 7459 3600
Dominic Morley
Cardew Group Tel: +44 (0)20 7930 0777
Tim Robertson
Shan Shan Willenbrock
David Roach
CHAIRMAN'S STATEMENT
Introduction
Our financial performance for the year ended 31 December 2007 was affected by the sudden resignation of Florian Homm in September 2007.
As a result, the management team focused on a restructuring plan for the Group's equity funds to implement 'side pocket' share structures.
(The side pockets, which hold the less liquid investments, are a sub-fund split off from the original 'core portfolio'. For every unit
within the main fund, investors retain that and receive one unit in the 'side pocket'). Despite the challenges this created, we have worked
to stabilise the business and made significant progress under our recovery strategy, with a number of the equity funds' core portfolios
having shown encouraging returns since December 2007.
At an EGM held on 13 June 2008, shareholders voted in favour of de-merging from the business the Argo brands (comprising Argo Capital
Management Ltd, Argo Capital Management (Cyprus) Ltd, Argo Capital Management (Asia) Pte, Argo Capital Management Property Ltd and its two
subsidiaries, North Asset Management Sarl and North Asset Management Srl, and Argo Investor Services Ltd) under a one for one share
distribution. Argo is currently trading as a private company with the intention of trading on AIM within six months of the demerger.
Financial Performance
For the 12 months to 31 December 2007, the Group generated revenues of EUR87.6m (2006: EUR52.5m) and operating profit excluding
exceptional costs of EUR40.7m (2006: EUR27.3m). As a consequence of the events following the resignation of Florian Homm, these results
include an exceptional cost relating to a EUR74.1m write-down in intangible assets which meant the Group recorded a loss before taxation of
EUR32.9m (2006: profit of EUR27.6m). Total assets under management ('AUM') as at 31 December 2007 were US$2.3bn (2006: US$1.5bn).
Excluding the Argo Funds, assets under management as at 31 December stood at in excess of US$1.2 billion, comprising approximately
US$925 million in the funds' core portfolios and approximately US$275 million in its funds' side pocket portfolios. As at 30 April 2008,
the Group's unaudited assets under management stood in excess of EUR700 million, comprising approximately EUR529 million in its funds' core
portfolios and approximately EUR177 million in its funds' side pocket portfolios.
The Board is not recommending a dividend for the period ending 31 December 2007 (2006: EUR0.447 per share).
Operating Review
A review following Florian Homm's sudden departure on 18 September 2007 revealed that between $440m and $550m of assets under management
within our equity business were held in illiquid holdings. In response, the Group sought investor approval to restructure the funds to
include side pockets with a view to orderly realisation and a lock-in period on all affected equity funds until November 2008. The effect of
this action was to close the affected funds to redemptions for the period, thereby ensuring that all investors in the funds are treated
equally. This was to allow sufficient time to decide on the best means of disposing of the assets while realising maximum value. Four of the
equity funds - Absolute Octane Fund, Absolute East West Fund, Absolute Catalyst Fund and the Absolute Return Europe Fund were restructured
to include side pockets.
The restructuring process had the inadvertent effect of causing a series of disruptions to the Net Asset Value (NAV) calculation and
redemption payment processes. We have also changed service providers - Deloitte & Touche have replaced Ernst & Young, who resigned in
December 2007, as the Group auditor and our new administrator, Caledonian, replaces Fortis.
In addition, we have streamlined our operations and reduced costs wherever practical. We recently closed the Group's Spanish office and
consolidated our operations to our offices in Zug, Switzerland and Grand Cayman, Cayman Islands. Going forward, we are refocusing our
strategy to manage European long-short equity funds and we have begun the process of adjusting the Group's funds' investment mandates to
focus on mid- and large-cap trading strategies. As part of our overall shift in focus, we have discontinued the Absolute India Fund which
was too small to maintain economically.
With our restructuring processes nearing completion, we will resume marketing with a view to re-growing assets under management.
Accordingly, we will continue to source marketing and capital introduction services from Argo Investor Services Limited (a new subsidiary
established in December 2007 with a focus on client services and generating new business) and from ACMH's own network of third-party capital
introduction agents, and may use our quoted shares to attract new fund managers or fund management businesses with existing assets under
management.
Demerger of Argo business
Shareholders approved the Distribution of the Argo businesses at an EGM on 13 June 2008. ACMH and Argo Group Limited, the new holding
company for the Argo businesses, will continue to be managed separately but will also be under separate ownership, albeit initially with the
same shareholder base.
We believe that the demerger will allow both businesses to better execute their growth strategies by attracting and retaining funds
under management and maintaining and augmenting their management teams as independent asset management firms. In addition, by separating the
Argo businesses, ACMH will be in a better position to cooperate with businesses or investors that can offer synergies in their own area of
expertise. We will have the flexibility to pursue our strategy of maximising recovery on our side pocket investments without the constraints
of wider business considerations.
Fund Performance
Due to the illiquid nature of the shares held in side pockets ('B Share Class holdings'), performance has been extremely volatile. Even
when performance in the core portfolios has proved positive, the negative returns from the thinly-traded securities that make up the B Share
portfolios have diminished the overall performance of the funds. Until we dispose of these holdings (which we intend to realise as soon as
possible while maximising their value) aggregate performance of the funds' A and B class portfolios is expected to remain volatile.
While most of our equity funds were down for the year, the Absolute Large Cap Fund was up by 6.4%. Over the year, the net return for all
our equity funds, weighted by AUM, was -19.2%. Five of our funds - Absolute Return Europe (ARE), Absolute Octane Fund (AOF), Absolute East
West Fund (AEW) and Absolute European Catalyst Fund (AECF), Absolute Activist Value Fund (AAVF) - had an average 26% exposure in the funds'
side pocket portfolios, and it was the poor performance of these investments which accounted for annual returns ranging between -15% (AEW)
and -26% (AOF).
The performance of the Argo Funds, however, has been consistent throughout the year. The Argo Fund returned 12.3% in 2007 while the Argo
Global Special Situations Fund was up 15.4% for the year ending 31 December 2007. In addition, the Argo Capital Partners Fund I, as at 31
August 2007, was fully funded at $54m and closed to new subscriptions. The fund has performed exceptionally well and is on track to beat its
targeted IRR of 30%.
As at 30 September 2007 (the most recent audited year end accounts), the Argo Real Estate Opportunities Fund ('AREOF') reported an
adjusted NAV of EUR 125,250,000, implying an annualised IRR of 25.3%. This is ahead of the fund's targeted IRR of 20%. Excellent progress
has been made on AREOF's three main retail centre developments: Suceava Shopping City and European Retail Park Sibiu in Romania and Riviera
Shopping City in Ukraine, exceeding expectations in all three projects. AREOF arranged a further EUR25m bank facility to provide the Group
with additional working capital and allow it to undertake further attractive investment opportunities.
ACMH GROUP FUNDS Launch date 2007 Year Since inception Annualised per-formance Sharpe ratio Down months
AUM US$m
Total CAGR
% % %
Total A % B %
Equity (Absolute Capital)
Absolute Return Europe Fund Mar-02 -21.4 63.4 8.8 0.42 5 of 70 311.9
65% 35%
Absolute Octane Fund Jul-05 -25.8 32.8 12.0 0.42 4 of 30 206.1
67% 33%
Absolute East West Fund Jul-05 -14.8 18.5 7.1 0.23 5 of 30 189.3
89% 11%
Absolute European Catalyst Oct-03 -24.3 39.6 8.2 0.28 5 of 51 186.5
72% 28%
Fund
Absolute Activist Value Fund Jul-06 -22.7 -8.2 -5.6 N/a 4 of 18 163.9
84% 16%
Absolute Germany Fund Jan-04 -6.1 64.1 13.2 0.97 3 of 48 90.6
100% -
Absolute Large Cap Fund Feb-06 6.4 28.4 13.9 1.39 4 of 23 41.3
100% -
Absolute India Fund Jul-06 23.0 31.6 20.8 3.23 1 of 18 10.4
100% -
Total Equity Funds -19.2
77% 23%
1,200.0
Debt (Argo Capital Management)
Argo Fund Oct-00 12.3 219.9 17.5 3.18 3 of 84
404.0 -- --
Argo Global Special Situations Aug-04 15.4 66.1 16.1 2.89 3 of 41
422.0 -- --
Fund
Total Debt Funds 13.9
826.0 -- --
Argo Capital Partners Fund N/a N/a N/a N/a N/a N/a
112.0 -- --
Property
Argo Real Estate Opportunities Aug-06 13.9 30.1 18.0 N/a 0 of 20
150.0 -- --
Fund
Total
2,288.0
Note: All figures are as at 31 December
2007
People
We are pleased to report that, following such a challenging period, the core team demonstrates continued commitment to growing the funds
under management. We have amended the Group's remuneration policy to enable us to increase staff bonuses in line with the industry. We have
also appointed two new investment professionals and will seek to recruit additional high-calibre fund management professionals.
In August 2007, Sean Ewing resigned his directorship and in December Darren Sisk resigned as Finance Director. Also in December 2007
ACMH announced that Ronald E. Tompkins and John A. Fleming resigned from their positions as Non-Executive Directors. Kyriakos Rialas and
Glenn Kennedy were appointed as Directors of ACMH in January and February 2008. In June 2008, Glenn Kennedy was appointed Chief Executive
Officer and Jonathan Treacher became Non-Executive Chairman.
Temporary suspension from AIM
The extensive restructuring of the business and the appointment of new auditors required more time to finalise the financial statements.
This has resulted in the delayed release of our Accounts for the year ended 31 December 2007 and, as a consequence, trading in our shares
was automatically suspended on AIM. The late submission has nevertheless enabled us to include a comprehensive review of the impact that the
restructuring process has had to date and present shareholders with a clear outline of our proposed actions and Group outlook.
Outlook
Since September 2007 the Group has been focused on stabilising its operations and implementing changes to management personnel,
investment management and risk policies, fund administration, financial reporting and external auditing.
We are now refocusing upon our core expertise in the management of European long-short equity funds through research-driven trading
strategies. Since January 2008, we have begun the process of adjusting the Group's funds' investment mandates to focus on mid- and large-cap
trading strategies. The Board believes that the actions it has taken so far to stabilise the business have been successful, reflected in the
improved performance of the equity funds since the year end and the addition of high quality asset management professionals. Looking ahead,
we expect to continue the process of moving the Group on from the events of last year and focusing on delivering attractive returns to
investors and growing assets under management.
Jonathan Treacher
Chairman
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
2007 2006
Note EUR'000 EUR'000
Subscription fees 1,164 964
Management fees 39,408 19,729
Incentive fees 44,927 29,715
Redemption fees - 590
Other income 2,150 1,483
Revenue 2(e) 87,649 52,481
Legal and professional expenses (1,870) (525)
Management and incentive fees payable 2(f) (15,081) (9,956)
Operational expenses (4,730) (2,322)
Employee costs 4 (24,043) (12,258)
Foreign exchange loss (155) (81)
Depreciation (146) (48)
Negative goodwill 9 40 -
Bad debts written off (911) -
Operating profit excluding exceptional costs 40,753 27,291
AIM listing costs - (566)
Impairment of intangible assets 10 (74,105) -
Operating (loss)/profit (33,352) 26,725
Financial revenue 772 437
Unrealised (loss)/gain on investments (334) 400
(Loss)/profit on ordinary activities before (32,914) 27,562
taxation
Taxation 7 (3,539) (503)
(Loss)/profit for the year after taxation (36,453) 27,059
attributable to members of the company
(Loss)/Earnings per share (basic) 8 (EUR 0.54) EUR 0.52
(Loss)/Earnings per share (diluted) 8 (EUR 0.51) EUR 0.46
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2007
31 December 2007 31 December 2006
Note EUR'000 EUR'000
Assets
Non-current assets
Intangible assets 10 20,481 14,913
Plant and equipment 11 346 407
20,827 15,320
Current assets
Trade and other receivables 12 7,238 6,973
Cash and cash equivalents 20,984 33,206
Investments at fair value through 13 3,061 3,401
profit or loss
Loans and advances receivable 14 121 72
31,404 43,652
Total assets 52,231 58,972
Equity and liabilities
Equity
Issued share capital 15 692 541
Shares to be issued 16 1,901 9,250
Share premium 99,955 30,287
Revenue reserve (45,497) 29,923
Merger reserve (22,951) (22,951)
Other reserves 581 1,429
Foreign currency translation (807) -
reserve
33,874 48,479
Current liabilities
Trade and other payables 18 15,876 9,990
Taxation payable 2,481 503
Total current liabilities 18,357 10,493
Total equity and liabilities 52,231 58,972
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2007
Issued share capital Shares to be issued Share premium Revenue reserve Merger reserve Other reserves
Foreign currency Total
translation reserve
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
EUR'000 EUR'000
As at 31 December 2005 500 - 22,769 3,762 (22,951) 269
- 4,349
Profit for the year - - - 27,059 - -
- 27,059
Distribution on 24 February - - - (898) - -
- (898)
2006 (EUR0.01795 per share)
Issue of 2,500,000 shares 25 - 5,600 - - -
- 5,625
(EUR0.01 par at EUR2.25 per
share)
Shares to be issued - 9,250 - - - -
- 9,250
Share-based payments - - - - - 2,704
- 2,704
Exercise of share options 16 - 1,918 - - (1,544)
- 390
As at 31 December 2006 541 9,250 30,287 29,923 (22,951) 1,429
- 48,479
As at 31 December 2006 541 9,250 30,287 29,923 (22,951) 1,429
- 48,479
Loss for the year - - - (36,453) - -
- (36,453)
Distribution on 5 April 2007 - - - (29,907) - -
- (29,907)
(EUR0.447 per share)
Distribution on 24 August 2007 - - - (9,060) - -
- (9,060)
(EUR0.133 per share)
Issue of 12,300,000 shares 123 - 63,759 - - -
- 63,882
(EUR0.01 par at EUR5.194 per
share) (see note 9)
Issue of 384,494 shares 4 - 2,996 - - -
- 3,000
(EUR0.01 par at EUR7.802 per
share) (see note 9)
Reduction in deferred - (7,349) - - - -
- (7,349)
consideration for TCA Group
(see note 16)
Share-based payments - - - - - 574
- 574
Exercise of share options 24 - 2,913 - - (1,422)
- 1,515
Exchange differences on - - - - - -
(807) (807)
translation of foreign
operations
As at 31 December 2007 692 1,901 99,955 (45,497) (22,951) 581
(807) 33,874
'Other reserves' includes reserves in respect of share-based payments made to employees of the Group and others providing similar
services.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
Year to Year to
31 December 31 December
2007 2006
Note EUR'000 EUR'000
Net cash inflows from operating activities 20 43,405 33,649
Cash flows from investing activities
Interest income received 772 437
Acquisition of Argo businesses 9 (8,362) (40)
Acquisition of North businesses 9 (9,593) -
Purchase of plant and equipment (182) (408)
Disposal of plant and equipment 146 -
Repayment of loans - 115
Purchase of financial investments - (3,000)
AIM listing costs - (566)
Net cash (outflow) from investing (17,219) (3,462)
activities
Cash flows from financing activities
Issue of share capital 1,515 890
Dividends paid (38,967) (898)
Net cash (outflow) from financing (37,452) (8)
activities
Net (decrease)/increase in cash and cash (11,266) 30,179
equivalents
Cash and cash equivalents as at 1 January 33,206 3,027
Exchange (losses) on cash and cash (956) -
equivalents
Cash and cash equivalents as at 31 December 20,984 33,206
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2007
1. CORPORATE INFORMATION
The company is incorporated as an exempt company with limited liability in the Cayman Islands. The company is domiciled in the Cayman
Islands. Its principal activity is
that of provision of investment management and advisory services to mutual funds. The functional currency of Group undertakings is
Euros. The Group has 81 employees
(2006: 58 employees).
Group subsidiaries Country of incorporation
Absolute Capital Management (UK) Limited United Kingdom
Absolute Capital Management Holding Switzerland AG Switzerland
Absolute Capital Management Spain, S.L. Spain
Absolute Capital Management Equity Limited Cayman Islands
Absolute General Partner Limited Cayman Islands
Argo Capital Management Limited United Kingdom
Argo Capital Management (Cyprus) Limited Cyprus
Argo Capital Management (Asia) Pte. Ltd. Singapore
Argo Capital Management Property Limited Cayman Islands
Argo Investor Services Ltd Cayman Islands
North Asset Management S.a.r.l Luxembourg
North Asset Management S.r.l Romania
TCA Group Cayman Islands
2. ACCOUNTING POLICIES
(a) Accounting
convention
These financial statements have been prepared in accordance with
International Financial Reporting Standards, as adopted by the European
Union.
These accounts have been prepared on the basis that the Company is a going
concern (see note 26).
(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 Group and cease to be
consolidated from the date upon which control is transferred from the
Group.
The Group acquired the business of providing investment management and
advisory services to mutual funds from FM Fund Management Ltd in 2005. As
the acquisition was between entities under common control, it was outside
the scope of IFRS3 'Business Combinations', and the combination was
accounted for as a pooling of interests as if the Group, as then
constituted, had always been in place. On pooling of interests, the excess
of the consideration given by the Group over the book value of assets and
liabilities of the underlying fund management business is recognised in a
merger reserve
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used in to line with those
used by the Group.
All intra-Group transactions, balances, income and expenses are eliminated
on consolidation.
(c) Business
combinations
The acquisition of subsidiaries is accounted for using the purchase 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 acquisition date.
Goodwill
Goodwill arising on the consolidation represents the excess of the cost of
the acquisition over the Group's interest in the fair value of the
identifiable assets and liabilities of a subsidiary at the date of
acquisition. 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 for impairment at
least annually. Any impairment is recognised immediately in the Income
Statement.
Intangible assets
The Group's principal intangible assets are fund management contracts and
customer base acquired. The Group does not capitalise internally generated
goodwill or intangible assets. Fund management contracts and customer base
acquired are recorded at directors' valuation at the date of acquisition.
These intangible assets have no finite life and consequently are not
amortised. Every six months impairment tests are undertaken to determine
any diminution in the recoverable amount below carrying value.
(d) Foreign currency translation
The financial statements are expressed in Euros. Transactions denominated
in currencies other than Euros have been translated at the rate of exchange
prevailing at the date of the transaction. Assets and liabilities in other
currencies are translated to Euros at the rates of exchange prevailing at
the balance sheet date. The resulting profits or losses are reflected in
the consolidated statement of income.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group's foreign operations are translated at
exchange rates prevailing on the balance sheet date. Income and expense
items are translated at the average exchange rates for the period. Exchange
differences arising, if any, are classified as equity and transferred to
the Group's foreign currency translation reserve. Such translation
differences are recognised as income or as expenses in the period in which
the operation is disposed of.
(e) Revenue
Revenue is recognised to the extent that it is probable that economic
benefit will flow to the Grou and the revenue can be reliably measured.
Management and incentive fees receivable
The Group recognises revenue for providing management services to mutual
funds. Revenue accrues on a monthly basis on completion of management
services and is based on the funds under management of each mutual fund.
For the Absolute branded funds, incentive fees can arise based on monthly
Net Asset Value (NAV), for the Argo funds incentive fees may arise monthly
or annually, and for the North Real Estate Opportunities Fund (managed by
Argo Capital Management Property Ltd) fees may be triggered at any time on
realisation of a property asset.
(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 for on a monthly
basis consistent with revenue streams earned.
(g) Depreciation
Fixtures and fittings 10% to 15% per annum
Office equipment 10% to 15% per annum
Computer equipment and software 30% per annum
(h)
Investments held at fair value through profit or loss
All investments are classified as held at fair value through profit or loss. Investments are initially recognised at fair value.
Transaction costs are expensed as incurred.
After initial recognition, investments are measured at fair value, with unrealised gains and losses on investments and impairment of
investments recognised in the consolidated income statement. Investments held at fair value in managed mutual funds are valued at fair
value of the net assets as provided by the administrators of those funds. Investments in the management shares of the Absolute Return Europe
Fund, European Catalyst Fund, Absolute Germany Fund, Absolute East West Fund, Absolute Octane Fund, Absolute Large Cap Fund, Absolute
Activist Value Fund and Absolute India Fund are stated at fair value, being the recoverable amount.
(i)
Trade date accounting
All 'regular way' purchases and sales of financial assets are recognised on the 'trade date', i.e. the day 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)
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 3 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.
(k)
Loans and borrowings
All loans and borrowings payable are initially recognised at cost, calculated as the fair value of the consideration received less issue
costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost.
Amortised cost is calculated by using the effective interest method, taking into account any issue costs, and discounts and premiums on
settlement.
All loans and borrowings receivable are initially recognised at cost, and subsequently measured at amortised cost.
(l)
Current taxation
Current tax assets and liabilities for the current and prior period 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 substantially enacted by the balance
sheet date.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income
Statement because it excludes items of income or expense that are taxable or deductible in other periods or because it excludes items that
are never taxable or deductible.
(m)
Deferred taxation
Deferred income tax is provided for using the liability method on temporary timing differences at the balance sheet date between 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 loss to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences, and carry-forward of unused tax credits and unused losses can be utilised.
The carrying amount of deferred income tax assets is revalued at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised
deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that is probable that future taxable
profits will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are
expected to apply to the year when the asset is realised or the liability settled, based on tax rates that have been enacted or
substantively enacted at the balance sheet date.
(n)
Share-based payments
Certain employees (including senior executives) of the Group and others providing similar services receive remuneration in the form of
share-based payment transactions, whereby employees and others providing similar services render services as consideration for equity
instruments (equity-settled transactions).
The cost of equity-settled transactions is measured with reference to the fair value at the date on which they were granted. The fair
value is determined using a binomial model. Prior to 3 March 2006 the equity instruments of the Group were not traded at the measurement
date and, as the fair value could not be assessed, the cost of equity-settled transactions were measured at the intrinsic value, this being
the difference between the fair value of the shares to which the counterparty had the right to subscribe and the price the counterparty
would be required to pay for those shares, at the date of grant.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award
('the vesting date'). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will
ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the
beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,
which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance
conditions are satisfied.
Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense if the terms had not been
modified. An additional expense is recognised for any modification, which increases the total fair value of the share-based payment
arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a
replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original
award, as described in the previous paragraph.
The dilutive effect of the outstanding options is reflected as additional dilution in the computation of earnings per share.
(o)
Adoption of new and revised standards during the year
In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods
commencing on or after 1 January 2007, and the related amendment to IAS 1 Presentation of Financial Statements. The impact of the adoption
of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group's financial
instruments and management of capital (see note 22).
(p)
Accounting estimates, assumptions and judgements
The preparation of the financial statements necessitates the use of estimates, assumptions and judgements. These estimates, assumptions
and judgements affect the reported amounts of assets, liabilities and contingent liabilities at the balance sheet date as well as affecting
the reported income and expenses for the year. Although the estimates are based on management's knowledge and best judgment of information
and financial data, the actual outcome may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that and prior periods, or in the period of the revision and future
periods if the revision affects both current and future periods.
In the process of applying the Group's accounting policies, which are described above, management has made the following judgements
that have the most significant effect on the amounts recognised in the financial statements:
- Valuation of share-based payments
The Group estimates the expected value of share-based payments and this
is charged through the Income Statement over the vesting periods of the
relevant payments. The cost is estimated using a binomial valuation
model. The binomial calculations are based on a number of assumptions
that are set out in note 6 and are amended to take account of estimated
levels of share vesting and exercise. This method of estimating the
value of the share-based payments is intended to ensure that the actual
value transferred to employees is provided in the share-based payments
reserve by the time the payments are made.
- Impairment of intangible assets
Determining whether intangible assets are impaired requires an
estimation of the value in use of the cash generating units to which
these assets are allocated. Details of the impairment reviews that the
Group performs and impairments recognised as a result of those reviews
are provided in note 10.
- Management and incentive fees
It has also 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.
- Going concern
As described in notes 25 and 26, it is possible the Group may not have
adequate resources to defend and/or settle any successful claims that
may arise from the former management's fund investment strategies. The
financial statements have been prepared on the assumption that the Group
continues to be a going concern.
3. SEGMENTAL ANALYSIS
The Group operates as a single asset management business, and the directors do not consider the different sources of revenue and
geographic regions within the business as separate business segments within the meaning of IAS 14 Segment Reporting.
The risks and returns to the Group across the different income sources and geographic regions are not significantly different and
it is the clients themselves who have the different risk/return profiles. All of the Group's clients are consuming the same
service - asset management - and the fund managers may manage funds across two or more different income sources and geographic
regions. On this basis the directors consider the Group to be a single segment investment management business.
4. EMPLOYEE COSTS
2007 2006
EUR'000 EUR'000
Wages and salaries 22,418 9,463
Social security costs 1,051 92
Share-based payments (see note 6) 574 2,703
24,043 12,258
5.
KEY MANAGEMENT PERSONNEL REMUNERATION
2007 2006
EUR'000 EUR'000
Directors and key management personnel 5,264 5,184
Share-based payments to directors and key management - 209
personnel
5,264 5,393
6.
SHARE-BASED PAYMENTS
The Group has a share options scheme intended to provide an incentive to retain experienced employees and attract new employees,
directors or other service providers. The aim is to encourage a sense of proprietorship and stimulate an active interest in the development
and financial success of the Group and its Subsidiaries.
During the year the Group had the following types of option arrangements in place:
a. Group employeesOptions granted to company employees exercisable in fixed
tranches on 30 June 2008, 30 June 2009 and 30 June 2010. These options
have vesting periods of between 1.86 and 3.86 years and expire 10 years
from the date of the grant.
b. Group employeesOptions granted to Group employees exercisable in fixed
tranches on or after 1 August 2008, 1 August 2009 and 1 August 2010.
These options have vesting periods of between 1.27 and 3.27 years and
expire 10 years from the date of the grant.
c. Key management personnelOptions granted to key management personnel
exercisable in part or in full on or after 3 March 2006. These options
had a vesting period of 0.02 years and expire on 31 January 2012.
d. Doyne Investments LimitedOptions granted to this company are exercisable
in a fixed tranche between the vesting date of 13 April 2007 and the
expiry date of 12 July 2007. These options were exercised on 3 May 2007.
e. CSI Asset Management EstablishmentOptions granted to this company are
exercisable in a fixed tranche between the vesting date of 13 April 2007
and the expiry date of 12 July 2007. These options were exercised on 29
May 2007.
f. Pampero LimitedOptions granted to this company are exercisable in part
or in full (subject to a minimum exercise of 100,000 shares) at any time
after the vesting date of 3 March 2006. These options were exercised on
23 January 2007.
All options are non-transferable and required to be settled by way of equity. Options issued under categories (a) and (b) above
are forfeited if the employee leaves the Group or if there is a cessation of services provided to the Group.
During the year options were granted to 18 Group employees on 27 April 2007. The aggregate of the estimated fair values of the
options granted on that date is EUR926,100. These options terminated on 13 June 2008 as a result of the demerger of the Argo
business. In the prior year options were granted on 24 February 2006 and 21 August 2006. The aggregate of the estimated fair
values of the options granted on each of those dates was EUR3,591,613 and EUR2,194,647 respectively.
The fair value of the options granted in both the current and prior years is estimated at the grant date using a binomial model
and taking into account the terms and conditions upon which the options were granted. The inputs into the model are as follows:
2007 2006
Weighted average share price EUR6.81 EUR2.59
Weighted average exercise price EUR6.70 EUR1.65
Expected volatility 40% 37%
Weighted average expected life 10 years 5 years
Risk free rate 4.98% 4.68%
Expected dividend yield 13% 5% & 6%
The weighted average share price at the date of exercise for the share options exercised during the year was EUR6.70 (2006: EUR2.28).
The expected volatility has been calculated based on one year's share price volatility and that of three comparator companies. Reliance
has not been placed solely on the historical share price volatility of the Group because the publicly available historical share price data
as at the grant date is insufficient to produce reliable statistical data over the estimated vesting period.
The Group recognised total expenses of EUR573,848 (2006: EUR2,703,584) related to equity-settled share-based payment transactions.
Movements in options in the year:
2007 2007 2006 2006
Number Weighted Number Weighted average
average exercise
exercise price
price
Outstanding at 1 January 5,830,000 EUR 1.68 1,000,000 EUR 0.24
Granted during the year 1,000,000 EUR 6.70 6,755,000 EUR 1.59
Forfeited during the year (1,430,000) EUR 1.74 (300,000) EUR 2.65
Exercised during the year (2,437,500) EUR 0.62 (1,625,000) EUR 0.24
Expired during the year - - - -
Outstanding at 31 December 2,962,500 EUR 3.41 5,830,000 EUR 1.68
Exercisable at 31 December 937,500 EUR 2.00 1,875,000 EUR 1.73
The outstanding share options as at 31 December 2007 are detailed below:-
Optionee Exercise dates Shares Exercise price per
share
From
From To
Key management personnel 03/03/06 31/01/12 937,500 03/03/06
Group employees 30/06/08 - 01/08/10 30/06/08 - 25/04/17 2,025,000 30/06/08 - 01/08/10
2,962,500
7.
TAXATION
The Company is registered as an exempt company in the Cayman Islands and consequently no tax is payable in the Cayman Islands. Taxation
of up to 6.4% will be levied on Company profits of the branch office in the Swiss Canton of Zug. Taxation rates applicable to the
Singaporean, Cypriot, Spanish and UK subsidiaries range from 0% to 30%.
2007 2006
EUR'000 EUR'000
Taxation on Group profits in Switzerland 1,714 -
Taxation on Zug branch (1) 414
Taxation on Singaporean, Spanish, Cyprus and UK 2,077 89
subsidiaries
Deferred taxation on Singaporean, Cypriot, Spanish and (251) 89
UK subsidiaries
Taxation charge for the year 3,539 503
Deferred taxation is included in note 12.
The charge for the year can be reconciled to the (loss)/profit per the consolidated income statement as follows:
2007 2006
EUR'000 EUR'000
(Loss)/profit before tax (32,914) 27,562
Tax at the current tax rate of 6.4% (2,106) 1,764
Timing difference (142) -
Tax effect of impairment losses on intangible assets that 4,743 -
are not deductible
Tax effect of revaluations of assets for taxation purposes 21 (26)
Tax effect of different tax rates of subsidiaries 1,023 (1,235)
operating in other jurisdictions
8.
LOSS)/EARNINGS PER SHARE
(Loss)/earnings per share is calculated by dividing the net (loss)/profit for the year by the weighted average number of shares
outstanding during the year.
2007 2006
EUR'000 EUR'000
Net (loss)/profit for the year after taxation attributable to members (36,453) 27,059
Number of shares Number of shares
'000 '000
Weighted average of ordinary shares for basic earnings per share 67,102 52,137
Effect of dilution: share options 1,020 2,524
Effect of dilution: shares to be issued 3,500 3,545
Weighted average number of ordinary shares for diluted earnings per share 71,662 58,206
2007 2006
EUR'000 EUR'000
Net (loss)/profit for the year after taxation attributable (36,453) 27,059
to members
Weighted average of ordinary shares for basic earnings per 67,102 52,137
share
Effect of dilution : share options 1,020 2,524
Effect of dilution : shares to be issued 3,500 3,545
Weighted average number of ordinary shares for diluted 71,662 58,206
earnings per share
9.
BUSINESS COMBINATIONS
Argo businesses
With effect from 18 January 2007 the Group acquired 100% of the share capital of Argo Capital Management Limited, Argonaftis Capital
Management Limited and Argo Capital Management (Asia) Pte Ltd, collectively, the 'Argo businesses'. The combined purchase consideration
included the issue to the vendors of 12.3 million fully-paid ordinary shares of EUR0.01 and EUR10,884,218 cash. The market value of one
ordinary share of the company immediately at the date of this transaction was EUR5.19 and this was the amount that was used to value the
acquisition.
The Argo businesses acquired as part of this transaction contributed the following to the consolidated net profit on ordinary activities
after tax: Argo Capital Management EUR2,824,433, Argonaftis Capital Management EUR3,715,463, Argo Capital Management (Asia) EUR105,363.
The fair value of the identifiable net assets and liabilities of the Argo businesses at the date of acquisition and the consideration
are detailed below:
Argo Capital Argonaftis Capital Argo Capital Management (Asia) Pte Ltd Total
Management Management
Limited (Overseas) Limited
EUR'000 EUR'000 EUR'000 EUR'000
Intangible assets - fund 37,359 37,070 - 74,429
management contracts of Argo
businesses
Plant and equipment 10 30 9 49
Debtors 1,668 269 65 2,002
Cash at bank and in hand 2,583 502 72 3,157
Creditors within one year (3,623) (467) (106) (4,196)
Net assets acquired 37,997 37,404 40 75,441
Negative goodwill - - (40) (40)
Total 37,997 37,404 - 75,401
Satisfied by:
Payment in cash 5,623 5,261 - 10,884
Shares issued 31,941 31,941 - 63,882
37,564 37,202 - 74,766
Costs of acquisition 433 202 - 635
Total 37,997 37,404 - 75,401
Net cash (outflow)/inflow arising on acquisition
Cash consideration (11,519)
Cash and cash equivalents acquired 3,157
(8,362)
Intangible assets represent the fair value of fund management contracts of the Argo businesses, essentially the Argo Funds to which it
provides management and advisory services.
North businesses
With effect from 9 July 2007 the Group acquired the management contract and the right to receive the income streams from the North Real
Estate Opportunities Fund Ltd and the ownership of North Asset Management Srl and North Asset Management Sarl (collectively the 'North
Businesses').
The contract was acquired on 9 July 2007. The purchase consideration included the issue to the vendors of 384,494 fully-paid ordinary
shares of EUR0.01 and cash of EUR9,500,000. The market value of one ordinary share of the Company at the date of this transaction was
EUR7.80 and this was the amount that was used to value the acquisition.
The North Asset Management entities acquired as part of this transaction contributed a loss of EUR9,819,898 to the consolidated net loss
on ordinary activities after tax.
The fair value of the identifiable net assets and liabilities of the North Businesses at the date of acquisition and the consideration
are detailed below:
North Businesses
EUR'000
Intangible assets - fund management contracts of North 12,593
businesses
Total 12,593
Satisfied by:
Payment in cash 9,500
Shares issued 3,000
12,500
Costs of acquisition 93
Total 12,593
Net cash (outflow)/inflow arising on acquisition
Cash consideration (9,593)
Cash and cash equivalents acquired -
(9,593)
Intangible assets represent the fair value of the fund management contract of the North Real Estate Opportunities Fund Ltd (subsequently
renamed Argo Real Estate Opportunities Fund Ltd), the Fund to which the Group provides management and advisory services through its
subsidiary Argo Capital Management Property Limited.
10.
INTANGIBLE ASSETS
Fund management contracts Customer base Total
EUR'000 EUR'000 EUR'000
Cost
As at 1 January 2007 - 14,913 14,913
Acquisition of Argo businesses 74,429 - 74,429
(note 9)
Acquisition of North 12,593 - 12,593
businesses (note 9)
Reduction in acquisition price - (7,349) (7,349)
TCA Group (note 16)
At 31 December 2007 87,022 7,564 94,586
Amortisation and impairment
As at 1 January 2007 - - -
Impairment of TCA business intangible assets - 7,564 7,564
Impairment of Argo business intangible assets 56,429 - 56,429
Impairment of North business intangible assets 10,112 - 10,112
At 31 December 2007 66,541 7,564 74,105
Net book value
31 December 2007 20,481 - 20,481
31 December 2006 - 14,913 14,913
The purchase price of the TCA Group was reduced reflecting the final settlement of deferred consideration agreed post year end (see note
24).
The Group tests intangible assets every six months for impairment, or more frequently if there are indications that the intangible
assets may be impaired. The recoverable amounts of the intangible assets that have been reviewed for impairment are separately identifiable
business units within the Group. The value in use approach has been used as the businesses were not considered saleable in their current
form due to certain factors including reliance on certain key individuals.
The Group's intangible assets relating to the Argo businesses were reviewed for impairment and an adjustment has been recognised with
effect from 31 December 2007. The impairment was deemed necessary after considering a number of events that affected the Group during 2007
including key man dependency and reduced growth prospects (due to difficult market conditions and reputational damage). The value
attributed to the Argo business intangible assets which remains after impairment is EUR18,000,000.
An impairment review of the North Real Estate Opportunities Fund management contract (held by Argo Capital Management Property limited)
was also carried out and an impairment to recognise the diminished growth prospects recorded. The value attributed to these intangible
assets which remains after impairment is EUR2,481,000.
The Group's Investment in TCA was reviewed for impairment as at 31 December 2007. The carrying value of this intangible asset was
reduced to nil (2006: EUR14,913,000). The impairment reflects that during 2007 the Group severed ties with this business and as it had no
further resale value, the carrying value of this asset was written off.
11.
PLANT AND EQUIPMENT
Plant and equipment
EUR'000
Cost
As at 1 January 2007 458
Acquisitions through business combinations 49
Additions 182
Disposals (193)
As at 31 December 2007 496
Accumulated Depreciation
As at 1 January 2007 (51)
Depreciation charge for year (146)
Disposals 47
As at 31 December 2007 (150)
Net book value
31 December 2007 346
31 December 2006 407
12.
TRADE AND OTHER RECEIVABLES
2007 2006
EUR'000 EUR'000
Trade receivables 5,857 6,696
Other receivables 363 83
Prepayments and accrued income 785 194
Deferred tax asset 233 -
7,238 6,973
The directors consider that the carrying amount of trade and other receivables approximates their fair value. Included in the Group's
trade receivable balance are debtors with a carrying amount of EUR0 million (2006: EUR0 million) which are past due at the reporting date
but for which the Group has not provided as the Group believes that the amounts are still considered recoverable.
13.
INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
2007 2007 2006 2006
Holding Investment Total cost Fair value Total cost Fair value
EUR'000 EUR'000 EUR'000 EUR'000
Management shares
100 Absolute Return 0 0 0 0
Europe Fund
100 European Catalyst 0 0 0 0
Fund
100 Absolute Germany 0 0 0 0
Fund
100 Absolute East West 0 0 0 0
Fund
100 Absolute Octane Fund 0 0 0 0
100 Absolute Large Cap 0 0 0 0
Fund
100 Absolute Activist 0 0 0 0
Value Fund
100 Absolute India Fund 0 0 0 0
Participating shares
300 Absolute Activist 1,500 1,993 1,500 1,781
Value Fund
300 Absolute India Fund 1,500 1,068 1,500 1,620
3,000 3,061 3,000 3,401
The fair value of investments is stated at the redemption prices quoted by fund managers and is based on the fair value of the
underlying net assets of the funds, because although the funds are listed, there is no active market.
14.
LOANS AND ADVANCES RECEIVABLE
2007 2006
EUR'000 EUR'000
Deposits on leased premises 121 72
121 72
The loans and advances are unsecured, interest free and repayable on demand.
15.
SHARE CAPITAL
2007 2006
Authorised
Ordinary shares of EUR0.01 each 500,000,000 500,000,000
Issued and fully paid
Opening balance 54,125,000 50,000,000
Issued during the year 15,121,994 4,125,000
Closing ordinary shares of EUR0.01 each 69,246,994 54,125,000
During the year, the company issued 12,300,000 shares to the vendors of Argo Capital Management Group (note 9).
During the year, the company issued 384,494 shares to the vendors of the management contract for the North Real Estate Opportunities
Fund Ltd (note 9).
The remaining balance of shares that were issued (2,437,500) related to the exercise of share options.
16.
SHARES TO BE ISSUED
2007 2006
EUR'000 EUR'000
Opening balance 9,250 -
(Reductions)/additions (7,349) 9,250
Shares to be issued 1,901 9,250
Shares to be issued are issuable to the former shareholders of TCA Group Limited for final settlement of the deferred consideration that
arose from the purchase of TCA Group (see note 24).
17.
DIVIDENDS
A dividend of EUR0.447 (comprising an ordinary dividend of EUR0.165 plus a special dividend of EUR0.282) per ordinary share was declared
on 12 March 2007. Qualifying shareholders were deemed to be those on the register as at close of business on 23 March 2007. This dividend
was paid on 5 April 2007.
An interim dividend of EUR0.133 was declared and paid on 24 August 2007. Qualifying shareholders were deemed to be those on the register
as at close of business on 3 August 2007.
18.
TRADE AND OTHER PAYABLES
2007 2006
EUR'000 EUR'000
Trade and other payables 4,469 2,305
Other creditors and accruals 8,967 7,685
Deferred income 2,440 -
15,876 9,990
Trade and other payables are normally settled on 30-day terms
19.
OBLIGATIONS UNDER OPERATING LEASES
Operating lease payments represent rentals payable by the Group for certain of its business premises. As at the balance sheet date, the
Group had outstanding future minimum lease payments under non-cancellable operating leases, which fall due as follows.
2007 2006
EUR'000 EUR'000
Operating lease liabilities:
No later than 1 year 297 226
Later than 1 year and not later than 5 years 214 53
Present value of minimum lease payments 511 279
20.
RECONCILIATION OF NET CASH INFLOW FROM OPERATING ACTIVITIES TO (LOSS)/ PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
2007 2006
EUR'000 EUR'000
(Loss)/profit on ordinary activities before taxation (32,914) 27,562
Interest income (772) (437)
AIM listing costs - 566
Impairment of intangible assets 74,105 -
Depreciation 146 48
Increase in payables 1,690 1,136
Decrease in receivables 1,689 2,509
Unrealised losses/(gains) on investments 334 (400)
Share-based payments 574 2,704
Negative goodwill (40) -
Net foreign exchange loss 155 -
Net cash inflow from operating activities 44,968 33,688
21.
RELATED PARTY TRANSACTIONS
John Fleming and Ronald Tompkins were directors of the company for a portion of the year and are also directors of the related parties
listed below, from which fees were received during the year, and amounts were receivable at the year end, as detailed below. The company
holds investments in managed funds as detailed in note 13.
Fee income Fee income Fees receivable Fees receivable
2007 2006 2007 2006
Related party EUR'000 EUR'000 EUR'000 EUR'000
Absolute Return Europe Fund 11,483 13,604 488 1,323
European Catalyst Fund 7,420 8,390 278 992
Absolute Germany Fund 11,221 8,609 1,108 550
Absolute East West Fund 7,267 5,070 593 609
Absolute Octane Fund 8,537 9,493 319 1,384
Absolute Large Cap Fund 3,358 2,694 165 308
Absolute Activist Value Fund 5,569 2,517 320 450
Absolute India Fund 581 476 71 57
Argo Fund 16,420 - 1,929 -
Argo Special Situations Fund 12,189 - 524 -
Argo Capital Partners Fund 743 - 63 -
North Real Estate 1,047 - 333 -
Opportunities Fund
Michael Kloter is a director of the company and also partner in a legal firm which supplies services to the Group. This firm charged
EUR242,563 (2006: EUR17,573) for services rendered to the Group in 2007. Kloter Attorneys held on trust CHF 100,000 in relation to the
foundation of ACM Advisory Limited. Michael Kloter, a director of the Company, has an interest in Kloter Attorneys.
Sean Ewing, who was a director of the company, is a potential beneficiary of Doyne Investments Limited, which is owned by First Tower
Trustees Limited, which acts as trustee of a trust. Shares were issued to Doyne Investments Limited during the year (notes 6, 15) -
1,062,500 ordinary shares.
The family of Florian Homm, previously Chief Investment Officer of the company, has an interest in CSI Asset Management Establishment.
Shares were issued to CSI Asset Management Establishment during the year (notes 6, 15) - 562,500 ordinary shares.
In February 2007 ACMH completed the acquisition of Argo Capital Management Limited, Argonaftis Capital Management (Overseas) Limited and
Argo Capital Management (Asia) Pte Ltd (collectively 'Argo Capital Management'). As part of the purchase consideration shares were issued to
the following related parties:
Andreas Rialas - 3,075,000 ordinary shares (representing at the time 4.6% of issued share capital)
Farkland Ventures Inc. (of which Andreas Rialas is a beneficiary) - 3,075,000 ordinary shares (4.6%)
Kyriakos Rialas - 6,150,000 ordinary shares (9.2%)
At 31 December 2007 Argo Capital Management Limited owed �8,232 (2006:�Nil) to Andreas Rialas, who is a director of Argo Capital
Management Limited and Director of the company, in respect of expenses borne personally. At the year end, Argo Capital Management Limited
owed Andreas Rialas �100,000 (2006: �100,000) representing a loan made to Argo Capital Management Limited in the previous year. The loan is
unsecured, interest free and, subject to one month's notice, repayable on demand.
22.
FINANCIAL INSTRUMENTS
(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 receivables, 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 for these funds.
(b)
Asset valuation risk
Asset valuation risk is the risk that a decline in the value of assets adversely impacts on the profitability of the Group, either as a
result of an asset not meeting its expected value or through the decline of assets under management generating lower fees. The principal
exposures of the Group are in respect of its seed investments in its own funds. Lower management fee and performance fee revenues could
result from a reduction in asset values.
The market value of the Group's investments on the balance sheet at 31 December 2007 was EUR3,060,857 (2006: EUR3,401,008). If the value
were to strengthen/weaken by 5%, the exposure at 31 December 2007 would be a profit/loss to the income statement of approximately EUR153,012
(2006: EUR170,010).
(c)
Capital management
The primary objective of the Group's capital management is to ensure that the company has sufficient cash and cash equivalents on hand
to finance its ongoing operations. This is achieved by ensuring that trade receivables are collected on a timely basis and that excess
liquidity is invested in an optimum manner. This is achieved by placing fixed short-term deposits or using interest bearing bank accounts.
(d)
Market price risk
Market risk arises from uncertainty about future prices of financial instruments held. It represents the potential loss the company
might suffer through holding market positions in the face of price movements. The Group considers the asset allocation within its fund
portfolios in order to minimise the risk associated with particular market sectors. These risks also influence management and performance
fee income which would be reduced as a result of adverse market price movements on assets under management within the funds that the Group
manages.
(e)
Credit/counterparty risk
The Group will be exposed to counterparty risk on parties with whom it trades and will bear the risk of settlement default. Credit risk
is concentrated in the funds under management as detailed in note 13. Trade receivables are normally settled on 30-day terms.
The Group's principal financial assets are bank and cash balances, trade and other receivables and investments held at fair value
through profit or loss. These represent the company's maximum exposure to credit risk in relation to financial assets and are represented by
the carrying amount of each financial asset in the balance sheet.
At the year-end cash balances were held at Barclays, the Royal Bank of Canada, Royal Bank of Scotland, Solbank, Credit Suisse, Zuger
Kantonalbank, Laiki Bank, Bank of Greece, Bank of Cyprus, Royal Overseas Bank and Credit Agricole.
(f)
Liquidity risk
Liquidity risk is the risk that the Group may be unable to meet its payment obligations. This would be the risk of insufficient cash
resources and liquid assets, including bank facilities, being available to meet liabilities as they fall due.
The main liquidity risks of the Group are associated with the need to satisfy payments to creditors. Trade receivables and trade
payables are on 30-day terms.
(g)
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 Euros and
the date of settlement. The Group holds cash balances in US dollars and sterling and also receives Japanese yen (which are routinely
converted into and held in Euros) as a result of earning fees in those currencies.
If the Euro were to strengthen/weaken by 5% against the other operating currencies, the exposure at 31 December 2007 would be a
profit/loss to the income statement of approximately EUR739,000 (2006: EUR9,000).
(h)
Interest rate risk
The interest rate profile of the Group at 31 December 2007 is as follows:
Total as per balance Variable rate* Assets on which no
sheet interest is
receivable
EUR'000 EUR'000 EUR'000
Financial Assets
Cash at bank (loans and 20,984 20,984 -
receivables)
Investments (financial assets 3,061 - 3,061
at fair value through profit
or loss)
Trade and other receivables 7,238 - 7,238
(loans and receivables)
Loans and advances receivable 121 - 121
(loans and receivables)
31,404 20,984 10,420
Financial liabilities
Trade and other payables 15,876 - 15,876
(loans and receivables)
The interest rate profile of the Group at 31 December 2006 is as follows:
Total as per balance Variable rate* Assets on which no
sheet interest is
receivable
EUR'000 EUR'000 EUR'000
Financial Assets
Cash and cash equivalents 33,206 33,206 -
(loans and receivables)
Investments (financial assets 3,401 - 3,401
at fair value through profit
or loss)
Trade and other receivables 6,973 - 6,973
(loans and receivables)
Loans and advances receivable 72 - 72
(loans and receivables)
43,652 33,206 10,446
Financial liabilities
Trade and other payables (loans and receivables) 9,990 - 9,990
* Changes in the Euro base rate may cause movements.
The average interest rate at year end was 3.655%
(i)
Fair value
The carrying values of the financial assets and liabilities equate to the fair value of the financial assets and liabilities and are as
follows:
2007 2006
EUR'000 EUR'000
Assets
Cash and cash equivalents 20,984 33,206
Investments at fair value through the profit and loss 3,061 3,401
Trade and other receivables 7,238 6,973
Loans and advances receivable 121 72
31,404 43,652
Liabilities
Trade and other liabilities 15,876 9,990
15,876 9,990
Financial assets and liabilities, other than investments, are either repayable on demand or have short repayment dates. The fair value
of investments is stated at the redemption prices quoted by fund managers and is based on the fair value of the underlying net assets of the
funds, because although the funds are listed, there is no active market.
23.
ULTIMATE CONTROLLING PARTY
CSI Asset Management Establishment was the immediate and ultimate parent company during 2006 but ceased to be so following the issue of
shares on the acquisition of the Argo businesses (announced 18 January 2007).
24.
EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
Issue of Shares to Directors
On 8 February 2008 ACMH issued 4,184,626 shares to the vendors of Argo Capital Management, representing 6.04% of the issued share
capital of the Company at that time.
The acquisition agreements relating to the transaction contained provisions under which the aggregate level of discretionary performance
pay within the existing ACMH business was capped at 20% of the pre-tax profit until 2009. Pursuant to a consent letter dated 8 February
2008, the Argo vendors agreed to lift the cap from 20% to 40% against the issuance of 4,184,626 ACMH ordinary shares. After admission of
these shares, the issued share capital of the Company was 73,431,620 Ordinary Shares of EUR0.01 each.
Immediately following the issue of these shares, Andreas Rialas had an interest in 15,638,146 shares in the Company, representing
21.3% of the issued share capital. Kyriakos Rialas had an interest in 8,768,363 shares in the Company, representing 11.9% of the issued
share capital.
Issue of 3.5m Shares to Settle Deferred Consideration for TCA Group
On 9 April 2008 ACMH concluded an agreement providing for revised earn-out and deferred consideration arrangements in connection with
the acquisition of TCA Group. TCA Group is a Cayman Islands company which was formed to provide capital introduction services and investor
relations services primarily to absolute return focused managers. During 2007, ACMH severed ties with this business and this share issue
is a final settlement of the deferred consideration that arose from the purchase of TCA Group.
Distribution of the Argo Business
At an Extraordinary General Meeting held in the Cayman Islands on 13 June, shareholders passed a resolution to distribute the Argo
division to shareholders, to be managed and owned as an independent entity under a new entity (Argo Group Limited). ACMH completed the
distribution of the shares of Argo Group Limited on 15 June 2008.
Under the proposal shareholders retain their existing holding of Ordinary Shares in ACMH, which will continue to be traded on AIM and,
in addition, receive the same number of Ordinary Shares in Argo Group Limited, which will initially be a private company. It is intended
that an application will be made for the Argo Group Limited Ordinary Shares to be admitted to trading on AIM within six months of the
Distribution.
Transfer of ACMH Fund Management Contracts to ACM Equity Ltd
On 1 June 2008, the fund management contracts for the Absolute funds were transferred from ACMH (the parent company in the Group) to its
wholly owned Swiss registered subsidiary, ACM Equity Limited.
25.
POSSIBLE AND ACTUAL CLAIMS RELATING TO FORMER MANAGEMENT'S FUND INVESTMENT STRATEGIES
In November 2007, Berwin Leighton Paisner ("BLP") were instructed by the Company to undertake a review of the activity relating to
illiquid investments by funds managed by ACMH during the period when investment strategy was under the control of Florian Homm (the former
chief investment officer of ACMH). BLP have instructed PricewaterhouseCoopers ("PwC") to assist them by carrying out a forensic
investigation. As at the date of this report, BLP's investigation is not yet complete.
Dependent on the conclusions of such reviews and the resultant reports, it is possible that adversely affected parties may consider
and/or commence litigation against the Company, or that the Company may commence litigation against third parties. It is not possible to
quantify the possible claims which may arise against the Company and these financial statements have been prepared on the assumption that no
such claims other than those described below will arise.
On 3 July 2008 the Company announced that it had received reports that a lawsuit naming it, its subsidiary Absolute General Partner
Limited and certain former executives had been filed in the United States District Court for the District of Colorado by the Cascade Fund,
LLLP on behalf of itself and other similarly situated persons. The Cascade Fund, LLLP is an investor in the Absolute Return Europe Fund
Limited and the Absolute East West Fund Limited. The lawsuit alleges that the Company's equity funds' offering memoranda contained
misrepresentations concerning their investment restrictions, investment objectives and policies, that the Company's equity funds' net asset
values were misrepresented, and that the Company's former Chief Investment Officer Florian Homm was party to a fraudulent scheme involving
the equity funds' purchase of penny stocks promoted by Todd Ficeto and Hunter World Markets, Inc. in which Homm held a secret 50% ownership
interest, among other allegations. The Cascade Fund, LLLP claims compensatory damages of an unspecified amount on its own behalf and on behalf of other members of the class for all damages sustained as
a result of the allegations together with costs, from the Company. As at the date hereof, the Company has not been served with the lawsuit.
No provision has been made for this claim as the Company intends to fully defend the lawsuit.
26.
GOING CONCERN
In the event that significant legal claims against the Company arise as result of the matters referred to in Note 25 above or related
matters, the Company may not have adequate resources to defend these claims or settle any successful claims which may arise. In such
circumstances, the company would cease to be a going concern. Consistent with the assumptions in Note 25 that no further claims will arise,
the financial statements have been prepared on the assumption that the company continues to be a going concern.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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