TIDMARGO
RNS Number : 0932S
ARGO Group Limited
07 March 2019
Argo Group Limited
("Argo" or the "Company")
Annual Report and Accounts for the Year ended 31 December
2018
Argo today announces its final results for the year ended 31
December 2018.
The Company will today make available its report and accounts
for the year ended 31 December 2018 on the Company's website
www.argogrouplimited.com. These will be sent by post to
shareholders in the next 2 weeks.
Key highlights for the twelve months ended 31 December 2018
- Revenues US$4.6 million (2017: US$10.3 million)
- Operating loss US$0.8 million (2017: operating profit US$2.0 million)
- Loss before tax US$1.2 million (2017: profit of US$4.7 million)
- Net assets US$23.3 million (2017: US$24.7 million)
Commenting on the results and outlook, Kyriakos Rialas, Chief
Executive of Argo said:
"As it turned out the second half of 2018 was a year to forget
for most hedge funds as the best asset class proved to be cash.
Argo was not immune from the general correction in market prices as
they particularly affected emerging markets. The firm managed the
risks not only by keeping a sizeable portion of the portfolio in
cash but through our macro overlay we took short bets on market
risk that contributed positively to performance along our USD
positioning against emerging market currencies. We lost money on
our distressed debt and USD sovereign debt but at much more modest
level than the specific subindex of EMBI. The end result was a
manageable drop of 5.65% gross for the year in our main fund, The
Argo Fund, made up of 2.1% in fees and expenses and the rest in
asset performance. January 2019 however started strongly with The
Argo Fund up about 2.7%. The objective of the Group remains the
increase of assets under management in The Argo Fund to well over
US$100 million and we have been successful in the latter part of
2018 to reach around US$80 million. Despite the drop in the
distressed credit fund following a liquidity event that allowed
some redemptions we are looking to grow this fund and market it
more actively to a wider group of investors. We have an attractive
pipeline of transactions that could be interesting to long-term
investors looking for uncorrelated returns. At the same time cost
control is an ongoing process by streamlining expenses by closing
holding companies which are no longer needed in the remaining
illiquid investments."
Enquiries
Argo Group Limited
Andreas Rialas
020 7016 7660
Panmure Gordon
Dominic Morley
020 7886 2500
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) No 596/2014.
CHAIRMAN'S STATEMENT
Key highlights for the twelve months ended 31 December 2018
- Revenues US$4.6 million (2017: US$10.3 million)
- Operating loss US$0.8 million (2017: operating profit US$2.0 million)
- Loss before tax US$1.2 million (2017: profit of US$4.7 million)
- Net assets US$23.3 million (2017: US$24.7 million)
The Group and its objective
Argo's investment objective is to provide investors with
absolute returns in the funds that it manages by investing in multi
strategy investments in emerging markets.
Argo was listed on the AIM market in November 2008 and has a
performance track record dating back to 2000.
Business and operational review
This report sets out the results of Argo Group Limited for the
year ended 31 December 2018.
For the year ended 31 December 2018 the Group generated revenues
of US$4.6 million (2017: US$10.3 million) with management fees
accounting for US$4.1 million (2017: US$4.2 million). The Group
also generated incentive fees of US$0.3 million (2017: US$ 5.9
million) during the year. The incentive fees earned during the year
were from Argo Distressed Credit Fund ("ADCF").
Total operating costs, ignoring bad debt provisions, are US$4.0
million (2017: US$7.2 million). The decrease in operating costs is
mainly due to no variable employee costs being paid during the
year. The Group has provided against management fees of US$1.2
million (EUR1.0 million) (2017: US$1.4 million, EUR1.2 million) due
from AREOF. In the Directors' view these amounts are fully
recoverable however they have concluded that it would be
appropriate to carry a provision against these receivables as the
timing of the receipts may be outside the control of the Company
and AREOF.
Overall, the financial statements show an operating loss for the
year of US$0.8 million (2017: operating profit US$2.0 million) and
a loss before tax of US$1.2 million (2017: profit of US$4.7
million) reflecting the realised and unrealised loss on current
asset investments of US$0.6 million (2017: profit of US$2.5
million).
At the year end, the Group had net assets of US$23.3 million
(2017: US$24.7 million) and net current assets of US$22.7 million
(2017: US$24.2 million) including cash reserves of US$4.0 million
(2017: US$5.0 million). The Directors are not declaring a final
dividend.
Net assets include investments in TAF, AREOF, Argo Special
Situations Fund LP ("ASSF") and ADCF (together referred to as "the
Argo funds") at fair values of US$18.2 million (2017: US$10.6
million), US$0.1 million (2017: US$0.1 million), US$0.04 million
(2017: US$0.03 million), and US$ nil (2017: US$4.2 million)
respectively.
At the year end the Argo funds (excluding AREOF) owed the Group
total management and performance fees of US$0.6 million (31
December 2017: US$6.2 million). The Group received full settlement
of these fees in January 2019.
The Argo funds ended the year with Assets under Management
("AUM") at US$130.1 million (2017: US$146.8), 11% lower than at the
beginning of the year. We are now looking to raise funds across the
spectrum of our investing activity and various initiatives are
being undertaken with existing and new investors. The current level
of AUM remains below that required to ensure sustainable profits on
a recurring management fee basis in the absence of performance
fees. This has necessitated an ongoing review of the Group's cost
basis. Nevertheless, the Group has ensured that the operational
framework remains intact and that it retains the capacity to manage
additional fund inflows as and when they arise.
The number of permanent employees of the Group at 31 December
2018 was 23 (2017: 23).
The Group has provided AREOF with a notice of deferral in
relation to amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2018 total US$nil (2017: US$nil) after a bad debt
provision of US$8.9 million (EUR7.8 million) (2017: US$8.2 million
(EUR6.8 million)). AREOF continues to meet part of this obligation
to the Argo Group as and when liquidity allows. In November 2013,
AREOF offered Argo Group Limited additional security for the
continued support in the form of debentures and guarantees by
underlying intermediate companies. Argo Group Limited retains this
additional security. The AREOF management contract expires on the
later of its termination or the sale of all assets in the
Portfolio. The life of the fund was extended to 30 June 2034 during
2017.
Fund performance
The Argo Funds
2018 2017
Launch Year Year Since Annualised Sharpe Down
Fund date total total inception performance ratio months AUM
% % % CAGR % US$m
-------- ------- -------- ------------ ------------- ------- -------- -----
68 of
The Argo Fund Oct-00 -5.65 10.70 217.44 7.32 0.46 219 79.7
-------- ------- -------- ------------ ------------- ------- -------- -----
Argo Distressed
Credit 55 of
Fund Oct-08 1.58 65.60 234.51 14.47 0.62 123 27.5
-------- ------- -------- ------------ ------------- ------- -------- -----
Argo Special Situations 66 of
Fund LP Feb-12 26.8 115.45 -64.68 -0.86 -0.01 89 22.9
-------- ------- -------- ------------ ------------- ------- -------- -----
Total 130.1
------- -------- ------------ ------------- ------- -------- -----
* NAV only officially measured once a year in September.
AREOF's adjusted NAV at 30 September 2018* was US$15.0 million
(EUR13.1 million), compared with US$0.7 million (EUR0.6 million) a
year earlier. The Adjusted NAV per share at 30 September 2018 was
US$0.0247 (EUR0.0216) (2017: US$0.001 (EUR0.001)). The improvement
in NAV follows the completion of the restructuring of the loan
supporting Riviera Shopping City in June 2018.
The main shareholders in AREOF are:
Entity No of Shares %
------------------------- ------------- ----
Argo Distressed Credit
Fund 175,694,400
Argo Special Situations
Fund LP 300,396,609
Argo Group Limited 30,056,500
Total 506,147,509 83%
------------------------- ------------- ----
2018 saw a sharp fall in valuations across most asset classes,
driven by a number of factors including global growth slowdown
fears; political uncertainty in both developed and emerging
markets; US dollar strength amidst Fed quantitative tightening and
interest rate hikes; and conflict between the US and some of its
major trading partners, most notably China. As a result, investors
were quick to call the end to both equity and fixed income bull
markets. Emerging markets were not immune from the change in
sentiment and in addition were affected by the currency crises in
Argentina and Turkey. The NAV of TAF fell by 5.65% in 2018,
compared with a gain of 10.7% the previous year. The Group's
flagship fund is a diversified debt and macro fund which seeks to
capture alpha through long and short investment in EM corporate,
sovereign and liquid distressed credit and FX. TAF also uses a
macro hedging overlay strategy to actively manage portfolio
duration, volatility and correlation which helped pare losses
during the year as it suffered on the back of the aforementioned EM
crises and some trades which were affected by idiosyncratic
factors. In particular, the fund's exposure to Argentina and
Venezuela weighed on the portfolio although TAF's bottom up focused
investment style allowed it to avoid various credit events and
generated reasonable results considering the overall market
environment. Investors are likely to continue being selective in
2019, focusing on countries where economic growth differentials are
widening versus developed markets, fiscal policy remains
responsible and external vulnerabilities are kept in check. For
specific EM countries, domestic politics will play an important
role in performance, with delivery from newly elected leaders
important in several big Latin American countries, most notably
Brazil. Indonesia has its presidential poll in April - where our
expectation is that Jokowi will be re-elected - and India is also
holding a general election in May.
Credit differentiation will continue to be key in 2019, with a
focus on issuers with attractive uncorrelated investment cases,
solid liquidity and low refinancing risk. The AUM of TAF was
US$79.7 million at the end of the year and marketing activity is
being continued with the objective of reaching an AUM level that
would make the fund qualify for investment from institutional
investors.
The NAV of ADCF rose a more modest 1.58% in 2018. The fund's
largest position related to the leasing of a catalyst to an
Indonesian refinery. Litigation had been commenced in Singapore in
an effort to resolve the impasse between the ADCF and the debtor,
but a settlement was finally agreed in September 2018 which
resulted in a partial cash disbursement. It is anticipated that the
balance of the monies owed will be realised in the first half of
2019.
ASSF also benefited from the litigation settlement referred to
earlier. Its NAV rose by 26.8%, but this was due to approximately
one third of investors participating in a tender offer at a
discount to NAV which utilised proceeds from the Indonesian leasing
receivable.
Dividends
The Directors are not declaring a final dividend but intend to
restart dividend payments as soon as the Group's performance
provides a consistent track record of profitability.
The Board will make a separate announcement on 7 March 2019
regarding a return of capital to shareholders via a buyback of
shares.
Outlook
As previously stated, a significant increase in AUM is still
required to ensure sustainable profits on a recurring management
fee basis. The Group is well placed with capacity to absorb such an
increase in AUM with negligible impact on operational costs.
Raising AUM remains Argo's top priority over the coming year.
The Group's marketing efforts continue to focus on TAF which has an
18 year track record. However, the Group continues to seek
opportunities to increase AUM either through existing fund
structures or by identifying external partners with whom.to
cooperate.
Over the longer term, the Board believes there is significant
opportunity for growth in assets and profits and remains committed
to ensuring the Group's investment management capabilities and
resources are appropriate to meet its key objective of achieving a
consistent positive investment performance in the emerging markets
sector.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
YEARED 31 DECEMBER 2018
Year ended Year ended
31 December 31 December
2018 2017
Note US$'000 US$'000
Management fees 4,086 4,165
Performance fees 268 5,887
Other income 245 208
============================================= ====== ============ ===================
2(e),
Revenue 3 4,599 10,260
============================================= ====== ============ ===================
Legal and professional expenses (361) (289)
Management and incentive fees payable (70) (68)
Operational expenses (1,005) (1,022)
Employee costs 4 (2,604) (5,728)
Foreign exchange gain 1 (31)
Bad debts 11 (1,350) (1,110)
Depreciation 9 (12) (26)
============================================= ====== ============ ===================
Operating (loss)/profit 6 (802) 1,986
============================================= ====== ============ ===================
Interest income on cash and cash
equivalents 194 200
Realised and unrealised (losses)/gains
on investments (600) 2,549
============================================= ====== ============ ===================
(Loss)/profit on ordinary activities
before taxation 3 (1,208) 4,735
============================================= ====== ============ ===================
Taxation 7 (28) (194)
============================================= ====== ============ ===================
(Loss)/profit for the year after
taxation attributable to members
of the Company 8 (1,236) 4,541
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation
of foreign operations (155) 250
============================================= ====== ============ ===================
Total comprehensive income for the
year (1,391) 4,791
============================================= ====== ============ ===================
Year ended Year ended
31 December 31 December
2018 2017
US$ US$
Earnings per share (basic) 8 (0.03) 0.10
============================== ============ ============
Earnings per share (diluted) 8 (0.02) 0.09
============================== ============ ============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
At 31 December At 31 December
2018 2017
Note US$'000 US$'000
Assets
Non-current assets
Land, fixtures, fittings and
equipment 9 212 227
Financial assets at fair value
through profit or loss 10 159 151
Loans and advances receivable 12 118 125
================================ ===== =============== ===============
Total non-current assets 489 503
================================ ===== =============== ===============
Current assets
Financial assets at fair value
through profit or loss 10 18,193 14,800
Trade and other receivables 11 751 6,442
Tax receivable 7 5 -
Cash and cash equivalents 13 4,005 5,031
Total current assets 22,960 26,273
================================ ===== =============== ===============
Total assets 3 23,449 26,776
================================ ===== =============== ===============
Equity and liabilities
Equity
Issued share capital 14 470 470
Share premium 28,022 28,022
Revenue reserve (2,363) (1,127)
Foreign currency translation
reserve 2(d) (2,860) (2,705)
================================ ===== =============== ===============
Total equity 23,269 24,660
================================ ===== =============== ===============
Current liabilities
Trade and other payables 15 180 2,097
Taxation payable 7 - 19
================================ ===== =============== ===============
Total current liabilities 3 180 2,116
================================ ===== =============== ===============
Total equity and liabilities 23,449 26,776
================================ ===== =============== ===============
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARED 31 DECEMBER 2018
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2017 2017 2017 2017 2017
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January 2017 481 28,211 (5,668) (2,955) 20,069
Total comprehensive income
Profit for the year after
taxation - - 4,541 - 4,541
Other comprehensive income - - - 250 250
Transactions with owners
recorded directly in
equity
Purchase of own shares
(note 14) (11) (189) - - (200)
As at 31 December 2017 470 28,022 (1,127) (2,705) 24,660
============================== ========== ========== ========== ============== ========
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2018 2018 2018 2018 2018
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January 2018 470 28,022 (1,127) (2,705) 24,660
Total comprehensive income
Loss for the year after
taxation - - (1,236) - (1,236)
Other comprehensive loss - - - (155) (155)
As at 31 December 2018 470 28,022 (2,363) (2,860) 23,269
============================ ========== ========== ========== ============== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARED 31 DECEMBER 2018
Year ended Year ended
31 December 31 December
2018 2017
Note US$'000 US$'000
Net cash inflow/(outflow) from
operating activities 17 3,136 (933)
Cash flows from investing activities
Interest received on cash and
cash equivalents 22 22
Share buy back - (200)
Purchase of financial assets
at fair value through profit
or loss 10 (4,000) -
Proceeds from sale of financial - -
assets at fair value through
profit or loss
Purchase of fixtures, fittings
and equipment 9 (8) (197)
Net cash used in investing
activities (3,986) (375)
====================================== ===== ============ ============
Net decrease in cash and cash
equivalents (850) (1,308)
Cash and cash equivalents at
1 January 2018 and
1 January 2017 5,031 6,126
Foreign exchange gain/(loss)
on cash and cash
equivalents (176) 213
Cash and cash equivalents as
at 31 December 2018 and 31
December 2017 4,005 5,031
====================================== ===== ============ ============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
1. CORPORATE INFORMATION
The Company is domiciled in the Isle of Man under the Companies
Act 2006. Its registered office is at 33-37 Athol Street, Douglas,
Isle of Man, IM1 1LB and the principal places of business are at 10
Vasilissis Frederikis Street, 1066 Nicosia, Cyprus and 24-25 New
Bond Street, London, W1S 2RR. The principal activity of the Company
is that of a holding company and the principal activity of the
wider Group is that of an investment management business. The
functional currencies of the Group undertakings are US dollars,
Sterling, Euros and Romanian Lei. The presentational currency is US
dollars. The Group has 23 (2017: 23) employees.
Wholly owned subsidiaries Country of incorporation
Argo Capital Management (Cyprus) Limited Cyprus
Argo Capital Management Limited United Kingdom
Argo Capital Management Property Limited Cayman Islands
Argo Property Management Srl Romania
2. ACCOUNTING POLICIES
(a) Accounting convention
These consolidated financial statements have been prepared on a
historical cost basis, except for the revaluation of certain
financial instruments, and in accordance with International
Financial Reporting Standards, as adopted by the EU.
Going concern
The financial statements have been prepared on a going concern
basis which assumes that the Group will be able to meet its
liabilities as they fall due for the foreseeable future.
The Directors have carried out a rigorous assessment of all the
factors affecting the business in deciding to adopt the going
concern basis for the preparation of the accounts. They have
reviewed and examined the Group's financial and other processes
including the annual budgeting process and expect the Group to have
sufficient cash resources available in the foreseeable future. This
has included the preparation of forecast financial information
focussed on cash flow requirements through to at least March 2020.
These forecasts reflect current cost patterns of the Group and take
into consideration current liquidity constraints of funds under
management and therefore their ability to settle management fees
and other receivables (refer to notes 11 and 13).
On the basis of review of this forecast financial information,
the liquid assets currently held and forecast inflows during the
period, the Directors are confident that the Group has adequate
financial resources available to continue in operational existence
for the foreseeable future and therefore continue to adopt the
going concern basis for preparing the consolidated financial
statements.
The Directors have therefore concluded that it is appropriate to
prepare the consolidated financial statements on a going concern
basis.
(b) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries. Subsidiaries are
consolidated from the date upon which control is transferred to the
Company and cease to be consolidated from the date upon which
control is transferred from the Company.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used
into line with those used by the Company. All intra-group
transactions, balances, income and expenses are eliminated on
consolidation.
(c) Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed and equity instruments
issued by the Group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination. The
acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3
are recognised at their fair value at the acquisition date.
Goodwill
Goodwill arising on the consolidation represents the excess of
the cost of the acquisition over the Company's interest in the fair
value of the identifiable assets and liabilities of a subsidiary at
the date of acquisition. Any excess of the Company's interest in
the fair value of the identifiable assets and liabilities over the
cost of the acquisition (negative goodwill) is immediately
recognised in the Consolidated statement of profit or loss.
Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less any accumulated impairment
losses. Goodwill which is recognised as an asset is reviewed at
least annually for impairment. Any impairment is recognised
immediately in the Consolidated statement of profit or loss.
Impairment of intangible assets
At each reporting date the Group reviews the carrying amounts of
its intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss, if
any.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have been adjusted.
If the recoverable amount of an asset is estimated to be less
than its carrying amount, the carrying amount of the asset is
reduced to its recoverable amount. An impairment loss is recognised
as an expense immediately, unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as
a revaluation decrease.
(d) Foreign currency translation
The consolidated financial statements are expressed in US
dollars. Transactions denominated in currencies other than US
dollars have been translated at the rate of exchange prevailing at
the date of the transaction. Assets and liabilities in other
currencies are translated to US dollars at the rates of exchange
prevailing at the reporting date. The resulting profits or losses
are reflected in the Consolidated statement of profit or loss.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations are
translated at exchange rates prevailing on the reporting date.
Income and expense items are translated at the average exchange
rates for the year. Exchange differences arising, if any, are
classified as equity and transferred to the Group's foreign
currency translation reserve.
(e) Revenue
Revenue is recognised to the extent that it is probable that
economic benefit will flow to the Group and the revenue can be
reliably measured.
Management and incentive fees receivable
The Group recognises revenue for providing management services
to funds. Revenue is accrued on a monthly basis on completion of
management services. In the Argo funds revenue is based on the
assets under management of each mutual fund and in the Argo Real
Estate Opportunities Fund Limited ("AREOF") (managed by Argo
Capital Management Property Limited) revenue is based on the gross
proceeds of share placements.
Incentive fees arise monthly, quarterly or on realisation of an
investment. Incentive fees are recognised in the month they arise.
In addition, AREOF incentive fees may be triggered at any time on
realisation of a property asset. The management and incentive fees
receivable from AREOF are defined in the management contract
between that company and Argo Capital Management Property
Limited.
The Group has provided AREOF with a notice of deferral in
relation to the amounts due from the provision of investment
management services, under which it will not demand payment of such
amounts until the Group judges that AREOF is in a position to pay
the outstanding liability. In November 2013 AREOF offered Argo
Group Limited additional security for the continued support in the
form of debentures and guarantees by underlying intermediate
companies.
(f) Depreciation
Plant and equipment is initially recorded at cost and
depreciated on a straight-line basis over the expected useful lives
of the assets, after taking into account the assets' residual
values, as follows:
Leasehold 20% per annum
Fixtures and fittings 33 1/3% per annum
Office equipment 33 1/3% per annum
Computer equipment and software 33 1/3% per annum
(g) IFRS 9 "Financial instruments"
IFRS 9 "Financial instruments" replaces the provisions of IAS 39
that relate to recognition and derecognition of financial
instruments and classification and measurement of financial assets
and financial liabilities. IFRS 9 further introduces new principles
for hedge accounting and a new forward--looking impairment model
for financial assets.
The new standard requires debt financial assets to be classified
into two measurement categories: those to be measured subsequently
at fair value (either through other comprehensive income (FVOCI) or
through profit or loss (either FVTPL or FVPL) and those to be
measured at amortized cost. The determination is made at initial
recognition. For debt financial assets the classification depends
on the entity's business model for managing its financial
instruments and the contractual cash flows characteristics of the
instruments. For equity financial assets it depends on the entity's
intentions and designation.
In particular, assets that are held for collection of
contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortised cost.
Assets that are held for collection of contractual cash flows and
for selling the financial assets, where the assets' cash flows
represent solely payments of principal and interest, are measured
at fair value through other comprehensive income. Lastly, assets
that do not meet the criteria for amortised cost or fair value
through other comprehensive income are measured at fair value
through profit or loss.
For investments in equity instruments that are not held for
trading, the classification depends on whether the entity has made
an irrevocable election at the time of initial recognition to
account for the equity investment at fair value through other
comprehensive income. If no such election has been made or the
investments in equity instruments are held for trading they are
required to be classified at fair value through profit or loss.
IFRS 9 also introduces a single impairment model applicable for
debt instruments at amortised cost and fair value through other
comprehensive income and removes the need for a triggering event to
be necessary for recognition of impairment losses. The new
impairment model under IFRS 9 requires the recognition of
allowances for doubtful debts based on expected credit losses
(ECL), rather than incurred credit losses as under IAS 39. The
standard further introduces a simplified approach for calculating
impairment on trade receivables as well as for calculating
impairment on contract assets and lease receivables; which also
fall within the scope of the impairment requirements of IFRS 9.
For financial liabilities, the standard retains most of the
requirements of IAS 39. The main change is that, in case where the
fair value option is taken for financial liabilities, the part of a
fair value change due to the entity's own credit risk is recorded
in other comprehensive income rather than in profit or loss, unless
this creates an accounting mismatch.
The Group has adopted IFRS 9 with a date of transition of 1
January 2018, which resulted in changes in accounting policies for
recognition, classification and measurement of financial assets and
liabilities and impairment of financial assets.
(h) Trade date accounting
All 'regular way' purchases and sales of financial assets are
recognised on the 'trade date', i.e. the date that the entity
commits to purchase or sell the asset. Regular way purchases or
sales are purchases or sales of financial assets that require
delivery of the asset within the time frame generally established
by regulation or convention in the market place.
(i) Financial instruments
Financial assets - Classification
From 1 January 2018, the Group classifies its financial assets
in the following measurement categories:
-- those to be measured subsequently at fair value (either
through OCI or through profit or loss), and
-- those to be measured at amortised cost
The classification and subsequent measurement of debt financial
assets depends on: (i) the Group's business model for managing the
related assets portfolio and (ii) the cash flow characteristics of
the asset. On initial recognition, the Group may irrevocably
designate a debt financial asset that otherwise meets the
requirements to be measured at amortized cost or at FVOCI at FVTPL
if doing so eliminates or significantly reduces an accounting
mismatch that would otherwise arise.
All other financial assets are classified as measured at
FVTPL.
For assets measured at fair value, gains and losses will either
be recorded in profit or loss or OCI. For investments in equity
instruments that are not held for trading, this will depend on
whether the Group has made an irrevocable election at the time of
initial recognition to account for the equity investment at fair
value through other comprehensive income (FVOCI).
Currently the Group holds only investments which have been
classified as financial assets at fair value through profit or
loss. Investments held at fair value in managed mutual funds are
valued at fair value of the net assets as provided by the
administrators of those funds. Where funds contain level 3 assets
the Directors will consider the carrying value based on information
regarding future expected cash flows using appropriate valuation
techniques such as discounted cash flow analysis. Investments in
the management shares of The Argo Fund Limited, Argo Distressed
Credit Fund Limited and Argo Special Situations Fund LP are stated
at fair value, being the recoverable amount. The Argo Fund can no
longer trade in Level 3 assets under the terms of its new
prospectus dated 1 March 2016.
Financial assets - Measurement
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at fair
value through profit or loss (FVTPL), transaction costs that are
directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVTPL are expensed
in profit or loss. Fair value at initial recognition is best
evidenced by the transaction price. A gain or loss on initial
recognition is only recorded if there is a difference between fair
value and transaction price which can be evidenced by other
observable current market transactions in the same instrument or by
a valuation technique whose inputs include only data from
observable markets.
Financial assets -- impairment -- credit loss allowance for
ECL
From 1 January 2018, the Group assesses on a forward--looking
basis the ECL for debt instruments (including loans) measured at
Amortized Cost and FVOCI and with the exposure arising from loan
commitments and financial guarantee contracts. The Group measures
ECL and recognises credit loss allowance at each reporting date.
The measurement of ECL reflects: (i) an unbiased and probability
weighted amount that is determined by evaluating a range of
possible outcomes, (ii) time value of money and (iii) all
reasonable and supportable information that is available without
undue cost and effort at the end of each reporting period about
past events, current conditions and forecasts of future
conditions.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash
equivalents comprise cash at bank. Cash and cash equivalents are
carried at Amortized Cost because: (i) they are held for collection
of contractual cash flows and those cash flows represent SPPI, and
(ii) they are not designated at FVTPL.
Financial Liabilities
Financial liabilities are initially recognised at fair value and
classified as subsequently measured at amortised cost, except for
(i) financial liabilities at FVTPL: this classification is applied
to derivatives, financial liabilities held for trading (e.g. short
positions in securities), contingent consideration recognised by an
acquirer in a business combination and other financial liabilities
designated as such at initial recognition and (ii) financial
guarantee contracts and loan commitments.
(j) Loans and borrowings
Loans and borrowings are recognised initially at fair value, net
of transaction costs incurred. Loans and borrowings are
subsequently carried at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption value is
recognised in profit or loss over the period of the borrowings,
using the effective interest method, unless they are directly
attributable to the acquisition, construction or production of a
qualifying asset, in which case they are capitalised as part of the
cost of that asset. Loans and borrowings are classified as current
liabilities, unless the Group has an unconditional right to defer
settlement of the liability for at least twelve months after the
statement of financial position date.
(k) Current taxation
Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amounts are those
enacted or substantively enacted by the reporting date.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
Consolidated statement of profit or loss because it excludes items
of income or expense that are taxable or deductible in other
periods or because it excludes items that are never taxable or
deductible.
(l) Deferred taxation
Deferred income tax is provided for using the liability method
on temporary timing differences at the reporting date between the
tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred tax liabilities are
recognised in full for all temporary differences. Deferred tax
assets are recognised for all deductible temporary differences,
carried forward unused tax credits and unused tax losses to the
extent that it is probable that taxable profit will be available
against which the deductible temporary differences and
carry-forward of unused tax credits and unused losses can be
utilised.
The carrying amount of deferred income tax assets is revalued at
each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each
reporting date and are recognised to the extent that is probable
that future taxable profits will allow the deferred tax asset to be
recovered. Deferred income tax assets and liabilities are measured
at the tax rates that are expected to apply in the year when the
asset is realised or the liability settled, based on tax rates that
have been enacted or substantively enacted at the reporting
date.
(m) Accounting estimates, assumptions and judgements
The preparation of the consolidated financial statements
necessitates the use of estimates, assumptions and judgements.
These estimates, assumptions and judgements affect the reported
amounts of assets, liabilities and contingent liabilities at the
reporting date as well as affecting the reported income and
expenses for the year. Although the estimates are based on
management's knowledge and best judgment of information and
financial data, the actual outcome may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that and prior periods, or in the period of the revision and
future periods if the revision affects both current and future
periods.
In the process of applying the Group's accounting policies,
which are described above, management has made best judgements of
information and financial data that have the most significant
effect on the amounts recognised in the consolidated financial
statements:
- Investments fair value
- Management fees
- Trade receivables
- Going concern
- Loans and advances
It has been assumed that, when available, the audited financial
statements of the funds under the Group's management will confirm
the net asset values used in the calculation of management and
performance fees receivable.
(n) Operating leases
Costs in respect of operating leases are charged on a straight
line basis over the lease term. Benefits, such as rent free
periods, received and receivable as incentives to take on operating
leases are spread on a straight line basis over the lease term, or,
if shorter than the full lease term, over the period to the review
date on which the rent is first expected to be adjusted to the
prevailing market rent.
(o) Financial instruments and fair value hierarchy
The following represents the fair value hierarchy of financial
instruments measured at fair value in the consolidated 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.
(p) Future changes in accounting policies
IASB (International Accounting Standards Board) and IFRIC
(International Financial Reporting Interpretations Committee) have
issued the following standards and interpretations with an
effective date after the date of these financial statements:
(i) Adopted by the EU
EU Effective date
New/Revised International Financial Reporting (accounting periods
Standards (IAS/IFRS) commencing on
or after)
-------------------------------------------------- ----------------------------
IFRS 16 Leases 1 January 2019
Amendments to IFRS 9: Prepayment Features with 1 January 2019
Negative Compensation
IFRIC Interpretation 23 "Uncertainty over Income 1 January 2019
Tax Treatments"
-------------------------------------------------- ----------------------------
(ii) Not adopted by the EU
Effective date
New/Revised International Financial Reporting - not yet endorsed
Standards (IAS/IFRS) by the EU
(accounting periods
commencing on
or after)
-------------------------------------------------- ---------------------
Amendments to IAS 28: Long-term Interests in 1 January 2019
Associates and Joint Ventures
Amendments to IAS 19: Plan Amendment, Curtailment 1 January 2019
or Settlement
Annual Improvements to IFRSs 2015-2017 Cycle 1 January 2019
- various standards
-------------------------------------------------- ---------------------
The Directors do not expect the adoption of these standards and
interpretations to have a material impact on the Group's financial
statements in the period of initial application.
Any standard adopted during the year has presentational impact
only; it is therefore not necessary to adjust comparative
information.
(q) Dividends payable
Interim and final dividends are recognised when declared.
3. SEGMENTAL ANALYSIS
The Group operates as a single asset management business.
The operating results of the companies set out in note 1 above
are regularly reviewed by the Directors for the purposes of making
decisions about resources to be allocated to each company and to
assess performance. The following summary analyses revenues, profit
or loss, assets and liabilities:
Argo Capital Argo Capital
Argo Management Argo Capital Management
Group (Cyprus) Management Property Year ended
Ltd Limited Limited Limited 31 December
2018 2018 2018 2018 2018
US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments - 793 3,172 1,427 5,392
Intersegment
revenues - (793) - - (793)
Total profit/(loss)
for reportable
segments 1,865 (773) (1,726) (602) (1,236)
Intersegment
profit/(loss) 2,800 (1,000) (1,800) - -
Total assets
for reportable
segments 18.709 1,492 1,366 1,882 23,449
Total liabilities
for reportable
segments 38 24 73 45 180
===================== ======== ============= =============== ================= =============
Revenues, profit or loss, assets and liabilities Year ended
may be reconciled as follows:
31 December
2018
US$'000
Revenues
Total revenues for reportable segments 5,392
Elimination of intersegment revenues (793)
================================================== =============
Group revenues 4,599
================================================== =============
Profit or loss
Total loss for reportable segments (1,236)
Other unallocated amounts (-)
================================================== =============
Loss on ordinary activities (1,236)
================================================== =============
Assets
Total assets for reportable segments 24,425
Elimination of intersegment receivables (976)
Group assets 23,449
================================================== =============
Liabilities
Total liabilities for reportable segments 1,156
Elimination of intersegment payables (976)
================================================== =============
Group liabilities 180
================================================== =============
Argo Capital Argo Capital
Argo Management Argo Capital Management
Group (Cyprus) Management Property Year ended
Ltd Limited Limited Limited 31 December
2017 2017 2017 2017 2017
US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments - 2,166 8,660 1,599 12,425
Intersegment
revenues - (2,165) - - (2,165)
Total profit/(loss)
for reportable
segments 2,269 1,276 1,482 (486) 4,541
Intersegment
profit/(loss) - 2,165 (2,165) - -
Total assets
for reportable
segments 15,846 1,107 6,941 2,882 26,776
Total liabilities
for reportable
segments 41 36 1,693 346 2,116
===================== ======== ============= =============== =============== =============
Revenues, profit or loss, assets and liabilities Year ended
may be reconciled as follows:
31 December
2017
US$'000
Revenues
Total revenues for reportable segments 12,425
Elimination of intersegment revenues (2,165)
================================================== =============
Group revenues 10,260
================================================== =============
Profit or loss
Total loss for reportable segments 4,541
Other unallocated amounts (-)
================================================== =============
Profit on ordinary activities 4,541
================================================== =============
Assets
Total assets for reportable segments 29,923
Elimination of intersegment receivables (3,147)
Group assets 26,776
================================================== =============
Liabilities
Total liabilities for reportable segments 5,263
Elimination of intersegment payables (3,147)
================================================== =============
Group liabilities 2,116
================================================== =============
4. EMPLOYEE COSTS
Year ended Year ended
31 December 31 December
2018 2017
US$'000 US$'000
Wages and salaries -under employment
contract 1,977 4,505
Wages and salaries - under service
contract 333 564
Social security costs 214 570
Other 79 89
====================================== ============== ==============
2,603 5,728
====================================== ============== ==============
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to the following:
Year ended Year ended
31 December 31 December
2018 2017
US$'000 US$'000
Directors and key management personnel 1,005 3,247
======================================== ============== ==============
The remuneration of the Directors of the Company for the year
was as follows:
Year ended Year ended
Cash bonus 31 December 31 December
Salaries Fees Benefits 2018 2017
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive
Directors
Kyriakos
Rialas 219 - - - 219 459
Andreas
Rialas 206 - 11 - 217 1,707
Non-Executive
Directors
Michael
Kloter - 52 - - 52 52
David Fisher - 33 - - 33 32
Ken Watterson - 33 - - 33 32
--------------- ------------- ---------- ------------- ------------- -------------- --------------
6. OPERATING (LOSS)/PROFIT
Operating (loss)/profit is stated after charging:
Year ended Year ended
31 December 31 December
2018 2017
US$'000 US$'000
Auditors' remuneration 73 74
Depreciation 12 26
Directors' fees 1,005 3,170
Operating lease 251 203
=========================== ============== ==============
7. TAXATION
Taxation rates applicable to the parent company and the Cypriot,
UK, Luxembourg and Romanian subsidiaries range from 0% to 12.5%
(2017: 0% to 12.5%).
Consolidated statement of profit or loss
Year ended Year ended
31 December 31 December
2018 2017
US$'000 US$'000
Taxation charge for the year on Group
companies 28 194
Tax on profit on ordinary activities 28 194
======================================= ============== ==============
The tax charge for the year can be reconciled to the profit on
ordinary activities before taxation shown in the consolidated
statement of profit or loss as follows:
Year ended Year ended
31 December 31 December
2018 2017
US$'000 US$'000
(Loss)/profit before tax (1,236) 4,735
======================================= ============== ==============
Applicable Isle of Man tax rate for
Argo Group Limited of 0% - -
Timing differences (2) (1)
Non-deductible expenses 6 2
Other adjustments (20) (231)
Tax effect of different tax rates
of subsidiaries operating in
other jurisdictions 44 424
======================================= ============== ==============
Tax charge 28 194
======================================= ============== ==============
Consolidated statement of financial position
At 31 December At 31 December
2018 2017
US$'000 US$'000
Corporation tax (receivable)/payable (5) 19
====================================== =============== ===============
8. EARNINGS PER SHARE
The Company presents basic and diluted earnings per share (EPS)
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares
outstanding during the period. Diluted EPS is determined by
dividing the profit or loss attributable to ordinary shareholders
of the Company by the weighted average number of ordinary shares
outstanding, adjusted for the effects of all dilutive potential
ordinary shares (see note 21).
Year ended Year ended
31 December 31 December
2018 2017
US$'000 US$'000
(Loss)/profit for the year after
taxation attributable to members (1,236) 4,541
===================================== ============== ==============
No. of No. of
Shares Shares
Weighted average number of ordinary
shares for basic earnings
per share 47,032,878 47,307,615
Effect of dilution (note 21) 4,340,000 4,340,000
===================================== ============== ==============
Weighted average number of ordinary
shares for diluted earnings per
share 51,372,878 51,647,615
===================================== ============== ==============
Year ended Year ended
31 December 31 December
2018 2017
US$ US$
Earnings per share (basic) (0.03) 0.10
Earnings per share (diluted) (0.02) 0.09
============================== ============== ==============
9. LAND, FIXTURES, FITTINGS AND EQUIPMENT
Fixtures, Land Total
fittings
& equipment
US$'000 US$'000 US$'000
Cost
At 1 January 2017 250 - 250
Additions 4 193 197
Disposals - - -
Foreign exchange movement 15 - 15
================================ ============= ========== ========
At 31 December 2017 269 193 462
Additions 8 - 8
Disposals - - -
Foreign exchange movement (11) (9) (20)
================================ ============= ========== ========
At 31 December 2018 266 184 450
================================ ============= ========== ========
Accumulated Depreciation
At 1 January 2017 200 - 200
Depreciation charge for period 26 - 26
Disposals - - -
Foreign exchange movement 9 - 9
================================ ============= ========== ========
At 31 December 2017 235 - 235
Depreciation charge for period 12 - 12
Disposals - - -
Foreign exchange movement (9) - (9)
================================ ============= ========== ========
At 31 December 2018 238 - 238
================================ ============= ========== ========
Net book value
At 31 December 2017 34 193 227
================================ ============= ========== ========
At 31 December 2018 28 184 212
================================ ============= ========== ========
10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 31 December
2018 2018
Holding Investment in management Total cost Fair value
shares
US$'000 US$'000
10 The Argo Fund Ltd - -
100 Argo Distressed Credit - -
Fund Ltd
1 Argo Special Situations - -
Fund LP
- -
======== ========================= ============== ==============
Holding Investment in ordinary Total cost Fair value
shares
US$'000 US$'000
57,309 The Argo Fund Ltd* 15,472 18,193
Argo Real Estate Opportunities
30,056,500 Fund Ltd 988 119
Argo Special Situations
115 Fund LP 115 40
- Argo Distressed Credit - -
Fund Limited*
16,575 18,352
=========== ================================= =============== ====== ===============
31 December 31 December
2017 2017
Holding Investment in management Total cost Fair value
shares
US$'000 US$'000
10 The Argo Fund Ltd - -
100 Argo Distressed Credit - -
Fund Ltd
1 Argo Special Situations - -
Fund LP
- -
======== ========================= ============== ==============
Holding Investment in ordinary Total cost Fair value
shares
US$'000 US$'000
31,636 The Argo Fund Ltd* 7,159 10,644
Argo Real Estate Opportunities
10,899,021 Fund Ltd 988 119
Argo Special Situations
115 Fund LLP 115 32
Argo Distressed Credit
1,262 Fund Limited* 2,000 4 4,156
10,262 14,951
=========== =============================== ============= ==== =============
*Classified as current in the consolidated statement of
financial position
In January 2018, the Group invested a further US$4 million in
ADCF. In September 2018, the settlement from the leasing of a
catalyst to an Indonesian Refinery in ADCF generated liquidity in
that fund and the Group redeemed its investment of US$8.3 million
in October 2018. These proceeds were immediately reinvested in
TAF.
11. TRADE AND OTHER RECEIVABLES
At 31 December At 31 December
2018 2017
US$ '000 US$ '000
Trade receivables - Gross 9,752 14,489
Less: provision for impairment
of trade receivables (9,188) (8,264)
-------------------------------- ----------------- -----------------
Trade receivables - Net 564 6,225
Other receivables 111 110
Prepayments and accrued income 82 107
================================ ================= =================
757 6,442
================================ ================= =================
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value. All trade
receivable balances are recoverable within one year from the
reporting date except as disclosed below. Since the year end the
Group received US$0.6million as part settlement of these trade
receivables.
The Group has provided AREOF with a notice of deferral in
relation to amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2018 total US$nil (2017: US$nil) after a bad debt
provision of US$8.9 million (EUR7.8 million) (2017: US$8.2 million
(EUR6.8 million)). AREOF continues to meet part of this obligation
to the Argo Group as and when liquidity allows.
In November 2013 AREOF offered Argo Group Limited additional
security for the continued support in the form of debentures and
guarantees by underlying intermediate companies. In the Directors'
view these amounts are fully recoverable although they have
concluded that it would not be appropriate to continue to recognise
income from these investment management services going forward, as
the timing of such receipts may be outside the control of the
Company and AREOF.
The movement in the Group's provision for impairment of trade
and loan receivables is as follows:
At 31 December At 31 December
2018 2017
US$ '000 US$ '000
As at 1 January 10,992 8,626
Bad debt recovered - (577)
Provision charged during the year 1,350 1,687
Foreign exchange movement (539) 1,256
As at 31 December 11,803 10,992
=================================== ================= =================
12. LOANS AND ADVANCES RECEIVABLE
At 31 December At 31 December
2018 2017
US$'000 US$'000
Deposits on leased premises - current 14 -
Deposits on leased premises - non-current
(see below) 104 125
Other loans and advances receivable - -
- current
Other loans and advances receivable - -
- non-current
============================================= =================== =========================
118 125
============================================= =================== =========================
The deposits on leased premises are retained by the lessor until
vacation of the premises at the end of the lease term as
follows:
At 31 December At 31 December
2018 2017
US$'000 US$'000
Current:
Lease expiring within one year 14 -
================================= ================== ==================
At 31 December At 31 December
2018 2017
US$'000 US$'000
Non-current:
Lease expiring in second year
after the reporting date - 15
Lease expiring in fourth year 104 -
after the reporting date
Lease expiring in fifth year
after the reporting date - 110
104 125
=============================== ================== ==================
13. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is a balance of US$23,000
(EUR20,000) (2017: US$24,000) which represents a bank guarantee in
respect of credit cards issued to Argo Capital Management Property
Limited. Due to the nature of this balance it is not freely
available.
14. SHARE CAPITAL
The Company's authorised share capital is unlimited ordinary
shares with a nominal value of US$0.01.
31 December 31 December 31 December 31 December
2018 2018 2017 2017
No. US$'000 No. US$'000
Issued and fully paid
Ordinary shares of
US$0.01 each 47,032,878 470 48,032,878 470
======================= ============= ============ =============== ===============
47,032,878 470 47,032,878 470
======================= ============= ============ =============== ===============
The Directors do not recommend the payment of a final dividend
for the year ended 31 December 2018 (31 December 2017: US$nil).
During 2017, the Directors authorised the repurchase of
1,065,616 shares at a total cost of USD$0.2 million.
15. TRADE AND OTHER PAYABLES
At 31 December At 31 December
2018 2017
US$ '000 US$ '000
Trade and other payables 15 4
Other creditors and accruals 165 2,093
============================== =============== ===============
180 2,097
============================== =============== ===============
Trade and other payables are normally settled on 30-day
terms.
16. OBLIGATIONS UNDER OPERATING LEASES
Operating lease payments represent rentals payable by the Group
for certain of its business premises. The leases have no escalation
clauses or renewal or purchase options and no restrictions imposed
on them.
As at the reporting date, the Group had outstanding future
minimum lease payments under non-cancellable operating leases,
which fall due as follows:
At 31 December At 31 December
2018 2017
US$ '000 US$ '000
Operating lease liabilities:
Within one year 223 252
In the second to fifth years
inclusive 414 655
================================ =============== ===============
Present value of minimum lease
payments 637 907
================================ =============== ===============
17. RECONCILIATION OF NET CASH OUTLOW FROM OPERATING ACTIVITIES TO
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended
31 December 31 December
2018 2017
US$ '000 US$ '000
(Loss)/profit on ordinary activities
before taxation (1,236) 4,735
Interest income (194) (200)
Depreciation 12 26
(Decrease)/increase in payables (1,917) 414
Decrease/increase in receivables 5,863 (3,188)
Decrease/(increase) in fair
value of current asset investments 600 (2,550)
Net foreign exchange loss 31 31
Income taxes paid (47) (201)
====================================== ============== ==============
Net cash inflow/(outflow) from
operating activities 3,136 (933)
====================================== ============== ==============
18. RELATED PARTY TRANSACTIONS
All Group revenues derive from funds or entities in which two of
the Company's directors, Andreas Rialas and Kyriakos Rialas, have
an influence through directorships and the provision of investment
services.
At the reporting 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 consolidated financial statements at a fair value
of US$18.2 million, US$0.1 million, and US$0.04 million
respectively.
The Group has provided AREOF with a notice of deferral in
relation to amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2018 total US$nil (2017: US$nil) after a bad debt
provision of US$8.9 million. (EUR7.8 million) (2017: US$8.2 million
(EUR6.8 million)). AREOF continues to meet part of this obligation
to the Argo Group as and when liquidity allows. In November 2013,
AREOF offered Argo Group Limited additional security for the
continued support in the form of debentures and guarantees by
underlying intermediate companies. Argo Group Limited retains this
additional security.
At the year end, Argo Group was owed loans repayable on demand
of US$2.2 million (EUR1.9 million) (2017: US$2.0 million, EUR1.7
million) by AREOF accruing interest at 10%. The company was also
owed a further amount of US$0.4 million (EUR0.4 million) (2017:
US$0.7 million, EUR0.6 million) for expenses it paid on behalf of
AREOF Group entities. A full provision has been made in the
consolidated financial statements against this balance at the
current and prior year end.
David Fisher, a non-executive director of the Company, is also a
non-executive director of AREOF.
19. FINANCIAL INSTRUMENTS RISK MANAGEMENT
(a) Use of financial instruments
The wider Group has maintained sufficient cash reserves not to
use alternative financial instruments to finance the Group's
operations. The Group has various financial assets and liabilities
such as trade and other receivables, loans and advances, cash,
short-term deposits, and trade and other payables which arise
directly from its operations.
The Group's non-subsidiary investments in funds were entered
into with the purpose of providing seed capital, supporting
liquidity and demonstrating the commitment of the Group towards its
fund investors.
(b) Market risk
Market risk is the risk that a decline in the value of assets
adversely impacts on the profitability of the Group, either as a
result of an asset not meeting its expected value or through the
decline of assets under management generating lower fees. The
principal exposures of the Group are in respect of its seed
investments in its own funds (refer to note 10). Lower management
fee and incentive fee revenues could result from a reduction in
asset values.
(c) Capital risk management
The primary objective of the Group's capital management is to
ensure that the Company has sufficient cash and cash equivalents on
hand to finance its ongoing operations. This is achieved by
ensuring that trade receivables are collected on a timely basis and
that excess liquidity is invested in an optimum manner by placing
fixed short-term deposits or using interest bearing bank
accounts.
At the year-end cash balances were held at Royal Bank of
Scotland, Bank of Cyprus and Bancpost.
(d) Credit/counterparty risk
The Group will be exposed to counterparty risk on parties with
whom it trades and will bear the risk of settlement default. Credit
risk is concentrated in the funds under management and in which the
Group holds significant investments as detailed in notes 10, 11 and
13. As explained within these notes the Group is experiencing
collection delays with regard to management fees receivable and
monies advanced. Some of the investments in funds under management
(note 10) are illiquid and may be subject to events materially
impacting recoverable value.
The Group's principal financial assets are bank and cash
balances, trade and other receivables and investments held at fair
value through profit or loss. These represent the Company's maximum
exposure to credit risk in relation to financial assets and are
represented by the carrying amount of each financial asset in the
statement of financial position.
At the reporting date, the financial net assets past due but not
impaired amounted to US$nil (2017: US$nil).
e) Liquidity risk
Liquidity risk is the risk that the Group may be unable to meet
its payment obligations. This would be the risk of insufficient
cash resources and liquid assets, including bank facilities, being
available to meet liabilities as they fall due.
The main liquidity risks of the Group are associated with the
need to satisfy payments to creditors. Trade payables are normally
on 30-day terms (note 15).
As disclosed in note 2(a), Accounting Convention: Going Concern,
the Group has performed an assessment of available liquidity to
meet liabilities as they fall due during the forecast period. The
Group has concluded that it has sufficient resources available to
manage its liquidity risk during the forecast period.
(f) Foreign exchange risk
Foreign exchange risk is the risk that the Group will sustain
losses through adverse movements in currency exchange rates.
The Group is subject to short-term foreign exchange movements
between the calculation date of fees in currencies other than US
dollars and the date of settlement. The Group holds cash balances
in US Dollars, Sterling, Romanian Lei and Euros with carrying
amounts as follows: US dollar - US$2.3 million, Sterling - US$0.1
million and Euros - US$1.6 million.
If there was a 5% increase or decrease in the exchange rate
between the US dollar and the other operating currencies used by
the Group at 31 December 2018 the exposure would be a profit or
loss to the Consolidated statement of comprehensive income of
approximately US$0.1 million (2017: US$0.1 million).
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2018 is as
follows:
Instruments
Total as Variable Fixed interest on which
per balance interest rate instruments no interest
sheet rate instruments* is receivable
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets at
fair value
through profit or
loss 18,352 - - 18,352
Loans and receivables 880 104 - 776
Cash and cash equivalents 4,005 41 2,256 1,708
=========================== ============== ==================== =================== =================
23,237 145 2,256 20,839
=========================== ============== ==================== =================== =================
Financial liabilities
Trade and other payables 180 - - 180
=========================== ============== ==================== =================== =================
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 1.05%. Any
movement in interest rates would have an immaterial effect on the
profit/(loss) for the year.
The interest rate profile of the Group at 31 December 2017 is as
follows:
Instruments
Total as Variable Fixed interest on which
per balance interest rate instruments no interest
sheet rate instruments* is receivable
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets at
fair value
through profit or
loss 14,951 - - 14,951
Loans and receivables 6,567 125 - 6,442
Cash and cash equivalents 5,031 265 2,098 2,668
=========================== ============== ==================== =================== ===============
26,549 390 2,098 24,061
=========================== ============== ==================== =================== ===============
Financial liabilities
Trade and other payables 2.097 - - 2,097
=========================== ============== ==================== =================== ===============
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 1.09%. Any
movement in interest rates would have an immaterial effect on the
profit/(loss) for the year.
(h) Fair value
The carrying values of the financial assets and liabilities
approximate the fair value of the financial assets and liabilities
and can be summarised as follows:
At 31 December At 31 December
2018 2017
US$ '000 US$ '000
Financial Assets
Financial assets at fair value
through profit or loss 18,352 14,951
Loans and receivables 880 6,567
Cash and cash equivalents 4,005 5,031
================================= ================= =================
23,237 26,549
================================ ================= =================
Financial Liabilities
Trade and other payables 180 2,097
================================= ================= =================
Financial assets and liabilities, other than investments, are
either repayable on demand or have short repayment dates. The fair
value of investments is stated at the redemption prices quoted by
fund administrators and are based on the fair value of the
underlying net assets of the funds because, although the funds are
quoted, there is no active market for any of the investments
held.
Fair value hierarchy
The table below analyses financial instruments measured at fair
value at the end of the reporting period by the level of the fair
value hierarchy (note 2o).
At 31 December 2018
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value through
profit or loss - 18,193 159 18,352
========================== ========== ========= ========= =========
At 31 December 2017
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value through
profit or loss - 14,800 151 14,951
======================== ========== ========= ========= =========
The following table shows a reconciliation from the opening
balances to the closing balances for fair value measurements in
Level 3 of the fair value hierarchy:
Unlisted Listed open
closed ended ended investment
investment fund
fund Emerging markets
Real Estate Total
US$ '000 US$ '000 US$ '000
Balance as at 1 January
2018 119 32 151
Total losses recognized
in profit or loss - 8 8
Purchases - - -
Sales - - -
Transfer to level 2 - - -
Balance as at 31 December
2018 119 40 159
=========================== ========================= ==================== =========
20. EVENTS AFTER THE REPORTING DATE
The Board will make a separate announcement on 7 March 2019
regarding a return of capital to shareholders via a buyback of
shares. The Board intends to use up to GBP2.5 million to acquire
Ordinary Shares.
21. SHARE-BASED INCENTIVE PLANS
On 14 March 2011 the Group granted options over 5,900,000 shares
to directors and employees under The Argo Group Limited Employee
Stock Option Plan. The options are exercisable in at an exercise
price of 24p per share within 10 years of the grant date.
The fair value of the options granted was measured at the grant
date using a Black-Scholes model that takes into account the effect
of certain financial assumptions, including the option exercise
price, current share price and volatility, dividend yield and the
risk-free interest rate. The fair value of the options granted is
spread over the vesting period of the scheme and the value is
adjusted to reflect the actual number of shares that are expected
to vest.
The principal assumptions for valuing the options were:
Exercise price (pence) 24.0
Weighted average share price
at grant date (pence) 17.0
Weighted average option life
at grant date (years) 10.0
Expected volatility (% p.a.) 15.0
Dividend yield (% p.a.) 10.0
Risk-free interest rate (% p.a.) 0.907
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 GBPnil
(2017: GBPnil).
The number and weighted average exercise price of the share
options during the period is as follows:
Weighted average No. of share
exercise price options
Outstanding at beginning of period 24.0p 4,340,000
Granted during the period 24.0p -
Forfeited during the period 24.0p -
==================================== ================= =============
Outstanding at end of period 24.0p 4,340,000
==================================== ================= =============
Exercisable at end of period 24.0p 4,340,000
==================================== ================= =============
The options outstanding at 31 December 2018 have an exercise
price of 24p and a weighted average contractual life of 3 years.
Outstanding share options are contingent upon the option holder
remaining an employee of the Group.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UNSBRKNAORAR
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