TIDMARGO
RNS Number : 9448Q
ARGO Group Limited
22 April 2009
?
Argo Group Limited
("Argo" or the "Company")
Preliminary Results for the Period ended 31 December 2008
Argo today announces its preliminary results for the period ended 31 December
2008.
The Company will today send to its shareholders its report and accounts for the
period ended 31 December 2008, which are also available at the Company's website
www.argogrouplimited.com.
Key Highlights for the period 14 February 2008 to 31 December 2008
* Revenues of USD16.6 million
* Operating profit of USD9.3 million
* Returns from the Group's two flagship funds each dropped by -39.86% and -26.88%
last year though this was in line with emerging market benchmarks
* The Argo Global Special Situations Fund was voted best Single Manager in
Emerging Markets by HFMWeek magazine in May 2008
* The successful launch of a new fund to profit from fresh market opportunities
* The acquisition of the Argo business and subsequent admission to AIM
* Successful completion of the development of two retail parks in Romania and
further progress on a commercial development project in Ukraine
Commenting on the results and outlook, Kyriakos Rialas, Chief Executive of Argo
said:
"Against an uncharacteristically difficult operating environment, the Company
has delivered satisfactory results for the period 14 February 2008 to 31
December 2008. Trading conditions were especially trying during the second half
of the Company's financial period with credit markets all but seizing up
following the collapse of Lehman Brothers in September. However, given Argo's
experience in trading through periods of financial crises, we were able to react
rapidly to the changing market conditions and positioned ourselves accordingly
by taking a number of prudent measures to protect the Group's Funds from further
NAV losses.
Going forward, we anticipate seeing a rising number of opportunities to
outperform, particularly as demand for credit as an asset class grows and
emerging markets, bolstered by their relatively strong fundamentals, begin to
stage a recovery."
Enquiries
Argo Group Limited
Andreas Rialas
Shamillia Sivathambu
020 7535 4000
Panmure Gordon
Dominic Morley
020 7459 3600
Chairman's statement
Key Highlights for the period 14 February 2008 to 31 December 2008
* Revenues of USD16.6 million
* Operating profit of USD9.3 million
* Returns from the Group's two flagship funds each dropped by -39.86% and -26.88%
last year though this was in line with emerging market benchmarks
* The Argo Global Special Situations Fund was voted best Single Manager in
Emerging Markets by HFMWeek magazine in May 2008
* The successful launch of a new fund to profit from fresh market opportunities
* The acquisition of the Argo business and subsequent admission to AIM
* Successful completion of the development of two retail parks in Romania and
further progress on a commercial development project in Ukraine
Introduction
Argo is pleased to report steady revenues and operating profits against an
uncharacteristically difficult trading environment. The Company was incorporated
in February 2008 in the Isle of Man and, having acquired the Argo business,
successfully listed on the AIM market in November 2008.
Argo's primary business is to deliver a diversified approach to investing in
emerging markets. Its investment objective is to provide investors with absolute
returns in the five funds that it manages by investing in, inter alia, fixed
income, special situations, local currencies and interest rate strategies,
private equity, real estate, quoted equities, high yield corporate debt and
distressed debt, although not every fund invests in each of these asset classes.
Argo has a performance track record dating back to 2000.
Financial performance
For the period between 14 February 2008 (date of incorporation) to 31 December
2008, the Group generated revenues of USD16.6million with management and
performance fees accounting for USD9.0 million and USD7.5 million, respectively.
The Group had an operating profit of USD9.3 million and profit after tax of
USD6.8 million. Earnings per share were USD0.09.
2008 has been a year of two halves, with the first six months characterised by
high growth in terms of performance fees and assets under management ("AUM"),
which rose to above USD1 billion. Conversely, the second half of 2008,
especially following the collapse of Lehman Brothers on 15 September, saw
redemptions, a fall in management fees and greatly reduced performance fees.
Argo's AUM was USD664.4 million as at 31 December 2008.
Market background
The second half of 2008 was a period of extreme turbulence for global financial
markets, which went into a tailspin following the collapse of Lehman Brothers in
mid-September. The challenging market conditions had an adverse effect on the
hedge fund industry, which was dealt a double blow in the form of falling
investment returns and reduced access to leverage.
According to industry reports, hedge funds suffered their worst ever returns and
significant asset outflows last year. Virtually all hedge funds focused on
emerging markets reported significant losses last year while some were forced to
liquidate their portfolios altogether. The HFRX Total Emerging Markets Index was
down 25.08% in 2008 while the Dow Jones World Emerging Markets Index was down
56.33 % over the same period.
While the crisis did not originate in emerging markets, nevertheless these
economies suffered massive liquidity withdrawals with investors repatriating
capital from markets traditionally perceived as riskier. However, we believe
that many emerging market economies have relatively strong economic
fundamentals, putting them in a position to stage a recovery from the current
market deterioration. Most emerging market countries have in recent years
improved their current account surpluses, built healthy foreign exchange
reserves and run comparatively low debt/GDP ratios. So far in 2009, emerging
markets have shown their ability to rebound faster than many developed markets.
Operational review
The Group successfully acquired the Argo businesses from its previous holding
company, Absolute Capital Management Holdings Limited on 13 June 2008. At the
time of the acquisition, the Company undertook to list the Group on AIM within
six months from the date of the acquisition. This commitment was made in order
to offer existing shareholders greater liquidity and transparency. The Company
kept to its undertaking despite the turmoil in the markets and floated on AIM on
18 November 2008.
In May 2008, the Argo Global Special Situations Fund SP ("AGSSF"), which is a
segregated portfolio of the Argo Capital Investors Fund SPC, was voted "Best
Single Manager in Emerging Markets" by HFMWeek magazine and nominated "Best
Event Driven Hedge Fund on a Risk Adjusted Basis" by Hedge Funds Review
magazine. The Argo Fund Limited ("TAF") was nominated "Best Fixed Income Hedge
Fund on a Risk Adjusted Basis" over the same period by Hedge Funds Review
magazine.
To enhance its product offering and satisfy investor demand for a diversified
fund, Argo launched its fifth fund during the period. The Argo Multi Strategy
Fund ("AMSF") was launched in September 2008 as a multi-asset class portfolio to
give investors further diversification and greater exposure to Argo's best ideas
and competencies. It is the Company's intention to rename the Fund the Argo
Distressed Credit Fund to better reflect its current investment mandate.
Although the Fund began trading at a difficult time, it was well positioned to
capitalise on the many dislocated credit opportunities that emerged in the later
part of last year.
To protect the interest of all TAF shareholders against the significant
deterioration in global markets during the second half of 2008, the Fund's board
of directors decided to implement a 'gate' on redemptions effective 19 November
2008. Under the terms of the gate, the Fund would meet redemption requests
amounting to 10% of TAF's total number of shares at each next dealing date until
all redemptions are satisfied. By deferring redemptions, the Company was able to
provide liquidity to investors while protecting the Fund from engaging in
forced selling, which would have only served to diminish returns further.
In a further prudent step to protect the interest of all investors, AGSSF's
board of directors initially took steps to defer redemptions facing AGSSF. In
line with the Fund's Offering Memorandum, a gate can be triggered when
redemption requests exceed 20% of the Fund's total number of shares. Under the
terms of the gate, which was implemented on 27 January 2009, AGSSF would satisfy
redemption requests amounting to 20% of its net asset value ("NAV") at the first
dealing date and 10% thereafter.
However, following the announcement of AGSSF's gate, further redemption requests
amounting to around 30% of the Fund's assets were received. As a result, the
Fund's board of directors approved the launch of a new subsidiary, AGSSF
Holdings Limited ("AHL") to hold approximately 40% of AGSSF's existing net
assets. This represents assets that are currently more difficult to liquidate.
Redemptions received would be satisfied in a mixture of cash and shares in AHL.
AHL is managed by Argo Capital Management (Cyprus) Limited, a subsidiary of
Argo.
The directors of both Funds, in coordination with the administrator HSBC, have
written to the relevant fund investors providing them with detailed information
pertaining to the implementation of the gates and the creation of AHL.
Fund performance
Performance across the range of Argo Funds was mixed last year. All the Funds
performed well in the first half of 2008 but experienced losses in the second
half of the year comparable with the rest of the industry. Argo reacted swiftly
to the market dislocation by rebalancing the portfolios, holding onto the Funds'
low leveraged assets that were expected to rebound faster and the higher beta
assets that were oversold. The Group also increased efforts to generate interest
in the Funds' less liquid assets. Additionally, the Company repositioned the
Argo Funds so as to allow them to capitalise on the market's dislocation and
eventual recovery.
AMSF, a new fund which began trading in October 2008, performed relatively
well. Despite making some investments prior to the October collapse, the Fund
was able to take advantage of the many dislocated credit opportunities that the
market threw up in the later part of 2008.
Argo Funds
+-----------------+-------------+------------+-----------------+------------------------+--------------+-------------+--------+
| Fund | Launch date | 2008 | Since inception | Annualised performance | Sharpe ratio | Down months | AUM |
| | | Year total | | | | | |
+-----------------+-------------+------------+-----------------+------------------------+--------------+-------------+--------+
| | | % | % | CAGR % | | | US$m |
+-----------------+-------------+------------+-----------------+------------------------+--------------+-------------+--------+
| The Argo Fund | Oct-00 | -39.86 | 92.37 | 9.24 | 0.47 | 10 of | 187.7 |
| | | | | | | 99 | |
+-----------------+-------------+------------+-----------------+------------------------+--------------+-------------+--------+
| Argo Global | Aug-04 | -26.88 | 21.47 | 5.22 | 0.18 | 11 of | 237.5 |
| Special | | | | | | 53 | |
| Situations Fund | | | | | | | |
+-----------------+-------------+------------+-----------------+------------------------+--------------+-------------+--------+
| Argo | Oct-08 | 0.49 | 0.49 | 2.15 | -0.14 | 1 of 3 | 13.3 |
| Multi-Strategy | | | | | | | |
| Fund | | | | | | | |
+-----------------+-------------+------------+-----------------+------------------------+--------------+-------------+--------+
| Argo Real | Aug-06 | -2.13 | 27.69 | 10.6 | n/a | 6 of | 152.7 |
| Estate | | | | | | 30* | |
| Opportunities | | | | | | | |
| Fund | | | | | | | |
+-----------------+-------------+------------+-----------------+------------------------+--------------+-------------+--------+
| Argo Capital | Aug-06 | -37.51 | 41.67 | 16.1 | n/a | n/a | 73.16 |
| Partners Fund | | | | | | | |
+-----------------+-------------+------------+-----------------+------------------------+--------------+-------------+--------+
| Total | | | | | | | 664.36 |
+-----------------+-------------+------------+-----------------+------------------------+--------------+-------------+--------+
* NAV only officially measured twice a year, March and September.
The Argo Real Estate Opportunities Fund Limited ("AREOF") continued to make
progress on its three main retail centre developments last year. During the
year, the construction of the 4,000 sqm extension to the original 47,000 sqm
European Retail Park in Sibiu, Romania, was completed and leased to
international retailers with a further 30,000 sqm extension undertaken,
subsequently completed and re-launched in November 2008. The construction of the
Suceava Shopping City joint venture development project in Suceava, Romania, was
also completed on schedule and on budget in April 2008. In addition, Phase 1 of
the 83,000 sqm hypermarket-anchored retail park and shopping center,
Riviera Shopping City in Odessa, Ukraine, began construction in January 2008.
The development is 70% complete and on course to finish between the first
quarter and summer of 2009.
As at 30 September 2008 (the most recent audited year end accounts), AREOF
reported an adjusted NAV of EUR122.6 million and an annual return of -2.13%.
Meanwhile, the Argo Capital Partners Fund experienced a substantial write down
in the value of its assets last year, reporting a negative return of -37.51%
(gross) for the year ended 31 December 2008. Nevertheless, the Fund is still
performing well and its underlying assets remain robust. Since 31 August 2007,
the Fund was fully funded at $54m and closed to new subscriptions.
Outlook
While the performance of the Funds was negatively affected in the last six
months of last year, the Group hopes to make up lost ground as and when credit
markets begin a sustained recovery. Since October 2008, Argo has been focused on
rebalancing the portfolios to allow the Funds to participate in the new credit
opportunities that are emerging in the emerging markets space as a result of the
global market dislocation.
In common with most other investment management businesses, Argo's principal
cost driver is compensation of permanent employees. In a move to trim operating
costs, the Company has reduced staff salaries by 15% as of April 2009 and will
continue to monitor the expense base closely.
In a further move to cut costs, the Company closed its Sao Paulo office in the
fourth quarter of 2008. Investments in Latin America will continue to be covered
by the Group's investment teams operating out of its Buenos Aires and
London offices.
In order to capitalise fully on the new opportunities in the market, the Group
has dedicated AMSF to investment in stressed and distressed credit
opportunities. The positive performance across AMSF, TAF and AGSSF so far in
2009 has also encouraged the Group to resume its asset raising activities. In
order to assist this effort, the Company is contemplating investing a
substantial part of its liquidity into the Group's Funds.
In February and March 2009, TAF and AGSSF successfully realised two of their
less liquid investments with positive results, namely, an Argentine distressed
position that came out of bankruptcy and the exercise of a capital protection
clause of an investment in preference shares of a Nigerian bank. In April 2009,
a further investment was realised through the funds' position in one of
Ukraine's largest banks.
We expect to continue the process of moving the Group on from the events of last
year and focus on delivering attractive returns to investors while rebuilding
assets under management.
CONSOLIDATED INCOME STATEMENT
PERIOD FROM 14 FEBRUARY 2008 (DATE OF INCORPORATION) TO 31 DECEMBER 2008
+--------------+----------+----------+-----------+
| | | | Period |
+--------------+----------+----------+-----------+
| | | | ended |
+--------------+----------+----------+-----------+
| | | | 31 |
| | | | December |
+--------------+----------+----------+-----------+
| | | | 2008 |
+--------------+----------+----------+-----------+
| | Note | | US$'000 |
+--------------+----------+----------+-----------+
| | | | |
+--------------+----------+----------+-----------+
| Management | | | 8,967 |
| fees | | | |
+--------------+----------+----------+-----------+
| Incentive | | | 7,473 |
| fees | | | |
+--------------+----------+----------+-----------+
| Other | | | 160 |
| income | | | |
+--------------+----------+----------+-----------+
| Revenue | 2(e) | | 16,600 |
+--------------+----------+----------+-----------+
| | | | |
+--------------+----------+----------+-----------+
| Legal | | | (1,465) |
| and | | | |
| professional | | | |
| expenses | | | |
+--------------+----------+----------+-----------+
| Management | 2(f) | | (707) |
| and | | | |
| incentive | | | |
| fees | | | |
| payable | | | |
+--------------+----------+----------+-----------+
| Operational | | | (1,479) |
| expenses | | | |
+--------------+----------+----------+-----------+
| Employee | 4 | | (4,077) |
| costs | | | |
+--------------+----------+----------+-----------+
| Foreign | | | (691) |
| exchange | | | |
| loss | | | |
+--------------+----------+----------+-----------+
| Amortisation | 10 | | (380) |
| of | | | |
| intangible | | | |
| assets | | | |
+--------------+----------+----------+-----------+
| Depreciation | 11 | | (78) |
+--------------+----------+----------+-----------+
| Excess | 9 | | 1,556 |
| of | | | |
| acquirer's | | | |
| interest | | | |
| in net | | | |
| value of | | | |
| identifiable | | | |
| net assets | | | |
+--------------+----------+----------+-----------+
| Operating | 6 | | 9,279 |
| profit | | | |
+--------------+----------+----------+-----------+
| | | | |
+--------------+----------+----------+-----------+
| Interest | | | 258 |
| income | | | |
| on cash | | | |
| and cash | | | |
| equivalents | | | |
+--------------+----------+----------+-----------+
| Unrealised | | | (1,368) |
| loss on | | | |
| investments | | | |
+--------------+----------+----------+-----------+
| Profit | | | 8,169 |
| on | | | |
| ordinary | | | |
| activities | | | |
| before | | | |
| taxation | | | |
+--------------+----------+----------+-----------+
| | | | |
+--------------+----------+----------+-----------+
| Taxation | 7 | | (1,409) |
+--------------+----------+----------+-----------+
| Profit | 8 | | 6,760 |
| for the | | | |
| period | | | |
| after | | | |
| taxation | | | |
| attributable | | | |
| to members | | | |
| of the | | | |
| Company | | | |
+--------------+----------+----------+-----------+
+---------------------------------------------------------+-----+--+------------+
| Earnings per share (basic) | 8 | | US$0.09 |
+---------------------------------------------------------+-----+--+------------+
| Earnings per share (diluted) | 8 | | US$0.09 |
+---------------------------------------------------------+-----+--+------------+
The Directors consider that all results derive from continuing activities.
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2008
+----------------------------------------------+--------+--------+-------------+
| | | | At |
| | | | 31 December |
+----------------------------------------------+--------+--------+-------------+
| | | | 2008 |
+----------------------------------------------+--------+--------+-------------+
| | Note | | US$'000 |
+----------------------------------------------+--------+--------+-------------+
| | | | |
+----------------------------------------------+--------+--------+-------------+
| Assets | | | |
+----------------------------------------------+--------+--------+-------------+
| | | | |
+----------------------------------------------+--------+--------+-------------+
| Non-current assets | | | |
+----------------------------------------------+--------+--------+-------------+
| Intangible assets | 10 | | 18,110 |
+----------------------------------------------+--------+--------+-------------+
| Fixtures, fittings and equipment | 11 | | 237 |
+----------------------------------------------+--------+--------+-------------+
| Loans and advances receivable | 15 | | 235 |
+----------------------------------------------+--------+--------+-------------+
| | | | 18,582 |
+----------------------------------------------+--------+--------+-------------+
| Current assets | | | |
+----------------------------------------------+--------+--------+-------------+
| Investments | 12 | | 1,976 |
+----------------------------------------------+--------+--------+-------------+
| Trade and other receivables | 13 | | 2,214 |
+----------------------------------------------+--------+--------+-------------+
| Cash and cash equivalents | 14 | | 20,058 |
+----------------------------------------------+--------+--------+-------------+
| Loans and advances receivable | 15 | | 44 |
+----------------------------------------------+--------+--------+-------------+
| | | | 24,292 |
+----------------------------------------------+--------+--------+-------------+
| | | | |
+----------------------------------------------+--------+--------+-------------+
| Total assets | | | 42,874 |
+----------------------------------------------+--------+--------+-------------+
| | | | |
+----------------------------------------------+--------+--------+-------------+
| Equity and liabilities | | | |
+----------------------------------------------+--------+--------+-------------+
| | | | |
+----------------------------------------------+--------+--------+-------------+
| Equity | | | |
+----------------------------------------------+--------+--------+-------------+
| Issued share capital | 16 | | 769 |
+----------------------------------------------+--------+--------+-------------+
| Share premium | 16 | | 32,772 |
+----------------------------------------------+--------+--------+-------------+
| Revenue reserve | | | 6,760 |
+----------------------------------------------+--------+--------+-------------+
| Foreign currency translation reserve | 2(d) | | 625 |
+----------------------------------------------+--------+--------+-------------+
| | | | 40,926 |
+----------------------------------------------+--------+--------+-------------+
| | | | |
+----------------------------------------------+--------+--------+-------------+
| Current liabilities | | | |
+----------------------------------------------+--------+--------+-------------+
| Trade and other payables | 17 | | 717 |
+----------------------------------------------+--------+--------+-------------+
| Taxation payable | 7 | | 1,231 |
+----------------------------------------------+--------+--------+-------------+
| Total current liabilities | | | 1,948 |
+----------------------------------------------+--------+--------+-------------+
| | | | |
+----------------------------------------------+--------+--------+-------------+
| Total equity and liabilities | | | 42,874 |
+----------------------------------------------+--------+--------+-------------+
| | | | |
+----------------------------------------------+--------+--------+-------------+
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
PERIOD FROM 14 FEBRUARY 2008 (DATE OF INCORPORATION) TO 31 DECEMBER 2008
+--------------------------+----------+----------+----------+-------------+---------+
| | Issued | Share | Revenue | Foreign | Total |
| | share | premium | reserve | currency | |
| | capital | | | translation | |
| | | | | reserve | |
+--------------------------+----------+----------+----------+-------------+---------+
| | 2008 | 2008 | 2008 | 2008 | 2008 |
+--------------------------+----------+----------+----------+-------------+---------+
| | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
+--------------------------+----------+----------+----------+-------------+---------+
| | | | | | |
+--------------------------+----------+----------+----------+-------------+---------+
| As at 14 February 2008 | | | | | |
| (date of incorporation) | | | | | |
+--------------------------+----------+----------+----------+-------------+---------+
| | | | | | |
+--------------------------+----------+----------+----------+-------------+---------+
| Profit for the period | - | - | 6,760 | - | 6,760 |
| after taxation | | | | | |
+--------------------------+----------+----------+----------+-------------+---------+
| Issue of 76,931,620 | 769 | 32,772 | - | - | 33,541 |
| shares | | | | | |
| (US$0.01 par) (see note | | | | | |
| 16) | | | | | |
+--------------------------+----------+----------+----------+-------------+---------+
| Exchange differences on | - | - | - | 625 | 625 |
| translation | | | | | |
| of foreign operations | | | | | |
+--------------------------+----------+----------+----------+-------------+---------+
| | | | | | |
+--------------------------+----------+----------+----------+-------------+---------+
| As at 31 December 2008 | 769 | 32,772 | 6,760 | 625 | 40,926 |
+--------------------------+----------+----------+----------+-------------+---------+
| | | | | | |
+--------------------------+----------+----------+----------+-------------+---------+
CONSOLIDATED CASH FLOW STATEMENT
PERIOD FROM 14 FEBRUARY 2008 (DATE OF INCORPORATION) TO 31 DECEMBER 2008
+--------------------------------------------------+-------+----------------+
| | | Period ended |
+--------------------------------------------------+-------+----------------+
| | | 31 December |
+--------------------------------------------------+-------+----------------+
| | | 2008 |
+--------------------------------------------------+-------+----------------+
| | Note | US$'000 |
+--------------------------------------------------+-------+----------------+
| | | |
+--------------------------------------------------+-------+----------------+
| Net cash inflow from operating activities | 19 | 3,818 |
+--------------------------------------------------+-------+----------------+
| | | |
+--------------------------------------------------+-------+----------------+
| Cash flows from investing activities | | |
+--------------------------------------------------+-------+----------------+
| Interest received on cash and cash equivalents | | 258 |
+--------------------------------------------------+-------+----------------+
| Acquisition of the Argo businesses | 9 | 10,057 |
+--------------------------------------------------+-------+----------------+
| Proceeds from disposal of current asset | | 6,199 |
| investments | | |
+--------------------------------------------------+-------+----------------+
| Purchase of fixtures, fittings and equipment | 11 | (25) |
+--------------------------------------------------+-------+----------------+
| Repayment of loans | 20 | (199) |
+--------------------------------------------------+-------+----------------+
| Net cash inflow from investing activities | | 16,290 |
+--------------------------------------------------+-------+----------------+
| | | |
+--------------------------------------------------+-------+----------------+
| Net increase in cash and cash equivalents | | 20,108 |
+--------------------------------------------------+-------+----------------+
| | | |
+--------------------------------------------------+-------+----------------+
| Foreign exchange loss on cash and cash | | (50) |
| equivalents | | |
+--------------------------------------------------+-------+----------------+
| Cash and cash equivalents as at 31 December 2008 | | 20,058 |
+--------------------------------------------------+-------+----------------+
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the period from 14 February 2008 (date of incorporation) to 31 December 2008
1.CORPORATE INFORMATION
The Company was incorporated on 14 February 2008 in the Isle of Man under the
Companies Act 2006 and started to trade on 13 June 2008. Its registered office
is at 33-37 Athol Street, Douglas, Isle of Man, IM1 1LB and the principal place
of business is at 10 Vasilissis Frederikis Street, 1066 Nicosia, Cyprus. The
principal activity of the Company is that of a holding company and the principal
activity of the wider Group is that of an investment management business. The
functional and presentational currency of the Group undertakings is US dollars.
The Group has 39 employees.
Wholly owned subsidiariesCountry of incorporation
+------------------------------------------+----------------+
| Argo Capital Management (Cyprus) Limited | Cyprus |
+------------------------------------------+----------------+
| Argo Capital Management Limited | United Kingdom |
+------------------------------------------+----------------+
| Argo Capital Management Property Limited | Cayman Islands |
+------------------------------------------+----------------+
| Argo Capital Management (Asia) Pte. Ltd. | Singapore |
+------------------------------------------+----------------+
| North Asset Management Srl | Romania |
+------------------------------------------+----------------+
| North Asset Management Sarl | Luxembourg |
+------------------------------------------+----------------+
| Argo Investor Services Limited | Cayman Islands |
+------------------------------------------+----------------+
| Argo Investor Services AG | Switzerland |
+------------------------------------------+----------------+
| AREOF General Partner Limited | Cayman Islands |
+------------------------------------------+----------------+
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
European Union.
These accounts have been prepared on the basis that the Company is a going
concern.
The International Accounting Standards Board and International Financial
Reporting Interpretations Committee have issued the following standards and
interpretations with an effective date after the date of these consolidated
financial statements. None of these standards have been adopted early.
International Accounting Standards (IAS/IFRS)
Effective Date
IFRS 2 Share based payments, revised 2008 1 January 2009
IFRS 5 Non-current
assets held for sale and discontinued operations, revised 20081 July 2009
IFRS
8 Operating segments 1 January 2009
IAS 16 Property, plant and equipment, revised 2008 1 January 2009
IAS 19 Employee benefits, revised 2008 1 January 2009
IAS 23 Borrowing costs,
revised 2008 1 January 2009
IAS 32 Financial
instruments:presentation, revised 2008 1 January 2009
IAS 36 Impairment of assets, revised 2008 1 January 2009
IAS 39 Financial instruments:recognition and measurement 1 January 2009
International Financial Reporting Interpretations Committee (IFRIC)
Effective Date
IFRIC 13 Customer loyalty programmes 1 July 2008
The Directors do not anticipate that the adoption of these standards and
interpretations will have a material impact on the Group's consolidated
financial statements in the period of initial application.
(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 in to 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 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 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 Income Statement. 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 annually for impairment. Any impairment is recognised immediately in
the Consolidated Income Statement.
Intangible assets
The Group's principal intangible asset is a fund management contract recorded at
directors' valuation at the date of acquisition. The directors' valuation is
based on the underlying share price of the vendor and its assets under
management at the time of acquisition. This intangible asset has a finite life
and is amortised on a straight line basis over the period of the contract.
Impairment tests are undertaken annually to determine any diminution in the
recoverable amount below carrying value. The Group does not capitalise
internally generated goodwill or intangible assets
Impairment of intangible assets
At each balance sheet date the Group reviews the carrying amounts of its
intangible assets to determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the
impairment loss, if any.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable amount.
An impairment loss is recognised as an expense immediately, unless the relevant
asset is carried at a revalued amount, in which case the impairment loss is
treated as a revaluation decrease.
(d) Foreign currency translation
The consolidated financial statements are expressed in US dollars. Transactions
denominated in currencies other than US dollars have been translated at the rate
of exchange prevailing at the date of the transaction. Assets and liabilities in
other currencies are translated to US dollars at the rates of exchange
prevailing at the balance sheet date. The resulting profits or losses are
reflected in the Consolidated Income Statement.
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 in
the Consolidated Income Statement 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 Group and the revenue can be reliably measured.
Management and incentive fees receivable
The Group recognises revenue for providing management services to mutual funds.
Revenue accrues on a monthly basis on completion of management services and is
based on the funds under management of each mutual fund.
Incentive fees generally arise monthly or annually, however for the Argo funds
incentive fees may arise monthly, annually or on realisation of an investment.
In addition, for the Argo Real Estate Opportunities Fund Ltd (managed by Argo
Capital Management Property Ltd) incentive 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
Plant and equipment is initially recorded at cost and depreciated on a
straight-line basis over the expected useful lives of the assets as follows:
Leasehold33 1/3% per annum
Fixtures and fittings10% to
33 1/3% per annum
Office equipment 10% to 33 1/3% per annum
Computer equipment and software20% to 33 1/3% 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 Argo Fund Ltd, Argo Capital Investors SPC, Argo Capital Partners Fund Ltd
and Argo Multi Strategy Fund Limited are stated at fair value, being the
recoverable amount.
(i) Trade date accounting
All 'regular way' purchases and sales of financial assets are recognised on the
'trade date', i.e. the date that the entity commits to purchase or sell the
asset. Regular way purchases or sales are purchases or sales of financial assets
that require delivery of the asset within the time frame generally established
by regulation or convention in the market place.
(j) Financial instruments
Financial assets and liabilities are recognised on the Company's Balance Sheet
when the Company becomes party to the contractual provisions of the instrument.
Non-derivative financial instruments include trade and other receivables, cash
and cash equivalents, loans and borrowings and trade and other payables. The
initial and subsequent measurement of non-derivative financial instruments is
dealt with below.
Trade and other receivables
Trade and other receivables do not carry any interest and are stated at their
original invoice amount as reduced by appropriate allowances for estimated
irrecoverable amounts. An estimate for doubtful debts is made when collection is
no longer probable. Bad debts are written off when identified.
Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits and
short-term, highly liquid investments which are readily convertible to known
amounts of cash, subject to insignificant risk of changes in value, and have a
maturity of less than three months from the date of acquisition.
For the purposes of the cash flow statement, cash and cash equivalents consist
of cash in hand and bank deposits.
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
(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 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 period. Taxable
profit differs from net profit as reported in the Consolidated 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 losses to the extent that it
is probable that taxable profit will be available against which the deductible
temporary differences and carry-forward of unused tax credits and unused losses
can be utilised.
The carrying amount of deferred income tax assets is revalued at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred
income tax asset to be utilised. Unrecognised deferred income tax assets are
reassessed at each balance sheet date and are recognised to the extent that is
probable that future taxable profits will allow the deferred tax asset to be
recovered. Deferred income tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is realised or the
liability settled, based on tax rates that have been enacted or substantively
enacted at the balance sheet date.
(n) Accounting estimates, assumptions and judgements
The preparation of the consolidated financial statements necessitates the use of
estimates, assumptions and judgements. These estimates, assumptions and
judgements affect the reported amounts of assets, liabilities and contingent
liabilities at the balance sheet date as well as affecting the reported income
and expenses for the year. Although the estimates are based on management's
knowledge and best judgment of information and financial data, the actual
outcome may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that and prior periods, or in
the period of the revision and future periods if the revision affects both
current and future periods.
In the process of applying the Group's accounting policies, which are described
above, management has made the following judgements that have the most
significant effect on the amounts recognised in the consolidated financial
statements:
- Management and incentive fees
- Intangibles
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.
(o) Operating leases
Costs in respect of operating leases are charged on a straight line basis over
the lease term. Benefits, such as rent free periods, received and receivable as
incentives to take on operating leases are spread on a straight line basis over
the lease term, or, if shorter than the full lease term, over the period to the
review date on which the rent is first expected to be adjusted to the prevailing
market rent.
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
+--------------------------------------------------------+---------------+
| | 2008 |
+--------------------------------------------------------+---------------+
| | US$'000 |
+--------------------------------------------------------+---------------+
| | |
+--------------------------------------------------------+---------------+
| Wages and salaries | 3,789 |
+--------------------------------------------------------+---------------+
| Social security costs | 234 |
+--------------------------------------------------------+---------------+
| Other | 54 |
+--------------------------------------------------------+---------------+
| | 4,077 |
+--------------------------------------------------------+---------------+
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to:
+--------------------------------------------------------+----------------+
| | 2008 |
+--------------------------------------------------------+----------------+
| | US$'000 |
+--------------------------------------------------------+----------------+
| | |
+--------------------------------------------------------+----------------+
| Directors and key management personnel | 1,376 |
+--------------------------------------------------------+----------------+
6.OPERATING PROFIT
Operating profit is stated after charging:
+--------------------------------------------------------+----------------+
| | 2008 |
+--------------------------------------------------------+----------------+
| | US$'000 |
+--------------------------------------------------------+----------------+
| | |
+--------------------------------------------------------+----------------+
| Auditors' remuneration | 80 |
+--------------------------------------------------------+----------------+
| Directors' fees | 1,013 |
+--------------------------------------------------------+----------------+
| Operating lease payments | 336 |
+--------------------------------------------------------+----------------+
7. TAXATION
Taxation rates applicable to the parent company and the Cypriot, UK,
Singaporean, Luxembourg, Swiss and Romanian subsidiaries range from 0% to 28%.
Income Statement
+----------------------------------------------------------+------------+
| | 2008 |
+----------------------------------------------------------+------------+
| | US$'000 |
+----------------------------------------------------------+------------+
| | |
+----------------------------------------------------------+------------+
| Taxation charge for the period on Group companies | 1,409 |
+----------------------------------------------------------+------------+
The charge for the period can be reconciled to the profit per the Consolidated
Income Statement as follows:
+----------------------------------------------------------+------------+
| | 2008 |
+----------------------------------------------------------+------------+
| | US$'000 |
+----------------------------------------------------------+------------+
| | |
+----------------------------------------------------------+------------+
| Profit before tax | 8,169 |
+----------------------------------------------------------+------------+
| | |
+----------------------------------------------------------+------------+
| Applicable Isle of Man tax rate for Argo Group Limited | - |
| of 0% | |
+----------------------------------------------------------+------------+
| Timing difference | 144 |
+----------------------------------------------------------+------------+
| Non-deductible expenses | 7 |
+----------------------------------------------------------+------------+
| Non-taxable income | (15) |
+----------------------------------------------------------+------------+
| Other adjustments | 25 |
+----------------------------------------------------------+------------+
| Tax effect of different tax rates of subsidiaries | 1,248 |
| operating in other jurisdictions | |
+----------------------------------------------------------+------------+
| Tax charge | 1,409 |
+----------------------------------------------------------+------------+
Balance Sheet
+----------------------------------------------------------+------------+
| | 2008 |
+----------------------------------------------------------+------------+
| | US$'000 |
+----------------------------------------------------------+------------+
| | |
+----------------------------------------------------------+------------+
| Corporation tax payable | 1,231 |
+----------------------------------------------------------+------------+
8. EARNINGS PER SHARE
Earnings per share is calculated by dividing the net profit for the
period by the weighted average number of shares
outstanding during
the period.
+----------------------------------------------------------+------------+
| | 2008 |
+----------------------------------------------------------+------------+
| | US$'000 |
+----------------------------------------------------------+------------+
| | |
+----------------------------------------------------------+------------+
| Net profit for the period after taxation attributable to | 6,760 |
| members | |
+----------------------------------------------------------+------------+
| | |
+----------------------------------------------------------+------------+
| | No. of |
| | shares |
+----------------------------------------------------------+------------+
| | |
+----------------------------------------------------------+------------+
| Weighted average of ordinary shares for basic earnings | 76,931,620 |
| per share | |
+----------------------------------------------------------+------------+
| Effect of dilution | - |
+----------------------------------------------------------+------------+
| Weighted average number of ordinary shares for diluted | 76,931,620 |
| earnings per share | |
+----------------------------------------------------------+------------+
9. BUSINESS COMBINATIONS
At an Extraordinary General Meeting held in the Cayman Islands on 13 June 2008
the shareholders of Absolute Capital Management Holdings Limited passed a
resolution to distribute the Argo division of its group to shareholders, to be
managed and owned independently under the newly formed Argo Group Limited.
The demerger was completed by making a distribution of shares of Argo Group
Limited to the shareholders of Absolute Capital Management Holdings Limited. The
total purchase consideration was
76,931,619 ordinary shares of US$0.01 each with an aggregate fair market value
(determined by a calculation of assets under management) of $33,541,727
apportioned as follows:
+------------------------------------------+------------------+
| Argo Capital Management (Cyprus) Ltd | $13,501,195 |
+------------------------------------------+------------------+
| Argo Capital Management Ltd | $12,063,619 |
+------------------------------------------+------------------+
| Argo Investor Services Ltd | $4,048,125 |
+------------------------------------------+------------------+
| Argo Capital Management Property Ltd | $3,928,787 |
+------------------------------------------+------------------+
| Argo Capital Management (Asia) Pte. Ltd | $1 |
+------------------------------------------+------------------+
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 (Cyprus) Ltd US$8,450,936 (profit), Argo Capital Management
Ltd US$415,745 (profit), Argo Investor Services Ltd US$1,836,600 (loss), Argo
Capital Management Property Ltd US$62,645 (profit) and Argo Capital Management
(Asia) Pte Ltd US$390,517 (loss).
The fair value of the identifiable net assets and liabilities of the Argo
businesses at the date of acquisition and the consideration are detailed below:
+-----------------------+------------+------------+----------+------------+------------+----------+
| | Argo | Argo | Argo | Argo | Argo | Total |
| | Capital | Capital | Investor | Capital | Capital | |
| | Management | Management | Services | Management | Management | |
| | (Cyprus) | Ltd | Ltd | Property | (Asia) Pte | |
| | Ltd | | | Ltd | Ltd | |
+-----------------------+------------+------------+----------+------------+------------+----------+
| | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Intangible assets - | 7,188 | 7,757 | - | 3,889 | - | 18,834 |
| fund | | | | | | |
| management contracts | | | | | | |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Fixtures, fittings & | 25 | 313 | 4 | 11 | 10 | 363 |
| | | | | | | |
| equipment | | | | | | |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Investments | 5,500 | - | 4,000 | - | - | 9,500 |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Trade & other | 5,204 | 1,490 | 37 | 1,284 | 191 | 8,206 |
| receivables | | | | | | |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Bank & cash | 3,167 | 5,678 | 218 | 717 | 277 | 10,057 |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Trade & other | (7,583) | (3,174) | (58) | (878) | (169) | (11,862) |
| payables | | | | | | |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Net assets acquired | 13,501 | 12,064 | 4,201 | 5,023 | 309 | 35,098 |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Excess of acquirer's | - | - | (153) | (1,095) | (308) | (1,556) |
| interest in net value | | | | | | |
| of identifiable net | | | | | | |
| assets | | | | | | |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Total | 13,501 | 12,064 | 4,048 | 3,928 | 1 | 33,542 |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Satisfied by: | | | | | | |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Shares issued | 13,501 | 12,064 | 4,048 | 3,928 | 1 | 33,542 |
+-----------------------+------------+------------+----------+------------+------------+----------+
| Total | 13,501 | 12,064 | 4,048 | 3,928 | 1 | 33,542 |
+-----------------------+------------+------------+----------+------------+------------+----------+
+----------------------------------+--+--+---+--+----+------------+--+-----------+---------+
| Net cash inflow arising on acquisition | | | | | | US$'000 |
+--------------------------------------------+--+----+------------+--+-----------+---------+
| Cash and cash equivalents | | | | | | 10,057 |
| acquired | | | | | | |
+----------------------------------+--+--+-----------+------------+--------------+---------+
| | | | | | | 10,057 |
+----------------------------------+--+--+---+--+----+------------+--+-----------+---------+
Intangible assets represent the fair value of fund management contracts of the
Argo businesses, essentially the Argo Funds and the Argo Real Estate
Opportunities Fund Ltd (managed by Argo Capital Management Property Ltd) to
which it provides management and advisory services.
The Argo Group Limited ordinary shares were admitted to trading on AIM on 18
November 2008.
10. INTANGIBLE ASSETS
+---------------------------------------------------------+-------------+
| | Fund |
| | management |
| | contracts |
+---------------------------------------------------------+-------------+
| | US$'000 |
+---------------------------------------------------------+-------------+
| Cost | |
+---------------------------------------------------------+-------------+
| Acquisition of Argo businesses (note 9) | 18,834 |
+---------------------------------------------------------+-------------+
| Foreign exchange movement | (344) |
+---------------------------------------------------------+-------------+
| At 31 December 2008 | 18,490 |
+---------------------------------------------------------+-------------+
+---------------------------------------------------------+-------------+
| Amortisation and impairment | |
+---------------------------------------------------------+-------------+
| Amortisation of Argo business intangible assets | 380 |
+---------------------------------------------------------+-------------+
| At 31 December 2008 | 380 |
+---------------------------------------------------------+-------------+
| | |
+---------------------------------------------------------+-------------+
| Net book value | |
+---------------------------------------------------------+-------------+
| At 31 December 2008 | 18,110 |
+---------------------------------------------------------+-------------+
The Group tests intangible assets annually 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, the main being reliance
on certain key individuals.
At the balance sheet date the carrying value of goodwill was US$14.9m being
allocated to Argo Capital Management (Cyprus) Limited and Argo Capital
Management Limited as US$7.2m and US$7.7m respectively.
The key assumptions on which the directors have based their five year discounted
cash flow analysis are a pre-tax discount rate of 15%, an inflation rate of 5%
and a growth in assets under management (which determine management and
performance fee income) of 15% to 20%, with 4.5% to 6% of this estimated to be
from annual profits. The assumption of growth in assets under management has
been based on the historic performance of the funds. The calculations use cash
flow projections based on actual operating results. The result of this review
has been compared to the carrying value of goodwill and accordingly the
directors have concluded that there is no impairment to goodwill. As an added
sensitivity, if the estimated discount rate applied to the discounted cash flows
had been 25% higher or the growth rate of assets under management had been 25%
lower there would still have been no impairment of goodwill as the net present
value of future cash flows would still have been higher than the carrying value
of goodwill.
At the balance sheet date the carrying value of the Argo Real Estate
Opportunities Fund Limited management contract is US$3.2m, net of amortisation.
The intangible asset has been amortised over 5 years and 44 days, being the
remaining period of the contract.
11.FIXTURES, FITTINGS AND EQUIPMENT
+---------------------------------------------------------+-------------+
| | Fixtures, |
| | fittings |
| | & equipment |
+---------------------------------------------------------+-------------+
| | US$ '000 |
+---------------------------------------------------------+-------------+
| Cost | |
+---------------------------------------------------------+-------------+
| | |
+---------------------------------------------------------+-------------+
| Acquisitions through business combinations (note 9) | 363 |
+---------------------------------------------------------+-------------+
| Additions | 25 |
+---------------------------------------------------------+-------------+
| Disposals | (4) |
+---------------------------------------------------------+-------------+
| Foreign exchange movement | (69) |
+---------------------------------------------------------+-------------+
| At 31 December 2008 | 315 |
+---------------------------------------------------------+-------------+
| | |
+---------------------------------------------------------+-------------+
| Accumulated Depreciation | |
+---------------------------------------------------------+-------------+
| | |
+---------------------------------------------------------+-------------+
| Depreciation charge for period | 78 |
+---------------------------------------------------------+-------------+
| At 31 December 2008 | 78 |
+---------------------------------------------------------+-------------+
| | |
+---------------------------------------------------------+-------------+
| Net book value | |
+---------------------------------------------------------+-------------+
| | |
+---------------------------------------------------------+-------------+
| At 31 December 2008 | 237 |
+---------------------------------------------------------+-------------+
12. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
+---------+-----------------------------+-------------+--+-------------+
| | | 2008 | | 2008 |
+---------+-----------------------------+-------------+--+-------------+
|Holding | Investment in management | Total cost | | Fair value |
| | shares | | | |
+---------+-----------------------------+-------------+--+-------------+
| | | US$ '000 | | US$ '000 |
+---------+-----------------------------+-------------+--+-------------+
| | | | | |
+---------+-----------------------------+-------------+--+-------------+
| 10 | The Argo Fund Ltd | 0 | | 0 |
+---------+-----------------------------+-------------+--+-------------+
| 10 | Argo Capital Investors Fund | 0 | | 0 |
| | SPC | | | |
+---------+-----------------------------+-------------+--+-------------+
| 10 | Argo Capital Partners Fund | 0 | | 0 |
| | Ltd | | | |
+---------+-----------------------------+-------------+--+-------------+
| 100 | Argo Multi Strategy Fund | 0 | | 0 |
| | Ltd | | | |
+---------+-----------------------------+-------------+--+-------------+
| | | 0 | | 0 |
+---------+-----------------------------+-------------+--+-------------+
+---------+-----------------------------+-------------+--+-------------+
| | | 2008 | | 2008 |
+---------+-----------------------------+-------------+--+-------------+
|Holding | Investment in | Total cost | | Fair value |
| | ordinary shares | | | |
+---------+-----------------------------+-------------+--+-------------+
| | | US$ '000 | | US$ '000 |
+---------+-----------------------------+-------------+--+-------------+
| | | | | |
+---------+-----------------------------+-------------+--+-------------+
| 10,270 | The Argo Fund Ltd | 3,843 | | 1,976 |
+---------+-----------------------------+-------------+--+-------------+
| | | 3,843 | | 1,976 |
+---------+-----------------------------+-------------+--+-------------+
13.TRADE AND OTHER RECEIVABLES
+--------------------------------------------------------+--------------+
| | 2008 |
+--------------------------------------------------------+--------------+
| | US$ '000 |
+--------------------------------------------------------+--------------+
| | |
+--------------------------------------------------------+--------------+
| Trade receivables | 1,780 |
+--------------------------------------------------------+--------------+
| Other receivables | 195 |
+--------------------------------------------------------+--------------+
| Prepayments and accrued income | 239 |
+--------------------------------------------------------+--------------+
| | 2,214 |
+--------------------------------------------------------+--------------+
| | |
+--------------------------------------------------------+--------------+
The directors consider that the carrying amount of trade and other receivables
approximates to their fair value. All trade receivable balances are recoverable
within one year from the balance sheet date.
14. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is a balance of US$116,000 which
represents a bank guarantee in respect of credit cards issued to Argo Capital
Management Property Limited. Due to the nature of this balance it is not freely
available.
15. LOANS AND ADVANCES RECEIVABLE
+---------------------------------------------------------+--------------+
| | 2008 |
+---------------------------------------------------------+--------------+
| | US$'000 |
+---------------------------------------------------------+--------------+
| | |
+---------------------------------------------------------+--------------+
| Deposits on leased premises - current | 44 |
+---------------------------------------------------------+--------------+
| Deposits on leased premises-non-current | 235 |
+---------------------------------------------------------+--------------+
| | 279 |
+---------------------------------------------------------+--------------+
The deposits on leased premises are retained by the lessor until vacation of the
premises at the end of the lease term as follows:
+---------------------------------------------------------+-------------+
| | 2008 |
+---------------------------------------------------------+-------------+
| | US$'000 |
+---------------------------------------------------------+-------------+
| Current: | |
+---------------------------------------------------------+-------------+
| Lease expiring in 2009 | 44 |
+---------------------------------------------------------+-------------+
+---------------------------------------------------------+-------------+
| | 2008 |
+---------------------------------------------------------+-------------+
| | US$ '000 |
+---------------------------------------------------------+-------------+
| Non-current: | |
+---------------------------------------------------------+-------------+
| Lease expiring in 2010 | 30 |
+---------------------------------------------------------+-------------+
| Lease expiring in 2012 | 205 |
+---------------------------------------------------------+-------------+
| | 235 |
+---------------------------------------------------------+-------------+
16.SHARE CAPITAL
The Company's authorised share capital is unlimited with a nominal value of
US$ 0.01.
+---------------------------------------------+--------------+--+--------------+
| | 2008 | | 2008 |
+---------------------------------------------+--------------+--+--------------+
| Issued and fully paid | No. | | US$'000 |
+---------------------------------------------+--------------+--+--------------+
| | | | |
+---------------------------------------------+--------------+--+--------------+
| Issued during the period | 76,931,620 | | 769 |
+---------------------------------------------+--------------+--+--------------+
| Closing ordinary shares of US$ 0.01 each | 76,931,620 | | 769 |
+---------------------------------------------+--------------+--+--------------+
During the period the Company issued one share on its incorporation and then a
further 76,931,619 shares to the vendors of the Argo business at a premium of
$32,772,411 (note 9).
17.TRADE AND OTHER PAYABLES
+---------------------------------------------------------+--------------+
| | 2008 |
+---------------------------------------------------------+--------------+
| | US$ '000 |
+---------------------------------------------------------+--------------+
| | |
+---------------------------------------------------------+--------------+
| Trade and other payables | 49 |
+---------------------------------------------------------+--------------+
| Other creditors and accruals | 668 |
+---------------------------------------------------------+--------------+
| | 717 |
+---------------------------------------------------------+--------------+
Trade and other payables are normally settled on 30-day terms.
18. OBLIGATIONS UNDER OPERATING LEASES
Operating lease payments represent rentals payable by the Group for certain of
its business premises. The leases have no escalation clauses or renewal or
purchase options and no restrictions imposed on them.
As at the balance sheet date, the Group had outstanding future minimum lease
payments under non-cancellable operating leases, which fall due as follows.
+-----------------------------------------------------+------+------+---------------+
| | | 2008 |
+-----------------------------------------------------+-------------+---------------+
| | | US$ '000 |
+-----------------------------------------------------+-------------+---------------+
| Operating lease liabilities: | | |
+-----------------------------------------------------+-------------+---------------+
| Within one year | | 573 |
+-----------------------------------------------------+-------------+---------------+
| In the second to fifth years inclusive | | 969 |
+-----------------------------------------------------+-------------+---------------+
| Present value of minimum lease payments | 1,542 |
+-----------------------------------------------------+------+------+---------------+
19. RECONCILIATION OF NET CASH INFLOW FROM OPERATING ACTIVITIES TO
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
+-------------------------------------------------------+---------------+
| | 2008 |
+-------------------------------------------------------+---------------+
| | US$ '000 |
+-------------------------------------------------------+---------------+
| | |
+-------------------------------------------------------+---------------+
| Profit on ordinary activities before taxation | 8,169 |
+-------------------------------------------------------+---------------+
| | |
+-------------------------------------------------------+---------------+
| Interest income | (258) |
+-------------------------------------------------------+---------------+
| Other income | (42) |
+-------------------------------------------------------+---------------+
| Amortisation of intangible assets | 380 |
+-------------------------------------------------------+---------------+
| Depreciation | 78 |
+-------------------------------------------------------+---------------+
| Decrease in payables | (10,001) |
+-------------------------------------------------------+---------------+
| Decrease in receivables | 5,538 |
+-------------------------------------------------------+---------------+
| Decrease in fair value of current asset investments | 1,368 |
+-------------------------------------------------------+---------------+
| Negative goodwill | (1,556) |
+-------------------------------------------------------+---------------+
| Net foreign exchange gain | 691 |
+-------------------------------------------------------+---------------+
| Income taxes paid | (549) |
+-------------------------------------------------------+---------------+
| Net cash inflow from operating activities | 3,818 |
+-------------------------------------------------------+---------------+
20. RELATED PARTY TRANSACTIONS
90% of revenue derives from funds in which two of the Company's directors,
Andreas Rialas and Kyriakos Rialas, have an influence through the provision of
investment advisory services.
On 16 June 2008 the demerger of the Argo businesses from Absolute Capital
Management Holdings Ltd was completed. As part of the purchase consideration
shares in Argo Group Limited were issued on behalf of the following related
parties:
Andreas Rialas - 15,638,146 ordinary shares (representing at the time 20.3% of
the issued share capital)
Kyriakos Rialas - 8,768,363 ordinary shares (representing at the time 11.4% of
the issued share capital)
During the period Argo Capital Management Limited owed Andreas
Rialas US$199,442 (GBP100,000) representing an unsecured, interest free loan
made to Argo Capital Management Limited on 28 June 2006. This loan was repaid on
23 October 2008.
Michael Kloter, the non-executive chairman, is also partner in a legal firm
which supplies services to the Group. This firm charged US$24,220 (CHF 28,009)
for services rendered to the Group in the period.
21. 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 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 for these funds.
(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. 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. This
is achieved by placing fixed short-term deposits or using interest bearing bank
accounts.
At the period-end cash balances were held at Royal Bank of Scotland, Laiki Bank,
Bank of Cyprus, United Overseas Bank, Bancpost, Bank Julius Baer & Co Ltd, UBS
AG and ABN-AMRO Bank (Luxembourg).
(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 as detailed in note 12.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.
(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 receivables and trade payables are on 30-day terms.
(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, Singapore
dollars, Swiss Francs and Euros.
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 2008
the exposure would be a profit or loss to the Consolidated Income Statement of
approximately US$800,000.
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2008 is as follows:
+-------------------------+-----------+--------------+-------------+-------------+
| | Total as | Variable | Fixed | Instruments |
| | per | interest | interest | on which no |
| | balance | rate | rate | interest is |
| | sheet | instruments* | instruments | receivable |
+-------------------------+-----------+--------------+-------------+-------------+
| | US$ '000 | US$ '000 | US$ '000 | US$ '000 |
+-------------------------+-----------+--------------+-------------+-------------+
| Financial Assets | | | | |
+-------------------------+-----------+--------------+-------------+-------------+
| Financial assets at | 1,976 | - | - | 1,976 |
| fair value | | | | |
| through profit or loss | | | | |
+-------------------------+-----------+--------------+-------------+-------------+
| Loans and receivables | 2,258 | - | - | 2,258 |
+-------------------------+-----------+--------------+-------------+-------------+
| Cash and cash | 20,058 | 1,525 | 16,899 | 1,634 |
| equivalents | | | | |
+-------------------------+-----------+--------------+-------------+-------------+
| | 24,292 | 1,525 | 16,899 | 5,868 |
+-------------------------+-----------+--------------+-------------+-------------+
| Financial liabilities | | | | |
+-------------------------+-----------+--------------+-------------+-------------+
| Financial liabilities | 717 | - | - | 717 |
| at fair value | | | | |
| through profit or loss | | | | |
+-------------------------+-----------+--------------+-------------+-------------+
* Changes in the interest rate may cause movements.
The average interest rate at the period end was 1.29%. Any movement in interest
rates would have an immaterial effect on the profit/loss for the period.
(h) Fair value
The carrying values of the financial assets and liabilities equate to the fair
value of the financial assets and liabilities and are as follows:
+---------------------+---------------------+----------------+---------------------+
| | 2008 |
+-------------------------------------------+--------------------------------------+
| | US$ '000 |
+-------------------------------------------+--------------------------------------+
| Financial Assets | |
+-------------------------------------------+--------------------------------------+
| Financial liabilities at fair value | 1,976 |
| through profit or loss | |
+-------------------------------------------+--------------------------------------+
| Loans and receivables | 2,258 |
+-------------------------------------------+--------------------------------------+
| Cash and cash equivalents | 20,058 |
+-------------------------------------------+--------------------------------------+
| | 24,292 |
+-------------------------------------------+----------------+
| Financial Liabilities | |
+-------------------------------------------+--------------------------------------+
| Financial liabilities at fair value | 717 |
| through profit or loss | |
+---------------------+---------------------+----------------+---------------------+
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. Redemption gates are currently imposed by the
funds thereby limiting the Group's ability to realise the value of its
investments in a timely manner.
22. POSSIBLE CLAIM RELATING TO LAWSUIT AGAINST FORMER GROUP COMPANY
Argo Group Limited ("Argo") has been named as an additional defendant in a
lawsuit filed against Absolute Capital Management Holdings Limited (now known as
ACMH Limited ("ACMH")) and others. The suit has been filed in the District of
Colorado, USA, by an investor in several of ACMH's investment funds. This
litigation arose after the demerger of Argo from ACMH. The plaintiff, The
Cascade Fund LLLP ("Cascade"), has made a number of claims against ACMH. In the
event that Cascade's litigation proves successful, Cascade is seeking to include
Argo shares as part of the ACMH asset pool available to it by way of
compensation.
Argo has yet to be served in this litigation. Argo considers that the courts of
Colorado do not have valid jurisdiction. The directors believe that the claim
against Argo is wholly without merit and Argo intends vigorously to defend its
position.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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