TIDMARGO
RNS Number : 5140Z
ARGO Group Limited
16 March 2012
Argo Group Limited
("Argo" or the "Company")
Annual Report and Accounts for the Year ended 31 December
2011
Argo today announces its final results for the year ended 31
December 2011.
The Company will today make available its report and accounts
for the year ended 31 December 2011 on the Company's website
www.argogrouplimited.com.
Key highlights for the twelve months ended 31 December 2011
- Revenues US$11.2 million (2010: US$10.9 million)
- Operating profit US$2.1 million (2010: US$1.2 million)
- Profit before tax US$2.2 million (2010: US$2.5 million)
- Maintained balance sheet strength - net assets US$43.4 million
(2010: US$44.4 million) after dividend payment and share buybacks
totalling US$2.8 million (2010: US$1.7 million)
- Final dividend declared - 2.0c (1.3p) per share (2010: 1.9c,
1.2p) in respect of year ended 31 December 2011
- Purchase of two shopping parks resulting in Argo Real Estate
Opportunities Fund Limited ("AREOF"), a company to which the Group
provides management services, becoming the largest listed retail
property company operating in Romania
Commenting on the results and outlook, Kyriakos Rialas, Chief
Executive of Argo said:
"Despite a very difficult year for the whole of the hedge fund
industry, Argo managed to produce a profit in 2011 through active
cost control and sustainability of its income. We successfully
completed the merger of our property assets under a listed company,
AREO, and maintained our strong balance sheet and liquidity while
at the same time buying back some more shares and increasing the
dividend payout. We begin the new year on a positive note as we
undertake a number of initiatives to sanitise our funds and
reconfirm our mandate as fully described in the accounts."
Enquiries
Argo Group Limited
Andreas Rialas
020 7535 4000
Panmure Gordon
Dominic Morley
020 7459 3600
CHAIRMAN'S STATEMENT
The Group and its objective
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 funds that it
manages by investing in, inter alia, fixed income, special
situations, local currencies and interest rate strategies, private
equity, real estate, quoted equities, high yield corporate debt and
distressed debt, although not every fund invests in each of these
asset classes.
Argo was listed on the AIM market in November 2008 and has a
performance track record dating back to 2000.
Business and operational review
This report sets out the results of Argo Group Limited for the
year ended 31 December 2011.
The year under review proved challenging given the low level of
new inflows into the Argo funds and continuing redemptions. Assets
under management ("AUM") decreased by 19.4% to US$325.4 million
from their level at 31 December 2010. Despite flat-to-negative fund
performance during the year the decrease in AUM of US$75.9 million
was mainly due to the accelerated payment of redemptions following
the lifting of the gate from the Argo Global Special Situations
Fund ("AGSSF"). The Argo funds have yet to regain their high-water
mark.
The Group generated revenues of US$11.2 million (2010: US$10.9
million) for the year ended 31 December 2011 with management fees
accounting for US$9.2 million (2010: US$10.0 million). The Group
benefitted from a one-off fee of US$1.1 million which is included
in other income.
During the year the Group continued with its cost saving
initiatives with total costs falling to US$9.0 million (2010:
US$9.7 million). Overall, the financial statements show an
operating profit for the year of US$2.1 million (2010: US$1.2
million) with earnings per share being maintained at US$0.03 (2010:
US$0.03).
Argo has maintained its strong balance sheet with over US$27.4
million (2010: US$27.5 million) in net current assets. The Group
has held its net asset position of US$43.4 million (2010: US$44.4
million) even after paying a dividend of US$1.4 million (2010:
US$1.1 million)and buying back shares at a total cost of US$1.4
million (2010: US$0.6 million).
Net current assets include investments in The Argo Fund ("TAF")
and AREOF at fair values of US$15.6 million and US$0.9 million
respectively. Since the year end the Board has approved the
investment of a further US$2 million in TAF.
Business and operational review (continued)
Following on from the Argo funds' consolidation of their real
estate assets in Romania the Group subscribed US$0.99 million of
its cash resources to acquire new shares in AREOF. Furthermore, the
Group has provided AREOF with a notice of deferral in relation to
the amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2011 total US$2,480,165 (EUR1,915,333).
The number of employees of the Group at the year end increased
to 42 (2010: 26) mainly due to the acquisition of the holding
companies of the two shopping parks in Romania and the subsequent
transfer of staff to the Argo Group.
In order to retain and properly incentivise its qualified
personnel, the Company intends to continue paying its employees
variable compensation in the form of a cash bonus in the aggregate
amount of 30%-50% of profit before tax. To further incentivise
personnel and to align their interests with those of the
shareholders the Group granted options during the year over
5,900,000 shares to directors and employees under The Argo Group
Limited Employee Stock Option Plan.
Fund performance
Performance across the range of Argo funds was very mixed for
the year. The main fund, TAF, was marginally ahead, by 0.10%, as
was the Argo Distressed Credit Fund ("ADCF"), by 1.18%; by
comparison, the main hedge fund indices showed a negative return of
around 1% for the same period.
Managing the Argo funds continued to be a challenge against the
back-drop of multiple sovereign debt downgrades, declining economic
growth and austerity measures with markets becoming very volatile
and difficult to trade.
The Argo Funds
2011 2010
Launch Year Year Since Annualised Sharpe Down
Fund date total total inception performance ratio months AUM
----------------- -------- ------- ------- ------------ --------------- ------- -------- ------
% % % CAGR % US$m
----------------- -------- ------- ------- ------------ --------------- ------- -------- ------
23
of
The Argo Fund Oct-00 0.10 8.55 134.50 8.65 0.75 135 95.7
----------------- -------- ------- ------- ------------ --------------- ------- -------- ------
Argo Global 23
Special of
Situations Fund Aug-04 -35.21 8.21 -4.46 0.32 0.02 89 6.0
----------------- -------- ------- ------- ------------ --------------- ------- -------- ------
16
of
AGSSF Holdings Feb-09 -37.98 -1.50 -34.20 -10.50 -0.49 35 75.0
----------------- -------- ------- ------- ------------ --------------- ------- -------- ------
Argo Distressed 13
Credit of
Fund Oct-08 1.18 10.32 24.57 7.16 0.83 39 25.7
----------------- -------- ------- ------- ------------ --------------- ------- -------- ------
Argo Real Estate
Opportunities
Fund Aug-06 178.23 2.65 -24.22 -6.45 N/A N/A 97.7*
----------------- -------- ------- ------- ------------ --------------- ------- -------- ------
Argo Capital
Partners Fund Aug-06 -50.81 -24.5 -53.3 -13.3 N/A N/A 25.3
----------------- -------- ------- ------- ------------ --------------- ------- -------- ------
Total 325.4
--------------------------- ------- ------- ------------ --------------- ------- -------- ------
* NAV only officially measured twice a year, March and
September.
AGSSF Holdings Limited ("AHL") comprises assets that are
currently more difficult to liquidate. In the first half of the
year it delivered an encouraging year-to-date return of 5.54% which
was in part driven by a disposal of equity in a European IT
services company. At the end of the year AHL felt the impact of the
Greek crisis which saw the complete write down of its equity
interest in a Greek telecommunications company. The immediate
challenges facing the Fund remain engineering exits for the Greek
investment and defaulted loans to an Indonesian petrochemical
plant.
AREOF continues to operate in a particularly challenging and
difficult environment in which regional and global property markets
have remained weak despite some initial signs of recovery and the
economic and financing background has been most uncertain. Tenants
continue to seek rent concessions, albeit at a slightly reduced
level from the previous year. Against this backdrop, in September
2011 AREOF successfully completed the purchase of a further two
shopping parks, ERA Shopping Park Iasi and ERA Shopping Park
Oradea, in Romania, from funds advised by the Argo Group. Following
the purchase of these assets AREOF has become the largest listed
owner and operator of retail parks in the country thus making it
more marketable to international investors over the long term.
Further information may be found in the published accounts of AREOF
on its website at www.argoproperty.com.
AREOF is currently finalising a major asset management
initiative on its Sibiu Shopping City retail park to attract
further leading international tenants and strengthen its income
deriving from this asset. AREOF has successfully renegotiated terms
with its bankers and continues to maintain tenant occupancy at
around 98%-100%. The Fund's adjusted Net Asset Value was US$97.7
million (EUR75.4 million) as at 30 September 2011, compared with
US$35.9 million (EUR27.1 million) a year earlier.
Argo Capital Partners Fund ("ACPF"), a private equity fund
closed to new subscriptions, was invested in three projects at the
year end. ACPF reported a negative return of 50.81% for the year
(2010: -24.5%) mainly due to the complete write down of its
investment in the Greek telecommunications company. This Fund has
suffered mainly from the lack of liquidity and demand for private
equity assets in emerging markets. Whilst the intention was to sell
some portfolio investments in 2011 it is disappointing that
difficult operating conditions hindered this process. However, in
September 2011 we completed the disposal of the two shopping parks,
ERA Shopping Park Iasi and ERA Shopping Park Oradea, to AREOF. This
transaction represented an internal consolidation of Argo's real
estate interests in Romania and thus measures were taken to ensure
there were no conflicts of interest. The transaction was an all
paper deal resulting in ACPF owning 24.5% of the issued shares in
the combined AREOF group. Funds advised by Argo control a combined
73.9% of the AREOF group.
Dividends and share purchase programme
Underlining the Board's confidence in the future prospects of
the Group, the directors recommend a final dividend of 2.0c (1.3p)
per share (2010: 1.9c, 1.2p). The final dividend will be paid on 20
June 2012 to shareholders who are on the Register of Members on 25
May 2012.
Going forward, the Company intends, subject to its financial
performance, to pay a final dividend each year.
During the year the directors authorised the repurchase of
6,235,000 shares at a total cost of US$1.4 million this marking the
successful conclusion of the share purchase programme that was
announced two years ago. The Board has decided for the time being
to abstain from a renewal of the share purchase programme but
reserves the right to buy back its own shares on an ad hoc basis if
and when the opportunity arises.
Outlook
Conditions in global financial markets are once again
characterised by uncertainty amid investor anxiety about the future
of the Eurozone. The hedge fund model is rapidly changing with
investors challenging fee structures and managers increasingly
seeking three-year lockups. This uncertainty has made attracting
new investors to Argo's funds difficult. Nevertheless, the Group is
carrying out a number of initiatives to make its funds in emerging
markets more attractive to new investors when market conditions
improve.
AREOF's asset base has almost doubled after certain other funds
advised by the Group injected the ERA Shopping Park Iasi and ERA
Shopping Park Oradea into AREOF. As a consequence, AREOF is now the
largest listed retail property fund operating in Romania. Following
on from this AREOF has successfully been admitted to the Open
Market of the Frankfurt Stock Exchange. The Board believes this
transaction along with the dual-listing and the potential for cost
savings will make AREOF more attractive to investors and expects
the discount to net asset value at which the Fund's shares
currently trade to narrow significantly.
Since the year end Argo has completed a significant fund
restructuring exercise, effective 1 February 2012, to reconfirm its
mandate with the investor base of AHL and ACPF and to attract new
liquidity. The portfolio assets of AHL and ACPF have been
transferred into a new fund, Argo Special Situations Fund LP (SSF),
in exchange for ordinary partnership interests in SSF with the
objective of acquiring follow-on investments and maximising the
value of the assets. The fundraising initiative is currently
underway with existing and new investors being invited to subscribe
for two-year preference shares targeting a 13.5% annualised return.
As part of this restructuring exercise the high-water mark for
earning performance fees has been re-set to zero. SSF is a
closed-ended fund with a realisation period of three years subject
to extension.
Argo retains a strong balance sheet and is well-equipped to deal
with the volatile economic conditions being faced by global
financial markets. The business will continue to look for
opportunities and invest in infrastructure where necessary whilst
operating as cost-effectively as possible.
The Board is confident that with its talented team the Group can
continue to meet the ongoing economic challenges and is well placed
to benefit from an eventual global recovery and in particular the
emerging markets sector.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 DECEMBER 2011
Year ended Year ended
31 December 31 December
2011 2010
Note US$'000 US$'000
Management fees 9,214 10,034
Incentive fees 91 434
Other income 1,845 480
==================================== ====== ============ ============
2(e),
Revenue 3 11,150 10,948
==================================== ====== ============ ============
Legal and professional expenses (397) (614)
Management and incentive
fees payable 2(f) (79) (444)
Operational expenses (1,730) (1,931)
Employee costs 4 (6,130) (5,864)
Foreign exchange gain/(loss) 28 (134)
Amortisation of intangible
assets 9 (683) (651)
Depreciation 10 (35) (99)
==================================== ====== ============ ============
Operating profit 6 2,124 1,211
==================================== ====== ============ ============
Interest income on cash
and cash equivalents 45 57
Unrealised (loss)/gain on
investments (13) 1,226
==================================== ====== ============ ============
Profit on ordinary activities
before taxation 3 2,156 2,494
==================================== ====== ============ ============
Taxation 7 (260) (267)
==================================== ====== ============ ============
Profit for the year after
taxation attributable to
members of the Company 8 1,896 2,227
Other comprehensive income
Exchange differences on
translation of foreign operations (111) (469)
==================================== ====== ============ ============
Total comprehensive income
for the year 1,785 1,758
==================================== ====== ============ ============
Year ended Year ended
31 December 31 December
2011 2010
US$ US$
Earnings per share (basic) 8 0.03 0.03
============================== ============ ============
Earnings per share (diluted) 8 0.02 0.03
============================== ============ ============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2011
At 31 December At 31 December
2011 2010
Note US$'000 US$'000
Assets
Non-current assets
Intangible assets 9 15,942 16,615
Fixtures, fittings and
equipment 10 70 41
Loans and advances receivable 14 38 253
=============================== ===== =============== ===============
Total non-current assets 16,050 16,909
=============================== ===== =============== ===============
Current assets
Investments 11 16,539 15,563
Trade and other receivables 12 3,314 1,312
Cash and cash equivalents 13 8,358 11,907
Loans and advances receivable 14 240 5
=============================== ===== =============== ===============
Total current assets 28,451 28,787
=============================== ===== =============== ===============
Total assets 3 44,501 45,696
=============================== ===== =============== ===============
Equity and liabilities
Equity
Issued share capital 15 674 737
Share premium 30,878 32,199
Revenue reserve 14,123 13,645
Foreign currency translation
reserve 2(d) (2,250) (2,139)
=============================== ===== =============== ===============
Total equity 43,425 44,442
=============================== ===== =============== ===============
Current liabilities
Trade and other payables 16 913 1,054
Taxation payable 7 163 200
=============================== ===== =============== ===============
Total current liabilities 3 1,076 1,254
=============================== ===== =============== ===============
Total equity and liabilities 44,501 45,696
=============================== ===== =============== ===============
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED 31 DECEMBER 2011
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2010 2010 2010 2010 2010
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2010 769 32,772 12,544 (1,670) 44,415
Total comprehensive
income
Profit for the period
after taxation - - 2,227 (469) 1,758
Transactions with
owners recorded
directly in equity
Dividends to equity
holders - - (1,126) - (1,126)
Purchase of own
shares (32) (573) - - (605)
======================= ========= ========= ========= ============== ========
As at 31 December
2010 737 32,199 13,645 (2,139) 44,442
======================= ========= ========= ========= ============== ========
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2011 2011 2011 2011 2011
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2011 737 32,199 13,645 (2,139) 44,442
Total comprehensive
income
Profit for the period
after taxation - - 1,896 (111) 1,785
Transactions with
owners recorded
directly in equity
Dividends to equity
holders (note 15) - - (1,418) - (1,418)
Purchase of own
shares (note 15) (63) (1,321) - - (1,384)
======================= ========= ========= ========= ============== ========
As at 31 December
2011 674 30,878 14,123 (2,250) 43,425
======================= ========= ========= ========= ============== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2011
Year ended Year ended
31 December 31 December
2011 2010
Note US$'000 US$'000
Net cash inflow from
operating activities 18 354 932
Cash flows from investing
activities
Interest received on
cash and cash equivalents 45 57
Purchase of current
asset investments 11 (988) -
Purchase of fixtures,
fittings and equipment 10 (64) (8)
Net cash (used in)/generated
from investing activities (1,007) 49
============================== ===== ============ ============
Cash flows from financing
activities
Repurchase of own shares 15 (1,384) (605)
Dividends paid 15 (1,418) (1,126)
============================== ===== ============ ============
Net cash used in financing
activities (2,802) (1,731)
============================== ===== ============ ============
Net decrease in cash
and cash equivalents (3,455) (750)
Cash and cash equivalents
at 1 January 2011 and
1 January 2010 11,907 13,069
Foreign exchange loss
on cash and cash
equivalents (94) (412)
Cash and cash equivalents
as at 31 December 2011
and 31 December 2010 8,358 11,907
============================== ===== ============ ============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
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 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 42 (2010: 26)
employees.
Wholly owned subsidiaries Country of incorporation
Argo Capital Management Cyprus
(Cyprus) Limited
Argo Capital Management United Kingdom
Limited
Argo Capital Management Cayman Islands
Property Limited
Argo Capital Management Singapore
(Asia) Pte. Ltd.
North Asset Management Romania
Srl
North Asset Management Luxembourg
Sarl
Argo Investor Services Switzerland
AG
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.
These accounts have been prepared on the basis that the Company
is a going concern.
(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 Comprehensive Income.
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 Comprehensive
Income.
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 Statement of Comprehensive
Income.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations are
translated at exchange rates prevailing on the balance sheet date.
Income and expense items are translated at the average exchange
rates for the year. 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 Statement of Comprehensive Income as
income or as expenses in the year of the operation's disposal.
(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 assets 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 ("AREOF") (managed by Argo Capital
Management Property Ltd) incentive fees may be triggered at any
time on realisation of a property asset.
Management and incentive fees receivable (continued)
The management and incentive fees receivable from AREOF are
defined in the management contract between that company and Argo
Capital Management Property Ltd. The management contract has a
fixed term expiring on 31 July 2018.
During the year the Group provided AREOF with a notice of
deferral in relation to the amounts due from the provision of
investment management services, under which it will not demand
payment of such amounts until the Group judges that AREOF is in a
position to pay the outstanding liability. These amounts accrued or
receivable at 31 December 2011 total US$2,480,165 (EUR1,915,333).
In the directors' view these amounts are fully recoverable and they
have therefore concluded that it is appropriate to continue to
recognise income from these investment management services.
(f) Management and incentive fees payable
The Group pays management and incentive fees based on a
proportion of fees receivable from mutual funds. Fees payable are
accrued on a monthly basis consistent with revenue streams
earned.
(g) Depreciation
Plant and equipment is initially recorded at cost and
depreciated on a straight-line basis over the expected useful lives
of the assets as follows:
Leasehold 33 1/3% per annum
Fixtures and fittings 10% to 33 1/3% per annum
Office equipment 10% to 33 1/3% per annum
Computer equipment and software 20% 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 Statement
of Comprehensive Income. 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 Fund SPC
(comprising the segregated portfolio Argo Global Special Situations
Fund SP), Argo Capital Partners Fund Ltd, Argo Distressed Credit
Fund Limited and AGSSF Holdings 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
Consolidated Statement of Financial Position when the Company
becomes party to the contractual provisions of the instrument.
Non-derivative financial instruments include trade and other
receivables, cash and cash equivalents, loans and borrowings and
trade and other payables. The initial and subsequent measurement of
non-derivative financial instruments is dealt with below.
Trade and other receivables
Trade and other receivables 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 six 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
year. Taxable profit differs from net profit as reported in the
Consolidated Statement of Comprehensive Income 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
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 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 (note 9)
It has been assumed that, when available, the audited financial
statements of the funds under the Group's management will confirm
the net asset values used in the calculation of management and
performance fees receivable.
(o) Operating leases
Costs in respect of operating leases are charged on a straight
line basis over the lease term. Benefits, such as rent free
periods, received and receivable as incentives to take on operating
leases are spread on a straight line basis over the lease term, or,
if shorter than the full lease term, over the period to the review
date on which the rent is first expected to be adjusted to the
prevailing market rent.
(p) Financial instruments and fair value hierarchy
The following represents the fair value hierarchy of financial
instruments measured at fair value in the Statement of Financial
Position. The hierarchy groups financial assets and liabilities
into three levels based on the significance of inputs used in
measuring the fair value of the financial assets and liabilities.
The fair value hierarchy has the following levels:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The level within which the financial asset or liability is
classified is determined based on the lowest level of significant
input to the fair value measurement.
(q) Future changes in accounting policies
IASB (International Accounting Standards Board) and IFRIC
(International Financial Reporting Interpretations Committee) have
issued the following standards and interpretations with an
effective date after the date of these financial statements:
Effective
New/Revised International Financial date
Reporting Standards (IAS/IFRS) (accounting
periods
commencing
on or after)
---------------------------------------------- --------------
IAS 1 Presentation of Financial Statements 1 July 2012
- Amendments to revise the way other
comprehensive income is presented
(June 2011)
IAS 12 Income Taxes - Limited scope 1 January
amendment (recovery of underlying 2012
assets) (December 2010)
IAS 19 Employee Benefits - Amendment 1 January
resulting from the Post-Employment 2013
Benefits and Termination Benefits
projects (as amended in June 2011)
IAS 27 Consolidated and Separate Financial 1 January
Statements - Reissued as IAS 27 Separate 2013
Financial Statements (as amended in
May 2011)
IAS 28 Investments in Associates - 1 January
Reissued as IAS 28 Investments in 2013
Associates and Joint Ventures (as
amended in May 2011)
IAS 32 Financial Instruments Presentation 1 January
- Amendments to application guidance 2014
on the offsetting of financial assets
and financial liabilities (December
2011)
IFRS 7 Financial Instruments: Disclosures 1 July 2011
- Amendments enhancing disclosures
about transfers of financial assets
(October 2010)
IFRS 7 Financial Instruments: Disclosures 1 January
- Amendments enhancing disclosures 2013
about offsetting of financial assets
and financial liabilities (December
2011)
IFRS 7 Financial Instruments: Disclosures 1 January
- Amendments requiring disclosures 2015
about the initial applicable of IFRS
9 (December 2011)
IFRS 9 Financial Instruments - Classification 1 January
and measurement of financial assets 2015
(as amended in December 2011)
IFRS 9 Financial Instruments - Accounting 1 January
for financial liabilities and derecognition 2015
(as amended in December 2011)
IFRS 10 Consolidated Financial Statements 1 January
(May 2011) 2013
IFRS 11 Joint Arrangements (May 2011) 1 January
2013
IFRS 12 Disclosure of Interests in 1 January
Other Entities (May 2011) 2013
IFRS 13 Fair Value Measurement (May 1 January
2011) 2013
---------------------------------------------- --------------
The directors do not expect the adoption of these standards and
interpretations to have a material impact on the Group's financial
statements in the period of initial application, except for IFRS 9
Financial Instruments, which becomes mandatory for the Group's 2015
consolidated financial statements and could change the
classification and measurement of financial assets. The Group does
not plan to adopt this standard early and the extent of the impact
has not been determined.
Any standard adopted during the year has presentational impact
only; it is therefore not necessary to adjust comparative
information.
(r) Dividends payable
Interim and final dividends are recognised when declared.
3. SEGMENTAL ANALYSIS
The Group operates as a single asset management business.
The operating results of the companies set out in note 1 above
are regularly reviewed by the directors of the Group for the
purposes of making decisions about resources to be allocated to
each company and to assess performance. The following summary
analyses revenues, profit or loss, assets and liabilities:
Argo Capital Argo Capital
Argo Management Argo Capital Management Year
Group (Cyprus) Management Property ended
Ltd Limited Limited Limited Other 31 December
2011 2011 2011 2011 2011 2011
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenues
from external
customers - 6,520 1,123 3,503 4 11,150
Intersegment
revenues 5,222 - 2,942 - 488 8,652
Reportable
segment
profit/(loss) 4,792 (2,388) (1,237) 1,180 (202) 2,145
Intersegment
profit/(loss) 5,222 (7,850) 2,455 - 169 (4)
Reportable
segment assets 49,441 2,285 3,410 3,946 445 59,527
Reportable
segment liabilities 83 332 835 114 65 1,429
====================== ======== ============= ============== ============== ======== =============
Revenues, profit or loss, assets and liabilities Year ended
may be reconciled as follows:
31 December
2011
US$'000
Revenues
Total revenues for reportable segments 19,802
Elimination of intersegment revenues (8,652)
================================================== =============
Group revenues 11,150
================================================== =============
Profit or loss
Total profit for reportable segments 2,145
Elimination of total intersegment losses 4
Other unallocated amounts 7
================================================== =============
Profit on ordinary activities before taxation 2,156
================================================== =============
Assets
Total assets for reportable segments 59,527
Elimination of intersegment receivables (373)
Elimination of Company's cost of investments (14,653)
================================================== =============
Group assets 44,501
================================================== =============
Liabilities
Total liabilities for reportable segments 1,429
Elimination of intersegment payables (353)
================================================== =============
Group liabilities 1,076
================================================== =============
Argo Capital Argo Capital
Argo Management Argo Capital Management Year
Group (Cyprus) Management Property ended
Ltd Limited Limited Limited Other 31 December
2010 2010 2010 2010 2010 2010
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenues
from external
customers - 7,845 38 3,063 2 10,948
Intersegment
revenues 3,084 - 3,057 - 547 6,688
Reportable
segment profit/(loss) 3,692 1,699 (1,283) (1,737) 127 2,498
Intersegment
profit/(loss) 3,084 (4,500) 3,057 (2,257) 547 (69)
Reportable
segment assets 47,455 5,112 4,622 2,881 603 60,673
Reportable
segment liabilities 88 514 851 80 43 1,576
======================== ======== ============= ============== ============== ======== =============
Revenues, profit or loss, assets and liabilities Year ended
may be reconciled as follows:
31 December
2010
US$'000
Revenues
Total revenues for reportable segments 17,636
Elimination of intersegment revenues (6,688)
================================================== =============
Group revenues 10,948
================================================== =============
Profit or loss
Total profit for reportable segments 2,498
Elimination of total intersegment losses 69
Other unallocated amounts (73)
================================================== =============
Profit on ordinary activities before taxation 2,494
================================================== =============
Assets
Total assets for reportable segments 60,673
Elimination of intersegment receivables (325)
Elimination of Company's cost of investments (14,652)
================================================== =============
Group assets 45,696
================================================== =============
Liabilities
Total liabilities for reportable segments 1,576
Elimination of intersegment payables (322)
================================================== =============
Group liabilities 1,254
================================================== =============
4. EMPLOYEE COSTS
Year ended Year ended
31 December 31 December
2011 2010
US$'000 US$'000
Wages and salaries 5,540 5,399
Social security costs 524 421
Other 66 44
======================= ============== ==============
6,130 5,864
======================= ============== ==============
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to:
Year ended Year ended
31 December 31 December
2011 2010
US$'000 US$'000
Directors and key management
personnel 3,245 3,561
============================== ============== ==============
The remuneration of the directors of the Company for the year
was as follows:
Year ended Year ended
31 December 31 December
Cash
Salaries Fees Benefits bonus 2011 2010
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive
Directors
Kyriakos
Rialas 243 - - 195 438 530
Andreas
Rialas 232 - 2 981 1,215 700
Non-Executive
Directors
Michael
Kloter - 85 - - 85 74
David
Fisher - 40 - - 40 39
Ken Watterson - 40 - - 40 39
=============== ============ ========== ============ ========== ============== ==============
6. OPERATING PROFIT
Operating profit is stated after charging:
Year ended Year ended
31 December 31 December
2011 2010
US$'000 US$'000
Auditors' remuneration 99 111
Depreciation 35 99
Amortisation 683 651
Directors' fees 2,696 2,592
Operating lease payments 486 530
=========================== ============== ==============
7. TAXATION
Taxation rates applicable to the parent company and the Cypriot,
UK, Singaporean, Luxembourg, Swiss and Romanian subsidiaries range
from 0% to 26.5% (2010: 0% to 28%).
Income Statement
Year ended Year ended
31 December 31 December
2011 2010
US$'000 US$'000
Taxation charge for the year
on Group companies 260 273
Over provision in respect
of prior years - (6)
============================== ============== ==============
Tax on profit on ordinary
activities 260 267
============================== ============== ==============
The tax charge for the year can be reconciled to the profit per
the Consolidated Statement of Comprehensive Income as follows:
Year ended Year ended
31 December 31 December
2011 2010
US$'000 US$'000
Profit before tax 2,156 2,494
================================== ============== ==============
Applicable Isle of Man tax
rate for Argo Group Limited
of 0% - -
Timing differences 4 16
Non-deductible expenses 19 16
Non-taxable income (11) (14)
Other adjustments - (4)
Tax effect of different tax
rates of subsidiaries operating
in other jurisdictions 248 253
================================== ============== ==============
Tax charge 260 267
================================== ============== ==============
Balance Sheet
At 31 December At 31 December
2011 2010
US$'000 US$'000
Corporation tax payable 163 200
========================= =============== ===============
8. EARNINGS PER SHARE
Earnings per share is calculated by dividing the net profit for
the period by the weighted average number of shares outstanding
during the period.
Year ended Year ended
31 December 31 December
2011 2010
US$'000 US$'000
Net profit for the year after
taxation attributable to members 1,896 2,227
=================================== ============== ==============
No. of No. of
shares shares
Weighted average number of
ordinary shares for basic
earnings
per share 70,411,827 75,150,213
Effect of dilution 5,900,000 -
=================================== ============== ==============
Weighted average number of
ordinary shares for diluted
earnings per share 76,311,827 75,150,213
=================================== ============== ==============
Year ended Year ended
31 December 31 December
2011 2010
US$ US$
Earnings per share (basic) 0.03 0.03
Earnings per share (diluted) 0.02 0.03
============================== ============== ==============
9. INTANGIBLE ASSETS
Fund management
contracts
US$'000
Cost
At 1 January 2010 18,633
Foreign exchange movement (79)
========================================== ================
At 31 December 2010 18,554
Foreign exchange movement 86
========================================== ================
At 31 December 2011 18,640
========================================== ================
Amortisation and impairment
At 1 January 2010 1,180
Amortisation of Argo business intangible
assets 651
Foreign exchange movement 108
========================================== ================
At 31 December 2010 1,939
Amortisation of Argo business intangible
assets 683
Foreign exchange movement 76
========================================== ================
At 31 December 2011 2,698
========================================== ================
Net book value
At 31 December 2010 16,615
========================================== ================
At 31 December 2011 15,942
========================================== ================
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$14.8m (2010: US$14.9m) after a prior year restatement of cost to
write off pre-acquisition goodwill of US$0.1m against revenue
reserves.
The key assumptions on which the directors have based their five
year discounted cash flow analysis are a pre-tax discount rate of
15% (2010: 15%), an inflation rate of 5% (2010: 5%) and a weighted
average growth in assets under management (which determine
management and performance fee income) of 7% to 12% (2010: 10% to
12.5%), with 2.1% to 3.6% (2010: 3% to 3.75%) of this estimated to
be from annual profits. The assumption of growth in assets under
management has been based on the historic performance of existing
funds as well as forecast performance on funds restructured since
the year end and new product initiatives currently under
development. 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 (2010: 25% higher) or
the estimated growth rate of assets under management had been 20%
lower (2010: 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 AREOF
management contract is US$1.0m (2010: US$1.8m), net of
amortisation. The intangible asset is being amortised over 5 years
and 44 days, being the remaining period of the contract from the
date of acquisition. During the period the Group successfully
renegotiated the extension of this management contract by five
years from the current termination date of 31 July 2013 to 31 July
2018.
10. FIXTURES, FITTINGS AND EQUIPMENT
Fixtures,
fittings
& equipment
US$ '000
Cost
At 1 January 2010 299
Additions 8
Disposals -
Foreign exchange movement (12)
================================ =============
At 31 December 2010 295
Additions 64
Disposals -
Foreign exchange movement (2)
================================ =============
At 31 December 2011 357
================================ =============
Accumulated Depreciation
At 1 January 2010 163
Depreciation charge for period 99
Disposals -
Foreign exchange movement (8)
================================ =============
At 31 December 2010 254
Depreciation charge for period 35
Disposals -
Foreign exchange movement (2)
================================ =============
At 31 December 2011 287
================================ =============
Net book value
At 31 December 2010 41
================================ =============
At 31 December 2011 70
================================ =============
11. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
At 31 December At 31 December
2011 2011
Holding Investment in management Total cost Fair value
shares
US$ '000 US$ '000
10 The Argo Fund Ltd - -
10 Argo Capital Investors - -
Fund SPC
10 Argo Capital Partners - -
Fund
100 Argo Distressed Credit - -
Fund Ltd
100 AGSSF Holdings Ltd - -
======== ========================= ================= =================
- -
======== ========================= ================= =================
Holding Investment in ordinary Total cost Fair value
shares
US$ '000 US$ '000
66,435 The Argo Fund Ltd 14,343 15,579
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 960
15,331 16,539
=========== ======================= ============= =============
At 31 December At 31 December
2010 2010
Holding Investment in management Total cost Fair value
shares
US$ '000 US$ '000
10 The Argo Fund Ltd - -
10 Argo Capital Investors - -
Fund SPC
10 Argo Capital Partners - -
Fund Ltd
100 Argo Distressed Credit - -
Fund Ltd
100 AGSSF Holdings Ltd - -
======== ========================= ================= =================
- -
======== ========================= ================= =================
Holding Investment in ordinary Total cost Fair value
shares
US$ '000 US$ '000
66,435 The Argo Fund Ltd 14,343 15,563
======== ======================= ============= =============
14,343 15,563
======== ======================= ============= =============
12. TRADE AND OTHER RECEIVABLES
At 31 December At 31 December
2011 2010
US$ '000 US$ '000
Trade receivables 2,591 1,060
Other receivables 50 41
Prepayments and accrued
income 673 211
========================= ================= =================
3,314 1,312
========================= ================= =================
The directors consider that the carrying amount of trade and
other receivables approximates their fair value. All trade
receivable balances are recoverable within one year from the
balance sheet date
During the year the Group provided AREOF (to whom it provides
investment management services) with a notice of deferral in
relation to the amounts due from the provision of investment
management services, under which it will not demand payment of such
amounts until the Group judges that AREOF is in a position to pay
the outstanding liability. These amounts accrued or receivable at
31 December 2011 total US$2,480,165 (EUR1,915,333).
In the audited financial statements of AREOF at 30 September
2011, a material uncertainty surrounding the refinancing of bank
debts was referred to in relation to the basis of preparation of
the financial statements. In the view of the directors of AREOF,
discussions with the banks are continuing satisfactorily and they
have therefore concluded that it is appropriate to prepare those
financial statements on a going concern basis.
13. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is a balance of US$100,000
(2010: US$100,000) which represents a bank guarantee in respect of
credit cards issued to Argo Capital Management Property Limited.
Due to the nature of this balance it is not freely available.
14. LOANS AND ADVANCES RECEIVABLE
At 31 December At 31 December
2011 2010
US$'000 US$'000
Deposits on leased premises
- current 240 5
Deposits on leased premises
- non-current 38 253
============================= =============== ===============
278 258
============================= =============== ===============
The deposits on leased premises are retained by the lessor until
vacation of the premises at the end of the lease term as
follows:
At 31 December At 31 December
2011 2010
US$'000 US$'000
Current:
Lease expiring within
one year 240 5
======================= =============== ===============
At 31 December At 31 December
2011 2010
US$'000 US$'000
Non-current:
Lease expiring in second
year after balance sheet
date - 33
Lease expiring in third
year after balance sheet
date 38 220
=========================== =============== ===============
38 253
=========================== =============== ===============
15. SHARE CAPITAL
The Company's authorised share capital is unlimited ordinary
shares with a nominal value of US$0.01.
31 December 31 December 31 December 31 December
2011 2011 2010 2010
No. US$'000 No. US$'000
Issued and fully
paid
Ordinary shares
of US$0.01 each 67,428,494 674 73,663,494 737
================== ============= ============ ============= ============
67,428,494 674 73,663,494 737
================== ============= ============ ============= ============
The directors recommend a final dividend of 2.0c (1.3p) per
share (2010: 1.9c, 1.2p) for the year ended 31 December 2011. The
final dividend for the year ended 31 December 2010 of US$1,418,257
was paid on 22 June 2011 to ordinary shareholders who were on the
Register of Members on 27 May 2011. Going forward, the Company
intends, subject to its financial performance, to pay a final
dividend each year.
During the year the directors authorised the repurchase of
6,235,000 shares at a total cost of US$1.4 million.
16. TRADE AND OTHER PAYABLES
At 31 December At 31 December
2011 2010
US$ '000 US$ '000
Trade and other payables 68 49
Other creditors and accruals 845 1,005
============================== =============== ===============
913 1,054
============================== =============== ===============
Trade and other payables are normally settled on 30-day
terms.
17. OBLIGATIONS UNDER OPERATING LEASES
Operating lease payments represent rentals payable by the Group
for certain of its business premises. The leases have no escalation
clauses or renewal or purchase options and no restrictions imposed
on them.
As at the balance sheet 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
2011 2010
US$ '000 US$ '000
Operating lease liabilities:
Within one year 420 440
In the second to fifth
years inclusive 167 305
============================== =============== ===============
Present value of minimum
lease payments 587 745
============================== =============== ===============
18. RECONCILIATION OF NET CASH INFLOW FROM OPERATING ACTIVITIES TO
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended
31 December 31 December
2011 2010
US$ '000 US$ '000
Profit on ordinary activities
before taxation 2,156 2,494
Interest income (45) (57)
Amortisation of intangible
assets 683 651
Depreciation 35 99
Decrease in payables (141) (1,638)
(Increase)/decrease
in receivables (2,022) 97
Decrease/(increase)
in fair value of current
asset investments 13 (1,226)
Net foreign exchange
(gain)/loss (28) 134
Income taxes (paid)/repaid (297) 378
=============================== ============== ==============
Net cash inflow from
operating activities 354 932
=============================== ============== ==============
19. RELATED PARTY TRANSACTIONS
All Group revenues derive from funds or entities in which two of
the Company's directors, Andreas Rialas and Kyriakos Rialas, have
an influence through directorships and the provision of investment
advisory services.
At the balance sheet date the Company holds investments in The
Argo Fund Limited and AREOF. These investments are reflected in the
accounts at a fair value of US$15,578,970 and US$959,694
respectively.
During the period the Group provided AREOF (to whom it provides
investment management services) with a notice of deferral in
relation to the amounts due from the provision of investment
management services, under which it will not demand payment of such
amounts until the Group judges that AREOF is in a position to pay
the outstanding liability. These amounts accrued or receivable at
31 December 2011 total US$2,480,165 (EUR1,915,333).
Michael Kloter, the non-executive chairman, is also partner in a
legal firm which supplies services to the Group. This firm charged
US$Nil (2010: US$7,180) for services rendered to the Group in the
year.
David Fisher, a non-executive director of the Company, is also a
non-executive director of AREOF.
20. FINANCIAL INSTRUMENTS RISK MANAGEMENT
(a) Use of financial instruments
The wider Group has maintained sufficient cash reserves not to
use alternative financial instruments to finance the Group's
operations. The Group has various financial assets and liabilities
such as trade and other receivables, loans and advances, cash,
short-term deposits, and trade and other payables which arise
directly from its operations.
The Group's non-subsidiary investments in funds were entered
into with the purpose of providing seed capital 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 year-end cash balances were held at Royal Bank of
Scotland, Laiki Bank, Bank of Cyprus, United Overseas Bank,
Bancpost and UBS AG.
(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 11. Trade receivables are normally settled on 30-day terms
(note 12).
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 normally on 30-day terms (note 12).
(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, Romanian
Lei 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 2011 the exposure would be a profit or
loss to the Consolidated Statement of Comprehensive Income of
approximately US$148,000 (2010: US$74,000).
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2011 is as
follows:
Instruments
Total Variable Fixed on which
as per interest interest no interest
balance rate instruments* rate is receivable
sheet instruments
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets
at fair value
through profit
or loss 16,539 - - 16,539
Loans and receivables 3,592 - - 3,592
Cash and cash
equivalents 8,358 35 5,747 2,576
======================= ========= =================== ============= ===============
28,489 35 5,747 22,707
======================= ========= =================== ============= ===============
Financial liabilities
Financial liabilities
at fair value
through profit
or loss 913 - - 913
======================= ========= =================== ============= ===============
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.24%. Any
movement in interest rates would have an immaterial effect on the
profit/loss for the period.
The interest rate profile of the Group at 31 December 2010 is as
follows:
Instruments
Total Variable Fixed on which
as per interest interest no interest
balance rate instruments* rate is receivable
sheet instruments
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets
at fair value
through profit
or loss 15,563 - - 15,563
Loans and receivables 1,570 - - 1,570
Cash and cash
equivalents 11,907 600 8,282 3,025
======================= ========= =================== ============= ===============
29,040 600 8,282 20,158
======================= ========= =================== ============= ===============
Financial liabilities
Financial liabilities
at fair value
through profit
or loss 1,054 - - 1,054
======================= ========= =================== ============= ===============
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.5%. 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
approximate the fair value of the financial assets and liabilities
and can be summarised as follows:
At 31 December At 31 December
2011 2010
US$ '000 US$ '000
Financial Assets
Financial assets at fair
value through profit or
loss 16,539 15,563
Loans and receivables 3,592 1,570
Cash and cash equivalents 8,358 11,907
============================ ================= =================
28,489 29,040
=========================== ================= =================
Financial Liabilities
Trade and other payables 913 1,054
============================ ================= =================
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.
Fair value hierarchy
The table below analyses financial instruments measured at fair
value at the end of the reporting period by the level of the fair
value hierarchy (note 2p).
At 31 December 2011
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss 960 15,579 - 16,539
At 31 December 2010
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss - 15,563 - 15,563
21. SHARE-BASED INCENTIVE PLANS
On 14 March 2011 the Group granted options over 5,900,000 shares
to directors and employees under The Argo Group Limited Employee
Stock Option Plan. All options are exercisable in four equal
tranches over a period of four years at an exercise price of 24p
per share.
The fair value of the options granted during the period was
measured at the grant date using a Black-Scholes model that takes
into account the effect of certain financial assumptions, including
the option exercise price, current share price and volatility,
dividend yield and the risk-free interest rate. The fair value of
the options granted is spread over the vesting period of the scheme
and the value is adjusted to reflect the actual number of shares
that are expected to vest.
The principal assumptions for valuing the options are:
Exercise price (pence) 24.0
Weighted average share
price at grant date
(pence) 12.0
Weighted average option
life (years) 10.0
Expected volatility
(% p.a.) 2.11
Dividend yield (% p.a.) 10.0
Risk-free interest rate
(% p.a.) 5.0
The fair value of options granted is recognised as an employee
expense with a corresponding increase in equity. The total charge
to employee costs in respect of this incentive plan is nil. There
were no share option programmes in place in the prior period.
The number and weighted average exercise price of the share
options during the period is as follows:
Weighted No. of share
average exercise options
price
Outstanding at beginning N/A Nil
of period
Granted during the period 24.0p 5,900,000
Forfeited during the period 24.0p (435,000)
============================== ================== =============
Outstanding at end of period 24.0p 5,465,000
============================== ================== =============
Exercisable at end of period N/A Nil
============================== ================== =============
The options outstanding at 31 December 2011 have an exercise
price of 24p and a weighted average contractual life of 10 years,
with the first tranche of shares being exercisable on or after 1
May 2012. Outstanding share options are contingent upon the option
holder remaining an employee of the Group. They expire after 10
years.
The weighted average fair value of the options issued during the
period was nil.
22. CLAIM RELATING TO LAWSUIT AGAINST FORMER GROUP COMPANY
Argo Group Limited ("Argo") had been named as an additional
defendant in a lawsuit filed against Absolute Capital Management
Holdings Limited (now named ACMH Limited ("ACMH")) and others. The
suit had been filed in the United States District Court for the
District of Colorado, 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 LLP ("Cascade"), had
made a number of claims against ACMH and had been seeking to
include Argo assets as part of the ACMH asset pool available to it
by way of compensation.
In April 2010 the Colorado court dismissed Cascade's action
against ACMH for failure to state a claim, following which Cascade
filed a second amended complaint. On 31 March 2011 the court
dismissed Cascade's second amended complaint and dismissed
Cascade's claim against Argo and ACMH in its entirety.
Argo is pleased to report that Cascade did not appeal the order
of the Colorado court issued on 31 March 2011 thus concluding the
matter.
23. EVENTS AFTER THE BALANCE SHEET DATE
The directors consider that there has been no event since the
year end that has a significant effect on the Group's position.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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