TIDMARGO
RNS Number : 7726Z
ARGO Group Limited
12 March 2013
Argo Group Limited
("Argo" or the "Company")
Annual Report and Accounts for the Year ended 31 December
2012
Argo today announces its final results for the year ended 31
December 2012.
The Company will today make available its report and accounts
for the year ended 31 December 2012 on the Company's website
www.argogrouplimited.com.
Key highlights for the twelve months ended 31 December 2012
- Revenues US$8.9 million (2011: US$11.2 million)
- Operating profit US$0.9 million (2011: US$2.1 million)
- Loss before tax US$14.2 million after a one-off goodwill
impairment charge of US$14.9 million (2011: profit US$2.2
million)
- Net assets US$27.7 million (2011: US$43.4 million) after dividend payment of US$1.4 million
- Final dividend declared - 2.1c (1.3p) per share (2011: 2.0c,
1.3p) in respect of the year ended 31 December 2012
Commenting on the results and outlook, Kyriakos Rialas, Chief
Executive of Argo said:
"During 2012 Argo maintained a strong balance sheet forming a
solid basis for further growth and satisfying all regulatory
requirements. This was achieved despite full impairment of goodwill
and further cost reductions to bring costs in line with reducing
revenue. At fund level, our team is firing from all cylinders with
activist management producing results through restructuring of
assets, extracting value and liquidity. In the second half of the
year, and in order to satisfy current investor demand, a new fund
with weekly liquidity was launched, investing in emerging market
local currency sovereign bonds. Marketing effort is also
intensifying with a focus on this new liquid fund. Finally, I am
pleased to inform you that in 2012 Argo Distressed Credit Fund was
ranked in the top 10 of the "Emerging Markets - Global" fund
category by BarclayHedge magazine."
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 2012.
The trading environment has been a difficult and challenging one
for the Argo funds with so much economic and political uncertainty.
Despite this Argo has made progress during the year with the Argo
Distressed Credit Fund ("ADCF") regaining its high-water mark, the
launch of the Argo Local Markets Fund ("ALMF") and the generation
of performance fees in excess of last year. The Argo funds ended
the year with Assets under Management ("AUM") at US$326.4 million,
0.3% higher than at the beginning of the year.
For the year ended 31 December 2012 the Group generated revenues
of US$8.9 million (2011: US$11.2 million) with management fees
accounting for US$7.0 million (2011: US$9.2 million).
In line with last year, the Group has continued to keep its cost
base under review with total costs falling to US$8.0 million (2011:
US$9.0 million). Further cost savings and efficiencies have been
identified including closure of the Buenos Aires and Asia Pacific
offices. We continue to retain the services of our Asia Pacific rep
on a consultancy basis. The Group's cost base will remain under
constant review whilst ensuring efficient deployment of Group
resources and safeguarding of the requisite infrastructure for the
proper functioning of our regulated company.
Since the acquisition of the Argo businesses in 2008 the AUM
attributable to the Group's separately identifiable business units
have decreased significantly due to the volatility and uncertainty
displayed by the global financial markets. As a result, operations
have been scaled back and an impairment review of goodwill was
undertaken at 30 June 2012. Following the review, the goodwill of
US$14.9 million created on the purchase of the Argo businesses has
been fully written off during the period.
Overall, the financial statements show an operating profit for
the year of US$0.9 million (2011: US$2.1 million) and a loss before
tax of US$14.2 million (2011: profit US$2.2 million) reflecting the
non-cash goodwill impairment of US$14.9 million and the unrealised
loss on current asset investments of US$0.2 million (2011: US$0.01
million). The Company has no further goodwill to write off.
At 31 December 2012, the Group had net assets of US$27.7 million
(2011: US$43.4 million) and net current assets of US$27.4 million
(31 December 2011: US$27.4 million) after paying a dividend of 2.0
cents (1.3 pence) per share on 20 June 2012 (2011: 1.9 cents, 1.2
pence) and a non-cash goodwill impairment charge of US$14.9
million.
Net current assets include investments in The Argo Fund ("TAF"),
Argo Real Estate Opportunities Fund Limited ("AREOF") and Argo
Special Situations Fund LP ("SSF") at fair values of US$17.6
million (2011: US$15.5 million), US$0.8 million (2011: US$1.0
million) and US$0.1 million (2011: US$Nil) respectively. During the
period the Group invested a further US$2 million in TAF and US$0.1
million in SSF. Our continued investment in our existing funds
supports the liquidity of those funds and demonstrates the
commitment of the Group towards its fund investors. This close
alignment results in a high correlation between the performance of
the Company and the performance of its funds.
The Group has provided AREOF with a notice of deferral in
relation to amounts due from the provision of investment management
services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the
outstanding liability. These amounts accrued or receivable at 31
December 2012 total US$2,597,188 (EUR1,965,333) (2011:
US$2,480,165, EUR1,915,333) after a bad debt provision of
US$991,125 (EUR750,000) (2011: Nil). AREOF continues to meet part
of this obligation to the Argo Group as and when liquidity allows.
The AREOF management contract has a fixed term expiring on 31 July
2018 and the carrying value of the AREOF management contract has
been fully amortised during the year. We believe that the AREOF
shopping centres remain good assets with excellent prospects when
the CEE economies rebound.
The number of employees of the Group at 31 December 2012 were 40
(2011: 42).
Fund performance
The Argo Funds
2012 2011
Launch Year Year Since Annualised Sharpe Down
Fund date total total inception performance ratio months AUM
------------------- -------- ------- ------- ------------ ------------- ------- -------- -------
% % % CAGR % US$m
------------------- -------- ------- ------- ------------ ------------- ------- -------- -------
29
of
The Argo Fund Oct-00 -0.07 0.10 121.38 7.93 0.71 147 86.3
------------------- -------- ------- ------- ------------ ------------- ------- -------- -------
Argo Distressed 17
Credit of
Fund Oct-08 24.05 1.18 30.31 11.19 0.96 51 30.8
------------------- -------- ------- ------- ------------ ------------- ------- -------- -------
Argo Special 8
Situations of
Fund LP Feb-12 -2.80 N/A -2.80 -2.80 -0.93 11 110.3
------------------- -------- ------- ------- ------------ ------------- ------- -------- -------
Argo Local Markets 0 of
Fund Nov-12 1.56 N/A 1.56 N/A N/A 2 6.5
------------------- -------- ------- ------- ------------ ------------- ------- -------- -------
Argo Real Estate 30
Opportunities of
Fund Aug-06 88.77 178.23 -30.65 -10.31 N/A 72* 92.5
------------------- -------- ------- ------- ------------ ------------- ------- -------- -------
Total 326.4
----------------------------- ------- ------- ------------ ------------- ------- -------- -------
* NAV only officially measured twice a year, March and
September.
Performance across the range of Argo funds was very mixed in
2012. At the year end, TAF, was slightly down by 0.07%, whilst ADCF
was significantly ahead by 24.05%. By comparison, the main hedge
fund indices showed a positive return of 7.03% for the year.
Emerging markets experienced an optimistic tone at the start of
the year in the light of improved global economic prospects,
particularly in the US, and some hope that the Eurozone sovereign
debt crisis might be under control. This gave way to a difficult
second quarter amid renewed concerns for the financial position of
the Eurozone. May, in particular, was an extremely difficult month
both for emerging markets and the Argo funds. By the year end
sentiment had changed once again with better economic news from
China that bolstered the regional markets, increased attraction to
high yields on offer from Russian and Turkish bonds and the
recovery of Greek bonds following the buyback initiated in December
2012.
TAF and ADCF finished on a positive note in December following
the emergence of an investment in an Indonesian petrochemicals
refinery from a court-supervised restructuring process. The
subsequent composition plan agreed by creditors resulted in an
overall reduction in the company's debt burden; exchange of secured
debt for new instruments; conversion of unsecured obligations into
equity; and Indonesia's state-owned oil and gas company becoming
the largest shareholder in and having management control of the
refinery. This particular investment is significant to the
liquidity of the funds and post restructuring we are in a much
better position to monetise our investment. Argo was instrumental
through its activism in bringing about the restructuring.
On 1 February 2012, Argo completed a significant fund
restructuring exercise to reconfirm its mandate with the investor
base of AGSSF Holdings Limited ("AHL") and Argo Capital Partners
Fund ("ACPF") and to attract new liquidity. The portfolio assets of
AHL and ACPF were transferred into a new fund, 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 Fund has been successful in attracting new
subscriptions with all 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 was reset to zero. SSF is a closed-end fund with a
realisation period of three years subject to extension. SSF
finished in negative territory at the year end showing a negative
return of 2.6%, largely the result of currency movements.
Argo expanded its product offering with the launch of ALMF in
November 2012 in response to investor demand for product offering
exposure to emerging markets and better liquidity. ALMF's focus is
absolute return in long/short investment opportunities in emerging
market local government debt and currencies. The investment process
is fundamental value driven for local debt and supported by
quantitative analysis for currencies. The portfolio is well
diversified with a global investment universe covering over 40
local debt markets. The major investments at the year end were
Russian, Mexican and Turkish local government debt and their
currencies. At the year end Fund performance was ahead by 1.56%. In
2013 the focus will be to build the Fund's performance track record
and market the Fund to existing and new clients.
AREOF continues to operate in a particularly challenging and
difficult environment albeit one which appears to be stabilising.
The uncertainties surrounding the Eurozone crisis have impacted
economic performance and property asset valuations, with pressures
from competing centres in several of the regions in which AREOF
operates changing the balance of negotiation in favour of the
tenant. Whilst tenants continue to seek rent concessions and
turnover only rents, the properties are consistently 98-100%
let.
Despite the challenging trading environment AREOF successfully
completed asset management initiatives at Sibiu Shopping City,
Romania and Riviera Shopping City, Odessa, Ukraine both of which
continue to maintain their trading dominance in the respective
regions. The recently acquired shopping parks, ERA Shopping Park,
Oradea and ERA Shopping Park, Iasi, in Romania, are both anchored
by prominent international retailers with the former completing
development of its 16,000 sqm shopping mall in early spring 2012
and the latter hoping to agree the restructuring of a EUR77m debt
facility with a view to commencing the final phase development of
its 28,000 sqm shopping mall in 2013.
At the end of December 2012 AREOF successfully renegotiated an
extension to its debt facility that supports the Suceava Shopping
City retail park, Romania. In October 2012 AREOF also entered into
restructuring negotiations with the syndicate of banks that
provides the loan facility for the Sibiu Shopping City retail park,
Romania. On 31 December 2012, while the restructuring negotiations
were ongoing, AREOF failed to make a repayment of principal under
the facility. Despite this AREOF is hopeful that it will be able to
reach an agreement with the syndicate on a restructuring of this
facility.
The Fund's adjusted Net Asset Value was US$88.1 million (EUR70.0
million) as at 31 March 2012, compared with US$53.4 million
(EUR37.1 million) a year earlier, the increase being attributable
to the acquisition of the two Romanian shopping parks, ERA Shopping
Park, Oradea and ERA Shopping Park, Iasi in September 2011.
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.
During the year the decision was taken to terminate Argo Global
Special Situations Fund. The size of the Fund had diminished
greatly as a result of redemptions and reached the quantum where
administrative costs were too high relative to the Fund's size to
continue trading. Fund operations were terminated on 1 June 2012
with investors being given the option to continue their exposure to
a distressed credit strategy by switching their investment to
ADCF.
Dividends
During the period the Group paid a dividend of 2.0 cents (1.3
pence) per share. The directors recommend a final dividend of 2.1
cents (1.3 pence) per share in respect of the year ended 31
December 2012. Going forward, the Company intends, subject to its
financial performance, to pay a final dividend each year.
Outlook
The Group's priorities continue to be the achievement of
consistent investment performance and increasing AUM both of which
the Group has the capacity to achieve without a corresponding
increase in costs. Emerging markets remain attractive and despite
the continuing challenges posed by the global markets for asset
gathering the Board is confident about the future of the
business.
As improved sentiment towards the euro and greater risk appetite
amongst investors flows through to 2013 the Board continues to be
optimistic about the Group's future prospects. Argo has a strong
debt-free balance sheet, a prerequisite for further growth. This
underlies the Board's confidence that with continued operational
efficiency and its talented team the Group is well positioned to
continue to weather the economic and political challenges ahead and
to benefit from the eventual global recovery.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 DECEMBER 2012
Year ended Year ended
31 December 31 December
2012 2011
Note US$'000 US$'000
Management fees 7,026 9,214
Incentive fees 1,216 91
Other income 690 1,845
==================================== ====== ============ ============
2(e),
Revenue 3 8,932 11,150
==================================== ====== ============ ============
Legal and professional expenses (390) (397)
Management and incentive
fees payable 2(f) (71) (79)
Operational expenses (1,885) (1,730)
Employee costs 4 (3,530) (6,130)
Foreign exchange (loss)/gain (25) 28
Bad debts (1,062) -
Amortisation of intangible
assets 9 (990) (683)
Depreciation 10 (73) (35)
==================================== ====== ============ ============
Operating profit 6 906 2,124
==================================== ====== ============ ============
Impairment of goodwill 9 (14,945) -
Interest income on cash
and cash equivalents 15 45
Unrealised loss on investments (175) (13)
==================================== ====== ============ ============
(Loss)/profit on ordinary
activities before taxation 3 (14,199) 2,156
==================================== ====== ============ ============
Taxation 7 (205) (260)
==================================== ====== ============ ============
(Loss)/profit for the year
after taxation attributable
to members of the Company 8 (14,404) 1,896
Other comprehensive income
Exchange differences on
translation of foreign operations 86 (111)
==================================== ====== ============ ============
Total comprehensive income
for the year (14,318) 1,785
==================================== ====== ============ ============
Year Year ended
ended
31 December 31 December
2012 2011
US$ US$
Earnings per share (basic) 8 (0.21) 0.03
============================== ============ ============
Earnings per share (diluted) 8 (0.21) 0.02
============================== ============ ============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2012
At 31 December At 31 December
2012 2011
Note US$'000 US$'000
Assets
Non-current assets
Intangible assets 9 - 15,942
Fixtures, fittings and
equipment 10 221 70
Loans and advances receivable 14 118 38
=============================== ===== =============== ===============
Total non-current assets 339 16,050
=============================== ===== =============== ===============
Current assets
Investments 11 18,478 16,539
Trade and other receivables 12 4,284 3,314
Cash and cash equivalents 13 5,139 8,358
Loans and advances receivable 14 142 240
=============================== ===== =============== ===============
Total current assets 28,043 28,451
=============================== ===== =============== ===============
Total assets 3 28,382 44,501
=============================== ===== =============== ===============
Equity and liabilities
Equity
Issued share capital 15 674 674
Share premium 30,878 30,878
Revenue reserve (1,674) 14,123
Foreign currency translation
reserve 2(d) (2,164) (2,250)
=============================== ===== =============== ===============
Total equity 27,714 43,425
=============================== ===== =============== ===============
Current liabilities
Trade and other payables 16 467 913
Taxation payable 7 201 163
=============================== ===== =============== ===============
Total current liabilities 3 668 1,076
=============================== ===== =============== ===============
Total equity and liabilities 28,382 44,501
=============================== ===== =============== ===============
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED 31 DECEMBER 2012
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$'000
As at 1 January
2011 737 32,199 13,645 (2,139) 44,442
Total comprehensive
income
Profit for the period
after taxation - - 1,896 (111) 1,785
Transactions with
owners recorded
directly in equity
Dividends to equity
holders - - (1,418) - (1,418)
Purchase of own
shares (note 15) (63) (1,321) - - (1,384)
======================= ========== ========== ========== ============== ========
As at 31 December
2011 674 30,878 14,123 (2,250) 43,425
======================= ========== ========== ========== ============== ========
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2012 2012 2012 2012 2012
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2012 674 30,878 14,123 (2,250) 43,425
Total comprehensive
income
Profit for the period
after taxation - - (14,404) 86 (14,318)
Transactions with
owners recorded
directly in equity
Dividends to equity
holders (note 15) - - (1,393) - (1,393)
As at 31 December
2012 674 30,878 (1,674) (2,164) 27,714
======================= ========== ========== ========== ============== =========
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2012
Year ended Year ended
31 December 31 December
2012 2011
Note US$'000 US$'000
Net cash inflow from
operating activities 18 429 354
Cash flows from investing
activities
Interest received on
cash and cash equivalents 15 45
Purchase of current
asset investments 11 (2,115) (988)
Purchase of fixtures,
fittings and equipment 10 (225) (64)
Net cash used in investing
activities (2,325) (1,007)
============================== ===== ============ ============
Cash flows from financing
activities
Repurchase of own shares 15 - (1,384)
Dividends paid 15 (1,393) (1,418)
============================== ===== ============ ============
Net cash used in financing
activities (1,393) (2,802)
============================== ===== ============ ============
Net decrease in cash
and cash equivalents (3,289) (3,455)
Cash and cash equivalents
at 1 January 2012 and
1 January 2011 8,358 11,907
Foreign exchange gain/(loss)
on cash and cash
equivalents 70 (94)
Cash and cash equivalents
as at 31 December 2012
and 31 December 2011 5,139 8,358
============================== ===== ============ ============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2012
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 currencies
of the Group undertakings are US Dollars, Sterling, Euros and
Romanian Lei. The Group has 40 (2011: 42) employees.
Wholly owned subsidiaries Country of incorporation
Argo Capital Management (Cyprus) Cyprus
Limited
Argo Capital Management Limited United Kingdom
Argo Capital Management Property Cayman Islands
Limited
North Asset Management Srl Romania
North Asset Management Sarl Luxembourg
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.
The Directors have carried out a rigorous assessment of all the
factors affecting the business in deciding to adopt the going
concern basis for the preparation of the accounts. They have
reviewed and examined the Group's financial and other processes
including the annual budgeting process and expect the Group to
generate positive cash flows in the foreseeable future. On the
basis of this review and the liquid assets underpinning the balance
sheet the Directors are confident that the Group has adequate
financial resources to continue in operational existence for the
foreseeable future and therefore continue to adopt the going
concern basis for preparing the accounts.
(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 arise monthly, quarterly or on realisation of an
investment. Incentive fees are recognised in the month they arise.
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. 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 ended 31 December 2011 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.
(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 Distressed Credit Fund Limited,
Argo Special Situations Fund LPand Argo Local Markets Fundare
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 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
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 best judgements of
information and financial data that have the most significant
effect on the amounts recognised in the consolidated financial
statements:
- Management and incentive fees
- Intangibles (note 9)
- Trade receivables
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 19 Employee Benefits - Amendment 1 January
resulting from the Post-Employment 2013
Benefits and Termination Benefits
projects (as amended in June 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 January
- Amendments enhancing disclosures 2013
about offsetting of financial assets
and financial liabilities (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 1 January
2011) 2013
IFRS 12 Disclosure of Interests 1 January
in 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
2012 2012 2012 2012 2012 2012
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenues
from external
customers - 5,670 2,793 3,256 234 11,953
Intersegment
revenues - - 2,791 - 230 3,021
Reportable
segment profit/(loss) 1,862 (215) (480) (226) (284) 657
Intersegment
profit/(loss) (2,470) 5,007 (2,562) - 42 17
Reportable
segment assets 49,910 2,440 2,381 3,920 123 58,774
Reportable
segment liabilities 84 907 2,356 247 - 3,594
======================== ======== ============= =============== ================= ======== =============
Revenues, profit or loss, assets and liabilities Year ended
may be reconciled as follows:
31 December
2012
US$'000
Revenues
Total revenues for reportable segments 11,953
Elimination of intersegment revenues (3,021)
================================================== =======================
Group revenues 8,932
================================================== =======================
Profit or loss
Total profit for reportable segments 657
Elimination of total intersegment losses 17
Other unallocated amounts (14,873)
================================================== =======================
Loss on ordinary activities before taxation (14,199)
================================================== =======================
Assets
Total assets for reportable segments 58,774
Elimination of intersegment receivables (795)
Elimination of Company's cost of investments (29,597)
================================================== =======================
Group assets 28,382
================================================== =======================
Liabilities
Total liabilities for reportable segments 3,594
Elimination of intersegment payables (2,926)
================================================== =======================
Group liabilities 668
================================================== =======================
Argo Capital Argo Capital
Argo Management Argo Capital Management Year
Group (Cyprus) Management Property ended
Ltd Limited Limited Limited Other 31 December
2011 2011 2011 2011 2011 2011
US$'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
================================================== =============
4. EMPLOYEE COSTS
Year ended Year ended
31 December 31 December
2012 2011
US$'000 US$'000
Wages and salaries 3,110 5,540
Social security costs 316 524
Other 104 66
======================= ============== ==============
3,530 6,130
======================= ============== ==============
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to:
Year ended Year ended
31 December 31 December
2012 2011
US$'000 US$'000
Directors and key management
personnel 1,518 3,245
============================== ============== ==============
The remuneration of the directors of the Company for the year
was as follows:
Year ended Year ended
Cash 31 December 31 December
Salaries Fees Benefits bonus 2012 2011
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive
Directors
Kyriakos
Rialas 222 - - - 222 438
Andreas
Rialas 225 - 2 - 227 1,215
Non-Executive
Directors
Michael
Kloter - 79 - - 79 85
David
Fisher - 54 - - 54 40
Ken Watterson - 54 - - 54 40
=============== ============= ========== ============= ========== ============== ==============
6. OPERATING PROFIT
Operating profit is stated after charging:
Year ended Year ended
31 December 31 December
2012 2011
US$'000 US$'000
Auditors' remuneration 94 99
Depreciation 73 35
Amortisation 990 683
Directors' fees 1,258 2,696
Operating lease payments 509 486
=========================== ============== ==============
7. TAXATION
Taxation rates applicable to the parent company and the Cypriot,
UK, Luxembourg and Romanian subsidiaries range from 0% to 24.5%
(2011: 0% to 26.5%).
Income Statement
Year ended Year ended
31 December 31 December
2012 2011
US$'000 US$'000
Taxation charge for the year
on Group companies 205 260
Tax on (loss)/profit on ordinary
activities 205 260
================================== ============== ==============
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
2012 2011
US$'000 US$'000
(Loss)/profit before tax (14,199) 2,156
================================== ============== ==============
Applicable Isle of Man tax
rate for Argo Group Limited
of 0% - -
Timing differences (4) 4
Non-deductible expenses 22 19
Non-taxable income - (11)
Other adjustments 5 -
Tax effect of different tax
rates of subsidiaries operating
in other jurisdictions 182 248
================================== ============== ==============
Tax charge 205 260
================================== ============== ==============
Balance Sheet
At 31 December At 31 December
2012 2011
US$'000 US$'000
Corporation tax payable 201 163
========================= =============== ===============
8. EARNINGS PER SHARE
Earnings per share is calculated by dividing the (loss)/profit
on ordinary activities before taxation for the year by the weighted
average number of shares outstanding during the year.
Year ended Year ended
31 December 31 December
2012 2011
US$'000 US$'000
(Loss)/profit for the year
after taxation attributable
to members (14,404) 1,896
============================== ============== ==============
No. of No. of
shares shares
Weighted average number of
ordinary shares for basic
earnings
per share 67,428,494 70,411,827
Effect of dilution 5,415,000 5,900,000
============================== ============== ==============
Weighted average number of
ordinary shares for diluted
earnings per share 72,843,494 76,311,827
============================== ============== ==============
Year ended Year ended
31 December 31 December
2012 2011
US$ US$
Earnings per share (basic) (0.21) 0.03
Earnings per share (diluted) (0.21) 0.02
============================== ============== ==============
9. INTANGIBLE ASSETS
Fund management
contracts
US$'000
Cost
At 1 January 2011 18,554
Foreign exchange movement 86
========================================== ================
At 31 December 2011 18,640
Foreign exchange movement 195
========================================== ================
At 31 December 2012 18,835
========================================== ================
Amortisation and impairment
At 1 January 2011 1,939
Amortisation of Argo business intangible
assets 683
Foreign exchange movement 76
========================================== ================
At 31 December 2011 2,698
Impairment charge 14,945
Amortisation of Argo business intangible
assets 990
Foreign exchange movement 202
========================================== ================
At 31 December 2012 18,835
========================================== ================
Net book value
At 31 December 2011 15,942
========================================== ================
At 31 December 2012 -
========================================== ================
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.
Since the acquisition of the Argo businesses in 2008 the assets
under management attributable to the Group's separately
identifiable business units have decreased significantly due to the
volatility and uncertainty displayed by the global financial
markets. As a result, operations have been scaled back and an
impairment review of goodwill was undertaken during the year.
Following the review, the goodwill of US$14.9 million created on
the purchase of the Argo businesses has been written off during the
period. At the balance sheet date the carrying value of goodwill is
US$Nil (31 December 2011: US$14.9 million).
The carrying value of the Argo Real Estate Opportunities Fund
Limited management contract has also been fully amortised during
the year. At 31 December 2011 the carrying value of the management
contract was US$1.0 million. In the prior year the Group
successfully renegotiated the extension of this management contract
by five years from the current termination date of 31 July 2013 to
31 July 2018.
10. FIXTURES, FITTINGS AND EQUIPMENT
Fixtures,
fittings
& equipment
US$ '000
Cost
At 1 January 2011 295
Additions 64
Foreign exchange movement (2)
================================ =============
At 31 December 2011 357
Additions 225
Disposals (231)
Foreign exchange movement 21
================================ =============
At 31 December 2012 372
================================ =============
Accumulated Depreciation
At 1 January 2011 254
Depreciation charge for period 35
Foreign exchange movement (2)
================================ =============
At 31 December 2011 287
Depreciation charge for period 73
Disposals (231)
Foreign exchange movement 22
================================ =============
At 31 December 2012 151
================================ =============
Net book value
At 31 December 2011 70
================================ =============
At 31 December 2012 221
================================ =============
11. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 31 December
2012 2012
Holding Investment in management Total cost Fair value
shares
US$'000 US$'000
10 The Argo Fund Ltd 0 0
Argo Distressed Credit
100 Fund Ltd 0 0
Argo Special Situations
1 Fund LP 0 0
Argo Local Markets
1 Fund 0 0
======== ========================= ============== ==============
0 0
======== ========================= ============== ==============
Holding Investment in ordinary Total cost Fair value
shares
US$'000 US$'000
75,165 The Argo Fund Ltd 16,343 17,613
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 753
Argo Special Situations
115 Fund LP 115 112
=========== ======================== ============= =============
17,446 18,478
=========== ======================== ============= =============
31 December 31 December
2011 2011
Holding Investment in management Total cost Fair value
shares
US$'000 US$'000
10 The Argo Fund Ltd 0 0
Argo Capital Investors
10 Fund SPC 0 0
Argo Capital Partners
10 Fund Ltd 0 0
Argo Distressed Credit
100 Fund Ltd 0 0
100 AGSSF Holdings Ltd 0 0
======== ========================= ============== ==============
0 0
======== ========================= ============== ==============
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
=========== ======================= ============= =============
12. TRADE AND OTHER RECEIVABLES
At 31 December At 31 December
2012 2011
US$ '000 US$ '000
Trade receivables 3,625 2,591
Other receivables 107 50
Prepayments and accrued
income 552 673
========================= ================= =================
4,284 3,314
========================= ================= =================
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 ended 31 December 2011 the Group provided Argo
Real Estate Opportunities Fund Limited ("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 2012 total US$2,597,188 (EUR1,965,333) (2011:
US$2,480,165, EUR1,915,333) after a bad debt provision of
US$991,125 (EUR750,000) (2011: Nil). AREOF continues to meet part
of this obligation to the Argo Group as and when liquidity allows.
In the directors' view these amounts are fully recoverable although
they have concluded that it would not be appropriate to continue to
recognise income from these investment management services, going
forward, as the timing of such receipts may be outside the control
of the Company and AREOF.
In the audited financial statements of AREOF at 30 September
2011 and the interim report of AREOF at 31 March 2012, 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$82,000
(2011: US$100,000) which represents a bank guarantee in respect of
credit cards issued to Argo Capital Management Property Limited.
Due to the nature of this balance it is not freely available.
14. LOANS AND ADVANCES RECEIVABLE
At 31 December At 31 December
2012 2011
US$'000 US$'000
Deposits on leased premises
- current - 240
Deposits on leased premises
- non-current 118 38
Other loans and advances 142 -
receivable - current
============================= =============== ===============
260 278
============================= =============== ===============
The deposits on leased premises are retained by the lessor until
vacation of the premises at the end of the lease term as
follows:
At 31 December At 31 December
2012 2011
US$'000 US$'000
Current:
Lease expiring within
one year - 240
======================= ================ ===============
At 31 December At 31 December
2012 2011
US$'000 US$'000
Non-current:
Lease expiring in second 32 -
year after balance sheet
date
Lease expiring in third
year after balance sheet
date - 38
Lease expiring in fifth 86 -
year after balance sheet
date
=========================== =============== =======================
118 38
=========================== =============== =======================
15. SHARE CAPITAL
The Company's authorised share capital is unlimited ordinary
shares with a nominal value of US$0.01.
31 December 31 December 31 December 31 December
2012 2012 2011 2011
No. US$'000 No. US$'000
Issued and fully
paid
Ordinary shares
of US$0.01 each 67,428,494 674 67,428,494 674
================== ============= ============ ============= ============
67,428,494 674 67,428,494 674
================== ============= ============ ============= ============
The directors recommend a final dividend of 2.1c (1.3p) per
share for the year ended 31 December 2012.
The directors recommended a final dividend of 2.0 cents (1.3
pence) per share for the year ended 31 December 2011. The final
dividend for the year ended 31 December 2011 of US$1,392,885
(GBP876,570) was paid on 20 June 2012 to ordinary shareholders who
were 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 ended 31 December 2011 the directors authorised
the repurchase of 6,235,000 shares at a total cost of
US$1.4million. No shares were repurchased during the current
period.
16. TRADE AND OTHER PAYABLES
At 31 December At 31 December
2012 2011
US$ '000 US$ '000
Trade and other payables 103 68
Other creditors and accruals 364 845
============================== =============== ===============
467 913
============================== =============== ===============
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
2012 2011
US$ '000 US$ '000
Operating lease liabilities:
Within one year 163 420
In the second to fifth
years inclusive 560 167
============================== =============== ===============
Present value of minimum
lease payments 723 587
============================== =============== ===============
18. RECONCILIATION OF NET CASH INFLOW FROM OPERATING ACTIVITIES TO
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended
31 December 31 December
2012 2011
US$ '000 US$ '000
(Loss)/profit on ordinary
activities before taxation (14,199) 2,156
Interest income (15) (45)
Amortisation of intangible
assets 990 683
Depreciation 73 35
Impairment of intangible 14,945 -
assets (note 9)
Decrease in payables (446) (141)
Increase in receivables (952) (2,022)
Decrease in fair value
of current asset investments 175 13
Net foreign exchange
loss/(gain) 25 (28)
Income taxes paid (167) (297)
=============================== ============== ==============
Net cash inflow from
operating activities 429 354
=============================== ============== ==============
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, Argo Real Estate Opportunities Fund Limited
("AREOF") and Argo Special Situations Fund LP. These investments
are reflected in the accounts at a fair value of US$17,613,242,
US$753,280 and US$111,740 respectively.
During the year ended 31 December 2011 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 2012 total US$2,597,188 (EUR1,965,333)
(2011: US$2,480,165, EUR1,915,333) after a bad debt provision of
US$991,125 (EUR750,000) (2011: Nil). AREOF continues to meet part
of this obligation to the Argo Group as and when liquidity
allows.
In the audited financial statements of AREOF at 30 September
2011 and the interim report of AREOF at 31 March 2012, 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.
Michael Kloter, the non-executive chairman, is also partner in a
legal firm which supplies services to the Group. This firm charged
US$1,529 (2011: US$Nil) for services rendered to the Group in the
period.
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, supporting
liquidity and demonstrating the commitment of the Group towards its
fund investors.
(b) Market risk
Market risk is the risk that a decline in the value of assets
adversely impacts on the profitability of the Group, either as a
result of an asset not meeting its expected value or through the
decline of assets under management generating lower fees. The
principal exposures of the Group are in respect of its seed
investments in its own funds. 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 and Bancpost.
(d) Credit/counterparty risk
The Group will be exposed to counterparty risk on parties with
whom it trades and will bear the risk of settlement default. Credit
risk is concentrated in the funds under management 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 (notes 12 and 16).
(f) Foreign exchange risk
Foreign exchange risk is the risk that the Group will sustain
losses through adverse movements in currency exchange rates.
The Group is subject to short-term foreign exchange movements
between the calculation date of fees in currencies other than US
dollars and the date of settlement. The Group holds cash balances
in US Dollars, Sterling, Romanian Lei and Euros.
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 2012 the exposure would be a profit or
loss to the Consolidated Statement of Comprehensive Income of
approximately US$50,000 (2011: US$148,000).
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2012 is as
follows:
Instruments
Total Variable Fixed on which
as per interest interest no interest
balance rate instruments* rate is receivable
sheet instruments
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets
at fair value
through profit
or loss 18,478 - - 18,478
Loans and receivables 4,544 - - 4,544
Cash and cash
equivalents 5,139 891 3,089 1,159
======================= ========== ==================== ============== ===============
28,161 891 3,089 24,181
======================= ========== ==================== ============== ===============
Financial liabilities
Trade and other
payables 467 - - 467
======================= ========== ==================== ============== ===============
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.10%. 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 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
Trade and other
payables 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.
(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
2012 2011
US$ '000 US$ '000
Financial Assets
Financial assets at fair
value through profit or
loss 18,478 16,539
Loans and receivables 4,544 3,592
Cash and cash equivalents 5,139 8,358
============================ ================= =================
28,161 28,489
=========================== ================= =================
Financial Liabilities
Trade and other payables 467 913
============================ ================= =================
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 2012
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss - 18,478 - 18,478
================== ========== ========= ========= =========
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
================== ========= ========= ========= =========
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 was measured at the grant
date using a Black-Scholes model that takes into account the effect
of certain financial assumptions, including the option exercise
price, current share price and volatility, dividend yield and the
risk-free interest rate. The fair value of the options granted is
spread over the vesting period of the scheme and the value is
adjusted to reflect the actual number of shares that are expected
to vest.
The principal assumptions for valuing the options were:
Exercise price (pence) 24.0
Weighted average share
price at grant date
(pence) 12.0
Weighted average option
life (years) 10.0
Expected volatility
(% p.a.) 2.11
Dividend yield (% p.a.) 10.0
Risk-free interest rate
(% p.a.) 5.0
The fair value of options granted is recognised as an employee
expense with a corresponding increase in equity. The total charge
to employee costs in respect of this incentive plan is nil due to
the differential in exercise price and share price.
The number and weighted average exercise price of the share
options during the period is as follows:
Weighted No. of share
average exercise options
price
Outstanding at beginning
of period 24.0p 5,465,000
Granted during the period - -
Forfeited during the period 24.0p (50,000)
============================== ================== =============
Outstanding at end of period 24.0p 5,415,000
============================== ================== =============
Exercisable at end of period 24.0p 1,353,750
============================== ================== =============
The options outstanding at 31 December 2012 have an exercise
price of 24p and a weighted average contractual life of 10 years,
with the second tranche of shares being exercisable on or after 1
May 2013. Outstanding share options are contingent upon the option
holder remaining an employee of the Group. They expire after 10
years.
No share options were issued during the period.
22. 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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