TIDMARGO
RNS Number : 5893M
ARGO Group Limited
28 August 2013
Argo Group Limited
("Argo" or the "Company")
Interim Results for the six months ended 30 June 2013
Argo today announces its interim results for the six months
ended 30 June 2013.
The Company will today make available its interim report for the
six month period ended 30 June 2013 on the Company's website
www.argogrouplimited.com.
Key Highlights for the six month period ended 30 June 2013
- Revenues US$4.7 million (six months to 30 June 2012: US$3.9 million)
- Operating profit US$0.8 million (six months to 30 June 2012: US$0.7 million)
- Profit before tax US$1.7 million (six months to 30 June 2012:
loss US$15.3 million after a one-off goodwill impairment charge of
US$14.9 million)
- Net assets US$27.9 million (31 December 2012: US$27.7 million)
after a dividend payment of US$1.3 million
Commenting on the results and outlook, Kyriakos Rialas, Chief
Executive of Argo said:
"Argo's performance and financial position remain consistent
despite ongoing volatility in the hedge fund trading environment. I
am pleased to inform you that our business is operating
efficiently, we have a strong, debt-free balance sheet and we have
maintained the level of dividend payout. Our focus in the first
half of the year has been to extract value and liquidity from
existing positions and to continue to market the new fund that was
launched at the end of 2012. It is our intention to continue on
this track into the second half of the year. Above all we remain
committed to our investors and the emerging markets sector."
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 interim results of Argo Group Limited
for the half year ended 30 June 2013.
During the period under review markets were volatile and the
optimistic tone at the start of the year gave way to a difficult
second quarter. Despite this, Argo has made some progress during
the period with Argo Distressed Credit Fund ("ADCF") exceeding its
high-water mark and generating incentive fees in excess of the
comparative period. The Argo funds ended the period with Assets
under Management ("AUM") at US$308.0 million, 7.1% lower than at
the beginning of the period.
For the six month period ended 30 June 2013 the Group generated
revenues of US$4.7 million (six months to 30 June 2012: US$3.9
million) with management fees accounting for US$3.5 million (six
months to 30 June 2012: US$3.5 million). The Group generated
incentive fees of US$0.8 million during the period (six months to
30 June 2012: Nil). However, these incentive fees were mostly
derived as a result of the revaluation of an investment in an
Indonesian petrochemicals refinery, PT Trans-Pacific Petrochemical
Industries ("TPPI"), which has not yet been realised. As detailed
below a non binding offer to purchase the position has been
received from a credible counterparty. It must be noted that the
valuation of TPPI is held in the Argo funds at the level indicated
by the offer received, even though our third party valuation
indicates a higher valuation.
Total core operating costs fell by US$0.5 million from US$3.2
million to US$2.7 million. Total operating costs include a bad debt
provision of US$1.3 million. This explains how total operating
costs have risen to US$4.0 million (six months to 30 June 2012:
US$3.2 million). The Group has provided fully against management
fees due from Argo Real Estate Opportunities Fund Limited ("AREOF")
on the basis that it has provided AREOF with a notice of deferral
until such time that AREOF is in a position to pay these fees.
Overall, the financial statements show an operating profit for
the period of US$0.8 million (six months to 30 June 2012: US$0.7
million) and a profit before tax of US$1.7 million (six months to
30 June 2012: loss US$15.3 million after a one-off goodwill
impairment charge of US$ 14.9 million) reflecting the unrealised
gain on current asset investments of US$1.0 million (six months to
30 June 2012: unrealised loss US$1.0 million).
At 30 June 2013, the Group had net assets of US$27.9 million (31
December 2012: US$27.7 million) and net current assets of US$27.4
million (31 December 2012: US$27.4 million) after paying a dividend
of 2.1 cents (1.3 pence) per share on 26 April 2013 (2012: 2.0
cents, 1.3 pence).
Net current assets include investments in The Argo Fund ("TAF"),
AREOF and Argo Special Situations Fund LP ("SSF") at fair values of
US$19.1 million (31 December 2012: US$17.6 million), US$0.2 million
(31 December 2012: US$0.8 million) and US$0.09 million (31 December
2012: US$0.1 million) respectively. Our continued investment in our
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 number of employees of the Group at 30 June 2013 was 41 (six
months to 30 June 2012: 41).
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 30
June 2013 total US$3,667,331 (EUR2,819,505) (31 December 2012:
US$2,597,188 (EUR1,965,333)) before a bad debt provision of
US$2,276,225 (EUR1,750,000) (31 December 2012: US$991,125
(EUR750,000)). AREOF continues to meet part of this obligation to
the Argo Group as and when liquidity allows with a further
US$1,188,000 (EUR900,000) being settled in July 2013. The AREOF
management contract has a fixed term expiring on 31 July 2018. We
believe that the AREOF shopping centres remain good assets that
will continue to deleverage and are an excellent way to invest in
the recovery of the Romanian and Ukrainian economies.
During the period Argo Group advanced US$1,300,700
(EUR1,000,000) to Bel Rom Trei ("Bel Rom"), an AREOF Group entity
based in Romania that owns Sibiu Shopping City, in order to assist
with its operational cash requirements. Challenging trading
conditions have impacted Bel Rom's cash flow and its ability to
meet payments due to lending banks as and when they fall due. The
situation is being remedied by way of discussions with the lending
banks with a view to restructuring these loans. While these
discussions are on-going to find an agreeable solution for both
parties, Bel Rom continues to enjoy the support of its banks. The
loan is repayable on demand and accrues interest at 12%. The full
amount of the loan remains outstanding at 30 June 2013. The
Directors consider this loan to be fully recoverable on the basis
that discussions with lending banks are progressing well and that
Sibiu Shopping City is the strongest centre within Argo's property
portfolio in Romania with high occupancy and a healthy tenant
demand.
Fund performance
Argo Funds
30 30
June June 2012
Launch 2013 2012 year Sharpe Down
Since Annualised
Fund date 6 months 6 months total inception performance ratio months AUM
-------------- -------- ---------- ---------- ------------- --------------- ------------ ------- --------- ------
% % % % CAGR US$m
%
-------------- -------- ---------- ---------- ------------- --------------- ------------ ------- --------- ------
34
The Argo of
Fund Oct-00 8.64 -4.70 -0.07 154.58 8.44 0.69 153 93.7
-------------- -------- ---------- ---------- ------------- --------------- ------------ ------- --------- ------
Argo 20
Distressed of
Credit Fund Oct-08 11.88 -3.19 24.05 76.37 12.84 0.94 57 27.5
-------------- -------- ---------- ---------- ------------- --------------- ------------ ------- --------- ------
Argo Special 14
Situations of
Fund LP Feb-12 -20.6 -4.30 -2.80 -22.70 -16.70 -1.04 17 91.9
-------------- -------- ---------- ---------- ------------- --------------- ------------ ------- --------- ------
Argo Local 4
Markets of
Fund Nov-12 -5.34 N/A N/A -1.42 N/A N/A 8 5.8
-------------- -------- ---------- ---------- ------------- --------------- ------------ ------- --------- ------
Argo Real
Estate 42
Opportunities of
Fund Aug-06 -7.09 -7.17 -3.76 -33.70 -8.93 N/A 84* 89.1*
-------------- -------- ---------- ---------- ------------- --------------- ------------ ------- --------- ------
Total 308.0
------------------------ ---------- ---------- ------------- --------------- ------------ ------- --------- ------
* NAV only officially measured twice a year, March and
September.
The period started on a positive note with improved sentiment
towards the Euro and greater risk appetite amongst investors. The
bailout of Cyprus and its banks gave investors cause to reconsider
their risk appetite by the end of the first quarter and by May
emerging market local bonds had been particularly hard hit by news
from the US that it may begin to rein-in its bond purchases under
the quantitative easing programme.
At 30 June 2013, TAF was ahead by 8.64%, as was ADCF by 11.88%.
The main driver in the performance of both of these funds was the
mark-up in their investment in TPPI. By comparison, the main hedge
fund indices showed a small positive return of 0.97% for the same
period.
SSF finished in negative territory at the period end showing a
negative return of 20.6%. The main contributors to this position
were the decline in share price of AREOF; a write down in the value
of an investment in the Greek telecommunications company, On
Telecoms; a higher valuation ascribed to the investment in
TPPI.
On Telecoms turned EBITDA negative again in April after two
years of positive results. Intense competition within the
telecommunications sector has lead to a severe deterioration of the
business with churning rates at elevated levels and a push for a
major restructuring with the main lender to the company. In view of
the negative EBITDA and the increasing churn rates the position has
been substantially written down.
The implementation of the restructuring programme at TPPI is
continuing and progress to date suggests a much clearer path to a
liquidity event. SSF has now received an offer to sell its claim
that will be converted into TPPI equity subject to the buyer's
internal approval process. It is hoped that settlement of this
transaction will occur soon, however, there is no binding contract
in place yet. The transaction, if completed, will be a significant
liquidity event for the Group.
The Argo Local Markets Fund ("ALMF") was particularly hard hit
in May when it felt the impact of higher US interest rates and a
stronger US dollar following on from the change in tone from the US
Federal Reserve. During the period ALMF opened a number of interest
rate swap lines with counterparties and is now better placed to
hedge or short EM rates in accordance with its mandate. At the
period end ALMF finished behind by 5.34%.
AREOF continues to operate in a challenging environment. While
macroeconomic conditions are improving, albeit slowly, the
uncertainties in Europe mean that the recovery in markets where
AREOF operates remain subdued. Even though growth in the underlying
economies is quite good, consumer spending is rebounding very
slowly.
The continuing effect of low disposable incomes, the lack of
investment income and political uncertainties all combine to keep
retail sales depressed, particularly in Romania. In such
circumstances, the balance of negotiation interest continues to
favour the tenant and the need for the landlord to continue to
provide rental concessions, albeit at a reducing level, or fit-out
contributions to attract stronger tenants, impacts AREOF's cash
flows.
The reduced level of cash flow, while being proactively managed,
affected the Group's ability to meet all payments due to certain of
the lending banks as and when they fell due. This situation is
being remedied by way of discussions with the lending banks where
these breaches of terms have occurred with a view to restructuring
the loans to better align the AREOF Group's cash flows to the loan
commitments during this subdued trading period. While the
discussions with the relevant banks are on-going to find an
agreeable solution for both parties, AREOF continues to enjoy the
support of its banks.
AREOF has also been affected by the financial crisis that
occurred in Cyprus in April of this year, as it has loan facilities
with Cypriot banks that are subject to the restructuring process in
Cyprus. This has frustrated the AREOF Group's ability to conclude
loan restructuring negotiations, to access funds to complete asset
development initiatives and to meet its working capital needs.
Despite the challenging environment in Romania, AREOF's 77,000
sqm Sibiu Shopping City maintains a dominant trading position in
the region. Following the completion of asset management
initiatives last year occupancy is currently 92%. Tenant demand
remains strong and vacant space is likely to be fully filled by the
end of the year.
AREOF's adjusted Net Asset Value was US$89.1 million (EUR68.5
million) as at 31 March 2013, compared with US$88.1 million
(EUR70.0 million) a year earlier. AREOF remains a major listed
owner and operator of retail parks in the country thus making it
more marketable to international investors over the long term.
Further information may be found in the published accounts of AREOF
on its website at www.argocapitalproperty.com.
Dividends
During the period the Group paid a dividend of 2.1 cents (1.3
pence) per share (2012: 2.0 cents, 1.3 pence). Going forward, the
Company intends, subject to its financial performance, to pay a
final dividend each year.
Outlook
At the end of 2012 emerging markets had outperformed developed
markets for the first time in two years as sentiment towards the
euro improved and investors showed a greater appetite for risk.
This optimism flowed through into early 2013 but reversed by the
end of the second quarter following the hard-hitting news from the
US. Momentum has stalled as sentiment across all asset classes
including emerging markets has deteriorated. It is under these
difficult global market conditions that Argo continues to face the
challenge of increasing its AUM.
The Board believes that although markets remain volatile there
are still reasons for a positive outlook. The inflation outlook
appears subdued and interest rates are unlikely to rise for some
considerable time yet. Industry performance is improving and
investors are showing a greater interest in allocating money to
hedge funds. Argo has a strong, debt free balance sheet and a cost
base that has been trimmed and well-aligned with its lower AUM.
With a continued focus on the best use of resources Argo is
well-positioned to navigate the economic and political challenges
ahead and eventually benefit from an upturn in the global markets
and in particular emerging markets.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2013
Six months Six months
ended ended
30 June 30 June
2013 2012
Note US$'000 US$'000
Management fees 3,453 3,543
Incentive fees 803 -
Other income 459 316
===================================== ===== =========== ==================
Revenue 4,715 3,859
===================================== ===== =========== ==================
Legal and professional expenses (120) (178)
Management and incentive
fees payable (116) (7)
Operational expenses (612) (845)
Employee costs (1,752) (1,832)
Bad debt provision (1,323) -
Foreign exchange gain/(loss) 37 (2)
Amortisation of intangible
assets 7 - (317)
Depreciation 8 (65) (14)
Operating profit 764 664
===================================== ===== =========== ==================
Impairment of intangible
assets 7 - (14,945)
Interest income on cash and
cash equivalents 9 8
Unrealised gain/(loss) on
investments 958 (1,014)
===================================== ===== =========== ==================
Profit/(loss) on ordinary
activities before taxation 1,731 (15,287)
===================================== ===== =========== ==================
Taxation 5 (109) (76)
===================================== ===== =========== ==================
Profit/(loss) for the period
after taxation attributable
to members of the Company 6 1,622 (15,363)
Other comprehensive income
Exchange differences on translation
of foreign operations (137) (127)
===================================== ===== =========== ==================
Total comprehensive income/(loss)
for the period 1,485 (15,490)
===================================== ===== =========== ==================
Six months Six months
Ended Ended
30 June 30 June
2013 2012
US$ US$
Earnings per share (basic) 6 0.02 -0.23
===================================== ===== =========== ==================
Earnings per share (diluted) 6 0.02 -0.23
===================================== ===== =========== ==================
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2013
30 June At 31 December
2013 2012
Note US$'000 US$'000
Assets
Non-current assets
Intangible assets 7 - -
Fixtures, fittings and
equipment 8 177 221
Loans and advances receivable 11 255 118
=============================== ===== ========== ========================
Total non-current assets 432 339
=============================== ===== ========== ========================
Current assets
Investments 9 19,436 18,478
Trade and other receivables 10 3,033 4,284
Cash and cash equivalents 4,298 5,139
Loans and advances receivable 11 1,301 142
=============================== ===== ========== ========================
Total current assets 28,068 28,043
=============================== ===== ========== ========================
Total assets 28,500 28,382
=============================== ===== ========== ========================
Equity and liabilities
Equity
Issued share capital 12 674 674
Share premium 30,878 30,878
Revenue reserve (1,400) (1,674)
Foreign currency translation
reserve (2,301) (2,164)
=============================== ===== ========== ========================
Total equity 27,851 27,714
=============================== ===== ========== ========================
Current liabilities
Trade and other payables 433 467
Taxation payable 5 216 201
=============================== ===== ========== ========================
Total current liabilities 649 668
Total equity and liabilities 28,500 28,382
=============================== ===== ========== ========================
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2013
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$'000
As at 1 January
2012 674 30,878 14,123 (2,250) 43,425
Total comprehensive
income
Loss for the period
after taxation - - (15,363) (127) (15,490)
Transactions with
owners recorded
directly in equity
Dividends to equity
holders (Note 12) - - (1,393) - (1,393)
As at 30 June 2012 674 30,878 (2,633) (2,377) 26,542
===================== ============== ========== ========== ============== =========
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2013 2013 2013 2013 2013
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2013 674 30,878 (1,674) (2,164) 27,714
Total comprehensive
income
Profit for the
period after taxation - - 1,622 (137) 1,485
Transactions with
owners recorded
directly in equity
Dividends to equity
holders (Note 12) - - (1,348) - (1,348)
As at 30 June 2013 674 30,878 (1,400) (2,301) 27,851
======================== ============== ========== ========== ============== ========
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2013
Six months Six months
ended ended
30 June 30 June
2013 2012
Note US$'000 US$'000
Net cash inflow from operating
activities 13 619 151
Cash flows used in investing
activities
Interest received on cash
and cash equivalents 9 8
Purchase of fixtures,
fittings and equipment 8 (27) (8)
Purchase of current asset
investments 9 - (2,000)
Net cash used in investing
activities (18) (2,000)
================================ ===== =========== ===========
Cash flows used in financing
activities
Dividends paid 12 (1,348) (1,393)
Net cash used in financing
activities (1,348) (1,393)
================================ ===== =========== ===========
Net decrease in cash and
cash equivalents (747) (3,242)
Cash and cash equivalents
at 1 January 2013 and
1 January 2012 5,139 8,358
Foreign exchange loss
on cash and cash equivalents (94) (107)
Cash and cash equivalents
as at 30 June 2013 and
30 June 2012 4,298 5,009
================================ ===== =========== ===========
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
For the six months ended 30 June 2013
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. The condensed consolidated interim financial
statements of the Company as at and for the six months ended 30
June 2013 comprise the Company and its subsidiaries (together
referred to as the "Group").
The consolidated financial statements of the Group as at and for
the year ended 31 December 2012 are available upon request from the
Company's registered office or at www.argogrouplimited.com.
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 41
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
Argo Property Management Srl Romania
(formerly North Asset Management
Srl)
North Asset Management Sarl Luxembourg
2. ACCOUNTING POLICIES
(a) Basis of preparation
These condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 Interim Financial
Reporting. They do not include all the information required for
full annual financial statements and should be read in conjunction
with the consolidated financial statements of the Group as at and
for the year ended 31 December 2012.
The accounting policies applied by the Group in these condensed
consolidated interim financial statements are the same as those
applied by the Group in its consolidated financial statements as at
and for the year ended 31 December 2012.
These condensed consolidated interim financial statements were
approved by the Board of Directors on 27 August 2013.
(b) 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.
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 Argo Six
Capital Argo Capital months
Argo Management Capital Management ended
Group (Cyprus) Management Property 30
Ltd Ltd Ltd Ltd Other June
2013 2013 2013 2013 2013 2013
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenues from
external customers - 2,943 - 1,772 - 4,715
Intersegment
revenues 400 - 1,476 - - 1,876
Reportable
segment profit/(loss) 1,161 456 468 (306) - 1,779
Intersegment
profit/(loss) 400 (1,871) 1,476 - - 5
Profit/(loss)
excluding inter-
segment transactions 761 2,327 (1,008) (306) - 1,774
Reportable
segment assets 49,695 2,837 2,697 3,546 121 58,896
Reportable
segment liabilities 56 954 175 233 26 1,444
======================== ======== ============ ============= ============= ======== ========
Revenues, profit or loss, assets and Six months
liabilities may be reconciled as follows:
ended
30 June
2013
US$'000
Revenues
Total revenues for reportable segments 6,591
Elimination of intersegment revenues (1,876)
============================================== ===========
Group revenues 4,715
============================================== ===========
Profit or loss
Total profit for reportable segments 1,779
Elimination of intersegment losses (5)
Other unallocated amounts (43)
============================================== ===========
Profit on ordinary activities before
taxation 1,731
============================================== ===========
Assets
Total assets for reportable segments 58,896
Elimination of intersegment receivables (798)
Elimination of Company's cost of investments (29,598)
============================================== ===========
Group assets 28,500
============================================== ===========
Liabilities
Total liabilities for reportable segments 1,444
Elimination of intersegment payables (795)
============================================== ===========
Group liabilities 649
============================================== ===========
Argo Argo Six
Capital Argo Capital months
Argo Management Capital Management ended
Group (Cyprus) Management Property 30
Ltd Ltd Ltd Ltd Other June
2012 2012 2012 2012 2012 2012
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenues from
external customers - 2,245 - 1,614 - 3,859
Intersegment
revenues 2,200 - 1,093 - 184 3,477
Reportable
segment profit/(loss) 968 (1,443) (510) 581 18 (386)
Intersegment
profit/(loss) 2,200 (3,297) 909 - 184 (4)
Profit/(loss)
excluding inter-
segment transactions (1,232) 1,854 (1,419) 581 (166) (382)
Reportable
segment assets 48,999 830 2,352 4,442 430 57,053
Reportable
segment liabilities 67 396 255 153 26 897
======================== ======== ============ ============= ============= ======== ========
Six months
Revenues, profit or loss, assets and liabilities
may be reconciled as follows:
ended
30 June
2012
US$'000
Revenues
Total revenues for reportable segments 7,336
Elimination of intersegment revenues (3,477)
==================================================== ===========
Group revenues 3,859
==================================================== ===========
Profit or loss
Total loss for reportable segments (386)
Elimination of intersegment losses 4
Other unallocated amounts (14,905)
==================================================== ===========
Loss on ordinary activities before taxation (15,287)
==================================================== ===========
Assets
Total assets for reportable segments 57,053
Elimination of intersegment receivables (325)
Elimination of Company's cost of investments (29,598)
==================================================== ===========
Group assets 27,130
==================================================== ===========
Liabilities
Total liabilities for reportable segments 897
Elimination of intersegment payables (309)
==================================================== ===========
Group liabilities 588
==================================================== ===========
4. 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 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.
The number and weighted average exercise price of the share
options during the period is as follows:
Weighted No. of share
average options
exercise
price
Outstanding at beginning
of period 24.0p 5,415,000
Granted during the period - -
Forfeited during the period - -
============================= ========== =============
Outstanding at end of
period 24.0p 5,415,000
============================= ========== =============
Exercisable at end of
period 24.0p 2,707,500
============================= ========== =============
The options outstanding at 30 June 2013 have an exercise price
of 24p and a weighted average contractual life of 10 years. They
expire after 10 years. Outstanding share options are contingent
upon the option holder remaining an employee of the Group.
The weighted average fair value of the options outstanding at
the period end was nil.
5. TAXATION
Taxation rates applicable to the parent company and the Cypriot,
UK, Luxembourg, Cayman and Romanian subsidiaries range from 0% to
23% (2012: 0% to 25%).
Income Statement Six months Six months
ended ended
30 June 30 June
2013 2012
US$'000 US$'000
Taxation charge for the period
on Group companies 109 76
================================ =========== ===========
The charge for the period can be reconciled to the profit per
the Condensed Consolidated Statement of Comprehensive Income as
follows:
Six months Six months
ended ended
30 June 30 June
2013 2012
US$'000 US$'000
Profit/(loss) before tax 1,731 (15,287)
================================== =========== ===========
Applicable Isle of Man tax - -
rate for Argo Group Limited
of 0%
Timing differences 2 (5)
Non-deductible expenses 7 8
Non-taxable income - (1)
Other adjustments - (2)
Tax effect of different tax
rates of subsidiaries operating
in other jurisdictions 100 76
================================== =========== ===========
Tax charge 109 76
================================== =========== ===========
Balance Sheet
30 June 31 December
2013 2012
US$'000 US$'000
Corporation tax payable 216 201
========================= ======== ============
6. 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.
Six months Six months
ended ended
30 June 30 June
2013 2012
US$'000 US$'000
Net profit/(loss) for the
period after taxation attributable
to members 1,622 (15,363)
===================================== ============= =============
No. of No. of
shares shares
Weighted average number of
ordinary shares for basic
earnings per share 67,428,494 67,428,494
Effect of dilution (Note 4) 5,415,000 5,415,000
===================================== ============= =============
Weighted average number of
ordinary shares for diluted
earnings per share 72,843,494 72,843,494
===================================== ============= =============
Six months Six months
ended ended
30 June 30 June
2013 2012
US$ US$
Earnings per share (basic) 0.02 -0.23
Earnings per share (diluted) 0.02 -0.23
============================== =========== ===========
7. INTANGIBLE ASSETS
Fund management
contracts
US$'000
Cost
At 1 January 2012 18,640
Foreign exchange movement 195
========================================== ================
At 31 December 2012 18,835
Foreign exchange movement -
========================================== ================
At 30 June 2013 18,835
========================================== ================
Amortisation and impairment
At 1 January 2012 2,698
Impairment charge 14,945
Amortisation of Argo business intangible
assets 990
Foreign exchange movement 202
========================================== ================
At 31 December 2012 18,835
Amortisation of Argo business intangible -
assets
Foreign exchange movement -
========================================== ================
At 30 June 2013 18,835
========================================== ================
Net book value
At 31 December 2012 -
========================================== ================
At 30 June 2013 -
========================================== ================
In prior years the Group tested intangible assets annually for
impairment, or more frequently if there were indications that the
intangible assets could be impaired. The recoverable amounts of the
intangible assets that were reviewed for impairment were separately
identifiable business units within the Group. The value in use
approach was 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 had decreased significantly due to the
volatility and uncertainty displayed by the global financial
markets. As a result, operations were scaled back and an impairment
review of goodwill was undertaken at 30 June 2012. Following the
review, goodwill of US$14.9 million created on the purchase of the
Argo businesses was written off at 30 June 2012. At the balance
sheet date the carrying value of goodwill is nil (31 December 2012:
Nil).
At the balance sheet date the carrying value of the Argo Real
Estate Opportunities Fund Ltd management contract is nil (31
December 2012: Nil) following its full amortisation during the year
ended 31 December 2012. The Group has successfully renegotiated the
extension of this management contract by five years from 31 July
2013 to 31 July 2018.
8. FIXTURES, FITTINGS AND EQUIPMENT
Fixtures,
fittings
& equipment
US$'000
Cost
At 1 January 2012 357
Additions 225
Disposals (231)
Foreign exchange movement 21
================================ =======================
At 31 December 2012 372
Additions 27
Foreign exchange movement (14)
================================ =======================
At 30 June 2013 385
================================ =======================
Accumulated Depreciation
At 1 January 2012 287
Depreciation charge for period 73
Disposal (231)
Foreign exchange movement 22
================================ =======================
At 31 December 2012 151
Depreciation charge for period 65
Foreign exchange movement (8)
================================ =======================
At 30 June 2013 208
================================ =======================
Net book value
At 31 December 2012 221
================================ =======================
At 30 June 2013 177
================================ =======================
9. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
30 June 30 June
2013 2013
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 19,135
Argo Real Estate
Opportunities Fund
10,899,021 Ltd 988 212
Argo Special Situations
115 Fund LP 115 89
=========== ======================== ============= =============
17,446 19,436
=========== ======================== ============= =============
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
=========== ======================== ============= =============
10. TRADE AND OTHER RECEIVABLES
During the year ended 31 December 2011 the Group provided Argo
Real Estate Opportunities Fund Ltd ("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
30 June 2013 total US$3,667,331 (EUR2,819,505) (31 December 2012:
US$2,597,188, EUR1,965,333) after a bad debt provision of
US$2,276,225 (EUR1,750,000) (31 December 2012: US$991,125,
EUR750,000). AREOF continues to meet part of this obligation to the
Argo Group as and when liquidity allows with a further US$1,188,000
(EUR900,000) being settled in July 2013.
In the audited financial statements of AREOF at 30 September
2012 and the interim report of AREOF at 31 March 2013, a material
uncertainty surrounding ongoing discussions with its bankers and
the prevailing trading environment 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.
11. LOANS AND ADVANCES RECEIVABLE
During the period Argo Group advanced US$1,300,700
(EUR1,000,000) to Bel Rom Trei ("Bel Rom"), an AREOF Group entity
based in Romania that owns Sibiu Shopping City, in order to assist
with its operational cash requirements. Challenging trading
conditions have impacted Bel Rom's cash flow and its ability to
meet payments due to lending banks as and when they fall due. The
situation is being remedied by way of discussions with the lending
banks with a view to restructuring these loans. While these
discussions are on-going to find an agreeable solution for both
parties, Bel Rom continues to enjoy the support of its banks. The
loan is repayable on demand and accrues interest at 12%. The full
amount of the loan remains outstanding at 30 June 2013. The
Directors consider this loan to be fully recoverable on the basis
that discussions with lending banks are progressing well and that
Sibiu Shopping City is the strongest centre within Argo's property
portfolio with high occupancy and a healthy tenant demand.
12. SHARE CAPITAL
The Company's authorised share capital is unlimited with a
nominal value of US$0.01.
30 June 30 June 31 December 31 December
2013 2013 2012 2012
No. US$'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 recommended a final dividend of 2.1 cents (1.3
pence) per share for the year ended 31 December 2012 (31 December
2011: 2.0 cents, 1.3 pence). The final dividend for the year ended
31 December 2012 of US$1,348,287 (GBP876,570) (31 December 2011:
US$1,392,885, GBP 876,570) was paid on 26 April 2013 to ordinary
shareholders who were on the Register of Members on 2 April 2013.
Going forward, the Company intends, subject to its financial
performance, to pay a final dividend each year.
13. RECONCILIATION OF NET CASH INFLOW FROM OPERATING ACTIVITIES TO
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Six months Six months
ended ended
30 June 30 June
2013 2012
US$'000 US$'000
Profit/(loss) on ordinary
activities before taxation 1,732 (15,287)
Interest income (9) (8)
Impairment charge - 14,945
Amortisation of intangible
assets - 317
Depreciation 65 14
Unrealised (gain)/loss on
investments (958) 1,014
Net foreign exchange (gain)/loss (37) 2
Decrease in payables (34) (552)
Increase in receivables (45) (282)
Income taxes paid (94) (12)
================================== ============= =============
Net cash inflow from operating
activities 619 151
================================== ============= =============
14. FAIR VALUE HIERARCY
The table below analyses financial instruments measured at fair
value at the end of the reporting period by the level of the fair
value hierarchy (note 2).
At 30 June 2013
Level Level Level Total
1 2 3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets
at fair value
through profit
or loss 212 19,224 - 19,436
================== ========= ========= ========= =========
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 753 17,725 - 18,478
================== ========= ========= ========= =========
15. 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$19,135,120,
US$212,645 and US$88,669 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 30 June 2013 total US$3,667,331 (EUR2,819,505) (31
December 2012: US$2,597,188, EUR1,965,333) after a bad debt
provision of US$2,276,225 (EUR1,750,000) (31 December 2012:
US$991,125, EUR750,000). AREOF continues to meet part of this
obligation to the Argo Group as and when liquidity allows with a
further US$1,188,000 (EUR900,000) being settled in July 2013.
In the audited financial statements of AREOF at 30 September
2012 and the interim report of AREOF at 31 March 2013, a material
uncertainty surrounding ongoing discussions with its bankers and
the prevailing trading environment 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.
During the period Argo Group advanced US$1,300,700
(EUR1,000,000) to Bel Rom Trei Srl, an AREOF Group entity based in
Romania that owns Sibiu Shopping City, in order to assist with its
operational cash requirements. The loan is repayable on demand and
accrues interest at 12%. The full amount of the loan remains
outstanding at 30 June 2013.
Michael Kloter, the non-executive chairman, is also partner in a
legal firm which supplies services to the Group. This firm charged
nil (six months ended 30 June 2012: US$1,530) 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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Argo (LSE:ARGO)
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