REG - Argentex Group PLC - Full results for the 9 months to 31 December 2022
12/04/2023 07:00
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RNS Number : 8899V Argentex Group PLC 12 April 2023
12 April 2023
Argentex Group PLC
("Argentex" or the "Group")
Full results for the 9 month period ended 31st December 2022
Growth strategy continuing to deliver strong results, with adjusted operating
profit(3) marginally ahead of market expectations
Argentex Group PLC (AIM: AGFX), the service led, tech enabled provider of
currency management and payment services to international institutions and
corporates, today issues its results for the 9 month period ended 31st
December 2022(1)
Financial Highlights for the 9 month period ending 31 December 2022
· Group revenue increased by 63% to £41.0m compared to the same
period last year(2) (FY22: £34.5m)
· Operating profit of £8.1m (FY22: £10.4m)
· Adjusted operating profit(3) of £9.0m (FY22: £11.0m)
· Debt free and cash generative with net cash increasing by £6m in
the reporting period to £26.2m(4)
· Earnings per share (EPS) of 6.2p basic and 6.8p adjusted (FY22:
6.6p basic and 7.0p adjusted)
· Final dividend of 2.25p per share (FY22: 2.0p per share)
As previously announced, the Group is transitioning from a 31 March year end
to a 31 December year end. To assist investors, relevant additional pro forma
information is also provided for the 12 months to 31 December 2022.
Financial Highlights for the 12 month period ending 31 December 2022
· Group revenues increased by 54% to £50.4m compared to the same
period last year(5) (FY22: £34.5m)
· Adjusted operating profit(3) marginally ahead of already increased
expectations at £12.3m (FY22: £11.0m)
· Adjusted operating profit margins marginally ahead of already
increased expectations at 24.4% (FY22: 31.9%)
· Netherlands revenue increased to £2.0m (FY22: £0.7m)
(1)In line with the change in year end, all references are made to the 9 month
statutory reporting period and where relevant additional information is
provided for the 12 months to 31 December 2022
(2) Revenues generated in the 9 month period ended 31 December 2021 were £25m
( )
(3) Adjusted operating profit excludes one off costs in relation to the set up
of overseas offices and any restructuring costs incurred in the period, in
line with accounting policy
(4) Net cash represents cash and cash equivalents plus collateral held at
counterparties less amounts payable to clients
(5)Revenues generated in the 12 months to 31 December 2021 were £32.8m
Operational Highlights
· Focused growth and investment strategy delivering a greater share
of client wallet
· 1,595 corporate clients traded over the 9 month period
· 1,749 corporate clients traded over the 12 month period being 12%
increase on 1,562 year-on-year (1,624 in FY22)
· Average revenue per corporate client increased by 45% on FY22 over
the 12 month period
· 10% of Group revenue from Structured Solutions over the 9 month
period (FY22: 3%)
· Online revenue increased by 89% over the 9 month period to £1.2m
Strong progress made with the Group's focused three pillar growth strategy:
Technology & product
· Phase one of the technology strategy saw the Group's online
platform successfully rolled out during the period
· Online platform adoption and repeat utilisation growing ahead of
management expectations
· Alternative Transaction Banking division launched post period end,
allowing customers to take advantage of a compelling alternative to current
accounts offered by traditional banks
· New Institutional division established post year end to specialise
in the financial services sector
International Expansion
· Netherlands subsidiary awarded Electronic Money Institution ("EMI")
licence, providing a significant platform to grow Argentex across Europe
· Awarded draft Australian Financial Services License (ASFL) post
year end, providing continued momentum behind Argentex' Australasian ambitions
· Australian team established
People
· Continued to attract leading talent, totalling 137 global employees
at period end, with 25 newly created roles filled in the period, 21 in the UK
and 4 overseas
· Hires across the Group to support investment in future business
growth, with 33% of new roles created in the UK being technology development
related
· Continued investment planned to support technology development,
international growth and further market share gains
Outlook
The strong momentum over the 9 month period to 31 December 2022 has continued
into 2023. Q1 (to March) 2023 revenue increased by 34% to £12.7m compared to
the same three month period to 31 March 2022, with every division of the Group
delivering in line with or ahead of management expectations.
Addressing the increasing requirements of our clients remains at the forefront
of our growth strategy. We have progressed into phase two of our technology
led product pipeline with the launch of our Alternative Transaction Banking
division in March 2023. This important and differentiating development of both
products and solutions will enable the Group to service a broader client base,
as well as further increase our share of wallet of the existing customer base
by providing a compelling alternative to current accounts offered by
traditional banks across the UK, Europe, and Australia.
Our European operations, headquartered in Amsterdam, continue to make progress
and deliver ahead of expectations, while the Australasian focused office is
established and ready to begin trading once regulatory permissions are
granted.
As we evolve our product suite, it is important that we continue to provide
our clients with a best-in-class service supported by experienced specialists,
not generalists. Our financial services client base has grown steadily, now
contributing 30% to Group revenue. It is for this reason that we have
established a new dedicated Institutional division led by Kit Smith who has
been integral to the Group's success in this market segment over his 10-year
tenure.
To further accelerate our global growth strategy, we will continue to invest
in people, doubling the footprint of our UK, European and Australian
headquarters during H1 2023 as planned. As the Group adds more products across
more geographies, Lee McDarby joins Argentex as Chief Commercial Officer with
over 20 years' experience in global banking and international payments.
Despite the uncertain global macro-economic backdrop, we look to the year
ahead with optimism as we remain focused on delivering our growth strategy and
will continue to generate a strong return on investment while increasing
profitability and quality of earnings.
Harry Adams, Chief Executive Officer, said:
"I am pleased to report another record set of results for Argentex, further
evidencing the significant progress we are making in the implementation of our
long-term growth strategy. Our business is experiencing excellent momentum,
demonstrated by 63% revenue growth over the 9 month period and 34% revenue
growth in the first quarter of 2023."
"The impact of our investment in technology and products is especially
encouraging. We have more than doubled the amount of people working in
technology and have increased the focus on additional products that are now
contributing circa 13% of revenues and increased the average revenue per
corporate client by 45%. Our newly launched Alternative Transaction Banking
product set and focused divisions will drive additional revenue streams and
client engagement that will allow us to continue to deliver further wallet
share and open new revenue opportunities."
"We are wholly focused on ensuring these initiatives deliver both short-term
earnings potential and sustainable, long-term growth for all our
stakeholders."
Lord Digby Jones, Non-Executive Chairman, said:
"Argentex has put the building blocks in place to unlock its significant
potential and create a market leading client proposition. Emphasis has always
been on investing for sustainable growth although it is highly encouraging to
see immediate and tangible results cement its viability and potential for
future performance."
"The Group has made an excellent start to the new financial year extending the
strategic and operational momentum which generated the record financial
performance during the period. The new technology and product roll out is
heralding an exciting new chapter for the Group. The expanded geographical
footprint and strong ongoing sector fundamentals further support Argentex's
engine for growth. We remain confident that the Group's ambitious strategy
will continue to deliver for clients, employees and shareholders."
For further information please contact:
Argentex Group PLC
Harry Adams - CEO
Jo Stent - CFO
investorrelations@argentex.com (mailto:investorrelations@argentex.com)
FTI Consulting LLP (Financial PR)
Ed Berry / Ambrose Fullalove / Jenny Boyd
07703 330 199
argentex@fticonsulting.com (mailto:argentex@fticonsulting.com)
Singer Capital Markets (Nominated Adviser and Broker)
Tom Salvesen / James Maxwell / Justin McKeegan
020 7496 3000
Analyst briefing
A meeting for analysts will be held virtually at 9.30am today, 12th April
2023. Analysts wishing to attend this event can register via email
to argentex@fticonsulting.com (mailto:argentex@fticonsulting.com) .
Argentex's Full Year results announcement will also be available today on the
Group's website at www.argentex.com (http://www.argentex.com) .
Retail investor presentation
Management will additionally host a presentation for retail investors via the
Investor Meet Company platform at 16:30 on results day. The presentation is
open to all existing and potential shareholders. Questions can be submitted
via the Investor Meet Company dashboard up until 09:00 on the day before the
meeting, or at any time during the live presentation.
Investors who already follow Argentex Group PLC on the Investor Meet Company
platform will automatically be invited. Those wishing to sign up for free, and
meet Argentex, can do so
via https://www.investormeetcompany.com/argentex-group-plc/register-investor
(https://www.investormeetcompany.com/argentex-group-plc/register-investor) .
Chairman's statement
Global businesses have faced significant challenges over the last two years,
navigating the unprecedented global lockdowns followed shortly by the tragic
outbreak of the war in Ukraine and a downturn in the UK macro-economic
outlook. Inevitably this has led to many adjusting their course to navigate
this uncertainty.
Hindsight shows us that the companies successfully performing in and emerging
from these conditions are those that prioritised the pursuit of stable,
measured growth through the uncertain times, while maintaining an unrelenting
focus on the building blocks needed to capitalise on new sector trends.
It is this that defines the strength of Argentex's financial performance
through the period - a considered repositioning of the business's strategy
which is already delivering, refocusing on investment in people, technology
and international expansion in order to pursue new opportunities emerging
across the foreign exchange sector. Under the expert leadership of Harry
Adams, the evolution of Argentex and its path forward are clear, with a
sustainable and diversified platform that is better positioned than ever to
meet increasing client needs and delivering for all stakeholders.
I am proud to serve as Chairman of a business that continues to demonstrate
its agility and innovation making the most of changing market conditions. My
thanks go to Harry and the full Argentex team for their hard work and
commitment this year. The ongoing success of the business is testament to
their expertise and collective mindset geared towards sustainable growth. It
is an honour to work alongside them.
I must also extend my thanks to Lena Wilson for her invaluable contributions
to the business's growth in the last few years as a Board Director. Her
expertise has come at a vital time for a newly listed business and she leaves
with our deep gratitude and best wishes for her future endeavours.
Fundamentally, Argentex has remained a trusted partner to a client base that
has, in recent years, had to grapple with a series of volatile macroeconomic
conditions, including the latest period of high inflation, rising rates and a
consequential cost of-living crisis. While such pressures will undoubtedly
continue to weigh on business and market sentiment over the short to medium
term, Argentex's ability to continue to grow its corporate client base and
relative market share, while supporting clients and navigating the market-wide
headwinds speaks of the resilience and professionalism in the business.
Argentex is committed to continue outperforming expectations for its clients
and shareholders alike by providing a viable and flexible alternative to
traditional banks, growing internationally, and developing technology enabled
products - there is much to be excited about on the horizon.
KEY ACHIEVEMENTS
Against this backdrop, the Board is very pleased to have delivered results
that were marginally ahead of market expectations during the year, with record
revenue growth and a substantial increase in profitability over the period.
These strong results have been achieved alongside the management of an
ambitious investment programme and ensuring the continued progressive dividend
policy is maintained.
This recent strong performance has not come overnight, nor is it a symptom of
external market drivers alone. Through a refined strategy, the last 18 months
have been about putting the building blocks in place to unlock the significant
growth potential identified and to create a market leading client proposition.
While the ambition is long-term, the immediate and tangible results of the
corporate strategy cement its viability and potential for future
performance.
Argentex continues to build out its core offering to capitalise on the
evolving needs and interests of its growing and increasingly global client
base. Through the high-quality talent it increasingly attracts, the
strengthening expertise within the Group alongside an exciting product
development pipeline demonstrates a commitment to being a sophisticated
partner to clients.
The business has welcomed market leading talent at all levels during 2022. On
behalf of the Board, I'd like to extend my congratulations to David Christie
for all he has accomplished in the first full year of his role as Chief
Operating Officer. Hires over the period have professionalised further
back-office functions, strengthened marketing, compliance and risk management
divisions, while adding efficiencies and critical resources to the sales team.
Their collective contributions are fundamental to Argentex's delivery of a
high quality, sustainable and responsible client service.
What is vital in any growing business is the preservation of good corporate
culture and a sense of belonging and contribution among its employees. I am
proud of the way the business is focused on fostering a culture defined by
inclusivity, innovation and collegiality, enhancing the way it delivers value
for clients, attracts new business and grows its market share. It is also
central to its ability to attract and retain talent.
The increasingly dynamic sector in which Argentex operates, and the evolving
needs of clients around the world, mean there is no limit to the role
technology can play in enhancing its offering to existing and new customers.
The Board looks forward to announcing further developments to the business's
technological capabilities as a result of the recent focused investment that
has been made.
Argentex's internationalisation strategy designed to replicate its proven and
growing UK model in highly regulated geographies where there is demonstrable
latent demand for its products and services continues to gain momentum. The
Board is pleased that the Group has further strengthened its presence and
local market offerings in the Netherlands and Australia. We continue to assess
new territories that can support our ambitious growth plans and remain
confident in the role these regional offices will play as a springboard to
further expansion in new, highly regulated, markets over time.
OUTLOOK
2022 has been a defining year for Argentex operationally, strategically and
financially. Our investment as part of the three-pillared strategy is
delivering robust results and we are winning further market share and client
wallet as a result of our client centric approach and growing breadth of
services. I am excited about the business's continued ability to capitalise
on the significant opportunities that present themselves in the global FX and
payments sectors.
Argentex is well positioned to continue to enhance its client service, product
suite and footprint in line with the increasing trading and digital demands of
its clients and further increase market share. I look ahead to the remainder
of the year (and beyond) confident in the Company's sustainable
diversification strategy and long term prospects.
Lord Digby Jones Kb.
Non-Executive Chairman
CEO statement
OVERVIEW
The 9 month period to 31 December 2022 represented a pivotal period for the
Group where Argentex has focused on driving sustainable and diversified growth
across its 3 strategic pillars: People, Technology and International
expansion. The evolving suite of technology enabled products and high service
levels has attracted a growing number of institutional and corporate clients
who seek a trusted and well capitalised counterparty to provide solutions for
their global foreign exchange and treasury requirements. The positive momentum
from our last financial year continued into the 9 month reporting period and
has resulted in Group revenues of £41m (FY22 £34.5m) and an adjusted
operating profit (1)of £9.0m (FY22 £11.0m). On a 12 month basis from 01
January 2022 to 31 December 2022, Group revenues of £50.4m and adjusted
operating profit(1) of £12.3m. These strong results, which are marginally
ahead of already increased expectations highlight the positive impact this
investment in our growth strategy has had on our performance. It also
reinforces the significant long-term market opportunities both geographically
and through new diversified products and solutions, as we continue to progress
taking a greater share of client wallet through this organic growth strategy.
I am delighted by the quality of talent that Argentex has recruited this year.
I believe this has contributed to the Company's recent growth and reinforces
our strong position as a leading provider in the global B2B payments market
over the longer term. We have invested in people at every level of our
business across front office, operational and technological roles, as well as
strengthening the Senior Leadership team. In November 2022 we announced our
LTIP and I am pleased to welcome 42 members of staff as partners and owners of
the Group in order to incentivise and encourage retention of senior employees
in a manner that aligns with the interests of the Group's shareholders. I'd
like to thank the team for their continued hard work and commitment to the
Group and look forward to maintaining this positive momentum as we enter the
next phase of Argentex's growth.
MARKET BACKDROP
The reported period has once again been dominated by domestic and global
uncertainty. The UK's mini budget plunged the pound to its the lowest level
against the dollar since decimalisation in 1971, while interest rates across
the world have increased to levels not seen since the global financial crisis
in 2008.
The Group has supported clients through these unprecedented events and the
ongoing impacts of the Russia's invasion of Ukraine, which has had a
significant impact on trade, currency, and by extension many businesses'
profitability. Every day we speak to clients and prospects who are in
desperate need of guidance, which they are not receiving from large banks and
other payment institutions.
While these events created volatility in FX markets our de-risked model and
disciplined approach allowed us to create revenue opportunities, alongside
underlying growth in our client base and share of client wallet that resulted
in outperformance on an adjusted profit basis for the 12 month period.
FINANCIAL PERFORMANCE
The Group has capitalised on the increasing demand from institutions and
corporates for a credible, service led, technology enabled provider, to manage
their foreign exchange exposure and payments. Our "right tech, right touch"
approach has led to Group revenues increasing to £41.0m (FY22: £34.5m). In
addition, 1,595 corporate clients traded with Argentex for the period (1749
for the 12 month period ending 31 December, FY22:1,624). Argentex remains
focused on maintaining a high quality and diversified client-base with the
Group's top 20 clients accounting for 39% of total Group revenues. When
considering the improved higher-margin product mix, such as an increase in
Structured Solutions as a proportion of total Group revenue to 10%, in
aggregate with the increased client wins and client trades through the 12
month period, it represented a clear increase in our share of client wallet,
with an average revenue per corporate client traded increasing by 45% in the
twelve month period compared to FY22.
The Group has maintained a disciplined approach to managing costs through the
period resulting in an operating profit of £8.1m (£11.3m for the 12 month
period ending 31st December 2022, FY22: £10.4m). Operating margins are
marginally ahead of market expectations, with adjusted operating margins(1) of
24.4%.
As a result of this strong performance through the period and positive outlook
for the Group's prospects, the Board is pleased to announce a 12.5% increase
in the total dividend to 2.25p per share.
The strength of Argentex's performance over the period is ultimately down to
the trust our clients place in us to generate the best quality outcomes for
the spectrum of their foreign exchange and payment needs. We remain a key
partner for their trading requirements in our core foreign exchange
proposition and have seen an increase in revenue generated from existing
clients seeking different products and solutions. This was particularly
evident during the latter months of 2022, as market dynamics created one of
the most volatile periods for sterling on record, therefore, companies relied
on Argentex to guide them through this black swan event, seeking hedging
strategies, payments, treasury and risk management solutions.
Historically, our revenue mix has been a 50:50 split from spot and forward
trades, however since the inception of our Structured Solutions division in
FY22, which generates higher margins than spot or future contracts, 10% of
revenue was generated through this new division in the reporting period. Not
only has the product mix diversified, we have seen a 65% increase in clients
trading online for the period, like for like, using our new platform.
GROWTH STRATEGY
Our strategic investments across our three pillars: people, technology and
international expansion, have enabled us to increase our share of client's
wallet and provide a viable alternative to the traditional banks who are
seeing their historic 85% market share come under pressure.
People:
We remain focused on investing in our people to drive forward our organic
strategy, creating an empowering and collaborative environment for our growing
team as well as fostering the next generation of graduates and financial
services professionals through their early stage careers. Our success has been
accelerated by the senior hires we have made in the last year across the Group
to support our strategy.
The strategy to grow our office capacity continues with 25 new hires over the
period. At the period end date, global headcount was 137 and our bench has
never been stronger. I am proud of the entrepreneurial and supportive culture
we have created, and to which every Argentex employee contributes.
Technology:
The technology strategy was driven by the demand from institutional and
corporate clients to give them optionality and flexibility whilst also
creating efficiencies in our business. As part of 'phase one' of our
technology strategy we launched an enhanced online platform during the period.
Pleasingly, our results clearly demonstrate the immediate positive
contribution this first phase of our technology development has had on both
client experience and Group earnings. Online revenue increased to £1.2m (FY22
£0.6m) and the number of trades online grew by 41% to 4248 (FY22 3010). We
now look to activate 'Phase 2' of our technology plan, initially focused on
the launch of our new Alternative Banking Transaction division, in addition to
remaining focused on maintaining the momentum to meet evolving client demands,
both in the UK and overseas.
International Expansion:
Our presence in the Netherlands and Australia is indicative of our strategy to
transform Argentex from a single product, single-office business into a
multi-product, global business. The Netherlands subsidiary, was awarded an
Electronic Money Institution ("EMI") licence by the Dutch National Bank in
September, providing access to a substantial domestic market. In 3 years, the
office has grown to 16 professionals and delivers a meaningful contribution to
Group revenue. While the office prioritises domestic revenue streams, this
credible licence endorses Argentex's differentiated and uncompromising
approach to regulation and provides our business with a springboard to other
European countries, creating a scalable model for future growth in the
continent. I am pleased to announce following the period end, we have been
awarded a draft Australian Financial Services License (AFSL) which launches
the Australasian offering. We look forward to reporting on progress of this
exciting market opportunity. We maintain a measured and client-led approach
to our international expansion, will consider seeking future regulatory
permissions where they are value additive to operations and are actively
monitoring for long-term growth opportunities in new regions.
SUSTAINABILITY
Our growth strategy is supported by clear sustainability goals under the three
pillars of Planet, People and Partners. We are committed to putting the right
focus on sustainability, encompassing environmental, social and governance
(ESG) issues to support our growth and yield greater business benefits by
transitioning towards a sustainable business model.
OUTLOOK
We are encouraged that our three pillar strategy is delivering results and we
will continue to focus on building this positive momentum into 2023. These
results are supportive of our strategy to continue to invest in order to
capitalise on the market opportunity and drive accelerated growth in revenues
and profitability over the medium term. As such, we will double the footprint
of our UK and European headquarters during H1 2023, with a number of expected
new hires in the UK, Netherlands and Australia. Looking ahead, our focus on
attracting industry-leading talent remains unchanged, whilst fostering our
existing talent and bringing them up through the ranks.
Our planned investment will also ensure our capabilities meet the increasingly
digitalised requirements of our stakeholders through progressing into 'phase
two' of our technology led product launch pipeline. This year, we will launch
our alternative transaction banking division, initially giving institutions
and corporates their own unique multi-currency accounts. This is an important
and differentiating step for the Group as it capitalises on its core business
to propel itself into new markets and territories.
The successful combination of people, technology and international expansion
are expected to generate a strong return through growth in revenues, increased
profitability and continued earnings quality. I would like to thank our
employees, business partners and shareholders for their continued support and
look forward to sharing more updates with you in the coming period.
Harry Adams
Chief Executive Officer
(1)Adjusted operating profit excludes one off items relating to the set up of
overseas offices or any restructuring costs as per accounting policy
Financial Review
As previously communicated, we made the decision to change our year end to 31
December in line with the Group's transition to a global financial solutions
provider. Our report throughout is reflective of the 9 month short
accounting period to 31 December 2022 as we transition our new year end date.
Where appropriate, and to assist investors, we make additional pro forma
reference to performance for the 12 months to 31 December 2022 for information
purposes only.
In the 9 months to 31 December 2022, Argentex delivered record revenue growth
alongside continuing to pursue its ambitious investment programme across all
three facets of its strategy; people, technology and international expansion.
Whilst the period included two weeks of heightened volatility in the pound,
our scalable, highly cash generative and increasingly diversified business
model continued to demonstrate its long-term resilience and highlight the
Group's ability to deliver for all stakeholders against any economic backdrop.
As a result of this strong performance throughout the period and positive
outlook for the prospects of the Group, the Board is pleased to announce a
dividend of 2.25p per share for the 9 month period.
FINANCIAL PERFORMANCE
Argentex generated revenues of £41.0m in the 9 month period, an increase of
63% compared to the same period in the prior year. For the 12 months to 31
December 2022, Argentex delivered a year on year increase of 54% with revenues
of £50.4m (12 months to 31 December 2021: £32.8m). Record revenues generated
in the period were supported by an increase in corporate clients trading in
addition to incremental contributions from an enhanced product mix such as
Structured Solutions and revenues from our online platform.
1,595 corporate clients traded with Argentex for the 9 month short accounting
period compared to 1,624 corporate clients having traded for 12 months to 31
March 2022. Of this 1,595 corporate clients traded, 409 were new in the period
(FY22: 528). A total of 1,749 corporate clients traded over the 12 month
period to 31 December 2022. Historically, our revenue mix has been a 50:50
split from spot and forward trades, however since the inception of our
Structured Solutions division in FY22, 10% of revenue was generated through
this new division in the 9 month period. Not only has the product mix
diversified, we have seen an increase in clients using our new online
platform. 351 clients traded online with Argentex for the 9 month short
accounting period compared to 252 clients trading for 12 months to 31 March
2022 resulting in a 89% increase in online revenue. Combined, these factors
resulted in a 45% increase in average revenue per customer in the 12 month
period to 31 December 2022 compared to FY22 which shows encouraging early
results from our investments in growth to date and is clear demonstration of
our increasing share of client wallet.
The Group has maintained a disciplined approach to managing costs through the
period resulting in an operating profit of £8.1m (12 months to 31 December
2022 £11.3m, FY22: £10.4m). Adjusting for one off expenditure relating to
restructuring and the set up of overseas offices, adjusted operating profit in
the 9 month period was £9.0m, or 22% margin and in the 12 months to 31
December 2022 £12.3m, reflecting a 24% margin. However, margins delivered in
the 12 months to 31 December 2022 were marginally ahead of already increased
market expectations. The planned decline in operating margins compared to FY22
reflects the previously communicated ambitious investment programme across all
three facets of Argentex's growth strategy.
The Group's robust approach to risk remains unchanged, which is demonstrably
reflected in the consistently low instances of client default. In the 9 month
period ended 31 December, the Group recorded a credit valuation adjustment of
£1.1m in recognition of the broader macroeconomic backdrop and trends in
addition to the Group's increase in size and scale.
People
In the 9 month period to 31st December 2022 the number of employees (including
Directors and LLP members) grew to 137 (FY22: 112). Front office/Back office
split has shifted moderately versus prior periods at 53%/47% (FY22: 62%/38%)
and reflects the investment in technology in support of the growth strategy
and further professionalisation in the support functions proportionate to the
maturation of the business as well as a continued balanced approach to risk. A
total of 25 people were hired into new roles created in the period, 21 UK and
4 overseas.
Technology
Total investment in technology in the 9 month period was £1.4m (FY22 £1.7m),
with the impact on profit margins mitigated by the fact that benefits of the
technology spend will be realised in future periods and as such investment
spend is treated as capital investment and amortised over a three year period
in line with accounting policy. In recognition of the ambitious nature of our
investment programme, the Group has invested in programme management resources
to enhance operational efficiency and manage execution risk given the pace of
growth across multiple facets.
Overseas Expansion
International expansion continued with focus on the Netherlands and Australia
including set up costs in the period of £0.5m. Revenues generated in the
Netherlands for the 9 month period totalled £1.6m (FY22: £0.7m). The
Netherlands will be the central hub for European operations and licences
granted in the Netherlands will act as a gold standard for the region to
create further opportunities in the coming years.
FINANCIAL POSITION
Argentex views its ability to generate cash from its trading portfolio is a
key indicator of performance within an agreed risk appetite framework. As at
31 December 2022, Argentex has net cash of £26.2m, an increase of £6.0m on
prior period. Total cash and cash equivalents include client balances
pertaining to collection of any collateral and variation margin in addition to
routine operating cash balances. Further, cash and cash equivalents does not
include collateral placed with financial counterparties. Collateral placed
with financial counterparties of £10.0m (FY22: £7.2m) recorded in other
assets of the statement of financial position.
Dec 22 Mar 22
Cash and Collateral £m £m
Cash at bank 29.0 37.9
Collateral held at institutional counterparties (other assets) 10.0 7.2
Less: amounts payable to clients (12.8) (24.9)
Net cash 26.2 20.2
Before movements in client balances held as shown in the Consolidated
Financial Statements note 19, the Group generated £7.5m in cash from
operating activities. A £12.1m decrease in client balances held, when
deducted from cash generated results in a net cash outflow inclusive of client
balance movements of £4.6m (FY22 cash generated of £17.2m). Of the £7.5m in
cash generated from operating activities, £1.4m was used to invest in
technology and a further £1.5m was returned to shareholders in the form of a
dividend.
Cash generation from the Group's revenues is a function of i) the composition
of revenues (spot, forward and option and swap revenues) and ii) the average
duration of the FX forwards in the portfolio. In the period, Argentex has
generated revenues in a ratio of approximately 45:55 between spot and forward
contracts outside of options and swap revenues. While spot FX contracts
attract a smaller revenue spread, the inherent risk profile is much reduced
and cash is generated almost immediately. As such, having this proportion of
revenues generated by spot trades with a minimal working capital cycle creates
a strong positive immediate cash flow for the business compared to its
operating cost base.
Argentex continues to enjoy a high percentage of trades converting to cash
within a short time frame, which is a result of almost 50% on average of
revenue from trades outside of structured solutions and swap trades being spot
contracts in addition to forward contracts carrying a relatively short tenor
on average. Excluding swap revenue, 81% of revenue converts to cash within 3
months which is consistent with prior years as follows:
CASH CONVERSION
9mths to 12mths to 31/03/22 12mths to 12mths to 31/03/20
31/12/22 31/03/21
£m £m £m £m
Revenues 41.0 34.5 28.1 29.0
Revenues (swap adjusted S/A) (A) 37.7 31.5 27.2 27.6
Less
Revenues settling beyond 3 months S/A (7.1) (4.6) (3.1) (4.0)
Net short-term cash generation (B) 30.6 26.9 24.1 23.6
Short-term cash return (B/A) 81% 85% 88% 86%
Derivative financial assets grew 62% in the period to £66.5m with current
element being £57.7m (87% of total derivative financial assets). The Group
diversifies liquidity requirements across five liquidity providers, the
largest providing 62% of liquidity required (77% at 31 March 2022).
PORTFOLIO COMPOSITION
Argentex's client base continues to grow with an increase in corporate clients
traded in the 9 month period to 1,595 (FY22: 1,624), and 409 of these
corporate clients traded representing new business. Even when taking growth
into account however the composition of our client portfolio remains
consistent year-over-year in that it consists of similar businesses with
exposures in the major currencies of sterling, euro and US dollar. In line
with prior year, as at the period end 78% of the Group's portfolio was
comprised of trades in those currencies and hence the Group's exposure to
exotic currencies or currencies with higher volatility and less liquidity
remains significantly limited.
Further, client concentration has been maintained with 39% of revenue
represented by the top twenty customers (FY22 36%).
Argentex has put in place a low risk approach to managing collateral
requirements with institutional counterparties to mitigate significant
volatility risk which, when coupled with a selective and robust client
acceptance process, has ensured that Argentex continues to avoid any material
issues over settlement. In addition, as a result of a conservative approach to
risk, Argentex continues to enjoy immaterial occurrence of bad debt. A credit
valuation adjustment charge of £1.1m has been maintained at broadly the same
level as previously reported (£0.9m at 30th September 2022).
CHANGE IN FINANICAL REPORTING PERIOD
In line with the Group's transition to a global financial solutions provider,
the financial reporting timetable has moved to a 31st December year end.
DIVIDEND
Argentex is pleased to declare a final dividend for the 9 month period ended
31 December 2022 of 2.25p per share. The final dividend record date will be 30
June 2023 and will be paid on 4 August 2023. The ex-dividend date is 29 June
2023.
Jo Stent
Chief Financial Officer
Consolidated Statement of Profit or Loss and other comprehensive income for the period ended 31 December 2022
Notes 9 months ended Year ended
December 2022 March
2022
£m £m
Revenue 5 41.0 34.5
Cost of sales (1.8) (0.6)
Gross profit 39.2 33.9
Administrative expenses (30.2) (22.9)
Adjusted operating profit 9.0 11.0
Non-adjusted expenditure 8 (0.8) (0.4)
Share-based payments charge 23 (0.1) (0.2)
Operating profit 8.1 10.4
Finance costs 11 (0.3) (0.4)
Profit before taxation 7.8 10.0
Taxation 12 (0.8) (2.6)
Profit for the period and total comprehensive income 7.0 7.4
Earnings per share
Basic 13 6.2p 6.6p
Diluted 13 6.2p 6.6p
Adjusted - Basic 13 6.8p 7.0p
Adjusted - Diluted 13 6.8p 7.0p
Consolidated Statement of Financial Position as at 31 December 2022
Notes 31 December 31 March
2022 2022
£m £m
Non-current assets
Intangible assets 14 2.5 2.2
Property, plant and equipment 15 7.9 8.3
Derivative financial assets 24 8.8 3.1
Deferred tax asset 12 0.5 -
Total non-current assets 19.7 13.6
Current assets
Trade and other receivables 16 1.0 0.6
Cash and cash equivalents 17 29.0 37.9
Other assets 18 10.0 7.2
Derivative financial assets 24 57.7 38.0
Total current assets 97.7 83.7
Current liabilities
Trade and other payables 19 (25.9) (34.2)
Derivative financial liabilities 24 (42.0) (21.6)
Total current liabilities (67.9) (55.8)
Net current assets 29.8 27.9
Non-current liabilities
Trade and other payables 19 (5.5) (6.0)
Derivative financial liabilities 24 (5.2) (2.3)
Total non-current liabilities (10.7) (8.3)
Net assets 38.8 33.2
Consolidated Statement of Financial Position (continued) as at 31 December 2022
Notes 31 December 31 March
2022 2022
£m £m
Equity
Share capital 21 0.1 0.1
Share premium account 22 12.7 12.7
Share option reserve 23 0.5 0.4
Merger reserve 22 4.5 4.5
Retained earnings 22 21.0 15.5
Total Equity 38.8 33.2
The financial statements of Argentex Group PLC were approved by the Board of
Directors on 11 April 2023 and were signed on its behalf by:
Harry Adams
Director
Consolidated Statement of Changes in Equity for the period ended 31 December 2022
Share capital Share premium Share option reserve Merger reserve Retained earnings Total equity
£m £m £m £m £m £m
Balance at 1 April 2021 0.1 12.7 0.2 4.5 11.2 28.7
Comprehensive income for the year
Profit for the year - - - - 7.4 7.4
Total comprehensive income for the year - - - - 7.4 7.4
Transactions with owners:
- Dividends paid - - - - (3.1) (3.1)
- Share-based payments charge - - 0.2 - - 0.2
Balance at 31 March 2022 0.1 12.7 0.4 4.5 15.5 33.2
Comprehensive income for the period
Profit for the period - - - - 7.0 7.0
Total comprehensive income for the period - - - - 7.0 7.0
Transactions with owners:
- Dividends paid - - - - (1.5) (1.5)
- Share-based payments charge - - 0.1 - - 0.1
Balance at 31 December 2022 0.1 12.7 0.5 4.5 21.0 38.8
Consolidated Statement of Cash Flows for the period ended 31 December 2022
Notes 9 months ended December 2022 Year ended March
2022
£m £m
Profit before taxation 7.8 10.0
Taxation paid (2.5) (2.2)
Net finance expense 0.3 0.4
Depreciation of property, plant and equipment 0.3 0.5
Depreciation of right of use assets 0.6 0.8
Amortisation of intangible assets 1.1 1.2
Share-based payment charge 0.1 0.2
(Increase) in trade receivables (0.4) -
(Decrease)/increase in payables (7.0) 5.8
(Increase)/decrease in derivative financial assets (25.4) 1.4
Increase/(decrease) in derivative financial liabilities 23.3 (5.3)
(Increase)/decrease in other assets (2.8) 4.4
Net cash (used in)/generated from operating activities (4.6) 17.2
Investing activities
Purchase of intangible assets 14 (1.4) (1.7)
Purchases of plant and equipment 15 (0.5) (0.4)
Net cash used in investing activities (1.9) (2.1)
Financing activities
Payments made in relation to lease liabilities 20 (0.9) (0.9)
Dividends paid 10 (1.5) (3.1)
Net cash used in financing activities (2.4) (4.0)
Net (decrease)/increase in cash and cash equivalents (8.9) 11.1
Cash and cash equivalents at the beginning of the period 37.9 26.8
Cash and cash equivalents at the end of the period 17
29.0 37.9
1 General information
Argentex Group PLC ("the Company") is a public limited company, limited by
shares, incorporated and domiciled in England and Wales. The address of the
registered office is 25 Argyll Street, London, W1F 7TU.
On 25 June 2019, the Company listed its shares on AIM, the London Stock
Exchange's market for small and medium size growth companies ("the IPO").
The Company is the ultimate parent company into which the results of all
subsidiaries are consolidated. The Consolidated Financial Statements for the 9
month period ended 31 December 2022 and the year ended 31 March 2022 comprise
the financial statements of the Company and its subsidiaries (together, "the
Group"). The Group has changed its year end date from 31 March to 31 December
to align with the calendar year in order to provide more meaningful
information to shareholders and prospective investors. Therefore, the Group
has presented a shortened period of 9 months and therefore amounts presented
may not be entirely comparable.
The Consolidated Financial Statements are presented in pounds Sterling (£),
which is the currency of the primary economic environment in which the Group
operates.
2 Significant accounting policies
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS accounting standards). The principal
accounting policies are summarised below.
2.1 Basis of preparation
The Consolidated Financial Statements have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006.
The principal accounting policies adopted in the preparation of the
Consolidated Financial Statements are set out below. The policies have been
consistently applied to all of the periods presented, unless otherwise stated.
The Consolidated Financial Statements have been prepared under the historical
cost convention, modified by the measurement at fair value of certain
financial assets and liabilities and derivative financial instruments as
stated in note 2.7.
2.2 Adoption of new and revised standards
There are no new standards, interpretations and amendments which became
mandatorily effective for the current reporting period which have had any
material effect on the financial statements for the Group.
No upcoming changes under IFRS are likely to have a material effect on the
reported results or financial position. Management continues to monitor
upcoming changes.
2.3 Going concern
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future and
have assessed the Group's prospects over a 12 months period from the approval
date of these Consolidated Financial Statements. The Group's principal trading
subsidiary, Argentex LLP, has been profitable since inception in 2011, the
Group has no external debt, and the LLP continues to generate sufficient cash
to support the activities of the Group. Budgets and cash flow forecasts are
prepared to cover a variety of scenarios and are subsequently reviewed by the
Directors to ensure they support the Group's continuing ability to operate as
a going concern.
Sensitivity analysis has been performed in respect of specific scenarios which
could negatively impact the future performance of the Group, including lower
levels of revenue, compression in profitability margins, extensions to the
Group's working capital cycle, and significant increases in volatility
requiring further collateral to be placed with the Group's institutional
counterparties.
In addition, the Directors have also considered mitigating actions such as
lower capital expenditure and other short-term cash management activities
within their control (see note 24.3 for further disclosures relating to
liquidity risk).
The Board of Directors is confident that in context of the Group's financial
requirements these measures give sufficient liquidity to the Group to ensure
that the Group can withstand significant shocks, whilst remaining as a going
concern for the next twelve months from the date of approval of the Directors'
report and financial statements.
For these reasons, the Directors adopt the going concern basis of accounting
in preparing these Consolidated Financial Statements.
2.4 Basis of consolidation
The Group Consolidated Financial Statements incorporate the Financial
Statements of the Company and entities controlled by the Company (its
subsidiaries). In line with the Group, the subsidiaries have also changed year
end dates to 31 December and the subsidiaries will be incorporated at this
date each year (previously prepared to 31 March each year). Control is
achieved where the Company is exposed to, or has the rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. In assessing control, the
Group takes into consideration the existence and effect of potential voting
rights that currently are exercisable or convertible.
The Consolidated Financial Statements comprise the Company and the results,
cash flows and changes in equity of the following subsidiary undertakings:
Name of undertaking Nature of business Country of incorporation
Argentex LLP Foreign exchange broking England
Argentex Capital Limited Holding company England
Argentex Foreign Exchange Limited Holding company England
Argentex B.V. Pending regulatory authorisation Netherlands
Argentex PTY Ltd Pending regulatory authorisation Australia
All subsidiary undertakings are 100% owned either directly or indirectly by
Argentex Group PLC.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used
by the Group.
All intra-group transactions and balances and any unrealised gains and losses
arising from intra-group transactions are eliminated in preparing the
Consolidated Financial Statements.
2.5 Accounting for merger on formation of the Group
In June 2019, immediately prior to the Company's admission to AIM, Argentex
Group PLC acquired all equity interests in Argentex LLP. This was effected
through the acquisition of equity interests by a newly formed subsidiary,
Argentex Capital Limited, and the acquisition of Pacific Foreign Exchange
Limited (now Argentex Foreign Exchange Limited). Argentex LLP, Argentex
Capital Limited and Argentex Foreign Exchange Limited are 100% owned (either
directly or indirectly) subsidiaries of Argentex Group PLC and consolidated
into these Financial Statements.
In applying merger accounting when preparing these Consolidated Financial
Statements, to the extent the carrying value of the assets and liabilities
acquired under merger accounting is different to the cost of investment, the
difference is recorded in equity within the merger reserve.
2.6 Revenue recognition
Revenue represents the difference between the cost and selling price of
currency and is recognised after receiving the client's authorisation to
undertake a foreign exchange transaction for immediate or forward delivery.
Derivative assets and liabilities are initially measured at fair value at the
date the derivative contract is entered into and are subsequently remeasured
to fair value at each financial period end date. The resulting gain or loss is
recognised within revenue immediately.
The difference between the costs and selling price of currency is recognised
as revenue as this reflects the consideration to which the Group expects to be
entitled in exchange for those services.
In relation to currency options, the Group recognises the net option premium
receivable as revenue on the date that the option is executed. The execution
date is when a binding contract is entered into with the client or
counterparty. The revenue is fixed and determined representing the
difference between the premiums paid.
2.7 Financial instruments
The Group operates as a riskless principal deliverable foreign exchange broker
therefore financial instruments are significant to its financial position and
performance.
The Group's financial assets include derivative assets (foreign exchange
forward and option contracts with customers and banking counterparties) as
well as amortised cost assets including cash and cash equivalents, other
assets and trade and other receivables. The Group's financial liabilities
include derivative liabilities (foreign exchange forward and option contracts)
and trade and other payables. The Group does not apply hedge accounting.
The Group undertakes matched principal broking involving immediate
back-to-back derivative transactions with counterparties. These transactions
are classified as derivative financial assets and liabilities. A derivative
with a positive fair value is recognised as a financial asset and a derivative
with a negative fair value is recognised as a financial liability. Where there
is a legally enforceable right to offset the recognised amounts and an
intention to settle on a net basis or to realise the asset and the liability
simultaneously, financial assets and financial liabilities are offset, and the
net amount presented in the Consolidated Statement of Financial Position.
Management have presented the derivative assets and liabilities with banking
and brokerage counterparties and with clients on a gross basis.
2.7.1 Derivative financial assets
Derivative financial assets are recognised when the Group becomes a party to
the contractual provisions of the instrument.
Derivative financial assets are measured at fair value through profit or loss
("FVTPL") as they are held for trading purposes.
Initial Recognition
Derivative assets are initially measured at fair value at the date the
derivative contract is entered into. The resulting gain or loss is recognised
within profit or loss immediately. Transaction costs directly attributable to
the acquisition of such financial assets at fair value through profit or loss
are recognised immediately in profit or loss.
Subsequent Measurement
Derivative assets are subsequently remeasured to fair value at each financial
period end date. Any gains or losses derived from instances such as foreign
exchange rate changes, which impact derivative financial asset revaluation,
would be immediately recognised through profit or loss. Valuation adjustments
to reflect potential inherent market risks on the fair value of derivative
financial assets are calculated and recorded where material. The credit
valuation adjustment ("CVA") reflects the market value of counterparty credit
risk and takes into account counterparty, applicable collateral agreements,
predicted losses and probabilities of default.
Derecognition
The Group derecognises derivative financial assets when they reach maturity
and the contractual cashflows are exchanged between the client and the Group
or the Group and the institutional counterparty. At this point, the assets
have expired and the obligations of the Group, the client and the
institutional counterparty have been discharged.
2.7.2 Other financial instrument assets
Other financial assets are those which are not derivatives in nature and have
been classified using the amortised cost method. These assets arise
principally as Solely Payments of Principal and Interest (SPPI) and are
intended to be held to maturity with all cashflows collected.
Initial Recognition
All regular way purchases or sales of financial assets are recognised and
derecognised on a trade date basis. Regular way purchases or sales are
purchases or sales of financial assets that require delivery of assets within
the timeframe established by regulation or convention in the marketplace.
Subsequent Measurement
All recognised financial assets are subsequently remeasured in their entirety
at either amortised cost or fair value, depending on the classification of the
financial assets.
The Group has applied the simplified approach in IFRS 9 to measure applicable
loss allowances at lifetime expected credit loss ("ECL"). The Group determines
the expected credit losses on these items by using a provision matrix, based
on historical credit loss experience based on the past due status of the
debtors, adjusted as appropriate to reflect current conditions and estimates
of future economic conditions.
The Group writes off receivables when there is information indicating that the
debtor is in severe financial difficulty and there is no realistic prospect of
recovery, e.g. when the debtor has been placed under liquidation or has
entered into bankruptcy proceedings, or when the receivables are past due,
whichever occurs earlier.
Derecognition
On derecognition of financial assets measured at amortised cost, the
difference between the asset's carrying amount and the sum of the
consideration received and receivable is recognised in profit or loss.
2.7.3 Derivative financial liabilities
Derivative financial liabilities are recognised when the Group becomes a party
to the contractual provisions of the instrument.
Derivative financial liabilities are measured at FVTPL as they are held for
trading purposes.
Initial Recognition
Derivative financial liabilities are initially measured at fair value at the
date the derivative contract is entered into. The resulting gain or loss is
recognised within profit or loss immediately. Transaction costs directly
attributable to the acquisition of financial liabilities at fair value through
profit or loss are recognised immediately in profit or loss.
Subsequent Measurement
Derivative liabilities are subsequently remeasured to fair value at each
financial period end date. Any gains or losses derived from instances such as
foreign exchange changes, which impact financial liability revaluation, would
be immediately recognised through Profit or Loss.
Derecognition
The Group derecognises derivative financial liabilities when they reach
maturity and the contractual cashflows are exchanged between the client and
the Group or the Group and the institutional counterparty. At this point, the
liabilities have expired and the obligations of the Group, the client and the
institutional counterparty have been discharged.
2.7.4 Other financial instrument liabilities
Other financial liabilities are obligations to pay for goods or services that
have been acquired in the ordinary course of business, not including financial
liabilities that are derivatives in nature. Other financial liabilities are
classified using amortised cost using the effective interest rate method,
where applicable. This is used as the default classification method for
financial instruments not held as trade derivatives. The Group's other
financial liabilities include trade and other payables.
Initial Recognition
The Group holds amounts payable to customers at amortised cost. These are
short term balances that do not attract interest.
Initial recognition consists of fair value minus transaction costs. Subsequent
measurement then makes use of the effective interest rate method, where
applicable, with interest related charges being recognised as finance costs in
the Consolidated Statement of Comprehensive Income.
Derecognition
The Group derecognises financial liabilities when, and only when, the Group's
obligations are discharged, cancelled or they expire. The difference between
the carrying amount of the financial liability derecognised and the
consideration paid and payable, including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss.
2.8 Cash and cash equivalents
For the purpose of presentation in the Consolidated Statement of Cash Flows,
cash and cash equivalents includes cash on hand or deposits held at call with
financial institutions. Cash and cash equivalents includes client funds
disclosed in note 17.
2.9 Other assets
Cash held as collateral with banking counterparties is shown as other assets
on the Consolidated Statement of Financial Position.
2.10 Leases
In accordance with IFRS 16, at inception of a contract the Group assesses
whether a contract is or contains a lease. A contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. To assess whether a
contract conveys the right to control the use of the identified asset the
Group considers whether:
1. The Group has the right to operate the asset
2. The Group designed the asset in a way that predetermines how and for
what purpose it will be used.
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless this is not
readily determinable, in which case the Group's incremental borrowing rate on
commencement of the lease is used. Lease liabilities are disclosed within
Trade and other payables on the Consolidated Statement of Financial
Position. Lease liabilities are remeasured when there is a change in future
lease payments arising from a change in rate, if there is a change in the
Group's estimate of the amount expected to be payable under a residual value
guarantee or if the Group changes its assessment of whether it will exercise a
purchase, extension or termination option.
When the lease liability is remeasured in this way, either a corresponding
adjustment is made to the carrying amount of the right of use asset and the
revised carrying amount is depreciated over the remaining (revised) lease
term, or it is recorded in the Consolidated Statement of Profit or Loss if the
carrying amount of the right to use assets has been reduced to zero.
Right of use assets are initially measured at the amount of the lease
liability and included within Property, plant and equipment on the
Consolidated Statement of Financial Position.
Subsequent to initial measurement, lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right of use assets are depreciated on a
straight-line basis over the remaining term of the lease or over the remaining
economic life of the asset if judged to be shorter than the lease term.
2.11 Intangible assets and amortisation
Identifiable intangible assets are recognised when the Group controls the
asset, it is probable that future economic benefits attributed to the asset
will flow to the Group and the cost of the asset can be reliably measured.
Software development costs comprise the Group's bespoke dealing system. Costs
that are directly associated with the production of identifiable and unique
dealing system controlled by the Group, and are probable of producing future
economic benefits, are recognised as intangible assets. Direct costs of
software development include employee costs and directly attributable
overheads.
Costs are capitalised to the extent that they represent an improvement,
enhancement or update to the intangible asset. Maintenance costs are expensed
through the Consolidated Statement of Comprehensive Income.
Amortisation is charged to the Consolidated Statement of Comprehensive Income
over the estimated useful life of three years of the dealing system from the
date developments are available for use, on a straight-line basis.
The amortisation basis adopted reflects the Group's consumption of the
economic benefit from that asset.
The intangible asset is tested annually for impairment or more frequently if
events or changes in circumstances indicate that the asset might be impaired.
2.12 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and any
recognised impairment loss.
Depreciation is charged so as to write off the cost of assets to their
residual values, over their estimated useful lives, using the straight-line
method, on the following bases:
Office equipment
- Three to five years
Computer
equipment - Three years
Leasehold improvements
- Over the period of the lease
Right of use assets
- Over the period of the lease
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at the end of each reporting period.
2.13 Foreign currencies
Non-derivative monetary assets and liabilities in foreign currencies are
translated into sterling at the rates of exchange ruling at the Consolidated
Statement of Financial Position date. Transactions in foreign currencies are
translated into sterling at the rate of exchange ruling at the date of the
transaction. Exchange differences are taken into account in arriving at the
operating profit.
2.14 Cost of sales
Cost of sales includes bank charges paid to banking and brokerage
counterparties, third party platform fees and costs related to option products
taken to limit Group exposure.
2.15 Adjusted operating profit
The Group presents adjusted operating profit as an Alternative Performance
Measure on the face of the Consolidated Statement of Comprehensive Income.
Adjusted operating profit excludes those items of income and expense which,
because of the nature and expected infrequency of the events giving rise to
them, merit separate presentation to allow shareholders to align with
management's evaluation of financial performance in the period. Non-adjusted
expenditure will typically relate to one off costs and structural set up
costs.
Adjusted operating profit also excludes the share-based payments charge due
its non-trading nature.
2.16 Employee benefits
(i) Short term benefits
Short term employee benefits including holiday pay and annual bonuses are
accrued as services are rendered.
(ii) Defined contribution pension plans
The Group operates a defined contribution pension plan for its employees. A
defined contribution plan is a pension plan under which the Group pays fixed
contributions into a separate entity. Once the contributions have been paid
the Group has no further payment obligations. The contributions are recognised
as an expense when they are due. Amounts not paid are shown in accruals in the
Statement of Financial Position. The assets of the plan are held separately
from the Group in independently administered funds.
2.17 LLP Members' remuneration
LLP Members' remuneration is determined by reference to the nature of the
participation of rights of Members of Argentex LLP, the Group's main trading
subsidiary. It includes both remuneration where there is a contract of
employment and any profits that are automatically divided between members by
virtue of the members' agreement, to the extent that the Group does not have
an unconditional right to avoid payment. To the extent that these profits
remain unpaid at the period end, they are shown as liabilities in the
Consolidated Statement of Financial Position.
2.18 LLP Members' interests
LLP equity capital is only repaid to outgoing members in accordance with the
provision in the Members' Deed where the Group has both sufficient capital for
FCA regulatory requirements, and the capital is replaced by new capital
contributions from existing or new members. As such it is accounted for as
equity.
Other amounts due to Members classified as a liability relate to undistributed
profits and Members' taxation reserves.
2.19 Share-based payments
The cost of share-based employee compensation arrangements, whereby employees
receive remuneration in the form of share options, is recognised as an
employee benefit expense in the Consolidated Statement of Comprehensive
Income. Where the entity settling the share options differs from the entity
receiving the benefit of the share options (in the form of employee services),
the entity's separate financial statements reflect the substance of the
arrangement.
The total expense to be apportioned over the vesting period of the benefit is
determined by reference to the fair value (excluding the effect of
non-market-based vesting conditions) at the date of grant.
At the end of each reporting period the assumptions underlying the number of
awards expected to vest are adjusted for the effects of non-market-based
vesting conditions to reflect the conditions prevailing at that date. The
impact of any revisions to the original estimates is recognised in the
Consolidated Statement of Comprehensive Income, with a corresponding
adjustment to equity. Fair value of the CSOP scheme is measured using a
Black-Scholes option pricing model. Fair value of the Value Creation Plan is
measured using a Monte Carlo Simulation.
When share options are exercised, the Group issues new shares. The proceeds
received net of any directly attributable transaction costs are credited to
share capital (nominal value) and share premium.
2.20 Taxation
The tax expense represents the sum of the tax currently payable and any
deferred tax.
Tax currently payable is based on taxable profit for the period. Taxable
profit may differ from operating profit as reported in the Consolidated
Statement of Comprehensive Income as it may exclude items of income or expense
that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group's liability for current tax is
calculated using tax rates that have been enacted or substantively enacted at
the date of the Consolidated Statement of Financial Position.
To the extent it is material, deferred tax is calculated on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements. Deferred tax assets are
recognised to the extent that it is probable future taxable profits will be
available against which the temporary differences can be utilised.
3 Critical accounting judgements and key sources of estimation uncertainty
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
3.1 Accounting judgements
(i) Capitalisation of costs to intangible assets
The extent to which costs should be capitalised to intangible assets is a key
judgement. The Group capitalise costs as intangible assets if they have a
value that will benefit the performance of the Group over future periods.
(ii) Credit Valuation Adjustment
The CVA is a calculation based on the credit risk of counterparties inherent
in the valuation of derivative financial instruments. The failure of a client
to settle a contracted trade carries the risk of loss equal to the prevailing
fair value of the trade. Within the CVA calculation to quantify credit risk,
judgement is required in determining the credit quality of the client based on
current market and other information and key estimates include loss on default
of a client and the probability of default. A 10 percent increase across all
PDs would result in decreased operating profit of £0.1m.
(iii) Share-based payments
In determining the fair value of equity-settled awards and the related charge
to the Consolidated Statement of Comprehensive Income, the Group makes use of
option valuation models which require key judgements to be made in assessing
the inputs. Key judgements include the number of shares on vesting, the
risk-free interest rate, dividend yield and share price volatility.
3.2 Key sources of estimation uncertainty
Useful economic life of intangible
assets (see note 14)
Technology within the financial services sector is in a perpetual state of
development and evolution, providing uncertainty over the useful economic life
of the Group's bespoke dealing system. Extending the estimated useful life of
the intangible costs from 3 years to 4 years would result in increased
operating profit of £0.3m (March 2022: £0.7m), decreasing the estimated
useful life from 3 years to 2 years would result in decreased operating profit
of £0.5m (March 2022: £1.6m).
4 Segment reporting
The Directors consider that the Group consists of a single operating segment
(being Argentex LLP's foreign currency dealing business) and that it operates
in a market that is not bound by geographical constraints.
There is no reliance on an individual customer and no customer contributed to
more than 10 percent of revenues in the period ended 31 December 2022 or year
ended 31 March 2022.
5 Revenue
9 months ended 31 December 2022 Year
ended 31 March
2022
An analysis of the Group's revenue is as follows: £m £m
Spot foreign exchange contracts 9.3 6.4
Forward foreign exchange contracts 27.9 27.2
Structured solutions 3.8 0.9
41.0 34.5
6 Operating profit
9 months ended 31 December 2022 Year ended 31 March
2022
Operating profit for the period is stated after charging: £m £m
Depreciation of plant and equipment 0.3 0.5
Depreciation of right of use assets 0.6 0.8
Amortisation of intangibles 1.1 1.2
Staff costs (see note 9) 20.2 15.2
Net foreign exchange (gains) - (0.2)
7 Auditor's remuneration
9 months ended 31 December 2022 Year ended 31 March
2022
Fees payable to the Group's auditor and its associates for services to the £m £m
Group:
The audit of financial statements of the Group and subsidiaries 0.3 0.2
Other assurance and advisory services - 0.1
8 Non-adjusted expenditure
The Directors have classified certain costs as non-adjusted in accordance with
the accounting policy set out in note 2.15. These costs amount to £0.8m
(March 2022: £0.4m) and for the 9 month period to December 2022 relate to:
costs related to the creation of and regulatory applications for overseas
operations and fees incurred in the period in relation to the Group's
executive leadership change.
In the year to March 2022, non-adjusted expenditure related to: i) costs
related to the creation of and regulatory applications for overseas operations
and ii) fees incurred in the year in relation to Director changes in the
Group.
Costs relating to the creation of overseas operations are infrequent despite
inclusion in both periods as these costs will not be recurring once the
operations are fully functional.
9 Staff costs
The average number of employees employed by the Group, including executive and
non-executive directors, was:
9 months ended 31 December 2022 Year
ended 31 March
2022
No. No.
Directors 7 8
LLP members (excl. executive directors) 5 6
Sales and dealing 66 45
Operations 47 27
125 86
9 months ended 31 December 2022 Year
ended 31 March
2022
£m £m
Staff costs for the above persons were:
Wages and salaries 12.7 8.4
Social security costs 1.4 0.9
Pension costs 0.1 0.1
Share-based payments 0.1 0.2
LLP members' remuneration* 4.2 4.1
Directors' remuneration 1.7 1.5
20.2 15.2
Directors' remuneration
9 months ended 31 December 2022 Year
ended 31 March
2022
£m £m
Directors' remuneration comprised:
Salaries and LLP members' remuneration 1.7 1.5
*Excludes Directors of Argentex Group PLC who are/were also members of
Argentex LLP.
Prior to IPO, profits from Argentex LLP were distributed according to
individual equity holdings in the LLP. Following Admission, the self-employed
LLP members are remunerated under the Amended and Restated LLP Agreement by a
combination of (i) fixed annual remuneration (ii) participation in revenue
commission schemes (iii) annual bonuses and (iv) other variable compensation
based on the LLP's performance.
Key management are those persons having authority and responsibility for
planning, controlling, and directing the activities of the Group, or in
relation to the Company. In the opinion of the Board, the Group and
Company's key management are the Directors of Argentex Group PLC. Information
regarding their compensation is provided in the Remuneration Committee Report.
10 Dividends
9 months ended 31 December 2022 Year
ended 31 March
2022
Amounts recognised as distributions to equity holders: £m £m
Final dividend for the year ended 31 March 2022 of 1.25p per share (March 1.5 2.3
2022: dividend for the year ended 31 March 2021 of 2p per share)
Interim dividend declared nil (March 2022: 0.75p per share) - 0.8
1.5 3.1
Proposed final dividend for the period ended 31 December 2022 of 2.25p per 2.5 1.5
share (March 2022: 1.25p per share)
11 Finance costs
9 months ended 31 December 2022 Year
ended 31 March
2022
£m £m
Interest on lease arrangements 0.3 0.4
12 Taxation
9 months ended 31 December 2022 Year
ended 31 March
2022
£m £m
Current tax
In respect of the current period 1.3 2.6
Total current tax 1.3 2.6
Deferred tax
Deferred tax (credit) in relation to timing on fixed assets (0.5) -
Total deferred tax (0.5) -
Total tax expense 0.8 2.6
Tax has been calculated using an estimated annual effective tax rate of 19%
(March 2022: 19%) on profit before tax. The UK main rate of corporation tax is
set to increase to 25% for Financial Year 2023.
The difference between the total tax expense shown above and the amount
calculated by applying the standard rate of UK corporation tax to the profit
before tax is as follows:
9 months ended 31 December 2022 Year ended 31 March
2022
£m £m
Profit before taxation 7.8 10.0
Tax on profit on ordinary activities at standard UK corporation tax rate of
19%
1.5 1.9
Effects of:
Other amounts charged 0.2 0.6
Adjustments in respect of prior period (0.4) 0.1
Total tax on ordinary activities 1.3 2.6
Other items charged relate to adjustments for tax purposes including
non-allowable expenses and capital allowances.
9 months ended 31 December 2022 Year
ended 31 March
2022
£m £m
Deferred Tax
Assets
At 1 April - -
Tax credit relating to future periods 0.5 -
Total deferred tax asset 0.5 -
Deferred tax in relation to timing differences on fixed assets. There is no
expiry on the deferred tax asset. The deferred tax asset is based on the
future rate of corporation tax 25%.
13 Earnings per share
The Group calculates basic earnings to be net profit attributable to equity
shareholders for the period. The Group also calculates an adjusted earnings
figure, which excludes the effects of share-based payments, and non-adjusted
costs as described further in note 2.14.
9 months ended 31 December 2022 Year ended 31 March
2022
£m £m
Earnings
Earnings for the purposes of basic and diluted earnings per share
- basic and diluted 7.0 7.4
Adjustments for:
Non-adjusted expenditure 0.8 0.4
Share-based payments 0.1 0.2
Tax impact (0.2) (0.1)
Adjusted earnings (basic and diluted) 7.7 7.9
Number of shares
The calculation of basic and earnings per share is based on the following
number of shares (m).
Weighted average number of ordinary shares for the purposes of basic earnings 113.2 113.2
per share
0.1 0.2
Number of dilutive shares under option
Weighted average number of ordinary shares for the purposes of dilutive 113.3 113.4
earnings per share
Earnings per share
Basic 6.2p 6.6p
Diluted 6.2p 6.6p
Adjusted - Basic 6.8p 7.0p
Adjusted - Diluted 6.8p 7.0p
The calculation of diluted earnings per share assumes conversion of all
potentially dilutive ordinary shares, all of which arise from share options. A
calculation is performed to determine the number of share options that are
potentially dilutive based on the number of shares that could have been
acquired at fair value, considering the monetary value of the subscription
rights attached to outstanding share options.
14 Intangible fixed assets
Software
development
costs
£m
Cost
At 1 April 2021 5.7
Additions 1.7
At 31 March 2022 7.4
Additions 1.4
At 31 December 2022 8.8
Amortisation
At 1 April 2021 4.0
Charge for year 1.2
At 31 March 2022 5.2
Charge for 9 month period 1.1
At 31 December 2022 6.3
Net book value
At 31 December 2022 2.5
At 31 March 2022 2.2
15 Property, plant and equipment
Leasehold improvements Right of use asset Office equipment Computer equipment Total
£m £m £m £m £m
Cost
At 1 April 2021 1.7 7.2 0.6 0.6 10.1
Additions 0.1 0.1 0.2 0.1 0.5
Disposals - - - - -
At 31 March 2022 1.8 7.3 0.8 0.7 10.6
Additions - - 0.5 - 0.5
Disposals - - - - -
At 31 December 2022 1.8 7.3 1.3 0.7 11.1
Depreciation
At 1 April 2021 0.1 0.7 - 0.2 1.0
Charge for the year 0.2 0.8 0.1 0.2 1.3
Disposals - - - - -
At 31 March 2022 0.3 1.5 0.1 0.4 2.3
Charge for the 9 month period 0.1 0.6 0.1 0.1 0.9
Disposals - - - - -
At 31 December 2022 0.4 2.1 0.2 0.5 3.2
Net book value
At 31 December 2022 1.4 5.2 1.1 0.2 7.9
At 31 March 2022 1.5 5.8 0.7 0.3 8.3
Right of use asset relates to head office lease disclosed in note 20.
16 Trade and other receivables
31 December 2022 31 March
2022
£m £m
Current
Other receivables - 0.1
Prepayments 1.0 0.5
Trade and other receivables 1.0 0.6
17 Cash and cash equivalents
31 December 2022 31 March
2022
£m £m
Cash and cash equivalents 29.0 37.9
Included within cash and cash equivalents are client held funds relating to
margins received and client balances payable. These amounts are disclosed as
amounts payable to clients of £12.8m (March 2022: £24.9m) in note 19 and are
not available for the Group's own use. Client balances held as electronic
money in accordance with the Electronic Money Regulations 2011 are held in
accounts segregated from the firm's own bank accounts.
The Directors consider that the carrying amount of these assets is a
reasonable approximation of their fair value. Cash is held at authorised
credit institutions and non-bank financial institutions with robust credit
ratings (where published) and sound regulatory capital resources.
18 Other assets
31 December 2022 31 March
2022
£m £m
Other assets 10.0 7.2
Other Assets is made up of collateral with banking and brokerage
counterparties. Client margins received and disclosed within client balances
payable are used to service margin calls with counterparties.
19 Trade and other payables
31 December 2022 31 March
2022
£m £m
Non-current
Provisions 0.2 0.2
Lease Liability (note 20) 5.3 5.8
Trade and other payables
5.5 6.0
Current
Amounts payable to clients 12.8 24.9
Other creditors - 0.1
Corporation tax 0.7 1.9
Amounts due to members and former members of Argentex LLP 4.4 2.8
Trade payables 0.4 -
Accruals 6.1 3.4
Other taxation and social security 0.7 0.3
Lease liability (note 20) 0.8 0.8
Trade and other payables 25.9 34.2
20 Leases
In May 2020, the Group signed a ten-year lease for its head office premises at
Argyll Street, London. As a lessee, the Group has recognised a lease liability
representing the present value of the obligation to make lease payments, and a
related right of use (ROU) asset, in accordance with note 2.10. The rent is
subject to a rent review after five years and contains a break clause at this
same anniversary. The rate implicit in the lease is not evident and so the
Group's incremental borrowing rates have been used. Management have assessed
the incremental borrowing rate to be 6% (March 2022: 6%). Information about
the lease liability is presented below:
31 December 2022 31 March
2022
£m £m
Lease liability at beginning of financial period 6.6 6.9
Additions - 0.1
Payments made in the period (0.9) (0.9)
Unwinding of finance costs 0.4 0.5
Lease liability at end of financial period 6.1 6.6
Of which
Current (note 19) 0.8 0.8
Non-current (note 19) 5.3 5.8
Amounts recognised in the Consolidated Statement of Comprehensive Income is
presented below:
9 months ended 31 December 2022 Year ended 31 March
2022
£m £m
Depreciation charge on right-of-use assets (note 15) 0.6 0.8
Interest on lease liabilities (note 11) 0.3 0.4
At 31 December and 31 March 2022 0.9 1.2
21 Share capital
Ordinary Management Nominal
shares shares value
Allotted and paid up No. No. £m
At 1 April 2022 and 31 December 2022 113,207,547 23,589,212 0.1
On 19 June 2019, 23,589,212 Management shares were issued with nominal value
of £58,974 to establish the minimum allotted share capital for a public
limited company. So long as there are shares of any other class in issue,
Management shares have no voting rights or rights to receive dividends or
other distributions of profit.
On 25 June 2019, 113,207,547 Ordinary shares of £0.0001 each were issued for
trading on AIM at a price of 106p per share. 100,000,000 shares were issued to
the former owners of Argentex LLP as part of the Group formation.
Subsequently, the Group issued 13,207,547 at 106p per share, generating share
premium of £13,988,679 before issuance costs.
22 Reserves
Details of the movements in reserves are set out in the Consolidated Statement
of Changes in Equity. A description of each reserve is set out below.
Share premium
The share premium account is used to record the aggregate amount or value of
premiums paid in excess of the nominal value of share capital issued, less
deductions for issuance costs. Where an equity issuance is accounted for using
merger relief, no share premiums are recorded.
Merger reserve
The merger reserve represents the difference between carrying value of the
assets and liabilities acquired under merger accounting to the cost of
investment (the fair value).
Share option reserve
The Group operates share option schemes that are explained in note 23 of these
Consolidated Financial Statements. The Group recognises the services received
from eligible scheme participants as a charge through the Consolidated
Statement of Profit or Loss, with the corresponding entry credited to the
Share option reserve.
Retained earnings
Retained earnings are the accumulated undistributed profits of the Group that
have been recognised through the Consolidated Statement of Profit or Loss,
less amounts distributed to shareholders.
23 Share-based payments
The cost of group share-based employee compensation arrangements, whereby
employees receive remuneration in the form of share options, is recognised as
an employee benefit expense in the Consolidated Statement of Comprehensive
Income. Where the entity settling the share options differs from the entity
receiving the benefit of the share options (in the form of employee services),
the entity's separate financial statements reflect the substance of the
arrangement.
The total expense to be apportioned over the vesting period of the benefit is
determined by reference to the fair value (excluding the effect of
non-market-based vesting conditions) at the date of grant.
At the end of each reporting period the assumptions underlying the number of
awards expected to vest are adjusted for the effects of non-market-based
vesting conditions to reflect the conditions prevailing at that date. The
impact of any revisions to the original estimates is recognised in the
Consolidated Statement of Comprehensive Income, with a corresponding
adjustment to equity. Fair value of the CSOP schemes is measured using a
Black-Scholes option pricing model. Fair Value of the Value Creation Plan is
measured using a Monte Carlo Simulation.
When share options are exercised, the Group issues new shares.
CSOP
In June 2019, the Group issued 311,311 share options under Part I of an
approved company share option plan ("CSOP") to participating employees. The
share options have an exercise price of £1.06, being the IPO issue price, and
vest three years after issuance. The fair value of these options at issuance
has been derived using a Black-Scholes model, with expected volatility of 30%,
based on derived volatilities of the AIM index and the similar listed entities
to the Group. The risk free rate at the time of issuance was 0.54% for UK
Government Bonds with a similar term to the vesting period of the CSOP.
In the year to March 2021, the Group issued a total of 4,981,130 share options
under Parts I, II and III of the company share option plans ("CSOP") to
participating employees and LLP members. The share options have an exercise
price of £1.35, and vest in tranches three, four and five years after
issuance. The fair value of these options at issuance has been derived using a
Black-Scholes model, with expected volatility of 34%, based on derived
volatilities of the Group and the similar listed entities to the Group. The
risk-free rate at the time of issuance was 0.12% for UK Government Bonds with
a similar term to the vesting period of the CSOP.
The total share-based payment reserve at 31 December 2022 is £0.5m (31 March
2022: £0.4m). The Group has recognised a total expense of £0.1m (31 March
2022: £0.2m) based on the estimated number of share options expected to vest
across all parts of the CSOP.
Movements in the number of outstanding share options during the period and
their weighted average exercise prices are shown in the following table.
31 December 2022 31 March 2022
Average exercise price (£) Number of options outstanding Average exercise price (£) Number of options outstanding
At beginning of period 1.34 4,726,407 1.34 4,754,708
Granted - - - -
Forfeited 1.34 (3,730,181) 1.06 (28,301)
Exercised - - - -
At end of period 1.35 996,226 1.34 4,726,407
The share-based payment charge in relation to the above scheme in the period
ended 31 December 2022 is £0.1m (31 March 2022: £0.2m).
Value Creation Plan
In November 2022, selected employees and senior executives of the Group were
issued with Growth shares in Argentex Capital Limited. When and to the
extent vested, the growth shares will be exchanged into ordinary shares of
Argentex Group PLC. The Growth shares vest in two equal tranches (A and B)
over two periods. Growth A shares vest over a 3 year and 4 month period and
Growth B shares vest over a 4 year and 4 month period. The rate of exchange is
that the Growth Shares will be regarded as worth a pro rata share of the share
price gain of Argentex Group PLC above hurdle prices. Upon exchange, the
number of ordinary shares in Argentex Group PLC that a Growth shareholder will
receive is such number of shares whose value is equivalent to the Group's
closing share price at the exchange date subject to the extent that Growth
shares have vested. The average weighted value of Growth shares granted in
Argentex Capital is £85.
The share-based payment charge of the Value Creation Plan in the period ended
31 December 2022 was £nil (March 2022: £nil).
Growth Shares
31 December 31 March
2022 2022
Number of options outstanding Number of options outstanding
Outstanding at beginning of period - -
Granted in period 20,000 -
Forfeited in period - -
Exercised in period - -
Outstanding at end of period 20,000 -
The fair value of the Growth shares was calculated using a Monte Carlo
simulation model. The model considers historical and expected dividends and
the share price volatility of the Group to predict the share performance. When
determining the fair value of awards, service and non-market performance
conditions are not considered. However, the likelihood of the conditions being
met is assessed as part of the Group's best estimate of the number of equity
instruments that will ultimately vest. Market performance conditions are
reflected within the fair value. The assumptions relating to the fair value
charge include share price at grant, risk free interest rate, time to vesting
and expected share price volatility.
24 Financial instruments
The Directors have performed an assessment of the risks affecting the Group
through its use of financial instruments and believe the principal risks to
be: capital risk; credit risk; market risk, including interest rate risk and
foreign exchange risk.
24.1 Capital management
Capital risk is the risk that there is insufficient Own Funds to support the
Group's business activities and to meet its regulatory capital requirements.
Own Funds are the sum of the Group's common equity tier 1 capital, additional
tier 1 capital and tier 2 capital. The Group manages its capital to ensure
that entities in the Group will be able to continue as going concerns while
maximising the return. Capital is repayable in accordance with the terms set
out in the partnership agreement. Management regularly reviews the adequacy of
the Group's capital and seeks to maintain a healthy excess. The Group manages
its capital resources with references to both the business and the regulatory
requirements. This process also ensures there is adequate capital and
liquidity to either absorb losses or to ensure there is adequate levels to
perform an orderly wind-down without causing undue harm to its clients,
counterparties, or the market. The level of capital is more than the capital
requirement set by the authorised regulators.
24.2 Categories of financial instruments
The Group operates as a deliverable foreign exchange broker therefore
financial instruments are significant to its financial position and
performance. Where the Group enters into a foreign exchange contract for a
client, a matching deal is immediately executed with one of the Group's
institutional counterparties.
The table below sets out the Group's financial instruments by class.
31 December 31 March
2022 2022
£m £m
Financial asset instruments
Measured at FVTPL
Non-current
Derivative financial assets 8.8 3.1
Current
Derivative financial assets 57.7 38.0
Total derivative financial assets 66.5 41.1
Measured at amortised cost
Other receivables - 0.1
Cash and cash equivalents 29.0 37.9
Other assets 10.0 7.2
Total amortised cost assets 39.0 45.2
31 December 31 March
2022 2022
£m £m
Financial liability instruments
Measured at FVTPL
Non-current
Derivative financial liability 5.2 2.3
Current
Derivative financial liability 42.0 21.6
Total derivative financial liabilities 47.2 23.9
Measured at amortised cost
Amounts payable to clients (12.8) (24.9)
Other creditors (1.1) (1.9)
Amounts due to members and former members of Argentex LLP (2.9) (2.8)
Accruals (excluding non-financial instruments) (1.0) (1.2)
Lease liabilities (6.1) (6.6)
Non-derivative financial liabilities (23.9) (37.4)
Derivative financial assets and derivative financial liabilities include
derivative transactions with banking counterparties. The transactions are
subject to ISDA (International Swaps and Derivatives Association) Master
Agreements and similar master agreements which provide a legally enforceable
right to offset uncertain conditions. These derivative financial instruments
have not been offset in the Consolidated Statement of Financial Position but
are presented separately in the table below. These derivatives are subject to
collateral and margin calls by banking and brokerage counterparties and the
amounts are disclosed in note 18.
31 December 31 March
2022 2022
Amounts with counterparties subject to Master Netting agreements: £m £m
Derivative financial assets 29.5 17.4
Derivative financial liabilities 31.3 12.7
24.3 Financial risk management objectives
The Group's principal risk management objective is to avoid financial loss and
manage the Group's working capital requirements to continue in operations and
achieve its strategic objectives.
Market risk
Market risk for the Group comprises foreign exchange risk and interest rate
risk. Foreign exchange risk arises from the exposure to changes in foreign
exchange spot and forward prices and volatilities of foreign exchange rates.
Foreign exchange risk is mitigated through the matching of foreign currency
assets and liabilities between clients and institutional counterparties which
move in parity. The Group maintains non-sterling currency balances with
institutional counterparties only to the extent necessary to meet its
immediate obligations with those institutional counterparties.
Foreign exchange risk - sensitivity analysis
The Group's significant cash balances other than those denominated in pounds
sterling are foreign currency balances held in Euros and US Dollars.
The table below shows the impact on the Group's operating profit of a 10%
change in the exchange rate of Euros and US Dollars against pounds sterling.
31 March
31 December 2022
2022
£m £m
10% weakening in the GBP/EUR exchange rate 1.2 0.8
10% strengthening in the GBP/EUR exchange rate (1.0) (0.6)
10% weakening in the GBP/USD exchange rate 1.5 1.1
10% strengthening in the GBP/USD exchange rate (1.2) (0.9)
Interest rate risk affects the Group to the extent that forward foreign
exchange contracts and foreign exchange options have an implied interest rate
adjustment factored into their price, which is subject to volatility. This
risk is mitigated in the same way as foreign currency risk through the
matching of foreign currency assets and liabilities between clients and
institutional counterparties which move in parity.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Group has extensive controls to
ensure that is has sufficient cash or working capital to meet the cash
requirements of the Group in order to mitigate this risk. The Group monitors
its liquidity requirement daily, and the Group stress tests its liquidity
position to review the sufficiency of its liquidity in stressed market
scenarios. It is management's responsibility to set appropriate limits to the
liquidity risk appetite of the Group, as well as ensuring that a robust system
of internal controls is implemented and enforced. The table below summarises
the maturity profile of the Group's derivative financial assets and
liabilities based on contractual undiscounted payments.
Derivative financial assets at balance sheet date by contractual maturity
31 December 2022 £m £m £m £m £m
0-3 months 3-6 months 6-12 months 12 Total
months +
Derivative financial assets 1,012.5 372.6 511.7 337.3 2,234.1
31 March 2022 £m £m £m £m £m
0-3 3-6 6-12 12 Total
months months months months +
Derivative financial assets 908.1 436.5 700.9 232.3 2,277.8
Derivative financial liabilities at balance sheet date by contractual maturity
The following table details the profile of the Group's derivative financial
liabilities. The amounts are based on the undiscounted cashflows based on the
earliest date on which the Group can be required to pay.
31 December 2022 £m £m £m £m £m
0-3 months 3-6 months 6-12 months 12 Total
months +
Derivative financial liabilities 1,005.4 370.4 506.5 334.2 2,216.5
31 March 2022 £m £m £m £m £m
0-3 3-6 6-12 12 Total
months months months months +
Derivative financial liabilities 902.9 433.7 693.7 230.9 2,261.2
Other financial liabilities
The table below summarises the maturity profile of the Group's other financial
liabilities based on contractual (undiscounted) payments.
31 December 2022 Up to 1 year 1 year + Total
£m £m £m
Amounts payable to clients 12.8 - 12.8
Other payables 4.8 - 4.8
Lease liabilities 1.2 6.3 7.5
18.8 6.3 25.1
31 March 2022 Up to 1 year 1 year + Total
£m £m £m
Amounts payable to clients 24.9 - 24.9
Other payables 8.0 - 8.0
Lease liabilities 1.2 7.1 8.3
34.1 7.1 41.2
Credit risk
The failure of a client to settle a contracted trade carries the risk of loss
equal to the prevailing fair value of the trade. The Group employs rigorous
procedures and ongoing monitoring to mitigate this risk and ensure that client
risk exposures fit within the Group's risk appetite. Before accepting any new
client, a dedicated team responsible for the determination of credit risk,
assess the potential client's credit quality and assigns a credit limit.
Limits and scoring attributed to customers are reviewed on an ongoing basis.
Individual counterparty exposures are monitored against assigned limits by the
Risk function to ensure appropriate escalation and mitigating action is taken.
Credit approvals and other monitoring procedures are also in place to ensure
that follow-up action is taken to recover overdue debts. Furthermore, the
Group reviews the recoverable amount of each trade debtor at the end of the
reporting period to ensure that adequate loss allowance is made for
irrecoverable amounts. In this regard, the Directors of the Group consider
that the Group's credit risk is significantly reduced. Trade receivables
consist of a large number of clients, spread across diverse industries and
geographical areas.
Management review financial and regulatory disclosures of the Group's
institutional counterparties to ensure its cash balances and derivative assets
are maintained with creditworthy financial institutions. The Group does not
have any significant concentration of exposures within its client base. At
institutional counterparty level, trade volumes and trading cash balances are
concentrated to a small selection of institutional counterparties. A degree of
concentration is necessary for the Group to command strong pricing and
settlement terms with these institutions and is not considered a material risk
to the Group.
24.4 Overview of the Group's exposure to credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations in relation to financial derivative assets resulting
in financial loss to the Group. As at 31 December 2022, the Group's maximum
exposure to credit risk without taking into account any collateral held or
other credit enhancements, which will cause a financial loss to the Group due
to failure to discharge an obligation by the counterparties arises from the
carrying amount of the respective recognised financial assets as stated in the
Consolidated Statement of Financial Position.
If deemed appropriate, the Group will make a valuation adjustment to the
estimated fair value of a financial instrument. In the period, the Group has
recorded a CVA of £1.1m (March 2022: £nil) to represent the credit risk
inherent in the fair value of derivative financial instruments. In the opinion
of the Directors, the carrying amount of the Group's financial assets best
represents the maximum exposure.
The carrying amount of the Group's financial assets at FVTPL as disclosed in
(note 25) best represents their respective maximum exposure to credit risk.
Note 24.6 details the Group's credit risk management policies.
24.5 Counterparty risk
The Group relies on third party institutions in order to trade and clear
settlement funds through client accounts. To reduce counterparty credit risk
to acceptable levels, the Group only trades with institutional counterparties
with robust balance sheets, high credit ratings and sound capital resources
(as disclosed in accordance with the CRR and CRD IV of Basel III) and monitors
the creditworthiness of institutional counterparties on an ongoing basis. The
Group's business continuity procedures have established trading and settlement
lines with several institutional counterparties which means that the
withdrawal of services from a banking provider will have a negligible effect
on the business.
24.6 Credit risk management
Note 24.4 details the Group's exposure to credit risk and the measurement
bases used to determine expected credit losses.
The Group undertakes continuous robust credit analysis before setting and
varying trading limits and accepting trades from each client. All open
positions are monitored automatically in real time and if deemed necessary
collateral (in the form of cash deposits) is taken from clients to mitigate
the Group's exposure to credit risk.
25 Fair value measurements
This note provides information about how the Group determines fair values of
various financial assets and financial liabilities.
25.1 Fair value of the Group's financial assets and financial liabilities that are measured at fair value on a recurring basis
Some of the Group's financial assets and financial liabilities are measured at
fair value at the end of each reporting period. The following table gives
information about how the fair values of these financial assets and financial
liabilities are determined (in particular, the valuation technique(s) and
inputs used).
Level 1: The fair value of financial instruments traded in active markets is
based on quoted market prices at the end of the reporting period. These
instruments are included in level 1.
Level 2: The fair value of financial instruments that are not traded in an
active market is determined using valuation techniques which maximise the use
of observable market data and rely as little as possible on entity-specific
estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based on observable
market data, the instrument is included in level 3.
Financial assets/ financial liabilities Fair value as at Fair value hierarchy Valuation technique(s) and key input(s)
31 December 31 March
2022 2022
Foreign exchange forward and option contracts Assets £66.5m; and Assets £41.1m; and Level 2 The price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
Liabilities £47.2m Liabilities £23.9m measurement date.
The fair value of foreign exchange forward and option contracts is measured
using observable market information provided by third party market data
providers.
25.2 Fair value of financial assets and financial liabilities that are not measured at fair value
The Directors consider that the carrying amounts of financial assets and
financial liabilities recognised in the financial statements are a reasonable
approximation of their fair value.
26 Related party transactions
Included in other creditors is £nil (March 2022: £0.1m) owed to Pacific
Investments Management Limited, the former owner of Argentex Foreign Exchange
Limited, as the Group repaid its loan in the period.
27 Contingent liabilities
As at 31 December 2022 there were no capital commitments or contingent
liabilities (March 2022: none).
28 Controlling party
In the opinion of the Directors there is no ultimate controlling party of
Argentex Group PLC.
29 Events after the reporting date
The UK main rate of corporation tax is set to increase to 25% for Financial
Year 2023. The increase is not expected to have a material impact on the
Group's deferred tax asset.
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