REG - Argentex Group PLC - Full year results for period ended 31 March 2022
06/07/2022 07:00
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RNS Number : 4354R Argentex Group PLC 06 July 2022
6 July 2022
Argentex Group PLC
("Argentex" or the "Group")
Full year results for the year ended 31 March 2022
Strong revenue and profit growth with investment in newly defined priority
areas to position Argentex for future growth
Argentex Group PLC (AIM: AGFX), the international provider of foreign exchange
services to institutions, corporates and high net worth private
individuals, today issues its full year results for the year ended 31 March
2022.
Financial Highlights
* Group revenue increased by 23% to £34.5m (2021: £28.1m), including £8.0m
from new clients
* Adjusted operating profit((1)) up 26% to £11.0m (2021: £8.7m)
* Earnings per share (EPS) 6.6p (basic) and 7.0p (adjusted) (2021: 5.2p basic
and 5.9p adjusted)
* Final dividend of 1.25p per share to be paid, bringing the total for FY22 to
2.0p per share (2021: 2.0p per share)
Operational Highlights
· Strong client activity with improved trading volumes driving
revenue growth
o Record 1,624 corporates actively traded((2)) in 2022, up 17% (2021: 1,385)
o 528 new corporate clients traded during the year, up 6% (2021: 499)
o Client trading volumes recovered throughout period as market confidence
rebounded from 2021 and volatility remained high
o In line with prior years, H2 contributed 54% of annual revenues as volumes
increased through the year
· Consistency of business mix continues
o Over 80% of volumes comprised trades in sterling, euro and US dollar,
significantly limiting impact of risks in emerging market currencies
o Spot/forward revenue mix remains balanced (Forward 51%, Spot 49%)
o Increasingly diversified client base with 36% of revenue represented by
top twenty customers, down from 41% in FY21
· Defined growth strategy underpinned by three priority areas
o Significant investment in people
§ Average headcount grew by 19 staff year-on-year, with total headcount
surpassing 100 at period end
§ Continued to attract industry leading expertise throughout business,
including senior leaders; ratio of front and back-office staff consistent with
2021
§ Expansion of London office expected over the medium term, to reflect
increase in front office staff
o Evolving our technology offering to align with client need and optionality
§ Launch of online platform in February 2022 with refreshed interface and
navigation; first in a suite of planned proprietary tech-enabled product
enhancements
§ Initial tech platform rollout contributed to record month for Argentex in
March 2022, with 391 trades completed (March 2021: 123 trades)
§ Following strong initial feedback from existing clients, there will be an
acceleration of investment in new products to seek to capture new customers,
gain further international reach and enable improved efficiency and improved
share of client wallet
o Internationalisation through expansion to new geographies with high
quality regulatory regimes
§ Amsterdam office continued increasing contribution to Group revenues,
generating half-on-half growth since inception helped by doubling of front
office headcount
§ Management team recruited in Australia with trading beginning once
regulatory approvals have been obtained
§ 9 new front office hires made in non-UK markets to lead this strategic
growth area
Outlook
· Current trading has been positive with first quarter revenue
increasing by 22% to £10.1m (Q122: £8.3m)
· Continued investment into people and technology expected,
underpinning momentum in client base growth and accumulation of market share
from incumbent banks which account for 85% of the cross-border market
· The combination of the above initiatives is expected to generate a
strong return on investment in the medium term through growth in revenues,
boost in profitability and improvement in quality and visibility of earnings
· The Board announces its intention to change the Group's financial year
end from 31 March to 31 December. Historically, results have been strongly
weighted to towards the second half of the year. Changing the financial year
will address this imbalance
Harry Adams, Chief Executive Officer, said:
"Against a backdrop of ongoing market uncertainty as global economies emerge
from the pandemic with new economic challenges, I am pleased that Argentex has
performed strongly, delivering double digit revenue and profit growth driven
by a resurgence in trading volumes as companies recover their confidence in
the post-Covid era.
"The results demonstrate strong progress against our long-term strategic
initiatives and the quality of our growing talent base as we continue to
invest to meet the growing demands of our clients, drive efficiencies and
uncover new opportunities, both domestically and internationally.
"In becoming sole Group CEO a year ago, I identified the importance of
refocusing our growth strategy into clear priorities that evolve our service
offering and capitalise on the huge market opportunity that lies in front of
Argentex. I am pleased to report positive progress in all three of our growth
pillars - people, technology and internationalisation - which will deliver
sustainable and profitable growth into the future as our business broadens. We
are confident in the future prospects of the business and remain well
positioned to generate long-term value for all of our stakeholders."
Lord Digby Jones, Non-Executive Chairman, said:
"Alongside a strong financial and operational performance as volumes have
rebounded from pandemic lows, I am proud of the Group's strategic refocus as
part of its ongoing measured approach to long-term growth. Building a
sustainable future has always been a priority for the management team and the
defined growth priorities outlined and decision to accelerate strategic
investment demonstrate a fantastic opportunity to strengthen our market
position, bolster resilience and drive profitable growth regardless of the
economic uncertainties apparent today."
(1) Adjusted operating profit excludes non‐recurring expenditure of £0.4m
(FY21 £0.7m) and a further £0.2m (FY21 £0.2m) related to share based
payments.
(2) Any client with a trade executed in the financial year (contract date
within FY), excluding private clients.
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, 6(th) July
2022. 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) .
Chairman's statement
As societies have emerged from the Covid-19 pandemic, businesses are at a
point of introspection.
Good businesses will reflect on the learnings of the last two years and turn
them into opportunities when embarking on the next phase of growth.
I am proud to be the Chairman of a business which embodies this active,
measured and long-term approach to growth. With an eye on continually building
a sustainable future, the business has used the last financial year to evolve
further, invest in its teams, technology and breadth of client offering to
strengthen its market position and ensure continued resilience and
outperformance amid changeable and unpredictable macroeconomic conditions.
It has always been a privilege to work with Harry Adams, the leadership team
and the Board of Directors. This year has been no different, indeed more so,
as they have steered the business through a significant period of uncertainty,
preserving company operations, supporting employee wellbeing and constantly
innovating the service delivered to its clients.
This has been made possible by the oversight of a strengthened Argentex
leadership team. Jo Stent's appointment as Chief Financial Officer and David
Christie joining as Chief Operating Officer over the period are testament to
the company's unwavering focus on talent as a means for optimising the market
position we occupy.
Despite continued volatility, we have emerged from the recent period strongly,
with an enhanced and increasingly efficient service offering. Ultimately, this
means the business is well-positioned to capitalise on the opportunities that
new markets present.
Argentex has worked hard at creating stronger foundations and a refined
strategic plan to prioritise profitable growth, and I am confident it will
unlock a significant untapped market opportunity - with people, technology and
internationalisation at its core.
MARKET BACKDROP
As the clouds of the pandemic lift, we face fresh challenges in our response
to the tragic ongoing war and humanitarian crisis in Ukraine. Despite now
carrying no corporate exposure to Russia and no client exposure in the region,
the swift steps taken to exit all Rouble currency before the invasion reflects
our unrelenting approach to risk management and a quality over quantity
approach to relationships.
It is undeniable that this volatile geopolitical picture, compounded by
significant macro-economic pressures felt globally as the cost-of-living soars
for many, will impact market and business sentiment over the next 12 months.
Global businesses will face long-term economic challenges as a result of the
conflict and the rising inflationary environment, but whatever winds of
challenge or opportunity blow, Argentex is well set to face them.
While the near-term outlook remains unclear, we are confident in the ability
of our proven business model to continue navigating a changeable business
environment, while meeting the expectations of our valued clients and
shareholders.
KEY ACHIEVEMENTS
Our strong financial performance is supported by a three-pronged strategic
approach to our activity, embedded in people, technology and
internationalisation. Although the global economy has faced unprecedented
challenges in recent years, our business has not stood still. The continued
targeted investment across these three areas is translating into positive
operational and financial momentum across the business.
We remain committed to opening new offices in key international locations. Our
office in the Netherlands is already showing strong performance, driven by an
expert team and a local market ripe with opportunity. I am also pleased to
report that our new office in Australia is following in similar footsteps,
with regulatory approvals at an advanced stage and teams onboarded. Client-led
expansion into new, highly regulated international markets remains a pillar of
our growth strategy looking forward.
Our investment in people continues to gather pace. The quality of the
individuals running Argentex, and those delivering the market-leading service
we are known for, is fundamental to our ability to remain resilient and
continue driving shareholder value. We were delighted to welcome the team back
to the safe working environment of the office after a prolonged period of
remote working and are encouraged by the continued high standard of delivery
as a result.
The future of our industry is embedded in technologically enabled products - a
truly sustainable business needs to have an ability to provide a 24/7,
'always-on' service for clients, wherever they are based. Over the period, we
have focused on creating a leading technology platform that meets the
increasingly complex needs of clients in a user-friendly product and high
quality service that is underpinned by the face-to-face relationships for
which we are known. We understand the need to enhance our traditional broking
offering, transitioning towards a technology-enabled service provider. We are
excited about the optionality, efficiency and scalability this will bring to
the business, including our ability to efficiently cross-sell services as we
internationalise our offering.
OUTLOOK
Flexibility and confidence have been two of the most crucial characteristics
of businesses that have navigated and emerged successfully from recent
operational challenges, defined by the ongoing impact of the Covid-19
pandemic. While the global economy faces uncertain times ahead, I strongly
believe the Company is well positioned to embark on its next evolutionary
phase of growth.
Through our targeted investment we have built a stronger platform, based on
greater efficiency and a broader service offering both geographically and
operationally. I would like to thank all of our shareholders, clients and
fantastic employees for their continued support that is instrumental in
driving our business forward. As democratic capitalism weathers the global
assaults of the crisis in supply chains, significantly higher inflation than
for decades and the enduring fall-out from the war in Ukraine, your Company is
set fair to succeed and deliver for all its many stakeholders.
Lord Digby Jones Kb.
Non-Executive Chairman
CEO statement
OVERVIEW
The twelve months to 31 March 2022 constituted a defining and strategically
significant period for Argentex. Despite the continued macro-economic
uncertainty, the Company has delivered further double-digit revenue and profit
growth, underpinned by our proven business model, best-in-class client
service, balance sheet strength and measured approach to risk.
When I became sole CEO in July 2021, I sought to undertake a top to bottom
review of the business. It was important to reflect on and evolve our
strategy, taking action in areas we could influence to ensure we are well
positioned, not only to deliver against our growth targets, but also optimise
our service offering and capitalise on the ever-changing B2B financial
services market.
In the period, I am pleased to say, we have delivered further progress against
our long-term strategic initiatives and growth in our client base which has
contributed to the Group's revenue of £34.5m for the 12 months to 31 March
2022, representing growth of 23% year-on-year (2021: £28.1m). This
continued momentum delivered adjusted operating profit of £11.0m, up 26%
year-on-year (2021: £8.7m) and a statutory operating profit of £10.4m (2021:
£7.8m). The Board is pleased to announce a final dividend of 1.25p per share
bringing the total for FY22 to 2.0p per share, flat on 2021.
I would like to thank the whole team at Argentex for their hard work and
continued commitment which has given us a strong foundation to embark on the
next chapter of our growth story. We continue to invest to drive efficiencies
and bring new opportunities, both domestically and abroad. In addition, our
commitment to bringing improved expertise and experience into our business,
supported by a newly refined strategy, means we remain well positioned to
deliver value for all stakeholders in the years to come.
MARKET BACKDROP
Over the last financial year, companies around the globe have taken steps to
return to normal life, post-pandemic. As confidence has returned, the global
economy has shown signs of recovery. We have observed a progressive uptick
in business sentiment and activity, driven by a recovery following the
post-COVID unlocking of the global economy, and consequently we are
experiencing further demand for our services.
However, trading conditions in the second half of the financial year have been
more volatile as central banks grappled with sustained inflationary pressures,
compounded by growing geopolitical tensions and Russia's invasion of Ukraine.
Our service-led offering and approach to market risk - a key differentiator
that has served us well since inception - has once again positioned the
Company strongly in challenging markets. Our policy of matching every trade
with a blue-chip institutional counterparty continues to be effective in
eliminating residual proprietary market risk.
Volatility does, however, present opportunities for our clients. It has led to
them not only trading more frequently with higher notional values, but also
hedging for a longer tenor. These themes have allowed the Company to grow its
breadth and depth of customer relationships that will be further enhanced by
our evolving service offering, with notable new launches due in the current
financial year. In addition, as interest rates rise, we expect that this trend
will continue into FY23 and beyond.
Although volatility can be beneficial, it is our high levels of customer
service and ability to meet client needs in any market environment that
defines Argentex.
We recognise that our industry does not stand still, which is why we are
continuing to invest in our people, global reach and technological
capabilities. As a result, we are more agile in our ability to deliver for
clients and their changing needs and requirements, irrespective of the trading
environment.
The opportunity in the $6.6tn a day global foreign exchange market is vast.
Our specialist, high touch, personalised service and superior pricing enables
us to continue accumulating market share from incumbent banks, which account
for 85% of the cross-border market. We continue to position ourselves to
attract new clients in need of specialist, often sophisticated, commercial FX
services.
FINANCIAL AND STRATEGIC PROGRESS
Our performance has been driven by our commitment to providing high-quality
outcomes for our clients. Businesses across all sectors continue to identify
Argentex as a trusted partner for their trading requirements against a dynamic
market backdrop. As companies are rebuilding confidence in the post-Covid era,
a record 528 new clients traded with the Group this year (2021: 499). The
launch of our new online platform in H2 led to a record number of clients
trading online during the period and we expect this demand to continue. Our
client mix across industries, showcases the high-quality and diverse nature of
our book with revenue concentration further reducing, as our top 20 clients
now make up 36% of total revenue (2021: 41%).
In order to maximise the significant market opportunity ahead, we have evolved
our strategy around three growth pillars: people, technology and international
expansion. We are confident these long-term focus areas will deliver deeper
and more sustainable growth into the future as our client demand broadens, and
we make strides towards becoming a technology-enabled financial services
provider with foreign exchange at its core.
We have made good progress with each pillar:
· The strategic investment in strengthening our team at all levels
continued during the year. Not only have we attracted senior leaders in
finance, operations, compliance and risk to broaden our expertise and help
drive our new strategy forward, we expect our front office capability to grow
over the medium term, such that we are expanding the footprint of our London
office. We have also fulfilled our commitment to building out our trading,
execution and relationship management teams, recruiting 19 new hires across
the Group with 4 in the Netherlands. We continue to optimise the service we
provide to clients.
· The momentum behind the broadening of the Group's geographic
reach continues to build as we seek to unlock new markets and revenue sources
in highly regulated geographies where there is latent demand for our products
and services. The business in the Netherlands is trading well and in line with
expectations, just 24 months since inception. We have also onboarded a
management team in Australia and, once the customary regulatory approvals have
been obtained, expect to begin trading during the first half of FY23.
· In February 2022 we launched our online platform enhancements. We
are now poised to add future products which will further enhance our
customers' experience. In addition, our structured solutions product -
catering for clients with more complex needs - continues to grow and is now
responsible for 3% of total revenue (2021: 1%). The Board's decision to
accelerate investment in our platform should allow for a more agile and
efficient business, able to take on smaller clients and take a greater share
of client wallets over time.
CHANGE IN ACCOUNTING PERIOD END
Historically, the Group has experienced its most active quarter in the final
quarter of its financial year, i.e. for the quarter ending on 31 March, and
therefore our results have always been strongly weighted towards the second
half of the financial year. The Board believes that the Group would benefit
from a change of financial year to 31 December which would address this
imbalance. The Board therefore announces its intention to change the Group's
financial year end from 31 March to 31 December. Argentex therefore intends
to present its next unaudited interim results for the 6 months ended 30
September 2022 in November 2022 and its next audited final results for the 9
months ended 31 December 2022 no later than April 2023. From the beginning
of calendar year 2023, interim and final results will then be prepared for the
6 month period to 30 June and 12 month period to 31 December.
PRIORITY GROWTH AREAS
Investment in people
Investment in our people has always been central to our success. We remain
committed to ensuring our sales team has the resources to unlock
opportunities, while simultaneously bolstering our senior management and
operational teams to promote sustainable growth.
The period has been the first full financial year since Jo Stent, Chief
Financial Officer, joined the Company (February 2021). Her experience has
helped rebuild the finance function, while also innovating the ways in which
we drive shareholder value. More recently, the Group has made two further
significant leadership team hires with David Christie joining as Chief
Operating Officer (March 2022), and David Winney as Global Chief Compliance
and Risk Officer (April 2022).
As our client-led expansion continues, driven by the aforementioned sales team
hires, we have reorganised our internal sales team structure to a pod model,
which drives accountability and performance transparency while also supporting
clear progression across the team. To provide the infrastructure for this
front office expansion, the Company is expecting to increase its footprint at
our office in London.
We continue to attract high-quality, experienced individuals and we are proud
that our graduate scheme continues to be effective in helping us identify and
channel early-stage talent into our business. We are passionate about
investing in the next generation of financial services professionals, as part
of our commitment to fostering organic growth and nurturing the future leaders
of Argentex.
International expansion
We have continued to pursue opportunities in new markets as we transform
Argentex from a single-product, single-office business into a multi-product,
global business. Over the period, this internationalisation has been bolstered
particularly by the establishment of on-the-ground presence in our chosen
global markets. I'm delighted that this strategy is starting to bear fruit and
contribute to Group revenue.
The Amsterdam office, the EU headquarters of Argentex, continues to grow in
line with expectations. The team has delivered positive half-on-half revenue
growth since inception
in January 2020, helped by a doubling of front-office staff to 8. We look
forward to seeing the momentum behind the office and client growth build over
time.
Furthermore, the Company's planned entry into the Australian market in FY23
and near-term commencement of trading is at an advanced stage, with key hires
onboarded and customary regulatory approvals being sought. This remains a key
objective in maximising growth opportunities outside our core UK and European
markets.
Evolving our technology
Industry dynamics shift in alignment with client needs. Therefore, the
strategic importance of a complementary tech-enabled service that gives
clients optionality, flexibility and drives efficiency has grown. Over the
period, Argentex has launched an enhanced online platform with a refreshed
interface and intuitive navigation - the beginnings of a new, forward-looking
technology strategy. It will enable our clients to tailor the service levels
they require as well as increasing functionality and driving real time
engagement.
This optimised platform will be supported by a mobile responsive interface,
providing further flexibility to the Group's client base and enabling us to
take a greater share of client wallet. It will also seek to capture new
customers and gain further international reach.
The platform has been rolled out to a subset of existing Argentex customers,
with positive feedback and results. We're proud that our technology
enhancements have helped us deliver a record month for the business in March
2022, with 391 trades completed (March 2021: 123 trades). We look forward to
making the new trading and client service platform available to all customers
in the current financial year.
The Company is now accelerating its investment in its proprietary platform and
in-house capability. I expect this investment to increase efficiency of
onboarding and monitoring of client activity and trends. It is also likely to
be recognised in our financial results over the shorter term, with a positive
return on investment over the medium term as volume of trades and revenues
increase.
This recent phase of investment constitutes the first in a planned suite of
proprietary tech-enabled product enhancements. It is a sure step forward in
the Company's journey towards becoming a technology-led financial services
provider, with improved client accessibility, experience and scope to broaden
our product offer. The continued digitisation of the platform will support the
Group's aims to create a more efficient and scalable platform with diversified
revenues to help drive profitable growth.
SUSTAINABILITY STRATEGY
We are committed to putting the right focus on environment, social and
governance issues to support our growth and yield greater business benefits.
Our sustainability strategy is centred around three key pillars: People,
Partners and the Planet. We have outlined our intentions and look forward to
reporting on progress against our goals in the months and years ahead.
OUTLOOK
Argentex is a growing company in a dynamic industry. We have clear ambitions
to continue to grow our top-line and continuously attract market-leading
talent, supporting our overall performance despite an uncertain market
backdrop.
We are embracing the digital revolution and the transformative effect it is
having on the financial services industry. By continuing to invest in our
technology to ensure our capabilities meet the increasingly digitalised
requirements of our stakeholders, we're confident we will continue to deliver
value to our clients and shareholders.
The end-to-end review of our entire business that was undertaken this year has
shone a spotlight on where opportunities exist for us to scale up our
activity, and consequently, our ambitions for Argentex. We are strongly
capitalised with sufficient financial flexibility to support us as we pursue
our growth ambitions and continue to build market share in this very large and
exciting sector.
The Board remains confident that the level of revenue growth will continue as
expected in FY23 with associated enhanced quality of earnings over the medium
term.
The combination of the above initiatives are expected to generate a strong
return on investment in the medium term through growth in revenues, boost in
profitability and improvement in earnings quality.
I would like to thank our employees, business partners and shareholders for
their continued support. I look forward to sharing more updates with you in
the coming period.
Harry Adams
Chief Executive Officer
Financial Review
The 12 months to 31 March 2022 represented a pivotal year for Argentex. As
referenced earlier, Harry Adams appointment as sole CEO in July 2021 initiated
an end to end review of the Group's operations, resulting in an evolved
strategy supported by three key growth pillars: people, technology and
international expansion. Although these growth pillars are consistent with
prior years, the redefined strategy identified an opportunity for technology
to play a greater role in the delivery of our high touch customer service
offering and enhance the Group's ability to prosper in the years ahead. This
meant an increase in the Group's investment in software development (FY22:
£1.7m, FY21: £1.2m), including an upgrade to the online platform. In
addition, investment in people continued not only in the front office but in
technology and operations, including at the senior executive level with the
appointment of David Christie as COO.
At the same time, the Group delivered year on year revenue growth of 23%,
adding 528 new traded corporates in the year (FY21 499) with 23% of revenue
represented by new business. Adjusted operating margins improved modestly to
31.9% (FY21 30.9%), delivering an increase in earnings per share of 1.4p
(operating margin was 30.1% (FY21: 27.8%)). The Group's robust approach to
risk remains unchanged, which is demonstrably reflected in the consistently
low instances of client default.
FINANCIAL PERFORMANCE
In FY22, revenues increased by 23% to £34.5m (2021: £28.1m). As has been
the case in the past, revenue tends to be weighted towards the second half of
the year with H2 revenues contributing 54% of total annual revenues. H1
delivered a higher year on year growth in percentage terms compared to H2, (H1
33%, H2 15%) however this was driven by the impact of the pandemic on H1 FY21
in particular, where the Group witnessed a significant slow-down in trading
volumes as many customers adjusted to a markedly different set of macro
factors. The total number of corporate clients traded in FY22 was 1624,
representing an increase of 17% on the prior year. 528 of these represent
new customers, in turn demonstrating strong customer acquisition.
Earnings of £7.4m in FY22 represents an increase of £1.5m or 25% versus FY21
(FY21 £5.9m). This increase in earnings coupled with the Group's strong
balance sheet has enabled the continued investment in growth in line with the
now evolved strategy across people, technology and international expansion.
Overall, administrative expenses increased by £4.0m compared to FY21. This
is primarily driven by the investment in people. Average headcount grew from
67 in FY21 to 86 in FY22 including directors, with headcount at 31 March 2022
surpassing 100. The front office: back office split remained broadly
consistent year on year. We expanded international teams including 4 new
hires in Holland across the year and the appointment of the management team in
Australia in February 2022. In addition, we increased our investment in
technology to £1.7m in FY22 (FY21 £1.2m) in support of our service-led
customer offering. Our investment in technology, in line with our accounting
policy, is capitalised on our balance sheet as an intangible asset and
amortised over a three year period.
Operating profit increased 33% to £10.4m (FY21: £7.8m). Adjusted operating
profit of £11m (FY21: £8.7m) excludes £0.6m (FY21: £0.9m) of one-off items
that do not form part of ongoing operating costs. In line with our
accounting policy as stated on page 122, these are made up of legal and other
set up costs for overseas subsidiaries as well as restructuring costs.
Net earnings in FY22 were £7.4m, representing a year over year increase of
£1.5m (FY21:£5.9m) resulting in a 1.4p increase in earnings per share to
6.6p.
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 March 2022, Argentex has cash and cash equivalents of £37.9m, an increase
of £11.1m on prior year. 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
which is a change from historical practice. Historically, this has been
included in cash and cash equivalents but disclosed specifically in the
financial statements disclosure notes, and in FY22 any collateral placed with
financial counterparties is now classified as £7.2m in other assets
(FY21:£11.6m).
The Group generated £17.2m in cash from operating activities in FY22 (FY21
£10.8m). Of this amount, £6.2m relates to an increase in client balances
held, as shown in payables of the financial statements. Of the remaining £11m
in cash generated from operating activities, £1.7m was used to invest in
technology including an enhanced online platform and a further £3.1m 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. To date, Argentex has
generated revenues in a ratio of approximately 50:50 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
trades outside of option and swap trades being spot contracts in addition to
forward contracts carrying a relatively short tenor on average. Over 75% of
revenue converts to cash within 6 months. Excluding swap revenue, 85% of
revenue converts to cash within 3 months which is consistent with prior years
as follows:
CASH CONVERSION
2022 2021 2020 2019
£m £m £m £m
Revenues for the last 12 months 34.5 28.1 29.0 21.9
Revenues for the last 12 months (swap adjusted S/A) (A) 31.5 27.2 27.6 20.4
Less
Revenues settling beyond 3 months S/A (4.6) (3.1) (4.0) (2.4)
Net short-term cash generation (B) 26.9 24.1 23.7 18.1
Short term cash return (B/A) 85% 88% 86% 88%
PORTFOLIO COMPOSITION
Argentex's client base continues to grow with an increase in corporate clients
traded in the year to 1,624 (FY21: 1,385), and 528 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 year-end over 80% 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 declined year on year with 36% of
revenue represented by the top twenty customers, a reduction to the prior year
(FY21 41%).
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.
CHANGE IN FINANICAL REPORTING PERIOD
In line with the Group's transition to a global financial solutions provider,
the financial reporting timetable will move to a calendar year with the first
new reporting period ending 31 December 2022.
DIVIDEND
Argentex is pleased to declare a final dividend for the year ended 31 March
2022 of 1.25p per share. The final dividend record date will be 26th August
2022 and will be paid on 26th September 2022. The ex-dividend date is 25th
August 2022. Together with the interim dividend paid on 7th January 2022 of
0.75p per share, this brings the total amount of dividend payable for the year
to 2p per share, in line with prior years.
Jo Stent
Chief Financial Officer
Consolidated Statement of Profit or Loss and other comprehensive income for the year ended 31 March 2022
Notes 2022 2021
£m £m
Revenue 5 34.5 28.1
Cost of sales (0.6) (0.5)
Gross profit 33.9 27.6
Administrative expenses (22.9) (18.9)
Adjusted operating profit 2.13 11.0 8.7
Non-adjusted expenditure 8 (0.4) (0.7)
Share-based payments charge 22 (0.2) (0.2)
Operating profit 10.4 7.8
Finance costs 11 (0.4) (0.4)
Profit before taxation 10.0 7.4
Taxation 12 (2.6) (1.5)
Profit for the year and total comprehensive income 7.4 5.9
Earnings per share
Basic 13 6.6p 5.2p
Diluted 13 6.6p 5.2p
Adjusted - Basic 13 7.op 5.9p
Adjusted - Diluted 13 7.op 5.9p
Consolidated Statement of Financial Position as at 31 March 2022
Notes 2022 2021 2020
£m £m £m
(restated)(1) (restated)(1)
Non-current assets
Intangible assets 14 2.2 1.7 1.8
Property, plant and equipment 15 8.3 9.1 0.2
Derivative financial assets 16 3.1 3.8 8.2
Total non-current assets 13.6 14.6 10.2
Current assets
Trade and other receivables 16 0.6 0.6 0.3
Cash and cash equivalents 17 37.9 26.8 22.7
Other assets 28 7.2 11.6 26.5
Derivative financial assets 16 38.0 38.7 34.5
Total current assets 83.7 77.7 84.0
Current liabilities
Trade and other payables 18 (34.2) (28.5) (36.5)
Derivative financial liabilities 18 (21.6) (27.1) (27.9)
Total current liabilities (55.8) (55.6) (64.4)
Net current assets 27.9 22.1 19.6
Non-current liabilities
Trade and other payables 18 (6.0) (5.9) -
Derivative financial liabilities 18 (2.3) (2.1) (4.9)
Total non-current liabilities (8.3) (8.0) (4.9)
Net assets 33.2 28.7 24.9
Equity
Share capital 20 0.1 0.1 0.1
Share premium account 21 12.7 12.7 12.7
Share option reserve 22 0.4 0.2 -
Merger reserve 21 4.5 4.5 4.5
Retained earnings 21 15.5 11.2 7.6
Total Equity 33.2 28.7 24.9
1) Restatements relate to disclosure formats of derivative netting and
cash collateral. There is no impact on net assets. See note 28.
Consolidated Statement of Changes in Equity for the year ended 31 March 2022
Share capital Share premium Share option reserve Merger reserve Retained earnings Total equity
£m £m £m £m £m £m
Balance at 1 April 2020 0.1 12.7 - 4.5 7.6 24.9
Comprehensive income for the year
Profit for the year - - - - 5.9 5.9
Total comprehensive income for the year - - - - 5.9 5.9
Transactions with owners:
· Dividends paid - - - - (2.3) (2.3)
· Share-based payments charge - - 0.2 - - 0.2
Balance at 31 March 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
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 March 2022
Notes 2022 2021
£m £m(1)
restated
Profit before taxation 10.0 7.4
Taxation paid (2.2) (2.1)
Net finance expense 0.4 0.4
Depreciation of property, plant and equipment 0.5 0.2
Depreciation of right of use assets 0.8 0.8
Amortisation of intangible assets 1.2 1.3
Share-based payment charge 0.2 0.2
Decrease in receivables - (0.3)
Increase/(decrease) in payables 5.8 (8.6)
Decrease in derivative financial assets 1.4 0.2
(Decrease) in derivative financial liabilities (5.3) (3.6)
Decrease in other assets 4.4 14.9
Net cash generated from operating activities 17.2 10.8
Investing activities
Purchase of intangible assets 14 (1.7) (1.2)
Purchases of plant and equipment 15 (0.4) (2.7)
Net cash used in investing activities (2.1) (3.9)
Financing activities
Payments made in relation to lease liabilities 19 (0.9) (0.5)
Dividends paid 10 (3.1) (2.3)
Net cash used in financing activities (4.0) (2.8)
Net increase in cash and cash equivalents 11.1 4.1
Cash and cash equivalents at the beginning of the year 26.8 22.7
Cash and cash equivalents at the end of the year(1) 17
37.9 26.8
1)Collateral deposits removed from prior year cash and cash equivalents total
and derivative financial assets and liabilities updated to reflect netting.
Further details given in Note 28.
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
years ended 31 March 2022 and 31 March 2021 comprise the financial statements
of the Company and its subsidiaries (together, "the Group").
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 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 years 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.
The Group has reviewed its relationship with counterparty banks and as a
result, restated its derivative financial assets, derivative financial
liabilities and cash and cash equivalents FY21 and FY20 balances on the
Consolidated Statement of Financial position. Further details given on note
28.
2.2 Adoption of new and revised standards
In the prior year, the Group adopted the Phase 1 amendments Interest Rate
Benchmark Reform - Amendments to IFRS 9/IAS 39 and IFRS 7. These amendments
modify specific hedge accounting requirements to allow hedge accounting to
continue for affected hedges during the period of uncertainty before the
hedged items or hedging instruments are amended because of the interest rate
benchmark reform.
In the current year, the Group adopted the Phase 2 amendments Interest Rate
Benchmark Reform - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.
Adopting these amendments enables the Group to reflect the effects of
transitioning from interbank offered rates (IBOR) to alternative benchmark
interest rates (also referred to as 'risk free rates' or RFRs) without giving
rise to accounting impacts that would not provide useful information to users
of financial statements. The Group has not restated the prior period. Instead,
the amendments have been applied retrospectively with any adjustments
recognised in the appropriate components of equity as at 1 April 2021.
Implementation had no material impact on 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 23.3 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 financial statements.
2.4 Basis of consolidation
The Group financial statements incorporate the financial statements of the
Company and entities controlled by the Company (its subsidiaries) 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. Inactive pending regulatory authorisation Netherlands
Argentex PTY Ltd Inactive pending regulatory authorisation Australia
All subsidiary undertakings are owned 100% 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. The revenue
is fixed and determined representing the difference between the premium paid
by the client and the premium paid by the Group to its banking counterparties.
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.
2.7.1 Initial recognition
Financial assets and financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities (other than financial
assets and financial liabilities at fair value through profit or loss) are
added to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised immediately in
profit or loss.
2.7.2 Derivative financial instruments
Forward foreign exchange contracts and foreign exchange options are classified
as financial assets and liabilities at fair value through profit or loss
(FVTPL). 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 Group does not apply
hedge accounting.
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 set off 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 statement of
Financial Position. Management have presented the derivative assets and
liabilities with banking and brokerage counterparties and with clients on a
gross basis.
2.7.3 Foreign exchange gains and losses on derivative financial assets and liabilities
Assets and liabilities are measured at their fair value based on the
transaction price agreed with the customer or counterparty and their
observable fair value in the foreign exchange market, and any assets or
liabilities in a foreign currency are revalued at the balance sheet date.
Management consider the potential impact of exchange rate movements on
positions held to be immaterial as substantially all of the Group's positions
are fully matched with a number of counterparty banks.
2.7.4 Derecognition of derivative financial assets and liabilities
The Group derecognises derivative financial assets and 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 assets and liabilities have expired and the obligations of the Group, the
client and the institutional counterparty have been discharged.
2.7.5 Amortised cost and effective interest rate method
The effective interest rate method is a method of calculating the amortised
cost of a financial liability or debt instrument.
The effective interest rate is the rate that exactly discounts estimated
future cash receipts or payments (including all fees and points paid or
received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) excluding expected credit
losses, through the expected life of the financial asset or liability.
The Group has not purchased or originated any credit-impaired financial
assets.
2.7.6 Classification of financial assets
Recognised financial assets within the scope of IFRS 9 are required to be
classified as subsequently measured at amortised cost, fair value through
other comprehensive income (FVTOCI) or fair value through profit or loss
(FVTPL) on the basis of both the Group's business model and the contractual
cash flow characteristics of the financial assets.
2.7.7 Financial assets at FVTPL
Forward foreign exchange contracts and foreign exchange options are measured
at FVTPL (see note 24).
Other financial assets that do not meet the criteria for being measured at
amortised cost or FVTOCI are measured at FVTPL (see note 24).
Fair value is determined in the manner described in note 24.
2.7.8 Other financial assets
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 time frame established by regulation or convention in the marketplace.
All recognised financial assets are subsequently measured in their entirety at
either amortised cost or fair value, depending on the classification of the
financial assets.
Cash held as collateral with banking counterparties is shown as other assets
on the Consolidated Statement of Financial Position.
2.7.9 Impairment of financial assets
The Group has applied the simplified approach in IFRS 9 to measure applicable
loss allowances at lifetime ECL. The Group determines the expected credit
losses on these items by using a provision matrix, estimated 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 over two
years past due, whichever occurs earlier.
2.7.10 Derecognition of other financial assets
On derecognition of a financial asset 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.
2.7.11 Classification of financial liabilities
All financial liabilities are measured subsequently at amortised cost using
the effective interest rate method or at FVTPL.
2.7.12 Financial liabilities at FVTPL
Derivative financial liabilities are automatically held at FVTPL. Other
financial liabilities are classified as at FVTPL when the financial liability
is designated as at FVTPL.
Financial liabilities at FVTPL are stated at fair value with any gains or
losses arising on changes in fair value recognised in profit or loss.
Fair value is determined in the manner described in note 24.
2.7.13 Other Financial liabilities
Other financial liabilities are obligations to pay for goods or services that
have been acquired in the ordinary course of business. Other financial
liabilities are subsequently measured at amortised cost using the effective
interest rate method.
The Group holds amounts payable to customers at amortised cost. These are
short term balances that do not attract interest.
2.7.14 Derecognition of other financial liabilities
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 Leases
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.
In accordance with IFRS 16, 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. It is 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 amortised over the remaining (revised) lease term,
or it is recorded in the 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.
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 amortised 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.
2.10 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 statement of Consolidated Statement of
Comprehensive Income over the estimated useful live 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.
2.11 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.
2.12 Foreign currencies
Non-derivative monetary assets and liabilities in foreign currencies are
translated into sterling at the rates of exchange ruling at the balance sheet
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.
2.13 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 year. 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.
2.14 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.
2.15 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 year end, they are shown as liabilities in the
Consolidated Statement of Financial Position.
2.16 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.
2.17 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 is measured by the use of a Black-Scholes
option pricing model.
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.
2.18 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 year. 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.
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) Derivative financial asset and liability netting
Management have assessed the classification and presentation of derivative
transactions and determined that although the Group has a legal right of
offset of such assets and liabilities in certain circumstances, it does not
have the intent in all cases to settle such transactions on a net basis.
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 £0.7m (2021: £0.5m), decreasing the estimated useful
life from 3 years to 2 years would result in decreased operating profit of
£1.6m (2021: £1m).
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 per cent of revenues in the year ended 31 March 2022 or 31 March
2021.
5 Revenue
2022 2021
An analysis of the Group's revenue is as follows: £m £m
Continuing operations
Spot foreign exchange contracts 6.4 9.1
Forward foreign exchange contracts 27.2 18.1
Option premiums 0.9 0.9
34.5 28.1
6 Operating profit
2022 2021
Operating profit for the period is stated after charging:
£m £m
Depreciation of plant and equipment 0.5 0.2
Depreciation of Right of Use assets 0.8 0.8
Amortisation of intangibles 1.2 1.3
Staff costs (see note 9) 15.2 12.6
Net foreign exchange (gains)/losses (0.2) 0.5
7 Auditor's remuneration
2022 2021
Fees payable to the Group's auditor and its associates for services to the Group:
£m £m
The audit of financial statements of the Group and subsidiaries 0.2 0.1
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 2.13. These costs amount to £0.4m
(2021: £0.7m) and for 2022 relate 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.
In 2021, non-adjusted expenditure related to: i) moving the Group's
headquarters which are ineligible for capitalisation; ii) staff costs in
relation to Director changes in the Group and iii) costs related to the
creation of and regulatory applications for overseas operations.
Costs relating to the creation of overseas operations are infrequent despite
inclusion in FY21 and FY22 as these costs will not be recurring once the
operations are fully functional. The director change costs are non-recurring
and inclusion in both FY21 and FY22 is due to the timing of the change.
9 Staff costs
The average number of employees employed by the Group, including executive and
non-executive directors, was:
2022 2021
Number Number
Directors 8 8
LLP members (excl. executive directors) 6 4
Sales and dealing 45 37
Operations 27 18
86 67
2022 2021
£m £m
Staff costs for the above persons were:
Wages and salaries 8.4 7.2
Social security costs 0.9 0.9
Pension costs 0.1 0.1
Share-based payments 0.2 0.2
LLP members' remuneration* 4.1 3.2
Directors' remuneration 1.5 1.0
15.2 12.6
Directors' remuneration
2022 2021
£m £m
Directors' remuneration comprised:
Salaries and LLP members' remuneration 1.5 1.0
*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 who are members of the LLP Executive Committee will be 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 LLPs
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
2022 2021
£m £m
Amounts recognised as distributions to equity holders:
Final Dividend for the year ended 31 March 2021 of 2p per share (2021: 2.3 2.3
Dividend for the year ended 31 March 2020 of 2p per share)
Interim dividend declared of 0.75p per share (2021: nil) 0.8 -
3.1 2.3
Proposed Final Dividend for the year ended 31 March 2022 of 1.25p per share 1.5 2.3
(2021: 2p per share)
11 Finance costs and finance income
2022 2021
£m £m
Interest on lease arrangements 0.4 0.4
Finance Costs 0.4 0.4
Total interest expense for financial liabilities that are not at fair value
through profit or loss is equal to the amount of interest payable disclosed
above.
12 Taxation
2022 2021
£m £m
Current tax
In respect of the current year 2.6 1.5
Total tax expense for the year 2.6 1.5
Tax has been calculated using an estimated annual effective tax rate of 19%
(2021: 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:
2022 2021
£m £m
Profit before taxation 10.0 7.4
Tax on profit on ordinary activities at standard UK corporation tax rate of
19%
1.9 1.4
Effects of:
Other amounts charged 0.6 0.1
Adjustments in respect of prior period 0.1 -
Total tax expense for the year 2.6 1.5
Other items charged relate to adjustments for tax purposes including
non-allowable expenses and capital allowances.
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
expenditure as described further in note 2.13.
2022 2021
£m £m
Earnings
Earnings for the purposes of basic and diluted earnings per share
- basic and diluted 7.4 5.9
Adjustments for:
Non-adjusted expenditure 0.4 0.7
Shared based payments 0.2 0.2
Tax impact (0.1) (0.1)
Adjusted earnings (basic and diluted) 7.9 6.7
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
0.2 0.1
Number of dilutive shares under option
Weighted average number of ordinary shares for the purposes of dilutive 113.4 113.3
earnings per share
Earnings per share
Basic 6.6p 5.2p
Diluted 6.6p 5.2p
Adjusted - Basic 7.0p 5.9p
Adjusted - Diluted 7.0p 5.9p
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 2020 4.5
Additions 1.2
At 31 March 2021 5.7
Additions 1.7
At 31 March 2022 7.4
Amortisation
At 1 April 2020 2.7
Charge for year 1.3
At 31 March 2021 4.0
Charge for year 1.2
At 31 March 2022 5.2
Net book value
At 31 March 2022 2.2
At 31 March 2021 1.7
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 2020 0.4 1.2 0.2 0.4 2.2
Additions 1.7 7.2 0.6 0.4 9.9
Disposals (0.4) (1.2) (0.2) (0.2) (2.0)
At 31 March 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
Depreciation
At 1 April 2020 0.4 1.1 0.2 0.3 2.0
Charge for the year 0.1 0.8 - 0.1 1.0
Disposals (0.4) (1.2) (0.2) (0.2) (2.0)
At 31 March 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
Net book value
At 31 March 2022 1.5 5.8 0.7 0.3 8.3
At 31 March 2021 1.6 6.5 0.6 0.4 9.1
Right of use Asset relates to head office lease disclosed in note 19.
16 Trade and other receivables
2022 2021
£m £m
Restated(1)
Non-Current
Derivative financial assets at fair value (note 23) 3.1 3.8
Current
Derivative financial assets at fair value (note 23) 38.0 38.7
Other debtors 0.1 0.1
Prepayments 0.5 0.5
Trade and other receivables 0.6 0.6
17 Cash and cash equivalents
2022 2021
Restated(1)
£m £m
Cash and cash equivalents 37.9 26.8
Included within cash and cash equivalents are client held funds relating to
margins received and client balances payable (See note 18). 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.
1) Please refer to note 28.
18 Trade and other payables
2022 2021
£m £m
Restated(1)
Non-Current
Derivative financial liabilities at fair value (note 23) 2.3 2.1
Provisions 0.2 0.2
Lease Liability (note 19) 5.8 5.7
Trade and other payables
6.0 5.9
Current
Derivative financial liabilities at fair value (note 23) 21.6 27.1
Amounts payable to clients 24.9 18.7
Other creditors 0.1 0.7
Corporation tax 1.9 1.5
Amounts due to members and former members of Argentex LLP 2.8 3.8
Accruals 3.4 2.3
Other taxation and social security 0.3 0.3
Lease liability (note 19) 0.8 1.2
Trade and other payables 34.2 28.5
1) Please refer to note 28.
19 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 2.9. 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% (2021: 6%). Information about the
lease liability is presented below:
2022 2021
£m £m
Lease liability at beginning of financial year 6.9 -
Additions 0.1 7.0
Payments made in the year (0.9) (0.5)
Unwinding of finance costs 0.5 0.4
Lease liability at end of financial year 6.6 6.9
Of which
Current (note 18) 0.8 1.2
Non-current (note 18) 5.8 5.7
Amounts recognised in the consolidated statement of comprehensive income is
presented below:
2022 2021
£m £m
Depreciation charge on right-of-use assets (note 15) 0.8 0.8
Interest on lease liabilities (note 11) 0.4 0.4
At 31 March 1.2 1.2
20 Share Capital
Ordinary Management Nominal
shares shares value
Allotted and paid up No. No. £m
At 1 April 2021 and 31 March 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.
21 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 a share option scheme that is explained in note 22 of these
Consolidated Financial Statements. The Group recognises the services received
from eligible scheme participants as 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.
22 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 statement of profit or loss. 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
statement of profit or loss, with a corresponding adjustment to equity. Fair
value is measured by the use of a Black-Scholes option pricing model.
When share options are exercised, the Group issues new shares.
In June 2019, the Group issued 311,311 share options under Part I of an
approved Group 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.
During the previous financial year, the Group issued a total of 4,981,130
share options under Parts I, II and III of the Group share option plan
("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 March 2022 is £0.4m (2021:
£0.2m). The Group has recognised a total expense of £0.2m (2021: £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 year and their
weighted average exercise prices are shown in the following table:
2022 2021
Average exercise price (£) Number of options outstanding Average exercise price (£) Number of options outstanding
At 1 April 1.34 4,754,708 1.06 226,408
Granted - - 1.35 4,981,130
Forfeited 1.06 (28,301) 1.35 (452,830)
Exercised - - - -
31 March 1.34 4,726,407 1.34 4,754,708
23 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.
23.1 Capital management
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 review the adequacy of the Group's capital. The level of
capital is in excess of the capital requirement set by the Financial Conduct
Authority.
23.2 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.
2022 2021
£m £m
(restated)(1)
Derivative financial assets 41.1 42.5
Other debtors 0.1 0.1
Derivative financial liabilities (23.9) (29.2)
Amounts payable to clients (24.9) (18.7)
Other creditors (1.9) (0.7)
Amounts due to members and former members of Argentex LLP (2.8) (3.8)
Accruals (1.2) (2.3)
Lease liabilities (6.6) (6.9)
Non-derivative financial liabilities(2) (37.4) (32.4)
1) Refer to note 28.
2) Provision relating to lease dilapidation removed from prior year
comparative (£0.2m).
23.3 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.
Market risk
Market risk for the Group comprises foreign exchange risk and interest rate
risk.
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 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.
At 31 March 2022 2021
£m £m
10% weakening in the GBP/EUR exchange rate 0.8 0.6
10% strengthening in the GBP/EUR exchange rate (0.6) (0.5)
10% weakening in the GBP/USD exchange rate 1.1 0.3
10% strengthening in the GBP/USD exchange rate (0.9) (0.3)
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.
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 March 2022 £m £m £m £m £m
0-3 months 3-6 months 6-12 months 12 months + Total
Derivative financial assets 908.1 436.5 700.9 232.3 2,277.8
31 March 2021 (restated)(1) £m £m £m £m £m
0-3 months 3-6 months 6-12 months 12 months + Total
Derivative financial assets 1,198.6 563.5 445.3 187.0 2,394.4
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 March 2022 £m £m £m £m £m
0-3 months 3-6 months 6-12 months 12 months + Total
Derivative financial liabilities 902.9 433.7 693.7 230.9 2,261.2
31 March 2021 (restated)(1) £m £m £m £m £m
0-3 months 3-6 months 6-12 months 12 months + Total
Derivative financial liabilities 1,193.0 560.8 442.4 185.3 2,381.5
Other Financial Liabilities
The table below summarises the maturity profile of the Group's other financial
liabilities based on contractual (undiscounted) payments.
31 March 2022
Up to 1 year 1 year + Total
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
31 March 2021 (restated)(1)
Up to 1 year 1 year + Total
Amounts payable to clients 18.7 - 18.7
Other payables 6.8 0.2 7.0
Lease liabilities 0.9 8.3 9.2
26.4 8.5 34.9
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. Argentex employs rigorous
procedures and ongoing monitoring to 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 defines credit limits by clients. Limits and
scoring attributed to customers are reviewed on an ongoing basis.
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.
(1) Refer to note 28.
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.
23.4 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 March 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 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 24) best represents their respective maximum exposure to credit risk.
Note 23.6 details the Group's credit risk management policies.
23.5 Counterparty risk
Argentex relies on third party institutions in order to trade and clear
settlement funds through client accounts. To reduce counterparty credit risk
to acceptable levels, Argentex 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.
23.6 Credit risk management
Note 23.4 details the Group's maximum 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.
24 Fair value measurements
This note provides information about how the Group determines fair values of
various financial assets and financial liabilities.
24.1 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)
2022 2021
Restated(1)
Foreign exchange forward and option contracts Assets £41.1m; and Assets £42.5m; 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 £23.9m Liabilities £29.2m 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.
24.2 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 is a reasonable
approximation of their fair value.
1) Please refer to Note 28.
25 Related party transactions
Included in other creditors is £0.1m (2021: £0.6m) owed to Pacific
Investments Management Limited, the former owner of Argentex Foreign Exchange
Limited.
26 Contingent liabilities
As at 31 March 2022 there were no capital commitments or contingent
liabilities (2021: none).
27 Controlling party
In the opinion of the Directors there is no ultimate controlling party of
Argentex Group PLC.
28 Restatements
28.1. Derivative financial assets and derivative financial liabilities
In previous years the Group offset derivative financial assets and derivative
financial liabilities on the Consolidated Statement of Financial Position and
Consolidated Statement of Cash Flows. Management have reassessed the
classification and presentation of derivative transactions and determined that
although the Group has a legal right of offset of such assets and liabilities
in specific circumstances, however in most cases it does not have the legal
right of offset. As a result, in the current financial year Management have
presented the derivative assets and liabilities with banking and brokerage
counterparties and with clients on a gross basis. Comparative figures have
also been presented on this basis and there is no impact to the Statement of
Profit or Loss or to Net Assets.
Disclosure impact on prior years is as follows:
2021 2020
£m £m £m £m £m £m
Net Reclassification Restated Net Reclassification Restated
Current Financial Assets 21.0 17.7 38.7 17.6 16.9 34.5
Current Financial Liabilities (9.3) (17.8) (27.1) (10.9) (17.0) (27.9)
Non Current Financial Assets 4.2 (0.4) 3.8 7.2 1.0 8.2
Non Current Financial Liabilities (2.6) 0.5 (2.1) (4.0) (0.9) (4.9)
Net Financial Assets 13.3 0.0 13.3 9.9 0.0 9.9
The FY21 Consolidated Statement of Cash Flows has been restated to include
updated movements of £0.2m and £(3.6)m in the derivative
financial assets and derivative financial liabilities (previously £(0.4)m and
£(3.0)m).
28.2. Undiscounted contractual cashflows
In prior years the Financial Assets and Liabilities on the Consolidated
Statement of Financial Position have been analysed by contractual maturity
date. In the current financial year, the undiscounted contractual cash flows
have been disclosed. Comparative figures have also been disclosed on this
basis. Undiscounted cashflows disclosed in note 23.3.
28.3. Collateral balances
In previous years the cash held as collateral with banking and brokerage
counterparties has been included in the cash and cash equivalents balance and
disclosed as such in the cash and cash equivalents note. In the current year,
management have included cash held as collateral with banking and brokerage
counterparties £7.2m (2021: £11.6m, 2020: £26.5m) as Other Assets on the
Consolidated Statement of Financial Position resulting in a corresponding
decrease in cash and cash equivalents figures. There is no impact to the
Consolidated Statement of Comprehensive Income or to Net Assets. The
Consolidated Statement of Cash Flows has been restated to reconcile to the
restated cash and cash equivalents figure.
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