REG - ARGO Group Limited - Annual Report & Accounts, Year ended 31 Dec 2022
31/03/2023 07:00
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RNS Number : 8514U ARGO Group Limited 31 March 2023
Argo Group Limited
("Argo" or the "Company")
Annual Report and Accounts for the Year ended 31 December 2022
Argo today announces its final results for the year ended 31 December 2022.
The Company will today make available its report and accounts for the year
ended 31 December 2022 on the Company's website www.argogrouplimited.com
(http://www.argogrouplimited.com) . These will be sent by post to shareholders
no later than 30 April 2023.
Key highlights for the twelve months ended 31 December 2022
- Revenues US$2.5 million (2021: US$4.4 million)
- Operating loss US$2.3 million (2021: operating loss US$0.2 million)
- Loss before tax US$3.4 million (2021: profit before tax of
US$0.3million)
- Net assets US$19.6 million (2021: US$23.1 million)
Commenting on the results and outlook, Kyriakos Rialas, Chief Executive of
Argo said:
"The last financial year has been very difficult especially for Emerging
Markets that experienced huge outflows closed to US$100 billion. Increasing
interest rates to combat inflation has been the dominant global theme with the
USA leading the way. Inevitably this influenced the performance of The Argo
Fund Ltd that saw a loss for the year of 12.5% mitigated by active management
and macro hedges which compares favourably to the JPM EMBI+ index that saw a
loss of 24.7%. Consequently, with steady assets under management, Argo group
had to rely only on management fees in 2022 to cover its expenses. In the
second half of 2022 Argo Group took over the management of two US Hedged funds
managed accounts with first loss provisions that doubled its assets under
management. January 2023 started very well in line with most markets and with
indications that inflation and interest rates are peaking. Finally, Riviera,
the shopping mall in Odessa, Ukraine partially reopened in November 2022 while
the restoration of the damages caused by the combat rocket in May 22 is being
completed."
Enquiries
Argo Group Limited
Andreas Rialas
020 7016 7660
Panmure Gordon
Dominic Morley
020 7886 2500
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) No 596/2014 as it forms part of UK domestic
law by virtue of the European Union (Withdrawal) Act 2018.
CHAIRMAN'S STATEMENT
Key highlights for the twelve months ended 31 December 2022
- Revenues US$2.5 million (2021: US$4.4 million)
- Operating loss US$2.3 million (2021: operating loss US$0.2 million)
- Loss before tax US$3.4 million (2021: profit before tax of
US$0.3million)
- Net assets US$19.6 million (2021: US$23.1 million)
The Group and its objective
Argo's investment objective is to provide investors with absolute returns in
the funds that it manages by investing in multi strategy investments in
emerging markets.
Argo was listed on the AIM market in November 2008 and has a performance track
record dating back to 2000.
Business and operational review
This report sets out the results of Argo Group Limited for the year ended 31
December 2022.
For the year ended 31 December 2022 the Group generated revenues of US$2.5
million (2021: US$4.4 million) with management fees accounting for US$2.2
million (2021: US$2.5 million). The Group also generated incentive fees of US$
nil (2021: US$1.6 million) during the year.
Total operating costs, ignoring bad debt provisions, are US$4.2 million (2021:
US$3.8 million). The Group has provided against management fees of US$0.6
million (2021: US$0.7 million) from the Designated Investment share class in
TAF. In the Directors' view these amounts are fully recoverable however they
have concluded that it would be appropriate to carry a provision against these
receivables as the timing of the receipts should match the exit from the
investments in this share class.
Overall, the financial statements show an operating loss for the year of
US$2.3 million (2021: operating loss US$0.2 million) and a loss before tax of
US$3.4 million (2021: profit before tax of US$0.3 million) reflecting the
realised and unrealised loss on current asset investments of US$2.1 million
(2021: unrealised loss of US$0.6 million) and interest income of $1.0 million
(2021: $1.1 million).
At the year end, the Group had net assets of US$19.6 million (2021: US$23.1
million) and net current assets of US$6.0 million (2021: US$9.1million)
including cash reserves of US$1.6 million (2021: US$1.7 million). The
Directors are not declaring a final dividend.
Net assets include investment in TAF at fair value of US$4.4 million (2021:
US$6.1 million).
At the year end, The Argo Fund owed the Group total management and performance
fees of US$2.1 million (31 December 2021: US$2.6 million). The Group received
$0.2 million of these fees in January and February 2023. The remaining fees of
$1.9 million relates to the Designated Investment share class which will be
paid when the investments are sold and against which a full provision has been
made in these financial statements.
The Argo Funds ended the year with Assets under Management ("AUM") at US$109.8
million (2021: US$122.6). The current level of AUM remains below that required
to ensure sustainable profits on a recurring management fee basis in the
absence of performance fees. This has necessitated an ongoing review of the
Group's cost basis. Nevertheless, the Group has ensured that the operational
framework remains intact and that it retains the capacity to manage additional
fund inflows as and when they arise.
The number of permanent employees of the Group at 31 December 2022 was 18
(2021: 18).
Fund performance
Fund Launch 2022 2021 Since inception Sharpe Down
Date Year Year Annualised performance ratio months
Total Total
% % % CAGR %
The Argo Fund:
A class Oct-00 -12.54 5.29 215.19 6.04 0.40 89 of 267
X2 class Feb-21 -16.83 11.86 -6.97 -3.55 -0.20 9 of 23
Designated Investment class Jan-20 -2.82 5.45 89.18 NA NA NA
After the turbulence stemming from Covid, any hopes that 2022 would be a
rather uneventful year were quickly dispelled. The decision by Russia to
launch military action in Ukraine not only had a detrimental impact on the
population and economy of the latter country but also sparked a crisis in
global energy and food markets. Sanctions on Russian energy exports and
retaliatory measures led to a scramble, particularly by Europe, to secure
alternative gas and oil supplies often at higher cost and necessitating
additional outlays on infrastructure. Grain and other foodstuffs shipped from
the Black Sea region were also disrupted by the conflict causing harm in the
form of escalating food prices to consumers across the world.
After a prolonged period of quantitative easing and negative real interest
rates, last year witnessed a major shift in monetary policy in many countries.
Alarmed by inflation figures last seen 40 years ago, the world's central banks
began to focus on the supply constraints and concomitant price rises by
raising interest rates. The US Federal Reserve led the way, increasing the
discount rate on seven occasions from a starting point of 0.25% to end the
year at 4.5%. The European Central Bank, the Bank of England and others all
followed in its wake. However, this pressure to prioritize price stability
over economic expansion which, in turn, cast a cloud over the outlook for
corporate profits and asset prices did not bode well for markets as recession
fears surfaced.
Unusually, both equity and bond markets recorded significant negative returns
in 2022. For example, US equities had their worst year since 2008 with the
S&P 500 index sinking over 19 per cent. Developed government debt as
measured by the Bloomberg Barclays Global Treasury Index fell by 17.5 per
cent; commodities and cash were the only asset classes yielding positive
returns. However, these annual figures mask volatility within the year as
sentiment in both equity and debt markets improved in the fourth quarter
amidst hopes that inflationary pressures had peaked, rate rises were nearing
an end and recessions could be avoided.
It is difficult to imagine a more challenging backdrop for emerging markets
debt than the one that unfolded over the course of last year. Stubbornly high
inflation, aggressive monetary tightening, slowing global growth, the war in
Ukraine, and record investor outflows all contributed to one of the worst
drawdowns ever for the asset class: emerging market debt (EMBI Global) dropped
by 16.5 percent whilst local currency debt fared a little better, limiting
losses to under 12 per cent. A number of emerging countries have seen their
borrowing costs soar and/or difficulties in accessing the market in 2022
leading to defaults such as Sri Lanka and Ghana whilst other countries
including Egypt, Tunisia and Pakistan have sought assistance from the
International Monetary Fund.
The Argo Fund also had a difficult year. The Net Asset Value of the Class A
shares fell by 12.54 per cent in 2022, from US$360.39 to US$315.19. There were
positive contributions to this performance from macro hedges and short
positions but the main detractors were Ukrainian sovereign bonds -now largely
exited- and exposure to countries facing an imbalance between financing
requirements and sources. The NAV of the X2 Class, which was launched in
February 2021 and is a carve-out of the TAF distressed debt strategy, declined
by 16.83 per cent in the period up to December due in part to a variety of
corporates undergoing restructuring. It is currently funded internally but
efforts continue to be made to market this share class to external investors.
Units in the Designated Investment Class - holding a position in distressed
sovereign debt - fell by 2.82 per cent during 2022.
Dividends
The Directors are not declaring a final dividend but intend to restart
dividend payments as soon as the Group's performance provides a consistent
track record of profitability.
Loan receivable from Argo Real Estate Limited Partnership
The Directors would like to draw the attention of the shareholders to the
limitation of scope qualification of the audit report on page 14. Details of
this loan and the related expected credit loss provision are set out in Note
12.
Outlook
As previously stated, a significant increase in AUM is still required to
ensure sustainable profits on a recurring management fee basis. The Group is
well placed with capacity to absorb such an increase in AUM with negligible
impact on operational costs.
Raising AUM remains Argo's top priority over the coming year. The Group's
marketing efforts continues to focus on TAF which has 22 years of track
record. However, the Group continues to seek opportunities to increase AUM
either through existing fund structures or by identifying external partners
with whom to cooperate.
Over the longer term, the Board believes there is significant opportunity for
growth in assets and profits and remains committed to ensuring the Group's
investment management capabilities and resources are appropriate to meet its
key objective of achieving a consistent positive investment performance in the
emerging markets sector.
Independent Auditor's Report (as provided by the Auditors in the annual
report)
To the Members of Argo Group Limited
Qualified Opinion
We have audited the consolidated financial statements of Argo Group Limited
(the "Company"), and its subsidiaries ("the Group"), which are presented in
pages 17 to 42 and comprise the consolidated statement of financial position
as at 31 December 2022, and the consolidated statements of profit or loss and
other comprehensive income, changes in equity and cash flows for the year
then ended, and notes to the consolidated financial statements, including a
summary of significant accounting policies.
In our opinion, except for the possible effects of the matter described in the
Basis for Qualified Opinion section of our report, the accompanying
consolidated financial statements give a true and fair view of the financial
position of the Group as at 31 December 2022, and of its financial performance
and its cash flows for the year then ended in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the IASB.
Basis for Qualified Opinion
As described in Note 12 to the consolidated financial statements, other loans
and advances receivable with a carrying value of US$13,320 thousand relate to
a loan that is exposed to the performance of an investment property in
Ukraine. An expected credit loss of US$0.5 million has been recognised in
relation to this loan as at 31 December 2022. Due to the current war in
Ukraine, it was not possible for Management obtain an independent fair value
of the underlying collateral for the loan order for us to reliably assess the
assumptions used for the calculation of the Group's estimate of expected
credit loss. Consequently, we were unable to determine whether any adjustments
to this amount were necessary.
We conducted our audit in accordance with International Standards on Auditing
(ISAs). Our responsibilities under those standards are further described in
the Auditor's Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Group in accordance with the
International Ethics Standards Board for Accountants' Code of Ethics for
Professional Accountants (IESBA Code) and we have fulfilled our other ethical
responsibilities in accordance with these requirements and the IESBA Code. We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the consolidated financial statements of
the current period. These matters were addressed in the context of our audit
of the consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters. In
addition to the matter described in the Basis for Qualified Opinion section of
our report, we have determined that there are no such matters to report.
Other information
The Board of Directors is responsible for the other information. The other
information comprises the following:
· Chairman's statement
· Director's report
· Statement of Director's Responsibilities in respect of the
consolidated financial statements
Our opinion on the consolidated financial statements does not cover the other
information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the Board of Directors for the Consolidated Financial
Statements
The Board of Directors is responsible for the preparation of financial
statements that give a true and fair view in accordance with International
Financial Reporting Standards as adopted by the IASB, and for such internal
control as the Board of Directors determines is necessary to enable the
preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors is
responsible for assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Board of Directors either intends
to liquidate the Group or to cease operations, or has no realistic alternative
but to do so.
The Board of Directors is responsible for overseeing the Group's financial
reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs will
always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with ISAs, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal
control.
· Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Group's internal control.
· Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
Board of Directors.
· Conclude on the appropriateness of the Board of Directors' use of the
going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Group's ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our
auditor's report. However, future events or conditions may cause the Group to
cease to continue as a going concern.
· Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that
achieves a true and fair view.
· We communicate with the Board of Directors regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
· We also provide the Board of Directors with a statement that we
have complied with relevant ethical requirements regarding independence, and
to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable,
related safeguards.
· From the matters communicated with the Board of Directors, we
determine those matters that were of most significance in the audit of the
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in
our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication
Other Matter
This report, including the opinion, has been prepared for and only for the
Company's members as a body and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other purpose or to any
other person to whose knowledge this report may come to.
The engagement partner on the audit resulting in this independent auditor's
report is Maria Kaffa.
Maria Kaffa
Certified Public Accountant and Registered Auditor
for and on behalf of
Baker Tilly Klitou and Partners Ltd
Certified Public Accountants and Registered Auditors
Corner C Hatzopoulou & 30 Griva Digheni Avenue
CY-1066 Nicosia
Cyprus
Nicosia, 30 March 2023
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
YEAR ENDED 31 DECEMBER 2022
Year ended Year ended
31 December 31 December
2022 2021
Note US$'000 US$'000
Management fees 2,193 2,548
Performance fees 2 1,582
Other income 351 252
Revenue 2(e), 3 2,546 4,382
Legal and professional expenses (272) (411)
Management and incentive fees payable (312) (312)
Operational expenses (728) (698)
Employee costs 4 (2,782) (2,220)
Foreign exchange gain/(loss) 20 (8)
Bad debts 11 (636) (740)
Depreciation 9 (125) (186)
Operating loss 6 (2,289) (193)
Interest income 971 1,091
Realised and unrealized losses on investments (2,079) (600)
(Loss)/profit on ordinary activities before taxation 3 (3,397) 298
Taxation 7 - -
Profit for the year after taxation attributable to members of the Company 8 (3,397) 298
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (123) (31)
Total comprehensive income for the year (3,520) 267
Year ended Year ended
31 December 31 December
2022 2021
US$ US$
Earnings per share (basic) 8 (0.09) 0.01
Earnings per share (diluted) 8 (0.08) 0.01
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
At 31 December 2022 At 31 December 2021
Note US$'000 US$'000
Assets
Non-current assets
Land, fixtures, fittings and equipment 9 607 290
Loans and advances receivable 12 13,320 13,641
Total non-current assets 13,927 13,931
Current assets
Financial assets at fair value through profit or loss 10 4,387 6,098
Loan and advances receivable 12 96 122
Trade and other receivables 11 413 1,453
Cash and cash equivalents 1,642 1,709
Total current assets 6,538 9,382
Total assets 3 20,465 23,313
Equity and liabilities
Equity
Issued share capital 13 390 390
Share premium 25,353 25,353
Revenue reserve (2,977) 420
Foreign currency translation reserve 2(d) (3,209) (3,086)
Total equity 19,557 23,077
Current liabilities
Trade and other payables 14 497 236
Taxation payable 7 - -
Total current liabilities 3 497 236
Non-current Liabilities
Trade and other payables 14 411 -
Total non-current liabilities 411 -
Total equity and liabilities 20,465 23,313
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED 31 DECEMBER 2022
Foreign currency translation reserve
Issued share capital
Share premium Revenue reserve
Total
2021 2021 2021 2021 2021
US$'000 US$'000 US$'000 US$'000 US$'000
Restated at 1 January 2021 390 25,353 122 (3,055) 22,810
Total comprehensive income
Profit for the year after taxation - - 298 - 298
Other comprehensive income - - - (31) (31)
At 31 December 2021 390 25,353 420 (3,086) 23,077
Foreign currency translation reserve
Issued share capital
Share premium Revenue reserve
Total
2022 2022 2022 2022 2022
US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January 2022 390 25,353 420 (3,086) 23,077
Total comprehensive income
Loss for the year after taxation - - (3,397) - (3,397)
Other comprehensive income - - - (123) (123)
As at 31 December 2022 390 25,353 (2,977) (3,209) 19,557
The notes on pages 21 to 43 form part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2022
Year ended Year ended
31 December 31 December
2022 2021
Note US$'000 US$'000
Net cash (outflow)/inflow from operating activities 15 (800) 213
Cash flows from investing activities
Interest received on cash and cash equivalents 1 1
Disposal of financial assets at fair value through profit or loss 10
924 1,105
Loan repayment received 12 26 -
Purchase of fixtures, fittings and equipment 9 (7) (1)
Net cash generated from investing activities 944 1,105
Cash flows from financing activities
Payment of lease liabilities 2(n) (124) (251)
Net cash used in financing activities (124) (251)
Net increase in cash and cash equivalents 20 1,067
Cash and cash equivalents at 1 January 2022 and 1,709 675
1 January 2021
Foreign exchange loss on cash and cash (87) (33)
Equivalents
Cash and cash equivalents as at 31 December 2022 and 31 December 2021 1,642 1,709
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
1. CORPORATE INFORMATION
The Company is domiciled in the Isle of Man under the
Companies Act 2006. Its registered office is at 33-37 Athol Street, Douglas,
Isle of Man, IM1 1LB and the principal place of business is at 24-25 New Bond
Street, London, W1S 2RR. The principal activity of the Company is that of a
holding company and the principal activity of the wider Group is that of an
investment management business. The functional currencies of the Group
undertakings are US dollars, Sterling, Euros and Romanian Lei. The
presentational currency is US dollars. The Group has 22 (2021: 18) employees.
Wholly owned
subsidiaries
Country of incorporation
Argo Capital Management Limited United Kingdom
Argo Property Management Srl Romania
2. ACCOUNTING POLICIES
(a) Accounting convention
These consolidated financial statements have been prepared on
a historical cost basis, except for the revaluation of certain financial
instruments, and in accordance with International Financial Reporting
Standards, as adopted by the EU.
Going concern
The financial statements have been prepared on a going concern basis which
assumes that the Group will be able to meet its liabilities as they fall due
for the foreseeable future.
The Directors have carried out a rigorous assessment of all the factors
affecting the business in deciding to adopt the going concern basis for the
preparation of the accounts. They have reviewed and examined the Group's
financial and other processes including the annual budgeting process and
expect the Group to have sufficient cash resources available in the
foreseeable future. This has included the preparation of forecast financial
information focussed on cash flow requirements through to at least March 2022.
These forecasts reflect current cost patterns of the Group and take into
consideration current liquidity constraints of funds under management and
therefore their ability to settle management fees and other receivables (refer
to notes 11 and 12).
On the basis of review of this forecast financial information, the liquid
assets currently held and forecast inflows during the period, the Directors
are confident that the Group has adequate financial resources available to
continue in operational existence for the foreseeable future and therefore
continue to adopt the going concern basis for preparing the consolidated
financial statements.
The Directors have therefore concluded that it is appropriate to prepare the
consolidated financial statements on a going concern basis.
(b) Basis of consolidation
The consolidated financial statements incorporate the
financial statements of the Company and its subsidiaries. Subsidiaries are
consolidated from the date upon which control is transferred to the Company
and cease to be consolidated from the date upon which control is transferred
from the Company.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used into line
with those used by the Company. All intra-group transactions, balances, income
and expenses are eliminated on consolidation.
(c) Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the aggregate
of the fair values, at the date of exchange, of assets given, liabilities
incurred or assumed and equity instruments issued by the Group in exchange for
control of the acquiree, plus any costs directly attributable to the business
combination. The acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3 are
recognised at their fair value at the acquisition date.
Goodwill
Goodwill arising on the consolidation represents the excess
of the cost of the acquisition over the Company's interest in the fair value
of the identifiable assets and liabilities of a subsidiary at the date of
acquisition. Any excess of the Company's interest in the fair value of the
identifiable assets and liabilities over the cost of the acquisition (negative
goodwill) is immediately recognised in the Consolidated statement of profit or
loss. Goodwill is initially recognised as an asset at cost and is subsequently
measured at cost less any accumulated impairment losses. Goodwill which is
recognised as an asset is reviewed at least annually for impairment. Any
impairment is recognised immediately in the Consolidated statement of profit
or loss.
Impairment of intangible assets
At each reporting date the Group reviews
the carrying amounts of its intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss, if any.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have been
adjusted.
If the recoverable amount of an asset is
estimated to be less than its carrying amount, the carrying amount of the
asset is reduced to its recoverable amount. An impairment loss is recognised
as an expense immediately, unless the relevant asset is carried at a revalued
amount, in which case the impairment loss is treated as a revaluation
decrease.
(d) Foreign currency translation
The consolidated financial statements are expressed in US dollars.
Transactions denominated in currencies other than US dollars have been
translated at the rate of exchange prevailing at the date of the
transaction. Assets and liabilities in other currencies are translated to US
dollars at the rates of exchange prevailing at the reporting date. The
resulting profits or losses are reflected in the Consolidated statement of
profit or loss.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group's foreign operations are translated at exchange
rates prevailing on the reporting date. Income and expense items are
translated at the average exchange rates for the year. Exchange differences
arising, if any, are classified as equity and transferred to the Group's
foreign currency translation reserve.
(e) Revenue
Revenue is recognised to the extent that it is probable that
economic benefit will flow to the Group and the revenue can be reliably
measured.
Management and incentive fees receivable
The Group recognises revenue for providing management
services to funds. Revenue is accrued on a monthly basis on completion of
management services. In the Argo funds revenue is based on the assets under
management of each mutual fund.
Incentive fees arise monthly, quarterly or on realisation of
an investment. Incentive fees are recognised in the month they arise.
(f) Depreciation
Plant and equipment is initially recorded at cost and depreciated on a
straight-line basis over the expected useful lives of the assets, after taking
into account the assets' residual values, as follows:
Leasehold
20% per annum
Fixtures and
fittings
33 1/3% per annum
Office equipment
33 1/3% per annum
Computer equipment and
software
33 1/3% per annum
(g) IFRS 9 ''Financial instruments''
The standard requires debt financial assets
to be classified into two measurement categories: those to be measured
subsequently at fair value (either through other comprehensive income (FVOCI)
or through profit or loss (either FVTPL or FVPL) and those to be measured at
amortized cost. The determination is made at initial recognition. For debt
financial assets the classification depends on the entity's business model for
managing its financial instruments and the contractual cash flows
characteristics of the instruments. For equity financial assets it depends on
the entity's intentions and designation.
In particular, assets that are held for
collection of contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortised cost. Assets that
are held for collection of contractual cash flows and for selling the
financial assets, where the assets' cash flows represent solely payments of
principal and interest, are measured at fair value through other
comprehensive income. Lastly, assets that do not meet the criteria for
amortised cost or fair value through other comprehensive income are measured
at fair value through profit or loss.
For investments in equity instruments that are not held for
trading, the classification depends on whether the entity has made an
irrevocable election at the time of initial recognition to account for the
equity investment at fair value through other comprehensive income. If no such
election has been made or the investments in equity instruments are held for
trading they are required to be classified at fair value through profit or
loss.
IFRS 9 also introduces a single impairment model applicable
for debt instruments at amortised cost and fair value through other
comprehensive income and removes the need for a triggering event to be
necessary for recognition of impairment losses. The new impairment model under
IFRS 9 requires the recognition of allowances for doubtful debts based on
expected credit losses (ECL), rather than incurred credit losses as under IAS
39. The standard further introduces a simplified approach for calculating
impairment on trade receivables as well as for calculating impairment on
contract assets and lease receivables; which also fall within the scope of the
impairment requirements of IFRS 9.
Financial liabilities are initially recognised at fair value
and classified as subsequently measured at amortised cost, except for (i)
financial liabilities at FVTPL: this classification is applied to derivatives,
financial liabilities held for trading (e.g. short positions in securities),
contingent consideration recognised by an acquirer in a business combination
and other financial liabilities designated as such at initial recognition and
(ii) financial guarantee contracts and loan commitments. A financial liability
is derecognised when the obligation under the liability is discharged or
cancelled or expires.
(h) Trade date accounting
All 'regular way' purchases and sales of
financial assets are recognised on the 'trade date', i.e. the date that the
entity commits to purchase or sell the asset. Regular way purchases or sales
are purchases or sales of financial assets that require delivery of the asset
within the time frame generally established by regulation or convention in the
market place.
(i) Financial instruments
Financial assets - Classification
The Group classifies its financial assets
in the following measurement categories:
· those to be measured subsequently at fair value (either through OCI
or through profit or loss), and
· those to be measured at amortised cost
The classification and subsequent
measurement of debt financial assets depends on: (i) the Group's business
model for managing the related assets portfolio and (ii) the cash flow
characteristics of the asset. On initial recognition, the Group may
irrevocably designate a debt financial asset that otherwise meets the
requirements to be measured at amortized cost or at FVOCI at FVTPL if doing so
eliminates or significantly reduces an accounting mismatch that would
otherwise arise.
All other financial assets are classified
as measured at FVTPL.
For assets measured at fair value, gains
and losses will either be recorded in profit or loss or OCI. For investments
in equity instruments that are not held for trading, this will depend on
whether the Group has made an irrevocable election at the time of initial
recognition to account for the equity investment at fair value through other
comprehensive income (FVOCI).
Currently the Group holds only investments which have been classified as
financial assets at fair value through profit or loss. Investments held at
fair value in managed mutual funds are valued at fair value of the net assets
as provided by the administrators of those funds. Where funds contain level 3
assets the Directors will consider the carrying value based on information
regarding future expected cash flows using appropriate valuation techniques
such as discounted cash flow analysis. Investment in the management shares of
The Argo Fund Limited is stated at fair value, being the recoverable amount.
Financial assets - Measurement
At initial recognition, the Group measures a financial asset at its fair value
plus, in the case of a financial asset not at fair value through profit or
loss (FVTPL), transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial assets
carried at FVTPL are expensed in profit or loss. Fair value at initial
recognition is best evidenced by the transaction price. A gain or loss on
initial recognition is only recorded if there is a difference between fair
value and transaction price which can be evidenced by other observable current
market transactions in the same instrument or by a valuation technique whose
inputs include only data from observable markets.
Financial assets ‑ impairment ‑ credit loss allowance for ECL
The Group assesses on a forward‑looking basis the ECL for debt instruments
(including loans) measured at Amortized Cost and FVOCI and with the exposure
arising from loan commitments and financial guarantee contracts. The Group
measures ECL and recognises credit loss allowance at each reporting date. The
measurement of ECL reflects: (i) an unbiased and probability weighted amount
that is determined by evaluating a range of possible outcomes, (ii) time value
of money and (iii) all reasonable and supportable information that is
available without undue cost and effort at the end of each reporting period
about past events, current conditions and forecasts of future conditions.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise
cash at bank. Cash and cash equivalents are carried at Amortized Cost because:
(i) they are held for collection of contractual cash flows and those cash
flows represent SPPI, and (ii) they are not designated at FVTPL.
Financial Liabilities
Financial liabilities are initially recognised at fair value and classified as
subsequently measured at amortised cost, except for (i) financial liabilities
at FVTPL: this classification is applied to derivatives, financial liabilities
held for trading (e.g. short positions in securities), contingent
consideration recognised by an acquirer in a business combination and other
financial liabilities designated as such at initial recognition and (ii)
financial guarantee contracts and loan commitments.
(j) Loans and borrowings
Loans and borrowings are recognised initially at fair value, net of
transaction costs incurred. Loans and borrowings are subsequently carried at
amortised cost. Any difference between the proceeds (net of transaction costs)
and the redemption value is recognised in profit or loss over the period of
the borrowings, using the effective interest method, unless they are directly
attributable to the acquisition, construction or production of a qualifying
asset, in which case they are capitalised as part of the cost of that asset.
Loans and borrowings are classified as current liabilities, unless the Group
has an unconditional right to defer settlement of the liability for at least
twelve months after the statement of financial position date.
(k) Current taxation
Current tax assets and liabilities are measured at the amount expected to
be recovered from or paid to the taxation authorities. The tax rates and tax
laws used to compute the amounts are those enacted or substantively enacted by
the reporting date.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the Consolidated statement of
profit or loss because it excludes items of income or expense that are taxable
or deductible in other periods or because it excludes items that are never
taxable or deductible.
(l) Deferred taxation
Deferred income tax is provided for using
the liability method on temporary timing differences at the reporting date
between the tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred tax liabilities are recognised in full
for all temporary differences. Deferred tax assets are recognised for all
deductible temporary differences, carried forward unused tax credits and
unused tax losses to the extent that it is probable that taxable profit will
be available against which the deductible temporary differences and
carry-forward of unused tax credits and unused losses can be utilised.
The carrying amount of deferred income tax assets is revalued
at each reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the
deferred income tax asset to be utilised. Unrecognised deferred income tax
assets are reassessed at each reporting date and are recognised to the extent
that is probable that future taxable profits will allow the deferred tax asset
to be recovered. Deferred income tax assets and liabilities are measured at
the tax rates that are expected to apply in the year when the asset is
realised or the liability settled, based on tax rates that have been enacted
or substantively enacted at the reporting date.
(m) Accounting estimates, assumptions and judgements
The preparation of the consolidated financial statements necessitates the use
of estimates, assumptions and judgements. These estimates, assumptions and
judgements affect the reported amounts of assets, liabilities and contingent
liabilities at the reporting date as well as affecting the reported income and
expenses for the year. Although the estimates are based on management's
knowledge and best judgment of information and financial data, the actual
outcome may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that and prior periods, or in
the period of the revision and future periods if the revision affects both
current and future periods.
In the process of applying the Group's accounting policies, which are
described above, management has made best judgements of information and
financial data that have the most significant effect on the amounts recognised
in the consolidated financial statements:
- Investments fair value
- Management fees
- Trade receivables
- Going concern
- Loans and advances
It has been assumed that, when available, the audited financial statements of
the funds under the Group's management will confirm the net asset values used
in the calculation of management and performance fees receivable.
(n) 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 an identified asset, the Group assesses whether:
the contract involves the use of an identified asset this may be specified
explicitly or implicitly and should be physically distinct or represent
substantially all of the capacity of a physically distinct asset. If the
supplier has a substantive substitution right, then the asset is not
identified;
- the Group has the right to obtain substantially all of the economic
benefits from use of the asset throughout the period of use; and
- the Group has the right to direct the use of the asset. The Group has
this right when it has the decision‑making rights that are most relevant to
changing how and for what purpose the asset is used. In rare cases where the
decision about how and for what purpose the asset is used is predetermined,
the Group has the right to direct the use of the asset if either:
- the Group has the right to operate the asset; or
- the Group designed the asset in a way that predetermines how and for
what purpose it will be used.
At inception or on reassessment of a contract that contains a lease component,
the Group allocates the consideration in the contract to each lease component
on the basis of their relative stand‑alone prices. However, for the leases
of land and buildings in which it is a lessee, the Group has elected not to
separate non‑lease components and account for the lease and non‑lease
components as a single lease component.
The Group as lessee
The Group recognises a right‑of‑use asset and a lease liability at the
lease commencement date. The right‑of‑use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for
any lease payments made at or before the commencement date, plus any initial
direct costs incurred and an estimate of costs to dismantle and remove the
underlying asset or to restore the underlying asset or the site on which it is
located, less any lease incentives received.
The right‑of‑use asset is subsequently depreciated using the
straight‑line method from the commencement date to the earlier of the end of
the useful life of the right‑of‑use asset or the end of the lease term.
The estimated useful lives of right‑of‑use assets are determined on the
same basis as those of property and equipment. In addition, the
right‑of‑use asset is periodically reduced by impairment losses, if any,
and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group's incremental borrowing rate. Generally, the Group uses
its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the
following:
-fixed payments, including in‑substance fixed payments;
-variable lease payments that depend on an index or a rate, initially measured
using the index or rate as at the commencement date;
-amounts expected to be payable under a residual value guarantee; and
-the exercise price under a purchase option that the Group is reasonably
certain to exercise, lease payments in an optional renewal period if the Group
is reasonably certain to exercise an extension option, and penalties for early
termination of a lease unless the Group is reasonably certain not to terminate
early.
The lease liability is measured at amortised cost using the effective interest
method. It is remeasured when there is a change in future lease payments
arising from a change in an index or 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.
(o) Financial instruments and fair value hierarchy
The following represents the fair value hierarchy of financial instruments
measured at fair value in the consolidated statement of financial position.
The hierarchy groups financial assets and liabilities into three levels based
on the significance of inputs used in measuring the fair value of the
financial assets and liabilities. The fair value hierarchy has the following
levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The level within which the financial asset or liability is classified is
determined based on the lowest level of significant input to the fair value
measurement.
(p) Future changes in accounting policies
IASB (International Accounting Standards Board) and IFRIC (International
Financial Reporting Interpretations Committee) have issued the following
standards and interpretations with an effective date after the date of these
financial statements:
Below are the standards that have been endorsed and not endorsed, effective
after 31 December 2022:
Effective date
Amendments to IAS 1 Presentation of Financial Statements: 01/01/2024
• Classification of Liabilities as Current or Non-current Date (issued on 23 (not endorsed)
January 2020);
• Classification of Liabilities as Current or Non-current - Deferral of
Effective Date (issued on 15 July 2020); and
• Non-current Liabilities with Covenants (issued on 31 October 2022)
Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback (issued 01/01/2024
on 22 September 2022)
(not endorsed)
Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17 and
IFRS 9 - Comparative Information (issued on 9 December 2021)
Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17 and 01/01/2023
IFRS 9 - Comparative Information (issued on 9 December 2021)
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and 01/01/2023
Liabilities arising from a Single Transaction (issued on 7 May 2021)
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice 01/01/2023
Statement 2: Disclosure of Accounting policies (issued on 12 February 2021)
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and 01/01/2023
Errors: Definition of Accounting Estimates (issued on 12 February 2021)
IFRS 17 Insurance Contracts (issued on 18 May 2017); including Amendments to 01/01/2023
IFRS 17 (issued on 25 June 2020)
The Directors do not expect the adoption of these standards and
interpretations to have a material impact on the Group's financial statements
in the period of initial application.
(q) Dividends payable
Interim and final dividends are recognised when declared.
2. SEGMENTAL ANALYSIS
The Group operates as a single asset management business. The operating
results of the companies set out in note 1 above are regularly reviewed by the
Directors for the purposes of making decisions about resources to be allocated
to each company and to assess performance. The following summary analyses
revenues, profit or loss, assets and liabilities:
Year ended
Argo Group Ltd Argo Capital Management Limited Argo Capital Management Property Limited 31 December
2022 2022 2022 2022
US$'000 US$'000 US$'000 US$'000
Total revenues for reportable segments - 2,201 345 2,546
Intersegment revenues - - - -
Total loss for reportable segments (1,357) (1,717) (323) (3.397)
Intersegment profit/(loss) - - - -
Total assets for reportable segments 18,390 1,553 522 20,465
Total liabilities for reportable segments 24 528 356 908
Revenues, profit or loss, assets and liabilities may be reconciled as follows: Year ended
31 December
2022
US$'000
Revenues
Total revenues for reportable segments 2,546
Elimination of intersegment revenues -
Group revenues 2,546
Profit or loss
Total loss for reportable segments (3,397)
Other unallocated amounts (-)
Loss on ordinary activities (3,397)
Assets
Total assets for reportable segments 24,008
Elimination of intersegment receivables (3,543)
Group assets 20,465
Liabilities
Total liabilities for reportable segments 4,448
Elimination of intersegment payables (3,543)
Group liabilities 908
Argo Capital Management (Cyprus) Limited Year ended
Argo Group Ltd Argo Capital Management Limited Argo Capital Management Property Limited 31 December
2021 2021 2021 2021 2021
US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues for reportable segments - - 4,130 252 4,382
Intersegment revenues - - - - -
Total profit/(loss) for reportable segments 180 - 544 (426) 298
Intersegment profit/(loss) - - - - -
Total assets for reportable segments 20,661 - 2,426 226 23,313
Total liabilities for reportable segments 28 - 185 23 236
Revenues, profit or loss, assets and liabilities may be reconciled as follows: Year ended
31 December
2021
US$'000
Revenues
Total revenues for reportable segments 4,382
Elimination of intersegment revenues -
Group revenues 4,382
Profit or loss
Total profit for reportable segments 298
Other unallocated amounts (-)
Profit on ordinary activities 298
Assets
Total assets for reportable segments 26,748
Elimination of intersegment receivables (3,435)
Group assets 23,313
Liabilities
Total liabilities for reportable segments 3,671
Elimination of intersegment payables (3,435)
Group liabilities 236
4. EMPLOYEE COSTS
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Wages and salaries -under employment contract 1,682 1,682
Wages and salaries - under service contract 250 250
Social security costs 187 187
Other 101 101
2,220 2,220
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to the following:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Directors and key management personnel 1,326 1,051
The remuneration of the Directors of the Company for the
year was as follows:
Year ended Year ended
Cash bonus 31 December 31 December
Salaries Fees Benefits 2022 2021
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive Directors
Kyriakos Rialas 201 - - 40 241 225
Andreas Rialas 196 - 13 350 559 233
Non-Executive Directors
Michael Kloter - 53 - - 53 56
David Fisher - 31 - - 31 34
Ken Watterson - 31 - - 31 34
6. OPERATING LOSS
Operating profit is stated after charging:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Auditors' remuneration 51 56
Depreciation -owned assets 5 7
Depreciation - right of use assets 119 189
Directors' fees and key management personnel 1,326 1,051
Rent expense 58 33
7. TAXATION
Taxation rates applicable to the parent company and the UK,
and Romanian subsidiaries range from 0% to 19% (2021: 0% to 19%).
Consolidated statement of profit or loss
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Taxation charge for the year on Group companies - -
Tax on profit on ordinary activities - -
The tax charge for the year can be reconciled to the profit on ordinary
activities before taxation shown in the consolidated statement of profit or
loss as follows:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
(Loss)/profit before tax (3,397) 298
Applicable Isle of Man tax rate for Argo Group Limited of 0% - -
Timing differences (2) (3)
Non-deductible expenses 2 2
Other adjustments (79) (108)
Tax effect of different tax rates of subsidiaries operating in 79 109
other jurisdictions
Tax charge - -
Consolidated statement of financial position
At 31 December At 31 December
2022 2021
US$'000 US$'000
Corporation tax payable/receivable - -
8. EARNINGS PER SHARE
The Company presents basic and diluted earnings per share (EPS) data for its
ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average
number of ordinary shares outstanding during the period. Diluted EPS is
determined by dividing the profit or loss attributable to ordinary
shareholders of the Company by the weighted average number of ordinary shares
outstanding, adjusted for the effects of all dilutive potential ordinary
shares (see note 20).
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
(Loss)/profit for the year after taxation attributable to members (3,397) 298
No. of No. of
Shares Shares
Weighted average number of ordinary shares for basic earnings 38.959,986 38,959,986
per share
Effect of dilution (note 20) 3,895,998 3,895,998
Weighted average number of ordinary shares for diluted earnings per share 42,855,984 42,855,984
Year ended Year ended
31 December 31 December
2022 2021
US$ US$
Earnings per share (basic) (0.09) 0.01
Earnings per share (diluted) (0.08) 0.01
9. LAND, FIXTURES, FITTINGS AND EQUIPMENT
Right of use asset Fixtures, fittings &
equipment Land
Total
US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2021 833 266 196 1,295
Additions - 1 - 1
Disposals (92) (62) - (154)
Foreign exchange movement (9) (4) (14) (27)
At 31 December 2021 732 201 182 1,115
Additions 455 7 - 462
Disposals (732) (3) - (735)
Foreign exchange movement - (17) (10) (27)
At 31 December 2022 455 188 172 815
Accumulated Depreciation
At 1 January 2021 555 256 - 811
Depreciation charge for period 179 7 - 186
Disposals (92) (62) - (154)
Foreign exchange movement (8) (10) - (18)
At 31 December 2021 634 191 - 825
Depreciation charge for period 120 5 - 125
Disposals (732) (3) - (735)
Foreign exchange movement 8 (16) - (8)
At 31 December 2022 30 177 - 207
Net book value
At 31 December 2022 425 11 172 608
At 31 December 2021 98 10 182 290
10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 31 December
2022 2022
Holding Investment in management shares Total cost Fair value
US$'000 US$'000
10 The Argo Fund Ltd - -
- -
Holding Investment in ordinary shares Total cost Fair value
US$'000 US$'000
13,920 The Argo Fund Ltd* 3,824 4,387
3,824 4,387
31 December 31 December
2021 2021
Holding Investment in management shares Total cost Fair value
US$'000 US$'000
10 The Argo Fund Ltd - -
- -
Holding Investment in ordinary shares Total cost Fair value
US$'000 US$'000
16,920 The Argo Fund Ltd* 4,648 6,098
4,648 6,098
*Classified as current in the consolidated statement of financial position
11. TRADE AND OTHER
RECEIVABLES
At 31 December At 31 December
2022 2021
US$ '000 US$ '000
Trade receivables - Gross 2,255 2,814
Less: provision for impairment of trade receivables (1,980) (1,499)
Trade receivables - Net 275 1,315
Other receivables 41 34
Prepayments and accrued income 97 99
413 1,448
The Directors consider that the carrying amount of trade and other receivables
approximates their fair value. All trade receivable balances are either
recoverable within one year from the reporting date or are fully provided for.
Since the year end the Group received US$0.2 million in full settlement of
these trade receivables.
The movement in the Group's provision for impairment of trade and loan
receivables is as follows:
At 31 December At 31 December
2022 2021
US$ '000 US$ '000
As at 1 January 14,252 14,101
Bad debt written off (125) -
Provision charged during the year 636 740
Foreign exchange movement (744) (589)
As at 31 December 14,019 14,252
At year end, the provision for impairment of loan receivables related to
balances previously owed by Argo Real Estate Opportunities Fund Limited for
US$12 million (€11.2 million) (2021: US$12.8 million (€11.2 million).
12. LOANS AND ADVANCES RECEIVABLE
At 31 December At 31 December
2022 2021
US$'000 US$'000
Deposits on leased premises - current - 122
Deposits on leased premises - non-current 96 -
9
Other loans and advances receivable - current - -
Other loans and advances receivable - non-current 13,320 13,641
13,416 13,763
The deposits on leased premises relate to the Group's offices
in London and Romania.
Other loans and advances receivable relates to a loan for $11 million (€10.2
million) made in February 2020 by Argo Group Limited to ARE LP, an entity that
is 100% owned by Andreas Rialas. The loan carries an interest rate of 9%..As
this loan is exposed to the performance of an investment property in Ukraine,
the Group has made an IFRS 9 valuation adjustment of US$0.5 million for
expected losses at the reporting date.
The Group also has a balance receivable for $12 million (€11.2 million) from
ARE LP (note 11) that was assigned from Argo Real Estate Opportunities Fund
Limited during 2021. The carrying value of this balance is $nil.
13. SHARE CAPITAL
The Company's authorised share capital is unlimited ordinary shares
with a nominal value of US$0.01.
31 December 31 December 31 December 31 December
2022 2022 2021 2021
No. US$'000 No. US$'000
Issued and fully paid
Ordinary shares of US$0.01 each 38,959,986 390 38,959,986 390
38,959,986 390 38,959,986 390
The Directors do not recommend the payment of a final dividend for the year
ended 31 December 2022 (31 December 2021: US$nil).
14. TRADE AND OTHER PAYABLES
At 31 December At 31 December
2022 2021
US$ '000 US$ '000
Trade creditors 26 37
Other creditors and accruals 471 199
Total current trade and other payables 497 236
Trade creditors are normally settled on 30-day terms.
At 31 December At 31 December
2022 2021
US$ '000 US$ '000
Other creditors and accruals 411 -
Total non-current trade and other payables 411 -
15. RECONCILIATION OF NET CASH OUTLOW FROM OPERATING ACTIVITIES
TO
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended
31 December 31 December
2022 2021
US$ '000 US$ '000
(Loss)/profit on ordinary activities before taxation (3,397) 298
Interest income (971) (1,091)
Depreciation 125 186
Provision for bad debts 636 740
(Decrease)/increase in payables 343 (8)
Decrease/(increase) in receivables 405 (519)
Decrease in fair value of current asset investments 2,079 599
Net foreign exchange (gain)/loss (20) 8
Income taxes paid - -
Net cash (outflow)/inflow from operating activities (800) 213
16. RELATED PARTY TRANSACTIONS
All Group revenues derive from funds or entities in which two of the Company's
directors, Andreas Rialas and Kyriakos Rialas, have an influence through
directorships and the provision of investment services.
At the reporting date the Company holds an investment in The Argo Fund
Limited. This investment is reflected in the consolidated financial statements
at a fair value of US$4.4 million (31 December 2021: US$6.1 million).
At the year end, the Group was owed $13.8 million (note 12)
by ARE LP, an entity that is 100% owned by Andreas Rialas. The adjusted IFRS 9
valuation of the loan after providing for expected losses was US$13.3 million.
This balance relates to a loan made to ARE LP in February 2020 that was lent
onwards for the refinancing of Riviera Shopping City in Odessa, Ukraine. The
Group has a fixed charge security on the back to back loan in ARE LP. The loan
carries an interest rate of 9% per annum.
During the year, a balance owed by Argo Real Estate Opportunities Fund Limited
for US$12 million (€11.2 million) (31 December 2021: US$12.8 million
(€11.2 million)) was assigned to Argo Real Estate Limited Partnership. These
balances are carried at US$ nil (31 December 2021: US$ nil) in the financial
statements.
17. FINANCIAL INSTRUMENTS RISK MANAGEMENT
(a) Use of financial instruments
The wider Group has maintained sufficient cash
reserves not to use alternative financial instruments to finance the Group's
operations. The Group has various financial assets and liabilities such as
trade and other receivables, loans and advances, cash, short-term deposits,
and trade and other payables which arise directly from its operations.
The Group's non-subsidiary investments in funds
were entered into with the purpose of providing seed capital, supporting
liquidity and demonstrating the commitment of the Group towards its fund
investors.
(b) Market risk
Market risk is the risk that a decline in the
value of assets adversely impacts on the profitability of the Group, either as
a result of an asset not meeting its expected value or through the decline of
assets under management generating lower fees. The principal exposures of the
Group are in respect of its seed investments in its own funds (refer to note
10). Lower management fee and incentive fee revenues could result from a
reduction in asset values.
(c) Capital risk management
The primary objective of the Group's capital management is to
ensure that the Company has sufficient cash and cash equivalents on hand to
finance its ongoing operations. This is achieved by ensuring that trade
receivables are collected on a timely basis and that excess liquidity is
invested in an optimum manner by placing fixed short-term deposits or using
interest bearing bank accounts.
At the year-end cash balances were held
at Royal Bank of Scotland and Banca Transilvana.
(d) Credit/counterparty risk
The Group will be exposed to counterparty risk on parties
with whom it trades and will bear the risk of settlement default. Credit risk
is concentrated in the funds under management and in which the Group holds
significant investments as detailed in notes 10, 11 and 12. As explained
within these notes the Group is experiencing collection delays with regard to
management fees receivable and monies advanced. Some of the investments in
funds under management (note 10) are illiquid and may be subject to events
materially impacting recoverable value.
The Group's principal financial assets are bank and cash
balances, trade and other receivables and investments held at fair value
through profit or loss. These represent the Company's maximum exposure to
credit risk in relation to financial assets and are represented by the
carrying amount of each financial asset in the statement of financial
position.At the reporting date, the financial net assets past due but not
impaired amounted to US$nil (2021: US$nil).
e) Liquidity risk
Liquidity risk is the risk that the Group may be unable to meet its
payment obligations. This would be the risk of insufficient cash resources and
liquid assets, including bank facilities, being available to meet liabilities
as they fall due.
The main liquidity risks of the Group are associated with the need
to satisfy payments to creditors. Trade payables are normally on 30-day terms
(note 14).
As disclosed in note 2(a), Accounting Convention: Going Concern,
the Group has performed an assessment of available liquidity to meet
liabilities as they fall due during the forecast period. The Group has
concluded that it has sufficient resources available to manage its liquidity
risk during the forecast period.
(f) Foreign exchange risk
Foreign exchange risk is the risk that the Group will sustain
losses through adverse movements in currency exchange rates.
The Group is subject to short-term foreign exchange movements
between the calculation date of fees in currencies other than US dollars and
the date of settlement. The Group holds cash balances in US Dollars,
Sterling, Romanian Lei and Euros with carrying amounts as follows: US dollar -
US$1.15 million, Sterling - US$0.18 million and Euros - US$0.31
million.
If there was a 5% increase or decrease in
the exchange rate between the US dollar and the other operating currencies
used by the Group at 31 December 2022 the exposure would be a profit or loss
to the Consolidated statement of comprehensive income of approximately
US$0.025 million (2021: US$0.008 million).
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2022 is as follows:
Instruments on which no interest is receivable
Total as per balance sheet Variable interest rate instruments* Fixed interest rate instruments
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets at fair value 4,387 - - 4,387
through profit or loss
Loans and receivables 13,829 96 13,320 413
Cash and cash equivalents 1,642 - - 1,642
19,858 96 13,320 6,442
Financial liabilities
Trade and other payables 908 - 470 438
* Changes in the interest rate may cause movements.
Any movement in interest rates would have an immaterial effect on the
profit/(loss) for the year.
19. FINANCIAL INSTRUMENTS RISK MANAGEMENT (continued)
The interest rate profile of the Group at 31 December 2021 is as follows:
Instruments on which no interest is receivable
Total as per balance sheet Variable interest rate instruments* Fixed interest rate instruments
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets at fair value 6,098 - - 6,098
through profit or loss
Loans and receivables 15,216 111 13,641 1,464
Cash and cash equivalents 1,709 - - 1,709
23,023 111 13,641 9,271
Financial liabilities
Trade and other payables 236 - 124 112
* Changes in the interest rate may cause movements.
Any movement in interest rates would have an immaterial effect on the
profit/(loss) for the year.
(h) Fair value
The carrying values of the financial assets and liabilities
approximate the fair value of the financial assets and liabilities and can be
summarised as follows:
At 31 December At 31 December
2022 2021
US$ '000 US$ '000
Financial Assets
Financial assets at fair value through profit or loss 4,387 6,098
Loans and receivables 13,829 15,216
Cash and cash equivalents 1,642 1,709
19.858 23,023
Financial Liabilities
Trade and other payables 908 236
Financial assets and liabilities, other than investments, are either repayable
on demand or have short repayment dates. The fair value of investments is
stated at the redemption prices quoted by fund administrators and are based on
the fair value of the underlying net assets of the funds because, although the
funds are quoted, there is no active market for any of the investments held.
Fair value hierarchy
The table below analyses financial instruments measured at fair value at the
end of the reporting period by the level of the fair value hierarchy (note
2o).
At 31 December 2022
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets at fair value through profit or loss
- 4,387 - 4,387
At 31 December 2021
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets at fair value through profit or loss
- 6,098 - 6,098
20. SHARE-BASED INCENTIVE PLANS
To incentivise personnel and to align their interests with those of the
shareholders of Argo Group Limited, Argo Group Limited has granted share
options to directors and employees under The Argo Group Limited Employee Stock
Option Plan. The options are exercisable within 10 years of the grant date.
The fair value of the options granted during the period was measured at the
grant date using a Black-Scholes model that takes into account the effect of
certain financial assumptions, including the option exercise price, current
share price and volatility, dividend yield and the risk-free interest rate.
The fair value of the options granted is spread over the vesting period of the
scheme and the value is adjusted to reflect the actual number of shares that
are expected to vest.
The principal assumptions for valuing the options are:
Exercise price (pence) 21.0
Weighted average share price at grant date (pence) 19.0
Average option life at date of grant (years) 10.0
Expected volatility (% p.a.) 15.0
Dividend yield (% p.a.) 10.0
Risk-free interest rate (% p.a.) 2
The fair value of options granted is recognised as an employee expense with a
corresponding increase in equity. The total charge to employee costs in
respect of this incentive plan is £nil (2021: £nil).
The number and weighted average exercise price of the share options during the
period is as follows:
Weighted average exercise price No. of share options
Outstanding at beginning of period 21.2p 3,895,998
Granted during the period - -
Forfeited during the period - -
Outstanding at end of period 21.2p 3,895,998
Exercisable at end of period 21.2p 3,895,998
Outstanding share options are contingent upon the option holder remaining an
employee of the Group.
The weighted average fair value of the options issued during the period was
£Nil (2021: £Nil).
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