REG - ARGO Group Limited - Final Results <Origin Href="QuoteRef">ARGOA.L</Origin> - Part 1
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RNS Number : 5210J
ARGO Group Limited
13 June 2014
Argo Group Limited
("Argo" or the "Company")
Annual Report and Accounts for the Year ended 31 December 2013
Argo today announces its final results for the year ended 31 December 2013.
The Company will today make available its report and accounts for the year
ended 31 December 2013 on the Company's website www.argogrouplimited.com.
Key highlights for the twelve months ended 31 December 2013
- Revenues US$8.8 million (2012: US$8.9 million)
- Operating profit US$1.0 million (2012: US$0.9 million)
- Profit before tax US$2.1 million (2012: loss before tax US$14.2 million
after a one-off goodwill impairment charge of US$14.9 million)
- Net assets US$28.5 million (2012: US$27.7 million) after dividend
payment of US$1.3 million
Commenting on the results and outlook, Kyriakos Rialas, Chief Executive of
Argo said:
"In 2013 Argo maintained its profitability at a satisfactory level and we are
encouraged by signs of improved valuations in some of Argo's most important
private equity assets. Whilst Argo is currently conserving liquidity we remain
committed to paying a dividend as soon as possible. I am very pleased to
report that the Argo Distressed Credit Fund was ranked Best Distressed
Securities Fund in Europe by World Finance Hedge Fund Awards 2013 and a top 5
hedge fund over three years in the category of Emerging Markets Global Funds
by BarclayHedge at the end of March 2014."
Enquiries
Argo Group Limited
Andreas Rialas
020 7016 7660
Panmure Gordon
Dominic Morley
020 7886 2500
CHAIRMAN'S STATEMENT
The Group and its objective
Argo's primary business is to deliver a diversified approach to investing in
emerging markets. Its investment objective is to provide investors with
absolute returns in the funds that it manages by investing in, inter alia,
fixed income, special situations, local currencies and interest rate
strategies, private equity, real estate, quoted equities, high yield corporate
debt and distressed debt, although not every fund invests in each of these
asset classes.
Argo was listed on the AIM market in November 2008 and has a performance track
record dating back to 2000.
Business and operational review
This report sets out the results of Argo Group Limited for the year ended 31
December 2013.
For the year ended 31 December 2013 the Group generated revenues of US$8.8
million (2012: US$8.9 million) with management fees accounting for US$6.9
million (2012: US$7.0 million). The Group generated incentive fees of US$0.8
million during the year (2012: US$1.2 million). These incentive fees were
mostly derived as a result of the revaluation of an investment in an
Indonesian petrochemicals refinery, PT Trans-Pacific Petrochemical Industries
("TPPI"), which has not yet been realised. However, a non-binding offer to
purchase the position has been received from Pertamina, the Indonesian
state-owned oil company, although this transaction is not yet completed. It
must be noted that the valuation of TPPI is held in the Argo funds at the
level indicated by the offer received, even though our third party valuation
indicates a higher valuation.
Total operating costs fell to US$7.7 million (2012: US$8.0 million) after bad
debt provision. During the year the Group provided against management fees of
US$2,753,200 (E2,000,000) (2012: US$991,125 (E750,000)) due from Argo Real
Estate Opportunities Fund Limited ("AREOF") and US$650,000 (2012: Nil) due
from The Argo Fund ("TAF") and Argo Special Situations Fund LP ("ASSF").
Overall, the financial statements show an operating profit for the year of
US$1.0 million (2012: US$0.9 million) and a profit before tax of US$2.1
million (2012: loss US$14.2 million after a one-off goodwill impairment charge
of US$ 14.9 million) reflecting the unrealised gain on current asset
investments of US$0.9 million (2012: unrealised loss US$0.2 million).
The number of employees of the Group at 31 December 2013 was 38 (2012: 40).
At the year end, the Group had net assets of US$28.5 million (2012: US$27.7
million) and net current assets of US$26.2 million (2012: US$27.4 million)
after paying a dividend of 2.1 cents (1.3 pence) per share on 26 April 2013
(2012: 2.0 cents, 1.3 pence).
Net current assets include investments in TAF, AREOF and ASSF at fair values
of US$19.1 million (2012: US$17.6 million),US$0.2 million (2012: US$0.8
million) and US$0.09 million (2012: US$0.1 million) respectively. Our
continued investment in our funds supports the liquidity of those funds and
demonstrates the commitment of the Group towards its fund investors. This
close alignment results in a high correlation between the performance of the
Company and the performance of its funds. It should be noted, however, that
the Group does not intend to and may not be able to realise these investments
in the immediate future due to assets held by these funds.
The Group has provided AREOF with a notice of deferral in relation to amounts
due from the provision of investment management services, under which it will
not demand payment of such amounts until the Group judges that AREOF is in a
position to pay the outstanding liability. These amounts accrued or receivable
at 31 December 2013 total US$1,265,791 (E919,505) (2012: US$2,597,188
(E1,965,333)) after a bad debt provision of US$2,753,200 (E2,000,000) (2012:
US$991,125 (E750,000)). AREOF continues to meet part of this obligation to the
Argo Group as and when liquidity allows with a further US$476,000 (E350,000)
being settled in January 2014. The AREOF management contract has a fixed term
expiring on 31 July 2018. In November 2013 AREOF offered Argo Group Limited
additional security for the continued support in the form of debentures and
guarantees by underlying intermediate companies.
During the year Argo Group advanced US$1,376,600 (E1,000,000) to Bel Rom Trei
("Bel Rom"), an AREOF Group entity based in Romania that owns Sibiu Shopping
City, in order to assist with its operational cash requirements. The loan is
repayable on demand and accrues interest at 12%. The full amount of the loan
and accrued interest remains outstanding at the year end. The Directors
consider this loan to be fully recoverable on the basis that discussions with
lending banks and potential purchasers of Sibiu have yielded offers in excess
of the debt associated with the project banks.
Fund performance
The Argo Funds
Fund Launch date 2013 Year total 2012 Year total Since inception Annualised performance since inception Sharpe ratio Down months AUM
% % % CAGR % US$m
The Argo Fund Oct-00 8.49 -0.07 154.23 8.10 0.67 38 of 159 94.5
Argo Distressed Credit Fund Oct-08 12.64 24.05 74.05 11.72 0.90 23 of 63 26.7
Argo Special Situations Fund LP Feb-12 -23.3 -2.80 -25.3 -14.10 -1.05 20 of 23 90.4
Argo Local Markets Fund Nov-12 -9.80 1.56 -8.39 -7.16 -1.70 10 of 14 5.5
Argo Real Estate Opportunities Fund Aug-06 -46.58 -2.26 -94.00 -35.13 N/A 54 of 86* 54.2
Total 271.3
* NAV only officially measured twice a year, March and September.
The Argo funds ended the year with Assets under Management ("AUM") at US$271.3
million, 18.1% lower than at the beginning of the year.
The year started on a positive note with improved sentiment towards the euro
and greater risk appetite amongst investors. The bailout of Cyprus and its
banks gave investors cause to reconsider their risk appetite by the end of the
first quarter and by May emerging market local bonds had been particularly
hard hit by news from the US that it may begin to rein-in its bond purchases
under the quantitative easing programme. Speculation over US monetary policy,
specifically "tapering", continued until the end of the year.
Against this backdrop, TAF was ahead by 8.49% and Argo Distressed Credit Fund
("ADCF") by 12.64% at 31 December 2013. The main driver in the performance of
both of these funds was the mark-up in their investment in TPPI and in the
case of ADCF its investment in Greek Sovereign Bonds. By comparison, the main
hedge fund indices showed a small positive return of 3.02% for the same
period.
ASSF finished in negative territory at the year end showing a negative return
of 23.3%. The main contributors to this position were the decline in share
price of AREOF; a write down in the value of an investment in the Greek
telecommunications company, On Telecoms; but with a higher valuation ascribed
to the investment in TPPI.
After a two-year shutdown, TPPI successfully restarted operations in early
November and ran the facility near or at capacity for much of December, thus
demonstrating the viability of the plant. The Fund previously reported that it
was engaged in discussions regarding the disposal of its unsecured claim in
TPPI. Despite reaching a conditional written agreement with Pertamina, the
Indonesian state-owned oil company, to acquire this interest, Pertamina has so
far not concluded the transaction. We consider that since the refinery is now
operational, the Fund may be well placed to get a better deal through a more
competitive sale process.
The Argo Local Markets Fund ("ALMF") was particularly hard hit in May when it
felt the impact of higher US interest rates and a stronger US dollar following
on from the change in tone from the US Federal Reserve. During the year ALMF
opened a number of interest rate swap lines with counterparties and is now
better placed to hedge or short EM rates in accordance with its mandate. At
the year end ALMF finished behind by 9.80%.
AREOF continues to operate in a challenging environment. While conditions
within the markets that AREOF operates have started to show signs of recovery
from the last few years of recession, the rate and robustness of growth has
remained very modest.
The reduced level of cash flow within AREOF, while being proactively managed,
has resulted in breaches of terms and covenants on certain loans. This
situation is being remedied by regular communication and negotiation with the
lending banks with a view to restructuring the debt commitments to better
align these to the current level of the AREOF Group's cash flow. Several of
these negotiations are ongoing.
AREOF's adjusted Net Asset Value was US$53.3 million (E39.4 million) as at 30
September 2013, compared with US$94.8 million (E73.78 million) a year earlier.
The adjusted Net Asset Value per share at 30 September 2013 was US$0.09
(E0.06) (2012: US$0.2 (E0.12)).
AREOF'S ordinary shares on AIM were suspended on 30 August 2013 following
breach of a loan covenant and the subsequent loan termination by the lending
bank. While the lender has agreed to suspend enforcement action, AREOF's
shares remained suspended pending greater certainty of the various ongoing
loan restructuring discussions. On 3 March 2014 AREOF delisted from AIM to
allow loan restructuring discussions to proceed outside of the extensive
disclosure requirements that an AIM listing entails. The valuation of Argo
Group Limited's investment in AREOF has been based on the equity price
prevailing at the time of the suspension.
Dividends
Argo is working towards the payment of a dividend which will ultimately depend
on the success of the initiatives described above. The directors do not
recommend a final dividend but intend to pay an interim dividend as soon as
these initiatives are complete. The final dividend for the year ended 31
December 2012 of US$1,348,288 was paid on 26 April 2013 to ordinary
shareholders who were on the Register of Members on 2 April 2013. Going
forward, the Company intends, subject to its financial performance, to pay a
final dividend each year.
Outlook
The next 12 months will be dominated by the Group's efforts to grow its AUM in
an environment dominated by investor risk intolerance, reluctance to change
hedge fund allocation and a new regulatory landscape. The top priorities will
be to monetise certain of our investments and review our operational
efficiency. In the very near term our growth rate will be heavily influenced
by the success of our program to monetise some of our investments as well as
events in Europe. Over the longer term the Board believes there remains
significant opportunity for growth in assets and profits and remains committed
to the emerging markets sector.
REPORT OF THE INDEPENDENT AUDITORS, KPMG AUDIT LLC, TO THE MEMBERS OF ARGO
GROUP LIMITED
We have audited the consolidated financial statements of Argo Group Limited
for the year ended 31 December 2013 which comprise the Consolidated Statement
of Comprehensive Income, the Consolidated Statement of Financial Position, the
Consolidated Statement of Changes in Shareholders' Equity, the Consolidated
Statement of Cash Flows and the related notes. The financial reporting
framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs), as adopted by the EU.
This report is made solely to the Group's members, as a body. Our audit work
has been undertaken so that we might state to the Group's members those
matters we are required to state to them in an auditor's report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Group and the Group's members
as a body, for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors' Responsibilities Statement set out
on page 12, the directors are responsible for the preparation of consolidated
financial statements that give a true and fair view. Our responsibility is to
audit, and express an opinion on, the consolidated financial statements in
accordance with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing Practices
Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the consolidated financial statements
An audit involves obtaining evidence about the amounts and disclosures in the
consolidated financial statements sufficient to give reasonable assurance that
the consolidated financial statements are free from material misstatement,
whether caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the Group's circumstances and have been
consistently applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the directors; and the overall
presentation of the consolidated financial statements.
Opinion on the consolidated financial statements
In our opinion the consolidated financial statements:
· give a true and fair view of the state of the Group's affairs as at 31
December 2013 and of the Group's profit for the year then ended; and
· have been properly prepared in accordance with IFRSs, as adopted by the
EU.
Emphasis of matter
In forming our opinion on the consolidated financial statements, we also wish
to draw your attention to the following matters:
Valuation of investment in The Argo Fund Limited
The valuation of the investment in The Argo Fund Limited ("TAF"), as disclosed
in note 11 to the financial statements, is based on various assumptions and
limiting conditions, many of which are difficult to assess given the
composition of the investment portfolio of TAF. The underlying investment
portfolio of TAF is considered illiquid and therefore inherently requires the
judgement of the Directors to value. The audit report for The Argo Fund
Limited for the year end 30 June 2013 was modified in respect of investment
valuation.
The above matters indicate the existence of inherent uncertainties with regard
to the carrying value of the investment in The Argo Fund Limited in the
financial statements of the Group.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 DECEMBER 2013
Year ended Year ended
31 December 31 December
2013 2012
Note US$'000 US$'000
Management fees 6,920 7,026
Incentive fees 803 1,216
Other income 1,041 690
Revenue 2(e), 3 8,764 8,932
Legal and professional expenses (261) (390)
Management and incentive fees payable 2(f) (308) (71)
Operational expenses (1,212) (1,885)
Employee costs 4 (3,481) (3,530)
Foreign exchange loss (41) (25)
Bad debts 12 (2,332) (1,062)
Amortisation of intangible assets 9 - (990)
Depreciation 10 (89) (73)
Operating profit 6 1,040 906
Impairment of goodwill 9 - (14,945)
Interest income on cash and cash equivalents 115 15
Unrealised gain/(loss) on investments 942 (175)
Profit/(loss) on ordinary activities before taxation 3 2,097 (14,199)
Taxation 7 (115) (205)
Profit/(loss) for the year after taxation attributable to members of the Company 8 1,982 (14,404)
Other comprehensive income
Exchange differences on translation of foreign operations 147 86
Total comprehensive income/(loss) for the year 2,129 (14,318)
Year ended Year ended
31 December 31 December
2013 2012
US$ US$
Earnings per share (basic) 8 0.03 (0.21)
Earnings per share (diluted) 8 0.03 (0.21)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2013
At 31 December At 31 December
2013 2012
Note US$'000 US$'000
Assets
Non-current assets
Intangible assets 9 - -
Fixtures, fittings and equipment 10 177 221
Loans and advances receivable 14 2,107 118
Total non-current assets 2,284 339
Current assets
Investments 11 19,420 18,478
Trade and other receivables 12 3,300 4,284
Cash and cash equivalents 13 3,726 5,139
Loans and advances receivable 14 217 142
Total current assets 26,663 28,043
Total assets 3 28,947 28,382
Equity and liabilities
Equity
Issued share capital 15 674 674
Share premium 30,878 30,878
Revenue reserve (1,040) (1,674)
Foreign currency translation reserve 2(d) (2,017) (2,164)
Total equity 28,495 27,714
Current liabilities
Trade and other payables 16 388 467
Taxation payable 7 64 201
Total current liabilities 3 452 668
Total equity and liabilities 28,947 28,382
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED 31 DECEMBER 2013
Issued share capital Share premium Revenue reserve Foreign currency translation reserve Total
2012 2012 2012 2012 2012
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January 2012 674 30,878 14,123 (2,250) 43,425
Total comprehensive income
Loss for the period after taxation - - (14,404) 86 (14,318)
Transactions with owners recorded directly in equity
Dividends to equity holders - - (1,393) - (1,393)
As at 31 December 2012 674 30,878 (1,674) (2,164) 27,714
Issued share capital Share premium Revenue reserve Foreign currency translation reserve Total
2013 2013 2013 2013 2013
US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January 2013 674 30,878 (1,674) (2,164) 27,714
Total comprehensive income
Profit for the period after taxation - - 1,982 147 2,129
Transactions with owners recorded directly in equity
Dividends to equity holders (note 15) - - (1,348) - (1,348)
As at 31 December 2013 674 30,878 (1,040) (2,017) 28,495
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2013
Year ended Year ended
31 December 31 December
2013 2012
Note US$'000 US$'000
Net cash (outflow)/inflow from operating activities 18 (237) 429
Cash flows from investing activities
Interest received on cash and cash equivalents 115 15
Purchase of current asset investments 11 - (2,115)
Purchase of fixtures, fittings and equipment 10 (46) (225)
Net cash received from/(used in) investing activities 69 (2,325)
Cash flows from financing activities
Dividends paid 15 (1,348) (1,393)
Net cash used in financing activities (1,348) (1,393)
Net decrease in cash and cash equivalents (1,516) (3,289)
Cash and cash equivalents at 1 January 2013 and 1 January 2012 5,139 8,358
Foreign exchange gain on cash and cash equivalents 103 70
Cash and cash equivalents as at 31 December 2013 and 31 December 2012 3,726 5,139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
1. CORPORATE INFORMATION
The Company is domiciled in the Isle of Man under the Companies Act 2006. Its
registered office is at 33-37 Athol Street, Douglas, Isle of Man, IM1 1LB and
the principal place of business is at 10 Vasilissis Frederikis Street, 1066
Nicosia, Cyprus. The principal activity of the Company is that of a holding
company and the principal activity of the wider Group is that of an investment
management business. The functional currencies of the Group undertakings are
US Dollars, Sterling, Euros and Romanian Lei. The presentational currency is
US Dollars. The Group has 38 (2012: 40) employees.
Wholly owned subsidiaries
Country of incorporation
Argo Capital Management (Cyprus) Limited Cyprus
Argo Capital Management Limited United Kingdom
Argo Capital Management Property Limited Cayman Islands
Argo Property Management Srl (formerly North Asset Management Srl) Romania
North Asset Management Sarl Luxembourg
2. ACCOUNTING POLICIES
(a) Accounting convention
These consolidated financial statements have been prepared on a historical
cost basis, except for the revaluation of certain financial instruments, and
in accordance with International Financial Reporting Standards, as adopted by
the EU.
The Directors have carried out a rigorous assessment of all the factors
affecting the business in deciding to adopt the going concern basis for the
preparation of the accounts. They have reviewed and examined the Group's
financial and other processes including the annual budgeting process and
expect the Group to generate positive cash flows in the foreseeable future. On
the basis of this review and the liquid assets underpinning the balance sheet
the Directors are confident that the Group has adequate financial resources to
continue in operational existence for the foreseeable future and therefore
continue to adopt the going concern basis for preparing the accounts.
The Group has prepared forecasts that focus on cash flow requirements for the
period to June 2015. 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 note 12 and 14). The cash flows of the Group are linked
to the liquidity of the funds and the major funds of the Group (AREOF, TAF,
ASSF) have significant liquidity challenges at present therefore cash inflows
to the Group are linked to potential liquidity events, the timings of which
are uncertain.
(b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries. Subsidiaries are consolidated from the date
upon which control is transferred to the Company and cease to be consolidated
from the date upon which control is transferred from the Company.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used
by the Company. All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
(c) Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method.
The cost of the acquisition is measured at the aggregate of the fair values,
at the date of exchange, of assets given, liabilities incurred or assumed and
equity instruments issued by the Group in exchange for control of the
acquiree, plus any costs directly attributable to the business combination.
The acquiree's identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 are recognised at their
fair value at the acquisition date.
Goodwill
Goodwill arising on the consolidation represents the excess of the cost of the
acquisition over the Company's interest in the fair value of the identifiable
assets and liabilities of a subsidiary at the date of acquisition. Any excess
of the Company's interest in the fair value of the identifiable assets and
liabilities over the cost of the acquisition (negative goodwill) is
immediately recognised in the Consolidated Statement of Comprehensive Income.
Goodwill is initially recognised as an asset at cost and is subsequently
measured at cost less any accumulated impairment losses. Goodwill which is
recognised as an asset is reviewed at least annually for impairment. Any
impairment is recognised immediately in the Consolidated Statement of
Comprehensive Income.
Intangible assets
The Group's principal intangible asset is a fund management contract recorded
at directors' valuation at the date of acquisition. The directors' valuation
is based on the underlying share price of the vendor and its assets under
management at the time of acquisition. This intangible asset has a finite life
and is amortised on a straight line basis over the period of the contract.
Impairment tests are undertaken annually to determine any diminution in the
recoverable amount below carrying value. The Group does not capitalise
internally generated goodwill or intangible assets.
Impairment of intangible assets
At each balance sheet date the Group reviews the carrying amounts of its
intangible assets to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss, if any.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have been adjusted.
If the recoverable amount of an asset is estimated to be less than its
carrying amount, the carrying amount of the asset is reduced to its
recoverable amount. An impairment loss is recognised as an expense
immediately, unless the relevant asset is carried at a revalued amount, in
which case the impairment loss is treated as a revaluation decrease.
(d) Foreign currency translation
The consolidated financial statements are expressed in US dollars.
Transactions denominated in currencies other than US dollars have been
translated at the rate of exchange prevailing at the date of the transaction.
Assets and liabilities in other currencies are translated to US dollars at the
rates of exchange prevailing at the balance sheet date. The resulting profits
or losses are reflected in the Consolidated Statement of Comprehensive
Income.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group's foreign operations are translated at exchange
rates prevailing on the balance sheet date. Income and expense items are
translated at the average exchange rates for the year. Exchange differences
arising, if any, are classified as equity and transferred to the Group's
foreign currency translation reserve. Such translation differences are
recognised in the Consolidated Statement of Comprehensive Income as income or
as expenses in the year of the operation's disposal.
(e) Revenue
Revenue is recognised to the extent that it is probable that economic benefit
will flow to the Group and the revenue can be reliably measured.
Management and incentive fees receivable
The Group recognises revenue for providing management services to mutual
funds. Revenue accrues on a monthly basis on completion of management services
and is based on the assets under management of each mutual fund.
Incentive fees arise monthly, quarterly or on realisation of an investment.
Incentive fees are recognised in the month they arise. In addition, for the
Argo Real Estate Opportunities Fund Ltd ("AREOF") (managed by Argo Capital
Management Property Ltd) incentive fees may be triggered at any time on
realisation of a property asset. The management and incentive fees receivable
from AREOF are defined in the management contract between that company and
Argo Capital Management Property Ltd. The management contract has a fixed term
expiring on 31 July 2018.
During the year ended 31 December 2012 the Group provided AREOF with a notice
of deferral in relation to the amounts due from the provision of investment
management services, under which it will not demand payment of such amounts
until the Group judges that AREOF is in a position to pay the outstanding
liability.
(f) Management and incentive fees payable
The Group pays management and incentive fees based on a proportion of fees
receivable from mutual funds. Fees payable are accrued on a monthly basis
consistent with revenue streams earned.
(g) Depreciation
Plant and equipment is initially recorded at cost and depreciated on a
straight-line basis over the expected useful lives of the assets, 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
(h) Investments held at fair value through profit or loss
IFRS 13 has been adopted from 1 January 2013. It establishes a single source
of guidance for measuring fair value and requires disclosures about fair value
measurements. Fair value under IFRS 13 is an exit price regardless of whether
that price is directly observable or estimated using another valuation
technique. IFRS 13 also includes disclosure requirements. IFRS 13 requires
prospective application from 1 January 2013. The application of IFRS 13 has
not had any material impact on the amounts recognised in the financial
statements.
All investments are classified as held at fair value through profit or loss.
Investments are initially recognised at fair value. Transaction costs are
expensed as incurred.
After initial recognition, investments are measured at fair value, with
unrealised gains and losses on investments and impairment of investments
recognised in the Consolidated Statement of Comprehensive Income. Investments
held at fair value in managed mutual funds are valued at fair value of the net
assets as provided by the administrators of those funds. Investments in the
management shares of The Argo Fund Limited, Argo Distressed Credit Fund
Limited, Argo Special Situations Fund LP and Argo Local Markets Fund are
stated at fair value, being the recoverable amount.
(i) Trade date accounting
All 'regular way' purchases and sales of financial assets are recognised on
the 'trade date', i.e. the date that the entity commits to purchase or sell
the asset. Regular way purchases or sales are purchases or sales of financial
assets that require delivery of the asset within the time frame generally
established by regulation or convention in the market place.
(j) Financial instruments
Financial assets and liabilities are recognised on the Consolidated Statement
of Financial Position when the Company becomes party to the contractual
provisions of the instrument.
Non-derivative financial instruments include trade and other receivables, cash
and cash equivalents, loans and borrowings and trade and other payables. The
initial and subsequent measurement of non-derivative financial instruments is
dealt with below.
Trade and other receivables
Trade and other receivables are held at amortised cost and do not carry any
interest. They are stated at their original invoice amount as reduced by
appropriate allowances for estimated irrecoverable amounts. An estimate for
doubtful debts is made when collection is no longer probable. Bad debts are
written off when identified.
Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits and
short-term, highly liquid investments which are readily convertible to known
amounts of cash, subject to insignificant risk of changes in value, and have a
maturity of less than three months from the date of acquisition.
For the purposes of the cash flow statement, cash and cash equivalents consist
of cash in hand and bank deposits.
Trade payables
Trade payables are not interest bearing and are stated at amortised cost.
(k) Loans and borrowings
All loans and borrowings payable are initially recognised at cost, calculated
as the fair value of the consideration received less issue costs where
applicable. After initial recognition, all interest-bearing loans and
borrowings are subsequently measured at amortised cost. Amortised cost is
calculated by using the effective interest method, taking into account any
issue costs, and discounts and premiums on settlement.
All loans and borrowings receivable are initially recognised at cost and
subsequently measured at amortised cost.
(l) Current taxation
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws
used to compute the amounts are those enacted or substantively enacted by the
balance sheet date.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the Consolidated Statement of
Comprehensive Income because it excludes items of income or expense that are
taxable or deductible in other periods or because it excludes items that are
never taxable or deductible.
(m) Deferred taxation
Deferred income tax is provided for using the liability method on temporary
timing differences at the balance sheet date between the tax basis of assets
and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised in full for all temporary differences.
Deferred tax assets are recognised for all deductible temporary differences,
carried forward unused tax credits and unused tax losses to the extent that it
is probable that taxable profit will be available against which the deductible
temporary differences and carry-forward of unused tax credits and unused
losses can be utilised.
The carrying amount of deferred income tax assets is revalued at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the
deferred income tax asset to be utilised. Unrecognised deferred income tax
assets are reassessed at each balance sheet date and are recognised to the
extent that is probable that future taxable profits will allow the deferred
tax asset to be recovered. Deferred income tax assets and liabilities are
measured at the tax rates that are expected to apply in the year when the
asset is realised or the liability settled, based on tax rates that have been
enacted or substantively enacted at the balance sheet date.
(n) Accounting estimates, assumptions and judgements
The preparation of the consolidated financial statements necessitates the use
of estimates, assumptions and judgements. These estimates, assumptions and
judgements affect the reported amounts of assets, liabilities and contingent
liabilities at the balance sheet date as well as affecting the reported income
and expenses for the year. Although the estimates are based on management's
knowledge and best judgment of information and financial data, the actual
outcome may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that and prior periods, or in
the period of the revision and future periods if the revision affects both
current and future periods.
In the process of applying the Group's accounting policies, which are
described above, management has made best judgements of information and
financial data that have the most significant effect on the amounts recognised
in the consolidated financial statements:
- Management and incentive fees
- Intangibles (note 9)
- Trade receivables
It has been assumed that, when available, the audited financial statements of
the funds under the Group's management will confirm the net asset values used
in the calculation of management and performance fees receivable.
(o) Operating leases
Costs in respect of operating leases are charged on a straight line basis over
the lease term. Benefits, such as rent free periods, received and receivable
as incentives to take on operating leases are spread on a straight line basis
over the lease term, or, if shorter than the full lease term, over the period
to the review date on which the rent is first expected to be adjusted to the
prevailing market rent.
(p) Financial instruments and fair value hierarchy
The following represents the fair value hierarchy of financial instruments
measured at fair value in the Statement of Financial Position. The hierarchy
groups financial assets and liabilities into three levels based on the
significance of inputs used in measuring the fair value of the financial
assets and liabilities. The fair value hierarchy has the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The level within which the financial asset or liability is classified is
determined based on the lowest level of significant input to the fair value
measurement.
(q) Future changes in accounting policies
IASB (International Accounting Standards Board) and IFRIC (International
Financial Reporting Interpretations Committee) have issued the following
standards and interpretations with an effective date after the date of these
financial statements:
New/Revised International Financial Reporting Standards (IAS/IFRS) EU Effective date(accounting periodscommencing on or after)
IAS 19 Employee Benefits - Amendment resulting from the Post-Employment Benefits and Termination Benefits projects (as amended in June 2012) 1 January 2014
IAS 32 Financial Instruments Presentation - Amendments to application guidance on the offsetting of financial assets and financial liabilities (December 2012) 1 January 2015
IFRS 7 Financial Instruments: Disclosures - Amendments enhancing disclosures about offsetting of financial assets and financial liabilities (December 2012) 1 January 2014
IFRS 9 Financial Instruments - Classification and measurement of financial assets (as amended in December 2012) 1 January 2016
IFRS 9 Financial Instruments - Accounting for financial liabilities and derecognition (as amended in December 2012) 1 January 2016
IFRS 10 Consolidated Financial Statements (May 2012) 1 January 2014
IFRS 11 Joint Arrangements (May 2012) 1 January 2014
IFRS 12 Disclosure of Interests in Other Entities (May 2012) 1 January 2014
The directors do not expect the adoption of these standards and
interpretations to have a material impact on the Group's financial statements
in the period of initial application, except for IFRS 9 Financial Instruments,
which becomes mandatory for the Group's 2015 consolidated financial statements
and could change the classification and measurement of financial assets. The
Group does not plan to adopt this standard early and the extent of the impact
has not been determined.
Any standard adopted during the year has presentational impact only; it is
therefore not necessary to adjust comparative information.
(r) Dividends payable
Interim and final dividends are recognised when declared.
3. SEGMENTAL ANALYSIS
The Group operates as a single asset management business.
The operating results of the companies set out in note 1 above are regularly
reviewed by the directors of the Group for the purposes of making decisions
about resources to be allocated to each company and to assess performance. The
following summary analyses revenues, profit or loss, assets and liabilities:
Argo Group Ltd Argo Capital Management (Cyprus) Limited Argo Capital Management Limited Argo Capital Management Property Limited Other Year ended31 December
2013 2013 2013 2013 2013 2013
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues for reportable segments 414 5,212 2,538 3,546 - 11,710
Intersegment revenues 408 - 2,538 - - 2,946
Total profit for reportable segments 964 445 260 493 - 2,162
Intersegment profit/(loss) 408 (2,933) 2,539 - - 14
Total assets for reportable segments 49,511 2,843 2,701 4,488 - 59,543
Total liabilities for reportable segments 69 975 193 164 - 1,401
Revenues, profit or loss, assets and liabilities may be reconciled as follows: Year ended
31 December
2013
US$'000
Revenues
Total revenues for reportable segments 11,710
Elimination of intersegment revenues (2,946)
Group revenues 8,764
Profit or loss
Total profit for reportable segments 2,162
Elimination of total intersegment losses (14)
Other unallocated amounts (51)
Profit on ordinary activities before taxation 2,097
Assets
Total assets for reportable segments 59,543
Elimination of intersegment receivables (997)
Elimination of Company's cost of investments (29,599)
Group assets 28,947
Liabilities
Total liabilities for reportable segments 1,401
Elimination of intersegment payables (949)
Group liabilities 452
Argo Group Ltd Argo Capital Management (Cyprus) Limited Argo Capital Management Limited Argo Capital Management Property Limited Other Year ended31 December
2012 2012 2012 2012 2012 2012
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues for reportable segments - 5,670 2,793 3,256
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