REG - ARGO Group Limited - Final Results <Origin Href="QuoteRef">ARGOA.L</Origin> - Part 2
03/03/2017 10:20
- Part 2: For the preceding part double click ID:nRSC4713Ya
contract 923 155
Social security costs 407 179
Other 105 65
4,769 2,155
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to the following:
Year ended Year ended
31 December 31 December
2016 2015
US$'000 US$'000
Directors and key management personnel 2,155 1,047
The remuneration of the Directors of the Company for the year was as follows:
Year ended Year ended
Salaries Fees Benefits Cash bonus 31 December2016 31 December2015
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive Directors
Kyriakos Rialas 205 - - 200 404 202
Andreas Rialas 208 - 6 600 814 225
Non-Executive Directors
Michael Kloter - 54 - - 54 80
David Fisher - 35 - - 35 54
KenWatterson - 35 - - 35 55
6. OPERATING PROFIT/(LOSS)
Operating profit/(loss) is stated after charging:
Year ended Year ended
31 December 31 December
2016 2015
US$'000 US$'000
Auditors' remuneration 67 105
Depreciation 41 46
Directors' fees 2,155 963
Operating lease payments 172 199
7. TAXATION
Taxation rates applicable to the parent company and the Cypriot, UK,
Luxembourg and Romanian subsidiaries range from 0% to 12.5% (2015: 0% to
20.25%).
Income Statement
Year ended Year ended
31 December 31 December
2016 2015
US$'000 US$'000
Taxation charge for the year on Group companies 78 250
Tax on profit on ordinary activities 78 250
The tax charge for the year can be reconciled to the loss on ordinary
activities before taxation shown in the Consolidated Statement of
Comprehensive Income as follows:
Year ended Year ended
31 December 31 December
2016 2015
US$'000 US$'000
Profit/(loss) before tax 649 (2,928)
Applicable Isle of Man tax rate for Argo Group Limited of 0% - -
Timing differences (1) 5
Non-deductible expenses 9 7
Other adjustments 70 (66)
Tax effect of different tax rates of subsidiaries operating inother jurisdictions - 304
Tax charge 78 250
Balance Sheet
At 31 December At 31 December
2016 2015
US$'000 US$'000
Corporation tax payable 25 58
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 21).
Year ended Year ended
31 December 31 December
2016 2015
US$'000 US$'000
Profit/(loss) for the year after taxation attributable to members 571 (3,178)
No. of shares No. of shares
Weighted average number of ordinary shares for basic earnings per share 55,443,494 67,428,494
Effect of dilution (note 21) 4,840,000 4,090,000
Weighted average number of ordinary shares for diluted earnings per share 60,283,494 71,518,494
Year ended Year ended
31 December 31 December
2016 2015
US$ US$
Earnings per share (basic) 0.01 (0.05)
Earnings per share (diluted) 0.01 (0.04)
9. FIXTURES, FITTINGS AND EQUIPMENT
Fixtures, fittings & equipment
US$'000
Cost
At 1 January 2015 254
Additions 8
Disposals -
Foreign exchange movement (17)
At 31 December 2015 245
Additions 31
Disposals (2)
Foreign exchange movement (24)
At 31 December 2016 250
Accumulated Depreciation
At 1 January 2015 147
Depreciation charge for period 46
Disposals -
Foreign exchange movement (12)
At 31 December 2015 181
Depreciation charge for period 41
Disposals (2)
Foreign exchange movement (20)
At 31 December 2016 200
Net book value
At 31 December 2015 64
At 31 December 2016 50
10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 31 December
2016 2016
Holding Investment in management shares Total cost Fair value
US$'000 US$'000
10 The Argo Fund Ltd - -
100 Argo Distressed Credit Fund Ltd - -
1 Argo Special Situations Fund LP - -
- -
Holding Investment in ordinary shares Total cost Fair value
US$'000 US$'000
32,104 The Argo Fund Ltd* 7,159 9,758
10,899,021 Argo Real Estate Opportunities Fund Ltd 988 119
115 Argo Special Situations Fund LP 115 15
1,262 Argo Distressed Credit Fund Limited* 2,000 2,509
10,262 12,401
31 December 31 December
2015 2015
Holding Investment in management shares Total cost Fair value
US$'000 US$'000
10 The Argo Fund Ltd - -
100 Argo Distressed Credit Fund Ltd - -
1 Argo Special Situations Fund LP - -
1 Argo Local Markets Fund - -
- -
Holding Investment in ordinary shares Total cost Fair value
US$'000 US$'000
51,261 The Argo Fund Ltd* 11,159 10,230
10,899,021 Argo Real Estate Opportunities Fund Ltd 988 119
115 Argo Special Situations Fund LLP 115 17
2,117 Argo Local Markets Fund Limited* 1,700 1,666
40,272 Sudan Recovery Fund Limited 4,760 4 4,760
18,722 16,792
*Classified as current in the consolidated Statement of Financial Position
11. TRADE AND OTHER RECEIVABLES
At 31 December At 31 December
2016 2015
US$ '000 US$ '000
Trade receivables - Gross 11,078 9,174
Less: provision for impairment of trade receivables (8,626) (8,345)
Trade receivables - Net 2,452 829
Other receivables 354 66
Prepayments and accrued income 64 71
2,870 966
The Directors consider that the carrying amount of trade and other receivables
approximates their fair value. All trade receivable balances are recoverable
within one year from the reporting date except as disclosed below. Since the
year end the Group received US$1,850,000 as part settlement of these trade
receivables.
The Group has provided AREOF with a notice of deferral in relation to amounts
due from the provision of investment management services, under which it will
not demand payment of such amounts until the Group judges that AREOF is in a
position to pay the outstanding liability. These amounts accrued or receivable
at 31 December 2016 total US$Nil (2015: US$Nil) after a bad debt provision of
US$6,401,507 (E6,069,505) (2015: US$7,164,702 (E6,569,505)). AREOF continues
to meet part of this obligation to the Argo Group as and when liquidity
allows. AREOF settled total fees of E2,776,000 (E2,500,000) during the year.
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. Argo Group Limited retains this additional security.
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. In the Directors' view these amounts are fully
recoverable although they have concluded that it would not be appropriate to
continue to recognise income from these investment management services going
forward, as the timing of such receipts may be outside the control of the
Company and AREOF.
In the audited financial statements of AREOF at 30 September 2015 a material
uncertainty surrounding the refinancing of bank debts was referred to in
relation to the basis of preparation of the financial statements. In the view
of the directors of AREOF, discussions with the banks are continuing
satisfactorily and they have therefore concluded that it is appropriate to
prepare those financial statements on a going concern basis.
At the year end, Argo Special Situations Fund LP owed the Group total
management fees of US$591,295 (2015: US$689,310). This Fund is currently
facing liquidity issues due to the debt financing arrangement put in place in
2014 however management continue to work to remedy this and the Directors are
confident that these fees may be recovered in the future. During the year, the
Group received US$350,000 as part settlement of these management fees.
12. TRADE AND OTHER RECEIVABLES
The movement in the Group's provision for impairment of trade receivables is
as follows:
At 31 December At 31 December
2016 2015
US$ '000 US$ '000
As at 1 January 8,345 5,687
Bad debt recovered (2,776) -
Provision charged during the year 3,329 3,302
Foreign exchange movement (272) (644)
As at 31 December 8,626 8,345
13. LOANS AND ADVANCES RECEIVABLE
At 31 December At 31 December
2016 2015
US$'000 US$'000
Deposits on leased premises - current 66 -6
Deposits on leased premises - non-current 13 90 9
Other loans and advances receivable - current - -
Other loans and advances receivable - non-current (see below) 251 1,693
330 1,783
The non-current other loans and advances receivable comprise:
At 31 December At 31 December
2016 2015
US$'000 US$'000
Loan to Bel Rom Trei (see note (a) below) - 1,437
Loan to AREOF (see Note 18) 23 24
Loan to The Argo Fund Limited - 22
Loans to other AREOF Group entities (see Note 18) 226 208
Other loans 2 2
251 1,693
The deposits on leased premises are retained by the lessor until vacation of
the premises at the end of the lease term as follows:
At 31 December At 31 December
2016 2015
US$'000 US$'000
Current:
Lease expiring within one year 66 -
At 31 December At 31 December
2016 2015
US$'000 US$'000
Non-current:
Lease expiring in second year after the reporting date - 78
Lease expiring in third year after the reporting date 13 -
Lease expiring in fourth year after the reporting date - 12
13 90
(a) In 2013 Argo Group advanced US$1,090,600 (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 full
amount of the loan and accrued interest amounting to USS1,490,031 (E1,337,611)
was repaid during the year
14. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is a balance of US$25,000 (E20,000)
(2015: US$30,000) which represents a bank guarantee in respect of credit cards
issued to Argo Capital Management Property Limited. Due to the nature of this
balance it is not freely available.
15. SHARE CAPITAL
The Company's authorised share capital is unlimited ordinary shares with a
nominal value of US$0.01.
31 December 31 December 31 December 31 December
2016 2016 2015 2015
No. US$'000 No. US$'000
Issued and fully paid
Ordinary shares of US$0.01 each 48,098,494 481 67,428,494 674
48,098,494 481 67,428,494 674
The Directors do not recommend the payment of a final dividend for the year
ended 31 December 2016 (31 December 2015: Nil).
During the year, the Directors authorised the repurchase of 19,330,000 shares
at a total cost of US$2.9 million.
16. TRADE AND OTHER PAYABLES
At 31 December At 31 December
2016 2015
US$ '000 US$ '000
Trade and other payables 122 32
Other creditors and accruals 1,561 204
1,683 236
Trade and other payables are normally settled on 30-day terms.
17. OBLIGATIONS UNDER OPERATING LEASES
Operating lease payments represent rentals payable by the Group for certain of
its business premises. The leases have no escalation clauses or renewal or
purchase options and no restrictions imposed on them.
As at the reporting date, the Group had outstanding future minimum lease
payments under non-cancellable operating leases, which fall due as follows:
At 31 December At 31 December
2016 2015
US$ '000 US$ '000
Operating lease liabilities:
Within one year 149 203
In the second to fifth years inclusive 116 279
Present value of minimum lease payments 265 482
18. RECONCILIATION OF NET CASH OUTLOW FROM OPERATING ACTIVITIES TO
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended
31 December 31 December
2016 2015
US$ '000 US$ '000
Profit/(loss) on ordinary activities before taxation 649 (2,928)
Interest income (136) (190)
Depreciation 41 46
Increase/(decrease) in payables 1,444 (85)
(Increase)/decrease in receivables (322) 2,257
(Increase)/decrease in fair value of current asset investments (1,076) 3,342
Net foreign exchange loss/(gain) 16 (69)
Income taxes paid (108) (245)
Net cash inflow/(outflow) from operating activities 508 2,128
19. RELATED PARTY TRANSACTIONS
All Group revenues derive from funds or entities in which two of the Company's
directors, Andreas Rialas and Kyriakos Rialas, have an influence through
directorships and the provision of investment advisory services.
At the reporting date the Company holds investments in The Argo Fund Limited,
Argo Real Estate Opportunities Fund Limited ("AREOF"), Argo Special Situations
Fund LP and Argo Distressed Credit Fund Limited. These investments are
reflected in the consolidated financial statements at a fair value of
US$9,757,845, US$118,866, US$14,823 and US$2,509,697 respectively.
The Group has provided AREOF with a notice of deferral in relation to amounts
due from the provision of investment management services, under which it will
not demand payment of such amounts until the Group judges that AREOF is in a
position to pay the outstanding liability. These amounts accrued or receivable
at 31 December 2016 total US$Nil (2015: US$Nil) after a bad debt provision of
US$6,401,507 (E6,069,505) (2015: US$7,164,702 (E6,569,505)). AREOF continues
to meet part of this obligation to the Argo Group as and when liquidity
allows. AREOF settled total fees of E2,776,000 (E2,500,000) during the year.
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. Argo Group Limited retains this additional security.
The AREOF management contract has a fixed term expiring on 31 July 2018
On 21 November 2013 the Argo Group provided a loan of US$410,236 (E388,960) to
AREOF at a rate of 10% per annum to enable the company to service interest
payments under a bank loan agreement. A bad debt provision has been raised
against the full amount of the loan and accrued interest amounting to
US$537,915 (E510,017).
During the year, the Argo Group made further loans totalling US$756,472
(E717,239) to AREOF at a rate of 10% per annum to support the company to pay
operational and restructuring costs. At year end, total such loans and
interest were US$1,187,320 (E1,125,742) (2015:US$370,561 (E351,342)). A full
provision has been made in the consolidated financial statements against these
balances at both at the end of the current and prior year.
At the year end, Argo Group was owed a total balance of US$232,367 (E220,316)
by other AREOF Group entities. This balance comprises various loans that are
unsecured, interest free and repayable on demand. A bad debt provision of
US$105,043 (E99,596) has been made on the accounts in respect of these
balances.
In addition to the above, the Argo Group is owed a further
US$292,676(E277,497) by AREOF against which a bad debt provision for
US$267,979 (E254,081) has been raised.
In the audited consolidated financial statements of AREOF at 30 September 2015
a material uncertainty surrounding the refinancing of bank debts was referred
to in relation to the basis of preparation of the financial statements. In the
view of the directors of AREOF, discussions with the banks are continuing
satisfactorily and they have therefore concluded that it is appropriate to
prepare those consolidated financial statements on a going concern basis.
David Fisher, a non-executive director of the Company, is also a non-executive
director of AREOF.
20. 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, Bank of
Cyprus and Bancpost.
(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 13. 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$746,851 (2015: US$2,148,606).
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 15).
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$1,960,000,
Sterling - US$1,037,000, Euros - US$3,126,000 and Romanian Lei - US$3,000.
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
2016 the exposure would be a profit or loss to the Consolidated Statement of
Comprehensive Income of approximately US$208,000 (2015: US$43,000).
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2016 is as follows:
Total as per balance sheet Variable interest rate instruments* Fixed interest rate instruments Instruments on which no interest is receivable
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets at fair value through profit or loss 12,401 - - 12,401
Loans and receivables 3,200 - - 3,200
Cash and cash equivalents 6,126 899 1,927 3,300
21,727 899 1,927 18,901
Financial liabilities
Trade and other payables 1,683 - - 1,683
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.17%. Any movement in interest
rates would have an immaterial effect on the profit/(loss) for the year.
The interest rate profile of the Group at 31 December 2015 is as follows:
Total as per balance sheet Variable interest rate instruments* Fixed interest rate instruments Instruments on which no interest is receivable
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets at fair value through profit or loss 16,792 - - 16,792
Loans and receivables 2,749 - 1,437 1,312
Cash and cash equivalents 3,126 602 2,274 250
22,667 602 3,711 18,354
Financial liabilities
Trade and other payables 236 - - 236
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.01%. 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
2016 2015
US$ '000 US$ '000
Financial Assets
Financial assets at fair value through profit or loss 12,401 16,792
Loans and receivables 3,200 2,749
Cash and cash equivalents 6,126 3,126
21,727 22,667
Financial Liabilities
Trade and other payables 1,683 236
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
2p).
At 31 December 2016
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets at fair value through profit or loss - 12,267 134 12,401
At 31 December 2015
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets at fair value through profit or loss - 11,896 4,896 16,792
The following table shows a reconciliation from the opening balances to the
closing balances for fair value measurements in Level 3 of the fair value
hierarchy:
Unlisted closed ended investment fund Listed open ended investment fund Emerging markets
Real Estate Total
US$ '000 US$ '000 US$ '000
Balance as at 1 January 2016 119 4,777 4,896
Total losses recognized in profit or loss - (2,883) (2,883)
Purchases - - - -
Sales - - (1,879) (1,879)
Transfer to level 2 - - -
Balance as at 31 December 2016 119 15 134
20. EVENTS AFTER THE REPORTING DATE
The Directors consider that there has been no event since the year end that
has a significant effect on the Group's position.
21. SHARE-BASED INCENTIVE PLANS
On 14 March 2011 the Group granted options over 5,900,000 shares to directors
and employees under The Argo Group Limited Employee Stock Option Plan. All
options are exercisable in four equal tranches over a period of four years at
an exercise price of 24p per share.
The fair value of the options granted was measured at the grant date using a
Black-Scholes model that takes into account the effect of certain financial
assumptions, including the option exercise price, current share price and
volatility, dividend yield and the risk-free interest rate. The fair value of
the options granted is spread over the vesting period of the scheme and the
value is adjusted to reflect the actual number of shares that are expected to
vest.
The principal assumptions for valuing the options were:
Exercise price (pence) 24.0
Weighted average share price at grant date (pence) 12.0
Weighted average option life (years) 10.0
Expected volatility (% p.a.) 2.11
Dividend yield (% p.a.) 10.0
Risk-free interest rate (% p.a.) 5.0
The fair value of options granted is recognised as an employee expense with a
corresponding increase in equity. The total charge to employee costs in
respect of this incentive plan is nil due to the differential in exercise
price and share price.
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 24.0p 4,090,000
Granted during the period 24.0p 950,000
Forfeited during the period 24.0p (200,000)
Outstanding at end of period 24.0p 4,840,000
Exercisable at end of period 24.0p 4,840,000
The options outstanding at 31 December 2016 have an exercise price of 24p and
a weighted average contractual life of 10 years, with the fourth and final
tranche of shares being exercisable on or after 1 May 2015.Outstanding share
options are contingent upon the option holder remaining an employee of the
Group. They expire after 10 years.
No share options were issued during the period.
This information is provided by RNS
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