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Argo Group LSE:ARGO London Ordinary Share IM00B2RDSS92 ORD USD0.01
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +0.00p +0.00% 17.75p 17.00p 18.50p 17.75p 17.75p 17.75p 0 08:00:00
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
General Financial 7.6 3.5 7.4 2.2 10.83

ARGO Group Limited Final Results

07/03/2018 7:02am

UK Regulatory (RNS & others)


Argo Group (LSE:ARGO)
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1 Year : From Dec 2017 to Dec 2018

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TIDMARGO

RNS Number : 9411G

ARGO Group Limited

07 March 2018

Argo Group Limited

("Argo" or the "Company")

Annual Report and Accounts for the Year ended 31 December 2017

Argo today announces its final results for the year ended 31 December 2017.

The Company will today post to shareholders and make available its report and accounts for the year ended 31 December 2017 on the Company's website www.argogrouplimited.com.

Key highlights for the twelve months ended 31 December 2017

   -     Revenues US$10.3 million (2016: US$6.4 million) 
   -     Operating profit US$2.0 million (2016: operating loss US$0.6 million) 
   -     Profit before tax US$4.7 million (2016: US$0.6 million) 
   -     Net assets US$24.7 million (2016: US$20.1 million) 

Commenting on the results and outlook, Kyriakos Rialas, Chief Executive of Argo said:

"I am very pleased with the Funds' exceptional performance in 2017 derived mostly from two restructured distressed transactions and I am also most encouraged by the active strategies of the Argo Fund Ltd with double digit return in 2017 and the successful navigation of the market turmoil in February 2018. This is what distinguishes Hedge Funds from long only directional funds. The challenge for our Group remains to increase assets under management in 2018."

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.

CHAIRMAN'S STATEMENT

Key highlights for the twelve months ended 31 December 2017

   -     Revenues US$10.3 million (2016: US$6.4 million) 
   -     Operating profit US$2.0 million (2016: operating loss US$0.6 million) 
   -     Profit before tax US$4.7 million (2016: US$0.6 million) 
   -     Net assets US$24.7 million (2016: US$20.1 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, 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 2017.

For the year ended 31 December 2017 the Group generated revenues of US$10.3 million (2016: US$6.4 million) with management fees accounting for US$4.2 million (2016: US$4.3 million). The Group also generated incentive fees of US$5.9 million (2016: US$ 1.7 million) during the year. The incentive fees earned during the year were from The Argo Fund ("TAF") and Argo Distressed Credit Fund ("ADCF").

Total operating costs, ignoring bad debt provisions, are US$7.2 million (2016: US$6.4 million). The increase in operating costs is mainly due to higher variable employee costs. During the year management fee arrears of US$0.6 million (EUR0.5 million) were recovered from Argo Real Estate Opportunities Fund Limited ("AREOF") against which a provision had been raised in prior years. The Group has provided against management fees of US$1.4 million (EUR1.2 million) (2016: US$2.2 million, EUR2.0 million) due from AREOF. 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 may be outside the control of the Company and AREOF.

Overall, the financial statements show an operating profit for the year of US$2.0 million (2016: operating loss US$0.6 million) and a profit before tax of US$4.5 million (2016: US$0.6 million) reflecting the realised and unrealised profit on current asset investments of US$2.5 million (2016: US$1.1 million).

At the year end, the Group had net assets of US$24.7 million (2016: US$20.1 million) and net current assets of US$24.2 million (2016: US$19.6 million) including cash reserves of US$5.0 million (2016: US$6.1 million). The Directors are not declaring a final dividend.

Net assets include investments in TAF, AREOF, Argo Special Situations Fund LP ("ASSF") and ADCF (together referred to as "the Argo funds") at fair values of US$10.6 million (2016: US$9.7 million), US$0.1 million (2016: US$0.1 million), US$0.03 million (2016: US$0.01 million), and US$4.2 million (2016: US$2.5 million) respectively.

At the year end the Argo funds (excluding AREOF) owed the Group total management and performance fees of US$6.2 million (31 December 2016: US$2.4 million). The Group received full settlement of these fees in January 2018.

The Argo funds ended the year with Assets under Management ("AUM") at US$146.8 million (2016: US$110.6), 33% higher than at the beginning of the year. Management believe that the markets in which the Funds operate have now established a recovery following the 2008 economic collapse. 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 2017 was 23 (2016: 27).

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 2017 total US$nil (2015: US$nil) after a bad debt provision of US$8.2 million (EUR6.8 million) (2016: US$6.4 million (EUR6.1 million)). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows. AREOF settled total fees of US$0.6 million (EUR0.5 million) 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 expires on the later of its termination or the sale of all assets in the Portfolio. The life of the fund was extended to 30 June 2034 during the year.

Fund performance

The Argo Funds

 
                             2017     2016 
                  Launch      Year     Year      Since         Annualised    Sharpe   Down 
Fund               date       total    total      inception    performance    ratio    months   AUM 
----------------  --------  -------  --------  ------------  -------------  -------  --------  ----- 
                                %        %          %            CAGR                          US$m 
                                                                   % 
----------------  --------  -------  --------  ------------  -------------  -------  --------  ----- 
                                                                                     60 
                                                                                      of 
The Argo Fund      Oct-00    10.70     52.30      236.46          8.11       0.51     207      67.5 
----------------  --------  -------  --------  ------------  -------------  -------  --------  ----- 
Argo Distressed                                                                       52 
 Credit                                                                                of 
 Fund              Oct-08    65.60      32.69     229.30         15.93       0.65      111     52.5 
----------------  --------  -------  --------  ------------  -------------  -------  --------  ----- 
Argo Special                                                                         55 
 Situations                                                                           of 
 Fund LP           Feb-12    115.45   -12.03     -72.14            -5.58     -0.12    71       26.8 
----------------  --------  -------  --------  ------------  -------------  -------  --------  ----- 
Total                                                                                          146.8 
--------------------------  -------  --------  ------------  -------------  -------  --------  ----- 
 

* NAV only officially measured once a year in September. The numbers for 2017 were not audited yet at the date of signing of the financial statements.

AREOF's adjusted NAV at 30 September 2017* was US$0.7 million (EUR0.6 million), compared with minus US$36.4 million (minus EUR31.9 million) a year earlier. The Adjusted NAV per share at 30 September 2017 was US$0.001 (EUR0.001) (2016: minus US$0.06 (minus EUR0.05)). The improvement in NAV follows the AREOF Group restructuring that completed in March 2017.

The main shareholders in AREOF are:

 
 Entity                     No of Shares     % 
-------------------------  -------------  ---- 
 
 Argo Distressed 
  Credit Fund                175,694,400 
 Argo Special Situations 
  Fund LP                    300,396,609 
 Argo Group Limited           30,056,500 
 Total                       506,147,509   83% 
-------------------------  -------------  ---- 
 

Argo Capital Management Limited, the subsidiary managing the funds listed above, had its application to become a full scope Alternative Investment Fund Manager (AIFM) approved by the Financial Conduct Authority in May 2017. TAF, the Group's flagship fund, recorded another solid performance, with NAV rising by 10.7% in 2017. This fund focuses on liquid corporate and sovereign bonds and emerging market fx and the returns generated were dispersed across the different strategies, with Latin America being the focus as Brazil and Argentina experienced gradual economic recovery. The relatively low volatility exhibited by the fund underlines its objective of delivering attractive risk-adjusted returns. Whilst market conditions were generally calm last year, leading to healthy volumes of emerging market debt issuance and ongoing spread compression, 2018 has opened with US dollar weakness and murmurings of trade conflicts which, combined with rising US rates, could lead to greater volatility in the coming months. Nevertheless, the US tax policy changes and a wider cyclical rebound have reinforced the broadest global growth upsurge for several years with both developed and emerging market economies participating. The sudden market correction on 5 February2018 did not materially affect the fund in a negative way indicating the resilience of the short/long strategies as opposed to directional trades.

The NAV of ADCF rose by 65.6% in 2017 due to the mark-up of a position related to the leasing of a catalyst to an Indonesian refinery. It is hoped that this asset will be realised through either a sale or settlement of litigation initiated in Singapore. The fund also benefited from the sale of another of the shopping malls in the AREOF portfolio. ADCF won the Eurohedge Award for Best Emerging Manager and Smaller Fund in 2017 which was awarded in January this year. ASSF also staged a recovery due to the revaluation of the catalyst receivables mentioned previously and monies generated from the repayment of a real estate-related loan which had previously been in default.

The Group renewed its lease on premises in Bond Street for another five years, providing continuity for the London operations, and has recently supplemented its investor relations department in the effort to gain traction in raising AUM. The implementation of the Markets in Financial Instruments Directive II (MiFID II) on 3 January 2018 seemingly passed without major disruption. Whilst AIFMs are-for the time being at least- exempted from most of the more onerous requirements of MiFID II, the Group took the decision to absorb the costs of research services which sellside banks and brokers are now obliged to charge for: inevitably this means additional overhead for the investment manager. The Group is further enhancing its Tradar Fund System with an additional risk management module.

Dividends and share purchase programme

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.

During the year the Directors authorised the repurchase of 1,065,616 shares at a total cost of US$0.2 million (GBP0.2 million). The Share Buyback Programme II expired in September 2017.

The Directors will consider future buy-back programmes as and when appropriate, subject to the execution of targeted capital actions and regulatory approval.

Outlook

The Board remains optimistic about the Group's prospects particularly in light of its transactions pipeline. A significant increase in AUM is still required to ensure sustainable profits on a recurring management fee basis and the Group is well placed with capacity to absorb such an increase in AUM with negligible impact on operational costs.

Boosting AUM remains Argo's top priority over the coming year. The Group's marketing efforts continues to focus on the re-launch of TAF which has a 17 year track record as well as identifying acquisitions that are earnings enhancing. TAF's prospectus was amended on 1 March 2016 to eliminate trading in level 3 illiquid assets and concentrate trading and investments in emerging market bonds and other liquid assets.

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. The volatility of markets in early February 2018 proved that ETFs are not a perfect substitute for active investment management strategies, giving optimism that investors will return to hedge funds.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

YEARED 31 DECEMBER 2017

 
                                                Year ended            Year ended 
                                               31 December           31 December 
                                                      2017                  2016 
                                       Note        US$'000               US$'000 
 
 Management fees                                     4,165                 4,251 
 Performance fees                                    5,887                 1,685 
 Other income                                          208                   445 
====================================  ======  ============  ==================== 
                                       2(e), 
 Revenue                                 3          10,260                 6,381 
====================================  ======  ============  ==================== 
 
 Legal and professional expenses                     (289)                 (490) 
 Management and incentive 
  fees payable                                        (68)                  (68) 
 Operational expenses                              (1,022)               (1,008) 
 Employee costs                          4         (5,728)               (4,769) 
 Foreign exchange gain                                (31)                  (16) 
 Bad debts                              11         (1,110)                 (553) 
 Depreciation                            9            (26)                  (41) 
====================================  ======  ============  ==================== 
 Operating profit/(loss)                 6           1,986                 (564) 
====================================  ======  ============  ==================== 
 
 Interest income on cash 
  and cash equivalents                                 200                  137 
 Realised and unrealised 
  gains on investments                               2,549                1,076 
====================================  ======  ============  ==================== 
 Profit on ordinary activities 
  before taxation                        3           4,735                   649 
====================================  ======  ============  ==================== 
 
 Taxation                                7           (194)                  (78) 
====================================  ======  ============  ==================== 
 Profit for the year after 
  taxation attributable to 
  members of the Company                 8           4,541                   571 
 
 Other comprehensive income 
 Items that may be reclassified 
  subsequently to profit or 
  loss: 
 Exchange differences on 
  translation of foreign operations                    250                  (79) 
====================================  ======  ============  ==================== 
 Total comprehensive income 
  for the year                                       4,791                   492 
====================================  ======  ============  ==================== 
 
 
                                            Year    Year ended 
                                           ended 
                                     31 December   31 December 
                                            2017          2016 
                                             US$           US$ 
 Earnings per share (basic)      8          0.10          0.01 
==============================      ============  ============ 
 Earnings per share (diluted)    8          0.09          0.01 
==============================      ============  ============ 
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

 
 
                                         At 31 December   At 31 December 
                                                   2017             2016 
                                  Note          US$'000          US$'000 
 
 Assets 
 
 Non-current assets 
 Land, fixtures, fittings 
  and equipment                    9                227               50 
 Financial assets at 
  fair value through profit 
  or loss                          10               151              134 
 Loans and advances receivable     12               125              264 
===============================  =====  ===============  =============== 
 Total non-current assets                           503              448 
===============================  =====  ===============  =============== 
 
 Current assets 
 Financial assets at 
  fair value through profit 
  or loss                          10            14,800           12,267 
 Trade and other receivables       11             6,442            2,870 
 Loans and advances receivable     12                 -               66 
 Cash and cash equivalents         13             5,031            6,126 
 Total current assets                            26,273           21,329 
===============================  =====  ===============  =============== 
 
 Total assets                      3             26,776           21,777 
===============================  =====  ===============  =============== 
 
 Equity and liabilities 
 
 Equity 
 Issued share capital              14               470              481 
 Share premium                                   28,022           28,211 
 Revenue reserve                                (1,127)          (5,668) 
 Foreign currency translation 
  reserve                         2(d)          (2,705)          (2,955) 
===============================  =====  ===============  =============== 
 Total equity                                    24,660           20,069 
===============================  =====  ===============  =============== 
 
 Current liabilities 
 Trade and other payables          15             2,097            1,683 
 Taxation payable                  7                 19               25 
===============================  =====  ===============  =============== 
 Total current liabilities         3              2,116            1,708 
===============================  =====  ===============  =============== 
 
 Total equity and liabilities                    26,776           21,777 
===============================  =====  ===============  =============== 
 
 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

YEARED 31 DECEMBER 2017

 
                                                                    Foreign 
                             Issued                                currency 
                              share       Share     Revenue     translation 
                            capital     premium     reserve         reserve     Total 
                               2016        2016        2016            2016      2016 
                            US$'000     US$'000     US$'000         US$'000   US$'000 
 
 As at 1 January 
  2016                          674      30,878     (6,239)         (2,876)    22,437 
 
 Total comprehensive 
  income 
 
   Profit for the year 
   after taxation                 -           -         571               -       571 
 
   Other comprehensive 
   income                         -           -           -            (79)      (79) 
 
   Transactions with 
   owners recorded 
   directly in equity 
 
   Purchase of own 
   shares (note 14)           (193)     (2,667)           -               -   (2,860) 
 
 As at 31 December 
  2016                          481      28,211     (5,668)         (2,955)    20,069 
=======================  ==========  ==========  ==========  ==============  ======== 
 
 
 
                                                                  Foreign 
                           Issued                                currency 
                            share       Share     Revenue     translation 
                          capital     premium     reserve         reserve     Total 
                             2017        2017        2017            2017      2017 
                          US$'000     US$'000     US$'000         US$'000   US$'000 
 
 As at 1 January 
  2017                        481      28,211     (5,668)         (2,955)    20,069 
 
 Total comprehensive 
  income 
 Profit for the year 
  after taxation                -           -       4,541               -     4,541 
 Other comprehensive 
  income                        -           -           -             250       250 
 Transactions with 
  owners recorded 
  directly in equity 
 Purchase of own 
  shares (note 14)           (11)       (189)           -               -     (200) 
 
 As at 31 December 
  2017                        470      28,022     (1,127)         (2,705)    24,660 
=====================  ==========  ==========  ==========  ==============  ======== 
 
 

CONSOLIDATED STATEMENT OF CASH FLOWS

YEARED 31 DECEMBER 2017

 
                                          Year ended    Year ended 
                                         31 December   31 December 
                                                2017          2016 
                                  Note       US$'000       US$'000 
 
 Net cash (outflow)/inflow 
  from operating activities        17          (933)           508 
 
 Cash flows from investing 
  activities 
 Interest received on 
  cash and cash equivalents                       22             7 
 Share buy back                                (200)       (2,860) 
 Purchase of financial 
  assets at fair value 
  through profit or loss                           -       (2,000) 
 Proceeds from sale of 
  financial assets at 
  fair value through profit 
  or loss                                          -         7,467 
 Purchase of fixtures, 
  fittings and equipment           9           (197)          (31) 
 Net cash used in investing 
  activities                                   (375)         2,583 
===============================  =====  ============  ============ 
 
 Net (decrease)/increase 
  in cash and cash equivalents               (1,308)         3,091 
 
 Cash and cash equivalents 
  at 1 January 2017 and 
  1 January 2016                               6,126         3,126 
 
 Foreign exchange gain/(loss) 
  on cash and cash 
  equivalents                                    213          (91) 
 
 Cash and cash equivalents 
  as at 31 December 2017 
  and 31 December 2016                         5,031         6,126 
===============================  =====  ============  ============ 
 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2017

   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 places of business are at 10 Vasilissis Frederikis Street, 1066 Nicosia, Cyprus and 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 23 (2016: 27) employees.

Wholly owned subsidiaries Country of incorporation

 
 Argo Capital Management (Cyprus)   Cyprus 
  Limited 
 Argo Capital Management Limited    United Kingdom 
 Argo Capital Management Property   Cayman Islands 
  Limited 
 Argo Property Management Srl       Romania 
 North Asset Management Sarl        Luxembourg 
  (dissolved in November 2017) 
 
 
   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 2019. 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 13).

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 financial statements.

The Directors have therefore concluded that it is appropriate to prepare the 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. North Asset Management Sarl, an inactive subsidiary, was liquidated in November 2017.

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 and in the Argo Real Estate Opportunities Fund Limited ("AREOF") (managed by Argo Capital Management Property Limited) revenue is based on the gross proceeds of share placements.

Incentive fees arise monthly, quarterly or on realisation of an investment. Incentive fees are recognised in the month they arise. In addition, AREOF 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 Limited.

The Group has 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. 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.

   (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)     Financial assets 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. The application of IFRS 13 has not had any material impact on the amounts recognised in the financial statements.

All investments are classified as financial assets 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 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. Investments in the management shares of The Argo Fund Limited, Argo Distressed Credit Fund Limited and Argo Special Situations Fund LP are stated at fair value, being the recoverable amount. The Argo Fund can no longer trade in Level 3 assets under the terms of its new prospectus dated 1 March 2016.

   (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 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. The carrying value of trade receivables equates to their fair value.

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.

   (j)      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. An estimate for provision for recovery is made when collection is no longer probable.

   (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)     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.

    (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:

 
                                             EU Effective 
   New/Revised International Financial               date 
   Reporting Standards (IAS/IFRS)             (accounting 
                                                  periods 
                                               commencing 
                                             on or after) 
-----------------------------------------  -------------- 
 Annual Improvements to IFRSs 2014-2016         1 January 
  Cycle - various standards                          2018 
 IFRS 15 Revenue from contracts with            1 January 
  customers                                          2018 
 IFRS 9 Financial Instruments (issued           1 January 
  on 24 July 2014)                                   2018 
 Amendments to IFRS 4 Insurance contracts       1 January 
                                                     2018 
 Amendments to IFRS 2 Share-based               1 January 
  payments                                           2018 
 Annual Improvements to IFRSs 2015-2017         1 January 
  Cycle - various standards                          2019 
 IFRS 16 Leases                                 1 January 
                                                     2019 
-----------------------------------------  -------------- 
 

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 2018 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.

   (q)     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 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 Capital                        Argo Capital 
                           Argo     Management     Argo Capital         Management           Year 
                          Group       (Cyprus)       Management           Property          ended 
                            Ltd        Limited          Limited            Limited    31 December 
                           2017           2017             2017               2017           2017 
                        US$'000        US$'000          US$'000            US$'000        US$'000 
 
 Total revenues 
  for reportable 
  segments                    -          2,166            8,660              1,599         12,425 
 Intersegment 
  revenues                    -        (2,165)                -                  -        (2,165) 
 
 Total profit/(loss) 
  for reportable 
  segments                2,269          1,276            1,482              (486)          4,541 
 Intersegment 
  profit/(loss)               -          2,165           (2165)                  -              - 
 
 Total assets 
  for reportable 
  segments               15,846          1,107            6,941              2,882         26,776 
 Total liabilities 
  for reportable 
  segments                   41             36            1,693                346          2,116 
=====================  ========  =============  ===============  =================  ============= 
 
 
 Revenues, profit or loss, assets and            Year ended 
  liabilities may be reconciled as follows: 
                                                31 December 
                                                       2017 
                                                    US$'000 
 Revenues 
 Total revenues for reportable segments              12,425 
 Elimination of intersegment revenues               (2,165) 
============================================  ============= 
 Group revenues                                      10,260 
============================================  ============= 
 
 Profit or loss 
 Total profit for reportable segments                 4,541 
 Other unallocated amounts                              (-) 
============================================  ============= 
 Profit on ordinary activities before 
  taxation                                            4,541 
============================================  ============= 
 
 Assets 
 Total assets for reportable segments                29,923 
 Elimination of intersegment receivables            (3,147) 
 Group assets                                        26,776 
============================================  ============= 
 
 Liabilities 
 Total liabilities for reportable segments            5,263 
 Elimination of intersegment payables               (3,147) 
============================================  ============= 
 Group liabilities                                    2,116 
============================================  ============= 
 
 
 
                                  Argo Capital                      Argo Capital 
                           Argo     Management     Argo Capital       Management           Year 
                          Group       (Cyprus)       Management         Property          ended 
                            Ltd        Limited          Limited          Limited    31 December 
                           2016           2016             2016             2016           2016 
                        US$'000        US$'000          US$'000          US$'000        US$'000 
 
 Total revenues 
  for reportable 
  segments                  600            994            3,525            2,645          7,764 
 Intersegment 
  revenues                (600)          (783)                -                -         (1383) 
 
 Total profit/(loss) 
  for reportable 
  segments                1,251          (280)            (837)              515            649 
 Intersegment 
  profit/(loss)             600            183            (783)                -              - 
 
 Total assets 
  for reportable 
  segments               15,708          1,035            4,292            3,435         24,470 
 Total liabilities 
  for reportable 
  segments                   38             27            2,622            1,714          4,401 
=====================  ========  =============  ===============  ===============  ============= 
 
 
 Revenues, profit or loss, assets and            Year ended 
  liabilities may be reconciled as follows: 
                                                31 December 
                                                       2016 
                                                    US$'000 
 Revenues 
 Total revenues for reportable segments               7,764 
 Elimination of intersegment revenues               (1,383) 
============================================  ============= 
 Group revenues                                       6,381 
============================================  ============= 
 
 Profit or loss 
 Total loss for reportable segments                     649 
 Other unallocated amounts                              (-) 
============================================  ============= 
 Loss on ordinary activities before 
  taxation                                              649 
============================================  ============= 
 
 Assets 
 Total assets for reportable segments                24,470 
 Elimination of intersegment receivables            (2,693) 
 Group assets                                        21,777 
============================================  ============= 
 
 Liabilities 
 Total liabilities for reportable segments            4,401 
 Elimination of intersegment payables               (2,693) 
============================================  ============= 
 Group liabilities                                    1,708 
============================================  ============= 
 
   4.      EMPLOYEE COSTS 
 
                                  Year ended      Year ended 
                                 31 December     31 December 
                                        2017            2016 
                                     US$'000         US$'000 
 
 Wages and salaries -under 
  employment contract                  4,505           3,334 
 Wages and salaries - under 
  service contract                       564             923 
 Social security costs                   570             407 
 Other                                    89             105 
============================  ==============  ============== 
                                       5,728           4,769 
============================  ==============  ============== 
 
   5.      KEY MANAGEMENT PERSONNEL REMUNERATION 

Included in employee costs are payments to the following:

 
                                    Year ended      Year ended 
                                   31 December     31 December 
                                          2017            2016 
                                       US$'000         US$'000 
 
 Directors and key management 
  personnel                              3,247           2,155 
==============================  ==============  ============== 
 

The remuneration of the Directors of the Company for the year was as follows:

 
 
                                                                            Year ended      Year ended 
                                                                  Cash     31 December     31 December 
                       Salaries        Fees       Benefits       bonus            2017            2016 
                        US$'000     US$'000        US$'000     US$'000         US$'000         US$'000 
 Executive 
  Directors 
 Kyriakos 
  Rialas                    209           -              -         250             459             404 
 Andreas Rialas             198           -              9       1,500           1,707             814 
 
 Non-Executive 
  Directors 
 Michael Kloter               -          52              -           -              52              54 
 David Fisher                 -          32              -           -              32              35 
 Ken Watterson                -          32              -           -              32              35 
----------------  -------------  ----------  -------------  ----------  --------------  -------------- 
 
   6.      OPERATING PROFIT/(LOSS) 

Operating profit/(loss) is stated after charging:

 
                                 Year ended      Year ended 
                                31 December     31 December 
                                       2017            2016 
                                    US$'000         US$'000 
 
    Auditors' remuneration               74              67 
    Depreciation                         26              41 
    Directors' fees                   3,170           2,155 
 Operating lease                        203             172 
===========================  ==============  ============== 
 
   7.      TAXATION 

Taxation rates applicable to the parent company and the Cypriot, UK, Luxembourg and Romanian subsidiaries range from 0% to 12.5% (2016: 0% to 12.5%).

Consolidated statement of profit or loss

 
                                 Year ended      Year ended 
                                31 December     31 December 
                                       2017            2016 
                                    US$'000         US$'000 
 
 Taxation charge for the 
  year on Group companies               194              78 
 Tax on profit on ordinary 
  activities                            194              78 
===========================  ==============  ============== 
 

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 
                                          2017            2016 
                                       US$'000         US$'000 
 
 Profit before tax                       4,735             649 
==============================  ==============  ============== 
 
 Applicable Isle of Man tax 
  rate for Argo Group Limited 
  of 0%                                      -               - 
 Timing differences                        (1)             (1) 
 Non-deductible expenses                     2               9 
 Other adjustments                       (231)              70 
 Tax effect of different 
  tax rates of subsidiaries 
  operating in 
  other jurisdictions                      424               - 
==============================  ==============  ============== 
 Tax charge                                194              78 
==============================  ==============  ============== 
 

Consolidated statement of financial position

 
                            At 31 December   At 31 December 
                                      2017             2016 
                                   US$'000          US$'000 
 
 Corporation tax payable                19               25 
=========================  ===============  =============== 
 
   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 
                                             2017            2016 
                                          US$'000         US$'000 
 
 Profit for the year after 
  taxation attributable to 
  members                                   4,541             571 
=================================  ==============  ============== 
 
                                           No. of          No. of 
                                           Shares          Shares 
 
 Weighted average number 
  of ordinary shares for basic 
  earnings 
  per share                            47,307,615      55,443,494 
 Effect of dilution (note 
  21)                                   4,340,000       4,840,000 
=================================  ==============  ============== 
 Weighted average number 
  of ordinary shares for diluted 
  earnings per share                   51,647,615      60,283,494 
=================================  ==============  ============== 
 
 
                                    Year ended      Year ended 
                                   31 December     31 December 
                                          2017            2016 
                                           US$             US$ 
 
 Earnings per share (basic)               0.10            0.01 
 Earnings per share (diluted)             0.09            0.01 
==============================  ==============  ============== 
 
   9.   LAND, FIXTURES, FITTINGS AND EQUIPMENT 
 
                                 Fixtures,        Land    Total 
                                  fittings 
                               & equipment 
                                   US$'000     US$'000   US$'000 
 Cost 
 At 1 January 2016                     245           -       245 
 Additions                              31           -        31 
 Disposals                             (2)           -       (2) 
 Foreign exchange movement            (24)           -      (24) 
===========================  =============  ==========  ======== 
 At 31 December 2016                   250           -       250 
 Additions                               4         193       197 
 Disposals                               -           -         - 
 Foreign exchange movement              15           -        15 
===========================  =============  ==========  ======== 
 At 31 December 2017                   269         193       462 
===========================  =============  ==========  ======== 
 
 Accumulated Depreciation 
 At 1 January 2016                     181           -       181 
 Depreciation charge for 
  period                                41           -        41 
 Disposals                             (2)           -       (2) 
 Foreign exchange movement            (20)           -      (20) 
===========================  =============  ==========  ======== 
 At 31 December 2016                   200           -       200 
 Depreciation charge for 
  period                                26           -        26 
 Disposals                               -           -         - 
 Foreign exchange movement               9           -         9 
===========================  =============  ==========  ======== 
 At 31 December 2017                   235           -       235 
===========================  =============  ==========  ======== 
 
 Net book value 
 At 31 December 2016                    50           -        50 
===========================  =============  ==========  ======== 
 At 31 December 2017                    34         193       227 
===========================  =============  ==========  ======== 
 

10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

 
                                        31 December       31 December 
                                               2017              2017 
 Holding   Investment in management      Total cost        Fair value 
            shares 
                                            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          Total cost              Fair value 
               shares 
                                                 US$'000                 US$'000 
 
   31,636     The Argo Fund Ltd*                   7,159                  10,644 
                Argo Real Estate 
                 Opportunities Fund 
  10,899,021     Ltd                                   988                     119 
              Argo Special Situations 
    115       Fund LP                                115                      32 
              Argo Distressed Credit 
   1,262       Fund Limited*                       2,000                   4,156 
                                                  10,262                  14,951 
===========  ==========================  ===============  =====  =============== 
 
 
 
                                        31 December       31 December 
                                               2016              2016 
 Holding   Investment in management      Total cost        Fair value 
            shares 
                                            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      Total cost           Fair value 
               shares 
                                             US$'000              US$'000 
 
   32,104     The Argo Fund Ltd*               7,159                9,758 
              Argo Real Estate 
               Opportunities Fund 
 10,899,021    Ltd                               988                  119 
              Argo Special Situations 
    115        Fund LLP                          115                   15 
              Argo Distressed 
   1,262       Credit Fund Limited*            2,000     4          2,509 
                                              10,262               12,401 
===========  ========================  =============  ====  ============= 
 

*Classified as current in the consolidated statement of financial position

   11.     TRADE AND OTHER RECEIVABLES 
 
                                     At 31 December     At 31 December 
                                               2017               2016 
                                           US$ '000           US$ '000 
 
 Trade receivables - Gross                   14,489             11,078 
 Less: provision for impairment 
  of trade receivables                      (8,264)            (8,626) 
--------------------------------  -----------------  ----------------- 
 Trade receivables - Net                      6,225              2,452 
 Other receivables                              110                354 
 Prepayments and accrued 
  income                                        107                 64 
================================  =================  ================= 
                                              6,442              2,870 
================================  =================  ================= 
 
 

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$6.2million 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 2017 total US$nil (2016: US$nil) after a bad debt provision of US$8.2 million (EUR6.8 million) (2017: US$6.4 million (EUR6.1 million)). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows. AREOF settled total fees of EUR0.6 million (EUR0.5 million) 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. 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.

Argo Special Situations Fund LP settled all of its fee arrears in October 2017. These amounted to US$0.6 million at 31 December 2016.

The movement in the Group's provision for impairment of trade receivables is as follows:

 
                                At 31 December     At 31 December 
                                          2017               2016 
                                      US$ '000           US$ '000 
 
 As at 1 January                         8,626              8,345 
 Bad debt recovered                      (577)            (2,776) 
 Provision charged during 
  the year                               1,687              3,329 
 Foreign exchange movement               1,256              (272) 
 As at 31 December                      10,992              8,626 
===========================  =================  ================= 
 
   12.       LOANS AND ADVANCES RECEIVABLE 
 
                                 At 31       At 31 December 
                                  December 
                                      2017             2016 
                                   US$'000          US$'000 
 
 Deposits on leased premises 
  - current                              -                                           66 
                                                                                      6 
 Deposits on leased premises 
  - non-current (see below)            125                                            13 
                                                                                      9 
 Other loans and advances                -                - 
  receivable - current 
 Other loans and advances 
  receivable - non-current               -              251 
=============================  ===========  =============== 
                                       125              330 
=============================  ===========  =============== 
 
 

The non-current other loans and advances receivable comprise:

 
                                At 31 December    At 31 December 
                                          2017              2016 
                                       US$'000           US$'000 
 
 Loan to AREOF                                -               23 
 Loans to other AREOF Group 
  entities                                    -              226 
 Other loans                                  -                2 
============================  =================  =============== 
                 -                                           251 
 =================  ===========================  =============== 
 

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 
                                     2017              2016 
                                  US$'000           US$'000 
    Current: 
 Lease expiring within 
  one year                               -               66 
=======================  =================  =============== 
 
 
                              At 31 December   At 31 December 
                                        2017             2016 
                                     US$'000          US$'000 
 Non-current: 
 Lease expiring in second                 15                - 
  year after the reporting 
  date 
 Lease expiring in third 
  year after the reporting 
  date                                     -               13 
 Lease expiring in fifth                 110                - 
  year after the reporting 
  date 
                                         125               13 
===========================  ===============  =============== 
 
   13.     CASH AND CASH EQUIVALENTS 

Included in cash and cash equivalents is a balance of US$24,000 (EUR20,000) (2016: US$25,000) 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.

   14.     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 
                             2017          2017           2016          2016 
                              No.       US$'000            No.       US$'000 
 Issued and fully 
  paid 
 Ordinary shares 
  of US$0.01 each      47,032,878           470     48,098,494           481 
==================  =============  ============  =============  ============ 
                       47,032,878           470     48,098,494           481 
==================  =============  ============  =============  ============ 
 

The Directors do not recommend the payment of a final dividend for the year ended 31 December 2017 (31 December 2016: US$nil).

During the year, the Directors authorised the repurchase of 1,065,616 shares at a total cost of US$0.2 million.

   15.     TRADE AND OTHER PAYABLES 
 
                                       At 31 December   At 31 December 
                                                 2017             2016 
                                             US$ '000         US$ '000 
 
 Trade and other payables                           4              122 
 Other creditors and accruals                   2,093            1,561 
==============================  =====================  =============== 
                                                2,097            1,683 
==============================  =====================  =============== 
 

Trade and other payables are normally settled on 30-day terms.

16. 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 
                                           2017             2016 
                                       US$ '000         US$ '000 
 Operating lease liabilities: 
 Within one year                            252              149 
 In the second to fifth 
  years inclusive                           655              116 
==============================  ===============  =============== 
 Present value of minimum 
  lease payments                            907              265 
==============================  ===============  =============== 
 
   17.   RECONCILIATION OF NET CASH OUTLOW FROM OPERATING ACTIVITIES TO 

LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION

 
                                     Year ended      Year ended 
                                    31 December     31 December 
                                           2017            2016 
                                       US$ '000        US$ '000 
 
 Profit on ordinary activities 
  before taxation                         4,735             649 
 
 Interest income                          (200)           (136) 
 Depreciation                                26              41 
 Increase in payables                       414           1,444 
 Increase in receivables                (3,188)           (322) 
 Increase in fair value 
  of current asset investments          (2,550)         (1,076) 
 Net foreign exchange 
  loss                                       31              16 
 Income taxes paid                        (201)           (108) 
===============================  ==============  ============== 
 Net cash (outflow)/inflow 
  from operating activities               (933)             508 
===============================  ==============  ============== 
 
   18.       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 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$10.6 million, US$0.1 million, US$0.03 million and US$4.2 million 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 2017 total US$nil (2016: US$nil) after a bad debt provision of US$8.2 million. (EUR6.8 million) (2016: US$6.4 million (EUR6.1 million)). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows. AREOF settled total fees of EUR0.6 million (EUR0.5 million) 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.

At the year end, Argo Group was owed loans repayable on demand of US$2.0 million (EUR1.7 million) (2016: US$1.7 million, EUR1.6 million) by AREOF accruing interest at 10%. The company was also owed a further amount of US$0.7 million (EUR0.6 million) (2016: US$0.6 million, EUR0.6 million) for expenses it paid on behalf of AREOF Group entities. A full provision has been made in the consolidated financial statements against this balance at the current and prior year end.

David Fisher, a non-executive director of the Company, is also a non-executive director of AREOF.

   19.     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$nil (2016: US$746,851).

   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$2.2 million, Sterling - US$0.3 million and Euros - US$2.5 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 2017 the exposure would be a profit or loss to the Consolidated statement of comprehensive income of approximately US$0.1 million (2016: US$0.2 million).

(g) Interest rate risk

The interest rate profile of the Group at 31 December 2017 is as follows:

 
                                                                                 Instruments 
                              Total              Variable           Fixed           on which 
                             as per              interest        interest        no interest 
                            balance     rate instruments*            rate      is receivable 
                              sheet                           instruments 
                           US$ '000              US$ '000        US$ '000           US$ '000 
 Financial Assets 
 Financial assets 
  at fair value 
  through profit 
  or loss                    14,951                     -               -             14,951 
 Loans and receivables        6,567                   125               -              6,442 
 Cash and cash 
  equivalents                 5,031                   265           2,098              2,668 
=======================  ==========  ====================  ==============  ================= 
                             26,549                   390           2,098             24,061 
=======================  ==========  ====================  ==============  ================= 
 
 Financial liabilities 
 Trade and other 
  payables                    2,097                     -               -              2,097 
=======================  ==========  ====================  ==============  ================= 
 

* Changes in the interest rate may cause movements.

The average interest rate at the year end was 1.09%. 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 2016 is as follows:

 
                                                                               Instruments 
                              Total              Variable           Fixed         on which 
                             as per              interest        interest      no interest 
                            balance     rate instruments*            rate    is receivable 
                              sheet                           instruments 
                           US$ '000              US$ '000        US$ '000         US$ '000 
 Financial Assets 
 Financial assets 
  at fair value 
  through profit 
  or loss                    12,401                     -               -           10,401 
 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 0.01%. 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 
                                           2017               2016 
                                       US$ '000           US$ '000 
 Financial Assets 
 Financial assets at fair 
  value through profit or 
  loss                                   14,951             12,401 
 Loans and receivables                    6,563              3,200 
 Cash and cash equivalents                5,031              6,126 
============================  =================  ================= 
                                         26,545             21,727 
 ===========================  =================  ================= 
 
 Financial Liabilities 
 Trade and other payables                 2,097              1,683 
============================  =================  ================= 
 
 

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 2017

 
                           Level      Level      Level      Total 
                               1          2          3 
                        US$ '000   US$ '000   US$ '000   US$ '000 
   Financial assets 
    at fair value 
    through profit 
    or loss                    -     14,800        151     14,951 
====================  ==========  =========  =========  ========= 
 

At 31 December 2016

 
                         Level      Level      Level      Total 
                             1          2          3 
                      US$ '000   US$ '000   US$ '000   US$ '000 
 Financial assets 
  at fair value 
  through profit 
  or loss                    -     12,267      134       12,401 
==================  ==========  =========  =========  ========= 
 

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          Listed 
                                              closed      open ended 
                                    ended investment      investment 
                                                fund            fund 
                                                            Emerging 
                                                             markets 
                                         Real Estate                      Total 
                                            US$ '000        US$ '000   US$ '000 
 
 Balance as at 1 January 
  2017                                           119              15        134 
 Total losses recognized 
  in profit or loss                              -                17         17 
 Purchases                                      - -                -          - 
 Sales                                           - -               -          - 
 Transfer to level                               -                 -          - 
  2 
 Balance as at 31 
  December 2017                                  119              32        151 
=========================  =========================  ==============  ========= 
 
   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. The options are exercisable in at an exercise price of 24p per share within 10 years of the grant date.

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)         17.0 
      Weighted average option 
       life at grant date (years)          10.0 
      Expected volatility (% 
       p.a.)                               15.0 
      Dividend yield (% p.a.)              10.0 
      Risk-free interest rate 
       (% p.a.)                            0.907 
 

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 GBPnil (2016: GBPnil).

The number and weighted average exercise price of the share options during the period is as follows:

 
                                Weighted    No. of share 
                                 average       options 
                                 exercise 
                                  price 
 Outstanding at beginning 
  of period                       24.0p      4,840,000 
 Granted during the period        24.0p       450,000 
 Forfeited during the period      24.0p      (950,000) 
=============================  ==========  ============= 
 Outstanding at end of 
  period                          24.0p      4,340,000 
=============================  ==========  ============= 
 Exercisable at end of 
  period                          24.0p      4,340,000 
=============================  ==========  ============= 
 

The options outstanding at 31 December 2017 have an exercise price of 24p and a weighted average contractual life of 4 years. Outstanding share options are contingent upon the option holder remaining an employee of the Group.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR UBSNRWBAORRR

(END) Dow Jones Newswires

March 07, 2018 02:02 ET (07:02 GMT)

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