Share Name Share Symbol Market Type Share ISIN Share Description
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% 18.25p 17.50p 19.00p 18.25p 18.25p 18.25p 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 2.6 11.14

ARGO Group Limited Half-year Report

01/08/2017 8:36am

UK Regulatory (RNS & others)


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TIDMARGO

RNS Number : 7044M

ARGO Group Limited

01 August 2017

Argo Group Limited

("Argo" or the "Company")

Interim Results for the six months ended 30 June 2017

Argo today announces its interim results for the six months ended 30 June 2017.

The Company will today make available its interim report for the six month period ended 30 June 2017 on the Company's website www.argogrouplimited.com.

Key highlights for the six months period ended 30 June 2017

This report sets out the results of Argo Group Limited (the "Company") and its subsidiaries (collectively "the Group" or "Argo") covering the six months ended 30 June 2017.

   -     Revenues US$6.3 million (six months to 30 June 2016: US$4.0 million) 
   -     Operating profit US$3.3 million (six months to 30 June 2016: profit US$3.8 million) 
   -     Profit before tax US$5.1 million (six months to 30 June 2016: profit US$4.9 million) 
   -     Net assets US$24.8 million (31 December 2016: US$20.1 million) 

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

"The results of AGL's first six months are a reflection of strong subscriptions and performance in the emerging markets. Investors continue to seek yield in a consistently low global interest rate regime despite recent tapering noise from ECB and interest rate increases by the FED. AGL's results include a significant element of performance fees from the workout of one of the distressed assets. Continuous investor interest in the Argo Fund is expected to materialize into more sizeable subscriptions in the second half of the year. "

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

The Group and its investment 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

For the six months ended 30 June 2017 the Group generated revenues of US$6.3 million (six months to 30 June 2016: US$4.0 million) with management fees accounting for US$2.1 million (six months to 30 June 2016: US$2.0 million). The Group generated performance fees of US$4.0 million (six months to 30 June 2016: US$1.7 million).

Total operating costs for the period, ignoring bad debt provisions, are US$1.9 million compared to US$2.0 million for the six months to 30 June 2016. The Group has provided against management fees of US$0.8 million (EUR0.8 million) (six months to 30 June 2016: US$1.2 million (EUR1.0 million)) due from AREOF. In the Directors' view these amounts are fully recoverable however they have concluded that it would not be appropriate to continue to recognise income without provision from these investment management services as the timing of such receipts may be outside the control of the Company and AREOF.

Overall, the financial statements show an operating profit for the period of US$3.3 million (six months to 30 June 2016: profit US$3.8 million) and a profit before tax of US$5.1 million (six months to 30 June 2016: profit US$4.9 million) reflecting the net gain on investments of US$1.7 million (six months to 30 June 2016: net gain US$1.1 million). Performance fees will be realisable at the year-end if losses do not occur in the last six months of the year.

At the period end, the Group had net assets of US$24.8 million (31 December 2016: US$20.1 million) and net current assets of US$24.5 million (31 December 2016: US$19.6 million) including cash reserves of US$5.7 million (31 December 2016: US$6.1 million).

Net assets include investments in TAF, AREOF, Argo Special Situations Fund LP and ADCF (together referred to as "the Argo funds") at fair values of US$10.2 million (31 December 2016: US$9.7 million), US$0.1 million (31 December 2016: US$0.1 million), US$0.03 million (31 December 2016: US$0.01 million) and US$3.8 million (31 December 2016: US$2.5 million) respectively.

At the period end the Argo funds (excluding AREOF) owed the Group total management and performance fees of US$5.1 million (31 December 2016: US$2.4 million).

The Argo funds (excluding AREOF) ended the period with Assets under Management ("AUM") at US$136.2 million, 23.1% higher than at the beginning of the period. The increase is mostly due to performance but it includes a small net inflow of new cash. 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 average number of permanent employees of the Group for the six months to 30 June 2017 was 23 (30 June 2016: 20).

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 30 June 2017 total US$ Nil (31 December 2016: Nil) after a bad debt provision of US$7.8 million (EUR6.8 million) (31 December 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. 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. The AREOF management contract has a fixed term expiring on 31 July 2018.

Fund performance

Argo Funds

 
                           30         30 
                            June       June      2016 
                  Launch    2017       2016       year                              Sharpe   Down 
                                                          Since       Annualised 
Fund               date     6 months   6 months   total    inception   performance   ratio    months  AUM 
----------------  -------  ---------  ---------  -------  ----------  ------------  ------  --------  ------ 
                           %          %          %        %           CAGR                            US$m 
                                                                       % 
----------------  -------  ---------  ---------  -------  ----------  ------------  ------  --------  ------ 
                                                                                            59 
The Argo                                                                                     of 
 Fund             Oct-00   4.67       41.90       52.30   218.14      8.00          0.50     101        64.0 
----------------  -------  ---------  ---------  -------  ----------  ------------  ------  --------  ------ 
                                                                                            50 
Argo Distressed                                                                              of 
 Credit Fund      Oct-08   51.00      33.36        32.69  200.27      15.65         0.62     105        47.9 
----------------  -------  ---------  ---------  -------  ----------  ------------  ------  --------  ------ 
Argo Special                                                                                53 
 Situations                                                                                  of 
 Fund LP          Feb-12   -12.03     -31.15     -12.03   -87.07      -7.87         -0.12    65        24.3 
----------------  -------  ---------  ---------  -------  ----------  ------------  ------  --------  ------ 
Total                                                                                                 136.2 
-------------------------  ---------  ---------  -------  ----------  ------------  ------  --------  ------ 
 

* NAV only officially measured once a year in September.

AREOF's Adjusted NAV at 30 September 2016* were minus US$36.4 million (minus EUR31.9 million), compared with minus US$23.4 million (minus EUR20.9 million) a year earlier. The Adjusted NAV per share at 30 September 2016 of minus US$0.06 (minus EUR0.05) (2015: minus US$0.03 (minus EUR0.03).

Although AREOF's consolidated statement of financial position indicates the AREOF group is insolvent on a

consolidated basis, the structural ring-fencing of the underlying SPV's limits the impact on the Group of negative equity at subsidiary level.

Upon completion of the AREOF group restructuring in March 2017, Argo Capital Management Property Limited reduced its annual management fees receivable from AREOF from EUR2 million to EUR1 million.

Emerging markets had a mixed start to the year primarily due to uncertainty in the US following the inauguration of President Trump. A number of election campaign promises would, if enacted, have had a detrimental impact on emerging market economies, most notably Mexico and Asian exporters. In addition, tighter US monetary policy - the Federal Reserve increased interest rates twice during the period - weaker oil prices and local political upheavals added to the volatility in certain countries such as Brazil, Qatar and Venezuela. However, some of these pressures began to abate towards the end of the period and it has become evident that policy change and/or implementation in the US has become quite difficult.

The long/short strategy pursued by TAF allows it to adjust quickly to a fluid emerging market credit environment and it recorded a respectable return of 4.67% in the first half. The performance of ADCF, which concentrates on less liquid distressed positions, was helped significantly by the revaluation prompted by a reassessment of recovery prospects from an industrial asset in Asia.

TAF is the Group's flagship fund and has a 17 year track record. Going forward, TAF continues to focus on liquid bond securities, both sovereign and corporate, and will be the centre of the Group's marketing efforts. Following the declines experienced by emerging markets over the past two years, the Board believes they offer attractive investment opportunities. Furthermore, the economic fundamentals in emerging markets are robust. They are expected to deliver significantly stronger economic growth than developed markets in 2017 while enjoying attractive risk profiles thanks to low levels of government indebtedness and high foreign exchange reserves.

The two markets in which AREOF operates were mixed. Conditions in Romania were largely favourable as the local economy continued to expand thereby boosting the local property market. In Ukraine, the political situation has been stable and the economy is now on a modest recovery path.

The majority of AREOF's debt facilities have been in default at some point during the period. This situation has been addressed through renegotiation with lending banks with a view to restructuring debt commitments to better align these to the current level of the AREOF group's cash flow. While discussions with the relevant banks are ongoing to find an agreeable solution for all parties AREOF continues to enjoy the forbearance of its banks and support of its shareholders. In view of this, the directors of AREOF have concluded that AREOF is a going concern.

The prevailing equity price of the AREOF shares at the time of their suspension in 2013 (see note 8 to the financial statements) was 2.0 euro cents. The valuation of Argo Group Limited's investment in AREOF and that of the Argo funds was 1.0 euro cent per share as at 30 June 2017.

Dividends and share purchase programme

The Group did not pay a dividend during the current or prior period. The Directors intend to restart dividend payments as soon as the Group's performance provides a consistent track record of profitability.

During the period the Directors authorised the repurchase of 1,065,616 shares at a total cost of U$0.2 million (GBP0.2million).

Under the current Share Buyback Programme II, the Company intends to use up to GBP2 million to acquire Ordinary Shares in the market over a twelve month period commencing on 28 September 2016 and expiring no later than 19 September 2017 (one year from the date of the 2016 AGM which authorised the 2016 Share Buyback Programme II). The minimum price that Argo will pay is 8p per Ordinary Share. The aggregate number of Ordinary Shares which may be acquired on behalf of the Company in connection with the 2016 Share Buyback Programme II will not exceed 23,676,987 Ordinary Shares, which broadly represents the number of shares in public hands.

The Company has spent US$0.3million (GBP0.2 million) to buy back 1,440,616 Ordinary Shares on this programme so far.

The Directors firmly believe that a return of excess cash to shareholders through buy-backs will send a positive message to investors.

Outlook

The Board remains optimistic about the Group's prospects based on the transactions in the pipeline and the Group's initiatives to increase AUM. 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 will be Argo's top priority in the next six months. The Group's marketing efforts will continue to focus on TAF which has a 17 year track record as well as identifying acquisitions that are earnings enhancing. TAF's prospectus was amended as of 1 March 2016 to eliminate trading in level 3 illiquid assets and concentrate trading and investments in emerging market bonds and other liquid assets.

Both TAF and ADCF are now registered with HM Revenue & Customs as UK Reporting Funds. This status allows our UK investors to be tax efficient with income or capital gains earned from our Cayman funds.

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.

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE SIX MONTHSED 30 JUNE 2017

 
                                                  Six months           Six months 
                                                       ended                ended 
                                                     30 June              30 June 
                                                        2017                 2016 
                                           Note      US$'000              US$'000 
 
 Management fees                                       2,138                2,042 
 Performance fees                                      4,045                1,669 
 Other income                                            122                  327 
========================================  =====  ===========    ================= 
 Revenue                                               6,305                4,038 
========================================  =====  ===========    ================= 
 
 Legal and professional expenses                       (126)                (375) 
 Management and incentive 
  fees payable                                          (33)                 (34) 
 Operational expenses                                  (532)                (481) 
 Employee costs                                      (1,228)              (1,114) 
                                            9, 
 Bad debt provision                         10       (1,032)                1,712 
 Foreign exchange gain                                   (7)                   39 
 Depreciation                               7           (15)                 (21) 
 Operating profit                                      3,332                3,764 
========================================  =====  ===========    ================= 
 
 Interest income                                          88                   44 
 Realised and unrealised gains/(losses) 
  on investments                            8          1,728                1,094 
========================================  =====  ===========    ================= 
 Profit/(loss) on ordinary 
  activities before taxation                           5,148                4,902 
========================================  =====  ===========    ================= 
 
 Taxation                                   5          (382)                 (97) 
========================================  =====  ===========    ================= 
 Profit/(loss) for the period 
  after taxation attributable 
  to members of the Company                 6          4,766                4,805 
 
 Other comprehensive income 
 Items that may be reclassified 
  subsequently to profit or 
  loss: 
 Exchange differences on translation 
  of foreign operations                                  202                (215) 
========================================  =====  ===========    ================= 
 Total comprehensive income 
  for the period                                       4,968                4,590 
========================================  =====  ===========    ================= 
 
                                                  Six months           Six months 
                                                       Ended                Ended 
                                                     30 June              30 June 
                                                        2017                 2016 
                                                         US$                  US$ 
 Earnings per share (basic)                 6           0.10                 0.08 
========================================  =====  ===========   ================== 
 Earnings per share (diluted)               6           0.09                 0.07 
========================================  =====  ===========   ================== 
 
 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2017

 
                                           30 June       At 31 
                                                      December 
                                              2017        2016 
                                  Note     US$'000     US$'000 
 
 Assets 
 
 Non-current assets 
 Fixtures, fittings and 
  equipment                        7            39          50 
 Financial assets at fair 
  value through profit or 
  loss                             8           148         134 
 Loans and advances receivable     10          114         264 
===============================  =====  ==========  ========== 
 Total non-current assets                      301         448 
===============================  =====  ==========  ========== 
 
 Current assets 
 Financial assets at fair 
  value through profit or 
  loss                             8        13,982      12,267 
 Trade and other receivables       9         5,272       2,870 
 Loans and advances receivable     10           69          66 
 Cash and cash equivalents                   5,742       6,126 
 Total current assets                       25,065      21,329 
===============================  =====  ==========  ========== 
 
 Total assets                               25,366      21,777 
===============================  =====  ==========  ========== 
 
 Equity and liabilities 
 
 Equity 
 Issued share capital              11          470         481 
 Share premium                              28,022      28,211 
 Revenue reserve                             (902)     (5,668) 
 Foreign currency translation 
  reserve                                  (2,753)     (2,955) 
===============================  =====  ==========  ========== 
 Total equity                               24,837      20,069 
===============================  =====  ==========  ========== 
 
 Current liabilities 
 Trade and other payables                      146       1,683 
 Taxation payable                  5           383          25 
===============================  =====  ==========  ========== 
 Total current liabilities                     529       1,708 
 Total equity and liabilities               25,366      21,777 
===============================  =====  ==========  ========== 
 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE SIX MONTHSED 30 JUNE 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 
  period after taxation            -           -             4,805                -     4,805 
 Other comprehensive 
  income                           -           -                 -            (215)     (215) 
 Transaction with 
  owners 
  recorded directly 
  in equity 
 Purchase of own 
  shares (note 14)             (189)     (2,601)                 -                -   (2,790) 
 
 As at 30 June 2016              485      28,277           (1,434)          (3,091)    24,237 
========================  ==========  ==========  ================  ===============  ======== 
 
 
 
                                                                       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 
  period after taxation            -           -       4,766                 -     4,766 
 Other comprehensive 
  income                           -           -           -               202       202 
 
 Transactions with 
  owners recorded 
  directly in equity 
 Purchase of own 
  shares (note 11)              (11)       (189)           -                 -     (200) 
 
 As at 30 June 2017              470      28,022       (902)           (2,753)    24,837 
========================  ==========  ==========  ==========  ================  ======== 
 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHSED 30 JUNE 2017

 
                                         Six months   Six months 
                                              ended        ended 
                                            30 June      30 June 
                                               2017         2016 
                                  Note      US$'000      US$'000 
 
 Net cash (outflow)/inflow 
  from operating activities        12         (366)        3,311 
===============================  =====  ===========  =========== 
 
 Cash flows used in investing 
  activities 
 Interest received on cash 
  and cash equivalents                           14           23 
 Purchase of fixtures, 
  fittings and equipment           7            (2)          (2) 
 Purchase of current asset 
  investments                      8              -      (2,000) 
 Proceeds from disposal 
  of investments                   8              -        7,467 
 
 
 Net cash generated from/(used 
  in) investing activities                       12        5,488 
===============================  =====  ===========  =========== 
 
 Cash flows from financing 
  activities 
 Repurchase of own shares                     (200)      (2,795) 
 
 Net cash used in financing 
  activities                                  (200)      (2,795) 
===============================  =====  ===========  =========== 
 
 Net increase/(decrease) 
  in cash and cash equivalents                (554)        6,004 
 
 Cash and cash equivalents 
  at 1 January 2017 and 
  1 January 2016                              6,126        3,126 
 
 Foreign exchange loss 
  on cash and cash equivalents                  170        (147) 
 
 Cash and cash equivalents 
  as at 30 June 2017 and 
  30 June 2016                                5,742        8,983 
===============================  =====  ===========  =========== 
 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 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. The condensed consolidated interim financial statements of the Group as at and for the six months ended 30 June 2017 comprise the Company and its subsidiaries (together referred to as the "Group").

The consolidated financial statements of the Group as at and for the year ended 31 December 2016 are available upon request from the Company's registered office or at www.argogrouplimited.com.

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 and presentational currency of the Group undertakings is US dollars.

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 
 

A firm of solicitors was appointed on 30 June 2017 for the dissolution of North Asset Management Sarl as this company has been dormant since June 2016 and does no longer have a purpose.

   2.       ACCOUNTING POLICIES 
   (a)     Basis of preparation 

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2016.

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2016.

These condensed consolidated interim financial statements were approved by the Board of Directors on 31 July 2017.

   b)      Financial instruments and fair value hierarchy 

The following represents the fair value hierarchy of financial instruments measured at fair value in the Condensed 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

   3.      SEGMENTAL ANALYSIS 

The Group operates as a single asset management business.

The operating results of the companies set out in note 1 above are regularly reviewed by the Directors of the Group for the purposes of making decisions about resources to be allocated to each company and to assess performance. The following summary analyses revenues, profit or loss, assets and liabilities:

 
 
                                         Argo                          Argo 
                                      Capital           Argo        Capital 
                           Argo    Management        Capital     Management   Six months 
                          Group      (Cyprus)     Management       Property        ended 
                            Ltd           Ltd            Ltd            Ltd      30 June 
                           2017          2017           2017           2017         2017 
                        US$'000       US$'000        US$'000        US$'000      US$'000 
 
 Total revenues 
  for reportable 
  segments 
  customers                   -         1,348          5,392            913        7,653 
 Intersegment 
  revenues                    -         1,348              -              -        1,348 
 
 Total profit/(loss) 
  for reportable 
  segments                1,592         1,137          2,899          (480)        5,148 
 Intersegment 
  profit/(loss)               -         1,348        (1,348)              -            - 
 
 Total assets 
  for reportable 
  segments 
  assets                 17,071         2,135          5,683          2,448       27,337 
 Total liabilities 
  for reportable 
  segments                    9           136          1,366            989        2,500 
=====================  ========  ============  =============  =============  =========== 
 
 
 Revenues, profit or loss, assets and          Six months 
  liabilities may be reconciled as follows: 
                                                    Ended 
                                                  30 June 
                                                     2017 
                                                  US$'000 
 Revenues 
 Total revenues for reportable segments             7,653 
 Elimination of intersegment revenues             (1,348) 
============================================  =========== 
 Group revenues                                     6,305 
============================================  =========== 
 
 Profit or loss 
 Total profit for reportable segments               5,148 
 Elimination of intersegment loss                       - 
 Other unallocated amounts                              - 
============================================  =========== 
 Profit on ordinary activities before 
  taxation                                          5,148 
============================================  =========== 
 
 Assets 
 Total assets for reportable segments              27,337 
 Elimination of intersegment receivables          (1,971) 
 Group assets                                      25,366 
============================================  =========== 
 
 Liabilities 
 Total liabilities for reportable segments          2,500 
 Elimination of intersegment payables             (1,971) 
============================================  =========== 
 Group liabilities                                    529 
============================================  =========== 
 
 
 
                                  Argo Capital                      Argo Capital 
                           Argo     Management     Argo Capital       Management   Six months 
                          Group       (Cyprus)       Management         Property        ended 
                            Ltd            Ltd              Ltd              Ltd      30 June 
                           2016           2016             2016             2016         2016 
                        US$'000        US$'000          US$'000          US$'000      US$'000 
 
 Total revenues 
  for reportable 
  segments                  600            786            2,497            1,425        5,308 
 Intersegment 
  revenues                  600            570              100                -        1,270 
 
 Total profit/(loss) 
  for reportable 
  segments                1,470          (136)            1,063            2,622        5,019 
 Intersegment 
  profit/(loss)             600          (128)            (499)                -         (27) 
 
 Total assets 
  for reportable 
  segments               14,899          1,213            3,934            5,090       25,136 
 Total liabilities 
  for reportable 
  segments                   40             29              691            1,069        1,829 
=====================  ========  =============  ===============  ===============  =========== 
 
 
 Revenues, profit or loss, assets and liabilities    Six months 
  may be reconciled as follows: 
                                                          ended 
                                                        30 June 
                                                           2016 
                                                        US$'000 
 Revenues 
 Total revenues for reportable segments                   5,308 
 Elimination of intersegment revenues                   (1,270) 
==================================================  =========== 
 Group revenues                                           4,038 
==================================================  =========== 
 
 Profit or loss 
 Total profit for reportable segments                     5,019 
 Elimination of intersegment loss                            27 
 Other unallocated amounts                                (144) 
==================================================  =========== 
 Profit on ordinary activities before taxation            4,902 
==================================================  =========== 
 
 Assets 
 Total assets for reportable segments                    25,136 
 Elimination of intersegment receivables                  (572) 
 Group assets                                            24,564 
==================================================  =========== 
 
 Liabilities 
 Total liabilities for reportable segments                1,829 
 Elimination of intersegment payables                   (1,502) 
==================================================  =========== 
 Group liabilities                                          327 
==================================================  =========== 
 
   4.   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 are:

 
 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    No. of share 
                                 average       options 
                                 exercise 
                                  price 
 Outstanding at beginning 
  of period                       24.0p      4,840,000 
 Granted during the period          -          450,000 
 Forfeited during the period      24.0p      (750,000) 
=============================  ==========  ============= 
 Outstanding at end of 
  period                          24.0p      4,540,000 
=============================  ==========  ============= 
 Exercisable at end of 
  period                          24.0p      4,540,000 
=============================  ==========  ============= 
 

The options outstanding at 30 June 2017 have an exercise price of 24p and a weighted average contractual life of 10 years, with all tranches of shares now being exercisable. 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.

   5.      TAXATION 

Taxation rates applicable to the parent company and the Cypriot, UK, Luxembourg, Cayman and Romanian subsidiaries range from 0% to 19.25% (2016: 0% to 20%).

 
 Consolidated statement of 
  profit or loss                   Six months   Six months 
                                        ended        Ended 
                                      30 June      30 June 
                                         2017         2016 
                                      US$'000      US$'000 
 
 Taxation charge for the period 
  on Group companies                      382           97 
================================  ===========  =========== 
 

The charge for the period can be reconciled to the profit/(loss) shown on the Condensed Consolidated Statement of profit or loss as follows:

 
                                         Six months   Six months 
                                              ended        Ended 
                                            30 June      30 June 
                                               2017         2016 
                                            US$'000      US$'000 
 
 Profit/(loss) before tax                     5,148        4,902 
==================================  ===============  =========== 
 
 Applicable Isle of Man tax                       -            - 
  rate for Argo Group Limited 
  of 0% 
 Timing differences                               -            2 
 Non-deductible expenses                          5            6 
 Other adjustments                            (308)        (171) 
 Tax effect of different tax 
  rates of subsidiaries operating 
  in other jurisdictions                        685          260 
==================================  ===============  =========== 
 Tax charge                                     382           97 
==================================  ===============  =========== 
 
 
 Consolidated statement of 
  financial position 
                              30 June   31 December 
                                 2017          2016 
                              US$'000       US$'000 
 
 Corporation tax payable          383            25 
===========================  ========  ============ 
 
   6.      EARNINGS PER SHARE 

Earnings per share is calculated by dividing the net profit/(loss) for the period by the weighted average number of shares outstanding during the period.

 
                                          Six months     Six months 
                                               ended          ended 
                                             30 June        30 June 
                                                2017           2016 
                                             US$'000        US$'000 
 
 Net profit/(loss) for the 
  period after taxation attributable 
  to members                                   4,766          4,805 
=====================================  =============  ============= 
 
                                              No. of         No. of 
                                              shares         shares 
 
 Weighted average number of 
  ordinary shares for basic 
  earnings per share                      47,582,353     62,509,327 
 Effect of dilution (Note 4)               4,540,000      4,840,000 
=====================================  =============  ============= 
 Weighted average number of 
  ordinary shares for diluted 
  earnings per share                      52,122,353     67,349,327 
=====================================  =============  ============= 
 
 
                                 Six months   Six months 
                                      ended        ended 
                                    30 June      30 June 
                                       2017         2016 
                                        US$          US$ 
 
 Earnings per share (basic)            0.10         0.08 
 Earnings per share (diluted)          0.09         0.07 
==============================  ===========  =========== 
 
   7.      FIXTURES, FITTINGS AND EQUIPMENT 
 
                                                Fixtures, 
                                                 fittings 
                                              & equipment 
                                                  US$'000 
 Cost 
 At 1 January 2016                                    245 
 Additions                                             31 
 Disposals                                            (2) 
 Foreign exchange movement                           (24) 
================================  ======================= 
 At 31 December 2016                                  250 
 Additions                                              2 
 Foreign exchange movement                             11 
================================  ======================= 
 At 30 June 2017                                      263 
================================  ======================= 
 
 Accumulated Depreciation 
 At 1 January 2016                                    181 
 Depreciation charge for period                        41 
 Disposals                                            (2) 
 Foreign exchange movement                           (20) 
================================  ======================= 
 At 31 December 2016                                  200 
 Depreciation charge for period                        15 
 Foreign exchange movement                              9 
================================  ======================= 
 At 30 June 2017                                      224 
================================  ======================= 
 
 Net book value 
 At 31 December 2016                                   50 
================================  ======================= 
 At 30 June 2017                                       39 
================================  ======================= 
 
   8.       FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 
 
 
                                           30 June          30 June 
                                              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 
 
   32,104     The Argo Fund Ltd*               7,159           10,192 
              Argo Real Estate 
               Opportunities Fund 
 10,899,021    Ltd                               988              119 
              Argo Special Situations 
    115        Fund LP                           115               29 
              Argo Distressed Credit 
   1,262       Fund Limited*                   2,000            3,790 
===========  ========================  =============    ============= 
                                              10,262           14,130 
===========  ========================  =============    ============= 
 
 
                                        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 LP                           115               15 
              Argo Distressed Credit 
   1,262       Fund Ltd*                       2,000            2,509 
===========  ========================  =============    ============= 
                                              10,262           12,401 
===========  ========================  =============    ============= 
 

*Classified as current in the consolidated statement of Financial Position

   9.       TRADE AND OTHER RECEIVABLES 
 
                                     At 30 June     At 31 December 
                                           2017               2016 
                                       US$ '000           US$ '000 
 
 Trade receivables - Gross               15,366             11,078 
 Less: provision for impairment 
  of trade receivables                 (10,264)            (8,626) 
--------------------------------  -------------  ----------------- 
 Trade receivables - Net                  5,102              2,452 
 Other receivables                           87                354 
 Prepayments and accrued 
  income                                     83                 64 
================================  =============  ================= 
                                          5,272              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.

A provision for impairment have been raised for all balances owed by the AREOF Group under trade and other receivables. These balances include all management fees and other loans and advances made by the investment manager to the AREOF Group. These amounted to US$10.1 million (EUR8.9 million) (31 December 2016: US$8.5 million, EUR8.1 million).

At 30 June 2017, Argo Special Situations Fund LP owed the Group total management fees of US$0.9 million (31 December 2016: US$0.6 million). This fund is currently facing liquidity issues due to the debt financing arrangement put in place in 2014 however Management continues to work to remedy this and the Directors are confident that these fees may be recovered in the future.

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

 
                                At 30 June     At 31 December 
                                      2017               2016 
                                  US$ '000           US$ '000 
 
 Opening balance                     8,626              8,345 
 Bad debt recovered                      -            (2,776) 
 Charged during the period             884              3,329 
 Foreign exchange movement             754              (272) 
===========================  =============  ================= 
 Closing balance                    10,264              8,626 
===========================  =============  ================= 
 
   10.     LOANS AND ADVANCES RECEIVABLE 
 
                                      At 30       At 31 December 
                                  June 2017        2016 
                                    US$'000                         US$'000 
 
 Deposits on leased premises 
  - current                              69                              66 
 Deposits on leased premises 
  - non-current (see below)              15                              13 
                                                                          9 
 Other loans and advances 
  receivable - non-current 
  (see below)                            99                             251 
=============================  ============      ========================== 
                                        183                             330 
=============================  ============      ========================== 
 

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 30 June   At 31 December 
                                     2017    2016 
                                             t 31 December 
                                             2016 
                                  US$'000          US$'000 
 Non-current: 
 Lease expiring in third 
  year after reporting date            15               13 
                                       15               13 
============================  ===========  =============== 
 

The non-current other loans and advances receivable comprise:

 
                               At 30 June   At 31 December 
                                     2017             2016 
                                  US$'000          US$'000 
 
 Loan to AREOF                         10               23 
 Loans to other AREOF Group 
  entities                             89              226 
 Other loans                            -                2 
============================  ===========  =============== 
                                       99              251 
============================  ===========  =============== 
 

In the period to 30 June 2017, a provision for bad debt for US$0.2 million (31 December 2016: US$ Nil) was made for balances with the AREOF Group for which settlement is considered uncertain. The remaining exposure of US$0.1 million is considered recoverable as these are advances made on behalf of the AREOF Group to third parties and we expect settlement when the third parties repay.

   11.     SHARE CAPITAL 

The Company's authorised share capital is unlimited with a nominal value of US$0.01.

 
                          30 June     30 June    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 did not recommend the payment of a final dividend for the year ended 31 December 2016 and do not recommend an interim dividend in respect of the current period.

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

12. RECONCILIATION OF NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES TO PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION

 
                                      Six months     Six months 
                                           ended          ended 
                                         30 June        30 June 
                                            2017           2016 
                                         US$'000        US$'000 
 
 Profit on ordinary activities 
  before taxation                          5,148          4,902 
 
 Interest income                            (88)           (44) 
 Depreciation                                 15             21 
 Realised and unrealised 
  gains                                  (1,729)        (1,094) 
 Net foreign exchange loss/ 
  (gain)                                       7           (39) 
 (Decrease)/increase in payables         (1,538)             29 
 Increase in receivables, 
  loans and advances                     (2,181)          (371) 
 Income taxes paid                             -           (93) 
=================================  =============  ============= 
 Net cash (outflow)/ inflow 
  from operating activities                (366)          3,311 
=================================  =============  ============= 
 
   13.     FAIR VALUE HIERARCY 

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 2b).

At 30 June 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                    -     13,982        148     14,130 
==================  ==========  =========  =========  ========= 
 

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 loss recognized 
  in profit or loss                        -                 14         14 
 Balance as at 30 
  June 2017                                 119              29        148 
=========================  ====================  ==============  ========= 
 
   14.   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 accounts at a fair value of US$10.2 million, US$0.1 million, US$0.03 million and US$3.8 million respectively.

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. These amounts accrued or receivable at 30 June 2017 total US$Nil (31 December 2016:Nil) after a bad debt provision of US$7.8 million (EUR6.8 million) (31 December 2016: US$6.4 million, EUR6.1 million). 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. The AREOF management contract has a fixed term expiring on 31 July 2018.

At the period end the Argo Group is also owed loans repayable on demand of US$1.9 million (EUR1.7 million) (31 December 2016: US$1.7 million, EUR1.6 million) by AREOF accruing interest at 10%. A full provision has been made in the consolidated financial statements against this balance at the current and prior period.

At the period end the Argo Group was owed a total balance of US$0.3 million (EUR0.3 million) (31 December 2016: US$0.2 million, EUR0.2 million) by other AREOF Group entities. A provision for bad debt of US$0.3 million (EUR0.1 million) (31 December 2016: US$0.1 million, EUR0.1 million) has been made in the accounts in respect of these balances.

In addition to the above, the Argo Group is owed a further US$0.3 million (EUR0.3 million) (31 December 2016: US$0.3 million (EUR0.3 million) for expenses paid on behalf of AREOF, against which a bad debt provision for US0.3 million (EUR0.3 million) (31 December 2016: US$0.3 million, EUR0.3 million)

In the audited consolidated financial statements of AREOF at 30 September 2016 a material uncertainty surrounding the refinancing of bank debts was referred to in relation to the basis of preparation of the consolidated 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.

   15.   COMMITMENTS 

On 19th June 2017, the Board of Argo Property Management Limited approved the purchase of a piece of land in Romania for US$ 223.233 (RON891,613). The 10% guarantee deposit in respect of the purchase was paid in June 2017. The purchase completed on 4 July 2017.

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR LIFFDTDILIID

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August 01, 2017 03:36 ET (07:36 GMT)

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