TIDMARGO
RNS Number : 7408Q
ARGO Group Limited
02 March 2021
Argo Group Limited
("Argo" or the "Company")
Annual Report and Accounts for the Year ended 31 December
2020
Argo today announces its final results for the year ended 31
December 2020.
The Company will today make available its report and accounts
for the year ended 31 December 2020 on the Company's website
www.argogrouplimited.com . These will be sent by post to
shareholders no later than 31 March 2021.
Key highlights for the twelve months ended 31 December 2020
- Revenues US$3.3 million (2019 restated: US$4.5 million)
- Operating loss US$0.9 million (2019 restated: operating loss US$0.6 million)
- Profit before tax US$1.7 million (2019 restated: profit before tax of US$0.6 million)
- Net assets US$22.8 million (2019 restated: US$21.3 million)
Commenting on the results and outlook, Kyriakos Rialas, Chief
Executive of Argo said:
" As 2021 progresses our thoughts go to those that lost their
lives and to the continuing uncertainty and disruption caused by
the pandemic. Our staff and our online contingency systems coped
very well in the last year keeping disruption to a minimum.
Argo group ended the year on a positive note with our
restructured Argo feeder Fund returning over 5.5% in its main share
class. Operationally we have concentrated all assets and investors
in the previously mentioned Argo Master feeder Fund thus reducing
expenses and improving efficiency.
We have also set up a US Feeder Fund to attract further
investments from US onshore investors as our main target remains to
increase assets under management."
Enquiries
Argo Group Limited
Andreas Rialas
020 7016 7660
Panmure Gordon
Dominic Morley
020 7886 2500
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) No 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018.
CHAIRMAN'S STATEMENT
Key highlights for the twelve months ended 31 December 2020
- Revenues US$3.3 million (2019 restated: US$4.5 million)
- Operating loss US$0.9 million (2019 restated: operating loss US$0.6 million)
- Profit before tax US$1.7 million (2019 restated: profit before tax of US$0.6 million)
- Net assets US$22.8 million (2019 restated: US$21.3 million)
The Group and its objective
Argo's investment objective is to provide investors with
absolute returns in the funds that it manages by investing in multi
strategy investments in emerging markets.
Argo was listed on the AIM market in November 2008 and has a
performance track record dating back to 2000.
Business and operational review
This report sets out the results of Argo Group Limited for the
year ended 31 December 2020.
For the year ended 31 December 2020 the Group generated revenues
of US$3.3 million (2019 restated: US$4.6 million) with management
fees accounting for US$2.6 million (2019: US$4.1 million). The
management contract from Argo Real Estate Opportunities Fund
Limited ("AREOF)" was terminated on 1 January 2020. The contract
with AREOF was for $1.1 million (EUR1 million) fees per annum. The
Group also generated incentive fees of US$0.5 million (2019
restated: US$0.2 million) during the year. The incentive fees
earned during the current year comprised $0.4 million from The Argo
Fund ("TAF") and $0.1 million from Argo Distressed Credit Fund
("ADCF"). The management contract of ADCF was also terminated on 1
November 2020.
Total operating costs, ignoring bad debt provisions, are US$3.7
million (2019: US$4.2 million). The Group has provided against
management fees of US$0.5 million from the Designated Investment
share class in TAF. In the Directors' view these amounts are fully
recoverable however they have concluded that it would be
appropriate to carry a provision against these receivables as the
timing of the receipts should match the exit from the investments
in this share class.
Overall, the financial statements show an operating loss for the
year of US$0.9 million (2019 restated: operating loss US$0.6
million) and a profit before tax of US$1.7 million (2019 restated:
profit before tax of US$0.6 million) reflecting the realised and
unrealised gain on current asset investments of US$1.5 million
(2019: unrealised gain of US$1.1 million) and interest income of $1
million (2019: $0.2 million).
At the year end, the Group had net assets of US$22.8 million
(2019 restated: US$21.3 million) and net current assets of US$8.8
million (2019 restated: US$20.7 million) including cash reserves of
US$0.7 million (2019: US$0.9 million). The Directors are not
declaring a final dividend.
Net assets include investment in TAF at fair value of US$6.8
million (2019: US$18.6 million).
At the year end the Argo Funds (excluding AREOF) owed the Group
total management and performance fees of US$1.0 million ( 31
December 2019 restated: US$0.7 million). The Group received $0.5
million of these fees in January 2021. The remaining fees of $0.5
million relates to the Designated Investment share class which will
be paid when the investments are sold and against which a full
provision has been made in these financial statements.
During the year the Master Feeder organisational structure of
the funds became fully operational. Furthermore, a US Feeder Fund
registered in Delaware was set up to attract US onshore
investors.
The Argo Funds ended the year with Assets under Management
("AUM") at US$119.1 million (2019: US$130.3). As mentioned earlier
the management contract with ADCF was terminated on 1 November 2020
having first transferred those assets and investors who wished to
continue with Argo to a new share class with The Argo Feeder Fund
Ltd. The current level of AUM remains below that required to ensure
sustainable profits on a recurring management fee basis in the
absence of performance fees. This has necessitated an ongoing
review of the Group's cost basis. Nevertheless, the Group has
ensured that the operational framework remains intact and that it
retains the capacity to manage additional fund inflows as and when
they arise.
The number of permanent employees of the Group at 31 December
2020 was 20 ( 2019 : 22).
Fund performance
The Argo Funds
2020 2019
Launch Year Year Since Annualised Sharpe Down
Fund Date Total Total inception performance ratio months AUM
% % % CAGR % US$m
-------- ------- ------- ----------- ------------- ------- -------- ------
The Argo 79 of
Fund Oct-00 5.53 2.18 242.29 7.02 0.50 243 119.1
-------- ------- ------- ----------- ------------- ------- -------- ------
Total 119.1
------- ------- ----------- ------------- ------- -------- ------
In common with most asset classes, emerging market fixed income
had a turbulent time in 2020. Initial reports of a new virus found
in China were noted but not quickly acted upon in most other
countries, with devastating economic and health consequences. As
infection and mortality rates rose across the globe, markets
tumbled in anticipation of the detrimental impact that the Covid-19
pandemic could have on production, trade and consumption. The
S&P 500 index had been on an upwards trajectory for most of the
Trump era and reached an all-time high of 3386 in February but lost
one third of that value by late March. The yield on US 10-year
Treasury bonds commenced the year at 1.88% but had dropped to 0.53%
in early April whilst oil prices also slumped with Brent falling
from $66 a barrel to less than $20. Not surprisingly, risk appetite
for credit risk in general and emerging market bonds in particular,
quickly diminished; the JP Morgan EMBI Global spread rose from a
low of 277bp in mid-January to a high of 661bp two months
later.
Since the Global Financial Crisis -and before in the case of
Japan- many advanced economies have deployed policy rates and
quantitative easing ("QE") to keep interest rates low and maintain
economic momentum but the shock threatened by Covid-19 forced the
rapid adoption of fiscal stimuli unprecedented in size outside of
wartime. In March the US Congress passed a US$2.2 trillion package
and other countries followed suit, if not in the same quantum. The
European Union ("EU") launched a Euro 750 billion recovery plan
which was also notable for being financed by joint debt issuance
and the recipient countries received grants as well as loans. The
policy response and relaxation of health measures led to a
generalised upturn in economic activity from Q3 onwards and markets
recovered somewhat by the end of the year. Despite the noise
created by the US presidential election, the S&P 500 set new
all-time highs, US 10-year Treasury bond yield edged back towards
1% and JP Morgan EMBI Global spreads declined about 50% from the
peak level.
Many EM countries were unable to match the policy actions
described above as they lack the resources to combat the impact of
higher healthcare costs, lower commodity prices, fewer export
opportunities and curtailment of tourism. However some countries in
Asia, notably China and Vietnam, fared comparatively well amidst
the difficulties whilst, in contrast, the Latin America region
struggled. Recognising the elevated debt levels of certain
countries even prior to the pandemic, the G20 launched the Debt
Service Suspension Initiative ("DSSI") which means that bilateral
official creditors will, during a limited period, suspend debt
service payments from the poorest countries (73 low- and lower
middle-income countries) that request the suspension. The private
sector has been invited to join this initiative but so far only one
country (Zambia) has requested such relief from bondholders.
TAF was not exempt from these swings of fortune. The Class A
shares recorded a gain of over 5% in 2020 despite having a
difficult first half of the year, as the prices of a number of
sovereign bonds recovered; whilst the fund experienced drawdowns in
the market sell-off, the magnitude was lower due to conservative
positioning and focus on preserving capital. The Designated
Investment shares - currently holding a position in distressed
sovereign debt - rose by 84.6% due to the thaw in the relationship
between the US and Sudan including the latter's removal from the
State Sponsor of Terrorism list and heightened expectations of a
stabilisation of the country's economy including a debt
reconciliation and restructuring. A Delaware feeder was also
created during the year to allow wider US investor participation in
all share classes of TAF.
Argo Capital Management relinquished its role as investment
manager of ADCF during the year.
The transition period for the withdrawal of the United Kingdom
("UK") from the EU ended on 31(st) December 2020. The regulatory
regime covering financial services between the two jurisdictions
has yet to be finalized but the UK continues to implement the
EU-imposed Alternative Investment Fund Managers Directive for the
time being and it is important to note that there was never a
single market for non-EEA funds such as TAF, with marketing
restrictions varying from country to country.
Dividends
The Directors are not declaring a final dividend but intend to
restart dividend payments as soon as the Group's performance
provides a consistent track record of profitability.
Outlook
As previously stated, a significant increase in AUM is still
required to ensure sustainable profits on a recurring management
fee basis. The Group is well placed with capacity to absorb such an
increase in AUM with negligible impact on operational costs.
Raising AUM remains Argo's top priority over the coming year.
The Group's marketing efforts continues to focus on TAF which has
20 years of track record. However, the Group continues to seek
opportunities to increase AUM either through existing fund
structures or by identifying external partners with whom to
cooperate.
Over the longer term, the Board believes there is significant
opportunity for growth in assets and profits and remains committed
to ensuring the Group's investment management capabilities and
resources are appropriate to meet its key objective of achieving a
consistent positive investment performance in the emerging markets
sector.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
YEARED 31 DECEMBER 2020
Year ended Year ended
31 December 31 December
2020 2019
Restated
Note US$'000 US$'000
Management fees 2,569 4,070
Performance fees 457 188
Other income 264 237
============================================= ====== ============ ============
2(e),
Revenue 3 3,290 4,495
============================================= ====== ============ ============
Legal and professional expenses (511) (501)
Management and incentive fees payable (207) (57)
Operational expenses (661) (858)
Employee costs 4 (2,161) (2,581)
Foreign exchange gain/(loss) 64 (22)
Bad debts 11 (484) (935)
Depreciation 9 (198) (162)
============================================= ====== ============ ============
Operating loss 6 (868) (621)
============================================= ====== ============ ============
Interest income 1,022 174
Realised and unrealised gains on
investments 1,514 1,073
============================================= ====== ============ ============
Profit on ordinary activities before
taxation 3 1,668 626
============================================= ====== ============ ============
Taxation 7 - (30)
============================================= ====== ============ ============
Profit for the year after taxation
attributable to members of the Company 8 1,668 596
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation
of foreign operations (123) (72)
============================================= ====== ============ ============
Total comprehensive income for the
year 1,545 524
============================================= ====== ============ ============
Year ended Year ended
31 December 31 December
2020 2019
US$ US$
Earnings per share (basic) 8 0.04 0.01
============================== ============ ============
Earnings per share (diluted) 8 0.04 0.01
============================== ============ ============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
At 31 December 2020 At 31 December
2019
Restated
Note US$'000 US$'000
-------------------------------- ----- -------------------- ---------------
Assets
Non-current assets
Land, fixtures, fittings and
equipment 9 484 661
Financial assets at fair value
through profit or loss 10 - 56
Loans and advances receivable 12 13,645 120
-------------------------------- ----- -------------------- ---------------
Total non-current assets 14,129 837
-------------------------------- ----- -------------------- ---------------
Current assets
Financial assets at fair value
through profit or loss 10 6,818 19,357
Loan and advances receivable 12 13 -
Trade and other receivables 11 1,669 951
Cash and cash equivalents 13 675 863
-------------------------------- ----- -------------------- ---------------
Total current assets 9,175 21,171
-------------------------------- ----- -------------------- ---------------
Total assets 3 23,304 22,008
-------------------------------- ----- -------------------- ---------------
Equity and liabilities
Equity
Issued share capital 14 390 390
Share premium 25,353 25,353
Revenue reserve 122 (1,546)
Foreign currency translation
reserve 2(d) (3,055) (2,932)
-------------------------------- ----- -------------------- ---------------
Total equity 22,810 21,265
-------------------------------- ----- -------------------- ---------------
Current liabilities
Trade and other payables 15 415 443
Taxation payable 7 - 20
-------------------------------- ----- -------------------- ---------------
Total current liabilities 3 415 463
-------------------------------- ----- -------------------- ---------------
Non-current Liabilities
Trade and other payables 15 79 280
-------------------------------- ----- -------------------- ---------------
Total non-current liabilities 79 280
-------------------------------- ----- -------------------- ---------------
Total equity and liabilities 23,304 22,008
-------------------------------- ----- -------------------- ---------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARED 31 DECEMBER 2020
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2019 2019 2019 2019 2019
US$'000 US$'000 US$'000 US$'000 US$'000
Restated Restated
Restated at 1 January
2019 (note 16) 470 28,022 (2,142) (2,860) 23,490
Total comprehensive income
Restated profit for the
year after taxation - - 596 - 596
Other comprehensive income - - - (72) (72)
Transactions with owners
recorded directly in
equity
Purchase of own shares
(note 14) (80) (2,669) - - (2,749)
Restated at 31 December
2019 (note16) 390 25,353 (1,546) (2,932) 21,265
============================ ========== ========== ========== ============== =========
Foreign
Issued currency
share Share Revenue translation
capital premium reserve reserve Total
2020 2020 2020 2020 2020
US$'000 US$'000 US$'000 US$'000 US$'000
Restated at 1 January
2020 390 25,353 (1,546) (2,932) 21,265
Total comprehensive income
Profit for the year after
taxation - - 1,668 - 1,668
Other comprehensive income - - - (123) (123)
Transactions with owners
recorded directly in
equity
Purchase of own shares - - - - -
(note 14)
As at 31 December 2020 390 25,353 122 (3,055) 22,810
============================ ========== ========== ========== ============== ========
CONSOLIDATED STATEMENT OF CASH FLOWS YEARED 31 DECEMBER 2020
Year ended Year ended
31 December 31 December
2020 2019
Restated
Note US$'000 US$'000
Net cash outflow from operating
activities 17 (515) (129)
Cash flows from investing activities
Interest received on cash and
cash equivalents 3 11
Share buy back 14 - (2,749)
Disposal of financial assets
at fair value through profit
or loss 10 11,797 -
Distribution from investments - (12)
Loan investments 12 (11,200) -
Purchase of fixtures, fittings
and equipment 9 - (5)
====================================== ===== ============ ============
Net cash generated/(used) in
investing activities 600 (2,731)
====================================== ===== ============ ============
Cash flows from financing activities
Payment of lease liabilities 16 (191) (199)
====================================== ===== ============ ============
Net cash used in financing
activities (191) (199)
====================================== ===== ============ ============
Net decrease in cash and cash
equivalents (106) (3,059)
Cash and cash equivalents at
1 January 2020 and
1 January 2019 863 4,005
Foreign exchange loss on cash
and cash
Equivalents (82) (83)
Cash and cash equivalents as
at 31 December 2020 and 31
December 2019 675 863
====================================== ===== ============ ============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
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 20 (2019: 22) employees.
Wholly owned subsidiaries Country of incorporation
Argo Capital Management (Cyprus) Limited (terminated Cyprus
30 November 2020)
Argo Capital Management Limited United Kingdom
Argo Capital Management Property Limited (dissolved Cayman Islands
in June 20)
Argo Property Management Srl Romania
2. ACCOUNTING POLICIES
(a) Accounting convention
These consolidated financial statements have been prepared on a
historical cost basis, except for the revaluation of certain
financial instruments, and in accordance with International
Financial Reporting Standards, as adopted by the EU.
Going concern
The financial statements have been prepared on a going concern
basis which assumes that the Group will be able to meet its
liabilities as they fall due for the foreseeable future.
The Directors have carried out a rigorous assessment of all the
factors affecting the business in deciding to adopt the going
concern basis for the preparation of the accounts. They have
reviewed and examined the Group's financial and other processes
including the annual budgeting process and expect the Group to have
sufficient cash resources available in the foreseeable future. This
has included the preparation of forecast financial information
focussed on cash flow requirements through to at least March 2021.
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 consolidated financial
statements.
The Directors have therefore concluded that it is appropriate to
prepare the consolidated financial statements on a going concern
basis.
(b) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries. Subsidiaries are
consolidated from the date upon which control is transferred to the
Company and cease to be consolidated from the date upon which
control is transferred from the Company.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used
into line with those used by the Company. All intra-group
transactions, balances, income and expenses are eliminated on
consolidation.
(c) Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed and equity instruments
issued by the Group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination. The
acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3
are recognised at their fair value at the acquisition date.
Goodwill
Goodwill arising on the consolidation represents the excess of
the cost of the acquisition over the Company's interest in the fair
value of the identifiable assets and liabilities of a subsidiary at
the date of acquisition. Any excess of the Company's interest in
the fair value of the identifiable assets and liabilities over the
cost of the acquisition (negative goodwill) is immediately
recognised in the Consolidated statement of profit or loss.
Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less any accumulated impairment
losses. Goodwill which is recognised as an asset is reviewed at
least annually for impairment. Any impairment is recognised
immediately in the Consolidated statement of profit or loss.
Impairment of intangible assets
At each reporting date the Group reviews the carrying amounts of
its intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss, if
any.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have been adjusted.
If the recoverable amount of an asset is estimated to be less
than its carrying amount, the carrying amount of the asset is
reduced to its recoverable amount. An impairment loss is recognised
as an expense immediately, unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as
a revaluation decrease.
(d) Foreign currency translation
The consolidated financial statements are expressed in US
dollars. Transactions denominated in currencies other than US
dollars have been translated at the rate of exchange prevailing at
the date of the transaction. Assets and liabilities in other
currencies are translated to US dollars at the rates of exchange
prevailing at the reporting date. The resulting profits or losses
are reflected in the Consolidated statement of profit or loss.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations are
translated at exchange rates prevailing on the reporting date.
Income and expense items are translated at the average exchange
rates for the year. Exchange differences arising, if any, are
classified as equity and transferred to the Group's foreign
currency translation reserve.
(e) Revenue
Revenue is recognised to the extent that it is probable that
economic benefit will flow to the Group and the revenue can be
reliably measured.
Management and incentive fees receivable
The Group recognises revenue for providing management services
to funds. Revenue is accrued on a monthly basis on completion of
management services. In the Argo funds revenue is based on the
assets under management of each mutual fund.
Incentive fees arise monthly, quarterly or on realisation of an
investment. Incentive fees are recognised in the month they
arise.
(f) Depreciation
Plant and equipment is initially recorded at cost and
depreciated on a straight-line basis over the expected useful lives
of the assets, after taking into account the assets' residual
values, as follows:
Leasehold 20% per annum
Fixtures and fittings 33 1/3% per annum
Office equipment 33 1/3% per annum
Computer equipment and software 33 1/3% per annum
(g) IFRS 9 "Financial instruments"
The standard requires debt financial assets to be classified
into two measurement categories: those to be measured subsequently
at fair value (either through other comprehensive income (FVOCI) or
through profit or loss (either FVTPL or FVPL) and those to be
measured at amortized cost. The determination is made at initial
recognition. For debt financial assets the classification depends
on the entity's business model for managing its financial
instruments and the contractual cash flows characteristics of the
instruments. For equity financial assets it depends on the entity's
intentions and designation.
In particular, assets that are held for collection of
contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortised cost.
Assets that are held for collection of contractual cash flows and
for selling the financial assets, where the assets' cash flows
represent solely payments of principal and interest, are measured
at fair value through other comprehensive income. Lastly, assets
that do not meet the criteria for amortised cost or fair value
through other comprehensive income are measured at fair value
through profit or loss.
For investments in equity instruments that are not held for
trading, the classification depends on whether the entity has made
an irrevocable election at the time of initial recognition to
account for the equity investment at fair value through other
comprehensive income. If no such election has been made or the
investments in equity instruments are held for trading they are
required to be classified at fair value through profit or loss.
IFRS 9 also introduces a single impairment model applicable for
debt instruments at amortised cost and fair value through other
comprehensive income and removes the need for a triggering event to
be necessary for recognition of impairment losses. The new
impairment model under IFRS 9 requires the recognition of
allowances for doubtful debts based on expected credit losses
(ECL), rather than incurred credit losses as under IAS 39. The
standard further introduces a simplified approach for calculating
impairment on trade receivables as well as for calculating
impairment on contract assets and lease receivables; which also
fall within the scope of the impairment requirements of IFRS 9.
For financial liabilities, the standard retains most of the
requirements of IAS 39. The main change is that, in case where the
fair value option is taken for financial liabilities, the part of a
fair value change due to the entity's own credit risk is recorded
in other comprehensive income rather than in profit or loss, unless
this creates an accounting mismatch.
The Group has adopted IFRS 9 with a date of transition of 1
January 2018, which resulted in changes in accounting policies for
recognition, classification and measurement of financial assets and
liabilities and impairment of financial assets.
(h) Trade date accounting
All 'regular way' purchases and sales of financial assets are
recognised on the 'trade date', i.e. the date that the entity
commits to purchase or sell the asset. Regular way purchases or
sales are purchases or sales of financial assets that require
delivery of the asset within the time frame generally established
by regulation or convention in the market place.
(i) Financial instruments
Financial assets - Classification
The Group classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value (either
through OCI or through profit or loss), and
-- those to be measured at amortised cost
The classification and subsequent measurement of debt financial
assets depends on: (i) the Group's business model for managing the
related assets portfolio and (ii) the cash flow characteristics of
the asset. On initial recognition, the Group may irrevocably
designate a debt financial asset that otherwise meets the
requirements to be measured at amortized cost or at FVOCI at FVTPL
if doing so eliminates or significantly reduces an accounting
mismatch that would otherwise arise.
All other financial assets are classified as measured at
FVTPL.
For assets measured at fair value, gains and losses will either
be recorded in profit or loss or OCI. For investments in equity
instruments that are not held for trading, this will depend on
whether the Group has made an irrevocable election at the time of
initial recognition to account for the equity investment at fair
value through other comprehensive income (FVOCI).
Currently the Group holds only investments which have been
classified as financial assets at fair value through profit or
loss. Investments held at fair value in managed mutual funds are
valued at fair value of the net assets as provided by the
administrators of those funds. Where funds contain level 3 assets
the Directors will consider the carrying value based on information
regarding future expected cash flows using appropriate valuation
techniques such as discounted cash flow analysis. 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.
Financial assets - Measurement
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at fair
value through profit or loss (FVTPL), transaction costs that are
directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVTPL are expensed
in profit or loss. Fair value at initial recognition is best
evidenced by the transaction price. A gain or loss on initial
recognition is only recorded if there is a difference between fair
value and transaction price which can be evidenced by other
observable current market transactions in the same instrument or by
a valuation technique whose inputs include only data from
observable markets.
Financial assets -- impairment -- credit loss allowance for
ECL
The Group assesses on a forward--looking basis the ECL for debt
instruments (including loans) measured at Amortized Cost and FVOCI
and with the exposure arising from loan commitments and financial
guarantee contracts. The Group measures ECL and recognises credit
loss allowance at each reporting date. The measurement of ECL
reflects: (i) an unbiased and probability weighted amount that is
determined by evaluating a range of possible outcomes, (ii) time
value of money and (iii) all reasonable and supportable information
that is available without undue cost and effort at the end of each
reporting period about past events, current conditions and
forecasts of future conditions.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash
equivalents comprise cash at bank. Cash and cash equivalents are
carried at Amortized Cost because: (i) they are held for collection
of contractual cash flows and those cash flows represent SPPI, and
(ii) they are not designated at FVTPL.
Financial Liabilities
Financial liabilities are initially recognised at fair value and
classified as subsequently measured at amortised cost, except for
(i) financial liabilities at FVTPL: this classification is applied
to derivatives, financial liabilities held for trading (e.g. short
positions in securities), contingent consideration recognised by an
acquirer in a business combination and other financial liabilities
designated as such at initial recognition and (ii) financial
guarantee contracts and loan commitments.
(j) Loans and borrowings
Loans and borrowings are recognised initially at fair value, net
of transaction costs incurred. Loans and borrowings are
subsequently carried at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption value is
recognised in profit or loss over the period of the borrowings,
using the effective interest method, unless they are directly
attributable to the acquisition, construction or production of a
qualifying asset, in which case they are capitalised as part of the
cost of that asset. Loans and borrowings are classified as current
liabilities, unless the Group has an unconditional right to defer
settlement of the liability for at least twelve months after the
statement of financial position date.
(k) Current taxation
Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amounts are those
enacted or substantively enacted by the reporting date.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
Consolidated statement of profit or loss because it excludes items
of income or expense that are taxable or deductible in other
periods or because it excludes items that are never taxable or
deductible.
(l) Deferred taxation
Deferred income tax is provided for using the liability method
on temporary timing differences at the reporting date between the
tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred tax liabilities are
recognised in full for all temporary differences. Deferred tax
assets are recognised for all deductible temporary differences,
carried forward unused tax credits and unused tax losses to the
extent that it is probable that taxable profit will be available
against which the deductible temporary differences and
carry-forward of unused tax credits and unused losses can be
utilised.
The carrying amount of deferred income tax assets is revalued at
each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each
reporting date and are recognised to the extent that is probable
that future taxable profits will allow the deferred tax asset to be
recovered. Deferred income tax assets and liabilities are measured
at the tax rates that are expected to apply in the year when the
asset is realised or the liability settled, based on tax rates that
have been enacted or substantively enacted at the reporting
date.
(m) Accounting estimates, assumptions and judgements
The preparation of the consolidated financial statements
necessitates the use of estimates, assumptions and judgements.
These estimates, assumptions and judgements affect the reported
amounts of assets, liabilities and contingent liabilities at the
reporting date as well as affecting the reported income and
expenses for the year. Although the estimates are based on
management's knowledge and best judgment of information and
financial data, the actual outcome may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that and prior periods, or in the period of the revision and
future periods if the revision affects both current and future
periods.
In the process of applying the Group's accounting policies,
which are described above, management has made best judgements of
information and financial data that have the most significant
effect on the amounts recognised in the consolidated financial
statements:
- Investments fair value
- Management fees
- Trade receivables
- Going concern
- Loans and advances
It has been assumed that, when available, the audited financial
statements of the funds under the Group's management will confirm
the net asset values used in the calculation of management and
performance fees receivable.
(n) Leases
At inception of a contract, the Group assesses whether a contract
is, or contains, a lease. A contract is, or contains, a lease
if the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. To
assess whether a contract conveys the right to control the use
of an identified asset, the Group assesses whether:
* the contract involves the use of an identified asset
this may be specified explicitly or implicitly and
should be physically distinct or represent
substantially all of the capacity of a physically
distinct asset. If the supplier has a substantive
substitution right, then the asset is not identified;
* the Group has the right to obtain substantially all
of the economic benefits from use of the asset
throughout the period of use; and
* the Group has the right to direct the use of the
asset. The Group has this right when it has the
decision--making rights that are most relevant to
changing how and for what purpose the asset is used.
In rare cases where the decision about how and for
what purpose the asset is used is predetermined, the
Group has the right to direct the use of the asset if
either:
* the Group has the right to operate the asset; or
* the Group designed the asset in a way that
predetermines how and for what purpose it will be
used.
At inception or on reassessment of a contract that contains
a lease component, the Group allocates the consideration in
the contract to each lease component on the basis of their relative
stand--alone prices. However, for the leases of land and buildings
in which it is a lessee, the Group has elected not to separate
non--lease components and account for the lease and non--lease
components as a single lease component.
The Group as lessee
The Group recognises a right of use asset and a lease liability
at the lease commencement date. The right of use asset is initially
measured at cost, which comprises the initial amount of the lease
liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an
estimate of costs to dismantle and remove the underlying asset or
to restore the underlying asset or the site on which it is located,
less any lease incentives received.
The right of use asset is subsequently depreciated using the
straight line method from the commencement date to the earlier of
the end of the useful life of the right of use asset or the end of
the lease term. The estimated useful lives of right of use assets
are determined on the same basis as those of property and
equipment. In addition, the right of use asset is periodically
reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate.
Lease payments included in the measurement of the lease
liability comprise the following:
- fixed payments, including in substance fixed payments;
- variable lease payments that depend on an index or a rate,
initially measured using the index or rate as at the commencement
date;
- amounts expected to be payable under a residual value guarantee; and
- the exercise price under a purchase option that the Group is
reasonably certain to exercise, lease payments in an optional
renewal period if the Group is reasonably certain to exercise an
extension option, and penalties for early termination of a lease
unless the Group is reasonably certain not to terminate early
The lease liability is measured at amortised cost using the
effective interest method. It is remeasured when there is a change
in future lease payments arising from a change in an index or rate,
if there is a change in the Group 's estimate of the amount
expected to be payable under a residual value guarantee, or if the
Group changes its assessment of whether it will exercise a
purchase, extension or termination option.
(o) Financial instruments and fair value hierarchy
The following represents the fair value hierarchy of financial
instruments measured at fair value in the consolidated statement of
financial position. The hierarchy groups financial assets and
liabilities into three levels based on the significance of inputs
used in measuring the fair value of the financial assets and
liabilities. The fair value hierarchy has the following levels:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The level within which the financial asset or liability is
classified is determined based on the lowest level of significant
input to the fair value measurement.
(p) Future changes in accounting policies
IASB (International Accounting Standards Board) and IFRIC
(International Financial Reporting Interpretations Committee) have
issued the following standards and interpretations with an
effective date after the date of these financial statements:
(i) Not adopted by the EU
New / Revised International Financial Reporting Effective date -
Standards (IAS/IFRS) not yet endorsed
by the EU
----------------------------------------------------- ------------------
Effective date of IBOR reform Phase 2 amendments 1 January 2021
Effective date of IFRS 3 amendments updating 1 January 2022
a reference to the Conceptual Framework
Effective date of IAS 37 amendments regarding 1 January 2022
onerous contracts
Effective date of IAS 16 amendments regarding 1 January 2022
proceeds before intended use
Effective date of IAS 1 amendments on classification 1 January 2023
IFRS 17 "Insurance contracts" 1 January 2023
Effective date of amendments on disclosure 1 January 2023
of accounting policies
Effective date of IAS 8 amendments on accounting 1 January 2023
estimates
----------------------------------------------------- ------------------
The Directors do not expect the adoption of these standards and
interpretations to have a material impact on the Group's financial
statements in the period of initial application.
(q) Dividends payable
Interim and final dividends are recognised when declared.
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
Management Argo Capital Management
Argo Group (Cyprus) Management Property Year ended
Ltd Limited Limited Limited 31 December
2020 2020 2020 2020 2020
US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments 30 - 3,025 235 3,290
Intersegment - - - - -
revenues
Total profit/(loss)
for reportable
segments 2,850 (421) (203) (558) 1,668
Intersegment
profit/(loss) 352 (352) - - -
Total assets
for reportable
segments 21,472 8 1,541 283 23,304
Total liabilities
for reportable
segments 41 4 394 55 494
===================== =========== ============= ============= ============= =============
Revenues, profit or loss, assets and liabilities Year ended
may be reconciled as follows:
31 December
2020
US$'000
Revenues
Total revenues for reportable segments 3,290
Elimination of intersegment revenues -
================================================== =============
Group revenues 3,290
================================================== =============
Profit or loss
Total profit for reportable segments 1,668
Other unallocated amounts (-)
================================================== =============
Profit on ordinary activities 1,668
================================================== =============
Assets
Total assets for reportable segments 26,606
Elimination of intersegment receivables (3,302)
Group assets 23,304
================================================== =============
Liabilities
Total liabilities for reportable segments 3,796
Elimination of intersegment payables (3,302)
================================================== =============
Group liabilities 494
================================================== =============
Argo Capital
Management Argo Capital Argo Capital
Argo Group (Cyprus) Management Management Year ended
Ltd Limited Limited Property Limited 31 December
2019 2019 2019 2019 2019
Restated Restated
US$'000 US$'000 US$'000 US$'000 US$'000
Total revenues
for reportable
segments - 887 3,138 1,357 5,382
Intersegment
revenues - (887) - - (887)
Total profit/(loss)
for reportable
segments 594 213 (68) (143) 596
Intersegment
profit/(loss) 1,693 (1,300) (393) - -
Total assets
for reportable
segments 19,547 383 1,618 460 22,008
Total liabilities
for reportable
segments 40 132 469 102 743
==================== ========== ============ ============ ================= ============
Revenues, profit or loss, assets and liabilities Year ended
may be reconciled as follows:
31 December
2019
Restated
US$'000
Revenues
Total revenues for reportable segments 5,382
Elimination of intersegment revenues (887)
================================================== =============
Group revenues 4,495
================================================== =============
Profit or loss
Total profit for reportable segments 596
Other unallocated amounts (-)
================================================== =============
Profit on ordinary activities 596
================================================== =============
Assets
Total assets for reportable segments 22,547
Elimination of intersegment receivables (539)
Group assets 22,008
================================================== =============
Liabilities
Total liabilities for reportable segments 1,282
Elimination of intersegment payables (539)
================================================== =============
Group liabilities 743
================================================== =============
4. EMPLOYEE COSTS
Year ended Year ended
31 December 31 December
2020 2019
US$'000 US$'000
Wages and salaries -under employment
contract 1,614 1,986
Wages and salaries - under service contract 263 286
Social security costs 189 222
Other 95 87
============================================= ============== ==============
2,161 2,581
============================================= ============== ==============
5. KEY MANAGEMENT PERSONNEL REMUNERATION
Included in employee costs are payments to the following:
Year ended Year ended
31 December 31 December
2020 2019
US$'000 US$'000
Directors and key management personnel 989 988
======================================== ============== ==============
The remuneration of the Directors of the Company for the year
was as follows:
Year ended Year ended
Cash bonus 31 December 31 December
Salaries Fees Benefits 2020 2019
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive
Directors
Kyriakos
Rialas 217 - - - 217 213
Andreas
Rialas 203 - 13 - 216 215
Non-Executive
Directors
Michael
Kloter - 55 - - 55 52
David Fisher - 32 - - 32 32
Ken Watterson - 32 - - 32 32
--------------- ------------- ---------- ------------- ------------- -------------- --------------
6. OPERATING (LOSS)/PROFIT
Operating profit is stated after charging:
Year ended Year ended
31 December 31 December
2020 2019
US$'000 US$'000
Auditors' remuneration 67 72
Depreciation -owned assets 10 9
Depreciation - right of use assets 187 153
Directors' fees and key management
personnel 989 988
Rent expense 18 66
======================================= ============== ==============
7. TAXATION
Taxation rates applicable to the parent company and the Cypriot,
UK, and Romanian subsidiaries range from 0% to 12.5% (2019: 0% to
12.5%).
Consolidated statement of
profit or loss
Year ended Year ended
31 December 31 December
2020 2019
US$'000 US$'000
Taxation charge for the year on Group
companies - 30
Tax on profit on ordinary activities - 30
======================================= ================ ==============
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
2020 2019
Restated
US$'000 US$'000
Profit before tax 1,668 626
======================================= ============== ==============
Applicable Isle of Man tax rate for
Argo Group Limited of 0% - -
Timing differences (2) (3)
Non-deductible expenses 1 4
Other adjustments 55 47
Tax effect of different tax rates
of subsidiaries operating in
other jurisdictions (54) (18)
======================================= ============== ==============
Tax charge - 30
======================================= ============== ==============
Consolidated statement of financial position
At 31 December At 31 December
2020 2019
US$'000 US$'000
Corporation tax payable/receivable - 20
==================================== ================= ===============
8. EARNINGS PER SHARE
The Company presents basic and diluted earnings per share (EPS)
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares
outstanding during the period. Diluted EPS is determined by
dividing the profit or loss attributable to ordinary shareholders
of the Company by the weighted average number of ordinary shares
outstanding, adjusted for the effects of all dilutive potential
ordinary shares (see note 20).
Year ended Year ended
31 December 31 December
2020 2019
Restated
US$'000 US$'000
Profit for the year after taxation
attributable to members 1,668 596
===================================== ============== ==============
No. of No. of
Shares Shares
Weighted average number of ordinary
shares for basic earnings
per share 38.959,986 40,978,209
Effect of dilution (note 20) 4,340,000 4,340,000
===================================== ============== ==============
Weighted average number of ordinary
shares for diluted earnings per
share 43,299,986 45,318,209
===================================== ============== ==============
Year ended Year ended
31 December 31 December
2020 2019
US$ US$
Earnings per share (basic) 0.04 0.01
Earnings per share (diluted) 0.04 0.01
============================== ============== ==============
9. LAND, FIXTURES, FITTINGS AND EQUIPMENT
Right Fixtures,
of use fittings
asset & equipment Land Total
US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2019 - 266 184 450
IFRS 16 recognition at 1
January 2019 717 - - 717
Additions 91 6 - 96
Disposals - (31) - (31)
Foreign exchange movement - 20 (5) 15
-------------------------------- -------- ------------- -------- --------
As at 31 December 2019 808 260 179 1,247
Additions - - - -
Disposals - - - -
Foreign exchange movement 25 6 17 48
-------------------------------- -------- ------------- -------- --------
At 31 December 2020 833 266 196 1,295
-------------------------------- -------- ------------- -------- --------
Accumulated Depreciation
At 1 January 2019 - 238 - 238
IFRS 16 recognition at 1
January 2019 191 - - 191
Depreciation charge for period 153 9 - 162
Disposals - (31) - (31)
Foreign exchange movement - 26 - 26
-------------------------------- -------- ------------- -------- --------
At 31 December 2019 344 242 - 586
Depreciation charge for period 188 10 - 198
Disposals - - - -
Foreign exchange movement 23 4 - 27
-------------------------------- -------- ------------- -------- --------
At 31 December 2020 555 256 - 811
-------------------------------- -------- ------------- -------- --------
Net Book Value
At 31 December 2019 464 18 179 661
-------------------------------- -------- ------------- -------- --------
At 31 December 2020 278 10 196 484
-------------------------------- -------- ------------- -------- --------
10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 31 December
2020 2020
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
20,061 The Argo Fund Ltd* 5,511 6,818
5,511 6,818
======== ======================= ============= =============
31 December 31 December
2019 2019
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
57,301 The Argo Fund Ltd* 15,472 18,587
- Argo Real Estate Opportunities - -
Fund Ltd
Argo Special Situations
115 Fund LLP 115 56
Argo Distressed Credit
221 Fund Limited* 786 4 770
16,373 19,413
======== =============================== ============= ==== =============
*Classified as current in the consolidated statement of
financial position
11. TRADE AND OTHER RECEIVABLES
At 31 December At 31 December
2020 2019
Restated
US$ '000 US$ '000
Trade receivables - Gross 1,291 10,489
Less: provision for impairment
of trade receivables (780) (9,733)
-------------------------------- ----------------- -----------------
Trade receivables - Net 512 756
Other receivables 1,061 105
Prepayments and accrued income 95 90
================================ ================= =================
1,669 951
================================ ================= =================
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$0.5million in full settlement of these trade
receivables.
The management contract with AREOF was terminated on 1 January
2020 and the balances were transferred from trade receivables to
loans and advances receivable at a net book value of $nil.
The movement in the Group's provision for impairment of trade
and loan receivables is as follows:
At 31 December At 31 December
2020 2019
US$ '000 US$ '000
As at 1 January 12,405 11,803
Bad debt recovered - (335)
Provision charged during the year 484 1,270
Foreign exchange movement 1,212 (333)
As at 31 December 14,101 12,405
=================================== ================= =================
At year end, the provision for impairment of loan receivables
related to balances owed by AREOF for US$13.3 million (2019: US$2.7
million). During the year US$9.5 million of trade receivables from
AREOF was transferred from trade receivables to loan
receivables.
12. LOANS AND ADVANCES RECEIVABLE
At 31 December At 31 December
2020 2019
US$'000 US$'000
-
Deposits on leased premises - current 13 6
Deposits on leased premises - non-current
(see below) 111 120
Other loans and advances receivable - -
- current
Other loans and advances receivable 13,534 -
- non-current
============================================= ================== =========================
13,658 120
============================================= ================== =========================
The deposits on leased premises relate to the Group's offices in
London and Romania.
Other loans and advances receivable relates to a loan for $11.2
million (EUR10.2 million) made by Argo Group Limited to Argo Real
Estate Limited Partnership, an entity that is 100% owned by Andreas
Rialas. The loan carries an interest rate of 9%.
The Group also have a balance receivable for $13.3 million
(EUR10.9 million) from AREOF. The carrying value of this balance is
$nil.
13. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is a balance of US$nil
(2019: US$27,000) 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 was not freely available.
14. SHARE CAPITAL
The Company's authorised share capital is unlimited ordinary
shares with a nominal value of US$0.01.
31 December 31 December 31 December 31 December
2020 2020 2019 2019
No. US$'000 No. US$'000
Issued and fully paid
Ordinary shares of
US$0.01 each 38,959,986 390 38,959,986 390
======================= ============= ============ =============== ===============
38,959,986 390 38,959,986 390
======================= ============= ============ =============== ===============
The Directors do not recommend the payment of a final dividend
for the year ended 31 December 2020 (31 December 2019: US$nil).
15. TRADE AND OTHER PAYABLES
At 31 December At 31 December
2020 2019
US$ '000 US$ '000
Trade creditors 118 17
Other creditors and accruals 297 426
=============================== =============== ===============
Total current trade and other
payables 415 443
=============================== =============== ===============
Trade creditors are normally settled on 30-day terms.
At 31 December At 31 December
2020 2019
US$ '000 US$ '000
Other creditors and accruals 79 280
=================================== =============== ===============
Total non-current trade and other
payables 79 280
=================================== =============== ===============
16. PRIOR YEAR ADJUSTMENTS
The comparatives have been restated for correction of
performance fees for the prior period arising from a problem with
the fund administrator system. Comparatives were adjusted by
decreasing performance fees and debtors by US$0.4 million. As a
result, the opening revenue reserve at 1 January 2020 has been
adjusted downward by US$0.4 million.
Moreover, it transpired that US$0.2 million additional
performance fees relating to 2017 was still due to investment
manager. This amount was received during 2020 and was recorded as
an adjustment to the opening revenue reserve of the prior year at 1
January 2019. The prior year adjustments are summarized below:
2020 2019
US$'000 US$'000
------------------------------- -------- --------
Opening revenue reserve at 1
January (1,136) (2,363)
Prior year adjustment (410) 221
------------------------------- -------- --------
Restated opening reserve at 1
January (1,546) (2,142)
------------------------------- -------- --------
17. RECONCILIATION OF NET CASH OUTLOW FROM OPERATING ACTIVITIES
TO LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended
31 December 31 December
2020 2019
Restated
US$ '000 US$ '000
Profit on ordinary activities
before taxation 1,668 626
Interest income (1,022) (174)
Depreciation 198 162
Provision for bad debts 484 -
(Decrease)/increase in payables (38) 125
(Increase)/decrease in receivables (201) 188
Increase in fair value of current
asset investments (1,520) (1,073)
Net foreign exchange (gain)/loss (64) 22
Income taxes paid (20) (5)
------------------------------------ ------------ ------------
Net cash outflow from operating
activities (515) (129)
------------------------------------ ------------ ------------
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 an investment in The
Argo Fund Limited. This investment is reflected in the consolidated
financial statements at a fair value of US$6.8 million.
The management contract with AREOF was terminated on 1 January
2020. As at the period end, AREOF owed US$13.3 million (EUR10.9
million) (31 December 2019: US$13.3 million (EUR10.9 million)).
These balances are carried at US$ nil (31 December 2019: US$ nil)
in the financial statements.
David Fisher, a non-executive director of the Company, is also a
non-executive director of AREOF.
During the period, the Group also made a loan for $11.2 million
(EUR10.2m) to Argo Real Estate Limited Partnership, an entity that
is 100% owned by Andreas Rialas. The loan carries an interest rate
of 9%.
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 (2019: US$nil).
e) Liquidity risk
Liquidity risk is the risk that the Group may be unable to meet
its payment obligations. This would be the risk of insufficient
cash resources and liquid assets, including bank facilities, being
available to meet liabilities as they fall due.
The main liquidity risks of the Group are associated with the
need to satisfy payments to creditors. Trade payables are normally
on 30-day terms (note 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$0.6 million, Sterling - US$0.05
million and Euros - US$0.02 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 2020 the exposure would be a profit or
loss to the Consolidated statement of comprehensive income of
approximately US$0.004 million (2019: US$0.02 million).
(g) Interest rate risk
The interest rate profile of the Group at 31 December 2020 is as
follows:
Total as Variable Fixed interest Instruments
per balance interest rate instruments on which
sheet rate instruments* no interest
is receivable
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets at
fair value
through profit or
loss 6,818 - - 6,818
Loans and receivables 15,327 111 13,535 1,681
Cash and cash equivalents 675 18 113 544
=========================== ============= =================== ================== ===============
22,820 129 13,648 9,043
=========================== ============= =================== ================== ===============
Financial liabilities
Trade and other payables 494 - 290 204
=========================== ============= =================== ================== ===============
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.4%. 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 2019 is as
follows:
Instruments
Total as Variable on which
per balance interest Fixed interest no interest
sheet rate instruments* rate instruments is receivable
Restated Restated
US$ '000 US$ '000 US$ '000 US$ '000
Financial Assets
Financial assets at
fair value
through profit or
loss 19,413 - - 19,413
Loans and receivables 1,071 108 - 963
Cash and cash equivalents 863 95 15 753
=========================== ============== ==================== =================== ===============
21,347 203 15 21,129
=========================== ============== ==================== =================== ===============
Financial liabilities
Trade and other payables 743 - - 743
=========================== ============== ==================== =================== ===============
* Changes in the interest rate may cause movements.
The average interest rate at the year end was 0.02%. 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
2020 2019
Restated
US$ '000 US$ '000
Financial Assets
Financial assets at fair value
through profit or loss 6,818 19,413
Loans and receivables 15,327 1,071
Cash and cash equivalents 675 863
================================= =============== ====================
22,820 21,347
================================ =============== ====================
Financial Liabilities
Trade and other payables 494 743
================================= =============== ====================
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 2020
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets at fair
value through profit or
loss - 6,818 6,818
========================== ========== ========= ========= =========
At 31 December 2019
Level 1 Level 2 Level Total
3
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets at fair
value through profit or
loss - 19,357 56 19,413
========================== ========== ========= ========= =========
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 open
closed ended ended investment
investment fund
fund Emerging
markets
Real Estate Total
US$ '000 US$ '000 US$ '000
Balance as at 1 January 2020 - 56 56
Total losses recognized in - - -
profit or loss
Distribution received - - -
Transfer to level 2 - (56) (56)
Balance as at 31 December 2020 - - -
================================ ================== ==================== =========
20. 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
(2019: GBPnil).
The number and weighted average exercise price of the share
options during the period is as follows:
Weighted average No. of share
exercise price options
Outstanding at beginning of period 24.0p 4,115,000
Granted during the period 24.0p -
Forfeited during the period 24.0p -
==================================== ================= =============
Outstanding at end of period 24.0p 4,115,000
==================================== ================= =============
Exercisable at end of period 24.0p 4,115,000
==================================== ================= =============
The options outstanding at 31 December 2020 have an exercise
price of 24p and a weighted average contractual life of 1 years.
Outstanding share options are contingent upon the option holder
remaining an employee of the Group.
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END
FR FLFISVRILIIL
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