Half Yearly Report

RNS Number : 5520S
ARGO Group Limited
25 September 2014
 

Argo Group Limited

("Argo" or the "Company")

 

Interim Results for the six months ended 30 June 2014

 

Argo today announces its interim results for the six months ended 30 June 2014.

The Company will today make available its interim report for the six month period ended 30 June 2014 on the Company's website www.argogrouplimited.com.

 

Key Highlights for the six month period ended 30 June 2014

 

-     Revenues US$3.9 million (six months to 30 June 2013: US$4.7 million)

-     Operating loss US$0.5 million (six months to 30 June 2013: profit US$0.8 million)

-     Loss before tax US$0.5 million (six months to 30 June 2013: profit US$1.7 million)

-     Net assets US$28.0 million (31 December 2013: US$28.5 million)

 

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

 

"The potential of rising US interest rates is a continuing negative for emerging markets. Nevertheless Argo's hedge strategy and the workout of its private equity illiquid assets resulted in satisfactory comparative fund performance. Since the period end liquidity has improved at management company level." 

 

Enquiries

 

Argo Group Limited

Andreas Rialas

020 7016 7660

 

Panmure Gordon

Dominic Morley

020 7886 2500

 

 

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

This report sets out the interim results of Argo Group Limited for the half year ended 30 June 2014.

 

For the six month period ended 30 June 2014 the Group generated revenues of US$3.9 million (six months to 30 June 2013: US$4.7 million) with management fees accounting for US$3.5 million (six months to 30 June 2013: US$3.5 million). The Group did not generate incentive fees during the period. In the prior period to 30 June 2013 the Group derived incentive fees of US$0.8 million as a result of the revaluation of an investment in an Indonesian petrochemicals refinery, PT Trans-Pacific Petrochemical Industries ("TPPI"), which has not yet been realised.

 

Total core operating costs for the period are US$2.7 million compared to US$2.6 million for the six months to 30 June 2013. Costs will however trend lower in the second half of the year as a result of cost cutting initiatives implemented in the first half of 2014. Total operating costs have increased by US$0.4 million to US$4.4 million (six months to 30 June 2013: US$4.0 million) after bad debt provision. During the period the Group provided against management fees of US$1,371,000 (€1,000,000) (six months to 30 June 2013: US$1,323,000 (€1,008,000)) due from Argo Real Estate Opportunities Fund Limited ("AREOF").

 

Overall, the financial statements show an operating loss for the period of US$0.5 million (six months to 30 June 2013: profit US$0.8 million) and a loss before tax of US$0.5 million (six months to 30 June 2013: profit US$1.7 million) reflecting the unrealised loss on non-current asset investments of US$0.1 million (six months to 30 June 2013: unrealised gain US$1.0 million).

 

At the period end, the Group had net assets of US$28.0 million (31 December 2013: US$28.5 million). The Group did not pay a dividend during the period compared to the prior period when a dividend of 2.1 cents (1.3 pence) per share was paid on 26 April 2013. 

 

Non-current assets include investments in The Argo Fund ("TAF"), AREOF and Argo Special Situations Fund LP ("ASSF") at fair values of US$19.0 million (31 December 2013: US$19.1 million), US$0.2 million (31 December 2013: US$0.2 million) and US$0.08 million (31 December 2013: US$0.09 million) respectively. Our continued investment in our funds supports the liquidity of those funds and demonstrates the commitment of the Group towards its fund investors. This close alignment results in a high correlation between the performance of the Company and the performance of its funds. It should be noted, however, that the Group does not intend to and may not be able to realise these investments in the immediate future due to the illiquid nature of the assets held by these funds.

 

At the period end TAF and ASSF together owed the Group total management fees of US$3,296,017 (31 December 2013: US$1,817,803) after a bad debt provision of US$1,000,000 (31 December 2013: US$650,000). They are currently facing a short term liquidity issue which is being remedied and whilst a bad debt provision has been raised against these management fees the directors are confident that they are fully recoverable. Since the period end US$2,388,000 of these arrears have been settled.

 

The Argo funds ended the period with Assets under Management ("AUM") at US$277.9 million, 2.4% higher than at the beginning of the period. The current level of AUM remains below that required to ensure sustainable profits on a recurring management fee basis and in the absence of performance fees. This has necessitated a detailed review of the Group's cost basis and the implementation of a redundancy programme in the first quarter of the period. 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 employees of the Group at 30 June 2014 was 30 (30 June 2013: 40).

 

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 2014 total US$777,090 (€569,505) (31 December 2013: 1,265,791 (€919,505)) after a bad debt provision of US$4,093,500 (€3,000,000) (31 December 2013: US$2,753,200 (€2,000,000)). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows. The AREOF management contract has a fixed term expiring on 31 July 2018. In November 2013 AREOF offered Argo Group Limited additional security for the continued support in the form of debentures and guarantees by underlying intermediate companies.

 

During the prior period Argo Group advanced US$1,364,500 (€1,000,000) to Bel Rom Trei ("Bel Rom"), an AREOF Group entity based in Romania that owns Sibiu Shopping City, in order to assist with its operational cash requirements. The loan is repayable on demand and accrues interest at 12%. The full amount of the loan and accrued interest remains outstanding at the period end. The Directors consider this loan to be fully recoverable on the basis that discussions with lending banks and potential purchasers of Sibiu have yielded offers in excess of the debt associated with the project banks.

Fund performance

Argo Funds

 

Fund

Launch

      date

  30 June   

       2014

6 months

  30 June   

       2013

6 months

       2013

       year

      total

       Since inception

  Annualised  performance

Sharpe   

    ratio

 

     Down 

   months

   AUM



%

%

     %

%

 CAGR %



  US$m

The Argo Fund

Oct-00

-0.51

8.64

 8.49

150.93

7.75

0.66

42 of 165

   93.8

Argo Distressed Credit Fund

Oct-08

 -0.28

11.88

 

12.64

72.98

10.62

0.85

26 of 69

   26.3

Argo Special Situations Fund LP

Feb-12

       -5.84

-20.65

-23.30

-29.62

-13.56

-1.15

26 of 29

   88.1

Argo Local Markets Fund

 Nov-12

-2.14

   -5.34

-9.80

-10.34

-6.27

-1.55

14 of 20

    4.5

Argo Real Estate Opportunities Fund

Aug-06

21.30

-7.09

-46.58

-92.70

-31.23

N/A

48 of 92

65.2*

Total









277.9

 

* NAV only officially measured twice a year, March and September.

 

Emerging markets had a difficult start to the period with currencies being particularly affected. A combination of factors including bullishness about the US economy, disappointing manufacturing data in China and ongoing tensions in Ukraine combined to undermine investor confidence in the earlier part of the period. Market volatility diminished as tensions eased in Ukraine following the Russian annexation of Crimea but heightened once again by the end of the period in response to actions by separatist forces in Eastern Ukraine. Whilst emerging markets produced a positive performance overall for the six month period, Eastern European markets were negative.

 

Against this backdrop, fund performance was lacklustre with most of the Argo funds finishing behind at the end of the period. By comparison, the main hedge fund indices showed a positive return of 5.22% for the same period.

 

During the period we made very little progress in completing the previously reported non-binding agreement with Pertamina to acquire the interest in TPPI. Pertamina has not formally declined but has suggested that discussions might resume on completion of the election cycle in Indonesia. The elections took place in July and it is believed that the victory of Joko Widodo will open the door to a new reform-minded government that hopefully can implement the changes the country urgently needs. On 5 August 2014 the shareholders of TPPI unanimously passed resolutions regarding the issuance of new shares through unsecured debt to equity conversion. Consequently, TPPI is now fully authorised to execute all documents in connection with the implementation of its composition plan. The new bonds were issued in September 2014 and shares are expected to be issued in October 2014 once all formalities are complete.

 

In September 2014 ASSF agreed financing arrangements with a lender which will ensure that the preferred interests receive amounts equal in value to their capital contributions and the amount of the preferred return accrued since the date of issue of the interests.

 

The Argo Local Markets Fund ("ALMF") had a difficult first six months suffering from the broad sell-off in January in response to the US Federal Reserve's desire to reduce its quantitative easing programme. The Fund has since recovered due to uncertainties surrounding the actual date that the Federal Reserve will start to raise interest rates. The slowdown in global growth seen mostly in Europe but also in major emerging markets like Brazil, Russia and even China has raised questions about the medium term growth prospects for emerging markets and the need to adopt more accommodative policy through lower interest rates but also weaker currencies. The strength of the US dollar and further geopolitical risk has complicated the outlook for growth and the markets remain at risk of sudden bouts of risk aversion. We continue to believe that the best way to manage these risks is to invest in a portfolio of long and short interest rates and FX positions. At the end of the period ALMF showed a negative return of -2.14%.

 

While macroeconomic conditions continue to improve, the effects on the two core markets where AREOF operates remain mixed with subdued growth in the Romanian market and recent political and economic upheavals impacting the Ukraine market.

 

The reduced level of cash flow within AREOF, while being proactively managed, has resulted in breaches of terms and covenants on certain loans. This situation is being addressed by regular communication and negotiation with the lending banks with a view to restructuring the debt commitments to better align these to the current level of the AREOF Group's cash flow. While discussions with the relevant banks are ongoing to find an agreeable solution for both parties AREOF continues to enjoy the support of its banks.

 

AREOF's adjusted Net Asset Value was US$65.7 million (€47.8 million) as at 31 March 2014, compared with US$87.8 million (€68.5 million) a year earlier. The adjusted Net Asset Value per share at 31 March 2014 was US$0.11 (€0.08) (30 March 2013: US$0.14 (€0.11)).

 

AREOF'S ordinary shares on AIM were suspended on 30 August 2013 following breach of a loan covenant and the subsequent loan termination by the lending bank. On 3 March 2014 AREOF delisted from AIM to allow loan restructuring discussions to proceed outside of the extensive disclosure requirements that an AIM listing entails. The valuation of Argo Group Limited's investment in AREOF has been based on the equity price prevailing at the time of the suspension with an additional 25% discount rate applied to that price.

 

Awards

Argo Distressed Credit Fund was ranked a top 5 hedge fund over three years in the category of Emerging Markets Global Funds by BarclayHedge at the end of March 2014.

 

Dividends

Argo is working towards the payment of a dividend which will ultimately depend on the success of the initiatives described above. The directors did not recommend a final dividend in respect of the year ended 31 December 2013 but intend to pay an interim dividend as soon as these initiatives are complete. Going forward, the Company intends, subject to its financial performance, to pay a final dividend each year.

 

Outlook

We enter the second half of the year with a degree of caution particularly given the continuing conflict in Eastern Ukraine and uncertainty as to how various markets will respond if the US Federal Reserve reduces quantitative easing. The top priority in the next six months will be to continue with our program to monetise certain of our investments. In the very near term our growth rate will be heavily influenced by the success of this program as well as events in Europe. Over the longer term the Board believes there is significant opportunity for growth in assets and profits and remains committed to the emerging markets sector.

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2014

 



Six months


Six months




ended


ended




30 June


30 June




2014


2013



Note

US$'000


US$'000








Management fees


3,462


3,453


Incentive fees


-


803


Other income


423


459


Revenue


3,885


4,715








Legal and professional expenses


(164)


(120)


Management and incentive fees payable


(62)


(116)


Operational expenses


(572)


(612)


Employee costs


(1,663)


(1,752)


Bad debt provision

9

(1,749)


(1,323)


Foreign exchange (loss)/gain


(129)


37


Depreciation

7

(72)


(65)


Operating (loss)/profit


(526)


764








Interest income on cash and cash equivalents


115


9


Unrealised (loss)/gain on investments


(105)


958


(Loss)/profit on ordinary activities before taxation


(516)


1,731








Taxation

5

(44)


        (109)


(Loss)/profit for the period after taxation attributable to members of the Company

6

(560)


1,622








Other comprehensive income






Exchange differences on translation of foreign operations


98


(137)



(462)


1,485

 






 



Six months


Six months

 



Ended


Ended

 



30 June


30 June

 



2014


2013

 



US$


US$

 

Earnings per share (basic)

6

-0.01


0.02


Earnings per share (diluted)

6

-0.01


0.02


 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2014

 



30 June


At 31 December



2014


2013


Note

US$'000


US$'000






Assets










Non-current assets





Fixtures, fittings and equipment

7

140


177

Investments

8

19,315


19,420

Loans and advances receivable

10

2,206


2,107

Total non-current assets


21,661


21,704






Current assets





Trade and other receivables

9

4,414


3,300

Cash and cash equivalents


2,285


3,726

Loans and advances receivable

10

179


217

Total current assets


6,878


7,243






Total assets


28,539


28,947






Equity and liabilities










Equity





Issued share capital

11

674


674

Share premium


30,878


30,878

Revenue reserve


(1,608)


(1,048)

Foreign currency translation reserve


(1,911)


(2,009)

Total equity


28,033


28,495






Current liabilities





Trade and other payables


406


388

Taxation payable

5

100


64

Total current liabilities


506


452

Total equity and liabilities


28,539


28,947

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2014

 


 

Issued share capital

 

 

Share premium

 

 

Revenue reserve

 Foreign currency translation reserve

 

 

 

Total


2013

2013

2013

2013

2013


US$'000

US$'000

US$'000

US$'000

US$'000







As at 1 January 2013

674

30,878

(1,674)

(2,164)

27,714







Total comprehensive income






Loss for the period after taxation

-

-

1,622

(137)

1,485


             

        




Transactions with owners recorded directly in equity






Dividends to equity holders (Note 11)

-

-

(1,348)

-

(1,348)







As at 30 June 2013

           674

30,878

(1,400)

(2,301)

27,851


              

            

           

            

            

 

 

 


 

Issued share capital

 

 

Share premium

 

 

Revenue reserve

 Foreign currency translation reserve

 

 

 

Total


2014

2014

2014

2014

2014


US$'000

US$'000

US$'000

US$'000

US$'000







As at 1 January 2014

674

30,878

(1,048)

(2,009)

28,495







Total comprehensive income






Profit for the period after taxation

-

-

(560)

98

(462)







Transactions with owners recorded directly in equity






Dividends to equity holders (Note 11)

-

-

-

-

-







As at 30 June 2014

674

30,878

(1,608)

(1,911)

28,033

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

 

 



Six months ended


Six months ended



30 June


30 June



2014


2013


Note

US$'000


US$'000






Net cash (outflow)/inflow from operating activities

12

(1,490)


619






Cash flows used in investing activities





Interest received on cash and cash equivalents


1


9

Purchase of fixtures, fittings and equipment

7

(34)


(27)











Net cash used in investing activities


(33)


(18)






Cash flows used in financing activities





Dividends paid

11

-


(1,348)






Net cash used in financing activities


-


(1,348)






Net decrease in cash and cash equivalents


(1,523)


(747)






Cash and cash equivalents at 1 January 2014 and

    1 January 2013


3,726


5,139






Foreign exchange gain(loss) on cash and cash equivalents


82


(94)






Cash and cash equivalents as at 30 June 2014 and 30 June 2013


2,285


4,298

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2014

 

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 Company as at and for the six months ended 30 June 2014 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 2013 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.  The Group has 30 employees.

 

         Wholly owned subsidiaries                                                              Country of incorporation

 

Argo Capital Management (Cyprus) Limited

Cyprus

Argo Capital Management Limited

United Kingdom

Argo Capital Management Property Limited

Cayman Islands

Argo Property Management Srl

Romania

North Asset Management Sarl

Luxembourg

 

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 2013.

 

The Directors have carried out a rigorous assessment of all the factors affecting the business in deciding to adopt the going concern basis for the preparation of the accounts. They have reviewed and examined the Group's financial and other processes including the annual budgeting process and expect the Group to generate positive cash flows in the foreseeable future. On the basis of this review and the liquid assets underpinning the balance sheet the Directors are confident that the Group has adequate financial resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis for preparing the accounts.

 

The Group has prepared forecasts that focus on cash flow requirements for the period to September 2015. These forecasts reflect current cost patterns of the Group and take into consideration current liquidity constraints of funds under management and therefore their ability to settle management fees and other receivables (refer to notes 9 and 10). The cash flows of the Group are linked to the liquidity of the funds and the major funds of the Group (AREOF, TAF and ASSF) have significant liquidity challenges at present therefore cash inflows to the Group are linked to potential liquidity events, the timings of some of which are uncertain.

 

         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 2013.

 

         These condensed consolidated interim financial statements were approved by the Board of Directors on 24 September 2014.  

                   

(b)     Financial instruments and fair value hierarchy

 

The following represents the fair value hierarchy of financial instruments measured at fair value in the Statement of Financial Position. The hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

 

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.

 

3.      SEGMENTAL ANALYSIS

 

The Group operates as a single asset management business.

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


 

Argo Group Ltd

Argo Capital Management (Cyprus) Ltd

 

Argo Capital Management Ltd

 

Argo Capital Management Property Ltd

 

 

 

Other

Six months ended

 30 June      


2014

2014

2014

2014

2014

2014


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000








Total revenues for reportable segments customers

-

2,091

1,042

1,794

-

4,927

Intersegment revenues

-

-

1,042

-

-

1,042








Total profit/(loss) for reportable segments

(339)

324

(237)

(160)

-

(412)

Intersegment profit/(loss)

-

(1,046)

1,042

-

-

(4)








Total assets for reportable segments assets

49,173

3,891

2,570

4,298

75

60,007

Total liabilities for reportable segments

77

1,740

221

172

26

2,236

 

Revenues, profit or loss, assets and liabilities may be reconciled as follows:

 

Six months


ended


30 June 2014


US$'000

Revenues


Total revenues for reportable segments

4,927

Elimination of intersegment revenues

(1,042)

Group revenues

3,885



Profit or loss


Total loss for reportable segments

(412)

Elimination of intersegment loss

4

Other unallocated amounts

(108)

Loss on ordinary activities before taxation

(516)



Assets


Total assets for reportable segments

60,007

Elimination of intersegment receivables

(1,869)

Elimination of Company's cost of investments

(29,599)

Group assets

28,539



Liabilities


Total liabilities for reportable segments

2,236

Elimination of intersegment payables

(1,730)

)

Group liabilities

506

 

 


 

Argo Group Ltd

Argo Capital Management (Cyprus) Ltd

 

Argo Capital Management Ltd

 

Argo Capital Management Property Ltd

 

 

 

Other

Six months ended

 30 June      


2013

2013

2013

2013

2013

2013


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000








Total revenues for reportable segments

400

2,943

1,476

1,772

-

6,591

Intersegment revenues

400

-

1,476

-

-

1,876








Total profit/(loss) for reportable segments

1,161

456

468

(306)

-

1,779

Intersegment profit/(loss)

400

(1,871)

1,476

-

-

5








Total assets for reportable segments

49,695

2,837

2,697

3,546

121

58,896

Total liabilities for reportable segments

56

954

175

233

26

1,444

 

Revenues, profit or loss, assets and liabilities may be reconciled as follows:

 

Six months


ended


30 June 2013


US$'000

Revenues


Total revenues for reportable segments

6,591

Elimination of intersegment revenues

(1,876)

Group revenues

4,715



Profit or loss


Total profit for reportable segments

1,779

Elimination of intersegment profit

(5)

Other unallocated amounts

(43)

Profit on ordinary activities before taxation

1,731



Assets


Total assets for reportable segments

58,896

Elimination of intersegment receivables

(798)

Elimination of Company's cost of investments

(29,598)

Group assets

28,500



Liabilities


Total liabilities for reportable segments

1,444

Elimination of intersegment payables

(795)

Group liabilities

649

 

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 average exercise price

No. of share options

Outstanding at beginning of period

24.0p

4,715,000

Granted during the period

-

-

Forfeited during the period

24.0p

   450,000

Outstanding at end of period

24.0p

4,265,000

Exercisable at end of period

24.0p

3,198,750

 

The options outstanding at 30 June 2014 have an exercise price of 24p and a weighted average contractual life of 10 years, with the fourth and final tranche of shares being exercisable on or after 1 May 2015. Outstanding share options are contingent upon the option holder remaining an employee of the Group. They expire after 10 years.

 

No share options were issued during the period.

 

5.      TAXATION

 

         Taxation rates applicable to the parent company and the Cypriot, UK, Luxembourg, Cayman and Romanian subsidiaries range from 0% to 22% (2013: 0% to 23%).

        

Income Statement

Six months


Six months


ended


ended


30 June


30 June


2014


2013


US$'000


US$'000





Taxation charge for the period on Group companies

44


109

 

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


Six months


Six months


ended


ended


30 June


30 June


2014


2013


US$'000


US$'000





(Loss)/profit before tax

(516)


1,731





Applicable Isle of Man tax rate for Argo Group Limited of 0%

-


-

Timing differences

3


2

Non-deductible expenses

12


7

Other adjustments

38


-

Tax effect of different tax rates of subsidiaries operating in other jurisdictions

(9)


100

Tax charge

44


109

 

Balance Sheet





30 June


31 December


2014


2013


US$'000


US$'000





Corporation tax payable

100


64

 

6.      EARNINGS PER SHARE

 

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


Six months


Six months

 


ended


ended

 


30 June


30 June

 


2014


2013

 


US$'000


US$'000

 





 

Net (loss)/profit for the period after taxation attributable to members

(560)


1,622






 


No. of shares


No. of shares

 





 

Weighted average number of ordinary shares for basic earnings per share

67,428,494


67,428,494

 

Effect of dilution (Note 4)

4,265,000


5,415,000

 

Weighted average number of ordinary shares for diluted earnings per share

71,693,494


72,843,494

 

 


Six months


Six months


ended


ended


30 June


30 June


2014


2013


US$


US$





Earnings per share (basic)

-0.01


0.02

Earnings per share (diluted)

-0.01


0.02

 

7.      FIXTURES, FITTINGS AND EQUIPMENT


Fixtures, fittings

& equipment


US$'000

Cost


At 1 January 2013

372

Additions

46

Disposals

(20)

Foreign exchange movement

10

At 31 December 2013

408

Additions

34

Disposal

(167)

Foreign exchange movement

9

At 30 June 2014

284



Accumulated Depreciation


At 1 January 2013

151

Depreciation charge for period

89

Disposal                                                                                                                     

                (16)

Foreign exchange movement

7

At 31 December 2013

231

Depreciation charge for period

72

Disposal

(167)

Foreign exchange movement

8

At 30 June 2014

144



Net book value


At 31 December 2013

177

At 30 June 2014

140

 

8.       INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

 



30 June


30 June



2014


2014

Holding

Investment in management shares

Total cost


Fair value



US$'000


US$'000






10

The Argo Fund Ltd

0


0

100

Argo Distressed Credit Fund Ltd

0


0

1

Argo Special Situations Fund LP

0


0

1

Argo Local Markets Fund

0


0



0


0

 

Holding

Investment in ordinary shares

Total cost


Fair value



US$'000


US$'000






75,165

The Argo Fund Ltd

16,343


19,011

10,899,021

Argo Real Estate Opportunities Fund Ltd

988


223

115

Argo Special Situations Fund LP

115


81



17,446


19,315

 



31 December


31 December



2013


2013

Holding

Investment in management shares

Total cost


Fair value



US$'000


US$'000






10

The Argo Fund Ltd

0


0

100

Argo Distressed Credit Fund Ltd

0


0

1

Argo Special Situations Fund LP

0


0

1

Argo Local Markets Fund

0


0



0


0

 

Holding

Investment in ordinary shares

Total cost


Fair value



US$'000


US$'000






75,165

The Argo Fund Ltd

16,343


19,109

10,899,021

Argo Real Estate Opportunities Fund Ltd

988


225

115

Argo Special Situations Fund LP

115


86



17,446


19,420

 

The Argo Fund Limited and Argo Special Situations Fund LP hold concentrated portfolios of Level 3 assets that are valued based on inputs other than quoted prices in active markets. Inherently the assumptions backing these valuations are subject to additional risks that can have a positive or negative impact on valuation. The audit reports for the years ended 30 June 2013 and 31 December 2013, respectively, for these funds were modified in respect of the investment portfolios.

 

During the prior period, Argo Real Estate Opportunities Fund Limited ("AREOF") was suspended from trading on AIM, and subsequently delisted on 3 March 2014 as a result of default notices on its loans creating uncertainty. The Group's investment in AREOF is carried at a discount to the last quoted bid price on AIM from August 2013 at the period end. This investment is classified as level 3 under IFRS fair value hierarchy reflecting the non-market observable inputs to its valuation.

 

The investments held by the Group have been made in support of the Group's funds under management and in support of their liquidity profiles and as such they may not be realisable in the immediate future. The valuations are subject to uncertain events, for example, liquidity events or debt refinancing that may not be wholly within the Group's control.

 

9.         TRADE AND OTHER RECEIVABLES                                               

     

      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 balance sheet date except as disclosed below.

 

The Group has provided Argo Real Estate Opportunities Fund Limited ("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 2014 total US$777,090 (€569,505) (31 December 2013: US$1,265,791, €919,505) after a bad debt provision of US$4,093,500 (€3,000,000) (31 December 2013: US$2,753,200, €2,000,000). 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. In the Directors' view these amounts are fully recoverable although 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.

 

          At the period end The Argo Fund Limited and Argo Special Situations Fund LP together owed the Group total management fees of US$3,296,017 (31 December 2013: US$1,817,803) after a bad debt provision of US$1,000,000 (31 December 2013: US$650,000). Both Funds have a substantial asset base with very few liabilities. They are currently facing a short term liquidity issue which is being remedied and whilst a bad debt provision has been raised against these management fees the directors are confident that they are fully recoverable. Since the period end US$2,388,000 of these arrears have been settled.

 

In the audited financial statements of AREOF at 30 September 2013 and the interim report of AREOF at 31 March 2014, a material uncertainty surrounding ongoing discussions with its bankers and the prevailing trading environment was referred to in relation to the basis of preparation of the financial statements. In the view of the directors of AREOF, discussions with the banks are continuing satisfactorily and they have therefore concluded that it is appropriate to prepare those financial statements on a going concern basis.

 

10.     LOANS AND ADVANCES RECEIVABLE

 

During the prior period Argo Group advanced US$1,364,500 (€1,000,000) to Bel Rom Trei ("Bel Rom"), an AREOF Group entity based in Romania that owns Sibiu Shopping City, in order to assist with its operational cash requirements. Challenging trading conditions have impacted Bel Rom's cash flow and its ability to meet payments due to lending banks as and when they fall due. The situation is being addressed by way of discussions with the lending banks with a view to restructuring these loans. While these discussions are on-going to find an agreeable solution for both parties, Bel Rom continues to enjoy the support of its banks. The loan is repayable on demand and accrues interest at 12%. The full amount of the loan and accrued interest remains outstanding at the year end. The Directors consider this loan to be fully recoverable on the basis that conditional offers to buy the centre have been received that indicate a value in excess of the debt attached to the project. Notwithstanding its repayable on demand terms, the Directors have classified this amount as non-current within the financial statements as it is not their intention to demand repayment in the immediate future and it is unlikely that Bel Rom will repay the amount in the next 12 months even if it were demanded.

 

 

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


2014

2014

2013

2013


No.

US$'000

No.

US$'000

Issued and fully paid





Ordinary shares of US$0.01 each

67,428,494

674

67,428,494

674


67,428,494

674

67,428,494

674

 

The directors did not recommend the payment of a final dividend for the year ended 31 December 2013 and do not recommend an interim dividend in respect of the current period. The final dividend for the year ended 31 December 2012 of US$1,348,287 (GBP876,570) was paid on 26 April 2013 to ordinary shareholders who were on the Register of Members on 2 April 2013. Going forward, the Company intends, subject to its financial performance, to pay a final dividend each year.

 

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

 


Six months ended

30 June 2014


Six months ended

30 June 2013


US$'000


US$'000





(Loss)/profit on ordinary activities before taxation

(516)


1,731





Interest income

(115)


(9)

Depreciation

72


65

Unrealised loss/(gain) on investments

105


(958)

Net foreign exchange loss/(gain)

129


(37)

Increase/(decrease) in payables

18


(34)

Increase in receivables, loans and advances

(1,175)


(45)

Income taxes paid

(8)


(94)

Net cash (outflow)/inflow from operating activities

(1,490)


619

 

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 2).

 

                                                               At 30 June 2014


Level 1

Level 2

Level 3

Total


US$ '000

US$ '000

US$ '000

US$ '000

Financial assets at fair value through profit or loss

 

 

-

 

-

 

19,315

 

19,315

 

                                                               At 31 December 2013


Level 1

Level 2

Level 3

Total


US$ '000

US$ '000

US$ '000

US$ '000

Financial assets at fair value through profit or loss

 

 

-

 

 

 

 

19,195   

 

 

 

225

 

 

 

19,420   

 

 

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 balance sheet date the Company holds investments in The Argo Fund Limited, Argo Real Estate Opportunities Fund Limited ("AREOF") and Argo Special Situations Fund LP. These investments are reflected in the accounts at a fair value of US$19,011,287, US$223,076 and US$80,702 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 2014 total US$777,090 (€569,505) (31 December 2013: US$1,265,791, €919,505) after a bad debt provision of US$4,093,500 (€3,000,000) (31 December 2013: US$2,753,200, €2,000,000). 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.

 

In the audited financial statements of AREOF at 30 September 2013 and the interim report of AREOF at 31 March 2014, a material uncertainty surrounding ongoing discussions with its bankers and the prevailing trading environment was referred to in relation to the basis of preparation of the financial statements. In the view of the directors of AREOF, discussions with the banks are continuing satisfactorily and they have therefore concluded that it is appropriate to prepare those financial statements on a going concern basis.

 

During the prior period Argo Group advanced US$1,364,500 (€1,000,000) to Bel Rom Trei Srl ("Bel Rom"), an AREOF Group entity based in Romania that owns Sibiu Shopping City, in order to assist with its operational cash requirements. The loan is repayable on demand and accrues interest at 12%. The full amount of the loan and accrued interest remains outstanding at the period end. The Directors consider this loan to be fully recoverable on the basis that conditional offers to buy the centre have been received that indicate a value in excess of the debt attached to the project. Notwithstanding its repayable on demand terms, the Directors have classified this amount as non-current within the financial statements as it is not their intention to demand repayment in the immediate future and it is unlikely that Bel Rom will repay the amount in the next 12 months even if it were demanded.

 

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

 

 


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