Final Results

RNS Number : 4713Y

ARGO Group Limited

03 March 2017

 

Argo Group Limited

("Argo" or the "Company")

Annual Report and Accounts for the Year ended 31 December 2016

Argo today announces its final results for the year ended 31 December 2016.

The Company will today post to shareholders and make available its report and accounts for the year ended 31 December 2016 on the Company's website www.argogrouplimited.com.

Key highlights for the twelve months ended 31 December 2016

-     Revenues US$6.4 million (2015: US$5.7 million)

-     Operating loss US$0.6 million (2015: operating profit US$0.2 million)

-     Profit before tax US$0.6 million (2015: loss before tax US$2.9 million)

-     Net assets US$20.1 million (2015: US$22.4 million)

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

"We are extremely satisfied with the solid performance of 2016.  Emerging Markets bond funds continue to attract inflows and exhibit stability and reduced volatility, as they now form a significant part of any balanced global portfolio.  The positive performance of our fund for the first two months of 2017 confirms this.  The balance sheet of our company is strong and the first buyback programme has been a success elevating the book value of the company.  The second buyback programme will expire in September 2017.  We are investing in the future of the company both in human resources and IT and we hope to attract additional inflows into our Argo Fund going forward."

Enquiries

Argo Group Limited

Andreas Rialas

020 7016 7660

Panmure Gordon

Dominic Morley

020 7886 2500

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014.

CHAIRMAN'S STATEMENT

The Group and its objective

Argo's investment objective is to provide investors with absolute returns in the funds that it manages by investing in, inter alia, fixed income, special situations, local currencies and interest rate strategies, private equity, real estate, quoted equities, high yield corporate debt and distressed debt, although not every fund invests in each of these asset classes.

Argo was listed on the AIM market in November 2008 and has a performance track record dating back to 2000.

Business and operational review

This report sets out the results of Argo Group Limited for the year ended 31 December 2016.

For the year ended 31 December 2016 the Group generated revenues of US$6.4 million (2015: US$5.7 million) with management fees accounting for US$4.3 million (2015: US$5.1 million). The Group also generated incentive fees of US$1.7 million (2015: US$ Nil) during the year. The incentive fees earned during the year were from The Argo Fund and Argo Distressed Credit Fund.

Total operating costs, ignoring bad debt provisions, are US$6.4 million (2015: US$3.5 million). The increase in operating costs is mainly due to bonuses paid to reflect the excellent work undertaken by the team over a number of years leading to the sale of a significant asset and professional costs relating to our share buyback programme. During the year management fee arrears of US$ 2.8 million were recovered from Argo Real Estate Opportunities Fund Limited ("AREOF") against which a provision had been raised in prior years. The Group has provided against management fees of US$2.2 million (€2.0 million) (2015: US$2.2 million (€2.0 million) due from AREOF and US$1.2 million (2015: US$1.1 million) of loans made to AREOF and its group entities.  In the Directors' view these amounts are fully recoverable however they have concluded that it would be appropriate to carry a provision against these receivables as the timing of the receipts may be outside the control of the Company and AREOF.

Overall, the financial statements show an operating loss for the year of US$0.6 million (2015: operating profit US$0.2 million) and a profit before tax of US$0.6 million (2015: loss before tax US$2.9 million) reflecting the realised and unrealised profit on current asset investments of US$1.1 million (2015: loss US$3.3 million).

At the year end, the Group had net assets of US$20.1 million (2015: US$22.4 million) and net current assets of US$19.6 million (2015: US$15.7 million) including cash reserves of US$6.1 million (2015: US$3.1 million). The Directors are not declaring a final dividend.

Net assets include investments in The Argo Fund, AREOF, Argo Special Situations Fund LP ("ASSF") and Argo Distressed Credit Fund (together referred to as "the Argo funds" at fair values of US$9.7 million (2015: US$10.2 million), US$0.1 million (2015: US$0.1 million), US$0.01 million (2015: US$0.01 million), and US$2.5 million (2015: US$Nil) respectively.

At the year end the Argo funds (excluding AREOF) owed the Group total management and performance fees of US$2,441,281 (31 December 2015: US$819,451). Since the year end the Group received US$1,849,986 as part settlement of these management and performance fees.

The Argo funds ended the period with Assets under Management ("AUM") at US$110.6 million, 18% higher than at the beginning of the year. Management believe that the markets in which the Funds operate have now established a recovery following the 2008 economic collapse. The current level of AUM remains below that required to ensure sustainable profits on a recurring management fee basis in the absence of performance fees. This has necessitated an ongoing review of the Group's cost basis. Nevertheless, the Group has ensured that the operational framework remains intact and that it retains the capacity to manage additional fund inflows as and when they arise.

The number of employees of the Group at 31 December 2016 was 27 (2015: 24).

The Group has provided AREOF with a notice of deferral in relation to amounts due from the provision of investment management services, under which it will not demand payment of such amounts until the Group judges that AREOF is in a position to pay the outstanding liability. These amounts accrued or receivable at 31 December 2016 total US$Nil (2015: US$Nil) after a bad debt provision of US$6,401,507 (€6,069,505) (2015: US$7,164,702 (€6,569,505)). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows. AREOF settled total fees of €2,776,000 (€2,500,000) during the year. In November 2013, AREOF offered Argo Group Limited additional security for the continued support in the form of debentures and guarantees by underlying intermediate companies. Argo Group Limited retains this additional security. The AREOF management contract has a fixed term expiring on 31 July 2018.

Fund performance

The Argo Funds

Fund	Launch              date	2016   Year   total	2015   Year   total	Since inception	Annualised performance	Sharpe     ratio	Down     months	AUM
		%	%	%	CAGR %			US$m
The Argo Fund	Oct-00	52.30	-17.42	203.94	7.95	2.07	58 of 195	63.1
Argo Distressed Credit Fund	Oct-08	32.69	-9.71	98.85	9.37	0.72	47 of 99	35.1
Argo Special Situations Fund LP	Feb-12	-12.03	-76.21	-87.00	-28.22	0.90	51 of 59	12.4
Total								110.6

AREOF's adjusted Net Asset Value was minus US$25.8 million (minus €24.5 million unaudited) as at 30 September 2016, compared with minus US$23.4 million (minus €20.9 million audited) a year earlier. The adjusted Net Asset Value per share at 30 September 2016 was minus US$0.04 (minus €0.04) (30 September 2015: minus US$0.03 (minus €0.03)). Although AREOF's consolidated statement of financial position indicates the AREOF group is insolvent on a consolidated basis, the structural ring-fencing of the underlying SPVs eliminates the impact on the Group of negative equity at subsidiary level.

For several years, AREOF has traded with a negative equity position and significant cash shortages at the holding company level. In 2017, AREOF hopes to complete a significant restructuring which will go some way towards reversing its negative equity position. Initial measures are already underway. The Board hopes the restructuring will be completed during the first half of 2017. As part of the restructuring, Argo Group Limited would accept a reduction in the management fee from AREOF. The reduction will see the annual fee fall from €2m currently to €1m. Even after this reduction, it is still expected by the Board that AREOF will struggle to meet its management fee obligation to Argo Group Limited.

2016 proved to be a better year for most emerging economies than expected. The US postponed its interest rate rise and the greenback rally stalled. This prompted many emerging market central banks to cut interest rates, boosting activity. Moreover, investors went back on the hunt for higher yielding assets and capital flowed back into emerging markets, bond issuance reaching a record high in 2016.

This favourable backdrop created an opportunity to reinvest in emerging markets at lower prices. In response to the more positive prevailing attitudes towards credit funds we have relaunched TAF and expect to do the same for ADCF soon, as two distinct mandates with different liquidity profiles that will make them more attractive propositions to new investors.

Early in the year the Argo funds generated a positive return from trades linked to the 2015 disposal of their stake in an Indonesian oil refinery. In June 2016 the Argo funds further benefited from the sale by AREOF of one of its real estate assets in Romania. As well as contributing to the strong performance of TAF and ADCF, this provided much needed liquidity to the funds and allowed AREOF to repay US$2,776,000 (€2,500,000) of management fee arrears.

TAF is the Group's flagship fund and has a 16 year track record. Going forward, TAF will focus on liquid bond securities, both sovereign and corporate, and will be the focus of the Group's marketing efforts. Following the declines experienced by emerging markets over the previous two years, the Board believes they offer attractive investment opportunities. Furthermore, the economic fundamentals in emerging markets are robust. Emerging Markets Corporates are expected to deliver significantly stronger economic growth than those in developed markets in 2017 while enjoying attractive risk profiles thanks to lower levels of government indebtedness and relatively high foreign exchange reserves. Both TAF and ADCF performed well during 2016 with NAV per share increasing by 52.3% and 32.69% respectively.

The two markets in which AREOF operates were mixed. Conditions in Romania were largely favourable as the local economy continued to expand thereby boosting the local property market. In Ukraine the political crisis abated somewhat with the replacement of almost the entire government and the economy is now on a modest recovery path.

The Group invested in additional human resources by recruiting a dedicated investor relations professional and an experienced research analyst in expectation of increased activity in The Argo Fund trading and risk management. Furthermore, operational systems were upgraded with the help of an IT consultant.

Following the growth in assets under management at Argo Capital Management Limited, the subsidiary has submitted an application to the Financial Conduct Authority for a full scope Alternative Investment Fund Manager (AIFM) licence in January 2017.

In January 2017, The Argo Fund, the Company's flagship fund, won the Eurohedge Award for Best Emerging Manager and Smaller Fund in 2016.

Dividends and share purchase programme

The Directors are not declaring a final dividend, but intend to restart dividend payments as soon as the Group's performance provides a consistent track record of profitability.

During the year the Directors undertook a share purchase programme and authorised the repurchase of 19,330,000 shares at a total cost of US$2.9 million which provided substantial market liquidity for share trading.

Under the current Share Buyback Programme II, the Company intends to use up to £2 million to acquire Ordinary Shares in the market over a twelve month period commencing on 28 September 2016 and expiring no later than 19 September 2017 (one year from the date of the 2016 AGM which authorised the 2016 Share Buyback Programme II). The minimum price that Argo will pay is 8p per Ordinary Share. The aggregate number of Ordinary Shares which may be acquired on behalf of the Company in connection with the 2016 Share Buyback Programme II will not exceed 23,676,987 Ordinary Shares, which broadly represents the number of shares in public hands. The Company has spent US$0.07 million (£0.06 million) to buy back 375,000 Ordinary Shares on this programme so far.

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

Outlook

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

Boosting AUM will be Argo's top priority over the coming year. The Group's marketing efforts will continue to focus on the re-launch of TAF which has a 16 year track record as well as identifying acquisitions that are earnings enhancing. TAF's prospectus was amended on 1 March 2016 to eliminate trading in level 3 illiquid assets and concentrate trading and investments in emerging market bonds and other liquid assets.

Over the longer term, the Board believes there is significant opportunity for growth in assets and profits and remains committed to ensuring the Group's investment management capabilities and resources are appropriate to meet its key objective of achieving a consistent positive investment performance in the emerging markets sector.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2016

		Year ended		Year ended
		31 December		31 December
		2016		2015
	Note	US$'000		US$'000
Management fees		4,251		5,091
Performance fees		1,685		-
Other income		445		639
Revenue	2(e), 3	6,381		5.730
Legal and professional expenses		(490)		(388)
Management and incentive fees payable	2(f)	(68)		(79)
Operational expenses		(1,007)		(910)
Employee costs	4	(4,769)		(2,155)
Foreign exchange gain		(16)		69
Bad debts	11	(553)		(1,997)
Depreciation	9	(42)		(46)
Operating profit/(loss)	6	(564)		224
Interest income on cash and cash equivalents		137		190
Realised and unrealised gains/(losses) on investments		1,076		(3,342)
Profit/(loss) on ordinary activities before taxation	3	649		(2,928)
Taxation	7	(78)		(250)
Profit/(loss) for the year after taxation attributable to members of the Company	8	571		(3,178)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations		(79)		(380)
Total comprehensive income for the year		492		(3,558)

		Year ended		Year ended
		31 December		31 December
		2016		2015
		US$		US$
Earnings per share (basic)	8	0.01		(0.05)
Earnings per share (diluted)	8	0.01		(0.04)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2016

		At 31 December		At 31 December
		2016		2015
	Note	US$'000		US$'000
Assets
Non-current assets
Fixtures, fittings and equipment	9	50		64
Financial assets at fair value through profit or loss	10	134		4,896
Loans and advances receivable	12	264		1,783
Total non-current assets		448		6,743
Current assets
Financial assets at fair value through profit or loss	10	12,267		11,896
Trade and other receivables	11	2,870		966
Loans and advances receivable	12	66		-
Cash and cash equivalents	13	6,126		3,126
Total current assets		21,329		15,988
Total assets	3	21,777		22,731
Equity and liabilities
Equity
Issued share capital	14	481		674
Share premium		28,211		30,878
Revenue reserve		(5,668)		(6,239)
Foreign currency translation reserve	2(d)	(2,955)		(2,876)
Total equity		20,069		22,437
Current liabilities
Trade and other payables	15	1,683		236
Taxation payable	7	25		58
Total current liabilities	3	1,708		294
Total equity and liabilities		21,777		22,731

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

YEAR ENDED 31 DECEMBER 2016

	Issued share capital	Share premium	Revenue reserve	Foreign currency translation reserve	Total
	2015	2015	2015	2015	2015
	US$'000	US$'000	US$'000	US$'000	US$'000
As at 1 January 2015	674	30,878	(3,061)	(2,496)	25,995
Total comprehensive income
Loss for the year after taxation	-	-	(3,178)	-	(3,178)
Other comprehensive income	-	-	-	(380)	(380)
As at 31 December 2015	674	30,878	(6,239)	(2,876)	22,437

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

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 DECEMBER 2016

		Year ended		Year ended
		31 December		31 December
		2016		2015
	Note	US$'000		US$'000
Net cash inflow/(outflow) from operating activities	17	508		2,128
Cash flows from investing activities
Interest received on cash and cash equivalents		7		14
Share buy back		(2,860)		-
Purchase of financial assets at fair value through profit or loss		(2,000)		(1,700)
Proceeds from sale of financial assets at fair value through profit or loss		7,467		-
Purchase of fixtures, fittings and equipment	9	(31)		(8)
Net cash used in investing activities		2,583		(1,694)
Net increase in cash and cash equivalents		3,091		434
Cash and cash equivalents at 1 January 2016 and     1 January 2015		3,126		2,821
Foreign exchange loss on cash and cash        equivalents		(91)		(129)
Cash and cash equivalents as at 31 December 2016 and 31 December 2015		6,126		3,126

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2016

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 27 (2015: 24) 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)     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 2018. These forecasts reflect current cost patterns of the Group and take into consideration current liquidity constraints of funds under management and therefore their ability to settle management fees and other receivables (refer to notes 11 and 13).

On the basis of review of this forecast financial information, the liquid assets currently held and forecast inflows during the period, the Directors are confident that the Group has adequate financial resources available to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis for preparing the financial statements.

In the Directors' view activities are continuing on the above satisfactorily and they have therefore concluded that it is appropriate to prepare the financial statements on a going concern basis.

2.      ACCOUNTING POLICIES

(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 mutual funds. Revenue is accrued on a monthly basis on completion of management services. In the Argo funds revenue is based on the assets under management of each mutual fund and in the Argo Real Estate Opportunities Fund Limited ("AREOF") (managed by Argo Capital Management Property Limited) revenue is based on the gross proceeds of share placements. 

         Incentive fees arise monthly, quarterly or on realisation of an investment. Incentive fees are recognised in the month they arise. In addition, AREOF incentive fees may be triggered at any time on realisation of a property asset. The management and incentive fees receivable from AREOF are defined in the management contract between that company and Argo Capital Management Property Limited. The management contract has a fixed term expiring on 31 July 2018.

The Group has provided AREOF with a notice of deferral in relation to the amounts due from the provision of investment management services, under which it will not demand payment of such amounts until the Group judges that AREOF is in a position to pay the outstanding liability. In November 2013 AREOF offered Argo Group Limited additional security for the continued support in the form of debentures and guarantees by underlying intermediate companies.

(f)      Management and incentive fees payable

         The Group pays management and incentive fees based on a proportion of fees receivable from mutual funds. Fees payable are accrued on a monthly basis consistent with revenue streams earned.

(g)     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

(h)     Financial assets held at fair value through profit or loss

                  IFRS 13 has been adopted from 1 January 2013. It establishes a single source of guidance for measuring fair value and requires disclosures about fair value measurements. Fair value under IFRS 13 is an exit price regardless of whether that price is directly observable or estimated using another valuation technique. IFRS 13 also includes disclosure requirements. The application of IFRS 13 has not had any material impact on the amounts recognised in the financial statements.  

                  All investments are classified as financial assets at fair value through profit or loss. Investments are initially recognised at fair value. Transaction costs are expensed as incurred. After initial recognition, investments are measured at fair value, with unrealised gains and losses on investments and impairment of investments recognised in the Consolidated Statement of profit or loss. 

                  Investments held at fair value in managed mutual funds are valued at fair value of the net assets as provided by the administrators of those funds. Where funds contain level 3 assets the Directors will consider the carrying value based on information regarding future expected cash flows using appropriate valuation techniques such as discounted cash flow analysis. Investments in the management shares of The Argo Fund Limited, Argo Distressed Credit Fund Limited and Argo Special Situations Fund LP are stated at fair value, being the recoverable amount. The Argo Fund can no longer trade in Level 3 assets under the terms of its new prospectus dated 1 March 2016.

(i)      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.

(j)     Financial instruments

Financial assets and liabilities are recognised on the Consolidated Statement of Financial Position when the Company becomes party to the contractual provisions of the instrument.

Non-derivative financial instruments include trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. The initial and subsequent measurement of non-derivative financial instruments is dealt with below.

         Trade and other receivables

Trade and other receivables are held at amortised cost and do not carry any interest. They are stated at their original invoice amount as reduced by appropriate allowances for estimated irrecoverable amounts. An estimate for doubtful debts is made when collection is no longer probable. Bad debts are written off when identified. The carrying value of trade receivables equates to their fair value.

         Cash and cash equivalents

         Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments which are readily convertible to known amounts of cash, subject to insignificant risk of changes in value, and have a maturity of less than three months from the date of acquisition.

         For the purposes of the cash flow statement, cash and cash equivalents consist of cash in hand and bank deposits.

Trade payables

Trade payables are not interest bearing and are stated at amortised cost.

(k)     Loans and borrowings

                  All loans and borrowings payable are initially recognised at cost, calculated as the fair value of the consideration received less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by using the effective interest method, taking into account any issue costs, and discounts and premiums on settlement.

                  All loans and borrowings receivable are initially recognised at cost and subsequently measured at amortised cost. An estimate for provision for recovery is made when collection is no longer probable.

(l)      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. 

(m)    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.

 (n)    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.

(o)     Operating leases

Costs in respect of operating leases are charged on a straight line basis over the lease term. Benefits, such as rent free periods, received and receivable as incentives to take on operating leases are spread on a straight line basis over the lease term, or, if shorter than the full lease term, over the period to the review date on which the rent is first expected to be adjusted to the prevailing market rent.

(p)     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.

 (q)    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:

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

The Directors do not expect the adoption of these standards and interpretations to have a material impact on the Group's financial statements in the period of initial application, except for IFRS 9 Financial Instruments, which becomes mandatory for the Group's 2018 consolidated financial statements and could change the classification and measurement of financial assets. The Group does not plan to adopt this standard early and the extent of the impact has not been determined.

Any standard adopted during the year has presentational impact only; it is therefore not necessary to adjust comparative information.

(r)     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 Group Ltd	Argo Capital Management (Cyprus) Limited	Argo Capital Management Limited	Argo Capital Management Property Limited	Year ended 31 December
	2016	2016	2016	2016	2016
	US$'000	US$'000	US$'000	US$'000	US$'000
Total revenues for reportable segments	600	994	3,525	2,645	7,764
Intersegment revenues	600	783	-	-	(1,383)
Total profit/(loss) for reportable segments	1,251	(280)	(837)	515	649
Intersegment profit/(loss)	600	183	(783)	-	-
Total assets for reportable segments	15,708	1,035	4,292	3,435	24,470
Total liabilities for reportable segments	38	27	2,622	1,714	4,401

Revenues, profit or loss, assets and liabilities may be reconciled as follows:	Year ended
	31 December
	2016
	US$'000
Revenues
Total revenues for reportable segments	7,764
Elimination of intersegment revenues	(1,383)
Group revenues	6,381
Profit or loss
Total profit for reportable segments	649
Other unallocated amounts	(-)
Profit on ordinary activities before taxation	649
Assets
Total assets for reportable segments	24,470
Elimination of intersegment receivables	(2,693)
Group assets	21,777
Liabilities
Total liabilities for reportable segments	4,401
Elimination of intersegment payables	(2,693)
Group liabilities	1,708

	Argo Group Ltd	Argo Capital Management (Cyprus) Limited	Argo Capital Management Limited	Argo Capital Management Property Limited	Year ended 31 December
	2015	2015	2015	2015	2015
	US$'000	US$'000	US$'000	US$'000	US$'000
Total revenues for reportable segments	2,250	1,650	2,047	2,859	8,806
Intersegment revenues	(2,250)	-	(826)	-	(3,076)
Total profit/(loss) for reportable segments	(3743)	1,688	265	(1,098)	(2,888)
Intersegment profit/(loss)	-	826	(826)	-	-
Total assets for reportable segments	17,335	1,419	2,525	1,876	23,155
Total liabilities for reportable segments	91	89	98	475	753

Revenues, profit or loss, assets and liabilities may be reconciled as follows:	Year ended
	31 December
	2015
	US$'000
Revenues
Total revenues for reportable segments	8,806
Elimination of intersegment revenues	(3,076)
Group revenues	5,730
Profit or loss
Total loss for reportable segments	(2,888)
Other unallocated amounts	(40)
Loss on ordinary activities before taxation	(2,928)
Assets
Total assets for reportable segments	23,155
Elimination of intersegment receivables	(424)
Group assets	22,731
Liabilities
Total liabilities for reportable segments	753
Elimination of intersegment payables	(459)
Group liabilities	294

4.      EMPLOYEE COSTS

	Year ended		Year ended
	31 December		31 December
	2016		2015
	US$'000		US$'000
Wages and salaries -under employment contract	3,334		1,756
Wages and salaries - under service contract	923		155
Social security costs	407		179
Other	105		65
	4,769		2,155

5.      KEY MANAGEMENT PERSONNEL REMUNERATION

   Included in employee costs are payments to the following:

	Year ended		Year ended
	31 December		31 December
	2016		2015
	US$'000		US$'000
Directors and key management personnel	2,155		1,047

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

					Year ended	Year ended
	Salaries	Fees	Benefits	Cash bonus	31 December 2016	31 December 2015
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Executive Directors
Kyriakos Rialas	205	-	-	200	404	202
Andreas Rialas	208	-	6	600	814	225
Non-Executive Directors
Michael Kloter	-	54	-	-	54	80
David Fisher	-	35	-	-	35	54
KenWatterson	-	35	-	-	35	55

6.      OPERATING PROFIT/(LOSS)

Operating profit/(loss) is stated after charging:

	Year ended		Year ended
	31 December		31 December
	2016		2015
	US$'000		US$'000
Auditors' remuneration	67		105
Depreciation	41		46
Directors' fees	2,155		963
Operating lease payments	172		199

7.      TAXATION

         Taxation rates applicable to the parent company and the Cypriot, UK, Luxembourg and Romanian subsidiaries range from 0% to 12.5% (2015: 0% to 20.25%).

         Income Statement

	Year ended		Year ended
	31 December		31 December
	2016		2015
	US$'000		US$'000
Taxation charge for the year on Group companies	78		250
Tax on profit on ordinary activities	78		250

The tax charge for the year can be reconciled to the loss on ordinary activities before taxation shown in the Consolidated Statement of Comprehensive Income as follows:

	Year ended		Year ended
	31 December		31 December
	2016		2015
	US$'000		US$'000
Profit/(loss) before tax	649		(2,928)
Applicable Isle of Man tax rate for Argo Group Limited of 0%	-		-
Timing differences	(1)		5
Non-deductible expenses	9		7
Other adjustments	70		(66)
Tax effect of different tax rates of subsidiaries operating in other jurisdictions	-		304
Tax charge	78		250

         Balance Sheet

	At 31 December		At 31 December
	2016		2015
	US$'000		US$'000
Corporation tax payable	25		58

8.      EARNINGS PER SHARE

The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding, adjusted for the effects of all dilutive potential ordinary shares (see note 21).

	Year ended		Year ended
	31 December		31 December
	2016		2015
	US$'000		US$'000
Profit/(loss) for the year after taxation attributable to members	571		(3,178)
	No. of shares		No. of shares
Weighted average number of ordinary shares for basic earnings      per share	55,443,494		67,428,494
Effect of dilution (note 21)	4,840,000		4,090,000
Weighted average number of ordinary shares for diluted earnings per share	60,283,494		71,518,494

	Year ended		Year ended
	31 December		31 December
	2016		2015
	US$		US$
Earnings per share (basic)	0.01		(0.05)
Earnings per share (diluted)	0.01		(0.04)

9.   FIXTURES, FITTINGS AND EQUIPMENT

	Fixtures, fittings & equipment
	US$'000
Cost
At 1 January 2015	254
Additions	8
Disposals	-
Foreign exchange movement	(17)
At 31 December 2015	245
Additions	31
Disposals	(2)
Foreign exchange movement	(24)
At 31 December 2016	250
Accumulated Depreciation
At 1 January 2015	147
Depreciation charge for period	46
Disposals	-
Foreign exchange movement	(12)
At 31 December 2015	181
Depreciation charge for period	41
Disposals	(2)
Foreign exchange movement	(20)
At 31 December 2016	200
Net book value
At 31 December 2015	64
At 31 December 2016	50

10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

		31 December		31 December
		2016		2016
Holding	Investment in management shares	Total cost		Fair value
		US$'000		US$'000
10	The Argo Fund Ltd	-		-
100	Argo Distressed Credit Fund Ltd	-		-
1	Argo Special Situations Fund LP	-		-
		-		-

Holding	Investment in ordinary shares	Total cost		Fair value
		US$'000		US$'000
32,104	The Argo Fund Ltd*	7,159		9,758
10,899,021	Argo Real Estate Opportunities Fund Ltd	988		119
115	Argo Special Situations Fund LP	115		15
1,262	Argo Distressed Credit Fund Limited*	2,000		2,509
		10,262		12,401

		31 December		31 December
		2015		2015
Holding	Investment in management shares	Total cost		Fair value
		US$'000		US$'000
10	The Argo Fund Ltd	-		-
100	Argo Distressed Credit Fund Ltd	-		-
1	Argo Special Situations Fund LP	-		-
1	Argo Local Markets Fund	-		-
		-		-

Holding	Investment in ordinary shares	Total cost		Fair value
		US$'000		US$'000
51,261	The Argo Fund Ltd*	11,159		10,230
10,899,021	Argo Real Estate Opportunities Fund Ltd	988		119
115	Argo Special Situations Fund LLP	115		17
2,117	Argo Local Markets Fund Limited*	1,700		1,666
40,272	Sudan Recovery Fund Limited	4,760	4	4,760
		18,722		16,792

*Classified as current in the consolidated Statement of Financial Position

11.     TRADE AND OTHER RECEIVABLES 

	At 31 December		At 31 December
	2016		2015
	US$ '000		US$ '000
Trade receivables - Gross	11,078		9,174
Less: provision for impairment of trade receivables	(8,626)		(8,345)
Trade receivables - Net	2,452		829
Other receivables	354		66
Prepayments and accrued income	64		71
	2,870		966

The Directors consider that the carrying amount of trade and other receivables approximates their fair value. All trade receivable balances are recoverable within one year from the reporting date except as disclosed below. Since the year end the Group received US$1,850,000 as part settlement of these trade receivables.

The Group has provided AREOF with a notice of deferral in relation to amounts due from the provision of investment management services, under which it will not demand payment of such amounts until the Group judges that AREOF is in a position to pay the outstanding liability. These amounts accrued or receivable at 31 December 2016 total US$Nil (2015: US$Nil) after a bad debt provision of US$6,401,507 (€6,069,505) (2015: US$7,164,702 (€6,569,505)). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows. AREOF settled total fees of €2,776,000 (€2,500,000) during the year. In November 2013, AREOF offered Argo Group Limited additional security for the continued support in the form of debentures and guarantees by underlying intermediate companies. Argo Group Limited retains this additional security. The AREOF management contract has a fixed term expiring on 31 July 2018.

In November 2013 AREOF offered Argo Group Limited additional security for the continued support in the form of debentures and guarantees by underlying intermediate companies. In the Directors' view these amounts are fully recoverable although they have concluded that it would not be appropriate to continue to recognise income from these investment management services going forward, as the timing of such receipts may be outside the control of the Company and AREOF.

In the audited financial statements of AREOF at 30 September 2015 a material uncertainty surrounding the refinancing of bank debts was referred to in relation to the basis of preparation of the financial statements. In the view of the directors of AREOF, discussions with the banks are continuing satisfactorily and they have therefore concluded that it is appropriate to prepare those financial statements on a going concern basis.

At the year end, Argo Special Situations Fund LP owed the Group total management fees of US$591,295 (2015: US$689,310). This Fund is currently facing liquidity issues due to the debt financing arrangement put in place in 2014 however management continue to work to remedy this and the Directors are confident that these fees may be recovered in the future. During the year, the Group received US$350,000 as part settlement of these management fees.

12.     TRADE AND OTHER RECEIVABLES

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

	At 31 December		At 31 December
	2016		2015
	US$ '000		US$ '000
As at 1 January	8,345		5,687
Bad debt recovered	(2,776)		-
Provision charged during the year	3,329		3,302
Foreign exchange movement	(272)		(644)
As at 31 December	8,626		8,345

13.       LOANS AND ADVANCES RECEIVABLE

	At 31 December		At 31 December
	2016		2015
	US$'000		US$'000
Deposits on leased premises - current	66			- 6
Deposits on leased premises - non-current	13			90 9
Other loans and advances receivable - current	-		-
Other loans and advances receivable - non-current (see below)	251		1,693
	330		1,783

 The non-current other loans and advances receivable comprise:

	At 31 December		At 31 December
	2016		2015
	US$'000		US$'000
Loan to Bel Rom Trei (see note (a) below)	-		1,437
Loan to AREOF  (see Note 18)	23		24
Loan to The Argo Fund Limited	-		22
Loans to other AREOF Group entities (see Note 18)	226		208
Other loans	2		2
	251		1,693

The deposits on leased premises are retained by the lessor until vacation of the premises at the end of the lease term as follows:

	At 31 December		At 31 December
	2016		2015
	US$'000		US$'000
Current:
Lease expiring within one year	66		-

	At 31 December		At 31 December
	2016		2015
	US$'000		US$'000
Non-current:
Lease expiring in second year after the reporting date	-		78
Lease expiring in third year after the reporting date	13		-
Lease expiring in fourth year after the reporting date	-		12
	13		90

(a)   In 2013 Argo Group advanced US$1,090,600 (€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 full amount of the loan and accrued interest amounting to USS1,490,031 (€1,337,611) was repaid during the year

14.     CASH AND CASH EQUIVALENTS

Included in cash and cash equivalents is a balance of US$25,000 (€20,000) (2015: US$30,000) which represents a bank guarantee in respect of credit cards issued to Argo Capital Management Property Limited. Due to the nature of this balance it is not freely available.

15.     SHARE CAPITAL

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

	31 December	31 December	31 December	31 December
	2016	2016	2015	2015
	No.	US$'000	No.	US$'000
Issued and fully paid
Ordinary shares of US$0.01 each	48,098,494	481	67,428,494	674
	48,098,494	481	67,428,494	674

The Directors do not recommend the payment of a final dividend for the year ended 31 December 2016 (31 December 2015: Nil).

During the year, the Directors authorised the repurchase of 19,330,000 shares at a total cost of US$2.9 million.

16.     TRADE AND OTHER PAYABLES

	At 31 December		At 31 December
	2016		2015
	US$ '000		US$ '000
Trade and other payables	122		32
Other creditors and accruals	1,561		204
	1,683		236

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

17.  OBLIGATIONS UNDER OPERATING LEASES

Operating lease payments represent rentals payable by the Group for certain of its business premises.  The leases have no escalation clauses or renewal or purchase options and no restrictions imposed on them.

As at the reporting date, the Group had outstanding future minimum lease payments under non-cancellable operating leases, which fall due as follows:

	At 31 December		At 31 December
	2016		2015
	US$ '000		US$ '000
Operating lease liabilities:
Within one year	149		203
In the second to fifth years inclusive	116		279
Present value of minimum lease payments	265		482

18.   RECONCILIATION OF NET CASH OUTLOW FROM OPERATING ACTIVITIES TO                  

LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION

	Year ended		Year ended
	31 December		31 December
	2016		2015
	US$ '000		US$ '000
Profit/(loss) on ordinary activities before taxation	649		(2,928)
Interest income	(136)		(190)
Depreciation	41		46
Increase/(decrease) in payables	1,444		(85)
(Increase)/decrease in receivables	(322)		2,257
(Increase)/decrease in fair value of current asset investments	(1,076)		3,342
Net foreign exchange loss/(gain)	16		(69)
Income taxes paid	(108)		(245)
Net cash inflow/(outflow) from operating activities	508		2,128

19.       RELATED PARTY TRANSACTIONS

All Group revenues derive from funds or entities in which two of the Company's directors, Andreas Rialas and Kyriakos Rialas, have an influence through directorships and the provision of investment advisory services.

At the reporting date the Company holds investments in The Argo Fund Limited, Argo Real Estate Opportunities Fund Limited ("AREOF"), Argo Special Situations Fund LP and Argo Distressed Credit Fund Limited. These investments are reflected in the consolidated financial statements at a fair value of US$9,757,845, US$118,866, US$14,823 and US$2,509,697 respectively.

The Group has provided AREOF with a notice of deferral in relation to amounts due from the provision of investment management services, under which it will not demand payment of such amounts until the Group judges that AREOF is in a position to pay the outstanding liability. These amounts accrued or receivable at 31 December 2016 total US$Nil (2015: US$Nil) after a bad debt provision of US$6,401,507 (€6,069,505) (2015: US$7,164,702 (€6,569,505)). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows. AREOF settled total fees of €2,776,000 (€2,500,000) during the year. In November 2013, AREOF offered Argo Group Limited additional security for the continued support in the form of debentures and guarantees by underlying intermediate companies. Argo Group Limited retains this additional security. The AREOF management contract has a fixed term expiring on 31 July 2018

On 21 November 2013 the Argo Group provided a loan of US$410,236 (€388,960) to AREOF at a rate of 10% per annum to enable the company to service interest payments under a bank loan agreement. A bad debt provision has been raised against the full amount of the loan and accrued interest amounting to US$537,915 (€510,017).

During the year, the Argo Group made further loans totalling US$756,472 (€717,239) to AREOF at a rate of 10% per annum to support the company to pay operational and restructuring costs. At year end, total such loans and interest were US$1,187,320 (€1,125,742) (2015:US$370,561 (€351,342)). A full provision has been made in the consolidated financial statements against these balances at both at the end of the current and prior year.

At the year end, Argo Group was owed a total balance of US$232,367 (€220,316) by other AREOF Group entities. This balance comprises various loans that are unsecured, interest free and repayable on demand. A bad debt provision of US$105,043 (€99,596) has been made on the accounts in respect of these balances.

In addition to the above, the Argo Group is owed a further US$292,676(€277,497) by AREOF against which a bad debt provision for US$267,979 (€254,081) has been raised.

In the audited consolidated financial statements of AREOF at 30 September 2015 a material uncertainty surrounding the refinancing of bank debts was referred to in relation to the basis of preparation of the financial statements. In the view of the directors of AREOF, discussions with the banks are continuing satisfactorily and they have therefore concluded that it is appropriate to prepare those consolidated financial statements on a going concern basis.

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

20.     FINANCIAL INSTRUMENTS RISK MANAGEMENT

(a)  Use of financial instruments

                The wider Group has maintained sufficient cash reserves not to use alternative financial instruments to finance the Group's operations. The Group has various financial assets and liabilities such as trade and other receivables, loans and advances, cash, short-term deposits, and trade and other payables which arise directly from its operations.

                The Group's non-subsidiary investments in funds were entered into with the purpose of providing seed capital, supporting liquidity and demonstrating the commitment of the Group towards its fund investors.

(b)  Market risk

                Market risk is the risk that a decline in the value of assets adversely impacts on the profitability of the Group, either as a result of an asset not meeting its expected value or through the decline of assets under management generating lower fees. The principal exposures of the Group are in respect of its seed investments in its own funds (refer to note 10). Lower management fee and incentive fee revenues could result from a reduction in asset values.

(c)  Capital risk management

         The primary objective of the Group's capital management is to ensure that the Company has sufficient cash and cash equivalents on hand to finance its ongoing operations. This is achieved by ensuring that trade receivables are collected on a timely basis and that excess liquidity is invested in an optimum manner by placing fixed short-term deposits or using interest bearing bank accounts.

                   At the year-end cash balances were held at Royal Bank of Scotland, Bank of Cyprus and Bancpost.

(d)  Credit/counterparty risk

         The Group will be exposed to counterparty risk on parties with whom it trades and will bear the risk of settlement default. Credit risk is concentrated in the funds under management and in which the Group holds significant investments as detailed in notes 10, 11 and 13. As explained within these notes the Group is experiencing collection delays with regard to management fees receivable and monies advanced. Some of the investments in funds under management (note 10) are illiquid and may be subject to events materially impacting recoverable value.

         The Group's principal financial assets are bank and cash balances, trade and other receivables and investments held at fair value through profit or loss. These represent the Company's maximum exposure to credit risk in relation to financial assets and are represented by the carrying amount of each financial asset in the statement of financial position.

         At the reporting date, the financial net assets past due but not impaired amounted to US$746,851 (2015: US$2,148,606).

e)   Liquidity risk

         Liquidity risk is the risk that the Group may be unable to meet its payment obligations. This would be the risk of insufficient cash resources and liquid assets, including bank facilities, being available to meet liabilities as they fall due.

                   The main liquidity risks of the Group are associated with the need to satisfy payments to creditors. Trade payables are normally on 30-day terms (note 15).

As disclosed in note 2(a), Accounting Convention: Going Concern, the Group has performed an assessment of available liquidity to meet liabilities as they fall due during the forecast period. The Group has concluded that it has sufficient resources available to manage its liquidity risk during the forecast period.

(f)   Foreign exchange risk

      Foreign exchange risk is the risk that the Group will sustain losses through adverse movements in currency exchange rates.

      The Group is subject to short-term foreign exchange movements between the calculation date of fees in currencies other than US dollars and the date of settlement.  The Group holds cash balances in US Dollars, Sterling, Romanian Lei and Euros with carrying amounts as follows: US dollar - US$1,960,000, Sterling - US$1,037,000, Euros - US$3,126,000 and Romanian Lei - US$3,000.                      

                   If there was a 5% increase or decrease in the exchange rate between the US dollar and the other operating currencies used by the Group at 31 December 2016 the exposure would be a profit or loss to the Consolidated Statement of Comprehensive Income of approximately US$208,000 (2015: US$43,000).

(g)  Interest rate risk

The interest rate profile of the Group at 31 December 2016 is as follows:

	Total as per balance sheet	Variable interest rate instruments*	Fixed  interest rate instruments	Instruments on which no interest is receivable
	US$ '000	US$ '000	US$ '000	US$ '000
Financial Assets
Financial assets at fair value    through profit or loss	12,401	-	-	12,401
Loans and receivables	3,200	-	-	3,200
Cash and cash equivalents	6,126	899	1,927	3,300
	21,727	899	1,927	18,901
Financial liabilities
Trade and other payables	1,683	-	-	1,683

* Changes in the interest rate may cause movements.

The average interest rate at the year end was 0.17%. Any movement in interest rates would have an immaterial effect on the profit/(loss) for the year.

The interest rate profile of the Group at 31 December 2015 is as follows:

	Total as per balance sheet	Variable interest rate instruments*	Fixed  interest rate instruments	Instruments on which no interest is receivable
	US$ '000	US$ '000	US$ '000	US$ '000
Financial Assets
Financial assets at fair value    through profit or loss	16,792	-	-	16,792
Loans and receivables	2,749	-	1,437	1,312
Cash and cash equivalents	3,126	602	2,274	250
	22,667	602	3,711	18,354
Financial liabilities
Trade and other payables	236	-	-	236

* Changes in the interest rate may cause movements.

The average interest rate at the year end was 0.01%. Any movement in interest rates would have an immaterial effect on the profit/(loss) for the year.

 (h) Fair value  

      The carrying values of the financial assets and liabilities approximate the fair value of the financial assets and liabilities and can be summarised as follows:

		At 31 December		At 31 December
		2016		2015
		US$ '000		US$ '000
Financial Assets
Financial assets at fair value through profit or loss		12,401		16,792
Loans and receivables		3,200		2,749
Cash and cash equivalents		6,126		3,126
		21,727		22,667
Financial Liabilities
Trade and other payables		1,683		236

Financial assets and liabilities, other than investments, are either repayable on demand or have short repayment dates. The fair value of investments is stated at the redemption prices quoted by fund administrators and are based on the fair value of the underlying net assets of the funds because, although the funds are quoted, there is no active market for any of the investments held.

Fair value hierarchy

The table below analyses financial instruments measured at fair value at the end of the reporting period by the level of the fair value hierarchy (note 2p).

                                                               At 31 December 2016

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

                                                               At 31 December 2015

	Level 1	Level 2	Level 3	Total
	US$ '000	US$ '000	US$ '000	US$ '000
Financial assets at fair value through profit or loss	-	11,896	4,896	16,792

The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy:

	Unlisted closed ended investment fund		Listed open ended investment fund Emerging markets
	Real Estate			Total
	US$ '000		US$ '000	US$ '000
Balance as at 1 January 2016	119		4,777	4,896
Total losses recognized in profit or loss	-		(2,883)	(2,883)
Purchases	-                 -		-	-
Sales	-       -		(1,879)	(1,879)
Transfer to level 2	-		-	-
Balance as at 31 December 2016	119		15	134

20.        EVENTS AFTER THE REPORTING DATE

         The Directors consider that there has been no event since the year end that has a significant effect on the Group's position.

21.  SHARE-BASED INCENTIVE PLANS

         On 14 March 2011 the Group granted options over 5,900,000 shares to directors and employees under The Argo Group Limited Employee Stock Option Plan. All options are exercisable in four equal tranches over a period of four years at an exercise price of 24p per share.

         The fair value of the options granted was measured at the grant date using a Black-Scholes model that takes into account the effect of certain financial assumptions, including the option exercise price, current share price and volatility, dividend yield and the risk-free interest rate. The fair value of the options granted is spread over the vesting period of the scheme and the value is adjusted to reflect the actual number of shares that are expected to vest.

The principal assumptions for valuing the options were:

Exercise price (pence)	24.0
Weighted average share price at grant date (pence)	12.0
Weighted average option life (years)	10.0
Expected volatility (% p.a.)	2.11
Dividend yield (% p.a.)	10.0
Risk-free interest rate (% p.a.)	5.0

The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The total charge to employee costs in respect of this incentive plan is nil due to the differential in exercise price and share price.

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

	Weighted average exercise price	No. of share options
Outstanding at beginning of period	24.0p	4,090,000
Granted during the period	24.0p	950,000
Forfeited during the period	24.0p	(200,000)
Outstanding at end of period	24.0p	4,840,000
Exercisable at end of period	24.0p	4,840,000

The options outstanding at 31 December 2016 have an exercise price of 24p and a weighted average contractual life of 10 years, with the fourth and final tranche of shares being exercisable on or after 1 May 2015.Outstanding share options are contingent upon the option holder remaining an employee of the Group. They expire after 10 years.

No share options were issued during the period.

 

END

 

 

FR UOARRBAAORAR