Full year results for period ending 31 March 2020

RNS Number : 8512U
Argentex Group PLC
03 August 2020
 

3 August 2020 

Argentex Group PLC

("Argentex" or the "Group")

Full year results for the period ending 31 March 2020

Excellent financial and operational performance supported by strong client demand and increased trading activity

Argentex Group PLC (AIM: AGFX), the provider of foreign exchange services to institutions, corporates and high net worth private individuals, is pleased to announce its first full year results as a public company, for the year ended 31 March 2020.

Financial Highlights

· Foreign exchange ( " FX " ) turnover of £ 12.1bn up 12% (2019: £ 10.8bn) 

· Group revenue increased 32.3% to £ 28.9m (2019: £ 21.9m)

· Underlying operating profit increased 28% to £ 12.5m (2019: £ 9.7m)

· Significant increase in underlying earnings[1] to £ 10m (2019: £ 7.8m)

· Earnings per share 7.1p (basic) and 8.8p (underlying)

· In line with its stated dividend policy, the Group will be paying a maiden dividend of 2p per share


Operational Highlights

· Revenue growth driven by continued strong client demand and increased client activity
- 380 new corporate clients traded during the period
- 1,212 corporates actively traded, up 12%
- Client demand maintained during recent sustained period of volatility

· Continued diversification of client base
- Top 20 clients represent 41% of revenue

· Business mix remains consistent with historic trends
- 95% of the FX portfolio is comprised of dollar, sterling or euro trades
- Continued equal revenue composition between spot and forward
- Strong take up of FX Options book now contributing material revenues

· Executed effective Covid 19 response
- Entire business transitioned smoothly to working from home within 24 hours
- Robust business model and risk management systems ensured continuity of client service during the sustained, unprecedented market conditions

· Online trading platform launched in March, in response to client demand to execute cross border trades instantly

Investing for Growth

· Amsterdam sales office opened in March as part of the Group's international growth ambitions

· Signed lease on new 12,500ft2 London-based headquarters allowing for further headcount growth

· Continued to attract leading talent across the business with a focus on maintaining robust approach to compliance and increasing breadth of sales team to accelerate growth

Outlook

· Positive long-term growth prospects despite the uncertain macro outlook

· New premises, increased headcount, leading technology and a strong capital position support growth ambitions

 


[1]  Underlying earnings excludes the effects of share based payments, non-recurring costs including costs associated with the IPO and profits earned and fully distributed to former equity holders prior to the IPO, adjusted for taxation.

 

 

Carl Jani, Co-Chief Executive Officer, commented:

"It has been an excellent first year trading as a listed business in which we have continued to generate double digit revenue and profit growth supported by an expanding, increasingly active and high-quality client base.

 

"When joining the London Stock Exchange's AIM in June 2019, we had a clear commitment to our growth strategy and proven business model and since then, we are proud to have gone from strength to strength while considerably increasing the scale and breadth of our business."

 

Harry Adams, Co-Chief Executive Officer, stated:

 

"The increased capital strength and enhanced brand recognition that the IPO has afforded us, has positioned the business on firm foundations for our first year of trading and we're delighted with the financial and operational momentum we have achieved.

 

 "Our growth trajectory has been set against some of the most unprecedented markets recently recorded and our thoughts are with all of those impacted by the COVID-19 pandemic. We are proud of the spirit, collegiality and resilience shown by our people in ensuring a continuity of service for our growing, increasingly active and diversified client base. All the while, the investment in our proprietary systems and technology has served us well as the client demand continued during the recent sustained period of extreme volatility."

 

Lord Digby Jones, Non-Executive Chairman, said:

"After a strong start as a listed company we remain confident of the Group's long-term prospects despite the uncertain macro outlook. Our strong business model, unwavering strategy and expertise in a sector that will continue to be vital for clients, will help the Group continue to build on its track record.

"I'm delighted to declare a proposed and maiden dividend of 2p per share, in line with the Group's distribution policy of paying shareholders 30% of retained profit after tax, adjusted for any exceptional items."

For further information please contact:

Argentex Group PLC

Carl Jani, Harry Adams - Co-CEOs

(Via FTI Consulting)

 

FTI Consulting (Financial PR)

Ed Berry

Telephone: 0203 727 1046

argentex@fticonsulting.com  

 

Numis Securities Limited (Nominated Adviser and Broker)

Stephen Westgate, Charlie Farquhar, Laura White, Hugo Rubinstein
Telephone: +44 (0) 20 7260 1000

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Analyst briefing

Due to restrictions resulting from COVID-19, a meeting for analysts will be held virtually at 9.30am today, 3rd August 2020. Analysts wishing to attend this event can register via  email at argentex@fticonsulting.com.  Argentex's Full Year 2020 results announcement will also be available today on the Group's website at www.argentex.com .

Chairman statement

First and foremost I must start by saying how much of an honour it is to be Chairman of a business that has grown and evolved in the way Argentex has since its inception in 2012.

It's rare to get an opportunity to chair a company at the start of its journey as a listed business, but I have also had the privilege of knowing the three cofounders, Carl Jani, Harry Adams and Andrew Egan, and followed them and the business closely, since they started out over eight years ago.

A year on from the Group's successful debut on AIM, it's only natural to reflect on how far the business has come. It is testament to Carl, Harry and Andrew's long-term vision, ability to attract leading talent, intricate understanding of the foreign exchange market and approach to clients that have enabled them to build the leading FX platform that Argentex is today.

Their work ethic and sense of fun has also permeated the culture and makes the business unique.

Competing in a highly regulated sector previously dominated by banks, Argentex's robust business model and balance sheet strength is built around a programme of investment in technology, compliance and risk management. This has attracted a high quality, diversified and loyal customer base and best in class counterparties which have supported strong year on year organic growth since inception.

I'm pleased to say the last twelve months are no exception and despite the extreme macro-economic, geo-political and financial market conditions and the rapid escalation of COVID-19 towards the end of the fiscal year, the excellent ongoing financial performance further evidences delivery on the Group's steady growth strategy that it promised its shareholders ahead of the IPO.

But at Argentex, the vision is always long-term and the Group's cash generative profile and clear strategy supports the positive long-term outlook as the Group continues its trajectory, delivering the trusted advice and services for its clients, positive returns for its shareholders and being an employer of choice in the FX market.

Market backdrop

Since our listing in 2019, market and socio-political conditions have changed significantly. In that time, the UK appointed a new Prime Minister, experienced a general election and exited the European Union with trade negotiations still ongoing, as well as experiencing the worst global pandemic the world has seen since 1919. Despite these events the business has continued to grow, delivering on our objectives set out at the IPO and serving our clients' complex needs in turbulent market conditions.

Through this recent spell of unprecedented change, the safety and wellbeing of our employees have been our absolute priority. I am proud of how quickly and effectively we were able to implement working from home policies that have helped employees cope in these difficult times, while continuing fully to serve our clients.

The health and economic crisis caused by the spread of COVID-19 has caused major disruption in the global economy, while FX markets have seen a spike in volatility unseen in recent years. Rising global unemployment and a risk-off approach in stock markets has seen investors flood to safe-haven currencies such as the US dollar. Central bank policies have created a new paradigm in the currency markets, with exchange rates moving away from being driven by fundamental economic indicators towards stock markets. Our expert teams continue to analyse market trends and ensure our client advice is reflective of rapidly changing foreign exchange trends.

Key highlights

The last twelve months will always be defined by the Group's successful IPO, the benefits of which have been immediate. Most tangibly, the proceeds raised from the listing have enabled Argentex to increase its trading capacity to meet the growing needs of clients for its products and services, whilst improving the terms of its counterparties. The heightened visibility and credibility that comes with being a public company further solidify Argentex's position as a trusted provider, attracting new client interest. The positive revenue impact is plain to see from our results.

Whilst the core Spot and Forward product range denominated by dollar, sterling and euro continues to be the bedrock of Argentex's offering, during the year the increasing client uptake of FX Options demonstrates the Group's ability to serve the broadening needs of clients and the gradual move towards a more diversified revenue stream.

At a time where businesses up and down the country are seeking capital injections and reliant on the government's furlough scheme during this challenging period, I am proud that the business has continued to invest in its people and services during the year to ensure the benchmark of talent and the infrastructure and systems in place evolve in lock step with and contribute to the strategic momentum. The new, state-of-the-art headquarters at 25 Argyll Street, announced post year end, will further support headcount growth and create a modern ecosystem for employees and the business to thrive.

Aligned with this expansion and what the Group said to investors at IPO, progress has been made in identifying select jurisdictions where there is strong demand for Argentex's products, a track record of regulation and importantly an opportunity to capture market share. On that note, I'm excited by the opportunities identified in The Netherlands and Australia and the potential to replicate and enhance in those markets, what the team has built in the UK. As ever, the strategic approach here will be gradual and prudent.

Setting the industry standard

Since Carl, Harry and Andrew founded the business, they have stuck by a few core principles that not only differentiate Argentex but has helped the business grow to where it is today. It is based on an ethos of integrity in everything they do and always putting clients first. This means governance, compliance and risk management is central to the business, evidenced by the significant investment in systems, processes and controls over the years.

It is this high benchmark set by the business that reassures clients and counterparties alike but has also attracted a seasoned team of non- executive directors to Argentex. I am fortunate to work alongside a highly experienced Board that brings a depth of expertise that we believe, coupled with an industry-leading workforce, helps separate Argentex from its peers.

People are the Group's most important asset and fundamental to the long-term success of the business. Supporting and nurturing employees is an area Argentex takes seriously. Investment continues to be made in training programmes throughout the business to ensure everyone across the business, whether it be on the sales desk, trading floor or relationship managers is given continuous learning opportunities to progress her or his careers within the business whilst protecting the health and wellbeing of each individual.

Outlook

After a strong start as a listed company we remain confident of the Group's long-term prospects despite the uncertain macro outlook. Our strong business model, unwavering strategy and expertise in a sector that will continue to be vital for clients, will help the Group continue to build on its track record.

The business is steadily building for the future and the new London headquarters and office openings further afield mark the next step in the journey. We do not take undue risk and all decisions are made through a long-term lens, ensuring we grow organically and sustainably.

I would like to thank all of our shareholders for their support during our first year as a public company and of course to each and every employee for continuing to drive the business forward, despite such an unsettling time brought about by the global pandemic. It is a privilege to be your Chairman; thank you.

Lord Digby Jones Kb.

Non-Executive Chairman

 

 

Co-CEO statement

Overview

The last financial year marks a significant milestone in Argentex's history. When joining the London Stock Exchange's AIM market in June 2019, we had a clear commitment to our growth strategy and proven business model and since then, we are proud to have gone from strength to strength while considerably increasing the scale and breadth of our business.

The increased capital strength, more competitive counterparty terms and enhanced brand recognition that the IPO has afforded us, has positioned the business on firm foundations for our first year of trading and we're delighted with the financial and operational momentum we have achieved against an unforgettable 12 months, from a financial markets perspective.

The total FX turnover increased to over £12bn, generating revenue of £29m. 1,212 corporates traded, 380 having never traded before generating £6.6m in 'new' revenue - broadly in line with expected historical ratios. Our focus on serving a high quality, diverse client base has continued unabated, as has their demand for our services. Our client activity also grew, demonstrating that our clients use our services for genuine underlying business needs, particularly in an uncertain environment.

Our growth trajectory has been set against some of the most unprecedented markets recently recorded and one of the most unusual periods in our history, and our thoughts are with all of those impacted by the COVID-19 pandemic. Our immediate priority in the face of the pandemic was to safeguard the health and wellbeing of our people. It is testament to their spirit, collegiality and resilience, combined with our robust business model, balance sheet strength and approach to risk mitigation that clients were able to receive a continuity of service that they have come to expect from Argentex, with the entire business operating effectively within 24 hours of instigating a 100% work from home policy.

Market environment

In a year that has seen events such as Brexit, US-China trade wars, and more recently COVID-19, the extreme volatility often documented in the news has been surprisingly translated into relatively benign currency crosses to which the Group are primarily exposed. The occasional exception (GBP/USD seeing its largest one-day fall on record to 1.14 most notable among them) has caused bouts of flurried activity, however, the Group has remained calm in the slipstream of an otherwise ubiquitous turbulence.

It is true that volatility helps a broking business, however the Group's clients, all have a commercial need to buy and sell currency - a manufacturer requiring £10m worth of components from the US will still need to purchase £10m of US dollars.

Volatility precipitates an increased risk in the client's priorities. The counter to this is that with a robust risk framework in place the Group's continued growth is dependent more on the number of active clients it services, as opposed to relying on large swings in currency catalysing a client's decision to execute a trade.

The Group's client base remains diverse, without significant concentration at sector or client level. The top 20 clients now account for over £11m of revenue, but represent only 41% of total revenue for the year. So, too have we experienced diversification in sectors served, which along with the continued application of stringent risk policies sees no excessive exposure to either one sector, client or trade. Argentex continues to win the vast majority of our new business from High Street Banks that are estimated to have 85% market share.

Investing for the future

We are well placed to enter our next phase of growth with the capabilities and resources essential for our continued success. In September this year we will move into our new offices on Argyll Street in the West End of London. Our lease was signed for 12,500ft2 of space in the middle of the pandemic. Whilst COVID-19 forced us all to work from home very successfully, Argentex is a business that thrives on the day to day human interaction so we have applied a lot of time and effort to design and renovate our new premises with a focus on an environmentally sustainable work place that gives us plenty of room to upscale resources in line with demand and over an appropriate period.

As well as moving into our new offices, we have made a number of significant hires such as our Chief Compliance Officer to maintain our robust approach to compliance and governance. Bolstering our talent across all areas of the business with a focus on sales to drive accelerated future growth, as well as talent to facilitate HR, ESG and our office environment, we have sought to secure a blend of continuity and additional skills that will help take Argentex forward.

In September we will continue our Graduate Programme attracting a diverse and driven talent base to future-proof our proposition. This process has been a healthy opportunity to scrutinise Argentex's business ethos and values whilst remaining true to our own beginnings - entrepreneurial yet professional; creative but efficient. Furthermore, we have made a commitment to maintain the engagement of all our staff in the Group's operational performance. Our investor aligned LTIP has been designed and implemented to incentivise and retain non-founder staff alongside our Company Share Option Plan (CSOP) implemented at IPO.

Our bespoke IT infrastructure, built specifically for the business to our exact design was instrumental in the seamless move to remote working, and remains the lynchpin of our ability to continue to serve our clients whilst maintaining high standards of service, compliance and governance from sales, through order placement, trade execution, settlement, reconciliations and reporting.

With the level of resource already invested into the business to ensure the Group can stand tall as an example of the standards an FX business should hold itself to, the Executive are delighted to have attracted what it believes to be one of the most impressive Non-Executive boards on AIM.

We'd like to take this opportunity to thank our Non-Execs, Lord Jones, Lena Wilson CBE FRSE, Nigel Railton, Jonathan Gray and Henry Beckwith for their invaluable guidance and support in such unprecedented times for UK businesses.

Taking advantage of growth opportunities

Our strategic growth trajectory has always factored in prudently entering highly regulated, international markets where the client appetite for our product base exists and timing makes sense. As part of that, we opened a sales office in Amsterdam in March 2020 and we are exploring the process of obtaining an Australian licence with the intention of opening in Sydney in due course. We are excited about the potential of these two new locations and we are confident that in time, they will sweep up the latent client demand there and complement our core proposition in London.

Over the last 12 months we have continued to monitor the FX requirements of our existing and target clients and like the recent successful introduction of FX Options, we will evolve our proposition according to client's growing needs. We remain committed to aligning our product suite with our clients' risk mitigation needs, steering clear of products such as a TARF, that carries undue risk to the client and in turn to the Group.

Outlook

Our first year as a listed business has been one of continued momentum and we have enjoyed doing exactly what we set out to do at IPO - the same, but more of it. Our new premises, bolstered team, leading technology and strong capital position mean we are entering the new financial year very well positioned to build upon the continuous growth delivered to date.

COVID-19 and the subsequent uncertain economic environment remains but our past performance proves that we can deal with long-term uncertainty and financial market volatility during a time when our clients rely on our services more than ever. On behalf of the management team we extend our thanks to new and longer-term investors, our loyal and growing client-base and importantly, our excellent colleagues for their continued hard work and support.

Carl Jani and Harry Adams

Co-Chief Executive Officers

 

 

Financial Review

The financial year ended 31 March 2020 has been a landmark year in the relatively short history of Argentex. The Group's successful admission to AIM in June 2019 is the first step in a new chapter for Argentex, and these maiden financial statements demonstrate that the Group has fully committed to the message and strategic model put to investors.

The IPO provided a £12m capital injection to the principal trading subsidiary of the group, Argentex LLP, with the primary objective of using the capital to build on the solid growth demonstrated over the history of the business. The IPO was strongly supported by existing and new investors, and the quality of the new shareholder base provides an excellent foundation for life as a listed business. The primary aim of the IPO was to strengthen the capital base of the primary trading subsidiary of the group, Argentex LLP. Argentex LLP was established in 2012 and has experienced a significant rise in revenue and profitability in the seven years prior to the IPO. Fundamental to that growth was the level of capital deployed in the LLP, which is a critical element of the business model. Capital is pledged with the Group's institutional counterparties in order to collateralise the Group's trading portfolio, and as the Group grows, so does the need for capital. Capital also provides liquidity buffers to protect against significant market movements happening in a short space of time, enabling the Group to meet short term obligations as needed.

Of the £14m raised at IPO on the placing of new shares, £12m was successfully deployed as equity capital in Argentex LLP. As part of the IPO process, Argentex Group PLC acquired all of the equity of Argentex LLP through a share for share exchange (involving intermediate holdcos) which has been accounted for using the principals of merger accounting due to the transaction falling outside of the scope of IFRS 3 Business Combinations. By using merger accounting, prior year comparatives are shown as if the group had been in existence prior the IPO, despite the LLP not having a majority owner for the year ended 31 March 2019. A reconciliation has been included in this financial review to provide an alternative comparison to better measure relative performance across the periods, and an underlying earnings figure presented in note 13 to the financial statements to provide comparability.

Financial Performance

Argentex have performed well in FY20, with revenues increasing 32% from the prior year to £28.9m (2019: £21.9m). Revenue growth continues due to strong performance in both new and repeat revenues, demonstrating the strength in customer acquisition and customer service. We have seen growth across all categories of client from institutions, corporate and private clients. Due to the improved quality of our clients, we can see that our robust business model is working and growth has been achieved.

Underlying earnings (note 13 to the financial statements) of £10m represents a growth of 27% from the FY19 underlying earnings. After factoring in non-recurring costs of the IPO and new administrative costs for the enlarged listed group, the Group has retained profits of £7.6 million which be used to assess the value of the interim dividend relating to the year. Subsequent to the year end (note 25 to the financial statements), the LLP has committed to a new premises following the expiry of its existing lease, which will increase the IFRS 16 costs, combined with an anticipated rise in headcount across all departments to enable the Group to pursue its growth plans. Consequently, operating leverage is expected to decline modestly in the short term while the new cost base consolidates and the additional front office staff are able to make meaningful contributions to revenues. 2019 Underlying operating profit does not include the costs of LLP members who, prior to the IPO had no guaranteed entitlement to remuneration under the former LLP agreement, instead receiving pure equity profit shares of Argentex LLP. At LLP level, as seen in the reconciliation, Distributable Profits approximate the Group's operating profit, and have increased from £7,201k in 2019 to £12,740k in 2020, with ratios increasing from 33% in 2019 to 45% in 2020.

Financial Position

Argentex continue to believe that cash generation from its trading portfolio is a key indicator of performance and adherence to risk appetite framework. At the end of the financial year, Argentex has cash and cash equivalents of £49m, an increase of £35m from the prior year. Increases in cash balances reflect the higher proportion of client balances held following collection of variation margin, in addition to the IPO proceeds and routine operating cashflow generation. Cash generation from the group's revenues is a function of i) the composition of revenues(spot, forward and option revenues) and ii) the average duration of the FX forwards in the portfolio.

Historically, Argentex generates revenues in a ratio of approximately 50/50 between spot and forward FX contracts (excluding currency options which are a more recent business line). While spot FX contracts attract a smaller revenue spread, the risk profile of a spot FX contract is significantly reduced, and revenues are realised almost instantly. As such, having a significant proportion of the firm's revenues generated by a product with a minimal working capital cycle creates a strong positive cash flow for the business when compared to its operating cost base.

Further to the spot FX cash flows, the average tenor of and FX forward continues to be less than five months. When combined with the cash flow profile of the spot FX contracts, the LLP measures short term cash return as follows:

 

2020

2019

 

£'000

£'000

Revenues for the last 12 months (A)

28,986

21,910

Less

 

 

Revenues settling beyond 3 months

(7,464)

(4,498)

Net short term cash generation (B)

21,522

17,412

 

 

 

Short term cash return (A/B)

74%

79%

Portfolio composition

Argentex's client base, while increasing in number, is still composed of similar businesses, predominantly with exposures in the major currencies of sterling, euro and US dollar. At the year end, over 95% of the Group's portfolio was comprised of trades in those currencies.

The Group's exposure to exotic currencies or currencies with higher volatility and less liquidity is still limited. Heightened volatility through March 2020 increased collateral requirements with the Group's institutional counterparties, and consequently the Group called for variation margin on a number of exposures within its client portfolio. The Group collected collateral effectively from its client base through the volatile period and is yet to experience any material issues over settlement.

Dividend

Argentex is committed to its previously communicated dividend policy, paying out 30% of retained profits for the year. In accordance with current market practice and guidance during the COVID-19 disruption, the Group will be declaring its dividend for the year ended 31 March 2020 as an interim dividend (opposed to a final dividend), of 2p per share. The interim dividend record date will be 14 August 2020 and will be paid on 10 September 2020. The ex-dividend date is 13 August 2020.

 

Consolidated Statement of Profit Or Loss

 

Notes

2020

 

2019

 

 

£

 

£

Revenue

6

28,986,444

 

21,910,695

Cost of sales

 

(409,350)

 

(391,656)

 

 

 

 

 

Gross profit

 

28,577,094

 

21,519,039

Administrative expenses

 

(16,075,230)

 

(11,736,436)

 

 

 

 

 

Underlying operating profit

 

12,501,864

 

9,782,603

IPO costs

 

(563,171)

 

-

LLP equity-based remuneration pre-IPO

 

(1,662,696)

 

(7,535,272)

Share based payments

 

(5,763)

 

-

Operating profit

7

10,270,234

 

2,247,331

Finance costs

11

(157,032)

 

(107,764)

Finance income

11

105,343

 

-

Profit before taxation

 

10,218,545

 

2,139,567

Taxation

12

(2,127,755)

 

-

 

 

 

 

 

Profit for the year

 

8,090,790

 

2,139,567

Other comprehensive income

 

-

 

-

 

 

 

 

 

Profit for the year and total comprehensive income

 

8,090,790

 

2,139,567

Earnings per share

 

 

 

 

Basic

13

7.1p

 

2.1p

Diluted

13

7.1p

 

2.1p

Underlying - Basic

 

8.8p

 

7.8p

Underlying - Diluted

 

8.8p

 

7.8p

 

 

 

 

 

 

Consolidated Statement Of Financial Position

 

Notes

2020

 

2019

 

 

£

 

£

Non-current assets

 

 

 

 

Intangible assets

14

1,793,385

 

1,756,435

Plant and equipment

15

211,693

 

473,406

Trade and other receivables

16

7,225,042

 

2,228,663

 

 

 

 

 

Total non-current assets

 

9,230,120

 

4,458,504

 

 

 

 

 

Current assets

 

 

 

 

Trade and other receivables

16

17,925,854

 

10,279,640

Cash and cash equivalents

17

49,275,808

 

13,566,063

 

 

 

 

 

Total current assets

 

67,201,662

 

23,845,703

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

18

(47,425,671)

 

(24,684,862)

 

 

 

 

 

Total current liabilities

 

(47,425,671)

 

(24,684,862)

 

 

 

 

 

Net current assets/(liabilities)

 

19,775,991

 

(839,159)

 

 

 

 

 

Non-current liabilities

 

 

 

 

Trade and other payables

19

(4,024,158)

 

(547,779)

 

 

 

 

 

Total non-current liabilities

 

(4,024,158)

 

(547,779)

 

 

 

 

 

 

 

 

 

 

Net assets

 

24,981,953

 

3,071,556

 

 

 

 

 

Equity

 

 

 

 

Share capital

21

70,295

 

1

LLP equity capital

 

-

 

3,071,565

Share premium account

22

12,713,922

 

-

Share option reserve

23

5,763

 

-

Merger reserve

22

4,549,705

 

-

Retained earnings

 

7,642,268

 

-

 

 

 

 

 

Total Equity

 

24,981,953

 

3,071,566

 

Consolidated Statement Of Changes In Equity

 

 

Share capital

 

Share premium

 

LLP equity capital

 

Share option reserve

 

Merger reserve

 

Retained earnings

 

Total equity

 

 

£

 

£

 

£

 

£

 

£

 

£

 

£

Balance at 1 April 2018

 

 

1

 

 

-

 

 

3,051,565

 

 

-

 

 

-

 

 

728,329

 

 

3,779,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

 

-

 

-

 

-

 

-

 

2,139,567

 

2,139,567

Total comprehensive income for the year

-

-

 

-

 

-

 

-

 

-

 

2,139,567

 

2,139,567

Transactions with owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

· Dividends paid under former ownership structure

 

-

 

-

 

-

 

-

 

-

 

(2,867,896)

 

(2,867,896)

· LLP capital contributions

 

-

 

-

 

20,000

 

-

 

-

 

-

 

20,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

31 March 2019

 

1

-

 

 

3,071,565

 

-

-

-

-

-

 

3,071,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

-

 

-

 

-

 

8,090,790

 

8,090,790

Total comprehensive income for the year

-

-

-

-

-

-

 

-

 

-

 

8,090,790

 

8,090,790

 

 

Transactions with owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

· Dividends paid under former ownership structure

 

-

 

-

 

-

 

-

 

-

 

(448,522)

 

(448,522)

· Merger reserve arising on reorganisation

 

(1)

 

 

 

(3,071,565)

 

-

 

4,549,705

 

-

 

1,478,139

· Issue of share capital

 

70,295

 

13,998,679

 

-

 

-

 

-

 

-

 

14,068,974

· Cost of issue of equity shares

 

-

 

(1,284,757)

 

-

 

-

-

-

 

-

 

(1,284,757)

· Share based payments

 

-

 

-

-

-

 

5,763

 

-

 

-

 

5,763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2020

 

70,295

 

12,713,922

 

-

 

5,763

 

4,549,705

 

7,642,268

 

 24,981,953

 

Consolidated Statement Of Cash Flows

 

Notes

2020

 

2019

 

 

£

 

£

 

 

 

 

 

Net cash generated from operating activities

24

27,061,702

 

3,449,925

 

 

 

 

 

Investing activities

 

 

 

 

Purchase of intangible assets

14

(1,083,412)

 

(1,417,090)

Purchases of plant and equipment

 

(101,323)

 

(53,069)

Share acquisition costs

 

(109,290)

 

-

 

 

 

 

 

Net cash generated used in investing activities

 

 

(1,294,025)

 

 

(1,470,159)

 

 

 

 

 

Financing activities

 

 

 

 

Payment of lease liabilities

20

(388,525)

 

(310,820)

Proceeds from issue of shares

 

14,061,302

 

-

Short term loans

25

(1,997,430)

 

1,997,430

Share issuance costs

 

(1,284,757)

 

-

Distributions paid under former ownership structure

10

(448,522)

 

(2,867,896)

Capital contributions by LLP members

 

-

 

20,000

 

 

 

 

 

Net cash generated/(used in) financing activities

 

9,942,068

 

(1,161,286)

 

 

 

 

 

Net increase in cash and cash equivalents

 

35,709,745

 

818,480

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

13,566,063

 

12,747,583

 

 

 

 

 

Cash and cash equivalents at the end of the year

17

49,275,808

 

13,566,063

 

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2020

General information

 

Argentex Group PLC ("the Company") is a public limited company, limited by shares, incorporated and domiciled in England and Wales.  The address of the registered office is 5 Old Bond Street, London, W1S 4PD.

On 25 June 2019, the Company listed its shares on AIM, the London Stock Exchange's market for small and medium size growth companies ("the IPO").

The Company is the ultimate parent company into which the results of all subsidiaries are consolidated. The consolidated financial statements for the years ended 31 March 2020 and 31 March 2019 comprise the financial statements of the Company and its subsidiaries (together, "the Group").

The consolidated financial statements are presented in Pounds Sterling (£), which is the currency of the primary economic environment in which the Group operates.

The financial information set out above does not constitute the company's statutory accounts for 2020 or 2019. Statutory accounts for the years ended 31 March 2020 and 31 March 2019 have been reported on by the Independent Auditor.  The Independent Auditor's Report on the Annual Report and Financial Statements for 2020 and 2019 was unqualified, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. The Independent Auditor drew attention to note 3.2 of the financial statements, which describes the impact of COVID-19 on the Group by way of emphasis. The audit opinion was not modified in respect of this matter.

The statutory accounts for the year ended 31 March 2020 will be delivered to the Registrar of Companies in due course.

Adoption of new and revised standards

 

The Group has not prepared consolidated financial statements prior to the IPO and restructure, consequently the financial statements incorporate all applicable standards without the need for transition or adjustment.

No upcoming changes under IFRS are likely to have a material effect on the reported results or financial position. Management continue to monitor upcoming changes.

Significant accounting policies

 

The principal accounting policies are summarised below. 

 

3.1  Basis of preparation

 

The consolidated financial statements have been prepared in accordance with the IFRSs as adopted by the EU and interpretations issued by the IFRS Interpretations Committee (IFRS IC).

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to all of the years presented, unless otherwise stated.

The consolidated financial statements have been prepared under the historical cost convention, modified by the measurement at fair value of certain financial assets and liabilities and derivative financial instruments as stated in note 3.6 .

3.2  Going concern

 

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and for at least one year from the approval date of the consolidated financial statements. The group's principal trading subsidiary, Argentex LLP, has been profitable since inception in 2011, the Group has no external debt, and the LLP continues to generate sufficient cash to support the activities of the Group. Budgets and cash flow forecasts are prepared to cover a variety of scenarios and are subsequently reviewed by the Directors to ensure they support the Group's continuing ability to operate as a going concern.

 

Sensitivity analysis has been performed in respect of specific scenarios which could negatively impact the future performance of the Group, including lower levels of revenue, compression in profitability margins, extensions to the Group's working capital cycle, and significant increases in volatility requiring further collateral to be placed with the Group's institutional counterparties.

In addition, the Directors have also considered mitigating actions such as lower capital expenditure and other short-term cash management activities within their control (see note 27.3 for further disclosures relating to liquidity risk).

 

COVID-19

 

The Group has successfully triggered business continuity provisions in response to Government directives, ensuring its ability to maintain operations. Currently, all relevant staff are successfully working remotely and have full access to the Group's technology platform that allows them to connect virtually and continue as normal on existing engagements and business development activities. The board of directors and the management team are monitoring the welfare of staff on a daily basis and are providing them with the support they need to operate effectively from remote locations.

The Group has developed a set of financial measures designed to flexibly mitigate the expected near term operational and financial and longer term economic impact of the COVID-19 pandemic on the Group.

Whilst these measures may be extended as events unfold, the board of directors is confident that in context of the Group's  financial requirements they give flexibility and sufficient liquidity to the Group to ensure that the Group can withstand significant shocks, whilst remaining as a going concern for the next twelve months from the date of approval of the Directors' report and financial statements.

For these reasons, the directors adopt the going concern basis of accounting in preparing the financial statements.

 

3.3  Basis of consolidation

 

The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared to 31 March each year.  Control is achieved where the Company is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration the existence and effect of potential voting rights that currently are exercisable or convertible.

The consolidated financial statements comprise the Company and the results, cash flows and changes in equity of the following subsidiary undertakings:

Name of undertaking

Nature of business

Country of incorporation

Argentex LLP

Foreign exchange broking

England

Argentex Capital Limited

Holding company

England

Argentex Foreign Exchange Limited (formerly Pacific Foreign Exchange Limited)

Holding Company

England

 

All subsidiary undertakings are owned 100% either directly or indirectly.

 

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-group transactions and balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

 

3.4  Accounting for merger on formation of the group

 

Immediately prior to the Company's admission to AIM, Argentex Group PLC acquired all equity interests in Argentex LLP. This was effected through the acquisition of equity interests by a newly formed subsidiary, Argentex Capital Limited, and the acquisition of Pacific Foreign Exchange Limited (later renamed Argentex Foreign Exchange Limited). Argentex LLP, Argentex Capital Limited and Argentex Foreign Exchange Limited are now 100% owned (either directly or indirectly) subsidiaries of Argentex Group PLC and consolidated into the financial statements.

In preparing the consolidated interim financial statements, the Company is required to determine whether the transaction falls within the scope of IFRS 3 Business Combinations in order to determine the appropriate basis for disclosure. It is the directors' view that the transaction falls within the scope exclusion of IFRS 3, and as such an alternative accounting policy must be selected. In the opinion of the directors, there is no other IFRS that specifically applies to this transaction.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (paras 10-12) requires the Company to develop and apply an accounting policy suitable to the transaction, in accordance with the particulars laid out in the standard. IAS 8 para 12 also states that "In making the judgement described in paragraph 10, management may also consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices…".

In reviewing the scope of the merger and group formation, the directors have determined the selection of an accounting policy analogous to that of the UK's FRS102 section 19 Business Combinations and Goodwill (merger accounting method) will provide the most relevant, reliable and representative accounting treatment, which reflects the economic substance of the transaction.

In applying merger accounting when preparing the consolidated financial statements, to the extent the carrying value of the assets and liabilities acquired under merger accounting is different to the cost of investment, the difference is recorded in equity within the merger reserve. Under merger accounting the results of the Group entities are combined from the beginning of the comparative period before the merger occurred. Comparatives are restated on a combined basis and adjustments made as necessary to achieve consistency of accounting principles.

 

3.5  Revenue recognition

 

Revenue represents the difference between the cost and selling price of currency and is recognised after receiving the client's authorisation to undertake a foreign exchange transaction for immediate or forward delivery. Derivative assets and liabilities are initially measured at fair value at the date the derivative contract is entered into and are subsequently remeasured to fair value at each financial period end date. The resulting gain or loss is recognised within Revenue immediately.

The difference between the costs and selling price of currency is recognised as revenue as this reflects the consideration to which the Group expects to be entitled in exchange for those services.

In relation to currency options, the Group recognises the net option premium receivable as revenue on the date that the option is executed. (See note 6 ).

 

3.6  Financial instruments

 

The Group operates as a riskless principal deliverable foreign exchange broker therefore financial instruments are significant to its financial position and performance. 

 

3.6.1  Initial recognition

 

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

 
3.6.2  Derivative financial instruments

 

Forward foreign exchange contracts and foreign exchange options are classified as financial assets and liabilities at FVTPL. Derivative assets and liabilities are initially measured at fair value at the date the derivative contract is entered into and are subsequently remeasured to fair value at each financial period end date. The resulting gain or loss is recognised within Revenue immediately. The Group does not apply hedge accounting.

A derivative with a positive fair value is recognised as a financial asset, whereas a derivative with a negative fair value is recognised as a financial liability. When there is a legally enforceable right to offset the recognised amounts and an intention to settle the amounts on a net basis (or realise the asset and settle the liability immediately), financial assets and liabilities are offset. The net amount only is then reported in the Consolidated Statement of Financial Position.

The fair value of forward currency contracts is based on their observable bid and offer prices in the foreign exchange marketplace requiring no significant adjustment.

 

3.6.3  Foreign exchange gains and losses on derivative financial asset and liabilities

 

Assets and liabilities are measured at their fair value based on the transaction price agreed with the customer or counterparty and their observable fair value in the foreign exchange market, and any assets or liabilities in a foreign currency are revalued at the balance sheet date. Management consider the potential impact of exchange rate movements on positions held to be immaterial as substantially all of the Group's positions are fully hedged with a number of counterparty banks.

 

3.6.4  Derecognition of Derivative financial asset and liabilities

 

The Group derecognises derivative financial assets and liabilities when they reach maturity and the contractual cashflows are exchanged between the client and the Group or the Group and the institutional counterparty. At this point, the assets and liabilities have expired and the obligations of the Group, the client and the institutional counterparty have been discharged.

 

3.6.5  Amortised cost and effective interest method

 

The effective interest method is a method of calculating the amortised cost of a financial liability or debt instrument and of allocating interest income over the relevant period.

The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the financial asset or liability.

The Group has not purchased or originated any credit-impaired financial assets.

 

3.6.6  Classification of financial assets

 

Recognised financial assets within the scope of IFRS 9 are required to be classified as subsequently measured at amortised cost, fair value through other comprehensive income (FVTOCI) or fair value through profit or loss (FVTPL) on the basis of both the Group's business model and the contractual cash flow characteristics of the financial assets.

 

3.6.7  Financial assets at FVTPL

 

Forward foreign exchange contracts and foreign exchange options  are measured at FVTPL (see note 27).

Other financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are measured at FVTPL (see note 1).

Fair value is determined in the manner described in note 1.

 

3.6.8  Other Financial assets

 

All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.

 

3.6.9  Impairment of financial assets

 

The group recognises impairment on an Expected Credit Loss (ECL) basis, using historical and forward looking information. The only financial assets at amortised cost that this applies to are Other Debtors.

 

3.6.10  Derecognition of other financial assets

 

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

 

3.6.11  Classification of financial liabilities

 

Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.

 

3.6.12  Financial liabilities at FVTPL

 

Financial liabilities are classified as at FVTPL when the financial liability is designated as at FVTPL.  

Financial liabilities at FVTPL are stated at fair value with any gains or losses arising on changes in fair value recognised in profit or loss to the extent that they are not part of a designated hedging relationship.

Fair value is determined in the manner described in note 1.

3.6.13  Other Financial liabilities

 

Other financial liabilities are subsequently measured at amortised cost using the effective interest method.

The Group holds amounts payable to customers at amortised cost. These are short term balances that do not attract interest.

 

3.6.14  Derecognition of other financial liabilities

 

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

 

3.7  Cash

 

For the purpose of presentation in the Consolidated Statement of Cash Flows, cash and cash equivalents includes cash on hand or deposits held at call with financial institutions.

 

3.8  Leases

 

At inception of a contract the Group assesses whether a contract is, or contains a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.  To assess whether a contract conveys the right to control the use of the identified asset the Group considers whether:

1.  The Group has the right to operate the asset

2.  The Group designed the asset in a way that predetermines how and for what purpose it will be used.

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used.  It is remeasured when there is a change in future lease payments arising from a change in rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee or if the Group changes its assessment of whether it will exercise a purchases, extension or termination option.

When the lease liability is remeasured in this way, either a corresponding adjustment is made to the carrying amount of the right to use asset and the revised carrying amount is amortised over the remaining (revised) lease term, or it is recorded in profit and loss if the carrying amount of the right to use assets has been reduced to zero.

Right of use assets are initially measured at the amount of the lease liability.

Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if judged to be shorter than the lease term.

The Group presents right to use assets that do not meet the definition of investment property in 'property, plant and equipment' and lease liabilities in 'Trade and other payables' in the Consolidated Statement of Financial Position.

 

3.9  Intangible assets and amortisation

 

Identifiable intangible assets are recognised when the Group controls the asset, it is probable that future economic benefits attributed to the asset will flow to the Group and the cost of the asset can be reliably measured.

Software development costs comprise the Group's bespoke dealing system. Costs that are directly associated with the production of identifiable and unique dealing system controlled by the Group, and are probable of producing future economic benefits, are recognised as intangible assets. Direct costs of software development include employee costs and directly attributable overheads.

Costs are capitalised to the extent that they represent an improvement, enhancement or update to the intangible asset. Maintenance costs are expensed through the Income Statement.

Amortisation is charged to the income statement over the estimated useful live of three years of the dealing system from the date developments are available for use, on a straight-line basis.

The amortisation basis adopted reflects the Group's consumption of the economic benefit from that asset.

 

3.10  Property, Plant & Equipment

 

Property, plant and equipment are stated at cost less accumulated depreciation and any

recognised impairment loss.

 

Depreciation is charged so as to write off the cost of assets to their residual values, over their estimated useful lives, using the straight-line method, on the following bases:

  Office equipment  -  Three years

  Computer equipment  -  Three years

  Leasehold improvements   -   Over the period of the lease

  Right-of-use assets  -  Over the period of the lease

 

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

 

3.11  Foreign currencies

 

Non-derivative monetary assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit.

 

3.12  Employee benefits

 

(i)  Short term benefits

 

Short term employee benefits including holiday pay and annual bonuses are accrued as services are rendered.

 

(ii)  Defined contribution pension plans

 

The Group operates a defined contribution pension plan for its employees. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. Once the contributions have been paid the Group has no further payment obligations. The contributions are recognised as an expense when they are due. Amounts not paid are shown in accruals in the balance sheet. The assets of the plan are held separately from the Group in independently administered funds.

 

3.13  LLP Members' remuneration

 

LLP Members' remuneration is determined by reference to the nature of the participation of rights of Members of Argentex LLP, the Group's main trading subsidiary. It includes both remuneration where there is a contract of employment and any profits that are automatically divided between members by virtue of the members' agreement, to the extent that the Group does not have an unconditional right to avoid payment. To the extent that these profits remain unpaid at the year end, they are shown as liabilities in the Consolidated Statement of Financial Position. Prior to the IPO, corporate and individual members of the LLP participated in the profits of the LLP through both income interests and residual profit sharing arrangements following the allocation of all income interests. After the IPO, no individual member of the LLP has any equity interest or rights to divisions of profits other than their individual income interests, and all equity profit shares are now allocated to the intermediate subsidiaries of the Group in accordance with their equity interests.

 

3.14  LLP Members' interests

 

LLP equity capital is only repaid to outgoing members in accordance with the provision in the Members' Deed where the Group has both sufficient capital for FCA regulatory requirements, and the capital is replaced by new capital contributions from existing or new members. As such it is accounted for as equity.

Other amounts due to Members classified as a liability relate to undistributed profits and Members' taxation reserves.

 

 

3.15   Share based payments

 

The cost of share-based employee compensation arrangements, whereby employees receive remuneration in the form of share options, is recognised as an employee benefit expense in the Consolidated Statement of Profit or Loss. Where the entity settling the share options differs from the entity receiving the benefit of the share options (in the form of employee services), the entity's separate financial statements reflect the substance of the arrangement.

The total expense to be apportioned over the vesting period of the benefit is determined by reference to the fair value (excluding the effect of non market-based vesting conditions) at the date of grant.

The total expense to be apportioned over the vesting period of the benefit is determined by reference to the fair value (excluding the effect of non market-based vesting conditions, if present) at the date of grant.  At the end of each reporting period the assumptions underlying the number of awards expected to vest are adjusted for the effects of non market-based vesting conditions to reflect the conditions prevailing at that date.  The impact of any revisions to the original estimates is recognised in the Consolidated Statement of Profit or Loss, with a corresponding adjustment to equity.  Fair value is measured by the use of a Black-Scholes option pricing model. 

When share options are exercised, the company issues new shares.  The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

 

3.16  Taxation

 

The tax expense represents the sum of the tax currently payable and any deferred tax.

Tax currently payable is based on taxable profit for the year. Taxable profit may differ from net profit as reported in the Consolidated Statement of Profit or Loss as it may excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the date of the Consolidated Statement of Financial Position.

 

  Critical accounting judgements and key sources of estimation uncertainty 

 

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

4.1  Accounting judgements

 

(i)  Capitalisation of costs to intangible assets

 

The extent to which costs should be capitalised to intangible assets. The group capitalise costs as intangible assets if they have a value that will benefit the performance of the Group over future periods. To assist in making this judgement, the group undertake an assessment, at least annually, of the carrying value of the intangible assets.

(ii)  Impairment of non-financial assets

 

Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If there is objective evidence of impairment, an impairment loss is recognised in profit or loss as described below.

An asset is impaired where there is objective evidence that, as a result of one or more events that occurred after initial recognition, the estimated recoverable value of the asset has been reduced.

(iii)  Basis for consolidation and application of IFRS 3 - Business combinations

 

Management's judgement of the most appropriate policy for recognising the merger and group formation and basis for consolidation has been documented in note Error! Reference source not found..

 

4.2  Key sources of estimation uncertainty

 

(i)  Useful economic life of intangible assets (see note 14)

 

Technology within the financial services sector is in a perpetual state of development and evolution, providing uncertainty over the useful economic life of the Group's bespoke dealing system.

 

(ii)  Expected credit losses (see note 27)

 

  Expected credit losses include forward looking estimates which represent management's best estimate of the future performance of the Group's financial assets.

 

Segment reporting

 

The Directors consider that the Group consists of a single operating segment (being Argentex LLP's foreign currency dealing business) and that it operates in a market that is not bound by geographical constraints.

 

There is no reliance on an individual customer and no customer contributed to more than 10 per cent. of revenues in the year ended 31 March 2020 or 31 March 2019.

 

 

Revenue

 

 

2020

 

2019

 

£

 

£

An analysis of the Group's revenue is as follows:

 

 

 

 

 

 

 

Continuing operations

 

 

 

Spot and forward foreign exchange contracts

27,120,119

 

21,669,277

Option premiums

1,866,325

 

241,418

 

 

 

 

 

28,986,444

 

21,910,695

 

Operating profit

 

Operating profit for the period is stated after charging/(crediting):

2020

£

 

2019

£

 

 

 

 

Depreciation of plant and equipment

363,063

 

422,136

Amortisation of intangibles

1,046,462

 

778,710

Staff costs (see note 9)

12,606,175

 

14,874,461

Net foreign exchange losses/(gains)

66,060

 

(152,057)

 

 

 

 

 

Auditor's remuneration

 

 

2020

 

2019

 

£

 

£

 

 

 

 

Fees payable to the Company's auditor and its associates for services to the Group:

 

 

 

· The audit of financial statements of the company and subsidiaries

82,218

 

48,900

· Audit-related assurance services

4,680

 

4,548

· Tax compliance services

· Reporting accountant services

18,000

135,000

 

-

116,400

 

Staff costs

 

The average number of employees employed by the Group, including executive and non-executive directors, was:

 

2020

 

2019

 

Number

 

Number

Directors

8

 

5

LLP members (excl. executive directors)

6

 

9

Sales and dealing

28

 

26

Operations

12

 

11

 

 

 

 

 

54

 

51

 

 

 

 

 

 

 

 

£

 

£

 

2020

 

2019

Staff costs for the above persons were:

 

,

 

Wages and salaries

5,118,905

 

5,060,769

Social security costs

657,861

 

672,575

Pension costs

45,490

 

37,898

Share based payments

5,763

 

-

LLP members' remuneration*

3,976,447

 

4,616,097

Directors remuneration

2,801,709

 

4,487,122

 

 

 

 

 

 

 

 

 

12,606,175

 

 

 

 

Directors' remuneration

 

 

 

 

2020

 

2019

 

£

 

£

Directors' remuneration comprised:

 

 

 

 

 

 

 

 

 

 

 

Salaries and LLP members remuneration

2,801,709

 

4,487,123

 

 

 

 

 

 

 

*Excludes Directors of Argentex Group PLC who are/were also members of Argentex LLP. Includes former members of Argentex LLP who are no longer members after IPO.

Prior to IPO, profits from Argentex LLP were distributed according to individual equity holdings in the LLP. Following Admission, the self-employed LLP members who are members of the LLP Executive Committee will be remunerated under the Amended and Restated LLP Agreement by a combination of (i) fixed annual remuneration (ii) participation in revenue

commission schemes (iii) annual bonuses and (iv) other variable compensation based on the LLPs performance.

Key management are those persons having authority and responsibility for planning, controlling and directing the activities of the Group, or in relation to the Company, the Company.  In the opinion of the Board, the Group and Company's key management are the directors of Argentex Group plc.  Information regarding their compensation is provided in the Remuneration Committee report.

         

 

10  Dividends

 

 

2020

 

2019

 

£

 

£

Amounts recognised as distributions to equity holders:

 

 

 

 

 

 

 

Dividends declared under the former ownership structure

448,552

 

2,867,896

 

 

 

 

 

Prior to the IPO and change in ownership, the former owners of Argentex Foreign Exchange Limited declared dividends amounting to £448,552 (2019: 2,867,896) which are included in the Consolidated Statement of Changes of Equity.

 

 

11  Finance costs and finance income

 

 

 

2020

 

2019

 

 

£

 

£

 

 

 

 

 

 

Interest on short term loans

133,362

 

78,998

 

Bank interest payable

12,423

 

-

 

Interest on lease arrangements

11,247

 

28,766

 

 

 

 

 

 

 

 

 

 

 

Finance Costs

157,032

 

107,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance Income

105,343

 

-

 

 

 

 

 

 

 

 

 

 

 

Total interest income for financial assets that are not at fair value through profit or loss is equal to the amount of bank interest receivable disclosed as finance income above.

 

Total interest expense for financial liabilities that are not at fair value through profit or loss is equal to the amount of interest payable disclosed above.

 

 

 

12  Taxation

 

 

 

2020

 

2019

 

 

£

 

£

 

Current tax

 

 

 

 

In respect of the current year

2,127,755

 

-

 

 

 

 

 

 

Total tax expense for the year

2,127,755

 

-

 

 

 

 

 

 

 

Tax has been calculated using an estimated annual effective tax rate of 19% (2019: 19%) on profit before tax.

 

 

 

 

The difference between the total tax expense shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows:

 

 

 

2020 

 

2019

 

 

£

 

£

 

 

 

 

 

 

Profit before taxation

10,218,545

 

2,139,567

 

 

 

 

 

 

Tax on profit on ordinary activities at standard UK corporation tax rate of 19%

 

1,941,524

 

406,518

 

 

 

 

 

 

Effects of:

 

 

 

 

Disallowable management expenses

105,695

 

-

 

Other amounts charged

80,536

 

-

 

Group relief gifted by former group members

-

 

(406,518)

 

 

 

 

 

 

 

 

 

 

 

Total tax expense for the year

2,127,755

 

-

 

 

13  Earnings per share

 

The Group calculates basic earnings to be net profit attributable to equity shareholders for the period. The Group also calculates an underlying earnings figure, which excludes the effects of share based payments, and non-recurring costs including costs associated with the IPO and profits earned and fully distributed to former equity holders prior to the IPO. A tax adjustment is also reflected to include a representative tax figure for profits which would have consequently incurred a corporation tax charge. Comparative figures for weighted average number of ordinary shares represents the number of shares in issue immediately prior to the IPO, as if they had been in issue for the entire comparative period.

 

 

 

2020

 

2019

 

 

£

 

£

 

 

 

 

 

 

Earnings

 

 

 

 

Earnings for the purposes of basic and diluted earnings per share

 

 

 

 

- basic and diluted

8,090,790

 

2,139,567

 

Adjustments for:

 

 

 

 

IPO costs

563,171

 

-

 

LLP equity-based remuneration pre-IPO

1,662,696

 

7,535,272

 

Shared based payments

5,763

 

-

 

Tax impact

(317,007)

 

(1,838,220)

 

 

 

 

 

 

 

 

 

 

 

- underlying earnings (basic and diluted)

10,005,413

 

7,836,619

 

 

 

 

 

 

 

Number of shares

 

 

 

 

Weighted average number of ordinary shares for the purposes of basic earnings per share

  113,207,547

 

  113,207,547

 

 

Number of dilutive shares under option

  226,408

 

  226,408

 

 

 

 

 

 

Weighted average number of ordinary shares for the purposes of dilutive earnings per share

  113,433,955

 

  113,433,955

 

 

 

Earnings per share

 

 

 

 

Basic

7.1p

 

2.1p

 

 

 

 

 

 

Diluted

7.1p

 

2.1p

 

 

 

 

 

 

Underlying

 

 

 

 

Basic

8.8p

 

7.8p

 

 

 

 

 

 

Diluted

8.8p

 

7.8p

 

 

 

 

 

 

 

The calculation of diluted earnings per share assumes conversion of all potentially dilutive ordinary shares, all of which arise from share options. A calculation is performed to determine the number of share options that are potentially dilutive based on the number of shares that could have been acquired at fair value, considering the monetary value of the subscription rights attached to outstanding share options.

 

 

14  Intangible fixed assets

 

 

 

Software

 

 

development

 

 

costs

 

 

£

 

Cost

 

 

At 1 April 2018

2,026,993

 

 

 

 

 

 

 

Additions

1,417,090

 

 

 

 

 

 

 

At 31 March 2019

3,444,083

 

 

 

 

 

 

 

Additions

1,083,412

 

 

 

 

 

 

 

At 31 March 2020

4,527,495

 

 

 

 

 

 

 

Amortisation

 

 

 

 

 

At 1 April 2018

908,938

 

 

 

 

 

 

 

Charge for year

778,710

 

 

 

 

 

 

 

At 31 March 2019

1,687,648

 

 

 

 

 

 

 

Charge for year

1,046,462

 

 

 

 

 

 

 

At 31 March 2020

2,734,110

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 31 March 2020

1,793,385

 

 

 

 

 

 

 

At 31 March 2019

1,756,435

 

 

 

 

 

 

15  Property, plant and equipment

 

 

 

Leasehold improvements

 

Right of use Asset

 

Office equipment

 

Computer equipment

 

Total

 

 

£

 

£

 

£

 

£

 

£

 

Cost

 

 

 

 

 

 

 

 

 

 

At 1 April 2018

351,700

 

1,173,525

 

241,813

 

267,684

 

2,034,722

 

 

 

 

 

 

 

 

 

 

 

 

Additions

-

 

-

 

1,212

 

51,857

 

53,069

 

 

 

 

 

 

 

 

 

 

 

 

At 31 March 2019

351,700

 

1,173,525

 

243,025

 

319,541

 

2,087,791

 

 

 

 

 

 

 

 

 

 

 

 

Additions

-

 

-

 

3,030

 

98,293

 

101,323

 

 

 

 

 

 

 

 

 

 

 

 

At 31 March 2020

351,700

 

1,173,525

 

246,055

 

417,834

 

2,189,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

 

 

 

 

At 1 April 2018

178,692

 

645,425

 

204,170

 

163,962

 

1,192,249

 

 

 

 

 

 

 

 

 

 

 

 

Charge for the year

74,228

 

234,711

 

37,033

 

76,164

 

422,136

 

 

 

 

 

 

 

 

 

 

 

 

At 31 March 2019

252,920

 

880,136

 

241,203

 

240,126

 

1,614,385

 

 

 

 

 

 

 

 

 

 

 

 

Charge for the year

74,227

 

234,949

 

1,917

 

51,943

 

363,036

 

 

 

 

 

 

 

 

 

 

 

 

At 31 March 2020

327,147

 

1,115,085

 

243,120

 

292,069

 

1,977,421

 

 

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

 

At 31 March 2020

24,553

 

58,440

 

2,935

 

125,765

 

211,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 March 2019

98,780

 

293,389

 

1,822

 

79,415

 

473,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16  Trade and other receivables

 

 

 

2020

 

2019

 

Non-Current

 

£

 

£

Derivative financial assets at fair value (note 27 )

 

7,225,042

 

2,228,663

 

 

 

7,225,042

 

 

 

2,228,663

 

 

 

 

 

Current

 

 

 

 

Derivative financial assets at fair value (note 27 )

 

17,633,046

 

9,927,443

Other debtors

 

90,880

 

49,698

Prepayments

 

201,928

 

302,499

 

 

 

 

 

 

 

 

 

 

 

 

17,925,854

 

10,279,640

 

 

 

 

 

 

The Group always measures the loss allowance for other receivables at an amount equal to 12 month ECL. If there is a significant increase in credit risk, credit losses are recognised on the lifetime ECL basis. The expected credit losses on other receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor's current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date.

The Group writes off receivables when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or when the receivables are over two years past due, whichever occurs earlier.

 

 

17  Cash and cash equivalents 

 

 

2020

 

2019

 

£

 

£

 

 

 

 

Short term bank deposits

49,275,808

 

13,566,063

 

 

 

 

 

 

 

 

 

49,275,808

 

13,566,063

 

Included within cash and cash equivalents are client held funds relating to margins received and client balances payable (See note 18). Client balances held as electronic money in accordance with the Electronic Money Regulations 2011 are held in accounts segregated from the firm's own bank accounts in authorised credit institutions.

The directors consider that the carrying amount of these assets is a reasonable approximation of their fair value.  Cash is held at authorised credit institutions and non-bank financial institutions with robust credit ratings (where published) and sound regulatory capital resources.

 

 

18  Trade and other payables

 

 

 

2020

 

2019

 

 

£

 

£

 

 

 

 

 

Trade creditors

 

1,574

 

-

Amounts payable to clients

 

25,524,595

 

8,581,414

Other creditors

 

625,861

 

2,996,368

Short term loans

 

-

 

1,997,430

Corporation tax

 

2,127,756

 

-

Amounts due to members and former members of Argentex LLP

 

5,315,499

 

5,379,898

Accruals

 

2,785,250

 

2,120,097

Other taxation and social security

 

190,711

 

189,331

Derivative financial liabilities at fair value (note 27 )

 

10,854,425

 

3,120,364

Lease liability (note 20 )

 

-

 

299,960

 

 

 

 

 

 

 

 

 

 

 

 

47,425,671

 

24,684,862

 

 

 

 

 

 

The short term loan was from PUMA Lending Limited (see related party note 2) and attracted an interest rate of 15%. The loan was repayable on demand and had no conversion rights. The loan and interest were repaid in full during the year.

 

 

19  Creditors: amounts falling due after more than one year

 

 

2020

 

2019

 

£

 

£

 

 

 

 

Derivative financial liabilities at fair value (note 27 )

4,024,158

 

470,461

Lease liability (note 20 )

-

 

77,318

 

 

 

 

 

 

 

 

 

4,024,158

 

547,779

 

 

 

 

 

 

20  Leases

 

The Group leases its office space. The Group entered into a five-year lease in July 2015 with no break or extension clauses. The annual lease payments are £310,820. The lease gives rise to a right-of-use asset (note 15 ), and a corresponding lease liability. Information about the lease liability is presented below:

 

20.1  Lease liabilities

 

 

£

 

 

 

 

Lease Liability at 31 March 2019

377,278

 

 

 

 

Payments made under lease terms

(388,525)

Unwinding of finance costs

11,247

 

 

 

 

Lease Liability at 31 March 2020

-

 

 

 

21  Share Capital

 

 

 Ordinary

 

Management

 

 Nominal

 

 shares

 

shares

 

 value

 Allotted and paid up

 

 No. 

 

No.

 

 

 

 

 

 

 

 

At 1 April 2018 and 31 March 2019

1

 

-

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares of £0.0001 each issued during the year

113,207,547

 

-

 

11,321

Management shares issued of £0.0025 each issued during the year

-

 

23,589,212

 

58,973

 

 

 

 

 

 

 

 

 

 

 

 

At 31 March 2020

113,207,547

 

23,589,212

 

70,294

 

 

 

 

 

 

 

On 19 June 2019, 23,589,212 Management shares were issued with nominal value of £58,973 to establish the minimum allotted share capital for a public limited company. So long as there are shares of any other class is issue, Management shares have no voting rights or rights to receive dividends or other distributions of profit.

On 25 June 2019, 113,207,547 Ordinary shares of £0.0001 each were issued for trading on AIM at a price of 106p per share. 100,000,000 shares were issued to the former owners of Argentex LLP as part of the Group formation outlined in note 3.4. Subsequently, the company issued 13,207,547 at 106p per share, generating share premium of £13,988,679 before issuance costs.

 

22  Reserves

 

 

 

 

 

 

Details of the movements in reserves are set out in the Consolidated Statement of Changes in Equity.  A description of each reserve is set out below.

Share premium

The share premium account is used to record the aggregate amount or value of premiums paid in excess of the nominal value of share capital issued, less deductions for issuance costs. Where an equity issuance is accounted for using merger relief, no share premiums are recorded.

Merger reserve

The merger reserve represents the difference between carrying value of the assets and liabilities acquired under merger accounting to the cost of investment (the fair value).

Retained earnings

Retained earnings are the accumulated undistributed profits of the Group that have been recognised through the Consolidated Statement of Profit or Loss.

 

23  Share based payments

 

On 19 June 2019, the company issued 311,311 share options under an approved company share option plan ("CSOP") to participating employees. The share options have an exercise price of £1.06, being the IPO issue price, and vest three years after issuance. The fair value of these options at issuance has been derived using a Black-Scholes model, with expected volatility of 30%, based on derived volatilities of the AIM index and the similar listed entities to the Company. The risk free rate at the time of issuance was 0.54% for UK Government Bonds with a similar term to the vesting period of the CSOP.

For the period from issuance to the year end, the Group have recognised an expense of £5,763 based on the estimated number of share options expected to vest.

Subsequent to the year end, the Group issued a further 4,528,300 unapproved share options (see note 26).

 

 

24  Net cash generated from operating activities

 

 

 

2020

 

2019

 

 

£

 

£

 

 

 

 

 

 

Profit after taxation

8,090,790

 

2,139,567

 

Net finance expense

11,247

 

107,764

 

Depreciation of property, plant and equipment

128,087

 

187,425

 

Depreciation of right of use assets

234,949

 

234,711

 

Amortisation of intangible assets

1,046,462

 

778,710

 

Share based payment expense

5,763

 

-

 

Decrease in receivables

59,389

 

1,971,381

 

Increase/(decrease) in payables

18,969,951

 

(1,049,722)

 

(Decrease)/increase in derivative financial assets

(12,701,982)

 

903,933

 

Increase/(decrease) in derivative financial liabilities

11,287,758

 

(4,816,642)

 

LLP members remuneration

6,557,493

 

8,983,247

 

Drawings and distributions to members and former members

 

(6,628,205)

 

(5,990,449)

 

 

 

 

 

 

 

 

 

 

 

Net cash generated from operating activities

27,061,702

 

3,449,925

 

 

 

 

 

 

 

25  Net Debt Reconciliation

 

 

2020

 

 

2019

 

£

 

£

 

 

 

 

Cash and Cash Equivalents

49,275,808

 

13,566,063

Borrowings - repayable within one year

-

 

(2,297,390)

Borrowings - repayable after one year

-

 

(77,318)

 

 

 

Net funds

49,275,808

 

11,191,355

 

 

 

 

Cash and Cash Equivalents

49,275,808

 

13,566,063

Total Debt - Fixed Interest Rates

-

 

(2,374,708)

 

 

 

 

Net funds

49,275,808

 

11,191,355

 

 

 

 

 

 

 

Cash

Finance leases due within 1 year

Finance leases due after 1 year

Borrowings

Total

 

£

£

£

£

£

Net funds/(debt) at 1 April 2018

 

12,747,583

 

(282,650)

 

(377,278)

-

12,087,655

 

 

 

 

 

 

Cash flows

818,480

310,820

-

(1,997,430)

(868,130)

Other non-cash changes

-

(328,130)

299,960

-

(28,170)

 

 

 

 

 

 

Net funds/(debt) at 31 March 2019

 

13,566,063

 

(299,960)

 

(77,318)

 

(1,997,430)

11,191,355

 

 

 

 

 

 

Cash flows

35,709,745

388,525

-

1,997,430

38,095,700

Other non-cash changes

-

(88,565)

77,318

-

(11,247)

 

 

 

 

 

 

Net funds/(debt) at 31 March 2020

 

49,275,808

 

-

 

-

 

-

 

49,275,808

 

 

 

 

 

 

 

 

26  Subsequent events

 

 

On 7 April 2020, the Company awarded options over a total of 4,528,300 new ordinary shares in an unapproved option scheme. The share options all have an exercise price of 135p, representing a 12.0% premium to the closing mid-market price of 120.5p on 6 April 2020, the day before the awards were made. To provide long-term alignment with shareholders, the awards will vest in portions of one third on the third, fourth and fifth anniversaries of grant.

On 7 May 2020, the Group entered into a new operating lease for a new London headquarters. Following the end of the rent free period, the Group will be committed to rent payments of £912,270 per annum excluding VAT for the remainder of the lease. The full term of the lease is ten years with an option to break at five years.

 

27  Financial instruments

 

The Directors have performed an assessment of the risks affecting the Group through its use of financial instruments and believe the principal risks to be: capital risk; credit risk; market risk, including interest rate risk and foreign exchange risk.

 

27.1  Capital management

 

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return. Capital is repayable in accordance with the terms set out in the partnership agreement. Management regularly review the adequacy of the Group's capital. The level of capital is in excess of the capital requirement set by the Financial Conduct Authority.

 

27.2  Categories of financial instruments  

 

The Group operates as a deliverable foreign exchange broker therefore financial instruments are significant to its financial position and performance. Where the partnership enters into a foreign exchange contract for a client, a matching deal is immediately executed with one of the Group's institutional counterparties.

 

The table below sets out the Group 's financial instruments by class.

 

 

 

2020

 

2019

 

 

£

 

£

 

 

 

 

 

 

Derivative financial assets

24,858,088

 

12,156,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,858,088

 

12,156,106

 

 

 

 

 

 

 

 

 

 

 

Other debtors

90,880

 

49,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial liabilities

(14,878,583)

 

(3,590,825)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade creditors

(1,574)

 

-

 

Amounts payable to clients

(25,524,595)

 

(8,581,414)

 

Other creditors

(625,861)

 

(2,996,368)

 

Short term loans

-

 

(1,997,430)

 

Amounts due to members and former members of Argentex LLP

(5,315,499)

 

(5,379,898)

 

Accruals

(2,785,250)

 

(2,120,097)

 

Lease liabilities 

-

 

(377,278)

 

 

 

 

 

 

 

 

 

 

 

 

(34,252,779)

 

(21,152,525)

 

 

 

 

 

 

 

27.3  Financial risk management objectives

 

The Group's principal risk management objective is to avoid financial loss and manage the Group's working capital requirements to continue in operations.

 

Market risk

 

Market risk for the Group comprises foreign exchange risk and interest rate risk.

 

Foreign exchange risk is mitigated through the matching of foreign currency assets and liabilities between clients and institutional counterparties which move in parity. The Group maintains non-sterling currency balances with institutional counterparties only to the extent necessary meet its immediate obligations with those institutional counterparties.

 

Foreign exchange risk - sensitivity analysis

 

The Group's significant cash balances other than those denominated in Pounds sterling are foreign currency balances held in Euros and US Dollars.

The table below shows the impact on the Group's operating profit of a 10% change in the exchange rate of Euros and US Dollars against Pounds sterling.

 

At 31 March

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

10% weakening in the GBPEUR exchange rate

 

683,091

 

263,765

10% strengthening in the GBPEUR exchange rate

 

(620,992)

 

(215,808)

 

 

 

 

 

 

 

 

 

 

10% weakening in the GBPUSD exchange rate

 

189,637

 

220,961

10% strengthening in the GBPUSD exchange rate

 

(172,397)

 

(180,786)

 

 

 

 

 

 

 

 

 

 

 

Interest rate risk affects the Group to the extent that forward foreign exchange contracts and foreign exchange options have an implied interest rate adjustment factored into their price, which is subject to volatility. This risk is mitigated in the same way as foreign currency risk. The Group's short term loan had fixed rate of interest, limiting any exposure to interest rate risk. This loan was fully repaid during the year.

 

Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group has extensive controls to ensure that is has sufficient cash or working capital to meet the cash requirements of the Group in order to mitigate this risk. The Group monitors its liquidity requirement daily, and the Group stress tests its liquidity position to review the sufficiency of its liquidity in stressed market scenarios. It is management's responsibility to set appropriate limits to the liquidity risk appetite of the Group, as well as ensuring that a robust system of internal controls is implemented and enforced (see the Group's going concern policy in note 3.2).

 

Credit risk

 

The failure of a client to settle a contracted trade carries the risk of loss equal to the prevailing fair value of the trade. Argentex employs rigorous procedures and ongoing monitoring to ensure that client risk exposures fit within the Group's risk appetite.

Management review financial and regulatory disclosures of the Group's institutional counterparties to ensure its cash balances and derivative assets are maintained with creditworthy financial institutions. The Group does not have any significant concentration of exposures within its client base. At institutional counterparty level, trade volumes and trading cash balances are concentrated to a small selection of institutional counterparties. A degree of concentration is necessary for the Group to command strong pricing and settlement terms with these institutions and is not considered a material risk to the Group.

 

27.4  Overview of the Group's exposure to credit risk

 

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. As at 31 March 2020, the Group's maximum exposure to credit risk without taking into account any collateral held or other credit enhancements, which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties arises from :

· the carrying amount of the respective recognised financial assets as stated in the Consolidated Statement of Financial Position.

 

(i)  For Other debtors, the Group has applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime ECL as the balances are not material.

 

The Group measures the loss allowance for a financial instrument at an amount equal to the lifetime ECL if the credit risk on that financial instrument has increased significantly since initial recognition. In the opinion of the Directors, the carrying amount of the Group's financial assets best represents the maximum exposure.

 

The carrying amount of the Group's financial assets at FVTPL as disclosed in (note 27 ) best represents their respective maximum exposure to credit risk.  Note 27.6 details the Group's credit risk management policies

 

27.5  Counterparty risk

 

Argentex relies on third party institutions in order to trade and clear settlement funds through client accounts. To reduce counterparty credit risk to acceptable levels, Argentex only trades with institutional counterparties with robust balance sheets, high credit ratings and sound capital resources (as disclosed in accordance with the CRR and CRD IV of Basel III) and monitors the creditworthiness of institutional counterparties on an ongoing basis. It is the opinion of the business that the Group's financial backing, turnover, systems and controls and quality of clients sets the business at the higher end of the spectrum of foreign exchange brokers in the UK. The Group's business continuity procedures have established trading and settlement lines with several institutional counterparties which means that the withdrawal of services from a banking provider will have a negligible effect on the business.

 

27.6  Credit risk management

 

Note 27.4 details the Group's maximum exposure to credit risk and the measurement bases used to determine expected credit losses.

The Group undertakes continuous robust credit analysis before setting and varying trading limits and accepting trades from each client. All open positions are monitored automatically in real time and if deemed necessary collateral (in the form of cash deposits) is taken from clients to mitigate the Group's exposure to credit risk.

The table below sets out the profile of the Group 's open financial assets. Management are satisfied that the assets are of a high quality, none are past due and that no impairments are required.

Financial assets at balance sheet date by contractual maturity

 

31 March 2020

 

 

 

 

 

 

0-3 months

3-6 months

6-12 months

1-3 years

Total

 

£

£

£

£

£

Derivative financial assets

7,054,433

4,765,693

5,812,920

7,225,042

24,858,088

Other receivables

90,880

-

-

-

90,880

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

7,145,313

4,765,693

5,812,920

7,225,042

24,948,968

 

 

 

 

 

 

 

31 March 2019

 

 

 

 

 

 

0-3 months

3-6 months

6-12 months

1-3 years

Total

 

£

£

£

£

£

Derivative financial assets

5,334,490

1,789,612

2,803,341

2,228,663

12,156,106

Other receivables

49,698

-

-

-

49,698

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

5,384,188

1,789,612

2,803,341

2,228,663

12,205,804

 

 

 

 

 

 

 

The following table details the profile of the Group's financial liabilities. The amounts are based on the undiscounted cash flows based on the earliest date on which the Group can be required to pay.

 

Financial liabilities at balance sheet date by contractual maturity

 

 

31 March 2020

 

 

 

 

 

 

 

0-3 months

3-6 months

6-12 months

1-3 years

Total

 

 

£

£

£

£

£

 

Derivative financial liabilities

(4,539,428)

(2,952,373)

(3,362,624)

(4,024,158)

(14,878,583)

 

Customer balances

(25,524,595)

-

-

-

(25,524,595)

 

Other Payables

(8,728,184)

-

-

-

(8,728,184)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

(38,792,207)

(2,952,373)

(3,362,624)

(4,024,158)

(49,131,362)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 March 2019

 

 

 

 

 

 

 

0-3 months

3-6 months

6-12 months

1-3 years

Total

 

 

£

£

£

£

£

 

Derivative financial liabilities

(1,268,203)

(1,076,094)

(776,067)

(470,461)

(3,590,825)

 

Customer balances

(8,581,414)

-

-

-

(8,581,414)

 

Lease payments

(72,826)

(73,924)

(153,210)

(77,318)

(377,278)

 

Short term loans

(1,997,430)

-

-

-

(1,997,430)

 

Other payables

(10,496,363)

-

-

-

(10,496,363)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

(22,416,236)

(1,150,018)

(929,277)

(547,779)

(25,043,310)

 

 

 

 

 

 

 

28  Fair value measurements


This note provides information about how the Group determines fair values of various financial assets and financial liabilities.

 

28.1  Fair value of the Group's financial assets and financial liabilities that are measured at fair value on a recurring basis

 

Some of the Group's financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).

There were no transfers between levels 1, 2 and 3 during the year. The Group's policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. These instruments are included in level 1.

Level 2: The fair value of financial instruments that are not traded in an active is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

 

Financial assets/ financial liabilities

 

Fair value as at

Fair value hierarchy

 

Valuation technique(s) and key input(s)

 

2020

2019

 

 

Foreign exchange forward and option contracts

(note 27 )

Assets £24,858,088; and

Liabilities £14,878,583

Assets £12,156,106; and

Liabilities £3,590,825

Level 2

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates.

 

28.2  Fair value of financial assets and financial liabilities that are not measured at fair value    

The partners consider that the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximately at their fair values

 

29  Related party transactions

 

PUMA Lending Limited provided an occasional short term liquidity facility to the Group in the form of short term loans (see note 18). £1,997,430 was outstanding at 31 March 2019. This amount, plus related interest of £133,361 was repaid immediately following the IPO, and the balance is £nil at 31 March 2020. The relationship of PUMA Lending Limited to the Group is that PUMA Lending Limited shares common control with Pacific Investments Management Limited, the former owner of Argentex Foreign Exchange Limited.

 

Included in other creditors is £625,861 owed to Pacific Investments Management Limited, the former owner of Argentex Foreign Exchange Limited.

 

30  Contingent liabilities

 

As at 31 March 2020 there were no capital commitments or contingent liabilities (2019: none).

 

31  Controlling party

 

In the opinion of the directors there no ultimate controlling party of Argentex Group PLC


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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