Final Results

RNS Number : 7726Z

ARGO Group Limited

12 March 2013

 

Argo Group Limited

("Argo" or the "Company")

Annual Report and Accounts for the Year ended 31 December 2012

Argo today announces its final results for the year ended 31 December 2012.

The Company will today make available its report and accounts for the year ended 31 December 2012 on the Company's website www.argogrouplimited.com.

Key highlights for the twelve months ended 31 December 2012

-     Revenues US$8.9 million (2011: US$11.2 million)

-     Operating profit US$0.9 million (2011: US$2.1 million)

-     Loss before tax US$14.2 million after a one-off goodwill impairment charge of US$14.9 million (2011: profit US$2.2 million)

-     Net assets US$27.7 million (2011: US$43.4 million) after dividend payment of US$1.4 million

-     Final dividend declared - 2.1c (1.3p) per share (2011: 2.0c, 1.3p) in respect of the year ended 31 December 2012

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

"During 2012 Argo maintained a strong balance sheet forming a solid basis for further growth and satisfying all regulatory requirements.  This was achieved despite full impairment of goodwill and further cost reductions to bring costs in line with reducing revenue.  At fund level, our team is firing from all cylinders with activist management producing results through restructuring of assets, extracting value and liquidity.  In the second half of the year, and in order to satisfy current investor demand, a new fund with weekly liquidity was launched, investing in emerging market local currency sovereign bonds.  Marketing effort is also intensifying with a focus on this new liquid fund.  Finally, I am pleased to inform you that in 2012 Argo Distressed Credit Fund was ranked in the top 10 of the "Emerging Markets - Global" fund category by BarclayHedge magazine."

Enquiries

Argo Group Limited

Andreas Rialas

020 7535 4000

Panmure Gordon

Dominic Morley

020 7459 3600

CHAIRMAN'S STATEMENT

The Group and its objective

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

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

Business and operational review

This report sets out the results of Argo Group Limited for the year ended 31 December 2012.

The trading environment has been a difficult and challenging one for the Argo funds with so much economic and political uncertainty. Despite this Argo has made progress during the year with the Argo Distressed Credit Fund ("ADCF") regaining its high-water mark, the launch of the Argo Local Markets Fund ("ALMF") and the generation of performance fees in excess of last year. The Argo funds ended the year with Assets under Management ("AUM") at US$326.4 million, 0.3% higher than at the beginning of the year.

For the year ended 31 December 2012 the Group generated revenues of US$8.9 million (2011: US$11.2 million) with management fees accounting for US$7.0 million (2011: US$9.2 million).

In line with last year, the Group has continued to keep its cost base under review with total costs falling to US$8.0 million (2011: US$9.0 million). Further cost savings and efficiencies have been identified including closure of the Buenos Aires and Asia Pacific offices. We continue to retain the services of our Asia Pacific rep on a consultancy basis. The Group's cost base will remain under constant review whilst ensuring efficient deployment of Group resources and safeguarding of the requisite infrastructure for the proper functioning of our regulated company.

Since the acquisition of the Argo businesses in 2008 the AUM attributable to the Group's separately identifiable business units have decreased significantly due to the volatility and uncertainty displayed by the global financial markets. As a result, operations have been scaled back and an impairment review of goodwill was undertaken at 30 June 2012. Following the review, the goodwill of US$14.9 million created on the purchase of the Argo businesses has been fully written off during the period.

Overall, the financial statements show an operating profit for the year of US$0.9 million (2011: US$2.1 million) and a loss before tax of US$14.2 million (2011: profit US$2.2 million) reflecting the non-cash goodwill impairment of US$14.9 million and the unrealised loss on current asset investments of US$0.2 million (2011: US$0.01 million). The Company has no further goodwill to write off.

At 31 December 2012, the Group had net assets of US$27.7 million (2011: US$43.4 million) and net current assets of US$27.4 million (31 December 2011: US$27.4 million) after paying a dividend of 2.0 cents (1.3 pence) per share on 20 June 2012 (2011: 1.9 cents, 1.2 pence) and a non-cash goodwill impairment charge of US$14.9 million. 

Net current assets include investments in The Argo Fund ("TAF"), Argo Real Estate Opportunities Fund Limited ("AREOF") and Argo Special Situations Fund LP ("SSF") at fair values of US$17.6 million (2011: US$15.5 million), US$0.8 million (2011: US$1.0 million) and US$0.1 million (2011: US$Nil) respectively. During the period the Group invested a further US$2 million in TAF and US$0.1 million in SSF. Our continued investment in our existing funds supports the liquidity of those funds and demonstrates the commitment of the Group towards its fund investors. This close alignment results in a high correlation between the performance of the Company and the performance of its funds.

The Group has provided AREOF with a notice of deferral in relation to amounts due from the provision of investment management services, under which it will not demand payment of such amounts until the Group judges that AREOF is in a position to pay the outstanding liability. These amounts accrued or receivable at 31 December 2012 total US$2,597,188 (€1,965,333) (2011: US$2,480,165, €1,915,333) after a bad debt provision of US$991,125 (€750,000) (2011: Nil). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows. The AREOF management contract has a fixed term expiring on 31 July 2018 and the carrying value of the AREOF management contract has been fully amortised during the year. We believe that the AREOF shopping centres remain good assets with excellent prospects when the CEE economies rebound.

The number of employees of the Group at 31 December 2012 were 40 (2011: 42).

Fund performance

The Argo Funds

Fund	Launch              date	2012   Year   total	2011   Year   total	Since inception	Annualised performance	Sharpe     ratio	Down     months	AUM
		%	%	%	CAGR %			US$m
The Argo Fund	Oct-00	-0.07	0.10	121.38	7.93	0.71	29 of 147	86.3
Argo Distressed Credit Fund	Oct-08	24.05	1.18	30.31	11.19	0.96	17 of 51	30.8
Argo Special Situations Fund LP	Feb-12	-2.80	N/A	-2.80	-2.80	-0.93	8  of 11	110.3
Argo Local Markets Fund	Nov-12	1.56	N/A	1.56	N/A	N/A	0 of 2	6.5
Argo Real Estate Opportunities Fund	Aug-06	88.77	178.23	-30.65	-10.31	N/A	30 of 72*	92.5
Total								326.4

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

Performance across the range of Argo funds was very mixed in 2012. At the year end, TAF, was slightly down by 0.07%, whilst ADCF was significantly ahead by 24.05%. By comparison, the main hedge fund indices showed a positive return of 7.03% for the year.

Emerging markets experienced an optimistic tone at the start of the year in the light of improved global economic prospects, particularly in the US, and some hope that the Eurozone sovereign debt crisis might be under control. This gave way to a difficult second quarter amid renewed concerns for the financial position of the Eurozone. May, in particular, was an extremely difficult month both for emerging markets and the Argo funds. By the year end sentiment had changed once again with better economic news from China that bolstered the regional markets, increased attraction to high yields on offer from Russian and Turkish bonds and the recovery of Greek bonds following the buyback initiated in December 2012.

TAF and ADCF finished on a positive note in December following the emergence of an investment in an Indonesian petrochemicals refinery from a court-supervised restructuring process. The subsequent composition plan agreed by creditors resulted in an overall reduction in the company's debt burden; exchange of secured debt for new instruments; conversion of unsecured obligations into equity; and Indonesia's state-owned oil and gas company becoming the largest shareholder in and having management control of the refinery.  This particular investment is significant to the liquidity of the funds and post restructuring we are in a much better position to monetise our investment. Argo was instrumental through its activism in bringing about the restructuring.

On 1 February 2012, Argo completed a significant fund restructuring exercise to reconfirm its mandate with the investor base of AGSSF Holdings Limited ("AHL") and Argo Capital Partners Fund ("ACPF") and to attract new liquidity. The portfolio assets of AHL and ACPF were transferred into a new fund, SSF, in exchange for ordinary partnership interests in SSF with the objective of acquiring follow-on investments and maximising the value of the assets. The Fund has been successful in attracting new subscriptions with all investors being invited to subscribe for two-year preference shares targeting a 13.5% annualised return. As part of this restructuring exercise the high-water mark for earning performance fees was reset to zero. SSF is a closed-end fund with a realisation period of three years subject to extension. SSF finished in negative territory at the year end showing a negative return of 2.6%, largely the result of currency movements.

Argo expanded its product offering with the launch of ALMF in November 2012 in response to investor demand for product offering exposure to emerging markets and better liquidity. ALMF's focus is absolute return in long/short investment opportunities in emerging market local government debt and currencies. The investment process is fundamental value driven for local debt and supported by quantitative analysis for currencies. The portfolio is well diversified with a global investment universe covering over 40 local debt markets. The major investments at the year end were Russian, Mexican and Turkish local government debt and their currencies. At the year end Fund performance was ahead by 1.56%. In 2013 the focus will be to build the Fund's performance track record and market the Fund to existing and new clients.

AREOF continues to operate in a particularly challenging and difficult environment albeit one which appears to be stabilising. The uncertainties surrounding the Eurozone crisis have impacted economic performance and property asset valuations, with pressures from competing centres in several of the regions in which AREOF operates changing the balance of negotiation in favour of the tenant. Whilst tenants continue to seek rent concessions and turnover only rents, the properties are consistently 98-100% let.

Despite the challenging trading environment AREOF successfully completed asset management initiatives at Sibiu Shopping City, Romania and Riviera Shopping City, Odessa, Ukraine both of which continue to maintain their trading dominance in the respective regions. The recently acquired shopping parks, ERA Shopping Park, Oradea and ERA Shopping Park, Iasi, in Romania, are both anchored by prominent international retailers with the former completing development of its 16,000 sqm shopping mall in early spring 2012 and the latter hoping to agree the restructuring of a €77m debt facility with a view to commencing the final phase development of its 28,000 sqm shopping mall in 2013.

At the end of December 2012 AREOF successfully renegotiated an extension to its debt facility that supports the Suceava Shopping City retail park, Romania. In October 2012 AREOF also entered into restructuring negotiations with the syndicate of banks that provides the loan facility for the Sibiu Shopping City retail park, Romania. On 31 December 2012, while the restructuring negotiations were ongoing, AREOF failed to make a repayment of principal under the facility. Despite this AREOF is hopeful that it will be able to reach an agreement with the syndicate on a restructuring of this facility.

The Fund's adjusted Net Asset Value was US$88.1 million (€70.0 million) as at 31 March 2012, compared with US$53.4 million (€37.1 million) a year earlier, the increase being attributable to the acquisition of the two Romanian shopping parks, ERA Shopping Park, Oradea and ERA Shopping Park, Iasi in September 2011. Following the purchase of these assets AREOF has become the largest listed owner and operator of retail parks in the country thus making it more marketable to international investors over the long term. Further information may be found in the published accounts of AREOF on its website at www.argoproperty.com.

During the year the decision was taken to terminate Argo Global Special Situations Fund. The size of the Fund had diminished greatly as a result of redemptions and reached the quantum where administrative costs were too high relative to the Fund's size to continue trading. Fund operations were terminated on 1 June 2012 with investors being given the option to continue their exposure to a distressed credit strategy by switching their investment to ADCF.

Dividends

During the period the Group paid a dividend of 2.0 cents (1.3 pence) per share. The directors recommend a final dividend of 2.1 cents (1.3 pence) per share in respect of the year ended 31 December 2012. Going forward, the Company intends, subject to its financial performance, to pay a final dividend each year.

Outlook

The Group's priorities continue to be the achievement of consistent investment performance and increasing AUM both of which the Group has the capacity to achieve without a corresponding increase in costs. Emerging markets remain attractive and despite the continuing challenges posed by the global markets for asset gathering the Board is confident about the future of the business.

As improved sentiment towards the euro and greater risk appetite amongst investors flows through to 2013 the Board continues to be optimistic about the Group's future prospects. Argo has a strong debt-free balance sheet, a prerequisite for further growth. This underlies the Board's confidence that with continued operational efficiency and its talented team the Group is well positioned to continue to weather the economic and political challenges ahead and to benefit from the eventual global recovery.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2012

		Year ended		Year ended
		31 December		31 December
		2012		2011
	Note	US$'000		US$'000
Management fees		7,026		9,214
Incentive fees		1,216		91
Other income		690		1,845
Revenue	2(e), 3	8,932		11,150
Legal and professional expenses		(390)		(397)
Management and incentive fees payable	2(f)	(71)		(79)
Operational expenses		(1,885)		(1,730)
Employee costs	4	(3,530)		(6,130)
Foreign exchange (loss)/gain		(25)		28
Bad debts		(1,062)		-
Amortisation of intangible assets	9	(990)		(683)
Depreciation	10	(73)		(35)
Operating profit	6	906		2,124
Impairment of goodwill	9	(14,945)		-
Interest income on cash and cash equivalents		15		45
Unrealised loss on investments		(175)		(13)
(Loss)/profit on ordinary activities before taxation	3	(14,199)		2,156
Taxation	7	(205)		(260)
(Loss)/profit for the year after taxation attributable to members of the Company	8	(14,404)		1,896
Other comprehensive income
Exchange differences on translation of foreign operations		86		(111)
Total comprehensive income for the year		(14,318)		1,785

		Year ended		Year ended
		31 December		31 December
		2012		2011
		US$		US$
Earnings per share (basic)	8	(0.21)		0.03
Earnings per share (diluted)	8	(0.21)		0.02

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2012

		At 31 December		At 31 December
		2012		2011
	Note	US$'000		US$'000
Assets
Non-current assets
Intangible assets	9	-		15,942
Fixtures, fittings and equipment	10	221		70
Loans and advances receivable	14	118		38
Total non-current assets		339		16,050
Current assets
Investments	11	18,478		16,539
Trade and other receivables	12	4,284		3,314
Cash and cash equivalents	13	5,139		8,358
Loans and advances receivable	14	142		240
Total current assets		28,043		28,451
Total assets	3	28,382		44,501
Equity and liabilities
Equity
Issued share capital	15	674		674
Share premium		30,878		30,878
Revenue reserve		(1,674)		14,123
Foreign currency translation reserve	2(d)	(2,164)		(2,250)
Total equity		27,714		43,425
Current liabilities
Trade and other payables	16	467		913
Taxation payable	7	201		163
Total current liabilities	3	668		1,076
Total equity and liabilities		28,382		44,501

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

YEAR ENDED 31 DECEMBER 2012

	Issued share capital	Share premium	Revenue reserve	Foreign currency translation reserve	Total
	2011	2011	2011	2011	2011
	US$'000	US$'000	US$'000	US$'000	US$'000
As at 1 January 2011	737	32,199	13,645	(2,139)	44,442
Total comprehensive income
Profit for the period after taxation	-	-	1,896	(111)	1,785
Transactions with owners recorded directly in equity
Dividends to equity holders	-	-	(1,418)	-	(1,418)
Purchase of own shares (note 15)	(63)	(1,321)	-	-	(1,384)
As at 31 December 2011	674	30,878	14,123	(2,250)	43,425

	Issued share capital	Share premium	Revenue reserve	Foreign currency translation reserve	Total
	2012	2012	2012	2012	2012
	US$'000	US$'000	US$'000	US$'000	US$'000
As at 1 January 2012	674	30,878	14,123	(2,250)	43,425
Total comprehensive income
Profit for the period after taxation	-	-	(14,404)	86	(14,318)
Transactions with owners recorded directly in equity
Dividends to equity holders (note 15)	-	-	(1,393)	-	(1,393)
As at 31 December 2012	674	30,878	(1,674)	(2,164)	27,714

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 DECEMBER 2012

		Year ended		Year ended
		31 December		31 December
		2012		2011
	Note	US$'000		US$'000
Net cash inflow from operating activities	18	429		354
Cash flows from investing activities
Interest received on cash and cash equivalents		15		45
Purchase of current asset investments	11	(2,115)		(988)
Purchase of fixtures, fittings and equipment	10	(225)		(64)
Net cash used in investing activities		(2,325)		(1,007)
Cash flows from financing activities
Repurchase of own shares	15	-		(1,384)
Dividends paid	15	(1,393)		(1,418)
Net cash used in financing activities		(1,393)		(2,802)
Net decrease in cash and cash equivalents		(3,289)		(3,455)
Cash and cash equivalents at 1 January 2012 and     1 January 2011		8,358		11,907
Foreign exchange gain/(loss) on cash and cash        equivalents		70		(94)
Cash and cash equivalents as at 31 December 2012 and 31 December 2011		5,139		8,358

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2012

1.       CORPORATE INFORMATION

         The Company is domiciled in the Isle of Man under the Companies Act 2006. Its registered office is at 33-37 Athol Street, Douglas, Isle of Man, IM1 1LB and the principal place of business is at 10 Vasilissis Frederikis Street, 1066 Nicosia, Cyprus. The principal activity of the Company is that of a holding company and the principal activity of the wider Group is that of an investment management business. The functional and presentational currencies of the Group undertakings are US Dollars, Sterling, Euros and Romanian Lei. The Group has 40 (2011: 42) employees.

         Wholly owned subsidiaries                                                   Country of incorporation

Argo Capital Management (Cyprus) Limited	Cyprus
Argo Capital Management Limited	United Kingdom
Argo Capital Management Property Limited	Cayman Islands
North Asset Management Srl	Romania
North Asset Management Sarl	Luxembourg

2.       ACCOUNTING POLICIES

(a)     Accounting convention

         These consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments, and in accordance with International Financial Reporting Standards. 

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

(b)     Basis of consolidation

         The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. Subsidiaries are consolidated from the date upon which control is transferred to the Company and cease to be consolidated from the date upon which control is transferred from the Company.

         Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

(c)     Business combinations

         The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination.

         The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.

         Goodwill             

         Goodwill arising on the consolidation represents the excess of the cost of the acquisition over the Company's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Any excess of the Company's interest in the fair value of the identifiable assets and liabilities over the cost of the acquisition (negative goodwill) is immediately recognised in the Consolidated Statement of Comprehensive Income. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed at least annually for impairment. Any impairment is recognised immediately in the Consolidated Statement of Comprehensive Income.

         Intangible assets

The Group's principal intangible asset is a fund management contract recorded at directors' valuation at the date of acquisition. The directors' valuation is based on the underlying share price of the vendor and its assets under management at the time of acquisition. This intangible asset has a finite life and is amortised on a straight line basis over the period of the contract. Impairment tests are undertaken annually to determine any diminution in the recoverable amount below carrying value. The Group does not capitalise internally generated goodwill or intangible assets.

         Impairment of intangible assets  

                  At each balance sheet date the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

         Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have been adjusted.

                  If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

(d)     Foreign currency translation

The consolidated financial statements are expressed in US dollars. Transactions denominated in currencies other than US dollars have been translated at the rate of exchange prevailing at the date of the transaction.  Assets and liabilities in other currencies are translated to US dollars at the rates of exchange prevailing at the balance sheet date. The resulting profits or losses are reflected in the Consolidated Statement of Comprehensive Income.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are classified as equity and transferred to the Group's foreign currency translation reserve.  Such translation differences are recognised in the Consolidated Statement of Comprehensive Income as income or as expenses in the year of the operation's disposal.

(e)     Revenue

         Revenue is recognised to the extent that it is probable that economic benefit will flow to the Group and the revenue can be reliably measured.

         Management and incentive fees receivable

         The Group recognises revenue for providing management services to mutual funds. Revenue accrues on a monthly basis on completion of management services and is based on the assets under management of each mutual fund. 

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

During the year ended 31 December 2011 the Group provided AREOF with a notice of deferral in relation to the amounts due from the provision of investment management services, under which it will not demand payment of such amounts until the Group judges that AREOF is in a position to pay the outstanding liability.

(f)      Management and incentive fees payable

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

(g)     Depreciation

Plant and equipment is initially recorded at cost and depreciated on a straight-line basis over the expected useful lives of the assets as follows:

Leasehold                                                                         33 1/3% per annum

Fixtures and fittings                                                            10% to 33 1/3% per annum

Office equipment                                                               10% to 33 1/3% per annum

Computer equipment and software                                       20% to 33 1/3% per annum

(h)     Investments held at fair value through profit or loss

                  All investments are classified as held at fair value through profit or loss. Investments are initially recognised at fair value. Transaction costs are expensed as incurred.

         After initial recognition, investments are measured at fair value, with unrealised gains and losses on investments and impairment of investments recognised in the Consolidated Statement of Comprehensive Income.  Investments held at fair value in managed mutual funds are valued at fair value of the net assets as provided by the administrators of those funds. Investments in the management shares of The Argo Fund Ltd, Argo Distressed Credit Fund Limited, Argo Special Situations Fund LPand Argo Local Markets Fundare stated at fair value, being the recoverable amount.

(i)      Trade date accounting

                  All 'regular way' purchases and sales of financial assets are recognised on the 'trade date', i.e. the date that the entity commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of the asset within the time frame generally established by regulation or convention in the market place.

(j)     Financial instruments

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

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

         Trade and other receivables

Trade and other receivables do not carry any interest and are stated at their original invoice amount as reduced by appropriate allowances for estimated irrecoverable amounts. An estimate for doubtful debts is made when collection is no longer probable. Bad debts are written off when identified.

         Cash and cash equivalents

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

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

Trade payables

Trade payables are not interest bearing and are stated at their nominal value.

(k)     Loans and borrowings

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

                  All loans and borrowings receivable are initially recognised at cost and subsequently measured at amortised cost.

 (l)     Current taxation

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those enacted or substantially enacted by the balance sheet date.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other periods or because it excludes items that are never taxable or deductible. 

(m)    Deferred taxation

                  Deferred income tax is provided for using the liability method on temporary timing differences at the balance sheet date between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised in full for all temporary differences. Deferred tax assets are recognised for all deductible temporary differences, carried forward unused tax credits and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carry-forward of unused tax credits and unused losses can be utilised.

         The carrying amount of deferred income tax assets is revalued at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that is probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.

 (n)    Accounting estimates, assumptions and judgements

The preparation of the consolidated financial statements necessitates the use of estimates, assumptions and judgements. These estimates, assumptions and judgements affect the reported amounts of assets, liabilities and contingent liabilities at the balance sheet date as well as affecting the reported income and expenses for the year.  Although the estimates are based on management's knowledge and best judgment of information and financial data, the actual outcome may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that and prior periods, or in the period of the revision and future periods if the revision affects both current and future periods.

In the process of applying the Group's accounting policies, which are described above, management has made best judgements of information and financial data that have the most significant effect on the amounts recognised in the consolidated financial statements:

-     Management and incentive fees

-     Intangibles (note 9)

-     Trade receivables

It has been assumed that, when available, the audited financial statements of the funds under the Group's management will confirm the net asset values used in the calculation of management and performance fees receivable.

(o)     Operating leases

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

(p)     Financial instruments and fair value hierarchy

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

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

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

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

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

 (q)    Future changes in accounting policies

IASB (International Accounting Standards Board) and IFRIC (International Financial Reporting Interpretations Committee) have issued the following standards and interpretations with an effective date after the date of these financial statements:

New/Revised International Financial Reporting Standards (IAS/IFRS)	Effective date (accounting periods commencing on or after)
IAS 19 Employee Benefits -  Amendment resulting from the Post-Employment Benefits and Termination Benefits projects (as amended in June 2011)	1 January 2013
IAS 32 Financial Instruments Presentation - Amendments to application guidance on the offsetting of financial assets and financial liabilities (December 2011)	1 January 2014
IFRS 7 Financial Instruments: Disclosures - Amendments enhancing disclosures about offsetting of financial assets and financial liabilities (December 2011)	1 January 2013
IFRS 9 Financial Instruments - Classification and measurement of financial assets (as amended in December 2011)	1 January 2015
IFRS 9 Financial Instruments - Accounting for financial liabilities and derecognition (as amended in December 2011)	1 January 2015
IFRS 10 Consolidated Financial Statements (May 2011)	1 January 2013
IFRS 11 Joint Arrangements (May 2011)	1 January 2013
IFRS 12 Disclosure of Interests in Other Entities (May 2011)	1 January 2013
IFRS 13 Fair Value Measurement (May 2011)	1 January 2013

The directors do not expect the adoption of these standards and interpretations to have a material impact on the Group's financial statements in the period of initial application, except for IFRS 9 Financial Instruments, which becomes mandatory for the Group's 2015 consolidated financial statements and could change the classification and measurement of financial assets. The Group does not plan to adopt this standard early and the extent of the impact has not been determined.

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

(r)     Dividends payable

Interim and final dividends are recognised when declared.

3.      SEGMENTAL ANALYSIS

The Group operates as a single asset management business.

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

	Argo Group Ltd	Argo Capital Management (Cyprus) Limited	Argo Capital Management Limited	Argo Capital Management Property Limited	Other	Year ended 31 December
	2012	2012	2012	2012	2012	2012
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Revenues from external customers	-	5,670	2,793	3,256	234	11,953
Intersegment revenues	-	-	2,791	-	230	3,021
Reportable segment          profit/(loss)	1,862	(215)	(480)	(226)	(284)	657
Intersegment profit/(loss)	(2,470)	5,007	(2,562)	-	42	17
Reportable segment assets	49,910	2,440	2,381	3,920	123	58,774
Reportable segment liabilities	84	907	2,356	247	-	3,594

Revenues, profit or loss, assets and liabilities may be reconciled as follows:	Year ended
	31 December
	2012
	US$'000
Revenues
Total revenues for reportable segments	11,953
Elimination of intersegment revenues	(3,021)
Group revenues	8,932
Profit or loss
Total profit for reportable segments	657
Elimination of total intersegment losses	17
Other unallocated amounts	(14,873)
Loss on ordinary activities before taxation	(14,199)
Assets
Total assets for reportable segments	58,774
Elimination of intersegment receivables	(795)
Elimination of Company's cost of investments	(29,597)
Group assets	28,382
Liabilities
Total liabilities for reportable segments	3,594
Elimination of intersegment payables	(2,926)
Group liabilities	668

	Argo Group Ltd	Argo Capital Management (Cyprus) Limited	Argo Capital Management Limited	Argo Capital Management Property Limited	Other	Year ended 31 December
	2011	2011	2011	2011	2011	2011
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Revenues from external customers	-	6,520	1,123	3,503	4	11,150
Intersegment revenues	5,222	-	2,942	-	488	8,652
Reportable segment          profit/(loss)	4,792	(2,388)	(1,237)	1,180	(202)	2,145
Intersegment profit/(loss)	5,222	(7,850)	2,455	-	169	(4)
Reportable segment assets	49,441	2,285	3,410	3,946	445	59,527
Reportable segment liabilities	83	332	835	114	65	1,429

Revenues, profit or loss, assets and liabilities may be reconciled as follows:	Year ended
	31 December
	2011
	US$'000
Revenues
Total revenues for reportable segments	19,802
Elimination of intersegment revenues	(8,652)
Group revenues	11,150
Profit or loss
Total profit for reportable segments	2,145
Elimination of total intersegment losses	4
Other unallocated amounts	7
Profit on ordinary activities before taxation	2,156
Assets
Total assets for reportable segments	59,527
Elimination of intersegment receivables	(373)
Elimination of Company's cost of investments	(14,653)
Group assets	44,501
Liabilities
Total liabilities for reportable segments	1,429
Elimination of intersegment payables	(353)
Group liabilities	1,076

4.      EMPLOYEE COSTS

	Year ended		Year ended
	31 December		31 December
	2012		2011
	US$'000		US$'000
Wages and salaries	3,110		5,540
Social security costs	316		524
Other	104		66
	3,530		6,130

5.      KEY MANAGEMENT PERSONNEL REMUNERATION

   Included in employee costs are payments to:

	Year ended		Year ended
	31 December		31 December
	2012		2011
	US$'000		US$'000
Directors and key management personnel	1,518		3,245

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

					Year ended	Year ended
	Salaries	Fees	Benefits	Cash bonus	31 December            2012	31 December 2011
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Executive Directors
Kyriakos Rialas	222	-	-	-	222	438
Andreas Rialas	225	-	2	-	227	1,215
Non-Executive Directors
Michael Kloter	-	79	-	-	79	85
David Fisher	-	54	-	-	54	40
Ken Watterson	-	54	-	-	54	40

6.      OPERATING PROFIT

Operating profit is stated after charging:

	Year ended		Year ended
	31 December		31 December
	2012		2011
	US$'000		US$'000
Auditors' remuneration	94		99
Depreciation	73		35
Amortisation	990		683
Directors' fees	1,258		2,696
Operating lease payments	509		486

7.      TAXATION

         Taxation rates applicable to the parent company and the Cypriot, UK, Luxembourg and Romanian subsidiaries range from 0% to 24.5% (2011: 0% to 26.5%).

         Income Statement

	Year ended		Year ended
	31 December		31 December
	2012		2011
	US$'000		US$'000
Taxation charge for the year on Group companies	205		260
Tax on (loss)/profit on ordinary activities	205		260

The tax charge for the year can be reconciled to the profit per the Consolidated Statement of Comprehensive Income as follows:

	Year ended		Year ended
	31 December		31 December
	2012		2011
	US$'000		US$'000
(Loss)/profit before tax	(14,199)		2,156
Applicable Isle of Man tax rate for Argo Group Limited of 0%	-		-
Timing differences	(4)		4
Non-deductible expenses	22		19
Non-taxable income	-		(11)
Other adjustments	5		-
Tax effect of different tax rates of subsidiaries operating in other jurisdictions	182		248
Tax charge	205		260

         Balance Sheet

	At 31 December		At 31 December
	2012		2011
	US$'000		US$'000
Corporation tax payable	201		163

8.      EARNINGS PER SHARE

         Earnings per share is calculated by dividing the (loss)/profit on ordinary activities before taxation for the year by the weighted average number of shares outstanding during the year.

	Year ended		Year ended
	31 December		31 December
	2012		2011
	US$'000		US$'000
(Loss)/profit for the year after taxation attributable to members	(14,404)		1,896
	No. of shares		No. of shares
Weighted average number of ordinary shares for basic earnings      per share	67,428,494		70,411,827
Effect of dilution	5,415,000		5,900,000
Weighted average number of ordinary shares for diluted earnings per share	72,843,494		76,311,827

	Year ended		Year ended
	31 December		31 December
	2012		2011
	US$		US$
Earnings per share (basic)	(0.21)		0.03
Earnings per share (diluted)	(0.21)		0.02

9.      INTANGIBLE ASSETS  

	Fund management contracts
	US$'000
Cost
At 1 January 2011	18,554
Foreign exchange movement	86
At 31 December 2011	18,640
Foreign exchange movement	195
At 31 December 2012	18,835
Amortisation and impairment
At 1 January 2011	1,939
Amortisation of Argo business intangible assets	683
Foreign exchange movement	76
At 31 December 2011	2,698
Impairment charge	14,945
Amortisation of Argo business intangible assets	990
Foreign exchange movement	202
At 31 December 2012	18,835
Net book value
At 31 December 2011	15,942
At 31 December 2012	-

The Group tests intangible assets annually for impairment, or more frequently if there are indications that the intangible assets may be impaired.  The recoverable amounts of the intangible assets that have been reviewed for impairment are separately identifiable business units within the Group.  The value in use approach has been used as the businesses were not considered saleable in their current form due to certain factors, the main being reliance on certain key individuals.

Since the acquisition of the Argo businesses in 2008 the assets under management attributable to the Group's separately identifiable business units have decreased significantly due to the volatility and uncertainty displayed by the global financial markets. As a result, operations have been scaled back and an impairment review of goodwill was undertaken during the year. Following the review, the goodwill of US$14.9 million created on the purchase of the Argo businesses has been written off during the period. At the balance sheet date the carrying value of goodwill is US$Nil (31 December 2011: US$14.9 million).

The carrying value of the Argo Real Estate Opportunities Fund Limited management contract has also been fully amortised during the year. At 31 December 2011 the carrying value of the management contract was US$1.0 million. In the prior year the Group successfully renegotiated the extension of this management contract by five years from the current termination date of 31 July 2013 to 31 July 2018.

10.  FIXTURES, FITTINGS AND EQUIPMENT

	Fixtures, fittings & equipment
	US$ '000
Cost
At 1 January 2011	295
Additions	64
Foreign exchange movement	(2)
At 31 December 2011	357
Additions	225
Disposals	(231)
Foreign exchange movement	21
At 31 December 2012	372
Accumulated Depreciation
At 1 January 2011	254
Depreciation charge for period	35
Foreign exchange movement	(2)
At 31 December 2011	287
Depreciation charge for period	73
Disposals	(231)
Foreign exchange movement	22
At 31 December 2012	151
Net book value
At 31 December 2011	70
At 31 December 2012	221

11.        INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

		31 December		31 December
		2012		2012
Holding	Investment in management shares	Total cost		Fair value
		US$'000		US$'000
10	The Argo Fund Ltd	0		0
100	Argo Distressed Credit Fund Ltd	0		0
1	Argo Special Situations Fund LP	0		0
1	Argo Local Markets Fund	0		0
		0		0

Holding	Investment in ordinary shares	Total cost		Fair value
		US$'000		US$'000
75,165	The Argo Fund Ltd	16,343		17,613
10,899,021	Argo Real Estate Opportunities Fund Ltd	988		753
115	Argo Special Situations Fund LP	115		112
		17,446		18,478

		31 December		31 December
		2011		2011
Holding	Investment in management shares	Total cost		Fair value
		US$'000		US$'000
10	The Argo Fund Ltd	0		0
10	Argo Capital Investors Fund SPC	0		0
10	Argo Capital Partners Fund Ltd	0		0
100	Argo Distressed Credit Fund Ltd	0		0
100	AGSSF Holdings Ltd	0		0
		0		0

Holding	Investment in ordinary shares	Total cost		Fair value
		US$'000		US$'000
66,435	The Argo Fund Ltd	14,343		15,579
10,899,021	Argo Real Estate Opportunities Fund Ltd	988		960
		15,331		16,539

12.        TRADE AND OTHER RECEIVABLES                                               

	At 31 December		At 31 December
	2012		2011
	US$ '000		US$ '000
Trade receivables	3,625		2,591
Other receivables	107		50
Prepayments and accrued income	552		673
	4,284		3,314

      The directors consider that the carrying amount of trade and other receivables approximates their fair value. All trade receivable balances are recoverable within one year from the balance sheet date.

During the year ended 31 December 2011 the Group provided Argo Real Estate Opportunities Fund Limited ("AREOF") (to whom it provides investment management services) with a notice of deferral in relation to the amounts due from the provision of investment management services, under which it will not demand payment of such amounts until the Group judges that AREOF is in a position to pay the outstanding liability. These amounts accrued or receivable at 31 December 2012 total US$2,597,188 (€1,965,333) (2011: US$2,480,165, €1,915,333) after a bad debt provision of US$991,125 (€750,000) (2011: Nil). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows. In the directors' view these amounts are fully recoverable although they have concluded that it would not be appropriate to continue to recognise income from these investment management services, going forward, as the timing of such receipts may be outside the control of the Company and AREOF.

In the audited financial statements of AREOF at 30 September 2011 and the interim report of AREOF at 31 March 2012, a material uncertainty surrounding the refinancing of bank debts was referred to in relation to the basis of preparation of the financial statements. In the view of the directors of AREOF, discussions with the banks are continuing satisfactorily and they have therefore concluded that it is appropriate to prepare those financial statements on a going concern basis.

13.     CASH AND CASH EQUIVALENTS

Included in cash and cash equivalents is a balance of US$82,000 (2011: US$100,000) which represents a bank guarantee in respect of credit cards issued to Argo Capital Management Property Limited. Due to the nature of this balance it is not freely available.

14.     LOANS AND ADVANCES RECEIVABLE

	At 31 December		At 31 December
	2012		2011
	US$'000		US$'000
Deposits on leased premises - current	-		240
Deposits on leased premises - non-current	118		38
Other loans and advances receivable - current	142		-
	260		278

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

	At 31 December		At 31 December
	2012		2011
	US$'000		US$'000
Current:
Lease expiring within one year	-		240

	At 31 December		At 31 December
	2012		2011
	US$'000		US$'000
Non-current:
Lease expiring in second year after balance sheet date	32		-
Lease expiring in third year after balance sheet date	-		38
Lease expiring in fifth year after balance sheet date	86		-
	118		38

15.     SHARE CAPITAL

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

	31 December	31 December	31 December	31 December
	2012	2012	2011	2011
	No.	US$'000	No.	US$'000
Issued and fully paid
Ordinary shares of US$0.01 each	67,428,494	674	67,428,494	674
	67,428,494	674	67,428,494	674

The directors recommend a final dividend of 2.1c (1.3p) per share for the year ended 31 December 2012.

The directors recommended a final dividend of 2.0 cents (1.3 pence) per share for the year ended 31 December 2011. The final dividend for the year ended 31 December 2011 of US$1,392,885 (GBP876,570) was paid on 20 June 2012 to ordinary shareholders who were on the Register of Members on 25 May 2012. Going forward, the Company intends, subject to its financial performance, to pay a final dividend each year.

During the year ended 31 December 2011 the directors authorised the repurchase of 6,235,000 shares at a total cost of US$1.4million. No shares were repurchased during the current period.

16.     TRADE AND OTHER PAYABLES

	At 31 December		At 31 December
	2012		2011
	US$ '000		US$ '000
Trade and other payables	103		68
Other creditors and accruals	364		845
	467		913

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

17.     OBLIGATIONS UNDER OPERATING LEASES

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

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

	At 31 December		At 31 December
	2012		2011
	US$ '000		US$ '000
Operating lease liabilities:
Within one year	163		420
In the second to fifth years inclusive	560		167
Present value of minimum lease payments	723		587

18.     RECONCILIATION OF NET CASH INFLOW FROM OPERATING ACTIVITIES TO                  

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

	Year ended		Year ended
	31 December		31 December
	2012		2011
	US$ '000		US$ '000
(Loss)/profit on ordinary activities before taxation	(14,199)		2,156
Interest income	(15)		(45)
Amortisation of intangible assets	990		683
Depreciation	73		35
Impairment of intangible assets (note 9)	14,945		-
Decrease in payables	(446)		(141)
Increase in receivables	(952)		(2,022)
Decrease in fair value of current asset investments	175		13
Net foreign exchange loss/(gain)	25		(28)
Income taxes paid	(167)		(297)
Net cash inflow from operating activities	429		354

19.     RELATED PARTY TRANSACTIONS

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

At the balance sheet date the Company holds investments in The Argo Fund Limited, Argo Real Estate Opportunities Fund Limited ("AREOF") and Argo Special Situations Fund LP. These investments are reflected in the accounts at a fair value of US$17,613,242, US$753,280 and US$111,740 respectively.

During the year ended 31 December 2011 the Group provided AREOF (to whom it provides investment management services) with a notice of deferral in relation to the amounts due from the provision of investment management services, under which it will not demand payment of such amounts until the Group judges that AREOF is in a position to pay the outstanding liability. These amounts accrued or receivable at 31 December 2012 total US$2,597,188 (€1,965,333) (2011: US$2,480,165, €1,915,333) after a bad debt provision of US$991,125 (€750,000) (2011: Nil). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows.

In the audited financial statements of AREOF at 30 September 2011 and the interim report of AREOF at 31 March 2012, a material uncertainty surrounding the refinancing of bank debts was referred to in relation to the basis of preparation of the financial statements. In the view of the directors of AREOF, discussions with the banks are continuing satisfactorily and they have therefore concluded that it is appropriate to prepare those financial statements on a going concern basis.

Michael Kloter, the non-executive chairman, is also partner in a legal firm which supplies services to the Group. This firm charged US$1,529 (2011: US$Nil) for services rendered to the Group in the period.

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

20.        FINANCIAL INSTRUMENTS RISK MANAGEMENT

(a)     Use of financial instruments

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

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

(b)     Market risk

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

 (c)    Capital risk management

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

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

(d)     Credit/counterparty risk

         The Group will be exposed to counterparty risk on parties with whom it trades and will bear the risk of settlement default. Credit risk is concentrated in the funds under management as detailed in note 11.  Trade receivables are normally settled on 30-day terms (note 12).

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

 (e)    Liquidity risk

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

                   The main liquidity risks of the Group are associated with the need to satisfy payments to creditors. Trade receivables and trade payables are normally on 30-day terms (notes 12 and 16).

(f)      Foreign exchange risk

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

         The Group is subject to short-term foreign exchange movements between the calculation date of fees in currencies other than US dollars and the date of settlement.  The Group holds cash balances in US Dollars, Sterling, Romanian Lei and Euros.                                                                                                                                                                                                     

                   If there was a 5% increase or decrease in the exchange rate between the US dollar and the other operating currencies used by the Group at 31 December 2012 the exposure would be a profit or loss to the Consolidated Statement of Comprehensive Income of approximately US$50,000 (2011: US$148,000).

(g)     Interest rate risk

The interest rate profile of the Group at 31 December 2012 is as follows:

	Total as per balance sheet	Variable interest rate instruments*	Fixed  interest rate instruments	Instruments on which no interest is receivable
	US$ '000	US$ '000	US$ '000	US$ '000
Financial Assets
Financial assets at fair value    through profit or loss	18,478	-	-	18,478
Loans and receivables	4,544	-	-	4,544
Cash and cash equivalents	5,139	891	3,089	1,159
	28,161	891	3,089	24,181
Financial liabilities
Trade and other payables	467	-	-	467

* Changes in the interest rate may cause movements.

The average interest rate at the year end was 0.10%. Any movement in interest rates would have an immaterial effect on the profit/loss for the period.

The interest rate profile of the Group at 31 December 2011 is as follows:

	Total as per balance sheet	Variable interest rate instruments*	Fixed  interest rate instruments	Instruments on which no interest is receivable
	US$ '000	US$ '000	US$ '000	US$ '000
Financial Assets
Financial assets at fair value    through profit or loss	16,539	-	-	16,539
Loans and receivables	3,592	-	-	3,592
Cash and cash equivalents	8,358	35	5,747	2,576
	28,489	35	5,747	22,707
Financial liabilities
Trade and other payables	913	-	-	913

* Changes in the interest rate may cause movements.

The average interest rate at the year end was 0.24%. Any movement in interest rates would have an immaterial effect on the profit/loss for the period.

(h)    Fair value           

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

		At 31 December		At 31 December
		2012		2011
		US$ '000		US$ '000
Financial Assets
Financial assets at fair value through profit or loss		18,478		16,539
Loans and receivables		4,544		3,592
Cash and cash equivalents		5,139		8,358
		28,161		28,489
Financial Liabilities
Trade and other payables		467		913

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

Fair value hierarchy

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

                                                               At 31 December 2012

	Level 1	Level 2	Level 3	Total
	US$ '000	US$ '000	US$ '000	US$ '000
Financial assets at fair value through profit or loss	-	18,478	-	18,478

                                                               At 31 December 2011

	Level 1	Level 2	Level 3	Total
	US$ '000	US$ '000	US$ '000	US$ '000
Financial assets at fair value through profit or loss	960	15,579	-	16,539

21.     SHARE-BASED INCENTIVE PLANS

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

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

The principal assumptions for valuing the options were:

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

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

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

	Weighted average exercise price	No. of share options
Outstanding at beginning of period	24.0p	5,465,000
Granted during the period	-	-
Forfeited during the period	24.0p	(50,000)
Outstanding at end of period	24.0p	5,415,000
Exercisable at end of period	24.0p	1,353,750

The options outstanding at 31 December 2012 have an exercise price of 24p and a weighted average contractual life of 10 years, with the second tranche of shares being exercisable on or after 1 May 2013. Outstanding share options are contingent upon the option holder remaining an employee of the Group. They expire after 10 years.

No share options were issued during the period.

22.     EVENTS AFTER THE BALANCE SHEET DATE

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

 

END

 

 

FR UUANROSAOARR