Argo Group Limited

("Argo" or the "Company")

Interim Results for the six months ended 30 June 2022

Argo today announces its interim results for the six months ended 30 June 2022.

The Company will today make available its interim report for the six months period ended 30 June 2022 on the Company's website www.argogrouplimited.com.

Key highlights for the six months period ended 30 June 2022

This report sets out the results of Argo Group Limited (the "Company") and its subsidiaries (collectively "the Group" or "Argo") covering the six months ended 30 June 2022.

-     Revenues US$1.3 million (six months to 30 June 2021: US$1.7 million)

-     Operating loss US$1.5 million (six months to 30 June 2021: US$0.7 million)

-     Loss before tax US$3.5 million (six months to 30 June 2021: loss before tax US$0.2 million)

-     Net assets US$19.4 million (31 December 2021: US$23.1 million)

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

"The first six months of 2022 have been devastating for Emerging market Bonds as global interest rates have been rising and outflows accelerated especially for EM bonds. Coupled with an illiquid and dysfunctional market we saw many bonds marked down several points for no good reason.  Argo through a combination of short hedges mitigated such losses but still lost around 14.5% in The Argo Fund compared to a loss of 26% for the EMBI+ index.  The situation in Ukraine is of some concern with the shopping mall in Odessa suffering some collateral damage and repairs are underway so that some of the shops affected open again.  With inflationary pressures projected to soften going forward and interest rates curve inverting we believe the second half will improve."

Enquiries

Argo Group Limited

Andreas Rialas

020 7016 7660

Panmure Gordon

Dominic Morley

020 7886 2500

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018.

CHAIRMAN'S STATEMENT

Key highlights for the six months ended 30 June 2022

-     Revenues US$1.3 million (six months to 30 June 2021: US$1.7 million)

-     Operating loss US$1.5 million (six months to 30 June 2021: US$0.7 million)

-     Loss before tax US$3.5 million (six months to 30 June 2021: loss before tax US$0.2 million)

-     Net assets US$19.4 million (31 December 2021: US$23.1 million)

The Group and its objective

Argo's investment objective is to provide investors with absolute returns in the funds that it manages by investing in multi strategy investments in emerging markets.

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

Business and operational review

For the six months ended 30 June 2022 the Group generated revenues of US$1.3 million (six months to 30 June 2021: US$1.7 million) with management fees accounting for US$1.1 million (six months to 30 June 2021: US$1.2 million).

Total operating costs for the period, ignoring bad debt provisions, are US$2.5 million compared to US$2.0 million for the six months to 30 June 2021. The Group has provided against management fees of US$0.3 million due from the Designated share class in The Argo Fund ("TAF") (six months to 30 June 2021: US$0.4 million). In the Directors' view these amounts are fully recoverable however they have concluded that it would only be appropriate to recognise income without provision from these investment management services once a liquidity event occurs in this share class.

Overall, the financial statements show an operating loss for the period of US$1.5 million (six months to 30 June 2021: US$0.7 million) and a loss before tax of US$3.5 million (six months to 30 June 2021: loss before tax of US$0.2 million).  Net loss on investments of US$2.5 million (six months to 30 June 2021: net loss on investments US$0.04 million) and interest income of US$0.5 million (six months to 30 June 2021: US$0.5 million).

At the period end, the Group had net assets of US$19.4 million (31 December 2021: US$23.1 million) and net current assets of US$6.7 million (31 December 2021: US$9.1 million) including cash reserves of US$1.2 million (31 December 2021: US$1.7 million).

Net assets include investments in The Argo Fund ("TAF") at fair values of US$5.2 million (31 December 2021: US$6.1 million).

At the period end TAF owed the Group total fees of US$1.7 million (31 December 2021: US$2.6 million). At 30 June 2022, a provision for US$1.6 million was made against this amount as the timing of the receipt of the fees from the designated share class in TAF is unknown.

TAF ended the period with Assets under Management ("AUM") at US$107.5 million (31 December 2021: US$122.6 million). The current level of AUM remains below that required to ensure sustainable profits on a recurring management fee basis in the absence of performance fees. This has necessitated an ongoing review of the Group's cost basis. Nevertheless, the Group has ensured that the operational framework remains intact and that it retains the capacity to manage additional fund inflows as and when they arise.

The average number of permanent employees of the Group for the six months to 30 June 2022 was 20 (30 June 2021: 19).

Fund performance

The Argo Funds

In contrast to last year when the focus was on the anticipated recovery from the Covid pandemic, the first half of 2022 witnessed an accelerated deterioration in global economic conditions as inflation concerns prompted a tightening of monetary policy. To exacerbate matters further, the Ukraine-Russia conflict threatened international stability and triggered supply chain issues, trade frictions, and increased commodity prices, notably of energy and wheat.

The annual rate of inflation in both the US and Europe was recorded in excess of 9 per cent in June with food and fuel having a sizeable impact. In attempting to address the highest price rises for decades, the US Federal Reserve increased interest rates three times in the first half of 2022, the last hike by a rarely seen 75bps. US Treasury yields continued on their upward path for most of the period although the ten-year bond dipped to 3 per cent at the end of the period -and subsequently below that-as recessionary fears encouraged the belief that central banks would tighten less aggressively in future. Europe has been slower to increase rates, reflecting the divergence of growth projections especially in the Eurozone and also the specific pressures arising from the interruption of gas flow from Russia and the desire to reduce the bloc's reliance on that country for energy supplies. Nevertheless, yields on ten-year Bunds turned positive for the first time since early 2019 and ended June at 1.3 per cent.

Gas and oil prices remain elevated but below the spikes seen periodically since Russia initiated its invasion of Ukraine. From a low of US$86, Brent oil traded up at nearly US$128 before dropping back to US$100. Gas prices have fluctuated with uncertainty over reliability of supply through the pipelines from the East, but demand has been much reduced because of the warmer weather. Interestingly, copper prices have declined roughly 30 per cent from their most recent highs in 2022 and historically bear markets in copper are regarded as a predictor of recessions.

Unsurprisingly, the first six months of 2022 have proven unsatisfactory for investors, with significant drawdowns in equity and bond markets. Both the Euro Stoxx 50 and the S&P 500 lost around 20 per cent of their value and for the latter, it was its worst start since 1970. Rising yields on developed market bonds, a stronger dollar- the DXY index rose 9.4 per cent in the period- and worsening terms of trade all combined to have a detrimental impact on emerging markets and sentiment towards them, and the JP Morgan EMBI+ index fell by 26.7 percent in the six months to end-June.

The NAV of the Class A shares of the TAF decreased by 14.25% in the first half of 2022, compared to a rise of 4.28% in the same period of the previous year. The fund was adversely affected by the conflict in Ukraine and the failure of Argentina to capitalise on its renegotiated IMF programme but, more generally, the "risk-off" environment hit several long sovereign and corporate positions. Class A shares issued by TAF continue to be invested in a diversified debt and macro positions which seek to capture alpha through long and short investment in liquid EM corporate and sovereign bonds and FX. In addition, there are other share classes within the TAF master/feeder structure which offer investors exposure to distressed debt portfolio (Class X2 launched last year) and also special situations where the timeline to investment realisation will be longer

Following the sell-off in the first half, many EM assets now offer better value than has been the case for some time and the fund hopes that more stable macro circumstances will help it to recoup losses during the second half.

Loan to Argo Real Estate Limited Partnership

On 9th May 2022, Riviera Shopping Centre was partially damaged by a Russian combat missile. The Shopping Centre is currently closed until the necessary repairs are completed. Based on the preliminary assessments, experts expect the centre to reopen in February 2023 after completion of Phase 1 works which will enable the Centre to generate up to 95% of its full revenue capacity. Consequently, there will be a delay in the repayment of the loan receivable from Argo Real Estate Limited Partnership, while the Company continues to accrue interest at 9% per annum. As the loan receivable from Argo Real Estate Limited Partnership is exposed to the performance of this investment property held in Ukraine, the Group has made an IFRS 9 valuation adjustment for US$0.5 million for expected losses at the reporting date (note 10).

Dividends and share purchase programme

The Group did not pay a dividend during the current or prior period. The Directors intend to restart dividend payments as soon as the Group's performance provides a consistent track record of profitability.

Outlook

The Board remains optimistic about the Group's prospects based on the transactions in the pipeline and the Group's initiatives to increase AUM. A significant increase in AUM is still required to ensure sustainable profits on a recurring management fee basis and the Group is well placed with capacity to absorb such an increase in AUM with negligible impact on operational costs.

Boosting AUM will be Argo's top priority in the next six months. The Group's marketing efforts continue to focus on TAF which has a 21-year track record as well as identifying acquisitions that are earnings enhancing.

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

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2022

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2022

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2022

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2022

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2022

1.       CORPORATE INFORMATION

         The Company is domiciled in the Isle of Man under the Companies Act 2006.  Its registered office is at 33-37 Athol Street, Douglas, Isle of Man, IM1 1LB. The condensed consolidated interim financial statements of the Group as at and for the six months ended 30 June 2022 comprise the Company and its subsidiaries (together referred to as the "Group").

         The consolidated financial statements of the Group as at and for the year ended 31 December 2021 are available upon request from the Company's registered office or at www.argogrouplimited.com.

         The principal activity of the Company is that of a holding company and the principal activity of the wider Group is that of an investment management business. The functional currency of the Group undertakings are US dollars, Sterling and Romanian Lei. The presentational currency is US dollars.

         Wholly owned subsidiaries                                                              Country of incorporation

2.       ACCOUNTING POLICIES

(a)     Basis of preparation

         These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2021.

         The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2021.

         These condensed consolidated interim financial statements were approved by the Board of Directors on 11 August 2022.   

b)      Financial instruments and fair value hierarchy

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

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

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

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

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

3.      SEGMENTAL ANALYSIS

The Group operates as a single asset management business.

The operating results of the companies 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:

4.   SHARE-BASED INCENTIVE PLANS

To incentivise personnel and to align their interests with those of the shareholders of Argo Group Limited, Argo Group Limited has granted share options to directors and employees under The Argo Group Limited Employee Stock Option Plan. The options are exercisable within 10 years of the grant date.

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

The principal assumptions for valuing the options are:

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 (2021: £nil).

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

Outstanding share options are contingent upon the option holder remaining an employee of the Group.

The weighted average fair value of the options issued during the period was £Nil (2021: £Nil).

No share options were issued during the period.

5.      TAXATION

         Taxation rates applicable to the parent company and the UK and Romanian subsidiaries range from 0% to 19% (2021: 0% to 19%).

The charge for the period can be reconciled to the profit shown on the Condensed Consolidated Statement of profit or loss as follows:

6.      EARNINGS PER SHARE

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

7.      LAND, FIXTURES, FITTINGS AND EQUIPMENT

8.       FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

*Classified as current in the consolidated statement of Financial Position

Note that some of the Argo Funds listed above may have investments in each other.

9.   TRADE AND OTHER RECEIVABLES

The Directors consider that the carrying amount of trade and other receivables approximates their fair value. All trade receivable balances are recoverable within one year from the reporting date except as disclosed below.

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

10. LOANS AND ADVANCES RECEIVABLE

The deposits on leased premises relate to the Group's offices in London and Romania.

Other loans and advances receivable relates to a loan for $12.1 million (€10.2 million) principal made by Argo Group Limited to Argo Real Estate Limited Partnership in February 2020, an entity that is 100% owned by Andreas Rialas. Riviera Shopping Centre was partially damaged by a Russian combat missile. The Shopping Centre is currently closed until the necessary repairs are completed. Based on the preliminary assessments, experts expect the centre to reopen in February 2023 after completion of Phase 1 works which will enable the Centre to generate up to 95% of its full revenue capacity. Consequently, there will be a delay in the repayment of the loan receivable from Argo Real Estate Limited Partnership, while the Company continues to accrue interest at 9% per annum.  As this loan is exposed to the performance of an investment property held in Ukraine, the Group has made an IFRS 9 valuation adjustment for US$0.5 million for expected losses at the reporting date.

The Group also has a balance receivable for $11.7 million (€11.2 million) from Argo Real Estate Limited Partnership that was assigned from Argo Real Estate Opportunities Fund Limited during 2021. The carrying value of this balance is $nil.

11.     SHARE CAPITAL

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

The Directors did not recommend the payment of a final dividend for the year ended 31 December 2021 and do not recommend an interim dividend in respect of the current period.

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

13.     FAIR VALUE HIERARCY

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

                                                               At 30 June 2022

                                                               At 31 December 2021

14.   RELATED PARTY TRANSACTIONS

Most Group revenues derive from The Argo Fund in which two of the Company's directors, Kyriakos Rialas and Kenneth Watterson, have influence through directorships and the provision of investment management services.

At the reporting date the Company holds investments in The Argo Fund Limited. These investments are reflected in the accounts at fair value of US$5.2 million (31 December 2021: $6.1 million).

          At the period end, the Group was owed $13 million (note 10) by ARE LP, an entity that is 100% owned by Andreas Rialas. The adjusted IFRS 9 valuation of the loan after providing for expected losses was US$12.5 million. This balance relates to a loan made to ARE LP in February 2020 that was lent onwards for the refinancing of Riviera Shopping City in Odessa, Ukraine. The Group has a fixed charge security on the back to back loan in ARE LP. The loan carries an interest rate of 9% per annum.

The Group is also owed US$11.7 million (€11.2 million) (31 December 2021: US$12.8 million (€11.2 million)) by ARE LP, which were previously owed by the now liquidated Argo Real Estate Opportunities Fund Limited. These balances are carried at US$ nil (31 December 2020: US$ nil) in the financial statements.

15.  TRADE AND OTHER PAYABLES

      Trade creditors are normally settled on 30-day terms.