TIDMAGFX
RNS Number : 8899V
Argentex Group PLC
12 April 2023
12 April 2023
Argentex Group PLC
("Argentex" or the "Group")
Full results for the 9 month period ended 31st December 2022
Growth strategy continuing to deliver strong results, with
adjusted operating profit(3) marginally ahead of market
expectations
Argentex Group PLC (AIM: AGFX), the service led, tech enabled
provider of currency management and payment services to
international institutions and corporates, today issues its results
for the 9 month period ended 31st December 2022(1)
Financial Highlights for the 9 month period ending 31 December
2022
-- Group revenue increased by 63% to GBP41.0m compared to the
same period last year(2) (FY22: GBP34.5m)
-- Operating profit of GBP8.1m (FY22: GBP10.4m)
-- Adjusted operating profit(3) of GBP9.0m (FY22: GBP11.0m)
-- Debt free and cash generative with net cash increasing by
GBP6m in the reporting period to GBP26.2m(4)
-- Earnings per share (EPS) of 6.2p basic and 6.8p adjusted
(FY22: 6.6p basic and 7.0p adjusted)
-- Final dividend of 2.25p per share (FY22: 2.0p per share)
As previously announced, the Group is transitioning from a 31
March year end to a 31 December year end. To assist investors,
relevant additional pro forma information is also provided for the
12 months to 31 December 2022.
Financial Highlights for the 12 month period ending 31 December
2022
-- Group revenues increased by 54% to GBP50.4m compared to the
same period last year(5) (FY22: GBP34.5m)
-- Adjusted operating profit(3) marginally ahead of already
increased expectations at GBP12.3m (FY22: GBP11.0m)
-- Adjusted operating profit margins marginally ahead of already
increased expectations at 24.4% (FY22: 31.9%)
-- Netherlands revenue increased to GBP2.0m (FY22: GBP0.7m)
(1) In line with the change in year end, all references are made
to the 9 month statutory reporting period and where relevant
additional information is provided for the 12 months to 31 December
2022
(2) Revenues generated in the 9 month period ended 31 December
2021 were GBP25m
(3) Adjusted operating profit excludes one off costs in relation
to the set up of overseas offices and any restructuring costs
incurred in the period, in line with accounting policy
(4) Net cash represents cash and cash equivalents plus
collateral held at counterparties less amounts payable to
clients
(5) Revenues generated in the 12 months to 31 December 2021 were
GBP32.8m
Operational Highlights
-- Focused growth and investment strategy delivering a greater share of client wallet
-- 1,595 corporate clients traded over the 9 month period
-- 1,749 corporate clients traded over the 12 month period being
12% increase on 1,562 year-on-year (1,624 in FY22)
-- Average revenue per corporate client increased by 45% on FY22 over the 12 month period
-- 10% of Group revenue from Structured Solutions over the 9 month period (FY22: 3%)
-- Online revenue increased by 89% over the 9 month period to GBP1.2m
Strong progress made with the Group's focused three pillar
growth strategy:
Technology & product
-- Phase one of the technology strategy saw the Group's online
platform successfully rolled out during the period
-- Online platform adoption and repeat utilisation growing ahead of management expectations
-- Alternative Transaction Banking division launched post period
end, allowing customers to take advantage of a compelling
alternative to current accounts offered by traditional banks
-- New Institutional division established post year end to
specialise in the financial services sector
International Expansion
-- Netherlands subsidiary awarded Electronic Money Institution
("EMI") licence, providing a significant platform to grow Argentex
across Europe
-- Awarded draft Australian Financial Services License (ASFL)
post year end, providing continued momentum behind Argentex'
Australasian ambitions
-- Australian team established
People
-- Continued to attract leading talent, totalling 137 global
employees at period end, with 25 newly created roles filled in the
period, 21 in the UK and 4 overseas
-- Hires across the Group to support investment in future
business growth, with 33% of new roles created in the UK being
technology development related
-- Continued investment planned to support technology
development, international growth and further market share
gains
Outlook
The strong momentum over the 9 month period to 31 December 2022
has continued into 2023. Q1 (to March) 2023 revenue increased by
34% to GBP12.7m compared to the same three month period to 31 March
2022, with every division of the Group delivering in line with or
ahead of management expectations.
Addressing the increasing requirements of our clients remains at
the forefront of our growth strategy. We have progressed into phase
two of our technology led product pipeline with the launch of our
Alternative Transaction Banking division in March 2023. This
important and differentiating development of both products and
solutions will enable the Group to service a broader client base,
as well as further increase our share of wallet of the existing
customer base by providing a compelling alternative to current
accounts offered by traditional banks across the UK, Europe, and
Australia.
Our European operations, headquartered in Amsterdam, continue to
make progress and deliver ahead of expectations, while the
Australasian focused office is established and ready to begin
trading once regulatory permissions are granted.
As we evolve our product suite, it is important that we continue
to provide our clients with a best-in-class service supported by
experienced specialists, not generalists. Our financial services
client base has grown steadily, now contributing 30% to Group
revenue. It is for this reason that we have established a new
dedicated Institutional division led by Kit Smith who has been
integral to the Group's success in this market segment over his
10-year tenure.
To further accelerate our global growth strategy, we will
continue to invest in people, doubling the footprint of our UK,
European and Australian headquarters during H1 2023 as planned. As
the Group adds more products across more geographies, Lee McDarby
joins Argentex as Chief Commercial Officer with over 20 years'
experience in global banking and international payments.
Despite the uncertain global macro-economic backdrop, we look to
the year ahead with optimism as we remain focused on delivering our
growth strategy and will continue to generate a strong return on
investment while increasing profitability and quality of
earnings.
Harry Adams, Chief Executive Officer, said:
"I am pleased to report another record set of results for
Argentex, further evidencing the significant progress we are making
in the implementation of our long-term growth strategy. Our
business is experiencing excellent momentum, demonstrated by 63%
revenue growth over the 9 month period and 34% revenue growth in
the first quarter of 2023."
"The impact of our investment in technology and products is
especially encouraging. We have more than doubled the amount of
people working in technology and have increased the focus on
additional products that are now contributing circa 13% of revenues
and increased the average revenue per corporate client by 45%. Our
newly launched Alternative Transaction Banking product set and
focused divisions will drive additional revenue streams and client
engagement that will allow us to continue to deliver further wallet
share and open new revenue opportunities."
"We are wholly focused on ensuring these initiatives deliver
both short-term earnings potential and sustainable, long-term
growth for all our stakeholders."
Lord Digby Jones, Non-Executive Chairman, said:
"Argentex has put the building blocks in place to unlock its
significant potential and create a market leading client
proposition. Emphasis has always been on investing for sustainable
growth although it is highly encouraging to see immediate and
tangible results cement its viability and potential for future
performance."
"The Group has made an excellent start to the new financial year
extending the strategic and operational momentum which generated
the record financial performance during the period. The new
technology and product roll out is heralding an exciting new
chapter for the Group. The expanded geographical footprint and
strong ongoing sector fundamentals further support Argentex's
engine for growth. We remain confident that the Group's ambitious
strategy will continue to deliver for clients, employees and
shareholders."
For further information please contact:
Argentex Group PLC
Harry Adams - CEO
Jo Stent - CFO
investorrelations@argentex.com
FTI Consulting LLP (Financial PR)
Ed Berry / Ambrose Fullalove / Jenny Boyd
07703 330 199
argentex@fticonsulting.com
Singer Capital Markets (Nominated Adviser and Broker)
Tom Salvesen / James Maxwell / Justin McKeegan
020 7496 3000
Analyst briefing
A meeting for analysts will be held virtually at 9.30am today,
12th April 2023. Analysts wishing to attend this event can register
via email to argentex@fticonsulting.com . Argentex's Full Year
results announcement will also be available today on the Group's
website at www.argentex.com .
Retail investor presentation
Management will additionally host a presentation for retail
investors via the Investor Meet Company platform at 16:30 on
results day. The presentation is open to all existing and potential
shareholders. Questions can be submitted via the Investor Meet
Company dashboard up until 09:00 on the day before the meeting, or
at any time during the live presentation.
Investors who already follow Argentex Group PLC on the Investor
Meet Company platform will automatically be invited. Those wishing
to sign up for free, and meet Argentex, can do so via
https://www.investormeetcompany.com/argentex-group-plc/register-investor
.
Chairman's statement
Global businesses have faced significant challenges over the
last two years, navigating the unprecedented global lockdowns
followed shortly by the tragic outbreak of the war in Ukraine and a
downturn in the UK macro-economic outlook. Inevitably this has led
to many adjusting their course to navigate this uncertainty.
Hindsight shows us that the companies successfully performing in
and emerging from these conditions are those that prioritised the
pursuit of stable, measured growth through the uncertain times,
while maintaining an unrelenting focus on the building blocks
needed to capitalise on new sector trends.
It is this that defines the strength of Argentex's financial
performance through the period - a considered repositioning of the
business's strategy which is already delivering, refocusing on
investment in people, technology and international expansion in
order to pursue new opportunities emerging across the foreign
exchange sector. Under the expert leadership of Harry Adams, the
evolution of Argentex and its path forward are clear, with a
sustainable and diversified platform that is better positioned than
ever to meet increasing client needs and delivering for all
stakeholders.
I am proud to serve as Chairman of a business that continues to
demonstrate its agility and innovation making the most of changing
market conditions. My thanks go to Harry and the full Argentex team
for their hard work and commitment this year. The ongoing success
of the business is testament to their expertise and collective
mindset geared towards sustainable growth. It is an honour to work
alongside them.
I must also extend my thanks to Lena Wilson for her invaluable
contributions to the business's growth in the last few years as a
Board Director. Her expertise has come at a vital time for a newly
listed business and she leaves with our deep gratitude and best
wishes for her future endeavours.
Fundamentally, Argentex has remained a trusted partner to a
client base that has, in recent years, had to grapple with a series
of volatile macroeconomic conditions, including the latest period
of high inflation, rising rates and a consequential cost of-living
crisis. While such pressures will undoubtedly continue to weigh on
business and market sentiment over the short to medium term,
Argentex's ability to continue to grow its corporate client base
and relative market share, while supporting clients and navigating
the market-wide headwinds speaks of the resilience and
professionalism in the business.
Argentex is committed to continue outperforming expectations for
its clients and shareholders alike by providing a viable and
flexible alternative to traditional banks, growing internationally,
and developing technology enabled products - there is much to be
excited about on the horizon.
KEY ACHIEVEMENTS
Against this backdrop, the Board is very pleased to have
delivered results that were marginally ahead of market expectations
during the year, with record revenue growth and a substantial
increase in profitability over the period. These strong results
have been achieved alongside the management of an ambitious
investment programme and ensuring the continued progressive
dividend policy is maintained.
This recent strong performance has not come overnight, nor is it
a symptom of external market drivers alone. Through a refined
strategy, the last 18 months have been about putting the building
blocks in place to unlock the significant growth potential
identified and to create a market leading client proposition. While
the ambition is long-term, the immediate and tangible results of
the corporate strategy cement its viability and potential for
future performance.
Argentex continues to build out its core offering to capitalise
on the evolving needs and interests of its growing and increasingly
global client base. Through the high-quality talent it increasingly
attracts, the strengthening expertise within the Group alongside an
exciting product development pipeline demonstrates a commitment to
being a sophisticated partner to clients.
The business has welcomed market leading talent at all levels
during 2022. On behalf of the Board, I'd like to extend my
congratulations to David Christie for all he has accomplished in
the first full year of his role as Chief Operating Officer. Hires
over the period have professionalised further back-office
functions, strengthened marketing, compliance and risk management
divisions, while adding efficiencies and critical resources to the
sales team. Their collective contributions are fundamental to
Argentex's delivery of a high quality, sustainable and responsible
client service.
What is vital in any growing business is the preservation of
good corporate culture and a sense of belonging and contribution
among its employees. I am proud of the way the business is focused
on fostering a culture defined by inclusivity, innovation and
collegiality, enhancing the way it delivers value for clients,
attracts new business and grows its market share. It is also
central to its ability to attract and retain talent.
The increasingly dynamic sector in which Argentex operates, and
the evolving needs of clients around the world, mean there is no
limit to the role technology can play in enhancing its offering to
existing and new customers. The Board looks forward to announcing
further developments to the business's technological capabilities
as a result of the recent focused investment that has been
made.
Argentex's internationalisation strategy designed to replicate
its proven and growing UK model in highly regulated geographies
where there is demonstrable latent demand for its products and
services continues to gain momentum. The Board is pleased that the
Group has further strengthened its presence and local market
offerings in the Netherlands and Australia. We continue to assess
new territories that can support our ambitious growth plans and
remain confident in the role these regional offices will play as a
springboard to further expansion in new, highly regulated, markets
over time.
OUTLOOK
2022 has been a defining year for Argentex operationally,
strategically and financially. Our investment as part of the
three-pillared strategy is delivering robust results and we are
winning further market share and client wallet as a result of our
client centric approach and growing breadth of services. I am
excited about the business's continued ability to capitalise on the
significant opportunities that present themselves in the global FX
and payments sectors.
Argentex is well positioned to continue to enhance its client
service, product suite and footprint in line with the increasing
trading and digital demands of its clients and further increase
market share. I look ahead to the remainder of the year (and
beyond) confident in the Company's sustainable diversification
strategy and long term prospects.
Lord Digby Jones Kb.
Non-Executive Chairman
CEO statement
OVERVIEW
The 9 month period to 31 December 2022 represented a pivotal
period for the Group where Argentex has focused on driving
sustainable and diversified growth across its 3 strategic pillars:
People, Technology and International expansion. The evolving suite
of technology enabled products and high service levels has
attracted a growing number of institutional and corporate clients
who seek a trusted and well capitalised counterparty to provide
solutions for their global foreign exchange and treasury
requirements. The positive momentum from our last financial year
continued into the 9 month reporting period and has resulted in
Group revenues of GBP41m (FY22 GBP34.5m) and an adjusted operating
profit (1) of GBP9.0m (FY22 GBP11.0m). On a 12 month basis from 01
January 2022 to 31 December 2022, Group revenues of GBP50.4m and
adjusted operating profit(1) of GBP12.3m. These strong results,
which are marginally ahead of already increased expectations
highlight the positive impact this investment in our growth
strategy has had on our performance. It also reinforces the
significant long-term market opportunities both geographically and
through new diversified products and solutions, as we continue to
progress taking a greater share of client wallet through this
organic growth strategy.
I am delighted by the quality of talent that Argentex has
recruited this year. I believe this has contributed to the
Company's recent growth and reinforces our strong position as a
leading provider in the global B2B payments market over the longer
term. We have invested in people at every level of our business
across front office, operational and technological roles, as well
as strengthening the Senior Leadership team. In November 2022 we
announced our LTIP and I am pleased to welcome 42 members of staff
as partners and owners of the Group in order to incentivise and
encourage retention of senior employees in a manner that aligns
with the interests of the Group's shareholders. I'd like to thank
the team for their continued hard work and commitment to the Group
and look forward to maintaining this positive momentum as we enter
the next phase of Argentex's growth.
MARKET BACKDROP
The reported period has once again been dominated by domestic
and global uncertainty. The UK's mini budget plunged the pound to
its the lowest level against the dollar since decimalisation in
1971, while interest rates across the world have increased to
levels not seen since the global financial crisis in 2008.
The Group has supported clients through these unprecedented
events and the ongoing impacts of the Russia's invasion of Ukraine,
which has had a significant impact on trade, currency, and by
extension many businesses' profitability. Every day we speak to
clients and prospects who are in desperate need of guidance, which
they are not receiving from large banks and other payment
institutions.
While these events created volatility in FX markets our
de-risked model and disciplined approach allowed us to create
revenue opportunities, alongside underlying growth in our client
base and share of client wallet that resulted in outperformance on
an adjusted profit basis for the 12 month period.
FINANCIAL PERFORMANCE
The Group has capitalised on the increasing demand from
institutions and corporates for a credible, service led, technology
enabled provider, to manage their foreign exchange exposure and
payments. Our "right tech, right touch" approach has led to Group
revenues increasing to GBP41.0m (FY22: GBP34.5m). In addition,
1,595 corporate clients traded with Argentex for the period (1749
for the 12 month period ending 31 December, FY22:1,624). Argentex
remains focused on maintaining a high quality and diversified
client-base with the Group's top 20 clients accounting for 39% of
total Group revenues. When considering the improved higher-margin
product mix, such as an increase in Structured Solutions as a
proportion of total Group revenue to 10%, in aggregate with the
increased client wins and client trades through the 12 month
period, it represented a clear increase in our share of client
wallet, with an average revenue per corporate client traded
increasing by 45% in the twelve month period compared to FY22.
The Group has maintained a disciplined approach to managing
costs through the period resulting in an operating profit of
GBP8.1m (GBP11.3m for the 12 month period ending 31st December
2022, FY22: GBP10.4m). Operating margins are marginally ahead of
market expectations, with adjusted operating margins(1) of
24.4%.
As a result of this strong performance through the period and
positive outlook for the Group's prospects, the Board is pleased to
announce a 12.5% increase in the total dividend to 2.25p per
share.
The strength of Argentex's performance over the period is
ultimately down to the trust our clients place in us to generate
the best quality outcomes for the spectrum of their foreign
exchange and payment needs. We remain a key partner for their
trading requirements in our core foreign exchange proposition and
have seen an increase in revenue generated from existing clients
seeking different products and solutions. This was particularly
evident during the latter months of 2022, as market dynamics
created one of the most volatile periods for sterling on record,
therefore, companies relied on Argentex to guide them through this
black swan event, seeking hedging strategies, payments, treasury
and risk management solutions.
Historically, our revenue mix has been a 50:50 split from spot
and forward trades, however since the inception of our Structured
Solutions division in FY22, which generates higher margins than
spot or future contracts, 10% of revenue was generated through this
new division in the reporting period. Not only has the product mix
diversified, we have seen a 65% increase in clients trading online
for the period, like for like, using our new platform.
GROWTH STRATEGY
Our strategic investments across our three pillars: people,
technology and international expansion, have enabled us to increase
our share of client's wallet and provide a viable alternative to
the traditional banks who are seeing their historic 85% market
share come under pressure.
People:
We remain focused on investing in our people to drive forward
our organic strategy, creating an empowering and collaborative
environment for our growing team as well as fostering the next
generation of graduates and financial services professionals
through their early stage careers. Our success has been accelerated
by the senior hires we have made in the last year across the Group
to support our strategy.
The strategy to grow our office capacity continues with 25 new
hires over the period. At the period end date, global headcount was
137 and our bench has never been stronger. I am proud of the
entrepreneurial and supportive culture we have created, and to
which every Argentex employee contributes.
Technology:
The technology strategy was driven by the demand from
institutional and corporate clients to give them optionality and
flexibility whilst also creating efficiencies in our business. As
part of 'phase one' of our technology strategy we launched an
enhanced online platform during the period. Pleasingly, our results
clearly demonstrate the immediate positive contribution this first
phase of our technology development has had on both client
experience and Group earnings. Online revenue increased to GBP1.2m
(FY22 GBP0.6m) and the number of trades online grew by 41% to 4248
(FY22 3010). We now look to activate 'Phase 2' of our technology
plan, initially focused on the launch of our new Alternative
Banking Transaction division, in addition to remaining focused on
maintaining the momentum to meet evolving client demands, both in
the UK and overseas.
International Expansion:
Our presence in the Netherlands and Australia is indicative of
our strategy to transform Argentex from a single product,
single-office business into a multi-product, global business. The
Netherlands subsidiary, was awarded an Electronic Money Institution
("EMI") licence by the Dutch National Bank in September, providing
access to a substantial domestic market. In 3 years, the office has
grown to 16 professionals and delivers a meaningful contribution to
Group revenue. While the office prioritises domestic revenue
streams, this credible licence endorses Argentex's differentiated
and uncompromising approach to regulation and provides our business
with a springboard to other European countries, creating a scalable
model for future growth in the continent. I am pleased to announce
following the period end, we have been awarded a draft Australian
Financial Services License (AFSL) which launches the Australasian
offering. We look forward to reporting on progress of this exciting
market opportunity. We maintain a measured and client-led approach
to our international expansion, will consider seeking future
regulatory permissions where they are value additive to operations
and are actively monitoring for long-term growth opportunities in
new regions.
SUSTAINABILITY
Our growth strategy is supported by clear sustainability goals
under the three pillars of Planet, People and Partners. We are
committed to putting the right focus on sustainability,
encompassing environmental, social and governance (ESG) issues to
support our growth and yield greater business benefits by
transitioning towards a sustainable business model.
OUTLOOK
We are encouraged that our three pillar strategy is delivering
results and we will continue to focus on building this positive
momentum into 2023. These results are supportive of our strategy to
continue to invest in order to capitalise on the market opportunity
and drive accelerated growth in revenues and profitability over the
medium term. As such, we will double the footprint of our UK and
European headquarters during H1 2023, with a number of expected new
hires in the UK, Netherlands and Australia. Looking ahead, our
focus on attracting industry-leading talent remains unchanged,
whilst fostering our existing talent and bringing them up through
the ranks.
Our planned investment will also ensure our capabilities meet
the increasingly digitalised requirements of our stakeholders
through progressing into 'phase two' of our technology led product
launch pipeline. This year, we will launch our alternative
transaction banking division, initially giving institutions and
corporates their own unique multi-currency accounts. This is an
important and differentiating step for the Group as it capitalises
on its core business to propel itself into new markets and
territories.
The successful combination of people, technology and
international expansion are expected to generate a strong return
through growth in revenues, increased profitability and continued
earnings quality. I would like to thank our employees, business
partners and shareholders for their continued support and look
forward to sharing more updates with you in the coming period.
Harry Adams
Chief Executive Officer
(1) Adjusted operating profit excludes one off items relating to
the set up of overseas offices or any restructuring costs as per
accounting policy
Financial Review
As previously communicated, we made the decision to change our
year end to 31 December in line with the Group's transition to a
global financial solutions provider. Our report throughout is
reflective of the 9 month short accounting period to 31 December
2022 as we transition our new year end date. Where appropriate, and
to assist investors, we make additional pro forma reference to
performance for the 12 months to 31 December 2022 for information
purposes only.
In the 9 months to 31 December 2022, Argentex delivered record
revenue growth alongside continuing to pursue its ambitious
investment programme across all three facets of its strategy;
people, technology and international expansion. Whilst the period
included two weeks of heightened volatility in the pound, our
scalable, highly cash generative and increasingly diversified
business model continued to demonstrate its long-term resilience
and highlight the Group's ability to deliver for all stakeholders
against any economic backdrop. As a result of this strong
performance throughout the period and positive outlook for the
prospects of the Group, the Board is pleased to announce a dividend
of 2.25p per share for the 9 month period.
FINANCIAL PERFORMANCE
Argentex generated revenues of GBP41.0m in the 9 month period,
an increase of 63% compared to the same period in the prior year.
For the 12 months to 31 December 2022, Argentex delivered a year on
year increase of 54% with revenues of GBP50.4m (12 months to 31
December 2021: GBP32.8m). Record revenues generated in the period
were supported by an increase in corporate clients trading in
addition to incremental contributions from an enhanced product mix
such as Structured Solutions and revenues from our online
platform.
1,595 corporate clients traded with Argentex for the 9 month
short accounting period compared to 1,624 corporate clients having
traded for 12 months to 31 March 2022. Of this 1,595 corporate
clients traded, 409 were new in the period (FY22: 528). A total of
1,749 corporate clients traded over the 12 month period to 31
December 2022. Historically, our revenue mix has been a 50:50 split
from spot and forward trades, however since the inception of our
Structured Solutions division in FY22, 10% of revenue was generated
through this new division in the 9 month period. Not only has the
product mix diversified, we have seen an increase in clients using
our new online platform. 351 clients traded online with Argentex
for the 9 month short accounting period compared to 252 clients
trading for 12 months to 31 March 2022 resulting in a 89% increase
in online revenue. Combined, these factors resulted in a 45%
increase in average revenue per customer in the 12 month period to
31 December 2022 compared to FY22 which shows encouraging early
results from our investments in growth to date and is clear
demonstration of our increasing share of client wallet.
The Group has maintained a disciplined approach to managing
costs through the period resulting in an operating profit of
GBP8.1m (12 months to 31 December 2022 GBP11.3m, FY22: GBP10.4m).
Adjusting for one off expenditure relating to restructuring and the
set up of overseas offices, adjusted operating profit in the 9
month period was GBP9.0m, or 22% margin and in the 12 months to 31
December 2022 GBP12.3m, reflecting a 24% margin. However, margins
delivered in the 12 months to 31 December 2022 were marginally
ahead of already increased market expectations. The planned decline
in operating margins compared to FY22 reflects the previously
communicated ambitious investment programme across all three facets
of Argentex's growth strategy.
The Group's robust approach to risk remains unchanged, which is
demonstrably reflected in the consistently low instances of client
default. In the 9 month period ended 31 December, the Group
recorded a credit valuation adjustment of GBP1.1m in recognition of
the broader macroeconomic backdrop and trends in addition to the
Group's increase in size and scale.
People
In the 9 month period to 31st December 2022 the number of
employees (including Directors and LLP members) grew to 137 (FY22:
112). Front office/Back office split has shifted moderately versus
prior periods at 53%/47% (FY22: 62%/38%) and reflects the
investment in technology in support of the growth strategy and
further professionalisation in the support functions proportionate
to the maturation of the business as well as a continued balanced
approach to risk. A total of 25 people were hired into new roles
created in the period, 21 UK and 4 overseas.
Technology
Total investment in technology in the 9 month period was GBP1.4m
(FY22 GBP1.7m), with the impact on profit margins mitigated by the
fact that benefits of the technology spend will be realised in
future periods and as such investment spend is treated as capital
investment and amortised over a three year period in line with
accounting policy. In recognition of the ambitious nature of our
investment programme, the Group has invested in programme
management resources to enhance operational efficiency and manage
execution risk given the pace of growth across multiple facets.
Overseas Expansion
International expansion continued with focus on the Netherlands
and Australia including set up costs in the period of GBP0.5m.
Revenues generated in the Netherlands for the 9 month period
totalled GBP1.6m (FY22: GBP0.7m). The Netherlands will be the
central hub for European operations and licences granted in the
Netherlands will act as a gold standard for the region to create
further opportunities in the coming years.
FINANCIAL POSITION
Argentex views its ability to generate cash from its trading
portfolio is a key indicator of performance within an agreed risk
appetite framework. As at 31 December 2022, Argentex has net cash
of GBP26.2m, an increase of GBP6.0m on prior period. Total cash and
cash equivalents include client balances pertaining to collection
of any collateral and variation margin in addition to routine
operating cash balances. Further, cash and cash equivalents does
not include collateral placed with financial counterparties.
Collateral placed with financial counterparties of GBP10.0m (FY22:
GBP7.2m) recorded in other assets of the statement of financial
position.
Dec 22 Mar 22
Cash and Collateral GBPm GBPm
Cash at bank 29.0 37.9
Collateral held at
institutional counterparties
(other assets) 10.0 7.2
Less: amounts payable
to clients (12.8) (24.9)
------ ------
Net cash 26.2 20.2
Before movements in client balances held as shown in the
Consolidated Financial Statements note 19, the Group generated
GBP7.5m in cash from operating activities. A GBP12.1m decrease in
client balances held, when deducted from cash generated results in
a net cash outflow inclusive of client balance movements of GBP4.6m
(FY22 cash generated of GBP17.2m). Of the GBP7.5m in cash generated
from operating activities, GBP1.4m was used to invest in technology
and a further GBP1.5m was returned to shareholders in the form of a
dividend.
Cash generation from the Group's revenues is a function of i)
the composition of revenues (spot, forward and option and swap
revenues) and ii) the average duration of the FX forwards in the
portfolio. In the period, Argentex has generated revenues in a
ratio of approximately 45:55 between spot and forward contracts
outside of options and swap revenues. While spot FX contracts
attract a smaller revenue spread, the inherent risk profile is much
reduced and cash is generated almost immediately. As such, having
this proportion of revenues generated by spot trades with a minimal
working capital cycle creates a strong positive immediate cash flow
for the business compared to its operating cost base.
Argentex continues to enjoy a high percentage of trades
converting to cash within a short time frame, which is a result of
almost 50% on average of revenue from trades outside of structured
solutions and swap trades being spot contracts in addition to
forward contracts carrying a relatively short tenor on average.
Excluding swap revenue, 81% of revenue converts to cash within 3
months which is consistent with prior years as follows:
CASH CONVERSION
12mths
9mths 12mths to 12mths
to to to
31/12/22 31/03/22 31/03/21 31/03/20
GBPm GBPm GBPm GBPm
Revenues 41.0 34.5 28.1 29.0
Revenues (swap adjusted S/A) (A) 37.7 31.5 27.2 27.6
Less
Revenues settling beyond 3 months
S/A (7.1) (4.6) (3.1) (4.0)
Net short-term cash generation (B) 30.6 26.9 24.1 23.6
Short-term cash return (B/A) 81% 85% 88% 86%
---------- ---------- ---------- ----------
Derivative financial assets grew 62% in the period to GBP66.5m
with current element being GBP57.7m (87% of total derivative
financial assets). The Group diversifies liquidity requirements
across five liquidity providers, the largest providing 62% of
liquidity required (77% at 31 March 2022).
PORTFOLIO COMPOSITION
Argentex's client base continues to grow with an increase in
corporate clients traded in the 9 month period to 1,595 (FY22:
1,624), and 409 of these corporate clients traded representing new
business. Even when taking growth into account however the
composition of our client portfolio remains consistent
year-over-year in that it consists of similar businesses with
exposures in the major currencies of sterling, euro and US dollar.
In line with prior year, as at the period end 78% of the Group's
portfolio was comprised of trades in those currencies and hence the
Group's exposure to exotic currencies or currencies with higher
volatility and less liquidity remains significantly limited.
Further, client concentration has been maintained with 39% of
revenue represented by the top twenty customers (FY22 36%).
Argentex has put in place a low risk approach to managing
collateral requirements with institutional counterparties to
mitigate significant volatility risk which, when coupled with a
selective and robust client acceptance process, has ensured that
Argentex continues to avoid any material issues over settlement. In
addition, as a result of a conservative approach to risk, Argentex
continues to enjoy immaterial occurrence of bad debt. A credit
valuation adjustment charge of GBP1.1m has been maintained at
broadly the same level as previously reported (GBP0.9m at 30th
September 2022).
CHANGE IN FINANICAL REPORTING PERIOD
In line with the Group's transition to a global financial
solutions provider, the financial reporting timetable has moved to
a 31st December year end.
DIVID
Argentex is pleased to declare a final dividend for the 9 month
period ended 31 December 2022 of 2.25p per share. The final
dividend record date will be 30 June 2023 and will be paid on 4
August 2023. The ex-dividend date is 29 June 2023.
Jo Stent
Chief Financial Officer
Consolidated Statement of Profit or Loss and other comprehensive
income for the period ended 31 December 2022
Notes 9 months ended Year ended
December 2022 March
2022
GBPm GBPm
Revenue 5 41.0 34.5
Cost of sales (1.8) (0.6)
Gross profit 39.2 33.9
Administrative expenses (30.2) (22.9)
Adjusted operating profit 9.0 11.0
Non-adjusted expenditure 8 (0.8) (0.4)
Share-based payments charge 23 (0.1) (0.2)
Operating profit 8.1 10.4
Finance costs 11 (0.3) (0.4)
Profit before taxation 7.8 10.0
Taxation 12 (0.8) (2.6)
Profit for the period and total comprehensive income 7.0 7.4
=============== ============
Earnings per share
Basic 13 6.2p 6.6p
Diluted 13 6.2p 6.6p
Adjusted - Basic 13 6.8p 7.0p
Adjusted - Diluted 13 6.8p 7.0p
Consolidated Statement of Financial Position as at 31 December
2022
Notes 31 December 31 March
2022 2022
GBPm GBPm
Non-current assets
Intangible assets 14 2.5 2.2
Property, plant and equipment 15 7.9 8.3
Derivative financial assets 24 8.8 3.1
Deferred tax asset 12 0.5 -
Total non-current assets 19.7 13.6
Current assets
Trade and other receivables 16 1.0 0.6
Cash and cash equivalents 17 29.0 37.9
Other assets 18 10.0 7.2
Derivative financial assets 24 57.7 38.0
Total current assets 97.7 83.7
Current liabilities
Trade and other payables 19 (25.9) (34.2)
Derivative financial liabilities 24 (42.0) (21.6)
Total current liabilities (67.9) (55.8)
------------- ----------
Net current assets 29.8 27.9
------------- ----------
Non-current liabilities
Trade and other payables 19 (5.5) (6.0)
Derivative financial liabilities 24 (5.2) (2.3)
Total non-current liabilities (10.7) (8.3)
------------- ----------
Net assets 38.8 33.2
============= ==========
Consolidated Statement of Financial Position (continued) as at
31 December 2022
Notes 31 December 31 March
2022 2022
GBPm GBPm
Equity
Share capital 21 0.1 0.1
Share premium account 22 12.7 12.7
Share option reserve 23 0.5 0.4
Merger reserve 22 4.5 4.5
Retained earnings 22 21.0 15.5
Total Equity 38.8 33.2
============= ==========
The financial statements of Argentex Group PLC were approved by
the Board of Directors on 11 April 2023 and were signed on its
behalf by:
Harry Adams
Director
Consolidated Statement of Changes in Equity for the period ended
31 December 2022
Share Share Share Merger Retained Total
capital premium option reserve earnings equity
reserve
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 April
2021 0.1 12.7 0.2 4.5 11.2 28.7
--------- --------- --------- --------- ---------- --------
Comprehensive income
for the year
Profit for the year - - - - 7.4 7.4
--------- --------- --------- --------- ---------- --------
Total comprehensive
income for the year - - - - 7.4 7.4
Transactions with
owners:
- Dividends paid - - - - (3.1) (3.1)
- Share-based payments
charge - - 0.2 - - 0.2
Balance at 31 March
2022 0.1 12.7 0.4 4.5 15.5 33.2
--------- --------- --------- --------- ---------- --------
Comprehensive income
for the period
Profit for the period - - - - 7.0 7.0
--------- --------- --------- --------- ---------- --------
Total comprehensive
income for the period - - - - 7.0 7.0
Transactions with
owners:
- Dividends paid - - - - (1.5) (1.5)
- Share-based payments
charge - - 0.1 - - 0.1
Balance at 31 December
2022 0.1 12.7 0.5 4.5 21.0 38.8
--------- --------- --------- --------- ---------- --------
Consolidated Statement of Cash Flows for the period ended 31
December 2022
Notes 9 months ended December 2022 Year ended March
2022
GBPm GBPm
Profit before taxation 7.8 10.0
Taxation paid (2.5) (2.2)
Net finance expense 0.3 0.4
Depreciation of property, plant and
equipment 0.3 0.5
Depreciation of right of use assets 0.6 0.8
Amortisation of intangible assets 1.1 1.2
Share-based payment charge 0.1 0.2
(Increase) in trade receivables (0.4) -
(Decrease)/increase in payables (7.0) 5.8
(Increase)/decrease in derivative financial
assets (25.4) 1.4
Increase/(decrease) in derivative financial
liabilities 23.3 (5.3)
(Increase)/decrease in other assets (2.8) 4.4
Net cash (used in)/generated from operating
activities (4 .6 ) 17.2
Investing activities
Purchase of intangible assets 14 (1.4) (1.7)
Purchases of plant and equipment 15 (0.5) (0.4)
Net cash used in investing activities (1.9) (2.1)
----------------------------- ------------------
Financing activities
Payments made in relation to lease
liabilities 20 (0.9) (0.9)
Dividends paid 10 (1.5) (3.1)
Net cash used in financing activities (2 .4 ) (4.0)
----------------------------- ------------------
Net (decrease)/increase in cash and cash
equivalents (8.9) 11.1
Cash and cash equivalents at the beginning
of the period 37.9 26.8
Cash and cash equivalents at the end of the
period 17 29.0 37.9
1 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 25 Argyll Street, London,
W1F 7TU.
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 9 month period ended 31 December 2022
and the year ended 31 March 2022 comprise the financial statements
of the Company and its subsidiaries (together, "the Group"). The
Group has changed its year end date from 31 March to 31 December to
align with the calendar year in order to provide more meaningful
information to shareholders and prospective investors. Therefore,
the Group has presented a shortened period of 9 months and
therefore amounts presented may not be entirely comparable.
The Consolidated Financial Statements are presented in pounds
Sterling (GBP), which is the currency of the primary economic
environment in which the Group operates.
2 Significant accounting policies
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS accounting
standards). The principal accounting policies are summarised
below.
2.1 Basis of preparation
The Consolidated Financial Statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006.
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 periods
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 2.7 .
2.2 Adoption of new and revised standards
There are no new standards, interpretations and amendments which
became mandatorily effective for the current reporting period which
have had any material effect on the financial statements for the
Group.
No upcoming changes under IFRS are likely to have a material
effect on the reported results or financial position. Management
continues to monitor upcoming changes.
2.3 Going concern
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future and have assessed the Group's prospects over a
12 months period from the approval date of these 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 24.3 for
further disclosures relating to liquidity risk).
The Board of Directors is confident that in context of the
Group's financial requirements these measures give 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 these Consolidated Financial
Statements.
2.4 Basis of consolidation
The Group Consolidated Financial Statements incorporate the
Financial Statements of the Company and entities controlled by the
Company (its subsidiaries). In line with the Group, the
subsidiaries have also changed year end dates to 31 December and
the subsidiaries will be incorporated at this date each year
(previously 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 England
broking
------------------- ------------------
Argentex Capital Limited Holding company England
------------------- ------------------
Argentex Foreign Exchange Holding company England
Limited
------------------- ------------------
Argentex B.V. Pending regulatory Netherlands
authorisation
------------------- ------------------
Argentex PTY Ltd Pending regulatory Australia
authorisation
------------------- ------------------
All subsidiary undertakings are 100% owned either directly or
indirectly by Argentex Group PLC.
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.
2.5 Accounting for merger on formation of the Group
In June 2019, 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 (now Argentex
Foreign Exchange Limited). Argentex LLP, Argentex Capital Limited
and Argentex Foreign Exchange Limited are 100% owned (either
directly or indirectly) subsidiaries of Argentex Group PLC and
consolidated into these Financial Statements.
In applying merger accounting when preparing these 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.
2.6 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. The execution date is when a binding contract is entered
into with the client or counterparty. The revenue is fixed and
determined representing the difference between the premiums
paid.
2.7 Financial instruments
The Group operates as a riskless principal deliverable foreign
exchange broker therefore financial instruments are significant to
its financial position and performance.
The Group's financial assets include derivative assets (foreign
exchange forward and option contracts with customers and banking
counterparties) as well as amortised cost assets including cash and
cash equivalents, other assets and trade and other receivables. The
Group's financial liabilities include derivative liabilities
(foreign exchange forward and option contracts) and trade and other
payables. The Group does not apply hedge accounting.
The Group undertakes matched principal broking involving
immediate back-to-back derivative transactions with counterparties.
These transactions are classified as derivative financial assets
and liabilities. A derivative with a positive fair value is
recognised as a financial asset and a derivative with a negative
fair value is recognised as a financial liability. Where there is a
legally enforceable right to offset the recognised amounts and an
intention to settle on a net basis or to realise the asset and the
liability simultaneously, financial assets and financial
liabilities are offset, and the net amount presented in the
Consolidated Statement of Financial Position. Management have
presented the derivative assets and liabilities with banking and
brokerage counterparties and with clients on a gross basis.
2.7.1 Derivative financial assets
Derivative financial assets are recognised when the Group
becomes a party to the contractual provisions of the
instrument.
Derivative financial assets are measured at fair value through
profit or loss ("FVTPL") as they are held for trading purposes.
Initial Recognition
Derivative assets are initially measured at fair value at the
date the derivative contract is entered into. The resulting gain or
loss is recognised within profit or loss immediately. Transaction
costs directly attributable to the acquisition of such financial
assets at fair value through profit or loss are recognised
immediately in profit or loss.
Subsequent Measurement
Derivative assets are subsequently remeasured to fair value at
each financial period end date. Any gains or losses derived from
instances such as foreign exchange rate changes, which impact
derivative financial asset revaluation, would be immediately
recognised through profit or loss. Valuation adjustments to reflect
potential inherent market risks on the fair value of derivative
financial assets are calculated and recorded where material. The
credit valuation adjustment ("CVA") reflects the market value of
counterparty credit risk and takes into account counterparty,
applicable collateral agreements, predicted losses and
probabilities of default.
Derecognition
The Group derecognises derivative financial assets 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 have expired and the
obligations of the Group, the client and the institutional
counterparty have been discharged.
2.7.2 Other financial instrument assets
Other financial assets are those which are not derivatives in
nature and have been classified using the amortised cost method.
These assets arise principally as Solely Payments of Principal and
Interest (SPPI) and are intended to be held to maturity with all
cashflows collected.
Initial Recognition
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 timeframe established by
regulation or convention in the marketplace.
Subsequent Measurement
All recognised financial assets are subsequently remeasured in
their entirety at either amortised cost or fair value, depending on
the classification of the financial assets.
The Group has applied the simplified approach in IFRS 9 to
measure applicable loss allowances at lifetime expected credit loss
("ECL"). The Group determines the expected credit losses on these
items by using a provision matrix, based on historical credit loss
experience based on the past due status of the debtors, adjusted as
appropriate to reflect current conditions and estimates of future
economic conditions.
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 past due, whichever occurs
earlier.
Derecognition
On derecognition of financial assets 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.
2.7.3 Derivative financial liabilities
Derivative financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the
instrument.
Derivative financial liabilities are measured at FVTPL as they
are held for trading purposes.
Initial Recognition
Derivative financial liabilities are initially measured at fair
value at the date the derivative contract is entered into. The
resulting gain or loss is recognised within profit or loss
immediately. Transaction costs directly attributable to the
acquisition of financial liabilities at fair value through profit
or loss are recognised immediately in profit or loss.
Subsequent Measurement
Derivative liabilities are subsequently remeasured to fair value
at each financial period end date. Any gains or losses derived from
instances such as foreign exchange changes, which impact financial
liability revaluation, would be immediately recognised through
Profit or Loss.
Derecognition
The Group derecognises derivative financial 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 liabilities have expired and the
obligations of the Group, the client and the institutional
counterparty have been discharged.
2.7.4 Other financial instrument liabilities
Other financial liabilities are obligations to pay for goods or
services that have been acquired in the ordinary course of
business, not including financial liabilities that are derivatives
in nature. Other financial liabilities are classified using
amortised cost using the effective interest rate method, where
applicable. This is used as the default classification method for
financial instruments not held as trade derivatives. The Group's
other financial liabilities include trade and other payables.
Initial Recognition
The Group holds amounts payable to customers at amortised cost.
These are short term balances that do not attract interest.
Initial recognition consists of fair value minus transaction
costs. Subsequent measurement then makes use of the effective
interest rate method, where applicable, with interest related
charges being recognised as finance costs in the Consolidated
Statement of Comprehensive Income.
Derecognition
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.
2.8 Cash and cash equivalents
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. Cash and cash
equivalents includes client funds disclosed in note 17.
2.9 Other assets
Cash held as collateral with banking counterparties is shown as
other assets on the Consolidated Statement of Financial
Position.
2.10 Leases
In accordance with IFRS 16, 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. Lease liabilities are disclosed within Trade and other
payables on the Consolidated Statement of Financial Position. Lease
liabilities are 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 purchase, 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 of use asset and the revised carrying amount is depreciated
over the remaining (revised) lease term, or it is recorded in the
Consolidated Statement of Profit or 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 and included within Property, plant and equipment
on the Consolidated Statement of Financial Position.
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 depreciated 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.
2.11 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 Consolidated Statement
of Comprehensive Income.
Amortisation is charged to the Consolidated Statement of
Comprehensive Income over the estimated useful life 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.
The intangible asset is tested annually for impairment or more
frequently if events or changes in circumstances indicate that the
asset might be impaired.
2.12 Property, plant and 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 to five 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.
2.13 Foreign currencies
Non-derivative monetary assets and liabilities in foreign
currencies are translated into sterling at the rates of exchange
ruling at the Consolidated Statement of Financial Position 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.
2.14 Cost of sales
Cost of sales includes bank charges paid to banking and
brokerage counterparties, third party platform fees and costs
related to option products taken to limit Group exposure.
2.15 Adjusted operating profit
The Group presents adjusted operating profit as an Alternative
Performance Measure on the face of the Consolidated Statement of
Comprehensive Income. Adjusted operating profit excludes those
items of income and expense which, because of the nature and
expected infrequency of the events giving rise to them, merit
separate presentation to allow shareholders to align with
management's evaluation of financial performance in the period.
Non-adjusted expenditure will typically relate to one off costs and
structural set up costs.
Adjusted operating profit also excludes the share-based payments
charge due its non-trading nature.
2.16 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
Statement of Financial Position. The assets of the plan are held
separately from the Group in independently administered funds.
2.17 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 period end, they are shown as
liabilities in the Consolidated Statement of Financial
Position.
2.18 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.
2.19 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 Comprehensive Income. 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.
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
Comprehensive Income, with a corresponding adjustment to equity.
Fair value of the CSOP scheme is measured using a Black-Scholes
option pricing model. Fair value of the Value Creation Plan is
measured using a Monte Carlo Simulation.
When share options are exercised, the Group issues new shares.
The proceeds received net of any directly attributable transaction
costs are credited to share capital (nominal value) and share
premium.
2.20 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 period.
Taxable profit may differ from operating profit as reported in the
Consolidated Statement of Comprehensive Income as it may exclude
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.
To the extent it is material, deferred tax is calculated on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements.
Deferred tax assets are recognised to the extent that it is
probable future taxable profits will be available against which the
temporary differences can be utilised.
3 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.
3.1 Accounting judgements
(i) Capitalisation of costs to intangible assets
The extent to which costs should be capitalised to intangible
assets is a key judgement. The Group capitalise costs as intangible
assets if they have a value that will benefit the performance of
the Group over future periods.
(ii) Credit Valuation Adjustment
The CVA is a calculation based on the credit risk of
counterparties inherent in the valuation of derivative financial
instruments. The failure of a client to settle a contracted trade
carries the risk of loss equal to the prevailing fair value of the
trade. Within the CVA calculation to quantify credit risk,
judgement is required in determining the credit quality of the
client based on current market and other information and key
estimates include loss on default of a client and the probability
of default. A 10 percent increase across all PDs would result in
decreased operating profit of GBP0.1m.
(iii) Share-based payments
In determining the fair value of equity-settled awards and the
related charge to the Consolidated Statement of Comprehensive
Income, the Group makes use of option valuation models which
require key judgements to be made in assessing the inputs. Key
judgements include the number of shares on vesting, the risk-free
interest rate, dividend yield and share price volatility.
3.2 Key sources of estimation uncertainty
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. Extending the estimated useful life of the intangible costs
from 3 years to 4 years would result in increased operating profit
of GBP0.3m (March 2022: GBP0.7m), decreasing the estimated useful
life from 3 years to 2 years would result in decreased operating
profit of GBP0.5m (March 2022: GBP1.6m).
4 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 percent of revenues in the period ended
31 December 2022 or year ended 31 March 2022.
5 Revenue
9 months Year
ended 31 ended
December 31 March
2022 2022
An analysis of the Group's revenue is GBPm GBPm
as follows:
Spot foreign exchange contracts 9.3 6.4
Forward foreign exchange contracts 27.9 27.2
Structured solutions 3.8 0.9
41.0 34.5
6 Operating profit
9 months Year ended
ended 31 31 March
December 2022
2022
Operating profit for the period is stated GBPm GBPm
after charging:
Depreciation of plant and equipment 0.3 0.5
Depreciation of right of use assets 0.6 0.8
Amortisation of intangibles 1.1 1.2
Staff costs (see note 9) 20.2 15.2
Net foreign exchange (gains) - (0.2)
7 Auditor's remuneration
9 months Year ended
ended 31 31 March
December 2022
2022
Fees payable to the Group's auditor and GBPm GBPm
its associates for services to the Group:
The audit of financial statements of
the Group and subsidiaries 0.3 0.2
Other assurance and advisory services - 0.1
8 Non-adjusted expenditure
The Directors have classified certain costs as non-adjusted in
accordance with the accounting policy set out in note 2.15. These
costs amount to GBP0.8m (March 2022: GBP0.4m) and for the 9 month
period to December 2022 relate to: costs related to the creation of
and regulatory applications for overseas operations and fees
incurred in the period in relation to the Group's executive
leadership change.
In the year to March 2022, non-adjusted expenditure related to:
i) costs related to the creation of and regulatory applications for
overseas operations and ii) fees incurred in the year in relation
to Director changes in the Group.
Costs relating to the creation of overseas operations are
infrequent despite inclusion in both periods as these costs will
not be recurring once the operations are fully functional.
9 Staff costs
The average number of employees employed by the Group, including executive and non-executive
directors, was:
9 months ended 31 December 2022 Year
ended 31 March
2022
No. No.
Directors 7 8
LLP members (excl. executive directors) 5 6
Sales and dealing 66 45
Operations 47 27
125 86
9 months ended 31 December 2022 Year
ended 31 March
2022
GBPm GBPm
Staff costs for the above persons were:
Wages and salaries 12.7 8.4
Social security costs 1.4 0.9
Pension costs 0.1 0.1
Share-based payments 0.1 0.2
LLP members' remuneration* 4.2 4.1
Directors' remuneration 1.7 1.5
20.2 15.2
Directors' remuneration
9 months ended 31 December 2022 Year
ended 31 March
2022
GBPm GBPm
Directors' remuneration comprised:
Salaries and LLP members' remuneration 1.7 1.5
*Excludes Directors of Argentex Group PLC who are/were also members of Argentex LLP.
Prior to IPO, profits from Argentex LLP were distributed according to individual equity holdings
in the LLP. Following Admission, the self-employed LLP members are 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 LLP's 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. 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
9 months ended 31 December 2022 Year
ended 31 March
2022
Amounts recognised as distributions to equity holders: GBPm GBPm
Final dividend for the year ended 31 March 2022 of 1.25p per
share (March 2022: dividend for
the year ended 31 March 2021 of 2p per share) 1.5 2.3
Interim dividend declared nil (March 2022: 0.75p per share) - 0.8
1.5 3.1
================================ ================
Proposed final dividend for the period ended 31 December 2022
of 2.25p per share (March 2022:
1.25p per share) 2.5 1.5
================================ ================
11 Finance costs
9 months ended 31 December 2022 Year
ended 31 March
2022
GBPm GBPm
Interest on lease arrangements 0.3 0.4
12 Taxation
9 months ended 31 December 2022 Year
ended 31 March
2022
GBPm GBPm
Current tax
In respect of the current period 1.3 2.6
Total current tax 1.3 2.6
Deferred tax
Deferred tax (credit) in relation to timing on fixed assets (0.5) -
Total deferred tax (0.5) -
Total tax expense 0.8 2.6
Tax has been calculated using an estimated annual effective tax rate of 19% (March 2022: 19%)
on profit before tax. The UK main rate of corporation tax is set to increase to 25% for Financial
Year 2023.
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:
9 months ended 31 December 2022 Year ended 31 March
2022
GBPm GBPm
Profit before taxation 7.8 10.0
Tax on profit on ordinary activities at standard UK
corporation tax rate of 19% 1.5 1.9
Effects of:
Other amounts charged 0.2 0.6
Adjustments in respect of prior period (0.4) 0.1
Total tax on ordinary activities 1.3 2.6
Other items charged relate to adjustments for tax purposes
including non-allowable expenses and capital allowances.
9 months ended 31 December 2022 Year
ended 31 March
2022
GBPm GBPm
Deferred Tax
Assets
At 1 April - -
Tax credit relating to future periods 0.5 -
Total deferred tax asset 0.5 -
Deferred tax in relation to timing differences on fixed assets. There is no expiry on the
deferred tax asset. The deferred tax asset is based on the future rate of corporation tax
25%.
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 adjusted earnings figure, which excludes the effects
of share-based payments, and non-adjusted costs as described
further in note 2.14.
9 months ended 31 December 2022 Year ended 31 March
2022
GBPm GBPm
Earnings
Earnings for the purposes of basic and diluted earnings
per share
- basic and diluted 7.0 7.4
Adjustments for:
Non-adjusted expenditure 0.8 0.4
Share-based payments 0.1 0.2
Tax impact (0.2) (0.1)
Adjusted earnings (basic and diluted) 7.7 7.9
Number of shares
The calculation of basic and earnings per share is based on the following number of shares
(m).
Weighted average number of ordinary shares for the
purposes of basic earnings per share 113.2 113.2
Number of dilutive shares under option 0.1 0.2
Weighted average number of ordinary shares for the
purposes of dilutive earnings per share 113.3 113.4
-------------------------------- --------------------
Earnings per share
Basic 6.2p 6.6p
Diluted 6.2p 6.6p
Adjusted - Basic 6.8p 7.0p
Adjusted - Diluted 6.8p 7.0p
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
GBPm
Cost
At 1 April 2021 5.7
Additions 1.7
At 31 March 2022 7.4
Additions 1.4
At 31 December 2022 8.8
Amortisation
At 1 April 2021 4.0
Charge for year 1.2
At 31 March 2022 5.2
Charge for 9 month period 1.1
At 31 December 2022 6.3
Net book value
At 31 December 2022 2.5
At 31 March 2022 2.2
15 Property, plant and equipment
Leasehold Right of Office equipment Computer equipment Total
improvements use asset
GBPm GBPm GBPm GBPm GBPm
Cost
At 1 April 2021 1.7 7.2 0.6 0.6 10.1
Additions 0.1 0.1 0.2 0.1 0.5
Disposals - - - - -
At 31 March
2022 1.8 7.3 0.8 0.7 10.6
Additions - - 0.5 - 0.5
Disposals - - - - -
At 31 December
2022 1.8 7.3 1.3 0.7 11.1
Depreciation
At 1 April 2021 0.1 0.7 - 0.2 1.0
Charge for the
year 0.2 0.8 0.1 0.2 1.3
Disposals - - - - -
At 31 March
2022 0.3 1.5 0.1 0.4 2.3
Charge for the
9 month period 0.1 0.6 0.1 0.1 0.9
Disposals - - - - -
At 31 December
2022 0.4 2.1 0.2 0.5 3.2
Net book value
At 31 December
2022 1.4 5.2 1.1 0.2 7.9
At 31 March
2022 1.5 5.8 0.7 0.3 8.3
Right of use asset relates to head office lease disclosed in
note 20.
16 Trade and other receivables
3 1 December 2022 3 1 March
2022
GBPm GBPm
Current
Other receivables - 0.1
Prepayments 1.0 0.5
Trade and other receivables 1.0 0.6
17 Cash and cash equivalents
3 1 December 2022 3 1 March
2022
GBPm GBPm
Cash and cash equivalents 29.0 37.9
Included within cash and cash equivalents are client held funds relating to margins received
and client balances payable. These amounts are disclosed as amounts payable to clients of
GBP12.8m (March 2022: GBP24.9m) in note 19 and are not available for the Group's own use.
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.
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 Other assets
3 1 December 2022 3 1 March
2022
GBPm GBPm
Other assets 10.0 7.2
Other Assets is made up of collateral with banking and brokerage counterparties. Client margins
received and disclosed within client balances payable are used to service margin calls with
counterparties.
19 Trade and other payables
3 1 December 2022 3 1 March
2022
GBPm GBPm
Non-current
Provisions 0.2 0.2
Lease Liability (note 20) 5.3 5.8
Trade and other payables 5.5 6 .0
Current
Amounts payable to clients 12.8 2 4.9
Other creditors - 0 .1
Corporation tax 0.7 1.9
Amounts due to members and former members of Argentex LLP 4.4 2.8
Trade payables 0.4 -
Accruals 6.1 3.4
Other taxation and social security 0.7 0 .3
Lease liability (note 20) 0.8 0.8
Trade and other payables 25.9 34.2
20 Leases
In May 2020, the Group signed a ten-year lease for its head
office premises at Argyll Street, London. As a lessee, the Group
has recognised a lease liability representing the present value of
the obligation to make lease payments, and a related right of use
(ROU) asset, in accordance with note 2.10. The rent is subject to a
rent review after five years and contains a break clause at this
same anniversary. The rate implicit in the lease is not evident and
so the Group's incremental borrowing rates have been used.
Management have assessed the incremental borrowing rate to be 6%
(March 2022: 6%). Information about the lease liability is
presented below:
3 1 December 3 1 March
2022 2022
GBPm GBPm
Lease liability at beginning of financial
period 6.6 6.9
Additions - 0.1
Payments made in the period (0.9) (0.9)
Unwinding of finance costs 0.4 0.5
Lease liability at end of financial
period 6.1 6.6
Of which
Current (note 19) 0.8 0.8
Non-current (note 19) 5.3 5.8
Amounts recognised in the Consolidated Statement of Comprehensive
Income is presented below:
9 months Year
ended 31 ended
December 31 March
2022 2022
GBPm GBPm
Depreciation charge on right-of-use assets
(note 15) 0.6 0.8
Interest on lease liabilities (note 11) 0.3 0.4
At 31 December and 31 March 2022 0.9 1.2
21 Share capital
Ordinary Management Nominal
shares shares value
Allotted and paid up No. No. GBPm
At 1 April 2022 and 31 December
2022 113,207,547 23,589,212 0.1
On 19 June 2019, 23,589,212 Management shares were issued with
nominal value of GBP58,974 to establish the minimum allotted share
capital for a public limited company. So long as there are shares
of any other class in 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 GBP0.0001 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. Subsequently, the Group issued
13,207,547 at 106p per share, generating share premium of
GBP13,988,679 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).
Share option reserve
The Group operates share option schemes that are explained in
note 23 of these Consolidated Financial Statements. The Group
recognises the services received from eligible scheme participants
as a charge through the Consolidated Statement of Profit or Loss,
with the corresponding entry credited to the Share option
reserve.
Retained earnings
Retained earnings are the accumulated undistributed profits of
the Group that have been recognised through the Consolidated
Statement of Profit or Loss, less amounts distributed to
shareholders.
23 Share-based payments
The cost of group 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 Comprehensive Income. 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.
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
Comprehensive Income, with a corresponding adjustment to equity.
Fair value of the CSOP schemes is measured using a Black-Scholes
option pricing model. Fair Value of the Value Creation Plan is
measured using a Monte Carlo Simulation.
When share options are exercised, the Group issues new
shares.
CSOP
In June 2019, the Group issued 311,311 share options under Part
I of an approved company share option plan ("CSOP") to
participating employees. The share options have an exercise price
of GBP1.06, 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 Group. 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.
In the year to March 2021, the Group issued a total of 4,981,130
share options under Parts I, II and III of the company share option
plans ("CSOP") to participating employees and LLP members. The
share options have an exercise price of GBP1.35, and vest in
tranches three, four and five years after issuance. The fair value
of these options at issuance has been derived using a Black-Scholes
model, with expected volatility of 34%, based on derived
volatilities of the Group and the similar listed entities to the
Group. The risk-free rate at the time of issuance was 0.12% for UK
Government Bonds with a similar term to the vesting period of the
CSOP.
The total share-based payment reserve at 31 December 2022 is
GBP0.5m (31 March 2022: GBP0.4m). The Group has recognised a total
expense of GBP0.1m (31 March 2022: GBP0.2m) based on the estimated
number of share options expected to vest across all parts of the
CSOP.
Movements in the number of outstanding share options during the
period and their weighted average exercise prices are shown in the
following table.
31 December 2022 31 March 2022
Average Number of Average Number of
exercise options exercise options
price outstanding price outstanding
(GBP) (GBP)
--------------------- ----------------------- --------------------- -----------------------
At
beginning
of period 1.34 4,726,407 1.34 4,754,708
--------------------- ----------------------- --------------------- -----------------------
Granted - - - -
--------------------- ----------------------- --------------------- -----------------------
Forfeited 1.34 (3,730,181) 1.06 (28,301)
--------------------- ----------------------- --------------------- -----------------------
Exercised - - - -
--------------------- ----------------------- --------------------- -----------------------
At end
of period 1.35 996,226 1.34 4,726,407
--------------------- ----------------------- --------------------- -----------------------
The share-based payment charge in relation to the above scheme
in the period ended 31 December 2022 is GBP0.1m (31 March 2022:
GBP0.2m).
Value Creation Plan
In November 2022, selected employees and senior executives of
the Group were issued with Growth shares in Argentex Capital
Limited. When and to the extent vested, the growth shares will be
exchanged into ordinary shares of Argentex Group PLC. The Growth
shares vest in two equal tranches (A and B) over two periods.
Growth A shares vest over a 3 year and 4 month period and Growth B
shares vest over a 4 year and 4 month period. The rate of exchange
is that the Growth Shares will be regarded as worth a pro rata
share of the share price gain of Argentex Group PLC above hurdle
prices. Upon exchange, the number of ordinary shares in Argentex
Group PLC that a Growth shareholder will receive is such number of
shares whose value is equivalent to the Group's closing share price
at the exchange date subject to the extent that Growth shares have
vested. The average weighted value of Growth shares granted in
Argentex Capital is GBP85.
The share-based payment charge of the Value Creation Plan in the
period ended 31 December 2022 was GBPnil (March 2022: GBPnil).
Growth Shares
31 December 31 March
2022 2022
-------------------------------- -----------------------------
Number of Number of options
options outstanding outstanding
-------------------------------- -----------------------------
Outstanding at - -
beginning of period
-------------------------------- -----------------------------
Granted in period 20,000 -
-------------------------------- -----------------------------
Forfeited in period - -
-------------------------------- -----------------------------
Exercised in period - -
-------------------------------- -----------------------------
Outstanding at 20,000 -
end of period
-------------------------------- -----------------------------
The fair value of the Growth shares was calculated using a Monte
Carlo simulation model. The model considers historical and expected
dividends and the share price volatility of the Group to predict
the share performance. When determining the fair value of awards,
service and non-market performance conditions are not considered.
However, the likelihood of the conditions being met is assessed as
part of the Group's best estimate of the number of equity
instruments that will ultimately vest. Market performance
conditions are reflected within the fair value. The assumptions
relating to the fair value charge include share price at grant,
risk free interest rate, time to vesting and expected share price
volatility.
24 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.
24.1 Capital management
Capital risk is the risk that there is insufficient Own Funds to
support the Group's business activities and to meet its regulatory
capital requirements. Own Funds are the sum of the Group's common
equity tier 1 capital, additional tier 1 capital and tier 2
capital. 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
reviews the adequacy of the Group's capital and seeks to maintain a
healthy excess. The Group manages its capital resources with
references to both the business and the regulatory requirements.
This process also ensures there is adequate capital and liquidity
to either absorb losses or to ensure there is adequate levels to
perform an orderly wind-down without causing undue harm to its
clients, counterparties, or the market. The level of capital is
more than the capital requirement set by the authorised
regulators.
24.2 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 Group 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.
31 December 31 March
2022 2022
GBPm GBPm
Financial asset instruments
Measured at FVTPL
Non-current
Derivative financial assets 8.8 3.1
Current
Derivative financial assets 57.7 38.0
Total derivative financial assets 66.5 41.1
Measured at amortised cost
Other receivables - 0.1
Cash and cash equivalents 29.0 37.9
Other assets 10.0 7.2
Total amortised cost assets 39.0 45.2
31 December 31 March
2022 2022
GBPm GBPm
Financial liability instruments
Measured at FVTPL
Non-current
Derivative financial liability 5.2 2.3
Current
Derivative financial liability 42.0 21.6
Total derivative financial liabilities 47.2 23.9
Measured at amortised cost
Amounts payable to clients (12.8) (24.9)
Other creditors (1.1) (1.9)
Amounts due to members and former members
of Argentex LLP (2.9) (2.8)
Accruals (excluding non-financial instruments) (1.0) (1.2)
Lease liabilities (6.1) (6.6)
Non-derivative financial liabilities (23.9) (37.4)
Derivative financial assets and derivative financial liabilities
include derivative transactions with banking counterparties. The
transactions are subject to ISDA (International Swaps and
Derivatives Association) Master Agreements and similar master
agreements which provide a legally enforceable right to offset
uncertain conditions. These derivative financial instruments have
not been offset in the Consolidated Statement of Financial Position
but are presented separately in the table below. These derivatives
are subject to collateral and margin calls by banking and brokerage
counterparties and the amounts are disclosed in note 18.
31 December 31 March
2022 2022
Amounts with counterparties subject GBPm GBPm
to Master Netting agreements:
Derivative financial assets 29.5 17.4
Derivative financial liabilities 31.3 12.7
24.3 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 and achieve its strategic objectives.
Market risk
Market risk for the Group comprises foreign exchange risk and
interest rate risk. Foreign exchange risk arises from the exposure
to changes in foreign exchange spot and forward prices and
volatilities of foreign exchange rates.
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 to 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.
31 December 31 March
2022 2022
GBPm GBPm
10% weakening in the GBP/EUR exchange
rate 1.2 0.8
10% strengthening in the GBP/EUR
exchange rate (1.0) (0.6)
10% weakening in the GBP/USD exchange
rate 1.5 1.1
10% strengthening in the GBP/USD
exchange rate (1.2) (0.9)
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 through the matching of foreign currency
assets and liabilities between clients and institutional
counterparties which move in parity.
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. The
table below summarises the maturity profile of the Group's
derivative financial assets and liabilities based on contractual
undiscounted payments.
Derivative financial assets at balance sheet date by contractual
maturity
31 December 2022 GBPm GBPm GBPm GBPm GBPm
0-3 months 3-6 months 6-12 months 12 Total
months
+
----------- ----------- ------------ -------- --------
Derivative financial
assets 1,012.5 372.6 511.7 337.3 2,234.1
----------- ----------- ------------ -------- --------
31 March 2022 GBPm GBPm GBPm GBPm GBPm
0-3 3-6 6-12 12 Total
months months months months
+
-------- -------- -------- -------- --------
Derivative financial
assets 908.1 436.5 700.9 232.3 2,277.8
-------- -------- -------- -------- --------
Derivative financial liabilities at balance sheet date by
contractual maturity
The following table details the profile of the Group's
derivative financial liabilities. The amounts are based on the
undiscounted cashflows based on the earliest date on which the
Group can be required to pay.
31 December 2022 GBPm GBPm GBPm GBPm GBPm
0-3 months 3-6 months 6-12 months 12 Total
months
+
----------- ----------- ------------ -------- --------
Derivative financial
liabilities 1,005.4 370.4 506.5 334.2 2,216.5
----------- ----------- ------------ -------- --------
31 March 2022 GBPm GBPm GBPm GBPm GBPm
0-3 3-6 6-12 12 Total
months months months months
+
-------- -------- -------- -------- --------
Derivative financial
liabilities 902.9 433.7 693.7 230.9 2,261.2
-------- -------- -------- -------- --------
Other financial liabilities
The table below summarises the maturity profile of the Group's
other financial liabilities based on contractual (undiscounted)
payments.
31 December 2022 Up to 1 1 year Total
year +
GBPm GBPm GBPm
Amounts payable to
clients 12.8 - 12.8
Other payables 4.8 - 4.8
Lease liabilities 1.2 6.3 7.5
-------- ------- ------
18.8 6.3 25.1
-------- ------- ------
31 March 2022 Up to 1 1 year Total
year +
GBPm GBPm GBPm
Amounts payable to
clients 24.9 - 24.9
Other payables 8.0 - 8.0
Lease liabilities 1.2 7.1 8.3
-------- ------- ------
34.1 7.1 41.2
-------- ------- ------
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. The
Group employs rigorous procedures and ongoing monitoring to
mitigate this risk and ensure that client risk exposures fit within
the Group's risk appetite. Before accepting any new client, a
dedicated team responsible for the determination of credit risk,
assess the potential client's credit quality and assigns a credit
limit. Limits and scoring attributed to customers are reviewed on
an ongoing basis. Individual counterparty exposures are monitored
against assigned limits by the Risk function to ensure appropriate
escalation and mitigating action is taken.
Credit approvals and other monitoring procedures are also in
place to ensure that follow-up action is taken to recover overdue
debts. Furthermore, the Group reviews the recoverable amount of
each trade debtor at the end of the reporting period to ensure that
adequate loss allowance is made for irrecoverable amounts. In this
regard, the Directors of the Group consider that the Group's credit
risk is significantly reduced. Trade receivables consist of a large
number of clients, spread across diverse industries and
geographical areas.
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.
24.4 Overview of the Group's exposure to credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations in relation to financial derivative
assets resulting in financial loss to the Group. As at 31 December
2022, 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.
If deemed appropriate, the Group will make a valuation
adjustment to the estimated fair value of a financial instrument .
In the period, the Group has recorded a CVA of GBP1.1m (March 2022:
GBPnil) to represent the credit risk inherent in the fair value of
derivative financial instruments. 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 25) best represents their respective maximum
exposure to credit risk. Note 24.6 details the Group's credit risk
management policies.
24.5 Counterparty risk
The Group relies on third party institutions in order to trade
and clear settlement funds through client accounts. To reduce
counterparty credit risk to acceptable levels, the Group 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. 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.
24.6 Credit risk management
Note 24.4 details the Group's 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.
25 Fair value measurements
This note provides information about how the Group determines
fair values of various financial assets and financial
liabilities.
25.1 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).
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 market 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 Fair value as at Fair value Valuation technique(s)
assets/ hierarchy and key input(s)
financial
liabilities
31 December 31 March
2022 2022
------------- ------------- ----------- -----------------------------
Foreign Assets GBP Assets GBP Level 2 The price that would
exchange 66.5m ; and 41.1m ; and be received to sell
forward Liabilities Liabilities an asset or paid
and option GBP 47.2m GBP 23.9m to transfer a liability
contracts in an orderly transaction
between market participants
at the measurement
date.
The fair value of
foreign exchange
forward and option
contracts is measured
using observable
market information
provided by third
party market data
providers.
------------- ------------- ----------- -----------------------------
25.2 Fair value of financial assets and financial liabilities that are not measured at fair value
The Directors consider that the carrying amounts of financial
assets and financial liabilities recognised in the financial
statements are a reasonable approximation of their fair value.
26 Related party transactions
Included in other creditors is GBPnil (March 2022: GBP0.1m) owed to Pacific Investments Management
Limited, the former owner of Argentex Foreign Exchange Limited, as the Group repaid its loan
in the period.
27 Contingent liabilities
As at 31 December 2022 there were no capital commitments or contingent liabilities (March
2022: none).
28 Controlling party
In the opinion of the Directors there is no ultimate controlling party of Argentex Group PLC.
29 Events after the reporting date
The UK main rate of corporation tax is set to increase to 25% for Financial Year 2023. The
increase is not expected to have a material impact on the Group's deferred tax asset.
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END
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