Argo : Final Results 2018

Argo Group Limited ("Argo" or the "Company")

Annual Report and Accounts for the Year ended 31 December 2018

Argo today announces its final results for the year ended 31 December 2018.

The Company will today make available its report and accounts for the year ended 31 December 2018 on the Company's websitewww.argogrouplimited.com.These will be sent by post to shareholders in the next 2 weeks.

Key highlights for the twelve months ended 31 December 2018

• - Revenues US$4.6 million (2017: US$10.3 million)

• - Operating loss US$0.8 million (2017: operating profit US$2.0 million)

• - Loss before tax US$1.2 million (2017: profit of US$4.7 million)

• - Net assets US$23.3 million (2017: US$24.7 million)

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

"As it turned out the second half of 2018 was a year to forget for most hedge funds as the best asset class proved to be cash. Argo was not immune from the general correction in market prices as they particularly affected emerging markets. The firm managed the risks not only by keeping a sizeable portion of the portfolio in cash but through our macro overlay we took short bets on market risk that contributed positively to performance along our USD positioning against emerging market currencies. We lost money on our distressed debt and USD sovereign debt but at much more modest level than the specific subindex of EMBI. The end result was a manageable drop of 5.65% gross for the year in our main fund, The Argo Fund, made up of 2.1% in fees and expenses and the rest in asset performance. January 2019 however started strongly with The Argo Fund up about 2.7%. The objective of the Group remains the increase of assets under management in The Argo Fund to well over US$100 million and we have been successful in the latter part of 2018 to reach around US$80 million. Despite the drop in the distressed credit fund following a liquidity event that allowed some redemptions we are looking to grow this fund and market it more actively to a wider group of investors. We have an attractive pipeline of transactions that could be interesting to long-term investors looking for uncorrelated returns. At the same time cost control is an ongoing process by streamlining expenses by closing holding companies which are no longer needed in the remaining illiquid investments."

Enquiries

Argo Group Limited Andreas Rialas 020 7016 7660

Panmure Gordon Dominic Morley 020 7886 2500

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

CHAIRMAN'S STATEMENT

Key highlights for the twelve months ended 31 December 2018

• - Revenues US$4.6 million (2017: US$10.3 million)

• - Operating loss US$0.8 million (2017: operating profit US$2.0 million)

• - Loss before tax US$1.2 million (2017: profit of US$4.7 million)

• - Net assets US$23.3 million (2017: US$24.7 million)

The Group and its objective

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

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

Business and operational review

This report sets out the results of Argo Group Limited for the year ended 31 December 2018.

For the year ended 31 December 2018 the Group generated revenues of US$4.6 million (2017: US$10.3 million) with management fees accounting for US$4.1 million (2017: US$4.2 million). The Group also generated incentive fees of US$0.3 million (2017: US$ 5.9 million) during the year. The incentive fees earned during the year were from Argo Distressed Credit Fund ("ADCF").

Total operating costs, ignoring bad debt provisions, are US$4.0 million (2017: US$7.2 million). The decrease in operating costs is mainly due to no variable employee costs being paid during the year. The Group has provided against management fees of US$1.2 million (€1.0 million) (2017: US$1.4 million, €1.2 million) due from AREOF. In the Directors' view these amounts are fully recoverable however they have concluded that it would be appropriate to carry a provision against these receivables as the timing of the receipts may be outside the control of the Company and AREOF.

Overall, the financial statements show an operating loss for the year of US$0.8 million (2017: operating profit US$2.0 million) and a loss before tax of US$1.2 million (2017: profit of US$4.7 million) reflecting the realised and unrealised loss on current asset investments of US$0.6 million (2017: profit of US$2.5 million).

At the year end, the Group had net assets of US$23.3 million (2017: US$24.7 million) and net current assets of US$22.7 million (2017: US$24.2 million) including cash reserves of US$4.0 million (2017: US$5.0 million). The Directors are not declaring a final dividend.

Net assets include investments in TAF, AREOF, Argo Special Situations Fund LP ("ASSF") and ADCF (together referred to as "the Argo funds") at fair values of US$18.2 million (2017: US$10.6 million), US$0.1 million (2017: US$0.1 million), US$0.04 million (2017: US$0.03 million), and US$ nil (2017: US$4.2 million) respectively.

At the year end the Argo funds (excluding AREOF) owed the Group total management and performance fees of US$0.6 million (31 December 2017: US$6.2 million). The Group received full settlement of these fees in January 2019.

The Argo funds ended the year with Assets under Management ("AUM") at US$130.1 million (2017: US$146.8), 11% lower than at the beginning of the year. We are now looking to raise funds across the spectrum of our investing activity and various initiatives are being undertaken with existing and new investors. The current level of AUM remains below that required to ensure sustainable profits on a recurring management fee basis in the absence of performance fees. This has necessitated an ongoing review of the Group's cost basis. Nevertheless, the Group has ensured that the operational framework remains intact and that it retains the capacity to manage additional fund inflows as and when they arise.

The number of permanent employees of the Group at 31 December 2018 was 23 (2017: 23).

The Group has provided AREOF with a notice of deferral in relation to amounts due from the provision of investment management services, under which it will not demand payment of such amounts until the Group judges that AREOF is in a position to pay the outstanding liability. These amounts accrued or receivable at 31 December 2018 total US$nil (2017: US$nil) after a bad debt provision of US$8.9 million (€7.8 million) (2017: US$8.2 million (€6.8 million)). AREOF continues to meet part of this obligation to the Argo Group as and when liquidity allows. In November 2013, AREOF offered Argo Group Limited additional security for the continued support in the form of debentures and guarantees by underlying intermediate companies. Argo Group Limited retains this additional security. The AREOF management contract expires on the later of its termination or the sale of all assets in the Portfolio. The life of the fund was extended to 30 June 2034 during 2017.

Fund performance

The Argo Funds

Fund	Launch date	2018 Year total	2017 Year total	Since inception	Annualised performance	Sharpe ratio	Down months	AUM
%	%	%	CAGR %	US$m
The Argo Fund	Oct-00	-5.65	10.70	217.44	7.32	0.46	68 of 219	79.7
Argo Distressed Credit Fund	Oct-08	1.58	65.60	234.51	14.47	0.62	55 of 123	27.5
Argo Special Situations Fund LP	Feb-12	26.8	115.45	-64.68	-0.86	-0.01	66 of 89	22.9
Total	130.1

* NAV only officially measured once a year in September.

AREOF's adjusted NAV at 30 September 2018* was US$15.0 million (€13.1 million), compared with US$0.7 million (€0.6 million) a year earlier. The Adjusted NAV per share at 30 September 2018 was US$0.0247 (€0.0216) (2017: US$0.001 (€0.001)). The improvement in NAV follows the completion of the restructuring of the loan supporting Riviera Shopping City in June 2018.

The main shareholders in AREOF are:

Entity	No of Shares	%
Argo Distressed Credit Fund	175,694,400
Argo Special Situations Fund LP	300,396,609
Argo Group Limited	30,056,500
Total	506,147,509	83%

2018 saw a sharp fall in valuations across most asset classes, driven by a number of factors including global growth slowdown fears; political uncertainty in both developed and emerging markets; US dollar strength amidst Fed quantitative tightening and interest rate hikes; and conflict between the US and some of its major trading partners, most notably China. As a result, investors were quick to call the end to both equity and fixed income bull markets. Emerging markets were not immune from the change in sentiment and in addition were affected by the currency crises in Argentina and Turkey. The NAV of TAF fell by 5.65% in 2018, compared with a gain of 10.7% the previous year. The Group's flagship fund is a diversified debt and macro fund which seeks to capture alpha through long and short investment in EM corporate, sovereign and liquid distressed credit and FX. TAF also uses a macro hedging overlay strategy to actively manage portfolio duration, volatility and correlation which helped pare losses during the year as it suffered on the back of the aforementioned EM crises and some trades which were affected by idiosyncratic factors. In particular, the fund's exposure to Argentina and Venezuela weighed on the portfolio although TAF's bottom up focused investment style allowed it to avoid various credit events and generated reasonable results considering theoverall market environment. Investors are likely to continue being selective in 2019, focusing on countries where economic growth differentials are widening versus developed markets, fiscal policy remains responsible and external vulnerabilities are kept in check. For specific EM countries, domestic politics will play an important role in performance, with delivery from newly elected leaders important in several big Latin American countries, most notably Brazil. Indonesia has its presidential poll in April - where our expectation is that Jokowi will be re-elected - and India is also holding a general election in May.

Credit differentiation will continue to be key in 2019, with a focus on issuers with attractive uncorrelated investment cases, solid liquidity and low refinancing risk. The AUM of TAF was US$79.7 million at the end of the year and marketing activity is being continued with the objective of reaching an AUM level that would make the fund qualify for investment from institutional investors.

The NAV of ADCF rose a more modest 1.58% in 2018. The fund's largest position related to the leasing of a catalyst to an Indonesian refinery. Litigation had been commenced in Singapore in an effort to resolve the impasse between the ADCF and the debtor, but a settlement was finally agreed in September 2018 which resulted in a partial cash disbursement. It is anticipated that the balance of the monies owed will be realised in the first half of 2019.

ASSF also benefited from the litigation settlement referred to earlier. Its NAV rose by 26.8%, but this was due to approximately one third of investors participating in a tender offer at a discount to NAV which utilised proceeds from the Indonesian leasing receivable.

Dividends

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

The Board will make a separate announcement on 7 March 2019 regarding a return of capital to shareholders via a buyback of shares.

Outlook

As previously stated, a significant increase in AUM is still required to ensure sustainable profits on a recurring management fee basis. The Group is well placed with capacity to absorb such an increase in AUM with negligible impact on operational costs.

Raising AUM remains Argo's top priority over the coming year. The Group's marketing efforts continue to focus on TAF which has an 18 year track record. However, the Group continues to seek opportunities to increase AUM either through existing fund structures or by identifying external partners with whom.to cooperate.

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

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2018

Year ended 31 December 2018 US$'000

Year ended 31 December 2017

Note

US$'000

Management fees Performance fees Other income

Revenue

4,086 4,165

268 5,887

245 208

2(e), 3

4,599 10,260

Legal and professional expenses Management and incentive fees payable Operational expenses

Employee costs Foreign exchange gain Bad debts Depreciation

Operating (loss)/profit

(361) (289)

(70) (68)

(1,005) (1,022)

4

(2,604) (5,728)

1

(31)

11 9 6

(1,350) (1,110)

(12) (26)

(802) 1,986

Interest income on cash and cash equivalents Realised and unrealised (losses)/gains on investments

(Loss)/profit on ordinary activities before taxation

194 (600)

200 2,549

3

(1,208) 4,735

Taxation

(Loss)/profit for the year after taxation attributable to members of the Company

Other comprehensive income

Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations

Total comprehensive income for the year

7 8

(28) (194)

(1,236) 4,541

(155) 250

(1,391) 4,791

Year ended 31 December 2018 US$

Year ended 31 December 2017 US$

Earnings per share (basic)

Earnings per share (diluted)

8 8

(0.03) 0.10

(0.02) 0.09