TIDMAOF
RNS Number : 6552M
Africa Opportunity Fund Limited
30 April 2018
30 April 2018
Africa Opportunity Fund Limited (AOF.L and AOFC.L)
Announcement of Annual Results for the Year ended 31 December
2017
The Board of Africa Opportunity Fund Limited ("AOF", the
"Company" or the "Fund") is pleased to announce its audited results
for the year ended 31 December 2017. The Company's full annual
report and financial statements will shortly be sent to
shareholders and will be available to view and download from the
Company's website at www.africaopportunityfund.com.
The following text and financial information does not constitute
the Company's annual report but has been extracted from the annual
report and financial statements for the year ended 31 December
2017.
The Company
Africa Opportunity Fund Limited ("AOF" or the "Company") is a
Cayman Islands incorporated closed-end investment company traded on
the Specialist Fund Segment ("SFS") of the London Stock Exchange
("LSE"). AOF's net asset value on 31 December 2017 was US$69.6
million and its market capitalisation was US$54.6 million.
Chairperson's statement
2017 Review
2017 was a respectable year for the Africa Opportunity Fund (the
"Fund" or "AOF"), a decent year for world markets, and another
buoyant year for emerging markets.
Recovery sank deeper roots in Africa. The 17% rise in crude oil
prices to $67 completed a second positive year for oil producing
countries. The 14% rise in the gold price and the 31% rise in the
copper price also increased the quantum of foreign exchange earned
by African countries, while the general decline in agricultural
commodity prices helped to increase the disposable income of
African consumers. Nigeria, in Q3 2017, joined Egypt in officially
devaluing its currency, followed by an end to its recession.
African economic recovery accompanied uneven but deepening respect
for independent judicial determinations of national electoral
disputes. Kenya illustrated these developments, first, when its
Supreme Court accomplished an African first by annulling a flawed
Presidential election and, second, by that Supreme Court affirming
the outcome of Kenya's second election. Kenya's opposition refused
initially to accept the outcome of the second election, which it
had boycotted, but recent events suggest a change of heart by the
opposition, to the ultimate benefit of Kenya. The resignation of
President Robert Mugabe, after a military intervention and mass
demonstrations, opened a new chapter in Zimbabwe's democratic life.
The last example of involuntary, but peaceful, political change
occurred in South Africa, which witnessed the recent resignation of
former President Jacob Zuma. Yet, declarations of lengthy states of
emergency and other authoritarian tendencies in a number of African
countries caution that the journey to constitutional democracy
remains long and winding. Three decades ago, each of Africa's four
regions was led by an autocratic economic powerhouse. It is
progress, today, that a majority of those powerhouses are
democracies. In its decade of existence, the Fund has invested in
democracies, autocracies, and monarchies. Its investments have
suffered the consequences of civil war on occasion, but, lately,
have become more frequent surfers of peaceful waves of change.
Unquestionably, the spread of democratic trends has been
friendliest to the Fund because it has enabled the Fund's manager
to lengthen its investment horizon across electoral cycles in its
quest for strong long-term returns. As other Africa investors also
lengthen the periods over which they calculate their returns, the
cost of capital should decline, both widening the range of possible
investments and increasing the attractiveness of Africa as an
investment destination. Thus, peaceful change serves as a catalyst
for African economic development.
Africa's young population confronts a fierce urgency to become
the fastest growing source of globally competitive workers. There
is little chance of reining in that urgency unless African
governments collect more revenue from their economies, Africa
increases dramatically its investment in infrastructure, and the
productivity of African agriculture, especially for locally
consumed staple foods, soars towards the levels found on other
continents. A recent issue of the Economist pointed out that meat
is more expensive in Ghana than the United States.([i]) It is also
axiomatic that the fewer the barriers to continental-scale free
trade in a large landmass, the higher the possible economic growth
rate in that land mass. The United States of America is Exhibit A
for that axiom. With the smallest percentage of intra-continental
trade, Africa is literally the polar opposite of the United States:
one poor, the other rich; one a patchwork of legal, jurisdictions,
languages and national currencies, the other, a unified free trade
zone united by language and currency. Firms seeking to become
African multinationals, firms creating and running African
infrastructure networks, and firms seeking to profit from increases
in African agricultural productivity should be profitable agents of
economic development. Investee companies of the Fund-Letshego, for
example-born in Botswana and present now in countries like Nigeria;
Dangote Cement-operating from Senegal to Ethiopia to Zambia; and
Enterprise Group which is just completing a rights offer for
capital to expand into Cote d'Ivoire and Nigeria-typify emerging
African multinationals. Kenya Power's aggressive capital
expenditure program is designed to turn Kenya into a key energy hub
of the East African power pool when it moves power from Ethiopia to
other countries like Uganda and Tanzania.
Undoubtedly, the diverse operations of multinational companies
expose them to far flung controversies and problems. Witness
Anglogold Ashanti's current battles against tax and royalty hikes
in both Tanzania and the Democratic Republic of Congo, and the
glacial pace of VAT refunds out of Tanzania. Nevertheless, the Fund
seeks to benefit from the fulfillment of these structural African
needs.
AOF's 2017 strategy focused on expanding equity exposure to gold
producers. In Q4, it started to raise its net exposure to
accelerating household expenditure patterns. The Fund also reduced
sharply its bond portfolio while selling some of its electric
utility securities. It curtailed its Rand denominated short
positions.
The net asset value per share of the Fund's ordinary shares rose
by 16.9%. To provide some basis for comparison, South Africa rose
34%, Nigeria rose 30%, Kenya rose 35%, and Egypt rose 35%. In
non-African emerging markets, China rose 32%, Brazil rose 25%,
Russia rose 6% and India rose 38%. In developed markets, Japan rose
25%, the US rose 22%, Europe rose 27%, and the UK rose 22%.([ii])
The larger and more liquid African markets attracted the lion's
share of portfolio investment directed into Africa. Within those
markets, the more liquid companies outperformed in this stage of
Africa's recovery. In time, the less liquid will get a chance to
shine. In that context AOF's thesis and strategy of seeking to
purchase the strong growth prospects of various African industries,
without regard to the liquidity characteristics of its investee
companies and without paying too much for them at the time of
investment, means the Fund remains an excellent investment vehicle
for the long term investor.
2018 Outlook
2018 promises to be a good year. Kenya's economy will enter a
recuperative phase, as its new government tackles its growing debt
burden. Ghana, Cote d'Ivoire, Senegal, and Egypt are expected to
enjoy strong economic growth in 2018. The rising crescendo of trade
war threats is a worry, however, the Fund's portfolio gives it
ample scope to participate in, and profit from, Africa's visible
growth prospects. The Fund's closed-end structure has allowed it to
invest in high quality issuers without focusing on liquidity, even
if that freedom has come at the price of volatile discounts between
net asset value per share and market price per share. A closed-end
investment company, like AOF, benefits from having long-term
liabilities, unlike open-ended funds which have the short-term
monthly or daily redemption liability.
We expect our appeal of the Shoprite arbitral award to be heard
later this year. In the wake of the award, The Fund merged the C
Share and Ordinary Share capital pools in August 2017.
Concluding Thoughts
In closing, we extend our thanks to our shareholders for their
support and partnership and look forward to continuing to work with
you in the years to come.
Dr. Myma Belo-Osagie
Chairperson
April 2018
Manager's report
2017 Review
2017 marked the tenth full year of operation of Africa
Opportunity Fund ("the Fund" or "AOF"). It marked also the merger
of the "C shares" with the original issue of the Fund's shares
(hereinafter referred to as "A shares"). The A shares had an annual
return of 16.9%. At year-end, AOF held $61.2 million in equity
securities, $4.9 million in debt securities, $3.5 million in cash;
and derivative and short sale liabilities equal to $3 million. The
Fund's underlying end-of-year holdings were in Botswana, Cote
d'Ivoire, Egypt, Ghana, Kenya, Nigeria, Senegal, South Africa,
Tanzania, Uganda, Zambia, and Zimbabwe. Our lodestar for measuring
the Fund's portfolio is our estimate of its appraisal value per
share. That subjective estimate measures the Manager's view of the
long-term attractiveness of the portfolio, which we publish
quarterly in our newsletters. It was $1.14 per share at the end of
2017 versus $1.17 per share at the end of 2016 for the A
Shares.1
AOF's ordinary share NAV, including dividends, rose 16.9% in
2017. It has declined 6% over the last three years and 0.5% over
the last five years. For comparative perspective, see the table
below which highlights the challenges encountered by Africa and
certain emerging market investors over recent years.
Comparative Returns
-----------------------------------------
Index/Security 1 Year 3 Year 5 Year
AOF NAV 16.9% -6.0% -0.5%
Lyxor Africa ETF 26.3% 13.7% -10.1%
DBX MSCI Africa
Top 50 25.6% 1.8% 1.6%
VanEck Vectors
Africa 28.2% 2.7% -10.1%
Brazil Bovespa 24.7% 22.4% -22.5%
Russia Micex 5.7% 67.3% -5.7%
India Sensex 37.8% 27.8% 61.4%
China CSI 300 32.2% 15.2% 76.3%
US S&P 500 21.6% 37.8% 106.5%
There were three main reasons for the Fund's 2017 performance.
The Fund's investments in top members of national or continental
African oligopolies, represented by companies like Enterprise Group
and Copperbelt Energy Corporation, delivered strong returns. Those
companies enabled the Fund's performance to keep pace with the
general inflow of funds into the larger and more liquid African
markets. The second reason was our currency hedges (principally the
Fund's longstanding Euro hedge), suffering losses from a weakening
Dollar. Finally, the merger of the Fund's two share classes came
with some unique event-specific costs.
The Fund's portfolio comprises four principal categories: the
securities of top members of national or continental African
oligopolies; the securities of companies with large assets ignored
by capital markets; high yielding African corporate debt
denominated in freely tradeable currencies; and, where
cost-effective, currency hedges and short positions against
over-indebted African consumers. Several AOF companies are national
or continental leaders in their industries, whether measured by
profitability or balance sheet quality or market position. They
lead industries, such as electricity networks or cement production,
which must grow their profits at a higher rate than African GDP
growth rates for Africa to satisfy the urgent demands of its
denizens for a better life. The major portfolio change of 2017 was
to reduce the Fund's bond portfolio, while trimming its currency
hedges and short positions. As the prices of its bonds rallied to
par, with a constant drumbeat of rising Fed interest rates, the
Fund reduced its debt holdings from 25% of its net asset value, at
the beginning of 2017, to 7% at year-end 2017. The proceeds of
those bond disposals were reinvested in national oligopolies and
companies with large assets ignored by capital markets.
Enterprise Group provided the largest returns to the Fund in
2017, amounting to 5 cents per share. The Fund's position in
Enterprise Group - 17.9% of the Fund - evinces the Fund's approach
of taking large positions in companies expected to generate larger
profits over long periods. In the words of Warren Buffet:
"Your goal as an investor should simply be to purchase, at a
rational price, a part-interest in an easily-understandable
business whose earnings are virtually certain to be materially
higher five, ten, and twenty years from now. Over time, you will
find only a few companies that meet these standards-so when you see
one that qualifies, you should buy a meaningful amount of
stock."(2)
Our preferred investment approach is to build a long-term
concentrated holding in a sector growing at a more rapid rate than
an African country's underlying GDP growth rate: life assurance,
property and casualty insurance, and pension administration - three
of Enterprise's fields of operation - fit the bill. Gross insurance
proceeds, for example, grew at a 10% annual compounded rate, in US
Dollars in spite of a 62% depreciation of the Cedi against the
Dollar, from 2009 until 2015 while Ghana's real gross domestic
product grew at an annual rate of 7.3% over that six year
period.(3) Yet, insurance penetration (insurance premia as a
percentage of Ghana's gross domestic product) at the end of that
period was a minuscule 1.17%).(4) In the case of pension assets,
total private assets under management of licensed pension trustees,
like Enterprise Trustees, rose at an annual 147% compounded rate
from $26 million in 2012 to $973 million in 2016 in the face of a
56% depreciation of the Cedi against the Dollar.(5) These absolute
numbers may be minute by global standards; their compounded growth
rates are far from minute. Enterprise Group is a holding company
with majority and wholly-owned operating subsidiaries in six
Ghanaian fields: a 60% life assurance subsidiary with the largest
market share in that field; a 60% property and casualty insurance
subsidiary which has the second largest market share; a 60%
pensions administrator subsidiary which has the largest market
share in Ghana's new private pensions industry; a 100% owned
property development subsidiary; a 60% indirect subsidiary in the
funeral services field; and a majority-owned life assurance
subsidiary in Gambia. Enterprise's end of 2017 market
capitalization was $109.7 million, valuing it on a Price/Book ratio
of 2.2x, with a return on average shareholders' equity of 24% and a
return on average assets of 9%. The Fund's US Dollar 1, 3 and 5
year total returns for Enterprise were, respectively, 47%, 54%, and
269%.
2017 was a dramatic year for Enterprise, as it prepared for a
growth surge within Ghana and West Africa. It reported respectable
results: in Dollar terms, net written premiums rose 9% to $87
million while net profit leapt 45% to $11.9 million because of
strong investment returns. The rate of increase in Enterprise's
claims and expenses bear watching because they are climbing at a
faster rate than premiums, warning of deteriorating underwriting
discipline and cost control. Enterprise's float (investible funds
owed to policyholders before receipt of claims), in Dollars, rose
27% from $81 million in 2016 to $103 million at the end of 2017.
Admittedly, float of a life assurance company has less investment
flexibility than the float of a property and casualty company. In
the words of Warren Buffet, "Unlike bank deposits or life insurance
policies containing surrender options, p/c float can't be
withdrawn. This means p/c companies can't experience massive runs
in times of widespread financial stress, a characteristic of prime
importance to Berkshire that we factor into our investment
decisions."(6) The drama lay in Enterprise's decision to terminate
its 16 year-old joint venture with Sanlam of South Africa to
commence a new partnership with Prudential Financial Inc. of the US
and Leapfrog of South Africa. Enterprise believes that "technical
as well as financial support" from its new partner will be "a key
part of achieving its goal of becoming a USD 1 billion company over
the next 5-10 years."(7) That is high ambition. To realize that
goal, Enterprise proposes to expand into Ghanaian health care
insurance and build its real estate portfolio. It also intends to
enter the Nigerian and Ivorian markets. In the Fund's experience,
Nigeria has been a fount of corporate humiliation for those of its
investee companies which have ventured onto its shores. The spread
between risk-free rates and inflation in Cote d'Ivoire is much
tighter than in Ghana. Finally, Nigeria and Cote d'Ivoire already
possess some formidable operators. Nevertheless, it is right to
seek to become a regional force. That quest gives Enterprise, and
its shareholders, several more options to continue its record of
strong profitable growth for many more years.
The Fund has been exposed to the electric utility sector almost
since inception. It made its first purchase of ordinary shares of
Copperbelt Energy Corporation ("Copperbelt") in its initial public
offering of December 2017. Except for a large disposal of
Copperbelt shares in April 2009, as a consequence of AOF's
shareholders decision to reduce the Fund, our strategy has been one
of accumulating Copperbelt shares. With a December 31, 2017 market
capitalization of $234 million, an enterprise value of $239
million, a 0.67x P/B ratio, a 5x P/E ratio, a 2.4x EV/EBITDA ratio,
a dividend yield of 9%, a return on average assets of 13%, and a
return on average equity of 15%, Copperbelt was an ignored orphan
stock. It has the dubious distinction of suffering a decade-long
drought of analyst coverage. We have yet to read our first
sell-side analyst report about Copperbelt.
Analyst amnesia about Copperbelt was favorable for the Fund in
2017, as Copperbelt generated a total return of 80% and the Fund's
second largest returns of 2017 of 4.9 cents. Since year-end, CDC
Group PLC, the oldest development finance institution solely owned
by the government of the United Kingdom, and Africa Infrastructure
Fund 1 K/S, a recently established Danish fund focused on the
energy and transportation sectors, have offered to acquire
Copperbelt shares at a price of $0.238/share (including its March
2018 dividend). The Fund will accept this offer. By so doing, this
investment would have generated an internal rate of return of 23%.
The Fund's impending exit justifies some reflection about its
experience in that investment. The Zambian kwacha had a value
around ZMW3.85/$ in December 2007. It dropped to a low of
ZMW14.25/$ in November 2015 and has recovered to a current level of
ZMW 9.64/$. It's fair to describe the Kwacha as a yo-yo mimicking
the volatile price behavior of copper, Zambia's principal export
and revenue source of all of Copperbelt's customers. Offsetting
mildly the Kwacha's sinking traits, Zambia was perceived as the
123rd most corrupt state in Transparency International's 2007
Corruption Perception Index. Its rank had risen to 96th most
corrupt state in the 2017 survey, a far from desirable position.
Yet, the simple fact of the matter was that Copperbelt was an oasis
of dollar revenue and profit profitability in Zambia because it
provided an essential service for Zambia to earn most of its export
revenues. We
believed that Zambia's copper production would rise, as would
that of the Democratic Republic of the Congo. We also believed that
electricity tariffs were too low to finance new electricity
generation and transmission capacity, therefore, tariffs were bound
to rise over time. Copperbelt has accomplished most of what it set
forth in its 2007 prospectus and its rights offering in 2015. It
entered a new business activity-power trading, mainly in the
Democratic Republic of Congo. To be sure, it has made errors in
this decade as a listed company. Its foray into Nigeria has proved
to be a source of sobering and gargantuan losses. Still, the
overall results are impressive. Revenues and profits after tax
rose, 195% and 562%, from $132 million and $7.3 million in 2007 to
$389 million and $48.3 million in 2017. It has a five year record
of steady Zambian EBITDA growth: $47 million (2013); $60 million
(2014); $80 million (2015); $92 million (2016); and $102 million
(2017). Free cash flow rose sixfold from $9.1 million in 2007 to
$58.5 million (fourfold, after adjusting for the additional shares
issued in 2015). Between 2013 and 2015, Copperbelt's share price
fell by 66% to a low of 4.2 cents per share. 60% of the Fund's
cumulative purchases of Copperbelt shares were made in the
2013-2015 period, as Copperbelt's share price seemed in endless
fall. Our comfort derived from both the improving profit profile of
the Zambian operations and those Zambian profits not serving as
guarantee for the loss-making Nigerian investments. In the end,
profits and returns on equity and capital overrode turbulent share
price behavior to determine the long-term value of Copperbelt.
The Fund sold its shares of Lydec of Morocco in November, after
a 2.5 year holding period. The internal rate of return for the
Lydec investment was 20% and the holding period return was 58%. A
subsidiary of Suez Environment of France, Lydec distributes
electricity and water in, and treats the sewage of, Casablanca
under a concession. Lydec's payout ratio rose beyond 90%, as its
return on equity declined to 10% from 16% when the Fund invested in
Q2 2015. Meanwhile, it traded on a P/B ratio above 2.5x, a P/E
ratio of 27x, and a sub-4% dividend yield with pedestrian growth
prospects. It was best to recycle our Lydec profits into faster
growing opportunities. Kenya Power is the Fund's remaining utility
investment.
An example of "faster growing opportunities" is represented by
the Fund's Q4 investment in Naspers. We were attracted to Naspers
by the market's complete discount of its profitable African assets,
and Internet investments, other than Tencent of Hong Kong. The
simplest way to understand Naspers is to divide it into three
assets: a 31.12% equity interest in Tencent; other Internet
investments; and its African video entertainment and media assets.
By market capitalization, Naspers is the largest African domiciled
company. It is the no. 1 operator of video and entertainment in
sub-Saharan Africa. Outside Africa, it is one of the better global
Internet venture capital funds. At the time of our investment in
its ordinary shares, it had a market capitalization of $117 billion
and an enterprise value of $118.8 billion. Its entire enterprise
value was 77.4% of the value of its stake in Tencent alone,
implying that its non-Tencent balance sheet destroyed 22.6% or $37
billion of its Tencent investment]. To put the scale of that
perceived value destruction in perspective, it is comparable to the
entire $41 billion market capitalization of the Nigerian stock
exchange. It was a harsh judgment of Naspers's management, as well
as its non-Tencent investment portfolio. Naspers valuation ratios
(P/E and cash flow ratios) fall squarely outside the Fund's typical
valuation criteria. Consequently, some explanation is warranted
about the Fund's foray onto Naspers' share register. The Fund has
invested twice in Naspers-first from Q1 2010 to Q4 2012 and second
from Q1 2014 to Q1 2015. On both occasions, Naspers was valued at a
discount to the sum of its parts. In both cases, the Fund elected
to sell short Tencent shares corresponding to Naspers's equity
interest Tencent while owning Naspers ordinary shares to accentuate
the Fund's exposure to the Africa portfolio of Naspers. That
strategy was profitable-delivering a handsome gross return on the
Fund's net investment (the sum of long positions in Naspers minus
short positions in Tencent). We elected in Q4 to dispense with
shorting Tencent shares and to own only ordinary shares of Naspers.
Clearly, we did not endorse the market's judgment about the
non-Tencent assets.
There are a variety of possible reasons for the market's harsh
verdict about Naspers' non-Tencent assets. The first possible
reason could be that Naspers' investments are owned in a
tax-inefficient manner, inflicting tax exactions on the flow of
income or capital gains from investment to Naspers' shareholder. A
second reason might be that the non-Tencent assets of Naspers earn
less profits than the cost of capital of those assets. A third
possible reason could be that demand for Naspers' shares are
suppressed by exogenous factors like its 20%+ heavy weighting in
the JSE Allshare index compelling several domestic South African
investors to be underweight in Naspers to avoid concentration risk
or foreign investors using Naspers as a proxy to express their
fears or worries about South Africa in general via selling or
buying shares of Naspers. The first reason does not seem to be a
material factor because Naspers has been able to trade its assets
without incurring large tax bills. There is more substance to the
second reason. After all, since 2007, Naspers has invested about $8
billion in several Internet-related investments like the OLX Group
in online classifieds, Delivery Hero in food delivery, Pay U in
payment systems, and Makemytrip for Internet-based travel services.
Despite the rising valuations of several of those Internet-related
investments, evidenced by rising valuations in capital raising
rounds and independent assessments of powerful customer support,
several of Naspers' Internet investments are yet to become EBITDA
positive, let alone profitable in an accounting sense.
Nevertheless, it is hard to see how an $8 billion investment, even
if it were 100% funded by debt, could lead to a loss in value
exceeding $16 billion. That leaves Africa as another potential
factor supporting the second reason. It is true that Naspers'
Sub-Saharan Africa video and entertainment portfolio, outside South
Africa, has suffered a great deal since 2014 as consumers in
Nigeria and Angola, in particular, bore the brunt of deep declines
in income levels matching the collapse of the crude oil price. It
is worth remembering, though, that Naspers' Africa video and
entertainment portfolio has remained profitable, in great part
because its South African business remained exceedingly profitable.
Multichoice South Africa Holdings, the entity housing Nasper's 80%
interest in South African digital to house (or pay-tv) and digital
terrestrial television operations, had a return on average equity
of 83% in its 2017 financial year, a return on average equity of
54% for H1 2018 alone, a return on average assets of 26% for 2017,
and a return on average assets of 13% for H1 2018 alone. Naspers
received more than twice as much in dividends from Multichoice than
from Tencent in 2016 and 2017-$730 million versus $324 million. To
provide some perspective for Multichoice's exceptional
profitability, Sky PLC in the UK generated twice as much profit for
the year ended June 2017 as Multichoice from 5 times Multichoice's
2017 revenues, with a return on assets of 4% and return on equity
of 19%. Sky PLC's market capitalization at the end of Q1 2018 was
$31 billion versus Multichoice's $2.5 billion market capitalization
implied by the over-the-counter trading of restricted shares among
its black South African shareholders. Africa cannot be a
contributing factor to the second reason. In fact, the second
reason becomes all the less persuasive when one remembers that
Naspers has holdings in listed Internet companies, like Mail.Ru,
which are both liquid and substantial in value. Thus, by
elimination, the Fund concluded that the third reason of exogenous
factors constitutes the most likely cause for the huge discount at
which Naspers trades to the sum of its parts.
To believe that Naspers' non-Tencent Internet and Africa
holdings were grossly undervalued was insufficient to justify an
investment in Tencent because all its current market valuation
represents its investment in Tencent, a $496 billion internet and
mobile value-added services and advertising colossus. Tencent had
almost doubled in value in the last 12 months alone and traded at
lofty valuations at the end of Q1 2018-a 43x P/E ratio, a P/B ratio
of 12x with a return on equity of 33% and a return on assets of 15%
and a 30% unlevered sustainable annual growth rate in profits. It
is easy to imagine Tencent, or other Internet giants like AliBaba,
Google, Facebook, Amazon at half their current valuations. Why,
then, buy Tencent indirectly through Naspers?
An investment in Tencent is a holding in a producer of copious
rising amounts of free cash flow. It is one of the largest global
video mobile and personal computer game publishers; one of the two
major Chinese mobile payment platforms; digital advertiser;
subscription offeror for music, video, and movies; and e-commerce
platform. Tencent is an amalgam of Facebook, Whatsapp, Youtube,
Paypal, Playstation, Apple Music, and credit stations in one. It
has a suite of low capital-intensive and high return activities, a
management team focused on creating superb customer experiences,
and an ever-spreading social network used by Chinese denizens for
chatting, shopping, working, money transfers, and bill payments.
The fecund source of its free cash flow, though, nestles in its
gaming activities-gaming's gross profit margins hover around 60%,
accounting for approximately 80% of Tencent's overall gross
profits, an unusual - (or negative) 95 days cash conversion cycle,
and two months of zero interest cash advances (classified as
deferred revenue liabilities) from gamers and other parties. It is
exceedingly tough to remain a perpetual top game publisher; only
time will tell whether Tencent qualifies in that exclusive group.
Tencent is also one of an emerging Chinese duopoly; the other
member is Alibaba. Over the long-term, the annual return on an
investment will rise (or decline) to the underlying return on
invested capital of that investment. Consequently, so long as the
Fund believes that Tencent remains an extremely profitable company
with secure defenses to protect its free cash generating
activities, the long-term return should approximate the long-term
return on invested capital of Tencent. That return should be a
handsome double digit return. Thus, the discount of Naspers' EV to
its Tencent investment plus the ignored assets of Naspers provide a
margin of safety when seeking indirect exposure to Tencent.
The Fund's financial liabilities (written options, equities sold
short, contract for differences) generated losses of $1.2 million
in 2017. Since 2009, the Fund has generated a cumulative gain of
$2.9 million from its financial liabilities. Other loss-incurring
years were 2009, 2012, and 2016.
Our review of 2017 would be incomplete without an update about
the Shoprite arbitration. We expect our appeal of the arbitral
award to be heard later in the year.
We end with a statement of our investing philosophy. The key
elements of the investment strategy for the Fund are:
Material discounts to intrinsic value: The Fund invests
primarily where and when an investment can be made at a material
discount to the Manager's estimated intrinsic value.
Company preference: The Fund prefers companies which demonstrate
both high real returns on assets and an earnings yield higher than
the yield to maturity of local currency denominated government
debt.
Industry focus rather than country focus: The Fund seeks to
invest in industries it finds attractive with little regard to
national borders.
National resource discounts: The Fund seeks natural resource
companies whose market valuations reflect a discount to the spot
and future world market prices for those natural resources.
"Turnaround" countries: The African continent is home to a large
number of reforming or "turnaround" countries. "Turnaround"
countries combine secular political reform with the opening of
industries to private sector participation.
Balkanized investment landscape: The Fund seeks to invest in
companies with low valuations in relation to peers across the
continent and uses an arbitrage approach to provide attractive
investment returns.
Point of entry: The Fund seeks the most favorable risk adjusted
point of entry into a capital structure, whether through financing
a new company or acquiring the debt or listed equity of an
established company.
Africa offers several attractive investment opportunities,
exemplified by the Fund's own portfolio of undervalued companies.
We remain interested in industries which have products in short
supply in Africa that rely more on domestic African demand than
global growth. We are hunting in those terrains for compelling
equity investments. We expect the outcome of our hunt to be a
portfolio that delivers both capital growth and income into the
future.
Francis Daniels
Africa Opportunity Partners
April 2018
Directors' Confirmation
The Directors listed on page 21, being the persons responsible
within the Company, hereby confirm to the best of their
knowledge:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and
-- the Chairman's Statement and Investment Manager Report, and
Condensed Notes to the Financial Statements include a fair review
of the development and performance of the business and the position
of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2017
Notes 2017 2016
---------------------- ---------------------
USD USD
Income
Net gains on investment
in subsidiaries at fair
value
through profit or loss 6(a) 14,070,922 -
14,070,922 -
---------------------- ---------------------
Expenses
Net losses on investment
in subsidiaries at fair
value
through profit or loss 6(a) - 2,968,932
Management fee 1,123,456 1,111,055
Custodian fees, brokerage
fees and commissions 39,400 90,497
Other operating expenses 61,190 158,860
Directors' fees 180,805 179,706
Audit fees 82,772 81,589
1,487,623 4,590,639
---------------------- ---------------------
Total comprehensive income
for the year/(decrease)
in net assets attributable
to shareholders
from operations 12,583,299 (4,590,639)
====================== =====================
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2017
Notes 2017 2016
-------------------- -------------------------
USD
ASSETS
Cash and cash equivalents 8 91,767 12,604
Trade and other receivables 7 - 23,545
Investment in subsidiaries 6(a) 72,355,138 58,284,216
Total assets 72,446,905 58,320,365
-------------------- -------------------------
EQUITY AND LIABILITIES
LIABILITIES
Trade and other payables 10 3,198,832 1,655,591
Total liabilities 3,198,832 1,655,591
-------------------- -------------------------
Net assets attributable
to shareholders 69,248,073 56,664,774
==================== =========================
Net assets attributable
to:
- Ordinary shares 9(b) - 33,719,116
- Class C shares 9(b) - 22,945,658
-------------------------
Net assets attributable
to shareholders - 56,664,774
==================== =========================
Ordinary share capital 748,496 -
Share premium 37,921,452 -
Retained earnings 30,578,125 -
Total equity 69,248,073 -
==================== =========================
Net assets value per
share:
- Ordinary shares 9(b) 0.925 0.791
- Class C shares 9(b) - 0.786
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARED 31 DECEMBER 2017
Net assets
Number Ordinary Class Attributable
of C to
units Shares Shares shareholders
------------------------------- --------------------------- --------------------------- ----------------------------
USD USD USD USD
At 1 January
2016 71,830,327 37,287,967 23,967,446 61,255,413
OPERATIONS:
Decrease in
net
assets
attributable
to
shareholders
from
operations - (3,568,851) (1,021,788) (4,590,639)
------------------------------- --------------------------- --------------------------- ----------------------------
At 31 December
2016 71,830,327 33,719,116 22,945,658 56,664,774
=============================== =========================== =========================== ============================
At 1 January
2017 71,830,327 33,719,116 22,945,658 56,664,774
OPERATIONS:
Increase in
net
assets
attributable
to
shareholders
from
operations - 11,419,202 3,372,697 14,791,899
Conversion of
Class
C Shares
into Ordinary
Shares 3,019,279 26,318,355 (26,318,355) -
At 22 August
2017
- transfer to
Statement of
changes
in equity (74,849,606) (71,456,673) - (71,456,673)
------------------------------- --------------------------- --------------------------- ----------------------------
At 31 December - - - -
2017
=============================== =========================== =========================== ============================
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2017
Share Share Retained
Capital Premium Earnings Total
------------------------ -------------------------- --------------------- ---------------------
USD USD USD USD
At 1 January - - - -
2017
At 22 August
2017
- transfer
from
Statement of
changes
in net assets 748,496 37,921,452 32,786,725 71,456,673
OPERATIONS:
Loss for the
period - - (2,208,600) (2,208,600)
------------------------ -------------------------- --------------------- ---------------------
At 31 December
2017 748,496 37,921,452 30,578,125 69,248,073
======================== ========================== ===================== =====================
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2017
Notes 2017 2016
--------------------------- -----------------------------
USD USD
Operating activities
Total comprehensive income
for the year/decrease in
net
assets attributable to shareholders
from operations 12,583,299 (4,590,639)
Adjustment for non-cash
items:
Unrealised (gain)/loss on
investment in subsidiaries
at
fair value through profit
or loss (14,070,922) 2,968,932
--------------------------- -----------------------------
Cash used in operating activities (1,487,623) (1,621,707)
--------------------------- -----------------------------
Net changes in operating
assets and liabilities
Net proceeds from investment
in subsidiaries 6(a) 3,048,160 -
Decrease in trade and other
receivables 23,545 416,553
(Decrease)/increase in trade
and other payables 1,543,241 1,215,465
--------------------------- -----------------------------
Net cash generated from
operating activities 1,566,786 1,632,018
--------------------------- -----------------------------
Net increase in cash and
cash equivalents 79,163 10,311
Cash and cash equivalents
at start of the year 12,604 2,293
--------------------------- -----------------------------
Cash and cash equivalents
at end of the year 91,767 12,604
=========================== =============================
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2017
1. GENERAL INFORMATION
Africa Opportunity Fund Limited (the "Company") was launched
with an Alternative Market Listing "AIM" in July 2007 and moved to
the Specialist Funds Segment "SFS" in April 2014.
Africa Opportunity Fund Limited is a closed-ended fund
incorporated with limited liability and registered in Cayman
Islands under the Companies Law on 21 June 2007, with registered
number MC-188243.
The Company aims to achieve capital growth and income through
investment in value, arbitrage, and special situations investments
in the continent of Africa. The Company may therefore invest in
securities issued by companies domiciled outside Africa which
conduct significant business activities within Africa. The Company
has the ability to invest in a wide range of asset classes
including real estate interests, equity, quasi-equity or debt
instruments and debt issued by African sovereign states and
government entities.
The Company's investment activities are managed by Africa
Opportunity Partners Limited, a limited liability company
incorporated in the Cayman Islands and acting as the investment
manager pursuant to an Amended and Restated Investment Management
Agreement dated 12 February 2014.
To ensure that investments to be made by the Company and the
returns generated on the realisation of investments are both
effected in the most tax efficient manner, the Company has
established Africa Opportunity Fund L.P. ("the Master Fund") as an
exempted limited partnership in the Cayman Islands. All investments
made by the Company are made through the limited partnership. The
limited partners of the limited partnership are the Company and AOF
CarryCo Limited. The general partner of the limited partnership is
Africa Opportunity Fund (GP) Limited. Africa Opportunity Fund
Limited includes 100% of Africa Opportunity Fund (GP) Limited.
The financial statements for the Company for the year ended 31
December 2017 were authorised for issue in accordance with a
resolution of the Board of Directors on 30 April 2018.
Presentation currency
The financial statements are presented in United States dollars
("USD"). All figures are presented to the nearest dollar.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied from the prior year to the current year
for items which are considered material in relation to the
financial statements.
Statement of compliance
The financial statements are prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Basis of preparation
In the prior and current year, the Company satisfied the
criteria of an investment entity under IFRS 10: Consolidated
Financial Statements. As such, the Company no longer consolidates
the entities it controls. Instead, its interest in the subsidiaries
has been classified as fair value through profit or loss, and
measured at fair value. This consolidation exemption has been
applied prospectively and more details of this assessment are
provided in Note 4 "significant accounting judgements, estimates
and assumptions."
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires the Board of Directors to exercise its judgement in the
process of applying the Company's accounting policies. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the financial
statements are disclosed in Note 4.
The Company presents its statement of financial position in
order of liquidity. An analysis regarding recovery within 12 months
(current) and more than 12 months after the reporting date
(non-current) is presented in Note 14.
Foreign currency translation
(i) Functional and presentation currency
The Company's financial statements are presented in USD which is
the functional currency, being the currency of the primary economic
environment in which both the Company operates. The Company
determines its own functional currency and items included in the
financial statements of each entity are measured using that
functional currency. The functional currency of the Company is USD.
The Company chooses USD as the presentation currency.
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded at the
functional currency rate prevailing at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency spot rate of the
exchange ruling at the reporting date. All differences are taken to
profit or loss. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value
is determined.
Financial instruments
(i) Classification
The Company classifies its financial assets and liabilities in
accordance with IAS 39 into the following categories:
(a) Financial assets and liabilities at fair value through profit or loss
The category of the financial assets and liabilities at fair
value through the profit or loss is subdivided into:
Financial assets and liabilities held for trading
Financial assets are classified as held for trading if they are
acquired for the purpose of selling and repurchasing in the near
term. This category includes equity securities, investments in
managed funds and debts instruments. These assets are acquired
principally for the purpose of generating a profit from short term
fluctuation in price. All derivatives and liabilities from the
short sales of financial instruments are classified as held for
trading at the Africa Opportunity Fund LP (the "Master Fund")
level.
Financial assets designated at fair value through profit or loss
upon initial recognition
These include equity securities and debt instruments that are
not held for trading at the Master Fund level.. These financial
assets are designated on the basis that they are part of a group of
financial assets which are managed and have their performance
evaluated on a fair value basis, in accordance with risk management
and investment strategies of the Company, as set out in each of
their offering documents. The financial information about the
financial assets is provided internally on that basis to the
Investment Manager and to the Board of Directors. . For the
Company, financial assets designated at fair value through profit
or loss upon initial recognition include investment in
subsidiaries.
Investment in subsidiaries
In accordance with the exception under IFRS 10 Consolidated
Financial Statements, the Company does not consolidate subsidiaries
in the financial statements. Investments in subsidiaries are
accounted for as financial instruments at fair value through profit
or loss.
Derivatives - Options
Derivatives are classified as held for trading (and hence
measured at fair value through profit or loss), unless they are
designated as effective hedging instruments (however the Company
does not apply any hedge accounting). The Master Fund's derivatives
relate to option contracts.
Options are contractual agreements that convey the right, but
not the obligation, for the purchaser either to buy or sell a
specific amount of a financial instrument at a fixed price, either
at a fixed future date or at any time within a specified
period.
The Maser Fund purchases and sells put and call options through
regulated exchanges and OTC markets. Options purchased by the
Master fund provide the Master Fund with the opportunity to
purchase (call options) or sell (put options) the underlying asset
at an agreed-upon value either on or before the expiration of the
option. The Master Fund is exposed to credit risk on purchased
options only to the extent of their carrying amount, which is their
fair value.
Options written by the Master fund provide the purchaser the
opportunity to purchase from or sell to the Company the underlying
asset at an agreed-upon value either on or before the expiration of
the option.
Options are generally settled on a net basis.
Contracts for difference
Contracts for difference are derivatives that obligate either
the buyer or the seller to pay to the other the difference between
the asset's current price and its price at the time of the
contract's usage. Unrealized gains or losses are recorded at the
end of each time period that passes without the CFDs being used.
Once the CFDs are used, the difference between the opening position
and the closing position is recorded as either revenue or a loss
depending on whether the business was the buyer or the seller.
Derivatives relating to options and contracts for difference are
recorded at the level of the Master Fund. The financial statements
of the Company does not reflect the derivatives as they form part
of the net asset value (NAV.) of the Master Fund which is fair
valued.
(b) Loans and receivables
Loans and receivables are non-derivatives financial assets with
fixed or determinable payments that are not quoted in an active
market. The Company's loans and receivables comprise 'trade and
other receivables' and 'cash and cash equivalents' in the statement
of financial position.
(c) Other financial liabilities
This category includes all financial liabilities, other than
those classified as fair value through profit or loss. The Company
includes in this category amounts relating to trade and other
payables and dividend payable.
(ii) Recognition
The Company recognises a financial asset or a financial
liability when, and only when, it becomes a party to the
contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of
assets within the time frame generally established by regulation or
convention in the market place are recognised directly on the trade
date, i.e., the date that the Master Fund commits to purchase or
sell the asset.
(iii) Initial measurement
Financial assets and liabilities at fair value through profit or
loss are recorded in the statement of financial position at fair
value. All transaction costs for such instruments are recognised
directly in profit or loss.
Derivatives embedded in other financial instruments are treated
as separate derivatives and recorded at fair value if their
economic characteristics and risks are not closely related to those
of the host contract, and the host contract is not itself
classified as held for trading or designated at fair value though
profit or loss. Embedded derivatives separated from the host are
carried at fair value.
Loans and receivables and financial liabilities (other than
those classified as held for trading) are measured initially at
their fair value plus any directly attributable incremental costs
of acquisition or issue.
(iv) Subsequent measurement
After initial measurement, the Company measures financial
instruments which are classified at fair value through profit or
loss at fair value. Subsequent changes in the fair value of those
financial instruments are recorded in 'Net gain or loss on
financial assets and liabilities at fair value through profit or
loss. Interest earned and dividend revenue elements of such
instruments are recorded separately in 'Interest revenue' and
'Dividend revenue', respectively. Dividend expenses related to
short positions are recognised in 'Dividends on securities sold not
yet purchased'.
Loans and receivables are carried at amortised cost using the
effective interest method less any allowance for impairment. Gains
and losses are recognised in profit or loss when the loans and
receivables are derecognised or impaired, as well as through the
amortisation process.
Financial liabilities, other than those classified as at fair
value through profit or loss, are measured at amortised cost using
the effective interest method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised, as well as
through the amortisation process.
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Company estimates cash flows
considering all contractual terms of the financial instruments, but
does not consider future credit losses. The calculation includes
all fees paid or received between parties to the contract that are
an integral part of the effective interest rate, transaction costs
and all other premiums or discounts.
(v) Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- The rights to receive cash flows from the asset have expired; or
-- The Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
'pass-through' arrangement; and
Either (a) the Company has transferred substantially all the
risks and rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset. When the
Company has transferred its rights to receive cash flows from an
asset (or has entered into a pass-through arrangement), and has
neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the
asset is recognised to the extent of the Company's continuing
involvement in the asset.
The Company derecognises a financial liability when the
obligation under the liability is discharged, cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in profit or
loss.
Determination of fair value
The Company measures it investments in subsidiaries at fair
value through profit or loss, and the Master Fund measures its
investments in financial instruments, such as equities, debentures
and other interest bearing investments and derivatives, at fair
value at each reporting date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measured is based on the presumption that the transaction to sell
the asset or transfer the liability takes place either in the
principal market for the asset or liability or, in the absence of a
principal market, in the most advantageous market for the asset or
liability. The principal or the most advantageous market must be
accessible to the Company. The fair value for financial instruments
traded in active markets at the reporting date is based on their
quoted price without any deduction for transaction costs.
For all other financial instruments not traded in an active
market, the fair value is determined by using appropriate valuation
techniques. Valuation techniques include: using recent arm's length
market transactions; reference to the current market value of
another instrument that is substantially the same; discounted cash
flow analysis and option pricing models making as much use of
available and supportable market data as possible. An analysis of
fair values of financial instruments and further details as to how
they are measured is provided in Note 6.
The Company uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) market prices in active markets
for identical assets and liabilities.
-- Level 2: valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable.
-- Level 3: valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
Impairment of financial assets
The Company assesses at each reporting date whether a financial
asset or group of financial assets classified as loans and
receivables is impaired. A financial asset or a group of financial
assets is deemed to be impaired if, and only if, there is an
objective evidence of impairment as a result of one or more events
that have occurred after the initial recognition of the asset (an
incurred 'loss event') and that loss event has an impact on the
estimated future cash flows of the financial asset or the group of
financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtor,
or a group of debtors, is experiencing significant financial
difficulty, default or delinquency in interest or principal
payments, the probability that they will enter bankruptcy or other
financial reorganisation and, where observable data indicate that
there is a measurable decrease in the estimated future cash flows,
such as changes in arrears or economic conditions that correlate
with defaults. If there is objective evidence that an impairment
loss has been incurred, the amount of the loss is measured as the
difference between the asset's carrying amount and the present
value of estimated future cash flows (excluding future expected
credit losses that have not yet been incurred) discounted using the
asset's original effective interest rate. The carrying amount of
the asset is reduced through the use of an allowance account and
the amount of the loss is recognised in profit or loss as 'Credit
loss expense'.
Impaired debts, together with the associated allowance, are
written off when there is no realistic prospect of future recovery
and all collateral has been realised or has been transferred to the
Company.
Interest revenue on impaired financial assets is recognised
using the rate of interest used to discount the future cash flows
for the purpose of measuring the impairment loss.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the statement of financial position if, and
only if, there is a currently legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net
basis, or to realise the asset and settle the liability
simultaneously.
Net gain or loss on financial assets and liabilities at fair
value through profit or loss
This item includes changes in the fair value of financial assets
and liabilities held for trading or designated upon initial
recognition as 'at fair value through profit or loss' and excludes
interest and dividend income and expenses.
Unrealised gains and losses comprise changes in the fair value
of financial instruments for the year and from reversal of prior
year's unrealised gains and losses for financial instruments which
were realised in the reporting period.
Realised gains and losses on disposals of financial instruments
classified as 'at fair value through profit or loss' are calculated
using the Average Cost (AVCO) method. They represent the difference
between an instrument's initial carrying amount and disposal
amount, or cash payments or receipts made on derivative contracts
(excluding payments or receipts on collateral margin accounts for
such instruments).
Due to and due from brokers
Amounts due to brokers are payables for securities purchased (in
a regular way transaction) that have been contracted for but not
yet delivered on the reporting date at the Master Fund level. Refer
to the accounting policy for financial liabilities, other than
those classified at fair value through profit or loss for
recognition and measurement.
Amounts due from brokers include margin accounts and receivables
for securities sold (in a regular way transaction) that have been
contracted for but not yet delivered on the reporting date. Refer
to accounting policy for loans and receivables for recognition and
measurement.
Shares that impose on the Company, an obligation to deliver to
shareholders a pro-rata share of the net asset of the Company on
liquidation classified as financial liabilities
The shares are classified as equity if those shares have all the
following features:
(a) It entitles the holder to a pro rata share of the Company's
net assets in the event of the Company's liquidation.
The Company's net assets are those assets that remain after
deducting all other claims on its assets. A pro rata share is
determined by:
(i) dividing the net assets of the Company on liquidation into units of equal amount; and
(ii) multiplying that amount by the number of the shares held by the shareholder.
(b) The shares are in the class of instruments that is
subordinate to all other classes of instruments. To be in such a
class the instrument:
(i) has no priority over other claims to the assets of the Company on liquidation, and
(ii) does not need to be converted into another instrument
before it is in the class of instruments that is subordinate to all
other classes of instruments.
(c) All shares in the class of instruments that is subordinate
to all other classes of instruments must have an identical
contractual obligation for the issuing Company to deliver a pro
rata share of its net assets on liquidation.
In addition to the above, the Company must have no other
financial instrument or contract that has:
(a) total cash flows based substantially on the profit or loss,
the change in the recognised net assets or the change in the fair
value of the recognised and unrecognised net assets of the Company
(excluding any effects of such instrument or contract) and
(b) the effect of substantially restricting or fixing the
residual return to the shareholders.
The shares that meet the requirements to be classified as a
financial liability have been designated as at fair value through
profit or loss on initial recognition.
During the year, the Ordinary Shares and Class C Shares were
merged into one single class of share and classified as equity.
Distributions to shareholders whose shares are classified as
financial liabilities.
Distributions to shareholders are recognised in the statement of
comprehensive income as finance costs.
Interest revenue and expense
Interest revenue and expense are recognised in profit or loss
for all interest-bearing financial instruments using the effective
interest method.
Dividend revenue and expense
Dividend revenue is recognised when the Company's right to
receive the payment is established. Dividend revenue is presented
gross of any non-recoverable withholding taxes, which are disclosed
separately in profit or loss. Dividend expense relating to equity
securities sold short is recognised when the shareholders' right to
receive the payment is established.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank. Cash
equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of change in value.
3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The accounting policies adopted are consistent with those of the
previous financial year except for the following new and amended
IFRS and IFRIC interpretations adopted in the year commencing 1
January 2017.
The following new standards and amendments became effective as
of 1 January 2017:
-- Amendments to IAS 7 Statement of Cash Flows: Disclosure
Initiative
-- Annual Improvements Cycle - 2014-2016: Amendments to IFRS 12
Disclosure of Interests in Other Entities: Clarification of the
scope of disclosure requirements in IFRS 12
Amendments to IAS 7 Statement of Cash Flows: Disclosure
Initiative
The amendments require entities to provide disclosure of changes
in their liabilities arising from financing activities, including
both changes arising from cash flows and non-cash changes (such as
foreign exchange gains or losses).
Annual Improvements Cycle - 2014-2016
Amendments to IFRS 12 Disclosure of Interests in Other Entities:
Clarification of the scope of disclosure requirements in IFRS
12
The amendments clarify that the disclosure requirements in IFRS
12, other than those in paragraphs B10-B16, apply to an entity's
interest in a subsidiary, a joint venture or an associate (or a
portion of its interest in a joint venture or an associate) that is
classified (or included in a disposal group that is classified) as
held for sale.
The above amendments did not have a significant impact on the
financial statements of the Company.
Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax
Assets for Unrealised Losses
The amendments clarify that an entity needs to consider whether
tax law restricts the sources of taxable profits against which it
may make deductions on the reversal of deductible temporary
difference related to unrealised losses. Furthermore, the
amendments provide guidance on how an entity should determine
future taxable profits and explain the circumstances in which
taxable profit may include the recovery of some assets for more
than their carrying amount.
The amendment did not impact on the financial statements as the
Company does not have any income and deferred taxes.
3.1 ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Company's financial
statements are disclosed below. They are mandatory for accounting
periods beginning on the specified dates, but the Company has not
early adopted them:
New or revised standards and interpretations:
Effective
for accounting
New or revised standards period beginning
on or after
IFRS 9 Financial Instruments 1 January
2018
Sale or contribution of assets between Effective
an investor and its associate or joint date deferred
venture (Amendments to IFRS 10 and IAS indefinitely
28)
IFRS 15 Revenue from Contracts with 1 January
Customers 2018
Classification and measurement of Share-Based 1 January
Payment Transactions (Amendments to 2018
IFRS 2)
Transfers of Investment Property-Amendments 1 January
to IAS 40 2018
IFRS 16 Leases 1 January
2019
IFRS 17 Insurance Contracts 1 January
2021
Annual improvements 2014-2016 cycle
(Issued in December 2016)
IFRS 1 First-time Adoption of International 1 January
Financial Reporting Standards -Deletion 2018
of short-term exemptions for first-time
adopters
IAS 28 Investments in Associates and 1 January
Joint Ventures - Clarification that 2018
measuring investees at fair value through
profit or loss is an investment - by
- investment choice
Applying IFRS 9 Financial Instruments 1 January
with IFRS 4 Insurance Contracts - Amendments 2018
to IFRS 4
IFRIC Interpretation 22 Foreign Currency 1 January
Transactions and Advance Consideration 2018
IFRIC Interpretation 23 Uncertainty 1 January
over Income Tax Treatment 2018
IFRS 9 Financial Instruments - Classification and measurement of
nancial assets, Accounting for nancial liabilities and
derecognition - 1 January 2018
IFRS 9 introduces new requirements for classifying and measuring
nancial assets, as follows:
Classification and measurement of nancial assets
All financial assets are measured at fair value on initial
recognition, adjusted for transaction costs if the instrument is
not accounted for at fair value through pro t or loss (FVTPL). Debt
instruments are subsequently measured at FVTPL, amortised cost or
fair value through other comprehensive income (FVOCI), on the basis
of their contractual cash ows and the business model under which
the debt instruments are held. There is a fair value option (FVO)
that allows nancial assets on initial recognition to be designated
as FVTPL if that eliminates or signi cantly reduces an accounting
mismatch. Equity instruments are generally measured at FVTPL.
However, entities have an irrevocable option on an
instrument-by-instrument basis to present changes in the fair value
of non-trading instruments in other comprehensive income (OCI)
(without subsequent reclassi cation to pro t or loss).
The Company plans to adopt the new standard on its effective
date. No significant impact is expected on the classification of
financial assets given that the investment in subsidiaries will
continue to be measured at fair value through profit or loss. At
the level of the Master Fund, quoted equity shares and debt
securities will continue to be measured at fair value through
profit or loss. This preliminary assessment is based on currently
available information and may be subject to changes arising from
further information being available to the Company when it adopts
the standard next year.
Classi cation and measurement of nancial liabilities
For nancial liabilities designated as FVTPL using the FVO, the
amount of change in the fair value of such nancial liabilities that
is attributable to changes in credit risk must be presented in OCI.
The remainder of the change in fair value is presented in pro t or
loss, unless presentation of the fair value change in respect of
the liability's credit risk in OCI would create or enlarge an
accounting mismatch in pro t or loss. All other IAS 39 Financial
Instruments: Recognition and Measurement classi cation and
measurement requirements for nancial liabilities have been carried
forward into IFRS 9, including the embedded derivative separation
rules and the criteria for using the FVO.
No significant impact is expected on this side due to the
insignificance of the Company's financial liabilities. At the
Master Fund's level, financial liabilities will continue to be
measured at fair value through profit or loss.
Impairment
The impairment requirements are based on an expected credit loss
(ECL) model that replaces the IAS 39 incurred loss model. The ECL
model applies to: debt instruments accounted for at amortised cost
or at FVOCI; most loan commitments; nancial guarantee contracts;
contract assets under IFRS 15; and lease receivables under IAS 17
Leases, Entities are generally required to recognise either
12-months' or lifetime ECL, depending on whether there has been a
signi cant increase in credit risk since initial recognition (or
when the commitment or guarantee was entered into). For some trade
receivables, the simpli ed approach may be applied whereby the
lifetime expected credit losses are always recognised.
This is not expected to have a significant impact on the Company
and at the Master Fund level given the investments will be measured
at fair value through profit or loss.
Hedge accounting
Hedge effectiveness testing is prospective, without the 80% to
125% bright line test in IAS 39, and, depending on the hedge
complexity, can be qualitative. A risk component of a nancial or
non- nancial instrument may be designated as the hedged item if the
risk component is separately identi able and reliably measureable.
The time value of an option, any forward element of a forward
contract and any foreign currency basis spread, can be excluded
from the designation as the hedging instrument and accounted for as
costs of hedging. More designations of groups of items as the
hedged item are possible, including layer designations and some net
positions.
The application of IFRS 9 may change the measurement and
presentation of many financial instruments, depending on their
contractual cash ows and business model under which they are held.
The impairment requirements will generally result in earlier
recognition of credit losses. The new hedging model may lead to
more economic hedging strategies meeting the requirements for hedge
accounting.
No impact is expected on the Company as it does not deal in
derivatives. At the Master Fund level, the derivatives have quoted
market prices and no significant impact is anticipated.
IFRS 15 Revenue from Contracts with Customers - effective 1
January 2018
IFRS 15 provides a single, principles based ve-step model to be
applied to all contracts with customers.
The five steps in the model are as follows:
-Identify the contract with the customer;
-Identify the performance obligations in the contract;
- Determine the transaction price;
-Allocate the transaction price to the performance obligations
in the contracts; and
- Recognise revenue when (or as) the entity satisfies a
performance obligation.
Guidance is provided on topics such as the point in which
revenue is recognised, accounting for variable consideration, costs
of ful lling and obtaining a contract and various related matters.
New disclosures about revenue are also introduced.
The directors do not expect the standard to have a significant
impact on the Company all income will be recognised under IFRS 9.
The Company intends to adopt the new standard on its effective
date.
IFRIC Interpretation 22 Foreign Currency Transactions and
Advance Consideration - effective 1 January 2018
The Interpretation clarifies that, in determining the spot
exchange rate to use on initial recognition of the related asset,
expense or income (or part of it) on the derecognition of a
non-monetary asset or non-monetary liability relating to advance
consideration, the date of the transaction is the date on which an
entity initially recognises the non-monetary asset or non-monetary
liability arising from the advance consideration. If there are
multiple payments or receipts in advance, then the entity must
determine the transaction date for each payment or receipt of
advance consideration. Entities may apply the amendments on a fully
retrospective basis.
Alternatively, an entity may apply the Interpretation
prospectively to all assets, expenses and income in its scope that
are initially recognised on or after:
(i) The beginning of the reporting period in which the entity
first applies the interpretation
Or
(ii) The beginning of a prior reporting period presented as
comparative information in the financial statements
of the reporting period in which the entity first applies the
interpretation.
The Interpretation is effective for annual periods beginning on
or after 1 January 2018. Early application of the interpretation is
permitted and must be disclosed. The interpretation is not expected
to have a significant impact on the Company's financial
statements.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Company's financial statements requires
management to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements
and disclosure of contingent liabilities. However, uncertainty
about these assumptions and estimates could result in outcomes that
could require a material adjustment to the carrying amount of the
asset or liability affected in future periods.
Judgements
In the process of applying the Company's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the financial
statements:
Going concern
The Company does not have a fixed life but, as stated in the
Company's admission document published in 2007, the Directors
consider it desirable that Shareholders should have the opportunity
to review the future of the Company at appropriate intervals.
Accordingly, Shareholders passed an ordinary resolution at an
extraordinary general meeting of the Company on 28 February 2014
that the Company continue in existence.
In 2019, the Directors will convene another general meeting
where an ordinary resolution will be proposed that the Company will
continue in existence. If the resolution is not passed, the
Directors will be required to formulate proposals to be put to
Shareholders to reorganise, reconstruct or wind up the Company. If
the resolution is passed, the Company will continue its operations
and a similar resolution will be put to Shareholders every five
years thereafter.
At the same time as the continuation vote in 2019, the Company
will provide Shareholders with, without first requiring a
Shareholder vote to implement this policy, an opportunity to
realise all or part of their shareholding in the Company for a net
realised pro rata share of the Company's investment portfolio.
IAS 1 - Presentation of Financial Statements and IAS 10 - Events
after the reporting period require that the financial statements
should not be prepared on a going concern basis if management
determines that it intends to liquidate the entity or cease
trading. The directors believe that IFRS as a basis for preparation
best reflects the financial position and performance of the entity.
The carrying value of the assets, which were determined in
accordance with the going concern basis, have been reviewed for
possible impairment and changes which have occurred since the year
end and consideration has been given to whether any additional
provisions would be necessary as a result of management deeming it
necessary to liquidate the Company in the foreseeable future
subsequent to disposal of all its assets, as a result of the 2019
vote.
Management is of the belief that the likelihood of the
continuation of the fund is more probable than not, and that any
required liquidation would result in a realisation of investments
over a period of time, as possible, to maximize investor returns.
It is therefore unlikely that the Company would not continue in
existence beyond 2019, regardless of the outcome of the Shareholder
vote.
If liquidation were required, it is expected that all assets
will realise at least at the amounts at which they are included in
the statement of financial position and there will be no material
additional liabilities. Carried interest is considered as a share
of profit realised on disposal of investments by the Company and
has therefore not been accrued as it will only be recognised upon
the exit of investments after shareholders have received
distribution of entire capital and preferred return.
It should be noted that due to events after finalisation of the
financial statements, the final amounts to be received could vary
from the amount shown in the statement of financial position due to
circumstances which arise subsequent to preparation of the
financial statement and these variations could be material
Determination of functional currency
The determination of the functional currency of the Company is
critical since recording of transactions and exchange differences
arising thereon are dependent on the functional currency selected.
As described in Note 2, the directors have considered those factors
therein and have determined that the functional currency of the
Company is the United States Dollar.
Assessment for an investment entity
An investment entity is an entity that:
(a) Obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management
services;
(b) Commits to its investor(s) that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both; and
(c) Measures and evaluates the performance of substantially all
of its investments on a fair value basis.
An investment entity must demonstrate that fair value is the
primary measurement attribute used. The fair value information must
be used internally by key management personnel and must be provided
to the entity's investors. In order to meet this requirement, an
investment entity would:
-- Elect to account for investment property using the fair value
model in IAS 40 Investment Property
-- Elect the exemption from applying the equity method in IAS 28
for investments in associates and joint ventures, and
-- Measure financial assets at fair value in accordance with IAS 39.
In addition an investment entity should consider whether it has
the following typical characteristics:
-- It has more than one investment, to diversify the risk portfolio and maximise returns;
-- It has multiple investors, who pool their funds to maximise investment opportunities;
-- It has investors that are not related parties of the entity; and
-- It has ownership interests in the form of equity or similar interests.
As from the previous year, the Board concluded that the Company
meets the definition of an investment entity as all investments
have been measured on a fair value basis. IFRS 10 allows the
application of this change to be made prospectively in the period
in which the definition is met. IFRS 10 Consolidated Financial
Statements provides 'investment entities' an exemption from the
consolidation of particular subsidiaries and instead require that
an investment entity measures the investment in each eligible
subsidiary at fair value through profit or loss in accordance with
IAS 39 Financial Instruments: Recognition and Measurement.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, 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. The Company based its assumptions and
estimates on parameters available when the financial statements
were prepared. However, existing circumstances and assumptions
about future developments may change due to market changes or
circumstances arising beyond the control of the Company. Such
changes are reflected in the assumptions when they occur. When the
fair value of financial assets and financial liabilities recorded
in the statement of financial position cannot be derived from
active markets, their fair value is determined using a variety of
valuation techniques that include the use of mathematical
models.
Fair value of financial instruments
The inputs to these models are taken from observable markets
where possible, but where this is not feasible, estimation is
required in establishing fair values. The estimates include
considerations of liquidity and model inputs such as credit risk
(both own and counterparty's), correlation and volatility. Changes
in assumptions about these factors could affect the reported fair
value of financial instruments in the statement of financial
position and the level where the instruments are disclosed in the
fair value hierarchy. The models are calibrated regularly and
tested for validity using prices from any observable current market
transactions in the same instrument (without modification or
repackaging) or based on any available observable market data. An
analysis of fair values of financial instruments and further
details as to how they are measured is provided in Note 6.
IFRS 13 requires disclosures relating to fair value measurements
using a three-level fair value hierarchy. The level within which
the fair value measurement is categorised in its entirety is
determined on the basis of the lowest level input that is
significant to the fair value measurement in its entirety as
provided in Note 6. Assessing the significance of a particular
input requires judgement, considering factors specific to the asset
or liability. To assess the significance of a particular input to
the entire measurement, the Company performs sensitivity analysis
or stress testing techniques.
5. AGREEMENTS
Investment Management Agreement
Following the Admission of Ordinary Shares and C Shares to the
Specialist Fund Market (SFM) of the London Stock Exchange on 17
April 2014, the Company entered into an Amended and Restated
Investment Management Agreement with Africa Opportunity Partners
(the "Investment Manager"), an investment management company
incorporated in the Cayman Islands, to manage the operations of the
Company subject to the overall supervision of the Company's board
as specified in the SFS Admission document of the Company. Under
the Amended and Restated Investment Management Agreement, the
Investment Manager receives, a management fee equal to the
aggregate of: (i) two per cent of the Net Asset Value per annum up
to US$50 million; and (ii) one per cent of the Net Asset Value per
annum in excess of US$50 million, payable in US$ quarterly in
advance.
In addition, the principals (directors) of the Investment
Manager are beneficially interested in CarryCo, which under the
terms of the Amended and Restated Limited Partnership Agreement, is
entitled to share an aggregate annual carried interest (the
"Performance Allocation") from the Limited Partnership equivalent
to 20 per cent of the excess of the Net Asset Value (as at 31
December in each year) over the sum of (i) the annual management
fee for that year end (ii) a non-compounding annual hurdle amount
equal to the Net Asset Value as at 31 December in the previous
year, as increased by 5 per cent. The Performance Allocation is
subject to a "high watermark" requirement. Subsequent to the merger
of the ordinary shares and the C shares, the high watermark is
calculated as the aggregate of the Net Asset Value of the
pre-merger ordinary share high watermark plus the proceeds of the C
class share placing before expenses. The Performance Allocation
accrues monthly and is calculated as at 31 December in each year
and is allocated following the publication of the NAV for such
date. The management fee for the financial year under review
amounts to USD 1,123,456 (2016: USD 1,111,055) and the performance
fees for the financial year under review was nil (2016: nil).
Administrative Agreement
SS&C Technologies is the Administrator for the Company.
Administrative fees are expensed at the Master Fund level and have
been included in the NAV of the subsidiary.
Custodian Agreement
A Custodian Agreement has been entered into by the Master Fund
and Standard Chartered Bank (Mauritius) Ltd, whereby Standard
Chartered Bank (Mauritius) Ltd would provide custodian services to
the Master Fund and would be entitled to a custody fee of between
18 and 25 basis points per annum of the value of the assets held by
the custodian and a tariff of between 10 and 45 basis points per
annum of the value of assets held by the custodian. The custodian
fees are expensed at the Master Fund level and have been included
in the NAV of the subsidiary.
Prime Brokerage Agreement
Under the Prime Brokerage Agreement, the Master Fund appointed
Credit Suisse Securities (USA) LLC as its prime broker for the
purpose of carrying out the Master Fund's instructions with respect
to the purchase, sale and settlement of securities. Custodian fees
are expensed at the Master Fund level and have been included in the
NAV of the subsidiary.
Under the Broker Agreement revised during 2016, the Master Fund
appointed Liberum, a company incorporated in England to act as
Broker to the Company. The broker fee is payable in advance at six
month intervals. The broker fees are expensed at the Master Fund
level and have been included in the NAV of the subsidiary.
During the year, the ordinary shares and Class C shares were
merged into one single class of shares and reclassified from
financial liability to equity.
For the year ended 31 December 2016, the Ordinary and C Class
shares were quoted on the SFS of the London Stock Exchange ("LSE")
at the quoted price as determined by the participants on the LSE.
In a liquidation scenario or if investors elected to initiate their
opportunity to realise all or part of the shareholding at the time
of the continuation vote in 2019, the proceeds to the shareholders
would have determined by the net realisation of the net asset
value.
Directors concluded that the most appropriate estimate of fair
value of both classes of shares was their net asset value per
share, without adjustment, at the reporting date. This price was
calculated by taking the total equity and dividing by the number of
shares in issue. The Net Assets Value is published on a monthly
basis. Therefore, the fair value of the Net assets attributable to
shareholders was classified as level 2 as the NAV was an input that
was observable.
6. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
6(a). Investment in subsidiaries at fair value
2017 2016
----------------------------------- ----------------------------
USD USD
Investment in Africa Opportunity
Fund L.P. 69,303,993 58,138,812
Investment in Africa Opportunity
Fund (GP) Limited 2,985 145,404
----------------------------------- ----------------------------
Total investment in subsidiaries
at fair value 69,306,978 58,284,216
=================================== ============================
Fair value at 01 January 58,284,216 61,253,148
Net disposal of investment (3,048,160) -
in subsidiaries
Net gain/(loss) on investment
in subsidiaries at fair value 14,070,922 (2,968,932)
----------------------------------- ----------------------------
Fair value at 31 December 72,355,138 58,284,216
=================================== ============================
6(a). Investment in subsidiaries at fair value
The Company has established Africa Opportunity Fund L.P., an
exempted limited partnership in the Cayman Islands to ensure that
the investments made and returns generated on the realisation of
the investments made and returns generated on the realisation of
the investments are both effected in the most tax efficient manner.
All investments made by the Company are made through the limited
partner which acts as the master fund. At 31 December 2017, the
limited partners of the limited partnership are the Company
(99.45%) and AOF CarryCo Limited (0.55%). The general partner of
the limited partnership is Africa Opportunity Fund (GP) Limited.
Africa Opportunity Fund Limited holds 100% of Africa Opportunity
Fund (GP) Limited.
6(b). Fair value hierarchy
The Company uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
Level 1: quoted (unadjusted) market prices in active markets for
identical assets and liabilities.
Level 2: valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
Note: The assets and liabilities of the Master Fund have been
presented but do not represent the assets and liabilities of the
Company as the Master Fund has not been consolidated.
Investment in subsidiaries at fair value through profit or
loss:
31 December
2017 Level Level Level
1 2 3
------------------------ ------------------------- --------------------------- ------------------
COMPANY USD USD USD USD
Investment in
subsidiaries 72,355,138 - 72,355,138 -
======================== ========================= =========================== ==================
MASTER FUND
Financial assets at fair
value through profit or
loss
Equities 64,304,803 62,117,000 1,686,553 501,250
Debt securities 4,858,416 4,508,416 - 350,000
------------------------ ------------------------- --------------------------- ------------------
69,163,219 66,625,416 1,686,553 851,250
======================== ========================= =========================== ==================
Financial liabilities
at fair value through
profit or loss
Shortsellings 2,609,523 2,609,523 - -
Written put
options 101,625 101,625 - -
Contract for
Difference 363,669 - 363,669 -
------------------------ ------------------------- --------------------------- ------------------
3,074,817 2,711,148 363,669 -
======================== ========================= =========================== ==================
31 December
2016 Level Level Level
1 2 3
------------------------- ------------------------- --------------------------- ------------------
COMPANY USD USD USD USD
Investment in
subsidiaries 58,284,216 - 58,284,216 -
========================= ========================= =========================== ==================
MASTER FUND
Financial assets at fair
value through profit or
loss
Equities 43,893,055 41,091,429 1,950,376 851,250
Debt securities 16,715,885 16,465,885 - 250,000
Contract for
Difference 113,459 - 113,459 -
------------------------- ------------------------- --------------------------- ------------------
60,722,399 57,557,314 2,063,835 1,101,250
========================= ========================= =========================== ==================
Financial liabilities
at fair value through
profit or loss
Shortsellings 4,518,185 4,518,185 - -
Written put
options 415,250 415,250 - -
Contract for
Difference 30,672 - 30,672 -
------------------------- ------------------------- --------------------------- ------------------
4,964,107 4,933,435 30,672 -
========================= ========================= =========================== ==================
The valuation technique of the investment in subsidiaries at
Company level is as follow:
The Company's investment manager considers the valuation
techniques and inputs used in valuing these funds as part of its
due diligence, to ensure they are reasonable and appropriate and
therefore the NAV of these funds may be used as an input into
measuring their fair value. In measuring this fair value, the NAV
of the funds is adjusted, as necessary, to reflect restrictions on
redemptions, future commitments, and other specific factors of the
fund and fund manager. In measuring fair value, consideration is
also paid to any transactions in the shares of the fund. Given that
there has been no such adjustments made to the NAV of the
underlying subsidiaries and given the simple structure of the
subsidiaries investing over 98% in quoted funds, the Company
classifies these investment in subsidiaries as Level 2.
The valuation techniques of the investments at master fund level
are as follows:
Debt securities
These pertain to equity and debt instruments which are quoted
for which there is a market price. As a result, they are classified
within level 1 of the hierarchy
Contract for difference (CFD)
The prices for CFD are calculated based on average prices from
various quotes received from brokers.
Unlisted debt and equity investments
In 2014, Triton Resources Inc. underwent a reorganisation that
resulted in the Company owning one million Triton Class A preferred
shares valued at USD1.00 each and a promissory note in the amount
of US$250,000. In 2014 a significant portion of the balance sheet
related to Goodwill as a result of the acquisition/reorganisation
event. The Company subscribed for another promissory note in the
amount of US$100,000 in 2016.
Triton concluded a binding agreement in 2016 to sell its African
underwater logging harvesting assets and its Volta Lake concession
in Ghana. To date, the purchaser has not completed obligatory
payments and as such ownership of the harvesting assets has not
changed. These assets will be operational in 2018 and Triton will
be the lessor of these assets until outstanding payments are made.
Negotiations concluded in 2017 for the delivery of logs to a
biomass power plant in French Guiana from 2020, subject to
completion of the permitting process. Negotiations for the
harvesting of underwater logs in Surinam, ongoing in 2017, were
completed in early 2018. Negotiations with a lead investor who
executed a letter of intent for the sale of Triton itself have been
suspended as the investor failed to raise the necessary funds.
Efforts to sell Triton are ongoing in 2018.
The Investment Manager, based on its own sensitivity analysis,
and in conjunction with its analysis of the operational challenges
and opportunities for Triton, determined that an additional
reduction of the preference shares valuation by $350,000 was
warranted. Consistent with the prior year, the Investment Manager
has determined these investments to be classified as Level 3 assets
for valuation purposes. Additional material factors considered in
determining this reserve were the existing pattern in the receipt
of payments from the purchasers, the prior receipt of
non-refundable amounts from the purchasers and the current state of
negotiations.
African Leadership University ("ALU") is a network of tertiary
institutions, currently with operations in both Mauritius and
Rwanda. In 2017 ALU added an undergraduate campus in Rwanda, adding
to the undergraduate campus located in Mauritius and the ALU School
of Business based in Rwanda. During 2017 student enrollment
increased from 340 to 780 students.
The Investment Manager continues to value ALU on the basis of
the post-money valuation of ALU upon completion of ALU's April 2016
funding. This valuation, in addition to analysis of the Investment
Manager, continues to be the best estimate of ALU fair value, as
supported by its operational progress and confirmed by post
year-end terms of its 2018 financing round accepted in the capital
markets.
2017 2016
------------------- ----------------
USD USD
Investment in Triton 851,250 1,201,250
=================== ================
Financial assets at fair value 2017 2016
through profit or loss
------------------- ----------------
USD USD
Investment in Triton:
At 1 January 1,201,250 1,251,250
Additions - 100,000
Total loss in profit or loss (350,000) (150,000)
------------------- ----------------
At 31 December 851,250 1,201,250
=================== ================
Total loss included in the profit
or loss of Africa Opportunity
Fund L.P.
for asset held at the end of
the reporting period (350,000) (150,000)
=================== ================
Investment in Shoprite Holdings (SHP ZL)
On 22 August 2017, as a condition precedent to the merger of the
C shares and the ordinary shares, the 637,528 ordinary shares of
Shoprite Holdings (SHP ZL "Shoprite") affected by the terms of the
Shoprite arbitral award, plus estimates of associated legal costs,
were excluded from the assets of Africa Opportunity Fund, and
securities called Contingent Value Rights ("CVR"s) were issued to
the ordinary shareholders of record. As such, the outcome of the
Shoprite arbitration is separate and independent of the net asset
value of the ordinary shares of Africa Opportunity Fund.
Consequently, neither the C shareholders nor the ordinary
shareholders are affected by the outcome of the Shoprite
arbitration and any appeals. The contingent value rights holders
will be responsible for the losses or benefits associated with the
Shoprite arbitration appeal, which is expected to be held later in
2018. The full terms and conditions attaching to the CVRs are
contained in the instrument by which they are constituted that can
be inspected at the Fund's website.
6(c). Statement of Comprehensive Income of the Master Fund for the year ended 31 December 2017
The net gain on financial assets at fair value through profit or
loss amounting to USD 14,070,922 is due to the gain arising at the
master fund level and can be analysed as follows:
Africa Opportunity Fund
LP
Statement of Comprehensive
Income
For the year ended 31 December
2017
2017 2016
--------------------------- ----------------------
USD USD
Income
Interest revenue 748,899 1,232,894
Dividend revenue 2,321,955 1,251,816
Other income 41,300 18,310
Net gains on financial assets
and liabilities at fair
value
through profit or loss 14,353,955 -
Net foreign exchange gain - 237,604
--------------------------- ----------------------
17,466,109 2,740,624
--------------------------- ----------------------
Expenses
Net losses on financial
assets and liabilities at
fair value
through profit or loss - 4,829,304
Net foreign exchange loss 1,358,525 -
Custodian fees, Brokerage
fees and commission 694,150 507,723
Dividend expense on securities
sold not yet purchased 57,811 147,356
Other operating expenses 870,748 178,385
Directors' fees - 907
Audit fees 103,351 23,381
--------------------------- ----------------------
3,084,585 5,687,056
--------------------------- ----------------------
Operating income/(loss)
before tax 14,381,524 (2,946,432)
Less withholding tax (218,327) (42,526)
--------------------------- ----------------------
Increase/(decrease) in net assets attributable
to shareholder from
operations/Total Comprehensive
Income for the year 14,163,197 (2,988,958)
=========================== ======================
Attributable to:
AOF Limited (direct interests) 14,070,201 (2,961,759)
AOF Limited ( indirect interests
through AOF (GP) Ltd) 721 (7,173)
14,070,922 (2,968,932)
AOF CarryCo Limited (minority
interests) 92,275 (20,026)
14,163,197 (2,988,958)
=========================== ======================
(i) Net gains on financial assets and liabilities at fair value
through profit or loss held by Africa Opportunity Fund L.P.
2017 2016
--------------------- ----------------
USD USD
Net gains on fair value of financial
assets at fair value through profit
or loss 12,741,809 (3,900,496)
Net gains on fair value of financial
liabilities at fair value through
profit or loss 1,612,146 (928,808)
--------------------- ----------------
Net gains (loses) 14,353,955 (4,829,304)
===================== ================
(ii) Financial asset and liabilities at fair value through
profit or loss held by Africa Opportunity Fund L.P.
USD USD
Held for trading assets:
At 1 January 60,722,399 60,819,532
Additions 16,954,002 10,772,699
Disposal (21,254,991) (6,969,336)
Net gains on financial assets at fair value
through profit or loss 12,741,809 (3,900,496)
--------------------------------- ---------------------
At 31 December (at fair value) 69,163,219 60,722,399
================================= =====================
Analysed as follows:
- Listed equity securities 62,103,817 41,355,252
- Listed debt securities 4,508,416 16,365,885
- Unlisted equity securities 2,200,986 2,537,803
- Unlisted debt securities 350,000 350,000
- Contract for difference - 113,459
--------------------------------- ---------------------
69,163,219 60,722,399
================================= =====================
(iii) Net changes on fair value of financial assets at fair value through profit or loss
2017 2016
--------------------- ---------------
USD USD
Realised (1,209,423) (4,496,993)
Unrealised 13,951,232 596,497
--------------------- ---------------
Total gains 12,741,809 (3,900,496)
===================== ===============
(iv) Financial liabilities at fair value through profit or loss
held by Africa Opportunity Fund L.P.
2017 2016
---------------------- ----------------
USD USD
Held for trading financial liabilities
Contract for difference 363,669 30,672
Written put options 101,625 415,250
Listed equity securities sold short 2,609,523 4,518,185
---------------------- ----------------
Financial liabilities at fair value through profit or loss 3,074,817 4,964,107
====================== ================
(v) Net changes on fair value of financial liabilities at fair value through profit or loss
2017 2016
--------------------- ----------------
USD USD
Realised 3,151,910 2,895,865
Unrealised (1,539,764) (3,824,673)
--------------------- ----------------
1,612,146 (928,808)
===================== ================
7. OTHER RECEIVABLES
2017 2016
---------------------------- ----------------------
USD USD
Other receivable - 18,032
Prepayments - 5,513
----------------------------- ----------------------
- 23,545
============================= ======================
8. CASH AND CASH EQUIVALENTS
2017 2016
-------------------- ----------------------
USD USD
Other bank accounts 91,767 12,604
==================== ======================
9(a). ORDINARY SHARE CAPITAL
Company
2017 2017 2016 2016
--------------------- ------------------- ------------------- ---------------------
Number USD Number USD
Authorised
share capital
Ordinary
shares with a
par value of
USD 0.01 1,000,000,000 10,000,000 1,000,000,000 10,000,000
===================== =================== =================== =====================
The directors have the general authority to repurchase the
ordinary shares in issue subject to the Company having funds
lawfully available for the purpose. However, if the market price of
the ordinary shares falls below the Net Asset Value, the directors
will consult with the Investment Manager as to whether it is
appropriate to instigate a repurchase of the ordinary shares.
9(b). NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS
Ordinary Class
C
Shares Shares Total
----------------------- ------------------------ ------------------------
USD USD USD
At 1 January 2017 33,719,116 22,945,658 56,664,774
Changes during the
period:
Gain for the period from
1 January 2017 11,419,202 3,372,697 14,791,899
through 22 August
2017
Conversion of Class
C Shares into
Ordinary Shares on
22 August 2017 26,318,355 (26,318,355) -
Loss for the period from
23 August 2017
through 31 December
2017 (2,208,600) - (2,208,600)
----------------------- ------------------------ ------------------------
At 31 December 2017 69,248,073 - 69,248,073
======================= ======================== ========================
Net asset value per share 0.925 -
at 31 December 2017
======================= ========================
Net asset value per share
at 31 December 2016 0.791 0.786
======================= ========================
Ordinary and C share Merger, Issuance of Contingent Value
Rights
In 2014, AOF closed a Placing of 29.2 million C shares of
US$0.10 each, at a placing price of US$1.00 per C share, raising a
total of $29.2 million before the expenses of the Issue. The
placing was closed on 11 April 2014 with the shares commencing
trading on 17 April 2014. AOF's Ordinary Shares and the C Shares
from the April placing were admitted to trading on the LSE's
Specialist Fund Segment ("SFS") effective 17 April 2014.
The C Shares were a transient class of shares: the assets
representing the net proceeds of any issue of C Shares were
maintained, managed and accounted for as a separate pool of capital
of the Company until those C Shares converted into Ordinary Shares.
In this regard, although Conversion was anticipated to occur no
later than six months after Admission, the Directors considered it
in the best interests of all Shareholders (being at that time
Ordinary Shareholders and C Shareholders) to extend the Conversion
Date beyond the six month period until the Shoprite case would be
resolved.
The directors had the discretion to defer the conversion
indefinitely. Hence, there was two classes of shares (the Ordinary
and the C Class shares) that could be realised in a forced
liquidation by the shareholders, and then the requirements of IAS
32.16C and 16D would need to be applied to both classes. Due to the
fact that there are two separate pools of assets and liabilities
attributable to the C Class and Ordinary shareholders respectively,
the requirements of IAS 32.16C(a) would not be met. Therefore both
the classes were classified as financial liabilities as from April
17, 2014 upon issuance of a Class C shares.
The Shoprite arbitral award was issued in 2016 and on 23 August
2017, upon the consent of the Board of Directors, the Fund merged
the C share class and the ordinary shares as contemplated in the
April 2014 issuance of the C share class. The C Class shares were
converted into ordinary shares. Each holder of C Shares received
such number of Ordinary Shares as equals the number of C Shares
held by them multiplied by the Net Asset Value per C Share and
divided by the Net Asset Value per Ordinary Share (subject to a
discount of 5 per cent). Based on a conversion ratio of 1.1034,
29,200,000 C Shares were delisted and cancelled and 32,219,279
Ordinary Shares were admitted to trading on the Specialist Fund
Segment of the London Stock Exchange. The new ordinary shares rank
pari passu with the Fund's ordinary shares prior to the conversion.
Subsequent to the merger, the total number of ordinary shares is
74,849,606.
To effectuate this merger, Contingent Value Rights certificates
were issued to the ordinary shareholders of record on 21 August
2017. The Board and the Investment Manager are currently appealing
the earlier arbitral award relating to the Shoprite shares and are
anticipating the appeal to be heard during 2018. From the Shoprite
arbitral award issued in 2016 and resulted in AOF not being
considered legal owner of the specific Shoprite Holdings, the
Shoprite investment was written off. Should AOF be successful in
any appeal against the earlier arbitral award, then the proceeds
received after any finding, net of expenses, will be disbursed
solely to the holders of the CVRs.
Subsequent to the merger, one class of ordinary shares exists
for all investors and all financial and return information
presented reflects the existing ordinary share class. Upon
conversion of the C Class shares into Ordinary shares, the
remaining shares in AOF are classified as equity. Information
regarding the merger was distributed and released to the market
prior to, and upon execution of, the merger. This information and
information relative to the CVRs can be found on the Fund's
website.
10. TRADE AND OTHER PAYABLES
2017 2016
----------------------- --------------------
USD USD
Due to Africa Opportunity
Fund L.P. 3,080,423 1,259,047
Management
Fee Payable - 280,439
Directors Fees
Payable 43,750 43,531
Other Payables 74,659 59,700
Other Accruals - 12,874
----------------------- --------------------
3,198,832 1,655,591
======================= ====================
Other payables and accrued expenses are non-interest bearing and
have an average term of six months.
11. EARNING PER SHARE
The earnings per share is calculated by dividing the decrease in
net assets attributable to shareholders by number of ordinary and C
shares in issue during the year excluding ordinary shares purchased
by the Company and held as treasury shares.
The Company's diluted earnings per share are the same as basic
earnings per share, since the Company has not issued any instrument
with dilutive potential.
Period from 1 January
2017 to 22 August
2017
------------------------------------------------------------------------------------
Ordinary C shares
shares
--------------------------------------- -------------------------------------------
Increase in net assets
attributable to shareholders USD 11,419,202 3,372,697
======================================= ===========================================
Number of shares in issue 42,630,327 29,200,000
Change in net assets
attributable to shareholders
per share USD 0.268 0.116
======================================= ===========================================
Period from 23 August
2017 to 31 December
2017
------------------------------------------------------------------------------------
Ordinary C shares
shares
--------------------------------------- -------------------------------------------
Loss for the period USD (2,208,600) -
======================================= ===========================================
Number of shares in issue 74,849,606 -
Loss attributable to USD (0.030) -
shareholders per share
======================================= ===========================================
2016
---------------------------------------- -----------------------------------------
Ordinary C shares
shares
---------------------------------------- -----------------------------------------
Increase in net assets
attributable to shareholders USD (3,568,851) (1,021,788)
======================================== =========================================
Number of shares in
issue 42,630,327 29,200,000
Change in net assets
attributable to shareholders
per share USD (0.084) (0.035)
======================================== =========================================
12. RELATED PARTY DISCLOSURES
The Directors consider Africa Opportunity Fund Limited (the
"Company") as the ultimate holding company of Africa Opportunity
Fund (GP) Limited and Africa Opportunity Fund L.P.
% equity % equity
Country of interest interest
Name incorporation 2017 2016
------------------------------ ---------------- --------- ---------
Africa Opportunity Fund (GP)
Limited Cayman Islands 100 100
Africa Opportunity Fund L.P. Cayman Islands 99.45 99.09
During the year ended 31 December 2017, the Company transacted
with related entities. The nature, volume and type of transactions
with the entities are as follows:
Type of Nature of Volume Balance
at
Name of relationship transaction USD 31 Dec
related 2017
parties
--------------- --------------- ---------------- ---------------------------- -------------------------
USD
Africa Investment Management 1,123,456 -
Opportunity Manager fee expense
Partners
Limited
Africa
Opportunity
Fund LP Subsidiary Payable - 32,263
SS&C Administrator Administration 129,248 -
Technologies fees
Type of Nature of Volume Balance
at
Name of relationship transaction USD 31 Dec
related 2016
parties
--------------- --------------- ---------------- ---------------------------- -------------------------
USD
Africa
Opportunity
Partners Investment Management
Limited Manager fee expense 1,111,055 280,439
Africa
Opportunity
Fund LP Subsidiary Payable - 1,259,047
SS&C Administrator Administration 90,954 -
Technologies fees
Key Management Personnel (Directors' fee)
Except for Robert Knapp who has waived his fees, each director
has been paid a fee of USD 35,000 per annum plus reimbursement for
out-of pocket expenses for during both 2017 and 2016.
Robert Knapp, who is a director of the Company, also forms part
of the executive team of the Investment Manager. Details of the
agreement with the Investment Manager are disclosed in Note 5. He
has a beneficiary interest in AOF CarryCo Limited. The latter is
entitled to carry interest computed in accordance with the rules
set out in the Admission Document (refer to note 5 - 'Investment
management agreement' for further detail of the performance fee
paid to the director).
Details of investments in the Company by the Directors are set
out below:
The increase in director shares in 2017 is a result of Robert
Knapp and Peter Mombaur purchasing additional shares during the
year.
No of shares held Direct interest held %
2017 14,284,315 19.08
2016 11,493,960 16.00
13. TAXATION
Under the current laws of Cayman Islands, there is no income,
estate, transfer sales or other Cayman Islands taxes payable by the
Company. As a result, no provision for income taxes has been made
in the financial statements.
Dividend revenue is presented gross of any non-recoverable
withholding taxes, which are disclosed separately in the statement
of comprehensive income. Withholding taxes are not separately
disclosed in statement of cash flows as they are deducted at the
source of the income.
A reconciliation between tax expense and the product of
accounting profit multiplied by the applicable tax rate is as
follows:
2017 2016
------------------------- ------------------------
USD USD
Decrease in net assets attributable
to shareholder from operations 12,583,299 (4,590,639)
------------------------- ------------------------
Income tax expense calculated - -
at 0%
------------------------- ------------------------
Withholding tax suffered outside - -
Mauritius
------------------------- ------------------------
Income tax expense recognized - -
in profit or loss
========================= ========================
* Withholding taxes are born at the master fund level and
amounted to USD 218,327 (2016: USD 42,526). These have been
included in the NAV of the subsidiary.
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Introduction
The Company's objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company's
activities. It is managed through a process of ongoing
identification, measurement and monitoring, subject to risks limits
and other controls. The process of risk management is critical to
the Company's continuing profitability. The Company is exposed to
market risk (which includes currency risk, interest rate risk and
price risk), credit risk and liquidity risk arising from the
financial instruments it holds.
Risk management structure
The Investment Manager is responsible for identifying and
controlling risks. The Board of Directors supervises the Investment
Manager and is ultimately responsible for the overall risk
management approach of the Company.
Fair value
The carrying amount of financial assets and liabilities at fair
value through profit or loss are measured at fair value at the
reporting date. The carrying amount of trade and other receivables,
cash and cash equivalents other payables and accrued expenses
approximates their fair value due to their short term nature.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices and includes interest rate risk, foreign currency
risk and equity price risk.
Short selling involves borrowing securities and selling them to
a broker-dealer. The Master Fund has an obligation to replace the
borrowed securities at a later date. Short selling allows the
Master Fund to profit from a decline in market price to the extent
that such decline exceeds the transaction costs and the costs of
borrowing the securities, while the gain is limited to the price at
which the Fund sold the security short.
Possible losses from short sales may be unlimited as the Master
Fund has an obligation to repurchase the security in the market at
prevailing prices at the date of acquisition.
With written options, the Master Fund bears the market risk of
an unfavourable change in the price of the security underlying the
option. Exercise of an option written by the Master Fund could
result in the Master Fund selling or buying a security at a price
significantly different from its fair value.
A contract for difference creates, as its name suggests, a
contract between two parties speculating on the movement of an
asset price. The term 'CFD' which stands for 'contract for
difference' consists of an agreement (contract) to exchange the
difference in value of a particular currency, commodity share or
index between the time at which a contract is opened and the time
at which it is closed. The contract payout will amount to the
difference in the price of the asset between the time the contract
is opened and the time it is closed. If the asset rises in price,
the buyer receives cash from the seller, and vice versa. The Master
Fund bears the risk of an unfavourable change on the fair value of
the CFD. The risk arises mainly from changes in the equity and
foreign exchange rates of the underlying security.
The Master Fund's financial assets are susceptible to market
risk arising from uncertainties about future prices of the
instruments. Since all securities investments present a risk of
loss of capital, the Investment Manager moderates this risk through
a careful selection of securities and other financial instruments.
The Master Fund's overall market positions are monitored on a daily
basis by the Investment Manager.
The directors have based themselves on past and current
performance of the investments and future economic conditions in
determining the best estimate of the effect of a reasonable change
in equity prices, currency rate and interest rate.
Equity price risk
Equity price risk is the risk that the fair value of equities
decreases as a result of changes in the levels of the equity
indices and the values of individual stocks. The trading equity
risk arises from the Master Fund's investment portfolio.
The equity price risk exposure arises from the Master Fund's
investments in equity securities, from equity securities sold short
and from equity-linked derivatives (the written options). The
Master Fund manages this risk by investing in a variety of stock
exchanges and by generally limiting exposure to a single industry
sector to 15% of NAV.
Management's best estimate of the effect on the profit or loss
for a year due to a reasonably possible change in equity indices,
with all other variables held constant is indicated in the table
below. There is no effect on 'other comprehensive income' as the
Company has no assets classified as 'available-for-sale' or
designated hedging instruments.
In practice, the actual trading results may differ from the
sensitivity analysis below and the difference could be material. An
equivalent decrease in each of the indices shown below would have
resulted in an equivalent, but opposite impact.
Equity
Effect
on
Company Change Equity
in
NAV price 2017
---------- ----------------------
USD
Investment in subsidiaries at
fair value through profit or loss 10% 6,930,698
-10% (6,930,698)
Effect
on net
assets
attributable
to
Master Fund Change shareholders
in
NAV price 2017
---------- ----------------------
USD
Financial assets at fair value
through profit or loss 10% 6,916,322
-10% (6,916,322)
Financial liabilities at fair
value through profit or loss 10% (307,482)
-10% 307,482
Effect
on net
assets
attributable
to
Company Change shareholders
in
NAV price 2016
---------- ----------------------
USD
Investment in subsidiaries at
fair value through profit or loss 10% 5,828,422
-10% (5,828,422)
Effect
on net
assets
attributable
to
Master Fund Change shareholders
in
NAV price 2016
---------- ----------------------
USD
Financial assets at fair value
through profit or loss 10% 6,072,240
-10% (6,072,240)
Financial liabilities at fair
value through profit or loss 10% (496,411)
-10% 496,411
Currency risk
The Master Fund's investments are denominated in various
currencies as shown in the currency profile below. Consequently,
the Company is exposed to the risk that the exchange rate of the
United States Dollar (USD) relative to these various currencies may
change in a manner which has a material effect on the reported
values of its assets denominated in those currencies. To manage its
risks, the Master Fund may enter into currency arrangements to
hedge currency risk if such arrangements are desirable and
practicable. The following table shows the offsetting of financial
assets:
As at 31
December
2017
Company Gross amounts
of recognised Net amount of
Gross financial financial assets
amounts of liabilities set off presented in
recognised in the statement the statement
financial of financial of financial Financial Cash
assets position position instruments collateral Net
amount
---------------------------- ------------------------------- ------------------------------- ----------------------- ------------------- --------------------------
USD USD USD USD USD USD
Cash and
cash
equivalents 91,767 - 91,767 - - 91,767
---------------------------- ------------------------------- ------------------------------- ----------------------- ------------------- --------------------------
Total 91,767 - 91,767 - - 91,767
============================ =============================== =============================== ======================= =================== ==========================
As at 31
December
2016
Company Gross amounts
of recognised Net amount of
Gross financial financial assets
amounts of liabilities set off presented in
recognised in the statement the statement
financial of financial of financial Financial Cash
assets position position instruments collateral Net
amount
---------------------------- ------------------------------- ------------------------------- ----------------------- ------------------- --------------------------
USD USD USD USD USD USD
Cash and
cash
equivalents 1,136,171 (1,123,567) 12,604 - - 12,604
---------------------------- ------------------------------- ------------------------------- ----------------------- ------------------- --------------------------
Total 1,136,171 (1,123,567) 12,604 - - 12,604
============================ =============================== =============================== ======================= =================== ==========================
Cash and cash equivalents are offset as the Company has current
bank balances and bank overdraft with the same counterparty which
the Company has the current legally enforceable right to set off
the recognised amounts and the intention to settle on a net basis
or realise the asset and settle the liability simultaneously.
The currency profile of the Company's financial assets and
liabilities is summarised as follows:
2017 2017 2016 2016
Financial Financial Financial Financial
assets liabilities assets liabilities
---------------------- --------------------- ---------------------- --------------------
USD USD USD USD
United States
Dollar 69,398,745 150,672 58,314,852 1,655,591
---------------------- --------------------- ---------------------- --------------------
69,398,745 150,672 58,314,852 1,655,591
====================== ===================== ====================== ====================
Prepayments are typically excluded as these are not financial
assets; prepayments as at 31 December 2017 and 2016 amounted to USD
Nil and to USD 5,513 respectively.
The sensitivity analysis shows how the value of a financial
instrument will fluctuate due to changes in foreign exchange rates
against the US Dollar, the functional currency of the Company.
Currency risk at master fund level
The following table details the master fund's sensitivity to a
possible change in the USD against other currencies. The percentage
applied as sensitivity represents management's assessment of a
reasonably possible change in foreign currency denominated monetary
items by adjusting the translation at the year-end for the change
in currency rates at the Master Fund level. A positive number below
indicates an increase in profit where the USD weakens against the
other currencies. In practice, actual results may differ from
estimates and the difference can be material. The effect of a
change in USD against other currencies at the master fund level as
per the table below will have the same impact at the company level
and will form part of the NAV of the subsidiary.
Currency Risk
- Year 2017
Effect on net assets
attributable to
Currency shareholders in
(USD)
------------------------------------------------------
Master Fund
Change: 30% -30%
Botswana
Pula (559,401) 559,401
Ghana Cedi (4,517,593) 4,517,593
Kenyan Shilling (565,601) 565,601
Nigerian
Naira (990,619) 990,619
Tanzanian
Shilling (443,206) 443,206
Uganda Shilling (553,572) 553,572
South African
Rand (90,801) 90,801
Zambian
Kwacha (1,921,239) 1,921,239
Change: 10% -10%
CFA Franc (915,616) 915,616
Egyptian
Pound (195,969) 195,969
Change: 5% -5%
Australian
Dollar (36,647) 36,647
Euro (54,743) 54,743
Great British
Pound (29,744) 29,744
Currency Risk
- Year 2016
Effect on net assets
attributable to
Currency shareholders in
(USD)
------------------------------------------------------
Master Fund
Change: 30% -30%
Botswana
Pula (627,744) 627,744
Ghana Cedi (2,988,373) 2,988,373
Kenyan Shilling (388,343) 388,343
Moroccan
Dirham (159,972) 159,972
Nigerian
Naira (814,574) 814,574
South African
Rand 992,805 (992,805)
Tanzanian
Shilling (389,232) 389,232
Uganda Shilling (514,466) 514,466
Zambian
Kwacha (943,531) 943,531
Change: 10% -10%
CFA Franc (839,251) 839,251
Egyptian
Pound (43,549) 43,549
Change: 5% -5%
Australian
Dollar (31,225) 31,225
Great British
Pound (1,579) 1,579
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The fair values of the Company's debt
securities fluctuate in response to changes in market interest
rates. Increases and decreases in prevailing interest rates
generally translate into decreases and increases in fair values of
those instruments.
The investments in debt securities have fixed interest rate and
the income and operating cash flows are not exposed to interest
rate risk. The change in fair value of investments based on a
change in market interest rate (a 50 basis points change) is not
significant and has not been disclosed.
Credit risk
Financial assets that potentially expose the Company to credit
risk consist principally of investments in debt securities, cash
balances and interest receivable. The extent of the Company's
exposure to credit risk in respect of these financial assets
approximates their carrying values as recorded in the Company's
statement of financial position.
The Company takes on exposure to credit risk, which is the risk
that a counterparty will be unable to pay amounts in full when due.
The Company's main credit risk concentration is its debt securities
which are classified as financial assets at fair value through
profit or loss.
With respect to credit risk arising from financial assets which
comprise of financial assets at fair value through profit or loss,
other receivables and cash and cash equivalents, the Company's
exposure to credit risk arises from the default of the
counterparty, with a maximum exposure equal to the carrying amount
of these financial assets.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at the
reporting date was:
2017 2017 2016 2016
Company Master Fund Company Master
Fund
------------------------------ -------------------------- ------------------------------ -----------
Carrying Carrying Carrying Carrying
amount amount amount amount
------------------------------ -------------------------- ------------------------------ -----------
Notes USD USD USD USD
Financial 6(c)(ii)
assets at
fair value
through
profit or
loss - 69,163,219 - 60,722,399
Other
receivables 7 - 410,858 23,545 1,773,876
Cash and cash
equivalents 8 91,767 3,887,184 12,604 1,052,042
The financial assets are neither past due nor impaired at
reporting date except for dividend receivable from Shoprite which
is past due by more than three years. The dividend receivable from
Shoprite is recoverable based on an arbitration award delivered in
January 2017. The cash and cash equivalent assets of the Company
are maintained with Standard Chartered Bank (Mauritius) Ltd.
Standard Chartered Bank has an A1- issuer rating from Moody's long
term rating agency, a P-1 short term rating from Moody's rating
agency, an AA- issuer rating from Standard and Poor's rating
agency, and an A-1+ short term rating from Standard and Poor's
rating agency. All other issuers of debt instruments owned by the
Company are unrated. The issuers of the unrated debt instruments
owned by the Company are reputable companies which do not envisage
obtaining ratings, and have the ability to repay any debt or redeem
any security as it falls due or when required.
Concentration risk
At 31 December 2017 the Master Fund held investments in Africa
which involves certain considerations and risks not typically
associated with investments in other developed countries. Future
economic and political developments in Africa could affect the
operations of the investee companies.
Analysed by geographical distribution of underlying assets:
Master Fund Master Fund
2017 2016
------------------------------- ---------------------------
USD USD
Bond & Notes
Senegal - 3,036,000
Ghana 2,443,324 7,055,593
South Africa 2,415,092 1,738,415
Other - 4,173,975
------------------------------- ---------------------------
Total 4,858,416 16,003,983
=============================== ===========================
Master Fund Master Fund
2017 2016
------------------------------- ---------------------------
USD USD
Equity Securities and Shortsellings
Ghana 14,460,675 10,757,184
Zambia 5,069,063 3,145,104
Senegal 7,080,891 6,746,764
South Africa 4,020,693 (2,585,832)
Zimbabwe 9,211,968 5,261,153
Botswana 1,864,669 2,092,481
Nigeria 4,637,130 2,715,246
Tanzania 1,477,354 1,297,442
Egypt 1,368,674 -
Morocco - 533,239
Cote D'Ivoire 2,075,273 1,645,742
Kenya 1,885,335 1,294,475
Uganda 4,495,212 3,080,099
Other 3,583,049 3,771,212
------------------------------- ---------------------------
Total 61,229,986 39,754,309
=============================== ===========================
Analysed by industry of underlying assets:
Master Fund Master Fund
2017 2016
------------------------------- -------------------------------
USD USD
Bond & Notes
Consumer Finance 245,556 24,440
Mining Industry - 7,929,975
Oil Exploration & Production 2,093,325 6,705,593
Telecommunications 1,074,684 993,975
Plantations 350,000 350,000
Consumer Products & Services 1,094,851 -
------------------------------- -------------------------------
Total 4,858,416 16,003,983
=============================== ===============================
Master Fund Master Fund
2017 2016
------------------------------- -------------------------------
USD USD
Equity Securities and Shortsellings
Consumer Finance 6,561,595 5,177,780
Mining Industry 5,501,622 4,051,636
Oil Exploration & Production 1,550,755 1,309,903
Telecommunications 7,080,891 6,746,764
Plantations 2,433,775 2,211,207
Beverages 1,477,354 1,297,442
Consumer Products & Services (239,254) (2,530,915)
Financial Services 13,899,773 9,530,108
Materials 944,686 814,737
Media 2,647,584 -
Real Estate 8,276,156 4,342,250
Utilities 8,026,639 4,708,995
Other 3,068,410 2,094,402
------------------------------- -------------------------------
Total 61,229,986 39,754,309
=============================== ===============================
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Company's
approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Company's reputation.
The Company manages liquidity risk by maintaining adequate
reserves, by continuously monitoring forecast and actual cash
flows. The table below illustrates the maturity profile of the
Company's financial liabilities based on undiscounted payments.
Year 2017 Due Due Due
Due Between 3 Between 1 greater
Due on within 3 and 12 and 5 than 5
demand Months Months years years Total
---------------------- ------------------------ ------------------------ --------------------------- ------------------- -----------------------
USD USD USD USD USD USD
Financial
liabilities
Other
payables - 150,672 - - - 150,672
----------------------- ------------------------ ------------------------ --------------------------- ------------------- -----------------------
Total
liabilities - 150,672 - - - 150,672
======================= ======================== ======================== =========================== =================== =======================
Year 2016 Due Due Due
Due Between 3 Between 1 greater
Due on within 3 and 12 and 5 than 5
demand Months Months years years Total
---------------------- ------------------------ ------------------------ --------------------------- ------------------- -----------------------
USD USD USD USD USD USD
Financial
liabilities
Other
payables - 1,655,591 - - - 1,655,591
Net assets
attributable
to
shareholders - - - 56,664,774 - 56,664,774
----------------------- ------------------------ ------------------------ --------------------------- ------------------- -----------------------
Total
liabilities - 1,655,591 - 56,664,774 - 58,320,365
======================= ======================== ======================== =========================== =================== =======================
Capital management
Total capital is considered to be the total equity as shown in
the statement of financial position.
The Company is a closed end fund and repurchase of shares in
issue can be done with the consent of the Board of Directors. The
Company is not subject to externally imposed capital
requirements.
The objectives for managing capital are:
-- To invest the capital in investment meeting the description,
risk exposure and expected return indicated in the Admission
document.
-- To achieve consistent capital growth and income through
investment in value, arbitrage and special situations opportunities
derived from the African continent.
-- To maintain sufficient size to make the operation of the Company cost effective.
The primary objective of the Company's capital management is to
ensure that it maintains a strong credit rating and healthy capital
ratios in order to support its business and maximise shareholder
value.
15. ANALYSIS OF NAV OF MASTER FUND ATTRIBUTABLE TO ORDINARY SHARES
ASSETS
Cash and cash equivalents 3,887,184
Trade and other receivables 3,426,755
Receivable from AOF Ltd 32,263
Financial assets at fair value through profit or loss 69,163,219
Total assets 76,509,422
--------------------------
EQUITY AND LIABILITIES
Liabilities
Trade and other payables 698,517
Financial liabilities at fair value through profit or loss 3,074,817
Total liabilities 3,773,334
--------------------------
Net assets attributable to shareholders 72,736,088
==========================
16. SEGMENT INFORMATION
For management purposes, the Çompany is organised in one main
operating segment, which invests in equity securities, debt
instruments and relative derivatives. All of the Company's
activities are interrelated, and each activity is dependent on the
others. Accordingly, all significant operating decisions are based
upon analysis of the Company as one segment. The financial results
from this segment are equivalent to the financial statements of the
Company as a whole.
For geographical segmentation, please refer to note 14.
17. PERSONNEL
The Company did not employ any personnel during the year (2016:
the same).
18. COMMITMENTS AND CONTINGENCIES
There are no commitments or contingencies at the reporting
date.
19. EVENTS AFTER REPORTING DATE
Except as stated above, there are no other events after the
reporting date which require amendments to and/or disclosure in
these financial statements.
20. FAIR VALUE OF NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS
The below table shows the fair value hierarchy of the Net assets
attributable to shareholders.
At 31 Level 1 Level 2 Level 3
December
2016
-------------------------------- --------------------------- --------------------------------
USD USD USD
Ordinary - 33,719,116 -
shares
Class C - 22,945,658 -
shares
-------------------------------- --------------------------- --------------------------------
At 31 - 56,664,774 -
December
2016
================================ =========================== ================================
Shareholder information
Share price
Prices of Africa Opportunity Fund Limited are published daily in
the Daily Official List of the London Stock Exchange. The shares
trade under Reuters symbol "AOF.L" and Bloomberg symbol "AOF
LN".
Manager
Africa Opportunity Partners Limited.
Company information
Africa Opportunity Fund Limited is a Cayman Islands incorporated
closed-end investment company admitted to trading on the SFS
operated by the London Stock Exchange.
Capital structure
The Company has an authorized share capital of 1,000,000,000
ordinary shares of US$0.01 each of which 748,849,606 are issued and
fully paid.
Life of the company
The Company does not have a fixed life, but the directors
consider it desirable that its shareholders should have the
opportunity to review the future of the Company at appropriate
intervals. In 2014 the shareholders voted for the continuation of
the Company for an additional five years. The Directors will
convene a general meeting in 2019 where a resolution will be
proposed that the Company will continue in existence. If the
resolution is not passed, the Directors will be required to
formulate proposals to be put to shareholders to reorganise,
reconstruct or wind up the Company. If the resolution is passed,
the Company will continue its operations and a similar resolution
will be put to shareholders every five years thereafter.
At the same time as the continuation vote in 2019, the Company
will provide Shareholders with, without first requiring a
Shareholder vote to implement this policy, an opportunity to
realise all or part of their shareholding in the Company for a net
realized pro rata share of the Company's investment portfolio.
Registered number
Registered in the Cayman Islands number MC-188243.
Website
www.africaopportunityfund.com
For further information please contact:
Africa Opportunity Fund Limited
Francis Daniels Tel: +2711 684 1528
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No.596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain
[i] The Economist, March 17-23, 2018 issue: Africa's economic
paradox.
[ii] Reference indices are calculated in US Dollars using:
Nigeria NSE Allshare Index, South Africa FTSE/JSE Africa Allshare
Index, Nairobi NSE Allshare Index, Egypt Hermes Index, Russia MICEX
Index, Brazil IBOV Index, the Shanghai Shenzen 300 CSI Index, the
India SENSEX Index, the S&P 500, the Stoxx Europe 600 Index,
the FTSE 100 and the Nikkei 225.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SDSFWSFASEEL
(END) Dow Jones Newswires
April 30, 2018 13:22 ET (17:22 GMT)
Africa Opportunity (LSE:AOF)
Historical Stock Chart
From Mar 2024 to Apr 2024
Africa Opportunity (LSE:AOF)
Historical Stock Chart
From Apr 2023 to Apr 2024