Annual Financial Report
30 April 2019
Africa Opportunity Fund Limited (AOF LN)
Announcement of Annual Results for the Year ended 31 December 2018
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 2018. 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 2018.
The Company
Africa Opportunity Fund Limited 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 2018 was US$ 50.2 million and its market capitalisation was US$44.2 million.
The following text and financial information does not constitute the Company's annual report but has been extracted for the year ended December 31, 2018.
Proposals
In accordance with the Prospectus dated 28 March 2014 a continuation vote will be put to shareholders this year, which will take place at a general meeting at the time of the Company's AGM, which is currently expected to take place in June 2019. The continuation vote will be put to shareholders together with a number of other proposals which will include a tender offer in a similar structure and format to that conducted in 2009, in which the assets are divided into a continuing pool and a realisation pool, together with changes to the management fee structure, whereby it is proposed that no further asset based management fees or incentive fees will be charged against the realisation pool, and instead the Manager will be paid 2% of capital distributed to shareholders if such distribution takes place prior to 31 December 2019, and reducing thereafter. A circular containing full details of the proposals is expected to be published in the coming weeks.
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.
For further information please contact:
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Africa Opportunity Fund Limited |
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Francis Daniels |
Tel: +2711 684 1528 |
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Liberum (Corporate Broker) |
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Gillian Martin |
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Christopher Britton |
Tel: +44 20 3100 2000 |
Chairperson's Statement
2018 Review
2018 was a difficult year for emerging, as well as world, markets and the Africa Opportunity Fund (the "Fund" or "AOF") also felt this pressure.
Recovery stalled in Africa as rising commodity prices in the first half of the year fell in the last quarter of 2018. Prices of Africa's commodity exports fell as prices of its imports rose, inflicting deteriorating terms of trade on several economies. Partially offsetting those negative commodity price trends, annual export production in some countries, like Nigeria, rose. Some statistics sketch the broad outline of 2018 commodity price declines for African exporters: prices of crude oil fell 20%; cobalt 27%; copper 20%; and robusta coffee 15%. In contrast, prices of imports such as white maize and yellow maize (crucial imports for African consumers) rose 15% and 21% respectively. Another impediment was the US Federal Reserve's four interest rate increases which encouraged outflows of investor funds - particularly foreign investor funds - from emerging and frontier markets. Ineluctably, financial conditions tightened in Africa.
As financial conditions tightened, Africa's capital markets suffered losses even though the economies of countries like Cote d'Ivoire, Senegal, Ghana, Kenya and Egypt were forecast to perform as well or better than expected - a 7.4% GDP growth rate for Cote d'Ivoire, 7% for Senegal, 6% for Ghana, 6% for Kenya, and 5% for Egypt - thereby affirming the short term disconnect between stock markets and national economies. Of course, in the long term, the performances of stock markets and national economies will tend to synchronise, although one must be cautious: industries and economies can perform as hoped in the long run while prescient investors disappear and die in downdrafts, stock market collapses and any number of short to medium term risks.
In these testing conditions, the Fund's net asset value per share fell 27% while its share price declined by 19%. To provide some basis for comparison, South Africa fell 21%, Nigeria fell 14%, Kenya fell 13%, and Egypt fell 12%. In non-African emerging markets, China fell 23%, Brazil fell 2%, Russia fell 1% and India fell 2%. In developed markets, Japan fell 8%, the US fell 5%, Europe fell 14%, and the UK fell 14%.
AOF's 2018 strategy was, in the main, a continuation of our 2017 strategy. We added to the Fund's gold equity holdings and exploration and production company ("E&P") holdings. In a reversal of 2017 trends, the more liquid companies in the Fund's portfolio, as measured by average daily trading value, underperformed in 2018. The Fund continued to reduce its bond portfolio and closed its Rand denominated equity short positions but added to its electric utility securities and its insurance holdings. The crude oil price slide in Q4 also led to realised losses for the Fund on E&P positions built just before the commencement of that slide. Those losses reinforced the virtue of AOF's efforts to find good quality companies with strong and predictable growth prospects.
Several African governments responded to the contracting financial conditions by seeking both to strengthen the effectiveness of state institutions and to increase the quantum of national revenues under their control - actions that should in the long term have beneficial implications for the economies of the African continent even though it may take several years to expunge the image of Africa as a deeply corrupt continent. For example, South Africa has taken significant steps to tackle the high level of corruption that has bedeviled it for many years. Kenya's Director of Public Prosecutions also initiated prosecutions of prominent Kenyan officials for breach of trust and other criminal conduct. Indeed, one of our portfolio companies - Kenya Power - suffered the dubious distinction of having two former Managing Directors charged simultaneously with procurement crimes. To date, those steps and prosecutions have demonstrated that in too many countries large infrastructure projects, like power plants and substations, blend malfeasance with inflated costs, late completion, low performance, and onerous debt burdens.
Other countries like Zambia, Tanzania, and the Democratic Republic of the Congo raised royalties on foreign mining companies to increase revenue, regardless of the terms of existing tax stabilisation agreements with foreign mining companies. In contrast, a third set of countries, like Ghana and South Africa, is attempting to collect more taxes from their own residents. At a minimum, Africans have to fund governmental operating expenditure from tax revenues.
The recognition by some countries that they themselves should bear this responsibility is valuable and important progress towards increasing financing for vital development.
Raising the levels of integrity and competence of African states is a deliberate and painstaking endeavour. It is one that may inflict pain on Africa investors as, for example, assets inflated by corruption are written down, or bank failures caused by egregious corporate governance lapses tighten liquidity and slow temporarily the tempo of economic activity. AOF suffered that type of pain in Ghana in 2018 as the Bank of Ghana restructured the banking sector by revoking the licenses of several banks, taking over five insolvent banks, and forcing the re-capitalisation of the entire industry. Ghana's government had to increase its debt by $1.2 billion in Q3 to inject fresh capital into those banks, followed by rising interest rates and a 12% decline of Ghana's stock market in Q4. Most of the Fund's losses in its Ghanaian financial holdings occurred in Q4. Zimbabwe was another economy in which the Fund suffered from its government's attempt to return to post-election fiscal sobriety. Its central bank and Ministry of Finance commenced a process in October 2018 to introduce a new virtual currency - the RTGS Dollar - and to collect more taxes. Panic ensued, leading to a flight to the safety of actual US Dollars and a surge in proxies for repatriable US Dollars such as the Old Mutual Implied Rate. 12% of the Fund's portfolio at the beginning of 2018 was invested in securities of listed Zimbabwean commercial property companies. AOF adopted a conservative approach to reflect the implied penalty of seeking to move funds out of Zimbabwe and adopted a valuation methodology for its listed Zimbabwean securities matching that of open-ended mutual funds. This reduced the value of AOF's holdings by 90% in its books. Our solace is that the replacement value of the property portfolios of those lightly levered Zimbabwean companies should be unaffected by those reductions in valuation. More information on the use of the Old Mutual implied rate is provided in Note 4.
The Fund's frequently expressed preference for emerging pan-African multinational companies was endorsed by the establishment of the African Continental Free Trade Area (ACFTA). The ACFTA Agreement, signed in Kigali, Rwanda, in March 2018 is a significant attempt to reduce barriers to intra-African trade. 52 African countries have signed this Agreement, with Nigeria, Tanzania, and Eritrea as the non-signing laggards. 22 countries must ratify this treaty to bring it into force. To date, 19 countries, including South Africa and Kenya, have done so. It will take decades, and considerable physical investment in transport infrastructure, for the full benefits of this Agreement to be manifest in the daily lives of Africans. Yet, long before those benefits are realised, this African continental free trade zone should prove to be a fecund source of intense intra-African competition and larger profits for multinational African companies.
More immediate contributors to African development will come from the natural gas and oil discoveries to be brought into production in the next decade. They will generate both substantial foreign exchange earnings for their host countries and ample, reliable, and competitively priced domestic energy supplies. Globally, efficient domestic energy supplies have been a crucial ingredient in the successful industrialisation of national economies. Efficient domestic energy supplies should play a similar catalytic role in African industrialisation in the next two decades. Some of the biggest global natural gas discoveries are reaching final investment decision stage in West and East Africa. The Greater Tortue natural gas field discovered in 2015 in Senegal and Mauritania by Kosmos Energy, an energy holding of AOF, is estimated to hold up to 60 trillion cubic feet. Final investment decision for phase 1 development of this gargantuan field was taken in December 2018, with first gas expected in H1 2022. This project will supply both the domestic gas needs of Senegal and Mauritania and the European natural gas markets. Mozambique's Rovuma basin projects hold more than 100 trillion cubic feet of natural gas (approximately 55% of Nigeria's 2017 natural gas reserves). Anadarko, ENI and Exxon Mobil expect to announce their final investment decisions by the end of H1 2019, with first production around 2025. Domestic, regional, and Asian gas needs will be supplied from this basin. The huge potential impact on Mozambique's future is embedded in a fact and a forecast: Mozambique's 2017 GDP was $12.3 billion. The anticipated government taxes alone from the Rovuma basin, over the life of that basin, is forecast to be $77 billion, implying that the Rovuma basin gives the Mozambican government a great opportunity to raise the living standards and skills of its citizenry.
The several developments discussed above - inimical though they have been for the short-term performance of the Fund - herald a period in the 2020s in which the industrial capacities of African companies could be enlarged and deepened to the mutual benefit of governments, workers, and investors. Long-term oriented pan-African investors like the Fund can benefit quietly from these positive changes.
In 2018 AOF appealed against an arbitral award handed down in favour of Shoprite Holdings Ltd., which award concluded that the Fund had not obtained good title to a significant number of Shoprite shares purchased on the Lusaka Stock Exchange between 2009 and 2011. The appeal was dismissed in January 2019. AOF, in the context of its role as a stock market investor, believes that it is appropriate to continue to pursue all its options. The appeal outcome notwithstanding, we remain unbowed in our convictions. We remain convinced that trades consummated on the Lusaka Stock Exchange, as with trades on any and all other stock exchanges, and whether the trades were concluded in the 21st century, or earlier, transfer good title to those traded securities from the seller to the buyer. Indeed, a stock exchange's very raison d'etre is to eliminate counterparty risk for both a buyer and a seller who execute a trade on a stock exchange. We are unapologetically mystified, and concerned, by the appeal panel's reversal of even our Lusaka Stock Exchange purchases of Shoprite shares from third parties other than Shoprite, whether in big or small lots. We accept that the decision must take its course, but reiterate our view that the law is at its finest when law meets justice. Time will tell whether this decision blends law with justice.
2019 Outlook
AOF begins 2019 with caution. There are increasing signs of economic weakness in China, Europe, and the United States. Another year of subdued commodity prices and African currencies is eminently possible. Yet, the demonstrations in countries like Sudan and Algeria against incumbent rulers, the relatively peaceful elections in Nigeria, and the dramatic changes in Ethiopia's polity and policies show that Africans want a freer and more democratic continent. There is also increasing recognition that improving the integrity, competence, and fiscal strength of African states is essential for rapid African economic development and, by implication, the multiplication and growth of the African companies that will be the bedrock of Africa's future economic development.
These positive developments should take root in the continent over the next few decades, making Africa progressively more attractive to investors as its GDP per capita, its youthful population, and its educational and productivity levels all continue to rise. We hope that rising GDP rates in Africa will enlarge the emerging African middle classes, improve government finances, and open up investment opportunities.
A closed-end investment company, like AOF, benefits from having long-term liabilities, unlike open-ended funds which have a short-term monthly or daily redemption liability. The Fund's closed-end structure allows it the freedom to invest long term in high quality issuers without focusing on liquidity. To build upon that advantage, the Fund intends to become a focused investment company with far fewer investments than it has held in the last few years. By concentrating on the strongest investments of the current portfolio and disposing of the rest, AOF hopes to generate higher returns over time. The Fund will shortly put forward restructuring proposals to take advantage of this opportunity whilst also facilitating a realisation mechanism for shareholders who wish to exit. As part of the restructuring proposals, the Fund will seek to amend the investment management agreement to reduce costs by eliminating an asset-based fee and implementing a fixed cost base agreement. As part of this restructuring, the Fund will conduct a continuation vote thus fulfilling a promise to shareholders made in 2014 as contained in the Company's prospectus dated 28 March 2014. Additional details will be released to shareholders in a separate circular, in due course.
Concluding Thoughts
In closing, we extend our thanks to our shareholders for their support and look forward to continuing to work with you in the years to come.
Dr. Myma Belo-Osagie
Chairperson
April 2019
Manager's Report
2018 Review
2018 marked the eleventh full year of operation of Africa Opportunity Fund (the "Fund" or "AOF"). Its ordinary shares had an annual return of -27%. At year-end, AOF held $47.0 million in equity securities, $2.3 million in debt securities; and short sale liabilities equal to $0.8 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.
The Fund turned in a dismal performance in 2018. Its Q4 performance was dominated by sharp price declines in its major holdings - Enterprise Group, Sonatel, and its investment in Kosmos Energy. Enterprise Group declined by 26% in Q4 and 44% in 2018; Sonatel fell by 21% in Q4 and 28% in 2018, and Kosmos fell by 56% in Q4 and 40% in 2018. One sense of the profound undervaluation of some of the companies in the Fund's portfolio can be gleaned from the end-of-year dividend yields. Sonatel was trading on a 9% dividend yield; Copperbelt traded on an 11% dividend yield, despite reasonable dividend payout ratios.
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Comparative Returns |
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Index/Security |
1 Year |
3 Year |
5 Year |
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AOF NAV |
-27.0% |
-22.8% |
-42.7% |
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Lyxor Africa ETF |
-19.8% |
33.0% |
-11.7% |
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DBX MSCI Africa Top 50 |
-19.4% |
9.9% |
-17.3% |
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VanEck Vectors Africa |
-19.5% |
17.9% |
-28.6% |
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Brazil Bovespa |
-1.8% |
107.1% |
4.0% |
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Russia Micex |
-1.5% |
66.6% |
-3.2% |
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India Sensex |
-1.7% |
36.6% |
62.2% |
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China CSI 300 |
-27.8% |
-18.8% |
26.6% |
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US S&P 500 |
-4.4% |
30.4% |
50.3% |
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The question, to answer after the Fund's 2018 results, is how does the Fund generate materially stronger results in the future. The answer, we believe, is to concentrate the Fund's holdings in our best and most undervalued investments and to sell everything else. If we have spare cash and those investments remain cheap, we'll buy more of them. How will we know what to buy? Securities which can double their price in US Dollars in three years without losing their status as value investment. The issuers of those securities will be companies dominant in sectors or industries that must grow at underlying growth rates faster than an African economy's gross domestic product for that economy to become an industrial developed economy. Financial services is one cluster of those industries; another is infrastructure. By so investing, the Fund will become akin to a diversified holding company. It will seek to turn the macro-economic volatility of many an African economy into a friend of its investment approach, rather than a foe. We will seek to be supportive shareholders of the companies in which we invest, trying to assist those companies to raise their return on capital employed over time.
There were three key drivers behind the Fund's 2018 performance. First, the baleful impact of rising secondary market domestic bonds yields, symptomatic of tightening financial conditions, in Ghana and Zambia, hosts to some of the Fund's largest investments, on the valuations of those investments. Second, the change in valuation methodology in Zimbabwe to reflect the emergence of panic about its new monetary framework in Q4. Third, volatile commodity prices on the valuation of commodity producers owned by the Fund. The Fund's holdings in Enterprise Group and Copperbelt Energy declined substantially in market value as Ghana and Zambia affirmed the truth of David Hume's 18th century observation-" No man will accept of low profits where he can have high interest; and no man will accept of low interest where he can have high profits." Inflation-adjusted 1 year Cedi-denominated bond yields doubled from 5.2% in December 2017 to 10.5% by the end of December 2018, as inflation fell by 2.4% while the 1 year nominal bond yield climbed 2.9%.
The 2018 peak of Enterprise's share price occurred simultaneously with the trough in 12 month nominal bond yield at the end of February. Subsequently, from August 2018, the Ghana government and the Bank of Ghana had to issue more than $1 billion in bonds because Ghana took over, amalgamated and recapitalized five insolvent banks. Although general Ghanaian monetary conditions can explain the direction of Enterprise's share price behaviour, it cannot account for the steepness of the fall in Enterprise's share price. Peak-to-trough at the end of 2018, Enterprise inflicted 14 cents per share of unrealized losses on the Fund. In the case of Zambia, Zambia's inflation-adjusted 1 year Kwacha-denominated bond yields rose 67% from 10.9% in December 2017 to 18.3% at the end of December 2018. During H2 2018, Zambia's 8.5% 2024 Eurobond fell from 92% of par to 75% of par to yield approximately 16%. For comparison, the Eurobond debt of Mozambique, a sovereign issuer in default, yields less than 14%. Whether from the perspective of Zambian kwachs or Dollars, the discount rate for valuing Copperbelt rose sharply in 2018, at the expense of the Fund and other Copperbelt shareholders. In those environments, the link between private market valuations and mergers and acquisitions, on the one hand, and stock market valuations, on the other hand, was suspended. It will be restored.
Enterprise Group provided the biggest losses to the Fund in 2018, amounting to 8 cents per share. It is a holding company with majority owned operating subsidiaries in six Ghanaian fields: a 60% life assurance subsidiary with the largest market share in that field; a 75% property and casualty insurance subsidiary which has the largest market share; an 80% pensions administrator subsidiary which has the largest market share in Ghana's new private pensions industry; a 70% owned property development subsidiary; a 60% indirect subsidiary in the funeral services field; and a majority-owned life assurance subsidiary in Gambia. The two cash consuming divisions of Enterprise are property and funeral services. Its highest return on capital employed division is its pension trustee business. Taking large positions in companies expected to generate rising profits over long periods is subject to the risk of intermittent lumpy and large unrealized declines in share price. Over time, share price growth matches profit growth. 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" - Berkshire Hathaway 1996 Annual Report, Pg16.
Our preferred investment approach remains to build a long-term concentrated holding in a sector growing at a faster rate than an African country's underlying and decent 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 12% annual compounded rate, in US Dollars in spite of a 16% depreciation of the Cedi against the US Dollar, from 2015 until 2017 while Ghana's real gross domestic product grew at an annual 5.8% rate over that two year period. Yet, insurance penetration (insurance premia as a percentage of Ghana's gross domestic product) at the end of that period was a minuscule 1%). 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 US Dollar. Notwithstanding the secular tailwinds benefiting the Enterprise ship, 2018 was a tough year for Enterprise.
Enterprise's rights offering circular of March 2018 had predicted a 20% increase in gross insurance premia to $131 million in 2018. The actual result was $116 million. Net insurance revenue was $97 million instead of $108 million forecast in that circular. By contrast, insurance benefits and claims paid was $48 million, 6% higher than the forecast $45 million. Ghana's workers, enduring stagnant real incomes amidst tight monetary conditions, accounted for both growing surrenders of Enterprise's life insurance policies, for example, and lower insurance revenue. Net investment income also fell 25% from $32 million in 2017 to $24 million, rather than its predicted $37 million for 2018. Losses on the Ghana Stock Exchange and in commercial property were two reasons behind the decline in net investment income. Yet, Enterprise's cost of float also declined sharply, strengthening Enterprise's long-term value. We estimate that Enterprise's 2018 cost (-14.8 million Cedis) of float (average float was 503.5 million Cedis) was approximately 3% versus 8.5% in 2017.
Average Ghana government 3 month bond yield was 17% in 2018 versus 19% in 2017; average Ghanaian inflation was 10% in 2018 versus 12.6% in 2017. Consequently, Enterprise's actual investment income received in cash rose 13% to $21.6 million Dollars despite a 6% depreciation of the Cedi. Better still, its "other income" (housing, for example, fees from its pension trustee business and harbinger of growth prospects in new divisions) was more than double the forecast set forth in its rights offering circular. Enterprise's long-term primary appeal is that it receives funds at a much lower sub-inflation rate than the Ghana government, but invests those received funds at the positive inflation-adjusted rates offered by the Ghana government. Most of that income is shoveled immediately into long-term life fund insurance contract liabilities and deferred indefinitely as accounting and tax profits. In sum, with a 15% return on average equity, the Enterprise 7.4 X P/E ratio and 0.8X P/B ratio signify deep undervaluation. The Fund is being paid to wait for Enterprise's deferred income and solid secular prospects to manifest themselves in future profits.
Copperbelt was the object of an abortive acquisition attempt for the first 7 months of 2018 at a substantial premium to the prevailing market price. Once that acquisition attempt expired, the intense negative downward pressure from sharply rising real interest rates exerted their pull over the Copperbelt share price. The Fund lost a major source of gains with the failure of the Copperbelt takeover offer by CDC Group. It lost 4 cents per share of potential gain. Copperbelt's 11% end-of-year dividend yield climbed to 15% at the end of Q1 2019 after a 46% hike in its 2018 dividend without a compromise of its 50% payout ratio. Still, its overall 2018 financial results were solid. Revenues and profits after tax rose, 195% and 562%, from $132 million and $7 million in 2007 to $421 million and $56 million in 2018. It has a five year record of steady Zambian EBITDA growth: $60 million (2014); $80 million (2015); $92 million (2016); $102 million (2017); and $110 million (2018). Free cash flow rose sixfold from $9 million in 2007 to $59 million (fourfold, after adjusting for the additional shares issued in 2015). Operational results, though, have been muted since 2013, as the copper mines of Zambia and the Democratic Republic of Congo-Copperbelt's customers-curtailed production plans in response to lower copper prices, tax policy differences with host governments, and drought. Annual power sales of 4281 GWh in 2013 exceeded 2018 power sales of 3676 GWh to Copperbelt's mine customers. Copperbelt's power trading declined 30% to 594 GWh in 2018, as Zambia ceased to import power from Q2 2018 after the Zambian state-owned electric utility ("ZESCO") lifted the partial force majeure in place through the drought period; but Copperbelt continued to export power to Congolese mines.
One unexpected piece of good news was that Copperbelt sold its internet and broadband interests to its joint venture partner-Liquid Telecom for $33 million. Those proceeds were received in 2019 and have been excluded from our commentary about Copperbelt. Are there reasons other than high real interest rates behind Copperbelt's double digit dollar denominated dividend yield? After all, copper production from Zambia and the Democratic Republic of Congo is expected to increase over the next 5 years. Consequently, Copperbelt's base case assumes a minimum 20% increase in electricity sales over that period to ensure continued growth of electricity volume sales and profits. One possible explanation is that the market is worried about the new agreement to replace the current bulk supply agreement between ZESCO and Copperbelt expiring in 2019. After all, two notorious facts are ZESCO is burdened by losses and Zambia's mining industry has opposed consistently power tariff increases. Nevertheless, we don't believe that an electricity industry can afford to have a loss-making transmission network, therefore, we expect Copperbelt to remain profitable. Its 12.5% return on equity, its net cash status, plus its dollar stream of revenues and 15% dividend yield, suggest that Copperbelt should command a significantly higher valuation than its current 4.5X P/E ratio and 0.54X P/B ratio. Copperbelt's valuation is unjustifiably depressed.
The Fund's Zimbabwean property holdings, in aggregate, lost more than 80% of their value in its books because of a change in valuation policy in November. We switched to using the so-called Old Mutual Implied Rate to value those holdings because Zimbabwe's currency crisis and panic took a turn for the worse in October. It is vital to bear in mind that our property holdings (First Mutual Properties and Mashonaland Holdings) are essentially unencumbered commercial buildings and land. They are guaranteed to survive the currency crisis. Replacing their portfolios is unlikely to become cheaper with the passage of time. The effect of that switch is manifest in the massive differential between the aggregate property value of those two companies--about $240 million-and the Old Mutual Implied Rate valuation of those two companies. The official end of year aggregate market capitalizations of those two companies was $140 million. But, applying the Old Mutual Implied Rate to the official market capitalizations reduced their valuation by 80% to $27 million. It is undoubtedly true that Zimbabwean commercial property does not generate a lot of cash these days, especially in the midst of a currency crisis. Cash, in the form of actual US Dollars, commands a huge premium in Zimbabwe. Yet, Zimbabwean commercial property should be worth a great deal more than the valuation they command under the Old Mutual Implied Rate.
Sonatel's share price performance mirrored that of the BRVM, which fell 31% in 2018. Its end-of year dividend yield of 10.4% suggests that the market considers Sonatel's equity to be de facto bonds, with no prospect of future growth. We continue to think that Sonatel is walking on the path beaten by a Safaricom and an Econet. It will take a few years for its net profits and margins to emulate the results displayed by those companies. In the meantime, though, a 10% dividend yield does compensate us for our wait.
The losses occasioned by the companies discussed in this report-Enterprise, Copperbelt, Sonatel, and Zimbabwean property companies-are unrealized. We believe that they will be reversed because the current valuations of those companies are unreasonably cheap. However, the Fund did realize some losses. We reduced our positions in Naspers and Kosmos Energy, signifying a reappraisal of the ideal weighting of those companies in the Fund's portfolio, crystallizing losses to reach our smaller holdings in those companies. Kosmos Energy is an independent deepwater oil and gas explorer and producer to which the Fund has had exposure for a few years. Its specialty is exploration around the Atlantic Margin. At the time of our initial investment, Kosmos' sole source of production was the Jubilee field in Ghana. Today, it produces oil from Ghana, Equatorial Guinea, and the Gulf of Mexico, averaging 81,000 low-cost barrels of oil per day. It paid its maiden dividend in Q1 2019. We were attracted by its business model. The basic business model of Kosmos has four interlocking and unorthodox parts: (a) explore for natural hydrocarbons in countries which combine geological indicators of those hydrocarbons, a long history of failure to find commercial discoveries, and a decent potential to discover huge hydrocarbon fields; (b) negotiate extremely favorable tax regimes in its target countries to reward Kosmos if exploration is successful, with future explorers having to accept less favorable tax regimes after Kosmos has lowered the geological risks of those target countries; (c) design a plan to commence commercial production of discovered hydrocarbons in a much shorter period than industry norms; and (d) maintain a sober balance sheet, founded on low-cost oil and hedges to ensure cash flow even in depressed industry conditions. Kosmos has revealed a capacity to make astute acquisitions in the last two years, evidenced by the deals through which it entered Equatorial Guinea and the Gulf of Mexico. In both cases, Kosmos has been able to use proprietary insight and geological interpretative expertise to raise capacity utilization of the production infrastructure it acquired. It must be noted, though, that the last two years has seen Kosmos drill a string of dry wells, replacing the tide of success in which it made gargantuan natural gas discoveries in Senegal and Mauritania. Kosmos' valuation has declined to reflect the market's disappointment and the Q4 drop in the price of crude oil. In the wake of the final investment decision taken with BP to build the annual 10 million tonne first phase of its Senegal/Mauritania natural gas field, we consider its common stock to be attractively valued.
There were a few pockets of profit in the Fund's portfolio. Its investments in the equity securities of Anglogold Ashanti and Zimplats generated, respectively, returns of 23% and 5%. Zimplats declared only its second dividend since inception, according it a 10% dividend yield in the middle of Zimbabwe's currency panic. Anglogold's share price rose 75% from its mid-August trough in response to the 10% rise in the gold price. More telling, though, was the commencement of the construction of its new mechanized mine at Obuasi in Ghana. The new mine will have an all-in sustaining cost per ounce around $850 per ounce. When Obuasi's production occurs at the end of 2019, Anglogold would have swapped higher cost South African mines for lower cost West African gold. It has announced disposal plans for a few other mines, again with the goal of improving its free cash generation capacity. Finally, Sanlam proposed to buy out other shareholders of Continental Reinsurance, at a premium to the stock exchange price. Although the Continental takeover, plus its usual handsome dividends, delivered a 45% return for the Fund in 2018, we were disappointed by this investment. The Fund made a slight loss over the life of this investment, despite the annual receipt of high dividends. Continental's regular high dividend yield (10%+) seemed to serve to make it a value trap because the Nigerian Stock Exchange valued it consistently below its book value.
The Fund's financial liabilities - primarily short positions and hedges - generated losses of $ 1.3 million in 2018. The three other loss-incurring years for financial liabilities were 2009, 2012, and 2016. Over its life, the Fund has generated a cumulative gain of $3.6 million from its financial liabilities.
Our review of 2018 would be incomplete without an update about the Shoprite. We lost our appeal and shall keep our investors updated about future developments.
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 2019
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018
|
|
|
Notes |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
17,398,818 |
|
- |
|
Management fee |
|
|
|
1,184,038 |
|
1,123,456 |
|
Custodian fees, brokerage fees and commissions |
|
|
|
39,237 |
|
39,400 |
|
Other operating expenses |
|
|
|
30,222 |
|
46,411 |
|
Directors' fees |
|
|
|
188,761 |
|
180,805 |
|
Audit and professional fees |
|
|
|
168,715 |
|
97,551 |
|
|
|
|
|
19,009,791 |
|
1,487,623 |
|
|
|
|
|
|
|
|
|
Total comprehensive (loss)/income for the year |
|
|
|
(19,009,791) |
|
12,583,299 |
|
|
|
|
|
|
|
|
|
Earnings per share attributable to equity holders |
|
|
|
(0.254) |
|
(0.04) |
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
|
|
|
Notes |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
ASSETS |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
8 |
|
4,376 |
|
91,767 |
|
Investment in subsidiaries |
|
6(a) |
|
50,385,898 |
|
69,306,978 |
|
Prepaid assets |
|
7 |
|
4,949 |
|
- |
|
Total assets |
|
|
|
50,395,223 |
|
69,398,745 |
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
Trade and other payables |
|
10 |
|
156,941 |
|
150,672 |
|
Total liabilities |
|
|
|
156,941 |
|
150,672 |
|
|
|
|
|
|
|
|
|
Net assets attributable to shareholders |
|
|
|
50,238,282 |
|
69,248,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary share capital |
|
|
|
748,496 |
|
748,496 |
|
Share premium |
|
|
|
37,921,452 |
|
37,921,452 |
|
Retained earnings |
|
|
|
11,568,334 |
|
30,578,125 |
|
Total equity |
|
9(b) |
|
50,238,282 |
|
69,248,073 |
|
|
|
|
|
|
|
|
|
Net assets value per share: |
|
|
|
|
|
|
|
- Ordinary shares |
|
9(b) |
|
0.671 |
|
0.925 |
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018
|
|
|
|
|
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: |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the year |
|
|
|
- |
|
- |
|
(2,208,600) |
|
(2,208,600) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2017 |
|
|
|
748,496 |
|
37,921,452 |
|
30,578,125 |
|
69,248,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
Share |
|
Retained |
|
|
|
|
|
|
|
Capital |
|
Premium |
|
Earnings |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
USD |
|
USD |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2018 |
|
|
|
748,496 |
|
37,921,452 |
|
30,578,125 |
|
69,248,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the year |
|
|
|
- |
|
- |
|
(19,009,791) |
|
(19,009,791) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2018 |
|
|
|
748,496 |
|
37,921,452 |
|
11,568,334 |
|
50,238,282 |
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED 31 DECEMBER 2018
|
|
|
|
|
|
|
|
|
Net assets |
|
|
|
Number of |
|
Ordinary |
|
Class C |
|
Attributable to |
|
|
|
units |
|
Shares |
|
Shares |
|
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
USD |
|
USD |
|
|
|
|
|
|
|
|
|
|
|
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 CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2018
|
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Operating activities |
|
|
|
|
|
|
|
Total comprehensive (loss)/income for the year |
|
|
|
(19,009,791) |
|
12,583,299 |
|
|
|
|
|
|
|
|
|
Adjustment for non-cash items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised loss/(gain) on investment in subsidiaries at
|
|
|
|
|
|
|
|
fair value through profit or loss |
6(a) |
|
17,398,818 |
|
(14,070,922) |
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities |
|
|
|
(1,610,973) |
|
(1,487,623) |
|
|
|
|
|
|
|
|
|
Net changes in operating assets and liabilities |
|
|
|
|
|
|
|
Distribution received |
6(a) |
|
1,522,262 |
|
- |
|
|
(Increase)/decrease in prepaid assets |
|
|
|
(4,949) |
|
23,545 |
|
Increase in trade and other payables |
|
|
|
6,269 |
|
1,543,241 |
|
|
|
|
|
|
|
|
|
Net cash generated from operating activities |
|
|
|
1,523,582 |
|
1,566,786 |
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
|
|
(87,391) |
|
79,163 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at start of the year |
|
|
|
91,767 |
|
12,604 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
|
|
4,376 |
|
91,767 |
|
|
|
|
|
|
|
|
Note: In 2017, the distribution received amounting to USD 3,048,160 was classified under the movement in trade and other payables in the statement of cash flows. During the year 2018, the presentation has changed and the movement is now shown separately under 'Distribution received'. The 2017 comparatives have been amended to conform with the current year's presentation.
NOTES TO THE FINANCIAL STATEMENTS
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 2018 were authorised for issue in accordance with a resolution of the Board of Directors on 30 April 2019.
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.
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results.
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
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
(a) Classification
The Company classifies its financial assets and liabilities in accordance with IFRS 9 into the following categories:
(i) 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 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 classified at FVTPL 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 classified at fair value through profit or loss upon initial recognition include investment in subsidiaries.
Under IAS 39, the investment in subsidiaries were designated at FVTPL.
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.
(i) Financial assets and liabilities at fair value through profit or loss (Continued)
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 Master 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 Master Fund 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.
(ii) Financial assets at amortised cost
The Company measures financial assets at amortised cost if both of the following conditions are met:
· The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows
· The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Company's financial assets at amortised cost comprise 'trade and other receivables' and 'cash and cash equivalents' in the statement of financial position.
Previously under IAS 39, the Company classified these financial assets as loans and receivables.
(iii) 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.
(a) 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.
(b) 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.
Financial assets at amortised cost 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.
(c) Subsequent 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 elements of such instruments are recorded separately in 'Interest revenue'. Dividend expenses related to short positions are recognised in 'Dividends on securities sold not yet purchased'. Dividend income/distributions received on investments at FVTPL is recorded in "Net gain or loss on financial assets at fair value through profit or loss".
Financial assets at amortised costs are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. Under IAS 39, loans and receivables were carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses were recognised in profit or loss when the loans and receivables were derecognised or impaired.
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.
(e) 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
As from the financial year 2018, the Company recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables, the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. At the reporting date, the majority of the Company's debt instruments were held at fair value through profit or loss with the exception of trade and other receivables and cash and cash equivalents which are de minimis. As a result, no ECL has been recognised as any amount would have been insignificant. Previously under IAS 39, the Company assessed for impairment when there was an objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of an asset (an "incurred" loss event) and that loss has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
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 expenses. At the Master Fund Level, the fair value gains and losses exclude interest and dividend income.
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 financial assets at amortised cost 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 previous 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 Company applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2018. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
The nature and the effect of these changes for accounting standards and interpretations relevant to the Company's operations are disclosed below. Although these new standards and amendments applied for the first time in 2018, they did not have a material impact on the financial statements of the Company.
The accounting policies adopted are consistent with those of the previous financial year except for the following new and amendments to IFRS as from 1 January 2018:
Effective for accounting period beginning on or after
Standards and Amendments:
IFRS 9 Financial Instruments 1 January 2018
IFRS 15 Revenue from Contracts with Customers 1 January 2018
IFRS 2 Classification and Measurement of Share-based Payment Transactions
(Amendments to IFRS 2) 1 January 2018
IAS 40 Transfers of Investment Property (Amendments to IAS 40) 1 January 2018
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 January 2018
IFRS 1 First-time Adoption of International Financial Reporting Standards - Deletion of
Short-term exemptions for first-time adopters 1 January 2018
IAS 28 Investments in Associates and Joint Ventures - Clarification that measuring investees
At fair value through profit or loss is an investment - by - investment choice 1 January 2018
Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts - Amendments to
IFRS 4 1 January 2018
Clarification to IFRS 15 'Revenue from contracts with customers' 1 January 2018
Where the adoption of the standards or amendments or improvements is deemed to have an impact on the financial statements or performance of the Company, their impact is described below.
IFRS 15-Revenue from Contracts with Customers
The adoption of IFRS 15 did not have a significant impact on the Company. At the Master Fund's level, income comprises mainly interest revenue and dividend income which are scoped out of IFRS 15.
For IFRS 9 impact, refer to transition disclosures in Note 3.2.
3.1 ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE
The following standards, amendments to existing standards and interpretations were in issue but not yet effective. The Company would adopt these standards, if applicable, when they become effective. No early adoption of these standards and interpretations is intended by the Board of directors.
Effective for accounting period beginning on or after
New or revised standards and interpretation:
IFRS 16 Leases 1 January 2019
IFRS 17 Insurance Contracts 1 January 2022
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments 1 January 2019
Amendments:
Amendments to IFRS 10 and IAS 28: Sale or Contribution of assets between an investor and Effective date deferred
its associate or joint venture indefinitely
Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) 1 January 2019
Amendments to IFRS 9 Prepayment features with negative compensation 1 January 2019
Amendments to IAS 28: Long-term interests in associates and joint ventures 1 January 2019
Annual improvements 2015-2017 cycle 1 January 2019
Amendments to IAS 19: Plan amendment, curtailment or settlement 1 January 2019
3.2 TRANSITION DISCLOSURES
The following table set out the impact of the adoption of IFRS 9 on the statement of financial position, retained earnings including the effects of Expected Credit Loss, if any.
|
In USD |
IAS 39 Measurement |
Remeasurement (ECL) |
IFRS 9 measurement |
||
|
Financial assets |
Category |
Amount |
|
Amount |
Category |
|
Listed equity and debt securities (at Master Fund Level) |
FVTPL |
45,839,794 |
- |
45,839,794 |
FVTPL |
|
Unlisted equity and debt securities (at Master Fund level) |
FVTPL |
3,438,529 |
- |
3,438,529 |
FVTPL |
|
Cash and cash equivalent (at Company level) |
Amortised cost |
4,376 |
- |
4,376 |
Amortised cost |
There are no ECL on the Company's financial assets following the adoption of IFRS 9, and therefore, no impact on retained earnings. Listed and unlisted equity securities are still classified at FVTPL, although previously under IAS 39 they were designated at FVTPL while under IFRS 9, they are mandatorily classified at FVTPL. Financial assets at amortised cost includes only cash and cash equivalent which is a small amount. The ECL will be insignificant if not nil.
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 June or July 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.
The above conditions give rise to a material uncertainty about the entity's ability to continue as a going concern as it is dependent on the voting of the shareholders in 2019. In the event that the Shareholders does not pass the resolution, the Company may not be able to continue realising its assets and settle its liabilities in the normal course of business. However, management is of the belief that the likelihood of the continuation of the Company 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.
The financial statements are prepared on the basis of accounting policies applicable to a going concern. This basis presumes that that the company will continue as proposed by the shareholders' resolution, and that the realisation of assets and settlement of liabilities will occur in the ordinary course of business.
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 IFRS 9.
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 IFRS 9 Financial Instruments.
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.
Valuation of investments listed on the Zimbabwe Stock Exchange
The Fund has applied discounts to its investments listed on the Zimbabwe Stock Exchange since November 30, 2018. In applying those discounts, it has taken note of rising economic uncertainties, and signs of sovereign stress, in Zimbabwe, especially since October 2018, manifest, for example, in lengthening queues for the foreign exchange remittances, and a heightened volatility in share prices. It selected a transparent discount factor to the market values of its listed Zimbabwean holdings, otherwise known as the Old Mutual Implied Rate. That rate is the ratio of 1 ordinary share of Old Mutual listed on the Zimbabwe Stock Exchange to the US Dollar price of 1 ordinary share of Old Mutual listed on the London Stock Exchange on the same day. To provide an illustrative example, the Old Mutual share price on the Zimbabwe Stock Exchange on December 31, 2018 was $7.89, the corresponding Old Mutual share price in Dollars on the London Stock Exchange was $1.46, and the quoted share price of First Mutual Properties was $0.0702. The share price of First Mutual Properties recorded in the financial statements of the Fund was $0.01296=$0.0702*($1.46/$7.89). This ratio was selected because it represented a legal, market-determined, exchange rate available to persons seeking to move funds in and out of Zimbabwe via the movement of Old Mutual shares between share registers in Zimbabwe and the United Kingdom or South Africa.
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 1,184,038 (2017: USD 1,123,456) and the performance fees for the financial year under review was nil (2017: 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.
Brokerage Agreement
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.
6. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
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 2018, 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.
|
|
|
2018 |
|
2017 |
|
|
|
USD |
|
USD |
|
|
|
|
|
|
|
Investment in Africa Opportunity Fund L.P. |
|
50,383,677 |
|
69,303,993 |
|
Investment in Africa Opportunity Fund (GP) Limited |
|
2,221 |
|
2,985 |
|
|
|
|
|
|
|
Total investment in subsidiaries at fair value |
|
50,385,898 |
|
69,306,978 |
|
|
|
|
|
|
|
Fair value at 01 January |
|
69,306,978 |
|
58,284,216 |
|
Net disposal of investment in subsidiaries |
|
(1,522,262) |
|
(3,048,160) |
|
Net loss on investment in subsidiaries at fair value |
|
(17,398,818) |
|
14,070,922 |
|
|
|
|
|
|
|
Fair value at 31 December |
|
50,385,898 |
|
69,306,978 |
|
|
|
|
|
|
*This was previously disclosed as "Net disposal of investments in subsidiaries" but has been disclosed as "Distribution income" in the current year as it relates to the distribution of cash to the Company in order to enable the Company to pay expenses.
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 |
|
|
|
|
|
|
|
|
|
2018 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
COMPANY |
|
USD |
|
USD |
|
USD |
|
USD |
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries |
|
50,385,898 |
|
- |
|
50,385,898 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
MASTER FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
Equities |
|
46,877,826 |
|
42,900,686 |
|
3,975,890 |
|
1,250 |
|
Debt securities |
|
2,282,673 |
|
2,107,673 |
|
- |
|
175,000 |
|
Equity options |
|
117,825 |
|
117,825 |
|
- |
|
- |
|
|
|
49,278,324 |
|
45,126,184 |
|
3,975,890 |
|
176,250 |
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
Written put options |
|
797,188 |
|
797,188 |
|
- |
|
- |
|
|
|
797,188 |
|
797,188 |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December |
|
|
|
|
|
|
|
|
|
2017 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
COMPANY |
|
USD |
|
USD |
|
USD |
|
USD |
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries |
|
69,306,978 |
|
- |
|
69,306,978 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
- |
|
|
|
|
|
|
|
|
|
|
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 95% 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:
Equity and 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.
Written put options
These are traded on an active market and have a quoted market price. They have therefore been classified in level 1 of the hierarchy.
Unlisted debt and equity investments
Triton Resources Inc. 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 were to 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 were suspended as the investor failed to raise the necessary funds. A new Letter of Intent with a new potential buyer of Triton was executed in December 2018.
The Investment Manager, based on its own sensitivity analysis, and in conjunction with its analysis of the operational challenges and opportunities for Triton, adjusted the valuation of the preference shares at the end of 2017. Delays in selling the South American concessions during 2018 have diluted AOF's position and the Investment Manager wrote down the value of the preferred shares effective 30 June 2018. The Investment Manager, in consideration of ongoing delays has written the position down on the outstanding promissory notes by a further 50% effective 31 December 2018. Consistent with the prior year's treatment, the Investment Manager has determined the promissory note investments to be classified as Level 3 assets for valuation purposes.
African Leadership University ("ALU") is a network of tertiary institutions, currently with operations in both Mauritius and Rwanda. The Investment Manager continues to value ALU on the basis of the post-money valuation of ALU's Series B financing round as of May 2018. The valuation has been determined using observable prices based from the last round of obtaining external financing through the issue of ALU's series B preference shares. This valuation, in addition to analysis of the Investment Manager, continues to be the best estimate of ALU fair value, as confirmed by the terms of its 2018 financing round accepted in the capital markets.
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
|
|
|
|
|
|
Investment in Triton |
|
176,250 |
|
851,250 |
|
|
|
|
|
|
|
Financial assets at fair value through profit or loss |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Investment in Triton: |
|
|
|
|
|
At 1 January |
|
851,250 |
|
1,201,250 |
|
Total loss in profit or loss |
|
(675,000) |
|
(350,000) |
|
|
|
|
|
|
|
At 31 December |
|
176,250 |
|
851,250 |
|
|
|
|
|
|
|
Total loss included in the profit or loss of Africa Opportunity Fund L.P. |
|
|
|
|
|
for asset held at the end of the reporting period |
|
(675,000) |
|
(350,000) |
|
|
|
|
|
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
|
|
|
|
|
|
Investment in ALU |
|
2,361,193 |
|
1,686,553 |
|
|
|
|
|
|
|
Financial assets at fair value through profit or loss |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Investment in ALU: |
|
|
|
|
|
At 1 January |
|
1,686,553 |
|
1,686,553 |
|
Total loss in profit or loss |
|
674,640 |
|
- |
|
|
|
|
|
|
|
At 31 December |
|
2,361,193 |
|
1,686,553 |
|
Total gain included in the profit or loss of Africa Opportunity Fund L.P. |
|
|
|
|
|
for asset held at the end of the reporting period |
|
674,640 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
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, the current ordinary shareholders were not considered to be 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 occurred in 2019. 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.
In January 2019 the Fund was informed of the appeal award by the arbitration panel. Africa Opportunity Fund was deemed to not have right to the disputed shares and the panel identified an additional 41,617 shares, and corresponding dividends that were deemed not properly titled to AOF. This adjustment was made in these financial statements. The Directors of AOF are considering its options with respect to the Shoprite shares.
6(c). Statement of Comprehensive Income of the Master Fund for the year ended 31 December 2018
The net loss on financial assets at fair value through profit or loss amounting to USD 17,398,818 (2017: net gain USD 14,070,922) is due to the loss arising at the Master Fund level and can be analysed as follows:
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Income |
|
|
|
|
|
Interest revenue |
|
463,318 |
|
748,899 |
|
Dividend revenue |
|
2,479,546 |
|
2,321,955 |
|
Other income |
|
25,006 |
|
41,300 |
|
Net gains on financial assets and liabilities at fair value |
|
|
|
|
|
through profit or loss |
|
- |
|
14,353,955 |
|
Net foreign exchange gain |
|
484,892 |
|
- |
|
|
|
|
|
|
|
|
|
3,452,762 |
|
17,466,109 |
|
Expenses |
|
|
|
|
|
Net losses on financial assets and liabilities at fair value |
||||
|
through profit or loss |
|
20,142,153 |
|
- |
|
Net foreign exchange loss |
|
- |
|
1,358,525 |
|
Custodian fees, Brokerage fees and commission |
|
389,415 |
|
694,150 |
|
Dividend expense on securities sold not yet purchased |
|
98,281 |
|
57,811 |
|
Other operating expenses |
|
11,777 |
|
70,376 |
|
Audit and professional fees |
|
101,970 |
|
903,723 |
|
|
|
|
|
|
|
|
|
20,743,596 |
|
3,084,585 |
|
|
|
|
|
|
|
Operating loss before tax |
|
(17,290,834) |
|
14,381,524 |
|
|
|
|
|
|
|
Less withholding tax |
|
(205,488) |
|
(218,327) |
|
|
|
|
|
|
|
Total Comprehensive (loss)/income for the year |
|
(17,496,322) |
|
14,163,197 |
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
AOF Limited (direct interests) |
|
(17,398,054) |
|
14,070,201 |
|
AOF Limited ( indirect interests through AOF (GP) Ltd) |
||||
|
|
|
(17,398,818) |
|
14,070,922 |
|
AOF CarryCo Limited (minority interests) |
|
(97,504) |
|
92,275 |
|
|
|
(17,496,322) |
|
14,163,197 |
|
|
|
|
|
|
(i) Net gains on financial assets and liabilities at fair value through profit or loss held by Africa Opportunity Fund L.P.
|
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
|
|
|
|
|
|
|
|
Net (losses)/gains on fair value of financial assets at fair value through profit or loss (19,926,489) |
12,741,809 |
|||||
|
Net (losses)/gains on fair value of financial liabilities at fair value through profit or loss (215,664) |
1,612,146 |
|||||
|
|
|
|
|
|
|
|
|
Net (losses)/gains |
|
|
|
(20,142,153) |
|
14,353,955 |
|
|
|
|
|
|
|
|
(ii) Financial asset and liabilities at fair value through profit or loss held by Africa Opportunity Fund L.P.
|
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Held for trading assets: |
|
|
|
|
|
|
|
At 1 January |
|
|
|
69,163,219 |
|
60,722,399 |
|
Additions |
|
|
|
8,439,260 |
|
16,954,002 |
|
Disposal |
|
|
|
(8,397,666) |
|
(21,254,991) |
|
Net (losses)/gains on financial assets at fair value through profit or loss (19,926,489) |
12,741,809 |
|||||
|
|
|
|
|
|
|
|
|
At 31 December (at fair value) |
|
|
|
49,278,324 |
|
69,163,219 |
|
|
|
|
|
|
|
|
|
Analysed as follows: |
|
|
|
|
|
|
|
- Listed equity securities |
|
|
|
44,633,208 |
|
62,103,817 |
|
- Listed debt securities |
|
|
|
2,107,673 |
|
4,508,416 |
|
- Unlisted equity securities |
|
|
|
2,362,443 |
|
2,200,986 |
|
- Unlisted debt securities |
|
|
|
175,000 |
|
350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
49,278,324 |
|
69,163,219 |
|
|
|
|
|
|
|
|
Other receivables, cash at bank and other payables are not included above.
(iii) Net changes on fair value of financial assets at fair value through profit or loss
|
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
|
|
|
|
|
|
|
|
Realised |
|
|
|
604,993 |
|
(1,209,423) |
|
Unrealised |
|
|
|
(20,531,482) |
|
13,951,232 |
|
|
|
|
|
|
|
|
|
Total (losses)/gains |
|
|
|
(19,926,489) |
|
12,741,809 |
|
|
|
|
|
|
|
|
(iv) Financial liabilities at fair value through profit or loss held by Africa Opportunity Fund L.P.
|
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Held for trading financial liabilities |
|
|
|
|
|
|
|
Contract for difference |
|
|
|
- |
|
363,669 |
|
Written put options |
|
|
|
797,188 |
|
101,625 |
|
Listed equity securities sold short |
|
|
|
- |
|
2,609,523 |
|
Financial liabilities at fair value through profit or loss 797,188 |
3,074,817 |
|||||
|
|
|
|
|
|
|
|
(v) Net changes on fair value of financial liabilities at fair value through profit or loss
|
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
|
|
|
|
|
|
|
|
Realised |
|
|
|
241,003 |
|
3,151,910 |
|
Unrealised |
|
|
|
(456,667) |
|
(1,539,764) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(215,664) |
|
1,612,146 |
|
|
|
|
|
|
|
|
7. OTHER RECEIVABLES
|
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
|
|
|
|
|
|
|
|
Prepayments |
|
|
|
4,949 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,949 |
|
- |
|
|
|
|
|
|
|
|
8. CASH AND CASH EQUIVALENTS
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Other bank accounts |
|
|
4,376 |
|
91,767 |
|
|
|
|
|
|
|
9(a). ORDINARY SHARE CAPITAL
Company
|
|
|
|
|
2018 |
|
2018 |
|
2017 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
USD |
|
|
|
|
|
|
At 1 January 2018 |
|
|
69,248,073 |
|
|
|
|
|
|
Changes during the period: |
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the year |
|
|
(19,009,791) |
|
|
|
|
|
|
At 31 December 2018 |
|
|
50,238,282 |
|
|
|
|
|
|
Net asset value per share at 31 December 2018 |
|
0.671 |
|
|
|
|
|
|
|
|
|
|
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 at 31 December 2017 |
0.925 |
|
- |
|
|
||
|
|
|
|
|
|
|
|
|
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. 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. Refer to note 6 (b) for information on appeal award obtained in January 2019.
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
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
|
|
|
|
|
|
|
Due to Africa Opportunity Fund L.P. |
|
41,768 |
|
32,263 |
|
|
Directors Fees Payable |
|
|
43,750 |
|
43,750 |
|
Other Payables |
|
|
71,423 |
|
74,659 |
|
|
|
|
156,941 |
|
150,672 |
|
|
|
|
|
|
|
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 (EPS) is calculated by dividing the decrease in net assets attributable to shareholders by number of ordinary shares. The EPS for 2018 and 2017 represent both the basic and diluted EPS.
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
|
|
|
|
|
|
|
|
|
Total Comprehensive (loss)/income |
|
USD |
|
|
|
(19,009,791) |
|
|
|
|
|
|
|
|
|
Number of shares in issue |
|
|
|
|
|
74,849,606 |
|
|
|
|
|
|
|
|
|
Change in net assets attributable to shareholders per share |
|
USD |
|
|
|
(0.254) |
|
|
|
|
|
Period from 1 January 2017 to 22 August 2017 |
||
|
|
|
|
|
Ordinary shares |
|
C shares |
|
|
|
|
|
|
|
|
|
Increase in net assets attributable to shareholders |
|
USD |
|
11,419,202 |
|
3,372,697 |
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares for basic EPS |
|
|
|
|
|
|
|
before conversion of Class C shares |
|
|
|
27,213,332 |
|
18,640,000 |
|
|
|
|
|
|
|
|
|
Change in net assets attributable to shareholders per share |
|
USD |
|
0.420 |
|
0.181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from 23 August 2017 to 31 December 2017 |
||
|
|
|
|
|
Ordinary shares |
|
C shares |
|
|
|
|
|
|
|
|
|
Loss for the period |
|
USD |
|
(2,208,600) |
|
- |
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares for basic EPS |
|
42,630,327 |
|
- |
||
|
|
|
|
|
|
|
|
|
Effect of dilution following conversion of Class C shares |
|
|
11,651,904 |
|
- |
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares adjusted for |
|
54,282,231 |
|
- |
||
|
the effect of dilution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to shareholders per share |
|
USD |
|
(0.041) |
|
- |
|
|
|
|
|
|
|
|
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 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
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 2018, 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 related parties |
|
relationship |
|
transaction |
|
USD |
|
31 Dec 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
|
|
|
|
|
|
|
|
|
|
Africa Opportunity Partners Limited |
Investment Manager |
Management fee expense |
1,184,038 |
|
- |
|||
|
|
|
|
|
|
|
|
|
|
|
Africa Opportunity Fund LP |
|
Subsidiary |
|
Payable |
|
- |
|
41,768 |
|
|
|
|
|
|
|
|
|
|
|
SS&C Technologies |
|
Administrator |
|
Administration fees |
|
114,919 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of |
|
Nature of |
|
Volume |
|
Balance at |
|
Name of related parties |
|
relationship |
|
transaction |
|
USD |
|
31 Dec 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
|
|
|
|
|
|
|
|
|
|
Africa Opportunity Partners Limited |
Investment Manager |
Management fee expense |
1,123,456 |
|
- |
|||
|
|
|
|
|
|
|
|
|
|
|
Africa Opportunity Fund LP |
|
Subsidiary |
|
Payable |
|
- |
|
32,263 |
|
|
|
|
|
|
|
|
|
|
|
SS&C Technologies |
|
Administrator |
|
Administration fees |
|
129,248 |
|
- |
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 during both 2018 and 2017.
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:
|
|
|
|
|
No of shares held |
Direct interest held % |
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
14,284,315 |
|
19.08 |
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
14,284,315 |
|
19.08 |
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:
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
|
|
|
|
|
|
Total comprehensive (loss)/income |
|
(19,009,791) |
|
12,583,299 |
|
Income tax expense calculated at 0% |
|
- |
|
- |
|
Withholding tax suffered outside Mauritius |
|
- |
|
- |
|
Income tax expense recognized in profit or loss |
|
- |
|
- |
|
|
|
|
|
|
* Withholding taxes are borne at the master fund level and amounted to USD 205,488 (2017: USD 218,327). 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 trade and other payables 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 in |
|
Equity |
|
|||
|
|
|
NAV price |
|
2018 |
|
|||
|
|
|
|
|
|
|
|||
|
|
|
|
|
USD |
|
|||
|
|
|
|
|
|
|
|||
|
Investment in subsidiaries at fair value through profit or loss |
10% |
|
5,038,590 |
|
||||
|
|
|
-10% |
|
(5,038,590) |
|
|||
|
|
|
|
|
|
|
|||
|
|
|
|
|
Effect on net |
|
|||
|
|
|
|
|
assets |
|
|||
|
|
|
|
|
attributable to |
|
|||
|
Master Fund |
|
Change in |
|
shareholders |
|
|||
|
|
|
NAV price |
|
2018 |
|
|||
|
|
|
|
|
|
|
|||
|
|
|
|
|
USD |
|
|||
|
|
|
|
|
|
|
|||
|
Financial assets at fair value through profit or loss |
|
10% |
|
4,927,832 |
|
|||
|
|
|
-10% |
|
(4,927,832) |
|
|||
|
|
|
|
|
|
|
|||
|
Financial liabilities at fair value through profit or loss |
|
10% |
|
(79,719) |
|
|||
|
|
|
-10% |
|
79,719 |
|
|||
|
|
|
|
|
Effect on |
||||
|
Company |
|
Change in |
|
Equity |
||||
|
|
|
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 in |
|
shareholders |
||||
|
|
|
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 |
||||
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:
|
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 |
4,376 |
|
- |
|
4,376 |
|
- |
|
- |
|
4,376 |
|
|
Total |
|
4,376 |
|
- |
|
4,376 |
|
- |
|
- |
|
4,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
2018 |
|
2018 |
|
2017 |
|
2017 |
|
|
|
Financial |
|
Financial |
|
Financial |
|
Financial |
|
|
|
assets |
|
liabilities |
|
assets |
|
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
USD |
|
USD |
|
|
|
|
|
|
|
|
|
|
|
United States Dollar |
50,390,274 |
|
156,941 |
|
69,398,745 |
|
150,672 |
|
|
|
|
50,390,274 |
|
156,941 |
|
69,398,745 |
|
150,672 |
|
|
|
|
|
|
|
|
|
|
Prepayments are typically excluded as these are not financial assets; prepayments as at 31 December 2018 and 2017 amounted to USD 4,949 and US Nil, 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.
|
|
|
|
|
Effect on net assets attributable to |
||
|
|
|
Currency |
|
shareholders in (USD) |
||
|
Master Fund |
|
|
|
|
|
|
|
Change: |
|
|
|
30% |
|
-30% |
|
|
|
Botswana Pula |
|
(560,094) |
|
560,094 |
|
|
|
Ghana Cedi |
|
(3,033,754) |
|
3,033,754 |
|
|
|
Kenyan Shilling |
|
(288,836) |
|
288,836 |
|
|
|
Nigerian Naira |
|
(231,756) |
|
231,756 |
|
|
|
Tanzanian Shilling |
|
(393,918) |
|
393,918 |
|
|
|
Uganda Shilling |
|
(636,163) |
|
636,163 |
|
|
|
South African Rand |
|
(1,263,302) |
|
1,263,302 |
|
|
|
Zambian Kwacha |
|
(1,589,462) |
|
1,589,462 |
|
|
|
|
|
|
|
|
|
Change: |
|
|
|
10% |
|
-10% |
|
|
|
CFA Franc |
|
(588,982) |
|
(588,982) |
|
|
|
Egyptian Pound |
|
(218,071) |
|
(218,071) |
|
|
|
|
|
|
|
|
|
Change: |
|
|
|
5% |
|
-5% |
|
|
|
Australian Dollar |
|
(31,554) |
|
31,554 |
|
|
|
Great British Pound |
|
(65,593) |
|
65,593 |
|
|
|
|
|
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 |
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:
|
|
|
|
|
2018 |
|
2018 |
|
2017 |
|
2017 |
|
|
|
|
|
Company |
|
Master Fund |
|
Company |
|
Master Fund |
|
|
|
|
|
Carrying |
|
Carrying |
|
Carrying |
|
Carrying |
|
|
|
|
|
amount |
|
amount |
|
amount |
|
amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
USD |
|
USD |
|
USD |
|
USD |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value |
|
|
|
|
|
|
|
|
|
|
|
through profit or loss |
|
6(c)(ii) |
|
- |
|
49,278,324 |
|
- |
|
69,163,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables |
|
7 |
|
4,949 |
|
258,814 |
|
- |
|
410,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
8 |
|
4,376 |
|
2,611,947 |
|
91,767 |
|
3,887,184 |
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 2018 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 |
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Bond & Notes |
|
|
|
|
|
|
Ghana |
|
|
175,000 |
|
2,443,324 |
|
South Africa |
|
|
2,107,673 |
|
2,415,092 |
|
|
|
|
|
|
|
|
Total |
|
|
2,282,673 |
|
4,858,416 |
|
|
|
|
|
|
|
|
|
|
|
Master Fund |
|
Master Fund |
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Equity Securities |
|
|
|
|
|
|
Ghana |
|
|
11,411,113 |
|
14,498,175 |
|
Zambia |
|
|
4,737,440 |
|
5,069,063 |
|
Senegal |
|
|
4,749,214 |
|
7,080,891 |
|
South Africa |
|
|
8,202,715 |
|
7,058,010 |
|
Zimbabwe |
|
|
3,547,331 |
|
9,211,968 |
|
Botswana |
|
|
1,866,979 |
|
1,864,669 |
|
Nigeria |
|
|
1,333,287 |
|
4,637,130 |
|
Tanzania |
|
|
1,313,059 |
|
1,477,354 |
|
Egypt |
|
|
2,180,706 |
|
1,368,674 |
|
Cote D'Ivoire |
|
|
1,140,610 |
|
2,075,273 |
|
Kenya |
|
|
962,788 |
|
1,885,335 |
|
Uganda |
|
|
2,120,543 |
|
4,495,212 |
|
Other |
|
|
3,429,866 |
|
3,583,049 |
|
|
|
|
|
|
|
|
Total |
|
|
46,995,651 |
|
64,304,803 |
|
|
|
|
|
|
|
|
Shortsellings |
|
|
|
|
|
|
Ghana |
|
|
(797,188) |
|
(37,500) |
|
South Africa |
|
|
- |
|
(3,037,317) |
|
|
|
|
(797,188) |
|
(3,074,817) |
|
|
|
|
|
|
|
|
Total |
|
|
48,481,136 |
|
66,088,402 |
|
|
|
|
|
|
|
Note: In the previous year, the geographical distribution was presented net of short-sellings. This year, it is presented gross and the comparatives have been amended to conform with the current year's presentation.
Analysed by industry of underlying assets:
|
|
|
Master Fund |
|
Master Fund |
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Bond & Notes |
|
|
|
|
|
Consumer Finance |
|
901,086 |
|
245,556 |
|
Oil Exploration & Production |
|
- |
|
2,093,325 |
|
Telecommunications |
|
984,705 |
|
1,074,684 |
|
Plantations |
|
175,000 |
|
350,000 |
|
Consumer Product & Services |
|
221,882 |
|
1,094,851 |
|
Total |
|
2,282,673 |
|
4,858,416 |
|
|
|
|
|
|
|
|
|
Master Fund |
|
Master Fund |
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
USD |
|
USD |
|
Equity Securities and Shortsellings |
|
|
|
|
|
Consumer Finance |
|
2,066,158 |
|
6,561,595 |
|
Mining Industry |
|
6,642,371 |
|
5,501,622 |
|
Oil Exploration & Production |
|
500,161 |
|
1,550,755 |
|
Telecommunications |
|
6,137,760 |
|
7,080,891 |
|
Plantations |
|
1,036,973 |
|
2,433,775 |
|
Beverages |
|
1,313,059 |
|
1,477,354 |
|
Consumer Products & Services |
|
104,887 |
|
(239,254) |
|
Financial Services |
|
12,534,559 |
|
13,899,773 |
|
Materials |
|
772,520 |
|
944,686 |
|
Media |
|
1,370,868 |
|
2,647,584 |
|
Real Estate |
|
1,612,200 |
|
8,276,156 |
|
Transport |
|
1,301,556 |
|
- |
|
Utilities |
|
6,260,996 |
|
8,026,639 |
|
Other |
|
4,544,395 |
|
3,068,410 |
|
Total |
|
46,198,463 |
|
61,229,986 |
|
|
|
|
|
|
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 2018 |
|
|
|
|
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 |
- |
|
156,941 |
|
- |
|
- |
|
- |
|
156,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
- |
|
156,941 |
|
- |
|
- |
|
- |
|
156,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
31.12.2018 |
|
|
|
|
|
|
|
|
|
USD |
|
ASSETS |
|
|
|
|
Cash and cash equivalents |
|
|
2,611,947 |
|
Trade and other receivables |
|
|
217,046 |
|
Receivable from AOF Ltd |
|
|
41,768 |
|
Financial assets at fair value through profit or loss |
|
|
49,278,324 |
|
Total assets |
|
|
52,149,085 |
|
|
|
|
|
|
EQUITY AND LIABILITIES |
|
|
|
|
Liabilities |
|
|
|
|
Trade and other payables |
|
|
682,554 |
|
Financial liabilities at fair value through profit or loss |
|
|
797,188 |
|
Total liabilities |
|
|
1,479,742 |
|
|
|
|
|
|
Net assets attributable to shareholders |
|
|
50,669,343 |
|
|
|
|
|
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 (2017: 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.
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 74,849,606 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
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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