TIDMAOF
RNS Number : 9221W
Africa Opportunity Fund Limited
29 April 2016
29 April 2016
Africa Opportunity Fund Limited (AOF.L and AOFC.L)
Announcement of Annual Results for the Year ended 31 December
2015
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 2015.
Highlights
-- AOF's ordinary share net asset value per share of US$ 0.874
as at 31 December 2015 decreased by 11% from the 31 December 2014
net asset value per share of US$1.011, including dividends.
-- AOF's C share net asset value per share of US$0.821 as at 31
December 2015 decreased 9% from the 31 December 2014 net asset
value per share of US$0.912.
-- As at 31 December 2014, AOF's investment allocation for its
Ordinary shares was 77% equities, 13% debt and 10% cash and for its
C shares was 63% equities, 24% debt and 13% cash.
The Company
Africa Opportunity Fund Limited ("AOF" or the "Company") is a
Cayman Islands incorporated closed-end investment company traded on
the Specialist Fund Segment ("SFS") of the London Stock Exchange
("LSE"). AOF's net asset value on 31 December 2015 was US$61.3
million and its market capitalisation was US$48.1 million.
Chairperson's Statement
2015 Review
2015 was a challenging year for the Africa Opportunity Fund (the
"Fund" or "AOF"), a volatile year for world markets, and a
dispiriting year for emerging markets. It proved to be even more
challenging than I had warned last year.
Africa's terms of trade continued to deteriorate as more
commodity prices fell in response to waning Chinese demand, a
steady supply of unwanted commodities, and rising inventories.
Copper, for example, joined oil and iron-ore in falling to
unexpectedly low levels. Several African currencies collapsed in
dramatic fashion in tandem with collapsing export proceeds. Their
collapse, excruciating as it feels to Africans as consumers and
AOF, as an Africa investor, is part of the medicine that can turn
Africa into a globally competitive continent. It is a truism that
the tumbling export revenues suffered by oil exporters like Nigeria
and Angola were the counterpoise to the lower oil import bills of
other net oil importing African countries such as Senegal,
Tanzania, Uganda, and Kenya. The gross domestic product growth
rates of the African non-oil, metals, and minerals exporters were
higher in 2015 than their oil, metals, and minerals exporting
brethren. Nevertheless, regardless of current economic performance,
all African countries face the daunting task of deepening their
productive capacities. It is too easy to forget the large potential
profitability awaiting entrepreneurs and companies creating
businesses which close the gaps between the productivity standards
of the archetypal African country and current global productivity
norms. Consider that 40% of America's workforce was employed in
agriculture as far back as 1900 and 65% of Africa's workers toiled
on the land as recently as 2009 (1) . Most Americans, then, had no
access to phones; a majority of Africans, today, own cellphones. It
is easy to overlook the huge scope for growth of building materials
industries when sub-Saharan Africa's 960 million people consumed
100 million tonnes of cement in 2015 versus 71 million tonnes
produced in Turkey. By 2030, sub-Saharan Africa's population is
forecast by the United Nations to be 1.4 billion. If Sub-Saharan
Africa's cement production in 2030 equaled India's 2015 cement
production of 274 million tonnes, its cement market would have
grown at an annual compounded rate of 7% to reach a per capita
annual cement consumption of 196 kilograms, lower than India's
current 2015 per capita production of 211 kilogram and 40% of
today's global average per capita consumption. Undoubtedly, lots of
capital must be raised to finance the numerous infrastructure and
housing projects needed to build decent urban settings for the
countless Africans migrating from its rural areas to its cities.
Yet, it is this beguiling juxtaposition of the 21(st) century and
the 19(th) century that creates numerous investment prospects in
Africa and makes Africa an attractive destination for the long-term
investor to earn good returns on invested capital.
A major conundrum for many African governments is finding the
resources to maintain, if not accelerate, the pace of national
development in these painful times. Consequently, many countries
are destined for stints in the recuperation ward of the
International Monetary Fund within the next few years. Some ways of
solving this conundrum impose disproportionate cost on investors;
other ways seek to allocate the costs evenly across all interest
groups. The sober reality is that public resources will have to be
complemented by private investment. African capital will have to
attract foreign capital to accomplish the goal of rapid
development.
AOF's strategy in 2015 combined fresh investments in suppliers
to Africa's infrastructure drive such as cement companies and
electric utilities, with the short selling of securities of
companies leveraged to the waning fortunes of the heavily indebted
among Africa's consumers, principally in South Africa. There was a
modest increase in the size of the Fund's bond portfolio, as a
risk-adjusted means of increasing the Fund's exposure to the
beaten-down hard currency earning Africa commodity exporters. These
investments tended to be made in the regions expected to serve as
relative havens - francophone Africa, countries like Morocco, which
have de facto Euro pegs, and oil-importing countries like Egypt and
Kenya.
The net asset value of the Fund's A shares, including dividends,
declined by 11% while the net asset value of the Fund's C shares
declined by 9%. AOF's share prices fell far more than net asset
value, leading to a widening of the discount between its share
price and its net asset value. The total return for the A shares
was -22%, and for the C shares was -28%. The respective discounts
to net asset value were 26% and 14%, respectively.
To provide some basis for comparison, South Africa fell 21%,
Nigeria fell 21%, Kenya fell 18%, and Egypt fell 31%. In
non-African emerging markets, China rose 3%, Brazil fell 42%,
Russia was flat, and India fell 8%. In developed markets, Japan
rose 10%, the US rose 1%, and the UK fell 5%(2) . For AOF's
shareholders, 2015 marked a second consecutive year of losses.
Those losses must be taken in the context of AOF's long-term
orientation. In that context AOF's thesis and strategy of seeking
to purchase the strong growth prospects of various African
industries without paying too much for them at the time of
investment means the Fund remains an excellent investment vehicle
for the long term investor.
2016 Outlook
2016 is a year of uncertainties for African investors. It is
positive that more African countries are accepting the
inevitability of unpleasant austere adjustments. Although it would
be foolhardy to claim that African currencies have reached their
bottom, especially when the International Monetary Fund has
publicly described the Nigerian Naira as overvalued(3) , it seems
that a lot of the currency corrections have occurred. The
concomitant sharp sell-offs in equities and debt securities created
more than a few attractive entry points into companies with
respectable growth prospects. The dark cloud hanging over African
capital markets is the possibility of macro-economic or currency
crisis in China causing a general flight from both emerging and
frontier markets. AOF sees excellent long-term investment
opportunities in this environment.
There are three elections in 2016 of interest to AOF: those of
Uganda, Zambia, and Ghana. As an investor, AOF is agnostic about
the sovereign selections of voters in each of those countries. We
are more interested in the effect of those elections on the
economic policies of those countries and whether their currencies
are likely to suffer even more depreciation than they have
experienced in the last two years. Uganda's February election had
little effect on the Ugandan shilling. We hope that the two
remaining elections pass without serious incident and with displays
of fiscal sobriety by the incumbent governments. It also seems that
more African courts are handing down decisions to strengthen
institutions charged with rooting out governmental abuses such as
the Public Protector's Office in South Africa. Governments in
countries like Tanzania and Kenya have begun to suspend officials
suspected of corruption. Those actions demonstrate the deepening
roots of the Rule of Law in Africa, an undoubted blessing for all
investors and residents of Africa. Therefore, as always, we remain
optimistic about AOF's prospects.
Concluding Comments
Early in 2016 the Board selected Liberum Capital Ltd as AOF's
new corporate broker. The discount to NAV at which AOF's shares
trade is wide, and the Manager intends to pursue renewed marketing
efforts with Liberum's assistance. The Board will also consider
other steps such as share repurchases if the discount persists.
The Shoprite litigation continues to drag on, but the Manager is
working diligently to bring its efforts to fruition. Remain hopeful
that arbitration proceedings will be concluded this year.
In closing, we extend our thanks to our shareholders for their
support and partnership and look forward to continuing to work with
you in the years to come.
Dr. Myma Belo-Osagie
Chairperson
April 2016
(1) Berkshire Hathaway 2015 Annual Report, p. 21 and Fact Sheet:
The World Bank and Agriculture in Africa.
http://go.worldbank.org/GUJ8RVMRLO
(2) Reference indices are calculated in US Dollars using:
Nigeria NSE Allshare Index, South Africa FTSE/JSE Africa Allshare
Index, Nairobi NSE Allshare Index, Egypt Hermes Index, Russia MICEX
Index, Brazil IBOV Index, the Shanghai Shenzen 300 CSI Index, the
India SENSEX Index, the S&P 500, the FTSE 100, and the Nikkei
225.
(3) Ibid, p. 16, footnote 5.
Manager's Report
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2015 marked the eighth full year of operation of Africa
Opportunity Fund ("the Fund" or "AOF"). It marked also a full
trading year for the "C shares", until they are merged with the
original issue of the Fund's shares (hereinafter referred to as "A
shares"). The A shares had a return of -11%, including dividends
while the C shares had a return of -9%. At year-end, AOF held $50.1
million in equity securities, $10.7 million in debt securities,
$6.8 million in cash; and derivative and short sale liabilities
equal to $6.4 million. In class terms, the A shares held $32.0
million in equity securities; $4.9 million in debt securities; $3.8
million in cash; and derivative and short sale liabilities equal to
$3.6 million. The C shares held $18.1 million in equity securities;
$5.8 million in debt securities; $3.0 million in cash; and
derivative and short sale liabilities equal to $2.9 million. The
Fund's underlying end-of-year holdings were in Botswana, Cote
d'Ivoire, Egypt, Ghana, Kenya, Morocco, Nigeria, Senegal, South
Africa, Tanzania, Uganda, Zambia, and Zimbabwe. Our lodestar for
measuring the Fund's portfolio is our estimate of its appraisal
value per share. That subjective estimate measures the Manager's
view of the long-term attractiveness of the portfolio, which we
publish quarterly in our newsletters. It was $0.98 per share at the
end of 2015. The appraisal value for the C shares was $1.03 per
share for 2015.
Although AOF's two share classes suffered large losses in 2015,
the Fund's performance surpassed several Africa indices. Collapsing
African currencies, partially induced by collapsing commodity
prices, and a dash of Zimbabwean deflation continued to cast a
dominating pall over our results. African markets have had a tough
time over the last five years. Set forth below, in tabular form, is
data to provide some perspective on the trends of the last five
years.
Comparative Returns
-------------------------------------------
Index/security 1 Year 3 Year 5 Year
AOF NAV -11% -6% -1%
Lyxor Africa
ETF -31% -46% -56%
DBX MSCI
Africa Top
50 -25% -25% n/a
Market Vectors
Africa -30% -39% -41%
Brazil Bovespa -42% -63% -74%
Russia Micex 0% -44% -47%
India Sensex -8% 16% -7%
China CSI
300 3% 51% 33%
US S&P 500 1% 52% 80%
AOF's 2015 performance notwithstanding, we remain optimistic
because the underlying operating cash flow in the Fund's major
holdings continues to grow at a decent pace in US Dollars. Many of
AOF's companies are continental leaders in their industries,
whether measured by profitability or balance sheet quality or
market position. Sooner or later, AOF hopes to enjoy the market's
acknowledgement of these underlying financial attributes. Current
stagnant economic conditions notwithstanding, we are steadfast in
believing that Africa's own secular prospects remain undimmed,
positive, and powerful.
The 2015 performances of different African capital markets were
molded by identical factors from 2014: worsening terms of trade of
most African exporters caused by a decelerating Chinese economy,
the eventual rise in US interest rates, and displays of fiscal
profligacy by some African governments. This triple cocktail of
macro causes undermined the living standards of African consumers,
reduced the profitability of the African corporate sector, and
lowered the external value of most African currencies. It was
brutal. In order of depreciation against the US Dollar: the Zambian
Kwacha fell by 42%; the Rand by 25%; the Tanzanian shilling by 19%;
the Ugandan shilling by 18%; the Ghanaian Cedi by 15%; the Botswana
Pula by 15%; the CFA Franc by 12%; the Kenyan shilling by 11%; the
Moroccan Dirham by 9%; the Egyptian Pound by 9%; the Guinean Franc
by 9%; and the Nigerian Naira by 8%,([1]) . Unfortunately, Africa's
commodity exporters could face a few more grim years in a period of
rising US interest rates. The Bank for International Settlements'
latest early warning indicators for stress in domestic banking
systems suggest that China is at high risk of suffering a banking
crisis within the next three years(2) . Were such a crisis to
occur, several African countries, as exporters to China, are bound
to suffer more macro-economic turbulence. Furthermore, sharing the
loss of purchasing power and foreign exchange among voters in any
one country in the first 18 months after those losses seems to be
more a political than an economic exercise in burden sharing,
resulting in varying levels of diminished profitability for the
corporate sectors of different African countries. Nigeria, for
example, has opted to freeze the exchange rate of the Naira,
causing an emerging parallel market rate for that currency and
labyrinthine petrol queues. Zimbabwe, by contrast, is in the
embrace of an actual deflationary spiral as the US Dollar remains
its primary form of legal tender.
How should AOF sail on these stormy seas and dark clouds?
Our answer starts with an acknowledgment of the trends in which
we repose a high degree of confidence. The first trend is that
freely tradeable currencies like the US Dollar will become more
valuable to Africans simply because it is hard to see how African
companies can increase sufficiently the volume of their commodity
exports to offset the price falls of those exports. The second
trend is that Africans will have to maintain, if not expand, their
investment and capital expenditure levels to build physical and
human capital infrastructure required by a competitive and
industrializing Africa. Many more power plants, railways, ports and
container terminals are needed in Africa right now; the
productivity of African agriculture is in urgent need of explosive
growth to both reduce the cost of staple crops like maize and rice
and Africa's food imports; raising sub-Saharan Africa's tertiary
enrollment ratio (the percentage of students eligible to enter a
tertiary institution like a university, community college, or
technical school) from its current 8% to India's 24% is possible
only if 24 Harvard sized campuses are built every year for the next
decade. The third trend is that the African consumer will save more
out of her modest income to finance a larger share of investment in
Africa, whether through incentives to buy long-term financial
savings products or the coercion of higher prices for goods and
services. The fourth trend is financial capital generated in Africa
will continue to command a high price because the demands for its
uses continue to handsomely outstrip its supply. A fifth trend is
that there will be many more Africans, especially young ones,
living in urban Africa with longer life spans than their parents.
These trends imply continued weakening of African currencies
against freely tradeable currencies; expanding basic materials
industries like those of cement production; a bigger electricity
generation and distribution industry; grudgingly granted tax
concessions to encourage exploration and production of African
natural resources; a slow-down in the consumptive expenditures of
African households; and a larger long-term financial services
industry. Short selling of securities and currency hedging, where
affordable, will have to be essential parts of AOF's investment
strategy to profit from some of those trends. An illustration of
the protection from currency hedging can be found in the Euro short
position AOF has maintained since the middle of 2011 to preserve
the US Dollar value of its CFA Franc-denominated positions,
especially Sonatel. As the Euro declined from $1.21 at the end of
2014 to $1.09 at the end of 2015, AOF's Euro hedge contributed 2
cents in unrealized gains to the A share's net asset value.
However, the lion's share of AOF profits is likely to come from
investing for the long haul in companies, with attractive modestly
leveraged returns on equity, in industries which must grow in
tandem with these trends. As a rough approximation, AOF will tend
to hold debt securities, denominated in freely tradeable
currencies, issued by companies developing Africa's natural
resources, and the equity securities of national and continental
corporate leaders in attractive industries.
Africa's electric utility industry was described in last year's
report as "another sector guaranteed to enjoy years of profitable
growth". Copperbelt Energy PLC ("Copperbelt") was presented as an
example of the profit waiting to be garnered in that sector. Those
sentiments turned out to be prematurely optimistic. Rather, it
served as a sober warning of the risks in an industry in transition
from public ownership of assets to one of private enterprise
subject to regulatory approval of its tariffs. There is a dearth of
electricity in Africa. To quote Bill Gates, "the amount of
electricity per person in Africa today, when you factor out South
Africa, is lower than it was 30 years ago. That's kind of a
stunning thing." (3) One would think that Africa is drowning in
electricity from the problems encountered by Copperbelt Energy in
collecting money from its customers or the modest growth in
electricity demand experienced by Kenya Power. Copperbelt generates
revenue from the transmission of electricity to copper mines in
Zambia and the Katanga province of the Democratic Republic of
Congo, the distribution of electricity in Abuja, the Federal
capital of Nigeria, the generation of electricity by the Shiroro
hydroelectric dam in Nigeria, and a joint venture interest in the
supply of broadband services throughout Zambia. It is developing a
40MW hydroelectric dam in Kabompo Gorge, northwestern Zambia, and a
128 MW heavy fuel oil power plant in Freetown, Sierra Leone.
Copperbelt reported a gigantic group loss in 2015 of $220.3 million
(1.9 billion Zambian kwacha), despite its Zambian transmission
profits both rising 18% from $33.6 million in 2014 to $39.5 million
on revenue of $291 million, and generating free cash flow of
$22.5
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million in 2015. Copperbelt lost $260 million on revenue of $326
million generated in Abuja, as a result of writing off $90 million
of bad debts caused by aggregate technical, commercial, and
collection losses of 52% of sold electricity. Ironically, $40
million (8 billion Naira) of those bad debts are owed by the
military, several ministries, departments, and agencies of
Nigeria's own Federal government. To date, the Zambian market's
skepticism about Copperbelt's Nigeria foray has been completely
vindicated. Yet, the current Copperbelt market capitalization of
$104 million(4) and enterprise value of $340 million is too low. As
an entity able to maintain its Zambian profits in US Dollars,
despite the 42% depreciation of the Kwacha, Copperbelt can be
compared with other Dollar earning utility companies. Its earnings
before interest, tax, depreciation, and amortization ("EBITDA") in
Zambia has climbed from $47.4 million in 2013 to $79.9 million in
2015. Capitalizing the three year average of that EBITDA ($63
million) by a multiple of 7x (half of the EV/EBITDA multiples
applicable to utilities) suggests its enterprise value should be
around $440 million. Copperbelt's group book value is $237 million;
thus it trades at a 56% discount to that book value. Undoubtedly,
Copperbelt's Nigerian woes account for its depressed valuation.
Yet, it is only a question of time before Nigerians pay for their
electricity consumption; otherwise, they will not have the
predictable electricity supply which is required to industrialize.
It is understandable that the markets are distressed by
Copperbelt's debt burden attributable to its Nigerian collection
challenges. Still, it is worth noting that Copperbelt's Nigerian
businesses are held as investments, not assets of Copperbelt PLC in
Zambia. Copperbelt itself does not guarantee any of the
Abuja-related debts. At worst, Copperbelt would have to write-off
its investment in Nigeria, leading, paradoxically, to an increased
book value of $381 million (5) . Furthermore, Copperbelt's Zambian
operations are demonstrating resilience in the face of drought,
collapse in copper prices, and a train of its customers putting
various mines on care and maintenance. How? By expanding into new
lines of revenue like power trading. Even as its transmission and
wheeling revenues weakened in 2015, and are expected to continue to
weaken in 2016, Copperbelt's power trading revenues more than
doubled to approximately 8% of its Zambian revenues. A proven
Zambian US Dollar earner lost half its US Dollar valuation in the
very year when the superiority of its US Dollar earning capacity
was demonstrated for all to see. In time, the virtues of Copperbelt
will command respect and recognition.
The Economist had occasion to observe in its March 26, 2016
issue that the US economy was suffering from proliferating
oligopolies accompanied, ineluctably, by higher industrial
profitability(6) . Railways and airlines are two examples.
Sidestepping the debate whether oligopolies help or hinder economic
development, there should be no doubt that a vibrant cement
industry is oligopolistic, profitable, and necessary for rapid
economic growth in several African countries. Controlling 62%
market share of Nigeria's cement industry, Dangote Cement is the
leader of a national oligopoly. Its strategy is to reinvest its
high level of Nigerian profits in building new capacity across
sub-Saharan Africa to become the lowest cost producer in most
African markets. The $148/ton price of Dangote's cement sold in
Nigeria, supporting a 61% EBITDA margin, is much higher than the
$89/ton price it commands in eastern and southern Africa where it
battles not only incumbent players, but also cement imports from
countries like Pakistan. Nigeria's cement industry, including old
multinational companies like Lafarge, is protected by laws designed
to encourage cement production in Nigeria. Dangote Cement has used
those protective barriers to construct the largest cement plant in
Africa, reliant on Nigeria's own natural gas. 2015 annual
production capacity of 44 million tons, itself a vastly higher
capacity than the 8 million ton capacity of Dangote upon its
listing in 2010, is supposed to soar by 77% to 77 million tons by
2019. By so doing, Dangote Cement seeks to become the largest
cement company in Africa, present in 16 countries. Dangote's
expansion strategy is by no means risk-free. Alluring demand growth
characteristics for an urbanizing Africa in dire need of
infrastructure and buildings notwithstanding, there are important
national cement markets mired in excess capacity today. Nigeria is
one example; South Africa is a second. Dangote's capacity
utilization in Nigeria was only 45%. To date, AOF's investment in
Dangote has produced a 3% loss through 2015.
Dangote Cement is the largest company listed on the Nigeria
Stock Exchange, even though it has one shareholder - Dangote
Industries - owning 90% of its share capital. Its founder and
Chairman - Alhaji Aliko Dangote - has evolved from a trader into
Africa's wealthiest industrial magnate. Dangote Cement's current
market capitalization is $14.6 billion and its enterprise value is
$15.7 billion. Current vital valuation metrics are a P/E ratio of
16 x, a Price/Tangible book ratio of 4.4x, an Enterprise
Value/EBITDA of 12x, and a dividend yield of 5%. Dangote Cement's
2015 profits were $936 million, cash flow from operations was $1.4
billion, and free cash flow was $600 million. Its EBITDA margin was
53% and its net margin was 37%. Dangote Cement's latest return on
average equity was 29% and return on average assets was 19%.
Admittedly, those returns are lower than the comparable 2010 ratios
of 57% and 30%. All Nigerian valuations discount, to some degree,
an expectation that the Naira will suffer a substantial devaluation
within the next 12 months. Dangote's spectacularly high Nigerian
margins must fall in time. Still, the scale of its expansion,
coupled with the huge latent demand for building materials in
Africa to develop Africa's cities and industrial capacity suggest
that Dangote's profits should continue to climb at a decent pace,
even as its profitability and capital returns decline towards
global norms. AOF is not paying much for the strong secular
positive prospects of Dangote Cement.
We have held steadfastly to the proposition that the financial
services sector of sub-Saharan Africa, outside South Africa,
Botswana, and Namibia, is underdeveloped and set for years of high
annual growth. There are two caveats to that proposition. First, an
industry for which cyclical interest rates is a major cost must,
necessarily, also be cyclical. Second, insofar as a country's
financial sector's assets constitute a major part of the
liabilities of that country's non-financial sectors, the aggregate
balance sheet of that country's financial sector must expand and
contract, accordion like, as the liabilities of those non-financial
sectors improve and deteriorate in creditworthiness. Put another
way, it is tough for a country's financial sector to thrive in the
midst of a national crisis. 2015 illustrated this proposition in
Ghana in the case of Standard Chartered Bank. Standard Chartered
Bank's non-performing loans rose to 41% of its entire loan book. It
was a wonder that it still managed to eke out a profit. Its
decision to provide more credit to the private sector of Ghana
boomeranged as cash flow evaporated in the midst of a foreign
exchange crisis. AOF suffered a loss of 31% on its Standard
Chartered Bank holdings in 2015.
2015 demonstrated also the resilience of Enterprise Group,
providing AOF a total return of 17% on our investment. We note a
passage from Berkshire Hathaway's recent annual report which
summarizes a key attribute for Enterprise as well: "When
Berkshire's book value is calculated, the full amount of our float
is deducted as a liability, just as if we had to pay it out
tomorrow and could not replenish it. But to think of float as
strictly a liability is incorrect. It should instead be viewed as a
revolving fund. Daily, we pay old claims and related expenses...
and that reduces float. Just as surely, we each day write new
business that will soon generate its own claims, adding to float.
If our revolving float is both costless and long-enduring...the
true liability of this float is dramatically less than the
accounting liability(7) . In the case of Enterprise, the Ghanaian
cedi has depreciated by 50% against the US Dollar between the end
of 2012 and the end of 2015, yet in that period, the value of
Enterprise's book value attributable to its shareholders has risen
from $45 million to $54 million. The corresponding "float"
(investable funds due to other parties like policyholders and
reinsurers) rose from $55 million to $69 million as net written
premia also rose 11% from $60 million to $67 million. Enterprise's
2015 net premiums earned was 254 million Cedis ($67 million) versus
203.9 million Cedis ($67 million) in 2014. Reported cash flow from
operations rose from $5 million in 2014 to $14 million to 2015.
After adding back Enterprise's 2015 investments and recognizing the
profits belonging to Enterprise's shareholders disclosed in its
most recent embedded value statement, but yet to be recognized in
its financial statements, we estimate that Enterprise's gross
operating cash flow before investments attributable to shareholders
rose from $16 million in 2014 to $23 million in 2015. Enterprise
may appear to be circumambulating at a crawl like a developed
market tortoise of an insurance group with these modest increases
over a three year period. On the contrary, those very modest
increases hint of considerable growth potential when the Cedi ends
its current collapsing phase. This is the period in which
Enterprise has been confirmed officially as the largest life
company in Ghana, as measured by gross premia written, to overtake
the State Life Company, and the second largest property and
casualty insurance company. But, there remains a lot more business
to be written. Consider that, according to Swiss Re's June
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2014 Sigma report on the global insurance industry, Ghana's per
capita life insurance premium of $7.2 is 53% of Kenya's $13.6 life
premium per capita while its property and casualty insurance
premium is less than 1/3(rd) that of Kenya and the potential high
growth prospects of the Ghanaian insurance industry are patently
clear. An investment in Enterprise is a stake in a high growth
industry.
AOF continued to hold a portfolio of commodity producers through
another year of price declines. 2015 price declines for some
commodities were smaller than those of 2014. For example, gold
declined by 10%, palm oil by 15%, rubber by 23%, and crude oil by
35%. In contrast, commodities which experienced sharper 2015 price
declines than 2014 included platinum, which fell 26%; copper, which
fell 24%; and manganese, by 22%. Between December 31, 2012 and the
end of 2015, the iron ore price dropped by a cumulative 70%, crude
oil by 66%, rubber by 61%, platinum by 42%, copper by 41%, gold by
37%, palm oil by 27%, and polished diamond prices by 12%. Once
again, the truth of the old saying that the cure for high prices is
high prices and the price for low prices is low prices has been
verified. In light of our ignorance about when excess supplies of
various commodities will disappear, and our belief that AOF should
have some exposure to Africa's sources of hard currency earnings,
we tried to concentrate AOF's commodity investments in low cost
commodity producers or explorers. Owning the equity or debt of
those companies may have a high opportunity cost in the short run;
however, we seek companies that have an ability to generate
respectable operating cash flows even in these dire times.
Eventually, commodity prices will pick up, giving decent returns to
investors willing to invest during the commodity bust period.
Kosmos Energy is a good example. It is the oil and gas explorer and
producer which turned Ghana into an oil exporting state by
discovering the billion barrel Jubilee oil field in 2007. Kosmos
was hedging a significant share of its production when oil prices
were in triple digits. It explored for Ghanaian oil when Ghana was
long dismissed as an oil district. The 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. The
upshot? Remarkably low finding costs per barrel, a 100%+ reserve
replacement ratio; and operating costs for the Jubilee field in the
$10-$15 per barrel range. One illustration: since inception, Kosmos
has spent $851 million on exploration outside Ghana. Inevitably, it
has suffered dry holes. Nevertheless, in 2015 Kosmos announced 15
trillion cubic feet natural gas discoveries in Mauritania and
Senegal (equivalent to 2.6 billion barrels of oil) alone give it a
finding cost per barrel (outside Ghana) of $0.33 per barrel. Exxon
Mobil reports finding costs around $4 per barrel, to provide some
perspective. Today, the markets seem to view its recent finds as
value destructive liabilities, presumably because of low natural
gas prices and high development costs for natural gas fields.
Indeed, the owners of common stock of Kosmos Energy suffered a 38%
loss in 2015. AOF owns also securities of Tullow Oil. Consequently,
its oil and gas holdings span both West African and East African
hydrocarbon fields.
Our review of 2015 would be incomplete without an update about
the Shoprite litigation. The arbitration of AOF's dispute with
Shoprite remains pending. There is much we would like to say on the
topic, but because of the litigation it is difficult to do so. As a
quick recap, AOF sued Shoprite in the Western Cape High Court of
South Africa for its failure to pay dividends due to AOF since
August 2011. It sued in its capacity as a beneficial owner of the
Shoprite shares bought through the Lusaka Stock Exchange because
Standard Chartered Bank, custodian of those shares, refused to sue
Shoprite in its capacity as the registered owners of those Shoprite
shares. Shoprite has, amongst other things, challenged AOF's
standing as beneficial owner, to institute legal proceedings
against it, acknowledging the right of Standard Chartered, but not
AOF. The matter was referred to arbitration which was scheduled for
April. Only a pre-arbitration trial could be heard and the matter
has been postponed to August by agreement between the parties. We
continue to remain confident that AOF's actions against Shoprite
will have a favorable outcome and title to all of the Fund's shares
will be confirmed.
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 estimate 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.
As of the end of March 2016, AOF's combined top 10 holdings
juxtaposed high operational returns with reasonable valuation
ratios, signifying strong earning power. Those holdings had a
weighted average dividend yield of 4%, a P/E ratio of 16X, a return
on assets of 7%, and a return on equity of 13%. 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 are unhappy about the losses suffered by our
shareholders in 2015, but shall continue to build a portfolio that
delivers both capital growth and income into the future.
Francis Daniels
Africa Opportunity Partners
April 2016
Directors' Responsibility Statements (required under DTR
4.1.12)
The Directors, being the persons responsible within the Group,
hereby confirm to the best of their knowledge:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and
-- the Chairman's Statement and Investment Manager Report, and
Condensed Notes to the Financial Statements include a fair review
of the development and performance of the business and the position
of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
Per Order of the Board
29 April 2016
[1] Bloomberg
2 Bank for International Settlements Quarterly Review, March
2016, pps. 28 and 29
3 Quartz Africa article of February 22, 2016, by Kevin J.
Delaney
4 Market capitalization on 3/31/2016 on Bloomberg
5 Copperbelt Energy PLC's 2015 Annual Report, page 49.
6 "Revenues in fragmented industries-those in which the biggest
four firms together control less than a third of the market-dropped
from 72% of the total in 1997 to 58% in 2012. Concentrated
industries, in which the top four firms control between a third and
two-thirds, have seen their share of revenues rise from 14% to 33%.
And just under a tenth of the activity takes place in industries in
which the top four firms control two-thirds or more of sales." The
Economist, March 26, 2016-Briefing: Business in America
7 Berkshire Hathaway 2015 Annual Report, pps 10-11.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
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FOR THE YEAR ENDED 31 DECEMBER 2015
Notes 2015 2014
------------ ---------------
USD USD
Income
Interest revenue 6 652,135 1,047,599
Dividend revenue 1,657,433 2,388,453
Other income 30,068 333,657
Net foreign exchange gain 514,316 1,059,102
------------ ---------------
2,853,952 4,828,811
------------ ---------------
Expenses
Net losses on financial assets
and liabilities at fair value
through profit or loss 7 (c) 7,853,063 12,092,559
Placing agent fee 22 - 937,987
Management fee 5 1,149,597 1,196,481
Brokerage fees and commissions 298,413 681,880
Custodian, secretarial and administration
fees 356,686 343,193
Dividend expense on securities
sold not yet purchased 167,103 178,917
Marketing fees - 25,137
Other operating expenses 276,742 452,009
Directors' fees 181,250 144,422
Audit fees 94,863 40,265
10,377,717 16,092,850
------------ ---------------
Operating loss
(7,523,765) (11,264,039)
Finance costs
Distribution to shareholders 18 (912,289) -
------------ ---------------
Loss before tax (8,436,054) (11,264,039)
Less withholding tax (77,544) (238,339)
Decrease in net assets attributable
to shareholders from operations/
Total Comprehensive Loss for
the year (8,513,598) (11,502,378)
============ ===============
Attributable to:
Shareholders/Equity holders of
the parent (8,479,767) (11,436,911)
Non-controlling interest (33,831) (65,467)
-------------
(8,513,598) (11,502,378)
============ =============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2015
Notes 2015 2014
----------- -------------
USD USD
ASSETS
Cash and cash equivalents 9 6,851,126 16,848,480
Trade and other receivables 8 780,973 1,036,802
Financial assets at fair value
through profit or loss 7(a) 60,819,532 63,822,689
----------- -------------
Total assets 68,451,631 81,707,971
----------- =============
EQUITY AND LIABILITIES
LIABILITIES
Trade and other payables 11 443,216 131,467
Financial liabilities at fair
value through profit or loss 7(b) 6,446,603 11,501,094
----------- -------------
Total Liabilities (excluding
net assets attributable to
shareholders) 6,889,819 11,632,561
----------- -------------
NET ASSETS ATTRIBUTABLE TO
SHAREHOLDERS 61,561,812 70,075,410
=========== ===========
EQUITY
Equity attributable to equity
holders of parent - -
Non-controlling interest 12 306,399 340,230
----------- -------------
Total equity 306,399 340,230
----------- -------------
Net assets attributable to
shareholders 10 61,255,413 69,735,180
----------- -------------
Total equity attributable to
equity holders of parent and
total net assets attributable
to shareholders 61,561,812 70,075,410
=========== =============
Net assets attributable to:
- Ordinary shares 10 37,287,967 43,099,112
- Class C shares 10 23,967,446 26,636,068
----------- -----------
Net assets attributable to
shareholders 61,255,413 69,735,180
Net assets value per share:
- Ordinary shares 10 0.875 1.011
- Class C shares 10 0.821 0.912
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
Share Share Retained Non-controlling Total
capital premium earnings Total interest equity
-------- ----------- ----------- ----------- ---------------- -----------
Notes USD USD USD USD USD USD
At 31 December 2014 426,303 37,921,452 13,701,196 52,048,951 405,697 52,454,648
Profit for the
period - - 282,153 282,153 1,711 283,864
Dividend 18 - (76,859) - (76,859) - (76,859)
At 17 April 2014 426,303 37,844,593 13,983,349 52,254,245 407,408 52,661,653
Transfer to consolidated
statement of changes in net
assets (note 10) (426,303) (37,844,593) (13,983,349) (52,254,245) - (52,254,245)
Loss for
the
period - - - - (67,178) (67,178)
At 31 December
2014 - - - - 340,230 340,230
==== ======== ======== ========= ============ =======================
At 1 January 2015 - - - - 340,230 340,230
Loss for the period - - - - (33,831) (33,831)
------- --------- ---- -------- --------- ----------
At 31 December 2015 - - - - 306,399 306,399
==== ======== ========== ==== ========= ==========
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED 31 DECEMBER 2015
Ordinary Class Net assets
Number Share C shares attributable
of units to shareholders
----------- ------------- ------------ -----------------
USD USD USD USD
At 17 April 2014
- transfer from
equity (refer
to note 10) 42,630,327 52,254,245 - 52,254,245
CAPITAL TRANSACTIONS:
Issue of C shares 29,200,000 - 29,200,000 29,200,000
OPERATIONS:
Decrease in net
assets attributable
to shareholders
from operations
for the period - (9,155,133) (2,563,932) (11,719,065)
At 31 December
2014 71,830,327 43,099,112 26,636,068 69,735,180
=========== ============= ============ =================
At 1 January 2015 71,830,327 43,099,112 26,636,068 69,735,180
OPERATIONS:
Decrease in net
assets attributable
to shareholders
from operations - (5,811,145) (2,668,622) (8,479,767)
At 31 December
2015 71,830,327 37,287,967 23,967,446 61,255,413
=========== ============ ============ ============
CONSOLIDATED STATEMENT OF CASH FLOWS
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FOR THE YEAR ENDED 31 DECEMBER 2015
Notes 2015 2014
--------------- ---------------
USD USD
Operating activities
Decrease in net assets attributable
to shareholders from operations/
Total Comprehensive Loss
for the year (8,513,598) (11,502,378)
Adjustment for items separately
disclosed:
Dividend expense 912,289 -
Adjustments for non-cash
items
Unrealised loss on financial
assets at fair value through
profit or loss 7(a) 7,433,641 10,339,284
Realised loss on sale of
financial assets at fair
value through profit or loss 7(a) 2,651,638 2,132,906
Unrealised loss on financial
liabilities held for trading 7(b) (2,905,223) 135,784
Realised gain on financial
liabilities held for trading 7(b) 673,007 (515,415)
Effect of exchange rate on
cash and cash equivalents (514,316) (1,059,102)
--------------- ---------------
Cash generated from/(used
in) operating activities (262,562) (468,921)
--------------- ---------------
Net changes in operating
assets and liabilities
Purchase of financial assets
at fair value through profit
or loss (16,586,148) (32,760,408)
Proceeds on disposal of financial
assets at fair value through
profit or loss 9,504,026 11,939,459
Derecognition of financial (7,888,534) -
liabilities held for trading
Purchase of financial liabilities
held for trading 5,066,259 6,916,862
Decrease in trade and other
receivables 255,829 77,198
Increase/(Decrease) in trade
and other payables 311,749 (2,365,766)
--------------- ---------------
Net cash used in operating
activities (9,336,819) (16,192,655)
--------------- ---------------
Financing activities
Proceeds from issue of redeemable
shares - 29,200,000
Dividend paid 18 (912,289) (162,150)
--------------- ---------------
Net cash flow generated/(used
in) financing activities (912,289) 29,037,850
--------------- ---------------
Net (decrease)/increase in
cash and cash equivalents (10,511,670) 12,376,274
Effect of exchange rate on
cash and cash equivalents 514,316 1,059,102
Cash and cash equivalents
at the start of the year 16,848,480 3,413,104
Cash and cash equivalents
at the end of the year 9 6,851,126 16,848,480
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
1. GENERAL INFORMATION
Africa Opportunity Fund Limited (the "Company") was launched
with an Alternative Market Listing "AIM" in July 2007 and moved to
the Specialist Funds Segment "SFS" in April 2014.
Africa Opportunity Fund Limited is a closed-ended fund
incorporated with limited liability and registered in Cayman
Islands under the Companies Law on 21 June 2007, with registered
number MC-188243.
The Company aims to achieve capital growth and income through
investment in value, arbitrage, and special situations investments
in the continent of Africa. The Company may therefore invest in
securities issued by companies domiciled outside Africa which
conduct significant business activities within Africa. The Company
has the ability to invest in a wide range of asset classes
including real estate interests, equity, quasi-equity or debt
instruments and debt issued by African sovereign states and
government entities.
The Company's investment activities are managed by Africa
Opportunity Partners Limited, a limited liability company
incorporated in the Cayman Islands and acting as the investment
manager pursuant to an Amended and Restated Investment Management
Agreement dated 12 February 2014.
To ensure that investments to be made by the Company and the
returns generated on the realisation of investments are both
effected in the most tax efficient manner, the Company has
established Africa Opportunity Fund L.P. 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.
The consolidated financial statements for the Company for the
year ended 31 December 2015 were authorised for issue in accordance
with a resolution of the Board of Directors on 29 April 2016.
Presentation currency
The consolidated financial statements are presented in United
States dollars ("USD").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these consolidated 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 consolidated financial statements.
Statement of compliance
The consolidated financial statements are prepared in accordance
with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB).
Basis of preparation
The consolidated financial statements have been prepared under
the historical cost convention except for financial assets and
financial liabilities at fair value through profit or loss that
have been measured at fair value.
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 and its subsidiaries' (referred
to as the "Group") 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.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Group as at 31 December 2015.
Subsidiaries are fully consolidated from the date of
acquisition, being the date on which the Group obtains control and
continues to be consolidated until the date that such control
ceases.
The financial statements of the subsidiaries are prepared for
the same reporting period as the parent company, using consistent
accounting policies.
All intra-group balances, income and expenses and gains and
losses resulting from intra-group transactions are eliminated in
full.
Non-controlling interests represent the portion of profit or
loss and net assets not held by the Group and are presented
separately in the statement of comprehensive income and within
equity in the statement of changes in equity from parent
shareholders' equity.
Foreign currency translation
(i) Functional and presentation currency
The consolidated financial statements are presented in USD which
is the Company's functional currency, being the currency of the
primary economic environment in which the Group operates. Each
entity in the Group 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 entities within the Group is USD. The Group chose USD as the
presentation currency.
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded at the
functional currency rate prevailing at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency spot rate of the
exchange ruling at the reporting date. All differences are taken to
profit or loss. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value
is determined.
Financial instruments
(i) Classification
The Group classifies its financial assets and liabilities in
accordance with IAS 39 into the following categories:
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.
Financial assets designated at fair value through profit or loss
upon initial recognition
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These include equity securities and debt instruments that are
not held for trading. These financial assets are designated on the
basis that they are part of a group of financial assets which are
managed and have their performance evaluated on a fair value basis,
in accordance with risk management and investment strategies of the
Group, as set out in the Group's offering document. The financial
information about the financial assets is provided internally on
that basis to the Investment Manager and to the Board of
Directors.
(i) Classification (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 Group does
not apply any hedge accounting). The Group'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 Group purchases and sells put and call options through
regulated exchanges and OTC markets. Options purchased by the Group
provide the Group 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 Group 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 Group provide the purchaser the
opportunity to purchase from or sell to the Company the underlying
asset at an agreed-upon value either on or before the expiration of
the option.
Options are generally settled on a net basis.
Contracts for difference
Contracts for difference are derivatives that obligate either
the buyer or the seller to pay to the other the difference between
the asset's current price and its price at the time of the
contract's usage. Unrealized gains or losses are recorded at the
end of each time period that passes without the CFDs being used.
Once the CFDs are used, the difference between the opening position
and the closing position is recorded as either revenue or a loss
depending on whether the business was the buyer or the seller.
Loans and receivables
Loans and receivables are non-derivatives financial assets with
fixed or determinable payments that are not quoted in an active
market. The Group's loans and receivables comprise 'trade and other
receivables' and 'cash and cash equivalents' in the statement of
financial position.
Other financial liabilities
This category includes all financial liabilities, other than
those classified as fair value through profit or loss. The Group
includes in this category amounts relating to trade and other
payables and dividend payable.
(ii) Recognition
The Group 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 Group commits to purchase or sell the
asset.
(iii) Initial measurement
Financial assets and liabilities at fair value through profit or
loss are recorded in the statement of financial position at fair
value. All transaction costs for such instruments are recognised
directly in profit or loss.
Derivatives embedded in other financial instruments are treated
as separate derivatives and recorded at fair value if their
economic characteristics and risks are not closely related to those
of the host contract, and the host contract is not itself
classified as held for trading or designated at fair value though
profit or loss. Embedded derivatives separated from the host are
carried at fair value.
Loans and receivables and financial liabilities (other than
those classified as held for trading) are measured initially at
their fair value plus any directly attributable incremental costs
of acquisition or issue.
(iv) Subsequent measurement
After initial measurement, the Group measures financial
instruments which are classified as at fair value through profit or
loss at fair value. Subsequent changes in the fair value of those
financial instruments are recorded in 'Net gain or loss on
financial assets and liabilities at fair value through profit or
loss'. Interest earned and dividend revenue elements of such
instruments are recorded separately in 'Interest revenue' and
'Dividend revenue', respectively. Dividend expenses related to
short positions are recognised in 'Dividends on securities sold not
yet purchased'.
Loans and receivables are carried at amortised cost using the
effective interest method less any allowance for impairment. Gains
and losses are recognised in profit or loss when the loans and
receivables are derecognised or impaired, as well as through the
amortisation process.
Financial liabilities, other than those classified as at fair
value through profit or loss, are measured at amortised cost using
the effective interest method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised, as well as
through the amortisation process.
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Group estimates cash flows considering
all contractual terms of the financial instruments, but does not
consider future credit losses. The calculation includes all fees
paid or received between parties to the contract that are an
integral part of the effective interest rate, transaction costs and
all other premiums or discounts.
(v) Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- The rights to receive cash flows from the asset have expired; or
-- The Group 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 Group has transferred substantially all the risks
and rewards of the asset, or (b) the Group has neither transferred
nor retained substantially all the risks and rewards of the asset,
but has transferred control of the asset.
When the Group 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 Group's continuing
involvement in the asset.
The Group 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 Group measures its investments in financial instruments 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 Group.
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 7.
The Group 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
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The Group assesses at each reporting date whether a financial
asset or group of financial assets classified as loans and
receivables is impaired. A financial asset or a group of financial
assets is deemed to be impaired if, and only if, there is an
objective evidence of impairment as a result of one or more events
that have occurred after the initial recognition of the asset (an
incurred 'loss event') and that loss event has an impact on the
estimated future cash flows of the financial asset or the group of
financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtor,
or a group of debtors, is experiencing significant financial
difficulty, default or delinquency in interest or principal
payments, the probability that they will enter bankruptcy or other
financial reorganisation and, where observable data indicate that
there is a measurable decrease in the estimated future cash flows,
such as changes in arrears or economic conditions that correlate
with defaults. If there is objective evidence that an impairment
loss has been incurred, the amount of the loss is measured as the
difference between the asset's carrying amount and the present
value of estimated future cash flows (excluding future expected
credit losses that have not yet been incurred) discounted using the
asset's original effective interest rate. The carrying amount of
the asset is reduced through the use of an allowance account and
the amount of the loss is recognised in profit or loss as 'Credit
loss expense'.
Impaired debts, together with the associated allowance, are
written off when there is no realistic prospect of future recovery
and all collateral has been realised or has been transferred to the
Group.
Interest revenue on impaired financial assets is recognised
using the rate of interest used to discount the future cash flows
for the purpose of measuring the impairment loss.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the statement of financial position if, and
only if, there is a currently legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net
basis, or to realise the asset and settle the liability
simultaneously.
Net gain or loss on financial assets and liabilities at fair
value through profit or loss
This item includes changes in the fair value of financial assets
and liabilities held for trading or designated upon initial
recognition as 'at fair value through profit or loss' and excludes
interest and dividend income and expenses.
Unrealised gains and losses comprise changes in the fair value
of financial instruments for the year and from reversal of prior
year's unrealised gains and losses for financial instruments which
were realised in the reporting period.
Realised gains and losses on disposals of financial instruments
classified as 'at fair value through profit or loss' are calculated
using the Average Cost (AVCO) method. They represent the difference
between an instrument's initial carrying amount and disposal
amount, or cash payments or receipts made on derivative contracts
(excluding payments or receipts on collateral margin accounts for
such instruments).
Due to and due from brokers
Amounts due to brokers are payables for securities purchased (in
a regular way transaction) that have been contracted for but not
yet delivered on the reporting date. Refer to the accounting policy
for financial liabilities, other than those classified as at fair
value through profit or loss for recognition and measurement.
Amounts due from brokers include margin accounts and receivables
for securities sold (in a regular way transaction) that have been
contracted for but not yet delivered on the reporting date. Refer
to accounting policy for loans and receivables for recognition and
measurement.
Shares that impose on the Company, an obligation to deliver to
shareholders a pro-rata share of the net asset of the Company on
liquidation classified as financial liabilities
The shares are classified as equity if those shares have all the
following features:
(a) It entitles the holder to a pro rata share of the Company's
net assets in the event of the Company's liquidation.
The Company's net assets are those assets that remain after
deducting all other claims on its assets. A pro rata share is
determined by:
(i) dividing the net assets of the Company on liquidation into units of equal amount; and
(ii) multiplying that amount by the number of the shares held by the shareholder.
(b) The shares are in the class of instruments that is
subordinate to all other classes of instruments. To be in such a
class the instrument:
(i) has no priority over other claims to the assets of the Company on liquidation, and
(ii) does not need to be converted into another instrument
before it is in the class of instruments that is subordinate to all
other classes of instruments.
(c) All shares in the class of instruments that is subordinate
to all other classes of instruments must have an identical
contractual obligation for the issuing Company to deliver a pro
rata share of its net assets on liquidation.
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 (Continued)
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.
The movement in fair value is shown in the statement of
comprehensive income as an 'Increase or decrease in net assets
attributable to shareholders'.
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 Group's right to receive
the payment is established. Dividend revenue is presented gross of
any non-recoverable withholding taxes, which are disclosed
separately in profit or loss. Dividend expense relating to equity
securities sold short is recognised when the shareholders' right to
receive the payment is established.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank. Cash
equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of change in value.
3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The accounting policies adopted are consistent with those of the
previous financial year except for the following new and amended
IFRS and IFRIC interpretations adopted in the year commencing 1
January 2015:
Amendments Effective
for accounting
period
beginning
on or after
Defined Benefit Plans: Employee Contributions 1 July
(Amendments to IAS 19) 2014
Annual Improvements 2010-2012 Cycle 1 July
2014
Annual Improvements 2011-2013 Cycle 1 July
2014
Where the adoption of the standard or interpretation or
improvement is deemed to have an impact on the financial statements
or performance of the Group, its impact is described below:
Amendments to IAS 19 Defined Benefit Plans: Employee
Contributions - effective 1 July 2014
IAS 19 requires an entity to consider contributions from
employees or third parties when accounting for defined benefit
plans. Where the contributions are linked to service, they should
be attributed to periods of service as a negative benefit. These
amendments clarify that, if the amount of the contributions is
independent of the number of years of service, an entity is
permitted to recognise such contributions as a reduction in the
service cost in the period in which the service is rendered,
instead of allocating the contributions to the periods of service.
This amendment is effective for annual periods beginning on or
after 1 July 2014.
This amendment had no impact on the financial position of the
Fund's financial statements.
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Annual Improvements 2010-2012 Cycle and Annual Improvements
2011-2013 Cycle
Effective for accounting
period beginning
on or after
Annual Improvements 2010-2012 Cycle
IFRS 2 Share-based Payment 1 July 2014
IFRS 3 Business Combinations 1 July 2014
IFRS 8 Operating Segments 1 July 2014
IAS 16 Property, Plant and Equipment 1 July 2014
IAS 24 Related Party Disclosures 1 July 2014
Annual Improvements 2011-2013 Cycle
IFRS 3 Business Combinations 1 July 2014
IFRS 13 Fair Value Measurement 1 July 2014
IAS 40 Investment Property 1 July 2014
Where the adoption of the standard or interpretation or
improvement is deemed to have an impact on the financial statements
or performance of the Fund, its impact is described below:
IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies that all
contingent consideration arrangements classified as liabilities (or
assets) arising from a business combination should be subsequently
measured at fair value through profit or loss whether or not they
fall within the scope of IAS 39.
This amendment did not have any impact on the Fund.
IFRS 8 Operating Segments
The amendments are applied retrospectively and clarify that:
-- An entity must disclose the judgements made by management in
applying the aggregation criteria in paragraph 12 of IFRS 8,
including a brief description of operating segments that have been
aggregated and the economic characteristics (e.g., sales and gross
margins) used to assess whether the segments are 'similar'; and
-- The reconciliation of segment assets to total assets is only
required to be disclosed if the reconciliation is reported to the
chief operating decision maker, similar to the required disclosure
for segment liabilities.
This amendment did not impact the Fund's accounting policy as
the Fund is organised in one main operating segment which invests
in equity securities and relative derivatives.
IAS 16 Property, Plant and Equipment and IAS 38 Intangible
Assets
The amendment is applied retrospectively and clarifies in IAS 16
and IAS 38 that the asset may be revalued by reference to
observable data by either adjusting the gross carrying amount of
the asset to market value or by determining the market value of the
carrying value and adjusting the gross carrying amount
proportionately so that the resulting carrying amount equals the
market value. In addition, the accumulated depreciation or
amortisation is the difference between the gross and carrying
amounts of the asset.
This amendment did not have any impact the Fund during the
current period as the Fund does not have such type of assets.
IAS 24 Related Party Disclosures
The amendment is applied retrospectively and clarifies that a
management entity (an entity that provides key management personnel
services) is a related party subject to the related party
disclosures. In addition, an entity that uses a management entity
is required to disclose the expenses incurred for management
services.
Additional disclosures have been made in the financial
statements of the Fund to cater for these amendments. (Refer to
note 14)
Annual Improvements 2011-2013 Cycle
These improvements are effective from 1 July 2014 and the Fund
has applied these amendments for the first time in these interim
condensed consolidated financial statements. They include:
IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies for the
scope exceptions within IFRS 3 that:
-- Joint arrangements, not just joint ventures, are outside the scope of IFRS 3; and
-- This scope exception applies only to the accounting in the
financial statements of the joint arrangement itself.
The Fund has not entered into a joint arrangement, and thus this
amendment is not relevant for the Fund.
IFRS 13 Fair Value Measurement
The amendment is applied prospectively and clarifies that the
portfolio exception in IFRS 13 can be applied not only to financial
assets and financial liabilities, but also to other contracts
within the scope of IAS 39. The Fund does not apply the portfolio
exception in IFRS 13.
IAS 40 Investment Property
The description of ancillary services in IAS 40 differentiates
between investment property and owner-occupied property (i.e.,
property, plant and equipment). The amendment is applied
prospectively and clarifies that IFRS 3, and not the description of
ancillary services in IAS 40, is used to determine if the
transaction is the purchase of an asset or a business combination.
This amendment does not have any impact as the Fund does not hold
any investment property.
3.1 STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Fund's financial
statements are disclosed below. They are mandatory for accounting
periods beginning on the specified dates, but the Fund has not
early adopted them:
Effective for accounting
period beginning
on or after
IFRS 9 Financial Instruments 1 January 2018
Sale or contribution of assets 1 January 2016
between an investor and its associate
or joint venture (Amendments to
IFRS 10 and IAS 28)
Investment Entities: Applying the 1 January 2016
Consolidation Exception (Amendments
to IFRS 10, IFRS 12 and IAS 28)
IFRS 14 Regulatory Deferral Accounts 1 January 2016
IFRS 15 Revenue from Contracts 1 January 2018
with Customers
IFRS 16 Leases 1 January 2019
Accounting for Acquisitions of 1 January 2016
Interests in Joint Operations (Amendments
to IFRS 11)
Clarification of Acceptable Methods 1 January 2016
of Depreciation and Amortisation
(Amendments to IAS 16 and IAS 38)
Agriculture: Bearer Plants (Amendments 1 January 2016
to IAS 16 and IAS 41)
Amendments to IAS 27: Equity Method 1 January 2016
in Separate Financial Statement
Annual improvements 2012 - 2014 1 January 2016
Cycle
Disclosure initiative - Amendments 1 January 2016
to IAS 1
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9
Financial Instruments that replaces IAS 39 Financial Instruments:
Recognition and Measurement and all previous versions of IFRS 9.
IFRS 9 brings together all three aspects of the accounting for
financial instruments project: classification and measurement,
impairment and hedge accounting. IFRS 9 is effective for annual
periods beginning on or after 1 January 2018, with early
application permitted. Except for hedge accounting, retrospective
application is required but providing comparative information is
not compulsory. For hedge accounting, the requirements are
generally applied prospectively, with some limited exceptions.
IFRS 9 Financial Instruments - Classification and measurement of
financial assets, Accounting for financial liabilities and
derecognition - 1 January 2018
Classification and measurement of financial liabilities
For financial liabilities designated as FVTPL using the FVO, the
amount of change in the fair value of such financial liabilities
that is attributable to changes in credit risk must be presented in
OCI. The remainder of the change in fair value is presented in
profit or loss, unless presentation of the fair value change in
respect of the liability's credit risk in OCI would create or
enlarge an accounting mismatch in profit or loss. All other IAS 39
Financial Instruments: Recognition and Measurement classification
and measurement requirements for financial liabilities have been
carried forward into IFRS 9, including the embedded derivative
separation rules and the criteria for using the FVO.
Impairment
The impairment requirements are based on an expected credit loss
(ECL) model that replaces the IAS 39 incurred loss model. The ECL
model applies to: debt instruments accounted for at amortised cost
or at FVOCI; most loan commitments; financial guarantee contracts;
contract assets under IFRS 15; and lease receivables under IAS 17
Leases. Entities are generally required to recognise either
12-months' or lifetime ECL, depending on whether there has been a
significant increase in credit risk since initial recognition (or
when the commitment or guarantee was entered into). For some trade
receivables, the simplified approach may be applied whereby the
lifetime expected credit losses are always recognised.
Hedge accounting
Hedge effectiveness testing is prospective, without the 80% to
125% bright line test in IAS 39, and, depending on the hedge
complexity, can be qualitative. A risk component of a financial or
non-financial instrument may be designated as the hedged item if
the risk component is separately identifiable and reliably
measureable. The time value of an option, any forward element of a
forward contract and any foreign currency basis spread, can be
excluded from the designation as the hedging instrument and
accounted for as costs of hedging. More designations of groups of
items as the hedged item are possible, including layer designations
and some net positions.
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The application of IFRS 9 may change the measurement and
presentation of many financial instruments, depending on their
contractual cash flows and business model under which they are
held. The impairment requirements will generally result in earlier
recognition of credit losses. The new hedging model may lead to
more economic hedging strategies meeting the requirements for hedge
accounting.
The Directors are assessing the impact of this new standard.
Sale or contribution of assets between an investor and its
associate or joint venture (Amendments to IFRS 10 and IAS 28) -
effective 1 January 2016
This amendment to IFRS 10 Consolidated Financial Statements and
IAS 28 Investments in Associates and Joint Ventures (2011) was made
to clarify the treatment of the sale or contribution of assets from
an investor to its associate or joint venture, as follows:
-- it requires full recognition in the investor's financial
statements of gains and losses arising on the sale or contribution
of assets that constitute a business (as defined in IFRS 3 Business
Combinations); and
-- it requires the partial recognition of gains and losses where
the assets do not constitute a business, i.e. a gain or loss is
recognised only to the extent of the unrelated investors' interests
in that associate or joint venture.
These requirements apply regardless of the legal form of the
transaction, e.g. whether the sale or contribution of assets occurs
by an investor transferring shares in a subsidiary that holds the
assets (resulting in loss of control of the subsidiary), or by the
direct sale of the assets themselves.
The amendment will not have an impact on the Fund as it does not
have any associate or joint venture.
Investment Entities: Applying the Consolidation Exception
(Amendments to IFRS 10, IFRS 12 and IAS 28) - effective 1 January
2016
This amendment to IFRS 10 Consolidated Financial Statements,
IFRS 12 Disclosure of Interests in Other Entities and IAS 28
Investments in Associates and Joint Ventures (2011) was made to
address issues that have arisen in the context of applying the
consolidation exception for investment entities by clarifying the
following points:
-- The exemption from preparing consolidated financial
statements for an intermediate parent entity is available to a
parent entity that is a subsidiary of an investment entity, even if
the investment entity measures all of its subsidiaries at fair
value.
-- A subsidiary that provides services related to the parent's
investment activities should not be consolidated if the subsidiary
itself is an investment entity.
-- When applying the equity method to an associate or a joint
venture, a non-investment entity investor in an investment entity
may retain the fair value measurement applied by the associate or
joint venture to its interests in subsidiaries.
-- An investment entity measuring all of its subsidiaries at
fair value provides the disclosures relating to investment entities
required by IFRS 12.
The amendment will not have an impact on the Fund as it is not
considered as an Investment entity.
IFRS 14 Regulatory Deferral Accounts - effective 1 January
2016
IFRS 14 permits an entity which is a first-time adopter of
International Financial Reporting Standards to continue to account,
with some limited changes, for 'regulatory deferral account
balances' in accordance with its previous GAAP, both on initial
adoption of IFRS and in subsequent financial statements.
This new standard will not have an impact, as the Fund is not a
first time adopter of IFRS.
IFRS 15 Revenue from Contracts with Customers - effective 1
January 2018
IFRS 15 provides a single, principles based five-step model to
be applied to all contracts with customers.
The five steps in the model are as follows:
-- Identify the contract with the customer;
-- Identify the performance obligations in the contract;
-- Determine the transaction price;
-- Allocate the transaction price to the performance obligations in the contracts; and
-- Recognise revenue when (or as) the entity satisfies a performance obligation.
Guidance is provided on topics such as the point in which
revenue is recognised, accounting for variable consideration, costs
of fulfilling and obtaining a contract and various related matters.
New disclosures about revenue are also introduced.
This new standard will not have an impact on the Fund as the
sources of income of the fund, being dividends and interest, are
scoped out of IFRS 15.
IFRS 16 Leases - effective 1 January 2019
The IASB has redrafted this new leasing standard that would
require lessees to recognise assets and liabilities for most
leases. Lessees applying IFRS would have a single recognition and
measurement model for all leases (with certain exemptions). Lessors
applying IFRS would classify leases using the principle in IAS 17;
in essence, lessor accounting would not change.
This standard will not have an impact on the Fund as it does not
have any leases.
Accounting for Acquisitions of Interests in Joint Operations
(Amendments to IFRS 11) - effective 1 January 2016
Amends IFRS 11 Joint Arrangements to require an acquirer of an
interest in a joint operation in which the activity constitutes a
business (as defined in IFRS 3 Business Combinations) to:
-- Apply all of the business combinations accounting principles
in IFRS 3 and other IFRSs, except for those principles that
conflict with the guidance in IFRS 11; and
-- Disclose the information required by IFRS 3 and other IFRSs for business combinations.
The amendments apply both to the initial acquisition of an
interest in joint operation, and the acquisition of an additional
interest in a joint operation (in the latter case, previously held
interests are not remeasured).
The amendment will not have an impact since the Fund does not
have any interests in joint operations.
Clarification of Acceptable Methods of Depreciation and
Amortisation (Amendments to IAS 16 and IAS 38) - effective 1
January 2016
Amends IAS 16 Property, Plant and Equipment and IAS 38
Intangible Assets to:
-- Clarify that a depreciation method that is based on revenue
that is generated by an activity that includes the use of an asset
is not appropriate for property, plant and equipment;
-- Introduce a rebuttable presumption that an amortisation
method that is based on the revenue generated by an activity that
includes the use of an intangible asset is inappropriate, which can
only be overcome in limited circumstances where the intangible
asset is expressed as a measure of revenue, or when it can be
demonstrated that revenue and the consumption of the economic
benefits of the intangible asset are highly correlated; and
-- Add guidance that expected future reductions in the selling
price of an item that was produced using an asset could indicat`e
the expectation of technological or commercial obsolescence of the
asset, which, in turn, might reflect a reduction of the future
economic benefits embodied in the asset.
The amendment will not have an impact since the Fund does not
hold any property, plant and equipment.
Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41) -
effective 1 January 2016
Amends IAS 16 Property, Plant and Equipment and IAS 41
Agriculture to:
-- Include 'bearer plants' within the scope of IAS 16 rather
than IAS 41, allowing such assets to be accounted for a property,
plant and equipment and measured after initial recognition on a
cost or revaluation basis in accordance with IAS 16;
-- Introduce a definition of 'bearer plants' as a living plant
that is used in the production or supply of agricultural produce,
is expected to bear produce for more than one period and has a
remote likelihood of being sold as agricultural produce, except for
incidental scrap sales; and
-- Clarify that produce growing on bearer plants remains within the scope of IAS 41.
The amendment will not have an impact as the Fund does not hold
any property, plant and equipment.
Amendments to IAS 27: Equity Method in Separate Financial
Statements - 1 January 2016
The amendments will allow entities to use the equity method to
account for investments in subsidiaries, joint ventures and
associates in their separate financial statements. Entities already
applying IFRS and electing to change to the equity method in its
separate financial statements will have to apply that change
retrospectively.
For first-time adopters of IFRS electing to use the equity
method in its separate financial statements, they will be required
to apply this method from the date of transition to IFRS. The
amendments are effective for annual periods beginning on or after 1
January 2016, with early adoption permitted.
This amendment will not have an impact on the Fund as it does
not hold investment in subsidiaries.
Annual Improvements 2012 - 2014 Cycle - 1 July 2016
The following amendments were made to these standards:
-- IFRS 5 - Adds specific guidance in IFRS 5 for cases in which
an entity reclassifies an asset from held for sale to held for
distribution or vice versa and cases in which held-for-distribution
accounting is discontinued
-- IFRS 7 - Additional guidance to clarify whether a servicing
contract is continuing involvement in a transferred asset, and
clarification on offsetting disclosures in condensed interim
financial statements
-- IAS 9 - Clarify that the high quality corporate bonds used in
estimating the discount rate for post-employment benefits should be
denominated in the same currency as the benefits to be paid
-- IAS 34 - Clarify the meaning of 'elsewhere in the interim
report' and require a cross-reference
The Fund is still evaluating the effect of these new or revised
standards and interpretations on the presentation of its financial
statements.
No early adoption is intended by the Board of directors.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
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The preparation of the Group'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 Group'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 Group's management has made an assessment of the Group's
ability to continue as a going concern and is satisfied that the
Group has the resources to continue in business for the foreseeable
future. Furthermore, management is not aware of any material
uncertainties that may cast significant doubt upon the Group's
ability to continue as a going concern. Therefore, the financial
statements continue to be prepared on the going concern basis.
Determination of functional currency
The determination of the functional currency of the Group 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
Group is the United States Dollar.
Assessment for not being an investment entity
The Company does not meet the definition of an investment entity
as it does not measure and evaluate the performance of
substantially all of its investments on a fair value basis; for
example, Company's investment in Triton Resources Inc. has been
recorded at cost at year end as their fair value cannot be measured
reliably (refer to notes 7).
Estimates and assumptions
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 Group 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 Group. Such changes
are reflected in the assumptions when they occur.
Fair value of financial instruments
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. 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
7.
Fair value of financial instruments (Continued)
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 7.
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 Group performs sensitivity analysis or stress
testing techniques.
Investment in Shoprite Holdings (SHP ZL)
The Company (through its subsidiary Africa Opportunity Fund L.P)
has a significant position of 6.4%% of NAV (2014: 9.6%%) in
Shoprite Holdings (SHP ZL) ("Shoprite") on the Zambian Register.
The value of the investment as at 31 December 2015 amounted to USD
3,889,649 (2014: USD 6,685,334) and the original cost of the
investment was USD 3,639,685 (2014: USD 3,639,685. Shoprite has
conveyed its intention to seek to reverse certain trades made on
the Lusaka Stock Exchange. To date, the filing to the courts made
by Shoprite against the Company (through the custodian as nominee
on behalf of the fund) has been dismissed as an abuse of Process of
Court on account of multiplicity of action with costs awarded to
the defendants. The multiplicity of action refers to an existing
case in a separate jurisdiction that has been filed by Shoprite
against its agent and transfer agent Messrs Lewis Nathan Advocates.
Shoprite appealed the decision. A consent court order was issued in
October 2014 consolidating all the actions. Shoprite issued a
consolidated writ of summons in March 2015 seeking to reverse
trades for 438,743 Shoprite shares out of AOF's holding of 679,145
Shoprite shares. The Company and Shoprite have an arbitration
hearing scheduled for August 2015. Management has fair valued the
investment in Shoprite at the price prevailing on the Lusaka stock
exchange. Additionally, Shoprite has been placing dividend payments
into escrow rather than distributing these amounts to shareholders.
These dividends are reflected as a receivable amounting to USD
478,676 (2014: USD 568,676) in the Group's assets.
Management has assessed these facts and consulted with their
legal advisors, who consider such action by Shoprite to be devoid
of merit. Therefore, management believe that the correct judgement
is to continue to account for the investment at fair value and
accrue for the dividends on this investment. This investment has
been classified as level 2 as the Shoprite shares traded on the
Lusaka market is illiquid.
5. AGREEMENTS
Investment Management Agreement
Following the Admission of Ordinary Shares and C Shares to the
Specialist Fund Market (now Specialist Fund Segment) 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 Group subject to the overall supervision of
the Group's board as specified in the SFS Admission document of the
Company.
Under the Amended and Restated Investment Management Agreement,
the Investment Manager will receive, conditional upon completion of
the Placing, 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. If the Placing
does not complete, the Investment Manager will continue to receive
a management fee equal to 2 per cent of the Net Asset Value per
annum, 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. 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 1,149,597 (2014: USD 1,196,481) and the performance fees for
the financial year under review was nil (2014: USD nil).
Administrative Agreement
International Proximity has been re-appointed, from 01 January
2015 to 31 August 2015, to provide various administrative services
to the Company and received an aggregate fee of USD 61,778 (2014:
USD 69,311) payable by the Company for administrative and certain
secretarial services for the Group. On 01 September 2015, SS&C
Technologies was appointed as the new administrator and received an
aggregate fee of USD 23,425 (2014: nil). This is classified under
"Custodian, secretarial and administration fees" in the
consolidated statement of comprehensive income.
Custodian Agreement
A Custodian Agreement has been entered into by the Company and
Standard Chartered Bank (Mauritius) Ltd, whereby Standard Chartered
Bank (Mauritius) Ltd would provide custodian services to the
Company 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
for the financial year under review amounts to USD 141,025 (2014:
USD 124,474) and is classified under "Custodian, secretarial and
administration fees" in the consolidated statement of comprehensive
income.
Prime Brokerage Agreement
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Under the Prime Brokerage Agreement, the Company appointed
Credit Suisse Securities (USA) LLC as its prime broker for the
purpose of carrying out the Company's instructions with respect to
the purchase, sale and settlement of securities. The fees charged
for the financial year under review amounts to USD 223,720 (2014:
472,557) and is classified under "Brokerage fees and commissions"
in the consolidated statement of comprehensive income.
Broker Agreement
Under the Broker Agreement, during 2015, the Company appointed
LCF Edmond Rothschild Securities Limited ("LCFR"), a company
incorporated in England and Wales to act as Broker to the
Group.
Under the Broker Agreement, the Company paid to LCFR a fee of
USD 29,547 (2014: USD 34,343) for the financial year under review.
The broker fee is payable in advance at six month intervals and was
classified under "Brokerage fees and commissions" in the
consolidated statement of comprehensive income.
6. INTEREST REVENUE
2015 2014
-------- ----------
USD USD
Interest on deposits 41,499 -
Interest on bonds 610,636 1,047,599
Total interest revenue 652,135 1,047,599
7. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
7(a) Financial assets at fair value through profit or loss
2015 2014
------------- -------------
USD USD
Held for trading financial assets:
At 1 January 63,822,689 55,473,931
Additions 16,586,148 32,760,408
Disposals (12,155,664) (14,072,366)
Net losses on financial assets
at fair value through profit or
loss (7,433,641) (10,339,284)
------------- -------------
At 31 December (at fair value) 60,819,532 63,822,689
Analysed as follows:
* Listed equity securities 48,963,914 50,685,167
* Listed debt securities 9,002,913 11,887,510
* Unlisted equity securities 1,001,250 1,000,012
* Unlisted debt securities 1,696,823 250,000
154,632 -
* Contract for difference
----------- -----------
60,819,532 63,822,689
Net changes on fair value of financial assets at fair value
through profit or loss
2015 2014
------------- -------------
USD USD
Realised (2,651,638) (2,132,906)
Unrealised (7,433,641) (10,339,284)
---------------
Total losses (10,085,279) (12,472,190)
7(b) Financial liabilities at fair value through profit or loss
2015 2014
---------- -------------
USD USD
Held for trading financial liabilities
Contract for difference 134,396 -
Written put options - 132,883
Listed equity securities sold
short 6,312,207 11,368,211
---------- -------------
Financial liabilities at fair
value through profit or loss 6,446,603 11,501,094
2015 2014
---------- -----------
USD USD
Net changes on fair value of financial
liabilities at fair value through
profit or loss
Realised (673,007) 515,415
Unrealised 2,905,223 (135,784)
-----------
Total gains 2,232,216 379,631
7(c) Net gains/ (losses) on financial assets and liabilities at
fair value through profit or loss
2015 2014
------------- ---------------
USD USD
Net losses on fair value of financial
assets at fair value through profit
or loss (10,085,279) (12,472,190)
Net gains on fair value of financial
liabilities at fair value through
profit or loss 2,232,216 379,631
Net losses (7,853,063) (12,092,559)
7(d) Fair value hierarchy
The Group 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.
Recurring fair value measurement of assets and liabilities -
2015
31 December
2015 Level Level Level
1 2 3
------------ -------- -------- --------
USD USD USD USD
Financial assets at fair value through profit or loss:
Equities 48,963,914 45,074,265 3,889,649 -
Debt
securities 10,449,736 - 10,449,736 -
Contract for
Difference 154,632 - 154,632 -
----------------------------- ---------------------- ------------------------- ----------------------
59,568,282 45,074,265 14,494,017 -
Financial
liabilities
at fair value
through
profit or
loss
Shortsellings 6,312,207 6,312,207 - -
Contract for
Difference 134,396 - 134,396 -
----------------------------- ---------------------- ------------------------- ----------------------
6,446,603 6,312,207 134,396 -
============================= ====================== ========================= ======================
7(d) Fair value hierarchy (Continued)
Recurring fair value measurement of assets and liabilities -
2014
31 December
2014 Level Level Level
1 2 3
------------ -------- -------- --------
USD USD USD USD
Financial assets at fair value through profit or loss:
Equities 51,685,179 43,999,833 7,685,346 -
Debt securities 12,137,510 - 12,137,510 -
------------ ------------ ----------- ----
63,822,689 43,999,833 19,822,856 -
============ ============ =========== ====
Financial liabilities
at fair value through
profit or loss 11,501,094 11,368,211 132,883 -
============ ============ =========== ====
2015 2014
---------- -----
Number USD
Investment in
Triton (at cost) 1,251,250 -
========== =====
Valuation techniques
Debt securities
The investment manager calculates an average price from various
quotes received from brokers, who makes use of observable data in
order to determine the fair value, as it represents the most
appropriate estimate of fair value of the debt securities.
Contract for difference (CFD)
The prices for CFD are calculated based on average prices from
various quotes received from brokers.
Unlisted debt and equity investments
The Company invests in private debt and equity companies which
are not quoted in an active market. Transactions in such
investments do not occur on a regular basis. The Company used a
market based valuation technique for these positions.
The Company's investment manager determines comparable public
companies based on industry, size, leverage and strategy to
determine fair value where possible. For investments with limited
comparable companies, the investment manager determines the fair
value via a determination of the enterprise value of the
investment. 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. In the prior
year, the investment manager deemed AOF's equity investment in
Triton Resources Inc. ("Triton") to be unique in that intangible
assets (logging and harvesting rights) created a significant
portion of the investment's enterprise value.
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In 2014, Triton Resources Inc. underwent a reorganisation that
resulted in the Company owning one million Triton Class A preferred
shares valued at USD1.00 each and a promissory note in the amount
of US$250,000. In 2014 a significant portion of the balance sheet
related to Goodwill as a result of the acquisition/reorganisation
event. Management has used a market based valuation techniques
based on recent price transaction to fair value its investment in
Triton. Hence the investment has been classified as level 2.
In late 2015 and early 2016 Triton has been in negotiations on
separate Letters of Intent, subject to ongoing due diligence and
other binding agreements, to sell its Ghana and its French Guyana
and Surinam assets. The Investment Manager, based on its own
sensitivity analysis, and in part due to these third party
contemporaneous recognitions of Triton's balance sheet and
off-balance sheet assets believe that its Triton investment cannot
be measured reliably. The range of fair values measurements is
significant and the probabilities of the various estimates cannot
be assessed; hence due to the "hard to value" nature of the
off-balance sheet assets, and the difficulty in valuing the
investment by observable measures, the investment in Triton was
kept at cost.
2015 2014
------ ----------
Financial assets at fair value USD USD
through profit or loss
At 1 January - 950,000
Total gain/ (losses) in profit
or loss - (950,000)
Net transfers into level 3 - -
------- ----------
At 31 December - -
======= ==========
Total gains and losses included
in profit or loss for assets held
at the end of the reporting period - (950,000)
====== ============
In the current year, there has been no transfer made from level
2 to level 3.
Fair value would not vary significantly if changing one or more
of the inputs.
8. TRADE AND OTHER RECEIVABLES
2015 2014
-------- ----------
USD USD
Interest receivable on bonds 239,201 391,986
Dividend receivable (Note 4) 478,676 568,676
Other receivable 63,096 76,140
780,973 1,036,802
Interest receivable on bonds is due within six months.
9. CASH AND CASH EQUIVALENTS
2015 2014
---------- -----------
USD USD
Account with Custodian 486,634 182,164
Other cash accounts - 383,337
Call deposit accounts 2,450 5,139
Other bank accounts 6,362,042 16,277,840
----------
6,851,126 16,848,480
Other bank accounts are non-interest bearing.
10(a). ORDINARY SHARE CAPITAL
2015 2015 2014 2014
-------------- ----------- -------------- -----------
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
============== ===========
Share capital
At 1 January - - 42,630,327 426,303
Reclassification - - (42,630,327) (426,303)
-------------- ----------- -------------- -----------
At 31 December - - - -
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.
10(b). NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS
Ordinary Class
C
Shares Shares Total
------------ ------------ -------------
USD USD USD
Reclassification from
equity at 17 April 2014 52,254,245 - 52,254,245
Changes during the year:
Issue of shares - 29,200,000 29,200,000
Redemption of shares - - -
Loss for the period (9,155,133) (2,563,932) (11,719,065)
At 31 December 2014 43,099,112 26,636,068 69,735,180
============ ============ =============
10(b). NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS (CONTINUED)
Ordinary Class
C
Shares Shares Total
--------- ------- ------
USD USD USD
At 1 January 2015 43,099,112 26,636,068 69,735,180
Changes during the year:
Loss for the period (5,811,145) (2,668,622) (8,479,767)
At 31 December 2015 37,287,967 23,967,446 61,255,413
============ ============ ============
Net assets value per
share in 2015 0.875 0.821 -
------------ ------------ ------------
Net assets value per
share in 2014 1.011 0.912 -
------ ------
C shares
In the prior year, 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.
C Shares are a transient class of shares: the assets
representing the net proceeds of any issue of C Shares will be
maintained, managed and accounted for as a separate pool of capital
of the Company until those C Shares convert into Ordinary Shares
(which will occur once 85 per cent of all of the assets
representing the Net Placing Proceeds have been invested in
accordance with the Company's existing investment policy (or, if
earlier, six months after the date of issue of the C Shares)).
Under the Articles the Directors have discretion to make such
adjustments to the timing of Conversion as they consider reasonable
having regard to the interests of all Shareholders. In this regard,
although Conversion was anticipated to occur no later than six
months after Admission, the Directors considered it is 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 as the Shoprite case was still
unresolved as at year end. On such conversion, each holder of C
Shares will receive 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.), in each case as at a date
shortly prior to Conversion. As at reporting date, the dispute with
Shoprite is still unresolved and the Conversion has not yet been
made.
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 continues in existence.
In 2019, the Directors will convene another general meeting
where an ordinary resolution will be proposed that the Company will
continue in existence. If the resolution is not passed, the
Directors will be required to formulate proposals to be put to
Shareholders to reorganise, reconstruct or wind up the Company. If
the resolution is passed, the Company will continue its operations
and a similar resolution will be put to Shareholders every five
years thereafter.
At the same time as the continuation vote in 2019, the Company
will provide Shareholders with, without first requiring a
Shareholder vote to implement this policy, an opportunity to
realise all or part of their shareholding in the Company for a net
realised pro rata share of the Company's investment portfolio.
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The directors have the discretion to defer the conversion
indefinitely. Hence, there could be 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 have been classified as financial liabilities as from
April 2014 upon issuance of the Class C shares.
11. TRADE AND OTHER PAYABLES
2015 2014
---------------- -------------------
USD USD
Management Fee Payable 277,868 -
Directors Fees Payable 64,387 43,750
Other Payables 100,961 87,717
443,216 131,467
Other payables and accrued expenses are non-interest bearing and
have an average term of six months.
12. NON-CONTROLLING INTEREST
Material partly-owned subsidiary
Financial information of subsidiary that has material
non-controlling interests is provided below:
Proportion of equity interest held by non-controlling
interests:
Country
of incorporation
Name and operation 2015 2014
------------------- --------- ---------
Africa Opportunity Fund Cayman
L.P. Islands 0.9% 0.9%
Accumulated balances of
material non-controlling
interest: USD USD
Africa Opportunity Fund
L.P. 306,399 340,230
Profit and other comprehensive
income allocated to material
non-controlling interest:
Africa Opportunity Fund
L.P. (33,831) (65,467)
The summarised financial information of the subsidiary
is provided below. This information is based on
amounts before inter-company eliminations.
12. NON-CONTROLLING INTEREST
Africa
Opportunity
Summarised statement of Fund
profit or loss for 2015: L.P.
-------------
USD
Income 1,924,001
Expenses (5,565,806)
------------
Loss before tax (3,641,805)
Less withholding tax (24,254)
------------
Loss after tax (3,666,059)
Other comprehensive loss -
------------
Total comprehensiveloss
for the year (3,666,059)
============
Attributable to non-controlling
interests (33,831)
Africa
Opportunity
Summarised statement of Fund
profit or loss for 2014: L.P.
-------------
USD
Income 4,211,115
Expenses (11,655,152)
-------------
Loss before tax (7,444,037)
Less withholding tax (209,243)
-------------
Loss after tax (7,653,279)
Other comprehensive loss -
-------------
Total comprehensive lossfor
the year (7,653,279)
=============
Attributable to non-controlling
interests (65,467)
Summarised statement of financial Africa
position as at 31 December Opportunity
2015: Fund L.P.
-------------
USD
Cash at bank 2,672,641
Trade and other receivables 679,374
Financial assets at fair value
through profit or loss 33,437,689
Financial liabilities at fair
value through profit or loss (3,586,989)
-------------
Total equity 32,202,715
=============
Attributable to:
Equity holders of parent 32,896,316
Non-controlling interest 306,399
Summarised statement of financial Africa
position as at 31 December Opportunity
2014: Fund L.P.
-------------
USD
Cash at bank 5,078,795
Trade and other receivables 845,713
Financial assets at fair value
through profit or loss 47,402,194
Trade and other payables (12,270)
Financial liabilities at fair
value through profit or loss (10,516,965)
-------------
Total equity 42,797,467
=============
Attributable to:
Equity holders of parent 42,457,609
Non-controlling interest 340,230
13. EARNING PER SHARE
The ordinary and C shares are classified as financial
liabilities and therefore the disclosure of the earning per share
on the face of the consolidated statement of comprehensive is not
required in terms of IAS 33. However, the Company has voluntarily
disclosed the earnings per share as per below.
The earnings per share is calculated by dividing the decrease in
net assets attributable to shareholders by the weighted average
number of ordinary and C shares in issue during the year excluding
ordinary shares purchased by the Company and held as treasury
shares.
The Company's diluted earnings per share are the same as basic
earnings per share, since the Company has not issued any instrument
with dilutive potential.
Ordinary shares C shares
-------------------------- ---------------------------
2015 2014 2015 2014
------------ ------------ ------------ -------------
Decrease in net
assets attributable
to shareholders USD (5,811,145) (8,872,979) (2,668,622) (2,563,932))
Number of shares
in issue 42,630,327 42,630,327 29,200,000 20,640,000
Change in net
assets attributable
to shareholders
per share USD (0.136) (0.208) (0.091) (0.124)
============ ============ ============ =============
14. 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.
The financial statements include the financial statements of
Africa Opportunity Fund Limited and its subsidiaries as
follows:
Country % equity % equity
of interest interest
Name incorporation 2015 2014
------------------------- --------------- ---------- ----------
Africa Opportunity Fund Cayman
(GP) Limited Islands 100 100
Africa Opportunity Fund Cayman
L.P. Islands 99.09 99.09
During the year ended 31 December 2015, the Company transacted
with related entities. The nature, volume and type of transactions
with the entities are as follows:
Nature Balance
Type of of Volume at
Name of related 31 Dec
parties relationship transaction USD 2015
-------------------- -------------- -------------- ---------- --------
USD
Africa Opportunity Investment Management
Partners Limited Manager fee expense 1,149,597 277,868
International Administration
Proximity Administrator fees 61,778 -
Administration
SS&C Technologies Administrator fees 23,435 23,435
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During the year ended 31 December 2014, the Company transacted
with related entities. The nature, volume and type of transactions
with the entities are as follows:
Balance
at
Type Nature 31 Dec
of of Volume 2014
Name of related
parties relationship transaction USD USD
-------------------- --------------- ---------------- ----------- --------
Africa Opportunity Investment Management
Partners Limited Manager fee expense 1,196,481 -
Africa Opportunity Investment Performance
Partners Limited Manager fee expense - 36,532
International Administrator Administration 69,311 -
Proximity fees
The Investment Manager is considered to be key management
personnel as it plans, directs and controls the operations of the
fund.
Key Management Personnel (Directors' fee)
In the current year, 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.
In the prior year, except for Robert Knapp who has waived his
fees, each director was paid a fee of USD 20,000 per annum plus
reimbursement for out-of pocket expenses through the placing on 17
April and a fee of USD 35,000 per annum plus reimbursement for
out-of pocket expenses thereafter.
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 Direct interest
held held %
2015 9,979,460 13.89
2014 9,113,000 12.69
The increase in director shares in 2015 is a result of Robert
Knapp and Vikram Mansharamani purchasing additional shares during
the year.
15. 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:
2015 2014
----- -----
USD USD
Decrease in net assets attributable
to shareholder from operations (8,436,054) (11,264,039)
------------ -------------
Income tax expense calculated
at 0% - -
------------ -------------
Withholding tax suffered outside
Mauritius 77,544 238,339
------------ -------------
Income tax expense recognized
in profit or loss 77,544 238,339
============ =============
16. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Introduction
The Group's objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Group'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 Group's continuing profitability. The Group 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 Group's 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 Group.
Fair value
The carrying amount of financial assets and liabilities at fair
value through profit or loss are restated to fair value at the
reporting date. The carrying amount of trade and other receivables,
cash and cash equivalents other payables and accrued expenses
approximates their fair value due to their short term nature.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices and includes interest rate risk, foreign currency
risk and equity price risk.
Short selling involves borrowing securities and selling them to
a broker-dealer. The Group has an obligation to replace the
borrowed securities at a later date. Short selling allows the Group
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 Group
has an obligation to repurchase the security in the market at
prevailing prices at the date of acquisition.
With written options, the Group bears the market risk of an
unfavourable change in the price of the security underlying the
option. Exercise of an option written by the Group could result in
the Group 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 Group
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 Group'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
Group'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 Group's investment portfolio.
The equity price risk exposure arises from the Group's
investments in equity securities, from equity securities sold short
and from equity-linked derivatives (the written options). The Group
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
Group 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.
Effect Effect
on net on net
assets assets
attributable attributable
to shareholders to shareholders
-----------
Change
in equity
EQUITY price 2015 2014
----------- ----------------- -----------------
USD USD
Financial assets at fair
value through profit or
loss 10% 6.081,953 6,382,269
-10% (6,081,953) (6,382,269)
Financial liabilities
at fair value through
profit or loss 10% 644,660 (1,150,109)
-10% (644,660) 1,150,109
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Equity Price Risk - 2015
Effect
Change on profit
in equity for the
Stock price year
----------- -----------
2015 USD
Anglogold Ashanti Ltd 30% 478,340
-30% (478,340)
Continental Reinsurance Plc 30% 1,029,657
-30% (1,029,657)
Copperbelt Energy Corporation Plc 30% 590,239
-30% (590,239)
Dangote Cement Plc 30% 377,852
-30% (377,852)
Diamondcorp Plc 30% 152,831
-30% (152,831)
Equity Price Risk - 2015
Effect
Change on profit
in equity for the
Stock price year
Enterprise Group Ltd 30% 2,862,440
-30% (2,862,440)
Gold Fields Ltd 30% 41,550
-30% (41,550)
IAMGOLD Corporation 30% 44,261
-30% (44,261)
Kenya Power & Lighting Ltd 30% 576,070
-30% (576,070)
Kosmos Energy Limited 30% 291,505
-30% (291,505)
Letshego BG 30% 756,741
-30% (756,741)
Lydec 30% 128,776
-30% (128,776)
Maroc Telecom Ltd 30% 295,445
-30% (295,445)
Mashonaland Holdings Ltd 30% 736,951
-30% (736,951)
Massmart Holdings 30% (378,792)
-30% 378,792
Effect
Change on profit
in equity for the
Stock price year
----------- ------------
2015 USD
MISR Duty Free Shops 30% 240,942
-30% (240,942)
Old Mutual PLC 30% 12,531
-30% (12,531)
Pallinghurst Resources Ltd 30% 235,609
-30% (235,609)
Pearl Properties 30% 395,624
-30% (395,624)
Pick N Pay Stores Ltd 30% (276,162)
-30% 276,162
PSG Group Ltd 30% (227,885)
-30% 227,885
PZ Cussons 30% (119,642)
-30% 119,642
Rockcastle Global Real Estate
Company Ltd 30% (70,604)
-30% 70,604
Seed Co. Ltd 30% 101,458
-30% (101,458)
Shoprite Plc 30% 216,667
-30% (216,667)
Societe des Caoutchoucs de Grand-Bereby
(SOGB) 30% 322,238
-30% (322,238)
Sonatel 30% 2,061,381
-30% (2,061,381)
Stanbic Bank Uganda 30% 548,622
-30% (548,622)
Effect
Change on profit
in equity for the
Stock price year
----------- --------------
2015 USD
Standard Chartered Bank 30% 607,650
-30% (607,650)
Standard Chartered Bank - Preference
share 30% 1,644
-30% (1,644)
Tanzanian Breweries 30% 487,127
-30% (487,127)
Unilever Plc 30% 114,861
-30% (114,861)
Triton Resources Inc. 30% 375,375
-30% (375,375)
Zimplats Holdings Ltd 30% 110,558
-30% (110,558)
Equity Price Risk - 2014
Effect
Change on profit
in equity for the
Stock price year
----------- -----------
2014 USD
Anglogold Ashanti Ltd 30% 216,581
-30% (216,581)
Continental Reinsurance Plc 30% 1,012,209
-30% (1,012,209)
Copperbelt Energy Corporation
Plc 30% 436,467
-30% (436,467)
Enterprise Group Ltd 30% 2,027,861
-30% (2,027,861)
Ecobank Transnational Inc. 30% 19,582
-30% (19,582)
Effect
Change on profit
in equity for the
Stock price year
----------- -----------
2014 USD
IAMGOLD Corporation 30% 18,954
-30% (18,954)
Kosmos Energy Limited 30% 470,332
-30% (470,332)
Letshego BG 30% 818,311
-30% (818,311)
Mashonaland Holdings
Ltd 30% 606,777
-30% (606,777)
Maroc Telecom Ltd 30% 336,896
-30% (336,896)
MISR Duty Free Shops 30% 186,459
-30% (186,459)
Mineral Deposits Ltd 30% 140,460
-30% (140,460)
Naspers Ltd 30% 1,436,593
-30% (1,436,593)
Pearl Properties 30% 320,767
-30% (320,767)
Pallinghurst Resources
Ltd 30% 386,878
-30% (386,878)
Seed Co. Ltd 30% 120,710
-30% (120,710)
Shoprite Plc 30% 2,005,600
-30% (2,005,600)
Effect
Change on profit
in equity for the
Stock price year
----------- -----------
2014 USD
Societe des Caoutchoucs de Grand-Bereby
(SOGB) 30% 196,523
-30% (196,523)
Sonatel 30% 2,145,027
-30% (2,145,027)
Stanbic Bank Uganda 30% 653,080
-30% (653,080)
Standard Chartered Bank 30% 725,927
-30% (725,927)
Standard Chartered Bank - Preference
share 30% 1,589
-30% (1,589)
Tanzanian Breweries 30% 575,170
-30% (575,170)
Unilever Plc 30% 194,013
-30% (194,013)
Triton Resources Inc. 30% 300,003
-30% (300,003)
Zimplats Holdings Ltd 30% 152,784
-30% (152,784)
Currency risk
The Group's investments are denominated in various currencies as
shown in the currency profile below. Consequently, the Group 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
Company 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:
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As at 31 December 2015
Related amounts
not set off in
the statement of
financial position
---------------------------
Net
amount
of
Gross amounts financial
of recognised assets
Gross financial presented
amounts liabilities in the
of set off in statement
recognised the statement of
financial of financial financial Financial Cash Net
assets position position instruments collateral amount
------------ ----------------------- ---------- ------------- ------------ ----------
USD USD USD USD USD USD
Cash and cash
equivalents 34,542,607 (27,691,482) 6,851,125 - - 6,851,125
------------ ----------------------- ---------- ------------- ------------ ----------
Total 34,542,607 (27,691,482) 6,851,125 - - 6,851,125
As at 31 December 2014
Related amounts
not set off in
the statement of
financial position
-----------------------------
Gross
amounts
of
recognised Net amount
financial of financial
Gross liabilities assets
amounts set off in presented
of the in the
recognised statement 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 29,040,909 (12,192,429) 16,848,480 - - 16,848,480
------------- ------------- ------------- -------------- ------------- -------------
Total 29,040,909 (12,192,429) 16,848,480 - - 16,848,480
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 Group's financial assets and
liabilities is summarised as follows:
2015 2015 2014 2014
Financial Financial Financial Financial
assets liabilities assets Liabilities
------------- ------------ ------------ ------------
USD USD USD USD
Australian Dollar 223,631 - (187,566) -
Botswana Pula 2,522,469 - 2,727,702 -
Canadian Dollar - - 36 -
Swiss Franc (1,648,149) - 567,389 -
CFA Franc 8,328,710 - 8,451,876 -
Euro (7,444,619) - (8,002,686) -
Egyptian Pound 803,141 - 621,529 -
Ghanaian Cedi 11,600,631 - 9,925,239 -
Great Britain
Pound 124,487 398,697 1,117,214 19,397
Hong Kong Dollar 11 - 3,673,802 3,916,878
Kenyan Shilling 1,920,232 - - -
Moroccan Dirhams 427,936 - - -
Nigerian Naira 4,691,694 - 3,374,031 -
Norwegian Kroner (191,530) - (127,338) -
South African
Rand 1,963,026 6,047,906 6,203,195 4,275,154
Swedish Kroner 2,342,980 - 58 -
Tanzanian Shilling 1,623,756 - 1,949,549 -
Uganda Shilling 1,828,741 - 2,176,934 -
United States
Dollar 33,414,273 443,216 40,528,108 3,421,132
Zambian Kwacha 5,857,113 - 8,708,899 -
68,388,534 6,889,819 81,707,971 11,632,561
Prepayments have been excluded as these are not financial
assets.
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 Group.
The following table details the Group'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. 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.
Change in currency Effect on profit
Currency 2015 USD
Botswana Pula 30% (756,741)
30% 756,741
Ghana Cedi 30% (3,471,734)
-30% 3,471,734
Change in currency Effect on profit
Currency 2015 USD
Kenyan Shilling 30% (576,070)
-30% 576,070
Mauritian Rupee 30% (128,776)
-30% 128,776
Nigerian Naira 30% (1,407,508)
-30% 1,407,508
South African Rand 30% 1,418,055
-30% (1,418,055)
Tanzanian Shilling 30% (487,127)
-30% 487,127
Ugandan Shilling 30% (548,622)
-30% 548,622
Zambian Kwacha 30% (1,757,134)
-30% 1,757,134
CFA Franc 10% (832,827)
-10% 832,827
Egyptian Pound 10% (80,314)
-10% 80,314
Australian Dollar 5% (11,196)
-5% 11,196
Euro 5% 372,242
-5% (372,242)
Great British Pound 5% 8,977
-5% (8,977)
Hong Kong Dollar 5% (1)
-5% 1
Norwegian Kroner 5% 9,576
-5% (9,576)
Swiss Franc 5% (34,651)
-5% 34,651
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Currency risk - Year 2014
Change in currency Effect on profit
Currency 2014 USD
Botswana Pula 30% (629,470)
30% 629,470
Ghana Cedi 30% (2,290,440)
-30% (2,290,440)
Nigerian Naira 30% (778,623)
-30% 778,623
Norwegian Krona 30% 29,386
-30% (29,386)
South African Rand 30% (444,933)
-30% 444,933
Tanzanian Shilling 30% (449,896)
-30% 449,896
Ugandan Shilling 30% (502,369)
-30% 502,369
Zambian Kwacha 30% (2,009,746)
-30% 2,009,746
CFA Franc 10% (768,352)
-10% 768,352
Egyptian Pound 10% (56,503)
-10% 56,503
Australian Dollar 5% 8,932
-5% (8,932)
Canadian Dollar 5% (2)
-5% 2
Euro 5% 381,080
-5% (381,080)
Change in currency Effect on profit
Currency 2014 USD
Great Britain 5% (52,277)
-5% 52,277
Hong Kong Dollar 5% (11,575)
-5% 11,575
Swedish Krona 5% 3
-5% (3)
Swiss Franc 5% (27,019)
-5% 27,019
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 Group'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 Group to credit
risk consist principally of investments in debt securities, cash
balances and interest receivable. The extent of the Group's
exposure to credit risk in respect of these financial assets
approximates their carrying values as recorded in the Group's
statement of financial position.
The Group takes on exposure to credit risk, which is the risk
that a counterparty will be unable to pay amounts in full when due.
The Group'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 Group'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:
2015 2014
Carrying amount Carrying amount
Notes USD USD
Financial assets at fair value through profit or loss 7(a) 10,699,736 12,137,510
Other receivables 8 780,973 1,036,802
Cash and cash equivalents 9 6,851,126 16,848,480
The financial assets are neither past due nor impaired at
reporting date except for dividend receivable from Shoprite which
is past due by more than two years. The cash and cash equivalent
assets of the Group 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 Group are unrated. The issuers of the unrated debt
instruments owned by the Group 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 2015 the Group 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:
2015 2014
-----------
Bond & Notes USD USD
Senegal 3,173,000 3,065,346
Equatorial Guinea - 591,369
Burkina Faso 2,702,381 3,227,018
Mauritius 1,446,823 -
Morocco 651,552 714,450
Ghana 383,000 420,000
Nigeria - 2,584,155
South Africa 2,342,980 1,535,172
-----------
Total 10,699,736 12,137,510
===========
Equity Securities and Shortsellings 2015 2014
----- -----
USD USD
Ghana 13,573,563 11,752,378
Zambia 6,642,475 9,429,818
Senegal 6,871,271 7,618,291
South Africa (4,064,548) 5,510,579
Zimbabwe 4,481,674 4,003,459
Ivory Coast 1,457,439 1,301,785
Botswana 2,522,469 2,727,702
Nigeria 4,452,476 3,374,031
Tanzania 1,623,755 1,917,232
Egypt 803,141 621,529
Togo - 65,275
Democratic Republic of Congo 1,412,966 -
Morocco 147,538 1,122,987
Burkina Faso 1,920,232 63,180
Uganda 1,828,741 2,176,933
-----------
Total 43,673,194 51,685,179
============= ===========
Analysed by industry of underlying assets:
Bond and notes 2015 2014
Analysed by industry: USD USD
Mining industry 5,875,381 6,292,364
Oil exploration and production 133,000 2,584,155
Consumer finance 2,342,980 1,535,172
Forestry 250,000 250,000
Consumer Products and Services 500,000 -
Telecommunications 946,823 -
Oil services industry - 761,369
Agricultural Chemicals 651,552 714,450
Total 10,699,736 12,137,510
Equity Securities 2015 2014
-----
Analysed by industry: USD USD
Financial services 12,448,644 14,800,833
Consumer products and services 666,606 7,953,572
Telecommunications 7,856,302 13,061,721
Consumer finance 6,390,167 2,727,702
Mining industry 2,738,413 3,052,191
Real estate 3,833,423 3,091,811
Plantations 1,074,467 655,076
Oil exploration and production 971,682 1,567,772
Electricity transmission and generation 4,315,632 1,454,889
Agricultural chemicals 338,192 402,367
Forestry 1,001,250 1,000,013
Materials 414,660 -
Beverages 1,623,756 1,917,232
Total 43,673,194 51,685,179
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group'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
Group's reputation.
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The Group manages liquidity risk by maintaining adequate
reserves, by continuously monitoring forecast and actual cash
flows. The table below illustrates the maturity profile of the
Group's financial liabilities based on undiscounted payments.
Year 2015
Due Due Between Due Between Due
Due on within 3 3 and 12 1 and 5 greater than
demand Months Months years 5 years Total
Financial liabilities USD USD USD USD USD USD
Other payables 443,216 - - - - 443,216
Financial liabilities at fair value
through profit or loss - - 6,350,144 - 96,459 6,446,603
Net assets attributable to
shareholders - - - 61,255,413 - 61,255,413
Total liabilities 443,216 - 6,350,144 61,255,413 96,459 68,145,232
Year 2014
Due Due Between Due
Due on within 3 3 and 12 greater than
demand Months Months 5 years Total
Financial liabilities USD USD USD USD USD
Other payables 131,467 - - 131,467
Financial liabilities at fair value through
profit or loss - 132,883 11,368,211 - 11,501,094
Net assets attributable to shareholders - - - 69,735,180 69,735,180
Total liabilities 131,476 132,883 11,368,211 69,735,180 81,367,741
Capital Management
Total capital is considered to be the non-controlling interests
and net assets attributable to shareholders as shown in the
consolidated 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 Group cost effective.
The primary objective of the Group'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.
17. ANALYSIS OF SHARE OF PROFIT AND LOSSES ATTRIBUTABLE TO ORDINARY SHARE AND C SHARES
17 (a) STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER
2015
Ordinary shares C shares
USD USD
ASSETS
Financial assets at fair value through profit or loss 36,969,056 23,850,476
Trade and other receivables 683,100 97,873
Cash and cash equivalents 3,800,295 3,050,830
Total assets 41,452,451 26,999,179
Ordinary shares C shares
USD USD
EQUITY AND LIABILITIES
Liabilities
Financial liabilities at fair value through profit or loss 3,586,989 2,859,614
Trade and other payables 271,097 172,119
Total liabilities 3,858,086 3,031,733
Equity
Non-controlling interest 306,399 -
Total equity 306,399 -
Net assets attributable to shareholders 37,287,966 23,967,446
17 (b) STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE PERIOD ENDED 2015
Ordinary shares C shares
USD USD
Revenue
Income 1,612,136 1,241,816
1,612,136 1,241,816
Expenses
Management fees 867,458 282,139
Net losses on financial assets and liabilities at fair value
through profit or loss 4,759,819 3,093,244
Other expenses 893,292 481,765
6,520,569 3,857,148
Operating loss
(4,908,433) (2,615,332)
Finance costs
Distribution to shareholders (912,289) -
Loss before taxation (5,820,722) (2,615,332)
Taxation (24,254) (53,290)
Decrease in net assets attributable to shareholders from operations (5,844,976) (2,668,622)
Attributable to:
Equity holders of the Company (5,811145) (2,668,622)
Non-controlling interest (33,831) -
(5,844,976) (2,668,622)
=============== ============
Decrease in net assets attributable to shareholders per share
attributable to the equity holders
of the parent during the year 13 (0.136) (0.091)
18. DIVIDEND PAYMENT
The Company expressed in the Admission Document for the
Alternative Investment Market of the London Stock Exchange on which
it was listed an intention, subject to having sufficient cash
resources, to pay an aggregate annual dividend of an amount equal
to the product of the net asset value of the Company on January 01
in each year multiplied by the three month US Dollar London
Interbank Offered Rate (derived from Bloomberg) on the same date,
payable in four equal quarterly installments. However, the dividend
payments made in 2014 were in excess of the basis stated in the
Admission Document, as the Company utilised the one year US Dollar
London Interbank Offered Rate for the calculation of the dividend
rate. This was the dividend policy when the Fund was listed on the
AIM.
The Amended Private Placement Memorandum stated that subject to
market conditions, compliance with the Companies Law and having
sufficient cash resources available for the purpose, the Company
intends to pay the following dividends on the Ordinary Shares at an
amount equal to the total comprehensive income of the Company as
that expression is used in international accounting standard
(excluding net capital gains/losses in accordance with Investment
Management Association Statement of Recognised Practice), such
amount to be paid annually
Investors in C Shares should note that it is not currently
envisaged that any dividend will be paid on the C Shares to be
issued pursuant to the Placing prior to their Conversion into
Ordinary Shares.
2015 2014
Dividend - payable USD USD
Dividend declared and paid 912,289 76,859
Dividend per share US cents 2.14 US cents 0.17
Opening balance - dividend payable - 85,291
Additions 912,289 76,859
Payment (912,289) (162,150)
Closing balance - -
19. SEGMENT INFORMATION
For management purposes, the Group is organised in one main
operating segment, which invests in equity securities, debt
instruments and relative derivatives. All of the Group's activities
are interrelated, and each activity is dependent on the others.
Accordingly, all significant operating decisions are based upon
analysis of the Group as one segment. The financial results from
this segment are equivalent to the financial statements of the
Group as a whole.
For geographical segmentation, please refer to note 16.
20. PERSONNEL
The Group did not employ any personnel during the year (2014:
the same).
21. COMMITMENTS AND CONTINGENCIES
There are no commitments or contingencies at the reporting
date.
22. PLACING AND ADMISSION EXPENSES
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In the prior year, the Company incurred costs associated with
the April 2014 C share placing and with the admission of the
ordinary shares and the C shares to the SFS of the London Stock
Exchange. The total costs incurred were USD 1,246,441 of which USD
937,987 related to placing agent fees and expenses and USD 308,454
related to admission fees and expenses. The placing agent fees are
shown separately on the Consolidated Statement of Comprehensive
Income. The admission fees and expenses are shown within the Other
operating expenses line.
23. EVENTS AFTER REPORTING DATE
Except as stated in note 4, there are no events after the
reporting date which require amendments to and/ or disclosure in
these financial statements.
24. FAIR VALUE OF NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS
Recurring fair value measurement of financial liabilities
The below table shows the fair value hierarchy of the Net assets
attributable to shareholders.
Level Level 2 Level 3
1
USD USD USD
Ordinary shares - 37,287,966 -
C Class shares - 23,967,447 -
At 31 December 2015 - 61,255,413 -
Level Level 2 Level 3
1
USD USD USD
Ordinary shares - 43,099,112 -
C Class shares - 26,636,068 -
At 31 December 2014 - 69,735,180 -
The Ordinary and C Class shares are quoted on the SFS of the
London Stock Exchange ("LSE").
The shares are traded on the exchange at the quoted price as
determined by the participants on the LSE. In a liquidation
scenario or if investors elect to initiate their opportunity to
realise all or part of the shareholding at the time of the
continuation vote in 2019, the proceeds to the shareholders would
be determined by the net realisation of the net asset value
Therefore, the Directors have concluded that the most
appropriate estimate of fair value of both classes of shares is
their net asset value per share, without adjustment, at the
reporting date. This price is calculated by taking the net assets
attributable to shareholders and dividing by the number of shares
in issue. The Net Assets Value is published on a monthly basis.
Therefore, the fair value of the Net assets attributable to
shareholders has been classified as level 2 as the NAV is an input
that is observable.
The Ordinary and C shares are quoted on the London Stock
Exchange for informational purposes only. Moreover, as per the
Private Placement Memorandum, once the Shoprite case is resolved,
the basis upon which the C Shares will convert into Ordinary Shares
is such that the number of Ordinary Shares to which the C
Shareholders will become entitled will reflect the relative Net
Asset Value per Share 0f the assets attributable to the C Shares
and the Ordinary Shares (subject to a discount of 5 per cent.).
Shareholder Information
Share Price
Prices of Africa Opportunity Fund Limited are published daily in
the Daily Official List of the London Stock Exchange. The shares
trade under Reuters symbol "AOF.L" and Bloomberg symbol "AOF LN". C
share class shares began trading 17 April 2014 and trade under
Reuters symbol "AOFC.L" and Bloomberg symbol "AOFC 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 42,630,327 are issued and
fully paid and 100,000,000 ordinary "C share" shares of US$0.10
each of which 29,200,000 are issued and fully paid. Pursuant to the
requirements of IAS 32.16C(a) not being met, both classes have been
classified as liabilities as from 17 April 2014 upon issuance of
the Class C shares.
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, following completion of the Placing, provide Shareholders
with, without first requiring a Shareholder vote to implement this
policy, an opportunity to realise all or part of their shareholding
in the Company for a net realized pro rata share of the Company's
investment portfolio.
Registered Number
Registered in the Cayman Islands number MC-188243
Website
www.africaopportunityfund.com
For further information please contact:
Africa Opportunity Fund Limited Tel: +2711 684 1528
Francis Daniels
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEUFWUFMSEFL
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