TIDMAOF
RNS Number : 7706D
Africa Opportunity Fund Limited
28 April 2017
28 April 2017
Africa Opportunity Fund Limited (AOF.L and AOFC.L)
Announcement of Annual Results for the Year ended 31 December
2016
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 2016. The Company's full annual
report and financial statements will shortly be sent to
shareholders and will be available to view and download from the
Company's website at: www.africaopportunityfund.com.
The following text and financial information does not constitute
the Company's annual report but has been extracted from the annual
report and financial statements for the year ended 31 December
2016.
The Company
Africa Opportunity Fund Limited is a Cayman Islands incorporated
closed-end investment company traded on the Specialist Fund Segment
("SFS") of the London Stock Exchange ("LSE"). AOF's net asset value
on 31 December 2016 was US$56.7 million and its market
capitalisation was US$44.5 million.
Chairperson's statement
2016 Review
2016 was an eventful and at times challenging year for the
Africa Opportunity Fund (the "Fund" or "AOF"), while at the same
time 2016 was a decent year for world markets, and a buoyant year
for emerging markets.
There were flickering signs of incipient recovery. The first
sign was the deepening experience of electoral democracy spreading
through the continent, as well as an appreciation of the limits of
democracy. Ghana's peaceful eviction of an incumbent President in
December 2016, its first since its independence in 1957, was very
heartening for the democratic process. Just as noteworthy was the
withdrawal of Gambia's former President Jammeh from presidential
office in early 2017, after the insistence of Gambia's neighbors in
West Africa and the African Union that he respect the democratic
will of Gambian people. Nigeria learnt that democracy cannot exempt
a country from adjusting to economic realities. Nigeria's new
economic plan is a testament to the desire of its leadership to
transform Nigeria into an industrial powerhouse. Of course, desire
is far from destiny. South Africa, while in the midst of a heated
contest to halt the cancer of corruption and raise its national
economic growth rate, was skiing downhill into "junk" territory for
its sovereign debt obligations. Egypt's devaluation, accompanying
attempts to reduce subsidies, was a welcome acceptance of the
imperative to increase national savings to fund higher domestic
economic growth. There was a common thread in these superficially
unrelated developments across Africa. Africans, whether voters,
politicians, bureaucrats, entrepreneurs, civil society
organizations, or trade unions, were beginning to embrace the need
to both increase substantially increase the volume of domestic
resources available to their governments and increase their
national savings rate. Africans increasingly understood that
neither tax collection, nor investment, nor is governmental
competence likely to thrive under governments notorious for
permitting unpunished corruption by senior state officials. These
incidents of 2016 should not overshadow the long-term appeal of
Africa.
Africa's population is young and growing when the population of
almost every other continent is ageing. The productivity dividend
to be harvested in Africa, in the wake of economically competent
national leadership subject to the Rule of Law, is huge. Simply
stated, as modern conveniences like electricity and superior
building materials like cement, jostle with irrigation and other
agricultural innovations like hybrid seeds, to become widely
available throughout Africa, the cost of living should drop and
African industries will have a better chance to become
internationally competitive. Some of the Fund's investee companies
are agents of these developments. Two examples should suffice to
explain AOF's investment philosophy: First is Societe de
Caoutchoucs de Grand-Bereby - a rubber and palm oil plantation in
Cote d'Ivoire - sells hybrid seeds to small-scale farmers around
its plantation to improve their productivity per hectare and shares
its agronomic knowledge with them in exchange for buying their
higher output to process in its mills. This symbiotic relationship
leads to higher capacity utilization of the mills and higher
revenues for the small scale farmers. Second is Kenya Power. By
buying geothermal power from the Olkaria wells of Kengen located in
Kenya's Rift Valley, Kenya Power is assisting Kenya to become a
world leader in the generation and distribution of base load
renewable energy.
AOF's 2016 strategy focused on expanding exposure to gold
producers and upstream oil and gas companies. This expanded
exposure was accomplished by buying bonds, writing put options, and
acquiring equity exposure to well capitalized issuers such as
Kosmos Energy. The Fund continued to accumulate the securities of
electric utilities, while also selling short the securities of
companies leveraged to the waning fortunes of the heavily indebted
among Africa's consumers. Even though the Fund's short selling was
a source of loss, as the Rand appreciated throughout 2016, it
should be borne in mind that short-selling has been a net source of
profits for AOF since inception and also serves to lower the
volatility of AOF's returns.
An underlying cause for the poor performance of several African
markets was the general pattern of declining African currencies. In
2016 the Egyptian Pound and the Nigerian Naira devalued by 57% and
by 37%, against the US dollar, respectively. Liquidity was also an
issue as the least liquid African markets ("frontier markets")
performed worse than the more liquid markets ("emerging markets").
South Africa and Egypt are the only economies that qualify as
"emerging markets" in Africa.
To provide some detail, the net asset value ("NAV") per share of
the A shares, including dividends, declined by 10% while the NAV
per share of the C shares declined by 4%. After excluding the
provision for the Shoprite arbitral award, the NAV of the A shares
rose by 3%. Prices of AOF's shares at the end of a volatile year
were flat, leading to a narrowing of the discount between the share
prices and net asset values. The total return for the A shares was
-3%, and for the C shares it was -13%. The respective discounts to
net asset value were 31% (excluding the Shoprite provision), 21%
(after the Shoprite provision) and 22% for the C shares. As a basis
for comparison, South Africa rose 16%, Nigeria fell 36%, Kenya fell
1%, and Egypt fell 26%.
In non-African emerging markets, China fell 15%, Brazil rose
39%, Russia rose 59% and India rose 1%. In developed markets, Japan
rose 6%, the US rose 12% and both Europe and the UK were flat(1)
.
It would be remiss of me not to share my thought on one of AOF's
major challenges - namely the Shoprite arbitral award. The Fund
bought Shoprite shares on the Lusaka Stock Exchange between 2009
and 2011. Shoprite has a primary listing on the Johannesburg Stock
Exchange and secondary listings on the Lusaka Stock Exchange and
the Namibia Stock Exchange. Its share price on the Lusaka Stock
Exchange was materially lower than its Johannesburg Stock Exchange
price. The Fund bought Shoprite shares on the Lusaka exchange in
regular market trades only to learn in 2011 that Shoprite itself
had been the counterparty on some of those trades and, it
unfortunately turned out, had not authorized its agent to enter
those trades. Shoprite therefore sought to reverse them. The
arbitrator concluded in January 2017 that the Fund did not obtain
good title to 637,528 of the 679,145 shares of Shoprite that it
believed it had purchased, and in respect of those shares, it was
therefore not entitled to dividends that had accrued. The board of
the Fund decided unanimously to appeal this award and we hope to
have the appeal heard by the end of 2017. AOF is adamant that
trades in Shoprite, conducted on an arms-length basis through
ordinary anonymous market dealings between brokers and consummated
on the floor of a public stock exchange, should not be reversed.
Neither the Fund nor its manager had any dealings, whether direct
or indirect, with the agent of Shoprite. This saga has consumed a
lot of attention since 2011. Nevertheless, we expect to be
vindicated and hope that it will come to an end sometime in 2017.
In the interim, the board has elected to amend the 2016 financial
statements in accordance with the arbitral award.
Application of consolidation exemption under IFRS 10:
Consolidated financial statements
In the prior year, the Company did not meet the definition of an
investment entity and therefore consolidated financial statements
were issued. These were prepared under the historical cost
convention except for the financial assets and liabilities at fair
value through profit or loss that had been measured at fair
value.
For the current year under review, the Company satisfied the
criteria of an investment entity under IFRS 10: Consolidated
financial statements and as such, no longer consolidates the
entities it controls. Instead, its interest in the subsidiaries has
been classified as fair value through profit or loss, and measured
at fair value. This consolidation exemption has been applied
prospectively and more details of this assessment are provided in
Note 4 of the financial statements "significant accounting
judgements, estimates and assumptions." Please note the Board does
not believe these changes make any material difference in the
information provided by the financial statements to investors.
2017 Outlook
2017 promises to be an exciting year with investment bargains on
offer. Undoubtedly, slow growth and rising inflation will persist.
Eastern Africa is suffering from drought. Chinese GDP continues to
slacken while global financial conditions continue to tighten as
the US Federal Reserve raises interest rates and begins to
contemplate reducing the size of its balance sheet. Nigeria
continues to maintain a regime of multiple exchange rates while
countries like Kenya flirt with fiscal profligacy. Against that
familiar list of risks must be offset the opportunities manifest in
countries that are deepening their commitment to free markets -
Egypt and Ghana come to mind. The carnage as a result of currency
collapses has created cheap opportunities for the Fund to exploit.
The Fund is designed to weather these difficult times. A closed-end
investment company, like AOF, has long-term liabilities, unlike
open-ended funds which have the short-term monthly or daily
redemption liability. Even if its freedom to invest without
focusing on liquidity comes at the price of volatile discounts
between net asset value per share and market price per share, its
closed-end structure does allow it to consistently invest in high
quality issuers.
Concluding Thoughts
For AOF's shareholders, 2016 marked a third consecutive year of
losses. These losses must be taken in the context of AOF's
long-term orientation. AOF's thesis and strategy of seeking to
purchase the strong growth prospects of various African industries
at discount valuations remains intact as a compelling means of
creating long term value. AOF's portfolio is replete with growing
enterprises that are generating profits despite the ever present
challenges. The board maintains its belief that the Fund remains an
excellent investment vehicle for the long term investor as
witnessed by the fact that members of the board have increased
their shareholding. We are optimistic that patience may soon be
rewarded.
Following the Shoprite award, the Board deems that there is no
further impediment to the merging of the C Share and Ordinary Share
capital pools and it is therefore expected that a combination of
share classes will be completed shortly. The Board believes the
combination of the share classes is in the interest of all
Shareholders. The benefits include having (i) a better diversified
balanced portfolio of attractive African investments; (ii) a
reduced total expense ratio from cost savings related to having a
single line of stock trading on the London Stock Exchange; and
(iii) the potential for enhanced trading liquidity in an enlarged
single Ordinary Share class.
The combination of these two lines of stock is in accordance
with the C Share Prospectus which estimated that it would take six
months to invest the new funds and combine the share classes. The
Board extended the conversion period of the C Shares due to the
outstanding Shoprite litigation. Since a full provision has been
made in the NAV of the A shares following the arbitration award in
January there is, in our view, no reason to delay the conversion.
In light of AOF's appeal against the award, however, the Board is
taking steps, prior to the conversion, to provide A Share holders
with a contingent rights instrument that will have value in the
event AOF prevails and the right to its Shoprite holding is
restored.
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 2017
(1) Reference indices are calculated calculated in US Dollars
using: Nigeria NSE Allshare Index, South Africa FTSE/JSE Africa
Allshare Index, Nairobi NSE Allshare Index, Egypt Hermes Index,
Russia MICEX Index, Brazil IBOV Index, the Shanghai Shenzen 300 CSI
Index, the India SENSEX Index, the S&P 500, the Stoxx Europe
600 Index, the FTSE 100 and the Nikkei 225.
Manager's report
2016 Review
2016 marked the ninth full year of operation of Africa
Opportunity Fund ("the Fund" or "AOF"). It marked also a second
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" or "Ordinary shares"). Excluding the provision for
Shoprite shares, the A shares had a return of 3%, including
dividends, while the C shares had a return of -4%. After
incorporating the provision for the January 2017 Shoprite award,
the A shares had a return of -10%. The remainder of this report
excludes the effect of the Shoprite arbitral award. At year-end,
AOF held $43.8 million in equity securities, $16.8 million in debt
securities, $1.1 million in cash; and derivative and short sale
liabilities equal to $4.8 million. In class terms, the A shares
held $28.1 million in equity securities; $9.9 million in debt
securities; $-3.4 million in cash; and derivative and short sale
liabilities equal to $2.6 million. The C shares held $15.9 million
in equity securities; $6.6 million in debt securities; $4.5 million
in cash; and derivative and short sale liabilities equal to $2.4
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 $1.17 per
share at the end of 2016 versus $0.98 per share at the end of 2015
for the A Shares The appraisal value for the C shares was $1.07 per
share for 2016 vs $1.03 per share at the end of 2015.
AOF's ordinary share NAV, including dividends, rose 3% in 2016.
It has declined 24.1% over the last three years and risen 1.3% over
the last five years. For comparative perspective, see the table
below which highlights the challenges encountered by Africa and
certain emerging market investors over recent years.
Comparative Returns
---------------------------------------------------
Index/Security 1 Year 3 Year 5 Year
------------------------ ------- ------- -------
AOF NAV 3.2% -24.1% 1.3%
Lyxor Africa ETF 31.3% -12.8% -26.9%
DBX MSCI Africa Top
50 8.6% -18.2% 9.6%
VanEck Vectors Africa 14.2% -30.9% -11.9%
Brazil Bovespa 69.1% -15.1% -39.1%
Russia Micex 58.2% -10.6% 4.8%
India Sensex 0.8% 20.1% 45.9%
China CSI 300 -15.3% 31.9% 41.6%
US S&P 500 11.8% 28.1% 93.5%
There were three main reasons for the Fund's 2016 performance.
African currency movements continued to be the single most
important variable for African investors like the Fund. For
example, during the year Egypt's Pound depreciated by 57% and
Nigeria's Naira depreciated by 37%. The Naira's devaluation proved
to be a high hurdle for Nigerian manufacturing companies seeking to
maintain the US Dollar value of their operating cash flows while
battling unreliable gas supplies and scarce foreign exchange. For
perspective, the Thai Bhat, instigator of the infamous 1997-98
Asian crisis, collapsed by 46% in 1997. Currency movements of this
magnitude cause both inflation and real interest rates to explode,
they spread economic disruption and, at times, ruin in their wake.
A second reason for the Fund's performance was our maintenance of
short positions in a year in which valuations in large and liquid
markets commanded a premium. Finally, although to a lesser extent,
our failure to harvest profits from our gold related holdings when
prices were high also contributed.
AOF's portfolio comprises four principal categories: the
securities of top members of national or continental African
oligopolies; the securities of companies with large assets ignored
by capital markets; the securities of high yielding African
corporate debt issuers; and, where cost-effective, currency hedges
and short positions against over-indebted African consumers.
Several AOF companies are national or continental leaders in their
industries, whether measured by profitability or balance sheet
quality or market position. They lead industries, such as
electricity networks, cement production and long-term financial
liabilities, which must grow their profits at a higher rate than
African GDP growth rates for a youthful and urbanizing Africa to
satisfy the urgent demands of its denizens for a better life.
Enterprise Group, a 13.9% holding of the Fund, embodies several
characteristics of our preferred investment approach: a long-term
concentrated holding in a sector growing at a more rapid rate than
an African country's underlying GDP growth rate.
Enterprise Group is a holding company with majority and
wholly-owned operating subsidiaries in six Ghanaian fields: a 51%
life assurance subsidiary with the largest market share in that
field; a 60% property and casualty insurance subsidiary which has
the second largest market share; a 60% pensions administrator
subsidiary which has the largest market share in Ghana's new
private pensions industry; a 100% owned property developer
subsidiary; a 60% indirect subsidiary in the funeral services
field; and a majority-owned life assurance subsidiary in Gambia.
Enterprise's end of 2016 market capitalization was $74.5 million,
valuing it on a Price/Book ratio of 1.4x, with a return on
shareholders' equity of 16% and a return on assets of 9%. The
Fund's US Dollar 1, 3 and 5 year total returns for Enterprise were,
respectively, -9%, -18%, and 191%. Are Enterprise's best days
behind it? We believe not! Our belief is bolstered by the arrival
of several major foreign insurance companies on Ghanaian shores in
the last five years: Old Mutual PLC and Prudential PLC from the
United Kingdom; Allianz from Germany; Liberty Group, Momentum Group
and Hollard Insurance from South Africa.
Enterprise's South African partner, Sanlam, is one of the oldest
of the new breed of direct foreign insurance investors in Ghana,
tracing its roots in Ghana to 2000 when a predecessor firm -
African Life, joined forces with the International Finance
Corporation and Enterprise Insurance to establish Enterprise Life
Assurance Company. Ghana's Cedi has depreciated by 61% since 2011,
falling from 1.64 Cedis to the Dollar at the end of 2011 to 4.23
Cedis by December 31, 2016. Despite that steep drop, Enterprise's
float (investible funds owed to policyholders before receipt of
claims), in US Dollars, has risen from $33 million in 2011 to $67
million in 2014, and $81 million at the end of 2016. Corresponding
new written premiums rose from 2011's $50 million to $63 million in
2014, and $80 million for 2016. Indeed, Enterprise's leverage
increased by 2.5x while its insurance revenues increased by 60% in
Dollars between 2011 and 2016. Thus, its shareholders equity has
been flat since 2014 ($55 million in December 2016 versus $56
million in December 2014), but 45% higher than its December 2011
level of $38 million, after paying $14.9 million in dividends since
the end of 2011.
How has Enterprise been able to thrive amidst Ghana's
macro-economic storms? With some difficulty, it must be
acknowledged. Growth in commission expenses - a measure of amounts
due to brokers and agents for renewing or selling new policies -
climbed by only 2% in 2016 versus 20% in 2015 and 29% in 2014.
Enterprise's strength, in the words of Warren Buffet, is it
receives premiums upfront and pays claims later, sometimes several
years after receipt of those premiums.
"This collect-now, pay-later model leaves P/C companies holding
large sums of money that we call 'float'- that will eventually go
to others. Meanwhile, insurers get to invest this float for their
own benefit. Though individual policies and claims come and go, the
amount of float an insurer holds usually remains fairly stable in
relation to premium volume."(1) "..how does our float affect
intrinsic value? 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 a typical liability is a major mistake. It should
instead be viewed as a revolving fund. Daily, we pay old claims and
related expenses - a huge $27 billion to more than six million
claimants in 2016 - 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 fund is both costless and
long-enduring, which I believe it will be, the true value of this
liability is dramatically less than the accounting liability. Owing
$1 that in effect will never leave the premises - because new
business is almost certain to deliver a substitute - is worlds
different from owing $1 that will go out of the door tomorrow and
not be replaced. The two types of liabilities, however, are treated
as equals under GAAP."(2)
Caution is mandatory in applying the insights of Warren Buffet,
expounded for a low-inflation continental American economy, to tiny
high-inflation prone Ghana. Furthermore, most of the insurance
liabilities of Berkshire Hathaway exist in the property and
casualty insurance industry whereas the overwhelming majority of
Enterprise's liabilities reside in the life industry. Unlike the
float of a short-term property and casualty insurance company
primarily composed of claims submitted or incurred in one
accounting year, the float for Enterprise's life subsidiary also
includes mortality claims to be incurred over several years in the
future, extending any accounting profit recognition related to
those future claims also for several years in the future.
Enterprise, like its South African partner - Sanlam - and European
insurance companies, provides actuarial estimates of the chasm
between its life fund accounting liabilities and the associated
economic liabilities. Forgive an example. Enterprise had a life
fund liability in 2015 of 265 million Cedis ($70 million). The
economic value of that liability, according to a 2015 actuarial
report, called the "embedded value report", was 95 million Cedis
($25 million). Covert profit nestled in the life fund, to be
unveiled slowly over several years from Enterprise's existing book
of life policies (not future life policies), had a net present
value of 170 million Cedis ($45 million). In other words,
Enterprise's 2015 book value of 276 million Cedis ($73 million) had
a much higher net present value of 446 million Cedis ($117
million), of which 293 million Cedis ($77 million) (rather than the
207 million Cedis ($54 million) of accounting-based shareholders
equity stated in its accounts) was attributable to its
shareholders.
It must be recognized, of course, that inexpensively priced
investible funds are useful to policyholders and shareholders only
if wisely invested.On that score, Enterprise's long-term record is
solid. Undoubtedly, the eight-fold expansion of its real estate
portfolio from $5 million in 2011 to $42 million at a time of
over-supply in Ghanaian commercial office space is poorly timed
today. But, the Dollar earning capacity of that asset class
improves the resilience of Enterprise's balance sheet in Dollar
terms, a self-evidently attractive virtue in a country with a
sinking currency. Its $183 million portfolio of investment
securities, comprised mainly of fixed deposits and Cedi-denominated
government securities, are earning a 20% return on capital in a 15%
inflation environment to deliver a respectable 5% real return. What
of the future? Enterprise has strong prospects for the next decade.
Its current valuation ignores existing nascent new activities like
pension asset administration and property development, let alone
funeral services scheduled to commence in 2017. Ghana's insurance
penetration (net written premiums as a percentage of its gross
domestic product) is low by comparison to other African countries
like Kenya or Botswana. If Ghana's insurance penetration rate
expands to match that of Kenya, for example, it could lead to a
tripling of the industry's premiums (and, by virtue of solvency
rules, a tripling of the industry's book value). If this sounds
optimistic, consider that Enterprise's net premium earned has risen
from $1.4 million in 1996 to $78 million in 2016.(3) An investment
in Enterprise is a stake in a high growth industry.
AOF's consumer-facing investments struggled in 2016. As African
consumers battled to preserve their real disposable income, so did
service providers to those consumers. Sonatel was one such service
provider. Sonatel's 5% increase in 2016 revenues was less than its
9% rise in operating expenses, leading to a 4% decline in net
income. Overall subscriber numbers dropped 1.4% to 26.2 million
subscribers, despite a 52% increase in mobile data users to 6.3
million and a 60% rise in mobile money subscribers to 3.1 million.
Senegal and Mali were the principal culprits behind this drop as
their subscribers had to re-register their sim cards. Sonatel's
fastest growing market - Guinea - bristled with currency and tax
thorns. The Guinean franc's 18% devaluation hurt Sonatel's CFA
Franc-denominated net profits, as did Guinea's extension of its
telephone consumption tax to data and text messages. Sonatel's Mali
operations experienced its first full year of a telecommunications
network access tax and Senegal cut the termination tariff on
incoming calls. The cumulative effect of those currency and tax
changes was to limit Sonatel's monthly average revenue per user to
$4.8 in 2016 and cut EBITDA by 1.7%. Technological changes,
represented by new communication methods like WHATSAPP and Skype,
are converting Sonatel's high EBITDA margin businesses like
international calls into lower margin data consuming services.
Sonatel will have to lower its costs and expenses to suit those
growing lower margin services while striving to expand dramatically
the propensities of its customers to use those services. In that
regard, a value-added service like Orange money registering revenue
growth rates of 82%, albeit from a minuscule base, will be key to
Sonatel's future. The new Sierra Leone joint venture also adds to
Sonatel's prospects of higher profits. Nevertheless, with its
6%-type dividend yield, Sonatel is akin to a convertible bond for
the Fund, subject to the proviso that data consumption rises in
tandem with per capita income. We expect Sonatel's valuation to
improve in tandem with higher incomes in its five markets.
One of AOF's responses to the recent period of declining terms
of trade of African countries has been to pivot away from the
African consumer. We believe that investment to repair and expand
Africa's decrepit infrastructure is more urgent than additional
consumption, especially of the debt-fueled variety. Thus, the Fund
has been building a portfolio of suppliers to an African
infrastructure drive-cement manufacturers, electricity
distributors, transmission and generating companies, and water
service providers. The Fund's foray into those industries produced
frustrating results this year.
AOF made the lion's share of its investment in Dangote Cement
("Dangote") in the second quarter of 2015. We paid an average price
of $0.89 per share (176 Nairas per share), according Dangote a
market capitalization of $15.1 billion and an enterprise value of
$16.0 billion. At the time, its enterprise value had declined by
39% from its June 30, 2014 peak valuation of $26.4 billion (with a
corresponding market capitalization of $25.0 billion). Dangote had
started its listed existence in 2010 with a market capitalization
of $12.6 billion and an enterprise value of $13.3 billion.
Therefore, it was painful to contemplate its December 2016 market
capitalization of $9.4 billion and related enterprise value of
$10.2 billion. As the price per tonne of Nigerian cement has fallen
from $167 per tonne in 2010 to $90 per tonne, Dangote's enterprise
value per tonne of cement sales has dropped from $1485 to $433,
relegating Dangote's unutilized capacity of 19 million tonnes (45%
of Dangote's existing capacity) to the worthless bin. That market
judgment seems precipitate, harsh, and an invitation to value
investors to join Dangote's share register.
The largest cement producer in sub-Saharan Africa, Dangote
increased its 2016 sales by 25%, but earned fewer US Dollars in
profits than it had in 2015 and endured a 30% decline in the Dollar
equivalent of its cash flow from operations. Similarly, another
portfolio holding, Kenya Power, sold more of its produce, in the
form of electricity, for fewer US Dollars.
Undoubtedly, it was impressive to raise cement volumes in the
midst of Nigeria's first recession in more than a quarter of a
century. It showed also the potent resilience of private Nigerian
construction demand since Nigeria's state governments have little
in the way of funds to implement infrastructure plans. Then, in Q4
2016, Dangote demonstrated its ability to preserve its US Dollar
EBITDA per tonne of Nigerian cement sales. It reverted to a US
Dollar based margin protection strategy manifest in a 9% increase
in its US Dollar denominated EBITDA from $226 million in Q4 2015 to
$247 million in Q4 2016 in spite of a 37% devaluation of the Naira
and a 19% reduction in cement sales from 3.9 million tonnes in Q4
2015 to 3.2 million tonnes in Q4 2016. Quarter-on-quarter, Nigerian
EBITDA margin per tonne rose from $56 per tonne to $77 per tonne,
even though revenue per tonne was flat at $118 per tonne in Q4 2015
versus $117 in Q4 2016. In fact, Dangote's reduction in operating
costs from $62 per tonne to $40 per tonne in Q4 2016, as its kiln
fuel mix improved by using locally mined coal, showed its deepening
cost advantage. Offsetting somewhat the tantalizing profit
prospects from Nigeria's Q4 performance were the anemic results
from other African markets. A 17% rise in Q4 2016 sales, over Q4
2015, was totally overshadowed by a collapse in EBITDA margin per
tonne from $19 per tonne in Q4 2015 to $5 in Q4 2016. Tanzania was
the big culprit as its government compelled Dangote's Tanzanian
subsidiary to fire its kilns by the most expensive of all
fuels-diesel. Time will tell whether the Tanzanian government's
recent change of heart to allow Dangote to use coal is permanent.
Fortunately, the prospect of more sales, as Dangote enters the
Republic of Congo and Sierra Leone this year, plus the anchor of
stronger Nigerian profits, implies materially higher group profits
in 2017. In the long run, Dangote's market selection strategy
reveals the reasons behind its high profitability. As enunciated in
its 2016 annual report, " when we search for new opportunities, we
look for several key features in the market: the availability of
good limestone from which to make cement; the availability of
investment incentives, usually in the form of tax holidays; a large
population with a growing economy; access to good transport
infrastructure; access to low-cost fuel; a cement deficit; strong
commitments to investments in infrastructure and housing; and an
industry that is characterized by substantial imports, as well as
older, less efficient, more costly, and sub-scale plants."(4)
Two features must be present in Dangote's operations for it to
maintain its current status as Africa's most profitable cement
producer. The first feature is that it must remain the lowest cost
producer on African soil. The second feature is it must raise its
capacity utilization ratio from its current 54% to at least 70%.
Yet, there can be no doubt that the manner in which Dangote
overcame its challenges in Nigeria was very encouraging. Its
Nigerian plants were gas-fired, dependent on pipelines. Armed
groups in south-east Nigeria waged a successful campaign to block
the flow of gas through those pipelines. The cement plants had to
build the capacity to use coal, then imported South African coal.
Dangote Industries, parent of Dangote, commenced coal mining in
Nigeria so Nigerian coal could replace South African coal supplied
to those cement plants. It is a notorious fact that Dollars are
precious forms of money in Nigeria. How is Dangote widening its
access to Dollars? By exporting Nigerian cement to limestone
denuded neighbours like Ghana and Cameroon. As a fellow member of
the Economic Community of West African States, Nigeria's cement
attracts little to no tariffs in Ghana, displacing cement imports
from other parts of the world. Ghana pays for all its imports in
Dollars. Ghanaian customers get cheaper cement while Dollars that
would have been sent outside West Africa circulate in Nigeria to
alleviate Dangote's thirst for Dollars. Why do we remain steadfast
shareholders of Dangote Cement? It has the newest fleet of cement
plants in sub-Saharan Africa, typically also the lowest cost plants
in the different African markets. Its Nigerian home market is a
citadel of huge profits, evidenced by high EBITDA margins
comfortably above 50% at this stage. As the lowest cost
manufacturer of cement in Nigeria and other markets, it is able to
generate profits in the most intense of price wars. We acknowledge
that its cost of production is not the lowest in the world, but it
is low enough for Africa. Lucky Cement of Pakistan, for example,
produces cement at a cost of $40 per tonne versus Dangote's $52 per
tonne in Nigeria. Measured against current market sizes, Dangote
Cement appears to have far more capacity than is required today.
Measured, though, against the cement demand to be satisfied as
Africa's growing population enters urban areas and the deep African
infrastructure needs are met, Dangote needs larger and more plants
spread across Africa. Consider that Nigeria's per capita cement
consumption of 121 kilograms is 42% lower than Ghana's 211
kilograms per capita. Ghana is no China, a country which, in
consuming a gargantuan 6.6 billion tonnes of cement between 2011
and 2013, consumed about 1.5x the entire 4.5 billion tonnes of
cement the US consumed between 1901 and 2000. Nevertheless, a
Nigeria able to match Ghana's current per capita cement consumption
would increase its market by 74% to 39.6 million tonnes. African
governments are offering tax incentives to encourage private
investment in African infrastructure. Dangote has received and
continues to receive large tax incentives, lowering significantly
its cost of capital. To provide one illustration, if production
lines 1 to 4 at the Ibese cement plant (in Ogun State) and
production lines 3 and 4 at Obajana (in Kogi State) failed to
qualify for Nigeria's 5 year tax holiday, Dangote's 2016 and 2015
tax charges would have increased, respectively, by 64 billion
Nairas ($203 million) and 40 billion Nairas ($201 million).
Tax holidays of that magnitude are large interest-free loans in
a country suffering from 18%-20% inflation.(5) Yet, those
interest-rate subsidies count for nothing in Dangote's valuation.
Put another way, the market does not wish to pay anything for the
long-term prospects of the most profitable company in a sub-Saharan
African cement industry that is essential to an urbanized
Africa.
Another AOF portfolio holding which suffered from the myopia of
African capital markets is Kenya Power. It is the sole wholesale
bulk electricity purchaser in Kenya, responsible for transmitting
and distributing electricity to various customers throughout that
country. Kenya Power's ordinary shares inflicted a total unrealized
loss of 35% on us in 2016. Its December 2016 market capitalization
was $155 million and its enterprise value was $1.21 billion. Total
debt, as a percentage of capital, was 63%, EV/EBITDA was 4.5x,
Price/Trailing 12 month earnings was 2x and its Price/Book ratio
was 0.29x. Kenya Power's return on equity was 12% and return on
assets was 3%. By the end of March 2017, as Kenya struggled with
its latest drought, Kenya Power's market capitalization had dropped
by an additional 21% to $122 million and its enterprise value was
$1.19 billion. Kenya Power's December 2016 combined equity and
long-term debt value was $1.89 billion while its net property,
plant, and equipment was $2.4 billion.
The market is skeptical about Kenya Power because it has
invested a large amount of capital without any evident improvement
in its profit. Furthermore, its low dividend payout ratio of 13%
has led to a dividend yield of 8%, fairly close to the Kenya
market's dividend yield of 6%. For comparative perspective, Kenya's
2024 Eurobond trades on a yield to maturity of 6.9% and its Kenyan
shilling denominated 2041 government bond has a yield to maturity
of 13.4%. Kenya's government has made it obvious, since mid-2016,
that it does not want any rise in electricity tariffs before the
upcoming August 2017 elections. Kenya is seeking to deliver 100%
electricity connectivity to its population by 2020. Consequently,
both Kenya Power and Kengen, its largest supplier of electricity,
are in the midst of massive capital expenditure programs. Kenya
Power's electricity sales have risen from 4,818 gigawatt hours for
the 12 month period, ended June 30, 2007, to 7,639 gigawatt hours,
for the 12 month period, ended December 2016. In Dollar terms,
associated revenues rose from $540 million
to $1.077 billion, associated profits rose from $24.5 million to
$79.1 million and associated cash from operations vaulted from $17
million to $266 million. Kenya Power's capex levels climbed
three-fold from $103 million to $374 million between 2007 and 2016.
Based on Kenya's 2016 population estimate of 47 million people and
Kenya Power's sales, Kenya's per capita annual electricity
consumption is 164 kilowatt hours. Zimbabwe's grossly insufficient
total installed electricity capacity, at the end of a drought, for
a population of 14 million people, was 1,445 megawatts (capable of
meeting a per capita demand of 904 kilowatt hours). Clearly,
Kenyans have a long road to walk to decent levels of electricity
consumption. Yet, the current judgment of the Kenyan market is an
unequivocal affirmation that even the current electricity levels
impose excessive burdens on Kenya Power's shareholders. Could that
judgment be valid? Yes, if the Kenyan energy regulatory authorities
expect Kenya Power's shareholders to accept sub-20% dividend payout
ratios while injecting fresh capital into Kenya Power. As Graham
and Dodd stated in 1951, "In past years a frequent cause of
undervaluation of individual issues could be traced to a relatively
low pay-out ratio which kept the market price below the level
justified by earnings. In the typical case of this kind, the
dividend is ultimately brought in line with earning power and the
market price improves accordingly....In periods of sharply rising
costs, the normal upward trend of revenue is apt to lag behind the
increasing expenses. This does not necessitate, however, an
experience of permanently lower earnings. If the return declines to
a point where the attraction of capital is endangered, rate
increases can be confidently expected."(6)
That Kenya Power's P/E ratio has collapsed from approximately 4x
when the Fund invested to under 2x, in spite of flat earnings in US
Dollars, is a strong indicator that the market either expects a
fresh capital raise and/or seeks higher dividends. Investors in the
utility industry worldwide have tended to be attracted by the
income generated from its dividend yield. The Graham and Dodd
quotation shows that utility shareholders have been insistent on
maintaining customary dividend yields, regardless of whether
utilities are engaged in maintenance or aggressive construction of
new property, plant and equipment. In retrospect, we should have
paid more attention to the harmful impact of Kenya Power's low
dividend yields.
To finance the large capital expenditure programs of both Kenya
Power and Kengen, both majority-owned listed subsidiaries of the
Kenyan government, the Kenyan state has showered them with generous
tax incentives, recorded in the form of high deferred tax
liabilities, and sovereign guarantees to attract US Dollar
denominated long-term funding from donors on cheaper terms than
those available to even the Kenyan government in its own right. If
the financing of power plants and transmission lines is considered
to be the product of a tripartite arrangement between utility
shareholders, governments, and customers, it is reasonable to
assert that the Kenyan government and shareholders of Kenya Power
are making substantial contributions. We believe that the Kenyan
customer, as did the American customer in the 1940s when the US was
expanding its electricity infrastructure, will have to accept
higher electricity tariffs to pay for the large Kenyan capital
expenditure program. In time, we expect that Kenya Power's dividend
payout ratio will rise to match its earning power, leading to a
rerating of its shares.
The stocks of the two other utility investments of the Fund
delivered pleasing returns in 2016. Copperbelt delivered a total
return of 65% in US Dollars and Lydec of Morocco delivered a total
return of 31%. Lydec had a 2016 year-end market capitalization of
$427 million and an enterprise value of $557 million. It traded on
a dividend yield of 4%, a Price/Earnings ratio of 28x, a Price/Book
ratio of 2.5x, and a Price/Cash flow from Operations of 6x. A
subsidiary of Suez Environment of France, Lydec distributes
electricity and water in, and treats the sewage of, Casablanca
under a concession. Copperbelt's 2016 year-end market
capitalization was $141 million and its enterprise value was $184
million. It traded on a dividend yield of 12%, an EV/EBITDA of 2x,
a Price/Cash flow from Operations of 2.4x, a Price/Book ratio of
0.5x, and a Price/Earnings ratio of -1.3x on account of a $151
million impairment write-down of its Nigerian operations paid out
as a dividend in specie to its shareholders. Excluding that
impairment, its 2016 net profits were $38.6 million and its
adjusted Price/Earnings ratio was 4x. Despite an adjusted return on
equity of 11%, a dividend yield of 12% and a Price/Earnings ratio
of 3.7x signify that Copperbelt was, and remains, a bargain.
At the beginning of 2016, the water levels of Zambia's largest
source of power - the Kariba dam - had collapsed to 16% of capacity
after two years of drought and another poor rain season. ZESCO,
Copperbelt's bulk electricity supplier, had declared force majeure
and reduced its electricity sales to Copperbelt and its customers
by 30%. Copper, the principal commodity produced by Copperbelt's
Zambian customers, was languishing around a post-2010 low of $4,200
per tonne. It was no surprise that electricity sales of 3,521
gigawatt hours in 2016 was 14% and 16% lower than the 4,092
gigawatt hours and 4,208 gigawatt hours of electricity sold,
respectively, in 2015 and 2014. The political troubles of the
Democratic Republic of Congo - host of the northern limb of the
copperbelt - were set to deepen as its President maneuvered to
remain in office beyond his final term. Elsewhere in southern
Africa, major electricity producers like Eskom faced the prospect
of a surfeit of electricity as the South African economy stuttered
in stagnation. Copperbelt's other locus of operations - Nigeria -
would experience a collapse of its power sector because of the
Naira devaluation as well as frequent interruptions in the supply
of gas. In short, selling the stock of Copperbelt appeared to be an
astute tactical decision. Missing from this tableau is the growing
need of mining companies in Katanga for reliable power. Copperbelt,
with its new interconnector completed in mid-2016, was a conduit
for surplus South African power to be consumed on the Congo side of
the copperbelt zone. Copperbelt has become an active participant in
the southern Africa regional power markets. Hence, the continuing
surge in Copperbelt's power trading revenues and profits. Hence,
its five year Zambian EBITDA record of steady growth: $45 million
(2012); $47 million (2013); $60 million (2014); $80 million (2015);
and $90 million (2016). Then, its directorate dissolved the
Nigerian cloud hanging over its Zambian operating results by the
expedient of distributing Copperbelt's Nigerian assets to its
shareholders. The process will be completed in 2017. The outcome
was a rebound in Copperbelt's market capitalization. It is obvious
that there is plenty of scope for a higher market capitalization.
As an entity able to maintain its Zambian profits in Dollars,
despite the 42% depreciation of the Kwacha, Copperbelt can be
compared with other US Dollar earning utility network companies.
Capitalizing the five year average of that EBITDA ($64 million) by
a multiple of 5x (half of the EV/EBITDA multiples applicable to
North American utility networks) suggests its enterprise value
should be at least $320 million (with a corresponding market
capitalization of $277 million). Copperbelt will receive its due
respect as a resilient source of rising Dollars in the southern
Africa power sector.
AOF's portfolio companies owning large assets ignored by the
capital markets are clustered in Africa's commodity export sector.
It is time for some comments about the performance of a few of
AOF's commodity investments. Commodity prices showed signs of
recovery in 2016 as the benefits of curtailed production,
terminated exploration, and shuttered wells and mines encountered
modest signs of rising demand. For example, gold rose 8%, palm oil
rose 29%, crude oil rose 52% and rubber rose 84%. Intriguingly,
Bloomberg's trade-weighted US Dollar index, measuring the broad
value of the US Dollar against major trading currencies, rose 2.9%
in 2016 implying a strengthening global economy, especially from
China, which was, probably, the primary source of rising commodity
prices.
Among commodities which had experienced sharper 2015 price
declines than in 2014, higher 2016 prices were evident in platinum,
which rose 1.3%; copper, which rose 17%; manganese, which rose 45%;
and iron ore, which rose 69%. Between December 31, 2012 and the end
of 2016, the iron ore price dropped by a cumulative 46%, crude oil
by 49%, rubber by 37%, platinum by 41%, copper by 31%, gold by 32%,
palm oil by 2%, and polished diamond prices by 16%.(7) The prices
of debt issued by AOF's commodity producers rose substantially in
sympathy with rising operating cash flows in this early recovery
stage, as well as the issuance of fresh equity in favorable equity
markets.
Iamgold was one such example as the price of its 6.75% bond
maturing in 2020 leapt by 54% from 63% of par at the beginning of
the year to 97% of par at the end of 2016. Iamgold had a December
2016 market capitalization of $1.75 billion and an enterprise value
of $1.65 billion. 12 months earlier, its market capitalization and
enterprise value had been, respectively $560 million and $830
million. Iamgold's 2016 proved and probable reserves were 7.8
million ounces, its measured and indicated resources were 23.3
million ounces and its inferred resources amounted to an additional
6.1 million ounces. Iamgold's 2016 attributable production of
813,000 ounces came from four mines on three continents-Africa,
South America, and North America. 55% of Iamgold's output was
extracted from the Essakane mine in Burkina Faso and the Sadiola
mine in Mali (co-owned with Anglogold Ashanti). The balance was
extracted from the Rosebel mine in Suriname and the Westwood mine
in Quebec. AOF resisted invitations to tender its bonds during the
year, and finally enjoyed the benefits of having them called above
par in early April 2017. In deciding whether to sell or hold the
Iamgold bonds, we considered the asset coverage provided by the
combination of Iamgold's gold reserves and significant cash
holdings. We calculated the implied debt per ounce of gold reserves
by adding $70 million of current bank debt plus $650 million (face
amount) of Iamgold's listed senior unsecured bonds), multiplied by
the price of 63% of par, to equal $481 million, then divided by the
December 2015 7.69 million proved and probable reserve ounces to
get $63/ounce. In our experience this is a very reasonable level of
debt, especially since the the $1,057 all-in sustaining costs per
ounce was lower than the spot price during the year which was in
the range of $1,120.
Clearly the market was worried that Iamgold's mining costs were
near to spot gold prices but, but we were always confident that its
substantial reserves would provide a means to refinance. Our
confidence was further bolstered by the fact that Iamgold held
16 million-odd ounces of measured and indicated resource ounces
excluded from its proved and probable reserves, giving AOF a
capacious shield of safety in its assessment of Iamgold's
bonds.
Furthermore, Iamgold's net debt, as a percentage of its 2015
total capitalization of $2.64 billion was a minuscule 2.8% or $74
million.(8) Yet, in terms of cash flow there was ample support for
the junk rating of Iamgold's bonds. After all, its 2015 net cash
flow from operations of $5.2 million was an evanescent 0.6% of
revenues, a patently and grossly inadequate quantum of operating
cash for a $2 billion+ capital-intensive company. As an aside,
Iamgold's corresponding EBITDA was $116 million, exposing how
misleading EBITDA can be as a measure of cash flow. Our preference
was for Iamgold's management to apply its cash balance to reduce
its debt. Management, however, wanted to expand its mines. Iamgold,
therefore, took advantage of ascending gold prices in 2016 to issue
$200 million of equity to fund those expansion plans. A $284
million growth in 2016 operating cash flow assisted Iamgold to
reduce its long-term debt stock through a tender offer at a price
of 94 in Q3 2016. The Fund declined that tender offer invitation.
The Fund's bonds were called in early April 2017 at a price of 103.
Thus, the Fund benefited from the astute ability of Iamgold's
treasury team to tap money from capital markets.
The Fund's financial liabilities (written options, equities sold
short, contract for differences) generated losses of that were a
bit less than $1 million in 2016. Since 2009, the Fund has
generated a cumulative gain of $4.1 million from its financial
liabilities. Other loss-incurring years were 2009 and 2012. Our
investment process, in selecting a short candidate, is the
reciprocal of our investment process for buying equity or debt
securities:we seek to sell securities trading on high multiples
despite declining revenue growth prospects or other marks of harsh
shocks.
A cursory look at the Fund's balance sheet, though, reveals a
substantial"long" bias since its financial assets are more than 9x
its financial liabilities. Partly this is due to the nature of
investing, long opportunities are more plentiful than short, but
also this is a function of the that fact that most African markets
other than South Africa prohibit short selling. Yet, hard as it is
to believe, this modest component of the Fund's portfolio has
attenuated the Fund's losses from falling African currencies and
markets and tempered the volatility of the Fund's performance.
There are many investors unimpressed by smaller losses in a bad
year. They tend to see Africa as a "high risk, high return"
destination for investment funds. Minimizing loss, whether realized
or unrealized, in our view, is just as vital to long-term superior
returns in Africa as in other continents. Thus, we are grateful for
the prime brokerage relationship with Credit Suisse that makes it
possible for the Fund to assume these financial liabilities.
Our review of 2016 would be incomplete without an update about
the Shoprite arbitration. The arbitrator delivered his award on 27
January 2017. He concluded that the Fund did not obtain good title
to 637,528 of the 679,145 shares of Shoprite that it believed it
had purchased on the Lusaka Stock Exchange between 2009 and 2011,
and in respect of those shares, it was therefore not entitled to
dividends that had accrued. Some of the Shoprite shares listed on
the Lusaka Stock Exchange were treasury shares of Shoprite sold by
its agent in unauthorized trades to the Company and other
purchasers. We continue to believe the Fund has full and good title
to all the shares in Shoprite which it purchased, primarily because
the shares were sold on an internationally recognized stock
exchange to numerous parties and the Fund acquired its Shoprite
shares via open market purchases in accordance with the rules of
that exchange.
We have appealed the arbitral award but as a prudent approach,
we have amended the accounts of the fund in line with the
award.
We end with a statement of our investing philosophy. The key
elements of the investment strategy for the Fund are:
Material discounts to intrinsic value: The Fund invests
primarily where and when an investment can be made at a material
discount to the Manager's estimated intrinsic value.
Company preference: The Fund prefers companies which demonstrate
both high real returns on assets and an earnings yield higher than
the yield to maturity of local currency denominated government
debt.
Industry focus rather than country focus: The Fund seeks to
invest in industries it finds attractive with little regard to
national borders.
National resource discounts: The Fund seeks natural resource
companies whose market valuations reflect a discount to the spot
and future world market prices for those natural resources.
"Turnaround" countries: The African continent is home to a large
number of reforming or "turnaround" countries. "Turnaround"
countries combine secular political reform with the opening of
industries to private sector participation.
Balkanized investment landscape: The Fund seeks to invest in
companies with low valuations in relation to peers across the
continent and uses an arbitrage approach to provide attractive
investment returns.
Point of entry: The Fund seeks the most favorable risk adjusted
point of entry into a capital structure, whether through financing
a new company or acquiring the debt or listed equity of an
established company.
Africa offers several attractive investment opportunities,
exemplified by the Fund's own portfolio of undervalued companies.
We remain interested in industries which have products in short
supply in Africa that rely more on domestic African demand than
global growth. We are hunting in those terrains for compelling
equity investments. We expect the outcome of our hunt to be a
portfolio that delivers both capital growth and income into the
future.
Francis Daniels
Africa Opportunity Partners
April 2017
(1) Berkshire Hathaway 2016 Annual Report, p.8
(2) Ibid, p.9
(3) Enterprise Insurance 1996 Annual Report, p 10 and 2016
financial statements of Enterprise Group.
(4) Dangote Cement PLC 2016 annual report, p.26.
(5) "An area of some potential controversy is our decision to
include the deferred income tax liability as a source of
capital-particularly of equity capital. Although it is not
"invested" capital in the usual sense, there is little doubt that
when Congress creates rules that defer the payment of income taxes
to a later date, the effect is the same as giving the company an
interest-free loan. The absence of any capital cost (interest)
causes the profits of using the assets funded by that loan to flow
directly to pre-tax income, so the return on that capital is
ultimately reflected as part of the return on equity." Graham and
Dodd's Security Analysis, 5th edition (1988), Sidney Cottle, Roger
F. Murray, and Frank E. Block, p. 354
(6) Graham and Dodd, Security Analysis, 3rd edition (1951),
p.520.
(7) Percentage change data cited from Bloomberg Indices: BDXY
Index (US Dollar trade-weighted index), CO1 Comdty (Brent Crude
Oil), PLPHOAAI Index (Polished diamonds), PAL2MALY Index (Palm
Oil), JN1 Comdty (Rubber), XAU Curncy (Gold spot price), XPT Curncy
(Platinum spot price), HG1 Comdty (Copper), CCSMMANG Index
(Manganese) and MBIO62DA Index (Iron Ore).
(8) Total Capitalization is the sum of Common Stock, Additional
Paid in Capital, Preferred Stock, Long term debts, and Minority
interests.
Directors' confirmation
The Directors, being the persons responsible within the Company,
hereby confirm to the best of their knowledge:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and
-- the Chairman's Statement and Investment Manager Report, and
Condensed Notes to the Financial Statements include a fair review
of the development and performance of the business and the position
of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
STATEMENT OF COMPREHENSIVE LOSS
FOR THE YEARED 31 DECEMBER 2016
Company Group
Notes 2016 2015
-------------------- --------------------
USD USD
Income
Interest revenue 6 - 652,135
Dividend revenue - 1,657,433
Other income - 30,068
Net foreign exchange gain - 514,316
-------------------- --------------------
- 2,853,952
-------------------- --------------------
Expenses
Net losses on financial assets
and liabilities at fair value 8
through profit or loss (b) - 7,853,063
Net losses on investment in
subsidiaries at fair value 7
through profit or loss (a) 2,968,932 -
Management fee 5 1,111,055 1,149,597
Custodian fees, brokerage fees
and commissions - 439,438
Secretarial and administration
fees 90,497 215,661
Dividend expense on securities
sold not yet purchased - 167,103
Other operating expenses 158,860 276,742
Directors' fees 179,706 181,250
Audit fees 81,589 94,863
-------------------- --------------------
4,590,639 10,377,717
-------------------- --------------------
Operating loss (4,590,639) (7,523,765)
Finance costs
Distribution to shareholders 19 - (912,289)
-------------------- --------------------
Loss before tax (4,590,639) (8,436,054)
Less withholding tax - (77,544)
-------------------- --------------------
Decrease in net assets attributable
to shareholders from operations/Total
Comprehensive loss for the
year (4,590,639) (8,513,598)
==================== ====================
Attibutable to:
Shareholders/Equity holders
of the parent (8,479,767)
Non-controlling interest (33,831)
--------------------
(8,513,598)
====================
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2016
Company Group
Notes 2016 2015
-------------------- ---------------------
USD USD
ASSETS
Cash and cash equivalents 10 12,604 6,851,126
Trade and other receivables 9 23,545 780,973
Investment in subsidiaries 7 58,284,216 -
Financial assets at fair value
through profit or loss 8(a) - 60,819,532
-------------------- ---------------------
Total assets 58,320,365 68,451,631
-------------------- ---------------------
EQUITY AND LIABILITIES
LIABILITIES
Trade and other payables 12 1,655,591 443,216
Financial liabilities at fair
value through profit or loss 8(b) - 6,446,603
-------------------- ---------------------
Total liabilities 1,655,591 6,889,819
-------------------- ---------------------
TOTAL LIABILITIES (excluding
net assets attributable
to shareholders) 56,664,774 61,561,812
-------------------- ---------------------
Equity attributable to equity
holders of parent
Non-controlling interest 13 - 306,399
-------------------- ---------------------
Total equity - 306,399
-------------------- ---------------------
Net assets attributable to
shareholders 56,664,774 61,255,413
-------------------- ---------------------
Total equity attributable to
equity holders of parent and
total net assets attributable
to shareholders 56,664,774 61,561,812
==================== =====================
Net assets attributable to:
- Ordinary shares 11(b) 33,719,116 37,287,967
- Class C shares 11(b) 22,945,658 23,967,446
-------------------- ---------------------
Net assets attributable to
shareholders 56,664,774 61,255,413
==================== =====================
Net assets value per share:
- Ordinary shares 11(b) 0.791 0.875
- Class C shares 11(b) 0.786 0.821
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARED 31 DECEMBER 2016
Net assets
Number Class Attributable
of Ordinary C to
units Shares Shares shareholders
----------------------- ----------------- ----------------- ------------------
USD USD USD USD
Group
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
======================= ================= ================= ==================
Company
At 1 January 2016 71,830,327 37,287,967 23,967,446 61,255,413
OPERATIONS:
Decrease in net
assets attributable
to shareholders
from operations - (3,568,851) (1,021,788) (4,590,639)
----------------------- ----------------- ----------------- ------------------
At 31 December 2016 71,830,327 33,719,116 22,945,658 56,664,774
======================= ================= ================= ==================
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2016
Company Group
Notes 2016 2015
-------------------- ---------------------
USD USD
Operating activities
Decrease in net assets attributable
to shareholders from operations/Total
Comprehensive Income for the
year (4,590,639) (8,513,598)
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 8(a) - 7,433,641
Realised loss on sale of financial
assets at fair value through
profit or loss 8(a) - 2,651,638
Unrealised gain on financial
liabilities held for trading 8(b) - (2,905,223)
Realised loss on financial
liabilities held for trading 8(b) - 673,007
Effect of exchange rate on
cash and cash equivalents - (514,316)
Unrealised loss on investment
in subsidiaries at fair value
through profit or loss 2,968,932 -
-------------------- ---------------------
Cash used in operating activities (1,621,707) (262,562)
-------------------- ---------------------
Net changes in operating assets
and liabilities
Purchase of financial assets
at fair value through profit
or loss - (16,586,148)
Proceeds on disposal of financial
assets at fair value through
profit or loss - 9,504,026
Derecognition of financial
liabilities held for trading - (7,888,534)
Purchase of financial liabilities
held for trading - 5,066,259
Decrease in trade and other
receivables 416,553 255,829
Increase in trade and other
payables 1,215,465 311,749
-------------------- ---------------------
Net cash used in operating
activities 1,632,018 (9,336,819)
-------------------- ---------------------
Financing activities
Proceeds from issue of redeemable
shares - -
Dividend paid - (912,289)
-------------------- ---------------------
Net cash flow used in financing
activities - (912,289)
-------------------- ---------------------
Net decrease in cash and cash
equivalents 10,311 (10,511,670)
Effect of exchange rate on
cash and cash equivalents - 514,316
Cash and cash equivalents at
the start of the year 2,293 16,848,480
-------------------- ---------------------
Cash and cash equivalents at
the end of the year 12,604 6,851,126
==================== =====================
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2016
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 financial statements for the Company for the year ended 31
December 2016 were authorised for issue in accordance with a
resolution of the Board of Directors on 28 April 2017.
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 financial statements are set out below. These policies have
been consistently applied from the prior year to the current year
for items which are considered material in relation to the
financial statements.
Statement of compliance
The financial statements are prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Basis of preparation
In the prior year, the Company did not meet the definition of an
investment entity and therefore, consolidated financial statements
were issued. These were prepared under the historical cost
convention except for the financial assets and liabilities at fair
value through profit or loss that had been measured at fair
value.
The Company satisfied the criteria of an investment entity under
IFRS 10: Consolidated financial statements for the current year
under review and as such, no longer consolidates the entities it
controls. Instead, its interest in the subsidiaries has been
classified as fair value through profit or loss, and measured at
fair value as. This consolidation exemption has been applied
prospectively and more details of this assessment are provided in
Note 4 "significant accounting judgements, estimates and
assumptions."
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires the Board of Directors to exercise its judgement in the
process of applying the Company's 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.
The Company and Group present their statement of financial
position in order of liquidity. An analysis regarding recovery
within 12 months (current) and more than 12 months after the
reporting date (non-current) is presented in Note 17.
Basis of consolidation (prior year)
The consolidated financial statements comprise the financial
statements of the Group as at 31 December 2015.
In 2015 and prior, subsidiaries were fully consolidated from the
date of acquisition, being the date on which the Group obtained
control and continued to be consolidated until the date that such
control ceased.
The financial statements of the subsidiaries were 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 were
eliminated in full.
Non-controlling interests represented the portion of profit or
loss and net assets not held by the Group and were presented
separately in the statement of comprehensive income and within
equity in the statement of changes in equity from parent
shareholders'.
Foreign currency translation
(i) Functional and presentation currency
The Company's and Group's financial statements are presented in
USD which is their functional currency, being the currency of the
primary economic environment in which both the Company and the
Group operates. The Company and 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 Company and of the
entities within the Group is USD. The Company and 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 Company and 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 at the master fund level.
Financial assets designated at fair value through profit or loss
upon initial recognition
These include equity securities and debt instruments that are
not held for trading. These financial assets are designated on the
basis that they are part of a group of financial assets which are
managed and have their performance evaluated on a fair value basis,
in accordance with risk management and investment strategies of the
Company and the Group, as set out in each of their offering
documents. The financial information about the financial assets is
provided internally on that basis to the Investment Manager and to
the Board of Directors.
Investment in subsidiaries
In accordance with the exception under IFRS 10 Consolidated
Financial Statements, the Fund does not consolidate subsidiaries in
the financial statements. Investments in subsidiaries are accounted
for as financial instruments at fair value through profit or
loss.
Derivatives - Options
Derivatives are classified as held for trading (and hence
measured at fair value through profit or loss), unless they are
designated as effective hedging instruments (however the Group does
not apply any hedge accounting). The master fund's derivatives
relate to option contracts.
Options are contractual agreements that convey the right, but
not the obligation, for the purchaser either to buy or sell a
specific amount of a financial instrument at a fixed price, either
at a fixed future date or at any time within a specified
period.
The master fund purchases and sells put and call options through
regulated exchanges and OTC markets. Options purchased by the
master fund provide the master fund with the opportunity to
purchase (call options) or sell (put options) the underlying asset
at an agreed-upon value either on or before the expiration of the
option. The master fund is exposed to credit risk on purchased
options only to the extent of their carrying amount, which is their
fair value.
Options written by the master fund provide the purchaser the
opportunity to purchase from or sell to the 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 Company's and 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 Company
and the Group include in this category amounts relating to trade
and other payables and dividend payable.
(ii) Recognition
The Company and the Group recognise a financial asset or a
financial liability when, and only when, it becomes a party to the
contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of
assets within the time frame generally established by regulation or
convention in the market place are recognised directly on the trade
date, i.e., the date that the master fund commits to purchase or
sell the asset.
(iii) Initial measurement
Financial assets and liabilities at fair value through profit or
loss are recorded in the statement of financial position at fair
value. All transaction costs for such instruments are recognised
directly in profit or loss.
Derivatives embedded in other financial instruments are treated
as separate derivatives and recorded at fair value if their
economic characteristics and risks are not closely related to those
of the host contract, and the host contract is not itself
classified as held for trading or designated at fair value though
profit or loss. Embedded derivatives separated from the host are
carried at fair value.
Loans and receivables and financial liabilities (other than
those classified as held for trading) are measured initially at
their fair value plus any directly attributable incremental costs
of acquisition or issue.
(iv) Subsequent measurement
After initial measurement, the Company and the Group measure
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 Company and the Group estimate cash
flows considering all contractual terms of the financial
instruments, but does not consider future credit losses. The
calculation includes all fees paid or received between parties to
the contract that are an integral part of the effective interest
rate, transaction costs and all other premiums or discounts.
(v) Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- The rights to receive cash flows from the asset have expired; or
-- The Company 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 Company or the Group have transferred
substantially all the risks and rewards of the asset, or (b) the
Company and the Group have neither transferred nor retained
substantially all the risks and rewards of the asset, but has
transferred control of the asset. When the Company and the Group
have transferred its rights to receive cash flows from an asset (or
has entered into a pass-through arrangement), and has neither
transferred nor retained substantially all the risks and rewards of
the asset nor transferred control of the asset, the asset is
recognised to the extent of the Company's and the Group's
continuing involvement in the asset.
The Company and the Group derecognise a financial liability when
the obligation under the liability is discharged, cancelled or
expires. When an existing financial liability is replaced by
another from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such
an exchange or modification is treated as the derecognition of the
original liability and the recognition of a new liability. The
difference in the respective carrying amounts is recognised in
profit or loss.
Determination of fair value
The Company measures it investments in subsidiaries at fair
value through profit or loss, and the master fund measures its
investments in financial instruments, such as equities, debentures
and other interest bearing investments and derivatives, at fair
value at each reporting date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measured is based on the presumption that the transaction to sell
the asset or transfer the liability takes place either in the
principal market for the asset or liability or, in the absence of a
principal market, in the most advantageous market for the asset or
liability. The principal or the most advantageous market must be
accessible to the Company and 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 Company and the Group use the following hierarchy for
determining and disclosing the fair value of the financial
instruments by valuation technique:
-- Level 1: quoted (unadjusted) market prices in active markets
for identical assets and liabilities.
-- Level 2: valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable.
-- Level 3: valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
Impairment of financial assets
The Company and the Group assess at each reporting date whether
a financial asset or group of financial assets classified as loans
and receivables is impaired. A financial asset or a group of
financial assets is deemed to be impaired if, and only if, there is
an objective evidence of impairment as a result of one or more
events that have occurred after the initial recognition of the
asset (an incurred 'loss event') and that loss event has an impact
on the estimated future cash flows of the financial asset or the
group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtor,
or a group of debtors, is experiencing significant financial
difficulty, default or delinquency in interest or principal
payments, the probability that they will enter bankruptcy or other
financial reorganisation and, where observable data indicate that
there is a measurable decrease in the estimated future cash flows,
such as changes in arrears or economic conditions that correlate
with defaults. If there is objective evidence that an impairment
loss has been incurred, the amount of the loss is measured as the
difference between the asset's carrying amount and the present
value of estimated future cash flows (excluding future expected
credit losses that have not yet been incurred) discounted using the
asset's original effective interest rate. The carrying amount of
the asset is reduced through the use of an allowance account and
the amount of the loss is recognised in profit or loss as 'Credit
loss expense'.
Impaired debts, together with the associated allowance, are
written off when there is no realistic prospect of future recovery
and all collateral has been realised or has been transferred to the
Company and 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 as the master fund level. 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.
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 Company's and 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 2016.
The following new standards and amendments became effective as
of 1 January 2016:
-- IFRS 14 Regulatory Deferral Accounts
-- Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests
-- Amendments to IAS 16 and IAS 38: Clarification of Acceptable
Methods of Depreciation and Amortisation
-- Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants
-- Amendments to IAS 27: Equity Method in Separate Financial Statements
-- Annual Improvements Cycle - 2012-2014 (Amendments to IFRS 5, IFRS 7, IAS 19 & IAS 34)
-- Amendments to IAS 1 Disclosure Initiative
IFRS 14 Regulatory Deferral Accounts
IFRS 14 is an optional standard that allows an entity, whose
activities are subject to rate-regulation, to continue applying
most of its existing accounting policies for regulatory deferral
account balances upon its first-time adoption of IFRS. Entities
that adopt IFRS 14 must present the regulatory deferral accounts as
separate line items on the statement of financial position and
present movements in these account balances as separate line items
in the statement of profit or loss and OCI. The standard requires
disclosure of the nature of, and risks associated with, the
entity's rate-regulation and the effects of that rate-regulation on
its financial statements. Since the Company is an existing IFRS
preparer and is not involved in any rate-regulated activities, this
standard does not apply.
IFRS 11 Joint Arrangements: Accounting for Acquisitions of
Interests
The amendments to IFRS 11 require that a joint operator
accounting for the acquisition of an interest in a joint operation,
in which the activity of the joint operation constitutes a
business, must apply the relevant IFRS 3 Business Combinations
principles for business combination accounting. The amendments also
clarify that a previously held interest in a joint operation is not
remeasured on the acquisition of an additional interest in the same
joint operation if joint control is retained. In addition, a scope
exclusion has been added to IFRS 11 to specify that the amendments
do not apply when the parties sharing joint control, including the
reporting entity, are under common control of the same ultimate
controlling party.
The amendments apply to both the acquisition of the initial
interest in a joint operation and the acquisition of any additional
interests in the same joint operation and are applied
prospectively.
These amendments do not have any impact on the Company as there
has been no interest acquired in a joint operation during the
period.
IAS 16 and IAS 38: Clarification of Acceptable Methods of
Depreciation and Amortisation
The amendments clarify the principle in IAS 16 Property, Plant
and Equipment and IAS 38 Intangible Assets that revenue reflects a
pattern of economic benefits that are generated from operating a
business (of which the asset is a part) rather than the economic
benefits that are consumed through use of the asset. As a result, a
revenue-based method cannot be used to depreciate property, plant
and equipment and may only be used in very limited circumstances to
amortise intangible assets.
The amendments do not have any impact on the Company, given that
it does not hold any property, plant and equipment nor any
intangible asset.
IAS 16 and IAS 41 Agriculture: Bearer Plants
The amendments change the accounting requirements for biological
assets that meet the definition of bearer plants. Under the
amendments, biological assets that meet the definition of bearer
plants will no longer be within the scope of IAS 41 Agriculture.
Instead, IAS 16 will apply. After initial recognition, bearer
plants will be measured under IAS 16 at accumulated cost (before
maturity) and using either the cost model or revaluation model
(after maturity). The amendments also require that produce that
grows on bearer plants will remain in the scope of IAS 41 measured
at fair value less costs to sell. For government grants related to
bearer plants, IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance will apply. The amendments are
applied retrospectively and do not have any impact on the Company
as it does not have any bearer plants.
IAS 27: Equity Method in Separate Financial Statements
The amendments 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 their
separate financial statements have to apply that change
retrospectively.
These amendments do not have any impact on the Company's
financial statements.
Annual Improvements 2012-2014 Cycle
These improvements include:
IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations
Changes in method of disposal
Assets (or disposal groups) are generally disposed of either
through sale or distribution to the owners. The amendment clarifies
that changing from one of these disposal methods to the other would
not be considered a new plan of disposal, rather it is a
continuation of the original plan. There is, therefore, no
interruption of the application of the requirements in IFRS 5. This
amendment is applied prospectively.
IFRS 7 Financial Instruments: Disclosures
(i) Servicing contracts
The amendment clarifies that a servicing contract that includes
a fee can constitute continuing involvement in a financial asset.
An entity must assess the nature of the fee and the arrangement
against the guidance for continuing involvement in IFRS 7 in order
to assess whether the disclosures are required. The assessment of
which servicing contracts constitute continuing involvement must be
done retrospectively. However, the required disclosures need not be
provided for any period beginning before the annual period in which
the entity first applies the amendments.
(ii) Applicability of the amendments to IFRS 7 to condensed interim financial statements
The amendment clarifies that the offsetting disclosure
requirements do not apply to condensed interim financial
statements, unless such disclosures provide a significant update to
the information reported in the most recent annual report. This
amendment is applied retrospectively
IAS 19 Employee Benefits
Discount rate: regional market issue
The amendment clarifies that market depth of high quality
corporate bonds is assessed based on the currency in which the
obligation is denominated, rather than the country where the
obligation is located. When there is no deep market for high
quality corporate bonds in that currency, government bond rates
must be used. This amendment is applied prospectively.
IAS 34 Interim Financial Reporting
The amendment clarifies that the required interim disclosures
must either be in the interim financial statements or incorporated
by cross-reference between the interim financial statements and
wherever they are included within the interim financial report
(e.g., in the management commentary or risk report).
The other information within the interim financial report must
be available to users on the same terms as the interim financial
statements and at the same time. This amendment is applied
retrospectively.
These amendments do not have any impact on the Company.
Amendments to IAS 1 Disclosure Initiative
The amendments to IAS 1 clarify, rather than significantly
change, existing IAS 1 requirements. The amendments clarify:
-- The materiality requirements in IAS 1
-- That specific line items in the statement(s) of profit or
loss and other comprehensive income (OCI) and the statement of
financial position may be disaggregated
-- That entities have flexibility as to the order in which they
present the notes to financial statements
-- That the share of OCI of associates and joint ventures
accounted for using the equity method must be presented in
aggregate as a single line item, and classified between those items
that will or will not be subsequently reclassified to profit or
loss
Furthermore, the amendments clarify the requirements that apply
when additional subtotals are presented in the statement of
financial position and the statement(s) of profit or loss and
OCI.
These amendments do not have any impact on the Company.
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 Company's financial
statements are disclosed below. They are mandatory for accounting
periods beginning on the specified dates, but the Company has not
early adopted them:
Effective
for accounting
period beginning
on or after
IFRS 9 Financial Instruments - Classification 1 January
and measurement of financial assets, Accounting 2018
for financial liabilities and derecognition
Sale or contribution of assets between Effective
an investor and its associate or joint date deferred
venture (Amendments to IFRS 10 and IAS indefinitely
28)
IFRS 15 Revenue from Contracts with Customers 1 January
2018
IFRS 16 Leases 1 January
2019
Recognition of Deferred Tax Assets for 1 January
Unrealised Losses (Amendments to IAS 12) 2017
Disclosure initiative (Amendments to IAS 1 January
7) 2017
Clarification to IFRS 15 'Revenue from 1 January
contracts with customers' 2018
Classification and Measurement of Share-based 1 January
Payment Transactions (Amendments to IFRS 2018
2)
Where the standards and interpretations may have an impact at a
future date, they have been discussed below:
IFRS 9 Financial Instruments - Classification and measurement of
financial assets, Accounting for financial liabilities and
derecognition - 1 January 2018
IFRS 9 introduces new requirements for classifying and measuring
financial assets, as follows:
Classification and measurement of financial assets
All financial assets are measured at fair value on initial
recognition, adjusted for transaction costs if the instrument is
not accounted for at fair value through profit or loss (FVTPL).
Debt instruments are subsequently measured at FVTPL, amortised cost
or fair value through other comprehensive income (FVOCI), on the
basis of their contractual cash flows and the business model under
which the debt instruments are held. There is a fair value option
(FVO) that allows financial assets on initial recognition to be
designated as FVTPL if that eliminates or significantly reduces an
accounting mismatch. Equity instruments are generally measured at
FVTPL. However, entities have an irrevocable option on an
instrument-by-instrument basis to present changes in the fair value
of non-trading instruments in other comprehensive income (OCI)
(without subsequent reclassification to profit or loss).
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.
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. This will however not have any impact on the financial
statements of the Company.
Having completed its initial assessment, the Company has
concluded that:
-- Financial assets and liabilities held for trading and
financial assets and liabilities designated at FVPL are expected to
continue to be measured at FVPL.
-- The new expected credit loss impairment model will not have
any significant impact on the Company as most of its investments
(both equity and debts) are quoted in an active market.
Sale or contribution of assets between an investor and its
associate or joint venture (Amendments to IFRS 10 and IAS 28) -
effective date deferred indefinitely
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 directors will assess the impact of the amendments when they
become effective.
IFRS 15 Revenue from Contracts with Customers - effective 1
January 2017
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.
These amendments are not expected to have any impact on the
Company.
IFRS 16 Leases - effective 1 January 2019
IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires
lessees to account for all leases under a single on-balance sheet
model similar to the accounting for finance leases under IAS 17.
The standard includes two recognition exemptions for lessees -
leases of 'low-value' assets and short-term leases. At the
commencement date of a lease, a lessee will recognise a liability
to make lease payments (i.e., the lease liability) and an asset
representing the right to use the underlying asset during the lease
term (i.e., the right-of-use asset). Lessees will be required to
separately recognise the interest expense on the lease liability
and the depreciation expense on the right-of-use asset.
This standard will not have an impact on the Company as it does
not have any lease.
Lessees will be also required to remeasure the lease liability
upon the occurrence of certain events (e.g., a change in the lease
term, a change in future lease payments resulting from a change in
an index or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of the lease
liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from
today's accounting under IAS 17. Lessors will continue to classify
all leases using the same classification principle as in IAS 17 and
distinguish between two types of leases: operating and finance
leases. IFRS 16 also requires lessees and lessors to make more
extensive disclosures than under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1
January 2019. Early application is permitted, but not before an
entity applies IFRS 15. A lessee can choose to apply the standard
using either a full retrospective or a modified retrospective
approach. The standard's transition provisions permit certain
reliefs.
These amendments are not expected to have any impact on the
Company.
Recognition of Deferred Tax Assets for Unrealised Losses
(Amendments to IAS 12) - effective 1 January 2017
Amendments to IAS 12 Income Taxes have been made to clarify the
following aspects:
-- Unrealised losses on debt instruments measured at fair value
and measured at cost for tax purposes give rise to a deductible
temporary difference regardless of whether the debt instrument's
holder expects to recover the carrying amount of the debt
instrument by sale or by use.
-- The carrying amount of an asset does not limit the estimation
of probable future taxable profits.
-- Estimates for future taxable profits exclude tax deductions
resulting from the reversal of deductible temporary
differences.
-- An entity assesses a deferred tax asset in combination with
other deferred tax assets. Where tax law restricts the utilisation
of tax losses, an entity would assess a deferred tax asset in
combination with other deferred tax assets of the same type.
These amendments are not expected to have any impact on the
Company.
Disclosure Initiative (amendments to IAS 7) - effective 1
January 2017
Amendments to IAS 7 Statement of Cash Flows were made to clarify
that entities shall provide disclosures that enable users of
financial statements to evaluate changes in liabilities arising
from financing activities.
Clarifications to IFRS 15 'Revenue from Contracts with
Customers' - effective 1 January 2018
IASB amended IFRS 15 'Revenue from Contracts with Customers' to
clarify three aspects of the standard (identifying performance
obligations, principal versus agent considerations, and licensing)
and to provide some transition relief for modified contracts and
completed contracts. No early adoption of these standards and
interpretations is intended by the Board of directors.
IFRS 2 Classification and Measurement of Share-based Payment
Transactions - Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that
address three main areas: the effects of vesting conditions on the
measurement of a cash-settled share-based payment transaction; the
classification of a share-based payment transaction with net
settlement features for withholding tax obligations; and accounting
where a modification to the terms and conditions of a share-based
payment transaction changes its classification from cash settled to
equity settled.
On adoption, entities are required to apply the amendments
without restating prior periods, but retrospective application is
permitted if elected for all three amendments and other criteria
are met. The amendments are effective for annual periods beginning
on or after 1 January 2018, with early application permitted.
These amendments are not expected to have any impact on the
Company.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Company's and 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 Company's and 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 Company's management has made an assessment of the Company's
ability to continue as a going concern and is satisfied that the
Company 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 Company'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 Company and
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 Company and the Group is the United
States Dollar.
Assessment for an investment entity
An investment entity is an entity that:
(a) Obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management
services;
(b) Commits to its investor(s) that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both; and
(c) Measures and evaluates the performance of substantially all
of its investments on a fair value basis.
An investment entity must demonstrate that fair value is the
primary measurement attribute used. The fair value information must
be used internally by key management personnel and must be provided
to the entity's investors. In order to meet this requirement, an
investment entity would:
-- Elect to account for investment property using the fair value
model in IAS 40 Investment Property
-- Elect the exemption from applying the equity method in IAS 28
for investments in associates and joint ventures, and
-- Measure financial assets at fair value in accordance with IAS 39.
In addition an investment entity should consider whether it has
the following typical characteristics:
-- It has more than one investment, to diversify the risk portfolio and maximise returns;
-- It has multiple investors, who pool their funds to maximise investment opportunities;
-- It has investors that are not related parties of the entity; and
-- It has ownership interests in the form of equity or similar interests.
The Company has several investors and the activities are managed
by Africa Opportunity Partners Limited with the aim to achieve
capital growth and income for its shareholders. However, in the
prior year, the Company did not meet the definition of an
investment entity as it did not measure and evaluate the
performance of substantially all of its investments on a fair value
basis; for example, the Company's investment in Triton Resources
Inc. had been recorded at cost at year end as their fair valued
cannot be measured reliably (Refer to Note 7). As such, there was a
requirement to consolidate all subsidiaries into Africa Opportunity
Fund Limited.
In the prior year, the Company did not meet the definition of an
investment entity and therefore, consolidated financial statements
were issued as one of the master fund's investments had been
measured at cost.
In current year, the Board concluded that the Company meets the
definition of an investment entity as all investments have been
measured on a fair value basis. IFRS 10 allows the application of
this change to be made prospectively in the period in which the
definition is met. IFRS 10 Consolidated Financial Statements
provides 'investment entities' an exemption from the consolidation
of particular subsidiaries and instead require that an investment
entity measures the investment in each eligible subsidiary at fair
value through profit or loss in accordance with IAS 39 Financial
Instruments: Recognition and Measurement.
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 Company and 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 Company
and the Group. Such changes are reflected in the assumptions when
they occur. When the fair value of financial assets and financial
liabilities recorded in the statement of financial position cannot
be derived from active markets, their fair value is determined
using a variety of valuation techniques that include the use of
mathematical models.
Fair value of financial instruments
The inputs to these models are taken from observable markets
where possible, but where this is not feasible, estimation is
required in establishing fair values. The estimates include
considerations of liquidity and model inputs such as credit risk
(both own and counterparty's), correlation and volatility. Changes
in assumptions about these factors could affect the reported fair
value of financial instruments in the statement of financial
position and the level where the instruments are disclosed in the
fair value hierarchy. The models are calibrated regularly and
tested for validity using prices from any observable current market
transactions in the same instrument (without modification or
repackaging) or based on any available observable market data. An
analysis of fair values of financial instruments and further
details as to how they are measured is provided in Note 7.
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.
5. AGREEMENTS
Investment Management Agreement
Following the Admission of Ordinary Shares and C Shares to the
Specialist Fund Market (SFM) of the London Stock Exchange on 17
April 2014, the Company entered into an Amended and Restated
Investment Management Agreement with Africa Opportunity Partners
(the "Investment Manager"), an investment management company
incorporated in the Cayman Islands, to manage the operations of the
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 receives, a management fee equal to the
aggregate of: (i) two per cent of the Net Asset Value per annum up
to US$50 million; and (ii) one per cent of the Net Asset Value per
annum in excess of US$50 million, payable in US$ quarterly in
advance.
In addition, the principals (directors) of the Investment
Manager are beneficially interested in CarryCo, which under the
terms of the Amended and Restated Limited Partnership Agreement, is
entitled to share an aggregate annual carried interest (the
"Performance Allocation") from the Limited Partnership equivalent
to 20 per cent of the excess of the Net Asset Value (as at 31
December in each year) over the sum of (i) the annual management
fee for that year end (ii) a non-compounding annual hurdle amount
equal to the Net Asset Value as at 31 December in the previous
year, as increased by 5 per cent. The Performance Allocation is
subject to a "high watermark" requirement. 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 1,111,055 (2015: USD 1,149,597) and the performance
fees for the financial year under review was nil (2015: nil).
Administrative Agreement
Prior to 01 September 2015, International Proximity provided
various administrative services to the Company and received an
aggregate fee of USD 61,778 for services rendered in 2015. On 01
September 2015, SS&C Technologies was appointed as the new
administrator and received an aggregate fee of USD 23,425 for
services rendered in 2015. For the year ended 31 December 2016,
administrative fees totalled USD 90,497 (This is classified under
"Secretarial and administration fees" in the statement of
comprehensive income.
Custodian Agreement
A Custodian Agreement has been entered into by the master fund
and Standard Chartered Bank (Mauritius) Ltd, whereby Standard
Chartered Bank (Mauritius) Ltd would provide custodian services to
the master fund and would be entitled to a custody fee of between
18 and 25 basis points per annum of the value of the assets held by
the custodian and a tariff of between 10 and 45 basis points per
annum of the value of assets held by the custodian. The custodian
fees for the financial year under review amounts to USD 128,334
(2015: USD 141,025). In prior year, the custodian fees were
included in 'Custodian fees, brokerage fees and commissions' in the
Group's statement of comprehensive income. In current year, the
custodian fees has been expensed at the master fund level and has
been included in the NAV of the subsidiary.
Prime Brokerage Agreement
Under the Prime Brokerage Agreement, the master fund appointed
Credit Suisse Securities (USA) LLC as its prime broker for the
purpose of carrying out the master fund's instructions with respect
to the purchase, sale and settlement of securities. The fees
charged for the financial year under review amounts to USD 297,229
(2015: 223,720). In prior year, the brokerage fees were included in
'Custodian fees, brokerage fees and commissions' in the Group's
statement of comprehensive income. In current year, the custodian
fees has been expensed at the master fund level and has been
included in the NAV of the subsidiary.
Broker Agreement
Under the Broker Agreement, during 2016, the master fund
appointed Liberum, a company incorporated in England to act as
Broker to the Group, replacing LCF Edmond Rothschild Securities
Limited ("LCFR"). Under the Broker Agreement, the master fund paid
to Liberum a fee of USD 16,173 and paid to LCFR a fee of USD 35,769
(2015: USD 29,547) for the financial year under review. The broker
fee is payable in advance at six month intervals. In prior year,
the broker fees were included in 'Custodian fees, brokerage fees
and commissions' in the Group's statement of comprehensive income.
In current year, the broker fees has been expensed at the master
fund level and has been included in the NAV of the subsidiary.
6. INTEREST REVENUE
Company Group
2016 2015
--------- --------
USD USD
Interest on deposits - 41,499
Interest on bonds - 610,636
-------- --------
Total interest revenue - 652,135
======== ========
7. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
7(a). Investment in subsidiaries at fair value
2016
-------------
USD
Investment in Africa Opportunity Fund (GP)
Limited 145,404
Investment in Africa Opportunity Fund L.P. 58,138,812
-------------
Total investment in subsidiaries at fair
value 58,284,216
=============
Fair value at 01 January 61,253,148
Net loss on financial assets at fair value
through profit or loss (2,968,932)
-------------
Fair value at 31 December 58,284,216
=============
The Company has established Africa Opportunity Fund L.P., an
exempted limited partnership in the Cayman Islands to ensure that
the investments made and returns generated on the realisation of
the investments made and returns generated on the realisation of
the investments are both effected in the most tax efficient manner.
All investments made by the Company are made through the limited
partner which acts as the master fund. The limited partners of the
limited partnership are the Company (99.09%) and AOF CarryCo
Limited (0.67%). The general partner of the limited partnership is
Africa Opportunity Fund (GP) Limited (0.24%). Africa Opportunity
Fund Limited hold 100% of the Africa Opportunity Fund (GP)
Limited.
7(b). Fair value hierarchy
The Company uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
Level 1: quoted (unadjusted) market prices in active markets for
identical assets and liabilities.
Level 2: valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
Company
Investment in subsidiaries at fair value through profit or
loss:
31 December
Level Level Level
2016 1 2 3
------------- -------------------- ----------- ----------
COMPANY USD USD USD USD
Investment in
subsidiaries 58,284,216 - 58,284,216 -
============= ==================== =========== ==========
MASTER FUND
Equities 43,893,055 41,091,429 1,950,376 851,250
Debt securities 16,715,885 16,465,885 - 250,000
Contract for
Difference 113,459 - 113,459 -
------------- -------------------- ----------- ----------
60,722,399 57,557,314 2,063,835 1,101,250
============= ==================== =========== ==========
Financial liabilities
at fair value
through profit
or loss
Shortsellings 4,518,185 4,518,185 - -
Written put options 415,250 415,250 - -
Contract for
Difference 30,672 - 30,672 -
------------- -------------------- ----------- ----------
4,964,107 4,933,435 30,672 -
============= ==================== =========== ==========
The valuation technique of the investment in subsidiaries at
Company level is as follow:
The Company's investment manager considers the valuation
techniques and inputs used in valuing these funds as part of its
due diligence, to ensure they are reasonable and appropriate and
therefore the NAV of these funds may be used as an input into
measuring their fair value. In measuring this fair value, the NAV
of the funds is adjusted, as necessary, to reflect restrictions on
redemptions, future commitments, and other specific factors of the
fund and fund manager. In measuring fair value, consideration is
also paid to any transactions in the shares of the fund. Given that
there has been no such adjustments made to the NAV of the
underlying subsidiaries and given the simple structure of the
subsidiaries investing over 98% in quoted funds, the Company
classifies these investment in subsidiaries as Level 2.
The valuation techniques of the investments at master fund level
are as follows:
Debt securities
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
In 2014, Triton Resources Inc. underwent a reorganisation that
resulted in the Group owning one million Triton Class A preferred
shares valued at USD1.00 each and a promissory note in the amount
of US$250,000. In 2014 a significant portion of the balance sheet
related to Goodwill as a result of the acquisition/reorganisation
event. The Group subscribed for another promissory note in the
amount of US$100,000 in 2016.
Triton concluded a binding agreement in 2016 to sell its African
underwater logging harvesting assets and its lead investor has
executed a letter of intent for the sale of Triton itself. 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, believed that
its Triton investment could not be measured reliably at that time.
The range of fair values measurements was significant and the
probabilities of the various estimates were difficult to assess;
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 Manager has determined these investments
to be classified as Level 3 assets for valuation purposes. Due to
the ongoing nature of the sale negotiations, the Investment Manager
deemed it prudent, at the end of 2016, to apply a 15% discount (or
reserve) to the original subscription cost of the Triton Class A
preferred shares. That reserve was calculated on the basis of a
reduction in the present value of the Triton sales proceeds arising
from a hypothetical 5 month delay in the receipt of those proceeds,
and discounting those proceeds at an annualized discount rate of
30%. Additional material factors considered in determining this
reserve were the existing pattern in the receipt of payments from
the purchasers, the prior receipt of non-refundable amounts from
the purchasers, the current state of negotiations and the
probabilities of various outcomes.
2016 2015
--------------- ----------
USD USD
Investment in Triton 1,101,250 1,251,250
=============== ==========
Financial assets at fair value
through profit or loss 2016 2015
--------------- ----------
USD USD
At 1 January 1,251,250 1,251,250
Total loss in profit or loss (150,000) -
At 31 December 1,101,250 1,251,250
=============== ==========
Total loss included in the profit
or loss of Africa Opportunity Fund
L.P. for asset held at the end
of the reporting period (150,000) -
=============== ==========
Investment in Shoprite Holdings (SHP ZL)
The Company (through its subsidiary Africa Opportunity Fund
L.P), on the basis of an arbitral award made in January 2017, has
made a provision against 637,528 ordinary shares of Shoprite
Holdings (SHP ZL "Shoprite") on the Zambian register for which the
arbitrator determined the Company did not have good title. The
value of the 41,617 Shoprite shares to which the Company had good
title, according to the arbitrator, investment as at 31 December
2016 amounted to USD 263,836. The value of the entire 679,145
Shoprite shares in 2015 was USD 3,889,649 and the original cost of
those 679,145 Shoprite shares was USD 3,639,685. The write-off of
Shoprite shares amounted to $3,865,119. Additionally, Shoprite has
been placing dividend payments into escrow rather than distributing
these amounts to shareholders. These dividends pertaining to 41,617
Shoprite shares are reflected as a receivable amounting to USD
45,418 (2015: USD 478,676) in the master fund's assets. The
write-off of Shoprite dividends amounted to $665,411. Africa
Opportunity Fund, L.P. has filed a notice of its intention to
appeal the arbitrator's award. It is expected that this appeal will
be heard later this year.
7(c). Statement of Comprehensive Income of the Master Fund for the year ended 31 December 2016
The net loss on financial assets at fair value through profit or
loss amounting to USD 2,968,932 is due to the loss arising at the
master fund level and can be analysed as follows:
Africa Opportunity Fund
LP
Statement of Comprehensive
Income
For the year ended 31 December
2016
-------------------------------------- --------- -------------- --------------------
Notes 2016 2015
-------------- --------------------
USD USD
Income
Interest revenue 1,232,894 652,135
Dividend revenue 1,251,816 1,657,433
Other income 18,310 30,068
Net foreign exchange gain 237,604 514,316
-------------- --------------------
2,740,624 2,853,952
-------------- --------------------
Expenses
Net losses on financial
assets and liabilities 7(c-i
at fair value through profit ),
or loss 8(b) 4,829,304 7,853,063
Custodian fees, Brokerage
fees and commission 507,723 439,438
Dividend expense on securities
sold not yet purchased 147,356 167,103
Other operating expenses 178,385 276,742
Directors' fees 907 -
Audit fees 23,381 21,130
-------------- --------------------
5,687,056 8,757,476
-------------- --------------------
Operating loss before tax (2,946,432) (5,903,524)
Less withholding tax (42,526) (77,544)
Decrease in net assets
attributable to shareholder
from operations/Total Comprehensive
Income for the year (2,988,958) (5,981,068)
============== ====================
Attributable to:
AOF Limited (direct interest) (2,961,759) (5,932867)
AOF Limited (indirect interest
through AOF (GP) Ltd) (7,173) (14,370)
-------------- --------------------
(2,968,932) (5,947,237)
AOF CarryCo Limited (minority
interests) (20,026) (33,831)
-------------- --------------------
(2,988,958) (5,981,068)
============== ====================
(i) Net losses on financial assets and liabilities at fair value
through profit or loss held by Africa Opportunity Fund L.P.
2016
--------------
USD
Net losses on fair value of financial assets
at fair value through profit or loss (3,900,496)
Net losses on fair value of financial liabilities
at fair value through profit or loss (928,808)
--------------
Net losses (4,829,304)
==============
(ii) Financial asset and liabilities at fair value through
profit or loss held by Africa Opportunity Fund L.P.
2016
-------------
USD
Held for trading assets:
At 1 January 60,819,532
Additions 10,772,699
Disposals (6,969,336)
Net losses on financial assets at fair value
through profit or loss (3,900,496)
-------------
At 31 December (at fair value) 60,722,399
=============
Analysed as follows:
* Listed equity securities 41,355,252
* Listed debt securities 16,465,885
* Unlisted equity securities 2,537,803
* Unlisted debt securities 250,000
* Contract for difference 113,459
-------------
60,722,399
=============
(iii) Net changes on fair value of financial assets at fair value through profit or loss
2016
-------------
USD
Realised (4,496,993)
Unrealised 596,497
-------------
Total losses (3,900,496)
=============
(iv) Financial liabilities at fair value through profit or loss
held by Africa Opportunity Fund L.P.
2016
----------
USD
Held for trading financial liabilities
Contract for difference 30,672
Written put options 415,250
Listed equity securities sold short 4,518,185
----------
Financial liabilities at fair value through
profit or loss 4,964,107
==========
(v) Net changes on fair value of financial liabilities at fair value through profit or loss
2016
-------------
USD
Realised 2,895,865
Unrealised (3,824,673)
-------------
Total losses (928,808)
=============
8. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
(a) Financial asset and liabilities at fair value through profit or loss
2015
--------------
USD
Held for trading assets:
At 1 January 63,822,689
Additions 16,586,148
Disposals (9,504,026)
Net losses on financial assets at fair
value through profit or loss (10,085,279)
--------------
At 31 December (at fair value) 60,819,532
==============
Analysed as follows:
- Listed equity securities 48,963,914
- Listed debt securities 9,002,913
- Unlisted equity securities 1,001,250
- Unlisted debt securities 1,696,823
- Contract for difference 154,632
--------------
60,819,532
==============
Net changes on fair value of financial
assets at fair value through profit or
loss
2015
--------------
USD
Realised (2,651,638)
Unrealised (7,433,641)
--------------
Total losses (10,085,279)
==============
(b) Financial liabilities at fair value through profit or loss
2015
----------------------
USD
Held for trading financial liabilities
Contract for difference 134,396
Written put options -
Listed equity securities sold short 6,312,207
----------------------
Financial liabilities at fair value
through profit or loss 6,446,603
======================
2015
----------------------
USD
Net changes on fair value of financial
liabilities at fair value through
profit or loss
Realised (673,007)
Unrealised 2,905,223
----------------------
Total gains 2,232,216
======================
2015
----------------------
USD
Net losses on fair value of financial
assets at fair value through profit
or loss (10,085,279)
Net gain on fair value of financial
liabilities at fair value through
profit or loss 2,232,216
----------------------
Net losses (7,853,063)
======================
(c) Fair value hierarchy
Group
Financial assets at fair value through profit or loss:
31 December
Level Level Level
2015 1 2 3
------------ ----------- ---------- ----------
USD USD USD USD
Equities 49,965,164 45,074,265 3,889,649 1,001,250
Debt securities 10,699,736 10,649,736 - 250,000
Contract for Difference 154,632 - 154,632 -
------------ ----------- ---------- ----------
60,819,532 55,524,001 4,044,281 1,251,250
============ =========== ========== ==========
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 -
============ =========== ========== ==========
9. OTHER RECEIVABLES
Company Group
2016 2015
-------- --------
USD USD
Interest receivable on bonds* - 239,201
Dividend receivable* - 478,676
Other receivable 18,032 63,096
Prepayments 5,513 -
-------- --------
23,545 780,973
======== ========
* In current year, these have been recorded as receivable at
master fund level and is included in the investments in
subsidiaries at fair value through profit or loss
10. CASH AND CASH EQUIVALENTS
Company Group
2016 2015
-------- ----------
USD USD
Account with Custodian - 486,634
Call deposit accounts - 2,450
Other bank accounts 12,604 6,362,042
-------- ----------
12,604 6,851,126
======== ==========
Other bank accounts are non-interest bearing.
11(a). ORDINARY SHARE CAPITAL
Group and Company
2016 2016 2015 2015
--------------------- ------------------- ------------------- ---------------------
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 - - - -
--------------------- ------------------- ------------------- ---------------------
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.
11(b). NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS
Ordinary Class
C
Shares Shares Total
------------- ------------- -------------
USD USD USD
At 1 January 2016 37,287,967 23,967,446 61,255,413
Changes during the year:
Loss for the period (3,568,851) (1,021,788) (4,590,639)
------------- ------------- -------------
At 31 December 2016 33,719,116 22,945,658 56,664,774
============= ============= =============
Net assets value per
share in 2016 0.791 0.786
============= =============
Net assets value per
share in 2015 (Group) 0.875 0.821
============= =============
C shares
In 2014, AOF closed a Placing of 29.2 million C shares of
US$0.10 each at a placing price of US$1.00 per C share, raising a
total of $29.2 million before the expenses of the Issue. The
placing was closed on 11 April 2014 with the shares commencing
trading on 17 April 2014.
AOF's Ordinary Shares and the C Shares from the April placing
were admitted to trading on the LSE's Specialist Fund Segment
("SFS") effective 17 April 2014.
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.
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.
12. TRADE AND OTHER PAYABLES
Company Group
2016 2015
---------- --------
USD USD
Due to Africa Opportunity Fund
L.P. 1,259,047 -
Management Fee Payable 280,439 277,868
Directors Fees Payable 43,531 64,387
Other Payables 59,700 100,961
Other Accruals 12,874 -
---------- --------
1,655,591 443,216
========== ========
Other payables and accrued expenses are non-interest bearing and
have an average term of six months.
13. NON-CONTROLLING INTEREST
Proportion of equity interest held by non-controlling interests
is provided below:
Country
of incorporation
Name and operation 2015
------------------- ---------------
Cayman
Africa Opportunity Fund L.P. Islands 0.7%
Accumulated balances of non-controlling
interest: USD
Africa Opportunity Fund L.P. 306,399
Profit and other comprehensive
income allocated to non-controlling
interest:
Africa Opportunity Fund L.P. (33,831)
The summarised information of the subsidiary has not been
disclosed as it does not have material non-controlling
interests.
14. 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.
Company
2016
----------------------------
Ordinary
shares C shares
------------- -------------
Decrease in net assets attributable
to shareholders USD (3,568,851) (1,021,788)
============= =============
Number of shares in issue 42,630,327 29,200,000
Change in net assets attributable
to shareholders per share USD (0.084) (0.035)
============= =============
Group
2015
----------------------------
Ordinary
shares C shares
------------- -------------
Decrease in net assets attributable
to shareholders USD (5,811,145) (2,668,622)
============= =============
Number of shares in issue 42,630,327 29,200,000
Change in net assets attributable
to shareholders per share USD (0.136) (0.091)
============= =============
15. RELATED PARTY DISCLOSURES
The Directors consider Africa Opportunity Fund Limited (the
"Company") as the ultimate holding company of Africa Opportunity
Fund (GP) Limited and Africa Opportunity Fund L.P.
% equity % equity
Country
of interest interest
Name incorporation 2016 2015
-------------------- --------------- --------- ---------
Africa Opportunity Cayman
Fund (GP) Limited Islands 100 100
Africa Opportunity Cayman
Fund L.P. Islands 99.09 99.09
During the year ended 31 December 2016, the Company transacted
with related entities. The nature, volume and type of transactions
with the entities are as follows:
Company
Type Nature Balance
of of at
Name of related 31 Dec
parties relationship transaction Volume 2016
-------------------- --------------- ---------------- --------------------- ---------------------
USD USD
Africa Opportunity Investment Management
Partners Limited Manager fee expense 1,111,055 280,439
Africa Opportunity
Fund LP Subsidiary Payable - 1,259,047
Administration
SS&C Technologies Administrator fees 90,954 -
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:
Group
Type Nature Balance
of of at
Name of related relationship transaction 31 Dec
parties Volume 2015
-------------------- --------------- ---------------- --------------------- ---------------------
USD 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
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)
Except for Robert Knapp who has waived his fees, each director
has been paid a fee of USD 35,000 per annum plus reimbursement for
out-of pocket expenses for during both 2016 and 2015.
Robert Knapp, who is a director of the Company, also forms part
of the executive team of the Investment Manager. Details of the
agreement with the Investment Manager are disclosed in Note 5. He
has a beneficiary interest in AOF CarryCo Limited. The latter is
entitled to carry interest computed in accordance with the rules
set out in the Admission Document (refer to note 5 - 'Investment
management agreement' for further detail of the performance fee
paid to the director).
Details of investments in the Company by the Directors are set
out below:
The increase in director shares in 2016 is a result of Robert
Knapp and Peter Mombaur purchasing additional shares during the
year.
No of Direct
shares interest
held held %
----------- ----------
2016 11,493,960 16.00
2015 9,979,460 13.89
16. 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:
Company Group
2016 2015
------------- -------------
USD USD
Decrease in net assets attributable
to shareholder from operations (4,590,639) (8,436,054)
------------- -------------
Income tax expense calculated at
0% - -
------------- -------------
Withholding tax suffered outside
Mauritius* - 77,544
------------- -------------
Income tax expense recognized in
profit or loss* - 77,544
============= =============
* Withholding taxes are born at the master fund level and
amounted to USD 42,526 for the financial year ended 31 December
2016. These have been included in the NAV of the subsidiary.
17. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Introduction
The Company's and Group's objective in managing risk is the
creation and protection of shareholder value. Risk is inherent in
the Company's and 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 Company's and Group's continuing
profitability. The Company and the Group are exposed to market risk
(which includes currency risk, interest rate risk and price risk),
credit risk and liquidity risk arising from the financial
instruments it holds.
Risk management structure
The Investment Manager is responsible for identifying and
controlling risks. The Board of Directors supervises the Investment
Manager and is ultimately responsible for the overall risk
management approach of the Company.
Fair value
The carrying amount of financial assets and liabilities at fair
value through profit or loss are 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 Master Fund has an obligation to replace the
borrowed securities at a later date. Short selling allows the
Master Fund to profit from a decline in market price to the extent
that such decline exceeds the transaction costs and the costs of
borrowing the securities, while the gain is limited to the price at
which the Fund sold the security short.
Possible losses from short sales may be unlimited as the Master
Fund has an obligation to repurchase the security in the market at
prevailing prices at the date of acquisition.
With written options, the Master Fund bears the market risk of
an unfavourable change in the price of the security underlying the
option. Exercise of an option written by the Master Fund could
result in the Master Fund selling or buying a security at a price
significantly different from its fair value.
A contract for difference creates, as its name suggests, a
contract between two parties speculating on the movement of an
asset price. The term 'CFD' which stands for 'contract for
difference' consists of an agreement (contract) to exchange the
difference in value of a particular currency, commodity share or
index between the time at which a contract is opened and the time
at which it is closed. The contract payout will amount to the
difference in the price of the asset between the time the contract
is opened and the time it is closed. If the asset rises in price,
the buyer receives cash from the seller, and vice versa. The Master
Fund bears the risk of an unfavourable change on the fair value of
the CFD. The risk arises mainly from changes in the equity and
foreign exchange rates of the underlying security.
The Master Fund's financial assets are susceptible to market
risk arising from uncertainties about future prices of the
instruments. Since all securities investments present a risk of
loss of capital, the Investment Manager moderates this risk through
a careful selection of securities and other financial instruments.
The Master Fund's overall market positions are monitored on a daily
basis by the Investment Manager.
The directors have based themselves on past and current
performance of the investments and future economic conditions in
determining the best estimate of the effect of a reasonable change
in equity prices, currency rate and interest rate.
Equity price risk
Equity price risk is the risk that the fair value of equities
decreases as a result of changes in the levels of the equity
indices and the values of individual stocks. The trading equity
risk arises from the Master Fund's investment portfolio.
The equity price risk exposure arises from the Master Fund's
investments in equity securities, from equity securities sold short
and from equity-linked derivatives (the written options). The
Master Fund manages this risk by investing in a variety of stock
exchanges and by generally limiting exposure to a single industry
sector to 15% of NAV.
Management's best estimate of the effect on the profit or loss
for a year due to a reasonably possible change in equity indices,
with all other variables held constant is indicated in the table
below. There is no effect on 'other comprehensive income' as the
Company and 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.
Equity
Effect
on net
assets
Change attributable
Company in to shareholders
NAV price 2016
---------- -----------------
USD
Investment in subsidiaries at fair
value through profit or loss 10% 5,828,422
-10% (5,828,422)
Effect
on net
assets
Change attributable
Master Fund in to shareholders
equity 2016
price
---------- -----------------
USD
Financial assets at fair value through
profit or loss 10% 6,072,240
-10% (6,072,240)
Financial liabilities at fair value
through profit or loss 10% 496,411
-10% (496,411)
Effect
on net
assets
attributable
Change to shareholders
Group in s
equity 2015
price
---------- -----------------
USD
Financial assets at fair value through
profit or loss 10% 6,081,953
-10% (6,081,953)
Financial liabilities at fair value
through profit or loss 10% 644,660
-10% (644,660)
Currency risk
The Master Fund's investments are denominated in various
currencies as shown in the currency profile below. Consequently,
the Company and 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 Master Fund may enter into currency
arrangements to hedge currency risk if such arrangements are
desirable and practicable. The following table shows the offsetting
of financial assets:
As at 31 December 2016
Company
Gross
amounts
of recognised Net amount
financial of financial
liabilities assets
Gross set off presented
amounts in the in the
of recognised statement statement
financial of financial of financial Financial Cash Net
assets position position instruments collateral amount
---------------- ------------------------------ ------------------ ------------------- ---------------- --------------
USD USD USD USD USD USD
Cash and
cash
equivalents 1,136,171 (1,123,567) 12,604 - - 12,604
---------------- ------------------------------ ------------------ ------------------- ---------------- --------------
Total 1,136,171 (1,123,567) 12,604 - - 12,604
================ ============================== ================== =================== ================ ==============
As at 31 December 2015
Group
Gross
amounts Net
of recognised amount
financial of financial
liabilities assets
Gross set off presented
amounts in the in the
of recognised statement statement
financial of financial of financial Financial Cash Net
assets position position instruments collateral amount
--------------------- ---------------------------------- ------------------------ ------------------- ---------------- -------------------
USD USD USD USD USD USD
Cash
and cash
equivalents 34,542,608 (27,691,482) 6,851,126 - - 6,851,126
--------------------- ---------------------------------- ------------------------ ------------------- ---------------- -------------------
Total 34,542,608 (27,691,482) 6,851,126 - - 6,851,126
===================== ================================== ======================== =================== ================ ===================
Cash and cash equivalents are offset as the Company has current
bank balances and bank overdraft with the same counterparty which
the Company has the current legally enforceable right to set off
the recognised amounts and the intention to settle on a net basis
or realise the asset and settle the liability simultaneously.
The currency profile of the Company's financial assets and
liabilities in current year and the Group's financial assets and
liabilities for prior year is summarised as follows:
Company Group
------------------------- ---------------------------
2016 2016 2015 2015
Financial Financial Financial Financial
assets liabilities assets liabilities
----------- ------------ ------------- ------------
USD USD USD USD
Australian Dollar - - 223,631 -
Botswana Pula - - 2,522,469 -
Swiss Franc - - (1,648,149) -
CFA Franc - - 8,328,710 -
Euro - - (7,444,619) -
Egyptian Pound - - 803,141 -
Ghanaian Cedi - - 11,600,631 -
Great Britain Pound - - 124,487 398,697
Hong Kong Dollar - - 11 -
Kenyan Shilling - - 1,920,232 -
Moroccan Dirhams - - 427,936 -
Nigerian Naira - - 4,691,694 -
Norwegian Kroner - - (191,530) -
South African Rand - - 1,963,026 6,047,906
Swedish Kroner - - 2,342,980 -
Tanzanian Shilling - - 1,623,756 -
Uganda Shilling - - 1,828,741 -
United States Dollar 58,314,852 1,655,591 33,414,273 443,216
Zambian Kwacha - - 5,857,113 -
----------- ------------ ------------- ------------
58,314,852 1,655,591 68,388,533 6,889,819
=========== ============ ============= ============
Prepayments are typically excluded as these are not financial
assets; prepayments as at 31 December 2016 and 2015 amounted to USD
5,513 and to USD 63,098 respectively.
The sensitivity analysis shows how the value of a financial
instrument will fluctuate due to changes in foreign exchange rates
against the US Dollar, the functional currency of the Company and
the Group.
Currency risk at master fund level
The following table details the master fund's and 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 at the Master Fund
level. A positive number below indicates an increase in profit
where the USD weakens against the other currencies. In practice,
actual results may differ from estimates and the difference can be
material. The effect of a change in USD against other currencies at
the master fund level as per the table below will have the same
impact at the company level and will form part of the NAV of the
subsidiary.
Currency Risk - Year 2016
Effect on net assets
attributable to
shareholders in
Master Fund Currency (USD)
----------------------------------------
Change: 30% -30%
Botswana Pula (627,744) 627,744
Ghana Cedi (2,988,373) 2,988,373
Kenyan Shilling (388,343) 388,343
Moroccan Dirham (159,972) 159,972
Nigerian Naira (814,574) 814,574
South African Rand 992,805 (992,805)
Tanzanian Shilling (389,232) 389,232
Uganda Shilling (514,466) 514,466
Zambian Kwacha (943,531) 943,531
Change: 10% -10%
CFA Franc (839,251) 839,251
Egyptian Pound (43,549) 43,549
Change: 5% -5%
Australian Dollar (31,225) 31,225
Great British Pound (1,579) 1,579
Currency Risk - Year 2015
Effect on net
assets attributable
to shareholders
Group Currency in (USD)
Change: 30% -30%
Botswana
Pula (756,741) 756,741
Ghana Cedi (3,480,189) 3,480,189
Kenyan Shilling (576,070) 576,070
Moroccan
Dirham (128,381) 128,381
Nigerian
Naira (1,407,508) 1,407,508
South African
Rand 1,418,055 (1,418,055)
Tanzanian
Shilling (487,127) 487,127
Uganda Shilling (548,622) 548,622
Zambian
Kwacha (1,757,134) 1,757,134
Change: 10% -10%
CFA Franc (832,827) 832,827
Egyptian
Pound (80,314) 80,314
Change: 5% -5%
Australian
Dollar (11,182) 11,182
Euro 372,231 (372,231)
Great British
Pound 13,710 (13,710)
Norwegian
Kroner 9,576 (9,576)
Swiss Franc 82,407 (82,407)
Swedish
Kroner (117,149) 117149
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The fair values of the Company's and 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 Company and the
Group to credit risk consist principally of investments in debt
securities, cash balances and interest receivable. The extent of
the Company's and 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 Company and the Group take on exposure to credit risk, which
is the risk that a counterparty will be unable to pay amounts in
full when due. The Company's and 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 Company's and
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:
2016 2016 2015
Company Master Group
Fund
--------- ----------- -----------
Carrying Carrying Carrying
Notes amount amount amount
--------- ----------- -----------
USD USD USD
Financial assets
at fair value through 7(c)(ii),
profit or loss 8(a) - 60,722,399 10,699,736
Other receivables 9 23,545 1,773,876 780,973
Cash and cash equivalents 10 12,604 1,052,042 6,851,126
The financial assets are neither past due nor impaired at
reporting date except for dividend receivable from Shoprite which
is past due by more than three years. The cash and cash equivalent
assets of the Company and 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 Company and the Group are unrated. The
issuers of the unrated debt instruments owned by the Company and
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 2016 the Master Fund held investments in Africa
which involves certain considerations and risks not typically
associated with investments in other developed countries. Future
economic and political developments in Africa could affect the
operations of the investee companies.
Analysed by geographical distribution of underlying assets:
Master Group
Fund
2016 2015
------------------ ---------------------
Bond & Notes USD USD
Senegal 3,036,000 3,173,000
Burkina Faso - 2,702,381
Mauritius - 1,446,823
Morocco - 651,552
Ghana 7,055,593 383,000
Other 4,173,975 -
South Africa 1,738,415 2,342,980
------------------ ---------------------
Total 16,003,983 10,699,736
================== =====================
Master Group
Fund
2016 2015
------------------ ---------------------
Equity Securities and Short USD USD
sellings
Ghana 10,757,184 13,573,563
Zambia 3,145,104 6,642,475
Senegal 6,746,764 6,871,271
South Africa (2,585,832) (4,064,548)
Zimbabwe 5,261,153 4,481,674
Ivory Coast - 1,457,439
Botswana 2,092,481 2,522,469
Nigeria 2,715,246 4,452,476
Tanzania 1,297,442 1,623,755
Egypt - 803,141
Democratic Republic of Congo - 1,412,966
Morocco 533,239 147,538
Burkina Faso - 1,920,232
Cote D'Ivoire 1,645,742 -
Kenya 1,294,475 -
Other 3,771,212 -
Uganda 3,080,099 1,828,742
------------------ ---------------------
Total 39,754,309 43,673,193
================== =====================
Analysed by industry of underlying assets:
Master Group
Fund
2016 2015
-------------------------- ---------------------
Bond & Notes USD USD
Consumer Finance 24,440 2,342,980
Mining Industry 7,929,975 5,875,381
Oil Exploration & Production 6,705,593 133,000
Telecommunications 993,975 946,823
Forestry - 250,000
Plantations 350,000 -
Agricultural Chemicals - 651,552
Consumer Products and
Services - 500,000
-------------------------- ---------------------
Total 16,003,983 10,699,736
========================== =====================
Equity Securities and
Shortsellings
Master Group
Fund
2016 2015
-------------------------- ---------------------
USD USD
Consumer Finance 5,177,780 6,390,167
Mining Industry 4,051,636 2,738,413
Oil Exploration & Production 1,309,903 971,682
Telecommunications 6,746,764 7,856,302
Plantations 2,211,207 1,074,467
Beverages 1,297,442 1,623,756
Consumer Products &
Services (2,530,915) 666,606
Financial Services 9,530,108 12,448,644
Materials 814,737 414,660
Other 2,094,402 -
Real Estate 4,342,250 3,833,423
Utilities 4,708,995 -
Electric Transmission
and Generation - 4,315,632
Forestry - 1,001,250
Agricultural chemicals - 338,191
-------------------------- ---------------------
Total 39,754,309 43,673,193
========================== =====================
Liquidity risk
Liquidity risk is the risk that the Company and the Group will
not be able to meet its financial obligations as they fall due. The
Company's and 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 Company's and the Group's reputation.
The Company and 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
Company's and the Group's financial liabilities based on
undiscounted payments.
Year 2016
Company Due Due Due
Due Between Between greater
Due on within 3 and 1 and than
demand 3Months 12 Months 5 years 5 years Total
--------------------- ------------------ ----------------------- -------------------------- ------------------ ----------------------
Financial USD USD USD USD USD USD
liabilities
Other
payables - 1,655,591 - - - 1,655,591
Net assets
attributable
to
shareholders - - - 56,664,774 - 56,664,774
---------------------- ------------------ ----------------------- -------------------------- ------------------ ----------------------
Total
liabilities - 1,655,591 - 56,664,774 - 58,320,365
====================== ================== ======================= ========================== ================== ======================
Year 2015
Group Due Due Due
Due Between Between greater
Due on within 3 and 1 and than
demand 3Months 12 Months 5 years 5 years Total
--------------------- ------------------ ----------------------- -------------------------- ------------------ ----------------------
Financial USD USD USD USD USD USD
liabilities
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 - 443,216.00 6,350,144 61,255,413 96,459 68,145,232
====================== ================== ======================= ========================== ================== ======================
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 Company cost effective.
The primary objective of the Company's capital management is to
ensure that it maintains a strong credit rating and healthy capital
ratios in order to support its business and maximise shareholder
value.
18. ANALYSIS OF NAV & SHARE OF PROFIT AND LOSSES OF MASTER
FUND ATTRIBUTABLE TO ORDINARY SHARE AND C SHARES
18(a). STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER
2016
Ordinary
shares C shares
------------ ---------------------
USD USD
ASSETS
Cash and cash equivalents (3,483,116) 4,535,001
Trade and other receivables 378,964 235,865
Receivable from AOF Ltd 776,042 483,005
Financial assets at fair value
through profit or loss 38,127,974 22,594,424
------------ ---------------------
Total assets 35,799,864 27,848,295
------------ ---------------------
EQUITY AND LIABILITIES
Liabilities
Trade and other payables 6,976 4,342
Financial assets at fair value
through profit or loss 2,603,732 2,360,375
------------ ---------------------
Total liabilities 2,610,708 2,364,717
------------ ---------------------
Net assets attributable to shareholders 33,189,156 25,483,578
============ =====================
18(b). STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIODED
2016
Ordinary
shares C shares
-------------------------- -----------------------
USD USD
Income 1,425,156 1,315,468
Expenses
Net losses on investment in financial
assets and liabilities at fair value
through profit or loss (3,124,992) (1,704,312)
Custodian, brokerage fees and commission (312,946) (194,777)
Dividend expense on securities sold
not yet purchased (80,964) (66,392)
Other operating expenses (124,922) (77,751)
(3,643,824) (2,043,232)
-------------------------- -----------------------
Operating Loss before taxation (2,218,668) (727,764)
========================== =======================
Decrease in net assets attributable
to shareholders per share attributable
to the equity holders of the parent
during the year (0.052) (0.025)
========================== =======================
19. DIVID PAYMENT
The Amended Private Placement Memorandum states 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.
The Company, in compliance with the UK Reporting Fund Status
regime, has an annual requirement to calculate and report to the UK
investors and HMRC the reportable income per share and
distributions made for each share class. Based on these
calculations, no dividends related to the 2015 calendar year were
paid in 2016 to the Ordinary Shareholders. No dividends were
distributed to the C Share Shareholders.
Investors in C Shares should note that it is not currently
envisaged that any dividend will be paid on the C Shares, which
were issued pursuant to the placing in 2014, prior to their
Conversion into Ordinary Shares.
2016 2015
------ ---------
Dividend - payable USD USD
Dividend declared and paid - 76,859
Dividend per share - US cents
2.14
Opening balance - dividend payable - 85,291
Additions - 912,289
Payment - (912,289)
---- ----------
Closing balance - -
==== ==========
20. SEGMENT INFORMATION
For management purposes, the Çompany is organised in one main
operating segment, which invests in equity securities, debt
instruments and relative derivatives. All of the Company's
activities are interrelated, and each activity is dependent on the
others. Accordingly, all significant operating decisions are based
upon analysis of the Company as one segment. The financial results
from this segment are equivalent to the financial statements of the
Company as a whole.
For geographical segmentation, please refer to note 17.
21. PERSONNEL
The Company did not employ any personnel during the year (2015:
the same).
22. COMMITMENTS AND CONTINGENCIES
There are no commitments or contingencies at the reporting
date.
23. EVENTS AFTER REPORTING DATE
Based on an arbitration award delivered on 27 January 2017, it
was awarded that the Company was deemed to have title to 41,617
ordinary shares and that Shoprite is to pay the Company dividends
in respect of only the 41,617 ordinary shares held. These were
treated as adjusting events and the financial statements have been
amended accordingly.
Except as stated above, there are no other 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.
Company
Level Level Level
1 2 3
------ ------------ ------
USD USD USD
Ordinary shares - 33,719,116 -
C Class shares - 22,945,658 -
At 31 December 2016 - 56,664,774 -
====== ============ ======
Group
Level Level Level
1 2 3
------ ------------ ------
USD USD USD
Ordinary shares - 37,287,966 -
C Class shares - 23,967,447 -
At 31 December 2015 - 61,255,413 -
====== ============ ======
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 provide Shareholders with, without first requiring a
Shareholder vote to implement this policy, an opportunity to
realise all or part of their shareholding in the Company for a net
realized pro rata share of the Company's investment portfolio.
Registered number
Registered in the Cayman Islands number MC-188243.
Website
www.africaopportunityfund.com
For further information please contact:
Africa Opportunity Fund Limited
Francis Daniels Tel: +2711 684 1528
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEFFIAFWSEIL
(END) Dow Jones Newswires
April 28, 2017 11:55 ET (15:55 GMT)
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