TIDMAOF
Africa Opportunity Fund Limited (AOF.L)
Announcement of Annual Results for the year to 31 December 2008
The Board of AOF is pleased to announce its audited results for the
year ended 31 December 2008.
The Company
Africa Opportunity Fund Limited ("AOF" or the "Company") is a Cayman
Islands incorporated closed-end investment company traded on the AIM
market of the London Stock Exchange and is also listed and traded on
the Channel Islands Stock Exchange ("CISX"). Its net asset value on
December 31, 2008 was US$ 59.1 million and its market capitalization
was US$32.3 million.
Chairman's Statement
2008 Review
2008 was a difficult year for both world markets and the Africa
Opportunity Fund Ltd ("the Fund" or "AOF"). AOF 's audited net asset
value fell from $0.96 per share at the beginning of the year to $0.51
per share on 31 December 2008. Including dividends, the total NAV
return was a loss of 43%.
To provide some basis for comparison, in Africa Nigeria fell 54%,
South Africa fell 45%, Kenya fell 47%, and Egypt fell 54%. In
non-African emerging markets, China fell 63%, Brazil fell 55%, Russia
fell 73%, and India fell 49%. In developed markets, Japan fell 29%,
the US fell 39%, and the UK fell 49%.1
A key disappointment in 2008 was the lack of protection provided by
AOF's fixed income investments. Although the portfolio was weighted
equally between equity and debt, the overall NAV return was more in
line with an all-equity portfolio. Despite our recognition of the
widening impact of the global credit contraction soon after the
Fund's launch in 2007, and specific comment on it in the 2008
Chairman's statement, we did not anticipate either the severity of
the contraction or its outsized impact on African and other
developing markets.
Benjamin Graham and David Dodd wrote in 1934 that one of the most
disturbing features of the 1927-1933 period
"is not.wild gyrations of the common-stock averages but the
precipitate decline in the bond averages.which constitutes the really
novel and arresting feature of recent financial history-at least from
the standpoint of investment logic and practice". 2
Similarly for AOF, 2008 provided an important lesson that was last
taught some 80 years ago: in a liquidity driven panic, the
correlation of various securities moves towards 1.0 and the
diversification benefits of holding different asset classes is
severely diminished.
Looking forward over a longer time horizon, it is our opinion that
holding different asset classes will provide significant
risk-adjusted benefits to shareholders of AOF. Our conviction is
based on the fact that while AOF's fixed income portfolio is now
priced to provide equity returns it also enjoys the seniority of a
fixed income security. As of 31 December, AOF's debt investments
were priced collectively at 50% of par with a 21% current yield. At
that valuation, half of the debt portfolio could default with a
recovery of zero and half could mature normally, and AOF would still
earn a double digit return based solely on coupon payments.
Meanwhile, in the equity portfolio, AOF holds several companies that
are market leaders with little or no debt and significant free cash
generating capacity. Yet, the equity portfolio was valued at year
end on a single digit PE multiple and a double digit dividend yield.
With many holdings earning a return on equity in excess of 25%, it is
reasonable to anticipate that our equities portfolio could double in
market value over the next three years.
In December AOF concluded a prime brokerage relationship with
Newedge, a joint venture between the French banks Societe General and
Calyon. Our relationship with Newedge allows AOF to engage in short
sales or trade derivatives such as options and futures. In
retrospect, we would have benefited from having those hedging tools
at our disposal in 2008. Amidst the turmoil that consumed the prime
brokerage community at the end of the year, AOF is pleased to have
the support of Newedge and we look forward to working with them in
the future.
Permit me to end my 2008 review with one additional comment.
Certainly Francis Daniels and I, as principals of the Manager, made
our share of mistakes and we have been humbled by the market collapse
and AOF losses. Furthermore, we are painfully aware that the most
apt historical analogy to 2008 is found in the troubled 1930s. The
reasons for caution today are numerous, to say the least, and
worrisome imbalances persist in the world's debt position and trade
patterns. Still, Africa shines as a growing continent. Africa's
growth prospects combined with the continuing dislocations in several
markets are throwing up some of the most attractive investment
opportunities we have encountered in our careers. We make no
forecast about the general direction of markets, but are encouraged
by the deep value that has been revealed.
Tender Offer
Warren Buffet has written more than once that companies often "get
the shareholders they deserve".3 In this regard, 2008 was another
learning experience. When Francis and I set out to launch AOF in
2007, we had certain investors pushing us to increase the size of the
Fund. Soon after launch, many of those investors urged AOF to invest
quickly. Indeed, we were criticized at an investor conference held
in early 2008 by some shareholders for being too cautious in our
selection of investments.
When the market declines intensified in September and October 2008,
some of our largest shareholders requested a return of their money.
Rather than viewing the market fall as a great investing opportunity,
these shareholders found themselves in desperate need for liquidity.
Thus, as the Fund's NAV declined, a substantial discount to net asset
value materialized. At the end of the year the shares closed at
$0.28, an astonishing 47% below the NAV of $0.52.
The Manager and AOF's Board found this rather perplexing. It may be
historic to see world markets down by over 40% in a synchronous
fashion, but seeing Africa down this much should not have surprised
anyone. In fact, if asked to estimate the probability that African
markets could decline 30% in a year, we would answer 20%. In other
words, it is reasonable to expect it to happen one year out of five.
AOF's large discount confirmed that AOF's shares did not benefit from
trading on two markets. As a result, AOF delisted from the Channel
Islands Stock Exchange early in 2009 to reduce related expenses.
During the last months of the year, Francis and I substantially
increased our investment in the Fund. At the launch I purchased 2
million shares and Francis purchased 1 million shares. As of the end
of 2008 I own 8.2 million shares and Francis owns 2.1 million
shares.
It is an article of faith for Francis and I that AOF exists for the
benefit of its shareholders. When we realized that over 50% of its
shareholders needed an exit, we conducted a tender offer in February
2009 that allowed each and every shareholder to redeem 100% of their
holding. In my career I have never seen a company voluntarily
conduct such a tender. There existed a very real possibility that
the members of the Board of AOF would have ended up as the only
shareholders.
As it turned out, fully 37% of shareholders chose to remain invested
with AOF. There are now 42.6 million shares outstanding, and
collectively Francis and I own over 23%. Returning to Warren
Buffet's observation, AOF now finds itself with a smaller but
recommitted shareholder base: one which recognizes a discount to NAV
as an opportunity, and recognizes that investing in Africa involves
risk. It is a shareholder base, in other words, that we will work
hard to deserve. Thank you for your steadfast support.
Robert C. Knapp
Chairman
June 2009
1 Reference Indexes are calculated in US dollars using : Nigeria NSE
Index, South Africa Allshare, Nairobi NSE Index, Egypt Hermes Index,
Russia MICEX Index, Brazil IBOV Index, the Shanghai composite index,
the India SENSEX Index, the S&P 500, the FTSE 100, and the Nikkei
225.
2 Benjamin Graham and David Dodd, Security Analysis, (New York:
McGraw-Hill, 1934), p. 3.
3 See for example the 1979 Annual Report of Berkshire Hathaway,
Chairman's Letter, which states: "In large part, companies obtain the
shareholder constituency that they seek and deserve. If they focus
their thinking and communications on short-term results or short-term
stock market consequences they will, in large part, attract
shareholders who focus on the same factors..."
Manager's Report
The Fund became fully invested in 2008. Its end-of-year holdings
were in Angola, Cote d'Ivoire, Democratic Republic of the Congo,
Nigeria, Tanzania, Senegal, South Africa, Zambia, and Zimbabwe. It
had $25.4 million invested in debt securities, $31.7 million in
equity securities, and $2.7 million in cash.
The fears expressed in last year's report by Africa Opportunity
Partners ("we") about the spreading dramatic contraction in credit
and the high valuations on African stock markets were confirmed by
the steep declines in most African asset prices in 2008. In light of
those fears, we sought to maintain the capital value of the Fund's
portfolio by investing in debt securities denominated mainly in
African currencies such as the Tanzanian Shilling, the Ghanaian Cedi,
the Zambian Kwacha and the CFA Franc, coupled with equity investments
in industries expected to expand rapidly in Africa over the next
decade. Unfortunately, our fears were more than realized and our
expectations confounded. 2008 ended with the US Dollar strengthening
against most currencies and credit markets in virtual ice. The
prices of many of the Company's debt investments fell significantly,
as did the Company's investments in companies dependent on future
access to the capital markets. Most of the Fund's losses were
concentrated in the categories of African sovereign debt, high yield
corporate debt, and equity securities issued by development stage
resource companies. By the end of the year, the Company's debt
portfolio was valued at a 50% discount to its par value, had a
current yield of 21%, and a yield to maturity of 50%. Its equity
portfolio traded on a dividend yield of 6.3% and the overall
portfolio's free cash yield was 13.5%.
The 50% discount to par valuation for AOF's debt portfolio implies
that AOF's portfolio comprises distressed securities. Admittedly,
since year end, one debt instrument experienced a delay in the
payment of interest which has been cured. Nevertheless, to date, AOF
has not suffered any impairment in its debt portfolio. Yet, the
market behaves as if it believes that there is a 100% probability of
default in the case of some of our investments, with the probability
that AOF would recover only 33% of its investment. We use one bond in
the Fund's portfolio to illustrate the deep skepticism confronting
some of our debt instruments.
AOF invested $3.8 million in Marine Subsea bonds maturing in February
2012. Those bonds were valued at $1.25 million at the end of the
year, or 32% of par. AOF's bonds are part of a $110.5 million bond
issue which is secured by a 1st priority mortgage on a construction
support barge and a second priority mortgage on a well intervention
vessel to be used in the offshore oil industry of Angola. Both
vessels are scheduled for delivery to Marine Subsea in the second
half of 2009 after settlement of final installment fees due to the
shipyard. The barge has a construction cost of $30 million and the
intervention vessel a cost of approximately $140 million. The
intervention vessel has a 10 year contract with Sonangol guaranteeing
approximately $30 million per year in ebitda, and Marine Subsea
already has two similar barges working in Angolan waters. Marine
Subsea announced in 2009 that it has a funding shortfall to complete
the purchase and fitting out of its vessels of about $50 million. We
expect the final figure to be higher. But at 32% of par, the bond is
valued at $35 million, which is 1.2X a single year's ebitda from the
Sonangal contract, and the money required for completion could assume
the position of 1st lien against $140 million of construction cost.
In short, although asset values have fallen and vessel utilizations
in the oil services sector have fallen, in our view these bond prices
bear little relation to the business prospects and long term
contracts that Marine Subsea has in place. While the situation is
difficult, we believe the market is being too pessimistic.
Turbulent market conditions either confirm or confute an investor's
argument in support of a specific investment. We did make some
investing errors last year. For example, it is clear to us that, in
the case of African sovereign issuers, we underestimated their
willingness to maintain sober budgetary disciplines in the face of
elections in a year of rising food and oil prices. Thus, the Ghana
government ran a budget deficit exceeding 10 per cent of its Gross
Domestic Product with harmful effects on the external value of the
Cedi against the US Dollar. Our Ghanaian government bond holdings
endured not just material depreciation against the US Dollar, but
also a loss of value because the yield to maturity of local currency
denominated Ghanaian government debt obligations soared over 20%.
The development stage investments of AOF had an exceedingly poor
year. As credit contracted globally, the first to feel it were
companies dependent upon the capital markets to fund their work
programs. The mix of weak commodity prices proved lethal, and AOF
had two investments which became insolvent. Our response was to
refocus on companies with strong balance sheets and the ability to
fund themselves through an extended downturn. At the end of 2008,
with the exception of Moto Gold and Zimplats, all the equity holdings
of AOF were, and remain, strong free cash flow generators which
utilize modest amounts of debt. In addition, 27% of AOF's fixed
income portfolio was AAA rated. So, 2008 ended with AOF's portfolio
possessing a robust ability to generate free cash.
The remainder of this report comprises commentary on some of AOF's
larger equity investments and a restatement of the Manager's
investment philosophy.
Sonatel. This Senegalese integrated telephone operator listed on the
Bourse Regionale de Valeurs Mobiliers continues to be AOF's largest
investment. Its subscribers grew by 43% in 2008 to 7.3 million.
Sonatel has operations in Senegal, Mali, Guinea, and Guinea-Bissau.
It has 100% of Senegal's fixed line market, 90% of Senegal's internet
market, 71% of Senegal's mobile telephony market, 84% of Mali's
telephony market, 23% of Guinea's mobile telephony market, and 16% of
the mobile telephony market in Guinea-Bissau. Lest one concludes
from Sonatel's market share that its earnings potential is near
saturation, it is worth remembering that Senegal's penetration rate
for mobile telephony is about 43%. That ratio compares with an 80%
penetration rate in South Africa. At 29.6% for the 2008 financial
year, Sonatel's net margin was the second highest in Africa. It had
the second highest operating cash flow per telephone subscriber in
Africa of $69, the lowest debt to equity ratio in its industry of
14.5%, a debt to total assets ratio of 8.9%; and a return on equity
of 31.8%. Yet, as of May 29, 2009, with an enterprise value around
$2.4 billion and a market capitalization of $2.3 billion, it had the
second lowest African telephone operator valuation with a
Price/Earnings ratio of 7.7 and an enterprise value per subscriber of
$332. AOF has lost money so far on its investment in Sonatel. But,
we are happy to own it because it is a rapidly growing safe and cheap
company.
Gold Fields. At a price of 110 Rands per share on May 29, 2009 and
an enterprise value around $9.36 billion, Gold Fields, the 4th
largest gold producer in the world, was valued at less than 50% of
the present value of the cash flow that will be generated from its
existing reserves (assuming a gold price of $950). In essence, even
if the gold price stays flat, AOF should earn an attractive return,
and if the gold price rises, we would not have paid anything for the
option to earn a higher return. We will also benefit from any
reduction in US Dollar denominated production costs, which would
result if the Rand loses value against the US Dollar. Gold Fields
has 61.9 million gold ounces of proved and probable reserves and
156.8 million gold ounces in resources. It mines gold in South
Africa, Ghana, Peru, and Australia. Gold Fields had a bearable
debt/equity ratio of 24% at the end of 2008. It has the challenge of
refinancing more than half of that debt by 2011. It is expanding
annual production to a target of 4 million ounces in the same year
that it reduces both its maintenance capital expenditure and
production costs per ounce. We anticipate that it should generate at
least $150 per ounce in free cash flow at a gold price around $900
per ounce and a Rand/Dollar exchange rate of 10. Gold Fields is the
cheapest of the large gold producers.
African Bank Investment Limited. African Bank Investments Limited
("African Bank") is the largest consumer finance company in South
Africa and Africa. It grants unsecured loans to individuals, loans
secured by furniture to individuals, and sells furniture. Its
customers are members of the emerging middle class to whom it
provides loans of an average size of 7,000 Rands (or $700). By
acquiring a company called Ellerines Holdings, it has entered the
furniture retail market in South Africa. The market has been
uncomfortable with the pace of integration of Ellerines' stores into
African Bank, especially as the consumer sector of South Africa is in
recession. However, African Bank's 1639 branches constitutes the
largest financial branch network in South Africa. Unlike the four
major commercial South African banks, it has no exposure to the
mortgage market. Its funding strategy is rare. It funds itself long
term to make loans of shorter duration. As of the end of September
2008, its ratio of tangible shareholders equity to assets was 27.5%.
African Bank's tier 1 capital adequacy ratio was 21%. That high
capital ratio permits African Bank to incur high non-performing loans
and bad debts in its market. It has a return on average assets of
7.6% and a return on average equity of 21.0%. African Bank had a
market capitalization on May 29 of 20.6 billion Rands. It traded on
a Price/Earnings ratio of 12.8 and a Price/Book ratio of 1.75 and a
Price/Tangible Book of 3.79.
Addax Petroleum. Addax Petroleum ("Addax") is the largest independent
oil producer in Nigeria. Addax also produces oil from Gabon and has
development assets in Nigeria, Gabon, and Kurdistan. AOF owns some
convertible bonds and common stock issued by Addax. Addax is listed
on the Toronto and London stock exchanges and is headquartered in
Geneva, Switzerland. The enterprise value of Addax at the end of
2008 was $4.1 billion, of which $1.5 billion constituted debt. It
has 536.7 million barrels of proved and probable oil reserves, annual
2008 daily production of 136,500 barrels of oil, and net profits of
$774.9 million. 80% of its production comes from the Nigerian Delta
and the balance from Gabon. Addax trades on a historical
Price/Earnings ratio of 3.5 and an enterprise value per barrel of
reserves of $9 at the end of the year. Even after taking into
account the current low prices of crude oil, those valuations are
substantially lower than those of other top African oil producers.
Once again, we end with a restatement of our investing philosophy.
The key elements of the investment strategy for AOF are:
Material discounts to intrinsic value: AOF invests primarily where
and when an investment can be made at a material discount to the
Manager's estimate of that investment's intrinsic value.
Company preference: AOF 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: AOF seeks to invest in
industries it finds attractive with little regard to national
borders.
National resource discounts: AOF 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: AOF 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: AOF seeks the most favorable risk adjusted point of
entry into a capital structure, whether through financing the
establishment of a new company or acquiring the debt or listed equity
of an established company.
Africa offers several attractive investment opportunities. The
continuing turmoil in credit markets has revealed a number of debt
instruments trading at prices which offer equity-like returns. So,
despite the difficult experience of 2008, we consider African debt
instruments to constitute a fruitful investment arena. We remain
interested in industries which have products in short supply in
Africa that rely more on the domestic African economy than the global
economy. In addition, we think there are attractive investment
opportunities in countries recovering from severe civil discord or
civil war. We shall continue to build a portfolio that delivers both
capital growth and income to the shareholders of AOF.
Francis Daniels
Africa Opportunity Partners
June 2009
AFRICA OPPORTUNITY FUND LIMITED
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER
2008
Note 2008 2007
USD USD
Revenue
Interest income 6,150,183 2,481,336
Dividend income 1,606,923 -
Other income 139,595 -
7,896,701 2,481,336
Expenses
Management fee 2,010,654 1,057,414
Custodian, secretarial and
administration fees 549,410 616,912
Brokerage fees and commissions 485,588 45,028
Audit fees 52,500 34,500
Directors' fees 120,000 54,658
Other operating expenses 129,362 186,027
Losses on financial assets at fair
value through profit or loss 53,856,788 656,347
Realised exchange loss 679,503 -
57,883,805 2,650,886
Loss for the period (49,987,104) (169,550)
Attributable to:
Equity holders of the Company (49,658,231) (166,028)
Minority interest (328,873) (3,522)
(49,987,104) (169,550)
Basic loss per share for loss
attributable to the equity holders of
the Company during the period (0.4056) (0.0013)
AFRICA OPPORTUNITY FUND LIMITED
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER
2008
Notes 2008 2007
USD USD
ASSETS
Held-to-maturity financial assets - 4,535,754
Financial assets at fair value
through profit or loss 57,140,459 52,632,051
Trade and other receivables 1,294,247 2,553,189
Cash and cash
equivalents 2,671,415 61,827,336
Total assets 61,106,121 121,548,330
EQUITY AND LIABILITIES
Equity attributable to equity
holders of the parent
Share capital 3 1,155,100 1,250,000
Share premium 107,741,068 119,489,981
Retained losses (49,824,259) (166,028)
Shareholders' interests 59,071,909 120,573,953
Minority interest 417,605 746,478
Total equity 59,489,514 121,320,431
LIABILITIES
Trade and other payables 1,616,607 227,899
Total equity and liabilities 61,106,121 121,548,330
AFRICA OPPORTUNITY FUND LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER
2008
ATTRIBUTABLE TO EQUITY HOLDERS OF THE
PARENT
Issued Share Retained Minority Total
capital premium losses Total interest Equity
USD USD USD USD USD USD
Issue of
shares 1,250,000 123,750,000 - 125,000,000 - 125,000,000
Issue costs - (4,260,019) - (4,260,019) - (4,260,019)
Capital
contribution - - - - 750,000 750,000
Loss for the
period - - (166,028) (166,028) (3,522) (169,550)
At 31
December
2007 1,250,000 119,489,981 (166,028) 120,573,953 746,478 121,320,431
Shares buy
back (94,900) (6,262,650) - (6,357,550) - (6,357,550)
Loss for the
year - - (49,658,231) (49,658,231) (328,873) (49,987,104)
Dividend - (5,486,263) - (5,486,263) - (5,486,263)
At 31
December
2008 1,155,100 107,741,068 (49,824,259) 59,071,909 417,605 59,489,514
AFRICA OPPORTUNITY FUND LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER
2008
2008 2007
USD USD
Cash flows from operating activities
Loss for the year/ period (49,987,104) (169,550)
Adjustment for:
Interest income (6,150,183) (2,481,335)
Losses on financial assets at fair
value through profit or loss 53,856,788 656,347
Dividend income (1,606,923) -
Gain on disposal of held-to-maturity
investment (139,595) -
Operating loss before working capital
changes (4,027,017) (1,994,538)
Decrease/(increase) in other
receivables and prepayments 1,258,942 (2,215,921)
Increase in other payables and accrued
expenses 83,445 227,899
(2,684,630) (3,982,560)
Interest received 6,185,937 2,108,313
Purchase of financial assets at fair
value through profit or loss (76,022,332) (57,788,398)
Disposal of held-to-maturity financial
assets 4,639,595 -
Disposal of financial assets at fair
value through profit or loss 17,657,136 -
Dividend received 1,606,923 -
Net cash used in operating activities (48,617,371) (59,662,645)
Cash flows from financing activities
Proceeds from issue of shares - 120,739,981
Dividend paid (4,181,000) -
Shares buy back (6,357,550) -
Capital contribution - 750,000
Net cash flow (used in) / generated
from financing activities (10,538,550) 121,489,981
Net (decrease) / increase in cash and
cash equivalents (59,155,921) 61,827,336
Cash and cash equivalent at the start
of the year / period 61,827,336 -
Cash and cash equivalent at the end of
the year / period 2,671,415 61,827,336
AFRICA OPPORTUNITY FUND LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER
2008
1. GENERAL INFORMATION
Africa Opportunity Fund Limited (the "Company") was launched with an
Alternative Market Listing "AIM" in July 2007. A secondary listing
was obtained on the Channel Islands Stock Exchange ("CISX") in
November 2007.
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 and with registered number MC-188243.
The Company is domiciled at PO Box 309 GT, Ugland House, South Church
Street, George Town, Grand Cayman, Cayman Islands.
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 therefore may invest in
securities issued by companies domiciled outside Africa which conduct
significant business activities within Africa. The Company will have
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
Investment Management Agreement dated 18 July 2007.
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 will be made
through the limited partnership. The limited partners of the limited
partnership are the Company, AOF CarryCo Limited and Millenium
Special Opportunities Holdings Ltd. The general partner of the
limited partnership is Africa Opportunity Fund (GP) Limited.
Copies of the annual report are being posted to shareholders on 24
June 2009 and copies will be available from the Company's registered
office and also from the Company's website
http://www.africaopportunityfund.com.
2. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
2008 2007
USD USD
Designated at fair value through profit
or loss:
At start of year 52,632,051 -
Additions 76,022,332 53,288,398
Disposals (17,657,136) -
Net loss on financial assets at fair
value through profit or loss (53,856,788) (656,347)
At 31 December 57,140,459 52,632,051
Net loss on financial assets through
profit or loss:
Realised (7,104,816) -
Unrealised (46,757,142) (656,347)
(53,861,958) (656,347)
Analysis of portfolio:
- Listed equity securities 31,698,660 16,342,573
- Listed debt securities 22,167,517 36,289,478
- Unlisted debt securities 3,274,282 -
57,140,459 52,632,051
3. SHARE CAPITAL
2008 2008 2007 2007
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
2008 2008 2007 2007
Number USD Number USD
Share capital
Opening balance 125,000,000 1,250,000 - -
Issue of share - - 125,000,000 1,250,000
Shares buy back (9,490,000) (94,900) - -
115,510,000 1,155,100 125,000,000 1,250,000
The directors have the general authority to repurchase the ordinary
shares in issue subject to the Company having funds lawfully
available for the purpose. However, if the market price of the
ordinary shares falls to a discount to the Net Asset Value, the
directors will consult with the Investment Manager as to whether it
is appropriate to instigate a repurchase of ordinary shares.
4. LOSS PER SHARE
Basic loss per share is calculated by dividing the loss attributable
to equity holders by the weighted average number of ordinary shares
in issue during the period excluding ordinary shares purchased by the
Company and held as treasury shares.
The Company's diluted loss per share is the same as basic loss per
share, since the Company has not issued any instrument with dilutive
potential.
2008 2007
Loss attributable to equity
holders of the Company USD (49,658,231) (166,028)
Weighted average number of
ordinary share in issue 122,431,041 125,000,000
Basic loss per share US cents (0.4056) (0.0013)
5. RELATED PARTY DISCLOSURES
The financial statements include the financial statements of Africa
Opportunity Fund Limited ("the Company") and the subsidiaries in the
following table:
Country of % equity interest
Name incorporation 2008
Africa Opportunity Fund (GP)
Limited Cayman Islands 100
Africa Opportunity Fund L.P. Cayman Islands 98.37
During the year ended 31 December 2008, the Company transacted with
related entities. The nature, volume and type of transactions with
the entities are as follows:
Balance at
Type of Nature of Volume 31 Dec 2008
Name of related
parties relationship transaction USD USD
Africa Opportunity
Partners Limited Investment Management fee 2,010,654 -
Manager expense
Key Management Personnel (Directors' fee)
Except for Francis Daniels and Robert Knapp who have waived their
fees, each director has been paid a fee of USD 30,000 per annum plus
reimbursement for out-of pocket expenses.
Francis Daniels and Robert Knapp who are directors of the Company are
also shareholders of the Investment Manager.
Francis Daniels and Robert Knapp who are directors of the Company
also form part of the executive team of the Investment Manager. They
have a beneficiary interest in AOF CarryCo Limited. The latter is
entitled to carried interest computed in accordance with the rules
set out in the Admission Document. The total carried interest is 20%
shared as follows: 19% to AOF CarryCo Limited and 1% to Millenium
Special Opportunities Holdings Ltd as set out in the side letter
agreement to the Partnership Agreement entered into by Africa
Opportunity Fund (GP) Limited, AOF CarryCo Limited, Africa
Opportunity Partners Limited and Millenium Special Opportunities
Holdings Ltd.
6. Summary Information
Investing objective
The investing objective of the Company and its subsidiaries (together
the "Group") is to achieve consistent capital growth and income
through investments in value, arbitrage, and special situations
opportunities derived from the continent of Africa. Therefore, the
Group may invest in securities issued by, or economic interests
created by, companies domiciled outside Africa which conduct
significant business activities within Africa or, if listed, listed
either on an African stock exchange or a non-African stock exchange.
The Group may invest in equity, quasi-equity or debt instruments,
debt issued by African sovereign states and government entities, and
real estate interests.
The Directors and the Manager believe that the diversity and
volatility of African economies present opportunities to earn
attractive returns when investments are made selectively, across
asset classes, and without pre-determined benchmarks or allocations.
By balancing the size and type of investment, the Directors and the
Manager believe that attractive returns may be made across asset
classes. Whilst the African capital markets can be volatile, by
ensuring diversity of investment across industries and countries, the
Investment Manager attempts to mitigate such risks.
The Group targets industries rather than countries to exploit
valuation discrepancies which can arise among African countries. The
Directors and the Manager believe also that Africa's status as a
continent containing a large number of reforming countries provides
investment opportunities in those countries.
Summary of Investment Strategy
The Group's investment strategy is opportunistic. The Group invests
primarily where and when the Manager believes that investments can be
made at a material discount to the Manager's estimate of an
investment's intrinsic value.
Company preference. The Group 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 Group seeks to invest
in industries it finds attractive with little regard to national
borders.
Natural resource discounts. The Group 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 Group 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 Group seeks the most favourable risk adjusted
point of entry into a capital structure, whether through financing
the establishment of a new company or acquiring the debt or listed
equity of an established company.
The Company intends to be a passive investor and will generally not
control or seek to control or be actively involved in the management
of any company or business in which it invest.
Investment Policies and Restrictions
The Manager adheres to the following policies and restrictions:
Geographical focus. The Group makes investments in companies or
assets with a material portion of their value derived from or located
in Africa. The geographic mix of investments varies over time
depending on the relative attractiveness of opportunities among
countries and regions.
Type of investment. The Group may invest in real estate interests,
equity, quasi-equity or debt instruments, which may or may not
represent shareholding or management control, and debt issued by
African sovereign states and government entities. Investments may be
made directly or through special purpose vehicles, joint venture,
nominee or trust structures. The Group may utilise derivative
instruments to hedge certain market or currency risks and may from
time to time engage in the short sale of securities.
Investment size. At the time of investment, no single investment may
exceed 15 per cent. of the Net Asset Value without the prior approval
of the Board. No one initial investment will exceed 20 per cent. of
the Net Asset Value at the time of investment.
Number of investments. The Group has, and expects to maintain, a
concentrated portfolio of approximately 10 to 20 investments,
excluding money market investments.
Borrowing. The Group may use overdraft and other short-term borrowing
facilities to satisfy short-term working capital needs, including to
meet any expenses or fees payable by the Group. The Manager
anticipates that borrowings may be utilised for investment purposes
with the prior approval of the Board. There are no limits on the
Group's ability to leverage itself.
Cash management. Cash will be placed in bank deposits, investment
grade commercial paper, government and corporate bonds and treasury
bills, in each case, of US and African issuers.
Distribution policy
The Directors will determine the Company's dividend policy. Subject
to having sufficient cash resources available for the purpose, the
Company is currently intending to pay an aggregate annual dividend of
an amount equal to the product of Net Asset Value on 1 January in
each year multiplied by the one year US Dollar LIBOR rate (as derived
from Bloomberg) on the same date, which amount will be payable in
four equal quarterly instalments in March, June, September and
December of that year.
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. The Directors
will convene a general meeting in 2014 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 reorganize, 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.
For further information please contact:
Africa Opportunity Fund Limited
Francis Daniels Tel: +2711 684
1528
Grant Thornton UK LLP (Nominated Adviser)
Philip Secrett Tel: +44 207
383 5100
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This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
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