TIDMAOF
RNS Number : 6326F
Africa Opportunity Fund Limited
19 June 2012
19 June 2012
Africa Opportunity Fund Limited (AOF.L)
Announcement of Annual Results for the year ended 31 December
2011
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 2011.
The Company
AOF is a Cayman Islands incorporated closed-end investment
company traded on the AIM market of the London Stock Exchange. Its
net asset value on 31 December 2011 was US$39.8 million and its
market capitalization was US$31.3 million.
Chairman's Statement
2011 Review
2011 was a challenging year for both world markets and the
Africa Opportunity Fund Ltd ("the Fund" or "AOF"). AOF's audited
net asset value generated a 1.6% return, including dividends, while
the share price of AOF declined 10.4%.
To provide some basis for comparison, in African markets, South
Africa declined 15%, Nigeria fell 19%, Kenya fell 30%, and Egypt
fell 52%. In non-African emerging markets, China declined 26%,
Brazil fell 27%, Russia fell 20%, and India fell 37%. In developed
markets, Japan fell 7%, the US rose 2%, and the UK fell 2%.
On balance AOF managed to preserve capital and position the
portfolio for growth. At the end of the year 79% of the portfolio
was in equity and 21% was in cash and bonds. This represents a
significant change from year-end 2010 when 39% of the portfolio was
in cash and bonds. Broadly AOF redeployed its fixed income
portfolio into equities as prices declined during 2011. Although
AOF is not immune from the growing crisis in the Euro zone, many
consumer focused companies in Africa continue to make operational
progress and hold attractive return prospects. Sonatel, for
example, increased its subscriber base by 29% while earning a 54%
EBITDA margin and African Bank grew EPS by 26% while generating an
18% ROE.
Outlook
As discussed last year, we view commodity price movements with
some trepidation. While Africa offers a treasure trove of natural
resource opportunities, these investments can be viewed as a
derivative of Chinese aggregate demand. Our concern led us to trim
some holdings and hedge some of our natural resources risk by
establishing short positions in natural resource indices and
recently in a major South African iron ore producer. Our primary
investment focus remains identifying goods and services which
consumers will demand regardless of domestic political or global
economic conditions.
As we have stated before, Africa today shines as a growing
continent. An educated middle class is emerging in numerous
countries which experienced decades of infrastructure stagnation
and underinvestment. For example, McKinsey Global Institute
estimated in various reports that Africa had 75 million households
in 2005 that could be classified as middle class, while India had
15 million such households. 42 million of those households resided
in Sub-Saharan Africa. African markets offer value that is
difficult to find on other continents. Single digit PE multiples
and double digit ROEs are common. So too are double digit dividend
yields - our plantation investments, in fact, paid yields over
20%.
To investors in Africa, fiscal imbalances and currency
depreciations are part of the standard equation. Care and caution
are required, especially as economic indicators globally show signs
of slowing as 2012 unfolds. But businesses can still flourish in
the midst of such imbalances, and in Africa this has always been
more the rule than the exception.
In closing, we remain optimistic about AOF's prospects, and we
thank our shareholders for their support and partnership during the
past year.
Robert C. Knapp
Chairman
18 June 2012
Manager's Report
The Fund's major theme of 2011 was to raise its exposure to
African equity securities. This trend, visible in 2010, persisted
in 2011. The end-of-year allocation of 79% in equities was the
largest since the inception of the Fund. AOF had $7.5 million
invested in debt securities, $34.9 million in equity securities,
$0.8 million in cash; and derivative and short sale liabilities
equal to $3.4 million. Holdings were in Angola, Botswana, Cote
d'Ivoire, the Democratic Republic of Congo, the Republic of Congo,
Ghana, Mauritius, Namibia, Nigeria, Senegal, South Africa, Zambia,
and Zimbabwe. Our lodestar for measuring the Fund's portfolio is
our estimate of its appraisal value per share. That somewhat
subjective estimate measures the Manager's view of the long-term
attractiveness of the portfolio. It was $1.16 per share at the end
of 2011, in comparison to a closing price of $0.74 and a 2010
appraisal value per share of $1.09.
Regardless of whether the Fund is invested in an equity or debt
instrument, one of our objectives is to improve the investment
quality of the Fund's holdings. Consequently, in a world of
volatile markets, our preference is for returns which are
independent of capital market performance. Necessarily, that
preference attracts us to companies which possess high real returns
on assets. Those companies have the ability to combine high
dividend yields, akin in some cases to the running yields of high
yield corporate bonds, with growing profits. We want to increase
the contribution of dividend and interest income to the annual
total returns of the Fund. In turn, that increase should strengthen
somewhat the Fund's ability to earn profits even in declining
markets.
It is fitting to discuss the Fund's largest investment, Shoprite
Holdings, at the beginning of this report. It delivered the Fund's
highest return, appreciating 79% during the year. The case for the
Fund's investment in Shoprite Holdings was set forth in a paper
written for a conference in 2010. The paper stated:
"Shoprite Holdings Ltd. ("Shoprite") is the largest food
retailer in Africa. It has outlets in 16 African countries ranging
from South Africa to Nigeria in the west and Tanzania in the east
and the Indian Ocean islands of Madagascar and Mauritius. It has a
market capitalization in South Africa of $7.5 billion, trades on a
P/E of 21.3X and a dividend yield of 2.36%. Shoprite is priced on
the JSE as a growth stock, par excellence. AOF owns shares of
Shoprite listed on the Lusaka Stock Exchange because the same
shares that trade on a P/E of 21X are available in Lusaka on a P/E
of 9X and a dividend yield of 5%. Shoprite's Lusaka share price
offers an entry at a steep discount which brings them squarely into
value territory, albeit at the price of poor liquidity. Working
capital management and frequency of asset turnover separate the
good retailers from the greats. Consequently, we measure retailers
by comparing their cash flow from operations against their
shareholders equity, return on equity and return on assets.
How does Shoprite compare against a few global icons and some
emerging market peers? Shoprite's return on equity in its most
recent year was 38%, return on assets was 13%, and return on cash
flow from operations was 17%. Whole Foods Market, Inc, purveyor of
the organic food retailing experience for which its affluent
customers pay a premium has a return on equity of 13%, a return on
assets of 6%, and a return on cash flow from operations of 16%.
Walmart's respective returns on equity, assets, and cash flow from
operations were 21%, 9%, and 15%. Walmart Mexico's comparable
ratios were 22%, 14%, and 20%. Tesco and Carrefour are European
icons. Tesco's respective returns on equity, assets, and cash flow
from operations were 16%, 5%, and 11%. Carrefour's comparable
ratios were 5%, 1%, and 7%. How about Asian benchmarks? Dairy Farm
International Holdings of Singapore and Guangzhou Friendship Co. of
China have some of the finest ratios in Asia. Dairy Farm's return
on equity, return on assets, and cash flow from operations are 72%,
14%, and 17%. Guangzhou's were 24%, 14%, and 20%. Clearly, Shoprite
is a member of the top class of retailers. Does it have one of the
top valuations in Zambia? Shoprite's P/cash flow from operations is
6.8X in Zambia. Whole Foods' is 10.7X, Walmart's is 7.4X, Walmart
de Mexico is 21.9X, Tesco's is 6.9X, Carrefour's is 7.2X, Dairy
Farm's is 22.3X, and Guangzhou's is 25.9X. Shoprite in Zambia is
valued as if it were a first world retailer; not an agile emerging
markets retailer. Therein lies an opportunity for the value
investor. Someday, the huge gap between Shoprite in Lusaka and
Shoprite in Johannesburg will close."
That gap has diminished slightly. At a share price of 135 Rands
per share on the Johannesburg Stock Exchange, Shoprite is not
cheap, especially as its financial ratios have weakened slightly in
the last few years. Its P/E ratio of 31X is juxtaposed to its most
recent return on equity ratio of 32%, return on asset ratio of 11%,
and return on cash flow from operations of 19%. The Lusaka Stock
Exchange ("Luse") remains a much cheaper entry point into Shoprite.
The current Zambian Shoprite share price of 55,000 Zambian Kwacha
(or 80.84 Rands), values Shoprite on a P/E ratio of 18X: demanding,
but more palatable than a P/E ratio of 31. In the meantime, we
continue to believe that Shoprite's presence throughout Africa will
continue to grow. Indeed, one of the identified use of proceeds of
a recent capital raise of $2 billion was to invest in property in
Nigeria to accelerate its expansion in that country.
It must be pointed out that our investment in Shoprite through
the Lusaka Stock Exchange comes with the possibility of litigation.
The Fund acquired Shoprite's shares on the Luse in the normal
course of business through Zambian brokers. Shoprite shares were
entrusted to a Zambian law firm, Lewis Nathan Advocates, which
served as transfer agent for the Shoprite shares listed on Luse and
it served as attorney-in-fact for Shoprite to sell those shares.
However, the law firm is now accused by Shoprite of selling the
shares against restrictions established by Shoprite. Shoprite
further contends that the trades were made without its consent,
knowledge or authority. Furthermore, Shoprite claims it did not
receive the proceeds from those trades from Lewis Nathan. Shoprite
has sued Lewis Nathan to obtain an accounting for those trades. It
has also placed dividends due to its shareholders on the Zambian
register into an escrow account, pending the outcome of its lawsuit
against Lewis Nathan. Shoprite has been quoted in Zambian
newspapers asserting that it would like to reverse the allegedly
unauthorized trades in its shares. Our view is that the Fund
acquired legal title to its Shoprite shares. It is possible that
the Fund could be part of the litigation initiated by Shoprite.
Based on legal advice we have obtained from both Zambian and South
African counsel, we believe that should there be any challenge
relating to the Fund's title to the Shoprite shares, any such
challenge will be defendable.
The next subject of comment is an agricultural investment in
Nigeria. The Fund's agricultural portfolio constituted 18.4% of its
net asset value at the end of 2011. Comparable ratios for 2010,
2009, and 2008 were, respectively, 6.48%, 2.21%, and 4.57%. By
contrast, our mining and oil and gas portfolio on the long side
accounted for 11.6% of the Fund's end-of-year net asset value, a
much lower proportion than its 29.6% share of the Fund's 2008 net
asset value. A major factor behind this switch in relative share of
the Fund's portfolio has been our experience that African tropical
plantation operators are among the most generous dividend payers in
our investing universe.
Okomu Oil PLC ("Okomu") is an example of our favorite type of
investment on the long side: a company with minimal debt, available
to the Fund at historically low valuations, that sells a good in
short supply in Africa - crude palm oil and ancillary products. It
also exports rubber. Palm oil is used for the manufacture of soap
and other cosmetics, edible oil, and biodiesel. Okomu has been
profitable since at least 1991, demonstrating an ability to thrive
through even the 2001 low point of the palm oil cycle when the
price of crude palm oil was $185 per ton. The Fund's first purchase
of Okomu equity securities took place in May 2011 at a price of
14.69 Nairas (or $0.0936) per share. At that time, trading at 66%
discount to its 2007 high of 43 Nairas per share, it was the
cheapest of the profit-generating companies in our rubber and palm
oil plantation universe, having a valuation per hectare which was
less than the $5,000 cost of developing a hectare de novo on its
own plantation.
Better still, 29% of its 2010 revenues came from a revenue
source - rubber - that was less than 4% of revenues in 2007. Best
of all, the gross profit margin for rubber in 2010, 66%, is higher
than palm oil's gross profit margin of 63%. Rubber's superior gross
profit margins, 87% versus 74% for palm oil, were even more
accentuated in Okomu's recent 2011 results. Okomu's share had last
traded in the 16 Naira range in June 2006 when the world palm oil
price was approximately $400 per ton, a far cry from its May 2011
and current levels exceeding $1,000 per ton. Our universe comprises
25 companies operating in Indonesia, Malaysia, Sri Lanka, Cameroon,
Cote d'Ivoire, Democratic Republic of the Congo, Ghana, and
Nigeria. At 16 Nairas per share in the middle of 2011, Okomu's
enterprise value per hectare was $3,645 and its PE ratio was 4.7X.
So, buying Okomu on the Lagos Stock Exchange was much cheaper than
developing the Fund's own plantation. Yet, Okomu's 21% earnings
yield handsomely surpassed all Naira-denominated government debt
yields at the same time that its 2010 20% return on assets placed
Okomu squarely in the high return on assets class of companies. As
a price-taking cyclical commodity producer, Okomu's margins and
returns fluctuate. Nevertheless, its long record of annual profits
over quite a few cycles signify that it is a low cost producer
unlikely to shower the Fund with losses at the low end of the palm
oil and rubber cycles. Okomu's attributes as a deeply undervalued
company was hidden by its relatively tiny size. Although its market
capitalization of $44.3 million, does make it the largest company
in the modest agricultural sector of the Lagos Stock Exchange.
However, despite its size, Okomu served as both an inflation and
currency hedge while retaining strong growth prospects. Why?
Palm oil is sold in Nigeria at a price above the global US
Dollar denominated price. If the Naira depreciates, the local palm
oil price rises. West African plantation operators use less
fertilizer than South East Asian plantation operators.
Consequently, natural inputs like sunlight and rainfall play a
greater role in production. If money supply in Nigeria rises and a
fraction of a company's inputs are natural inputs that are
impervious to a rising money supply, then expenses should rise at a
lower rate than the then prevailing inflation rate, thus insulating
that company's profit margins. Indeed, Okomu's production costs
since 2008 have risen at an average annual rate of 11%, slightly
below the 11.4% average annual inflation rate over the same period.
Furthermore, as palm oil and rubber prices have risen sharply since
2009, Okomu's revenues and earnings have also risen sharply. Gross
profit margins have climbed steadily: 55% in 2007, 60% in 2008, 53%
in 2009, 62% in 2010, and 79% in 2011. Net margins over the same
period: 5% in 2007, 26% in 2008, 12% in 2009, 27% in 2010, and 35%
in 2011. It is unsurprising that its dividend has multiplied 20X
since 2008 and Okomu sports a dividend yield of 18% today. In sum,
a company expanding its annual output, diversifying its products,
limiting increases in its cost of production below inflation, and
enjoying significant unit price increases is in the midst of a
perfect storm of profitability. A logical outcome of that storm: a
steadily rising Okomu share price even as the Lagos Stock Exchange
declined in 2011.
It is time to turn to a disappointment. Ironically, it came from
a company about which we wrote with approval last year: Great Basin
Gold ("Great Basin"), an emerging mining producer with operations
in Nevada and South Africa - the Hollister Mine in Nevada and the
Burnstone Mine in Mpumalanga, South Africa. As we expected last
year, Great Basin started to extract gold from its Burnstone Mine.
The Fund held debentures issued by Great Basin. The Fund lost 37%
of its investment in those debentures in 2011. Its scant
consolation that an investment in the common stock of Great Basin
would have declined by 67.8% over the same period. What was the
source of those losses?
Great Basin revealed in the second half of 2011 that the
ore-bearing rocks at Burnstone from which it had planned to mine
gold ounces in 2011 were not in the underground locations
anticipated by Great Basin's geologists and engineers. Great
Basin's management explained that its drilling program, which had
been intense and detailed by South African standards, could not
have picked up the underground faults that led to the displacement
of the gold from the anticipated locations. Great Basin proceeded
to compound the market's shock by failing to meet its constantly
revised and constantly declining annual production targets for the
Burnstone Mine. Great Basin had announced in December 2010 that it
expected to produce 110,000 gold ounces from Burnstone in 2011.
That target was lowered to 96,794 ounces in March 2011, followed by
a reduction to 58,413 ounces in June 2011 and 30,000 ounces as of
September 2011. Burnstone's actual 2011 production was 21,989
ounces! Failing to meet three progressively lower production
targets in the space of twelve months is one of the more obvious
ways of destroying market confidence in a company's management.
Great Basin is no exception. Regardless of whether this
displacement of gold-bearing rocks was foreseeable - the senior
management of Great Basin claimed it was not foreseeable - its
financial consequences were predictable. Great Basin had to spend
more money than expected to find out the exact contours and
locations of its ore-bodies while Burnstone produced far less gold
in 2011 than planned. Burnstone's actual 2011 output, by comparison
to the original target, deprived Great Basin of more than $120
million in revenue. Revenue loss of that magnitude for a mining
development company begged the question whether its balance sheet
remained prudently financed to endure any more negative vagaries of
mining.
The prudent financing policy for companies operating in the
capital-intensive mining and oil and gas industries was enunciated
in a biography of Sir Ernest Oppenheimer published in 1962. Sir
Theodore Gregory, author of that biography, wrote: "Ernest
Oppenheimer throughout his business life insisted on the necessity
of 'liquidity', in the sense of always having available a margin of
uncommitted resources; this implied, among other things, a cautious
dividend policy and large reserve funds." "The supreme need of a
mining house, he held, was to maintain, at all times, an adequate
margin of liquidity, not only so as to be able to take advantage of
new opportunities, if and when they arose, but to prevent
dependence on the vagaries of the money market..." Great Basin Gold
experienced a misfortune that forced it to breach Sir Ernest's
financing policy, a failing all too common among the mining and oil
and gas exploration and development industries. As this breach
became more obvious and it lowered repeatedly its planned output
from the Burnstone Mine, its share price lost 50% of its value from
August 2011 to December 2011. The price of the Fund's debentures
fell by 24% over the same period from 125.5% of par to 95% of par,
vindicating the respect paid to risk of loss evident in our
selection of the debentures over Great Basin's equity. If Great
Basin Gold's equity becomes sufficiently cheap, the balance of risk
and reward might tilt in favor of reward; then, the Fund would
accumulate the common stock of Great Basin.
What of the future? Great Basin has issued both more shares to
strengthen its balance sheet in March 2012 and more debt in
December 2011. This new infusion of cash will be insufficient to
protect its balance sheet against more failures to attain the
planned output of gold. However, it has more knowledge about the
nature of the ore body of Burnstone. On the strength of its current
knowledge, it has published a new set of 2012 production targets
for both the Burnstone and Hollister mines. Much the most crucial
attribute to assess for the future is whether the management of
Great Basin Gold are congenital optimists, prone to announcing
covertly unrealistic mine plans. In that regard, production at
Hollister has been very close to Great Basin's published 2011
targets, thus suggesting that Burnstone's disappointments were not
caused by unjustified optimism.
The other noteworthy disappointment was the depreciation of the
Cedi. It depreciated by 10% against the US Dollar in 2011 and by an
additional 8.4% in the first quarter of 2012. Translation losses
are an ineluctable risk for foreign investors. An outbreak of high
inflation is the other risk requiring constant assessment in
Africa. An investor in African securities has to supplement the
usual range of causes of foreign exchange movements with other
causes that are of considerable importance. For example, drought,
triggering a need for diesel imports into Kenya, was a factor
behind the decline of the Kenyan shilling in 2011. Ghana's Cedi is
notorious for collapsing in Presidential election years. We had
expected that the Cedi would become an appreciating currency
against the US Dollar with the commencement of oil production from
the Jubilee Field. In fact, oil production started on schedule, but
production failed to meet the targets set by Tullow Oil, the
operator of that field. As the Cedi begun to depreciate, many
foreign holders of Cedi denominated government debt securities
elected to withdraw from the Ghana market, thus exerting additional
pressure on the Cedi. In fact, the Bank of Ghana has been forced to
raise interest rates. High nominal interest rates render it costly
to attempt to hedge against many an African currency's depreciation
risk. Thus, we did not hedge the Fund's Cedi exposure and had to
bear the full brunt of that depreciation. The remainder of this
report comprises commentary on two of AOF's largest 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 is AOF's second largest
investment. Its subscribers grew by 29% in 2011 to 14.5 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, 61% of Senegal's mobile telephony market, 60% of
Mali's mobile telephony market, 30% of Guinea's mobile telephony
market, and 37% of the mobile telephony market in Guinea-Bissau. At
21% for the 2010 financial year, Sonatel's net margin is the third
highest in Africa. In addition, Sonatel has the 3(rd) highest
operating cash flow per telephone subscriber in Africa of $50, the
2(nd) lowest debt to equity ratio in the telecoms industry of 8%, a
debt to total assets ratio of 4%; and a return on average equity of
27%. Yet, as of March 30 2012, with an enterprise value around $2.4
billion and a market capitalization of $2.6 billion, Sonatel has
the 3(rd) lowest African telephone operator valuation with a PE
ratio of 9X and an enterprise value per subscriber of $166.
African Bank. African Bank Investments Limited ("ABIL") is the
largest consumer finance company in South Africa and Africa. It is
the holding company for African Bank ("African Bank"), a bank, and
Ellerines Brothers, a furniture retailing company. Its subsidiaries
grant unsecured loans to individuals, loans secured by furniture to
individuals, and sells furniture and various electronic household
appliances. Its customers are members of the emerging middle class
and its average loan size is 10,071 Rands (or approximately
$1,350). Furniture sales by Ellerines continue to rise as the
restructuring efforts start to bear fruit in an economy recovering
from recession. A simple comparison of Ellerines' sales per square
meter against the sales per square meter of its major competitors -
the Lewis Group and the JD Group - reveal the significant capacity
for improvement. Ellerines' statistic of 6,662 Rands per square
meter stands far below the 9,906 Rands per square meter figure for
the Lewis Group and the 11,634 Rands per square meter for the JD
Group. Nevertheless, ABIL's 1,702 branches and stores remains one
of the largest financial branch networks in South Africa. The
strategic rationale for the acquisition of Ellerines is starting to
play out as planned. The company sold R1.7 billion in loans from
Ellerines' infrastructure. 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 Sept 30, 2011, its ratio of tangible
shareholders equity to tangible assets was 17.3% and its tier 1
capital adequacy ratio was 23.2%. That high capital ratio permits
African Bank to incur high non-performing loans and bad debts in
its market. African Bank has strong liquidity ratios, with maturing
liabilities at any one time being half of maturing assets. ABIL's
return on average assets has remained at 5.2% and 5.1% between 2010
and 2011 and its return on average equity increased from 16% to
18%. But, its return on average tangible equity was 32%. ABIL had a
market capitalization on March 30 of $4.2billion. It traded on a PE
ratio of 13.5X, a Price/Book ratio of 2.4X, and a Price/Tangible
Book of 4.1X.
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 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 a new
company or acquiring the debt or listed equity of an established
company.
Africa offers several attractive investment opportunities. 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. We are hunting in those terrains for compelling
equity investments. We shall continue to build a portfolio that
delivers both capital growth and income to the shareholders of
AOF.
Francis Daniels
Africa Opportunity Partners
18 June 2012
AFRICA OPPORTUNITY FUND LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2011
Notes 2011 2010
----- -----
USD USD
Income
Interest revenue 6 623,513 1,076,886
Dividend revenue 1,765,815 1,270,249
Net gains on financial assets and liabilities
at fair value through profit or loss 7 (c) - 7,528,764
Other income 12 270,728 7,862
Net foreign exchange gain 294,353 120,466
--------------
2,954,409 10,004,227
--------------
Expenses
Management fee 5 797,020 669,238
Net loss on financial assets and liabilities
at fair value through profit or loss 7 (c) 590,098 -
Brokerage fees and commissions 311,590 286,092
Custodian, secretarial and administration
fees 204,383 257,195
Directors' fees 80,000 98,928
Other operating expenses 49,345 169,475
Dividend expense on securities sold not
yet purchased 47,865 33,694
Audit fees 43,861 22,675
2,124,162 1,537,297
--------------
Profit before tax 830,247 8,466,930
120,075 60,928
Withholding tax
Profit after tax 710,172 8,406,002
-------------- -----------
Other comprehensive income - -
Total comprehensive income for the year 710,172 8,406,002
==============
Attributable to:
Equity holders of the Company 697,435 8,344,751
Non controlling interest 12,737 61,251
710,172 8,406,002
============== ===========
Basic and diluted earnings per share attributable
to the equity holders of the Company during
the year 13 0.0164 0.1957
AFRICA OPPORTUNITY FUND LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2011
Notes 2011 2010
----- -----
USD USD
ASSETS
Cash and cash equivalents 9 783,953 5,492,114
Trade and other receivables 8 524,088 692,307
Financial assets at fair value through
profit or loss 7(a) 42,449,713 41,323,702
Total assets 43,757,754 47,508,123
=========== ===========
EQUITY AND LIABILITIES
LIABILITIES
Trade and other payables 11 187,869 1,702,811
Dividend payable 17 76,735 76,735
Financial liabilities at fair value
through profit or loss 7(b) 3,412,740 6,051,401
Total liabilities 3,677,344 7,830,947
----------- -----------
Equity
Share capital 10 426,303 426,303
Share premium 38,705,880 39,012,818
Retained earnings/(accumulated loss) 675,220 (22,215)
----------- -----------
Equity attributable to equity holders
of parent 39,807,403 39,416,906
Non controlling interest 273,007 260,270
----------- -----------
Total equity 40,080,410 39,677,176
----------- -----------
Total equity and liabilities 43,757,754 47,508,123
=========== ===========
AFRICA OPPORTUNITY FUND LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2011
ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
Issued Share Retained Earnings/ Non controlling Total
(Accumulated
capital premium loss) Total interest equity
-------- ----------- ------------------- ----------- ---------------- -----------
Notes USD USD USD USD USD USD
At 01 January 2010 426,303 39,319,756 (8,366,966) 31,379,093 199,019 31,578,112
Profit for the year - - 8,344,751 8,344,751 61,251 8,406,002
Other comprehensive
income - - - - - -
Dividend 17 - (306,938) - (306,938) - (306,938)
At 31 December 2010 10 426,303 39,012,818 (22,215) 39,416,906 260,270 39,677,176
======== =========== =================== =========== ================ ===========
At 01 January 2011 426,303 39,012,818 (22,215) 39,416,906 260,270 39,677,176
Profit for the year - - 697,435 697,435 12,737 710,172
Other comprehensive
income - - - - - -
Dividend 17 - (306,938) - (306,938) - (306,938)
At 31 December 2011 10 426,303 38,705,880 675,220 39,807,403 273,007 40,080,410
======== =========== =================== =========== ================ ===========
AFRICA OPPORTUNITY FUND LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2011
Notes 2011 2010
----- -----
USD USD
Operating activities
Profit for the year 710,172 8,406,002
Adjustment for non cash items:
Unrealised (loss)/gain on financial
assets at fair value through profit
or loss 7(a) 1,354,903 (5,837,946)
Realised gain on sale of financial
assets at fair value through profit
or loss 7(a) (8,607) (893,590)
Unrealised (gain) / loss on financial
liabilities held for trading 7(b) (597,169) 683,823
Realised profit on financial liabilities
held for trading 7(b) (159,029) (1,481,051)
Effect of exchange rate on cash
and cash equivalents (231,549) (33,754)
Cash generated from operating activities 1,068,721 843,484
Net changes in operating assets
and liabilities
Purchase of financial assets at
fair value through profit or loss (13,113,900) (17,500,722)
Proceeds on financial assets at
fair value through profit or loss 10,641,593 13,701,515
Proceeds on financial liabilities
held for trading 1,504,345 9,958,704
Purchase of financial liabilities
held for trading (3,386,809) (5,881,476)
Increase in interests received 350,301 -
Decrease in dividends received (182,081) (16,307)
Decrease in trade and other receivables - 43,068
(Decrease) / Increase in trade
and other payables (1,514,942) 977,789
-------------- --------------
Net cash (used in)/ generated from
operating activities (4,632,772) 2,126,055
-------------- --------------
Financing activities
Dividend paid 17 (306,938) (341,043)
-------------- --------------
Net cash flow used in financing
activities (306,938) (341,043)
-------------- --------------
Net (decrease)/increase in cash
and cash equivalents (4,939,710) 1,785,012
Effect of exchange rate on cash
and cash equivalents 231,549 33,754
Cash and cash equivalents at the
start of the year 5,492,114 3,673,348
Cash and cash equivalents at the
end of the year 9 783,953 5,492,114
============== ==============
1. GENERAL INFORMATION
Africa Opportunity Fund Limited (the "Company") was admitted to
trading on AIMin July 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, 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 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 and AOF CarryCo
Limited. The general partner of the limited partnership is Africa
Opportunity Fund (GP) Limited.
The consolidated financial statements for the Company for the
year ended 31 December 2011 were authorised for issue in accordance
with a resolution of the Board of Directors on 18 June 2012.
Presentation currency
The consolidated financial statements are presented in United
States dollars ("USD").
2 FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
2(a). Financial assets at fair value through profit or loss
2011 2010
-------------- -------------
USD USD
Designated at fair value through profit
or loss:
At 1 January 41,323,702 30,792,960
Additions 13,113,900 17,500,722
Disposals (10,632,986) (12,807,926)
Net gains on financial assets at fair
value through profit or loss (1,354,903) 5,837,946
-------------- -------------
At 31 December (at fair value) 42,449,713 41,323,702
-------------- -------------
Analysed as follows:
- Listed equity securities 32,435,424 30,175,364
- Listed debt securities 7,514,040 9,559,422
- Unlisted equity securities 2,300,249 46,469
- Unlisted debt securities 200,000 1,542,447
-----------
42,449,713 41,323,702
=========== ===========
Net changes on fair value of financial
assets at fair value through profit
or loss 2011 2010
------ ------
USD USD
Realised 8,607 893,590
Unrealised (1,354,903) 5,837,946
Total (losses)/ gains (1,346,296) 6,731,536
============ ==========
2(b). Financial liabilities at fair value through profit or loss
2011 2010
---------- ----------
USD USD
Written call options - 113,870
Written put options 46,250 91,958
Listed equity securities sold short 3,366,490 5,845,573
---------- ----------
Financial liabilities held for trading 3,412,740 6,051,401
========== ==========
2011 2010
-------- -----------
USD USD
Net changes on fair value of financial
liabilities at fair value through profit
or loss
Realised 159,029 1,481,051
Unrealised 597,169 (683,823)
Total gains 756,198 797,228
======== ===========
2(c). Net gains/ (losses) on financial assets and liabilities at
fair value through profit or loss
2011 2010
------------- -----------
USD USD
Net (loss)/ gain on fair value of financial
assets at fair value through profit
or loss (1,346,296) 6,731,536
Net gain on fair value of financial
liabilities at fair value through profit
or loss 756,198 797,228
Net (losses)/ gains (590,098) 7,528,764
============= ===========
2(d). Fair value hierarchy
As at 31 December 2011, the Group held the following instruments
recognised at fair value:
The Group uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
Level 1: quoted (unadjusted) prices in active markets for
identical assets and liabilities.
Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly.
Level 3: techniques which use inputs which have significant
effect on the recorded fair value that are not based on observable
market data.
Assets measured at fair value - 2011
31 December
2011 Level 1 Level 2 Level 3
------------ ----------- ---------- ---------
USD USD USD USD
Financial assets at
fair value through
profit or loss:
Equities 34,735,673 32,435,424 2,300,249 -
Debt securities 7,714,040 - 7,514,040 200,000
------------ ----------- ---------- ---------
42,449,713 32,435,424 9,814,289 200,000
============ =========== ========== =========
Financial liabilities
at fair value through
profit or loss 3,412,740 3,412,740 - -
============ =========== ========== =========
Assets measured at fair value - 2010
31 December
2010 Level 1 Level 2 Level 3
------------ ----------- ---------- ----------
USD USD USD USD
Financial assets at
fair value through
profit or loss
Equities 30,221,833 30,175,364 - 46,469
Debt securities 11,101,869 - 9,659,422 1,542,447
------------ ----------- ---------- ----------
41,323,702 30,175,364 9,659,422 1,588,916
============ =========== ========== ==========
Financial liabilities
at fair value through
profit or loss 6,051,401 6,051,401 - -
============ =========== ========== ==========
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and the end of the reporting period.
2011 2010
------------ ----------
Financial assets at fair value through USD USD
profit or loss
Opening balance 1,588,916 785,283
Additions - 300,000
Disposal (1,242,447) (608,952)
Net transfers in/(out) of Level 3 (124,983) -
Total (losses)/ gains in profit or loss (21,486) 1,112,585
------------
Closing balance 200,000 1,588,916
============ ==========
3. STATED CAPITAL
2011 2011 2010 2010
-------------- ----------- -------------- -----------
Number USD Number USD
Authorised share
capital
Ordinary shares
with a par value
of USD 0.01 1,000,000,000 10,000,000 1,000,000,000 10,000,000
Share capital
At 1 January 42,630,327 426,303 42,630,327 426,303
At 31 December 42,630,327 426,303 42,630,327 426,303
============== =========== ============== ===========
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.
4. EARNING PER SHARE
Earning per share is calculated by dividing the profit
attributable to equity holders of the Company 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 earnings per share is the same as basic
earnings per share, since the Company has not issued any instrument
with dilutive potential.
2011 2010
----------- -----------
Earnings attributable to equity
holders of the Group USD 697,435 8,344,751
Weighted average number of ordinary
share in issue 42,630,327 42,630,327
Earnings per share USD 0.0164 0.1957
=========== ===========
5. RELATED PARTY DISCLOSURES
The Directors considers Africa Opportunity Fund Limited as the
ultimate holding company for Africa Opportunity Fund (GP) Limited
and Africa Opportunity Fund L.P.
The financial statements include the financial statements of
Africa Opportunity Fund Limited and the subsidiaries in the
following table:
Country of % equity interest % equity interest
Name incorporation 2011 2010
------------------------- ---------------- ------------------ ------------------
Africa Opportunity Fund
(GP) Limited Cayman Islands 100 100
Africa Opportunity Fund
L.P. Cayman Islands 99.12 99.12
During the period ended 31 December 2011, the Company transacted
with related entities. The nature, volume and type of transactions
with the entities are as follows:
Balance
at
31 Dec
Type of Nature of Volume 2011
Name of related parties relationship transaction USD USD
------------------------ ------------- ------------- -------- --------
Africa Opportunity Investment Management
Partners Limited Manager fee expense 797,020 -
During the period ended 31 December 2010, the Company transacted
with related entities. The nature, volume and type of transactions
with the entities are as follows:
Balance
at
31 Dec
Type of Nature of Volume 2010
Name of related parties relationship transaction USD USD
------------------------ ------------- ------------- -------- --------
Africa Opportunity Investment Management
Partners Limited Manager fee expense 669,238 -
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 20,000 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. Details of the agreement with the Investment Manager are
disclosed in Note 5. They have 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. The
total carried interest is 20%.
Details of investments in the Company by the Directors are set
out below:
No of shares Direct interest
held held %
2011 10,875,827 25.51
2010 10,875,827 25.51
6. DIVIDEND PAYMENT
The Company expressed in the Admission Document for the
Alternative Investment Market of the London Stock Exchange on which
it is listed an intention, subject to having sufficient cash
resources, to pay an aggregate annual dividend of an amount equal
to the product of the net asset value of the Company on January 01
in each year multiplied by the three month US Dollar London
Interbank Offered Rate (derived from Bloomberg) on the same date,
payable in four equal quarterly installments. However, the dividend
payments made in 2010 and 2011 were in excess of the basis stated
in the Admission Document, as the Company utilises the one year US
Dollar London Interbank Offered Rate for the calculation of the
dividend rate.
Dividend Dividend
2011 2010
USD USD
Dividend declared and paid 230,203 230,203
Dividend payable 76,735 76,735
--------- ---------
306,938 306,938
========= =========
Dividend per share US cents 0.72 0.72
Opening balance - dividend payable 76,735 110,838
Additions 306,938 306,938
Payment (306,938) (341,041)
---------- ----------
Closing balance 76,735 76,735
========== ==========
7. SHARE BUY BACK - TENDER OFFER
The Company announced a tender offer in early February 2009
which closed on 26 February 2009. Shareholders were given the
option to submit 100% of their holdings for redemption. 37% of
holders chose to remain invested.
The Company's assets and liabilities were divided into a Tender
offer pool for exiting shareholders and a continuing pool for
continuing shareholders on 27 February 2009, the calculation
date.
During 2011 all remaining investments of the Tender pool were
realised and a final distribution was made to the exited
shareholders effective 19 December 2011.
8. EVENTS AFTER THE REPORTING DATE
There was no event after the reporting date which requires
disclosures or adjustments to the financial statements.
Share Price
Prices of Africa Opportunity Fund Limited are published daily in
the Daily Official List of the London Stock Exchange. The shares
trade under Reuters symbol "AOF.L" and Bloomberg symbol "AOF
LN".
Manager
Africa Opportunity Partners Limited.
Copies of the annual report are being posted to the shareholders
and copies will be available from the Company's registered office
and also from the Company's website.
Website
www.africaopportunityfund.com
For further information please contact:
Africa Opportunity Fund Limited Tel: +2711 684 1528
Francis Daniels
Grant Thornton UK LLP (Nominated Adviser) Tel: +44 207 383 5100
Philip Secrett / David Hignell
This information is provided by RNS
The company news service from the London Stock Exchange
END
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