TIDMAOF
RNS Number : 5714L
Africa Opportunity Fund Limited
30 April 2020
30 April 2020
Africa Opportunity Fund Limited (AOF LN)
Announcement of Annual Results for the Year ended 31 December
2019
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 2019. 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
2019.
For further information please contact:
Africa Opportunity Fund Limited
Francis Daniels Tel: +2711 684 1528
Liberum (Corporate Broker)
Gillian Martin
Owen Matthews Tel: +44 20 3100 2223
The Company
Africa Opportunity Fund Limited ("AOF" or the "Company") is a
Cayman Islands incorporated closed-end investment company traded on
the Specialist Fund Segment ("SFS") of the London Stock Exchange
("LSE"). AOF's net asset value on 31 December 2019 was $47.7
million and its market capitalisation was $42.3 million.
CHAIRPERSON'S STATEMENT
2019 Review
The shareholders of Africa Opportunity Fund (the "Fund" or
"AOF") held an extraordinary general meeting in June 2019 to decide
on the future of the Fund. They voted to realise the assets of the
Fund over a three-year period ending on 30 June 2022 and for those
realised assets to be returned to shareholders, whether by
intermittent compulsory redemptions or other forms of shareholder
distributions. Additionally, the shareholders voted to amend the
investment strategy such that the Investment Manager will realise
investments during this period and not make new investments. The
first mandatory redemption of the Fund's shares was completed in
March 2020.
2019 was a difficult year for the Fund as its net asset value
declined 5% while its share price declined by 4%. To provide some
basis for comparison, South Africa rose 15%, Nigeria fell 11%,
Kenya rose 26%, and Egypt rose 12%. In non-African emerging
markets, China rose 37%, Brazil rose 27%, Russia rose 54% and India
rose 14%. In developed markets, Japan fell 8%, the US fell 5%,
Europe fell 14%, and the UK fell 14%.
In general, recovery picked up in Africa as prices of major
commodities like crude oil, gold, and copper rose in 2019. In
contrast, prices of imports such as white maize and yellow maize
(crucial imports for African consumers) fell, 11% and 10%,
respectively. South Africa and Nigeria, the two largest economies
of sub-Saharan Africa, were notable exceptions as their economic
activity remained tepid in 2019. Furthermore, financial conditions
tightened in countries like Ghana, Zambia, and Zimbabwe where the
Fund has large investments. In the case of Ghana, the program of
cleaning up weak financial institutions drew to a close, as the
licenses of several asset management firms were revoked. To fund
this program, as well as the regular budget deficit, the Ghana
government has borrowed large amounts of money, thereby raising
Ghana's debt/GDP level above 60%. As a result, Ghana continues to
endure high real risk-free interest rates. Zambia's sovereign debt
travails became more visible. Sadly, it appears inevitable that it
will have to restructure its national debts. Zimbabwe resurrected
its own currency - the Zimbabwe Dollar. It swiftly soared into
hyperinflationary orbit to inflict more hardship on its
long-suffering residents. The Fund's investments in those countries
recorded significant unrealized losses.
AOF's 2019 strategy was one of deliberate realisation to
maximize the value of the assets returned to shareholders. In some
cases, that objective inclined the Fund towards corporate
transactions to create value for the Fund. In several other cases,
the Fund exited through the secondary markets.
2020 Outlook
AOF's 2020 will be dominated by the Covid-19 pandemic. The
outlook for Africa is grim. According to the Institute of
International Finance, foreign investors have withdrawn the largest
ever amount from emerging markets - $83 billion in March alone
since the start of Covid-19. Many African countries have grossly
insufficient numbers of hospitals, hospital beds, intensive care
units, and ventilators. Many African cities house their teeming
poor in crowded and filthy slums. The overwhelming majority of
Africa's urban populace ekes out a daily living settled in cash,
without the protection of unemployment insurance. It is tough to
enforce appropriate social distancing rules and to impose several
weeks of national lockdowns.
In addition, African governments are suffering the cardiac
arrest of tax revenues while enduring an exploding need for mainly
imported healthcare supplies to combat Covid-19. 2020 will be a
year of hardship as well as a year in which Africa will need
substantial financial assistance. The policy measures adopted by
different African countries to protect their citizens against this
pandemic will accentuate the differences between well-governed
African countries and other African countries. There will be
powerful lessons of leadership and governance emerging from this
pandemic.
On the positive side, Africa's strengths of a youthful,
urbanizing and rapidly growing population, increasing in
educational attainment, will survive this pandemic while democracy
will continue to spread.
Our Shareholders should rest assured that the lengthy
realisation strategy of the Fund will stand it in good stead to
avoid involuntary or indiscriminate liquidation of the Fund's
holdings and that the Fund will strive to manage its realisation
strategy without suffering permanent impairment of its capital.
Concluding Thoughts
In closing, I would like to thank Mr. Christopher Agar, Mr.
Peter Mombaur, and Dr. Vikram Mansharamani for several years of
sterling service on the board of directors of the Fund. They
resigned from the board to fulfill the Fund's undertaking to its
shareholders to reduce the size of its board. I wish also to extend
my thanks to our shareholders for their support and look forward to
continuing to work with you in the years to come.
Dr. Myma Belo-Osagie
Chairperson
April 2020
MANAGER'S REPORT
2019 Review
2019 marked the twelfth full year of operation of Africa
Opportunity Fund (the "Fund" or "AOF"). Its ordinary shares had an
annual return of -4%. Its return on NAV was also -5%. At year-end,
AOF held $10.5 million in cash, $37.2 million in equity securities,
and $1.2 million in debt securities and call options equal to
$0.6M. The Fund's underlying end-of-year holdings were in Botswana,
Cote d'Ivoire, Egypt, Ghana, Kenya, Nigeria, Senegal, South Africa,
Tanzania, Zambia, and Zimbabwe.
The Fund's shareholders decided in June 2019 to commence an
orderly realization of the Fund over a three-year period ending in
June 2022. Realization proceeds are to be returned to shareholders
via intermittent mandatory redemptions of the Fund's shares. The
Fund liquidated nine investments in their entirety in 2019, of
which, Continental Reinsurance, Dangote Cement, and Stanbic Bank
Uganda were the most significant in size. The Fund made those
disposals via the secondary markets as well as in corporate
transactions. It also reduced its holdings in nine other issuers,
with our Anglogold Ashanti holdings experiencing the largest
liquidation.
The Fund's precious metals producers (Zimplats, Anglogold, and
Goldfields) turned in a good year for shareholders. Their share
prices rose, respectively, 84%, 78%, and 87% throughout 2019, as
the prices of palladium and gold rose, respectively, 54% and 18% in
2019. Anglogold's operations turned in a solid performance as it
accomplished its first ever fatality-free year. It announced in
December the disposal of its Sadiola mine in Mali, jointly owned
with Iamgold and the Government of Mali, for a consideration of
$52.5 million for its 41% stake in the mine. This sale values
Sadiola's reserves at a price per ounce of $36. Since the year-end,
Anglogold announced the sale of its South African assets for
approximately $300 million in cash to Harmony Gold of South Africa
at a price per reserve ounce of $36. Best of all, Anglogold Ashanti
announced the pouring of first gold at Obuasi mine in December,
thus relaunching the Obuasi mine after a 5-year hiatus. Obuasi's
redevelopment as a mechanized modern mine was completed on schedule
and on budget. Obuasi replaces the existing South African
operations of Anglogold Ashanti at a lower cost per ounce. Over the
initial 10-year life of Obuasi, annual gold production will average
400,000 ounces per annum at an all-in sustaining cost of $800 per
ounce, generating an annual operating cost savings of $130 million
when compared to the South African operations. Finally, cash flow
from operating activities crossed the $1 billion level enabling
Anglogold to lift its cash balance to $443 million and to lower its
Adjusted Net Debt/EBITDA ratio below 1x. Those trends will stand
Anglogold in good stead during this period of reduced production
levels caused by the coronavirus disruptions. The Fund will
continue to reduce its positions in the precious metals
sectors.
Enterprise Group's 35% USD share price fall exceeded the 22%
decline of the Ghana Stock Exchange Composite Index. Its end of
year closing share price of $0.29 constituted a 5-year low. But,
Enterprise's profitability rose in 2019 as it restored its
dividend. It is very encouraging that, despite Enterprise's actual
revenue and investment income results turning out much lower than
forecast in its March 2018 rights offering circular, its group
profits have exceeded those forecasts in both 2018 and 2019.
Claims, operating expenses, and commission expenses have been less
than forecast, with operating expense growth in 2019 lagging
materially Ghanaian inflation. The most significant development,
though, was that Enterprise's cost of float (a balance sheet
liability in accounting terms) was at least 450 basis points lower
than forecast in the rights issue. Its cost of float (money owed to
policyholders) is 23% of the 5 year borrowing costs of the Ghana
government itself and less than 55% of Ghana's inflation rate. As a
result, its float earns a minimum real (inflation adjusted) spread
of 6%, more than offsetting the disadvantage of a smaller float
than forecast in the rights circular. Enterprise's actual increase
in net cash and cash equivalents, in Dollars, was 30% higher than
forecast, despite the steeper than forecast depreciation of the
Cedi against the Dollar. Its 2019 14% return on average equity, in
Dollars, and its operating cash flow return on average equity, in
Dollars, of 16% suggest that it is recovering from the doldrums of
the last few years. Enterprise continues to have the largest market
share of Ghana's life, property and casualty, and private pension
industries. But its real estate portfolio and funeral business
continue to suffer losses. Ghana's commercial property market
continues its multiyear correction, as vacancy rates climb and new
expensive buildings are completed. It must also be said that the
life and property and casualty industries have been stagnant in
Dollar terms for the last few years because of the low real
disposable income growth of Ghanaians. Some affiliates of
established Ghanaian insurance companies have also been sucked into
Ghana's banking crisis, contributing to the under-pricing of
insurance products and a general feeling of scarce investible funds
among Ghanaians. However, the proposed increases in the capital
requirements for insurance companies should improve the competitive
dynamics of these industries. Enterprise's P/B valuation of 0.5x,
P/E ratio of 3.9x, and P/Operating Cash Flow of 1.4x is absurdly
cheap. It implies that the entire proceeds of the rights offering
have disappeared and ignores completely Enterprise's 2018 value of
its in-force life business attributable to shareholders of $40
million (which equates to P/Embedded value ratio of 0.24x). Absurd
valuations tend to get mugged by commercial reality in time,
whether through the capital markets or mergers and
acquisitions.
The next significant source of loss to discuss is Copperbelt.
Its total return performance also lagged that of the Lusaka Stock
Exchange in 2019. It ended the year with a dividend yield of 18%
based on a 50% dividend payout ratio. Based, however, on the
impaired Konkola Copper Mine receivable from Copperbelt's H1
results, our estimated forward dividend yield is an eminently
respectable 9%. Copperbelt's price collapse is one outcome of the
unfolding battle between Zambia's copper mining industry and the
state-owned utility ("ZESCO") over electricity tariff levels
sustainable for both ZESCO and the mining industry. Zambia's mining
industry is concentrated in the Copperbelt Province and the
Northern Province. Most ofCopperbelt's assets and customers are in
the Copperbelt province and its network is needed by ZESCO to
transmit power to electricity customers in the Copperbelt Province.
Since 2018, ZESCO has refused to agree on a new electricity bulk
supply agreement to replace the one expiring in March 2020. Indeed,
in early 2020, Copperbelt announced that it had been informed by
both ZESCO and the Government of Zambia that the expiring bulk
supply agreement would not be renewed. The bulk supply agreement
did expire at the end of March and the parties have failed to agree
on a new agreement. For now, electricity continues to be delivered
to Copperbelt's customers. In theory, a failure to execute new
agreements would result in a suspension of electricity to Zambia's
mining industry. One simple fact, though, is that Copperbelt's
transmission lines are essential to the survival of both Zambia's
copper industry and ZESCO's own financial health. A second one is
that poorly maintained transmission lines do not benefit anyone in
a modern economy. The third fact is that ZESCO is burdened by
losses and, finally, some large Zambian copper mines are struggling
to remain profitable under current electricity tariffs, let alone
higher prices. For example, Konkola Copper Mine, one of the largest
mines, is loss making. In fact, Zambian miners have identified
electricity price tariffs hikes as the biggest risk of 2020. We
remain steadfast in our belief that an electricity industry cannot
afford to have a loss-making transmission network, and we expect
Copperbelt to remain profitable.
The Fund's Zimbabwean property holdings, in aggregate, lost more
than 40% of their value because of the resurgence of hyperinflation
in Zimbabwe. The 94% depreciation of Zimbabwe's resurrected
Zimbabwe Dollar since inception, plus other indicia of its economic
chaos, was also a major contributor to Fastjet's 80% drop in share
price. Zimbabwean macro-economic turmoil notwithstanding, the
Fastjet losses constitute an unforced error. Our property holdings
(First Mutual Properties and Mashonaland Holdings) remain
substantially unencumbered commercial buildings and land. They are
guaranteed to survive the currency crisis. Replacing their
portfolios is unlikely to become cheaper with the passage of time.
No doubt that Zimbabwean commercial property does not generate a
lot of cash these days. Nevertheless, our Zimbabwean property
holdings are worth a great deal more than their current market
capitalization. The one Zimbabwean exporter in the Fund's portfolio
- Zimplats - had a markedly different fortune than our Zimbabwean
investments. As a producer of platinum group metals, with a higher
concentration of palladium than typical in South African mines, its
profitability rose with the palladium price. The Fund sold steadily
1/3(rd) of its Zimplats holdings, but was left with a higher market
value of its holding at the end of 2019 than its initial 2019
market value.
The Fund's financial liabilities - primarily short positions and
hedges - generated losses of $0.45 million in 2019. Over its life,
the Fund has generated from its financial liabilities a cumulative
gain of $4.5 million and a cumulative gain of $2.1 million since
2014.
The Covid-19 pandemic is likely to inflict reduced revenues and
profits on the Fund's holdings. Whether in the import/export trade,
tourism, electricity consumption, lending, insurance, commercial
property management, oil and gas, or plantations, the Fund will
feel the impact of destroyed demand in its investments as countries
try to reduce economic activity to suppress Covid-19. We shall
strive to preserve the value of the Fund in this fog of fear and
uncertainty. The multiplying recessions across the globe have
created a turbulent environment in which to realize the Fund's
holdings. Although the realization pace may slow, we continue to
believe that the Fund's holdings are undervalued. Our mission is to
monetize that undervaluation through our realization strategy.
Francis Daniels
Africa Opportunity Partners
April 2020
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2019
Notes 2019 2018
---------------------------- ---------------------------
USD USD
Income
Net gains on investment in subsidiaries
at fair value
through profit or loss 6(a) - -
- -
---------------------------- ---------------------------
Expenses
Net losses on investment in
subsidiaries at fair value
through profit or loss 6(a) 1,115,691 17,398,818
Management fee 1,002,326 1,184,038
Custodian fees, brokerage fees
and commissions - 39,237
Other operating expenses 37,219 30,222
Directors' fees 148,750 188,761
Audit and professional fees 199,628 168,715
2,503,614 19,009,791
---------------------------- ---------------------------
Total comprehensive loss for the year
attributable to equity holders (2,503,614) (19,009,791)
============================ ===========================
Earnings per share attributable
to equity holders (0.033) (0.254)
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
Notes 2019 2018
------------------------ ------------------------
USD USD
ASSETS
Cash and cash equivalents 8 103,067 4,376
Other receivables 7 78,091 4,949
Investment in subsidiaries at fair
value through profit or loss 6(a) 47,888,007 50,385,898
Total assets 48,069,165 50,395,223
------------------------ ------------------------
EQUITY AND LIABILITIES
LIABILITIES
Trade and other payables 10 334,497 156,941
Total liabilities 334,497 156,941
------------------------ ------------------------
Net assets attributable to shareholders 47,734,668 50,238,282
======================== ========================
Ordinary share capital 748,496 748,496
Share premium 37,921,452 37,921,452
Retained earnings 9,064,720 11,568,334
Total equity 9(b) 47,734,668 50,238,282
======================== ========================
Net assets value per share:
- Ordinary shares 9(b) 0.638 0.671
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2019
Share Share Retained
Capital Premium Earnings Total
---------------------- ------------------------ --------------- ------------------
USD USD USD USD
At 1 January 2018 748,496 37,921,452 30,578,125 69,248,073
OPERATIONS:
Total
comprehensive
loss for the year - - (19,009,791) (19,009,791)
---------------------- ------------------------ --------------- ------------------
At 31 December
2018 748,496 37,921,452 11,568,334 50,238,282
====================== ======================== =============== ==================
Share Share Retained
Capital Premium Earnings Total
---------------------- ------------------------ --------------- ------------------
USD USD USD USD
At 1 January 2019 748,496 37,921,452 11,568,334 50,238,282
OPERATIONS:
Total
comprehensive
loss for the year - - (2,503,614) (2,503,614)
---------------------- ------------------------ --------------- ------------------
At 31 December
2019 748,496 37,921,452 9,064,720 47,734,668
====================== ======================== =============== ==================
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2019
2019 2018
------------------------------ ------------------------------
USD USD
Operating activities
Total comprehensive loss for the
year (2,503,614) (19,009,791)
Adjustment for non-cash items:
Unrealised loss on investment
in subsidiaries at
fair value through profit or loss 6(a) 1,115,691 17,398,818
------------------------------ ------------------------------
Cash used in operating activities (1,387,923) (1,610,973)
------------------------------ ------------------------------
Net changes in operating assets
and liabilities
Distribution received 6(a) 1,382,200 1,522,262
Increase in other receivables (73,142) (4,949)
Increase in trade and other payables 177,556 6,269
------------------------------ ------------------------------
Net cash generated from operating
activities 1,486,614 1,523,582
------------------------------ ------------------------------
Net increase/(decrease) in cash
and cash equivalents 98,691 (87,391)
Cash and cash equivalents at start
of the year 4,376 91,767
------------------------------ ------------------------------
Cash and cash equivalents at end
of year 103,067 4,376
============================== ==============================
NOTES TO THE FINANCIAL STATEMENTS
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. ("the Master Fund") as an
exempted limited partnership in the Cayman Islands. All investments
made by the Company are made through the limited partnership. The
limited partners of the limited partnership are the Company and AOF
CarryCo Limited. The general partner of the limited partnership is
Africa Opportunity Fund (GP) Limited. Africa Opportunity Fund
Limited includes 100% of Africa Opportunity Fund (GP) Limited.
The financial statements for the Company for the year ended 31
December 2019 were authorised for issue in accordance with a
resolution of the Board of Directors on 30 April 2020.
Presentation currency
The financial statements are presented in United States dollars
("USD"). All figures are presented to the nearest dollar.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied from the prior year to the current year
for items which are considered material in relation to the
financial statements.
Statement of compliance
The financial statements are prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Basis of preparation
In the prior and current year, the Company satisfied the
criteria of an investment entity under IFRS 10: Consolidated
Financial Statements. As such, the Company no longer consolidates
the entities it controls. Instead, its interest in the subsidiaries
has been classified as fair value through profit or loss, and
measured at fair value. This consolidation exemption has been
applied prospectively and more details of this assessment are
provided in Note 4 "significant accounting judgements, estimates
and assumptions." The financial statements are prepared in
accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board
(IASB). The financial statements have been prepared under the
historical cost convention except for financial assets and
financial liabilities measured at fair value through profit or
loss. The preparation of financial statements in accordance with
IFRS requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting year. Although these estimates are based on
management's knowledge of current events and actions, actual
results ultimately may differ from those estimates. In addition to
the following: All assets have been assessed for impairment
regardless of whether any indicators for impairment were
identified; and all possible liabilities that might arise from the
winding up of the Company have been accrued for the preparation of
financial statements in conformity with IFRS requires the use of
certain critical accounting estimates. It also requires the Board
of Directors to exercise its judgement in the process of applying
the Company's accounting policies. The areas involving a higher
degree of judgement or complexity, or areas where assumptions and
estimates are significant to the financial statements are disclosed
in Note 4.
The Company presents its statement of financial position in
order of liquidity. An analysis regarding recovery within 12 months
(current) and more than 12 months after the reporting date
(non-current) is presented in Note 14.
Foreign currency translation
(i) Functional and presentation currency
The Company's financial statements are presented in USD which is
the functional currency, being the currency of the primary economic
environment in which both the Company operates. The Company
determines its own functional currency and items included in the
financial statements of each entity are measured using that
functional currency. The functional currency of the Company is USD.
The Company chooses USD as the presentation currency.
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded at the
functional currency rate prevailing at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency spot rate of the
exchange ruling at the reporting date. All differences are taken to
profit or loss. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value
is determined.
Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
(a) Classification
The Company classifies its financial assets and liabilities in
accordance with IFRS 9 into the following categories:
(i) Financial assets and liabilities at fair value through
profit or loss
The category of the financial assets and liabilities at fair
value through the profit or loss is subdivided into:
Financial assets and liabilities held for trading
Financial assets are classified as held for trading if they are
acquired for the purpose of selling and repurchasing in the near
term. This category includes equity securities, investments in
managed funds and debts instruments. These assets are acquired
principally for the purpose of generating a profit from short term
fluctuation in price. All derivatives and liabilities from the
short sales of financial instruments are classified as held for
trading at the Africa Opportunity Fund LP (the "Master Fund")
level.
Financial assets at fair value through profit or loss upon
initial recognition
These include equity securities and debt instruments that are
not held for trading at the Master Fund level. These financial
assets are classified at FVTPL on the basis that they are part of a
group of financial assets which are managed and have their
performance evaluated on a fair value basis, in accordance with
risk management and investment strategies of the Company, as set
out in each of their offering documents. The financial information
about the financial assets is provided internally on that basis to
the Investment Manager and to the Board of Directors. For the
Company, financial assets classified at fair value through profit
or loss upon initial recognition include investment in
subsidiaries.
Investment in subsidiaries
In accordance with the exception under IFRS 10 Consolidated
Financial Statements, the Company does not consolidate subsidiaries
in the financial statements. Investments in subsidiaries are
accounted for as financial instruments at fair value through profit
or loss.
Derivatives - Options
Derivatives are classified as held for trading (and hence
measured at fair value through profit or loss), unless they are
designated as effective hedging instruments (however the Company
does not apply any hedge accounting). The Master Fund's derivatives
relate to option contracts.
Options are contractual agreements that convey the right, but
not the obligation, for the purchaser either to buy or sell a
specific amount of a financial instrument at a fixed price, either
at a fixed future date or at any time within a specified
period.
The Master Fund purchases and sells put and call options through
regulated exchanges and OTC markets. Options purchased by the
Master Fund provide the Master Fund with the opportunity to
purchase (call options) or sell (put options) the underlying asset
at an agreed-upon value either on or before the expiration of the
option. The Master Fund is exposed to credit risk on purchased
options only to the extent of their carrying amount, which is their
fair value.
Options written by the Master Fund provide the purchaser the
opportunity to purchase from or sell to the Master Fund the
underlying asset at an agreed-upon value either on or before the
expiration of the option.
Options are generally settled on a net basis.
Contracts for difference
Contracts for difference are derivatives that obligate either
the buyer or the seller to pay to the other the difference between
the asset's current price and its price at the time of the
contract's usage. Unrealized gains or losses are recorded at the
end of each time period that passes without the CFDs being used.
Once the CFDs are used, the difference between the opening position
and the closing position is recorded as either revenue or a loss
depending on whether the business was the buyer or the seller.
Derivatives relating to options and contracts for difference are
recorded at the level of the Master Fund. The financial statements
of the Company does not reflect the derivatives as they form part
of the net asset value (NAV.) of the Master Fund which is fair
valued.
(ii) Financial assets at amortised cost
The Company measures financial assets at amortised cost if both
of the following conditions are met:
-- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss when
the asset is derecognised, modified or impaired. The Company's
financial assets at amortised cost comprise 'trade and other
receivables' and 'cash and cash equivalents' in the statement of
financial position.
(iii) Other financial liabilities
This category includes all financial liabilities, other than
those classified as fair value through profit or loss. The Company
includes in this category amounts relating to trade and other
payables and dividend payable.
(a) Recognition
The Company recognises a financial asset or a financial
liability when, and only when, it becomes a party to the
contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of
assets within the time frame generally established by regulation or
convention in the market place are recognised directly on the trade
date, i.e., the date that the Master Fund commits to purchase or
sell the asset.
Initial measurement
Financial assets and liabilities at fair value through profit or
loss are recorded in the statement of financial position at fair
value. All transaction costs for such instruments are recognised
directly in profit or loss.
Derivatives embedded in other financial instruments are treated
as separate derivatives and recorded at fair value if their
economic characteristics and risks are not closely related to those
of the host contract, and the host contract is not itself
classified as held for trading or designated at fair value though
profit or loss. Embedded derivatives separated from the host are
carried at fair value.
Financial assets at amortised cost and financial liabilities
(other than those classified as held for trading) are measured
initially at their fair value plus any directly attributable
incremental costs of acquisition or issue.
(b) Subsequent measurement
The Company measures financial instruments which are classified
at fair value through profit or loss at fair value. Subsequent
changes in the fair value of those financial instruments are
recorded in 'Net gain or loss on financial assets and liabilities
at fair value through profit or loss. Interest and dividend earned
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'. Distributions received on
investments at FVTPL is recorded in "Net gain or loss on financial
assets at fair value through profit or loss".
Financial assets at amortised costs are subsequently measured
using the effective interest method and are subject to impairment.
Gains and losses are recognised in profit or loss when the asset is
derecognised, modified or impaired.
Financial liabilities, other than those classified as at fair
value through profit or loss, are measured at amortised cost using
the effective interest method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised, as well as
through the amortisation process.
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Company estimates cash flows
considering all contractual terms of the financial instruments, but
does not consider future credit losses. The calculation includes
all fees paid or received between parties to the contract that are
an integral part of the effective interest rate, transaction costs
and all other premiums or discounts.
(e) Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- The rights to receive cash flows from the asset have expired; or
-- The Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
'pass-through' arrangement; and
Either (a) the Company has transferred substantially all the
risks and rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset. When the
Company has transferred its rights to receive cash flows from an
asset (or has entered into a pass-through arrangement), and has
neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the
asset is recognised to the extent of the Company's continuing
involvement in the asset.
(e) Derecognition (Continued)
The Company derecognises a financial liability when the
obligation under the liability is discharged, cancelled or expired.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in profit or
loss.
Determination of fair value
The Company measures it investments in subsidiaries at fair
value through profit or loss, and the Master Fund measures its
investments in financial instruments, such as equities, debentures
and other interest-bearing investments and derivatives, at fair
value at each reporting date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measured is based on the presumption that the transaction to sell
the asset or transfer the liability takes place either in the
principal market for the asset or liability or, in the absence of a
principal market, in the most advantageous market for the asset or
liability. The principal or the most advantageous market must be
accessible to the Company. The fair value for financial instruments
traded in active markets at the reporting date is based on their
quoted price without any deduction for transaction costs.
For all other financial instruments not traded in an active
market, the fair value is determined by using appropriate valuation
techniques. Valuation techniques include: using recent arm's length
market transactions; reference to the current market value of
another instrument that is substantially the same; discounted cash
flow analysis and option pricing models making as much use of
available and supportable market data as possible. An analysis of
fair values of financial instruments and further details as to how
they are measured is provided in Note 6.
The Company uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) market prices in active markets
for identical assets and liabilities.
-- Level 2: valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable.
-- Level 3: valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
Impairment of financial assets
The Company recognises an allowance for expected credit losses
(ECLs) for all financial assets measured at amortised cost. ECLs
are based on the difference between the contractual cash flows due
in accordance with the contract and all the cash flows that the
Company expects to receive, discounted at an approximation of the
original effective interest rate. The expected cash flows will
include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms.
ECLs are recognised either on a 12-month or lifetime basis. For
credit exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs are
provided for credit losses that result from default events that are
possible within the next 12-months (a 12-month ECL). For those
credit exposures for which there has been a significant increase in
credit risk since initial recognition, a loss allowance is required
for credit losses expected over the remaining life of the exposure,
irrespective of the timing of the default (a lifetime ECL).
For trade receivables, the Company applies a simplified approach
in calculating ECLs. Therefore, the Company does not track changes
in credit risk, but instead recognises a loss allowance based on
lifetime ECLs at each reporting date. At the reporting date, the
majority of the Company's debt instruments were held at fair value
through profit or loss with the exception of trade and other
receivables and cash and cash equivalents which are de minimis. As
a result, no ECL has been recognised as any amount would have been
insignificant.
Offsetting financial instruments
Financial assets and financial liabilities are offset, and the
net amount reported in the statement of financial position if, and
only if, there is a currently legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net
basis, or to realise the asset and settle the liability
simultaneously.
Net gain or loss on financial assets and liabilities at fair
value through profit or loss
This item includes changes in the fair value of financial assets
and liabilities held for trading or designated upon initial
recognition as 'at fair value through profit or loss' and excludes
interest and expenses. At the Master Fund Level, the fair value
gains and losses exclude interest and dividend income.
Unrealised gains and losses comprise changes in the fair value
of financial instruments for the year and from reversal of prior
year's unrealised gains and losses for financial instruments which
were realised in the reporting period.
Realised gains and losses on disposals of financial instruments
classified as 'at fair value through profit or loss' are calculated
using the Average Cost (AVCO) method. They represent the difference
between an instrument's initial carrying amount and disposal
amount, or cash payments or receipts made on derivative contracts
(excluding payments or receipts on collateral margin accounts for
such instruments).
Due to and due from brokers
Amounts due to brokers are payables for securities purchased (in
a regular way transaction) that have been contracted for but not
yet delivered on the reporting date at the Master Fund level. Refer
to the accounting policy for financial liabilities, other than
those classified at fair value through profit or loss for
recognition and measurement.
Amounts due from brokers include margin accounts and receivables
for securities sold (in a regular way transaction) that have been
contracted for but not yet delivered on the reporting date. Refer
to accounting policy for financial assets at amortised cost for
recognition and measurement.
Shares that impose on the Company, an obligation to deliver to
shareholders a pro-rata share of the net asset of the Company on
liquidation classified as financial liabilities
The shares are classified as equity if those shares have all the
following features:
(a) It entitles the holder to a pro rata share of the Company's
net assets in the event of the Company's liquidation.
The Company's net assets are those assets that remain after
deducting all other claims on its assets. A pro rata share is
determined by:
(i) dividing the net assets of the Company on liquidation into units of equal amount; and
(ii) multiplying that amount by the number of the shares held by the shareholder.
(b) The shares are in the class of instruments that is
subordinate to all other classes of instruments. To be in such a
class the instrument:
(i) has no priority over other claims to the assets of the Company on liquidation, and
(ii) does not need to be converted into another instrument
before it is in the class of instruments that is subordinate to all
other classes of instruments.
(c) All shares in the class of instruments that is subordinate
to all other classes of instruments must have an identical
contractual obligation for the issuing Company to deliver a pro
rata share of its net assets on liquidation.
In addition to the above, the Company must have no other
financial instrument or contract that has:
(a) total cash flows based substantially on the profit or loss,
the change in the recognised net assets or the change in the fair
value of the recognised and unrecognised net assets of the Company
(excluding any effects of such instrument or contract) and
(b) the effect of substantially restricting or fixing the residual return to the shareholders.
The shares that meet the requirements to be classified as a
financial liability have been designated as at fair value through
profit or loss on initial recognition.
In 2017, the Ordinary Shares and Class C Shares were merged into
one single class of share and classified as equity.
Distributions to shareholders whose shares are classified as
financial liabilities.
Distributions to shareholders are recognised in the statement of
comprehensive income as finance costs.
Interest revenue and expense
Interest revenue and expense are recognised in profit or loss of
the Master fund for all interest-bearing financial instruments
using the effective interest method.
Dividend revenue and expense
Dividend revenue is recognised when the Master fund'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 of the Master fund. Distribution
Income at Company level is disclosed under Net losses/gains on
investment in subsidiaries at fair value through profit or loss.
Dividend expense relating to equity securities sold short is
recognised when the shareholders' right to receive the payment is
established.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank. Cash
equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of change in value.
3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Company applied for the first-time certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2019. The Company has not early adopted any other
standard, interpretation or amendment that has been issued but is
not yet effective.
Although these new standards and amendments applied for the
first time in 2019, they did not have a material impact on the
financial statements of the Company.
The accounting policies adopted are consistent with those of the
previous financial year except for the following new and amendments
to IFRS as from 1 January 2019:
Effective for accounting
period beginning on or
after
Standards and Amendments:
IAS 12 - Income Taxes - Income tax consequences of payments on
financial
1 January 2019
instruments classified as equity
IAS 23 - Borrowing Costs - Borrowing costs eligible for
capitalisation
1 January 2019
Amendments to IFRS 9 Prepayment features with negative
compensation
1 January 2019
Amendments to IAS 28: Long-term interests in associates and
joint ventures
1 January 2019
Amendments to IAS 19: Plan amendment, curtailment or
settlement
1 January 2019
IFRS 16 Leases 1 January 2019
IFRS 11 - Joint Arrangements - Previously held interest in joint
arrangements
1 January 2019
IFRS 3 Business Combinations - Previously held interests in a
joint operation
1 January 2019
IFRIC Interpretation 23 Uncertainty over Income Tax
Treatments
1 January 2019
3.1 ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE
The following standards, amendments to existing standards and
interpretations were in issue but not yet effective. The Company
would adopt these standards, if applicable, when they become
effective. No early adoption of these standards and interpretations
is intended by the Board of directors.
Effective for accounting
period beginning on or
after
New or revised standards and interpretation:
IFRS 3 Business Combination Definition of a Business- Amendments
to IFRS 3
1 January 2020
IFRS 17 Insurance Contracts 1 January 2023
IAS 1 Presentation of Financial Statements and IAS 8 Accounting
Policies, Changes in
1 January 2020
Accounting Estimates and Errors - Definition of Material
Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39
and IFRS 7
1 January 2020
Conceptual Framework for Financial Reporting
1 January 2020
The above standards and interpretations issued but not effective
are not expected to have material impact on the Company.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Company's financial statements requires
management to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements
and disclosure of contingent liabilities. However, uncertainty
about these assumptions and estimates could result in outcomes that
could require a material adjustment to the carrying amount of the
asset or liability affected in future periods.
Judgements
In the process of applying the Company's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the financial
statements:
Going concern
The Company does not have a fixed life but, as stated in the
Company's admission document published in 2007, the Directors
consider it desirable that Shareholders should have the opportunity
to review the future of the Company at appropriate intervals.
Accordingly, Shareholders passed an ordinary resolution at an
extraordinary general meeting of the Company on 28 February 2014
that the Company continue in existence.
In June 2019, the Directors convened an Annual General Meeting
(AGM) and an Extraordinary General Meeting (EGM) where the
following was passed:
-- Ordinary resolution that the requirement of the Company to
propose the realisation opportunity (opportunity provided to
Shareholders to realise all or part of their shareholding in the
Company pro rata share of the Company's investment portfolio) be
and is hereby waived.
-- Ordinary resolution that the continuation of the existence of
the Company be and is hereby approved.
-- The text set out under "New Investing Policy" in paragraph 2
of Part III of the Company's circular to Shareholders dated 5 June
2019 (the "Circular") be and is hereby adopted as the new
investment policy of the Company;
-- The terms of the Amended and Restated Investment Management
Agreement (as defined in the Circular) be and are hereby
approved;
-- The memorandum and the articles of association in the form
initialled by the Chair of the meeting be adopted as the memorandum
and articles of association of the Company in substitution for and
to the exclusion of the existing memorandum and articles of
association; and
-- Any variation to the rights attaching to the Ordinary Shares
in the Company pursuant to the adoption of the new memorandum and
articles of association, and in particular the right for the
Company to redeem the Ordinary Shares (including any redemptions
made of 15 per cent. or more of the Company's issued share
capital), be and is hereby approved. There has been no variation of
rights to the ordinary shares during the financial year.
Below is a brief synopsis of the "New Investing Policy" as per
the Company's Circular dated 5 June 2019:
For a period of up to three years following the Extraordinary
General Meeting (the "Return Period"), the Company will make no new
investments (save that it may invest in, or advance additional
funds to, existing investments within the Company's portfolio to
maximise value and assist in their eventual realisation). The
Company will adopt the New Investment Policy whereby the Company's
existing portfolio of investments will be divested in a controlled,
orderly and timely manner to facilitate a staged return of capital.
It should be appreciated that there is no time horizon in terms of
the implementation of the New Investment Policy. Although the
Company's portfolio is comprised of largely liquid equity holdings,
the Company has some illiquid investments and it may take the
Investment Manager some time to realise these. Shareholders will be
provided with an opportunity to reassess the investment policy and
distribution policy at the end of the Return Period. To that end, a
further ordinary resolution for the Company's continuation will
be
proposed at an extraordinary general meeting to be convened at
the end of the Return Period (the "Second Continuation Vote").
Subsequent to the disposal of the investments, the Company will be
liquidated, which indicates that it will no longer be a going
concern. IAS 1 - Presentation of Financial Statements and IAS 10 -
Events after the reporting period require that the financial
statements should not be prepared on a going concern basis if
management determines that it intends to liquidate the entity. The
directors have considered an alternative basis of preparation but
believe that International Financial Reporting Standards ("IFRS")
as a basis for preparation best reflects the financial position and
performance of the Company. Other than financial assets at fair
value through profit or loss, the carrying value of the remaining
assets, which were determined in accordance with the accounting
policies, have been reviewed for any possible impairment, and
consideration has been given to whether any additional provision is
necessary as a result of the Directors' intention to wind up the
Company. It is expected that all assets will realise at least at
the amounts at which they are presented in the statement of
financial position and that there will be no material additional
liabilities. It should be noted that due to events after
finalisation of the AFS, the final amounts to be received could
vary from the amount shown in the statement of financial position
due to circumstances which arise subsequent to preparation of the
financial statement and these variations could be material.
Determination of functional currency
The determination of the functional currency of the Company is
critical since recording of transactions and exchange differences
arising thereon are dependent on the functional currency selected.
As described in Note 2, the directors have considered those factors
therein and have determined that the functional currency of the
Company is the United States Dollar.
Assessment for an investment entity
An investment entity is an entity that:
(a) Obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management
services;
(b) Commits to its investor(s) that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both; and
(c) Measures and evaluates the performance of substantially all
of its investments on a fair value basis.
An investment entity must demonstrate that fair value is the
primary measurement attribute used. The fair value information must
be used internally by key management personnel and must be provided
to the entity's investors. In order to meet this requirement, an
investment entity would:
-- Elect to account for investment property using the fair value
model in IAS 40 Investment Property
-- Elect the exemption from applying the equity method in IAS 28
for investments in associates and joint ventures, and
-- Measure financial assets at fair value in accordance with IFRS 9.
In addition, an investment entity should consider whether it has
the following typical characteristics:
-- It has more than one investment, to diversify the risk portfolio and maximise returns;
-- It has multiple investors, who pool their funds to maximise investment opportunities;
-- It has investors that are not related parties of the entity; and
-- It has ownership interests in the form of equity or similar interests.
As from the year ended December 2016, the Board concluded that
the Company meets the definition of an investment entity as all
investments have been measured on a fair value basis. IFRS 10
allows the application of this change to be made prospectively in
the period in which the definition is met. IFRS 10 Consolidated
Financial Statements provides 'investment entities' an exemption
from the consolidation of particular subsidiaries and instead
require that an investment entity measures the investment in each
eligible subsidiary at fair value through profit or loss in
accordance with IFRS 9 Financial Instruments.
Assumptions and Estimates
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below. The Company based its assumptions and
estimates on parameters available when the financial statements
were prepared. However, existing circumstances and assumptions
about future developments may change due to market changes or
circumstances arising beyond the control of the Company. Such
changes are reflected in the assumptions when they occur. When the
fair value of financial assets and financial liabilities recorded
in the statement of financial position cannot be derived from
active markets, their fair value is determined using a variety of
valuation techniques that include the use of mathematical
models.
Fair value of financial instruments
The inputs to these models are taken from observable markets
where possible, but where this is not feasible, estimation is
required in establishing fair values. The estimates include
considerations of liquidity and model inputs such as credit risk
(both own and counterparty's), correlation and volatility. Changes
in assumptions about these factors could affect the reported fair
value of financial instruments in the statement of financial
position and the level where the instruments are disclosed in the
fair value hierarchy. The models are calibrated regularly and
tested for validity using prices from any observable current market
transactions in the same instrument (without modification or
repackaging) or based on any available observable market data. An
analysis of fair values of financial instruments and further
details as to how they are measured is provided in Note 6.
IFRS 13 requires disclosures relating to fair value measurements
using a three-level fair value hierarchy. The level within which
the fair value measurement is categorised in its entirety is
determined on the basis of the lowest level input that is
significant to the fair value measurement in its entirety as
provided in Note 6. Assessing the significance of a particular
input requires judgement, considering factors specific to the asset
or liability. To assess the significance of a particular input to
the entire measurement, the Company performs sensitivity analysis
or stress testing techniques.
Valuation of investments listed on the Zimbabwe Stock
Exchange
The fair value of the investments listed on the Zimbabwe Stock
Exchange amounted to USD 824,461. The Fund has applied discounts to
its investments listed on the Zimbabwe Stock Exchange since
November 30, 2018. In applying those discounts, it has taken note
of rising economic uncertainties, and signs of sovereign stress, in
Zimbabwe, especially since October 2018, manifest, for example, in
lengthening queues for the foreign exchange remittances, and a
heightened volatility in share prices. It selected a transparent
discount factor to the market values of its listed Zimbabwean
holdings, otherwise known as the Old Mutual Implied Rate. That rate
is the ratio of 1 ordinary share of Old Mutual listed on the
Zimbabwe Stock Exchange to the US Dollar price of 1 ordinary share
of Old Mutual listed on the London Stock Exchange on the same day.
To provide an illustrative example, the Old Mutual share price on
the Zimbabwe Stock Exchange on December 31, 2019 was 36.55 ZWL, the
corresponding Old Mutual share price in Dollars on the London Stock
Exchange was $1.39925, and the quoted share price of First Mutual
Properties was 0.17 ZWL. The share price of First Mutual Properties
recorded in the financial statements of the Fund was $0.0065 =0.17
ZWL*($1.39925/36.55 ZWL). This ratio was selected because it
represented a legal, market-determined, exchange rate available to
persons seeking to move funds in and out of Zimbabwe via the
movement of Old Mutual shares between share registers in Zimbabwe
and the United Kingdom or South Africa.
5. AGREEMENTS
Investment Management Agreement
Management and Performance fees
For the period 1 January 2019 to 30 June 2019, the Amended and
Restated Investment Management Agreement with Africa Opportunity
Partners (the "Investment Manager"), an investment management
company incorporated in the Cayman Islands, to manage the
operations of the Company subject to the overall supervision of the
Company's board as specified in the 2014 prospectus of the Company,
was in effect. Under the Amended and Restated Investment Management
Agreement, the Investment Manager received, 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 was
subject to a "high watermark" requirement. Subsequent to the merger
of the ordinary shares and the C shares, the high watermark is
calculated as the aggregate of the Net Asset Value of the
pre-merger ordinary share high watermark plus the proceeds of the C
class share placing before expenses. The Performance Allocation
accrues monthly and is calculated as at 31 December in each year
and is allocated following the publication of
the NAV for such date.
Effective 1 July 2019, the Company and the Investment Manager
have, upon the approval of the Reorganisation Resolution at the EGM
in June 2019, entered into the Amended and Restated Investment
Management Agreement which amends the fees payable to the
Investment Manager as follows:
T he management fee shall be reduced to 1 per cent of the Net
Asset Value per annum for the first two years of the Return Period
(the period of up to three years following the EGM held in June
2019) and then further reduced to 0 per cent in the last year of
the Return Period.
The Investment Manager's entitlement to future performance fees
(through CarryCo) will be cancelled and CarryCo's limited
partnership interest in the Limited Partnership will be transferred
to the Company for nominal value in the last year of the Return
Period, that being 2022.
Realisation fees
The Investment Manager shall be entitled to the following
realisation fees during the Return Period from the net proceeds of
all portfolio realisations (including any cash returned by way of a
Compulsory Redemption):
On distributions of cash to Shareholders where the applicable
payment date is on or prior to 30 June 2020: 2 per cent of the net
amounts realised.
On distributions of cash to Shareholders where the applicable
payment date is 1 July 2020 or later: 1 per cent of the net amounts
realised.
The revisions to the arrangements with the Investment Manager,
constitute a related party transaction under the Company's related
party policy, and in accordance with that policy, the Company was
required to obtain: (i) the approval of a majority of the Directors
who are independent of the Investment Manager; and (ii) a fairness
opinion or third-party valuation in respect of such related party
transaction from an appropriately qualified independent
adviser.
The management fee for the financial year under review amounts
to USD 1,002,326 (2018: USD 1,184,038) of which USD 246,321 (2018:
USD nil) relates to accrued realisation fees and the performance
fees for the financial year under review was nil (2018: nil).
Administrative Agreement
SS&C Technologies is the Administrator for the Company.
Administrative fees are expensed at the Master Fund level
and have been included in the NAV of the subsidiary.
Custodian Agreement
A Custodian Agreement has been entered into by the Master Fund
and Standard Chartered Bank (Mauritius) Ltd, whereby Standard
Chartered Bank (Mauritius) Ltd would provide custodian services to
the Master Fund and would be entitled to a custody fee of between
18 and 25 basis points per annum of the value of the assets held by
the custodian and a tariff of between 10 and 45 basis points per
annum of the value of assets held by the custodian. The custodian
fees are expensed at the Master Fund level and have been included
in the NAV of the subsidiary.
Prime Brokerage Agreement
Under the Prime Brokerage Agreement, the Master Fund appointed
Credit Suisse Securities (USA) LLC as its prime broker for the
purpose of carrying out the Master Fund's instructions with respect
to the purchase, sale and settlement of securities. Custodian fees
are expensed at the Master Fund level and have been included in the
NAV of the subsidiary.
Brokerage Agreement
Under the Broker Agreement revised during 2016, the Master Fund
appointed Liberum, a company incorporated in England to act as
Broker to the Company. The broker fee is payable in advance at
six-month intervals. The broker fees
are expensed at the Master Fund level and have been included in
the NAV of the subsidiary.
6. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
6(a). Investment in subsidiaries at fair value
The Company has established Africa Opportunity Fund L.P., an
exempted limited partnership in the Cayman Islands to ensure that
the investments made and returns generated on the realisation of
the investments made and returns generated on the realisation of
the investments are both effected in the most tax efficient manner.
All investments made by the Company are made through the limited
partner which acts as the master fund. At 31 December 2019, the
limited partners of the limited partnership are the Company
(99.45%) and AOF CarryCo Limited (0.55%). The general partner of
the limited partnership is Africa Opportunity Fund (GP) Limited.
Africa Opportunity Fund Limited holds 100% of Africa Opportunity
Fund (GP) Limited.
2019 2018
------------------------------- -------------------------------
USD USD
Investment in Africa Opportunity
Fund L.P. 47,885,834 50,383,677
Investment in Africa Opportunity
Fund (GP) Limited 2,173 2,221
------------------------------- -------------------------------
Total investment in subsidiaries
at fair value through profit or
loss 47,888,007 50,385,898
=============================== ===============================
Fair value at 01 January 50,385,898 69,306,978
Distribution income* (1,382,200) (1,522,262)
Net loss on investment in subsidiaries
at fair value through profit or
loss (1,115,691) (17,398,818)
------------------------------- -------------------------------
Fair value at 31 December 47,888,007 50,385,898
=============================== ===============================
*"Distribution income" relates to the distribution of cash to
the Company from Africa Opportunity Fund L.P. in order to enable
the Company to pay expenses.
6(b). Fair value hierarchy
The Company uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
Level 1: quoted (unadjusted) market prices in active markets for
identical assets and liabilities.
Level 2: valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
Note: The assets and liabilities of the Master Fund have been
presented but do not represent the assets and liabilities of the
Company as the Master Fund has not been consolidated.
Investment in subsidiaries at fair value through profit or
loss:
31 December
2019 Level 1 Level 2 Level
3
--------------- ----------------- -------------------------- ------------
COMPANY USD USD USD USD
Investment in subsidiaries
at fair
value through profit
or loss 47,888,007 - 47,888,007 -
=============== ================= ========================== ============
MASTER FUND
Financial assets at fair value
through profit or loss
Equities 37,212,024 34,850,831 2,361,193 -
Debt securities 1,160,484 1,160,484 - -
--------------- ----------------- -------------------------- ------------
38,372,508 36,011,315 2,361,193 -
=============== ================= ========================== ============
Financial liabilities at fair value
through profit or loss
Written call options 632,250 632,250 - -
--------------- ----------------- -------------------------- ------------
632,250 632,250 - -
=============== ================= ========================== ============
31 December
2018 Level 1 Level 2 Level
3
--------------- ----------------- -------------------------- ------------
COMPANY USD USD USD USD
Investment in subsidiaries
at fair
value through profit
or loss 50,385,898 - 50,385,898 -
=============== ================= ========================== ============
MASTER FUND
Financial assets at fair value
through profit or loss
Equities 46,877,826 42,900,686 3,975,890 1,250
Debt securities 2,282,673 2,107,673 - 175,000
Written put options 117,825 117,825 - -
--------------- ----------------- -------------------------- ------------
49,278,324 45,126,184 3,975,890 176,250
=============== ================= ========================== ============
Financial liabilities at fair value
through profit or loss
Written put options 797,188 797,188 - -
--------------- ----------------- -------------------------- ------------
797,188 797,188 - -
=============== ================= ========================== ============
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 have been no such adjustments made to the NAV of the
underlying subsidiaries and given the simple structure of the
subsidiaries investing over 95% in quoted funds, the Company
classifies these investment in subsidiaries as Level 2.
The valuation techniques of the investments at master fund level
are as follows:
Equity and debt securities
These pertain to equity and debt instruments which are quoted
for which there is a market price. As a result, they are classified
within level 1 of the hierarchy
Contract for difference (CFD)
The prices for CFD are calculated based on average prices from
various quotes received from brokers.
Written put options
These are traded on an active market and have a quoted market
price. They have therefore been classified in level 1 of the
hierarchy.
Unlisted debt and equity investments
African Leadership University ("ALU") is a network of tertiary
institutions, currently with operations in both Mauritius and
Rwanda. The Investment Manager continues to value ALU on the basis
of the post-money valuation of ALU's Series B financing round as of
May 2018. The valuation has been determined using observable prices
based from the last round of obtaining external financing through
the issue of ALU's series B preference shares. This valuation, in
addition to analysis of the Investment Manager, continues to be the
best estimate of ALU fair value, as confirmed by the terms of its
2018 financing round accepted in the capital markets. A review of
this position as at 31 December 2019 concluded this investment
remains fairly valued at its existing level.
2019 2018
------------------ ---------------
USD USD
Investment in Triton - 176,250
================== ===============
Financial assets at fair value through profit 2019 2018
or loss
------------------ ---------------
USD USD
Investment in Triton:
At 1 January 176,250 851,250
(100,000)
Disposals -
Total loss in profit or loss (76,250) (675,000)
------------------ ---------------
At 31 December - 176,250
================== ===============
Total loss included in the profit or loss
of Africa Opportunity Fund L.P.
for asset held at the end of the reporting
period (76,250) (675,000)
================== ===============
2019 2018
------------------ ---------------
USD USD
Investment in ALU 2,361,193 2,361,193
================== ===============
Financial assets at fair value through profit 2019 USD
or loss
------------------ ---------------
USD USD
Investment in ALU:
At 1 January 2,361,193 1,686,553
Total loss in profit or loss - 674,640
------------------ ---------------
At 31 December 2,361,193 2,361,193
================== ===============
Total gain included in the profit or loss
of Africa Opportunity Fund L.P.
for asset held at the end of the reporting
period - 674,640
================== ===============
Investment in Shoprite Holdings (SHP ZL)
On 22 August 2017, as a condition precedent to the merger of the
C shares and the ordinary shares, the 637,528 ordinary shares of
Shoprite Holdings (SHP ZL "Shoprite") affected by the terms of the
Shoprite arbitral award, plus estimates of associated legal costs,
were excluded from the assets of Africa Opportunity Fund, and
securities called Contingent Value Rights ("CVR"s) were issued to
the ordinary shareholders of record. As such, the outcome of the
Shoprite arbitration is separate and independent of the net asset
value of the ordinary shares of Africa Opportunity Fund.
Consequently, the current ordinary shareholders were not considered
to be affected by the outcome of the Shoprite arbitration and any
appeals. The contingent value rights holders will be responsible
for the losses or benefits associated with the Shoprite arbitration
appeal which occurred in 2019. The full terms and conditions
attaching to the CVRs are contained in the instrument by which they
are constituted that can be inspected at the Fund's website.
In January 2019 the Fund was informed of the appeal award by the
arbitration panel. Africa Opportunity Fund was deemed to not have
right to the disputed shares and the panel identified an additional
41,617 shares, and corresponding dividends that were deemed not
properly titled to AOF. This adjustment was made in prior year
financial statements.
6(c). Statement of Comprehensive Income of the Master Fund for the year ended 31 December 2019
The net loss on investment in subsidiaries at fair value through
profit or loss amounting to USD 1,115,691 (2018: net loss USD
17,398,818) is due to the loss arising at the Master Fund level and
can be analysed as follows:
2019 2018
-------------------------------------- -----------------------
USD USD
Income
Interest revenue 511,309 463,318
Dividend revenue 2,208,919 2,479,546
Other income 91,573 25,006
Net foreign exchange gain - 484,892
-------------------------------------- -----------------------
2,811,801 3,452,762
-------------------------------------- -----------------------
Expenses
Net losses on financial assets and
liabilities at fair value
through profit or loss 2,762,813 20,142,153
Net foreign exchange loss 179,653 -
Custodian fees, Brokerage fees
and commission 471,637 389,415
Dividend expense on securities
sold not yet purchased - 98,281
Other operating expenses 147,308 11,777
Audit and professional fees 23,263 101,970
-------------------------------------- -----------------------
3,584,647 20,743,596
-------------------------------------- -----------------------
Operating loss before tax (772,846) (17,290,834)
Less withholding tax (281,256) (205,488)
-------------------------------------- -----------------------
Total Comprehensive loss for the
year (1,054,102) (17,496,322)
====================================== =======================
Attributable to:
AOF Limited (direct interests) (1,048,219) (17,398,054)
AOF Limited ( indirect interests
through AOF (GP) Ltd) (46) (764)
-------------------------------------- -----------------------
(1,048,265) (17,398,818)
AOF CarryCo Limited (minority interests) (5,837) (97,504)
(1,054,102) (17,496,322)
====================================== =======================
(i) Net (losses)/gains on financial assets and liabilities at
fair value through profit or loss held by Africa Opportunity Fund
L.P.
2019 2018
---------------------- ------------------------
USD USD
Net losses on fair value of financial assets
at fair value through profit or loss (3,421,780) (19,926,489)
Net gains/(losses) on fair value of financial
liabilities at fair value through profit
or loss 658,967 (215,664)
---------------------- ------------------------
Net losses (2,762,813) (20,142,153)
====================== ========================
(ii) Financial asset and liabilities at fair value through
profit or loss held by Africa Opportunity Fund L.P.
2019 2018
--------------------------- --------------------------
USD USD
Held for trading assets:
At 1 January 49,278,324 69,163,219
Additions 3,547,544 8,439,260
Disposal (11,031,579) (8,397,666)
Net losses on financial assets at fair
value through profit or loss (3,421,780) (19,926,489)
--------------------------- --------------------------
At 31 December (at fair value) 38,372,509 49,278,324
=========================== ==========================
Analysed as follows:
- Listed equity securities 34,850,831 44,633,208
- Listed debt securities 1,160,485 2,107,673
- Unlisted equity securities 2,361,193 2,362,443
- Unlisted debt securities - 175,000
--------------------------- --------------------------
38,372,509 49,278,324
=========================== ==========================
Other receivables, cash at bank and other payables are not
included above.
(iii) Net changes on fair value of financial assets at fair value through profit or loss
2019 2018
---------------------- --------------------------
USD USD
Realised (4,350,287) 604,993
Unrealised 928,507 (20,531,482)
---------------------- --------------------------
Total losses (3,421,780) (19,926,489)
====================== ==========================
(iv) Financial liabilities at fair value through profit or loss
held by Africa Opportunity Fund L.P.
2019 2018
--------------------------- -------------------------------
USD USD
Held for trading financial liabilities
Written call options 632,250 -
Written put options - 797,188
--------------------------- -------------------------------
Financial liabilities at fair value through
profit or loss 632,250 797,188
=========================== ===============================
(v) Net changes on fair value of financial liabilities at fair value through profit or loss
2019 2018
------------------- -----------------------
USD USD
Realised 585,447 241,003
Unrealised 73,520 (456,667)
------------------- -----------------------
658,967 (215,664)
=================== =======================
7. OTHER RECEIVABLES
2019 2018
------------------------ ----------------------
USD USD
Amount due from Africa Opportunity 70,180 -
Fund L.P
Prepayments 7,911 4,949
------------------------ ----------------------
78,091 4,949
======================== ======================
The carrying amount of other receivables approximates their fair
value.
8. CASH AND CASH EQUIVALENTS
2019 2018
------------------- ---------------------
USD USD
Other bank accounts 103,067 4,376
=================== =====================
9(a). ORDINARY SHARE CAPITAL
Company
2019 2019 2018 2018
----------------------- --------------------- ------------------ ---------------------
Number USD Number USD
Authorised
share
capital
Ordinary
shares
with a par
value of USD
0.01 1,000,000,000 10,000,000 1,000,000,000 10,000,000
======================= ===================== ================== =====================
The directors have the general authority to repurchase the
ordinary shares in issue subject to the Company having funds
lawfully available for the purpose. However, if the market price of
the ordinary shares falls below the Net Asset Value, the directors
will consult with the Investment Manager as to whether it is
appropriate to instigate a repurchase of the ordinary shares.
9(b). NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS
Ordinary
Shares
----------------------------
USD
At 1 January 2018 69,248,073
Changes during the period:
Total comprehensive loss for
the year (19,009,791)
----------------------------
At 31 December 2018 50,238,282
============================
Net asset value per share at 31 December
2018 0.671
============================
Ordinary
Shares
----------------------------
USD
At 1 January 2019 50,238,282
Changes during the period:
Total comprehensive loss for
the year (2,503,614)
----------------------------
At 31 December 2019 47,734,668
============================
Net asset value per share at 31 December
2019 0.638
============================
Ordinary and C share Merger, Issuance of Contingent Value
Rights
In 2014, AOF closed a Placing of 29.2 million C shares of
US$0.10 each, at a placing price of US$1.00 per C share, raising a
total of $29.2 million before the expenses of the Issue. The
placing was closed on 11 April 2014 with the shares commencing
trading on 17 April 2014. AOF's Ordinary Shares and the C Shares
from the April placing were admitted to trading on the LSE's
Specialist Fund Segment ("SFS") effective 17 April 2014.
Due to the fact that there were two separate pools of assets and
liabilities attributable to the C Class and Ordinary shareholders
respectively, the requirements of IAS 32.16C(a) would not be met.
Therefore both the classes were classified as financial liabilities
as from April 17, 2014 upon issuance of a Class C shares.
The Fund merged the C share class and the ordinary shares as
contemplated in the April 2014 issuance of the C share class, and
with the consent of the Board of Directors, on 23 August 2017. The
C Class shares were converted into ordinary shares. Based on a
conversion ratio of 1.1034, 29,200,000 C Shares were delisted and
cancelled and 32,219,279 Ordinary Shares were admitted to trading
on the Specialist Fund Segment of the London Stock Exchange.
Subsequent to the merger, the total number of ordinary shares is
74,849,606.
The Shoprite arbitral award was issued in 2016. The arbitral
award resulted in AOF not being considered the legal owner of the
specified Shoprite Holdings; therefore, the Shoprite investment was
written off. To effectuate this merger, Contingent Value Rights
certificates for any residual rights with respect to Shoprite
shares listed on the Lusaka Stock Exchange were issued to the
ordinary shareholders of record on 21 August 2017.
Subsequent to the merger, one class of ordinary shares exists
for all investors and all financial and return information
presented reflects the existing ordinary share class. Upon
conversion of the C Class shares into Ordinary shares, the
remaining shares in AOF are classified as equity. Information
regarding the merger was distributed and released to the market
prior to, and upon execution of, the merger. This information and
information relative to the CVRs can be found on the Fund's
website.
10. TRADE AND OTHER PAYABLES
2019 2018
---------------------- --------------------
USD USD
Due to Africa Opportunity Fund
L.P. - 41,768
Directors Fees Payable 17,500 43,750
Other Payables 316,997 71,423
---------------------- --------------------
334,497 156,941
====================== ====================
Other payables and accrued expenses are non-interest bearing and
have an average term of three months. The carrying amount of trade
and other payables approximates their fair value.
11. EARNING PER SHARE
The earnings per share (EPS) is calculated by dividing the
decrease in net assets attributable to shareholders by number of
ordinary shares. The EPS for 2019 and 2018 represent both the basic
and diluted EPS.
2019 2018
---------------------------- -----------------------
Ordinary Ordinary
shares shares
---------------------------- -----------------------
Total Comprehensive loss USD (2,503,614) (19,009,791)
============================ =======================
Number of shares in issue 74,849,606 74,849,606
============================ =======================
Change in net assets attributable
to shareholders
per share USD (0.033) (0.254)
12. RELATED PARTY DISCLOSURES
The Directors consider Africa Opportunity Fund Limited (the
"Company") as the ultimate holding company of Africa Opportunity
Fund (GP) Limited and Africa Opportunity Fund L.P.
% equity % equity
Country of interest interest
Name incorporation 2019 2018
------------------------------ ---------------- --------- ---------
Africa Opportunity Fund (GP)
Limited Cayman Islands 100 100
Africa Opportunity Fund L.P. Cayman Islands 99.45 99.45
During the year ended 31 December 2019, the Company transacted
with related entities. The nature, volume and type of transactions
with the entities are as follows:
Type of Nature of Volume Balance
at
Name of related relationship transaction USD 31 Dec
parties 2019
-------------------- --------------- ---------------- ----------------- -------------------
USD
Africa Opportunity Investment Management fee
Partners Limited Manager expense 1,002,326 246,321
Africa Opportunity
Fund LP Subsidiary Receivable - 70,180
SS&C Technologies Administrator Administration 105,855 -
fees
Type of Nature of Volume Balance
at
Name of related relationship transaction USD 31 Dec
parties 2018
-------------------- --------------- ---------------- ----------------- -------------------
USD
Africa Opportunity Investment Management fee 1,184,038 -
Partners Limited Manager expense
Africa Opportunity
Fund LP Subsidiary Payable - 41,768
SS&C Technologies Administrator Administration 114,919 -
fees
Key Management Personnel (Directors' fee)
Except for Robert Knapp who has waived his fees, each director
has been paid a fee of USD 35,000 per annum plus reimbursement for
out-of pocket expenses during both 2019 and 2018.
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).
During 2019, three directors with holdings in the Company left
the Board. The changes in shares and direct interest held is solely
attributable to this event.
Details of investments in the Company by the Directors are set
out below:
No of shares Direct interest
held held %
2019 12,183,358 16.28
2018 14,284,315 19.08
13. TAXATION
Under the current laws of Cayman Islands, there is no income,
estate, transfer sales or other Cayman Islands taxes payable by the
Company. As a result, no provision for income taxes has been made
in the financial statements.
Dividend revenue is presented gross of any non-recoverable
withholding taxes, which are disclosed separately in the statement
of comprehensive income. Withholding taxes are not separately
disclosed in statement of cash flows as they are deducted at the
source of the income.
A reconciliation between tax expense and the product of
accounting profit multiplied by the applicable tax rate is as
follows:
2019 2018
------------------------ ----------------------
USD USD
Total comprehensive loss (2,503,614) (19,009,791)
------------------------ ----------------------
Income tax expense calculated at - -
0%
------------------------ ----------------------
Withholding tax suffered outside - -
Mauritius
------------------------ ----------------------
Income tax expense recognized in - -
profit or loss
======================== ======================
* Withholding taxes are borne at the master fund level and
amounted to USD 281,256 (2018: USD 205,488). These have been
included in the NAV of the subsidiary.
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Introduction
The Company's objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company's
activities. It is managed through a process of ongoing
identification, measurement and monitoring, subject to risks limits
and other controls. The process of risk management is critical to
the Company's continuing profitability. The Company is exposed to
market risk (which includes currency risk, interest rate risk and
price risk), credit risk and liquidity risk arising from the
financial instruments it holds.
Risk management structure
The Investment Manager is responsible for identifying and
controlling risks. The Board of Directors supervises the Investment
Manager and is ultimately responsible for the overall risk
management approach of the Company.
Fair value
The carrying amount of financial assets and liabilities at fair
value through profit or loss are measured at fair value at the
reporting date. The carrying amount of trade and other receivables,
cash and cash equivalents trade and other payables approximates
their fair value due to their short-term nature.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices and includes interest rate risk, foreign currency
risk and equity price risk.
Short selling involves borrowing securities and selling them to
a broker-dealer. The Master Fund has an obligation to replace the
borrowed securities at a later date. Short selling allows the
Master Fund to profit from a decline in market price to the extent
that such decline exceeds the transaction costs and the costs of
borrowing the securities, while the gain is limited to the price at
which the Fund sold the security short. Possible losses from short
sales may be unlimited as the Master Fund has an obligation to
repurchase the security in the market at prevailing prices at the
date of acquisition.
With written options, the Master Fund bears the market risk of
an unfavourable change in the price of the security underlying the
option. Exercise of an option written by the Master Fund could
result in the Master Fund selling or buying a security at a price
significantly different from its fair value.
A contract for difference creates, as its name suggests, a
contract between two parties speculating on the movement of an
asset price. The term 'CFD' which stands for 'contract for
difference' consists of an agreement (contract) to exchange the
difference in value of a particular currency, commodity share or
index between the time at which a contract is opened and the time
at which it is closed. The contract payout will amount to the
difference in the price of the asset between the time the contract
is opened and the time it is closed. If the asset rises in price,
the buyer receives cash from the seller, and vice versa. The Master
Fund bears the risk of an unfavourable change on the fair value of
the CFD. The risk arises mainly from changes in the equity and
foreign exchange rates of the underlying security.
The Master Fund's financial assets are susceptible to market
risk arising from uncertainties about future prices of the
instruments. Since all securities investments present a risk of
loss of capital, the Investment Manager moderates this risk through
a careful selection of securities and other financial instruments.
The Master Fund's overall market positions are monitored on a daily
basis by the Investment Manager.
The directors have based themselves on past and current
performance of the investments and future economic conditions in
determining the best estimate of the effect of a reasonable change
in equity prices, currency rate and interest rate.
Equity price risk
Equity price risk is the risk that the fair value of equities
decreases as a result of changes in the levels of the equity
indices and the values of individual stocks. The trading equity
risk arises from the Master Fund's investment portfolio.
The equity price risk exposure arises from the Master Fund's
investments in equity securities, from equity securities sold short
and from equity-linked derivatives (the written options). The
Master Fund manages this risk by investing in a variety of stock
exchanges and by generally limiting exposure to a single industry
sector to 15% of NAV.
Management's best estimate of the effect on the profit or loss
for a year due to a reasonably possible change in equity indices,
with all other variables held constant is indicated in the table
below. There is no effect on 'other comprehensive income' as the
Company has no assets classified as 'financial assets at fair value
through other comprehensive income' or designated hedging
instruments.
In practice, the actual trading results may differ from the
sensitivity analysis below and the difference could be material. An
equivalent decrease in each of the indices shown below would have
resulted in an equivalent, but opposite impact.
Equity
Effect on
Company Change in Equity
NAV price 2019
---------- ---------------------
USD
Investment in subsidiaries at fair
value through profit or loss 10% 4,788,801
-10% (4,788,801)
Effect on
net
assets
attributable
to
Master Fund Change in shareholders
NAV price 2019
---------- ---------------------
USD
Financial assets at fair value through
profit or loss 10% 3,837,251
-10% (3,837,251)
Financial liabilities at fair value
through profit or loss 10% (63,225)
-10% 63,225
Equity
Effect on
Company Change in Equity
NAV price 2018
---------- ---------------------
USD
Investment in subsidiaries at fair
value through profit or loss 10% 5,038,590
-10% (5,038,590)
Effect on
net
assets
attributable
to
Master Fund Change in shareholders
NAV price 2018
---------- ---------------------
USD
Financial assets at fair value through
profit or loss 10% 4,927,832
-10% (4,927,832)
Financial liabilities at fair value
through profit or loss 10% (79,719)
-10% 79,719
Currency risk
The Master Fund's investments are denominated in various
currencies as shown in the currency profile below. Consequently,
the Company is exposed to the risk that the exchange rate of the
United States Dollar (USD) relative to these various currencies may
change in a manner which has a material effect on the reported
values of its assets denominated in those currencies. To manage its
risks, the Master Fund may enter into currency arrangements to
hedge currency risk if such arrangements are desirable and
practicable. The following table shows the offsetting of financial
assets:
As at 31
December
2019
Company Gross amounts
of recognised Net amount
of
Gross financial financial
assets
amounts liabilities presented
of set off in
recognised in the statement the statement
financial of financial of financial Financial Cash
assets position position instruments collateral Net amount
------------ ---------------------- ----------------- --------------- ----------- -------------
USD USD USD USD USD USD
Cash and cash
equivalents 103,067 - 103,067 - - 103,067
------------ ---------------------- ----------------- --------------- ----------- -------------
Total 103,067 - 103,067 - - 103,067
============ ====================== ================= =============== =========== =============
As at 31
December
2018
Company Gross amounts
of recognised Net amount
of
Gross financial financial
assets
amounts liabilities presented
of set off in
recognised in the the statement
statement
financial of financial of financial Financial Cash
assets position position instruments collateral Net amount
------------- ---------------------- ------------------- --------------- ----------- --------------
USD USD USD USD USD USD
Cash and cash
equivalents 4,376 - 4,376 - - 4,376
------------- ---------------------- ------------------- --------------- ----------- --------------
Total 4,376 - 4,376 - - 4,376
============= ====================== =================== =============== =========== ==============
Cash and cash equivalents are offset as the Company has current
bank balances and bank overdraft with the same counterparty which
the Company has the current legally enforceable right to set off
the recognised amounts and the intention to settle on a net basis
or realise the asset and settle the liability simultaneously.
The currency profile of the Company's financial assets and
liabilities is summarised as follows:
Error! Not a valid link.
Prepayments are typically excluded as these are not financial
assets; prepayments as at 31 December 2019 and 2018 amounted to USD
7,911 and US 4,949, respectively.
The sensitivity analysis shows how the value of a financial
instrument will fluctuate due to changes in foreign exchange rates
against the US Dollar, the functional currency of the Company.
Currency risk at master fund level
The following table details the master fund's sensitivity to a
possible change in the USD against other currencies. The percentage
applied as sensitivity represents management's assessment of a
reasonably possible change in foreign currency denominated monetary
items by adjusting the translation at the year-end for the change
in currency rates at the Master Fund level. A positive number below
indicates an increase in profit where the USD weakens against the
other currencies. In practice, actual results may differ from
estimates and the difference can be material. The effect of a
change in USD against other currencies at the master fund level as
per the table below will have the same impact at the company level
and will form part of the NAV of the subsidiary.
Currency Risk
- Year 2019
Effect on net assets attributable
to
Currency shareholders in (USD)
---------------------------------------------------
Master Fund
Change: 30% -30%
Botswana Pula (246,091) 246,091
Ghana Cedi (1,965,547) 1,965,547
Kenyan Shilling (200,264) 200,264
Nigerian Naira (1,101,834) 1,101,834
South African
Rand (396,164) 396,164
Tanzanian Shilling (335,406) 335,406
Uganda Shilling (46,612) 46,612
Zambian Kwacha (1,165,784) 1,165,784
Change: 10% -10%
CFA Franc (550,235) 550,235
Egyptian Pound (168,527) 168,527
Change: 5% -5%
Australian Dollar (44,594) 44,594
Great British
Pound (9,708) 9,708
Currency Risk -
Year 2018
Effect on net assets attributable
to
Currency shareholders in (USD)
-------------------------------------------------
Master Fund
Change: 30% -30%
Botswana Pula (560,094) 560,094
Ghana Cedi (3,033,754) 3,033,754
Kenyan Shilling (288,836) 288,836
Nigerian Naira (231,756) 231,756
Tanzanian Shilling (393,918) 393,918
Uganda Shilling (636,163) 636,163
South African
Rand (1,263,302) 1,263,302
Zambian Kwacha (1,589,462) 1,589,462
Change: 10% -10%
CFA Franc (588,982) 588,982
Egyptian Pound (218,071) 218,071
Change: 5% -5%
Australian
Dollar (31,554) 31,554
Great British
Pound (65,593) 65,593
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The fair values of the Company's debt
securities fluctuate in response to changes in market interest
rates. Increases and decreases in prevailing interest rates
generally translate into decreases and increases in fair values of
those instruments.
The investments in debt securities have fixed interest rate and
the income and operating cash flows are not exposed to interest
rate risk. The change in fair value of investments based on a
change in market interest rate (a 50 basis points change) is not
significant and has not been disclosed.
Credit risk
Financial assets that potentially expose the Company to credit
risk consist principally of investments in debt securities, cash
balances and interest receivable. The extent of the Company's
exposure to credit risk in respect of these financial assets
approximates their carrying values as recorded in the Company's
statement of financial position.
The Company takes on exposure to credit risk, which is the risk
that a counterparty will be unable to pay amounts in full when due.
The Company's main credit risk concentration is its debt securities
which are classified as financial assets at fair value through
profit or loss.
With respect to credit risk arising from financial assets which
comprise of financial assets at fair value through profit or loss,
other receivables and cash and cash equivalents, the Company's
exposure to credit risk arises from the default of the
counterparty, with a maximum exposure equal to the carrying amount
of these financial assets.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at the
reporting date was:
2019 2019 2018 2018
Company Master Company Master Fund
Fund
-------------- -------------- ------------ ------------
Carrying Carrying Carrying Carrying
amount amount amount amount
-------------- -------------- ------------ ------------
Notes USD USD USD USD
Financial assets
at fair value
through profit
or loss 6(c)(ii) - 38,372,509 - 49,278,324
Other receivables,
excluding
prepayments 7 70,180 486,335 - 258,814
Cash and cash equivalents 8 103,067 10,479,259 4,376 2,611,947
The cash and cash equivalent assets of the Company are
maintained with Standard Chartered Bank (Mauritius) Ltd. Standard
Chartered Bank has an A1- issuer rating from Moody's long term
rating agency, a P-1 short term rating from Moody's rating agency,
an A- issuer rating from Standard and Poor's rating agency, and an
A-1 short term rating from Standard and Poor's rating agency. All
other issuers of debt instruments owned by the Company are unrated.
The issuers of the unrated debt instruments owned by the Company
are reputable companies which do not envisage obtaining ratings,
and have the ability to repay any debt or redeem any security as it
falls due or when required.
Concentration risk
At 31 December 2019 the Master Fund held investments in Africa
which involves certain considerations and risks not typically
associated with investments in other developed countries. Future
economic and political developments in Africa could affect the
operations of the investee companies.
Analysed by geographical distribution of underlying assets:
Master Fund Master Fund
2019 2018
------------------------ --------------------
USD USD
Bond & Notes
Ghana - 175,000
South Africa 1,160,484 2,107,673
------------------------ --------------------
Total 1,160,484 2,282,673
======================== ====================
Master Fund Master Fund
2019 2018
------------------------ --------------------
USD USD
Equity Securities
Ghana 8,015,936 11,411,113
South Africa 5,758,288 8,202,715
Senegal 4,357,495 4,749,214
Nigeria 4,100,179 1,333,287
Other 4,034,293 3,429,866
Zambia 3,458,549 4,737,440
Zimbabwe 1,895,919 3,547,331
Egypt 1,685,274 2,180,706
Cote D'Ivoire 1,144,851 1,140,610
Tanzania 1,118,020 1,313,059
Botswana 820,302 1,866,979
Kenya 667,546 962,788
Uganda 155,373 2,120,543
------------------------ --------------------
Total 37,212,025 46,995,651
======================== ====================
Shortsellings
Other (426,750) -
South Africa (205,500) -
Ghana - (797,188)
------------------------ --------------------
(632,250) (797,188)
Total 37,740,259 48,481,136
======================== ====================
Analysed by industry of underlying assets:
Master Fund Master Fund
2019 2018
------------------------ ---------------------
USD USD
Bond & Notes
Consumer Finance 956,459 901,086
Consumer Product & Services 204,025 221,882
Telecommunications - 984,705
Plantations - 175,000
------------------------ ---------------------
1,160,484 2,282,673
------------------------ ---------------------
Master Fund Master Fund
2019 2018
------------------------ ---------------------
USD USD
Equity Securities and Shortsellings
Financial Services 10,526,725 12,534,559
Mining Industry 7,487,688 6,642,371
Utilities 4,553,494 6,260,996
Telecommunications 4,357,495 6,137,760
Other 4,046,468 4,544,395
Oil Exploration & Production 1,464,113 500,161
Plantations 1,144,851 1,036,973
Beverages 1,118,020 1,313,059
Real Estate 824,461 1,612,200
Consumer Finance 820,302 2,066,158
Transport 179,572 1,301,556
Media 56,586 1,370,868
Consumer Products & Services - 104,887
Materials - 772,520
------------------------ ---------------------
36,579,775 46,198,463
------------------------ ---------------------
Total 37,740,259 48,481,136
======================== =====================
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Company's
approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Company's reputation.
The Company manages liquidity risk by maintaining adequate
reserves, by continuously monitoring forecast and actual cash
flows. The table below illustrates the maturity profile of the
Company's financial liabilities based on undiscounted payments.
Year 2019 Due Due Due
Due Between Between greater
3 1
Due within and 12 and 5 than
on 3 5
demand Months Months years years Total
---------- --------- ------------ ------------ -------- ---------
USD USD USD USD USD USD
Financial liabilities
Other payables - 334,497 - - - 334,497
----------- --------- ------------ ------------ -------- ---------
Total liabilities - 334,497 - - - 334,497
=========== ========= ============ ============ ======== =========
Year 2018 Due Due Due
Due Between Between greater
3 1
Due within and 12 and 5 than
on 3 5
demand Months Months years years Total
---------- --------- ------------ ------------ -------- ---------
USD USD USD USD USD USD
Financial liabilities
Other payables - 156,941 - - - 156,941
----------- --------- ------------ ------------ -------- ---------
Total liabilities - 156,941 - - - 156,941
=========== ========= ============ ============ ======== =========
Capital management
Total capital is considered to be the total equity as shown in
the statement of financial position.
The Company is a closed end fund and repurchase of shares in
issue can be done with the consent of the Board of Directors. The
Company is not subject to externally imposed capital
requirements.
The objectives for managing capital are:
-- To invest the capital in investment meeting the description,
risk exposure and expected return indicated in the Admission
document.
-- To achieve consistent capital growth and income through
investment in value, arbitrage and special situations opportunities
derived from the African continent.
-- To maintain sufficient size to make the operation of the Company cost effective.
The primary objective of the Company's capital management is to
ensure that it maintains a strong credit rating and healthy capital
ratios in order to support its business and maximise shareholder
value.
15. ANALYSIS OF NAV OF MASTER FUND ATTRIBUTABLE TO ORDINARY SHARES
31.12.2019 31.12.2018
USD
ASSETS
Cash and cash equivalents 10,479,259 2,611,947
Trade and other receivables 486,335 217,046
Receivable from AOF Ltd - 41,768
Financial assets at fair value through
profit or loss 38,372,509 49,278,324
Total assets 49,338,103 52,149,085
EQUITY AND LIABILITIES
Liabilities
Trade and other payables 470,431 682,554
Payable to AOF Ltd 70,180 -
Financial liabilities at fair value
through profit or loss 632,250 797,188
Total liabilities 1,172,861 1,479,742
Net assets attributable to shareholders 48,165,242 50,669,343
16. SEGMENT INFORMATION
For management purposes, the Çompany is organised in one main
operating segment, which invests in equity securities, debt
instruments and relative derivatives. All of the Company's
activities are interrelated, and each activity is dependent on the
others. Accordingly, all significant operating decisions are based
upon analysis of the Company as one segment. The financial results
from this segment are equivalent to the financial statements of the
Company as a whole.
For geographical segmentation, please refer to Note 14.
17. PERSONNEL
The Company did not employ any personnel during the year (2018:
the same).
18. COMMITMENTS AND CONTINGENCIES
There are no commitments or contingencies at the reporting
date.
19. EVENTS AFTER REPORTING DATE
MANDATORY REDEMPTION
The Directors, at their sole discretion, can effect a compulsory
redemption of the Ordinary Shares on an ongoing basis and will
therefore undertake a staged return of capital to shareholders. On
10 March 2020, the Board of Directors of Africa Opportunity Fund
Limited approved the mandatory redemption of 30,278,230 Ordinary
shares. On 16 March 2020, the mandatory redemption was completed
and AOF redeemed the 30,278,230 Ordinary Shares, on a pro rata
basis, at the prevailing NAV per Ordinary Share of $0.611 as at 29
February 2020. Such shares were cancelled automatically following
their redemption. Fractions of shares produced by the applicable
redemption ratios have not been redeemed and so the number of
shares redeemed in respect of each shareholder has been rounded
down to the nearest whole number of shares. Payments of redemption
proceeds were effected either through Euroclear or Clearstream (in
the case of shares held in uncertificated form) or by cheque (in
the case of shares held in certificated form) on or around 25 March
2020. Any share certificates for the balance of holdings of shares
were despatched to shareholders on or around 25 March 2020.
Following the Mandatory Redemption, the Company has 44,571,376
Ordinary Shares in issue. As of 16 March 2020, Robert Knapp and
Myma Belo-Osagie, Directors of the Company, owned 12,083,358 and
100,000 Ordinary Shares, respectively. As a result of the Mandatory
Redemption described above, Robert Knapp and Myma Belo-Osagie now
hold 7,195,387 and 59,548 Ordinary Shares, respectively. The
redemption was funded through proceeds received from realizing the
assets of the Company. As at 31 Dec 2019, the Company had disposed
some of its portfolio of investments thereby generating proceeds of
around USD 11M and as at 31 March 2020, the Company disposed 26% of
its portfolio generating proceeds of USD 9.8M. The proceeds
received have been used partly for redemption of shares to the
Shareholders amounting to USD 18.5M and the rest has been kept to
finance the fund's operational expenses.
COVID-19 PANDEMIC
The Board of Directors and Investment Manager continue to assess
the impact of the recent outbreak of a novel and highly contagious
form of coronavirus ("Covid-19"), which the World Health
Organization has officially declared a pandemic. Covid-19, has
resulted in numerous deaths across the globe, adversely impacted
global commercial activity, interrupted normal business and social
activities and contributed to significant volatility in certain
equity and debt markets. The global impact of the outbreak is
rapidly evolving, and many countries have reacted by instituting
quarantines, prohibitions on travel, restrictions on imports and
exports, and the closure of offices, businesses, schools, retail
stores and other public venues. Businesses, including the
Investment Manager and key vendors of the Company are also
implementing similar precautionary measures. Such measures, as well
as the general uncertainty surrounding the dangers and impact of
Covid-19, are creating significant disruption in supply chains and
economic activity and are having a particularly adverse impact on
transportation, hospitality, tourism, entertainment and other
industries. The impact of Covid-19 has led to significant
volatility and declines in the global public equity markets and it
is uncertain how long this volatility will continue. As Covid-19
continues to spread, the impacts, including a potential global,
regional or other economic recession, are increasingly uncertain
and difficult to assess. Public health emergencies, including
outbreaks of Covid-19 or other existing or new epidemic diseases,
or the threat thereof, and the resulting financial and economic
market uncertainty could have a significant adverse impact on the
Company, including the fair value of its investments. As at 31
March 2020, 60% of the Investment portfolio was disposed. Proceeds
from disposal of these shares amounted to USD 9.18 million. The
proceeds of USD 9.18 million as well as existing cash resources as
at 31 December 2019 have been used for the redemption of shares on
16 March 2020. The fair value of the remaining 74% portfolio has
witnessed a fall of around 32% as at 29 April 2020. The current
investment strategy and distribution policy, while mitigating some
operational risks due to the enhanced levels of cash and cash
equivalents as a consequence of the realisation efforts, does pose
other challenges as the Investment Manager continues to attempt to
maximise value while realising investments during this volatile
environment. The Company and the Master fund will continue to meet
their working capital requirements and other obligations through
utilisation of existing cash resources.
The Directors consider the emergence of the Covid-19 pandemic to
be a non-adjusting post balance sheet event and hence any future
impact is likely to be in connection with the assessment of the
fair value of investments at future valuation dates. The Fund's
portfolio of investments may see a range of impacts due to
Covid-19, the specifics of which will depend on a variety of
factors, including geographic location, industry sector, the
effectiveness of governmental actions and country specific
infection rates, amongst others. The Board and the Investment
Manager are actively working towards assessing and minimizing risks
to the Fund's portfolio, however, given the degree of uncertainty
around the potential future course of Covid-19, it is not possible
to accurately quantify the future impact on the portfolio at this
time.
Except as stated above, there are no other events after the
reporting date which require amendments to and/or disclosure in
these financial statements.
SHARE PRICE
Prices of Africa Opportunity Fund Limited are published daily in
the Daily Official List of the London Stock Exchange. The shares
trade under Reuters symbol "AOF.L" and Bloomberg symbol "AOF
LN".
MANAGER
Africa Opportunity Partners Limited.
COMPANY INFORMATION
Africa Opportunity Fund Limited is a Cayman Islands incorporated
closed-end investment company admitted to trading on the SFS
operated by the London Stock Exchange.
CAPITAL STRUCTURE
The Company has an authorized share capital of 1,000,000,000
ordinary shares of US$0.01 each of which 74,849,606 are issued and
fully paid.
LIFE OF THE COMPANY
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 June 2019, the Directors convened an Annual General Meeting
and an Extraordinary General Meeting where the following was
passed:
-- Ordinary resolution that the requirement of the Company to
propose the realisation opportunity be and is hereby waived.
-- Ordinary resolution that the continuation of the existence of
the Company be and is hereby approved.
-- The text set out under "New Investing Policy" in paragraph 2
of Part III of the Company's circular to Shareholders dated 5 June
2019 (the "Circular") be and is hereby adopted as the new
investment policy of the Company;
-- The terms of the Amended and Restated Investment Management
Agreement (as defined in the Circular) be and are hereby
approved;
-- The memorandum and the articles of association in the form
initialled by the Chair of the meeting be adopted as the memorandum
and articles of association of the Company in substitution for and
to the exclusion of the existing memorandum and articles of
association; and
-- Any variation to the rights attaching to the Ordinary Shares
in the Company pursuant to the adoption of the new memorandum and
articles of association, and in particular the right for the
Company to redeem the Ordinary Shares (including any redemptions
made of 15 per cent. or more of the Company's issued share
capital), be and is hereby approved.
A brief synopsis of the "New Investing Policy" is below: (Please
review the Company's Circular dated 5 June 2019 for a detailed and
comprehensive description of the Policy):
For a period of up to three years following the EGM (the "Return
Period"), the Company will make no new investments (save that it
may invest in, or advance additional funds to, existing investments
within the Company's portfolio to maximise value and assist in
their eventual realisation). The Company will adopt the New
Investment Policy whereby the Company's existing portfolio of
investments will be divested in a controlled, orderly and timely
manner to facilitate a staged return of capital.
It should be appreciated that there is no time horizon in terms
of the implementation of the New Investment Policy. Although the
Company's portfolio is comprised of largely liquid equity holdings,
the Company has some illiquid investments and it may take the
Investment Manager some time to realise these.
REGISTERED NUMBER
Registered in the Cayman Islands number MC-188243.
Website
www.africaopportunityfund.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FLFIDSFIIVII
(END) Dow Jones Newswires
April 30, 2020 13:10 ET (17:10 GMT)
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