TIDMAOF
RNS Number : 3436A
Africa Opportunity Fund Limited
28 September 2020
Africa Opportunity Fund Limited
("AOF" or the "Company", or the "Fund")
Half Yearly Report for the Six Months ended 30 June 2020
T h e Board of Direc tors of Africa O pportunity Fund Limited is
pl eased to announce its un a udit ed r e sults for the 6 month
period to 30 June 2020. T he full half yearly r e port for the
period ended 30 June 2020 will be sent to shareholders and will be
a v a ilable soon on the Company's website: www. a fricaopportunit
y fu nd.com .
Highlights :
-- AOF's ordinary share n et asset value per s hare of U S $0.550 as at 30 June 2020 fell by
14% from the 31 December 2019 net asset value per share of U S $0.638. After adjusting for redemption and
dividend proceeds during H1, AOF's ordinary net asset value fell by 7%
-- As at 30 June 2020, A O F 's investment all ocat i on for its Ordin ary S har es was 79% equiti es, 5% d e bt
a nd 16% u n e ncumb ered cash.
-- AOF's Ordinary S h a res net asset v a lue per share as at 31 August 2020 was US $0.544.
-- AOF's Ordinary S h a res p aid an annual div i dend per share of $0.0172 per share for 2019.
-- AOF mandatorily redeemed 39.8 million shares for an aggregate consideration of $24 million. The first redemption
occurred on March 16, 2020 and the second redemption occurred on June 22, 2020.
Manager's Commentary :
Market Conditions
AOF's total return in H1 2020 was -7%. As a reference, during
this period in USD the S&P fell 3%, Brazil fell 40%, Russia
fell 20%, India fell 20%, and China rose 2%. In Africa, South
Africa fell 23%, Egypt fell 20%, Kenya fell 19%, and Nigeria fell
10%. Three Africa-focused exchange traded funds - the Lyxor ETF
(PAF FP), the DBX MSCI Africa Top 50 (XMAF LN), and Van Eck Africa
Index (AFK US), fell, respectively, 12%, 26%, and 19%.
Ordinary Shares Portfolio Highlights
AOF made progress realizing and distributing the proceeds from
its more liquid portfolio holdings during H1 2020. The Covid-19
pandemic and the global outbreak of national lockdowns account for
the sharp market declines of H1 and the depreciation of many
African currencies. The Zambian kwacha depreciated by 23% against
the US Dollar, the Botswana Pula by 10%, and the Kenyan shilling by
5% to cite a few examples. The Fund sold its entire holdings of
Anglogold Ashanti, Goldfields, Kosmos Energy, Continental
Reinsurance, Alexandria Containers, CEC Africa, Fastjet,
Multichoice Group, Vodacom, and debt of MTN Group. Except for the
Continental Reinsurance disposal pursuant to a corporate
transaction, all the disposals were made in the market. The worst
and best disposals took place in the natural resources portfolio,
in response to the 38% fall of Brent Crude from $66 to $41 and the
18% rise in gold to $1781 at the end of June.
The remaining holdings of the Fund are, as a generalization,
illiquid. Three of them accounted for 68% of the Fund's H1 losses.
Some commentary on them is in order. We intend to pursue a
combination of block trades plus the occasional corporate
transaction to effect an orderly realization of the remaining
portfolio.
Copperbelt lost 51% of its value in H1, as its extended contract
with its largest customer - Konkola Copper Mines ("KCM") - expired
and was replaced by an arrangement under which Copperbelt is paid
only 33% of the tariff that Copperbelt earned in normal operations.
The Zambian government imposed this profit destroying tariff by
edict from its Energy Regulation Board. These developments occurred
in late May after Copperbelt demanded the repayment of $130
million+ for several months' supply of electricity. Unsurprisingly,
a campaign to vilify Copperbelt is in full throttle in the Zambian
media. Copperbelt is now in technical default under its loan
agreements and is battling these regulatory edicts in court. The
government of Zambia, which now controls KCM after evicting its
former controlling shareholder, acts as if default remedies under
KCM's contracts are unenforceable. This conduct is far from
routine. AOF believes it is a violation of contract and deters both
domestic and foreign investment. To date, Zambian courts have
declined to interfere with Copperbelt's efforts to recover its
unpaid debts. Very little good will come out of this saga.
Enterprise Group lost 15% of its value in H1. It released both
its annual report and its Q1 and Q2 2020 results, all of which
confirmed emphatically the high quality of Enterprise's portfolio.
Ghana's Covid-19 lockdown constricted Enterprise's new life product
sales because its agency sales force could not interact directly
with prospective clients. Policy surrenders, terminations, and
withdrawals spiked in response to job retrenchments and furloughs.
To date, Ghana's Covid-19 experience has been muted by global
standards, even if it has one of Africa's higher Covid-19 case
numbers. From a valuation perspective, Enterprise bears all the
stigmata of a financial institution distrusted by the stock market,
its funders, and its regulators. Its equity trades on a P/B ratio
of 0.45x, a P/Embedded Value (alone) of 0.6x, a P/E ratio of 3x,
and a dividend yield of 3.8%.
What counts, over time, is whether Enterprise can increase the
embedded value earnings of its largest subsidiary - Enterprise
Life. Enterprise Life's embedded value must grow in
inflation-adjusted and US Dollar terms for Enterprise Group to
appreciate in US Dollars. Life companies in Europe, Africa, and
Asia, to name a few regions, are valued in corporate transactions
on their embedded value; not accounting or statutory profits.
Embedded value captures the net present value of a life company's
existing book of insurance policies. Enterprise Life's embedded
value has grown at annual rates of 26% in Cedis and 14% in Dollars
between 2016 and 2019. Over the same period, Enterprise Group's
embedded value earnings per share have risen, at a 21% annual rate,
from $0.08 to $0.14 per share. Lucrative new business margins are
key to these results. The 17% value of new business margin enjoyed
by Enterprise Life is a far cry from the 3% value of new business
margin target of Sanlam, Africa's largest insurance group. Yet,
Enterprise's current price approximates a 5-year low and is only
60% of its portion of Enterprise Life's embedded value. General
insurance, pension trustees, and real estate are all worth less
than zero in the eyes of the Ghanaian market. What uncertain
prospects could justify this low price? A probable explanation is
that exiting foreign shareholders have offered shares in much
higher volumes than local shareholders can absorb, with average
daily trading value in the last 12 months a mere $9,000.
Letshego produced a total return of -2% in H1. It is valued on a
P/E ratio of 2.4x, a P/B ratio of 0.35x and a dividend yield of
17%. Its capital adequacy ratio is 36% and its balance sheet is
liquid. Letshego gave two Covid-19 updates in Q2. Those updates
revealed that it was accelerating its digitalization strategy in
response to the Covid-19 pandemic. Furthermore, severe losses in
its modest micro and small enterprises loans book were more than
balanced by good experience in its deduction at source loan book.
For example, alternative loan disbursement channels - including
WhatsApp and the web - exploded from 2% of all channels in December
2019 to 31% in April 2020. Deduction at source (whereby a
borrower's employer - typically the government - deducts the
contractually due amount from that borrower's pay check before
depositing the balance in that borrower's bank account after paying
Letshego) collections, accounting for 88% of Letshego's loan book,
enjoyed a 92% collection rate and a 0.9% loan loss ratio during the
various Covid-19 lockdowns. By contrast, its micro and small
enterprises loan book, accounting for 9% of Letshego's total loan
book, suffered a 3.3% loan loss ratio. Moody's recently reaffirmed
Letshego's investment grade Ba3 credit rating with a stable
outlook. Letshego's H1 2020 results were consistent with our
expectations that it would avoid the dramatic plunge in bank
profitability occurring in South Africa, Europe, and North America.
Its net profit attributable to shareholders declined 20% while its
interim dividend fell by 9%. Prudence does dictate a slowdown in
loan growth. Nevertheless, the 9% additional decline inflicted on
its share price since Q2 seems unwarranted.
The Fund's Zimbabwean property investments rose 132% in H1,
despite a 78% depreciation of the Old Mutual Implied Rate in H1.
Hyperinflation is roaring through Zimbabwe, so institutional
investors and individuals have flocked into well-established
inflation hedges like property. To arrest the collapsing Zimbabwe
Dollar, Zimbabwe has suspended Old Mutual shares from the Zimbabwe
Stock Exchange. The foreign exchange value of the Zimbabwe Dollar,
as measured by Old Mutual Implied Rate (of the Dollar) at the end
of June, was far lower than all other official and unofficial
exchange rates. Mashonaland's book value was $61.3 million on
September 30, 2019 vs its market cap of $11.3 million on June 30,
2020. By contrast, First Mutual Properties' book value of $23
million on December 31, 2020 was close to its market cap of $21.48
million on June 30, 2020. Both companies are ungeared.
Mashonaland's properties could do with more refurbishment.
Admittedly, Harare's skyline is a far cry from the glitter and
glamour of global cities. Still, the replacement value of our
Zimbabwean properties is materially higher than their current
market valuations.
Strategy
The Fund is in the process of realizing its holdings. Two
distributions were made during H1 2020 in the form of compulsory
share redemptions worth a total of $24 million. The portfolio is
now comprised of less liquid holdings and we are looking to the
next 1-2 years to effectuate a realizing of the remaining
portfolio.
On Beh a lf of the Investment Mana ger, Africa Opportunity
Partners LLC.
Responsibility Statements:
The Board of Directors confirm that, to the best of their
knowledge:
a. The financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company.
b. The Interim Investment Manager Report, and Condensed Notes to
the Financial Statements include:
i. a fair review of the information required by DTR 4.2.7R
(indication of important events that have occurred during the first
six months and their impact on the financial statements, and a
description of principal risks and uncertainties for the remaining
six months of the year); and
ii. a fair review of the information required by DTR 4.2.8R (confirmation that no related party transactions have taken place in the first six months of the year that have materially affected the financial position or performance of the Company during that period).
Per Order of the Board
25 September 2020
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
For the period For the period
ended 30 ended 30
June June
Notes 2020 2019
---------------------------- ---------------------------
USD USD
Income
Net gains on investment in
subsidiaries
at fair value
through profit or loss 6(a) - 2,085,851
- 2,085,851
---------------------------- ---------------------------
Expenses
Net losses on investment in
subsidiaries
at fair value
through profit or loss 6(a) 3,149,501 -
Management fee 405,569 505,744
18,900 -
Custodian fees, brokerage fees
and commissions
Other operating expenses 78,111 105,959
Directors' fees 8,750 87,500
Audit fees 34,433 46,180
3,695,264 745,383
---------------------------- ---------------------------
Total comprehensive (loss)/income
for the period (3,695,264) 1,340,468
============================ ===========================
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
Notes 30 June 2020 30 June
2019
------------------------ ----------------
USD USD
ASSETS
Cash and cash equivalents 8 31,057 115,532
Trade and other receivables 7 81,567 20,823
Investment in subsidiaries 6(a) 19,271,879 51,521,749
Total assets 19,384,503 51,658,104
------------------------ ----------------
EQUITY AND LIABILITIES
LIABILITIES
Trade and other payables 10 111,726 79,354
Total liabilities 111,726 79,354
------------------------ ----------------
Net assets attributable to shareholders 19,272,777 51,578,750
======================== ================
Ordinary share capital 350,062 748,496
Share premium 13,553,259 37,921,452
Retained earnings 5,369,456 12,908,802
Total equity 19,272,777 51,578,750
======================== ================
Net assets value per share:
- Ordinary shares 0.551 0.689
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
Share Share Retained
Capital Premium Earnings Total
---------------------- ------------------- ---------------------- -----------------
USD USD USD USD
At 1 January 2020 748,496 37,921,452 9,064,720 47,734,668
CAPITAL
TRANSACTIONS:
Redemption of
ordinary
shares (398,434) (23,601,566) - (24,000,000)
Dividend Payment - (766,627) - (766,627)
OPERATIONS:
Total
comprehensive
loss for the
period - - (3,695,264) (3,695,264)
---------------------- ------------------- ---------------------- -----------------
At 30 June 2020 350,062 13,553,259 5,369,456 19,272,777
====================== =================== ====================== =================
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
For the period For the period
ended ended
30 June 2020 30 June 2019
----------------------------- --------------------------------
USD USD
Operating activities
Total comprehensive (loss)/income
for the period (3,695,264) 1,340,468
Adjustment for non-cash items:
Unrealised loss (gain) on investment
in subsidiaries at
fair value through profit or loss 3,149,501 (2,085,851)
----------------------------- --------------------------------
Cash used in operating activities (545,763) (745,383)
----------------------------- --------------------------------
Net changes in operating assets and
liabilities
Proceeds from investment in subsidiaries
at fair value
through profit or loss 25,466,628 950,000
Increase in trade and other receivables (3,476) (15,874)
Decrease in trade and other payables (222,772) (77,587)
----------------------------- --------------------------------
Net cash generated from operating
activities 25,240,380 856,539
----------------------------- --------------------------------
Financing activities
Redemption of ordinary shares (24,000,000) -
Dividend Payment (766,627) -
----------------------------- --------------------------------
(24,766,627) -
Cash used in financing activities
----------------------------- --------------------------------
Net (decrease)/increase in cash and
cash equivalents (72,010) 111,156
Cash and cash equivalents at 1 January 103,067 4,376
----------------------------- --------------------------------
Cash and cash equivalents at 30 June 31,057 115,532
============================= ================================
AFRICA OPPORTUNITY FUND LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
1. GENERAL INFORMATION
Africa Opportunity Fund Limited (the "Company") was launched
with an Alternative Market Listing "AIM" in July 2007 and moved to
the Specialist Funds Segment "SFS" in April 2014.
Africa Opportunity Fund Limited is a closed-ended fund
incorporated with limited liability and registered in Cayman
Islands under the Companies Law on 21 June 2007, with registered
number MC-188243.
The Company aims to achieve capital growth and income through
investment in value, arbitrage, and special situations investments
in the continent of Africa. The Company may therefore invest in
securities issued by companies domiciled outside Africa which
conduct significant business activities within Africa. The Company
has the ability to invest in a wide range of asset classes
including real estate interests, equity, quasi-equity or debt
instruments and debt issued by African sovereign states and
government entities.
The Company's investment activities are managed by Africa
Opportunity Partners Limited, a limited liability company
incorporated in the Cayman Islands and acting as the investment
manager pursuant to an Amended and Restated Investment Management
Agreement dated 12 February 2014.
To ensure that investments to be made by the Company and the
returns generated on the realisation of investments are both
effected in the most tax efficient manner, the Company has
established Africa Opportunity Fund L.P. as an exempted limited
partnership in the Cayman Islands. All investments made by the
Company are made through the limited partnership. The limited
partners of the limited partnership are the Company and AOF CarryCo
Limited. The general partner of the limited partnership is Africa
Opportunity Fund (GP) Limited. Africa Opportunity Fund Limited
includes 100% of Africa Opportunity Fund (GP) Limited.
The financial statements for the Company for the half year ended
30 June 2020 were authorised for issue in accordance with a
resolution of the Board of Directors on 25 September 2020.
Presentation currency
The financial statements are presented in United States dollars
("USD").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied from the prior period to the current
period 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 period, 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 disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period.
Although these estimates are based on management's knowledge of
current events and actions, actual results ultimately may differ
from those estimates. In additional 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 judgment 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.
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 equity.
(a) Classification
The Company classifies its financial assets and liabilities in
accordance with IAS 39 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 designated 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.
(i) Financial assets and liabilities 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 Company the underlying
asset at an agreed-upon value either on or before the expiration of
the option.
Options are generally settled on a net basis.
Contracts for difference
Contracts for difference are derivatives that obligate either
the buyer or the seller to pay to the other the difference between
the asset's current price and its price at the time of the
contract's usage. Unrealized gains or losses are recorded at the
end of each time period that passes without the CFDs being used.
Once the CFDs are used, the difference between the opening position
and the closing position is recorded as either revenue or a loss
depending on whether the business was the buyer or the seller.
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 assets 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.
(b) 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.
(c) 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.
(d) 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
derecognise, 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.
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 a 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 dividend income and expenses.
Unrealised gains and losses comprise changes in the fair value
of financial instruments for the period and from reversal of prior
period'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 loans and receivables for recognition and
measurement.
Shares that impose on the Company, an obligation to deliver to
shareholders a pro-rata share of the net asset of the Company on
liquidation classified as financial liabilities
The shares are classified as equity if those shares have all the
following features:
(a) It entitles the holder to a pro rata share of the Company's
net assets in the event of the Company's liquidation.
The Company's net assets are those assets that remain after
deducting all other claims on its assets. A pro rata share is
determined by:
(i) dividing the net assets of the Company on liquidation into
units of equal amount; and
(ii) multiplying that amount by the number of the shares held by
the shareholder.
(b) The shares are in the class of instruments that is
subordinate to all other classes of instruments. To be in such a
class the instrument:
(i) has no priority over other claims to the assets of the Company on liquidation, and
(ii) does not need to be converted into another instrument
before it is in the class of instruments that is subordinate to all
other classes of instruments.
(c) All shares in the class of instruments that is subordinate
to all other classes of instruments must have an identical
contractual obligation for the issuing Company to deliver a pro
rata share of its net assets on liquidation.
In addition to the above, the Company must have no other
financial instrument or contract that has:
(a) total cash flows based substantially on the profit or loss,
the change in the recognised net assets or the change in the fair
value of the recognised and unrecognised net assets of the Company
(excluding any effects of such instrument or contract) and
(b) the effect of substantially restricting or fixing the
residual return to the shareholders.
The shares that meet the requirements to be classified as a
financial liability have been designated as at fair value through
profit or loss on initial recognition.
In 2017, the Ordinary Shares and Class C Shares were merged into
one single class of shares 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
for all interest-bearing financial instruments using the effective
interest method.
Dividend revenue and expense
Dividend revenue is recognised when the Company's right to
receive the payment is established. Dividend revenue is presented
gross of any non-recoverable withholding taxes, which are disclosed
separately in profit or loss. Dividend expense relating to equity
securities sold short is recognised when the shareholders' right to
receive the payment is established.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank. Cash
equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of change in value.
3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Company applied for the first-time certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2020. 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 2020, 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 2020:
Effective for accounting
period beginning on or
after
Standards and Amendments:
IFRS 3 Business Combination Definition of a Business -
Amendments to IFRS 3 1 January 2020
IAS 1 Presentation of Financial Statements and IAS 8 Accounting
Polies, 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
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 17 Insurance Contracts
1 January 2023
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:
The preparation of the Company's financial statements requires
management to make judgments, 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 the future periods.
Judgements
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
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.
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 interim financials, 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 1,993,615. 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 30 June, 2020 was 82.00 ZWL, the
corresponding Old Mutual share price in Dollars on the London Stock
Exchange was $0.69545, and the quoted share price of First Mutual
Properties was 2.05 ZWL. The share price of First Mutual Properties
recorded in the financial statements of the Fund was $0.0174
=2.05
ZWL*($0.69545/82 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 percent 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 will
be 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:
The 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 period under review amounts
to USD 405,569 (2019: USD 505,744) of which USD 99,585 (2019: USD
nil) relates to accrued realisation fees and the performance fees
for the financial period under review was nil (2019: 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. 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 hold 100% of the
Africa Opportunity Fund (GP) Limited.
2020
---------------------------------
USD
Investment in Africa Opportunity
Fund L.P. 19,269,832
Investment in Africa Opportunity
Fund (GP) Limited 2,047
---------------------------------
Total investment in subsidiaries
at fair value 19,271,879
=================================
Fair value at 01 January 47,888,007
Distribution income* (25,466,627)
Net loss on investment in subsidiaries
at fair value (3,149,501)
---------------------------------
Fair value at 30 June 2020 19,271,879
=================================
*"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, compulsory redemptions and
dividends.
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.
30 June
2020 Level 1 Level 2 Level
3
---------------------- ---------------------- -------------------------- -----------------
COMPANY USD USD USD USD
Investment in
subsidiaries 19,271,879 - 19,271,879 -
====================== ====================== ========================== =================
MASTER FUND
Financial assets at fair value
through profit or loss
Equities 17,139,625 14,778,432 2,361,193 -
Debt securities 943,999 943,999 - -
---------------------- ---------------------- -------------------------- -----------------
18,083,624 15,722,431 2,361,193 -
====================== ====================== ========================== =================
The valuation technique of the investment in subsidiaries at
Company level is as follow:
The Company's investment manager considers the valuation
techniques and inputs used in valuing these funds as part of its
due diligence, to ensure they are reasonable and appropriate and
therefore the NAV of these funds may be used as an input into
measuring their fair value. In measuring this fair value, the NAV
of the funds is adjusted, as necessary, to reflect restrictions on
redemptions, future commitments, and other specific factors of the
fund and fund manager. In measuring fair value, consideration is
also paid to any transactions in the shares of the fund. Given that
there has been no such adjustments made to the NAV of the
underlying subsidiaries and given the simple structure of the
subsidiaries investing over 98% in quoted funds, the Company
classifies these investment in subsidiaries as Level 2.
The valuation techniques of the investments at master fund level
are as follows:
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 quote 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. Subsequent
reviews of this position as at 30 June 2020 and 31 December 2019
concluded this investment remains fairly valued at its existing
level.
6(c). Statement of Comprehensive Income of the Master Fund for
the period from 1 January 2020 to 30 June 2020
The net losses on investments in subsidiaries at fair value
through profit or loss for the period from 1 January 2020 to 30
June 2020 amounted to USD 3,149,501, and net gains on investments
in subsidiaries at fair value through profit or loss for the period
from 1 January 2019 to 30 June 2019 amounted to USD 2,085,851
arising at the Master Fund and can be analysed as follows:
For the period
ended 30 June
2020
---------------------------
USD
Income
Interest revenue 147,916
Dividend revenue 297,352
Other income 347
Net foreign exchange gain 119,929
---------------------------
565,544
---------------------------
Expenses
Net losses on financial assets and liabilities
at fair value
through profit or loss 3,568,930
Custodian fees, brokerage fees and
commission 73,716
Other operating expenses 50,239
Audit fees 11,433
---------------------------
3,704,318
---------------------------
Operating loss before tax (3,138,774)
Less withholding tax (26,823)
---------------------------
Total Comprehensive loss for the period (3,165,597)
===========================
Attributable to:
AOF Limited (direct interests) (3,149,375)
AOF Limited ( indirect interests through
AOF (GP) Ltd) (126)
(3,149,501)
AOF CarryCo Limited (minority interests) (16,096)
(3,165,597)
===========================
(i) Net gains/(losses) on financial assets and liabilities at
fair value through profit or loss held by Africa Opportunity Fund
L.P.
For the For the
period period
ended 30 ended
June 30 June
2020 2019
------------------------- -----------------------------
USD USD
Net gains/(losses) on fair value of financial
assets at fair value through profit or loss (4,741,144) 3,477
Net gains on fair value of financial
liabilities
at fair value through profit or loss 1,172,214 780,313
------------------------- -----------------------------
Net (losses)/gains (3,568,930) 783,790
========================= =============================
(ii) Financial asset and liabilities at fair value through
profit or loss held by Africa Opportunity Fund L.P.
For the period For the period
ended 30 ended 30
June June
2020 2019
---------------------- ------------------------
USD USD
Held for trading assets:
At 1 January 38,372,508 49,278,324
Additions 212,755
-
Disposal (15,760,495) (5,910,300)
Net (losses)/gains on financial assets
at fair value through profit or loss (4,741,144) 3,477
---------------------- ------------------------
At 30 June (at fair value) 18,083,624 43,371,501
====================== ========================
Analysed as follows:
- Listed equity securities 14,778,432 38,603,318
- Listed debt securities 155,590 1,295,766
- Unlisted equity securities 2,361,193 2,362,443
- Unlisted debt securities 788,409 1,109,974
---------------------- ------------------------
18,083,624 43,371,501
====================== ========================
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
For the period For the period
ended 30 ended 30
June June
2020 2019
------------------------- -----------------------------
USD USD
Realised (3,230,197) (2,167,773)
Unrealised (1,510,947) 2,171,250
------------------------- -----------------------------
Total gains/(losses) (4,741,144) 3,477
========================= =============================
(iv) Financial liabilities at fair value through profit or loss
held by Africa Opportunity Fund L.P.
30 June 2020 30 June 2019
-------------------------------- ---------------------------
USD USD
Held for trading financial
liabilities
Written put options - 16,875
---------------------------- ---------------------------
Financial liabilities at fair
value through profit or loss - 16,875
============================ ===========================
(v) Net changes on fair value of financial liabilities at fair value through profit or loss
For the period For the
period
ended 30 ended 30
June June
2020 2019
----------------------- -----------------------
USD USD
Realised 1,209,326 349,152
Unrealised (37,112) 431,161
----------------------- -----------------------
1,172,214 780,313
======================= =======================
7. OTHER RECEIVABLES
30 June 2020 30 June
2019
------------------------ ---------------------
USD USD
Other receivable 78,930 20,116
Prepayments 2,637 707
------------------------ ---------------------
81,567 20,823
======================== =====================
8. CASH AND CASH EQUIVALENTS
30 June 30 June
2020 2019
-------------------- -------------------
USD USD
Other bank accounts 31,057 115,532
==================== ===================
9(a). ORDINARY SHARE CAPITAL
30 June 30 June 30 June 30 June
2020 2020 2019 2019
---------------------- -------------------- ------------------ --------------------
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 2020 47,734,668
Changes during the period:
Total comprehensive loss
for the period (3,695,264)
Redemption of ordinary
shares (24,000,000)
----------------------------
At 30 June 2020 20,039,404
============================
Net asset value per share
at 30 June 2020 0.551
============================
10. TRADE AND OTHER PAYABLES
30 June 30 June 2019
2020
------------------- ----------------------
USD USD
Directors Fees
Payable - 43,750
Other Payables 111,726 35,604
------------------- ----------------------
111,726 79,354
=================== ======================
Other payables are non-interest bearing and have an average term
of six months.
11. EARNING PER SHARE
The earnings per share is calculated by dividing the decrease in
net assets attributable to shareholders by number of ordinary
shares in issue during the period excluding ordinary shares
purchased by the Company and held as treasury shares.
The Company's diluted earnings per share are the same as basic
earnings per share, since the Company has not issued any instrument
with dilutive potential.
Period from Period from
1 1
January 2020 January 2019
to 30 June to 30 June
2020 2019
------------------------------ -------------------------------
Ordinary Ordinary
shares shares
------------------------------ ---------------------------------
Change in net assets
attributable
to shareholders USD (3,695,264) 1,340,468
============================== =================================
Number of shares in issue 35,006,160 74,849,606
============================== =================================
Change in net assets
attributable
to shareholders
per share USD (0.106) 0.018
============================== =================================
12. ANALYSIS OF NAV OF MASTER FUND ATTRIBUTABLE TO ORDINARY SHARES
12(a). STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020
30 June 2020
-----------------------
ASSETS
Cash and cash equivalents 1,948,082
Trade and other receivables 54,356
Financial assets at fair value through
profit or loss 18,083,624
Total assets 20,086,062
-----------------------
EQUITY AND LIABILITIES
Liabilities
Trade and other payables 482,864
Due to AOF Ltd 70,180
Total liabilities 553,044
-----------------------
Net assets attributable to shareholders 19,533,018
=======================
The earnings per share is calculated by dividing the decrease in
net assets attributable to shareholders by number of shares
outstanding.
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.
14. 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.
15. PERSONNEL
The Company did not employ any personnel during the period
(2018: the same).
16. COMMITMENTS AND CONTINGENCIES
There are no commitments or contingencies at the reporting
date.
17. SIGNIFICANT EVENTS
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, and again on 15 June 2020, the Board of Directors of
Africa Opportunity Fund Limited approved the mandatory redemptions
of 30,278,230 and 9,565,216 Ordinary shares, respectively. On 16
March 2020, and again on 22 June 2020, the mandatory redemptions
were 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 and the 9,565,216 Ordinary Shares, on
a pro rata basis, at the prevailing NAV per Ordinary Share of
$0.575 as at 31 May 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 and 22 June 2020. Any share certificates for
the balance of holdings of shares were despatched to shareholders
on or around 25 March 2020 and 22 June 2020. Following the
Mandatory Redemptions, the Company has 35,006,160 Ordinary Shares
in issue. As of 31 December 2019, 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
Redemptions described above, Robert Knapp and Myma Belo-Osagie now
hold 5,651,225 and 46,769 Ordinary Shares, respectively. The
redemptions were funded through proceeds received from realising
the assets of the Company. The proceeds received have been used
partly for redemption of shares to the Shareholders amounting to
USD 24.0M, a dividend payment of USD 766,628 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
August 2020, over 50% of the remaining investment portfolio as at
31 December 2019 has been disposed. The proceeds from the disposal
of these investments as well as existing cash resources as at 31
December 2019 have been used for redemption of shares on 16 March
2020 and 22 June 2020, and for the 22 June 2020 dividend payment.
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.
Except as stated above, there are no other events after the
reporting date which require amendments to and/or disclosure in
these financial statements.
18. LIFE OF THE COMPANY
The Company does not have a fixed life but, as stated in the
Company's admission document published in 2007, the Directors
consider it desirable that Shareholders should have the opportunity
to review the future of the Company at appropriate intervals.
Accordingly, Shareholders passed an ordinary resolution at an
extraordinary general meeting of the Company on 28 February 2014
that the Company continues in existence.
In 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.
In summary, shareholders voted to give AOF three years during
which the Investment Manager will realize the portfolio in an
orderly manner and distribute the proceeds to the shareholders.
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.
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.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR BUGDCSDDDGGI
(END) Dow Jones Newswires
September 28, 2020 11:32 ET (15:32 GMT)
Africa Opportunity (LSE:AOF)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Africa Opportunity (LSE:AOF)
Historical Stock Chart
Von Jul 2023 bis Jul 2024