TIDMAOF
RNS Number : 0595B
Africa Opportunity Fund Limited
29 September 2022
29 September, 2022
Africa Opportunity Fund Limited
("AOF" or the "Company", or the "Fund")
Half Yearly Report for the Six Months ended 30 June 2022
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 2022. T he full half yearly r e port for the
period ended 30 June 2022 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
$1.003 as at 30 June 2022, generating a total return of -4.7% from
the 31 December 2021 net asset value per share of U S $1.052.
-- As at 30 June 2022, A O F 's investment all ocat i on for its
Ordin ary S har es was all equiti es.
-- AOF's shareholders voted on 29 June 2022 to extend the
realisation period of its portfolio from 30 June 2022 to 30 June
2024.
-- AOF's Ordinary S h a res net asset v a lue per share on 31 July 2022 was US $0.96.
-- AOF mandatorily redeemed 4.57 million shares for an aggregate
consideration of $4.5 million in July 2022.
Manager's Commentary :
Market Conditions
AOF's total return in H1 2022 was -4.7%. As a reference, during
this period in USD the S&P fell 20%, Brazil rose 1%, Russia
fell 19%, India fell 13%, and China fell 8%. In Africa, South
Africa fell 8%, Egypt fell 34%, Kenya fell 25%, and Nigeria rose
26%. Three Africa-focused exchange traded funds - the Lyxor Pan
Africa ETF (LGQM GY), the DBX MSCI Africa Top 50 (XMAF LN), and Van
Eck Africa Index (AFK US), fell, respectively, 15%, 17%, and
16%.
Ordinary Shares Portfolio Highlights
AOF made progress realising and distributing the proceeds from
its less liquid portfolio holdings during H1 2022. The Russian
invasion of Ukraine, rising global inflation, an appreciating US
Dollar, and the spate of China Covid-19 lockdowns casting a pall on
commodity demand were the proximate global causes for the sharp
market declines of H1 and the depreciation of African currencies
like the CFA Franc and the Egyptian Pound. The Ghanaian Cedi's 23%
depreciation against the US Dollar, however, was primarily driven
by internal factors such as sharp rises in Cedi-denominated debt
yields and the Ghana government's loss of access to the Eurobond
markets as the spread on its Eurobonds soared comfortably above
1,000 basis points over US government bonds to place them in the
distressed debt category. The Fund sold its entire holding of
Societe de Caoutchous de Grand-Bereby, sold most of its Letshego
shares, and a modest amount of its Copperbelt holdings. All the
disposals were made in the market.
The remaining holdings of the Fund are, as a generalisation,
very 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 realisation of the remaining
portfolio.
Enterprise Group's shares, in H1, gained 18% in Cedis but fell
8% in US Dollars. It released its annual report and its Q1 and Q2
2022 results. Enterprise Group faces the deep uncertainties of a
Ghana negotiating its 17(th) program with the International
Monetary Fund. Enterprise's H1 2022 net profits belonging to its
shareholders, year-on-year, rose by 29% in Cedis and 5% in US
Dollars. Operating expenses, H1-on-H1, rose 19% versus a 29%
increase in net insurance premia in the same period. However,
investment income was stagnant and benefits and claims rose by 42%,
year-on-year. It is displaying resilience in US Dollars.
Enterprise's shares trade on a P/E ratio of 6.5x and a P/B ratio of
0.82x, with a return on average equity of 13%. Enterprise's US
Dollar track record of book value per share change and dividends
paid between 2001 and 2021, despite an 88% depreciation of the
Cedi, was a 39x multiple. Over time, against this macroeconomic
stress, it should continue to grow its revenues and profits.
Copperbelt Energy executed a new 13-year Bulk Supply Agreement
with ZESCO in H1. Its execution (two years in the making since the
2020 expiry of the old Bulk Supply Agreement) allows Copperbelt and
ZESCO to plan their capital expenditure programs over a long
period, as befits the capital-intensive electricity sector. At
Copperbelt's current share price of ZMW 3.5/share (corresponding to
$369 million market capitalization and an enterprise value of $295
million), Copperbelt trades on a P/E ratio of 5.6x, a gross
dividend yield of 14.27%, and a P/B ratio of 1.05x. Its annualised
return on assets is 8.8% and its annualised return on equity is
17.5%. Copperbelt's H1 2022 results were strong: total energy
transmitted through its networks rose 7% to 3461 GWh; revenues rose
12%, EBITDA rose 11%, cash generated from operations rose 16%, net
profits rose 18% to $30 million, and its net cash balance rose 27%
to $106 million. In sum, Copperbelt is a net cash electric utility
of improving fortunes.
Zimbabwean inflation continues to rise rapidly. It is now over
200%. Its currency dropped sharply in the parallel market. The
proximate causes were, in all likelihood, the rocketing costs of
fuel and grain imports. Consequently, the valuations of First
Mutual Properties and Mashonaland Holdings fell sharply in US
Dollars. The Fund's property holdings preserve purchasing power in
the long run in an economy suffering from foreign currency
shortages and hyperinflation.
Extraordinary general meeting of the Fund's shareholders
The Fund held an extraordinary general meeting in June 2022 to
determine whether to extend the realisation period of the Fund.
Consistent with the Fund's investment policy, the Investment
Manager sought to maximise sales proceeds from the Fund's
portfolio. However, the pace of disposal was slower than
anticipated because of the negative impacts on valuation and
liquidity of some of the Fund's holdings arising from unexpected
developments like the covid pandemic and the Ukraine war and, in
some cases, company-idiosyncratic events. The Investment Manager's
response was to delay disposals until its estimates of intrinsic
value were approached in market valuations. The Fund's NAV
performance benefited substantially from this response. A majority
of the Fund's shareholders voted to extend the Fund's realisation
period to June 2024.
Strategy
The Fund is in the process of realising its holdings. The
Investment Manager's approach is to combine a steadfast quest to
realise the approximate appraisal or intrinsic value of each
security together with opportunistic sales. A distribution was made
in July 2022 in the form of a compulsory share redemption worth
$4.5 million. The portfolio is now comprised of illiquid holdings
and we are looking to the extension period to effectuate a
realising of the remaining portfolio.
On Beh a lf of the Investment Mana ger, Africa Opportunity
Partners LLC.
Responsibil ity Statements:
T h e Board of Direc tors confirm that, to the best of their
knowledge:
a. T he financial statements, pre pared in a c co r dance with I
nt e rnation al Financial Reporti ng Standards, give a true a nd
fair view of the assets, liabil ities, financial position and
profit or loss of the Company.
b. T he I nterim 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 import a nt eve nts that have occur red during the
first six months and their impact on the financial statements, a nd
a desc r ipti on of prin cipal risks a nd uncertainties for the rem
a ining six months of the year); and
ii. a fair review of the information required by DTR 4.2.8R
(confirmation th at no related p a r ty transactions have taken
place in the first six months of the year t h at have materially
affected the fin a nci al position or performa nce of the Company
dur i ng th at period).
Per Order of t he Board
28 September, 2022
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
For the For the period
period
ended 30 ended 30
June June
Notes 2022 2021
---------------------------- ---------------------------
USD USD
Income
Net gains on investment in subsidiaries
at fair value
through profit or loss 6(a) - 9,437,363
- 9,437,363
---------------------------- ---------------------------
Expenses
Net losses on investment in subsidiaries
at fair value
through profit or loss 6(a) 1,022,622 -
Realisation fee 25,000 149,395
Other operating expenses 56,576 44,590
Directors' fees 35,000 35,000
Audit and professional fees 66,670 67,228
1,205,868 296,213
---------------------------- ---------------------------
(Loss)/income for the period attributable
to equity holders (1,205,868) 9,141,150
============================ ===========================
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2022
Notes 30 June 30 June
2022 2021
------------------------ -----------------
USD USD
ASSETS
Cash and cash equivalents 8 50,103 39,604
Investment in subsidiaries at fair
value through profit or loss* 6(a) 24,823,222 24,557,221
Receivable from related party 7 186,985 116,675
Other receivables 7 1,123 1,257
Total assets 25,061,433 24,714,757
------------------------ -----------------
EQUITY AND LIABILITIES
LIABILITIES
Trade and other payables 10 190,108 221,833
Total liabilities 190,108 221,833
------------------------ -----------------
Net assets attributable to shareholders 24,871,325 24,492,924
======================== =================
Ordinary share capital 247,878 247,878
Share premium 6,451,469 6,440,920
Retained earnings 18,171,978 17,804,126
Total equity 24,871,325 24,492,924
======================== =================
Net assets value per share:
- Ordinary shares 1.003 0.988
======================== =================
*The investment in subsidiares at fair value through profit or loss
include the investment in the Master Fund -
Africa Opportunity Fund L.P.
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
Share Share Retained
Capital Premium Earnings Total
---------------------- ------------------------ ------------------ -----------------
USD USD USD USD
At 1 January
2022 247,878 6,451,469 19,377,846 26,077,193
OPERATIONS:
Total
comprehensive
income
for the period - - (1,205,868) (1,205,868)
---------------------- ------------------------ ------------------ -----------------
At 30 June 2022 247,878 6,451,469 18,171,978 24,871,325
====================== ======================== ================== =================
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
For the period For the period
ended ended
30 June 2022 30 June 2021
-------------------------------- -------------------------------
USD USD
Operating activities
(Loss)/income for the period (1,205,868) 9,141,150
Adjustment for non-cash items:
Net losses/(gains) on investment
in subsidiaries at
fair value through profit or
loss 1,022,622 (9,437,363)
-------------------------------- -------------------------------
Cash used in operating activities (183,246) (296,213)
-------------------------------- -------------------------------
Net changes in operating assets
and liabilities
Reduction in investments in
subsidiaries at fair value
through profit or loss 249,500 7,453,896
Increase in loan receivable
from related party (37,433) (33,346)
Increase in other receivables 6,739 6,259
(Decrease)/increase in trade
and other payables (6,926) 74,016
-------------------------------- -------------------------------
Net cash generated from operating
activities 211,880 7,500,825
-------------------------------- -------------------------------
Financing activities
Redemption of ordinary shares - (7,203,973)
-------------------------------- -------------------------------
Cash used in financing activities - (7,203,973)
-------------------------------- -------------------------------
Net increase in cash and cash
equivalents 28,634 639
Cash and cash equivalents at
1 January 21,469 38,965
-------------------------------- -------------------------------
Cash and cash equivalents
at 30 June 50,103 39,604
================================ ===============================
AFRICA OPPORTUNITY FUND LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
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 Fund 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 is exempted from registering with
CIMA under the Private Funds Act of the Cayman Islands given that
it is listed on the SFS of the London Stock Exchange which is
approved by CIMA.
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 LLC, a limited liability company incorporated
in the Delaware, United States and acting as the investment manager
pursuant to an Amended and Restated Investment Management Agreement
dated 13 June 2022.
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 half year ended
30 June 2022 were authorised for issue in accordance with a
resolution of the Board of Directors on 28 September 2022.
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
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.
As the entity is not a going concern due to the limited life,
the directors have considered an alternative basis of preparation
but believe that IFRS as a basis for preparation best reflects the
financial position and performance of the entity. The carrying
value of the assets, which were determined in accordance with the
accounting policies, have been reviewed for possible impairment and
changes which have occurred since the year end and consideration
has been given to whether any additional provisions are necessary
as a result of the decision to deregister. It is expected that all
assets will realise at least at the amounts at which they are
included in the statement of financial position and there will be
no material additional liabilities.
The Company presents its statement of financial position in
order of liquidity.
The Company's financial statements include disclosure notes on
the Master Fund, Africa Opportunity Fund L.P. given that the net
asset value of the Master Fund is a significant component of the
Investment in subsidiaries of the Company. These additional
disclosures are made in order to provide the users of the financial
statements within an overview of the Master Fund performance.
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
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 in accordance with IRFS 9 - Financial Instruments.
Management concluded that the Company meets the definition of an
investment entity as it invests solely for returns from capital
appreciations, investment income or both, and measures and
evaluates the performance of its investments on a fair value basis.
Accordingly, consolidated financial statements have not been
prepared.
(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 'other receivables,
receivables from related party' 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) Initial 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 earned elements of
such instruments are recorded separately in 'Interest revenue'.
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.
The Company derecognises a financial liability when the
obligation under the liability is discharged, cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in profit or
loss.
Determination of fair value
The Company measures it investments in subsidiaries at fair
value through profit or loss 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. When
measuring ECL, the Company uses reasonable and supportable
forward-looking information, which is based on assumptions for the
future movement of different economic drivers and how these drivers
will affect each other. Loss given default is an estimate of the
loss arising on default. It is based on the difference between the
contractual cash flows due and those that the entity would expect
to receive, taking into account cash flows from credit
enhancements. The Company considers a financial asset in default
when contractual payments are 90 days past due. However, in certain
cases, the Company may also consider a financial asset to be in
default when internal or external information indicates that the
Company is unlikely to receive the outstanding contractual amounts
in full before taking into account any credit enhancements held by
the Company. A financial asset is written off when there is no
reasonable expectation of recovering the contractual cash
flows.
At the reporting date, other receivables, loan receivables from
related party and cash and cash equivalents 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.
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.
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.
Dividend expense
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 2022. 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.
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
Amendments to IAS 8 - Accounting policies, Changes 1 January 2023
in Accounting Estimates and Errors
Amendments to IAS 1: Classification of Liabilities 1 January 2023
as Current or Non-current
The Company does not expect that the adoption of these standards
will have any material impact on the financial statements.
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
At the Extraordinary General Meeting ("EGM") of the Company held
on 29 June 2022, the shareholders voted in favor of a Continuation
Resolution which extended the life of the Company, with the current
Investment Policy remaining in place, to 30 June 2024. If the
assets of the Company are not realised over the period of the
extension, the Directors will formulate and revert to Shareholders
in 2024 further proposals to continue, reorganise or reconstruct
the Company or to wind up the Company.
The Company will continue to return sums to Shareholders by way
of compulsory redemption, repurchase of Ordinary Shares in the
market or such other method as determined by the Directors.
Below is a brief synopsis of the "New Investing Policy" as
approved with the passage of the Continuation Resolution and
consistent with the Company's Circular dated 5 June 2019, updated
to reflect the two-year continuance:
For a period of up to two additional years following the 29 June
2022 Extraordinary General Meeting (the "Extended 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 continue to 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 some liquid equity holdings, the Company's portfolio
is weighted to somewhat 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 if investments remain unrealised at the end of
the Extended Return Period. 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. The
extension of the Company through 30 June 2024 further supports this
methodology.
The carrying value of the of the assets, which were determined
in accordance with the accounting policies, have been reviewed for
possible impairment and changes which have occurred since the
half-year and consideration has been given to whether any
additional provisions are necessary as a result of the decision to
eventually deregister. It is expected that all assets are fairly
valued and will realise at, or near, the amounts at which they are
included in the statement of financial position and there will be
no material additional liabilities.
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.
The Board considers that the Company meets the definition of an
investment entity as it invests solely for returns from capital
appreciations, investment income or both, and measures and
evaluates the performance of its investments in subsidiaries on a
fair value basis. In addition, the Company has more than one
investors and the major investors are not related parties of the
Company. The Company also has an exit strategy given that it is a
limited life entity, realising its investments at the end of the
Return Period of 3 years as per the 'New Investment Policy'.
Accordingly, consolidated financial statements have not been
prepared. 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.
5a. AGREEMENTS
Investment Management Agreement
Effective 1 July 2022, the Company and the Investment Manager
have, upon the approval of the Reorganisation Resolution at the EGM
in June 2022, entered into the Amended and Restated Investment
Management Agreement which amends the fees payable to the
Investment Manager as follows:
Management fees
The management fee shall be reduced to 1 per cent of the Net
Asset Value per annum for the two years of the Extended Return
Period (the period of up to two years following the EGM held in
June 2022).
The Investment Manager's entitlement to future performance fees
(through CarryCo) has been 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 Extended
Return Period, that being 2024.
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 realisation fee for the financial period under review
amounts to USD 25,000 (2021: USD 149,395) of which USD 25,000
(2021: USD 32,500) relates to accrued realisation fees, management
and performance fees for the financial period under review were nil
(2021: 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.
5b. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AT THE MASTER FUND LEVEL
Africa Opportunity Fund LP (the "Master Fund") is incorporated
in the Cayman Islands and is not subject to regulatory review.
Management has voluntarily disclosed all the policies and notes to
the accounts of the Master Fund to provide shareholders of the
Company with a better insight.
The primary accounting policies for interest revenue and
expense, dividend revenue and expense and cash and cash
equivalents, are similar as in Note 2. Those policies which only
relate to the Master Fund's 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.
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 Master Fund 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.
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. 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.
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 .
Derivatives relating to options are recorded at the level of the
Master Fund. The financial statements of the Company do 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 Master Fund 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 Master Fund'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 Master
Fund includes in this category amounts relating to trade and other
payables and dividend payable.
(a) Recognition
The Master Fund 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.
(b) 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.
(c) Subsequent measurement
The Master Fund 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 earned
elements of such instruments are recorded separately in 'Interest
revenue'. Dividend expenses related to short positions are
recognised in 'Dividends on securities sold not yet purchased'.
Dividend income/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.
(iii) Other financial liabilities
(d) Subsequent measurement
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 Master Fund 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 Master Fund has transferred substantially all the
risks and rewards of the asset, or (b) the Master Fund has neither
transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset. When the
Master Fund 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 Master Fund's continuing
involvement in the asset.
The Master Fund derecognises a financial liability when the
obligation under the liability is discharged, cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in profit or
loss.
Determination of fair value
The 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 Master Fund. 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.
Impairment of financial assets
The Master Fund 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.
The Master Fund 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
Master Fund 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).
The Master Fund considers a financial asset in default when
contractual payments are 90 days past due. However, in certain
cases, the Master fund may also consider a financial asset to be in
default when internal or external information indicates that the
Master fund is unlikely to receive the outstanding contractual
amounts in full before taking into account any credit enhancements
held by the Master fund. A financial asset is written off when
there is no reasonable expectation of recovering the contractual
cash flows.
For trade receivables, the Master Fund applies a simplified
approach in calculating ECLs. Therefore, the Master Fund 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 assessment of the Master Fund's debt
instruments which include trade and other receivables and cash and
cash equivalents were considered as 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.
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
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.
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.
2022
----------------------------------
USD
Investment in Africa Opportunity Fund
L.P. 24,819,574
Investment in Africa Opportunity Fund
(GP) Limited 3,648
----------------------------------
Total investment in subsidiaries
at fair value 24,823,222
==================================
Fair value at 01 January 26,095,345
Reduction in investment in subsidiaries* (249,501)
Net loss on investment in subsidiaries
at fair value (1,022,622)
----------------------------------
Fair value at 30 June 2022 24,823,222
==================================
* The reduction in investment in subsidiaries relates to capital
withdrawn from the Master Fund by the Company.
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.
-- Fair value hierarchy of the Company
30 June
2022 Level Level 2 Level
1 3
--------------------- ----------------------- -------------------- -----------------
COMPANY USD USD USD
Investment in
subsidiaries 24,823,222 - 24,823,222 -
===================== ======================= ==================== =================
-- Fair value hierarchy of the Master Fund.
The Company has investment in Africa Opportunity Fund L.P., the
Master Fund, amounting to USD 24,823,222. The underlying
investments of the Master Fund amounts to USD 20,917,390. Details
on the financial assets and liabilities of the Master Fund and fair
value hierarchy are as follows:
30 June
2022 Level 1 Level 2 Level
3
----------------------- -------------------- -------------------------- -----------------
USD USD USD
MASTER FUND
Financial assets at fair
value through profit or
loss
Equities 20,793,464 14,958,151 5,835,313 -
Debt securities 123,926 123,926 - -
----------------------- -------------------- -------------------------- -----------------
20,917,390 15,082,077 5,835,313 -
======================= ==================== ========================== =================
6(c). 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 85% in quoted funds, the Company
classifies these investment in subsidiaries as Level 2.
6(d). The valuation technique 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 except for the valuation of listed
on the Zimbabwe Stock Exchange which have been classified as level
2 given that their quoted share price has been discounted as at 30
June 2022 as follows:
Valuation of investments listed on the Zimbabwe Stock
Exchange
Beginning in June 2020, the Zimbabwe authorities suspended Old
Mutual shares from the Zimbabwe Stock Exchange, necessitating the
Company to devise an alternative transparent discount factor. The
new discount factor is based on the official Zimbabwe Dollar
exchange rate at the end of June 2019, when the Zimbabwe Dollar,
became the sole legal tender in Zimbabwe, modified by the inflation
differential between Zimbabwe and the United States captured in
their respective monthly Consumer Price Indices (the US Consumer
Price Index is that for urban consumers), then adjusted by the
proportion of export proceeds that must be surrendered by
Zimbabwean exporters to the Zimbabwe Reserve Bank. The initial
surrender requirement was 20% of export proceeds, but the Company
after previously utilising a 5% surrender requirement to reflect
subsequent exemptions from this surrender requirement granted to
some export industries has re-established the 20% requirement to
adjust for Zimbabwean modifications to the official exchange rate.
This discount factor changes every month. The consequence of
applying this discount factor is that the Zimbabwe Dollar prices of
the Company's investments listed on the Zimbabwe Stock Exchange
were converted into US Dollars, as at 30 June 2022 at a discount
rate of 36.8% (the discount rate was 45.5% as at 30 June 2021). The
value of the Zimbabwe investments recorded in the books of the
Company, after applying this discount factor, was USD 2,709,513
(2021 USD 9,963,667).
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. As of 30 June 2022, the Company had no options
outstanding.
Unquoted 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 valued ALU on the basis of an
observable arms-length transaction between existing shareholders
selling a portion of their shares and an unaffiliated third party.
The transactions were ratified at a Board meeting in June 2021, and
thus were utilised as the basis of the valuation as at 31 December
2021. At 30 June 2022, the investment in ALU has been classified
under level 2 because the value of the investment utilises the
recent transaction.
6(e). Statement of profit or loss and other comprehensive Income
of the Master Fund for the period from 1 January to 30 June
2022
The net losses on investments in subsidiaries at fair value
through profit or loss for the period from 1 January 2022 to 30
June 2022 amounted to USD 1,022,622, and net gains on investments
in subsidiaries at fair value through profit or loss for the period
from 1 January 2021 to 30 June 2021 amounted to USD 9,437,363
arising at the Master Fund and can be analysed as follows:
For the period
ended 30 June
2022
----------------------------
USD
Income
Interest revenue 5,630
Dividend revenue 212,234
Net gains on financial assets and liabilities
at fair value
through profit or loss (1,116,210)
----------------------------
(898,346)
----------------------------
Expenses
Net foreign exchange loss 52,175
Custodian fees, brokerage fees and commission 87,309
Other operating expenses 2,473
----------------------------
141,957
----------------------------
Operating gain before tax (1,040,303)
Less withholding tax (1,570)
----------------------------
Total Comprehensive gain for the period (1,041,873)
============================
Attributable to:
AOF Limited (direct interests) (1,022,472)
AOF Limited (indirect interests through
AOF (GP) Ltd) (150)
(1,022,622)
AOF CarryCo Limited (NCI) (19,251)
(1,041,873)
============================
The financial assets and liabilities of the Master Fund are
analysed as follows:
(i) Net (losses)/gains 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 30
June June
2022 2021
------------------------- --------------------------
USD USD
Net (losses)/gains on fair value of financial
assets at fair value through profit or loss (1,116,210) 9,289,279
------------------------- --------------------------
Net (losses)/gains (1,116,210) 9,289,279
========================= ==========================
(ii) Financial asset 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 30
June June
2022 2021
--------------------- ---------------------
USD USD
Held for trading assets:
At 1 January 24,015,367 19,480,476
Disposal (1,981,767) (4,248,156)
Net (losses)/gains on financial
assets at fair value through profit
or loss (1,116,210) 9,289,279
--------------------- ---------------------
At 30 June (at fair value) 20,917,390 24,521,599
===================== =====================
Analysed as follows:
- Listed equity securities 17,667,664 20,734,697
- Listed debt securities 123,926 161,102
- Unlisted equity securities 3,125,800 3,625,800
--------------------- ---------------------
20,917,390 24,521,599
===================== =====================
(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
2022 2021
-------------------------- --------------------------
USD USD
Realised (406,986) (1,295,832)
Unrealised (709,224) 10,585,111
-------------------------- --------------------------
Total (losses)/gains (1,116,210) 9,289,279
========================== ==========================
7. RECEIVABLES
30 June 30 June
2022 2021
-------------------------- ---------------------
USD USD
Amounts due from Africa Opportunity
Fund L.P. 186,985 116,675
Other receivables - 183
Prepayments 1,123 1,074
-------------------------- ---------------------
188,108 117,932
========================== =====================
8. CASH AND CASH EQUIVALENTS
30 June 30 June
2022 2021
-------------------- --------------------
USD USD
Other bank accounts 50,103 39,604
==================== ====================
9(a). ORDINARY SHARE CAPITAL
30 June 30 June 30 June 2021 30 June
2022 2022 2020
----------------- --------------- ----------------- --------------
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
================= =============== ================= ==============
Issued share
capital
Ordinary shares
with a
par value of USD
0.01 24,787,758 247,878 24,787,758 247,878
================= =============== ================= ==============
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 2022 26,077,193
Changes during the period:
Total comprehensive income
for the period (1,205,868)
----------------------------
At 30 June 2022 24,871,325
============================
Net asset value per share
at 30 June 2022 1.003
============================
10. TRADE AND OTHER PAYABLES
30 June 2022 30 June 2021
------------------- --------------------
USD USD
Directors Fees Payable 17,500 17,500
Other Payables 172,608 204,333
------------------- --------------------
190,108 221,833
=================== ====================
Other payables are non-interest bearing and have an average term
of six months. T he 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 the period ended 30 June 2022 and 2021
represent both the basic and diluted EPS.
Period from Period from
1 1
January 2022 January 2021
to 30 June to 30 June
2022 2021
----------------------------- ------------------------------
Ordinary Ordinary
shares shares
----------------------------- ------------------------------
Change in net assets attributable
to shareholders USD (1,205,868) 9,141,150
============================= ==============================
Number of shares in issue 24,787,758 24,787,758
============================= ==============================
Change in net assets attributable
to shareholders
per share USD (0.049) 0.369
============================= ==============================
12. ANALYSIS OF NAV OF MASTER FUND ATTRIBUTABLE TO ORDINARY SHARES
30 June 30 June 2021
2022
----------------------- -----------------------
ASSETS
Cash and cash equivalents 4,842,108 853,233
Trade and other receivables 185,473 225,154
Financial assets at fair value
through profit or loss 20,917,390 24,521,599
Total assets 25,944,971 25,599,986
----------------------- -----------------------
EQUITY AND LIABILITIES
Liabilities
Trade and other payables 469,208 474,296
Amount payable to related party
- AOF Ltd 186,985 116,675
Total liabilities 656,193 590,971
----------------------- -----------------------
Net assets attributable to
members' account 25,288,778 25,009,015
======================= =======================
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.
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
(2021: the same).
16. COMMITMENTS AND CONTINGENCIES
There are no commitments or contingencies at the reporting
date.
17. SIGNIFICANT EVENTS
TERMINATION OF PRIME BROKER RELATIONSHIP
Credit Suisse (USA) LLC (the Prime Broker) made the
determination it would leave the Prime Brokerage business. As a
result of this decision, the Company began moving investments and
cash from the Prime Broker to its existing custodian, Standard
Chartered Bank (Mauritius). As the Company is undergoing the
realisation investment strategy, the transfer of securities does
not adversely impact the Company as it may under an investment
strategy in which the use of margin is required for investment
activities.
COVID-19 PANDEMIC
As Covid-19 continues to evolve new variants, the impacts,
including a potential global, regional or other economic recession,
continue to be 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. 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
Africa Opportunity Fund, L.P. will continue to meet their working
capital requirements and other obligations through utilisation of
existing cash resources.
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.
UKRAINE GEOPOLITICAL SITUATION
The Investment Manager notes that market disruptions, which
began in February 2022, associated with geopolitical events related
to the conflict between Russia and Ukraine may adversely affect the
value of the Company's assets and thus the Company's performance.
Management continues to monitor these events and to evaluate the
related impacts, if any, to the Company.
18. SUBSEQUENT 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
28 June 2022, the Board of Directors of Africa Opportunity Fund
Limited announced the mandatory redemption of 4,573,168 Ordinary
shares. On 6 July 2022, the mandatory redemption was completed and
AOF redeemed the 4,573,168 Ordinary Shares, on a pro rata basis, at
the prevailing NAV per Ordinary Share of $0.984 as at 31 May 2022.
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 13 July
2022. Following the Mandatory Redemption, the Company has
20,214,590 Ordinary Shares in issue. As a result of the Mandatory
Redemption described above, Robert Knapp and Myma
Belo-Osagie, Directors of the Company now hold 3,263,346 and
27,008 Ordinary Shares, respectively. The redemption was funded
through proceeds received from realising the assets of the
Company.
Except as stated above, there are no other events after the
reporting date which require amendments to and/or disclosure in
these financial statements.
19. 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 June 2022, the Directors convened an Extraordinary General
Meeting where a two year Continuation Resolution was approved by
the Shareholders, thus extending the existence of the Company until
20 June 2024.
In summary, shareholders voted to give the Company two
additional years during which the Investment Manager will realise
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):
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 consists of some liquid equity holdings, the
Company has illiquid investments and it may take the Investment
Manager some time to realise these.
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END
IR BLGDCXBDDGDI
(END) Dow Jones Newswires
September 29, 2022 02:00 ET (06:00 GMT)
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