Africa OpportunityFd - Half-year Report
27/09/2023 15:30
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RNS Number : 8800N Africa Opportunity Fund Limited 27 September 2023
27 September
2023
Africa Opportunity Fund Limited
("AOF" or the "Company", or the "Fund")
Half Yearly Report for the Six Months ended 30 June 2023
The Board of Directors of Africa Opportunity Fund Limited is pleased to
announce its unaudited results for the 6-month period to 30 June 2023. The
full half yearly report for the period ended 30 June 2023 will be sent to
shareholders and will be available soon on the Company's website: www.
(http://www.africaopportunityfund.com/) a
(http://www.africaopportunityfund.com/) fricaopportunit
(http://www.africaopportunityfund.com/) y
(http://www.africaopportunityfund.com/) fu
(http://www.africaopportunityfund.com/) nd.com
(http://www.africaopportunityfund.com/) .
(http://www.africaopportunityfund.com/)
Highlights:
· AOF's Ordinary share net asset value per share of US$0.966 as at
30 June 2023, generating a total return of 1.9% from the 31 December 2022 net
asset value per share of US$0.948.
· As at 30 June 2023, AOF's investment allocation for its Ordinary
Shares was all equities.
· 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 Shares net asset value per share on 31 August 2023
was US$0.820.
· AOF mandatorily redeemed 8.75 million shares for an aggregate
consideration of $7.6 million in June 2023.
Manager's Commentary:
Market Conditions
AOF's total return in H1 2023 was 1.9%. As a reference, during this period
in USD the S&P rose 17%, Brazil rose 19%, Russia rose 12%, India rose 8%,
and China fell 3%. In Africa, South Africa fell 5%, Egypt fell 2%, Kenya
fell 22%, and Nigeria fell 22%. 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), respectively, rose 2% and fell 8%, and 8%.
Ordinary Shares Portfolio Highlights
AOF made progress realising and distributing the proceeds from its less liquid
portfolio holdings during H1 2023. The Fund sold its entire Copperbelt
holdings stake via block trades, and more of its African Leadership
International ("ALI") and Letshego shares. Our total distribution since
March 2020 stands at $44 million, which is 92% of our December 2019 closing
NAV of $47.7 million. The remaining NAV of $11.1 million is concentrated in
Ghana, Zimbabwe and Mauritius.
We exited our Copperbelt Energy Corporation('CEC') investment, selling our
shares in a block trade at a 24% premium to the then prevailing market price.
The exit price (including dividends) is an uplift of 3x on our carrying value
in December 2019. Viewed over the long term, our investment in CEC was
rewarding. AOF held Copperbelt for 15 years from January of 2008. Over that
period, revenue tripled from $131 million to $389 million while cash from
operations grew five-fold from $15 million to $77 million. Despite political
uncertainty - which threatened its business model and its foray into Nigeria
(which burdened the company with debt and underperforming assets), CEC
maintained its dividend pay-out discipline in 13 out of the 15 years,
diversified its revenue base by wheeling and selling electricity to the
Democratic Republic of Congo, and maintained its operational and cost
discipline. As a result, we generated an IRR of 15% over the holding period.
The remaining holdings of the Fund are, as a generalization, very illiquid.
Some commentary on them is in order. We continue to pursue a combination of
block trades plus the occasional corporate transaction to effect an orderly
realisation of the remaining portfolio.
Enterprise Group's share price, in H1, declined 25% in Cedis and 33% in
Dollars. Enterprise Group released its 2022 annual report. It continues to
digitalize its operations and to service more of its customers through mobile
and online platforms. Enterprise impaired its investment securities
portfolio by $31 million or 18%, in response to the Ghana government's
domestic debt exchange offer. Yet, despite a 40% depreciation of the Cedi
against the Dollar, Enterprise's net profits attributable to shareholders rose
29% to $14 million. The principal source of this net increase in profits
arose from the unrealized foreign exchange gains of Enterprise's property
portfolio supported by leases denominated in Dollars. Enterprise Life
improved its persistency rate, premium collection rates, the value of new
business, and retained its no. 1 market share in Ghana. On the negative
side, Acacia Health, its most recent acquisition, incurred an underwriting
loss. Enterprise's float, year-on-year, non-controlling interests fell 28%,
and Enterprise shareholders suffered a 25% diminution in equity value.
Enterprise's Q1 and Q2 2023 results demonstrate expenses and claims rising at
a faster rate than revenues. The increase in its life fund liabilities, in
particular, is rising rapidly. Enterprise's shares trade on a P/E ratio of
2.75x and a P/B ratio of 0.5x, with a return on average equity of 20%.
Overall, though, Enterprise displayed commendable resilience in a tough
Ghanaian environment.
The Fund sold 15% of its ALI holdings in H1 and, cumulatively, 39% of its
initial holdings. ALI strengthened its education and training offering by
acquiring the Holberton School in 2022. The Holberton School was founded in
Silicon Valley and offers an intense blended learning program in software
engineering. Post this acquisition, ALI has been able to reduce the unit
costs per educated student by 84% and increased significantly the number of
enrolled African students. Simultaneously, ALI is exploring fresh revenue
generating methods for hiring some of these software engineering students.
We will continue to dispose of the Fund's ALI holdings in the private
secondary market.
Tanzania Breweries Limited ("TBL") shares have been difficult to sell in large
volumes at the officially quoted prices on the Dar Es Salaam stock exchange.
Although TBL's operational fortunes have improved in the last year and its net
cash assets have quadrupled in Dollars over the last 5 years to $134 million,
its revenues and net profits have been flat over that period. Thus, it has
the appearance of a mature business in a youthful market of rapidly growing
Tanzanian consumers. Its principal competitor-East African Breweries Limited
('EABL')-has a stronger growth profile, higher net debt, and a lower market
capitalization than TBL. Their respective valuations should converge over
time.
Zimbabwean currency dropped sharply in the parallel market in H1. AOF's
internal estimate of Zimbabwe's currency's value depreciated by 87% in H1.
Consequently, the valuations of First Mutual Properties and Mashonaland
Holdings were very volatile in Dollars. Mashonaland Holdings appreciated 60%
and First Mutual Properties appreciated 23%, in Dollars, as Zimbabwean
investors sought refuge in the stock market from the rapid collapse of the
Zimbabwe Dollar in Q2 2023. The Fund's property holdings are a store of
relative value amid continuing foreign currency shortages.
Annual general meeting of the Fund's shareholders
The Fund held an inquorate annual general meeting in June 2023, as a nominee
holder of beneficial interests failed to deliver its proxies. A fresh annual
general meeting was held on 19 September 2023, with all resolutions passed.
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 May 2023 in the form of a compulsory share redemption
worth $7.6 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 Behalf of the Investment Manager, 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
26 September 2023
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2023 TO 30 JUNE 2023
For the period For the period
ended 30 June ended 30 June
Notes 2023 2022
USD USD
Expenses
Net losses on investment in subsidiaries at fair value
through profit or loss 6(a) 296,599 1,022,622
44,656 25,000
Management fees
48,632 56,576
Other operating expenses
35,000 35,000
Directors' fees
62,609 66,670
Audit and professional fees
487,496 1,205,868
(487,496) (1,205,868)
Loss for the period attributable to equity holders*
* There is no other comprehensive income for the period.
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE
2023
Notes 30 June 2023 30 June 2022
USD USD
ASSETS
Cash and cash equivalents 8 99,392 50,103
- 186,985
Receivable from related party 7
1,280 1,123
Prepayments 7
Investment in subsidiaries at fair value through profit or loss* 11,045,248 24,823,222
6(a)
11,145,920 25,061,433
Total assets
EQUITY AND LIABILITIES
LIABILITIES
66,093 190,108
Trade and other payables 10
66,093 190,108
Total liabilities
11,079,827 24,871,325
Net assets attributable to shareholders
114,689 247,878
Ordinary share capital
(5,515,342) 6,451,469
Share premium
16,480,480 18,171,978
Retained earnings
11,079,827 24,871,325
Total equity
Net assets value per share:
0.966 1.003
- Ordinary shares
*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 2023 TO 30 JUNE 2023
Share Share Retained
Capital Premium Earnings Total
USD USD USD USD
202,146 1,997,201 16,967,976 19,167,323
At 1 January 2023
CAPITAL TRANSACTIONS:
(87,457) (7,512,543) - (7,600,000)
Redemption of ordinary shares
OPERATIONS:
- - (487,496) (487,496)
Total comprehensive loss for the period
114,689 (5,515,342) 16,480,480 11,079,827
At 30 June 2023
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 1 JANUARY 2023 TO 30 JUNE
2023
For the period ended For the period ended
30 June 2023 30 June 2022
USD USD
Operating activities
(487,496) (1,205,868)
Loss for the period
Adjustment for non-cash items:
Net losses on investment in subsidiaries at 296,599 1,022,622
fair value through profit or loss
(190,897) (183,246)
Cash used in operating activities
Net changes in operating assets and liabilities
Reduction in investments in subsidiaries at fair value 7,700,000 249,500
through profit or loss
227,805 (37,433)
Decrease/(increase) in loan receivable from related party
7,680 6,739
Increase in other receivables
(87,447) (6,926)
Decrease in trade and other payables
7,848,038 211,880
Net cash generated from operating activities
Financing activities
(7,600,000) -
Redemption of ordinary shares
(7,600,000) -
Cash used in/provided by financing activities
57,141 28,634
Net increase in cash and cash equivalents
42,251 21,469
Cash and cash equivalents at 1 January
99,392 50,103
Cash and cash equivalents at 30 June
AFRICA OPPORTUNITY FUND LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE
2023
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 is exempted from
registering with CIMA under the Private Funds Act of the Cayman Islands given
that it is listed on the Specialist Funds Segment 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 2023
were authorised for issue in accordance with a resolution of the Board of
Directors on 26 September 2023.
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 with 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
marketplace 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 2023. The
Company has not early adopted any other standard, interpretation or amendment
that has been issued but is not yet effective.
The accounting policies adopted are consistent with those of the previous
financial year except for the following new policies and amendments to IFRS as
from 1 January 2023:
Effective for
accounting period
Amendments to IAS 8 - Accounting policies, Changes in Accounting Estimates and
Errors 1 January 2023
Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising
from a Single
Transaction
1 January 2023
Amendments to IAS 1: Disclosure of Accounting
Policies
1
January 2023
Although these new standards and amendments applied for the first time in
2023, 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
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current
1
January 2024
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, reorganize 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 continues to meet 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 2
years as per the extended '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
There was no management fee charged during 2022 and 2023. Pursuant Amended
and Restated Investment Management Agreement, there will be no management fees
charged during the Extended Return Period.
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, after return of its
investment interest, for nominal value in the last year of the Extended Return
Period, that being 2024.
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: 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 realisation fee for the financial period under review amounts to USD
44,656 (2022: USD 25,000) of which USD 6,050 (2022: USD 25,000) relates to
accrued realisation fees; management and performance fees for the financial
period under review were nil (2022: 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
A Prime Brokerage agreement between the Master Fund and Credit Suisse
Securities (USA) LLC terminated in the first half of 2022, as Credit Suisse
exited the Prime Brokerage business. Custodian fees had been expensed at the
Master Fund level and had 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
marketplace 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 (96%) and AOF CarryCo Limited (4%). 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.
2023
USD
11,041,665
Investment in Africa Opportunity Fund L.P.
3,583
Investment in Africa Opportunity Fund (GP) Limited
11,045,248
Total investment in subsidiaries at fair value
19,041,847
Fair value at 01 January
(7,700,000)
Reduction in investment in subsidiaries*
(296,599)
Net loss on investment in subsidiaries at fair value
11,045,248
Fair value at 30 June 2023
* 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
2023 Level 1 Level 2 Level 3
COMPANY USD USD USD
11,045,248 - 11,045,248 -
Investment in subsidiaries
30 June
2022 Level 1 Level 2 Level 3
COMPANY USD USD USD
24,823,222 - 24,823,222 -
Investment in subsidiaries
Fair value hierarchy of the Master Fund.
The Company has investment in Africa Opportunity Fund L.P., the Master Fund,
amounting to USD 11,045,248. The underlying investments of the Master Fund
amounts to USD 10,678,239. Details on the financial assets and liabilities of
the Master Fund and fair value hierarchy are as follows:
30 June
2023 Level 1 Level 2 Level 3
USD USD USD
MASTER FUND
Financial assets at fair value through profit or loss
10,678,239 5,226,107 5,452,132 -
Equities
10,678,239 5,226,107 5,452,132 -
30 June
2022 Level 1 Level 2 Level 3
USD USD USD
MASTER FUND
Financial assets at fair value through profit or loss
20,793,464 14,958,151 5,835,313 -
Equities
123,926 123,926 - -
Debt securities
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 95% 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 2023 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. In May 2022, the Zimbabwe government imposed a ban on bank
lending services so as to stop currency speculation and in June 2022 the RBZ
monetary policy committee increased the policy rate 12,000 basis points to
200% so as to control rising inflation. The Company adjusted its model to
reflect a 20% surrender requirement on the basis that the reported CPI
captured only 80% of actual inflation, a position supported by the government
actions. Over time, the official exchange rate has converged towards our
in-house exchange rate. In May 2023, the Reserve Bank Governor along with
the Minister of Finance stated that the Official Exchange Rate should converge
toward the parallel rate, and trade at a discount that is lower than 20%.
That statement partly led to the devaluation of the official rate and closed
the gap on the parallel 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 2023 at a discount rate of 14.2% (the
discount rate was 36.8% as at 30 June 2022). The value of the Zimbabwe
investments recorded in the books of the Company, after applying this discount
factor, was USD 3,076,332 (2022: USD 2,709,513).
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 2023, 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 agreed via an omnibus share
purchase agreement dated 28 September 2022 with dates of the agreements
evidencing the first, second, third, and fourth tranches, respectively, 30
September 2022, 5 December 2022, 6 March 2023 and 5 June 2023 (amended to 28
June 2023 and 28 September 2023), and thus were utilized as the basis of the
valuation as at 30 June 2023. At 30 June 2023, the investment in ALU has
been classified under level 2 because the value of the investment utilizes 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 2023
The net losses on investments in subsidiaries at fair value through profit or
loss for the period from 1 January 2023 to 30 June 2023 amounted to USD
296,599, and 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 arising at the Master Fund and can be analysed as follows:
For the period For the period
ended 30 June ended 30 June
2023 2022
USD USD
Income
174,156 212,234
Dividend revenue
174,156 (898,346)
Expenses
Net losses on financial assets and liabilities at fair value
through profit or loss 36,999 -
328,217 52,175
Net foreign exchange loss
84,761 87,309
Custodian fees, brokerage fees and commission
4,270 2,473
Other operating expenses
454,247 141,957
(280,091) (1,040,303)
Operating loss before tax
(2,278) (1,570)
Less withholding tax
(282,369) (1,041,873)
Total Comprehensive loss for the period
Attributable to:
(296,711) (1,022,472)
AOF Limited (direct interests)
112 (150)
AOF Limited (indirect interests through AOF (GP) Ltd)
(296,599) (1,022,622)
14,230 (19,251)
AOF CarryCo Limited (NCI)
(282,369) (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 period For the period
ended 30 June ended 30 June
2023 2022
USD USD
Net losses on fair value of financial assets at fair value through profit or (36,999) (1,116,210)
loss
Net losses (36,999) (1,116,210)
(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 June ended 30 June
2023 2022
USD USD
Held for trading assets:
At 1 January 18,634,833 24,015,367
(7,919,595) (1,981,767)
Disposal
(36,999) (1,116,210)
Net losses on financial assets at fair value through profit or loss
20,917,390
At 30 June (at fair value) 10,678,239
Analysed as follows:
8,302,439 17,667,664
- Listed equity securities
123,926
- Listed debt securities -
2,375,800 3,125,800
- Unlisted equity securities
20,917,390
10,678,239
(iii) Net changes on fair value of financial assets at fair value
through profit or loss
For the period For the period
ended 30 June ended 30 June
2023 2022
USD USD
Realised 1,989,464 (406,986)
Unrealised (2,026,463) (709,224)
Total losses (36,999) (1,116,210)
7. RECEIVABLES
30 June 2023 30 June 2022
USD USD
- 186,985
Amounts due from Africa Opportunity Fund L.P.
1,280 1,123
Prepayments
1,280 188,108
8. CASH AND CASH EQUIVALENTS
30 June 2023 30 June 2022
USD USD
Cash at bank 99,392 50,103
9(a). ORDINARY SHARE CAPITAL
30 June 2023 30 June 2023 30 June 2022 30 June 2022
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
11,468,907 114,689
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.
The Company intends to pay or report dividends in order to remain an UK
Reporting Fund, however, there is no assurance that the Company will be able
to pay dividends. In compliance with the current investment strategy,
Directors have the right to return cash through compulsory redemptions, by way
of dividend or any other distribution as permitted by the Listing Rules.
9(b). NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS
Ordinary
Shares
USD
At 1 January 2023 19,167,323
Changes during the period:
Total comprehensive loss for the period (487,496)
Redemption of ordinary shares (7,600,000)
At 30 June 2023 11,079,827
Net asset value per share at 30 June 2023 0.966
10. TRADE AND OTHER PAYABLES
30 June 2023 30 June 2022
USD USD
Directors Fees Payable 17,500 17,500
Other Payables 48,593 172,608
66,093 190,108
Other payables are non-interest bearing and have an average term of six
months. The carrying amount of trade and other payables approximates their
fair value.
11. EARNING PER SHARE
The earnings per share (EPS) is calculated by dividing the decrease in net
assets attributable to shareholders by number of ordinary shares. The EPS
for the period ended 30 June 2023 and 2022 represent both the basic and
diluted EPS.
Period from 1
January 2023
to 30 June 2023
Ordinary shares Ordinary shares
USD (487,496) (1,205,868)
Change in net assets attributable to shareholders
11,468,907 24,787,758
Number of shares in issue
Change in net assets attributable to shareholders USD (0.043) (0.049)
per share
12. ANALYSIS OF NAV OF MASTER FUND ATTRIBUTABLE TO ORDINARY SHARES
30 June 2023 30 June 2022
ASSETS
1,147,534 4,842,108
Cash and cash equivalents
139,875 185,473
Trade and other receivables
10,678,239 20,917,390
Financial assets at fair value through profit or loss
11,965,648 25,944,971
Total assets
EQUITY AND LIABILITIES
Liabilities
463,208 469,208
Trade and other payables
- 186,985
Amount payable to related party - AOF Ltd
463,208 656,193
Total liabilities
11,502,440 25,288,778
Net assets attributable to members' account
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 (2022: the same).
16. COMMITMENTS AND CONTINGENCIES
There are no commitments or contingencies at the reporting date.
17. SIGNIFICANT EVENTS
COVID-19 PANDEMIC AND UKRAINE-RUSSIA CONFLICT
The Board of Directors and Investment Manager continue to assess the impact of
both the continued presence of a novel and highly contagious form of
coronavirus ("Covid-19"), which the World Health Organization has officially
declared a pandemic, and the geopolitical unrest in the form of the Ukraine
and Russia conflict. 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 continues
to evolve, as new strains of the coronavirus develop. Public health
emergencies, including outbreaks of new strains 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 Directors and Investment Manager continue to assess the impact of the
geopolitical unrest affecting the Russia, Belarus, and Ukraine regions.
While the Company has no direct exposure to investments in, or traded in,
these regions, the potential for supply chain disruptions as well as
cybersecurity related risks and adverse impacts on general economic activity
is elevated and continues to be monitored. Sanctions, high inflation, rapid
increases in food prices, currency exchange limitations, heightened volatility
of currencies, export or capital controls, sovereign debt distress or
sovereign debt default, or civil or political unrest appear to have limited
direct impact on the Company at this time, however, the impact of an expansion
of any or all of these consequences of the conflict may indirectly have
material impacts on investments of the Company. An expansion of hostilities
could have adverse impacts, including a potential global, regional or other
economic recession, which remain uncertain and difficult to assess.
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 continuation of the Covid-19 pandemic and the
Ukraine-Russia conflict to be non-adjusting post balance sheet events and
hence any future impacts are 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 these events, the specifics
of which will depend on a variety of factors, including geographic location,
industry sector and the effectiveness of governmental actions, 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 and the
Ukraine-Russia conflict, it is not possible to accurately quantify the future
impact on the portfolio at this.
18. SUBSEQUENT EVENTS
The June 2023 Annual General Meeting (AGM) was deemed inquorate as, despite
beneficial owners of the Company's shares submitting their instructions on
time, an insufficient number of registered nominees (through which the
Company's shares are held electronically) submitted their proxy forms on
time. The Directors convened a new AGM on 19 September 2023, having proposed
the same resolutions as proposed at the June AGM. All resolutions passed at
the September 2023 AGM.
19. LIFE OF THE COMPANY
Directors consider it desirable that Shareholders should have the opportunity
to review the future of the Company at appropriate intervals. Accordingly,
Shareholders passed an ordinary resolution at an extraordinary general meeting
of the Company on 28 February 2014 that the Company continues in existence. On
June 27, 2019, the Shareholders passed a further ordinary resolution at an
extraordinary general meeting of the Company on that the Company continues in
existence through 30 June 2022.
In June 2022, the Directors convened an Annual General Meeting and an
Extraordinary General Meeting where the following was passed:
· 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") adopted as the new investment policy of the Company continues;
· 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 two years during which the
Investment Manager will realize the portfolio in an orderly manner and
distribute the proceeds to the shareholders. (Please review the Company's
Circular dated 13 June 2022 for a detailed and comprehensive description of
the Continuation Vote)
A brief synopsis of the "New Investing Policy" which shall remain in force
through 30 June 2024 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.
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