Brenham has not issued unregistered securities during the last three years. In contemplation of the closing of the pending merger of the Registrant's wholly-owned subsidiary with and into Africa International Capital Ltd., a Bermuda corporation pursuant to which AIC will be the surviving company, Brenham intends to issue the remaining 74,706,464 authorized but unissued shares of Brenham’s common stock, par value $0.0001 (the “Brenham Shares”) to the designees of AIC.
The issuance shall take place prior to the approval by FINRA of the Corporate Actions.
Notes: This statement is to be read in conjunction with the Notes to the Financial Statements.
Notes: This statement is to be read in conjunction with the Notes to the Financial Statements.
Notes: This statement is to be read in conjunction with the Notes to the Consolidated Financial Statements.
The group has been subject to fluctuations in occupancy levels as a result of a change in macroeconomic conditions in Angola, mainly driven by the change in global oil prices. In particular occupancy was significantly affected in the first quarter of 2016, with some pressure on rental pricing, as companies assessed the extent of their ongoing operations in Angola.
|
|
|
SUCCESSOR
|
|
|
PREDECESSOR
|
|
Jan 1 to June 30, 2016
|
|
Jan 23 to Jun 30, 2015
|
|
|
Jan 1 to Jan 22, 2015
|
|
US$ 000’s
|
|
US$ 000’s
|
|
|
US$ 000’s
|
|
|
|
|
|
|
|
(Loss) / profit for the period
|
(991.2)
|
|
(517.9)
|
|
|
236.2
|
Weighted average number of Ordinary Shares (number)
|
5,000
|
|
5,000
|
|
|
100
|
Basic and diluted (loss) / profit per share (dollars)
|
(198.24)
|
|
(103.10)
|
|
|
2,362.00
|
|
|
|
SUCCESSOR
|
|
|
PREDECESSOR
|
|
Jan 1 to June 30, 2016
|
|
Jan 23 to Jun 30, 2015
|
|
|
Jan 1 to Jan 22, 2015
|
|
US$ 000’s
|
|
US$ 000’s
|
|
|
US$ 000’s
|
|
|
|
|
|
|
|
(Loss) / profit for the period
|
(991.2)
|
|
(517.9)
|
|
|
236.2
|
Weighted average number of Ordinary Shares (number)
|
5,000
|
|
5,000
|
|
|
100
|
Basic and diluted (loss) / profit per share (dollars)
|
(198.24)
|
|
(103.10)
|
|
|
2,362.00
|
44
9. Property
related
assets
|
June 30, 2016
|
Dec 31, 2015
|
|
US$ 000’s
|
US$ 000’s
|
|
|
|
Investment
property
|
|
|
Opening balance
|
23,417.0
|
-
|
Acquisition of assets
|
-
|
26,030.0
|
Depreciation
|
(402.7)
|
(813.0)
|
Impairment
|
-
|
(1,800.0)
|
Closing balance
|
23,014.3
|
23,417.0
|
|
|
|
Property leasehold
interest
|
|
|
Opening balance
|
4,432.0
|
-
|
Additions
|
-
|
4,639.0
|
Expensed during the period
|
(110.1)
|
(207.0)
|
Closing balance
|
4,321.9
|
4,432.0
|
10. Callable bonds
|
June 30, 2016
|
Dec 31, 2015
|
|
US$ 000’s
|
US$ 000’s
|
|
|
|
Africa International Capital Ltd 10.1% Convertible Loan Note due Nov 30, 2022
|
2,239.2
|
2,127.1
|
ADV Holding Ltd issued 10% Callable bonds due Dec 3, 2019
|
6,655.5
|
6,432.4
|
|
8,894.7
|
8,559.5
|
On June 27, 2016, a further
US$ 125,000.00 ADV Holding Ltd issued 10% Callable bonds due Dec 3, 2019 were subscribed.
The subscription end date for the purchase of ADV Holding Ltd issued 10% Callable bonds due Dec 3, 2019 has been extended from August 31, 2016 to February 28, 2017.
11. Subsequent events
Execution of merger agreement
On April 29, 2016, the Group executed a
definitive Merger Agreement with Brenham Oil & Gas Corp. (“Brenham”). The resulting combination will create a new company – Africa Growth Corporation – focused on income-oriented real estate acquisitions and long term housing finance for middle-income families across Sub-Saharan Africa.
Pursuant to the terms of the combination, the Group will become a wholly-owned subsidiary of Brenham in exchange for the issuance of new Brenham equity to AIC’s stockholders. After the merger, Brenham will be renamed “Africa Growth Corporation.” The principal terms of the merger are as follows:
- Existing Brenham Liabilities
. Brenham’s parent company, American International Industries, Inc., will forgive all of Brenham’s existing inter-company debt and payables in exchange for assignment to it of Brenham’s producing and undeveloped oil and gas assets, along with customary indemnifications.
- Post-Closing Ownership of the Africa Growth Corporation
. After the issuance of new Brenham equity to AIC’s stockholders (i) the former AIC stockholders will own approximately 92% of the Africa Growth Corporation, and (ii) Brenham’s former stockholders will own approximately 8% of the Africa Growth Corporation.
45
Brenham’s majority stockholder, American International Industries, Inc., has approved the merger, and the merger’s closing is conditional on various terms and conditions, including the effectiveness of the Schedule 14C Information Statement filed with the Securities and Exchange Commission.
Constitution of convertible note agreement
On August 10, 2016, the Group entered into a 10% Convertible Note agreement for up to
US$ 5 million with a maturity date of July 31, 2018. The interest obligation is accrued as payment in kind. The note carries a mandatory equity conversion requirement post-merger if the new company, Africa Growth Corporation, completes a listing on a relevant exchange. The convertible note can be repaid and cancelled at any time to include the principal amount owing and accrued interest.
Company name change
On October 25, 2016, the company changed its name from Angola International Capital Ltd to Africa International Capital Ltd. The change was made as the company has begun the process of expanding and
focusing its business outside Angola and the reference in its name no longer appropriately reflects the company’s outlook.
Acquisition of subsidiary
On October 13, 2016
, Africa International Capital Ltd. acquired the whole of the share capital of Namibia International Capital Ltd.
from AIC Ltd. - Namibia Business Unit - by way of share for share exchange. As the rights of the shareholders were preserved, the transaction is a common control transaction falling outside the scope of IFRS 3.
46
CONSOLIDATED
FINANCIAL STATEMENTS OF
AFRICA INTERNATIONAL CAPITAL LTD (formerly Angola International Capital Ltd)
FOR THE YEAR ENDED DECEMBER 31, 2015
For the period from January 23, 2015 to December 31, 2015 (“Successor”) and for the period from January 1, 2015 to January 22, 2015 (“Predecessor”)
47
INDEPENDENT AUDITOR’S REPORT TO THE DIRECTORS OF AFRICA INTERNATIONAL CAPITAL LTD (
FORMERLY ANGOLA INTERNATIONAL CAPITAL LTD
)
To the Board of Directors of Africa International Capital Ltd
(
formerly Angola International Capital Ltd)
:
We have audited the accompanying consolidated financial statements of Africa International Capital Ltd. (formerly Angola International Capital Ltd)
and its subsidiaries (the "Company"), which comprise the consolidated statement financial position as at December 31, 2015, the related consolidated statements of profit or loss, statements of comprehensive income, statements of changes in equity, and statements of cash flows for the period January 23, 2015 to December 31, 2015 (“Successor Company operations”) and for the period January 1, 2015 to January 22, 2015 (“Predecessor Company operations”) and the related notes to the consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.
Basis for Qualified Opinion
As discussed in Note 2(a) to the consolidated financial statements, the Company has not presented comparative financial statements and the related notes to such statements required to be presented by International Financial Reporting Standards as issued by the International Accounting Standards Board.
Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the Successor Company operations consolidated financial statements referred to above present fairly, in all material respects, the financial position of Africa International Capital Ltd.(formerly Angola International Capital Ltd) and its subsidiaries as at December 31, 2015, and the results of their operations and their cash flows for the period from January 23, 2015 to December 31, 2015. Further, in our opinion, the Predecessor Company operations consolidated financial statements, referred to above present fairly, in all material respects, the results of their operations and their cash flows for the period January 1, 2015 to January 22, 2015 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Deloitte LLP
London, UK
4 November, 2016
48
Consolidated statement of profit or loss
|
Africa International Capital Ltd.
|
For the period January 23, 2015 to December 31, 2015 (Successor Period) and January 1, 2015 to January 22, 2015 (Predecessor Period)
|
|
|
|
|
SUCCESSOR
|
|
|
PREDECESSOR
|
|
|
|
Jan 23 to Dec 31, 2015
|
|
|
Jan 1 to Jan 22, 2015
|
|
Note
|
|
US$ 000’s
|
|
|
US$ 000’s
|
|
|
|
|
|
|
|
Sales
|
8
|
|
4,058.1
|
|
|
325.0
|
Cost of sales
|
10
|
|
(1,513.9)
|
|
|
(43.7)
|
Gross profit
|
|
|
2,544.2
|
|
|
281.3
|
|
|
|
|
|
|
|
Administration expenses
|
10
|
|
(2,458.3)
|
|
|
(27.7)
|
Transition costs
|
12
|
|
(210.6)
|
|
|
-
|
Impairment of goodwill
|
17
|
|
(113.1)
|
|
|
-
|
Impairment of investment property
|
15
|
|
(1,800.0)
|
|
|
-
|
Operating (loss)/profit
|
|
|
(2,037.8)
|
|
|
253.6
|
|
|
|
|
|
|
|
Other income
|
|
|
28.9
|
|
|
38.2
|
Finance costs
|
11
|
|
(1,780.1)
|
|
|
-
|
(Loss)/profit before tax
|
|
|
(3,789.0)
|
|
|
291.8
|
|
|
|
|
|
|
|
Tax expense
|
13
|
|
(3.1)
|
|
|
(55.6)
|
|
|
|
|
|
|
|
(Loss)/profit for the period
|
|
|
(3,792.1)
|
|
|
236.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (US$)
|
|
|
|
|
|
|
Basic and diluted (loss) / profit for the period attributable to ordinary equity holders of the Company and its subsidiaries (dollars)
|
14
|
|
(758.42)
|
|
|
2,362.00
|
Notes: This statement is to be read in conjunction with the Notes to the Consolidated Financial Statements.
49
Consolidated statement of comprehensive income
|
Africa International Capital Ltd.
|
For the period January 23, 2015 to December 31, 2015 (Successor Period) and January 1, 2015 to January 22, 2015 (Predecessor Period)
|
|
|
|
|
|
|
|
SUCCESSOR
|
|
|
PREDECESSOR
|
|
|
|
|
|
Jan 23 to Dec 31, 2015
|
|
|
Jan 1 to Jan 22, 2015
|
|
|
|
|
|
US$ 000’s
|
|
|
US$ 000’s
|
|
|
|
|
|
|
|
|
|
(Loss)/profit for the period
|
|
|
|
(3,792.1)
|
|
|
236.2
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified to profit or loss in subsequent periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences on translation (No tax impact)
|
|
(771.1)
|
|
|
-
|
Other comprehensive Loss
|
|
|
|
(771.1)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (Loss)/profit for the period, net of tax
|
(4,563.2)
|
|
|
236.2
|
|
|
|
|
|
|
|
|
Notes: This statement is to be read in conjunction with the Notes to the Consolidated Financial Statements.
50
Consolidated statement of financial position
|
Africa International Capital Ltd.
|
As at December 31, 2015
|
|
|
|
|
As at
|
|
|
|
Dec 31, 2015
|
Assets
|
Notes
|
|
US$ 000’s
|
|
|
|
|
Non-current assets
|
|
|
|
Investment property
|
15
|
|
23,417.0
|
Property leasehold interest
|
15
|
|
4,432.0
|
Property plant and equipment
|
16
|
|
108.3
|
Goodwill
|
17
|
|
6,858.8
|
Total non-current assets
|
|
|
34,816.1
|
|
|
|
|
Current assets
|
|
|
|
Trade and other receivables
|
18
|
|
1,045.5
|
Cash and cash equivalents
|
19
|
|
657.3
|
Total current assets
|
|
|
1,702.8
|
|
|
|
|
Total assets
|
|
|
36,518.9
|
|
|
|
|
|
|
|
|
Equity and liabilities
|
|
|
|
|
|
|
|
Equity
|
|
|
|
Issued capital
|
20
|
|
5.0
|
Redeemable preference shares
|
21
|
|
22,590.5
|
Foreign currency translation reserve
|
|
|
(771.1)
|
Retained earnings
|
|
|
(3,792.1)
|
Total equity
|
|
|
18,032.3
|
|
|
|
|
Non-current liabilities
|
|
|
|
Corporate bonds
|
22
|
|
8,559.5
|
Deferred tax liabilities
|
13
|
|
6,858.8
|
Total non-current liabilities
|
|
|
15,418.3
|
|
|
|
|
Current liabilities
|
|
|
|
Deferred revenue
|
23
|
|
622.2
|
Deposits from tenants
|
24
|
|
237.7
|
Trade and other payables
|
25
|
|
2,208.4
|
Total current liabilities
|
|
|
3,068.3
|
|
|
|
|
Total equity and liabilities
|
|
|
36,518.9
|
|
|
|
|
The consolidated financial statements
were approved by the Directors
as at November 4, 2016 and were signed on its behalf by:
|
Christopher Darnell Pavlos Papageorgiou
Director Director
|
Notes: This statement is to be read in conjunction with the Notes to the Consolidated Financial Statements.
51
Consolidated statement of changes in equity
|
Africa International Capital Ltd.
|
For the period January 23, 2015 to December 31, 2015 (Successor Period)
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
SUCCESSOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued capital
(Note 20)
|
|
Foreign currency translation reserve
|
|
|
|
|
Total
|
|
|
|
|
Redeemable preference shares
(Note 21)
|
|
|
|
|
|
US$ 000’s
|
|
US$ 000’s
|
|
US$ 000’s
|
|
US$ 000’s
|
|
US$ 000’s
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 23, 2015
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
|
-
|
|
-
|
|
-
|
|
(3,792.1)
|
|
(3,792.1)
|
Other comprehensive loss
|
|
|
-
|
|
(771.1)
|
|
-
|
|
-
|
|
(771.1)
|
Total Comprehensive loss
|
|
|
-
|
|
(771.1)
|
|
-
|
|
(3,792.1)
|
|
(4,563.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital
|
|
|
5.0
|
|
-
|
|
-
|
|
-
|
|
5.0
|
Issue of redeemable preference shares
|
|
|
-
|
|
-
|
|
30,000.00
|
|
-
|
|
30,000.00
|
Redemption of redeemable preference shares
|
|
|
-
|
|
-
|
|
(7,409.5)
|
|
-
|
|
(7,409.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2015
|
|
|
5.0
|
|
(771.1)
|
|
22,590.5
|
|
(3,792.1)
|
|
18,032.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes: This statement is to be read in conjunction with the Notes to the Consolidated Financial Statements.
52
Consolidated statement of changes in equity
|
Africa International Capital Ltd.
|
For the period January 1, 2015 to January 22, 2015 (Predecessor Period)
|
PREDECESSOR
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
|
|
|
Issued capital
|
|
Foreign currency translation reserve
|
|
|
|
|
Total
|
|
|
|
|
Redeemable preference shares
|
|
|
|
|
|
US$ 000’s
|
|
US$ 000’s
|
|
US$ 000’s
|
|
US$ 000’s
|
|
US$ 000’s
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 1, 2015
|
|
|
0.1
|
|
1.0
|
|
-
|
|
107.5
|
|
108.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the period
|
|
|
-
|
|
-
|
|
-
|
|
236.2
|
|
236.2
|
Other comprehensive income
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Total Comprehensive Income
|
|
|
-
|
|
-
|
|
-
|
|
343.7
|
|
236.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Issue of redeemable preference shares
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Redemption of redeemable preference shares
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 22, 2015
|
|
|
0.1
|
|
1.0
|
|
-
|
|
343.7
|
|
344.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes: This statement is to be read in conjunction with the Notes to the Consolidated Financial Statements.
53
Consolidated statement of cash flows
|
Africa International Capital Ltd.
|
For the period January 23, 2015 to December 31, 2015 (Successor Period) and January 1, 2015 to January 22, 2015 (Predecessor Period)
|
|
|
|
|
SUCCESSOR
|
|
|
PREDECESSOR
|
|
|
|
Jan 23 to Dec 31, 2015
|
|
|
Jan 1 to Jan 22, 2015
|
|
Note
|
|
US$ 000’s
|
|
|
US$ 000’s
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Receipts from customers
|
|
|
2,693.5
|
|
|
167.7
|
Payments to suppliers and employees
|
|
|
(1,148.0)
|
|
|
(298.4)
|
Net cash inflows / (outflows) from operating activities
|
|
|
1,545.5
|
|
|
(130.7)
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Cash acquired with subsidiary
|
|
|
1,543.1
|
|
|
-
|
Payments for property, plant and equipment
|
|
|
(108.8)
|
|
|
-
|
Proceeds from sale of property, plant and equipment
|
|
|
28.9
|
|
|
-
|
Net cash inflows from investing activities
|
|
|
1,463.2
|
|
|
-
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Repayments in relation to financing liability
|
|
|
(2,851.7)
|
|
|
-
|
Proceeds from issuance of corporate bonds
|
22
|
|
4,309.5
|
|
|
-
|
Finance costs
|
|
|
(704.2)
|
|
|
-
|
Redemption of redeemable preference shares
|
|
|
(2,409.5)
|
|
|
-
|
Net cash (outflows) from financing activities
|
|
|
(1,655.9)
|
|
|
-
|
|
|
|
|
|
|
|
Net increase / (decrease) in cash and cash equivalents
|
|
|
1,352.8
|
|
|
(130.7)
|
(Loss) on foreign currency translation
|
|
|
(695.5)
|
|
|
(29.0)
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
1,702.8
|
Cash and cash equivalents at end of period
|
19
|
|
657.3
|
|
|
1,543.1
|
Notes: This statement is to be read in conjunction with the Notes to the Financial Statements.
54
1. Corporate information
The consolidated financial statements of Africa International Capital Ltd, formally known as Angola International Capital Ltd, (the “Company”) and its subsidiaries (collectively, the “Group”) for the period January 23, 2015 through to December 31, 2015 (“the Successor”) and for the period January 1, 2015 through January 22, 2015 (“the Predecessor”) were authorised for issue in accordance with a resolution of the directors on November 4, 2016.
The Company was incorporated in Bermuda under the Bermuda Companies Act 1981 on July 29, 2015 having unlimited duration with registration number 50506. Its parent company is AIC Limited – Angola Business Unit (registered number 48815) (formerly Africa International Capital Ltd) and its ultimate controlling party is Mr. Christopher Darnell. The registered office and principal place of business is Cedar House, 41 Cedar Avenue, HM12 Hamilton, Bermuda.
On January 23, 2015, the Company’s parent company acquired the ordinary share capital of ADV Holding Ltd which owned real estate interests in Angola (‘the Predecessor’). Following the incorporation of the Company, it acquired the whole of the share capital of ADV Holding Ltd from its parent company and became an intermediate holding company.
The principal activity of the company is that of a holding company for a real estate operating business.
References in these consolidated financial statements to ‘the Group’ refer, in the periods prior to the acquisition of ADV Holding Ltd, to ADV Holding Ltd and its subsidiaries and, in the period subsequent to the acquisition of ADV Holding Ltd, to the Company and its subsidiaries.
Consolidated financial statements are presented for the periods preceding and succeeding the business combination by Africa International Capital Ltd.
The consolidated financial statements for the periods preceding the business combination, the Predecessor consolidated financial statements, comprise the consolidated financial statements of ADV Holding Ltd and its subsidiaries. The Predecessor consolidated financial statements are presented for the period from January 1, 2015 to January 22, 2015.
The consolidated financial statements for the period succeeding the business combination, the Successor consolidated financial statements, comprise the Group’s consolidated financial statements. The Group draws up its annual financial statements to December 31, 2015. Accordingly, the Successor financial statements present the results of the Successor’s operations for the period January 23, 2015 to December 31, 2015.
2. Summary of significant accounting policies and disclosures
a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board with the exception of the presentation of comparative financial statements as required by International Accounting Standards (“IAS”) 1: Presentation of Financial Statements.
b) Basis of preparation
The Group’s consolidated financial statements have been prepared on a going concern and a historical cost basis, except for financial instruments measured at fair value. The consolidated financial statements are presented in United States Dollars (US$).
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
55
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, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share based payment transactions that are within the scope of IFRS 2 Share Based Payment, leasing transactions that are within the scope of IAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can assess at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within level 1, that are observable for the asset of liability either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies are set out below.
i) Basis of consolidation
Africa International Capital Ltd was incorporated on July 29, 2015 with the intention of becoming the new parent of ADV Holding Limited. On September 3, 2015, Africa International Capital Ltd acquired the whole of the share capital of ADV Holdings Limited for
US$ 100.00. As the rights of the shareholders were preserved, the transaction is a common control transaction falling outside the scope of IFRS 3. Accordingly, the Company has adopted the principles of merger accounting to present consolidated information for the Group for the period from January 23, 2015 to December 31, 2015.
The consolidated
financial statements comprise the financial statements of the Company and its subsidiaries as at December 31, 2015. Specifically, the Group controls an investee if, and only if, it has:
- Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee);
- Exposure, or rights, to variable returns from its involvement with the investee; and
- The ability to use its power over the investee to affect its returns.
The results of subsidiaries acquired during the year are included by applying them from the effective date of acquisition. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
56
The consolidated financial statement of the Group includes:
Name
|
Principal activity
|
Country of incorporation
|
% equity interest
|
ADV Holding Ltd
|
Holding company for the real estate operating business
|
British Virgin Islands
|
100%
|
AGPV Lda
|
Operating company in Angola principally engaged in acquisition and operation of investment properties to generate rental income
|
Angola
|
100%
|
Illico - Comércio e Prestação de Serviços Lda
|
Operating company in Angola principally engaged in acquisition and operation of investment properties to generate rental income
|
Angola
|
100%
|
Maximilio Lda
|
Operating company in Angola principally engaged in the provision of services to maintain investment properties
|
Angola
|
100%
|
Quescom- Construção e Prestação de Serviços Lda
|
Dormant
|
Angola
|
100%
|
ii) Property
acquisitions
and business combinations
Where property is acquired, via corporate acquisitions or otherwise, management considers the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business.
Where such acquisitions are not judged to be an acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity or assets and liabilities is allocated between the identifiable assets and liabilities (of the entity) based on their relative values at the acquisition date. Accordingly, no goodwill or deferred taxation arises.
iii) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.
iv) Foreign currencies
The Group’s consolidated financial statements are presented in
US$, which is also the parent company’s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. On disposal of a foreign operation all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the company are reclassified to profit or loss.
a) Transactions and balances
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income (“OCI”) or profit or loss are also recognised in OCI or profit or loss, respectively).
b) Group companies
On consolidation, the assets and liabilities of foreign operations are translated into
US$ at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognised in profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.
v) Investment property
Investment property comprises completed property that is held to earn rentals or for capital appreciation or both. Property held under a finance lease is classified as investment property when it is held to earn rentals or for capital
appreciation or both, rather than for sale in the ordinary course of business or for use in production or administrative functions. Property held under an operating lease is classified as a leasehold interest.
Investment property is measured initially at cost.
Subsequent to initial recognition, investment property is stated at historical cost net of accumulated depreciation and accumulated impairment losses, if any. The group assesses the residual value of each investment property at each reporting period and applies an impairment charge if the recoverable amount is less than the carrying value of the investment property. Depreciation is applied on a straight-line basis over the estimated useful life of the property, usually between 15 to 30 years.
Investment property is derecognised when it has been disposed of, or permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset would result in either gains or losses at the retirement or disposal of investment property. Any gains or losses are recognised in the profit or loss in the year of retirement or disposal.
Transfers are made to investment property when, and only when, there is a change in use, evidenced by the end of owner occupation or commencement of a lease. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale.
vi) Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in the arrangement.
Group as a lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and the reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the statement of profit or loss. Operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term, except for contingent rental payments which are expensed when they arise.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
vii) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being received. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group has concluded that it is the principal in all of its revenue arrangements and since it is the primary obligor, it has pricing latitude and is also exposed to credit risk.
The specific recognition criteria described below must also be met before revenue is recognised.
Rental income
The Group is the lessor in operating leases. Presently, the Group leases commercial and residential properties under short term leases. These leases are accounted for as operating leases. Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature, except for contingent rental income which is recognised when it arises. Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income. In some cases, rent is received in advance, which is deferred on the balance sheet and released on a straight-line basis in the profit or loss over the rental period
Tenant lease incentives are recognised as a reduction of rental revenue on a straight-line basis over the term of the lease. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the directors are reasonably certain that the tenant will exercise that option.
Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the statement of profit or loss when the right to receive them arises.
Service charges, management charges and other expenses recoverable from tenants
Income arising from expenses recharged to tenants is recognised in the period in which the compensation becomes receivable. Service and management charges and other such receipts are included in sales gross of the related costs, as the directors consider that the Group acts as principal in this respect.
Interest income
Interest income is recognised as it accrues using the effective interest rate method. The effective interest rate is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. Interest income is included in finance income in the statement of profit and loss.
viii) Taxes
The Group is subject to income and capital gains taxes in Bermuda and Angola jurisdictions.
Current income tax
Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax losses) for a period. Taxable profit differs from ‘profit before tax’ as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in other comprehensive income (equity) and not in the statement of profit or loss. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred income tax is measured using the balance sheet liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except:
- When the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss; and
- In respect of taxable temporary differences associated with investments in subsidiaries and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward of unused tax credits or unused tax losses can be utilised, except:
- When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. The Company does not measure its investment property using the fair value model in IAS 40 and does not meet the rebuttable presumption that the carrying amount of the investment property will be recovered through sale.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred income tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are only recognised subsequently when new information about facts and circumstances require this. If that new information is revealed during the measurement period the adjustment is treated as a reduction in goodwill (as long as it does not exceed goodwill). Otherwise, it is recognised in profit or loss.
ix) Financial instruments
Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of the financial assets and finical liabilities (other than financial assets and financial liabilities at fair value through profit and loss) are added to or deducted from the fair value of the financial assets of financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities classified as fair value through profit and loss are recognised immediately in profit or loss.
a) Financial assets
Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The Group does not have any financial assets classified as AFS, held to maturity or FVTPL.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade and other receivables, bank balances and cash) are measured at amortised cost using the effective interest method, less any impairment.
Interest income is recognised by applying the effective interest rate method, except for short-term receivables when the effect of discounting is immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
For all other financial assets, objective evidence of impairment could include:
- significant financial difficulty of the issuer or counterparty; or
- default or delinquency in interest or principal payments; or
- it becoming probable that the borrower will enter bankruptcy or financial re-organization.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables generally include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment is the differences between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
For the financial assets held by the Group if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
b) Financial liabilities and equity instruments
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
Repurchase of the Group's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group's own equity instruments.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’. The Group does not have any financial liabilities classified as FVTPL.
Other financial liabilities
Other financial liabilities, including corporate debt, deposit with tenants and trade and other payables, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised using the effective interest rate method.
Effective interest rate method
The effective interest rate method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
3. Critical accounting judgements, estimates and assumptions
The preparation of the Group's consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the assets or liabilities affected in future periods. Other disclosures relating to the Group’s exposure to risks and uncertainties includes:
- Capital management
Note 27
- Financial risk management objectives and policies Note 27
- Sensitivity analyses disclosures Note 27.
Judgements
In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:
Investment properties – disclosure of fair value and consideration of impairment
IFRS requires the disclosure of the fair value of investment property measured at cost and the assessment of fair value for impairment purposes. For impairment testing, the recoverable amount
of property is compared to book value to evaluate whether there are any indicators of impairment.
Management’s investment property valuation policy is to complete an internal valuation exercise at the end of every year
and obtaining input from an expert every 2 years (last obtained December 2014 as part of the process in acquiring the properties on January 23, 2015) as it considers that to be a reasonable time period in which property values could change significantly. On years that an external valuation is not obtained, management prepares an internal valuation.
The fair value of the Group’s Investment Property at December 31, 2015 has been determined at on the basis of an internal valuation carried out at that date by management. The fair value was determined based on the capitalisation
of a stream of income into a capital value using an appropriate yield. In
estimating the fair value of the properties, the highest and best use of the
properties is their current use.
Management have considered the following inputs in their assessment of fair value; contracted revenue for each property; running costs of each property; and yield profile. In assessing the yield profile management have used a market yield, which is derived from current sales and rental values. The yields used were defined by comparison with other properties in the market and with the current opportunity cost in Angola for alternative investments.
Estimates and assumptions
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 described below. The
Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
Taxes
Determining the Group’s income tax charge and its provisions for income taxes necessarily involves a significant degree of estimation and judgement. The tax treatment of some transactions is uncertain and tax computations are yet to be agreed with the tax authorities in some of
the jurisdictions in which the Group operates. The Group recognises anticipated tax provision liabilities based on all available evidence and, where appropriate, in the light of external advice. Any difference between the final outcome and the amounts provided will affect current or deferred tax assets and liabilities in the period when the matter is resolved.
4. Changes in accounting policies and disclosures
New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year. The Group applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after January 1, 2015. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
The nature and the effect of the amendments that are of relevance to a real estate investor are disclosed below. Although these amendments applied for the first time in 2015, they did not impact the annual consolidated financial statements of the Group.
a) Annual Improvements 2011-2013 Cycle
These improvements are effective from 1 July 2014 and the Group has applied these amendments for the first time in these consolidated financial statements. They include:
IAS 40 Investment Property
The amendment is applied prospectively and clarifies that the description of ancillary services in IAS 40 Investment Property (“IAS 40”) only relates to the judgement needed to differentiate between investment property and owner-occupied property (i.e., property, plant and equipment). It further clarifies that IFRS 3 Business Combinations (“IFRS 3”), and not the description of ancillary services in IAS 40, is used to determine if the transaction is the purchase of an asset or a business combination. The Group has relied on IFRS 3, not IAS 40, in determining whether an acquisition is of an asset or is a business acquisition. Thus, this amendment did not impact the consolidated financial statements of the Group.
Annual Improvements 2010-2012 Cycle
b) Annual Improvements 2010-2012 Cycle
These improvements are effective from July 1, 2014 and the Group has applied these amendments for the first time in these consolidated financial statements. They include:
IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IAS 39
Financial Instruments: Recognition and Measurement
. This is consistent with the Group’s current accounting policy and, thus, this amendment did not impact the Group’s consolidated financial statements.
IAS 24 Related Party
This amendment clarifies that a management entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity. Consequently, the reporting entity should disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required.
c)
Annual Improvements 2012-2014
IAS 1, Disclosure Initiative
The amendments aim at clarifying IAS 1 to address perceived impediments to preparers exercising their judgment in presenting their financial reports. The amendments clarify that information should not be obscured by aggregating or by providing immaterial information. Materiality considerations apply to all part of the financial statements and even when a standard requires a specific disclosure, materiality considerations do apply. The amendments also clarify how line items can be disaggregated and aggregated in the statement of financial position and statement of profit or loss and other comprehensive income. The amendments add additional examples of possible ways of ordering the notes. The amendments are effective for annual periods beginning on or after January 2016.
Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)
The amendments to IAS 16 clarify that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate for property, plant and equipment, introduce a rebuttable presumption that an amortisation method that is based on the revenue generated by an activity that includes the use of an intangible asset is inappropriate, which can only be overcome in limited circumstances where the intangible asset is expressed as a measure of revenue, or when it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated. The amendments are applicable to annual periods beginning on or after 1 January 2016.
5.
Standards
issued but not yet effective
The standards relevant to this Group that are issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements are disclosed below. This list of standards and interpretations issued are those that the Group reasonably expects to have an impact on the Group’s financial statements when applied at a future date. The Group intends to adopt these standards when they become effective.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted.
The Group continues to evaluate the impact of adopting this standard
on the consolidated financial statements
, which is subject to changes arising from a more detailed ongoing analysis, and the consideration of clarifications issued by the IASB in an exposure draft in July 2015 and any further developments.
Note that IFRS 15 will not affect the recognition of lease income as this is still dealt with under IAS 17.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9
Financial Instruments
that replaces IAS 39 and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Except for hedge accounting, retrospective application is required but the provision of comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.
The Group plans to adopt the new standard on the effective date.
The Group continues to evaluate the impact of adopting this standard on the consolidated financial statements but does not believe there will be a material impact.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.
The new leasing standard will supersede IAS 17. An entity applies IFRS 16 for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted if IFRS 15 Revenue from Contracts with Customers has also been applied.
The Group continues to evaluate the impact of adopting this standard on the consolidated financial statements, which is subject to changes arising from a more detailed ongoing analysis.
6.
Operating segments
The Group operates one segment with one business activity: operating and managing residential and commercial real estate in Angola. All investment properties are held in Angola.
7.
Business combination
On January 23, 2015, the company acquired 100 per cent of the issued share capital and voting rights of ADV Holding Ltd, obtaining control of ADV Holding Ltd. ADV Holding Ltd is an unlisted holding company based in the British Virgin Islands. ADV Holding Ltd was acquired because it holds prominent real estate assets in Angola.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.
|
|
|
Fair value
recognized on
acquisition
|
|
|
|
US$ 000’s
|
|
|
|
|
Property, plant and equipment
|
|
|
26,030.0
|
Property leasehold interest
|
|
|
4,639.0
|
Net working capital acquired
|
|
|
346.1
|
Deferred tax liability recognised
|
|
|
(7,563.8)
|
Total identifiable assets
|
|
|
23,451.3
|
|
|
|
|
Goodwill
|
|
|
6,971.9
|
|
|
|
|
Total consideration
|
|
|
30,423.2
|
|
|
|
|
Satisfied by:
|
|
|
|
Issuance of promissory notes
|
|
|
30,669.0
|
Adjustment to purchase price (net working capital acquired)
|
|
(245.8)
|
Final consideration
|
|
|
30,423.2
|
|
|
|
|
|
|
|
|
Net cash outflow arising on acquisition:
|
|
|
Nil
|
|
|
|
|
Cash consideration
|
|
|
Nil
|
Less: cash and cash equivalent balances acquired
|
|
1,543.1
|
The goodwill arises from the difference between the tax base of the properties and the book value of the properties, creating the initial recognition of a deferred tax liability.
On September 18, 2015 the promissory note was canceled in full and
US$ 30.0 million redeemable preference shares were issued. See note 21.
Acquisition-related costs of
US$ 0.2 million have been expensed and are included in the statement of profit and loss and are part of operating cash flows in the statement of cash flows.
ADV Holding Ltd contributed
US$ 4.1 million revenue and US$ 0.1 million to the Group’s loss for the period between the date of acquisition and the balance sheet date.
If the acquisition of ADV Holding Ltd had been completed on the first day of the financial year, group revenues for the period would have been
US$ 4.4 million and group loss would have been US$ 3.6 million.
8.
Sales
|
|
|
SUCCESSOR
|
|
|
PREDECESSOR
|
|
|
|
Jan 23 to Dec 31, 2015
|
|
|
Jan 1 to Jan 22, 2015
|
|
|
|
US$ 000’s
|
|
|
US$ 000’s
|
|
|
|
|
|
|
|
Rental income
|
|
|
3,222.2
|
|
|
257.7
|
Service income
|
|
|
835.9
|
|
|
67.3
|
Total Sales
|
|
|
4,058.1
|
|
|
325.0
|
9.
Operating
leases
Group as lessor
The Group has entered into leases on its property portfolio. The property leases typically have lease terms between 1 and 12 months. Future minimum lease rental receivables under non-cancellable operating leases are as follows:
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Within 1 year
|
1,861.0
|
After 1 year, but not more than 5 years
|
-
|
More than 5 years
|
-
|
Total
|
1,861.0
|
Group as lessee
Operating leases relate to the lease of a surface right with a term of 21 years. The Group does not have an option to purchase the leased surface right at the expiry of the lease period.
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Within 1 year
|
84.0
|
After 1 year, but not more than 5 years
|
396.0
|
More than 5 years
|
1,674.0
|
Total
|
2,154.0
|
10.
Cost of sales and administrative expenses
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUCCESSOR
|
|
|
PREDECESSOR
|
|
|
Jan 23 to Dec 31, 2015
|
|
|
Jan 1 to Jan 22, 2015
|
|
|
US$ 000’s
|
|
|
US$ 000’s
|
|
|
|
|
|
|
Depreciation
|
|
1,020.5
|
|
|
13.0
|
Repairs, maintenance and utilities
|
|
276.4
|
|
|
18.1
|
Indirect taxes
|
|
95.0
|
|
|
3.8
|
Security costs
|
|
54.1
|
|
|
3.7
|
Property Insurance costs
|
|
29.8
|
|
|
2.1
|
Operating lease costs
|
|
16.2
|
|
|
1.0
|
Other property operating expenses
|
|
21.9
|
|
|
2.0
|
Total
|
|
1,513.9
|
|
|
43.7
|
Administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUCCESSOR
|
|
|
PREDECESSOR
|
|
|
Jan 23 to Dec 31, 2015
|
|
|
Jan 1 to Jan 22, 2015
|
|
|
US$ 000’s
|
|
|
US$ 000’s
|
|
|
|
|
|
|
Management administration fee
|
|
1,000.0
|
|
|
-
|
Termination Fee
|
|
1,000.0
|
|
|
-
|
Payments to employees
|
|
136.9
|
|
|
-
|
Audit and accounting expenses
|
|
210.9
|
|
|
-
|
Other administrative expenses
|
|
94.9
|
|
|
27.7
|
Bad debt expense
|
|
15.6
|
|
|
-
|
Total
|
|
2,458.3
|
|
|
27.7
|
11.
Finance costs
|
|
SUCCESSOR
|
|
|
PREDECESSOR
|
|
|
Jan 23 to Dec 31, 2015
|
|
|
Jan 1 to Jan 22, 2015
|
|
|
US$ 000’s
|
|
|
US$ 000’s
|
|
|
|
|
|
|
Interest on promissory note
|
|
1,686.5
|
|
|
-
|
Interest on callable bonds
|
|
58.0
|
|
|
-
|
Interest on convertible note
|
|
17.6
|
|
|
-
|
Finance costs
|
|
18.0
|
|
|
-
|
Total
|
|
1,780.1
|
|
|
-
|
In relation to the business combination of ADV Holding Ltd and its subsidiaries, a promissory note was executed between the Group and the seller. Under the promissory note, the Group was contractually obligated to pay to the seller rental income less operating expenses derived from the assets of ADV Holding Ltd, less a property management fee representing 6% of the income from those assets up to March 31, 2015 and 10% thereafter. The amount is accounted for as interest on promissory note.
On September 18, 2015, the promissory note was canceled in full and
US$ 30.0 million redeemable preference shares were issued. See note 21.
Finance costs relate to legal and other costs incurred in connection with the issuance of the corporate bonds.
12.
Transition costs
Transition costs relate to legal and other costs incurred during the acquisition process of the properties.
13.
Taxation
As a Bermudan domiciled company, the Company is subject to Bermudan tax legislation. At the date of the financial statements there is no Bermudan income tax, corporation tax, profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by the Company or its shareholders.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The principal charges to current tax arises in respect of the Company’s Angolan subsidiaries which is subject to a corporate tax, at a rate of 30% (Predecessor Period: 30%), and real estate income tax (IPU),
at a rate of 25% (Predecessor period: 25%). Income that is subject to IPU is not subject to corporate income tax.
The major components of income tax are as follows:
|
SUCCESSOR
|
|
PREDECESSOR
|
|
Jan 23 to Dec 31, 2015
|
|
Jan 1 to Jan 22, 2015
|
|
US$ 000’s
|
|
US$ 000’s
|
|
|
|
|
Current tax
|
|
|
|
In respect of the current year
|
708.1
|
|
55.6
|
|
|
|
|
Deferred tax
|
|
|
|
|
|
|
|
Release of deferred tax liabilities
|
(705.0)
|
|
-
|
|
(705.0)
|
|
-
|
|
|
|
|
Total Income tax expense recognised in the current period
|
3.1
|
|
55.6
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
Opening balance
|
-
|
|
-
|
Recognised on acquisition of subsidiary
|
7,563.8
|
|
-
|
Accumulated amortization
|
(705.0)
|
|
-
|
Balance at December 31, 2015
|
6,858.8
|
|
-
|
Deferred tax liabilities have arisen in relation to investment properties.
The charge for the year can be reconciled to the statement of profit or loss as follows:
|
SUCCESSOR
|
|
PREDECESSOR
|
|
Jan 23 to Dec 31, 2015
|
|
Jan 1 to Jan 22, 2015
|
|
US$ 000’s
|
|
US$ 000’s
|
|
|
|
|
Profit/(Loss) before tax
|
(3,781.5)
|
|
291.8
|
|
|
|
|
Tax at the Bermudian corporation tax rate of 0% (Predecessor:0%)
|
-
|
|
-
|
Effect of different tax rates of subsidiaries operating in other jurisdictions
|
208.2
|
|
76.4
|
Effect of income not subject to corporation tax
|
(76.9)
|
|
(67.6)
|
Tax on real estate rental profits (IPU)
|
(128.2)
|
|
46.8
|
Tax (credit) expense for the year
|
3.1
|
|
55.6
|
14. Earnings per share
Earnings per share (“EPS”) is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding adjusted for the effects of all dilutive potential ordinary shares. There are no dilutive instruments outstanding for the periods presented.
Basic and diluted loss per share
|
SUCCESSOR
|
|
PREDECESSOR
|
|
Jan 23 to Dec 31, 2015
|
|
Jan 1 to Jan 22, 2015
|
|
US$ 000’s
|
|
US$ 000’s
|
|
|
|
|
(Loss) / profit for the period
|
(3,792.1)
|
|
236.2
|
Weighted average number of Ordinary Shares (number)
|
5,000.0
|
|
100.0
|
Basic and diluted (loss) / profit per share (dollars)
|
(758.42)
|
|
2,362.00
|
15.
Property
related
assets
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Investment property
|
|
Opening balance
|
-
|
Acquisition of assets
|
26,030.0
|
Depreciation
|
(813.0)
|
Impairment
|
(1,800.0)
|
Closing balance
|
23,417.0
|
|
|
Property leasehold interest
|
|
Opening balance
|
-
|
Additions
|
4,639.0
|
Expensed during the year
|
(207.0)
|
Closing balance
|
4,432.0
|
On acquisition all investment properties and property leasehold interests are measured at fair value.
Impairment losses recognised during the year
Subsequent to the decline in global oil prices, the market conditions for short-term residential and commercial letting in Luanda deteriorated during 2015. This resulted in a fall in the occupancy levels of the group’s property with a consequent impact on their fair value. The group carried out a review of the recoverable amount of the property assets and it resulted in an impairment loss of
US$ 1.8 million, which has been recognized in profit or loss.
Fair value of investment property
The fair value of the Group’s investment property at December 31, 2015 is US$23.4 million and has been arrived at on the basis of an internal valuation carried out at that date by management. The fair value represents a Level 3 fair value measurement. The fair value was determined based on the capitalisation of a stream of income into a capital value using an appropriate yield. In estimating the fair value of the properties, the highest and best use of the properties is their current use. Management have considered the following inputs in their assessment of fair value; contracted revenue for each property, renewal rate, vacancy period lease incentives; running costs of each property; and yield profile. In assessing the yield profile management have used a market yield, which is derived from current sales and rental values. The yields used were defined by comparison with other properties in the market and with the current opportunity cost in Angola for alternative investments.
Management’s valuation policy is to complete a valuation obtaining input from an independent expert every two years. The last valuation with the input of an expert was performed for the acquisition of the Group by AIC Ltd on January 23, 2015 valuing the investment properties at
US$ 26.0 million.
Restrictions on investment property
Under the Corporate Bond terms and conditions, the Group will ensure that no member of the group will, sell, transfer or otherwise dispose of all or part of the Isha Properties except for leasing and licencing of the properties in the ordinary course of business.
16. Property plant and equipment
|
|
SUCCESSOR
|
US$ 000’s
|
Balance at January 23, 2015
|
-
|
Additions
|
108.8
|
Disposals
|
-
|
Accumulated depreciation
|
(0.5)
|
Balance at December 31, 2015
|
108.3
|
17. Goodwill
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Opening balance
|
-
|
Recognised on acquisition of subsidiary
|
6,971.9
|
Accumulated impairment losses
|
(113.1)
|
Balance at December 31, 2015
|
6,858.8
|
Goodwill acquired in a business combination is allocated, at acquisition, to the Cash Generating Units (CGU) (Isha 1, Isha 2 and Pina properties) that are expected to benefit from that business combination. The table above highlights the carrying amount of goodwill allocated following the acquisition of ADV Holding Ltd. Goodwill arose as a result of a difference between the tax base of the properties and their book value, creating the initial recognition of a deferred tax liability.
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The carrying value is compared to recoverable amount being the higher or value in use and fair value less costs to sell. The 2015 goodwill impairment review was undertaken as at 31 December 2015. The recoverable amount of each CGU is determined from value in use calculations. The key assumptions on which the value in use calculation is based is the capitalisation of a stream of income into a capital value using an appropriate yield. The key judgements for each CGU in the assessment of the fair value are contracted revenues for each property; running costs of each property and yield profile. In assessing the yield profile, management used a market yield which is derived from current sales and rental values. The yields used were defined by comparison with other properties in the market and with the current opportunity cost in Angola for alternative investments.
Forecasts are based on the most recent financial budgets for individual properties as approved by management for the next year and supplemented by an extended forecast over the period of lease rights acquired by Group.
During the year an impairment loss of
US$ 113.1 thousand was recognised as the carrying value of the CGUs, net of the related deferred tax liabilities, exceeded their value in use by this amount.
18. Trade
and
other receivables
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Trade receivables
|
435.3
|
Payment in advance to Angola Development Ventures Inc.
|
583.7
|
Other receivables
|
26.5
|
Total trade and other receivables
|
1,045.5
|
Trade receivables (rent and service charge receivables) are non-interest bearing and are typically due within 15 days.
No provision for impairment of trade receivables has been recorded as at December 31, 2015 as all amounts have been subsequently received.
19. Cash and cash equivalents
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Short term bank deposits
|
657.3
|
Total
|
657.3
|
Cash and cash equivalents comprise cash in hand; current balances with banks and similar institutions. It includes
US$ 210.4 thousand held in Angola and denominated in Angolan Kwanza.
In 2016 the government of Angola continued foreign exchange rate limitations relating to the availability of
US$ for purchase by local companies. The limitation is in the form of local companies obtaining government approval in order to repatriate
US$ out of the country. The lifting
of these limitations are not immediately predictable, thus potentially impacting the timing of repatriation of funds.
The Group has mechanisms available to it to manage this risk. Firstly, a Private Exchange Agreement with Angola Development Ventures Inc. whereby the Group provides Angola Kwanza (AOA) to a nominee of Angola Development Ventures Inc in Angola and for the Company to receive
US$. Secondly, management service contracts approved by the Angolan Ministry of Finance enables the repatriation of funds associated with services provided to Angolan entities.
20.
Share capital
Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are shown as a deduction in equity from the proceeds.
|
Par Value
|
Shares authorised
|
Issued and fully paid shares
|
Issued but not fully paid shares
|
Share capital
|
|
|
|
|
|
|
|
|
|
Issued shares
|
$1.00
|
5,000
|
5,000
|
-
|
|
|
5,000
|
5,000
|
-
|
Reconciliation of Africa International Capital Ltd shares outstanding
|
As at Dec 31, 2015
|
|
|
Opening balance – January 23, 2015
|
-
|
Issued and fully paid shares
|
5,000
|
Issued but not fully paid shares
|
-
|
Closing balance
|
5,000
|
The holders of ordinary shares are entitled to one vote per share and are entitled to such dividends as the Board may from time to time declare. Holders of ordinary shares are entitled to enjoy all of the rights attaching to shares as per the Company’s by-laws.
21.
Redeemable preference shares
On September 18, 2015, the directors approved for issue
US$ 30.0 million redeemable preference shares to the seller, Angola Development Ventures Inc, in exchange for the cancelation of the
US$ promissory note in the amount of US$ 30 million. The remaining outstanding balance of the promissory note was settled in cash.
During the year $7.4 million of the redeemable preferences shares were redeemed, of which
US$ 5.0 million were redeemed in exchange for US$ 5.0 million Callable Bonds in ADV Holding Ltd. The remaining $2.4 million was redeemed for cash.
The exchange of the redeemable preferred shares and promissory notes and the redemption of the preferred shares for the issuance of
US$ Callable Bonds represent non-cash financing transactions.
Reconciliation of Redeemable preference shares outstanding
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Opening balance
|
-
|
Issued
|
30,000.0
|
Redeemed
|
(7,409.5)
|
Closing balance
|
22,590.5
|
The holders of redeemable preference shares are not entitled to vote.
22. Corporate bonds
|
As at Dec 31, 2015
|
Corporate Bonds
|
US$ 000’s
|
|
|
Africa International Capital Ltd 10.1% Convertible Loan Note due Nov 30, 2022
|
2,127.1
|
ADV Holding Ltd issued 10% Callable bonds due Dec 3, 2019
|
6,432.4
|
|
8,559.5
|
Africa International Capital Ltd 10.1% Convertible Loan Note due 30 Nov 2022
On December 1, 2015 Africa International Capital Ltd approved for issue EUR 5.0 million 10.1% Convertible notes due 30 November 2022 (the “Maturity Date”) and as at December 31, 2015 GBP 1.4 million convertible notes (US$ 2.1 million) had been subscribed. The convertible loan note is settled cash or variable number of common stock in the company. There were no issue costs.
The notes may be converted at any time before the maturity date at the option of the issuer. Unless previously converted or purchased and cancelled, the Bonds will be redeemed at their principal amount, together with accrued interest, on November 30, 2022. Interest of 10.1% per annum will be paid monthly up until the notes are converted or purchased and cancelled.
The fair value of the convertible note is not materially different to the amortised cost.
ADV Holding Ltd issued 10% Callable bonds due Dec 3, 2019
On December 3, 2015 ADV Holding Ltd approved for issue
US$ 30.0 million 10% Callable bonds due December 3, 2019 (the “Maturity Date”). The bonds are issued on the Global Exchange Market (GEM) of the Irish Stock Exchange (ISE) and as at December 31, 2015
US$ 7.2 million bonds had been subscribed. US$ 5.0 million of bonds were subscribed to by an affiliate of the seller,
Angola Development Ventures Inc.,
in exchange for a redemption of redeemable preference shares.
The Bonds may be redeemed at any time on or after December 3, 2016 before the maturity date at the option of the Issuer. Unless previously redeemed or purchased and cancelled, the Bonds will be redeemed at their principal amount, together with accrued interest, on December 3, 2019. Interest of 10% per annum will be paid quarterly up until the notes are redeemed or purchased and cancelled.
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Bonds issued
|
7,200.0
|
Issue costs
|
(767.6)
|
|
6,432.4
|
Issue costs relate to legal and other costs incurred in connection with the issuance of the Corporate bond.
The fair value of the callable bonds is not materially different to the amortised cost.
23. Deferred revenue
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Deferred revenue
|
622.2
|
Total
|
622.2
|
Rent received in advance is deferred on the balance sheet and released on a straight-line basis in the profit or loss over the rental period.
24.
Deposits
from tenants
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Deposits from tenants
|
237.7
|
Total
|
237.7
|
Deposits from tenants represent amounts held as security in case of damages to the property and represent one month’s rent. Deposits are refunded once a tenant vacates the property and the property inspection confirms that the property has been left in a satisfactory state.
25. Trade and
other
payables
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Trade payables
|
338.8
|
Accrued expenses
|
641.5
|
Tax liabilities
|
98.8
|
Termination fee payable
|
1,000.0
|
Other liabilities
|
129.4
|
Total
|
2,208.4
|
Tax liabilities include:
a) Corporate income tax accrued not yet due
b) Corporate income tax withheld from expenses paid to suppliers
Termination fee payable is for the termination of a management and advisory agreement with Crescat Ventures Ltd (see note 26).
26. Related party disclosures
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details between the Group and other related parties are disclosed below.
Amounts due to related parties
|
As at Dec 31, 2015
|
US$ 000’s
|
|
|
Africa Real Estate Ltd (subsidiary of Crescat Ventures Ltd – ultimate parent company)
|
2,127.1
|
Crescat Ventures Ltd (parent company of AIC Ltd – Angola Business Unit at December 31, 2015) (note 25)
|
1,000.0
|
AIC Ltd – Angola Business Unit (parent company at December 31, 2015)
|
206.9
|
Total
|
3,334.0
|
The group has issued a 10.1% Convertible Loan Note to Africa Real Estate Ltd (see note 22). Interest of
US$ 17.6 thousand was accrued on the loan note during the year and expensed in the profit or loss.
In place was an agreement between the Company and its ultimate parent entity Crescat Ventures Ltd for the provision of management and advisory services. The agreement was terminated in the year and a termination fee of
US$ 1.0 million agreed.
An agreement between AIC Ltd – Angola Business Unit and the Group provides for the provision of services, including but not limited to, strategic advisory, financial, accounting and administrative, as needed from time to time. During the year a
US$ 1.0 million fee was charged and expensed in the profit or loss.
Compensation of key management personnel of the group
The remuneration of directors and other members of key management personnel of the Group during the year was as follows:
|
2015
|
|
US$ 000’s
|
|
|
Short-term benefits
|
506.7
|
Total
|
506.7
|
These amounts have been remunerated by a parent company and recharged to the group under the management and advisory agreement in place.
Other related party transactions
In addition to the above, a Director provided certain corporate financing advisory services to the Group in relation to the issuance of the Callable Bond, for which an advisory fee of
US$ 22.6 thousand was charged and paid.
27.
Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to its shareholder. The capital structure of the Group consists of debt, which includes
borrowings disclosed in note 22, cash and cash equivalents and equity attributable to equity holders of the parent, comprising of issued capital, reserves and retained earnings as disclosed on the statement of changes in equity. The primary objective of the Group’s capital management is to ensure that it remains within its bond covenants.
Events of default would permit the bondholders to immediately call outstanding bond amounts. During the current period, the Group did not have any events of default, nor did it default on any other of its obligations under the bond agreement.
The Company has established mechanisms in order to manage risks associated with access to
US$ in Angola. The Group has successfully executed these mechanisms and continuously monitors these risks and risk mitigants available in relation to the Group’s
US$ requirements. Refer to Note 19 for further information regarding the Company’s mechanisms.
|
As at Dec 31, 2015
|
|
US$ 000’s
|
|
|
Financial assets
Classified as Loans and Receivables: Measured at Amortised Cost
|
|
Trade and other receivables
|
1,045.5
|
Cash and cash equivalents
|
657.3
|
Total
|
1,702.8
|
|
|
Financial liabilities
|
|
Classified as Other Liabilities: Measured at Amortised Cost:
|
|
Corporate bonds
|
8,559.5
|
Deposits from tenants
|
237.7
|
Trade and other payables
|
2,208.4
|
Total
|
11,005.6
|
The carrying value of cash and cash equivalents, trade and other receivable, trade and other payables and deposits from tenants approximate its fair value due their short-term nature and represent level 2 measurements. The carrying value of the Corporate Bonds and Convertible Note approximate their fair value given they were issued close to December 31, 2015 and represents a level 2 measurement based on a recent transaction price.
Financial risk management objectives
In the normal course of its operations, the Group is primarily exposed to credit, currency, interest rate and liquidity risks.
In order to manage these risks, the Group may enter into transactions that make use of financial instruments. The Group has developed risk
a management process to facilitate, control and monitor these risks. This process includes normal documentation of polices, including limits, controls and reporting structures. The executive management and the Board of Directors are responsible for risk management activities within the Group.
Foreign currency risk management
The Group undertakes transactions denominated in Angolan Kwanza (AOA) through its main operating subsidiaries. The Group also has a foreign currency denominated convertible loan note in Euro (EUR).
Management considers foreign exchange risk to be at an acceptable level due to a continued
US$ link to rental prices and payments, wherever possible.
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at reporting date is summarised as follows:
|
2015
|
|
US$ 000’s
|
|
|
Angolan Kwanza (AOA)
|
210.3
|
Euro (EUR)
|
2,104.1
|
Total
|
2,314.4
|
Foreign currency sensitivity analysis
The following table details the Group’s sensitivity to a 10% increase and decrease in US Dollars against the AOA and the EUR. Ten percent (10%) is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for a 10% change in foreign currency rates. A negative number below indicates a decrease in profit and other equity where US Dollar increases 10% against the AOA and the Euro. For a 10% weakening of US Dollar against the AOA and the Euro, there would be a comparable impact on the profit and other equity, and the balances below would be positive.
|
2015
|
|
US$ 000’s
|
|
|
Profit or loss
|
(210.4)
|
Other equity
|
(378.3)
|
This is attributable to the exposure outstanding on Angolan Kwanza receivables and payables in the Group at the reporting date and the Euro balance of the Convertible Loan Note.
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults.
The exposure to credit risk is monitored by management on an on-going basis and potential tenants are assessed according to Group criteria prior to entering into lease arrangements. Credit risk is managed by requiring tenants to pay rentals in advance. The credit quality of the tenant is assessed at the time of entering into a lease agreement. Outstanding tenants’ receivables are regularly monitored. An impairment analysis is performed at each reporting date on an individual basis for major tenants. The carrying amount of the financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk.
a) Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet a financial commitment in any location or currency. The Group manages liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Non-derivative financial liabilities
The following table details the Group`s remaining contractual maturity for its non-derivative financial liabilities. The table has been compiled based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.
The table includes principal cash flows and interest.
|
Within
1 year
|
1-2 years
|
2-5 years
|
5 years
|
Total
|
|
US$ 000’s
|
US$ 000’s
|
US$ 000’s
|
US$ 000’s
|
US$ 000’s
|
As at December 31, 2015
|
|
|
|
|
|
Trade and other payables
|
2,208.4
|
-
|
-
|
-
|
2,208.4
|
Deposits from tenants
|
237.7
|
-
|
-
|
-
|
237.7
|
Corporate bonds
|
934.8
|
934.8
|
9,069.6
|
-
|
10,939.2
|
Total
|
3,380.9
|
934.8
|
9,069.6
|
-
|
13,385.3
|
|
|
|
|
|
|
Non-derivative financial assets
The following table details the Group’s expected maturity for other non-derivative financial assets. The table below has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the Group anticipates that the cash flow will occur in a different period.
|
Within
1 year
|
1-2 years
|
2-5 years
|
5 years
|
Total
|
|
US$ 000’s
|
US$ 000’s
|
US$ 000’s
|
US$ 000’s
|
US$ 000’s
|
As at December 31, 2015
|
|
|
|
|
|
Trade and other receivables
|
1,045.5
|
-
|
-
|
-
|
1,045.5
|
Cash and cash equivalent
|
657.3
|
-
|
-
|
-
|
657.3
|
Total
|
1,702.8
|
-
|
-
|
-
|
1,702.8
|
Commitments and contingencies
|
As at Dec 31, 2015
|
Contracted capital commitments at the end of the period
|
US$ ‘000
|
|
|
Investment properties
|
36,345.0
|
|
36,345.0
|
|
Description of nature
|
Estimate of financial effect
|
Uncertainties related to amount / timing
|
Commitment to purchase QuesCom International Ltd from Angola Development Ventures Inc.
|
The Company has entered into an agreement for the Sale and Purchase of shares in QuesCom International Ltd. There are conditions precedent in the contract that must be met before the transaction can be completed.
|
US$ 23,545,000
|
The Company is unable to determine with any accuracy when the conditions will be met by Angola Development Ventures Inc. The uncertainties are conditions precedent relating to the acquisition of a real estate asset.
|
Commitment to purchase an investment property from Angola Development Ventures Inc.
|
The Company has entered into an agreement for the Purchase of an investment property from Angola Development Ventures Inc. There are conditions precedent in the contract that must be met before the transaction can be completed.
|
US$ 12,800,000
|
The Company is unable to determine with any accuracy when the conditions will be met by Angola Development Ventures Inc. but it is anticipated they may be met by year end 2016.
|
29.
Subsequent events
Execution of merger agreement
On April 29, 2016, the Group executed a
definitive Merger Agreement with Brenham Oil & Gas Corp. (“Brenham”). The resulting combination will create a new company – Africa Growth Corporation – focused on income-oriented real estate acquisitions and long term housing finance for middle-income families across Sub-Saharan Africa.
Pursuant to the terms of the combination, the Group will become a wholly-owned subsidiary of Brenham in exchange for the issuance of new Brenham equity to AIC’s stockholders. After the merger,
Brenham will be renamed “Africa Growth Corporation.” The principal terms of the merger are as follows:
- Existing Brenham Liabilities
. Brenham’s parent company, American International Industries, Inc., will forgive all of Brenham’s existing inter-company debt and payables in exchange for assignment to it of Brenham’s producing and undeveloped oil and gas assets, along with customary indemnifications.
- Post-Closing Ownership of the Africa Growth Corporation
. After the issuance of new Brenham equity to AIC’s stockholders (i) the former AIC stockholders will own approximately 92% of the Africa Growth Corporation, and (ii) Brenham’s former stockholders will own approximately 8% of the Africa Growth Corporation.
Brenham’s majority stockholder, American International Industries, Inc., has approved the merger, and the merger’s closing is conditional on various terms and conditions, including the effectiveness of the Schedule 14C Information Statement filed with the Securities and Exchange Commission.
Constitution of convertible note agreement
On August 10, 2016, the Group entered into a 10% Convertible Note agreement for up to
US$ 5 million with a maturity date of July 31, 2018. The interest obligation is accrued as payment in kind. The note carries a mandatory equity conversion requirement post-merger if the new company, Africa Growth Corporation, completes a listing on a relevant exchange. The convertible note can be repaid and cancelled at any time to include the principal amount owing and accrued interest.
Company name change
On October 25, 2016, the company changed its name from Angola International Capital Ltd to Africa International Capital Ltd. The change was made as the company has begun the process of expanding and focusing its business outside Angola and the reference in its name no longer appropriately reflects the company’s outlook.
Acquisition of subsidiary
On October 13, 2016
, Africa International Capital Limited acquired the whole of the share capital of Namibia International Capital Ltd from AIC Ltd – Namibia Business Unit by way of share for share exchange. As the rights of the shareholders were preserved, the transaction is a common control transaction falling outside the scope of IFRS 3.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Brenham Oil and Gas Corp. (the "Company" or “Brenham”) entered into an Agreement and Plan of Merger (the “Merger Agreement”)
on April 25, 2016, with Africa International Capital (formerly Angola International Capital) (“AIC”). The closing of the merger (the “Closing”) is conditional upon Brenham filing
with the State of Nevada a Certificate of Amendment to its Articles of Incorporation to:
i.
implement a one for two hundred (1:200) reverse stock split (the "Reverse Split") of the Company's issued and outstanding shares of common stock, par value $0.0001 per share (the "Common Stock");
ii.
change the Company's name from Brenham Oil & Gas Corp. to Africa Growth Corporation (the "Name Change");
iii.
rename the existing Common Stock as “Common Stock Series A”;
iv.
authorize the issuance of up to one hundred million (100,000,000) shares of a new class of non-voting common stock with the same economic rights of existing Common Stock Series A but without the right to vote on any matter, which non-voting shares shall be designated “Common Stock Series B”, par value $0.0001 per share;
v.
authorize the issuance of up to one million (1,000,000) shares of a new class of super-voting common stock with all of the economic rights of existing Common Stock Series A except that such shares will have five thousand (5,000) votes per share, which shall be designated “Common Stock Series C”, par value $0.0001 per share; and
vi.
authorize the issuance of up to twenty-nine million (29,000,000) shares of preferred stock, par value $0.0001 per share, which may be issued in one or more series ("Preferred Stock").
Upon the effective time of Closing,
the
outstanding shares of AIC shall be converted into and exchanged for: (i) 7,362,421 shares (post-Reverse Split) of Brenham Common Stock Series A, which will represent approximately 92% of the outstanding Common Stock Series A at the Closing; and (ii) 100,000 shares of Common Stock Series C, having 5,000 votes per share.
Further on April 25, 2016, Brenham and American International Industries, Inc. (the Company's corporate parent and controlling stockholder), a Nevada corporation (“AMIN”) entered into a Contribution Agreement pursuant to which, at the Closing, AMIN will assume all of Brenham’s existing working capital and liabilities at the Closing in consideration of and in exchange for Brenham assigning to AMIN all of Brenham’s existing developed and undeveloped oil and gas assets.
The unaudited pro
forma condensed consolidated financial information has been prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2016, gives effect to
all of the above action (together the "Transactions") as if they had occurred at June 30, 2016, and combines the historical unaudited balance sheets of Brenham and AIC as of such date. The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2016, and the year ended December 31, 2015, gives effect to the
Transaction as if it had been consummated at January 1, 2015, and combines the historical results of Brenham and AIC for the necessary periods.
On January 23, 2015, AIC acquired the ordinary share capital of ADV Holding Ltd which owned real estate interests in Angola (‘the Predecessor’). The historical consolidated financial statements for AIC are presented for the periods preceding and succeeding the business combination by AIC. The consolidated financial statements for the periods preceding the business combination, the Predecessor consolidated financial statements, comprise the consolidated financial statements of ADV Holding Ltd and its subsidiaries. The Predecessor consolidated financial statements are presented for the period from January 1, 2015, to January 22, 2015. The consolidated financial statements for the period succeeding the business combination comprise AIC’s consolidated financial statements for the period January 23, 2015, to December 31, 2015.
The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only. The pro forma condensed consolidated financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the
Transaction occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma condensed consolidated financial information does not reflect the realization of any expected cost savings or other synergies from the combination of Brenham and AIC as a result of restructuring activities and other planned cost saving initiatives following the completion of the
Transaction.
The historical financial statements of Brenham have been prepared in accordance with U.S. GAAP. AIC’s historical consolidated financial statements were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), which differ in certain respects from U.S. GAAP. For the purposes of these unaudited pro forma condensed consolidated financial statements, adjustments were made to AIC’s consolidated financial statements to convert those from IFRS to U.S. GAAP. These adjustments reflect management’s best estimates based upon the information available to date and are preliminary and subject to change once more detailed information is obtained.
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed consolidated financial information are described in the accompanying notes, which should be read together with the pro forma condensed consolidated financial information. The unaudited pro forma condensed consolidated financial statements should be read together with i) Brenham’s historical financial statements, prepared in accordance with U.S. GAAP, which are included in the Company’s latest
annual report on Form 10-K and latest quarterly report on Form 10-Q, and ii) AIC’s historical financial information included elsewhere in this Information Statement.
Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 2016
(Unaudited) (in thousands except share and per share amounts)
|
Brenham Oil and Gas Corp.
|
|
Africa International Capital Ltd.
|
|
Pro Forma Adjustments (Note 2)
|
|
Note 2
|
|
Pro Forma Africa Growth Corporation
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$ 6
|
|
$ 359
|
|
(6)
|
|
A
|
|
177
|
Trade and other receivables
|
-
|
|
1,440
|
|
(182)
|
|
C(2)
|
|
1,258
|
Total current assets
|
6
|
|
1,799
|
|
(188)
|
|
|
|
1,617
|
Property plant and equipment
|
-
|
|
94
|
|
23,014
|
|
D(1)
|
|
22,946
|
|
|
|
|
|
(108)
|
|
D(2)
|
|
|
|
|
|
|
|
(54)
|
|
C(1)
|
|
|
Investment property
|
-
|
|
23,014
|
|
(23,014)
|
|
D(1)
|
|
-
|
Property leasehold interest
|
-
|
|
4,323
|
|
|
|
|
|
4,323
|
Goodwill
|
-
|
|
6,731
|
|
|
|
|
|
6,731
|
Total assets
|
6
|
|
35,961
|
|
(350)
|
|
|
|
35,617
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
24
|
|
2,265
|
|
(24)
|
|
A
|
|
|
|
|
|
|
|
100
|
|
B(4)
|
|
2,365
|
Deposits from tenants
|
-
|
|
194
|
|
|
|
|
|
194
|
Deferred revenue
|
-
|
|
297
|
|
|
|
|
|
297
|
Accounts payable – related parties
|
732
|
|
-
|
|
(732)
|
|
A
|
|
-
|
Total current liabilities
|
756
|
|
2,756
|
|
(656)
|
|
|
|
2,856
|
Asset retirement obligations
|
8
|
|
-
|
|
(8)
|
|
A
|
|
-
|
Corporate bonds
|
-
|
|
8,895
|
|
|
|
|
|
8,895
|
Deferred Tax liability
|
-
|
|
6,731
|
|
|
|
|
|
6,731
|
Total liabilities
|
764
|
|
18,382
|
|
(664)
|
|
|
|
18,482
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
Common stock
|
13
|
|
5
|
|
(13)
|
|
B(1)(c)
|
|
1
|
|
|
|
|
|
(5)
|
|
B(1)(c)
|
|
|
|
|
|
|
|
1
|
|
B(2)
|
|
|
Less: treasury stock
|
(5)
|
|
|
|
5
|
|
B(1)(c)
|
|
-
|
Additional paid-in capital
|
993
|
|
|
|
(993)
|
|
B(1)(c)
|
|
276
|
|
|
|
|
|
271
|
|
B(2)
|
|
|
|
|
|
|
|
5
|
|
B(1)(c)
|
|
|
Accumulated deficit
|
(1,759)
|
|
(4,783)
|
|
1,759
|
|
B(1)(b)
|
|
(5,499)
|
|
|
|
|
|
(272)
|
|
B(2)
|
|
|
|
|
|
|
|
(108)
|
|
D(2)
|
|
|
|
|
|
|
|
(182)
|
|
C(2)
|
|
|
|
|
|
|
|
(54)
|
|
C(1)
|
|
|
|
|
|
|
|
(100)
|
|
B(4)
|
|
|
Foreign currency translation reserve
|
|
|
(234)
|
|
|
|
|
|
(234)
|
Preference shares
|
|
|
22,591
|
|
(22,591)
|
|
B(1)(d)
|
|
|
Non-controlling interest
|
|
|
|
|
22,591
|
|
B(1)(d)
|
|
22,591
|
Total shareholders' equity (deficit)
|
(758)
|
|
17,579
|
|
314
|
|
|
|
17,135
|
Total liabilities and shareholders' equity
(deficit)
|
$ 6
|
|
$ 35,961
|
|
(350)
|
|
|
|
$ 35,617
|
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Information.
.
Pro Forma Condensed Consolidated Statement of Operations
1
For the Six Months Ended June 30, 2016
(Unaudited) (In thousands, except share and per share amounts)
|
Brenham Oil and Gas Corp.
|
|
Africa International Capital Ltd.
|
|
Pro Forma Adjustments
(Note 2)
|
|
Note 2
|
|
Pro Forma Africa Growth Corporation
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$ -
|
|
$ 1,420
|
|
10
|
|
D(2)
|
|
$ 1,430
|
Costs of revenues, exclusive of depreciation and amortization
|
-
|
|
(357)
|
|
-
|
|
|
|
(357)
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
-
|
|
(646)
|
|
2
|
|
D(2)
|
|
(644)
|
Selling, general and administrative expenses
|
(48)
|
|
(845)
|
|
-
|
|
|
|
(893)
|
Total operating expenses
|
(48)
|
|
(1,491)
|
|
2
|
|
|
|
(1,537)
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
(48)
|
|
(428)
|
|
12
|
|
|
|
(464)
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Interest income
|
-
|
|
78
|
|
-
|
|
|
|
78
|
Interest expense
|
-
|
|
(587)
|
|
124
|
|
B(4)
|
|
(463)
|
Total other expense
|
-
|
|
(509)
|
|
-
|
|
|
|
(385)
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
(48)
|
|
(937)
|
|
136
|
|
|
|
(849)
|
Income taxes
|
-
|
|
(54)
|
|
-
|
|
|
|
(54)
|
Net loss
|
$ (48)
|
|
$ (991)
|
|
136
|
|
|
|
(903)
|
|
|
|
|
|
|
|
|
|
|
Loss per common share – basic and diluted
|
$ (0.00)
|
|
$ (198.24)
|
|
-
|
|
|
|
$ (0.11)
|
Weighted average number of common shares outstanding – basic and diluted
|
128,293,152
|
|
5,000
|
|
(120,195,520)
|
|
B(3)
|
|
8,102,632
|
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Information.
1.
Certain reclassifications have been made to the historical financial information to conform to the current presentation. These reclassifications have no effect on reported net loss.
Pro Forma Condensed Consolidated Statement of Operations
2
For the Year Ended December 31, 2015
(Unaudited) (In thousands, except share and per share amounts)
|
Brenham Oil and Gas Corp.
|
|
Africa International Capital Ltd.
|
|
Africa International Capital Ltd.
|
|
Pro Forma Adjustments
(Note 2)
|
|
Note
|
|
Pro Forma
Africa Growth Corporation
|
|
|
|
SUCCESSOR
|
|
PREDECESSOR
|
|
|
|
|
|
|
Revenues
|
$ 6
|
|
$ 4,058
|
|
$ 325
|
|
(124)
|
|
D(2)
|
|
$ 4,265
|
Costs of revenues, exclusive of depreciation and amortization
|
-
|
|
(493)
|
|
(31)
|
|
-
|
|
|
|
(524)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
(203)
|
|
(2,934)
|
|
(13)
|
|
(50)
|
|
C(1),
D(2)
|
|
(3,200)
|
Selling, general and administrative expenses
|
(154)
|
|
(2,669)
|
|
(28)
|
|
-
|
|
|
|
(2,851)
|
Total operating expenses
|
(357)
|
|
(5,603)
|
|
(41)
|
|
(50)
|
|
|
|
(6,051)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
(351)
|
|
(2,038)
|
|
253
|
|
(174)
|
|
|
|
(2,310)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
-
|
|
29
|
|
38
|
|
-
|
|
|
|
67
|
Interest expense
|
-
|
|
(1,780)
|
|
-
|
|
(182)
|
|
C(1)
|
|
(1,962)
|
Total other expense
|
-
|
|
(1,751)
|
|
38
|
|
(182)
|
|
|
|
(1,895)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
(351)
|
|
(3,789)
|
|
291
|
|
(356)
|
|
|
|
(4,205)
|
Income taxes
|
-
|
|
(3)
|
|
(56)
|
|
-
|
|
|
|
(59)
|
Net loss
|
$ (351)
|
|
$ (3,792)
|
|
$ 235
|
|
(302)
|
|
|
|
$ (4,264)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share – basic and diluted
|
$ (0.00)
|
|
$ (0.46)
|
|
$ (2,350.00)
|
|
-
|
|
|
|
$ (0.53)
|
Weighted average number of common shares outstanding – basic and diluted
|
128,293,094
|
|
8,191,527
|
|
100
|
|
(120,189,207)
|
|
B(3)
|
|
8,103,887
|
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Information.
(2) Certain reclassifications have been made to the historical financial information to conform to the current presentation. These reclassifications have no effect on reported net loss.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
Note 1 —Basis of presentation
The unaudited
pro forma condensed consolidated financial information was prepared pursuant to the rules and regulations of SEC Regulation S-X, and present the pro forma condensed consolidated balance sheet and results of operations of the combined companies based upon the historical data of Brenham and AIC.
The unaudited pro forma condensed consolidated financial information includes pro forma adjustments that are (i) directly attributable to the
Transaction, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed consolidated statements of operations, expected to have a continuing impact on the results of operations of the consolidated company.
Note 2 — Pro forma adjustments
The pro forma adjustment are as follows:
a) Distribution of Net Assets Pursuant to Contribution Agreement:
At June 30, 2016, the Company had total assets of approximately $6,000 and total liabilities of approximately $764,000, almost all of which are owed to AMIN. In connection with the
Transactions contemplated by the Merger Agreement, upon the Closing, the Company's oil and gas assets and working capital will be transferred and assigned to AMIN in consideration for the forgiveness by AMIN of the Company’s related party liabilities of approximately $764,000 and the specific indemnification for other liabilities of the Company. A pro forma adjustment for the distribution of net liabilities of the Company prior to the Closing have been reflected as a contribution by the shareholder. Thus, the pro forma adjustment to the condensed consolidated balance sheet removes the assets and liabilities recorded on Brenham’s historical balance sheet with a corresponding amount recorded in equity
3
.
b) Merger Agreement:
B(1): Reverse Recapitalization
On April 25, 2016, Brenham and AIC entered into a Share Purchase Agreement pursuant to which Brenham will acquire all outstanding shares of AIC in exchange for
7,362,421
issued shares of Brenham Common Stock
Series A and 100,000 shares of Brenham
Common Stock
Series C,
with AIC surviving as a wholly owned subsidiary of Brenham. Immediately following the Closing, the stockholders of Brenham will own approximately 8% of the economic interest of the combined company, and the former AIC stockholders will own approximately 92% of the economic interest of the combined company. The
Transaction is expected to close in 2016, subject to customary closing conditions. As Brenham has no net assets as of the Closing and does not constitute a business, the
Transaction has been accounted for as a reverse recapitalization. The consideration transferred in the
Transaction has been recognized as an expense as no proceeds upon consummation of the
Transaction are received. However, the pro forma adjustment is not reflected in the unaudited pro forma condensed consolidated statements of operations as these amounts are not expected to have a continuing effect on the operating results of the combined company. The resulting unaudited pro forma condensed consolidated financial statements thus reflects the following:
a) the historical assets and liabilities of AIC, recognized and measured at their pre-combination carrying amounts;
b) the historical accumulated deficit of AIC before the
Transaction
c) the historical issued equity interest of AIC, restated to reflect the equity structure of the Company, including the equity interests in the Company issued to affect the
Transaction; and
d) a non-controlling intrest arising from the pre-combination Preferred Shares of AIC that were not exchanged in the
Transaction
, which are entitled to cumulative dividends from earnings upon liquidation.
B(2): Consideration Transferred
Upon the Closing, the Company will issue 7,362,421 Common Stock Series A and
100,000 shares of Common Stock Series C
in exchange for 100% of AIC common shares. The pro forma adjustment recognizes the issuance of common stock with a corresponding amount recognized as an expense as no net assets were acquired in the
Transaction and no proceeds received. The pro forma adjustment is not reflected in the unaudited pro forma
(3
) As the equity balance of Brenham is eliminated upon the Closing (as further described in Note B), the equity effect described herein is not shown.
condensed consolidated statements of operations as these amounts are not expected to have a continuing effect on the operating results of the combined company.
The estimated fair value of the consideration transferred in the reverse
recapitalization is $272,000. This has been calculated as the number of shares of common stock that AIC would have had to issue (approximately 435 shares, based upon a pre-combination AIC share number of 5,000) in order for the Company’s shareholders to hold the same equity interest in the combined entity immediately following the
Transaction (approximately 8%), multiplied by the estimated fair value of AIC’s common stock on the acquisition date ($625 per share). Management have concluded that AIC’s per share fair value of $625 is deemed the most reliable basis for measuring the consideration effectively transferred. There were no outstanding options or warrants as at June 30, 2016.
The estimated fair value of the consideration transferred is based on the fair value of AIC’s common stock on November 2, 2016. The requirement to base the consideration on the price as of the closing date could result in an expense charged different from that assumed in this unaudited pro forma condensed consolidated financial information. The estimated consideration expected to be transferred reflected in this unaudited pro forma condensed consolidated financial information does not purport to represent what the actual consideration transferred will be when the
Transaction is completed. The actual consideration will fluctuate until the effective date of the
Transaction, and the final valuation could differ significantly from the current estimate.
The following table illustrates the effect of change in Brenham’s common stock price and the resulting impact on the estimated total consideration and estimated expense:
Effect of fluctuation of fair value of common stock from pro forma
measurement date to date of Closing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in stock price
|
|
Stock price
|
|
|
Estimated
purchase price
|
|
|
Estimated
expense
|
|
Increase of 10%
|
|
$
|
687.50
|
|
|
$
|
299,000
|
|
|
|
$
|
299,000
|
|
Decrease of 10%
|
|
|
562.50
|
|
|
|
245,000
|
|
|
|
|
245,000
|
|
Increase of 20%
|
|
|
750.00
|
|
|
|
326,000
|
|
|
|
|
326,000
|
|
Decrease of 20%
|
|
|
500.00
|
|
|
|
218,000
|
|
|
|
|
218,000
|
|
B(3): Reverse Share Split:
This adjustment reflects the increase in the weighted average shares in connection with the issuance of common shares effected in the Merger, and reflects the impact of the proposed 200:1 reverse split. The table presents these pro forma share adjustments as follows:
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2016
|
|
|
Year ended
December 31, 2015
|
|
Weighted average shares outstanding prior to reverse stock split
|
|
|
128,042,064
|
|
|
|
128,293,094
|
|
Adjustment to shares for 200:1 reverse stock split
|
|
|
(127,401,853
|
)
|
|
|
(127,651,628)
|
|
Issuance of additional shares to finance the
Transaction
|
|
|
7,462,421
|
|
|
|
7,462,421
|
|
|
|
|
|
|
|
|
|
|
Pro forma combined weighted average shares outstanding
|
|
|
8,102,632
|
|
|
|
8,103,887
|
|
B(4): Transaction Costs:
To reflect additional
Transactions costs incurred because of the Transaction in the condensed consolidated balance sheet and to eliminate
Transaction costs recognized in the condensed consolidated statements of operations as they are not expected to have a continuing effect on the operating results of the combined company.
C: Acquisition of ADV Holdings by AIC
On January 23, 2015, AIC acquired 100 per cent of the issued share capital of ADV Holding Ltd, obtaining control of ADV Holding Ltd. ADV Holding Ltd was an unlisted holding company based in the British Virgin Islands. ADV
Holding Ltd was acquired because it holds prominent real estate assets in Angola and has been accounted for as a business combination. The results for operations of ADV Holdings Ltd have been included in the consolidated income statement for AIC for the period from January 23, 2015 to December 31, 2015. The consolidated income statement for the period from January 1 to January 22, 2015 reflect the results of operations for ADV Holdings Ltd, (the Predecessor). The unaudited condensed consolidated pro forma statement of operations is required to reflect the acquisition of ADV Holding Ltd by AIC as if it occurred as of 1 January 2015. The following adjustments have thus been made to give effect to this
Transaction:
C(1): Depreciation Expense
As a result of the fair value adjustment recorded upon the acquisition of ADV Holdings Ltd, there is incremental depreciation expense required to be recognized for the period from January 1 to January 22, 2015. For purposes of the pro forma adjustments, the incremental amount of such depreciation expense has been recorded as the difference between the historical depreciation recorded and depreciation computed using the new accounting basis resulting from the acquisition of ADV Holdings.
C(2): Interest Expense
In relation to the business combination of ADV Holding Ltd and its subsidiaries, a promissory note was executed between AIC and the vendor. Under the promissory note, AIC was contractually obligated to pay to the vendor rental income less operating expenses derived from the assets of ADV Holding Ltd, less a property management fee representing 6% of the income from those assets up to March 31, 2015, and 10% thereafter. The amount is accounted for as interest on promissory note. For purposes of the pro-forma adjustments, the incremental amount of such interest expense has been recognized as if the promissory note had been issued on 1 January 2015.
D. Accounting Policy Adjustments
The following adjustments reflect the conversion of AIC’s historical financial statements presented in accordance with IFRS to US GAAP.
D(1): Investment Property Presentation:
Under US GAAP, the Company does not separately present investment property from other items of property, plant and equipment. The pro forma adjustment reclassifies amounts presented as investment property to property plant and equipment.
D(2): Acquired Operating Leases
This adjustment reflects the treatment of the historical acquisition of in-place operating leases. Under US GAAP, the acquirer shall recognize an intangible asset if the terms of an operating lease are favorable relative to market terms and a liability if the terms are unfavorable relative to market terms. As there were in-place leases in AIC’s acquisition of ADV Holdings, certain intangible assets
and liabilities should have been recorded under US GAAP (rather than included as a part of the fair value of the acquired property, as they were under IFRS). Based upon the typical 30 year life that AIC assigns to its investment properties, an incremental amount of amortization would have been recorded
(against lease revenues) for these favorable and unfavorable lease terms had they been recognized as intangible assets
and liabilities in accordance with US GAAP. As these in-place leases all expired prior to June 30, 2016, there should be no resulting balances recorded in the unaudited pro forma condensed consolidated balance sheet other than the incremental effect to historical AIC accumulated deficit.
E. Income Taxes
The pro forma adjustments outlined above do not result in any additional income taxes as the
Transactions occurs in a jurisdiction where no income tax is levied.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and accompanying notes thereto along with the unaudited pro forma condensed consolidated financial information. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words, which, by their nature refer to future events. You should not place
undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
Recent Developments
On April 25,
2016, Brenham Oil and Gas Corp., a Nevada corporation (the "Registrant" or
"Brenham") entered into an Agreement and Plan of Merger (the "Merger Agreement")
with Africa International Capital Ltd., a Bermuda corporation ("AIC") pursuant
to which a wholly-owned subsidiary of the Registrant will be merged into AIC
which will be the surviving entity and will become a subsidiary of the
Registrant. A copy of the Merger Agreement was attached as Exhibit 2.1 to this
that 8-K.
In addition, on April 25, 2016, the Registrant also entered
into a Contribution Agreement with its corporate parent and principal
shareholder, American International Industries, Inc., a Nevada corporation ("AIII"),
pursuant to which, at the closing of the Merger, AIII will assume all of
Brenham's existing liabilities and working capital at the Closing in
consideration and exchange for Brenham assigning to AIII all of Brenham's
existing developed and undeveloped oil and gas assets.
Africa
International Capital Ltd
As a result of the ADV Holding Ltd
acquisition, the consolidated financial statements have been prepared with both
successor and predecessor information.
The consolidated financial
statements for the periods preceding the business combination, the Predecessor
consolidated financial statements, comprise the consolidated financial
statements of ADV Holding Ltd and its subsidiaries. The Predecessor consolidated
financial statements are presented for the period from January 1, 2015 to
January 22, 2015.
The consolidated financial statements for the period
succeeding the business combination, the Successor consolidated financial
statements, comprise the Group's consolidated financial statements. The Group
draws up its annual financial statements to December 31, 2015. Accordingly, the
Successor financial statements present the results of the Successor's operations
for the period January 23, 2015 to December 31, 2015.
Results of
operations from January 23 to December 31, 2015 (Successor period) and January 1
to January 22, 2015 (Predecessor period)
On January 23, 2015 Africa
International Capital Ltd acquired its initial portfolio of real estate assets
in Angola through the acquisition of ADV Holding Ltd (refer to note 7
accompanying the consolidated financial statements of Africa International
Capital Ltd for the period ended December 31, 2015). The initial portfolio was
valued at US$ 30.7 million by an affiliate firm of CBRE in Angola and the assets
are split on the balance sheet between Investment Property and Property
Leasehold Interests.
As at December 31, 2015 the property assets were valued at US$ 27.8 million
after depreciation of US$ 1.0 million and an impairment charge of US$ 1.8
million due to a change in market conditions (refer to note 15 accompanying the
consolidated financial statements of Africa International Capital Ltd for the
period ended December 31, 2015)
As consideration for the acquisition of
the real estate assets the Company issued promissory notes for the value of US$
30.7 million which were later exchanged for redeemable preference shares (refer
to note 21 accompanying the consolidated financial statements of Africa
International Capital Ltd for the period ended December 31, 2015). Up until the
date of exchange the Company incured finance costs on the promissory note
totaling US$ 1,686.5 thousand.
The period from January 23, 2015 to
December 31, 2015 is the first period of operations for the AIC with the real
estate assets previously being operated by the Seller. During the short-time the
real estate assets were run by the Seller (the Predecessor period from January 1
to January 22, 2015) revenue totaled US$ 325.0 thousand and was generated from
contracts that were existing before the company's acquisition. In acquiring ADV
Holding Ltd and the real estate assets, the Company also acquired existing
contracts with tenants. After the Seller's costs associated with their corporate
structure a predecessor period profit before tax of US$ 236.2 thousand was
generated.
The Company derives revenue from rental income and from
related services associated with the rental of real estate properties. Since the
real estate assets have been run by the Company (the successor period from
January 23 to December 31, 2015) rental income totaled US$3,222.2 thousand,
representing 79.4% of total revenue and service income totaled US$835.9
thousand, representing 20.6% of total revenue. As such, total revenue was
US$4,058.1 thousand for the period.
We, at this stage, do not produce
segment information as the Company has only one business and one operating
segment as at December 31, 2015.
At January 23, 2015, the composition of corporate tenants was 58 (88%) and
individual tenants was 8 (12%) for a total of 66 tenants. Property leases in
Angola currently have a lease term between 1 and 12 months with varying renewal
dates during the year. Over the period ended December 31, 2015, the composition
of corporate tenants declined to 45 (90%) and the individual tenants decreased
to 5 (10%) for a total of 50 tenants.
As a result, occupancy rates suffered a decline from January 31, 2015 of
98% to December 31, 2015 of 79% as some tenants opted not to renew their rental
contracts, including one tenant with a significant number of apartments. Rental
rates per square meter also declined from US$96.72/m2 from January 31, 2015 to
US$95.91/m2. The decline in corporate tenants, and occupancy overall, is viewed
by management to be principally driven by the change in the macroeconomic
conditions in the country, driven by the decline in the global oil price.
Management believes corporations decided to repatriate some of their employees
and/or to reduce operations locally. Following the decline in corporate tenants,
the overall decrease in the total number of tenants has reduced major client
concentration and provided diversification of the overall client base. The
recovery of occupancy rates is discussed in the Interim period section.
The cost of sales for the period from January 23 to December 31, 2015 was US$
1,513.9 thousand, resulting in a gross profit margin of 62.6%.
Administration expenses totaled US$ 2,458.3 thousand for the successor period
and were primarily management fees of US$1.0 million for the provision of
corporate services charged by the Company's parent (refer to note 26
accompanying the consolidated financial statements of Africa International
Capital Ltd for the period ended December 31, 2015) and US$ 1.0 million
termination payment for the termination of a management agreement (refer to note
26 accompanying the consolidated financial statements of Africa International
Capital Ltd for the period ended December 31, 2015).
While the impact of
inflation has lowered costs in US$ terms of some services and materials in the
local Angolan market, many services, such as legal and accounting for example,
are US$ based. Property leases typically include clauses to enable periodic
upward revision of the rental charge according to prevailing market conditions.
The currency devaluation resulted in an unrealized accounting loss in
the consolidated statement of comprehensive income from our Angola operations of
US$ 771.1 thousand. The unrealized accounting loss is generated on translation
of the Group's foreign operations from AOA to US$ and mainly represents the
difference in the Balance Sheet which is predominantly translated at the
year-end rate and the consolidated statement of profit and loss which is
translated at the average rate for the period.
Liquidity and capital
resources
The company generates its cash flow from the operation of
its real estate assets. Typically cash receipts from rental and service income
is received in AOA with property operating expenses being paid to suppliers in
AOA. The Company has used the remaining AOA to pay money owing to the Seller.
Further cash requirements of the Company include administrative expenses and
interest and principal payments on existing corporate bonds. Existing cash
resources and cash flow generated from operations from real estate assets is the
primary source of funds used to pay these amounts.
The repatriation of
capital outside of Angola is limited due to exchange control implemented by the
Angolan government. The limitation is in the form of local companies obtaining
government approval in order to repatriate USD out of the country. The lifting
these limitations are not immediately predictable, thus potentially impacting
the timing of repatriation of funds. The Company has put in place mechanisms
that include a private exchange agreement with Angolan Development Venture Inc.
and management services contracts approved by the Angolan government. The
Company has successfully operated the mechanisms it has in place for the
repatriation of AOA to US$ when US$ has been required.
During the year,
the company raised additional US$ through the issuance of corporate notes to
redeem a portion of the preference shares issued to the vendor (refer note 22).
The cash and cash equivalents at the beginning of the period, January
23, 2015, of the successor was nil.
In reference to cash flow from
operating activities, during the period, we generated cash flow from rental
income of real estate assets and related services associated with these rentals
in Angola. During the period January 23 to December 31, 2015, receipts from
customers totaling US$2,693.5 thousand were collected. Cash held in Angola has
primarily been used to satisfy Angolan operational obligations (US$1,148.0
thousand).
In reference to cash flow from investing activities, through
the business combination of ADV Holding Ltd the Group acquired cash of
US$1,543.1 thousand held in Angola.
In reference to cash flow from
financing activities, on December 3, 2015 we, through ADV Holding, issued a 10%
callable bond (refer to Note 22 of the accompanying consolidated financial
statements of Africa International Capital Ltd. for the period ended December
31, 2015 for further information) of which we received US$1,000.0 thousand on
initial listing of the bond and a further US$1,200.0 thousand from sales during
the month of December and had cash outflows of US$704.2 thousand in finance
costs. We have continued to market this facility outside of the United States to
qualified investors with reliance on Reg-S with future proceeds, if any, and
subject to market conditions, to be used to retire, in part, existing
acquisition obligations and acquire additional real estate assets, including the
payment of expenses and other obligations. In addition we has cash payments of
US$2,851.7 thousand to the Seller in performance of the Isha and Pina
acquisition agreements.
A 10.1% Convertible Loan Note due 30 Nov 2022
instrument was issued on December 1, 2015 by Africa International Capital Ltd
for US$2.1 million. There were no issue costs on the note and the notes are not
being actively marketed. (refer to Note 22 of the accompanying consolidated
financial statements of Africa International Capital Ltd. for the period ended
December 31, 2015 for further information). Further the Company redeemed for
cash US$2,409.5 thousand of redeemable preference shares during the period ended
December 31, 2015.
Cash and cash equivalents at end of period (after the
loss on foreign currency translation) were US$657.3 thousand, comprised of
US$446.9 thousand (68.0%) and US$210.4 thousand (32.0%) denominated in Angolan
Kwanza and held in Angola.
Following the change in macroeconomic
conditions in Angola, access to US$ in the Angolan market and the repatriation
of capital outside of Angola has been extremely limited. Please refer to Note 19
of the accompanying consolidated financial statements of Africa International
Capital Ltd for the year ended December 31, 2015.
Off-Balance Sheet arrangements
As at December 31, 2015, we did not
have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Regulation S-K promulgated under the Securities Act of 1934.
Tabular
disclosure of contractual obligations
The ongoing contractual
receivables and liabilities for AIC can be found in Note 7 and 24 of AIC's
Consolidated Financial Statements for the period from January 23, 2015 to
December 31, 2015.
Interim period from January 1 to June 30, 2016
Results of operations
For the period of January 1 to June 30,
2016, rental income totaled US$1,419.6 thousand, resulting in a 38.3% decline,
from US$2345.5 thousand, as compared to the period of January 23 to June 30,
2015. (The predecessor period of January 1 to January 22, 2015 represented
US$325.0 thousand.) This decline in sales was impacted by lower occupancy rates
and lower rent received per square meter. Occupancy rates began the period at
79% and climbed to 82% at June 30, 2016 after briefly falling to 58% in March.
Occupancy rates at September 30, 2016 were 90%.
Gross profit margin for
the period January 23 to June 30, 2015 was 67.9%. Gross profit for the interim
period ended June 30, 2016 was US$544.8 thousand, resulting in a gross margin of
38.3%. Given the decline in revenue, property operating expenses were managed to
reduce the overall impact on gross profit margin.
During the interim
period, the Angolan law changed eliminating the future ability to link rental
contracts to US$, which in turn has increased exchange rate risk exposure to the
Angolan Kwanza. However, as previously noted, property leases typically include
clauses to enable periodic upward revision of the rental charge according to
prevailing market conditions.
There were no significant changes in the
balance sheet during this period.
Liquidity and capital resources
In relation to cash flows from operating activities AIC generated net
inflows of US$ 361.7 thousand. The decline in receipts from customers from the
prior period is discussed in the results of operations above. To compensate for
this AIC managed costs reducing payments to suppliers by US$66.8 thousand
(exclusive of the costs attributable to the predecessor period of US$298.4
thousand).
There were no movements in cash flows from investing
activities during the period.
In relation to cash flows from financing
activities AIC serviced the interest on its debt obligations in the amount of
US$ 360.0 thousand and repaid US$287.5 thousand in relation to financing
liability. Additionally, AIC took in proceeds from the issuance of corporate
bonds in the amount of US$ 125.0 thousand.
Following the Definitive
Merger Agreement with Brenham as reported in the Form 8-K filed on April 29,
2016, we determined to proceed with the merger and as of August 10, 2016 have
constituted a mandatory convertible note up to US$5,000 thousand at Africa
International Capital Ltd, on which it has raised US$1,000 thousand in funding
as at September 30, 2016, with the use of proceeds to support the completion of
the merger as well as to fund expenses, working capital, upward listing to a
relevant exchange, and acquisition and mortgage activities. We intend to
continue to market this facility outside the United States to qualified
investors with reliance on Reg-S, with the ability to raise proceeds, if any,
subject to market conditions.
The Company anticipates that the seller
could provide practical completion of Isha 2.5 prior to fiscal year end 2016.
The Company foresees that the property will be settled in exchange for a form of
equity.
There has been no significant change in the Company's sources or
uses of cash. The Company has continued to settle outstanding obligations with
the Vendor in AOA and operate its mechanism to convert AOA to US$ when required.
Additional financing is necessary for the Company to fulfill its
strategy. The Company anticipates raising additional funds through a mix of
equity and debt offerings, but it cannot guarantee the ability to do so nor at
the levels that may be required to fulfill its strategy and meet future
obligations, including the refinancing of existing obligations, if required.
Off-Balance
Sheet arrangements
As at June 30, 2016, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
Critical accounting policies
Our significant accounting policies are described in the notes to our consolidated financial statements for the period January 23, 2015 to December 31, 2015 and January 1, 2015 to January 22, 2015 and are included elsewhere in this document.
Description of properties
We disclosed under subheading "Our Property Interests" in section "Business Description” a description of each of the properties and relevant business and tenant profile information associated with each property.