TIDMAOF
RNS Number : 9178X
Africa Opportunity Fund Limited
28 April 2023
28 April 2023
Africa Opportunity Fund Limited (AOF LN)
Announcement of Annual Results for the Year ended 31 December
2022
The Board of Africa Opportunity Fund Limited ("AOF", the
"Company" or the "Fund") is pleased to announce its audited results
for the year ended 31 December 2021. The Company's full annual
report and financial statements will shortly be sent to
shareholders and will be available to view and download from the
Company's website at: www.africaopportunityfund.com.
The following text and financial information does not constitute
the Company's annual report but has been extracted from the annual
report and financial statements for the year ended 31 December
2022.
For further information please contact:
Africa Opportunity Fund Limited
Francis Daniels Tel: +2711 684 1528
Liberum (Corporate Broker)
Owen Matthews Tel: +44 20 3100 2223
Darren Vickers Tel: +44 20 3100 2218
The Company
Africa Opportunity Fund Limited ("AOF" or the "Company") is a
Cayman Islands incorporated closed-end investment company traded on
the Specialist Fund Segment ("SFS") of the London Stock Exchange
("LSE"). AOF's net asset value on 31 December 2022 was $19.2
million and its market capitalisation was $12.1 million.
Investing objective
The investing objective of the Company is to achieve capital
growth and income through investments in value, arbitrage, and
special situations opportunities derived from the continent of
Africa. Therefore, the Company may invest in securities issued by
companies domiciled outside Africa which conduct significant
business activities within Africa or, if listed, listed either on
an African stock exchange or a non-African stock exchange. The
Company may invest in equity, quasi-equity or debt instruments,
debt issued by African sovereign states and government entities,
and real estate interests.
The Directors and Africa Opportunity Partners Limited (the
"Manager") believe that the diversity and volatility of African
economies present opportunities to earn attractive returns when
investments are made selectively, across asset classes, and without
pre-determined benchmarks or allocations.
By balancing the size and type of investment, the Directors and
the Manager believe that attractive returns may be made across
asset classes. Whilst the African capital markets can be volatile,
by ensuring diversity of investment across industries and
countries, the Manager attempts to mitigate such risks.
The Company targets industries rather than countries to exploit
valuation discrepancies which can arise among African countries.
The Directors and the Manager also believe that Africa's status as
a continent containing a large number of reforming countries
provides investment opportunities in those countries.
Summary of Investment Strategy
The Company's investment strategy is opportunistic. The Company
invests primarily where and when the Manager believes that
investments can be made at a material discount to the Manager's
estimate of an investment's intrinsic value.
Company preference. The Company prefers companies which
demonstrate both high real returns on assets and earnings yields
higher than the yield to maturity of local currency denominated
government debt.
Industry focus rather than country focus . The Company seeks to
invest in industries it finds attractive with little regard to
national borders.
Natural resource discounts. The Company seeks natural resource
companies whose market valuations reflect a discount to the spot
and future world market prices for those natural resources.
"Turnaround" countries. The African continent is home to a large
number of reforming or "turnaround" countries. "Turnaround"
countries combine secular political reform with the opening of
industries to private sector participation.
Balkanized investment landscape. The Company seeks to invest in
companies with low valuations in relation to peers across the
continent and uses an arbitrage approach to provide attractive
investment returns.
Point of entry. The Company seeks the most favourable risk
adjusted point of entry into a capital structure, whether through
financing the establishment of a new company or acquiring the debt
or listed equity of an established company.
The Company intends to be a passive investor and will generally
not control or seek to control or be actively involved in the
management of any company or business in which it invests.
Investment Policies and Restrictions
New investment policy (Effective 1 July 2019)
Consistent with the 30 June 2019 adoption of the Reorganisation
plan as approved at the Company's EGM, the Directors considered it
to be in the best interests of the Company and its shareholders
that the Company's investment policy be changed to facilitate a
realisation strategy and the orderly return of capital to
shareholders. Shareholders approved the adoption of the New
Investment Policy effective 1 July 2019.
The Company will be managed with the objective of realising the
value of the assets in its portfolio in a prudent manner with a
view to making an orderly return of capital to shareholders over
time.
The Company's investment objective will be undertaken with a
view to realising all of its investments in a manner that seeks to
achieve a balance between maximising the value from the Company's
investments and making timely returns of capital to
shareholders.
The Company will sell or otherwise realise its investments with
the objective of achieving the best exit values reasonably
available within reasonable time scales.
The Company will cease to make any new investments (unless
additional funds are required for existing investments within the
Company's portfolio) and shall not undertake additional borrowing
other than to refinance existing borrowing or for working capital
purposes.
Any cash received by the Company as part of the realisation
process will be held by the Company as cash on deposit and/or as
cash equivalents.
The Manager adheres to the following policies and
restrictions:
Geographical focus. The Company makes investments in companies
or assets with a material portion of their value derived from or
located in Africa. The geographic mix of investments varies over
time depending on the relative attractiveness of opportunities
among countries and regions.
Type of investment. The Company may invest in real estate
interests, equity, quasi-equity or debt instruments, which may or
may not represent shareholding or management control, and debt
issued by African sovereign states and government entities.
Investments may be made directly or through special purpose
vehicles, joint venture, nominee or trust structures. The Company
may utilise derivative instruments to hedge certain market or
currency risks and may from time to time engage in the short sale
of securities.
Investment size. At the time of investment, no single investment
may exceed 15 per cent of the Net Asset Value without the prior
approval of the Board. No single initial investment will exceed 20
per cent of the Net Asset Value at the time of investment.
Number of investments. The Company has, and expects to maintain,
a concentrated portfolio of approximately 10 to 20 investments,
excluding money market investments.
Borrowing . The Company may use overdraft and other short-term
borrowing facilities to satisfy short-term working capital needs,
including to meet any expenses or fees payable by the Company. The
Manager anticipates that borrowings may be utilised for investment
purposes with the prior approval of the Board. There are no limits
on the Company's ability to leverage itself.
Cash management. Cash will be placed in bank deposits,
investment grade commercial paper, government and corporate bonds
and treasury bills, in each case, of US and African issuers.
Distribution policy
Subject to market conditions, compliance with the Companies Law
and having sufficient cash resources available for the purpose, the
Company intends to pay the following dividends on the Ordinary
Shares: an amount equal to the total comprehensive income of the
Company as that expression is used in international accounting
standards (excluding net capital gains/(losses) in accordance with
the Investment Management Association Statement of Recognised
Practice), such amount to be paid annually. The Company has been
accepted into the UK Reporting Fund Status regime.
Upon shareholder approval at the June 2019 EGM, the Company
initiated a change to the distribution policy. While the Company
intends to continue to meet the requirements of the UK Reporting
Fund Status regime, the Company will undertake a staged return of
capital to shareholders.
The Company will undertake the return of capital by way of a
compulsory redemption of Ordinary Shares. The Articles were amended
to permit the Directors, at their sole discretion, to undertake a
Compulsory Redemption of Ordinary Shares on an ongoing basis, pro
rata, to a shareholder's shareholding in the Company, to return
capital to shareholders .
The Directors continue to have the right to return cash
otherwise than through Compulsory Redemptions, such as by way of
tender offers to shareholders to purchase their Ordinary Shares. In
such circumstances, a tender offer will be made to shareholders in
accordance with market practice and in compliance with the Listing
Rules (to the extent the Company voluntarily complies with these)
and applicable law. Further, the Directors may determine, in their
absolute discretion where they consider it to be in the best
interests of shareholders, to return cash from sales made pursuant
to the New Investment Policy to shareholders by way of dividend or
any other distribution permitted by the Listing Rules (to the
extent the Company voluntarily complies with these) and applicable
law.
Life of the Company
The Company does not have a fixed life, but the directors
consider it desirable that its shareholders should have the
opportunity to review the future of the Company at appropriate
intervals. The Directors most recently convened an extraordinary
general meeting in June 2022 where a resolution was made regarding
the continued existence of the Company. This resolution further
extended the continuation of the Company, as the shareholders had
previously extended the Company for a three-year period in 2019.
The 2022 resolution passed, as the shareholders voted for the
continuation of the Company during a two-year period concluding on
30 June 2024 (the "Return Period"). Shareholders will be provided
with an opportunity to reassess the investment policy and
distribution policy at the end of the Return Period. To that end,
an ordinary resolution for the Company's continuation will be
proposed at an extraordinary general meeting to be convened at the
end of the Return Period.
CHAIRPERSON'S STATEMENT
2022 Review
Africa Opportunity Fund Limited
Chairperson's Statement
The shareholders of Africa Opportunity Fund Limited (the
"Company" or "AOF") held an extraordinary general meeting in June
2022 to decide on the future of the Company. They voted to extend
the current realisation period of the Company for two more years.
The Company completed 36 months of its asset realisation period as
of June 30, 2022. It made four distributions to shareholders
amounting to $36.5 million or 76% of its December 2019 net asset
value. The Company's total return since June 2019 has been 8%
versus -3% for the MSCI EFM Africa index and -6% for S&P Africa
Top 40 Index.
2022 was a tough year for the Company as its net asset value
(including redemptions) fell 9%, despite this, the share price
recorded a 15% increase. To provide some basis for comparison,
South Africa fell 3%, Nigeria rose 16%, Kenya fell 18%, and Egypt
fell 19%. In non-African emerging markets, China fell 8%, Brazil
fell 18%, Russia fell 36% and India fell 4%. In developed markets,
Japan fell 20%, the US fell 18%, Europe fell 14%, and the UK fell
6%. ([1])
Inflation, the Russian-Ukrainian war, volatile commodity prices,
and global monetary tightening policies were the overarching themes
of 2022. The UN Food and Agricultural Organization World Food Price
index rose 19% in the first three months of 2022, only to decline
steadily for the balance of the year to deliver a flat 2022
performance. Unfortunately, crop inputs like muriate of potash,
dominated in global production and exports by Russia, Belarus,
Ukraine, China, and Canada, soared 155% in price in 2022, which
inflicted considerable financial pressure on several African
importing states. Brent crude oil rose 61% to $128 per barrel in Q1
2022 before dropping 33% to $86 per barrel at the end of Q4 2022
([2]) . Countries without large foreign exchange reserves struggled
to shield their residents from the sharp local price swings in
imported commodities. The weak fiscal capacities of some African
governments exposed their countries to higher debt distress as
their currencies collapsed, and their budget deficits and domestic
interest rates rose in the global monetary policy tightening
environment. Global maize prices rose 24%.
Ghana's debt stress signs became a full-blown crisis in 2022.
Its parliament refused initially to approve a new levy on mobile
money transfers to increase Ghana's tax revenue collections above
its meagre 12% of GDP level. That refusal, combined with the
sovereign debt downgrades imposed on Ghana's Eurobonds by the major
rating agencies, effectively shut Ghana out of the international
capital markets. Ghana's fiscal woes were exacerbated by
disappointing initial receipts from its new levy. Consequently,
Ghana approached the International Monetary Fund in July to seek
financial assistance. A majority of Ghana's interest payments are
made to domestic individual and institutional investors. Pursuant
to discussions with the IMF, Ghana sought to reduce sharply the net
present value of its domestic debt by extending the tenor of its
debt and lowering the coupons on that debt. Ghana's institutional
investors accepted the new debt instruments. The Company's Ghanaian
holdings bore the burdens of this crisis via a steep depreciation
of the Cedi that, at its worst, in December, had lost 58% of its
value against the US Dollar.
Zambia's sovereign debt renegotiations started in November 2020
and have continued for more than two years. Its creditors remain
unable to agree on a sustainable debt plan. Zambia's Kwacha, in
reaction to this indeterminate fiscal crisis, depreciated by 13% in
the last quarter of 2022. The value of the Company's Zambian
holding declined in tandem with that depreciation.
AOF's 2022 strategy was one of deliberate realisation to
maximise the value of the assets returned to shareholders. In some
cases, that objective inclined the Company towards corporate
transactions to create value for the Company. In several other
cases, the Company exited through the secondary public markets.
2023 Outlook
AOF's 2023 will be impacted by the Fed's anti-inflation campaign
and the termination of China's zero covid policy. The International
Monetary Fund's latest 2023 world economic outlook forecasts a
modest 3.8% 2023 GDP growth rate for sub-Saharan Africa with
falling inflation rates. African currencies will continue to
depreciate against the Dollar and the purchasing power of its
consumers will decline for another year. The macro-economic
fortunes of Ghana, Zambia, and
Zimbabwe will have a material impact on AOF's performance. The
slight silver lining is that new African gas deposits, under
development in countries like Mozambique, were exported in 2022 and
will come on stream in other countries like Senegal and Mauritania
in 2023 as the world seeks substitutes for Russian fossil
fuels.
Our shareholders should rest assured that the lengthy
realisation period will allow AOF to avoid involuntary or
indiscriminate liquidation of its holdings and that the Manager is
working to balance and achieve the best values possible.
In closing, I wish also to extend my thanks to our shareholders
for their support.
Dr. Myma Belo-Osagie
Chairperson
April 2023
MANAGER'S REPORT
2022 Review
Manager's Report
2022 marked the fifteenth full year of operation of Africa
Opportunity Fund Limited (the "Company" or "AOF"). Its ordinary
shares had an annual return of -9.8%. At year-end, AOF held $1.49
million in cash, and $18 million in equity securities. The
Company's underlying end-of-year holdings were in Botswana, Ghana,
Kenya, Mauritius, Tanzania, Zambia, and Zimbabwe.
The Company's shareholders decided in June 2022 to extend an
orderly realisation of the Company over a two-year period ending in
June 2024. The Company exited Cote d'Ivoire and South Africa and
reduced its holdings in Botswana, Mauritius, and Zambia. It
completed its Zambia exit in Q1 2024. It made those disposals via
the secondary markets as well as in a corporate transaction. The
balance of this report will discuss a few of the Company's
holdings.
The Company's largest investment is now Copperbelt Energy
("Copperbelt"). Copperbelt's total return was 51% in 2022. It
raised its dividend for the 6(th) straight year by 44% in US Dollar
terms, giving it a 15% dividend yield on the date of that
dividend's announcement. Copperbelt's future is becoming clearer
and brighter. It executed a 13-year bulk supply agreement with
ZESCO, the state-owned Zambian electric utility, ending in March
2035. Historical commercial disputes between these two companies
were settled. A long-outstanding study of the cost of service for
Zambia's entire electricity industry was completed. That study
disclosed that Copperbelt has modest Zambian transmission expansion
capex requirements of $13 million up to 2030. Overall, though, it
plans to spend $200 million in the next three years to expand its
generation capacity by adding 94 MW in two photovoltaic plants in
2023 and raising the interconnector capacity between the Democratic
Republic of Congo and Zambia from 230 MW to 400 MW by the end of
2024. Copperbelt's Zambian customers have been reducing electricity
demand by approximately 5% per annum since 2014. However,
electricity sales in the Katanga province of the Democratic
Republic of Congo and wheeling charges more than offset that
decline. Total energy demanded by its customers rose by 3% in 2022
to 5913 GWh from 5717 GWh. Copperbelt delivered respectable results
in 2022. However, for the first time in six years, it suffered two
accidents. As is its norm, Copperbelt completed its fourteenth
fatality free year. Net profits were flat ($50.8 million vs. $50.9
million in 2021), as Copperbelt increased its impairments by 91%.
Actual collections of receivables, though, improved significantly
to lift net cashflow from operations by 19% to $94 million. Free
cash flow, however, fell to $55 million while Copperbelt's net cash
position declined modestly to $72 million. Its 2022 return on
average equity of 15%, with 8% as its return on average assets, are
decent returns for a rare African utility that earns its revenues
in US Dollars. Copperbelt's current enterprise value of $306
million (calculated on March 31, 2023 and excluding the unpaid debt
of the Konkola Copper Mine) is 3.2x operating cash flow, 5.6x free
cash flow, and 2.6x EBITDA, excluding impairments. It remains a
deeply undervalued company.
The Company's second largest holding is in African Leadership
International ("ALI"). ALI: (a) has an educational division - ALX -
that uses only student-driven and technology enabled instruction to
train its students to become software engineers or engage in other
software-related activities; (b) maintains a network for connecting
talented individuals - the Room - to economic opportunities; (c)
collaborates with both charitable organisations and companies to
accelerate job creation on the African continent for its network;
and (d) employs some of its graduates in software consulting
operations. The Company's ALI holding, through sales in the private
secondary market, was reduced by 14% in 2021 and an additional 16%
in 2022. ALI has sufficient cash resources to support 5 years of
operation at its current cash-burn rate. We expect to sell our ALI
holding in the private secondary market.
Enterprise Group's total return was -27% in 2022. Its 17%
Cedi-denominated total return was overwhelmed by the 39%
depreciation of the Cedi. Ghana's exchange of its domestic
government debt for lower interest and longer tenor government debt
has imposed an approximate 40% reduction of the net present value
of Enterprise's investment securities portfolio. A considerable
part of that reduction will be absorbed by its life fund
policyholders. Nevertheless, we expect a material reduction in
Enterprise's equity. Ghana's entire financial sector has
experienced liquidity challenges in response to this domestic debt
exchange. We expect the embedded value of Enterprise Life to fall
because of the domestic debt exchange. From the market share and
competitive positioning perspective, we also expect Enterprise to
increase its relative strength. All in all, Enterprise suffered a
serious setback in 2022.
Letshego's 2022 total return for the Company was 12.3%, despite
its -7% return on the Botswana Stock Exchange. The Company's
disposals of Letshego shares in H1 2022 at a higher price and
received dividends offset the fall in Letshego's share price.
Letshego had a disappointing year, as its interest expense (in
Pula) rose 23% versus a 6% increase in gross income. Expected
credit losses also worsened, as they are wont to do in times of
monetary tightening. Operating costs increased by 14%. Furthermore,
its West and East African small and medium enterprise borrowers
struggled to service their debts. Ghana's macro-economic crisis,
for example, led to a 68% fall in the pre-tax profits of its
Ghanaian subsidiary. Letshego has placed Ghana, Nigeria, Kenya,
Rwanda, and Tanzania in the category of 'turnaround markets'
targeted for special attention to raise their performance because
they pulled down its overall performance. The net effect of
Letshego's results was that its return on equity dropped to 8%, its
return on assets to 3%, and its cost to income ratio soared to
69%--all unacceptable outcomes. As of early March, Letshego was
valued on a P/E ratio of 7.1x, a P/B ratio of 0.52x and a gross
dividend yield of 12.4%. It is fairly valued based on its 2022
results.
The Company's Zimbabwean property holdings turned in poor
returns. The Company's internal estimates of the Zimbabwe Dollar
declined by 76%. This property portfolio fell by 48%, implying
share price appreciation in Zimbabwe Dollars. Our internally
derived Zimbabwe Dollar exchanges rate continue to serve as a
realistic and conservative rate for valuing the Company's
Zimbabwean holdings. Zimbabwe continues to suffer from
hyperinflation and intense foreign currency shortages.
Nevertheless, our property holdings do preserve purchasing power in
the long run. Our intent in disposing of these holdings remains to
minimise the devaluation risk facing disposal proceeds.
We shall strive to preserve the value of the Company in this fog
of doubts and uncertainty. Although the realisation pace may slow,
we continue to believe that the Company's holdings are undervalued.
Our mission is to monetise that undervaluation through our
realisation strategy.
Francis Daniels
Africa Opportunity Partners
April 2023
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2022
Notes 2022 2021
------------------------------ -----------------------------------
USD USD
Income
Net gains on investment in
subsidiaries
at fair value
through profit or loss 6(a) - 11,225,487
- 11,225,487
------------------------------ -----------------------------------
Expenses
Net losses on investment in
subsidiaries at fair value
through profit or loss 6(a) 2,003,998 -
Management fees 5(a) 50,000 174,395
Other operating expenses 127,611 139,415
Directors' fees 12 70,000 70,000
Audit and professional fees 158,261 126,807
2,409,870 510,617
------------------------------ -----------------------------------
(Loss)/income for the year
attributable
to equity holders* (2,409,870) 10,714,870
============================== ===================================
(Loss)/earnings per share
attributable
to equity holders 11 (0.119) 0.432
* There is no other comprehensive income for the year.
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
Notes 2022 2021
----------------------- -----------------------
USD USD
ASSETS
Cash and cash equivalents 8 42,251 21,469
Receivable from related party 7 227,805 149,552
Prepayments 7 8,960 7,862
Investment in subsidiaries at fair
value through profit or loss* 6(a) 19,041,847 26,095,345
Total assets 19,320,863 26,274,228
----------------------- -----------------------
EQUITY AND LIABILITIES
LIABILITIES
Trade and other payables 10 153,540 197,035
Total liabilities 153,540 197,035
----------------------- -----------------------
Net assets attributable to shareholders 19,167,323 26,077,193
======================= =======================
9(a),
Ordinary share capital 9(b) 202,146 247,878
Share premium 9(b) 1,997,201 6,451,469
Retained earnings 16,967,976 19,377,846
Total equity 19,167,323 26,077,193
======================= =======================
Net assets value per share:
- Ordinary shares 0.948 1.052
======================= =======================
*The investment in subsidiaries at fair value through profit or
loss include the investment in the Master Fund-
Africa Opportunity Fund L.P.
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2022
Share Share Retained
Capital Premium Earnings Total
------------------------ -------------------------- --------------------- --------------------
USD USD USD USD
At 1 January
2021 350,062 13,553,258 8,662,976 22,566,296
CAPITAL
TRANSACTIONS:
Redemption of
ordinary
shares (102,184) (7,101,789) - (7,203,973)
OPERATIONS:
Income/Total
comprehensive
income
for the year - - 10,714,870 10,714,870
------------------------ -------------------------- --------------------- --------------------
At 31 December
2021 247,878 6,451,469 19,377,846 26,077,193
======================== ========================== ===================== ====================
Share Share Retained
Capital Premium Earnings Total
------------------------ -------------------------- --------------------- --------------------
USD USD USD USD
At 1 January
2022 247,878 6,451,469 19,377,846 26,077,193
CAPITAL
TRANSACTIONS:
Redemption of
ordinary
shares (45,732) (4,454,268) - (4,500,000)
OPERATIONS:
Loss/Total
comprehensive
loss
for the year - - (2,409,870) (2,409,870)
------------------------ -------------------------- --------------------- --------------------
At 31 December
2022 202,146 1,997,201 16,967,976 19,167,323
======================== ========================== ===================== ====================
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2022
2022 2021
------------------------------ -------------------------------
USD USD
Operating activities
(Loss)/income for the year (2,409,870) 10,714,870
Adjustment for non-cash items:
Net losses/(gains) on investment in
subsidiaries at
fair value through profit or loss 6(a) 2,003,998 (11,225,487)
------------------------------ -------------------------------
Cash used in operating activities (405,872) (510,617)
------------------------------ -------------------------------
Net changes in operating assets and
liabilities
Reduction in investments in
subsidiaries
at fair value
through profit or loss 6(a) 5,049,500 7,714,445
Increase in loan receivable from
related
party (78,253) (66,223)
Increase in prepayments (1,098) (346)
(Decrease)/increase in trade and
other
payables (43,495) 49,218
------------------------------ -------------------------------
Net cash flow generated from
operating
activities 4,926,654 7,697,094
------------------------------ -------------------------------
Financing activities
Redemption of ordinary shares 9(b) (4,500,000) (7,203,973)
------------------------------ -------------------------------
Net cash flow used in financing
activities (4,500,000) (7,203,973)
------------------------------ -------------------------------
Net increase/(decrease) in cash and cash
equivalents 20,782 (17,496)
Cash and cash equivalents at 1
January 21,469 38,965
------------------------------ -------------------------------
Cash and cash equivalents at 31
December 42,251 21,469
============================== ===============================
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Africa Opportunity Fund Limited (the "Company") was launched
with an Alternative Market Listing "AIM" in July 2007 and moved to
the Specialist Funds Segment "SFS" in April 2014.
Africa Opportunity Fund Limited is a closed-ended fund
incorporated with limited liability and registered in Cayman
Islands under the Companies Law on 21 June 2007, with registered
number MC-188243. The Company is exempted from registering with the
Cayman Islands Monetary Authority ("CIMA") under the Private Funds
Act of the Cayman Islands given that it is listed on the Specialist
Funds Segment of the London Stock Exchange which is approved by
CIMA.
The Company aims to achieve capital growth and income through
investment in value, arbitrage, and special situations investments
in the continent of Africa. The Company may therefore invest in
securities issued by companies domiciled outside Africa which
conduct significant business activities within Africa. The Company
has the ability to invest in a wide range of asset classes
including real estate interests, equity, quasi-equity or debt
instruments and debt issued by African sovereign states and
government entities.
The Company's investment activities are managed by Africa
Opportunity Partners LLC, a limited liability company incorporated
in the Delaware, United States and acting as the investment manager
pursuant to an Amended and Restated Investment Management Agreement
dated 13 June 2022.
To ensure that investments to be made by the Company and the
returns generated on the realisation of investments are both
effected in the most tax efficient manner, the Company has
established Africa Opportunity Fund L.P. ("the Master Fund") as an
exempted limited partnership in the Cayman Islands. All investments
made by the Company are made through the limited partnership. The
limited partners of the limited partnership are the Company and AOF
CarryCo Limited. The general partner of the limited partnership is
Africa Opportunity Fund (GP) Limited. Africa Opportunity Fund
Limited holds 100% of Africa Opportunity Fund (GP) Limited.
The financial statements for the Company for the year ended 31
December 2022 were authorised for issue in accordance with a
resolution of the Board of Directors on 27 April 2023.
Presentation currency
The financial statements are presented in United States dollars
("USD"). All figures are presented to the nearest dollar.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied from the prior year to the current year
for items which are considered material in relation to the
financial statements.
Statement of compliance
The financial statements are prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Basis of preparation
The Company satisfied the criteria of an investment entity under
IFRS 10: Consolidated Financial Statements. As such, the Company no
longer consolidates the entities it controls. Instead, its interest
in the subsidiaries has been classified as fair value through
profit or loss, and measured at fair value. This consolidation
exemption has been applied prospectively and more details of this
assessment are provided in Note 4 "significant accounting
judgements, estimates and assumptions." The financial statements
are prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting
Standards Board (IASB). The financial statements have been prepared
under the historical cost convention except for financial assets
and financial liabilities measured at fair value through profit or
loss. The preparation of financial statements in accordance with
IFRS requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting year.
Although these estimates are based on management's knowledge of
current events and actions, actual results ultimately may differ
from those estimates. In additional to the following: All assets
have been assessed for impairment regardless of whether any
indicators for impairment were identified; and all possible
liabilities that might arise from the winding up of the Company
have been accrued for. The preparation of financial statements in
conformity with IFRS requires the use of certain critical
accounting estimates. It also requires the Board of Directors to
exercise its judgment in the process of applying the Company's
accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements are disclosed in Note
4.
As the entity is not a going concern due to the limited life,
the directors have considered an alternative basis of preparation
but believe that IFRS as a basis for preparation best reflects the
financial position and performance of the entity. The carrying
value of the assets, which were determined in accordance with the
accounting policies, have been reviewed for possible impairment and
changes which have occurred since the year end and consideration
has been given to whether any additional provisions are necessary
as a result of the decision to deregister. It is expected that all
assets will realise at least at the amounts at which they are
included in the statement of financial position and there will be
no material additional liabilities.
The Company presents its statement of financial position in
order of liquidity. An analysis regarding recovery within 12 months
(current) and more than 12 months after the reporting date
(non-current) is presented in Note 14.
The Company's financial statements include disclosure notes on
the Master Fund, Africa Opportunity Fund L.P., given that the net
asset value of the Master Fund is a significant component of the
Investment in subsidiaries at fair value through profit or loss, of
the Company. These additional disclosures are made in order to
provide the users of the financial statements within an overview of
the Master Fund performance.
Foreign currency translation
(i) Functional and presentation currency
The Company's financial statements are presented in USD which is
the functional currency, being the currency of the primary economic
environment in which the Company operates. The Company determines
its own functional currency and items included in the financial
statements of each entity are measured using that functional
currency. The functional currency of the Company is USD. The
Company chooses USD as the presentation currency.
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded at the
functional currency rate prevailing at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency spot rate of the
exchange ruling at the reporting date. All differences are taken to
profit or loss. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value
is determined.
Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
(a) Classification
The Company classifies its financial assets and liabilities in
accordance with IFRS 9 into the following categories:
(i) Financial assets at fair value through profit or loss
For the Company, financial assets classified at fair value
through profit or loss upon initial recognition include investment
in subsidiaries.
Investment in subsidiaries
In accordance with the exception under IFRS 10 Consolidated
Financial Statements, the Company does not consolidate subsidiaries
in the financial statements. Investments in subsidiaries are
accounted for as financial instruments at fair value through profit
or loss in accordance with IRFS 9 - Financial Instruments.
Management concluded that the Company meets the definition of an
investment entity as it invests solely for returns from capital
appreciations, investment income or both, and measures and
evaluates the performance of its investments on a fair value basis.
Accordingly, consolidated financial statements have not been
prepared.
(ii) Financial assets at amortised cost
The Company measures financial assets at amortised cost if both
of the following conditions are met:
-- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss when
the asset is derecognised, modified or impaired. The Company's
financial assets at amortised cost comprise of 'cash and cash
equivalents' in the statement of financial position.
(iii) Other financial liabilities
This category includes all financial liabilities, other than
those classified as fair value through profit or loss. The Company
includes in this category amounts relating to other payables.
(a) Initial Recognition
The Company recognises a financial asset or a financial
liability when, and only when, it becomes a party to the
contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of
assets within the time frame generally established by regulation or
convention in the marketplace are recognised directly on the trade
date, i.e., the date that the Master Fund commits to purchase or
sell the asset.
(b) Initial measurement
Financial assets and liabilities at fair value through profit or
loss are recorded in the statement of financial position at fair
value. All transaction costs for such instruments are recognised
directly in profit or loss.
Derivatives embedded in other financial instruments are treated
as separate derivatives and recorded at fair value if their
economic characteristics and risks are not closely related to those
of the host contract, and the host contract is not itself
classified as held for trading or designated at fair value though
profit or loss. Embedded derivatives separated from the host are
carried at fair value.
Financial assets at amortised cost and financial liabilities
(other than those classified as held for trading) are measured
initially at their fair value plus any directly attributable
incremental costs of acquisition or issue.
(c) Subsequent measurement
The Company measures financial instruments which are classified
at fair value through profit or loss at fair value. Subsequent
changes in the fair value of those financial instruments are
recorded in 'Net gain or loss on financial assets and liabilities
at fair value through profit or loss. Interest earned elements of
such instruments are recorded separately in 'Interest revenue'.
Financial assets at amortised costs are subsequently measured
using the effective interest method and are subject to impairment.
Gains and losses are recognised in profit or loss when the asset is
derecognised, modified or impaired.
Financial liabilities, other than those classified as at fair
value through profit or loss, are measured at amortised cost using
the effective interest method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised, as well as
through the amortisation process.
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Company estimates cash flows
considering all contractual terms of the financial instruments, but
does not consider future credit losses. The calculation includes
all fees paid or received between parties to the contract that are
an integral part of the effective interest rate, transaction costs
and all other premiums or discounts.
(e) Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- The rights to receive cash flows from the asset have expired; or
-- The Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
'pass-through' arrangement; and
Either (a) the Company has transferred substantially all the
risks and rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset. When the
Company has transferred its rights to receive cash flows from an
asset (or has entered into a pass-through arrangement), and has
neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the
asset is recognised to the extent of the Company's continuing
involvement in the asset.
The Company derecognises a financial liability when the
obligation under the liability is discharged, cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in profit or
loss.
Impairment of financial assets
The Company recognises an allowance for expected credit losses
(ECLs) for all financial assets measured at amortised cost. When
measuring ECL, the Company uses reasonable and supportable
forward-looking information, which is based on assumptions for the
future movement of different economic drivers and how these drivers
will affect each other. Loss given default is an estimate of the
loss arising on default. It is based on the difference between the
contractual cash flows due and those that the entity would expect
to receive, taking into account cash flows from credit
enhancements. The Company considers a financial asset in default
when contractual payments are 90 days past due.
However, in certain cases, the Company may also consider a
financial asset to be in default when internal or external
information indicates that the Company is unlikely to receive the
outstanding contractual amounts in full before taking into account
any credit enhancements held by the Company. A financial asset is
written off when there is no reasonable expectation of recovering
the contractual cash flows.
At the reporting date, receivable from related party and cash
and cash equivalents are de minimis. As a result, no ECL has been
recognised as any amount would have been insignificant.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the statement of financial position if, and
only if, there is a currently legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net
basis, or to realise the asset and settle the liability
simultaneously.
Determination of fair value
The Company measures it investments in subsidiaries at fair
value through profit or loss at each reporting date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measured is based on the presumption that the transaction to sell
the asset or transfer the liability takes place either in the
principal market for the asset or liability or, in the absence of a
principal market, in the most advantageous market for the asset or
liability. The principal or the most advantageous market must be
accessible to the Company. The fair value for financial instruments
traded in active markets at the reporting date is based on their
quoted price without any deduction for transaction costs.
For all other financial instruments not traded in an active
market, the fair value is determined by using appropriate valuation
techniques. Valuation techniques include: using recent arm's length
market transactions; reference to the current market value of
another instrument that is substantially the same; discounted cash
flow analysis and option pricing models making as much use of
available and supportable market data as possible. An analysis of
fair values of financial instruments and further details as to how
they are measured is provided in Note 6.
The Company uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) market prices in active markets
for identical assets and liabilities.
-- Level 2: valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable.
-- Level 3: valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
Net gain or loss on financial assets and liabilities at fair
value through profit or loss
This item includes changes in the fair value of financial assets
and liabilities held for trading or designated upon initial
recognition as 'at fair value through profit or loss' and excludes
interest and expenses.
Unrealised gains and losses comprise changes in the fair value
of financial instruments for the year and from reversal of prior
year's unrealised gains and losses for financial instruments which
were realised in the reporting period.
Shares that impose on the Company, an obligation to deliver to
shareholders a pro-rata share of the net asset of the Company on
liquidation classified as financial liabilities
The shares are classified as equity if those shares have all the
following features:
(a) It entitles the holder to a pro rata share of the Company's
net assets in the event of the Company's liquidation.
The Company's net assets are those assets that remain after
deducting all other claims on its assets. A pro rata
share is determined by:
(i) dividing the net assets of the Company on liquidation into
units of equal amount; and
(ii) multiplying that amount by the number of the shares held by
the shareholder.
(b) The shares are in the class of instruments that is
subordinate to all other classes of instruments. To be in such a
class the instrument:
(i) has no priority over other claims to the assets of the
Company on liquidation, and
(ii) does not need to be converted into another instrument
before it is in the class of instruments that is subordinate to all
other classes of instruments.
(c) All shares in the class of instruments that is subordinate
to all other classes of instruments must have an identical
contractual obligation for the issuing Company to deliver a pro
rata share of its net assets on liquidation.
In addition to the above, the Company must have no other
financial instrument or contract that has:
(a) total cash flows based substantially on the profit or loss,
the change in the recognised net assets or the change in the fair
value of the recognised and unrecognised net assets of the Company
(excluding any effects of such instrument or contract) and
(b) the effect of substantially restricting or fixing the residual return to the shareholders.
The shares that meet the requirements to be classified as a
financial liability have been designated as at fair value through
profit or loss on initial recognition.
Dividend expense
Dividend expense relating to equity securities sold short is
recognised when the shareholders' right to receive the payment is
established.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank. Cash
equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of change in value.
3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Company applied for the first-time certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2022. The Company has not early adopted any other
standard, interpretation or amendment that has been issued but is
not yet effective.
The accounting policies adopted are consistent with those of the
previous financial year except for the following new and amendments
to IFRS as from 1 January 2022:
Effective for
accounting period
beginning on or after
Reference to the Conceptual Framework - Amendments to IFRS 3
1 January 2022
Onerous contracts - Costs of Fulfilling a Contract - Amendments
to IAS 37
1 January 2022
Fees in the '10 per cent' test for derecognition of financial
liabilities - Amendments to IFRS 9 1 January 2022
The above new standards and amendments applied for the first
time in 2022, they did not have a material impact on the financial
statements of the Company.
3.1 ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE
The following standards, amendments to existing standards and
interpretations were in issue but not yet effective. The Company
would adopt these standards, if applicable, when they become
effective. No early adoption of these standards and interpretations
is intended by the Board of directors.
Effective for
accounting period
Amendments to IAS 8 - Accounting policies, Changes in Accounting
Estimates and Errors 1 January 2023
Amendments to IAS 12: Deferred Tax related to Assets and
Liabilities arising from a Single
Transaction 1 January 2023
Amendments to IAS 1: Disclosure of Accounting Policies 1 January
2023
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current
1 January 2024
The Company does not expect that the adoption of these standards
will have any material impact on the financial statements.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Company's financial statements requires
management to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements
and disclosure of contingent liabilities. However, uncertainty
about these assumptions and estimates could result in outcomes that
could require a material adjustment to the carrying amount of the
asset or liability affected in future periods.
Judgements
In the process of applying the Company's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the financial
statements:
Going concern
At the Extraordinary General Meeting ("EGM") of the Company held
on 29 June 2022, the shareholders voted in favor of a Continuation
Resolution which extended the life of the Company, with the current
Investment Policy remaining in place, to 30 June 2024. If the
assets of the Company are not realised over the period of the
extension, the Directors will formulate and revert to Shareholders
in 2024 further proposals to continue, reorganize or reconstruct
the Company or to wind up the Company.
The Company will continue to return sums to Shareholders by way
of compulsory redemption, repurchase of Ordinary Shares in the
market or such other method as determined by the Directors.
Below is a brief synopsis of the "New Investing Policy" as
approved with the passage of the Continuation Resolution and
consistent with the Company's Circular dated 5 June 2019, updated
to reflect the two-year continuance:
For a period of up to two additional years following the 29 June
2022 Extraordinary General Meeting (the "Extended Return Period"),
the Company will make no new investments (save that it may invest
in, or advance additional funds to, existing investments within the
Company's portfolio to maximise value and assist in their eventual
realisation). The Company will continue to adopt the New Investment
Policy whereby the Company's existing portfolio of investments will
be divested in a controlled, orderly and timely manner to
facilitate a staged return of capital. It should be appreciated
that there is no time horizon in terms of the implementation of the
New Investment Policy. Although the Company's portfolio is
comprised of some liquid equity holdings, the Company's portfolio
is weighted to somewhat illiquid investments and it may take the
Investment Manager some time to realise these. Shareholders will be
provided with an opportunity to reassess the investment policy and
distribution policy if investments remain unrealised at the end of
the Extended Return Period. Subsequent to the disposal of the
investments, the Company will be liquidated, which indicates that
it will no longer be a going concern. IAS 1 - Presentation of
Financial Statements and IAS 10 - Events after the reporting period
require that the financial statements should not be prepared on a
going concern basis if management determines that it intends to
liquidate the entity. The directors have considered an alternative
basis of preparation but believe that International Financial
Reporting Standards ("IFRS"), as a basis for preparation, best
reflects the financial position and performance of the Company. The
extension of the Company through 30 June 2024 further supports this
methodology.
The carrying value of the of the assets, which were determined
in accordance with the accounting policies, have been reviewed for
possible impairment and changes which have occurred since the
half-year and consideration has been given to whether any
additional provisions are necessary as a result of the decision to
eventually deregister. It is expected that all assets are fairly
valued and will realise at, or near, the amounts at which they are
included in the statement of financial position and there will be
no material additional liabilities.
Determination of functional currency
The determination of the functional currency of the Company is
critical since recording of transactions and exchange differences
arising thereon are dependent on the functional currency selected.
As described in Note 2, the directors have considered those factors
therein and have determined that the functional currency of the
Company is the United States Dollar.
Assessment for an investment entity
An investment entity is an entity that:
(a) Obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management
services;
(b) Commits to its investor(s) that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both; and
(c) Measures and evaluates the performance of substantially all
of its investments on a fair value basis.
An investment entity must demonstrate that fair value is the
primary measurement attribute used. The fair value information must
be used internally by key management personnel and must be provided
to the entity's investors. In order to meet this requirement, an
investment entity would:
-- Elect to account for investment property using the fair value
model in IAS 40 Investment Property
-- Elect the exemption from applying the equity method in IAS 28
for investments in associates and joint ventures, and
-- Measure financial assets at fair value in accordance with IFRS 9.
In addition, an investment entity should consider whether it has
the following typical characteristics:
-- It has more than one investment, to diversify the risk portfolio and maximise returns;
-- It has multiple investors, who pool their funds to maximise investment opportunities;
-- It has investors that are not related parties of the entity; and
-- It has ownership interests in the form of equity or similar interests.
The Board considers that the Company continues to meet the
definition of an investment entity as it invests solely for returns
from capital appreciations, investment income or both, and measures
and evaluates the performance of its investments in subsidiaries on
a fair value basis. In addition, the Company has more than one
investors and the major investors are not related parties of the
Company. The Company also has an exit strategy given that it is a
limited life entity, realising its investments at the end of the
Return Period of 3 years as per the 'New Investment Policy'.
Accordingly, consolidated financial statements have not been
prepared. IFRS 10 Consolidated Financial Statements provides
"investment entities' an exemption from the consolidation of
particular subsidiaries and instead require that an investment
entity measures the investment in each eligible subsidiary at fair
value through profit or loss in accordance with IFRS 9 Financial
Instruments.
Assumptions and Estimates
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below. The Company based its assumptions and
estimates on parameters available when the financial statements
were prepared. However, existing circumstances and assumptions
about future developments may change due to market changes or
circumstances arising beyond the control of the Company. Such
changes are reflected in the assumptions when they occur. When the
fair value of financial assets and financial liabilities recorded
in the statement of financial position cannot be derived from
active markets, their fair value is determined using a variety of
valuation techniques that include the use of mathematical
models.
Fair value of financial instruments
The inputs to these models are taken from observable markets
where possible, but where this is not feasible, estimation is
required in establishing fair values. The estimates include
considerations of liquidity and model inputs such as credit risk
(both own and counterparty's), correlation and volatility. Changes
in assumptions about these factors could affect the reported fair
value of financial instruments in the statement of financial
position and the level where the instruments are disclosed in the
fair value hierarchy.
The models are calibrated regularly and tested for validity
using prices from any observable current market transactions in the
same instrument (without modification or repackaging) or based on
any available observable market data. In relation to the underlying
investments held in Zimbabwe via the Master Fund, the quoted share
prices of these securities have been discounted as explained in
Note 6(d). The determination of the discount involves judgement and
estimation uncertainties which has a material impact on the fair
value of the investments. An analysis of fair values of financial
instruments and further details as to how they are measured is
provided in Note 6.
IFRS 13 requires disclosures relating to fair value measurements
using a three-level fair value hierarchy. The level within which
the fair value measurement is categorised in its entirety is
determined on the basis of the lowest level input that is
significant to the fair value measurement in its entirety as
provided in Note 6. Assessing the significance of a particular
input requires judgement, considering factors specific to the asset
or liability. To assess the significance of a particular input to
the entire measurement, the Company performs sensitivity analysis
or stress testing techniques.
5a. AGREEMENTS
Investment Management Agreement
Effective 1 July 2022, the Company and the Investment Manager
have, upon the approval of the Reorganisation Resolution at the EGM
in June 2022, entered into the Amended and Restated Investment
Management Agreement which amends the fees payable to the
Investment Manager as follows:
Management fees
There was no management fee charged during 2022. Pursuant
Amended and Restated Investment Management Agreement, there will be
no management fees charged during the Extended Return Period.
The Investment Manager's entitlement to future performance fees
(through CarryCo) has been cancelled and CarryCo's limited
partnership interest in the Limited Partnership will be transferred
to the Company for nominal value in the last year of the Extended
Return Period, that being 2024.
Realisation fees
The Investment Manager shall be entitled to the following
realisation fees during the Return Period from the net proceeds of
all portfolio realisations (including any cash returned by way of a
Compulsory Redemption):
On distributions of cash to Shareholders: 1 per cent of the net
amounts realised.
The revisions to the arrangements with the Investment Manager,
constitute a related party transaction under the Company's related
party policy, and in accordance with that policy, the Company was
required to obtain: (i) the approval of a majority of the Directors
who are independent of the Investment Manager; and (ii) a fairness
opinion or third-party valuation in respect of such related party
transaction from an appropriately qualified independent
adviser.
The realisation fees for the financial period under review
amounts to USD 50,000 (2021: USD 57,500) of which USD 32,511
relates to accrued realisation fees; management and performance
fees for the financial year under review were nil (2021: USD
116,895 for management fees and USD Nil for performance fees).
Administrative Agreement
SS&C Technologies Inc. is the Administrator for the Company.
Administrative fees are expensed at the Master Fund level and have
been included in the NAV of the subsidiary.
Custodian Agreement
A Custodian Agreement has been entered into by the Master Fund
and Standard Chartered Bank (Mauritius) Ltd, whereby Standard
Chartered Bank (Mauritius) Ltd would provide custodian services to
the Master Fund and would be entitled to a custody fee of between
18 and 25 basis points per annum of the value of the assets held by
the custodian and a tariff of between 10 and 45 basis points per
annum of the value of assets held by the custodian. The custodian
fees are expensed at the Master Fund level and have been included
in the NAV of the subsidiary.
Prime Brokerage Agreement
Under the Prime Brokerage Agreement, the Master Fund appointed
Credit Suisse Securities (USA) LLC as its prime broker for the
purpose of carrying out the Master Fund's instructions with respect
to the purchase, sale and settlement of securities. Custodian fees
are expensed at the Master Fund level and have been included in the
NAV of the subsidiary.
5b. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AT THE MASTER FUND LEVEL
Africa Opportunity Fund LP (the "Master Fund") is incorporated
in the Cayman Islands and is not subject to regulatory review.
Management has voluntarily disclosed all the policies and notes to
the accounts of the Master Fund to provide shareholders of the
Company with a better insight.
The primary accounting policies for interest revenue and
expense, dividend revenue and expense and cash and cash
equivalents, are similar as in Note 2. Those policies which only
relate to the Master Fund's financial statements are set out below.
These policies have been consistently applied from the prior year
to the current year for items which are considered material in
relation to the financial statements.
Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
(a) Classification
The Master Fund classifies its financial assets and liabilities
in accordance with IFRS 9 into the following categories:
(i) Financial assets and liabilities at fair value through
profit or loss
The category of the financial assets and liabilities at fair
value through the profit or loss is subdivided into:
Financial assets and liabilities held for trading
Financial assets are classified as held for trading if they are
acquired for the purpose of selling and repurchasing in the near
term. This category includes equity securities, investments in
managed funds and debts instruments. These assets are acquired
principally for the purpose of generating a profit from short term
fluctuation in price. All derivatives and liabilities from the
short sales of financial instruments are classified as held for
trading.
Financial assets at fair value through profit or loss upon
initial recognition
These include equity securities and debt instruments that are
not held for trading. These financial assets are classified at
FVTPL on the basis that they are part of a group of financial
assets which are managed and have their performance evaluated on a
fair value basis, in accordance with risk management and investment
strategies of the Company, as set out in each of their offering
documents. The financial information about the financial assets is
provided internally on that basis to the Investment Manager and to
the Board of Directors.
Derivatives - Options
Derivatives are classified as held for trading (and hence
measured at fair value through profit or loss) unless they are
designated as effective hedging instruments (however the Company
does not apply any hedge accounting). The Master Fund's derivatives
relate to option contracts.
Options are contractual agreements that convey the right, but
not the obligation, for the purchaser either to buy or sell a
specific amount of a financial instrument at a fixed price, either
at a fixed future date or at any time within a specified
period.
The Master Fund purchases and sells put and call options through
regulated exchanges and OTC markets. Options purchased by the
Master Fund provide the Master Fund with the opportunity to
purchase (call options) or sell (put options) the underlying asset
at an agreed-upon value either on or before the expiration of the
option. The Master Fund is exposed to credit risk on purchased
options only to the extent of their carrying amount, which is their
fair value.
Options written by the Master Fund provide the purchaser the
opportunity to purchase from or sell to the Master Fund the
underlying asset at an agreed-upon value either on or before the
expiration of the option.
Options are generally settled on a net basis .
Derivatives relating to options are recorded at the level of the
Master Fund. The financial statements of the Company do not reflect
the derivatives as they form part of the net asset value (NAV.) of
the Master Fund which is fair valued.
(ii) Financial assets at amortised cost
The Master Fund measures financial assets at amortised cost if
both of the following conditions are met:
-- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss when
the asset is derecognised, modified or impaired. The Master Fund's
financial assets at amortised cost comprise 'trade and other
receivables' and 'cash and cash equivalents in the statement of
financial position.
(iii) Other financial liabilities
This category includes all financial liabilities, other than
those classified as fair value through profit or loss. The Master
Fund includes in this category amounts relating to trade and other
payables and dividend payable.
(a) Recognition
The Master Fund recognises a financial asset or a financial
liability when, and only when, it becomes a party to the
contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of
assets within the time frame generally established by regulation or
convention in the market place are recognised directly on the trade
date, i.e., the date that the Master Fund commits to purchase or
sell the asset.
(b) Initial measurement
Financial assets and liabilities at fair value through profit or
loss are recorded in the statement of financial position at fair
value. All transaction costs for such instruments are recognised
directly in profit or loss.
Derivatives embedded in other financial instruments are treated
as separate derivatives and recorded at fair value if their
economic characteristics and risks are not closely related to those
of the host contract, and the host contract is not itself
classified as held for trading or designated at fair value though
profit or loss. Embedded derivatives separated from the host are
carried at fair value.
Financial assets at amortised cost and financial liabilities
(other than those classified as held for trading) are measured
initially at their fair value plus any directly attributable
incremental costs of acquisition or issue.
(c) Subsequent measurement
The Master Fund measures financial instruments which are
classified at fair value through profit or loss at fair value.
Subsequent changes in the fair value of those financial instruments
are recorded in 'Net gain or loss on financial assets and
liabilities at fair value through profit or loss. Interest earned
elements of such instruments are recorded separately in 'Interest
revenue'. Dividend expenses related to short positions are
recognised in 'Dividends on securities sold not yet purchased'.
Dividend income/distributions received on investments at FVTPL is
recorded in "Net gain or loss on financial assets at fair value
through profit or loss".
Financial assets at amortised costs are subsequently measured
using the effective interest method and are subject to impairment.
Gains and losses are recognised in profit or loss when the asset is
derecognised, modified or impaired.
(iii) Other financial liabilities
(d) Subsequent measurement
Financial liabilities, other than those classified as at fair
value through profit or loss, are measured at amortised cost using
the effective interest method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised, as well as
through the amortisation process.
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Master Fund estimates cash flows
considering all contractual terms of the financial instruments but
does not consider future credit losses. The calculation includes
all fees paid or received between parties to the contract that are
an integral part of the effective interest rate, transaction costs
and all other premiums or discounts.
(e) Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- The rights to receive cash flows from the asset have expired; or
-- The Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
'pass-through' arrangement; and
Either (a) the Master Fund has transferred substantially all the
risks and rewards of the asset, or (b) the Master Fund has neither
transferred nor retained substantially all the risks and rewards of
the asset but has transferred control of the asset. When the Master
Fund has transferred its rights to receive cash flows from an asset
(or has entered into a pass-through arrangement) and has neither
transferred nor retained substantially all the risks and rewards of
the asset nor transferred control of the asset, the asset is
recognised to the extent of the Master Fund's continuing
involvement in the asset.
The Master Fund derecognises a financial liability when the
obligation under the liability is discharged, cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in profit or
loss.
Determination of fair value
The Master Fund measures its investments in financial
instruments, such as equities, debentures and other
interest-bearing investments and derivatives, at fair value at each
reporting date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measured is based on the presumption that the transaction to sell
the asset or transfer the liability takes place either in the
principal market for the asset or liability or, in the absence of a
principal market, in the most advantageous market for the asset or
liability. The principal or the most advantageous market must be
accessible to the Master Fund. The fair value for financial
instruments traded in active markets at the reporting date is based
on their quoted price without any deduction for transaction
costs.
For all other financial instruments not traded in an active
market, the fair value is determined by using appropriate valuation
techniques. Valuation techniques include: using recent arm's length
market transactions; reference to the current market value of
another instrument that is substantially the same; discounted cash
flow analysis and option pricing models making as much use of
available and supportable market data as possible. An analysis of
fair values of financial instruments and further details as to how
they are measured is provided in Note 6.
Impairment of financial assets
The Master Fund uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) market prices in active markets
for identical assets and liabilities.
-- Level 2: valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable.
-- Level 3: valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
The Master Fund recognises an allowance for expected credit
losses (ECLs) for all financial assets measured at amortised cost.
ECLs are based on the difference between the contractual cash flows
due in accordance with the contract and all the cash flows that the
Master Fund expects to receive, discounted at an approximation of
the original effective interest rate. The expected cash flows will
include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms .
ECLs are recognised either on a 12-month or lifetime basis. For
credit exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs are
provided for credit losses that result from default events that are
possible within the next 12-months (a 12-month ECL). For those
credit exposures for which there has been a significant increase in
credit risk since initial recognition, a loss allowance is required
for credit losses expected over the remaining life of the exposure,
irrespective of the timing of the default (a lifetime ECL).
The Master Fund considers a financial asset in default when
contractual payments are 90 days past due. However, in certain
cases, the Master fund may also consider a financial asset to be in
default when internal or external information indicates that the
Master fund is unlikely to receive the outstanding contractual
amounts in full before taking into account any credit enhancements
held by the Master fund. A financial asset is written off when
there is no reasonable expectation of recovering the contractual
cash flows.
For trade receivables, the Master Fund applies a simplified
approach in calculating ECLs. Therefore, the Master Fund does not
track changes in credit risk, but instead recognises a loss
allowance based on lifetime ECLs at each reporting date. At the
reporting date, the assessment of the Master Fund's debt
instruments which include trade and other receivables and cash and
cash equivalents were considered as de minimis. As a result, no ECL
has been recognised as any amount would have been
insignificant.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the statement of financial position if, and
only if, there is a currently legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net
basis, or to realise the asset and settle the liability
simultaneously.
Net gain or loss on financial assets and liabilities at fair
value through profit or loss
This item includes changes in the fair value of financial assets
and liabilities held for trading or designated upon initial
recognition as 'at fair value through profit or loss' and excludes
interest and expenses. At the Master Fund Level, the fair value
gains and losses exclude interest and dividend income.
Unrealised gains and losses comprise changes in the fair value
of financial instruments for the year and from reversal of prior
year's unrealised gains and losses for financial instruments which
were realised in the reporting period.
Realised gains and losses on disposals of financial instruments
classified as 'at fair value through profit or loss' are calculated
using the Average Cost (AVCO) method. They represent the difference
between an instrument's initial carrying amount and disposal
amount, or cash payments or receipts made on derivative contracts
(excluding payments or receipts on collateral margin accounts for
such instruments).
Due to and due from brokers
Amounts due to brokers are payables for securities purchased (in
a regular way transaction) that have been contracted for but not
yet delivered on the reporting date at the Master Fund level. Refer
to the accounting policy for financial liabilities, other than
those classified at fair value through profit or loss for
recognition and measurement.
Amounts due from brokers include margin accounts and receivables
for securities sold (in a regular way transaction) that have been
contracted for but not yet delivered on the reporting date. Refer
to accounting policy for financial assets at amortised cost for
recognition and measurement.
Interest revenue and expense
Interest revenue and expense are recognised in profit or loss
for all interest-bearing financial instruments using the effective
interest method.
Dividend revenue
Dividend revenue is recognised when the Master Fund's right to
receive the payment is established. Dividend revenue is presented
gross of any non-recoverable withholding taxes, which are disclosed
separately in profit or loss of the Master Fund.
6. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
6(a). Investment in subsidiaries at fair value
The Company has established Africa Opportunity Fund L.P., an
exempted limited partnership in the Cayman Islands to ensure that
the investments made and returns generated on the realisation of
the investments made and returns generated on the realisation of
the investments are both effected in the most tax efficient manner.
All investments made by the Company are made through the limited
partner which acts as the master fund. At 31 December 2022, the
limited partners of the limited partnership are the Company
(97.73%) and AOF CarryCo Limited (2.27%). The general partner of
the limited partnership is Africa Opportunity Fund (GP) Limited.
Africa Opportunity Fund Limited holds 100% of Africa Opportunity
Fund (GP) Limited.
2022 2021
------------------------------- ---------------------------------
USD USD
Investment in Africa Opportunity Fund
L.P. 19,038,376 26,091,546
Investment in Africa Opportunity Fund
(GP) Limited 3,471 3,799
------------------------------- ---------------------------------
Total investment in subsidiaries
at fair value 19,041,847 26,095,345
=============================== =================================
Fair value at 01 January 26,095,345 22,584,303
Reduction in investment in subsidiaries* (5,049,500) (7,714,445)
Net (loss)/gain on investment in
subsidiaries
at fair value (2,003,998) 11,225,487
------------------------------- ---------------------------------
Fair value at 31 December 19,041,847 26,095,345
=============================== =================================
* The reduction in investment in subsidiaries relates to capital
withdrawn from the Master Fund by the Company.
6(b). Fair value hierarchy
The Company uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
Level 1: quoted (unadjusted) market prices in active markets for
identical assets and liabilities.
Level 2: valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
-- Fair value hierarchy of the Company
31 December
2022 Level 1 Level 2 Level
3
----------------------- ------------------------- ---------------------- -------------------
COMPANY USD USD USD USD
Investment in
subsidiaries 19,041,847 - 19,041,847 -
======================= ========================= ====================== ===================
31 December
2021 Level 1 Level 2 Level
3
----------------------- ------------------------- ---------------------- -------------------
COMPANY USD USD USD USD
Investment in
subsidiaries 26,095,345 - 26,095,345 -
======================= ========================= ====================== ===================
-- Fair value hierarchy of the Master Fund.
The Company has investment in Africa Opportunity Fund L.P., the
Master Fund, amounting to USD 19,038,376. The underlying
investments of the Master Fund amounts to USD 24,015,367. Details
on the financial assets and liabilities of the Master Fund and fair
value hierarchy are as follows:
31 December
2022 Level 1 Level 2 Level
3
------------------------- --------------------- --------------------------- -------------------
MASTER FUND USD USD USD USD
Financial assets at fair value
through profit or loss
Equities 18,634,833 13,859,649 4,775,184 -
------------------------- --------------------- --------------------------- -------------------
18,634,833 13,859,649 4,775,184 -
========================= ===================== =========================== ===================
31 December
2021 Level 1 Level 2 Level
3
------------------------- --------------------- --------------------------- -------------------
MASTER FUND USD USD USD USD
Financial assets at fair value
through profit or loss
Equities 23,885,626 16,463,988 7,421,638 -
Debt
securities 129,741 129,741 - -
------------------------- --------------------- --------------------------- -------------------
24,015,367 16,593,729 7,421,638 -
========================= ===================== =========================== ===================
Note: The assets and liabilities of the Master Fund have been
presented but do not represent the assets and liabilities of the
Company as the Master Fund has not been consolidated.
6(c). The valuation technique of the investment in subsidiaries at Company level is as follows:
The Company's investment manager considers the valuation
techniques and inputs used in valuing these funds as part of its
due diligence, to ensure they are reasonable and appropriate and
therefore the NAV of these funds may be used as an input into
measuring their fair value. In measuring this fair value, the NAV
of the funds is adjusted, as necessary, to reflect restrictions on
redemptions, future commitments, and other specific factors of the
fund and fund manager. In measuring fair value, consideration is
also paid to any transactions in the shares of the fund. Given that
there have been no such adjustments made to the NAV of the
underlying subsidiaries and given the simple structure of the
subsidiaries investing over 95% in quoted funds, the Company
classifies these investments in subsidiaries as Level 2.
6(d). The valuation techniques of the investments at Master Fund level are as follows:
Equity and debt securities
These pertain to equity and debt instruments which are quoted
for which there is a market price. As a result, they are classified
within level 1 of the hierarchy except for the valuation of listed
on the Zimbabwe Stock Exchange which have been classified as level
2 given that their quoted share price has been discounted as at 31
December 2022 as follows:
Valuation of investments listed on the Zimbabwe Stock
Exchange
Beginning in June 2020, the Zimbabwe authorities suspended Old
Mutual shares from the Zimbabwe Stock Exchange, necessitating the
Company to devise an alternative transparent discount factor. The
new discount factor is based on the official Zimbabwe Dollar
exchange rate at the end of June 2019, when the Zimbabwe Dollar,
became the sole legal tender in Zimbabwe, modified by the inflation
differential between Zimbabwe and the United States captured in
their respective monthly Consumer Price Indices (the US Consumer
Price Index is that for urban consumers), then adjusted by the
proportion of export proceeds that must be surrendered by
Zimbabwean exporters to the Zimbabwe Reserve Bank. In May 2022, the
Zimbabwe government imposed a ban on bank lending services so as to
stop currency speculation and in June 2022 the RBZ monetary policy
committee increased the policy rate 12,000 basis points to 200% so
as to control rising inflation. The Company adjusted its model to
reflect a 20% surrender requirement on the basis that the reported
CPI captured only 80% of actual inflation, a position supported by
the government actions. Over time, the official exchange rate has
converged towards our in-house exchange rate, further supporting
the rate modification during 2022 and our policy of applying the
discount
factor. This discount factor changes every month. The
consequence of applying this discount factor is that the Zimbabwe
Dollar prices of the Company's investments listed on the Zimbabwe
Stock Exchange were converted into US Dollars, as at 31 December
2022 at a discount rate of 25.4% (the discount rate was 48.20% as
at 31 December 2021). The value of the Zimbabwe investments
recorded in the books of the Company, after applying this discount
factor, was USD 62,166 (2021: $143,886).
Written put options
These are traded on an active market and have a quoted market
price. They have therefore been classified in level 1 of the
hierarchy.
Unquoted equity investments
African Leadership University ("ALU") is a network of tertiary
institutions, currently with operations in both Mauritius and
Rwanda. The Investment Manager valued ALU on the basis of an
observable arms-length transaction between existing shareholders
selling a portion of their shares and an unaffiliated third party.
The transactions were agreed via an omnibus share purchase
agreement dated 28 September 2022 with dates of the agreements
evidencing the first, second, third, and fourth tranches,
respectively, 30 September 2022, 5 December 2022, 6 March 2023 and
5 June 2023, and thus were utilized as the basis of the valuation
as at 31 December 2022. At 31 December 2022, the investment in ALU
has been classified under level 2 because the value of the
investment utilizes the recent transaction.
6(d). The valuation technique of the investments at Master Fund level are as follows:
Unquoted debt and equity investments
2022 2021
------------------------ --------------------------
USD USD
Investment in ALU 2,625,800 3,125,800
======================== ==========================
Financial asset and liabilities at fair
value through profit or loss
2022 2021
------------------------ --------------------------
USD USD
Investment in ALU:
At 1 January 3,125,800 3,625,800
Disposal (500,000) (500,000)
------------------------ --------------------------
At 31 December 2,625,800 3,125,800
======================== ==========================
Total gain included in the statement of profit or loss and other
comprehensive
income of Africa Opportunity Fund L.P. for asset held at the end
of the
reporting period. - -
======================== ==========================
6(e). Statement of profit or loss and other comprehensive Income
of the Master Fund for the year ended 31 December 2022.
The net loss on financial assets at fair value through profit or
loss amounting to USD 2,003,998 (2021: net gain of USD 11,225,487)
is due to the loss arising at the Master Fund level and can be
analysed as follows:
2022 2021
--------------------------- ----------------------
USD USD
Income
Interest revenue 14,100 46,216
Dividend revenue 1,267,116 1,281,589
Net gains on financial assets and
liabilities at fair value
through profit or loss - 10,519,619
--------------------------- ----------------------
1,281,216 11,847,424
--------------------------- ----------------------
Expenses
Net losses on financial assets and
liabilities at fair value
through profit or loss 2,780,643 -
Net foreign exchange loss 159,000 21,228
Custodian fees, Brokerage fees and
commission 165,427 243,377
Other operating expenses 12,840 24,306
--------------------------- ----------------------
3,117,910 288,911
--------------------------- ----------------------
Operating (losses)/gains before
tax (1,836,694) 11,558,513
Less withholding tax (209,150) (169,947)
--------------------------- ----------------------
Total comprehensive (losses)/gains
for the year (2,045,844) 11,388,566
=========================== ======================
Attributable to:
AOF Limited (direct interests) (2,003,670) 11,224,044
AOF Limited (indirect interests through AOF (GP) Ltd)
- 1,443
(2,003,998) 11,225,487
AOF CarryCo Limited (NCI) (41,846) 163,079
(2,045,844) 11,388,566
=========================== ======================
6(e). Statement of profit or loss and other comprehensive Income
of the Master Fund for the year ended 31 December 2022
(Continued)
The financial assets and liabilities of the Master Fund are
analysed as follows:
(i) Net losses on financial assets and liabilities at fair value
through profit or loss held by Africa Opportunity Fund L.P.
2022 2021
------------------------ -----------------------
USD USD
Net (losses)/gains on fair value of financial
assets at fair value through profit or
loss (2,780,643) 10,519,619
------------------------ -----------------------
Net (losses)/gains (2,780,643) 10,519,619
======================== =======================
(ii) Financial asset and liabilities at fair value through
profit or loss held by Africa Opportunity Fund L.P.
2022 2021
----------------------- -----------------------
USD USD
Held for trading assets:
At 1 January 24,015,367 19,480,476
Additions - 19,968
Disposal (2,599,891) (6,004,696)
Net losses on financial assets at
fair value through profit or loss (2,780,643) 10,519,619
----------------------- -----------------------
At 31 December (at fair value) 18,634,833 24,015,367
======================= =======================
Analysed as follows:
- Listed equity securities 16,009,033 20,759,826
- Listed debt securities - 129,741
- Unquoted equity securities 2,625,800 3,125,800
----------------------- -----------------------
18,634,833 24,015,367
======================= =======================
(iii) Net changes on fair value of financial assets at fair value through profit or loss
2022 2021
----------------------- ----------------------
USD USD
Realised 37,447 (569,441)
Unrealised (2,818,090) 11,089,060
----------------------- ----------------------
Total (losses)/gains (2,780,643) 10,519,619
======================= ======================
7. RECEIVABLES
2022 2021
-------------------------- ----------------------
USD USD
Amount due from Africa Opportunity
Fund L.P. (Note 12) 227,805 149,552
Prepayments 8,960 7,862
-------------------------- ----------------------
236,765 157,414
========================== ======================
8. CASH AND CASH EQUIVALENTS
2022 2021
-------------------- ----------------------
USD USD
Cash at bank 42,251 21,469
==================== ======================
9a). ORDINARY SHARE CAPITAL
Company
2022 2022 2021 2021
-------------------------- ----------------------- ----------------------- -------------------------
Number USD Number USD
Authorised share
capital
Ordinary shares
with a par value
of
USD 0.01 1,000,000,000 10,000,000 1,000,000,000 10,000,000
========================== ======================= ======================= =========================
Issued share
capital
Ordinary shares
with a par value
of
USD 0.01 20,214,590 202,146 24,787,758 247,878
========================== ======================= ======================= =========================
The directors have the general authority to repurchase the
ordinary shares in issue subject to the Company having funds
lawfully available for the purpose. However, if the market price of
the ordinary shares falls below the Net Asset Value, the directors
will consult with the Investment Manager as to whether it is
appropriate to instigate a repurchase of the ordinary shares.
The Company intends to pay or report dividends in order to
remain an UK Reporting Fund, however, there is no assurance that
the Company will be able to pay dividends. In compliance with the
current investment strategy, Directors have the right to return
cash through compulsory redemptions, by way of dividend or any
other distribution as permitted by the Listing Rules.
9(b). SHARE CAPITAL AND SHARE PREMIUM
Ordinary Ordinary
Shares Shares
--------------------- ---------------------
USD Number
At 1 January 2021 13,903,320 35,006,160
Changes during the period:
Redemption of ordinary shares (7,203,973) (10,218,402)
--------------------- ---------------------
At 31 December 2021 6,699,347 24,787,758
===================== =====================
Changes during the period:
Redemption of ordinary shares (4,500,000) (4,573,168)
--------------------- ---------------------
At 31 December 2022 2,199,347 20,214,590
===================== =====================
Ordinary and C share Merger, Issuance of Contingent Value
Rights
In 2014, AOF closed a Placing of 29.2 million C shares of
US$0.10 each, at a placing price of US$1.00 per C share, raising a
total of $29.2 million before the expenses of the Issue. The
placing was closed on 11 April 2014 with the shares commencing
trading on 17 April 2014. AOF's Ordinary Shares and the C Shares
from the April placing were admitted to trading on the LSE's
Specialist Fund Segment ("SFS") effective 17 April 2014.
The Fund merged the C share class and the ordinary shares as
contemplated in the April 2014 issuance of the C share class, and
with the consent of the Board of Directors, on 23 August 2017. The
C Class shares were converted into ordinary shares.
The Shoprite arbitral award issued in 2016. The arbitral award
resulted in AOF not being considered legal owner of the specific
Shoprite Holdings;(eps) is therefore, the Shoprite investment was
written off. To effectuate this merger, Contingent Value Rights
certificates for any residual rights with respect to Shoprite
shares listed on the Lusaka Stock Exchange were issued to the
ordinary shareholders of record on 21 August 2017.Information
regarding the merger was distributed and released to the market
prior to, and upon execution of, the merger. This information and
information relative to the CVRs can be found on the Fund's
website.
10. TRADE AND OTHER PAYABLES
Notes 2022 2021
-------------------- --------------------
USD USD
Directors Fees
Payable 12 17,500 17,500
Other Payables 136,040 176,618
-------------------- --------------------
153,540 197,035
==================== ====================
Other payables are non-interest bearing and have an average term
of six months. The carrying amount of trade and other payables
approximates their fair value.
11. EARNINGS PER SHARE
The earnings per share (EPS) is calculated by dividing the
decrease in net assets (increase in 2021) attributable to
shareholders by number of ordinary shares. The EPS for 2022 and
2021 represent both the basic and diluted EPS.
2022 2021
------------------------ -------------------
Ordinary Ordinary
shares shares
------------------------ -------------------
Total Comprehensive (loss)/gain USD (2,409,870) 10,714,870
======================== ===================
Number of shares in issue 20,214,590 24,787,758
======================== ===================
Change in net assets attributable
to shareholders
per share USD (0.119) 0.432
======================== ===================
12. RELATED PARTY DISCLOSURES
The Directors consider Africa Opportunity Fund Limited (the
"Company") as the ultimate holding company of Africa Opportunity
Fund (GP) Limited and Africa Opportunity Fund L.P.
% equity % equity
Country interest interest
of
Name incorporation 2022 2021
-------------------------- ----------------- --------- ---------
Africa Opportunity Fund
(GP) Limited Cayman Islands 100 100
Africa Opportunity Fund
L.P. Cayman Islands 97.73 98.19
Type of Nature of Volume Balance
at
Name of related relationship transaction USD 31 Dec
parties 2022
-------------------- --------------- ---------------- -------------------- ------------------
USD
Africa Opportunity Investment Management fee
Partners Limited Manager expense 50,000 32,511
Africa Opportunity
Fund LP Subsidiary Receivable - 227,805
SS&C Technologies Administrator Administration 90,437 -
fees
Directors'
Directors Directors fees 70,000 17,500
Type of Nature of Volume Balance
at
Name of related relationship transaction USD 31 Dec
parties 2021
-------------------- --------------- ---------------- -------------------- ------------------
USD
Africa Opportunity Investment Management fee
Partners Limited Manager expense 174,395 95,417
Africa Opportunity
Fund LP Subsidiary Receivable - 149,552
SS&C Technologies Administrator Administration 26,163 -
fees
Directors'
Directors Directors fees 70,000 17,500
The terms and conditions of the amount with related parties are
as follows:
(i) Unsecured interest free and settlement occurs in cash;
(ii) No guarantees have been given or received on these balances; and
(iii) No provision has been recognized in relation to
outstanding balances from related party.
Key Management Personnel (Directors' fee)
Except for Robert Knapp who has waived his fees, each director
has been paid a fee of USD 35,000 per annum plus reimbursement for
out-of pocket expenses during both 2022 and 2021.
Robert Knapp, who is a director of the Company, also forms part
of the executive team of the Investment Manager. Details of the
agreement with the Investment Manager are disclosed in Note 5. He
has a beneficiary interest in AOF CarryCo Limited. The latter is
entitled to carry interest computed in accordance with the rules
set out in the Admission Document (refer to Note 5 - 'Investment
management agreement' for further detail of the performance fee
paid to the director).
Details of investments in the Company by the Directors are set
out below:
No of shares Direct interest
held held %
2022 3,290,354 16.28
2021 4,034,732 16.28
13. TAXATION
Under the current laws of Cayman Islands, there is no income,
estate, transfer sales or other Cayman Islands taxes payable by the
Company. As a result, no provision for income taxes has been made
in the financial statements.
Dividend revenue is presented gross of any non-recoverable
withholding taxes, which are disclosed separately in the statement
of comprehensive income. Withholding taxes are not separately
disclosed in statement of cash flows as they are deducted at the
source of the income.
A reconciliation between tax expense and the product of
accounting profit multiplied by the applicable tax rate is as
follows:
2022 2021
------------------------ ------------------------
USD USD
Total comprehensive (loss)/gain (2,409,870) 10,714,870
------------------------ ------------------------
-
Income tax expense calculated at 0% -
------------------------ ------------------------
-
Withholding tax suffered outside Cayman -
Islands
------------------------ ------------------------
-
Income tax expense recognized in profit -
or loss
======================== ========================
* Withholding taxes are borne at the master fund level and
amounted to USD 169,947 (2020: USD 205,367). These have been
included in the NAV of the subsidiary.
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
14(a). AT THE COMPANY'S LEVEL
Introduction
The Company's objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company's
activities. It is managed through a process of ongoing
identification, measurement, and monitoring, subject to risks
limits and other controls. The process of risk management is
critical to the Company's continuing profitability. The Company is
exposed to market risk (which includes currency risk, interest rate
risk and price risk), credit risk and liquidity risk arising from
the financial instruments it holds.
Risk management structure
The Investment Manager is responsible for identifying and
controlling risks. The Board of Directors supervises the Investment
Manager and is ultimately responsible for the overall risk
management approach of the Company.
Fair value
The carrying amount of financial assets and liabilities at fair
value through profit or loss are measured at fair value at the
reporting date. The carrying amount of trade and other receivables,
cash and cash equivalents trade and other payables approximates
their fair value due to their short-term nature.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices and includes interest rate risk, foreign currency
risk and equity price risk. The Company is not directly exposed to
market risk. The Company holds investments in subsidiaries, Africa
Opportunity Fund L.P. (Master Fund) and Africa Opportunity Fund
(G.P.) Limited which are valued at their net asset value. The
Company is thus exposed to market risk indirectly through
investments held by the Master Fund.
Equity price risk
Equity price risk is the risk that the fair value of equities
decreases as a result of changes in the levels of the equity
indices and the values of individual stocks. The equity price risk
of the Company arises from the net asset value (NAV) of the
underlying funds, the Master Fund and AOF G.P. The equity price
risk at Company level is analysed as follows:
Equity
Effect on
Company Change in Equity
NAV price 2022
---------- ---------------------
USD
Investment in subsidiaries at fair
value through profit or loss 10% 1,904,185
-10% (1,904,185)
Effect on
Company Change in Equity
NAV price 2021
---------- ---------------------
USD
Investment in subsidiaries at fair
value through profit or loss 10% 2,609,535
-10% (2,609,535)
Currency risk
All of the Company's financial assets and financial liabilities
are denominated in its functional currency. The Master Fund's
investments are denominated in various currencies. The effect of a
change in USD against other currencies at the Master Fund level
will have the same impact at the Company level and will form part
of the NAV of the subsidiary (refer to note 14(b)). The currency
profile of the Company's financial assets and liabilities is
therefore summarised as follows:
2022 2022 2021 2021
Financial Financial Financial Financial
assets liabilities assets liabilities
----------------- ----------------- ----------------- -----------------
USD USD USD USD
United States
Dollar 19,311,903 153,540 26,266,366 197,035
----------------- ----------------- ----------------- -----------------
19,311,903 153,540 26,266,366 197,035
================= ================= ================= =================
Prepayments are typically excluded as these are not financial
assets; prepayments as at 31 December 2022 and 2021 amounted to USD
8,960 and USD 7,862, respectively.
As at 31 December
2022
Company Gross
amounts
of recognised Net amount
of
Gross financial financial
assets
amounts liabilities presented
of set off in
recognised in the statement the statement
financial of financial of financial Financial Cash
assets position position instruments collateral Net amount
---------------------- -------------------- ------------------------ ------------ ------------ --------------------
USD USD USD USD USD USD
Cash and
cash
equivalents 42,251 - 42,251 - - 42,251
---------------------- -------------------- ------------------------ ------------ ------------ --------------------
Total 42,251 - 42,251 - - 42,251
====================== ==================== ======================== ============ ============ ====================
As at
31 December
2021
Company Gross amounts
of recognised Net amount
of
Gross financial financial
assets
amounts liabilities presented
of set off in
recognised in the the statement
statement
financial of financial of financial Financial Cash
assets position position instruments collateral Net amount
---------------------- -------------------- ------------------------ ------------ ------------ --------------------
USD USD USD USD USD USD
Cash
and cash
equivalents 21,469 - 21,469 - - 21,469
---------------------- -------------------- ------------------------ ------------ ------------ --------------------
Total 21,469 - 21,469 - - 21,469
====================== ==================== ======================== ============ ============ ====================
Cash and cash equivalents are offset as the Company has current
bank balances and bank overdrafts with the same counterparty which
the Company has current legally enforceable right to set off the
recognised amounts and the intention to settle on a net basis or
realise the asset and settle the liability simultaneously.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The Company's financial assets and
liabilities are non-interest bearing; therefore, the Company is not
exposed to interest rate risk and thus, no sensitivity analysis has
been presented.
Credit risk
The Company takes on exposure to credit risk, which is the risk
that a counterparty will be unable to pay amounts in full when due.
Financial assets that potentially expose the Company to credit risk
consist principally of cash and cash equivalent balances and trade
and other receivables, comprising of an intercompany balance with
the Master Fund. The extent of the Company's exposure to credit
risk in respect of these financial assets approximates their
carrying values as recorded in the Company's statement of financial
position.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at the
reporting date was:
2022 2021
Company Company
------------------------- ---------------------------
Carrying Carrying
amount amount
------------------------- ---------------------------
Notes USD USD
Other receivables,
excluding
prepayments 7 227,805 149,552
Cash and cash equivalents 8 42,251 21,469
The cash and cash equivalent assets of the Company are
maintained with Standard Chartered Bank (Mauritius) Ltd. Standard
Chartered Bank has an A1- issuer rating from Moody's long term
rating agency, a P-1 short term rating from Moody's rating agency,
an AA- issuer rating from Standard and Poor's rating agency, and an
A-1+ short term rating from Standard and Poor's rating agency.
Concentration risk
The Company does not have any concentration risk as at 31
December 2022. Given that the Company has invested in Africa
Opportunity Fund L.P (the Master Fund) which holds investments in
various countries in Africa, the concentration risk therefore
arises primarily at the Master Fund Level.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Company's
approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Company's reputation.
The Company manages liquidity risk by maintaining adequate
reserves, by continuously monitoring forecast and actual cash
flows. The table below illustrates the maturity profile of the
Company's financial liabilities based on undiscounted payments.
Year Due Due Due
2022
Due Between Between greater
3 1
Due on within and 12 and 5 than
3 5
demand Months Months years years Total
---------------------- ----------- ------------------------ --------------------------- ------------------- -----------
USD USD USD USD USD USD
Financial
liabilities
Other
payables - 153,540 - - - 153,540
----------------------- ----------- ------------------------ --------------------------- ------------------- -----------
Total
liabilities - 153,540 - - - 153,540
======================= =========== ======================== =========================== =================== ===========
Year Due Due Due
2021
Due Between Between greater
3 1
Due on within and 12 and 5 than 5
3
demand Months Months years years Total
---------------------- ----------- ------------------------ --------------------------- ------------------- -----------
USD USD USD USD USD USD
Financial
liabilities
Other
payables - 197,035 - - - 197,035
----------------------- ----------- ------------------------ --------------------------- ------------------- -----------
Total
liabilities - 197,035 - - - 197,035
======================= =========== ======================== =========================== =================== ===========
Capital Management
Total capital is considered to be the total equity as shown in
the statement of financial position.
The Company is a closed end fund and repurchase of shares in
issue can be done with the consent of the Board of Directors. The
Company is not subject to externally imposed capital
requirements.
The objectives for managing capital are:
-- To invest the capital in investment meeting the description,
risk exposure and expected return indicated in the Admission
document.
-- To achieve consistent capital growth and income through
investment in value, arbitrage and special situations opportunities
derived from the African continent.
-- To maintain sufficient size to make the operation of the Company cost effective.
The primary objective of the Company's capital management is to
ensure that it maintains a strong credit rating and healthy capital
ratios in order to support its business and maximise shareholder
value.
14(b). AT THE MASTER FUND'S LEVEL
The financial risks at Master Fund Level are described as
follows:
Fair value
The carrying amount of financial assets and liabilities at fair
value through profit or loss held at Master Fund level are measured
at fair value at the reporting date. The carrying amount of other
receivables, cash and cash equivalents, trade and other payables
and amount payable to related party at Master Fund levels
approximates their fair value due to their short-term nature.
Market risk
The market risk lies primarily at the Master Fund level. Short
selling involves borrowing securities and selling them to a
broker-dealer. The Master Fund has an obligation to replace the
borrowed securities at a later date. Short selling allows the
Master Fund to profit from a decline in market price to the extent
that such decline exceeds the transaction costs and the costs of
borrowing the securities, while the gain is limited to the price at
which the Fund sold the security short. Possible losses from short
sales may be unlimited as the Master Fund has an obligation to
repurchase the security in the market at prevailing prices at the
date of acquisition.
With written options, the Master Fund bears the market risk of
an unfavourable change in the price of the security underlying the
option. Exercise of an option written by the Master Fund could
result in the Master Fund selling or buying a security at a price
significantly different from its fair value.
A contract for difference creates, as its name suggests, a
contract between two parties speculating on the movement of an
asset price. The term 'CFD' which stands for 'contract for
difference' consists of an agreement (contract) to exchange the
difference in value of a particular currency, commodity share or
index between the time at which a contract is opened and the time
at which it is closed. The contract payout will amount to the
difference in the price of the asset between the time the contract
is opened and the time it is closed. If the asset rises in price,
the buyer receives cash from the seller, and vice versa. The Master
Fund bears the risk of an unfavourable change on the fair value of
the CFD. The risk arises mainly from changes in the equity and
foreign exchange rates of the underlying security.
The Master Fund's financial assets are susceptible to market
risk arising from uncertainties about future prices of the
instruments. Since all securities investments present a risk of
loss of capital, the Investment Manager moderates this risk through
a careful selection of securities and other financial instruments.
The Master Fund's overall market positions are monitored on a daily
basis by the Investment Manager.
The directors have based themselves on past and current
performance of the investments and future economic conditions in
determining the best estimate of the effect of a reasonable change
in equity prices, currency rate and interest rate.
Equity price risk
Equity price risk is the risk that the fair value of equities
decreases as a result of changes in the levels of the equity
indices and the values of individual stocks.
The equity price risk exposure arises from the Master Fund's
investments in equity securities, from equity securities sold short
and from equity-linked derivatives (the written options). The
Master Fund manages this risk by investing in a variety of stock
exchanges and by generally limiting exposure to a single industry
sector to 15% of NAV.
Management's best estimate of the effect on the profit or loss
for a year due to a reasonably possible change in equity indices,
with all other variables held constant is indicated in the table
below. There is no effect on 'other comprehensive income' as the
Master Fund have no assets classified as 'available-for-sale' or
designated hedging instruments.
In practice, the actual trading results may differ from the
sensitivity analysis below and the difference could be material. An
equivalent decrease in each of the indices shown below would have
resulted in an equivalent, but opposite impact.
Effect on
net assets
attributable
to
Master Fund Change in Shareholders
NAV price 2022
---------- ------------------
USD
Financial assets at fair value through
profit or loss 10% 1,863,483
-10% (1,863,483)
Effect on
net assets
attributable
to
Master Fund Change in Shareholders
NAV price 2021
---------- ------------------
USD
Financial assets at fair value through
profit or loss 10% 2,401,537
-10% (2,401,537)
Currency risk
The Master Fund's investments are denominated in various
currencies as shown in the currency profile below. Consequently,
the Company is exposed to the risk that the exchange rate of the
United States Dollar (USD) relative to these various currencies may
change in a manner which has a material effect on the reported
values of its assets denominated in those currencies. To manage its
risks, the Master Fund may enter into currency arrangements to
hedge currency risk if such arrangements are desirable and
practicable.
The following table details the Master Fund's sensitivity to a
possible change in the USD against other currencies. The percentage
applied as sensitivity represents management's assessment of a
reasonably possible change in foreign currency denominated monetary
items by adjusting the translation at the year-end for the change
in currency rates at the Master Fund level. A positive number below
indicates an increase in profit where the USD weakens against the
other currencies. In practice, actual results may differ from
estimates and the difference can be material. The effect of a
change in USD against other currencies at the Master Fund level as
per the table below will have the same impact at the company level
and will form part of the NAV of the subsidiary.
The sensitivity analysis shows how the value of a financial
instrument will fluctuate due to changes in foreign exchange rates
against the US Dollar, the functional currency of the Company.
Currency Risk -
Year 2022
Effect on net assets
attributable to
Currency shareholders in (USD)
--------------------------------------------------------
Master Fund
Change: 30% -30%
Botswana Pula (95,224) 95,224
Ghana Cedi (1,605,354) 1,605,354
Kenyan Shilling (91,305) 91,305
South African
Rand (26,315) 26,315
Tanzanian
Shilling (331,067) 331,067
Zambian Kwacha (2,005,894) 2,005,894
Change: 5% -5%
Great British
Pound 329 (329)
Currency Risk -
Year 2021
Effect on net assets
attributable to
Currency shareholders in (USD)
--------------------------------------------------------
Master Fund
Change: 30% -30%
Botswana Pula (437,444) 437,444
Ghana Cedi (2,299,289) 2,299,289
Kenyan Shilling (111,723) 111,723
South African
Rand (62,083) 62,083
Tanzanian
Shilling (334,588) 334,588
Zambian Kwacha (1,640,378) 1,640,378
Change: 10% -10%
CFA Franc (27,952) 27,952
Change: 5% -5%
Great British
Pound 687 (687)
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The fair values of the Master Fund's debt
securities fluctuate in response to changes in market interest
rates. Increases and decreases in prevailing interest rates
generally translate into decreases and increases in fair values of
those instruments.
The investments in debt securities have fixed interest rate and
the income and operating cash flows are not exposed to interest
rate risk. The change in fair value of investments based on a
change in market interest rate (a 50 basis points change) is not
significant and has not been disclosed.
Credit risk
Financial assets that potentially expose the Master Fund to
credit risk consist principally cash balances and interest
receivable. The extent of the Master Fund's exposure to credit risk
in respect of these financial assets approximates their carrying
values as recorded in the Master Fund's statement of financial
position (note 15). The Master Fund takes on exposure to credit
risk, which is the risk that a counterparty will be unable to pay
amounts in full when due.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at the
reporting date was:
2022 2021
Master Fund Master Fund
------------------------- ---------------------------
Carrying Carrying
amount amount
------------------------- ---------------------------
USD USD
Other receivables,
excluding
prepayments 28,700 28,700
Cash and cash equivalents 1,516,490 3,159,934
Concentration risk
At 31 December 2022 the Master Fund held investments in Africa
which involves certain considerations and risks not typically
associated with investments in other developed countries. Future
economic and political developments in Africa could affect the
operations of the investee companies.
Analysed by geographical distribution of underlying assets:
Master Fund Master
Fund
2022 2021
--------------------- -----------------
USD USD
Bond & Notes
South Africa - 129,741
--------------------- -----------------
- 129,741
===================== =================
Master Fund Master
Fund
2022 2021
--------------------- -----------------
USD USD
Equity Securities
Ghana 5,351,179 7,664,295
Zambia 6,686,314 5,467,927
Other 2,625,800 3,125,800
Zimbabwe 2,149,384 4,295,838
Tanzania 1,103,558 1,115,294
Botswana 17,415 1,458,146
Kenya 304,350 372,409
South Africa 96,833 106,401
Cote D'Ivoire - 279,516
--------------------- -----------------
18,634,833 23,885,626
===================== =================
Total 18,634,833 24,015,367
===================== =================
Analysed by industry of underlying assets:
Master Master Fund
Fund
2022 2021
---------------------- ---------------------
USD USD
Bond & Notes
Consumer Product & Services - 129,741
---------------------- ---------------------
- 129,741
---------------------- ---------------------
Master Master Fund
Fund
2022 2021
---------------------- ---------------------
USD USD
Equity Securities
Utilities 6,990,664 5,840,336
Financial Services 5,448,012 7,770,696
Other 2,625,800 3,125,800
Real Estate 2,149,384 4,295,838
Beverages 1,103,558 1,115,294
Consumer Finance 317,415 1,458,146
Plantations - 279,516
---------------------- ---------------------
18,634,833 23,885,626
---------------------- ---------------------
Total 18,634,833 24,015,367
====================== =====================
Maturity Analysis
All figures are expressed in USD.
Master Fund
Within After 12
As at 31 December 2022 12 Months Months Total
----------------------- -------------------------- -----------------------
ASSETS
Cash and cash equivalents 1,516,490 - 1,516,490
Trade and other receivables 28,700 - 28,700
Equity securities 6,539,674 9,469,359 16,009,033
Unquoted equity securities 488,633 2,137,167 2,625,800
Total assets 8,573,497 11,606,526 20,180,023
======================= ========================== =======================
LIABILITIES
Trade and other payables 467,410 - 467,410
Amount payable to related
party - AOF Ltd 227,805 - 227,805
Total liabilities 695,215 - 695,215
======================= ========================== =======================
Master Fund
Within After 12
As at 31 December 2021 12 Months Months Total
------------------------ -------------------------- -----------------------
ASSETS
Cash and cash equivalents 3,159,934 - 3,159,934
Trade and other receivables 28,700 - 28,700
Equity securities 1,734,529 19,025,297 20,759,826
Fixed income securities 129,741 - 129,741
Unquoted equity securities 500,000 2,625,800 3,125,800
Total assets 5,552,904 21,651,097 27,204,001
======================== ========================== =======================
LIABILITIES
Trade and other payables 6,886 467,410 474,296
Amount payable to related
party - AOF Ltd 149,552 - 149,552
Total liabilities 156,438 467,410 623,848
======================== ========================== =======================
15. ANALYSIS OF NAV OF MASTER FUND ATTRIBUTABLE TO ORDINARY SHARES
2022 2021
------------------------- -------------------------
USD USD
ASSETS
Cash and cash equivalents 1,516,490 3,159,934
Trade and other receivables 28,700 28,700
Financial assets at fair value
through profit or loss 18,634,833 24,015,367
Total assets 20,180,023 27,204,001
------------------------- -------------------------
EQUITY AND LIABILITIES
Liabilities
Trade and other payables 467,410 474,296
Amount payable to related party
- AOF Ltd 227,805 149,552
Total liabilities 695,215 623,848
------------------------- -------------------------
Net assets attributable to members'
account 19,484,808 26,580,153
========================= =========================
16. SEGMENT INFORMATION
For management purposes, the Company is organised in one main
operating segment, which invests in equity securities, debt
instruments and relative derivatives. All of the Company's
activities are interrelated, and each activity is dependent on the
others. Accordingly, all significant operating decisions are based
upon analysis of the Company as one segment. The financial results
from this segment are equivalent to the financial statements of the
Company as a whole.
For geographical segmentation at the Master Fund level, please
refer to Note 14.
17. PERSONNEL
The Company did not employ any personnel during the year (2021:
nil).
18. COMMITMENTS AND CONTINGENCIES
There are no commitments or contingencies at the reporting
date.
19. SIGNIFICANT EVENTS
MANDATORY REDEMPTION
The Directors, at their sole discretion, can effect a compulsory
redemption of the Ordinary Shares on an ongoing basis and will
therefore undertake a staged return of capital to shareholders.
During the year ended 31 December 2022, the Directors approved a
partial mandatory redemption of the Company's Ordinary Shares. On
28 June 2022, the Board of Directors of Africa Opportunity Fund
Limited approved the mandatory redemption of 4,573,168 Ordinary
shares. On 6 July 2022, the mandatory redemption was completed and
AOF redeemed the 4,573,168 Ordinary Shares, on a pro rata basis, at
the prevailing NAV per Ordinary Share of $0.984 as at 31 May 2022.
Such shares were cancelled automatically following their
redemption. Fractions of shares produced by the applicable
redemption ratios have not been redeemed and so the number of
shares redeemed in respect of each shareholder has been rounded
down to the nearest whole number of shares. Payments of redemption
proceeds were effected either through Euroclear or Clearstream (in
the case of shares held in uncertificated form) or by cheque (in
the case of shares held in certificated form) on or around 13 July
2022. Following the Mandatory Redemption, the Company has
20,214,590 Ordinary Shares in issue. As a result of the Mandatory
Redemption described above, Robert Knapp and Myma Belo-Osagie,
Directors of the Company now hold 3,263,346 and 27,008 Ordinary
Shares, respectively. The Company benefitted from a strong level of
realisations from its underlying portfolio. The redemptions during
the year were funded through proceeds received from realising the
assets of the Company.
20. COVID-19 PANDEMIC AND UKRAINE-RUSSIA CONFLICT
The Board of Directors and Investment Manager continue to assess
the impact of both the continued presence of a novel and highly
contagious form of coronavirus ("Covid-19"), which the World Health
Organization has officially declared a pandemic, and the
geopolitical unrest in the form of the Ukraine and Russia conflict.
Covid-19, has resulted in numerous deaths across the globe,
adversely impacted global commercial activity, interrupted normal
business and social activities, and contributed to significant
volatility in certain equity and debt markets. The global impact of
the outbreak continues to evolve, as new strains of the coronavirus
develop. Many countries continue to react by instituting
quarantines, prohibitions on travel, restrictions on imports and
exports, and the closure of offices, businesses, schools, retail
stores and other public venues. Businesses, including the
Investment Manager and key vendors of the Company have implemented
similar precautionary measures. Such measures, as well as the
general uncertainty surrounding the continuing dangers and impact
of Covid-19, continue to create significant disruption in supply
chains and economic activity and are having a particularly adverse
impact on transportation, hospitality, tourism, entertainment, and
other industries. The impact of Covid-19 has led to significant
volatility and declines in the global public equity markets, and it
is uncertain how long this volatility will continue. As Covid-19
variants continue to spread, the impacts, including a potential
global, regional, or other economic recession, remain uncertain and
difficult to assess. Public health emergencies, including outbreaks
of new strains of Covid-19 or other existing or new epidemic
diseases, or the threat thereof, and the resulting financial and
economic market uncertainty could have a significant adverse impact
on the Company, including the fair value of its investments.
The Directors and Investment Manager continue to assess the
impact of the geopolitical unrest affecting the Russia, Belarus,
and Ukraine regions. While the Company has no direct exposure to
investments in, or traded in, these regions, the potential for
supply chain disruptions as well as cybersecurity related risks and
adverse impacts on general economic activity is elevated and
continues to be monitored. Sanctions, high inflation, rapid
increases in food prices, currency exchange limitations, heightened
volatility of currencies, export or capital controls, sovereign
debt distress or sovereign debt default, or civil or political
unrest appear to have limited direct impact on the Company at this
time, however, the impact of an expansion of any or all of these
consequences of the conflict may indirectly have material impacts
on investments of the Company. An expansion of hostilities could
have adverse impacts, including a potential global, regional or
other economic recession, which remain uncertain and difficult to
assess.
The current investment strategy and distribution policy, while
mitigating some operational risks due to the enhanced levels of
cash and cash equivalents as a consequence of the realisation
efforts, does pose other challenges as the Investment Manager
continues to attempt to maximise value while realising investments
during this volatile environment. The Company and the Master fund
will continue to meet their working capital requirements and other
obligations through utilisation of existing cash resources.
The Directors consider the continuation of the Covid-19 pandemic
and the Ukraine-Russia conflict to be non-adjusting post balance
sheet events and hence any future impacts are likely to be in
connection with the assessment of the fair value of investments at
future valuation dates. The Fund's portfolio of investments may see
a range of impacts due to these events, the specifics of which will
depend on a variety of factors, including geographic location,
industry sector and the effectiveness of governmental actions,
amongst others. The Board and the Investment Manager are actively
working towards assessing and minimizing risks to the Fund's
portfolio, however, given the degree of uncertainty around the
potential future course of Covid-19 and the Ukraine-Russia
conflict, it is not possible to accurately quantify the future
impact on the portfolio at this.
21. EVENTS AFTER REPORTING DATE
In March 2023 the US Treasury, Federal Deposit Insurance
Corporation ("FDIC"), and Federal reserve took action to stabilise
the US banking system in response to the collapse of two mid-sized
lenders. These actions appear to have helped prevent a systemic
crisis in the US banking sector. The Company has no cash or
investment assets at a US banking institution. As such, while the
directors and investment management will monitor this situation, we
do not anticipate any direct or indirect adverse impacts on the
company's portfolio of investments or its ability to realise those
investments pursuant to the current liquidation strategy.
Other than described above, there were no other material events
after the reporting date up to the date that these financial
statements were authorised for issue that warrant adjustments or
disclosures in the financial statements for the year ended 31
December 2022.
SHARE PRICE
Prices of Africa Opportunity Fund Limited are published daily in
the Daily Official List of the London Stock Exchange. The shares
trade under Reuters symbol "AOF.L" and Bloomberg symbol "AOF
LN".
MANAGER
Africa Opportunity Partners LLC.
COMPANY INFORMATION
Africa Opportunity Fund Limited is a Cayman Islands incorporated
closed-end investment company admitted to trading on the SFS
operated by the London Stock Exchange.
CAPITAL STRUCTURE
The Company has an authorized share capital of 1,000,000,000
ordinary shares of US$0.01 each of which 24,787,758 are issued and
fully paid.
LIFE OF THE COMPANY
Directors consider it desirable that Shareholders should have
the opportunity to review the future of the Company at appropriate
intervals. Accordingly, Shareholders passed an ordinary resolution
at an extraordinary general meeting of the Company on 28 February
2014 that the Company continues in existence. On June 27, 2019, the
Shareholders passed a further ordinary resolution at an
extraordinary general meeting of the Company on that the Company
continues in existence through 30 June 2022.
In June 2022, the Directors convened an Annual General Meeting
and an Extraordinary General Meeting where the following was
passed:
-- Ordinary resolution that the continuation of the existence of
the Company be and is hereby approved.
-- The text set out under "New Investing Policy" in paragraph 2
of Part III of the Company's circular to Shareholders dated 5 June
2019 (the "Circular") adopted as the new investment policy of the
Company continues;
-- The terms of the Amended and Restated Investment Management
Agreement (as defined in the Circular) be and are hereby
approved;
-- The memorandum and the articles of association in the form
initialled by the Chair of the meeting be adopted as the memorandum
and articles of association of the Company in substitution for and
to the exclusion of the existing memorandum and articles of
association; and
-- Any variation to the rights attaching to the Ordinary Shares
in the Company pursuant to the adoption of the new memorandum and
articles of association, and in particular the right for the
Company to redeem the Ordinary Shares (including any redemptions
made of 15 per cent. or more of the Company's issued share
capital), be and is hereby approved.
In summary, shareholders voted to give AOF two years during
which the Investment Manager will realize the portfolio in an
orderly manner and distribute the proceeds to the shareholders.
(Please review the Company's Circular dated 13 June 2022 for a
detailed and comprehensive description of the Continuation
Vote)
A brief synopsis of the "New Investing Policy" which shall
remain in force through 30 June 2024 is below: (Please review the
Company's Circular dated 5 June 2019 for a detailed and
comprehensive description of the Policy):
For a period of up to three years following the EGM (the "Return
Period"), the Company will make no new investments (save that it
may invest in, or advance additional funds to, existing investments
within the Company's portfolio to maximise value and assist in
their eventual realisation). The Company will adopt the New
Investment Policy whereby the Company's existing portfolio of
investments will be divested in a controlled, orderly and timely
manner to facilitate a staged return of capital.
It should be appreciated that there is no time horizon in terms
of the implementation of the New Investment Policy. Although the
Company's portfolio is comprised of largely liquid equity holdings,
the Company has some illiquid investments, and it may take the
Investment Manager some time to realise these.
REGISTERED NUMBER
Registered in the Cayman Islands number MC-188243.
Website
www.africaopportunityfund.com
[1] Reference indices are calculated in US Dollars using:
Nigeria NSE Allshare Index, South Africa FTSE/JSE Africa Allshare
Index, Nairobi NSE Allshare Index, Egypt Hermes Index, Moex Russia
Index (previously known as Russia MICEX Index), Brazil IBOV Index,
the Shanghai Shenzen 300 CSI Index, the India SENSEX Index, the
S&P 500, the Stoxx Europe 600 Index, the FTSE 100 and the
Nikkei 225.
[2] Bloomberg.
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