Source - LSE Regulatory
RNS Number : 8800N
Africa Opportunity Fund Limited
27 September 2023
 

27 September 2023                                                                                                                                            

Africa Opportunity Fund Limited

("AOF" or the "Company", or the "Fund")


Half Yearly Report for the Six Months ended 30 June 2023

 

The Board of Directors of Africa Opportunity Fund Limited is pleased to announce its unaudited results for the 6-month period to 30 June 2023.  The full half yearly report for the period ended 30 June 2023 will be sent to shareholders and will be available soon on the Company's website: www.africaopportunityfund.com.

 

Highlights:

·      AOF's Ordinary share net asset value per share of US$0.966 as at 30 June 2023, generating a total return of 1.9% from the 31 December 2022 net asset value per share of US$0.948.

·      As at 30 June 2023, AOF's investment allocation for its Ordinary Shares was all equities.

·      AOF's shareholders voted on 29 June 2022 to extend the realisation period of its portfolio from 30 June 2022 to 30 June 2024.

·      AOF's Ordinary Shares net asset value per share on 31 August 2023 was US$0.820.

·      AOF mandatorily redeemed 8.75 million shares for an aggregate consideration of $7.6 million in June 2023.

Manager's Commentary:

 

Market Conditions

 

AOF's total return in H1 2023 was 1.9%.  As a reference, during this period in USD the S&P rose 17%, Brazil rose 19%, Russia rose 12%, India rose 8%, and China fell 3%.  In Africa, South Africa fell 5%, Egypt fell 2%, Kenya fell 22%, and Nigeria fell 22%.  Three Africa-focused exchange traded funds - the Lyxor Pan Africa ETF (LGQM GY), the DBX MSCI Africa Top 50 (XMAF LN), and Van Eck Africa Index (AFK US), respectively, rose 2% and fell 8%, and 8%.

 

Ordinary Shares Portfolio Highlights

 

AOF made progress realising and distributing the proceeds from its less liquid portfolio holdings during H1 2023.  The Fund sold its entire Copperbelt holdings stake via block trades, and more of its African Leadership International ("ALI") and Letshego shares.   Our total distribution since March 2020 stands at $44 million, which is 92% of our December 2019 closing NAV of $47.7 million. The remaining NAV of $11.1 million is concentrated in Ghana, Zimbabwe and Mauritius.

We exited our Copperbelt Energy Corporation('CEC') investment, selling our shares in a block trade at a 24% premium to the then prevailing market price. The exit price (including dividends) is an uplift of 3x on our carrying value in December 2019. Viewed over the long term, our investment in CEC was rewarding. AOF held Copperbelt for 15 years from January of 2008. Over that period, revenue tripled from $131 million to $389 million while cash from operations grew five-fold from $15 million to $77 million. Despite political uncertainty - which threatened its business model and its foray into Nigeria (which burdened the company with debt and underperforming assets), CEC maintained its dividend pay-out discipline in 13 out of the 15 years, diversified its revenue base by wheeling and selling electricity to the Democratic Republic of Congo, and maintained its operational and cost discipline. As a result, we generated an IRR of 15% over the holding period.

 

The remaining holdings of the Fund are, as a generalization, very illiquid.  Some commentary on them is in order.  We continue to pursue a combination of block trades plus the occasional corporate transaction to effect an orderly realisation of the remaining portfolio. 

 

Enterprise Group's share price, in H1, declined 25% in Cedis and 33% in Dollars. Enterprise Group released its 2022 annual report.  It continues to digitalize its operations and to service more of its customers through mobile and online platforms.  Enterprise impaired its investment securities portfolio by $31 million or 18%, in response to the Ghana government's domestic debt exchange offer.  Yet, despite a 40% depreciation of the Cedi against the Dollar, Enterprise's net profits attributable to shareholders rose 29% to $14 million.  The principal source of this net increase in profits arose from the unrealized foreign exchange gains of Enterprise's property portfolio supported by leases denominated in Dollars.  Enterprise Life improved its persistency rate, premium collection rates, the value of new business, and retained its no. 1 market share in Ghana.  On the negative side, Acacia Health, its most recent acquisition, incurred an underwriting loss.  Enterprise's float, year-on-year, non-controlling interests fell 28%, and Enterprise shareholders suffered a 25% diminution in equity value.  Enterprise's Q1 and Q2 2023 results demonstrate expenses and claims rising at a faster rate than revenues.  The increase in its life fund liabilities, in particular, is rising rapidly.  Enterprise's shares trade on a P/E ratio of 2.75x and a P/B ratio of 0.5x, with a return on average equity of 20%.  Overall, though, Enterprise displayed commendable resilience in a tough Ghanaian environment. 

 

The Fund sold 15% of its ALI holdings in H1 and, cumulatively, 39% of its initial holdings.  ALI strengthened its education and training offering by acquiring the Holberton School in 2022.  The Holberton School was founded in Silicon Valley and offers an intense blended learning program in software engineering.  Post this acquisition, ALI has been able to reduce the unit costs per educated student by 84% and increased significantly the number of enrolled African students.  Simultaneously, ALI is exploring fresh revenue generating methods for hiring some of these software engineering students.  We will continue to dispose of the Fund's ALI holdings in the private secondary market.

 

Tanzania Breweries Limited ("TBL") shares have been difficult to sell in large volumes at the officially quoted prices on the Dar Es Salaam stock exchange. Although TBL's operational fortunes have improved in the last year and its net cash assets have quadrupled in Dollars over the last 5 years to $134 million, its revenues and net profits have been flat over that period.  Thus, it has the appearance of a mature business in a youthful market of rapidly growing Tanzanian consumers.  Its principal competitor-East African Breweries Limited ('EABL')-has a stronger growth profile, higher net debt, and a lower market capitalization than TBL.  Their respective valuations should converge over time.           

 

Zimbabwean currency dropped sharply in the parallel market in H1.  AOF's internal estimate of Zimbabwe's currency's value depreciated by 87% in H1.  Consequently, the valuations of First Mutual Properties and Mashonaland Holdings were very volatile in Dollars.  Mashonaland Holdings appreciated 60% and First Mutual Properties appreciated 23%, in Dollars, as Zimbabwean investors sought refuge in the stock market from the rapid collapse of the Zimbabwe Dollar in Q2 2023.  The Fund's property holdings are a store of relative value amid continuing foreign currency shortages.

 

Annual general meeting of the Fund's shareholders 

 

The Fund held an inquorate annual general meeting in June 2023, as a nominee holder of beneficial interests failed to deliver its proxies.  A fresh annual general meeting was held on 19 September 2023, with all resolutions passed. 

 

Strategy

 

The Fund is in the process of realising its holdings. The Investment Manager's approach is to combine a steadfast quest to realise the approximate appraisal or intrinsic value of each security together with opportunistic sales. A distribution was made in May 2023 in the form of a compulsory share redemption worth $7.6 million.  The portfolio is now comprised of illiquid holdings and we are looking to the extension period to effectuate a realising of the remaining portfolio.  

 

On Behalf of the Investment Manager, Africa Opportunity Partners LLC.

 

Responsibility Statements:

 

The Board of Directors confirm that, to the best of their knowledge:

 

a.             The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company.

 

b.             The Interim Investment Manager Report, and Condensed Notes to the Financial Statements include:

 

i.              a fair review of the information required by DTR 4.2.7R (indication of important events that have occurred during the first six months and their impact on the financial statements, and a description of principal risks and uncertainties for the remaining six months of the year); and

 

ii.             a fair review of the information required by DTR 4.2.8R (confirmation that no related party transactions have taken place in the first six months of the year that have materially affected the financial position or performance of the Company during that period).

 

Per Order of the Board

26 September 2023



AFRICA OPPORTUNITY FUND LIMITED

UNAUDITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE PERIOD FROM 1 JANUARY 2023 TO 30 JUNE 2023           

 





 







For the period


For the period





ended 30 June

 

ended 30 June



Notes


2023


2022





 







USD


USD

Expenses




 



 

Net losses on investment in subsidiaries at fair value



 



through profit or loss


6(a)


               296,599


          1,022,622

 

Management fees




                    44,656


                    25,000

 

Other operating expenses




                    48,632


                    56,576

 

Directors' fees




                    35,000


                    35,000

 

Audit and professional fees




                    62,609


                    66,670





                 487,496


               1,205,868





 



 

Loss for the period attributable to equity holders*




                (487,496)


              (1,205,868)





 



 

* There is no other comprehensive income for the period.

 

AFRICA OPPORTUNITY FUND LIMITED

UNAUDITED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2023                                               

 





 

 

 

 



Notes


30 June 2023



30 June 2022





 








USD



USD

ASSETS




 




Cash and cash equivalents


8


             99,392



       50,103

 

Receivable from related party


 

7


                          -  



          186,985

 

Prepayments


 

7


                   1,280



              1,123

Investment in subsidiaries at fair value through profit or loss*

 

6(a)


         11,045,248



     24,823,222

 

Total assets




         11,145,920



     25,061,433





 




EQUITY AND LIABILITIES




 




 




 




LIABILITIES




 




 

Trade and other payables


 

10


               66,093



          190,108

 

Total liabilities




                 66,093



          190,108





 



  

 

Net assets attributable to shareholders




         11,079,827



     24,871,325





 




 

Ordinary share capital




                 114,689



          247,878

 

Share premium




            (5,515,342)



       6,451,469

 

Retained earnings




            16,480,480



     18,171,978

 

Total equity




         11,079,827



     24,871,325









 

Net assets value per share:








 

- Ordinary shares




                   0.966



              1.003









*The investment in subsidiares at fair value  through profit or loss include the investment in the Master Fund -

Africa Opportunity Fund L.P.








 

AFRICA OPPORTUNITY FUND LIMITED

UNAUDITED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD FROM 1 JANUARY 2023 TO 30 JUNE 2023           

 





Share


Share


Retained

 





Capital


Premium


Earnings


Total





 

 

 

 

 

 

 





USD


USD


USD


USD












 

At 1 January 2023




             202,146


            1,997,201


        16,967,976


        19,167,323












CAPITAL TRANSACTIONS:







 

Redemption of ordinary shares

              (87,457)


           (7,512,543)


                       -  


        (7,600,000)












OPERATIONS:











 

Total comprehensive loss for the period

                       -  


                         -  


            (487,496)


           (487,496)












 

At 30 June 2023




           114,689

 

        (5,515,342)

 

      16,480,480

 

     11,079,827











 

 

AFRICA OPPORTUNITY FUND LIMITED

UNAUDITED STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM 1 JANUARY 2023 TO 30 JUNE 2023                                   

 





For the period ended

For the period ended



 


30 June 2023


30 June 2022





 







USD


USD

Operating activities




 



 

Loss for the period




                    (487,496)


                   (1,205,868)

 




 



Adjustment for non-cash items:




 







 







 



Net losses on investment in subsidiaries at

fair value through profit or loss




                     296,599


                    1,022,622

 




 



 

Cash used in operating activities




                    (190,897)


                      (183,246)

 




 



Net changes in operating assets and liabilities




 







 



Reduction in investments in subsidiaries at fair value

through profit or loss




                  7,700,000


                       249,500

 

Decrease/(increase) in loan receivable from related party




                     227,805


                        (37,433)

 

Increase in other receivables




                          7,680


                           6,739

 

Decrease in trade and other payables




                      (87,447)


                          (6,926)

 




 



 

Net cash generated from operating activities




                  7,848,038


                       211,880

 




 



Financing activities




 







 



 

Redemption of ordinary shares




                (7,600,000)


                                 -  

 




 



 

Cash used in/provided by financing activities




                (7,600,000)


                                 -  

 




 



 

Net increase in cash and cash equivalents




                        57,141


                         28,634

 




 



 

Cash and cash equivalents at 1 January




                        42,251


                         21,469

 




 



 

Cash and cash equivalents at 30 June




                        99,392


                         50,103





 



 

AFRICA OPPORTUNITY FUND LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2023                                   

 

1.         GENERAL INFORMATION

 

Africa Opportunity Fund Limited (the "Company") was launched with an Alternative Market Listing "AIM" in July 2007 and moved to the Specialist Funds Segment "SFS" in April 2014.

 

Africa Opportunity Fund Limited is a closed-ended fund incorporated with limited liability and registered in Cayman Islands under the Companies Law on 21 June 2007, with registered number MC-188243. The Company is exempted from registering with CIMA under the Private Funds Act of the Cayman Islands given that it is listed on the Specialist Funds Segment of the London Stock Exchange which is approved by CIMA.

 

The Company aims to achieve capital growth and income through investment in value, arbitrage, and special situations investments in the continent of Africa. The Company may therefore invest in securities issued by companies domiciled outside Africa which conduct significant business activities within Africa. The Company has the ability to invest in a wide range of asset classes including real estate interests, equity, quasi-equity or debt instruments and debt issued by African sovereign states and government entities.

 

The Company's investment activities are managed by Africa Opportunity Partners LLC, a limited liability company incorporated in the Delaware, United States and acting as the investment manager pursuant to an Amended and Restated Investment Management Agreement dated 13 June 2022.

 

To ensure that investments to be made by the Company and the returns generated on the realisation of investments are both effected in the most tax efficient manner, the Company has established Africa Opportunity Fund L.P. ("the Master Fund") as an exempted limited partnership in the Cayman Islands. All investments made by the Company are made through the limited partnership. The limited partners of the limited partnership are the Company and AOF CarryCo Limited. The general partner of the limited partnership is Africa Opportunity Fund (GP) Limited. Africa Opportunity Fund Limited includes 100% of Africa Opportunity Fund (GP) Limited.

 

The financial statements for the Company for the half year ended 30 June 2023 were authorised for issue in accordance with a resolution of the Board of Directors on 26 September 2023.

 

Presentation currency

 

The financial statements are presented in United States dollars ("USD"). All figures are presented to the nearest dollar.

 

2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied from the prior year to the current year for items which are considered material in relation to the financial statements.

 

Statement of compliance

 

The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

Basis of preparation

 

The Company satisfied the criteria of an investment entity under IFRS 10: Consolidated Financial Statements. As such, the Company no longer consolidates the entities it controls. Instead, its interest in the subsidiaries has been classified as fair value through profit or loss, and measured at fair value. This consolidation exemption has been applied prospectively and more details of this assessment are provided in Note 4 "significant accounting judgements, estimates and assumptions." The financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (IASB). The financial statements have been prepared under the historical cost convention except for financial assets and financial liabilities measured at fair value through profit or loss. The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  

 

Although these estimates are based on management's knowledge of current events and actions, actual results ultimately may differ from those estimates. In additional to the following: All assets have been assessed for impairment regardless of whether any indicators for impairment were identified; and all possible liabilities that might arise from the winding up of the Company have been accrued for. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4.

 

As the entity is not a going concern due to the limited life, the directors have considered an alternative basis of preparation but believe that IFRS as a basis for preparation best reflects the financial position and performance of the entity. The carrying value of the assets, which were determined in accordance with the accounting policies, have been reviewed for possible impairment and changes which have occurred since the year end and consideration has been given to whether any additional provisions are necessary as a result of the decision to deregister. It is expected that all assets will realise at least at the amounts at which they are included in the statement of financial position and there will be no material additional liabilities.

 

The Company presents its statement of financial position in order of liquidity.

 

The Company's financial statements include disclosure notes on the Master Fund, Africa Opportunity Fund L.P. given that the net asset value of the Master Fund is a significant component of the Investment in subsidiaries of the Company. These additional disclosures are made in order to provide the users of the financial statements with an overview of the Master Fund performance.

 

Foreign currency translation

 

(i)       Functional and presentation currency

 

The Company's financial statements are presented in USD which is the functional currency, being the currency of the primary economic environment in which both the Company operates. The Company determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The functional currency of the Company is USD. The Company chooses USD as the presentation currency.

 

(ii)      Transactions and balances

 

Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of the exchange ruling at the reporting date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

 

Financial instruments

 

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

(a)   Classification

 

The Company classifies its financial assets and liabilities in accordance with IFRS 9 into the following categories:

 

(i) Financial assets and liabilities at fair value through profit or loss

 

For the Company, financial assets classified at fair value through profit or loss upon initial recognition include investment in subsidiaries.

 

Investment in subsidiaries

 

In accordance with the exception under IFRS 10 Consolidated Financial Statements, the Company does not consolidate subsidiaries in the financial statements. Investments in subsidiaries are accounted for as financial instruments at fair value through profit or loss in accordance with IRFS 9 - Financial Instruments.

 

Management concluded that the Company meets the definition of an investment entity as it invests solely for returns from capital appreciations, investment income or both, and measures and evaluates the performance of its investments on a fair value basis. Accordingly, consolidated financial statements have not been prepared.

 

(ii) Financial assets at amortised cost

 

The Company measures financial assets at amortised cost if both of the following conditions are met:

 

·  The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows  

·  The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding

 

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Company's financial assets at amortised cost comprise 'other receivables, receivables from related party' and 'cash and cash equivalents' in the statement of financial position.   

 

(iii) Other financial liabilities

 

This category includes all financial liabilities, other than those classified as fair value through profit or loss. The Company includes in this category amounts relating to trade and other payables and dividend payable.

 

(b)   Initial Recognition

 

The Company recognises a financial asset or a financial liability when, and only when, it becomes a party to the contractual provisions of the instrument.

 

Purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognised directly on the trade date, i.e., the date that the Master Fund commits to purchase or sell the asset.           

 

(c)   Initial measurement

 

Financial assets and liabilities at fair value through profit or loss are recorded in the statement of financial position at fair value. All transaction costs for such instruments are recognised directly in profit or loss.

 

Derivatives embedded in other financial instruments are treated as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contract, and the host contract is not itself classified as held for trading or designated at fair value though profit or loss. Embedded derivatives separated from the host are carried at fair value.

 

Financial assets at amortised cost and financial liabilities (other than those classified as held for trading) are measured initially at their fair value plus any directly attributable incremental costs of acquisition or issue.

 

(d)   Subsequent measurement

 

The Company measures financial instruments which are classified at fair value through profit or loss at fair value. Subsequent changes in the fair value of those financial instruments are recorded in 'Net gain or loss on financial assets and liabilities at fair value through profit or loss. Interest earned elements of such instruments are recorded separately in 'Interest revenue'.

 

Financial assets at amortised costs are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

 

Financial liabilities, other than those classified as at fair value through profit or loss, are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are derecognised, as well as through the amortisation process.

 

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company estimates cash flows considering all contractual terms of the financial instruments, but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

 

(e)     Derecognition

 

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

 

·                          The rights to receive cash flows from the asset have expired; or

 

·                  The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and

 

Either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its rights to receive cash flows from an asset (or has entered into a pass-through arrangement), and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company's continuing involvement in the asset.

 

The Company derecognises a financial liability when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss.

 

Determination of fair value

 

The Company measures it investments in subsidiaries at fair value through profit or loss at fair value at each reporting date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measured is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Company.  The fair value for financial instruments traded in active markets at the reporting date is based on their quoted price without any deduction for transaction costs.

 

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include: using recent arm's length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible. An analysis of fair values of financial instruments and further details as to how they are measured is provided in Note 6.

 

The Company uses the following hierarchy for determining and disclosing the fair value of the financial instruments by valuation technique:

 

·        Level 1:      quoted (unadjusted) market prices in active markets for identical assets and liabilities.

·        Level 2:      valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

·        Level 3:      valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

 

Impairment of financial assets

 

            The Company recognises an allowance for expected credit losses (ECLs) for all financial assets measured at amortised cost. When measuring ECL, the Company uses reasonable and supportable forward-looking information, which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other. Loss given default is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the entity would expect to receive, taking into account cash flows from credit enhancements. The Company considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

           

            At the reporting date, other receivables, loan receivables from related party and cash and cash equivalents are de minimis. As a result, no ECL has been recognised as any amount would have been insignificant.

 

Offsetting financial instruments

 

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

 

Net gain or loss on financial assets and liabilities at fair value through profit or loss

 

This item includes changes in the fair value of financial assets and liabilities held for trading or designated upon initial recognition as 'at fair value through profit or loss' and excludes interest and expenses. 

 

Unrealised gains and losses comprise changes in the fair value of financial instruments for the year and from reversal of prior year's unrealised gains and losses for financial instruments which were realised in the reporting period.

 

Shares that impose on the Company, an obligation to deliver to shareholders a pro-rata share of the net asset of the Company on liquidation classified as financial liabilities

 

The shares are classified as equity if those shares have all the following features:

 

(a)     It entitles the holder to a pro rata share of the Company's net assets in the event of the Company's liquidation.

 

The Company's net assets are those assets that remain after deducting all other claims on its assets. A pro rata share is determined by:

 

    (i)  dividing the net assets of the Company on liquidation into units of equal amount; and

        (ii)  multiplying that amount by the number of the shares held by the shareholder.

 

(b)       The shares are in the class of instruments that is subordinate to all other classes of instruments. To be in such a class the instrument:

 

          (i) has no priority over other claims to the assets of the Company on liquidation, and

          (ii) does not need to be converted into another instrument before it is in the class of instruments that is subordinate to all other classes of instruments.

 

(c)     All shares in the class of instruments that is subordinate to all other classes of instruments must have an identical contractual obligation for the issuing Company to deliver a pro rata share of its net assets on liquidation.

 

In addition to the above, the Company must have no other financial instrument or contract that has:

 

(a)   total cash flows based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the Company (excluding any effects of such instrument or contract) and

 

(b)   the effect of substantially restricting or fixing the residual return to the shareholders.

 

The shares that meet the requirements to be classified as a financial liability have been designated as at fair value through profit or loss on initial recognition. 

 

Dividend expense

 

Dividend expense relating to equity securities sold short is recognised when the shareholders' right to receive the payment is established.

 

Cash and cash equivalents

 

Cash and cash equivalents comprise cash at bank. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

 

3.         CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

 

The Company applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2023. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

The accounting policies adopted are consistent with those of the previous financial year except for the following new policies and amendments to IFRS as from 1 January 2023:

 

Effective for

 accounting period

Amendments to IAS 8 - Accounting policies, Changes in Accounting Estimates and Errors                      1 January 2023

Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single

Transaction                                                                                                                                                                  1 January 2023

Amendments to IAS 1: Disclosure of Accounting Policies                                                                                  1 January 2023

 

 

Although these new standards and amendments applied for the first time in 2023, they did not have a material impact on the financial statements of the Company.

 

3.1.     ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE

           

The following standards, amendments to existing standards and interpretations were in issue but not yet effective. The Company would adopt these standards, if applicable, when they become effective. No early adoption of these standards and interpretations is intended by the Board of Directors.

 

Effective for

accounting period

 

Amendments to IAS 1: Classification of Liabilities as Current or Non-current                                              1 January 2024

 

The Company does not expect that the adoption of these standards will have any material impact on the financial statements.

 

4.         SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

 

The preparation of the Company's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods.

 

Judgements

 

In the process of applying the Company's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:

 

Going concern

 

At the Extraordinary General Meeting ("EGM") of the Company held on 29 June 2022, the shareholders voted in favor of a Continuation Resolution which extended the life of the Company, with the current Investment Policy remaining in place, to 30 June 2024.  If the assets of the Company are not realised over the period of the extension, the Directors will formulate and revert to Shareholders in 2024 further proposals to continue, reorganize or reconstruct the Company or to wind up the Company.

 

The Company will continue to return sums to Shareholders by way of compulsory redemption, repurchase of Ordinary Shares in the market or such other method as determined by the Directors.

 

Below is a brief synopsis of the "New Investing Policy" as approved with the passage of the Continuation Resolution and consistent with the Company's Circular dated 5 June 2019, updated to reflect the two-year continuance:

 

For a period of up to two additional years following the 29 June 2022 Extraordinary General Meeting (the "Extended Return Period"), the Company will make no new investments (save that it may invest in, or advance additional funds to, existing investments within the Company's portfolio to maximise value and assist in their eventual realisation). The Company will continue to adopt the New Investment Policy whereby the Company's existing portfolio of investments will be divested in a controlled, orderly and timely manner to facilitate a staged return of capital. It should be appreciated that there is no time horizon in terms of the implementation of the New Investment Policy. Although the Company's portfolio is comprised of some liquid equity holdings, the Company's portfolio is weighted to somewhat illiquid investments and it may take the Investment Manager some time to realise these. Shareholders will be provided with an opportunity to reassess the investment policy and distribution policy if investments remain unrealised at the end of the Extended Return Period.  Subsequent to the disposal of the investments, the Company will be liquidated, which indicates that it will no longer be a going concern. IAS 1 - Presentation of Financial Statements and IAS 10 - Events after the reporting period require that the financial statements should not be prepared on a going concern basis if management determines that it intends to liquidate the entity. The directors have considered an alternative basis of preparation but believe that International Financial Reporting Standards ("IFRS"), as a basis for preparation, best reflects the financial position and performance of the Company.  The extension of the Company through 30 June 2024 further supports this methodology.

 

The carrying value of the of the assets, which were determined in accordance with the accounting policies, have been reviewed for possible impairment and changes which have occurred since the half-year and consideration has been given to whether any additional provisions are necessary as a result of the decision to eventually deregister.  It is expected that all assets are fairly valued and will realise at, or near, the amounts at which they are included in the statement of financial position and there will be no material additional liabilities.

 

Determination of functional currency

 

The determination of the functional currency of the Company is critical since recording of transactions and exchange differences arising thereon are dependent on the functional currency selected. As described in Note 2, the directors have considered those factors therein and have determined that the functional currency of the Company is the United States Dollar.

 

Assessment for an investment entity

 

An investment entity is an entity that:

 

(a)    Obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;

(b)    Commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and

(c)     Measures and evaluates the performance of substantially all of its investments on a fair value basis.

 

An investment entity must demonstrate that fair value is the primary measurement attribute used. The fair value information must be used internally by key management personnel and must be provided to the entity's investors. In order to meet this requirement, an investment entity would:

 

·           Elect to account for investment property using the fair value model in IAS 40 Investment Property

·           Elect the exemption from applying the equity method in IAS 28 for investments in associates and joint ventures, and

·           Measure financial assets at fair value in accordance with IFRS 9.

 

In addition an investment entity should consider whether it has the following typical characteristics:

 

·           It has more than one investment, to diversify the risk portfolio and maximise returns;

·           It has multiple investors, who pool their funds to maximise investment opportunities;

·           It has investors that are not related parties of the entity; and

·           It has ownership interests in the form of equity or similar interests.

 

The Board considers that the Company continues to meet the definition of an investment entity as it invests solely for returns from capital appreciations, investment income or both, and measures and evaluates the performance of its investments in subsidiaries on a fair value basis. In addition, the Company has more than one investors and the major investors are not related parties of the Company. The Company also has an exit strategy given that it is a limited life entity, realising its investments at the end of the Return Period of 2 years as per the extended 'New Investment Policy'. Accordingly, consolidated financial statements have not been prepared. IFRS 10 Consolidated Financial Statements provides "investment entities' an exemption from the consolidation of particular subsidiaries and instead require that an investment entity measures the investment in each eligible subsidiary at fair value through profit or loss in accordance with IFRS 9 Financial Instruments.

 

Assumptions and Estimates

 

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Company.  Such changes are reflected in the assumptions when they occur. When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using a variety of valuation techniques that include the use of mathematical models.

 

Fair value of financial instruments

 

The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimation is required in establishing fair values. The estimates include considerations of liquidity and model inputs such as credit risk (both own and counterparty's), correlation and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments in the statement of financial position and the level where the instruments are disclosed in the fair value hierarchy.

 

The models are calibrated regularly and tested for validity using prices from any observable current market transactions in the same instrument (without modification or repackaging) or based on any available observable market data. An analysis of fair values of financial instruments and further details as to how they are measured is provided in Note 6.

 

IFRS 13 requires disclosures relating to fair value measurements using a three-level fair value hierarchy. The level within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety as provided in Note 6. Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability. To assess the significance of a particular input to the entire measurement, the Company performs sensitivity analysis or stress testing techniques.

 

 

5a.       AGREEMENTS

 

Investment Management Agreement

 

Effective 1 July 2022, the Company and the Investment Manager have, upon the approval of the Reorganisation Resolution at the EGM in June 2022, entered into the Amended and Restated Investment Management Agreement which amends the fees payable to the Investment Manager as follows:

 

Management fees

 

There was no management fee charged during 2022 and 2023.  Pursuant Amended and Restated Investment Management Agreement, there will be no management fees charged during the Extended Return Period.

 

The Investment Manager's entitlement to future performance fees (through CarryCo) has been cancelled and CarryCo's limited partnership interest in the Limited Partnership will be transferred to the Company, after return of its investment interest, for nominal value in the last year of the Extended Return Period, that being 2024.

 

Realisation fees

 

The Investment Manager shall be entitled to the following realisation fees during the Return Period from the net proceeds of all portfolio realisations (including any cash returned by way of a Compulsory Redemption):

 

On distributions of cash to Shareholders: 1 per cent of the net amounts realised.

 

The revisions to the arrangements with the Investment Manager, constitute a related party transaction under the Company's related party policy, and in accordance with that policy, the Company was required to obtain: (i) the approval of a majority of the Directors who are independent of the Investment Manager; and (ii) a fairness opinion or third-party valuation in respect of such related party transaction from an appropriately qualified independent adviser.

 

The realisation fee for the financial period under review amounts to USD 44,656 (2022: USD 25,000) of which USD 6,050 (2022: USD 25,000) relates to accrued realisation fees; management and performance fees for the financial period under review were nil (2022: nil).

 

Administrative Agreement

 

SS&C Technologies is the Administrator for the Company. Administrative fees are expensed at the Master Fund level and have been included in the NAV of the subsidiary.

 

Custodian Agreement

 

A Custodian Agreement has been entered into by the Master Fund and Standard Chartered Bank (Mauritius) Ltd, whereby Standard Chartered Bank (Mauritius) Ltd would provide custodian services to the Master Fund and would be entitled to a custody fee of between 18 and 25 basis points per annum of the value of the assets held by the custodian and a tariff of between 10 and 45 basis points per annum of the value of assets held by the custodian. The custodian fees are expensed at the Master Fund level and have been included in the NAV of the subsidiary.

 

Prime Brokerage Agreement

 

A Prime Brokerage agreement between the Master Fund and Credit Suisse Securities (USA) LLC terminated in the first half of 2022, as Credit Suisse exited the Prime Brokerage business.  Custodian fees had been expensed at the Master Fund level and had been included in the NAV of the subsidiary.

 

5b.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AT THE MASTER FUND LEVEL

 

Africa Opportunity Fund LP (the "Master Fund") is incorporated in the Cayman Islands and is not subject to regulatory review. Management has voluntarily disclosed all the policies and notes to the accounts of the Master Fund to provide shareholders of the Company with a better insight.

 

The primary accounting policies for interest revenue and expense, dividend revenue and expense and cash and cash equivalents, are similar as in Note 2. Those policies which only relate to the Master Fund's financial statements are set out below. These policies have been consistently applied from the prior year to the current year for items which are considered material in relation to the financial statements.

 

Financial instruments

 

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

(a)   Classification

 

The Master Fund classifies its financial assets and liabilities in accordance with IFRS 9 into the following categories:

 

(i) Financial assets and liabilities at fair value through profit or loss

 

The category of the financial assets and liabilities at fair value through the profit or loss is subdivided into:

 

 

Financial assets and liabilities held for trading

 

Financial assets are classified as held for trading if they are acquired for the purpose of selling and repurchasing in the near term. This category includes equity securities, investments in managed funds and debts instruments. These assets are acquired principally for the purpose of generating a profit from short term fluctuation in price. All derivatives and liabilities from the short sales of financial instruments are classified as held for trading.

 

Financial assets at fair value through profit or loss upon initial recognition

 

These include equity securities and debt instruments that are not held for trading. These financial assets are classified at FVTPL on the basis that they are part of a group of financial assets which are managed and have their performance evaluated on a fair value basis, in accordance with risk management and investment strategies of the Company, as set out in each of their offering documents. The financial information about the financial assets is provided internally on that basis to the Investment Manager and to the Board of Directors.

 

Derivatives - Options

 

Derivatives are classified as held for trading (and hence measured at fair value through profit or loss), unless they are designated as effective hedging instruments (however the Company does not apply any hedge accounting). The Master Fund's derivatives relate to option contracts.

 

Options are contractual agreements that convey the right, but not the obligation, for the purchaser either to buy or sell a specific amount of a financial instrument at a fixed price, either at a fixed future date or at any time within a specified period.

 

The Master Fund purchases and sells put and call options through regulated exchanges and OTC markets. Options purchased by the Master Fund provide the Master Fund with the opportunity to purchase (call options) or sell (put options) the underlying asset at an agreed-upon value either on or before the expiration of the option. The Master Fund is exposed to credit risk on purchased options only to the extent of their carrying amount, which is their fair value.

 

Options written by the Master Fund provide the purchaser the opportunity to purchase from or sell to the Master Fund the underlying asset at an agreed-upon value either on or before the expiration of the option.

 

Options are generally settled on a net basis.

 

Derivatives relating to options are recorded at the level of the Master Fund.  The financial statements of the Company do not reflect the derivatives as they form part of the net asset value (NAV) of the Master Fund which is fair valued.

 

 (ii) Financial assets at amortised cost

 

The Master Fund measures financial assets at amortised cost if both of the following conditions are met:

 

·    The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows

 

·    The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding

 

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Master Fund's financial assets at amortised cost comprise 'trade and other receivables' and 'cash and cash equivalents in the statement of financial position.

 

(iii) Other financial liabilities

 

This category includes all financial liabilities, other than those classified as fair value through profit or loss. The Master Fund includes in this category amounts relating to trade and other payables and dividend payable.

 

(a)   Recognition

 

The Master Fund recognises a financial asset or a financial liability when, and only when, it becomes a party to the contractual provisions of the instrument.

 

Purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognised directly on the trade date, i.e., the date that the Master Fund commits to purchase or sell the asset.           

 

(b)   Initial measurement

 

Financial assets and liabilities at fair value through profit or loss are recorded in the statement of financial position at fair value. All transaction costs for such instruments are recognised directly in profit or loss.

 

Derivatives embedded in other financial instruments are treated as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contract, and the host contract is not itself classified as held for trading or designated at fair value though profit or loss. Embedded derivatives separated from the host are carried at fair value.

 

Financial assets at amortised cost and financial liabilities (other than those classified as held for trading) are measured initially at their fair value plus any directly attributable incremental costs of acquisition or issue.

 

(c)   Subsequent measurement

 

The Master Fund measures financial instruments which are classified at fair value through profit or loss at fair value. Subsequent changes in the fair value of those financial instruments are recorded in 'Net gain or loss on financial assets and liabilities at fair value through profit or loss. Interest earned elements of such instruments are recorded separately in 'Interest revenue'. Dividend expenses related to short positions are recognised in 'Dividends on securities sold not yet purchased'. Dividend income/distributions received on investments at FVTPL is recorded in "Net gain or loss on financial assets at fair value through profit or loss".

 

Financial assets at amortised costs are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

           

   (iii) Other financial liabilities

 

(d)   Subsequent measurement

 

Financial liabilities, other than those classified as at fair value through profit or loss, are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are derecognised, as well as through the amortisation process.

 

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Master Fund estimates cash flows considering all contractual terms of the financial instruments, but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

 

(e)     Derecognition

 

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

 

·                 The rights to receive cash flows from the asset have expired; or

 

·                 The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and

 

Either (a) the Master Fund has transferred substantially all the risks and rewards of the asset, or (b) the Master Fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Master Fund has transferred its rights to receive cash flows from an asset (or has entered into a pass-through arrangement), and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Master Fund's continuing involvement in the asset.

 

The Master Fund derecognises a financial liability when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss.

 

Determination of fair value

 

The Master Fund measures its investments in financial instruments, such as equities, debentures and other interest-bearing investments and derivatives, at fair value at each reporting date.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measured is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Master Fund.  The fair value for financial instruments traded in active markets at the reporting date is based on their quoted price without any deduction for transaction costs.

 

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include: using recent arm's length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible. An analysis of fair values of financial instruments and further details as to how they are measured is provided in Note 6.

 

Impairment of financial assets

 

The Master Fund uses the following hierarchy for determining and disclosing the fair value of the financial instruments by valuation technique:

 

·        Level 1:      quoted (unadjusted) market prices in active markets for identical assets and liabilities.

·        Level 2:      valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

·        Level 3:      valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

 

            The Master Fund recognises an allowance for expected credit losses (ECLs) for all financial assets measured at amortised cost. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Master Fund expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

 

ECLs are recognised either on a 12-month or lifetime basis. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

 

The Master Fund considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Master fund may also consider a financial asset to be in default when internal or external information indicates that the Master fund is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Master fund. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

 

For trade receivables, the Master Fund applies a simplified approach in calculating ECLs. Therefore, the Master Fund does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. At the reporting date, the assessment of the Master Fund's debt instruments which include trade and other receivables and cash and cash equivalents were considered as de minimis. As a result, no ECL has been recognised as any amount would have been insignificant.

 

Offsetting financial instruments

 

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

 

 

 

Net gain or loss on financial assets and liabilities at fair value through profit or loss

 

This item includes changes in the fair value of financial assets and liabilities held for trading or designated upon initial recognition as 'at fair value through profit or loss' and excludes interest and expenses.  At the Master Fund Level, the fair value gains and losses exclude interest and dividend income.

 

Unrealised gains and losses comprise changes in the fair value of financial instruments for the year and from reversal of prior year's unrealised gains and losses for financial instruments which were realised in the reporting period.

 

Realised gains and losses on disposals of financial instruments classified as 'at fair value through profit or loss' are calculated using the Average Cost (AVCO) method. They represent the difference between an instrument's initial carrying amount and disposal amount, or cash payments or receipts made on derivative contracts (excluding payments or receipts on collateral margin accounts for such instruments).

 

Due to and due from brokers

 

Amounts due to brokers are payables for securities purchased (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date at the Master Fund level. Refer to the accounting policy for financial liabilities, other than those classified at fair value through profit or loss for recognition and measurement.

 

Amounts due from brokers include margin accounts and receivables for securities sold (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date. Refer to accounting policy for financial assets at amortised cost for recognition and measurement.

 

Interest revenue and expense

 

Interest revenue and expense are recognised in profit or loss for all interest-bearing financial instruments using the effective interest method.

 

Dividend revenue

 

Dividend revenue is recognised when the Master Fund's right to receive the payment is established. Dividend revenue is presented gross of any non-recoverable withholding taxes, which are disclosed separately in profit or loss of the Master Fund.

 

6.         FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

 

6(a).    Investment in subsidiaries at fair value

 

The Company has established Africa Opportunity Fund L.P., an exempted limited partnership in the Cayman Islands to ensure that the investments made and returns generated on the realisation of the investments made and returns generated on the realisation of the investments are both effected in the most tax efficient manner. All investments made by the Company are made through the limited partner which acts as the master fund. The limited partners of the limited partnership are the Company (96%) and AOF CarryCo Limited (4%). The general partner of the limited partnership is Africa Opportunity Fund (GP) Limited. Africa Opportunity Fund Limited hold 100% of the Africa Opportunity Fund (GP) Limited.

 



2023



USD




 

Investment in Africa Opportunity Fund L.P.


                    11,041,665

 

Investment in Africa Opportunity Fund (GP) Limited


                              3,583




 

Total investment in subsidiaries at fair value


                    11,045,248




 

Fair value at 01 January


                    19,041,847

 

Reduction in investment in subsidiaries*


                    (7,700,000)

 

Net loss on investment in subsidiaries at fair value


                        (296,599)




 

Fair value at 30 June 2023


                    11,045,248




* The reduction in investment in subsidiaries relates to capital withdrawn from the Master Fund by the Company.

 

 

6(b).    Fair value hierarchy

 

The Company uses the following hierarchy for determining and disclosing the fair value of the financial instruments by valuation technique:

 

Level 1: quoted (unadjusted) market prices in active markets for identical assets and liabilities.

Level 2: valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3: valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

 

Note: The assets and liabilities of the Master Fund have been presented but do not represent the assets and liabilities of the Company as the Master Fund has not been consolidated.

 

·      Fair value hierarchy of the Company

 



30 June

 

 

 

 

 

 



2023

 

Level 1

 

Level 2

 

Level 3

COMPANY


 

 

USD

 

USD

 

USD



 

 

 

 

 

 

 

 

Investment in subsidiaries


             11,045,248


                        -  


            11,045,248


                  -  












30 June









2022


Level 1


Level 2


Level 3

COMPANY




USD


USD


USD










 

Investment in subsidiaries


             24,823,222


                        -  


            24,823,222


                  -  










Fair value hierarchy of the Master Fund.

 

The Company has investment in Africa Opportunity Fund L.P., the Master Fund, amounting to USD 11,045,248. The underlying investments of the Master Fund amounts to USD 10,678,239. Details on the financial assets and liabilities of the Master Fund and fair value hierarchy are as follows: 

 



30 June

 

 

 

 

 

 



2023

 

Level 1

 

Level 2

 

Level 3



 

 

USD

 

USD

 

USD

MASTER FUND


















Financial assets at fair value through profit or loss
















 

Equities


             10,678,239


           5,226,107


              5,452,132


                  -  












             10,678,239


           5,226,107


              5,452,132


                  -  












30 June









2022


Level 1


Level 2


Level 3





USD


USD


USD

MASTER FUND


















Financial assets at fair value through profit or loss
















 

Equities


             20,793,464


         14,958,151


              5,835,313


                  -  

 

Debt securities


                  123,926


              123,926


                          -  


                  -  












             20,917,390


         15,082,077


              5,835,313


                  -  










 

6(c).     The valuation technique of the investment in subsidiaries at Company level is as follow:

 

The Company's investment manager considers the valuation techniques and inputs used in valuing these funds as part of its due diligence, to ensure they are reasonable and appropriate and therefore the NAV of these funds may be used as an input into measuring their fair value. In measuring this fair value, the NAV of the funds is adjusted, as necessary, to reflect restrictions on redemptions, future commitments, and other specific factors of the fund and fund manager. In measuring fair value, consideration is also paid to any transactions in the shares of the fund. Given that there has been no such adjustments made to the NAV of the underlying subsidiaries and given the simple structure of the subsidiaries investing over 95% in quoted funds, the Company classifies these investment in subsidiaries as Level 2.

 

6(d).     The valuation technique of the investments at Master Fund level are as follows:

 

Equity and debt securities

 

These pertain to equity and debt instruments which are quoted for which there is a market price. As a result, they are classified within level 1 of the hierarchy except for the valuation of listed on the Zimbabwe Stock Exchange which have been classified as level 2 given that their quoted share price has been discounted as at 30 June 2023 as follows:

 

Valuation of investments listed on the Zimbabwe Stock Exchange

 

Beginning in June 2020, the Zimbabwe authorities suspended Old Mutual shares from the Zimbabwe Stock Exchange, necessitating the Company to devise an alternative transparent discount factor. The new discount factor is based on the official Zimbabwe Dollar exchange rate at the end of June 2019, when the Zimbabwe Dollar, became the sole legal tender in Zimbabwe, modified by the inflation differential between Zimbabwe and the United States captured in their respective monthly Consumer Price Indices (the US Consumer Price Index is that for urban consumers), then adjusted by the proportion of export proceeds that must be surrendered by Zimbabwean exporters to the Zimbabwe Reserve Bank. In May 2022, the Zimbabwe government imposed a ban on bank lending services so as to stop currency speculation and in June 2022 the RBZ monetary policy committee increased the policy rate 12,000 basis points to 200% so as to control rising inflation. The Company adjusted its model to reflect a 20% surrender requirement on the basis that the reported CPI captured only 80% of actual inflation, a position supported by the government actions. Over time, the official exchange rate has converged towards our in-house exchange rate.  In May 2023, the Reserve Bank Governor along with the Minister of Finance stated that the Official Exchange Rate should converge toward the parallel rate, and trade at a discount that is lower than 20%.  That statement partly led to the devaluation of the official rate and closed the gap on the parallel rate. This discount factor changes every month. The consequence of applying this discount factor is that the Zimbabwe Dollar prices of the Company's investments listed on the Zimbabwe Stock Exchange were converted into US Dollars, as at 30 June 2023 at a discount rate of 14.2% (the discount rate was 36.8% as at 30 June 2022). The value of the Zimbabwe investments recorded in the books of the Company, after applying this discount factor, was USD 3,076,332 (2022: USD 2,709,513).

 

Written put options

 

These are traded on an active market and have a quoted market price. They have therefore been classified in level 1 of the hierarchy. As of 30 June 2023, the Company had no options outstanding.

 

Unquoted debt and equity investments

 

African Leadership University ("ALU") is a network of tertiary institutions, currently with operations in both Mauritius and Rwanda.  The Investment Manager valued ALU on the basis of an observable arms-length transaction between existing shareholders selling a portion of their shares and an unaffiliated third party.  The transactions were agreed via an omnibus share purchase agreement dated 28 September 2022 with dates of the agreements evidencing the first, second, third, and fourth tranches, respectively, 30 September 2022, 5 December 2022, 6 March 2023 and 5 June 2023 (amended to 28 June 2023 and 28 September 2023), and thus were utilized as the basis of the valuation as at 30 June 2023.  At 30 June 2023, the investment in ALU has been classified under level 2 because the value of the investment utilizes the recent transaction.

 

6(e).    Statement of profit or loss and other comprehensive Income of the Master Fund for the period from 1 January to 30 June 2023

 

The net losses on investments in subsidiaries at fair value through profit or loss for the period from 1 January 2023 to 30 June 2023 amounted to USD 296,599, and net losses on investments in subsidiaries at fair value through profit or loss for the period from 1 January 2022 to 30 June 2022 amounted to USD 1,022,622 arising at the Master Fund and can be analysed as follows:

 



For the period


For the period



ended 30 June


ended 30 June



2023


2022



 





USD


USD

Income


 



 

Dividend revenue


                         174,156


                212,234



 





                  174,156


            (898,346)

Expenses


 



 

Net losses on financial assets and liabilities at fair value


 



through profit or loss


                   36,999


                       -  

 

Net foreign exchange loss


                  328,217


                52,175

 

Custodian fees, brokerage fees and commission


                    84,761


                87,309

 

Other operating expenses


                      4,270


                  2,473



 





                  454,247


              141,957



 



 

Operating loss before tax


                (280,091)


         (1,040,303)



 



 

Less withholding tax


                     (2,278)


                (1,570)



 



 

Total Comprehensive loss for the period


                (282,369)


         (1,041,873)



 



Attributable to:


 



 

AOF Limited (direct interests)


                (296,711)


         (1,022,472)

 

AOF Limited (indirect interests  through AOF (GP) Ltd)


                          112


                   (150)



                (296,599)


         (1,022,622)

 

AOF CarryCo Limited (NCI)


                    14,230


              (19,251)



                (282,369)


         (1,041,873)

 

The financial assets and liabilities of the Master Fund are analysed as follows:

 

 

 

 

(i)        Net (losses)/gains on financial assets and liabilities at fair value through profit or loss held by Africa Opportunity Fund L.P.

 






 

For the period

 

For the period






 

ended 30 June

 

ended 30 June







2023


2022







 









USD


USD







 



Net losses on fair value of financial assets at fair value through profit or loss

                 (36,999)


            (1,116,210)







 



Net losses






                 (36,999)


            (1,116,210)






 


 


 

(ii)       Financial asset and liabilities at fair value through profit or loss held by Africa Opportunity Fund L.P.

 

 

 






For the period


For the period







ended 30 June


ended 30 June







2023


2022







 









USD


USD

Held for trading assets:









At 1 January






         18,634,833


    24,015,367

 

Disposal






          (7,919,595)


          (1,981,767)

 

Net losses on financial assets at fair value through profit or loss

               (36,999)


          (1,116,210)







 



 

At 30 June (at fair value)






       

 10,678,239


         20,917,390







 



Analysed as follows:






 



 

 -  Listed equity securities






            8,302,439


         17,667,664

 

-  Listed debt securities






                     

    -  


               123,926

 

-  Unlisted equity securities






            2,375,800


            3,125,800







 









        

10,678,239


         20,917,390










 

 (iii)    Net changes on fair value of financial assets at fair value through profit or loss

 

 







For the period


For the period







ended 30 June


ended 30 June







2023


2022







 









USD


USD







 



Realised






              1,989,464


               (406,986)

Unrealised






            (2,026,463)


               (709,224)







 



Total losses






                 (36,999)


            (1,116,210)










 

7.         RECEIVABLES

           




30 June 2023


30 June 2022




 






USD





 


 

Amounts due from Africa Opportunity Fund L.P.



                          -  


 

Prepayments



                   1,280


                 1,123




 






                   1,280


             188,108




 



   

8.         CASH AND CASH EQUIVALENTS

 




30 June 2023


30 June 2022





 





USD

 

USD




 

 


Cash at bank



              99,392


                50,103




 



 

9(a).    ORDINARY SHARE CAPITAL

           





30 June 2023

 

30 June 2023

30 June 2022

30 June 2022

 





 

 

 









Number

 

USD


Number


USD

Authorised share capital


 


 


 

 

 

 

Ordinary shares with a par value of


 

 

 

 

 

 

 

USD 0.01




 

1,000,000,000

 

 

  10,000,000

 

  1,000,000,000

 

    10,000,000





 

 

 

 

 

 

 

Issued share capital




 


 


 


 

Ordinary shares with a par value of


 


 


 

 

 

USD 0.01




       

11,468,907

 

        

114,689

 

       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).     NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS

            

            

 

 

 

Ordinary

 

 

 

Shares

 

 

 

 

 

 

 

USD





At 1 January 2023

 

 

          19,167,323





Changes during the period:

 

 

 









Total comprehensive loss for the period


             (487,496)

Redemption of ordinary shares



          (7,600,000)





At 30 June 2023

 

 

          11,079,827





Net asset value per share at 30 June 2023


                  0.966





 

10.      TRADE AND OTHER PAYABLES

           

           




30 June 2023

30 June 2022





 





USD

 

USD




 

 


Directors Fees Payable


            17,500


              17,500

Other Payables


            48,593


            172,608




 






            66,093


            190,108







 

Other payables are non-interest bearing and have an average term of six months. The carrying amount of trade and other payables approximates their fair value.

 

11.      EARNING PER SHARE

 

The earnings per share (EPS) is calculated by dividing the decrease in net assets attributable to shareholders by number of ordinary shares.  The EPS for the period ended 30 June 2023 and 2022 represent both the basic and diluted EPS.

 

 



 

Period from 1

January 2023

 to 30 June 2023




 






 

Ordinary shares

Ordinary shares

 



 

 

 

 

Change in net assets attributable to shareholders


USD


                    (487,496)

                 (1,205,868)

 






 

Number of shares in issue




                11,468,907

                 24,787,758

 






Change in net assets attributable to shareholders

 per share

USD


                        (0.043)

                        (0.049)

 






 

12.      ANALYSIS OF NAV OF MASTER FUND ATTRIBUTABLE TO ORDINARY SHARES

 



30 June 2023



30 June 2022









 




ASSETS






 

Cash and cash equivalents


              1,147,534



              4,842,108

 

Trade and other receivables


                 139,875



                 185,473

 

Financial assets at fair value through profit or loss


            10,678,239



            20,917,390

 

Total assets


            11,965,648



            25,944,971







EQUITY AND LIABILITIES






Liabilities






 

Trade and other payables


                 463,208



                 469,208

 

Amount payable to related party - AOF Ltd


                           -  



                 186,985

 

Total liabilities


                 463,208



                 656,193







 

Net assets attributable to members' account


            11,502,440



            25,288,778







               

13.       TAXATION

 

Under the current laws of Cayman Islands, there is no income, estate, transfer sales or other Cayman Islands taxes payable by the Company. As a result, no provision for income taxes has been made in the financial statements.

 

Dividend revenue is presented gross of any non-recoverable withholding taxes, which are disclosed separately in the statement of comprehensive income. Withholding taxes are not separately disclosed in statement of cash flows as they are deducted at the source of the income.

 

14.      SEGMENT INFORMATION

 

For management purposes, the Çompany is organised in one main operating segment, which invests in equity securities, debt instruments and relative derivatives. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole.

 

15.       PERSONNEL

 

The Company did not employ any personnel during the period (2022: the same).

 

16.       COMMITMENTS AND CONTINGENCIES

 

There are no commitments or contingencies at the reporting date.

 

17.       SIGNIFICANT EVENTS

 

COVID-19 PANDEMIC AND UKRAINE-RUSSIA CONFLICT

 

The Board of Directors and Investment Manager continue to assess the impact of both the continued presence of a novel and highly contagious form of coronavirus ("Covid-19"), which the World Health Organization has officially declared a pandemic, and the geopolitical unrest in the form of the Ukraine and Russia conflict. Covid-19, has resulted in numerous deaths across the globe, adversely impacted global commercial activity, interrupted normal business and social activities, and contributed to significant volatility in certain equity and debt markets. The global impact of the outbreak continues to evolve, as new strains of the coronavirus develop. Public health emergencies, including outbreaks of new strains of Covid-19 or other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on the Company, including the fair value of its investments. 

 

The Directors and Investment Manager continue to assess the impact of the geopolitical unrest affecting the Russia, Belarus, and Ukraine regions.  While the Company has no direct exposure to investments in, or traded in, these regions, the potential for supply chain disruptions as well as cybersecurity related risks and adverse impacts on general economic activity is elevated and continues to be monitored.  Sanctions, high inflation, rapid increases in food prices, currency exchange limitations, heightened volatility of currencies, export or capital controls, sovereign debt distress or sovereign debt default, or civil or political unrest appear to have limited direct impact on the Company at this time, however, the impact of an expansion of any or all of these consequences of the conflict may indirectly have material impacts on investments of the Company. An expansion of hostilities could have adverse impacts, including a potential global, regional or other economic recession, which remain uncertain and difficult to assess.

 

The current investment strategy and distribution policy, while mitigating some operational risks due to the enhanced levels of cash and cash equivalents as a consequence of the realisation efforts, does pose other challenges as the Investment Manager continues to attempt to maximise value while realising investments during this volatile environment. The Company and the Master fund will continue to meet their working capital requirements and other obligations through utilisation of existing cash resources.

 

The Directors consider the continuation of the Covid-19 pandemic and the Ukraine-Russia conflict to be non-adjusting post balance sheet events and hence any future impacts are likely to be in connection with the assessment of the fair value of investments at future valuation dates. The Fund's portfolio of investments may see a range of impacts due to these events, the specifics of which will depend on a variety of factors, including geographic location, industry sector and the effectiveness of governmental actions, amongst others. The Board and the Investment Manager are actively working towards assessing and minimizing risks to the Fund's portfolio, however, given the degree of uncertainty around the potential future course of Covid-19 and the Ukraine-Russia conflict, it is not possible to accurately quantify the future impact on the portfolio at this.

 

 

18.       SUBSEQUENT EVENTS

               

The June 2023 Annual General Meeting (AGM) was deemed inquorate as, despite beneficial owners of the Company's shares submitting their instructions on time, an insufficient number of registered nominees (through which the Company's shares are held electronically) submitted their proxy forms on time.  The Directors convened a new AGM on 19 September 2023, having proposed the same resolutions as proposed at the June AGM.  All resolutions passed at the September 2023 AGM.

 

19.       LIFE OF THE COMPANY

 

Directors consider it desirable that Shareholders should have the opportunity to review the future of the Company at appropriate intervals. Accordingly, Shareholders passed an ordinary resolution at an extraordinary general meeting of the Company on 28 February 2014 that the Company continues in existence. On June 27, 2019, the Shareholders passed a further ordinary resolution at an extraordinary general meeting of the Company on that the Company continues in existence through 30 June 2022.

 

In June 2022, the Directors convened an Annual General Meeting and an Extraordinary General Meeting where the following was passed:

 

·      Ordinary resolution that the continuation of the existence of the Company be and is hereby approved.

·      The text set out under "New Investing Policy" in paragraph 2 of Part III of the Company's circular to Shareholders dated 5 June 2019 (the "Circular") adopted as the new investment policy of the Company continues;

·      The terms of the Amended and Restated Investment Management Agreement (as defined in the Circular) be and are hereby approved;

·      The memorandum and the articles of association in the form initialled by the Chair of the meeting be adopted as the memorandum and articles of association of the Company in substitution for and to the exclusion of the existing memorandum and articles of association; and

·      Any variation to the rights attaching to the Ordinary Shares in the Company pursuant to the adoption of the new memorandum and articles of association, and in particular the right for the Company to redeem the Ordinary Shares (including any redemptions made of 15 per cent. or more of the Company's issued share capital), be and is hereby approved.

 

In summary, shareholders voted to give AOF two years during which the Investment Manager will realize the portfolio in an orderly manner and distribute the proceeds to the shareholders. (Please review the Company's Circular dated 13 June 2022 for a detailed and comprehensive description of the Continuation Vote)

 

A brief synopsis of the "New Investing Policy" which shall remain in force through 30 June 2024 is below: (Please review the Company's Circular dated 5 June 2019 for a detailed and comprehensive description of the Policy):

For a period of up to three years following the EGM (the "Return Period"), the Company will make no new investments (save that it may invest in, or advance additional funds to, existing investments within the Company's portfolio to maximise value and assist in their eventual realisation). The Company will adopt the New Investment Policy whereby the Company's existing portfolio of investments will be divested in a controlled, orderly and timely manner to facilitate a staged return of capital. 

 

It should be appreciated that there is no time horizon in terms of the implementation of the New Investment Policy. Although the Company's portfolio is comprised of largely liquid equity holdings, the Company has some illiquid investments, and it may take the Investment Manager some time to realise these.

 

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