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AOF Africa Opportunity Fund Limited

0.65
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Last Updated: 08:00:15
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Africa Opportunity Fund Limited LSE:AOF London Ordinary Share KYG012921535 ORD USD0.01
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 0.65 0.60 0.70 0.705 0.6425 0.6425 0.00 08:00:15
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Trust,ex Ed,religious,charty -1.5M -2.41M -0.1192 -5.45 13.14M

Africa Opportunity Fund Limited Annual Financial Report (6552M)

30/04/2018 6:22pm

UK Regulatory


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TIDMAOF

RNS Number : 6552M

Africa Opportunity Fund Limited

30 April 2018

30 April 2018

Africa Opportunity Fund Limited (AOF.L and AOFC.L)

Announcement of Annual Results for the Year ended 31 December 2017

The Board of Africa Opportunity Fund Limited ("AOF", the "Company" or the "Fund") is pleased to announce its audited results for the year ended 31 December 2017. The Company's full annual report and financial statements will shortly be sent to shareholders and will be available to view and download from the Company's website at www.africaopportunityfund.com.

The following text and financial information does not constitute the Company's annual report but has been extracted from the annual report and financial statements for the year ended 31 December 2017.

The Company

Africa Opportunity Fund Limited ("AOF" or the "Company") is a Cayman Islands incorporated closed-end investment company traded on the Specialist Fund Segment ("SFS") of the London Stock Exchange ("LSE"). AOF's net asset value on 31 December 2017 was US$69.6 million and its market capitalisation was US$54.6 million.

Chairperson's statement

2017 Review

2017 was a respectable year for the Africa Opportunity Fund (the "Fund" or "AOF"), a decent year for world markets, and another buoyant year for emerging markets.

Recovery sank deeper roots in Africa. The 17% rise in crude oil prices to $67 completed a second positive year for oil producing countries. The 14% rise in the gold price and the 31% rise in the copper price also increased the quantum of foreign exchange earned by African countries, while the general decline in agricultural commodity prices helped to increase the disposable income of African consumers. Nigeria, in Q3 2017, joined Egypt in officially devaluing its currency, followed by an end to its recession. African economic recovery accompanied uneven but deepening respect for independent judicial determinations of national electoral disputes. Kenya illustrated these developments, first, when its Supreme Court accomplished an African first by annulling a flawed Presidential election and, second, by that Supreme Court affirming the outcome of Kenya's second election. Kenya's opposition refused initially to accept the outcome of the second election, which it had boycotted, but recent events suggest a change of heart by the opposition, to the ultimate benefit of Kenya. The resignation of President Robert Mugabe, after a military intervention and mass demonstrations, opened a new chapter in Zimbabwe's democratic life. The last example of involuntary, but peaceful, political change occurred in South Africa, which witnessed the recent resignation of former President Jacob Zuma. Yet, declarations of lengthy states of emergency and other authoritarian tendencies in a number of African countries caution that the journey to constitutional democracy remains long and winding. Three decades ago, each of Africa's four regions was led by an autocratic economic powerhouse. It is progress, today, that a majority of those powerhouses are democracies. In its decade of existence, the Fund has invested in democracies, autocracies, and monarchies. Its investments have suffered the consequences of civil war on occasion, but, lately, have become more frequent surfers of peaceful waves of change. Unquestionably, the spread of democratic trends has been friendliest to the Fund because it has enabled the Fund's manager to lengthen its investment horizon across electoral cycles in its quest for strong long-term returns. As other Africa investors also lengthen the periods over which they calculate their returns, the cost of capital should decline, both widening the range of possible investments and increasing the attractiveness of Africa as an investment destination. Thus, peaceful change serves as a catalyst for African economic development.

Africa's young population confronts a fierce urgency to become the fastest growing source of globally competitive workers. There is little chance of reining in that urgency unless African governments collect more revenue from their economies, Africa increases dramatically its investment in infrastructure, and the productivity of African agriculture, especially for locally consumed staple foods, soars towards the levels found on other continents. A recent issue of the Economist pointed out that meat is more expensive in Ghana than the United States.([i]) It is also axiomatic that the fewer the barriers to continental-scale free trade in a large landmass, the higher the possible economic growth rate in that land mass. The United States of America is Exhibit A for that axiom. With the smallest percentage of intra-continental trade, Africa is literally the polar opposite of the United States: one poor, the other rich; one a patchwork of legal, jurisdictions, languages and national currencies, the other, a unified free trade zone united by language and currency. Firms seeking to become African multinationals, firms creating and running African infrastructure networks, and firms seeking to profit from increases in African agricultural productivity should be profitable agents of economic development. Investee companies of the Fund-Letshego, for example-born in Botswana and present now in countries like Nigeria; Dangote Cement-operating from Senegal to Ethiopia to Zambia; and Enterprise Group which is just completing a rights offer for capital to expand into Cote d'Ivoire and Nigeria-typify emerging African multinationals. Kenya Power's aggressive capital expenditure program is designed to turn Kenya into a key energy hub of the East African power pool when it moves power from Ethiopia to other countries like Uganda and Tanzania.

Undoubtedly, the diverse operations of multinational companies expose them to far flung controversies and problems. Witness Anglogold Ashanti's current battles against tax and royalty hikes in both Tanzania and the Democratic Republic of Congo, and the glacial pace of VAT refunds out of Tanzania. Nevertheless, the Fund seeks to benefit from the fulfillment of these structural African needs.

AOF's 2017 strategy focused on expanding equity exposure to gold producers. In Q4, it started to raise its net exposure to accelerating household expenditure patterns. The Fund also reduced sharply its bond portfolio while selling some of its electric utility securities. It curtailed its Rand denominated short positions.

The net asset value per share of the Fund's ordinary shares rose by 16.9%. To provide some basis for comparison, South Africa rose 34%, Nigeria rose 30%, Kenya rose 35%, and Egypt rose 35%. In non-African emerging markets, China rose 32%, Brazil rose 25%, Russia rose 6% and India rose 38%. In developed markets, Japan rose 25%, the US rose 22%, Europe rose 27%, and the UK rose 22%.([ii]) The larger and more liquid African markets attracted the lion's share of portfolio investment directed into Africa. Within those markets, the more liquid companies outperformed in this stage of Africa's recovery. In time, the less liquid will get a chance to shine. In that context AOF's thesis and strategy of seeking to purchase the strong growth prospects of various African industries, without regard to the liquidity characteristics of its investee companies and without paying too much for them at the time of investment, means the Fund remains an excellent investment vehicle for the long term investor.

2018 Outlook

2018 promises to be a good year. Kenya's economy will enter a recuperative phase, as its new government tackles its growing debt burden. Ghana, Cote d'Ivoire, Senegal, and Egypt are expected to enjoy strong economic growth in 2018. The rising crescendo of trade war threats is a worry, however, the Fund's portfolio gives it ample scope to participate in, and profit from, Africa's visible growth prospects. The Fund's closed-end structure has allowed it to invest in high quality issuers without focusing on liquidity, even if that freedom has come at the price of volatile discounts between net asset value per share and market price per share. A closed-end investment company, like AOF, benefits from having long-term liabilities, unlike open-ended funds which have the short-term monthly or daily redemption liability.

We expect our appeal of the Shoprite arbitral award to be heard later this year. In the wake of the award, The Fund merged the C Share and Ordinary Share capital pools in August 2017.

Concluding Thoughts

In closing, we extend our thanks to our shareholders for their support and partnership and look forward to continuing to work with you in the years to come.

Dr. Myma Belo-Osagie

Chairperson

April 2018

Manager's report

2017 Review

2017 marked the tenth full year of operation of Africa Opportunity Fund ("the Fund" or "AOF"). It marked also the merger of the "C shares" with the original issue of the Fund's shares (hereinafter referred to as "A shares"). The A shares had an annual return of 16.9%. At year-end, AOF held $61.2 million in equity securities, $4.9 million in debt securities, $3.5 million in cash; and derivative and short sale liabilities equal to $3 million. The Fund's underlying end-of-year holdings were in Botswana, Cote d'Ivoire, Egypt, Ghana, Kenya, Nigeria, Senegal, South Africa, Tanzania, Uganda, Zambia, and Zimbabwe. Our lodestar for measuring the Fund's portfolio is our estimate of its appraisal value per share. That subjective estimate measures the Manager's view of the long-term attractiveness of the portfolio, which we publish quarterly in our newsletters. It was $1.14 per share at the end of 2017 versus $1.17 per share at the end of 2016 for the A Shares.1

AOF's ordinary share NAV, including dividends, rose 16.9% in 2017. It has declined 6% over the last three years and 0.5% over the last five years. For comparative perspective, see the table below which highlights the challenges encountered by Africa and certain emerging market investors over recent years.

 
Comparative Returns 
----------------------------------------- 
Index/Security     1 Year  3 Year  5 Year 
AOF NAV            16.9%   -6.0%   -0.5% 
Lyxor Africa ETF   26.3%   13.7%   -10.1% 
DBX MSCI Africa 
 Top 50            25.6%   1.8%     1.6% 
VanEck Vectors 
 Africa            28.2%   2.7%    -10.1% 
Brazil Bovespa     24.7%   22.4%   -22.5% 
Russia Micex       5.7%    67.3%   -5.7% 
India Sensex       37.8%   27.8%   61.4% 
China CSI 300      32.2%   15.2%   76.3% 
US S&P 500         21.6%   37.8%   106.5% 
 

There were three main reasons for the Fund's 2017 performance. The Fund's investments in top members of national or continental African oligopolies, represented by companies like Enterprise Group and Copperbelt Energy Corporation, delivered strong returns. Those companies enabled the Fund's performance to keep pace with the general inflow of funds into the larger and more liquid African markets. The second reason was our currency hedges (principally the Fund's longstanding Euro hedge), suffering losses from a weakening Dollar. Finally, the merger of the Fund's two share classes came with some unique event-specific costs.

The Fund's portfolio comprises four principal categories: the securities of top members of national or continental African oligopolies; the securities of companies with large assets ignored by capital markets; high yielding African corporate debt denominated in freely tradeable currencies; and, where cost-effective, currency hedges and short positions against over-indebted African consumers. Several AOF companies are national or continental leaders in their industries, whether measured by profitability or balance sheet quality or market position. They lead industries, such as electricity networks or cement production, which must grow their profits at a higher rate than African GDP growth rates for Africa to satisfy the urgent demands of its denizens for a better life. The major portfolio change of 2017 was to reduce the Fund's bond portfolio, while trimming its currency hedges and short positions. As the prices of its bonds rallied to par, with a constant drumbeat of rising Fed interest rates, the Fund reduced its debt holdings from 25% of its net asset value, at the beginning of 2017, to 7% at year-end 2017. The proceeds of those bond disposals were reinvested in national oligopolies and companies with large assets ignored by capital markets.

Enterprise Group provided the largest returns to the Fund in 2017, amounting to 5 cents per share. The Fund's position in Enterprise Group - 17.9% of the Fund - evinces the Fund's approach of taking large positions in companies expected to generate larger profits over long periods. In the words of Warren Buffet:

"Your goal as an investor should simply be to purchase, at a rational price, a part-interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten, and twenty years from now. Over time, you will find only a few companies that meet these standards-so when you see one that qualifies, you should buy a meaningful amount of stock."(2)

Our preferred investment approach is to build a long-term concentrated holding in a sector growing at a more rapid rate than an African country's underlying GDP growth rate: life assurance, property and casualty insurance, and pension administration - three of Enterprise's fields of operation - fit the bill. Gross insurance proceeds, for example, grew at a 10% annual compounded rate, in US Dollars in spite of a 62% depreciation of the Cedi against the Dollar, from 2009 until 2015 while Ghana's real gross domestic product grew at an annual rate of 7.3% over that six year period.(3) Yet, insurance penetration (insurance premia as a percentage of Ghana's gross domestic product) at the end of that period was a minuscule 1.17%).(4) In the case of pension assets, total private assets under management of licensed pension trustees, like Enterprise Trustees, rose at an annual 147% compounded rate from $26 million in 2012 to $973 million in 2016 in the face of a 56% depreciation of the Cedi against the Dollar.(5) These absolute numbers may be minute by global standards; their compounded growth rates are far from minute. Enterprise Group is a holding company with majority and wholly-owned operating subsidiaries in six Ghanaian fields: a 60% life assurance subsidiary with the largest market share in that field; a 60% property and casualty insurance subsidiary which has the second largest market share; a 60% pensions administrator subsidiary which has the largest market share in Ghana's new private pensions industry; a 100% owned property development subsidiary; a 60% indirect subsidiary in the funeral services field; and a majority-owned life assurance subsidiary in Gambia. Enterprise's end of 2017 market capitalization was $109.7 million, valuing it on a Price/Book ratio of 2.2x, with a return on average shareholders' equity of 24% and a return on average assets of 9%. The Fund's US Dollar 1, 3 and 5 year total returns for Enterprise were, respectively, 47%, 54%, and 269%.

2017 was a dramatic year for Enterprise, as it prepared for a growth surge within Ghana and West Africa. It reported respectable results: in Dollar terms, net written premiums rose 9% to $87 million while net profit leapt 45% to $11.9 million because of strong investment returns. The rate of increase in Enterprise's claims and expenses bear watching because they are climbing at a faster rate than premiums, warning of deteriorating underwriting discipline and cost control. Enterprise's float (investible funds owed to policyholders before receipt of claims), in Dollars, rose 27% from $81 million in 2016 to $103 million at the end of 2017. Admittedly, float of a life assurance company has less investment flexibility than the float of a property and casualty company. In the words of Warren Buffet, "Unlike bank deposits or life insurance policies containing surrender options, p/c float can't be withdrawn. This means p/c companies can't experience massive runs in times of widespread financial stress, a characteristic of prime importance to Berkshire that we factor into our investment decisions."(6) The drama lay in Enterprise's decision to terminate its 16 year-old joint venture with Sanlam of South Africa to commence a new partnership with Prudential Financial Inc. of the US and Leapfrog of South Africa. Enterprise believes that "technical as well as financial support" from its new partner will be "a key part of achieving its goal of becoming a USD 1 billion company over the next 5-10 years."(7) That is high ambition. To realize that goal, Enterprise proposes to expand into Ghanaian health care insurance and build its real estate portfolio. It also intends to enter the Nigerian and Ivorian markets. In the Fund's experience, Nigeria has been a fount of corporate humiliation for those of its investee companies which have ventured onto its shores. The spread between risk-free rates and inflation in Cote d'Ivoire is much tighter than in Ghana. Finally, Nigeria and Cote d'Ivoire already possess some formidable operators. Nevertheless, it is right to seek to become a regional force. That quest gives Enterprise, and its shareholders, several more options to continue its record of strong profitable growth for many more years.

The Fund has been exposed to the electric utility sector almost since inception. It made its first purchase of ordinary shares of Copperbelt Energy Corporation ("Copperbelt") in its initial public offering of December 2017. Except for a large disposal of Copperbelt shares in April 2009, as a consequence of AOF's shareholders decision to reduce the Fund, our strategy has been one of accumulating Copperbelt shares. With a December 31, 2017 market capitalization of $234 million, an enterprise value of $239 million, a 0.67x P/B ratio, a 5x P/E ratio, a 2.4x EV/EBITDA ratio, a dividend yield of 9%, a return on average assets of 13%, and a return on average equity of 15%, Copperbelt was an ignored orphan stock. It has the dubious distinction of suffering a decade-long drought of analyst coverage. We have yet to read our first sell-side analyst report about Copperbelt.

Analyst amnesia about Copperbelt was favorable for the Fund in 2017, as Copperbelt generated a total return of 80% and the Fund's second largest returns of 2017 of 4.9 cents. Since year-end, CDC Group PLC, the oldest development finance institution solely owned by the government of the United Kingdom, and Africa Infrastructure Fund 1 K/S, a recently established Danish fund focused on the energy and transportation sectors, have offered to acquire Copperbelt shares at a price of $0.238/share (including its March 2018 dividend). The Fund will accept this offer. By so doing, this investment would have generated an internal rate of return of 23%. The Fund's impending exit justifies some reflection about its experience in that investment. The Zambian kwacha had a value around ZMW3.85/$ in December 2007. It dropped to a low of ZMW14.25/$ in November 2015 and has recovered to a current level of ZMW 9.64/$. It's fair to describe the Kwacha as a yo-yo mimicking the volatile price behavior of copper, Zambia's principal export and revenue source of all of Copperbelt's customers. Offsetting mildly the Kwacha's sinking traits, Zambia was perceived as the 123rd most corrupt state in Transparency International's 2007 Corruption Perception Index. Its rank had risen to 96th most corrupt state in the 2017 survey, a far from desirable position. Yet, the simple fact of the matter was that Copperbelt was an oasis of dollar revenue and profit profitability in Zambia because it provided an essential service for Zambia to earn most of its export revenues. We

believed that Zambia's copper production would rise, as would that of the Democratic Republic of the Congo. We also believed that electricity tariffs were too low to finance new electricity generation and transmission capacity, therefore, tariffs were bound to rise over time. Copperbelt has accomplished most of what it set forth in its 2007 prospectus and its rights offering in 2015. It entered a new business activity-power trading, mainly in the Democratic Republic of Congo. To be sure, it has made errors in this decade as a listed company. Its foray into Nigeria has proved to be a source of sobering and gargantuan losses. Still, the overall results are impressive. Revenues and profits after tax rose, 195% and 562%, from $132 million and $7.3 million in 2007 to $389 million and $48.3 million in 2017. It has a five year record of steady Zambian EBITDA growth: $47 million (2013); $60 million (2014); $80 million (2015); $92 million (2016); and $102 million (2017). Free cash flow rose sixfold from $9.1 million in 2007 to $58.5 million (fourfold, after adjusting for the additional shares issued in 2015). Between 2013 and 2015, Copperbelt's share price fell by 66% to a low of 4.2 cents per share. 60% of the Fund's cumulative purchases of Copperbelt shares were made in the 2013-2015 period, as Copperbelt's share price seemed in endless fall. Our comfort derived from both the improving profit profile of the Zambian operations and those Zambian profits not serving as guarantee for the loss-making Nigerian investments. In the end, profits and returns on equity and capital overrode turbulent share price behavior to determine the long-term value of Copperbelt.

The Fund sold its shares of Lydec of Morocco in November, after a 2.5 year holding period. The internal rate of return for the Lydec investment was 20% and the holding period return was 58%. A subsidiary of Suez Environment of France, Lydec distributes electricity and water in, and treats the sewage of, Casablanca under a concession. Lydec's payout ratio rose beyond 90%, as its return on equity declined to 10% from 16% when the Fund invested in Q2 2015. Meanwhile, it traded on a P/B ratio above 2.5x, a P/E ratio of 27x, and a sub-4% dividend yield with pedestrian growth prospects. It was best to recycle our Lydec profits into faster growing opportunities. Kenya Power is the Fund's remaining utility investment.

An example of "faster growing opportunities" is represented by the Fund's Q4 investment in Naspers. We were attracted to Naspers by the market's complete discount of its profitable African assets, and Internet investments, other than Tencent of Hong Kong. The simplest way to understand Naspers is to divide it into three assets: a 31.12% equity interest in Tencent; other Internet investments; and its African video entertainment and media assets. By market capitalization, Naspers is the largest African domiciled company. It is the no. 1 operator of video and entertainment in sub-Saharan Africa. Outside Africa, it is one of the better global Internet venture capital funds. At the time of our investment in its ordinary shares, it had a market capitalization of $117 billion and an enterprise value of $118.8 billion. Its entire enterprise value was 77.4% of the value of its stake in Tencent alone, implying that its non-Tencent balance sheet destroyed 22.6% or $37 billion of its Tencent investment]. To put the scale of that perceived value destruction in perspective, it is comparable to the entire $41 billion market capitalization of the Nigerian stock exchange. It was a harsh judgment of Naspers's management, as well as its non-Tencent investment portfolio. Naspers valuation ratios (P/E and cash flow ratios) fall squarely outside the Fund's typical valuation criteria. Consequently, some explanation is warranted about the Fund's foray onto Naspers' share register. The Fund has invested twice in Naspers-first from Q1 2010 to Q4 2012 and second from Q1 2014 to Q1 2015. On both occasions, Naspers was valued at a discount to the sum of its parts. In both cases, the Fund elected to sell short Tencent shares corresponding to Naspers's equity interest Tencent while owning Naspers ordinary shares to accentuate the Fund's exposure to the Africa portfolio of Naspers. That strategy was profitable-delivering a handsome gross return on the Fund's net investment (the sum of long positions in Naspers minus short positions in Tencent). We elected in Q4 to dispense with shorting Tencent shares and to own only ordinary shares of Naspers. Clearly, we did not endorse the market's judgment about the non-Tencent assets.

There are a variety of possible reasons for the market's harsh verdict about Naspers' non-Tencent assets. The first possible reason could be that Naspers' investments are owned in a tax-inefficient manner, inflicting tax exactions on the flow of income or capital gains from investment to Naspers' shareholder. A second reason might be that the non-Tencent assets of Naspers earn less profits than the cost of capital of those assets. A third possible reason could be that demand for Naspers' shares are suppressed by exogenous factors like its 20%+ heavy weighting in the JSE Allshare index compelling several domestic South African investors to be underweight in Naspers to avoid concentration risk or foreign investors using Naspers as a proxy to express their fears or worries about South Africa in general via selling or buying shares of Naspers. The first reason does not seem to be a material factor because Naspers has been able to trade its assets without incurring large tax bills. There is more substance to the second reason. After all, since 2007, Naspers has invested about $8 billion in several Internet-related investments like the OLX Group in online classifieds, Delivery Hero in food delivery, Pay U in payment systems, and Makemytrip for Internet-based travel services. Despite the rising valuations of several of those Internet-related investments, evidenced by rising valuations in capital raising rounds and independent assessments of powerful customer support, several of Naspers' Internet investments are yet to become EBITDA positive, let alone profitable in an accounting sense. Nevertheless, it is hard to see how an $8 billion investment, even if it were 100% funded by debt, could lead to a loss in value exceeding $16 billion. That leaves Africa as another potential factor supporting the second reason. It is true that Naspers' Sub-Saharan Africa video and entertainment portfolio, outside South Africa, has suffered a great deal since 2014 as consumers in Nigeria and Angola, in particular, bore the brunt of deep declines in income levels matching the collapse of the crude oil price. It is worth remembering, though, that Naspers' Africa video and entertainment portfolio has remained profitable, in great part because its South African business remained exceedingly profitable. Multichoice South Africa Holdings, the entity housing Nasper's 80% interest in South African digital to house (or pay-tv) and digital terrestrial television operations, had a return on average equity of 83% in its 2017 financial year, a return on average equity of 54% for H1 2018 alone, a return on average assets of 26% for 2017, and a return on average assets of 13% for H1 2018 alone. Naspers received more than twice as much in dividends from Multichoice than from Tencent in 2016 and 2017-$730 million versus $324 million. To provide some perspective for Multichoice's exceptional profitability, Sky PLC in the UK generated twice as much profit for the year ended June 2017 as Multichoice from 5 times Multichoice's 2017 revenues, with a return on assets of 4% and return on equity of 19%. Sky PLC's market capitalization at the end of Q1 2018 was $31 billion versus Multichoice's $2.5 billion market capitalization implied by the over-the-counter trading of restricted shares among its black South African shareholders. Africa cannot be a contributing factor to the second reason. In fact, the second reason becomes all the less persuasive when one remembers that Naspers has holdings in listed Internet companies, like Mail.Ru, which are both liquid and substantial in value. Thus, by elimination, the Fund concluded that the third reason of exogenous factors constitutes the most likely cause for the huge discount at which Naspers trades to the sum of its parts.

To believe that Naspers' non-Tencent Internet and Africa holdings were grossly undervalued was insufficient to justify an investment in Tencent because all its current market valuation represents its investment in Tencent, a $496 billion internet and mobile value-added services and advertising colossus. Tencent had almost doubled in value in the last 12 months alone and traded at lofty valuations at the end of Q1 2018-a 43x P/E ratio, a P/B ratio of 12x with a return on equity of 33% and a return on assets of 15% and a 30% unlevered sustainable annual growth rate in profits. It is easy to imagine Tencent, or other Internet giants like AliBaba, Google, Facebook, Amazon at half their current valuations. Why, then, buy Tencent indirectly through Naspers?

An investment in Tencent is a holding in a producer of copious rising amounts of free cash flow. It is one of the largest global video mobile and personal computer game publishers; one of the two major Chinese mobile payment platforms; digital advertiser; subscription offeror for music, video, and movies; and e-commerce platform. Tencent is an amalgam of Facebook, Whatsapp, Youtube, Paypal, Playstation, Apple Music, and credit stations in one. It has a suite of low capital-intensive and high return activities, a management team focused on creating superb customer experiences, and an ever-spreading social network used by Chinese denizens for chatting, shopping, working, money transfers, and bill payments. The fecund source of its free cash flow, though, nestles in its gaming activities-gaming's gross profit margins hover around 60%, accounting for approximately 80% of Tencent's overall gross profits, an unusual - (or negative) 95 days cash conversion cycle, and two months of zero interest cash advances (classified as deferred revenue liabilities) from gamers and other parties. It is exceedingly tough to remain a perpetual top game publisher; only time will tell whether Tencent qualifies in that exclusive group. Tencent is also one of an emerging Chinese duopoly; the other member is Alibaba. Over the long-term, the annual return on an investment will rise (or decline) to the underlying return on invested capital of that investment. Consequently, so long as the Fund believes that Tencent remains an extremely profitable company with secure defenses to protect its free cash generating activities, the long-term return should approximate the long-term return on invested capital of Tencent. That return should be a handsome double digit return. Thus, the discount of Naspers' EV to its Tencent investment plus the ignored assets of Naspers provide a margin of safety when seeking indirect exposure to Tencent.

The Fund's financial liabilities (written options, equities sold short, contract for differences) generated losses of $1.2 million in 2017. Since 2009, the Fund has generated a cumulative gain of $2.9 million from its financial liabilities. Other loss-incurring years were 2009, 2012, and 2016.

Our review of 2017 would be incomplete without an update about the Shoprite arbitration. We expect our appeal of the arbitral award to be heard later in the year.

We end with a statement of our investing philosophy. The key elements of the investment strategy for the Fund are:

Material discounts to intrinsic value: The Fund invests primarily where and when an investment can be made at a material discount to the Manager's estimated intrinsic value.

Company preference: The Fund prefers companies which demonstrate both high real returns on assets and an earnings yield higher than the yield to maturity of local currency denominated government debt.

Industry focus rather than country focus: The Fund seeks to invest in industries it finds attractive with little regard to national borders.

National resource discounts: The Fund seeks natural resource companies whose market valuations reflect a discount to the spot and future world market prices for those natural resources.

"Turnaround" countries: The African continent is home to a large number of reforming or "turnaround" countries. "Turnaround" countries combine secular political reform with the opening of industries to private sector participation.

Balkanized investment landscape: The Fund seeks to invest in companies with low valuations in relation to peers across the continent and uses an arbitrage approach to provide attractive investment returns.

Point of entry: The Fund seeks the most favorable risk adjusted point of entry into a capital structure, whether through financing a new company or acquiring the debt or listed equity of an established company.

Africa offers several attractive investment opportunities, exemplified by the Fund's own portfolio of undervalued companies. We remain interested in industries which have products in short supply in Africa that rely more on domestic African demand than global growth. We are hunting in those terrains for compelling equity investments. We expect the outcome of our hunt to be a portfolio that delivers both capital growth and income into the future.

Francis Daniels

Africa Opportunity Partners

April 2018

Directors' Confirmation

The Directors listed on page 21, being the persons responsible within the Company, hereby confirm to the best of their knowledge:

-- 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 and the undertakings included in the consolidation taken as a whole; and

-- the Chairman's Statement and Investment Manager Report, and Condensed Notes to the Financial Statements include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEARED 31 DECEMBER 2017

 
                                 Notes           2017                    2016 
                                        ----------------------  --------------------- 
 
                                                  USD                    USD 
 Income 
 Net gains on investment 
  in subsidiaries at fair 
  value 
 through profit or loss          6(a)               14,070,922                      - 
                                                    14,070,922                      - 
                                        ----------------------  --------------------- 
 Expenses 
 Net losses on investment 
  in subsidiaries at fair 
  value 
 through profit or loss          6(a)                        -              2,968,932 
 Management fee                                      1,123,456              1,111,055 
 Custodian fees, brokerage 
  fees and commissions                                  39,400                 90,497 
 Other operating expenses                               61,190                158,860 
 Directors' fees                                       180,805                179,706 
 Audit fees                                             82,772                 81,589 
                                                     1,487,623              4,590,639 
                                        ----------------------  --------------------- 
 Total comprehensive income 
  for the year/(decrease) 
  in net assets attributable 
  to shareholders 
 from operations                                    12,583,299            (4,590,639) 
                                        ======================  ===================== 
 
 

STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

 
                                 Notes          2017                     2016 
                                        --------------------  ------------------------- 
 
                                                 USD 
 ASSETS 
 Cash and cash equivalents         8                  91,767                     12,604 
 Trade and other receivables       7                       -                     23,545 
 Investment in subsidiaries      6(a)             72,355,138                 58,284,216 
 Total assets                                     72,446,905                 58,320,365 
                                        --------------------  ------------------------- 
 
 EQUITY AND LIABILITIES 
 
 LIABILITIES 
 Trade and other payables         10               3,198,832                  1,655,591 
 Total liabilities                                 3,198,832                  1,655,591 
                                        --------------------  ------------------------- 
 
 Net assets attributable 
  to shareholders                                 69,248,073                 56,664,774 
                                        ====================  ========================= 
 
 Net assets attributable 
  to: 
  - Ordinary shares              9(b)                      -                 33,719,116 
  - Class C shares               9(b)                      -                 22,945,658 
                                                              ------------------------- 
 Net assets attributable 
  to shareholders                                          -                 56,664,774 
                                        ====================  ========================= 
 
 Ordinary share capital                              748,496                          - 
 Share premium                                    37,921,452                          - 
 Retained earnings                                30,578,125                          - 
 Total equity                                     69,248,073                          - 
                                        ====================  ========================= 
 
 Net assets value per 
  share: 
  - Ordinary shares              9(b)                  0.925                      0.791 
  - Class C shares               9(b)                      -                      0.786 
 

STATEMENT OF CHANGES IN NET ASSETS

FOR THE YEARED 31 DECEMBER 2017

 
                                                                                                                     Net assets 
                              Number                        Ordinary                      Class                     Attributable 
                                of                                                           C                            to 
                              units                          Shares                       Shares                    shareholders 
                 -------------------------------  ---------------------------  ---------------------------  ---------------------------- 
 
                               USD                            USD                          USD                           USD 
 
 At 1 January 
  2016                             71,830,327                   37,287,967                   23,967,446                    61,255,413 
 
 OPERATIONS: 
 Decrease in 
 net 
 assets 
 attributable 
 to 
 shareholders 
  from 
  operations                                   -                  (3,568,851)                  (1,021,788)                 (4,590,639) 
                 -------------------------------  ---------------------------  ---------------------------  ---------------------------- 
 
 At 31 December 
  2016                                71,830,327                   33,719,116                   22,945,658                    56,664,774 
                 ===============================  ===========================  ===========================  ============================ 
 
 At 1 January 
  2017                                71,830,327                   33,719,116                   22,945,658                 56,664,774 
 
 OPERATIONS: 
 Increase in 
 net 
 assets 
 attributable 
 to 
 shareholders 
  from 
  operations                                   -                   11,419,202                    3,372,697                 14,791,899 
 
 Conversion of 
 Class 
 C Shares 
 into Ordinary 
  Shares                               3,019,279                   26,318,355                 (26,318,355)                             - 
 
 At 22 August 
 2017 
 - transfer to 
 Statement of 
  changes 
  in equity                         (74,849,606)                 (71,456,673)                            -               (71,456,673) 
                 -------------------------------  ---------------------------  ---------------------------  ---------------------------- 
 
 At 31 December                                -                            -                            -                             - 
  2017 
                 ===============================  ===========================  ===========================  ============================ 
 
 

STATEMENT OF CHANGES IN EQUITY

FOR THE YEARED 31 DECEMBER 2017

 
                            Share                      Share                   Retained 
                           Capital                    Premium                  Earnings                Total 
                  ------------------------  --------------------------  ---------------------  --------------------- 
 
                             USD                        USD                      USD                    USD 
 
 At 1 January                            -                           -                      -                      - 
 2017 
 
 At 22 August 
 2017 
 - transfer 
 from 
 Statement of 
  changes 
  in net assets                    748,496                  37,921,452             32,786,725          71,456,673 
 
 OPERATIONS: 
 Loss for the 
  period                                 -                           -            (2,208,600)          (2,208,600) 
                  ------------------------  --------------------------  ---------------------  --------------------- 
 
 At 31 December 
  2017                             748,496                  37,921,452             30,578,125             69,248,073 
                  ========================  ==========================  =====================  ===================== 
 
 

STATEMENT OF CASH FLOWS

FOR THE YEARED 31 DECEMBER 2017

 
                                         Notes              2017                          2016 
                                                ---------------------------  ----------------------------- 
 
                                                            USD                           USD 
 Operating activities 
 Total comprehensive income 
  for the year/decrease in 
  net 
 assets attributable to shareholders 
  from operations                                                12,583,299                    (4,590,639) 
 
 Adjustment for non-cash 
  items: 
 
 Unrealised (gain)/loss on 
  investment in subsidiaries 
  at 
 fair value through profit 
  or loss                                                      (14,070,922)                      2,968,932 
                                                ---------------------------  ----------------------------- 
 
 Cash used in operating activities                              (1,487,623)                    (1,621,707) 
                                                ---------------------------  ----------------------------- 
 
 Net changes in operating 
  assets and liabilities 
 Net proceeds from investment 
  in subsidiaries                        6(a)                     3,048,160                              - 
 Decrease in trade and other 
  receivables                                                        23,545                        416,553 
 (Decrease)/increase in trade 
  and other payables                                              1,543,241                      1,215,465 
                                                ---------------------------  ----------------------------- 
 
 Net cash generated from 
  operating activities                                            1,566,786                      1,632,018 
                                                ---------------------------  ----------------------------- 
 
 Net increase in cash and 
  cash equivalents                                                   79,163                         10,311 
 
 Cash and cash equivalents 
  at start of the year                                               12,604                          2,293 
                                                ---------------------------  ----------------------------- 
 
 Cash and cash equivalents 
  at end of the year                                                 91,767                         12,604 
                                                ===========================  ============================= 
 
 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEARED 31 DECEMBER 2017

   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 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 Limited, a limited liability company incorporated in the Cayman Islands and acting as the investment manager pursuant to an Amended and Restated Investment Management Agreement dated 12 February 2014.

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 year ended 31 December 2017 were authorised for issue in accordance with a resolution of the Board of Directors on 30 April 2018.

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

In the prior and current year, 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 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 judgement 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.

The Company presents its statement of financial position in order of liquidity. An analysis regarding recovery within 12 months (current) and more than 12 months after the reporting date (non-current) is presented in Note 14.

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

   (i)      Classification 

The Company classifies its financial assets and liabilities in accordance with IAS 39 into the following categories:

   (a)   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 at the Africa Opportunity Fund LP (the "Master Fund") level.

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

These include equity securities and debt instruments that are not held for trading at the Master Fund level.. These financial assets are designated 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. . For the Company, financial assets designated 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.

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 Maser 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 Company 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.

Contracts for difference

Contracts for difference are derivatives that obligate either the buyer or the seller to pay to the other the difference between the asset's current price and its price at the time of the contract's usage. Unrealized gains or losses are recorded at the end of each time period that passes without the CFDs being used. Once the CFDs are used, the difference between the opening position and the closing position is recorded as either revenue or a loss depending on whether the business was the buyer or the seller.

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

   (b)   Loans and receivables 

Loans and receivables are non-derivatives financial assets with fixed or determinable payments that are not quoted in an active market. The Company's loans and receivables comprise 'trade and other receivables' and 'cash and cash equivalents' in the statement of financial position.

   (c)    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.

   (ii)     Recognition 

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

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

(iii) 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.

Loans and receivables 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.

(iv) Subsequent measurement

After initial 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 and dividend revenue elements of such instruments are recorded separately in 'Interest revenue' and 'Dividend revenue', respectively. Dividend expenses related to short positions are recognised in 'Dividends on securities sold not yet purchased'.

Loans and receivables are carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

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.

   (v)   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, and 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 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 assesses at each reporting date whether a financial asset or group of financial assets classified as loans and receivables is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is an objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred 'loss event') and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtor, or a group of debtors, is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and, where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred) discounted using the asset's original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss as 'Credit loss expense'.

Impaired debts, together with the associated allowance, are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company.

Interest revenue on impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

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 dividend income 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.

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 loans and receivables for recognition and measurement.

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.

During the year, the Ordinary Shares and Class C Shares were merged into one single class of share and classified as equity.

Distributions to shareholders whose shares are classified as financial liabilities.

Distributions to shareholders are recognised in the statement of comprehensive income as finance costs.

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 and expense

Dividend revenue is recognised when the Company'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. 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 accounting policies adopted are consistent with those of the previous financial year except for the following new and amended IFRS and IFRIC interpretations adopted in the year commencing 1 January 2017.

The following new standards and amendments became effective as of 1 January 2017:

-- Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative

-- Annual Improvements Cycle - 2014-2016: Amendments to IFRS 12 Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in IFRS 12

Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative

The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses).

Annual Improvements Cycle - 2014-2016

Amendments to IFRS 12 Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in IFRS 12

The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10-B16, apply to an entity's interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale.

The above amendments did not have a significant impact on the financial statements of the Company.

Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of deductible temporary difference related to unrealised losses. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

The amendment did not impact on the financial statements as the Company does not have any income and deferred taxes.

   3.1     ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE 

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company's financial statements are disclosed below. They are mandatory for accounting periods beginning on the specified dates, but the Company has not early adopted them:

New or revised standards and interpretations:

 
                                                         Effective 
                                                    for accounting 
   New or revised standards                       period beginning 
                                                       on or after 
 
 IFRS 9 Financial Instruments                            1 January 
                                                              2018 
 Sale or contribution of assets between                  Effective 
  an investor and its associate or joint             date deferred 
  venture (Amendments to IFRS 10 and IAS              indefinitely 
  28) 
 IFRS 15 Revenue from Contracts with                     1 January 
  Customers                                                   2018 
 Classification and measurement of Share-Based           1 January 
  Payment Transactions (Amendments to                         2018 
  IFRS 2) 
 Transfers of Investment Property-Amendments             1 January 
  to IAS 40                                                   2018 
 IFRS 16 Leases                                          1 January 
                                                              2019 
 IFRS 17 Insurance Contracts                             1 January 
                                                              2021 
 
 
   Annual improvements 2014-2016 cycle 
   (Issued in December 2016) 
 IFRS 1 First-time Adoption of International             1 January 
  Financial Reporting Standards -Deletion                     2018 
  of short-term exemptions for first-time 
  adopters 
 IAS 28 Investments in Associates and                    1 January 
  Joint Ventures - Clarification that                         2018 
  measuring investees at fair value through 
  profit or loss is an investment - by 
  - investment choice 
 Applying IFRS 9 Financial Instruments                   1 January 
  with IFRS 4 Insurance Contracts - Amendments                2018 
  to IFRS 4 
 IFRIC Interpretation 22 Foreign Currency                1 January 
  Transactions and Advance Consideration                      2018 
 IFRIC Interpretation 23 Uncertainty                     1 January 
  over Income Tax Treatment                                   2018 
 
 

IFRS 9 Financial Instruments - Classification and measurement of nancial assets, Accounting for nancial liabilities and derecognition - 1 January 2018

IFRS 9 introduces new requirements for classifying and measuring nancial assets, as follows:

Classification and measurement of nancial assets

All financial assets are measured at fair value on initial recognition, adjusted for transaction costs if the instrument is not accounted for at fair value through pro t or loss (FVTPL). Debt instruments are subsequently measured at FVTPL, amortised cost or fair value through other comprehensive income (FVOCI), on the basis of their contractual cash ows and the business model under which the debt instruments are held. There is a fair value option (FVO) that allows nancial assets on initial recognition to be designated as FVTPL if that eliminates or signi cantly reduces an accounting mismatch. Equity instruments are generally measured at FVTPL. However, entities have an irrevocable option on an instrument-by-instrument basis to present changes in the fair value of non-trading instruments in other comprehensive income (OCI) (without subsequent reclassi cation to pro t or loss).

The Company plans to adopt the new standard on its effective date. No significant impact is expected on the classification of financial assets given that the investment in subsidiaries will continue to be measured at fair value through profit or loss. At the level of the Master Fund, quoted equity shares and debt securities will continue to be measured at fair value through profit or loss. This preliminary assessment is based on currently available information and may be subject to changes arising from further information being available to the Company when it adopts the standard next year.

Classi cation and measurement of nancial liabilities

For nancial liabilities designated as FVTPL using the FVO, the amount of change in the fair value of such nancial liabilities that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in pro t or loss, unless presentation of the fair value change in respect of the liability's credit risk in OCI would create or enlarge an accounting mismatch in pro t or loss. All other IAS 39 Financial Instruments: Recognition and Measurement classi cation and measurement requirements for nancial liabilities have been carried forward into IFRS 9, including the embedded derivative separation rules and the criteria for using the FVO.

No significant impact is expected on this side due to the insignificance of the Company's financial liabilities. At the Master Fund's level, financial liabilities will continue to be measured at fair value through profit or loss.

Impairment

The impairment requirements are based on an expected credit loss (ECL) model that replaces the IAS 39 incurred loss model. The ECL model applies to: debt instruments accounted for at amortised cost or at FVOCI; most loan commitments; nancial guarantee contracts; contract assets under IFRS 15; and lease receivables under IAS 17 Leases, Entities are generally required to recognise either 12-months' or lifetime ECL, depending on whether there has been a signi cant increase in credit risk since initial recognition (or when the commitment or guarantee was entered into). For some trade receivables, the simpli ed approach may be applied whereby the lifetime expected credit losses are always recognised.

This is not expected to have a significant impact on the Company and at the Master Fund level given the investments will be measured at fair value through profit or loss.

Hedge accounting

Hedge effectiveness testing is prospective, without the 80% to 125% bright line test in IAS 39, and, depending on the hedge complexity, can be qualitative. A risk component of a nancial or non- nancial instrument may be designated as the hedged item if the risk component is separately identi able and reliably measureable. The time value of an option, any forward element of a forward contract and any foreign currency basis spread, can be excluded from the designation as the hedging instrument and accounted for as costs of hedging. More designations of groups of items as the hedged item are possible, including layer designations and some net positions.

The application of IFRS 9 may change the measurement and presentation of many financial instruments, depending on their contractual cash ows and business model under which they are held. The impairment requirements will generally result in earlier recognition of credit losses. The new hedging model may lead to more economic hedging strategies meeting the requirements for hedge accounting.

No impact is expected on the Company as it does not deal in derivatives. At the Master Fund level, the derivatives have quoted market prices and no significant impact is anticipated.

IFRS 15 Revenue from Contracts with Customers - effective 1 January 2018

IFRS 15 provides a single, principles based ve-step model to be applied to all contracts with customers.

The five steps in the model are as follows:

-Identify the contract with the customer;

-Identify the performance obligations in the contract;

- Determine the transaction price;

-Allocate the transaction price to the performance obligations in the contracts; and

- Recognise revenue when (or as) the entity satisfies a performance obligation.

Guidance is provided on topics such as the point in which revenue is recognised, accounting for variable consideration, costs of ful lling and obtaining a contract and various related matters. New disclosures about revenue are also introduced.

The directors do not expect the standard to have a significant impact on the Company all income will be recognised under IFRS 9. The Company intends to adopt the new standard on its effective date.

IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration - effective 1 January 2018

The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis.

Alternatively, an entity may apply the Interpretation prospectively to all assets, expenses and income in its scope that are initially recognised on or after:

(i) The beginning of the reporting period in which the entity first applies the interpretation

Or

(ii) The beginning of a prior reporting period presented as comparative information in the financial statements

of the reporting period in which the entity first applies the interpretation.

The Interpretation is effective for annual periods beginning on or after 1 January 2018. Early application of the interpretation is permitted and must be disclosed. The interpretation is not expected to have a significant impact on the Company's 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

The Company does not have a fixed life but, as stated in the Company's admission document published in 2007, the Directors consider it desirable that Shareholders should have the opportunity to review the future of the Company at appropriate intervals. Accordingly, Shareholders passed an ordinary resolution at an extraordinary general meeting of the Company on 28 February 2014 that the Company continue in existence.

In 2019, the Directors will convene another general meeting where an ordinary resolution will be proposed that the Company will continue in existence. If the resolution is not passed, the Directors will be required to formulate proposals to be put to Shareholders to reorganise, reconstruct or wind up the Company. If the resolution is passed, the Company will continue its operations and a similar resolution will be put to Shareholders every five years thereafter.

At the same time as the continuation vote in 2019, the Company will provide Shareholders with, without first requiring a Shareholder vote to implement this policy, an opportunity to realise all or part of their shareholding in the Company for a net realised pro rata share of the Company's investment portfolio.

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 or cease trading. The directors 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 going concern basis, 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 would be necessary as a result of management deeming it necessary to liquidate the Company in the foreseeable future subsequent to disposal of all its assets, as a result of the 2019 vote.

Management is of the belief that the likelihood of the continuation of the fund is more probable than not, and that any required liquidation would result in a realisation of investments over a period of time, as possible, to maximize investor returns. It is therefore unlikely that the Company would not continue in existence beyond 2019, regardless of the outcome of the Shareholder vote.

If liquidation were required, 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. Carried interest is considered as a share of profit realised on disposal of investments by the Company and has therefore not been accrued as it will only be recognised upon the exit of investments after shareholders have received distribution of entire capital and preferred return.

It should be noted that due to events after finalisation of the financial statements, the final amounts to be received could vary from the amount shown in the statement of financial position due to circumstances which arise subsequent to preparation of the financial statement and these variations could be material

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 IAS 39. 

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. 

As from the previous year, the Board concluded that the Company meets the definition of an investment entity as all investments have been measured on a fair value basis. IFRS 10 allows the application of this change to be made prospectively in the period in which the definition is met. 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 IAS 39 Financial Instruments: Recognition and Measurement.

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.

   5.      AGREEMENTS 

Investment Management Agreement

Following the Admission of Ordinary Shares and C Shares to the Specialist Fund Market (SFM) of the London Stock Exchange on 17 April 2014, the Company entered into an Amended and Restated Investment Management Agreement with Africa Opportunity Partners (the "Investment Manager"), an investment management company incorporated in the Cayman Islands, to manage the operations of the Company subject to the overall supervision of the Company's board as specified in the SFS Admission document of the Company. Under the Amended and Restated Investment Management Agreement, the Investment Manager receives, a management fee equal to the aggregate of: (i) two per cent of the Net Asset Value per annum up to US$50 million; and (ii) one per cent of the Net Asset Value per annum in excess of US$50 million, payable in US$ quarterly in advance.

In addition, the principals (directors) of the Investment Manager are beneficially interested in CarryCo, which under the terms of the Amended and Restated Limited Partnership Agreement, is entitled to share an aggregate annual carried interest (the "Performance Allocation") from the Limited Partnership equivalent to 20 per cent of the excess of the Net Asset Value (as at 31 December in each year) over the sum of (i) the annual management fee for that year end (ii) a non-compounding annual hurdle amount equal to the Net Asset Value as at 31 December in the previous year, as increased by 5 per cent. The Performance Allocation is subject to a "high watermark" requirement. Subsequent to the merger of the ordinary shares and the C shares, the high watermark is calculated as the aggregate of the Net Asset Value of the pre-merger ordinary share high watermark plus the proceeds of the C class share placing before expenses. The Performance Allocation accrues monthly and is calculated as at 31 December in each year and is allocated following the publication of the NAV for such date. The management fee for the financial year under review amounts to USD 1,123,456 (2016: USD 1,111,055) and the performance fees for the financial year under review was nil (2016: nil).

Administrative Agreement

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

Custodian Agreement

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

Prime Brokerage Agreement

Under the Prime Brokerage Agreement, the Master Fund appointed Credit Suisse Securities (USA) LLC as its prime broker for the purpose of carrying out the Master Fund's instructions with respect to the purchase, sale and settlement of securities. Custodian fees are expensed at the Master Fund level and have been included in the NAV of the subsidiary.

Under the Broker Agreement revised during 2016, the Master Fund appointed Liberum, a company incorporated in England to act as Broker to the Company. The broker fee is payable in advance at six month intervals. The broker fees are expensed at the Master Fund level and have been included in the NAV of the subsidiary.

During the year, the ordinary shares and Class C shares were merged into one single class of shares and reclassified from financial liability to equity.

For the year ended 31 December 2016, the Ordinary and C Class shares were quoted on the SFS of the London Stock Exchange ("LSE") at the quoted price as determined by the participants on the LSE. In a liquidation scenario or if investors elected to initiate their opportunity to realise all or part of the shareholding at the time of the continuation vote in 2019, the proceeds to the shareholders would have determined by the net realisation of the net asset value.

Directors concluded that the most appropriate estimate of fair value of both classes of shares was their net asset value per share, without adjustment, at the reporting date. This price was calculated by taking the total equity and dividing by the number of shares in issue. The Net Assets Value is published on a monthly basis. Therefore, the fair value of the Net assets attributable to shareholders was classified as level 2 as the NAV was an input that was observable.

   6.      FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 
   6(a).     Investment in subsidiaries at fair value 
 
                                                     2017                             2016 
                                     -----------------------------------  ---------------------------- 
                                                     USD                               USD 
 
 Investment in Africa Opportunity 
  Fund L.P.                                                   69,303,993                    58,138,812 
 Investment in Africa Opportunity 
  Fund (GP) Limited                                                2,985                       145,404 
                                     -----------------------------------  ---------------------------- 
 
 Total investment in subsidiaries 
  at fair value                                               69,306,978                    58,284,216 
                                     ===================================  ============================ 
 
 Fair value at 01 January                                     58,284,216                    61,253,148 
 Net disposal of investment                                  (3,048,160)                             - 
  in subsidiaries 
 Net gain/(loss) on investment 
  in subsidiaries at fair value                               14,070,922                   (2,968,932) 
                                     -----------------------------------  ---------------------------- 
 
 Fair value at 31 December                                    72,355,138                    58,284,216 
                                     ===================================  ============================ 
 
 
   6(a).            Investment in subsidiaries at fair value 

The Company has established Africa Opportunity Fund L.P., an exempted limited partnership in the Cayman Islands to ensure that the investments made and returns generated on the realisation of the investments made and returns generated on the realisation of the investments are both effected in the most tax efficient manner. All investments made by the Company are made through the limited partner which acts as the master fund. At 31 December 2017, the limited partners of the limited partnership are the Company (99.45%) and AOF CarryCo Limited (0.55%). The general partner of the limited partnership is Africa Opportunity Fund (GP) Limited. Africa Opportunity Fund Limited holds 100% of Africa Opportunity Fund (GP) Limited.

   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.

Investment in subsidiaries at fair value through profit or loss:

 
                         31 December 
                            2017                      Level                       Level                    Level 
                                                         1                           2                       3 
                  ------------------------  -------------------------  ---------------------------  ------------------ 
 COMPANY                     USD                       USD                         USD                      USD 
 
 Investment in 
  subsidiaries                  72,355,138                          -                   72,355,138                   - 
                  ========================  =========================  ===========================  ================== 
 
 MASTER FUND 
 
 Financial assets at fair 
  value through profit or 
  loss 
 
 Equities                       64,304,803                 62,117,000                    1,686,553             501,250 
 Debt securities                 4,858,416                  4,508,416                            -             350,000 
                  ------------------------  -------------------------  ---------------------------  ------------------ 
 
                                69,163,219                 66,625,416                    1,686,553             851,250 
                  ========================  =========================  ===========================  ================== 
 
   Financial liabilities 
   at fair value through 
   profit or loss 
 
 Shortsellings                   2,609,523                  2,609,523                            -                   - 
 Written put 
  options                          101,625                    101,625                            -                   - 
 Contract for 
  Difference                       363,669                          -                      363,669                   - 
                  ------------------------  -------------------------  ---------------------------  ------------------ 
 
                                 3,074,817                  2,711,148                      363,669                   - 
                  ========================  =========================  ===========================  ================== 
 
 
 
                         31 December 
                             2016                      Level                       Level                    Level 
                                                          1                           2                       3 
                  -------------------------  -------------------------  ---------------------------  ------------------ 
 COMPANY                     USD                        USD                         USD                      USD 
 
 Investment in 
  subsidiaries                   58,284,216                          -                   58,284,216                   - 
                  =========================  =========================  ===========================  ================== 
 
 MASTER FUND 
 
 Financial assets at fair 
  value through profit or 
  loss 
 
 Equities                        43,893,055                 41,091,429                    1,950,376             851,250 
 Debt securities                 16,715,885                 16,465,885                            -             250,000 
 Contract for 
  Difference                        113,459                          -                      113,459                   - 
                  -------------------------  -------------------------  ---------------------------  ------------------ 
 
                                 60,722,399                 57,557,314                    2,063,835           1,101,250 
                  =========================  =========================  ===========================  ================== 
 
   Financial liabilities 
   at fair value through 
   profit or loss 
 
 Shortsellings                    4,518,185                  4,518,185                            -                   - 
 Written put 
  options                           415,250                    415,250                            -                   - 
 Contract for 
  Difference                         30,672                          -                       30,672                   - 
                  -------------------------  -------------------------  ---------------------------  ------------------ 
 
                                  4,964,107                  4,933,435                       30,672                   - 
                  =========================  =========================  ===========================  ================== 
 
 

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 98% in quoted funds, the Company classifies these investment in subsidiaries as Level 2.

The valuation techniques of the investments at master fund level are as follows:

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

Contract for difference (CFD)

The prices for CFD are calculated based on average prices from various quotes received from brokers.

Unlisted debt and equity investments

In 2014, Triton Resources Inc. underwent a reorganisation that resulted in the Company owning one million Triton Class A preferred shares valued at USD1.00 each and a promissory note in the amount of US$250,000. In 2014 a significant portion of the balance sheet related to Goodwill as a result of the acquisition/reorganisation event. The Company subscribed for another promissory note in the amount of US$100,000 in 2016.

Triton concluded a binding agreement in 2016 to sell its African underwater logging harvesting assets and its Volta Lake concession in Ghana. To date, the purchaser has not completed obligatory payments and as such ownership of the harvesting assets has not changed. These assets will be operational in 2018 and Triton will be the lessor of these assets until outstanding payments are made. Negotiations concluded in 2017 for the delivery of logs to a biomass power plant in French Guiana from 2020, subject to completion of the permitting process. Negotiations for the harvesting of underwater logs in Surinam, ongoing in 2017, were completed in early 2018. Negotiations with a lead investor who executed a letter of intent for the sale of Triton itself have been suspended as the investor failed to raise the necessary funds. Efforts to sell Triton are ongoing in 2018.

The Investment Manager, based on its own sensitivity analysis, and in conjunction with its analysis of the operational challenges and opportunities for Triton, determined that an additional reduction of the preference shares valuation by $350,000 was warranted. Consistent with the prior year, the Investment Manager has determined these investments to be classified as Level 3 assets for valuation purposes. Additional material factors considered in determining this reserve were the existing pattern in the receipt of payments from the purchasers, the prior receipt of non-refundable amounts from the purchasers and the current state of negotiations.

African Leadership University ("ALU") is a network of tertiary institutions, currently with operations in both Mauritius and Rwanda. In 2017 ALU added an undergraduate campus in Rwanda, adding to the undergraduate campus located in Mauritius and the ALU School of Business based in Rwanda. During 2017 student enrollment increased from 340 to 780 students.

The Investment Manager continues to value ALU on the basis of the post-money valuation of ALU upon completion of ALU's April 2016 funding. This valuation, in addition to analysis of the Investment Manager, continues to be the best estimate of ALU fair value, as supported by its operational progress and confirmed by post year-end terms of its 2018 financing round accepted in the capital markets.

 
                                              2017               2016 
                                      -------------------  ---------------- 
 
                                              USD                 USD 
 
 Investment in Triton                             851,250         1,201,250 
                                      ===================  ================ 
 
 Financial assets at fair value               2017               2016 
  through profit or loss 
                                      -------------------  ---------------- 
 
                                              USD                 USD 
 
 Investment in Triton: 
 At 1 January                                   1,201,250         1,251,250 
 Additions                                              -           100,000 
 Total loss in profit or loss                   (350,000)         (150,000) 
                                      -------------------  ---------------- 
 
 At 31 December                                   851,250         1,201,250 
                                      ===================  ================ 
 
 Total loss included in the profit 
  or loss of Africa Opportunity 
  Fund L.P. 
  for asset held at the end of 
   the reporting period                         (350,000)         (150,000) 
                                      ===================  ================ 
 
 

Investment in Shoprite Holdings (SHP ZL)

On 22 August 2017, as a condition precedent to the merger of the C shares and the ordinary shares, the 637,528 ordinary shares of Shoprite Holdings (SHP ZL "Shoprite") affected by the terms of the Shoprite arbitral award, plus estimates of associated legal costs, were excluded from the assets of Africa Opportunity Fund, and securities called Contingent Value Rights ("CVR"s) were issued to the ordinary shareholders of record. As such, the outcome of the Shoprite arbitration is separate and independent of the net asset value of the ordinary shares of Africa Opportunity Fund. Consequently, neither the C shareholders nor the ordinary shareholders are affected by the outcome of the Shoprite arbitration and any appeals. The contingent value rights holders will be responsible for the losses or benefits associated with the Shoprite arbitration appeal, which is expected to be held later in 2018. The full terms and conditions attaching to the CVRs are contained in the instrument by which they are constituted that can be inspected at the Fund's website.

   6(c).     Statement of Comprehensive Income of the Master Fund for the year ended 31 December 2017 

The net gain on financial assets at fair value through profit or loss amounting to USD 14,070,922 is due to the gain arising at the master fund level and can be analysed as follows:

 
 Africa Opportunity Fund 
  LP 
 Statement of Comprehensive 
  Income 
 For the year ended 31 December 
  2017 
                                                  2017                      2016 
                                      ---------------------------  ---------------------- 
 
                                                  USD                        USD 
 Income 
 Interest revenue                                        748,899                1,232,894 
 Dividend revenue                                     2,321,955                 1,251,816 
 Other income                                             41,300                   18,310 
 Net gains on financial assets 
  and liabilities at fair 
  value 
 through profit or loss                              14,353,955                         - 
 Net foreign exchange gain                                      -                 237,604 
                                      ---------------------------  ---------------------- 
 
                                                       17,466,109               2,740,624 
                                      ---------------------------  ---------------------- 
 Expenses 
 Net losses on financial 
  assets and liabilities at 
  fair value 
 through profit or loss                                         -               4,829,304 
 Net foreign exchange loss                            1,358,525                         - 
 Custodian fees, Brokerage 
  fees and commission                                    694,150                  507,723 
 Dividend expense on securities 
  sold not yet purchased                                  57,811                  147,356 
 Other operating expenses                                870,748                  178,385 
 Directors' fees                                                -                     907 
 Audit fees                                              103,351                   23,381 
                                      ---------------------------  ---------------------- 
 
                                                        3,084,585               5,687,056 
                                      ---------------------------  ---------------------- 
 
 Operating income/(loss) 
  before tax                                           14,381,524             (2,946,432) 
 
 Less withholding tax                                  (218,327)                 (42,526) 
                                      ---------------------------  ---------------------- 
 
 Increase/(decrease) in net assets attributable 
  to shareholder from 
 operations/Total Comprehensive 
  Income for the year                                  14,163,197             (2,988,958) 
                                      ===========================  ====================== 
 
 Attributable to: 
 AOF Limited (direct interests)                        14,070,201             (2,961,759) 
 AOF Limited ( indirect interests 
  through AOF (GP) Ltd)                                       721                 (7,173) 
                                                       14,070,922             (2,968,932) 
 AOF CarryCo Limited (minority 
  interests)                                               92,275                (20,026) 
                                                       14,163,197             (2,988,958) 
                                      ===========================  ====================== 
 
 

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

 
                                                     2017                2016 
                                            ---------------------  ---------------- 
 
                                                     USD                  USD 
 
 Net gains on fair value of financial 
  assets at fair value through profit 
  or loss                                              12,741,809       (3,900,496) 
 Net gains on fair value of financial 
  liabilities at fair value through 
  profit or loss                                        1,612,146         (928,808) 
                                            ---------------------  ---------------- 
 
 Net gains (loses)                                     14,353,955       (4,829,304) 
                                            =====================  ================ 
 
 

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

 
 
                                                                   USD                          USD 
 Held for trading assets: 
 At 1 January                                                              60,722,399             60,819,532 
 Additions                                                                 16,954,002             10,772,699 
 Disposal                                                                (21,254,991)            (6,969,336) 
 Net gains on financial assets at fair value 
  through profit or loss                                                   12,741,809            (3,900,496) 
                                                    ---------------------------------  --------------------- 
 
 At 31 December (at fair value)                                            69,163,219             60,722,399 
                                                    =================================  ===================== 
 
 Analysed as follows: 
  - Listed equity securities                                               62,103,817             41,355,252 
  - Listed debt securities                                                  4,508,416             16,365,885 
  - Unlisted equity securities                                              2,200,986              2,537,803 
  - Unlisted debt securities                                                  350,000                350,000 
  - Contract for difference                                                         -                113,459 
                                                    ---------------------------------  --------------------- 
 
                                                                           69,163,219             60,722,399 
                                                    =================================  ===================== 
 
 
   (iii)    Net changes on fair value of financial assets at fair value through profit or loss 
 
 
                            2017                2016 
                   ---------------------  --------------- 
 
                            USD                 USD 
 
 Realised                    (1,209,423)      (4,496,993) 
 Unrealised                   13,951,232          596,497 
                   ---------------------  --------------- 
 
 Total gains                  12,741,809      (3,900,496) 
                   =====================  =============== 
 
 

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

 
                                                                           2017                 2016 
                                                                  ----------------------  ---------------- 
                                                                            USD                  USD 
 Held for trading financial liabilities 
 Contract for difference                                                         363,669            30,672 
 Written put options                                                             101,625           415,250 
 Listed equity securities sold short                                           2,609,523         4,518,185 
                                                                  ----------------------  ---------------- 
 Financial liabilities at fair value through profit or loss                    3,074,817         4,964,107 
                                                                  ======================  ================ 
 
 
   (v)     Net changes on fair value of financial liabilities at fair value through profit or loss 
 
 
                           2017                2016 
                  ---------------------  ---------------- 
 
                           USD                  USD 
 
 Realised                     3,151,910         2,895,865 
 Unrealised                 (1,539,764)       (3,824,673) 
                  ---------------------  ---------------- 
 
                              1,612,146         (928,808) 
                  =====================  ================ 
 
 
   7.       OTHER RECEIVABLES 
 
                                 2017                        2016 
                     ----------------------------   ---------------------- 
 
                                  USD                         USD 
 
 Other receivable                                 -                  18,032 
 Prepayments                                      -                   5,513 
                      -----------------------------  ---------------------- 
 
                              -                                     23,545 
  =============================                     ====================== 
 
 
   8.      CASH AND CASH EQUIVALENTS 
 
                                 2017                   2016 
                         --------------------  ---------------------- 
 
                                  USD                    USD 
 
 
 Other bank accounts                   91,767                  12,604 
                         ====================  ====================== 
 
 

9(a). ORDINARY SHARE CAPITAL

Company

 
                           2017                  2017                 2016                  2016 
                  ---------------------  -------------------  -------------------  --------------------- 
 
                          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 
                  =====================  ===================  ===================  ===================== 
 
 

The directors have the general authority to repurchase the ordinary shares in issue subject to the Company having funds lawfully available for the purpose. However, if the market price of the ordinary shares falls below the Net Asset Value, the directors will consult with the Investment Manager as to whether it is appropriate to instigate a repurchase of the ordinary shares.

9(b). NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS

 
                                      Ordinary                   Class 
                                                                   C 
                                       Shares                   Shares                     Total 
                              -----------------------  ------------------------  ------------------------ 
 
                                        USD                       USD                       USD 
 
 At 1 January 2017                         33,719,116                22,945,658                56,664,774 
 
 Changes during the 
  period: 
 
 Gain for the period from 
  1 January 2017                           11,419,202                 3,372,697                14,791,899 
 through 22 August 
  2017 
 
 Conversion of Class 
  C Shares into 
 Ordinary Shares on 
  22 August 2017                           26,318,355              (26,318,355)                         - 
 
 Loss for the period from 
  23 August 2017 
 through 31 December 
  2017                                    (2,208,600)                         -               (2,208,600) 
                              -----------------------  ------------------------  ------------------------ 
 
 At 31 December 2017                       69,248,073                         -                69,248,073 
                              =======================  ========================  ======================== 
 
 Net asset value per share                      0.925                         - 
  at 31 December 2017 
                              =======================  ======================== 
 
 Net asset value per share 
  at 31 December 2016                           0.791                     0.786 
                              =======================  ======================== 
 
 

Ordinary and C share Merger, Issuance of Contingent Value Rights

In 2014, AOF closed a Placing of 29.2 million C shares of US$0.10 each, at a placing price of US$1.00 per C share, raising a total of $29.2 million before the expenses of the Issue. The placing was closed on 11 April 2014 with the shares commencing trading on 17 April 2014. AOF's Ordinary Shares and the C Shares from the April placing were admitted to trading on the LSE's Specialist Fund Segment ("SFS") effective 17 April 2014.

The C Shares were a transient class of shares: the assets representing the net proceeds of any issue of C Shares were maintained, managed and accounted for as a separate pool of capital of the Company until those C Shares converted into Ordinary Shares. In this regard, although Conversion was anticipated to occur no later than six months after Admission, the Directors considered it in the best interests of all Shareholders (being at that time Ordinary Shareholders and C Shareholders) to extend the Conversion Date beyond the six month period until the Shoprite case would be resolved.

The directors had the discretion to defer the conversion indefinitely. Hence, there was two classes of shares (the Ordinary and the C Class shares) that could be realised in a forced liquidation by the shareholders, and then the requirements of IAS 32.16C and 16D would need to be applied to both classes. Due to the fact that there are two separate pools of assets and liabilities attributable to the C Class and Ordinary shareholders respectively, the requirements of IAS 32.16C(a) would not be met. Therefore both the classes were classified as financial liabilities as from April 17, 2014 upon issuance of a Class C shares.

The Shoprite arbitral award was issued in 2016 and on 23 August 2017, upon the consent of the Board of Directors, the Fund merged the C share class and the ordinary shares as contemplated in the April 2014 issuance of the C share class. The C Class shares were converted into ordinary shares. Each holder of C Shares received such number of Ordinary Shares as equals the number of C Shares held by them multiplied by the Net Asset Value per C Share and divided by the Net Asset Value per Ordinary Share (subject to a discount of 5 per cent). Based on a conversion ratio of 1.1034, 29,200,000 C Shares were delisted and cancelled and 32,219,279 Ordinary Shares were admitted to trading on the Specialist Fund Segment of the London Stock Exchange. The new ordinary shares rank pari passu with the Fund's ordinary shares prior to the conversion. Subsequent to the merger, the total number of ordinary shares is 74,849,606.

To effectuate this merger, Contingent Value Rights certificates were issued to the ordinary shareholders of record on 21 August 2017. The Board and the Investment Manager are currently appealing the earlier arbitral award relating to the Shoprite shares and are anticipating the appeal to be heard during 2018. From the Shoprite arbitral award issued in 2016 and resulted in AOF not being considered legal owner of the specific Shoprite Holdings, the Shoprite investment was written off. Should AOF be successful in any appeal against the earlier arbitral award, then the proceeds received after any finding, net of expenses, will be disbursed solely to the holders of the CVRs.

Subsequent to the merger, one class of ordinary shares exists for all investors and all financial and return information presented reflects the existing ordinary share class. Upon conversion of the C Class shares into Ordinary shares, the remaining shares in AOF are classified as equity. Information regarding the merger was distributed and released to the market prior to, and upon execution of, the merger. This information and information relative to the CVRs can be found on the Fund's website.

   10.     TRADE AND OTHER PAYABLES 
 
                                         2017                   2016 
                               -----------------------  -------------------- 
 
                                         USD                     USD 
 
 Due to Africa Opportunity 
  Fund L.P.                                  3,080,423            1,259,047 
 Management 
  Fee Payable                                        -              280,439 
 Directors Fees 
  Payable                                       43,750                43,531 
 Other Payables                                 74,659                59,700 
 Other Accruals                                      -                12,874 
                               -----------------------  -------------------- 
                                             3,198,832             1,655,591 
                               =======================  ==================== 
 
 

Other payables and accrued expenses are non-interest bearing and have an average term of six months.

   11.    EARNING PER SHARE 

The earnings per share is calculated by dividing the decrease in net assets attributable to shareholders by number of ordinary and C shares in issue during the year excluding ordinary shares purchased by the Company and held as treasury shares.

The Company's diluted earnings per share are the same as basic earnings per share, since the Company has not issued any instrument with dilutive potential.

 
                                                                              Period from 1 January 
                                                                                2017 to 22 August 
                                                                                       2017 
                                              ------------------------------------------------------------------------------------ 
                                                              Ordinary                                   C shares 
                                                               shares 
                                              ---------------------------------------  ------------------------------------------- 
 
 Increase in net assets 
  attributable to shareholders     USD                                     11,419,202                                    3,372,697 
                                              =======================================  =========================================== 
 
 Number of shares in issue                                                 42,630,327                                   29,200,000 
 Change in net assets 
  attributable to shareholders 
  per share                        USD                                          0.268                                        0.116 
                                              =======================================  =========================================== 
 
 
                                                                              Period from 23 August 
                                                                               2017 to 31 December 
                                                                                       2017 
                                              ------------------------------------------------------------------------------------ 
                                                              Ordinary                                   C shares 
                                                               shares 
                                              ---------------------------------------  ------------------------------------------- 
 
 Loss for the period               USD                                    (2,208,600)                                            - 
                                              =======================================  =========================================== 
 
 Number of shares in issue                                                 74,849,606                                            - 
 Loss attributable to              USD                                        (0.030)                                            - 
  shareholders per share 
                                              =======================================  =========================================== 
 
                                                               2016 
                                             ----------------------------------------  ----------------------------------------- 
 
                                                             Ordinary                                   C shares 
                                                               shares 
                                             ----------------------------------------  ----------------------------------------- 
 
 Increase in net assets 
  attributable to shareholders     USD                                     (3,568,851)                                (1,021,788) 
                                              ========================================  ========================================= 
 
 Number of shares in 
  issue                                                                    42,630,327                                 29,200,000 
 Change in net assets 
  attributable to shareholders 
  per share                        USD                                         (0.084)                                    (0.035) 
                                              ========================================  ========================================= 
 
 
 
   12.    RELATED PARTY DISCLOSURES 

The Directors consider Africa Opportunity Fund Limited (the "Company") as the ultimate holding company of Africa Opportunity Fund (GP) Limited and Africa Opportunity Fund L.P.

 
                                                     % equity   % equity 
                                    Country of       interest   interest 
 Name                              incorporation       2017       2016 
------------------------------   ----------------   ---------  --------- 
 
 Africa Opportunity Fund (GP) 
  Limited                          Cayman Islands       100        100 
 
 Africa Opportunity Fund L.P.      Cayman Islands      99.45      99.09 
 

During the year ended 31 December 2017, the Company transacted with related entities. The nature, volume and type of transactions with the entities are as follows:

 
                      Type of           Nature of                 Volume                      Balance 
                                                                                                 at 
 Name of            relationship       transaction                  USD                        31 Dec 
 related                                                                                        2017 
 parties 
---------------   ---------------   ----------------   ----------------------------  ------------------------- 
 
                                                                                                USD 
 
 Africa              Investment         Management                        1,123,456                          - 
 Opportunity           Manager          fee expense 
 Partners 
 Limited 
 Africa 
  Opportunity 
  Fund LP             Subsidiary          Payable                                  -                     32,263 
 SS&C              Administrator     Administration                         129,248                          - 
 Technologies                              fees 
 
 
                      Type of           Nature of                 Volume                      Balance 
                                                                                                 at 
 Name of            relationship       transaction                  USD                        31 Dec 
 related                                                                                        2016 
 parties 
---------------   ---------------   ----------------   ----------------------------  ------------------------- 
 
                                                                                                USD 
 
 Africa 
  Opportunity 
  Partners           Investment         Management 
  Limited              Manager          fee expense                       1,111,055                    280,439 
 Africa 
  Opportunity 
  Fund LP             Subsidiary          Payable                                  -                  1,259,047 
 SS&C                Administrator     Administration                         90,954                          - 
  Technologies                              fees 
 

Key Management Personnel (Directors' fee)

Except for Robert Knapp who has waived his fees, each director has been paid a fee of USD 35,000 per annum plus reimbursement for out-of pocket expenses for during both 2017 and 2016.

Robert Knapp, who is a director of the Company, also forms part of the executive team of the Investment Manager. Details of the agreement with the Investment Manager are disclosed in Note 5. He has a beneficiary interest in AOF CarryCo Limited. The latter is entitled to carry interest computed in accordance with the rules set out in the Admission Document (refer to note 5 - 'Investment management agreement' for further detail of the performance fee paid to the director).

Details of investments in the Company by the Directors are set out below:

The increase in director shares in 2017 is a result of Robert Knapp and Peter Mombaur purchasing additional shares during the year.

 
            No of shares held     Direct interest held % 
 
 2017                14,284,315                                19.08 
 
 2016                11,493,960                                16.00 
 
   13.    TAXATION 

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

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

A reconciliation between tax expense and the product of accounting profit multiplied by the applicable tax rate is as follows:

 
                                                   2017                      2016 
                                        -------------------------  ------------------------ 
 
                                                   USD                        USD 
 
 Decrease in net assets attributable 
  to shareholder from operations                       12,583,299               (4,590,639) 
                                        -------------------------  ------------------------ 
 Income tax expense calculated                                  -                         - 
  at 0% 
                                        -------------------------  ------------------------ 
 Withholding tax suffered outside                               -                         - 
  Mauritius 
                                        -------------------------  ------------------------ 
 Income tax expense recognized                                  -                         - 
  in profit or loss 
                                        =========================  ======================== 
 
 

* Withholding taxes are born at the master fund level and amounted to USD 218,327 (2016: USD 42,526). These have been included in the NAV of the subsidiary.

   14.    FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES 

Introduction

The Company's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Company's activities. It is managed through a process of ongoing identification, measurement and monitoring, subject to risks limits and other controls. The process of risk management is critical to the Company's continuing profitability. The Company is exposed to market risk (which includes currency risk, interest rate risk and price risk), credit risk and liquidity risk arising from the financial instruments it holds.

Risk management structure

The Investment Manager is responsible for identifying and controlling risks. The Board of Directors supervises the Investment Manager and is ultimately responsible for the overall risk management approach of the Company.

Fair value

The carrying amount of financial assets and liabilities at fair value through profit or loss are measured at fair value at the reporting date. The carrying amount of trade and other receivables, cash and cash equivalents other payables and accrued expenses approximates their fair value due to their short term nature.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices and includes interest rate risk, foreign currency risk and equity price risk.

Short selling involves borrowing securities and selling them to a broker-dealer. The Master Fund has an obligation to replace the borrowed securities at a later date. Short selling allows the Master Fund to profit from a decline in market price to the extent that such decline exceeds the transaction costs and the costs of borrowing the securities, while the gain is limited to the price at which the Fund sold the security short.

Possible losses from short sales may be unlimited as the Master Fund has an obligation to repurchase the security in the market at prevailing prices at the date of acquisition.

With written options, the Master Fund bears the market risk of an unfavourable change in the price of the security underlying the option. Exercise of an option written by the Master Fund could result in the Master Fund selling or buying a security at a price significantly different from its fair value.

A contract for difference creates, as its name suggests, a contract between two parties speculating on the movement of an asset price. The term 'CFD' which stands for 'contract for difference' consists of an agreement (contract) to exchange the difference in value of a particular currency, commodity share or index between the time at which a contract is opened and the time at which it is closed. The contract payout will amount to the difference in the price of the asset between the time the contract is opened and the time it is closed. If the asset rises in price, the buyer receives cash from the seller, and vice versa. The Master Fund bears the risk of an unfavourable change on the fair value of the CFD. The risk arises mainly from changes in the equity and foreign exchange rates of the underlying security.

The Master Fund's financial assets are susceptible to market risk arising from uncertainties about future prices of the instruments. Since all securities investments present a risk of loss of capital, the Investment Manager moderates this risk through a careful selection of securities and other financial instruments. The Master Fund's overall market positions are monitored on a daily basis by the Investment Manager.

The directors have based themselves on past and current performance of the investments and future economic conditions in determining the best estimate of the effect of a reasonable change in equity prices, currency rate and interest rate.

Equity price risk

Equity price risk is the risk that the fair value of equities decreases as a result of changes in the levels of the equity indices and the values of individual stocks. The trading equity risk arises from the Master Fund's investment portfolio.

The equity price risk exposure arises from the Master Fund's investments in equity securities, from equity securities sold short and from equity-linked derivatives (the written options). The Master Fund manages this risk by investing in a variety of stock exchanges and by generally limiting exposure to a single industry sector to 15% of NAV.

Management's best estimate of the effect on the profit or loss for a year due to a reasonably possible change in equity indices, with all other variables held constant is indicated in the table below. There is no effect on 'other comprehensive income' as the Company has no assets classified as 'available-for-sale' or designated hedging instruments.

In practice, the actual trading results may differ from the sensitivity analysis below and the difference could be material. An equivalent decrease in each of the indices shown below would have resulted in an equivalent, but opposite impact.

Equity

 
                                                           Effect 
                                                              on 
 Company                                 Change            Equity 
                                            in 
                                        NAV price           2017 
                                       ----------  ---------------------- 
 
                                                             USD 
 
 
 Investment in subsidiaries at 
  fair value through profit or loss        10%                 6,930,698 
                                          -10%               (6,930,698) 
 
 
                                                           Effect 
                                                            on net 
                                                           assets 
                                                        attributable 
                                                              to 
 Master Fund                             Change         shareholders 
                                            in 
                                        NAV price           2017 
                                       ----------  ---------------------- 
 
                                                             USD 
 
 
 Financial assets at fair value 
  through profit or loss                   10%                 6,916,322 
                                          -10%               (6,916,322) 
 
 Financial liabilities at fair 
  value through profit or loss             10%                  (307,482) 
                                          -10%                    307,482 
 
 
 
                                                           Effect 
                                                            on net 
                                                           assets 
                                                        attributable 
                                                              to 
 Company                                 Change         shareholders 
                                            in 
                                        NAV price           2016 
                                       ----------  ---------------------- 
 
                                                             USD 
 
 
 Investment in subsidiaries at 
  fair value through profit or loss        10%                 5,828,422 
                                          -10%               (5,828,422) 
 
 
                                                           Effect 
                                                            on net 
                                                           assets 
                                                        attributable 
                                                              to 
 Master Fund                             Change         shareholders 
                                            in 
                                        NAV price           2016 
                                       ----------  ---------------------- 
 
                                                             USD 
 
 
 Financial assets at fair value 
  through profit or loss                   10%                 6,072,240 
                                          -10%               (6,072,240) 
 
 Financial liabilities at fair 
  value through profit or loss             10%                  (496,411) 
                                          -10%                    496,411 
 

Currency risk

The Master Fund's investments are denominated in various currencies as shown in the currency profile below. Consequently, the Company is exposed to the risk that the exchange rate of the United States Dollar (USD) relative to these various currencies may change in a manner which has a material effect on the reported values of its assets denominated in those currencies. To manage its risks, the Master Fund may enter into currency arrangements to hedge currency risk if such arrangements are desirable and practicable. The following table shows the offsetting of financial assets:

 
 As at 31 
  December 
  2017 
 
 Company                                               Gross amounts 
                                                       of recognised                    Net amount of 
                            Gross                        financial                     financial assets 
                         amounts of                 liabilities set off                  presented in 
                         recognised                   in the statement          the statement 
                          financial                     of financial                     of financial                  Financial                 Cash 
                           assets                         position                         position                   instruments             collateral                  Net 
                                                                                                                                                                         amount 
                ----------------------------  -------------------------------  -------------------------------  -----------------------  -------------------  -------------------------- 
 
                             USD                            USD                              USD                          USD                    USD                      USD 
 
 Cash and 
  cash 
  equivalents                         91,767                                -                           91,767                        -                    -                      91,767 
                ----------------------------  -------------------------------  -------------------------------  -----------------------  -------------------  -------------------------- 
 
 Total                                91,767                                -                           91,767                        -                    -                      91,767 
                ============================  ===============================  ===============================  =======================  ===================  ========================== 
 
 
 
 As at 31 
  December 
  2016 
 
 Company                                               Gross amounts 
                                                       of recognised                    Net amount of 
                            Gross                        financial                     financial assets 
                         amounts of                 liabilities set off                  presented in 
                         recognised                   in the statement          the statement 
                          financial                     of financial                     of financial                  Financial                 Cash 
                           assets                         position                         position                   instruments             collateral                  Net 
                                                                                                                                                                         amount 
                ----------------------------  -------------------------------  -------------------------------  -----------------------  -------------------  -------------------------- 
 
                             USD                            USD                              USD                          USD                    USD                      USD 
 
 Cash and 
  cash 
  equivalents                      1,136,171                      (1,123,567)                           12,604                        -                    -                      12,604 
                ----------------------------  -------------------------------  -------------------------------  -----------------------  -------------------  -------------------------- 
 
 Total                             1,136,171                      (1,123,567)                           12,604                        -                    -                      12,604 
                ============================  ===============================  ===============================  =======================  ===================  ========================== 
 
 

Cash and cash equivalents are offset as the Company has current bank balances and bank overdraft with the same counterparty which the Company has the current legally enforceable right to set off the recognised amounts and the intention to settle on a net basis or realise the asset and settle the liability simultaneously.

The currency profile of the Company's financial assets and liabilities is summarised as follows:

 
                          2017                    2017                   2016                   2016 
                        Financial              Financial               Financial              Financial 
                         assets               liabilities               assets               liabilities 
                 ----------------------  ---------------------  ----------------------  -------------------- 
 
                           USD                    USD                     USD                    USD 
 
 United States 
    Dollar                   69,398,745                150,672              58,314,852             1,655,591 
                 ----------------------  ---------------------  ----------------------  -------------------- 
                             69,398,745                150,672              58,314,852             1,655,591 
                 ======================  =====================  ======================  ==================== 
 
 

Prepayments are typically excluded as these are not financial assets; prepayments as at 31 December 2017 and 2016 amounted to USD Nil and to USD 5,513 respectively.

The sensitivity analysis shows how the value of a financial instrument will fluctuate due to changes in foreign exchange rates against the US Dollar, the functional currency of the Company.

Currency risk at master fund level

The following table details the master fund's sensitivity to a possible change in the USD against other currencies. The percentage applied as sensitivity represents management's assessment of a reasonably possible change in foreign currency denominated monetary items by adjusting the translation at the year-end for the change in currency rates at the Master Fund level. A positive number below indicates an increase in profit where the USD weakens against the other currencies. In practice, actual results may differ from estimates and the difference can be material. The effect of a change in USD against other currencies at the master fund level as per the table below will have the same impact at the company level and will form part of the NAV of the subsidiary.

 
 Currency Risk 
  - Year 2017 
                                                        Effect on net assets 
                                                           attributable to 
                    Currency                               shareholders in 
                                                                (USD) 
                                       ------------------------------------------------------ 
 Master Fund 
 Change:                                           30%                        -30% 
    Botswana 
     Pula                                               (559,401)                     559,401 
    Ghana Cedi                                        (4,517,593)                   4,517,593 
    Kenyan Shilling                                     (565,601)                     565,601 
    Nigerian 
     Naira                                              (990,619)                     990,619 
    Tanzanian 
     Shilling                                           (443,206)                     443,206 
    Uganda Shilling                                     (553,572)                     553,572 
    South African 
     Rand                                                (90,801)                      90,801 
    Zambian 
     Kwacha                                           (1,921,239)                   1,921,239 
 
 Change:                                           10%                        -10% 
    CFA Franc                                           (915,616)                     915,616 
    Egyptian 
     Pound                                              (195,969)                     195,969 
 
 Change:                                           5%                          -5% 
    Australian 
     Dollar                                              (36,647)                      36,647 
    Euro                                                 (54,743)                      54,743 
    Great British 
     Pound                                               (29,744)                      29,744 
 Currency Risk 
  - Year 2016 
                                                        Effect on net assets 
                                                           attributable to 
                    Currency                               shareholders in 
                                                                (USD) 
                                       ------------------------------------------------------ 
 Master Fund 
 Change:                                           30%                        -30% 
    Botswana 
     Pula                                               (627,744)                     627,744 
    Ghana Cedi                                        (2,988,373)                   2,988,373 
    Kenyan Shilling                                     (388,343)                     388,343 
    Moroccan 
     Dirham                                             (159,972)                     159,972 
    Nigerian 
     Naira                                              (814,574)                     814,574 
    South African 
     Rand                                                 992,805                   (992,805) 
    Tanzanian 
     Shilling                                           (389,232)                     389,232 
    Uganda Shilling                                     (514,466)                     514,466 
    Zambian 
     Kwacha                                             (943,531)                     943,531 
 
 Change:                                           10%                        -10% 
    CFA Franc                                           (839,251)                     839,251 
    Egyptian 
     Pound                                               (43,549)                      43,549 
 
 Change:                                           5%                          -5% 
    Australian 
     Dollar                                              (31,225)                      31,225 
    Great British 
     Pound                                                (1,579)                       1,579 
 

Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The fair values of the Company's debt securities fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments.

The investments in debt securities have fixed interest rate and the income and operating cash flows are not exposed to interest rate risk. The change in fair value of investments based on a change in market interest rate (a 50 basis points change) is not significant and has not been disclosed.

Credit risk

Financial assets that potentially expose the Company to credit risk consist principally of investments in debt securities, cash balances and interest receivable. The extent of the Company's exposure to credit risk in respect of these financial assets approximates their carrying values as recorded in the Company's statement of financial position.

The Company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The Company's main credit risk concentration is its debt securities which are classified as financial assets at fair value through profit or loss.

With respect to credit risk arising from financial assets which comprise of financial assets at fair value through profit or loss, other receivables and cash and cash equivalents, the Company's exposure to credit risk arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of these financial assets.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

 
                                        2017                          2017                          2016                   2016 
                                       Company                     Master Fund                     Company                Master 
                                                                                                                           Fund 
                           ------------------------------  --------------------------  ------------------------------  ----------- 
                                      Carrying                      Carrying                      Carrying               Carrying 
                                       amount                        amount                        amount                 amount 
                           ------------------------------  --------------------------  ------------------------------  ----------- 
 
                  Notes                  USD                           USD                           USD                   USD 
 
 Financial       6(c)(ii) 
 assets at 
 fair value 
 through 
  profit or 
  loss                                                  -                  69,163,219                               -   60,722,399 
 
 Other 
  receivables       7                                   -                     410,858                          23,545    1,773,876 
 Cash and cash 
  equivalents       8                              91,767                   3,887,184                          12,604    1,052,042 
 

The financial assets are neither past due nor impaired at reporting date except for dividend receivable from Shoprite which is past due by more than three years. The dividend receivable from Shoprite is recoverable based on an arbitration award delivered in January 2017. The cash and cash equivalent assets of the Company are maintained with Standard Chartered Bank (Mauritius) Ltd. Standard Chartered Bank has an A1- issuer rating from Moody's long term rating agency, a P-1 short term rating from Moody's rating agency, an AA- issuer rating from Standard and Poor's rating agency, and an A-1+ short term rating from Standard and Poor's rating agency. All other issuers of debt instruments owned by the Company are unrated. The issuers of the unrated debt instruments owned by the Company are reputable companies which do not envisage obtaining ratings, and have the ability to repay any debt or redeem any security as it falls due or when required.

Concentration risk

At 31 December 2017 the Master Fund held investments in Africa which involves certain considerations and risks not typically associated with investments in other developed countries. Future economic and political developments in Africa could affect the operations of the investee companies.

Analysed by geographical distribution of underlying assets:

 
                                                   Master Fund                     Master Fund 
                                                       2017                           2016 
                                         -------------------------------  --------------------------- 
 
                                                       USD                             USD 
 Bond & Notes 
 Senegal                                                               -                    3,036,000 
 Ghana                                                         2,443,324                    7,055,593 
 South Africa                                                  2,415,092                    1,738,415 
 Other                                                                 -                    4,173,975 
                                         -------------------------------  --------------------------- 
 
 Total                                                         4,858,416                   16,003,983 
                                         ===============================  =========================== 
 
 
                                                   Master Fund                     Master Fund 
                                                       2017                           2016 
                                         -------------------------------  --------------------------- 
 
                                                       USD                            USD 
 Equity Securities and Shortsellings 
 Ghana                                                        14,460,675                   10,757,184 
 Zambia                                                        5,069,063                    3,145,104 
 Senegal                                                       7,080,891                    6,746,764 
 South Africa                                                  4,020,693                  (2,585,832) 
 Zimbabwe                                                      9,211,968                    5,261,153 
 Botswana                                                      1,864,669                    2,092,481 
 Nigeria                                                       4,637,130                    2,715,246 
 Tanzania                                                      1,477,354                    1,297,442 
 Egypt                                                         1,368,674                            - 
 Morocco                                                               -                      533,239 
 Cote D'Ivoire                                                 2,075,273                    1,645,742 
 Kenya                                                         1,885,335                    1,294,475 
 Uganda                                                        4,495,212                    3,080,099 
 Other                                                         3,583,049                    3,771,212 
                                         -------------------------------  --------------------------- 
 
 Total                                                        61,229,986                   39,754,309 
                                         ===============================  =========================== 
 
 

Analysed by industry of underlying assets:

 
                                                  Master Fund                      Master Fund 
                                                      2017                             2016 
                                        -------------------------------  ------------------------------- 
 
                                                      USD                              USD 
 Bond & Notes 
 Consumer Finance                                               245,556                           24,440 
 Mining Industry                                                      -                        7,929,975 
 Oil Exploration & Production                                 2,093,325                        6,705,593 
 Telecommunications                                           1,074,684                          993,975 
 Plantations                                                    350,000                          350,000 
 Consumer Products & Services                                 1,094,851                                - 
                                        -------------------------------  ------------------------------- 
 
 Total                                                        4,858,416                       16,003,983 
                                        ===============================  =============================== 
 
 
                                                  Master Fund                      Master Fund 
                                                      2017                             2016 
                                        -------------------------------  ------------------------------- 
 
                                                      USD                              USD 
 Equity Securities and Shortsellings 
 Consumer Finance                                             6,561,595                        5,177,780 
 Mining Industry                                              5,501,622                        4,051,636 
 Oil Exploration & Production                                 1,550,755                        1,309,903 
 Telecommunications                                           7,080,891                        6,746,764 
 Plantations                                                  2,433,775                        2,211,207 
 Beverages                                                    1,477,354                        1,297,442 
 Consumer Products & Services                                 (239,254)                      (2,530,915) 
 Financial Services                                          13,899,773                        9,530,108 
 Materials                                                      944,686                          814,737 
 Media                                                        2,647,584                                - 
 Real Estate                                                  8,276,156                        4,342,250 
 Utilities                                                    8,026,639                        4,708,995 
 Other                                                        3,068,410                        2,094,402 
                                        -------------------------------  ------------------------------- 
 
 Total                                                       61,229,986                       39,754,309 
                                        ===============================  =============================== 
 
 

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation.

The Company manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and actual cash flows. The table below illustrates the maturity profile of the Company's financial liabilities based on undiscounted payments.

 
 Year 2017                                                                    Due                        Due                      Due 
                                                    Due                    Between 3                  Between 1                 greater 
                        Due on                   within 3                   and 12                      and 5                    than 5 
                        demand                    Months                    Months                      years                    years                  Total 
                ----------------------   ------------------------  ------------------------  ---------------------------  -------------------  ----------------------- 
 
                          USD                       USD                       USD                        USD                      USD                    USD 
 Financial 
 liabilities 
 Other 
  payables                            -                   150,672                         -                            -                    -                  150,672 
                -----------------------  ------------------------  ------------------------  ---------------------------  -------------------  ----------------------- 
 
 Total 
  liabilities                         -                   150,672                         -                            -                    -                  150,672 
                =======================  ========================  ========================  ===========================  ===================  ======================= 
 
 Year 2016                                                                    Due                        Due                      Due 
                                                    Due                    Between 3                  Between 1                 greater 
                        Due on                   within 3                   and 12                      and 5                    than 5 
                        demand                    Months                    Months                      years                    years                  Total 
                ----------------------   ------------------------  ------------------------  ---------------------------  -------------------  ----------------------- 
 
                          USD                       USD                       USD                        USD                      USD                    USD 
 Financial 
 liabilities 
 Other 
  payables                            -                 1,655,591                         -                            -                    -                1,655,591 
 Net assets 
  attributable 
  to 
  shareholders                        -                         -                         -                   56,664,774                    -               56,664,774 
                -----------------------  ------------------------  ------------------------  ---------------------------  -------------------  ----------------------- 
 
 Total 
  liabilities                         -                 1,655,591                         -                   56,664,774                    -               58,320,365 
                =======================  ========================  ========================  ===========================  ===================  ======================= 
 
 

Capital management

Total capital is considered to be the total equity as shown in the statement of financial position.

The Company is a closed end fund and repurchase of shares in issue can be done with the consent of the Board of Directors. The Company is not subject to externally imposed capital requirements.

The objectives for managing capital are:

-- To invest the capital in investment meeting the description, risk exposure and expected return indicated in the Admission document.

-- To achieve consistent capital growth and income through investment in value, arbitrage and special situations opportunities derived from the African continent.

   --      To maintain sufficient size to make the operation of the Company cost effective. 

The primary objective of the Company's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

   15.    ANALYSIS OF NAV OF MASTER FUND ATTRIBUTABLE TO ORDINARY SHARES 
 
 ASSETS 
 Cash and cash equivalents                                                       3,887,184 
 Trade and other receivables                                                     3,426,755 
 Receivable from AOF Ltd                                                            32,263 
 Financial assets at fair value through profit or loss                          69,163,219 
 Total assets                                                                   76,509,422 
                                                                -------------------------- 
 
 EQUITY AND LIABILITIES 
 Liabilities 
 Trade and other payables                                                          698,517 
 Financial liabilities at fair value through profit or loss                      3,074,817 
 Total liabilities                                                               3,773,334 
                                                                -------------------------- 
 
 Net assets attributable to shareholders                                        72,736,088 
                                                                ========================== 
 
 
   16.    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.

For geographical segmentation, please refer to note 14.

   17.     PERSONNEL 

The Company did not employ any personnel during the year (2016: the same).

   18.     COMMITMENTS AND CONTINGENCIES 

There are no commitments or contingencies at the reporting date.

   19.     EVENTS AFTER REPORTING DATE 

Except as stated above, there are no other events after the reporting date which require amendments to and/or disclosure in these financial statements.

   20.     FAIR VALUE OF NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS 

The below table shows the fair value hierarchy of the Net assets attributable to shareholders.

 
 At 31                          Level 1                          Level 2                           Level 3 
 December 
 2016 
                   --------------------------------    ---------------------------    -------------------------------- 
 
                                  USD                              USD                               USD 
 
 Ordinary                                         -                     33,719,116                                   - 
 shares 
 Class C                                          -                     22,945,658                                   - 
 shares 
                   --------------------------------    ---------------------------    -------------------------------- 
 
 At 31                                            -                     56,664,774                                   - 
 December 
 2016 
                   ================================    ===========================    ================================ 
 
 

Shareholder information

Share price

Prices of Africa Opportunity Fund Limited are published daily in the Daily Official List of the London Stock Exchange. The shares trade under Reuters symbol "AOF.L" and Bloomberg symbol "AOF LN".

Manager

Africa Opportunity Partners Limited.

Company information

Africa Opportunity Fund Limited is a Cayman Islands incorporated closed-end investment company admitted to trading on the SFS operated by the London Stock Exchange.

Capital structure

The Company has an authorized share capital of 1,000,000,000 ordinary shares of US$0.01 each of which 748,849,606 are issued and fully paid.

Life of the company

The Company does not have a fixed life, but the directors consider it desirable that its shareholders should have the opportunity to review the future of the Company at appropriate intervals. In 2014 the shareholders voted for the continuation of the Company for an additional five years. The Directors will convene a general meeting in 2019 where a resolution will be proposed that the Company will continue in existence. If the resolution is not passed, the Directors will be required to formulate proposals to be put to shareholders to reorganise, reconstruct or wind up the Company. If the resolution is passed, the Company will continue its operations and a similar resolution will be put to shareholders every five years thereafter.

At the same time as the continuation vote in 2019, the Company will provide Shareholders with, without first requiring a Shareholder vote to implement this policy, an opportunity to realise all or part of their shareholding in the Company for a net realized pro rata share of the Company's investment portfolio.

Registered number

Registered in the Cayman Islands number MC-188243.

Website

www.africaopportunityfund.com

For further information please contact:

Africa Opportunity Fund Limited

   Francis Daniels                                                  Tel: +2711 684 1528 

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No.596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain

[i] The Economist, March 17-23, 2018 issue: Africa's economic paradox.

[ii] Reference indices are calculated in US Dollars using: Nigeria NSE Allshare Index, South Africa FTSE/JSE Africa Allshare Index, Nairobi NSE Allshare Index, Egypt Hermes Index, Russia MICEX Index, Brazil IBOV Index, the Shanghai Shenzen 300 CSI Index, the India SENSEX Index, the S&P 500, the Stoxx Europe 600 Index, the FTSE 100 and the Nikkei 225.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR SDSFWSFASEEL

(END) Dow Jones Newswires

April 30, 2018 13:22 ET (17:22 GMT)

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