29 May 2013

 

 

 

PME African Infrastructure Opportunities plc

 

("PME" or the "Company")

 

(AIM: PMEA.L)

 

Preliminary Results for the year ended 31 December 2012

 

PME African Infrastructure Opportunities plc, an investment companyestablished to invest in sub-Saharan African infrastructure and infrastructure related industries, announces its results for the year ended 31 December 2012.

 

Financial Summary  

 

•    US$12.4 million of cash returned to shareholders through a share buy back of 28.72% of the Company's issued ordinary share capital in October 2012

 

•    Net Asset Value of US$39.5 million (2011: US$57.5m)

 

•    NAV per share of US$0.39 (2011: US$0.40)

 

•    Operating loss attributable to shareholders for the year ended 31 December 2012 was US$6.7 million (2011: US$27.9 million)

 

•    Basic and diluted loss per share of US$0.0493 (2011: US$0.1938)

 

•    Basic and diluted loss per share from continuing operations of US$0.0170 (2011: US$0.0245)

 

Operational Summary

 

•    The Company continues to work towards the realisation of its investments, return cash to shareholders and then effect a voluntary winding up

 

•    Remaining investments performing profitably

 

•    Notwithstanding the impairment of the loan, Sheltam and the rail assets continue to perform well and demand for locomotives is encouraging

 

•    A number of preliminary non-binding expressions of interest have been received in respect of the rail assets

 

•    Sheltam recently agreed a settlement of ZAR 40.25 million for the two locomotives involved in the accident in Mozambique in May 2012 and expects to receive proceeds in the next few weeks

             

•    Peninsula House in Dar-es-Salaam continues to be fully let and a local agent has been appointed to sell the business

 

 

 

For further information please contact:

 

Smith & Williamson Corporate Finance Limited	Azhic Basirov / Siobhan Sergeant	+44 20 7131 4000
Oriel Securities Limited	Neil Winward	+44 20 7710 7600

 

 

Chairman's Statement

 

On behalf of the board, I am pleased to present the final results for PME African Infrastructure Opportunities plc ("PME" or the "Company") for the year ended 31 December 2012.

 

Investments and Valuations

 

As previously announced, the Company intends to realise its investments, return cash to shareholders and then effect a voluntary winding up.

 

The Company currently owns rail assets in South Africa (12 mainline locomotives and 50% of Sheltam Holdings (Proprietary) Limited ("Sheltam") and its subsidiaries, the group to which these locomotives are leased) ("Rail Assets") and commercial premises in Dar-es-Salaam, Tanzania ("Dar-es-Salaam Property").

 

Notwithstanding the impairment of the loan, the Rail Assets have continued to perform well and demand for locomotives is encouraging. The two C30 locomotives that were involved in an accident in Mozambique in May 2012 were the subject of an insurance claim. Sheltam has recently agreed a settlement amount with its insurance company of ZAR 40.25 million for the two locomotives involved in the accident. This settlement amount includes VAT. It is anticipated that the Company will receive the proceeds, excluding VAT, in the next few weeks.

 

In September 2012, PSG Capital (Pty) Limited ("PSG Capital") was appointed to assist the Company with the disposal of the Rail Assets. PSG Capital subsequently prepared a high level valuation of the Rail Assets and has initiated a sale process for the Company. The sale of the interest in the 12 mainline locomotives is expected to be effected through the sale of the Company's entire holding in its subsidiary, PME Locomotives (Mauritius) Limited, the owner of the locomotives. A number of potential bidders were approached and a number of parties have submitted preliminary non-binding expressions of interest for the Rail Assets. It is anticipated that the disposal of the Rail Assets will be completed within the next few months provided that the initial interest from third parties is maintained and a transaction can be finalised.

 

The Dar-es-Salaam Property is fully let and is being managed by a local company. There is a claim with regard to unpaid rent and service charges with one of the tenants, Dovetel, which is now in administration as discussed below. A local agent has been appointed to sell the building but a completion of the sale will probably only occur once the claim has been resolved.

 

Dovetel, which was the Company's telecommunication interest in Tanzania, was originally placed into administration in December 2011 and then sold to a third party. However Dovetel has once again been placed into administration in late April 2013. The directors expect that Dovetel will be wound up in due course.

 

The executive directors of the Company are overseeing the operational aspects of the investments and are managing the disposal programme. They are being supported by local personnel who are operating on a short term contractual basis.

 

Financial Results

 

The operating loss attributable to ordinary shareholders for the year ended 31 December 2012 was US$6.7 million (2011: US$27.9 million), representing US$0.0493 per Ordinary Share (2011: US$0.1938).

 

As at 31 December 2012, PME's Net Asset Value attributable to ordinary shareholders in accordance with IFRS was US$39.5 million (US$0.39 per share), 31.2% down from the US$57.5 million (US$0.40 per share) that was reported as at 31 December 2011. However, taking into account the share buy back made by the Company in 2012 in the amount of US$12.4 million, the net percentage decline in PME's Net Asset Value was 12.3%.

 

Return of Cash and Outlook

 

The Company made an offer to acquire 30% of its issued ordinary share capital at a price of US$0.30 per share. 41,283,992 ordinary shares, comprising 28.72% of the Company's issued ordinary share capital, were tendered and redeemed on 31 October 2012. The Company returned US$12.4 million to shareholders through the share buy back.

 

Notwithstanding the impairment to the loan to associate, the remaining investments are performing profitably. As mentioned above, the disposal process for the Rail Assets is underway. It is anticipated that this disposal will take place during 2013. Once the cash has been received from the disposal programme a further distribution by way of tender offer will be proposed to shareholders.

 

David von Simson

 

As shareholders will be aware, David von Simson died suddenly on 11 November 2012. David chaired the board of the Company from its incorporation until his untimely death. He demonstrated great skill, leadership and wisdom. He will be sadly missed.

 

 

Paul Macdonald

Chairman

28 May 2013

 

 

Consolidated Income Statement

 

 

		Year ended  31 December 2012	(Represented) (note 16)  Year ended  31 December 2011
	Note	US$'000	US$'000
Continuing operations
Revenue		-	-
Investment Manager's fees	5	(367)	(1,289)
Operating and administration expenses	6	(1,821)	(2,093)
Foreign exchange loss		(18)	(29)
Operating loss		(2,206)	(3,411)
Finance income	7	12	32
Loss before income tax		(2,194)	(3,379)
Income tax	8	(132)	(143)
Loss for the year from continuing operations		(2,326)	(3,522)
Discontinued operations
Loss for the year from discontinued operations	16(c)	(4,364)	(14,083)
Loss for the year		(6,690)	(17,605)
Loss attributable to:
- Owners of the parent		(6,745)	(27,854)
- Non-controlling interests		55	10,249
		(6,690)	(17,605)
Basic and diluted loss per share (cents) from continuing and discontinued operations attributable to the equity holders of the Company during the year
From continuing operations	9	(1.70)	(2.45)
From discontinued operations		(3.23)	(16.93)
From loss for the year		(4.93)	(19.38)

 

 

Consolidated Statement of Comprehensive Income

		Year ended  31 December 2012	(Represented)  Year ended   31 December 2011
		US$'000	US$'000
Loss for the year		(6,690)	(17,605)
Other comprehensive income/(expense)
Net (loss)/gain from fair value adjustment of property, plant and equipment - discontinued operations		(678)	2,489
Foreign currency translation differences - continuing operations		(344)	(1,838)
Foreign currency translation differences - discontinued operations		2,208	2,066
Other comprehensive income for the year		1,186	2,717
Total comprehensive expense for the year		(5,504)	(14,888)
Total comprehensive income/(expense) attributable to:
- Owners of the parent		(5,559)	(24,765)
- Non-controlling interests		55	9,877
		(5,504)	(14,888)
Total comprehensive expense attributable to equity shareholders arises from:
- Continuing operations		(2,670)	(5,360)
- Discontinued operations		(2,889)	(19,405)
		(5,559)	(24,765)

 

 

Consolidated Balance Sheet

	Note	As at 31 December 2012	As at 31 December 2011
		US$'000	US$'000
Assets
Non-current assets
Loan due from associate	10.2	-	8,001
Property, plant and equipment	12	-	29
Finance lease receivables	13	-	24,317
Total non-current assets		-	32,347
Current assets
Finance lease receivables	13	-	2,574
Loan due from associate	10.2	-	4,946
Trade and other receivables	14	221	221
Cash and cash equivalents	15	3,695	13,180
		3,916	20,921
Assets of disposal group classified as held for sale	16(a)	36,624	13,129
Total current assets		40,540	34,050
Total assets		40,540	66,397
Equity and liabilities
Equity attributable to owners of the parent:
Issued share capital	17	1,025	1,438
Foreign currency translation reserve		(1,421)	(3,285)
Capital redemption reserve		780	367
Retained earnings		39,158	58,966
		39,542	57,486
Non-controlling interests		-	-
Total equity		39,542	57,486
Current liabilities
Trade and other payables	19	287	343
		287	343
Liabilities of disposal group classified as held for sale	16(b)	711	8,568
Total current liabilities		998	8,911
Total liabilities		998	8,911
Total equity and liabilities		40,540	66,397

 

Total liabilities		178	276
Total equity & liabilities		36,900	53,306

 

 

 

Consolidated Statement of Changes in Equity

	Attributable to owners of the parent
	Share capital	Foreign currency translation reserve	Capital redemption reserve	Retained earnings	Total	Non-controlling interests	Total
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Balance at 1 January 2011	1,513	(3,885)	292	104,455	102,375	(9,877)	92,498
Comprehensive income
Profit/(loss) for the year	-	-	-	(27,854)	(27,854)	10,249	(17,605)
Other comprehensive expense
Net gain from fair value adjustment of property, plant and equipment	-	-	-	2,489	2,489	-	2,489
Foreign exchange translation differences	-	600	-	-	600	(372)	228
Total comprehensive income/(expense) for the year	-	600	-	(25,365)	(24,765)	9,877	(14,888)
Transactions with owners
Treasury shares cancelled	(75)	-	75	-	-	-	-
Distributions paid	-	-	-	(20,124)	(20,124)	-	(20,124)
Total transactions with owners	(75)	-	75	(20,124)	(20,124)	-	(20,124)
Balance at 31 December 2011	1,438	(3,285)	367	58,966	57,486	-	57,486

 

Balance at 1 January 2012	1,438	(3,285)	367	58,966	57,486	-	57,486
Comprehensive income
Profit/(loss) for the year	-	-	-	(6,745)	(6,745)	55	(6,690)
Other comprehensive expense
Net loss from fair value adjustment of property, plant and equipment	-	-	-	(678)	(678)	-	(678)
Foreign exchange translation differences	-	1,864	-	-	1,864	-	1,864
Total comprehensive income/(expense) for the year	-	1,864	-	(7,423)	(5,559)	55	(5,504)
Transactions with owners
Non-controlling interest settled on disposal	-	-	-	-	-	(55)	(55)
Tender offer	(413)	-	413	(12,385)	(12,385)	-	(12,385)
Total transactions with owners	(413)	-	413	(12,385)	(12,385)	(55)	(12,440)
Balance at 31 December 2012	1,025	(1,421)	780	39,158	39,542	-	39,542

 

 

 

 

 

Consolidated Cash Flow Statement

	Note	Year ended 31 December 2012	Year ended 31 December 2011
		US$'000	US$'000
Operating activities
Loss for the year before income tax including discontinued operations		(6,683)	(16,742)
Adjustments for:
Realised loss on sale of property, plant and  equipment		-	62
Finance income		(4,819)	(5,453)
Depreciation and amortisation		1,182	2,828
Bad debts written off		-	61
Share of loss of associate		-	1,118
Impairment of intangible assets		-	1,329
Impairment of loan to associate		7,064	-
Loss on disposal of subsidiary		103	-
Foreign exchange loss		2,470	5,080
Operating loss before changes in working capital		(683)	(11,717)
Decrease in inventory		47	294
(Increase)/decrease in trade and other receivables		(1,742)	1,650
Increase/(decrease) in trade and other payables		903	(2,012)
Cash used in operations		(1,475)	(11,785)
Income tax paid		(134)	(245)
Interest received		373	46
Lease rental income received		4,099	3,041
Net cash generated from/(used in) operating activities		2,863	(8,943)
Investing activities
Net cash movement on disposal of subsidiary	22	(32)	-
Loan to associate	10.2, 14	(11)	(7)
Loans from third parties		-	(169)
Purchase of property, plant and equipment		-	(423)
Sale of property, plant and equipment		-	27
Net cash used in investing activities		(43)	(572)
Financing activities
Tender offer		(12,385)	-
Distributions paid		-	(20,124)
Net cash used in financing activities		(12,385)	(20,124)
Net decrease in cash and cash equivalents		(9,565)	(29,639)
Cash and cash equivalents at beginning of year		13,180	44,883
Foreign exchange losses on cash and cash equivalents		80	(2,064)
Cash and cash equivalents at end of year	15	3,695	13,180

 

 

Notes to the Financial Statements

1              General Information

 

PME African Infrastructure Opportunities plc (the "Company") was incorporated and is registered and domiciled in the Isle of Man under the Isle of Man Companies Acts 1931 to 2004 on 19 June 2007 as a public limited company with registered number 120060C. The investment objective of PME African Infrastructure Opportunities plc and its subsidiaries (the "Group") was to achieve significant total return to investors through investing in various infrastructure projects and related opportunities across a range of countries in sub-Saharan Africa. On 19 October 2012 the shareholders approved the revision of the Company's Investing Policy which is now to realise the remaining assets of the Company and to return both existing cash reserves and the proceeds of realisation of the remaining assets to shareholders.

 

The Company's investment activities were managed by PME Infrastructure Managers Limited (the "Investment Manager") to 6 July 2012. No alternate has been appointed therefore the Board of Directors has assumed responsibility for the management of the Company's remaining assets. The Company's administration is delegated to Galileo Fund Services Limited (the "Administrator"). The registered office of the Company is Millennium House, 46 Athol Street, Douglas, Isle of Man, IM1 1JB.

 

Pursuant to its AIM admission document dated 6 July 2007, there was an original placing of up to 180,450,000 Ordinary Shares with Warrants attached on the basis of 1 Warrant for every 5 Ordinary Shares. Following the close of the placing on 12 July 2007, 180,450,000 Shares and 36,090,000 Warrants were issued. The Warrants lapsed in July 2012.

 

The Shares of the Company were admitted to trading on AIM, a market of the London Stock Exchange, on 12 July 2007 when dealings also commenced.

 

Financial Year End

The financial year end for the Company is 31 December in each year.

 

Company Profit

In accordance with the provisions of Section 3 of the Isle of Man Companies Act 1982, no separate income statement has been presented for the Company. The amount of the Company's loss for the year recognised in the Consolidated Income Statement is US$3,922,792 (31 December 2011: loss US$67,645,371) after impairment of inter-company balances amounting to US$332,833 (31 December 2011: US$15,448,016) and impairment to its investments in subsidiaries amounting to US$6,766,129 (31 December 2011: US$50,892,477).  

 

Dividends

In the year to 31 December 2012 the Company declared and paid dividends of US$nil (2011: US$20,124,265 (14 cents per share)). An initial tender offer took place in October 2012. 43,123,426 shares were offered at a price of US$0.30 per share. A total of 41,283,992 shares were validly tendered and were cancelled upon acquisition.

 

Going concern

In assessing the going concern basis of preparation of the financial statements for the year ended 31 December 2012, the Directors have taken into account the status of current negotiations on the realisation of the remaining assets. The Directors consider that the Group has sufficient facilities for its ongoing operations and therefore have continued to adopt the going concern basis in preparing these financial statements.

 

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 to all years presented unless otherwise stated.

 

2.1           Basis of preparation

 

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of properties and financial assets at fair value through profit or loss, and the requirements of the Isle of Man Companies Acts 1931 to 2004. The preparation of financial statements in conformity with IFRS requires the use of accounting estimates. It also requires management to exercise its judgement in the process of applying the Company and Group's accounting policies.

 

a)New and amended standards adopted by the Group

 

There were no new or amended standards or interpretations that are applicable for the first time in these financial statements that would have had a material impact on these financial statements.

 

b) Standards, amendments and interpretations to existing standards relevant to the Group, that are not yet effective and have not been early adopted by the Group

 

IFRS 9, 'Financial instruments', issued November 2009 and October 2010. This standard is the first step in the process to replace IAS 39, 'Financial instruments: recognition and measurement'. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary categories for financial assets: amortised cost and fair value. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. For financial liabilities, IFRS 9 retains most of the IAS 39 requirements, but in cases where the fair value option is taken, the part of a fair value change in a financial liability due to an entity's own credit risk is recorded in other comprehensive income rather than the income statement (unless this creates an accounting mismatch). The standard is not applicable until 1 January 2015 but is available for early adoption. However, the standard has not yet been endorsed by the EU. The Group is yet to assess IFRS 9's full impact.

 

IFRS 10, 'Consolidated financial statements', issued in May 2011. This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in determining control where this is difficult to assess. This standard is applicable for periods beginning on or after 1 January 2014. It is not expected to have a significant impact on the Group or Company.

 

IFRS 12, 'Disclosure of interests in other entities', issued in May 2011. This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. This standard will be applicable for periods beginning or after 1 January 2014. The Group will adopt this standard from 1 January 2014. It is not expected to have a significant impact on the Group or Company. 

 

IFRS 13, 'Fair value measurement', issued in May 2011. This standard is to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. This standard is applicable for periods beginning on or after 1 January 2013. It is not expected to have a significant impact on the Group or Company. 

 

IAS 1, 'Presentation of Financial Statements' issued in June 2011. The amendment requires items recognised outside profit or loss in other comprehensive income to be grouped according to whether or not they may subsequently become reclassifiable to profit or loss. The changes are to be applied for annual periods beginning on or after 1 July 2012, subject to EU endorsement. The changes are not expected to have a significant impact on the Group or Company.

 

2.2           Critical accounting estimates

 

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:

 

Loan to Associate

The Group tests semi-annually whether the investment and loans to its associate have suffered any impairment. In assessing this, the Group determines the recoverable amount of the CGU determined based on discounted cash flows. The Group also takes into account the associate's (see note 10) progress compared to its business plan.  In addition, the Group engaged specialist valuers to conduct a semi-annual valuation of the associate. This independent valuation was adjusted to directors' valuation as the sales process progressed and after consideration of preliminary non-binding expressions of interest. It has been assumed that the disposal of the associate will take place in the next few months. At 31 December 2012 the Group has recognised an impairment of US$7,064,424 (31 December 2011: US$nil) with respect to its loans to associate (see note 16).

 

2.3           Foreign currency translation

 

(a)           Functional and presentation currency

 

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in US Dollars, which is the Company's functional and the Group's presentation currency.

 

(b)           Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement.

 

(c)           Group companies

The results and financial position of all the Group entities that have a functional currency different from the presentational currency are translated into the presentational currency as follows:

 

(i)             assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

 

(ii)            income and expenses for each income statement are translated at average exchange rates; and

 

(iii)           all resulting exchange differences are recognised as a separate component of equity.

 

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to other comprehensive income. When a foreign operation is partially disposed or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale.

 

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

 

2.4           Revenue and expense recognition

 

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group's activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.

 

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group's activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

 

The main categories of revenue and the bases of recognition are:

 

(i)            Post Paid Products

·              Connection fees: Revenue is recognised on the date of activation by the CDMA operator of a new Subscriber Identification Module (SIM) card.

·              Access charges: Revenue is recognised in the period to which the charges relate.

·              Airtime: Revenue is recognised on the usage basis commencing on the date of activation.

 

(ii)           Prepaid Products

·              SIM kits: Revenue is recognised on the date of sale.

·              Connection fees: Revenue is recognised on the date of activation.

·              Airtime: Revenue is recognised on the usage basis commencing on the date of activation.

 

Rental income from property is recognised within revenue in discontinued operations in profit or loss on a straight line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

 

Interest income is recognised in the financial statements on a time-proportionate basis using the effective interest method. Interest expense for borrowings is recognised in the financial statements using the effective interest method.

 

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the year.

 

Expenses are accounted for on an accruals basis.

 

2.5           Basis of consolidation

 

Subsidiaries

 

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Group's voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies, etc.

 

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

 

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.

 

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

 

Transactions and non-controlling interests

The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group.

 

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised gains/losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

 

Associates

Associates are those entities in which the Group has a significant influence, but no control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group's investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. The consolidated income statement includes the Group's share of its associates' profits or losses, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an associate, the carrying amount of that interest (including any long-term investment) is reduced to US$nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the associate.

 

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

2.6           Operating segments

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined that its chief operating decision-makers are the Board and the Investment Manager of the Company.

 

2.7           Intangible assets

 

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets (including intangible assets) of the acquired subsidiary. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.

 

Telecommunication licences

Licence fees paid to governments, which permit telecommunication activities to be operated for defined periods, are initially recorded at cost and amortised from the time the network is available for use to the end of the licence period.

 

Computer software licences

Computer software licences are capitalised on the basis of the cost incurred to acquire and bring the specific software into use. The cost is amortised over the useful life of the software of three to five years.

 

2.8           Assets held for sale

 

Groups of non-current assets (or disposal groups) are reclassified as held for sale when a sale within one year is highly probable and the assets are available for immediate sale in their present condition. Property plant and equipment and intangible assets held for sale are remeasured at the lower of fair value less cost to sell or the carrying amounts at the date they meet the held for sale criteria. Any resulting impairment loss is recognised in the profit & loss account.

 

2.9           Financial assets and financial liabilities

 

The Group classifies its financial assets in the following categories: at fair value through profit or loss, and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

 

At 31 December 2012 and 2011 the Group did not have any financial assets at fair value through profit or loss. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current assets. The Group's loans and receivables comprise 'loan due from associate', 'finance lease receivables', 'trade and other receivables' and 'cash at bank' in the balance sheet (notes 10.2, 13, 14 and 15).

 

The Group classifies its financial liabilities in the following categories: at fair value through profit or loss and other liabilities. At 31 December 2012 and 2011 the Group did not have any financial liabilities at fair value through profit or loss. Other liabilities are loans and trade creditors which are included in 'trade and other payables' in the balance sheet (note 19).

 

2.10         Impairment of non-financial assets

 

Assets that have an indefinite useful life - for example, goodwill or intangible assets not ready to use - are not subject to amortisation and are tested semi-annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

 

2.11         Property, plant and equipment

 

Properties are shown at fair value, based on valuations by external independent valuers, less subsequent depreciation. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. All other categories of property, plant and equipment are initially recorded at historical cost. Subsequently, the assets are stated at historical cost, less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the assets' carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated income statement during the financial year in which they occurred.

 

Depreciation is calculated on the straight-line basis to allocate their costs to their residual values over their estimated useful lives as follows:

 

                Properties                                                                25 years

Locomotives                                                            15 years

Network infrastructure and equipment                    3 to 15 years

Other                                                                       3 to 6 years

 

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

 

Capital work in progress

Property, plant and equipment under construction is stated at initial cost and depreciated from the date the asset is placed in use over its useful life. The cost of self-constructed assets includes expenditure on materials and direct labour. Assets are transferred from capital work in progress to an appropriate category of property, plant and equipment when commissioned and ready for the intended use.

 

When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

 

Gains or losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the consolidated income statement.

 

2.12         Finance lease receivables

 

Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group's net investment outstanding in respect of the leases.

 

2.13         Inventory

 

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis, and includes expenditure incurred in acquiring the inventories, and other costs incurred in bringing them to their existing location and condition. Net realisable value is the price at which inventories can be sold in the normal course of business after allowing for the costs of realisation.

 

2.14         Loans and receivables

 

Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.

 

2.15         Trade and other receivables

 

Trade and other receivables are initially stated at fair value and subsequently measured at amortised cost using the effective interest method, less impairment.

 

A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts to be received. Significant financial difficulties of the counterparty, probability that the counterparty will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount to be received is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

 

2.16         Cash and cash equivalents

 

Cash and cash equivalents comprise cash deposited with banks held with original maturities of less than three months.

 

2.17         Investments in subsidiaries

 

Investments in subsidiaries are accounted for in the Company balance sheet at cost less impairment. Cost also includes directly attributable costs of investments.

 

2.18         Trade and other payables

 

Trade and other payables are recognised initially at fair value and subsequently at amortised cost using the effective interest method.

 

2.19         Taxation

 

The Company is resident for taxation purposes in the Isle of Man and is subject to income tax at a rate of zero per cent. The Group is liable to tax on the activities of its subsidiaries and associates in accordance with the applicable tax laws in the countries in which they are incorporated.

 

The tax expense represents the sum of the tax currently payable, which is based on taxable profits for the year. The Group's liability is calculated using the tax rates enacted or substantially enacted at the balance sheet date.

 

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably will not reverse in the foreseeable future.  Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. 

 

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised.  Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

 

2.20        Retirement benefit obligations

 

The Group's subsidiaries, Dovetel Tanzania Limited and TMP Uganda Limited, contributed to the National Social Security Fund, "Fund", in Tanzania and Uganda respectively. These were defined contribution plans. A defined contribution plan is a pension plan under which the Group' subsidiaries paid fixed contributions into a separate entity. The Group had no legal or constructive obligations to pay further contributions if the Fund did not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions by the Group's subsidiaries were recognised as an employee benefit expense when they were due.

 

2.21         Share capital

 

Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

 

2.22         Dividends

 

Dividends are recognised as a liability in the year in which they are declared and approved.

 

3              Risk Management

 

The Company's activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The financial risks relate to the following financial instruments: loans and receivables, cash and cash equivalents and trade and other payables. The accounting policies with respect to these financial instruments are described in Note 2.

 

Risk management was carried out by the Investment Manager until the date of its termination under policies approved by the Board of Directors. The risk management is now being carried out by the executive Directors.

 

Foreign currency risk

Foreign currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The Group's operations are conducted in jurisdictions which generate revenue, expenses, assets and liabilities in currencies other than US Dollars. As a result, the Group is subject to the effects of exchange rate fluctuations with respect to these currencies. The currencies giving rise to this risk are South African Rand, Tanzanian Shilling and Pound Sterling.

 

The Group's policy is not to enter into any currency hedging transactions.

 

The table below summarises the Group's exposure to foreign currency risk:

 

31 December 2012	Monetary Assets US$'000	Monetary Liabilities US$'000	Total US$'000
South African Rand	8,068	(6)	8,062
Tanzanian Shilling	37	(43)	(6)
Pound Sterling	-	(185)	(185)
	8,105	(234)	7,871

 

(Represented)                                                  31 December 2011	Monetary Assets US$'000	Monetary Liabilities US$'000	Total US$'000
South African Rand	13,024	(24)	13,000
Tanzanian Shilling	1,815	(1,035)	780
Pound Sterling	-	(219)	(219)
	14,839	(1,278)	13,561

 

Within the 2012 balances, US$7,967,000 (2011: US$780,000) relates to disposal groups held for sale.

 

The Board of Directors monitor and review the Group's currency position on a continuous basis and act accordingly.

 

At 31 December 2012, had the US Dollar strengthened by 7% (2011: weakened 3%) in relation to South African Rand, Tanzanian Shilling and Pound Sterling, with all other variables held constant, the shareholders' equity would have (decreased)/ increased by the amounts shown below:

 

	2012 US$'000	2011 US$'000
South African Rand	(528)	402
Tanzanian Shilling	(243)	352
Pound Sterling	12	(7)
Effect on net assets	(759)	747

 

The direct and indirect subsidiaries do not have US Dollar as their functional currency and therefore on the Group level any effects of changes in foreign exchange rates will be included in the foreign currency translation reserve on consolidation.

 

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Group.

 

The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. This relates also to financial assets carried at amortised cost.

 

At the reporting date, the Group's financial assets exposed to credit risk amounted to the following:

	31 December 2012   US$'000	(Represented)   31 December 2011   US$'000
Loan and receivables due from associate	-	13,024
Finance lease receivables	-	26,891
Cash and cash equivalents	3,695	13,180
Assets of disposal group classified as held for sale	32,300	1,815
	35,995	54,910