RNS Number : 7183T
PME African Infrastructure Opps PLC
11 June 2009
 



11 June 2009



PME AFRICAN INFRASTRUCTURE OPPORTUNITIES PLC

("PME" or the "Group") (AIM: PMEA.L; PMEW.L)


Final results for the year ended 31 December 2008


PME African Infrastructure Opportunities plc, an investment company established to invest in sub-Saharan African infrastructure and infrastructure related industries, announces its results for the year ended 31 December 2008.


Highlights


Financial highlights








Operational highlights








Valuation update





David von Simson, Chairman of PME African Infrastructure Opportunities plc, said: "The investment team is working hard on the ground in Africa within a fast changing and often difficult environment. I am particularly delighted to see the Company's five investments delivering a good uplift in value in spite of the global economic downturn. I am, therefore, confident that the team's efforts will deliver excellent returns for shareholders and that the rationale for investing in African infrastructure remains extremely sound." 


Further enquiries:


PME Infrastructure
Managers Limited
Richard Bouma
+41 22 908 1190
 
 
 
Smith & Williamson Corporate 
Finance Limited
Azhic Basirov/ Siobhan Sergeant
+44 20 7131 4000
 
 
 
Fairfax I.S. PLC
James King
+44 20 7598 5368
 
 
 
Bell Pottinger
Dan de Belder
+44 20 7861 3232
 
 
 
On behalf of
Helvetica (Isle of Man)
Company Limited
Clara Parisot
+41 798 249 788
 
 
 
Principle Capital
Mark Whitfeld
+44 20 7240 3222


Note to Editors:






  Chairman's Statement


I am pleased to report the final results for PME African Infrastructure Opportunities plc ("PME" or "the Company") for the year ended 31 December 2008. The focus of activity in the year has been split between investing PME's capital and monitoring the development of the Company's first five transactions. To date, we have announced five significant transactions, with cumulative equity requirements of up to US$89.5 million.


Investments and Valuations


During the year, the Group's (PME and its subsidiaries) first five investments were completed. Three were in telecommunications networks, in Tanzania (Dovetel), Burundi (Econet) and Uganda (TMP Uganda). The other two were in Sheltam, the railway and genset operations business and in acquiring twelve General Electric locomotives, half of which have subsequently been leased through Sheltam to clients.


The Net Asset Value of the Company calculated in accordance with IFRS stood at US$167.3 million at the year end (down 4.3% from US$174.9 million since 31 December 2007). International Financial Reporting Standards do not recognise open market valuations of the Company's investment portfolio and accordingly the five investments in the portfolio at the year end are valued only on a cost basis in the Net Asset Value calculation.

 

However, a specialist department of one of the major international accountancy firms conducted a valuation of these investments in accordance with International Private Equity and Venture Capital Valuation Board guidelines. Despite the relatively short holding period, three of these investments have been valued above cost and two at cost.  The valuation attributed a potential uplift in value of US$10.3 million, being a 15.7% increase over the cumulative investment cost to date of $65.7 million of these five projects.


In order to demonstrate the potential uplift to shareholders in the net asset value arising from these valuations, the Board has decided to publish an adjusted net asset value, which adds the uplift in value over the cumulative investment cost to the IFRS net asset value. The Adjusted Net Asset Value at the year end was US$177.6 million (98 cents per ordinary share).


Whilst I reported in the June 2008 interim results that I expected the remaining capital to have been invested by the end of 2008, the Board and the investment team have taken an extra cautious approach to further investments pending a stabilisation of the global economy. There are some excellent opportunities in the pipeline which are at various stages of negotiation. The Board will, however, seek to ensure that investment decisions are weighed within the context of ensuring that an appropriate balance is kept between making new investments to further enhance the portfolio and other considerations such as returns of capital to shareholders.


Financial


At 31 December 2008, PME's Net Asset Value in accordance with IFRS was US$167.3 million which equated to 93 cents per ordinary share (31 December 2007: US$174.9 million or 97 cents per ordinary share) and the Adjusted Net Asset Value was US$177.6 million (98 cents per ordinary share). As at the year end there was also gearing of US$2.1 million (31 December 2007: US$Nil), reflecting borrowings and vendor finance arrangements undertaken in respect of two of the Company's investments, Dovetel and Sheltam.


Deposit interest on PME's cash balances generated finance income of $4.3 million, but after portfolio company operating expenses and management and administration fees, the net loss for the year was US$5.7 million.  


Share buy-backs


Against a backdrop of difficult economic conditions, the performance of PME's share price has been disappointing despite the solid performance of the Group's investments and the cash balance the Group has held. In order to enhance shareholder value, in February this year the Group announced that it was commencing a share buy-back and subsequently the Company has bought back 26,925,248 ordinary shares at an average price of 48 cents per share, all of which were cancelled. On a pro forma basis, this would have the impact of increasing the IFRS Net Asset Value to 101 cents per ordinary share and the Adjusted Net Asset Value to 107 cents per ordinary share.  With an increasingly interesting portfolio to discuss, the investment team has been actively increasing its profile with potential investors. We hope that this will develop into more active interest in the shares, particularly as markets stabilise and as the effects of the global downturn on Africa are assessed in hopefully a positive fashion. We are also seeking to renew PME's share buy-back authority at the Company's forthcoming annual general meeting


Outlook


The investment team is working hard on the ground in Africa within a fast changing and often difficult environment. I am particularly delighted to see the Company's five investments delivering a good uplift in value in spite of the global economic downturn. I am, therefore, confident that the team's efforts will deliver excellent returns for shareholders and, as you can read from the Report of the Investment Manager, that the rationale for investing in African infrastructure remains extremely sound. In accordance with the policy set out in the admission document, the Board is not proposing the payment of a dividend for this period.






David von Simson

Chairman

10 June 2009


  Report of the Investment Manager


Introduction


As mentioned in our interim report of June 2008, sub-Saharan Africa has obviously felt the impact of the global economic downturn, primarily in the decrease in commodity prices but, as the IMF reported in April of this year, the economies of many countries in the region are still growing strongly.


This situation has contributed to the current value of the investments that have been made by PME. On admission, the board of PME undertook to appoint an internationally recognised firm of accountants as valuers to perform an independent valuation of the PME's investments on a semi-annual basis. A specialist department of one of the major international accountancy firms conducted a valuation of the portfolio investments in accordance with International Private Equity and Venture Capital Valuation Board guidelines. Despite the relatively short holding period, three of these investments have been valued above cost and two at cost. The valuation attributed a potential uplift in value of $10.3 million, being a 15.7% increase over the cumulative investment cost of $65.7 million of these five projects.


Completed Transactions


Dovetel (T) Limited ("Dovetel"): Dovetel is a telecommunications company with a unified national licence in Tanzania. Dovetel is rolling out a 3G wireless (based on CDMA) national network in order to address the pent-up demand for data and broadband services to both high-end residential and corporate customers. Dovetel bundles its broadband offering with fixed voice services and offers limited mobility voice services to the low-end of the residential market in order to increase penetration beyond the traditional GSM target market for mobile voice.


Dovetel has completed Phase 1 of its national network build out and is in the process of launching services in Dar-es-Salaam. The arrival of the international sub-sea fibre optic cables to the East coast of Africa this year is expected to accelerate the already rapidly growing broadband market in East Africa. Dovetel is well positioned to capitalise on this opportunity and is seeking to become the leading broadband provider in Tanzania.


TMP Uganda Limited ("TMP Uganda"):  TMP Uganda is a telecommunications company with a unified national licence in Uganda. TMP Uganda is rolling out a 4G wireless (based on WiMAX) national network in order to address the demand for data and broadband services to high-end residential as well as the corporate segment of the market. TMP Uganda will also provide voice services to its customer base.


TMP Uganda has completed Phase 1 of its network build in Kampala and has recently launched services to the market. Despite the very recent launch with limited marketing, the company is already experiencing strong consumer demand for its high quality service offering. Like Dovetel, TMP Uganda is well positioned to become the leading broadband provider in Uganda and is expected to benefit from the rapid growth of the industry which is anticipated to accelerate further with the advent of affordable international bandwidth following the anticipated arrival of sub-sea cables.


Econet Wireless Burundi ("EWB"): PME has invested in the expansion of a GSM telecommunications network in Burundi.


EWB has completed Phase 1 of its network build programme and launched its national commercial service in all 15 provinces at the end of April 2009. EWB signed up over 32,500 subscribers, which constitutes about 4% of the market, in the first full month after its launch. With mobile penetration in Burundi at only 6% there is a clear opportunity for a quality operator to enjoy significant growth. EWB continues to experience robust consumer demand and has begun planning for Phase 2 of its network build to increase capacity and expand coverage.


Sheltam Holdings (Pty) Limited ("Sheltam"): Sheltam is a South African company providing engineering, management and operations of railway locomotives and privately-owned rail track, as well as owning and chartering small aircraft. It also repairs and maintains marine engines and small engine-generators. Its rail business extends beyond South Africa with locomotives operating in Mozambique and the Democratic Republic of Congo.


Although Sheltam is a respected South African engineering service supplier, its regional expansion had been constrained due to its previous corporate structure. Since PME invested in the company, regional development has been a core focus for Sheltam and to this end it is pursuing power and rail initiatives in Mozambique, Angola and Namibia, in addition to further opportunities in South Africa. Simultaneously, Sheltam is consolidating its South African operations. It has recently identified an improved replacement for its current maintenance hub on very attractive terms and involving no immediate capital outlay. This should improve its ability to win business as it will be able to undertake its full scope of offered services in one location on its own premises.


In addition, Sheltam is pursuing two initiatives in the rail sector in Mozambique and Angola and two in the power sector in South Africa and Namibia which are the result of a strategic decision to broaden business offerings.


PME Locomotives (Mauritius) Limited: PME owns, via a subsidiary, twelve C30 2.8MW-rated locomotive units that will support mining, general freight and passenger operations throughout sub-Saharan Africa.  These locomotives were acquired from Sheltam Grindrod Leasing (Pty) Limited in anticipation that they would be leased primarily to the Sheltam group. Tractive power is in short supply in sub-Saharan Africa and the fleet provides Sheltam with extra leverage in expanding its engineering services.


Six of the locomotives have already been placed by Sheltam with third party clients and are rented by them from PME. The remaining locomotives will either be sold, together with associated long term maintenance contracts (see below), or contracts will be sought to lease them to a mining or a network rail organisation in the same way as the rest of the fleet.


Transactions in the pipeline


Transport: PME is in discussions with the owners of a secondary airport in southern Africa to acquire the whole or a significant percentage of their interests. The airport services the high end business aviation market and is the base for a significant regional low cost carrier.  


PME has been in discussions with a coal producer who is interested in buying six of the Company's locomotives to be used to transport coal on a local network to a terminal in Beira, Mozambique. This is subject to receiving support from the relevant Mozambican and South African rail operators and government officials. It is anticipated that a decision will be forthcoming by the end of June 2009.


Mining: The Company is looking at an opportunity to provide the infrastructure for a tin and lithium mining operation in the Democratic Republic of Congo ("DRC"). The opportunity would provide, amongst other activities, for the rehabilitation of a 12 MW hydropower station and for the introduction of a newly developed technique for "fingerprinting" ore to ensure that the project complies with international standards of governance. Given, however, the relative instability of the DRC, PME is closely assessing the risks and the opportunity associated with investing in the country before proceeding further.


Energy: An MOU has been submitted to the Government of an East African country which has established a commission to finalise terms under which PME will prepare a feasibility study and then build a 20 MW hydro electric plant project with a strategic partner. This project is part of a World Bank supported regional power plan and will provide much needed generating capacity to the country.


Financial Update


The completed projects have an equity requirement of US$89.5 million, of which US$65.7 million had been invested by the year end. The investments in the pipeline set out above would utilise the balance of funds available to the Company and we would expect progress on these to be made over the next few months. However, as set out in the Chairman's statement, any new investments will need to be weighed against the potential for further returns of capital to shareholders. In addition, the potential sale of locomotives referred to above and our expectations for gearing some of the investments could also serve as a source of funding for future investments or potentially for returns of capital to shareholders.


Outlook


In our opinion the outlook for sub-Saharan Africa relative to what is happening in the rest of the world at this time is very promising, particularly in the infrastructure space and there are a number of reasons for this. Firstly, with the exception of South Africa, there is very little correlation between events in the principal centres of global economic activity and the region where the majority of countries are still further down the development curve. As a result, their governments are focused on providing the basic necessities to their people, most of which involve some form of infrastructure.


Secondly, notwithstanding the continuing and tragic cases of human suffering in places like Darfur and the eastern DRC, the number of democratic governments in sub-Saharan Africa is increasing and this has contributed to the development of more market based economies and to sustained growth of 5% across the region for the last five years as confirmed by an article in The Economist in November last year. It went on to say that with commodity prices likely to fall Africa, though more isolated from the global economy than the rest of the world, would obviously suffer some of its effects but not as badly and "It could yet confound its legion of gloomsters and show that its oft-heralded renaissance is not just another false dawn but the start of something solid and sustainable".


Thirdly, multinational companies like Vodafone (which previously concentrated its efforts on the developed world and then the larger emerging markets such as India) have now identified Africa as a major growth opportunity. By way of example, Vodafone is seeking to add to its 50% stake in South African based Vodacom by buying a further 15% from Telkom and has expressed a desire to expand its operations across the continent. Other major telecommunications companies are emulating Vodafone, attracted by the relatively low penetration rates of wireless telephony in the continent. The resultant improved communications assist economic development and increases interest in PME's investments in the sector.


Finally, China is investing heavily in Africa not only as a means of securing its supply of critical commodities, such as oil and iron ore but to take advantage of attractive trading opportunities. In March 2009, the Chinese government announced it is to inject a further US$2bn into the China-Africa Development fund earlier than planned in order to take advantage of the value it sees in African investment opportunities. We see China's continued focus on Africa, in general, and African infrastructure in particular as an opportunity rather than a competitive threat. Indeed, PME has strengthened its ties with Chinese equipment suppliers and financial institutions to provide hardware and to facilitate potential lending for its telecommunications companies. In addition, China's model of 'infrastructure for mineral concessions', which enables the development of large projects, such as the Benguela railway in Angola, that may not otherwise have been initiated provides additional opportunities for companies like Sheltam to provide their expertise.

  

Sub-Saharan Africa has some very interesting opportunities for those who have the experience and the networks to identify them. We are very fortunate in that regard and continue to receive a flow of interesting projects many of which would appear to meet PME's investment criteria. However, because due diligence, including the sourcing of accurate and reliable information relating to regulatory approvals, for example, can take a great deal of time in Africa, the investment process can be relatively slow. While this has meant that our rate of investing the available funds may also have been slower than anticipated, we do not believe it is in shareholders' interests to compromise on this process and would like to think that the value of PME's assets, given the current economic environment, provides some justification for PME's measured approach to the market.



PME Infrastructure Managers Limited

Investment Manager

10 June 2009



  PME African Infrastructure Opportunities plc

Consolidated Income Statement



 
 Year ended
  31 December 2008
Period from 19 June 2007 to 31 December 2007
 
US$’000
US$'000
 
 
 
Revenue
8
-
 
 
 
Realised gains on sale of property, plant and equipment
1,148
-
Net changes in fair value on financial assets at fair value through profit or loss
(191)
-
Investment Manager's fees
(2,170)
(1,025)
Administration fees and expenses
(2,657)
(1,075)
Other income
228
-
Foreign exchange loss
(772)
(9)
Operating expenses
(6,592)
-
Operating loss
(10,998)
(2,109)
 
 
 
Finance income
6,896
3,966
Finance costs
(2,386)
(3)
Net finance income
4,510
3,963
 
 
 
Share of profit of associates
757
-
(Loss)/profit before income tax
(5,731)
1,854
 
 
 
Income tax
-
-
(Loss)/profit for the year/period
(5,731)
1,854
 
 
 
Attributable to:
 
 
Equity holders of the Company
(5,367)
1,854
Minority interest
(364)
-
 
(5,731)
1,854
 
 
 
Earnings per share (cent) for (loss)/profit attributable to the equity holders of the Company during the year/period
 
 
Basic
(2.97)
1.03
Diluted
(2.97)
0.99


  PME African Infrastructure Opportunities plc

Consolidated Balance Sheet


As at 31 December 2008

As at 31 December 2007


US$'000

US$'000

Assets



Non-current assets



Intangible assets

2,817

-

Investments in associates

2,933

-

Loans due from associates

15,516

-

Property, plant and equipment

21,791

-

Finance lease receivables

15,304

-




Total non-current assets

58,361

-




Current assets



Financial assets at fair value through profit or loss

69,886

-

Finance lease receivables

604

-

Trade and other receivables

2,860

648

Cash at bank

38,671

174,666

Total current assets

112,021

175,314

Total assets

170,382

175,314




Equity 



Capital and reserves attributable to equity holders of the Company:



Issued share capital

1,805

1,805

Foreign currency translation reserve

(2,245)

-

Retained earnings

167,735

173,102


167,295

174,907

Minority interest

9

-

Total equity

167,304

174,907




Current liabilities



Trade and other payables

3,078

407

Total liabilities

3,078

407

Total equity and liabilities

170,382

175,314


  PME African Infrastructure Opportunities plc

Consolidated Statement of Changes in Shareholders' Equity



Attributable to equity holders of the Company




GROUP

Share capital

Share premium

Foreign currency translation reserve

Retained earnings

Total

Minority interest

Total


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000









Balance at 19 June 2007

-

-

-

-

-

-

-

Shares issued in the period

1,805

178,645

-

-

180,450

-

180,450

Share issue expenses

-

(7,397)

-

-

(7,397)

-

(7,397)

Cancellation of share premium *

-

(171,248)

-

171,248

-

-

-

Profit for the period

-

-

-

1,854

1,854

-

1,854

Balance at 31 December 2007

1,805

-

-

173,102

174,907

-

174,907



Balance at 1 January 2008

1,805

-

-

173,102

174,907

-

174,907

Minority interest on acquisition

-

-

-

-

-

403

403

Foreign exchange translation differences

-

-

(2,245)

-

(2,245)

(30)

(2,275)

Loss for the year

-

-

-

(5,367)

(5,367)

(364)

(5,731)

Balance at 31 December 2008

1,805

-

(2,245)

167,735

167,295

9

167,304


* On 21 December 2007 the value of the Share Premium account was cancelled and transferred to distributable reserves following the approval of the application to the High Court in the Isle of Man. 


  PME African Infrastructure Opportunities plc

Consolidated Cash Flow Statement



Year ended 31 December 2008

Period from 19 June 2007 to 31 December 2007


US$'000

US$'000

Operating activities



(Loss)/profit for the year/period before income tax

(5,731)

1,854

Adjustments for:



  Net changes in fair value on financial assets at fair value through profit or loss

191

-

  Realised gain on sale of property, plant and equipment

(1,148)

-

  Finance income

(6,896)

(3,966)

  Finance costs

2,386

-

  Depreciation

593

-

  Share of profit of associates 

(757)

-

  Foreign exchange losses

772

9

Operating loss before changes in working capital

(10,590)

(2,103)




Increase in trade and other receivables

(1,789)

(386)

(Decrease)/increase in trade and other payables

1,907

407

Cash used in operations

(10,472)

(2,082)

Interest paid

(2,386)

-

Interest received

4,643

3,704

Net cash (used in)/generated from operating activities

(8,215)

1,622




Investing activities



Acquisition of subsidiaries, net of cash acquired

(567)

-

Acquisition of associates

(2,621)

-

Loans to associates

(14,463)

-

Purchase of property, plant and equipment

(37,436)

-

Purchase of intangible assets

(888)

-

Purchase of treasury bills

(195,077)

-

Maturity of treasury bills

125,000

-

Cash restricted by bank guarantees

(2,315)

-

Net cash used in investing activities

(128,367)

-




Financing activities



Proceeds from the issue of ordinary share capital (net of issue costs)

-

173,053

Repayment of borrowings

(173)

-

Net cash (used in)/generated from financing activities

(173)

173,053




Net (decrease)/increase in cash and cash equivalents

(136,755)

174,675

Cash and cash equivalents at beginning of year/period

174,666

-

Foreign exchange losses on cash and cash equivalents

(1,487)

(9)

Cash and cash equivalents at end of year/period

36,424

174,666


  Notes to the Financial Statements


1  General Information


PME African Infrastructure Opportunities plc (the "Company") was incorporated and registered 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") is 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.


The Company's investment activities are managed by PME Infrastructure Managers Limited (the "Manager"). The Company's administration is delegated to Galileo Fund Services Limited (the "Administrator"). The registered office of the Company is 3rd Floor, Britannia House, St George's Street, Douglas, Isle of ManIM1 1EJ


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


The Company's agents and the Manager perform all significant functions. Accordingly, the Company itself has no employees.


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$2,516,403 (period from 19 June to 31 December 2007: profit US$1,853,639).


2  Summary of Significant Accounting Policies


The principal accounting policies applied in the preparation of these financial statements are set out in the annual report. These policies have been consistently applied to all years/periods 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 UnionThe financial statements have been prepared under the historical cost convention, as modified by the revaluation of 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's accounting policies.


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:


Estimated impairment of Goodwill

The Group tests annually whether goodwill has suffered any impairment. In assessing impairment, the Group takes account of the business plans and projected results of the relevant subsidiaries. In addition, the Group engaged a specialist department of one of the major international accountancy firms to conduct a valuation of the portfolio investments in accordance with International Private Equity and Venture Capital Valuation Board guidelines. Based upon this information the Group has determined that there has been no impairment of the value of goodwill. 


Telecommunication Licences  

The Group tests annually whether telecommunications licenses held by group companies have suffered any impairment. In assessing impairment, the Group takes account of the business plans and projected results of the relevant subsidiaries. In addition, the Group engaged a specialist department of one of the major international accountancy firms to conduct a valuation of the portfolio investments in accordance with International Private Equity and Venture Capital Valuation Board guidelines Based upon this information the Group has determined that there has been no impairment of the value of telecommunication licenses. 


Loans to associate Companies

The Group tests annually whether loans to associated companies have suffered any impairment. In assessing this the Group takes account of the impairment tests carried out on the associated Company investments as well as the business plans of these companies. In addition, the Group engaged a specialist department of one of the major international accountancy firms to conduct a valuation of the portfolio investments in accordance with International Private Equity and Venture Capital Valuation Board guidelines. Based upon this information the Group has determined that there has been no impairment of the value of loans to assocated companies.


3  Risk Management


The Company's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price 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 in the annual report. 


Risk management is carried out by the Investment Manager under policies approved by the Board of Directors. 


The market price risk and interest rate risk in relation to the financial assets at fair value through profit or loss is considered to be low due to the Group only holding short term zero coupon US Treasury Bills which are guaranteed by the US Government.


Market price risk

The Group's strategy on the management of market risk is driven by the Group's investment objective. The objective of the Group is 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. The Group's market risk is monitored by the Investment Manager on a day to day basis and by the Directors at Board meetings.


Foreign exchange risk

Currency risk is the risk that the value of the 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, Pound Sterling and Ugandan Shilling. 


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 2008

Monetary Assets

US$'000

Monetary Liabilities

US$'000

Total

US$'000

South African Rand

662

-

662

Tanzanian Shilling

3,208

(574)

2,634

Pound Sterling

205

(232)

(27)

Ugandan Shilling

1,067

(2,271)

(1,204)


5,142

(3,077)

2,065


31 December 2007

Monetary Assets

US$'000

Monetary Liabilities

US$'000

Total

US$'000

Pound Sterling

65

(198)

(133)


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


At 31 December 2008, had the US Dollar strengthened by 1in relation to South African Rand, Tanzanian Shilling, Pound Sterling and Uganda Shilling, with all other variables held constant, the shareholders' equity would have decreased by the amounts shown below:



US$'000

South African Rand

(36)

Tanzanian Shilling

(99)

Pound Sterling

-

Ugandan Shilling

(23)

Effect on net assets

(158)


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 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 2008  

US$'000

31 December 2007

US$'000

Loans due from associates

15,516

-

Finance lease receivables

15,908

-

Financial assets at fair value through profit or loss

69,886

-

Trade and other receivables

2,860

648

Cash at bank

38,671

174,666


142,841

175,314


The Group manages its credit risk by monitoring the creditworthiness of counterparties regularly. Cash transactions and balances are limited to high-credit-quality financial institutions (at least an Aa2 credit rating). Loans due from associates and trade and other receivables relate mostly to project investments and the Investment Manager and the Board of Directors do not expect any losses from non-performance by these counterparties. All investment opportunities are analysed objectively prior to Board approval, including a financial and business due diligence investigation of each potential project.


The credit risk in relation to the financial assets at fair value through profit or loss is considered to be low due to the Group only holding short term zero coupon US Treasury Bills which are guaranteed by the US government.


Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its obligations as they fall due. The Group currently manages its liquidity risk by maintaining sufficient cash (maturing on a weekly and monthly basis). The Group's liquidity position is monitored by the Investment Manager and the Board of Directors. 


The residual undiscounted contractual maturities of financial liabilities are as follows:


31 December 2008

Less than 1 month

1-3 months

3 months to 1 year

1-5 years

Over 5 years

No stated maturity


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial liabilities







Trade and other payables

3,078

-

-

-

-

-


3,078

-

-

-

-

-


31 December 2007

Less than 1 month

1-3 months

3 months to 1 year

1-5 years

Over 5 years

No stated maturity


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial liabilities







Trade and other payables

407

-

-

-

-

-


407

-

-

-

-

-


Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group is exposed to interest rate risk from the cash held in interest bearing accounts at floating rates or short term deposits of one month or less. The Company's Investment Manager and Board of Directors monitor and review the interest rate fluctuations on a continuous basis and act accordingly.


At 31 December 2008 should interest rates have decreased by 100 basis points, with all other variables held constant, the shareholders' equity and profit for the year would have been US$1,547,000 (2007: 25 basis points US$203,000) lower.


Capital Risk Management

The Group's primary objective when managing its capital base is to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders.

 

Consistent with others in the industry, the Group intends to leverage its capital structure through the use of commercial borrowing and will endeavour to secure such finance for individual portfolio investments on a non-recourse basis where practicable.


The overall level of commercial borrowings on the Group's portfolio, at the date on which any such borrowing is incurred, is expected to generate a debt: equity ratio in the region of 70:30 although the Directors may from time to time review this ratio in the light of changing market circumstances and the particular investments being made by the Group in order to maintain the optimum level of gearing. As at 31 December 2007 and 2008, the Group did not have any debt finance. 


The Group evaluates levels of capital available and future capital requirements to determine where returns of capital (by way of share buy-backs) are appropriate.


Group capital comprises share capital and reserves.


No changes were made in respect of the objectives, policies or processes in respect of capital management during the period and year ended 31 December 2007 and 2008.


  4  Segment Information


Segment information is presented in respect of the Group's business and geographical segments. The segments are managed on a worldwide basis, but operate in two principal business segments: telecommunications and transport.


Year ended 31 December 2008

Telecommunications

Transport

Other *

Total


US$'000

US$'000

US$'000

US$'000

Net rent and associated income

8

-

-

8

Depreciation

(25)

(568)

-

(593)

Share of profit of associates

-

757

-

757

Segment results

(4,654)

1,986

(3,063)

(5,731)

Capital expenditure

9,528

15,080

-

24,608

Investment in associates

-

2,933

-

2,933

Segment assets

24,814

39,235

106,333

170,382

Segment liabilities

(2,845)

-

(233)

(3,078)


Period ended 31 December 2007

Telecommunications

Transport

Other

Total


US$'000

US$'000

US$'000

US$'000

Segment results

-

-

1,854

1,854

Segment assets

-

-

175,314

175,314

Segment liabilities

-

-

(407)

(407)


Other refers to income and expenses of the Group not specific to any specific sector such as fees of the Investment Manager and income on un-invested funds. Other assets comprise financial assets at fair value US$69,886,000; cash and cash equivalents US$35,821,000; and other assets US$626,000.


The Group has two geographical segments, South Africa and Other. The Transport business segment above relates exclusively to South Africa.


5  Investment Manager Fees


Annual fees

The Investment Manager receives a management fee of 1.25per annum of the gross asset value of the Group from Admission, payable quarterly in advance and subject to a cap of 3% per annum of the net asset value of the Group


The Manager is also entitled to recharge to the Group all and any costs and disbursements reasonably incurred by it in the performance of its duties including costs of travel save to the extent that such costs are staff costs or other internal costs of the Investment Manager. Accordingly, the Group is responsible for paying all the fees and expenses of all valuers, surveyors, legal advisers and other external advisers to the Group in connection with any investments made on its behalf. All amounts payable to the Investment Manager by the Group are paid together with any value added tax, if applicable.


Annual management fees payable for the year ended 31 December 2008 amounted to US$2,169,502 (period from 19 June to 31 December 2007: US$1,025,279).


Performance fees

The Investment Manager is entitled to a performance fee of 20of the net income and capital cash returns to the Company or any subsidiary in respect of the sale or partial sale, refinancing or restructuring of an investment in an infrastructure project ("relevant investment") provided that the "Project test" has been passed. For these purposes, the Project test will be passed if the Company or any subsidiary has received in cash the return of all its cash invested in a relevant investment and a return equivalent to an internal rate of return of 12% on such cash. 


80% of the performance fee calculated will be payable to the Investment Manager within 30 days of the receipt of the relevant returns by the Company. The balance will be paid at the same time into an escrow account invested in money market deposits. 


At the end of the financial period ending on 31 December 2010 and at the end of each financial period thereafter the Total Return will be calculated and the total performance fee will be calculated as 20% of the Total Return multiplied by the weighted average number of Ordinary Shares in issue during the period, provided that the Total Return exceeds the NAV test, being the proceeds of the Placing Shares increased at a rate of 12% per annum on an annual compound basis from the date of Admission to the Relevant End Date. Total Return is the difference between the net asset value per Ordinary Share as at the last business day of the relevant financial period and the net proceeds of the placing shares divided by the number of placing shares. 


Performance fees payable for the year ended 31 December 2008 amounted to US$nil (period from 19 June to 31 December 2007: US$nil).


6  Operating expenses



Year ended 31 December 2008

US$'000

Period from 19 June 2007 to 31 December 2007

US$'000

Administration expenses

1,348

-

Depreciation

593

-

Finance lease amortisation

4

-

Distribution costs

110

-

Management fees

3,423

-

Licence fees

321

-

Employee costs

369

-

Other

424

-

Operating expenses

6,592

-


The operating expenses of US$6,591,496 listed above all relate to expenses of the subsidiary companies within the Group.


7  Basic and Diluted (Loss)/Earnings per Share


(a)  Basic


Basic (loss)/earnings per share is calculated by dividing the (loss)/profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year/period.



Year ended  31 December 2008

Period from 19 June 2007 to 31 December 2007




(Loss)/profit attributable to equity holders of the Company (US$'000)

(5,367)

1,854

Weighted average number of ordinary shares in issue (thousands)

180,450

180,450

Basic (loss)/earnings per share (cent per share)

(2.97)

1.03


(b)  Diluted


Diluted (loss)/earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The company has one category of dilutive potential ordinary shares: warrants.


A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company's shares) based on the proceeds that would be received assuming all the warrants are exercised. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the warrants. 



Year ended 31 December 2008

Period from 19 June 2007 to 31 December 2007

(Loss)/profit attributable to equity holders of the Company (US$'000)

(5,367)

1,854

Weighted average number of ordinary shares in issue (thousands)

180,450

180,450

Adjustments for:



Warrants

-

5,961

Weighted average number of ordinary shares for diluted earnings per share (thousands)

180,450

186,411

Diluted (loss)/earnings per share (cent per share)

(2.97)

0.99


Since the year end the Company has purchased Ordinary Shares for cancellation. This has no impact on the Earnings per Share calculation for the year ended 31 December 2008.


8  Subsidiaries and Associates


8.1  Subsidiaries


During the year and for effective portfolio management purposes, the Company established the following subsidiary companies:-



Country of incorporation

Percentage of share held

PME Burco (Mauritius) Limited

Mauritius

100%

PME Locomotives (Mauritius) Limited

Mauritius

100%

PME RSACO (Mauritius) Limited

Mauritius

100%

PME Tanco (Mauritius) Limited

Mauritius

100%

PME Uganco (Mauritius) Limited

Mauritius

100%


The Company invested in its direct subsidiaries as follows:



2008


US$'000

Start of the year

-

Increase in investment

67,029

End of the year

67,029


On 1 February 2008 PME Uganco (Mauritius) Limited acquired 82% of TMP Uganda Limited, a telecommunications company incorporated in Uganda, for a cost of US$2.5 million.


On 17 March 2008 PME Tanco (Mauritius) Limited acquired 65% of Dovetel Tanzania Limited, a telecommunications company incorporated in Tanzania, for a cost of US$521,451.


The directors do not believe that there is any impairment in the carrying value of its investments as impairment tests carried out internally, supported by a specialist department of one of the major international accountancy firms, indicated no impairment.


  8.2  Associates 



2008

2007


US$'000

US$'000

Start of the year/period

-

-

Acquisition of associates

2,621

-

Foreign exchange loss

(445)

-

Share of profit of associates

757

-

End of the year/period

2,933

-


On 19 September 2008 the Group acquired 50% of the ordinary share capital of Sheltam Holdings (Pty) Limited, a transport company incorporated in South Africa, for US$2,621,386 (ZAR 21,586,588). There was goodwill of US$640,204 (ZAR 5,271,951) as a result of this transaction.


On 26 September 2008 the Group acquired 49.5% of the ordinary share capital of Econet Wireless Global Ventures Limited, a telecommunications company incorporated in Mauritius, for US$50. There was goodwill of US$16,472 as a result of this transaction. 


The Group's share of the results of its principal associates, all of which are unlisted, and its share of the aggregate assets (including goodwill) and liabilities, is as follows:


2008

Assets

Liabilities

Revenues

Profit

Name

US$'000

US$'000

US$'000

US$'000

Econet Wireless

7,099

(7,099)

-

-

Sheltam Holdings

18,970

(16,037)

4,268

757


26,069

(23,136)

4,268

757


Loans due from associates


The loans due from associates are as follows:


Name

Term

Interest Rate

31 December 2008




$'000

Econet Wireless Global Ventures Limited

(US$10m principal; US$1.011m accrued interest)

31 December 2012

40% per annum

11,011

Sheltam Holdings (Pty) Limited

(US$3.843m principal; US$0.658m accrued interest)

No fixed term

Prime* plus 2%

4,505




15,516


Prime Rate as published by the Reserve Bank of South Africa (15% at 31 December 2008).


The fair value of these loans approximate their carrying value at 31 December 2008. 


9  Intangible assets


Group

Goodwill  

Telecommunication licences

Total


US$'000

US$'000

US$'000

At 1 January 2008

-

-

-

Acquisitions through business combinations

1,843

122

1,965

Additions

-

888

888

Exchange differences

-

(36)

(36)

At 31 December 2008

1,843

974

2,817


There has been no impairment of the value of goodwill and telecommunications licences. Amortisation of the telecommunication licences will commence when the underlying networks become available for use.


The Group did not hold any intangible assets in the period ended 31 December 2007.


10  Property, Plant and Equipment


Group

Locomotives

Capital WIP

Network Equipment

Office Equipment

Motor Vehicles

Tools

Total


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Cost








At 1 January 2008

-

-

-

-

-

-

-

Additions

30,325

3,966

2,918

102

38

87

37,436

Disposals

(15,013)

-

-

-

-

-

(15,013)

Exchange differences

-

(98)

(186)

(3)

(2)

-

(289)

At 31 December 2008

15,312

3,868

2,732

99

36

87

22,134

Accumulated depreciation








At 1 January 2008

-

-

-

-

-

-

-

Disposals

249

-

-

-

-

-

249

Charge for the year

(568)

-

(11)

(11)

(3)

-

(593)

Exchange differences

-

-

1

-

-

-

1

At 31 December 2008

(319)

-

(10)

(11)

(3)

-

(343)

Net Book Value








At 31 December 2008

14,993

3,868

2,722

88

33

87

21,791

At 31 December 2007

-

-

-

-

-

-

-


There were no impairment charges in 2008.


The Group did not own any property, plant and equipment in the period ended 31 December 2007.


11  Finance lease receivables



31 December 2008

US$'000

31 December 2007

US$'000

Amounts receivable under finance leases:



Within one year

3,066

-

In the second to fifth years inclusive

9,206

-

Beyond five years

18,203

-


30,475

-

Less: unearned finance income

(14,567)

-

Present value of minimum lease payments receivable

15,908

-


The present value of the lease payments is receivable as follows:



31 December 2008

US$'000

31 December 2007

US$'000

Within 1 year

604

-

After 1 year

15,304

-


15,908

-


The Group has entered into finance leasing arrangements with Sheltam Holdings (Pty) Limited, an associated company, for six locomotives. The average term of finance leases entered into is ten years. The interest rate inherent in the leases is fixed at the contract date for the entire lease term. The average effective interest rate contracted approximates to 14.11%. The fair value of the Group's finance lease receivables at 31 December 2008 is estimated at $15,908,000. The lease receivables are secured on the related assets.


  12  Financial assets at fair value through profit or loss


Held for trading


Group and Company

31 December 2008

31 December 2007

Security name

US$'000

US$'000




US Treasury Bill 0% 15/01/09

34,971

-

US Treasury Bill 0% 29/01/09

34,915

-


69,886

-


Net changes in fair value on financial assets at fair value through profit or loss:



31 December 2008

US$'000

31 December 2007

US$'000




Realised losses

40

-

Unrealised losses

151

-

Total losses

191

-


13  Cash at Bank


Group

31 December 2008

US$'000

31 December 2007

US$'000




Bank balances

36,424

46

Deposit balances

2,247

174,620

Cash at bank

38,671

174,666


The deposit balances include US$247,000 held as security for a letter of credit issued by Standard Chartered Bank, and US$2 million as security for a bank guarantee issued by Barclays Bank in Tanzania in favour of the Tanzania Communications Regulatory Authority. These are the only figures excluded from the above balances for analysing the movements of cash and cash equivalents in the cash flow statement. There were no bank guarantees as at 31 December 2007.


Company

31 December 2008

US$'000

31 December 2007

US$'000




Bank balances

35,014

46

Deposit balances

-

174,620

Cash at bank

35,014

174,666


14  Share Capital


Ordinary Shares of $0.01 each

As at 31 December 2007 & 2008  Number

As at 31 December 2007 & 2008  US$'000

Authorised

500,000,000

5,000

Issued

180,450,000

1,805


C Shares of US$1 each

As at 31 December 2007 & 2008  Number

As at 31 December 2007 & 2008  US$'000

Authorised

5,000,000

5,000

Issued

-

-


At incorporation the authorised share capital of the Company was US$10,000,000 divided into 500,000,000 ordinary shares of US$0.01 each and 5,000,000 C Shares of US$1.00 each.  


The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.


The holders of C Shares are entitled to one vote per share at the meetings of the Company. The C Shares will be converted into Ordinary shares on the approval of the Directors. On conversion each C share will be sub-divided into 100 C Shares of US$0.01 each and will be automatically converted into New Ordinary shares of US$0.01 each.


On 12 July 2007, the Company raised a gross amount of US$180,450,000 following the admission of the Company's ordinary shares to AIM. The Company placed 180,450,000 Ordinary Shares of US$0.01 par value, at an issue price of US$1.00 per share, and 36,090,000 warrants on a 1 warrant per 5 ordinary shares basis. 


A registered holder of a Warrant has the right to subscribe for Ordinary Shares of US0.01 each in the Company in cash on 30 April in any of the years 2008 to 2012 for a price of US$1.25 each. 


15  Net Asset Value per Share


Group


   As at 31 December 2008

   As at 31 December 2007




Net assets attributable to equity holders of the Company (US$'000)

167,304

174,907

Shares in issue (thousands)

180,450

180,450

NAV per share (US$)

0.93

0.97


The NAV per share is calculated by dividing the net assets attributable to equity holders of the Group by the number of ordinary shares in issue. 


16  Business Combinations


On 1 February 2008 PME Uganco (Mauritius) Limited acquired 82% of TMP Uganda Limited and obtained control of TMP Uganda Limited, a telecommunications company based in Uganda. The acquired business contributed revenues of US$7,874 (UGX 14 million) and net loss of US$2,020,918 (UGX 3,721 million) to the Group for the period 1 February to 31 December 2008. If the acquisition had occurred on 1 January, Group revenue and loss would have increased by US$716 and US$175,483 (UGX 1 million and UGX 323 million) respectively. These amounts have been calculated using the Group's accounting policies and have not required any adjustments to the results of the subsidiary.


Details of net assets acquired and goodwill are as follows:


Fair value and acquiree's carrying amount


US$'000

Intangible assets

122

Trade and other receivables

103

Cash and cash equivalents

2,454

Borrowings

(186)

Trade and other payables

(254)

Fair value of net assets

2,239

Minority interest

(403)

Net assets acquired

1,836

Goodwill

664

Total purchase consideration

2,500


New shares were issued to PME Uganco (Mauritius) Limited for a cost of US$2.5 million, which was settled in cash.


On 17 March 2008 PME Tanco (Mauritius) Limited acquired 65% of Dovetel Tanzania Limited and obtained control of Dovetel Tanzania Limited, a telecommunications company based in Tanzania.


The acquired business contributed revenues of US$nil (TZS nil) and net loss of US$5,974,070 (TZS 7,460 million) to the Group for the period 17 March to 31 December 2008. If the acquisition had occurred on 1 January, Group revenue and loss would have increased by US$nil and US$1,088,639 (TZS nil and TZS 1,359 million) respectively. These amounts have been calculated using the Group's accounting policies and have not required any adjustments to the results of the subsidiary.


Details of net assets acquired and goodwill are as follows:



Fair value and acquiree's carrying amount


US$'000



Trade and other payables

(658)

Fair value of net liabilities

(658)

Minority interest

-

Net liabilities acquired

(658)

Goodwill

1,179

Total purchase consideration

521


New shares were issued to PME Tanco (Mauritius) Limited for a cost of US$521,451, which were settled in cash. 


17  Contingent Liabilities and Commitments


The following guarantees are in place as a result of the acquisition of 50% of the ordinary share capital of Sheltam Holdings (Pty) Limited:


(i) Rand Merchant Bank debtors facility in the amount of US$1.1(ZAR 10m) of which 50% has been indemnified by Roy Puffett, a shareholder in and a director of Sheltam Holdings (Pty) Limited.


(ii) FirstRand Bank suretyship in the amount of US$0.6m (ZAR 6m) in connection with a US$1.2m (ZAR 12m) working capital facility.

 

(iii) Rand Merchant Bank letter of support in the amount of US$0.6m (ZAR 5.5m) in connection with aircraft finance lease obligations.


The indirect subsidiaries Dovetel (T) Limited and TMP Uganda Limited had contractual commitments to acquire mobile telecommunication network infrastructure equipment. The Group's share of these commitments were valued at US$6.9 million and US$1.7 million respectively at the balance sheet date.


Dovetel (T) Limited has entered into operating lease agreements for a number of office and property buildings. The lease terms are between one and ten years and the majority of the lease agreements are renewable at the end of the lease period at market rates.


The Group's share of future aggregate minimum lease payments under operating leases are as follows:




Dovetel (T) Limited

US$'000

Amounts payable under operating leases:



Within one year


57

In the second to fifth years inclusive


283

Beyond five years


1,209



1,549


18  Related Party Transactions


Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence over the other party in making financial or operational decisions. 


The Directors of the Company are considered to be related parties by virtue of their influence over making operational decisions.


Brian Myerson, a director of the Company, is executive chairman of Principle Capital Holdings S.A. ("PCH") and is joint chairman of the Investment Manager, PME Infrastructure Managers Limited. PCH indirectly owns 31.67 per cent. of the Investment Manager. Fees payable to the Investment Manager are disclosed in Note 5 in the annual report


Silex Management Limited ("Silex"), an indirect subsidiary of PCH has been retained by the Company to administer the overseas subsidiaries. A total of $273,873 has been invoiced by Silex in respect of the financial year ended 31 December 2008 (period from 19 June 2007 (date of incorporation) to 31 December 2007: $68,274).


Lawrence Kearns, a director of the Company, is non-executive director of the Administrator and the Custodian. Fees payable to the Administrator are disclosed in Note 6 in the annual report

 

19  Post Balance Sheet Events


Since the year end the Company has purchased for cancellation 26,925,248 Ordinary Shares of $0.01 each in the Company through Fairfax I.S. PLC at a total cost, before expenses, of $13 million. This represents 14.92% of the issued share capital.


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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