FAIRFAX AFRICA HOLDINGS CORPORATION US$ ( Subordinate Voting Shares)

Transcription

1 A copy of this amended and restated preliminary prospectus has been filed with the securities regulatory authority in each of the provinces and territories of Canada but has not yet become final for the purpose of the sale of securities. Information contained in this amended and restated preliminary prospectus may not be complete and may have to be amended. The securities may not be sold until a receipt for the prospectus is obtained from the securities regulatory authorities. No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. These securities have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the U.S. Securities Act ), or the securities laws of any state of the United States and may not be offered, sold or delivered, directly or indirectly, in the United States (as such term is defined in Regulation S under the U.S. Securities Act) (the United States ) or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S under the U.S. Securities Act), except pursuant to an exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws. This prospectus does not constitute an offer to sell or solicitation of an offer to buy any of these securities in the United States. See Plan of Distribution. AMENDED AND RESTATED PRELIMINARY PROSPECTUS (amending and restating the preliminary prospectus dated December 23, 2016) Initial Public Offering January 17, DEC FAIRFAX AFRICA HOLDINGS CORPORATION US$ ( Subordinate Voting Shares) This prospectus qualifies the distribution to the public (the Offering ) of an aggregate of Subordinate Voting Shares of Fairfax Africa Holdings Corporation (the Company ), a company incorporated under, and governed by, the laws of Canada, at a price of US$10.00 per Subordinate Voting Share (the Offering Price ). The Company is an investment holding company. Its investment objective is to achieve long-term capital appreciation, while preserving capital, by investing in public and private equity securities and debt instruments of African businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, Africa ( African Investments ). Generally, subject to compliance with applicable law, African Investments will be made with a view of acquiring control or significant influence positions. Fairfax Financial Holdings Limited ( Fairfax ) has taken the initiative in creating the Company. Fairfax is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management. Fairfax is listed on the Toronto Stock Exchange ( TSX ) under the symbol FFH. The Company will make its investments directly or through one of its wholly-owned subsidiaries, which currently includes Fairfax Africa Investments Proprietary Limited ( SA Sub ) and will include Fairfax Africa Investments Limited ( Mauritius Sub ). SA Sub is a corporation existing under the laws of South Africa and will carry on investment holding activities in South Africa and Mauritius Sub will be a corporation formed prior to the closing of the Offering (the Closing ) that will exist under the laws of the Republic of Mauritius and will carry on investment holding activities in the Republic of Mauritius. On Closing, each of the Company, SA Sub and Mauritius Sub will appoint Hamblin Watsa Investment Counsel Ltd. (the Portfolio Advisor ), a wholly-owned subsidiary of Fairfax that is registered in the Province of Ontario as a portfolio manager, as its portfolio advisor to source and advise with respect to all investments for the Company and its subsidiaries. Also on Closing, the Portfolio Advisor will retain Pactorum Ltd. ( Pactorum ), a Mauritius and South African-based strategic consultant, on an exclusive basis to the Portfolio Advisor, to provide investment research and analysis, transaction origination, due diligence and similar consulting services with respect to investments of the Company and its subsidiaries. Members of the Pactorum management team have worked closely with Fairfax since 2013 with respect to potential African investments. As a condition to Closing, Fairfax or certain of its wholly-owned subsidiaries will subscribe for or be issued the lesser of (i) 30,000,000 Multiple Voting Shares and (ii) 30% of the equity capital of the Company (the Substantial Equity Investment ). The consideration for the Substantial Equity Investment will include cash ( Fairfax Cash Investment ) and potentially Fairfax s indirect equity interest in AFGRI Proprietary Limited ( AFGRI ) in connection with the investment by the Company in AFGRI (the AFGRI Transaction or the Initial African Investment ). If the Initial African Investment closes contemporaneously with the Closing, 7,284,606 Multiple Voting Shares will be issued to Fairfax or certain of its wholly-owned subsidiaries in respect of the shares in Joseph Investment Holdings ( JIH ), a Mauritius company that owns an indirect interest in AFGRI, beneficially owned by Fairfax, and the balance of the Multiple Voting Shares to be subscribed for by Fairfax will be paid for in cash at a subscription price of US$10.00 per share. If the Initial African Investment does not close at the same time as the Closing, such Multiple Voting Shares and the balance of the Multiple Voting Shares to be subscribed for by Fairfax will be paid for in cash at a subscription price of US$10.00 per share such that the Fairfax Cash Investment will be the lesser of (i) US$300,000,000 and (ii) 30% of the equity capital of the Company. Fairfax s ownership of Multiple Voting Shares will represent approximately % of the voting rights of the Company and % of the equity interest in the Company at Closing (or approximately % and %, respectively, if the Over-Allotment Option (as defined below) is exercised in full). See Principal Shareholder. See The Company Initial African Investment. (continued on next page)

2 (continued from cover) On Closing, Fairfax will agree to retain, either directly or through one or more of its subsidiaries, the Substantial Equity Investment in the Company in accordance with the following principles, in each case subject to certain limited exceptions described in this prospectus: (i) prior to the fifth anniversary of the Closing, Fairfax and its subsidiaries will not sell any portion of the Substantial Equity Investment if, as a result of such sale, the aggregate equity investment of Fairfax and its subsidiaries in Multiple Voting Shares of the Company would have a market value of less than US$300,000,000; (ii) on or after the fifth anniversary of the Closing, but prior to the tenth anniversary of the Closing, Fairfax and its subsidiaries will be permitted to sell any part of their aggregate equity investment in Multiple Voting Shares of the Company so long as, immediately following such sale, they continue to hold an aggregate equity interest in Multiple Voting Shares of the Company having a market value of at least US$150,000,000; (iii) on or after the tenth anniversary of the Closing, Fairfax and its subsidiaries will be permitted to sell, subject to compliance with applicable securities laws and stock exchange requirements, any part of their aggregate equity investment in Multiple Voting Shares of the Company; and (iv) prior to the tenth anniversary of the Closing, if Fairfax or its subsidiaries desire to sell any part of their aggregate investment in Multiple Voting Shares of the Company in a transaction that would not satisfy conditions (i) or (ii) above, Fairfax and its subsidiaries will only be able to complete such a sale if the acquiror agrees, subject to compliance with applicable securities laws and stock exchange requirements, to acquire a pro rata share of the equity investment of all other equity investors in the Company (see About this Prospectus and Principal Shareholder ). In addition, Fairfax will agree on Closing that neither it nor its affiliates will sell or transfer any Multiple Voting Shares that are part of the Substantial Equity Investment until at least 80% of the net proceeds of the Offering have been invested in African Investments. Any sale or transfer by Fairfax or its affiliates of Multiple Voting Shares to a non-affiliate of Fairfax, other than temporarily in connection with the mechanics for closing of the Initial African Investment, will result in such Multiple Voting Shares being automatically converted into Subordinate Voting Shares. See Description of Share Capital. Price: US$10.00 per Subordinate Voting Share Minimum Purchase: 100 Subordinate Voting Shares Price to Underwriters Net Proceeds to the Public Fee (1)(2) the Company (3) Per Subordinate Voting Share... US$10.00 US$0.50 US$9.50 Total Offering (4)(5)... US$ US$ US$ (1) No fee will be payable to the Underwriters (as defined below) in respect of the Multiple Voting Shares to be purchased by Fairfax on Closing, the Cornerstone Investment (as defined below) or the Subordinate Voting Shares issued pursuant to the Initial African Investment. (2) Investors who purchase a minimum of two million Subordinate Voting Shares (US$20 million) under this prospectus will be entitled to a sub-underwriting fee from the Underwriters equal to 40% of the Underwriters fee (or US$0.20 per Subordinate Voting Share) in respect of the Subordinate Voting Shares purchased by such investor under this prospectus. See Plan of Distribution. (3) Before deducting the Company s expenses of the Offering, estimated to be US$, which, together with the Underwriters fee, will be paid from the proceeds of the Offering. See Fees and Expenses. (4) The Company has granted the Underwriters an option (the Over-Allotment Option ), exercisable in whole or in part at any time for a period of 30 days after Closing, to purchase up to an additional 15% of the aggregate number of Subordinate Voting Shares issued under the Offering on the same terms as set forth above solely to cover over-allocations, if any, and for market stabilization purposes. If the Over-Allotment Option is exercised in full, the total Price to the Public, Underwriters Fee and Net Proceeds to the Company will be US$, US$ and US$, respectively. This prospectus also qualifies the grant of the Over-Allotment Option and distribution of the Subordinate Voting Shares issuable upon the exercise of the Over-Allotment Option. A purchaser who acquires Subordinate Voting Shares forming part of the Underwriters over-allocation position acquires such Subordinate Voting Shares under this prospectus, regardless of whether the Underwriters over allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases. See Plan of Distribution. (5) Does not include the Multiple Voting Shares to be purchased by Fairfax on a private placement basis concurrently with the Closing (see Principal Shareholder ) or the Cornerstone Investment (see Cornerstone Investment ). The following table sets out the number of Subordinate Voting Shares that may be issued by the Company to the Underwriters pursuant to the Over-Allotment Option: Maximum size or Number of Underwriters position Securities Available Exercise Period Exercise Price Over-Allotment Option Up to an additional 15% of the For a period of 30 days after US$10.00 per Subordinate aggregate number of Closing Voting Share Subordinate Voting Shares issued under the Offering

3 (continued from cover) RBC Dominion Securities Inc. ( RBCDS ), Citigroup Global Markets Canada Inc. ( Citi ), UBS Securities Canada Inc., BMO Nesbitt Burns Inc. ( BMO ), CIBC World Markets Inc. ( CIBC ), National Bank Financial Inc. ( NBF ), Scotia Capital Inc. ( Scotia ), TD Securities Inc. ( TDSI ), Canaccord Genuity Corp., Cormark Securities Inc., Desjardins Securities Inc. ( Desjardins ), GMP Securities L.P., Raymond James Ltd., Dundee Capital Partners and Manulife Securities Incorporated (collectively, the Underwriters ), as principals, conditionally offer the Subordinate Voting Shares qualified under this prospectus, subject to prior sale, if, as and when issued by the Company and accepted by the Underwriters in accordance with the conditions contained in the underwriting agreement between the Company, Fairfax and the Underwriters referred to under Plan of Distribution and subject to the approval of certain legal matters on behalf of the Company by McCarthy Tétrault LLP and on behalf of the Underwriters by Stikeman Elliott LLP. In connection with this distribution, the Underwriters have been granted the Over-Allotment Option and may, subject to applicable law, over-allocate or effect transactions that stabilize or maintain the market price of the Subordinate Voting Shares at levels other than those that otherwise might prevail on the open market. The Underwriters may offer the Subordinate Voting Shares at a price lower than that stated above. See Plan of Distribution. Concurrent with the Closing, OMERS Administration Corporation ( OMERS ) and certain investment funds managed by Harbour Advisors, a division of CI Investments Inc. ( CI and together with OMERS, the Cornerstone Investors ) have agreed to purchase an aggregate of 11,578,948 Subordinate Voting Shares on a private placement basis at the Offering Price (less a private placement fee of US$0.50 per Subordinate Voting Share payable to each such investor) for gross proceeds of approximately US$116 million pursuant to subscription agreements with the Company dated as of December 22, The investments from OMERS and CI are referred to herein as the Cornerstone Investment. No commission or other fee will be paid to the Underwriters or any other underwriters or agents in connection with the Cornerstone Investment. See Plan of Distribution. Completion of the Cornerstone Investment is subject to a number of conditions, including the Cornerstone Investors being satisfied with the terms and conditions set forth in this prospectus and the Closing of the Offering. Under the Underwriting Agreement, closing of the Offering is conditional on the closing of the Cornerstone Investment. Subscriptions will be received subject to rejection or allocation in whole or in part and the Underwriters reserve the right to close the subscription books at any time without notice. The Closing is expected to occur on or about, 2017 or such other date as the Company and the Underwriters may agree, but in any event no later than, 2017 (the Closing Date ). Registrations and transfers of Subordinate Voting Shares will be effected electronically through the non-certificated inventory system administered by CDS Clearing and Depository Services Inc. ( CDS ). Beneficial owners of Subordinate Voting Shares will not, except in certain limited circumstances, be entitled to receive physical certificates evidencing their ownership of Subordinate Voting Shares. See Plan of Distribution. The Company has applied to have the Subordinate Voting Shares listed on the TSX. Listing of the Subordinate Voting Shares on the TSX is subject to approval by the TSX of the Company s listing application and fulfillment by the Company of all the initial requirements and conditions of the TSX. The TSX has not conditionally approved the listing of the Subordinate Voting Shares and there is no assurance that the TSX will approve the Company s listing application. There is currently no market through which the Subordinate Voting Shares may be sold and purchasers may not be able to resell the Subordinate Voting Shares purchased under this prospectus. This may affect the pricing of the Subordinate Voting Shares in the secondary market, the transparency and availability of trading prices, the liquidity of the Subordinate Voting Shares, and the extent of issuer regulation. An investment in the Subordinate Voting Shares is subject to a number of risks that should be considered by a prospective purchaser. Investors should carefully consider the risk factors described under Risk Factors before purchasing the Subordinate Voting Shares. RBCDS, Citi, BMO, CIBC, NBF, Scotia, TDSI and Desjardins are affiliates of Canadian chartered banks that are part of a syndicate of lenders that has provided a US$1 billion unsecured revolving credit facility to Fairfax. Scotia and CIBC are affiliates of Canadian chartered banks that are part of a syndicate of lenders that has provided a US$225 million unsecured revolving credit facility to Fairfax India Holdings Corporation, a subsidiary of Fairfax and an affiliate of the Company. Consequently, the Company may be considered a connected issuer of RBCDS, Citi, BMO, CIBC, NBF, Scotia, TDSI and Desjardins under applicable Canadian securities laws. See Plan of Distribution. Fairfax is a registered trademark of Fairfax Financial Holdings Limited.

4 TABLE OF CONTENTS Page ABOUT THIS PROSPECTUS... 1 SOUTH AFRICAN EXCHANGE MEANING OF CERTAIN REFERENCES. 3 CONTROL REGULATIONS FORWARD-LOOKING STATEMENTS... 3 PRIOR ISSUANCES CURRENCY PRESENTATION AND DIRECTORS AND MANAGEMENT OF EXCHANGE RATE INFORMATION... 5 THE COMPANY MARKET DATA AND INDUSTRY DATA. 5 REMUNERATION OF DIRECTORS AND ELIGIBILITY FOR INVESTMENT... 6 SUB DIRECTORS PROSPECTUS SUMMARY... 7 EXECUTIVE COMPENSATION POST-CLOSING STRUCTURE INDEBTEDNESS OF DIRECTORS AND OFFICERS THE OFFERING PLAN OF DISTRIBUTION SUMMARY OF FEES AND EXPENSES.. 18 FEES AND EXPENSES THE COMPANY AFRICA OVERVIEW RISK FACTORS INVESTMENT RESTRICTIONS PROMOTER THE PORTFOLIO ADVISOR LEGAL PROCEEDINGS AND REGULATORY ACTIONS PACTORUM THE PORTFOLIO ADMINISTRATOR LEGAL MATTERS MAURITIUS SUB AND SA SUB CALCULATION OF TOTAL ASSETS AND NET ASSET VALUE Page INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS AUDITOR, TRANSFER AGENT AND REGISTRAR THE CUSTODIANS PRINCIPAL SHAREHOLDER MATERIAL CONTRACTS CORNERSTONE INVESTMENT AGENT FOR SERVICE OF PROCESS USE OF PROCEEDS PURCHASERS STATUTORY RIGHTS DIVIDEND POLICY GLOSSARY DESCRIPTION OF SHARE CAPITAL INDEX TO FINANCIAL STATEMENTS.. F-1 CONSOLIDATED CAPITALIZATION APPENDIX A BOARD MANDATE... A-1 CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS APPENDIX B AUDIT COMMITTEE CHARTER... REPUBLIC OF MAURITIUS INCOME B-1 TAXATION OF MAURITIUS SUB AND CERTIFICATE OF THE ISSUER AND THE COMPANY PROMOTER... C-1 SOUTH AFRICAN INCOME TAXATION CERTIFICATE OF THE OF SA SUB AND THE COMPANY UNDERWRITERS... C-2 i

5 ABOUT THIS PROSPECTUS An investor should rely only on the information contained in this prospectus and is not entitled to rely on parts of the information contained in this prospectus to the exclusion of others. The Company has not, and the Underwriters and Fairfax have not, authorized anyone to provide investors with additional or different information. The Company is not, and the Underwriters are not, offering to sell the Subordinate Voting Shares in any jurisdiction where the offer or sale of such securities is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus or the date indicated, regardless of the time of delivery of this prospectus or of any sale of the Subordinate Voting Shares. For investors outside Canada, none of the Company, Fairfax or any of the Underwriters has done anything that would permit the Offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in Canada. Investors are required to inform themselves about, and to observe any restrictions relating to, the Offering and the possession or distribution of this prospectus. This prospectus includes a summary description of certain material agreements of the Company. See Material Contracts. The summary description discloses all attributes material to an investor in the Subordinate Voting Shares but is not complete and is qualified by reference to the terms of the material agreements, which will be filed with the Canadian securities regulatory authorities and available on SEDAR. Investors are encouraged to read the full text of such material agreements. Any graphs and tables demonstrating the historical performance of the Initial African Investment or any other entity contained in this prospectus are intended only to illustrate past performance of such entities and are not necessarily indicative of future performance of such entities or the Company. In order to address certain securities regulatory or public interest policy objectives, the Company will voluntarily adopt a number of measures that will define its business and the scope of its operations. These voluntarily adopted measures include: (a) the Company will invest the net proceeds of the Offering, together with the net proceeds of the Cornerstone Investment and the concurrent issuance of up to 30,000,000 Multiple Voting Shares (which will be comprised of (i) US$227,153,940 in cash from Fairfax and the in-kind contribution of Fairfax s indirect interest in the Initial African Investment if such transaction closes contemporaneously with the Closing or (ii) US$ 300,000,000 if such transaction does not close contemporaneously with Closing (see The Company Initial African Investment)) (the Net Proceeds of the Offerings ), in a minimum of six different African Investments (the Minimum Investment Requirement ), including the Initial African Investment; (b) the Company will invest at least 75% of the Net Proceeds of the Offerings in African Investments on or before the third anniversary of the Closing Date, except where the board of directors of the Company (the Board ) determines, acting reasonably and in good faith, that satisfying such a commitment would result in a breach of the Board s fiduciary duties as directors under applicable corporate law; (c) each of the Company s African Investments is subject to a concentration restriction that prohibits the Company from making an investment if, after giving effect to such investment, such investment would exceed 20% of the Company s Total Assets; provided, however, that the Company will nonetheless be permitted to complete up to two African Investments where, after giving effect to each such investment, the total amount of each such investment would be equal to no more than 25% of the Company s Total Assets (the Investment Concentration Restriction ); (d) Fairfax or its wholly-owned subsidiaries will make an equity investment in the Multiple Voting Shares of the Company concurrently with the Closing which, together with the Multiple Voting Shares to be issued to Fairfax by the Company in connection with the Initial African Investment, will be in an amount at least equal to the lesser of 30% of the equity capital of the Company immediately following the Closing and US$300,000,000; 1

6 (e) the Company will ensure that Fairfax provides an undertaking to the applicable Canadian securities regulatory authorities wherein it will agree to maintain an equity investment in Multiple Voting Shares of the Company for the periods described on the cover page of this prospectus and under Principal Shareholder (the Retained Interest Requirement ); (f) the Company has included express disclosure in this prospectus that Fairfax, as the promoter of the Company, has the credibility and expertise necessary in order to successfully complete the Offering and to ensure that the Portfolio Advisor sources and identifies appropriate investments on behalf of the Company (see Principal Shareholder ); (g) although the Company is not subject to, and accordingly the Offering is not being made under, the TSX rules governing Special Purpose Acquisition Corporations (each, a SPAC ), the Company will nonetheless voluntarily satisfy a number of the investor protection features included in such SPAC rules, including that: (i) at least 90% of the Net Cash Proceeds of the Offerings, will be set aside and invested in Permitted Investments pending deployment; (ii) the promoter of the Company, Fairfax, will have the credibility and expertise necessary in order to successfully complete the Offering and to ensure that the Portfolio Advisor sources and identifies appropriate investments on behalf of the Company; (iii) the Company will raise a minimum of C$30 million from at least 300 public shareholders in the Offering and at least 1,000,000 freely tradable Subordinate Voting Shares will be held by public holders and be issued at a price of at least C$2.00 per Subordinate Voting Share; (iv) the Company is incorporated under Canadian federal corporate law; and (v) Fairfax, as a founding shareholder of the Company, will agree not to transfer any of the Multiple Voting Shares that are part of the Substantial Equity Investment until at least 80% of the Net Proceeds of the Offerings have been invested in African Investments; (h) the Company has included a risk factor in this prospectus under Risk Factors that cautions potential investors that although the Company has voluntarily adopted certain investor protection features included in the TSX s SPAC rules, the Company is not otherwise subject to the TSX s SPAC rules and that investors in the Offering will not be afforded certain of the investor protection features that are required of SPACs under the SPAC rules, including: (i) purchasers of Subordinate Voting Shares will not have the right to pre-approve any African Investments; and (ii) there will be no mechanism for the Company to return funds to purchasers of Subordinate Voting Shares in the event that any proceeds of the Offering are not deployed within a fixed period of time. See Risk Factors Risk Factors Related to the Business of the Company The Company is Not Subject to the TSX s SPAC Rules ; (i) (j) the Company will include in its by-laws express provisions setting forth: (i) its investment objective (including the Investment Concentration Restriction and Minimum Investment Requirement); (ii) the requirement for one or more custodians to hold its assets, where each such custodian must be an entity that would be qualified to act as a custodian or sub-custodian for assets held in Canada or a custodian or sub-custodian for assets held outside Canada, as the case may be, in each case in accordance with Part 6 of National Instrument Investment Funds ( NI ); and (iii) the requirement for the Company to utilize at least one portfolio manager that is registered as a portfolio manager in a province or territory of Canada (collectively the Mandatory By-Law Provisions ). Any amendments to the Mandatory By-Law Provisions will require the approval of both the holders of the Multiple Voting Shares and the Subordinate Voting Shares, each voting separately as a class. Each such approval shall be evidenced by an ordinary resolution, as such term is defined under the Canada Business Corporations Act (the CBCA ), except for amendments to the Company s investment objective which approval shall be evidenced by a special resolution, as such term is defined under the CBCA; the Company will provide an undertaking that, notwithstanding that the Company is not an investment fund within the meaning of applicable securities laws, it will nonetheless comply at all times with Part 5 of NI in the event that, subsequent to the Closing, the fundamental investment objectives of the Company are to be changed. The purpose of this undertaking is to provide holders of Subordinate Voting Shares with the opportunity to approve any change to the fundamental investment objectives of the Company following Closing; 2

7 (k) the Board will consist of a majority of independent directors in accordance with the recommendation of the Canadian securities regulatory authorities set forth in Section 3.1 of National Policy Corporate Governance Guidelines, including at least two independent directors with no previous formal affiliation with Fairfax (see Directors and Management of the Company ); (l) although the Company is not a non-redeemable investment fund under applicable Canadian securities laws, it will nonetheless voluntarily provide in its annual information forms certain disclosure only required to be provided by investment funds pursuant to Form F2, specifically: (i) item 3(5) with respect to fundamental changes of the Company (including in respect of the Company s investment objective or its portfolio manager); (ii) item 4(1) with respect to investment restrictions (including details of the Company s investment objective); (iii) item 10 with respect to portfolio managers and custodians; and (iv) item 13 (including a summary of the management and performance fees in the form required by item 3.6 of Form F2); and (m) until the Company has invested at least 50% of the Net Proceeds of the Offerings in African Investments, the Company will voluntarily provide, in its management s discussion and analysis required by National Instrument Continuous Disclosure Obligations ( NI ), summary financial information prepared in accordance with IFRS for all of its African Investments in respect of which it has previously filed a business acquisition report in accordance with section 8.2 of NI ( BAR ). As such, notwithstanding the fact that the Company does not intend to utilize the equity method of accounting, it will nonetheless treat each African Investment for which it has filed a BAR as a significant equity investee for purposes of Section 5.7 of NI In the Company s view, the combined effect of the above-mentioned voluntarily-adopted measures will address a variety of fundamental securities regulatory or public interest policy objectives, including: (i) existing investor protection measures will be meaningfully enhanced; (ii) the content of certain of the Company s continuous disclosure filings will be more precisely tailored to address its particular business and operations, making such filings more meaningful to investors; (iii) the promoter of the Company will have a significant economic interest in the Company for at least 10 years following the Closing; and (iv) ensuring that there will be no indirect offering concerns when the Company invests the net proceeds of the Offering. MEANING OF CERTAIN REFERENCES Unless otherwise noted or the context otherwise requires, (i) the Company refers to Fairfax Africa Holdings Corporation together with one or more of its subsidiaries, and (ii) the disclosure contained in this prospectus assumes that the Over-Allotment Option has not been exercised. Words importing the singular number include the plural, and vice versa, and words importing any gender include all genders. Certain capitalized terms and phrases used in this prospectus are defined in the Glossary. FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements within the meaning of applicable securities laws. Forward-looking statements may relate to the Company s future outlook and anticipated events or results and may include statements regarding the financial position, business strategy, growth strategy, budgets, operations, financial results, taxes, dividends, plans and objectives of the Company. Particularly, statements regarding future results, performance, achievements, prospects or opportunities of the Company or the African market are forward-looking statements. In some cases, forward-looking statements can be identified by the use of forwardlooking terminology such as plans, expects or does not expect, is expected, budget, scheduled, estimates, forecasts, intends, anticipates or does not anticipate or believes, or variations of such words and phrases or state that certain actions, events or results may, could, would, might, will or will be taken, occur or be achieved. 3

8 Forward-looking statements are based on the opinions and estimates of the Company as of the date such statements are made, and they are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, including but not limited to the following factors described in greater detail in Risk Factors : return on investment is not guaranteed; potential volatility of Subordinate Voting Share price; dilution; absence of a prior public market; market discount; limited control; financial reporting and other public company requirements; broad discretion over the use of proceeds from the Offering; limited voting rights of the Subordinate Voting Shares; significant ownership by Fairfax may adversely affect the market price of the Subordinate Voting Shares; it is possible that the Cornerstone Investment will fail to close; U.S. Investment Company Act; taxation of the Company; taxation of Mauritius Sub and SA Sub; newlyformed company with no operating history or revenues; substantial loss of capital; shareholders are not entitled to vote on the Company s proposed investments; long-term nature of investment; limited number of investments; geographic concentration of investments; potential lack of diversification; financial market fluctuations; pace of completing investments; control or significant influence position risk; minority investments; ranking of Company investments and structural subordination; follow-on investments; prepayments of debt investments; risks upon dispositions of investments; bridge financings; reliance on key personnel and risks associated with the Investment Advisory Agreement; effect of fees; Performance Fee could induce Fairfax to make speculative investments; operating and financial risks of African Investments; allocation of personnel; potential conflicts of interest; the liability of the Portfolio Advisor is limited and the Company and the Portfolio Advisor have not been represented by separate legal counsel; employee misconduct at the Portfolio Advisor could harm the Company; valuation methodologies involve subjective judgments; lawsuits; foreign currency fluctuation; derivative risks; unknown merits and risks of future investments; opinions from independent investment banks or accounting firms are not contemplated; resources could be wasted in researching investment opportunities that are not ultimately completed; investments may be made in foreign private businesses where information is unreliable or unavailable; material, non-public information; illiquidity of investments; competitive market for investment opportunities; use of leverage; investing in leveraged businesses; regulation; the Company is not subject to the TSX s SPAC rules; investment and repatriation restrictions; emerging markets; corporate disclosure, governance and regulatory requirements; legal and regulatory risks; volatility of African securities markets; political, economic, social and other factors; governance issues risk; tax laws in African jurisdictions; changes in law; South African exchange control regulations; South African currency fluctuation; South African bilateral investment treaties; South African black economic empowerment, enforcement of rights; smaller company risk; due diligence and conduct of potential investment entities; reliance on trading partners risk; natural disaster risks; sovereign debt risk; economic risk; risks with respect to the business of AFGRI, possible conflict of interest in respect of the AFGRI Transaction, potential undisclosed liabilities and lack of remedies in respect of the JIH Purchase Agreement and possible failure to complete the Initial African Investment. These factors and assumptions are not intended to represent a complete list of the factors and assumptions that could affect the Company. These factors and assumptions, however, should be considered carefully. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements contained herein, except as required by applicable securities laws. 4

9 CURRENCY PRESENTATION AND EXCHANGE RATE INFORMATION In this prospectus, unless otherwise specified or the context otherwise requires, all dollar amounts are expressed in United States dollars. All references to dollars, US$ or $ are to United States dollars, all references to C$ are to Canadian dollars and all references to ZAR are to South African Rand. The following table sets forth, for each period indicated, the low and high exchange rates for Canadian dollars expressed in United States dollars, the exchange rate at the end of such period and the average of such exchange rates for each day during such period, based on the noon rate of exchange as reported by the Bank of Canada for the conversion of Canadian dollars into United States dollars: Nine-months Ended September 30, Low High Period End Average On January 13, 2017, the noon buying rate (as reported by the Bank of Canada) was C$1.00 = US$ The following table sets forth, for each period indicated, the low and high exchange rates for South African Rand expressed in United States dollars, the exchange rate at the end of such period and the average of such exchange rates for each day during such period, based on the 10:30 a.m. South African Standard Time rate of exchange as reported by the South African Reserve Bank for the conversion of South African Rand into United States dollars: Nine-months Ended September 30, Low High Period End Average On January 13, 2017, the 10:30 a.m. South African Standard Time buying rate (as reported by the South African Reserve Bank) was ZAR1.00 = US$ MARKET DATA AND INDUSTRY DATA Market and industry data used throughout this prospectus was obtained from third party sources, industry publications, and publicly available information as well as industry and country data prepared by the Company on the basis of its knowledge of the African market and economy (including the Company s estimates and assumptions relating to the African market and economy based on that knowledge). The Company believes that its market and economic data is accurate and that its estimates and assumptions are reasonable, but there can be no assurance as to the accuracy or completeness thereof. The accuracy and completeness of the market and economic data used throughout this prospectus is not guaranteed and none of the Company, Fairfax and the Underwriters makes any representation as to the accuracy of such information. Although the Company believes it to be reliable, none of the Company, Fairfax and the Underwriters has independently verified any of the data from third party sources referred to in this prospectus, or analyzed or verified the underlying studies or surveys relied upon or referred to by such sources, or ascertained the underlying economic and other assumptions relied upon by such sources. 5

10 ELIGIBILITY FOR INVESTMENT Based on the current provisions of the Tax Act, in the opinion of McCarthy Tétrault LLP, counsel to the Company, and Stikeman Elliott LLP, counsel to the Underwriters, provided that, at all relevant times, the Subordinate Voting Shares are listed on a designated stock exchange as defined in the Tax Act (which currently includes the TSX), the Subordinate Voting Shares will be qualified investments under the Tax Act for a trust governed by a registered retirement savings plan ( RRSP ), deferred profit sharing plan, registered retirement income fund ( RRIF ), registered education savings plan, registered disability savings plan, and a tax-free savings account ( TFSA ). Notwithstanding that the Subordinate Voting Shares may be qualified investments for a trust governed by a TFSA, RRSP or RRIF, the holder of such TFSA or the annuitant under such RRSP or RRIF, as the case may be, will be subject to a penalty tax in respect of the Subordinate Voting Shares if such Subordinate Voting Shares are a prohibited investment for the TFSA, RRSP or RRIF for purposes of the Tax Act. The Subordinate Voting Shares will not be a prohibited investment for a TFSA, RRSP or RRIF provided that the holder of the TFSA or annuitant under the RRSP or RRIF, as the case may be, (i) deals at arm s length with the Company for purposes of the Tax Act and (ii) does not have a significant interest (within the meaning of the Tax Act) in the Company. In addition, the Subordinate Voting Shares will not be a prohibited investment if the Subordinate Voting Shares are excluded property (as defined in the Tax Act) for trusts governed by a TFSA, RRSP or RRIF. Prospective purchasers who intend to hold Subordinate Voting Shares in a TFSA, RRSP or RRIF should consult their own tax advisors regarding their particular circumstances. 6

11 PROSPECTUS SUMMARY The following is a summary of the principal features of the Offering and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus (including Risk Factors ). This summary does not contain all of the information a potential investor should consider before investing in Subordinate Voting Shares. Please refer to the Glossary for a list of defined terms used herein, including certain industry terminology. The Company Establishment and Overview The Company was incorporated under the Canada Business Corporations Act on April 28, The Company s head and registered office is located at 95 Wellington Street West, Suite 800, Toronto, Ontario, M5J 2N7, Canada. The Company s fiscal year will be the calendar year. The Company will make its investments directly or through one of its wholly-owned subsidiaries, which currently includes SA Sub and will include Mauritius Sub. SA Sub is a corporation existing under the laws of South Africa and will carry on investment holding activities in South Africa. Mauritius Sub will be a corporation formed prior to Closing that will exist under the laws of the Republic of Mauritius and will carry on investment holding activities in the Republic of Mauritius. As a condition to Closing, Fairfax will make the Substantial Equity Investment. The consideration for the Substantial Equity Investment includes the Fairfax Cash Investment and potentially Fairfax s indirect interest in the Initial African Investment. Specifically, if the Initial African Investment closes contemporaneously with the Closing, 7,284,606 Multiple Voting Shares will be issued to Fairfax or certain of its wholly-owned subsidiaries as consideration for shares in JIH that the Company will acquire as part of the Initial African Investment and in which Fairfax has an indirect interest, and the balance of the Multiple Voting Shares to be subscribed for by Fairfax will be paid for in cash at a subscription price of US$10.00 per share. If the Initial African Investment does not close at the same time as the Closing, such Multiple Voting Shares and the balance of the Multiple Voting Shares to be subscribed for by Fairfax will be paid for with a cash subscription of US$10.00 per share such that the Fairfax Cash Investment will be the lesser of (i) US$300,000,000 and (ii) 30% of the equity capital of the Company. Fairfax s ownership of Multiple Voting Shares will represent approximately % of the voting rights of the Company and % of the equity interest in the Company at Closing (or approximately % and %, respectively, if the Over-Allotment Option is exercised in full). See Principal Shareholder. See The Company Initial African Investment. On Closing, Fairfax will agree to retain, either directly or through one or more of its subsidiaries, a substantial equity investment in the Company in accordance with the following principles, in each case subject to certain limited exceptions described in this prospectus: (i) prior to the fifth anniversary of the Closing, Fairfax and its subsidiaries will not sell any portion of the Substantial Equity Investment if, as a result of such sale, the aggregate equity investment of Fairfax and its subsidiaries in Multiple Voting Shares of the Company would have a market value of less than US$300,000,000; (ii) on or after the fifth anniversary of the Closing, but prior to the tenth anniversary of the Closing, Fairfax and its subsidiaries will be permitted to sell any part of their aggregate equity investment in Multiple Voting Shares of the Company so long as, immediately following such sale, they continue to hold an aggregate equity interest in Multiple Voting Shares of the Company having a market value of at least US$150,000,000; (iii) on or after the tenth anniversary of the Closing, Fairfax and its subsidiaries will be permitted to sell, subject to compliance with applicable securities laws and stock exchange requirements, any part of their aggregate equity investment in Multiple Voting Shares of the Company; and (iv) prior to the tenth anniversary of the Closing, if Fairfax or its subsidiaries desire to sell any part of their aggregate investment in Multiple Voting Shares of the Company in a transaction that would not satisfy conditions (i) or (ii) above, Fairfax and its subsidiaries will only be able to complete such a sale if the acquirer agrees, subject to compliance with applicable securities laws and stock exchange requirements, to acquire a pro rata share of the equity investment of all other equity investors in the Company (see About this Prospectus and Principal Shareholder ). In addition, Fairfax will agree on Closing that neither it nor its affiliates will sell or transfer any Multiple Voting Shares that are part of the Substantial Equity Investment until at least 80% of the Net Proceeds 7

12 of the Offerings have been invested in African Investments. At any time, other than temporarily in connection with the mechanics for closing of the Initial African Investment, any sale or transfer by Fairfax or any of its affiliates of Multiple Voting Shares to a non-affiliate of Fairfax will result in such Multiple Voting Shares being automatically converted into Subordinate Voting Shares. See Description of Share Capital. Investment Objective The Company s investment objective is to achieve long-term capital appreciation, while preserving capital, by actively investing in public and private equity securities and debt instruments of African businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, Africa. Generally, subject to compliance with applicable law, the Company intends to make African Investments with a view of acquiring control or significant influence positions. Investment Strategy The Company will employ a conservative, fundamental value based approach to identifying and investing in high quality African businesses, including both public and private businesses. The Company s strategy is designed to compound book value per share over the long-term. The Company will seek attractive risk adjusted returns, but will seek at all times to emphasize downside protection and to minimize the loss of capital. The Company anticipates that its portfolio will be concentrated, provided that the Net Proceeds of the Offerings will be invested in at least six different African Investments, including the Initial African Investment, such that the impact of any single investment on the performance of the Company is moderated. The Company will utilize, and expects to benefit significantly from, the experience and expertise of its management, Fairfax, the Portfolio Advisor, Pactorum and their respective networks in Africa, to source, evaluate and invest in African Investments. The Company will invest in businesses that are expected to benefit from Africa s demographic trends that are expected to underpin growth for several years. Sectors of the African economy that the Company believes will benefit most from such trends include the energy, food and agricultural, financial services, infrastructure and logistics and consumer products and retail sectors. The Company, however, will not be limited to investing solely in these sectors and intends to invest in these and other sectors as opportunities arise. See The Company Investment Strategy. Investment Selection To identify potential investments, the Company will principally rely on the expertise of its management, the Portfolio Advisor and Pactorum and their respective extensive networks in Africa. Pactorum will provide, on an exclusive basis to the Portfolio Advisor, and for the benefit of the Company, investment research and analysis, transaction origination, due diligence and similar consulting services with respect to investments of the Company and its subsidiaries. As a result of its proximity to the investment opportunities in Africa and its immersion in certain key African marketplaces, the Pactorum team, will be expected to identify many of the investment opportunities for the Company and will frequently conduct, together with the Company and the Portfolio Advisor, the initial suitability screen when evaluating potential African Investments. Pactorum will work closely with the Company and the Portfolio Advisor in respect of the review and evaluation of potential investment opportunities for the Company. The Portfolio Advisor may employ other strategic or other consultants to provide services to it, for the benefit of the Company, with respect to evaluating African Investments. The Company, the Portfolio Advisor and Pactorum will use the Company s proprietary Risk Matrix to analyze data about all African countries. The Risk Matrix uses approximately 35 data indicators across five major themes: 1) safety and the rule of law, 2) political participation and human rights, 3) sustainable economic opportunity, 4) human development, and 5) GDP and investment climate. The Company ascribes weights to various quantitative indicators, which are multiplied by the raw data scores for each indicator, leading to an 8

13 overall score for each country. The Risk Matrix is a living document, that will be regularly updated and refined by the Company and that will give the Company a robust top-down view of relative risk across the continent. Countries that score highly on the Risk Matrix demonstrate positive trends across multiple key indicators. For example, the Company considers South Africa to have strong rule of law, vocal free press and highly developed infrastructure all of which contribute to a relatively high Risk Matrix score. In the Company s view, Ethiopia s variable human rights record is slightly offset by forecasts of strong relative GDP growth, low corruption levels, and effective public management, leading to a moderate total Risk Matrix score. Countries with very poor scores on the Risk Matrix, such as Somalia and South Sudan, will not be considered for investment, unless such scores improve significantly in the future. The following is an illustrative list of criteria that the Company, the Portfolio Advisor and Pactorum believe to be paramount when identifying and investing in African Investments: Attractive valuation: The Company s conservative fundamental value approach will lead it to focus on investing in businesses that have positive, stable cash flows that can be purchased at what the Company believes are attractive valuations. While the Company does not intend to invest in start-up businesses or businesses that have speculative business plans, it may invest a portion of the Net Cash Proceeds of the Offerings in early-stage companies where the Company sees potential for growth and positive and stable cash flows and the opportunity for additional investment in the future. Such investments will be made with a view of acquiring control or significant influence positions. Experienced and aligned management: The Company will focus on businesses with experienced, entrepreneurial management teams with strong, long-term track records and a commitment to high ethical standards. The Company will generally require the portfolio businesses to have in place, either prior to or immediately following an investment by the Company, proper management incentives to drive the businesses profitability and maintain effective governance structure. Strong competitive position in industry: The Company will seek to invest in businesses that hold leading and defendable market positions, possess strong brand power and are well-positioned to capitalize on the growth opportunities that the Portfolio Advisor expects exist in the African economy. The Company will also seek to invest in businesses that demonstrate significant competitive advantages relative to their peers, such that they are in a position to protect their market position and profitability. Alignment of the management team with the values of the Company: The Company, Fairfax and the Portfolio Advisor all seek to adhere to the highest standards of business practices and ethics. The Company will require that the management teams at each of its portfolio businesses adhere to a similar standard of business practices and ethics and adhere to the Company s fundamental values as described herein. See The Company Investment Selection. Ongoing Monitoring of Portfolio Investments The Company will take an active role in overseeing its African Investments to ensure that its investment thesis is properly executed and that the fundamental values of the Company are being upheld on an ongoing basis. The Company will monitor, among other things, the financial trends of each of its portfolio businesses to determine if it is meeting its business plan and objectives. The Company will also assess, from time to time, the appropriate course of action for each such portfolio investment. See The Company Ongoing Monitoring of Portfolio Investments. Investment Highlights and Competitive Advantages Alignment of interest with Fairfax: The Company presents an opportunity for investors to co-invest alongside Fairfax in Africa. Fairfax will, acquire directly, or indirectly through one or more subsidiaries, on Closing up to 30,000,000 (US$300,000,000) Multiple Voting Shares in aggregate, and will hold all of such Multiple Voting Shares for an extended period (see The Company Initial African Investment and 9

14 Principal Shareholder ). The Company expects to draw upon Fairfax s and its affiliates investment expertise and experience in emerging markets, including Africa. Compelling investment opportunity in Africa: The Company believes that there are a number of factors that make Africa an attractive continent for investment. These factors include: (i) expectations of higher average long-term economic growth than what is expected in other regions of the world, including most of the developed world and many emerging markets outside Africa, (ii) favourable demographic trends including population and labour force growth, (iii) a large and growing emerging middle class that is expected to underpin productivity and consumptiondriven economic growth for several years; (iv) trend of increased FDI into the continent with favourable international trade dynamics which have resulted in international trade now representing more than 50% of GDP in many African countries; and (v) the continent-wide improvement seen over the past decade in overall governance, political participation, human rights, safety and rule of law, sustainable economic opportunity, and human development. Fairfax and the Portfolio Advisor Long-term track record of delivering strong, consistent returns for investors: The Portfolio Advisor is a sophisticated investor with a strong long-term track record of generating attractive investment returns for its investors. The Portfolio Advisor manages the assets of Fairfax and its affiliates. See The Portfolio Advisor Investment Expertise of Fairfax and the Portfolio Advisor in Africa. Established research capabilities and broad network in Africa: Management of the Company, Fairfax and its affiliates (including the Portfolio Advisor), together with Pactorum have considerable experience in investing in Africa, extensive networks within the African investment, commercial banking, private equity and investment management communities and a strong reputation in investment management. The Company believes that the broad expertise and deep experience of the management teams of each of the Portfolio Advisor, the Company and Pactorum will enable the Company to successfully identify, assess and structure investments across all levels of a business capital structure and to manage potential risk and return at all stages of the economic cycle. Additionally, the Company expects to generate information from the Portfolio Advisor s and Pactorum s investment professionals global network of accountants, consultants, advisors and management teams of portfolio businesses and other businesses, which will aid in the identification, analysis and acquisition of African Investments. Strong reputation as a friendly and constructive investor: Fairfax and its affiliates (including the Portfolio Advisor) and the members of Pactorum have a strong reputation of working cooperatively and collaboratively with existing management of the portfolio businesses in which they invest. The Portfolio Advisor will generally recommend portfolio businesses for investment by the Company and its subsidiaries where such portfolio businesses are willing to work cooperatively and collaboratively with the Company and its subsidiaries for the benefit of all stakeholders. The Portfolio Advisor believes that this collaborative approach provides a larger pipeline of investment opportunities as compared to a more adversarial activist approach. Attractive structure for long-term investment: Unlike private equity and venture capital funds, the Company will not be subject to standard periodic capital return requirements. Such requirements typically stipulate that these funds, together with any capital gains on such investment, can only be invested once and must be returned to investors after a pre-agreed time period or upon the occurrence of a specified event. These provisions often force private equity and venture capital funds to seek returns on their investments through mergers, public equity offerings or other liquidity events more quickly than they otherwise might, potentially resulting in both a lower overall return to investors and an adverse impact on their portfolio businesses. While the Company may, from time to time, seek to realize on any of its African Investments, the Company believes that its permanent capital structure and flexibility to make investments with a long-term view and without the capital return requirements of traditional private investment vehicles will minimize the impact of investor capital flows and 10

15 better enable it to generate returns on invested capital. In addition, the Company expects that the transparency of its business strategy and holdings, together with its large market capitalization, should enhance the liquidity of its Subordinate Voting Shares. Realization on African Investments: Notwithstanding the Company s expected long-term investment horizon, the Company may at any time, and from time to time, seek to realize on any of its African Investments. The circumstances under which the Company may sell some or all of an African Investment include: (i) where the Company believes that the African Investment is fully valued or that the original plan has been achieved; or (ii) where the Company has identified other investment opportunities that it believes present more attractive risk-adjusted return opportunities and additional capital is needed to make such alternative investments. The Company may exit, in whole or in part, its private African Investments either through an initial public offering or a private sale. For publicly traded investments, exit strategies may include selling the African Investments through private placements or in public markets. Access to private equity type investments: Private equity funds and private equity type investment opportunities are not generally available to public retail investors due to high minimum investment amounts and illiquid secondary markets. While the Company is not a private equity fund, it will have some similarities to private equity funds in that: (i) it may invest in securities of private businesses; and (ii) like many private equity funds, the Portfolio Advisor will take a fundamental approach to assessing potential investment opportunities. Two primary differences between the Company and private equity funds are that the Company expects to be listed on a stock exchange, providing investors with daily liquidity and that the Company will have a permanent capital structure not subject to standard periodic capital return requirements. While the Company may, from time to time, seek to realize on any of its African Investments, the Company believes that its permanent capital structure and flexibility to make investments with a long-term view and without the capital return requirements of traditional private investment vehicles will better enable it to generate returns on invested capital. The Company s access to private equity type investment opportunities will provide public retail investors with the opportunity to invest in an entity with access to private equity type investment opportunities that are generally unavailable to public retail investors. See The Company Investment Strategy and The Company Investment Highlights and Competitive Advantages. Investment Restrictions The Company will not make an African Investment if, after giving effect to such investment, the total amount of such investment would exceed 20% of the Company s Total Assets; provided, however, that the Company will nonetheless be permitted to complete up to two African Investments where, after giving effect to each such investment, the total amount of each such investment would be equal to no more than 25% of the Company s Total Assets. The Company intends to make multiple African Investments as part of its prudent investment strategy, and, accordingly, will invest the Net Proceeds of the Offerings in at least six different African Investments, including the Initial African Investment, that satisfy the above-described Investment Concentration Restriction. See Investment Restrictions. The Portfolio Advisor and Pactorum On Closing, each of the Company, Mauritius Sub and SA Sub will appoint the Portfolio Advisor, a wholly-owned subsidiary of Fairfax that is registered in the Province of Ontario as a portfolio manager, as its portfolio advisor to source and advise with respect to all investments for the Company and its subsidiaries. The individuals at the Portfolio Advisor who will be primarily responsible for providing advisory services to the Company and its subsidiaries consist of V. Prem Watsa, Paul Rivett and Quinn McLean, who are all experienced investment professionals. See The Portfolio Advisor and Pactorum. 11

16 Investment Expertise of Fairfax and the Portfolio Advisor in Africa Fairfax, the portfolio administrator and the promoter of the Company, is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management. Fairfax was founded in 1985 and has been listed on the TSX (TSX: FFH) for over 25 years and had a market capitalization of approximately US$13.5 billion, last twelve month revenues of more than US$9.9 billion and total assets of approximately US$44 billion, as at September 30, Fairfax and its affiliates have over 17 years of emerging market investing experience. The Company intends to leverage the investment expertise and experience of Fairfax and its subsidiaries, including the Portfolio Advisor, as well as Pactorum. Fairfax s corporate objective is to achieve a high rate of return on invested capital and build long-term shareholder value. Fairfax has an investment grade credit rating from each of DBRS, Moody s and S&P. The Company is expected to benefit from Fairfax s established affiliate network and experience in sourcing and implementing successful ventures in Africa. Fairfax has invested over US$950 million in companies with operations in Africa, including investments in AFGRI, CIB, Africa Re, Zurich Insurance Company Ltd, APR and 2A Insurance. See The Portfolio Advisor. Pactorum On Closing, the Portfolio Advisor will retain the services of Pactorum, as a strategic consultant, to assist the Portfolio Advisor in researching and identifying investment opportunities for the Company, Mauritius Sub, SA Sub and any other subsidiary through which the Company invests in Africa from time to time. Pactorum will provide investment research and analysis, transaction origination, due diligence and similar consulting services on an exclusive basis to the Portfolio Advisor with respect to investments of the Company and its subsidiaries. Any fees charged by Pactorum for such services will be borne by the Portfolio Advisor and no additional amount will be payable by the Company. Pactorum was formed on January 9, 2017 and is based in Mauritius and South Africa. Pactorum will consist of a four person team led by Neil Holzapfel with over 18 years combined experience investing in Africa. Pactorum is wholly-owned by its principals and is unrelated to Fairfax and the Company. The individuals who are members of the Pactorum management team (previously acting as directors or officers of AgriGroupe) have worked closely with Fairfax since 2013 with respect to potential African investments. The individuals who comprise the senior management of Pactorum have significant experience investing in Africa and other emerging markets, including the Middle East, Brazil and Eastern Europe. See Pactorum. 12

17 POST-CLOSING STRUCTURE Fairfax Fairfax Financial Holdings Limited (and its affiliates) Cornerstone and Public Investors (2) 100% Multiple Voting Shares 100% Subordinate Voting Shares 100% The Company Fairfax Africa Holdings Corporation (1) (Canada) Portfolio Advisor Hamblin Watsa Investment Counsel Ltd. (Canada) 100% 100% Strategic Consultant Pactorum (3) Fairfax Africa Investments Proprietary Limited (South Africa) Fairfax Africa Investments Limited (Mauritius) Investments Investments (4) 6JAN (1) This chart illustrates the Company s corporate structure immediately following Closing. The Company may, from time to time, incorporate additional subsidiary entities to make African Investments in the future. (2) Pursuant to the Investment Advisory Agreement between Fairfax, the Portfolio Advisor, the Company, Mauritius Sub and SA Sub, the Portfolio Advisor will provide investment advisory services to and manage the investments of, the Company and its subsidiaries and Fairfax will provide portfolio administration services to the Company and its subsidiaries. (3) Pactorum will provide strategic consulting services to the Portfolio Advisor. (4) It is anticipated that the Initial African Investment will be held by the Company through its Mauritius subsidiary, Mauritius Sub, a corporation formed prior to Closing that will exist under the laws of the Republic of Mauritius. 13

18 THE OFFERING Offering: The Company is offering Subordinate Voting Shares. See Plan of Distribution and Description of Share Capital. Amount: US$ Price: US$10.00 per Subordinate Voting Share. Minimum Subscription: 100 Subordinate Voting Shares (US$1,000). Over-Allotment Option: Use of Proceeds: Authorized Share Capital and Share Attributes: The Company has granted to the Underwriters an option, exercisable in whole or in part at any time for a period of 30 days after Closing, to purchase up to an additional 15% of the aggregate number of Subordinate Voting Shares issued under the Offering at a price of US$10.00 per Subordinate Voting Share solely to cover over allocations, if any, and for market stabilization purposes. See Plan of Distribution. The estimated net cash proceeds of the Offering, the Cornerstone Investment and the Fairfax Cash Investment will be approximately US$, after deducting the Company s estimated expenses of the Offering, the Underwriters fee and the private placement fees payable to the Cornerstone Investors (the Net Cash Proceeds of the Offering ). The Company will use the Net Cash Proceeds of the Offerings to invest, directly or indirectly, in additional African Investments. The Company anticipates that substantially all of the Net Cash Proceeds of the Offerings will be invested in African Investments within 3 years from the Closing Date subject to the Board s fiduciary duties. Pending such investments, the Company will invest at least 90% of the Net Cash Proceeds of the Offerings exclusively in Permitted Investments, and the remainder will be used for general corporate and working capital purposes. See Use of Proceeds. The Company s authorized share capital consists of an unlimited number of Multiple Voting Shares carrying fifty (50) votes per share, an unlimited number of Subordinate Voting Shares carrying one (1) vote per share and an unlimited number of preference shares, issuable in series. Holders of Multiple Voting Shares and Subordinate Voting Shares will be entitled to receive notice of any meeting of shareholders and may attend and vote at such meetings, except those meetings where only the holders of shares of another class or of a particular series are entitled to vote. Except as required by law or as provided for in any special rights or restrictions attaching to any series of preference shares, the holders of preference shares will not be entitled to receive notice of, attend or vote at any meeting of the Shareholders of the Company. Holders of Multiple Voting Shares and Subordinate Voting Shares will be entitled to receive dividends out of the assets of the Company legally available for the payment of dividends at such times and in such amount and form as the Board may determine and the Company will pay dividends thereon on a pari passu basis, if, as and when declared by the Board. The Company has not declared or paid any dividends since its incorporation and does not currently anticipate paying any dividends for the foreseeable future. Generally, preference shares of each series, if and when issued, will, with respect to the payment of dividends, rank on a parity with the preference shares of every other series and be entitled to preference over the Multiple Voting Shares, the Subordinate Voting Shares and any other shares of the Company ranking junior to the preference shares with respect to payment of dividends. 14

19 Principal Shareholder: Upon the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of the Multiple Voting Shares and Subordinate Voting Shares, without preference or distinction, will be entitled to receive rateably all of the Company s assets remaining after payment of all debts and other liabilities, subject to the prior rights of the holders of any other prior ranking shares that may be outstanding at such time. In the event of liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, holders of preference shares will generally be entitled to preference with respect to distribution of the property or assets of the Company over the Multiple Voting Shares, the Subordinate Voting Shares and any other shares of the Company ranking junior to the preference shares with respect to the repayment of paid-up capital remaining after payment of all outstanding debts on a pro rata basis, and the payment of any and all declared but unpaid cumulative dividends, or any and all declared but unpaid non-cumulative dividends, on the preference shares. As a condition to Closing, the Company will issue to Fairfax, either directly or to one or more of Fairfax s subsidiaries, up to 30,000,000 Multiple Voting Shares, on a private placement basis, for an aggregate cash purchase price of up to US$300,000,000. If the Initial African Investment closes contemporaneously with the Closing, in addition to the 7,284,606 Multiple Voting Shares that may be issued to Fairfax or its subsidiaries by the Company in connection with the Initial African Investment, the Company will issue to Fairfax, either directly or to one or more of Fairfax s subsidiaries, up to 22,715,394 Multiple Voting Shares of the Company, on a private placement basis, for an aggregate cash purchase price of up to US$227,153,940. The maximum number of Multiple Voting Shares to be issued to Fairfax on Closing in that situation, will collectively represent approximately % of the voting rights of the Company and % of the equity interest in the Company at Closing (or approximately % and %, respectively, if the Over-Allotment Option is exercised in full). If the Initial African Investment does not close contemporaneously with the Closing, Fairfax will subscribe for Multiple Voting Shares with cash such that Fairfax s total cash subscription will be the lesser of (i) US$300,000,000 and (ii) 30% of the equity capital of the Company and the percentage ownership indicated in the previous sentence will be the same. On Closing, Fairfax will agree to retain, either directly or through one or more of its subsidiaries, a substantial equity investment in the Company in accordance with the following principles, in each case subject to certain limited exceptions described in this prospectus: (i) prior to the fifth anniversary of the Closing, Fairfax and its subsidiaries will not sell any portion of the Substantial Equity Investment if, as a result of such sale, the aggregate equity investment of Fairfax and its subsidiaries in Multiple Voting Shares of the Company would have a market value of less than US$300,000,000; (ii) on or after the fifth anniversary of the Closing, but prior to the tenth anniversary of the Closing, Fairfax and its subsidiaries will be permitted to sell any part of their aggregate equity investment in Multiple Voting Shares of the Company so long as, immediately following such sale, they continue to hold an aggregate equity interest in Multiple Voting Shares of the Company having a market value of at least US$150,000,000; (iii) on or after the tenth anniversary of the Closing, Fairfax and its subsidiaries will be permitted to sell, subject to compliance with applicable securities laws and stock exchange requirements, any part of their aggregate equity investment in Multiple Voting Shares of the Company; and (iv) prior to the tenth anniversary of the Closing, if Fairfax or its subsidiaries desire to sell any part of their aggregate investment in Multiple Voting Shares of the Company in a transaction that would 15

20 Initial African Investment Cornerstone Investment: Take Over Bid Protection: Risk Factors: not satisfy conditions (i) or (ii) above, Fairfax and its subsidiaries will only be able to complete such a sale if the acquiror agrees, subject to compliance with applicable securities laws and stock exchange requirements, to acquire a pro rata share of the equity investment of all other equity investors in the Company. See About this Prospectus and Principal Shareholder. In addition, Fairfax will agree on Closing that it and its affiliates will not sell or transfer any Multiple Voting Shares that are part of the Substantial Equity Investment until at least 80% of the Net Proceeds of the Offerings have been invested in African Investments. In connection with the Initial African Investment, on December 22, 2016, the Company entered into a share purchase agreement (the JIH Purchase Agreement ) with AILP pursuant to which the Company will purchase share capital of JIH, which is made up of ordinary shares and class A shares, beneficially owned by Fairfax through its interest in AILP in exchange for 7,284,606 Multiple Voting Shares. In addition, the Company will purchase additional share capital of JIH not beneficially owned by Fairfax such that, together with the share capital of JIH beneficially owned by Fairfax, the Company will acquire 70.3% of the ordinary shares and 73.3% of the class A shares of JIH, as further described under Initial African Investment. The completion of share purchase transactions contemplated under the JIH Purchase Agreement is expected to occur concurrently with the completion of the Offering but is not a condition to the completion of the Offering. JIH exists to hold, indirectly, the share capital of AFGRI. Based in South Africa, AFGRI is a leading agricultural services, food processing and agricultural financial services company with a core focus on grain commodities. Concurrent with the Closing, the Cornerstone Investors have agreed to purchase an aggregate of 11,578,948 Subordinate Voting Shares on a private placement basis or pursuant to the Initial African Investment at the Offering Price (subject to a private placement fee of US$0.50 per Subordinate Voting Share payable to each such investor) for gross proceeds of approximately US$116 million pursuant to subscription agreements with the Company dated December 22, No commission or other fee will be paid to the Underwriters or any other underwriters or agents in connection with the Cornerstone Investment. See Plan of Distribution. Completion of the Cornerstone Investment is subject to a number of conditions, including the Cornerstone Investors being satisfied with the terms and conditions set forth in this prospectus and the Closing of the Offering. Under the Underwriting Agreement, closing of the Offering is conditional on the closing of the Cornerstone Investment. See Cornerstone Investment. In accordance with applicable regulatory requirements designed to ensure that, in the event of a take-over bid, the holders of Subordinate Voting Shares will be entitled to participate on an equal footing with holders of Multiple Voting Shares, the Company will enter into the Coattail Agreement. The Coattail Agreement will contain provisions customary for dual class, TSX listed corporations designed to prevent transactions that otherwise would deprive the holders of Subordinate Voting Shares of rights under applicable provincial take-over bid legislation to which they would have been entitled if the Multiple Voting Shares had been Subordinate Voting Shares. See Principal Shareholder Coattail Agreement. An investment in Subordinate Voting Shares is subject to a number of risk factors that should be carefully considered by prospective investors. These risks include, 16

21 but are not limited to: return on investment is not guaranteed; potential volatility of Subordinate Voting Share price; dilution; absence of a prior public market; market discount; limited control; financial reporting and other public company requirements; broad discretion over the use of proceeds from the Offering; limited voting rights of the Subordinate Voting Shares; significant ownership by Fairfax may adversely affect the market price of the Subordinate Voting Shares; it is possible that the Cornerstone Investment will fail to close; U.S. Investment Company Act; taxation of the Company; taxation of Mauritius Sub and SA Sub; newly-formed company with no operating history or revenues; substantial loss of capital; shareholders are not entitled to vote on the Company s proposed investments; long-term nature of investment; limited number of investments; geographic concentration of investments; potential lack of diversification; financial market fluctuations; pace of completing investments; control or significant influence position risk; minority investments; ranking of Company investments and structural subordination; follow-on investments; prepayments of debt investments; risks upon dispositions of investments; bridge financings; reliance on key personnel and risks associated with the Investment Advisory Agreement; effect of fees; Performance Fee could induce Fairfax to make speculative investments; operating and financial risks of African Investments; allocation of personnel; potential conflicts of interest; the liability of the Portfolio Advisor is limited and the Company and the Portfolio Advisor have not been represented by separate legal counsel; employee misconduct at the Portfolio Advisor could harm the Company; valuation methodologies involve subjective judgments; lawsuits; foreign currency fluctuation; derivative risks; unknown merits and risks of future investments; opinions from independent investment banks or accounting firms are not contemplated; resources could be wasted in researching investment opportunities that are not ultimately completed; investments may be made in foreign private businesses where information is unreliable or unavailable; material, non-public information; illiquidity of investments; competitive market for investment opportunities; use of leverage; investing in leveraged businesses; regulation; the Company is not subject to the TSX s SPAC rules; investment and repatriation restrictions; emerging markets; corporate disclosure, governance and regulatory requirements; legal and regulatory risks; volatility of African securities markets; political, economic, social and other factors; governance issues risk; tax laws in African jurisdictions; changes in law; South African exchange control regulations; South African currency fluctuation; South African bilateral investment treaties; South African black economic empowerment, enforcement of rights; smaller company risk; due diligence and conduct of potential investment entities; reliance on trading partners risk; natural disaster risks; sovereign debt risk; economic risk; risks with respect to the business of AFGRI, possible conflict of interest in respect of the AFGRI Transaction, potential undisclosed liabilities and lack of remedies in respect of the JIH Purchase Agreement and possible failure to complete the Initial African Investment. See Risk Factors and the other information included in this prospectus for a discussion of the risks that an investor should carefully consider before deciding to invest in Subordinate Voting Shares. 17

22 SUMMARY OF FEES AND EXPENSES The following table contains a summary of the fees and expenses payable or incurred by the Company. Such fees and expenses will reduce the value of a purchaser s investment in the Company. For further particulars, see Fees and Expenses. Fees payable to the The Underwriters fee will be US$0.50 per Subordinate Voting Share (5.0%). Underwriters: No fee will be payable to the Underwriters in respect of (i) Fairfax s Substantial Equity Investment, (ii) the Cornerstone Investment or (iii) Subordinate Voting Shares issued pursuant to the Initial African Investment. Expenses of the Offering: In addition to the Underwriters fee, the Company will pay the expenses incurred in connection with the formation of the Company and its subsidiaries and the Offering, estimated to be US$, which will be paid from the gross proceeds of the Offering. Expenses of the Initial In addition to the Underwriters fee and the expenses of the Offering, the African Investment: Company will pay the expenses incurred in connection with the negotiation and completion of the Initial African Investment, estimated to be US$, which will be paid from the gross proceeds of the Offering. Administration and Advisory As compensation for the provision of portfolio administration and Fee and Performance Fee: investment advisory services to be provided by Fairfax and the Portfolio Advisor, the Company will pay the Administration and Advisory Fee and, if applicable, the Performance Fee, in each case, together with any applicable sales taxes thereon to Fairfax. The Administration and Advisory Fee will be an amount equal to the sum of: (i) 1.5% of the Net Asset Value of the Company less the aggregate fair value of any Undeployed Capital; and (ii) 0.5% of the aggregate fair value of any Undeployed Capital. The Administration and Advisory Fee will be calculated and payable quarterly as of the last business day of each quarter and allocated proportionately, once determined, based on the consolidated assets of the Company, Mauritius Sub, SA Sub and any other subsidiary through which the Company invests from time to time, unless otherwise agreed. The Performance Fee will be calculated and accrued quarterly and paid for the period from the Closing Date to December 31, 2019 and for each consecutive three year period thereafter. The amount of the Performance Fee shall be determined as of the end of the last day of each Calculation Period with respect to the Multiple Voting Shares and the Subordinate Voting Shares of the Company then outstanding. All calculations with respect to the Performance Fee will be made to four decimal places. The Performance Fee for a Calculation Period, if any, will be paid within 30 days after the Company issues its year end audited financial statements for the last calendar year of such Calculation Period. The Performance Fee will be allocated proportionately, once determined, based on the consolidated assets of the Company, Mauritius Sub, SA Sub and any other subsidiary through which the Company invests from time to time, and paid by the Company to Fairfax, unless otherwise agreed. The Performance Fee will be payable in cash, or at the option of Fairfax, in Subordinate Voting Shares. If Fairfax elects to have the Performance Fee paid in Subordinate Voting Shares, such election must be made no later than December 15 of the last year of the applicable Calculation Period in respect 18

23 Ongoing Fees and Expenses: of which the Performance Fee is to be paid. The number of Subordinate Voting Shares to be issued will be calculated based on Market Price, being the volume weighted average trading price of the Subordinate Voting Shares on a recognized stock exchange for the 10 trading days prior to and including the last day of the Calculation Period in respect of which the Performance Fee is to be paid regardless of the actual date of issuance thereof and for purposes of calculating the Performance Fee in respect of subsequent Calculation Periods thereafter will be deemed to be outstanding as of the first day of such Calculation Period regardless of the date of actual issuance. Notwithstanding the foregoing, in respect of the first two Calculation Periods following Closing, in the event that the Subordinate Voting Shares are trading at a Market Price per Subordinate Voting Share that is less than 2 times the NAV per Share as of the last day of the applicable Calculation Period, Fairfax shall receive the Performance Fee, if any, in the form of Subordinate Voting Shares, to the extent permitted under applicable law, stock exchange rules. The Administration and Advisory Fee and the Performance Fee, if any, will be paid to Fairfax. Any portion of such fees to which the Portfolio Advisor is entitled will be paid by Fairfax to the Portfolio Advisor. The Performance Fee for a Calculation Period will be equal to the product of: (a) the weighted average number of Multiple Voting Shares and Subordinate Voting Shares outstanding on the Determination Date for such Calculation Period (calculated before taking into account any Subordinate Voting Shares issuable in payment of a Performance Fee for such Calculation Period), and (b) 20% of the amount by which the sum of: (i) the NAV per Share of the Company at the end of such Calculation Period (calculated before taking into account the Performance Fee payable for the period ending on the Determination Date for such Calculation Period), plus (ii) the total amount of distributions paid on the Multiple Voting Shares and Subordinate Voting Shares during such Calculation Period and all consecutive immediately preceding Calculation Periods, if any, in respect of which no Performance Fee was paid divided by the weighted average number of Multiple Voting Shares and Subordinate Voting Shares outstanding during such Calculation Periods, exceeds the greater of: (i) the High Water Mark, and (ii) the Hurdle per Share. The Portfolio Advisor and Fairfax will each be responsible for their own day to day operating expenses, including in connection with the provision of investment advisory (including sourcing and evaluation of investment opportunities) and portfolio administration services for the Company and its subsidiaries, compensation of their professional staff and the cost of office space, office supplies, communications, telephone, news, quotation and 19

24 computer equipment, utilities and other normal overhead expenses. The Portfolio Advisor will also bear fees and expenses payable to any sub-advisor. Each of the Company and its subsidiaries will be responsible for its own operating expenses including: (i) all expenses incurred in connection with trading and the acquisition, holding or disposition of investments following recommendation by the Portfolio Advisor, including taxes, brokerage fees and commissions, underwriting commissions and discounts, expenses related to indemnification obligations, and legal, accounting, investment banking, consulting, information services and other professional fees; (ii) all costs and expenses relating to investment transactions that are not consummated after recommendation by the Portfolio Advisor, and legal, accounting, investment banking, consulting, information services and other professional fees related thereto; (iii) entity-level taxes; (iv) all costs and fees relating to the preparation of financial statements, audits, financial and tax reports, portfolio valuations, tax returns and other reports and continuous disclosure materials, including fees and out-of-pocket expenses of any service company retained to provide accounting and bookkeeping services; (v) all ongoing legal and compliance costs and the costs of prosecuting or defending any legal action for or against any of the Company, Mauritius Sub, SA Sub, the Board, the Mauritius Sub Board, the SA Sub Board, any other subsidiary through which the Company invests in African Investments from time to time and its board of directors, the Portfolio Advisor, Fairfax or any of their respective affiliates relating to the affairs of the Company; (vi) compensation of officers and employees (excluding the Chief Executive Officer, the Chief Financial Officer and Corporate Secretary of the Company); (vii) all fees, costs and expenses related to all governmental filings of the Company or its subsidiaries; (viii) expenses of the directors, including directors fees and travel expenses; (ix) expenses related to maintenance of corporate records and books of account, including, without limitation, accounting and auditing fees, disbursements and company secretarial expenses; and (x) expenses related to organization and conduct of directors and shareholders meetings and the preparation and distribution of all reports to, and other communications with, shareholders, expenses related to issuing and transferring shares and paying dividends or making other distributions thereon, extraordinary expenses and other similar expenses. The total amount of compensation to be paid by the Company and its subsidiaries in respect of directors, officers and employees is expected to be less than $1.5 million per annum, in the aggregate. Any arrangements for additional services to be provided to the Company or its subsidiaries by the Portfolio Advisor, Fairfax or any affiliates thereof that have not been described in this prospectus will be on terms that are no less favourable to the Company or its subsidiaries than those available from arm s length persons (within the meaning of the Tax Act) for comparable services, and the Company or such subsidiary, as the case may be, will pay all expenses associated with any such additional services. 20

25 THE COMPANY Establishment and Overview The Company was incorporated under the Canada Business Corporations Act on April 28, The Company s head and registered office is located at 95 Wellington Street West, Suite 800, Toronto, Ontario, M5J 2N7, Canada. The books and records of the Company are located and are available for inspection, upon request, at its head and registered office. The Company s fiscal year will be the calendar year. The Company is an investment holding company that currently has two principal subsidiaries, Mauritius Sub and SA Sub. The following organizational chart illustrates the inter-corporate relationships among the Company and its subsidiaries, together with the applicable jurisdiction of incorporation. Fairfax Fairfax Financial Holdings Limited (and its affiliates) Cornerstone and Public Investors (2) 100% Multiple Voting Shares 100% Subordinate Voting Shares 100% The Company Fairfax Africa Holdings Corporation (1) (Canada) Portfolio Advisor Hamblin Watsa Investment Counsel Ltd. (Canada) 100% 100% Strategic Consultant Pactorum (3) Fairfax Africa Investments Proprietary Limited (South Africa) Fairfax Africa Investments Limited (Mauritius) Investments Investments (4) 6JAN (1) This chart illustrates the Company s corporate structure immediately following Closing. The Company may, from time to time, incorporate additional subsidiary entities to make African Investments in the future. (2) Pursuant to the Investment Advisory Agreement among Fairfax, the Portfolio Advisor, the Company, Mauritius Sub and SA Sub, the Portfolio Advisor will provide investment advisory services to and manage the investments of, the Company and its subsidiaries and Fairfax will provide portfolio administration services to the Company and its subsidiaries. (3) Pactorum will provide strategic consulting services to the Portfolio Advisor. (4) It is anticipated that the Initial African Investment will be held by the Company through its Mauritius subsidiary, Mauritius Sub, a corporation formed prior to Closing that will exist under the laws of the Republic of Mauritius. 21

26 Investment Objective The Company s investment objective is to achieve long-term capital appreciation, while preserving capital, by actively investing in public and private equity securities of African businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, Africa. Generally, subject to compliance with applicable law, the Company intends to make African Investments with a view of acquiring control or significant influence positions. See Risk Factors Risk Factors Related to Investments in Africa Emerging Markets. Investment Strategy The Company will employ a conservative, fundamental value based approach to identifying and investing in high quality African businesses, including both public and private businesses. The Company s strategy is designed to compound book value per share over the long term. The Company will seek attractive risk adjusted returns, but will seek at all times to emphasize downside protection and to minimize the loss of capital. The Company anticipates that its portfolio will be concentrated, provided that the Net Proceeds of the Offerings will be invested in at least six different African Investments, including the Initial African Investment, such that the impact of any single investment on the performance of the Company is moderated. The Company will utilize, and expects to benefit significantly from, the experience and expertise of its management, Fairfax, the Portfolio Advisor, Pactorum and their respective networks in Africa, to source, evaluate and invest in African Investments. The Company will invest in businesses that are expected to benefit from Africa s demographic trends that are expected to underpin growth for several years. Sectors of the African economy that the Company believes will benefit most from such trends include the energy, food and agricultural, financial services, infrastructure and logistics and consumer products and retail sectors. The Company, however, will not be limited to investing solely in these sectors and intends to invest in other sectors as opportunities arise. The Company intends to make African Investments with a view of acquiring control or significant influence positions. The level and nature of control or significant influence will vary by investment. Such a position may include one or more of the following, as deemed appropriate by the Company: (i) board appointment or nomination rights, (ii) board observer rights, (iii) input on management selection, (iv) the provision of managerial assistance, and (v) ongoing monitoring and cooperation with the board and management of the portfolio business to ensure that its strategy is being implemented in a manner that is consistent with the investment objectives of the Company, and with Fairfax s fundamental values (as set forth in Fairfax s guiding principles which are included in Fairfax s publicly available annual reports). Notwithstanding the Company s expected long-term investment horizon, the Company may at any time and from time to time, seek to realize on any of its African Investments. The circumstances under which the Company may sell some or all of an investment include: (i) where the Company believes that the African Investment is fully valued or that the original investment plan has been achieved; or (ii) where the Company has identified other investment opportunities that it believes present more attractive risk-adjusted return opportunities and additional capital is needed to make such alternative investments. The Company may exit its private African Investments either through an initial public offering or a private sale. For publicly traded investments, exit strategies may include selling the African Investments through private placements or public markets. In addition, the Company may in the future establish one or more infrastructure or private equity funds focused on investments in Africa, and may invest a portion of the Net Proceeds of the Offerings therein. In such an event, the Company would, directly or indirectly, manage such infrastructure and private equity funds in order to generate fee revenue for the Company. Investment Selection To identify potential investments, the Company will principally rely on the expertise of its management, the Portfolio Advisor and Pactorum and their respective extensive networks in Africa. Pactorum will provide, on an exclusive basis to the Portfolio Advisor, and for the benefit of the Company, investment research and analysis, transaction origination, due diligence and similar consulting services with respect to investments of the Company 22

27 and its subsidiaries. As a result of its proximity to the investment opportunities in Africa and its immersion in certain key African marketplaces, the Pactorum team will be expected to identify many of the investment opportunities for the Company and will frequently conduct, together with the Company and the Portfolio Advisor, the initial suitability screen when evaluating potential African Investments. Pactorum will work closely with the Company and the Portfolio Advisor in respect of the review and evaluation of potential investment opportunities for the Company. The Portfolio Advisor may employ other strategic or other consultants to provide services to it, for the benefit of the Company, with respect to evaluating African Investments. The Company, the Portfolio Advisor and Pactorum will use the Company s proprietary risk matrix ( Risk Matrix ) to analyze data about all African countries. The Risk Matrix uses approximately 35 data indicators across five major themes: 1) safety and the rule of law, 2) political participation and human rights, 3) sustainable economic opportunity, 4) human development, and 5) GDP and investment climate. The Company ascribes weights to various quantitative indicators, which are multiplied by the raw data scores for each indicator, leading to an overall score for each country. The Risk Matrix is a living document, that will be regularly updated and refined by the Company and that will give the Company a robust top-down view of relative risk across the continent. Countries that score highly on the Risk Matrix demonstrate positive trends across multiple key indicators. For example, the Company considers South Africa to have strong rule of law, vocal free press and highly developed infrastructure all of which contribute to a relatively high Risk Matrix score. In the Company s view, Ethiopia s variable human rights record is slightly offset by forecasts of strong relative GDP growth, low corruption levels, and effective public management, leading to a moderate total Risk Matrix score. Countries with very poor scores on the Risk Matrix, such as Somalia and South Sudan, will not be considered for investment, unless such scores improve significantly in the future. The following is an illustrative list of criteria that the Company, the Portfolio Advisor and Pactorum believe to be paramount when identifying and investing in African Investments: Attractive valuation: The Company s conservative fundamental value approach will lead it to focus on investing in businesses that have positive, stable cash flows that can be purchased at what the Company believes are attractive valuations. While the Company does not intend to invest in start-up businesses or businesses that have speculative business plans, it may invest a portion of the Net Cash Proceeds of the Offerings in early-stage companies where the Company see potential for growth and positive and stable cash flows and the opportunity for additional investment in the future. Such investments will be made with a view of acquiring control or significant influence positions. Experienced and aligned management: The Company will focus on businesses with experienced, entrepreneurial management teams with strong, long-term track records and commitment to high ethical standards. The Company will generally require the portfolio businesses to have in place, either prior to or immediately following an investment by the Company, proper management incentives to drive the businesses profitability and maintain effective governance structures. Strong competitive position in industry: The Company will seek to invest in businesses that hold leading and defendable market positions, possess strong brand power and are well-positioned to capitalize on the growth opportunities that the Portfolio Advisor expects exist in the African economy. The Company will also seek to invest in businesses that demonstrate significant competitive advantages relative to their peers, such that they are in a position to protect their market position and profitability. Alignment of the management team with the values of the Company: The Company, Fairfax and the Portfolio Advisor all seek to adhere to the highest standards of business practices and ethics. The Company will require that the management teams at each of its portfolio businesses adhere to a similar standard of business practices and ethics and adhere to the Company s fundamental values as described above. The Portfolio Advisor, Pactorum and the Company and their respective affiliates will conduct thorough due diligence investigations when evaluating any African Investments prior to a recommendation from the Portfolio Advisor to make an investment. This generally will include consultations with Fairfax s network of current and 23

28 former management teams, consultants, competitors, investment bankers and senior executives to assess, among other things, the industry dynamics, the character of the management team and the viability of the business plan. More specifically, due diligence in respect of a particular investment opportunity will typically include, among other items as deemed necessary from time to time: review of historical and projected financial information; on-site visits; interviews with management, employees, customers and vendors; review of compliance and control procedure; review of material agreements; background checks; and research relating to the businesses management, industry, markets, products and services, and competitors. Ongoing Monitoring of Portfolio Investments The Company will take an active role in overseeing its African Investments to ensure that its investment thesis is properly executed and that the fundamental values of the Company are being upheld on an ongoing basis. The Company will monitor, among other things, the financial trends of each of its portfolio businesses to determine if it is meeting its business plan and objectives. The Company will also assess, from time to time, the appropriate course of action for each such portfolio investment. The Company will have several methods of evaluating and assessing the performance and fair value of its portfolio investments, including: assessment of success in adhering to the portfolio investment s business plan, objectives and compliance with covenants; periodic and regular contact with management of the portfolio business and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments; comparisons to other portfolio businesses in the industry in which the Company or its affiliates are involved; attendance at, and participation in, board meetings; and review of monthly and quarterly financial statements and financial projections for the portfolio businesses. Investment Highlights and Competitive Advantages The following describes the investment highlights and competitive advantages of the Company. Alignment of interest with Fairfax The Company presents an opportunity for investors to co-invest alongside Fairfax in Africa. Fairfax will, acquire directly, or indirectly through one or more of its subsidiaries on Closing up to 30,000,000 (US$300,000,000) Multiple Voting Shares in aggregate, and will hold all of such Multiple Voting Shares for an extended period (see The Company Initial African Investment and Principal Shareholder ). The Company expects to draw upon Fairfax s and its affiliates investment expertise and experience in emerging markets, including Africa. Compelling investment opportunity in Africa The Company believes that there are a number of factors that make Africa an attractive continent for investment. These factors include: (i) expectations of higher average long-term economic growth than what is expected in other regions in the world, including most of the developed world and many emerging markets outside of Africa; 24

29 (ii) favourable demographic trends including population and labour force growth; (iii) a large and growing emerging middle class that is expected to underpin productivity and consumptiondriven economic growth for several years; (iv) trend of increased FDI into the continent with favourable international trade dynamics which have resulted in international trade now representing more than 50% of GDP in many African countries; and (v) the continent-wide improvement seen over the past decade, in overall governance, political participation, human rights, safety and rule of law, sustainable economic opportunity, and human development. Fairfax and the Portfolio Advisor: Long-term track record of delivering strong, consistent returns for investors The Portfolio Advisor is a sophisticated investor with a strong long-term track record of generating attractive investment returns for its investors. The Portfolio Advisor manages the assets of Fairfax and its affiliates. See The Portfolio Advisor Investment Expertise of Fairfax and the Portfolio Advisor in Africa. Established research capabilities and broad network in Africa Management of the Company, Fairfax and its affiliates (including the Portfolio Advisor), together with Pactorum have considerable experience investing in emerging markets, including Africa, extensive networks within the African investment, commercial banking, private equity and investment management communities and a strong reputation in investment management. The Company believes that the broad expertise and deep experience of the management teams of each of the Portfolio Advisor, the Company and Pactorum will enable the Company to successfully identify, assess and structure investments across all levels of a business capital structure and to manage potential risk and return at all stages of the economic cycle. Additionally, the Company expects to generate information from the Portfolio Advisor s and Pactorum s investment professionals global network of accountants, consultants, advisors and management teams of portfolio businesses and other businesses, which will aid in the identification, analysis and acquisition of African Investments. Strong reputation as a friendly and constructive investor Fairfax and its affiliates (including the Portfolio Advisor) and the members of Pactorum have a strong reputation of working cooperatively and collaboratively with existing management of the portfolio businesses in which they invest. The Portfolio Advisor will generally recommend portfolio businesses for investment by the Company and its subsidiaries where such portfolio businesses are willing to work cooperatively and collaboratively with the Company and its subsidiaries for the benefit of all stakeholders. The Portfolio Advisor believes that this collaborative approach provides a larger pipeline of investment opportunities as compared to a more adversarial activist approach. Attractive structure for long-term investment Unlike private equity and venture capital funds, the Company will not be subject to standard periodic capital return requirements. Such requirements typically stipulate that these funds, together with any capital gains on such investment, can only be invested once and must be returned to investors after a pre-agreed time period or upon the occurrence of a specified event. These provisions often force private equity and venture capital funds to seek returns on their investments through mergers, public equity offerings or other liquidity events more quickly than they otherwise might, potentially resulting in both a lower overall return to investors and an adverse impact on their portfolio businesses. While the Company may, from time to time, seek to realize on any of its African Investments, the Company believes that its permanent capital structure and flexibility to make investments with a long-term view and without the capital return requirements of traditional private investment vehicles will minimize the impact of investor capital flows and better enable it to generate returns on invested capital. In addition, the Company expects that the transparency of its business strategy and holdings, together with its large market capitalization, should enhance the liquidity of its Subordinate Voting Shares. 25

30 Realization on African Investments Notwithstanding the Company s expected long term investment horizon, the Company may, at any time and from time to time, seek to realize on any of its African Investments. The circumstances under which the Company may sell some or all of an African Investment include: (i) where the Company believes that the African Investment is fully valued or that the original investment plan has been achieved; or (ii) where the Company has identified other investment opportunities that it believes present more attractive risk adjusted return opportunities and additional capital is needed to make such alternative investments. The Company may exit its private African Investments either through an initial public offering or a private sale. For publicly traded investments, exit strategies may include selling the African Investments through private placements or public markets. Access to private equity type investments Private equity funds and private equity type investment opportunities are not generally available to public retail investors due to high minimum investment amounts and illiquid secondary markets. While the Company is not a private equity fund, it will have some similarities to private equity funds in that: (i) it may invest in securities of private businesses; and (ii) like many private equity funds, the Portfolio Advisor will take a fundamental approach to assessing potential investment opportunities. Two primary differences between the Company and private equity funds are that the Company expects to be listed on a stock exchange, providing investors with daily liquidity and that the Company will have a permanent capital structure not subject to standard periodic capital return requirements. While the Company may, from time to time, seek to realize on any of its African Investments, the Company believes that its permanent capital structure and flexibility to make investments with a long-term view and without the capital return requirements of traditional private investment vehicles will better enable it to generate returns on invested capital. The Company s access to private equity type investment opportunities will provide public retail investors with the opportunity to invest in an entity with access to private equity type investment opportunities that are generally unavailable to public retail investors. Use of Leverage and Hedging The Company may utilize various forms of leverage from time to time, including borrowings under loan facilities and the issuance of preference shares. The Company may also enter into transactions that may give rise to a form of leverage, including, among others, debt instruments, futures and forward contracts (including foreign currency exchange contracts), credit default swaps, total return swaps and other derivative transactions, loans of portfolio securities, short sales and when-issued, delayed delivery and forward commitment transactions. The maximum amount of leverage that the Company will employ at any time will not exceed the greater of 50% of the Total Assets of the Company and 100% of the Net Asset Value of the Company. In addition, the Company may, but is not obligated to, enter into derivative transactions or short individual securities to hedge or reduce the Company s long exposures. In order to mitigate market-related downside risk, the Company may also acquire put options, short market indices, acquire baskets of securities and/or purchase credit default swaps, but the Company is not committing to maintaining market hedges at any time. Business Conduct English and French are the two most commonly used languages for commercial activity in Africa and members of the Board and management of the Company and its subsidiaries are all fluent in English. The working language of the Company will be English. All internal documents and all material documents provided to the Board will be prepared and presented in the English language. Where appropriate, the Company may translate materials into local official languages and will communicate with local staff in local official languages. Similarly, official documents and other material agreements prepared in languages other than English will be translated, where necessary. Fairfax and the Portfolio Advisor, together with Pactorum, have extensive investment experience and expertise in Africa, and Pactorum s head office will be located in Ebene, Mauritius and certain members of the team are located in Pretoria, South Africa. In addition, representatives of the Company s external auditor have been engaged by Fairfax and its subsidiaries for many years and are fluent in English and French. 26

31 The Company also retains reputable external legal advisors with extensive knowledge of the local laws and regulations. These legal advisors are external counsel who work in the applicable regions in Africa. In order to ensure it receives independent legal advice, in English, that can be reconciled with the Company s legal obligations as a company organized under the laws of Canada that is also a reporting issuer, the Company also ensures that its legal advisors are fluent in English, familiar with the local laws, and resident or formerly resident in the local jurisdictions. The combination of this legal capacity, together with direct reporting relationships between legal counsel and the executive officers, ensures that the executive officers and directors of the Company are informed of the legal requirements in each of the African countries in which the Company invests applicable to the Company and any changes or new developments related thereto. Initial African Investment Background In March 2014, Fairfax acquired a 39.6% indirect interest in AFGRI in a take private transaction (the AFGRI Take Private Transaction ) (AFGRI was listed on the Johannesburg Stock Exchange prior to such take private transaction) led by AgriGroupe Limited and its affiliates ( AgriGroupe ). The AgriGroupe principals included the Chief Executive Officer of the Company and certain individuals who will be directors and officers of Pactorum. Fairfax, together with the other investors in the AFGRI Take Private Transaction, made their investment indirectly through Agrigroupe Investments LP ( AILP ), a Cayman Islands exempted limited partnership whose general partner is AgriGroupe Management Limited ( AML ). AILP owns 100% of the share capital of JIH, a Mauritian holding company, with title to the shares held by AML as general partner. Through their limited partnership interests in AILP, Fairfax and its affiliates hold a 65.9% indirect beneficial interest in the ordinary shares of JIH and a 72.6% indirect beneficial interest in the class A shares of JIH. JIH in turn holds 60.0% of the ordinary shares of AFGRI Holdings Proprietary Limited ( AFGRI Holdings ) and 60.0% of the class A shares of AFGRI Holdings, which in turn holds 100% of the share capital of AFGRI. AFGRI operates its business in South Africa and elsewhere outside South Africa. AFGRI s South African business operations are held through a subsidiary approximately 26.8% of which is owned by various South African charitable, investment and employee empowerment trusts. Description of the Transaction In connection with the AFGRI Transaction, on December 22, 2016, the Company entered into the JIH Purchase Agreement with AILP pursuant to which the Company agreed, subject to the terms and conditions therein, to acquire a minimum of 65.9% of the ordinary shares of JIH and 72.6% of the class A shares of JIH and up to 100% of the total share capital of JIH depending on the Elections (as defined below). The limited partners of AILP, other than the limited partners that are affiliates of Fairfax (the Other LPs ) were given the opportunity by AML, as general partner of AILP, to elect (the Elections ) either (i) to have their interest in AILP redeemed (the pre-closing Redemption ) in advance of the AFGRI Transaction in exchange for shares of JIH (in which case such shares would not be sold to the Company pursuant to the JIH Purchase Agreement), or (ii) to receive Subordinate Voting Shares on the winding up of AILP within 60 days following the AFGRI Transaction (the Wind-up ). All Other LPs have delivered their Elections and the aggregate purchase price to be paid by the Company pursuant to the AFGRI Transaction is approximately US$75.0 million and will be satisfied by the Company issuing (i) 7,284,606 Multiple Voting Shares to Fairfax or its affiliates that will be issued at US$10.00 per Multiple Voting Share and (ii) 212,189 Subordinate Voting Shares that will be issued at US$9.50 per Subordinate Voting Share (being US$10.00 less a private placement fee of US$0.50 per Subordinate Voting Share). The Company will hold approximately 70.3% of the ordinary shares of JIH and 73.3% of the class A Shares of JIH following the AFGRI Transaction. The aggregate purchase price to be paid by the Company for the Initial African Investment was negotiated between the Company and AML, on behalf of AILP. No advisors were retained an no independent valuation was obtained, or was required under Canadian securities law. The Company is confident that the price it has agreed to pay represents a fair price for the Initial African Investment based on the information that it has with respect to AFGRI. The process for determining the price included a discounted cash flow analysis of JIH s underlying investment in AFGRI based on multi-year free cash flow 27

32 projections with assumed after-tax discount rates ranging from 11.3% to 18.2%, and a long term growth rate of 3.0%. Free cash flow projections were based on EBITDA and working capital projections from financial information for AFGRI s principal business units that had been prepared by AFGRI management. Discount rates were based on the Company s assessment of risk premiums to the appropriate risk-free rates of the economic environments in which AFGRI operates. See Risk Factors Risks Factors Related to the Initial African Investment. As noted herein, the share capital of JIH comprises ordinary shares and class A shares. The class A shares of JIH have priority claim over distributions received by JIH from AFGRI Holdings in the amount of approximately US$88.6 million. Any such distibutions will be used to pay down this amount to the class A shareholders through redemption of all class A shares before holders of ordinary shares of JIH will be eligible to receive any distributions on their ordinary shares. The Company will hold approximately 73.3% of the class A shares of JIH following the AFGRI Transaction. Following the Wind-up, all Multiple Voting Shares and Subordinate Voting Shares to be issued as consideration under the AFGRI Transaction will be issued in the names of the AILP limited partners and, in the case of the Multiple Voting Shares, be subject to the Retained Interest Requirement (see Principal Shareholder ), and in the case of the Subordinate Voting Shares, be subject to a lock up agreement with the Underwriters that will provide that during a period ending 180 days from Closing, such holders of Subordinated Voting Shares may not offer, sell or issue for sale or resale such Subordinate Voting Shares or financial instruments or securities convertible into, or exercisable or exchangeable for, Subordinate Voting Shares, or agree to, or announce, any such offer, sale or issuance, without the prior written consent of the Lead Underwriter, on behalf of the Underwriters, which consent may not be unreasonably withheld or delayed. Following closing of the AFGRI Transaction, which closing is expected to occur concurrently with the Closing, the Company will contribute the assets acquired in the AFGRI Transaction to Mauritius Sub on a tax-deferred basis. Through its interest in JIH, the Company will indirectly control and will be the largest beneficial shareholder in AFGRI, holding an indirect interest in AFGRI of 42.2%. It is anticipated that the Company and the partners of AILP at the time of the AFGRI Transaction will file a joint election pursuant to subsection 85(2) of the Tax Act so that the transfer of the JIH shares from AILP to the FAH might occur on a tax-deferred basis for Canadian income tax purposes. If the Company and the partners of AILP at the time of the AFGRI Transaction make such an election, the shares of JIH acquired by the Company as part of the AFGRI Transaction will have an adjusted cost base lower than the fair market value of such shares. The closing of the AFGRI Transaction is subject to certain customary closing conditions as well as the conditions that the Closing has occurred and pursuant to such Closing the per share price of the Subordinate Voting Shares is at least US$ Within 60 days of the completion of the AFGRI Sale, AILP will be wound-up and its assets will be distributed to its respective limited partners. The Company may have limited or no ability after such distribution and winding up to recover for any loss or damages should any of the representations or warranties of AILP included in the JIH Purchase Agreement be inaccurate or misrepresented. See Risk Factors Risk Factors Related to the Initial African Investment. Interests of the Chief Executive Officer and Certain Principals of Pactorum and Portfolio Advisor in the Initial African Investment With respect to the Initial African Investment, Michael Wilkerson, the Chief Executive Officer of the Company, Neil Holzapfel, who is a founding partner of Pactorum, and James Bisenius, who is another founding partner of Pactorum, have the following interests: Mr. Wilkerson, Mr. Holzapfel and Mr. Bisenius each hold an indirect beneficial interest in the share capital of JIH. Mr. Wilkerson elected to receive Subordinate Voting Shares as part of the Initial African Investment and Mr. Holzapfel and Mr. Bisenius elected to receive a distribution of equity in JIH as a pre-closing Redemption. As a result of Mr. Wilkerson s election, he will receive 143,504 Subordinate Voting Shares in connection with the Initial African Investment representing % of the voting rights of the Company and % of the equity interest in the Company at Closing (or approximately % 28

33 and %, respectively, if the Over-Allotment Option is exercised in full) and Mr. Holzapfel and Mr. Bisenius will hold in aggregate approximately 5.3% of JIH. Mr. Wilkerson, Mr. Holzapfel and Mr. Bisenius, through AML, have an engagement letter with AFGRI for advisory services pursuant to which AFGRI pays AML US$128,751 per quarter for the benefit of Mr. Wilkerson, Mr. Holzapfel and Mr. Bisenius. The engagement letter expires on March 31, 2017 and will not be renewed. Mr. Wilkerson, Mr. Holzapfel and Mr. Bisenius, through AML, and an unrelated third party, hold a cash carried interest payment right that is variable based on a formula that will be assessed on March 31, 2019 that could result in a cash bonus payment being made to each of them depending primarily on the financial performance of AFGRI. The financial performance target is based on a measure of free cash flow return on equity for the five year period ending on March 31, 2019, with the maximum potential tied to a 33% (or higher) average annual free cash flow return on equity over the assessment period. Mr. Wilkerson, Mr. Holzapfel, Mr. Bisenius, a trust held for the benefit of AFGRI management, and an unrelated third party, hold class B shares and class C shares of AFGRI Holdings. The class B shares and class C shares of AFGRI Holdings are convertible into a maximum of 33,108,349 ordinary shares of AFGRI Holdings on March 31, 2019 based on certain financial and other performance targets applicable to AFGRI. The financial performance target is based on a measure of free cash flow return on equity for the five year period ending on March 31, 2019, with the maximum conversion ratio tied to AFGRI achieving a 33% (or higher) average annual free cash flow return on equity over the assessment period. If AFGRI achieves the maximum potential of those performance targets the class B shares and class C shares will automatically convert to ordinary shares. In that event JIH s ownership of the ordinary shares of AFGRI Holdings will decrease from 60% to 55.1%. Mr. Wilkerson is also a non-executive director and Chairman of the Board of AFGRI, for which he receives quarterly compensation of $18,119. Mr. Holzapfel is a non-executive director and Chairman of the Remuneration and Nominations Committee or AFGRI, for which he receives quarterly compensation of $12,086. Quinn McLean, a Vice President and a member of the investment committee of the Portfolio Advisor, is a non-executive director of AFGRI. Description of the Business of AFGRI Based in South Africa, AFGRI is a leading agricultural services and food processing company with a core focus on grain commodities. It provides services across the entire grain production and storage cycle, offering financial support and solutions as well as inputs and hi-tech equipment through the John Deere brand supported by a large retail footprint. AFGRI is involved in the manufacture of animal feeds, the processing of yellow maize and wheat and the extraction of oil and other raw materials into edible oils, fats and proteins for human consumption (primarily for the food processing and quick-service restaurant industries). AFGRI manages critical components of the food value chain to enable food production and agricultural sector growth in Africa. It is a market leader in grain management solutions, with leading market share in South Africa, and is one of Africa s largest grain storage companies with 69 silos and 15 branches across South Africa, which have more than 5 million tonnes of storage capacity. AFGRI is also one of South Africa s largest non-bank lenders to the agricultural sector with an average loan book value for fiscal year 2016 of approximately ZAR12.3 billion (approximately US$894 million at an average exchange rate for 2016) and is one of the largest John Deere distributors outside of the United States, with a presence in several markets in Africa and Western Australia. 29

34 The chart below on the right represents the proportionate profit before tax of the three core operating business units of AFGRI Propriety Limited, before adjusting for corporate expenses and holdco disbursements. Profit Before Tax by Segment of a AFGRI Proprietary Limited (FY 2016) Foods 18% Financial Services 28% Agri Services 54% 17JAN AFGRI s long-term growth strategy is based on a vision to drive food security across Africa. AFGRI currently has operational activities aimed at supporting agriculture in Zambia, Zimbabwe, Mozambique, Nigeria, Ghana, Congo-Brazzaville, Botswana and Uganda and has plans to expand into additional African countries. AFGRI also has a John Deere operation in Australia, an animal feeds research and development venture in the United Kingdom and an investment in animal feeds in the United States of America. Additionally, AFGRI provides collateral management solutions, such as monitoring status, quality and quantity of collateral of various parties, in 13 African countries on behalf of banks, insurers and customers. One of AFGRI s current strategic initiatives is growing its existing financial services business, which is currently centered on providing credit, trade and commodity finance, insurance, payments and related products and services to the agricultural sector. To this end, AFGRI is both pursuing organic growth and exploring potential acquisition and other strategic opportunities (such as partnerships or joint ventures) in financial services in Africa. Furthermore, during the current financial year ending March 31, 2017 AFGRI will complete acquisitions of three John Deere distributorships, including one in Australia, one in Botswana and one in South Africa, expanding its existing footprint in Australia and South Africa, and entering the Botswana market. The Company and the Portfolio Advisor believe that AFGRI has demonstrated strong performance and prudent capital management practices since the AFGRI Take Private Transaction. During this time, it divested its poultry operations for ZAR1.1 billion (US$94 million as of May 15, 2015) and sold other non-core assets and refocused on strategic businesses within the grain value chain, including agricultural services, financial services and foods. The cash funded cost (i.e. excluding assumption of AFGRI debt) of the AFGRI Take Private Transaction to acquire 100% of the equity of AFGRI was ZAR2.4 billion (US$228 million as of March 31, 2014). Since the closing of the AFGRI Take Private Transaction, AFGRI has repaid all of the ZAR650 million (US$62 million as of March 31, 2014) acquisition debt incurred for the AFGRI Take Private Transaction and has made cash distributions of over ZAR500 million (US$39 million at an average exchange rate for 2015) to shareholders, which repayments and distributions represent in aggregate approximately 48% of the cash funded cost of acquisition. During the fiscal year ending March 31, 2016, and the six-month interim period through September 30, 2016, AFGRI experienced a decline in revenue and profitability which the Company and AFGRI management believe was a result of severe drought conditions in Southern Africa, the depreciation of the South African Rand and the resulting high volatility of agricultural commodity prices over the period. The drought, one of the worst on record for the region, primarily impacted AFGRI s John Deere equipment and retail businesses as farmers deferred purchases. Currency and commodity volatility, which were also high during the period, were the primary drivers of weak financial performance for AFGRI s food processing business, as a large-scale buyer of agricultural commodities. Looking forward, drought conditions have eased in recent months, with rainfall above 30

35 historical averages in many countries where AFGRI operates. As a result the Company and AFGRI management expect that trading conditions will improve to normalized levels over the remainder of the fiscal year ending March 31, 2017 and into the fiscal year ending March 31, Audited annual financial statements for the years ended March 31, 2016 and 2015 and interim financial statements for the six-month period ended September 30, 2016 and for the comparable period in the prior year, of AFGRI Holdings and JIH, are included in this prospectus. AFRICA OVERVIEW The Company believes that there are a number of factors that make investing in Africa an attractive proposition for the Company with the prospect of sustained and long-term growth. These factors include: Strong Growth Prospects The GDP of Africa has approximately doubled since The Company believes that this growth has been driven largely by investments in infrastructure, a thriving services sector, and agricultural output. The United States Department of Agriculture ( USDA ) forecasts for GDP in many African countries show long-term future growth at over 5% per year including certain key African markets such as Ethiopia, Mozambique, Kenya, and Rwanda. (1) Long-Term GDP Growth for African Continent (1) 3,791 3,657 3,402 3,167 2,945 1,031 1,068 2, ,106 2,241 2,366 2, ,682 1,818 1, , ,034 1,094 1,178 1, ,018 1,160 1,254 1,378 1,500 1,615 1,703 1,830 1,969 2,116 2,273 2,443 2,626 2, % increase E 2019E 2021E 2023E 2025E 2027E 2029E 2030E Sub-Saharan Africa North Africa 6JAN (1) Source: USDA Forecasts as of September 21, 2016 (compilation of World Bank, International Monterey Fund ( IMF ) and Oxford Economics Database). 31

36 African Countries with Projected Annual Growth Rates Greater than 5% from F (2) Libya Mauritania Uganda Ethiopia Liberia Ghana Sao Tome and Principe Democratic Republic of Congo Kenya Rwanda Mozambique 6JAN Africa s medium-term annual growth forecast from 2015 through 2017 is approximately 3%, which is a higher rate than that of many other emerging markets, including Russia and Brazil, which are forecast to have GDP declines of 0.5% and 1.4%, respectively during that period. (2) The Company expects that the constructive, long-term GDP growth forecast in key African countries, as shown in the chart below, will continue through 2030 as a result of currently forecast macro-economic tailwinds, spurred on by favourable demographic trends, including strong working age population growth, and FDI (discussed further herein). (2) Source: USDA Forecasts as of September 21, 2016 (compilation of World Bank, IMF and Oxford Economics Database). 32

37 Projected Medium-Term African GDP Growth Compared to Selected Countries ( F) (3) 7.2% 6.3% 5.9% 5.1% 5.0% 4.9% 2.8% 2.5% 2.0% 1.7% 0.4% (0.5%) (1.4%) Ethiopia China Kenya Uganda Cameroon Ghana Africa World United States Europe Japan Russia Brazil 6JAN % 6.0% 2.0% (2.0%) Projected Long-Term African GDP Growth Compared to Selected Continents and Countries (3) (6.0%) E 2021E 2025E 2029E World Europe USA South America 6JAN Africa Integration with Global Markets According to Ernst & Young, FDI is both a driver and result of economic growth in Africa. As shown in the chart below, the African continent saw greater FDI inflows in each of 2014 and 2015 than it did in the average of the preceding five years despite global macroeconomic headwinds. (4) Furthermore, FDI over the past two years is credited with creating over 300,000 jobs on the African continent. (4) The Company believes that scarcity of capital in Africa has been a primary constraint on economic growth historically. However, the Company believes that, consistent with recent history, the rate of FDI in Africa will continue to rise in the coming years. This presents an opportunity for the Company as it is well positioned to be a part of this rising trend of foreign investment and economic expansion. Furthermore, according to the World Bank, international trade now represents more than 50% of GDP in many African countries. (5) By contrast, international trade represents less than 30% of the GDP of the United States. (3) Source: USDA Forecasts as of September 21, 2016 (compilation of World Bank, IMF and Oxford Economics Database). (4) Source: Ernst & Young, Africa Attractiveness Program 2016 Navigating Africa s Current Uncertainties (5) Source: World Bank Development Indicators as of

38 Capital Investment and Job Creation from FDI Projects in Africa from (6) $83.6 $70.4 $73.1 $47.2 $66.3 $88.6 $ Jobs Created from FDI Projects ('000) Capital Investment (USD Bn) 6JAN Population Growth & Emergence of Middle Class According to the African Development Bank, Africa s emerging middle class now comprises more than one-third of all Africans. (7) The Company believes that this African middle class will spend increasing levels of discretionary income primarily on consumer goods, energy and education, all of which are key contributors to the forecast economic growth. Furthermore, according to the United Nations, the African continent has the fastest-growing population in the world with Africans projected to account for over half of the 2.4 billion people projected to be added to the global population by The United Nations projects that by 2030 the African continent s population will be larger than both India and China and will account for approximately 20% of the world s population. (8) The World Bank considers Sub-Saharan Africa to have the world s youngest population with as many as 11 million young Africans expected to enter the workforce each year until (9) The chart below on the left illustrates the strong expected growth rate of the working-age population in Sub-Saharan Africa, particularly when compared to developed countries which are forecast to have declining working-age populations. The Company views this rapid working-age population growth trend as central to their African investment thesis, as a growing workforce will provide a stable foundation for future productivity enhancements and GDP growth. The chart on the right shows the median age of selected Sub-Saharan country populations relative to the median population ages of selected developed countries. Favourable Demographics Based on Working Age Population and Median Age (10) 1,400 1,200 1, Working Age Population (millions) Developed Countries SSA 2.7% CAGR Forecast Uganda Angola Zambia DRC Nigeria Ethiopia Kenya Rwanda South Africa China United States Canada France Italy Germany Japan Median Age in JAN (6) Source: Ernst & Young, Africa Attractiveness Program 2016 Navigating Africa s Current Uncertainties (7) Source: African Development Bank, The Middle of the Pyramid: Dynamics of the Middle Class in Africa, (8) Source: United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2015 Revision, Key Findings and Advance Table, (9) Source: The World Bank, Youth Employment in Sub-Saharan Africa, (10) Source: United Nations, 2015 Revision of World Population Prospects. 34

39 Rapid Urbanization The Company believes that Africa is the fastest urbanizing region in the world. The Company expects the trend of urbanization to drive increased consumption and productivity in urban areas across the African continent which is expected to result in the continued creation of jobs and ultimately drive economic growth and prosperity. The charts and illustrations below demonstrate the Company s thesis. Chart 1 illustrates the number of African cities with populations over 5 and 10 million. Chart 2 illustrates the forecast for urban population growth in Africa. Between 2015 and 2025, the urban population on the African continent is forecast to grow approximately 40% (187 million) from 472 million to 659 million. (11) Chart 3 illustrates the historical urbanized population in major regions globally. McKinsey & Company projects that between 2015 and 2045, Africa s urban population growth will substantially outpace any other region in the world. (11) As is common globally, city centres lead a countries domestic consumption. In Africa, for example, per capita consumption in large cities is approximately 80% higher than that counties respective national average. McKinsey & Company projects that by 2025, 75 African cities will account for 49% of the continents consumption. (11) Rapid Urbanization Expected to Lead to Increased Household Consumption (12) 1 African cities with a population of 5 Million+ 2 Urban population (size of urbanized population in millions of people) million 10 million >10 million Casablanca Alexandria Cairo Dakar Kano Khartoum Lagos Abidjan Onitsha Accra Addis Ababa Nairobi Kinshasa Dar es Salaam Luanda Greater Johannesburg % mn 40% Additional urban population Urban population as a % of total population % 3 The world s fastest urbanizing region (size of urbanized population in millions of people) 1,200 Africa China 1,000 India Lat Am Europe N AM JAN (11) Source: McKinsey & Company, Lions on the Move II: Realizing the Potential of African Economies, September 2016 (12) Source: Compilation of United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2015 Revision ; McKinsey Global Institute analysis; MGI Cityscope; and United Nations, Department of Economic and Social Affairs, Population Division, World Urbanization Prospects: The 2014 Revision. 35

40 The Company expects that the aforementioned trend of urbanization will be a key contributor to disposable income growth and ultimately household consumption. The chart below illustrates the historical and forecast trends of household consumption in regions around Africa. Percentage Share in Household Consumption (2015 Prices) (13) Sub-Saharan Africa (excluding Nigeria and South Africa) is expected to experience the most rapid growth % 26% 18% 26% 21% 22% 14% $910bn +$540bn 13% $1,450bn +$645bn $2,095bn 13% 16% 12% 16% 15% 14% 13% 15% 12% 17% Nigeria Egypt South Africa East Africa Rest of North Africa Rest of SSA 16JAN Improved Political Stability and Governance Over the last decade, several countries across the African continent have experienced improved overall governance, political participation and human rights, sustainable economic opportunity, and human development, as measured by the 2016 Ibrahim Index of African Governance. The Ibrahim Index of African Governance provides an annual statistical assessment of the quality of governance in every African country. Further, Africa has experienced improvement in economic freedom, with 30 Sub-Saharan African economies posting annual score improvements since 2013 on the Heritage Foundation 2016 Economic Freedom Index which tracks property rights, freedom from corruption, regulatory efficiency, and the openness of markets. Potential Sector Opportunities The Company believes that the energy, food and agricultural, financial services, infrastructure and logistics and consumer products and retail sectors present attractive potential investment opportunities for the Company. Energy The Company believes that the production, supply and security of energy is Africa s greatest infrastructure deficit. According to the International Energy Agency, approximately 50% of the world s population that lives without access to electricity is in Sub-Saharan Africa and they project that this will rise to 60% by (14) The Company believes that Africa s manufacturing, mining and agricultural industries seek dependable energy solutions from reliable commercial sources. According to the World Bank, African manufacturers average 56 days per year of power outages, resulting in an estimated 6% loss in revenue per year in the informal (13) Source: Compilation of Oxford Economics Database IHS, African Development Bank and McKinsey Global Institute analysis. (14) Source: International Energy Agency, African Energy Outlook A Focus on Energy Prospects in sub-saharan Africa World Energy Outlook Special Report,

41 sector. (15) McKinsey & Company projects that there will be a 400% increase in electricity consumption in Sub-Saharan Africa through 2040 and that an estimated US$490 billion investment in generation capacity is required to meet this projected increase in demand with another US$345 billion being needed for transmission and distribution. (16) The Company believes that this large supply-demand imbalance presents an opportunity for investment in independent power producer generation and transmission infrastructure as a means to closing the gap. Food and Agriculture According to McKinsey & Company, Africa has 60% of the world s remaining arable land, yet the World Bank has determined that Africa s cereal yields are among the lowest in the world and many African countries remain net food importers despite abundant fertile cropland. (17) McKinsey & Company believes that Africa has the potential to increase the value of its agricultural output from an estimated US$280 billion annually to approximately US$500 billion by 2020 and approximately US$880 billion annually by (18) The Company believes that this presents opportunities for investment in critical food and agricultural value chain infrastructure such as storage, processing and branded products. Financial Services While mobile phone penetration has increased to over 70% across some countries in Africa, according to the Pew Research Center, a nonpartisan American research institute, the percentage of African s without bank accounts remains high at over 65% in Sub-Saharan Africa. (19) This phenomenon is expected to cause electronic payments to leapfrog traditional banking as individuals move directly to mobile banking when they open their first accounts. The Company believes that, except for the largest multinationals, access to credit in Africa is difficult and very limited. As a result, the Company believes that there are opportunities for investment in the underdeveloped African financial services subsectors, such as credit, trade finance payments and identity. Infrastructure and Logistics The Company believes there is a multi-billion dollar infrastructure gap and that opportunities for investment in Africa exist in the sale and distribution of basic building materials (e.g. cement, other building products), the creation and operation of distribution and transportation networks (e.g. cold chain storage, transportation) and the development and operation of real estate (e.g. commercial, retail). Consumer Products and Retail The Company believes that rapid urbanization will lead to substantially increased consumption and the formalization of a retail economy. As certain African economies transition from informal to formal economies, the Company believes there will be more disposable income among Africans and changing tastes and that local, regional and multinational brands and concepts will all play an increasingly important role. Selected Country Overviews Of the more than 50 countries in Africa, the Company expects that it will invest in only approximately 5-10 countries that are considered suitable by the Company for investment as determined in accordance with the Risk Matrix, among other factors. See The Company Investment Highlights and Competitive Advantages Established Research Capabilities and Broad Network in Africa. (15) Source: World Bank, Fact Sheet: The World Bank and Energy in Africa. (16) Source: McKinsey & Company, Brighter Africa: The growth potential of the sub-saharan electricity sector, February (17) Source: Food and Agriculture Organization of the United Nations, Low Income Food-Deficit Countries, 2015; and McKinsey & Company, Lions on the Move: The Progress and Potential of African Economies, June (18) Source: McKinsey & Company, Lions on the Move: The Progress and Potential of African Economies, June (19) Source: Pew Research Center, Cell Phones in Africa: Communication Lifeline, April 2015; and World Bank Global Findex Data as of

42 The countries set out below are not necessarily the countries that the Company will invest in but are indicative of those that the Company and the Portfolio Advisor currently believes meet the necessary investment criteria based on the Risk Matrix as of the date of this prospectus. As the country specific investment criteria and the Risk Matrix are regularly updated and refined by the Company, the countries considered suitable for investment will vary over time. South Africa South Africa is the continent s second largest economy with a population of approximately 55 million as of 2015 and a GDP of approximately US$416 billion in The Company believes that South Africa has the most advanced economy and infrastructure in Africa, South Africa is also the headquarters for many of the world s multinational companies. South Africa receives more FDI inflow than any other African country, totaling approximately 1,200 projects and US$57 billion between 2007 and (20) The World Economic Forum ranks South Africa s economy as one of the top two in Africa and one of the best in the world as a result of (i) improvements in innovation, (ii) strong domestic competition, (iii) efficient transportation infrastructure, (iv) strong institutions, and (v) a robust and independent legal framework. (21) South Africa is home to the Johannesburg Stock Exchange which is currently ranked the 19th largest stock exchange in the world by market capitalization (currently approximately US$735 billion based on South African domiciled companies) and is the largest stock exchange in Africa. There are approximately 400 companies listed on the Johannesburg Stock Exchange including Anheuser-Busch InBev SA/NV, British American Tobacco Plc and BHP Billiton Plc. South Africa GDP Composition 29% Services Agriculture Industry 2% 69% 7JAN JAN Nigeria Nigeria is the continent s largest economy with a population of approximately 182 million as of 2015 and a GDP of approximately US$465 billion in Nigeria has the largest population in Africa, approximately twice the population of the second largest African country, Ethiopia, and the 7th largest population in the world as of Nigeria s economy has been historically dependent on oil and falling oil prices have lowered GDP forecasts; however, the Company believes this has incentivized the Nigerian government to diversify its economy. The recently democratically elected President of Nigeria, Muhammudu Buhari, has presented an anti-corruption platform and identified agriculture and solid mineral as two industries which he believes can increase employment and drive growth. Nigeria s mobile communications market has over 140 million subscribers. The Company believes that Nigeria has shown substantial improvements in overall governance, human rights, economic opportunity and human development since 2006 and that its primary focus going forward will be on agriculture and infrastructure development. (20) Source: Ernst & Young, Africa Attractiveness Program 2016 Navigating Africa s Current Uncertainties (21) Source: World Economic Forum, The Africa Competitiveness Report,

43 Services Nigeria GDP Composition 20% Agriculture Industry 21% 59% 7JAN JAN Ethiopia Ethiopia has the continent s second largest population with approximately 99 million people as of 2015 and had a GDP of approximately US$43 billion in The World Bank considers Ethiopia to be among the fastest growing countries in the world with growth rates approaching 10% annually for the past several years. (22) With a working age population of approximately 55 million people (23), the Company believes that Ethiopia has an abundant and inexpensive source of labour. Ethiopia is a member of the Common Market for Eastern and Southern Africa ( COMESA ) which is a trading bloc comprised of 19 member countries and approximately 400 million people. Ethiopia is home to the African Union and the United Nations Economic Commission for Africa and is considered one the political centres of Africa. The Bill and Melinda Gates Foundation recently announced plans to invest in mobile payments platforms for rural farmers. The Company believes that Ethiopia s key industries consist of food and agriculture, manufacturing and financial services. Ethiopia GDP Composition 16% Services 43% Agriculture Industry 41% 7JAN JAN (22) Source: World Bank Development Indicators as of (23) Source: United Nations, 2015 Revision of World Population Prospects. 39

44 Kenya Kenya has the continent s seventh largest population with approximately 46 million people as of 2015 and a GDP of approximately US$52 billion in The Company believes Kenya has the most advanced economy in East Africa and the USDA projects Kenya to show strong growth of approximately 5.9% per year between 2016 and (24) Kenya was ranked among the top African destinations for FDI in (25) The Company believes Kenya s infrastructure provides the country with strong access to global markets. Examples include (i) Port of Mombasa which is ranked as among the best in Africa, (ii) KE-UG railway which links Kenya to the rest of the continent, and (iii) Jomo Kenyatta Airport in Nairobi, which is a major hub between Africa, Europe and Asia. Kenya is known as a major tech hub in Africa and will be home to the US$14.5 billion Silicon City information technology hub to be located outside of Nairobi. The Kenyan Government is currently targeting improvements in infrastructure and clean energy. Kenya is also a member of COMESA and the Company believes its key sectors consist of agricultural exports and retail. Kenya GDP Composition 18% Services Agriculture Industry 33% 49% 7JAN JAN Egypt Egypt is North Africa s largest economy with a population of approximately 91.5 million as of 2015 and a GDP of approximately US$243 billion in Egypt has the largest population and labour force in North Africa. The Company considers Egypt to have a well-educated labour force as a result of approximately 300,000 Egyptians obtaining university degrees each year, including approximately 20,000 in engineering and approximately 15,000 in science and technology. Egypt emerged from the Arab Spring in 2011 and ratified a new constitution in The Company believes the most prominent sectors in Egypt are skill-intensive sectors such as information technology, financial services and tourism. Egypt has strong transportation infrastructure including the Suez Canal and also has cellular coverage over nearly 100% of the country s inhabited land mass through three independent mobile cellular providers. The highest corporate tax rate in Egypt is currently 25% and Egypt has access to global markets through bilateral trade agreements with the United States and other European, Middle Eastern and African countries. Egypt is also a member of COMESA. (24) Source: USDA Forecasts as of September 21, 2016 (compilation of World Bank, IMF and Oxford Economics Database). (25) Source: Source: Ernst & Young, Africa Attractiveness Program Navigating Africa s Current Uncertainties

45 Egypt GDP Composition Services Agriculture Industry 36% 53% 11% 7JAN JAN Mauritius Mauritius serves as a key financial services hub for the continent with a population of approximately 1.3 million as of 2015 and a GDP of approximately US$11.5 billion in The Company believes Mauritius has a strong network of local financial service providers, advisors and professionals throughout the audit, accounting, legal and tax sectors, with each having links to their African counterparts to provide investors with cross-jurisdictional professional services. The 2016 Ibrahim Index of African Governance ranked Mauritius as one of the best countries in Africa for an advantageous business climate and political stability. Mauritius is also ranked first among all African nations in the World Bank s 2016 Doing Business Report. Mauritius maintains an investment grade sovereign credit rating of Baa1 from Moody s Investors Service Inc. ( Moody s ) with a stable outlook. The USDA projects Mauritius GDP to grow approximately 3.5% per year between 2016 and (26) Mauritius is also a member of COMESA. Mauritius GDP Composition 22% Services Agriculture 4% Industry 74% 7JAN JAN (26) Source: USDA Forecasts as of September 21, 2016 (compilation of World Bank, IMF and Oxford Economics Database). 41

46 Rwanda The Company regards Rwanda as one of Africa s most favourable investment destinations and the Company believes Rwanda has achieved a successful political transformation following the 1994 genocide. Rwanda has a population of approximately 11.6 million as of 2015 and a GDP of approximately US$8 billion in The USDA projects that Rwanda s medium-term GDP will grow approximately 5.9% per annum between 2016 and (27) The Company believes that the Rwandan government s Vision 2020 strategy affirms the role of the private sector in the nation s development. This strategy includes promotion of businesses through industrial parks and export processing zones in which foreign investors can partner with local businesses on attractive investment terms. The Company believes that infrastructure development, such as transportation, energy, water and waste management are all attractive sectors in Rwanda. Rwanda is also a member of COMESA. Rwandan GDP Composition 15% Services Agriculture Industry 35% 50% 7JAN JAN Botswana The Company believes that Botswana is an attractive investment destination in Africa due to its political stability, high credit ratings and high GDP growth. Botswana has a population of approximately 2.3 million as of 2015 and a GDP of approximately US$16 billion in The USDA projects that Botswana s medium-term GDP will grow approximately 4.4% per annum between 2016 and 2018 and it maintains Africa s highest sovereign credit rating of A2 from Moody s with a stable outlook. Botswana has been at peace since its founding as a sovereign nation in 1966, is widely regarded as a transparent investment destination and is repeatedly ranked by the 2016 Ibrahim Index of African Governance as the least corrupt country in Africa. Botswana is regarded as a significant diamond trader and exporter. (27) Source: USDA Forecasts as of September 21, 2016 (compilation of World Bank, IMF and Oxford Economics Database). 42

47 Services Botswana GDP Composition 30% Agriculture Industry 2% 68% 7JAN JAN INVESTMENT RESTRICTIONS The Company will not make an African Investment if, after giving effect to such investment, the total amount of such investment would exceed 20% of the Company s Total Assets; provided, however, that the Company will nonetheless be permitted to complete up to two African Investments where, after giving effect to each such investment, the total amount of each such investment would be equal to no more than 25% of the Company s Total Assets. The Company intends to make multiple African Investments as part of its prudent investment strategy, and, accordingly, will invest the Net Proceeds of the Offerings in at least six different African Investments, including the Initial African Investment, that satisfy the above-described Investment Concentration Restriction. The Company will at all times utilize one or more custodians to hold its assets (both cash and securities, as applicable). Initially, RBC Investor Services Trust and Standard Bank Group (each, a Custodian ), at their respective principal offices in Toronto, Ontario and Johannesburg, will be appointed as the custodians of the Company s, Mauritius Sub s and SA Sub s assets on or prior to the Closing Date pursuant to the Custodian Agreements. See The Custodians. THE PORTFOLIO ADVISOR Each of the Company, Mauritius Sub and SA Sub will appoint the Portfolio Advisor, a wholly-owned subsidiary of Fairfax that is registered with the Ontario Securities Commission as a portfolio manager in the Province of Ontario, as its portfolio advisor to source and advise with respect to all investments for the Company, Mauritius Sub and SA Sub, and any other subsidiary through the Company invests, from time to time. The head office of the Portfolio Advisor is located at 95 Wellington Street West, Suite 802, Toronto, Ontario, M5J 2N7, Canada. The Portfolio Advisor may, from time to time, retain the services of one or more sub-advisors to assist the Portfolio Advisor in researching and identifying investment opportunities for the Company, Mauritius Sub and SA Sub and any other subsidiary through which the Company invests in Africa from time to time. On Closing, the Portfolio Advisor will retain Pactorum as a strategic consultant to provide investment research and analysis, transaction origination, due diligence and similar consulting services on an exclusive basis to the Portfolio Advisor with respect to investments of the Company and its subsidiaries. See Pactorum. Fees payable to any sub-advisors from time to time or to Pactorum will be borne by the Portfolio Advisor and no additional amount will be payable by the Company, Mauritius Sub or SA Sub, or any other Company subsidiary in connection therewith. 43

48 Investment Expertise of Fairfax and the Portfolio Advisor in Africa Fairfax, the portfolio administrator and the promoter of the Company, is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management. Fairfax has been listed on the TSX (TSX:FFH) for over 25 years and had a market capitalization of approximately US$13.5 billion, last twelve month revenues of more than US$9.9 billion and total assets of approximately US$44.0 billion, as at September 30, Fairfax and its affiliates have over 17 years of emerging market investment experience. The Company intends to leverage the investment expertise and experience of Fairfax and its subsidiaries, including the Portfolio Advisor. Fairfax s corporate objective is to achieve a high rate of return on invested capital and build long-term shareholder value. Fairfax has an investment grade credit rating from each of DBRS Limited ( DBRS ), Moody s and Standard & Poor s Ratings Service ( S&P ). The Company is expected to benefit from Fairfax s and the Portfolio Advisor s established affiliate network and experience in sourcing and implementing successful ventures in Africa. Certain examples of investments by Fairfax in companies with operations in Africa are described below. Investment Investment (millions) Ownership Description 7JAN (March 2014) 7JAN (May 2014) 7JAN (March 2015) US$ % AFGRI is a leading agricultural services and food processing group with activities in over 15 countries in Africa. See The Company Initial African Investment. US$ % In May 2014, Fairfax invested US$330 million for an 7.4% interest in CIB, the largest private-sector bank in Egypt. CIB is one of the largest investments banks in the Middle East and North Africa region. US$64 7.2% Africa Re writes about US$700 million of insurance business across Africa and is owned by a combination of African states, African insurance and reinsurance operations and foreign investors (who are restricted to a 25% total foreign ownership). 7JAN (Q3 2015) 7JAN (Q1 2016) US$ % In 2015, an entity in which Fairfax has a 41% interest acquired 49% of 2A Insurance (Algerian Insurance), a leading provider of insurance and reinsurance products in Algeria. US$ % In early 2016, Fairfax acquired 49% (following a sell down, current investment equals approximately US$295 million and ownership percentage equals 45%) of the common shares of APR Energy ( APR ) as part of a take private transaction. APR is a leading global provider of rapidly deployed temporary power solutions, and has operated in 11 African countries. US$ % In late 2016, Fairfax acquired 100% of Zurich Insurance Company Ltd s South African and Botswana operations, Zurich Insurance Company South Africa Limited ( Zurich ). Zurich is a property and casualty insurance company with individual, 7JAN commercial and corporate customers. Zurich has a network of (Q4 2016) sales areas and service outlets across South Africa and Botswana and employs approximately 800 people as of July 7,

49 Extensive Track Record of Fairfax in India Fairfax has an extensive track record investing in India including as the portfolio administrator of Fairfax India Holdings Corporation ( Fairfax India ) (TSX: FIH.U), which completed its approximately US$500 million initial public offering and concurrent private placements of an additional approximately US$500 million (including a US$300 million investment by Fairfax in multiple voting shares of Fairfax India) in January Like the Company, Fairfax India s investment objective is to achieve long-term capital appreciation, while preserving capital, by investing in public and private equity securities and debt instruments of businesses, although in India as opposed to in Africa, and generally, subject to compliance with applicable law, Fairfax India makes investments in India with a view to acquiring control or significant influence positions. Also like the Company, Fairfax India s investment strategy is designed to compound book value per share over the long-term. Since January 2015, Fairfax India has announced eight Indian investments and has deployed or committed to deploy approximately US$1.1 billion in India. It recently completed an additional capital raise of US$500 million. Investment Advisory Agreement Pursuant to an administration and investment advisory services agreement to be entered into on Closing (the Investment Advisory Agreement ) among the Portfolio Advisor, Fairfax, the Company, Mauritius Sub, SA Sub and such other subsidiaries of the Company as may be added from time to time, the Portfolio Advisor will provide investment advisory services including advice and recommendations relating to potential investment opportunities. In providing such advice and recommendations, the Portfolio Advisor will first determine which entity, as among the Company and each of its subsidiaries, is best-suited to make such an investment. In the event that the Portfolio Advisor determines that the Company is best-suited to make an investment, the Portfolio Advisor will have discretionary authority to negotiate and complete the investment on behalf of the Company. If the Portfolio Advisor determines that Mauritius Sub or SA Sub is best-suited to make the investment, the Portfolio Advisor will provide advice and recommendations relating to such investment to the Mauritius Sub Board or the SA Sub Board, as the case may be, at which point the ultimate investment analysis and decision will be made by the Mauritius Sub Board or the SA Sub Board, as the case may be. In connection with the Portfolio Advisor s advice and recommendations to the Mauritius Sub Board or the SA Sub Board with respect to a particular investment, the Portfolio Advisor will also provide advice relating to appropriate levels of leverage in respect of such investments. The Portfolio Advisor, and any agent to whom the Portfolio Advisor has validly delegated any of its duties, is required to exercise its powers and discharge the duties of its office honestly and in good faith and to exercise the care, diligence and skill that a reasonably prudent investment advisor would exercise in comparable circumstances. The Investment Advisory Agreement will provide that the Portfolio Advisor will not be liable in any way for any losses suffered by the Company or its subsidiaries as a result of an error in implementing investment advice unless caused by the gross negligence, wilful misconduct or fraud of the Portfolio Advisor or its agents. The Portfolio Advisor will provide investment advice to the Company and its subsidiaries in accordance with the Company s investment objective. The services to be performed by the Portfolio Advisor will be conducted only by officers and employees who have appropriate experience and qualifications. Any of the Portfolio Advisor, Fairfax, the Company or its subsidiaries may terminate the Investment Advisory Agreement, provided that the terminating party has given the other parties at least 90 days prior written notice of its intention to do so. The Company or its subsidiaries may terminate the Investment Advisory Agreement immediately if (i) the Portfolio Advisor is in material breach or default of the provisions of the Investment Advisory Agreement and, if capable of being cured, such material breach or default is not cured within 60 days following receipt of a written notice of such material breach or default, (ii) the Portfolio Advisor becomes bankrupt, insolvent, makes a general assignment for the benefit of its creditors or otherwise acknowledges its insolvency, or (iii) the Portfolio Advisor s assets have become subject to seizure or confiscation by any public or governmental authority. In the event that the day on which the Investment Advisory Agreement is terminated is a day other than the first day of a calendar quarter, the Administration and Advisory Fees 45

50 payable for such quarter will be pro-rated and determined having regard to the market value of the Company s investment portfolio based on the Company s most recent financial report. In addition, in the event that the day on which the Investment Advisory Agreement is terminated is a day other than the first day of a Calculation Period, the Performance Fee payable to Fairfax for such Calculation Period will be determined as of the date of termination of the Investment Advisory Agreement using values determined as described under Calculation of Total Assets and Net Asset Value and, if payable in cash, will be paid to Fairfax as soon as commercially reasonable. Other than the payment of any outstanding fees payable to Fairfax and the reimbursement of Fairfax s and the Portfolio Advisor s reasonable expenses pursuant to the Investment Advisory Agreement up to and including the date of termination of the Investment Advisory Agreement, no additional payments will be required to be made by the Company to Fairfax or the Portfolio Advisor as a result of any termination of the Investment Advisory Agreement. As compensation for the provision of portfolio administration and investment advisory services to be provided by Fairfax and the Portfolio Advisor, the Company will pay to Fairfax the Administration and Advisory Fee and, if applicable, the Performance Fee, in each case, together with any applicable sales taxes thereon to Fairfax. Any portion of such fees to which the Portfolio Advisor is entitled will be paid by Fairfax to the Portfolio Advisor. See Fees and Expenses. Pursuant to the Investment Advisory Agreement, Fairfax has also agreed to provide certain investment administration services to the Company and its subsidiaries. See The Portfolio Administrator. Fair Allocation The investment advisory and portfolio administration services of the Portfolio Advisor and Fairfax are not exclusive and nothing in the Investment Advisory Agreement will prevent the Portfolio Advisor, Fairfax or any of their affiliates from providing similar investment advisory or portfolio administration services to other clients, including Fairfax and its affiliates or other investment entities (whether or not their investment objective, strategies and policies are similar to those of the Company) or from engaging in other activities. It is the general policy of the Portfolio Advisor that all of its client portfolios that have investment objectives and restrictions that are compatible with a particular investment opportunity will be treated fairly and equitably with respect to distribution of investment opportunities and that no client portfolio will receive preferential treatment over another. Notwithstanding the foregoing, the Company will agree that any investment opportunities with respect to insurance and reinsurance businesses in Africa will be first offered to Fairfax. If Fairfax passes on the opportunity to invest in any such insurance or reinsurance business, the opportunity may be recommended to the Company if it satisfies the Company s investment objective. In determining the suitability of an investment opportunity for a particular client, the Portfolio Advisor will consider, among other factors, the size of the client and its capital requirements, regulatory and client investment guidelines and objectives, existing portfolio composition, tax considerations and cash availability. An assessment of the relative importance of an investment opportunity to the fulfillment of a client s investment objective is dependent upon a number of factors that include the availability of the resources that are required to complete the investment, alternative investment opportunities, the composition of the client s portfolio at the time and the liquidity of the portfolio. As a result of this fair allocation policy, the Company, Mauritius Sub, SA Sub or any other subsidiary through which the Company invests in African Investments may, from time to time, be precluded from participating in an investment opportunity available to the Portfolio Advisor that would otherwise be compatible with the Company s investment objective and restrictions. See Risk Factors. Directors and Officers of the Portfolio Advisor The board of directors of the Portfolio Advisor currently consists of two members: V. Prem Watsa and Roger D. Lace. Directors are appointed to serve on the board of directors until such time as they retire or are removed and their successors are appointed. 46

51 The following table sets forth information regarding the directors and executive officers of the Portfolio Advisor. Name, Province or State and Country of Residence Position/Title Principal Occupation V. Prem Watsa... Director and Vice President Chairman and Chief Executive Toronto, Ontario, Canada Officer of Fairfax; Vice President of the Portfolio Advisor Roger D. Lace... Director and President President and Managing Director, Toronto, Ontario, Canada North American Equities, of the Portfolio Advisor David Bonham... Treasurer and Chief Financial Vice President and Chief Financial Toronto, Ontario, Canada Officer Officer of Fairfax; Treasurer and Chief Financial Officer of the Portfolio Advisor Paul Rivett... Vice President and Chief President of Fairfax; Vice President Toronto, Ontario, Canada Operating Officer and Chief Operating Officer of the Portfolio Advisor The individuals at the Portfolio Advisor who will be primarily responsible for providing advisory services to the Company and its subsidiaries consist of V. Prem Watsa, Paul Rivett and Quinn McLean, who are all experienced investment professionals. The following individuals will comprise the investment committee of the Portfolio Advisor in respect of the Company s investments: V. Prem Watsa (66) Mr. Watsa has been the Chairman and Chief Executive Officer of Fairfax since 1985 and has an over 40-year track record in investment management. Mr. Watsa has served as Vice President of the Portfolio Advisor since Mr. Watsa holds a Bachelor s Degree in Chemical Engineering from the Indian Institute of Technology in Madras, India and obtained his MBA from the Richard Ivey School of Business at the University of Western Ontario. Mr. Watsa is also a Chartered Financial Analyst. Mr. Watsa holds an Honorary Doctorate of Laws from the University of Western Ontario, an Honorary Doctorate of Sacred Letters from Wycliff College of the University of Toronto and an Honorary Doctorate of Divinity from Tyndale College. Mr. Watsa is a member of the Sick Children s Hospital Foundation and is Chairman of their Investment Committee, member of the Advisory Board for the Richard Ivey School of Business, member of the Board of Directors of the Royal Ontario Museum Foundation, Lead Director on the Board of Blackberry and Chairman of the Investment Committee of St. Paul s Anglican Church in Toronto. Mr. Watsa is on the Board of Horatio Alger Association U.S. and President of Horatio Alger Association of Canada. Mr. Watsa is Chairman of Fairfax India and he was formerly Chancellor of the University of Waterloo and on the Boards of the Bank of Ireland and of ICICI Bank. Mr. Watsa is a recipient of the Order of Canada. Mr. Watsa is a resident of Toronto, Ontario, Canada. Roger D. Lace (65) Mr. Lace is the President and a director of the Portfolio Advisor, and a member of the investment committee. Mr. Lace joined the Portfolio Advisor in Mr. Lace has a 41-year track record in investment management, specializing in equity investments. Prior to joining the Portfolio Advisor, Mr. Lace was Vice-President at McLeod, Young, Weir Ltd. Mr. Lace holds a Bachelor of Science degree from the Massachusetts Institute of Technology, a Masters of Business Administration degree from the Richard Ivey School of Business and received a Chartered Financial Analyst designation in Mr. Lace is a resident of Toronto, Ontario, Canada. Paul C. Rivett (49) Mr. Rivett has been the President of Fairfax since July 19, Mr. Rivett also serves as the Vice President and Chief Operating Officer of the Portfolio Advisor. Mr. Rivett is a registered Investment Manager. Mr. Rivett served as Vice President of Operations at Fairfax from August 1, 2012 to July 19, Prior to that, he served as Chief Legal Officer of Fairfax from January 2007 to August 2012 and as Vice President from April Prior to joining Fairfax, Mr. Rivett was an attorney of Shearman & Sterling LLP. Mr. Rivett currently serves as a director of Zenith National Insurance Corp., Odyssey Re Holdings Corp. and 47

52 Northbridge Financial Corporation and previously served as a director of MEGA Brands Inc., Resolute Forest Products Inc., The Brick Ltd. and Resolute FP US Inc. (formerly Bowater Inc.). Mr. Rivett is a resident of Toronto, Ontario, Canada. Mr. Rivett holds a BSc from University of Toronto and an LLB from Queen s University. Brian Bradstreet (69) Mr. Bradstreet is a Managing Director and member of the investment committee of the Portfolio Advisor. Mr. Bradstreet joined the Portfolio Advisor in Mr. Bradstreet has an over 40-year track record in investment management, specializing in fixed income investments. Prior to joining the Portfolio Advisor, Mr. Bradstreet was an Investment Analyst, an Investment Manager and then became the Assistant Vice President, Investment at Confederation Life. Mr. Bradstreet holds a Bachelor of Arts (Economics) degree from Wilfrid Laurier University, a Masters of Arts (Economics) degree from York University and received a Chartered Financial Analyst designation in Mr. Bradstreet is a resident of Toronto, Ontario, Canada. Wade Burton (45) Mr. Burton is a Managing Director and a member of the investment committee of the Portfolio Advisor. Mr. Burton joined the Portfolio Advisor in Mr. Burton has over 18 years of experience in investment management, with specialized expertise in credit restructuring. Prior to joining the Portfolio Advisor in 2008, Mr. Burton was a partner and fund manager at Peter Cundill and Associates (then Mackenzie Cundill from 2006 to 2008). Mr. Burton was the Chief Investment Officer and portfolio manager at Atlas Asset Management in Turks and Caicos Islands from 1999 to 2000, account manager of commercial lending at Canadian Western Bank from 1996 to 1999, and a registered representative at Richardson Greenshields in Mr. Burton serves as Vice Chairman and Non Executive Director at Grivalia Properties REIC and Mytilineos Holdings S.A. He also serves as Non Executive Director of Eurobank Ergasias S.A. Mr. Burton holds a Bachelor of Arts degree from the University of Western Ontario and received a Chartered Financial Analyst designation in Mr. Burton is a resident of Toronto, Ontario, Canada. Quinn McLean (37) Mr. McLean is a Vice President and a member of the investment committee of the Portfolio Advisor. Mr. McLean joined the Portfolio Advisor in Mr. McLean has over 11 years of experience in investment management and currently manages the investment float for Fairfax in the Middle East and Africa. Mr. McLean is a member of the board of directors of Gulf Insurance Group (Kuwait), AFGRI (South Africa), First Capital Insurance Ltd (Singapore) and APR (Florida). Mr. McLean earned his B.A. (Accounting) and MBA from the University of Toronto, is a CFA charterholder and is a Chartered Accountant and Chartered Professional Accountant. PACTORUM On Closing, the Portfolio Advisor will retain Pactorum as a strategic consultant, on an exclusive basis to the Portfolio Advisor, to provide investment research and analysis, transaction origination, due diligence and similar consulting services with respect to investments of the Company and its subsidiaries. Pactorum will, in its capacity as strategic consultant, assist the Portfolio Advisor in researching and identifying investment opportunities for the Company, Mauritius Sub, SA Sub and any other subsidiary through which the Company invests in Africa from time to time. Any fees charged by Pactorum for such services will be borne by the Portfolio Advisor and no additional amount will be payable by the Company. Pactorum was formed on January 9, 2017 and is based in Mauritius and South Africa. Pactorum will consist of a four person team led by Neil Holzapfel with over 18 years combined experience investing in Africa. Pactorum is wholly-owned by its principals and is unrelated to Fairfax and the Company. The individuals who are members of the Pactorum senior management team (previously acting as directors or officers of AgriGroupe) have worked closely with Fairfax since 2013 with respect to potential African investments. The individuals who comprise the senior management of Pactorum have significant experience investing in Africa and other emerging markets, including the Middle East, Brazil and Eastern Europe. Other examples of African investments by the Pactorum team are described below. Nova-Pioneer: Affiliates of AgriGroupe acquired 27% of Ascendant Learning Limited ( Ascendant ), the Mauritius-based parent of Nova and Pioneer Academies, an innovative, for-profit educational platform rolling out primary and secondary schools in Kenya and South Africa; and CEA: Affiliates of AgriGroupe acquired 85% of Clean Energy Africa Investments (Pty.) Ltd. ( CEA). Based in South Africa, CEA offers a wide range of clean energy solutions, including energy efficiency products 48

53 and services, a clean and green energy trading platform, and acquisition or development of various clean energy products and solutions in Africa. Pactorum will, as permitted by applicable law and subject to any consent required from any investee company, invest US$200,000 (based on applicable exchange rates at the time of investment), unless a different fixed amount is agreed to by Pactorum and the Portfolio Advisor in the future, along with the Company in all African Investments, on no more favourable terms than the Company, provided that no such investment will result in ownership by Pactorum of an equity interest in the African Investment that is greater than 5% of the outstanding equity of the African Investment and subject to certain other conditions. Except as otherwise agreed to by the Company, Pactorum will only be permitted to dispose of a co-investment on or after such time as the Company disposes the related African Investment. The head office of Pactorum is located in Mauritius. The Pactorum management team includes the following two highly experienced professionals: Neil Holzapfel (39) Mr. Holzapfel is a founding partner of Pactorum. Mr. Holzapfel is a founder of AgriGroupe, where he was responsible for the origination and investing activities of the group. Before founding AgriGroupe, Mr. Holzapfel spent almost a decade successfully investing in Africa and the Middle East for one of the world s largest dedicated emerging markets investment managers, Capital International. As former Vice President of Capital International, Mr. Holzapfel was primarily responsible for Africa and the Middle East, and managed investments in publicly-listed African equities on behalf of Capital International, part of the Capital Group of Companies, Inc., and its clients. Mr. Holzapfel sits on the boards of AFGRI, CEA, and AACE Food Processing & Distribution Ltd. ( AACE ). Mr. Holzapfel graduated magna cum laude from Harvard University, where he captained the Men s Heavyweight Crew, and completed a Masters at Cambridge University. Mr. Holzapfel lives in South Africa. Trent Hudson (34) Mr. Hudson is a Managing Director of Pactorum. Before joining AgriGroupe in 2016, Mr. Hudson was based in Brazil, where for five years he managed a Brazilian real estate private equity fund acquired by Blackstone. The fund made controlling equity investments at both the project and corporate level, targeting opportunistic returns in the residential and office markets. Since 2007, the fund deployed US$350 million across Brazil. Mr. Hudson previously worked in the Global Real Estate Principal Investments group ( REPI ) at Bank of America Merrill Lynch. He focused primarily on REPI s proprietary real estate investment activities in Latin America and the U.S. and was involved in strategic initiatives in Europe and Asia. He was involved in sourcing, underwriting, closing and asset managing numerous transactions across the capital structure at both the asset and operating company level. Prior to joining REPI in 2007, Mr. Hudson worked in Merrill Lynch s debt capital markets group. Mr. Hudson graduated with an honors degree in Mechanical Engineering and Materials Sciences from Harvard University where he was an All-Ivy honoree on the men s rowing team. Mr. Hudson lives in South Africa. THE PORTFOLIO ADMINISTRATOR Pursuant to the Investment Advisory Agreement, Fairfax will be responsible for providing or arranging for the provision of certain portfolio administration services required by the Company and its subsidiaries relating to the investment advisory activity of the Portfolio Advisor, including: (i) analysis of portfolios; (ii) yield review; (iii) computation of market decline tests; (iv) computation of liquidity analysis; (v) analysis of book values (e.g., bond amortizations and investment provisions); (vi) analysis of gross gain and loss positions; (vii) cash flow obligations; (viii) broker relationships; (ix) investment review meetings; (x) review and analysis of foreign exchange positions; (xi) performance reporting of the Company; (xii) software provider functioning and testing; and (xiii) assistance with complex accounting issues. Fairfax is entitled to receive payment from the Company for the performance of these services to the Company as part of the Administration and Advisory Fee described under Fees and Expenses. In addition, Fairfax will be required to provide a Chief Executive Officer, a Chief Financial Officer and Corporate Secretary to the Company. For so long as the Investment Advisory Agreement remains in effect, all compensation payable to the Chief Executive Officer, the Chief Financial Officer and Corporate Secretary of the Company will be borne by Fairfax. 49

54 MAURITIUS SUB AND SA SUB Mauritius Sub will be established prior to Closing as a private company under the laws of the Republic of Mauritius pursuant to the Companies Act 2001 (the Companies Act ) and will hold a Category 1 Global Business Licence issued by the Financial Services Commission of Mauritius ( FSC ). SA Sub has been established as a private company under the laws of South Africa pursuant to the Companies Act 2008 (the SA Companies Act ). The registered office of Mauritius Sub will be located at Ebene Esplanade, 24 Bank Street, Cybercity, Ebene, Mauritius. The registered office of SA Sub is located at Lynnwood Bridge, 4 Daventry Street, Lynnwood Manor, Gauteng, South Africa. All of the issued and outstanding shares of SA Sub are, and Mauritius Sub will be, owned by the Company. Each of Mauritius Sub and SA Sub will adopt an investment objective, strategy and investment restrictions consistent with that of the Company. In accordance with the laws of the relevant African country, Mauritius Sub and SA Sub will make foreign direct investments in Africa. South Africa and the Republic of Mauritius are viewed as gateway jurisdictions to investments in Africa. In addition to the African Investments made by Mauritius Sub and SA Sub, the Company may make other African Investments, being primarily investments in non-african domiciled businesses that have customers, suppliers or operations primarily conducted in, or dependent on, Africa. Subject to compliance with applicable law, the Company is also permitted to incorporate one or more additional wholly-owned subsidiary entities to make African Investments as the Company deems necessary from time to time. The Republic of Mauritius has a stable and open economy, well developed infrastructure, competitive tax regime and a wide African network of double tax treaties or agreements ( DTAs ). In 1994 Mauritius suspended its exchange control regime allowing for the free flow of foreign capital. South Africa also has an extensive network of African DTAs, is one of the largest economies in Africa and has established infrastructure, that offers a sophisticated financial and commercial sector with favorable opportunities for investment in Sub-Saharan Africa. South Africa has comprehensive exchange control regulations and residents are not permitted to freely export capital out of the Common Monetary Area ( CMA ) (Lesotho, Namibia, Swaziland and South Africa) without recourse to the necessary approval. SA Sub will be regarded as a South African resident for exchange control purposes. Further, South Africa offers a regional holding company dispensation aimed at foreign investment in Africa (the HQ Regime ). Subject to certain criteria, the HQ Regime releases a South African company from many of the exchange control provisions and allows for a free flow of funds on favorable tax terms. In order to qualify for the HQ Regime, 80% or more of the cost of the total assets of a South African company must be attributable to an interest in equity shares and/or a loan to a foreign company and/or intellectual property that is licensed to such foreign company. Depending on the nature and location of future African Investments, the Company may incorporate an additional South African subsidiary or convert SA Sub (taking into consideration the potential tax implications of such a conversion) pursuant to the HQ Regime. Thus, the establishment of two holding entities in secure African jurisdictions provides the Company with flexibility with respect to its investment strategy. The suitability of either SA Sub or Mauritius Sub for potential African Investments will be assessed by the Portfolio Advisor on a case by case basis. The Company and its subsidiaries have and will continue to seek out and receive legal advice from duly qualified counsel in the jurisdictions in which the Company and its subsidiaries operate as circumstances require in order to ensure that the Company and its subsidiaries remain compliant with applicable laws, hold all required permits, licenses or other regulatory approvals to carry out their business, and are aware of any restrictions or conditions that are or may be imposed on them. Through advice from legal counsel, the Company has satisfied itself that it and Mauritius Sub and SA Sub have obtained all required permits, licenses and other regulatory approvals required to be obtained by the Company or Mauritius Sub or SA Sub as is presently required in order to carry out their business. Following the Portfolio Advisor s identification of a potential investment in a portfolio business, the Portfolio Advisor will first determine which entity, as between the Company, Mauritius Sub or SA Sub, is best-suited to make such an investment, which will depend, in large part on the type of investment, as described above. In the event that the Portfolio Advisor determines that the Company is best-suited to make the 50

55 investment, the Portfolio Advisor will have discretionary authority to negotiate and complete the investment on behalf of the Company. If the Portfolio Advisor determines that Mauritius Sub or SA Sub is best-suited to make the investment, the Portfolio Advisor will provide advice and recommendations relating to such investment to the board of directors of Mauritius Sub (the Mauritius Sub Board ) or the board of directors of SA Sub (the SA Sub Board ), as the case may be, at which point the ultimate investment decision will be made by the Mauritius Sub Board or the SA Sub Board, as the case may be. In the case of a sale of an African Investment held by the Company, the Portfolio Advisor has discretionary authority to dispose of such investment on behalf of the Company. If the African Investment is held by Mauritius Sub or SA Sub, the Portfolio Advisor will provide advice and recommendations relating to the disposition of such investment to the Mauritius Sub Board or the SA Sub Board, as the case may be, at which point the ultimate decision will be made by the Mauritius Sub Board or the SA Sub Board, as the case may be, as to whether or not to dispose of the investment. Further to the reasons outlined above, Mauritius Sub will be incorporated in the Republic of Mauritius for, among others, the following reasons: The Republic of Mauritius is politically and socially stable and is well-developed in terms of infrastructure, technological development and logistics. The Republic of Mauritius has a strong network of local service providers, advisors and professionals including in the audit, accounting, legal and tax sectors, each having links to their African counterparts to provide investors with cross-jurisdictional professional services where necessary. Mauritius Sub provides access to a network of African DTAs, does not enforce any withholding taxes and is not subject to any exchange control regulations. By holding a Category 1 Global Business Licence, the Company and Mauritius Sub will receive certain tax relief in the Republic of Mauritius. See Republic of Mauritius Income Taxation of Mauritius Sub and the Company. Further to the reasons outlined above, SA Sub has been incorporated in South Africa for, among others, the following reasons: South Africa has had a modern constitution, functioning democracy, and is politically stable. South Africa has sophisticated financial, mining, commercial, and industrial sectors granting access to a network of local service providers, advisors and professionals including in the audit, accounting, legal and tax sectors, each having links to their African counterparts to provide investors with cross jurisdictional services where necessary. SA Sub will be able to access a large number of DTAs with African states and will be used as the main vehicle for investments in the CMA that are subject to the exchange control regulations. South Africa also offers the Company or SA Sub the possibility of accessing the HQ Regime in the future. See South African Exchange Control Regulations. Share Capital The capital of Mauritius Sub will be comprised of non-redeemable ordinary shares, each having a par value of US$1.00 (the Mauritius Sub Shares ). The Mauritius Sub Shares will be issued solely to the Company. All voting rights related to the management and the election of the Mauritius Sub Board will be vested solely in the Company as the sole holder of the Mauritius Sub Shares. The capital of SA Sub is comprised of ordinary shares (the SA Sub Shares ). The SA Sub Shares have been issued solely to the Company. All voting rights related to the management and the election of the SA Sub Board are vested solely in the Company as the sole holder of the SA Sub Shares. Directors The Mauritius Sub Board will consist of four directors, two of whom are residents of the Republic of Mauritius. The SA Sub Board consists of four directors, two of whom are residents of South Africa. As direct wholly-owned subsidiaries of the Company, the Company will appoint the Mauritius Sub Board and the SA Sub 51

56 Board from time to time. For a description of the Mauritius Sub Board and the SA Sub Board, see Directors of Mauritius Sub and SA Sub below. As part of the Mauritius Sub Board s and the SA Sub Board s fulfillment of their respective fiduciary obligations, the directors of each of Mauritius Sub and SA Sub (the Sub Directors ) will meet regularly with the Portfolio Advisor and its sub-advisors. In addition, at the initial board meeting for each of Mauritius Sub and SA Sub, a memorandum containing specific details with respect to the policies, procedures and controls to be put in place for the approval, monitoring, risk management and disposition of African Investments implemented by Mauritius Sub or SA Sub, as applicable, will be approved. Mauritius Administrator In accordance with requirements of Mauritius law, International Proximity, having its registered office at, 24 Bank Street, Cybercity, Ebene, Mauritius will be retained as the Mauritius administrator (the Mauritius Administrator ) of Mauritius Sub and provide corporate secretarial and registrar services to Mauritius Sub. The Mauritius Administrator is a licensed management company based in the Republic of Mauritius and regulated by the FSC. Mauritius Sub will pay a monthly fee to the Mauritius Administrator in respect of the services that it will provide, such fee amount to be determined by Mauritius Sub, from time to time, in negotiation with the Mauritius Administrator. Such fee is estimated to be approximately US$60,000 per year payable by Mauritius Sub for all of the services that the Mauritius Administrator will provide to Mauritius Sub. Local Offices The local offices of Mauritius Sub and SA Sub, comprised of qualified and experienced professionals with significant expertise with similar investment entities, will be responsible for the day-to-day administration of Mauritius Sub and SA Sub, respectively, including, where applicable (i) daily processing of securities; (ii) portfolio accounting functions, including posting of all trades, corporate actions, monitoring of investment income, open payables and receivables; (iii) reconciliation of portfolio investments; (iv) monitoring of cash flows; (v) assisting the Mauritius Sub Board and the SA Sub Board in the appraisal of investment recommendations from the Portfolio Advisor; (vi) custodial relationships; (vii) placement of foreign exchange contracts, where appropriate; (viii) discussions with regulators to ensure compliance with regulatory requirements; (ix) authorizing the payment of all expenses; (x) preparation of annual financial statements, regular management reports, income tax returns and other reports; (xi) tax and exchange control planning/advice with respect to African Investments; and (xii) legal support including identification, liaising, monitoring and review of suitable African counsel where appropriate. The local office of the Mauritius Sub will be assisted by the Mauritius Administrator with respect to certain regulatory and reporting services. Each of Mauritius Sub and SA Sub will maintain its minute books, corporate seal and corporate records at its local office in the Republic of Mauritius and South Africa, respectively. In certain circumstances (e.g., transaction record books), copies will also be maintained at the Company s head office in Toronto, Ontario. Company Oversight The Company has adopted the following measures to ensure effective oversight of Mauritius Sub and SA Sub. These measures will be overseen by the Board and implemented by the Company s senior management: (a) the Company controls the appointment of all of the directors of Mauritius Sub and SA Sub. As the sole shareholder, the directors of the Company s subsidiaries are ultimately accountable to the Company and therefore are accountable to the Board and senior management of the Company; (b) the Board is responsible for the overall stewardship of the Company and, as such, supervises the management of the business and affairs of the Company. More specifically, the Board is responsible for reviewing the strategic business plans and corporate objectives, and approving acquisitions, dispositions, investments, capital expenditures and other transactions and matters that are thought to be material to the Company, including those of its subsidiaries; and 52

57 (c) the Company has retained Fairfax and the Portfolio Advisor as the Company s portfolio administrator and portfolio advisor, respectively. Fairfax and the Portfolio Advisor have also been retained as the portfolio administrator and portfolio advisor, respectively, of Mauritius Sub and SA Sub. This helps to establish effective oversight mechanics as the operations of Mauritius Sub and SA Sub should generally remain consistent with the operations of the Company. The Company will adopt similar oversight measures in respect of any other subsidiaries through which the Company invests from time to time. Directors of Mauritius Sub and SA Sub The Mauritius Sub Board will consist of four directors, two of whom are the Chief Executive Officer and Chief Financial Officer and Corporate Secretary of the Company, and two who are residents of the Republic of Mauritius. The SA Sub Board consists of four directors, who are the Chief Executive Officer and Chief Financial Officer and Corporate Secretary of the Company and two who are residents of South Africa. The Sub Directors will be appointed from time to time on the instructions of the Board. The following table sets forth information regarding the Mauritius Sub Board and executive officers that will serve in such capacities immediately following the Closing: Name, Province or State and Country of Residence Position/Title Independent Principal Occupation Michael Wilkerson... Director No Chief Executive Officer of the Company New York, New York, USA Guy Bentinck... Director No Chief Financial Officer and Corporate Toronto, Ontario, Canada Secretary of the Company Nishal Ramharac... Director Yes Executive Director of International Republic of Mauritius Proximity Shariff Golam Hossen... Director Yes Executive Director of International Republic of Mauritius Proximity The following table sets forth information regarding the current SA Sub Board: Name, Province or State and Country of Residence Position/Title Independent Principal Occupation Michael Wilkerson... Director No Chief Executive Officer of the Company New York, New York, USA Guy Bentinck... Director No Chief Financial Officer and Corporate Toronto, Ontario, Canada Secretary of the Company Louis von Zeuner... Director Yes Chairman of African Bank Pretoria, Gauteng, South Africa Chris Venter... Director Yes Chief Executive Officer of AFGRI Pretoria, Gauteng, South Africa Biographical Information Regarding the Directors of Mauritius Sub Michael Wilkerson (47) Prior to formation of the Company, Mr. Wilkerson served as the Managing Partner of AgriGroupe. AgriGroupe sponsored in 2014 the $500 million take private acquisition of AFGRI, in 2015 the acquisition of CEA, and in 2016 an investment in Ascendant. Previously, Mr. Wilkerson served as Global Co-Head of the Consumer, Food & Retail Group and as a Managing Director in the Financial Institutions Group at Lazard, one of the world s preeminent financial advisory and asset management firms. Mr. Wilkerson was also a Managing Director at Citigroup, where he led the Financial Institutions M&A effort in New York. Mr. Wilkerson is Chairman of the Boards of Directors of each of AFGRI and CEA and is a director of Ascendant. Since 2008, he has served as a director (most recently as Chairman of the board) of charity: water, one of the world s largest non-profits focused on clean water solutions in Africa. Over this period, charity: water 53

58 has successfully deployed US$110 million in support of projects across 15 countries in Africa. He holds an MBA from Harvard Business School, a M.A. in International Relations from Yale University and a B.S. summa cum laude from Oral Roberts University. Guy Bentinck (50) Prior to formation of the Company, Mr. Bentinck served as a consultant to the Portfolio Advisor where he provided consulting and advisory services in respect of the development and execution of the Portfolio Advisor s corporate strategies and potential investments, primarily in the resource and energy sectors. Mr. Bentinck is also a director of APR, a Fairfax portfolio company that has operated in 11 countries in Africa. Previously, Mr. Bentinck served in various roles for Sherritt International Corporation ( Sherritt ), a Canadianlisted resource and energy company, including as Senior Vice President of Capital Projects and Senior Vice President of Finance and Chief Financial Officer. Mr. Bentinck was also Senior Vice President and Chief Financial Officer of Royal Utilities Income Fund, a Canadian-listed income trust that was the largest coal producer in Canada and 40% owned by Sherritt. He was part of the core management team that grew Sherritt s assets from US$1.3 billion in 1997 to US$10.7 billion in 2010, a cumulative average annual increase of almost 18%. Prior to his time with Sherritt, Mr. Bentinck worked for 10 years with PricewaterhouseCoopers LLP in corporate finance, restructuring, and audit. Nishal Ramharac (38) Nishal Ramharac is a team leader at International Proximity, a management company licensed by the Mauritius Financial Services Commission, where he has responsibility for the accounting and taxation functions for a large portfolio of companies. He also holds directorships in client companies. Nishal started his career with the Mauritian audit firm, De Chazal du Mee & Co (representing Arthur Andersen) in 1998 where for three years he worked on audit and consultancy assignments. Prior to joining International Proximity in 2009, Nishal worked in the United Arab Emirates as an auditor with Ernst & Young Abu Dhabi. Nishal is a Fellow of the Association of Chartered Certified Accountants of the United Kingdom. Shariff Golam Hossen (57) Shariff Golam Hossen is a director of International Proximity, a management company licensed by the Mauritius Financial Services Commission, where he has responsibility for finance and runs the internal accounting and administration functions for the company. Mr. Hossen also holds directorships in a number of investment funds and multinational-owned companies. Prior to joining International Proximity in 1998, Mr. Hossen was the finance manager of Tiger Brands Mauritius Ltd, a member of the Tiger Brands group of companies of South Africa, an accountant in several insurance companies transacting general insurance and life assurance business and worked on audit assignments at Deloitte LLP, Arthur Andersen LLP and Price Waterhouse. Shariff has been a Fellow of the Association of Chartered Certified Accountants of the United Kingdom since Biographical Information Regarding the Directors of SA Sub Michael Wilkerson (47) Please see above under Biographical Information Regarding the Directors of Mauritius Sub Guy Bentinck (50) Please see above under Biographical Information Regarding the Directors of Mauritius Sub Louis von Zeuner (55) Louis von Zeuner is the chairman of African Bank and serves on the boards of several companies including AFGRI, MMI Holdings Limited, Telkom SA Limited, Mahela Boerdery Proprietary Limited, MyPlayers Rugby Proprietary Limited and Paycorp Investments Proprietary Limited. Previously, Mr. von Zeuner spent 32 years at Barclays Africa Group Limited (formerly, ABSA Group Limited) during which time he acted in various executive roles including Deputy Chief Executive Officer. Chris Venter (48) Chris Venter is the Chief Executive Officer of AFGRI, a position which he has held since Since joining AFGRI in 2005, Mr. Venter has held various roles including acting as Managing Director of AFGRI Financial Services, assuming responsibility for the group s lending, insurance and treasury divisions. Chris Venter was also appointed to the board of directors of AFGRI in Previously, Mr. Venter was based in New York where he ran ABSA Bank Ltd. s structured commodity finance business with a specific focus on the America s. Prior to that, Mr. Venter spent over 14 years in the merchant banking industry in South Africa where he worked for Standard Corporate and Investment Bank and ABSA Corporate and Merchant Bank. 54

59 Duties of Directors of Mauritius Sub Board The duties of directors of entities incorporated in the Republic of Mauritius have been extensively codified in the Companies Act such that every director of a company incorporated under the Companies Act, in exercising his or her powers and discharging his or her duties, is required to, inter alia: exercise his/her powers in accordance with the Companies Act and within the limits and subject to the conditions and restrictions established by the company s constitution; obtain the authorization of a meeting of shareholders before doing any act or entering into any transaction for which the authorization or consent of a meeting of shareholders as required by the Companies Act or by the company s constitution; not agree to the company incurring any obligation unless the director believes at that time, on reasonable grounds that the company will be able to perform the obligation when it is required to do so; account to the company for any monetary gain, or the value of any other gain or advantage, obtained by him/her in connection with the exercise of his/her powers, or by reason of his/her position as directors of the company, except remuneration, pensions provisions and compensation for loss of office in respect of his/her directorships of any company; not make use of or disclose any confidential information received by his/her on behalf of the company as directors otherwise than as permitted under the Companies Act; not compete with the company or become a director or officer of a competing company, unless approved by the company pursuant to the Companies Act; where directors are interested in a transaction to which the company is a party, disclose such interest pursuant to the Companies Act; not use any assets of the company for any illegal purpose or purpose in breach of items (i) and (iii) above, and not do, or knowingly allow to be done, anything by which the company s assets may be damaged or lost, otherwise than in the ordinary course of carrying on its business; transfer forthwith to the company all cash or assets acquired on its behalf, whether before or after its incorporation, or as the result of employing its cash or assets, and until such transfer is effected to hold such cash or assets on behalf of the company and to use it only for the purposes of the company; attend meetings of the directors of the company with reasonable regularity, unless prevented from so doing by illness or other reasonable excuse; and keep proper accounting records in accordance with the Companies Act and make such records available for inspection in accordance with the Companies Act. These duties are coupled with the overriding requirement that every officer (which includes director or secretary) must exercise the powers and discharge the duties of his office honestly, in good faith and in the best interests of the company; and exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Duties of Directors of SA Sub Board The South African Companies Act prescribes the obligations and duties of directors, while this legislation introduces a partial codification of directors duties, including a fiduciary duty and duty of reasonable care, these obligations and duties operate in addition to common law duties. As set out in the South African Companies Act, a director must exercise his or her powers and perform his or her functions, inter alia: in good faith and for a proper purpose; in the best interest of the company; with the degree of care, skill and diligence that may reasonably be expected of a person carrying out the same functions and having the general knowledge, skill and experience of that director. 55

60 The fiduciary duty of directors both in statute and/or under common law includes, but is not limited to: the duty to individually and collectively exercise their powers bona fide in the best interest of the company and the collective interests of its shareholders; the duty not to exceed their powers; the duty not to act illegally dishonestly, or ultra vires; the duty to act with unfettered discretion; the duty not to allow their personal interests to interfere with their duties; a director is accountable to the company for secret profits made by virtue of the fiduciary position or from the appropriation of a corporate opportunity; the duty not to compete with the company; and the duty not no misuse confidential information. Penalties or Sanctions None of the Sub Directors or executive officers of Mauritius Sub or SA Sub has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor making an investment decision. Individual Bankruptcies None of the Sub Directors or executive officers of Mauritius Sub or SA Sub, and to the best of its knowledge, no shareholder holding a sufficient number of securities to affect materially the control of Mauritius Sub or SA Sub, has, within the 10 years prior to the date of this prospectus, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that individual. Corporate Cease Trade Orders and Bankruptcies None of the Sub Directors or executive officers of Mauritius Sub or SA Sub is, as at the date of this prospectus, or has been within the 10 years before the date of this prospectus, (a) a director, chief executive officer or chief financial officer of any company that was subject to an order that was issued while the existing or proposed director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer, or (b) was subject to an order that was issued after the existing or proposed director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer, or (c) a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets. For the purposes of this paragraph, order means a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, in each case, that was in effect for a period of more than 30 consecutive days. CALCULATION OF TOTAL ASSETS AND NET ASSET VALUE The total assets of the Company on a particular date will be equal to the aggregate fair value of the consolidated assets of the Company and its subsidiaries on such date, without deduction of liabilities, expressed in United States dollars (the Total Assets ). The net asset value of the Company on a particular date will be equal to the aggregate fair value of the consolidated assets of the Company and its subsidiaries on such date, less the aggregate carrying value of the consolidated liabilities of the Company and its subsidiaries, and the carrying 56

61 value of any issued and outstanding preference shares, expressed in United States dollars (the Net Asset Value ). The assets of the Company, Mauritius Sub, SA Sub and any other subsidiary through which the Company invests in Africa from time to time will be valued by the Company in accordance with the procedures described below, subject to the control of the Board, the Mauritius Sub Board, the SA Sub Board and the board of directors of such subsidiary, as the case may be. Foreign currency-denominated investments will be valued using foreign currency exchange rates provided by independent sources. Assets will be valued at market prices provided by independent pricing sources, except to the extent that market prices are not readily available or do not reflect the fair value of such assets. If market prices are not readily available or if it is determined, following procedures approved by the Board, that market prices may not reflect the fair value of such assets, the Company, in consultation with the Portfolio Advisor, will value such assets in accordance with policies and procedures approved by the Board, the Mauritius Sub Board, the SA Sub Board and the board of directors of another subsidiary, as the case may be. Assets that may be valued using fair value pricing include, but are not limited to: (i) an unlisted security; (ii) a restricted security; (iii) a security whose trading has been suspended or which has been de-listed from its primary trading exchange; (iv) a security that is thinly traded; (v) a security whose issuer is in default or bankruptcy proceedings for which there is no current market quotation; (vi) a security affected by extreme market conditions; (vii) a security affected by currency controls or restrictions; and (viii) a security affected by a significant event (e.g., an event that occurs after the close of the markets on which the security is traded). The Company currently intends to be categorized as an investment entity under IFRS 10 Consolidated Financial Statements and will report the African Investments in its financial statements on that basis. In addition, to the extent that the Company is required to file a BAR, as required by Part 8 of NI , in respect of any acquisition of an African Investment, it will so comply unless the Company receives exemptive relief from the applicable securities regulatory authorities. Internal Controls Over Financial Reporting The Company anticipates that its internal controls over financial reporting in respect of its African Investments will focus primarily on controls that ensure existence and valuation of such investments. The Portfolio Advisor and Pactorum both employ qualified personnel familiar with valuation techniques and IFRS accounting principles and have significant experience in evaluating, monitoring and valuing African Investments, which includes the procurement of financial reporting information in accordance with IFRS. Where the Company deems it necessary, accounting advisors from a suitable accounting firm (other than the Company s auditor) may also be engaged to report on the effectiveness of the Company s internal controls over financial reporting. THE CUSTODIANS The Custodians, at their respective principal offices in Toronto, Ontario and Johannesburg, South Africa, will be appointed the custodians of the Company s, Mauritius Sub s and SA Sub s assets on or prior to the Closing Date pursuant to the Custodian Agreements. The Custodians may employ sub-custodians as considered appropriate in the circumstances in accordance with the terms of the applicable Custodian Agreement. The Custodians must obtain the written consent of the Company, pursuant to Part 6 of NI , prior to the appointment of any sub-custodian and any sub-custodians appointed from time to time must satisfy the requirements of section 6.2 or 6.3 of NI , as applicable. Any replacement custodian that is retained by the Company will be an entity that would be qualified to act as (i) a custodian or sub-custodian for assets held in Canada, or (ii) a custodian or sub-custodian for assets held outside Canada, as the case may be, in each case in accordance with Part 6 of NI Each of the Custodians will be qualified to act as a custodian or sub-custodian for assets held in Canada, or a custodian or sub-custodian for assets held outside Canada, as the case may be, in each case in accordance with Part 6 of NI The Company Custodian Agreement The Custodian, in carrying out its duties in respect of the safekeeping of, and dealing with, the Property (as defined in the Custodian Agreement), will exercise: (a) the degree of care, diligence and skill that a 57

62 reasonably prudent person would exercise in the circumstances; or (b) at least the same degree of care as it exercises with respect to its own property of a similar kind, if this is a higher degree of care than the degree of care referred to in (a). Unless the Custodian has not complied with the standard of care set forth above, the Custodian will not be liable for (i) any act or omission in the course of, or connected to, rendering the services under the Custodian Agreement or (ii) loss to, or diminution of, the Property. The Custodian will not be liable at any time for indirect, incidental, special, or consequential damages and damages for loss of profits, revenue or savings (actual or anticipated), economic loss, loss of data or loss of goodwill. For greater certainty, and except to the extent that the Custodian has breached the standard of care referred to above, the Custodian will not be responsible for: (a) the authenticity or validity of title to any Property which the Custodian did not arrange itself to have appropriately registered; (b) any act or omission required or demanded by any governmental, taxing, regulatory or other competent authority in any country in which all or part of the Property is held or which has jurisdiction over the Custodian or the Company; (c) any loss resulting from an event of force majeure, or any other event or factor beyond the reasonable control of the Custodian; (d) any failure to act on directions of the Company, if the Custodian reasonably believed that to do so might result in breach of applicable law or regulation or the terms of the Custodian Agreement; or (e) any Property which the Custodian does not hold or which is not directly controlled by the Custodian, its affiliates or it s appointed agents (including sub-custodians). The Company will at all times indemnify and save harmless the Custodian, its directors, officers, and employees, from and against all taxes, duties, charges, costs, expenses, damages, claims, actions, demands and any other liability whatsoever to which such party may become subject, including legal fees and expenses, in respect of anything done or omitted to be done in connection with the Custodian Agreement, except to the extent occasioned by the negligence, wilful misconduct or lack of good faith of such party. If, at the Company s request, any indemnified party agrees to appear in, prosecute, defend or otherwise act in relation to any process or proceeding, either in its own name or in the name of its nominee, that party will first be indemnified to its satisfaction. Either party may terminate the Custodian Agreement at any time without penalty by giving at least thirty (30) days prior written notice to the other party of such termination. Such prior notice is not required and termination will be immediate upon the giving of notice in accordance with the Custodian Agreement in the event that: (a) either party is declared bankrupt or insolvent; or (b) the assets or the business of either party becomes liable to seizure or confiscation by any public or governmental authority. Mauritius Sub and SA Sub Custodian Agreements The Custodian will use reasonable care in the performance of its duties under the Custodian Agreements. Mauritius Sub and SA Sub will indemnify and hold harmless the Custodian from and against any direct loss, charges, costs, damages, liability, judgments and amounts paid in settlement, claim or expense (including reasonable legal fees and disbursements) reasonably suffered or incurred by the Custodian arising from or in connection with the performance of its duties under the Custodian Agreements; provided, however, that such indemnity will not apply to any liability or expense occasioned by or resulting from the wilful misconduct, negligence, breach of the standard of care set forth above or wrongful act of the Custodian or any of their employees, directors, officers or sub-custodians in the performance of the Custodian s duties under the Custodian Agreements. Mauritius Sub or SA Sub, as the case may be, further agrees to indemnify and hold harmless the Custodian against any claims for income tax (including penalties) paid or payable by the Custodian as agent of Mauritius Sub or SA Sub, as the case may be (or of any person on whose behalf Mauritius Sub or SA Sub, as the case may be, is acting), under the tax laws of the jurisdiction in which Mauritius Sub or SA Sub, as the case may be, is located, notwithstanding that Mauritius Sub or SA Sub, as the case may be, has disputed such claims. The Custodian will not be responsible for any loss or damage suffered by Mauritius Sub or SA Sub, as the case may be, as a result of the Custodian performing its duties or for any act or omission in respect of any instructions and/or under the Custodian Agreements unless the same results from the negligence or wilful default of the Custodian, in which case the Custodian s liability will not exceed the market value of the relevant Securities (as defined in the Custodian Agreements) and/or Cash (as defined in the Custodian Agreements) at the time of (a) such negligence or wilful default or (b) Mauritius Sub s or SA Sub s, as the case may be, discovery 58

63 of the loss or damage (whichever is higher). The Custodian will not have any responsibility for any loss or liability owing to any reason or cause beyond its reasonable control, including events of force majeure. The Custodian will not be liable for any negligence, default, failure or delay of any depository, clearing system, securities registration body or securities registrar (or similar party) and any losses arising therefrom. In addition, the Custodian will not be liable for any consequential or indirect loss. Mauritius Sub, SA Sub or the Custodian may terminate the applicable Custodian Agreement without any penalty upon at least 30 days prior written notice to the other party. Any replacement custodian that is retained by Mauritius Sub or SA Sub will be an entity that would be qualified to act as (i) a custodian or sub-custodian for assets held in Canada, or (ii) a custodian or sub-custodian for assets held outside Canada, as the case may be, in each case in accordance with Part 6 of NI The Custodian will be qualified to act as a custodian or sub-custodian for assets held in Canada, or a custodian or sub-custodian for assets held outside Canada, as the case may be, in each case in accordance with Part 6 of NI PRINCIPAL SHAREHOLDER As a condition to Closing, the Company will issue to Fairfax, either directly or to one or more of Fairfax s subsidiaries, up to 30,000,000 Multiple Voting Shares, on a private placement basis, for an aggregate cash purchase price of up to US$300,000,000. If the Initial African Investment closes contemporaneously with the Closing, in addition to the 7,284,606 Multiple Voting Shares that may be issued to Fairfax or its subsidiaries by the Company in connection with the Initial African Investment, the Company will issue to Fairfax, either directly or to one or more of Fairfax s subsidiaries, up to 22,715,394 Multiple Voting Shares of the Company, on a private placement basis, for an aggregate cash purchase price of up to US$227,153,940. The maximum number of Multiple Voting Shares to be issued to Fairfax on Closing in that situation, will collectively represent approximately % of the voting rights of the Company and % of the equity interest in the Company at Closing (or approximately % and %, respectively, if the Over-Allotment Option is exercised in full). If the Initial African Investment does not close contemporaneously with the Closing, Fairfax will subscribe for Multiple Voting Shares with cash such that Fairfax s total cash subscription will be the lesser of (i) US$300,000,000 and (ii) 30% of the equity capital of the Company and the percentage ownership indicated in the previous sentence will be the same. Other than Fairfax and its affiliates, or temporarily to AILP in connection the mechanics for closing of the Initial African Investment, no person or company will own, directly or indirectly, any Multiple Voting Shares on Closing. No commission or other fee will be paid to the Underwriters in connection with the issuance of the Multiple Voting Shares to Fairfax or its affiliates. This prospectus does not qualify any Multiple Voting Shares issued under the Substantial Equity Investment or otherwise. On Closing, Fairfax will provide an undertaking to the applicable Canadian securities regulatory authorities wherein it will agree to retain, either directly or through one or more of its subsidiaries, a substantial equity investment in the Company in accordance with the following principles: (a) prior to the fifth anniversary of the Closing, Fairfax and its subsidiaries will not sell any portion of the Substantial Equity Investment if, as a result of such sale, the aggregate equity investment of Fairfax and its subsidiaries in Multiple Voting Shares of the Company would have a market value of less than US$300,000,000. This means, however, that if the market value of the Substantial Equity Investment increases to an amount greater than US$300,000,000 following the Closing, Fairfax and its subsidiaries will be permitted to sell any part of their aggregate equity investment in Multiple Voting Shares of the Company so long as, immediately following such sale, they continue to hold an aggregate equity interest in Multiple Voting Shares of the Company with a market value of at least US$300,000,000; (b) on or after the fifth anniversary of the Closing, but prior to the tenth anniversary of the Closing, Fairfax and its subsidiaries will be permitted to sell any part of their aggregate equity investment in Multiple Voting Shares of the Company so long as, immediately following such sale, they continue to hold an aggregate equity interest in Multiple Voting Shares of the Company having a market value of at least US$150,000,000; 59

64 (c) on or after the tenth anniversary of the Closing, Fairfax and its subsidiaries will be permitted to sell, subject to compliance with applicable securities laws and stock exchange requirements, any part of their aggregate equity investment in Multiple Voting Shares of the Company; and (d) prior to the tenth anniversary of the Closing, if Fairfax or its subsidiaries desire to sell any part of their aggregate investment in Multiple Voting Shares of the Company in a transaction that would not satisfy conditions (a) or (b) above, Fairfax and its subsidiaries will only be able to complete such a sale if the acquiror agrees, subject to compliance with applicable securities laws and stock exchange requirements, to acquire a pro rata share of the equity investment of all other investors in the Company. Fairfax will also agree on Closing that it and its affiliates will not sell or transfer any Multiple Voting Shares that are part of the Substantial Equity Investment until at least 80% of the Net Proceeds of the Offerings have been invested in African Investments. Other than a Transfer in connection with the Initial African Investment, any sale or transfer by Fairfax or any of its affiliates of Multiple Voting Shares to a non-affiliate of Fairfax will result in such Multiple Voting Shares being automatically converted into Subordinate Voting Shares. See Description of Share Capital. Fairfax, as the promoter of the Company, has the credibility and expertise necessary in order to successfully complete the Offering and to ensure that the Portfolio Advisor sources and identifies appropriate investments on behalf of the Company. Furthermore, as a subsidiary of Fairfax, the Company will be able to leverage off of the investment expertise and experience of Fairfax. Fairfax is a financial services holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management. Fairfax s corporate objective is to achieve a high rate of return on invested capital and build long-term shareholder value. Fairfax has an investment grade credit rating from each of DBRS, Moody s and S&P. As at September 30, 2016, The Sixty Two Investment Company Limited ( Sixty Two ) owns 50,620 subordinate voting shares and 1,548,000 multiple voting shares of Fairfax, representing 41.9% of the total votes attached to all classes of Fairfax s shares. V. Prem Watsa, the Chairman and Chief Executive Officer of Fairfax, controls Sixty Two and he beneficially owns an additional 258,418 subordinate voting shares and exercises control or direction over an additional 2,100 subordinate voting shares of Fairfax. These shares, together with the shares owned directly by Sixty Two, represent 42.6% of the total votes attached to all classes of Fairfax s shares. Coattail Agreement Under applicable Canadian law, an offer to purchase Multiple Voting Shares would not necessarily require that an offer be made to purchase Subordinate Voting Shares. In accordance with the rules of the TSX designed to ensure that, in the event of a take-over bid, the holders of Subordinate Voting Shares will be entitled to participate on an equal footing with holders of Multiple Voting Shares, Fairfax, as the owner of all the outstanding Multiple Voting Shares, will enter into a customary coattail agreement with the Company and a trustee (the Coattail Agreement ). The Coattail Agreement will contain provisions customary for dual class, TSX-listed corporations designed to prevent transactions that otherwise would deprive the holders of Subordinate Voting Shares of rights under applicable provincial take-over bid legislation to which they would have been entitled if the Multiple Voting Shares had been Subordinate Voting Shares. The undertakings in the Coattail Agreement will not apply to prevent a sale by Fairfax or its affiliates of Multiple Voting Shares if concurrently an offer is made to purchase Subordinate Voting Shares that: (a) offers a price per Subordinate Voting Share at least as high as the highest price per share paid pursuant to the take-over bid for the Multiple Voting Shares; (b) provides that the percentage of outstanding Subordinate Voting Shares to be taken up (exclusive of shares owned immediately prior to the offer by the offeror or persons acting jointly or in concert with the offeror) is at least as high as the percentage of Multiple Voting Shares to be sold (exclusive of Multiple Voting Shares owned immediately prior to the offer by the offeror and persons acting jointly or in concert with the offeror); 60

65 (c) has no condition attached other than the right not to take up and pay for Subordinate Voting Shares tendered if no shares are purchased pursuant to the offer for Multiple Voting Shares; and (d) is in all other material respects identical to the offer for Multiple Voting Shares. In addition, the Coattail Agreement will not prevent the transfer of Multiple Voting Shares by Fairfax or its affiliates to other affiliates of Fairfax, provided such transfer is not or would not have been subject to the requirements to make a take-over bid (if the vendor or transferee were in Canada) or constitutes or would constitute an exempt take-over bid (as defined in applicable securities legislation). The conversion of Multiple Voting Shares into Subordinate Voting Shares, whether or not such Subordinate Voting Shares are subsequently sold, would not constitute a disposition of Multiple Voting Shares for the purposes of the Coattail Agreement. The Coattail Agreement will contain provisions for authorizing action by the trustee to enforce the rights under the Coattail Agreement on behalf of the holders of the Subordinate Voting Shares. The obligation of the trustee to take such action will be conditional on the Company or holders of the Subordinate Voting Shares providing such funds and indemnity as the trustee may reasonably require. No holder of Subordinate Voting Shares will have the right, other than through the trustee, to institute any action or proceeding or to exercise any other remedy to enforce any rights arising under the Coattail Agreement unless the trustee fails to act on a request authorized by holders of not less than 10% of the outstanding Subordinate Voting Shares and reasonable funds and indemnity have been provided to the trustee. Other than in respect of non-material amendments and waivers that do not adversely affect the interests of holders of Subordinate Voting Shares, the Coattail Agreement will provide that it may not be amended, and no provision thereof may be waived, unless, prior to giving effect to such amendment or waiver, the following have been obtained: (a) the consent of the TSX and any other applicable securities regulatory authority in Canada; and (b) the approval of at least two-thirds of the votes cast by holders of Subordinate Voting Shares represented at a meeting duly called for the purpose of considering such amendment or waiver, excluding votes attached to Subordinate Voting Shares held by Fairfax or its affiliates and any persons who have an agreement to purchase Multiple Voting Shares on terms which would constitute a sale or disposition for purposes of the Coattail Agreement, other than as permitted thereby. No provision of the Coattail Agreement will limit the rights of any holders of Subordinate Voting Shares under applicable law. Pre-Emptive Rights In the event that the Company decides to issue additional Subordinate Voting Shares following the Closing or securities convertible into or exchangeable for Subordinate Voting Shares or an option or other right to acquire any such securities other than to an affiliate thereof ( Issued Securities ), the securityholders rights agreement between the Company and Fairfax (the Securityholders Rights Agreement ) will provide Fairfax (and any of its subsidiaries who, from time to time, hold an equity interest in the Company), for so long as Fairfax (together with its subsidiaries) owns, in the aggregate, at least a 10% equity interest in the Company calculated based on the equity capital of the Company as of the Closing, with pre-emptive rights to purchase Issued Securities, to maintain Fairfax s direct and indirect effective pro rata ownership interest. The pre-emptive right will not apply to the issuance of Issued Securities in certain circumstances, including: (i) in respect of the exercise of options, warrants, rights or other securities issued under the Company s security-based compensation arrangements, if any; (ii) in connection with a subdivision of then-outstanding Subordinate Voting Shares into a greater number of Subordinate Voting Shares; (iii) the issuance of equity securities of the Company in lieu of cash dividends, if any; (iv) the exercise by a holder of a conversion, exchange or other similar privilege pursuant to the terms of a security in respect of which Fairfax or its subsidiaries did not exercise, failed to exercise, or waived its pre-emptive right or in respect of which the pre-emptive right did not apply; (v) pursuant to a shareholders rights plan of the Company, if any; (vi) to the Company or any subsidiary of the Company or an affiliate of any of them; and (vii) any issuance of Subordinate Voting Shares pursuant to the Over-Allotment Option. 61

66 Registration Rights The Securityholders Rights Agreement will provide Fairfax with the right (the Piggy-Back Registration Right ) to require the Company to include Multiple Voting Shares or Subordinate Voting Shares held by it and/or any of its subsidiaries in any future offerings undertaken by the Company by way of prospectus that it may file with applicable Canadian securities regulatory authorities (a Piggy-Back Distribution ). In such a case, any Multiple Voting Shares to be part of such an offering would first be exchanged by the Company for Subordinate Voting Shares on a one-for-one basis in accordance with their terms. The Company will be required to use reasonable commercial efforts to cause to be included in the Piggy-Back Distribution all of the Subordinate Voting Shares (including Subordinate Voting Shares that were formerly Multiple Voting Shares) that Fairfax requests to be sold, provided that if the Piggy-Back Distribution involves an underwriting and the lead underwriter reasonably determines that the aggregate number of Subordinate Voting Shares (including Subordinate Voting Shares that were formerly Multiple Voting Shares) to be included in such Piggy-Back Distribution should be limited for certain prescribed reasons, the Subordinate Voting Shares to be included in the Piggy-Back Distribution will be first allocated to the Company. In addition, the Securityholders Rights Agreement will provide Fairfax with the right (the Demand Registration Right ) to require the Company to use reasonable commercial efforts to file one or more prospectuses with applicable Canadian securities regulatory authorities, qualifying Multiple Voting Shares or Subordinate Voting Shares held by Fairfax or its subsidiaries (a Demand Distribution ). In such a case, any Multiple Voting Shares to be part of such an offering would first be exchanged by the Company for Subordinate Voting Shares on a one-for-one basis in accordance with their terms. Fairfax will be entitled to request not more than 2 Demand Distributions per calendar year, and each Demand Distribution must be comprised of such number of Subordinate Voting Shares (including Subordinate Voting Shares that were formerly Multiple Voting Shares) that would reasonably be expected to result in gross proceeds of at least $20 million. The Company may also distribute Subordinate Voting Shares in connection with a Demand Distribution provided that if the Demand Distribution involves an underwriting and the lead underwriter reasonably determines that the aggregate number of Subordinate Voting Shares to be included in such Demand Distribution should be limited for certain prescribed reasons, the Subordinate Voting Shares (including Subordinate Voting Shares that were formerly Multiple Voting Shares) to be included in the Demand Distribution will be first allocated to Fairfax and its subsidiaries. Each of the Piggy-Back Registration Right and the Demand Registration Right will be exercisable at any time from 18 months following Closing, subject to Fairfax s Retained Interest Requirement, provided that Fairfax directly or indirectly owns at least a 5% equity interest in the Company calculated based on the equity capital of the Company as of the Closing. The Piggy-Back Registration Right and the Demand Registration Right will be subject to various conditions and limitations, and the Company will be entitled to defer any Demand Distribution in certain circumstances for a period not exceeding 90 days. The expenses in respect of a Piggy-Back Distribution, subject to certain exceptions, will be borne by the Company, except that any underwriting fee on the sale of any Subordinate Voting Shares (including Subordinate Voting Shares that were formerly Multiple Voting Shares) by Fairfax or its subsidiaries, and the fees of Fairfax s external legal counsel, will be borne by Fairfax. The expenses in respect of a Demand Distribution, subject to certain exceptions, will be borne by the Company and Fairfax on a proportionate basis according to the number of Subordinate Voting Shares distributed by each. Pursuant to the Securityholders Rights Agreement, the Company will indemnify Fairfax for any misrepresentation in a prospectus under which Fairfax s Subordinate Voting Shares (including Subordinate Voting Shares that were formerly Multiple Voting Shares) are distributed (other than in respect of any information provided by Fairfax, in respect of Fairfax, for inclusion in the prospectus) and Fairfax will indemnify the Company for any misrepresentation in any information provided by Fairfax, in respect of Fairfax, for inclusion in the prospectus. Fairfax Trademark Licence Agreement Fairfax has registered the name Fairfax as a trademark in several jurisdictions, including Canada, the United States and has applied for registration for the name Fairfax Africa in Canada, South Africa, Mauritius and Botswana. The Company will enter into a trademark licence agreement with Fairfax which will provide the Company with a non-exclusive, royalty-free licence to use the Fairfax and Fairfax Africa trademarks in connection with its business. The licence granted to the Company is revocable at any time at the option of Fairfax upon 60 days prior written notice to the Company. 62

67 CORNERSTONE INVESTMENT Concurrent with the Closing, the Cornerstone Investors have agreed to purchase an aggregate of approximately 11,578,948 Subordinate Voting Shares on a private placement basis (subject to a private placement fee of US$0.50 per Subordinate Voting Share payable to such investor) for gross proceeds of approximately US$116 million pursuant to subscription agreements with the Company dated December 22, No commission or other fee will be paid to the Underwriters or any other underwriters or agents in connection with the Cornerstone Investment. See Plan of Distribution. Completion of the Cornerstone Investment is subject to a number of conditions, including the Cornerstone Investors being satisfied with the terms and conditions set forth in this prospectus and the Closing of the Offering. Under the Underwriting Agreement, closing of the Offering is conditional on the closing of the Cornerstone Investment. See Risk Factors Risk Factors Related to the Offering. Purchasers of the Subordinate Voting Shares offered under this prospectus should not rely on the fact that the Cornerstone Investors have decided to purchase Subordinate Voting Shares. USE OF PROCEEDS The estimated net proceeds of the Offering, the Cornerstone Investment and the Fairfax Cash Investment will be approximately US$, after deducting the Company s estimated expenses of the Offering, the Underwriters fee and the private placement fees payable to the Cornerstone Investors (the Net Cash Proceeds of the Offerings ). The Company will use the Net Cash Proceeds of the Offerings to invest, directly or indirectly, in African Investments. The Company anticipates that substantially all of the Net Cash Proceeds of the Offerings will be invested in additional African Investments within 3 years from the Closing Date. Notwithstanding the foregoing, the Company will invest at least 75% of the Net Proceeds of the Offerings in African Investments on or before the third anniversary of the Closing Date, except where the Board determines, acting reasonably and in good faith, that satisfying such a commitment would result in a breach of the Board s fiduciary duties as directors under applicable corporate law. Pending such investments, the Company will invest at least 90% of the Net Cash Proceeds of the Offerings exclusively in Permitted Investments, and the remainder will be used for general corporate and working capital purposes. DIVIDEND POLICY The Company has not declared or paid any dividends since its incorporation and does not currently anticipate paying any dividends for the foreseeable future. The Company currently intends to use its future earnings and other cash resources for the operation and development of its business, but may declare and pay dividends in the future as the Board may determine. Any future determination to pay dividends on the Multiple Voting Shares or Subordinate Voting Shares will be at the sole discretion of the Board and will depend on, among other things, the Company s earnings, investment opportunities in Africa, financial requirements for the Company s operations, the satisfaction of solvency tests imposed by applicable laws and regulations, corporate law requirements and other factors that the Board may deem relevant. DESCRIPTION OF SHARE CAPITAL The following briefly summarizes the provisions of the Company s articles of incorporation, including a description of the Company s share capital. The following description may not be complete and is subject to, and qualified in its entirety by reference to, the terms and provisions of the Company s articles of incorporation. Authorized Share Capital The Company s authorized share capital consists of (i) an unlimited number of Multiple Voting Shares that may only be issued to Fairfax or its affiliates, or temporarily to AILP in connection the mechanics for closing of the Initial African Investment, (ii) an unlimited number of Subordinate Voting Shares and (iii) an unlimited number of preference shares, issuable in series. Except as required by law or as provided for in any special rights or restrictions attaching to any series of preference shares issued from time to time, the preference shares will not be entitled to receive notice of, attend or vote any meeting of the Shareholders of the Company. 63

68 Multiple Voting Shares and Subordinate Voting Shares Dividend Rights Holders of Multiple Voting Shares and Subordinate Voting Shares will be entitled to receive dividends out of the assets of the Company legally available for the payment of dividends at such times and in such amount and form as the Board may from time to time determine and the Company will pay dividends thereon on a pari passu basis, if, as and when declared by the Board. The Company has not declared or paid any dividends since its incorporation and does not currently anticipate paying any dividends for the foreseeable future. Voting Rights At Closing, the Multiple Voting Shares will be entitled to fifty (50) votes per Multiple Voting Share, and the Subordinate Voting Shares will be entitled to one (1) vote per Subordinate Voting Share. The following matters will require the approval by 66 2/3% of the votes attached to the Multiple Voting Shares and the Subordinate Voting Shares, each voting separately as a class, at a duly convened meeting of holders of Multiple Voting Shares and Subordinate Voting Shares: 1. An amendment to the Company s articles of incorporation or by-laws to: (a) increase or decrease any maximum number of authorized shares of the Multiple Voting Shares or the Subordinate Voting Shares, or increase any maximum number of authorized shares of a class having rights or privileges equal or superior to the Multiple Voting Shares or the Subordinate Voting Shares, except for the issuance of preference shares; (b) effect an exchange, reclassification or cancellation of all or part of the Multiple Voting Shares or Subordinate Voting Shares; (c) add, change or remove the rights, privileges, restrictions or conditions attached to the Multiple Voting Shares or Subordinate Voting Shares, including: (i) remove or change prejudicially rights to accrued dividends or rights to cumulative dividends, (ii) add, remove or prejudicially change redemption rights, (iii) reduce or remove a dividend preference or a liquidation preference, or (iv) add, remove or change prejudicially conversion privileges, options, voting, transfer or pre-emptive rights, or rights to acquire securities of a corporation, or sinking fund provisions; (d) increase the rights or privileges of any class of shares having rights or privileges equal or superior to the Multiple Voting Shares or the Subordinate Voting Shares; (e) create a new class of shares equal or superior to the Multiple Voting Shares or Subordinate Voting Shares, except for the issuance of preference shares; (f) make any class of shares having rights or privileges inferior to the Multiple Voting Shares or Subordinate Voting Shares equal or superior to the shares of either the Multiple Voting Shares or Subordinate Voting Shares; (g) effect an exchange or create a right of exchange of all or part of the shares of another class into the shares of a class; or (h) constrain the issue, transfer or ownership of the shares of a class or change or remove such constraint; 2. Any change to the Company s investment objective or investment restrictions; 3. A transfer by Fairfax or the Portfolio Advisor of the Investment Advisory Agreement to a non-affiliate of Fairfax; or 4. A change to the basis of the calculation of a fee that is charged to the Company by the Portfolio Advisor or Fairfax in a way that could result in an increase in charges to the Company. 64

69 In addition, any amendments to the Mandatory By-Law Provisions will require the approval of both the holders of the Multiple Voting Shares and the Subordinate Voting Shares, each voting separately as a class. Each such approval shall be evidenced by an ordinary resolution, as such term is defined under the CBCA, except for amendments to the Company s investment objective which approval shall be evidenced by a special resolution, as such term is defined under the CBCA. Notwithstanding the foregoing, a Multiple Voting Share will convert, without any further action on the part of the Company or the holder of such shares, automatically into a Subordinate Voting Share on a one-for-one basis in the event that: (i) such Multiple Voting Share is transferred to, or held by, a non-affiliate of Fairfax, other than temporarily to AILP in connection with mechanics for closing of the Initial African Investment, (including by virtue of a change of control of the applicable Fairfax entity that holds such Multiple Voting Share where Fairfax no longer beneficially owns, directly or indirectly, a majority of the votes attached to such entity s shares entitled to vote for the election of such entity s board of directors, but excluding any assignment or other transfer for purposes of providing security); (ii) such Multiple Voting Share is subject an Equity Monetization Arrangement; (iii) if Fairfax or its affiliates sell any Multiple Voting Shares and, as a result of such sale, Fairfax and its affiliates beneficially own, directly or indirectly, Multiple Voting Shares having an aggregate market value of less than US$150 million such market value to be determined by utilizing the 20-day volume weighted average trading price of the Subordinate Voting Shares on any stock exchange on which the Subordinate Voting Shares then trade as of the trading day prior to the sale by Fairfax or its affiliates (where the market value of a Subordinate Voting Share shall be deemed to be equal to the market value of a Multiple Voting Share for the purposes of such market value calculation); (iv) the Portfolio Advisor ceases to act as a portfolio advisor to the Company, Mauritius Sub or SA Sub for any reason and the obligation to act as a portfolio advisor is not assumed by an affiliate of Fairfax that is duly registered as an advisor in the category of portfolio manager in a province or territory of Canada in accordance with the Company s by-laws; unless (a) the Portfolio Advisor ceases to so act as a result of employees of the Company, Mauritius Sub or SA Sub, as applicable, assuming the obligation to provide such portfolio advisory services, subject to compliance with applicable law or (b) the holders of the Subordinate Voting Shares, by special resolution, determine that the Multiple Voting Shares should not convert to Subordinate Voting Shares as a result thereof; (v) the assignment by the Portfolio Advisor or Fairfax of the Investment Advisory Agreement to a non-affiliate of Fairfax; (vi) a change of control occurs in respect of the Portfolio Advisor such that Fairfax no longer beneficially owns, directly or indirectly, a majority of the votes attached to the Portfolio Advisor s shares entitled to vote for the election of the Portfolio Advisor s board of directors; or (vii) Fairfax approves any plan or proposal for the liquidation or dissolution of the Portfolio Advisor unless the Investment Advisory Agreement has been transferred by the Portfolio Advisor to an affiliate of Fairfax or the obligation to provide portfolio advisory services performed by the Portfolio Advisor have been assumed by employees of the Company, Mauritius Sub or SA Sub, as applicable, subject to compliance with applicable law. Holders of Multiple Voting Shares and Subordinate Voting Shares will be entitled to receive notice of any meeting of Shareholders and may attend and vote at such meetings, except those meetings where only the holders of shares of another class or of a particular series are entitled to vote. A quorum for the transaction of business at a meeting of shareholders shall be two persons present and each entitled to vote at the meeting who, together, hold or represent by proxy not less than 15% of the votes attaching to the outstanding voting shares of the Company entitled to vote at the meeting. Pre-emptive, Subscription, Redemption and Conversion Rights Other than as described under Principal Shareholder, holders of Multiple Voting Shares and Subordinate Voting Shares will have no pre-emptive or subscription rights. Holders of Subordinate Voting Shares will have no redemption or conversion rights. Multiple Voting Shares, however, are convertible at any time at the option of the holder into fully-paid, non-assessable Subordinate Voting Shares on a one-for-one basis. In accordance with the Company s articles of incorporation, Multiple Voting Shares may only be issued to Fairfax or its affiliates. Liquidation Rights Upon the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of Multiple Voting Shares and Subordinate Voting Shares, without preference or distinction, will be 65

70 entitled to receive rateably all of the Company s assets remaining after payment of all debts and other liabilities, subject to the prior rights of the holders of any other prior ranking shares that may be outstanding at such time. Modifications Modifications to the provisions attaching to the Multiple Voting Shares as a class, or to the Subordinate Voting Shares as a class, require the separate affirmative vote of at least two-thirds of the votes cast at a meeting of the holders of the shares of each such class. No subdivision or consolidation of the Multiple Voting Shares or Subordinate Voting Shares may occur unless the shares of both classes are concurrently subdivided or consolidated and in the same manner and proportion. Other than as described in this prospectus, no new rights to acquire additional shares or other securities or property of the Company will be issued to holders of Multiple Voting Shares or Subordinate Voting Shares unless the same rights are concurrently issued to the holders of shares of both classes. Nomination of Directors The Company has included certain advance notice provisions in its by-laws (the Advance Notice Provisions ). The Advance Notice Provisions are intended to: (i) facilitate orderly and efficient annual general or, where the need arises, special meetings; (ii) ensure that all shareholders receive adequate notice of Board nominations and sufficient information with respect to all nominees; and (iii) allow shareholders to register an informed vote. Only persons who are nominated by shareholders in accordance with the Advance Notice Provisions will be eligible for election as Directors. Nominations of persons for election to the Board may be made for any annual meeting of shareholders, or for any special meeting of shareholders if one of the purposes for which the special meeting was called was the election of Directors: (a) by or at the direction of the Directors, including pursuant to a notice of meeting; (b) by or at the direction or request of one or more shareholders pursuant to a requisition of the shareholders made in accordance with applicable law; or (c) by any person (a Nominating Shareholder ): (A) who, at the close of business on the date of the giving of the notice provided for below and on the record date for notice of such meeting, is entered in the Company s register as a holder of one or more shares carrying the right to vote at such meeting or who beneficially owns shares that are entitled to be voted at such meeting; and (B) who complies with the notice procedures set forth in the Advance Notice Provisions. In addition to any other applicable requirements, for a nomination to be made by a Nominating Shareholder, the Nominating Shareholder must have given timely notice thereof in proper written form to the Directors. To be timely, a Nominating Shareholder s notice to the Directors must be made: (a) in the case of an annual meeting of Shareholders, not less than 30 nor more than 65 days prior to the date of the annual meeting of Shareholders; provided, however, that in the event that the annual meeting of Shareholders is to be held on a date that is less than 50 days after the date (the Notice Date ) that is the earlier of the date that a notice of meeting is filed for such meeting or the date on which the first public announcement of the date of the annual meeting was made, notice by the Nominating Shareholder may be made not later than the close of business on the tenth day following the Notice Date; and (b) in the case of a special meeting (which is not also an annual meeting) of shareholders called for the purpose of electing Directors (whether or not called for other purposes), not later than the close of business on the 15 th day following the day that is the earlier of the date that a notice of meeting is filed for such meeting or the date on which the first public announcement of the date of the special meeting of shareholders was made. In no event shall any adjournment or postponement of a meeting of shareholders, or an announcement thereof, re-start the initially required time periods for the giving of a Nominating Shareholder s notice as described above. For greater certainty, this means that a Nominating Shareholder who failed to deliver a timely Nominating Shareholder s notice in proper written form to the Directors for purposes of the originally scheduled shareholders meeting shall not be entitled to provide a Nominating Shareholder s notice for purposes of any adjourned or postponed meeting of shareholders related thereto as the determination as to whether a Nominating Shareholder s notice is timely is to be determined based off of the original shareholders meeting date and not any adjourned or postponed shareholders meeting date. 66

71 To be in proper written form, a Nominating Shareholder s notice to the Directors must set forth: (a) as to each person whom the Nominating Shareholder proposes to nominate for election as a Director: (A) the name, age, business address and residential address of the person; (B) the principal occupation or employment of the person; (C) the class or series and number of shares which are controlled or which are owned beneficially or of record by the person as of the record date for the meeting of shareholders (if such date shall then have been made publicly available and shall have occurred) and as of the date of such notice; and (D) any other information relating to the person that would be required to be disclosed in a dissident s proxy circular in connection with solicitations of proxies for election of Directors pursuant to applicable securities laws; and (b) as to the Nominating Shareholder giving the notice, any proxy, contract, arrangement, understanding or relationship pursuant to which such Nominating Shareholder has a right to vote any shares and any other information relating to such Nominating Shareholder that would be required to be made in a dissident s proxy circular in connection with solicitations of proxies for election of Directors pursuant to applicable securities laws. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as an Independent Director or that could be material to a reasonable shareholder s understanding of the independence, or lack thereof, of such proposed nominee. The chairperson of the meeting shall have the power and duty to determine whether a nomination was made in accordance with the procedures set forth in the foregoing provisions and, if any proposed nomination is not in compliance with such foregoing provisions, the discretion to declare that such defective nomination shall be disregarded. Notwithstanding the foregoing, the Directors may, in their sole discretion, waive any requirement in the Advance Notice Provisions. Preference Shares The preference shares may at any time and from time to time be issued in one or more series, each series to consist of such number of preference shares as may, before the issue thereof, be determined by resolution of the Board. Subject to the provisions of the CBCA, the Board may, by resolution, fix from time to time before the issue thereof the designation, rights, privileges, restrictions and conditions attaching to the preference shares of each series including, without limitation, any right to receive dividends (which may be cumulative or non-cumulative and variable or fixed) or the means of determining such dividends, the dates of payment thereof, any terms or conditions of redemption or purchase, any conversion rights, any retraction rights and any rights on the liquidation, dissolution or winding up of the Company, any sinking fund or other provisions, the whole to be subject to the issue of a certificate of amendment setting forth the designation, rights, privileges, restrictions and conditions attaching to the preference shares of the series. Except as required by law or as provided for in any special rights or restrictions attaching to any series of preference shares, the holders of preference shares will not be entitled to receive notice of, attend or vote any meeting of the Shareholders of the Company. Generally, preference shares of each series, if and when issued, will, with respect to the payment of dividends, rank on a parity with the preference shares of every other series and be entitled to preference over the Multiple Voting Shares, the Subordinate Voting Shares and any other shares of the Company ranking junior to the preference shares with respect to payment of dividends. If any amount of cumulative dividends (whether or not declared) or any amount payable on any such distribution of assets constituting a return of capital in respect of the preference shares of any series is not paid in full, the preference shares of such series shall participate rateably with the preference shares of every other series in respect of all such dividends and amounts. In the event of liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of preference shares will generally be entitled to preference with respect to distribution of the property or assets of the Company over the Multiple Voting Shares, the Subordinate Voting Shares and any other shares of the Company ranking junior to the preference shares with respect to the repayment of paid-up capital remaining after payment of all outstanding debts on a pro rata basis, and the payment of any and all declared but unpaid cumulative dividends, or any and all declared but unpaid non-cumulative dividends, on the preference shares. The Company currently anticipates that there will be no pre-emptive, subscription, redemption or conversion rights attaching to any series of preference shares issued from time to time. 67

72 CONSOLIDATED CAPITALIZATION The following table sets forth the Company s consolidated capitalization as at September 30, 2016, before giving effect to the Offering, incorporation and organization costs, the Cornerstone Investment, the Substantial Equity Investment (collectively, the Offering Adjustments ) and the Initial African Investment, as at September 30, 2016, after giving effect to the Offering Adjustments but before giving effect to the Initial African Investment and as at September 30, 2016, after giving effect to the Offering Adjustments and the Initial African Investment. As at September 30, 2016 after giving As at September 30, effect to the Offering 2016 after giving Adjustments (2) and effect to the Offering the Initial African Adjustments (2) Investment As at September 30, (in thousands of (in thousands of 2016 (1) dollars) dollars) Shareholders Equity... $ 10 $ $ Indebtedness... $ $ $ Total Capitalization... $ 10 $ $ Notes: (1) The Company was initially incorporated on April 28, 2016 with the subscription by Fairfax of one common share for $10.00 in cash. Pursuant to the articles of amendment of the Company, this common share was redesignated as one Multiple Voting Share. (2) Assuming no exercise of the Over-Allotment Option. CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS In the opinion of McCarthy Tétrault LLP, counsel to the Company, and Stikeman Elliott LLP, counsel to the Underwriters, the following is a summary, as of the date hereof, of the principal Canadian federal income tax considerations under the Tax Act generally applicable to a person who acquires Subordinate Voting Shares pursuant to this Offering and who at all relevant times, for purposes of the Tax Act: (i) beneficially owns the Subordinate Voting Shares as capital property, and (ii) deals at arm s length with the Company and is not affiliated with the Company or an Underwriter (a Holder ). Generally, the Subordinate Voting Shares will be considered to be capital property to a Holder provided that the Holder does not hold the Subordinate Voting Shares in the course of carrying on a business of buying and selling securities and has not acquired the Subordinate Voting Shares in one or more transactions considered to be an adventure or concern in the nature of trade. Certain Holders who are residents of Canada and who might not otherwise be considered to hold Subordinate Voting Shares as capital property may, in certain circumstances, be entitled to have such Subordinate Voting Shares and every other Canadian security (as defined in the Tax Act) owned or subsequently acquired by them treated as capital property by making an irrevocable election in accordance with subsection 39(4) of the Tax Act. Holders should consult their own tax advisors as to whether an election under subsection 39(4) of the Tax Act is available or advisable in their particular circumstances. This summary does not apply to a Holder: (i) that is a financial institution for purposes of the mark-to-market rules, (ii) an interest in which would be a tax shelter investment, (iii) that is a specified financial institution, (iv) that has made an election under the Tax Act to determine its Canadian tax results in a foreign currency, or (v) that has entered or will enter into a derivative forward agreement or a synthetic disposition arrangement with respect to Subordinate Voting Shares (all as defined in the Tax Act). This summary does not address the possible application of the foreign affiliate dumping rules that may be applicable to a Holder that is a corporation resident in Canada (for the purposes of the Tax Act) that is, or that becomes as part of a transaction or event or series of transactions or events that includes the acquisition of the Subordinate Voting Shares, controlled by a non-resident corporation for purposes of the rules in section of the Tax Act or that does not deal at arm s length for purposes of the Tax Act with any such Canadian resident corporation. 68

73 This summary is based on the facts set out in this prospectus, a certificate from the Company as to certain factual matters, the current provisions of the Tax Act and the regulations thereunder (the Regulations ), all specific proposals to amend the Tax Act and the Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the Tax Proposals ), and counsel s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (the CRA ) published by it in writing prior to the date hereof. No assurance can be given that the Tax Proposals will be enacted in the form proposed or at all. This summary is not exhaustive of all possible Canadian federal income tax considerations and, except as mentioned above, does not take into account or anticipate any changes in law or administrative policy or assessing practice, whether by way of legislative, governmental or judicial decision or action, nor does it take into account other federal, provincial, territorial or foreign income tax legislation or considerations, which may differ materially from those discussed herein. This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder, and no representations concerning the tax consequences to any particular Holder or prospective shareholder are made. Prospective shareholders should consult their own tax advisors with respect to the tax consequences of an investment in the Subordinate Voting Shares having regard to their particular circumstances. Canadian Dollar Reporting Generally, for purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of Subordinate Voting Shares, including dividends, adjusted cost base and proceeds of disposition, must be expressed in Canadian dollars. Amounts denominated in any foreign currency generally must be converted into Canadian dollars based on the relevant exchange rate as determined in accordance with the rules in the Tax Act. Accordingly, Holders may realize foreign exchange gains and losses in respect of Subordinate Voting Shares. Taxation of Resident Holders of Subordinate Voting Shares This section of the summary applies to a Holder who, at all relevant times, is, or is deemed to be, resident in Canada for the purposes of the Tax Act (a Resident Holder ). Dividends on Subordinate Voting Shares Dividends on Subordinate Voting Shares, and amounts deemed under the Tax Act to be dividends, received by a Resident Holder that is an individual will be included in income and will be subject to the gross-up and dividend tax credit rules normally applicable under the Tax Act to taxable dividends received from taxable Canadian corporations. The Company has advised counsel that it anticipates that, if, as and when, dividends are paid by the Company, such dividends will be eligible dividends subject to the enhanced dividend gross-up and tax credit rules. The dividend gross-up and tax credit rules do not apply to taxable dividends received by a trust in a year to the extent that such dividends are included in computing the income of a non-resident beneficiary of such trust. The amount of the dividend, but not the amount of the gross-up, may be subject to the alternative minimum tax. Ordinary course dividends received on Subordinate Voting Shares by a Resident Holder that is a corporation will be included in the Resident Holder s income but generally will also be deductible in computing taxable income. In certain circumstances, subsection 55(2) of the Tax Act will treat a taxable dividend received by a Purchaser that is a corporation as proceeds of disposition or a capital gain. Purchasers that are corporations are urged to consult their own tax advisors having regard to their particular circumstances. A private corporation or a subject corporation (as defined in the Tax Act) will generally be liable to pay a refundable tax under Part IV of the Tax Act on dividends received on the Subordinate Voting Shares to the extent such dividends are deductible in computing the Resident Holder s taxable income for the taxation year. Dispositions of Subordinate Voting Shares Upon a disposition or deemed disposition (except to the Company, other than in the open market in the manner in which shares would normally be purchased by any member of the public) of Subordinate Voting Shares, a capital gain (or loss) will generally be realized by a Resident Holder to the extent that the proceeds of disposition are greater (or less) than the aggregate of the adjusted cost base of the Subordinate Voting Shares to the Resident Holder immediately before the disposition and any reasonable costs of disposition. The adjusted 69

74 cost base of a Subordinate Voting Share to a Resident Holder will be determined in accordance with certain rules in the Tax Act by averaging the cost to the Resident Holder of a Subordinate Voting Share with the adjusted cost base of all other Subordinate Voting Shares held by the Resident Holder and by making certain other adjustments required under the Tax Act. The Resident Holder s cost for purposes of the Tax Act of Subordinate Voting Shares will include all amounts paid or payable by the Resident Holder for the Subordinate Voting Shares, subject to certain adjustments under the Tax Act. A Canadian-controlled private corporation (as defined in the Tax Act) may be liable to pay a refundable tax on certain investment income, including an amount in respect of a taxable capital gain arising from the disposition of a Subordinate Voting Share. Taxation of Capital Gains and Capital Losses One-half of a capital gain (a taxable capital gain ) must be included in a Resident Holder s income. One-half of a capital loss (an allowable capital loss ) must generally be deducted by a Resident Holder only against taxable capital gains realized in that taxation year. Allowable capital losses in excess of taxable capital gains for a taxation year may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years to the extent and in the circumstances described in the Tax Act. If the Resident Holder is a corporation, any such capital loss realized on the sale of shares may, in certain, circumstances be reduced by the amount of any dividends, including deemed dividends, which have been received on such shares. Analogous rules apply to a partnership and certain trusts of which a corporation is a member or beneficiary. Taxable capital gains realized by a Resident Holder who is an individual may give rise to alternative minimum tax depending on the Resident Holder s circumstances. Payments from Underwriters Unless the election described below is made, a Resident Holder must include in computing income for a taxation year any amount paid or contributed by the Underwriters to the Resident Holder in connection with the purchase of Subordinate Voting Shares. A Resident Holder who has received such payment or contribution may elect in accordance with subsection 53(2.1) of the Tax Act to reduce the cost of the Resident Holder s Subordinate Voting Shares by an amount not exceeding the least of the adjusted cost base of such Subordinate Voting Shares (computed without reference to the elective reduction) and the amount of such payment or contribution. The elected amount will reduce the Resident Holder s adjusted cost base of the Subordinate Voting Shares. Where an election under subsection 53(2.1) of the Tax Act is made, the amount required to be included in the Resident Holder s income is equal to the amount, if any, by which the payment or contribution exceeds the elected amount. Taxation of Non-Resident Holders of Subordinate Voting Shares This section of the summary applies to a Holder who, at all relevant times, is not (and is not deemed to be) resident in Canada and who does not use or hold (and is not deemed to use or hold) Subordinate Voting Shares in, or in the course of, carrying on a business in Canada (a Non-Resident Holder ). This discussion does not apply to: (i) a Non-Resident Holder that carries on (or is deemed to carry on) an insurance business in Canada and elsewhere, or (ii) an authorized foreign bank (as defined in the Tax Act). Dividends on the Subordinate Voting Shares Canadian withholding tax at a rate of 25% (subject to reduction under the provisions of any applicable income tax treaty or convention) will be payable on the gross amount of dividends on the Subordinate Voting Shares paid or credited (or deemed to be paid or credited) to a Non-Resident Holder. Such Canadian withholding taxes will be deducted directly by the Company or its paying agent from the amount of the dividend otherwise payable and will be remitted to the Receiver General for Canada. The rate of withholding tax applicable to a dividend paid on the Subordinate Voting Shares to a Non-Resident Holder who: (i) is a resident of the U.S. for purposes of the Canada-U.S. Tax Convention (the Convention ), (ii) beneficially owns the dividend, and (iii) qualifies for the full benefits of the Convention will generally be reduced to 15% or, if such a Non-Resident Holder is a corporation that owns at least 10% of the Company s voting shares, to 5%. Not all persons who are residents of the U.S. for purposes of the Convention will qualify for the benefits of the 70

75 Convention. A Non-Resident Holder who is a resident of the U.S. is advised to consult its own tax advisor in this regard. The rate of withholding tax on dividends may also be reduced by the terms of other income tax treaties or conventions to which Canada is a party. The Company has advised counsel that, in accordance with the administrative policies of the CRA, the Company may require Non-Resident Holders who wish to claim the benefits of an applicable income tax treaty or convention to provide certification of their eligibility for such benefits on CRA Form NR 301, NR 302 or NR 303, as applicable or such other documentation that the Company may from time to time require. The statutory withholding tax rate of 25% under the Tax Act may be applied by the Company to dividends paid or credited (or deemed to be paid or credited) to Non-Resident Holders who do not provide such certification. Dispositions of Subordinate Voting Shares A Non-Resident Holder will generally not be subject to tax under the Tax Act in respect of any capital gain realized by such holder on a disposition (or deemed disposition) of Subordinate Voting Shares provided that the Subordinate Voting Shares are not taxable Canadian property of the Non-Resident Holder for purposes of the Tax Act. Provided the Subordinate Voting Shares are listed on a designated stock exchange (which currently includes the TSX), Subordinate Voting Shares generally will not constitute taxable Canadian property of a Non-Resident Holder unless, at any time during the 60-month period immediately preceding their disposition by the Non-Resident Holder, (i) 25% or more of the issued shares of any class or series of the capital stock of the Company were owned or belonged to any combination of: (A) the Non-Resident Holder, (B) persons not dealing at arm s length with the Non-Resident Holder, and (C) partnerships in which the Non-Resident Holder or a person not dealing at arm s length with the Non-Resident Holder holds a membership interest directly or indirectly through one or more partnerships, and (ii) more than 50% of the fair market value of the Subordinate Voting Shares was derived, directly or indirectly, from one or any combination of (A) real or immoveable property situated in Canada, (B) Canadian resource properties (as defined in the Tax Act), (C) timber resource properties (as defined in the Tax Act), or (D) options in respect of, or interests in, or for civil law rights in, any such properties whether or not the property exists. Having regard to the Company s proposed direct and indirect investments, it is anticipated that Subordinate Voting Shares generally should not be considered taxable Canadian property of a Non-Resident Holder. Even if the Subordinate Voting Shares are considered taxable Canadian property of a Non-Resident Holder, a taxable capital gain resulting from the disposition (or deemed disposition) of the Subordinate Voting Shares will not be included in computing the Non-Resident Holder s income for purposes of the Tax Act if the Subordinate Voting Shares are treaty-protected property for purposes of the Tax Act. Subordinate Voting Shares will generally be treaty-protected property if the gain from the disposition (or deemed disposition) of such shares would, because of an applicable income tax treaty or convention, be exempt from tax under the Tax Act. Non-Resident Holders should consult their own tax advisors with respect to whether their Subordinate Voting Shares are taxable Canadian property or treaty-protected property. Taxation of the Company In each taxation year, the Company will be subject to tax under Part I of the Tax Act on the amount of its income for the year. The Company is anticipated to be a specified financial institution and a restricted financial institution for purposes of the Tax Act. The Company is also anticipated to be a financial institution for the purposes of the mark-to-market rules and will be required to include in computing its income deemed gains and losses from shares of corporations, other than shares of corporations in which the Company has a significant interest, and to include deemed gains and losses from specified debt obligations that are fair value property of the Company (all as defined in the Tax Act). The Company will also be required to include in its income deemed gains or losses and deemed income from specified debt obligations, other than specified debt obligations subject to the mark-to-market rules in accordance with the specified debt obligation rules in the Tax Act. 71

76 Foreign Accrual Property Income In computing its income for a particular taxation year, the Company must include its share of the foreign accrual property income ( FAPI ) earned by a controlled foreign affiliate (as defined in the Tax Act, a CFA ) of the Company for each taxation year of the CFA that ends in the particular taxation year of the Company. This is the case regardless of whether any such income is actually received by the Company from the CFA. SA Sub is, and Mauritius Sub will be, a CFA of the Company, and the Company s share of the FAPI of each of Mauritius Sub and SA Sub will be 100%. Each of the Company, Mauritius Sub and SA Sub is anticipated to earn FAPI in respect of certain interest, dividends and capital gains, including in certain circumstances, FAPI which arises from deemed income under section See Taxation of Mauritius Sub and SA Sub Computation of FAPI and Surplus Accounts. In general terms, the adjusted cost base to the Company of its shares of a CFA will be increased by the amount of the FAPI of the CFA included in the income of the Company. Subject to the detailed provisions of the Tax Act in this regard, if the Company receives a dividend from a CFA in a particular taxation year, the portion of such dividend that is attributable to amounts included in income of the Company as FAPI for the particular year or a previous taxation year will generally be deductible to the Company in the year that the dividend is received, but there will be a corresponding reduction in the adjusted cost base to the Company of its shares of the CFA. In general terms, the Company may also be entitled to claim a grossed-up deduction in respect of the foreign income tax (including withholding tax) paid by a CFA that is applicable to the FAPI included in the Company s income for a particular taxation year or any of its five following taxation years, subject to the detailed provisions of the Tax Act. In general terms, the amount of this deduction: (i) cannot exceed the FAPI included in the Company s income for the particular year, and (ii) will reduce the adjusted cost base to the Company of its shares of the CFA. The Company may also be required to include its share of the FAPI income of certain exempt foreign trusts as described in section 94.2 of the Tax Act where (i) 10% or more of the total fair market value of outstanding interests of the trust are either held by the Company, persons that do not deal at arm s length with the Company or a person that acquired their interest in the trust from such person, or a combination of such persons, or (ii) where the Company or one of its foreign affiliates has contributed restricted property (as defined in subsection 94(1) of the Tax Act) to the trust. Dividends The Company will be required to include in its income for each taxation year all dividends received (or deemed to be received) by it in such year and, in the case of dividends from corporations resident in Canada, will be subject to the special rules applicable to certain financial institutions which are not discussed in detail herein. In computing its taxable income, the Company may be entitled to a deduction in respect of a portion or the entire amount of dividends received by it from Mauritius Sub, SA Sub or any other foreign affiliate. The nature and extent of the deduction will depend on whether the dividend is prescribed to have been paid out of the foreign affiliate s exempt surplus, hybrid surplus, taxable surplus or pre-acquisition surplus (as such terms are defined in the Tax Act). As stated above, subject to the detailed provisions of the Tax Act, if the Company receives a dividend from a CFA in a particular taxation year, the portion of such dividend that is attributable to amounts included in income of the Company as FAPI for the particular year or a previous taxation year will generally be deductible to the Company in the year that the dividend is received, but there will be a corresponding reduction in the adjusted cost base to the Company of its shares of the CFA. If the adjusted cost base to the Company of its foreign affiliate shares becomes a negative amount, the Company will be deemed to realize a capital gain equal to the absolute value of such negative amount at that time. 72

77 Interest The Company will be required to include in its income for each taxation year with respect to indebtedness, all interest that accrues to it or is deemed to accrue to it to the end of the year, or becomes receivable or is received by it before the end of the year, including on a conversion, redemption or repayment on maturity, except to the extent that such interest was otherwise included in computing its income for a preceding taxation year or was otherwise excluded from income and excluding any interest that accrued prior to the time of the acquisition of the indebtedness by the Company. Upon the actual or deemed disposition of indebtedness, the Company will be required to include in computing its income for the year of disposition all interest that accrued on such indebtedness to the date of disposition except to the extent such interest was otherwise included in computing the Company s income for that or another taxation year. Interest so included as a consequence of a disposition (or deemed disposition) will not be included in proceeds of disposition for purposes of computing any capital gain or loss. Certain investments of the Company may result in a deemed accrual or receipt of income even though the Company will not receive the income on a current basis or in cash. Currency and Derivatives The Company will enter into transactions denominated in currencies other than the Canadian dollar. The cost and proceeds of disposition of securities, interest and all other amounts will be determined for the purposes of the Tax Act in Canadian dollars using the appropriate exchange rates on the date of the transactions determined in accordance with the detailed rules in the Tax Act in that regard. The amount of income, gains and losses realized by the Company may be affected by fluctuations in the value of foreign currencies relative to the Canadian dollar. The Tax Act contains rules (the DFA Rules ) that target certain financial arrangements (described in the DFA Rules as derivative forward agreements ) that seek to deliver a return based on an underlying interest (other than certain excluded underlying interests) for purposes of the DFA Rules. The DFA Rules are broad in scope and could apply to other agreements or transactions. If the DFA Rules were to apply in respect of any derivatives used by the Company, gains realized in respect of the property underlying such derivatives could be treated as ordinary income rather than capital gains. Subject to the DFA Rules, gains or losses in respect of currency hedges entered into in respect of amounts invested will likely constitute capital gains and capital losses to the Company if the securities hedged are capital property to the Company and there is sufficient linkage. Certain proposed amendments to the Tax Act, if enacted as proposed, should clarify that the DFA Rules generally should not apply to such foreign currency hedges. Offshore Investment Fund Property To the extent that an investment by the Company is an offshore investment fund property (which does not include an investment in a CFA), the Company will, subject to certain adjustments, be required to include in its income the amount deemed to be income pursuant to section 94.1 of the Tax Act. In general, these rules will apply to the Company if it is reasonable to conclude, having regard to all the circumstances, that one of the main reasons for the Company acquiring or holding an investment in a non-resident entity is to derive a benefit from portfolio investments in such a manner that taxes under the Tax Act on income, profits and gains for any year are significantly less than they would have been if such income, profits and gains had been earned directly by the Company. In determining whether this is the case, section 94.1 of the Tax Act provides that consideration must be given to, among other factors, the extent to which the income, profits and gains for any fiscal period are distributed in that or the immediately following fiscal period. In general, to the extent that the income from an investment is FAPI without regard for section 94.1, that investment likely is not subject to section If section 94.1 applies, it generally includes an amount in income in respect of each month equal to the designated cost of an investment ( Subject Investment ) that is subject to the rule at the end of the month multiplied by one-twelfth of the sum of a prescribed rate of interest plus 2%. The amount to be included in income under section 94.1 in respect of a Subject Investment will be reduced by any net income (other than a capital gain) from the Subject Investment for the taxation year. The designated cost and adjusted cost base of the Company s investment in the Subject Investment will be correspondingly increased by any such amount 73

78 included in income under section The prescribed rate of interest is linked to the yield on 90-day Government of Canada Treasury Bills and is adjusted quarterly. There is a risk that the prescribed rate of interest will increase, which will require the Company to include additional amounts in computing its income under section 94.1 of the Tax Act. Expenses In computing its income for tax purposes, the Company may deduct reasonable administrative and other expenses incurred to earn income in accordance with the detailed rules in the Tax Act. The Company may deduct the costs and expenses of the Offering paid by the Company and not reimbursed at a rate of 20% per year, pro-rated where the Company s taxation year is less than 365 days. Any losses incurred may generally be carried forward and back and deducted in computing the taxable income of the Company in accordance with the detailed rules in the Tax Act. Capital Gains and Capital Losses The Company has advised counsel that the Company will purchase investments with the objective of receiving distributions and income thereon and will take the position that, other than in the case of a security subject to the DFA Rules, the mark-to-market rules or the specified debt obligation rules under the Tax Act, its investments are capital property. Upon the actual or deemed disposition of an investment security by the Company (other than a security that is subject to the DFA Rules, the mark-to-market rules or specified debt obligation rules under the Tax Act), the Company will realize a capital gain (or capital loss) to the extent the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of such security unless the Company were considered to be trading or dealing in securities or otherwise carrying on a business of buying and selling securities or the Company has acquired the security in a transaction or transactions considered to be an adventure or concern in the nature of trade. A taxable capital gain realized by the Company in a taxation year on the disposition of securities that are capital property of the Company must be included in computing the Company s income for the year, and an allowable capital loss realized by the Company in a taxation year must be deducted against any taxable capital gains realized by the Company in the year. Any excess of allowable capital losses over taxable capital gains for a taxation year may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized by the Company to the extent and under the circumstances described in the Tax Act. Taxation of Mauritius Sub and SA Sub For the purposes of this summary, it has been assumed that Mauritius Sub and SA Sub: (i) will not be resident in Canada for purposes of the Tax Act; (ii) will not carry on business in Canada; (iii) other than in respect of a security that is subject to the DFA Rules, the mark-to-market rules or the specified debt obligation rules under the Tax Act, will hold all securities on capital account; and (iv) will not be a regulated entity such as a bank, credit union, insurance corporation or trader or dealer in securities or commodities under the laws of Mauritius or South Africa. Provided that Mauritius Sub and SA Sub are not resident in Canada and do not carry on business in Canada, they should not be subject to income tax in Canada. However, SA Sub has, and Mauritius Sub will have, directors who are resident in Canada. A corporation that has its mind and management in Canada will be considered to be resident in Canada for Canadian federal income tax purposes and, depending on where its activities are carried out, could be considered to carry on business where such activities are located. The Company has advised counsel that Mauritius Sub and SA Sub will operate in such a manner so as to ensure that their mind and management does not reside in Canada and that neither of them carries on business in Canada. However, no assurances with respect to factual determinations such as this can be given by counsel. If Mauritius Sub or SA Sub were found to be resident in Canada, then Mauritius Sub or SA Sub, as the case may be, would be subject to tax in Canada on its worldwide income. If Mauritius Sub or SA Sub were found to carry on business in Canada, Mauritius Sub or SA Sub, as the case may be, would be subject to tax in Canada on its 74

79 income in respect of its business carried on in Canada, unless in the case of S.A. Sub, such income would be excluded by the DTA between Canada and South Africa. As discussed above, each of Mauritius Sub and SA Sub will be a CFA of the Company, and income earned by Mauritius Sub or SA Sub that constitutes FAPI will be required to be included in the income of the Company for Canadian income tax purposes, whether or not any such income is actually received by the Company from Mauritius Sub or SA Sub, as applicable. Computation of FAPI and Surplus Accounts In computing FAPI for a particular taxation year, Mauritius Sub and SA Sub will generally be required to compute income in Canadian currency and in accordance with the provisions of the Tax Act as if they were resident in Canada. Mauritius Sub and SA Sub are anticipated to make: (i) investments in foreign affiliates of the Company, including investments that may not be excluded property as defined in the Tax Act for the purposes of FAPI; (ii) investments in entities that are not foreign affiliates of the Company and in which Mauritius Sub and SA Sub do not have a significant interest for purposes of the mark-to-market rules, and (iii) investments that may be considered to be portfolio investments for purposes of section 94.1 of the Tax Act. In computing FAPI, each of Mauritius Sub and SA Sub will generally be required to include in its income for each taxation year: (i) all dividends (other than dividends from another foreign affiliate of the Company) received (or deemed to be received) by it in such year, and (ii) all interest that accrues to it or is deemed to accrue to it to the end of the year, or becomes receivable or is received by it before the end of the year, including on a conversion, redemption or repayment of indebtedness on maturity, except to the extent that such interest was included in computing its income for a preceding taxation year or was otherwise excluded from income and excluding any interest that accrued prior to the time of the acquisition of the indebtedness by Mauritius Sub of SA Sub, as applicable. Interest so included as a consequence of a disposition (or deemed disposition) will not be included in proceeds of disposition for purposes of computing any capital gain or loss. Certain investments of Mauritius Sub and SA Sub may result in a deemed accrual or receipt of FAPI income to the Company even though Mauritius Sub or SA Sub, as applicable, will not receive the income on a current basis or in cash. Each of Mauritius Sub and SA Sub is anticipated to be a financial institution for purposes of the mark-to-market rules and will be required in computing FAPI to include deemed gains and losses from shares of corporations, other than shares of corporations in which Mauritius Sub or SA Sub, as applicable, has a significant interest as defined in the Tax Act, and to include deemed gains and losses from specified debt obligations that are fair value property (as defined in the Tax Act) of Mauritius Sub or SA Sub, as applicable. Mauritius Sub and SA Sub will also be required to include in computing FAPI deemed gains or losses and deemed income from specified debt obligations other than specified debt obligations subject to the mark-to-market rules in accordance with the specified debt obligation rules of the Tax Act. To the extent that any investment by Mauritius Sub or SA Sub is an offshore investment fund property, Mauritius Sub or SA Sub will, subject to certain adjustments, be required to include in its FAPI, any amount that section 94.1 of the Tax Act would include in its income. See generally Offshore Investment Fund Property, above. Mauritius Sub and SA Sub may deduct reasonable administrative and other expenses incurred to earn income in accordance with the detailed rules in the Tax Act. To the extent that the expenses exceed its FAPI income, Mauritius Sub or SA Sub, as applicable, may have foreign accrual property losses ( FAPL ) that can be carried forward up to twenty years or back three years to be applied against FAPI income in accordance with the detailed rules in the Tax Act. In computing FAPI, upon the actual or deemed disposition of a security owned by Mauritius Sub or SA Sub (other than a security that is subject to the DFA Rules, the mark-to-market rules or the specified debt obligation rules under the Tax Act), Mauritius Sub or SA Sub, as applicable, will realize a capital gain (or capital loss) to the extent the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of such security. Any taxable capital gain realized by Mauritius Sub or SA Sub in a taxation year on a disposition of a security other than excluded property (as defined in the Tax Act for FAPI purposes), 75

80 including a share of certain foreign affiliates, must be included in computing the income of Mauritius Sub or SA Sub, as applicable, for the year, and any allowable capital loss realized by Mauritius Sub or SA Sub in a taxation year must be deducted against any taxable capital gains realized by Mauritius Sub or SA Sub, as applicable, in the year. Gains and losses from excluded property are not subject to FAPI and are not subject to immediate taxation in Canada. In respect of a share of a foreign affiliate and certain partnership interests, an amount equal to the capital gain net of any capital loss (excluding any portion of the gain or loss that was included in the calculation of FAPI) is added to hybrid surplus. Generally, only half of the hybrid surplus will be subject to tax when received by the Company from Mauritius Sub or SA Sub, as applicable. Mauritius Sub and SA Sub will calculate exempt surplus, hybrid surplus, taxable surplus and pre-acquisition surplus (as such terms are defined in the Tax Act) based upon, among other things, distributions from their foreign affiliates. These amounts will be relevant to the tax treatment by the Company of distributions paid by Mauritius Sub and SA Sub to the Company. REPUBLIC OF MAURITIUS INCOME TAXATION OF MAURITIUS SUB AND THE COMPANY This summary is based on the latest provision of the Mauritian Income Tax Act, 1995 as amended ( Mauritius ITA ). This Mauritian tax summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular holder of a Subordinate Voting Share, and no representation concerning the tax consequences to any particular holder or prospective holder are made. Mauritius Sub will hold a Category 1 Global Business Licence for the purpose of the Financial Services Act 2007 and will be liable for tax in the Republic of Mauritius at the rate of 15% on its net income. Mauritius Sub will, however, be entitled to a foreign tax credit equivalent to the higher of the actual foreign withholding tax suffered or 80% of the Mauritian tax on its foreign source income. This results in a maximum effective tax rate on net income of 3%, and where it can be shown that the actual foreign withholding tax paid is 15% or more, no Mauritius tax will arise. Further, with respect to any foreign dividend, provided that Mauritius Sub owns directly or indirectly at least 5% of the share capital of the foreign company, the credit allowed will, in addition to any foreign withholding tax charged on the dividend, include the underlying corporate income tax, that is, the tax imposed on the profit out of which the dividend has been paid. Further, Mauritius Sub will be exempt from income tax in the Republic of Mauritius on profits or gains arising from the sale of securities. However, all expenses directly attributable to the exempt income would not be allowed for tax purposes whilst common expenses would be disallowed based on the proportion of exempt to taxable income. There is no withholding tax payable in the Republic of Mauritius in respect of payments of dividends to investors or in respect of the redemption or exchange of shares. The Company will not be liable for tax in Mauritius on dividends and capital distributions made by Mauritius Sub. There is also no capital gains tax, wealth, inheritance, estate tax or gift tax applicable to the Company. Regarding the deductibility of expenses, as per Section 18 of the Mauritius ITA, any expenditure that is incurred exclusively in the production of gross income shall be deductible from the gross income. Hence, portfolio advisory fees paid to the portfolio advisors will be allowed for tax purposes. In the event that Mauritius Sub incurs tax losses on its trading losses, these can be carried forward and offset against the adjusted profits derived by Mauritius Sub for the following 5 income years. There is no transfer pricing legislations in Mauritius but Section 75 of the Mauritius ITA stipulates that all transactions between related parties should be at arm s length. Mauritius Sub will obtain a tax residence certificate from the Mauritius Revenue Authority. The certificate is renewable annually subject to the directors and the secretary of Mauritius Sub each providing an undertaking to the tax authorities to confirm that Mauritius Sub is centrally managed and controlled in Mauritius. Mauritius Sub would, on that basis, qualify as a resident of Mauritius for the purposes of benefitting from tax treaties which Mauritius has signed with certain African countries. Mauritius Sub would consequently be entitled to certain relief from capital gains tax on certain African Investments, as well as withholding tax reductions on 76

81 foreign interest and dividend payments from the African Investments, subject to the continuance of the current terms of the relevant tax treaties. The FSC has issued revised guidelines regarding the substance requirements of a GBC 1, strengthening the conditions for the issuance of tax residency certificates to Mauritian corporations which are effective as of January 1, The Company anticipates that Mauritius Sub will maintain a Global Business Licence and will be able to obtain a tax residency certificate from the Mauritius Revenue Authority. SOUTH AFRICAN INCOME TAXATION OF SA SUB AND THE COMPANY This summary is based on the South African Income Tax Act, 1962 as amended, as at the Closing Date ( SA ITA ) and the DTA between South Africa and Canada ( SA/Canada DTA ). SA Sub will not qualify for the HQ Regime at Closing nor is it anticipated that it will qualify in the near future, for this reason the information hereunder is limited to the normal rules of taxation applicable to a private holding company resident in South Africa. This South African tax summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular holder of a Subordinate Voting Share, and no representation concerning the tax consequences to any particular holder or prospective holder are made. SA Sub will be tax resident in South Africa and subject to income tax on its worldwide income at a flat rate of 28% calculated on its taxable income. Taxable income, which is distinct from accounting profit, is determined broadly by deducting applicable deductions or allowances from the income of a taxpayer. Income is calculated as gross income less exempt income. SA Sub is an investment holding company and will receive dividend and interest income. Dividend and interest income Any dividend income received by SA Sub from South African investments will be exempt from income tax as per section 10(1)(k)(i) of the SA ITA. Furthermore, such dividend income will be exempt from the dividends tax (levied at a flat rate of 15%). Any foreign dividends received by SA Sub will be included in gross income for income tax purposes, read with section 10B of the SA ITA. Section 10B provides for an exemption if inter alia, SA Sub holds at least 10% of the total equity shares and voting rights in the company declaring the foreign dividend. This is commonly referred to as the participation exemption. If the exemption does not apply, a portion of the foreign dividend will be subject to income tax calculated in accordance with a formula contained in section 10B of the SA ITA. The application of the formula will result in an effective tax rate equal to the dividend withholding tax on local dividends, currently 15%. Any local or foreign interest income will be subject to income tax in South Africa. SA Sub would, on the basis that it qualifies as a resident of South Africa be entitled to relief under the appropriate DTA against withholding taxes on interest and dividend income from African Investments where South Africa has a DTA, subject to the continuance of the current terms of the relevant DTA. Subject to qualifying criteria, SA Sub may qualify for relief against foreign taxes paid on foreign interest and any foreign dividends that do not qualify for the participation exemption or relief under the relevant DTA in the form of a tax rebate/credit under section 6quat of the SA ITA. Deductibility of expenditure In the absence of a specific deduction or capital allowance, expenditure will be deductible from taxable income in accordance with the general deduction formula, which requires that expenditure and losses are actually incurred in the production of income, are not of a capital nature and are laid out or expended for the purposes of trade. It is anticipated that the majority of SA Sub s expenditure will be interest on debt that SA Sub incurs for money borrowed and which debt it on lends to its South African investments. In order for SA Sub to claim the interest on such debt SA Sub would, inter alia, have to show that it is carrying on a trade. SA Sub will not constitute a money-lender for tax purposes and the passive monitoring of its South African investments will also not constitute a trade. Therefore, as SA Sub will not be carrying on trade it will not be entitled to deduct the 77

82 interest on debt it incurs. However, the current practice of the South African Revenue Services ( SARS ) is to permit a deduction of interest where the interest is paid on funds borrowed for the purpose of lending them out at a higher rate, limited to the amount of any interest received (refer to Income Tax Practice Note 31/1994). Dividend and interest payments to the Company South Africa will levy a withholding tax of 15% on any dividend or interest payments made by SA Sub to the Company. In terms of the SA/Canada DTA, the withholding tax on dividends is reduced to 5% provided the Company is the beneficial owner of the dividends and holds directly at least 10% of the share capital of the company paying the dividends where that company is a resident of South Africa. In the case of interest payments, the withholding tax is reduced to 10% provided the Company is the beneficial owner of the interest. In order to be eligible for the relief under the SA/Canada DTA, SA Sub must be regarded as a tax resident of South Africa. The Company expects the effective management of SA Sub to be situated in South Africa and the benefits of the SA/Canada DTA, as well as DTAs with other African states will be available to SA Sub. Disposal of African Investments Based on the investment strategy of the Company, investments made by SA Sub should be regarded as capital and as such any future disposal of a South African investment by SA Sub will be subject to capital gains tax ( CGT ). CGT is calculated on the difference between the proceeds received (i.e. the purchase/sale price) and the base cost of the asset (i.e. acquisition cost). Any resulting gain/loss will be subject to CGT at an effective rate of 22.4% in the hands of SA Sub. Save for any African Investments that would constitute an interest in immovable property, and on the basis that SA Sub is a South African tax resident, the disposal of any foreign investment by SA Sub would be subject to taxation in South Africa. In terms of the participation exemption in paragraph 64B of the Eighth Schedule to the ITA, any capital gain or loss made by SA Sub on the disposal of shares in a foreign company will be disregarded if certain criteria are met, including the requirement that the sale must be to a non-resident and unconnected party for market value. A sale to a South African purchaser will be subject to CGT in the ordinary course. African Investments and the Controlled Foreign Company rules In computing its taxable income, SA Sub must include the proportional amount of the net income of any foreign subsidiary imputed as per the provisions of section 9D of the ITA, if the foreign company is a controlled foreign company ( CFC ) as defined. A CFC is defined to mean any foreign company where more than 50% of the total participation rights in that foreign company are directly or indirectly held, or more than 50% of the voting rights are directly or indirectly exercisable, by one or more persons that are tax resident in South Africa. The phrase participation rights is defined to mean, inter-alia, the right to participate in all or part of the benefits of the rights (other than voting rights) attaching to a share, or any interest of a similar nature, in that company. The CFC rules are complex and contain various exemptions, which in turn are subject to further qualifications. The most important, insofar as is relevant for SA Sub, is if the CFC constitutes a foreign business establishment ( FBE ). In this regard, any amount attributable to a FBE of a CFC will not be included in determining the net income of the CFC. The FBE exemption, in broad terms, would apply to a CFC if it has its own distinct enterprise, operating facilities, personnel etc. Further, the income accruing to the CFC must, again broadly speaking, not constitute passive or investment income if this exclusion is to apply. SA Sub will not have any CFCs that are not FBEs at the time of Closing and any future foreign African Investment is expected to qualify for the FBE exemption. Of course, the application of the CFC rules will be assessed at the time of any future investment. Transfer Pricing SA Sub, as a South Africa resident, will be subject to South Africa s transfer pricing (which includes thin capitalization) provisions as set out in section 31 of the ITA, which provisions are based on the transfer pricing provisions provided by the Organisation for Economic Co-Operation and Development. 78

83 The main requirement of the transfer pricing provisions is to ensure that affected transactions (generally between a resident and non-resident who are connected persons) are concluded at arm s length and that the transfer pricing between group entities is also at arm s length. SARS controls transfer pricing through section 31 of the ITA by enabling the Commissioner of SARS to adjust the price charged between connected entities (where one of those entities is a tax resident) if the price is different from what would have been concluded on an arm s length basis between unrelated persons and to tax the entity concerned by means of primary and secondary adjustments. Any debt funding of SA Sub by the Company will constitute an affected transaction for transfer pricing purposes and will need to be carried out on an arm s length basis. SOUTH AFRICAN EXCHANGE CONTROL REGULATIONS This summary of the South African exchange control regime is of a general nature only and is not intended to be, nor should it be construed to be, legal advice to any particular holder of a Subordinate Voting Share, and no representation concerning the South African exchange control consequences to any particular holder or prospective holder are made. SA Sub will be regarded as a South African exchange control resident that is subject to the South African Exchange Control Regulations (Government Notice R.1111 of 1 December 1961 as amended) (the Excon Regulations ). The Excon Regulations administered by the Financial Surveillance Department of the South African Reserve Bank (the SARB ), regulate the flow of capital into and out of the CMA. There is no single consolidation of the exchange control regime and the rules are contained in, inter alia, the Excon Regulations, Orders and Rules, Currency and Exchanges Manual for Authorised Dealers (previously the Rulings), and Currency and Exchanges guidelines for business entities (previously the Manual). This in turn is informed (by often unpublished) internal exchange control policy. The Excon Regulations have undergone extensive amendments over the years the most significant of which has been the shift from a protectionist regulation of capital movements, to a less restrictive administration of the Excon Regulations by SARB, with greater reliance being placed upon Authorised Dealers (being a section within most commercial banks). If an Authorised Dealer does not have the authority to approve a transaction or application it will be submitted to the SARB. It should be noted that applications submitted to the SARB are generally more onerous and take longer to process. The Company believes that the exchange control process, as it currently exists, can be satisfactorily managed so long as applications are properly set out, concise and within the reasonable limits of the Excon Regulations and SARB policy. However the Excon Regulations and SARB policy, and the administration thereof, are subject to certain risks, as further described under Risk Factors Risk Factors Related to Investments in Africa South African Exchange Control Regulations. The specific terms of any cross border transaction are required to determine the impact, if any, of the Excon Regulations on a transaction, and whether approval of an Authorised Dealer will be sufficient or the SARB s approval is required. Set out below is the general position with respect to certain cross border transactions that are relevant to SA Sub. Share subscription equity investment by the Company An Authorised Dealer will allow the transfer of dividends to the Company provided the non-resident s share certificate is endorsed non-resident and the authorised dealer of the South African company has been provided with an auditor s certificate confirming that the amount arises from realised profits arising in the normal course of business and payable to a non-resident who has not previously been a resident. Capital profits require a letter from an auditor requiring how the capital profits arose and that the sale was at arm s length and is at fair value. The endorsement of a share certificate in a private company is generally a simple procedure involving the submission to an Authorised Dealer. The shares of SA Sub held by the Company are endorsed non-resident/will be endorsed by the Closing. 79

84 Any subsequent subscription for shares in SA Sub by the Company will require a further endorsement. This is generally a simple procedure generally involving the submission to an Authorised Dealer including proof that the purchase price for the shares has/will enter South Africa and confirmation that the transaction occurred at arm s length and for a fair market price. Borrowings from non-residents shareholder loan funding from the Company or foreign third party Any inward loan from a non-resident will require the prior approval of an Authorised Dealer or SARB depending on the terms of the loan including, the interest rate applicable to the loan, raising or other fees, security, capitalization of interest and/or the compounding of interest, amongst others. In the case of a shareholder loan, provided it is kept within the parameters of Authorised Dealer adjudication, approval is generally a quick process. If it falls outside these parameters it will require approval from the SARB. The Company intends to make equity contributions to SA Sub, however, should it prove necessary to introduce shareholder loan funding it is anticipated that this would fall within the ambit of Authorised Dealer adjudication. Borrowings from residents SA Sub will be regarded as an affected person in terms of the Excon Regulations resulting in certain limitations with respect to local financial assistance. Financial assistance includes the taking up of securities, granting credit, lending of currency, discounting, factoring and the guaranteeing or acceptance of any obligation. In the case of financial assistance granted for financial transactions, which would include the purchase and sale of any securities, an Authorised Dealer may grant or authorize local financial assistance facilities, provided the 1:1 ratio of locally borrowed funds to foreign introduced funds is maintained. Any financial assistance in excess of this ratio will require SARB approval. Foreign Direct Investments African Investments The Excon Regulations generally restrict South African residents from transferring capital out of the CMA for investment purposes, subject to certain exceptions. Such exception exists for South African companies that wish to make for foreign direct equity investments outside the CMA in excess of 10%. Previously, the application process required approval from SARB. However, as a result of a relaxation of the Excon Regulations, Authorised Dealers have the authority to consider and approve applications for foreign direct investments where companies meet the minimum criteria requirements and the value of such investments is below ZAR1 billion per applicant per calendar year. Investments above the ZAR1 billion in a calendar year are referred to SARB for approval. Dispensations Any South African holding company falling within the ambit of the HQ Regime will be viewed as a non-resident for exchange control purposes and required to report all cross-border transactions. Transactions by South African entities with headquarter companies will be viewed and treated as transactions with non-residents. In addition to the HQ Regime, unlisted entities are eligible to establish one subsidiary as a HoldCo to hold African and offshore operations that will not be subject to any exchange control restrictions. This dispensation is subject to various conditions, including registration with SARB, HoldCo must be South African tax resident and comply with certain reporting requirements. Due to the Initial African Investment held by the Company at Closing, the Company and SA Sub will not qualify and/or require recourse to the above dispensations. The Company and SA Sub will, however, monitor their investments and if applicable consider the application of the above dispensations. PRIOR ISSUANCES During the 12-month period prior to the date of this prospectus, the Company issued one common share to Fairfax for a price of $10.00 on April 28, 2016 in connection with the incorporation of the Company. Pursuant to the articles of amendment of the Company, this common share was redesignated as one Multiple Voting Share. 80

85 DIRECTORS AND MANAGEMENT OF THE COMPANY Directors and Executive Officers The Board consists of 8 Directors with another Independent Director to be appointed prior to Closing (such that the Board will consist of 9 Directors), the majority of whom at Closing will be Independent Directors under Canadian securities laws. The Directors will be elected by shareholders at each annual meeting of the Company s shareholders, and all Directors will hold office for a term expiring at the close of the next annual meeting or until their respective successors are elected or appointed and will be eligible for re-election or re-appointment. The nominees for election by shareholders as Directors will be determined by the Governance, Compensation and Nominating Committee in accordance with the provisions of applicable corporate law and the charter of the Governance, Compensation and Nominating Committee. The following table sets forth information regarding the Directors and executive officers of the Company. Name, Province or State and Country of Residence Position/Title Independent Principal Occupation V. Prem Watsa (1)... Director and Chairman No Chairman and Chief Executive Toronto, Ontario, Canada Officer of Fairfax; Vice President of the Portfolio Advisor Paul Rivett (2)... Director No President of Fairfax; Vice President Toronto, Ontario, Canada and Chief Operating Officer of the Portfolio Advisor Quinn McLean (3)... Director No Vice President of the Portfolio Toronto, Ontario, Canada Advisor Christopher Hodgson (4)... Lead Director Yes President of the Ontario Mining Markham, Ontario, Canada Association Richard Okello (5)... Director Yes Chief Executive Officer of Sango Johannesburg, Gauteng, Capital Advisers (Africa) (Pty) Ltd. South Africa Ndidi Okonkwo Nwuneli (6)... Director Yes Director of Sahel Capital Partners & Lekki, Lagos, Nigeria Advisory Ltd. Hisham Ezz Al-Arab (5)(7)... Director Yes Chairman and Managing Director of Cairo, Zamalek, Egypt Commercial International Bank (Egypt) Michael Wilkerson (8)... Director and Chief No Chief Executive Officer of the New York, New York, USA Executive Officer Company Guy Bentinck... Chief Financial Officer N/A Chief Financial Officer and Toronto, Ontario, Canada and Corporate Secretary Corporate Secretary of the Company Notes: (1) Mr. Watsa is considered a non-independent Director as he is the Chairman and Chief Executive Officer of Fairfax, the Company s promoter, and the Vice President of the Portfolio Advisor. (2) Mr. Rivett is considered a non-independent Director as he is the President of Fairfax, the Company s promoter and the Vice President and Chief Operating Officer of the Portfolio Advisor. (3) Mr. McLean is considered a non-independent Director as he is Vice President of the Portfolio Advisor. (4) Chair of the Governance, Compensation and Nominating Committee. (5) Member of the Governance, Compensation and Nominating Committee. (6) Member of the Audit Committee. (7) Chair of the Audit Committee. (8) Mr. Wilkerson is considered a non-independent Director as he is the Chief Executive Officer of the Company. 81

86 Immediately after Closing, the Directors and executive officers of the Company, as a group, will beneficially own, or control or direct, directly or indirectly, Subordinate Voting Shares. None of the Directors or executive officers of the Company will beneficially own, or control or direct, directly or indirectly, any Multiple Voting Shares. The mandate of the Board, substantially in the form set out under Appendix A to this prospectus, is to provide governance and stewardship to the Company and its business. In fulfilling its mandate, the Board will adopt a written charter setting out its responsibility for, among other things, (i) participating in the development of and approving a strategic plan for the Company; (ii) supervising the activities and managing the investments and affairs of the Company; (iii) approving major decisions regarding the Company; (iv) defining the roles and responsibilities of management and delegating management authority to the Chief Executive Officer; (v) reviewing and approving the business and investment objective to be met by management; (vi) assessing the performance of and overseeing management; (vii) reviewing the Company s debt strategy; (viii) identifying and managing risk exposure; (ix) ensuring the integrity and adequacy of the Company s internal controls and management information systems; (x) succession planning; (xi) establishing committees of the Board, where required or prudent, and defining their mandate; (xii) maintaining records and providing reports to shareholders; (xiii) ensuring effective and adequate communication with shareholders, other stakeholders and the public; (xiv) determining the amount and timing of dividends, if any, to shareholders; and (xv) monitoring the social responsibility, integrity and ethics of the Company. The Board will adopt a written position description for the Chair of the Board, which will set out the Chair s key responsibilities, including, as applicable, duties relating to setting Board meeting agendas, chairing Board and shareholder meetings, Director development and communicating with shareholders and regulators. The Board will also adopt a written position description for each of the committee chairs which will set out each of the committee chair s key responsibilities, including duties relating to setting committee meeting agendas, chairing committee meetings and working with the respective committee and management to ensure, to the greatest extent possible, the effective functioning of the committee. The Board will also adopt written position descriptions for the Chief Executive Officer which will set out the key responsibilities of the Chief Executive Officer. The primary functions of the Chief Executive Officer will be to lead management of the business and affairs of the Company, to lead the implementation of the resolutions and the policies of the Board, to supervise day to day management and to communicate with shareholders and regulators. The Board will also develop a mandate for the Chief Executive Officer setting out key responsibilities, including duties relating to the Company s strategic planning and operational direction, Board interaction, succession planning and communication with shareholders. The Chief Executive Officer mandate will be considered by the Board for approval annually. The Company maintains a treasury function at its corporate office under the supervision of its Chief Financial Officer and Corporate Secretary. This group has oversight over all of the Company s domestic and foreign bank accounts and, in conjunction with the Company s local management teams and the Company s legal counsel, ensures that the officers and directors of the Company are familiar with any currency controls or banking issues related to the Company s foreign operations. The Company s subsidiaries in the Republic of Mauritius and South Africa, the Portfolio Advisor and Pactorum are, collectively, well-versed in the differences in the banking systems and controls, as well as business cultures and practices, between Canada and Africa. Their experience, advice and existing banking relationships, together with the advice of the Company s legal counsel, will assist the Company in conducting its banking transactions with reputable African financial institutions in accordance with the Company s internal control over financial reporting obligations. The Company will also adopt a written code of conduct (the Code of Conduct ) that will apply to all Directors, officers, and management of the Company and its subsidiaries. The objective of the Code of Conduct will be to provide guidelines for maintaining the integrity, reputation, honesty, objectivity and impartiality of the Company and its subsidiaries. The Code of Conduct will address conflicts of interest, protection of the Company s assets, confidentiality, fair dealing with securityholders, competitors and employees, insider trading, compliance with laws and reporting any illegal or unethical behaviour. As part of the Code of Conduct, any person subject to the Code of Conduct will be required to avoid or fully disclose interests or relationships that are harmful or detrimental to the Company s best interests or that may give rise to real, potential or the appearance of conflicts of interest. The Board will have the ultimate responsibility for the stewardship of the 82

87 Code of Conduct. The Code of Conduct will also be filed with the Canadian securities regulatory authorities on SEDAR. Other than Directors appointed prior to Closing, which Directors will hold office for a term expiring at the close of the next annual meeting of shareholders or until a successor is appointed, Directors will be elected at each annual meeting of shareholders to hold office for a term expiring at the close of the next annual meeting, or until a successor is duly elected or appointed, and will be eligible for re-election. Nominees will be nominated by the Governance, Compensation and Nominating Committee, in each case for election by shareholders as Directors in accordance with applicable corporate law and will be included in the proxy-related materials to be sent to shareholders prior to each annual meeting of shareholders. The Company does not impose term limits on its Directors as it takes the view that term limits are an arbitrary mechanism for removing Directors which can result in valuable, experienced Directors being forced to leave the Board solely because of length of service. Instead, the Company believes that Directors should be assessed based on their ability to continue to make a meaningful contribution. The Company s annual performance review of directors assesses the strengths and weaknesses of Directors and, in its view, together with annual elections by the shareholders, is a more meaningful way to evaluate the performance of Directors and to make determinations about whether a Director should be removed due to under-performance. Biographical Information Regarding the Directors and Executive Officers of the Company V. Prem Watsa (66) Please see above under The Portfolio Advisor Directors and Officers of the Portfolio Advisor. Paul C. Rivett (49) Please see above under The Portfolio Advisor Directors and Officers of the Portfolio Advisor. Quinn McLean (37) Please see above under The Portfolio Advisor Directors and Officers of the Portfolio Advisor. Christopher Hodgson (55) Mr. Hodgson is the President of the Ontario Mining Association and President of Chris Hodgson Enterprises. Mr. Hodgson previously served as lead director for The Brick Ltd. Mr. Hodgson entered provincial politics in 1994 as the MPP for Haliburton-Victoria-Brock and, following the 1995 general election, was appointed as Ontario s Minister of Natural Resources and Minister of Northern Development and Mines. Between 1995 and 2003, Mr. Hodgson served as Deputy House Leader, Chairman of the Management Board of Cabinet, Commissioner of the Board of Internal Economy and Minister of Municipal Affairs and Housing. Previously, Mr. Hodgson enjoyed a career in municipal government and real-estate development. Mr. Hodgson holds an Honours Bachelor of Arts degree from Trent University. Richard Okello (41) Richard Okello is the co-founder and CEO of Sango Capital Management, an investment company managing two private equity funds. Mr. Okello previously held various roles over 9 years ranging from associate to partner at Bridgewater Associates, the largest global hedge fund. Mr. Okello was also a principal at Makena Capital for 5 years. At Makena Capital, Mr. Okello managed multiple portfolios that were substantially allocated to emerging markets and oversaw the research into new investment ideas. Mr. Okello joined Makena Capital 9 months into its inception when the firm had raised and started to deploy approximately US$8 billion across various asset classes. Today the firm manages US$18 billion around the world. Mr. Okello sits on the boards of several African companies and fund advisory boards as well as the boards of the Human Horizons Foundation, the African Leadership Foundation and Proprietary Capital USA. Mr. Okello was educated in Africa, the U.K. and the U.S., receiving an MBA Hons. from Pace University and an Honours Bachelor of Arts degree in economics and public policy from Swarthmore College. Mr. Okello also attended the United World College of the Atlantic in Wales, United Kingdom. Ndidi Okonkwo Nwuneli (41) Ndidi Nwuneli is the Founder of LEAP Africa, Co-Founder of AACE Food Processing & Distribution, an indigenous agroprocessing company, and a partner at Sahel Capital Management, an advisory and private equity firm focused on the agribusiness sector in West Africa. Ms. Nwuneli is also the director of the African Philanthropy Forum. Ms. Nwuneli was previously a management consultant with McKinsey & Company, working in their Chicago, New York and Johannesburg offices before subsequently returning to Nigeria to serve as the pioneer executive director of the FATE Foundation. Ms. Nwuneli was recognized as a Young Global Leader by the World Economic Forum and received a National Honor 83

88 Member of the Federal Republic from the Nigerian Government. Ms. Nwuneli was listed as one of the 20 Youngest Power African Women by Forbes. Ms. Nwuneli serves on numerous international and local boards including Nestle Nigeria Plc., Nigerian Breweries Plc., Cornerstone Insurance Plc. and Royal DSM Sustainability Board. Ms. Nwuneli holds an M.B.A. from Harvard Business School and an undergraduate degree with honors in Multinational and Strategic Management from the Wharton School of the University of Pennsylvania. Hisham Ezz Al-Arab (60) Hisham Ezz Al-Arab is the Chairman and Managing Director of Commercial International Bank ( CIB ) which he has led since Under his leadership, CIB expanded its leading position, grew its market capitalization from EGP1 billion to EGP78.5 billion, and developed from a wholesale lender into a full-fledged financial institution. Prior to joining CIB, Mr. Ezz Al-Arab was the Managing Director of international investment banks in London, Bahrain, New York, and Cairo. Mr. Ezz Al-Arab received the Euromoney s Award for Excellence and was awarded EMEA Finance African Banking Award in recognition of the distinguished success of CIB in the banking sector under his leadership. Mr. Ezz Al-Arab is the Chairman of the Board of Trustees of the CIB Foundation and has been a director at MasterCard Middle East and Africa s Regional Advisory Board since June 2007, in addition to being a principal member of the American Chamber of Commerce. Mr. Ezz Al-Arab was elected as a member of the board of trustees for the American University in Cairo in November In 2013, Mr. Ezz Al-Arab was also elected as Chairman of the Federation of Egyptian Banks and in 2014, Mr. Ezz Al-Arab became a member of the Institute of International Finance Emerging Markets Advisory Council. Michael Wilkerson (47) Please see above under Mauritius Sub and SA Sub Directors of Mauritius Sub and SA Sub. Guy Bentinck (50) Please see above under Mauritius Sub and SA Sub Directors of Mauritius Sub and SA Sub. Penalties or Sanctions None of the Directors or executive officers of the Company, and to the best of its knowledge, no shareholder holding a sufficient number of securities to affect materially the control of the Company, has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor making an investment decision. Individual Bankruptcies None of the Directors or executive officers of the Company, and to the best of its knowledge, no shareholder holding a sufficient number of securities to affect materially the control of the Company, has, within the 10 years prior to the date of this prospectus, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that individual. Corporate Cease Trade Orders and Bankruptcies Other than as set out below, none of the Directors or executive officers of the Company, and to the best of its knowledge, no shareholder holding a sufficient number of securities to affect materially the control of the Company is, as at the date of this prospectus, or has been within the 10 years before the date of this prospectus, (a) a director, chief executive officer or chief financial officer of any company that was subject to an order that was issued while the existing or proposed director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer, or (b) was subject to an order that was issued after the existing or proposed director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer, or (c) a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or 84

89 trustee appointed to hold its assets. For the purposes of this paragraph, order means a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, in each case, that was in effect for a period of more than 30 consecutive days. Paul C. Rivett was a director of Resolute Forest Products Inc. (formerly AbitibiBowater Inc.) when that company and certain of its Canadian and U.S. subsidiaries filed for protection in Canada under the Companies Creditors Arrangement Act (Canada) ( CCAA ) and for relief under Chapter 11 of the United States Bankruptcy Code ( USBC ) in April On December 9, 2010, that company emerged from creditor protection under the CCAA in Canada and Chapter 11 of the USBC in the United States. Conflicts of Interest V. Prem Watsa, a Director, a director of Fairfax and a director of the Portfolio Advisor, will be required to disclose the nature and extent of his interest in, and is not entitled to vote on, any resolution to approve, any material contract or transaction or any proposed material contract or transaction between the Company and Fairfax or between the Company and the Portfolio Advisor, or any of their affiliates, or any other entity in which Mr. Watsa has an interest (unless the contract or transaction relates to his remuneration or an indemnity on liability insurance). Paul C. Rivett, a Director, an officer of Fairfax and an officer of the Portfolio Advisor, will be required to disclose the nature and extent of his interest in, and is not entitled to vote on, any resolution to approve, any material contract or transaction or any proposed material contract or transaction between the Company and Fairfax or between the Company and the Portfolio Advisor, or any of their affiliates, or any other entity in which Mr. Rivett has an interest (unless the contract or transaction relates to his remuneration or an indemnity on liability insurance). As the Chair of the Board is not an Independent Director, an Independent Director will be appointed as Lead Director in order to ensure appropriate leadership for the Independent Directors. The Lead Director will (i) ensure that appropriate structures and procedures are in place so that the Board may function independently of management of the Company; and (ii) lead the process by which the Independent Directors seek to ensure that the Board represents and protects the interests of all shareholders. The Lead Director, Christopher Hodgson, is also the Chair of the Governance, Compensation and Nominating Committee. Committees of the Board The Board has established two committees: the Audit Committee and the Governance, Compensation and Nominating Committee. All members of the Audit Committee will be persons determined by the Board to be Independent Directors, except for temporary periods in limited circumstances in accordance with National Instrument Audit Committees ( NI ). All of the members of the Governance, Compensation and Nominating Committee will be persons determined by the Board to be Independent Directors. Audit Committee The Audit Committee currently consists of two Directors but will consist of three Directors on Closing, all of whom are or will be persons determined by the Company to be both Independent Directors and financially literate within the meaning of NI The Audit Committee is comprised of Hisham Ezz Al-Arab, who will act as Chair of this committee, Ndidi Okonkwo Nwuneli and a third person to be appointed by the Closing. Each of the Audit Committee members has or will have an understanding of the accounting principles used to prepare financial statements and varied experience as to the general application of such accounting principles, as well as an understanding of the internal controls and procedures necessary for financial reporting. The Board has adopted a written charter for the Audit Committee, in the form set out under Appendix B to this prospectus, which sets out the Audit Committee s responsibilities. The Audit Committee s responsibilities will include: (i) reviewing the Company s procedures for internal control with the Company s auditors and Chief Financial Officer; (ii) reviewing and approving the engagement of the auditors; (iii) reviewing annual and quarterly financial statements and all other material continuous disclosure documents, including the Company s annual information form and management s discussion and analysis; (iv) assessing the Company s financial and accounting personnel; (v) assessing the Company s accounting policies; (vi) reviewing the Company s risk 85

90 management procedures; (vii) reviewing any significant transactions outside the Company s ordinary course of business and any legal matters that may significantly affect the Company s financial statements; (viii) overseeing the work and confirming the independence of the external auditors; and (ix) reviewing, evaluating and approving the internal control procedures that are implemented and maintained by management. The Audit Committee will have direct communication channels with the Chief Financial Officer and the external auditors of the Company to discuss and review such issues as the Audit Committee may deem appropriate. Governance, Compensation and Nominating Committee The Governance, Compensation and Nominating Committee is comprised of three Directors, all of whom are persons determined by the Company to be Independent Directors, and will be charged with reviewing, overseeing and evaluating the corporate governance, compensation and nominating policies of the Company. The Governance, Compensation and Nominating Committee is comprised of Christopher Hodgson, who will act as Chair of this committee, Hisham Ezz Al-Arab and Richard Okello. The Board will adopt a written charter for the Governance, Compensation and Nominating Committee setting out its responsibilities for: (i) assessing the effectiveness of the Board, each of its committees and individual Directors; (ii) overseeing the recruitment and selection of candidates as Directors; (iii) organizing an orientation and education program for new Directors; (iv) considering and approving proposals by the Directors to engage outside advisors on behalf of the Board as a whole or on behalf of the Independent Directors; (v) reviewing and making recommendations to the Board concerning any change in the number of Directors composing the Board; (vi) considering questions of management succession; (vii) administering any purchase plan of the Company and any other compensation incentive programs; (viii) assessing the performance of management of the Company; (ix) reviewing and approving the compensation paid by the Company, if any, to the officers of the Company; and (x) reviewing and making recommendations to the Board concerning the level and nature of the compensation payable to Directors and officers of the Company. Following Closing, it is expected that the Governance, Compensation and Nominating Committee will put in place an orientation program for new Directors under which a new Director will meet with the Chair of the Board and members of the executive management team of the Company. It is anticipated that a new Director will be provided with comprehensive orientation and education as to the nature and operation of the Company and its business, topics related to countries in Africa including the various political, regulatory and economic environments, the role of the Board and its committees, and the contribution that an individual Director is expected to make. The Governance, Compensation and Nominating Committee will be responsible for coordinating development programs for continuing Directors to enable the Directors to maintain or enhance their skills and abilities as Directors as well as ensuring that their knowledge and understanding of the Company and its business remains current. The Company will also retain the services of experienced counsel, with knowledge of the political, regulatory and economic environment in Africa to advise the Board and management on current developments in this region from time to time. The Directors may also visit the operations of portfolio businesses in which the Company invests, from time to time. During such trips, the Directors will have the opportunity to meet with the senior executives responsible for the local operations of the portfolio businesses, attend site visits, meet with government officials, local leaders and stakeholders, and learn about the local business culture and practices. The Governance, Compensation and Nominating Committee will be responsible, along with the Lead Director, for establishing and implementing procedures to evaluate the effectiveness of the Board, committees of the Board and the contributions of individual Board members. The Governance, Compensation and Nominating Committee will also take reasonable steps to evaluate and assess, on an annual basis, directors performance and effectiveness of the Board, Board committees, individual members, the Board Chair and committee Chairs. The assessment will address, among other things, individual director independence, individual director and overall Board skills, and individual director financial literacy. The Board will receive and consider the recommendations from the Governance, Compensation and Nominating Committee regarding the results of the evaluation of the performance and effectiveness of the Board, Board committees and individual members. 86

91 The Directors believe that the members of the Governance, Compensation and Nominating Committee individually and collectively possess the requisite knowledge, skill and experience in governance and compensation matters, including human resource management, executive compensation matters and general business leadership, to fulfill the committee s mandate. All members of the Governance, Compensation and Nominating Committee have substantial knowledge and experience as current and former senior executives of large and complex organizations and on the boards of other publicly traded entities. Directors and Officers Liability Insurance The directors and officers of the Company and its subsidiaries are covered under Fairfax s existing directors and officers liability insurance. Under this insurance coverage, the Company and its subsidiaries will be reimbursed for insured claims where payments have been made under indemnity provisions on behalf of the Directors, the Sub Directors and officers of the Company and its subsidiaries, subject to a deductible for each loss, which will be paid by the Company. Individual Directors, Sub Directors and officers of the Company and its subsidiaries will also be reimbursed for insured claims arising during the performance of their duties for which they are not indemnified by the Company or its subsidiaries. Excluded from insurance coverage are illegal acts, acts which result in personal profit and certain other acts. In the event that the Company is not controlled by Fairfax at any time in the future, the Company expects to obtain its own directors and officers liability insurance. Diversity The Governance, Compensation and Nominating Committee believes that having a diverse Board and senior management team offers a depth of perspective and enhances Board and management operations. The Governance, Compensation and Nominating Committee identifies candidates to the Board and management of the Company that possess skills with the greatest ability to strengthen the Board and management and the Company is focused on continually increasing diversity within the Company. The Governance, Compensation and Nominating Committee does not specifically define diversity, but values diversity of experience, perspective, education, race, gender and national origin as part of its overall annual evaluation of director nominees for election or re-election as well as candidates for management positions. Gender and geography are of particular importance to the Company in ensuring diversity within the Board and management. Recommendations concerning director nominees are, foremost, based on merit and performance, but diversity is taken into consideration, as it is beneficial that a diversity of backgrounds, views and experiences be present at the Board and management levels. As the Company carries on business in foreign jurisdictions, the importance of geographic diversity is essential for Board and management efficiency. The Company, therefore, attempts to recruit and select Board and management candidates that represent both gender diversity and global business understanding and experience. However, the Board does not support fixed percentages for any selection criteria, as the composition of the Board and management is based on the numerous factors established by the selection criteria and it is ultimately the skills, experience, character and behavioral qualities that are most important to determining the value which an individual could bring to the Board or management of the Company. At the senior management level, neither of the two executive officers of the Company is female (0%) and there is currently one female director (12.5%). The Company does not have a formal policy on the representation of women on the Board or senior management of the Company. The Governance, Compensation and Nominating Committee already takes gender into consideration as part of its overall recruitment and selection process in respect of its Board and senior management. However, the Board does not believe that a formal policy will necessarily result in the identification or selection of the best candidates. As such, the Company does not see any meaningful value in adopting a formal policy in this respect at this time as it does not believe that it would further enhance gender diversity beyond the current recruitment and selection process carried out by the Governance, Compensation and Nominating Committee. However, the Board is mindful of the benefit of diversity on the Board and management of the Company and the need to maximize the effectiveness of the Board and management and their respective decision-making abilities. Accordingly, in searches for new directors, the Governance, Compensation and Nominating Committee will consider the level of female representation and diversity on the Board and management and this will be one of several factors used in 87

92 its search process. This will be achieved through continuously monitoring the level of female representation on the Board and in senior management positions and, where appropriate, recruiting qualified female candidates as part of the Company s overall recruitment and selection process to fill Board or senior management positions, as the need arises, through vacancies, growth or otherwise. Where a qualified female candidate can offer the Company a unique skill set or perspective (whether by virtue of such candidate s gender or otherwise), the Governance, Compensation and Nominating Committee anticipates that it would typically select such a female candidate over a male candidate. Where the Governance, Compensation and Nominating Committee believes that a male candidate and a female candidate each offer the Company substantially the same skill set and perspective, such Committee anticipates that it will consider numerous other factors beyond gender and the overall level of female representation in deciding which candidate to offer a position to. Due to the size of the Company, its activities, and its small number of employees, the Company has not yet set measurable objectives for achieving gender diversity. The Company will consider establishing measureable objectives as it develops. REMUNERATION OF DIRECTORS AND SUB DIRECTORS Directors Compensation The Directors compensation program is designed to attract and retain the most qualified individuals to serve on the Board. The Board, through the Governance, Compensation and Nominating Committee, will be responsible for reviewing and approving any changes to the Directors compensation arrangements. In consideration for serving on the Board, each Director that is not an employee of the Company or one of its affiliates will be compensated as indicated below: Type of Fee Director Annual Retainer... Amount $30,000/year No additional retainers or fees will be paid to Directors for acting as Chair of the Board or of any committees, acting as a member of any committee or attendance at Board or committee meetings. The Directors will also be reimbursed for their reasonable out-of-pocket expenses incurred in acting as Directors. In addition, Directors will be entitled to receive remuneration for services rendered to the Company in any other capacity, except in respect of their service as directors of any of the Company s subsidiaries. Directors who are employees of and who receive a salary from the Company or one of its affiliates or subsidiaries will not be entitled to receive any remuneration for their services in acting as Directors, but will be entitled to reimbursement of their reasonable out-of-pocket expenses incurred in acting as Directors. Sub Directors Compensation The Sub Directors compensation program is designed to attract and retain the most qualified individuals to serve on the Mauritius Sub Board and the SA Sub Board. The Company, as the sole shareholder of Mauritius Sub and SA Sub, will be responsible for reviewing and approving any changes to the Sub Directors compensation arrangements. In consideration for serving on the Mauritius Sub Board and the SA Sub Board, each Sub Director that is not an employee of Fairfax, the Company or one of their respective affiliates will be compensated as indicated below: Type of Fee Director Annual Retainer... Amount $3,000/year No additional retainers or fees will be payable to Sub Directors for attendance at meetings or for acting as Chair of the Mauritius Sub Board or SA Sub Board. The Sub Directors will also be reimbursed for their reasonable out-of-pocket expenses incurred in acting as Sub Directors. In addition, Sub Directors will be entitled to receive remuneration for services rendered to Mauritius Sub and SA Sub in any other capacity, except in respect of their service as directors of any of Mauritius Sub s or SA Sub s subsidiaries. Sub Directors who are employees of and who receive a salary from Fairfax, the Company, Mauritius Sub, SA Sub or one of their respective subsidiaries will not be entitled to receive any remuneration for their services in acting as Sub Directors, but will be entitled to reimbursement of their reasonable out-of-pocket expenses incurred in acting as Sub Directors. 88

93 EXECUTIVE COMPENSATION Overview Pursuant to the Investment Advisory Agreement, Fairfax is required to provide a Chief Executive Officer, a Chief Financial Officer and Corporate Secretary to the Company. For so long as the Investment Advisory Agreement remains in effect, all compensation payable to the Chief Executive Officer and the Chief Financial Officer and Corporate Secretary of the Company will be borne by Fairfax (see Fees and Expenses Ongoing Fees and Expenses ). The following discussion describes the significant elements of the expected compensation for the Chief Executive Officer of the Company and the Chief Financial Officer and Corporate Secretary of the Company (the named executive officers or NEOs ), namely, Michael Wilkerson, Chief Executive Officer and Guy Bentinck, Chief Financial Officer and Corporate Secretary. Compensation Discussion and Analysis Named Executive Officers of the Company The following discussion describes the portion of the compensation of the NEOs of the Company. Fairfax will have sole and exclusive responsibility for determining the compensation of the Chief Executive Officer, Chief Financial Officer and Corporate Secretary of the Company. Principal Elements of Compensation The compensation of the named executive officers is anticipated to include three major elements: (a) base salary that will be paid by Fairfax, (b) an annual bonus that will be paid by Fairfax, and (c) long-term equity incentives that will be paid by Fairfax, consisting of awards granted from time to time under Fairfax Africa s equity compensation plan. No additional compensation will be paid to the named executive officers in their capacity as officers of Mauritius Sub and SA Sub. Perquisites and personal benefits are not expected to be a significant element of compensation of the named executive officers. The three principal elements of compensation are anticipated to be as follows: Base salaries. Base salaries are intended to provide an appropriate level of fixed compensation that will assist in employee retention and recruitment. The Company understands from Fairfax that base salaries will be determined on an individual basis, taking into consideration the past, current and potential contribution to success, the position and responsibilities of the named executive officers and competitive industry pay practices for other similar corporations of comparable size. Base salaries will not be paid by the Company. Annual bonuses. Annual bonuses will be discretionary and are not expected to be awarded pursuant to a formal incentive plan. The Company understands from Fairfax that annual bonuses are expected to be a percentage of the annual base salary. There are no individual performance goals or objectives set or evaluated. Annual bonuses will not be paid by the Company. Long-Term Incentives. The Company has established an equity compensation plan. Under the plan, stockrelated awards in the form of options may be made to executive officers. Any awards to the Chief Executive Officer, Chief Financial Officer and Corporate Secretary will be borne by Fairfax for so long as the Investment Advisory Agreement remains in effect. An award made to any individual is on a one-time or infrequent basis, any additional award regularly reflecting an increase in responsibilities, with a general alignment of the aggregate amount of awards to executive officers with comparable degrees of responsibility. A grant decision is made by the Governance, Compensation and Nominating Committee on the recommendation of the Chairman of the Company. The Subordinate Voting Shares underlying these awards are purchased in the market, so that they involve no previously unissued Subordinate Voting Shares and consequently no dilution to shareholders. 89

94 Summary Compensation Table The following table sets out information concerning the expected fiscal 2017 compensation to be earned by, paid to, or awarded to the NEOs. Non-equity incentive plan compensation All other Total Salary (Bonus) (1) compensation compensation Name and principal position Year ($) ($) ($) ($) Michael Wilkerson US$500, US$500,000 Chief Executive Officer (Company) Guy Bentinck US$350, US$350,000 Chief Financial Officer and Corporate Secretary (Company) Note: (1) As this amount is discretionary, it has not been determined as of the date of this prospectus. Employment Agreements, Termination Benefits and Change of Control Benefits The Company will not have any employment agreements with the named executive officers. Non-Management Employee Compensation In addition to the named executive officers described above, the Company expects to directly employ certain non-management employees to assist in the day-to-day operations of the Company. Additionally, Mauritius Sub and SA Sub expect to directly employ certain non-management employees to assist in respect of the operation of the local offices in Mauritius and South Africa. Such employees will be employees of the Company or its subsidiaries, as applicable, and all compensation payable to such employees will be borne by the Company or its subsidiaries, as applicable. The total amount of compensation paid by the Company and its subsidiaries in respect of directors, officers and employees is expected to be less than $1.5 million per annum, in the aggregate. See Fees and Expenses Ongoing Fees and Expenses for more details. INDEBTEDNESS OF DIRECTORS AND OFFICERS None of the directors, executive officers, employees, former directors, former executive officers or former employees of the Company or any of its subsidiaries, and none of their respective associates, is or has within 30 days before the date of this prospectus or at any time since the beginning of the most recently completed financial year been indebted to the Company or any of its subsidiaries or another entity whose indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar agreement or understanding provided by the Company or any of its subsidiaries. PLAN OF DISTRIBUTION General Pursuant to an underwriting agreement dated, 2017 among Fairfax, the Company and the Underwriters (the Underwriting Agreement ), the Company has agreed to sell and the Underwriters have severally agreed to purchase on Closing an aggregate of Subordinate Voting Shares at a price of US$10.00 per Subordinate Voting Shares payable in cash to the Company against delivery of the Subordinate Voting Shares for aggregate gross proceeds of US$. In consideration for their services in connection with the Offering, the Company has agreed to pay the Underwriters a fee equal to US$0.50 per Subordinate Voting Share. However, for the avoidance of doubt, no fee will be payable to the Underwriters in respect of (i) the Substantial Equity Investment, (ii) the Cornerstone Investment or (iii) the Subordinate Voting Shares issued pursuant to the Initial African Investment. As no Underwriters fees or commissions will be payable in respect of Fairfax s Substantial Equity Investment, the Company will, consequently, retain a higher proportion of Fairfax s 90

95 US$ investment in Multiple Voting Shares than would have otherwise been the case had a fee or commission been payable to the Underwriters or otherwise. This will benefit all shareholders of the Company. The Offering Price of US$10.00 per Subordinate Voting Share was determined by negotiation among the Company, Fairfax and the Underwriters and the Underwriters propose to offer the Subordinate Voting Shares initially at the Offering Price. After the Underwriters have made a reasonable effort to sell all of the Subordinate Voting Shares at the price specified on the cover page of this prospectus, the offering price may be decreased and may be further changed from time to time to an amount not greater than that set out on the cover page of this prospectus, and the compensation realized by the Underwriters will be decreased by the amount that the aggregate price paid by the purchasers for the Subordinate Voting Shares is less than the price paid by the Underwriters to the Company. The Underwriters may form a sub-agency group including other qualified investment dealers and determine the fee payable to the members of such group, which fee will be paid by the Underwriters out of their fees. Investors who purchase a minimum of one million Subordinate Voting Shares (US$20 million) under this prospectus will be entitled to a sub-underwriting fee from the Underwriters equal to 40% of the Underwriters fee (or US$0.20 per Subordinate Voting Share) in respect of the Subordinate Voting Shares purchased by such investor under this prospectus. See Certain Canadian Federal Income Tax Considerations Taxation of Resident Holders of Subordinate Voting Shares Payments from Underwriters. The obligation to pay the sub-underwriting fee is an obligation of the Underwriters and neither the Company nor Fairfax is responsible for ensuring that any investor receives this payment from the Underwriters. The Company has granted to the Underwriters the Over-Allotment Option, which is exercisable in whole or in part and at any time for a period of 30 days after Closing to purchase up to an additional 15% of the aggregate number of Subordinate Voting Shares issued under the Offering on the same terms as set forth above solely to cover over-allocations, if any, and for market stabilization purposes. This prospectus also qualifies the grant of the Over-Allotment Option and the distribution of the Subordinate Voting Shares to be delivered upon the exercise of the Over-Allotment Option. A purchaser who acquires Subordinate Voting Shares forming part of the Underwriters over-allocation position acquires such Subordinate Voting Shares under this prospectus, regardless of whether the Underwriters over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases. Under the terms of the Underwriting Agreement, the Underwriters may, at their discretion on the basis of their assessment of the state of the financial markets and upon the occurrence of certain stated events, terminate the Underwriting Agreement. The Underwriters are, however, subject to certain closing conditions severally (and not jointly or jointly and severally) obligated to take up and pay for all of the Subordinate Voting Shares that they have agreed to purchase if any of the Subordinate Voting Shares are purchased under the Underwriting Agreement. The Underwriting Agreement also provides that the obligation of the Underwriters and the Company to close the Offering is conditional on the closing of the Cornerstone Investment, which condition may be waived by the Company and the Underwriters. The Company has applied to have the Subordinate Voting Shares listed on the TSX. Listing of the Subordinate Voting Shares on the TSX is subject to approval by the TSX of the Company s listing application and fulfillment by the Company of all the initial requirements and conditions of the TSX. The TSX has not conditionally approved the listing of the Subordinate Voting Shares and there is no assurance that the TSX will approve the Company s listing application. There is currently no market through which the Subordinate Voting Shares may be sold. Subscriptions for Subordinate Voting Shares will be received subject to rejection or allocation in whole or in part and the right is reserved to close the subscription books at any time without notice. The Closing is expected to occur on, 2017 or such other date as the Company and the Underwriters may agree, but in any event not later than, The Company and Fairfax have agreed to indemnify the Underwriters and their directors, officers, employees and agents against certain liabilities, including, without restriction, civil liabilities under Canadian securities legislation, and to contribute to any payments that the Underwriters may be required to make in respect thereof. 91

96 During a period ending 180 days from Closing, the Company will not offer, sell or issue for sale or resale any Subordinate Voting Shares or Multiple Voting Shares or financial instruments or securities convertible into, or exercisable or exchangeable for, Subordinate Voting Shares or Multiple Voting Shares, or agree to, or announce, any such offer, sale or issuance, except pursuant to the Over-Allotment Option, without the prior written consent of the Lead Underwriter, on behalf of the Underwriters, which consent may not be unreasonably withheld or delayed. The Subordinate Voting Shares have not been, and will not be, registered under the U.S. Securities Act or the securities laws of any state of the United States, subject to certain exemptions thereunder, and may not be offered, sold or delivered, directly or indirectly, in the United States, or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S under the U.S. Securities Act) except pursuant to an exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws. Each Underwriter has agreed that it will not offer or sell Subordinate Voting Shares within the United States, or to, or for the account or benefit of, U.S. Persons, except in transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws. The Underwriting Agreement provides that the Underwriters may re-offer and re-sell the Subordinate Voting Shares that they have acquired pursuant to the Underwriting Agreement in the United States in accordance with Rule 144A under the U.S. Securities Act to, or for the account or benefit of U.S. Persons, to qualified institutional buyers (as defined in Rule 144A under the U.S. Securities Act) who also qualify as qualified purchasers under the U.S. Investment Company Act of 1940 (the Investment Company Act ). In addition, the Underwriting Agreement permits the Underwriters, through their U.S. broker dealer affiliates, to offer Subordinate Voting Shares within the United States to a limited number of accredited investors (as defined in Regulation D under the U.S. Securities Act) who also qualify as qualified purchasers under the Investment Company Act as substituted purchasers to whom the Company may sell Subordinate Voting Shares in transactions that comply with an exemption from the registration requirements of the U.S. Securities Act and in accordance with similar exemptions under applicable state securities laws. The Underwriting Agreement also provides that the Underwriters may offer and sell the Subordinate Voting Shares outside the United States in accordance with Regulation S under the U.S. Securities Act. In addition, until 40 days after the commencement of the Offering, an offer or sale of the Subordinate Voting Shares within the United States by any dealer (whether or not participating in the Offering) may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in accordance with an exemption from registration under the U.S. Securities Act. Price Stabilization, Short Positions and Passive Market Making In connection with the Offering, the Underwriters may over-allocate or effect transactions which stabilize or maintain the market price of the Subordinate Voting Shares at levels other than those which otherwise might prevail on the open market, including: stabilizing transactions; short sales; purchases to cover positions created by short sales; and syndicate covering transactions. Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of the Subordinate Voting Shares while the Offering is in progress. These transactions may also include making short sales of the Subordinate Voting Shares, which involve the sale by the Underwriters of a greater number of Subordinate Voting Shares than they are required to purchase in the Offering. Short sales may be covered short sales, which are short positions in an amount not greater than the Over-Allotment Option, or may be naked short sales, which are short positions in excess of that amount. The Underwriters may close out any covered short position either by exercising the Over-Allotment Option, in whole or in part, or by purchasing Subordinate Voting Shares in the open market. In making this determination, the Underwriters will consider, among other things, the price of Subordinate Voting Shares available for purchase in the open market compared with the price at which they may purchase Subordinate Voting Shares from the Company through the Over-Allotment Option. If, following Closing, the market price of the Subordinate Voting Shares decreases, the short position created by the over-allocation position in Subordinate Voting Shares may be filled through purchases in the market, creating upward pressure on the price of the Subordinate Voting Shares. If, following Closing, the market price of Subordinate Voting Shares increases, the over-allocation position in Subordinate Voting Shares may be filled through the exercise of the Over-Allotment Option in respect of Subordinate Voting Shares at the Offering Price. 92

97 The Underwriters must close out any naked short position by purchasing Subordinate Voting Shares in the open market. A naked short position is more likely to be created if the Underwriters are concerned that there may be downward pressure on the price of the Subordinate Voting Shares in the open market that could adversely affect investors who purchase in the Offering. Any naked short sales will form part of the Underwriters over-allocation position. A purchaser who acquires Subordinate Voting Shares forming part of the Underwriters over-allocation position resulting from any covered short sales or naked short sales will, in each case, acquire such Subordinate Voting Shares under this prospectus, regardless of whether the Underwriters over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases. In addition, in accordance with rules and policy statements of certain Canadian securities regulatory authorities, the Underwriters may not, at any time during the period of distribution, bid for or purchase Subordinate Voting Shares. The foregoing restriction is, however, subject to exceptions where the bid or purchase is not made for the purpose of creating actual or apparent active trading in, or raising the price of, the Subordinate Voting Shares. These exceptions include a bid or purchase permitted under the by-laws and rules of applicable regulatory authorities and the stock exchange, including the Universal Market Integrity Rules for Canadian marketplaces, relating to market stabilization and passive market making activities and a bid or purchase made for and on behalf of a customer where the order was not solicited during the period of distribution. As a result of these activities, the price of the Subordinate Voting Shares may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the Underwriters at any time. The Underwriters may carry out these transactions on any stock exchange on which the Subordinate Voting Shares are listed, in the over-the-counter market, or otherwise. Relationship Between the Company and Certain of the Underwriters RBCDS, Citi, BMO, CIBC, NBF, Scotia, TDSI and Desjardins are affiliates of Canadian chartered banks that are part of a syndicate of lenders that has provided a US$1 billion unsecured revolving credit facility to Fairfax, Scotia and CIBC are affiliates of Canadian chartered banks that are part of a syndicate of lenders that has provided a US$225 million unsecured revolving credit facility to Fairfax India Holdings Corporation, a subsidiary of Fairfax and an affiliate of the Company. Consequently, the Company may be considered a connected issuer of RBCDS, Citi, BMO, CIBC, NBF, Scotia, TDSI and Desjardins under applicable Canadian securities laws. The decision to issue the Subordinate Voting Shares and the determination of the terms of the Offering were made through negotiation between the Company, Fairfax and the Underwriters. The Canadian chartered banks of which RBCDS, Citi, BMO, CIBC, NBF, Scotia, TDSI and Desjardins are affiliates did not have any involvement in such decision or determination although such Canadian chartered banks may be advised of the Offering and the terms thereof. As a consequence of the Offering, each of such Underwriters will receive its proportionate share of the Underwriters fee. Fairfax has informed the Company that Fairfax is and has been in compliance with all material terms and conditions of the foregoing credit facility and that no waiver of any default has occurred thereunder. Non-Certificated Inventory System Other than pursuant to certain exceptions, registration of interests in and transfers of Subordinate Voting Shares held through CDS, or its nominee, will be made electronically through the non-certificated inventory ( NCI ) system administered by CDS. On Closing, the Company, via its transfer agent, will electronically deliver the Subordinate Voting Shares registered in the name of CDS to CDS or its nominee. Subordinate Voting Shares held in CDS must be purchased, transferred and surrendered for redemption through a CDS participant, which includes securities brokers and dealers, banks and trust companies. All rights of shareholders who hold Subordinate Voting Shares in CDS must be exercised through, and all payments or other property to which such shareholders are entitled will be made or delivered by CDS, or the CDS participant through which the shareholder holds such Subordinate Voting Shares. A shareholder participating in the NCI system will not be entitled to a certificate or other instrument from the Company or the Company s transfer agent evidencing that person s interest in or ownership of Subordinate Voting Shares, nor, to the extent applicable, will such shareholder be shown on the records maintained by CDS, except through an agent who is a CDS participant. 93

98 The ability of a beneficial shareholder to pledge such Subordinate Voting Shares or otherwise take action with respect to such shareholder s interest in such Subordinate Voting Shares (other than through a CDS participant) may be limited due to the lack of a physical certificate. FEES AND EXPENSES Fees Payable to the Underwriters The Underwriters fee will be US$0.50 per Subordinate Voting Share (5.0%). No fee will be payable to the Underwriters in respect of (i) Fairfax s Substantial Equity Investment, or (ii) the Cornerstone Investment. See Plan of Distribution. Expenses of the Offering The expenses of the Offering, which are estimated to be US$ (including the costs of incorporating and organizing the Company, the costs of printing and preparing this prospectus, legal expenses, marketing expenses and other out-of-pocket expenses incurred by the Underwriters and certain other expenses), will, together with the Underwriters fee, be paid from the gross proceeds of the Offering. Any amounts paid in connection with the incorporation and organization of the Company or the Offering prior to Closing will be paid by Fairfax and reimbursed by the Company following Closing from the proceeds of the Offering. Expenses of the Initial African Investment The expenses incurred in connection with the negotiation and completion of the Initial African Investment, estimated to be US$, will, together with the Underwriters fee and the expenses of the Offering, be paid from the gross proceeds of the Offering. Administration and Advisory Fee and Performance Fee As compensation for the provision of portfolio administration and investment advisory services to be provided by Fairfax and the Portfolio Advisor, the Company will pay the Administration and Advisory Fee and, if applicable, the Performance Fee, in each case, together with any applicable sales taxes thereon to Fairfax. The administration and advisory fee (the Administration and Advisory Fee ) will be an amount equal to the sum of: (i) 1.5% of the Net Asset Value of the Company less the aggregate fair value of any Undeployed Capital; and (ii) 0.5% of the aggregate fair value of any Undeployed Capital. The Administration and Advisory Fee will be calculated and payable quarterly as of the last business day of each quarter and allocated proportionately, once determined, based on the consolidated assets of the Company, Mauritius Sub, SA Sub and any other subsidiary through which the Company invests from time to time, unless otherwise agreed. The performance fee (the Performance Fee ) will be calculated and accrued quarterly and paid for the period from the Closing Date to December 31, 2019 and for each consecutive three year period thereafter (each a Calculation Period ). The amount of the Performance Fee shall be determined as of the end of the last day of each Calculation Period (each a Determination Date ) with respect to the Multiple Voting Shares and the Subordinate Voting Shares of the Company then outstanding. All calculations with respect to the Performance Fee will be made to four decimal places. The Performance Fee for a Calculation Period, if any, will be paid within 30 days after the Company issues its year-end audited financial statements for the last calendar year of such Calculation Period. The Performance Fee will be allocated proportionately, once determined, based on the consolidated assets of the Company, Mauritius Sub, SA Sub and any other subsidiary through which the Company invests from time to time, and paid by the Company to Fairfax, unless otherwise agreed. The Performance Fee will be payable in cash, or at the option of Fairfax, in Subordinate Voting Shares. If Fairfax elects to have the Performance Fee paid in Subordinate Voting Shares, such election must be made no later than December 15 of the last year of the applicable Calculation Period in respect of which the Performance Fee is to be paid. The number of Subordinate Voting Shares to be issued will be calculated based on market price (the Market Price ), being the volume-weighted average trading price of the Subordinate Voting Shares 94

99 on a recognized stock exchange for the 10 trading days prior to and including the last day of the Calculation Period in respect of which the Performance Fee is to be paid regardless of the actual date of issuance thereof and for purposes of calculating the Performance Fee in respect of subsequent Calculation Periods thereafter will be deemed to be outstanding as of the first day of such Calculation Period regardless of the date of actual issuance. Notwithstanding the foregoing, in respect of the first two Calculation Periods following Closing, in the event that the Subordinate Voting Shares are trading at a Market Price per Subordinate Voting Share that is less than 2 times the NAV per Share as of the last day of the applicable Calculation Period, Fairfax shall receive the Performance Fee, if any, in the form of Subordinate Voting Shares, to the extent permitted under applicable law, stock exchange rules. The Administration and Advisory Fee and the Performance Fee, if any, will be paid to Fairfax. Any portion of such fees to which the Portfolio Advisor is entitled will be paid by Fairfax to the Portfolio Advisor. The Performance Fee for a Calculation Period will be equal to the product of: (a) the weighted average number of Multiple Voting Shares and Subordinate Voting Shares outstanding on the Determination Date for such Calculation Period (calculated before taking into account any Subordinate Voting Shares issuable in payment of a Performance Fee for such Calculation Period), and (b) 20% of the amount by which the sum of: (i) the NAV per Share of the Company at the end of such Calculation Period (calculated before taking into account the Performance Fee payable for the period ending on the Determination Date for such Calculation Period), plus (ii) the total amount of distributions paid on the Multiple Voting Shares and Subordinate Voting Shares during such Calculation Period and all consecutive immediately preceding Calculation Periods, if any, in respect of which no Performance Fee was paid divided by the weighted average number of Multiple Voting Shares and Subordinate Voting Shares outstanding during such Calculation Periods, exceeds the greater of: (i) the High Water Mark, and (ii) the Hurdle per Share. The High Water Mark will be (a) in respect of the initial Calculation Period, the Net Proceeds of the Offerings on the Closing Date, divided by the aggregate number of Multiple Voting Shares and Subordinate Voting Shares outstanding on the Closing Date, and (b) in respect of any Calculation Period thereafter, (x) the highest NAV per Share on any preceding Determination Date for a Calculation Period in respect of which a Performance Fee was paid (calculated after taking into account the Performance Fee, if any, in respect of such Calculation Period, including any Performance Fee which is paid through the issuance of Subordinate Voting Shares) or (y) if no Performance Fee has yet been paid, the High Water Mark in respect of the initial Calculation Period. The Hurdle per Share for a Calculation Period will be equal to the quotient of: (a) the sum of: (x) the product of (1) the weighted average of the Adjusted Capital for the period from the Closing Date to the Determination Date for such Calculation Period, (2) 5%, and (3) the number of years (which need not be an integer) since the Closing Date, and (y) the Adjusted Capital on the Determination Date for such Calculation Period, divided by (b) the number of Multiple Voting Shares and Subordinate Voting Shares outstanding on the Determination Date for such Calculation Period (calculated before taking into account any Subordinate Voting Shares issued in payment of a Performance Fee for such Calculation Period). 95

100 The Adjusted Capital on any date is equal to the net proceeds from the issuance of Multiple Voting Shares and Subordinate Voting Shares on the Closing Date, plus the net proceeds from, or consideration for, all issuances of Multiple Voting Shares and Subordinate Voting Shares (other than on a share conversion) after the Closing Date but on or before such date, less all amounts paid by the Company in connection with any purchase for cancellation of Multiple Voting Shares and Subordinate Voting Shares after the Closing Date but on or before such date. Ongoing Fees and Expenses The Portfolio Advisor and Fairfax will each be responsible for their own day-to-day operating expenses, including in connection with the provision of investment advisory (including sourcing and evaluation of investment opportunities) and portfolio administration services for the Company and its subsidiaries, compensation of their professional staff and the cost of office space, office supplies, communications, telephone, news, quotation and computer equipment, utilities and other normal overhead expenses. The Portfolio Advisor will also bear fees and expenses payable to any sub-advisor. Each of the Company and its subsidiaries will be responsible for its own operating expenses including: (i) all expenses incurred in connection with trading and the acquisition, holding or disposition of investments following recommendation by the Portfolio Advisor, including taxes, brokerage fees and commissions, underwriting commissions and discounts, expenses related to indemnification obligations, and legal, accounting, investment banking, consulting, information services and other professional fees; (ii) all costs and expenses relating to investment transactions that are not consummated after recommendation by the Portfolio Advisor, and legal, accounting, investment banking, consulting, information services and other professional fees related thereto; (iii) entity-level taxes; (iv) all costs and fees relating to the preparation of financial statements, audits, financial and tax reports, portfolio valuations, tax returns and other reports and continuous disclosure materials, including fees and out-of-pocket expenses of any service company retained to provide accounting and bookkeeping services; (v) all ongoing legal and compliance costs and the costs of prosecuting or defending any legal action for or against any of the Company, Mauritius Sub, SA Sub, the Board, the Mauritius Sub Board, the SA Sub Board, any other subsidiary through which the Company invests in African Investments from time to time and its board of directors, the Portfolio Advisor, Fairfax or any of their respective affiliates relating to the affairs of the Company; (vi) compensation of officers and employees (excluding the Chief Executive Officer, the Chief Financial Officer and Corporate Secretary of the Company); (vii) all fees, costs and expenses related to all governmental filings of the Company or its subsidiaries; (viii) expenses of the directors, including directors fees and travel expenses; (ix) expenses related to maintenance of corporate records and books of account, including, without limitation, accounting and auditing fees, disbursements and company secretarial expenses; and (x) expenses related to organization and conduct of directors and shareholders meetings and the preparation and distribution of all reports to, and other communications with, shareholders, expenses related to issuing and transferring shares and paying dividends or making other distributions thereon, extraordinary expenses and other similar expenses. The total amount of compensation to be paid by the Company and its subsidiaries in respect of directors, officers and employees is expected to be less than $1.5 million per annum, in the aggregate. Any arrangements for additional services to be provided to the Company or its subsidiaries by the Portfolio Advisor, Fairfax or any affiliates thereof that have not been described in this prospectus will be on terms that are no less favourable to the Company or its subsidiaries than those available from arm s length persons (within the meaning of the Tax Act) for comparable services, and the Company or such subsidiary, as the case may be, will pay all expenses associated with any such additional services. 96

101 RISK FACTORS An investment in the Company and the Subordinate Voting Shares carries a number of risks, many of which are inherent in the business to be conducted by the Company, including the risk that the entire investment may be lost. In addition to all other information set out in this prospectus, the following specific factors could materially adversely affect the Company and should be considered when deciding whether to make an investment in the Company and the Subordinate Voting Shares. Other risks and uncertainties that the Company does not currently consider to be material, or of which the Company is not currently aware, may become important factors that affect the Company s future financial condition and results of operations. The occurrence of any of the risks discussed below could materially adversely affect the business, prospects, financial condition, results of operations or cash flow of the Company. The Subordinate Voting Shares are only suitable for investors (i) who understand the potential risk of capital loss, (ii) for whom an investment in the Subordinate Voting Shares is part of a diversified investment program, and (iii) who fully understand and are willing to assume the risks involved in such an investment program. Prospective purchasers of Subordinate Voting Shares should carefully consider the following risks before investing in the Company and the Subordinate Voting Shares. Risk Factors Related to the Offering Return on Investment is Not Guaranteed There can be no assurance regarding the amount of income to be generated by the Company s investments. The Subordinate Voting Shares are equity securities of the Company and are not fixed income securities. Unlike fixed-income securities, there is no obligation of the Company to distribute to shareholders a fixed amount or to return the initial purchase price of a Subordinate Voting Share on a date in the future. The market value of the Subordinate Voting Shares will deteriorate if the Company is unable to generate sufficient positive returns, and that deterioration may be significant. Potential Volatility of Subordinate Voting Share Price The market price for Subordinate Voting Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond the Company s control, including the following: (i) actual or anticipated fluctuations in the Company s quarterly results of operations; (ii) recommendations by securities research analysts; (iii) changes in the economic performance or market valuations of other issuers that investors deem comparable to the Company; (iv) addition or departure of the Company s or the Portfolio Advisor s executive officers and other key personnel; (v) release or expiration of lock-up or other transfer restrictions on outstanding Multiple Voting Shares; (vi) sales or perceived sales of additional Multiple Voting Shares or Subordinate Voting Shares; (vii) significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or its competitors; and (viii) news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in the Company s industry or target markets. Financial markets have experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of public entities and that have, in many cases, been unrelated to the operating performance, underlying asset values or prospects of such entities. Accordingly, the market price of the Subordinate Voting Shares may decline even if the Company s operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. As well, certain institutional investors may base their investment decisions on consideration of the Company s environmental, governance and social practices and performance against such institutions respective investment guidelines and criteria, and failure to satisfy such criteria may result in limited or no investment in the Subordinate Voting Shares by those institutions, which could materially adversely affect the trading price of the Subordinate Voting Shares. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue for a protracted period of time, the Company s operations and the trading price of the Subordinate Voting Shares may be materially adversely effected. 97

102 Dilution The issuance of additional Multiple Voting Shares or Subordinate Voting Shares may have a dilutive effect on the interests of Shareholders. The number of Multiple Voting Shares and Subordinate Voting Shares that the Company is authorized to issue is unlimited. The Company may, in its sole discretion, issue additional Multiple Voting Shares or Subordinate Voting Shares from time to time (including pursuant to any equity-based compensation plans that may be introduced in the future), and the interests of Shareholders may be diluted thereby. Absence of a Prior Public Market There is currently no public market for the Subordinate Voting Shares. The Offering Price of the Subordinate Voting Shares offered hereunder has been determined by negotiation between the Company, Fairfax and the Underwriters. The Company cannot predict the price at which the Subordinate Voting Shares will trade upon Closing and there can be no assurance that an active trading market will develop after Closing or, if developed, that such a market will be sustained at the price level of the Offering. In addition, if an active public market does not develop or is not maintained, investors may have difficulty selling their Subordinate Voting Shares. Market Discount The price of the Subordinate Voting Shares will fluctuate with market conditions and other factors. If a holder of Subordinate Voting Shares sells its Subordinate Voting Shares, the price received may be more or less than the original investment. NAV per Share will be reduced immediately following the Offering by offering expenses paid or reimbursed by the Company. The Subordinate Voting Shares may trade at a discount from their book value. The Subordinate Voting Shares may trade at a price that is less than the initial Offering Price. This risk may be greater for investors who sell their Subordinate Voting Shares relatively shortly after Closing. Limited Control Holders of Subordinate Voting Shares will have limited control over changes in the Company s policies and operations, which increases the uncertainty and risks of an investment in the Company. The Board will determine major policies, including policies regarding financing, growth, debt capitalization and any future dividends to Shareholders. Generally, the Board may amend or revise these and other policies without a vote of the holders of Subordinate Voting Shares. Holders of Subordinate Voting Shares will only have a right to vote, as a class, in the limited circumstances described elsewhere in this prospectus. The Board s broad discretion in setting policies and the limited ability of holders of Subordinate Voting Shares to exert control over those policies increases the uncertainty and risks of an investment in the Company. Financial Reporting and Other Public Company Requirements Upon receiving a final receipt for this prospectus, the Company will become subject to reporting and other obligations under applicable Canadian securities laws and rules of any stock exchange on which the Subordinate Voting Shares are then-listed, including National Instrument Certification of Disclosure in Issuers Annual and Interim Filings. These reporting and other obligations will place significant demands on the Company s management, administrative, operational and accounting resources. In order to meet such requirements, the Company has appointed Fairfax, as administrator, pursuant to the Investment Advisory Agreement to, among other things, establish systems, implement financial and management controls, reporting systems and procedures and hire qualified accounting and finance staff. However, if the Company or Fairfax is unable to accomplish any such necessary objectives in a timely and effective manner, the Company s ability to comply with its financial reporting obligations and other rules applicable to reporting issuers could be impaired. Moreover, any failure to maintain effective internal controls could cause the Company to fail to satisfy its reporting obligations or result in material misstatements in its financial statements. If the Company cannot provide reliable financial reports or prevent fraud, its reputation and operating results could be materially adversely effected which could also cause investors to lose confidence in the Company s reported financial information, which could result in a reduction in the trading price of the Subordinate Voting Shares. 98

103 The Company does not expect that the Company s disclosure controls and procedures and internal controls over financial reporting will prevent all error or fraud. A control system, no matter how well-designed and implemented, can provide only reasonable, not absolute, assurance that the control system s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within an organization are detected. The inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of certain persons, by collusion of two or more people or by management override of the controls. Due to the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all. Broad Discretion Over the Use of Proceeds From the Offering The Company will have significant discretion as to the use of the Net Proceeds of the Offerings and could spend the proceeds in ways that do not enhance the value of the Subordinate Voting Shares. For example, the Company s investment of these net proceeds may not yield a favourable rate of return, or may even be lost in their entirety if the businesses in which the Company invests were to fail. Limited Voting Rights of the Subordinate Voting Shares Holders of Subordinate Voting Shares and Multiple Voting Shares will generally have similar rights, except that holders of Subordinate Voting Shares will be entitled to one vote per Subordinate Voting Share whereas holders of Multiple Voting Shares will be entitled to fifty votes per Multiple Voting Share. The different voting rights of the Subordinate Voting Shares and Multiple Voting Shares could diminish the value of the Subordinate Voting Shares to the extent that investors or any potential future purchasers of Subordinate Voting Shares attribute value to the superior voting or other rights of the Multiple Voting Shares. Significant Ownership by Fairfax May Adversely Affect the Market Price of the Subordinate Voting Shares On Closing, it is expected that Fairfax, either directly or through one or more subsidiaries, will hold a % voting interest in the Company through ownership of all of the Multiple Voting Shares (or an approximate % voting interest in the Company if the Over-Allotment Option is exercised in full). For so long as Fairfax, either directly or through one or more subsidiaries, maintains a significant voting interest in the Company, Fairfax will have the ability to exercise substantial influence with respect to the Company s affairs and significantly affect the outcome of shareholder votes, and may have the ability to prevent certain fundamental transactions. Accordingly, the Subordinate Voting Shares may be less liquid and trade at a relative discount compared to such Subordinate Voting Shares in circumstances where Fairfax did not have the ability to significantly influence or determine matters affecting the Company. Additionally, Fairfax s significant voting interest in the Company may discourage transactions involving a change of control of the Company, including transactions in which an investor, as a holder of Subordinate Voting Shares, might otherwise receive a premium for its Subordinate Voting Shares over the then-current market price. It is Possible that the Cornerstone Investment Will Fail to Close Although the Company has entered into subscription or purchase agreements with the Cornerstone Investors, there is no guarantee that all of the conditions to the completion of the Cornerstone Investment will be satisfied. Although the closing of the Cornerstone Investment is conditional upon the Closing of the Offering, it is possible that the Offering could close without the Cornerstone Investment also closing to the extent that the Company and the Underwriters waive such condition. In those circumstances, the Company will not have access to the aggregate net proceeds from the Cornerstone Investment but would only have access to the net proceeds from the Offering (together with the proceeds from the issuance of the Multiple Voting Shares). Such a lack of financing may adversely affect the Company s business, financial condition, results of operations and the market price of the Company s securities. 99

104 Investment Company Act The Company, were it to publicly offer the Subordinate Voting Shares in the United States, likely would be considered an investment company subject to registration and regulation under the Investment Company Act. The Company has taken various steps so as to qualify for an exemption from registration pursuant to Section 3(c)(7) of the Investment Company Act. So long as the Company continues to be so exempt, the investor protections under the Investment Company Act will not apply to the Company. If that exemption were not available, the Company could be required to significantly restructure or restrict its activities. Canadian Tax-Related Risk Factors Taxation of the Company The Company will be subject to tax in each taxation year under Part I of the Tax Act on the amount of its income for the year including income that is deemed to accrue to it in respect of the FAPI of any of its CFAs. To the extent that any CFA of the Company, including Mauritius Sub and SA Sub, earns income that is characterized as FAPI in a particular taxation year of the CFA, the FAPI of the CFA allocable to the Company must be included in computing the income of the Company for Canadian federal income tax purposes for the fiscal year of the Company in which the taxation year of the CFA ends, whether or not the Company actually receives a distribution of that FAPI. The Company, Mauritius Sub and SA Sub are anticipated to earn FAPI in respect of certain interest, dividends and capital gains received from investments including, in certain circumstances, FAPI which arises from deemed income under section 94.1 of the Tax Act. As the Company and its subsidiaries will invest in investment securities issued by foreign issuers, the Company and its subsidiaries may be subject to foreign withholding taxes in respect of payments received or deemed to be received from such investments for which they may be unable to obtain relief in the form of deductions or credits from taxes otherwise payable. Taxation of Mauritius Sub and SA Sub It is assumed that Mauritius Sub and SA Sub will, at all times, be non-residents of Canada for purposes of the Tax Act. Mauritius Sub and SA Sub, however, have directors who are resident in Canada. A corporation that has its mind and management in Canada will be considered to be resident in Canada for Canadian federal income tax purposes. The Company intends to operate each of Mauritius Sub and SA Sub to ensure that its mind and management does not reside in Canada and that it does not carry on business in Canada. However, no assurances with respect to factual determinations such as this can be given by the Company s legal counsel. If Mauritius Sub or SA Sub were found to be resident in Canada, Mauritius Sub or SA Sub, as the case may be, would be subject to tax in Canada on its worldwide income. If Mauritius Sub or SA Sub were found to carry on business in Canada, Mauritius Sub or SA Sub, as the case may be, would be subject to tax in Canada on its income in respect of its business carried on in Canada, unless in the case of S.A. Sub, such income would be excluded by the DTA between Canada and South Africa. Risk Factors Related to the Business of the Company Newly-Formed Company With No Operating History or Revenues The Company is a recently formed company with no operating results, and will not commence operations until it receives the Net Proceeds of the Offerings. As the Company lacks an operating history, there is a very limited basis upon which a potential investor can evaluate the Company s ability to achieve its stated investment objective. Other than the Initial African Investment, the Company currently has no plans, arrangements or understandings with any prospective investment and may be unable to complete additional African Investments following Closing. If the Company fails to invest in additional businesses following Closing, such uninvested funds will principally be invested in Permitted Investments which are not expected to generate significant operating revenues. 100

105 Substantial Loss of Capital The investments to be made by the Company are speculative in nature and purchasers of Subordinate Voting Shares under this prospectus could experience a loss of all or substantially all of their investment in the Company. There can be no assurance that the Company will be able to make and realize investments or generate positive returns. There can also be no assurance that the returns generated, if any, will be commensurate with the risks of investing in the types of investments contemplated by the Company s investment objectives. As such, an investment in the Company should only be considered by persons who can afford a loss of their entire investment. Shareholders Are Not Entitled to Vote on the Company s Proposed Investments In determining how best to invest the Net Proceeds of the Offerings, the Company will be relying on the Portfolio Advisor to source and identify suitable investments. Accordingly, holders of Subordinate Voting Shares will not be afforded the opportunity to either approve or oppose an investment opportunity of the Company. Thus, the Company may consummate any such investment even if a majority of the holders of its outstanding equity securities do not favour the particular investment. Long-Term Nature of Investment An investment in Subordinate Voting Shares requires a long-term commitment with no certainty of return. Most investments to be made by the Company are not expected to generate current income. Therefore, the return of capital to the Company and the realization of gains, if any, from the Company s investments will generally occur only upon the partial or complete realization or disposition of such investment. While an investment of the Company may be realized or disposed of at any time, it is generally expected that the ultimate realization or disposition of most of the Company s investments will not occur for a number of years after each such investment is made. Limited Number of Investments Subject to the Investment Concentration Restrictions, the Company may own relatively few investments. Consequently, the Company s aggregate returns may be significantly adversely affected if one or more significant investments perform poorly or if the Company needs to write-down the value of any one significant investment. Geographic Concentration of Investments The Company intends to invest all of the Net Proceeds of the Offerings in various investment opportunities in Africa and in African businesses or other businesses with customers, suppliers or business primary conducted in, or dependent on, Africa. As a result, the Company s performance will be particularly sensitive to economic changes in the countries in Africa in which it invests. The market value of the Company s investments, the income generated by the Company and the Company s performance will be particularly sensitive to changes in the economic condition and regulatory environment in the countries in Africa in which it invests. Adverse changes in the economic condition or regulatory environment of the countries in Africa in which it invests may have a material adverse effect on the Company s business, cash flows, financial condition and results of operations. Potential Lack of Diversification Although the Company s investments are required to be in Africa and African businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, Africa, the Company does not have any specific limits on investments in businesses in any one industry or size of business. Accordingly, the Company s investments may be more susceptible to fluctuations in value resulting from adverse economic conditions affecting a particular industry or segment of business in the countries in Africa in which it invests than would be the case if the Company were required to satisfy certain investment guidelines relating to business diversification. 101

106 Financial Market Fluctuations The Company intends to invest in both private businesses and publicly traded businesses. With respect to publicly traded businesses, fluctuations in the market prices of such securities may negatively affect the value of such investments. In addition, general instability in the public debt market and other securities markets may impede the ability of businesses to refinance their debt through selling new securities, thereby limiting the Company s investment options with regard to a particular portfolio investment. Global capital markets have experienced extreme volatility and disruption in recent years as evidenced by the failure of major financial institutions, significant write-offs suffered by the financial services sector, the re-pricing of credit risk, the unavailability of credit or the downgrading and the possibility of default by sovereign issuers, forced exit or voluntary withdrawal of countries from a common currency and/or devaluation. Despite actions of government authorities, these events have contributed to a worsening of general economic conditions, high levels of unemployment in Western economies and the introduction of austerity measures by governments. Such worsening of financial market and economic conditions may have a negative effect on the valuations of, and the ability of the Company to exit or partially divest from, investment positions. Adverse economic conditions may also decrease the value of collateral securing some of its positions, and require the Company to contribute additional collateral. Depending on market conditions, the Company may incur substantial realized and unrealized losses in future periods, all of which may materially adversely affect its results of operations and the value of any investment in the Company. Pace of Completing Investments The Company s business is to identify, with the assistance of the Portfolio Advisor, suitable investment opportunities, pursuing such opportunities and consummating such investments opportunities. If the Company is unable to source and manage its investments effectively, it would adversely impact the Company s financial position and results of operation. There can be no assurance as to the pace of finding and implementing investment opportunities. Conversely, there may only be a limited number of suitable investment opportunities at any given time. This may cause the Company, while it deploys cash proceeds (from the Offering, from future inflows of capital, or otherwise) not yet invested, to hold significant levels of Permitted Investments. A lengthy period prior to which capital is deployed may adversely affect the Company s overall performance. Control or Significant Influence Position Risk Although non-control investments may also be made, the Company generally intends, subject to compliance with applicable law, to make investments that allow the Company to acquire control or exercise significant influence over management and the strategic direction of a business. The exercise of control over a business imposes additional risks of liability for environmental damage, product defects, failure to supervise management and other types of liability in which the limited liability characteristic of business operations may be ignored. The exercise of control over an investment could expose the assets of the Company to claims by such businesses, its shareholders and its creditors. While the Company intends to manage its investments in a manner that will minimize the exposure to these risks, the possibility of successful claims cannot be precluded. Minority Investments The Company may make minority equity investments in businesses in which the Company does not participate in the management or otherwise control the business or affairs of such businesses. The Company will monitor the performance of each investment and maintain an ongoing dialogue with each businesses management team. However, it will be primarily the responsibility of the management of the business to operate the business on a day-to-day basis and the Company may not have the right to control such business. 102

107 Ranking of Company Investments and Structural Subordination The Company will invest in public and private equity securities and debt instruments. Portfolio investments may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which the Company invests. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which the Company is entitled to receive payments with respect to the debt instruments in which the Company invests. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio business, holders of debt instruments ranking senior to the Company s investment in that portfolio business would typically be entitled to receive payment in full before the Company receives any distribution. After repaying such senior creditors, such portfolio business may not have any remaining assets to use to repay its obligation to the Company. In the case of debt ranking equally with debt instruments in which the Company invests, the Company would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio business. Follow-On Investments Following the initial investment in a business, the Company may be called upon to provide additional funds or have the opportunity to increase its investment in such business through the exercise of a warrant or other right to purchase securities or to fund additional investments through such business. There is no assurance that the Company will make follow-on investments or that the Company will have sufficient funds to make any such investment. Even if the Company has sufficient capital to make a desired follow-on investment, the Company may elect not to make such investment, as the Company may not want to increase its level of risk, the Company may prefer other opportunities or the Company may be restricted from doing so under its investment guidelines. Any decision by the Company not to make follow-on investments or its inability to make such follow-on investments may have a negative impact on the portfolio business in need of such investment, may result in a missed opportunity for the Company to increase its participation in a successful operation or may reduce the expected return on the investment. Prepayments of Debt Investments Debt investments made by the Company may be repaid or prepaid by portfolio businesses prior to maturity. When this occurs, the Company will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio businesses. These temporary investments will typically have substantially lower yields than the debt being prepaid and the Company could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio business may also be at lower yields than the debt that was repaid. As a result, the Company s results of operations could be materially adversely affected if one or more portfolio businesses elect to prepay amounts owed to the Company. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making the security less likely to be an income-producing instrument. Additionally, prepayments, net of prepayment fees (if any), could negatively impact the Company s return on equity. Risks upon Dispositions of Investments In connection with the disposition of an investment in a business, the Company may be required to make representations about the business and financial affairs of the business, or may be responsible as a selling stockholder for the contents of disclosure documents under applicable securities laws. The Company may also be required to indemnify the borrowers, investors or purchasers of such investment or underwriters to the extent that any such representation turns out to be incorrect, inaccurate or misleading. Bridge Financings From time to time, the Company may lend to businesses on a short-term, unsecured basis in anticipation of a future issuance of equity or long-term securities. Such bridge loans will typically be convertible into a more permanent, long-term security. It is possible, however, for reasons not always in the Company s control, that such long-term securities may not be issued and such bridge loans may remain outstanding. In such event, the 103

108 interest rate on such loans may not adequately reflect the risk associated with the unsecured position taken by the Company. Reliance on Key Personnel and Risks Associated with the Investment Advisory Agreement The management and governance of the Company depends on the services of certain key personnel, including the Portfolio Advisor, Fairfax, as administrator, and certain executive officers of the Company. The loss of the services of any key personnel, particularly V. Prem Watsa, Quinn McLean and Michael Wilkerson, could have a material adverse effect on the Company and materially adversely affect the Company s financial condition and results of operations. The Company will rely on the Portfolio Advisor and any of its sub-advisors or consultants, from time to time, including Pactorum, with respect to the sourcing and advising, as applicable, with respect to their investments. Consequently, the Company s ability to achieve its investment objectives depends in large part on the Portfolio Advisor and its ability to identify and advise the Company on attractive investment opportunities. This means that the Company s investments are dependent upon the Portfolio Advisor s business contacts, its ability to successfully hire, train, supervise and manage its personnel and its ability to maintain its operating systems. If the Company were to lose the services provided by the Portfolio Advisor or its key personnel or if the Portfolio Advisor fails to satisfactorily perform its obligations under the Investment Advisory Agreement, the Company s investments and growth prospects may decline. The Company may be unable to duplicate the quality and depth of management from the Portfolio Advisor if the Company were to source and manage its own investments or if it were to hire another investment advisor. Prospective investors should not purchase any securities of the Company unless they are prepared to rely on the Directors, the Sub Directors, each of their respective executive officers and the Portfolio Advisor. The Investment Advisory Agreement may be terminated in certain circumstances and is only renewable on certain conditions. Accordingly, there can be no assurance that the Company will continue to have the benefit of the Portfolio Advisor s services, or Fairfax s services, including their respective executive officers, that the Portfolio Advisor will continue to be the Company s investment advisor or that Fairfax will continue to provide investment administration services. If the Portfolio Advisor should cease for whatever reason to be the investment advisor of the Company or Fairfax should cease to provide investment administration services to the Company, the cost of obtaining substitute services may be greater than the fees the Company will pay the Portfolio Advisor and Fairfax under the Investment Advisory Agreement. Such increased fees may adversely affect the Company s ability to meet its objectives and execute its strategy that could materially and adversely affect the Company s cash flows, operating results and financial condition. Effect of Fees The Company will be required to pay the Administration and Advisory Fee (which includes the Performance Fee, if any) to Fairfax. From time to time, the payment of such fees will reduce the actual returns to holders of Subordinate Voting Shares. A portion of these fees will be payable to Fairfax regardless of whether the Company produces positive investment returns. Performance Fee could induce Fairfax to make Speculative Investments The Performance Fee that may be payable to Fairfax may create an incentive for the Portfolio Advisor to make or recommend investments that are more speculative or involve more risk than would be the case in the absence of such a compensation arrangement. The way in which the Performance Fee payable is determined (calculated as a percentage of the return above a certain amount on invested capital) may encourage the Portfolio Advisor to use or recommend the use of leverage to increase the return on the Company s investments. Increased use of leverage and the corresponding increased risk of replacement of that leverage at maturity could increase the likelihood of default by the Company, and could materially and adversely affect the Company s cash flows, operating results and financial condition. 104

109 Operating and Financial Risks of African Investments Businesses in which the Company invests could deteriorate as a result of, among other factors, an adverse development in their business operations, a change in the competitive environment or an economic downturn. As a result, businesses that the Company expects to be stable may operate at a loss or have significant variations in operating results, may require substantial additional capital to support their operations or to maintain their competitive position, or may otherwise have a weak financial condition or experience financial distress. In some cases, the success of the Company s investment strategy will depend, in part, on the ability of the Company to restructure and effect improvements in the operations of a business in which it has invested. The activity of identifying and implementing restructuring programs and operating improvements at businesses entails a high degree of uncertainty. There can be no assurance that the Company will be able to successfully identify and implement such restructuring programs and improvements. Allocation of Personnel The Portfolio Advisor s officers and employees will not be able to devote all of their business time and attention to the Company as they will continue to be involved in the operations of the Portfolio Advisor s other lines of business. The Portfolio Advisor s officers and employees will devote such time and attention to the business of the Company as they reasonably consider necessary to effectively carry out the operations of the Company and satisfactorily perform its obligations under the Investment Advisory Agreement. Potential Conflicts of Interest The Company will rely on the Portfolio Advisor s expertise in identifying and advising on investment opportunities, transaction execution and asset management capabilities. The Portfolio Advisor also provides similar services to other subsidiaries of Fairfax. The advisory services to be provided by the Portfolio Advisor under the Investment Advisory Agreement are to be provided on a non-exclusive basis to the Company and its subsidiaries, and accordingly, there are no restrictions on the Portfolio Advisor from providing similar services to other entities, including Fairfax and its subsidiaries, or from engaging in other activities in the future (whether or not their investment objectives, strategies and policies are similar to those of the Company). The Company acknowledges that the Portfolio Advisor will allocate investment opportunities among the Company and its subsidiaries and the Portfolio Advisor s other portfolio clients in accordance with the Portfolio Advisor s fair allocation policy (see The Portfolio Advisor Fair Allocation ). As a result of this fair allocation policy, the Company may, from time to time, be precluded from participating in an investment opportunity available to the Portfolio Advisor that would otherwise be compatible with the Company s investment objectives and restrictions. In addition, although allocation of investment opportunities will be made in accordance with the Portfolio Advisor s fair allocation policy, the Portfolio Advisor may encounter conflicts of interest when allocating investment opportunities among the Company and the Portfolio Advisor s other portfolio clients. The Portfolio Advisor is not restricted from forming additional investment funds, entering into other investment advisory relationships, exercising investment responsibility, engaging in other business (or non-business) activities or directly or indirectly purchasing, selling, holding or otherwise dealing with any securities for the account of any such other business or for other portfolio clients (including, without limitation, for or on behalf of clients that invest or may invest in the Company). These activities, including the establishment of other investment funds that may be more, similarly or less concentrated than the Company, may be in competition with the Company or involve substantial time and resources of the Portfolio Advisor, and may give rise to additional conflicts of interest. Furthermore, certain African investments of Fairfax, each of which are comprised of their own management teams, will continue to operate their existing businesses as they see fit and pursue additional African investment opportunities for themselves as they may desire. Such competition may increase the cost of investment opportunities that are of interest to the Company, increase competition for those investment opportunities generally or inhibit their consummation altogether. In addition, the Sub Directors will, from time to time, in their individual capacities, deal with parties with whom the Company or its subsidiaries may be dealing, or may be seeking investments similar to those desired by the Company or its subsidiaries. It is possible that the interests of these persons could conflict with those of the Company or its subsidiaries. 105

110 Conflicts may also exist due to the fact that certain Directors will be affiliated with the Portfolio Advisor. While the Company and the Portfolio Advisor will enter into certain arrangements, the Portfolio Advisor and its affiliates are engaged in a wide variety of business activities, and the Company may, consequently, become involved in transactions that conflict with the interests of the Portfolio Advisor and/or its affiliates. Applicable corporate law contains conflict of interest provisions requiring the Directors to disclose their interests in certain contracts and transactions and to refrain from voting on those matters. The Liability of the Portfolio Advisor is Limited and the Company and the Portfolio Advisor have not been Represented by Separate Legal Counsel Under the Investment Advisory Agreement, the Portfolio Advisor does not assume any responsibility other than to perform the obligations, duties and responsibilities described in the Investment Advisory Agreement. As a result, the right of the Company to recover against the Portfolio Advisor may be limited to damages arising out of the performance or non-performance of the responsibilities explicitly set forth in the Investment Advisory Agreement. In addition, the Investment Advisory Agreement contains provisions exonerating the Portfolio Advisor and related persons from liability in connection with the performance of obligations under the Investment Advisory Agreement or indemnifying the Portfolio Advisor or related persons under certain circumstances, even if the Portfolio Advisor has been negligent. These protections from liability may result in the Portfolio Advisor tolerating greater risks when making investment-related decisions or providing investmentrelated advice than would otherwise be the case, including when determining whether to use or advise with respect to leverage in connection with investments. See The Portfolio Advisor Investment Advisory Agreement. The Company and the Portfolio Advisor have not been represented by separate legal counsel in connection with the structuring of the Company, its operations, contractual relationships and the Offering, and such terms have not been negotiated at arm s length. Employee Misconduct at the Portfolio Advisor Could Harm the Company There is a risk that employees of the Portfolio Advisor could engage in misconduct that adversely affects its reputation, business and ability to successfully execute its investment strategy and that, in turn, may harm the operations and financial condition of the Company. The Portfolio Advisor s business often requires that it deal with confidential matters relating to companies on which it may provide advice or invest. It is not always possible to detect or deter employee misconduct, and the precautions the Portfolio Advisor takes to detect and prevent these types of activities may not be effective in all cases. If any of the Portfolio Advisor s employees were to engage in misconduct or were to be accused of such misconduct, whether or not substantiated, the Portfolio Advisor s business and reputation could be adversely affected and a loss of investor confidence could result, which could materially adversely affect the Company. Valuation Methodologies Involve Subjective Judgments For purposes of IFRS-compliant financial reporting, the Company s assets and liabilities will be valued in accordance with IFRS. Accordingly, the Company is required to follow a specific framework for measuring the fair value of its assets and liabilities and, in its audited financial statements, to provide certain disclosures regarding the use of fair value measurements. The fair value measurement accounting guidance establishes a hierarchal disclosure framework that ranks the observability of market inputs used in measuring financing instruments at fair value. The observability of inputs depends on a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a high degree of market price observability and less judgment applied in determining fair value. A portion of the Company s portfolio investments will be in the form of securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable. The Company will value these securities quarterly at fair value as determined in good faith by the 106

111 Company and in accordance with the valuation policies and procedures described under Calculation of Total Assets and Net Asset Value. However, the Company may be required to value its securities at fair value as determined in good faith by its Board to the extent necessary to reflect significant events affecting the value of its securities. The Company may utilize the services of an independent valuation firm to aid it in determining the fair value of these securities. The types of factors that may be considered in fair value pricing of the Company s investments include the nature and realizable value of any collateral, the portfolio business ability to make payments and its earnings, the markets in which the portfolio investment does business, comparison to publicly traded companies, discounted cash flow and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, such valuations may fluctuate over short periods of time and may be based on estimates, and the Company s determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. The value of the Company s Total Assets could be materially adversely affected if the Company s determinations regarding the fair value of its investments were materially higher than the values that it ultimately realizes upon the disposition of such securities. The value of the Company s portfolio may also be affected by changes in accounting standards, policies or practices. From time to time, the Company will be required to adopt new or revised accounting standards or guidance. It is possible that future accounting standards that the Company is required to adopt could change the valuation of the Company s assets and liabilities. Due to a wide variety of market factors and the nature of certain securities to be held by the Company, there is no guarantee that the value determined by the Company or any third-party valuation agents will represent the value that will be realized by the Company on the eventual disposition of the investment or that would, in fact, be realized upon an immediate disposition of the investment. Moreover, the valuations to be performed by the Company or any third-party valuation agents are inherently different from the valuation of the Company s securities that would be performed if the Company were forced to liquidate all or a significant portion of its securities, which liquidation valuation could be materially lower. Lawsuits The Company may, from time to time, become party to a variety of legal claims and regulatory proceedings in Canada, Africa, Mauritius or elsewhere. The existence of such claims against the Company or its affiliates, directors or officers could have various adverse effects, including the incurrence of significant legal expenses defending such claims, even those claims without merit. The Company intends to manage day-to-day regulatory and legal risk primarily by implementing appropriate policies, procedures and controls. Internal and external legal counsel are also expected to work closely with the Company to identify and mitigate areas of potential regulatory and legal risk. Foreign Currency Fluctuation All of the Company s portfolio investments, once completed, will be made in Africa and African businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, Africa, or in Permitted Investments, and the financial position and results for these investments are expected to be principally denominated in currencies other than the United States dollar (other than Permitted Investments). The Company s functional and reporting currency is the United States dollar. Accordingly, the revenues and expenses of such African Investments will be translated at average rates of exchange in effect during the applicable reporting period. Assets and liabilities will be translated at the exchange rates in effect at the balance sheet date. As a result, the Company s consolidated financial position is subject to foreign currency fluctuation risk, which could materially adversely impact its operating results and cash flows. Although the Company may enter into currency hedging arrangements in respect of its foreign currency cash flows, there can be no assurance that the Company will do so or, if they do, that the full amount of the foreign currency exposure will be hedged at any time. 107

112 Derivative Risks The Company may employ hedging techniques to minimize certain investment risks, such as fluctuations in interest and currency exchange rates, but the Company can offer no assurance that such strategies will be effective. If the Company engages in hedging transactions, it may expose itself to risks associated with such transactions. The Company may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of the Company s portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of the Company s portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that the Company is not able to enter into a hedging transaction at an acceptable price. The degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, the Company may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent the Company from achieving the intended hedge and expose the Company to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-u.s. currencies. While the Company has no current intention of engaging in any of the hedging transactions described above, it nonetheless reserves the right to do so in the future. Unknown Merits and Risks of Future Investments As the Company has only identified or approached the Initial African Investment and no other specific target businesses in which to invest, there is no basis for a potential investor to evaluate the possible merits or risks of future target business operations, results of operations, cash flows, liquidity, financial condition or prospects. Although the Company s officers, directors and the Portfolio Advisor will endeavour to evaluate the risks inherent in a particular investment, there can be no assurance that the Company or the Portfolio Advisor will properly ascertain or assess all of the significant risks. Furthermore, some of these risks may be outside of the Company s control and leave the Company with no ability to control or reduce the chances that those risks will adversely impact a target business. Opinions From Independent Investment Banks or Accounting Firms Are Not Contemplated The Company is not required to obtain an opinion from an independent investment banking or accounting firm that the price the Company is paying for a particular investment is fair to the Company from a financial point of view. If no such opinion is obtained, holders of Subordinate Voting Shares will be relying on the judgment of the Board, its executive officers and the Portfolio Advisor, who will determine fair market value based on standards generally accepted by the financial community. Except as required by law, the Company has no intention of obtaining an opinion from an independent investment banking or accounting firm prior to making each of its investments. Resources Could Be Wasted In Researching Investment Opportunities That Are Not Ultimately Completed The Company anticipates that the investigation of each specific investment opportunity that has been recommended by the Portfolio Advisor and the negotiation, drafting and execution of the relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, lawyers and others. In the event that the Company elects not to complete a specific investment, the costs incurred up to that point for the proposed transaction are not likely to be recoverable by the Company. Furthermore, in the event that the Company reaches an agreement relating to a specific investment, it may fail to complete such an investment for any number of reasons, including those 108

113 beyond the Company s control. Any such occurrence will similarly likely result in a loss to the Company of the related costs incurred for accountants, lawyers and others. Investments May Be Made In Foreign Private Businesses Where Information Is Unreliable or Unavailable In pursuing the Company s investment strategy, the Company will make one or more investments in privately-held businesses. As minimal public information exists about private businesses, the Company could be required to make investment decisions on whether to pursue a potential investment in a private business on the basis of limited information, which may result in an investment in a business that is not as profitable as the Company initially suspected, if at all. Investments in private businesses pose certain incremental risks as compared to investments in public businesses, including that they: have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress; may have limited financial resources and may be unable to meet their obligations under their debt securities that the Company may hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of the Company realizing any guarantees that it may have obtained in connection with its investment; may have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors actions and changing market conditions, as well as general economic downturns; are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on a portfolio investment and, as a result, the Company; and generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. Material, Non-Public Information The Company may substantially participate in or influence the conduct, affairs or management of portfolio businesses in which it invests. Directors, officers, employees, designees, associates or affiliates of the Company may, from time to time, serve as directors of, or in a similar capacity with, businesses in which the Company invests. By reason of their responsibilities in connection with these and other activities, certain Company, Portfolio Advisor personnel or advisors may acquire confidential or material non-public information or be restricted from initiating transactions in certain securities. The Company will not be free to act upon any such information. In addition, these individuals may become subject to trading restrictions pursuant to the internal trading policies of such businesses. Due to these restrictions, the Company may not be able to initiate a transaction that it otherwise might have initiated and may not be able to sell an investment that it otherwise might have sold. Conversely, the Company may not have access to material non-public information in the possession of the Portfolio Advisor which might be relevant to an investment decision to be made by the Company and the Company may initiate a transaction or sell an investment which, if such information had been known to it, may not have been undertaken. Illiquidity of Investments Some of the investments of the Company in Africa or in African businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, Africa, are expected to be in private businesses and, in turn, highly illiquid. Accordingly, there can be no assurance that the Company will be able to realize on its investments in a timely manner or at all, which may also make the Company difficult to accurately value. Illiquidity may result from the absence of an established market for the investments as well as legal or 109

114 contractual restrictions on their resale. In addition, private equity investments by their nature are often difficult and time consuming to liquidate. If the Company is required to liquidate all or a portion of its portfolio investments quickly, it may realize significantly less than the value at which the Company previously recorded such investments. Furthermore, it is possible that unlisted portfolio businesses in which the Company invests will consider having their securities listed with an African or overseas stock exchange, as a means of creating liquidity for its investors. However, there can be no assurance that the listing of these securities will provide a viable exit mechanism, as these securities may experience low trading volumes and a low market capitalization at the time of intended disposal. Also, stock market regulations generally impose a lock in period on promoters holdings in businesses seeking listing through initial public offerings, which would reduce secondary market liquidity. Although the Company would generally endeavour to avoid or minimize such lock-in restrictions on its shareholdings in its portfolio investments, there can be no assurance that it will be able to do so. Competitive Market for Investment Opportunities The Company will compete with a large number of other investors focused on Africa, such as private equity funds, mezzanine funds, investment banks and other equity and non-equity based public and private investment funds, and other sources of financing, including traditional financial services companies, such as commercial banks. Competitors may have a lower cost of funds and may have access to funding sources that are not available to the Company. In addition, certain competitors of the Company may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships and build their respective market shares. There can be no assurance that the competitive pressures faced by the Company will not have a material adverse effect on its activities, financial condition and results of operations. In addition, as a result of this competition, the Company may not be able to take advantage of attractive investment opportunities from time to time and there can be no assurance that it will be able to identify and make investments. The success of the Company will depend on the availability of appropriate investment opportunities and the ability of the Portfolio Advisor to identify, source and make recommendations in respect of those investments. There can be no assurance that there will be a sufficient number of suitable investment opportunities to enable the Company to invest all of the Net Cash Proceeds of the Offerings or that such investment opportunities will lead to completed investments by the Company. As noted above, the Company will be competing with private equity funds, as well as mezzanine funds, institutional investors and, potentially, strategic investors, for prospective investments. As a result of this competition, there can be no assurance that the Company will be able to locate suitable investment opportunities, acquire such investments on acceptable terms, achieve an acceptable rate of return or fully invest the Net Cash Proceeds of the Offerings. Use of Leverage The Company may rely on the use of leverage when making its investments. As such, the ability to achieve attractive rates of return on such investments will significantly depend on the Company s continued ability to access sources of debt financing on attractive terms. An increase in either market interest rates or in the risk spreads demanded by lenders would make it more expensive for the Company to finance its investments and, in turn, would reduce net returns therein. Increases in interest rates could also make it more difficult for the Company to locate and consummate investments because other potential buyers, including operating companies acting as strategic buyers, may be able to bid for an asset at a higher price due to a lower overall cost of capital. Availability of capital from debt capital markets is subject to significant volatility and the Company may not be able to access those markets on attractive terms, or at all, when completing an investment. Any of the foregoing circumstances could have a material adverse effect on the financial condition and results of operations of the Company. Investing in Leveraged Businesses The Company may invest in highly leveraged businesses which involves a high degree of risk and will increase the exposure of the Company to adverse economic factors, such as downturns in the economy or 110

115 deteriorations in the condition of the business in which the Company invests or its industry. In the event that any such business in which the Company invests cannot generate adequate cash flow to meet its debt service obligations, the Company may suffer a partial or total loss of capital invested in such business. Such an occurrence may materially adversely affect the Company s return on its investment. Regulation The Company is subject to various laws and regulations governing its business, employment standards, taxes and other matters. It is possible that future changes in applicable federal, provincial or common laws or regulations or changes in their enforcement or regulatory interpretation could result in changes in the legal requirements affecting the Company (including with retroactive effect). Any changes in the laws to which the Company is subject could materially adversely affect the Company s investments and its overall business. It is impossible to predict whether there will be any future changes in the regulatory regimes to which the Company will be subject or the effect of any such change on its investments. Similarly, the businesses in which the Company expects to invest are expected to be principally subject to the laws of relevant countries in Africa. Any changes to the existing laws of those countries in Africa could have a material adverse effect on the businesses in which the Company invests, which may in turn have a material adverse effect on the Company. The Company is Not Subject to the TSX s SPAC Rules For the avoidance of doubt, although the Company has voluntarily adopted certain investor protection features included in the TSX s SPAC rules, the Company is not otherwise subject to the TSX s SPAC rules. As a result, investors participating in the Offering will not be afforded certain of the investor protection features that are required of SPACs under the SPAC rules, including: (i) purchasers of Subordinate Voting Shares will not have the right to pre-approve any African Investments; and (ii) there will be no mechanism to return funds to purchasers of Subordinate Voting Shares in the event that any proceeds of the Offering are not deployed within a fixed period of time. Risk Factors Related to Investments in Africa Emerging Markets The Company s investment objective is to achieve long-term capital appreciation, while preserving capital, by investing in African Investments. Foreign investment risk is particularly high given that the Company invests in securities of issuers based in or doing business in emerging market countries. The economies of emerging market countries have been and may continue to be adversely affected by economic conditions in the countries with which they trade. The economies of emerging market countries may also be predominantly based on only a few industries or dependent on revenues from particular commodities. In addition, custodial services and other investment-related costs may be more expensive in emerging markets than in many developed markets, which could reduce the Company s income from securities or debt instruments of emerging market country issuers. Certain African countries still have some form of exchange control regulation that can lead to additional costs, delays and/or restrictions/requirements on the repatriation of profits for the Company. There is a heightened possibility of imposition of withholding taxes on interest or dividend income generated from emerging market securities. It is also possible that certain African revenue authorities will apply a withholding tax in breach of the relevant tax treaty and the Company may be unable to reclaim this undue tax in the form of a tax credit. Governments of emerging market countries may engage in confiscatory taxation or expropriation of income and/or assets to raise revenues or to pursue a domestic political agenda. In the past, emerging market countries have nationalized assets, companies and even entire sectors, including the assets of foreign investors, with inadequate or no compensation to the prior owners. Certain governments in African countries may also restrict or control the ability of foreign investors to invest in securities by varying degrees. These restrictions and controls may limit or preclude foreign investment, require governmental approval, special licences, impose certain costs and expenses, and/or limit the amount of foreign investment, or limit such investment to certain classes of securities that may be less advantageous than the classes available for purchase by domestic investors. 111

116 There can be no assurance that the Company will not suffer a loss of any or all of its investments or, interest or dividends thereon, due to adverse fiscal or other policy changes in emerging market countries. Governments of many emerging market countries have exercised and continue to exercise substantial influence over many aspects of the private sector. In some cases, the government owns or controls many companies, including some of the largest in the country. Crime, corruption and fraud in certain African countries, as well as ties between government, agencies or officials and the private sector, have resulted, and could in the future result, in preferential treatment for local competitors, inefficient resource allocation, arbitrary decisions and other practices or policies. Accordingly, government actions could have a significant effect on economic conditions in an emerging country and on market conditions, prices and yields of securities in the Company s portfolio. Bankruptcy law and creditor reorganization processes in the African countries in which the Company may invest may differ substantially from those in Canada and the United States, resulting in greater uncertainty as to the rights of creditors, the enforceability of such rights, reorganization timing and the classification, seniority and treatment of claims. In certain emerging market countries, although bankruptcy laws have been enacted, the process for reorganization remains highly uncertain. In addition, it may be impossible to seek legal redress against an issuer that is a sovereign state. Also, because publicly traded debt instruments of emerging market issuers represent a relatively recent innovation in the world debt markets, there is little historical data or related market experience concerning the attributes of such instruments under all economic, market and political conditions. Other heightened risks associated with emerging markets investments include without limitation: (i) risks due to less social, political and economic stability, including the risk of war, terrorism, nationalization, limitations on the removal of funds or other assets, or diplomatic developments that affect investments in these countries; (ii) the smaller size of the market for such securities and a lower volume of trading, resulting in a lack of liquidity and in price volatility; (iii) certain national policies which may restrict the Company s investment opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant national interests and requirements that government approval be obtained prior to investment by foreign persons; (iv) certain national policies that may restrict the Company s repatriation of investment income, capital or the proceeds of sales of securities, including temporary restrictions on foreign capital remittances; (v) the lack of uniform accounting and auditing standards and/or standards that may be significantly different from the standards required in Canada; (vi) less publicly available financial and other information regarding issuers; (vii) potential difficulties in enforcing contractual obligations; (viii) higher rates of inflation, higher interest rates and other economic concerns; and (ix) less development and/or obsolescence in banking systems and practices, postal systems, communications and information technology and transportation networks. The Company may invest to a substantial extent in emerging market securities that are denominated in currencies other than the United States dollar, subjecting the Company to a greater degree of foreign currency risk. Also, investing in emerging market countries may entail purchases of securities of issuers that are insolvent, bankrupt or otherwise of questionable ability to satisfy their payment obligations as they become due, subjecting the Company to a greater amount of credit risk and/or high yield risk. As reflected in the above discussion, investments in emerging market securities involve a greater degree of risk than, and special risks in addition to the risks associated with, investments in domestic securities or in securities of foreign developed countries. Corporate Disclosure, Governance and Regulatory Requirements In addition to their smaller size, reduced liquidity and greater volatility, African securities markets are less developed than Canadian securities markets and may differ in fundamental ways. Disclosure and regulatory standards are in many respects less stringent than Canadian standards. Issuers in certain African countries are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly, from those applicable to Canadian reporting issuers. In particular, the assets and profits appearing on the financial statements of an African issuer may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with Canadian generally accepted accounting principles. Accordingly, information available to the Company, including both general 112

117 economic and commercial information concerning specific enterprises or assets, may be less reliable and less detailed than information available in Canada or the United States. There is less regulation and monitoring of African securities markets and the activities of investors, brokers and other participants than in Canada. Moreover, issuers of securities in certain African countries are not subject to the same degree of regulation as are Canadian reporting issuers with respect to such matters as insider trading rules, tender offer regulation, shareholder proxy requirements and the timely disclosure of information. There is also generally less publicly available information about African issuers than Canadian reporting issuers. Legal and Regulatory Risks Legal, tax and regulatory changes in the African investment environment could have a material adverse effect on the Company and the African Investments. Many of the laws that govern private and foreign investment, equity securities transactions and other contractual relationships in the countries in Africa in which the Company may invest are untested. As a result, the Company may be subject to a number of risks, including: inadequate investor protection; contradictory legislation; incomplete, unclear and changing laws; ignorance or breaches of regulations on the part of other market participants; lack of established or effective avenues for legal redress; lack of standard practices; confidentiality customs characteristic of developed markets; and lack of enforcement of existing regulations. There can be no assurance that this difficulty in protecting and enforcing rights will not have a material adverse effect on the Company and its operations. Existing regulatory controls and corporate governance of businesses in the countries in Africa in which the Company may invest occasionally confer fewer protections for minority shareholders. The concept of fiduciary duty to investors by officers and directors in some African companies is also limited when compared to such concepts in western markets. In certain instances, the Company may take significant actions without the consent of investors and anti-dilution protection may also be limited. Further, it is possible that there will be tax and regulatory changes in the African investment environment that may have a material adverse impact on the Company and the African Investments. Volatility of the African Securities Markets Stock exchanges in Africa have, in the past, experienced substantial fluctuations in the prices of listed securities. The securities markets in Africa are often considered to be less correlated to the global economic cycles than markets located in more developed economies. The stock exchanges in Africa have also experienced temporary exchange closures, broker defaults, longer settlement periods and, settlement delays, and strikes by brokerage firm employees. In addition, the governing bodies of the stock exchanges in Africa have, from time to time, imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Furthermore, from time to time, disputes have occurred between listed businesses and stock exchanges in Africa and other regulatory bodies, which in some cases may have had a negative effect on market sentiment. Political, Economic, Social and Other Factors The Company holds and will hold assets in various countries in Africa, and such assets may be adversely affected by various levels of political, economic, social and other factors, changes in law or regulations and the status of the relevant African countries relations with other countries. In addition, the economy of countries in which the Company invests may differ favourably or unfavourably from the Canadian economy in such respects as the rate of GDP growth, the rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Agriculture occupies a more prominent position in the economy of certain countries in which the Company invests than in Canada, and such economies therefore are more susceptible to adverse changes in weather. These risks and uncertainties vary from country to country and include, but are not limited to: terrorism; hostage taking; crime, including organized criminal enterprise; thefts and illegal incursions on property, which illegal incursions could result in serious security and operational issues, including the endangerment of life and property; extreme fluctuations in currency exchange rates; high rates of inflation; labour unrest; military coups; the risks of civil unrest; expropriation and nationalization; renegotiation or nullification of existing concessions, licenses, permits and contracts; changes to policies and regulations; 113

118 adequacy, response and training of local law enforcement; restrictions on foreign exchange and repatriation; and changing political conditions, currency controls, and governmental regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Governance Issues Risk Recent instances of governance issues in certain countries in Africa have the potential to discourage investors and derail the growth prospects of the economies of such African countries. Governance issues create economic and regulatory uncertainty and could have an adverse effect on the returns on investment. Tax Laws in African Jurisdictions In February 2013 the South African Minister of Finance, when tabling the 2013/14 Budget, announced that the South African Government will initiate a tax review to assess our tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability. The committee set up to conduct the review is known as The Davis Tax Committee ( DTC ). The terms of reference of the DTC are to inquire into the role of the tax system in the promotion of inclusive economic growth, employment creation, development and fiscal sustainability. Aspects that are to receive specific attention from the DTC include a review of the corporate tax system, whether the current mining tax regime is appropriate and the efficiency and effectiveness of the VAT system (sub committees have been set up to deal with specific items in the terms of reference). The DTC will make recommendations to the Minister of Finance and any tax proposals arising from these recommendations will be announced as part of the usual budget and legislative processes. Accordingly, it is possible that SA Sub and its investments in South Africa could become subject to taxation that is not currently anticipated, or it may become subject to a higher rate of taxation, which could have a materially adverse effect on its business, financial condition and results of operations in South Africa. Changes in Law The Republic of Mauritius or South African legal framework under which Mauritius Sub and SA Sub, respectively, will invest in Africa may undergo changes in the future, which could impose additional costs or burdens on the Company s operations. Future changes to Mauritian or South African law, or the relevant tax treaties, or the interpretations given to them by regulatory authorities, could impose additional costs or obligations on Mauritius Sub s and SA Sub s activities in Mauritius or South Africa. Significant adverse tax consequences could result if Mauritius Sub or SA Sub do not qualify for benefits under the relevant tax treaties. There can be no assurance that Mauritius Sub or SA Sub will continue to qualify for or receive the benefits of the relevant tax treaties or that the terms of the relevant tax treaties will not be modified. It is possible that provisions of the relevant tax treaties will be overridden by local legislation in a way that materially adversely affects the Company, Mauritius Sub and SA Sub. Further, there can be no assurance that changes in the law or government policies of Mauritius or South Africa that may limit or eliminate a non-mauritian or non-south African investor s ability to make investments into other countries in Africa via Mauritius or South Africa will not occur. South African Exchange Control Regulations The Excon Regulations regulate the export of capital from South Africa. The Excon Regulations could hinder SA Sub s ability to: (a) export capital from South Africa; (b) hold foreign currency or incur indebtedness denominated in foreign currencies; (c) acquire an interest in a foreign venture; and (d) repatriate to South Africa profits from foreign operations, without SA Sub obtaining prior approval from either an Authorised Dealer or the Financial Surveillance Department of the South African Reserve Bank, depending on the circumstances. While the South African Government has relaxed exchange controls in recent years, it is difficult to predict whether or how it will increase, further relax or abolish exchange control measures in the future. There can be no assurance that restrictions will not be imposed on SA Sub and the Company in the future. See South African Exchange Control Regulations. 114

119 South African Currency Fluctuations As a company incorporated in South Africa, SA Sub could be subject to fluctuations in the value of the South African Rand. In recent years, the value of the Rand as measured against the United States dollar, has fluctuated considerably. Fluctuations in the exchange rate between the Rand and the United States dollar could have an impact on the United States dollar or Canadian dollar equivalent of any dividends and distributions of SA Sub s shares, the comparability of SA Sub s results between financial periods and the amount in Rand of any non-rand denominated debt. In addition, fluctuations in currency exchanges between the Rand and currencies in African countries where SA Sub invests could impact on the value of these investments and net profit. South African Bilateral Investment Treaties As a company that is subject to South Africa s legal and regulatory framework, SA Sub and investors seeking to contract with SA Sub could be impacted by recent changes to the South African Government s investment policy framework. In particular, the termination of certain of South Africa s bilateral investment treaties ( BIT s ) and their replacement with a new domestic framework for the protection of foreign investment through the enactment of the Protection of Investment Act 22 of 2015 may not afford foreign investors the same level of protection afforded to them by way of the relevant BIT s, particularly in the context of the mediation and arbitration of any disputes in relation to foreign investment interests. South African Black Economic Empowerment As a company that is seeking to invest in South Africa and that has made the Initial African Investment, the entities in which the Company may invest could be required to comply with the South African government s policy and legal framework relating to black economic empowerment in respect of any South African investments. Black economic empowerment is governed generally by the Broad-Based Black Economic Empowerment Act of 2003 and the Codes of Good Practice, promulgated under that Act. The relevant South African entities will be required to comply with local procurement, employment equity, ownership and other regulations which are designated to address social and economic transformation issues, redress social and economic inequalities and ensure socio-economic stability from time to time. Compliance with the said legislation and policies, including the need to meet minimum equity ownership targets depending on the sector of the proposed investment, may result in the dilution of the Company s indirect interest in its South African investments whilst non-compliance with the said legislation and policies may result in financial penalties, the loss of key customer contacts with state owned entities and parastatals or the suspension or revocation of any underlying licenses that the relevant entity requires in order to conduct its business which, in either case, could have an adverse effect on the Company s business, financial condition and results of operations. Enforcement of Rights The Company s assets may be held in accounts by custodians, or pledged to creditors of the Company as per applicable law, in jurisdictions outside of Canada. Accordingly, there can be no assurance that judgments obtained in Canadian courts will be enforceable in any of those jurisdictions. It is possible that events such as the expropriation, confiscatory taxation or nationalization of foreign bank deposits or other assets may occur, which may result in the Company being unable to enforce its legal rights or protect its investments. Legal principles relating to corporate affairs and the validity of corporate procedures, directors fiduciary duties and liabilities and shareholders rights may differ from those that may apply in other jurisdictions. Shareholders rights under the laws of African countries may not be as extensive as those that exist under the laws of Canada. The Company may therefore have more difficulty asserting its rights as a shareholder of an African company in which it invests than it would as a shareholder of a comparable Canadian company. Smaller Company Risk The Company may invest in less seasoned and smaller and mid-capitalization African businesses. Investments in such businesses may present greater opportunities for growth, but also involve greater risks than are customarily associated with investments in more established and larger capitalized businesses. It is more difficult to obtain information about less seasoned and smaller capitalization businesses as they tend to be less 115

120 well-known and have shorter operating histories and because they tend not to have significant ownership by large investors or be followed by many securities analysts. Investments in larger and more established businesses present certain advantages in that such businesses generally have greater financial resources, more extensive research and development, manufacturing, marketing and service capabilities, more stability and greater depth of management and technical personnel. Due Diligence and Conduct of Potential Investment Entities Before making investments, the Portfolio Advisor and the Company will typically conduct due diligence that it deems reasonable and appropriate based on the facts and circumstances applicable to each investment. Due diligence may entail evaluation of important and complex business, financial, tax, accounting, environmental and legal issues. Outside consultants, legal advisors, accountants, investment banks and other third parties may be involved in the due diligence process to varying degrees depending on the type of investment. Such involvement of third party advisers or consultants may present a number of risks primarily relating to the Company s or the Portfolio Advisor s reduced control of the functions that are outsourced. In addition, if the Company or the Portfolio Advisor are unable to timely engage third party providers, their ability to evaluate and acquire more complex targets could be adversely affected. When conducting due diligence and making an assessment regarding an investment, the Company or the Portfolio Advisor will rely on the resources available to it, including publicly available information, information provided by the target of the investment and, in some circumstances, third party investigations. The due diligence investigation that the Company or the Portfolio Advisor carries out with respect to any investment opportunity may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity. Moreover, such an investigation will not necessarily result in the investment being successful. There can be no assurance that attempts to provide downside protection with respect to investments will achieve their desired effect and potential investors should regard an investment in the Company as being speculative and having a high degree of risk. In addition, when assessing an investment opportunity for the Company, investment analyses and decisions by the Company or the Portfolio Advisor may be undertaken on an expedited basis in order to take advantage of what it perceives to be short-lived investment opportunities. In such cases, the available information at the time of an investment may be limited, inaccurate or incomplete. There can be no assurance that the Company or the Portfolio Advisor will be able to detect or prevent irregular accounting, employee misconduct or other fraudulent practices during the due diligence phase or during its efforts to monitor the investment on an ongoing basis. In the event of fraud by any portfolio business or any of its affiliates, the Company may suffer a partial or total loss of capital invested in that business. An additional concern is the possibility of material misrepresentation or omission on the part of the portfolio business or the seller. Such inaccuracy or incompleteness may adversely affect the value of the Company s securities and/or instruments in such business. The Company and the Portfolio Advisor will rely upon the accuracy and completeness of representations made by the portfolio business and/or their former owners in the due diligence process to the extent reasonable when it makes its investments, but cannot guarantee such accuracy or completeness. As a result, there can be no assurance that the due diligence investigations carried out by the Portfolio Advisor or the Company will reveal or highlight all relevant facts that may be necessary or helpful in evaluating investment opportunities. Any failure to identify relevant facts may result in inappropriate investment decisions, which may have a material adverse effect on the value of any investment in the Company. Under certain circumstances, payments to the Company may be reclaimed if any such payment or distribution is later determined to have been a fraudulent conveyance or a preferential payment. Reliance on Trading Partners Risk The African economy is dependent on commodity prices and the economies of the European Union, Asia and the United States as key trading partners. Reduction in spending on African products and services by any of these trading partners or a slowdown or recession in any of these economies could materially adversely affect the African economy and, in turn, the Company. 116

121 Natural Disaster Risks The occurrence of natural disasters, including fires, droughts, severe weather, insect infestations, explosions and pandemic diseases, could adversely affect returns from African Investments and, in turn, the Company. Sovereign Debt Risk The governments of certain of the countries in Africa have experienced chronic structural public sector deficits. High amounts of debt and public spending may stifle African economic growth, cause prolonged periods of recession, or lower Africa s sovereign debt rating. Economic Risk The economies of certain African countries have grown rapidly during the past several years and there is no assurance that this growth rate will be maintained. Certain countries in Africa may experience substantial (and, in some cases, extremely high) rates of inflation or economic recessions causing a negative effect on such economies. Certain countries in Africa may also impose restrictions on the exchange or export of currency, institute adverse currency exchange rates or experience a lack of available currency hedging instruments. Any of these events could have a material adverse effect on their respective economies. Risk Factors Related to the Initial African Investment Risks with Respect to the Business of AFGRI The business of AFGRI focuses on agricultural services and food processing, with a core focus on grain commodities. The occurrence of severe adverse weather conditions, especially droughts, hail, floods or frost or diseases are unpredictable and may have a potentially devastating impact on agricultural production and may otherwise adversely affect the supply and price of the agricultural commodities that AFGRI sells and uses in their business. Adverse weather conditions may be exacerbated by the effects of climate change. The effects of severe adverse weather conditions may reduce yields of AFGRI s agricultural activities. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of pest and insects that may adversely impact AFGRI s farmers agricultural production, in turn potentially negatively impacting AFGRI s grain management business. In addition, AFGRI s production process requires various raw materials. A significant increase in the cost of these raw materials, whether as a result of currency or commodity price changes or ineffective hedging, a shortage of raw materials or the unavailability of these raw materials entirely could reduce AFGRI s profit margin, reduce AFGRI s production and/or interrupt the production of some of AFGRI s products, in all cases adversely affecting AFGRI s results of operations and financial condition. In addition, AFGRI is a non-bank provider of credit products and therefore subject to interest rate and other market risks such that a significant increase in interest rates or the availability of funding could have an adverse effect on AFGRI s financial services business. AFGRI relies upon Land Bank of South Africa ( Land Bank ), a government-owned bank mandated to support the agricultural sector in South Africa, as the primary buyer of the loans originated and serviced by AFGRI. Should Land Bank s access to funding be reduced, or its cost of funding increase, or if AFGRI reaches concentration limits with Land Bank, and AFGRI is unable to find alternative sources of financing elsewhere, such circumstances could in turn have an adverse effect on the results of operations and financial condition of AFGRI. AFGRI has incurred net and operating losses, and utilized net cash in investing activities, in recent years. To the extent that AFGRI has net or operating losses in future periods, and those losses result in negative cash flows from operations, and/or if AFGRI utilizes net cash in investing activities in excess of operating cash flow, AFGRI may need to deploy a portion of its cash reserves, access its lines of credit from third parties or raise additional equity to fund such negative cash flow. There can be no assurances that AFGRI will be able to achieve, or, if achieved, sustain, positive cash flows from operations in the future. If AFGRI does not achieve and maintain positive cash flows from operations, and such cash reserves, lines of credit or additional equity are not available, AFGRI may not be able to continue to fund its operations. As a company based in South Africa and subject to South Africa s legal and regulatory framework, AFGRI and its business is subject to the specific South African legal and regulatory risks identified in the section Risk 117

122 Factors Related to Investments in Africa, in particular, the risks identified in the sub-sections Tax Laws in African Jurisdictions, South African Exchange Control Regulations, South African Bilateral Investment Treaties and South African Black Economic Empowerment. As a company with investments and operations in a number of jurisdictions in Africa in addition to South Africa, AFGRI and its business is also subject to the economic, political, social and other risks described under the section Risk Factors Related to Investments in Africa, in particular, to the risks identified in the sub-sections Emerging Markets, Legal and Regulatory Risks, Political, Economic, Social and Other Factors, Governance Issue Risk and Economic Risk. Possible Conflict of Interest in Respect of Valuation of and Certain Interests in the AFGRI Transaction The purchase prices paid by the Company for the AFGRI Transaction was negotiated between the Company, AML, as general partner of AILP, and Fairfax as a limited partner of AILP and as such may not be considered to have been negotiated at arm s length. Furthermore, the valuation of the AFGRI Transaction was internally produced based on forecasts provided to the Company by AFGRI management. No independent valuation was obtained or was required under Canadian securities law. The Company is confident that it paid fair value for the AFGRI Transaction based on the information that it has with respect to AFGRI. If it is determined that valuation of the AFGRI Transaction was too high it could have a material adverse effect on the Company s financial condition and results of operation. As disclosed under the section The Company Initial African Investment Interests of the Chief Executive Officer and Certain Principals of Pactorum and the Portfolio Advisor in the Initial African Investment, Michael Wilkerson, the Chief Executive Officer of the Company, Neil Holzapfel, who is a founding partner of Pactorum, and James Bisenius, who is another founding partner of Pactorum, have certain interests in the Initial African Investment. As a result, it is possible that the interests of these persons could conflict with those of the Company or its subsidiaries with respect to the Initial African Investment. Potential Undisclosed Liabilities and Lack of Remedies in Respect of the JIH Purchase Agreement In connection with the AFGRI Transaction the Company performed diligence and obtained certain representations and warranties from AILP under the JIH Purchase Agreement. Any issues or undisclosed liabilities in the AFGRI business that the Company failed or was unable to discover in the due diligence prior to the consummation of the transaction may not be covered by the representations and warranties that the Company obtained from AFGRI. Furthermore, since AILP will be wound-up and its assets will be distributed within 60 days of the completion of the AFGRI Transaction, the Company may have limited or no ability after such distribution and winding up to recover for any loss or damages should any of the representations or warranties of AILP included in the JIH Purchase Agreement be inaccurate or misrepresented. The discovery of any material liabilities and the breach of such representations and warranties could have a material adverse effect on the Company s financial condition and results of operations. Possible Failure to Complete the Initial African Investment Closing of the Initial African Investment is subject to the satisfaction of certain customary closing conditions. As such, there is no assurance that the Initial African Investment will be completed or, if completed, will be on terms that are substantially the same as those disclosed in this prospectus. If the Initial African Investment is not completed, the benefits of the acquisition described herein will not be realized by the Company and may result in a decline in the trading price of the Subordinate Voting Shares. Closing is not conditional upon the closing of the Initial African Investment. PROMOTER Fairfax has taken the initiative in incorporating and organizing the Company and may therefore be considered a promoter of the Company for the purposes of applicable securities legislation. The number of Multiple Voting Shares (and the equity percentage outstanding) that will be held by Fairfax, either directly or through one or more subsidiaries, following Closing is set forth under Principal Shareholder. Fairfax also acts as administrator under the Investment Advisory Agreement and thereby receives certain fees as described under Fees and Expenses. Fairfax will not receive any benefits, directly or indirectly, from the issuance of securities offered hereunder other than as described under Fees and Expenses and Principal Shareholder. 118

123 LEGAL PROCEEDINGS AND REGULATORY ACTIONS The Company is not aware of any existing or contemplated legal proceedings to which it is or was a party since its incorporation. The Company is not aware of any penalties or sanctions imposed by a court or securities regulatory authority or other regulatory body against the Company, nor has the Company entered into any settlement agreements before a court or with a securities regulatory authority. The Autorité des marchés financiers, the securities regulatory authority in the Province of Québec (the AMF ), is conducting an investigation of the Administrator, its Chief Executive Officer, Mr. Prem Watsa, and its President, Mr. Paul Rivett. The investigation concerns the possibility of illegal insider trading and/or tipping (not involving any personal trading by the individuals) in connection with the December 15, 2011 takeover offer by Resolute Forest Products Inc. for shares of Fibrek Inc. Except as set out below, further details concerning the investigation are, by law, not permitted to be disclosed. The AMF has authorized Fairfax to make the above-mentioned disclosure. Fairfax and its management are solely responsible for the content of the disclosure set out in the three following paragraphs. The AMF has not in any way endorsed the content of such disclosure. Resolute s above-mentioned takeover offer was made to all Fibrek shareholders, including Fairfax. Fairfax agreed in that transaction to a hard lock-up agreement with Resolute whereby Fairfax agreed to tender its shares of Fibrek, representing approximately 26% of Fibrek s outstanding shares, to the Resolute takeover offer at the same price as all other Fibrek shareholders. At the time of the Resolute takeover offer for Fibrek, Fairfax s position in Fibrek was valued at approximately $32 million, representing less than 1/6 of 1% of Fairfax s total invested assets at that time. Fibrek actively opposed the Resolute takeover offer. In 2012, the Fibrek transaction was the subject of numerous regulatory hearings in Quebec and court proceedings relating to Fibrek s anti-takeover tactics and the hard lock-ups given by various selling shareholders, including Fairfax. Allegations were made in those hearings concerning the possibility of non-compliance with the takeover bid rules. Resolute s takeover offer was allowed to proceed and resulted in Resolute acquiring Fibrek. Fairfax believes it has an unblemished record for honesty and integrity and is fully cooperating with the AMF s investigation. Fairfax continues to be confident that in connection with the Resolute takeover offer, it had no material non-public information, that it did not engage in illegal insider trading or tipping, and that there is no reasonable basis for any proceedings in this connection. To the best of Fairfax s knowledge, the AMF investigation is still ongoing. If the AMF commences legal proceedings, which could be administrative or penal, no assurance can be given at this time by Fairfax as to the outcome. LEGAL MATTERS The matters referred to under Eligibility for Investment and Certain Canadian Federal Income Tax Considerations, as well as certain other legal matters relating to the issue and sale of the Subordinate Voting Shares, will be passed upon on behalf of the Company by McCarthy Tétrault LLP and on behalf of the Underwriters by Stikeman Elliott LLP. The matters referred to under Republic of Mauritius Income Taxation of Mauritius Sub and the Company will be passed upon on behalf of the Company by Madun Gujadhur Chambers, and the matters referred to under South African Income Taxation of SA Sub and the Company will be passed upon on behalf of the Company by Fasken Martineau LLP. As at the date of this prospectus, the partners and associates of each of McCarthy Tétrault LLP, Stikeman Elliott LLP, Madun Gujadhur Chambers and Fasken Martineau LLP beneficially own, directly and indirectly, less than 1% of the outstanding securities or other property of the Company, its associates or its affiliates. 119

124 INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS Other than as noted below, there are no material interests, direct or indirect, of any director or executive officer of the Company, any shareholder that beneficially owns, or controls or directs (directly or indirectly), more than 10% of the aggregate votes attached to the Multiple Voting Shares and Subordinate Voting Shares, or any associate or affiliate of any of the foregoing persons, in any transaction within the three years before the date hereof that has materially affected or is reasonably expected to materially affect the Company or any of its subsidiaries. Fairfax will hold a significant interest in the Company following Closing. See Principal Shareholder and Promoter. The Chief Executive Officer also has various interests in the Initial African Investment. See Initial African Investment Interests of the Chief Executive Officer and Certain Principals of Pactorum in the Initial African Investment AUDITOR, TRANSFER AGENT AND REGISTRAR PricewaterhouseCoopers LLP, Chartered Professional Accountants, Licensed Public Accountants, is the auditor of the Company and has confirmed that it is independent of the Company within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario. PricewaterhouseCoopers Inc. (South Africa) is the auditor of the annual financial statements for the years ended March 31, 2016 and 2015 of AFGRI and is independent of AFGRI as set forth in their report thereon. PricewaterhouseCoopers (Republic of Mauritius) is the auditor of the annual financial statements for the years ended March 31, 2016 and 2015 of JIH and is independent of JIH as set forth in their report thereon. The transfer agent and registrar for the Multiple Voting Shares and the Subordinate Voting Shares will be Computershare Investor Services Inc. at its principal office in Toronto, Ontario. MATERIAL CONTRACTS The following are the only material agreements of the Company that will be in effect on Closing (other than certain agreements entered into in the ordinary course of business): (a) the Coattail Agreement; (b) the Investment Advisory Agreement; (c) the Securityholders Rights Agreement; and (d) the Underwriting Agreement. Copies of the foregoing documents will be available following Closing on SEDAR. 120

125 AGENT FOR SERVICE OF PROCESS Richard Okello, Ndidi Okonkwo Nwuneli, Hisham Ezz Al-Arab and Michael Wilkerson, each a director of the Company, reside outside of Canada and have appointed the following agent for service of process: Name of Person or Company Richard Okello... Ndidi Okonkwo Nwuneli... Hisham Ezz Al-Arab... Michael Wilkerson... Name and Address of Agent Fairfax Africa Holdings Corporation 95 Wellington Street West, Suite 800 Toronto, Ontario, M5J 2N7 Fairfax Africa Holdings Corporation 95 Wellington Street West, Suite 800 Toronto, Ontario, M5J 2N7 Fairfax Africa Holdings Corporation 95 Wellington Street West, Suite 800 Toronto, Ontario, M5J 2N7 Fairfax Africa Holdings Corporation 95 Wellington Street West, Suite 800 Toronto, Ontario, M5J 2N7 Purchasers are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada, even if the party has appointed an agent for service of process. PURCHASERS STATUTORY RIGHTS Securities legislation in certain of the provinces and territories of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces and territories, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that the remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser s province or territory for the particulars of these rights or consult with a legal adviser. 121

126 GLOSSARY AACE means AACE Food Processing & Distribution Ltd.; Adjusted Capital has the meaning ascribed thereto under Fees and Expenses ; Adjustments has the meaning ascribed thereto under Consolidated Capitalization ; Administration and Advisory Fee has the meaning ascribed thereto under Fees and Expenses ; Advance Notice Provisions has the meaning ascribed thereto under Description of Share Capital Multiple Voting Shares and Subordinate Voting Shares ; affiliate has the meaning specified in National Instrument Prospectus Exemptions of the Canadian Securities Administrators, as amended from time to time; AFGRI means AFGRI Proprietary Limited; AFGRI Holdings means AFGRI Holdings Proprietary Limited; AFGRI Take Private Transaction has the meaning ascribed thereto under The Company Initial African Investment ; AFGRI Transaction has the meaning ascribed thereto on the cover page of this prospectus; African Investments means investments by the Company in public and private equity securities and debt instruments of African businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, Africa. For the avoidance of doubt African Investments do not include Permitted Investments; AgriGroupe means AgriGroupe Limited; AILP means AgriGroupe Investments LP; allowable capital loss has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of Resident Holders of Subordinate Voting Shares ; AMF means Autorité des marchés financiers; AML means AgriGroupe Management Limited; APR means APR Energy PLC; Ascendant means Ascendant Learning Limited; Audit Committee means the audit committee of the Company, as further described under the heading Directors and Management of the Company Committees of the Board ; Authorised Dealers means specific commercial banks appointed by the South African Minister of Finance that are given powers, subject to conditions and within limits prescribed by the Financial Surveillance Department of the South African Reserve Bank, to administer exchange control affairs, including the right to buy and sell foreign exchange, on behalf of their clients; BAR has the meaning ascribed thereto under About this Prospectus ; BIT s means bilateral investment treaties; BMO means BMO Nesbitt Burns Inc.; Board means the board of directors of the Company; Calculation Period has the meaning ascribed thereto under Fees and Expenses ; CCAA means the Companies Creditors Arrangement Act (Canada); CDS means CDS Clearing and Depository Services Inc.; CEA means Clean Energy Africa Investments (Pty.) Ltd.; 122

127 CFA has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of the Company ; CFC means controlled foreign company; CGT means capital gain tax; CI means CI Investments Inc.; Citi means Citigroup Global Markets Canada Inc.; CIB means Commercial International Bank; CIBC means CIBC World Markets Inc.; Closing means the closing of the Offering; Closing Date means, 2017, or such other date as the Company, Fairfax and the Underwriters may agree, but in any event no later than, 2017; CMA means Common Monetary Area that links South Africa, Namibia, Lesotho and Swaziland into a monetary union; Coattail Agreement has the meaning ascribed thereto under Principal Shareholder Coattail Agreement ; Code of Conduct means the code of conduct of the Company, as further described under Directors and Management of the Company ; COMESA means Common Market for Eastern and Southern Africa; Company means Fairfax Africa Holdings Corporation, as interpreted in the manner described under About this Prospectus ; Convention has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of Non-Resident Holders of Subordinate Voting Shares ; Cornerstone Investment has the meaning ascribed thereto on the cover page of this prospectus; Cornerstone Investors has the meaning ascribed thereto on the cover page of this prospectus; CRA means the Canada Revenue Agency; Custodians has the meaning ascribed thereto under Investment Restrictions ; Custodian Agreements means the agreement(s) between the Company and the Custodians, as further described under The Custodians ; DBRS means DBRS Limited; Demand Distribution has the meaning ascribed thereto under Principal Shareholder Registration Rights ; Demand Registration Right has the meaning ascribed thereto under Principal Shareholder Registration Rights ; Designated Rating has the same meaning as in National Instrument Investment Funds; Designated Rating Organization means (a) each of DBRS, Fitch, Moody s, S&P, including their Specified Affiliates, or (b) any other credit rating organization that has been designated under applicable Canadian securities legislation; Desjardins means Desjardins Securities Inc.; Determination Date has the meaning ascribed thereto under Fees and Expenses ; DFA Rules has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of the Company Currency and Derivatives ; Directors means the directors of the Company, and Director means any one of them; 123

128 DTAs means double tax treaties or agreements; DTC means the Davis Tax Committee; EBITDA means before interest, taxes, depreciation and amortization; Equity Monetization Arrangement means one or more agreements, arrangements or understandings to which a holder of a Multiple Voting Share is a party, the effect of which is to allow the holder of such Multiple Voting Share to receive a cash amount similar to proceeds of disposition, and transfer part or all of the economic risk and/or return associated with such Multiple Voting Share, without actually transferring ownership of or control over such Multiple Voting Shares; provided, however, that an Equity Monetization Arrangement expressly excludes (a) any pledge, grant of a security interest or other assignment or transfer for purposes of providing security relating to a Multiple Voting Share, or (b) any currency hedging activities; Excon Regulations means the South African Exchange Control Regulations (Government Notice R.1111 of 1 December 1961 as amended); Fairfax means Fairfax Financial Holdings Limited, a corporation established under the laws of Canada, and the promoter of the Offering; Fairfax India means Fairfax India Holdings Corporation, a corporation established under the laws of Canada; FAPI has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of the Company Foreign Accrual Property Income ; FAPL has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of Mauritius Sub and SA Sub Computation of FAPI and Surplus Accounts ; FAT has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of the Company ; FBE means foreign business establishment; FDI means foreign direct investment; Fitch means Fitch, Inc.; forward-looking statements has the meaning ascribed thereto under Forward-Looking Statements ; FSC has the meaning ascribed thereto under Mauritius Sub and SA Sub ; GDP means gross domestic product; Governance, Compensation and Nominating Committee means the governance, compensation and nominating committee of the Company, as further described under Directors and Management of the Company Committees of the Board ; High Water Mark has the meaning ascribed thereto under Fees and Expenses ; Holder has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations ; HQ Regime means the regional holding company dispensation offered in South Africa aimed at foreign investment in Africa; Hurdle Per Share has the meaning ascribed thereto under Fees and Expenses ; IFRS means International Financial Reporting Standards as issued by the International Accounting Standards Board; Independent Director means a Director who is independent of the Company in accordance with applicable Canadian securities law; Initial African Investment has the meaning ascribed thereto on the cover page of this prospectus; Investment Advisory Agreement means the administration and investment advisory services agreement to be entered into on Closing among the Company, Mauritius Sub, SA Sub, Fairfax and the Portfolio Advisor and such 124

129 other subsidiaries of the Company as may be added from time to time, as further described under The Portfolio Advisor Investment Advisory Agreement ; Investment Company Act has the meaning ascribed thereto under Plan of Distribution ; Investment Concentration Restriction has the meaning ascribed thereto under About this Prospectus ; Issued Securities has the meaning ascribed thereto under Principal Shareholder Pre-Emptive Rights ; JIH means Joseph Investment Holdings Limited; Lead Underwriter means RBCDS; Mandatory By-Law Provisions has the meaning ascribed thereto in About this Prospectus ; Market Price has the meaning ascribed thereto in Fees and Expenses ; Mauritius Sub means Fairfax Africa Investments Limited; Mauritius Sub Board means the board of directors of Mauritius Sub; Mauritius Sub Shares has the meaning ascribed thereto under Mauritius Sub and SA Sub Share Capital ; Minimum Investment Requirement has the meaning ascribed thereto under About this Prospectus ; Moody s means Moody s Investors Service Inc.; Multiple Voting Shares means the multiple voting shares in the capital of the Company, as further described under Description of Share Capital Multiple Voting Shares and Subordinate Voting Shares, and Multiple Voting Share means any one of them; named executive officers means the named executive officers of the Company and its subsidiaries, as further described under Executive Compensation ; NAV per Share means, on any day, the Net Asset Value of the Company on such day divided by the aggregate number of Multiple Voting Shares and Subordinate Voting Shares of the Company that are outstanding on such day; NCI means the non-certificated inventory system administered by CDS, as further described in Plan of Distribution Non-Certificated Inventory System ; NEOs means the named executive officers of the Company and its subsidiaries, as further described under Executive Compensation ; Net Asset Value has the meaning ascribed thereto under Calculation of Total Assets and Net Asset Value ; Net Cash Proceeds of the Offerings means the sum of net cash proceeds of the Offering, the Cornerstone Investment and the Fairfax Cash Investment, less the Company s estimated expenses of the Offering, the Underwriters fee and the private placement fee payable to the Cornerstone Investors; Net Proceeds of the Offerings means the net proceeds of the Offering, together with the net proceeds of the Cornerstone Investment and the concurrent issuance of the Multiple Voting Shares; NI means National Instrument Continuous Disclosure Obligations of the Canadian Securities Administrators, as amended from time to time; NI means National Instrument Audit Committees of the Canadian Securities Administrators, as amended from time to time; NI means National Instrument Investment Funds of the Canadian Securities Administrators, as amended from time to time; Nominating Shareholder has the meaning ascribed thereto under Description of Share Capital Multiple Voting Shares and Subordinate Voting Shares ; 125

130 Non-Resident Holder has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of Non-Resident Holders of Subordinate Voting Shares ; Notice Date has the meaning ascribed thereto under Description of Share Capital Multiple Voting Shares and Subordinate Voting Shares ; Offering has the meaning ascribed thereto on the cover page of this prospectus; Offering Adjustments has the meaning ascribed thereto under Consolidated Capitalization ; Offering Price has the meaning ascribed thereto on the cover page of this prospectus; OMERS means OMERS Administration Corporation; Other LPs has the meaning ascribed thereto under The Company Initial African Investment Description of the Transaction ; Over-Allotment Option has the meaning ascribed thereto on the cover page of this prospectus; Pactorum means Pactorum Ltd., a corporation incorporated under the laws of Mauritius, and a strategic consultant to the Portfolio Advisor; Performance Fee has the meaning ascribed thereto under Fees and Expenses ; Permitted Investments means, (a) an evidence of indebtedness that is issued, or fully and unconditionally guaranteed as to principal and interest, by (i) the government of Canada or the government of a province or territory of Canada, (ii) the government of the United States of America, the government of one of the states of the United States of America, the government of another sovereign state, or a Permitted Supranational Agency, if, in each case, the evidence of indebtedness has a Designated Rating, except in the case of indebtedness issued by the government of a country in Africa, in which case the evidence of indebtedness must be rated by a Designated Rating Organization or its Specified Affiliate as investment grade or higher, or (iii) a Canadian financial institution or a financial institution that is not incorporated or organized under the laws of Canada or of a province or municipality thereof if, in either case, evidences of indebtedness of that issuer or guarantor that are rated as short term debt by a Designated Rating Organization or its Specified Affiliate have a Designated Rating, (b) commercial paper that has a term to maturity of 365 days or less and a Designated Rating and that was issued by a person or company other than a government or Permitted Supranational Agency, (c) an evidence of indebtedness that is issued by an entity the majority of the votes attached to all outstanding voting shares of which are held by the government of a country in Africa, even if such indebtedness is not fully and unconditionally guaranteed by the government of such countries, if the evidence of indebtedness has the highest rating issued by a Designated Rating Organization or its Specified Affiliate (d) a fixed income mutual fund that has the highest rating issued by a Designated Rating Organization or its Specified Affiliate and that is redeemable on a daily basis, or (e) a fixed income mutual fund that is redeemable on a daily basis and that is limited to investing in indebtedness that meets the criteria in (a), (b), (c) and (d), as applicable, of this Permitted Investments definition; Permitted Supranational Agency means the African Development Bank, the Asian Development Bank, the Caribbean Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the International Bank for Reconstruction and Development and the International Finance Corporation; Piggy-Back Distribution has the meaning ascribed thereto under Principal Shareholder Registration Rights ; Piggy-Back Registration Right has the meaning ascribed thereto under Principal Shareholder Registration Rights ; Portfolio Advisor means Hamblin Watsa Investment Counsel Ltd., a corporation incorporated under the laws of Canada; pre-closing Redemption has the meaning ascribed thereto under The Company Initial African Investment Description of the Transaction; 126

131 RBCDS means RBC Dominion Securities Inc.; REPI means Global Real Estate Principal Investments group; Resident Holder has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of Resident Holders of Subordinate Voting Shares ; Retained Interest Requirement has the meaning ascribed thereto under About this Prospectus ; Risk Matrix has the meaning ascribed thereto under The Company Investment Highlights and Competitive Advantages Established Research Capabilities and Broad Network in Africa ; RRIF means registered retirement income fund; RRSP means registered retirement savings plan; S&P means Standard & Poor s Ratings Service; SA/Canada DTA means the DTA between South Africa and Canada; SARB means the South African Reserve Bank; SARS means the South African Revenue Services; SA Companies Act means the South Africa Companies Act 2008; SA ITA means the South African Income Tax Act, 1962 as amended, as at the Closing Date; SA Sub means Fairfax Africa Investments Proprietary Limited; SA Sub Board means the board of directors of SA Sub; SA Sub Shares has the meaning ascribed thereto under Mauritius Sub and SA Sub Share Capital ; same country exception has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of the Company ; Scotia means Scotia Capital Inc.; Securityholders Rights Agreement has the meaning ascribed thereto under Principal Shareholder Pre-Emptive Rights ; SEDAR means the System for Electronic Document Analysis and Retrieval at Shareholders means, collectively, the holders of the Multiple Voting Shares and Subordinate Voting Shares, and Shareholder means any one of them; Sherritt means, Sherritt International Corporation; Sixty Two means The Sixty Two Investment Company Limited; SPAC means a Special Purpose Acquisition Corporation as contemplated in the TSX Company Manual; Specified Affiliate has the same meaning as in section 1 of National Instrument Designated Rating Organizations and also includes any subsidiaries of each of DBRS, Fitch, Moody s and S&P; Sub Directors means the directors of Mauritius Sub or SA Sub, and MI Director means any one of them; Subject Investment has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of the Company Offshore Investment Fund Property ; Subordinate Voting Shares means the subordinate voting shares in the capital of the Company, as further described under Description of Share Capital Multiple Voting Shares and Subordinate Voting Shares, and Subordinate Voting Share means any one of them; subsidiary has the meaning specified in National Instrument Prospectus Exemptions of the Canadian Securities Administrators, as amended from time to time; 127

132 Substantial Equity Investment has the meaning ascribed thereto on the cover page of this prospectus; Tax Act means the Income Tax Act (Canada) and the regulations thereunder; Tax Proposals has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations ; taxable capital gain has the meaning ascribed thereto under Certain Canadian Federal Income Tax Considerations Taxation of Resident Holders of Subordinate Voting Shares ; TFSA means tax-free savings account; Total Assets has the meaning ascribed thereto under Calculation of Total Assets and Net Asset Value ; TDSI means TD Securities Inc.; TSX means the Toronto Stock Exchange; U.S. Securities Act means the United States Securities Act of 1933, as amended; Undeployed Capital means all equity capital of the Company that is not then invested in African Investments; Underwriters means, collectively, RBCDS, Citi, UBS Securities Canada Inc., BMO, CIBC, NBF, Scotia, TDSI, Canaccord Genuity Corp., Cormark Securities Inc., Desjardins, GMP Securities L.P., Raymond James Ltd., Dundee Capital Partners and Manulife Securities Incorporated; Underwriting Agreement means the underwriting agreement among Fairfax, the Company and the Underwriters dated, 2017, as further described under Plan of Distribution ; U.S. Person has the meaning ascribed thereto in Regulation S under the U.S. Securities Act; United States has the meaning ascribed thereto in Regulation S under the U.S. Securities Act; USDA means the United States Department of Agriculture; Wind-up has the meaning ascribed thereto under The Company Initial African Investment Description of the Transaction ; and Zurich means Zurich Insurance Company South Africa Limited. 128

133 INDEX TO FINANCIAL STATEMENTS Page Fairfax Africa Holdings Corporation Pro forma financial statements for the period ended September 30, F-2 Audited financial statements for the period ended September 30, F-8 AFGRI Holdings (Pty) Ltd. Unaudited interim financial statements for the six-months ended September 30, F-16 Audited financial statements for the year ended March 31, F-28 Audited financial statements for the year ended March 31, F-122 Joseph Investment Holdings Unaudited interim financial statements for the six-months ended September 30, F-208 Audited financial statements for the year ended March 31, F-219 Audited financial statements for the year ended March 31, F-240 F-1

134 FAIRFAX AFRICA HOLDINGS CORPORATION UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS F-2

135 FAIRFAX AFRICA HOLDINGS CORPORATION PRO FORMA CONSOLIDATED BALANCE SHEETS as at September 30, 2016 (unaudited US$ millions) Pro forma adjustments Joseph Other Fairfax Joseph Holdings Pro-Rated Investment MTM Share Africa Holdings Conversion Earnings Entity Adjustment Issuance Pro Forma 6a 6c AFGRI 6b Adjustment 6c 6c 6d Other Notes Consolidated ASSETS Inventories (212.0) Trade and other receivables (134.2) 0.1 Trade receivables financed by banks (33.1) Derivative financial instruments (10.7) Other financial assets (2.0) Income tax assets (3.4) Cash and cash equivalents and cash collateral deposits (42.7) (438.1) 0.1 Investment in common equity of Joseph Holdings Investment in Class A shares of Joseph Holdings Property, plant and equipment (245.3) Goodwill (5.4) Other intangible assets (14.6) Investments in associates (6.7) Investments in joint ventures (24.0) Other financial assets (2.8) Financial receivables (10.8) Deferred income tax assets (19.5) Investment in subsidiary AFGRI (64.9) (319.0) 74.9 Assets of disposal groups classified as held-for-sale Total assets (757.1) 75.0 LIABILITIES Trade and other payables (185.3) 0.2 6e 0.3 Derivative financial instruments (10.2) Other financial liabilities (4.4) Income and other tax liabilities (4.5) Short-term borrowings and bank overdrafts (92.4) Commodity finance (32.6) Borrowings from banks to finance trade receivables (33.1) (362.4) Liabilities of disposal groups classifed as held-for-sale (362.4) Long-term borrowings (88.6) (210.3) Derivative financial instruments (0.0) Deferred income tax liabilities (41.3) Other financial liabilities (0.4) Other liabilities (0.5) (88.6) (252.5) Total liabilities (88.6) (614.9) EQUITY Common Shareholder s Equity (20.2) 77.9 (57.7) 74.9 (0.2) 6e 74.7 Class A Shares (88.6) Non-controlling interest (70.8) Total equity (20.2) (217.1) 74.9 (0.2) 74.7 Total equity and liabilities (832.0) The accompanying notes are an integral part of the Pro Forma Consolidated Financial Statements F-3

136 FAIRFAX AFRICA HOLDINGS CORPORATION PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS for the period April 28, 2016 to September 30, 2016 (unaudited US$ millions except per share amounts) Pro forma adjustments Pro-Rated Fairfax Joseph Joseph Earnings Investment MTM Other Africa Holdings AFGRI Holdings Adjustment Entity Adjustment Share Pro Forma 6f 6g 6g Conversion 6h 6g 6i Issuance Other Notes Consolidated Income Sales of goods and rendering of services (58.7) (324.7) Other operating income (0.3) Interest and Dividends (0.5) (2.7) Net realized gains on investments Net unrealized gains on investments Net foreign exchange gains (losses) (0.1) (0.7) Share of profit (loss) of joint venture (0.8) Share of profit (loss) of associates (0.7) (59.1) (327.3) Expenses Cost of Goods Sold (47.1) (260.5) Investment and advisory fees j 0.5 Finance Costs (2.0) (10.8) General and administration expenses (10.6) (58.5) (59.6) (329.9) Earnings (loss) before income taxes (4.0) (0.5) (0.5) Provision for (recovery of) income taxes (0.4) k Net earnings (loss) attributable to common shareholders (3.6) (0.5) (0.5) Net earnings (loss) per share (0.06) Shares outstanding (weighted average) ,503,835 The accompanying notes are an integral part of the Pro Forma Consolidated Financial Statements F-4

137 FAIRFAX AFRICA HOLDINGS CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (unaudited in US$ and millions except as otherwise indicated, figures may not add due to rounding) 1 BUSINESS OPERATIONS Fairfax Africa Holdings Corporation ( Fairfax Africa or the Company ) is an investment holding company. Its investment objective is to achieve long term capital appreciation, while preserving capital, by investing, either directly or through one of its wholly-owned subsidiaries, in public and private equities and debt instruments in Africa and African businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, Africa ( African Investments ). The Company makes all or substantially all of its investments either directly or through its wholly-owned subsidiary, which currently includes Fairfax Africa Investments (Pty.) Ltd ( FAH SA ). Fairfax Financial Holdings Limited ( Fairfax ) has taken the initiative in creating the Company and acts as the Company s administrator. Fairfax is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management. Fairfax has been listed on the Toronto Stock Exchange ( TSX ) under the symbol FFH for over 25 years. The Company is federally incorporated and domiciled in Ontario, Canada. The principal office is located at 95 Wellington Street West, Suite 800, Toronto, Ontario M5J 2N7. 2 TRANSACTIONS Joseph Investments Holdings On March 31, 2014 Fairfax, through its subsidiaries, acquired a 72.6% interest in AgriGroupe Investments LP, a limited partnership domiciled in the Cayman Islands ( AgriGroupe LP ) and the ultimate parent of 90.8%-owned Joseph Investment Holdings, a company incorporated under the laws of Mauritius ( Joseph Holdings ). Joseph Holdings has a 60% interest in AFGRI Holdings (Pty) Limited ( AFGRI ). Through this series of transactions, Fairfax, through its subsidiaries acquired an effective interest of approximately 40% in AFGRI for cash consideration of $78.5 million. AFGRI is a leading South African agricultural services and processing company on the African continent. On December 20, 2016, Joseph Holdings and AgriGroupe LP entered into an agreement whereby Joseph Holdings issued 68,136,987 Class A shares with a redemption price of $1.30 per share to AgriGroupe LP in consideration for settlement of the $88,579,730 amount outstanding under the Joseph Holdings loan made by AgriGroupe LP in On December 22, 2016, immediately prior to the filing of the preliminary long form prospectus, the Company entered into a share purchase agreement with AgriGroupe LP to acquire 100% of Fairfax s 65.9% indirect beneficial interest in Joseph Holdings in exchange for 2,335,067 Multiple Voting Shares for $23.4 million, and to acquire Fairfax s 72.6% of Joseph Holdings Class A shares in exchange for 4,949,539 Multiple Voting Shares for $49.5 million. An offer will be made, subsequent to the Company filing its preliminary long form prospectus, to the remaining other indirect shareholders of Joseph Holdings to acquire up to an additional 34.1% of the common equity of Joseph Holdings and up to the remaining 27.4% interest in Joseph Holdings Class A shares in exchange for up to 3,236,326 Subordinate Voting Shares for consideration of up to $30.7 million. Closing of the Joseph Holdings acquisition is expected to occur in conjunction with the closing of the Company s initial public offering. 3 BASIS OF PREPARATION The accompanying unaudited pro forma consolidated balance sheet of Fairfax Africa as at September 30, 2016 and the unaudited pro forma consolidated statements of earnings for the period April 28, 2016 to September 30, 2016 of Fairfax Africa (collectively the Unaudited Pro Forma Consolidated Financial Statements ) have been prepared using accounting principles consistent with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) to give effect to the Joseph Holdings and AFGRI investments. Subsequent to the transactions noted above, the Company qualifies as an investment entity under IFRS 10 Consolidated Financial Statements ( IFRS 10 ) and carries its investments at fair value through profit or loss ( FVTPL ). 4 BASIS OF PRESENTATION The Unaudited Pro Forma Consolidated Financial Statements gives effect to the Joseph Holdings and AFGRI investments as if they had occurred as at: (i) September 30, 2016 for purposes of the unaudited pro forma consolidated balance sheet; and (ii) April 28, 2016 for purposes of the unaudited pro forma consolidated statements of earnings for the period April 28, 2016 to September 30, F-5

138 FAIRFAX AFRICA HOLDINGS CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued) (unaudited in US$ and millions except as otherwise indicated, figures may not add due to rounding) 4 BASIS OF PRESENTATION (Continued) The Unaudited Pro Forma Consolidated Financial Statements should be read in conjunction with the financial statements listed below: (i) audited financial statements of the Company as at September 30, 2016 and for the period April 28, 2016 (date of incorporation) to September 30, 2016; (ii) audited financial statements of Joseph Holdings and AFGRI as at and for the year ended March 31, 2016 and 2015 prepared in accordance with IFRS as issued by the IASB; and (iii) condensed unaudited interim financial statements of Joseph Holdings and AFGRI as at and for the six months ended September 30, 2016 and 2015 prepared in accordance with IFRS as issued by the IASB. The Unaudited Pro Forma Consolidated Financial Statements are not necessarily indicative of what the actual consolidated balance sheets or consolidated statements of earnings would have been had the investments been consummated at the dates indicated, nor are they indicative of future consolidated balance sheets or consolidated statements of earnings of the Company. 5 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting policies used in the preparation of the unaudited Pro Forma Consolidated Financial Statements are the same as those disclosed in the audited consolidated financial statements of the Company as at September 30, 2016 and for the period April 28, 2016 (date of incorporation) to September 30, PRO FORMA ASSUMPTIONS AND ADJUSTMENTS Valuation of Investment in Joseph Holdings For the purposes of the pro forma statements the fair value of Joseph Holdings used as at April 28, 2016 and September 30, 2016 is the transaction price negotiated between the relevant parties. Management s process for determining fair value included a discounted cash flow analysis of Joseph Holdings underlying investment in AFGRI based on multi-year free cash flow projections with assumed after-tax discount rates ranging from 11.3% to 18.2% and a long term growth rate of 3.0%. Free cash flow projections were based on EBITDA and working capital projections from financial information for AFGRI s principal business units that had been prepared in the first quarter of 2016 by AFGRI and reviewed quarterly by AFGRI management. Discount rates were based on the Company s assessment of risk premiums to the appropriate risk-free rates of the economic environments in which AFGRI operates. At September 30, 2016, the Company s internal valuation model indicated that the fair value of 100% of AFGRI was $163.9 million. Reasonably possible changes to the discount rate applied in the internal valuation model at September 30, 2016 could have increased (decreased) the fair value of AFGRI by as much as $23.4 million ($20.8 million). Reasonably possible changes to the long term growth rate in the internal valuation model at September 30, 2016 could have increased (decreased) the fair value of AFGRI by as much as $6.6 million ($6.0 million). The fair value of Joseph Holdings was determined as approximately $104 million, being the sum of the fair value of 100% of AFGRI multiplied by Joseph Holdings 60% ownership interest, plus accrued interest payable to JIH plus the fair value of the net assets of Joseph Holdings. The fair value of the Class A shares was deemed to be the same as the fair value of the loan (calculated using a discounted cash flow approach using a discount rate of 9.5%) which was converted into Class A shares as noted in section 2 above. Unaudited pro forma consolidated balance sheet as at September 30, 2016 The Company s subsidiary FAH SA is not shown as a separate column in the pro forma statements as it was incorporated subsequent to September 30, 2016 and has not had any transactions. a) The Company had $10 of cash, $79,912 of prepaid assets, $82,931 of payable to related party and $3,009 of common shareholder s deficit as at September 30, b) As noted in Section 2 above, on December 20, 2016, Joseph Holdings and AgriGroupe LP entered into an agreement whereby Joseph Holdings issued 68,136,987 Class A shares with a redemption price of $1.30 per share to AgriGroupe LP in consideration for settlement of the $88,579,730 amount outstanding under the Joseph Holdings loan made by AgriGroupe LP in c) As an investment entity, Fairfax Africa is required to record all of its investments not considered service entities at fair value. Accordingly, the Company s investment in Joseph Holdings is shown at the transaction price (reflects fair value) in the unaudited pro forma consolidated balance sheet as at September 30, d) As part of the Joseph Holdings transaction, the Company issued Multiple Voting Shares (at par value of $10 per share) and Subordinated Voting Shares (at par value of $9.50 per share) as per the below table. F-6

139 FAIRFAX AFRICA HOLDINGS CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued) (unaudited in US$ and millions except as otherwise indicated, figures may not add due to rounding) 6 PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (Continued) It is probable that certain other shareholders will accept the Company s offer to convert Joseph Holding s common equity and Class A share interest into shares of the Company. These shareholders interest thereby increases the Company s interest in Joseph Holdings common equity to 70.5% and interest in Class A shares to 73.3% within this pro forma. Additional Fairfax s probable interest acquired conversion Total MVS... 7,284,606 7,284,606 SVS , ,228 Total... 7,284, ,228 7,503,834 Additional Fairfax s probable Joseph Holdings investment interest acquired conversion Total Common Equity... $23,350,670 $1,635,501 $24,986,171 Class A shares... $49,495,390 $ 447,165 $49,942,555 Total... $72,846,060 $2,082,666 $74,928,726 e) Investment expenses of approximately $0.2 million were incurred for advisory, legal and due diligence related to the Joseph Holdings transaction. Unaudited pro forma consolidated statement of earnings for the period April 28, 2016 to September 30, 2016 f) The Company had no transactions for the period April 28, 2016 to September 30, 2016, that impact the statement of earnings other than the costs of incorporation of $3,019. g) Joseph Holdings and AFGRI have a non-coterminous financial year end with that of the Company. The statement of earnings and comprehensive income of Joseph Holdings and AFGRI used to prepare the pro forma statement of earnings for the period from April 28, 2016 to September 30, 2016 were prepared for the purpose of the Pro Forma Consolidated Financial Statements only and do not conform with the financial statements for Joseph Holdings and AFGRI included elsewhere in this prospectus. h) The Company has pro-rated the six-month interim earnings reported by each of Joseph Holdings and AFGRI for the period April 1, 2016 to September 30, 2016 and has only included the earnings which the Company would earn from April 28, 2016 to September 30, A simple pro-ration was calculated using the number of days within the pro forma period of April 28, 2016 to September 30, i) The Company s investments in Joseph Holdings is measured at FVTPL in the unaudited pro forma consolidated statement of earnings, given the Company is an investment entity. As the transaction price is the best evidence of fair value at initial recognition and given the Joseph Holdings transaction will close in conjunction with the closing of the offering, the fair value of Joseph Holdings for the purposes of the pro forma has not changed. j) The per annum investment and advisory fee is calculated as i) 0.5% of the value of undeployed capital and ii) 1.5% of the net asset value of the Company less the value of undeployed capital. The investment in Joseph Holdings is considered deployed capital, thus investment and advisory fees have been adjusted accordingly. k) No adjustments for Income taxes have been made on the pro forma given no reliable projected income to apply the investment and advisory fee (noted in j) expense against. F-7

140 FAIRFAX AFRICA HOLDINGS CORPORATION FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 2016 F-8

141 INDEPENDENT AUDITOR S REPORT To the Directors of Fairfax Africa Holdings Corporation We have audited the accompanying financial statements of Fairfax Africa Holdings Corporation, which comprise the balance sheet as at September 30, 2016, the statements of earnings, comprehensive income, shareholder s equity and cash flows for the period April 28, 2016 to September 30, 2016, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Fairfax Africa Holdings Corporation as at September 30, 2016 and its financial performance and its cash flows for the period from April 28, 2016 to September 30, 2016 in accordance with International Financial Reporting Standards. [To be signed] Chartered Professional Accountants, Licensed Public Accountants [Date, 20XX] F-9

142 FAIRFAX AFRICA HOLDINGS CORPORATION BALANCE SHEET as at September 30, 2016 September 30, 2016 (US$) ASSETS Cash Prepaid asset (note 3)... 79,912 79,922 LIABILITIES Payable to related party (note 3)... 82,931 SHAREHOLDER S EQUITY Common Share 1 share issued and outstanding Retained Earnings (deficit)... (3,019) Total shareholder s equity (deficit)... (3,009) 79,922 Signed on behalf of the Board (Signed) V. PREM WATSA Director (Signed) CHRISTOPHER HODGSON Director See accompanying notes. F-10

143 FAIRFAX AFRICA HOLDINGS CORPORATION STATEMENT OF EARNINGS For the period April 28, 2016 (date of incorporation) to September 30, 2016 Revenue... Expenses General and administrative expenses (note 3)... 3,019 Loss before income taxes... (3,019) Provision for income taxes... Net loss... (3,019) US$ FAIRFAX AFRICA HOLDINGS CORPORATION STATEMENT OF COMPREHENSIVE INCOME For the period April 28, 2016 (date of incorporation) to September 30, 2016 Net loss... (3,019) Other comprehensive income, net of income taxes... Comprehensive loss... (3,019) US$ See accompanying notes. F-11

144 FAIRFAX AFRICA HOLDINGS CORPORATION STATEMENT OF SHAREHOLDER S EQUITY For the period April 28, 2016 (date of incorporation) to September 30, 2016 Shareholder s Equity, beginning of period... Issuance of 1 Common Share Retained Earnings (deficit)... (3,019) Shareholder s Equity (deficit), end of period... (3,009) US$ See accompanying notes. F-12

145 FAIRFAX AFRICA HOLDINGS CORPORATION STATEMENT OF CASH FLOWS For the period April 28, 2016 (date of incorporation) to September 30, 2016 Operating activities Net Loss... (3,019) Changes in operating activities... 3,019 Cash provided by operating activities... Financing activity Issuance of 1 Common Share Increase in cash Cash, beginning of period... Cash, end of period US$ See accompanying notes. F-13

146 FAIRFAX AFRICA HOLDINGS CORPORATION NOTES TO FINANCIAL STATEMENTS for the period April 28, 2016 (date of incorporation) to September 30, 2016 (in US$ except as otherwise indicated) 1 BUSINESS OPERATIONS Fairfax Africa Holdings Corporation ( the company ) is an investment holding company. Its investment objective is to achieve long-term capital appreciation, while preserving capital, by investing, either directly or through one of its wholly-owned subsidiaries, in public and private equity securities and debt instruments in Africa and African businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, Africa ( African Investments ). Generally, subject to compliance with applicable law, African Investments will be made with a view to acquiring control or significant influence positions. Fairfax Financial Holdings Limited ( Fairfax ) has taken the initiative in creating the company and acts as the company s administrator. Fairfax is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management. Fairfax has been listed on the Toronto Stock Exchange ( TSX ) under the symbol FFH for over 25 years. Fairfax is currently the company s sole shareholder (see Subsequent Events note 5). The company is federally incorporated and domiciled in Ontario, Canada. The principal office of the company, Fairfax and the portfolio advisor is located at 95 Wellington Street West, Suite 800, Toronto, Ontario M5J 2N7. 2 BASIS OF PRESENTATION The financial statements of the company for the period April 28, 2016 to September 30, 2016 have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). These financial statements were approved for issue by the company s Board of Directors on December 23, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Functional and presentation currency The financial statements are presented in U.S. dollars, which is the company s functional and presentation currency. Cash Cash comprises cash on deposit and is stated at fair value. Related Party Transactions Prepaid asset at September 30, 2016 included $79,912 related to costs associated with the company s initial public offering (see Subsequent Events note 5), principally legal and other expenses, these costs are payable to Fairfax. Payables to related party at September 30, 2016 included $79,912 of costs previously noted and $3,019 of expenses associated with the incorporation of the company. The borrowing from related party is non-interest bearing and payable on demand upon closing of the company s initial public offering. 4 SHARE CAPITAL The company s authorized share capital consists of an unlimited number of common shares carrying (1) vote per common share (see Subsequent Events note 5). As at September 30, 2016 one common share was issued and outstanding. 5 SUBSEQUENT EVENTS On October 14, 2016 the company incorporated a wholly-owned subsidiary Fairfax Africa Investments (Pty) Ltd. ( FAH SA ), a South African incorporated company. On December 22, 2016 the company amended its share capital structure to include an unlimited number of Multiple Voting Shares carrying fifty (50) votes per Multiple Voting Share, an unlimited number of Subordinate Voting Shares carrying (1) vote per Subordinate Voting Shares and an unlimited number of preference shares, issuable in series. On December 22, 2016, the company entered into an agreement with AgriGroupe Investments LP ( AgriGroupe Investments ) to acquire Fairfax s 72.6% interest in Joseph Investment Holdings ( Joseph Holdings ), a company incorporated under the laws of Mauritius, Class A shares in exchange for 4,949,539 Multiple Voting Shares for consideration of $49.5 million. As part of the same agreement, the company agreed to acquire Fairfax s 65.9% beneficial interest in the common equity of Joseph Holdings in exchange for F-14

147 FAIRFAX AFRICA HOLDINGS CORPORATION NOTES TO FINANCIAL STATEMENTS (Continued) for the period April 28, 2016 (date of incorporation) to September 30, 2016 (in US$ except as otherwise indicated) 5 SUBSEQUENT EVENTS (Continued) 2,335,067 Multiple Voting Shares for consideration of $23.4 million. An offer will be made, subsequent to the company filing its preliminary long form prospectus, to the remaining other indirect shareholders of Joseph Holdings to acquire up to an additional 34.1% of the common equity of Joseph Holdings and up to the remaining 27.4% interest in Joseph Holdings Class A shares in exchange for up to 3,236,326 Subordinate Voting Shares for consideration of up to $30.7 million. Joseph Holdings holds 60% of the common equity of AFGRI Holdings (Pty) Ltd. ( AFGRI ). AFGRI is a leading agricultural services and processing company on the African continent. Closing of the above transactions is expected to occur in conjunction with the closing of the Company s initial public offering. Determination of investment entity status Subsequent to the above noted transactions, the company reviewed its determination of whether it qualifies as an investment entity under IFRS 10. An entity that meets the IFRS 10 Consolidated Financial Statements ( IFRS 10 ) definition of an investment entity is required to measure its subsidiaries at FVTPL rather than consolidate them (other than those subsidiaries that provide services to the company). The company has concluded that, subsequent to closing of the above noted transaction and initial public offering, it meets the definition of an investment entity as its strategic objective of investing in African investments and providing investment management services to investors for the purpose of generating returns in the form of long-term capital appreciation remains unchanged. The company has also determined that FAH SA provides investment related services to the company and should be consolidated. All intercompany balances, profits and transactions will be eliminated. The company may from time to time seek to realize on any of its African Investments. The circumstances under which the company may sell some or all of its investments include: (i) where the company believes that the African Investments are fully valued or that the original investment thesis has played out; or (ii) where the company has identified other investment opportunities which it believes present more attractive risk-adjusted return opportunities and additional capital is needed to make such alternative investments. The company may exit its private investments either through an initial public offering or private sale. For publicly traded investments, exit strategies may include selling the investments through private placements or in public markets. On December 23, 2016, the company filed a preliminary long form prospectus for purposes of completing a Canadian initial public offering of Subordinate Voting Shares at US$10 per share. Concurrent with the closing of the initial public offering, OMERS Administration Corporation ( OMERS ) and certain investment funds managed by Harbour Advisors, a division of CI Investments Inc. ( CI and together with OMERS, the Cornerstone Investors ) have agreed to purchase an aggregate of 11,578,948 Subordinate Voting Shares on a private placement basis at the Offering Price (less a private placement fee of US$0.50 per Subordinate Voting Share payable to each such investor) for gross proceeds of approximately US$116 million pursuant to subscription agreements with the Company dated as of December 22, F-15

148 AFGRI HOLDINGS PROPRIETARY LIMITED REVIEWED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE 6 MONTHS ENDED 30 SEPTEMBER 2016 F-16

149 AFGRI HOLDINGS PROPRIETARY LIMITED CONDENSED CONSOLIDATED BALANCE SHEET 30 September 31 March Note Reviewed Audited (USD thousands) ASSETS Non-current assets , ,568 Property, plant and equipment , ,088 Goodwill , Other intangible assets ,627 15,894 Investments in associates... 6,729 5,641 Investments in joint ventures... 24,007 23,311 Other financial assets ,773 2,039 Financial receivables... 10,798 7,216 Deferred income tax assets... 19,485 16,175 Current assets , ,238 Inventories , ,042 Trade and other receivables , ,408 Trade receivables financed by banks... 33,064 33,302 Derivative financial instruments ,694 20,049 Other financial assets ,994 2,854 Income tax assets... 3,376 3,262 Cash and cash equivalents and cash collateral deposits... 42,239 34,321 Cash collateral deposits... 9,308 9,447 Cash and cash equivalents... 32,931 24,874 Total assets , ,806 EQUITY Capital and reserves attributable to equity holders... 77,915 (31,882) Share capital , Fair value and other reserves (9,647) Accumulated losses... (26,329) (22,603) Non-controlling interest... 70,816 71,173 Total Equity ,731 39,291 LIABILITIES Non-current liabilities , ,688 Borrowings , ,508 Derivative financial instruments Deferred income tax liabilities... 41,287 39,773 Other financial liabilities Other liabilities Current liabilities , ,827 Trade and other payables , ,391 Derivative financial instruments ,175 9,922 Other financial liabilities ,356 4,486 Income and other tax liabilities... 4,499 3,475 Short-term portion of long-term borrowings... 2, ,007 Short-term borrowings and bank overdrafts... 89,732 46,826 Commodity finance... 32,596 42,069 Borrowings from banks to finance trade receivables... 33,137 37,651 Total liabilities , ,515 Total equity and liabilities , ,806 F-17

150 AFGRI HOLDINGS PROPRIETARY LIMITED CONDENSED CONSOLIDATED INCOME STATEMENT 6 months ended 6 months ended 30 September 30 September Note Reviewed Reviewed (USD thousands) Continuing operations Sales of goods and rendering of services , ,920 Interest on trade receivables... 1,664 1,682 Total revenue , ,602 Cost of sales... (307,573) (325,541) Gross profit... 77,470 88,061 Other operating income Selling and administration expenses... (69,103) (64,229) Operating profit... 8,686 24,115 Interest received ,456 2,201 Finance costs (12,769) (19,271) Share of (loss)/profit of associates... (659) 47 Share of loss of joint ventures... (758) (872) (Loss)/profit before income tax... (4,045) 6,220 Income tax expense (3,690) (Loss)/profit for the year... (3,650) 2,530 (Loss)/profit for the year attributable to: Equityholders of the Company... (3,663) (858) Non-controlling interest ,388 (Loss)/profit for the year... (3,650) 2,530 F-18

151 AFGRI HOLDINGS PROPRIETARY LIMITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 6 months ended 6 months ended 30 September 30 September Note Reviewed Reviewed (USD thousands) (Loss)/profit for the period... (3,650) 2,530 Other comprehensive income Exchange differences on translating foreign operations... 10,119 7,325 Cash flow hedges... (275) 328 Share of comprehensive income of joint ventures Share of comprehensive loss of associates... (73) Other comprehensive income for the year, net of tax... 9,844 7,751 Total comprehensive income for the year... 6,194 10,281 Total comprehensive income attributable to: Equityholders of the Company... 6,181 6,893 Non-controlling interest ,388 6,194 10,281 F-19

152 AFGRI HOLDINGS PROPRIETARY LIMITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Fair value Total Other Share and other Accumulated shareholders non-controlling capital reserves losses equity interest Total (USD thousands) Balance 31 March 2015 (audited) (3,353) (14,395) (17,380) 72,287 54,907 (Loss)/profit for the period... (858) (858) 3,388 2,530 Other comprehensive income for the period... 7,751 7,751 7,751 Payment to non-controlling interests. (4,591) (4,591) Balance 30 September 2015 (reviewed) ,398 (15,253) (10,487) 71,084 60,597 (Loss)/profit for the period... (6,305) (6,305) 795 (5,509) Other comprehensive loss for the period... (14,045) (14,045) (14,045) Payment to non-controlling interests. (1,577) (1,577) Dividends paid... (174) (174) (174) Transaction with other non-controlling interest... (871) (871) 871 Balance 31 March 2016 (audited) (9,647) (22,603) (31,882) 71,173 39,291 Loss for the period... (3,663) (3,663) 13 (3,650) Other comprehensive income for the period... 9,844 9,844 9,844 Payment to non-controlling interests. (370) (370) Dividends paid... (63) (63) (63) Conversion of shareholders loans to share capital , , ,679 Balance 30 September 2016 (reviewed) , (26,329) 77,915 70, ,731 F-20

153 AFGRI HOLDINGS PROPRIETARY LIMITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 6 months ended 12 months ended 30 September 31 March Note Reviewed Audited (USD thousands) Operating activities Cash (utilised in)/generated from operations... (7,440) 72,796 Finance costs... (12,063) (35,325) Interest received... 1,553 3,048 Income tax paid... (1,270) (4,988) Net cash (utilised in)/generated from operating activities... (19,220) 35,531 Investing activities Purchase of property, plant and equipment... 2 (8,448) (21,120) Purchase of intangible assets... 2 (1,255) (1,306) Proceeds from disposal of property, plant and equipment ,702 Proceeds from disposal of intangible assets... (792) Proceeds from disposal of assets and liabilities of disposal groups classified as held-for-sale... 8,400 Financial receivables repaid... 1, Disposal/(acquisition) of shares in associates (3,111) Disposal of shares in associates Proceeds from disposal of shares in subsidiary net of cash... 87,595 Acquisition of business net cash acquired (19,077) (10,396) Net cash utilised in investing activities... (27,815) 64,761 Financing activities Dividends paid... (63) (174) Payments made to other non-controlling interests... (370) (6,168) Proceeds from/(repayment of) borrowings... 22,091 (34,064) Net cash generated from/(utilised in) financing activities... 21,658 (40,406) Net (decrease)/increase in cash and cash equivalents... (25,376) 59,886 Cash and cash equivalents at the beginning of the year... (64,021) (123,907) Cash and cash equivalents at the end of the year... (89,397) (64,021) Cash collateral deposits... 9,308 9,447 Cash and cash equivalents and cash collateral deposits... (80,089) (54,574) Included in cash and cash equivalents and cash collateral... (80,089) (54,574) Included in assets from disposal groups classified as held-for-sale.. F-21

154 AFGRI HOLDINGS PROPRIETARY LIMITED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1 BASIS OF PREPARATION AND ACCOUNTING POLICIES These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) IAS 34 under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and financial liabilities (including derivative financial instruments) and the South African Companies Act (Act 71 of 2008) as amended, on a basis consistent with that of the prior period. The preparation of the condensed consolidated interim financial statements has been supervised by the Group s Chief Financial Officer, Mr GJ Geel CA(SA). 2 PROPERTY, PLANT AND EQUIPMENT, OTHER INTANGIBLE ASSETS AND GOODWILL Other intangible assets Property, plant and equipment and goodwill 6 months ended 12 months ended 6 months ended 12 months ended 30 September 31 March 30 September 31 March Reviewed Audited Reviewed Audited (USD thousands) Carrying value beginning of the year , ,297 16,098 21,919 Additions... 8,448 21,120 1,255 1,306 Disposals at book value... (464) (2,541) (54) Foreign currency differences... 14,013 (44,101) 1,047 (3,693) Depreciation/amortisation... (6,257) (13,194) (2,421) (4,691) Purchase of subsidiaries/business... 2,477 3,378 4,063 1,330 Impairment... (871) (73) Carrying value end of the year , ,088 19,988 16,098 3 FINANCE COSTS AND INTEREST RECEIVED 3.1 Finance costs 6 months ended 6 months ended 30 September 30 September Reviewed Reviewed (USD thousands) Interest paid on bank borrowings used to finance trade receivables... (72) Interest paid to financial institutions... (12,582) (13,205) Interest paid on shareholders loans... (187) (5,993) Finance cost Continuing operations... (12,769) (19,271) Less: Borrowing costs capitalised on qualifying assets... Finance cost Total... (12,769) (19,271) 3.2 Interest income 6 months ended 6 months ended 30 September 30 September Reviewed Reviewed (USD thousands) Interest received from financial institutions Interest received from independent third parties... 1,303 1,767 Interest income Total... 1,456 2,201 F-22

155 AFGRI HOLDINGS PROPRIETARY LIMITED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued) 4 TRADE RECEIVABLES FINANCED BY BANKS & RELATED LIABILITY The only security for the liability is the trade receivables and, in certain cases, additional cash trade receivables of up to 0.5% (2015: additional cash trade receivables of up to 0.5%). The Group carries the risk of loss on these trade receivables. The total value of additional debtors encumbered for these facilities is USD4.8 million (2015: USD4.3 million). 5 SHARE CAPITAL Number of Number of Ordinary ordinary shares A class shares shares Total (USD thousands) Balance as at 31 March 2015 (audited) ,883, Changes during the year... Balance as at 31 March 2016 (audited) ,883, Changes during the period... 1,576,870, , ,679 Balance as at 30 September 2016 (reviewed) ,883,135 1,576,870, , ,047 Authorised share capital include 500 million (March 2016: 500 million) ordinary shares with no par value and million A class shares, as well as 1 million (March 2016: 1 million) unclassified shares at no par value. All issued shares are fully paid. 6 CAPITAL COMMITMENTS 6 months ended 6 months ended 30 September 30 September Reviewed Reviewed (USD thousands) Contracted for additions to property, plant and equipment and intangibles... 4,034 3,348 Authorised but not yet contracted for additions to property, plant and equipment... 2,255 1,693 6,288 5,042 The above mentioned capital commitments will be financed by net cash flows from operations and the utilisation of cash and borrowings within the accepted gearing ratio of the Group. The Group s proportionate share of the capital expenditure commitments of joint ventures included in the above commitments is USDnil (September 2015: USDnil). 7 AGENCY AGREEMENTS The Group manages Agri debtors on behalf of third party financial institutions to the amount of USD867 million (September 2015: USD 810 million). Administration and management fees are paid by these third parties to the Group for services rendered in accordance with the service level agreements. Service level agreements with the Land Bank originated during the 2012 financial year. Under these agreements the Group will manage, administer and service the farmer lending and corporate debtor books on behalf of the Land Bank. Furthermore the Group is only liable for bad debts on a second loss basis to a maximum of between 0.7% and 0.5%. On all other service level agreements, the Group is not liable for any bad debts for debtors administered. Included in the agreement between FNB Zambia and AFGRI Leasing Services Proprietary Limited, FNB has recourse to the extent of the fee earned by AFGRI Leasing Services. On production finance a fee of 1.2% is earned and 1% on all other loans. The Group handled, stored and managed commodities on behalf of third parties to the value of USD596 million (September 2015: USD 493 million). The Group receives a fee for the handling, grading, storing and administration of these commodities. F-23

156 AFGRI HOLDINGS PROPRIETARY LIMITED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued) 8 DIVIDENDS PAID 6 months ended 12 months ended 30 September 31 March Reviewed Audited (USD thousands) 2015 Special dividend Final dividend Interim dividend Dividend to Matteh Management Trust SUBSEQUENT EVENTS No other material events have occurred since the date of these condensed consolidated interim financial statements and the date of approval thereof, the knowledge of which would affect the ability of the users of the financial statements to make proper evaluations and decisions. 10 BUSINESS COMBINATIONS The Group acquired three John Deere agencies during the period under review On 1 July 2016 the Group entered into a binding sale agreement with Zacharias Johannes Swanepoel (Techno Feeds). In terms of this agreement, the Group acquired the trading assets of Techno Feeds in Botswana as a going concern. The acquisition will allow the Group to grow its mechanisation footprint in Southern Africa in line with its strategy. The purchase consideration amounted to USD1.05 million. The initial accounting in terms of IFRS 3 is incomplete and assets acquired were recognised at fair value. As part of the initial accounting the Group identified the John Deere franchise agreement as an intangible asset to the value of USD0.5 million with a useful life of 20 years and goodwill to the value of USD0.4 million. Property, plant and equipment... (43) Inventory... (55) Assets acquired and liabilities assumed... (98) Less: Purchase consideration Cash consideration... 1,050 Goodwill Since acquisition, Equipment Botswana generated revenue amounting to USD3.8 million and net profit before taxation of USD0.02 million which were included in the current period results. Goodwill of USD1.0 million arose as the difference between the purchase consideration and the fair value of the assets acquired. The goodwill on the acquisition represents future growth in the value chain On 1 August 2016 the Group entered into a binding sales agreement with Greenline Ag Proprietary Limited, acquiring the Greenline business together with property, plant and equipment, inventory, receivables and payables as a going concern. The acquisition will allow the Group to grow its footprint in Western Australia. The purchase consideration amounted to USD7.5 million and goodwill to the F-24

157 AFGRI HOLDINGS PROPRIETARY LIMITED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued) 10 BUSINESS COMBINATIONS (Continued) value of USD1.5 million arose as the difference between the purchase consideration and the fair value of the assets and liabilities acquired. The initial accounting in terms of IFRS 3 is incomplete and assets acquired were recognised at fair value. Property, plant and equipment... (1,771) Financial receivable... (298) Inventory... (13,423) Trade receivables... (693) Long-term borrowings Trade payables... 10,184 Bank overdraft (including cash and cash equivalents)... (4) Assets acquired and liabilities assumed... (5,957) Less: Purchase consideration Cash consideration... 7,493 Goodwill... 1,537 Since acquisition, Greenline generated revenue amounting to USD3.8 million and net loss before taxation of USD0.05 million which were included in the current period results. Goodwill of USD1.5 million arose as the difference between the purchase consideration and the fair value of the assets acquired. The goodwill on the acquisition represents future growth in the value chain On 29 August 2016 the Group entered into a binding sale agreement with Agrico Proprietary Limited (Agrico). In terms of this agreement, the Group acquired the trading assets of Agrico as a going concern. The acquisition will allow the Group to grow its footprint in the Western Cape (a province in South Africa). The purchase consideration amounted to USD11.6 million. The initial accounting in terms of IFRS 3 is incomplete and assets acquired were recognised at fair value. As part of the initial accounting the Group identified the John Deere franchise agreement as an intangible asset to the value of USD2.3 million with a useful life of 20 years, customer relationships to the value of USD0.1 million with a useful life of 10 years, as well as goodwill to the value of USD0.1 million. Property, plant and equipment... (706) Inventory... (13,214) Trade payables... 4,860 Assets acquired and liabilities assumed... (9,060) Less: Purchase consideration Cash consideration... 11,587 Goodwill... 2,526 Since acquisition, Agrico generated revenue amounting to USD0.9 million and net loss before taxation of USD0.3 million which were included in the current period results. Goodwill of USD2.5 million arose as the difference between the purchase consideration and the fair value of the assets acquired. The goodwill on the acquisition represents future growth in the value chain. F-25

158 AFGRI HOLDINGS PROPRIETARY LIMITED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued) 11 HIERARCHY OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE 30 September 2016 (Reviewed) Level 1 Level 2 Level 3 Total (USD thousands) Financial assets as per balance sheet Other financial assets Held-for-trading trade receivables... 4,767 4,767 Derivative financial instruments Forward purchase contracts... 4,584 4,584 Foreign currency futures cash flow hedges... 5,743 5,743 Foreign currency futures fair value hedges Foreign currency futures Total... 10,694 4,767 15,461 Financial liabilities as per balance sheet Other financial liabilities Level 1 Level 2 Level 3 Total Financial liabilities carries at fair value through profit and loss... 4,768 4,768 Derivative financial instruments Forward sale contracts... 3,433 3,433 Interest rate swaps Foreign currency futures cash flow hedges... 5,247 5,247 Foreign currency futures fair value hedges... 1,440 1,440 Total... 10,201 4,768 14, March 2016 (Audited) Level 1 Level 2 Level 3 Total Financial assets as per balance sheet Other financial assets Held-for-trading trade receivables... 4,893 4,893 Derivative financial instruments Forward purchase contracts Forward sale contracts... 10,058 10,058 Foreign currency futures cash flow hedges... 6,796 6,796 Foreign currency futures fair value hedges... 2,583 2,583 Total... 20,049 4,893 24,942 F-26

159 AFGRI HOLDINGS PROPRIETARY LIMITED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued) 11 HIERARCHY OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE (Continued) Financial liabilities as per balance sheet Other financial liabilities Level 1 Level 2 Level 3 Total Financial liabilities carried at fair value through profit and loss... 4,894 4,894 Derivative financial instruments Forward purchase contracts... 2,990 2,990 Interest rate swaps Foreign currency futures cash flow hedges... 6,660 6,660 Foreign currency futures fair value hedges Foreign currency futures Total... 9,922 4,894 14,816 Reconciliation of level 3 financial assets carried at fair value Other financial assets (1) 30 September 31 March Reviewed Audited Fair value at the beginning of the year... 4,893 5,202 Total gain recognised in the income statement Foreign exchange translation differences... (586) (962) Fair value at the end of the year... 4,767 4,893 Reconciliation of Level 3 financial liabilities carried at fair value Financial liabilities carried at Derivative financial fair value through profit instruments or loss (2) 30 September 31 March 30 September 31 March Reviewed Audited Reviewed Audited Fair value at the beginning of the year... 4,893 5,366 Total gain recognised in the income statement Foreign exchange translation differences... (573) (981) Fair value at the end of the year... 4,768 4,893 (1) Consists of held-for-trading trade receivables carried at fair value. The held-for-trading trade receivables represent the Group s continued involvement in debtors originated on behalf of third party financiers (and therefore originated with the intention of selling the receivable in the short term), but not derecognised entirely in accordance with derecognition criteria of IAS 39 due to the Group s continuing involvement. The continuing involvement asset is measured at the lower of the carrying amount of the transferred asset and the maximum amount of the consideration received in the transfer that the entity could be required to repay, the guaranteed amount. (2) Financial liabilities held-for-trading represent the fair value of the obligation to the Land Bank to finance fair value debtors recognised on the balance sheet. Adjustments to the fair value of liabilities are recognised in the income statement. F-27

160 AFGRI HOLDINGS (PTY) LTD CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2016 F-28

161 INDEX DIRECTORS RESPONSIBILITY AND APPROVAL & CERTIFICATE BY COMPANY SECRETARY... F-30 INDEPENDENT AUDITOR S REPORT... F-31 DIRECTORS REPORT... F-33 F-35 ACCOUNTING POLICIES AND FINANCIAL RISK MANAGEMENT POLICIES... F-36 F-57 GROUP BALANCE SHEET... F-58 GROUP INCOME STATEMENT... F-59 GROUP STATEMENT OF COMPREHENSIVE INCOME... F-60 GROUP STATEMENT OF CHANGES IN EQUITY... F-61 GROUP CASH FLOW STATEMENT... F-62 NOTES TO THE ANNUAL FINANCIAL STATEMENTS... F-63 F-115 APPENDIX A C... F-116 F-121 These financial statements were approved on 5 October 2016 and will be distributed to shareholders on or before 21 November Pages F-29

162 DIRECTORS RESPONSIBILITY AND APPROVAL The Directors are responsible for the preparation, integrity and fair presentation of the consolidated financial statements of AFGRI Holdings Proprietary Limited. The consolidated financial statements presented on pages 5 to 78 have been prepared in accordance with International Financial Reporting Standards and in the manner required by the Companies Act in South Africa and include amounts based on judgements and estimates made by management. The going concern basis has been adopted in preparing the consolidated financial statements. The Directors have no reason to believe that the Group will not be a going concern in the foreseeable future, based on forecasts and available cash resources. These consolidated financial statements support the viability of the Group. The preparation of the consolidated financial statements has been supervised by the Group Chief Financial Officer, GJ Geel [CA (SA)]. The consolidated financial statements have been audited by the independent auditing firm, PricewaterhouseCoopers Incorporated, who were given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the Board of Directors and Committees of the Board. The Directors believe that all representations made to the independent auditors during their audit are valid and appropriate. PricewaterhouseCoopers Incorporated s audit report is presented on pages 3 4. The consolidated financial statements were approved by the Board of Directors on 5 October 2016 and are signed on its behalf by: 21DEC MS Wilkerson Chairman CENTURION 5 October DEC CP Venter Chief Executive Officer CERTIFICATE BY COMPANY SECRETARY In my capacity as Company Secretary, I hereby confirm that the Company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of Section 33(1) of the Companies Act, 2008, as amended, and that such returns are true, correct and up to date. 21DEC S PERIAH Company Secretary CENTURION 5 October 2016 F-30

163 19JAN INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDERS OF AFGRI HOLDINGS PROPRIETARY LIMITED AND ITS SUBSIDIARIES We have audited the consolidated financial statements of AFGRI Holdings Proprietary Limited set out on pages 7 to 78, which comprise the group balance sheet as at 31 March 2016, and the group income statement, group statement of comprehensive income, group statement of changes in equity and group cash flow statement for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information. Directors Responsibility for the Financial Statements The company s directors are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of AFGRI Holdings Proprietary Limited and its subsidiaries as at 31 March 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. PricewaterhouseCoopers Inc., 32 Ida Street, Menlo Park 0081, PO Box 35296, Menlo Park 0102, South Africa T: +27 (0) , F: +27 (0) , Chief Executive Officer: T D Shango Management Committee: S N Madikane, I S Masondo, P I Mothibe, C Richardson, F Tanelli, C Volschenk The Company s principal place of business is at 2 Eglin Road, Sunninghill where a list of directors names is available for inspection Reg no 1998/012055/21. VAT reg no F-31

164 Other reports required by the Companies Act As part of our audit of the consolidated financial statements for the year ended 31 March 2016, we have read the Directors Report, and the Company Secretary s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited consolidated financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports. PricewaterhouseCoopers Inc. Director: PDP Vermeulen Registered Auditor Pretoria 21 November 2016 F-32

165 DIRECTORS REPORT The directors present their report for the year ended 31 March This report forms part of the audited consolidated financial statements. 1. Business and operations AFGRI is a leading agricultural services and processing company with a core focus on grain commodities. It provides services across the entire grain production and storage cycle, offering financial support and solutions as well as inputs and hi-tech equipment through the John Deere brand supported by a large retail footprint. AFGRI is further involved in the processing of poultry products, the manufacture of animal feeds, the processing of yellow maize and wheat and the extraction of oil and other raw materials into edible oils, fats and proteins for human consumption (food processing and fast food industries). AFGRI is expanding into other countries on the African continent and has activities in Zambia, Zimbabwe, Mozambique, Nigeria, Ghana, Congo-Brazzaville and Uganda, aimed at supporting agriculture in these geographies. AFGRI also has a John Deere operation in Australia, an animal feeds research and development venture in the United Kingdom and an investment in animal feeds in the United States of America. 2. Financial results The results of the Group and the state of its affairs are set out in the attached consolidated financial statements and do not, in our opinion, require further comment. 3. Dividends Refer to note 36 for dividends declared. 4. Share capital Full details of authorised, issued and unissued share capital of the Group at 31 March 2016 are contained in note 16 to the annual consolidated financial statements. 5. Directors The Directors of AFGRI Operations Limited during the year and up to the date of this report were as follows: MS Wilkerson (Chairperson) appointed 14 January 2014 NW Holzapfel appointed 14 January 2014 LL Van Zeuner appointed 1 April 2014 CP Venter appointed 1 April 2014 RQ McLean appointed 1 April 2014 B Hayward appointed 1 April 2014 KS Maponya appointed 1 April 2014 RT Mothobi appointed 24 June 2015 KM Mabe (alternate director to MM Muller) appointed 1 April 2014 BM Khoza appointed 20 November 2014 MM Muller (alternate director to KM Mabe) appointed 24 November 2014 IS Sehoole appointed 1 April 2014, resigned 23 June 2015 F-33

166 6. Secretary The secretary of the AFGRI Holdings Proprietary Limited is Ms S Periah, whose business and postal addresses are: 12 Byls Bridge Boulevard, Highveld Ext 73, CENTURION, 0157 P O Box 11054, CENTURION, Auditors PricewaterhouseCoopers Inc. have been appointed as the auditors for the next financial year. 8. Holding Company The holding company is Joseph Investment Holdings, a company incorporated in Mauritius, which holds 60% of the share capital with the ultimate holding company being AgriGroupe Investments, a company incorporated in the Cayman Islands. The remaining 40% of share capital is held as follows: 15% by the Public Investment Corporation Soc Limited, a company incorporated in South Africa; 20% by Bafepi Agri Proprietary Limited, a company incorporated in South Africa; and 5% by the Matteh Management Trust, a trust registered in South Africa. 9. Subsequent Event The following events occurred subsequent to the Group s year-end, all of which represents non-adjustable events after the reporting period in terms of IAS 10 Events after the Reporting Period: On 15 May 2015 the Group concluded sale agreements with Bafepi Agri Proprietary Limited (Bafepi) and the Public Investment Corporation (PIC) to sell 100% of its shares in AFGRI Poultry Proprietary Limited together with all claims outstanding from AFGRI Poultry Proprietary Limited, as a going concern, for USD 97 million. This transaction will see the Group disposing its entire Poultry business, as well as the Kinross feedmill. This transaction was subject to the fulfilment of various suspensive conditions, in particular the approval by shareholders of the Company as well as the unconditional approval of the South African Competition Authorities. Related approvals were obtained on 7 April 2015 and 24 March 2015 respectively. The effective date of the transaction was 1 April The trading results of the Group s Poultry business are therefore included with the results from discontinued operations and the related assets and liabilities are disclosed under assets of disposal groups classified as held-for-sale. On 4 August 2015 and 1 December 2015, respectively, the Group concluded binding sales agreements with Jolly & Sons Proprietary Limited ( Jolly & Sons ) in Australia and 24 Biccard 104 CC t/a Truck and Tractor Specialists Agri ( TTS ) in South Africa. In terms of these agreements, the Group acquired the trading assets of Jolly & Sons and TTS, as going concerns, for USD 7.9 million and USD 2.1 million, respectively. The acquisition will allow the Group s Equipment business to grow its footprint in Western Australia, as well as in the Limpopo province in South Africa. The Group renegotiated the terms of the first R500 million Land Bank tranche facility (disclosed under short-term borrowings, refer note ). The new terms includes interest at prime minus 1% and a repayment date of 28 June The original terms for the second and third tranche facilities remained unchanged. On 26 April 2016, the Group announced its intention to acquire a John Deere agency in the Western Cape province of South Africa. The Group also entered into an agreement on 1 July 2016 to buy a John Deere agency in Western Australia. These acquisitions have been approved by the Board and approval for the South African transaction was also obtained from the South African Competition Authorities. On 31 October 2014 the loans to Carnival Foods CC and Tunica Trading 52 CC were renegotiated for a second time. The renegotiations resulted in one loan with Carnival Foods CC together with new payment F-34

167 terms refer to note of the consolidated financial statements for more detail. During the 2016 financial year the debtor did not adhere to the renegotiated repayment terms which resulted in the full balance of the loan becoming payable. The balance has also been assessed for impairment during the 2016 financial year which resulted in USD 0.4 million being provided for as an allowance for bad debt during the 2016 financial year. On 6 April 2016 the shareholders of the company decided to convert their shareholders loans into ordinary shares. To this end, shareholders have authorised the directors of the company to repay the accrued interest on the shareholders loans up to 6 April 2016 on which date interest will stop accruing. The capital portions of the loans remaining will be converted into Ordinary A shares, a new class of ordinary share which will be issued at a face value equal to the carry value of the shareholders loan. No other material events have occurred since the date of these financial statements and the date of approval thereof, the knowledge of which would affect the ability of the users of their financial statements to make proper evaluations and decisions. 10. Going Concern The going-concern basis has been adopted in preparing the financial statements of the Company. The directors take note of the fact that the Group s retained earnings reflect an accumulated deficit of USD 22.6 million. The Group s total assets however exceeds its total liabilities. Furthermore on 6 April 2016 the shareholders of the company decided to convert their shareholders loans into ordinary shares (refer to note 20 of these consolidated financial statements). The directors have no reason to belief that the Company will not be a going concern in the foreseeable future based on forecasts and available cash resources. These financial statements support the viability of the Company. F-35

168 ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated annual financial statements are set out below and are consistent with those of the previous year, except where indicated otherwise. Basis of preparation These consolidated financial statements of AFGRI Holdings (Pty) Ltd have been prepared in accordance with International Financial Reporting Standards (IFRS). These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments) and biological assets at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 1 (Critical accounting estimates and judgements) of these consolidated annual financial statements. New accounting pronouncements The International Accounting Standards Board (IASB) did not issue any new, revised or amended accounting standards during the year which were effective and applicable to the Group for the current financial year. None of the new, revised or amended accounting standards issued by the IASB which were not yet effective from 1 April 2015 has been adopted by the Group. Management is assessing the impact on the accounting policies of the Group for March Herewith a summary of the new pronouncements issued by the IASB: Adopted by the Group New standards, interpretations and amendments to published standards effective in 2016 and adopted by the Group The Company did not adopt any new standards, interpretations or amendments to published standards during the current financial year. Not yet adopted by the Group New standards, interpretations and amendments to published standards effective in 2017 and relevant to the Group IFRS 10 (Amendment) Consolidated financial statements and IAS 28 (Amendment) Investments in associates and joint ventures (effective 1 January 2016): This amendment aims to eliminate the inconsistency between IFRS 10 and IAS 28 where non-monetary assets sold or contributed to an associate or joint venture constitutes a business. IFRS 11 (Amendment) Joint arrangements (effective 1 January 2016): This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. IAS 1 (Amendment) Presentation of financial statements (effective 1 January 2016): The amendments provides guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. IAS 16 (Amendment) Property, plant and equipment and IAS 41 (Amendment) Agriculture (effective 1 January 2016): This amendment scopes bearer plants into IAS 16, with a corresponding amendment to its definition under IAS 41, but not the produce on bearer plants. F-36

169 IAS 27 (Amendment) Separate financial statements (effective 1 January 2016): This amendment restores the option to use the equity method to account for investments in subsidiaries, joint ventures and associates in an entity s separate financial statements. New standards, interpretations and amendments to published standards effective 2017 but not currently relevant for the Group s operations IFRS 10 (Amendment) Consolidated financial statements and IAS 28 (Amendment) Investments in associates and joint ventures (effective 1 January 2016): Clarifies the application of the consolidation exception for investment entities and their subsidiaries. IFRS 14 (New standard) Regulatory deferral accounts (effective 1 January 2016): Applies specifically to first time adopters of IFRS 14. Rate regulation is a framework where the price that an entity charges to its customers for goods and services is subject to oversight and/or approval by an authorised body. IAS 16 (Amendment) Property, plant and equipment and IAS 38 (Amendment) Intangible assets (effective 1 January 2016): This amendment clarifies that the use of revenue based methods to calculate the depreciation of an asset is not appropriate. New standards, interpretations and amendments to published standards not yet effective IAS 12 (Amendment) Income taxes (effective 1 January 2017): The amendment clarifies the accounting for deferred tax where an asset is measured at fair value and the fair value is below the asset s tax base. IAS 7 (Amendment) Cash flow statements (effective 1 January 2017): Introducing additional disclosure to enable users to evaluate changes in liabilities arising from financing activities. IFRS 15 (New standard) Revenue from contracts with customers (effective 1 January 2018): The long awaited converged standard on revenue by the FASB and IASB. The standard contains a single, comprehensive revenue recognition model for all contracts with customers and aim to achieve greater consistency in the recognition and presentation of revenue. IFRS 9 Financial instruments: classification and measurement (effective 1 January 2018): IFRS 9 addresses classification and measurement of financial assets and replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value. IFRS 9 (Amendment) Financial instruments: classification and measurement (effective 1 January 2018): This amendment will bring into effect a substantial overhaul of hedge accounting to establish a more principles-based approach. IFRS 16 (New standard) Leases (effective 1 January 2019): Jointly drafted by the IASB and FASB, this standard will require lessees to recognise assets and liabilities arising from all leases (with limited exceptions) on balance sheet. Improvements to IFRS The IASB concluded on its Annual Improvements cycles during December 2013, which focus primarily on removing inconsistencies and clarify wording. There are separate transitional provisions for each standard. The following amendments become effective during the current financial year and resulted in changes/alignment to accounting policies of the Group. However these amendments did not have any impact on the financial position or performance of the Group: IFRS 13 (Amendment) Fair value measurement (effective 1 July 2014): Clarifies that short-term receivables and payables can be measured at invoice amounts where the impact of not discounting is immaterial. F-37

170 IFRS 13 (Amendment) Fair value measurement (effective 1 July 2014): Clarifies that the portfolio exception in IFRS 13, which allows an entity to measure the fair value of a group of financial assets and financial liabilities on a net basis, applies to all contracts. IFRS 3 (Amendment) Business combinations (1 July 2014): Clarifies that IFRS 3 does not apply to the accounting for the formation of any joint arrangement under IFRS 11. The IASB also concluded on its 2014 Annual Improvements cycle during September The amendments contained in this cycle are only effective for 2017 and as a result had no impact on the Group s current accounting policies. Amendments impacting the following standards are currently being assessed by management to determine the impact on the accounting policies of the Group for March 2017: IFRS 5 Non-current assets held for sale and discontinued operations IFRS 7 Financial instruments IAS 19 Employee benefits IAS 34 Interim financial reporting Interests in Group entities Subsidiaries Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are entities (including special-purpose entities) over which the Group has the power to govern the financial and operating policies. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. 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 cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. The consideration transferred is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. For each acquisition, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree s identifiable net assets for components that represents ownership interests and entitles their holders to a proportionate share of the entity s net assets in the event of liquidation. All other components of non-controlling interests are measured at their acquisition date fair values, unless another measurement basis is required by IFRS. Acquisition costs incurred are recognised directly in profit or loss. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration, which is deemed to be an asset or liability, are recognised in accordance with IAS 39 either directly in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity. If the acquisition is achieved in stages, the acquisition date fair value of the acquirer s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date directly through profit or loss. The Group applies a policy of treating transactions with non-controlling interests as transactions with equity owners of the Group. For purchases of additional interests in subsidiaries from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is added to, or deducted from, equity. For disposals of non-controlling interests, differences between any proceeds received and the relevant share of non-controlling interests are also recorded in equity. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of F-38

171 the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for under the equity method of accounting and are initially recognised at cost. The Group s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group s share of its associates post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or 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 associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Joint ventures Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. Investments in joint ventures are accounted for under the equity method of accounting and are initially recognised at cost. The Group s investment in joint ventures includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group s share of its joint ventures post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group s interest in the joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group. Property, plant and equipment Land and buildings comprise mainly factories, grain silos and offices. All property, plant and equipment is shown at cost, less subsequent depreciation and impairment, except for land, which is shown at cost less impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from other comprehensive income of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset s 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. All other repairs and maintenance expenditures are charged to profit or loss during the financial period in which they are incurred. F-39

172 Depreciation is calculated using either the straight-line method or the unit-of-production method to allocate the cost of each asset to its residual value over its estimated useful life. Useful life used under the straight-line method of depreciation: Buildings 25 to 100 years Plant and machinery five to 100 years Equipment and motor vehicles five to 50 years Land is not depreciated Useful life used under the unit-of-production method of depreciation: Plant and machinery to tons Major renovations are depreciated over the remaining useful life of the related asset or to the date of the next major renovation, whichever is the earlier. Grain silos are maintained annually to a fixed programme. The assets residual values and useful lives are reviewed annually and adjusted if appropriate. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in profit or loss. 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, of the acquired business/subsidiary/associate or joint venture at the date of acquisition, and liabilities assumed. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses and is not amortised. Gains and losses on the disposal of an entity, other than goodwill in associates, include the carrying amount of goodwill relating to the entity sold. If, on a business combination, the fair value of the Group s interest in the identifiable assets, liabilities and contingent liabilities exceeds the cost of the acquisition, the excess is recognised in profit or loss immediately. Goodwill, acquired in a business combination before 31 March 2004, was previously amortised over its useful life. The accumulated amortisation prior to that date was netted against the cost. Goodwill is allocated to cash-generating units for the purpose of impairment assessment. The allocation is made to those cash-generating units or groups of cash generating units that are expected to benefit from the business combination in which goodwill arose. AFGRI allocates goodwill to each business segment in each country in which it operates. Other intangible assets Research and development Research expenditure is recognised in profit or loss as incurred. Costs incurred on development projects are recognised as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised in profit or loss as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have a finite useful life and have been capitalised are amortised from the commencement of commercial production of the product on a straight-line basis over the period of its expected benefit (not exceeding 10 years). F-40

173 Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the straight line method over their estimated useful lives. Amortisation rates applied are provided in note 4.7. Costs associated with developing or maintaining computer software programmes are recognised in profit or loss as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised using the straight-line method over their estimated useful lives (not exceeding five years). Trademarks, licences and other intellectual property Separately acquired trademarks and licences are recognised at historical cost less accumulated amortisation and impairment. Trademarks and licences with finite useful lives are amortised on a straight-line basis over the estimated useful lives. Other intellectual property acquired in a business combination such as know-how or customer lists are recognised at fair value. These intangible assets have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method over the estimated useful life of the assets. The amortisation method and estimated remaining useful lives are reviewed at least annually. Amortisation rates applied are provided in note 4.7. Impairments of non-financial assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation 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 were previously impaired are reviewed for possible reversal of the impairment at each reporting date. Financial assets A financial asset is any asset that is cash, an equity instrument of another entity, a contractual right to receive cash or another financial asset from another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable. Classification The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Group classifies its financial assets in the following categories: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held-for-trading and financial assets designated upon initial recognition at fair value through profit or loss. A financial asset is classified as held-for-trading if acquired principally for the purpose of selling in the short term. This category includes derivatives (refer to note 14) unless they are designated as hedges. Assets in this category are classified as current if they are expected to be realised within 12 months of the balance sheet date. F-41

174 The Group enters into various over-the-counter (OTC) forward purchases and sales contracts for the purchase and sale of commodities. Although certain of these contracts are settled by taking or making physical delivery in the normal course of business, the OTC contracts are regarded as financial instruments and are accounted for at fair value under IAS 39, where the Group has a substantive past practice of net settlement (either with the counterparty or by entering into offsetting contracts). Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities where there is a positive intention and ability to hold them to maturity. Held-to-maturity investments are included with financial receivables on the face of the balance sheet. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables include financial receivables (excluding held-to-maturity investments), trade and other receivables (excluding prepayments), trade receivables financed by banks (excluding those classified as held for trading), cash collateral deposits and cash and cash equivalents. Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term, highly liquid investments with original maturities of three months or less. Bank overdrafts are shown with borrowings. Loans and receivables are included in current assets, except for financial receivables having maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Measurement Regular purchases and sales of financial assets are recognised on trade date the date on which the Group commits to purchase or sell the asset. Financial assets are initially measured at fair value plus transaction costs. However, transaction costs in respect of financial assets classified as at fair value through profit or loss are expensed to profit or loss immediately. Transaction costs are incremental costs that are directly attributable to the acquisition of a financial asset, i.e. those costs that would not have been incurred had the asset not been acquired. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm s-length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer s specific circumstances. Financial assets and liabilities are offset where the Group currently has a legally enforceable right to offset the recognised amounts and intends to settle on a net basis. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are measured at fair value with gains or losses being recognised in profit or loss. Fair value, for this purpose, is the quoted price if listed or a value arrived at by using the discounted cash flow valuation model if unlisted. F-42

175 Over-the-counter contracts are initially recognised in the balance sheet at fair value and are subsequently remeasured to their fair value. These derivative transactions, while providing effective economic hedges under the Group s risk management policies, do not qualify for hedge accounting under the specific rules in IAS 39. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 are recognised immediately in profit or loss. Held-to-maturity investments Financial assets classified as held-to-maturity financial assets are measured at amortised cost less any impairment losses recognised in profit or loss to reflect irrecoverable amounts. Loans and receivables Loans and receivables (including those financed by banks, excluding those classified as held for trading) are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss. When a loan or receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written-off are credited to profit or loss. Available-for-sale financial assets Available-for-sale financial assets are measured at fair value with unrealised gains or losses being recognised as other comprehensive income. Fair value, for this purpose, is the quoted price if listed or a value arrived at by using appropriate valuation models if unlisted. Impairment The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Objective evidence would include, but not be limited to: a decline in the financial asset s ability to generate future cash flows, deterioration in the counterparty s credit profile, the ability to collect all amounts due according to the original terms, or the anticipated non-performance on a contract. If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss is removed from other comprehensive income and recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments are not reversed through profit or loss, increases in their fair value after impairment are recognised directly in other comprehensive income. Financial liabilities A financial liability is a contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable; or a contract that may be settled in the entity s own equity instruments and is a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity s own equity instruments or a derivative (refer to note 14) that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity s own equity instruments. A financial liability at fair value through profit or loss is a financial liability that is classified as held-for-trading or is designated as such on initial recognition. A financial liability held-for-trading is one that is incurred as part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking or a derivative (except for a derivative that is a designated and effective hedging instrument). F-43

176 Financial liabilities are initially measured at fair value plus transaction costs. However, transaction costs in respect of financial liabilities classified as at fair value through profit or loss are expensed immediately. Transaction costs are those costs that are directly attributable to the issue of a financial liability, i.e. those that would not have been incurred if the liability had not been issued. Financial liabilities that are not classified or designated on initial recognition as financial liabilities at fair value through profit or loss are measured at amortised cost. Financial liabilities that are classified or designated on initial recognition as financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value being recognised in profit or loss. Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends on these preference shares are recognised in the income statement as interest expense. Derivative liabilities are measured at fair value, with changes in fair value being recognised in profit or loss other than those designated as cash flow hedges. Borrowings (including call loans and bank overdrafts) are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest rate method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); hedges of highly probable forecast transactions (cash flow hedges); or hedges of net investments in foreign operations. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative instruments are disclosed in note 14 (derivative financial instruments). Movements on the hedging reserve in other comprehensive income are shown in note 17 (fair value and other reserves). The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability if they are expected to be realised within 12 months of the balance sheet date. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. F-44

177 Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity are recycled to profit or loss in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profit or loss. Net investment hedge Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income in equity; the gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Gains and losses accumulated in equity are included in profit or loss when the foreign operation is disposed of. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in profit or loss. Inventories Inventories, other than inventory held-for-trading purposes, are stated at the lower of cost and net realisable value. Inventories held-for-trading purposes are stated at fair value less costs to sell and any changes in net realisable value are recognised in the income statement. Cost is determined using the weighted average method. The cost of finished goods in the grain management segment is determined using the first-in first-out (FIFO) method due to its different use. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Biological assets A biological asset is a living animal or plant and an agricultural activity is the biological transformation of biological assets for sale, into agricultural produce or into additional biological assets. Biological assets are recognised at fair value less estimated point-of-sale costs, accept where the biological asset does not have a quoted market price in an active market in which case it s measured at cost less accumulated depreciation and impairment losses. Fair value is measured with reference to an active market adjusted for its present location and condition. Fair value changes are recognised in profit or loss. Biological assets carried at cost less accumulated depreciation and impairments losses are depreciated using the straight-line method over a period of 39 weeks. All the expenses incurred in establishing and maintaining the assets is recognised in profit or loss. All costs incurred in acquiring biological assets are capitalise. Finance charges are not capitalised. F-45

178 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Deferred income tax Deferred income tax is provided using the liability method on all temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss, it is not accounted for. Deferred income tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are only recognised to the extent that it is probable that taxable profits will be available against which temporary differences can be utilised, unless specifically exempted. Deferred income tax is recognised on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Foreign currency translation 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 business operates (the functional currency). The consolidated financial statements are presented in USD, which is the Group s presentation currency. 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 profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Deferred tax balances are treated as monetary assets or liabilities when translating to functional currency. Translation differences on financial assets held at fair value through profit or loss are reported as part of the fair value gain or loss. Translation differences on financial assets classified as available-for-sale financial assets are included in the fair value reserve in equity. Group companies The results and financial position of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: Assets and liabilities are translated at the closing rate at the date of the balance sheet; The opening equity is translated at the historical rate; Income and expenses for each profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and All resulting exchange differences are recognised in other comprehensive income. F-46

179 On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders equity. When a foreign operation is sold, such exchange differences are recognised in profit or loss as part of the gain or loss on sale. Leases Classification A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. An operating lease is a lease other than a finance lease. Leases are classified as finance leases or operating leases at the inception of the lease. In the capacity of a lessor Amounts due from a lessee under a finance lease are recognised as receivables at the amount of the net investment in the lease, being the gross investment in the lease discounted at the interest rate implicit in the lease, which includes initial direct costs. The gross investment in a lease is the aggregate of the minimum lease payments receivable and any unguaranteed residual value. The minimum lease payments exclude contingent rent and costs for services and includes any residual value guarantees by the lessee, a party related to the lessee or a third party unrelated to the lessor. Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease or another basis if more representative of the time pattern of the user s benefit. Contingent rentals are recognised in profit or loss as they accrue. In the capacity of a lessee Finance leases are recognised as assets and liabilities at the lower of the fair value of the asset and the present value of the minimum lease payments at the date of acquisition, being payments over the lease term, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor including any amounts guaranteed by the company or by a party related to the company. Finance costs represent the difference between the total leasing commitments and the fair value of the assets acquired. Finance costs are charged to profit or loss over the term of the lease at interest rates applicable to the lease on the remaining balance of the obligations. Rentals payable under operating leases are recognised in profit or loss on a straight-line basis over the term of the relevant lease or another basis if more representative of the time pattern of the user s benefit. Contingent rentals are recognised in profit or loss as they accrue. Employee benefits Pension obligations Group companies operate various defined contribution pension schemes. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory and contractual basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. F-47

180 Share-based payment The Group operated two equity-settled share-based compensation plans which came to an end on 2 April 2014 with the delisting of the Company from the Johannesburg Stock Exchange. Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value. Short-term benefits The cost of short-term employee benefits, such as salaries, leave pay, bonuses, medical aid and other contributions are recognised during the period in which the employee renders the service. Provisions Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Where there are a number of similar obligations for example, in the case of product warranties the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. Non-current assets or disposal groups held-for-sale and discontinued operations Non-current assets or disposal groups are classified as held-for-sale if their carrying amount will be recoverable principally through a sale transaction, not through continuing use. The condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. These assets may be a component of an entity, a disposal group or an individual non-current asset. Upon initial classification as held-for-sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair values less cost to sell. A discontinued operation is a significant distinguishable component of the Group s business that is abandoned or terminated pursuant to a single formal plan, and which represents a separate major line of business or geographical area of operation. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held-for-sale. A disposal group that is to be abandoned may also qualify as a discontinued operation, but not as assets held-for-sale. The profit or loss on sale or abandonment of a discontinued operation is determined from the formalised discontinuance date. Discontinued operations are separately recognised in the financial statements once F-48

181 management has made a commitment to discontinue the operation without a realistic possibility of withdrawal which should be expected to qualify for recognition as a completed sale within one year of classification. Contingencies and commitments Transactions are classified as contingencies where the Group s obligation depends on uncertain future events. Items are classified as commitments where the Group commits itself to future transactions or if the items will result in the acquisition of assets. Revenue recognition Revenue comprises the fair value for the sale of goods and services, net of value added tax, rebates and cash and settlement discounts and after eliminated sales within the Group. The Group assesses its revenue arrangements in order to determine if it is acting as principal or agent. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and 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. Sales of goods retail The Group retails a range of agricultural requisites and mechanised equipment through its network of retail outlets together with a variety home, garden, outdoor and DIY products, branded clothing, selected building materials, and general merchandise. Sales are recognised when the Group entity has delivered the products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured. All three of these conditions are determined when the customer is at the point-of-sale in the retail store, except when offsite physical delivery is requested, in which case the sale is deferred until delivery has taken place. Sales of goods production output The Group produces a range of animal feed products, various oils and proteins, yellow corn grits as well as wheat flour for sale to industrial food processors, livestock producers and into the fast foods market. The Group also produced and processed broilers into frozen whole birds and individually quick-frozen portions for sale into the wholesale, retail and fast foods market in the prior financial year. Sales are recognised when the Group entity has delivered the produced end product to the customer, the customer has accepted the product and collectability of the related receivable is reasonably assured. Rendering of services The Group renders the following services to its clients in the agricultural, financial services and grain processing environments: handling and storage of commodities (mainly grain), collateral management, grain procurement, servicing of mechanised equipment, crop insurance, commodity broking, debt origination and administration of debtors, specialised finance and foreign exchange. The rendering of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Interest income Interest income is recognised on a time-proportion basis using the effective interest rate method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount being the estimated future cash flow discounted at original effective interest rate of the instrument and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either as cash is collected or on a cost-recovery basis as conditions warrant. F-49

182 Royalty income Royalty income is recognised on an accruals basis in accordance with the substance of the relevant agreements. Dividend income Dividend income is recognised when the right to receive payment is established. Dividends payable Dividends payable and the related tax thereon to the Company s shareholders are recognised as a liability in the Group s financial statements in the period in which the dividends are declared by the Company s shareholders. Income tax The income tax charge for current tax is on net income before tax for the year as adjusted for income that is exempt and expenses that are not deductible using enacted tax rates. Deferred income tax is recognised for all temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at the balance sheet date. Financial risk management Financial risk factors The Group s activities expose it to a variety of financial risks: Market risk (including foreign exchange risk, cash flow and fair value interest rate risk, equity and commodity price risks); Credit risk; Liquidity risk; and Capital risk. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity. The Group s overall financial risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. These derivative financial instruments are used exclusively as hedging instruments and not for trading or other speculative purposes. Market risk Market risk relates to the risk that changes in market prices will affect the Group s income or the value of its financial instruments. Management thereof aims to limit exposure within acceptable limits, while optimising returns. Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar, Euro, Pound Sterling, Australian Dollar, Nigerian Naira, Zambian Kwacha, Zimbabwean Dollars, Ugandan Shilling, Rwandan Franc, Tanzanian Shilling, Mozambique Metical and the Ghanaian Cedi. F-50

183 Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations which are denominated in a currency that is not the entity s functional currency. To manage its foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group use forward contracts, transacted with GroCapital Financial Services Proprietary Limited (GroCapital), a wholly owned subsidiary of AFGRI Operations Proprietary Limited. GroCapital is responsible for managing the net position for the Group in each foreign currency by using external forward foreign exchange contracts. These contracts are designated at Group level as hedges of foreign exchange risk on specific assets, liabilities or future transactions. The Group s risk management policy is to hedge 100% of all committed transactions in each currency. GroCapital utilise the services of Group treasury to ensure that foreign exchange banking facilities are in place and available. The Group has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The currency risk resulting from the translation of foreign operations into the Group s reporting currency is not hedged. A monetary item that is receivable from or payable to a foreign operation and for which settlement is neither planned nor likely in the foreseeable future is considered as part of the Group s net investment in that foreign operation. These monetary items are not hedged. Monetary items receivable from or payable to a foreign operation, made on commercial terms, are subject to the same hedging policy as other commercial transactions and are hedged using forward foreign exchange contracts to the extent that the Group don t have facilities denominated in USD. The Board has issued guidelines for investments in foreign countries. Country risk is monitored on a continuous basis. Monthly exposure reports are compiled, reviewed by management and reported to the Audit, Risk and Credit Committee on a bi-annual basis. Cash flow and fair value interest rate risk Financial assets and liabilities at variable rates expose the Group to cash flow interest rate risk. The Group raises a combination of short-term and long-term debt at variable rates to fund the operations of the Group and is therefore exposed to cash flow interest rate risk to the extent that these facilities have floating rates. The Group is not exposed to fair value interest rate risk as all material borrowings are at variable rates. Equity price risk The Group is not exposed to material equity securities price risk. Commodity price risk Commodity price risk arises from the Group s significant consumption of agricultural commodities and its use of derivative financial instruments linked to underlying agricultural commodity prices. The procurement and the sale of grain is managed by Grain Management s Raw Material Procurement unit, a division of AFGRI Operations Proprietary Limited through the application of policies and guidelines approved by the Board. The Group s agricultural commodity activities include the procurement of product from producers and the marketing of these products to consumers of agricultural commodities. A timing difference arises between the procurement and the supply of the product. During this period both the procurement and supply positions are fully hedged. The procurement of strategic commodities and raw materials for the Group s processing, milling and feed manufacturing operations is managed by the AFGRI Foods Procurement department. The Group is exposed to market risk where strategic commodities procured are utilised or processed further to manufacture final goods. The Group is inherently exposed to the price movements of maize, wheat, soymeal, soybeans, and sunflower seed and exchange rate fluctuations resulting from its participation on local and international commodity and derivatives exchanges. F-51

184 Commodity price risk arises from fluctuating supply and demand conditions, world inventory balances, weather, economic conditions and other factors. The Group may suffer financial loss due to fluctuating commodity prices and a fluctuating local currency which can lead to a cost disadvantage compared to competitors. The procurement of strategic commodities for utilisation by the Group is subject to the risk management and hedging policy through the application of financial instruments such as commodity futures, option contracts as well as physical supply contracts and over the counter instruments to reduce the volatility of input prices of commodities and raw materials in order to mitigate price risk. The AFGRI Foods Procurement Committee manages AFGRI Food s commodity price risk. The monitoring and management of positions, corresponding hedges and marked-to-market values is performed on a weekly basis by the AFGRI Foods Procurement department. It is however the responsibility of the respective managing directors to ensure that all trades are within the approved exposure limits and also conform to the agreed strategies on a daily basis. The Group offers brokerage services to producers and consumers of agricultural commodities such as wheat, sunflower, maize and soya. This offering generates no exposure to market risk due to the back-to-back nature of the transactions. Credit risk Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract and arises principally from trade (current), seasonal, capital goods financing, and forward purchase contracts for agricultural commodities. The Group is exposed to the agricultural and food industries and has concentrations of credit risk in this regard. The Group s maximum exposure to credit risk can be considered to be the sum of the following financial assets: Financial receivables; Other financial assets; Trade and other receivables including those financed by banks, (excluding prepayments); Cash and cash equivalents and cash collateral deposits; and Derivative financial instruments. Since 2012 the Financial Services segment originates debt primarily with the implicit intention to sell the underlying contracts to the Land Bank. The origination of the debt is in terms of a credit policy approved by the Land Bank. Credit risk is managed on behalf of the Land Bank in terms of the approved policy. The Group has policies and procedures in place to ensure that sales of products and services are made to customers after an appropriate credit assessment. The Board has delegated the responsibility for the management of credit risk to the Group Audit, Risk and Credit Committee. Line managers within the Group are awarded mandates under the AFGRI Group Credit Policy with supplemented divisional credit policies, which also caters for divisional specific requirements, in order to manage the day-to-day credit decisions necessary to conduct business. The Group Audit, Risk and Credit Committee oversees the development and application of credit risk mitigating practices throughout the Group. In addition to the divisional credit function within Financial Services, where the bulk of credit exposure arises, the Group credit function within the Group s Legal and Compliance department manages the Group credit function and reports to the Group Audit, Risk and Credit Committee. Similarly, the validity and financial stability of counterparties must be determined by Financial Services before forward purchase contracts are entered into. F-52

185 Key elements of the control environment established to manage credit risk include: the establishment of mandates for the Group Credit Committee and senior divisional line managers within the Group; AFGRI Group, divisional and subsidiary credit policies; evaluation and scoring models, allowing for the categorisation of credit applications into predefined risk categories; predefined security requirements and Group guidelines for the valuation of collateral; compliance with both the National Credit Act (NCA) and Financial Intelligence Centre Act (FICA); where applicable, farmer debtors are covered by credit life insurance; the individual credit management of both individually large and corporate customers; documented procedures to elevate out of mandate decisions; controlling cross-border exposures; regular reviews of performance and effectiveness of divisions and subsidiaries credit approval processes; and a workout and recovery unit to effectively recover debt when default has occurred. The Group Audit, Risk and Credit Committee meets three time a year and is provided with the following reports to enable it to assess the Group s exposure to credit risk and the effectiveness of the control environment: summary of large exposures (R100 million and above); analysis of facilities outstanding per type of facility; distribution of outstanding facilities per risk rating; security position per risk class; impairment allowance balances as a percentage of the book value of debtors per business unit; movement in impairment charges; a summary of debtors managed on behalf of the Land Bank (number and value); analysis of lending rates (prime vs Land Bank vs rates charged) analysis of facilities outside arrangement (with or without arrangement); workout and recoveries analysis; recommended amendments to credit policies; credit applications submitted for consideration; and bi-annual industry overview of the farmer lending debtors book The Group categorises its trade receivables into three classes, namely current, seasonal and capital goods. Current represents those trade receivables which are offered on normal trading terms such as 30, 60 and 90 days. Seasonal includes trade receivables which have been provided to finance primary producers crops during a given season. Capital goods represent credit offered to purchase capital agricultural goods such as tractors. All three classes of credit are available to both primary producers and corporate customers, bearing in mind that many primary production activities are conducted by incorporated entities. It is the Group s policy to ensure that loans and receivables are within the customer s capacity to repay. In principle, loans are only granted if they can be secured. Depending on the customer s standing and the type of F-53

186 product, facilities may be unsecured. This will typically relate to clients with high net worth and proven repayment ability. Nevertheless, collateral is an important mitigant of credit risk. To mitigate credit risk in the commodity trading environment, the validity and financial stability of all counterparties is determined by Financial Services in terms of the Group s credit policy. Counterparty performance is monitored throughout the crop season in order to identify at an early stage potential default. In addition, management reviews the Group s concentration of risk in terms of market sector, geographic region and agricultural commodity, especially maize. Counterparty performance is also encouraged through the deployment of compliance teams during harvesting periods. GroCapital s broking clients are required to either make upfront cash deposits within the predetermined minimum levels prescribed by SAFEX, for initial margin plus two days market movement; or a SAFEX initial margin credit facility must be approved beforehand. The client is also required to either make cash deposits for the minimum variation margin requirement and/or the amount exceeding the trading limit by midday of the following business day; or a SAFEX variation margin credit facility must be approved beforehand. Failure to meet these requirements will result in the client s position being closed immediately. The Group also has guidelines that limit the amount of credit exposure to any financial institution. Divisions and subsidiaries are required to implement guidelines on the acceptability of specific classes of collateral for credit risk mitigation, and determine suitable valuation parameters. Such parameters are expected to be conservative, reviewed regularly and supported by empirical evidence such as the realisable value in case of default. Security structures and legal covenants are subject to regular review to ensure that they continue to fulfil their intended purpose and remain in line with local market practice. The principal types of collateral are as follows: Mortgages over properties, and charges over movable assets and debtors in the personal sector; and Charges over business assets such as premises, inventory (including agricultural produce) and debtors in the corporate sector. The Group s credit grading systems are designed to highlight exposures which require closer management attention because of their greater probability of default and potential loss. Risk ratings are reviewed regularly and amendments, where necessary, are implemented promptly. The credit quality of unimpaired loans and receivables is assessed by reference to the grading system. Loans and receivables are treated as impaired as soon as there is objective evidence that an impairment loss has been incurred. The criteria used by the Group to determine that there is such objective evidence include, inter alia: known cash flow difficulties experienced by the borrower; overdue contractual payments of either principal or interest; breach of loan covenants or conditions; the probability that the borrower will enter bankruptcy or other financial realisation; and a downgrading in credit rating by an external credit rating agency. The Group s policy is that each division and subsidiary makes allowances for impaired loans and receivables promptly and on a consistent basis. Loans and receivables are assessed for impairment on an individual basis. In determining allowances on individually assessed accounts, the outstanding credit amounts are compared with the recoverable securities. Security values are adjusted for the time value of money excluding all securities realised within 12 months and bonds. Group policy requires the level of impairment allowances on individual facilities that are above a materiality threshold be reviewed at least semi-annually, and more regularly when individual circumstances require. When impairment losses occur, the Group reduces the carrying amount of loans and receivables and held-to-maturity financial investments through the use of an allowance account. When impairment of F-54

187 available-for-sale financial assets or financial assets at fair value through profit or loss occurs, the carrying amount of the asset is reduced directly. Management regularly evaluates the adequacy of the established allowances for impaired loans and receivables by conducting a detailed review of the portfolio, comparing performance and delinquency statistics with historical trends and assessing the impact of current economic conditions. Any calculated shortfall between the total individual impairment allowance account and the estimated portfolio impairment is adjusted for. Liquidity risk Liquidity risk is the risk that the Group has insufficient financial resources to meet its obligations as and when they fall due or that such resources will only be available at excessive costs. This risk arises from mismatches in the timing of cash flows. Funding risk (a particular form of liquidity risk) arises when the necessary liquidity to fund illiquid asset positions cannot be obtained at the expected terms when required. Prudent liquidity risk management implies maintaining an adequate percentage of total Group debt in the long term as well as sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the Group s underlying businesses, Group treasury aims to maintain flexibility in funding by keeping committed credit lines available. The objective of the Group s liquidity and funding management is to ensure that all foreseeable funding commitments can be met when due, and that funding market access is co-ordinated and cost-effective. It is the Group s objective to maintain a stable funding base comprising institutional funding facilities with the objective of enabling the Group to respond quickly and smoothly to any unforeseen liquidity requirements. The Group strives to maintain a strong liquidity position and to manage the liquidity profile of its assets, liabilities and commitments with the objective of ensuring that cash flows are appropriately balanced and all obligations are met when due. The management of liquidity and funding is performed centrally by Group treasury in accordance with practices and limits set by the Board and the process includes: projecting cash flows and establishing the level of liquidity facilities necessary; monitoring balance sheet liquidity ratios against internal requirements; maintaining a diverse range of funding sources; managing the concentration and profile of debt maturities; maintaining debt financing plans; monitoring lender concentrations in order to avoid undue reliance on individual lenders and ensuring a satisfactory overall funding mix; maintaining liquidity and funding contingency plans; and giving due consideration to cash balances in jurisdictions outside the borders of South Africa and the possibility that regional cash restrictions might be applied to these balances. Capital risk The Group manages its capital (being the capital and reserves attributable to the Company s equity holders) centrally in terms of rates of returns (either ROCE or RONA) established for each of the Group s various operating segments. Operating segments are re-geared annually, allocating Group equity equitably. The Group monitors its level of borrowings and anticipates future requirements through the application of an Asset and Liability Committee (ALCO) model. The ALCO meets quarterly and advises management and the Board. The committee also confirms the Group s operating segments weighted average cost of capital, a key consideration when setting return targets for operating segments. F-55

188 In the main, the Group funds its operations through a combination of equity, long-term and short-term debt. In order to improve the maturity profile of the Group s overall debt, the R1.5 billion term debt was renegotiated during the current financial year and replaced with a R2.5 billion term debt facility with certain of the Group s silo s serving as security. In terms of some of the Group s funding agreements, the Group is obliged to meet certain financial covenant ratios. Compliance thereof are checked regularly. Furthermore, a registered member on SAFEX must have, at all times, own funds equal to the greater of either R400,000 or 13 weeks of operating costs plus position, settlement, large exposure and foreign exchange risk requirements. GroCapital Broking Services Proprietary Limited submits monthly capital returns demonstrating compliance with this requirement. During the year the Group was in compliance with all the financial covenants relating to its material borrowings. Fair value estimation Fair value estimations are classified into the following hierarchies, based on the method used to determine fair value: Level 1 unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 valuation techniques using inputs other than quoted prices included within level 1. These inputs are observable for the asset or liability either directly (as prices in the market) or indirectly (derived from prices in the market). Level 3 valuation techniques using inputs that are not observable in the market for the asset or liability. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm s length basis. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using appropriate valuation techniques. These valuation techniques maximise the use of observable market data if available and rely as little as possible on entity specific estimates. If all significant inputs are observable, the instrument is included in level 2. If one or more significant input is not based on observable market data, then the instrument is included in level 3. Valuation techniques include the discounted cash flow method with assumptions that are based on market conditions existing at each balance sheet date. The fair value of forward foreign exchange contracts is determined using quoted forward exchange market rates at the balance sheet date. The carrying amount (net of impairment where relevant) of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. Government grants and assistance Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government includes government agencies and similar bodies whether local, national or international. Government assistance is action by government designed to provide an economic benefit specific to an entity or F-56

189 range of entities qualifying under certain criteria. A government grant is assistance by government in the form of transfers of resources. When the conditions attaching to government grants have been met and have been received, they are recognised in profit or loss on a systematic basis over the periods necessary to match them with the related costs. When they are for expenses or losses already incurred, they are recognised in profit or loss immediately. The unrecognised portion at the balance sheet date is presented as deferred income (included under other payables and accruals). No value is recognised for government assistance. Comparative figures Comparative figures are restated in the event of a change in accounting policy, prior period error or reclassification. F-57

190 AFGRI HOLDINGS (PTY) LTD GROUP BALANCE SHEET At 31 March 2016 (all amounts in USD thousands) 31 March 31 March Note ASSETS Non-current assets , ,638 Property, plant and equipment , ,297 Goodwill Other intangible assets ,894 21,919 Investments in associates ,641 3,715 Investments in joint ventures ,311 29,391 Other financial assets... 7/8 2,039 2,312 Financial receivables... 7/9 7,216 9,162 Deferred income tax assets ,175 16,842 Current assets , ,863 Inventories , ,175 Trade and other receivables... 7/12 108, ,609 Trade receivables financed by banks... 7/12/13 33,302 44,087 Derivative financial instruments... 7/14 20,049 10,980 Other financial assets... 7/8 2,854 2,890 Income tax assets... 3,262 3,715 Cash and cash equivalents and cash collateral deposits... 7/15 34,321 29,407 Cash collateral deposits... 9,447 10,485 Cash and cash equivalents... 24,874 18,922 Assets of disposal groups classified as held-for-sale ,390 Total assets , ,891 EQUITY AND LIABILITIES Capital and reserves attributable to the Company s equityholders... (31,882) (17,380) Share capital Fair value and other reserves (9,647) (3,353) Retained earnings (22,603) (14,395) Non-controlling interest ,173 72,287 Total equity... 39,291 54,907 Non-current liabilities , ,634 Borrowings... 7/20 180, ,555 Derivative financial instruments... 7/14 83 Deferred income tax liabilities ,773 49,501 Other financial liabilities... 7/ Current liabilities , ,922 Trade and other payables... 7/22 130, ,599 Derivative financial instruments... 7/14 9,922 7,513 Other financial liabilities... 7/25 4,486 4,871 Income and other tax liabilities... 3,475 1,744 Short-term portion of long-term borrowings... 7/23 114, ,770 Short-term borrowings and bank overdrafts... 7/15 46,826 65,717 Commodity finance... 7/15 42,069 22,704 Borrowings from banks to finance trade receivables... 7/13 37,651 44,004 Liabilities of disposal groups classified as held-for-sale ,428 Total liabilities , ,984 Total equity and liabilities , ,891 F-58

191 AFGRI HOLDINGS (PTY) LTD GROUP INCOME STATEMENT For the year ended 31 March 2016 (all amounts in USD thousands) 31 March 31 March Note Continuing operations: Sales of goods and rendering of services , ,223 Interest on other trade receivables... 3,919 4,970 Total revenue , ,193 Cost of sales (583,658) (611,443) Gross profit , ,750 Other operating income ,055 Selling and administration expenses (123,294) (207,992) Operating profit/(loss)... 27/30 35,187 (32,187) Negative goodwill on business combinations ,452 Interest received ,556 3,226 Finance costs (35,978) (36,646) Share of (loss)/profit of joint ventures... 6 (1,234) 1,807 Share of profit of associates Profit/(loss) before income tax... 1,821 (24,348) Income tax expense (4,801) 4,912 Loss for the year from continuing operations... (2,980) (19,436) Discontinued operations: Loss for the year from discontinued operations (2,440) Loss for the year... (2,980) (21,876) Loss for the year attributable to: Equityholders of the Company... (7,163) (14,179) Non-controlling interest BEE partners... 4,546 (6,974) Other non-controlling interest... (363) (723) Loss for the year... (2,980) (21,876) Loss per share from continuing operations attributable to the equityholders of the Company during the year (cents per share)... (1.94) (3.17) Loss per share from discontinued operations attributable to the equityholders of the Company during the year (cents per share)... (0.66) Loss per share from all operations attributable to the equityholders of the Company during the year (cents per share) (1.94) (3.83) Diluted loss per share from continuing operations attributable to the equityholders of the Company during the year (cents per share)... (1.94) (3.17) Diluted loss per share from discontinued operations attributable to the equityholders of the Company during the year (cents per share)... (0.66) Diluted loss per share from all operations attributable to the equityholders of the Company during the year (cents per share) (1.94) (3.83) F-59

192 AFGRI HOLDINGS (PTY) LTD GROUP STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 March 2016 (all amounts in USD thousands) 31 March 31 March Note Loss for the year... (2,980) (21,876) Other comprehensive income/(loss): Items that may be reclassified to profit and loss subsequently Foreign exchange translation differences... (6,158) (11,119) Cash flow hedges... (408) 413 Share of comprehensive income/(loss) from joint ventures (330) Other comprehensive income/(loss) for the year, net of tax... (6,294) (11,036) Total comprehensive income/(loss) for the year... (9,274) (32,912) Total comprehensive income/(loss) attributable to: Equityholders of the Company... (13,457) (25,215) Non-controlling interest BEE partner... 4,546 (6,974) Other non-controlling interest... (363) (723) (9,274) (32,912) F-60

193 AFGRI HOLDINGS (PTY) LTD GROUP STATEMENT OF CHANGES IN EQUITY For the year ended 31 March 2016 (all amounts in USD thousands) Total Other Fair value Incentive share- Non- Share and other Retained Treasury trust holders BEE controlling Total capital reserves earnings shares shares equity partners interests equity 1 April 2014 (at effective date of acquisition) (17) Acquisition of subsidiary... 82, ,056 Profit/(Loss) for the year... (14,179) (14,179) (6,974) (723) (21,876) Other comprehensive loss for the year. (11,036) (11,036) (11,036) Share based payment... 7,700 7,700 7,700 Dividends paid... (242) (242) (242) Payment to non-controlling interests.. (3,072) (3,072) Balance 31 March (3,353) (14,395) (17,380) 72,630 (343) 54,907 Profit/(Loss) for the year... (7,163) (7,163) 4,546 (363) (2,980) Other comprehensive loss for the year. (6,294) (6,294) (6,294) Dividends paid... (174) (174) (174) Payment to non-controlling interests.. (6,168) (6,168) Transaction with non-controlling interests... (871) (871) 871 Balance 31 March (9,647) (22,603) (31,882) 71, ,291 F-61

194 AFGRI HOLDINGS (PTY) LTD GROUP CASH FLOW STATEMENT For the year ended 31 March 2016 (all amounts in USD thousands) 31 March 31 March Note Operating activities Cash generated from operations , ,282 Finance costs... (35,325) (35,923) Interest received... 3,048 2,684 Income tax paid (4,988) (9,380) Net cash generated from operating activities... 35,531 98,663 Investing activities Purchase of property, plant and equipment (21,120) (33,432) Purchase and acquisition of intangible assets... (1,306) (1,084) Proceeds from disposal of property, plant and equipment ,702 2,530 Proceeds from the disposal of assets and liabilities of disposal groups classified as held-for-sale... 8,400 Financial receivables granted... (838) (2,269) Financial receivables repaid... 1,835 15,722 Acquisition of shares in associates... (3,111) (181) Disposal of shares in associates Acquisition of shares in joint ventures... (181) Proceeds from disposal of shares in subsidiary net of cash disposed... 87,595 Acquisition of business net cash acquired /7 (10,396) (62,371) Net cash (utilised in)/generated from investing activities... 64,761 (81,176) Financing activities Dividends paid (174) (242) Payments made to other non-controlling interests... (6,168) (3,072) Proceeds from/(repayment of) shareholder loans... (192,769) (169,959) Proceeds from/(repayment of) borrowings , ,641 Net cash utilised in financing activities... (40,406) (69,632) Net increase/(decrease) in cash and cash equivalents... 59,886 (52,145) Cash and cash equivalents at beginning of year... (123,907) (71,762) Cash and cash equivalents at end of year... (64,021) (123,907) Cash collateral deposits... 9,447 10,485 Cash and cash equivalents and cash collateral deposits... (54,574) (113,422) Included in cash and cash equivalents and cash collateral deposits (54,574) (59,014) Included in assets from disposal groups classified as held-for-sale (54,408) F-62

195 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS For the year ended 31 March 2016 (all amounts in USD thousands) 1 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely 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 discussed below. 1.1 Impairment of debtors A provision for impairment of trade receivables 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. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Management considers the following when estimating the provision to be recognised in the income statement: Identification of specific non-performing debtors The provision for individual debtors only takes the difference between total debt less security available into account. Security required was initially established as part of the credit granting policy and the risk profile of the debtor. Time value of security available from specific non-performing debtors The recovery period after identifying a specific non-performing debt is assessed. Based on experience, management discounts the security that will eventually be obtained to its current value. As a result, the value of the security is reduced. These in turn result in a top-up portion being provided for to accrue for the time value shortfall. Review of the recovery history of securities Management assesses the recoverability of securities based on past experience and may adjust the security downward. The shortfall would result in an increase in the provision required. 1.2 Estimates of assets lives, residual values and depreciation methods Property, plant and equipment are depreciated over their useful lives taking into account residual values. Useful lives and residual values are assessed annually. Useful lives are affected by technology innovations, maintenance programmes and future productivity. For the majority of property, plant and equipment, depreciation is calculated on a straight line which may not represent the actual usage of the asset. 1.3 Impairment assessments of assets and intangibles Impairment assessments on property, plant and equipment are only performed once there are impairment indicators. Goodwill and other intangible assets are assessed for impairment annually. Future cash flows are based on management s estimate of future market conditions. Such cash flow projections are then discounted and compared to the current carrying value, and if lower the assets are impaired to the present value of the cash flows. Impairment assessments are based on information available at the time and these conditions may change after year-end. 1.4 Recognition and derecognition of deferred tax assets The recognition of deferred tax assets is appraised semi-annually. Future cash flows are based on management s estimate of future market conditions. The tax impact of such cash flow projections are compared to the carrying value, and if lower the deferred tax assets are derecognised. These assessments are based on information available at the time and these conditions may change after year-end. During the year the Group reinstated the deferred tax asset relating to assessed losses in Australia to the value of USD0.55 million given the recovery reported by this business unit. The Group also derecognised the deferred tax asset relating to its Ugandan business given the unit s second consecutive year of trading losses. 1.5 Inventory net realisable values and impairment assessments Inventory, other than inventory held for trading purposes, is valued at the lower of cost or net realisable value. Assessments are performed semi-annually and are based on management s estimates of future market conditions. F-63

196 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 1 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) 1.6 Valuation of financial instruments Financial instruments are fair valued at balance sheet date. The value of financial instruments are subject to material fluctuations and therefore disclosed amounts may differ from the value ultimately realised. 1.7 Derecognition of trade receivables financed by banks During 2015 the Group s Zambian operation sold its debtor book to First National Bank (FNB). The Group also sold its farmer lending and corporate debtor books to the Land Bank during the 2012 financial year. As a result, these assets were derecognised under the principles of IAS 39, which application required management judgement. Refer to note 13.2 for more information and related disclosures. 1.8 Consolidation of entities in which the Group holds less than 50% Management considers that the Group has control of AFGRI Zimbabwe (Private) Limited even though it has less than 50% of the voting rights. Considering voting rights as well as the impact of contractual agreements, management concluded that the Group has the power to direct the relevant activities of the business, being those activities that significantly affect returns. This conclusion required management judgement. The Group further has the right to, and is exposed to, variable returns from the operations. 1.9 Joint ventures in which the Group holds less than 50% Management considers that the Group has joint control of Collateral Management International Zimbabwe Limited even though it has 40% of the voting rights. Considering voting rights as well as the impact of contractual agreements, management concluded that the Group jointly direct the relevant activities of the business, being those activities that significantly affect returns. This conclusion required management judgement. The Group further has the right to, and is exposed to, variable returns from the operation Joint arrangements Where the Group has joint control over an arrangement under contractual agreements, unanimous consent is required from all parties to the agreements for all relevant activities. The Group s joint arrangements are all structured as separate companies (refer to Appendix B in this annual report). These arrangements provide the Group and the parties to the agreements with rights to the net assets of the companies under the arrangements and are therefore all classified as joint ventures. Management applied judgement in considering these arrangements and the Group s power under these arrangements. 2 PROPERTY PLANT AND EQUIPMENT 31 March 31 March Cost , ,825 Land... 3,832 4,580 Buildings and improvements... 94, ,105 Machinery and equipment , ,900 Vehicles... 24,761 26, Accumulated depreciation and impairments... (58,150) (57,528) Buildings and improvements... (14,457) (13,626) Machinery and equipment... (35,169) (35,683) Vehicles... (8,524) (8,219) 2.3 Net carrying value , ,297 Land... 3,832 4,580 Buildings and improvements... 80,164 89,479 Machinery and equipment , ,217 Vehicles... 16,237 18, The registers of land and buildings are available for inspection at the registered offices of the respective companies. F-64

197 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 2 PROPERTY PLANT AND EQUIPMENT (Continued) 2.5 Included in buildings and improvements are silo facilities with a carrying value of USD 24.4 million (2015: USD 25.1 million). These silo facilities are a major income-generating asset of the Group. The replacement value of these facilities is estimated at USD375.6 million (2015: USD430.5 million). Some of these silo facilities are encumbered and served as security for the Land Bank loan. The carrying value of encumbered facilities was USD7.6 million (2015: USD9.3 million) with a replacement value estimated at USD161 million (2015: USD197.2 million). 2.6 Refer to Note 41.1 for the Group s commitments for the acquisition of property, plant and equipment. 2.7 Included in buildings, machinery & equipment and vehicles are leased assets to the value of USD6.9 million (2015: USD10 million). These assets serve as security for finance leases. (Refer Note 20.2). F-65

198 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 2 PROPERTY PLANT AND EQUIPMENT (Continued) 31 March 31 March Movements for the year Opening carrying value ,297 Land... 4,580 Buildings and improvements... 89,479 Machinery and equipment ,217 Vehicles... 18,021 Additions at cost... 21,120 33,432 Land Buildings and improvements... 4,572 9,849 Machinery and equipment... 13,572 20,511 Vehicles... 2,976 2,801 Acquisition of subsidiaries and joint ventures... 3, ,201 Land... 7,841 Buildings and improvements... 2, ,013 Machinery and equipment... 1, ,354 Vehicles ,993 Transfers... Land... Buildings and improvements... 1,814 2,530 Machinery and equipment... (1,814) (2,530) Vehicles... Exchange differences... (44,101) (47,537) Land... (675) (1,039) Buildings and improvements... (14,022) (16,486) Machinery and equipment... (26,861) (27,185) Vehicles... (2,543) (2,827) Disposals at carrying value... (2,541) (2,168) Land... (73) (181) Buildings and improvements... (581) (1,084) Machinery and equipment... (1,669) (542) Vehicles... (218) (361) Borrowing costs capitalised Buildings and improvements... Machinery and equipment Vehicles... Depreciation charge... (13,194) (19,048) Buildings and improvements... (3,219) (5,245) Machinery and equipment... (7,819) (10,952) Vehicles... (2,156) (2,851) F-66

199 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 2 PROPERTY PLANT AND EQUIPMENT (Continued) 31 March 31 March Assets classified as held-for-sale... (60,764) Land... (2,312) Buildings and improvements... (25,098) Machinery and equipment... (31,620) Vehicles... (1,734) Impairment charge... (871) (90) Land... Buildings and improvements... Machinery and equipment... (871) (90) Vehicles... Closing carrying value , ,297 Land... 3,832 4,580 Buildings and improvements... 80,164 89,479 Machinery and equipment , ,217 Vehicles... 16,237 18,021 3 GOODWILL 31 March 31 March Cost , Accumulated impairments... (1,141) 3.3 Net carrying value Movement for the year Acquisition of subsidiaries (refer note 43) ,141 Impairment... (1,141) Exchange differences... (14) Closing carrying value Impairment assessments for goodwill and other intangible assets Goodwill is allocated to the Group s cash-generating units identified according to operating segments A segment-level summary of the goodwill allocation is presented below: 31 March 31 March Agri Services: Grain Management... Equipment Australia Group The recoverable amount of a business unit is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are F-67

200 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 3 GOODWILL (Continued) extrapolated using estimated growth rates stated below. The growth rate does not exceed the long-term average growth rate for the business segment in which the operating segment operates Key assumptions used for value-in-use calculations Gross margin Discount growth rate (1) rate (2) Investment and Development % 19.6% Agri Services % 19.3% Foods % 20.8% These assumptions have been used for the analysis of each cash-generating unit within the business segment. (1) Represents the segment average annual growth in gross margin for the four years (years 2 5) following the initial budget period (year 1). The growth includes anticipated volume growth together with any anticipated growth in the gross margin percentage, and assumes approved and committed capital expenditure is commenced and effected. (2) Pre-tax discount rate applied to the cash flow projections. Management determined the budgeted gross margin based on past performance and its expectations for market development. The growth rates used to calculate terminal values are consistent with the forecasts included in industry reports and do not exceed 2%. The discount rates used are pre-tax and reflect the risks. F-68

201 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 4 OTHER INTANGIBLE ASSETS 31 March 31 March Cost... 65,992 77,523 Trademarks and patents... 51,040 60,516 Computer software... 14,952 17,007 Other Accumulated amortisation and impairments... (50,098) (55,604) Trademarks and patents... (40,107) (44,789) Computer software... (9,991) (10,815) Other Net carrying value... 15,894 21,919 Trademarks and patents... 10,933 15,727 Computer software... 4,961 6,192 Other Movement for the year Opening carrying value... 21,919 Trademarks and patents... 15,727 Computer software... 6,192 Other... Additions at cost... 1,306 1,084 Trademarks and patents Computer software... 1,161 1,084 Other... Acquisition of subsidiaries... 1,112 73,685 Trademarks and patents... 1,112 66,364 Computer software... 7,321 Other... Exchange differences... (3,679) (5,729) Trademarks and patents... (2,594) (4,781) Computer software... (1,085) (948) Other... Amortisation charge... (4,691) (10,789) Trademarks and patents... (3,457) (9,614) Computer software... (1,234) (1,175) Other... F-69

202 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 4 OTHER INTANGIBLE ASSETS (Continued) 31 March 31 March Impairment charge... (73) (36,332) Trademarks and patents... (36,242) Computer software... (73) (90) Other... Closing carrying value... 15,894 21,919 Trademarks and patents... 10,933 15,727 Computer software... 4,961 6, Included under trademarks and patents are the following: John Deere franchise agreements AFGRI Equipment... 5,531 8,642 Jock trademark AFGRI Animal Feeds Customer relationships Various... 5,266 7,085 Total carrying value... 10,933 15, Included under computer software are the following: Group SAP software... 3,602 4,954 Other software... 1,359 1,238 Total carrying value... 4,961 6, The intangible assets included above have finite useful lives, over which the assets are amortised. The following are applicable to the intangible assets disclosed: Average amortisation periods Remaining useful lives Franchise agreements years 3 20 years Trademarks and patents... 5 years 1 5 years Computer software years 1 5 years F-70

203 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 5 INVESTMENTS IN ASSOCIATES 5.1 Shares in unlisted associates (refer Appendix C) 31 March 31 March Opening carrying amount... 3,715 Purchased during the year... 3,111 4,364 Foreign currency differences... (863) (559) Sold during the year... (90) Impaired during the year... (612) Share of profit after income tax Closing carrying amount... 5,641 3, Share in LTP Holdings Proprietary Limited During the 2009 financial year the Group acquired a 45% shareholding in LTP Holdings Limited for no consideration of which 1.75% was disposed of in the 2012 financial year resulting in the current shareholding of 43.25%. LTP Holdings Limited is a property holding company which leases a processing site to a pool of farmers for the processing of tobacco Share in other associates The Group acquired a 45% shareholding in Todi River Farms, a maize and soya beans farm domicile in the Congo. On 9 March 2016, the Group sold a 51% controlling stake in GroCat Proprietary Limited to Barberry Holdings Proprietary Limited resulting in this investment to be disclosed as an associate. A listing of the Group s investments in associates is provided in Appendix C to this annual report. The performance of these ventures are analysed in note The summarised financial information of associates represent 100% of the associates income statement and balance sheet, all of which are unlisted, are as follows: Other Tobacco Total Income Statement: Revenue... 7,185 5,240 44,780 49,064 51,965 54,304 Gross profit... 2,903 2,439 4,645 5,151 7,548 7,590 Other... (2,758) (2,439) (3,484) (3,705) (6,242) (6,144) Profit before interest and tax ,161 1,446 1,306 1,446 Finance cost... (290) (871) (994) (1,161) (994) (Loss)/profit before taxation... (145) Taxation... (363) (90) 90 (363) (Loss)/profit after taxation... (508) (90) (218) 452 Other comprehensive income Total comprehensive income (90) Balance sheet: Non-current assets... 2,582 1,816 9,923 10,898 12,505 12,714 Cash and cash equivalents... 1, ,039 7,348 3,262 8,338 Other current assets... 3,534 1,488 18,894 27,656 22,428 29,144 Total assets... 7,339 4,294 30,856 45,902 38,195 50,197 F-71

204 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 5 INVESTMENTS IN ASSOCIATES (Continued) Other Tobacco Total Financial liabilities non-current... (9,650) (1,238) (7,612) (13,540) (17,262) (14,778) Other non-current liabilities... (1,495) (1,239) (1,427) (1,651) (2,922) (2,890) Financial liabilities current... (68) (8,835) (9,907) (8,903) (9,907) Other current liabilities... (1,019) (1,239) (3,195) (10,237) (4,214) (11,476) Total liabilities... (12,232) (3,716) (21,069) (35,335) (33,301) (39,051) Net assets... (4,893) 578 9,787 10,567 4,894 11,145 Reconciliation of summarised information: Opening net assets 1 April ,567 11,145 Arising during the year... (4,064) 1,512 11,599 (4,064) 13,111 Profit/(Loss) for the year... (508) (90) (218) 452 Other comprehensive income for the year Foreign exchange differences... (1,117) (121) (1,070) (1,574) (2,187) (1,695) Impaired during the year... (653) (653) Sold during the year... (723) (723) Closing net assets... (4,893) 578 9,787 10,567 4,894 11,145 Interest in associates (percentage) Interest in associate... (2,379) 247 4,214 4,541 1,835 4,788 Goodwill... 4,486 (2,039) (2,476) 2,447 (2,476) Other ,061 1,254 1,069 1,313 Impairment of interest in associate Profits/(losses) not recognised (653) (181) Carrying value... 3, ,583 3,138 5,641 3,715 There are no contingent liabilities relating to the Group s and Company s interest in the associates. 6 INVESTMENTS IN JOINT VENTURES 6.1 Shares in unlisted joint ventures (refer Appendix B) 31 March 31 March Opening carrying amount... 29,391 Arising during the year... 33,139 Foreign currency differences... (4,846) (4,796) Sold during the year... Classified as held-for-sale (refer note 32)... (578) Share of losses after income tax (included under discontinued operations)... (181) Share of (loss)/profit after income tax... (1,234) 1,807 Closing carrying amount... 23,311 29, Shares in Hinterland Proprietary Limited The Group acquired a 50% shareholding in Hinterland Proprietary Limited (Hinterland) on 1 June As disclosed previously the Group and Senwes Limited ( Senwes ) concluded a binding sale of business agreements in terms of which the Group and Senwes merged their respective agricultural retail businesses, as well as the Partrite business of AFGRI into a new company, Hinterland Proprietary Limited. F-72

205 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 6 INVESTMENTS IN JOINT VENTURES (Continued) During the prior financial year Prodist Proprietary Limited (hereafter Prodist), a subsidiary of Hinterland Proprietary Limited issued shares to an external party. This resulted in a change in the shareholding of the Group s interest in the joint venture of USD0.33 million. This, together with the Group s share of Hinterland s performance (see analysis note 6.2) resulted in a carry value of USD22 million (2015: USD28.6 million) for this investment Shares in other joint ventures A listing of the Group s investments in joint ventures are provided in Appendix B to this annual report. The Group acquired 50% of GeoAgro SA Proprietary Limited, a technology-solution company that provides software tools, geo-data processing and support in the use of technologies for precision farming. 6.2 The summarised financial information of joint ventures represent 100% of the joint venture s income statement and balance sheet, all of which are unlisted, are as follows: Other Hinterland Total Income Statement: Revenue... 18,652 27,469 66, ,766 85, ,235 Gross profit... 4,210 5,060 31,643 39,848 35,853 44,908 Other... (3,847) (3,885) (30,337) (32,348) (34,184) (36,233) Profit before interest and tax ,175 1,306 7,500 1,669 8,675 Finance cost... (73) (91) (2,249) (3,614) (2,322) (3,705) Profit/(loss) after taxation ,084 (943) 3,886 (653) 4,970 Taxation... (362) (542) (1,525) (904) (1,887) (1,446) Profit/(loss) after taxation... (72) 542 (2,468) 2,982 (2,540) 3,524 Other comprehensive income/(loss) (361) 653 (361) Total comprehensive income/(loss) (2,468) 2,982 (1,887) 3,163 Balance sheet: Non-current assets... 10,058 8,255 42,545 45,986 52,603 54,241 Cash and cash equivalents... 4,350 3,880 7,068 11,418 3,880 Other current assets... 2,243 2,312 57,360 58,947 59,603 61,259 Total assets... 16,651 14, , , , ,380 Financial liabilities non-current... (272) (9,247) (272) (9,247) Other non-current liabilities... (7,204) (660) (6,524) (7,761) (13,728) (8,421) Financial liabilities current... (815) (908) (35,069) (25,924) (35,884) (26,832) Other current liabilities... (6,525) (2,146) (25,146) (8,173) (31,671) (10,319) Short-term borrowings and bank overdrafts... (11,393) (11,393) Total liabilities... (14,816) (12,961) (66,739) (53,251) (81,555) (66,212) Net assets... 1,835 1,486 40,234 51,682 42,069 53,168 F-73

206 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 6 INVESTMENTS IN JOINT VENTURES (Continued) Other Hinterland Total Reconciliation of summarised information: Opening net assets 1 April ,486 51,682 53,168 Arising during the year... 3,266 56,362 59,628 (Loss)/profit for the year... (72) 542 (2,468) 2,982 (2,540) 3,524 Other comprehensive income for the year Foreign exchange differences... (305) (753) (8,980) (7,662) (9,285) (8,415) Other Classified as held-for-sale... (1,569) (1,569) Closing net assets... 1,835 1,486 40,234 51,682 42,069 53,168 Interest in associates (percentage) Interest in joint venture ,117 25,841 20,932 26,502 Goodwill... 2,447 2,972 2,447 2,972 Other... (9) (16) (204) (248) (213) (264) Impairment of interest in joint venture... Profits not recognised Carrying value ,360 28,565 23,311 29,391 There are no contingent liabilities relating to the Group s interest in the joint ventures. 7 FINANCIAL INSTRUMENTS BY CATEGORY Assets at fair value through Derivatives Loans and the profit designated Available-for- Held-to- 31 March 2016 receivables and loss as hedges sale maturity Total Assets as per balance sheet Other financial assets... 4,893 4,893 Financial receivables... 6, ,216 Derivative financial instruments... 10,670 9,379 20,049 Trade and other receivables... 98,757 98,757 Trade receivables financed by banks... 33,302 33,302 Cash and cash equivalents and cash collateral deposits... 34,321 34,321 Total ,256 15,563 9, ,538 F-74

207 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 7 FINANCIAL INSTRUMENTS BY CATEGORY (Continued) Liabilities at fair value through the Derivatives profit and designated Other financial loss as hedges liabilities Total Liabilities as per balance sheet Borrowings , ,595 Derivative financial instruments... 3,058 6,864 9,922 Trade and other payables , ,391 Short-term portion of long-term borrowings , ,988 Other financial liabilities... 4,894 4,894 Commodity finance... 42,069 42,069 Short-term borrowings and bank overdrafts... 46,826 46,826 Borrowings from banks to finance trade receivables... 37,651 37,651 Total... 7,952 6, , ,336 Assets at fair value through the Derivatives Loans and profit and designated as Available-for- Held-to- 31 March 2015 receivables loss hedges sale maturity Total Assets as per balance sheet Other financial assets... 5,202 5,202 Financial receivables... 8, ,162 Derivative financial instruments... 6,192 4,788 10,980 Trade and other receivables , ,821 Trade receivables financed by banks... 44,087 44,087 Cash and cash equivalents and cash collateral deposits... 29,407 29,407 Total ,312 11,394 4, ,659 Liabilities at fair value Derivatives through the designated as Other financial profit and loss hedges liabilities Total Liabilities as per balance sheet Borrowings , ,382 Derivative financial instruments... 2,972 4,624 7,596 Trade and other payables , ,599 Short-term portion of long-term borrowings , ,614 Other financial liabilities... 5,366 5,366 Commodity Finance... 22,704 22,704 Short-term borrowings and bank overdrafts... 65,717 65,717 Borrowings from banks to finance trade receivables... 44,004 44,004 Total... 8,338 4, , ,982 F-75

208 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 8 OTHER FINANCIAL ASSETS 8.1 Held-for-trading trade receivables 31 March 31 March Trade receivables financed by banks... 4,893 5,202 Current Season... 2,174 2,559 Capital goods... 2,447 2,313 4,893 5, Held-for-trading trade receivables represent the Group s continued involvement in debtors originated on behalf of third-party financiers, in the year, but not derecognised entirely in accordance with derecognition criteria of IAS 39 (refer to note 13.2 for more details). The receivables are measured at fair value with subsequent fair value adjustments recognised in profit and loss. The composition of these debtors are representative of the entire portfolio originated on behalf of third-party financiers. The liability relating to these receivables are disclosed under note 25. The credit quality of the trade receivables can be assessed by reference to the Group s standard credit grading system, as described under the financial risk management section of the accounting policies. Based on this system USD5 million (2015: USD5 million) was classified as satisfactory risk and USD0.4 million (2015: USD0.2 million) as elevated risk. These receivables are classified as level 3 in terms of fair value estimation (refer to note 40.2 for main inputs to fair value estimation). 4,893 5,202 Non-current portion... 2,039 2,890 Current portion... 2,854 2,312 9 FINANCIAL RECEIVABLES 9.1 Financial receivables carried at amortised cost 31 March 31 March Loans to unlisted joint ventures... 4,418 5,531 Loans to unlisted associates (refer Appendix C)... 1, Held-to-maturity investments Loans and receivables investments... 3,274 4,788 Total financial receivables... 9,255 11,144 Impairment of loans to associates (refer Appendix C)... (408) Short-term portion of held-to-maturity and loans and receivables investments (refer note 12)... (1,631) (1,156) Short-term portion of loans to joint ventures (refer note 12)... (743) Short-term portion of interest-free loans (refer note 12)... (83) 7,216 9, Loans to unlisted joint ventures, associates and unlisted investments Loans to unlisted joint ventures, associates and unlisted investments mainly consist of: A USD1.8 million loan to Prodist Proprietary Limited (Prodist), a 100% subsidiary of joint venture Hinterland Proprietary Limited. This loan originated on 14 January 2016 in order to recapitalise the Company. The loan is interest free and repayable by mutual agreement by all the shareholders. The carrying value represents the Group s exposure to credit risk. Prodist utilised a portion of this loan to repay all previous interest-bearing loans from shareholders. F-76

209 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 9 FINANCIAL RECEIVABLES (Continued) Two loans to Afgritech Limited, a joint venture based in the United Kingdom. These are shareholders loans to the value of USD2.4 million (2015: USD4.8 million) denominated in USD and GBP which are interest free and only repayable by mutual agreement between both partners. During the year Afgritech repaid USD2.75 million (2015: USDnil) on these loans Included in the prior year is a loan to Chesa Wheels Proprietary Limited, an associate of GroCat Proprietary Limited to the value of USD0.5 million. The loan was interest free and repayable by mutual agreement of both partners. During the current financial year this loan was impaired by USD0.4 million. Furthermore, GroCat Proprietary Limited sold 51% share capital to Barberry Holdings Proprietary Limited (Barberry). A loan to the value of USD0.65 million originated as part of this transaction to Barberry. This loan will carry interest at cost of funding for the Group and will be repayable as and when dividends are declared by GroCat Proprietary Limited The remainder of these loans have no fixed terms of repayment and are interest free. All are considered to be fully performing, except as indicated in Appendix C, against which an impairment has been recorded The held-to-maturity investments Other held-to-maturity investments to the value of USD0.34 million (2015: USD0.2 million) Loans and receivable investments USD2 million (2015: USD3 million) owing from Boereportefeulje Bestuurs Maatskappy Proprietary Limited as a result of the renegotiation of repayment terms with this debtor during the 2010 financial year. The loan carries interest at a fixed rate of 12% and is repayable in four (2015: five) annual instalments of USD0.67 million (2015: USD0.8 million) each. Final payment is due on 28 February The carrying value represents the Group s exposure to credit risk Included in the prior year is a loan with Carnival Foods CC which originated as a result of the renegotiation of trade debt. The loan had a carry value of USD1.2 million, carried interest at prime rate plus 2% and was repayable over 33 months with monthly instalments of USD0.06 million. During the current financial year the debtor did not adhere to the renegotiated repayment terms which resulted in the full balance of the loan becoming payable. As a result, the balance have been included under trade receivables and has also being assessed for impairment which resulted in USD0.4 million being provided for as an allowance for bad debt Other loans and receivables to the value of USD0.3 million (2015: USD0.02 million). 10 INVENTORIES 31 March 31 March Merchandise... 80,671 83,055 Raw materials... 11,418 10,485 Finished goods... 23,787 32,198 Consumable goods... 2,243 1, , ,471 Financed Commodities (related liability disclosed in note 15)... 30,923 22, , , Included in merchandise is USD26 million (2015: USD23 million) for merchandise financed on a floor plan basis, which serve as security for such trade payables. (Refer note 22.1) 10.2 The following inventory is valued at net realisable value: 31 March 31 March Merchandise... 3,602 1,734 Finished goods... 1,291 2,147 4,893 3,881 F-77

210 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 10 INVENTORIES (Continued) 10.3 An amount of USD0.8 million (2015: USD0.1 million) of inventory was written off and recognised as an expense in the year. This related to stock count variances as well as physical obsolescence in the Animal Feeds and Equipment business units The cost of inventories recognised as an expense and included in cost of sales amounted to USD510 million (2015: USD520 million) Included in finished goods is 26,859 tons (2015: 52,700 tons) of agricultural commodities held-for-trading purposes valued at USD9.1 million (2015: USD13.5 million). The fair value of these commodities was calculated using the quantity of each commodity (in tons) as a basis together with the specific SAFEX commodity price at year-end. The commodities mainly consist of maize, sunflower, soya beans, sorghum and wheat and SAFEX prices used varied at between USD212 and USD445 (2015: USD201 and USD404) per ton. Fair value estimation was classified at level 2 in terms of the Group s accounting policies Financed commodities consist of 254,600 tons (2015: 37,750 tons) of agricultural commodities financed specifically through the Group s commodity finance facility with Rand Merchant Bank and Nedbank Limited (refer to note 15 for detail on this facility). The fair value of these commodities was calculated using the quantity of each commodity (in tons) as basis together with the specific SAFEX commodity price at year-end. The commodities mainly consist of maize, soya beans, sunflower, sorghum and wheat and SAFEX prices used varied between USD212 and USD445 (2015: USD201 and USD404) per ton. Fair value estimation was classified as level 2 in terms of the Group s accounting policies. 11 BIOLOGICAL ASSETS 31 March 31 March Opening carrying amount... Acquisition of subsidiaries... 10,934 Increase due to feed and production costs ,252 Increase due to growth of biological assets... 2,530 Decrease due to losses... (6,144) Decrease due to sales... (140,053) Foreign exchange differences... (1,650) Change in fair value... 8,855 Classified as held-for-sale (refer note 32)... (11,724) Closing carrying amount... Less: Non-current portion... Current portion During the prior year all of the Group s biological assets were disclosed as held-for-sale (refer to note 32.) During that year biological assets comprised of live breeding chicken birds, live broilers, hatching eggs and sugar cane roots in various phases of growth. The biological assets were measured at fair value, based on market prices less costs to sell In 2015 the Group had 6,435,238 broilers and 696,595 breeders. In addition, the biological assets included 7,340,337 (2015: 7,340,337) hatching eggs.the broilers were valued at various stages of growth and all the birds at 28 days and older were valued at fair value. Fair value was derived from the average sales price adjusted for costs to derive the value at cull live cost. Breeders were valued at the accumulated cost and were depreciated to the full value as at the end of the breeder cycle. Hatching eggs were valued at a weighted average of internal costs and externally purchased eggs. Fair value estimation of biological assets was classified as level 2 in terms of the Group accounting policies The 2015 value of biological assets included USD5.9 million of broiler parent stock carried at cost less accumulated depreciation and impairments as an active market does not exist for these assets During 2015 the Group sold 62,889,610 broilers and 75,636,790 hatching eggs. F-78

211 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 12 TRADE AND OTHER RECEIVABLES 12.1 Trade receivables (financed and not financed by banks) 31 March 31 March Total trade receivables not financed by banks , ,067 Current ,447 94,299 Season... 1,223 9,990 Capital goods... 3,126 14,778 Trade receivables financed by banks (refer note )... 33,302 44,087 Current... 32,011 42,601 Season Capital goods Total trade receivables (before impairments) , ,154 Prepayments... 9,651 4,788 Short-term portion of held-to-maturity and loans and receivables investments (refer note 9)... 1,631 1,156 Short-term portion of loans to joint ventures (refer note 9) Short-term portion of interest free loans (refer Note 9) Total receivables , ,924 Less: Impairments... (10,670) (11,228) 141, , Quality per category Past due... 10,602 8,256 Current... 10,262 8,256 Capital Impaired... 7,679 9,576 Current... 5,233 5,696 Seasonal... 1,359 2,642 Capital... 1,087 1,238 The determination of the above categorisation is consistent with the Group s credit risk management policy. F-79

212 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 12 TRADE AND OTHER RECEIVABLES (Continued) Trade receivables that were neither past due nor impaired The credit quality of the portfolio of trade receivables that were neither past due nor impaired can be assessed by reference to the Group s standard credit grading system, as described in Financial Risk Management accounting policy. The following information is based on that system. 31 March 31 March Satisfactory risk , ,083 Current , ,865 Seasonal ,183 Capital... 1,903 14,035 Elevated risk ,239 Current Seasonal ,156 Capital Collateral in the form of mortgages, notarial and special notarial bonds, sessions and credit life assurance, between 0% and 100% of their fair value, depending on the risk profile and terms of the facility of these trade receivables, is held by the Group. 141, ,154 Carrying value of trade receivables that would otherwise be past due or impaired, whose terms have been renegotiated. Current... 1,291 5,201 1,291 5, Estimated collateral held as security Past due... 2,107 1,073 Current... 1,767 1,073 Capital Impaired ,238 Current Seasonal Capital The abovementioned collateral consists of mortgage, notarial and special notarial bonds, cessions and credit life insurance Trade receivables which were past due but not impaired Past due to 90 days... 3,194 2,972 Current... 3,194 2,972 Past due from 91 days to one year... 7,068 4,458 Current... 7,068 4,458 Exceeding one year but not two years Capital Exceeding two years Current ,602 8,256 F-80

213 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 12 TRADE AND OTHER RECEIVABLES (Continued) Allowance for impairment of trade receivables Total Current Seasonal Capital At 31 March 2015 (11,228) (8,173) (83) (2,972) Amounts written off... 2, ,597 Recoveries of amounts provided Current year charge to income statement... (3,847) (3,484) (363) Reversal of prior year charge to income statement Exchange and other movements... 1,501 1,257 (168) 412 At 31 March (10,670) (9,311) 1,564 (2,923) Total Current Seasonal Capital At 31 March Acquisition of subsidiaries... (11,884) (7,701) (1,521) (2,662) Amounts written off... 1,445 1, Recoveries of amounts provided Current year charge to income statement... (5,241) (4,066) (271) (904) Reversal of prior year charge to income statement Exchange and other movements... 3,007 2, At 31 March (11,228) (8,173) (83) (2,972) 12.2 Facilities for the financing of capital goods are secured by the capital goods so financed Season and capital goods facilities bear interest at rates varying between prime bank rate less 1% and prime bank rate plus 13.75% (2015: prime bank rate less 5.25% and prime bank rate plus 3.25%) The amortised cost of trade and other receivables approximates the fair value because of the short period to maturity of those instruments and market related interest being charged The average effective interest rate charged on trade receivables was 3.6% (2015: 3.3%). 13 TRADE RECEIVABLES FINANCED BY BANKS AND TRANSFERRED FINANCIAL ASSETS 13.1 Carrying values of trade receivables financed by banks and the associated liabilities 31 March 31 March Asset Trade receivables financed by banks... 33,302 44, Liability Borrowings from banks to finance trade receivables... 37,651 44, Any difference between the amounts is due to the daily set-off and timing differences on the last day of the month The amortised cost of these trade receivables as well as the related liability approximates the fair value because of the short term to maturity of those instruments and market related interest being charged The average effective interest charged on the interest bearing trade receivables is 10% (2015:9.1%). F-81

214 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 13 TRADE RECEIVABLES FINANCED BY BANKS AND TRANSFERRED FINANCIAL ASSETS (Continued) The only security for the liability is the trade receivables and in certain cases, additional cash collateral deposits of up to 2% (2015: 2%) of the debt financed and/or additional debtors. The Group carries the risk of loss on these trade receivables. The total value of additional debtors encumbered for these facilities is USD4.2 million (2015: USD5.2 million) Transferred financial assets not derecognised entirely In terms of an agreement with the Land Bank, implemented during the 2012 financial year, the Group now originates debtors in its farmer lending and corporate lending businesses for the purpose of selling it to the Land Bank on a continuous basis. The farmer lending and corporate lending businesses manage the debtors originated on behalf of the Land Bank in terms of a Service Level Agreement. Due to the Group s continuing involvement with these assets, these debtor books are not derecognised entirely (under IAS 39 principals) resulting in the Group not derecognising between 0.5% and 0.7% of the debtors sold to the Land Bank. The value of these debtors not derecognised are disclosed as Held-for-trading trade receivables (refer note 8.1) as the Group carriers these at fair value. With the implementation of this agreement with the Land Bank during 2012, the Group sold both its farmer-lending and corporate debtor books at carrying value to the Land Bank for a total purchase consideration of USD0.2 billion. The book included USD76.1 million of intercompany loans between GroCapital Financial Services Proprietary Limited (hereafter GroCapital ) and fellow subsidiaries of the Group and the balance related to external loans. In accordance with IFRS, and as a result of the residual risk retained in the books sold, USD1 million of the farmer lending and corporate debtor books were not derecognised as part of the sale at the time. The remaining value of these debtors on 31 March 2016 were USDnil million (2015: USD0.2 million) and is disclosed under note as the Group carry these at amortised cost Carrying values of transferred assets and associated liabilities 2016 Current Season Capital goods Total Carrying value of trade receivables before derecognition... 56, , , ,733 Carrying value of trade receivables derecognised... 55, , , ,839 Carrying value of trade receivables continuing recognised ,175 2,447 4,894 Carrying value of borrowings from other banks to finance trade receivables ,175 2,446 4,893 Carrying values of transferred assets and associated liabilities 2015 Current Season Capital goods Total Carrying value of trade receivables before derecognition... 81, , , ,383 Carrying value of trade receivables derecognised... 81, , , ,017 Carrying value of trade receivables continuing recognised ,560 2,394 5,366 Carrying value of borrowings from other banks to finance trade receivables ,560 2,394 5, Fair values of transferred assets and associated liabilities 2016 Current Season Capital goods Total Fair value of trade receivables financed by other banks... 56, , , ,733 Fair value of borrowings from other banks to finance trade receivables... 55, , , ,839 Difference between the fair value of assets transferred and liabilities assumed ,175 2,447 4,894 F-82

215 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 13 TRADE RECEIVABLES FINANCED BY BANKS AND TRANSFERRED FINANCIAL ASSETS (Continued) Fair values of transferred assets and associated liabilities 2015 Current Season Capital goods Total Fair value of trade receivables financed by other banks... 19, , , ,300 Fair value of borrowings from other banks to finance trade receivables... 19, , , ,675 Difference between the fair value of assets transferred and liabilities assumed ,560 1,982 4, USD2.7 million (2015: USD2 million) guarantee provision was raised to accommodate the potential second loss in the books, and is included under trade and other payables (refer to note 22). 14 DERIVATIVE FINANCIAL INSTRUMENTS 14.1 Derivative financial instruments 31 March 31 March Assets Forward purchase contracts Forward sale contracts... 10,058 6,192 Foreign currency futures cash flow hedges*... 6,796 4,623 Foreign currency futures fair value hedges*... 2, Total... 20,049 10,980 Less: Non-current portion... Current portion... 20,049 10,980 Liabilities Forward purchase contracts... 2,990 2,807 Foreign currency futures cash flow hedges*... 6,660 4,376 Foreign currency futures fair value hedges* Foreign currency futures Interest rate swaps* Total... 9,922 7,596 Less: Non-current portion... (83) Current portion... 9,922 7,513 * These derivatives are designated as hedges and are accounted for accordingly Forward purchase and sale contracts The forward purchase contracts represent contracts with producers for the procurement of physical commodities in the future. The forward sale contracts represent contracts with millers and other clients for the sale of physical commodities in the future Options and interest rate caps During 2011 the Group entered into six respective interest rate cap agreements to hedge the anticipated interest rate hikes over the medium term at an acceptable level. The combined notional value was USD 41.3 million with JIBAR cap rates ranging between 7.75% and 8.26% and maturity dates ranging from 7 February 2016 to 10 May The income statement effect is reported as part of finance costs for the Group. During the current financial year USD 24.8 million of the interest rate cap agreements matured. F-83

216 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 14 DERIVATIVE FINANCIAL INSTRUMENTS (Continued) 14.4 Foreign currency futures The fair value adjustment on foreign currency cash flow hedges is included in equity (refer note 17.2). Where foreign currency futures do not qualify for hedge accounting, the fair value adjustment is recognised immediately in profit or loss. The hedged cash flows are expected to occur at various dates during the next 12 months. Gains and losses recognised in the revaluation reserve for cash flow hedges (note 17.2) at balance sheet date are recognised in the income statement in the period or periods during which the forecasted hedged transaction affects the income statement. This is generally within 12 months from the balance sheet date unless the gain or loss is included in the initial amount recognised for the purchase of (fixed) assets, in which case recognition is over the lifetime of the asset. The underlying hedged items consist of firm commitments to purchase inventory, assets (tangible or intangible), as well as trade receivables and/or payables which are denominated in a foreign currency. During the year the Group reported a profit of USD0.3 million (2015: USD0.1 million) in profit or loss due to the ineffectiveness recorded. Outstanding foreign currency futures at balance sheet date comprised the following: Contract Market Fair Contract Market Fair Value Value Value Value Value Value Sold Euro... 5,913 5,777 (136) 1,981 1,899 (82) Pound Sterling (0) Japanese Yen... US Dollar , ,109 (2,515) 117, ,784 3,467 Australian Dollar... 1,631 1, Other currencies , ,857 (2,515) 119, ,931 3,385 Purchased Euro... 3,670 3, ,981 1, Pound Sterling Japanese Yen... US Dollar... 76,322 76,662 (340) 78,101 80,991 (2,890) Australian Dollar (68) Other currencies... 80,672 81,012 (340) 80,330 83,138 (2,808) Net fair value... (2,855) 577 The table above also includes foreign currency futures which are accounted for as fair value hedges. At 31 March 2016 the net fair value included was USD2.4 million (2015: USD.09 million) Interest rate swaps The notional principal amount of the outstanding interest rate swap contract at 31 March 2016 was USD2 million (2015: USD2.9 million), the implicit fixed interest rate ranged between 11% and 12% (2015: 11% and 12%) and the main floating rate is prime. Gains or losses recognised in equity will be released to profit or loss (as part of finance cost) until repayment date. F-84

217 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 15 CASH AND CASH EQUIVALENTS AND CASH COLLATERAL DEPOSITS 31 March 31 March Cash on hand Bank balance... 24,806 18,839 24,874 18,922 Short-term borrowings and bank overdrafts... (46,826) (65,717) Short-term borrowings... (43,564) (63,405) Bank overdrafts... (3,262) (2,312) Commodity finance (refer to note 10 for more detail)... (42,069) (22,704) Cash and cash equivalents... (64,021) (69,499) Cash collateral deposits... 9,447 10,485 Balance end of year... (54,574) (59,014) 15.1 Cash and cash equivalents are the same for cash flow statement purposes The cash collateral deposits consist of cash deposits at financial institutions of up to a maximum of 2% (2015: 2%) of the debtors administered on behalf of third parties by the Group and serves as security for performance under the service level agreements. The deposits bear interest at market-related cash deposit rates. The average interest earned on cash collateral deposits is 5.4% (2015: 5.0%) The short-term borrowings and bank overdrafts bear interest at a variable rate of 5.7% (2015: 7.1%). All amounts are repayable within the next 12 months Commodity finance facility with Rand Merchant Bank (RMB), carrying interest at JIBAR plus 1% (2015: JIBAR plus 1%), as well as a new facility with Nedbank Limited carrying interest at prime rate minus 2.5%. The Group provides three distinct grain services to clients, namely the procurement of grain, the storing of grain and the supply of a finance facility in order to buy grain. Where finance is required, the Group engages with RMB/Nedbank on behalf of its clients, transferring to RMB/Nedbank the grain together with a short SAFEX contract. These arrangements are within the scope of IAS 39 Financial Instruments: Recognition and Measurement and the Group assessed the accounting treatment of these arrangements and concluded that the agency principle is not appropriate given the substance of these arrangements being that of a financing activity. The related commodities are disclosed in note 10 and serve as collateral for this facility. During the year the Group embarked a project with the aim of consolidating its multiple SAFEX accounts. Stock finance facilities were amended accordingly. With implementation of the new structure during March 2016 the Group s timing differences (the time between buying grain and selling it to financial institutions) were higher than normal and indicated a net oversold position at 31 March SHARE CAPITAL Number of Ordinary Ordinary shares shares Total Balance at 1 April ,883, Changes during the year... Balance at 31 March ,883, Changes during the year... Balance at 31 March ,883, Authorised share capital include 500 million (2015: 500 million) ordinary shares with no par value as well as 1 million (2015: 1 million) unclassified shares at no par value. All issued shares are fully paid. F-85

218 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 17 Fair value and other reserves 31 March 31 March Foreign currency translation reserve Opening balance... (11,466) (17) Foreign currency translation differences... (6,158) (11,119) Share of exchange differences from joint ventures (330) Closing balance... (17,352) (11,466) 17.2 Revaluation reserve for cash flow hedges Opening balance Fair value gains/(losses)... (408) 413 Closing balance Share based payment reserve Opening balance... 7,700 Share based payment charge Bafepi Proprietary Limited... 6,260 Share based payment charge Matteh Management Trust... 1,440 Closing balance... 7,700 7,700 In the prior year share capital issued to two of the Group s share holders, being Bafepi Proprietary Limited ( Bafepi ) and the Matteh Management Trust ( MMT ), have been accounted for in substance (i.e. as options to acquire share capital) rather than its legal form under the guidance of IFRS2: Share based payments. Under IFRS2 structures where loans are granted by an entity to enable an investor to subscribe for shares of that entity, with recourse only to the shares, should be treated in substance as an option grant as the investor is not exposed to the variability in the cash flows of the shares below the loan amount. Bafepi acquired 20% of the Group s share capital with the Public Investment Corporation ( PIC ) providing a loan to Bafepi to fund the purchase of share capital and its portion of the shareholder loans. Hence the situation where a loan was granted by a shareholder (PIC) to enable another investor (Bafepi) to subscribe for shares of the Group, with recourse only to shares, and therefore the treatment as an option grant as Bafepi is not exposed to the variability in the cash flows of the shares below the loan amount. Furthermore, through this arrangement the Group has received BEE credentials (goods and services). MMT acquired its share of the Group s share capital and shareholder loans with approximately 24% of its own equity contributions and the remaining 76% of the funding were acquired through an ABSA loan. At the time one of the Group s subsidiaries, AFGRI Operations Proprietary Limited, issued a guarantee to ABSA up to the value of the MMT loan. In substance the situation therefore arose where a loan was guaranteed by a entity within the Group to enable the investor (MMT) to subscribe in shares of the Group, with recourse only to shares, and therefore the treatment as an option grant as MMT is not exposed to the variability in the cash flows of the shares below the value of the loan and its own 24% equity contributions. Both the Bafepi and MMT options where classified as Equity-settle under IFRS 2 and its fair value were calculated on grant date (1 April 2014) using a Monte Carlo Simulation (which can be defined as a procedure for randomly sampling changes in market variables, ie the Group s equity value, in order to value a derivative ), as this model is sophisticated enough to cater for the path-dependency inherent in the option payoff. The IFRS 2 expense represents a once-off expense to profit and loss (refer note 28) as no vesting period, as defined under IFRS2, applies to these options and therefore impact for the current financial year. Significant inputs to the Monte Carlo Simulation were as follows in the prior year: Valuation date... 1 April 2014 Maturity date... 1 April 2019 Market price of underlying equity at valuation date ,315 Expected volatility of underlying equity over the life of the transaction % Expected dividend yield on the underlying equity over the life of the transaction % Risk-free interest rates over the life of the transaction % to 7.87% (9,647) (3,353) F-86

219 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 18 Non-controlling interest 31 March 31 March BEE partners... 71,008 72,630 Other non-controlling interest (343) Balance end of the year... 71,173 72,287 The percentage of shareholding held in Group entities are provided per entity in Appendix A. Izitsalo Employee Investment Proprietary Limited represents the only significant non-controlling interest for the Group with its 26.77% (2015: 26.77%) shareholding at AFGRI Operations Proprietary Limited level. Summarised financial information for AFGRI Operations Proprietary Limited is as follows: 31 March 31 March Non-current assets , ,125 Current assets , ,248 Total assets , ,373 Non-current liabilities... (183,906) (119,133) Current liabilities... (162,974) (235,377) Total liabilities... (346,880) (354,510) Revenue , ,621 Expenses... (307,723) (313,478) Profit before income tax... 3,339 29,143 Income tax expense... (2,032) (2,972) Profit for the year from continuing operations... 1,307 26,171 Discontinued operations: Loss for the year from discontinued operations... Profit for the year... 1,307 26,171 Operating cash flows... (29,466) 104,355 Investing cash flows... 31,716 (5,366) Financing cash flows... 25,765 (70,175) Total cash flows... 28,015 28,814 The refinancing and extension of the AFGRI Group s black economic empowerment transaction (hereafter BEE transaction) was successfully concluded with the Land Bank during 2013 for a further 20 years. Under this structure, Izitsalo Employee Investments Proprietary Limited (Izitsalo) owns 26,77% (2015: 26.77%) of the share capital of AFGRI Operations Proprietary Limited (a subsidiary of the Company) with the Afgri Sizwe Empowerment Trust and its beneficiaries being the sole shareholders of Izitsalo. As such, Izitsalo s interest in AFGRI Operations Proprietary Limited is accounted for as a non-controlling interest. F-87

220 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 19 Retained earnings 31 March 31 March Comprises Company... 35,326 36,919 Subsidiaries... (63,009) (58,905) Joint ventures... 2,177 4,337 Associates... 2,903 3,253 Balance end of year... (22,603) (14,396) 20 Borrowings 31 March 31 March Interest bearing loans 174, ,382 Land Bank ,362 82,146 Balance , ,426 Short-term portion... (68) (41,280) Land Bank... 18,741 Balance... 26,006 Short-term portion... (7,265) Shareholder loan: Joseph Investment Holdings... Balance... 67,362 85,710 Short-term portion... (67,362) (85,710) Shareholder loan: Public Investment Co-operation... Balance... 17,478 22,238 Short-term portion... (17,478) (22,238) Shareholder loan: Bafepi Proprietary Limited... Balance... 23,304 29,651 Short-term portion... (23,304) (29,651) Shareholder loan: Matteh Management Trust... Balance... 4,300 5,471 Short-term portion... (4,300) (5,471) Bankwest... 3,874 Balance... 3,874 Short-term portion... John Deere Balance... 1,359 Short-term portion... (476) Other loans Balance Short-term portion Finance leases Minimum lease payments... 5,913 8,173 Not later than one year... 1,563 1,734 Later than one year and not later than five years... 7,544 10,402 9,107 12,136 Future finance charges on finance leases... (2,175) (2,807) Present value of finance lease liabilities... 6,932 9,329 Short-term portion of finance leases... (1,019) (1,156) Total borrowings , ,555 F-88

221 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 20 Borrowings (Continued) The Group entered into a new funding structure with the Land Bank on 8 December The new fifteen year loan, with a notional value of USD170 million, carry interest at a fixed rate of 9.565% for the first five years, payable in arrears. The Group used USD102 million of the new loan to settle its previous three term loans with the Land Bank. These loans carried interest of between prime minus 1% and prime minus 1.75%. At the end of the five year period the Land Bank will offer the Group a new fixed rate and if the rate is not acceptable for the Group the Land Bank will offer two floating rate alternatives (one linked to the prime rate and one linked to JIBAR) for the Group to choose from In the prior year there were four loans from the Land Bank denominated in SA Rand and secured by property, plant and equipment with a carrying value of USD18.4 million. These loans were repayable in monthly instalments which varied between USD and USD Interest was charged at prime less 0.5% (2015: 0.5%). The loans were settled during the financial year with the implementation of the new fifteen year loan (see note ) The Bank West loan is a property mortgage loan that originated during the current financial year with the acquisition of Jolly & Sons. The loan is denominated in Australian dollars and is not hedged. The interest portion of the loan is repayable in monthly instalments and is charged at a rate of 5.0% per annum. The loan is secured by land and buildings with a carrying value of USD 6 million The John Deere loan is a loan to finance John Deere parts that originated during the current financial year with the acquisition of Jolly & Sons. The loan is denominated in Australian dollars and is not hedged. The loan is repayable in monthly instalments of USD4,152 payable in arrears. Interest is charged at 5.0% per annum Four shareholder loans dominated in SA Rand. These loans are unsecured. Interest is charged at the prime lending rate and is repayable or otherwise capitalised semi-annually at the election of the Board of directors. Capital is repayable to the shareholders simultaneously and proportionately when it is commercially convenient to do so. On 6 April 2016 the shareholders of the company decided to convert their shareholders loans into ordinary shares. To this end, shareholders have authorised the directors of the company to repay the accrued interest on the shareholders loans up to 6 April 2016 on which date interest will stop accruing. The capital portions of the loans remaining will be converted into Ordinary A shares, a new class of ordinary share which will be issued at a face value equal to the carry value of the shareholders loan. This event constitutes a non-adjustable post balance sheet event in terms of IFRS Other loans include two USD-denominated shareholders loans in the Group s Africa operations bearing interest of between 5% and 9.12% (2015: 5% and 8.85%) per annum. These loans are unsecured with no fixed repayment terms The Group also leases some of its buildings, machinery & equipment and vehicles under finance leases. All the assets encumbered under these agreements will be returned to the lessor at the end of the lease term Finance leases are repayable in monthly instalments varying from USD23 to USD85,022 (2015: USD295 to USD123,097) and bear interest at rates varying between 8.6% and 10.8% (2015: 7.5% and 11.0%). Finance leases are secured by buildings, machinery & equipment and vehicles with a carrying value of USD6.9 million (2015: USD10 million) under commercially accepted terms and conditions (refer to note 2.7). F-89

222 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 21 DEFERRED INCOME TAX 21.1 Analysis of deferred income tax 31 March 31 March Deferred income tax assets Property, plant and equipment... (68) (165) Provisions... (6,864) (7,348) Income tax losses... (8,903) (6,192) Other... (340) (3,137) Total... (16,175) (16,842) Deferred tax asset to be recovered after more than 12 months... (9,175) (8,008) Deferred tax asset to be recovered within 12 months... (7,000) (8,834) Deferred tax liabilities Property, plant and equipment... 36,443 46,446 Trade and other receivables... 3,330 3,055 Total... 39,773 49,501 Deferred tax liability to be recovered after more than 12 months... 39,705 46,446 Deferred tax liability to be recovered within 12 months , All deductible temporary differences, unused tax losses and used tax credits and temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures have been recognised for deferred tax. During the year the Group reinstated the deferred tax asset relating to assessed losses in Australia to the value of USD 0.6 million given the recovery reported by this unit. The Group also derecognised the deferred tax asset of USD 0.8 million relating to its Ugandan business given the unit s second consecutive year of trading losses. During the previous financial year the GroCat deferred tax asset of USD 0.9 million was derecognised given its second consecutive year of trading losses at the time The gross movement on the deferred tax account is as follows: 31 March 31 March Balance beginning of year... 32,659 Purchase of subsidiaries... 50,147 Income statement debit/(credit)... (2,384) (12,954) Income statement credit (included under discontinued operations)... (1,084) Foreign currency differences... (6,678) (5,349) Classified as held-for-sale... 1,899 End of year... 23,597 32,659 F-90

223 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 21 DEFERRED INCOME TAX (Continued) 21.4 The movement in deferred income tax assets and liabilities is as follows: Property, plant Trade and Deferred tax assets and equipment Provisions receivables Tax losses Other Total Balance at 31 March Tax rate adjustment... Purchase of subsidiaries... (285) (7,416) (16,829) (2,377) (26,907) Income statement debit/(credit) (1,265) (1,626) (813) (3,614) Income statement credit (included under discontinued operations)... (271) (1,265) (1,536) Foreign currency differences ,026 2, ,566 Classified as held-for-sale ,981 11,559 Other Balance at 31 March (165) (7,348) (6,192) (3,137) (16,842) Income statement debit/(credit) (726) (1,089) 73 (1,669) Foreign currency differences , ,336 Other... (2,322) 2,322 Balance at 31 March (68) (6,864) (8,903) (340) (16,175) Property, plant Trade and other Deferred tax liabilities and equipment Inventories receivables Total Balance at 31 March Purchase of subsidiaries... 72,870 3, ,054 Income statement debit... (12,051) 2,711 (9,340) Income statement debit/(credit) (included under discontinued operations)... (361) Foreign currency differences... (8,060) (533) (322) (8,915) Classified as held-for-sale... (5,862) (3,798) (9,660) Other... (90) (90) Balance at 31 March ,446 3,055 49,501 Income statement debit... (1,585) 871 (714) Foreign currency differences... (8,417) (596) (9,013) Balance at 31 March ,444 3,330 39, TRADE AND OTHER PAYABLES 31 March 31 March Trade accounts payable... 92, ,162 Other payables and accruals... 38,332 33, , , Included in trade accounts payable is USD26 million (2015: USD23.2 million) for purchases financed on a floor plan basis. These payables are secured by merchandise included in note Included in other payables and accruals is deferred income of USD2.2 million (2015: USD1 million) which relates to government grants from the Department of Trade and Industry under their enterprise investment program. As at 31 March 2016 all conditions attached to these grants have been met. During the previous financial year, as a result of the Poultry transaction and its held-for-sale classification F-91

224 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 22 TRADE AND OTHER PAYABLES (Continued) (refer to note 32), government grants to the value of USD0.8 million has been included under liabilities of disposal groups classified as held-for-sale. These grants were included in the net Poultry assets disposed of during the current financial year Included under other payables and accruals the current portion of the contingent consideration relating to business combinations (refer to note 24) to the value of USDnil (2015: USD0.9 million). 23 SHORT-TERM PORTION OF LONG-TERM BORROWINGS 31 March 31 March Short-term portion of long-term borrowings interest-bearing loans (refer note 20.1) , ,614 finance leases (refer note 20.2)... 1,019 1, , , OTHER LIABILITIES 24.1 Contingent consideration arising on a business combination BNOT Harel Nigeria Business combination 31 March 31 March Beginning of year... Acquisition of subsidiaries... 1,046 Foreign currency differences... (138) Balance end of year The purchase consideration of the BNOT Harel Nigeria Limited included a contingent consideration of USD0.8 million which will be payable in USD including interest, calculated at the ruling deposit rate, three years from the effective date of the transaction should certain retention targets be met by the previous owner. Payment to the previous owner was made during the current financial year. Total provisions for other liabilities and charges Analysis of total provisions for other liabilities and charges 31 March 31 March Non-current portion... Current portion (included under trade and other payables refer to note 22) F-92

225 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 25 OTHER FINANCIAL LIABILITIES 25.1 Financial liabilities held-for-trading 31 March 31 March Financial liabilities relating to held-for-trading trade receivables Current Season... 2,175 2,559 Capital goods... 2,447 2,394 4,894 5,366 Financial liabilities held-for-trading represent the fair value of the obligation to the Land Bank to finance held-for-trading receivables (refer note 8) recognised on the balance sheet at fair value. Adjustments to the fair value of liabilities are recognised in profit and loss. Non-current portion Current portion... 4,486 4, REVENUE 31 March 31 March Revenue from continuing operations , ,193 Sale of goods , ,915 Services rendered... 84,479 98,308 Interest-debtor financing... 3,919 4,970 Revenue from discontinued operations Sale of goods ,605 Gross revenue from operations , ,798 F-93

226 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 27 OPERATING PROFIT The operating profit is stated after taking into account the following: 31 March 31 March Net profit on disposal of property, plant and equipment... 1, Payments to non-employees Managerial, technical, administrative and secretarial fees... (73) Outsourcing of IT, personnel and internal audit functions... (73) (90) (146) (90) 27.3 (Impairment)/Reversal of impairment of trade and other receivables... (943) (2,982) 27.4 Fair value (losses)/gains on derivative financial instruments Forward purchase contracts... 3,339 3,885 Forward sale contracts... (2,758) (5,964) 581 (2,079) 27.5 Depreciation Buildings and improvements... (3,219) (3,528) Machinery and equipment... (7,819) (8,332) Vehicles... (2,156) (2,671) (13,194) (14,531) 27.7 Amortisation of intangible assets Trademarks and patents... (3,457) (9,614) Computer software... (1,234) (1,175) (4,691) (10,789) 27.5 Foreign currency losses (1,987) 27.6 Auditors remuneration current period... (290) (723) previous year... (363) Other services and expenses... (73) (726) (723) 27.7 Operating lease payments Buildings... (3,193) (3,885) Plant and machinery... (145) (181) Equipment... (73) (90) (3,411) (4,156) 27.8 Share-based payment expense... (7,700) F-94

227 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 28 EXPENSES BY NATURE 31 March 31 March Cost of Sales Inventory included in cost of sales... (545,773) (712,281) Operating expenses included in cost of sales... (34,401) (38,130) Finance costs included in cost of sales... (3,484) (4,247) Total Cost of sales... (583,658) (754,658) Continuing operations... (583,658) (611,443) Discontinuing operations... (143,215) Operational costs Salaries and wages... (79,181) (95,146) IT and Communication costs... (5,661) (6,684) Property expenses... (14,224) (22,228) Depreciation, amortisation & impairments... (18,830) (67,254) Transport Expenses... (15,241) (25,661) Repairs & Maintenance... (6,097) (10,301) Professional fees... (9,753) (29,218) Other... (8,708) (26,495) Cost of sales included in operating expenses... 34,401 38,130 Total Operational costs... (123,294) (244,857) Continuing operations... (123,294) (207,992) Discontinuing operations... (36,865) In the prior year professional fees includes the push down transaction-relating to the AfgriGroupe transaction to the value of USD 18.7 million F-95

228 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 29 FINANCE COST AND INTEREST INCOME 31 March 31 March Finance cost Continuing operations Interest paid to banks for trade receivables financing... (73) (271) Interest paid to financial institutions... (24,676) (22,944) Interest paid on shareholders loans... (11,084) (14,245) Interest paid to independent third parties... (4,355) (4,156) Interest paid on leases... (653) (723) Net foreign exchange gains on financing activities... 1,379 1,175 Finance cost for continuing operations... (39,462) (41,164) Less: Borrowing costs capitalised on qualifying assets Less: Interest included under cost of sales... 3,484 4,247 Finance cost for continuing operations (income statement)... (35,978) (36,646) Discontinued operations Interest paid to financial institutions... (6,777) Total finance cost... (35,978) (43,423) Interest income Continuing operations Interest received from financial institutions Interest received from independent third parties... 2,757 2,530 Interest income for continuing operations (income statement)... 3,556 3,226 Discontinued operations Interest received from financial institutions... Total finance income... 3,556 3, STAFF COSTS 31 March 31 March Salaries and wages... 74,972 89,905 Pension costs defined contribution plans... 4,209 5,060 Termination benefits ,181 95,146 F-96

229 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 30 STAFF COSTS (Continued) Details of executive and non-executive directors and prescribed officers remuneration appears in the tables below: Basic salary and Cash Expense Company allowances bonuses (1) allowances contributions (2) Total amounts in USD 31 March 2016 Executive directors CP Venter , ,502 4,066 67, ,526 Total , ,502 4,066 67, ,526 Prescribed officers GJ Geel , ,635 1,726 50, ,135 PJP Badenhorst , ,289 1,727 42, ,322 MM Manyama , ,066 5,424 38, ,524 IJ Breitenbach , ,904 2,783 46, ,806 MJ Prinsloo ,056 81,603 1,855 35, ,653 TBW Miya... 95,141 23, , ,740 MD Sikwinya... 91,074 53,843 2,060 20, ,905 Total... 1,074, ,509 16, ,234 2,175, March 2015 Executive directors CP Venter , ,849 5,574 82, ,661 Total , ,849 5,574 82, ,661 Prescribed officers GJ Geel , ,510 4,081 60, ,344 PJP Badenhorst ,963 92,416 3,029 52, ,200 MM Manyama ,233 97,445 6,610 47, ,963 IJ Breitenbach ,497 42,945 5,986 53, ,129 MJ Prinsloo ,427 72,491 2,452 39, ,859 TBW Miya... 54,049 11,217 65,266 MD Sikwinya ,049 17,590 2,581 24, ,481 Total... 1,225, ,397 24, ,543 1,995,242 (1) Bonuses paid are based on the Group s performance in the previous financial year and would have been fully provided for in the previous year s results. (2) Includes contributions to retirement funds, medical aid funds, UIF and skills development levy. F-97

230 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 30 STAFF COSTS (Continued) Social and Board Audit, Risk and Remuneration Ethics Investments member Credit Committee Committee Committee Committee Total amounts in USD 31 March 2016 Non-executive directors MS Wilkerson... 54,432 54,432 LL Von Zeuner... 29,030 10,886 39,916 BM Khoza... 29,030 5,602 34,632 B Hayward... 29,030 29,030 NW Holzapfel... 29,030 7,258 36,288 IS Sehoole... 7,258 1,814 9,072 KS Maponya... 29,030 29,030 RQ McLean... 29,030 29,030 RT Motobi (payable to PIC)... 21,773 21,773 MK Mabe (payable to PIC)... 14,515 3,629 18,144 M Muller (payable to PIC)... 14,515 14,515 Total ,673 10,886 7,258 7,416 3, , March 2015 Non-executive directors MS Wilkerson... 67,767 67,767 LL Von Zeuner... 36,143 13,553 49,696 BM Khoza... 13,161 13,161 B Hayward... 36,143 36,143 NW Holzapfel... 36,143 9,036 45,179 IS Sehoole... 36,143 9,036 45,179 KS Maponya... 36,143 36,143 SDC Masuku... 18,366 18,366 RQ McLean... 36,143 36,143 MK Mabe (payable to PIC)... 40,660 40,660 Total ,812 13,553 9,036 9, , INCOME TAX EXPENSE 31.1 Income tax expense 31 March 31 March South African normal income tax... (7,185) (8,042) Current period... (7,475) (8,132) Previous year overprovision Deferred income tax... 2,384 14,038 Current period... 3,545 14,490 Previous year underprovision... (1,161) (452) Income tax charge... (4,801) 5,996 Continuing operations... (4,801) 4,912 Discontinued operations... 1,084 Income tax charge... (4,801) 5,996 F-98

231 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 31 INCOME TAX EXPENSE (Continued) 31.2 Reconciliation of income tax rate 31 March 31 March Income tax for the year as a percentage of income before income tax Income tax effect of: Non-taxable income Non-deductible expenditure... (2) (82) Capital (losses) / profits... (45) 2 Deferred tax assets not recognised... (3) (3) Deferred tax recognised on previous years assessed losses... 3 Write-off of deferred tax previously recognised... (12) Prior year (underprovision)/overprovision... 1 (1) Difference in tax rates Other... 1 (6) Standard rate HELD-FOR-SALE AND DISCONTINUED OPERATIONS 32.1 Assets and liabilities of disposal groups classified as held-for-sale During the prior financial year the Group entered into sale agreements with Bafepi Agri Proprietary Limited ( Bafepi ) and the Public Investment Corporation ( PIC ) to sell 100% of its shares in AFGRI Poultry Proprietary Limited together with all claims outstanding from AFGRI Poultry Proprietary Limited, as a going concern, for USD96 million (hereafter the Poultry transaction ). This transaction was implemented and the Group disposed its entire Poultry business as well as the Kinross feedmill during the current financial year. The group of assets (disposal group) was disclosed as a disposal group held-for-sale as at 31 March 2015 and also met the definition of a discontinued operation During the 2014 financial year a decision was taken by the Group to sell the sugar cane farm of its subsidiary, Crystal Holdings Proprietary Limited. The Group disclosed the related property, plant and equipment and biological assets as held-for-sale since 31 March This sale transaction was concluded during the current financial year. 31 March 31 March Assets of disposal groups classified and held-for-sale Property, plant and equipment... 69,763 Goodwill... Other non-current assets... 12,218 Inventory... 5,366 Biological assets... 12,549 Cash and cash equivalents Other current assets... 18,411 Total assets ,390 Liabilities of disposal groups classified as held-for-sale Borrowings... 21,300 Other non-current liabilities... 9,742 Trade and other payables... 15,026 Other current liabilities... 59,360 Total liabilities ,428 F-99

232 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 32 HELD-FOR-SALE AND DISCONTINUED OPERATIONS (Continued) 32.2 Analysis of the results of discontinued operations and the results recognised on the remeasurement of assets of disposal groups, is as follows: The loss from discontinued operations in the prior financial year resulted from the Group entering into the sale of business agreement on its Poultry business unit as disclosed in note which also met the definition of a discontinued operation. It included 12 months of operating activities for the year ending 31 March March 31 March Revenue ,605 Expenses... (187,129) Loss before tax on discontinued operations... (3,524) Taxation... 1,084 Loss after tax of discontinued operations... (2,440) Pre-tax loss recognised on the remeasurement of assets of disposal groups... Taxation... After-tax loss recognised on the remeasurement of assets of disposal groups... Loss for the year from discontinued operations... (2,440) Consisting of: Poultry business... (2,440) Loss for the year from discontinued operations... (2,440) 32.3 Cash flow information 31 March 31 March Operating cash flows... 25,300 Investing cash flows... (5,602) Financing cash flows... (19,517) Total cash flows LOSS PER SHARE Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 31 March 31 March Loss attributable to equityholders of the Company... (7,163) (14,179) Weighted average number of ordinary shares in issue (thousands) , ,883 Loss per share (cents)... (1.94) (3.83) 34 DILUTED LOSS PER SHARE Diluted earnings/(loss) per share reflect the potential dilution that would occur when all of the Group s dilutive potential ordinary shares are issued. The Group only has treasury shares and therefore no adjustments were made to the weighed average number of F-100

233 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 34 DILUTED LOSS PER SHARE (Continued) shares. Furthermore, no adjustments were made to reported earnings attributable to shareholders in the computation of diluted earnings per share. Number of shares Weighted average number of shares (thousands) , ,883 Diluted weighted average number of shares (thousands) , ,883 Loss attributable to equityholders of the Company... (7,163) (14,179) Diluted loss per share (cents)... (1.94) TAX EFFECTS RELATING TO EACH COMPONENT OF OTHER COMPREHENSIVE INCOME Year ended 31 March 2016 Year ended 31 March 2015 Tax Tax Before tax (expense)/ After tax Before tax (expense)/ After tax amount benefit amount amount benefit amount Foreign exchange translation differences... (6,158) (6,158) (11,119) (11,119) Cash flow hedges... (408) (408) Share of comprehensive income of joint ventures (330) (330) Other comprehensive income for the year... (6,294) (6,294) (11,036) (11,036) 36 DIVIDENDS 31 March 31 March Dividend to Matteh Management Trust F-101

234 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 37 NOTES TO THE CASH FLOW STATEMENT 37.1 Cash generated from/(utilised in) operations 31 March 31 March Profit before income tax... 1,821 (27,872) Adjusted for: Depreciation... 13,194 19,048 Impairment of property, plant and equipment Amortisation of intangible assets... 4,691 10,789 Impairment of intangible assets ,472 Negative goodwill recognised with Bargain purchase... (39,452) Interest received... (3,556) (3,226) Finance cost... 35,978 36,646 Profit/(Loss) on disposal of property, plant and equipment... (1,161) (361) Profit on disposal of business... (4,938) Share in losses from joint ventures... 1,234 (1,626) Share in losses from associates... (290) Adjustment for other non-cash items... 43,551 50,753 Working capital changes: Inventories... 8,033 (2,468) Biological assets... (790) Decrease/(increase) in collateral guarantee deposits... 1, Trade, other receivables and financial assets... 9,950 39,614 Trade, other payables and financial liabilities... (37,693) 22,121 72, , Dividends paid 31 March 31 March Dividend to Matteh Management Trust... (174) (242) (174) (242) 37.3 Income tax paid 31 March 31 March Unpaid amounts beginning of year... 1,971 (12) Normal income tax charges for year... (7,185) (8,042) Net acquisition and disposal of subsidiaries Foreign exchange translation difference Unpaid amounts at end of year (1,971) (4,988) (9,380) F-102

235 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 37 NOTES TO THE CASH FLOW STATEMENT (Continued) 37.4 Purchase of property, plant and equipment 31 March 31 March Land... (271) Buildings and improvements... (4,572) (9,849) Machinery and equipment... (13,572) (20,511) Vehicles... (2,976) (2,801) (21,120) (33,432) 37.5 Proceeds from disposal of property, plant and equipment 31 March 31 March Carrying value... 2,541 2,169 Carrying value of PPE disclosed as held-for-sale in prior year... Profit/(Loss) on disposal... 1, ,702 2, Acquisition of other subsidiaries net of cash acquired 31 March 31 March Property, plant and equipment... (3,378) (570) Investment in joint venture... (666) Intangible assets... (1,112) Inventories... (6,900) (7,986) Trade and other receivables... (773) (1,521) Trade and other payables... 1,985 4,563 Goodwill... (218) (1,141) Deferred income tax... (1,046) Borrowings Cash and cash equivalents... 7,226 Total purchase consideration... (10,396) (761) Cash and cash equivalents acquired... (7,226) Net cash flow on acquisition... (10,396) (7,987) F-103

236 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 37 NOTES TO THE CASH FLOW STATEMENT (Continued) 37.7 Acquisition of AFGRI Pty Limited net of cash acquired 31 March 31 March Property, plant and equipment... (358,630) Non-current receivables... (10,934) Investment in joint ventures and associates... (36,510) Intangible assets... (73,685) Other current assets... (73,970) Inventories... (145,087) Trade and other receivables... (181,502) Trade and other payables ,012 Deferred income tax... 51,193 Borrowings ,476 Non-current liabilities... 1,711 Other current liabilities... 51,341 Cash collateral deposits... (11,029) Short term borrowings and bank overdrafts acquired (net of cash)... 54,384 (355,230) Non-controlling interest... 83,056 Bargain purchase/(goodwill)... 39,452 Total purchase consideration... (232,722) Cash and cash equivalents acquired... (54,384) Purchase consideration paid before 31 March ,722 Net cash flow on acquisition for period ended 31 March (54,384) 38 MATURITY PROFILE OF FINANCIAL INSTRUMENTS The maturities of financial assets are based on carrying amounts (excluding projected future interest cash inflows) at balance sheet date and have been disclosed to demonstrate the Group s management of liquidity risk. The maturities of financial liabilities include both the contractual principle and interest cash outflows. The cash inflows associated with non-financial assets (inventory and biological assets) are not reflected in the table below. F-104

237 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 38 MATURITY PROFILE OF FINANCIAL INSTRUMENTS (Continued) The maturity profile of financial assets and liabilities is summarised as: <90 days <1 year 1 4 years >4 years Total 2016 Financial assets Financial receivables... 1, ,864 8,847 Other financial assets , ,970 4,893 Derivative financial instruments hedge accounted (designated as hedges)... 9,379 9,379 Derivative financial instruments not hedge accounted (held-for-trading)... 10,670 10,670 Trade and other receivables... 81,698 6,321 4,282 4,825 97,126 Trade receivables financed by banks... 32, ,302 Cash and cash equivalents... 34,321 34, ,915 20,866 4,894 13, ,538 Financial liabilities Borrowings Interest-bearing loans ,996 12,301 53, , ,305 Derivative financial instruments hedge accounted (designated as hedges)... 6, ,796 Derivative financial instruments not hedge accounted (held-for-trading) ,990 3,126 Trade and other payables , ,390 Short-term borrowings and bank overdrafts... 46,826 46,826 Other financial liabilities... 4, ,894 Commodity finance... 42,069 42,069 Borrowings from banks to finance trade receivables... 35,000 2,651 37, ,680 18,961 53, , ,057 F-105

238 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 38 MATURITY PROFILE OF FINANCIAL INSTRUMENTS (Continued) <90 days <1 year 1 4 years >4 years Total 2015 Financial assets Financial receivables ,156 1,321 7,841 11,144 Other financial assets , ,147 5,202 Derivative financial instruments hedge accounted (designated as hedges)... 4,788 4,788 Derivative financial instruments not hedge accounted (held-for-trading) ,109 6,192 Trade and other receivables... 89,594 5,614 3,880 8, ,839 Trade receivables financed by other banks... 42, ,087 Cash and cash equivalents... 29,407 29, ,630 16,346 5,614 19, ,659 Financial liabilities Borrowings Interest-bearing loans ,604 40, ,106 11, ,392 Derivative financial instruments hedge accounted (designated as hedges)... 4, ,789 Derivative financial instruments not hedge accounted (held-for-trading)... 2,807 2,807 Trade and other payables ,004 7, ,599 Other financial liabilities... 4, ,367 Short-term borrowings and bank overdrafts... 65,717 65,717 Commodity finance... 22,704 22,704 Borrowings from banks to finance trade receivables... 40,784 3,220 44, ,519 58, ,272 12, , SENSITIVITY ANALYSIS Interest rate risk The Group s sensitivity to changes in foreign exchange rates is considered insignificant as a policy is in place to ensure that all foreign exchange positions are fully hedged. Interest sensitivity is managed by the Group ALCO. The interest rate expectations of Group ALCO will determine the appropriate time to enter into interest rate derivative instruments to hedge interest rate risk, which will be monitored and managed on a monthly basis. The following strategies have been implemented by the Group to manage interest rate sensitivities: The implementation and continuation of the fee-based business model by the Group s financial services business units since the 2012 financial year. During December 2015 a USD 170 million term funding structure with the Land Bank was implemented at a fixed interest rate of 9.565% for 5 years. At the end of the five year period the Land Bank will offer the Group a new fixed rate and if the rate is not acceptable for the Group the Land Bank will offer two floating rate alternatives (one linked to the prime rate and one linked to JIBAR) for the Group to choose from. F-106

239 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 39 SENSITIVITY ANALYSIS (Continued) An interest rate sensitivity was performed based on average exposure to interest rates for the reporting period with the stipulated change in interest rates having taken place for the entire year refer to the table below. 31 March March 2015 Increase/ Increase/ Increase/ (decrease) in Increase/ (decrease) in (decrease) net interest (decrease) net interest Impact of change in short-term interest rate in rates income in rates income % USD thousands % USD thousands Change in funding rate ,871 Change in funding rate ,394 Change in funding rate ,238 Change in funding rate... (0.5) (68) (0.5) (1,238) Change in funding rate... (1.0) (136) (1.0) (2,394) Change in funding rate... (2.0) (272) (2.0) (4,871) Commodity price risk Although no proprietary trading exists within the Group, AFGRI Foods is exposed to market risk from the internal client base where strategic commodities procured are utilised or processed further to manufacture final goods. AFGRI Foods is inherently exposed to the price movements of maize, wheat, soymeal, soybeans and sunflower seed and exchange rate fluctuations resulting from its participation on local and international commodity and derivatives exchanges. Commodity price risk arises from fluctuating supply and demand conditions, world inventory balances, climate change and the impact of adverse weather patterns, economic conditions and or factors. AFGRI Foods may suffer financial losses due to the rising or falling commodity prices and currency prices and currency devaluation or appreciation which can lead to a cost disadvantage compared to competitors. During the current year the Group formed the AFGRI Foods Procurement Committee, chaired by the Group s Food Processing Procurement Director. The committee manage AFGRI Food s market risk related to commodity prices. It is the responsibility of the respective managing directors to ensure that all trades are within the approved exposure limits and also conform to the agreed strategies on a daily basis. A commodity price sensitivity was performed using commodity prices as well as quantities at year-end with the stipulated change in price having taken place for an entire year refer to the table below: 31 March March 2015 Increase/ Increase/ Increase/ Increase/ (decrease) in (decrease) in (decrease) in (decrease) in Impact of change in commodity prices price per ton fair value price per ton fair value USD USD thousands USD USD thousands Change in commodity price Change in commodity price... (6.8) (163.1) (8.3) (536.6) F-107

240 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 40 FAIR VALUE HIERARCHY DISCLOSURES 40.1 Hierarchy of financial instruments carried at fair value 31 March 2016 Level 1 Level 2 Level 3 Total Financial assets as per balance sheet Other financial assets Held-for-trading trade receivables... 4,893 4,893 Derivative financial instruments Forward purchase contracts Forward sale contracts... 10,058 10,058 Foreign currency futures cash flow hedges... 6,796 6,796 Foreign currency futures fair value hedges... 2,583 2,583 Total... 20,049 4,893 24,942 Level 1 Level 2 Level 3 Total Financial liabilities as per balance sheet Other financial liabilities Financial liabilities carried at fair value through profit and loss... 4,894 4,894 Derivative financial instruments Forward purchase contracts... 2,990 2,990 Interest rate swaps Foreign currency futures cash flow hedges... 6,660 6,660 Foreign currency futures fair value hedges Foreign currency futures Total... 9,922 4,894 14, March 2015 Level 1 Level 2 Level 3 Total Financial assets as per balance sheet Other financial assets Held-for-trading trade receivables... 5,202 5,202 Derivative financial instruments Forward sale contracts... 6,192 6,192 Foreign currency futures cash flow hedges... 4,623 4,623 Foreign currency futures fair value hedges Total... 10,980 5,202 16,182 Level 1 Level 2 Level 3 Total Financial liabilities as per balance sheet Other financial liabilities Financial liabilities carried at fair value through profit and loss... 5,366 5,366 Derivative financial instruments Forward purchase contracts... 2,807 2,807 Forward sale contracts Foreign currency futures cash flow hedges... 4,376 4,376 Foreign currency futures fair value hedges Foreign currency futures Total... 7,596 5,366 12,962 F-108

241 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 40 FAIR VALUE HIERARCHY DISCLOSURES (Continued) 40.2 Reconciliation of Level 3 financial assets carried at fair value Other financial assets (1) 31 March 31 March Fair value at the beginning of the year... 5,202 Acquisition of subsidiary... 5,229 Total gain/(loss) recognised in the income statement (27) Foreign exchange translation differences... (962) Fair value at the end of the year... 4,893 5, Reconciliation of Level 3 financial liabilities carried at fair value Financial liabilities carried at fair value Derivative financial through profit or instruments loss (2) 31 March 31 March 31 March 31 March Fair value at the beginning of the year... 5,366 Acquisition of subsidiary... 5,514 Total (gain)/loss recognised in the income statement (148) Foreign exchange translation differences... (981) Fair value at the end of the year... 4,893 5,366 (1) Consists of held-for-trading trade receivables carried at fair value. The held-for-trading trade receivables represent the Group s continued involvement in debtors originated on behalf of third party financiers (and therefore originated with the intention of selling the receivable in the short term), but not derecognised entirely in accordance with derecognition criteria of IAS 39 due to the Group s continuing involvement refer to note 8.1. The continuing involvement asset is measured at the lower of the carrying amount of the transferred asset and the maximum amount of the consideration received in the transfer that the entity could be required to repay the guaranteed amount. (2) Financial liabilities held-for-trading represent the fair value of the obligation to the Land Bank to finance held-for-trading trade debtors carried at fair value on the balance sheet. Adjustments to the fair value of liabilities are recognised in the income statement. 41 COMMITMENTS 41.1 Capital commitments 31 March 31 March Contracted for additions to property, plant and equipment and intangibles... 2,175 2,229 Authorised but not yet contracted for additions to property, plant and equipment... 6,049 11,146 8,224 13,375 The abovementioned capital commitments will be financed by net cash flows from operations and the utilisation of cash and borrowings within the accepted gearing ratio of the Group. F-109

242 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 41 COMMITMENTS (Continued) The Group s proportionate share of the capital expenditure commitments of joint ventures included in the above commitments is USDnil (2015: USDnil) Operating lease commitments The future minimum lease payments under non-cancellable operating vehicle, equipment and building leases are as follows: 31 March 31 March Not later than one year... 2,175 2,477 Later than one year and not later than five years... 9,990 11,228 Later than five years... 4,553 5,119 16,718 18, General terms of operating leases Operating leases consist of leases for buildings, plant and machinery, motor vehicles and equipment. Most of the operating leases have the option to renew and extend the period of the lease Other commitments As part of the AgriGroupe transaction in 2014, AFGRI agreed with government that it would expand the emerging farmer training and development programme and lend support and assistance to small-scale farmers to the value of USD8.6 million for a period of four years. As at 31 March a total was spend of USD2.75 million (2015: USD1.4 million). 42 GROUP BORROWING FACILITIES 42.1 Borrowing facilities 31 March 31 March General banking facilities ,294 90,155 Guarantee facilities... Short-term banking facilities... 2,447 99, , , Unutilised borrowing facilities 31 March 31 March Total facilities , ,134 Utilisation: General banking facilities... (43,564) (63,323) Guarantee facilities... Short-term banking facilities... (2,311) (54,489) 90,866 72, In terms of the Company s MOI, the Group borrowings are unlimited, but certain limits on borrowing levels have been fixed by the Board of Directors. Excluded are the long-term facilities within the Group. Refer note 20. F-110

243 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 43 BUSINESS COMBINATIONS 43.1 AFGRI Limited On 27 September 2013 AFGRI Holdings Proprietary Limited (previously AgriGroupe Proprietary Limited) notified AFGRI Limited of its intention to make a cash offer for all the shares to shareholders and delist AFGRI Limited from the JSE should the scheme be successfully implemented. The transaction was approved by the AFGRI Limited shareholders (refer to the SENS announcement on 19 November 2013) and by the South African Competition Authorities (refer to the SENS announcement on 7 March 2014) which resulted in the termination of the AFGRI Limited s listing on the JSE at commencement of trade on 1 April The shareholding were transferred to AFGRI Holdings Proprietary Limited on 2 April The purchase consideration was paid over to Computershare (Transfer Secretary) before 31 March 2014 to facilitate the delisting of AFGRI Proprietary Limited (then AFGRI Limited) from the Johannesburg stock exchange at commencement of trade on 1 April 2014, with the effective date of the transaction being 1 April The consolidation of the Afgri Limited group of companies therefore occurred only during the 31 March 2015 financial year, although payment for the investment were accounted for in AFGRI Holdings Proprietary Limited during the 31 March 2014 financial year. The purchase price allocation in terms of IFRS 3 for this transaction have now been completed with no changes to the preliminary fair values allocated in the previous financial year, which were as follows: 31 March 31 March Property, plant and equipment ,630 Other intangible assets... 73,685 Investments in associates & Joint ventures... 36,510 Deferred income tax assets... 25,861 Other non-current assets... 10,934 Inventories ,087 Trade and other receivables ,502 Trade receivables financed by banks... 40,408 Derivative financial instruments... 6,465 Income tax assets... 1,521 Cash collateral deposits... 11,029 Cash and cash equivalents and cash collateral deposits... 63,321 Other current assets... 14,262 Assets of disposal groups classified as held-for-sale... 11,314 Borrowings... (203,274) Deferred income tax liabilities... (77,054) Other non-current liabilities... (1,711) Trade and other payables... (153,012) Derivative financial instruments... (4,278) Income and other tax liabilities... (1,046) Short-term portion of long-term borrowings... (21,202) Short-term borrowings and bank overdrafts... (100,211) Commodity finance... (17,494) Borrowings from banks to finance trade receivables... (41,263) Other current liabilities... (4,754) 355,230 Non-controlling interest... (83,056) Assets acquired and liabilities assumed ,174 Less: Purchase consideration Cash consideration... (232,722) Bargain purchase/(goodwill)... 39,452 Since 1 April 2014 the AFGRI Limited group of companies generated revenue amounting to USD786.2 million and net profit after taxation of USD15.4 million which were included in the prior year results. F-111

244 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 43 BUSINESS COMBINATIONS (Continued) 43.2 GroCat Proprietary Limited and GroCat BV On 1 April 2014, the Group entered into binding sales agreements with FECAT Limited ( FECAT ). In terms of these agreements, the Group acquired the remaining 50% of the share capital of GroCat Proprietary Limited and GroCat BV it did own as a going concern. The acquisition will allow the Group to grow its participation in the diesel and coal value chains. The purchase consideration amounted to USD0.7 million. The initial accounting in terms of IFRS 3 is complete and the fair value of the assets and liabilities acquired were as follows: 31 March 31 March Property, plant and equipment Investment in joint venture Inventory... 7,986 Trade receivables... 1,521 Deferred tax asset... 1,046 Long-term borrowings... (380) Trade payables... (4,563) Bank overdraft (including cash and cash equivalents)... (7,226) Assets acquired and liabilities assumed... (380) Less: Purchase consideration Cash consideration... (761) Bargain purchase/(goodwill)... (1,141) Since 1 April 2014 this business unit generated revenue amounting to USD56.8 million and net loss before taxation of USD1.9 million (before the allocation of internal interest) which were included in the prior financial year. Goodwill of USD1.1 million arose as the difference between the purchase consideration and the fair value of the assets acquired. The goodwill on the acquisition represents future growth in the value chain Jolly & Sons Proprietary Limited and 24 Biccard 104 CC t/a Truck and Tractor Specialists Agri The Group entered into binding sales agreements with ( Jolly & Sons ) in Australia on 4 August 2015 and with 24 Biccard 104 CC t/a Truck and Tractor Specialists Agri ( TTS ) on 1 December In terms of these agreements, the Group acquired the trading assets of Jolly & Sons and TTS, as going concerns. The acquisition will allow the Group to grow its footprint in Western Australia, as well as in Limpopo (a province in South Africa). The purchase consideration amounted to USD 8.3 million and USD 2.1 million, respectively. The initial accounting in terms of IFRS 3 is complete and the fair value of the assets and liabilities acquired were as follows: 31 March 31 March Property, plant and equipment... 3,378 Intangible assets... 1,112 Inventory... 6,900 Trade receivables Trade payables... (1,985) Assets acquired and liabilities assumed... 10,178 Less: Purchase consideration Cash consideration... (10,396) Goodwill... (218) F-112

245 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 43 BUSINESS COMBINATIONS (Continued) Since acquisition, Jolly & Sons generated profits amounting to USD0.9 million (before taxation and additional overheads) and TTS generated profits amounting to USD0.07 million (before taxation and additional overheads) which were included in the current year. Goodwill of USD0.2 million arose as the difference between the purchase consideration and the fair value of the assets acquired (refer to note 3). The goodwill on the acquisition represents future growth in the value chain. 44 AGENCY AGREEMENTS The following financial assets are administered on behalf of third parties: 44.1 Debtors The Group manages agri debtors on behalf of the following third parties: 31 March 31 March Land Bank , ,820 Wesbank , ,086 FNB... 38, , ,906 Service level agreements with the Land Bank originated during the 2012 financial year. Under these agreements the Group will manage, administer and service the farmer lending and corporate debtor books on behalf of the Land Bank. Furthermore the Group is only liable for bad debts on a second loss basis to a maximum of between 0.7% and 0.5%. On all other service level agreements, the Group is not liable for any bad debts for debtors administered. Included in the agreement between FNB Zambia and AFGRI Leasing Services Proprietary Limited, FNB have recourse to the extend of the fee earned by AFGRI Leasing Services. On production finance a fee of 1.2% is earned and 1% on all other loans. Management fees are paid by third parties Commodities The following value of commodities were handled, stored and managed on behalf of third parties: 31 March 31 March Other commodity users , ,368 Producers... 29,156 35, , ,621 AFGRI receives a fee for the handling, grading, storing and administration of these commodities. 45 RETIREMENT BENEFITS The Group provides access to defined contribution retirement funds as a benefit to all permanent employees principally through the AFGRI Staff Pension Fund and the AFGRI Provident Fund. During the current financial year the AFGRI Retirement fund was incorporated into the AFGRI Provident fund. These funds are governed by the Pension Funds Act of The funds are administered by several service providers. The rules of the funds ensure that the assets of the funds always equal or exceed the liabilities and all death and disability benefits are fully reinsured. The contributions to retirement funds in which AFGRI participates are and will be charged against income as and when incurred. F-113

246 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 46 GUARANTEES AND CONTINGENT LIABILITIES 46.1 Guarantees 31 March 31 March Performance guarantees given to banks and other third parties Guarantee Grocat BV During the prior financial year one of the Group s bankers issued a letter of credit to GroCat BV s creditors to the value of USD 12 million. The letter of credit was settled during May , RELATED PARTY TRANSACTIONS The Group entered into transactions and has balances with a number of related parties, including associates (refer to Appendix C), joint ventures (refer to Appendix B), directors and subsidiaries (refer to Appendix A). Transactions and balances that eliminates on consolidation are not included Salary costs of key personnel The salary costs of key personnel as identified by management are as follows: 31 March 31 March Cost to company (included in staff cost refer to note 30)... 5,516 5,060 Details regarding the directors emoluments are provided in note Transactions with related parties 31 March 31 March Sale of goods and services to related parties Limpopo Tobacco Processors Proprietary Limited associate Afgritech Limited joint venture Chesa Wheels Proprietary Limited associate Purchase of goods and services from related parties... 1,084 Ronin Grain Management Proprietary Limited associate African Petroleum Storage Solutions Limited joint venture Purchase of property, plant and equipment from related parties Ronin Grain Management Proprietary Limited associate Management fees received from related parties Hinterland Proprietary Limited joint venture Chesa Wheels Proprietary Limited associate Management fees paid to related parties GroCat BV joint venture... AgriGroupe Management Limited KS Maponya F-114

247 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2016 (all amounts in USD thousands) 47 RELATED PARTY TRANSACTIONS (Continued) Other transactions with related parties During the financial year Hinterland Proprietary Limited (joint venture) paid the Group interest of USD nil million (2015: USD0.2 million) and the Group paid interest to Hinterland of USD0.2 (2015: USD nil) during the year. During the financial year the Group received rental income from Prodist Proprietary Limited of USD0.25 million and USD0.07 million respectively (2015: USD0.3 million). During the financial year the Group received interest from Todi River Farms (associate) of USD0.07 million (2015: USD nil) The Group incurred selling and administration expenses on behalf of Chesa Wheels Proprietary Limited (associate) to the value of USD0.12 million (2015: R nil million). The Group paid rental expenses to African Petroleum Storage Solutions Limited (joint venture) to the value of USD0.33 million (2015: USD nil million) Balances with related parties 31 March 31 March Receivables 7,205 8,174 Limpopo Tobacco Processors associate GroCat Proprietary Limited associate Prodist Proprietary Limited a subsidiary of joint venture... 1,767 1,404 Afgritech Limited joint venture... 2,379 4,788 Silocerts Proprietary Limited joint venture Ronin Grain Management Proprietary Limited associate African Petroleum Storage Solutions Limited joint venture... 1, Vermoro Financial Services Proprietary Limited Chesa Wheels Proprietary Limited associate Payables Main Street 301 Proprietary Limited t/a GeoAgro SA Proprietary Limited For balances with subsidiaries refer to Appendix A. For balances with shareholders and details on these loans, refer to note 20. F-115

248 APPENDIX A Interest in unlisted subsidiaries For the year ended 31 March 2016 Amounts owed by Interest in Nature of Country of Issued capital subsidiaries subsidiaries business incorporation USD 000 USD 000 USD 000 USD 000 % % Subsidiaries of AFGRI Proprietary Limited AFGRI Operations Proprietary Limited. A South Africa ,040 53, OTK Investments House Proprietary Limited... B South Africa 1,835 2, AFGRI Mauritius Holdings Proprietary Limited... C South Africa 22,767 27, , Subsidiaries of AFGRI Operations Proprietary Limited... AFGRI Animal Feeds Eastern Cape Proprietary Limited... D South Africa AFGRI Animal Feeds Western Cape Proprietary Limited... D South Africa AFGRI Equipment Proprietary Limited. E South Africa 13,117 17, AFGRI Executive Trust... F South Africa AFGRI Grain Marketing Proprietary Limited... G South Africa 9, AFGRI Limited Trust... H South Africa AFGRI Poultry Proprietary Limited... I South Africa 36, AFGRI Tobacco Proprietary Limited... J South Africa Chesa Wheels Proprietary Limited... K South Africa 100 CMI Value Chain Solutions Proprietary Limited... L South Africa 1,155 1, Collateral Management International Proprietary Limited... L South Africa 1,359 1, Cotton Seed Processors Proprietary Limited... M South Africa Crystal Holdings Proprietary Limited... N South Africa 4,214 5, Daybreak Properties Springs Proprietary Limited... O South Africa Daybreak Superior Marketing Proprietary Limited... I South Africa Farm City Holdings Proprietary Limited. O South Africa Golf Car World Proprietary Limited... P South Africa GroCapital Broking Services Proprietary Limited... G South Africa GroCapital Financial Services Proprietary Limited... Q South Africa 32,418 11, GroCat Proprietary Limited... R South Africa 1, Harvest Time Investments Proprietary Limited... S South Africa Laeveld Korporatiewe Beleggings Limited T South Africa 1,019 1,218 6,660 12, Main Street 301 Proprietary Limited... U South Africa 100 Mentor Trading and Investments 44 Proprietary Limited... V South Africa Midway Chix Proprietary Limited... I South Africa 100 Natalse Landboukooperasie Limited... T South Africa 2,515 10, Nedan Proprietary Limited... W South Africa 33,506 17, Nedan Oil Mills Proprietary Limited... W South Africa F-116

249 APPENDIX A Interest in unlisted subsidiaries (Continued) For the year ended 31 March 2016 Amounts owed by Interest in Nature of Country of Issued capital subsidiaries subsidiaries business incorporation USD 000 USD 000 USD 000 USD 000 % % Superior Foods Proprietary Limited... I South Africa AFGRI Crop Care Proprietary Limited (previously Tsunami Crop Care Proprietary Limited)... X South Africa AFGRI Plant Protection Proprietary Limited (previously Tsunami Plant Protection Proprietary Limited)... X South Africa Unigro Administrators Proprietary Limited... Y South Africa Unigro Financial Services Proprietary Limited... Q South Africa , Unigro Insurance Brokers Proprietary Limited... Z South Africa Unigro Investment Holdings Proprietary Limited... V South Africa 68 1, Waltmerwe Park Proprietary Limited... O South Africa Subsidiaries of AFGRI Mauritius Holdings Proprietary Limited ABBA Agri Services Limited... T Zambia AFGRI Cameroon Limited*... G Cameroon AFGRI Congo SARL*... G Congo AFGRI Corporation Limited... E Zambia # # 17,942 19, AFGRI Equipment Australia Proprietary Limited... AA Australia AFGRI Fertilizer Mauritius Limited... C Mauritius AFGRI Fumigation Limited... G Uganda 80 AFGRI Ghana Company Limited... E Ghana AFGRI Grain Management Mauritius Limited... C Mauritius (136) AFGRI Gulu Limited... G Uganda AFGRI Kai Limited... G Uganda AFGRI Leasing Services Limited... Q Zambia # # AFGRI Mauritius Investment Limited.. C Mauritius 32,418 17, AFGRI Mozambique Sociedade Unipessoal Limitada... G Mozambique AFGRI Nigeria Limited... I Nigeria 100 AFGRI Primary Farming Mauritius Limited... C Mauritius AFGRI Operations Tanzania Limited... G Tanzania 100 AFGRI Uganda Limited... G Uganda AFGRI Operations Zimbabwe (Private) Limited (previously AFGRI Zimbabwe Equipment (Private) Limited)*... E Zimbabwe BNOT Harel Nigeria Limited... I Nigeria GEO AGRO Africa Limited... C Mauritius Clark Cotton Zambia Limited... G Zambia 2000# 2000# CMI Botswana Proprietary Limited... L Botswana Collateral Management International Limited... L Ghana Collateral Management International Kenya Limited... L Kenya F-117

250 APPENDIX A Interest in unlisted subsidiaries (Continued) For the year ended 31 March 2016 Amounts owed by Interest in Nature of Country of Issued capital subsidiaries subsidiaries business incorporation USD 000 USD 000 USD 000 USD 000 % % Collateral Management International Mauritius Limited... L Mauritius Collateral Management International Limited... L Mozambique Collateral Management International Rwanda Limited... L Rwanda CMI Tanzania Limited... L Tanzania Collateral Management International (U) Limited... L Uganda 100 Collateral Management International Zambia Limited (previously CMI Zambia Limited)... L Zambia CMN Agricultural Management Nigeria Limited... L Nigeria GroCat BV... AB Mauritius Krineko Proprietary Limited... E Botswana 65 NU-AFGRI Limited... T Uganda The Group s consolidated interest in the audited results of the subsidiaries is included in the Group s results. The year-end of the companies is March, except for the following companies as indicated: * December February # Zambian Kwacha A B C D E F G H I J K L M N O Q R Australian Dollar Agricultural and financial services, further processing of agricultural products, holding company Holding vehicle of treasury shares Investment holding company for international transactions Manufacturing of animal feeds Retail sales and servicing of mechanised agricultural equipment Executive share award scheme trust Commodity procurement and marketing Share incentive trust Broiler, breeder farms, hatchery and abbattoir Buyer and primary processor of tobacco Trade in coal beneficiated products Collateral management services Processing and marketing of cotton seed oil Subletting of sugar cane farm Property holding company spare parts Financial services provider Trade in hard commodity fuels F-118

251 APPENDIX A Interest in unlisted subsidiaries (Continued) For the year ended 31 March 2016 S T U V W X Y Z AA AB Training for emerging farmers Agricultural services Financial investment company Insurance investment holding company Processing and marketing cotton, soya and sunflower products Manufacturing and marketing of agricultural chemical products Insurance broker administration Insurance brokerage John Deere agency in Australia Trade in liquid fuels F-119

252 APPENDIX B Interests in unlisted joint ventures For the year ended 31 March 2016 Year ended Year ended Incorporated in Year-end 31 March March 2015 % % The significant joint ventures are: Afgritech Limited... A United Kingdom August Main Street 301 Proprietary Limited T/A GeoAgro SA Proprietary Limited... B South Africa March 50 Hinterland Proprietary Limited... C South Africa April Silverton Farm to Fork Proprietary Limited*... D South Africa March 50 Silverton Food Hub Proprietary Limited*... E South Africa March 33 Silocerts Proprietary Limited... F South Africa February African Petroleum Storage Solutions Limited... G Mauritius March Collateral Management International Zimbabwe Private Limited... H Zimbabwe December * Sold during the current financial year as part of the Poultry transaction (refer note 32). A B C D E F G H R&D on animal feeds and an investment holding company of soya and canola processing plant in the US focusing on extraction technology Technology solution company that provides software tools, geo data-processing and support in the use of technologies for precision farming. Retail business for farming primary inputs Retail of fresh farm produce Property holding company for Silverton Farm to Fork Proprietary Limited Administration of silo certificates Leasing of liquid fuel storage tanks in Mozambique Collateral management services F-120

253 APPENDIX C Interest in unlisted associates For the year ended 31 March 2016 Number of Interest in shares associates Shares Loans Nature of Country of business Year-end incorporation % % USD 000 USD 000 USD 000 USD 000 Todi River Farms SARL ,311 A December Congo Ronin Grain Management Proprietary Limited.. 10,000 10, B February South Africa LTP Holdings Proprietary Limited.. 8,650 8, ,582 3,137 0 C February South Africa GroCat Proprietary Limited D March South Africa Chesa Wheels Proprietary Limited E March South Africa Molemi Sele Management Proprietary Limited.. 3,490 3, F April South Africa Book value... 5,641 3,715 1, Fair value... 5,641 3,715 1, A B C D E F Maize and soyabeans farm Silo information management Buyer and primary processor of tobacco Rail logistics Trade in coal beneficiated products Credit life cell captive management company F-121

254 AFGRI HOLDINGS (PTY) LTD CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2015 F-122

255 INDEX DIRECTORS RESPONSIBILITY AND APPROVAL & CERTIFICATE BY COMPANY SECRETARY... F-124 INDEPENDENT AUDITOR S REPORT... F-125 DIRECTORS REPORT... F-127 F-129 ACCOUNTING POLICIES AND FINANCIAL RISK MANAGEMENT POLICIES... F-130 F-151 GROUP BALANCE SHEET... F-152 GROUP INCOME STATEMENT... F-153 GROUP STATEMENT OF COMPREHENSIVE INCOME... F-154 GROUP STATEMENT OF CHANGES IN EQUITY... F-155 GROUP CASH FLOW STATEMENT... F-156 NOTES TO THE ANNUAL FINANCIAL STATEMENTS... F-157 F-202 APPENDIX A C... F-203 F-207 These financial statements were approved on 5 October 2016 and will be distributed to shareholders on or before 18 November Pages F-123

256 DIRECTORS RESPONSIBILITY AND APPROVAL The Directors are responsible for the preparation, integrity and fair presentation of the consolidated financial statements of AFGRI Holdings Proprietary Limited. The consolidated financial statements presented on pages 5 to 78 have been prepared in accordance with International Financial Reporting Standards and in the manner required by the Companies Act in South Africa and include amounts based on judgements and estimates made by management. The going concern basis has been adopted in preparing the consolidated financial statements. The Directors have no reason to believe that the Group will not be a going concern in the foreseeable future, based on forecasts and available cash resources. These consolidated financial statements support the viability of the Group. The preparation of the consolidated financial statements has been supervised by the Group Chief Financial Officer, GJ Geel [CA (SA)]. The consolidated financial statements have been audited by the independent auditing firm, PricewaterhouseCoopers Incorporated, who were given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the Board of Directors and Committees of the Board. The Directors believe that all representations made to the independent auditors during their audit are valid and appropriate. PricewaterhouseCoopers Incorporated s audit report is presented on pages 3 4. The consolidated financial statements were approved by the Board of Directors on 5 October 2016 and are signed on its behalf by: 21DEC MS Wilkerson Chairman CENTURION 5 October DEC CP Venter Chief Executive Officer CERTIFICATE BY COMPANY SECRETARY In my capacity as Company Secretary, I hereby confirm that the Company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of Section 33(1) of the Companies Act, 2008, as amended, and that such returns are true, correct and up to date. 21DEC S PERIAH Company Secretary CENTURION 5 October 2016 F-124

257 19JAN INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDERS OF AFGRI HOLDINGS PROPRIETARY LIMITED AND ITS SUBSIDIARIES We have audited the consolidated financial statements of AFGRI Holdings Proprietary Limited set out on pages 7 to 78, which comprise the group balance sheet as at 31 March 2015, and the group income statement, group statement of comprehensive income, group statement of changes in equity and group cash flow statement for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information. Directors Responsibility for the Financial Statements The company s directors are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of AFGRI Holdings Proprietary Limited and its subsidiaries as at 31 March 2015, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. PricewaterhouseCoopers Inc., 32 Ida Street, Menlo Park 0081, PO Box 35296, Menlo Park 0102, South Africa T: +27 (0) , F: +27 (0) , Chief Executive Officer: T D Shango Management Committee: S N Madikane, I S Masondo, P I Mothibe, C Richardson, F Tanelli, C Volschenk The Company s principal place of business is at 2 Eglin Road, Sunninghill where a list of directors names is available for inspection Reg no 1998/012055/21. VAT reg no F-125

258 Other reports required by the Companies Act As part of our audit of the consolidated financial statements for the year ended 31 March 2015, we have read the Directors Report, and the Company Secretary s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited consolidated financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports. PricewaterhouseCoopers Inc. Director: JL Roos Registered Auditor Pretoria 18 November 2016 F-126

259 DIRECTORS REPORT The directors present their report for the year ended 31 March This report forms part of the audited consolidated financial statements. 1. Business and operations AFGRI is a leading agricultural services and processing company with a core focus on grain commodities. It provides services across the entire grain production and storage cycle, offering financial support and solutions as well as inputs and hi-tech equipment through the John Deere brand supported by a large retail footprint. AFGRI is further involved in the processing of poultry products, the manufacture of animal feeds, the processing of yellow maize and wheat and the extraction of oil and other raw materials into edible oils, fats and proteins for human consumption (food processing and fast food industries). AFGRI is expanding into other countries on the African continent and has activities in Zambia, Zimbabwe, Mozambique, Nigeria, Ghana, Congo-Brazzaville and Uganda, aimed at supporting agriculture in these geographies. AFGRI also has a John Deere operation in Australia, an animal feeds research and development venture in the United Kingdom and an investment in animal feeds in the United States of America. 2. Financial results The results of the Group and the state of its affairs are set out in the attached consolidated financial statements and do not, in our opinion, require further comment. 3. Dividends Refer to note 36 for dividends declared. 4. Share capital Full details of authorised, issued and unissued share capital of the Group at 31 March 2015 are contained in note 16 to the annual consolidated financial statements. 5. Directors The Directors of AFGRI Operations Limited during the year and up to the date of this report were as follows: M Wilkerson (Chairperson) appointed 14 January 2014 N Holzapfel appointed 14 January 2014 L Van Zeuner appointed 1 April 2014 C Venter appointed 1 April 2014 S Masuku appointed 1 April 2014, resigned 3 October 2014 R McLean appointed 1 April 2014 B Hayward appointed 1 April 2014 K Maponya appointed 1 April 2014 I Sehoole appointed 1 April 2014, resigned 24 June 2015 K Mabe appointed 1 April 2014 B Khoza appointed 20 November 2014 M Bantsi (alternate director to B Khoza) appointed 20 November 2014 M Muller (alternate director to K Mabe) appointed 20 November 2014 F-127

260 6. Secretary The secretary of the AFGRI Holdings Proprietary Limited is Ms S Periah, whose business and postal addresses are: 12 Byls Bridge Boulevard, Highveld Ext 73, CENTURION, 0157 P O Box 11054, CENTURION, Auditors PricewaterhouseCoopers Inc. have been appointed as the auditors for the next financial year. 8. Holding Company The holding company is Joseph Investment Holdings, a company incorporated in Mauritius, which holds 60% of the share capital with the ultimate holding company being AgriGroupe Investments, a company incorporated in the Cayman Islands. The remaining 40% of share capital is held as follows: 15% by the Public Investment Corporation Soc Limited, a company incorporated in South Africa; 20% by Bafepi Agri Proprietary Limited, a company incorporated in South Africa; and 5% by the Matteh Management Trust, a trust registered in South Africa. 9. Going Concern The going-concern basis has been adopted in preparing the consolidated financial statements of the Company. The directors take note of the fact that the Group s retained earnings reflect an accumulated deficit partly as a result of once off items being the transaction related costs which were pushed down by the shareholder to the value of USD 18.7 million and the share based payment charge of USD 7.7 million. The Group s total assets however exceeds its total liabilities. Furthermore the current liabilities (which exceeds its current assets) of the Group includes shareholders loans to the value of USD 143 million due to the nature of the terms of these loans. The directors have no reason to belief that the Group will not be a going concern in the foreseeable future based on forecasts and available cash resources. These consolidated financial statements support the viability of the Group. 10. Subsequent Event The following events occurred subsequent to the Group s year-end, all of which represents non-adjustable events after the reporting period in terms of IAS 10 Events after the Reporting Period: On 15 May 2015 the Group concluded sale agreements with Bafepi Agri Proprietary Limited (Bafepi) and the Public Investment Corporation (PIC) to sell 100% of its shares in AFGRI Poultry Proprietary Limited together with all claims outstanding from AFGRI Poultry Proprietary Limited, as a going concern, for USD 97 million. This transaction will see the Group disposing its entire Poultry business, as well as the Kinross feedmill. This transaction was subject to the fulfilment of various suspensive conditions, in particular the approval by shareholders of the Company as well as the unconditional approval of the South African Competition Authorities. Related approvals were obtained on 7 April 2015 and 24 March 2015 respectively. The effective date of the transaction was 1 April The trading results of the Group s Poultry business are therefore included with the results from discontinued operations and the related assets and liabilities are disclosed under assets of disposal groups classified as held-for-sale. On 4 August 2015 and 1 December 2015, respectively, the Group concluded binding sales agreements with Jolly & Sons Proprietary Limited ( Jolly & Sons ) in Australia and 24 Biccard 104 CC t/a Truck and Tractor Specialists Agri ( TTS ) in South Africa. In terms of these agreements, the Group acquired the trading assets of Jolly & Sons and TTS, as going concerns, for USD 7.9 million and USD 2.1 million, respectively. The acquisition will allow the Group s Equipment business to grow its footprint in Western Australia, as well as in the Limpopo province in South Africa. F-128

261 The Group renegotiated the terms of the first R500 million Land Bank tranche facility (disclosed under short-term borrowings, refer note ). The new terms includes interest at prime minus 1% and a repayment date of 28 June The original terms for the second and third tranche facilities remained unchanged. On 26 April 2016, the Group announced its intention to acquire a John Deere agency in the Western Cape province of South Africa. The Group also entered into an agreement on 1 July 2016 to buy a John Deere agency in Western Australia. These acquisitions have been approved by the Board and approval for the South African transaction was also obtained from the South African Competition Authorities. On 31 October 2014 the loans to Carnival Foods CC and Tunica Trading 52 CC were renegotiated for a second time. The renegotiations resulted in one loan with Carnival Foods CC together with new payment terms refer to note of the consolidated financial statements for more detail. During the 2016 financial year the debtor did not adhere to the renegotiated repayment terms which resulted in the full balance of the loan becoming payable. The balance has also been assessed for impairment during the 2016 financial year which resulted in USD 0.4 million being provided for as an allowance for bad debt during the 2016 financial year. No other material events have occurred since the date of these financial statements and the date of approval thereof, the knowledge of which would affect the ability of the users of their financial statements to make proper evaluations and decisions. F-129

262 ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated annual financial statements are set out below and are consistent with those of the previous year, except where indicated otherwise. Basis of preparation These consolidated financial statements of AFGRI Holdings (Pty) Ltd have been prepared in accordance with International Financial Reporting Standards (IFRS). These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments) and biological assets at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 1 (Critical accounting estimates and judgements) of these consolidated annual financial statements. New accounting pronouncements The Group adopted the new, revised or amended accounting standards as issued by the International Accounting Standards Board (IASB), which were effective and applicable to the Group from 1 April 2014, none of which had a material impact on the Group s financial results for the period. None of the new, revised or amended accounting standards issued by the IASB which were not yet effective from 1 April 2014 has been adopted by the Group. Management is assessing the impact on the accounting policies of the Group for March Herewith a summary of the new pronouncements issued by the IASB: Adopted by the Group New standards, interpretations and amendments to published standards effective in 2015 and adopted by the Group IAS 36 (Amendment) Impairment of assets (effective 1 January 2014): This amendment will require the disclosure of information about the recoverable amount of impaired assets where that amount is based on the fair value less costs of disposal. IAS 32 (Amendment) Financial instruments: Presentation (effective 1 January 2014): This amendment updates the application guidance in IAS 32 to clarify some of the requirements for offsetting financial assets and financial liabilities on the statement of financial position. IAS 39 (Amendment) Financial instruments: recognition and measurement (effective 1 January 2014): This amendment allow hedge accounting to continue in a situation where a derivative, the hedging instrument, is novated (replacing one party to the derivative contract with a new party) to allow clearing with a central counterparty due to laws or regulations. IFRIC 21 Levies (effective 1 January 2014): This interpretation clarifies that the obligating event that gives rise to a liability, under IAS 37, to pay a levy is the activity per the relevant legislation that triggers payment thereof. Not yet adopted by the Group New standards, interpretations and amendments to published standards effective in 2016 and relevant to the Group IFRS 10 (Amendment) Consolidated financial statements and IAS 28 (Amendment) Investments in associates and joint ventures (effective 1 January 2016): This amendment aims to eliminate the inconsistency between IFRS 10 and IAS 28 where non-monetary assets sold or contributed to an associate F-130

263 or joint venture constitutes a business. Should these assets constitute a business then the full gain or loss will be recognised by the investor. Otherwise only a partial gain or loss is recognised even if these assets are housed in a subsidiary. IFRS 11 (Amendment) Joint arrangements (effective 1 January 2016): This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business and specify the appropriate accounting treatment for such acquisitions. IAS 1 (Amendment) Presentation of financial statements (effective 1 January 2016): The amendments provides guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. IAS 16 (Amendment) Property, plant and equipment and IAS 38 (Amendment) Intangible assets (effective 1 January 2016): This amendment clarifies that the use of revenue based methods to calculate the depreciation of an asset is not appropriate. It also clarifies that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. IAS 16 (Amendment) Property, plant and equipment and IAS 41 (Amendment) Agriculture (effective 1 January 2016): This amendment scopes bearer plants into IAS 16, but not the produce on bearer plants. It explains that a bearer plant not yet in the location and condition necessary to bear produce is treated as a self-constructed asset. A corresponding amendment has been made to the definition of a bearer plant in IAS 41. IAS 27 (Amendment) Separate financial statements (effective 1 January 2016): This amendment restores the option to use the equity method to account for investments in subsidiaries, joint ventures and associates in an entity s separate financial statements. New standards, interpretations and amendments to published standards effective 2016 but not currently relevant for the Group s operations IAS 19 (Amendment) Employee benefits (effective 1 July 2014): This amendment aims to simplify the accounting for employer and 3 rd party contributions that are independent of the number of years of employee service for defined benefit plans. IFRS 10 (Amendment) Consolidated financial statements and IAS 28 (Amendment) Investments in associates and joint ventures (effective 1 January 2016): The amendments clarify the application of the consolidation exception for investment entities and their subsidiaries. IFRS 14 (New standard) Regulatory deferral accounts (effective 1 January 2016): Applies specifically to first time adopters of IFRS 14. Rate regulation is a framework where the price that an entity charges to its customers for goods and services is subject to oversight and/or approval by an authorised body. New standards, interpretations and amendments to published standards not yet effective IFRS 15 (New standard) Revenue from contracts with customers (effective 1 January 2017): The long awaited converged standard on revenue by the FASB and IASB. The standard contains a single, comprehensive revenue recognition model for all contracts with customers and aim to achieve greater consistency in the recognition and presentation of revenue. Revenue is recognised based on the satisfaction of performance obligations, which occurs when control of good or service transfers to a customer. IFRS 9 Financial instruments: classification and measurement (effective 1 January 2018): This IFRS is part of the IASB s project to replace IAS 39. IFRS 9 addresses classification and measurement of financial assets and replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value. IFRS 9 (Amendment) Financial instruments: classification and measurement (effective 1 January 2018): This amendment will bring into effect a substantial overhaul of hedge accounting. F-131

264 Improvements to IFRS The IASB concluded on its Annual Improvements cycles during December 2013, which focus primarily on removing inconsistencies and clarify wording. There are separate transitional provisions for each standard. Most of the amendments contained in the two cycles are only effective 1 July 2014, and therefore not impacting the Group s current year-end. The following amendments did however become effective during the current financial year and resulted in changes/alignment to accounting policies of the Group. However these amendments did not have any impact on the financial position or performance of the Group: IFRS 2 (Amendment) Share based payment (effecting transactions occurring after 1 July 2014): This amendment clarifies the definition of a vesting condition and separately defines performance condition and service condition. IFRS 3 (Amendment) Business combinations (effecting transactions occurring after 1 July 2014): The amended clarifies that an obligation to pay contingent consideration which meets the definition of a financial instrument is classified as a financial liability or as equity per IAS 32. The standard is further amended to clarify that all non-equity contingent consideration, both financial and non-financial, is measured at fair value at each reporting date, with changes in fair value recognised in profit and loss. Consequential changes were also made to IFRS 9, IAS 37 and IAS 39. The IASB also concluded on its 2014 Annual Improvements cycle during September The amendments contained in this cycle are only effective for 2017 and as a result had no impact on the Group s current accounting policies. Amendments impacting the following standards are currently being assessed by management to determine the impact on the accounting policies of the Group for March 2016: IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 3 Business combinations IFRS 8 Operating segments IFRS 13 Fair value measurement IAS 16 Property, plant and equipment IAS 24 Related party disclosures IAS 38 Intangible assets IAS 40 Investment property and for March 2017: IFRS 5 Non-current assets held for sale and discontinued operations IFRS 7 Financial instruments IAS 19 Employee benefits IAS 34 Interim financial reporting Interests in Group entities Subsidiaries Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are entities (including special-purpose entities) over which the Group has the power to govern the financial and operating policies. The existence and effect of potential voting rights that are currently F-132

265 exercisable or convertible are considered when assessing whether the Group controls another entity. 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 cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. The consideration transferred is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. For each acquisition, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree s identifiable net assets for components that represents ownership interests and entitles their holders to a proportionate share of the entity s net assets in the event of liquidation. All other components of non-controlling interests are measured at their acquisition date fair values, unless another measurement basis is required by IFRS. Acquisition costs incurred are recognised directly in profit or loss. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration, which is deemed to be an asset or liability, are recognised in accordance with IAS 39 either directly in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity. If the acquisition is achieved in stages, the acquisition date fair value of the acquirer s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date directly through profit or loss. The Group applies a policy of treating transactions with non-controlling interests as transactions with equity owners of the Group. For purchases of additional interests in subsidiaries from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is added to, or deducted from, equity. For disposals of non-controlling interests, differences between any proceeds received and the relevant share of non-controlling interests are also recorded in equity. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for under the equity method of accounting and are initially recognised at cost. The Group s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group s share of its associates post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or 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 associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Joint ventures Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. Investments in joint ventures are accounted for under the F-133

266 equity method of accounting and are initially recognised at cost. The Group s investment in joint ventures includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group s share of its joint ventures post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group s interest in the joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group. Property, plant and equipment Land and buildings comprise mainly factories, grain silos and offices. All property, plant and equipment is shown at cost, less subsequent depreciation and impairment, except for land, which is shown at cost less impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from other comprehensive income of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset s 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. All other repairs and maintenance expenditures are charged to profit or loss during the financial period in which they are incurred. Depreciation is calculated using either the straight-line method or the unit-of-production method to allocate the cost of each asset to its residual value over its estimated useful life. Useful life used under the straight-line method of depreciation: Buildings 25 to 100 years Plant and machinery five to 100 years Equipment and motor vehicles five to 50 years Land is not depreciated Useful life used under the unit-of-production method of depreciation: Plant and machinery to tons Major renovations are depreciated over the remaining useful life of the related asset or to the date of the next major renovation, whichever is the earlier. Grain silos are maintained annually to a fixed programme. The assets residual values and useful lives are reviewed annually and adjusted if appropriate. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in profit or loss. F-134

267 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, of the acquired business/subsidiary/associate or joint venture at the date of acquisition, and liabilities assumed. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses and is not amortised. Gains and losses on the disposal of an entity, other than goodwill in associates, include the carrying amount of goodwill relating to the entity sold. If, on a business combination, the fair value of the Group s interest in the identifiable assets, liabilities and contingent liabilities exceeds the cost of the acquisition, the excess is recognised in profit or loss immediately. Goodwill, acquired in a business combination before 31 March 2004, was previously amortised over its useful life. The accumulated amortisation prior to that date was netted against the cost. Goodwill is allocated to cash- generating units for the purpose of impairment assessment. The allocation is made to those cash-generating units or groups of cash generating units that are expected to benefit from the business combination in which goodwill arose. AFGRI allocates goodwill to each business segment in each country in which it operates. Other intangible assets Research and development Research expenditure is recognised in profit or loss as incurred. Costs incurred on development projects are recognised as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised in profit or loss as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have a finite useful life and have been capitalised are amortised from the commencement of commercial production of the product on a straight-line basis over the period of its expected benefit (not exceeding 10 years). Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the straight line method over their estimated useful lives. Amortisation rates applied are provided in note 4.6. Costs associated with developing or maintaining computer software programmes are recognised in profit or loss as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised using the straight-line method over their estimated useful lives (not exceeding five years). Trademarks, licences and other intellectual property Separately acquired trademarks and licences are recognised at historical cost less accumulated amortisation and impairment. Trademarks and licences with finite useful lives are amortised on a straight-line basis over the estimated useful lives. Other intellectual property acquired in a business combination such as know-how or customer lists are recognised at fair value. These intangible assets have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method over the estimated useful life of the assets. The amortisation method and estimated remaining useful lives are reviewed at least annually. Amortisation rates applied are provided in note 4.5. F-135

268 Impairments of non-financial assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation 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 were previously impaired are reviewed for possible reversal of the impairment at each reporting date. Financial assets A financial asset is any asset that is cash, an equity instrument of another entity, a contractual right to receive cash or another financial asset from another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable. Classification The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Group classifies its financial assets in the following categories: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held-for-trading and financial assets designated upon initial recognition at fair value through profit or loss. A financial asset is classified as held-for-trading if acquired principally for the purpose of selling in the short term. This category includes derivatives (refer to note 14) unless they are designated as hedges. Assets in this category are classified as current if they are expected to be realised within 12 months of the balance sheet date. The Group enters into various over-the-counter (OTC) forward purchases and sales contracts for the purchase and sale of commodities. Although certain of these contracts are settled by taking or making physical delivery in the normal course of business, the OTC contracts are regarded as financial instruments and are accounted for at fair value under IAS 39, where the Group has a substantive past practice of net settlement (either with the counterparty or by entering into offsetting contracts). Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities where there is a positive intention and ability to hold them to maturity. Held-to-maturity investments are included with financial receivables on the face of the balance sheet. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables include financial receivables (excluding held-to-maturity investments), trade and other receivables (excluding prepayments), trade receivables financed by banks (excluding those classified as held for trading), cash collateral deposits and cash and cash equivalents. Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term, highly liquid investments with original maturities of three months or less. Bank overdrafts are shown with borrowings. Loans and receivables are included in current assets, except for financial receivables having maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. F-136

269 Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Measurement Regular purchases and sales of financial assets are recognised on trade date the date on which the Group commits to purchase or sell the asset. Financial assets are initially measured at fair value plus transaction costs. However, transaction costs in respect of financial assets classified as at fair value through profit or loss are expensed to profit or loss immediately. Transaction costs are incremental costs that are directly attributable to the acquisition of a financial asset, i.e. those costs that would not have been incurred had the asset not been acquired. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm s-length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer s specific circumstances. Financial assets and liabilities are offset where the Group currently has a legally enforceable right to offset the recognised amounts and intends to settle on a net basis. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are measured at fair value with gains or losses being recognised in profit or loss. Fair value, for this purpose, is the quoted price if listed or a value arrived at by using the discounted cash flow valuation model if unlisted. Over-the-counter contracts are initially recognised in the balance sheet at fair value and are subsequently remeasured to their fair value. These derivative transactions, while providing effective economic hedges under the Group s risk management policies, do not qualify for hedge accounting under the specific rules in IAS 39. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 are recognised immediately in profit or loss. Held-to-maturity investments Financial assets classified as held-to-maturity financial assets are measured at amortised cost less any impairment losses recognised in profit or loss to reflect irrecoverable amounts. Loans and receivables Loans and receivables (including those financed by banks, excluding those classified as held for trading) are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss. When a loan or receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written-off are credited to profit or loss. F-137

270 Available-for-sale financial assets Available-for-sale financial assets are measured at fair value with unrealised gains or losses being recognised as other comprehensive income. Fair value, for this purpose, is the quoted price if listed or a value arrived at by using appropriate valuation models if unlisted. Impairment The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Objective evidence would include, but not be limited to: a decline in the financial asset s ability to generate future cash flows, deterioration in the counterparty s credit profile, the ability to collect all amounts due according to the original terms, or the anticipated non-performance on a contract. If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss is removed from other comprehensive income and recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments are not reversed through profit or loss, increases in their fair value after impairment are recognised directly in other comprehensive income. Financial liabilities A financial liability is a contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable; or a contract that may be settled in the entity s own equity instruments and is a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity s own equity instruments or a derivative (refer to note 14) that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity s own equity instruments. A financial liability at fair value through profit or loss is a financial liability that is classified as held-for-trading or is designated as such on initial recognition. A financial liability held-for-trading is one that is incurred as part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking or a derivative (except for a derivative that is a designated and effective hedging instrument). Financial liabilities are initially measured at fair value plus transaction costs. However, transaction costs in respect of financial liabilities classified as at fair value through profit or loss are expensed immediately. Transaction costs are those costs that are directly attributable to the issue of a financial liability, i.e. those that would not have been incurred if the liability had not been issued. Financial liabilities that are not classified or designated on initial recognition as financial liabilities at fair value through profit or loss are measured at amortised cost. Financial liabilities that are classified or designated on initial recognition as financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value being recognised in profit or loss. Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends on these preference shares are recognised in the income statement as interest expense. Derivative liabilities are measured at fair value, with changes in fair value being recognised in profit or loss other than those designated as cash flow hedges. Borrowings (including call loans and bank overdrafts) are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest rate method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. F-138

271 Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); hedges of highly probable forecast transactions (cash flow hedges); or hedges of net investments in foreign operations. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative instruments are disclosed in note 14 (derivative financial instruments). Movements on the hedging reserve in other comprehensive income are shown in note 17 (fair value and other reserves). The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability if they are expected to be realised within 12 months of the balance sheet date. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity are recycled to profit or loss in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profit or loss. Net investment hedge Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income in equity; the gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Gains and losses accumulated in equity are included in profit or loss when the foreign operation is disposed of. F-139

272 Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in profit or loss. Inventories Inventories, other than inventory held-for-trading purposes, are stated at the lower of cost and net realisable value. Inventories held-for-trading purposes are stated at fair value less costs to sell and any changes in net realisable value are recognised in the income statement. Cost is determined using the weighted average method. The cost of finished goods in the grain management segment is determined using the first-in first-out (FIFO) method due to its different use. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Biological assets A biological asset is a living animal or plant and an agricultural activity is the biological transformation of biological assets for sale, into agricultural produce or into additional biological assets. Biological assets are recognised at fair value less estimated point-of-sale costs, accept where the biological asset does not have a quoted market price in an active market in which case it s measured at cost less accumulated depreciation and impairment losses. Fair value is measured with reference to an active market adjusted for its present location and condition. Fair value changes are recognised in profit or loss. Biological assets carried at cost less accumulated depreciation and impairments losses are depreciated using the straight-line method over a period of 39 weeks. All the expenses incurred in establishing and maintaining the assets is recognised in profit or loss. All costs incurred in acquiring biological assets are capitalise. Finance charges are not capitalised. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Deferred income tax Deferred income tax is provided using the liability method on all temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss, it is not accounted for. Deferred income tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are only recognised to the extent that it is probable that taxable profits will be available against which temporary differences can be utilised, unless specifically exempted. Deferred income tax is recognised on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. F-140

273 Foreign currency translation 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 business operates (the functional currency). The consolidated financial statements are presented in USD, which is the Group s presentation currency. 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 profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Translation differences on financial assets held at fair value through profit or loss are reported as part of the fair value gain or loss. Translation differences on financial assets classified as available-for-sale financial assets are included in the fair value reserve in equity. Group companies The results and financial position of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: Assets and liabilities are translated at the closing rate at the date of the balance sheet; The opening equity is translated at the historical rate; Income and expenses for each profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and All resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders equity. When a foreign operation is sold, such exchange differences are recognised in profit or loss as part of the gain or loss on sale. Leases Classification A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. An operating lease is a lease other than a finance lease. Leases are classified as finance leases or operating leases at the inception of the lease. In the capacity of a lessor Amounts due from a lessee under a finance lease are recognised as receivables at the amount of the net investment in the lease, being the gross investment in the lease discounted at the interest rate implicit in the lease, which includes initial direct costs. The gross investment in a lease is the aggregate of the minimum lease payments receivable and any unguaranteed residual value. The minimum lease payments exclude contingent rent and costs for services and includes any residual value guarantees by the lessee, a party related to the lessee or a third party unrelated to the lessor. Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease or another basis if more representative of the time pattern of the user s benefit. Contingent rentals are recognised in profit or loss as they accrue. F-141

274 In the capacity of a lessee Finance leases are recognised as assets and liabilities at the lower of the fair value of the asset and the present value of the minimum lease payments at the date of acquisition, being payments over the lease term, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor including any amounts guaranteed by the company or by a party related to the company. Finance costs represent the difference between the total leasing commitments and the fair value of the assets acquired. Finance costs are charged to profit or loss over the term of the lease at interest rates applicable to the lease on the remaining balance of the obligations. Rentals payable under operating leases are recognised in profit or loss on a straight-line basis over the term of the relevant lease or another bas is if more representative of the time pattern of the user s benefit. Contingent rentals are recognised in profit or loss as they accrue. Employee benefits Pension obligations Group companies operate various defined contribution pension schemes. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory and contractual basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. Share-based payment The Group operated two equity-settled share-based compensation plans which came to an end on 2 April 2014 with the delisting of the Company from the Johannesburg Stock Exchange. The AFGRI Share Incentive Scheme allowed senior employees the option to acquire shares in AFGRI Limited over a prescribed period at a specific strike price. The AFGRI Executive Share Award Scheme remunerated senior employees with AFGRI Limited shares partially for services rendered, and partially for future services and performance conditions. AFGRI share incentive scheme These options are settled by means of the issue of shares by AFGRI Limited or through the acquisition of shares in the open market by the AFGRI Limited Trust. The fair value of the employee services received is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions, and expensed over the vesting period. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. It recognises the impact of the revision, if any, in profit or loss, with a corresponding adjustment to equity. Fair value is measured using the Black-Scholes pricing model. AFGRI executive share award scheme The fair value of the employee services received is determined by reference to the fair value of the shares issued, excluding the impact of any non-market vesting conditions, and is recognised as an expense over the vesting period. Non-market vesting conditions are included in assumptions about the number of restricted shares that are expected to vest as unrestricted shares. It recognises the impact of the revision, if any, in profit or loss, with a corresponding adjustment to equity. Fair value is the quoted price of the shares on grant date. Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. F-142

275 The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value. Short-term benefits The cost of short-term employee benefits, such as salaries, leave pay, bonuses, medical aid and other contributions are recognised during the period in which the employee renders the service. Provisions Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Where there are a number of similar obligations for example, in the case of product warranties the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. Non-current assets or disposal groups held-for-sale and discontinued operations Non-current assets or disposal groups are classified as held-for-sale if their carrying amount will be recoverable principally through a sale transaction, not through continuing use. The condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. These assets may be a component of an entity, a disposal group or an individual non-current asset. Upon initial classification as held-for-sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair values less cost to sell. A discontinued operation is a significant distinguishable component of the Group s business that is abandoned or terminated pursuant to a single formal plan, and which represents a separate major line of business or geographical area of operation. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held-for sale. A disposal group that is to be abandoned may also qualify as a discontinued operation, but not as assets held-for-sale. The profit or loss on sale or abandonment of a discontinued operation is determined from the formalised discontinuance date. Discontinued operations are separately recognised in the financial statements once management has made a commitment to discontinue the operation without a realistic possibility of withdrawal which should be expected to qualify for recognition as a completed sale within one year of classification. Contingencies and commitments Transactions are classified as contingencies where the Group s obligation depends on uncertain future events. Items are classified as commitments where the Group commits itself to future transactions or if the items will result in the acquisition of assets. F-143

276 Revenue recognition Revenue comprises the fair value for the sale of goods and services, net of value added tax, rebates and cash and settlement discounts and after eliminated sales within the Group. The Group assesses its revenue arrangements in order to determine if it is acting as principal or agent. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and 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. Sales of goods retail The Group retails a range of agricultural requisites and mechanised equipment through its network of retail outlets together with a variety home, garden, outdoor and DIY products, branded clothing, selected building materials, and general merchandise. Sales are recognised when the Group entity has delivered the products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured. All three of these conditions are determined when the customer is at the point-of-sale in the retail store, except when offsite physical delivery is requested, in which case the sale is deferred until delivery has taken place. Sales of goods production output The Group produces a range of animal feed products, various oils and proteins as well as yellow corn grits for sale to industrial food processors, livestock producers and into the fast foods market. The Group also produces and processes broilers into frozen whole birds and individually quick-frozen portions for sale into the wholesale, retail and fast foods market. Sales are recognised when the Group entity has delivered the produced end product to the customer, the customer has accepted the product and collectability of the related receivable is reasonably assured. Rendering of services The Group renders the following services to its clients in the agricultural, financial services and grain processing environments: handling and storage of commodities (mainly grain), collateral management, grain procurement, servicing of mechanised equipment, crop insurance, commodity broking, debt origination and administration of debtors, specialised finance and foreign exchange. The rendering of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Interest income Interest income is recognised on a time-proportion basis using the effective interest rate method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount being the estimated future cash flow discounted at original effective interest rate of the instrument and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either as cash is collected or on a cost-recovery basis as conditions warrant. Royalty income Royalty income is recognised on an accruals basis in accordance with the substance of the relevant agreements. Dividend income Dividend income is recognised when the right to receive payment is established. F-144

277 Dividends payable Dividends payable and the related tax thereon to the Company s shareholders are recognised as a liability in the Group s financial statements in the period in which the dividends are declared by the Company s shareholders. Income tax The income tax charge for current tax is on net income before tax for the year as adjusted for income that is exempt and expenses that are not deductible using enacted tax rates. Deferred income tax is recognised for all temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at the balance sheet date. Financial risk management Financial risk factors The Group s activities expose it to a variety of financial risks: Market risk (including foreign exchange risk, cash flow and fair value interest rate risk, equity and commodity price risks); Credit risk; Liquidity risk; and Capital risk. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity. The Group s overall financial risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. These derivative financial instruments are used exclusively as hedging instruments and not for trading or other speculative purposes. Market risk Market risk relates to the risk that changes in market prices will affect the Group s income or the value of its financial instruments. Management thereof aims to limit exposure within acceptable limits, while optimising returns. Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar, Euro, Pound Sterling, Australian Dollar, Nigerian Naira, Zambian Kwacha, Zimbabwean Dollars, Ugandan Shilling, Rwandan Franc, Tanzanian Shilling, Mozambique Metical and the Ghanaian Cedi. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations which are denominated in a currency that is not the entity s functional currency. To manage its foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group use forward contracts, transacted with GroCapital Financial Services Proprietary Limited (GroCapital), a wholly owned subsidiary of AFGRI Operations Limited. GroCapital is responsible for managing the net position for the Group in each foreign currency by using external forward foreign exchange contracts. These external forward foreign exchange contracts are designated at Group level as hedges of foreign exchange risk on specific assets, liabilities or future transactions. The Group s risk management policy is to F-145

278 hedge 100% of all committed transactions in each currency. GroCapital utilise the services of Group treasury to ensure that foreign exchange banking facilities are in place and available. The Group has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The currency risk resulting from the translation of foreign operations into the Group s reporting currency is not hedged. A monetary item that is receivable from or payable to a foreign operation and for which settlement is neither planned nor likely in the foreseeable future is considered as part of the Group s net investment in that foreign operation. These monetary items are not hedged. Monetary items receivable from or payable to a foreign operation, made on commercial terms, are subject to the same hedging policy as other commercial transactions and are hedged using forward foreign exchange contracts to the extent that the Group don t have facilities denominated in USD. The Board has issued guidelines for investments in foreign countries. Country risk is monitored on a continuous basis. Monthly exposure reports are compiled, reviewed by management and reported to the Audit, Risk and Credit Committee on a bi-annual basis. Cash flow and fair value interest rate risk Financial assets and liabilities at variable rates expose the Group to cash flow interest rate risk. The Group raises a combination of short-term and long-term debt at variable rates to fund the operations of the Group and is therefore exposed to cash flow interest rate risk to the extent that these facilities have floating rates. The Group is not exposed to fair value interest rate risk as all material borrowings are at variable rates. Equity price risk The Group is not exposed to material equity securities price risk. Commodity price risk Commodity price risk arises from the Group s significant consumption of agricultural commodities and its use of derivative financial instruments linked to underlying agricultural commodity prices. The procurement and the sale of grain is managed by Grain Management, a division of AFGRI Operations Proprietary Limited through the application of policies and guidelines approved by the Board. The Group s agricultural commodity activities include the procurement of product from producers and the marketing of these products to consumers of agricultural commodities. A timing difference arises between the procurement and the supply of the product. During this period both the procurement and supply positions are fully hedged. The procurement of strategic commodities and raw materials for the Group s processing, milling and feed manufacturing operations is managed by the AFGRI Foods Procurement department. The Group is exposed to market risk where strategic commodities procured are utilised or processed further to manufacture final goods. The Group is inherently exposed to the price movements of maize, wheat, soymeal, soybeans, and sunflower seed and exchange rate fluctuations resulting from its participation on local and international commodity and derivatives exchanges. Commodity price risk arises from fluctuating supply and demand conditions, world inventory balances, weather, economic conditions and other factors. The Group may suffer financial loss due to fluctuating commodity prices and a fluctuating local currency which can lead to a cost disadvantage compared to competitors. The procurement of strategic commodities for utilisation by the Group is subject to the risk management and hedging policy through the application of financial instruments such as commodity futures, option contracts as well as physical supply contracts and over the counter instruments to reduce the volatility of input prices of commodities and raw materials in order to mitigate price risk. The AFGRI Foods Procurement Committee manages AFGRI Food s commodity price risk. The monitoring and management of positions, corresponding hedges and marked-to-market values is performed on a F-146

279 weekly basis by the AFGRI Foods Procurement department. It is the responsibility of the respective managing directors to ensure that all trades are within the approved exposure limits and also conform to the agreed strategies on a daily basis. The Group offers brokerage services to producers and consumers of agricultural commodities such as wheat, sunflower, maize and soya. This offering generates no exposure to market risk due to the back-to-back nature of the transactions. Credit risk Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract and arises principally from trade (current), seasonal, capital goods financing, and forward purchase contracts for agricultural commodities. The Group is exposed to the agricultural and food industries and has concentrations of credit risk in this regard. The Group s maximum exposure to credit risk can be considered to be the sum of the following financial assets: Financial receivables; Other financial assets; Trade and other receivables including those financed by banks, (excluding prepayments); Cash and cash equivalents and cash collateral deposits; and Derivative financial instruments. Since 2012 the Financial Services segment originates debt primarily with the implicit intention to sell the underlying contracts to the Land Bank. The origination of the debt is in terms of a credit policy approved by the Land Bank. Credit risk is managed on behalf of the Land Bank in terms of the approved policy. The Group has policies and procedures in place to ensure that sales of products and services are made to customers after an appropriate credit assessment. The Board delegates the responsibility for the management of credit risk to the Group Audit, Risk and Credit Committee. Line managers within the Group are awarded mandates under the AFGRI Group Credit Policy with supplemented divisional credit policies, which also caters for divisional specific requirements, in order to manage the day-to-day credit decisions necessary to conduct business. The Group Audit, Risk and Credit Committee oversees the development and application of credit risk mitigating practices throughout the Group. In addition to the divisional credit function within Financial Services, where the bulk of credit exposure arises, the Group credit function within the Group s Legal and Compliance department manages the Group credit function and reports to the Group Audit, Risk and Credit Committee. Similarly, the validity and financial stability of counterparties must be determined by Financial Services before forward purchase contracts are entered into. Key elements of the control environment established to manage credit risk include: the establishment of mandates for the Group Credit Committee and senior divisional line managers within AFGRI; AFGRI Group, divisional and subsidiary credit policies; evaluation and scoring models, allowing for the categorisation of credit applications into predefined risk categories; predefined security requirements and Group guidelines for the valuation of collateral; compliance with both the National Credit Act (NCA) and Financial Intelligence Centre Act (FICA); where applicable, farmer debtors are covered by credit life insurance; the individual credit management of both individually large and corporate customers; F-147

280 documented procedures to elevate out of mandate decisions; controlling cross-border exposures; regular reviews of performance and effectiveness of divisions and subsidiaries credit approval processes; and a workout and recovery unit to effectively recover debt when default has occurred. The Group Audit, Risk and Credit Committee meets quarterly and is provided with the following reports to enable it to assess the Group s exposure to credit risk and the effectiveness of the control environment: summary of large exposures (R100 million and above); analysis of facilities outstanding per type of facility; distribution of outstanding facilities per risk rating; security position per risk class; impairment allowance balances as a percentage of the book value of debtors per business unit; movement in impairment charges; a summary of debtors managed on behalf of the Land Bank (number and value); analysis of lending rates (prime vs Land Bank vs rates charged) analysis of facilities outside arrangement (with or without arrangement); workout and recoveries analysis; recommended amendments to credit policies; credit applications submitted for consideration; and bi-annual industry overview of the farmer lending debtors book. The Group categorises its trade receivables into three classes, namely current, seasonal and capital goods. Current represents those trade receivables which are offered on normal trading terms such as 30, 60 and 90 days. Seasonal includes trade receivables which have been provided to finance primary producers crops during a given season. Capital goods represent credit offered to purchase capital agricultural goods such as tractors. All three classes of credit are available to both primary producers and corporate customers, bearing in mind that many primary production activities are conducted by incorporated entities. It is the Group s policy to ensure that loans and receivables are within the customer s capacity to repay. In principle, loans are only granted if they can be secured. Depending on the customer s standing and the type of product, facilities may be unsecured. This will typically relate to clients with high net worth and proven repayment ability. Nevertheless, collateral is an important mitigant of credit risk. To mitigate credit risk in the commodity trading environment, the validity and financial stability of all counterparties is determined by Financial Services in terms of the Group s credit policy. Counterparty performance is monitored throughout the crop season in order to identify at an early stage potential default. In addition, management reviews the Group s concentration of risk in terms of market sector, geographic region and agricultural commodity, especially maize. Counterparty performance is also encouraged through the deployment of compliance teams during harvesting periods. Broking clients are required to either make upfront cash deposits within the predetermined minimum levels prescribed by SAFEX, for initial margin plus two days market movement; or a SAFEX initial margin credit facility must be approved beforehand. The client is also required to either make cash deposits for the minimum variation margin requirement and/or the amount exceeding the trading limit by midday of the following business day; or a SAFEX variation margin credit facility must be approved beforehand. Failure to meet these requirements results in the client s position being closed immediately. The Group also has guidelines that limit the amount of credit exposure to any financial institution. F-148

281 Divisions and subsidiaries are required to implement guidelines on the acceptability of specific classes of collateral for credit risk mitigation, and determine suitable valuation parameters. Such parameters are expected to be conservative, reviewed regularly and supported by empirical evidence such as the realisable value in case of default. Security structures and legal covenants are subject to regular review to ensure that they continue to fulfil their intended purpose and remain in line with local market practice. The principal types of collateral are as follows: Mortgages over properties, and charges over movable assets and debtors in the personal sector; and Charges over business assets such as premises, inventory (including agricultural produce) and debtors in the corporate sector. The Group s credit grading systems are designed to highlight exposures which require closer management attention because of their greater probability of default and potential loss. Risk ratings are reviewed regularly and amendments, where necessary, are implemented promptly. The credit quality of unimpaired loans and receivables is assessed by reference to the grading system. Loans and receivables are treated as impaired as soon as there is objective evidence that an impairment loss has been incurred. The criteria used by the Group to determine that there is such objective evidence include, inter alia: known cash flow difficulties experienced by the borrower; overdue contractual payments of either principal or interest; breach of loan covenants or conditions; the probability that the borrower will enter bankruptcy or other financial realisation; and a downgrading in credit rating by an external credit rating agency. The Group s policy is that each division and subsidiary makes allowances for impaired loans and receivables promptly and on a consistent basis. Loans and receivables are assessed for impairment on an individual basis. In determining allowances on individually assessed accounts, the outstanding credit amounts are compared with the recoverable securities. Security values are adjusted for the time value of money excluding all securities realised within 12 months and bonds. Group policy requires the level of impairment allowances on individual facilities that are above a materiality threshold be reviewed at least semi-annually, and more regularly when individual circumstances require. When impairment losses occur, the Group reduces the carrying amount of loans and receivables and held-to-maturity financial investments through the use of an allowance account. When impairment of available-for-sale financial assets or financial assets at fair value through profit or loss occurs, the carrying amount of the asset is reduced directly. Management regularly evaluates the adequacy of the established allowances for impaired loans and receivables by conducting a detailed review of the portfolio, comparing performance and delinquency statistics with historical trends and assessing the impact of current economic conditions. Any calculated shortfall between the total individual impairment allowance account and the estimated portfolio impairment is adjusted for. Liquidity risk Liquidity risk is the risk that the Group has insufficient financial resources to meet its obligations as and when they fall due or that such resources will only be available at excessive costs. This risk arises from mismatches in the timing of cash flows. Funding risk (a particular form of liquidity risk) arises when the necessary liquidity to fund illiquid asset positions cannot be obtained at the expected terms when required. Prudent liquidity risk management implies maintaining an adequate percentage of total Group debt in the long term as well as sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of F-149

282 the underlying businesses, Group treasury aims to maintain flexibility in funding by keeping committed credit lines available. The objective of the Group s liquidity and funding management is to ensure that all foreseeable funding commitments can be met when due, and that funding market access is co-ordinated and cost-effective. It is the Group s objective to maintain a stable funding base comprising institutional funding facilities with the objective of enabling the Group to respond quickly and smoothly to any unforeseen liquidity requirements. The Group strives to maintain a strong liquidity position and to manage the liquidity profile of its assets, liabilities and commitments with the objective of ensuring that cash flows are appropriately balanced and all obligations are met when due. The management of liquidity and funding is performed centrally by Group treasury in accordance with practices and limits set by the Board and the process includes: projecting cash flows and establishing the level of liquidity facilities necessary; monitoring balance sheet liquidity ratios against internal requirements; maintaining a diverse range of funding sources; managing the concentration and profile of debt maturities; maintaining debt financing plans; monitoring lender concentrations in order to avoid undue reliance on individual lenders and ensuring a satisfactory overall funding mix; maintaining liquidity and funding contingency plans; and giving due consideration to cash balances in jurisdictions outside the borders of South Africa and the possibility that regional cash restrictions might be applied to these balances. Capital risk The Group manages its capital (being the capital and reserves attributable to the Company s equity holders) centrally in terms of rates of returns (either ROCE or RONA) established for each of the Group s various operating segments. Operating segments are re-geared annually, allocating Group equity equitably. The Group monitors its level of borrowings and anticipates future requirements through the application of an Asset and Liability Committee (ALCO) model. The ALCO meets quarterly and advises management and the Board. The committee also confirms the Group s operating segments weighted average cost of capital, a key consideration when setting return targets for operating segments. In the main, the Group funds its operations through a combination of equity, long-term and short-term debt. In order to improve the maturity profile of the Group s overall debt, R1,5 billion term debt was raised with certain of the Group s silo s serving as security. In terms of certain funding agreements, the Group is obliged to meet certain financial covenant ratios. Compliance with these covenants is checked on a regular basis. Furthermore, a registered member on SAFEX must have, at all times, own funds equal to the greater of either R or 13 weeks of operating costs plus position, settlement, large exposure and foreign exchange risk requirements. GroCapital Broking Services Proprietary Limited submits monthly capital returns demonstrating compliance with this requirement. During the year the Group was in compliance with all the financial covenants relating to its material borrowings. Fair value estimation Fair value estimations are classified into the following hierarchies, based on the method used to determine fair value: Level 1 unadjusted quoted prices in active markets for identical assets or liabilities. F-150

283 Level 2 valuation techniques using inputs other than quoted prices included within level 1. These inputs are observable for the asset or liability either directly (as prices in the market) or indirectly (derived from prices in the market). Level 3 valuation techniques using inputs that are not observable in the market for the asset or liability. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm s length basis. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using appropriate valuation techniques. These valuation techniques maximise the use of observable market data if available and rely as little as possible on entity specific estimates. If all significant inputs are observable, the instrument is included in level 2. If one or more significant input is not based on observable market data, then the instrument is included in level 3. Valuation techniques include the discounted cash flow method with assumptions that are based on market conditions existing at each balance sheet date. The fair value of forward foreign exchange contracts is determined using quoted forward exchange market rates at the balance sheet date. The carrying amount (net of impairment where relevant) of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. Government grants and assistance Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government includes government agencies and similar bodies whether local, national or international. Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. A government grant is assistance by government in the form of transfers of resources. When the conditions attaching to government grants have been met and have been received, they are recognised in profit or loss on a systematic basis over the periods necessary to match them with the related costs. When they are for expenses or losses already incurred, they are recognised in profit or loss immediately. The unrecognised portion at the balance sheet date is presented as deferred income (included under other payables and accruals). No value is recognised for government assistance. Comparative figures Comparative figures are restated in the event of a change in accounting policy, prior period error or reclassification. F-151

284 AFGRI HOLDINGS (PTY) LTD. GROUP BALANCE SHEET At 31 March 2015 (all amounts in USD thousands) 31 March Note 2015 ASSETS Non-current assets ,638 Property, plant and equipment ,297 Goodwill... 3 Other intangible assets ,919 Investments in associates ,715 Investments in joint ventures ,391 Derivative financial instruments... 7/14 Other financial assets... 7/8 2,312 Investment in AFGRI Proprietary Limited Financial receivables... 7/9 9,162 Biological assets Deferred income tax assets ,842 Current assets ,863 Inventories ,175 Biological assets Trade and other receivables... 7/12 114,609 Trade receivables financed by banks... 7/12/13 44,087 Derivative financial instruments... 7/14 10,980 Other financial assets... 7/8 2,890 Income tax assets... 3,715 Cash and cash equivalents and cash collateral deposits... 7/15 29,407 Cash collateral deposits... 10,485 Cash and cash equivalents... 18,922 Assets of disposal groups classified as held-for-sale ,390 Total assets ,891 EQUITY AND LIABILITIES Capital and reserves attributable to the Company s equityholders... (17,380) Share capital Fair value and other reserves (3,353) Retained earnings (14,395) Non-controlling interest ,287 Total equity... 54,907 Non-current liabilities ,634 Borrowings... 7/20 109,555 Derivative financial instruments... 7/14 83 Deferred income tax liabilities ,501 Other financial liabilities... 7/ Other liabilities Current liabilities ,922 Trade and other payables... 7/22 161,599 Derivative financial instruments... 7/14 7,513 Other financial liabilities... 7/25 4,871 Income and other tax liabilities... 1,744 Short-term portion of long-term borrowings... 7/23 192,770 Short-term borrowings and bank overdrafts... 7/15 65,717 Commodity finance... 7/15 22,704 Borrowings from banks to finance trade receivables... 7/13 44,004 Liabilities of disposal groups classifed as held-for-sale ,428 Total liabilities ,984 Total equity and liabilities ,891 F-152

285 AFGRI HOLDINGS (PTY) LTD. GROUP INCOME STATEMENT For the year ended 31 March 2015 (all amounts in USD thousands) 31 March Note 2015 Continuing operations: Sales of goods and rendering of services ,223 Interest on other trade receivables... 4,970 Total revenue ,193 Cost of sales (611,443) Gross profit ,750 Other operating income... 1,055 Selling and administration expenses (207,992) Operating profit/(loss)... 27/30 (32,187) Negative goodwill on business combinations ,452 Interest received ,226 Finance costs (36,646) Share of profit of joint ventures ,807 Share of loss of associates... 5 Profit/(loss) before income tax... (24,348) Income tax expense ,912 Profit/(loss) for the year from continuing operations... (19,436) Discontinued operations: Loss for the year from discontinued operations (2,440) Profit/(loss) for the year... (21,876) Profit for the year attributable to: Equityholders of the Company... (14,179) Non-controlling interest BEE partners... (6,974) Other non-controlling interest... (723) Profit/(loss) for the year... (21,876) Earnings/(loss) per share from continuing operations attributable to the equityholders of the Company during the year (cents per share)... (3.17) Loss per share from discontinued operations attributable to the equityholders of the Company during the year (cents per share)... (0.66) Earnings/(loss) per share from all operations attributable to the equityholders of the Company during the year (cents per share) (3.83) Diluted earnings/(loss) per share from continuing operations attributable to the equityholders of the Company during the year (cents per share)... (3.17) Diluted loss per share from discontinued operations attributable to the equityholders of the Company during the year (cents per share)... (0.66) Diluted earnings/(loss) per share from all operations attributable to the equityholders of the Company during the year (cents per share) (3.83) F-153

286 AFGRI HOLDINGS (PTY) LTD. GROUP STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 March 2015 (all amounts in USD thousands) 31 March Note 2015 Profit/(loss) for the year... (21,876) Other comprehensive income: Items that may be reclassified to profit and loss subsequently Exchange differences on translating foreign operations... (11,119) Cash flow hedges Share of comprehensive income from joint ventures... (330) Other comprehensive income for the year, net of tax... (11,036) Total comprehensive loss for the year... (32,912) Total comprehensive loss attributable to: Equityholders of the Company... (25,215) Non-controlling interest BEE partner... (6,974) Other non-controlling interest... (723) (32,912) F-154

287 AFGRI HOLDINGS (PTY) LTD. GROUP STATEMENT OF CHANGES IN EQUITY For the year ended 31 March 2015 (all amounts in USD thousands) Total Other Fair value Incentive share- Non- Share and other Retained Treasury trust holders BEE controlling Total capital reserves earnings shares shares equity partners interests equity 1 April 2014 (at effective date of acquisition) (17) Acquisition of subsidiary... 82, ,056 Loss for the year... (14,179) (14,179) (6,974) (723) (21,876) Other comprehensive loss the year... (11,036) (11,036) (11,036) Share based payment charge... 7,700 7,700 7,700 Dividends paid... (242) (242) (242) Payment to non-controlling interests.. (3,072) (3,072) Balance 31 March (3,353) (14,395) (17,380) 72,630 (343) 54,907 F-155

288 AFGRI HOLDINGS (PTY) LTD GROUP CASH FLOW STATEMENT For the year ended 31 March 2015 (all amounts in USD thousands) 31 March Note 2015 Operating activities Cash generated from operations ,282 Finance costs... (35,923) Interest received... 2,684 Income tax paid (9,380) Net cash generated from operating activities... 98,663 Investing activities Purchase of property, plant and equipment (33,432) Purchase and acquisition of intangible assets... (1,084) Proceeds from disposal of property, plant and equipment ,530 Financial receivables granted... (2,269) Financial receivables repaid... 15,722 Acquisition of shares in associates... (181) Disposal of shares in associates Acquisition of shares in joint ventures... (181) Acquisition of business net cash acquired /7 (62,371) Net cash utilised in investing activities... (81,176) Financing activities Dividends paid (242) Payments made to other non-controlling interests... (3,072) Proceeds from/(repayment of) shareholder loans... (169,959) Proceeds from/(repayment of) borrowings ,641 Net cash utilised in financing activities... (69,632) Net decrease in cash and cash equivalents... (52,145) Cash and cash equivalents at beginning of year... (71,762) Cash and cash equivalents at end of year... (123,907) Cash collateral deposits... 10,485 Cash and cash equivalents and cash collateral deposits... (113,422) Included in cash and cash equivalents and cash collateral deposits (59,014) Included in assets from disposal groups classified as held-for-sale (54,408) F-156

289 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS For the year ended 31 March 2015 (all amounts in USD thousands) 1 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely 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 discussed below. 1.1 Impairment of debtors A provision for impairment of trade receivables 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. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Management considers the following when estimating the provision to be recognised in the income statement: Identification of specific non-performing debtors The provision for individual debtors only takes the difference between total debt less security available into account. Security required was initially established as part of the credit granting policy and the risk profile of the debtor. Time value of security available from specific non-performing debtors The recovery period after identifying a specific non-performing debt is assessed. Based on experience, management discounts the security that will eventually be obtained to its current value. As a result, the value of the security is reduced. These in turn result in a top-up portion being provided for to accrue for the time value shortfall. Review of the recovery history of securities Management assesses the recoverability of securities based on past experience and may adjust the security downward. The shortfall would result in an increase in the provision required. 1.2 Estimates of assets lives, residual values and depreciation methods Property, plant and equipment are depreciated over their useful lives taking into account residual values. Useful lives and residual values are assessed annually. Useful lives are affected by technology innovations, maintenance programmes and future productivity. For the majority of property, plant and equipment, depreciation is calculated on a straight line which may not represent the actual usage of the asset. 1.3 Impairment assessments of assets and intangibles Impairment assessments on property, plant and equipment are only performed once there are impairment indicators. Goodwill and other intangible assets are assessed for impairment annually. Future cash flows are based on management s estimate of future market conditions. Such cash flow projections are then discounted and compared to the current carrying value, and if lower the assets are impaired to the present value of the cash flows. Impairment assessments are based on information available at the time and these conditions may change after year-end. 1.4 Recognition and derecognition of deferred tax assets The recognition of deferred tax assets is appraised semi-annually. Future cash flows are based on management s estimate of future market conditions. The tax impact of such cash flow projections are compared to the carrying value, and if lower the deferred tax assets are derecognised. These assessments are based on information available at the time and these conditions may change after year-end. During the financial year the Group derecognised the deferred tax asset in its GroCat business of USD 0.9 million given its second consecutive year of trading losses. 1.5 Inventory net realisable values and impairment assessments Inventory, other than inventory held for trading purposes, is valued at the lower of cost or net realisable value. Assessments are performed semi-annually and are based on management s estimates of future market conditions. F-157

290 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 1 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) 1.6 Valuation of financial instruments Financial instruments are fair valued at balance sheet date. The value of financial instruments are subject to material fluctuations and therefore disclosed amounts may differ from the value ultimately realised. 1.7 Valuation of biological assets Biological assets, other than those carried at cost less accumulated depreciation and impairment losses, are fair valued at balance sheet date. The determination of fair value is based on active market values or management s assessment of the fair value based on available industry data and benchmark statistics. Biological assets, carried at cost less accumulated depreciation and impairment losses, are those for which an active market does not exist, market-determined prices are not available, and alternative estimates of fair value are unreliable. 1.8 Relationship with contract growers The Group make use of farmers that are contracted to rear chicks. The Group continuously assesses its relationship with farmers for existence of control (if any). Based on the control assessments performed it was concluded that control does not exist. 1.9 Derecognition of trade receivables financed by banks During the financial year the Group s Zambian operation sold its debtors book to First National Bank (FNB). The Group also sold its farmer lending and corporate debtor books to the Land Bank during the 2012 financial year. As a result, these assets were derecognised under the principles of IAS 39, which application required management judgement. Refer to note 13.2 for more information and related disclosures Consolidation of entities in which the Group holds less than 50% Management considers that the Group has control of AFGRI Zimbabwe Equipment Limited even though it has less than 50% of the voting rights. Considering voting rights as well as the impact of contractual agreements, management concluded that the Group has the power to direct the relevant activities of the business, being those activities that significantly affect returns. This conclusion required management judgement. The Group further has the right to, and is exposed to, variable returns from the operations Joint arrangements Where the Group has joint control over an arrangement under contractual agreements, unanimous consent is required from all parties to the agreements for all relevant activities. The Group s joint arrangements are all structured as separate companies. These arrangements provide the Group and the parties to the agreements with rights to the net assets of the companies under the arrangements and are therefore all classified as joint ventures. Management applied judgement in considering these arrangements and the Group s power under these arrangements. 2 PROPERTY PLANT AND EQUIPMENT 31 March Cost ,825 Land... 4,580 Buildings and improvements ,105 Machinery and equipment ,900 Vehicles... 26, Accumulated depreciation and impairments... (57,528) Buildings and improvements... (13,626) Machinery and equipment... (35,683) Vehicles... (8,219) F-158

291 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 2 PROPERTY PLANT AND EQUIPMENT (Continued) 31 March Net carrying value ,297 Land... 4,580 Buildings and improvements... 89,479 Machinery and equipment ,217 Vehicles... 18, The registers of land and buildings are available for inspection at the registered offices of the respective companies. 2.5 Included in buildings and improvements are silo facilities with a carrying value of USD 25.1 million. These silo facilities are a major income-generating asset of the Group. The replacement value of these facilities is estimated at USD million. Some of these silo facilities are encumbered and served as security for the Land Bank loan. The carrying value of encumbered facilities was USD 9.3 million with a replacement value estimated at USD million. 2.6 Refer to Note 41.1 for the Group s commitments for the acquisition of property, plant and equipment. 2.7 Included in buildings, machinery & equipment and vehicles are leased assets to the value of USD 10 million. These assets serve as security for finance leases. (Refer Note 20.2). 2.8 Movements for the year Additions at cost... 33,432 Land Buildings and improvements... 9,849 Machinery and equipment... 20,511 Vehicles... 2,801 Acquisition of subsidiaries and joint ventures ,201 Land... 7,841 Buildings and improvements ,013 Machinery and equipment ,354 Vehicles... 22,993 Transfers... Land... Buildings and improvements... 2,530 Machinery and equipment... (2,530) Vehicles... Exchange differences... (47,537) Land... (1,039) Buildings and improvements... (16,486) Machinery and equipment... (27,185) Vehicles... (2,827) Disposals at carrying value... (2,168) Land... (181) Buildings and improvements... (1,084) Machinery and equipment... (542) Vehicles... (361) Borrowing costs capitalized Buildings and improvements... Machinery and equipment Vehicles... Depreciation charge... (19,048) F-159

292 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 2 PROPERTY PLANT AND EQUIPMENT (Continued) 31 March 2015 Buildings and improvements... (5,245) Machinery and equipment... (10,952) Vehicles... (2,851) Assets classified as held-for-sale... (60,764) Land... (2,312) Buildings and improvements... (25,098) Machinery and equipment... (31,620) Vehicles... (1,734) Impairment charge... (90) Land... Buildings and improvements... Machinery and equipment... (90) Vehicles... Closing carrying value ,297 Land... 4,580 Buildings and improvements... 89,479 Machinery and equipment ,217 Vehicles... 18,021 3 GOODWILL 31 March Cost... 1, Accumulated impairments... (1,141) 3.3 Net carrying value Movement for the year... Acquisition of subsidiaries (refer note 43)... 1,141 Impairment... (1,141) Exchange differences... Closing carrying value Impairment assessments for goodwill and other intangible assets The recoverable amount of the business were based on the recoverable amounts calculated per business unit which were determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using estimated growth rates stated below. The growth rate does not exceed the long-term average growth rate for the business segment in which the operating segment operates. F-160

293 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 3 GOODWILL (Continued) Key assumptions used for value-in-use calculations Gross margin growth rate (1) Discount rate (2) Financial Services % 21.2% Agri Services % 13.7% Foods % 19.7% These assumptions have been used for the analysis of each cash-generating unit within the business segment. (1) Represents the segment average annual growth in gross margin for the four years (years 2 5) following the initial budget period (year 1). The growth includes anticipated volume growth together with any anticipated growth in the gross margin percentage, and assumes approved and committed capital expenditure is commenced and effected. (2) Pre-tax discount rate applied to the cash flow projections. Management determined the budgeted gross margin based on past performance and its expectations for market development. The growth rates used to calculate terminal values are consistent with the forecasts included in industry reports and do not exceed 2%. The discount rates used are pre-tax and reflect the risks. 4 OTHER INTANGIBLE ASSETS 31 March Cost... 77,523 Trademarks and patents... 60,516 Computer software... 17,007 Other Accumulated amortisation and impairments... (55,604) Trademarks and patents... (44,789) Computer software... (10,815) Other Net carrying value... 21,919 Trademarks and patents... 15,727 Computer software... 6,192 Other... F-161

294 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 4 OTHER INTANGIBLE ASSETS (Continued) 31 March Movement for the year... Additions at cost... 1,084 Trademarks and patents... Computer software... 1,084 Other... Acquisition of subsidiaries... 73,685 Trademarks and patents... 66,364 Computer software... 7,321 Other... Exchange differences... (5,729) Trademarks and patents... (4,781) Computer software... (948) Other... Amortisation charge... (10,789) Trademarks and patents... (9,614) Computer software... (1,175) Other... Impairment charge... (36,332) Trademarks and patents... (36,242) Computer software... (90) Other... Closing carrying value... 21,919 Trademarks and patents... 15,727 Computer software... 6,192 Other Included under trademarks and patents are the following significant items: The AFGRI brand identified and valued under IFRS 3 as part of the AgriGroupe Proprietary Limited transaction effective 1 April 2014 valued at USD 17.0 million with an expected usefull life of 20 years. The carry value of USD 16.2 million at 31 March 2015 have been impaired in full (further details below). Various customer relationships identified and valued under IFRS 3 as part of the AgriGroupe Proprietary Limited transaction effective 1 April 2014 valued at USD 25.7 million with expected usefull lives of 5 years. The carry value of USD 20.5 million at 31 March 2015 have been impaired to USD 9.8 million (further details below). Remaining usefull life is 4 years. The Groups agency arrangement with John Deere and its Forex licence identified and valued under IFRS 3 as part of the AgriGroupe Proprietary Limited transaction effective 1 April 2014 valued at USD 22.5 million with expected usefull lives of 5 years. The carry value of USD 18.0 million at 31 March 2015 have been impaired to USD 8.6 million (further details below). Remaining usefull life is 4 years. Impairment during the year: During the financial year the Groups holding company received dividends from subsidiary AFGRI Proprietary Limited some of which were utilised to settle a loan which originated with the AgriGroupe Proprietary Limited transaction. The dividends paid by the subsidiary exceeded the comprehensive income of the subsidiary for the financial year. This represented an impairment indicator i.t.o IAS 36.12(h)(ii), and thus resulted in the company performing an impairment test on its investment and the recognition of an impairment to the value of USD 36.2 million. On a Group basis, this impairment was first allocated to goodwill (USD 1.1 million) and a further USD 16.2 million to the AFGRI brand. The remainder was allocated to the F-162

295 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 4 OTHER INTANGIBLE ASSETS (Continued) customer relationships identified, the Group s agency arangement with John Deere and its Forex licence on a pro-rata basis. Please refer to note 3.5 for assumptions used in the impairment test performed. 4.6 Included under computer software are the following: Group SAP software with a carrying value of USD5 million having a useful life of ten years and a remaining useful life of five years one month. Grain Marketing administrative software with a carrying value of USD0.2 million having a useful life of five years and remaining useful life of two years four months. AFGRI Milling operational software with a carrying value of USD0.2 million with useful lives of between three and five years and remaining useful lives of between two years and four years nine months. Other Group software with a carrying value of USD0.85 million with useful lives of between five and ten years and remaining useful lives of between one year one month and eight years eleven months. 5 INVESTMENTS IN ASSOCIATES 31 March Shares in unlisted associates (refer Appendix C) Purchased during the year... 4,364 Foreign currency differences... (559) Sold during the year... (90) Share of loss after income tax... Closing carrying amount... 3, Share in LTP Holdings Proprietary Limited A 45% shareholding in LTP Holdings Limited acquired by AFGRI Operations Proprietary Limited during 2009 for Rnil consideration of which 1.75% was disposed of in the 2012 financial year resulting in the current shareholding of 43.25%. LTP Holdings Limited is a property holding company which leases a processing site to a pool of farmers for the processing of tobacco Share in other associates A listing of the Group s investments in associates are provided in Appendix C to this annual report. The performance of these ventures are analysed in note 5.2. During the financial year Unigro Financial Services Proprietary Limited acquired a 34,9% shareholding in Molemi Sele Management Proprietary Limited, a credit life cell captive management company. AFGRI Operations Limited also disposed of 51% of the share capital of a wholly owned subsidiary, Telsek Investments 1001 Proprietary Limited ( Telsek ) to Vermoro Financial Services Proprietary Limited followed by its sale of its Chesa Wheels business to Telsek. During the current year the 40% shareholding that AFGRI Operations Proprietary Limited had in Mkhuzangwe Agriculture Proprietary Limited was donated to the Gayede Community Trust. F-163

296 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 5 INVESTMENTS IN ASSOCIATES (Continued) 5.2 The summarised financial information of associates represent 100% of the associates income statement and balance sheet, all of which are unlisted, are as follows: Other Tobacco Total Income Statement: Revenue... 5,240 49,064 54,304 Gross profit... 2,439 5,151 7,590 Other... (2,439) (3,705) (6,144) Profit before interest and tax... 1,446 1,446 Finance cost... (994) (994) Profit before taxation Taxation... (90) 90 Profit/(loss) after taxation... (90) Other comprehensive income... Total comprehensive (loss)/income... (90) Balance sheet: Non-current assets... 1,816 10,898 12,714 Cash and cash equivalents ,348 8,338 Other current assets... 1,488 27,656 29,144 Total assets... 4,295 45,902 50,197 Financial liabilities non-current... (1,238) (13,540) (14,778) Other non-current liabilities... (1,239) (1,651) (2,890) Financial liabilities current... (9,907) (9,907) Other current liabilites... (1,239) (10,237) (11,476) Total liabilities... (3,716) (35,335) (39,051) Net assets ,567 11,145 Reconciliation of summarised information: Arising during the year... 1,512 11,599 13,111 Profit/(Loss) for the year... (90) Other comprehensive income for the year... Foreign exchange differences... (121) (1,574) (1,695) Sold during the year... (723) (723) Closing net assets ,567 11,145 Interest in associates (percentage) Interest in associate ,541 4,788 Goodwill... (2,476) (2,476) Other ,254 1,313 Impairment of interest in associate Profits/(losses) not recognised (181) Carrying value ,138 3,715 There are no contingent liabilities relating to the Group s and Company s interest in the associates. F-164

297 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 6 INVESTMENTS IN JOINT VENTURES 31 March Shares in unlisted joint ventures (refer Appendix B) Arising during the year... 33,139 Foreign currency differences... (4,796) Sold during the year... Classified as held-for-sale (refer note 32)... (578) Share of losses after income tax (included under discontinued operations)... (181) Share of profit after income tax... 1,807 Closing carrying amount... 29, Shares in Hinterland Proprietary Limited AFGRI Operations Proprietary Limited acquired a 50% shareholding in Hinterland Proprietary Limited (Hinterland) on 1 June As disclosed previously AFGRI Operations Proprietary Limited and Senwes Limited ( Senwes ) concluded binding sale of business agreements in terms of which AFGRI Operations Proprietary Limited and Senwes merged their respective agricultural retail businesses, as well as the Partrite business of AFGRI into a new company, Hinterland Proprietary Limited. During the current financial year Prodist Proprietary Limited (hereafter Prodist), a subsidiary of Hinterland Proprietary Limited issued shares to an external party. This resulted in a change in the shareholding of the Group s interest in the joint venture of USD 0.3 million Shares in other joint ventures A listing of the Group s investments in joint ventures are provided in Appendix B to this annual report. The performance of these ventures are analysed in note 6.2. As a result of the Poultry transaction, and its held-for-sale classification the joint venture, Silverton Farm to Fork Proprietary Limited, is disclosed under Assets of disposal groups classified as held-for-sale. AFGRI Operations Proprietary Limited acquired an additional 7.5% of the associate Silocerts Proprietary Limited, from acquisition date the associate was disclosed as a joint venture. GroCat Proprietary Limited also acquired 50% of African Petroleum Storage Solutions Limited, a company trading in coal beneficiated products. 6.2 The summarised financial information of joint ventures represent 100% of the joint venture s income statement and balance sheet, all of which are unlisted, are as follows: Other Hinterland Total Income Statement: Revenue... 27, , ,235 Gross profit... 5,060 39,848 44,908 Other... (3,885) (32,348) (36,233) Profit before interest and tax... 1,175 7,500 8,675 Finance cost... (91) (3,614) (3,705) Profit before taxation... 1,084 3,886 4,970 Taxation... (542) (904) (1,446) Profit after taxation ,982 3,524 Other comprehensive income... (361) (361) Total comprehensive income ,982 3,163 F-165

298 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 6 INVESTMENTS IN JOINT VENTURES (Continued) Other Hinterland Total Balance sheet: Non-current assets... 8,255 45,986 54,241 Cash and cash equivalents... 3,880 3,880 Other current assets... 2,312 58,947 61,259 Total assets... 14, , ,380 Financial liabilities non-current... (9,247) (9,247) Other non-current liabilites... (660) (7,761) (8,421) Financial liabilities current... (908) (25,924) (26,832) Other current liabilites... (2,146) (8,173) (10,319) Short-term borrowings and bank overdrafts... (11,393) (11,393) Total liabilities... (12,961) (53,251) (66,212) Net assets... 1,486 51,682 53,168 Reconciliation of summarised information: Opening net assets 1 April Arising during the year... 3,266 56,362 59,628 Sold during the year... Profit/(Loss) for the year ,982 3,524 Other comprehensive income for the year... Foreign exchange differences... (753) (7,662) (8,415) Classified as held-for-sale... (1,569) (1,569) Closing net assets... 1,486 51,682 53,168 Interest in associates (percentage) Interest in associate ,841 26,502 Goodwill... 2,972 2,972 Other... (16) (248) (264) Impairment of interest in associate... Profits not recognised Carrying value ,565 29,391 There are no contingent liabilities relating to the Group s interest in the joint ventures. F-166

299 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 7 FINANCIAL INSTRUMENTS BY CATEGORY Assets at fair value through Derivatives Loans and the profit designated Available- Held-to- 31 March 2015 receivables and loss as hedges for-sale maturity Total Assets as per balance sheet Other financial assets... 5,202 5,202 Financial receivables... 8, ,162 Derivative financial instruments... 6,192 4,788 10,980 Trade and other receivables , ,821 Trade receivables financed by banks... 44,087 44,087 Cash and cash equivalents and cash collateral deposits... 29,407 29,407 Total ,312 11,394 4, ,659 Liabilities at fair value through the Derivatives Other profit and designated financial loss as hedges liabilities Total Liabilities as per balance sheet Borrowings , ,382 Derivative financial instruments... 2,972 4,624 7,596 Trade and other payables , ,599 Short-term portion of long-term borrowings , ,614 Other financial liabilities... 5,366 5,366 Commodity finance... 22,704 22,704 Short-term borrowings and bank overdrafts... 65,717 65,717 Borrowings from banks to finance trade receivables... 44,004 44,004 Total... 8,338 4, , ,982 8 OTHER FINANCIAL ASSETS 8.1 Held-for-trading trade receivables 31 March Trade receivables financed by banks... 5,202 Current Season... 2,559 Capital goods... 2,313 5,202 F-167

300 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 8 OTHER FINANCIAL ASSETS (Continued) 31 March Held-for-trading trade receivables represent the Group s continued involvement in debtors originated on behalf of third-party financiers, in the year, but not derecognised entirely in accordance with derecognition criteria of IAS39 (refer to note 13.2 for more details). The receivables are measured at fair value with subsequent fair value adjustments recognised in profit and loss. The composition of these debtors are representative of the entire portfolio originated on behalf of third-party financiers. The liability relating to these receivables are disclosed under note 25. The credit quality of the trade receivables can be assessed by reference to the Group s standard credit grading system, as described under the financial risk management section of the accounting policies. Based on this system USD 5 million was classified as satisfactory risk and USD 0.2 million as elevated risk. These receivables are classified as level 3 in terms of fair value estimation (refer to note 40 for main inputs to fair value estimation). 5,202 Current portion... 2,890 Non-current portion... 2,312 9 FINANCIAL RECEIVABLES 31 March Financial receivables carried at amortised cost Loans to unlisted joint ventures... 5,531 Loans to unlisted associates (refer Appendix C) Other loans to unlisted investments (refer Appendix D)... Held-to-maturity investments Loans and receivables investments... 4,788 Total financial receivables... 11,144 Short-term portion of held-to-maturity and loans and receivables investments (refer note 12)... (1,156) Short-term portion of loans to joint ventures (refer note 12)... (743) Short-term portion of interest-free loans (refer note 12)... (83) 9, Loans to unlisted joint ventures, associates and unlisted investments A USD 0.51 million loan to Prodist Proprietary Limited. This loan originated during 2014 following the repayment of the loans which were originated as part of the merger of the Group s retail operations with that of Senwes in The new loan to Prodist represents a loan specifically for funding working capital, carrying interest at a variable rate of prime less 1.5% with no specific repayment terms. The carrying value represents the Group s exposure to credit risk Two loans to Afgritech Limited, a joint venture based in the United Kingdom. These are shareholders loans to the value of USD 4.8 million denominated in USD and GBP which are interest free and only repayable by mutual agreement between the partners The remainder of these loans have no fixed terms of repayment and are interest free. All are considered to be fully performing, except as indicated in Appendix C, against which an impairment has been recorded The held-to-maturity investments Other held-to-maturity investments to the value of USD 0.2 million. F-168

301 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 9 FINANCIAL RECEIVABLES (Continued) Loans and receivable investments USD 3 million owing from Boereportefeulje Bestuurs Maatskappy Proprietary Limited as a result of the renegotiation of repayment terms with this debtor during the 2010 financial year by AFGRI Operations Proprietary Limited. The loan carries interest at a fixed rate of 12% and is repayable in five annual instalments of USD 0.8 million each. Final payment is due on 28 February The carrying value represents the Group s exposure to credit risk Included in the prior year is a loan to Carnival Foods CC and Tunica Trading 52 CC to the value of USD 0.33 million, as a result of the renegotiation of repayment terms with this debtor during the the 2013 financial year by AFGRI Operations Proprietary Limited. The loan carried interest at a fixed rate of 9%. USD 0.33 million of this loan was repayable on 31 August 2012 and the balance where repayable in monthly instalments of USD 0.02 per month. On 31 October 2014 the loans to Carnival Foods CC and Tunica Trading 52 CC were renegotiated for a second time. The renegotiations resulted in one loan with Carnival Foods CC together with new payment terms. The loan owing by Carnival Foods CC is USD 1.8 million. The loan carries interest at prime rate plus 2%. The loan is repayable over 33 months at monthly instalments of USD 0.07 million per month. Final payment is due on 7 July The carrying value represents the Group s exposure to credit risk Other loans and receivables to the value of USD 0.02 million. 10 INVENTORIES 31 March 2015 Merchandise... 83,055 Raw materials... 10,485 Finished goods... 32,198 Consumable goods... 1, ,471 Financed Commodities (related liability disclosed in note 15)... 22, , Included in merchandise is USD 23 million for merchandise financed on a floor plan basis, which serve as security for such trade payables. (Refer note 22.1) 10.2 The following inventory is valued at net realisable value: Merchandise... 1,734 Finished goods... 2,147 3, An amount of USD 0.1 million of inventory was written off and recognised as an expense in the year. This related to stock count variances as well as physical obsolecence in the Animal Feeds, Nedan and Equipment business units The cost of inventories recognised as an expense and included in cost of sales amounted to USD 520 million Included in finished goods is tonnes of agricultural commodities held-for-trading purposes valued at USD 13.5 million. The fair value of these commodities was calculated using the quantity of each commodity (in tons) as a basis together with the specific SAFEX commodity price at year-end. The commodities mainly consist of maize, sunflower, soya beans and wheat and SAFEX prices used varied at between USD 201 and USD 404 per ton. Fair value estimation was classified at level 2 in terms of the Group s accounting policies. F-169

302 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 10 INVENTORIES (Continued) 10.6 Financed commodities consist of tonnes of agricultural commodities financed specifically through the Group s commodity finance facility with Rand Merchant Bank (refer to note 15 for detail on this facility). The fair value of these commodities was calculated using the quantity of each commodity (in tonnes) as basis together with the specific SAFEX commodity price at year-end. The commodities mainly consist of maize, soya beans and wheat and SAFEX prices used varied between USD 201 and USD 404 per ton. Fair value estimation was classified as level 2 in terms of the Group s accounting policies. 11 BIOLOGICAL ASSETS 31 March 2015 Acquisition of subsidiaries... 10,934 Increase due to feed and production costs ,252 Increase due to growth of biological assets... 2,530 Decrease due to losses... (6,144) Decrease due to sales... (140,053) Foreign exchange differences... (1,650) Change in fair value... 8,855 Classified as held-for-sale (refer note 32)... (11,724) Closing carrying amount... Less: Non-current portion... Current portion The biological assets comprise live breeding chicken birds, live broilers, hatching eggs and sugar cane roots in various phases of growth. The biological assets are measured at fair value, based on market prices less costs to sell. As a result of the Poultry transaction, and its held-for-sale classification (refer to note 32), biological assets to the value of USD 12 million have been included under Assets of disposal groups classified as held-for-sale. Also included under Assets of disposal groups classified as held-for-sale is the Group s sugar cane farm of its subsidiary, Crystal Holdings Proprietary Limited classified as such during the previous financial year As at 31 March 2015 the Group had 6,435,238 broilers and 696,595 breeders. In addition, the biological assets included 7,340,337 hatching eggs.the broilers are valued at various stages of growth and all the birds at 28 days and older are valued at fair value. Fair value is derived from the average sales price adjusted for costs to derive the value at cull live cost. Breeders are valued at the accumulated cost and are depreciated to the full value as at the end of the breeder cycle. Hatching eggs are valued at a weighted average of internal costs and externally purchased eggs. Fair value estimation was classified as level 2 in terms of the Group accounting policies Included in biological assets are USD 5.9 million of broiler parent stock carried at cost less accumulated depreciation and impairments as an active market does not exist for these birds During the year the Group sold 62,889,610 broilers and 75,636,790 hatching eggs. F-170

303 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 12 TRADE AND OTHER RECEIVABLES 31 March Trade receivables (financed and not financed by banks) Total trade receivables not financed by banks ,067 Current... 94,299 Season... 9,990 Capital goods... 14,778 Trade receivables financed by banks (refer note )... 44,087 Current... 42,601 Season Capital goods Total trade receivables (before impairments) ,154 Prepayments... 4,788 Short-term portion of held-to-maturity and loans and receivables investments (refer note 9)... 1,156 Short-term portion of loans to joint ventures (refer note 9) Short-term portion of interest free loans (refer Note 9) Total receivables ,924 Less: Impairments... (11,228) 158, Quality per category Past due... 8,256 Current... 8,256 Seasonal... Capital... Impaired... 9,576 Current... 5,696 Seasonal... 2,642 Capital... 1,238 The determination of the above categorisation is consistent with the Group s credit risk management policy. F-171

304 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 12 TRADE AND OTHER RECEIVABLES (Continued) 31 March Trade receivables that were neither past due nor impaired The credit quality of the portfolio of trade receivables that were neither past due nor impaired can be assessed by reference to the Group s standard credit grading system, as described in Financial Risk Management accounting policy. The following information is based on that system. Satisfactory risk ,083 Current ,865 Seasonal... 7,183 Capital... 14,035 Elevated risk... 1,239 Current Seasonal... 1,156 Capital... Collateral in the form of mortgages, notarial and special notarial bonds, sessions and credit life assurance, between 0% and 100% of their fair value, depending on the risk profile and terms of the facility of these trade receivables, is held by the Group. 163,154 Carrying value of trade receivables that would otherwise be past due or impaired, whose terms have been renegotiated. Current... 5,201 5, Estimated collateral held as security Past due... 1,073 Current... 1,073 Impaired... 1,238 Current Seasonal Capital The abovementioned collateral consists of mortgage, notarial and special notarial bonds, sessions and credit life insurance. F-172

305 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 12 TRADE AND OTHER RECEIVABLES (Continued) 31 March Trade receivables which were past due but not impaired Past due to 90 days... 2,972 Current... 2,972 Past due from 91 days to one year... 4,458 Current... 4,458 Exceeding two years Current ,256 Total Current Seasonal Capital Allowance for impairment of trade receivables Acquisition of subsidiaries... (11,884) (7,701) (1,521) (2,662) Amounts written off... 1,445 1, Recoveries of amounts provided Current year charge to income statement... (5,241) (4,066) (271) (904) Reversal of prior year charge to income statement Exchange and other movements... 3,007 2, At 31 March (11,228) (8,173) (83) (2,972) 12.2 Facilities for the financing of capital goods are secured by the capital goods so financed Season and capital goods facilities bear interest at rates varying between prime bank rate less 5.25% and prime bank rate plus 3.25% The amortised cost of trade and other receivables approximates the fair value due to the short period to maturity of those instruments and market related interest being charged The average effective interest rate charged on trade receivables was 3.3%. 13 TRADE RECEIVABLES FINANCED BY BANKS AND TRANSFERRED FINANCIAL ASSETS 31 March Carrying values of trade receivables financed by banks and the associated liabilities Asset Trade receivables financed by banks... 44, Liability Borrowings from banks to finance trade receivables... 44, Any difference between the amounts is due to the daily set-off and timing differences on the last day of the month The amortised cost of these trade receivables as well as the related liability approximates the fair value because of the short term to maturity of those instruments and market related interest being charged. F-173

306 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 13 TRADE RECEIVABLES FINANCED BY BANKS AND TRANSFERRED FINANCIAL ASSETS (Continued) 31 March The average effective interest charged on the interest bearing trade receivables are 9.1% The only security for the liability is the trade receivables and in certain cases, additional cash collateral deposits of up to 2% of the debt financed. The Group carries the risk of loss on these trade receivables. The total value of additional debtors encumbered for these facilities is USD 5.2 million Transferred financial assets not derecognised entirely In terms of an agreement with the Land Bank, implemented during the 2012 financial year, the Group now originates debtors in its farmer lending and corporate businesses for the purpose of selling it to the Land Bank on a continuous basis. The farmer lending and corporate businesses manage the debtors so originated on behalf of the Land Bank in terms of a Service Level Agreement. Due to the Group s continuing involvement with these assets, these debtor books are not derecognised entirely (under IAS 39 principals) resulting in the Group not derecognising between 0.5% and 0.7% of the debtors sold to the Land Bank. The value of these debtors not derecognised are disclosed as Held-for-trading trade receivables (refer note 8.1) as the Group carry these at fair value. With the implementation of this agreement with the Land Bank during 2012, the Group sold both its farmer-lending and corporate debtor books at carrying value to the Land Bank for a total purchase consideration of USD 0.2 billion. The book included USD 76.1 million of intercompany loans between GroCapital Financial Services Proprietary Limited (hereafter GroCapital ) and fellow subsidiaries of the Group and the balance related to external loans. In accordance with IFRS, and as a result of the residual risk retained in the books sold, USD 1 million of the farmer lending and corporate debtor books were not derecognised as part of the sale at the time. The remaining value of these debtors on 31 March 2015 were USD 0.2 million (2014: USD 0.2 million) and is disclosed under note as the Group carry these at amortised cost Carrying values of transferred assets and associated liabilities 2015 Current Season Capital goods Total Carrying value of trade receivables before derecognition... 81, , , ,383 Carrying value of trade receivables derecognised... 81, , , ,017 Carrying value of trade receivables continuing recognised ,560 2,394 5,366 Carrying value of borrowings from other banks to finance trade receivables ,560 2,394 5, Fair values of transferred assets and associated liabilities 2015 Current Season Capital goods Total Fair value of trade receivables financed by other banks... 19, , , ,300 Fair value of borrowings from other banks to finance trade receivables. 19, , , ,675 Difference between the fair value of assets transferred and liabilities assumed ,560 1,982 4,625 F-174

307 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 13 TRADE RECEIVABLES FINANCED BY BANKS AND TRANSFERRED FINANCIAL ASSETS (Continued) USD 2 million guarantee provision were raised to accommodate the potential second loss in the books sold for the farmer lending and corporate businesses. 14 DERIVATIVE FINANCIAL INSTRUMENTS 31 March Derivative financial instruments Assets... Forward sale contracts... 6,192 Foreign currency futures cash flow hedges*... 4,623 Foreign currency futures fair flow hedges* Total... 10,980 Less: Non-current portion... Current portion... 10,980 Liabilities Forward purchase contracts... 2,807 Foreign currency futures cash flow hedges*... 4,376 Foreign currency futures fair flow hedges* Foreign currency futures Interest rate swaps* Total... 7,596 Less: Non-current portion... (83) Current portion... 7,513 * These derivates are designated as hedges and are accounted for accordingly Forward purchase and sale contracts The forward purchase contracts represent contracts with producers for the procurement of physical commodities in the future. The forward sale contracts represent contracts with millers and other clients for the sale of physical commodities in the future Options and interest rate caps Options represent derivative financial instruments receivable from farmers which are recovered on physical delivery of commodities. During 2011, AFGRI Operations Proprietary Limited, a Group subsidiary, entered into six respective interest rate cap agreements with a combined notional value of USD 41.3 million with JIBAR cap rates ranging between 7.75% and 8.26% and maturity dates ranging from 7 February 2016 to 10 May These caps are being used to hedge the anticipated interest rate hikes over the medium term at an acceptable level. The income statement effect is reported as part of finance costs for the Group Foreign currency futures The fair value adjustment on foreign currency cash flow hedges is included in equity (refer note 17.2). Where foreign currency futures do not qualify for hedge accounting, the fair value adjustment is recognised immediately in profit or loss. The hedged cash flows are expected to occur at various dates during the next 12 months. Gains and losses recognised in the revaluation reserve for cash flow hedges (note 17.2) at balance sheet date are recognised in the income statement in the period or periods during which the hedged forecast transaction affects the income statement. This is generally within 12 months from the balance sheet date unless the gain or loss is included in the initial amount recognised for the purchase of (fixed) assets, in which case recognition is over the lifetime of the asset (five to ten years). The underlying hedged items consist of firm commitments to F-175

308 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 14 DERIVATIVE FINANCIAL INSTRUMENTS (Continued) purchase inventory, assets (tangible or intangible), as well as trade receivables and/or payables which are denominated in a foreign currency. During the year the Group reported a profit of USD 0.1 million in profit or loss due to the ineffectiveness recorded. Outstanding foreign currency futures at balance sheet date comprised the following: 2015 Contract Market Fair Value Value Value Sold Euro... 1,981 1,899 (82) Pound Sterling (0) Japanese Yen... US Dollar , ,784 3,467 Australian Dollar... Other currencies , ,931 3,385 Purchased Euro... 1,981 1, Pound Sterling Japanese Yen... US Dollar... 78,101 80,991 (2,890) Australian Dollar... Other currencies... 80,330 83,138 (2,808) Net fair value The table above also includes foreign currency futures which are accounted for as fair value hedges. At 31 March 2015 the net fair value included was USD.09 million Interest rate swaps The notional principal amount of the outstanding interest rate swap contract at 31 March 2015 was USD 2.9 million, the implicit fixed interest rate ranged between 11% and 12% and the main floating rate is prime. Gains or losses recognised in equity will be released into profit or loss (as part of finance cost) until repayment date. 15 CASH AND CASH EQUIVALENTS AND CASH COLLATERAL DEPOSITS 31 March 2015 Cash on hand Bank balance... 18,839 18,922 Short-term borrowings and bank overdrafts... (65,717) Short-term borrowings... (63,405) Bank overdrafts... (2,312) Commodity finance (refer to note 10 for more detail)... (22,704) Cash and cash equivalents... (69,499) Cash collateral deposits... 10,485 Balance end of year... (59,014) F-176

309 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 15 CASH AND CASH EQUIVALENTS AND CASH COLLATERAL DEPOSITS (Continued) 15.1 Cash and cash equivalents are the same for cash flow statement purposes The cash collateral deposits consist of cash deposits at financial institutions of up to a maximum of 2% of the debtors administered on behalf of third parties by the Group and serves as security for performance under the service level agreements. The deposits bear interest at market-related cash deposit rates. The average interest earned on cash collateral deposits is 5.0% The short-term borrowings and bank overdrafts bear interest at a variable rate of 7.1%. All amounts are repayable within the next 12 months. The prior year included 4 loans from Joseph Investment Holdings ( JIH ) and two term loans from ABSA Bank of USD 21 million and USD 31 million respectively. The JIH loans were dominated in SA Rand and were unsecured. The loans further beard interest at the prime lending rate and had no specific repayment terms. The ABSA loans were interest bearing at JIBAR plus 2.5% and JIBAR plus 4.5% respectively, maturing on 31 December Both the JIH and ABSA loans have been settled in full during the current financial year Commodity finance facility with Rand Merchant Bank (RMB), carrying interest at JIBAR plus 1%. The Group provides three distinct grain services to clients, namely the procurement of grain, the storing of grain and the supply of a finance facility in order to buy grain. Where finance is required, the Group engages with RMB on behalf of its clients, transferring to RMB the grain together with a short SAFEX contract. These arrangements are within the scope of IAS 39 Financial Instruments: Recognition and Measurement and the Group assessed the accounting treatment of these arrangements and concluded that the agency principle is not appropriate given the substance of these arrangements being that of a financing activity. The related commodities are disclosed in note 10 and serve as collateral for this facility. 16 SHARE CAPITAL Number of Ordinary Ordinary shares shares Total Balance at 1 April ,883, Changes during the year... Balance at 31 March ,883, Authorised share capital include 500 million ordinary shares with no par value as well as 1 million unclassified shares at no par value. All issued shares are fully paid. F-177

310 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 17 FAIR VALUE AND OTHER RESERVES 31 March Foreign currency translation reserve Opening balance... (17) Acquisition of subsidiaries... Exchange differences on translating of foreign operations... (11,119) Share of exchange differences from joint ventures... (330) Closing balance... (11,466) 17.2 Revaluation reserve for cash flow hedges Opening balance... Fair value gains/(losses) Closing balance Share based payment reserve Opening balance... Share based payment charge Bafepi Proprietary Limited... 6,260 Share based payment charge Matteh Management Trust... 1,440 Closing balance... 7,700 Share capital issued to two of the Group s share holders, being Bafepi Proprietary Limited ( Bafepi ) and the Matteh Management Trust ( MMT ), have been accounted for in substance (i.e. as options to acquire share capital) rather than its legal form under the guidance of IFRS2: Share based payments. Under IFRS2 structures where loans are granted by an entity to enable an investor to subscribe for shares of that entity, with recourse only to the shares, should be treated in substance as an option grant as the investor is not exposed to the variability in the cash flows of the shares below the loan amount. Bafepi acquired 20% of the Group s share capital with the Public Investment Corporation ( PIC ) providing a loan to Bafepi to fund the purchase of share capital and its portion of the shareholder loans. Hence the situation where a loan was granted by a shareholder (PIC) to enable another investor (Bafepi) to subscribe for shares of the Group, with recourse only to shares, and therefore the treatment as an option grant as Bafepi is not exposed to the variability in the cash flows of the shares below the loan amount. Furthermore, through this arrangement the Group has received BEE credentials (goods and services). MMT acquired its share of the Group s share capital and shareholder loans with approximately 24% of its own equity contributions and the remaining 76% of the funding were acquired through an ABSA loan. At the time one of the Group s subsidiaries, AFGRI Operations Proprietary Limited, issued a guarantee to ABSA up to the value of the MMT loan. In substance the situation therefore arose where a loan was guaranteed by a entity within the Group to enable the investor (MMT) to subscribe in shares of the Group, with recourse only to shares, and therefore the treatment as an option grant as MMT is not exposed to the variability in the cash flows of the shares below the value of the loan and its own 24% equity contributions. Both the Bafepi- and MMT options where classified as Equity-settle under IFRS 2 and its fair value were calculated on grant date (1 April 2014) using a Monte Carlo Simulation (which can be defined as a procedure for randomly sampling changes in market variables, ie the Group s equity value, in order to value a derivative ), as this model is sophisticated enough to cater for the path-dependency inherent in the option payoff. The IFRS 2 expense represents a once-off expense to profit and loss (refer note 28) as no vesting period, as defined under IFRS2, applies to these options. F-178

311 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 17 FAIR VALUE AND OTHER RESERVES (Continued) Significant inputs to the Monte Carlo Simulation were as follows: Valuation date... 1 April 2014 Maturity date... 1 April 2019 Market price of underlying equity at valuation date ,315 Expected volatility of underlying equity over the life of the transaction % Expected dividend yield on the underlying equity over the life of the transaction % Risk-free interest rates over the life of the transaction % to 7.87% (3,353) 18 NON-CONTROLLING INTEREST 31 March 2015 BEE partners... 72,630 Other non-controlling interest... (343) Balance end of the year... 72,287 The percentage of shareholding held in Group entities are provided per entity in Appendix A to these consolidated accounts. Izitsalo Employee Investment Proprietary Limited represents the only material non-controlling interest for the Group with its 26.77% shareholding at AFGRI Operations Proprietary Limited level. Summarised financial information for AFGRI Operations Proprietary Limited is as follows: Non-current assets ,125 Current assets ,248 Total assets ,373 Non-current liabilities... (119,133) Current liabilities (235,377) Total liabilities... (354,510) Revenue ,621 Expenses... (313,478) Profit before income tax... 29,143 Income tax expense... (2,972) Profit for the year from continuing operations... 26,171 Discontinued operations: Loss for the year from discontinued operations... Profit for the year... 26,171 Operating cash flows ,355 Investing cash flows... (5,366) Financing cash flows... (70,175) Total cash flows... 28,814 The refinancing and extension of the AFGRI Group s black economic empowerment transaction (hereafter BEE transaction) was successfully concluded with the Land Bank during 2013 for a further 20 years. Under this structure, Izitsalo Employee Investments Proprietary Limited (Izitsalo) owns 26,77% of the share capital of AFGRI Operations Proprietary Limited (a subsidiary of the Company) with the Agri Sizwe Empowerment Trust and its beneficiaries being the sole shareholders of Izitsalo. As such, Izitsalo s interest in AFGRI Operations Proprietary Limited are accounted for as a non-controlling interest. F-179

312 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 19 RETAINED EARNINGS 31 March 2015 Comprises... Company... 36,919 Subsidiaries... (58,905) Joint ventures... 4,337 Associates... 3,253 Balance end of year... (14,396) 20 BORROWINGS 31 March Interest bearing loans ,382 Land Bank... 82,146 Balance ,426 Short-term portion... (41,280) Land Bank... 18,741 Balance... 26,006 Short-term portion... (7,265) Shareholder loan: Joseph Investment Holdings... Balance... 85,710 Short-term portion... (85,710) Shareholder loan: Public Investment Co-operation... Balance... 22,238 Short-term portion... (22,238) Shareholder loan: Bafepi Propriatary Limited... Balance... 29,651 Short-term portion... (29,651) Shareholder loan: Matteh Management Trust... Balance... 5,471 Short-term portion... (5,471) Other loans Balance Short-term portion Finance leases Minimum lease payments... 8,173 Not later than one year... 1,734 Later than one year and not later than five years... 10,402 12,136 Future finance charges on finance leases... (2,807) Present value of finance lease liabilities... 9,329 Short-term portion of finance leases... (1,156) Total borrowings , A USD100 million term funding structure with the Land Bank implemented on 28 June 2012 by AFGRI Operations Proprietary Limited. The structure comprises three USD41 million tranche facilities of three, five and seven years respectively. Interest rates are prime minus 1.75% for the first tranche and prime minus 1 for the remaining two tranches, F-180

313 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 20 BORROWINGS (Continued) which is payable monthly with capital repayments at the end of each tranche on repayment date. Total fees and costs for the three tranches amount to USD0.1 million, USD0.06 million and USD0.05 million respectively per annum. The first tranche of USD41.2 million is disclosed as short-term with repayment of capital on 28 June The final repayment date for the second tranche is 28 June 2017 and for the third tranche 28 June Four loans from the Land Bank denominated in SA Rand and secured by property, plant and equipment with a carrying value of USD22.36 million. These loans are repayable in monthly instalments which vary between USD and USD The last instalment is due in June Interest is charged at prime less 0.5% Four shareholder loans dominated in SA Rand. These loans are unsecured. Interest is charged at the prime lending rate and is repayable or otherwise capitalised semi-annually at the election of the Board of directors. Capital is repayable to the shareholders simultaneously and proportionately when it is commercially convenient to do so Other loans include two USD-denominated shareholders loans in the Group s Africa operations bearing interest of between 5% and 8.85% per annum. These loans are unsecured with no fixed repayment terms The Group also leases some of its buildings, machinery & equipment and vehicles under finance leases. All the assets encumbered under these agreements will be returned to the lessor at the end of the lease term Finance leases are repayable in monthly instalments varying from USD295 to USD and bear interest at rates varying between 7.5% and 11.0%. Finance leases are secured by buildings, machinery & equipment and vehicles with a carrying value of USD10 million under commercially accepted terms and conditions (refer to note 2.7). 21 DEFERRED INCOME TAX 31 March Analysis of deferred income tax Deferred income tax assets Property, plant and equipment... (165) Provisions... (7,348) Income tax losses... (6,192) Other... (3,137) Total... (16,842) Deferred tax asset to be recovered after more than 12 months... (8,008) Deferred tax asset to be recovered within 12 months... (8,834) Deferred tax liabilities Property, plant and equipment... 46,446 Trade and other receivables... 3,055 Inventory... Total... 49,501 Deferred tax liability to be recovered after more than 12 months... 46,446 Deferred tax liability to be recovered within 12 months... 3, All deductible temporary differences, unused tax losses and used tax credits and temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures have been recognised for deferred tax. During the year the Group reinstated the deferred tax asset relating to assessed losses in Australia to the value of USD0.5 million (derecognised in the prior period) given the recovery reported by this unit. This was off-set by the derecognition of the deferred tax asset at GROCAT during the year of USD0.9 million given its second consecutive year of trading losses. F-181

314 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 21 DEFERRED INCOME TAX (Continued) 31 March The gross movement on the deferred tax account is as follows: Purchase of subsidiaries... 50,147 Income statement debit/(credit)... (12,954) Income statement credit (included under discontinued operations)... (1,084) Foreign currency differences... (5,349) Classified as held-for-sale... 1,899 End of year... 32, The movement in deferred income tax assets and liabilities is as follows: Property, plant Trade and Deferred tax assets and equipment Provisions receivables Tax losses Other Total Tax rate adjustment... Purchase of subsidiaries... (285) (7,416) (16,829) (2,377) (26,907) Income statement debit/(credit) (1,265) (1,626) (813) (3,614) Income statement credit (included under discontinued operations)... (271) (1,265) (1,536) Foreign currency differences ,026 2, ,566 Classified as held-for-sale ,981 11,559 Other Balance at 31 March (165) (7,348) (6,192) (3,137) (16,842) Property, plant Trade and other Deferred tax liabilities and equipment Inventories receivables Total Tax rate adjustment... Purchase of subsidiaries... 72,870 3, ,054 Income statement debit... (12,051) 2,711 (9,340) Income statement debit/(credit) (included under discontinued operations)... (361) Foreign currency differences... (8,060) (533) (322) (8,915) Classified as held-for-sale... (5,862) (3,798) (9,660) Other... (90) (90) Balance at 31 March ,446 3,055 49, TRADE AND OTHER PAYABLES 31 March 2015 Trade accounts payable ,162 Other payables and accruals... 33, , Included in trade accounts payable is USD23.2 million for purchases financed on a floor plan basis. These payables are secured by merchandise included in note F-182

315 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 22 TRADE AND OTHER PAYABLES (Continued) 31 March Included in other payables and accruals is deferred income of USD1 million which relates to government grants from the Department of Trade and Industry under their enterprise investment program. As a result of the Poultry transaction and its held-for-sale classification (refer to note 32), government grants to the value of USD0.8 million has been included under Liabilities of disposal groups classified as held-for-sale. As at 31 March 2015 all conditions attached to these grants have been met Other payables and accruals includes the current portion of the contingent consideration relating to business combinations (refer to note 24). 23 SHORT-TERM PORTION OF LONG-TERM BORROWINGS 31 March 2015 Short-term portion of long-term borrowings interest-bearing loans (refer note 20.1) ,614 finance leases (refer note 20.2)... 1, , OTHER LIABILITIES 31 March Contingent consideration arising on a business combination BNOT Harel Nigeria Business combination Acquisition of subsidiaries... 1,046 Foreign currency differences... (138) Balance end of year The purchase consideration of the BNOT Harel Nigeria Limited included a contingent consideration of USD0.8 million which will be payable in USD including interest, calculated at the ruling deposit rate, three years from the effective date of the transaction should certain retention targets be met by the previous owner. The contingent consideration was deposited into an external bank account in USD and the deposit is held in escrow on behalf of the previous owner. Payment to the previous owner will be made subsequent to year-end and therefor disclosed as short-term. Total provisions for other liabilities and charges Analysis of total provisions for other liabilities and charges Non-current portion... Current portion (included under trade and other payables refer to note 22) F-183

316 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 25 OTHER FINANCIAL LIABILITIES 31 March Financial liabilities held-for-trading Financial liabilities relating to held-for-trading trade receivables Current Season... 2,559 Capital goods... 2,394 5,366 Financial liabilities held-for-trading represent the fair value of the obligation to the Land Bank to finance held-for-trading receivables (refer note 8) recognised on the balance sheet at fair value. Adjustments to the fair value of liabilities are recognised in the income statement. Non-current portion Current portion... 4, REVENUE 31 March 2015 Revenue from continuing operations ,193 Sale of goods ,915 Services rendered... 98,308 Interest-debtor financing... 4,970 Revenue from discontinued operations Sale of goods ,605 Gross revenue from operations , OPERATING PROFIT The operating profit is stated after taking into account the following: 31 March Net profit on disposal of property, plant and equipment Payments to non-employees Managerial, technical, administrative and secretarial fees... Outsourcing of IT, personnel and internal audit functions... (90) (90) 27.3 (Impairment)/Reversal of impairment of trade and other receivables... (2,982) 27.4 Fair value (losses)/gains on derivative financial instruments Forward purchase contracts... 3,885 Forward sale contracts... (5,964) (2,079) F-184

317 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 27 OPERATING PROFIT (Continued) 31 March Depreciation Buildings and improvements... (3,528) Machinery and equipment... (8,332) Vehicles... (2,671) (14,531) 27.6 Impairment of assets Machinery and equipment... (90) Trademarks and patents... (36,242) Goodwill... (1,141) Computer software... (90) (37,563) 27.7 Amortisation of intangible assets Trademarks and patents... (9,614) Computer software... (1,175) (10,789) 27.8 Foreign currency losses... (1,987) 27.9 Auditors remuneration current period... (723) previous year... Other services and expenses... (723) Operating lease payments Buildings... (3,885) Plant and machinery... (181) Equipment... (90) (4,156) Share-based payment expense... (7,700) F-185

318 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 28 EXPENSES BY NATURE 31 March 2015 Cost of Sales Inventory included in cost of sales... (712,281) Operating expenses included in cost of sales... (38,130) Finance costs included in cost of sales... (4,247) Total Cost of sales... (754,658) Continuing operations... (611,443) Discontinuing operations... (143,215) Operational costs Salaries and wages... (95,146) IT and Communication costs... (6,684) Property expenses... (22,228) Depreciation, amortisation & impairments... (67,254) Transport Expenses... (25,661) Repairs & Maintenance... (10,301) Professional fees... (29,218) Other... (26,495) Cost of sales included in operating expenses... 38,130 Total Operational costs... (244,857) Continuing operations... (207,992) Discontinuing operations... (36,865) Professional fees includes the push down transaction-relating to the AgriGroupe transaction to the value of USD 18.7 million. Other operational costs for the current year includes the share based payment charge of USD 7.7 million refer to note 17 for more detail in this regard. F-186

319 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 29 FINANCE COST AND INTEREST INCOME 31 March 2015 Finance cost Continuing operations Interest paid to banks for trade receivables financing... (271) Interest paid to financial institutions... (22,944) Interest paid on shareholders loans... (14,245) Interest paid to independent third parties... (4,156) Interest paid on leases... (723) Net foreign exchange gains on financing activities... 1,175 Fair value gains on financial instruments: Interest rate caps (refer to note 14.3)... Unwinding of contingent settlement... Finance cost for continuing operations... (41,164) Less: Borrowing costs capitalised on qualifying assets Less: Interest included under cost of sales... 4,247 Finance cost for continuing operations (income statement)... (36,646) Discontinued operations Interest paid to financial institutions... (6,777) Total finance cost... (43,423) Interest income Continuing operations Interest received from financial institutions Interest received from independent third parties... 2,530 Interest income for continuing operations (income statement)... 3,226 Discontinued operations Interest received from financial institutions... Total finance income... 3, STAFF COSTS 31 March 2015 Salaries and wages... 89,905 Pension costs defined contribution plans... 5,060 Termination benefits ,146 F-187

320 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 30 STAFF COSTS (Continued) Details of executive and non-executive directors and prescribed officers remuneration appears in the tables below: Basic salary Cash Expense Company and bonusses (1) allowances contributions (2) Total amounts in USD 31 March 2015 Executive directors CP Venter , ,849 5,574 82, ,661 Total , ,849 5,574 82, ,661 Prescribed officers GJ Geel , ,510 4,081 60, ,344 PJP Badenhorst ,963 92,416 3,029 52, ,200 MM Manyama ,233 97,445 6,610 47, ,963 IJ Breitenbach ,497 42,945 5,986 53, ,129 MJ Prinsloo ,427 72,491 2,452 39, ,859 TBW Miya... 54,049 11,217 65,266 MD Sikwinya ,049 17,590 2,581 24, ,481 Total... 1,225, ,397 24, ,543 1,995,242 (1) Bonuses paid are based on the Group s performance in the previous financial year and would have been fully provided for in the previous year s results. (2) Includes contributions to retirement funds, medical aid funds, UIF and skills development levy. Audit, Risk Social and Board and Credit Remuneration Ethics Investments member Committee Committee Committee Committee Total amounts in USD 31 March 2015 Non-executive directors MS Wilkerson... 67,767 67,767 LL Von Zeuner... 36,143 13,553 49,696 BM Khoza... 13,161 13,161 B Hayward... 36,143 36,143 NW Holzapfel... 36,143 9,036 45,179 IS Sehoole... 36,143 9,036 45,179 KS Maponya... 36,143 36,143 SDC Masuku... 18,366 18,366 RQ McLean... 36,143 36,143 MK Mabe (payable to PIC)... 40,660 40,660 Total ,812 13,553 9,036 9, ,437 F-188

321 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 31 INCOME TAX EXPENSE 31 March Income tax expense South African normal income tax... (8,042) Current period... (8,132) Previous year overprovision Deferred income tax... 14,038 Current period... 14,490 Previous year underprovision... (452) Income tax charge... 5,996 Continuing operations... 4,912 Discontinued operations... 1,084 Income tax charge... 5, Reconciliation of income tax rate Income tax for the year as a percentage of income before income tax Income tax effect of: Non-taxable income Non-deductible expenditure... (82) Capital profits... 2 Deferred tax assets not recognised... (3) Release of permanent difference of PPE resulting from Agri Sizwe restructure... (4) Prior year (underprovision)/overprovision... (1) Difference in tax rates... 1 Other... (2) Standard rate HELD-FOR-SALE AND DISCONTINUED OPERATIONS 31 March Assets and liabilities of disposal groups classified as held-for-sale During the year the Group entered into sale agreements with Bafepi Agri Proprietary Limited ( Bafepi ) and the Public Investment Corporation ( PIC ) to sell 100% of its shares in AFGRI Poultry Proprietary Limited together with all claims outstanding from AFGRI Poultry Proprietary Limited, as a going concern, for USD 97 million (hereafter the Poultry transaction ). This transaction will see the Group disposing its entire Poultry business, as well as the Kinross feedmill. The group of assets (disposal group) was disclosed as a disposal group held-for-sale as at 31 March 2015 given the pending status of the transaction and also met the definition of a discontinued operation. Accordingly the result from this business for the year has been disclosed as discontinued. F-189

322 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 32 HELD-FOR-SALE AND DISCONTINUED OPERATIONS (Continued) 31 March During the 2014 financial year a decision was taken to sell the sugar cane farm of subsidiary Crystal Holdings Proprietary Limited. The Group expects to conclude a sales transaction in near future and as a result the related property, plant and equipment and biological assets have been disclosed as held-for-sale. Assets of disposal groups classified and held-for-sale Property, plant and equipment... 69,763 Intangible assets... Other non-current assets... 12,218 Inventory... 5,366 Biological assets... 12,549 Cash and cash equivalents Other current assets... 18,411 Total assets ,390 Liabilities of disposal groups classified as held-for-sale Borrowings... 21,300 Other non-current liabilities... 9,742 Trade and other payables... 15,026 Other current liabilities... 59,360 Provisions... Total liabilities , Analysis of the results of discontinued operations and the results recognised on the The loss from discontinued operations resulted from the Group entering into the sale of business agreement on its Poultry business unit as disclosed in note which also met the definition of a discontinued operation. It includes 12 months of operating activities for the year ending 31 March Comparative information has been restated to ensure comparability. Revenue ,605 Expenses... (187,129) Loss before tax on discontinued operations... (3,524) Taxation... 1,084 Loss after tax of discontinued operations... (2,440) Pre-tax loss recognised on the remeasurement of assets of disposal groups... Taxation... After-tax loss recognised on the remeasurement of assets of disposal groups... Loss for the year from discontinued operations... (2,440) Consisting of: Poultry business... (2,440) Loss for the year from discontinued operations... (2,440) 32.3 Cash flow information Operating cash flows... 25,300 Investing cash flows... (5,602) Financing cash flows... (19,517) Total cash flows F-190

323 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 33 EARNINGS/(LOSS) PER SHARE 31 March 2015 Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to shareholders by the weighted average number of ordinary shares in issue during the year. Profit/(loss) attributable to equityholders of the Company... (14,179) Weighted average number of ordinary shares in issue (thousands) ,883 Earnings/(loss) per share (cents)... (3.83) 34 DILUTED EARNINGS/(LOSS) PER SHARE Diluted earnings/(loss) per share reflect the potential dilution that would occur when all potential diluted instruments are issued. Currently the Group has no potential diluted instruments. No adjustments were made to reported earnings/(loss) attributable to shareholders in the computation of diluted earnings per share. Number of shares 2015 Weighted average number of shares (thousands) ,883 Diluted weighted average number of shares (thousands) ,883 Net profit... (14,179) Diluted earnings/(loss) per share (cents)... (3.83) 35 TAX EFFECTS RELATING TO EACH COMPONENT OF OTHER COMPREHENSIVE INCOME Year ended 31 March 2015 Before tax Tax (expense)/ After tax amount benefit amount Exchange differences on translating foreign operations... (11,119) (11,119) Cash flow hedges Share of comprehensive income of joint ventures... (330) (330) Other comprehensive income for the year... (11,036) (11,036) 36 DIVIDENDS 31 March 2015 Dividend to Matteh Management Trust F-191

324 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 37 NOTES TO THE CASH FLOW STATEMENT 31 March Cash generated from/(utilised in) operations Profit before income tax... (27,872) Adjusted for: Depreciation... 19,048 Impairment of property, plant and equipment Amortisation of intangible assets... 10,789 Impairment of intangible assets... 37,472 Negative goodwill recognised with Bargain purchase... (39,452) Interest received... (3,226) Finance cost... 36,646 Profit/(Loss) on disposal of property, plant and equipment... (361) Share in losses from joint ventures... (1,626) Foreign exchange translation differences... 43,141 Adjustment for other non-cash items... 7,612 Working capital changes: Inventories... (2,468) Biological assets... (790) Decrease/(increase) in collateral guarantee deposits Trade, other receivables and financial assets... 39,614 Trade, other payables and financial liabilities... 22, , Dividends paid Dividend to Matteh Management Trust... (242) (242) 37.3 Income tax paid Unpaid amounts beginning of year... (12) Normal income tax charges for year... (8,042) Net acquisition and disposal of subsidiaries Foreign exchange translation difference Unpaid amounts at end of year... (1,971) (9,380) 37.4 Purchase of property, plant and equipment Land... (271) Buildings and improvements... (9,849) Machinery and equipment... (20,511) Vehicles... (2,801) (33,432) 37.5 Proceeds from disposal of property, plant and equipment Carrying value... 2,169 Carrying value of PPE disclosed as held-for-sale in prior year... Profit/(Loss) on disposal ,530 F-192

325 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 37 NOTES TO THE CASH FLOW STATEMENT (Continued) 31 March Acquisition of other subsidiaries net of cash acquired Property, plant and equipment... (570) Investment in joint venture... (666) Inventories... (7,986) Trade and other receivables... (1,521) Trade and other payables... 4,563 Goodwill... (1,141) Deferred income tax... (1,046) Borrowings Cash and cash equivalents... 7,226 Total purchase consideration... (761) Cash and cash equivalents acquired... (7,226) Net cash flow on acquisition... (7,987) 37.7 Acquisition of AFGRI Pty Limited net of cash acquired Property, plant and equipment... (358,630) Non-current receivables... (10,934) Investment in joint ventures and associates... (36,510) Intangible assets... (73,685) Other current assets... (73,970) Inventories... (145,087) Trade and other receivables... (181,502) Trade and other payables ,012 Deferred income tax... 51,193 Borrowings ,476 Non-current liabilities... 1,711 Other current liabilities... 51,341 Cash collateral deposits... (11,029) Short term borrowings and bank overdrafts acquired (net of cash)... 54,384 (355,230) Non-controlling interest... 83,056 Bargain purchase/(goodwill)... 39,452 Total purchase consideration... (232,722) Cash and cash equivalents acquired... (54,384) Purchase consideration paid before 31 March ,722 Net cash flow on acquisition for period ended 31 March (54,384) 38 MATURITY PROFILE OF FINANCIAL INSTRUMENTS The maturities of financial assets are based on carrying amounts (excluding projected future interest cash inflows) at balance sheet date and have been disclosed to demonstrate the Group s management of liquidity risk. The maturities of financial liabilities include both the contractual principle and interest cash outflows. The cash inflows associated with non-financial assets (inventory and biological assets) are not reflected in the table below. F-193

326 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 38 MATURITY PROFILE OF FINANCIAL INSTRUMENTS (Continued) The maturity profile of financial assets and liabilities is summarised as: 2015 <90 days <1 year 1 4 years >4 years Total Financial assets Financial receivables ,156 1,321 7,841 11,144 Other financial assets , ,147 5,202 Derivative financial instruments hedge accounted (designated as hedges)... 4,788 4,788 Derivative financial instruments not hedge accounted (held-for-trading) ,109 6,192 Trade and other receivables... 89,594 5,614 3,880 8, ,839 Trade receivables financed by banks... 42, ,087 Cash and cash equivalents... 29,407 29, ,630 16,346 5,614 19, ,659 Financial liabilities Borrowings Interest-bearing loans ,604 40, ,106 11, ,392 Derivative financial instruments hedge accounted (designated as hedges)... 4, ,789 Derivative financial instruments not hedge accounted (held-for-trading)... 2,807 2,807 Trade and other payables ,004 7, ,599 Short-term borrowings and bank overdrafts... 65,717 65,717 Other financial liabilities... 4, ,367 Commodity finance... 22,704 22,704 Borrowings from banks to finance trade receivables... 40,784 3,220 44, ,519 58, ,272 12, , SENSITIVITY ANALYSIS Interest rate risk The Group s sensitivity to changes in foreign exchange rates is considered insignificant as a policy is in place to ensure that all foreign exchange positions are fully hedged. Interest sensitivity is managed by the Group ALCO. An asset and liability simulation model is used to determine the interest rate gap for the Group. The gap refers to the difference in the carrying values of interest-bearing and non-interest-bearing net assets. The interest rate expectations of the Group ALCO will determine the appropriate time to enter into interest rate derivative instruments to hedge interest rate risk, which will be monitored and managed on a monthly basis. The following strategies have been implemented by the Group to manage interest rate sensitivities: The implementation and continuation of the fee-based business model by the Group s financial services business units since the 2012 financial year. Repricing risk, which is applicable to general short-term revolving facilities, has reduced with the implementation of the USD124 million term debt on 28 June Refer to note 20 for further detail. During the 2011 financial year, the Group entered into interest rate cap agreements in order to minimise the upside risk in the medium term in the event of rising interest rates. Refer to note 14 for further detail. F-194

327 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 39 SENSITIVITY ANALYSIS (Continued) An interest rate sensitivity was performed based on average exposure to interest rates for the reporting period with the stipulated change in interest rates having taken place for the entire year refer to the table below. 31 March 2015 Increase/ Increase/ (decrease) in (decrease) in net interest Impact of change in short-term interest rate rates income % USD thousands Change in funding rate ,871 Change in funding rate ,394 Change in funding rate ,238 Change in funding rate... (0.5) (1,238) Change in funding rate... (1.0) (2,394) Change in funding rate... (2.0) (4,871) Commodity price risk Although no proprietary trading exists within the Group, the Group is exposed to commodity price risk as it enters into forward purchase and sale agreements to fulfil its internal use of commodities within the Foods division. Price risk only materialises to the extent that an increase in the price of a commodity cannot be passed onto customers through the increase in the sales price of the end product produced. A commodity price sensitivity was performed using commodity prices as well as quantities at year-end with the stipulated change in price having taken place for an entire year refer to the table below: 31 March 2015 Increase/ (decrease) in Increase/ price per (decrease) in Impact of change in commodity prices ton fair value USD USD thousands Change in commodity price Change in commodity price... (8.3) (536.6) 40 FAIR VALUE HIERARCHY DISCLOSURES 40.1 Hierarchy of financial instruments carried at fair value 31 March 2015 Level 1 Level 2 Level 3 Total Financial assets as per balance sheet Other financial assets Held-for-trading trade receivables... 5,202 5,202 Derivative financial instruments Forward purchase contracts... Forward sale contracts... 6,192 6,192 Options... Foreign currency futures cash flow hedges... 4,623 4,623 Foreign currency futures fair value hedges Total... 10,980 5,202 16,182 F-195

328 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 40 FAIR VALUE HIERARCHY DISCLOSURES (Continued) Level 1 Level 2 Level 3 Total Financial liabilities as per balance sheet Other financial liabilities Financial liabilities carries at fair value through profit and loss... 5,366 5,366 Derivative financial instruments Forward purchase contracts... 2,807 2,807 Interest rate swaps Foreign currency futures cash flow hedges... 4,376 4,376 Foreign currency futures fair value hedges Foreign currency futures Total... 7,596 5,366 12, Reconciliation of Level 3 financial assets carried at fair value Other financial assets (1) 31 March 2015 Fair value at the beginning of the year... Acquisition of subsidiary... 5,229 Total gain/(loss) recognised in the income statement... (27) Fair value at the end of the year... 5, Reconciliation of Level 3 financial liabilities carried at fair value Financial liabilities Derivative financial carried at fair value instruments through profit or loss (2) 31 March 31 March Fair value at the beginning of the year... Acquisition of subsidiary... 5,514 Total (gain)/loss recognised in the income statement... (148) Fair value at the end of the year... 5,366 (1) Consists of held-for-trading trade receivables carried at fair value. The held-for-trading trade receivables represent the Group s continued involvement in debtors originated on behalf of third party financiers (and therefore originated with the intention of selling the receivable in the short term), but not derecognised entirely in accordance with derecognition criteria of IAS 39 due to the Group s continuing involvement refer to note 8.1. The continuing involvement asset is measured at the lower of the carrying amount of the transferred asset and the maximum amount of the consideration received in the transfer that the entity could be required to repay the guaranteed amount. (2) Financial liabilities held-for-trading represent the fair value of the obligation to the Land Bank to finance fair value debtors recognised on the balance sheet. Adjustments to the fair value of liabilities are recognised in the income statement. F-196

329 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 41 COMMITMENTS 41.1 Capital commitments 31 March 2015 Contracted for additions to property, plant and equipment and intangibles... 2,229 Authorised but not yet contracted for additions to property, plant and equipment... 11,146 13,375 The abovementioned capital commitments will be financed by net cash flows from operations and the utilisation of cash and borrowings within the accepted gearing ratio of the Group. The Group s proportionate share of the capital expenditure commitments of joint ventures included in the above commitments is USDnil Operating lease commitments The future minimum lease payments under non-cancellable operating vehicle, equipment and building leases are as follows: Not later than one year... 2,477 Later than one year and not later than five years... 11,228 Later than five years... 5,119 18, General terms of operating leases Operating leases consist of leases for buildings, plant and machinery, motor vehicles and equipment. Most of the operating leases have the option to renew and extend the period of the lease Other commitments As part of the AgriGroupe transaction in 2014, AFGRI agreed with government that it would expand the emerging farmer training and development programme and lend support and assistance to small-scale farmers to the value of USD 8.6 million for a period of four years. As at 31 March a total was spend of USD 1.4 million. 42 GROUP BORROWING FACILITIES 42.1 Borrowing facilities 31 March 2015 General banking facilities... 90,155 Guarantee facilities... Short-term banking facilities... 99, ,134 F-197

330 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 42 GROUP BORROWING FACILITIES (Continued) 42.2 Unutilised borrowing facilities Total facilities ,134 Utilisation: General banking facilities... (63,323) Guarantee facilities... Short-term banking facilities... (54,489) 72, In terms of the Company s MOI, the Group borrowings are unlimited, but certain limits on borrowing levels have been fixed by the Board of Directors. Excluded are the long-term facilities within the Group. Refer note BUSINESS COMBINATIONS 43.1 AFGRI Limited On 27 September 2013 AFGRI Holdings Proprietary Limited (previously AgriGroupe Proprietary Limted) notified AFGRI Limited of its intention to make a cash offer for all the shares to shareholders and delist AFGRI Limited from the JSE should the scheme be successfully implemented. The transaction was approved by the AFGRI Limited shareholders (refer to the SENS announcement on 19 November 2013) and by the South African Competition Authorities (refer to the SENS announcement on 7 March 2014) which resulted in the termination of the AFGRI Limited s listing on the JSE at commencement of trade on 1 April The shareholding were transfered to AFGRI Holdings Proprietary Limited on 2 April The purchase consideration was paid over to Computershare (Transfer Secretary) before 31 March 2014 to facilitate the delisting of AFGRI Proprietary Limited (then AFGRI Limited) from the Johannesburg stock exchange at commencement of trade on 1 April 2014, with the effective date of the transaction being 1 April The consolidation of the Afgri Limited group of companies therefore occured only during the 31 March 2015 financial year, althought payment for the investment were accounted for in AFGRI Holdings Proprietary Limited during the 31 March 2014 financial year. F-198

331 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 43 BUSINESS COMBINATIONS (Continued) The purchase price allocation in terms of IFRS 3 for this transaction is still pending completion and the preliminary fair value of assets and liabilities acquired were as follows: 31 March 2015 Property, plant and equipment ,630 Other intangible assets... 73,685 Investments in associates & Joint ventures... 36,510 Deferred income tax assets... 25,861 Other non-current assets... 10,934 Inventories ,087 Trade and other receivables ,502 Trade receivables financed by banks... 40,408 Derivative financial instruments... 6,465 Income tax assets... 1,521 Cash collateral deposits... 11,029 Cash and cash equivalents and cash collateral deposits... 63,321 Other current assets... 14,262 Assets of disposal groups classified as held-for-sale... 11,314 Borrowings... (203,274) Deferred income tax liabilities... (77,054) Other non-current liabilities... (1,711) Trade and other payables... (153,012) Derivative financial instruments... (4,278) Income and other tax liabilities... (1,046) Short-term portion of long-term borrowings... (21,202) Short-term borrowings and bank overdrafts... (100,211) Commodity finance... (17,494) Borrowings from banks to finance trade receivables... (41,263) Other current liabilities... (4,754) Liabilities of disposal groups classifed as held-for-sale ,230 Non-controling interest... (83,056) Assets acquired and liabilities assumed ,174 Less: Purchase consideration Cash consideration (232,722) Bargain purchase/(goodwill) 39,452 Since 1 April 2014 the AFGRI Limited group of companies generated revenue amounting to USD million and net profit after taxation of USD 15.4 million which were included in the current year results. Intangible assets to the value of USD 65.2 million were identified as part of the purchase price allocation process ito IFRS 3. Property, plant and equipment were also revalued resulting in an increase in value of USD million. Non-controling interests were measured using their proportionate share of the identifiable net assets ito IFRS3. Refer to note 4.5 for a list of intangible assets identified GroCat Proprietary Limited and GroCat BV On 1 April 2014, the Group entered into binding sales agreements with FECAT Limited ( FECAT ). In terms of these agreements, the Group acquired the remaining 50% of the share capital of GroCat Proprietary Limited and GroCat BV it did own as a going concern. The acquisition will allow the Group to grow its participation in the diesel and coal value chains. The purchase consideration amounted F-199

332 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 43 BUSINESS COMBINATIONS (Continued) to USD 0.7 million. The initial accounting in terms of IFRS 3 is complete and the fair value of the assets and liabilities acquired were as follows: Property, plant and equipment Investment in joint venture Inventory... 7,986 Trade receivables... 1,521 Deferred tax asset... 1,046 Long-term borrowings... (380) Trade payables... (4,563) Bank overdraft (including cash and cash equivalents)... (7,226) Assets acquired and liabilities assumed... (380) Less: Purchase consideration Cash consideration... (761) Bargain purchase/(goodwill)... (1,141) Since 1 April 2014 this business unit generated revenue amounting to USD 56.8 million and net loss before taxation of USD 1.9 million (before the allocation of internal interest) which were included in the current year results. Goodwill of USD 1.1 million arose as the difference between the purchase consideration and the fair value of the assets acquired. The goodwill on the acquisition represents future growth in the value chain. 44 AGENCY AGREEMENTS The following financial assets are administered on behalf of third parties: 44.1 Debtors The Group manages agri debtors on behalf of the following third parties: 31 March 2015 Land Bank ,820 Wesbank , ,906 Service level agreements with the Land Bank originated during the 2012 financial year. Under these agreements the Group will manage, administer and service the farmer lending and corporate debtor books on behalf of the Land Bank. Furthermore the Group is only liable for bad debts on a second loss basis to a maximum of between 0.7% and 0.5%. On all other service level agreements, the Group is not liable for any bad debts for debtors administered. Management fees are paid by third parties Commodities The following value of commodities were handled, stored and managed on behalf of third parties: Other commodity users ,368 Producers... 35, ,621 F-200

333 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 44.2 Commodities (Continued) AFGRI receives a fee for the handling, grading, storing and administration of these commodities. 45 RETIREMENT BENEFITS The Group provides access to defined contribution retirement funds as a benefit to all permanent employees principally through the AFGRI Staff Pension Fund, the AFGRI Retirement Fund and the AFGRI Provident Fund. These funds are governed by the Pension Funds Act of The funds are administered by several service providers. The rules of the funds ensure that the assets of the funds always equal or exceed the liabilities and all death and disability benefits are fully reinsured. The contributions to retirement funds in which AFGRI participates are and will be charged against income as and when incurred. 46 GUARANTEES AND CONTINGENT LIABILITIES 46.1 Guarantees 31 March Performance guarantees given to banks and other third parties Guarantee Grocat BV... 11,971 During the financial year one of the Group s bankers issued a letter of credit to GroCat BV to the value of USD 12 million. The letter of credit will be issued within the next 60 days from 31 March (Refer to note 42 Short-term banking facilities) Contingent liabilities AFGRI Leasing Services... AFGRI Leasing Services Limited, a subsidiary of AFGRI Corporation Limited, is a non-deposit taking financial institution providing input finance, asset finance and term loans to farmers in Zambia. It is regulated by the Bank of Zambia in terms of the Banking and Financial Services Act, During 2013 the Bank of Zambia informed AFGRI Leasing Services Limited that its foreign currency exposure limit of 15% was exceeded and requested the Company to rectify the situation. The Company implemented interim measures as required by the Bank of Zambia in the previous financial year and continued to engage with the Bank of Zambia in order to implement a permanent measure. 47 RELATED PARTY TRANSACTIONS The Group entered into transactions and has balances with a number of related parties, including associates (refer to Appendix C), joint ventures (refer to Appendix B), directors and subsidiaries (refer to Appendix A). Transactions and balances that eliminates on consolidation are not included Salary costs of key personnel The salary costs of key personnel as identified by management are as follows: Cost to company (included in staff cost refer to note 30)... 5,060 Details regarding the directors emoluments are provided in note 30. F-201

334 AFGRI HOLDINGS (PTY) LTD NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2015 (all amounts in USD thousands) 47 RELATED PARTY TRANSACTIONS (Continued) 47.2 Transactions with related parties Sale of goods and services to related parties Afgritech Limited joint venture Chesa Wheels Proprietary Limited associate Purchase of goods and services from related parties... 1,084 Ronin Grain Management Proprietary Limited associate African Petroleum Storage Solutions Limited joint venture Purchase of property, plant and equipment from related parties Ronin Grain Management Proprietary Limited associate Management fees received from related parties Hinterland Proprietary Limited joint venture GroCat Proprietary Limited joint venture Management fees paid to related parties GroCat BV joint venture... AgriGroupe Management Limited KS Maponya Other transactions with related parties During the financial year Hinterland Proprietary Limited (joint venture) paid the Group interest of USD 0.2 million and the Group paid interest to Hinterland of USD nil during the year. During the financial year the Group received rental income from Prodist Proprietary Limited of USD 0.3 million. During the prior financial year GroCat BV (joint venture) and GroCat Proprietary Limited (joint venture) paid interest to the Group of USD 0.2 million and USD million, respectively. The Group acquired a 100% shareholding in GroCat BV and GroCat Proprietary Limited on 1 April 2014 and accounted for these companies as subsidiaries during the current financial year (refer Appendix A) Balances with related parties Receivables... 8,174 GroCat BV joint venture... GroCat Proprietary Limited joint venture... Prodist Proprietary Limited a subsidiary of joint venture... 1,404 Dormanko Dertig Proprietary Limited a subsidiary of joint venture... Silverton Farm to Fork Proprietary Limited joint venture... Afgritech Limited joint venture... 4,788 Hinterland Proprietary Limited joint venture... Silocerts Proprietary Limited joint venture Ronin Grain Management Proprietary Limited associate African Petroleum Storage Solutions Limited joint venture Vermoro Financial Services Proprietary Limited Chesa Wheels Proprietary Limited associate Payables... Hinterland Proprietary Limited joint venture... GroCat BV joint venture... For balances with subsidiaries refer to Appendix A. For balances with shareholders and details on these loans, refer to note 20. F-202

335 APPENDIX A Interest in unlisted subsidiaries For the year ended 31 March 2015 Amounts owed Interest in Issued capital by subsidiaries subsidiaries Nature of Country of business incorporation USD 000 USD 000 % Subsidiaries of AFGRI Proprietary Limited AFGRI Operations Proprietary Limited... A South Africa , OTK Investments House Proprietary Limited... B South Africa 2, AFGRI Mauritius Holdings Proprietary Limited... C South Africa 27,657 2, Subsidiaries of AFGRI Operations Proprietary Limited... AFGRI Animal Feeds Eastern Cape Proprietary Limited... D South Africa 100 AFGRI Animal Feeds Western Cape Proprietary Limited... D South Africa 100 AFGRI Equipment Proprietary Limited... E South Africa 17, AFGRI Executive Trust... F South Africa 100 AFGRI Grain Marketing Proprietary Limited... G South Africa AFGRI Limited Trust... H South Africa AFGRI Poultry Proprietary Limited... I South Africa 36, AFGRI Tobacco Proprietary Limited... J South Africa Chesa Wheels Proprietary Limited... K South Africa 100 CMI Value Chain Solutions Proprietary Limited... L South Africa 1, Collateral Management International Proprietary Limited... L South Africa 1, Cotton Seed Processors Proprietary Limited... M South Africa 100 Crystal Holdings Proprietary Limited... N South Africa 5, Daybreak Properties Springs Proprietary Limited... O South Africa 100 Daybreak Superior Marketing Proprietary Limited... I South Africa 100 Farm City Holdings Proprietary Limited... O South Africa 100 Golf Car World Proprietary Limited... P South Africa 100 GroCapital Broking Services Proprietary Limited... G South Africa GroCapital Financial Services Proprietary Limited... Q South Africa 11, GroCat Proprietary Limited... R South Africa 1, Harvest Time Investments Proprietary Limited... S South Africa 100 Laeveld Korporatiewe Beleggings Limited... T South Africa 1,218 12, Main Street 301 Proprietary Limited... U South Africa 100 Mentor Trading and Investments 44 Proprietary Limited... V South Africa Midway Chix Proprietary Limited... I South Africa 100 Natalse Landboukooperasie Limited... T South Africa 10, Nedan Proprietary Limited... W South Africa 17, Nedan Oil Mills Proprietary Limited... W South Africa 100 Superior Foods Proprietary Limited... I South Africa 100 Tsunami Crop Care Proprietary Limited... X South Africa 82.5 Tsunami Plant Protection Proprietary Limited... X South Africa 82.5 Unigro Administrators Proprietary Limited... Y South Africa Unigro Financial Services Proprietary Limited... Q South Africa 31, Unigro Insurance Brokers Proprietary Limited... Z South Africa Unigro Investment Holdings Proprietary Limited... V South Africa 1, Waltmerwe Park Proprietary Limited... O South Africa 100 F-203

336 APPENDIX A Interest in unlisted subsidiaries (Continued) For the year ended 31 March 2015 Amounts owed Interest in Issued capital by subsidiaries subsidiaries Nature of Country of business incorporation USD 000 USD 000 % Subsidiaries of AFGRI Mauritius Holdings Proprietary Limited ABBA Agri Services Limited... T Zambia 100 AFGRI Cameroon Limited*... G Cameroon 100 AFGRI Congo SARL*... G Congo 100 AFGRI Corporation Limited... E Zambia # 19, AFGRI Equipment Australia Proprietary Limited... AA Australia AFGRI Fertilizer Mauritius Limited... C Mauritius 100 AFGRI Ghana Company Limited... E Ghana 100 AFGRI Grain Management Mauritius Limited... C Mauritius 100 AFGRI Gulu Limited... G Uganda 95 AFGRI Kai Limited... G Uganda 80 AFGRI Leasing Services Limited... Q Zambia # 100 AFGRI Mauritius Investment Limited... C Mauritius 17, AFGRI Primary Farming Mauritius Limited... C Mauritius 100 AFGRI Uganda Limited... G Uganda AFGRI Zimbabwe Equipment (Private) Limited... E Zimbabwe BNOT Harel Nigeria Limited... I Nigeria 51 GEO AGRO Africa Limited... C Mauritius 100 Clark Cotton Zambia Limited... G Zambia 2000# 100 CMI Botswana Proprietary Limited... L Botswana 100 Collateral Management International Limited... L Ghana 100 Collateral Management International Kenya Limited*. L Kenya 100 Collateral Management International Mauritius Limited... L Mauritius 100 Collateral Management International Limited*... L Mozambique 100 Collateral Management International Rwanda Limited L Rwanda 100 CMI Tanzania Limited... L Tanzania 100 CMI Zambia Limited... L Zambia 100 CMN Agricultural Management Nigeria Limited... L Nigeria 100 GroCat BV... AB Mauritius 100 NU-AFGRI Limited... T Uganda 85 The Group s consolidated interest in the audited results of the subsidiaries is included in the Group s results. The year-end of the companies is March, except for the following companies as indicated: * December February # Zambian Kwacha A B C D E F Australian Dollar Agricultural and financial services, further processing of agricultural products, holding company Holding vehicle of treasury shares Investment holding company for international transactions Manufacturing of animal feeds Retail sales and servicing of mechanised agricultural equipment Executive share award scheme trust F-204

337 APPENDIX A Interest in unlisted subsidiaries (Continued) For the year ended 31 March 2015 G H I J K L M N O Q R S T U V W X Y Z AA AB Commodity procurement and marketing Share incentive trust Broiler, breeder farms, hatchery and abbattoir Buyer and primary processor of tobacco Trade in coal beneficiated products Collateral management services Processing and marketing of cotton seed oil Subletting of sugar cane farm Property holding company spare parts Financial services provider Trade in hard commodity fuels Training for emerging farmers Agricultural services Financial investment company Insurance investment holding company Processing and marketing cotton, soya and sunflower products Manufacturing and marketing of agricultural chemical products Insurance broker administration Insurance brokerage John Deere agency in Australia Trade in liquid fuels F-205

338 APPENDIX B INTERESTS IN UNLISTED JOINT VENTURES For the year ended 31 March 2015 Year ended 31 March 2015 Incorporated in Year-end % The significant joint ventures are: Afgritech Limited... A United Kingdom August 50 GroCat BV... B Netherlands March GroCat Proprietary Limited... C South Africa March Hinterland Proprietary Limited... D South Africa April 50 Silverton Farm to Fork Proprietary Limited*... E South Africa March 50 Silverton Food Hub Proprietary Limited*... F South Africa March 33 Silocerts Proprietary Limited... G South Africa February 50 African Petroleum Storage Solutions Limited... H Mauritius March 50 Collateral Management International Zimbabwe Private Limited... I Zimbabwe December 40 * Disclosed as held-for-sale as a result of the Poultry transaction (refer note 32). A R&D on animal feeds and an investment holding company of soya and canola processing plant in the US focusing on extraction technology B Trade in liquid fuels C Trade in hard commodity fuels D Retail business for farming primary inputs E Retail of fresh farm produce F Property holding company for Silverton Farm to Fork Proprietary Limited G Administration of silo certificates H Leasing of liquid fuel storage tanks in Mozambique I Collateral management services F-206

339 APPENDIX C Interest in unlisted associates For the year ended 31 March 2015 Interest in associates Shares Loans Nature Number of shares of Country of 2015 % USD 000 USD 000 business Year-end incorporation Silocerts Proprietary Limited... A February South Africa Ronin Grain Management Proprietary Limited... 10,000 49, B February South Africa LTP Holdings Proprietary Limited... 8,650 43,3 3,137 C February South Africa Mkhuzangwe Agriculture Proprietary Limited... D March South Africa Chesa Wheels Proprietary Limited ,0 578 E March South Africa Molemi Sele Management Proprietary Limited... 3,490 34,9 83 F April South Africa Book value... 3, Fair value... 3, A Administration of silo certificates B Silo information management C Buyer and primary processor of tobacco D Timber farming activities E Trade in coal beneficiated products F Credit life cell captive management company F-207

340 JOSEPH INVESTMENT HOLDINGS CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE PERIOD FROM 01 APRIL 2016 TO 30 SEPTEMBER 2016 F-208

341 CONTENTS Pages COMPANY INFORMATION... F-210 DIRECTORS REPORT... F-211 CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME... F-212 CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION... F-213 CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY... F-214 CONDENSED INTERIM STATEMENT OF CASH FLOWS... F-215 NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS... F-216 F-218 F-209

342 COMPANY INFORMATION Date of Appointment DIRECTORS: Michael Shane Wilkerson 13 August 2013 Suzanne Gujadhur 17 December 2014 Krishnacoomari Bundhoo 17 December 2014 James Paul Bisenius 3 March 2016 REGISTERED OFFICE: ADMINISTRATOR & SECRETARY: AUDITOR: BANKERS: 5 th Floor, Ebène Esplanade 24 Cybercity, Ebène, Republic of Mauritius International Proximity Ebène Esplanade 24 Cybercity, Ebène, Republic of Mauritius PricewaterhouseCoopers 18 CyberCity Ebène, Réduit Republic of Mauritius Barclays Bank (Mauritius) Limited 3 rd Floor, Barclays House, 68-68A Cybercity, Ebène Republic of Mauritius F-210

343 DIRECTORS REPORT The directors present their report and the condensed interim financial statements of Joseph Investment Holdings (the Company ) for the period from 01 April 2016 to 30 September Principal Activity The principal activity of the Company is to act as an investment holding company. Results and Dividends The Company s profit for the 3-months period ended 30 September 2016 is USD 323,983 (2015: Loss of USD 8,560,217). As at 30 September 2016, the Company s liabilities exceeded its assets by USD 20,244,525 (31 March 2016: USD 21,139,826). The directors do not recommend the payment of a dividend (2015: Nil). Statement of Directors Responsibilities in Respect of the Condensed Interim Financial Statements In preparing the condensed interim financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors have confirmed that they have complied with the above requirements in preparing the condensed interim financial statements. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. By Order of the Board 21DEC COMPANY SECRETARY Date: 09 December 2016 F-211

344 JOSEPH INVESTMENT HOLDINGS CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME For the period ended 30 September 2016 Unaudited Unaudited Unaudited Unaudited Quarter ended Quarter ended 6 months ended 6 months ended 30 September 30 September 30 September 30 September USD USD USD USD INCOME Interest income... 1,620, ,581 3,477,191 Foreign exchange gains , , ,950 1,620, ,823 3,477,191 EXPENSES Foreign exchange losses... (9,651,330) (9,963,979) Interest expense... (518,811) (1,025,267) Audit fees... (1,875) (1,295) (3,750) (3,265) Administrative expenses... (50) (1,050) (100) (9,031) Accounting and tax fees... (1,100) (1,075) (2,200) (1,275) Legal and professional fees... (4,340) (5,340) (4,700) Licence fees... (531) (531) (1,061) (625) Bank charges... (217) (420) (217) (868) Total expenses... (8,113) (10,174,512) (12,668) (11,009,010) PROFIT/(LOSS) BEFORE INCOME TAX ,837 (8,554,470) 949,155 (7,531,819) Income tax expense... (53,854) (5,747) (53,854) (5,747) PROFIT/(LOSS) FOR THE PERIOD ,983 (8,560,217) 895,301 (7,537,766) Other comprehensive income TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ,983 (8,560,217) 895,301 (7,537,766) The notes set out on pages F-216 to F-218 are an integral part of these financial statements. F-212

345 JOSEPH INVESTMENT HOLDINGS CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION As at 30 September 2016 Unaudited Audited 30 September 31 March Notes USD USD ASSETS Non-current assets Investment in subsidiary ,854, ,060 Total non-current assets... 64,854, ,060 Current assets Loans to subsidiary ,202,215 Interest receivable ,491,028 2,972,949 Prepayments... 5,131 1,969 Cash at bank , ,029 Total current assets... 3,934,105 67,714,162 Total assets... 68,788,124 67,922,222 EQUITY Capital and reserves Stated capital , ,930 Revenue deficit... (20,466,455) (21,361,756) Total equity... (20,244,525) (21,139,826) LIABILITIES Current liabilities Accrued interest , ,842 Accruals and other creditors... 17,150 11,201 Tax payable... 26,927 62,275 Loan from shareholder ,579,730 88,579,730 Total current liabilities... 89,032,649 89,062,048 Total equity and liabilities... 68,788,124 67,922,222 Authorised for issue by the Board of directors on 09 December 2016 and signed on its behalf by: 21DEC Krishnacoomari Bundhoo Director 21DEC H. Suzanne Gujadhur Director The notes set out on pages F-216 to F-218 are an integral part of these financial statements. F-213

346 JOSEPH INVESTMENT HOLDINGS CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY For the period ended 30 September 2016 Stated Revenue Total capital deficit equity USD USD USD At 1 April ,930 (10,363,801) (10,141,871) Total Comprehensive income Loss for the period... (7,537,566) (7,537,566) At 30 September ,930 (17,901,367) (17,679,437) At 1 April ,930 (21,361,756) (21,139,826) Total Comprehensive income Profit for the period , ,301 At 30 September ,930 (20,466,455) (20,244,525) The notes set out on pages F-216 to F-218 are an integral part of these financial statements. F-214

347 JOSEPH INVESTMENT HOLDINGS CONDENSED INTERIM STATEMENT OF CASH FLOWS For the period ended 30 September 2016 Unaudited Unaudited 6 months ended 6 months ended 30 September 30 September USD USD Cash flows from operating activities Profit/(loss) before income tax ,155 (7,531,819) Adjusted for: Unrealised foreign exchange (gains)/losses... (850,242) 9,833,752 Interest income... (111,581) (3,477,191) Interest expense... 1,025,267 (12,668) (149,991) Increase/(decrease) in accruals and other creditors... 5,949 (3,760) (Increase)/decrease in prepayments... (3,162) 2,675 Cash used in operations... (9,881) (151,076) Tax paid... (89,202) (28,738) Net cash used in operating activities... (99,083) (179,814) Cash flows from financing activities Interest received... 3,851,400 Interest paid... (3,815,796) Loans from shareholder... 4,146,041 Loans repayment... (4,051,428) Net cash generated from financing activities ,217 Net decrease in cash and cash equivalents... (99,083) (49,597) Cash and cash equivalents at beginning of period , ,138 Cash and cash equivalents at end of period , ,541 The notes set out on pages F-216 to F-218 are an integral part of these financial statements. F-215

348 JOSEPH INVESTMENT HOLDINGS NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the period ended 30 September GENERAL INFORMATION Joseph Investment Holdings is a private company limited by shares, incorporated and domiciled in the Republic of Mauritius. The Company holds a Category 1 Global Business Licence under the Financial Services Act 2007, and is regulated by the Financial Services Commission. The Company s registered office is at 5 th Floor, Ebène Esplanade, 24 Cybercity, Ebène, Mauritius. During the period ended 30 September 2016, the Company entered into a share subscription agreement with its subsidiary AFGRI Holdings Proprietary Limited whereas the loan to subsidiary of USD 64,202,215 has been converted into 944,671,395 Class A shares of ZAR 1 each in the capital of the latter. The class A shares were issued to the Company on 1 July Other than the above, there were no material events which occurred during the period. These condensed interim financial statements were authorised for issue by the Directors on 09 December BASIS OF PREPARATION AND ACCOUNTING POLICIES These condensed interim financial statements for the three months ended 30 September 2016 have been prepared in accordance with and complies with International Accounting Standard las 34, Interim Financial Reporting. These condensed interim financial statements should be read in conjunction with the audited financial statements for the year ended 31 March The principal accounting policies applied in the preparation of these condensed interim financial statements are the same as those applied in the preparation of the previous year s audited financial statements. 3 INVESTMENT IN SUBSIDIARY 30 September 31 March USD USD Investment in subsidiary Opening balance , ,060 Transfer from loans to subsidiary... 64,645,959 Closing balance... 64,854, ,060 % Holding % Holding Name of Country of Types of Number of 30 September 31 March company incorporation shares shares AFGRI Holdings Proprietary Limited ( AHL ).. South Africa Equity share 222,029,781 60% 60% (Formerly known as AgriGroupe Holdings Proprietary Limited)... Class A Shares 944,671,395 60% 4 LOANS TO SUBSIDIARY 30 September 31 March USD USD AHL Opening balance... 64,202,215 81,858,288 Increase in loan principal ,612 Loan repayment... (4,146,041) Effects of exchange rate ,744 (13,696,644) Transfer to investment in subsidiary... (64,645,959) Closing balance... 64,202,215 The loan to subsidiary is denominated, calculated and paid in South African Rand. Interest shall accrue in respect of the loan amount at the South African prime lending rate per annum. The loan has no specific repayment terms. Interest receivable relating to the above loans amounts to USD 3,491,028 at 30 September 2016 (31 March 2016: USD 2,972,949). F-216

349 JOSEPH INVESTMENT HOLDINGS NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (Continued) For the period ended 30 September LOAN FROM SHAREHOLDER 30 September 31 March USD USD Principal amount Opening balance... 88,579,730 92,631,158 Loan repaid... (4,051,428) Closing balance... 88,579,730 88,579, September 31 March USD USD Interest amount Opening balance ,842 3,618,009 Interest charge during the period/year... 2,934,913 Interest repayment... (6,144,080) Closing balance , ,842 During the year ended 31 March 2015 interest was charged as follows: Interest is accrued in respect of the loan at the greater of: (1) US Dollar one month LIBOR per annum, or (2) the amount of interest payable by the subsidiary to the Company with respect the Company s Initial Shareholder Loan plus/(less) any gains/(losses) actually realized by the Company upon translating the proceeds of cash distributions made by the Subsidiary to the Company relating to the Initial Shareholders Loan from South African Rand into US dollars. Effective 1 April 2015, following an amendment to the Shareholder s loan agreement, interest is computed at US Dollar one month LIBOR per annum. Effective 1 April 2016, following a second amendment to the Shareholder s loan agreement, no interest is being charged on the loan amount. Any amounts outstanding in terms of the Loan Amount shall be repayable by the Company upon the receipt of a Payment Demand. 6 RELATED PARTY DISCLOSURES During the period ended 30 September 2016, the Company traded with its related parties. 6.1 Parent Entity The parent entity of the company is AgriGroupe Investments LP which at 31 March 2016 holds 91% of the issued capital of Joseph Investment Holdings. The parent entity is domiciled at Campbells Corporate Services Limited, P.O Box 268, Floor 4 Willow House, Cricket Square, Grand Cayman, KY1-1104, Cayman Islands. 6.2 Subsidiary The subsidiary of the company is AFGRI Holdings Pty Ltd. AFGRI Holdings Pty Ltd operates as the investment entity for AFGRI Proprietary Limited, which performs operations within the agricultural industry. The entity is domiciled at 12 Byls Bridge Boulevard, Centurion, 0046, South Africa. F-217

350 JOSEPH INVESTMENT HOLDINGS NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (Continued) For the period ended 30 September RELATED PARTY DISCLOSURES (Continued) 6.3 Transactions with related parties (a) Loans advanced to subsidiary 30 September 31 March USD USD AFGRI Holdings Proprietary Limited ( AHL ) Opening balance... 64,202,215 81,858,288 Transfer from loan interest ,612 Loan repayment... (4,146,041) Effects of exchange rate ,744 (13,696,644) Transfer to investment in subsidiary... (64,645,959) Closing balance... 64,202,215 (b) Interest on loan advanced to subsidiary 30 September 31 March USD USD AFGRI Holdings Proprietary Limited ( AHL ) Opening balance... 2,972,949 3,851,400 Interest during the period/year ,581 6,567,960 Interest repayment... (7,332,288) Transfer to loan principal... (186,612) Effects of exchange rate ,498 72,489 Closing balance... 3,491,028 2,972,949 (c) Loan from shareholder Opening balance... 88,579,730 92,631,158 Loan repaid... (4,051,428) Closing balance... 88,579,730 88,579,730 Current portion... 88,579,730 88,579,730 (d) Interest on loan from shareholder 30 September 31 March USD USD Opening balance ,842 3,618,009 Interest during the period/year... 2,934,913 Interest repayment... (6,144,080) Closing balance , ,842 7 GOING CONCERN As at 30 September 2016, the Company s total liabilities exceeded its total assets by USD 20,244,525. The Company s directors have made an assessment of the Company s ability to continue as a going concern. The directors are satisfied that the Company s parent has confirmed its intention to provide financial support to the Company so as to enable it to meet its liabilities as they fall due. The directors therefore believe that it is appropriate for the financial statements to be prepared on the going concern basis. 8 EVENT AFTER THE REPORTING PERIOD There were no material events after the reporting period which would require disclosure or adjustment to the condensed interim financial statements for the period ended 30 September F-218

351 JOSEPH INVESTMENT HOLDINGS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2016 F-219

352 CONTENTS Pages COMPANY INFORMATION... F-221 DIRECTORS REPORT... F-222 SECRETARY S REPORT... F-223 INDEPENDENT AUDITOR S REPORT... F-224 F-225 STATEMENT OF COMPREHENSIVE INCOME... F-226 STATEMENT OF FINANCIAL POSITION... F-227 STATEMENT OF CHANGES IN EQUITY... F-228 STATEMENT OF CASH FLOWS... F-229 NOTES TO THE FINANCIAL STATEMENTS... F-230 F-239 F-220

353 COMPANY INFORMATION Date of Appointment Date of Resignation DIRECTORS: Neil Walter Holzapfel 13 August December 2015 Michael Shane Wilkerson 13 August 2013 Suzanne Gujadhur 17 December 2014 Krishnacoomari Bundhoo 17 December 2014 James Paul Bisenius 3 March 2016 REGISTERED OFFICE: ADMINISTRATOR & SECRETARY: AUDITOR: BANKERS: 5 th Floor, Ebène Esplanade 24 Cybercity, Ebène, Republic of Mauritius International Proximity Ebène Esplanade 24 Cybercity, Ebène, Republic of Mauritius PricewaterhouseCoopers 18 CyberCity Ebène, Réduit Republic of Mauritius Barclays Bank (Mauritius) Limited 3 rd Floor, Barclays House, 68-68A Cybercity, Ebène Republic of Mauritius F-221

354 DIRECTORS REPORT The directors present their report and the audited financial statements of Joseph Investment Holdings (the Company ) for the year ended 31 March Principal Activity The principal activity of the Company is to act as an investment holding company. Results and Dividends The Company s loss for the year ended 31 March 2016 is USD 10,997,955 (2015: USD 12,214,127). As at 31 March 2016, the Company s liabilities exceeded its assets by USD 21,139,826 (2015: USD 10,141,871). The directors do not recommend the payment of a dividend (2015: Nil). Statement of Directors Responsibilities in Respect of the Financial Statements Company law requires the directors to prepare financial statements for each financial year, which present fairly the financial position, financial performance and cash flows of the Company. In preparing those financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors have confirmed that they have complied with the above requirements in preparing the financial statements. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Mauritian Companies Act They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Auditor The auditor, PricewaterhouseCoopers, has indicated its willingness to continue in office. By Order of the Board 21DEC COMPANY SECRETARY Date: 10 November 2016 F-222

355 SECRETARY S REPORT Joseph Investment Holdings under Section 166(d) of the Mauritian Companies Act 2001 We confirm that, based on records and information made available to us by the directors and members of the Company, the Company has filed with the Registrar of Companies, for the year ended 31 March 2016, all such returns as are required of the Company under the Mauritius Companies Act DEC International Proximity COMPANY SECRETARY Date: F-223

356 19JAN INDEPENDENT AUDITOR S REPORT To the Shareholders of Joseph Investment Holdings Report on the Financial Statements We have audited the financial statements of Joseph Investment Holdings (the Company ) on pages F-216 to F-229 which comprise the statement of financial position of the Company standing alone as at 31 March 2016 and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Directors Responsibility for the Financial Statements The Company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as modified by the exemption from consolidation in the Mauritian Companies Act 2001 for companies holding a Category 1 Global Business Licence and in compliance with the requirements of the Mauritian Companies Act 2001, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements on pages F-216 to F-229 give a true and fair view of the financial position of the Company standing alone as at 31 March 2016, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as modified by the exemption from consolidation in the Mauritian Companies Act 2001 for companies holding a Category 1 Global Business Licence and comply with the Mauritian Companies Act Report on Other Legal and Regulatory Requirements The Mauritian Companies Act 2001 requires that in carrying out our audit we consider and report to you on the following matters. We confirm that: (a) we have no relationship with or interests in the Company or its subsidiary other than in our capacity as auditor of the Company; (b) we have obtained all the information and explanations we have required; and F-224

357 (c) in our opinion, proper accounting records have been kept by the Company as far as appears from our examination of those records. Other Matter This report, including the opinion, has been prepared for and only for the Company s shareholders, as a body, in accordance with Section 205 of the Mauritian Companies Act 2001 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. PricewaterhouseCoopers 10 November DEC DEC Lindsay Levehang, Licensed by FRC PricewaterhouseCoopers, 18 CyberCity, Ebène, Réduit 72201, Republic of Mauritius T: , F: /89, Business Registration Number: F PricewaterhouseCoopers is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. F-225

358 JOSEPH INVESTMENT HOLDINGS STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 March 2016 Note USD USD INCOME Interest income... 6,567,960 8,440,504 EXPENSES Foreign exchange losses... (14,506,986) (12,955,296) Interest expense... (2,934,913) (7,448,552) Audit fees... (13,603) (4,500) Administrative expenses... (13,488) (1,725) Accounting and tax fees... (7,641) (46,545) Legal and professional fees... (4,700) (170,735) Licence fees... (1,838) (94) Bank charges... (1,523) (1,995) Total expenses... (17,484,692) (20,629,442) LOSS BEFORE INCOME TAX... (10,916,732) (12,188,938) Income tax expense... 4 (81,223) (25,189) LOSS FOR THE YEAR... (10,997,955) (12,214,127) Other comprehensive income TOTAL COMPREHENSIVE INCOME FOR THE YEAR... (10,997,955) (12,214,127) The notes set out on pages F-230 to F-239 are an integral part of these financial statements. F-226

359 JOSEPH INVESTMENT HOLDINGS STATEMENT OF FINANCIAL POSITION As at 31 March 2016 Notes USD USD ASSETS Non-current assets Loans to subsidiary ,858,288 Investment in subsidiary , ,060 Total non-current assets ,060 82,066,348 Current assets Loans to subsidiary ,202,215 Interest receivable ,972,949 3,851,400 Prepayments... 1,969 7,806 Cash at bank , ,138 Total current assets... 67,714,162 4,155,344 Total assets... 67,922,222 86,221,692 EQUITY Capital and reserves Stated capital , ,930 Revenue deficit... (21,361,756) (10,363,801) Total equity... (21,139,826) (10,141,871) LIABILITIES Current liabilities Accrued interest ,842 3,618,009 Accruals and other creditors... 11,201 91,405 Tax payable ,275 22,991 Loan from shareholder ,579,730 92,631,158 Total current liabilities... 89,062,048 96,363,563 Total equity and liabilities... 67,922,222 86,221,692 Authorised for issue by the Board of directors on 10 November 2016 and signed on its behalf by: 21DEC Krishnacoomari Bundhoo Director 21DEC H. Suzanne Gujadhur Director The notes set out on pages F-230 to F-239 are an integral part of these financial statements. F-227

360 JOSEPH INVESTMENT HOLDINGS STATEMENT OF CHANGES IN EQUITY For the year ended 31 March 2016 Retained Stated earnings/ Total capital (revenue deficit) equity USD USD USD At 1 April ,930 1,850,326 2,072,256 Total Comprehensive income Loss for the year... (12,214,127) (12,214,127) At 31 March ,930 (10,363,801) (10,141,871) Total Comprehensive income Loss for the year... (10,997,955) (10,997,955) At 31 March ,930 (21,361,756) (21,139,826) The notes set out on pages F-230 to F-239 are an integral part of these financial statements. F-228

361 JOSEPH INVESTMENT HOLDINGS STATEMENT OF CASH FLOWS For the year ended 31 March USD USD Cash flows from operating activities Loss before income tax... (10,916,732) (12,188,938) Adjusted for: Unrealised foreign exchange losses... 13,624,155 12,189,491 Interest income... (6,567,960) (8,440,504) Interest expense... 2,934,913 7,448,552 (925,624) (991,399) (Decrease)/increase in accruals and other creditors... (80,204) 91,405 Decrease/(increase) in prepayments... 5,837 (7,806) Cash used in operations... (999,991) (907,800) Tax paid... (41,939) (2,198) Net cash used in operating activities... (1,041,930) (909,998) Cash flows from investing activities Loan repayment received... 4,146,041 15,439,776 Net cash generated from investing activities... 4,146,041 15,439,776 Cash flows from financing activities Interest received... 7,332,288 4,901,430 Interest paid... (6,144,080) (3,843,920) Loans from shareholder... Loans repayment... (4,051,428) (25,822,846) Issuance of shares... Net cash used in financing activities... (2,863,220) (24,765,336) Net increase/(decrease) in cash and cash equivalents ,891 (10,235,558) Cash and cash equivalents at beginning of year ,138 10,531,696 Cash and cash equivalents at end of year , ,138 The notes set out on pages F-230 to F-239 are an integral part of these financial statements. F-229

362 JOSEPH INVESTMENT HOLDINGS NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards as modified by the exemption from consolidation in the Mauritian Companies Act 2001 for companies holding a Category 1 Global Business Licence ( Modified IFRS ). They have been prepared under the historical cost convention. The preparation of financial statements in conformity with Modified IFRS requires the use of certain critical accounting estimates. It also requires the directors to exercise their judgements in the process of applying the Company s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where critical estimates and assumptions are significant to the financial statements are disclosed in Note 2. Changes in accounting policy and disclosures (a) Standards and amendments to existing standards effective 01 April 2015 The following standard has been adopted by the Company for the first time for the financial year beginning on 01 April 2015 and has an impact on the Company: IAS 24, Related Party Disclosures the amendment to the standard is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. The amendment has been applied in preparation of these financial statements and additional disclosures have been included as required. Other standards, amendments and interpretations which are effective for the financial year beginning on 01 April 2015 are not significant to the Company. (b) New standards, amendments and interpretations effective after 01 April 2015 and have not been early adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 01 April 2015, and have not been applied in preparing these financial statements. None of these are expected to have a material effect on the financial statements of the Company, except the following: IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income (OCI) and fair value through profit or loss. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in OCI, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 01 January Early adoption is permitted. The Directors have yet to assess the impact of these changes on the Company s financial statements. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company. F-230

363 JOSEPH INVESTMENT HOLDINGS NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 31 March SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The financial statements are presented in United States dollar ( USD ), which is also considered by the directors to be the Company s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where the items are re-measured. Foreign exchange differences 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 profit or loss. Financial assets Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, available-for-sale investments, held-to-maturity investments or loans and receivables. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way purchases) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset. The Company s financial assets include loans to subsidiary, interest receivable and cash at bank. The Company determines the classification of its financial assets on initial recognition and, where allowed and appropriate, re-evaluates the designation at each financial year end. Loans and receivables 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 reporting period. These are classified as non-current assets. Loans and receivables are initially recognised at fair value plus transaction costs. Subsequently, it is carried at amortised cost using the effective interest method. The Company assesses at the end of the reporting period whether there is objective evidence that the loan and receivables is impaired. If any such evidence exists, the Company should determine the amount of the impairment loss. The amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the loan and receivables is reduced and the amount of the impairment loss is recognised in the statement of comprehensive income. If in a subsequent period, the amount of the impairment losses decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the statement of comprehensive income. Impairment of financial assets The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. F-231

364 JOSEPH INVESTMENT HOLDINGS NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 31 March SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial liabilities Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition. Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the profit or loss when the liabilities are derecognised as well as through the amortisation process. The Company s financial liabilities consist of loan from shareholder, accrued interest and accruals and other creditors. Derecognition of financial instruments Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: the rights to receive cash flows from the asset have expired; or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its rights to receive cash flows from an assets (or has entered into a pass-through agreement), and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company s continuing involvement in the asset. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Cash and cash equivalents Cash and cash equivalents comprise cash at bank. Cash equivalents are short-term, highly liquid investments with original maturities of three months or less. Related parties A party is considered to be related to the Company when: (i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Fund or exercise significant influence over the Company in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence; (ii) the party is an associate of the Company; (iii) the party is a member of the key management personnel of the Company or its parent; (iv) the party is a close member of the family of any individual referred to in (i) or (iii). Current and deferred income tax The tax expense for the year comprises current and deferred income tax. F-232

365 JOSEPH INVESTMENT HOLDINGS NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 31 March SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. The directors periodically evaluate positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretations and establish provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects either accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Revenue recognition Dividend income is recognised when the right to receive payment is established. Interest income is recognised using the effective interest method. Investment in subsidiary Subsidiaries are all entities (including structured entities) over which the Company has control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Investment in subsidiary is shown at cost in the Company s financial statements. Where an indication of impairment exists, the recoverable amount of the investment is assessed. Where the recoverable amount of the investment is less than its carrying amount, it is written down immediately to its recoverable amount and the impairment loss is recognised as an expense in the statement of the comprehensive income. On disposal of the investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the statement of profit or loss and comprehensive income. Stated capital Ordinary shares are classified as equity. Shareholder s loan Shareholder s loan is recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the loan using the effective interest method. Accruals Accruals are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. F-233

366 JOSEPH INVESTMENT HOLDINGS NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 31 March CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below: Determination of functional currency The determination of the functional currency of the Company is critical since recording of transactions and exchange differences arising thereon are dependent on the functional currency selected. Items included in the financial statements of the Company s entities are measured using the currency of the primary economic environment in which the business operates (the functional currency). Receipts from operating activities are usually retained in USD. Funds from financing activities (i.e. issuing debt and equity instruments) are mainly generated in USD. USD most faithfully represents the economic effects of the underlying transactions, events and conditions of Joseph Investment Holdings. The directors have determined that the functional currency of the Company is USD. The financial statements are presented in USD, which is the Company s presentation currency. 3 FINANCIAL RISK MANAGEMENT The Company s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. This note presents information about the Company s exposure to each of the above risks, the Company s objectives, policies and processes for measuring and managing risk, and the Company s management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the Company s risk management framework. The Company s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company s activities. (a) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks: foreign exchange risk, price risk and interest rate risk. Foreign exchange risk Foreign exchange risk arises on financial instruments that are denominated in a foreign currency, that is, in a currency other than the functional currency in which they are measured. Foreign exchange risk, as defined in IFRS 7, arises as the value of recognised monetary assets and monetary liabilities denominated in other currencies fluctuate due to changes in foreign exchange rates. The Company is exposed to foreign exchange risk on its loan to subsidiary denominated in South African Rand. The maximum exposure to risk amounted to USD 64,202,215 (2015: USD 81,858,288). Had the South African Rand appreciated/depreciated by 5% vis-a-vis the USD, with all other variables held constant, the impact on profit before tax would be USD 3,358,758 (2015: USD 4,285,484). The Board has issued guidelines for investments in foreign countries. Country risk is monitored on a continuous basis. Monthly exposure reports are compiled, reviewed by management and reported to the Board on a quarterly basis. Price risk Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices other than those arising from interest rate risk or currency risk, whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Company is not exposed to price risk at 31 March F-234

367 JOSEPH INVESTMENT HOLDINGS NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 31 March FINANCIAL RISK MANAGEMENT (Continued) Interest rate risk Interest rate risk is the risk that the value of a financial instrument and/or cash flows will fluctuate due to changes in market interest rates. The Company has loans from shareholder and loans to subsidiary which are both interest bearing. The net exposure to interest rate risk is minimal. (b) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company mitigates its credit risk by banking with financial institutions with a high credit rating and by carrying out transactions mainly with related parties. The entity uses First Rand Bank Limited as financial institution. First Rand Bank Limited has a credit rating of BBB. The rating indicates that an expectation of default risk is currently low. The directors monitor the financial position and financial performance of the subsidiary on a regular basis to ensure that the Company s exposure to credit risk is sufficiently mitigated. (c) Liquidity risk Liquidity risk is the risk that the Company may not be able to settle or meet its financial obligations as they fall due. Prudent liquidity risk management includes maintaining sufficient cash. In addition, the Company manages liquidity risk by maintaining sufficient cash balances and through funding from its parent. All the financial liabilities of the Company are repayable within one year. The financial obligation of the Company comprises of accrued interest, accruals and other creditors, tax payable and loan from shareholder. As such, the risk is minimal since the Company is dealing mostly with related parties and the directors do not expect repayment to be made until the Company has sufficient liquidity. (d) Capital management There was no change in the capital structure of the Company during the year. The Company s objective is to safeguard its ability to continue as a going concern in order to provide returns to owners. Capital comprises equity. In order to maintain or adjust the capital structure, the Company may issue new shares or have recourse to its parent for funding or to sell its investment or return on capital to the shareholders. (e) Fair values The carrying amounts of the loan to subsidiary, interest receivable, cash at bank, loan from shareholder and accrued interest approximate their fair values. Financial Instruments by category Loans and Receivables USD USD Financial assets Cash and cash equivalents , ,138 Loans to subsidiary... 64,202,215 81,858,288 Interest receivable... 2,972,949 3,851,400 Total... 67,712,193 86,005,826 F-235

368 JOSEPH INVESTMENT HOLDINGS NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 31 March FINANCIAL RISK MANAGEMENT (Continued) Other Financial liabilities USD USD Financial liabilities Loan from shareholder... 88,579,730 92,631,158 Accrued interest ,842 3,618,009 Accruals and other creditors... 11,201 91,405 Total... 88,999,773 96,340,572 4 INCOME TAX The Company is subject to income tax in Mauritius on its chargeable income at 15%. However, the Company is entitled to a tax credit equivalent to the higher of the actual foreign tax suffered and 80% of the Mauritius tax on its foreign source income. The maximum tax payable in Mauritius is thus reduced to 3% of chargeable income. The reconciliation of the income tax expense and the product of accounting profit multiplied by applicable tax rate of 15% is as follows: USD USD Current tax Current year tax expense... 81,223 25,189 Loss before income tax... (10,916,732) (12,188,938) Tax calculated at 15%... (1,637,510) (1,828,341) Effect of: Expense not subject to tax... 2,043,623 1,943,294 Tax credit... (324,890) (91,962) Prior period tax expense paid during the year... 2,198 Income tax expense... 81,223 25, USD USD At 01 April... 22,991 Tax charge for the year... 81,223 25,189 Prior period tax expense paid during the year... (2,198) Tax paid... (41,939) Income tax payable... 62,275 22,991 5 INVESTMENT IN SUBSIDIARY USD USD Investment in subsidiary At 1 April and 31 March , ,060 Country of Types of Number of % Holding Name of company incorporation shares shares 2016 & 2015 AFGRI Holdings Proprietary Limited ( AHL ) (Formerly known as AgriGroupe Holdings Proprietary Limited)... South Africa Equity share 222,029,781 60% F-236

369 JOSEPH INVESTMENT HOLDINGS NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 31 March LOANS TO SUBSIDIARY USD USD AHL At 1 April... 81,858, ,029,419 Costs incurred on behalf the subsidiary ,916 Increase in loan principal ,612 Loan repayment... (4,146,041) (15,439,777) Effects of exchange rate... (13,696,644) (12,415,270) At 31 March... 64,202,215 81,858,288 Analysed in the statement of financial position as follows: USD USD Non-current portion... 81,858,288 Current portion... 64,202,215 64,202,215 81,858,288 The loan to subsidiary is denominated, calculated and paid in South African Rand. Interest shall accrue in respect of the loan amount at the South African prime lending rate per annum. The loan has no specific repayment terms. Interest receivable relating to the above loans amounts to USD 2,972,949 (2015: USD 3,851,400). 7 STATED CAPITAL Issued and fully paid: 2016 & & 2015 Number of USD shares Ordinary shares of USD each At 31 March ,029, ,930 8 LOAN FROM SHAREHOLDER Principal amount USD USD At 1 April... 92,631, ,770,163 Loan repaid... (4,051,428) (25,822,846) Other adjustments ,841 At 31 March... 88,579,730 92,631,158 Interest amount USD USD At 1 April... 3,618,009 13,377 Interest charge during the year... 2,934,913 7,448,552 Interest repayment... (6,144,080) (3,843,920) At 31 March ,842 3,618,009 F-237

370 JOSEPH INVESTMENT HOLDINGS NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 31 March LOAN FROM SHAREHOLDER (Continued) During the year ended 31 March 2015 interest was charged as follows: Interest is accrued in respect of the loan at the greater of: (1) US Dollar one month LIBOR per annum, or (2) the amount of interest payable by the subsidiary to the Company with respect the Company s Initial Shareholder Loan plus/(less) any gains/(losses) actually realized by the Company upon translating the proceeds of cash distributions made by the Subsidiary to the Company relating to the Initial Shareholders Loan from South African Rand into US dollars. Effective 1 April 2015, following an amendment to the Shareholder s loan agreement, interest is computed at US Dollar one month LIBOR per annum. Any amounts outstanding in terms of the Loan Amount shall be repayable by the Company upon the receipt of a Payment Demand. 9 RELATED PARTY DISCLOSURES During the year ended 31 March 2016, the Company traded with its related parties. 9.1 Parent Entity The parent entity of the company is AgriGroupe Investments LP which at 31 March 2016 holds 91% of the issued capital of Joseph Investment Holdings. The parent entity is domiciled at Mourant Ozannes Corporate Services Cayman Limited, 94 Solaris Avenue, Camana Bay, P.O Box 1348, Grand Cayman, KYl-1108, Cayman Islands. 9.2 Subsidiary The subsidiary of the company is AFGRI Holdings Pty Ltd. AFGRI Holdings Pty Ltd operates as the investment entity for AFGRI Proprietary Limited, which performs operations within the agricultural industry. The entity is domiciled at 12 Byls Bridge Boulevard, Centurion, 0046, South Africa. 9.3 Transactions with related parties (a) Loans advanced to subsidiary USD USD AFGRI Holdings Proprietary Limited ( AHL ) At 1 April... 81,858, ,029,419 Costs incurred on behalf the subsidiary ,916 Transfer from loan interest ,612 Loan repayment... (4,146,041) (15,439,777) Effects of exchange rate... (13,696,644) (12,415,270) At 31 March... 64,202,215 81,858,288 Non-current portion... 81,858,288 Current portion... 64,202,215 At 31 March... 64,202,215 81,858,288 F-238

371 JOSEPH INVESTMENT HOLDINGS NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 31 March RELATED PARTY DISCLOSURES (Continued) (b) Interest on loan advanced to subsidiary USD USD AFGRI Holdings Proprietary Limited ( AHL ) At 1 April... 3,851,400 86,621 Interest during the year... 6,567,960 8,440,504 Interest repayment... (7,332,288) (4,901,430) Transfer to loan principal... (186,612) Effects of exchange rate... 72, ,705 At 31 March... 2,972,949 3,851,400 (c) Loan from shareholder At 1 April... 92,631, ,770,163 Loan repaid... (4,051,428) (25,822,846) Other adjustments ,841 At 31 March... 88,579,730 92,631,158 Current portion... 88,579,730 92,631,158 At 31 March... 88,579,730 92,631,158 (d) Interest on loan from shareholder USD USD At 1 April... 3,618,009 13,377 Interest during the year... 2,934,913 7,448,552 Interest repayment... (6,144,080) (3,843,920) At 31 March ,842 3,618, GOING CONCERN The Company incurred a loss for the year ended 31 March 2016 of USD 10,997,955 (2015: USD 12,214,127) and as of that date its total liabilities exceeded its total assets by USD 21,139,826 (2015: USD 10,141,871). The Company s directors have made an assessment of the Company s ability to continue as a going concern. The directors are satisfied that the Company s parent has confirmed its intention to provide financial support to the Company so as to enable it to meet its liabilities as they fall due. The directors therefore believe that it is appropriate for the financial statements to be prepared on the going concern basis. 11 LEGAL STATUS Joseph Investment Holdings is a private company limited by shares, incorporated and domiciled in the Republic of Mauritius. The Company holds a Category 1 Global Business Licence under the Financial Services Act 2007, and is regulated by the Financial Services Commission. The Company s registered office is at 5 th Floor, Ebène Esplanade, 24 Cybercity, Ebène, Mauritius. 12 EVENT AFTER THE REPORTING PERIOD Subsequent to the year end, the Company entered into a share subscription agreement with its subsidiary AFGRI Holdings Proprietary Limited whereas the loan to subsidiary has been converted into 944,671,395 Class A shares of ZAR 1 each in the capital of the latter. The class A shares were issued to the Company on 1 July Other than from the above, there were no material events after the reporting period which would require disclosure or adjustment to the financial statements for the year ended 31 March F-239

372 JOSEPH INVESTMENT HOLDINGS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2015 F-240

373 CONTENTS Pages COMPANY INFORMATION... F-242 DIRECTORS REPORT... F-243 SECRETARY S REPORT... F-244 INDEPENDENT AUDITOR S REPORT... F-245 F-246 STATEMENT OF COMPREHENSIVE INCOME... F-247 STATEMENT OF FINANCIAL POSITION... F-248 STATEMENT OF CHANGES IN EQUITY... F-249 STATEMENT OF CASH FLOWS... F-250 NOTES TO THE FINANCIAL STATEMENTS... F-251 F-262 F-241

374 COMPANY INFORMATION Date of Appointment Date of Resignation DIRECTORS: Gawtam Gokool 13 August December 2014 Neil Walter Holzapfel 13 August 2013 Michael Shane Wilkerson 13 August 2013 Rehma Imrith 20 September July 2014 Riad Aubdool 17 July December 2014 Suzanne Gujadhur 17 December 2014 Krishnacoomari Bundhoo 17 December 2014 REGISTERED OFFICE: ADMINISTRATOR & SECRETARY: AUDITORS: BANKERS: 5 th Floor, Ebène Esplanade 24 Cybercity, Ebène, Republic of Mauritius International Proximity Ebène Esplanade 24 Cybercity, Ebène, Republic of Mauritius PricewaterhouseCoopers 18 CyberCity Ebène, Réduit Republic of Mauritius HSBC Bank (Mauritius) Limited 6 th Floor, HSBC Centre, 18 Cybercity, Ebène Republic of Mauritius F-242

375 DIRECTORS REPORT The directors present their report and the audited financial statements of Joseph Investment Holdings (the Company ) for the year ended 31 March Principal Activity The principal activity of the Company is to act as an investment holding company. Results and Dividends The Company s loss for the year ended 31 March 2015 is USD 12,214,127 (2014: Profit USD 1,850,326). As at 31 March 2015, the Company s liabilities exceeded its assets by USD 10,141,871. The directors do not recommend the payment of a dividend (2014: Nil). Statement of Directors Responsibilities in Respect of the Financial Statements Company law requires the directors to prepare financial statements for each financial year, which present fairly the financial position, financial performance and cash flows of the Company. In preparing those financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether International Financial Reporting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors have confirmed that they have complied with the above requirements in preparing the financial statements. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Mauritian Companies Act They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Auditor The auditor, PricewaterhouseCoopers, has indicated its willingness to continue in office. By Order of the Board 22DEC COMPANY SECRETARY Date: 14 September 2015 F-243

376 SECRETARY S REPORT Joseph Investment Holdings under Section 166(d) of the Mauritian Companies Act 2001 We confirm that, based on records and information made available to us by the directors and members of the Company, the Company has filed with the Registrar of Companies, for the year ended 31 March 2015, all such returns as are required of the Company under the Mauritius Companies Act DEC International Proximity COMPANY SECRETARY Date: 14 September 2015 F-244

377 19JAN INDEPENDENT AUDITOR S REPORT To the Shareholders of Joseph Investment Holdings Report on the Financial Statements We have audited the financial statements of Joseph Investment Holdings (the Company ) on pages F-237 to F-252 which comprise the statement of financial position at 31 March 2015 and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors Responsibility for the Financial Statements The Company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as modified by the exemption from consolidation in the Mauritian Companies Act 2001 for Companies holding a Category 1 Global Business Licence, and in compliance with the requirements of the Mauritian Companies Act 2001, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements on pages F-237 to F-252 give a true and fair view of the financial position of the Company at 31 March 2015 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as modified by the exemption from consolidation in the Mauritian Companies Act 2001 for Companies holding a Category 1 Global Business Licence, and comply with the Mauritian Companies Act Report on Other Legal and Regulatory Requirements The Mauritian Companies Act 2001 requires that in carrying out our audit we consider and report to you on the following matters. We confirm that: (a) we have no relationship with or interests in the Company other than in our capacity as auditor; (b) we have obtained all the information and explanations we have required; and F-245