SARONA RISK CAPITAL FUND

Transcription

SARONA RISK CAPITAL FUND
QUARTERLY INVESTMENT REPORT - Q2 2016
DATA AS OF 31 MARCH 2016
SARONA RISK CAPITAL FUND - Q2 2016
MANILA, THE PHILIPPINES
The Sarona Risk Capital Fund
The Sarona Risk Capital Fund (“SRCF“) is an account that Sarona advises, monitors and
administers on behalf of Mennonite Economic Development Associates (MEDA).
MEDA is a non-profit, economic development institution, which aims to create business
solutions to poverty. The objective of SRCF is to support MEDA’s mission by investing
in promising companies and private funds that benefit poor communities while having
a high likelihood of financial success. SRCF’s primary focus is on investing early stage
[2]
growth capital in small to mid-market companies situated within Frontier and Emerging
Markets. In addition to these direct investments, SRCF includes a diversified portfolio
of externally managed private funds as well as a liquidity portfolio of companies and
funds that target the same small to mid-market segment. With the exception of the
liquidity portfolio, all investments in SRCF are directly aligned with MEDA’s economic
development programmes.
Table of contents
Welcome message from Sarona Asset Management CEO
4
Frontier and Emerging Markets monitor
5
Overview
6
Long term portfolio investment profiles
10
Appendix
[3]
Impact
42
Financial statements
45
Confidentiality statement and disclaimers
46
Welcome message from Sarona Asset Management CEO
Dear MEDA Colleagues,
We are very pleased to bring you this report, our quarterly look into MEDA’s investment
portfolio around the world.
Reading the portfolio highlights on page six, you’ll notice that MEDA, with the support of
Sarona Asset Management, has been disbursing new loans and investing in new equity
transactions with the goal of achieving both financial and developmental targets. Most of
that recent activity has taken place in Sub-Saharan Africa, while one transaction occurred
in Romania.
You’ll see that two of the direct equity investments have experienced reductions in their
fair market values in the quarter. Zoona, a mobile payments company based in Zambia,
has suffered from the fall in global commodities prices, which has significantly hurt the
economy of its home country. Donovan Nickel has spent considerable effort over the
past few years helping the company bridge some of its operational challenges. And while
its stellar growth has been dented, the company continues to expand and provide a
valuable service. We are hopeful that its financial value will also continue to climb in the
long run. The other equity investment that took a value hit this quarter was IMON, an
MFI in Tajikistan that MEDA has helped build from a fledgling state into a major national
bank. The company is struggling to contain a rise in loan defaults, and we are hopeful
that it will be able to do so.
The most significant change in the portfolio’s fair market value stems from the
investment in the Sarona Frontier Markets Fund 1 LP, the value of which was reduced by
over $500,000. This drop was not caused by any operational or investment challenges,
but rather due to a change in valuation methodology. It had previously been valued
according to the fund’s published LP unit price but, because of a restructuring of the
fund, that value is no longer published. As such, this quarterly report will now follow the
normal accounting value.
[ 4 ]
WELCOME MESSAGE FROM SARONA ASSET MANAGEMENT CEO
Overall, we believe that the portfolio is achieving MEDA’s financial targets. As of the end
of the quarter, its fair market value exceeds MEDA’s carrying value by almost $5 million.
It is doing so while investing in companies that have a positive developmental impact.
By combining these two values – financial and developmental – MEDA serves as a great
example of innovative development finance for today’s world.
We’d like to also alert you to Sarona’s recently-published annual values report, focusing
on Growth that Matters. It’s our annual deep dive into the social and environmental
impact of the various portfolios under our management. If you haven’t seen a copy,
please ask and we’d be glad to send it to you.
We trust that this report will provide a comprehensive understanding of MEDA’s
investment portfolio, but we encourage you to call us to discuss any questions you might
have.
Sincerely,
Gerhard Pries
CEO and Managing Partner
Sarona Asset Management
Frontier and Emerging Markets monitor
Courageous investors have long been interested in investing in developing countries. But
they have always been challenged to understand and organise their thoughts around the
great number and variety of economies one might focus on. Over 30 years ago, the term
Emerging Markets galvanised investors’ focus on those economies that were aspiring to
the strengths of developed markets. Then came the BRICs, four countries that were to
outperform the rest. That was followed, albeit briefly, by the MINTS, a new set of five
promising countries. And now we have the V12M – the Velocity 12 Markets that are
purported to be the future drivers of global growth.1
What one sees in this labelling practise is the impossibility of forecasting the future. Few
would have predicted 10 years ago, that Brazil would falter under the weight of corruption,
or that India would outpace China in GDP growth. Few would have predicted that oil
would drop so precipitously, to the benefit of India and harm of Nigeria. Yet investors
cling to news and opinions, so both the announcement of a new set of emerging market
darlings, or the inevitable news of faltering economies, sends capital sloshing in and out
of those countries’ public markets. And that drives stock market returns up and down.
Public markets certainly offer the benefit of some liquidity, but not without the torment
of volatility. The private markets, where Sarona invests, provide neither. But historically,
they have delivered greater returns. Cambridge Associates found that, in USD terms,
over a horizon of 10, 15 and 20 years to 2015, their EM PE index has outperformed the
MSCI EM public market index by 660 bps, 160 bps, and 390 bps respectively. 2
EMPEA, in a recently published report, suggests that investors have responded to the
private equity opportunity with enthusiasm, investing an average of $39bn into EM PE
in each of the last five years. Most of that has been invested in growth equity – capital
intended to grow strong companies – as opposed to venture capital or buyout. And, of
investors surveyed, 40% expected to increase their EM PE allocation over the next two
years. 3
Besides liquidity, volatility and returns, private equity differentiates itself from public
equity in yet another regard: it more closely resembles the real economy of a country.
In Peru for example, 75% of stock market capitalisation comprises mining and financial
services companies, yet those sectors contribute only 16% of the country’s GDP. Largely
missing are consumer goods and services, sectors that are large, growing and of
particular interest to private equity. And in many emerging markets a high percentage
(often over 50%) of public market capitalisation is focused on just 10 or fewer companies.
And therein lies the greatest opportunity of private equity: to invest in the real economy
– the private companies that respond to the growing demand of the emerging middle
class, companies that have growth potential even as the national economy and its public
markets swing up and down.
[ 5 ]
FRONTIER AND EMERGING MARKETS MONITOR
Verod Capital, our GP in Nigeria, reports strong growth in its two primary sectors of
investment (agribusiness and financial services) in spite of, and partly because of, the
country’s severe oil and currency crisis. Kandeo and Metier, our GPs in Colombia and S
Africa, also heavily commodity-dependent countries, report similar experiences. As noted
by Abraaj, another GP in Sarona’s portfolio, “Distinguishing between macroeconomic
activity at the national, regional, or global level and the actual microeconomic behavior
of specific companies is ultimately what drives value for investors.”
Private equity returns are, however, significantly affected by the FX fluctuations between
an investor’s home currency, and the currency of the portfolio company. And while the
USD softened against many currencies in the first half of 2016, last week’s Brexit vote
sent it shooting back up. We are hopeful that the USD will be tamed again soon, but it
will take some time for the markets to adjust to the uncertainty that Britain’s decision
has created. In its global survey of LPs investing in EM, EMPEA found that 75% felt that
FX risk was an important or very important factor in their investment considerations.
And in a survey of investors in Sarona Frontier Markets Fund 2, we were advised that
86% find FX risk to be of medium to high concern. Can this risk be mitigated in a costeffective manner? Classic hedging strategies are inadequate in this situation, so EMPEA
and Sarona have partnered to determine whether a new solution might be developed.
Stay tuned.
Investing in the private equities of the real economy offers lower liquidity than investing
in public markets, so moving from BRICs to MINTS to the V12M is not quickly done. But
if markets continue to rebalance risks and returns as they always have, then such private
equity investments ought also to deliver lower volatility, higher returns, and relatively low
correlation to the public markets.
The Velocity 12 Report, Ogilvy and Mather, 2016
Note: The V12M are those markets where consumer demand is forecast to grow strongly. As might be expected,
these are predominantly Asian countries; only two are in Latin America and one in sub-Saharan Africa. But the
economic focus (a shift from commodities to the consumption of an emerging middle class) resonates. That
same local consumer focus is at the heart of Sarona’s investment strategies.
2
Cambridge Associates, Sept 30 Global ex-US PE/VC Benchmark Commentary
3
EMPEA, 2016 Global Limited Partners Survey
1
Overview
As of 31 March 2016, SRCF includes 28 investments valued at $22.3mm according to IFRS accounting principles. The primary portfolio – invested according to MEDA’s core strategy
– includes loans and equity investments in companies, as well as investments in private equity funds. Liquidity is also invested in developing countries, to optimise yield, social and
environmental impact.
Recent portfolio activity highlights
»»In June 2015, the Sarona MEDA Investments Inc (SMI) board approved a $0.9mm convertible loan to Tree Global Limited, a global tree seedling company with operations in
Ghana. The first tranche of this MEDA loan of $344k was disbursed in January 2016 and the remaining tranches will be disbursed over the next 18 months. This loan is coupled
with a concessionary debt of $675k from Global Affairs Canada (GAC), of which $180k was disbursed in August 2015 and $495k was disbursed in October 2015.
»»In August 2015, a six-month bridge loan of $250k was disbursed to East Champion to finance the completion of the mushroom compost plant and to allow the company to submit
the final grant reimbursement request to the EU. This loan was fully repaid in January 2016.
»»In October 2015, MEDA disbursed $250k in compulsory convertible debt to Zoona to allow the company to finance its 2016 growth plans. MEDA exited its Series A bridge
financing in June 2016 to an existing investor for a 1.25x return on capital or 43% IRR in USD.
»»MEDA committed $1.75mm equity investment to BPI East Africa LLC (BPI EA), an SME lender in East Africa. The company drew $396k in March 2016 and will draw the remainder
of the capital over the next five years.
»»In December 2015, the SMI board approved a $250k investment in SEAF Single Vintage Flex Fund: 2015 with a focus on countries in the East African Community. An initial
drawdown is expected later this year.
»»The SMI board also approved a 12 month working capital loan of $100k to Mountain Lion Agriculture which was disbursed in January 2016. This loan was matched by the Horsch Foundation.
»»The SMI Board approved a $200k equity investment in the Lundin Lappset Fund, a fund focused on SMEs in the Lappset corridor in Kenya. This investment is expected to close
in the second half of 2016.
Financial highlights
Net financial revenues showed a loss of $649k for the nine months ending 31 March 2016. Donations of $538k to SRCF during this period were insufficient to offset the operating
losses resulting in an overall net loss of $839k. Quarterly unrealized losses of $466k were primarily due to a drop in value in IMON due to the quarterly net loss suffered by the
company as a result of increases in loan loss provisions. In addition, the fair market value of the SRCF portfolio dropped by 4.6% in the first quarter of 2016 driven, in part, by significant
reductions in the value of Zoona and IMON as a result of adverse foreign exchange movements and performance factors and SFMF1 which had a change in valuation method this quarter.
[ 6 ]
]
OVERVIEW
Portfolio overview
Data as of 31 March 2016
Date of investment
Long term portfolio
Direct equity
Alternative Insurance Company
BPI East Africa LLC
CODIPSA
IMON
MFX Solutions
MiCredito
MicroVest Capital Management
SFF (Fonkoze)
Zoona Transactions International
Total direct equity
Direct debt
ACM
Impact Assets
MiCredito
MicroVest Canada
Mountain Lion Agriculture
MV Capital Management (Employees)
Tree Global
Total direct debt
Funds
Access Africa Fund
MicroVest Plus
Sarona Frontier Markets Fund 1
Sarona Risk Capital Fund 1 LP
Treetops Capital Agribusiness Fund
WWB Capital Partners
Total fund investment
Total long term portfolio
Liquidity portfolio
Barak Fund
MicroVest Short Duration Fund
Total liquidity portfolio
Geographic focus
Sector
Maturity
Coupon
MEDA carrying value
FMV
1,000,000
396,255
1,409,212
2,026,708
104,315
1,548,072
294,827
23,169
730,211
7,532,769
1,574,532
396,255
1,459,916
2,026,708
107,944
1,571,005
1,872,058
156,377
2,726,094
11,890,890
370,000
500,000
30,000
1,227
600,000
80,003
269,500
365,097
2,215,827
370,000
505,000
30,000
3,831
751,329
80,003
269,833
391,706
2,401,702
Haiti
Africa
Paraguay
Tajikistan
Global
Nicaragua
Global
Global
Haiti
Zambia
Financial services
Microfinance
Agribusiness
Financial services
Derivative broker
Financial services
Financial services
Impact investment manager
Microfinance
Information technology
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity
1,000,000 1
396,255 2
646,353 2
1,609,467 2
104,315 2
848,000 2
196,960 2
(67,853) 2
200,000 1
730,211 1
5,663,708
2014
2011
2004
2004
2013
2013
2011
2016
Ukraine
Global
Nicaragua
Global
Sierra Leone
Global
Global
Ghana
Agriculture, finance
Donor advised funds
Financial services
Microfinance
Agriculture
Microfinance
Impact investment manager
Agriculture
Debt
Debt
Debt
Debt
Debt
Debt
Debt
Debt
370,000 1
500,000 1
30,000 1
7,130 1
600,000 1
80,003 1
269,500 1
365,097 1
2,221,730
2013
2012
2010
2013
2007
2014
2012
Africa
Global
Global Emerging Markets
Romania
Microfinance investment fund
Multi sector, Fund of Funds
Multi sector, Fund of Funds
Multi sector
Invest in growth-stage SMEs
Equity fund
Equity fund
Equity fund
Equity fund
Equity fund
Equity fund
Equity fund
800,000 2
227,268 2
3,376,241 2
600,000 2
14,879 2
1,000,000 2
890,095 1
6,908,483
378,802
200,825
2,985,758
541,747
58,874
890,732
890,095
5,946,833
378,801
200,825
2,985,759
541,747
54,830
890,731
1,085,480
6,138,173
14,793,921
15,695,429
20,430,765
1,000,000 2
500,000 2
1,500,000
1,292,444
529,414
1,821,858
1,292,444
529,414
1,821,858
$ 16,293,921
-
$ 17,517,287
$ 22,252,623
2013
2010
Africa
Global
MEDA member direct investments
1
Cost when investment is reported using the cost method for accounting purposes.
2
Cost less dividends when investment is reported using the equity method for accounting purposes.
OVERVIEW
MEDA net cost
2012
2016
1998
2008
2010
2012
2004
2011
2010
2011
Total portfolio
[ 7 ]
]
Type
Microfinance
Microfinance - urban/rural
Liquidity
Liquidity
Jun-17
Sep-61
Mar -21
May-15
Sep-18
Mar-17
Jul-26
May-21
4.0%
7.5%
12.0%
10.0%
$ 1,524,057
Portfolio performance
Data as of 31 March 2016
Committed
Long term portfolio
Direct equity
BPI East Africa LLC
CODIPSA
IMON
MFX Solutions
MiCredito
SFF (Fonkoze)
Direct debt
Agro Capital Management
Impact Assets
MiCredito
MicroVest Canada
MV Capital Management (Employees)
Tree Global
Funds
Access Africa Fund
MicroVest Plus
Sarona Risk Capital Fund 1 LP
800,000
41,333,000
91
22
800,000
1,000,000
378,801
Liquidity portfolio
Barak Fund
MicroVest Short Duration Fund
Overall portfolio
1
2
Represents Sarona Asset Managment’s estimate of FMV for the investment
IRR figures will be shown after the holding period exceeds three years
[ 8 ]]
OVERVIEW
Invested
Realised
Unrealised1
Total value
IRR
MOIC
1,000,000
396,255
1,102,553
1,694,311
104,315
848,000
543,441
1
200,000
730,211
107,350
84,844
346,481
81,812
-
1,574,532
396,255
1,459,916
2,026,708
107,944
1,571,005
1,872,058
156,377
2,726,094
1,574,532
396,255
1,567,267
2,111,552
107,944
1,571,005
2,218,539
238,189
2,726,094
12.2%
n/a
6.6%
6.0%
0.6%
18.8%
12.9%
n/a
n/a
40.0%
1.57
1.00
1.42
1.25
1.03
1.85
4.08
n/a
3.73
370,000
500,000
205,607
66,254
850,000
400,015
755,461
250,000
365,097
75,793
251,119
82,885
279,921
320,012
407,619
262,500
-
370,000
505,000
30,000
3,831
751,329
80,003
269,833
391,706
370,000
580,793
281,119
86,716
1,031,250
400,015
677,452
262,500
391,706
0.0%
4.0%
7.5%
10.6%
12.2%
0.0%
-3.3%
12.3%
53.4%
1.00
1.16
1.37
1.31
1.21
1.00
0.90
1.05
1.07
800,000
250,000
3,381,182
600,000
165,275
1,000,000
890,156
22,732
5,013
167,684
57,209
378,801
200,825
2,985,759
541,747
54,830
890,731
1,085,480
378,801
223,557
2,990,771
541,747
222,514
890,731
1,142,689
n/a2
-2.7%
-2.3%
n/a2
5.0%
n/a2
8.6%
0.47
0.89
0.88
0.90
1.35
0.89
1.28
1,000,000
2,980,000
2,584,285
1,292,445
529,415
1,292,445
3,113,699
11.2%
3.2%
1.29
1.04
6.06%
1.20
Portfolio IRR and MOIC (since managed by Sarona)
Portfolio diversification
SRCF maintains a broad allocation of investments in direct debt, direct equity, PE funds and debt funds to ensure diversification across companies, countries, sectors and vintages.
Currently, SRCF is exposed to 27 different investments. The single largest exposure is to Sarona Frontier Markets Fund 1 LP (SFMF1) at 21%. SFMF1 is a fund of funds focusing on
Frontier and Emerging Markets with broad diversification to over 100 companies, nearly 30 countries and multiple sectors.
SRCF’s single largest country exposure is to Tajikistan at 10%. However, by including SFMF1 and SFMF2, the overall number of countries in the SRCF portfolio increases to over 40.
This diversification is important for optimising risk-adjusted returns.
Exposure by investment (cost)
MicroVest Plus
1%
MV Capital
1%
MV Holding 3%
MVSDF 3%
MLA
4%
BPI Tree Global
2%
2%
Other
SFMF 2
6%
4%
Exposure by country (cost)
Ghana 2%
Zambia 4%
Sierra Leone 4%
SFMF1
21%
Paraguay 4%
Romania 6%
IMON
10%
Impact Assets
AIC
3%
6%
CODIPSA
Barak
4%
Fund
6%
5%
Treetops Capital
Agribusiness Fund Access Africa Fund MiCredito
6%
5%
5%
[ 9 ]
]
OVERVIEW
Ukraine 2%
Global 41%
Nicaragua 5%
Haiti 7%
Tajikistan 10%
Africa 13%
Long term portfolio investment profiles
Company profiles
11
BPI East Africa LLC
13
CODIPSA
14
IMON
16
Impact Assets
18
MiCredito
19
21
23
Tree Global
25
27
Fund profiles
[ 10 ]
Access Africa Fund
29
MicroVest Plus
31
33
35
37
39
Geographic focus
Sector
Haiti
Financial services
Website
aic.ht
Date of investment
2012
Investment instrument
Equity
Invested
$1,000
Realized
-
Unrealized value (FMV)
$1,575
MEDA carrying value
$1,000
IRR
12%
% of company held
6%
As % of MEDA carrying value
6%
Company description
Alternative Insurance Company (AIC) is one of the leading Haitian insurance players, offering
services to one third of the market. Insurance in Haiti has historically been the domain of
the upper middle class. AIC however offers, in addition to traditional insurance, simple and
affordable micro-insurance products designed for people within a lower income bracket.
Company review
AIC services over 150,000 insurance policies in Haiti. Many of these policies are held by
individuals from a lower income bracket. The company offers auto and home insurance,
commercial insurance, health and life insurance to individual, corporate and government
clients. In 2015, AIC began offering new savings and insurance products geared towards
the middle class in Haiti.
In 2013, AIC acquired a 20% stake in Banque Union Haitienne (BUH) in order to develop
its banc assurance model with the goal of increasing insurance client referrals to AIC. The
bank currently has ten branches, two of which opened in 2015.
[ 11 ]
INVESTMENT PROFILES: COMPANIES
Management team
The AIC team is led by Olivier Barrau, a Haitian insurance industry veteran. He is
supported by a team of eight managers, a board of seven members and a staff of over
100 that provide underwriting, sales and back office support to the business.
Investment performance
MEDA invested $1mm in AIC in April 2012 as part of an equity recapitalization process
following the devastating 2010 Haitian earthquake. Since inception, the investment has
grown 12% per year, representing a TVPI of 1.6x in USD. The company is valued based
on a multiple on net premiums appropriate for the region. This quarter, the fair market
value dropped by 7% however due to a drop in trailing twelve-month net premiums y-o-y.
Highlights
In Q1 2016, AIC continued to struggle as it faced an uncertain political and economic
environment. The presidential elections, postponed to later in 2016, have negatively
affected economic sentiments in the country. In addition, inflation is rising as the Haitian
Gourdes continues to slide against the USD, dropping by 8% this quarter. Increased
competition in the Haitian insurance industry continued to negatively affect pricing. As
a result, trailing twelve-month net premiums dropped by 7% in USD. Quarterly technical
expenses saw a significant increase in the previous quarter due to a rise in claims on
commercial buses, targeted during post-election violence.
Over three quarters of the AIC operations have been relocated in the newly renovated
SDCI offices across the street from the current operations. This is expected to yield
annual cost savings as well as operational improvements.
(Amounts in USD'000)
Net premiums
2010
2011
2012
2013
2014
2015
YTD 2015
YTD 2016
5,372
8,469
11,010
10,951
12,716
10,787
5,663
5,764
10,159
2,703
4,267
4,171
5,174
5,338
2,691
2,732
Acquisition expenses
1,121
1,398
1,748
2,076
2,681
2,198
1,126
1,085
Operating expenses
1,673
2,579
2,966
3,572
3,614
3,596
1,691
1,672
Technical expenses
Net income (loss)
-7,461
3,867
1,850
1,381
1,319
1,083
347
379
7,868
11,749
22,518
22,607
22,135
22,934
23,802
23,187
Total liabilities
14,059
13,789
18,685
17,567
16,031
16,505
19,025
17,012
Total equity
-6,191
-2,040
3,833
5,040
6,104
6,429
4,777
6,175
Life (health, life) %
31%
28%
30%
30%
34%
36%
34%
33%
Non Life (auto, commercial residential) %
69%
72%
70%
70%
66%
62%
66%
67%
Return on equity
120.5%
-189.6%
48.3%
27.4%
21.6%
16.8%
7.3%
6.1%
Return on assets
-94.8%
32.9%
8.2%
6.1%
6.0%
4.7%
1.5%
1.6%
Loss ratio
189.1%
31.9%
38.8%
38.1%
40.7%
49.5%
47.5%
47.4%
20.9%
16.5%
15.9%
19.0%
21.1%
20.4%
19.9%
18.8%
Total assets
Operating ratios
Acquisition expense ratio
Expense ratio
Combined ratio
Insurance margin
31.1%
30.5%
26.9%
32.6%
28.4%
33.3%
29.9%
29.0%
241.1%
78.9%
81.6%
89.7%
90.2%
103.2%
97.3%
95.2%
-138.9%
45.7%
16.8%
12.6%
10.4%
10.0%
6.1%
6.6%
Fiscal year ending 30 September
[ 12 ]
Geographic focus
Sector
BPI East Africa LLC
Africa
Microfinance
Website
Africa
Date of investment
2016
Equity
Invested
$396
Realised
-
Unrealised value (FMV)
$396
MEDA carrying value
$396
IRR
n/a
% of company held
5%
2%
Company description
Headquartered in South Africa, Business Partners International Limited (Business Partners)
is a specialist risk finance provider for small and medium sized businesses in Southern and
Eastern Africa. The group supports its clients by offering entrepreneurs growth capital and
business expertise. Business Partners was founded in 1981. It has invested over $1bn in
over 40k businesses creating and sustaining over 480k jobs.
Formally established on 24 March 2016, Business Partners International East Africa LLC (BPI
EA) evolved from a series of regional private equity-structured funds managed by Business
Partners International (BPI). The company is owned by investors, including MEDA. It made
its first capital call this quarter.
BPI EA will invest through its subsidiaries in Kenya, Rwanda and Uganda. BPI EA’s Kenya
subsidiary will take over investing activities from the BPI Kenya fund, in which Sarona SFMF1
is invested. While its Rwandan subsidiary will acquire 60% of the existing BPI Rwanda fund,
the remaining stake being held by the Rwanda government.
[ 13 ]
Company review
BPI EA will provide flexible and tailored risk finance solutions to capital starved SMEs in
East Africa while seeking to have a positive impact on local communities. The company
will lend between $50,000 to $1mm in partially secured loans, typically with the potential
for some upside through royalty arrangements or equity ownership. BPI EA will target
companies with annual revenues of up to $10mm.
Management team
The company is led by Mark Paper as CEO, and is in the process of building out its regional
teams. BPI EA recently hired an experienced regional investment manager named
Matthew Cumming, who is based in Johannesburg. The company is currently hiring
investment officers to support the country managers.
Highlights
Post quarter end, the team approved eight new loans worth $3mm. Of this amount,
$250k has already been disbursed. This is in line with expectations. The Rwandan
portfolio was also transferred to the company in Q2 2016. There are 19 investments
worth $3.5mm in the Rwandan portfolio, with five currently over 60 days overdue. Of
these five, they have full security coverage on four of the loans.
Financials
Financials were not produced this quarter as the company was formally incorporated on
24 March 2016 and operations did not begin until 1 April 2016.
Geographic focus
Sector
CODIPSA
Paraguay
Agribusiness
Website
codipsa.com.py
Date of investment
1998
Equity
Invested
$1,103
Realized
$107
$1,460
MEDA carrying value
$1,409
IRR
7%
% of company held
12%
8%
Company description
CODIP S.A. (CODIPSA) is a Paraguayan processor of natural and modified manioc starch.
The company was founded in 1998 to boost the incomes of smallholder farmers, in
partnership with local non-profits. CODIPSA is currently the largest producer of starch
in Paraguay, with a production capacity of 60,000 tonnes per year across four plants.
It supplies 75% of the starch consumed in the country, and exports its product to over
18 countries around the world. CODIPSA is ISO 9001 certified, affirming their proactive
approach to improving and maintaining quality standards. The company is owned by
270 shareholders, including MEDA, Sarona Risk Capital Fund 1 LP (SRCF1 LP) and MEDA
Paraguay.
Company review
CODIPSA has stimulated regional economic development in Paraguay by providing
manioc, or cassava, farmers with a market for their produce. To date, more than 7,000
farmers have supplied manioc to the company. To optimise each farmer’s crop price,
CODIPSA devised a scheduling system which details the amount of manioc each farmer
should produce by a set date. Farmers are incentivised by a bonus if they are able to
manage their schedule correctly and efficiently.
[ 14 ]
Highlights
In 2015, CODIPSA realised its highest production levels since 2011, reaching 26k metric
tons of starch as a result of a bumper manioc crop. However, management remains
concerned that oversupply in 2015 and downward pressure on prices may have caused
farmers to switch crops in 2016, thereby negatively affecting manioc supply, plant
utilisation and starch production. CODIPSA has been working with farmers to encourage
increased manioc cultivation.
Global starch prices remain low, but CODIPSA has had to reduce inventory, driving
quarterly revenue and EBITDA up 24% and 31% in local currency, respectively, over the
previous year. However, net income remained negative due to high financing costs.
The extended period of depressed commodity prices, including starch, and the
expectation of reduced manioc supply in 2016, has caused the second largest starch
manufacturer in Paraguay to seek a buyer. The challenging commodities market has also
made it difficult for MEDA to sell its stake in CODPISA.
CODIPSA
2010
2011
Total income
10,253
14,883
Cost of sales
6,433
9,884
2012
2013
2014
2015
YTD 2015
YTD 2016
13,792
17,120
11,764
11,645
2,745
2,790
10,891
12,507
8,656
6,885
2,201
2,111
Operating expenses
1,566
2,204
3,370
3,661
2,863
2,730
419
545
Gross profit
3,819
4,998
2,901
4,613
3,108
4,759
544
679
EBITDA
2,253
2,795
-469
952
245
2,029
125
134
Net income
1,675
1,226
-206
544
251
321
-291
-415
Total assets
13,876
20,865
27,191
26,092
28,707
25,289
26,379
24,432
Total liabilities
4,808
7,483
13,187
11,963
13,709
12,576
12,181
11,856
Total equity
9,068
13,382
14,004
14,129
14,998
12,713
14,198
12,577
24
30
21
23
25
30
-
-
Production (tonnes)
Operating ratios
Return on equity
18.5%
9.2%
-1.5%
3.8%
1.7%
2.5%
-2.0%
-3.3%
Return on assets
12.1%
5.9%
-0.8%
2.1%
0.9%
1.3%
-1.1%
-1.7%
Net margin
16.3%
8.2%
-1.5%
3.2%
2.1%
2.8%
-10.6%
-14.9%
EBITDA margin
22.0%
18.8%
-3.4%
5.6%
2.1%
17.4%
4.6%
4.8%
Gross margin
37.3%
33.6%
21.0%
26.9%
26.4%
40.9%
19.8%
24.3%
Net debt to equity
53.0%
55.9%
86.3%
52.0%
83.9%
98.9%
85.8%
94.3%
Debt to equity
53.0%
55.9%
94.2%
84.7%
91.4%
98.9%
85.8%
94.3%
Fiscal year ending 31 Dec
[ 15 ]
Geographic focus
Sector
IMON
Tajikistan
Financial services
Website
imon.tj/eng/
Date of investment
2008
Equity
Invested
$1,694
Realized
$85
$2,027
MEDA carrying value
$2,027
IRR
6%
% of company held
10%
12%
Company description
Founded in 1999, MDO IMON International (IMON) continues to successfully position
itself as one of the top microfinance providers in Tajikistan. Recent transformation,
supported by dedicated governance and management, has allowed IMON to provide
innovative products and services to an increasing number of clients.
IMON operates through a widely dispersed network of branches and representative
offices and provides consumer and business loans as well as leasing services to formal
enterprises- both in urban and rural areas in Western Tajikistan. The credit amounts range
from $100 to $70,000 with an average outstanding loan size equal to $1,035. IMON’s
management team is working towards transforming the company into a commercial bank
with a more robust structure, organisation and risk management in 2016.
Company review
IMON is dedicated to promoting sustainable development by providing economically
active people access to essential financial services. IMON offers a wide range of products,
including loans for businesses, agricultural activity, consumers, start-ups, rural household
development, machinery and home improvements.
IMON seeks to promote economic development in Tajikistan and to facilitate better
life quality by ensuring stable access to finance for the economically active part of the
population.
[ 16 ]
Management team
Led by Sanavbar Sharipova, IMON has nearly 1,900 employees in 136 branches and
lending outlets across the country. MEDA’s Kim Pityn chairs the board. Over the years,
IMON has attracted new high quality shareholders including FMO, EBRD and Triple Jump.
Since MEDA’s first invested in IMON, the value of its stake in IMON has grown 1.25 times
in USD. This represents a 6% gross IRR. The company is valued on a multiple on net book
value appropriate for the region. This quarter, IMON’s fair market value decreased by
17%, as a result of deteriorating performance due to an increase in loan loss provisions.
Highlights
IMON’s performance has suffered over the past year due to a devaluation of the Tajik
Somoni (TJS) against the USD, compounded by the difficult macro-economic situation in
Tajikistan, a country highly dependent on remittances from Russia.
As a result, IMON experienced a large quarterly net loss of TJS 10.8mm led by a material
rise in loan loss provisions of 196% q-o-q in TJS, resulting in PaR>30 days climbing to
12.6% from 7.5%. Management continues to focus on tightening credit policies. This
includes disbursing new loans in TJS, as USD denominated loans had higher default
rates, no longer accepting remittances as income for credit applications, and requiring
immovable security for credits over $10k.
Also, IMON is reducing its financing costs, and foreign currency risk, by attracting more
deposits. In the past quarter, deposits increased by 8% in TJS.
Finally, management approved a cost optimization plan eliminating 110 positions (~6%
of the total workforce). In addition, a new grading system for positions was implemented
resulting in an 8% reduction in annual compensation. Most training is now outsourced
and held remotely, through electronic training platforms and webinars, reducing
training costs without reducing training hours. The cost optimization plan also identified
cost savings in procurement, office rental space, capital expenditures and process
improvements.
IMON
2010
2011
2012
2013
2014
2015
YTD 2015
YTD 2016
Net financial income
8,353
9,692
14,222
17,272
23,790
26,058
7,235
4,754
Operating expenses
4,353
6,053
8,643
12,677
17,517
16,049
4,129
3,193
456
385
241
552
2,041
6,118
2,167
2,675
Net income
2,741
2,363
4,017
3,130
2,907
2,041
637
-1,409
Total assets
41,047
51,306
85,485
118,146
154,352
150,800
162,418
121,039
Long term debt
12,417
21,749
47,203
54,796
76,565
69,196
76,979
51,575
Total equity
11,647
13,064
16,776
25,627
25,439
22,138
24,206
17,412
29
43
58
70
90
104
101
107
34,059
45,234
68,418
101,345
134,405
107,497
137,407
94,482
4.4%
3.1%
4.0%
2.3%
2.0%
7.5%
3.8%
12.6%
Return on equity
23.5%
18.1%
23.9%
12.2%
11.4%
9.2%
2.6%
-8.1%
Return on assets
6.7%
4.6%
4.7%
2.6%
1.9%
1.4%
0.4%
-1.2%
147.0%
134.2%
138.2%
120.2%
111.6%
114.0%
107.3%
87.6%
Loan loss provision
Number of borrowers (#) in '000
Gross loan portfolio
Portfolio at risk (> 30 days) (%)
Operating ratios
OSS
[ 17 ]
Impact Assets
Geographic focus
Global
Sector
Donor advised funds
Website
impactassets.org
Date of investment
2011
Debt
Net loan value
$500
Interest
4%
Maturity date
September, 2061
3%
Company description
In 2001, Calvert Foundation launched a donor advised fund (DAF) known as the Giving
Fund to enable philanthropists to direct their donations to socially responsible and
impact investments. In 2010, the programme was spun out of Calvert as ImpactAssets
to build the DAF programme and develop new impact investment products designed
to democratise access to impact investing. ImpactAssets is an independent 501 (c) 3
organisation.
ImpactAssets seeks to develop a global hub for DAFs that invest with impact. MEDA’s loan
has aided in the development of ImpactAssets’ industry leading initiative – reaffirming
the value of private investment as an effective solution for poverty.
ImpactAssets, on behalf of its clients’ DAFs, has invested in Sarona Frontier Markets
Funds 1 and 2, as well as several MicroVest funds.
Management team
ImpactAssets is led by Tim Freundlich and a team of 17 professionals involved in investment
management, capital raising and operations. During the quarter, the company made two
significant team changes to expand its sales and marketing leadership. Scott Nance was
appointed as Head of Business Development and Amy Bennett is the new Director of
Marketing.
Highlights
Results in the first quarter were muted. Quarterly revenues were up 32% y-o-y in USD
resulting in a smaller net loss but behind budget due to the slower than expected roll-out
of the organisation’s inaugural investment notes. ImpactAssets strategy is to grow both
its DAFs and its impact investment note programme. ImpactAssets launched its first two
investment notes in Q4 2015, being an agriculture note and a microfinance note, raising
$8.3mm and $5.1mm respectively.
At the end of the quarter, ImpactAssets reached $278mm of assets under management.
In 2016, it is targeting over $390mm of AUM and its first profitable year. ImpactAssets
also aims to increase the impact-themed portion of its portfolio from the current 44% to
82% by 2020.
Company review
ImpactAssets develops investment vehicles across a variety of sectors, including lowincome financial services, micro-insurance, fair trade, non-profit social enterprise,
SME development, affordable housing, community development, education, water
and sanitation, health and wellness, clean technology, sustainable agriculture and
conservation.
(Amounts in ’000)
2010
2011
2012
2013
2014
2015
YTD 2015
YTD 2016
Total support and revenue
193
584
641
993
1,757
2,813
292
385
Total expenses
323
1,471
1,620
1,849
2,501
2,950
666
704
Net income
-130
-887
-980
-856
-744
-138
-374
-318
Total assets
23,618
49,663
80,993
96,058
189,504
275,794
-
275,678
Total equity
23,595
48,772
78,048
93,378
186,807
261,348
185,280
261,414
*Figures above exclude Cordes Foundation, DAF support and expenses
[ 18 ]
Geographic focus
MiCredito
Nicaragua
Sector
Financial services
Website
micredito.com.ni
Date of investment
Invested
2012
Equity & debt
$848
Realized
-
$1,571
MEDA carrying value
$1,548
IRR
19%
% of company held
43%
Net loan value
Interest
9%
$30
8%
Maturity date
March, 2021
1%
Company description
MiCredito was founded in 2004 as a not-for profit provider of financial services to the
under-served rural and urban communities in Nicaragua. MiCredito converted into
a corporation at the end of 2012. It is currently owned by over 20 international and
local shareholders, including MEDA. MiCredito operates eleven branches with over 100
employees across Nicaragua. Its vision is to evolve into a bank in order to provide a
complete range of financial services to micro and small businesses in Central America.
Company review
MiCredito provides not only micro and small business loans, but also loans for education,
home improvement, sanitation and solar products. It also offers debit cards, life insurance,
healthcare insurance, currency exchange services, government cheque exchange and
mobile phone recharging. The company has formed strategic partnership with the Red
Cross, World Bank and Habit for Humanity in order to expand its offerings.
[ 19 ]
MiCredito uses a personal approach, going door to door, visiting rural communities by
motorcycle. The desire is that all clients have a personal relationship with a member of
MiCredito’s staff before the loan application process begins. These staff members are
local to each office and many have deep ties to their local community.
Management team
Veronica Herrera leads a management team of four and is supported by an international
board of directors.
Highlights
MiCredito continues to progress well. Quarterly revenue and net income grew by 30%
and 31% in USD y-o-y respectively due to an increase in the gross loan portfolio which
grew 32% y-o-y as new loans from Fundacion Covelo, Working Capital for Community
Needs, Locfund and Triple Jump were disbursed this quarter.
Management continues to explore regional expansion opportunities including an entry
into the Costa Rican market, initially serving the Nicaraguan diaspora community.
MiCredito
(Amounts in ’000)
2010
2011
2012
2013
2014
2015
YTD 2015
YTD 2016
Net financial income
471
515
457
1,780
2,242
2,924
632
826
Operating expenses
342
421
373
1,212
1,444
1,882
403
475
Loan loss provision
129
69
45
229
234
192
3
71
Net income
18
38
50
316
475
607
132
200
Total assets
3,586
4,514
4,698
6,140
8,459
12,169
8,711
11,473
Long term debt
2,061
2,219
2,257
2,518
4,105
6,689
4,561
6,191
Total equity
1,324
1,283
1,095
2,324
2,818
3,409
2,959
3,578
Number of borrowers (#)
Gross loan portfolio (USD)
-
4
5
5
6
7
-
7
3,336
4,109
4,105
5,132
6,736
9,430
7,256
9,791
0.0%
7.3%
2.5%
1.0%
2.9%
2.2%
2.3%
3.3%
Portfolio at risk (> 30 days) (%)
Operating ratios
Return on equity
1.4%
3.0%
4.6%
13.6%
16.9%
17.8%
4.5%
5.6%
Return on assets
0.5%
0.8%
1.1%
5.1%
5.6%
5.0%
1.5%
1.7%
99.9%
103.4%
107.6%
120.2%
127.3%
128.2%
135.6%
133.3%
OSS
[ 20 ]
Geographic focus
Sector
Global
Financial services
Website
microvestfund.com
Date of investment
2004
Equity
Invested
$543
Realized
$346
MEDA carrying value
$1,872
$295
IRR
13%
% of company held
26%
2%
Company description
MicroVest was created as a private investment firm in 2003 to invest in Low-Income
Financial Institutions (LIFIs), including microfinance banks, serving individuals at the base
of the socioeconomic pyramid.
The company manages a number of funds, comprising both debt and equity. MicroVest
focuses on a deep understanding of its investees, implementing a comprehensive due
diligence programme to gain a full understanding of the operations, finances, and culture
of each LIFI as well as the operating environment within each country. Since inception,
MicroVest’s funds have provided financing to over 90 LIFIs in over 50 countries in Latin
America, Africa, Emerging Europe, and Asia.
Company review
MicroVest’s due diligence programme is anchored around the “Three C’s: Country,
Character and Credit”. Investment policies and procedures are designed to apply
commercial best practices to the analysis of country and credit risk. Character analysis
focuses on the governance and ethics of the institution, from the board level to the
loan officer. MicroVest believes that character due diligence is particularly important in
countries where regulation and transparency rules are still developing.
[ 21 ]
Management team
Led by Gil Crawford, MicroVest has a team of over 30 professionals, of which four form the
senior management team and 10 are involved in investment and portfolio management.
In February 2016, Marie Jorajuria joined as the company’s new CFO. The ten-person
MicroVest board includes two MEDA representatives: Alex Hartzler and Zach Bishop.
Highlights
Trailing twelve-month revenues increased by 21% in USD over the previous year as
Assets under Management (AUM) grew 25% to $422mm. MicroVest is targeting AUM of
$480mm by June 2016. The company’s annualised management fee continued its steady
decline dropping from 2.6% to 1.5% over the previous five years, as new funds charge
lower management fees. As MicroVest grows however, it is becoming more efficient.
For example, MicroVest is implementing new technical solutions to better monitor their
portfolio and accounting systems.
The management team expects the EBITDA margin to eventually climb to 20%, up from
14% today, as AUM per investment officer increases and IT upgrades keep back office
expenses in check.
(Amounts in ’000)
2010
2011
2012
2013
2014
2015
YTD 2015
YTD 2016
Total income
3,248
3,705
3,389
3,654
4,331
5,138
3,757
4,467
Operating expenses
2,995
3,575
3,602
3,435
3,646
4,383
3,260
3,799
Net income (loss)
Total assets
Total equity
635
149
-392
-298
580
560
376
471
2,330
3,329
2,330
2,716
3,163
3,351
3,280
3,691
832
982
1,340
1,643
2,069
2,227
2,032
2,409
124,027
140,015
143,242
210,133
272,698
380,970
338,483
421,606
LIFI in relationship
36
44
51
68
88
89
89
88
Number of employees
18
22
21
23
26
28
27
36
Return on equity
76.3%
15.2%
-29.3%
-18.1%
28.0%
25.1%
18.5%
19.5%
Return on assets
27.3%
4.5%
-16.8%
-11.0%
18.3%
16.7%
11.5%
12.8%
Net margin
19.6%
4.0%
-11.6%
-8.1%
13.4%
10.9%
10.0%
10.5%
180.0%
239.1%
73.9%
65.3%
52.9%
50.5%
61.4%
53.3%
Assets under management (AUM)
Operating ratios
Debt to equity
Fiscal year ending 30 June
[ 22 ]
Geographic focus
Sector
Sierra Leone
Agriculture
Website
www.mlbr.org
Date of investment
2013
Debt
Net loan value
$600
Interest
12%
Maturity date
September, 2018
3%
Company description
Mountain Lion Agriculture Sierra Leone Limited (Mountain Lion) operates a 100 hectare
rice farm and a modern mill, where it processes rice from local smallholder farmers. The
company is the largest rice miller in Sierra Leone and has the only local rice brand in the
country. Sierra Leone currently imports the majority of its rice. This presents an import
substitution opportunity for Mountain Lion to mill high quality, competitively-priced
domestic rice. It is owned by several local and Canadian shareholders.
Company review
Mountain Lion currently has 44 employees and over 400 seasonal staff. The company
processes rice from over 4k smallholder farmers in Sierra Leone. It also helps local
farmers to increase their productivity by providing transportation, crop inputs, machine
rentals, and technical training. By creating these additional revenue streams, the
company reduces income volatility and also improves its own rice supply and profitability.
Management team
Mountain Lion is led by Donald (Ola) Smart as CEO and Jason Dudek as CFO. Ola is a local
Sierra Leone businessman with strong operational agribusiness experience while Jason
is a Canadian expat with a good international network and a consulting background that
has allowed Mountain Lion to professionalise its operations. MEDA is represented on the
board of Mountain Lion by Donovan Nickel.
Highlights
In 2015, Mountain Lion weathered storms on a number of fronts; the challenges of
establishing their new rice mill in the midst of an Ebola epidemic tested the resolve of the
business. In Q1 2016, Mountain Lion was able to get back on track with the successful
launch of a decentralised sales strategy which helped the company sell 100% of their rice
profitably to local “Luma” markets through a cash and carry model. As a result, quarterly
revenues in USD were 56% higher y-o-y while EBITDA turned positive for the first time.
Despite working capital constraints, Mountain Lion proved the effectiveness of its new
marketing strategy by selling 153 tons of rice at a 16.5% gross margin, aided by their
ability to bring down production cost to $65 per finished ton. The upward trend is set
to continue as the business benefits from establishing a supply chain and distribution
network for high quality 1.5kg bags which will be sold across the country at significantly
higher margins.
Mountain Lion is seeking additional capital to address production capacity limitations.
Through the addition of more rice destoning and drying capacity at the mill, the business
expects to raise production output to 220 metric tons per month from the current 180
tons. On this basis, the company initiated discussions with grantors and financiers
resulting in $600k of approved grants from the World Bank, while a further $1.5mm
worth of applications are in the pipeline.
Looking forward, Mountain Lion will be adding a sales manager to the team. With this
addition, the company plans to develop more resilient distribution channels by selling
in smaller batches to local supermarkets, hotel chains, local markets and potentially
mining projects. The business should also benefit from a more stable macroeconomic
environment as the continent eradicates Ebola. It is expected that Sierra Leone will
return to its previous high growth trajectory with the help of international aid and foreign
direct investment.
[ 23 ]
(Amounts in ’000)
2011
2012
2013
2014
2015
YTD 2015
YTD 2016
Total income
7
156
133
42
649
66
103
Cost of sales
14
116
92
95
564
66
85
Operating expenses
16
42
160
344
347
98
2
-7
40
41
-52
86
-
18
EBITDA
Gross profit
-23
-3
-119
-397
-261
-97
16
Net income
-23
-3
-111
-317
-377
-65
-66
Total assets
250
579
1,299
1,744
1,721
1,937
1,814
-
-
490
818
886
1,085
905
249
576
807
796
608
730
542
Long term debt
Total equity
Operating ratios
Return on equity
-9.1%
-0.5%
-13.8%
-39.8%
-62.0%
-8.9%
-12.2%
Return on assets
-9.1%
-0.5%
-8.6%
-18.2%
-21.9%
-3.4%
-3.6%
-336.3%
-1.7%
-83.5%
-746.8%
-58.1%
-98.2%
-64.1%
Net margin
EBITDA margin
-336.3%
-1.7%
-89.3%
-935.0%
-40.3%
-146.5%
15.2%
Gross margin
-104.0%
25.4%
30.8%
-123.0%
13.2%
0.5%
17.5%
-0.2%
-0.3%
29.4%
74.5%
145.3%
138.9%
161.1%
0.4%
0.5%
60.8%
119.2%
182.8%
165.2%
234.6%
Net debt to equity
Debt to equity
Fiscal year ending 31 December
[ 24 ]
Geographic focus
Sector
Tree Global
Ghana
Agriculture
Website
Ghana
Date of investment
2016
Debt
Net loan value
$365
Interest
10%
Maturity date
May, 2021
2%
Company description
Tree Global is an international nursery business providing high performance seedlings to
large scale projects focused on agriculture, environmental restoration and sustainable
timber. Its main activities are currently centred around cocoa tree seedlings in Ghana.
Tree Global seeks to fill a critical gap in the crop production value chain. A lack of investment
at the beginning of the growth cycle creates a chronic undersupply of quality, sustainable
seedlings. Tree Global seeks to correct this market inefficiency by working with strategic
partners to grow high performance seedlings using the best available genetic materials
and advanced growing systems, designing and implementing distribution systems to get
plants to farmers in rural and remote areas, and by identifying and securing sustainable
financing to help meet the demand for better planting materials.
Aside from establishing and managing tree nurseries, the business also supports
clients in tree management. Clientele range from commercial plantations and farmer
cooperatives, to governments, biomass plantations and conservation companies.
Company review
Tree Global’s services generate significant economic, environmental and social impact by
increasing clients yields, conserving native ecosystems and generating local employment
and skills development.
[ 25 ]
INVESTMENT PROFILES: FUNDS
Management team
Tree Global is led by Gregory Hess as CEO. Gregory is supported by a senior management
team of four professionals and a further four managers on the Ghana team.
Highlights
In 2015, Tree Global delivered over 100k cocoa seedlings to smallholder farmers in
Ghana. The seedlings are 60% and 50% larger in height and calliper, respectively, and
have a 28% higher survival rate than the ones grown through conventional methods.
They are made available to local farmers through a unique Community Distribution
Nursery (CDN) network of locally-owned businesses responsible for managing relations
with cocoa farmers and ensuring needs are met. The CDN network generates sustainable
rural employment for local residents and facilitates the reliable supply to local farmers.
In the first quarter of 2016, severe drought in West Africa hampered cocoa pod production
which led to Tree Global only being able to fulfil 350k of the 500k seedling supply contract
with Mondelez. At the time of writing this report, 80% of the 350k had been delivered
to farmers with the remainder expected to be delivered by July 2016. Due to reduced
income in FY16 as a result of insufficient cocoa pods being delivered to Tree Global, the
company is seeking to raise up to $1mm from impact investors in 2016 in order to fund
next year’s supply contracts.
Meanwhile, the company is looking to diversify its revenue streams and deliver greater
development impact by piloting rubber, cashew and shea seedlings with technical
assistance from MEDA. Furthermore, in an effort to reduce the risk associated with
concentrating production in one country, Tree Global is actively pursuing expansion
opportunities in Nigeria, Cameroon and Ivory Coast. The business is looking to raise
$5mm of new equity to fund this growth including expanding management capabilities.
Tree Global
(Amounts in ’000)
2014
2015
YTD 2016
Total income
294
215
4
Cost of sales
118
133
-
Operating expenses
716
1,178
255
Gross profit
176
82
4
EBITDA
-540
-1,095
-251
Net income
-567
-1,136
-256
Total assets
746
745
1,063
Long term debt
376
958
1,153
Total equity
370
-507
-413
Operating ratios
Return on equity
-153.0%
224.2%
61.9%
Return on assets
-76.0%
-152.6%
-24.1%
Net margin
-192.7%
-528.5%
-5886.9%
EBITDA margin
-183.7%
-509.3%
-5770.2%
Gross margin
59.8%
38.3%
100.0%
Net debt to equity
54.3%
-178.2%
-217.3%
101.4%
246.9%
357.2%
Debt to equity
Fiscal year ends 31 December
[ 26 ]
Geographic focus
Sector
Zambia
Information technology
Website
Zambia
Date of investment
2011
Equity
Invested
$730
Realized
-
MEDA carrying value
IRR
$2,726
$730
40%
% of company held
6%
4%
Company description
Zoona Transactions International (Zoona) is an African mobile payments business with a
vision of creating a cashless Africa. Its model combines a proprietary payment technology,
with an agent network to enable customers to transact easily, quickly, safely, and cheaply.
Zoona has two electronic payment product lines (e-voucher payments and ordering &
supplier payments) that can scale across markets with minimal operational presence on
the ground and high gross margins. It also has two cash payment product lines (money
transfers and agent payments) that utilise a network of cash agents to provide cash in and
cash out services.
Company review
By developing an agent network, as opposed to branches, Zoona minimises overhead and
CAPEX investment, while partnering with local businesses who act as franchisees. As of
31 December 2015, the company had grown its network to over 1,299 outlets, granting
national coverage to its clients in Zambia and Malawi.
Zoona is able to reach clients that banks simply cannot, or will not, service. As a result, the
company is able to offer financial services at a lower the cost than the existing operators.
[ 27 ]
Management team
Mike Quinn, the Canadian CEO, leads a management team of five people and a team
of over 120 professionals, mostly out of its South African headquarters. MEDA is
represented by Donovan Nickel who is an advisor to the management team.
Zoona is likely to close the first tranche of a Series B financing with a well-known
international investor in mid-June 2016 valuing MEDA’s original investment at 5.0x
post-money. During the closing process, MEDA will likely exit its $250k Series A bridge
financing, disbursed in October 2015, to an existing investor, providing a first liquidity
event. A second tranche of the Series B financing is expected in the first half of 2017 at
a higher valuation.
Highlights
In Q1 2016, Zoona saw its net revenue drop by 11% y-o-y in USD mostly due to the 42%
depreciation of Zambian Kwacha (ZMW) against the USD in 2015. In addition, Zoona
slowed down net agent growth this quarter to focus on improving revenue per store,
which grew 19% q-o-q in USD. Once the Series B closes in June, Zoona anticipates a
resumption of new agents with 200 planned openings for Q3 2016 in Zambia and Malawi.
They also plan on launching 100 agents in Mozambique in Q3 2016 and a further 200
agents in Ghana in Q4 2016 finishing the year with a footprint in four countries.
Zoona is also piloting new products. In April 2016, it introduced a short term savings
product allowing its customers to deposit small amounts in their accounts to make large
annual payments such as school fees. If successful, this new product will be rolled out to
the entire network in 2017.
(Amounts in ’000)
2010
2011
2012
2013
2014
2015
YTD 2015
YTD 2016
Gross profit
599
1,021
2,158
4,263
7,387
8,088
2,105
1,889
Operating expenses
973
1,332
2,005
6,222
7,159
8,319
1,809
2,083
EBITDA
-374
-312
153
-1,959
228
-231
295
-194
Net income
-490
465
63
-1,893
-282
-1,552
62
-758
Total assets
1,165
1,539
4,528
3,557
4,346
6,191
5,187
6,527
-
695
-
318
523
2,000
1,293
2,080
-920
-455
3,220
1,211
929
1,536
1,136
973
-
644
-3,258
-1,719
-1,312
-49
221
111
Return on equity
53.2%
-102.2%
2.0%
-156.3%
-30.3%
-101.1%
5.4%
-78.0%
Return on assets
-42.0%
30.2%
1.4%
-53.2%
-6.5%
-25.1%
1.2%
-11.6%
Long term debt
Total equity
Net debt
Operating ratios
Net margin
-63.2%
32.6%
2.9%
-44.4%
-3.8%
-18.2%
2.8%
-38.3%
EBITDA margin
-48.3%
-21.8%
7.1%
-45.9%
3.1%
-2.7%
13.3%
-9.8%
0.0%
-141.6%
-101.2%
-142.0%
-141.2%
-3.2%
19.5%
11.4%
226.7%
438.5%
40.6%
193.7%
367.6%
303.1%
356.8%
571.0%
Net debt to equity
Debt to equity
[ 28 ]
Geographic focus
Investment style
Vintage
Access Africa Fund
Sub-Saharan Africa
Debt and equity growth in MFIs
2003
Fund size
$28,800
Total equity from LPs
Drawn OPIC commitment
$8,800
$13,500
Total capital called from investors
100%
MEDA commitment
$800
Date of investment
February, 2013
% of equity from LPs
9%
2%
Total capital called from MEDA SRCF
Distributions to MEDA SRCF
$800
-
Fair value of MEDA SRCF investment
$379
MEDA carrying value
$379
GP review
Financial Institutions (LIFIs), including microfinance banks (MFIs), serving individuals at
the base of the socioeconomic pyramid.
focuses on a deep knowledge of its investees, implementing a comprehensive due
of each LIFI as well as of the operating environment within each country. Since inception,
America, Africa, Emerging Europe and Asia.
[ 29 ]
Fund review
The Access Africa Fund (AAF) was seeded by CARE USA, which remains its largest investor.
Several years after the fund’s launch, MEDA joined CARE in a relatively small investment,
one-half of which was provided to MEDA as a donation. OPIC has also provided leverage
to the fund. AAF is managed by MicroVest with a strategy of investing in earlier-stage
MFIs across Africa. It currently has eight debt and two equity investments in seven
countries.
African markets continue to present risks due to foreign exchange and liquidity restrictions,
adverse weather patterns stemming from El Nino and political risk on the rise. Despite
these negative headwinds, the fund showed some positive results including closing three
new transactions reducing cash levels from 27% to 15% this quarter.
The AAF has struggled significantly since inception, losing over ½ of its value to bad
investments and currency fluctuations. MEDA’s multiple on invested capital was 0.47x
in USD, down from 0.48x from the previous quarter due to a quarterly loss on a Zambian
hedge contract.
Highlights
Equity portfolio
»»Musoni (Kenya) is the first institution in Kenya that provides financial services
exclusively through mobile phones. AAF currently holds 25% of Musoni. Trailing
Twelve-Months (TTM) net income decreased by over 13% while revenues grew
by 2% in USD. A new COO will be focusing on growing the portfolio over coming
quarters.
»»UGAFODE MDI (Uganda) is one of only four MFIs granted a deposit-taking license
by the Bank of Uganda. AAF currently owns a 30% stake in the company. The total
number of branches grew to 16 over the quarter while TTM revenues and net
income grew by 4% and 16% respectively in USD. However, PaR > 30 increased this
quarter due to the election and lack of focus by management.
Access Africa Fund
Highlights continued
Debt portfolio
»»Finca DRC was added to the watch list this quarter as a result of Portfolio at Risk over
30 days (PaR > 30) rising above 7%.
»»Chase Bank Kenya was also placed on the watch list this quarter due to the Central
Bank intervention which led to the bank being acquired by the Kenyan Commercial
Bank.
(Amounts in ‘000)
»»Lesthogo Rwanda remains on the watch list but the fund has strong parent company
guarantees and MicroVest expects full repayment.
»»Finca Zambia is also struggling with PaR > 30 at 8% but is in a solid financial position.
A full repayment is expected in June 2016.
Currency
Maturity date
Geography
Sector
Amount invested
FMV
Advans Cameroon
EUR
Sep-14
Cameroon
Microfinance
1,500
1,320
Advans Bank Congo
USD
DR Congo
Microfinance
1,500
1,500
Barak Structured Trade Finance Fund
USD
USA
SME finance
900
900
Kenya
SME finance
1,500
1,498
Debt portfolio
Chase Bank Kenya
Finca DR Congo S.A.
CDF
Finca Tanzania
TZS
May-15
ZMW
May-16
Zambia
Microfinance
1,500
1,056
RWF
Dec-15
Rwanda
Microfinance
2,000
1,849
12,400
11,092
1,985
787
2,772
1,980
1,343
3,323
Finca Zambia
Letshego Rwanda
Congo
Microfinance
1,500
1,521
Tanzania
Microfinance
2,000
1,448
Total
Equity portfolio
Musoni
Ugafode
Total
[ 30 ]
KES
UGX
Kenya
Uganda
Microfinance
Microfinance
Geographic focus
Investment style
Vintage
MicroVest Plus
Provide debt and equity financing to LIFIs in Emerging
Markets
2011
Fund size
$48,600
Total borrowings
$34,641
100%
MEDA commitment
$250
Date of investment
January, 2012
As % of Fund size
2%
2%
$250
$23
$201
MEDA carrying value
$201
GP review
Financial Institutions (LIFIs), including microfinance banks (MFIs), serving individuals at
the base of the socioeconomic pyramid.
focuses on a deep knowledge of its investees, implementing a comprehensive due
of each LIFI as well as of the operating environment within each country. Since inception,
America, Africa, Emerging Europe and Asia.
[ 31 ]
Fund review
MicroVest+ is a mixed debt and equity fund investing in LIFIs in Frontier and Emerging
Markets. Its capital base comprises limited partner equity with significant leverage
from OPIC. At quarter end, the fund reached $54mm, holding 30 investments across 18
countries. Investments in El Salvador and Cambodia were added this quarter.
Unfortunately, the fund experienced an unrealised quarterly loss of 8.6% due to a write
down in the Azerbaijan and Ecuadorian debt portfolios. As a result, MEDA’s multiple on
capital dropped to 0.89x in USD.
Quarter-end leverage reached 3.9x equity, just shy of OPIC’s 4.0x limit, while cash dropped
to 6%, an improvement from 2015 when it reached 13%.
Highlights
In the coming quarters, MicroVest expects to continue to lower the fund’s exposure to
Central Asia, while increasing exposure to countries like India and Ecuador, where macroeconomic conditions are more favourable.
The fund’s largest country exposure was to Cambodia at 11%, followed closely by
Mongolia and Ecuador at 9% and 8% respectively.
MicroVest Plus
(Amounts in ’000)
2011
2012
2013
2014
Total income
270
1,723
1,785
2,567
2,646
604
759
Net income
-186
396
709
-219
-1,051
-449
-1,019
Assets under management (AUM)
22,907
22,174
40,532
46,893
48,023
-
53,100
Investment portfolio (Cost)
25,419
26,656
35,962
43,026
47,507
40,526
51,211
Investment portfolio (FMV)
23,866
26,468
35,954
43,557
46,144
39,815
49,693
Total assets
27,100
28,665
40,916
47,756
49,059
47,351
53,686
Total equity
54,040
6,426
10,137
12,867
11,817
12,418
10,797
1,250
4,007
7,500
7,694
9,091
500
7,214
22
21
26
35
36
35
38
Disbursed amount in period ($)
Number of investments (#)
[ 32 ]
2015
YTD 2015
YTD 2016
Geographic focus
Investment style
Vintage
Frontier and Emerging Markets
Private debt and equity funds injecting growth
capital in SMEs
2010
Fund size
$24,737
MEDA commitment
$3,381
Date of investment
January, 2010
As % of Fund size
14%
17%
$3,381
$5
$2,986
MEDA carrying value
$2,986
Fund review
The performance of the SFMF1 and its portfolios continues to evolve without any significant
deviations from the trend it has set during the recent investment period which is now
coming to an end.
During the quarter, the fund value per unit saw an increase from an adjusted figure at the
end of 2015 of $0.89 to $0.92 at the end of this quarter. The liquidity portfolio provided a
positive $19k to the net asset value of SFMF1 while the PE portfolio gained $933k in value
in Q1 2016 due to an appreciation of the value in Khyati, SFMF1’s only direct co-investment.
Realised losses from the PE portfolio of $16k were offset by a strong unrealised gain on the
PE portfolio of $950k due to favourable market movements.
There were no new investments or exits made by the private equity funds during the
quarter. Kandeo I made a small follow-on investment of $27k to Acercasa. A number of our
private equity funds are now mature and we expect an increased number of exits in the
coming quarters.
[ 33 ]
Highlights
»»IGNIA I: Ignia has historically struggled to grow the value of its portfolio. The need to
recapitalise companies has been a recurring theme throughout the fund’s history. At
quarter end, Ignia I had invested 99% of the $76.7mm of committed equity and had
drawn $12mm in debt from the Inter-American Development Bank. As of 31 March
2016, the total value to paid in capital in USD dropped to 0.52 due to early writeoffs of Primedic, Chiapas Farms and Pro-Organico, adverse FX movements between
the MXN and the USD and underperforming investments, including Barared and
MiMoni, which decreased significantly in value this quarter. During the same period,
the portfolio’s net asset value declined by 23% due to decreases in the values of
Barared and MiMoni, only partially offset by Agua Natural and Provive.
»»Khyati: At quarter end, following an external third party valuation, SEAF wrote up
the USD value of the company 3.3x since the previous quarter. Historically, Khyati
has focused on summer crops such as organic soy and cotton. To diversify its
production, Khyati began trading small volumes of organic wheat, glycerine, crude
lecithin and castor oil in FY16. Increased international competition from Ukraine
and Chinese organic soya products resulted in a drop in trailing twelve-month (TTM)
gross margins from 14% to 12% y-o-y. This led to a drop in TTM EBITDA and net
income in INR of 31% and 68% y-o-y respectively, while the company remained
profitable. Khyati launched human-grade soy flour in the Delhi market and various
e-commerce channels under the brand name “Nutrita”. Demand has been muted so
far but the company is working with retailers to promote its health benefits. Khyati
is now expanding distribution into the state of Maharashtra.
»»AfricInvest II: As of 31 March 2016, AfricInvest II had drawn 95% of total €143mm
raised and distributed 98% of total amount drawn. The investment portfolio of
underlying companies is showing a total gross multiple of 1.8x, while Sarona’s TVPI
in USD stood at 1.26x, representing a 7% return. This quarter, the portfolio value
grew by 1.1% in EUR driven by increases in the values of Bridge Group West Africa,
Broron Oil & Gas, EXAT and Alpha West Africa. TEJRA’s value fell by 1.75%, the only
company to see a negative movement.
»»Kandeo I: Kandeo Fund I was purchased by Sarona in the secondary market in May
2014 at a small discount. As of 31 March, 2016, it had drawn 97% of the total
commitment of COP 235bn. The fund is not expected to add any new companies to
its holdings and is yet to make its first exit. A change to IFRS reporting for Mareauto
Colombia, Acercasa and Rayco resulted in a portfolio value increase of 5% q-o-q
in COP terms. As a result, Sarona’s TVPI in this investment grew from 0.68 to 0.77
q-o-q in USD. This investment has been hurt by the significant devaluation of the
COP against the USD. The COP has devalued nearly 30% since Sarona invested in
May 2014.
Primary portfolio investments
Sector
Region
AfricInvest II
Multi sector
Regional
2,637
2,549
ATMT I
Commitment
Amount invested
by SFMF1*
(Amounts in ‘000)
Realized value
Unrealized value
(accounting)
Total value
960
3,201
6.8%
2,240
Gross IRR
Multiple on
invested capital
1.26
ICT
Regional
1,500
1,572
-
803
803
-12.7%
0.51
Aureos SE Asia Fund II
Multi sector
Regional
3,500
1,845
144
1,511
1,655
-4.3%
0.90
Fanisi I
Multi sector
Regional
1,500
1,293
75
961
1,036
-8.6%
0.80
Ignia I
Multi sector
Mexico
2,000
1,981
1
1,029
1,030
-14.2%
0.52
Financial
Global
1,586
1,496
61
1,370
1,432
-1.1%
0.96
Multi sector
Turkey
1,486
699
45
557
602
-6.1%
0.86
MicroVest II
Pera Capital I
REAF I
Clean energy
India
1,313
1,306
-
1,507
1,507
4.3%
1.15
SACEF I
Clean energy
India
2,000
1,984
-
2,020
2,020
0.8%
1.02
SEAF I
Agribusiness
India
2,250
1,833
-
1,687
1,687
-2.9%
0.92
Health
India
1,837
1,853
386
1,295
1,680
-3.2%
0.91
$21,609
$18,410
$2,952
$13,701
$16,653
VenturEast Life III
Total primary investments
0.90
Secondary portfolio investments
(Amounts in ‘000)
Industry
Region
Aureos China
Multi sector
Aureos East Africa
Multi sector
East Africa
Aureos South Asia
Multi sector
South Asia
BPI Kenya
Multi sector
Kenya
Kandeo I
Multi sector
Colombia
$5,809
China
Total secondary investments
Commitment
Amount invested by
SFMF1*
994
Realized value
Unrealized value
(accounting)
Gross IRR
Multiple on
invested capital
561
-20.3%
0.56
Total value
994
166
395
160
155
134
-
134
-17.9%
0.87
1,849
1,688
362
1,220
1,582
-2.6%
0.94
529
529
622
284
907
30.6%
1.71
2,277
2,227
18
1,620
1,638
-17.8%
0.74
$5,594
$1,303
$3,520
$4,823
0.86
Direct portfolio co-investments
Industry
Country
Amount invested by
SFMF1*
Realized value
Agribusiness
India
750
-
(Amounts in ‘000)
Khyati Foods
*Treatment of FX explains discrepancies between this table and each investment profile page
[ 34 ]
Unrealized value
(accounting)
1,554
Total value
1,554
Gross IRR
Multiple on
invested capital
26.5%
2.07
Geographic focus
Investment style
Frontier and Emerging Markets
Growth capital in small to mid-market companies
Vintage
2013
Fund size
$150,232
Drawn OPIC commitment
$15,500
$40,248
As % of LP commitments
30%
MEDA commitment
$2,000
Date of investment
June, 2013
As % of Fund size
1%
3%
$600
-
$542
MEDA carrying value
$542
Fund review
During the quarter, SFMF2’s NAV increased by 3% q-o-q, from $28.6mm to $29.6mm due
to the combined effect of unrealized gains of $1.5mm due to the combined effect of:
»»Unrealised gains of $1.5mm consisted of favourable FX movement of $1.1mm against
the USD and $0.4mm positive valuation changes at the portfolio companies level
»»Management fees and expenses of $0.6mm
»»Realised gain of $0.1mm from a dividend distribution by Pera I
Three new commitments were made post quarter-end to two primary funds and one
secondary totalling $24mm, bringing the total commitments to investments made by
SFMF2 to $136mm. This included Apis Growth Fund I, a financial services fund investing
in Sub-Saharan Africa and South Asia; Metier Capital II, a multi-sector Southern African
fund; and Proventeus I, a secondary fund with investments in the Philippines, Malaysia
and Vietnam. During the quarter, Mekong III made two new investments. These were
in ABA, a provider of last mile cold-chain logistics servicing modern retail outlets
and large companies, and in Wrap & Roll, a casual dining restaurant chain offering
traditional Vietnamese cuisine. AfricInvest III made a new investment in Silafrica, a
leading manufacturer of plastic products and packaging with operations throughout East
Africa. Ambit Pragma II made a follow-on investment of $1.2mm in Kelvin Cold Chain
Logistics. ANAF II made a follow-on investment of $150k to the NAHHG platform and the
Cleopatra Hospital Group. Kandeo I made a follow-on investment of $123k in Acercasa.
[ 35 ]
Highlights
»»ANAF II: As of 31 March 2016, the fund had drawn 70% of its committed capital of
$375mm and invested in eight companies. In Q1 2016, the fair value of the portfolio
grew 5.7% in USD, led by a 30% increase in the value of Lilas, a Tunisian based
consumer discretionary company supplying hygienic goods across Africa. Sarona’s
multiple on invested capital stands at 1.08. In January 2016, the fund acquired the
Egyptian Al Shorouk Hospital as part of the Cleopatra Hospital Group platform growth
plan. Its location offers a new catchment area in Cairo and is considered one of the
top medical facilities in the region. Post quarter end, the fund completed an add-on
investment in Anoual as part of the Oncologie Diagnostic Maroc platform. Anoual is
the largest provider of advanced diagnostics radiology services in Casablanca. Closing
is expected in the second quarter.
»»MCP II: As of 31 March 2016, MCP II had drawn 53% of its total commitments and had
invested in five companies. This quarter, the fair value of the portfolio grew by 8%
in EUR, due to Cash Plus and C.E.C.I. being written up against last quarter when they
were still held at cost. The fund is still in its investment period and Sarona’s multiple
on invested capital stands at 0.94 in USD. Post quarter end, the fund closed its sixth
investment in MEDTECH, a Moroccan group of companies engaged in IT services, for
an amount of €9.5mm, of which €6.7mm was disbursed in Q2 2016. Additionally,
the fund’s investment committee approved a seventh investment of €15mm in a
Moroccan-based private educational services business, expected to close in Q3 2016.
The fund is currently reviewing a further 11 investments, with two transactions in
legal negotiation stage.
»»FMC: As of 31 March 2016, the fund had drawn 100% of total commitments of
€63mm. The fund has seven remaining investments in its portfolio, having writtenoff three small investments, fully exited CEPRO and realised a partial exit of Biopharm.
During the quarter, the portfolio’s FMV remained largely flat. First Telecom saw an 8%
fair value increase as a result of an improvement in market comps, but this gain was
offset by a drop in the value of Diffazur. Sarona’s TVPI in this investment stood at 1.21
in USD. Over the last few quarters, this investment has been hurt by the appreciation
of the USD against most world currencies including the EUR which has dropped
13% since Sarona invested in 2013. The GP reports in EUR, while the companies are
affected by the full FX movement between the USD and the local currencies in which
they operate.
Primary portfolio investments
Sector
Country
Commitment
Amount called
by GP
AfricInvest III
Multi sector
Sub Saharan Africa
7,925
3,014
Alta Growth II
Multi sector
Latin America
8,000
Ambit Pragma II
Multi sector
South Asia
ANAF II
Multi-sector
Creador II
(Amounts in ‘000)
Gross IRR
Multiple on
invested capital
Unrealized value
Total value
(10)
2,761
2,751
n/a
0.91
2,561
100
3,399
3,499
n/a
1.37
10,000
4,633
-
2,527
2,527
n/a
0.55
North Africa
8,000
5,801
-
6,279
6,279
n/a
1.08
Multi sector
South East Asia
8,000
7,769
-
8,376
8,376
n/a
1.08
DGF III
Multi sector
Latin America
5,021
1,186
-
911
911
n/a
0.77
Kandeo II
Multi-sector
Latin America
5,000
1,210
-
934
934
n/a
0.77
Mediterrània Capital II
Multi sector
MENA
5,770
3,200
(3)
3,008
3,005
n/a
0.94
Mekong III
Multi sector
Vietnam
8,000
1,205
-
981
981
n/a
0.81
Pera Capital I
Multi sector
Emerging Europe
8,452
4,104
141
3,120
3,262
n/a
0.79
Verod Capital Growth II
Multi sector
Sub Saharan Africa
7,500
2,882
-
2,916
2,916
n/a
1.01
$81,667
$37,564
$227
$35,213
$35,441
Gross IRR
Multiple on
invested capital
Total primary
Realized value
Secondary portfolio investments
(Amounts in ‘000)
Kandeo Fund 1
Meditterània Capital I
Amount called
by GP
Industry
Country
Commitment
Financial services
Latin America
10,489
10,283
Multi sector
MENA
6,698
$17,187
Total secondary
Realized value
Unrealized value
Total value
84
7,480
7,564
n/a
0.74
6,671
1,077
7,035
8,112
n/a
1.22
$16,954
$1,161
$14,515
$15,676
Direct co-investments
(Amounts in ‘000)
Industry
Country
Commitment
Amount called
by GP
Realized value
Unrealized value
Total value
Gross IRR
Multiple on
invested capital
Tiba Group
Education
Egypt
$5,000
$5,000
-
$4,942
$4,942
n/a
0.99
Industry
Country
Commitment
Amount called
by GP
Realized value
Unrealized value
Total value
Gross IRR
Multiple on
invested capital
$103,855
$59,518
$1,388
$54,670
$56,059
n/a
0.94
Total portfolio
(Amounts in ‘000)
Total portfolio
[ 36 ]
Geographic focus
Investment style
Vintage
Romania
Invest in growth-stage SMEs
2013
Fund size
$2,550
$2,550
As % of fund size
100%
MEDA commitment
$1,000
Date of investment
October, 2014
As % of Fund size
39%
5%
$1,000
-
$891
MEDA carrying value
$891
GP review
Treetops Capital Agribusiness Fund (“Treetops”) is managed by Treetops Advisors LP, a fund
manager founded in 2008 by Mitchell Lench and Dragos Vranceanu. Mitchell has global
financial sector experience while Dragos has started, operated, and sold several private
businesses in Romania and the United States. Treetops Advisors LP is also the co-manager
of the Gawa microfinance fund and a partner in RFP Development, a Romanian real estate
development company. The Treetop team has a dedicated staff of five members. However,
it also leverages local staff from RFP Development, particularly in managing projects. During
the quarter, Treetops hired a new CFO, Michael Walsh, in replacement of Jonathan Chang
who left the company.
The fund was launched in 2012 in order to invest in Romanian greenfield agribusiness
opportunities that would benefit from EU grants and low cost Overseas Private Investment
Corporation (“OPIC”) debt funding. The investments made by Treetops would focus on
gaps in the agricultural value chain and aim to benefit small and medium sized farmers.
[ 37 ]
Fund review
As of 31 March 2016, the fund had drawn 100% of the total $2.6mm in committed equity.
In addition, the fund has secured $10mm in OPIC financing and received between 40 to
50% of the project capital expenses reimbursed from non-refundable EU grants. To date,
Treetops has made two investments in East Champion Union Cooperativa Agricola (“East
Champion”) and S.C. Jupiter (“Project Jupiter”).
Highlights
East Champion Union (ECU) is the first industrial compost factory for mushrooms in
Romania. The company aims to provide phase two and phase three level mushroom
compost to farmers at a more competitive price than imported compost. The construction
of the factory was completed in September 2015 with initial sales in December 2015. A
€2.6mm EU grant reimbursement was received in December 2015, although the final EU
grant amount was €0.5mm lower than budgeted due to project changes along the way.
»»After a bumpy start caused by mould issues in the first batches, the company has
reached 25% of its potential capacity. Unfortunately, this is not enough for current
sales to cover fixed costs. The strategic plan for ECU involves expanding the number
of tunnels rapidly to achieve better economies of scale. Treetops is also assessing the
longer term viability of vertically integrating along the value chain into mushroom
farms. These mushroom farms would act as a robust buffer to the compost facility,
absorbing up to 70% of the compost production from a nine tunnel facility.
»»Treetops has also received interest from international compost companies looking
to partner with ECU. Although early days, one such potential partnership would see
technical collaboration while providing equity capital for further expansion.
»»The investment continues to remain valued at cost.
Project Jupiter is a modern grain silo and cold storage facility in Romania, near Bucharest.
Final technical plans have been completed and the zoning approvals for the building permit
have been obtained. As of 31 March 2016, Treetops has contributed $441k in equity via
subordinated shareholder loans to make payments for the technical project, consulting,
and other project costs. The project was put on temporary hold in 2014 due to time
limitations in the last EU grant period. The management team is considering whether to
reapply for an EU grant under the new program, which would require additional capital
to complete the project. Treetops expects that the grain silo and cold storage facility
would garner significant buying interest from farmers, strategic agricultural firms and
supermarkets looking to enter the Romanian market and have more control over their
supply chain.
(Amounts in ‘000)
Date of investment
Geographic focus
Sector
Percentage ownership
Cost
Unrealised value
Realised value
East Champion Union
Nov-13
Romania
Agribusiness
69%
1,864
1,864
43
1,907
1.02
SC Jupiter
May-14
Romania
Agribusiness
100%
441
441
-
441
1.00
2,305
2,305
43
2,348
1.02
Total
[ 38 ]
Total value
MOIC
Geographic focus
Investment style
Vintage
Provide debt and equity financing to LIFIs in
Emerging Markets
2012
Fund size
$50,643
$30,402
As % of fund size
60%
MEDA commitment
$1,500
Date of investment
February, 2012
As % of Fund size
MEDA carrying value
3%
5%
$890
$57
$1,085
$890
Investment team and philosophy
Founded in 2010, WWB Capital Partners is a joint venture between WWB Asset management
and Triodos Investment Management. It was constituted to raise third party capital to
increase access to financial services for low-income women in developing countries by
taking minority equity positions in inclusive finance institutions. Most investees will be
Women´s World Banking network members, who are providing financial services to underserved populations in Frontier and Emerging Markets, with a significant focus on women.
Currently the Women’s World Banking network encompasses 34 partners in 23 developing
countries. WWB Capital Partners, as a mission-aligned investor, will provide long-term
support to ensure responsible institutional transformation and seeks to achieve attractive
financial and social returns for investors.
During this quarter, the Limited Partnership Agreement was amended to allow up to 50% of
the fund to be invested in non-network members.
Fund review
As of 31 March 2016, WWB Capital Partners had drawn 60% of the $50.6mm in commitments
and made five investments. Proceeds from the successful exit of Ujjivan in May 2016 will
be disbursed later in 2016. At the end of the quarter, the Gross and Net IRR of the portfolio
stood at 16% and 8% in USD respectively.
[ 39 ]
Highlights
»»Banco WWB is the fourth largest Colombian microfinance bank with over 1.5mm
clients. The bank had a tough quarter due to a challenging macroeconomic
environment and deteriorating portfolio quality. Banco WWB is grappling with
balancing quick turn-around times while ensuring good credit quality, resulting in
a drop in client retention. However, as a result of an 11.6% quarterly growth in
the Gross Loan Portfolio (GLP) in USD, the operating expense ratio dropped. This,
combined with an improved portfolio yield ratio, led to higher profit margins,
explaining the 1.6% increase in valuation.
»»Ujjivan is one of the largest Indian microfinance institutions with over 1.4mm
borrowers. Ujjivan obtained a Small Finance Bank License from the Reserve Bank
of India (RBI) in September 2015. Post quarter end, the company completed a
successful IPO listing which was oversubscribed by a record breaking 40.5x. The fund
plans on distributing proceeds from the exit later in 2016 once associated listing
expenses, fees and tax obligations are settled.
»»Ananya is a lender to other microfinance institutions in India. 85% of the portfolio
is disbursed to MFIs, while the remaining is provided to the agricultural sector to
benefit small and marginal farmers. The company has been able to achieve stability
in its operating and efficiency indicators. However, it is having issues growing due
to insufficient access to capital. Ananya is looking to securitize loan portfolios it
co-manages with its partners to large commercial banks to restart its growth plans.
»»BancoSol is a Bolivian commercial bank that specializes in microfinance offering loan
products, savings products, payment services, remittances, and micro insurance to
over 230k borrowers. In line with the strategic plan to focus on growing savings and
reducing its dependence on credit products, the bank was able to grow deposits at
an annualized rate of 17% in USD this quarter. As a result of improved profitability
this quarter due to lower than expected loan provisions, the valuation of the
company rose by 3%.
(Amounts in ‘000)
Geographic focus
Sector
Percentage ownership
Cost
Unrealised value
Realised value
Total value
MOIC
Banco WWB
Date of investment
Sep-10
Colombia
Financial Services
2%
4,152
3,468
396
3,864
0.93
Ujjivan
Sep-12
India
Financial Services
6%
6,502
16,233
91
16,324
2.51
Ananya
Aug-13
India
Financial Services
24%
1,489
1,023
-
1,023
0.69
BancoSol
Jan-15
Bolivia
5%
6,038
7,008
123
7,130
1.18
MDO Humo
Jul-15
Tajikistan
Financial Services
Financial
Services
n/a
1,500
1,500
110
1,610
1.07
19,680
29,231
720
29,951
1.52
Total
[ 40 ]
Appendix
Impact
42
[ 41 ]
Balance sheet
45
Profit and loss statement
45
46
Impact
Sarona’s history can be traced back to 1953 when a group of Christian businessmen
invested in the Sarona Dairy farm, in Paraguay, with the dual purpose of delivering solid
financial returns while benefiting the local community. The investment became very
successful, spawning an industry that eventually served 70% of Paraguay’s national
market. This first investment continues to inspire us, and since our inception we have
been deploying capital with the explicit intention of improving the lives of people in
Frontier and Emerging markets while generating superior financial returns for our
investors.
Sarona creates a positive impact by channelling capital, through locally-based private
equity funds, into progressive companies, like the Sarona Dairy farm, and by investing
in industries that are inherently beneficial to society, such as healthcare and education.
By integrating strong ESG considerations into every element of our investment
decision-making process, we ultimately aim to finance entrepreneurs who wish to
grow their businesses sustainably and progressively, encouraging them to build better
relationships with local communities, suppliers, employees and their customers.
In July 2015, we witnessed a historic shift in international development and business
cooperation when the world came together in Addis Ababa to chart the course of
development finance. Central to this agenda were the Sustainable Development Goals
(SDGs), a set of 17 development objectives agreed by all nations, and later ratified by
the UN. This historic agreement focuses on clear, concrete means to eradicate poverty
and social inequality by 2030. And while the SDGs are new, Sarona’s commitment to
these goals is not. When comparing our investment activities to the SDGs and their
related targets, the results are impressive. As of September 2015, 52 Sarona investee
companies have contributed materially to 15 out of the 17 SDGs and 94 out of the 169
underlying targets.
[ 42 ]
]
IMPACT
To measure our impact, we use a variety of monitoring, reporting and analytical tools.
We are a registered user of the Impact Reporting and Investment Standards (IRIS),
using a registry of standardised metrics independently managed by the Global Impact
Investing Network (GIIN). These metrics may be used to define social, environmental
and financial performance. Designed as a resource for the growing impact investing
community, the IRIS registry contains a public listing of the IRIS metrics used by
registered organisations.
As a Pioneer Investor of the Global Impact Investing Rating System (GIIRS), Sarona
can review, benchmark and compare fund managers across environmental, social
and governance issues. We rely on third party assessments to complement what we
believe is a strong and reliable in-house due diligence process. GIIRS, on the basis of
data supplied by the B Analytics platform, rates companies and funds according to their
impact. Sarona was invited to become an advisor to GIIRS as an early adopter and to
assist the organisation in implementing its mandate.
We collaborate with the non-profit organisation B Lab, our “partners in impact”, in
multiple ways: Sarona is a prominent B Corp itself; it is represented on the board of B
Corp Europe; it adopts and promotes the use of GIIRS ratings for funds and companies;
it employs the services of B Analytics as the platform on which impact data is gathered
and delivered.
Sarona works actively with its fund managers on monitoring and reporting tools both
before and after investing. As members of the GIIN Investors’ Council we subscribe
to the two key characteristics of an impact investor: Intentionality and Measurement.
The results of our impact measurement efforts are published in our Annual Values
Report which covers quantitative consolidated metrics and a number of qualitative
case studies.
Impact highlights: Mountain Lion Agriculture, Sierra Leone
Realising a vision of food security for farmers in Sierra Leone
Mountain Lion Agriculture (MLA) in Sierra Leone is a unique example of successful
collaboration with small farmers, says CFO Jason Dudek.
Jason Dudek, CFO of Mountain Lion Agriculture (Mountain Lion) of Sierra Leone, and
Ola Smart, CEO, designed Mountain Lion to generate positive impact. “We aim to
help farmers break out of the cycle of subsistence they’re trapped in“ explains Jason.
Mountain Lion’s 100-acre rice farm serves as a model for the locals. There, they can get
training in better planting techniques to improve yields; access to equipment rentals;
interest in-kind financing; and access to markets, which encourages them to expand
their acreage.
Why rice instead of higher-value crops? There is a significant shortfall of domestic
rice in Sierra Leone, where rice is a staple. “There is a case for food security and for
business,” notes Jason. “Demand will always be there, while we compete against
imports burdened by high transportation costs.”
“Our partnership with MEDA and Sarona is why we’ve succeeded. At the outset, we
turned down investment from other firms because they just did not understand our
business approach. MEDA and Sarona understand what few do – that relationship
between the business case and impact.”
Their role goes far beyond investment. “MEDA and Sarona have provided invaluable
market research, a depth of experience in business and an excellent database
management system.”
“Data is the lifeblood of decision making in business. It has helped us make better
choices for business and impact. And it led us to create the equipment rental division,
because with the dry, hard soil of the uplands, farmers need tractors,” continues Jason.
“MEDA’s assistance is a core part of our success. With their investment, we built
the rice processing mill on time and under budget – a rare feat in any Emerging and
Frontier market.” The mill has dramatically improved rice quality and led the way to
the country’s own domestic brand of rice. “Now that our model has been perfected,
we can open new mills throughout the region and intend to be one of the largest rice
millers in Africa in the next 10 years.”
Jason cites several accomplishments to date: “We had our new mill at 95% capacity
within a few months, and sold over 800 metric tons of rice during the Ebola crisis,
enough to feed 65,000 adults for a month. Our farmers typically start with two acres
and $30 a year disposable income, and after a few years many have grown to 20-plus
acres and farm income of over $1,500 per year.”
[ 43 ]
]
IMPACT
JASON DUDEK, MOUNTAIN LION CFO, DURING STAFF TRAINING
Mountain Lion’s staff earn good pay and benefits, and a gender inclusion policy
prescribes the number of women employed. In 2015, the company worked with over
4,200 farmers, and won awards for the number of farmers impacted and the degree
of impact. The community also benefits from a maternity clinic built by Mountain Lion.
During the Ebola crisis, the company provided 2,300 bags of rice to families who were
quarantined and had no access to food because local markets were shut down. At
the peak of the outbreak, when no aid was reaching Sierra Leone, Mountain Lion put
more than $500,000 directly into the pockets of small farmers in a floundering rural
economy. This is a business that combines good business practices with high impact
results.
Impact highlights: Mountain Lion Agriculture, Sierra Leone
Idrissa invests in his children’s education
Joseph provides for his family
Idrissa Jalloh is a 65 year old farmer from Gbombsamba,
Sierra Leone who started farming over 20 years ago on a
small scale or subsistence level. He is a father of 10 children
and he is now supplying Mountain Lion. He said before the
intervention of Mountain Lion: “I was really struggling to
take care of my family and most of my children were not
in school because I could not afford to pay school fees.
My farming was all done by hand and we were not getting
good harvests. But thanks to God, we were given interestfree seed and cash loans from Mountain Lion, which gave
us farmers in Gbombsamba the opportunity to grow more
rice. We are now ploughing 10 to 15 acres of land with
Mountain Lion’s tractors and are harvesting for both our own consumption but also
to sell to Mountain Lion. I now have a child going to college, and another taking his
university entry exams.”
Mr. Joseph Sankoh is a 46 year
old Mill Manager at Mountain
Lion. He is responsible in
overseeing
production
activities,organizing employees
and tasked with increasing
productivity
and
quality.
Joseph is a family man with
three children and happily
married, living in Makeni, Sierra
JOSEPH AT WORK (FIRST ON THE RIGHT)
Leone. Before Mountain Lion
Agriculture, Joseph explains:
“I was out of a job before the
intervention of Mountain Lion. This made life difficult for both myself and the family,
since I am the main breadwinner. I started as a mill operator and rose to the position of
mill manager as a result of hard work and dedication in meeting important World Food
Program related production targets in 2015. I am happy to be a part of the Mountain
Lion family and am trying to encourage Sierra Leoneans to eat what we grow, not
imported rice. I am happy with my salary as I didn’t receive enough pay to take good
care of my family in the past. Mountain Lion has also provided me with a lot of training.
I am excited about my future with this great company, and pray for its expansion.”
Kadiatu was able to send her children to university
Kadiatu B Sesay is a 60 year old woman with six children.
She is a farmer and a supplier to Mountain Lion in
Gbombsamba, Sierra Leone. Before Mountain Lion
Kadiatu explained: “Life was difficult for us. Two of my
children passed university entrance exams but they
could not go to university because we did not have the
money. But with the seed and cash loans from Mountain
Lion, combined with tractor services, we planted more
acres and also improved the yield per acre. I sell most of
what I produce to Mountain Lion and now, by the grace
of God, those two children are attending university and
making the whole family proud. I am also very proud to
tell you that because of Mountain Lion I am the owner of my own house after renting
for most of my life. Thanks be to God!”
[ 44 ]
Balance sheet
Profit and loss statement
Unaudited
Unaudited
as at 31 March 2016
Assets
Current assets
Cash & ST Investments
Accrued interest & A/R
Due from related parties
Total current assets
Other assets
Equity investments
Loans
Other investments
Total other assets
Total assets
1,211
158,265
159,476
15,301,461
2,215,827
1,524,057
19,041,345
$ 19,200,821
Liabilities & equity
Liabilities
Accounts payable
Due to related parties
Notes payable
Total liabilities
Equity
Beginning equity
Subvention certificates
Net Income (loss) for period
Total equity
Total liabilities & equity
Total liabilities & equity
[ 45 ]
FINANCIAL STATEMENTS
for the 9 months ended 31 March 2016
Revenue
250,477
1,630,253
9,732,832
11,613,562
8,416,747
9,700
(839,188)
7,587,259
$ 19,200,821
Interest
Dividends
Realized gains & losses
Unrealized gains & losses
Total investment revenue
Recovery of (provision for) loan losses
Interest (paid) on debt
Net financial revenue
Operating expenses
Management fees
Professional fees
Other
Total operating expenses
Net operating income (loss)
Donations to SRCF
Net income (loss)
192,404
8,248
(630,462)
(429,810)
219,666
(649,476)
590,886
550
136,524
727,960
(1,377,436)
538,248
$ (839,188)
This Quarterly Investment Report is provided on a confidential basis solely for the
internal use of current investors in the Sarona Risk Capital Fund, MEDA and Sarona Asset
Management (Sarona). It is not to be reproduced, transmitted or used for any other
purpose without the prior written consent of Sarona.
The report has been prepared solely for informational purposes, is not an offering
memorandum and does not constitute an offer to sell or a solicitation of an offer to
buy any security or instrument. Offerings are made only pursuant to a private offering
memorandum, which contains important information concerning risk factors, performance
and other material aspects of the applicable investment, and the information contained
herein should not be used or relied upon in connection with the purchase of any security.
Any decision to invest in any security should be made solely in reliance on any such private
offering memorandum. In the case of any conflict between the information contained
herein and that contained in a private offering memorandum, the information contained
in the private offering memorandum will control for purposes of the securities that are
the subject of that private offering memorandum.
The information about the Sarona Risk Capital Fund investments has been drawn from
materials prepared by the applicable investment sponsor and has not been independently
verified by Sarona. The investment performance information included in this report is
current as of the date noted, likely has changed since such date and may have declined
since such date. Readers are cautioned that the actual results of the Sarona Risk Capital
Fund (MEDA) and its investments could differ materially from the prior performance and
its investments. Past performance is not necessarily a guide to future performance.
This report contains certain statements, estimates and projections with respect to
anticipated future performance related to the Sarona Risk Capital Fund (MEDA) and its
investments, as well as of the private equity industry generally. Statements, estimates
and projections are “forward-looking statements.” Due to various risks and uncertainties
inherent in the private equity industry or the economy generally, actual performance,
events or results may differ materially from those reflected or contemplated in such
forward-looking statements. Sarona Risk Capital Fund (MEDA) and Sarona do not make any
representations or warranties (express or implied) about the accuracy of such forwardlooking statements. The information included in this report should not be construed as a
recommendation of any individual holdings or industries.
The information contained herein is not to be construed or relied upon as investment,
legal, tax, accounting or financial advice. Certain information contained in this report
may have been obtained from published sources and third-parties, including, without
limitation, market forecasts, surveys, market research, publicly available information
and industry publications. This material is based upon information that Sarona considers
[ 46 ]
reliable, but Sarona does not represent (either expressly or impliedly) that it is accurate
or complete, and it should not be relied upon as such. In addition, information on indices
contained in this report is for reference only. Reference to an index does not imply that
the Program will achieve returns similar to the index. Indices that purport to present
performance for the overall private equity fund industry, or any industry, may actually
present performance that differs materially from the overall performance of private
equity funds or other companies due to issues of selection and survivorship bias. It is
not possible to invest directly in an index. All information is provided on an “AS IS” basis
only. By using this information, you agree that Sarona shall not have any liability for the
accuracy of the information contained herein or for any omissions therefrom, or for any
results based on your use of the information.
The information contained in these materials is proprietary and confidential and may
contain commercial or financial information, trade secrets and/or intellectual property
of Sarona and/or its affiliates. The information included herein is highly confidential and
certain of the information may constitute material non-public information. United States
federal and state securities laws and the laws of other jurisdictions prohibit the trading of
securities on the basis of material non-public information.
All numbers in this report are reported in US dollars (USD) unless otherwise indicated.
Gerald Morrison
Chief Financial Officer of MEDA
gmorrison@meda.org
+1.519.725.1853
155 Frobisher Drive, Suite 106
Waterloo, Ontario N2V 2E1
Canada
Gerhard Pries
CEO & Managing Partner of Sarona
sarona@saronafund.com
+1.519.883.7557
55 Victoria Street North, Unit K
Kitchener, Ontario N2H 5B7
Canada

SARONA RISK CAPITAL FUND

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