RNS Number : 9307J
Aurora Russia Limited
11 December 2008
11 December 2008
Aurora Russia Limited
Results for the six months ended 30 September 2008
Investee companies positioned to emerge strongly from challenging environment
Financial highlights - NAV increase of 2% from 31 March 2008
* Net asset value as at 30 September 2008 was �87.64 million, representing 116.9p per share, a 2% increase from �85.58 million as at
31 March 2008
* Cash and cash equivalents as at 30 September 2008 of �6.17 million (�7.83 million as at 31 March 2008)
* Consolidated net profit for the period of �1.08 million (�5.22 million for 15 months to 31 March 2008)
* Consolidated earnings per share for the period of 1.44p per share (6.95p per share for 15 months to 31 March 2008)
Operational highlights - Hands on support to create strong platform for growth
* Fully invested with �63.74 million in five companies, four of which are leaders in their field
* Focus on providing considerable hands-on operational support to each of the investee companies to weather the financial crisis
* Unistream's aggressive roll out of its cash desks on hold to focus on improving margins, controlling risk and increasing
profitability
* Kreditmart has sold two loan portfolios in the current period at a premium and focused on increasing commission and fee revenue
while reducing costs
* OSG Records Management will focus on margins and reducing its operating costs particularly those related to warehousing
efficiencies
* SuperStroy will focus on profitability in the next 12 months and curtail its roll out of new stores to one more in 2008 and no new
store openings in 2009
* Detailed results for the investee companies are contained in the investment management report
Russia - despite global financial crisis, economic growth in Russia expected to continue
* Global financial crisis significantly impacted Russian economy however stock markets in Russia are relatively new, small and
insignificant to the economy
* Russian government injected reserves to provide liquidity to the financial markets and stimulate the economy with specific funding
provided to major banks for SME lending
* IMF and Russian government predicting economic growth in Russia of greater than 3% in 2009
Commenting, Dan Koch, Chairman of Aurora Russia, said:
"Despite the significant impact that the global financial crisis has had on the Russian economy, we remain encouraged by the
expectations for continued growth in 2009. We have been doing what we believe is necessary to ensure that our investee companies are well
prepared to weather these difficult times and are confident that once the crisis is over, growth will return and our investee companies will
be well placed to benefit from the more stable operating environment."
Enquiries:
Aurora Russia Limited
James Cook, Moscow +7 (495) 644 1662
John McRoberts, London +44 (0) 207 8397112
Investec Investment Banking
Paul Gray +44 (0) 20 7597 5176
Patrick Robb +44 (0) 20 7597 5169
Financial Dynamics
Ed Gascoigne-Pees +44 (0) 20 7269 7132
Felicity Murdoch +44 (0) 20 7269 7243
AURORA RUSSIA
LIMITED
Chairman's Statement
Introduction
I am delighted to present the first results following my appointment as Chairman of Aurora Russia Limited
('Aurora Russia' or 'the Company') replacing Sir Trevor Chinn. On behalf of the board I would like to thank
Sir Trevor for successfully guiding the Company through the IPO and the initial investment phase. I believe
that my experience in Russia over the past 10 years will provide the necessary leadership to Aurora Russia
through the current market conditions and for the next growth phase.
While the current financial crisis has affected Russia and is expected to continue to do so for the
foreseeable future I am confident that once the crisis is over growth will return and our investee companies
in particular will be well placed to benefit from a more stable operating environment.
It is perhaps quite telling that in 1998, those companies that focused on their businesses and planned to
see the crisis through rather than retrenching came out the other side stronger and ready to take on the
exceptional growth that we have seen in Russia in the last 10 years. I expect the same will prove true in
this downturn. The board is working with Aurora Investment Advisors Limited, the Manager, to make sure that
we do what is necessary to ensure our investee companies are well prepared to weather these difficult times.
Results
For the 6 months to 30 September 2008, Aurora Russia recorded a gain of �1.08 million or 1.44 p per share,
based on the unaudited consolidated income statement. Despite these difficult times the net asset value of
the Company as at 30 September 2008 grew by 2% to �87.64 million or 116.9 p per share, compared to �85.58
million or 114.1 p per share at 31 March 2008. Cash and cash equivalents at 30 September 2008 were �6.17
million, compared to �7.80 million as at 31 March 2008.
Group administration and operating expenses of �5.57 million include Company costs of �1.70 million, of
which �1.20 million relates to the Manager's fee and the Manager's option which is being amortised over a
period of five years. Operating costs of the Company's wholly owned subsidiaries were �3.87 million. In view
of the uncertain outlook potential deferred tax benefits of �0.6 m in the current period relating to
Kreditmart have not been recognised and full provision has also been made against the deferred tax asset at
31 March 2008. We expect that the deferred tax asset will be reinstated once stability returns to the credit
markets.
Investment review
Aurora Russia has invested �63.74 million into five companies and has uncommitted funds of �5.98 million
remaining to allow for small follow-on investments in its investee companies, if required, and to cover its
ongoing expenses. The Company has now implemented its strategy to invest its capital in equity and
equity-related investments in small and mid-sized private Russian companies, focused on the financial,
business and consumer services sectors, where the Directors believe that there is potential for growth
together with viable exit opportunities.
Aurora Russia has now successfully made five investments. We are positive about the prospects for the
investments made to date which comprise:
* Unistream Bank, a leading Russian money transfer company
* Kreditmart, a finance company distributing mortgages, equity release loans and other consumer finance
products
* Flexinvest Bank (formerly Volzhski Universalny Bank)
* Whitebrooks, a regional market leader in records management, trading as OSG Records Management
* SuperStroy, one of the leading DIY retailers in Russia
Our investment in Unistream Bank continues to perform well and deliver strong growth. Kreditmart has seen
slower growth due to the difficulties in the credit markets, Flexinvest Bank has now moved its headquarters
from Samara to Moscow and has entered into an agency agreement with Kreditmart. OSG continues to perform
well in line with its budget and Superstroy is building on its position as one of the largest Russian DIY
chains.
Portfolio
Revaluation Policy
A revaluation of the investment portfolio was performed at 30 September 2008, resulting in an increase in
value of �3.45 million to �80.70 million. This revaluation, recommended by the Valuation Committee of the
Board was prepared by an independent professional valuation firm and was formally adopted by the Board on
1st December 2008. These valuations are prepared for accounting purposes only and comply with International
Private Equity and Venture Capital Association ('IPEVCA') guidelines. The resultant valuations of
investments included in the Company's financial statements will not necessarily reflect the amount that a
third party would be prepared to pay for these businesses.
The current valuation reflects changes to the previous valuation performed in March 2008 as follows:
Unistream Bank has been increased by �2.84 million to �20.4 million, an increase of 16%. The valuation of
Kreditmart and Flexinvest Bank has been decreased by �2.12 million to �32.30 million, a decrease of 6%,
reflecting lower values being placed on mortgage broking businesses in the current uncertain market
conditions. The valuation of OSG has increased by a modest �0.44 million to �8.30 million and SuperStroy has
been increased by �2.28 million to �19.70 million.
Hedging Policy
The turmoil in credit markets continues to cause volatility in the currency markets. We have seen a
continued strengthening of the US dollar against the rouble while sterling has declined. The Company
continues to hedge its non sterling monetary assets, including uninvested cash, loans and any expected sale
proceeds once a disposal of any of our investments has been agreed.
Outlook
The current global financial crisis has had a significant impact on the Russian economy and we will likely
see a slowdown for some time to come. Investors have fled all markets and the steepest market declines have
been experienced in the emerging market countries, including Russia. It should not be overlooked however
that the stock markets in Russia are relatively new, small and insignificant to the economy of the country.
The Russian government is using some of its accumulated reserves to provide liquidity to the financial
markets and stimulate the economy. Specific funding has been provided to major banks for the express purpose
of supporting lending to small and medium sized companies.
Both the IMF and the Russian government are predicting economic growth in Russia of greater than 3% in 2009.
Not quite the 6%-7% of the past few years, but compared with the recessionary conditions expected in many
mature markets this is encouraging.
Dan Koch
Aurora Russia
Limited
08 December 2008
AURORA RUSSIA LIMITED
Investment Manager's Report
Overview
Aurora Russia has invested in five private Russian companies focused on the financial, business and consumer services sectors in
accordance with the strategy
outlined when the Company was listed on AIM in March 2006.
Aurora Russia's investee companies are taking prudent steps to weather the global financial crisis and Aurora Investment Advisors (the
'Manager') is providing
considerable hands-on operational support to assist them in delivering solid trading performances and in building long term value.
Aurora Russia's investee
companies have taken steps to reduce operating costs, secure market share, conserve cash, and search for additional growth opportunities
in their sectors.
Aurora Russia has invested a total of �63.74 million in five companies. It owns 26% of Unistream Bank, 100% of Kreditmart, 100% of
Flexinvest Bank (formerly
Volzhski Universalny Bank), 39.4% of OSG Records Management and 24.3% of SuperStroy.
Unistream Bank continues to be a leader in the Russian money transfer business in terms of volumes transferred; Kreditmart is increasing
its market share of
brokered loans and has been described as 'the leading mortgage broker in Russia' in the Russian media; Flexinvest Bank has moved its
headquarters and operations
to Moscow in order to support Kreditmart's growth strategy and distribution model. SuperStroy is the leading DIY retailer in the Urals
region of Russia and is
fast becoming one of the largest DIY retailers in Russia. OSG remains the largest records management company in Russia, Kazakhstan and
Ukraine.
Unistream Bank
Unistream Bank continues to strengthen its market position as one of the largest money transfer companies in Russia by providing a
competitive money transfer
product through 289 of its own money transfer offices throughout Russia (up from 238 as of 31 March 2008) and through its agent network
in Russia and abroad.
Money transfer is regulated by the Central Bank of Russia ('CBR') and Unistream Bank therefore has a banking license to receive/send
money transfers, open bank
accounts for corporate entities and accept loan payments through its points of sale.
Since 2006, Unistream Bank has increased its annual volume of money transfers from US$1.84 billion to US$3.68 billion in 2007 and for
the nine months to 30
September 2008 it had transferred US$3.72 billion (an increase of 53% over the same period in 2007). In 2007, it posted revenues of
approximately 1.3 billion RUR
(US$52.5 million) and in the current year to September has seen a 112 % increase in revenues and is trading profitably.
According to the Central Bank of Russia the first half of 2008 saw the Russian money transfer market continuing to exhibit high double
digit growth rates fueled
by the inflow of migrant labour with outbound transfers increasing by 68% while Russian inbound transfers grew at 28% over the same
period last year. Many of the
migrant workers in Russia are employed in the construction industry which has been badly affected by the liquidity crunch. Despite these
trends in construction,
Unistream Bank is still experiencing growth.
The company has now built a substantial platform in Russia and has decided that in light of the financial crisis it will put its
aggressive roll-out of its own
cash desks on hold and focus on improving margins, controlling risk and increasing profitability.
The valuation of the Company's investment in Unistream Bank at 30 September 2008 resulted in an uplift of �2.84 million from �17.56
million at 31 March 2008 to
�24.40 million.
Kreditmart
Kreditmart, a wholly owned subsidiary of Aurora Russia, commenced operations in March 2007. It distributes mortgages, equity release
loans, insurance, credit
cards, auto loans, pension funds, mutual funds, and other consumer finance products. It has loan shops in Moscow, St. Petersburg, Omsk,
Novosibirsk,
Yekaterinburg, Kazan, Tyumen, and Rostov-on-Don. In addition, it has also opened sales points in some of the leading real estate
agencies in Moscow, Novosibirsk,
and Ekaterinburg with additional expansion in the regions during 2008. Kreditmart has signed agreements with over 60 banks to distribute
mortgage products to its
customers and currently offers over 600 loan products through its system.
By 30 September 2008, Kreditmart had closed 522 mortgages for a total of US$87 million and has US$ 77 million of approved mortgages in
the pipeline. In the nine
months to 30 September 2008 mortgage volumes increased 5 times over the same period in 2007.
Kreditmart has sold two loan portfolios in the current period at a premium and has focused its efforts on increasing commission and fee
revenue while reducing
costs. These efforts have resulted in a 100% increase in broker fee income from May 2008 to September 2008 and a 300% increase in
cross-sell revenue for the same
period. By September 2008, mortgage sales were 42% higher than the same period last year. After September, management continued its cost
reduction plan to reduce
Kreditmart's premises overhead by 24% by January 2009.
The global liquidity crisis has resulted in most Russian banks increasing their mortgage interest rates by 1-4 per cent along with more
conservative underwriting criteria. The Russian Government is supporting the mortgage market by injecting up to $7.2 billion into the
Agency for Mortgage Lending in order to provide liquidity to banks offering mortgage loans. The mortgage market remains at less than 3%
of
GDP with ample opportunities for future growth.
In light of the current market, the valuation of the Company's investment in Kreditmart (including Flexinvest- see below) at 30
September
2008 resulted in a write-down of �2.12 million from �34.42 million at 31 March 2008 to �32.30 million.
Flexinvest Bank (formerly Volzhski Universalny Bank)
Flexinvest Bank ('Flexinvest') was acquired in May 2008 through Flexinvest Limited, a wholly owned subsidiary for a consideration of
�5.0
million (RUR 237 million). Additional funds of �1.2 million (RUR 57 million) are to be invested into the bank by Flexinvest to cover
post-acquisition infrastructure costs and fund ongoing operations.
Flexinvest has now moved its headquarters and operations from Samara to Moscow. As of 30 September 2008, it had RUR 112.3 million
(approximately �2.46 million) in assets and posted a profit of RUR 11 million (�0.2 million) for nine months to 30 September 2008.
Kreditmart will distribute Flexinvest products through its distribution channels. Flexinvest will focus on the retail banking sector and
will enter into an agent bank agreement with Kreditmart to enable Kreditmart to book mortgages faster and hold these mortgages for
on-sale
to its partner banks. This relationship will give the group a competitive advantage in Russia's growing mortgage and consumer finance
market.
OSG Records Management
OSG is the largest records management company in Russia, Ukraine and Kazakhstan. It is the second largest in Poland and is considered
a
regional market leader. OSG continues to provide cost-effective total records management, document storage, data security,
document
scanning and confidential data destruction
solutions.
As of 30 September 2008, OSG posted year to date revenues of $12.3 million (up 61% for the same period last year). In 2007, OSG posted
revenues of US$10.6 million up from US$8 million in 2006 and just under US$5 million in 2005.
OSG expects the records storage market to be somewhat protected from the economic downturn by archiving laws and a need for companies in
the current environment to outsource their records management to achieve greater efficiencies through cost and staff reduction. OSG
expects
to continue to grow strongly in 2009 with a focus on margins and reducing its operating costs particularly those related to warehousing
efficiencies. OSG estimates its current market share in Russia of outsourced document storage is over 60%. In Russia, the company's
largest
market, OSG estimates that the document outsourcing market still represents less than 5% of the total available market.
The valuation of the Company's investment in OSG at 30 September 2008 resulted in a modest uplift of �0.44 million from �7.86 million at
31
March 2008 to �8.30 million.
SuperStroy
In December 2007, Aurora Russia invested �16.6 million in SuperStroy, the leading DIY chain in the Urals Region of Russia which is home
to
approximately 20 million people.
Since the investment was made SuperStroy has continued to expand in its home region of the Urals and beyond and as of September 2008
operated 42 SuperStroy supermarkets and 4 StroyArsenal hypermarkets. In 2007, it posted revenues of approximately 4.56 billion RUR
(US$178.6 million) and in the current year to September has seen its revenues grow to 4.93 billion RUR (US$205.2 million) a 60% increase
over the same period last year. Based on the Superstroy's turnover for the first nine months of 2008 and various accounts of the market
participants, the management now ranks the company as number 5 among all DIY retailers operating in Russia (up from number 7 in 2007)
and
number 2 Russian independent DIY retailer (excluding western chains such as Leroy Merlin, Castorama, and OBI).
The expected slowdown of the Russian economy will have an adverse impact on discretionary consumer spending. On the other hand local
management believes that
strong DIY chains, such as Superstroy, may benefit from potentially lower competition and consequently growing customer traffic to its
stores. The company has
also decided to focus on profitability in the next 12 months and curtail its roll out of new stores to one more StroyArsenal hypermarket
in 2008 and no new store
openings in 2009.
The valuation of the Company's investment in Superstroy at 30 September 2008 resulted in an uplift of �2.28 million from �17.4 million at
31 March 2008 to �19.7
million.
Conclusion
We continue to provide hands-on operational support to Aurora Russia's investee companies. We believe that all five companies are
positioned well to weather the
current economic climate and to emerge with secured market positions and strong platforms for growth. However growth is somewhat
dependant upon the success of
initiatives being taken in Russia and globally to ease the current credit crisis.
The Russian market continues to provide opportunities for growth due to the low penetration and vast market potential in the sectors that
Aurora Russia has
invested in.
Aurora Investment Advisors Limited
08 December 2008
Independent Review Report to Aurora Russia Limited
We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six
months ended 30 September 2008 which comprise the condensed consolidated income statement, the condensed consolidated balance
sheet, the company balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow
statement and related explanatory notes. We have read the other information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the Company, in accordance with the terms of our engagement letter dated 6 November 2008. Our work has
been undertaken so that we might state to the Company those matters we are required to state to them in an independent review
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than
the Company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for
preparing the half yearly financial report in accordance with the AIM Rules of the London Stock Exchange.
As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting
Standards ('IFRS'). The condensed set of financial statements included in this half yearly financial report has been prepared
in accordance with International Accounting Standard 34, "Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial
report based on our review.
Scope of Review
We conducted our review in accordance with International Standards on Review Engagements (UK and Ireland) ISRE 2410, 'Review of Interim
Financial Information Performed by the Independant Auditor of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than
an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the
half yearly financial report for the six months ended 30 September 2008 is not prepared, in all material respects, in
accordance with International Accounting Standard 34.
KPMG Channel Islands Limited
PO Box 20
20 New Street
St. Peter Port
Guernsey
GY1 4AN
08 December 2008
Unaudited Condensed Half Year Consolidated Income Statement
For the 6 month period 1 April 2008 to 30 September 2008
1 April 1 January 2007
2008
to 30 to 30
September June
2008 2007
Notes �'000 �'000
Revenue 951 5
Administration and 4 (5,565) (2,111)
operating expenses
Unrealised gains on 11 5,567 1
revaluation of
investments
Gains on derivatives 3 67
Impairment of loan (370) -
receivable
Exchange 912 (51)
gains/(losses)
Operating 1,498 (2,089)
profit/(loss)
Bank interest 391 1,627
receivable
Loan interest 118 53
receivable
Finance income 509 1,680
Profit/(loss) before 2,007 (409)
tax
Tax (charge)/credit 5 (927) 204
Profit/(loss) for 1,080 (205)
the period
Profit/(loss) per (0.27p)
share - basic and 1.44p
diluted
All items in the above statement derive from continuing
operations.
Unaudited Condensed Half Year Consolidated Balance Sheet
As at 30 September
2008
30 September 2008 31 March
2008
Notes �'000 �'000
Non-current assets
Goodwill 6 188 169
Other intangible 7 2,413 -
assets
Plant and equipment 8 1,220 1,267
Investments at fair 11 46,600 41,008
value through profit
and loss
Loans receivable 11 1,800 1,832
from associated
company
Loans and advances 12 9,078 13,922
to customers
Deferred tax asset - 784
61,299 58,982
Current assets
Trade and other 2,083 1,481
receivables
Cash and cash 16,604 17,806
equivalents
18,687 19,287
Total assets 79,986 78,269
Current liabilities
Derivative 13 151 12
liabilities
Taxation payable 100 100
Trade and other 14 860 548
payables
Total liabilities 1,111 660
Total net assets 78,875 77,609
Equity
Share capital 750 750
Special reserve 70,750 70,750
Share options 1,520 1,220
reserve
Revenue reserve - 5,974 4,894
surplus
Translation reserve (119) (5)
Total equity 78,875 77,609
Net asset value per 105.2p 103.5p
share - basic and
diluted
The accounts were approved by the Board of Directors on 8 December 2008 and signed on its behalf
by:
John Whittle Ben Morgan
Director Director
08 December 2008
Unaudited Condensed Half Year Company Balance Sheet
As at 30 September 2008
30 September 2008 31
March
2008
Notes �'000 �'000
Non-current assets
Investment in subsidiaries 9 32,300 34,423
Investments at fair value 11 46,600 41,008
through profit or loss
Loans receivable from 11 1,800 1,832
associated company
80,700 77,263
Current assets
Trade and other receivables 1,115 604
Cash and cash equivalents 6,171 7,829
7,286 8,433
Total assets 87,986 85,696
Current liabilities
Derivative liabilities 13 151 12
Trade and other payables 14 192 103
Total liabilities 343 115
Total net assets 87,643 85,581
Equity
Share capital 750 750
Special reserve 70,750 70,750
Share options reserve 1,520 1,220
Revenue reserve - surplus 14,623 12,861
Total equity 87,643 85,581
Net asset value per share - 116.9p 114.1p
basic and diluted
Unaudited Condensed Half Year Consolidated Statement of Changes in Equity
For the 6 month period 1 April 2008 to 30 September 2008
Share
Share Special Options
Revenue Translation
Capital Reserve Reserve
Reserve Reserve Total
�'000 �'000 �'000
�'000 �'000 �'000
For the period 1 January 2007 to 30 June 2007
At 1 January 2007 750 70,750 470
(321) - 71,649
Net loss for the period - - -
(205) - (205)
Recognition of share-based payments - - 300
- - 300
Foreign currency translation reserve - - -
- (2) (2)
At 30 June 2007 750 70,750 770
(526) (2) 71,742
At 1 July 2007 750 70,750 770
(526) (2) 71,742
Net profit for the period - - -
5,420 - 5,420
Recognition of share-based payments - - 450
- - 450
Foreign currency translation reserve - - -
- (3) (3)
At 31 March 2008 750 70,750 1,220
4,894 (5) 77,609
For the period 1 April 2008 to 30 September 2008
At 1 April 2008 750 70,750 1,220
4,894 (5) 77,609
Net profit for the period - - -
1,080 - 1,080
Recognition of share-based payments - - 300
- - 300
Foreign currency translation reserve - - -
- (114) (114)
At 30 September 2008 750 70,750 1,520
5,974 (119) 78,875
No impairment losses have been recognised in respect of the goodwill. For further details in respect of the acquisition of
Flexinvest Limited, please refer to note
9.
Unaudited Condensed Half Year Consolidated Cash Flow Statement
For the 6 month period 1 April 2008 to 30 September 2008
1 April 1 January 2007
2008
Notes to 30 September 2008 to 30 June
2007
Cash flows from �'000 �'000
operating activities
Operating 1,498 (2,089)
proft/(loss)
Adjustments for:
Decrease/(increase) 47 (178)
in operating trade
and other
receivables
(Decrease)/increase (24) 65
in operating trade
and other payables
Revaluation of 11 (5,567) (1)
investments
Recognised share 300 300
based payments
Realised (3) 60
(gains)/losses on
derivatives
Impairment of loan 370 -
receivable
Other unrealised 52 31
exchange losses
Taxation paid (86) -
Interest paid (10) -
Interest received (707) (53)
on long-term loans
Provision for loan 105 -
losses (included
under operating and
administrative
expenses)
Depreciation 8 218 19
Net cash outflow (3,807) (1,846)
from operating
activities
Cash flows from
investing activities
Acquisition of 10 (3,110) (257)
subsidiary net of
cash acquired
Acquisition of (15) (6,913)
investments
Acquisition of - (488)
derivatives
Acquisition of - (66)
intangible assets
Acquisition of plant 8 (152) (404)
and equipment
Loans advanced to - (872)
associated company
Loans advanced to 6,389 (456)
customers
Decrease in deposits (1,638) -
Bank interest 424 1,367
received
Net cash 1,898 (8,089)
inflow/(outflow)
from investing
activities
Cash flows from
financing activities
Interest income on 707 53
long term-loans
Net cash inflow from 707 53
financing activities
Net (decrease) in (1,202) (9,882)
cash and cash
equivalents
Opening cash and 17,806 65,778
cash equivalents
Closing cash and 16,604 55,896
cash equivalents
Notes to the Unaudited Condensed Half Year Financial statements
For the 6 month period 1 April 2008 to 30 September 2008
1. General information
The consolidated financial statements of the Company and its subsidiaries ('the Group') are available upon request from the Company's
registered office or at www.aurorarussia.com.
2. Accounting Policies
Basis of consolidation and preparation
These unaudited interim condensed financial statements have been consolidated and prepared in accordance with International Accounting
Standard (IAS) 34 'Interim Financial Reporting' and with applicable legal and regulatory requirements of
Guernsey Law and of AIM.
The condensed interim financial statements do not include all the information and disclosures required in annual financial statements,
and should be read in conjunction with Aurora Russia Limited's audited report and financial statements
for the 15 month period ended 31 March 2008. The condensed interim financial statements were approved by the Board of Directors on 8
December 2008.
Accounting period
On decision of the Board, the Company and Group changed their accounting period from 31 December to 31 March to allow its investee
companies more time to provide their audited financial statements, therefore it was decided to prepare prior
period interim accounts for the 12 month period to 31 December 2007 in addition to the 6 month period ended 30 June 2007.
The comparative numbers used for the condensed half year consolidated income statement, condensed half year consolidated statement of
changes in equity and condensed half year consolidated cash flow statement are that of the half year
period ended 30 June 2007, which is considered a comparable period as defined per IAS 34. The comparatives used in the condensed half
year consolidated and company balance sheets and condensed half year consolidated statement of changes in
equity are that of the previous financial year end, 31 March 2008.
Significant accounting policies
The same accounting policies, presentation and methods of computation are followed in these condensed interim financial statements as
those followed in the preparation of the Company's and Group's audited financial statements for the 15
month period ended 31 March 2008.
Segmental reporting
The directors are of the opinion that the Group is engaged in a single segment of business being investment business and in one
principal geographical area, Russia.
Investments
Unquoted investments, including investments in subsidiaries, are designated as fair value through profit and loss. Investments are
initially recognised at fair value. The investments are subsequently re-measured at fair value, which is
determined by the Directors on the recommendation of the Valuation Committee, utilising the International Private Equity and Venture
Capital Association ('IPEVCA') guidelines. Unrealised gains and losses arising from the revaluation of
investments are taken directly to the Income Statement. Investments deemed to be denominated in a foreign currency are revalued in
Pounds Sterling terms even if there is no revaluation of the investment in its currency of denomination.
Investments are held in Russian Roubles, which the Directors believe best reflect the underlying nature of the currency exposure of the
investee companies. The investments are translated into Pounds Sterling at period end, which is the
functional currency of the Group and presentation currency of the consolidated financial statements. Unrealised gains and losses
arising from the translation of investments are taken directly to the income statement.
The Group has taken advantage of the exemption available to it under IAS 28, 'Investments in associates' and is accounting for the
investments in Whitebrooks and Unistream at fair value through profit and loss, which normally as a result of
the size of the stake in these two companies would potentially qualify as associated companies and are required to be equity
accounted.
Impairment of tanglible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Recoverable amount is the higher
of fair value less costs to sell and value in use. Where an impairment loss subsequently reverses, the
carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined had no impairment loss been
recognised for the asset in prior years. Impairment losses and reversals of impairment losses are recognised immediately in the income
statement.
Intangible assets
An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to
the period over which the asset is expected to generate net cash inflows for the company. Amortisation
is not provided for these intangible assets. Intangible assets with indefinite useful lives are tested for impairment at each reporting
date by determining the recoverable amount of the assets either individually or at the cash-generating
unit level. Where this assessment is performed at the cash-generating unit level, the impairment is determined by assessing the
recoverable amount of the cash-generating unit to which the intangible asset relates. In such instances, the
recoverable amount is determined as the value-in-use of the cash-generating unit by estimating the expected future cash flows in the unit
and choosing a suitable discount rate in order to calculate the present value of those cash flows.
Where the recoverable amount is less than the carrying amount of the asset or the cash-generating unit, an impairment loss is recognised
in the income statement.
The useful life of an intangible asset with an indefinite life is reviewed at each reporting date to determine whether the indefinite
life assessment continues to be supportable. If not, the change in the useful life assessment is made
prospectively.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the
identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially
recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised
as an asset is reviewed for impairment at least at each reporting date or if there is an indication of
impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed.
Loans and advances
to customers
Loans granted by the Group are initially recognised at fair value plus related transaction costs. Where the fair value of consideration
given does not equal the fair value of the loan, for example where the loan is issued at lower than
market rates, the difference between the fair value of consideration given and the fair value of the loan is recognised as a loss on
initial recognition of the loan and included in the consolidated income statement according to nature of
these losses. Subsequently, loans are carried at amortised cost. Loans to customers are carried net of any impairment losses.
All loans are secured against the property of the borrower, with adequate provisions calculated and managed by the Risk Management
Department.
Use of estimates
The preparation of the Group's financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and contingencies at the time of the Group's financial statements, and revenue
and expenses during the reporting period. Actual results could differ from those estimated. Significant estimates in the Group's
financial statements include the amounts recorded for the fair value of the investments. By their nature, these
estimates and assumptions are subject to measurement uncertainty and the effect on the Group's financial statements of changes in
estimates in future periods could be significant.
The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty
were the same as those that applied to the consolidated financial statements for the fifteen month
period ended 31 March 2008.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit, and
is accounted for using the balance sheet liability method.
3. Company information
Included in the profit of the condensed consolidated accounts are the operating results of the Company:
1 April 2008to30 September 1
January
2008 2007 to
30 June
2007
�'000 �'000
Administration and operating expenses
(1,695) (1,330)
Unrealised gains/(losses) on revaluation of investments
3,453 (2)
Gain on derivatives
3 67
Impairment of loan
(370) -
receivable
Other exchange
56 (36)
gains/(losses)
Operating
1,447 (1,301)
profit/(loss)
Bank interest
198 1,578
receivable
Loan interest
118 53
receivable
Finance income
316 1,631
Profit before tax
1,763 330
Tax
- -
Net profit for the
period
1,763 330
4. Administration and operating expenses
Company
Investment
management fee
902
719
Auditors'
remuneration
37
15
Directors'
remuneration
102
83
Share-based payments
300
300
Other operating and administrative expenses
354
213
1,695 1,330
Kreditmart
Auditors'
remuneration
4
15
Directors'
remuneration
53 40
Other operating and administrative expenses
3,385 726
3,442 781
Flexinvest Limited
Auditors'
remuneration
12 -
Other operating and administrative expenses
416 -
428 -
Total for the Group
5,565 2,111
5. Tax
Kreditmart
Current tax charge
(21) (3)
Deferred tax
(charge)/credit
(935) 207
(956) 204
Flexinvest Limited
Current tax charge
(7) -
Deferred tax credit
36 -
29 -
Net tax (charge)/credit to the Income Statement
(927) 204
The Company is exempt from Guernsey taxation on income derived outside Guernsey and bank interest earned in Guernsey.
The Group is liable to tax at a rate of 24% arising on its activities in Russia.
The Group is liable to tax at a rate of 10% arising on its activities in Cyprus.
In view of the current economic market conditions and the stringent requirements of IFRS the Group has decided to make full provision
against the deferred tax asset of �784,000 at 31 March 2008 and not to recognise potential tax benefits of
�599,000 in the current period as the extent and timing of sufficient future taxable profits of Kreditmart to offset such amounts
remains uncertain.
6. Goodwill
30 31
September March
2008 2008
�'000 �'000
Cost:
Recognised on acquisition of Flexinvest Limited
171 171
Exchange loss for the 15 month period 1 January to 31 March 2008
(2) (2)
Exchange gain for the 6 month period 1 April 2008 to 30 September 2008
19 -
Closing balance
188 169
No impairment loss has been recognised in respect of goodwill in the 6 month period ended 30 September 2008.
7. Other intangible
assets
Cost:
Recognised on acquistion of Volzski Universalny Bank ('VUB') (see note 10)
2,680 -
Currency revaluation for the 5 month period 6 May 2008 to 30 September 2008
(267) -
Closing balance
2,413 -
Intangible assets consist of banking licences acquired from VUB. These banking licences have an indefinite useful life. No impairment
losses have been recognised in respect of these intangibles in the 6 month period ended 30 September
2008
8. Plant and equipment
Fixtures and fittings Furniture and Total equipment
�'000 �'000 �'000
Cost:
At 1 April 2008
459 1,005 1,464
Additions
38 114 152
Acquired on
- 19 19
acquisition of VUB
At 30 September 2008
497 1,138 1,635
Accumulated
depreciation:
At 1 April 2008 (78)
(119) (197)
Charge for the (86)
(132) (218)
period
At 30 September 2008 (164)
(251) (415)
Net book value:
At 1 April 2008 381
886 1,267
At 30 September 2008 333
887 1,220
The useful lives of the assets are estimated as follows:
Fixtures and
3-4 years
fittings
Furniture
5 years
Equipment
3 years
9. Investment in
subsidiaries
30
31
September
March
2008
2008
�'000
�'000
Kreditmart
Opening balance
27,972
12,500
Additions
-
10,094
Fair value
(2,123)
5,378
revaluation *
Closing balance
25,849
27,972
Flexinvest Limited
Opening and closing
6,451
6,451
balance
32,300
34,423
* The revaluation performed on Kreditmart includes the value of Flexinvest Limited as at 30 September 2008, and as such, no
revaluation was performed on Flexinvest Limited.
The financial statements of the Group consolidate the results, assets and liabilities of the subsidiary companies listed below:
Name of subsidiary Country of incorporation
Class of share % of class held
Principal activity
undertaking
Kreditmart Finance Cyprus
Ordinary 100.0%
Consumer finance
Limited
Flexinvest Limited Cyprus
Ordinary 100.0%
Investment holding
Volzhski Universalny Bank Limited Russia
Ordinary 100.0%
Banking and finance
10. Acquisition of
subsidiary
VUB
Fair
value on acquisition at 06 May 2008
�'000
Non-current assets
Property, plant and
19
equipment
Intangibles (banking
2,680
licences)
Loans receivable
1,571
Current assets
Trade and other
556
receivables
Tax
44
Cash and cash
1,858
equivalents
Current liabilities
Customer deposits
(1,675)
Other liabilities
(22)
5,031
Goodwill on
-
acquisition
5,031
Net cash paid on acquisition of VUB:
Purchase price
5,031
Less: tax add back
(44)
Less: Property plant and equipment
(19)
Less: Cash received on acquisition
(1,858)
Net Cash Paid on acquisition of VUB
3,110
In May 2008, Flexinvest Limited acquired 100% of VUB, a bank registered with the Central Bank of the Russian Federation, which
primarily will provide a platform for the booking of Kreditmart mortgages. The total cost of the acquisition was �5.031 million.
The cost of acquisition was paid entirely in cash. Flexinvest Limited purchased a 89.9% stake in VUB, the remaining 10.1% stake being
purchased by Kreditmart, its fellow subsidiary of Aurora Russia Limited.
Potential contingencies exist in relation to the conduct of business formerly carried out by VUB. A retention from the purchase
consideration has been made to cover any potential claims that may arise (the last instalment of 10,000 RUR is payable on 07 May 2009) and
in the opinion of the directors any
contingent liability in respect of the past business of VUB is considered remote.
11. Investments - at fair value through profit and loss
Group and Company
30
31
September
March
2008
2008
�'000
�'000
Whitebrooks Investments Limited ('Whitebrooks')
6,500
6,029
Unistream Bank
20,400
17,561
Limited
Grindelia Holdings
19,700
17,418
Limited
Total investments at fair value through profit and loss
46,600
41,008
Change in fair value of investments at fair value through profit and loss
Group
1 April
1 January
2008to 30 September
2007to
2008
30 June
2007
�'000
�'000
Whitebrooks
471
89
Unistream Bank
2,839
(88)
Limited
Grindelia Holdings
2,266
-
Limited
Quoted investments
(9)
-
Total unrealised
5,567
1
gains
Whitebrooks loan
Group and Company
30 September 2008
31 March
2008
�'000
�'000
Loan - Whitebrooks
1,800
1,832
The Company acquired a 40.3% stake in Whitebrooks on 24 July 2006, diluted to 37.1% after the agreement of a management option scheme.
In addition to its investment in the shares of Whitebrooks, the Company has provided the investee company with a loan facility of US$5
million. The drawn down tranches of the loan are each
repayable within twelve months of the drawdown date. If not repaid on the due date the lender has the option to convert the amount
outstanding into ordinary shares of the borrower. On 27 December 2007 the loan principal amount drawn down on 27 December 2006 plus accrued
interest was converted into ordinary shares in accordance
with the facility agreement. The conversion resulted in an increase in the diluted holding as at 31 December 2007 to 39.1% and was
further increased to 39.4% as a result of the buyback of shares by Whitebrooks from the former chief executive. The Company decided that the
loans drawn down by Whitebrooks on the 5th of March 2007
as well as on the 18th of May 2007 wi
12. Loans and advances to customers
30 September 2008 31 March
2008
�'000 �'000
Residential
9,078 13,922
mortgages
The mortgages are secured over borrowers' private residences, are repayable in equal monthly instalments and mature between
2014 and 2022. Interest is charged at fixed rates and range between 10.5% and 15.5% depending on
each borrower.
13. Derivative liabilities
The Group utilises currency options and forward foreign exchange contracts to hedge its exposure to monetary assets and
liabilities.
Group and Company
30 31
September March
2008 2008
�'000 �'000
Current derivative
liabilities
Sterling/US dollar forward foreign exchange contracts
(151) (12)
The following contracts were open at the Balance Sheet date (Group and Company):
Sell US$ 1,200,000 at 1.9240 for value 13 November 2008
Sell US$ 2,500,000 at 1.9275 for value 13 November 2008
14. Trade and other
payables
Group and Company
Group and Company
30 September
30 September
2008
2008 31 March 31 March
2008 2008
�'000 �'000
�'000 �'000
Purchase price payable on acquisition of VUB (see note 10)
219 -
- -
Expense accruals and 641 192
548 103
sundry
860 192
548 103
15. Related party
transactions
Transactions between the Company and any subsidiaries which are related parties have been eliminated on consolidation and are not
disclosed in this
note.
The Company pays fees to Aurora Investment Advisors Limited ('AIAL') for its services as investment manager and advisor. The total
charge to the income
statement during the period was �902,661 (6 month period to 30 June 2007: �719,470). There were no outstanding fees at the period
end.
John McRoberts and James Cook each hold 47.5% of the ordinary share capital and 42.5% of the non-voting preference share capital of
AIAL. A trust
created by Sir Trevor Chinn (in which he has no interest) holds 10% of the non-voting preference shares in AIAL.
The Company paid fees to Investec Administration Services Limited ('IASL') for its services as administrator up to 31st December 2007
when it ceased to
be the Administrator. The total charge to the income statement during the period was �13,590 (6 month period to 30 June 2007:
�40,000), of which �NIL
(31 March 2008: �18,750) was outstanding at the period end.
The Company pays fees to Close Fund Services Limited ('CFSL') for its services as administrator. The total charge to the income
statement during the
period was �32,515 (6 month period to 30 June 2007: �NIL). The amount outstanding at 30 September 2008 was �23,334 (31 March 2008:
�17,500).
The Directors of the Company and of Kreditmart OOO, other than John McRoberts and James Cook, received fees for their services. The
total charge to the
income statement during the period was �152,225 (6 month period to 30 June 2007: �123,263), of which �15,028 (31 March 2008: �17,292)
was outstanding at
the period end.
16. Events after the
balance sheet date
There were no material subsequent events after the period end.
17. Contingent
liabilities
Taxation:
Due to the presence in Russian commercial legislation, and tax legislation in particular, of provisions allowing more than one
interpretation, and also
due to the practice developed by the tax authorities of making arbitrary judgment of taxpayer activities, if a particular treatment
based on
Management's judgment of the Subsidiary's business activities was to be challenged by the tax authorities, the Subsidiary may be
assessed for additional
taxes, penalties and interest. Such uncertainty may relate to valuation of financial instruments, loss and impairment provisions and
market level for
deals' pricing. The Company believes that it has already made all tax payments, and therefore no allowance has been made in the
financial statements.
Tax years remain open to review by the tax authorities for three years.
Operating environment
The subsidiary's principal business activities are within the Russian Federation.
Laws and regulations affecting business environment in the Russian Federation are subject to rapid changes and the Company's assets
and operations could
be at risk due to negative changes in the political and business environment.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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