TIDMAURR
RNS Number : 4893Y
Aurora Russia Limited
23 December 2010
23 December 2010
Aurora Russia Limited ("Aurora Russia" or the "Company")
Results for the six months ended 30 September 2010
Investee companies focused on returning to a strategy of growth
as recovery of Russian
economy takes hold
Financial highlights
-- Net asset value per share as at 30 September 2010 of 82.9p
per share (Net asset value GBP93.2 million)
-- Cash and cash equivalents as at 30 September 2010 were
GBP4.25 million
Portfolio highlights
OSG
-- OSG remains the largest records management company in Russia,
Ukraine and Kazakhstan
-- OSG expanded its operations with the Armenian operation and
added additional racking in its main Moscow facility in Lobnya
-- Revenues were GBP9.8 million representing an increase of 23%
compared to the prior year period
-- Record month in September 2010 in terms of revenues
-- EBITDA up 20% to GBP1.4 million as at 30 September 2010
Unistream Bank
-- Unistream's share in the Russia-outbound and inbound
remittances is estimated at 19.2% and 12.1% respectively according
to Q3 2010 official statistics published by the CBR first week of
December
-- Volumes grew 10.9% year-on-year ("YoY") and due to cuts in
advertising and company-owned cash desk running costs, operating
expenses reduced 11% YoY
-- Revenue for the nine months ended 30 September 2010 was
RUR1.5 billion which was down 10.1% compared to the prior year
period
Superstroy
-- Superstroy is the leading DIY company in the Urals Region of
Russia
-- Resumed growth strategy in May 2010 opening three new stores
increasing its trade space by 10.8% and all three stores have
outperformed their budgets
-- For the nine months ended 30 September 2010, Superstroy's
revenues have increased 13% YoY to RUR4.93 billion with wholesale
revenues generating growth of 29% while retail sales were up 9%
-- Superstroy delivered 8% growth in EBITDA to RUR115 million
YoY as at 30 September 2010
Kreditmart and Flexinvest
-- Kreditmart has returned to its core business of broking
mortgages now that the mortgage market has begun to grow again
-- Flexinvest Bank's interest and fee income grew 47% compared
to the prior year period and was at GBP746,000 for the nine months
ended 30 September 2010
-- Kreditmart's broker fees were GBP424,000 for the nine months
ended 30 September 2010, representing a 156% increase YoY
-- As at 30 September 2010, Flexinvest and Kreditmart had
GBP18.0 million in net assets down from GBP19.7 million as at 31
March 2010. This decrease is mostly attributable to the
depreciation of the Rouble against the Sterling
Board change
The Board accepts John McRoberts' resignation as detailed in the
Notice of AGM announcement made on 28 October 2010. John will
continue to provide his investment advice to the Company from
within Aurora Investment Advisors Limited.
Commenting, Dan Koch, Chairman of Aurora Russia, said:
"Growth has now returned to Russia's economy with economists
expecting increases in GDP of c. 4% over the next few years. I am
optimistic that the worst of the recession is over and continue to
believe that our portfolio companies are well positioned to benefit
from the improved economic climate. I am also encouraged to see
that there is renewed activity in the Russian IPO and M&A
market which suggests a better exit climate for our
investments."
Enquiries:
Aurora Russia Limited
Dan Koch +44 (0) 207 839 7112
Numis Securities Limited
Nominated Adviser: Hugh Jonathan +44 (0)20 7260 1000
Corporate Broking: Rupert Krefting / Nathan Brown
Financial Dynamics
Ed Gascoigne-Pees +44 (0) 20 7269 7132
Sue I Ong
Chairman's Statement
Introduction
I am pleased to present the results of Aurora Russia Limited
(the "Company" or "Aurora Russia") for the 6 months ended 30
September 2010.
Growth has now returned to Russia's economy with economists
expecting increases in GDP of c. 4% over the next few years. I am
optimistic that the worst of the recession is over and continue to
believe that our portfolio companies are well positioned to benefit
from the improved economic climate. I am also encouraged to see
that there is renewed activity in the Russian IPO and M&A
market which suggests a better exit climate for our
investments.
Results
For the 6 months to 30 September 2010, Aurora Russia and its
subsidiaries (the "Group") recorded a loss of GBP6.3 million or
(5.62p) per share, calculated on the weighted average number of
shares and based on the unaudited consolidated statement of
comprehensive income. The net asset value ("NAV") of the Company as
at 30 September 2010 was GBP93.2 million or 82.9p per share.
Company cash and cash equivalents at 30 September 2010 were GBP4.25
million.
Administration and operating expenses of GBP10.12 million
include Company costs of GBP2.03 million or 2.3% of the current
NAV. Operating costs of the Company's wholly owned subsidiaries
were GBP8.09 million.
The GBP2.03 million Company costs include costs of approximately
GBP0.3 million incurred in relation to the non-cash accrual of
GBP2.72 million for the options that may be issued to the Manager
under the previous incentive arrangements. This arrangement is
expected to be cancelled and transferred to shareholders' reserves
at the end of the current year.
The Annual General Meeting
I would also like to take this opportunity to thank our
shareholders for their support in the continuation vote at the AGM
on 3 December 2010 and the re-election to the Board of John
Whittle, Alexandr Dumnov and myself.
Continuation of the Company
The Directors considered that it was in the best interests of
the shareholders that the life of the Company be continued. The
Directors have always been committed to crystallise value for
shareholders through the sale of the Company's investments over a
sensible period of time and believe that the continuation of the
Company will enable the Company to achieve this in a controlled
manner, thereby maximizing shareholder value.
The Board has agreed that it will return all of the net cash
proceeds from realisations of the Company's assets to shareholders,
as long as the discount of the Company's share price is more than
20% of the latest published NAV of the Company. If for a period of
six months immediately preceding the sale of an asset the share
price discount to the NAV per share is less than 20%, then the
Board will have the discretion to make additional investments in
line with the strategy of the Company.
Management Fees and Incentivisation Arrangements
The Board indicated in the circular relating to the AGM that it
has agreed with the Manager to reduce the management fee from 2.0%
to 1.5% of NAV per annum with effect from 31 March 2011 and to put
in place a new incentive structure to better align its interests
with shareholders, replacing the current option programme for the
Manager. The new incentive structure would involve the payment of a
performance fee to the Manager, calculated by reference to a
percentage of the value of any disposals realised by the
Company.
In the event that any follow on investments are made by the
Company following the narrowing of the share price discount to NAV
as described above, it is proposed that the Manager will receive a
performance fee equal to 20% of the value of any amounts realised
on the disposal of such further investments in excess of the
amounts so invested. The 20% performance fee would be subject to a
hurdle rate which is expected to be at 12% per annum (the same as
the hurdle rate for the Manager's current incentive arrangements
under the Option Deed).
Composition of the Board
The Directors believe that it is right to strengthen the Board
where possible and the Board has agreed to appoint two new
Independent Directors to represent shareholders as a whole as soon
as practicable following the AGM. The Board does not intend to
increase the size of the Board from seven Directors by such
appointments, but rather two existing directors (including John
McRoberts) would step down so as to keep the Board at its current
size. The Board will consider in due course whether it is
appropriate to reduce the size of the Board to either six or five
Directors, provided that it can maintain a board with the skills
that are needed in a company such as Aurora Russia.
John McRoberts stepped down from the Board on 22 December 2010
and I would like to take this opportunity to thank him for his
contribution as a Director of the Company. John will continue to
provide his skill and expertise to the Company from within the
Manager.
Investment Review
Following the additional investment in OSG, Aurora Russia has
invested a total of GBP73.9 million into five companies and has
funds of GBP4.25 million remaining in the Company to allow for
small follow-on investments in its investee companies and to cover
its ongoing expenses.
Aurora Russia has five investments:
-- 26% of Unistream Bank, a leading Russian money transfer
company;
-- 100% of Kreditmart, a finance company distributing mortgages,
equity release loans and other consumer finance products;
-- 100% of Fleixinvest Bank which provides retail banking
services;
-- 95.5% of OSG, a regional market leader in records management;
and
-- 24.3% of SuperStroy, one of the leading DIY Retailers in
Russia
In all of our investee companies the local management and staff
have remained loyal and committed through this difficult period and
I would like to thank them for their hard work and dedication.
Portfolio Valuation
A valuation of the investment portfolio was performed at 30
September 2010, resulting in a small decrease in value from GBP92.2
million to GBP88.1 million. This interim valuation, recommended by
the Valuation Committee of the Board was prepared by the Manager
and formally adopted by the Board on 9 December 2010. These
valuations are prepared for accounting purposes only and comply
with International Private Equity and Venture Capital ("IPEV")
Valuation guidelines. The resultant valuations of investments
included in the Company's financial statements will not necessarily
reflect the market value that a third party would be prepared to
pay for these businesses.
The current valuation of Aurora Russia's shareholdings reflects
changes to the previous year valuation performed for March 2009 as
follows:
-- the value of the Company's 26% stake in Unistream Bank has
decreased by GBP2.6 million to GBP21.8 million, a decrease of
11%;
-- the value of Kreditmart and Flexinvest Bank has decreased by
GBP1.9 million to GBP20.3 million, a decrease of 9%;
-- the value of 95.5% of OSG's equity has increased by GBP0.6
million to GBP28.7 million, an increase of 2%; and
-- the value of the Company's 24.3% shareholding in SuperStroy
has decreased by GBP0.2 million to GBP17.3 million, a decrease of
1%.
In assessing these changes, one should take into consideration
that over the period there was c. 9% unfavorable movement in the
GBP/RUR exchange rate. Therefore the movement of values may be
distorted by currency translation effects and may not be the best
reflection of the performance of an underlying asset during the
reporting period.
Outlook
I share the view that a number of economists have about GDP
growth in the emerging markets outperforming growth in the
developed world by some margin over the next couple of years.
According to recent forecasts, Russia will grow at rates of around
4% in the next two years.
Such events as the 2014 Winter Olympics in Russia and the FIFA
World Cup in 2018 mean that Russia is at the beginning of a new
infrastructure development cycle benefiting many sectors of the
Russian economy, particularly construction with Unistream and
potentially Superstroy having direct benefits from this trend.
The recovery of consumption which is the key driver that our
investee companies need to generate further growth is perhaps
happening slightly more slowly than many anticipated. Similar to
the 1998 financial crisis, the recent crisis affected confidence in
the future for both business and the consumer, which takes time to
be restored, but it seems we are noticing the first signs of that
confidence returning.
Dan Collinson Koch
Chairman of the Board
Aurora Russia Limited
Date: 22 December 2010
Investment Manager's Report
Overview
In the six months to 30 September 2010 our investee companies
focused on returning to a strategy of growth as the recovery of the
Russian economy took hold.
We are delighted to report that OSG, Unistream and Superstroy
are all expected to post profits for the year ending 31 December
2010 and that all three companies remain leaders in their field;
OSG is the largest records management company in Russia, Ukraine
and Kazakhstan, Unistream is the leading outbound money transfer
company in Russia and Superstroy is the leading DIY company in the
Urals Region of Russia.
Kreditmart and Flexinvest Bank continue to face challenges in
capturing market share as much of the volume of mortgages is still
going through the large state-owned Russian banks. However, there
remains enormous potential in the sector and both Kreditmart and
Flexinvest Bank continue to find opportunities for capturing market
share as the market recovers.
Since the Company's IPO in March 2006, Aurora Russia has
invested a total of GBP73.9 million in five companies. The
companies are valued at 30 September 2010 at GBP88.1 million,
representing a decrease of 4.5% since 31 March 2010. The 9%
depreciation of the Rouble against Sterling is largely responsible
for this decrease.
It is worth mentioning that all our investee companies currently
report on a calendar year basis and therefore the updates below
will be for the nine months ended September 2010 rather than the
six months ending on that date.
OSG Records Management
OSG had a record month in September 2010 in terms of revenues,
which were GBP1.2 million, up 40% from the prior year period and
representing 9% growth over the previous month. The company's
contractual storage business showed a solid performance during the
first nine months of 2010 with storage revenue up 24% while
services business grew 22%. OSG continued to expand in the Russian
regions by adding offices in nine new cities and recently launching
operations in Armenia. The number of boxes in storage in September
2010 increased 26% over September 2009.
Growth in services remained challenging in 2010 as many
businesses budgeted for 2010 on the assumption that recovery from
the financial crisis would take more time and focused budgets on
cost-cutting. OSG's management believes that 2011 will see
acceleration of growth in services due to the pent-up demand as a
result of cost savings by many of OSG's clients during the
financial crisis.
For the nine months to 30 September 2010, OSG reported revenues
of GBP9.78 million compared to GBP7.95 million for the same period
in 2009. EBITDA was GBP1.35 million up 20% year-on-year ("YoY") for
the same period.
In Russia and Poland, OSG has been able to finance the purchase
of warehouse racking and vehicles through finance leases. At 30
September 2010, the outstanding balance on its lease financing was
c. GBP2.3 million.
The valuation of the investment in OSG at 30 September 2010
resulted in an uplift of GBP0.6 million to GBP28.7 million compared
to the valuation at 31 March 2010 of GBP28.1 million.
Unistream Bank
According to the Central Bank of Russia, the money transfer
market began to recover with outbound transfers in the nine month
period to 30 September 2010 up by 29% YoY in US$ terms. Russia's
inbound transfers grew 9% in the same time period.
Figures released from the CBR in early December estimate that
Unistream's share of the Russia-outbound remittances market has
dropped from 20.8% to 19.2% as at Q3 2010. However, Unistream's
share in the Russia-inbound remittances grew to 12.1% as of Q3
2010, from 9.4% in Q1 2010.
To improve customer retention, Unistream launched its loyalty
programme in August 2010 and by November 187,000 customers had been
issued with loyalty cards. So far statistics show that on the cards
issued in September 56% were used again in October in money
transfer transactions.
Unistream has recently started offering mobile transfers with a
number of mobile operators in Russia. The volume of mobile
transfers has seen steady monthly growth to RUR160.8 million in
September up from RUR142.7 million in August and RUR126.6 million
in July.
Unistream's remittance volume for the nine month period to 30
September 2010 was down 2% YoY with revenue down by 10.1% in RUR
terms at RUR1.5 billion compared to the same period in the prior
year. At the same time, due to cuts in advertising and
company-owned cash desk running costs, operating expenses reduced
11% YoY. Volumes have started to grow again in August and September
with a 10.9% and 9.7% YoY increase respectively.
The valuation of the 26% stake in Unistream Bank at 30 September
2010 resulted in a write down of GBP2.6 million to GBP21.8 million
compared to the valuation at 31 March 2010 of GBP24.4 million.
Kreditmart
Government statistics show that the volume of mortgages in
Russia more than doubled in the first seven months of 2010 to
RUR192 billion from RUR82 billion over the same period in 2009.
While we see growth in the mortgage market, private banks find it
difficult to compete with terms offered by the state banks posing
challenges for brokers. The share of mortgages written by top three
state banks in 1H 2010 was at 72%.
As a broker, Kreditmart does not act as a lender but instead
selects the best loans for its customers among offers from over 50
banks.
Kreditmart's customer acquisition efforts are geared towards two
web sites: www.kreditmart.ru and a recently launched site:
www.besmart.ru with the latter allowing consumers to do their own
comparison of mortgage and consumer loan products directly online.
Fees from leads generated by the site are paid by participating
banks to Kreditmart.
The bulk of Kreditmart's fee and commission income is from
approval fees. Customers pay a fee of 1.5% and 5% for mortgages and
consumer loans respectively. Kreditmart's broker revenues were
GBP424,000 for the nine months ended 30 September 2010. This
represents an increase of 156% compared to the prior year period,
due to the increased growth in the number of mortgages and consumer
loans versus 2009.
Flexinvest Bank
Flexinvest began to offer its clients mortgages again in Q1 2010
when the market began to show the first signs of recovery. Given
the current shortage of long-term funding for mortgages, its model
relies on originating mortgage loans for further on-sale to its
partner banks. New mortgages are held on the bank's balance sheet
for an average of 40 days before they are sold to Flexinvest's
partners. Flexinvest collects fee and interest income from its
customers and in some cases, up to a 1% premium on the book value
of loans it sells.
Flexinvest's interest and fee income grew 47% compared to the
prior year period and reached GBP746,000 for the nine months ended
30th September 2010 (growth is due to the transfer of loans).
Although there is a positive trend in the number of loans
written by Flexinvest Bank, scalability of its current business
model relies on availability of long-term funding and therefore the
management intends to focus on retail deposits in 2011 and to offer
a new consumer loan product.
As of 30 September 2010, Flexinvest and Kreditmart had GBP18.0
million in net assets down from GBP19.7 million as of 31 March
2010. The valuation of Flexinvest and Kreditmart at 30 September
2010 resulted in a write down of GBP1.9 million to GBP20.3 million
compared to the valuation at 31 March 2010 of GBP22.2 million. We
attribute GBP1.3 million of this change to the depreciation of the
Rouble against Sterling.
SuperStroy
The growth rate of the Russian retail sector dropped severely
last year due to worsening economic conditions, weakening
purchasing power growth and the depreciating rouble. As a result,
the retail market's value increased by only 5% in 2009 while its
share of non-food retail decreased by three percentage points as
sales of durables dropped. Nevertheless, the situation has improved
this year with a 9% growth forecast, and the retail market is
expected to once again reach double-digit growth rates in
subsequent years. Superstroy's management estimates that the DIY
market will grow around 10% in 2010.
Superstroy grew its revenues by 32% YoY in September following
growth of 28% YoY in August and 23% YoY in July. Superstroy began
to grow again in April following the global financial crisis.
Superstroy resumed its growth strategy in May 2010 opening three
new stores increasing its trade space by 10.8 %. All three stores
have outperformed their budgets.
For the nine months ended 30 September 2010, the Superstroy's
revenues have increased 13% YoY in local currency terms to RUR 4.93
billion with wholesale revenues generating growth of 29% while
retail sales were up 9%.
In spite of opening new stores which typically operate at a loss
in their first several months, Superstroy managed to deliver 8%
growth in EBITDA to RUR 115 million as compared to the same period
of 2009. Adjusted for pre-opening costs, EBITDA grew 43.6% to RUR
153 million.
At 30 September 2010, the outstanding balance on the two loan
facilities was RUR 0.62 billion (approximately GBP12.8 million).
The interest rate (before fees) is charged at c.11.0% per
annum.
The valuation of Superstroy as at 30 September 2010 resulted in
a slight write down of GBP0.2 million for Aurora Russia's 24.3%
stake to GBP17.3 million compared to the valuation at 31 March 2010
of GBP17.5 million.
Conclusion
The Manager is encouraged that growth has now returned to Russia
which is a strong driver for all Aurora Russia's investee
companies. We continue to look for the best exit opportunities for
all of the investments and believe that the prospects for
attractive exits have improved as strategic buyers and investors
look to Russia as a market for growth. This has recently been
demonstrated by a surge of M&A and IPO activity involving
Russian companies.
Aurora Investment Advisors Limited
December 2010
Independent Review Report to Aurora Russia Limited
We have been engaged by the Company to review the unaudited
condensed set of financial statements in the half year financial
report for the six months ended 30 September 2010 which comprise
the unaudited condensed half year consolidated statement of
comprehensive income, the unaudited condensed half year company
statement of comprehensive income, the unaudited half year
condensed consolidated statement of financial position, the
unaudited condensed half year company statement of financial
position, the unaudited condensed half year consolidated statement
of changes in equity, the unaudited condensed half year
consolidated statement of cash flows and related explanatory notes.
We have read the other information contained in the half year
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the unaudited condensed set of financial statements.
This report is made solely to the Company, in accordance with
the terms of our engagement letter dated 4 November 2010. 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 reached.
Directors' responsibilities
The half year financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the half year 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 unaudited condensed set of
financial statements included in this half year 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 unaudited condensed set of financial statements in the half
year 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 Independent
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 unaudited condensed set of financial
statements in the half year financial report for the six months
ended 30 September 2010 is not prepared, in all material respects,
in accordance with International Accounting Standard 34.
PO Box 20
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Unaudited Condensed Half Year Consolidated Statement of
Comprehensive Income
For the 6 month period 1 April 2010 to 30 September 2010
1 April 2010 1 April 2009
to 30 September to 30 September
2010 2009
Notes GBP'000 GBP'000
Revenue 7,905 1,078
---------------- ----------------
- Fees 372 120
- Storage 3,382 -
- Warehousing, transport, data
processing & other 3,435 -
- Interest on long term mortgages
and other loans 503 505
- Interest 102 334
- Dividends 111 119
---------------- ----------------
Administration and operating
expenses 3 (10,115) (3,373)
Fair value movements on
revaluation of investments 10 (2,806) 5,081
Exchange losses (979) (728)
Operating (loss)/ income (5,995) 2,058
---------------- ----------------
Interest expense (285) (5)
(Loss)/ profit before tax (6,280) 2,053
Income tax expense 4 (47) (63)
(Loss)/ profit for the period (6,327) 1,990
---------------- ----------------
Other comprehensive income
Foreign currency translation differences
for foreign operations (651) 81
Total comprehensive (loss)/
income for the period (6,978) 2,071
================ ================
(Loss)/ profit attributable to:
Owners of the Company (6,322) 1,990
Non-controlling interest (5) -
(Loss)/ profit for the period (6,327) 1,990
================ ================
Total comprehensive (loss)/
income attributable to:
Owners of the Company (6,964) 2,071
Non-controlling interest (14) -
Total comprehensive (loss)/
income for the period (6,978) 2,071
================ ================
Basic and diluted (loss)/ (5.62p) 2.65p
earnings per share
================ ================
All items in the above statement derive from continuing
operations.
The accompanying notes on pages 16 to 27 form an integral part
of these financial statements.
Unaudited Condensed Half Year Company Statement of Comprehensive
Income
For the 6 month period 1 April 2010 to 30 September 2010
1 April 2010 1 April 2009
to 30 September to 30 September
2010 2009
Notes GBP'000 GBP'000
Revenue 120 338
---------------- ----------------
- Interest 9 219
- Dividends 111 119
---------------- ----------------
Administration and operating
expenses 3 (2,030) (1,536)
Fair value movements on
revaluation of investments 10 (4,100) 2,478
Exchange losses (30) (9)
Operating (loss)/ profit before
tax (6,040) 1,271
---------------- ----------------
Income tax expense 4 - -
Profit and total comprehensive (loss)/
income for the period (6,040) 1,271
================ ================
Basic and diluted (loss)/ (5.37p) 1.69p
earnings per share
================ ================
All items in the above statement derive from continuing
operations.
The accompanying notes on pages 16 to 27 form an integral part
of these financial statements.
Unaudited Condensed Half Year Consolidated Statement of
Financial Position
As at 30 September 2010
30 September 31 March
2010 2010
Notes GBP'000 GBP'000
Non-current assets
Goodwill 5 14,164 14,164
Other intangible assets 6 10,612 11,078
Plant and equipment 7 6,738 6,444
Investments - at fair value through
profit and loss 10 40,179 43,085
Loans and advances to customers 11 7,742 8,618
Deferred tax assets 4 177 190
79,612 83,579
------------- ---------
Current assets
Trade and other receivables 4,353 4,450
Cash and cash equivalents 9,745 13,242
Assets classified as held for sale 8 845 845
14,943 18,537
------------- ---------
Total assets 94,555 102,116
------------- ---------
Non-current liabilities
Finance Leases 1,490 1,567
Deferred tax liability 4 1,709 1,699
3,199 3,266
------------- ---------
Current liabilities
Finance leases 270 719
Tax payable 414 -
Trade and other payables 12 3,789 4,602
4,473 5,321
------------- ---------
Total liabilities 7,672 8,587
------------- ---------
Total net assets 86,883 93,529
============= =========
Equity
Share capital 1,125 1,125
Special reserve 84,073 84,073
Share options reserve 2,768 2,437
Retained earnings (465) 5,857
Non-controlling interest 487 500
Translation reserve (1,105) (463)
Total equity 86,883 93,529
============= =========
Net asset value per share - basic and 77.2p 83.1p
diluted
============= =========
The accounts on pages 10 to 27 were approved by the Board of
Directors on 22 December 2010 and signed on its behalf by:
Director Director
Date: 22 December 2010
The accompanying notes on pages 16 to 27 form an integral part
of these financial statements.
Unaudited Condensed Half Year Company Statement of Financial
Position
As at 30 September 2010
30 September 31 March
2010 2010
Notes GBP'000 GBP'000
Non-current assets
Investment in subsidiaries - at fair
value through profit and loss 9 49,000 50,300
Investments - at fair value through
profit and loss 10 39,100 41,900
88,100 92,200
------------- ---------
Current assets
Trade and other receivables 1,226 1,171
Cash and cash equivalents 4,250 5,704
5,476 6,875
------------- ---------
Total assets 93,576 99,075
Current liabilities
Trade and other payables 12 330 89
Total liabilities 330 89
------------- ---------
Total net assets 93,246 98,986
============= =========
Equity
Share capital 1,125 1,125
Special reserve 84,073 84,073
Share options reserve 2,720 2,420
Revenue reserve 5,328 11,368
Total equity 93,246 98,986
============= =========
Net asset value per share - basic and 82.9p 88.0p
diluted
============= =========
The accounts on pages 10 to 27 were approved by the Board of
Directors on 22 December 2010 and signed on its behalf by:
Director Director
Date: 22 December 2010
The accompanying notes on pages 16 to 27 form an integral part
of these financial statements.
Unaudited Condensed Half Year Consolidated Statement of Changes
in Equity
For the 6 month period 1 April 2010 to 30 September 2010
Share Non-
Share Special Options Retained Translation controlling
Capital Reserve Reserve earnings Reserves Total Interest Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the year 1
April 2009 to
30 September
2009
Balance as at 1
April 2009 750 70,750 1,820 5,320 (810) 77,830 - 77,830
Total
comprehensive
income for the
period
Profit for the
period - - - 1,990 - 1,990 - 1,990
Other
comprehensive
income for the
period
Foreign
currency
translation
profit - - - - 81 81 - 81
Transactions with
owners, recorded
directly in equity
Contributions
and
distributions
to owners
Recognition of
share-based
payments - - 300 - - 300 - 300
At 30 September
2009 750 70,750 2,120 7,310 (729) 80,201 - 80,201
======== ======== ======== ========= ============ ======== ============ ========
For the period
1 April 2010 to
30 September
2010
Balance as at 1
April 2010 1,125 84,073 2,437 5,857 (463) 93,029 500 93,529
Total
comprehensive
income for the
period
Loss for the
period - - - (6,322) - (6,322) (5) (6,327)
Other
comprehensive
income for the
period
Foreign
currency
translation
loss - - - - (642) (642) (9) (651)
Transactions with
owners, recorded
directly in equity
Contributions
and
distributions
to owners
Recognition of
share based
payments - - 331 - - 331 1 332
At 30 September
2010 1,125 84,073 2,768 (465) (1,105) 86,396 487 86,883
======== ======== ======== ========= ============ ======== ============ ========
The accompanying notes on pages 16 to 27 form an integral part
of these financial statements.
Unaudited Condensed Half Year Consolidated Statement of Cash
Flows
For the 6 month period 1 April 2010 to 30 September 2010
1 April 2010 1 April 2009
to 30 September to 30 September
Notes 2010 2009
Cash flows from operating
activities GBP'000 GBP'000
(Loss)/ profit before tax (6,280) 2,053
Interest on long term mortgages
and other loans (503) (505)
Interest income (102) (334)
Dividend income (111) (119)
---------------- ----------------
(6,996) 1,095
Adjustments for movements in
working capital:
Decrease in operating trade
and other receivables 122 1,019
Decrease in operating trade
and other payables (1,048) (429)
Adjust for:
Revaluation of investments 10 2,806 (5,081)
Recognised share based payments 332 300
Exchange losses 897 728
Interest expense 285 5
Loss on property, plant and
equipment written off 4 87
Depreciation and amortisation 835 161
Provision for loan losses (315) (428)
Reserve for aged recievables (56) -
Interest paid (22) (5)
Taxation paid (23) -
Dividends received 111 119
Bank and loan interest received 610 681
Loss on forex contract closed
out - (46)
Increase in non-current assets
held for sale 8 - (191)
Loans advanced to customers 455 407
Net cash outflow from operating
activities (2,003) (1,578)
---------------- ----------------
Cash flows from investing
activities
Proceeds from the disposal of
Bonds 36 -
Acquisition of plant and
equipment (686) (47)
Loans advanced to associated
company - (307)
Increase in deposits 29 112
Net cash outflow from investing
activities (621) (242)
---------------- ----------------
Cash flows from financing
activities
Financial lease payments -
principal (431) -
Financial lease payments -
interest (272) -
Net cash outflow from financing
activities (703) -
---------------- ----------------
Net decrease in cash and cash
equivalents (3,327) (1,820)
---------------- ----------------
Opening cash and cash equivalents 13,242 12,022
Effect of exchange rate changes (170) 3
Closing cash and cash equivalents 9,745 10,205
================ ================
The accompanying notes on pages 16 to 27 form an integral part
of these financial statements.
Notes to the Unaudited Condensed Half Year Consolidated
Financial Statements
For the 6 month period 1 April 2010 to 30 September 2010
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
2.1 Basis of 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 the annual financial
statements, and should be read in conjunction with Aurora Russia
Limited's audited report and financial statements for the year
ended 31 March 2010. The condensed interim financial statements
were approved by the Board of Directors on 22 December 2010.
2.2 Accounting period
The comparative numbers used for the condensed half year
consolidated statement of comprehensive income, condensed half year
company statement of comprehensive income, condensed half year
consolidated statement of changes in equity and condensed half year
consolidated statement of cash flows are that of the half year
period ended 30 September 2009, which is considered a comparable
period as defined per IAS 34. The comparatives used in the
condensed half year consolidated and company statements of
financial position are that of the previous financial year end, 31
March 2010.
2.3 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 year ended 31
March 2010. The following standards, amendments to standards and
interpretations, effective in future accounting periods, and which
are relevant to the Company and the Group, have not been early
adopted in these financial statements:
-- IAS 24 Related Party Transactions (Revised) - for accounting
periods commencing on or after 1 January 2011
The definition of related party has been clarified to simplify
the identification of related party relationships, particularly in
relation to significant influence and joint control. However, the
company has taken advantage of the exemption available to it under
IAS 28 and the standard is not expected to have a significant
impact on the financial statements. This standard will be adopted
retrospectively for the first time for the year ending 31 March
2012.
-- IFRS 9 Financial Instruments- for accounting periods
commencing on or after 1 January 2013
IFRS 9 deals with classification and measurement of financial
assets and its requirements represent a significant change from the
existing requirements in IAS 39 in respect of financial assets:
amortised cost and fair value. Financial assets are measured at
amortised cost when the business model is to hold assets in order
to collect contractual cash flows. All other financial assets are
measured at fair value with changes recognised in profit or loss.
For an investment in an equity instrument that is not held for
trading, an entity may on initial recognition elect to present all
fair value changes from the investment in other comprehensive
income. IFRS 9 will be adopted for the first time for the year
ending 31 March 2014 and will be applied retrospectively, subject
to certain transitional provisions. The company is currently in the
process of evaluating the potential effect of this standard. The
standard is not expected to have a significant impact on the
financial statements since all of the company's financial assets
are designated at fair value through profit and loss.
2.4 Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for
allocating resources, assessing performance of the operating
segments and making strategic decisions, has been identified as the
Board of Directors of Aurora Russia Limited.
2.5 Investments
Unquoted investments, including investments in subsidiaries, are
designated as fair value through profit or 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
Valuation ('IPEV') Board's guidelines. Unrealised gains and losses
arising from the revaluation of investments are taken directly to
profit or loss. 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 profit or
loss.
The Group has taken advantage of the exemption available to it
under IAS 28, 'Investments in associates' and is accounting for the
investments in Unistream and Grindelia at fair value through profit
or loss, which normally as a result of the size of the stake in
these two companies would potentially qualify as associated
companies and would be required to be equity accounted.
2.6 Impairment of tangible and intangible assets excluding
goodwill
At each reporting 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 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 statement of comprehensive
income.
2.7 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 Group. 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 statement of comprehensive income.
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.
The estimated useful lives for the current and comparative
periods are as follows:
Software 10 years
Customer base - large customers 15 years
Customer base - small customers 10 years
Trademark and banking licence Indefinite
2.8 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 statement of comprehensive income and is not
subsequently reversed.
2.9 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 statement
of comprehensive income according to the 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 of Kreditmart and Flexinvest.
2.10 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 and the impairment loss allowance on loans to
customers. 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 year ended 31 March 2010.
2.11 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. Administration and operating expenses
1 April 1 April 2009
2010 to 30 to 30
September September
2010 2009
GBP'000 GBP'000
Company
Investment
management fee 990 876
Auditors'
remuneration * 317 22
Directors'
remuneration 87 94
Share-based
payments 300 300
Other operating
and administrative
expenses
- Administration
fees 37 51
- Professional
fees 171 83
- Marketing Costs 53 41
- Other 75 69
2,030 1,536
------------ -------------
Kreditmart and
Flexinvest
Auditors'
remuneration 26 52
Directors'
remuneration 112 89
Other operating
and administrative
expenses
- Administration
fees 25 -
- Professional
fees 15 15
- Marketing costs 170 209
- Personnel 958 904
- Premises 268 380
- Depreciation 137 161
- Credit losses
and LLP (321) (230)
- Other 153 257
1,543 1,837
------------ -------------
OSGRME
Auditors'
remuneration 47 -
Directors'
remuneration 170 -
Share-based
payments 32 -
Other operating
and administrative
expenses
- Administration
fees 11
- Professional
fees 66 -
- Marketing Costs 107 -
- Personnel 2,623 -
- Premises 1,818 -
- Depreciation 699 -
- Other 969 -
6,542 -
------------ -------------
Total for the
Group 10,115 3,373
============ =============
* Following the acquisition of OSG the Board of the
Company have decided to meet the non-statutory audit
costs of the Russian entities. These being audit costs
associated with IFRS and Group reporting requirements
beyond those that a Russian entity would not ordinarily
expect to bear if it were only reporting under Russian
GAAP. The intention of the Board of the Company is
to avoid depressing earnings of these entities on
which an eventual sale price is likely to be determined.
4. Tax
Group
Kreditmart and
Flexinvest
Current tax charge (57) (47)
Deferred tax
(charge) 54 (16)
(3) (63)
------------ -------------
OSGRME
Current tax charge (28) -
Deferred tax
charge (16) -
(44) -
------------ -------------
Net tax charge to
the statement of
comprehensive
income (47) (63)
============ =============
The Company is exempt from Guernsey taxation on income
derived outside Guernsey and bank interest earned
in Guernsey.
The Group is liable to pay tax at a rate of 20% (2009:
20%) arising on its activities in Russia.
The Group is liable to pay tax at a rate of 10% (2009:
10%) arising on its activities in Cyprus.
The Group is liable to pay tax at a rate of 19% (2009:
19%) arising on its activities in Poland.
The Group is liable to pay tax at a rate of 25%, 20%,
20% and 10% arising on its activities in Ukraine,
Kazakhstan, Armenia and Bulgaria respectively.
Group
30
Kreditmart and 30 September 30 September September 31 March
Flexinvest 2010 2010 2010 2010
Deferred tax
asset/(liability)
comprises: GBP'000 GBP'000 GBP'000 GBP'000
Assets Liabilities Net Net
-
Investments - (2) (2) -
Loans to customers - (5) (5) 5
Other assets 62 - 62 48
Other liabilities 16 (22) (6) 14
Tax loss
carry-forwards 128 - 128 123
206 (29) 177 190
============= ============= ============ =============
OSG Records 30
Management 30 September 30 September September 31 March
(Europe) Limited 2010 2010 2010 2010
Deferred tax
asset/(liability)
comprises: GBP'000 GBP'000 GBP'000 GBP'000
Assets Liabilities Net Net
Finance leases - (160) (160) (94)
Intangibles - (1,549) (1,549) (1,605)
- (1,709) (1,709) (1,699)
============= ============= ============ =============
Group deferred tax
asset 177 190
============ =============
Group deferred tax
liability (1,709) (1,699)
============ =============
5. Goodwill
30
September 31 March
Group 2010 2010
GBP'000 GBP'000
Opening balance 14,164 -
Recognised on acquisition of OSG
Records Management (Europe)
Limited - 14,164
Closing balance 14,164 14,164
============ =============
No impairment of goodwill on acquisition of OSGRME
was necessary at 31 March 2010 based on the increase
in the valuation of OSGRME.
In accordance with the valuation at 31 March 2010
performed in respect of Kreditmart by an independant
valuer, the goodwill acquired was impaired in full.
This is as a result of significant decreases in the
Russian mortgage market which resulted in the reduction
in value of loans.
No impairment losses have been recognised in respect
of these intangibles in the 6 month period ended 30
September 2010.
6. Intangible
assets
30
September 31 March
2010 2010
GBP'000 GBP'000
Cost:
Opening balance 11,078 2,273
Currency
revaluation (182) 203
Recognised on
acquisition of
subsidiaries - 8,744
Amortisation of
intangibles (284) (142)
Closing balance 10,612 11,078
============ =============
Reconciliation
of intangibles
Banking Internally OSGRME Customer Customer
base - base -
licence generated Trademark large small Total
software
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Carrying
amount:
At 1 April 2010 2,476 150 598 7,381 615 11,220
Exchange
movements (182) - - - - (182)
At 30 September
2010 2,294 150 598 7,381 615 11,038
-------- ----------- ---------- --------- --------- --------
Amortisation:
At 1 April 2010 - (4) - (123) (15) (142)
-
Charge for the
period - (8) - (246) (30) (284)
At 30 September
2010 - (12) - (369) (45) (426)
-------- ----------- ---------- --------- --------- --------
Carrying
amount:
At 30 September
2010 2,294 138 598 7,012 570 10,612
======== =========== ========== ========= ========= ========
Carrying
amount:
At 30 September
2009 2,299 - - - - 2,299
======== =========== ========== ========= ========= ========
The valuation of the banking licence was considered by the
Valuation Committee and independent reputable valuer and based on
fair market values less costs to sell, it was determined that no
impairment was required.
The fair valuation of the intangibles at acquisition date of
OSGRME was determined by an independent 3rd party using various
valuation methods: the Cost Approach (using historcial costs and
consumer price inflation), and the Income Approach (using the
Multiple Excess Earnings method and Discounted Cash Flow
Analysis).
The banking licence and the trademark are both considered by the
Directors to have an indefinite useful life. They are expected to
generate value indefinitely. The banking licence is registered in
Moscow and the OSGRME trademark is registered in Russia, Poland and
Ukraine. Furthermore, there were no impairment indicators
identified by the Directors in respect of the other intangibles
that were subject to amortisation.
Plant and
7. equipment
Furniture
Vehicles Fixtures and and
Group fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost:
At 1 April 2010 753 4,609 1,958 7,320
Additions 364 602 441 1,407
Disposals (65) (98) (172) (335)
Exchange movements
on disposals (58) (327) (108) (493)
At 30 September
2010 994 4,786 2,119 7,899
--------- ------------- ------------- --------------
Accumulated
depreciation:
At 1 April 2010 (53) (305) (516) (874)
Charge for the
period (117) (195) (238) (550)
Disposals 41 95 127 263
At 30 September
2010 (129) (405) (627) (1,161)
--------- ------------- ------------- --------------
Net book
value:
At 1 April 2010 700 4,304 1,442 6,444
--------- ------------- ------------- --------------
At 30 September
2010 865 4,381 1,492 6,738
========= ============= ============= ==============
The useful
lives of the
assets are
estimated as
follows:
Fixtures and
fittings
Fixtures and
fittings 3-4 years
Warehouse
equipment &
racks 5-20 years
Furniture &
equipment
Office
equipment 5-10 years
Furniture 5 years
Equipment 3 years
Hardware 2-5 years
Assets
classified as 30 September
8. held for sale 2010 31 March 2010
Group GBP'000 GBP'000
At beginning
of period 845 -
Additions - 914
Disposals - (69)
At end of period 845 845
------------- --------------
Assets classified as held for sale are the property (flat,
cottage and land plot) received after mortgage foreclosure. The
assets are available for immediate sale in their present condition.
A potential buyer has been found for the flat, and Kreditmart
expects to sell the other assets within one year. The assets are
recognised at fair value less costs to sell.
9. Investment in subsidiaries
Company 30 September 2010 31 March 2010
GBP'000 GBP'000
OSG Records Management (Europe) Limited
At beginning of period 28,100 -
Reclassification for investments at fair
value through profit or loss - 13,600
Acquisition of subsidiary - 8,584
Additions - 600
Fair value revaluation 600 5,316
At end of period* 28,700 28,100
------------------ --------------
Kreditmart
At beginning of period 15,749 16,549
Additions - -
Fair value revaluation * (1,900) (800)
At end of period* 13,849 15,749
------------------ --------------
Flexinvest Limited
Opening and closing balance 6,451 6,451
------------------ --------------
49,000 50,300
================== ==============
* The revaluation performed on Kreditmart includes the value of
Flexinvest Limited as at 30 September 2010, and as such, no
revaluation was performed on Flexinvest Limited.
The Valuation Committee approves the valuations at each
period/year end. The valuation of the subsidiaries and investments
at 30 September 2010 was performed by Aurora Investment Advisors
Limited, whom the Valuation Committee considers to have the
necessary expertise. At each 31 March year end, the valuation is
performed by an independent reputable valuer with the necessary
experience in valuing investments of this nature.
Methodologies and assumptions used in valuing investments and
investments in subsidiaries:
1) Market Approach:
The market comparable method indicates the market value of the
ordinary shares of a business by comparing it to publicly traded
companies in similar lines of business. The conditions and
prospects of companies in similar lines of business depend on
common factors such as overall demand for their products and
services. An analysis of the market multiples of companies engaged
in similar businesses yields insight into investor perceptions and,
therefore, the value of the subject company.
In the market approach, recent sales and listings of comparable
assets are gathered and analysed. After identifying and selecting
the comparable publicly traded companies, their business and
financial profiles are analysed for relative similarity. Price or
EV multiples of the publicly traded companies are calculated and
then adjusted for factors such as relative size, growth,
profitability, risk, and return on investment. The adjusted
multiples are then applied to the relevant element of the subject
company's business.
All valuations of unquoted investments and investments in
subsidiaries (collectively referred to as the "portfolio") were
performed using either an enterprise value/revenue or enterprise
value/EBITDA multiple (except for Kreditmart and Flexinvest where a
Net Asset Assets Approach ie a price/book value approach was used).
23%, by value at year end, of the portfolio was valued using a
price/book valuation approach (31 March 2010: 24%) with the
remaining 77% (31 March 2010: 76%) of the portfolio being valued
using an enterprise value/revenue multiple and enterprise
value/EBITDA multiple approach.
The key assumptions in the valuations were as follows:
- Liquidity discount: 15%-20% (31 March 2010: 15%-20%)
2) Income Approach:
The income approach methodology is used a a cross-check for the
Market Approach and indicates the market value of a business
enterprise based on the present value of the cash flows that the
business can be expected to generate in the future. Such cash flows
are discounted at a discount rate that reflects the time value of
money and the risks associated with the cash flows.
The financial statements of the Group consolidate the results,
assets and liabilities of the subsidiary companies listed
below:
Name of
subsidiary Country of Class of % of class Principal
undertaking incorporation share held activity
OSG Records
Management
(Europe)
Limited Cyprus Ordinary 95.5% Financing
Document
OSG Records storage,
Management data
Center security
Limited and records
Liability management
Company* Russia Ordinary 100.0% services
OSG Polska
Limited
Liability
Company* Poland Ordinary 100.0%
OSG Records
Management
Limited
Liability
Company* Ukraine Ordinary 100.0%
OSG Records
Management
Limited
Liability
Company* Kazakhstan Ordinary 100.0%
OSG Records
Management
Limited
Liability
Company* Armenia Ordinary 100.0%
OSG Records
Management
Limited
Liability
Company* Bulgaria Ordinary 100.0%
Kreditmart Cyprus Ordinary 100.0% Consumer
Finance finance
Limited
Flexinvest Cyprus Ordinary 100.0% Investment
Limited holding
Volzhski Russia Ordinary 100.0% Banking and
Universalny finance
Bank ("VUB")
Limited**
* Direct subsidiaries of OSG Records Management (Europe) Limited
and indirect subsidiaries of the Company.
** VUB is held directly by Kreditmart and Flexinvest and is an
indirectly held subsidiary of the Company.
10. Investments - at fair value through profit and loss
30 September 30 September 31 March 31 March
2010 2010 2010 2010
GBP'000 GBP'000 GBP'000 GBP'000
Group Company Group Company
OSG Records
Management
(Europe)
Limited
(investment in
subsidiary at 31
March 2010 - see
note 9) - - - -
Unistream Bank 21,800 21,800 24,400 24,400
Grindelia
Holdings 17,300 17,300 17,500 17,500
Quoted
investments 1,079 - 1,185 -
Total
investments at
fair value
through profit
and loss 40,179 39,100 43,085 41,900
============= ============= ============= ==============
1 April 2010 1 April 2010 1 April 2009 1 April 2009
to 30 to 30 to 30 to 30
September September September September
2010 2010 2009 2009
GBP'000 GBP'000 GBP'000 GBP'000
Group Company Group Company
OSG Records
Management
(Europe)
Limited (see
note 9) - 600 (1,222) (1,222)
Unistream Bank (2,600) (2,600) 4,700 4,700
Grindelia
Holdings (200) (200) 1,600 1,600
Quoted
investments (6) - 3 -
Kreditmart and
Flexinvest (see
note 9) - (1,900) - (2,600)
Total unrealised
(losses)/
gains (2,806) (4,100) 5,081 2,478
============= ============= ============= ==============
The Directors of the Company have set aside GBP2.6 million as a
capital commitment for the future purchase of a warehouse by
OSGRME. On 30 March 2010, GBP0.6 million share capital injection
was made by the Company into OSGRME for 'racking', 1,822 shares
were issued by OSGRME in this regard, which thus increased the
Company's overall holding in OSGRME to approximately 95.52%.
As a result of the size of the stakes in these two companies,
Unistream (and OSGRME up to 12 January 2010 when a controlling
interest was acquired) could potentially qualify as associated
companies, which would normally require that they be equity
accounted in the books of the Company. However, the Company has
taken advantage of the exemption available to it under IAS 28, and
hence accounts for these as investments at fair value through
profit or loss.
On 30 June 2009, the Company entered into an agreement with
Grindelia Holdings Limited to borrow RUR 5,832,000 on 20 February
2010 for 1 year with an interest rate of 1% per annum. The Company
receives quarterly payments in advance of Grindelia Holdings
Limited declaring a dividend.
In the view of the Valuation Committee, the value of the
investment in Unistream Bank and Grindelia Holdings Limited as at
30 September 2010 was estimated at GBP 21.8 million (31 March 2010:
GBP 24.4 million), and GBP 17.3 million (31 March 2010: GBP 17.5
million) respectively.
11. Loans and advances to customers
Group
31 March
30 September 2010 2010
GBP'000 GBP'000
Residential mortgages 7,742 8,618
================== =========
Reconciliation of impairment loss allowance on
loans to customers:
Balance at beginning of the year/period 938 1,912
Movement in allowance for loan losses (362) (974)
Translation differences - -
576 938
================== =========
The Mortgages are secured over borrowers' private residences,
are repayable in equal monthly instalments and have an average
maturity of 26.5 years. Interest is charged at fixed rates, at an
average interest rate of 11.67%.
There are currently 104 consumer loans, repayable monthly by
equal instalments which have an average maturity period of 1.03
years. Interest is charged at an average rate of 30.63%.
12. Trade and other payables
30 September 30 September
2010 2010 31 March 2010 31 March 2010
GBP'000 GBP'000 GBP'000 GBP'000
Group Company Group Company
Trade
Payables - - 380 -
Expense
accruals and
sundry 1,512 330 2,789 89
Income
Received in
Advance 2,277 - 1,433 -
3,789 330 4,602 89
============== ============== ============== ==============
13. Segmental information
The Board of Directors of Aurora Russia Limited decide on the
strategic resource allocations of the Group. The operating segments
of the Group are the business activities that earn revenue or incur
expenses, whose operating results are regularly reviewed by the
Board of Directors of Aurora Russia Limited, and for which discrete
financial information is available. The Board of Directors
considers the Group to be made up of 3 segments, which are
reflective of the business activities of the Group and the
information used for internal decision-making:
- Aurora Russia Limited (parent company)
- Kreditmart Finance Limited, Flexinvest Limited and Volzhski
Universalny Bank ("VUB") Limited (subsidiaries)
- OSG Records Management (Europe) Limited ("OSGRME")
(subsidiary)
The Group is engaged in investment in small and mid-sized
companies in Russia and in one principal geographical area, being
Russia.
Kreditmart Finance Limited, Flexinvest Limited and Volzhski
Universalny Bank ("VUB") Limited (subsidiaries) disburse mortgage
and consumer loans for private clients, place deposits, and render
other services (money transfers, safe boxes). Kreditmart provides
private clients with consultations on mortgage, consumer loans,
vehicle insurance, and other financial services.
The OSG Group consists of six legal entities: OSG Records
Management (Europe) Ltd (Cyprus), OSG Records Management Center
(Russia), OSG Polska (Poland), OSG Records Management (Ukraine),
OSG Records Management (Armenia), OSG Records Management (Bulgaria)
and OSG Records Management (Kazakhstan). OSG Records Management
(Europe) Ltd (Cyprus) is a parent company for OSG Group which owns
100% of shares of 6 operating units in Russia (being the largest
operation), Poland, Ukraine, Kazakhstan, Armenia and Bulgaria. The
OSG Group provides records management services (document storage
and other services) through its 100% owned operating subsidiaries.
More than half of sales revenues are earned through providing
document storage services. The remaining revenues come from the
following warehouse services, transportation of documents; archive
services, data processing services and destruction of documents and
tapes. Approximately 70% of the operating income is derived from
Russia, with the bulk of the remaining portion being derived from
Poland.
The main customers of Kreditmart, Flexinvest and VUB are private
clients and the main customers of OSGRME are financial
institutions, telecom and other companies.
The Investment Manager's Report provides more information on the
Company's business and the operations of each investment.
The parent company derives its revenues from its investments by
way of interest and dividends.
1 April 1 April 1 April 1 April 1 April 1 April
2010 to 1 April 2010 2010 to 2010 to 2009 to 1 April 2009 2009 to 2009 to
30 to 30 30 30 30 to 30 30 30
September September September September September September September September
2010 2010 2010 2010 2009 2009 2009 2009
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Aurora Kreditmart/ Total Aurora Kreditmart/ OSGRME Total
Flexinvest/VUB OSGRME Flexinvest/VUB
Revenue 120 964 6,821 7,905 343 735 - 1,078
---------- --------------- ---------- ---------- ---------- --------------- ---------- ----------
- Fees - 372 - 372 - 120 - 120
- Storage - - 3,382 3,382 - - - -
- Warehousing, data
processing, transport &
other - - 3,435 3,435 - - - -
- Interest on long term
mortgages and other
loans - 503 - 503 - 505 - 505
- Loan Interest - - - - 214 - - 214
- Bank interest 9 89 4 102 10 110 - 120
- Dividend income 111 - - 111 119 - - 119
---------- --------------- ---------- ---------- ---------- --------------- ---------- ----------
Administration and
operating expenses (2,030) (1,406) (5,843) (9,279) (1,536) (1,837) (3,373)
- Depreciation and
amortisation - (137) (699) (836) - - - -
- Interest expense - (13) (272) (285) (5) - - (5)
Fair value movements on
revaluation of
investments (4,100) (6) - (4,106) 2,478 3 - 2,481
---------- --------------- ---------- ---------------
-
Kreditmart/Flexinvest/VUB (1,900) - - (1,900) (2,600) - - (2,600)
- Whitebrooks (OSG) 600 - - 600 (1,222) - - (1,222)
- Unistream (2,600) - - (2,600) 4,700 - - 4,700
- Grindelia (SuperStroy) (200) - - (200) 1,600 - - 1,600
- Quoted investments - (6) - (6) - 3 - 3
---------- --------------- ---------- ---------- ---------- --------------- ---------- ----------
Exchange (losses)/gains (30) (865) (84) (979) (9) (719) (728)
Operating profit/(loss)
before tax (6,040) (1,463) (77) (7,580) 1,271 (1,818) - (547)
---------- --------------- ---------- ---------- ---------- --------------- ---------- ----------
Tax - (3) (44) (47) - (63) - (63)
Net segment (loss)/ profit (6,040) (1,466) (121) (7,627) 1,271 (1,881) - (610)
========== =============== ========== ========== ========== =============== ========== ==========
Reconciliation of segment
profit/(loss) to
consolidated statement of 1 April 2010 to 30 1 April 2009 to 30
comprehensive income September 2010 September 2009
GBP'000 GBP'000
Total net segment loss (7,627) (610)
Adjustment for fair value
movements on
Kreditmart/Flexinvest/VUB
and OSGRME 1,300 2,600
Net (loss)/ profit for the
period for the Group (6,327) 1,990
----------------------- ------------------------
30 30 30 30 31 31 31
September September September September March 31 March March March
2010 2010 2010 2010 2010 2010 2010 2010
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Kreditmart/ Kreditmart/
Flexinvest/ Flexinvest/
Aurora VUB OSGRME Total Aurora VUB OSGRME Total
Total
segments
assets
include:
Investments
in
subsidiaries 49,000 - - 49,000 50,300 - - 50,300
Financial
assets at
fair value
through
profit or
loss 39,100 1,079 - 40,179 41,900 1,185 - 43,085
- Unistream 21,800 - - 21,800 24,400 - - 24,400
- Grindelia
(SuperStroy) 17,300 - - 17,300 17,500 - - 17,500
- Quoted
investments - 1,079 - 1,079 - 1,185 - 1,185
Cash and cash
equivalents 4,250 4,852 643 9,745 5,704 5,502 2,036 13,242
Intangible
assets - 2,680 - 2,680 - 2,680 - 2,680
Property,
plant and
equipment - 509 6,230 6,739 - 689 5,755 6,444
Assets
classified
as held for
sale - 845 - 845 - 845 - 845
Loans and
advances to
customers - 7,742 - 7,742 - 8,618 - 8,618
Other assets 1,226 851 2,644 4,721 1,171 949 2,711 4,831
Segment assets 93,576 18,558 9,517 121,651 99,075 20,468 10,502 130,045
Total segment
liabilities (330) (587) (5,397) (6,314) (89) (760) (6,324) (7,173)
Reconciliation of segment assets and
liabilities to consolidated statement of
financial position 30 September 2010 31 March 2010
GBP'000 GBP'000
Segment assets for reportable segments 121,651 130,045
Exchange loss on translation of intangibles (386) (204)
Investment in subsidiaries (49,000) (50,300)
Goodwill on acquisition of OSGRME 14,164 14,164
Fair value adjustment of Net Assets on
acquisition of OSGRME 8,317 8,602
Intercompany debtors (191) (191)
Total assets for the Group 94,555 102,116
Segment liabilities for reportable segments (6,314) (7,173)
Deferred taxation adjustment on acquisition
of OSGRME (1,549) (1,605)
Intercompany creditors 191 191
Total liabilities for the Group (7,672) (8,587)
14. Related party transactions
The Company has 4 subsidiaries, OSG Records Management (Europe)
Limited, Kreditmart Finance Limited, Flexinvest Limited and
Volzhski Universalny Bank Limited (see note 9). Details of the
investments in Unistream Bank and Grindelia Holdings are presented
in note 10.
Balances owing between the Company and any subsidiaries which
are related parties have been eliminated on consolidation. This
includes a loan receivable from Flexinvest Limited.
The Company pays fees to Aurora Investment Advisors Limited
('AIAL') for its services as investment manager and advisor. The
total charge to the statement of comprehensive income during the
period was GBP 989,860 (6 month period ended 30 September 2009: GBP
876,430). There were no outstanding fees at the period/year end.
AIAL performed the valuation of the subsidiaries and investments as
at 30 September 2010.
John McRoberts and James Cook hold 45% and 47.5% respectively,
of the ordinary share capital of AIAL and 36.25% and 33.75%
respectively, of the non-voting preference share capital of AIAL at
period end.
The Company pays fees to Close Fund Services Limited ('CFSL')
for its services as administrator. The total charge to the
statement of comprehensive income during the period was GBP 37,500
(6 month period ended 30 September 2009: GBP50,451), of which GBP
nil (31 March 2010: GBP 5,000) was outstanding at the period
end.
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 statement of comprehensive income during
the period was GBP 87,222 (6 month period ended 30 September 2009:
GBP 94,279), of which GBP 1,250 (31 March 2010: GBP 3,330) was
outstanding at the period end.
15. Reclassification of comparatives
Movements in foreign currency translation differences have been
reclassified from "Equity" in the consolidated statement of changes
in equity to "Other comprehensive income" in the consolidated
statement of comprehensive income per IAS 1 Presentation of
Financial Statements.
16. Contingencies and capital commitments
As detailed in note 10, The Directors of the Company have set
aside GBP2.6 million as a capital commitment for the future
purchase of a warehouse by OSGRME.
The Group had no other contingencies and capital commitments
outstanding at the reporting date.
17. Events after the reporting date
The Management Agreement currently provides that the Company
shall pay to the Manager a semi-annual management fee of an amount
equal to 1% of the net asset value of the Company as at each
valuation date of 31 March and 30 September in each calendar year,
payable in advance following such valuation date.
Additionally, the Manager currently has an Option to acquire new
shares representing 20% of the share capital of the Company (on a
fully diluted basis, i.e. post the issuance of the Option Shares),
such Option to be exercised at a price of GBP1.00 per share in
respect of 18,750,000 Option Shares and at a price of GBP0.40 per
share in respect of 9,375 000 Option Shares (related to the
additional Ordinary Shares issued in the December 2009 placing),
provided that the relevant performance condition has been
satisfied.
However, the Directors also consider that the Manager should be
properly incentivised to maximise the value of the Company's
shares, by being incentivised to sell the Company's investments
over a sensible period, which would not necessarily be the case if
the existing option arrangements remain in place.
Accordingly, the Directors and the Manager intend to enter into
the Amended Management Agreement and to terminate the Option Deed.
The Amended Management Agreement would amend the management fees
and performance fees payable to the Manager as follows:
(a) reducing the semi-annual management fee from 1% to 0.75% of
the net asset value of the Company;
(b) replacing the existing performance fee arrangements
comprising the issue of the Option Shares with performance fees
calculated as follows:
- 2.5% of the value of any disposals realised by the Company
would be payable to the Manager, calculated on the value of assets
of the Company realised up to GBP45 million, i.e. GBP0.40 per share
(the "2.5% Tranche");
- 7.5% of the value of any disposals realised by the Company
would be payable to the Manager, calculated on the value of assets
of the Company realised between GBP45 million and GBP99 million,
i.e. GBP0.40 per share to GBP0.88 per share (NAV) (the "7.5%
Tranche"); and
- 20% of the value of any disposals realised by the Company
would be payable to the Manager, calculated on the value of assets
of the Company realised over GBP99 million, i.e. over GBP0.88 per
share (the "20% Tranche"),
such performance fees to decline by 20% per annum from December
2011 (for the 2.5% Tranche) and by 20% per annum from December 2012
(for the 7.5% Tranche and the 20% Tranche).
In consequence of the proposed change to the management
incentives, the non-cash provision for share based payments
amounting to GBP600,000 per annum will cease to be made, reducing
the reported expenses by this amount in addition to the reduction
in management fees paid, and the historic provisions, totalling
GBP2.437 million at 31 March 2010, will be cancelled and
transferred to shareholder's reserves during the second half
year.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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