24th Mar 2006 08:12
Aurora Russia Limited24 March 2006 THIS DOCUMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN Aurora Russia Limited First Day of Dealings on the Alternative Investment Market (LONDON, 24 March 2006) - Aurora Russia Limited (the "Company" or "Aurora Russia"), an investment vehicle established to make equity or equity relatedinvestments in small and mid-sized private companies in Russia which are focusedon the financial, business and consumer services sectors, announces that theCompany's shares have today been admitted to trading on the AlternativeInvestment Market ("AIM") of the London Stock Exchange ("Admission"). TheCompany's trading ticker symbol is AURR. This follows the successful placingwith institutional investors (the "Placing") which raised £75 million (beforeexpenses) for the Company. Investec is the Company's nominated adviser and Investec and Altium Capital arethe Company's joint brokers. The Company's directors (the "Directors") believe that the Russian market hasexciting growth prospects and that Aurora Russia and the Manager are well placedto identify and evaluate appropriate investment opportunities which fall withinits chosen sectors. The Admission provides investors with: • The opportunity to benefit from the skills and experience of amanagement team, led by John McRoberts and James Cook, who combine over 20years' of experience of working with approximately 120 small and mid-sizedcompanies in Russia • An opportunity to gain exposure to equity or equity relatedinvestments in small and mid-sized private growth companies in Russia • Exposure to Russia which has enjoyed a sustained period of economicgrowth with a real GDP growth rate of 7.2% in 2004 and significant growth indisposable incomes • A focus on sectors in which, in the opinion of the Directors, there ispotential for growth together with viable exit opportunities: the financial,business and consumer services sectors • An opportunity to invest in the Russian market at a time when theservices sector has become an increasingly important contributor to growth Commenting on the successful Placing, Sir Trevor Chinn, Non-Executive Chairman,said: "We are delighted that the launch of the Company has met with such stronginterest in investing in Russia and in our management team, with its significantexpertise in both sourcing deals and investing in Russian companies." James Cook, Executive Director of the Manager, commented: "We believe that Aurora Russia will be ideally placed in the coming years, tocapitalise on a Russian economy whose continued growth will be most felt in theservices sectors on which we are focused. The Company will enable investors tohave exposure to this opportunity, on a portfolio basis, through an AIM listedcompany and with a management team with considerable experience in the region." John McRoberts, Executive Director of the Manager, said: "We will be focusing on the best of our investment opportunities and accordinglywe have raised £75 million in our IPO, from blue-chip institutions. This is asmaller fund than the maximum we had considered, ensuring that the fund will beinvested in the highest quality opportunities and more quickly than previouslyanticipated. It will also mean that we can spend more time, and at an earlierstage, assisting the businesses with their growth plans and development." PLACING STATISTICS Placing Price £1.00 Number of Placing Shares 75,000,000 Number of Ordinary Shares in issue immediately following Admission 75,000,000 Gross proceeds of the Placing receivable by the Company £75,000,000 Net proceeds of the Placing receivable by the Company after expenses £70,500,000 Market capitalisation of the Company at the Placing Price £75,000,000 Contacts: Aurora Russia Limited Today: +44 20 7831 3113 John McRoberts Thereafter: +7 495 799 6595 James Cook Investec: Nominated Adviser and joint Broker Rupert Krefting +44 207 597 5970 Chris Godsmark Paul GrayAltium: Joint Broker Garry Levin +44 20 7484 4040 Tim Richardson Financial Dynamics Giles Sanderson +44 20 7831 3113 Svetlana Fedyunin NOTES FOR EDITORS Investment Strategy and Policy Investment Strategy The strategy of Aurora Russia is to make equity or equity related investments insmall and mid-sized private Russian companies focused on the financial, businessand consumer services sectors where the Directors believe there is potential forgrowth together with viable exit opportunities within two to four years ofmaking such investments. The Company intends to provide its investee companieswith the necessary capital and the Manager shall provide hands-on operationalsupport to deliver significant step changes in performance and value creation.The Company aims to be the investor of choice for small and mid-sized privateRussian companies seeking capital. The Manager will work closely with the management of each investee company tocreate value by focusing on driving growth through revenue creation, marginenhancement and extracting cost efficiencies, as well as implementingappropriate capital structures to enhance returns. The Directors intend to make investments in companies or businesses withcompetent and motivated management which have a presence in growing markets,which enjoy brand recognition, have scalable business models, have strongrelationships with customers and suppliers and with transparent accountingpolicies. Aurora Russia will target companies with Enterprise Values of up toapproximately £100 million and will seek to secure blocking or controllingstakes and board representation. Aurora Russia intends generally to take equitystakes of greater than 20 per cent. in each portfolio company. It is anticipatedthat each equity investment will typically be between £5 million and £25million. The Directors are currently considering investing in ten to twelve suchinvestee companies and intend that the funds of the Company will besubstantially invested within 18 months of Admission. The Directors will, when appropriate, consider how best to realise value forShareholders whether through a trade sale, flotation or secondary refinancing ofthe investee companies. The proposed exit route will form a key consideration ofthe initial investment analysis. Investment Policy In assessing the companies in which to make an investment, the Manager and theDirectors will give consideration to, amongst other factors, each entity'smedium to long term prospects and the extent to which they believe the entitydisplays the following characteristics: • Competent and motivated management - Dynamic management teams - Challenging performance based remuneration structures • Accounting transparency - International Financial Reporting Standards • Growth potential - Operate within fragmented markets with consolidation opportunities - Ability to create value through economies of scale - Blue-chip clients and relationships capable of further development - Control over business elements that drive competitive advantage and increase market share - Clear advantages in distribution and brand recognition - First entry advantage • Viable exit opportunities, including: - Trade Sale - Flotation - Secondary re-financing Although these characteristics are important criteria for assessing aprospective investment, every investment opportunity will also be analysed byreference to the potential risks and rewards of the investment itself and itsvaluation; an investment may be made even in the absence of some of thesecharacteristics. In general, investments will only be made when the Manager and the Directorsbelieve that the investments have a reasonable prospect of an exit or that theinvestment is expected to return capital and an attractive dividend or profitstream within a reasonable period of time. Proposed Investments The Manager has identified and, in most cases, initiated discussion with anumber of potential investee companies which the Manager believes fall withinthe Company's investment criteria. There is, however, no guarantee that any ofthese investment opportunities will be completed by the Company. The types ofinvestment opportunities identified by the Manager include: • A money transfer business providing money transfer servicesprimarily to immigrant workers living in Russia who send money to their familiesliving in a number of former Soviet Republics. This company is currently part ofa bank and is being "spun off" as an independent entity. This company intends toroll out a network of its own outlets in Russia and CIS and to increase itsagency network. The company's shareholders intend to effect a flotation of thisbusiness within the next two years. • A document storage business which provides outsourced facilitiesto corporate clients for the storage and management of their documentation. Withthe cost of real estate in central Moscow reaching levels on average of US$700per square metre, the Directors believe that offsite management and retention isbecoming increasingly important to Moscow based businesses. A capital injectionby Aurora Russia would be used, inter alia, to enable the company to expand itsoperations. • An auto leasing business which provides vehicle fleet managementservices mainly to multi--national corporate clients. Services include theprovision of a fully managed and funded fleet of vehicles on an operating leasebasis to corporate clients, including maintenance and insurance thereof. Acapital injection by Aurora Russia would be used, inter alia, to improve fleetacquisition terms, increase the geographical spread of the business and increasethe scale of its operations. • A financial supermarket which provides consumers with residentialmortgages (including equity release loans), credit cards and personal loans.This company intends to invest in an existing banking operation which will rollout retail units initially in Moscow and St. Petersburg to help satisfy thegrowing demand for these products. With the Russian mortgage market expected togrow at approximately 70 per cent. each year until 2010, the Directors believethat there is an opportunity to provide (a) consumers access to mortgagesthrough "user friendly" retail locations and (b) equity release loans tohomeowners which would be used to fuel consumer demand in Russia. The Placing is not conditional upon the Company making an investment in any ofthe above investment opportunities. Background to the Russian opportunity Over the past five years, Russia has enjoyed a sustained period of strongeconomic growth. As a result, disposable incomes continue to grow significantlyand now compare favourably with more developed economies. According to survey byAC-Nielsen released in January 2006, only 5 per cent. of Russian respondentssaid they had no extra cash after covering essential expenses, compared with anaverage of 10 per cent. worldwide. With plenty of extra cash to spend, 70 percent. of Russians said that they would spend their money on consumer goods. Trade, including wholesale and retail trade, has become a major sector of theRussian economy, reaching 21.3 per cent. of total GDP in 2004. Retailing hasbecome an increasingly significant proportion of economic growth, with realturnover increasing by 9.8 per cent. per annum on average in 2000-04. TheDirectors of Aurora believe that in the coming years the continued growth in theRussian economy will have a favourable effect on the services sectors of theeconomy for the following reasons: • Real disposable income growth is likely to continue at6.5-7.5 per cent. a year in 2005-10, strongly supporting growth in retailturnover. Real appreciation of the rouble is also positive for retail growth. • The government continues its efforts to increase theincomes of the poorest part of the population (pensioners and budget-fundedemployees) and considers this as a key social priority. In 2005-07, real growthof pensions should total 50 per cent., while the real wage increase is set at 10per cent. per year in the 2005-07 budgets. Economic theory suggests that growthin wages and salaries should lead to a proportional increase in consumption,while incomes that are not related to labour, such as dividends, interest, andso on, are more important to savings growth. • Credit availability also strengthens the demand forconsumer goods, which opens avenues for expansion of consumption and a parallelincrease in the retail sector. In the coming years, it is expected thatconsumer credit will become more common not only in Moscow and St. Petersburg(although these cities account for more than 50 per cent. of Russia's totalretail turnover) but in other regions as well. The Russian banking sector has also evolved over the past thirteen yearsreflecting the new needs and challenges of the market economy. Although itremains underdeveloped and relatively weak compared even to Central and EasternEurope countries, with banking assets of just 42.5 per cent. of GDP, theDirectors believe that its position in the economy is expected to grow for thefollowing reasons: • The banking sector has become a main player in thebusiness payments settlement process. The share of barter deals ininter-enterprise settlements has dropped significantly, while the share of cashpayments via the banking system has increased on the back of economicstabilisation and improvements to this sector. • Economic and political stabilisation have vastly improvedsince the mid-nineties which has boosted development of the banking sector. • Introduction of deposit insurance in 2004 has resulted inan increase in private deposits from US$96 billion in December 2004 to US$110billion by June 2005, or by 17 per cent. The growth in disposable incomes has led to improvements in the prospects of thehousing construction sector. Residential construction is expected to continue togrow by more than 10 per cent. a year in the medium term, pushing the cumulativegrowth of construction to 8.5 per cent. in 2005-10. Moreover, Russia's mortgagesystem is gradually developing. According to a recent study by McKinsey, themortgage market in Russia could reach US$25 billion by 2010. Loans securedagainst property were around US$1 billion in 2005, or 0.3 per cent. of GDP. Key Biographies Sir Trevor Chinn CVO (aged 70) - Non-Executive Chairman Sir Trevor Chinn is currently Chairman of the Automobile Association. He becameChairman in October 2004 when it was acquired by CVC Capital Partners andPermira. He is also Chairman of AIM-listed ITIS Holdings plc, a trafficinformation company and Chairman of AIM-listed Vigilant Technology Ltd, acompany which designs and manufactures 'intelligent' solutions for the high-endCCTV security and surveillance market. He is a Member of the Advisory Board ofCVC Capital Partners. He was Chairman of Kwik-Fit Group Limited from November2002 when it was acquired by CVC until August 2005 when it was sold. Sir TrevorChinn retired in April 2003 as Chairman of RAC plc (formerly Lex Service PLC)after 47 years service. In 1999 he was appointed by the Deputy Prime Minister,John Prescott, as Vice Chair of the Commission for Integrated Transport,stepping down in June 2004. He was also asked to form and continues to chairthe Motorists' Forum. He is a Director of Automotive Skills, the Skills Councilfor the retail automotive industry. He was awarded the CVO in 1989 and aknighthood in 1990 for his charitable activities. John McRoberts (aged 45) - Executive Director of the Manager Mr McRoberts has over nine years experience providing corporate finance adviceto companies operating in Russia. In 1998, Mr McRoberts set up the corporatefinance business of Altium (formerly Apax Partners Corporate Finance) in Russiaand managed the business until 2003. He has completed a number of transactionsin Russia, including several in the media and services sectors. Mr McRoberts hasrecently resigned as the head of the Corporate Finance Advisory Practice atDeloitte & Touche in Moscow to focus on the Company. Mr McRoberts holds an MBAin Finance from the Garvin School of International Management in Arizona and aBSC in Finance from Arizona State University. James Cook (aged 42) - Executive Director of the Manager Mr Cook has over 12 years experience advising, founding and managing companiesin the consumer finance, residential mortgage lending and leasing sectors inRussia. He is a former Executive Vice President of Delta Capital, Chairman ofDelta Financial Services Group and the founder, Chairman and CEO of ZAODeltaCredit. He was also co-founder and Chairman of ZAO DeltaLeasing (now knownas Europlan), a major provider of equipment and automobile fleet leasing inRussia. Mr Cook previously served as Chairman and CEO of ZAO DeltaBank, one ofRussia's pioneers in consumer finance and the major provider of VISA creditcards in Russia. In 2004, ZAO DeltaBank was sold to GE Consumer Finance Russia. Mr Cook became Chairman and CEO of GE Consumer Finance Russia prior to thissale and has recently resigned from this position to focus on the Company. Heis currently a non-executive director of ZAO Forus Bank. Mr Cook was a MeritScholar at Hampden-Sydney College and holds a B.S. in Finance from VirginiaTech. Mr Cook is a Russian speaker. This document, which has been issued by the Company and is the soleresponsibility of the Company, has been approved for the purposes of Section 21of the Financial Services and Markets Act 2000 of the United Kingdom by InvestecBank (UK) Limited of 2 Gresham Street, London EC2V 7QP. This document does not constitute or form part of any offer or invitation tosell, or any solicitation of any offer to purchase any securities and anypurchase of securities of the Company pursuant to the Placing should only bemade on the basis of the information contained in the formal admission documentissued in connection with the Placing (the "Admission Document") and anysupplement or amendment thereto. The Admission Document contains detailedinformation about the Company and its management, as well as financialstatements and other financial data. The Placing will be made in the United Kingdom to institutional investors.Neither this document nor any copy of it may be taken or transmitted into theUnited States, Australia, Canada or Japan or to a resident, national or citizenof the United States, Australia, Canada, the Republic of South Africa, theRepublic of Ireland or Japan. The Placing and the distribution of this documentand other information in connection with the Placing in certain jurisdictionsmay be restricted by law and persons into whose possession any document or otherinformation referred to herein comes should inform themselves about and observeany such restriction. Any failure to comply with these restrictions mayconstitute a violation of the securities laws of any such jurisdiction. The Company's ordinary shares (the "Shares") have not been and will not beregistered under the applicable securities laws of Australia, Canada or Japanand may not be offered or sold within the United States, Australia, Canada, theRepublic of South Africa, the Republic of Ireland or Japan or to, or for theaccount or benefit of citizens or residents of the United States, Australia,Canada, the Republic of South Africa, the Republic of Ireland or Japan. The Shares may not be offered or sold in the United States absent registrationor an exemption from registration. The price and value of securities may go down as well as up. Past performance isnot necessarily a guide to future performance. Persons needing advice shouldcontact a professional adviser who specialises in advising on the acquisition ofshares and other securities. This document includes statements that are, or may be deemed to be,"forward-looking statements". These forward-looking statements can be identifiedby the use of forward-looking terminology, including the terms "believes","estimates", "plans", "projects", "anticipates", "expects", "intends", "may","will", or "should" or, in each case, their negative or other variations orcomparable terminology. These forward-looking statements include matters thatare not historical facts and include statements regarding the Company'sintentions, beliefs or targets. By their nature, forward-looking statements involve risk and uncertainty becausethey relate to future events and circumstances. A number of factors could causeactual results and developments to differ materially from those expressed orimplied by the forward-looking statements. Forward-looking statements may and often do differ materially from actualresults. Any forward-looking statements in this document reflect the Company'sview with respect to future events as at the date of this document and aresubject to risks relating to future events and other risks, uncertainties andassumptions relating to the Company's operations, results of operations, growthstrategy and liquidity. Save as required by law or by the Listing Rules of theFinancial Services Authority, the Company undertakes no obligation publicly torelease the results of any revisions to any forward-looking statements in thisdocument that may occur due to any change in its expectations or to reflectevents or circumstances after the date of this document. Information in this document or any of the documents relating to the Placingcannot be relied upon as a guide to future performance. Investec, who is authorised and regulated in the United Kingdom by the FinancialServices Authority, is advising Aurora Russia in relation to the Placing and noone else and will not be responsible to anyone other than Aurora Russia forproviding the protections afforded to the customers of Investec nor forproviding any advice in relation to the Placing or any other matter referred toherein. Altium, who is authorised and regulated in the United Kingdom by the FinancialServices Authority, is advising Aurora Russia in relation to the Placing and noone else and will not be responsible to anyone other than Aurora Russia forproviding the protections afforded to the customers of Altium nor for providingany advice in relation to the Placing or any other matter referred to herein. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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