31st Mar 2008 07:02
Aurora Russia Limited31 March 2008 31 March 2008 Aurora Russia Limited Unaudited results for the 12 months ended 31 December 2007 Aurora Russia Limited ("Aurora Russia" or the "Company"), the AIM-quotedinvestment vehicle established to make equity or equity-related investments insmall and mid-sized private companies in Russia, today announced its unauditedresults for the 12 months ended 31 December, 2007. Financial highlights • Net asset value as at 31 December 2007 was £82.19 million, representing 109.6p per share (£71.9 million or 95.9p per share as at 31 December 2006) • Cash and cash equivalents as at 31 December 2007 of £24.95 million (£63.85 million as at 31 December 2006) • Consolidated net profit for the period of £4.16 million (net loss of £321,000 from incorporation in February 2006 to 31 December 2006) • Consolidated earnings per share for the period of 5.54p per share (loss per share of 0.43p from incorporation in February 2006 to 31 December 2006) Operational highlights Aurora Russia is now effectively fully invested having committed £62.92 millionof the capital raised in four investments, including a £6.45 million depositheld by Flexinvest (Cypriot subsidiary) which leaves the Company withuncommitted funds of £8.79 million. Each of these investments has subsequentlybecome a leader in its particular field and continues to demonstrate stronggrowth. A revaluation of the investment portfolio was performed as at 31December 2007, resulting in an increase in its value of £9.91 million1 to £72.83million (1). • Unistream (£10.33 million investment, 26% owned), a leading Russian international money transfer company - US$3.68 billion transferred in 2007, an increase of 100% on 2006 - Network of 210 cash desks by the end of 2007 and plans to open up to an additional 180 in 2008 - Currently accounts for 1% of global money transfer market - The valuation of Unistream at 31 December 2007 resulted in an uplift of £6.42 million to £16.75 million • Kreditmart (£22.59 million investment, 100% owned), a finance company distributing mortgages, equity release loans and other consumer finance products - First loan stop opened in Moscow in March 2007 and a further nine loan shops and seven sales points since opened across Russia - US$50 million of mortgages originated in first year of operation to March 2008, pipeline of US$120 million - £6.45 million deposit held by Flexinvest for the acquisition of a banking platform to enhance Kreditmart's competitive advantage - The valuation of Kreditmart (including Flexinvest) at 31 December 2007 resulted in an uplift of £3.36 million to £32.40 million • OSG Records Management (£5.68 million investment, 39.1% holding), one of the largest records management company in Russia, Kazakhstan and Ukraine - Revenues in 2007 were approximately US$10.6 million, an increase of 33% on 2006 - Krzysztof Bobrowski, former COO, has been appointed as the new CEO - The valuation of OSG at 31 December 2007 resulted in an uplift of £0.07 million to £6.98 million (1) • SuperStroy (£16.62 million investment, 24.3% holding), one of the leading DIY retailers in Russia - In 2007, revenues were approximately £94.0 million, an increase of 63% on the prior year - 35 stores across the Urals in February 2008 with 19 new stores to be opened in 2008, almost doubling selling space - Due to the recent date of the investment, SuperStroy continues to be held at cost but the currency revaluation at 31 December 2007 resulted in an uplift of £0.07 million to £16.69 million Commenting, Sir Trevor Chinn, Chairman of Aurora Russia, said: "We are delighted to have achieved much of what we set out to do when we listedon AIM two years ago. We are now effectively fully invested in four marketleading companies which have continued to perform extremely well. We are wellpositioned to benefit from the strong growth in the Russian economy as Russiacontinues to attract foreign investment." Footnotes 1. Includes £1.23 million loan to OSG Records Management Enquiries: Aurora Russia LimitedJames Cook, Moscow +7 (495) 644 1662John McRoberts, London +44 (0) 207 8397112 Investec Investment BankingPaul Gray +44 (0) 20 7597 5176Patrick Robb +44 (0) 20 7597 5169 Financial DynamicsEd Gascoigne-Pees +44 (0) 20 7269 7132Felicity Murdoch +44 (0) 20 7269 7243 Chairman's Statement Results I am pleased to present the unaudited results of the Company for both the 6month and 12 month periods ended 31 December 2007. For the 12 months to 31December 2007, Aurora Russia recorded a gain of £4.16 million or 5.54 p pershare, based on the unaudited consolidated income statement. This contrasts witha loss of £321,000 or 0.43 p per share for the prior year period which ran fromthe Company's incorporation in February 2006 to 31 December 2006. The net assetvalue of the Company as at 31 December 2007 was £82.19 million or 109.6 p pershare, compared to £71.9 million or 95.9 p per share at 31 December 2006,representing a 14% increase. Cash and cash equivalents at 31 December 2007 were£24.95 million, compared to £63.85 million as at 31 December 2006. Administration and operating expenses of £6.35 million (2006: £2.69 million)include Company costs of £3.10 million (2006: £2.39 million), of which £2.05million (2006: £1.97 million) relates to the Manager's fee and the Manager'soption which is being amortised over a period of five years. Operating costs ofthe Company's wholly owned subsidiaries were £3.25 million (2006: £0.30 million) Investment Review Aurora Russia has now invested £62.92 million, including a £6.45 million depositheld by Flexinvest (a Cypriot subsidiary) for the acquisition of a bankingplatform which leaves the Company with uncommitted funds of £8.79 million toallow for small follow on investments in its investee companies, if required,and to cover its ongoing expenses. The Company has now effectively implementedits strategy to invest its capital in equity and equity related investments insmall and mid-sized private Russian companies, focused on the financial,business and consumer services sectors, where the Directors believe that thereis potential for growth together with viable exit opportunities. Aurora Russia, advised by Aurora Investments Advisors Limited, has nowsuccessfully made four investments. We are positive about the prospects for theinvestments made to date which include: • Unistream, a leading Russian money transfer company • Kreditmart, a finance company distributing mortgages, equity release loans and other consumer finance products • Whitebrooks, a regional market leader in records management trading as OSG Records Management • SuperStroy, one of the leading DIY retailers in Russia We are delighted with our investment in Unistream whose trading performance isabove our expectations. Our wholly owned subsidiary Kreditmart which commencedoperations just over a year ago is making very good progress under the directionof James Cook who has assembled a strong management team. We expect thatbusiness to continue to grow robustly. OSG continued to see strong growth inrevenues, but fell short of expectations in terms of its profitability. Afterconsultation with the other shareholders, changes have been made to address thisissue. Our recent investment in the SuperStroy business in Yekaterinburg, whichI visited last November, looks very promising. Portfolio revaluation Policy A revaluation of the investment portfolio was performed for the first time at 31December 2007, resulting in an increase in value of £9.91 million (1) to £72.83million (1). This revaluation was recommended by the Valuation Committee of theBoard who obtained independent professional advice, and formally adopted by theBoard on 18 March 2008. It is based on the International Private Equity andVenture Capital Association ("IPEVCA") guidelines which require the Company tohold investments at cost unless there is sufficient compelling evidenceavailable to adopt an alternative basis of valuation. It should be noted thatthe resultant valuations of investments included in the Company's financialstatements will not necessarily reflect the market value that a third partywould be prepared to pay for these businesses. The investment in Unistream has been increased by £6.42 million to £16.75million, an increase of 61%, The valuation of Kreditmart which commencedoperations during 2007 has been increased by £3.36 million to £32.40 million, anincrease of 12%. The valuation of OSG has resulted in a modest increase of £0.07million to £6.98 million (1) and the currency revaluation of SuperStroy resultedin an uplift of £0.07 million to £16.69 million. Hedging Policy The turmoil in credit markets has resulted in higher than anticipated volatilityin the currency markets. We have seen a significant weakening of the dollar andsterling and a strengthening of the rouble on the back of a strong rise in theprice of oil. These conditions resulted in a substantial increase in the cost ofhedging and following a review of its hedging policy the Board concluded that itis no longer appropriate to hedge the rouble value of its investments in Russia.The Company will continue to hedge its non sterling monetary assets, includinguninvested cash, loans and any expected sale proceeds once a disposal of any ofour investments has been agreed. Change of Accounting Reference Date As previously reported, the Company's accounting reference date has been changedfrom 31 December to 31 March in order to allow our investee companies more timeto finalise their audited financial statements. Therefore, the next auditedfinancial statements of Aurora Russia will be for the 15 month period to 31March 2008. Outlook Dmitry Medvedev was elected as President of the Russian Federation on the 2March 2008. He is expected to continue to follow the economic policies of hispredecessor. The outlook for the economy remains positive and Russia is expectedto continue to attract foreign investment. We are delighted with our investment portfolio and expect that the strong growthin the Russian economy and the increase in consumer demand will drive thecontinued growth of Aurora Russia's investee companies well into the future. Sir Trevor Chinn Chairman Footnotes 1. Includes £1.23 million loan to OSG Records Management Investment Manager's Report Overview Aurora Russia advised by Aurora Investment Advisors (the "Manager") has nowinvested £62.92 million of the capital raised in March 2006. The Company is noweffectively fully invested. In line with the strategy established at the time of the Company's admission toAIM, the Manager has invested in private companies in Russia which are focusedon the financial, business and consumer services sectors. In addition, theManager has also provided considerable hands-on operational support to each ofthe investee companies to assist them in delivering significant step changes inperformance and value creation. The results of this are reflected in theperformance of our investee companies and the increase in the Company's reportednet asset value per share. Each of the investments is considered a leader in its particular field;Unistream is now a leading Russian international money transfer company in termsof money transferred, Kreditmart has been described in the Russian media as "theleading mortgage broker in Russia", OSG remains one of the largest recordsmanagement company in Russia, Kazakhstan and Ukraine and SuperStroy, one of theleading DIY retailers in Russia. Unistream In July 2007 Aurora Russia completed the second phase of the US$20 millioninvestment in Unistream, resulting in Aurora Russia owning 26% of the company. Unistream is regulated by the Central Bank of Russia and has a banking licenseto receive/send money transfers, open bank accounts for corporate entities andaccept loan payments through its points of sale. Currently Unistream has 220 ofits own cash desks and has plans to open up to an additional 180 in 2008.Unistream is well positioned to realise strong revenue growth through theaggressive expansion of its distribution network using both company-ownedlocations and agents. In 2006, Unistream transferred approximately US$1.84 billion. During 2007, theamount transferred increased by 100% to approximately US$3.68 billion, makingUnistream one of the largest Russian international money transfer companies. Unistream provides a low cost alternative in the Russian market charging some ofthe lowest commissions amongst its peers. This puts the company in a strongposition to expand its business and gives it the potential to raise commissionlevels. In 2007, the company performed well showing impressive growth and the2008 budget shows this continuing. Money transfer companies in Russia, as elsewhere, benefit from immigrant workerssending money back to their families living in less prosperous home countries.A large percentage of these workers are typically employed in construction andtherefore there is a strong correlation with the performance of the constructionindustry. The Russian construction market is expected to grow at an estimated19-20% per annum as result of which the growth in the Russian money transfermarket is expected to remain strong. Between 2003 and 2006, the Russian money transfer market grew by 57%, one of thefastest growth rates globally. This growth continued into 2007 with volumesincreasing from approximately US$7.3 billion in 2006 to between US$10 billionand US$11 billion. Worldwide, the official money transfer volumes according tothe World Bank were approximately US$350 billion. Unistream, therefore nowaccounts for more than 1% of the global market. The valuation of Unistream at 31 December 2007 resulted in an uplift of £6.42million to £16.75 million. Kreditmart Having only commenced operations in March 2007 when it opened its first loanshop, Kreditmart is now referred to by Sekretni Firm, one of Russia's leadingfinancial magazines, as Russia's leading mortgage broker and was voted by themagazine as one of the top new companies in 2007. The company, which is a whollyowned subsidiary of Aurora Russia, continues to distribute mortgages, equityrelease loans, insurance, and other consumer finance products. Kreditmart hassigned agreements with over 50 banks to distribute mortgage products to itscustomers and currently offers over 500 loan products through its system. In2007, Kreditmart originated $32 million in mortgages which total has grown toapproximately US$50 million to March 2008. Kreditmart has a pipeline ofmortgages in excess of US$120 million and is quickly becoming a recognized brandname in Russia. Kreditmart opened its first loan shop in Moscow in March 2007 and has sinceopened nine loan shops; two more in Moscow and additional shops in St.Petersburg, Omsk, Novosibirsk, Yekaterinburg, Kazan, Tyumen, and Rostov-on-Donand employs over 170 people. In addition, Kreditmart has opened seven salespoints in high street locations in Moscow and the Moscow Region within the realestate sales offices of Doki and Realmart. Kreditmart expects to roll outadditional distribution through these and other real estate agents during 2008. Despite liquidity tightening worldwide, the Russian mortgage market continues togrow very quickly and according to the Central Bank of Russia reached US$25billion at the end of 2007, up from US$10 billion at the end of 2006. Flexinvest, Aurora Russia's wholly owned subsidiary in Cyprus which wascapitalised with £6.45 million, is currently in negotiations to purchase a smallbank with a full retail banking licence and part of the Russian depositinsurance system. On completion of the purchase, it is intended that the bankwill enter into an agent bank agreement with Kreditmart to enable Kreditmart tobook mortgages faster and hold these mortgages for on-sale to its partner banksthereby providing a competitive advantage in Russia's growing mortgage andconsumer finance market. The valuation of Kreditmart (including Flexinvest) at 31 December 2007 resultedin an uplift of £3.36 million to £32.40 million. OSG Records Management OSG remains one of the largest records management company in Russia, Ukraine andKazakhstan. It is also one of the largest in Poland and is considered aregional market leader. OSG continues to provide cost-effective total recordsmanagement, document storage, data security, document scanning and confidentialdata destruction solutions. In December 2007, OSG's monthly revenues reachedUS$1.1 million up from US$0.8 million in December 2006. At the end of 2007, Tim Slesinger, the founder of OSG, stepped down as CEOmaking room for Krzysztof Bobrowski, the former COO, to be appointed as the newCEO. Tim Slesinger will continue to be the largest shareholder and remaininvolved in the company at Board level. We believe that this change will bringnew energy to the company and take OSG to the next stage in its development. In December 2007, the Board agreed to convert the first tranche of the US$5million convertible loan facility into equity. US$1.1 million plus accruedinterest of US$142,000 was converted resulting in Aurora Russia's shareholdingin OSG increasing from 37.1% to 39.1%. In 2006, OSG posted revenues in excess of US$8 million compared with just underUS$5 million in 2005. 2007 revenues were approximately US$10.6 million, anincrease from 2006 of 33%. OSG estimates that currently the official Russianrecord storage outsourced is currently under 0.03 boxes per adult of thepopulation. This compares to the USA where the records storage market is deemedto be equal to approximately 5 boxes per adult. The Manager expects the companyto continue to grow quickly as the records management market in Russia meetsincreasing demand. The valuation of our investment in OSG at 31 December 2007 resulted in a modestuplift of £0.07 million to £6.98 million (1). However, as OSG had approximately60% of its revenues denominated in US$, the weakening of the US$ is partlyresponsible for the poor uplift in value in this investment. SuperStroy On 21 December 2007, Aurora Russia announced an investment of £16.62 million inSuperStroy, one of the leading DIY chains in Russia with extensive reach in theUrals Region of Russia which is home to approximately 20 million people.SuperStroy opened its first store in 1994 and has since successfully expandedits retail network with strong and well-recognised brands. By February 2008, theCompany was operating 35 stores across the Urals. The Company intends to open19 new stores in 2008, almost doubling its selling space, and to have 74 storesby the end of 2011. The Aurora Russia investment will assist in the financingof this expansion SuperStroy is initially focusing on developing its business incities with populations of more than 0.5 million people. For the year ended 31 December 2006, the company generated revenue ofapproximately 2.7 billion Roubles (approximately £56.4 million). Revenue theyear ended 31 December 2007 was approximately 4.5 billion Roubles (approximately£94.0 million), an increase of 63% from the prior year. The budget for 2008shows that top line growth should continue at a similar rate. The DIY market in Russia in 2007 was estimated by RosBusinessConsulting ("RBK")to be approximately US$14 billion. The top 10 chains had US$2.9 billion ofcombined turnover, or approximately 20% of the total market. This suggests afragmented market with opportunities for future consolidation. RBK also namesSuperStroy as the most dynamically growing DIY chain in the supermarket retailformat in Russia in 2007. It ranks #7 among all chain DIY retailers operatingin Russia by turnover, not far behind Leroy Merlin (#4 with US$210 millionestimated 2007 turnover). Euromonitor estimates that the Russian DIY marketwill grow at 12% from 2007 to 2011. Due to the recent date of the investment, Aurora Russia continues to hold itsinvestment in SuperStroy at cost, although a currency revaluation at 31 December2006 resulted in a moderate uplift of £0.07 million to £16.69 million Conclusion The Manager is delighted that Aurora Russia is now invested in four marketleading companies and that the Russian market continues to perform extremelywell. Aurora Russia has now been operating for two years and the Manager hasdelivered much of what was promised when the Company was admitted to trading onAIM on 24 March 2006. There remain a number of good investment opportunities inthe market and our pipeline continues to be robust. Aurora Investment Advisors Footnotes 1. Includes £1.23 million loan to OSG Records Management Independent Review Report to Aurora Russia Limited We have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 31December 2007 which comprises the income statement, the balance sheet, thestatement of changes in equity, the cash flow statement and related notes 1-18.We have read the other information contained in the half-yearly financial reportand considered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financialstatements. This report is made solely to the Company, in accordance with InternationalStandard on Review Engagements 2410 issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the Company those matters weare required to state to them in an independent review report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company, for our review work, for thisreport, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the Directors. The Directors are responsible for preparing the half-yearlyfinancial report in accordance with the AIM Rules of the London Stock Exchange. As disclosed in note 2, the annual financial statements of the Company areprepared in accordance with IFRSs. The condensed set of financial statementsincluded in this half-yearly financial report has been prepared in accordancewith International Accounting Standard 34, "Interim Financial Reporting". Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport for the six months ended 31 December 2007 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asper the AIM Rules of the London Stock Exchange. Deloitte & Touche LLP Chartered Accountants St Peter Port Guernsey March 2008 Unaudited Condensed Consolidated 6 month Income StatementFor the period from 1 July 2007 to 31 December 2007 Notes Period from Period from 1 July 2007 to 1 July 2006 to 31 December 2007 31 December 2006 £'000 £'000 Revenue 325 -Administration and operating expenses 5 (4,241) (2,012)Unrealised gains/(losses) on revaluation 12 6,560 (272)of investmentsGains on derivatives 36 -Other exchange gains and losses (164) 179 _____ _____Operating profit/(loss) 2,516 (2,105) _____ _____Bank interest receivable 1,403 1,609Loan interest receivable 92 2 _____ _____Finance income 1,495 1,611 _____ _____Profit/(loss) before tax 4,011 (494)Tax 6 364 - _____ _____Net profit/(loss) for the period 4,375 (494) _____ _____Profit/(loss) per share - Basic and Diluted 17 5.83p (0.66p) _____ _____ All items in the above statement derive from continuing operations. All losses and income are attributable to the equity holders of the parentcompany. There are no minority interests. The accompanying notes on pages 15 to 26 form an integral part of thesefinancial statements. Unaudited Condensed Consolidated 12 month Income StatementFor the period from 1 January 2007 to 31 December 2007 Notes Period from Period from 1 January 2007 to incorporation on 31 December 2007 22 February 2006 to £'000 31 December 2006 £'000 Revenue 330 -Administration and operating expenses 5 (6,352) (2,689)Unrealised gains/(losses) on revaluation 12 6,561 (272)of investmentsGains on derivatives 103 -Other exchange gains and losses (215) 179 _____ _____Operating profit/(loss) 427 (2,782) _____ _____Bank interest receivable 3,030 2,459Loan interest receivable 145 2 _____ _____Finance income 3,175 2,461 _____ _____Profit/(loss) before tax 3,602 (321)Tax 6 553 - _____ _____Net profit/(loss) for the period 4,155 (321) _____ _____Profit/(loss) per share - Basic and Diluted 17 5.54p (0.43p) _____ _____ All items in the above statement derive from continuing operations. All losses and income are attributable to the equity holders of the parentcompany. There are no minority interests. The accompanying notes on pages 15 to 26 form an integral part of thesefinancial statements. Unaudited Condensed Consolidated Balance SheetAs at 31 December 2007 31 December 31 December 2007 2006 Notes £'000 £'000Non-current assets 7 171 - GoodwillOther intangible assets 8 252 -Plant and equipment 9 890 3Investments - at fair value through profit and loss 12 39,272 15,401Loans receivable from associated company 12 1,233 563Loans and advances to customers 13 8,901 -Deferred tax assets 6 592 - _____ _____ 51,311 15,967 _____ _____Current assets 1,595 274 Trade and other receivablesCash and cash equivalents 41,580 65,778 _____ _____ 43,175 66,052 _____ _____Total assets 94,486 82,019Current liabilities 14 - 8 Derivative liabilitiesTrade and other payables 15 17,560 10,362 _____ _____Total liabilities 17,560 10,370 _____ _____Total net assets 76,926 71,649 _____ _____Equity 750 750 Share capitalSpecial reserve 70,750 70,750Share options reserve 1,070 470Revenue reserve - surplus/(deficit) 3,834 (321)Translation reserve 522 - _____ _____Total equity 76,926 71,649 _____ _____Net asset value per share - Basic and Diluted 17 102.6p 95.5p _____ _____ The accompanying notes on pages 15 to 26 form an integral part of thesefinancial statements. Unaudited Condensed Company Balance SheetAs at 31 December 2007 31 December 31 December 2007 2006 Notes £'000 £'000Non-current assets 10 32,402 12,500 Investments in subsidiaries -at fair value through profit and lossInvestments - at fair value through profit and loss 12 39,195 15,401Loans receivable from associated company 12 1,233 563 _____ _____ 72,830 28,464 _____ _____Current assets 835 153 Trade and other receivablesCash and cash equivalents 24,951 63,850 _____ _____ 25,786 64,003 _____ _____Total assets 98,616 92,467Current liabilities 14 - 8 Derivative liabilitiesTrade and other payables 15 16,428 20,512 _____ _____Total liabilities 16,428 20,520 _____ _____Total net assets 82,188 71,947 _____ _____Equity 750 750 Share capitalSpecial reserve 70,750 70,750Share options reserve 1,070 470Revenue reserve - surplus/(deficit) 9,618 (23) _____ _____Total equity 82,188 71,947 _____ _____Net asset value per share - Basic and Diluted 17 109.6p 95.9p _____ _____ The accompanying notes on pages 15 to 26 form an integral part of thesefinancial statements. Unaudited Condensed Consolidated Statement of Changes in EquityFor the period from 1 January 2007 to 31 December 2007 Share Share Special Share Capital Premium Reserve Options Reserve £'000 £'000 £'000 £'000For the period from incorporationon 22 February 2006 to31 December 2006Issue of ordinary share capital, 750 70,790 - -net of issue costsConversion of share premium account - (70,790) 70,790 -Net loss for the period - - - -Recognition in respect of - - - 470share-based paymentsAmount recognised directly in equity - - (40) - _____ _____ _____ _____At 31 December 2006 750 - 70,750 470 _____ _____ _____ _____For the period 1 January 2007to 31 December 2007At 1 January 2007 750 - 70,750 470Net profit for the period - - - -Recognition in respect of - - - 600share-based paymentsLoss recognised directly in equity - - - - _____ _____ _____ _____At 31 December 2007 750 - 70,750 1,070 _____ _____ _____ _____ (continued from table above) Revenue Reserve Translation Total Reserve £'000 £'000 £'000For the period from incorporationon 22 February 2006 to31 December 2006Issue of ordinary share capital, - - 1,540net of issue costsConversion of share premium account - - -Net loss for the period (321) - (321)Recognition in respect of - - 470share-based paymentsAmount recognised directly in equity - - (40) _____ _____ _____At 31 December 2006 (321) - 71,649 _____ _____ _____For the period 1 January 2007to 31 December 2007At 1 January 2007 (321) - 71,649Net profit for the period 4,155 - 4,155Recognition in respect of - - 600share-based paymentsLoss recognised directly in equity - 522 522 _____ _____ _____At 31 December 2007 3,834 522 76,926 _____ _____ _____ The accompanying notes on pages 15 to 26 form an integral part of thesefinancial statements. Unaudited Condensed Consolidated Cash Flow StatementFor the period from 1 January 2007 to 31 December 2007 Notes Period from Period from 1 January 2007 to incorporation on 31 December 2007 22 February 2006 to £'000 31 December 2006 £'000Cash flows from operating activities 427 (677) Operating gain/(loss)Adjustments for: (1,344) (601) Increase in operating trade and other receivablesIncrease in operating trade and other payables 1,033 114Revaluation of investments (6,292) -Recognised share based payments 600 -Unrealised losses on derivatives (103) -Other unrealised exchange losses 526 -Depreciation and amortisation 107 -Loans advanced to customers 13 (8,901) - _____ _____Net cash outflow from operating activities (13,947) (1,164) _____ _____Cash flows from investing activities (10,828) - Acquisition of investmentsAcquisition of derivatives (488) -Proceeds on sale of derivatives 530 -Acquisition of intangible assets 8 (269) -Acquisition of plant and equipment 9 (977) -Loans advanced to associated company (1,162) -Bank interest received 2,943 850 _____ _____Net cash (outflow)/inflow from investing activities (10,251) 850 _____ _____Cash flows from financing activities - 75,000 Proceeds from issue of ordinary share capitalIssue costs - (3,460) _____ _____Net cash inflow from financing activities - 71,540 _____ _____Net (decrease)/increase in cash and cash equivalents (24,198) 71,226 _____ _____Opening cash and cash equivalents 65,778 - _____ _____Closing cash and cash equivalents 41,580 71,226 _____ _____ The accompanying notes on pages 15 to 26 form an integral part of thesefinancial statements. Notes to the Unaudited Condensed Financial StatementsFor the period from 1 January 2007 to 31 December 2007 1. General information Aurora Russia Limited ('the Company') was incorporated in Guernsey on 22February 2006, and was listed on AIM on 24 March 2006. The Company wasestablished to acquire interests in small and mid-sized private companies inRussia, focusing on the financial, business and consumer services sectors. 2. Accounting Policies Basis of consolidation and preparation These unaudited interim condensed financial statements have been consolidatedand prepared on a basis consistent with accounting policies set out in theAurora Russia Limited audited annual report and financial statements for theperiod ended 31 December 2006. Accounting period On decision of the Board, the Company has changed its accounting period from 31December to 31 March to allow its investee companies more time to provide theiraudited financial statements, therefore it was decided to prepare interimaccounts to 31 December 2007. Interim accounts The Company has complied with the requirements of IAS 34 Interim FinancialReporting in respect of these interim financial statements. The directors believe that other pronouncements which are in issue but are notoperative or adopted by the Company will not have a material impact on thefinancial statements of the company. Revenue recognition Revenue is recognised at the fair value of the consideration received orreceivable and represents amounts receivable for services provided in the normalcourse of business, net of discounts, VAT and other sales related taxes. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss. Recoverable amount is the higher of fair valueless costs to sell and value in use. Where an impairment loss subsequentlyreverses, the carrying amount of the asset is increased to the revised estimateof its recoverable amount, but so that the increased carrying amount does notexceed the carrying amount that would have been determined had no impairmentloss been recognised for the asset in prior years. Impairment losses andreversals of impairment losses are recognised immediately in the incomestatement. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary at the date of acquisition. Goodwill isinitially recognised as an asset at cost and is subsequently measured at costless any accumulated impairment losses. Goodwill which is recognised as an assetis reviewed for impairment at least annually. Any impairment is recognisedimmediately in the income statement and is not subsequently reversed. Loans and advances to customers Loans and advances to customers are accounted for at amortised cost using theeffective interest method. Loans and advances are initially recognised when cashis advanced to the borrowers at fair value inclusive of transaction costs. Loansand advances are derecognised when the rights to receive cash flows from themhave expired. All loans are secured against the property of the borrower, with adequateprovisions calculated and managed by the Risk Management Department. Investments Quoted investments are designated as fair value through profit and loss. Theyare initially recognised at fair value on a trade basis, and are subsequentlyre-measured at fair value, which is considered to be the bid price as at thebalance sheet date. Upon sale of these investments, any profit or loss is takento the Income Statement. Unquoted investments, including investments in subsidiaries, are designated asfair value through profit and loss. Investments are initially recognised at coston a trade date basis. The investments are subsequently re-measured at fairvalue, which is determined by the Directors on the recommendation of theValuation Committee. Unrealised gains and losses arising from the revaluation ofinvestments are taken directly to the Income Statement. Investments deemed to bedenominated in a foreign currency are revalued in sterling terms even if thereis no revaluation of the investment in its currency of denomination. Investments are held in Russian Roubles, which the Directors believe bestreflect the underlying nature of the currency exposure of the investeecompanies. The investments are redenominated into Pound Sterling at year end,which is the functional currency of the company and presentation currency of theconsolidated financial statements. Unrealised gains and losses arising from therevaluation of investments are taken directly to the Income Statement. 3. Company information Included in the profit of the Condensed consolidated accounts are the operatingresults of the Company as follows: 6 months 12 months 1 July to 1 July to 1 January to 22 February 31 December 31 December 31 December to 31 December 2007 2006 2007 2006 £'000 £'000 £'000 £'000Administration and operating (1,772) (1,715) (3,102) (2,392)expensesUnrealised gains/(losses) on 9,916 (272) 9,914 (272)revaluation of investmentsGain on derivatives 36 - 103 -Other exchange losses 26 180 (10) 180 _____ _____ _____ _____Operating profit/(loss) 8,206 (1,807) 6,905 (2,484) _____ _____ _____ _____Bank interest receivable 1,014 1,609 2,592 2,459Loan interest receivable 92 2 145 2 _____ _____ _____ _____Finance income 1,106 1,611 2,737 2,461 _____ _____ _____ _____Profit/(loss) before tax 9,312 (196) 9,642 (23)Tax - - - - _____ _____ _____ _____Net profit/(loss) for the period 9,312 (196) 9,642 (23) _____ _____ _____ _____ 4. Subsidiary information Included in the profit of the Condensed consolidated accounts are the operatingresults of Kreditmart Finance Ltd as follows: 6 months 12 months 1 January 1 July to 1 July to to 31 22 February to 1 December 31 December December 31 December 2007 2006 2007 2006 £'000 £'000 £'000 £'000Revenue 324 - 329 -Administration and operating (2,526) (134) (3,307) (134)expensesUnrealised gains/(losses) on - - - -revaluationof investmentsGain on derivatives - - - -Other exchange losses 307 (1) 292 (1) _____ _____ _____ _____Operating profit/(loss) (1,895) (135) (2,686) (135) _____ _____ _____ _____Bank interest receivable 285 - 334 -Loan interest receivable - - - - _____ _____ _____ _____Finance income 285 - 334 - _____ _____ _____ _____Profit/(loss) before tax (1,610) (135) (2,352) (135)Tax 364 - 568 - _____ _____ _____ _____Net profit/(loss) for the period (1,246) (135) (1,784) (135) _____ _____ _____ _____ 5. Administration and operating expenses The net profit/(loss) for the year/period has been arrived at after charging thefollowing items of expenditure: 6 months 12 months 1 July to 1 July to 1 January to 22 February 31 December 31 December 31 December to 31 December 2007 2006 2007 2006 £'000 £'000 £'000 £'000CompanyInvestment management fee 726 979 1,445 1,500Auditors' remuneration 33 23 48 32Directors' remuneration 124 76 207 135Share based payments 300 470 600 470Other operating and 589 161 802 249administrative expenses _____ _____ _____ _____ 1,772 1,709 3,102 2,386 _____ _____ _____ _____KreditmartAuditors' remuneration 37 10 52 10Directors' remuneration 44 - 84 -Other operating and 2,376 293 3,102 293administrative expenses _____ _____ _____ _____ 2,457 303 3,238 303 _____ _____ _____ _____FlexinvestAuditors' remuneration 2 - 2 -Directors' remuneration - - - -Other operating and 10 - 10 -administrative expenses _____ _____ _____ _____ 12 - 12 - _____ _____ _____ _____Total 4,241 2,012 6,352 2,689 _____ _____ _____ _____ 6. Tax 6 months 12 months 1 July to 1 July to 1 January to 22 February 31 December 31 December 31 December to 31 December 2007 2006 2007 2006 £'000 £'000 £'000 £'000 KreditmartCurrent tax charge 21 - 24 -Deferred tax asset (385) - (592) - _____ _____ _____ _____ (364) - (568) - _____ _____ _____ _____FlexinvestCurrent tax charge - - 15 -Deferred tax asset - - - - _____ _____ _____ _____ - - 15 - _____ _____ _____ _____ Net tax credit to the Income (364) - (553) -Statement _____ _____ _____ _____ The Company is exempt from Guernsey taxation on income derived outside Guernseyand bank interest earned in Guernsey. The Group is liable to tax at a rate of 24% arising on its activities in Russia. The Group is liable to tax at a rate of 10% arising on its activities in Cyprus. 7. Goodwill Cost: £'000Recognised on acquisition of Flexinvest Limited 171 _____At 31 December 2007 171 _____ Net book value:At 31 December 2007 171 _____ No impairment losses have been recognised in respect of the goodwill in theperiod ended 31 December 2007. For further details in respect of the acquisitionof Flexinvest Limited, please refer to note 9. 8. Other intangible assets Cost: £'000Additions 269 _____At 31 December 2007 269 _____Depreciation:Charge for the period 17 _____At 31 December 2007 17 Net book value:At 31 December 2007 252 _____ Intangible assets consist of computer licences. The useful life of which isestimated to be 3 years. 9. Plant and equipment Fixtures & Furniture & Total fittings equipmentCost: £'000 £'000 £'000At 31 December 2006 - 3 3Additions 453 524 977 _____ _____ _____At 31 December 2007 453 527 980 _____ _____ _____Depreciation:At 31 December 2006 - - -Charge for the period 40 50 90 _____ _____ _____At 31 December 2007 40 50 90 _____ _____ _____Net book value:At 31 December 2006 - 3 3 _____ _____ _____At 31 December 2007 413 477 890 _____ _____ _____ The useful lives of the assets are estimated as follows: Fixtures & fittings 3-4 yearsFurniture 5 yearsEquipment 3 years 10. Investment in subsidiaries - at fair value through profit and loss 2007 2006 £'000 £'000 Kreditmart Finance Limited At 1 January 2007 and 22 February 2006 12,500 -Additions 10,094 12,500Fair value revaluation 3,357 - _____ _____At 31 December 2007 and 31 December 2006 25,591 12,500 _____ _____Flexinvest Limited - - At 1 January 2007 and 22 February 2006Additions 6,451 -Fair value revaluation - - _____ _____At 31 December 2007 and 31 December 2006 6,451 12,500 _____ _____ 32,402 12,500 _____ _____ The financial statements of the Group consolidate the results, assets andliabilities of the subsidiary companies listed below: Name of subsidiary undertaking Country of Class of % of Principal incorporation share class held activityKreditmart Finance Limited Cyprus Ordinary 100.0% Consumer finance Flexinvest Limited Cyprus Ordinary 99.5% Investment holding 11. Acquisition of subsidiary Flexinvest Limited Fair value on acquisition £'000Non-current assets 73 Quoted investmentsCurrent assets 104 Cash and cash equivalentsCurrent liabilities (2) Trade and other payables _____ 175Goodwill on acquisition 171 _____Cost of acquisition 346 _____ Date of acquisition 27 June 2007 The cost of acquisition was paid entirely in cash. The Company purchased a 99.5%stake in Flexinvest Limited, the remaining 0.5% stake being purchased by theCompany's subsidiary Kreditmart Finance Limited. 12. Investments - at fair value through profit and loss 2007 2007 2006 2006 £'000 £'000 £'000 £'000 Group Company Group CompanyWhitebrooks Investments Limited 5,752 5,752 5,036 5,036Unistream Bank 16,754 16,754 10,365 10,365SuperStroy 16,689 16,689 - -Quoted investments 77 - - - _____ _____ _____ _____Total investments at fair value through profit and 39,272 39,195 15,401 15,401loss _____ _____ _____ _____ Change in fair value of investments at fair value through profit and loss 6 months 12 months 1 July to 1 July to 1 January to 22 February to 31 December 31 December 31 December 31 December 2007 2006 2007 2006 £'000 £'000 £'000 £'000Whitebrooks Investments Limited (20) (272) 69 (272)Unistream Bank 6,505 - 6,417 -SuperStroy 71 - 71 -Quoted investments 4 - 4 - _____ _____ _____ _____Total unrealised gains 6,560 (272) 6,561 (272) _____ _____ _____ _____ The Company acquired a 40.3% stake in Whitebrooks Investments Limited ('Whitebrooks') on 24 July 2006, diluted to 37.1% after the agreement of amanagement option scheme. In addition to its investment in the shares ofWhitebrooks, the Company has provided the investee company with a loan facilityof US$5 million. The drawn down tranches of the loan are each repayable withintwelve months of the drawdown date. At the option of the borrower the loan isconvertible into ordinary shares of the borrower. On 27 December 2007 the loanprincipal amount drawn down on 27 December 2006 plus accrued interest wasconverted into ordinary shares in accordance with the facility agreement. Theconversion resulted in an increase in the diluted holding as at 31 December 2007to 39.1%. The Company committed to acquire a 26% stake in Unistream Bank ('Unistream') on30 November 2006, conditional upon CBR approval. At 30 June 2007 funds had beendrawn down from this commitment to acquire a 17.7% stake. The remaining 8.3%stake was acquired on 26 July 2007 once the CBR had given its approval for theCompany to own more than 20% of a Russian bank. As a result of the size of the stakes in these two companies, Whitebrooks andUnistream could potentially qualify as associated companies, which wouldnormally require that they be equity accounted in the books of the Company.However, the Company has taken advantage of the exemption available to it underIAS 28, and hence accounts for these as investments at fair value through profitand loss. On 21 December 2007 the company acquired a 24.3% shareholding in GrindeliaHoldings Limited, which owns 99.5% of the retail chain that operate under thebrands "SuperStroy" and "StroyArsenal". The Valuation Committee, based on professional advice and in accordance withIPEVCA guidelines concludes that the fair value of the investments inWhitebrooks Investments Ltd, Unistream Bank and Kreditmart Finance Ltd(Including Flexinvest Ltd) as at 31 December 2007 was estimated at £5.75million, £16.75 million and £32.4 million respectively, resulting in an upliftof the investment above historical cost in the Company accounts. Investment inSuperstroy is considered to be correctly valued at historical cost. The outstanding balance of the Whitebrooks loan as at 31 December 2007: 2007 2006 £'000 £'000 Loans drawn down plus capitalised interest 1,233 563 _____ _____ Investments Investments, including investments in subsidiaries, are designated as fair valuethrough profit and loss. Investments are initially recognised at cost on a tradedate basis. The investments are subsequently re-measured at fair value, which isdetermined by the Directors on the recommendation of the Valuation Committee.Unrealised gains and losses arising from the revaluation of investments aretaken directly to the Income Statement. Investments deemed to be denominated ina foreign currency are revalued in sterling terms even if there is norevaluation of the investment in its currency of denomination. The fair value of the investments is arrived at on the basis of therecommendation of the Company's Valuation Committee as follows: Unquoted securities are valued based on the realisation value which is estimatedby the Committee with prudence and good faith. The Committee will take intoaccount the guidelines and principals for valuation of Portfolio Companies setout by the International Private Equity and Venture Capital Association(IPEVCA). The most widely used methodologies are listed below. In assessing whichmethodology is appropriate, the Committee is predisposed towards thosemethodologies that draw upon market-based measures of risk and return. • Cost of recent investment • Earnings multiple • Net Assets • Available market prices 13. Loans and advances to customers 2007 2006 £'000 £'000 Residential mortgages 8,901 - _____ _____ The mortgages are secured upon borrowers' private residences, are repayable inequal monthly instalments and mature between 2014 and 2022. Interest is chargedat rates between 11% and 13%. 14. Derivative assets/(liabilities) The Group utilises currency options and forward foreign exchange contracts tohedge its exposure to monetary assets and liabilities. At the balance sheet dateno currency contracts were open. 2007 2006 £'000 £'000Current derivative assets/(liabilities) Sterling/US dollar forward foreign exchange contracts - (8) 15. Trade and other payables 2007 2007 2006 2006 £'000 £'000 £'000 £'000 Group Company Group Company Kreditmart Finance Limited - undrawn - - - 10,166investment commitmentUnistream Bank - undrawn investment commitment - - 10,214 10,214Investment purchase payable - Superstroy 16,340 16,340 - -Expense accruals 1,220 88 148 132 _____ _____ _____ _____ 17,560 16,428 10,362 20,512 _____ _____ _____ _____ Related party transactions Transactions between the Company and any subsidiaries which are related partieshave been eliminated on consolidation and are not disclosed in this note. The Company pays fees to Aurora Investment Advisors Limited ('AIAL') for itsservices as investment manager and advisor. The total charge to the IncomeStatement during the period was £1,445,270. There were no outstanding fees atthe period end. John McRoberts and James Cook each hold 47.5% of the ordinary share capital and42.5% of the non-voting preference share capital of AIAL. A trust created by SirTrevor Chinn (in which he has no interest) holds 10% of the non-votingpreference shares in AIAL. The Company pays fees to Investec Administration Services Limited ('IASL') forits services as administrator. The total charge to the Income Statement duringthe period was £77,500, of which £18,750 was outstanding at the period end.Steve Coe, a director of the Company, served as a director of IASL until hisresignation on 26 April 2007. The Directors of the Company and of Kreditmart OOO, other than John McRobertsand James Cook, received fees for their services. The total charge to the IncomeStatement during the period was £290,825, of which £6,627 was outstanding at theperiod end. On 17 July 2006, John McRoberts exercised options in respect of 152 shares inWhitebrooks Investments Limited ('Whitebrooks') at an average price of US$275per share. The options were granted to Mr McRoberts by an unrelated shareholderin Whitebrooks in connection with consultancy work performed for itsshareholders during 2004 and early 2005. Mr McRoberts still holds options inrespect of a further 848 shares at an average price of US$275 granted by TimSlesinger, the largest shareholder in Whitebrooks. 17. Net Asset Value and Earnings per Share The net asset value per share is arrived at by dividing the total equity due toshareholders as at the balance sheet date by the number of Shares in issue atthat date. The calculation of the basic and diluted earnings per share is based on thefollowing data: 6 months 12 months 1 July to 1 July to 1 January to 22 February to 31 December 31 December 31 December 31 December 2007 2006 2007 2006 Profit/(loss) for the purposes of basicand diluted earnings per share being netloss attributable to equity holders ofthe parent £4,375,000 (£494,000) £4,155,000 (£321,000)Net assets for the purposes of basic anddiluted net asset value per shareattributable to equity holders of theparent: £76,926,000 £71,649,000 £76,926,000 £71,649,000Weighted average number of ordinaryshares for the purpose of basic earningsper share: 75,000,000 75,000,000 75,000,000 75,000,000 Effect of dilutive ordinary shares:Options - - - - Weighted average number of ordinaryshares for the purpose of dilutedearnings per share: 75,000,000 75,000,000 75,000,000 75,000,000 18. Events after the balance sheet date Effective from 14 January 2008 the Company changed its Administrator fromInvestec Administration Services Limited to Close Fund Services Ltd. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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