Interim Results

AURORA RUSSIA LIMITED 

Chairman's Statement

Introduction

I am delighted to present the first results following my appointment as Chairman of Aurora Russia Limited ('Aurora Russia' or 'the Company') replacing Sir Trevor Chinn. On behalf of the board I would like to thank Sir Trevor for successfully guiding the Company through the IPO and the initial investment phase. I believe that my experience in Russia over the past 10 years will provide the necessary leadership to Aurora Russia through the current market conditions and for the next growth phase. 

While the current financial crisis has affected Russia and is expected to continue to do so for the foreseeable future I am confident that once the crisis is over growth will return and our investee companies in particular will be well placed to benefit from a more stable operating environment.

It is perhaps quite telling that in 1998, those companies that focused on their businesses and planned to see the crisis through rather than retrenching came out the other side stronger and ready to take on the exceptional growth that we have seen in Russia in the last 10 years. I expect the same will prove true in this downturn. The board is working with Aurora Investment Advisors Limited, the Manager, to make sure that we do what is necessary to ensure our investee companies are well prepared to weather these difficult times.

Results

For the 6 months to 30 September 2008, Aurora Russia recorded a gain of £1.08 million or 1.44 p per share, based on the unaudited consolidated income statement. Despite these difficult times the net asset value of the Company as at 30 September 2008 grew by 2% to £87.64 million or 116.9 p per share, compared to £85.58 million or 114.1 p per share at 31 March 2008. Cash and cash equivalents at 30 September 2008 were £6.17 million, compared to £7.80 million as at 31 March 2008.

Group administration and operating expenses of £5.57 million include Company costs of £1.70 million, of which £1.20 million relates to the Manager's fee and the Manager's option which is being amortised over a period of five years. Operating costs of the Company's wholly owned subsidiaries were £3.87 million. In view of the uncertain outlook potential deferred tax benefits of £0.6 m in the current period relating to Kreditmart have not been recognised and full provision has also been made against the deferred tax asset at 31 March 2008. We expect that the deferred tax asset will be reinstated once stability returns to the credit markets. 

Investment review

Aurora Russia has invested £63.74 million into five companies and has uncommitted funds of £5.98 million remaining to allow for small follow-on investments in its investee companies, if required, and to cover its ongoing expenses. The Company has now implemented its strategy to invest its capital in equity and equity-related investments in small and mid-sized private Russian companies, focused on the financial, business and consumer services sectors, where the Directors believe that there is potential for growth together with viable exit opportunities.

Aurora Russia has now successfully made five investments. We are positive about the prospects for the investments made to date which comprise: 

• Unistream Bank, a leading Russian money transfer company

• Kreditmart, a finance company distributing mortgages, equity release loans and other  consumer finance products

• Flexinvest Bank (formerly Volzhski Universalny Bank)

• Whitebrooks, a regional market leader in records management, trading as OSG Records  Management

• SuperStroy, one of the leading DIY retailers in Russia

Our investment in Unistream Bank continues to perform well and deliver strong growth. Kreditmart has seen slower growth due to the difficulties in the credit markets, Flexinvest Bank has now moved its headquarters from Samara to Moscow and has entered into an agency agreement with Kreditmart. OSG continues to perform well in line with its budget and Superstroy is building on its position as one of the largest Russian DIY chains.

Portfolio Revaluation Policy

A revaluation of the investment portfolio was performed at 30 September 2008, resulting in an increase in value of £3.45 million to £80.70 million. This revaluation, recommended by the Valuation Committee of the Board was prepared by an independent professional valuation firm and was formally adopted by the Board on 1st December 2008. These valuations are prepared for accounting purposes only and comply with International Private Equity and Venture Capital Association ('IPEVCA') guidelines. The resultant valuations of investments included in the Company's financial statements will not necessarily reflect the amount that a third party would be prepared to pay for these businesses.

The current valuation reflects changes to the previous valuation performed in March 2008 as follows: Unistream Bank has been increased by £2.84 million to £20.4 million, an increase of 16%. The valuation of Kreditmart and Flexinvest Bank has been decreased by £2.12 million to £32.30 million, a decrease of 6%, reflecting lower values being placed on mortgage broking businesses in the current uncertain market conditions. The valuation of OSG has increased by a modest £0.44 million to £8.30 million and SuperStroy has been increased by £2.28 million to £19.70 million.

Hedging Policy

The turmoil in credit markets continues to cause volatility in the currency markets. We have seen a continued strengthening of the US dollar against the rouble while sterling has declined. The Company continues to hedge its non sterling monetary assets, including uninvested cash, loans and any expected sale proceeds once a disposal of any of our investments has been agreed.

Outlook

The current global financial crisis has had a significant impact on the Russian economy and we will likely see a slowdown for some time to come. Investors have fled all markets and the steepest market declines have been experienced in the emerging market countries, including Russia. It should not be overlooked however that the stock markets in Russia are relatively new, small and insignificant to the economy of the country. 

The Russian government is using some of its accumulated reserves to provide liquidity to the financial markets and stimulate the economy. Specific funding has been provided to major banks for the express purpose of supporting lending to small and medium sized companies.

Both the IMF and the Russian government are predicting economic growth in Russia of greater than 3% in 2009. Not quite the 6%-7% of the past few years, but compared with the recessionary conditions expected in many mature markets this is encouraging.

Dan Koch

Aurora Russia Limited 

08 December 2008

AURORA RUSSIA LIMITED 

Investment Manager's Report

Overview

Aurora Russia has invested in five private Russian companies focused on the financial, business and consumer services sectors in accordance with the strategy outlined when the Company was listed on AIM in March 2006.

Aurora Russia's investee companies are taking prudent steps to weather the global financial crisis and Aurora Investment Advisors (the 'Manager') is providing considerable hands-on operational support to assist them in delivering solid trading performances and in building long term value. Aurora Russia's investee companies have taken steps to reduce operating costs, secure market share, conserve cash, and search for additional growth opportunities in their sectors.

Aurora Russia has invested a total of £63.74 million in five companies. It owns 26% of Unistream Bank, 100% of Kreditmart, 100% of Flexinvest Bank (formerly Volzhski Universalny Bank), 39.4% of OSG Records Management and 24.3% of SuperStroy.

Unistream Bank continues to be a leader in the Russian money transfer business in terms of volumes transferred; Kreditmart is increasing its market share of brokered loans and has been described as 'the leading mortgage broker in Russia' in the Russian media; Flexinvest Bank has moved its headquarters and operations to Moscow in order to support Kreditmart's growth strategy and distribution model. SuperStroy is the leading DIY retailer in the Urals region of Russia and is fast becoming one of the largest DIY retailers in Russia. OSG remains the largest records management company in Russia, Kazakhstan and Ukraine.

Unistream Bank 

Unistream Bank continues to strengthen its market position as one of the largest money transfer companies in Russia by providing a competitive money transfer product through 289 of its own money transfer offices throughout Russia (up from 238 as of 31 March 2008) and through its agent network in Russia and abroad. Money transfer is regulated by the Central Bank of Russia ('CBR') and Unistream Bank therefore has a banking license to receive/send money transfers, open bank accounts for corporate entities and accept loan payments through its points of sale. 

Since 2006, Unistream Bank has increased its annual volume of money transfers from US$1.84 billion to US$3.68 billion in 2007 and for the nine months to 30 September 2008 it had transferred US$3.72 billion (an increase of 53% over the same period in 2007). In 2007, it posted revenues of approximately 1.3 billion RUR (US$52.5 million) and in the current year to September has seen a 112 % increase in revenues and is trading profitably. 

According to the Central Bank of Russia the first half of 2008 saw the Russian money transfer market continuing to exhibit high double digit growth rates fueled by the inflow of migrant labour with outbound transfers increasing by 68% while Russian inbound transfers grew at 28% over the same period last year. Many of the migrant workers in Russia are employed in the construction industry which has been badly affected by the liquidity crunch. Despite these trends in construction, Unistream Bank is still experiencing growth. 

The company has now built a substantial platform in Russia and has decided that in light of the financial crisis it will put its aggressive roll-out of its own cash desks on hold and focus on improving margins, controlling risk and increasing profitability. 

The valuation of the Company's investment in Unistream Bank at 30 September 2008 resulted in an uplift of £2.84 million from £17.56 million at 31 March 2008 to £24.40 million.

Kreditmart

Kreditmart, a wholly owned subsidiary of Aurora Russia, commenced operations in March 2007. It distributes mortgages, equity release loans, insurance, credit cards, auto loans, pension funds, mutual funds, and other consumer finance products. It has loan shops in Moscow, St. Petersburg, Omsk, Novosibirsk, Yekaterinburg, Kazan, Tyumen, and Rostov-on-Don. In addition, it has also opened sales points in some of the leading real estate agencies in Moscow, Novosibirsk, and Ekaterinburg with additional expansion in the regions during 2008. Kreditmart has signed agreements with over 60 banks to distribute mortgage products to its customers and currently offers over 600 loan products through its system.

By 30 September 2008, Kreditmart had closed 522 mortgages for a total of US$87 million and has US$ 77 million of approved mortgages in the pipeline. In the nine months to 30 September 2008 mortgage volumes increased 5 times over the same period in 2007. 

Kreditmart has sold two loan portfolios in the current period at a premium and has focused its efforts on increasing commission and fee revenue while reducing costs. These efforts have resulted in a 100% increase in broker fee income from May 2008 to September 2008 and a 300% increase in cross-sell revenue for the same period. By September 2008, mortgage sales were 42% higher than the same period last year. After September, management continued its cost reduction plan to reduce Kreditmart's premises overhead by 24% by January 2009.

The global liquidity crisis has resulted in most Russian banks increasing their mortgage interest rates by 1-4 per cent along with more conservative underwriting criteria. The Russian Government is supporting the mortgage market by injecting up to $7.2 billion into the Agency for Mortgage Lending in order to provide liquidity to banks offering mortgage loans. The mortgage market remains at less than 3% of GDP with ample opportunities for future growth.

In light of the current market, the valuation of the Company's investment in Kreditmart (including Flexinvest- see below) at 30 September 2008 resulted in a write-down of £2.12 million from £34.42 million at 31 March 2008 to £32.30 million.

Flexinvest Bank (formerly Volzhski Universalny Bank)

Flexinvest Bank ('Flexinvest') was acquired in May 2008 through Flexinvest Limited, a wholly owned subsidiary for a consideration of £5.0 million (RUR 237 million). Additional funds of £1.2 million (RUR 57 million) are to be invested into the bank by Flexinvest to cover post-acquisition infrastructure costs and fund ongoing operations.

Flexinvest has now moved its headquarters and operations from Samara to Moscow. As of 30 September 2008, it had RUR 112.3 million (approximately £2.46 million) in assets and posted a profit of RUR 11 million (£0.2 million) for nine months to 30 September 2008.

Kreditmart will distribute Flexinvest products through its distribution channels. Flexinvest will focus on the retail banking sector and will enter into an agent bank agreement with Kreditmart to enable Kreditmart to book mortgages faster and hold these mortgages for on-sale to its partner banks. This relationship will give the group a competitive advantage in Russia's growing mortgage and consumer finance market.

OSG Records Management

As of 30 September 2008, OSG posted year to date revenues of $12.3 million (up 61% for the same period last year). In 2007, OSG posted revenues of US$10.6 million up from US$8 million in 2006 and just under US$5 million in 2005. 

OSG expects the records storage market to be somewhat protected from the economic downturn by archiving laws and a need for companies in the current environment to outsource their records management to achieve greater efficiencies through cost and staff reduction. OSG expects to continue to grow strongly in 2009 with a focus on margins and reducing its operating costs particularly those related to warehousing efficiencies. OSG estimates its current market share in Russia of outsourced document storage is over 60%. In Russia, the company's largest market, OSG estimates that the document outsourcing market still represents less than 5% of the total available market.

The valuation of the Company's investment in OSG at 30 September 2008 resulted in a modest uplift of £0.44 million from £7.86 million at 31 March 2008 to £8.30 million.

SuperStroy

In December 2007, Aurora Russia invested £16.6 million in SuperStroy, the leading DIY chain in the Urals Region of Russia which is home to approximately 20 million people. 

Since the investment was made SuperStroy has continued to expand in its home region of the Urals and beyond and as of September 2008 operated 42 SuperStroy supermarkets and 4 StroyArsenal hypermarkets. In 2007, it posted revenues of approximately 4.56 billion RUR (US$178.6 million) and in the current year to September has seen its revenues grow to 4.93 billion RUR (US$205.2 million) a 60% increase over the same period last year. Based on the Superstroy's turnover for the first nine months of 2008 and various accounts of the market participants, the management now ranks the company as number 5 among all DIY retailers operating in Russia (up from number 7 in 2007) and number 2 Russian independent DIY retailer (excluding western chains such as Leroy Merlin, Castorama, and OBI).

The expected slowdown of the Russian economy will have an adverse impact on discretionary consumer spending. On the other hand local management believes that strong DIY chains, such as Superstroy, may benefit from potentially lower competition and consequently growing customer traffic to its stores. The company has also decided to focus on profitability in the next 12 months and curtail its roll out of new stores to one more StroyArsenal hypermarket in 2008 and no new store openings in 2009.

The valuation of the Company's investment in Superstroy at 30 September 2008 resulted in an uplift of £2.28 million from £17.4 million at 31 March 2008 to £19.7 million.

Conclusion

We continue to provide hands-on operational support to Aurora Russia's investee companies. We believe that all five companies are positioned well to weather the current economic climate and to emerge with secured market positions and strong platforms for growth. However growth is somewhat dependant upon the success of initiatives being taken in Russia and globally to ease the current credit crisis.

The Russian market continues to provide opportunities for growth due to the low penetration and vast market potential in the sectors that Aurora Russia has invested in.

Aurora Investment Advisors Limited

08 December 2008

Independent Review Report to Aurora Russia Limited

We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 30 September 2008 which comprise the condensed consolidated income statement, the condensed consolidated balance sheet, the company balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related explanatory notes. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company, in accordance with the terms of our engagement letter dated 6 November 2008. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half yearly financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards ('IFRS'). The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standards on Review Engagements (UK and Ireland) ISRE 2410, 'Review of Interim Financial Information Performed by the Independant Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly financial report for the six months ended 30 September 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34.

KPMG Channel Islands Limited 

PO Box 20

20 New Street

St. Peter Port

Guernsey

GY1 4AN

08 December 2008

Unaudited Condensed Half Year Consolidated Income Statement

For the 6 month period 1 April 2008 to 30 September 2008

1 April

2008

 1 January 2007

to 30

September

2008

 to 30

June

2007

Notes

 £'000 

 £'000 

Revenue

951

5

Administration and operating expenses

4

(5,565)

(2,111)

Unrealised gains on revaluation of investments

11

5,567

1

Gains on derivatives

3

67

Impairment of loan receivable

(370)

-

Exchange gains/(losses)

912

(51)

Operating profit/(loss)

1,498

(2,089)

Bank interest receivable

391

1,627

Loan interest receivable

118

53

Finance income

509

1,680

Profit/(loss) before tax 

2,007

(409)

Tax (charge)/credit

5

(927)

204

Profit/(loss) for the period

1,080

(205)

Profit/(loss) per share - basic and diluted

1.44p 

(0.27p) 

All items in the above statement derive from continuing operations.

Unaudited Condensed Half Year Consolidated Balance Sheet

As at 30 September 2008

30 September 2008

31 March

2008

Notes

Non-current assets

Goodwill

6

188 

169 

Other intangible assets

7

2,413 

- 

Plant and equipment

8

1,220 

1,267 

Investments at fair value through profit and loss

11

46,600 

41,008 

Loans receivable from associated company

11

1,800 

1,832 

Loans and advances to customers

12

9,078 

13,922 

Deferred tax asset

- 

784 

61,299

58,982

Current assets

Trade and other receivables

2,083 

1,481 

Cash and cash equivalents

16,604 

17,806 

18,687

19,287

Total assets

79,986 

78,269 

Current liabilities 

Derivative liabilities

13

151 

12 

Taxation payable

100 

100 

Trade and other payables

14

860 

548 

Total liabilities

1,111

660

Total net assets 

78,875

77,609

Equity

Share capital

750 

750 

Special reserve

70,750 

70,750 

Share options reserve

1,520 

1,220 

Revenue reserve - surplus

5,974 

4,894 

Translation reserve

(119)

(5)

Total equity

78,875

77,609

Net asset value per share - basic and diluted

105.2p 

103.5p 

The accounts were approved by the Board of Directors on 8 December 2008 and signed on its behalf by:

John Whittle

 Ben Morgan 

Director

 Director 

08 December 2008

Unaudited Condensed Half Year Company Balance Sheet

As at 30 September 2008

30 September 2008

31

March

2008

Notes

 £'000 

 £'000 

Non-current assets

Investment in subsidiaries

9

32,300 

34,423 

Investments at fair value through profit or loss

11

46,600 

41,008 

Loans receivable from associated company

11

1,800 

1,832 

80,700

77,263

Current assets

Trade and other receivables

1,115 

604 

Cash and cash equivalents

6,171 

7,829 

7,286

8,433

Total assets

87,986

85,696

Current liabilities 

Derivative liabilities

13

151 

12 

Trade and other payables

14

192 

103 

Total liabilities

343

115

Total net assets 

87,643

85,581

Equity

Share capital 

750 

750 

Special reserve

70,750 

70,750 

Share options reserve

1,520 

1,220 

Revenue reserve - surplus

14,623 

12,861 

Total equity

87,643

85,581

Net asset value per share - basic and diluted

116.9p 

114.1p 

Unaudited Condensed Half Year Consolidated Statement of Changes in Equity

For the 6 month period 1 April 2008 to 30 September 2008

Share

Share

Special

Options

Revenue

Translation

Capital

Reserve

 Reserve

Reserve

Reserve

Total

 £'000 

 £'000 

 £'000 

 £'000 

 £'000 

 £'000 

For the period 1 January 2007 to 30 June 2007

At 1 January 2007

750

70,750

470

(321)

-

71,649

Net loss for the period

-

-

-

(205)

-

(205)

Recognition of share-based payments

-

-

300

-

-

300

Foreign currency translation reserve

-

-

-

-

(2)

(2)

At 30 June 2007

750

70,750

770

(526)

(2)

71,742

At 1 July 2007

750

70,750

770

(526)

(2)

71,742

Net profit for the period

-

-

-

5,420

-

5,420

Recognition of share-based payments

-

-

450

-

-

450

Foreign currency translation reserve

-

-

-

-

(3)

(3)

At 31 March 2008

750

70,750

1,220

4,894

(5)

77,609

For the period 1 April 2008 to 30 September 2008

At 1 April 2008

750

70,750

1,220

4,894

(5)

77,609

Net profit for the period

-

-

-

1,080

-

1,080

Recognition of share-based payments

-

-

300

-

-

300

Foreign currency translation reserve

-

-

-

-

(114)

(114)

At 30 September 2008

750

70,750

1,520

5,974

(119)

78,875

No impairment losses have been recognised in respect of the goodwill. For further details in respect of the acquisition of Flexinvest Limited, please refer to note 9.

Notes to the Unaudited Condensed Half Year Financial statements

For the 6 month period 1 April 2008 to 30 September 2008

1.

General information 

The consolidated financial statements of the Company and its subsidiaries ('the Group') are available upon request from the Company's registered office or at www.aurorarussia.com.

2.

Accounting Policies

Basis of consolidation and preparation

These unaudited interim condensed financial statements have been consolidated and prepared in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting' and with applicable legal and regulatory requirements of Guernsey Law and of AIM.

The condensed interim financial statements do not include all the information and disclosures required in annual financial statements, and should be read in conjunction with Aurora Russia Limited's audited report and financial statements for the 15 month period ended 31 March 2008. The condensed interim financial statements were approved by the Board of Directors on 8 December 2008.

Accounting period

On decision of the Board, the Company and Group changed their accounting period from 31 December to 31 March to allow its investee companies more time to provide their audited financial statements, therefore it was decided to prepare prior period interim accounts for the 12 month period to 31 December 2007 in addition to the 6 month period ended 30 June 2007.

The comparative numbers used for the condensed half year consolidated income statement, condensed half year consolidated statement of changes in equity and condensed half year consolidated cash flow statement are that of the half year period ended 30 June 2007, which is considered a comparable period as defined per IAS 34. The comparatives used in the condensed half year consolidated and company balance sheets and condensed half year consolidated statement of changes in equity are that of the previous financial year end, 31 March 2008.

Significant accounting policies

The same accounting policies, presentation and methods of computation are followed in these condensed interim financial statements as those followed in the preparation of the Company's and Group's audited financial statements for the 15 month period ended 31 March 2008.

Segmental reporting

The directors are of the opinion that the Group is engaged in a single segment of business being investment business and in one principal geographical area, Russia.

Investments

Unquoted investments, including investments in subsidiaries, are designated as fair value through profit and loss. Investments are initially recognised at fair value. The investments are subsequently re-measured at fair value, which is determined by the Directors on the recommendation of the Valuation Committee, utilising the International Private Equity and Venture Capital Association ('IPEVCA') guidelines. Unrealised gains and losses arising from the revaluation of investments are taken directly to the Income Statement. Investments deemed to be denominated in a foreign currency are revalued in Pounds Sterling terms even if there is no revaluation of the investment in its currency of denomination.

Investments are held in Russian Roubles, which the Directors believe best reflect the underlying nature of the currency exposure of the investee companies. The investments are translated into Pounds Sterling at period end, which is the functional currency of the Group and presentation currency of the consolidated financial statements. Unrealised gains and losses arising from the translation of investments are taken directly to the income statement.

The Group has taken advantage of the exemption available to it under IAS 28, 'Investments in associates' and is accounting for the investments in Whitebrooks and Unistream at fair value through profit and loss, which normally as a result of the size of the stake in these two companies would potentially qualify as associated companies and are required to be equity accounted.

Impairment of tanglible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Recoverable amount is the higher of fair value less costs to sell and value in use. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Impairment losses and reversals of impairment losses are recognised immediately in the income statement.

Intangible assets

An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the company. Amortisation is not provided for these intangible assets. Intangible assets with indefinite useful lives are tested for impairment at each reporting date by determining the recoverable amount of the assets either individually or at the cash-generating unit level. Where this assessment is performed at the cash-generating unit level, the impairment is determined by assessing the recoverable amount of the cash-generating unit to which the intangible asset relates. In such instances, the recoverable amount is determined as the value-in-use of the cash-generating unit by estimating the expected future cash flows in the unit and choosing a suitable discount rate in order to calculate the present value of those cash flows. 

Where the recoverable amount is less than the carrying amount of the asset or the cash-generating unit, an impairment loss is recognised in the income statement.

The useful life of an intangible asset with an indefinite life is reviewed at each reporting date to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment is made prospectively. 

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least at each reporting date or if there is an indication of impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed.

Loans and advances to customers

Loans granted by the Group are initially recognised at fair value plus related transaction costs. Where the fair value of consideration given does not equal the fair value of the loan, for example where the loan is issued at lower than market rates, the difference between the fair value of consideration given and the fair value of the loan is recognised as a loss on initial recognition of the loan and included in the consolidated income statement according to nature of these losses. Subsequently, loans are carried at amortised cost. Loans to customers are carried net of any impairment losses.

All loans are secured against the property of the borrower, with adequate provisions calculated and managed by the Risk Management Department.

Use of estimates

The preparation of the Group's financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies at the time of the Group's financial statements, and revenue and expenses during the reporting period. Actual results could differ from those estimated. Significant estimates in the Group's financial statements include the amounts recorded for the fair value of the investments. By their nature, these estimates and assumptions are subject to measurement uncertainty and the effect on the Group's financial statements of changes in estimates in future periods could be significant.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the fifteen month period ended 31 March 2008.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.

3.

Company information

Included in the profit of the condensed consolidated accounts are the operating results of the Company:

1 April 2008 to 30 September

2008

1

 January

2007 to

30 June

2007

£'000 

 £'000 

Administration and operating expenses

(1,695)

(1,330)

Unrealised gains/(losses) on revaluation of investments

3,453 

(2)

Gain on derivatives

3

67

Impairment of loan receivable

(370)

-

Other exchange gains/(losses)

56

(36)

Operating profit/(loss)

1,447

(1,301)

Bank interest receivable

198 

1,578 

Loan interest receivable

118 

53 

Finance income

 316 

 1,631 

Profit before tax

1,763 

 330 

Tax

-

-

Net profit for the period

1,763 

 330 

4.

Administration and operating expenses

Company

Investment management fee

902 

719 

Auditors' remuneration

37 

15 

Directors' remuneration

102 

83 

Share-based payments

300 

300 

Other operating and administrative expenses

354 

213 

1,695

1,330

Kreditmart

Auditors' remuneration

4 

15 

Directors' remuneration

53 

40 

Other operating and administrative expenses