TIDMAURR
RNS Number : 1816Z
Aurora Russia Limited
09 December 2014
8 December 2014
Aurora Russia Limited ("Aurora Russia" or the "Company")
Results for the six months ended 30 September 2014
-- Performance in the underlying companies has been impacted by
tough trading conditions and the deterioration in the value of the
Rouble.
-- The environment for selling the portfolio companies is
difficult, but the Board is reviewing options for obtaining value
for shareholders.
Financial highlights
-- Net asset value per share as at 30 September 2014 of 24.4
pence per share (Net asset value GBP10.9 million) down from 27.9
pence per share.
-- Cash and cash equivalents as at 30 September 2014 were GBP2.29 million.
Portfolio highlights
Unistream Bank
-- Net revenues for the nine month period ended 30 September
2014 were RUR2.1 billion, up 16.2% year-on-year.
-- Profit before tax for the nine months to 30 September 2014
was RUR56.3 million, down from RUR71.3 million for the same period
last year.
-- Equity valuation of Aurora Russia's stake in Unistream at 30
September 2014 was GBP8.4million, compared to the valuation at 31
March 2014 of GBP8 million.
Superstroy
-- Net sales for the nine month period ended 30 September 2014
were RUR6.8 billion, down 4.8year on year.
-- Gross profit for the nine months to 30 September 2014 was
RUR1.75 billion, down from RUR2.04 billion for the same period last
year.
-- Equity valuation of Aurora Russia's stake in Superstroy at 30
September 2014 was GBP280,000, compared to the valuation at 31
March 2014 of GBP1.8 million.
Commenting, Gilbert Chalk, Chairman of Aurora Russia, said:
"The Board will continue to monitor closely the performance of
the investee companies and seek exits from its investments. Clearly
in the case of Superstroy the immediate priority is to achieve a
turnaround in the Company's trading performance. In the case of
Unistream, the current trading and overall environment is not the
most favourable, but Unistream has performed well in current
circumstances and has a strategic position in the money
transmission market. The Board with the assistance of the
Investment Advisor will continue to work in conjunction with
Unistream's majority owners to achieve a sale of this investee
company at a price that reflects its strategic value.
The Board remains determined to achieve value for shareholders
through sales of the Company's investments as trading and market
conditions allow."
Enquiries:
Aurora Russia Limited
Gilbert Chalk +44 (0)7768 527973
Numis Securities Limited
Nominated Advisor: Hugh Jonathan +44 (0)20 7260 1000
Corporate Broking: Rupert Krefting /
Nathan Brown
Chairman's Statement
Introduction
The results of Aurora Russia Limited ('the Company' or 'Aurora
Russia') for the 6 months ended 30 September 2014 are presented
below.
The last six months have been a period of transition,
rationalisation and change against a difficult market backdrop at
both the macro and micro level.
The Annual General Meeting ('AGM')
I would like to take this opportunity to thank our shareholders
for their support at the AGM on 24 September 2014 for voting in
favour of all of the resolutions put forward, including the re-
appointment of me and Tim Slesinger.
Review
In April the Board achieved and completed the sale of the
non-cash mortgage assets held by Kreditmart Finance Limited ('KFL')
for a total consideration of RUR100 million (approximately GBP1.7
million) plus $450,000 (approximately GBP267,500), which was KFL's
cash balance at the time of the transaction. KFL's non-mortgage
cash assets were previously transferred from Flex Bank to KFL at a
nominal value of RUR144 million (approximately GBP2.4 million). The
Board agreed to the sale at a discount in the light of the then
current Russian market for banking assets and the difficult nature
of the portfolio, which will have only deteriorated further since
this sale.
Following this latter sale and the earlier sale in March of
Flexinvest Bank, the Board announced in May a second tender offer
to shareholders for an aggregate gross consideration of GBP8.28
million. This, together with the earlier tender offer of GBP20.11
million in May 2013, brings the total proceeds returned to
shareholders in the last 18 months to some GBP28.39 million.
Since completing negotiations on 20 June, the Board has been
working closely with the Company's new Investment Advisor, Nicholas
Henderson-Stewart, on getting to grips with the trading performance
of the Company's two residual investments and working with the
investee companies' shareholders and management to try to optimise
each company's performance in poor trading conditions and position
them best for when sales of the companies can be achieved.
As the Investment Advisor's Report highlights and as is
generally well known, the overall trading and investment
environment in Russia has been and remains difficult as a result of
Western sanctions and the fall in the oil price.
This has not assisted either the trading performance of the
investee companies or the environment for achieving a sale of the
Company's assets at realistic and acceptable prices. That said,
Unistream has performed well in a highly competitive market and is
a key player in its market. The Board and the majority shareholders
are determined that Unistream's market position and strength be
recognised at whatever juncture that Unistream may be sold.
In the case of Superstroy, an already difficult retail backdrop
has deteriorated further over the last six months for the reasons
cited and this has not made the management's task of restructuring
the business any easier. As highlighted in the Investment Advisor's
report, Superstroy twice changed senior management in the last six
months as it sought to implement its restructuring strategy.
Recovery of value will require convincing Superstroy's lenders that
it has the right strategy and the capability to implement the
necessary changes. This is the clear priority in the short and
medium term. A sale is unlikely to be feasible until there are
tangible signs of improvement in performance and the overall market
backdrop at least stabilises.
As the Investment Advisor indicates, the Russian economy
initially proved more resilient than might have been expected in
the face of Western sanctions and the fall in the oil price.
However, sentiment has deteriorated since 30 September and it is
not possible to forecast when the situation might turn more
positive.
Results
For the 6 months to 30 September 2014, Aurora Russia recorded a
loss of GBP1,535,000 or 2.82 pence per share, calculated based on
the unaudited condensed half year's statement of comprehensive
income. The net asset value ('NAV') of the Company as at 30
September 2014 was GBP10.87 million or 24.4 pence per share. This
decline in value is derived from the reasons set out above and in
the Investment Advisor's report.
Direct administration and operating expenses of the Company for
the 6 months amounted to GBP371,000. This compares to GBP684,000 in
the same period of the last financial period and reflects the lower
ongoing cost base following the termination of the contract with
the previous manager and the cutting of other direct costs by the
Board. Cash balances as at 30 September 2014 stood at GBP2.29
million.
Investments
The Company has two remaining investments:
- 24.3% of Superstroy, one of the leading DIY retailers in the Urals region of Russia.
- 26.0% of Unistream Bank, a leading Russian money transfer company.
Portfolio Valuation
A valuation of the investment portfolio was performed as at 30
September 2014, resulting in a decrease in value from GBP9.8
million to GBP8.7 million on a like for like basis. This interim
valuation, recommended by the Valuation Committee of the Board, was
prepared by the Investment Advisor in Moscow and formally adopted
by the Board on 8 December 2014. This valuation was prepared for
accounting purposes only and is in accordance with the
International Private Equity and Venture Capital Board's ('IPEV')
valuation guidelines.
The resultant valuations of investments included in the
Company's financial statements will not necessarily reflect the
market value that a third party would be prepared to pay for these
businesses. The current valuation of Aurora Russia's portfolio
reflects changes to the previous valuation performed as at 31 March
2014 as follows:
--As indicated above and in the Investment Advisor's report,
Superstroy was very seriously affected by the economic downturn,
the arrival of international competitors in its core Urals market
and a revenue growth strategy adopted at the expense of a focus on
store formatting and building a coherent offering and
profitability. As a result the value of the Company's stake in
Superstroy decreased from GBP1.8 million (based on comparable
multiples) in March 2014 to GBP280,000 (based on an adjusted NAV
valuation basis). Please note the change in valuation methodology
in relation to Superstroy. In the current circumstances, it is
likely going to be difficult for Superstroy's management to achieve
a rapid turnaround in its fortunes.
Unistream performed relatively well in the face of challenging
market conditions. The value of the Company's stake grew by
GBP400,000 to GBP8.4 million (based on comparable multiples) or +5%
since March 2014.
Other reasons for each change in the valuations are covered in
the Investment Advisor's report. These include currency translation
effects caused by unfavourable movements in the Sterling / Rouble
exchange rate of approximately 10%. Since 30 September, the
Sterling / Rouble exchange rate has deteriorated by some further
30%. If this deterioration persists, it will impact the portfolio
valuation at the March 2015 year end.
Outlook
The Board will continue to monitor closely the performance of
the investee companies and seek exits from its investments. Clearly
in the case of Superstroy the immediate priority is to achieve a
turnaround in the Company's trading performance. In the case of
Unistream, the current trading and overall environment is not the
most favourable, but Unistream has performed well in current
circumstances and has a strategic position in the money
transmission market. The Board with the assistance of the
Investment Advisor will continue to work in conjunction with
Unistream's majority owners to achieve a sale of this investee
company at a price that reflects its strategic value.
The Board remains determined to achieve value for shareholders
through sales of the Company's investments as trading and market
conditions allow.
Gilbert Chalk
Chairman of the Board
Aurora Russia Limited
8 December 2014
Investment Advisor's Report
Overview
The economic sanctions imposed on Russia as a result of the
Ukraine crisis along with the 25% fall in oil prices since July
2014 have weakened the Russian economy and led to a 10% drop in the
Sterling / Rouble exchange rate over the March to September 2014
period. Despite these challenging conditions Russia's economy has
demonstrated some resilience. GDP grew 0.7% year on year ("y-o-y")
during the first three quarters of 2014. We expect these
challenging conditions to continue in the near future and GDP is
expected to contract by up to 1% in 2015. All the same Russia's
positive fiscal balance and strong foreign currency reserves will
ensure a measure of economic stability.
Trading Updates
Superstroy
Superstroy was strongly affected by the 2013 economic slowdown,
which accelerated in 2014 as consumers cut down on non-essential
purchases. While the company's 2014 YTD revenue in Ruble terms
remains in line with the budget the company's gross margins
underperformed strongly as the challenging economic environment
made it difficult to pass on any price increases to the market
while cost of goods sold increased steadily due to the Ruble
devaluation. The company's poor performance was also compounded by
the fact that inventories were significantly built up during 2013
to prepare for future growth and massive discount sales had to be
organized to bring inventory levels under control. The competitive
environment in the Urals has also worsened in the last few years
with the arrival of International DIY chain Leroy Merlin, which
entered the Urals market and has opened a number of stores in the
region's larger cities. In the last few months Superstroy changed
senior management as it sought to implement a restructuring
strategy. The company's long standing Commercial Director has now
been appointed as Chief Executive Officer.
For the year to 30 September 2014, Superstroy's management
accounts showed net sales of RUR6.8 billion (GBP106.2 million) down
4.8% y-o-y. Retail sales dropped 4.7% y-o-y to RUR5.0 billion
(GBP78.4 million) and wholesale sales dropped 14.2% y-o-y to RUR1.6
billion (GBP25.1 million) as new management cut down on very low
margin wholesale sales. Nine months 2014 gross profit of RUR1.75
billion (GBP29.5 million, using average exchange rate for the
period) was down from gross profit of RUR2.04 billion (GBP39.7
million) during the same period last year, gross margin dropping 3%
y-o-y to 26.1%.
The equity valuation of the Company's stake in Superstroy at 30
September 2014 was marked down to
GBP280k, a decrease of 84.44% on the valuation as at 31 March
2014 of GBP1.8 million. Please note the change in valuation
methodology in relation to Superstroy. It is going to be difficult
for Superstroy to achieve a rapid turnaround in its fortunes in the
current circumstances.
Unistream
Besides challenging economic conditions that affected
Unistream's core market of migrants sending remittances to their
home countries, Unistream also faced a tough competitive and
regulatory environment in 2014. Key competitors continued to drop
commission prices on cash transfers and strict new government
regulations were implemented in early 2014 to crack down on
transfers of undeclared cash. Unistream has reacted well to this
challenging environment by expanding volume through its own
networks by 15% y-o-y and doubling partner network volumes in the
same period. A number of strong partnership deals were signed in
2014 notably with three large domestic financial institutions. All
three have excellent networks and are helping to drive top-line
growth. In addition Unistream continued to develop new products and
revenue streams in 2014. In particular the company launched a
number of cash desks specializing in foreign currency exchange,
which have performed strongly since their launch in November
2013.
Unistream has shown solid top-line growth in 2014. Management
accounts show transfer volumes for the 3 quarters of 2014 of
RUR153.3 billion (approximately GBP2.58 billion using average
exchange rate), up 30% y-o-y. Net revenues grew 16.2% to RUR2.1
billion (GBP35 million using average exchange rate) for the same
period. Profit before tax for the first three quarter of the year
was RUR56.3 million (GBP0.95 million using average exchange rate)
down 21% from RUR71.3 million (GBP1.36 million) for the same period
in 2013. The lower rise in revenues and the profit fall is due to
continued contraction of margins on Unistream's core money transfer
business, mainly as a reaction to the competitive environment.
The equity valuation of the Company's stake in Unistream at 30
September 2014 was marked up to GBP8.4 million, an increase of 5%
on the valuation as at 31 March 2014 of GBP8.0 million due to
higher excess cash balance and rising revenues countering the drop
in the GPB/RUR exchange rate.
Conclusion
I will continue to work closely with the Board to achieve its
stated objectives of realising the Company's investments at prices
which reflect their value as and when market and trading conditions
allow.
Independent Review Report to Aurora Russia Limited
We have been engaged by the Company to review the unaudited
condensed half year financial statements for the six months ended
30 September 2014 which comprise the unaudited condensed half year
statement of comprehensive income, the unaudited condensed half
year statement of financial position, the unaudited condensed half
year statement of changes in equity, the unaudited condensed half
year statement of cash flows and related explanatory notes. We have
read the other information contained in the interim report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the unaudited
condensed half year financial statements.
This report is made solely to the Company, in accordance with
the terms of our engagement letter dated 27 October 2014. Our work
has been undertaken so that we might state to the Company those
matters we are required to state to them in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company, for our review work, for this report, or for the
conclusions we have reached.
Directors' responsibilities
The interim report and unaudited condensed half year financial
statements is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the half
year financial report in accordance with the AIM Rules of the
London Stock Exchange.
As disclosed in note 2, the annual financial statements of the
Company are prepared in accordance with International Financial
Reporting Standards ('IFRS') issued by International Accounting
Standards Board. The unaudited condensed half year financial
statements included in this half year financial report have been
prepared in accordance with International Accounting Standard 34,
"Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the unaudited condensed half year financial statements in the half
year financial statement based on our review.
Scope of review
We conducted our review in accordance with International
Standards on Review Engagements (UK and Ireland) ISRE 2410, 'Review
of Interim Financial Information Performed by the Independent
Auditor of the Entity' issued by the Auditing Practices Board for
use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the unaudited condensed half year
financial statements for the six months ended 30 September 2014 are
not prepared, in all material respects, in accordance with
International Accounting Standard 34 and the AIM Rules of the
London Stock Exchange.
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1WR
Date: 8 December 2014
a) The maintenance and integrity of the Aurora Russia Limited
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements or
review report since they were initially presented on the
website.
b) Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Unaudited Condensed Half Year Company Statement of Comprehensive
Income
For the 6 month period 1 April 2014 to 30 September 2014
1 April 2014 1 April 2013
to 30 September to 30 September
2014 2013
Notes GBP'000 GBP'000
Deferred consideration written off - (810)
Loss on sale of investments (20,675) -
Revenue 6 11
---------------- ------------------------
- Interest 6 11
---------------- ------------------------
Administration and operating expenses 3 (371) (684)
Fair value movements on revaluation
of investments 4 19,506 (9,100)
Exchange losses (1) (237)
Operating loss before tax (1,535) (10,820)
---------------- ------------------------
Income tax expense - -
Total comprehensive loss for the
period (1,535) (10,820)
================ ========================
Basic and diluted loss per share (2.82p) (13.42p)
================ ========================
All items in the above statement derive from continuing
operations.
The accompanying notes on pages 11 to 20 form an integral part
of these financial statements.
Unaudited Condensed Half Year Company Statement of Financial
Position
As at 30 September 2014
30 September 31 March
2014 2014
Notes GBP'000 GBP'000
Non-current assets
Investment in subsidiaries at fair
value through profit and loss 4 - 1,968
Investments at fair value through
profit and loss 4 8,680 9,800
8,680 11,768
------------------- ---------
Current assets
Other receivables 8 3
Cash and cash equivalents 2,288 9,136
------------------- ---------
2,296 9,139
------------------- ---------
Total assets 10,976 20,907
------------------- ---------
Current liabilities
Other payables 102 219
Total liabilities 102 219
------------------- ---------
Total net assets 10,874 20,688
=================== =========
Equity
Share capital 6 699 743
Special reserve 6 56,096 64,331
Accumulated loss (45,921) (44,386)
------------------- ---------
Total equity 10,874 20,688
=================== =========
Total equity and liabilities 10,976 20,907
------------------- ---------
Net asset value per share - basic
and diluted 24.4p 27.9p
=================== =========
The accounts on pages 7 to 20 were approved by the Board of
Directors on 8 December 2014 and signed on its behalf by:
Jonathan Bridel Gilbert Chalk
Director: Director:
Date: 8 December 2014
The accompanying notes on pages 11 to 20 form an integral part
of these financial statements.
Unaudited Condensed Half Year Statement of Changes in Equity
For the 6 month period 1 April 2014 to 30 September 2014
(Accumulated
loss)/
Share Special Retained
Capital Reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
Balance as at 1 April 2013 1,125 84,073 (24,006) 61,192
Total comprehensive loss for the
period
Loss for the period - - (10,820) (10,820)
Share buyback - NUMIS (382) (19,742) - (20,124)
At 30 September 2013 743 64,331 (34,826) 30,248
========= ========= ============= =========
Balance as at 1 April 2014 743 64,331 (44,386) 20,688
Total comprehensive loss for the
period
Loss for the period - - (1,535) (1,535)
Share buyback - NUMIS (44) (8,235) - (8,279)
At 30 September 2014 699 56,096 (45,921) 10,874
========= ========= ============= =========
The accompanying notes on pages 11 to 20 form an integral part
of these financial statements.
Unaudited Condensed Half Year Statement of Cash Flows
For the 6 month period 1 April 2014 to 30 September 2014
1 April 2014 1 April 2013
to 30 September to 30 September
Notes 2014 2013
Cash flows from operating activities GBP'000 GBP'000
Total comprehensive loss (1,535) (10,820)
Adjustments for movements in working
capital:
(Increase)/decrease in operating
trade and other
Receivables (5) 3,766
Decrease in operating trade and
other
payables (117) (790)
Adjust for:
Revaluation of investments 4 (19,506) 9,100
Exchange losses 1 237
Loss on disposal of Kreditmart
Finance Limited 20,675 -
Decrease in fair value of loan - (49)
Interest received (6) (11)
Loan interest received - (1)
Net cash (outflow)/inflow from operating
activities (493) 1,432
---------------- ----------------
Cash flows from investing activities
Proceeds on disposal of Kreditmart
Finance Limited 1,919 -
Bank interest received 6 11
Net cash inflow from investing activities 1,925 11
---------------- ----------------
Cash flows from financing activities
Share buyback - NUMIS (8,279) (20,124)
Interest income - long term loans - 1
Net cash (outflow) from financing
activities (8,279) (20,123)
---------------- ----------------
Net decrease in cash and cash equivalents (6,847) (18,680)
---------------- ----------------
Opening cash and cash equivalents 9,136 23,134
Effect of exchange rate changes (1) (237)
Closing cash and cash equivalents 2,288 4,217
================ ================
The accompanying notes on pages 11 to 20 form an integral part
of these financial statements.
Notes to the Unaudited Condensed Half Year Financial
Statements
For the 6 month period 1 April 2014 to 30 September 2014
1. Reporting entity
The Company is a closed-ended investment fund that was
incorporated in Guernsey on 22 February 2006, and was admitted to
the Alternative Investment Market of the London Stock Exchange
('AIM') on 20 March 2006. The Company was established to acquire
interests in small and mid-sized private companies in Russia,
focusing on the financial, business and consumer services
sectors.
2. Accounting Policies
2.1 Basis of preparation
These unaudited condensed half year financial statements (the
"interim financial statements") have been prepared in accordance
with International Accounting Standard (IAS) 34 'Interim Financial
Reporting' and the AIM Rules for Companies.
The interim financial statements do not include all the
information and disclosures required for a complete set of
International Financial Reporting Standards ('IFRS') financial
statements, and should be read in conjunction with the Company's
audited annual report and financial statements for the year ended
31 March 2014. Selected explanatory notes are included to explain
events and transactions that are significant to an understanding of
the changes in the financial position and performance since the
last audited annual report and financial statements
as at and for the year ended 31 March 2014.
2.2 Accounting period
The comparative numbers used for the unaudited condensed half
year statement of comprehensive income, unaudited condensed half
year statement of changes in equity and unaudited condensed half
year statement of cash flows are that of the half year period ended
30 September 2013, which is considered a comparable period as
defined per IAS 34. The comparatives used in the unaudited interim
statement of financial position are that of the previous financial
year ended 31 March 2014.
2.3 Significant accounting policies
The same accounting policies, presentation and methods of
computation are followed in these interim financial statements as
those followed in the preparation of the Company's audited
financial statements for the year ended 31 March 2014..
New standards adopted during the year:
-- Amendment to IAS 32 Financial instruments: Presentation', on
offsetting financial assets and financial liabilities (Effective
for periods beginning on or after 1 January 2014)
This amendment updates the application guidance in IAS 32,
'Financial instruments: Presentation', to clarify some of the
requirements for offsetting financial assets and financial
liabilities on the balance sheet. The standard has no material
impact on the financial statements of the Company.
New standards and interpretations not yet adopted:
There are a number of new standards, amendments to standards and
interpretations that are not yet effective for the year ended 31
March 2014, and have not been applied in preparing these financial
statements.
-- IFRS 9 Financial Instruments (Effective date for periods
beginning on or after 1 January 2018)
IFRS 9 deals with classification and measurement of financial
assets and its requirements represent a significant change from the
existing requirements in IAS 39 in respect of financial assets:
amortised cost and fair value. Financial assets are measured at
amortised cost when the business model is to hold assets in order
to collect contractual cash flows. All other financial assets are
measured at fair value with changes recognised in profit or loss.
For an investment in an equity instrument that is not held for
trading, an entity may on initial recognition elect to present all
fair value changes from the investment in other comprehensive
income. Once adopted, IFRS 9 will be applied retrospectively,
subject to certain transitional provisions. The standard is not
expected to have a significant impact on the financial statements
since all of the Company's financial assets are designated at fair
value through profit and loss.
2.4 Revenue
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset's net carrying amount.
Dividend income from investments is recognised when the
Company's right to receive payment has been established, which is
the last date of registration of shareholders.
2.5 Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for
allocating resources, assessing performance of the operating
segments and making strategic decisions, has been identified as the
Board of Directors of the Company. There have been no changes to
operating segments since year end.
2.6 Investments
Unquoted investments, including investments in subsidiaries, are
designated as fair value through profit or loss. Investments are
initially recognised at fair value (excluding transaction costs).
The investments are subsequently re-measured at fair value, which
is determined by the Directors on the recommendation of the
Valuation Committee; all the Directors are currently on the
Valuation Committee. Unrealised gains and losses arising from the
revaluation of investments are taken directly to profit or loss.
Investments deemed to be denominated in a foreign currency are
revalued in Sterling even if there is no revaluation of the
investment in its currency of denomination. Acquisition of
investments is recorded on the trade date or when substantially all
the risks and rewards of ownership transfer to the Company.
Investments are denominated 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 Sterling at period end, which is the functional and
presentation currency of the Company. Unrealised gains and losses
arising from the revaluation of investments are taken directly to
the Statement of Comprehensive Income.
2.7 Critical accounting judgements and key sources of estimation uncertainty
In preparing these interim financial statements management has
made judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and
liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgements about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and
future periods if the revision affects both current and future
periods.
The following areas are a key source of estimation uncertainty
for the Company and are included within the relevant accounting
policy note:
-- Valuation of Investments in Subsidiaries and Investments
Significant estimates in the Company's interim 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 Company's
interim financial statements of changes in estimates in future
periods could be significant.
1 April 2014
to
30 September 1 April 2013 to
2014 30 September 2013
GBP'000 GBP'000
3. Administration and operating expenses
Investment management fee 49 458
Auditors' remuneration 61 47
Directors' remuneration 110 88
Other operating and administrative
expenses
- Administration fees 71 35
- Professional fees - 62
- Bonus liability written off - (97)
- Aurora Investment Advisors performance
fee written off - (16)
- Performance fee 25 3
- Marketing costs 19 18
- Bonus liability - 22
- Other 36 64
371 684
-------------- -------------------
4. Investments
Investments in Subsidiaries
30 September 31 March
2014 2014
GBP'000 GBP'000
KFL
At beginning of period 1,968 4,583
Proceeds on sale (1,919) -
Loss on sale (20,675) -
Reversal of unrealised losses 20,626 -
Fair value revaluation - (2,615)
At end of period - 1,968
-------------- ----------
Flexinvest Limited
At beginning of period - 5,817
Proceeds on sale - (2,940)
Loss on disposal - (2,877)
At end of period* - -
-------------- ----------
- 1,968
============== ==========
Investments
30 September 31 March
2014 2014
GBP'000 GBP'000
Unistream Bank 8,400 8,000
Grindelia Holdings 280 1,800
Total investments at fair
value through profit and
loss 8,680 9,800
============== ==========
Change in fair value of investments
1 April
1 April 2014 2013 to
to 30 September 30 September
2014 2013
GBP'000 GBP'000
Unistream Bank 400 (1,300)
Grindelia Holdings* (1,520) (4,100)
KFL and Flexinvest - (3,700)
Reversal of KFL unrealised
losses 20,626 -
Total unrealised losses 19,506 (9,100)
================= ==============
*Holding company for Superstroy.
The valuations of the investments at 30 September 2014 was
prepared by Mr. Nicholas Henderson-Stewart and 31 March 2014 was
performed by Aurora Investment Advisors Limited, who both are
considered to have the necessary experience in valuing investments
of this nature, and were approved by the Valuation Committee.
In the view of the Valuation Committee, the values of the
investments in Unistream Bank ("Unistream") and Grindelia Holdings
("Grindelia") as at 30 September 2014 were estimated at GBP8.4
million (31 March 2014: GBP8 million) and GBP0.28 million (31 March
2014: GBP1.8 million) respectively, resulting in a decrease in the
total value of investments from the prior year end.
The Company holds 26% (31 March 2014: 26%) in Unistream and
24.3% (31 March 2014: 24.3%) in Grindelia respectively; all shares
carry equal voting rights in both cases. Unistream is a Russian
company with the principal place of business in Russia, Grindelia
is a Cyprus holding company with its principal place of business in
Russia.
Methodologies and assumptions used in valuing investments and
investments in subsidiaries:
The Company uses a market approach in valuing the Unistream
investment.
The industry valuation benchmark methodology uses industry
specific benchmarks as its basis and indicates the market value of
the shares of the company based on a comparison of the subject
company to other comparable companies in similar lines of business
that are publicly traded or which are part of a public or private
transaction.
The market comparable method indicates the market value of the
ordinary shares of a business by comparing it to publicly traded
companies in similar lines of business. The conditions and
prospects of companies in similar lines of business depend on
common factors such as overall demand for their products and
services. An analysis of the market multiples of companies engaged
in similar businesses yields insight into investor perceptions and,
therefore, the value of the subject company.
In the market approach, recent sales, listings of comparable
assets and such other factors as the Board deems relevant are
gathered and analysed. After identifying and selecting the
comparable publicly traded companies, their business and financial
profiles are analysed for relative similarity. Price or EV
multiples of the publicly traded companies are calculated and then
adjusted for factors such as relative size, growth, profitability,
risk, and return on investment. The adjusted multiples are then
applied to the relevant element of the subject company's
business.
Unistream was valued using a weighted combination of revenue
and/or EBITDA multiples with discount applied for liquidity and
marketability. KFL was valued using an agreed sales price in the
prior year and Superstroy's valuation is based on an adjusted NAV
valuation basis (see note 7 for details).
The valuation methodology for Superstroy has changed since the
prior year (see note 7 for details). The valuation is now based on
adjusted NAV valuation basis and in the prior year it was based on
EBITDA multiples.
5. Sale of Kreditmart Finance Limited
30 September 31 March
2014 2014
GBP'000 GBP'000
Proceeds on sale 1,919 -
Less: Cost of Investment (22,594) -
Loss of sale (20,675) -
============= =========
Reversal of unrealised losses (20,626) -
------------- ---------
The Company sold 100% of its shares in Kreditmart Finance
Limited to Amikson Business Limited on 24 April 2014. The proceeds
of the sale was RUB 100,000,000 and USD 450,000, the total amount
of which was paid in USD.
6. Share buyback
30 September 31 March
Number of shares 2014 2014
Authorised share capital:
Ordinary Shares of 1p each 200,000,000 200,000,000
============== =============
Issued share capital:
Opening balance as at 1 April 74,262,617 112,500,000
Shares redeemed in share buyback
- 30 May 2013 - (38,237,383)
Shares redeemed in share buyback
- 4 June 2014 (29,651,486) -
-------------- -------------
44,611,131 74,262,617
============== =============
30 September 31 March
2014 2014
GBP'000 GBP'000
Share Capital
Opening balance as at 1 April 743 1,125
38,237,383 Ordinary Shares of 0.01p bought
back - (382)
4,343,081 Ordinary Shares of 0.01p bought
back (44) -
699 743
------------- -------------
Number of shares
Treasury Shares
Opening balance as at 1 April - -
38,237,383 Ordinary Shares bought - 38,237,383
Shares cancelled - (38,237,383)
29,651,486 Ordinary Shares bought 29,651,486 -
4,343,081 Shares cancelled (4,343,081) -
------------- -------------
25,308,405 -
============= =============
Special Reserve
Opening balance as at 1 April 64,331 84,073
38,237,383 Ordinary Shares bought back by
NUMIS - (19,617)
Professional and legal fees incremental to
Share buyback (111) (125)
25,308,405 Ordinary Shares bought back by
NUMIS (6,971) -
4,343,081 Ordinary Shares bought back by
NUMIS (1,153) -
56,096 64,331
======== =========
On 30 April 2013 the Company entered into a repurchase agreement
to purchase ordinary shares of the Company from Numis Securities
Limited ("Numis"). On 30 May 2013, the Company purchased 38,237,383
ordinary shares at 0.523048p per Share for an aggregate gross
consideration of GBP19,999,947.
On 1 May 2014 the Company entered into a repurchase agreement to
purchase ordinary shares of the Company from Numis Securities
Limited ("Numis"). On 4 June 2014, the Company purchased 29,651,486
ordinary shares at 0.275454p per Share for an aggregate gross
consideration of GBP8,167,619.
The treasury shares carry no voting rights. On 1 October 2014,
25,308,405 treasury shares were cancelled.
7. Financial risk factors
Other than as set out below, the risks faced by the Company and
its management of those risks are consistent with the prior year
end.
Market price risk
Market price risk arises principally from uncertainty concerning
future values of financial instruments used in the Company's
operations.
It represents the potential loss the Company might suffer
through holding interests in unquoted private companies whose value
may fluctuate and which may be difficult to value and/or to
realise. The Company seeks to mitigate such risk by assessing such
risks as part of the due diligence process related to all potential
investments, and by establishing a clear exit strategy for all
potential investments. There is a rigorous due diligence process
before an investment can be approved which will cover financial,
legal and market risks. Following investment the Company/Manager
will always have Board representation, the investee company is
required to submit regular management information to an agreed
standard and timeliness and the Manager undertakes regular
monitoring. The Board receives and considers the most recent
monitoring report prepared by the Manager at every Board
meeting.
Pricing Risk Table
All security investments present a risk of loss of capital, the
maximum risk resulting from instruments is determined by the fair
value of the financial instrument. The following represents the
Company's market pricing exposure at period end:
At 30 September 2014:
Fair value % of Net
Notes GBP'000 Assets
Investments
- Unlisted Equities 4 8,680 79.82
At 31 March 2014:
Investments Notes
- Unlisted Equities 4 11,768 56.88
Valuation of financial instruments
The Company measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements:
> Level 1: Quoted market price (unadjusted) in an active
market for an identical instrument.
> Level 2: Valuation techniques based on observable inputs,
either directly (i.e. as prices) or indirectly (i.e. derived from
prices). This category includes instruments valued using: quoted
market prices in active markets for similar instruments; quoted
prices for identical or similar instruments in markets that are
considered less than active; or other valuation techniques where
all significant inputs are directly or indirectly observable from
market data.
> Level 3: Valuation techniques using significant
unobservable inputs. This category includes all instruments where
the valuation technique includes inputs not based on observable
data and the unobservable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are
valued based on quoted prices for similar instruments where
significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
The table below analyses financial instruments, measured at fair
value at the end of the reporting period, by the level in the fair
value hierarchy into which the fair value measurement is
categorised:
At 30 September 2014:
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Investments
- Unlisted Equities - - 8,680 8,680
---------- --------- --------- ---------
- - 8,680 8,680
================================ ========= ========= =========
At 31 March 2014:
Investments
- Unlisted Equities - 1,968 9,800 11,768
---------- --------- --------- ---------
- 1,968 9,800 11,768
================================ ========= ========= =========
The following table shows a reconciliation from the beginning
balances to the ending balances for fair value measurements in
Level 3 of the fair value hierarchy of the Company:
Level 3 Level 3
GBP'000 GBP'000
2014 2013
Opening balance 9,800 32,800
Disposal of investments - (5,817)
Total fair value gains
or losses in profit or
loss (1,120) (15,215)
Transfer to level 2 - (1,968)
--------- ---------
8,680 9,800
========= =========
Although the Company believes that its estimates of fair values
are appropriate, the use of different methodologies or assumptions
could lead to different measurements of fair value. Investments
classified with level 3 have significant unobservable inputs, as
they trade infrequently. As observable prices are not available for
these securities, the Company has used valuation techniques to
derive the fair value. Transfers between levels are deemed to take
place at the end of the period/year.
Level 3 investments have been valued in accordance with the
methodologies in Note 4. The value of the investments and the fair
value movements are disclosed in note 4.
Unrealised loss on fair value movements from revaluation of
level 3 investments still held at period end and recognised in the
Unaudited Condensed Half Year Statement of Comprehensive Income
amounted to GBP1.12 million (31 March 2014: GBP12.6 million).
Unistream
Unistream was valued using 75% EBITDA multiple and 25% Revenue
multiple and 30% liquidity discount as at 30 September 2014 and 31
March 2014.
For Unistream the Revenue multiple observed was 1.96x and for
EBITDA was 7.83x (31 March 2014 revenue multiple was 2.0x and for
EBITDA was 7.4x).
If the Revenue multiple weighting was increased by 10% the value
of Unistream's value would become GBP9.5 million (31 March 2014:
GBP9.1 million).
Superstroy
Superstroy was valued using 100% EBITDA multiple with 25%
liquidity discount in the prior year and was valued using an
adjusted NAV Valuation basis as at 30 September 2014. The change in
valuation technique is due to the fact that this basis is deemed to
be more appropriate given the change in fundamentals, performance
and lifecycle stage of Superstroy during the period.
The average of the EBITDA multiple range observed when valuing
Superstroy was 7.8x as at 31 March 2014.
8. Segmental information
The Board of Directors of the Company decides on the strategic
resource allocations of the Company. The operating segments of the
Company are the business activities that earn revenue or incur
expenses, whose operating results are regularly reviewed by the
Board of Directors of the Company, and for which discrete financial
information is available. The Board of Directors considers the
Company to be made up of one segment, which is reflective of the
business activities of the Company and the information used for
internal decision-making which includes the monthly reporting to
management of investment holdings on a fair value basis:
- Aurora Russia Limited.
The Investment Manager's Report provides more information on the
Company's business and the operations of each investment.
The Company derives its revenues from its investments primarily
through fair value gains or losses.
The Company regards the holders of its ordinary shares as its
customers, as it relies on their funding for continuing operations
and meeting its objectives. The Company's shareholding structure is
not exposed to a significant shareholder concentration.
The Company is engaged in investment in small and mid-sized
companies in Russia and in one principal geographical area, being
Russia.
9. Related party transactions
Details of the investments in Unistream Bank and Grindelia
Holdings are presented in note 4.
Michael Hough, who was a director of Aurora Investment Advisors
Limited ("AIAL"), held Nil (31 March 2014: 100,000) shares in the
Company as at 30 September 2014.
AIAL held 286,354 (31 March 2014: 1,224,072) shares in the
Company as at 30 September 2014.
The management fees paid to AIAL during the 6 months ended 30
September 2014 were GBP30,000 (2013: 458,940). At the period end
there were no management fees owing.
The Company's management contract with AIAL to provide
investment advisory and management services which ran for 8 years
was terminated effective 30 April 2014. AIAL's services were
extended to 30 June 2014. Mr Nicholas Henderson-Stewart was
appointed as Advisor effective 19 June 2014.
Per the Amended and Restated Management Agreement (the
"agreement"), certain provisions of that agreement survived the
termination of the agreement, including the provisions relating to
performance fees. The performance fees are to decline by 20% per
annum from 1 January 2012 in respect of the 2.5% Tranche, and by
20% per annum from 1 January 2013 in respect of each of the 7.5%
Tranche and the 20% Tranche. These performance fee provisions
remain applicable up to 31 March 2018.
The performance fees paid by the Company to AIAL during the
period was GBP24,558 (2013: GBP44,808); at period end GBPNil (2013:
GBP45,696) was outstanding. The performance fees became payable on
the sale of KFL, calculated at 1.28% on the cash consideration of
GBP1.9 million.
If the remaining investments were sold at their fair values as
at 30 September 2014, GBP111,104 would be payable to AIAL by way of
performance fees.
10. Contingencies
The Company had no contingencies outstanding at the reporting
date other than those disclosed in note 9.
11. Events after the reporting date
No further material post balance sheet events were noted.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR VVLFBZLFBFBE
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