Interim Results

RNS Number : 4334V

Aurora Russia Limited

12 December 2013

 

Aurora Russia

12 December 2013

Aurora Russia Limited ("Aurora Russia" or the "Company")

Results for the six months ended 30 September 2013

·      The Board and the Manager are focused on ensuring optimal exits from the investee companies

·      Performance in the underlying companies has been impacted by tough trading conditions

Financial highlights

·      Net asset value per share as at 30 September 2013 of 40.7p per share (Net asset value £30.2m) down from 55.3p per share (based on the 31 March net asset value of £61.2 less the tender offer amount of £20.2 million).

·      Cash and cash equivalents as at 30 September 2013 were £4.2m.

Portfolio highlights

Unistream Bank

·      Revenues for the nine month period ended 30 September 2013 were RUR1.81 bn, up 1% YoY.

·      PBT for the nine months to 30 September 2013 was RUR71.4 million up from RUR8.8 million for the same period last year.

·      Equity valuation of Aurora Russia's stake in Unistream at 30 September 2013 was £10.7m, compared to the valuation at 31 March 2013 of £12m.

Superstroy

·      Retail sales grew by 4% YoY for the nine months ended 30 September 2013 to RUR5.3 billion.

·      EBITDA of RUR180 million.

·      Equity valuation of Aurora Russia's stake in Superstroy at 30 September 2013 was £6.3m, compared to the valuation at 31 March 2013 of £10.4m.

Flexinvest and Kreditmart

·      Revenues for the nine month period ended 30 September 2013 were £3.8 million, up 73% from £2.2 million for the same period to 30 September 2012

·      Equity valuation of Aurora Russia's stake in Kreditmart/ Flexinvest Bank at 30 September 2013 was £6.7m, compared to the valuation at 31 March 2013 of £10.4m.

Commenting, Gilbert Chalk, Chairman of Aurora Russia, said:

"The Board remains determined to achieve recovery of value for shareholders through sale of the Company's investments at prices which reflect the potential of the Company's remaining investments. To date progress on the disposal of Flexinvest Bank Limited at a price approaching historic net asset value has been disappointing but alternative options are being reviewed for the Bank in the event that a sale is not concluded. The Board is confident that with continued efforts further added value can be obtained for the Company's investments."

Enquiries:
Aurora Russia Limited
Gilbert Chalk	[phone]
Numis Securities Limited
Nominated Adviser: Hugh Jonathan	[phone]
Corporate Broking: Rupert Krefting / Nathan Brown
FTI Consulting
Paul Marriott	[phone]
Jack Hickey

Chairman's Statement

Introduction

For the 6 months to 30 September 2013, Aurora Russia Limited (the "Company" or "Aurora Russia") recorded a loss of £10.8 million or 13.42p per share, calculated based on the unaudited statement of comprehensive income. £9.1 million relates to fair value movements on revaluing the investments, £0.8 million relates to a further impairment of the deferred consideration for OSG Records Management (Europe) Limited ('OSG') and the balance comprises operating expenses. The net asset value ("NAV") of the Company as at 30 September 2013 was £30.2 million or 40.7p per share. Cash and cash equivalents at 30 September 2013 were £4.2 million.

Administration and operating expenses declined to £684,000 compared to £944,000 in the half year to 30 September 2012, a decline of 28 per cent.

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 2013 for voting in favour of all of the resolutions the Board put forward, including the re-appointment of Peregrine Moncreiffe, Jonathan Bridel and Lyndon Trott as Directors of the Company.

The Manager

At the end of April 2012, the Manager agreedwith the Board to an amendment to the management agreement regarding its notice period. The notice period was reduced from a rolling two year notice period to a rolling six month notice period with notice able to be given no earlier than 31 October 2013.

On 31 October 2013 the Board announced that the Management Agreement between the Company and Aurora Investment Advisors Limited ("AIAL" or the "Manager") had been placed on six months' Notice of Termination following the successful realisation of OSG. The Management Agreement will remain in full force and effect until 30 April 2014, at which point it will terminate without cost to Aurora Russia's shareholders unless varied or extended by mutual agreement. The Board has now entered talks with other prospective managers for Aurora Russia's remaining investments, which it expects to conclude in the first quarter of the New Year, and we will inform shareholders in this regard once a decision has been taken.

Sale of OSG

Following the initial payment of US$34.1 million (£22.8 million) to the Company from the sale of OSG to Elbrus Capital on 8 March 2013, the Company received an additional payment of US$4.25 million (£2.7 million) on 28 August 2013, which was the release of 50% of the US$8.5 million (£5.2 million) settled in escrow with Deutsche Bank in London and due on the signing of OSG's year end accounts to 31 March 2013 assuming OSG met its financial expectations as set out in the Sale and Purchase Agreement. The remaining US$4.25 million (£2.6 million) was payable 12 months following the date of the sale subject to any warranty claim under the general commercial and tax warranties.

A final US$5.2 million (£3.2 million) of the purchase price was due to be paid so long as OSG achieved EBITDA of over US$10.0 million (£6.3 million) for the year ending 31 March 2014. The amount payable under this earn-out arrangement reduced to zero in the event the EBITDA for the year ending 31 March 2014 was less than US$ 9.0 million.

Subsequent to the period end the Board agreed on 10 December 2013 with Octala Services Limited ('Octala'), a subsidiary of Elbrus Capital, to an amendment ('the Amendment') to the Framework Agreement with Octala governing the payment of the warranties escrow and the deferred consideration. Under the Amendment it has been agreed that the remaining escrow amount of US $4.25 million is to be released shortly to the Company in advance of the 12 month anniversary in March 2014 of the completion of the sale of OSG. In addition the Amendment provides that the earn out provisions in the Framework Agreement governing the deferred consideration are deleted in consideration of the further payment, at the same time as the US$ 4.25 million is paid,  to the Company of US $ 0.375 million.

These amendments have been agreed by the Board in light of the deteriorating prospects of OSG achieving the threshold EBITDA targets for the year ending 31 March 2014. The Board met OSG management recently in Moscow who stated that whilst it was not wholly impossible that the US$9 million EBITDA threshold would be achieved it would not be by a significant excess margin. It is also clear that any dispute with Octala on the level of the current year profit achieved by OSG at its year end would have led to counterclaims from Octala under the warranties. The Board has concluded that in the circumstances it is in shareholders' interests to conclude this compromise agreement. The US$ 4.625 million payable to the Company under the terms of the Amendment will add further to the Company's cash balances of £4.2 million at 30 September 2013. The Directors' valuation of the deferred consideration has been adjusted for the Amendment post balance sheet event.

Investment Review of Remaining Investments

The Company has three remaining investments:

·          24.3% of SuperStroy, one of the leading DIY retailers in Russia;

·          26% of Unistream, a leading Russian money transfer company; and

·          100% of Flexinvest Bank Limited, a retail bank.

Portfolio Valuation

A valuation of the investment portfolio was performed as at 30 September 2013, resulting in a decrease in value from £32.8 million to £23.7 million. This interim valuation, recommended by the Valuation Committee of the Board, was prepared by the Manager and formally adopted by the Board on 10 December 2013. These valuations are prepared for accounting purposes only and are in accordance with the International Private Equity and Venture Capital ("IPEV") valuation guidelines. The resultant valuations of investments included in the Company's financial statements will not necessarily reflect the market value that a third party would be prepared to pay for these businesses.

The current valuation of Aurora Russia's shareholdings reflects changes to the previous valuation performed for 31 March 2013 as follows:

·      the value of the Company's 24.3% shareholding in SuperStroy has decreased by £4.1 million to £6.3 million, a decrease of 39%.

·      the value of the Company's 26% stake in Unistream has decreased by £1.3 million to £10.7 million, a decrease of 10.8%; and

·      the value of the Company's 100% shareholding in Flexinvest Bank Limited and Kreditmart has decreased by £3.7 million to £6.7 million, a decrease of 35.6%

The value as at 30 September 2013 of the residual payments due from the sale of OSG was reduced by £0.8 million to £2.8 million, a decrease of 22.2%

Details of the specific reasons for each change to the valuations is covered in the Investment Manager's report. The decline in valuations reflect principally the trading and economic issues highlighted in the Investment Manager's report.

It is important to note that over the period there was an unfavourable movement in the £/RUR exchange rate of approximately 11%. The movement in values is therefore partly affected by currency translation effects.  While in general multiples of listed comparable companies both in Russia and abroad rose, the decline in consumer sentiment had a negative impact on the growth of our investments and their resultant valuations 

Disposals

The Manager is actively seeking ways of realising value for shareholders through the disposal of the Company's investments. There have been several advanced discussions in this regard, some of which have in the final event not materialised for a variety of reasons and others which are ongoing.

Outlook

The Board remains determined to achieve recovery of value for shareholders through sale of the Company's investments at prices which reflect the potential of the Company's remaining investments. To date progress on the disposal of Flexinvest Bank Limited at a price approaching historic net asset value has been disappointing but alternative options are being reviewed for the Bank in the event that a sale is not concluded. The Board is confident that with continued efforts further added value can be obtained for the Company's investments.

Gilbert Chalk

Chairman of the Board

Aurora Russia Limited

Date: 12 December 2013

Investment Manager's Report

Overview

According to the World Bank, Russia's GDP grew 3.4% in 2012, down from 4.3% in 2011.   It expects growth to have slowed to 1.8% in 2013, recovering to 3.1% in 2014. Although the World Bank projects oil prices to remain stable at about US$105/bbl, it is of the opinion that Russia's prospects will depend for the most part on the recovery in the Eurozone. The OECD has a similar view that the economy of Russia will return to growth as the region tries to overcome the impact of the slump we have seen in Europe.

Given the economic backdrop, we are cautious about the outlook for Russia for the second half of Aurora Russia's fiscal year.  Each of our investments have faced the challenges common to mid-market companies and the dilemma of growth versus profitability, coupled with lingering economic uncertainty.  We mentioned in the 31 March 2013 year-end accounts that the growth in all of our remaining investee companies as well as the earn out on the sale of OSG would be directly affected by corporate and consumer sentiment in Russia and the growth of the Russian economy, which remains the case.

Regarding the valuations of the Company's investments, there has been a further write down of its investment portfolio resulting mostly from a lowering of expectations from those reported at the time that the 31 March 2013 year-end accounts were prepared.  

The Company's total net asset value at 30 September 2013 was £30.2 million, down 26% from the 31 March 2013 post tender net asset value of £41.0 million (31 March net asset value of £61.2 less the tender offer amount of £20.2 million).

As you know from the announcement on 31 October 2013 and from the Chairman's Statement, following the successful realisation of the Company's investment in OSG, the Management Agreement between the Company and the Investment Manager has been placed on six months' notice of termination. The Management Agreement will remain in full force until the termination date of 30 April 2014 unless varied or extended by mutual agreement.  In the meantime, the Manager will continue to work on building value in the underlying investments so that they make more attractive targets for buyers and investors and it will continue to seek exits for the portfolio in line with the Board's policy to dispose of the investments as soon as possible, at good valuations. Although the Company's investee companies are attractive targets for both strategic and private equity funds, as evidenced by the Company's sale of OSG, the appetite for investment in Russia remains fairly weak.  We believe however that this is cyclical and we expect that in 2014 Russia will follow the improvements we are currently seeing in Europe and the US.

OSG Records Management

Following the sale of OSG to Elbrus Capital, the Company returned £20 million to shareholders with a potential to return an additional US$8.5 million (£5.2 million) from an escrow account held as surety, subject to OSG meeting certain financial targets by the 31 March 2013 year end and against any warranty claims made by 7 March 2014.  So far, US$4.25 million (£2.6 million) has been released to the Company with an additional US$4.25 million (£2.6 million) still held in escrow.

In addition, up to US$5.2 million (£3.2 million) was payable subject to an earn-out should OSG report EBITDA of more than US$10 million (£6.2 million) for the year ending 31 March 2014. The amount payable under this earn-out arrangement reduced to zero in the event the EBITDA for the year ending 31 March 2014 is less than US$ 9.0 million. As reported in the Chairman's statement and elsewhere in the Accounts an amendment has been agreed between the Parties to the sale of OSG whereby the earn out has been replaced by a one off payment of US$375,000 and an early release of the warranty escrow of US$4.25 million.

The following are trading updates for the Company's remaining portfolio companies:

Superstroy

Superstroy was affected by the slowdown in the market in the second half of 2012, which continued for the first three quarters of 2013. We therefore experienced lower sales year to date than budgeted.  This is broadly due to the slowing economy and the competitive environment in the larger cities in the Urals.  However, stores in the smaller cities where Superstroy intends to focus have continued to show positive trends. Sentiment in the Urals has been badly affected by the concerns regarding the future of the Russian economy. 

Management accounts show that year to date sales to 30 September 2013 increased by 1% to RUR7.2 billion (£140 million), with retail sales showing a 4% growth year to date to RUR 5.3 billion (£102 million), but wholesale showing an 8% downturn to RUR1.9 billion (£0.37 million). Gross profit year to date was RUR2.1 billion (£40.4 million), a gross margin of 29.7%. EBITDA was RUR180 million (£3.5 million) which adjusted for pre-openings costs of the three stores it opened in 2013 was RUR262 million (£5.0 million).

The equity valuation of the Company's stake in Superstroy at 30 September 2013 was marked down, due primarily to the slowdown in its growth and an increase in its liquidity discount from 20% to 30%, to £6.3 million, a decrease of 39% on the valuation at 31 March 2013 of £10.4 million.

Unistream

Unisteam is still faced with a very competitive market.  However, we maintain that the Unistream model of having its own points of presence as well as its agency agreements is a much more stable model than its competitors who typically rely on the agent model entirely.  Unistream continues to look at new revenue streams and on improving and building its loyalty card programme.

Unistream has continued to show growth, with management accounts showing year to date volumes to 30 September 2013 of RUR118.1 billion (approximately £2.27 billion), up 8% on the same period in 2012. Revenues grew 1% to RUR1.81 billion (approximately £34.7 million) for the same period.  Profit before tax year to date was RUR71.4 million (£1.4million) up 711% from RUR8.8 million (£0.17 million) for the same period in 2012.

The equity valuation of the Company's stake in Unistream at 30 September 2013 was marked down to £10.7 million, a decrease of 10.8% on the valuation as at 31 March 2013 of £12.0 million due to lower than expected growth year to date.

Flexinvest Bank Limited

Flexinvest Bank Limited has also been affected by the slowdown in the Russian economy and the competition from the larger banks in Russia.

At 30 September 2013 Flexinvest Bank Limited and Kreditmart Finance combined had assets of approximately £23.1 million, up from approximately £21.5 million at 30 September 2012.

For the period to date to 30 September 2013 unaudited management accounts showed total revenues of £3.8 million, up 73% from £2.2 million for the same period to 30 September 2012, with a loss before foreign exchange revaluation and income tax of £2.2 million compared to a loss of £0.6 million for the same period in 2012.

The equity valuation of the Company's stake in Flexinvest Bank Limited and Kreditmart Finance at 30 September 2013 was marked down to £6.7 million, a decrease of 36% on the valuation at 31 March 2013 of £10.4 million. The reduction in value is due primarily to loan and credit card write downs and expectations of realisable value in the current market.

Conclusion

We remain concerned about the immediate future of the Russian economy. Although the economy in Russia did begin to improve following the 2008 financial crisis, the recent slowdown in growth has hampered investment performance across the portfolio.

Aurora Investment Advisors Limited

12 December 2013

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 2013 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 30 October 2013. 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'). The unaudited condensed half year financial statements 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 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 2013 are not prepared, in all material respects, in accordance with International Accounting Standard 34 and the AIM rules.

KPMG Channel Islands Limited

PO Box 20

20 New Street

St Peter Port

Guernsey

GY1 4AN

Date: 12 December 2013

Unaudited Condensed Half Year Company Statement of Comprehensive Income

For the 6 month period 1 April 2013 to 30 September 2013

			1 April 2013		1 April 2012
			to 30 September 2013		to 30 September 2012
	Notes		£'000		£'000
Profit on part disposal of Flexinvest Bank Limited	8		-		766
Deferred consideration written off			(810)
Revenue			11		1
-  Interest			11		1
Administration and operating expenses	3		(684)		(944)
Fair value movements on revaluation of investments	4		(9,100)		(2,966)
Exchange (losses)/gains			(237)		58
Operating loss before tax			(10,820)		(3,085)
Income tax expense			-		-
Loss and total comprehensive loss for the period			(10,820)		(3,085)
Basic and diluted loss per share			(13.42p)		(2.74p)

All items in the above statement derive from continuing operations.

The accompanying notes on pages 11 to 22 form an integral part of these financial statements.

Unaudited Condensed Half Year Company Statement of Financial Position

As at 30 September 2013

			30 September  2013		31 March 2013
	Notes		£'000		£'000
Non-current assets Investment in subsidiaries
	4		6,700		10,400
Investments	4		17,000		22,400
Other receivables			-		1,105
			23,700		33,905
Current assets
Other receivables			2,923		5,584
Cash and cash equivalents			4,217		23,134
			7,140		28,718
Total assets			30,840		62,623
Non-current liabilities
Loans payable to investee companies	7		447		496
Provisions	6		-		115
			447		611
Current liabilities
Other payables	6		78		456
Provisions			67		364
			145		820
Total liabilities			592		1,431
Total net assets			30,248		61,192
Equity
Share capital			743		1,125
Special reserve			64,331		84,073
Accumulated loss			(34,826)		(24,006)
Total equity			30,248		61,192
Net asset value per share - basic and diluted			40.7p		54.4p

The accounts on pages 7 to 22 were approved by the Board of Directors on 12 December 2013 and signed on its behalf by:

Jon Bridel	Lyndon Trott
Director:	Director:

Date: 12 December 2013

The accompanying notes on pages 7 to 22 form an integral part of these financial statements.

Unaudited Condensed Half Year Statement of Changes in Equity

For the 6 month period 1 April 2013 to 30 September 2013

		Share Capital	Special Reserve	(Accumulated loss)/ Retained earnings	Total
	Notes	£'000	£'000	£'000	£'000
Balance as at 1 April 2012		1,125	84,073	(10,066)	75,132
Total comprehensive loss for the period
Loss for the period		-	-	(3,085)	(3,085)
At 30 September 2012		1,125	84,073	(13,151)	72,047
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	9	(382)	(19,742)	-	(20,124)
At 30 September 2013		743	64,331	(34,826)	30,248

The accompanying notes on pages 11 to 22 form an integral part of these financial statements.

Unaudited Condensed Half Year Statement of Cash Flows

For the 6 month period 1 April 2013 to 30 September 2013

			1 April 2013		1 April 2012
	Notes		to 30 September 2013		to 30 September 2012
Cash flows from operating activities			£'000		£'000
Total comprehensive loss			(10,820)		(3,085)
Adjustments for movements in working capital:
Decrease/(increase) in operating trade and other                      receivables			3,766		(55)
(Decrease) in operating trade and other   payables			(790)		(20)
Adjust for:
Revaluation of investments	4		9,100		2,966
Profit on part disposal of Flexinvest			-		(766)
Exchange losses/(gains)			237		(58)
Decrease in loan			(49)		(35)
Interest received			(11)		(1)
Loan interest received			(1)		-
Net cash inflow/(outflow) from operating activities			1,432		(1,054)
Cash flows from investing activities
Proceeds on disposal of Kreditmart			-		1,000
Bank interest received			11		1
Net cash inflow from investing activities			11		1,001
Cash flows from financing activities
Share buyback - NUMIS			(20,124)		-
Interest income - long term loans			1		1
Net cash (outflow)/inflow from financing activities			(20,123)		1
Net decrease in cash and cash equivalents			(18,680)		(52)
Opening cash and cash equivalents			23,134		873
Effect of exchange rate changes			(237)		58
Closing cash and cash equivalents			4,217		879

The accompanying notes on pages 11 to 22 form an integral part of these financial statements.

Notes to the Unaudited Condensed Half Year Financial Statements

For the 6 month period 1 April 2012 to 30 September 2012

1.         Reporting entity

Aurora Russia Limited (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 have been prepared in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting' and the AIM Rules for Companies.

The condensed half year 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 2013.

2.2        Accounting period

The comparative numbers used for the condensed half year statement of comprehensive income, condensed half year statement of changes in equity and condensed half year statement of cash flows are that of the half year period ended 30 September 2012, which is considered a comparable period as defined per IAS 34. The comparatives used in the condensed half year statement of financial position are that of the previous financial year ended 31 March 2013.

2.3        Significant accounting policies

The same accounting policies, presentation and methods of computation are followed in these condensed interim financial statements as those followed in the preparation of the Company's audited financial statements for the year ended 31 March 2013.

             New standards adopted:                                                           

● IFRS 13: Fair Value Measurement (effective for periods commencing on or after 1 January 2013)

IFRS 13 explains how to measure fair value and aims to enhance fair value disclosures. The guidance includes enhanced disclosure requirements that could result in additional disclosure for reporting entities. These requirements are similar to those in IFRS 7, 'Financial instruments: Disclosures', but apply to all assets and liabilities measured at fair value, not just financial ones. IFRS 13 was adopted for the first time for the period ended 30 September 2013 and will be applied prospectively, subject to certain transitional provisions. Additional disclosures have been brought into the half year financial statements in Note 10 of the half year financial statements.         

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 2013, and have not been applied in preparing these financial statements.

● IFRS 9 Financial Instruments (effective for periods commencing on or after 1 January 2015)

IFRS 9 deals with classification and measurement of financial assets and its requirements represent a significant change from the existing requirements in IAS 39 in respect of financial assets: amortised cost and fair value. Financial assets are measured at amortised cost when the business model is to hold assets in order to collect contractual cash flows. All other financial assets are measured at fair value with changes recognised in profit or loss. For an investment in an equity instrument that is not held for trading, an entity may on initial recognition elect to present all fair value changes from the investment in other comprehensive income. IFRS 9 will be adopted for the first time for the year ending 31 March 2016 and will be applied retrospectively, subject to certain transitional provisions. The Company is currently in the process of evaluating the potential effect of this standard. The standard is not expected to have a significant impact on the financial statements since all of the Company's financial assets are designated at fair value through profit and loss.   

Revised and amended standards:           

● 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 is not expected to have a material impact on the financial statements of the Company.                      

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.

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 Comittee. Unrealised gains and losses arising from the revaluation of investments are taken directly to profit or loss. Investments deemed to be denominated in a foreign currency are revalued in Pounds Sterling 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

The preparation of financial statements in conformity with IFRS requires management to make 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 year in which the estimate is revised if the revision affects only that year or in the year of the revision and future years if the revision affects both current and future years.

The significant judgements made by the Directors in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements for the year ended 31 March 2013.

		1 April 2013 to 30 September 2013	1 April 2012 to 30 September 2012
		£'000	£'000
3.	Administration and operating expenses
	Investment management fee	458	478
	Auditors' remuneration	47	187
	Directors' remuneration	88	84
	Other operating and administrative expenses
	- Administration fees	35	35
	- Professional fees	62	76
	- Bonus liability written off	(97)	-
	- Aurora Investment Advisors performance fee written off	(16)	-
	- Performance fee	3	-
	- Marketing costs	18	33
	- Bonus liability	22	-
	- Other	64	51
		684	944

4.         Investments

             Investments in Subsidiaries

	30 September 2013	31 March 2013
	£'000	£'000
OSG Records Management (Europe) Limited ('OSG')
At beginning of period	-	28,200
Fair value revaluation	-	1,029
Sale of OSG		(29,229)
At end of period	-	-
Kreditmart & Flexinvest Bank Limited
At 1 April 2013 and 1 April 2012	10,400	15,100
Fair value revaluation *	(3,700)	(4,066)
Sale of Flexinvest Bank Limited	-	(634)
At 30 September 2013 and 31 March 2013	6,700	10,400
	6,700	10,400

* The revaluation performed on Kreditmart includes the value of Flexinvest Limited as at 30 September 2013, and as such, no revaluation was performed on Flexinvest Limited.

Other investments

			30 September 2013	31 March 2013
			£'000	£'000
Unistream Bank			10,700	12,000
Grindelia Holdings			6,300	10,400
Total investments at fair value through profit and loss			17,000	22,400

Change in fair value of investments

			1 April 2013              to 30 September 2013	1 April 2012 to 30 September 2012
			£'000	£'000
OSG Records Management (Europe) Limited			-	(1,700)
Unistream Bank			(1,300)	(2,700)
Grindelia Holdings*			(4,100)	(700)
Kreditmart and Flexinvest			(3,700)	(1,266)
Total unrealised losses			(9,100)	(2,966)

The valuations of the investments at 30 September 2013 and 31 March 2013 were performed by Aurora Investment Advisors Limited, who 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, Grindelia Holdings and Kreditmart and Flexinvest Bank Limited as at 30 September 2013 were estimated at £10.7 million (31 March 2013: £12 million), £6.3 million (31 March 2013: £10.4 million) and £6.7 million (31 March 2013: £10.4 million) respectively, resulting in a decrease in the total value of investments from the prior year end.

              *Holding company for Superstroy.

Methodologies and assumptions used in valuing investments and investments in subsidiaries:

1) Market Approach:

The market comparable method indicates the market value of the ordinary shares of a business by comparing it to publicly traded companies in similar lines of business. The conditions and prospects of companies in similar lines of business depend on common factors such as overall demand for their products and services. An analysis of the market multiples of companies engaged in similar businesses yields insight into investor perceptions and, therefore, the value of the subject company.

In the market approach, recent sales, listings of comparable assets and such other factors as the Board of Directors 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 Enterprise Value (EV) multiples of the publicly traded companies are calculated and then adjusted for points of difference such as relative size, growth, profitability, risk, and return on investment. The adjusted multiples are then applied to the relevant element of the subject company's business.

All valuations of unquoted investments and investments in subsidiaries (collectively referred to as the "portfolio") were performed using a weighted average of an enterprise value/revenue or enterprise value/EBITDA multiple (except for Kreditmart and Flexinvest where an adjusted Net Asset Approach was used). 28%, by value at period end, of the portfolio was valued using adjusted net assets approach (31 March 2013: 32%) with the remaining 72% (31 March 2013: 68%) of the portfolio being valued using an enterprise value/revenue multiple and enterprise value/EBITDA multiple approach.

The valuation approach used for Superstroy and Unistream is based on a weighted average of current year comparable companies EBITDA and revenue multiples with further discounts applied for liquidity and marketability. Cross checks were done using DCF and historical multiples. The valuation approach for Flexibank is based on an estimate of realisable net assets.

The key assumptions in the valuations were as follows:

- Liquidity discount: 30% (31 March 2013: 30%)

2) Income Approach:

The income approach methodology is used as a cross-check for the Market Approach and indicates the market value of a business enterprise based on the present value of the cash flows that the business can be expected to generate in the future. Such cash flows are discounted at a discount rate that reflects the time value of money and the risks associated with the cash flows.

Set out below is a list of the subsidiaries of the Company:

Name of subsidiary undertaking	Country of incorporation	Class of share	% of class held at	% of class held at	Principal activity
			30 September 2013	31 March 2013
Kreditmart Finance Limited	Cyprus	Ordinary	100.0%	100.0%	Consumer finance
Flexinvest Limited	Cyprus	Ordinary	100.0%	100.0%	Investment holding
Flexinvest Bank Limited**	Russia	Ordinary	100.0%	100.0%	Banking and finance

** Flexinvest Bank is held directly by Kreditmart and Flexinvest and is an indirectly held subsidiary of the Company.

5.         Sale of OSG

On 8 March 2013, the Company transferred its entire holding (70,796 shares) of OSG Records Management (Europe) Limited ('OSG') to Octala Services Limited.

The Company sold OSG for a cash consideration of up to US$47.8 million (£32.6 million). US$34.1 million (£22.8 million) was paid to the Company on the date of sale and the remaining US$8.5 million (£5.2 million) was delivered to an escrow account in London, of which:

(a) US$4.25 million (£2.7 million) is payable 30 days following the signing of the accounts of OSG for the financial year ended 31 March 2013, should they reflect management's expectations of the EBITDA (as defined), net debt and working capital of the business; and

(b) the balance of US$4.25 million (£2.6 million) is payable 12 months following completion of the sale subject to any warranty claim under certain commercial or tax warranties.

The first US$4.25 million was received on 28 August 2013. The Directors are of the view that the remaining amount in the escrow account will be received in full and has been recognised as a deferred consideration discounted back for the effect of the time value of money.

In terms of accounting for the transaction deferred revenue linked to the sale was determined by deducting the payables related to the sale.

As at 30 September 2013, the Company was due to receive up to US$5.2 million (£3.2 million) in additional consideration if the OSG business achieves EBITDA of over US$10.0 million (£6.2 million) for the year ending 31 March 2014; this will be proportionately reduced depending on the EBITDA. Subsequent to the period end the Board agreed on 10 December 2013 with Octala Services Limited ('Octala') to an amendment ('the Amendment') to the Framework Agreement with Octala governing the payment of the warranties escrow and the deferred consideration. Under the Amendment it has been agreed that the remaining escrow amount of US$4.25 million is to be released shortly to the Company in advance of the 12 month anniversary in March 2014 of the completion of the sale of OSG. In addition the Amendment provides that the earn out provisions in the Framework Agreement governing the deferred consideration are deleted in consideration of the further payment to the Company of US$0.375 million.

Bonus payments are due to OSG staff members upon payment of the US$34.1 million (£150,000), US$8.5 million (£150,000) and US$5.2 million (£300,000) (pro rata reduction proportionate to the amount (if any)) respectively. These bonus payments have been provided for and been discounted for the effect of the time value of money. Bonus payments of £300,000 have been paid and/or accrued to date. An amount of £22,000 has been accrued as the bonus provision relating to the US$0.375 million immediate further payment.

6.         Provisions

			30 September 2013	31 March   2013
			£'000	£'000
Aurora Investment Advisors bonus payment on OSG sale			42	108
Bonus payment to OSG management on OSG sale			22	371
Aurora Investment Advisors performance fee			3	-
			67	479
This balance is comprised of:
Non-current liabilities			-	115
Current liabilities			67	364
			67	479

7.         Loans payable to investees

			30 September 2013	31 March   2013
			£'000	£'000
Loans payable - Grindelia			443	492
Interest payable - Grindelia			4	4
Total			447	496

The loan payable to Grindelia is repayable with interest no later than 20 February 2015 and 37% of the loan balance attracts interest at a rate of 0.1% per annum and the remaining 63% is repayable with interest at a rate of 0.01% per annum.

8.         Sale of Flexinvest Bank Limited shares to Kreditmart

		30 September 2013	30 September 2012
		£'000	£'000
Cost of Investment		-	634
Profit on sale		-	766
Proceeds on sale		-	1,400

             The Company sold 6,158 shares of its investment in Flexinvest Bank Limited to Kreditmart Finance Limited for a   

             consideration of GBP 1,000,059 on 6 June 2012.

The Company sold 2,463 shares of its investment in Flexinvest Bank Limited to Kreditmart Finance Limited for a consideration of GBP 399,991 on 30 September 2012.

9.         Share buyback

Number of shares						30 September 2013		31 March 2013
Authorised share capital:
Ordinary Shares of 1p each						200,000,000		200,000,000
Issued share capital:
Opening balance as at 1 April 2013, 1 April 2012						112,500,000		112,500,000
Shares redeemed in share buyback						(38,237,383)		-
						74,262,617		112,500,000

				30 September 2013		31 March 2013
				£'000		£'000
Share Capital
Opening balance as at 1 April 2013, 1 April 2012				1,125		1,125
38,237,383 Ordinary Shares of 0.01p bought back				(382)		-
				743		1,125
Special Reserve
Opening balance as at 1 April 2013, 1 April 2012				84,073		84,073
38,237,383 Ordinary Shares bought back by NUMIS				(19,617)		-
Professional and legal fees incremental to Share buyback				(125)		-
				64,331		84,073

On 30 April 2013 the Company entered into a repurchase agreement to purchase ordinary shares of the Company from Numis Securities Limited in April 2013. On 30 May 2013, the Company purchased 38,237,383 ordinary shares at 0.523048p per Share for an aggregate gross consideration of £19,999,947.

10.        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 2013:

				Fair value	% of Net
			Notes	£'000	Assets
Investments
- Unlisted Equities			4	23,700	78.35
At 31 March 2013: Investments			Notes
- Unlisted Equities			4	32,800	53.60

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 2013:

			Level 3	Total
			£'000	£'000
Investments
- Unlisted Equities			23,700	23,700
			23,700	23,700
At 31 March 2013: Investments
- Unlisted Equities			32,800	32,800
			32,800	32,800

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
			£'000	£'000
Opening balance			32,800	74,600
Disposal of investments			-	(29,863)
Total fair value gains or losses in profit or loss			(9,100)	(11,937)
			23,700	32,800

Transfers between levels are accounted for at the end of an accounting period. There were no transfers between levels in the current period.

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.

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 year end and recognised in the Statement of Comprehensive Income amounted to £9.1 million (31 March 2013: unrealised loss of £12.97 million).

The valuation approach used for Superstroy and Unistream is based on a weighted average of current year comparable companies EBITDA and revenue multiples with further discounts applied for liquidity and marketability. Cross checks were done using DCF and historical multiples. The valuation approach for Flexinvest Bank Limited is based on an estimate of realisable net assets. If the estimated EBITDA and revenues were 10% higher for Superstroy and Unistream the values would be £6.9 million and £11.8 million respectively and if these variables were 10% lower for Superstroy and Unistream the values would be £5.7 million and £9.6 million respectively.

If the weighting of Revenue multiple to EBITDA multiple was increased by 10% the values of Superstroy and Unistream would be £7.1m and £11.9m respectively.

The Revenue multiple range observed when valuing Superstroy was 0.3x to 1.4x. The EBITDA multiple range observed when valuing Superstroy was 4.9x to 13.2x. For Unistream the multiple observed for Revenue was 2.1x and for EDITDA was 8.3x.

11.        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. Management receives information on an IFRS basis so no reconciliation between internal management information and external IFRS information per the interim accounts is required. 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.

12.        Related party transactions

The Company has three direct subsidiaries, Kreditmart Finance Limited, Flexinvest Limited and Flexinvest Bank Limited (see note 4). Details of the investments in Unistream Bank and Grindelia Holdings are presented in note 4.

Michael Hough, who is a director of Aurora Investment Advisors Limited, held 100,000 (31 March 2013: 100,000) of the shares in the Company as at 30 September 2013.

Aurora Investment Advisors Limited ('AIAL'), held 1,224,072 (31 March 2013: 2,576,534) of the shares in the Company as at 30 September 2013.

The management fees paid to Aurora Investment Advisors Limited for the half year ended 30 September 2013 were £458,940 (2012: 478,110); at the period end there was no prepayment of management fees.

Per the Amended and Restated Management Agreement, the management fee and performance fee payable to AIAL are as follows:

(a) Annual management fee of an amount equal to 1.5% of the net asset value of the Company, payable semi annually.

(b) Performance fee is calculated as follows:

- 2.5% of the value of any disposals realised by the Company would be payable to the Manager, calculated on the value of assets of the Company realised up to £45 million, i.e. £0.40 per share (the "2.5% Tranche");

- 7.5% of the value of any disposals realised by the Company would be payable to the Manager, calculated on the value of assets of the Company realised between £45 million and £99 million, i.e. £0.40 per share to £0.88 per share (NAV) (the "7.5% Tranche"); and

- 20% of the value of any disposals realised by the Company would be payable to the Manager, calculated on the value of assets of the Company realised over £99 million, i.e. over £0.88 per share (the "20% Tranche"). 

Performance fees 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.

The performance fees paid by the Company to AIAL during the period was £44,808 (2012: Nil); at period end £45,696 (2012: £107,520) was outstanding. £41,991 was outstanding in relation to the deferred consideration of US$4.25 million and £3,705 in relation to the immediate further payment due of US$0.375 million. The performance fees became payable on the sale of OSG, calculated at 1.6% (being the percentage due under the 2.5% Tranche at the date of completion of the sale) on the cash consideration payable to the Company on completion of the sale of US$34.1million (£22.8 million). Further performance fees would become payable to the extent that deferred consideration becomes payable to the Company.

If the remaining investments were sold at their fair values as at 30 September 2013, £379,200 would be payable to AIAL by way of performance fees.

13.        Seasonality of operations

             The operations of the Company are not seasonal in nature. As such its performance is not subject to seasonal

             fluctuations.

14.        Contingencies and capital commitments

             The Company had no contingencies and capital commitments outstanding at the reporting date other than those

             disclosed in note 5 and note 12.

15.        Events after the reporting date

The Board announced on 31 October 2013 that, by mutual agreement with AIAL, the Management Agreement between the Company and AIAL has been placed on six months Notice of Termination following the successful realisation of OSG. The Agreement will remain in full force and effect until 30 April 2014, at which point it will terminate without cost to the Company's shareholders unless varied or extended by mutual agreement. Given this mutual agreement of termination, the Board has entered talks with other prospective managers for the Company's remaining investments.

Subsequent to the period end the Board agreed on 10 December 2013 with Octala Services Limited ('Octala') to an amendment ('the Amendment') to the Framework Agreement with Octala governing the payment of the warranties escrow and the deferred consideration. Under the Amendment it has been agreed that the remaining escrow amount of US$4.25 million is to be released shortly to the Company in advance of the 12 month anniversary in March 2014 of the completion of the sale of OSG. In addition the Amendment provides that the earn out provisions in the Framework Agreement governing the deferred consideration are deleted in consideration of the further payment to the Company of US$0.375 million.

No further material post balance sheet events were noted.

 

END

 

 

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