Aurora Russia Trading Update

RNS Number : 1628Q

Aurora Russia Limited

14 October 2011

 



14 October 2011

Aurora Russia Limited

Trading Update

Aurora Russia Limited ("Aurora Russia" or "the Company") announces a trading update ahead of its interim results for the six months ended 30 September 2011 which are expected to be released in mid December.

Strategy

As announced on 5 August 2011, the Board is committed to a clear exit strategy for its investments and focusing on realising value from what is a mature portfolio.  Three investments are considered to be potential IPO candidates and this option is being actively pursued, alongside a potential trade sale of each.

An exit strategy has been put in place for each investment on a two year time horizon, with a goal of realising, on balance, at least the current NAV from the portfolio.  The Board believes that the current NAV reflects a realistic assessment of the potential value within the investments that could be realised on a two year timeframe.

The Company and the Manager have been engaged in discussions with market participants in London, Moscow and recently visited Warsaw to discuss the potential IPO of the three investee companies deemed substantial enough to be viable IPO candidates.  Although the recent turmoil in the market has put most IPOs on hold, there is significant interest in each of the investee companies and we will continue to pursue discussions regarding this route to exit. The Company would expect to have more substantive news in this regard early in the New Year.

The Manager

The Company's engagement of the Manager now falls under the remit of the Management Engagement Committee and will be formally reviewed from time to time alongside all service providers as part of the committee's work.

The Manager is supportive of the Company strategy regarding its two year timeframe in which to exit the Company's investments. The work now being undertaken by the Manager in this regard is building on work that was already taking place under the realisation strategy in place since last year's AGM.

Portfolio company update and progress on realisation strategy

Each of the Company's investments continues to make progress. Particularly pleasing is the rapid growth of OSG, Superstroy and Unistream.

Future quarterly reporting on the investee companies will follow the format below, with figures from OSG, as an international business, reported in sterling, whilst updates from other businesses will be in Russian roubles to give a clear picture of their underlying operations. In the six months to 30 September 2011 the Russian rouble weakened by 9.8% against sterling and thus the translation of the figures below into sterling would reduce the growth of Superstroy and Unistream, but nonetheless have shown significant growth in the period.

OSG

£m	Aug YTD 2010	Aug YTD 2011	%
Revenue	8.6	11.4	34
EBITDA	1.0	1.3	30
EBITDA Margin	12%	12%

For the first 8 months of 2011 OSG had 34% growth in revenues from £8.6 million for the same period in 2010 to £11.4 million in 2011.  EBITDA has grown by 30% over the same period from £1 million to £1.3 million.  As with many companies in Russia, OSG generally has a stronger second half of the year and management is confident that in 2011 this will remain the case.

As of the end of August OSG had 2.9 million boxes in storage with racked storage capacity utilization at c.80%.  Net Debt of the company stood at £4.1million.

The fact that OSG has the number one position in Russia, a country only beginning to scratch the surface of the potential market for third party document storage, makes its strategic position potentially attractive for a trade buyer, but equally the transparency of its model and its potential for growth would make an IPO an eminently viable alternative once stock market investor appetite returns.

Superstroy

RURb	Aug YTD 2010	Aug YTD 2011	%
Revenue	4.29	5.66	32
EBITDA	0.08	0.01	Neg
EBITDA Margin	2%	0%

For the first 8 months of 2011 Superstroy had 32% growth in revenues from RUR4.29 billion for the same period in 2010 to RUR5.66 billion in 2011 with like-for-like growth of 17%. YTD EBITDA is close to zero due to substantial pre-opening costs relating to the opening of its largest hypermarket in April.  Adjusted for these pre-opening costs YTD EBITDA was RUR73 million.  For DIY sales in Russia August usually is a peak month due to strong seasonality and, not surprisingly, Superstroy's August EBITDA margin reached 5% helping it to offset negative EBITDA it accumulated in 1H. It is expected that in the September-December period Superstroy will continue generating positive EBITDA.

Aurora Russia, in conjunction with the other investors in Superstroy, is looking at all potential routes to exit. Exposure to Russian retail is sought after by both trade buyers and investors, and hence the Company is examining a variety of potential paths to exit.

Unistream

RURb	Aug YTD 2010	Aug YTD 2011	%
Volumes                    Revenue	72.0 1.31	84.8 1.47	18 12
Op Income Profit before tax (PBT) PBT Margin	0.59 45% -0.04 -3.2%	0.73 50% 0.07 4.5%	23

Unistream's volumes grew 18% in the first 8 months of 2011 YoY from RUR72 billion to RUR84.8 billion. Total revenues were RUR1.47 billion increasing 12% compared to the prior year period. Unistream's operating profit grew by 23% YoY driven by the growth of volumes though its own points of sale which therefore reduced the payment of commissions to counterparties.  Growth of income from FX operations was 37% YoY.    For the first 8 months of the year the company produced profit before tax of RUR70 million versus an operating loss of RUR40 million in the same period of last year.

Since it began its loyalty card programme a year ago, Unistream has distributed c. 900,000 loyalty cards. Amongst other information, each loyalty card customer provides Unistream with a mobile phone number so that the company can send a text message informing the sender when a recipient has picked up a transfer.  The data collected through the loyalty card programme gives the company valuable customer information which will assist the company in adding supplementary revenue streams.

With the global financial system currently under scrutiny the exit of Unistream will require the business to overcome the scepticism of investors towards financial businesses. Nevertheless, its continued good growth and increasing depth of customer relationship through its loyalty card should ensure a better reception than most financial businesses in the current climate.

Flexinvest Bank and Kreditmart

Assets RURm	31 Dec 2010	31 Aug 2011
Net Loans	364	334
Goodwill	128	128
Cash	213	104
Other Assets	104	90
Bonds	52	150
Total Assets	861	806

As at 31 August 2011, Flexinvest and Kreditmart had total assets of RUR806 million.  Of this, the net loan book accounted for RUR334 million and is sufficiently reserved with RUR40 million of provisions.  RUR150 million is invested in liquid Russian blue-chip bonds such as Russian Railways, Gazprom, AHML, State owned Rosselkhozbank and City of Moscow yielding on average 5.9% YTM.

Flexinvest continued to make progress in implementing its new credit card and deposit products strategy. Since the last update, the bank issued its first cards to some employees for tests. Also, it has recently launched a deposit marketing campaign to attract deposits from the bank's neighborhood.  As of September 15 the bank had collected RUR3.6 million in deposits as a result of this action.

The bank's web site has been redesigned and the new site went live in early October.  In addition to the new brand and product information updates, it has an electronic application form which allows customers to submit their applications online and also, allow the bank to start advertising on the internet.

Aurora Russia is seeking as cost effective a way as possible to exit the loss-making business of Kreditmart and a strategy for exit from Flexinvest will be spelt out to the market early in 2012, once the initial results of the neighborhood bank initiative are known.

 

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