Company Update

RNS Number : 8047L

Aurora Russia Limited

05 August 2011

 



5 August 2011

Aurora Russia Limited

Company update and meetings with shareholders

Aurora Russia Limited ("the Company") announces that it will, ahead of the upcoming Extraordinary General Meeting to be held on 24 August 2011, be undertaking a series of meetings with shareholders to update them on the Company's strategy to deliver value and provide an update on the recent performance of the investee companies.

Company strategy

The Board believes that it is best placed to address the concerns of, and deliver value to, shareholders.  In the Board's view, further changes to the Board are unnecessary, may be disruptive and add no value to the process of realising the Company's investments.

The Board is committed to addressing the issues that have led to disappointing share price performance through:

•     a clearly articulated exit strategy;

•     a minimum goal of delivering at least the current NAV within a reasonable timeframe; and

•     enhanced disclosure and communication with shareholders.

Exit Strategy

The Board will focus on realising value from what is a mature portfolio.  Three investments are considered to be potential IPO candidates and this option will be actively pursued, alongside a potential trade sale of each.

Action is currently being taken towards all exits and the exit strategy will be driven by a desire to optimise value for all shareholders.

Realisation Targets

The Board recognises uncertainty has undermined confidence and therefore is now seeking to set out clear goals that can be objectively assessed.  An exit strategy will be put in place for each investment on a two year time horizon, with a goal of achieving at least the current NAV for each investment.  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.

For those investments where an IPO is potentially an option, the Company will begin a process to engage an investment bank for each of the investments to advise on potential valuation, timing and the optimum market on which to list.  Where trade sale negotiations are entered into in parallel, these will be viewed against the potential value of an IPO.  Where IPO is not seen as an option the Manager has been asked to prepare a detailed assessment of a two year exit strategy.

The Board believes that any attempt to accelerate the value realization beyond this timeframe will be sub-optimal for all but the shareholders that require cash immediately.

Disclosure and transparency

In future the Company will provide a detailed quarterly summary of investee company performances.  These will include as comprehensive a set of hard numbers from which investors can take a view on valuation, including revenue and EBITDA versus prior year periods.

The Chairman of the Board, Chairman of the Audit and Valuation Committees and the Manager will hold a quarterly call for investors and analysts and will conduct regular roadshows.

Independence of the Board

The two management representatives are no longer on the Board and the decision-making process for the Company is now clearly independent of both the Manager and of any particular shareholder.

The Manager

There have been changes within the Manager.  A process has been agreed by all parties to resolve outstanding issues and this process is being overseen by the Chairman of the Board of Aurora Russia Limited.  Whilst these changes have been coincident with the EGM requisition, the issues are separate.

Portfolio company update

OSG

£m	1H 2010	1H 2011	%
Revenue	6.3	8.4	32
EBITDA	0.71	1.00	34
EBITDA Margin	11%	11%

OSG continues to grow strongly.  Revenues have increased by 32% and EBITDA by 34% for the first half of 2011, compared to the prior year period.  The growth in revenues has been driven by recurring storage revenues and a return in the growth of services revenues which was 48% in 1H 2011 YoY. 

OSG is also pleased to announce that it has recently secured 4-year lease financing to purchase racking and has now racked capacity for an additional 700,000 boxes.

OSG has a number of options to fund its growth which are to be further developed in September.

Superstroy

RURb	1H 2010	1H 2011	%
Revenue	2.89	3.84	33
EBITDA	-0.02	-0.06	N/A
EBITDA Margin	-1%	-2%

Superstroy's revenues increased by 33% for the first half of 2011, compared to the prior year period. In the 1H like for like growth (LFL) was 17%. The company opened its largest hypermarket with a trade space of 22,000sqm in April 2011 which depressed EBITDA due to preopening costs.  It is expected that future revenues from this hypermarket will have a positive effect on EBITDA in future results.  The new store hit break-even in May 2011, its second month of operation. Although EBITDA for 1H remained negative due to the seasonality of the construction market in Russia, the company is expected to have positive EBITDA in 2011. In May and June Superstroy showed positive EBITDA.

Superstroy has strong relationships with Russian banks where it has facilities to fund its working capital requirements and growth. Currently it is looking at opportunities with 3 financial institutions to fund a logistics warehouse which it expects will lead to improved margins.

Unistream

RURb	1H 2010	1H 2011	%
Volumes                    Revenue	47.7 0.92	58.1     1.01	22 11
Op Income EBITDA EBITDA Margin	0.41 45% -0.01 -1%	0.51 50% 0.03 3%	24

Unistream's volumes grew 22% in the 1H 2011 YoY from RUR47.7b to RUR58.1b. Total commissions were RUR1.01b increasing 11% compared to the prior year period. However, Unistream's operating profit grew by 22% YoY driven by the growth of volumes though its own points of sale which therefore reduced the payment of commissions to counterparties.    For the first half of the year the company produced EBITDA of RUR0.03bn which was ahead of its budget. Unistream experiences strong seasonality as its migrant customers generally travel to Russia in the spring for the start of the construction season.

Since it began its loyalty card programme in August 2010, the company has distributed 700,000 loyalty cards.  This is important as it increases customer retention, enables the company to understand its customers better and will lead to further revenue streams for the company. 

Flexinvest Bank and Kreditmart

Total Assets £m	31 Dec 2010	1H 2011
Net Loans	7.7	7.5
Goodwill	2.7	2.7
Cash	4.5	2.4
Other Assets	2.2	2.0
Bonds	1.1	3.4

As at 30 June 2011, Flexinvest and Kreditmart had total assets of £17.9m.  Of this, the net loan book accounted for £7.5m and is sufficiently reserved with £0.9m of provisions.  £3.4m is invested in liquid Russian blue-chip bonds.

Flexinvest is implementing its revised strategy to focus on its credit card product funded by short-term retail deposits.  The success of this strategy will be reviewed at the beginning of 2012. During the first half of 2011, the bank received approval from MasterCard to issue its cards, agreed with Rosbank to be the sponsoring bank and United Card Services as the processing company. The bank has developed its front-end system incorporating Experian/Interfax's decision making system and a cloud based application which once implemented will also work as a CRM data base.  The Central Bank of Russia has recently approved the new trademark "Flex Bank" and the first cards are being issued this month ready for launch in earnest in September.

For further information please contact:

Aurora Russia

Geoff Miller                                       [phone]

John Whittle

Numis Securities

Hugh Jonathan

Nominated Adviser                           [phone]

Rupert Krefting / Nathan Brown

Corporate Broking                           [phone]/1426

Financial Dynamics

Ed Gascoigne-Pees                         [phone]

 

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