REG - Aurora Russia Ltd - Annual Financial Report <Origin Href="QuoteRef">AURR.L</Origin> - Part 1
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RNS Number : 5383M
Aurora Russia Limited
16 July 2014
16 July 2014
Aurora Russia Limited ("Aurora Russia" or the "Company")
Results for the twelve months ended 31 March 2014
· The Board with support from the recently appointed advisor continue to focus on ensuring optimal exits from the
investee companies
Financial highlights
· Net asset value per share for the Company as at 31 March 2014 of 27.9p per share (Net asset value £20.7m), down from
54.4p per share at 31 March 2013 (Net asset value £61.2m)
· The movement in the value of the portfolio companies principally reflects the lower valuation of comparable
companies following a period of weakness in the Russian equity markets, foreign exchange movements and a weaker performance
from Superstroy
· Cash and cash equivalents at 31 March 2014 were £9.1 million
· Cash at 30th June (post tender) £2.50 million
Portfolio highlights
Unistream Bank
· Revenues for the twelve months ended 31 December 2013 were RUR 161.2 bn, up 4% YoY
· EBITDA of RUR172.5m for 2013, slightly below the RUR178.6m achieved in 2012
· Equity valuation of Aurora Russia's stake in Unistream at 31 March 2014 was £8m, compared to the valuation at 31
March 2013 of £12m
Superstroy
· Revenues for the twelve months ended 31 December 2013 were RUR 9.6 bn, in line with 2012
· EBITDA of RUR211m for 2013, down 12% YoY (the EBITDA is after an upward adjustment of some RUR 80 million for
non-recurring store opening costs).
· Equity valuation of Aurora Russia's stake in Superstroy at 31 March 2014 was £1.8m, compared to the valuation at 31
March 2012 of £10.4m
Commenting, Gilbert Chalk, Chairman of Aurora Russia, said:
"The Board will continue to pursue all options for maximising shareholder value and returning further capital to
shareholders. The Russian economy has slowed down but provides a relatively stable backdrop for the Board to continue to
seek to realise assets at realistic valuations. We will continue to consult with shareholders on the best means and time
frame in which to effect further returns to shareholders."
Enquiries:
Aurora Russia Limited
Gilbert Chalk +44 (0)7768 527973
Numis Securities Limited
Nominated Adviser: Hugh Jonathan +44 (0)20 7260 1000
Corporate Broking: Rupert Krefting / Nathan Brown
ANNUAL REPORT
For the year ended 31 March 2014
AURORA RUSSIA LIMITED
Company Summary
The Company
Aurora Russia Limited ('the Company') is a Guernsey registered closed-ended investment company and its shares are traded on
the Alternative Investment Market of the London Stock Exchange ('AIM'). It was incorporated on 22 February 2006 and
dealings commenced on AIM on 20 March 2006.
Investing policy
The Company's investing policy was to make equity or equity-related investments in small and mid-sized private Russian
companies focused on the financial, business and consumer services sectors. The Directors are seeking to complete the
realisation of the Company's residual investments in a timely manner.
The Manager
The Company's management contract with Aurora Investment Advisors Limited (the 'Manager') to provide investment advisory
and management services which ran for 8 years has now been terminated effective 30 April 2014. The Manager's services were
extended to 30 June 2014. The Board is pursuing its realisation policy with the assistance of Mr Nicholas
Henderson-Stewart, who was appointed as Advisor effective 19 June 2014.
Registered address Dorey Court
Admiral Park
St Peter Port
Guernsey
GY1 2HT
Website details www.aurorarussia.com
Company registration no 44388
Chairman's Statement
Introduction
I am pleased to present the results of Aurora Russia Limited (the "Company" or "Aurora Russia") for the 12 months ended 31
March 2014.
The year and the immediate period thereafter have been dominated by long and complex negotiations to dispose of the
Company's wholly owned investments and by deteriorating economic and trading conditions for the Company's remaining
investments for the reasons set out in the Investment Manager's Report. The disposals have resulted in the Board being able
to return in excess of £28 million of capital to shareholders by way of tender offer.
The Sale of Flexinvest Limited ("Flexinvest") and Kreditmart Finance Limited ("KFL")
On 3 March 2014, the Company announced that it had completed the sale of Flexinvest, its subsidiary in Cyprus, which owned
OJSC Flexbank ("Flex Bank"). The consideration for the disposal of Flexinvest was RUR189.1 million (approximately £3.2
million) in cash plus, as part of the sale, mortgages with a nominal value of RUR144.2 million (approximately £2.4 million)
held by Flex Bank which were transferred to the Company's wholly owned subsidiary KFL. As KFL owned shares in Flexinvest,
it received its part of the £3.2 million cash proceeds which net of fees was approximately £261,500.
On 24th May 2014 the Company announced that it had sold KFL for a total consideration of RUR100 million (approximately £1.7
million) plus US $450,000 (approximately £267,500), which was KFL's cash balance at the time of the transaction.
Return of Capital
In the year to 31 March 2014, the Company returned £20.0 million to shareholders through a tender for 38,237,383 shares of
Aurora Russia's stock at 52.3048p per share following the sale of OSG. The Company has now sold Flexinvest and KFL and
with the proceeds of the sale and the residual payouts in connection with the sale of OSG returned an additional £8.2
million to shareholders through the tender announced in May for a further 29,651,549 shares, being approximately 39.9% of
the current issued share capital of the Company, at a price of 27.5454p per share.
Subsequent to the year end, after payment of the tender proceeds and receipt of the sales proceeds from KFL, the remaining
cash balances at 30 June 2014 were £2.5 million. These funds have been retained for future working capital and other
purposes.
The Manager
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. The Management Agreement has now
come to an end and the Board has decided that it would be inappropriate for the Company to continue to bear the cost of a
full time manager, particularly in the light of a reduced portfolio. The Board is of the view that its members have more
than sufficient relevant experience and capability to monitor the progress of the remaining investments if supplemented by
suitable local advice in Russia. The Board appointed Mr. Nicholas Henderson-Stewart as advisor to the Company on 19 June
2014.
Investment Review
The Company has two remaining investments:
· 24.3% of SuperStroy, one of the leading DIY retailers in Russia; and
· 26% of Unistream Bank, a leading Russian money transfer company.
Trading updates on these investments are set out in the Investment Manager's Report.
Portfolio Valuation
A valuation of the investment portfolio was performed at 31 March 2014 resulting in a valuation of £11.8 million. Including
the cash from the sale of Flexinvest of £3.2 million to compare to the valuation of £32.8 million at 31 March 2013, this
results in a decrease in value of £17.8 million, a fall of 54%. This valuation, recommended by the Valuation Committee of
the Board was prepared by the Manager and formally adopted by the Board on 14 July 2014. These valuations are prepared for
accounting purposes and are based on International Private Equity and Venture Capital Association ("IPEVCA") guidelines.
The resultant valuations of investments included in the Company's financial statements will not necessarily reflect the
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 year valuation performed for March
2013 as follows:
· the value of the Company's 24.3% shareholding in SuperStroy has decreased by £8.6 million to £1.8 million, a
decrease of 82.7%.
· the value of the Company's 26% stake in Unistream Bank has decreased by £4.0 million to £8.0 million, a decrease of
33.3%; and
· the value of the KFL assets were valued at £2.0 million which including the proceeds from Flexinvest of £3.2 million
resulted in a decrease from £10.4 million to £5.2 million, a decrease of 50%.
Both Unistream's and Superstroy's valuations were affected by adverse FX movements. Unistream's valuation was also
affected by lower market multiples. Superstroy valuation on the other hand has been written down due primarily to its
disappointing financial performance as detailed in the Manager's Report and a decision of the Valuation Committee to amend
the valuation methodology; applying a 100% weighting to EBITDA multiples rather than the 75% to EBITDA and 25% to Sales
multiples a year earlier and increasing the liquidity discount to 25% from 20%.
Please refer to the Investment Manager's report for the performance on the investee companies during the period.
The Company has focused on further reducing operating expenses which excluding investment management and performance fees
fell from £1.13 million to £0.9 million, a fall of 21%.
It is important to note that over the period there was an approximate 25% unfavorable movement in the £/RUR exchange rate.
Therefore, the change in the value of the Company's investments may be distorted by the effect of the movement in the
currency.
Results to 31st March 2014
For the 12 months to 31 March 2014, Aurora Russia recorded a loss of £20.38 million or 26.31p per share, calculated based
on the Company statement of comprehensive income. The net asset value ("NAV") of the Company as at 31 March 2014 was £20.69
million or 27.9p per share. Cash and cash equivalents at 31 March 2014 were £9.1 million.
Administration and operating expenses of £1.67 million (a decrease of 36% from the previous year) represent 8.1% of the
current NAV.
Outlook
This is a time of great uncertainty and it is difficult to predict the outcome of the situation in Ukraine and the wider
performance of the Russian economy. We expect that the value of our investments will continue to be affected by the general
political and resultant economic situation. It is our intention to pursue every opportunity to maximise the value of our
investments with a view to disposing of them at prices which reflect their fundamental value which we believe is likely to
be material in any upturn of general market sentiment.
Gilbert Chalk
Chairman
Investment Manager's Report
Overview
According to the World Bank, Russia's GDP slowed to 1.3% in 2013 from 3.4% growth in 2012. The lack of growth supporting
structural reforms, weak domestic demand, decreasing profit margins and the resultant poor business sentiment leading to
reduced investment all played their part in the poor performance of the economy in 2013.
The World Bank projects in its low-risk scenario which assumes a limited and short-lived impact of the crisis in Ukraine,
that growth in 2014 will slow to 1.1% before increasing slightly to 1.3% in 2015. The World Bank's high-risk scenario
assumes a more severe shock to economic and investment activities from the Ukrainian crisis and projects a contraction in
output of 1.8% for 2014.
Both of the Company's remaining investments are directly affected by the economic downturn, the drop in consumer confidence
and domestic demand and are linked inextricably to the performance of the construction and other related sectors. The
valuation of these investments in the Accounts reflects their performance in what has been and continues to be a very
difficult market and there has been a further writedown in the value of each of our remaining investments.
The combined net asset value of these two investments at 31 March 2014 was £9.8million, down 56% from their value at 31
March 2013 of £22.4 million. The net asset value of the Company on 31 March 2014 was £20.7 million.
Management Agreement
Following the realisation of the Company's investments in OSG, Flexinvest and KFL, the Management Agreement between the
Company and AIAL has been terminated. The Manager has agreed to remain available until 30 June 2014 to assist the Company
where necessary in effecting a smooth transfer of its functions to the Board and its advisors.
Trading Updates
The following are trading updates for our remaining two portfolio companies.
Superstroy
For the year ended 31 December 2013, Superstroy's unaudited management accounts showed sales in line with 2012 at RUR9.6
billion (£192.9 million), with retail sales showing a 5% growth year on year to RUR7.1 billion (£142.7 million).
Unfortunately wholesale sales dropped by 11% to RUR2.5 billion (£50.2 million). The 2013 gross profit of RUR2.9 billion
(£58.2 million), and gross margin of 29.9% were in line with 2012. 2013 EBITDA was lower than in 2012 by 12% at RUR211
million (£4.2 million) (after an upward adjustment of some RUR 80 million for non-recurring store opening costs) compared
to RUR240 million (£4.8 million).
In the first three months of 2014 sales were down by 3.5% for the period at RUR1.9 billion (£37.1 million). The decline in
performance of Superstroy can be attributed to the market which remains weak, but also due to pricing pressure from
increased competition entering the market with a view to gaining market share through low pricing strategies. Lower sales
resulted in lower gross margins with gross profit down 17.6% at RUR509 million (£10.1 million) for the three months to 31
March 2014.
In April, Superstroy reported sales of RUR724 million (£14.4 million) lower by 7.9% than in April 2013 and a gross profit
of RUR184.6 million (£3.7 million), down 14.9% year on year.
Unistream
For the year ended 31 December 2013, Unistream's unaudited management accounts showed volumes higher than 2012 by 4% at
RUR161.2 billion (£3.2 billion) up from RUR155.0 billion (£3.1 billion). Total commissions for the year were 2% lower than
in 2012 at RUR2.46 billion (£49.4 million) down from RUR2.51 billion (£50.4 million). Unistream's operating income was
RUR1.23 billion (£24.7 million) down 3% from RUR1.27 billion (£25.6 million) and profit before tax was down by 3% at
RUR130.8 million (£2.6 million). Management accounts show EBITDA at RUR172.5 million (£3.4 million), slightly below the
RUR178.6 million (£3.6 million) that Unistream achieved in 2012. Average commissions for the year were 1.52% below the
1.62% achieved in 2012.
In the first three months of 2014 volumes were up by 4.3% for the period at RUR33.9 billion (£675 million). Total
commission was 1.8% higher than for the same period in 2013 at RUR510.2 million (£10.2 million). The money transfer market
in Russia remains extremely competitive with pricing the most important factor for money transfer customers thereby putting
continued pressure on margin. This competitive pricing resulted in average commissions for the first quarter of 2014
dropping to 1.50% from 1.54% achieved in the first quarter of 2013.
Volumes continued to grow in April reaching RUR 14.6 billion (£291 million) an increase of 6.9% year on year with operating
income up 7.2% on April 2013 at RUR221 million (£4.4 million).
Conclusion
We remain concerned about the immediate future of the Russian economy and the political situation in Ukraine. Superstroy
and Unistream remain at critical stages in their lifecycle and their growth and development will rely on an improvement in
the economy in Russia and each company taking advantage where they can by adapting to the market and keeping their focus on
building value for their customers.
Directors
Gilbert Chalk - Non-executive Director
Mr Chalk is a British citizen, resident in the UK. He is Chairman of Castle Private Equity AG a leading Private Equity and
Venture Capital Fund of Funds that is managed by LGT Capital Partners and listed on the Zurich Stock Exchange. In addition
he is a Director of Vantage Goldfields Limited, a South African Gold producing company, listed on the ASX. From 2000 to
2010 he was Chairman of the Baring English Growth Fund and its Investment Committee. The Fund invested in small and mid cap
buy-outs in the UK. Previously he was the Founder and Managing Director of Hambro European Ventures, subsequently named
Duke Street Capital. He has served as a Council Member of the British Venture Capital Association and as Chairman of its
Taxation Committee conceived and formulated Venture Capital Trusts. He has also worked as Head of Corporate Finance at ABSA
Bank (UK) and as a Corporate Finance executive at Hill Samuel Bank and Brandts Limited. He holds an M.B.A. from Columbia
University, New York.
Timothy Slesinger - Non-executive Director
Mr Slesinger is a British citizen, resident in the UK. He founded OSG Records Management ZAO in Moscow in 1998. During the
12 years he was CEO and then Director, the Company grew to become a market leader in both physical document and on-line
data management in Central & Eastern Europe. OSG's clients range from international Fortune 500 companies, highly regarded
businesses local to the region and governments. He sold OSG to Aurora Russia in 2009. Mr Slesinger sits on Aurora Russia's
Management Engagement Committee and is Chairman of the Remuneration Committee.
Jonathan Bridel - Non Executive Director
Mr Jonathan Bridel is a British Citizen, resident in Guernsey. He has a number of directorships including Alcentra European
Floating Rate Income Fund Limited, Starwood European Real Estate Finance Limited and The Renewable Infrastructure Group
which are listed on the Main Market of The London Stock Exchange. He was previously Managing Director of Royal Bank of
Canada's Investment businesses in the Channel Islands. He has nearly 30 years international experience in the finance and
investment industry and private business. He was for a period Chief Financial Officer of a group with operations in Eastern
Europe and the CIS. He is a Chartered Accountant, a Chartered Marketer, a Chartered Fellow of the Chartered Institute for
Securities & Investment and holds an MBA from Durham University and qualifications from the Australian Institute of Company
Directors.
Peregrine Moncreiffe - Non Executive Director
Mr Peregrine Moncreiffe is a British Citizen, resident in Jersey and advises a number of International Investment
companies. He is Chairman of North Atlantic Smaller Companies Investment Trust and a director of EOS Russia AB. He is also
a director of Metage Funds Limited, a shareholder in the Company. After an 18 year career in investment banking managing
trading departments at Credit Suisse First Boston and Lehman Brothers, he co-founded Buchanan Partners Limited where he was
responsible for Russian investments from 1994 until 1999.
Lyndon Trott - Non Executive Director
Mr Lyndon Trott is a British Citizen, resident in Guernsey. He is currently a non-executive director of a number of
companies, including the world's largest independent private equity and real estate fund administrator. He served a four
year term as Guernsey's Treasury and Resources Minister and progressed to become the jurisdiction's longest serving Chief
Minister. He is a former chairman of the board of trustees of a circa £1 billion pension fund and is a graduate of the
Institute of Directors' company direction programme.
Directors' Report
The Directors of Aurora Russia Limited ('the Company') present the annual report and audited financial statements of the
Company for the year ended 31 March 2014.
Background
The Company was incorporated in Guernsey on 22 February 2006 and commenced activities on 20 March 2006. The Company is a
closed-ended investment company and is registered in Guernsey.
Principal activity
The principal activity of the Company is private equity investment in Russia in the financial, business and consumer
services sectors. The Company is now seeking to dispose of its residual investments at a level which reflects their
underlying value.
Listing
The Company is traded on the Alternative Investment Market of the London Stock Exchange ('AIM'), and has complied with the
relevant provisions of the rules governing the admission to and operation of a company traded on the AIM.
Business review
The Company's risk exposure, management objectives and policies are disclosed in note 21 to these financial statements.
A review of the business during the year is contained in the Chairman's Statement.
Results and dividends
The results for the year are set out in the attached financial statements.
The Company has not proposed or declared a dividend for the year ended 31 March 2014 (2013: £nil).
Incorporation
The Company was registered in Guernsey, Channel Islands on 22 February 2006, with registered number 44388.
Directors
The Directors during the year and to date were as follows:
Date of Appointment Date of resignation
Grant Cameron 24 February 2006 1 May
2013
John Whittle 17 January 2008 12
April 2013
Geoffrey Miller 22 June 2011 12
April 2013
Gilbert Chalk - Chairman from 25 February 2013 22 June 2011
Timothy Slesinger 22 August 2011
Jonathan Bridel 12 April 2013
Peregrine Moncreiffe 12 April 2013
Lyndon Trott 1 May 2013
Directors' and other interests
Directors who held office during the year had the following interests in the shares of the Company as at 31 March 2014:
Number of shares
Aurora Investment Advisors Limited 1,224,072 Micheal Hough (Director of Aurora Investment Advisors Limited) 100,000 Gilbert Chalk 33,005 Timothy Slesinger 9,446,850 Peregrine Moncreiffe 635,209
Aurora Investment Advisors Limited
1,224,072
Micheal Hough (Director of Aurora Investment Advisors Limited)
100,000
Gilbert Chalk
33,005
Timothy Slesinger
9,446,850
Peregrine Moncreiffe
635,209
The Directors who held office during the year have interests in the contracts with the Company as follows:
Directors' remuneration
The following Directors emoluments were incurred:
2014 Fees 2013 Fees
Grant Cameron 2,167 26,000
Gilbert Chalk 90,486 34,306
Timothy Slesinger 26,000 20,583
Lyndon Trott 28,906 -
Jonathan Bridel 37,063 -
Peregrine Moncreiffe 28,214 -
Geoffrey Miller 867 47,667
John Whittle 1,200 36,000
Total £214,902 £164,556
Geoffrey Miller and John Whittle resigned from the Board on 12 April 2013 and Jonathan Bridel and Peregrine Moncreiffe were
appointed as replacements on 12 April 2013. Jonathan Bridel's base remuneration was increased from £26,000 to £30,000 per
annum with effect from 1 October 2013. Mr Bridel also receives £5,000 per annum for being chairman of the Audit Committee.
Peregrine Moncreiffe's remuneration was agreed at £26,000 per annum. On 1 May 2013 Grant Cameron resigned from the Board
and Lyndon Trott was appointed as a replacement on 1 May 2013 and his remuneration was agreed at £26,000 per annum; an
additional one off fee of £5,000 was paid during the year to Lyndon Trott and Jonathan Bridel. Two once-off payments of
£12,500 were paid to Gilbert Chalk during the year as well as a £3,000 one-off payment to Peregrine Moncreiffe. All of
these payments were made in recognition of the significant additional work required of the directors in connection with
disposals of the Company's assets and the subsequent return of capital to shareholders.
There are no service contracts in existence between the Company and any Director but each of the Directors was appointed by
letter of appointment which sets out the main terms of his appointment.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with
applicable law and regulations.
The Companies (Guernsey) Law, 2008, (the "Law") requires the Directors to prepare financial statements for each financial
year. Under the Law they have elected to prepare the financial statements in accordance with International Financial
Reporting Standards issued by the International Accounting Standards Board (IASB) and applicable law.
The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the
profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that the financial statements comply with the Law. They have
general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to
prevent and detect fraud and other irregularities.
The Directors are also responsible for ensuring that the annual report includes information required by the AIM Rules for
Companies (the 'AIM Rules').
Disclosure of information to the auditor
The Directors who held office at the date of this Directors' Report confirm that, so far they are each aware, there is no
relevant audit information of which the Company's Auditor is unaware; and each Director has taken all the steps that he
ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the
Company's Auditor is aware of that information.
Going concern
The Company's business activities, together with the factors likely to affect its future development, performance and
position are set out in the Chairman's Statement on pages 2 to 3 as well as the statement of financial position of the
Company and its statement of cash flows. In addition, note 21 to the financial statements includes the Company's
objectives, policies and processes for managing its capital; its financial risk management objectives; details of its
financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Company relies on the current cash resources and the ability to add to the cash reserves as and when further disposals
are made. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully
despite the current uncertain economic outlook.
Having made appropriate enquiries, the Directors have reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern
basis in preparing the Company financial statements.
Auditor
A resolution for the re-appointment of KPMG Channel Islands Limited will be proposed at the forthcoming annual general
meeting.
By order of the Board,
Lyndon Trott Jonathan Bridel
Director Director
14 July 2014
Corporate Governance
Corporate Governance Codes
During the prior year until 10 October 2012, the Company complied with the Association of Investment Companies' (the "AIC")
Code of Corporate Governance (the "AIC Code"). However, on 10 October 2012 the Company's initial year of free membership of
the AIC expired and the Company decided not to renew its membership of the AIC.
The Directors are committed to ensuring that high standards of corporate governance are maintained and that best practice
on corporate governance is applied, in so far as the Directors believe it is relevant and appropriate to the Company. As
the Company is now seeking to dispose of its residual investments and in light of the small and decreasing size of the
Company, the Board is now complying with Finance Sector Code of Corporate Governance (the "GFSC Code") published by the
Guernsey Financial Services Commission. As the Company is an authorised closed-ended investment scheme domiciled in
Guernsey, the GFSC Code automatically applies to the Company.
A copy of the GFSC Code can be obtained from the GFSC's website www.gfsc.gg or from the Secretary upon request.
The Board and Board Committees
All the Directors of the Company are non-executive Directors. The Board does not feel it is appropriate to appoint a chief
executive or senior independent Director as day-to-day management of the Company's assets is delegated to the Manager,
subject to the overall supervision of the Board.
The Chairman is Gilbert Chalk. The Board considers that all Directors who held office during the year and up to the date of
this report are independent of the Manager.
The respective committee members resigned from, or were appointed to, their committees when they resigned or were appointed
as directors.
Messrs Miller and Whittle resigned as Directors on 12 April 2013 and Mr Cameron resigned as a Director on 1 May 2013.
Following an extensive search for appropriate candidates and having regard both to the Company's needs and the benefits of
diversity on the Board, Messrs Bridel and Moncreiffe were appointed to the Board on 12 April 2013 and Mr Trott was
appointed on 1 May 2013. As all of the directors are independent non-executives, the Board has not considered it to be
necessary to establish a separate nomination committee and the appointments were considered and approved by the full Board.
The Board did not consider it necessary to incur the expense of using the services of an external search consultancy nor
open advertising, as the Board with its advisors was able to identify suitable candidates from their own lists of
contacts.
On joining the Board, each Director was given a full tailored induction with the support of the retiring Directors and
Directors receive regular relevant training on matters relating to the Company's business.
The full Board meets at least four times a year to consider, as appropriate, such matters as overall strategy, investment
performance, share price performance, the shareholder profile of the Company, communications with shareholders,
transactional and other general matters affecting the Company. The Board considers that it meets sufficiently regularly to
discharge its duties effectively.
At the start of the year the Audit Committee comprised Grant Cameron, Gilbert Chalk and John Whittle. John Whittle was the
Chairman of the Audit Committee until 12 April 2013 when Jonathan Bridel was appointed as Chairman. John Whittle and Grant
Cameron retired from the Audit Committee and Jonathan Bridel and Lyndon Trott were appointed to the Audit Committee during
the period.
The Audit Committee is responsible for ensuring that the financial performance of the Company is properly reported on and
monitored. The Audit Committee reviews the annual and half-yearly accounts, results, announcements, internal control
systems and procedures and accounting policies of the Company. The Audit Committee also monitors the auditor's independence
and objectivity and the effectiveness of the audit process. Furthermore, the Audit Committee makes recommendations to the
Board, for it to put to shareholders for their approval in the annual general meeting, in relation to the re-appointment of
the external auditor. Finally, the Audit Committee considers and makes recommendations to the Board on any non-audit
services to be provided by the auditor. The Audit Committee meets a minimum of twice a year but where appropriate the
meetings shall coincide with key dates in the Company's financial reporting cycle. The terms of reference of the Audit
Committee are available from the Secretary upon written request.
As all of the Directors are non-executive and as day-to-day management and administration of the Company has been delegated
to the Manager and the Administrator, the Board on the recommendation of the Audit Committee has agreed that it is not
necessary to create an internal audit function. This position is reviewed annually.
At the start of the year the Valuation Committee comprised Grant Cameron, Gilbert Chalk and John Whittle. John Whittle was
the Chairman of the Valuation Committee up until his resignation date after which Gilbert Chalk became Chairman. John
Whittle and Grant Cameron retired from the Valuation Committee and Jonathan Bridel, Peregrine Moncreiffe and Lyndon Trott
were appointed to the Valuation Committee during the period. The Valuation Committee is responsible for valuing proposed
investments and revaluing investments on an ongoing basis and it meets at least twice a year. The terms of reference of the
Valuation Committee are available from the Secretary upon written request.
At the start of the year the Remuneration Committee comprised Tim Slesinger (Chairman), John Whittle, Grant Cameron,
Gilbert Chalk and Geoffrey Miller. John Whittle, Geoffrey Miller and Grant Cameron retired from the Remuneration Committee
and Jonathan Bridel, Peregrine Moncreiffe and Lyndon Trott were appointed to the Remuneration Committee. The Remuneration
Committee is responsible for reviewing the performance of Directors, the scale and structure of remuneration and Directors'
letters of appointment and it meets a minimum of twice a year. The terms of reference of the Remuneration Committee are
available from the Secretary upon written request.
As all of the Directors are non-executives, they ordinarily receive a flat rate of remuneration with no performance related
bonuses. However, the Directors are entitled to such remuneration as the Board may determine (subject to an aggregate cap
of £300,000 per annum), and during the year under review the Directors were awarded additional remuneration for the
significant extra work and additional meetings required in connection with the disposals of investee companies. The numbers
of additional meetings attended by the Directors is shown in the table on page 13. Details of the remuneration paid to the
Directors in the year under review and their current fees are set out on page 9. None of the Directors has a contract of
service with the Company and they are all appointed in accordance with the Company's articles of incorporation.
At the start of the year the Management Engagement Committee comprised Gilbert Chalk (Chairman), Grant Cameron, Timothy
Slesinger, Geoffrey Miller and John Whittle. Geoffrey Miller, John Whittle and Grant Cameron retired from the Management
Engagement Committee and Jonathan Bridel and Lyndon Trott were appointed to the Management Engagement Committee during the
period. The Management Engagement Committee is responsible for reviewing the terms of agreements with the Company's service
providers, including the provisions relating to the applicable service provider's remuneration, and satisfy itself that
they are market standard and comparable with those charged to peer group companies and ensure that the Service Agreements'
terms are in accordance with industry norms and in the Company's and shareholders' best interests. The Management
Engagement Committee meets at least once per year. The terms of reference of the Management Engagement Committee are
available from the Secretary upon written request.
The Board receives from the Secretary and its other advisors information that it considers to be appropriate to enable it
to discharge its duties. Directors usually receive Board papers several days in advance of Board meetings and are able to
consider in detail any issues to be discussed at the relevant meeting.
All the Directors are entitled to have access to independent professional advice at the Company's expense where they deem
it necessary to discharge their responsibilities as Directors and have access to the advice and services of the Secretary.
The Company has purchased appropriate directors' and officers' liability insurance in respect of legal action against its
directors.
The Board has delegated day-to-day management of the Company's assets to the Manager. All decisions relating to the
Company's investment policy, investment objectives, investment decisions, dividend policy, gearing, corporate governance
procedures and strategy in general are, however, reserved for the Board. The Board evaluates the Manager's performance on
an annual basis and monitors the Manager at each quarterly Board meeting to ensure that the Company's assets are being
managed in accordance with the guidelines set out by the Board.
The number of meetings of the full Board and those committees attended by each Director from 1 April 2013 up to 31 March
2014 is set out below:
Audit Committee Valuation Committee Remuneration Committee Management Committee
Engagement
Held Attended Held Attended Held Attended Held Attended
Gilbert Chalk 3 3 2 2 5 3 3 3
Tim Slesinger N/A N/A 2 2 5 5 3 3
Jonathan Bridel 3 3 2 2 5 5 3 3
Lyndon TrottPeregrine Moncreiffe 3N/A 3N/A 22 22 55 35 33 33
Quarterly Ad hoc
Held Attended Held Attended
Gilbert Chalk 4 4 11 4
Tim Slesinger 4 4 11 1
Jonathan Bridel 4 4 11 9
Lyndon Trott 4 4 9 6
Peregrine Moncreiffe 4 4 11 9
John Whittle and Geoffrey Miller resigned on 12 April 2013 and therefore were not eligible to attend any meetings. Grant
Cameron resigned on 1 May 2013 and only attended the meetings he was eligible to attend.
Performance of Board and proposal for re-election
The performance of each Director is appraised by the full Board prior to the convening of the annual general meeting for
each year with support from the Secretary and by reference to a tailored set of criteria against which performance is
measured. The performance of each Board committee is appraised by the Board as a whole. In accordance with the Company's
articles of incorporation (the "Articles"), one third, or the number nearest to but not greater than one third, of the
Directors will retire and stand for re-election at the annual general meeting each year, provided that each Director shall
retire and stand for re-election at intervals of no more than three years. Mr Chalk was re-elected at the 2012 annual
general meeting and Messrs Bridel, Moncreiffe and Trott at the 2013 annual general meeting. In accordance with the
Company's articles of association Mr Slesinger will retire at the forthcoming annual general meeting and, being eligible,
will offer himself for re-election.
The Directors believe that the Board has a balance of skills and experience which enables it to provide effective strategic
leadership and proper governance of the Company. The Board believes that each Director's performance continues to be
effective and to demonstrate commitment to the role and therefore supports the re-election of Mr Slesinger. Information on
the Directors, including their relevant experience, is set out in pages 6 to 7.
Relations with shareholders
The Board welcomes correspondence from shareholders, addressed to the Company's registered office. All shareholders have
the opportunity to put questions to the Board at the annual general meeting. In addition to the Chairman, all other
non-executive Directors, including the Chairmen of the Audit and Remuneration Committees, will be available to answer
questions at the forthcoming annual general meeting.
The Board believes that sustainable financial performance and delivering on the objectives of the Company are indispensable
measures in order to build trust with the Company's shareholders. In order to promote a clear understanding of the Company,
its objectives and financial results, the Board aims to ensure that information relating to the Company is disclosed with
key investors in a timely manner and in a format suitable to the shareholders of the Company.
The Board has also organised periodic meetings to encourage communication and to ensure the concerns of shareholders are
addressed.
The Articles of Incorporation state that a continuation vote via an ordinary resolution will be held proposing the
extension of the life of the Company at the 2015 annual general meeting and every 5 years thereafter. The last such
continuation vote was passed at the 2010 annual general meeting.
Independent auditor's report to the members of Aurora Russia Limited
We have audited the financial statements of Aurora Russia Limited (the "Company") for the year ended 31 March 2014 which
comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity and
the Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards as issued by the International Accounting
Standards Board ('IASB').
This report is made solely to the Company's members, as a body, in accordance with section 262 of the Companies (Guernsey)
Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required
to state to them in an auditor's 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 and the Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of the Directors and Auditors
As explained more fully in the Statement of Directors' Responsibilities set out on page 9, the Directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices
Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the
Board of Directors; and the overall presentation of the financial statements. In addition, we read all the financial and
non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements
and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
Opinion
In our opinion the financial statements:
• give a true and fair view of the state of the Company's affairs as at 31 March 2014 and of Company's loss for the year
then ended;
• are in conformity with International Financial Reporting Standards as issued by the IASB; and
• comply with the Companies (Guernsey) Law, 2008.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
• the Company has not kept proper accounting records; or
• the financial statements are not in agreement with the accounting records; or
• we have not received all the information and explanations, which to the best of our knowledge and belief are necessary
for the purpose of our audit.
KPMG Channel Islands Limited
Chartered Accountants
PO Box 20
20 New Street
St Peter Port
Guernsey
GY1 4AN
15 July 2014
Statement of Comprehensive Income
For the year ended 31 March 2014
Year ended Year ended
31 March 2014 31 March 2013
Notes £'000 £'000
Profit on disposal of investments 12 - 766
Loss on disposal of investments 13 (2,877) -
Revenue 464 6
- Dividend income 447 -
- Interest income 17 6
Administration and operating expenses 5 (1,672) (2,617)
Deferred consideration written off (813) -
Fair value movements on revaluation of investments 8 (15,215) (11,937)
Foreign exchange loss (267) (157)
Operating loss (20,380) (13,939)
Interest expense - (1)
Loss before tax (20,380) (13,940)
Income tax expense - -
Total comprehensive loss for the year 19 (20,380) (13,940)
Basic and diluted loss per share 6 (26.31p) (12.39p)
All items in the above statement derive from continuing operations.
The accompanying notes on pages 20 to 38 form an integral part of these financial statements.
Statement of Financial Position
As at 31 March 2014
31 March 31 March
2014 2013
Notes £'000 £'000
Non-current assets
Investment in subsidiaries 7 1,968 10,400
Investments 8 9,800 22,400
Other receivables 9 - 1,105
11,768 33,905
Current assets
Other receivables 9 3 5,584
Cash and cash equivalents 10 9,136 23,134
9,139 28,718
Total assets 20,907 62,623
Non-current liabilities
Loans payable to investee companies 11 - 496
Provisions 15 - 115
- 611
Current liabilities
Other payables 219 456
Provisions 15 - 364
219 820
Total liabilities 219 1,431
Equity
Share capital 16 743 1,125
Special reserve 18 64,331 84,073
Accumulated loss 19 (44,386) (24,006)
Total equity 20,688 61,192
Total equity and liabilities 20,907 62,623
Net asset value per share - Basic and Diluted 20 27.9p 54.4p
The financial statements on pages 16 to 38 were approved by the Board of Directors on 14 July 2014 and signed on its behalf
by:
Lyndon Trott Jonathan Bridel
Director Director
The accompanying notes on pages 20 to 38 form an integral part of these financial statements.
Statement of Changes in Equity
For the year ended 31 March 2014
Retained Earnings/
Share Special (Accumulated loss) Total
Capital Reserve
£'000 £'000 £'000 £'000
Balance as at 1 April 2012 1,125 84,073 (10,066) 75,132
Total comprehensive loss for the year
Loss for the year - - (13,940) (13,940)
At 31 March 2013 1,125 84,073 (24,006) 61,192
Balance as at 1 April 2013 1,125 84,073 (24,006) 61,192
Total comprehensive loss for the year
Loss for the year - - (20,380) (20,380)
Share buyback 17 (382) (19,742) - (20,124)
At 31 March 2014 743 64,331 (44,386) 20,688
The accompanying notes on pages 20 to 38 form an integral part of these financial statements.
Statement of Cash Flows
For the year ended 31 March 2014
Year Year
ended ended
Note 31 March 31 March 2013
2014
£'000 £'000
Cash flows from operating activities
Total comprehensive loss (20,380) (13,940)
Adjustments for movements in working capital:
Decrease in other receivables 19 588
(Decrease) / Increase in other payables (1,212) 196
Adjust for:
Interest expense - 1
Interest income (17) (6)
Revaluation of investments 8 15,215 11,937
Loss / (profit) on sale of investment 2,877 (766)
Exchange losses 267 157
Interest received - 3
Net cash (outflow) from operating activities (3,231) (1,830)
Cash flows from investing activities
Proceeds on disposal of Flexinvest 2,940 1,400
Proceeds on disposal of OSG 6,667 22,843
Bank interest received
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