REG - Aurora Russia Ltd - Annual Financial Report <Origin Href="QuoteRef">AURR.L</Origin> - Part 3
22/07/2015 09:00
- Part 3: For the preceding part double click ID:nRSV7416Tb
At 31 March 2014: Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments at fair value through profit or loss:
-Unlisted Equities - 1,968 9,800 11,768
- 1,968 9,800 11,768
The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements
in Level 3 of the fair value hierarchy of the Company:
Level 3
£'000 £'000
2015 2014
Opening balance 9,800 32,800
Disposal of investments (1,000) (2,940)
Total fair value gains or losses in profit or loss (3,500) (18,092)
Transfer to level 2 - (1,968)
Closing balance 5,300 9,800
Although the Company believes that its estimates of fair values are appropriate, the use of different methodolgies or
assumptions could lead to different measurements of fair value. Investments classified with level 3 have significant
unobservable inputs, as they trade infrequently. As observable prices are not available for these securities, the Company
has used valuation techniques to derive the fair value. Transfers between levels are deemed to take place at the end of the
year.
Level 3 investments have been valued in accordance with the methodologies in Note 18.8. The value of the investments and
the fair value movements are disclosed in note 7.
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 £2.7 million (2014: unrealised loss of £12.6 million).
Unistream was valued using 75% EBITDA multiple and 25% revenue multiple basis and 40% liquidity discount (2014: 30%
liquidity discount).
The Revenue multiple observed was 1.6x and the EBITDA multiple observed was 6.2x.
Price sensitivity
The sensitivity analysis below has been determined based on the exposure to equity price risks as at the reporting date.
At the reporting date, if the valuations had been 20% higher while all other variables were held constant net loss would
decrease by £1,060,000 (2014: £2,353,600) for the Company. This sensitivity rate was determined by the Directors as
reasonable taking market conditions into account.
If the Revenue multiple increases from 25% to 35% the value of Unistream would become £5.9 million.
18.7 Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
The Company is exposed to interest rate risk as a result of the cash and bank balances that are invested at floating
interest rates. The Company monitors its interest rate exposure regularly and allocates its cash resources to an
appropriate mix of floating and fixed rate instruments of varying maturities.
The following table details the Company's exposure to interest rate risk as at period end by the earlier of contractual
maturities or re-pricing:
At 31 March 2015: No Less than 1 months 1 to 2 2 to 5 Greater Total
contractual 1 month to 1 year years than 5
terms of years years
repayment
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Assets
Non-interest bearing 5,300 - 13 - - - 5,300
Floating interest rate instruments 2,638 - - - - - 2,638
Total 7,938 - 13 - - - 7,951
Liabilities
Non-interest bearing - - (150) - - (150)
Total - - (150) - - - (150)
Net Exposure 7,938 - (216) - - - 7,801
At 31 March 2014: No Less than 1 months 1 to 2 2 to 5 Greater Total
contractual 1 month to 1 year years than 5
terms of years years
repayment
£'000 £'000 £'000 £'000 £'000 £'000
Assets
Non-interest bearing 11,768 - 3 - - - 11,771
Floating interest rate instruments 4,726 - - - - - 4,726
Fixed interest rate instruments - 4,410 - - - - 4,410
Total 16,494 4,410 3 - - - 20,907
Liabilities
Non-interest bearing - - (219) - - (219)
Total - - (219) - - - (219)
Net Exposure 16,494 4,410 (216) - - - 20,688
* The Company's fixed interest rate instruments represents cash accounts placed on deposit. The Company does not account
for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest
rates at the reporting date would not affect profit or loss.
Sensitivity analysis
The sensitivity analysis below has been determined based on the Company's exposure to interest rates for interest bearing
assets and liabilities at the reporting date and the stipulated change taking place at the beginning of the financial year
and held constant throughout the reporting period in the case of instruments that have floating rates.
If interest rates had been 50 basis points higher and all other variables were held constant, the Company's net profit and
equity for the year ended 31 March 2014 would have increased by £13,190 (2014: £23,634).
If interest rates had been 50 basis points lower it would have had the equal but opposite effect, on the basis that all
other variables remain the same.
18.8 Fair value measurement
Methodologies and assumptions used in valuing investments and investments in subsidiaries:
1) Market Approach:
The market approach uses industry specific benchmarks as its basis and indicates the market value of the shares of the
Company based on a comparison of the subject company to other comparable companies in similar lines of business that are
publicly traded or which are part of a public or private transaction.
The market comparable method indicates the market value of the ordinary shares of a business by comparing it to publicly
traded companies in similar lines of business. The conditions and prospects of companies in similar lines of business
depend on common factors such as overall demand for their products and services. An analysis of the market multiples of
companies engaged in similar businesses yields insight into investor perceptions and, therefore, the value of the subject
company.
In the market approach, recent sales, listings of comparable assets and such other factors as the Board deems relevant are
gathered and analysed. After identifying and selecting the comparable publicly traded companies, their business and
financial profiles are analysed for relative similarity. Price or EV multiples of the publicly traded companies are
calculated and then adjusted for factors such as relative size, growth, profitability, risk, and return on investment. The
adjusted multiples are then applied to the relevant element of the subject company's business.
The unquoted investment was valued using weighted combination of revenue and/or EBITDA multiples. Refer to Note 18.6.
The key assumptions in the valuations were as follows:
- Liquidity adjustment: 40% (31 March 2014: 25% to 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.
The reconciliation between beginning and ending balances of Level 3 investments is disclosed in Note 18.6. There was a
transfer to level 2 from level 3 during the prior year. The investment was moved from level 3 to level 2 as the sales price
could be used to value the investment. The investment was sold during the year, refer to note 11.
19. Segmental information
The Board of Directors of the Company decides on the strategic resource allocations of the Company. The operating segments
of the Company are the business activities that earn revenue or incur expenses, whose operating results are regularly
reviewed by the Board of Directors of the Company, and for which discrete financial information is available. The Board of
Directors considers the Company to be made up of one segment, which is reflective of the business activities of the Company
and the information used for internal decision-making which includes the monthly reporting to management of investment
holdings on a fair value basis:
- Aurora Russia
The Investment Advisor's Report provides more information on the Company's business and the operations of its investment.
The Company derives its revenues from its investment 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.
20. Related party transactions
The Company had one direct subsidiary, KFL, at the beginning of the year, which was sold during the year (see notes 6 and
11). Details of the investment in Unistream Bank is presented in note 7.
Aurora Investment Advisors Limited ('AIAL') holds Nil (2014: 1,224,072) of the shares in Aurora Russia as at 31 March
2015.
The management fees paid to AIAL were £30,000 (2014: £744,743); at year end there was no prepayment of management fees.
There were no amounts payable at year end (2014: £Nil).
Per the Amended and Restated Management Agreement, the management fee and performance fee payable to AIAL were as follows:
(a) Management fee of an amount equal to i) for all Valuation Dates up to and including 31 March 2011, 1% of the net asset
value of the Company; and ii) for all Valuation Dates after 31 March 2011, 0.75% of net asset value of the Company;
(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 year was £34,799 (2014: £27,735); at year end £Nil (2014:
£40,960) was outstanding. The performance fees became payable on the sale of Flexinvest, calculated at 1.28% on the cash
consideration of £1.9 million. Performance fees also became payable on the sale of Grindelia, calculated at 1.024% on the
cash consideration of £1 million.
If the remaining investments were sold at their fair values as at 31 March 2015, £54,272 (£5,300,000 at 1.024%) would be
payable to AIAL and £106,000 (£5,300,000 at 2%) would be payable to Mr Nicholas Henderson-Stewart by way of performance
fees.
The Company's management contract with AIAL was terminated effective 30 April 2014. The Manager's services were extended to
30 June 2014. Mr Nicholas Henderson-Stewart was appointed as Advisor effective 19 June 2014.
Investment advisor fees of £46,227 (2014: £Nil) were paid during the year to Mr Nicholas Henderson-Stewart. At year end no
fees were outstanding. Performance fees of £14,128 (2014: £Nil) were paid during the year to Mr Nicholas Henderson-Stewart.
At year end no fees were outstanding.
21. Contingencies and capital commitments
The Company had no contingencies and capital commitments outstanding at the reporting date.
22. Events after the reporting date
Tender offer
On 10 April 2015 the Company announced a tender offer for up to 6,687,203 Ordinary Shares, representing 14.99% of the
issued Shares (the "Buyback"), at a price of 10p per share.
Following the Buyback and cancellation of such Shares, the total number of Ordinary Shares in issue is 37,923,928.
Change in directors interests
The Company announced that as a result of the tender offer for Shares on 10 April 2015, the Company's directors' beneficial
shareholdings in the Company have changed as follows:
Gilbert Chalk sold 2,972 Shares (remaining holding: 16,855 Shares).
Tim Slesinger sold 850,669 Shares (remaining holding: 4,824,244 Shares).
Each at a price of 10p per Share and representing 14.99% of each Director's holding of Shares prior to the Buyback.
There are no further events after reporting date which require disclosure.
Directors and Advisors
Directors Registrar
Gilbert Chalk - Chairman Capita IRG (CI) Limited
Tim Slesinger 2nd Floor
Jonathan Bridel No 1 Le Truchot
Peregrine Moncreiffe St Peter Port
Lyndon Trott Guernsey GY1 4AE
Manager Independent Auditor
Aurora Investment Advisors Limited KPMG Channel Islands Limited
(terminated 30 June 2014) Glategny Court
Sarnia House Glategny Esplanade
Le Truchot St Peter Port
St Peter Port Guernsey GY1 1WR
Guernsey GY1 4NA
Advisor CREST Service Provider and UK Transfer Agent
Mr Nicholas Henderson-Stewart Capita Registrars
(appointed 19 June 2014) The Registry
10 Avenue Maurice 34 Beckenham Road
1050 Brussels Beckenham
Belgium Kent BR3 4TU
Administrator and Secretary Nominated Adviser and Broker
Kleinwort Benson (Channel Islands) Numis Securities Limited
Fund Services Limited The London Stock Exchange Building
Dorey Court 10 Paternoster Square
Admiral Park London
St Peter Port EC4M 7LT
Guernsey GY1 2HT
This information is provided by RNS
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