Trading Statement

RNS Number : 7151C

Aurora Russia Limited

04 May 2012

 



Aurora Russia Limited

Trading Update

Aurora Russia Limited ("Aurora Russia" or "the Company") announces a trading update ahead of its year end results for the year ended 31 March 2012 which are expected to be released by the end of June.

Strategy

As announced on 5 August 2011, the Board is committed to a clear exit strategy for the Company's investments. 

The Company and the Manager are in discussions with potential strategic buyers and financial buyers for the assets.  Advisers have been appointed as part of the process.

With respect to exiting through the IPO market, the appetite for IPOs remains lacklustre but progress has been made in evaluating the viability of listing Superstroy, OSG and Unistream and whether or not the IPO route is the best route for shareholders.  The Company reserves its judgement at this time, but believes that if the IPO market rebounds the opportunity to seek listings for these assets might still be a viable route to provide, at least, a partial exit for shareholders. 

The Company will make a further announcement on progress in relation to the realisation strategy when appropriate.

 The Manager

With the support of the Board, the Manager continues to work on the Company's clear exit strategy for its investments.  In keeping with the strategy of the Company and to reflect the timeline indicated regarding the disposal of the investments, the Manager agreed with the Board to an amendment to the management agreement regarding its notice period. The notice period has now been 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.  

Portfolio companies

Each of the Company's investments continues to make good progress. All of the investments have shown strong revenue growth and are performing well.  We believe that it is critical when selling an investment that it continues to perform well and grow in line or faster than its peers in the market.  OSG, Unistream and Superstroy are market leading companies and we are confident that they present strategic buyers with an opportunity to enter the market with a strong market share and a platform for continued growth.  Flex Bank (rebranded from Flexinvest Bank), although small, is making good progress and provides a simple and stable platform for any banking group wishing to enter the Russian market.

The Russian economy is performing well compared to the UK and other developed economies and the IMF has recently increased its forecast for GDP growth in Russia in 2012 from 3.9% to 4%.   The RUR 6% is stronger against GBP and 8% stronger against USD since 30 September 2011. As of the March reporting date the MICEX was up 6% since September reporting date and the MICEX Consumer index was up 9%.        

Investments

OSG

OSG has the same year end as the Company so its results below are those reflected in the unaudited management accounts for the year ending 31 March 2012.

£m	Mar 2011	Mar 2012	Growth
Revenue Gross profit	14.8 6.2	18.9 7.1	27% 14%
EBITDA	2.1	2.1	0%

For the year ended 31 March 2012, OSG had a 27% growth in revenues from £14.8 million to £18.9 million.  Despite this strong growth in revenues, EBITDA remained the same as in the previous year at £2.1 million with the EBITDA margin going from 14% to 11%.  The reduction in margin was primarily due to high collection costs the company incurred in the regions of Russia where storage volumes increased by 71%, driven mainly by significant new business from Sberbank, the largest bank in Russia, MTS, the largest mobile operator in Russia, and X5, the largest retailer in Russia.  During the financial year, the company won a tender for the first time with the Government of Russia which it hopes will open up further opportunities for Government work, potentially an enormous source of new business. In the final quarter of its financial year ended 31 March 2012, OSG's EBITDA margins had recovered reaching 13% representing £0.7 million of EBITDA, which was 1% higher than the 12% seen in its final quarter in 2011, representing £0.5 million of EBITDA.

As at the end of March 2012 OSG had 3.3 million boxes in storage showing 31% annual growth compared to March 2011.  Net debt stood at £6.4 million comprising bank debt and finance leases on racking and vehicles of £5.0 million plus a £1.4 million reserve for management options issued under the employee stock option programme.

As OSG needs capital to continue to grow, it is continually looking at ways to finance this growth and is currently in discussions with a number of parties to this end. It has recently secured a facility for RUR 80 million from J&T Bank in Russia on competitive terms.

Superstroy

As with the remaining investments, Superstroy's fiscal year is the calendar year. Year end unaudited results were as follows:

RURm	Dec 2010	Dec 2011	Growth
Revenue Gross Profit	6,863 2,051	8,826 2,590	29% 26%
EBITDA	245	185	-24%

Superstroy performed well for the year ended 31 December 2011 and, like other Russian retailers, it has had a very strong first quarter of the year. Sales grew year on year by 29% from RUR6.9 billion to RUR8.8 billion and gross profit 26% from RUR2.1 billion to RUR2.6 billion.  EBITDA was down 24% from RUR 245 million to RUR185 million principally due to the opening of its largest store in Yekaterinburg in April 2011 which incurred large preopening costs and other non recurring project costs of approximately RUR70 million.  Without these one off costs EBITDA would have risen by 4% to RUR255 million.

For the first 3 months of 2012 Superstroy had 21% growth in revenues from RUR1.614 billion for the same period in 2011 to RUR1.952 billion in 2012 with like-for-like growth of 8%. Due to the seasonality of the DIY market in Russia, the first quarter of the year is the weakest.  March 2012 YTD EBITDA is slightly negative at -RUR2.2 million however it has performed very well against a budget of -RUR24 million and against March 2011 YTD of -RUR64 million.  The company outperformed its net income budget by RUR46.5 million or approximately £1 million in the first quarter showing a loss of -RUR51.9 million against its budget for the period of -RUR98.4 million.

The company's net debt stood at RUR774 million at 31 March 2012, RUR187 million less than the RUR961 million on 31 March 2011.

Unistream

Unistream's year end unaudited accounts for the year ended 31 December 2011 showed the following:

RUR m	2010	2011	Growth
Volumes (bn)                   Revenue	119.4 2,078	137.7 2,325	15% 12%
Op Income EBITDA	961               67	1,166            167	21%     149%

Unistream grew its volumes by 15% in 2011 from RUR119.4 billion to RUR137.7 billion and its revenue by 12% from RUR2.1 billion to RUR2.3 billion.  Unistream had its most profitable year yet showing profit before tax of RUR135 million up 256% from RUR36.6 million in 2010.  EBITDA was up from RUR67 million to RUR167 million.

In the first three months of 2012 volumes continued to grow at 15% from RUR25.0 billion to RUR28.8 billion. Total revenues were RUR476 million increasing 9% compared to the prior year period. Unistream's operating income grew by 8% YoY driven mainly by the growth of volumes though its own points of sale which grew at 17.6%.  For the first 3 months of the current  year the company showed a loss of RUR50 million compared to a loss of RUR30 million over the same period in 2011. The increased size of the first quarter loss is primarily related to increases in costs related to growth, however, the budget for 2012 shows continued growth in profitability over 2011. Due to seasonality the company has always registered a loss in the first quarter of the year.  The first quarter is always the weakest quarter of the year as many new immigrants come to Russia once the construction season starts.

Unistream has now distributed c. 1.3 million loyalty cards to its customers.   The company is securing distribution through retailers and is strengthening its internet, mobile phone and payment terminal offerings. 

Money transfer through retail chains such as the mobile phone retailers in Russia has been an area of enormous growth over the past 12 months.  According to Unistream's management it now accounts for approximately 25% of the total money transfer market in Russia and by the end of 2012 could be as high as 35-40%.  To date Unistream has not been in this market but rather in the traditional bank market. However, the company is now entering the retail market and has won two important tenders to distribute its money transfer product through Megafon which operates 1500 retail stores in Russia and Rostelecom which has 2000 locations and is one of the largest retailers in Russia.

Unistream grew its outbound market share by 1.2% to 16.9% in Q4 2011.

The company has no debt.

Flexinvest Bank

Assets RURm	31 Mar 2011	31 Mar 2012
Mortgages Corp loans Credit cards	351 20 0	275 30 138
Other loans	4	1
Cash	124	211
License	126	126*
Bonds Other assets	119 94	47 76
Total Assets	838	903

*held at cost rather than its current value

In the last quarter of 2011 Flexinvest Bank rebranded itself as Flex Bank and began to issue Master Card credit cards and take retail deposits.  The Manager proposed to the Board early last year to revise the bank's strategy from being a mortgage bank to providing a simple credit card product funded with retail deposits.  At 31 March deposits reached RUR 160 million and the limit on its credit card portfolio reached RUR 210 million. The strategy has been a great success and the bank has already surpassed its 2012 budget on deposits and its July 2012 budget on its credit card portfolio.  At 24 April 2012, Flex Bank had 1,300 cards outstanding with a total limit of RUR273 million and deposits also at RUR273 million.  The bank outsources where possible and has an internet banking offering.  All of its credit card customers now come through the internet and the bank has the ability to scale its business without any further investment at this stage.

Enquiries:
Aurora Russia Limited
Geoff Miller	[phone]
Numis Securities Limited
Nominated Adviser: Hugh Jonathan	[phone]
Corporate Broking: Rupert Krefting / Nathan Brown
FTI Consulting
Ed Gascoigne-Pees	[phone]
Jack Hickey

 

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