Trading Update

RNS Number : 0576G

Aurora Russia Limited

06 May 2011

 



6 May 2011

AURORA RUSSIA LIMITED

Trading Update

Aurora Russia Limited ('Aurora Russia' or the 'Company') today announces a trading update ahead of its year-end results for the twelve months ended 31 March 2011 which are expected to be released in June 2011.  

Highlights for the period include:

-        OSG continues its expansion and the company now has 42 warehouse facilities in 7 countries. Its revenue grew 31% in the year ending 31 March 2011.

-        Unistream had c.20% market share in Russia-outbound transfers in 2010. Unistream's volumes grew 23% year-on-year ("YoY") in Q1 2011.

-        Superstroy is the leading DIY company in the Urals Region of Russia.  It grew its revenues by 30% YoY in Q1 2011 following growth of 17% YoY in 2010.  Superstroy has just opened one of the largest DIY hypermarkets in Russia.

-        Flexinvest Bank issued a total of RUR 50.3 million in mortgages in 2010. It is expanding its product line to include a credit card product and has received approval from Master Card to issue its cards.

-        Kreditmart's broker fees were RUR28 million in 2010, representing a 116% increase YoY. However, the market for broking mortgages remains challenging.

Update on the Russian economy

According to official statistics published by RosStat, Russian GDP grew 4% in 2010. The IMF has recently improved its Russian GDP growth forecast for 2011 to 4.8% compared to its January prediction of 4.5%. Inflation is a concern for policymakers with recent high commodity prices causing a spike in inflation in February 2011 of 9.5% YoY.  The rouble hit 27.8 RUR/$ at the end of April (a two and a half year high) appreciating 8.5% since the beginning of 2011. The strength of the rouble is positive for companies such as OSG and Superstroy who have foreign exchange costs for racking and inventories respectively.

Updates on Investee Companies

OSG

OSG changed its year end to 31 March (the same as Aurora's year end) when Aurora purchased a majority stake in the company. Unaudited accounts for the year ending 31 March 2011 show an increase in revenues over the year ending 31 March 2010 of 31% from £11.3 million to £14.8 million. EBITDA grew to £2.1 million up 24% YoY. Q1 2011 saw revenues grow 33% over Q1 2010, with services expanding 50% YoY and storage 17% YoY.

Due to OSG's financial performance it is increasingly able to fund its capital expenditure in Russia and Poland, i.e. its racking, and currently does this through finance leases. As of 31 March 2011, the outstanding balance of finance leases was £2.8 million.

OSG's current storage capacity, once fully racked, allows for a more than 50% increase in the number of boxes stored.

OSG remains the largest records management company in Russia, Ukraine and Kazakhstan. The company continues to expand in the CIS with new warehouses in Yerevan in Armenia and Minsk in Belarus.  Currently the company has 42 warehouse facilities in 7 countries. We continue to believe in the prospects for a profitable exit from OSG and are actively pursuing options to secure value for Aurora Russia shareholders.

Unistream Bank

Unistream's year-end unaudited accounts to 31 December 2010 show that the company transferred RUR119.4 billion in 2010, 2% more than in 2009. Revenues for the same period were RUR2.1 billion, a 10% decrease compared to 2009 due to lower commissions being charged as a result of increased competition in the Russian/CIS market. Despite the difficult market conditions, Unistream had similar EBITDA as in 2009. In Q1 2011 Unistream reported a 23% increase in volumes YoY, 16% growth in the number of transactions and a 7% growth in the average transaction value.

Unistream is leading the way in some of the non-traditional money transfer channels such as transfers via mobile phone and through self-operated payment terminals, which, though representing only 3% of the total volume, continue to show strong double-digit growth rates month-over-month. Unistream's loyalty programme, launched in August 2010, continues to show positive results with more than 0.5 million active loyalty cards as of 20 April 2011. So far, statistics show that of the cards issued up to the end of December 2010 c.60% were used at least once by the end of April 2011 in money transfer transactions.

Unistream continues to be the leading money transfer company in Russia with c. 20% market share in Russia-outbound and c.12% in Russia-inbound remittances in 2010. Russia continues to need migrant labour to fill jobs, particularly in construction and we expect future growth in the construction market, spurred on partly by projects related to the winter Olympics in 2014 and the FIFA World Cup in 2018.

The company has recently entered into a strategic partnership with a Russian software development and payment processing company to ensure that it has access to cutting edge technology. This will be instrumental in providing the company and its partners with an integrated solution for payments though the internet, ATM's, payment terminals and a payment kiosk network.

We believe that Unistream has developed a fundamentally sound business which is well positioned to benefit from the continuation of Russian economic growth.

Superstroy

Superstroy's unaudited accounts for the year ending 31 December 2010 showed revenues of RUR6.9 billion, representing an increase of 17% over 2009 revenues.  In 2010 the company was profitable with YoY EBITDA margin 1.3 points higher than the previous year.  In Q1 2011 revenues grew 30% YoY, reaching RUR1.6 billion with like-for-like revenue growth of 19%.

As an illustration of how the construction industry has turned the corner in the Urals, Superstroy's wholesale revenue showed 66% growth in Q1 2011 over the same period last year when the construction sector was still in crisis.

Superstroy relies on debt financing to fund its working capital and new store openings. As of March 2011, it had net debt of RUR953 million. The increase in debt is driven mostly by pre-opening costs, investment in working capital and capital expenditure related to the new hypermarket opened in Yekaterinburg. The cost of debt has been decreasing steadily and since September 2010 has dropped from 11% to c.9% p.a. in roubles for 1-2 year maturities.

Superstroy is the leading DIY company in the Urals Region of Russia with 47 stores. To strengthen its leadership position in Yekaterinburg, the capital of the Urals, Superstroy opened its largest store to date on 22 April this year bringing its total trade space to c. 110 thousand m².  In the first few days of trading the store has met expectations.

We believe that Superstroy remains well positioned to benefit from the renewed growth of the DIY market and its leading market position.

Flexinvest Bank

As of 31 March 2011, Kreditmart and Flexinvest had aggregated net assets of £17.6 million, roughly in line with £18.0 million as of 30 September 2010.

Flexinvest Bank is a fully licensed retail bank and is a member of the Russian Government's deposit insurance scheme.  In 2010 the bank continued to issue residential mortgages with a total volume of RUR50.3 million in new loans. In Q1 2011 Flexinvest issued a total of RUR16 million.

Long term wholesale funding for mortgages continues to be expensive in Russia.  For this reason, at the suggestion of the bank's management, the board has decided to expand the business into higher yielding products like credit cards to be financed by short to medium term retail deposits. On 4 May, MasterCard approved the bank as an issuer of its cards. Credit card sales and marketing efforts are scheduled to start in September 2011.  

We expect that the potential benefits to Aurora Russia will become discernible as the bank's expanded product offering is rolled out.

Kreditmart

Kreditmart's year-end unaudited accounts for 2010 had broker revenues of RUR28 million. This represents an increase of 116% compared to 2009 due to the number of mortgage approvals received growing to 230 from 42 in 2009. Despite ending 2010 with an operating loss, Kreditmart was able to reduce this by 40% YoY due to growth in revenue and continuous reduction in costs which included a recent closure of non-performing branches. Q1 2011 saw revenue grow 53% on a like-for-like basis (only Moscow operations).

The Agency for Home Mortgage Lending ("AHML") reports that the volume of mortgages in Russia more than doubled in 2010 to RUR379 billion. AHML forecasts 2011 volumes at RUR580-640 billion, up 53%-69% YoY in line with Q1 growth achieved by Kreditmart.

The mortgage broker market however remains challenging, with the vast majority of mortgages being written by the large Russian state banks at very competitive rates leaving a small percentage available for smaller commercial banks and Kreditmart. We continue to monitor the situation at Kreditmart closely and look at options as to how we can deliver the best value for Shareholders.

Board of Directors

The Board is continuing the process of identifying two new independent non executive Directors and intends to be in a position to announce appointments in advance of the Board's approval of the year-end results.

Improved Disclosure

As part of its continued efforts to improve transparency, Aurora Russia will henceforth issue quarterly trading updates as well as interim and final results. These will be issued within 6 weeks of the end of each quarter of Aurora Russia's financial year.  In addition, Aurora Russia already releases monthly updates on the Russian economy including news on the Russian private equity market and its investee companies. These can be found on the company's website www.aurorarussia.com.

Outlook

Generally speaking, all our businesses should benefit from the return of growth in the Russian economy, which we hope will provide a sound platform for our management to deliver value to Aurora Russia's shareholders. The Manager continues to have discussions with a number of parties regarding strategic options for its investments and will update shareholders if any of these discussions are concluded.

Enquiries:

Aurora Russia Limited

James Cook                            [phone]

John McRoberts                      [phone]

Numis Securities

Hugh Jonathan

Nominated Adviser                              [phone]

Rupert Krefting / Nathan Brown

Corporate Broking                               [phone]/1426

Financial Dynamics

Ed Gascoigne-Pees               [phone]

Jack Hickey                             [phone]

Notes to editors:

Aurora Russia

Aurora Russia floated on the Alternative Investment Market of the London Stock Exchange on 24 March 2006.  The Company was established to make equity or equity related investments in small and mid-sized private Russian companies focused on the financial, business and consumer services sectors where the Directors of Aurora Russia believe there is potential for growth together with viable exit opportunities. The Company provides its investee companies with the necessary capital to continue to expand and develop and hands-on operational support to deliver significant step changes in performance and value creation. 

 

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