review report and interim consolidated financial ......jun 30, 2009 · review report and interim...

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REVIEW REPORT OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS TO THESHAREHOLDERS OF THE RONIN PARTNERS B.V. GROUP ................................................................. 3INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION...................................................... 4INTERIM CONSOLIDATED INCOME STATEMENT.................................................................................. 5INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME............................................. 6INTERIM CONSOLIDATED CASH FLOW STATEMENT........................................................................... 7INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...................................................... 8NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS ................................................ 9

1. Corporate information and principal activities................................................................................. 92. Group’s operating environment.................................................................................................... 103. Basis of preparation..................................................................................................................... 114. Summary of significant accounting policies.................................................................................. 125. New accounting pronouncements................................................................................................ 146. Accounting estimates and assumptions ....................................................................................... 157. Other non-current assets ............................................................................................................. 158. Goodwill ...................................................................................................................................... 159. Financial assets held-for-trading .................................................................................................. 1610. Accounts receivable ................................................................................................................ 1711. Repurchase receivables.......................................................................................................... 1812. Cash and cash equivalents...................................................................................................... 1813. Short-term loans...................................................................................................................... 1914. Share capital ........................................................................................................................... 1915. Accounts payable.................................................................................................................... 2016. Accrued liabilities .................................................................................................................... 2017. Revenue ................................................................................................................................. 2018. Direct costs ............................................................................................................................. 2019. Administrative expenses.......................................................................................................... 2120. Other expenses....................................................................................................................... 2121. Operating leases ..................................................................................................................... 2122. Income tax .............................................................................................................................. 2123. Acquisitions............................................................................................................................. 2224. First-time adoption of IFRS...................................................................................................... 2425. Analysis by segment ............................................................................................................... 2426. Financial risk management...................................................................................................... 2627. Related party transactions....................................................................................................... 2928. Subsequent events.................................................................................................................. 3029. Commitments and contingencies............................................................................................. 30

RONIN Partners B.V.Consolidated financial statements for the six months ended 30 June 2009(All amounts in USD thousand, unless otherwise stated)

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10. ACCOUNTS RECEIVABLE30 June

2009

31 December

2008

Trade receivables 2 851 2 072

Less provision for impairment of trade receivables (29) -

Trade receivables, net 2 822 2 072

Cash deposited with non-bank brokerage firms - 666

Advances paid 175 3

Amounts due from shareholders 140 -

Deposits 104 104

Income tax receivable 54 -

Other receivables 10 4

Total 3 305 2 849

As of 31 December 2008 cash deposited with non-bank brokerage firms in the amount of 666 representsclient funds which are restricted in usage and are payable on demand. As of 30 June 2009 client fundswere deposited in bank brokerage firms or market trading systems and were presented in these interimconsolidated financial statements as cash (see Note 12, Cash and cash equivalents).

The book value of trade receivables adjusted for doubtful debt provision approximates its fair value lessimpairment losses.

Trade receivables include accounts receivable from related parties to the amount of USD 260 (see Note 27,Related Party Transactions).There were no accounts receivable from related parties as at 31 December2008.

The table below presents the analysis of trade, other receivables and advances as at 30 June 2009 with thebreakdown by maturity date and listing provisions for a possible default on obligations:

Less than

3 months

3-6

months

6-9

months

9-12

months

1-3

years

Over 3

yearsTotal

Trade receivables 2 811 - 3 - 37 5 2 856

Provision forimpairment of

trade receivables

- - (1) - (28) (5) (34)

Trade

receivables, net2 811 - 2 - 9 - 2 822

Other receivables 10 - - - - - 10

Provision for other

receivablesimpairment

- - - - - - -

Otherreceivables, net

10 - - - - - 10

Advances paid (5) 1 24 56 4 95 175

Total trade and

other receivables2 816 1 26 56 13 95 3 007


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The table below presents the analysis of trade, other receivables and advances as at 31 December 2008with the breakdown by maturity date and listing provisions for a possible default on obligations:

Less than

3 months

3-6

months

6-9

months

9-12

months

1-3

years

Over 3

yearsTotal

Trade receivables 2 072 - - - - - 2 072


trade receivables

- - - - - - -

Trade

receivables, net2 072 - - - - - 2 072

Other receivables 4 - - - - - 4


trade receivables

- - - - - - -

Other

receivables, net4 - - - - - 4

Advances paid 4 - - - - - 4

Total trade andother receivables

2 080 - - - - - 2 080

In estimating the probability of settlement of the accounts receivable, the Group takes into account anychange in the debtor’s credit quality from the date of debt origination until the reporting date.

The largest debtors as at 30 June 2009 are as follows:30 June

2009

31 December

2008

Sposa Investments Ltd 969 552

Maxeum Investments Ltd. 819 496

NPF Transneft 248 -

NPF Autovaz OJSC 213 -

Venture fund of investment and project financing CMF 120 -

Roal Investments Ltd. 22 852

Total 2 391 1 900

11. REPURCHASE RECEIVABLES

As at 30 June 2009 estimated fair value of amounts due under reverse REPO agreements made 128(as at 31 December 2008: no REPO).

The above transactions were denominated in Roubles, the REPO rate was 11% p.a.

12. CASH AND CASH EQUIVALENTS

Cash and cash equivalents as at 30 June 2009 were as follows:

Own funds Client funds Total

USD 36 986 23 336 60 322

Rouble 3 178 3 067 6 245

EURO 555 960 1 515

British Pound 56 - 56

Swiss Frank 4 - 4

Total 40 779 27 363 68 142


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Cash and cash equivalents as at 31 December 2008 were as follows:

Own funds Client funds Total

USD 1 737 3 004 4 741

Rouble 871 1 649 2 520

EURO 29 1 494 1 523

British Pound - - -

Swiss Frank - - -

Total 2 637 6 147 8 784

Client funds include amounts received by the Group’s entities providing brokerage services in order tofacilitate client activities which are deposited in bank brokerage firms and market trading systems. Clientfunds are restricted in usage and are payable on demand.

The Group holds its settlement accounts with the following Banks:

Fitch’s Long-term IDRBalance as at

30 June 2009

Balance as at

31 December 2008

Bank of Cyprus A- 35 000 -

NOMOS-BANK OJSC B+ 25 634 7 856

Bank of Khanty-Mansiysk B+ 5 494 550

Other banks 2 014 378

Total cash and cash equivalents: 68 142 8 784

13. SHORT-TERM LOANS

As of 30 June 2009 and 31 December 2008 the Group had the following unsecured short-term loanspayable.

Currency Interest rate30 June

2009

31 December

2008

Loans with maturity date less

than one year, including:

NOMOS-BANK OJSC EUR 0% 140 141

NOMOS-BANK OJSC USD 0% 50 50

Bakersfield Marketing Ltd. USD 0% - 1 500

Total short-term loans: 190 1 691

The amount of 1 500 was repaid to Bakersfield Marketing Ltd. by promissory note.

Short-term loans of NOMOS-BANK OJSC were repaid in full on 6 August 2009.

14. SHARE CAPITAL

Share capital of the Group consists of 118,000 ordinary shares authorized, issued and outstanding with apar value of 1 EUR. As at 30 June 2009 the issued share capital at par value was 166 (as at 31 December2008 – 25), 100,000 of the total 118,000 shares were not paid in full and the receivables from shareholderswas recognized in the amount of 140.

As at 30 June 2009 share premium of the Group was 50,000 paid by promissory notes.

The Group neither declared nor paid dividends in 2008 and during the 6 months of 2009.


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15. ACCOUNTS PAYABLE30 June

2009

31 December

2008

Client funds 27 425 6 850

Other payables 3 808 3 225

Advances received 19 0

Sundry taxes payable 18 11

Trade payables 1 0

Total 31 271 10 086

Client funds represent cash received by the Group’s entities from clients under the brokerage agreementsin order to facilitate their trading activities, these amounts are payable on demand. The Group holds clientfunds in bank and brokerage accounts separately from its own fund.

Client funds deposited by the Group in banks and market trading systems are presented as cash and cashequivalents, deposited with non-bank brokerage firms - as trade and other receivables (see Note 10,Accounts receivable and Note 12, Cash and cash equivalents).

Other payables include liability to a counterparty of the Promotion agreement in the amount of 3 741 (as at31 December 2008 – 2 995, for more details see Note 18, Direct costs).

As of 30 June 2009 accounts payable to related parties in the amount of 3 680 were disclosed withinamounts due to clients. As of 31 December 2008 there were no accounts payables to related parties (seeNote 27, Related party transactions).

16. ACCRUED LIABILITIES

Accrued liabilities include employees’ bonuses, provisions for vacation and audit expenses. The amountof 35 is denominated in EURO.

17. REVENUE

Brokerage commission received makes up the largest part of the revenue.

Revenue received from related parties is equal to 15 (see Note 27, Related party transactions).

18. DIRECT COSTSFor the six months

ended 30 June 2009

Introductory fees 6 181

Brokerage commissions 383

Depositary services 76

FX conversion services 18

Information services 12

Total 6 670

Introductory fees were charged by the third party (the Promoter), which entered into an agreement withRONIN Europe Ltd. in 2008 to provide introductory services and to promote RONIN Europe Ltd. to potentialclients.

For each client, introduced by the Promoter, that opened an account with RONIN Europe Ltd., the agreedfees should be paid at the rate in the range of 80% - 90% of the total amount of brokerage commissioncharged by RONIN Europe Ltd. For the second and all other years the rate of the introductory fees is to bereduced to 70%.


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19. ADMINISTRATIVE EXPENSESFor the six months

ended 30 June 2009

Staff costs 178

Rent 12

Professional services 74

Software 44

Taxes other than on income 23

Other expenses 71

Total 402

Remuneration of top managers in the amount of 46 is recognized as administrative expenses, as a part ofstaff costs (see Note 27, Related party transactions). The remuneration amount includes both salary andadditional bonus payments. Remuneration of the Management is determined on the basis of employmentagreements.

20. OTHER EXPENSESFor the six months

ended 30 June 2009

Translation differences 84

Currency purchase / sale 33

Total 117

21. OPERATING LEASES

The Group leases premises and parking space under operating lease agreements. Lease expensesreported in the income statement for the six months ended 30 June 2009 made 11.

Future aggregated payments under operating lease agreements are set out below:

30 June

2009

31 December

2008

Within 1 year 514 12

From 1 to 5 years 1 395 -

Total 1 909 12

22. INCOME TAX

The major components of the income tax expense in the interim consolidated income statement are asfollows:

For the six months

ended 30 June 2009

Current tax 136

Deferred tax assets (4)

Total 132

The differences between IFRS and the tax legislation of the countries, where the Group’s companiesoperate, result in temporary differences between the carrying value of assets and liabilities for the purposeof consolidated financial statements and the tax base. Stated below is the tax effect from movements inthose temporary differences calculated at the tax rate of 10% (the Republic of Cyprus) and 20% (theRussian Federation).


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Change in 30 June 2009Acquired with a

company

Movement in the

period

31 December

2008

Prepaid expenses 5 5 - -

Financial assets held-for-trading (25) (25) - -

Accounts receivable 22 22 1 (1)

Accounts payable 69 64 3 3

Total 72 66 4 2

Under the existing Group structure, tax losses and current tax assets of individual Group companies cannotbe set off against current tax liabilities and taxable profit of other Group companies, and thus a tax may becharged even in case of a consolidated tax loss. Therefore, deferred tax assets and liabilities can be offsetonly if those pertain to the same taxpayer.The reconciliation between the computed income tax and the actual income tax expenses is set out below:

For the six monthsended 30 June 2009

Profit before tax 1 267

Computed tax at the rates applied to the Group (127)

Effect of:

Expenses not deductible (5)

Income tax for the period (132)

23. ACQUISITIONS

On the 30 December 2008 the Group acquired 100% of the voting shares of RONIN Europe Ltd., Cyprus.

The fair value of the identifiable assets and liabilities acquired as a result of the transaction were as follows:

Fair value of net assets as of the

acquisition date

ASSETS

Other non-current assets 81

Accounts receivable 2 848

Loans granted 1

Cash and cash equivalents 8 766

Deferred tax assets 2

LIABILITIES

Accounts payable (10 083)

Short-term loans (191)

Accruired liabilities (70)

Total net assets 1 354

Acquired ownership interests 100%

Acquired net assets 1 354

Acquisition value 1 500

Goodwill 146

During the reporting period the Group structure changed as follows:

On the 09 April 2009 the Group established a BVI Business Company RONIN Finance Ltd. with the sharecapital of 35 000.


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On the 30 June 2009 the Group acquired the following entities:

Share capital in USDShare of controlled

equity, in %

Ron in Management Ltd. 100 100

RON IN All Opportunities Fund 1 100

RON IN Geared Fund 1 100

RONIN LLC 1 597 935 98

RONIN Holding CJSC 607 100

RONIN Trust OJSC 3 195 868 81

Effective on those dates, control over the companies transferred to the Group.

The acquisition of 81% of RONIN Trust OJSC share capital is to be approved by Federal AntimonopolyService of the Russian Federation. Due to official circumlocution the subject approval was not obtained bythe Group on the date of financial statements signature. The Management expects the Antimonopolyregulator approval issue on the closest date.

The acquisition was accounted for using the purchase method.

Assets and liabilities acquired as a result of the transactions in the reporting period are set out below:

Fair value of net assets as of the acquisition date

ASSETS

Other non-current assets 204

Financial assets held-for-trading 5 113

Loans granted 128

Accounts receivable 1 205

Cash and cash equivalents 3 619

Deferred tax assets 66

LIABILITIES

Accounts payable (2 612)

Income tax payable (13)

Accruals (364)

Total net assets 7 346

Minority interests 1 058

Acquired net assets 6 288

Consideration paid in promissory notes 13 500

Financial result from acquisitions, including:

Goodwill 7 212

Consideration paid in cash -

Cash and cash equivalents of the acquired subsidiaries 3 619

Net inflow of cash on acquisitions of subsidiaries 3 619

As to the Management’s opinion recognition of RONIN Trust OJSC contingencies in the amount of 9 104(see Note 29, Commitments and contingencies) would misrepresent the financial performance of the Groupin the following reporting periods. Therefore the above contingencies were not recognized in theconsolidated financial statements of the Group on the acquisition date.

The goodwill recognized above is attributed to the expected synergies and other benefits from combiningthe assets and activities of new subsidiaries with those of the Group.

As a result of the above transactions the Group recognized net assets attributable to minority interests inthe amount of 1 058.


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24. FIRST-TIME ADOPTION OF IFRS

The date of the Group’s transition to International Financial Reporting Standards is 31 December 2008.

The Group prepares financial statements for presentation to state authorities where companies areregistered. The accompanying financial statements are different from the financial statements prepared inaccordance with the National accounting standards, because they incorporate the adjustments that are notincluded in the National accounting records of the Group and are required for disclosure of the financialsituation of the Group, and the results of its operations and cash flows in accordance with IFRS.

There are no changes in the Group’s owners’ equity as a result of transition to IFRS:1 January 2009

Owner’s equity in national accounting 15

Total adjustments -

Owner’s equity in IFRS 15

25. ANALYSIS BY SEGMENT

For management purposes, the Group is organized into the following reportable operating segments:

! brokerage services

! asset management services

! investment banking services (M&A advisory, restructuring support, attracting strategic investors andtheir involvement, securities issue etc.)

! trading and principal investments

No operating segments have been aggregated to form the above reportable operating segments. Therewere no operations held by the Group in asset management, investment banking services and trading andprincipal investments during the reporting period.

The information on reportable operating segments is preparing for the Group’s management purposes inaccordance with IFRS.

The following tables present the information regarding the Group’s operating segments for the six monthsended 30 June 2009.

Disclosed by segmentsBrokerage

servicesUnallocated

Adjustments and

eliminationsTotal

For the six monthsended 30 June 2009

Revenue 8 455 - - 8 455

Segment revenue 8 455 - - 8 455

Direct costs (6 670) - - (6 670)

Segment cost (6 670) - - (6 670)

Administrative expenses - (402) - (402)

Segment administrative expenses - (402) - (402)

Other expenses - (103) (15) (118)

Segment other expenses - (103) (15) (118)

Net finance income - 1 - 1

Segment other income - 1 - 1

SEGMENT RESULTS

Profit/(loss) 1 785 (503) (15) 1 267

Income tax - (132) - (132)

Profit/(loss) 1 785 (635) (15) 1 135


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Disclosed by segmentsBrokerage

services

Asset

management

services

Trading and

PrincipalInvestments

UnallocatedAdjustments

andeliminations

Total

Segment assets as of

30 June 2009

Non-current assets

Goodwill - - - 7 358 - 7 358

Other non-current assets - 8 - 280 - 288

Current assets -

Financial assets held-for-trading

- - 5 113 - - 5 113

Accounts receivable 2 203 277 451 376 - 3 307

Intercompany 1 171 1 7 - (1 179) -

Loans granted - - 128 - - 128

Cash and cash equivalents 27 418 - 39 965 759 - 68 142

Deferred tax assets - - - 72 - 72

Total assets at

30 June 200930 792 286 45 664 8 846 (1 179) 84 407

Segment assets as of31 December 2008

Non-current assets

Goodwill - - - 146 - 146

Other non-current assets - - - 81 - 81

Current assets - - - - - -

Accounts receivable 2 738 - - 110 - 2 848

Loans granted - - - 1 - 1

Cash and cash equivalents 6 147 - 2 526 111 - 8 784

Deferred tax assets - - - 2 - 2

Total assets at

31 December 20088 885 - 2 526 450 - 11 861

Segment liabilities as of30 June 2009

Current liabilities

Accounts payable 31 238 - - 33 - 31 271

Intercompany liabilities 1 162 - - - (1 162) -

Income tax payable - - - 149 - 149

Short-term loans - - - 190 - 190

Accrued liabilities - - - 450 - 450

Total liabilities at

30 June 200932 400 - - 822 (1 162) 32 060

Segment liabilities as of

31 December 2008

Non-current liabilities

Current liabilities

Accounts payable 10 058 - - 28 - 10 086

Short-term loans - - - 1 691 - 1 691

Accrued liabilities - - - 70 - 70

Total liabilities at31 December 2008

10 058 - - 1 789 - 11 847


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The summary below presents the revenue originated from the top 3 clients of the Group in the reportingperiod:

Maxeum Investments Ltd. & Royal Investments Ltd., Cyprus 4 348

Sposa Investments Ltd., Cyprus 3 480

Midheta Management Ltd., Cyprus 115

Others 513

Total revenue: 8 456

26. FINANCIAL RISK MANAGEMENT

(a) Risk management function

The risk management function within the Group is carried out in respect of major types of risks: credit,market, liquidity and operational risks. Overall management of those risks is performed at the holding’slevel by ensuring a proper coordination between the risk management units of the Group’s operatingcompanies.

Risk management committee of RONIN Europe Ltd. comprising Executive director, General managerand Risk manager is ultimately responsible for risk monitoring and implementation of risk mitigationmeasures while the daily functions of risk management are performed by the risk manager. In its riskmanagements policies RONIN Europe Ltd. follows the guidelines formulated in directives of CYSEC,including Capital requirements and Large Exposure directives.

RONIN LLC and RONIN Trust OSJC are firms regulated by the Federal Financial Markets Service,Russia (FFMS) and follow FFMS’s regulation in their risk management policies.

RONIN’s LLC risk management functions are performed by an internal controller whose main task is toavoid and mitigate conflict of interest situations and make sure that the company is in compliance withthe corresponding regulation.

RONIN Trust CJSC has a risk management manager whose tasks include

! formulating risk management measures for portfolios under management tailor made torequirements of each portfolio outlined in the corresponding investment declaration.

! managing risks of investing on its own account

The Group’s risk management policies are designed to identify and analyse these risks, to setappropriate risk limits and controls, and monitor the risks and limits. The main risk managementprocedures in respect of particular types of risk currently used by the Group and risk evaluations aredescribed below. Presently the Group’s risk assessment and management policies are not formalized ina document form as each company of the Group has internal guidelines compliant with thecorresponding regulations.

(b) Operational risks

The operational risks include the capital, reputation, legal risks and the risk of a client funds sufficiency.

The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and marketconfidence and to sustain future development of its business. The Group is subject to minimum capitalrequirements established by CySEC and FFMS which apply to parts of the Group in Cyprus and Russiacorrespondingly.

Under the current capital requirements set by CySEC CIFs have to maintain a ratio of capital to riskweighted assets (Capital Adequacy Ratio) above 8%. The ratio of RONIN Europe Ltd as of 30 June2009 stood at 10.52% (as at 31.12.2008 20.97%).

FFMS requires investment and asset management firms to maintain capital not less than 40m Roublesand 60m Roubles respectively.

The capital adequacy is closely monitored by Group’s management and shareholders. If the abovecapital requirements are raised by the authorities as may be expected the Group possesses sufficientcapital to increase the share capital of entities to ensure their compliance.


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Reputation risk is the risk from a possible association of the Group with the activities of its customer. Inorder to mitigate the reputation risk the Group has Know Your Customer (KYC) procedures in place,also the Group has a very selective approach to choosing its customers. The Management of the Groupestimates the reputation risk as low.

Legal risk is the risk of financial losses, including fines and other penalties, which arise from non-compliance with laws and regulations as a result of weakness in the legal framework or from insufficientanalysis of legal issues during transaction documentation preparation. Some companies of the Groupare present in jurisdictions where the regulation of financial firms is rapidly developing. The risk islimited to a significant extent due to the presence of an internal lawyer and compliance officers in theGroup.

Funds sufficiency risk. The Group does not finance trading operations of its clients, so when accepting aclient order a check of the client funds sufficiency is performed. In the case of exchange based orderswhereas orders are being received and processed automatically the funds sufficiency is being checkedby the software (the Transaq programme). In case of OTC orders the control is being carried out by asales officer and a trader independently. The Group has not received any losses due to this risk in thereporting period.

(c) Credit risk

Credit risk is the risk of losses as a result of non-performance, late or partial performance by a debtor ofits contractual financial obligations to the Group.

The Group is not engaged in lending to either its clients or third parties and bears no correspondingcredit risks.

Trading activities of the Group on behalf of its clients and its own involve settlement risk which ariseswhen a counterparty becomes unable to meet its obligations under an OTC trade. The Group settlesmost of its OTC transactions on delivery versus payment terms through Russian and internationalsettlement/clearing agents to ensure that a trade is settled only when both parties have fulfilled theircontractual settlement obligations. Acceptance of settlement risk on free delivery transactions requires aspecific and/or counterparty specific approval by the Group’s top Management.

The Group’s back office regularly monitors the settlement reports so that it always has actualinformation on the status of settlement including the lists of unsettled transactions. If a counterparty failsto meet its obligation beyond some reasonable time the back-office asks the manager in charge of thetransaction to take an action to mitigate this risk.

The Group is exposed to the credit risks of bond issuers as disclosed in Note 11, Financial assets held-for-trading. The Group mitigates this risk through diversification of its portfolio.

The total credit risk of the Group arising from unsecured receivables and bonds as of the reporting datedoes not exceed 8 546.

The Group holds funds in accounts with Russian, Cyprus and international banks. Only banks of highcredit quality qualify to hold the Group’s funds. Each new bank for account opening is to be approved bythe Group’s shareholders and should satisfy the following conditions:

! bank should possess sufficient financial strength

! the Group’s Management should have understanding of the bank’s financial situation and itsdecision making process

The Group also limits its exposure to bank risk by limiting share of funds kept in any particular bank.Theinformation about Long-term Issuer Default rating (IDR) assigned by Fitch Ratings to the Group’s banksare disclosed in Note 12, Cash and cash equivalents.

(d) Market risk

Market risk is the risk that movements in market prices, including foreign exchange rates, interest ratesand equity prices will have an adverse affect on the Group’s income or the value of its financialinvestments. Market risk arises from open positions in interest rate, fixed income, currency and equityfinancial instruments, which are subject to general and specific market movements and changes in thelevel of volatility of market prices.


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The Group is exposed to the market risk through its bond portfolio as disclosed in Note 11, Financialassets held-for-trading. The bonds in the portfolio as of the reporting date had maturity dates fromNovember 2009 to May 2019. The market risk of the portfolio was as follows: if the interest rates in thelocal market increased (decreased) by 100 bps, the market value of the portfolio woulddecrease (increase) by 48.

The Group manages market risks by setting limits on:

! concentrations of exposure to individual issuers of fixed income securities as well as exposure byindustry/sector etc.

! open positions in currencies

The Management sets limits on the value of risk that may be accepted, which is monitored on a dailybasis. However, the use of this approach does not prevent losses in the event of more significantmarket changes.

(e) Currency risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreignexchange rates. Currency risk mainly results from open foreign currency positions, i.e. situations when anentity’s assets and liabilities denominated in a currency that is not the entity’s measurement currencyare unbalanced.

The Group is exposed to currency risk with regard to ordinary activities and deposits denominated incurrencies other than the functional currencies of the respective Group entities.

In particular, the Group is exposed to USD/RUR and USD/EUR exchange rate fluctuations. The Group’sManagement monitors the exchange rate fluctuations on a continuous basis and acts accordingly.

The financial instruments (monetary assets and liabilities except advances) denominated in currenciesother than functional currencies of the Group’s entities as at the reporting and comparative dates wereas follows:

As at 30 June 2009 USD Rouble EUROGreat

BritainPound

Swiss

francTotal

Own fund 4 2 145 555 56 3 2 763

Client fund 45 526 961 - - 1 532

Trade and otherreceivables

- 1 663 108 - - 1 771

Total monetary financial

assets50 4 334 1 623 56 3 6 067

Other payables - 9 20 - - 29

Client funds - 1 105 1 495 56 3 2 660

Short-term loans - - 140 - - 140

Accrued liabilities - - 35 - - 35

Total monetary financial

liabilities- 1 114 1 690 56 3 2 864

Net balance sheetposition

50 3 220 (67) - - 3 203


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As at 31 December 2008 Rouble EURO Total

Own fund 29 871 900

Client fund 1 494 1 649 3 143

Trade receivables 1 787 126 1 913

Total monetary financial assets 3 310 2 646 5 956

Other payables 213 17 229

Short-term loans - 141 141

Accrued liabilities -

Total monetary financial liabilities 213 158 370

Net balance sheet position 3 098 2 488 5 586

Stated below is an effect on the profit or loss and equity as a result of a 3% weakening (strengthening)of foreign currencies against the 1 USD:

30 June 2009

Effect on profit/(loss) and equity after 3% weakening of Rouble (181)

Effect on profit/(loss) and equity after 3% strengthening of Rouble 181

30 June 2009

Effect on profit/(loss) and equity after 3% weakening of EURO (16)

Effect on profit/(loss) and equity after 3% strengthening of EURO 16

(f) Interest rate risk

Interest rate risk is the risk that movements in interest rates will have an adverse affect on the Group’srevenue or the value of its portfolios of financial instruments. At the reporting date the Group was notdirectly exposed to the interest rate risk.

(g) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations from its financialliabilities. The Group’s liabilities to clients are always fully covered by the client funds held in bank andbrokerage accounts. The Group’s other liabilities are normally fully covered by funds held in the ownaccounts of the Group, also the financial instruments which the Group invests as principal are highly liquid.Thus the Group is not exposed to the liquidity risk.

27. RELATED PARTY TRANSACTIONS

For the purpose of the preparation of these consolidated financial statements parties are considered relatedif one of them is capable to control the other party or may exert significant influence on financial andoperating decisions of the other party, as defined in IAS 24, Related party disclosures. In consideringrelations with each related party, attention is directed to the economic substance of such relations and notmerely the legal form.

Throughout the period from 31 December 2008 to 30 June 2009 the Group made a number of transactionswith related parties in the course of its ordinary activities. For the most part these transactions were madeat market rates.

Related party transactions are disclosed in Note 15, Accounts payable and Note 17, Revenue.


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28. SUBSEQUENT EVENTS

On 15 July 2009 NM-Trust OJSC was renamed to RONIN Trust OJSC following its take-over by the Group.

On 14 September 2009 Concord CJSC was renamed to RONIN Holding CJSC.

Company names were changed in line with the Group’s corporate policy of promoting the RONIN brand.

The Management does not have information on any other events after the reporting date which must bedisclosed in these consolidated financial statements or notes thereto.

29. COMMITMENTS AND CONTINGENCIES

Being a provider of financial services to its clients which include brokerage and asset management servicesthe Group holds client assets including cash, securities and other in bank and depo accounts. Financialinstruments held in such accounts on behalf of clients or in a fiduciary capacity are not included in thesefinancial statements.

As at 30 June 2009 the Group held financial instruments on behalf of its clients according to brokerageagreements with market value of 719 273 (as at 31 December 2008: 137 305 )

On 30 June 2009 the Group obtained control of RONIN Trust CJSC offering asset management services onthe Russian market. As of that day the amount of financial instruments held in a fiduciary capacity byRONIN Trust CJSC was equal to 237 080 (as at 31 December 2008: nill).

In the normal course of business, the Group enters into agreements to manage funds of private andcorporate clients without potential liability in respect of any losses suffered by the clients as a result ofcommon risks of investing and owning of the securities, except if resulting from gross negligence or willfuldefault of the Group. However in asset management agreements with private pension funds the Groupguaranteed to its clients the return of the principal amount transferred under such agreements and in somecases of income at the effective rate of return up to 6% p.a.

Due to the financial crisis of 2008 some private pension fund portfolios under the management of RONINTrust OJSC suffered losses which created contingent liabilities of RONIN Trust OJSC amounting to 9 104as of 31 December 2008. RONIN Trust OJSC entered into agreements with its clients as to recover lossesfrom future profits. As on 30 June 2009 the unrecovered losses did not exceed 3 392, on 30 September2009 – 959. The Management expects that following the recovery of debt markets during 2009 the Groupwill have no contingent liabilities at 31 December 2009.

As at 30 June 2009 the Group had no legal disputes or proceedings with counterparties or officialauthorities significantly material to be disclosed in these financial statements.

review report and interim consolidated financial ......jun 30, 2009 · review report and interim...

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