Rolf Group International Financial Reporting ... - Irish Stock Exchange

U.S.$250,000,000 

Colgrade Limited 

(incorporated under the laws of Cyprus) 

8.25 per cent. Guaranteed Notes due 2010 

unconditionally and irrevocably guaranteed by the Guarantors (as defined herein) 

Issue Price: 100 per cent. 

Colgrade Limited, a company incorporated with limited liability in Cyprus (the ‘‘Issuer’’), is issuing U.S.$250,000,000 in aggregate 

principal amount of 8.25 per cent. Guaranteed Notes due 2010 (the ‘‘Notes’’) to be unconditionally and irrevocably guaranteed 

(each a ‘‘Guarantee’’, and together, the ‘‘Guarantees’’) by Limited Liability Company ‘‘S. Petrov’’, Limited Liability Company 

‘‘ROLF Estate St Petersburg’’, Limited Liability Company ‘‘ROLF Import’’, Limited Liability Company ‘‘ROLF-VOSTOK’’, 

Limited Liability Company ‘‘ROLF KHIMKI’’, Limited Liability Company ‘‘Carlain’’, Limited Liability Company ‘‘ROLF-YUG 

Co., Ltd’’, Limited Liability Company ‘‘SP DIAMANT’’, Limited Liability Company ‘‘AC-SEVER’’, Limited Liability Company 

‘‘ROLF PDC’’, Limited Liability Company ‘‘ROLF PDC ESTATE’’, Limited Liability Company ‘‘ROLF-City’’, Limited Liability 

Company ‘‘ROLF-ALTUFIEVO’’, Limited Liability Company ‘‘ROLF-Oktiabrskaya’’, Limited Liability Company ‘‘ROLF Lahta 

M’’, Limited Liability Company ‘‘ROLF Lahta P’’, Limited Liability Company ‘‘Zvezda Stolici’’, Limited Liability Company 

‘‘ROLF Pronto’’, Closed Joint Stock Company ‘‘ROLF ESTATE’’, Closed Joint Stock Company ‘‘ROLF Holding’’, Closed Joint 

Stock Company ‘‘SP ROLF’’ (each incorporated in the Russian Federation as a limited liability company or, as the case may be, a 

joint stock company) and Delance Limited, a company incorporated with limited liability in Cyprus (unless and until any such entity 

may be released as a Guarantor pursuant to Condition 2(b), each a ‘‘Guarantor’’, and together, the ‘‘Guarantors’’, which term shall 

include any Further Guarantors appointed pursuant to Condition 2(b)). Pursuant to, as more fully described in, and subject to 

certain provisions set out in Condition 2(b), the Issuer may appoint additional Guarantors and/or release Guarantors from their 

obligations under the Notes and the Trust Deed. 

The Notes and the Guarantees will be constituted by, be subject to, and have the benefit of, a trust deed to be dated 28 June 2007 

(the ‘‘Trust Deed’’) between the Guarantors, the Issuer and Citibank N.A., London Branch as trustee (the ‘‘Trustee’’), for the 

holders of the Notes from time to time (the ‘‘Noteholders’’). 

Interest on the Notes will be payable semi-annually in arrear in equal instalments on 28 June and 28 December in each year 

commencing on 28 December 2007 as described under ‘‘Terms and Conditions of the Notes—Interest’’. The Notes will bear interest 

of 8.25 per cent. per annum. Unless previously redeemed or cancelled, the Notes will be redeemed at their principal amount on 

28 June 2010. Except as set forth herein (see ‘‘Taxation’’), payments in respect of the Notes will be made without any deduction or 

withholding for or on account of taxes of Cyprus or the Russian Federation or any political sub-division thereof or therein having 

power to tax. The Notes may be prepaid at their principal amount, together with accrued interest, at the option of the Issuer, upon 

the Issuer being required to deduct or withhold any Cypriot taxes from payments to be made by them in respect of the Notes or 

pursuant to the Conditions. 

AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE ‘‘RISK FACTORS’’ BEGINNING ON 

PAGE 17. 

Application has been made to the Irish Financial Services Regulatory Authority (‘‘IFSRA’’), as competent authority under 

Directive 2003/71/EC (the ‘‘Prospectus Directive’’), for the prospectus to be approved. Application has been made to the Irish Stock 

Exchange Limited (the ‘‘Stock Exchange’’), for the Notes to be admitted to the Official List and trading on its regulated market. 

The Notes and the Guarantees have not been, and will not be, registered under the United States Securities Act of 1933, as amended 

(the ‘‘Securities Act’’). The Notes are being offered outside the United States by the Managers (as defined in ‘‘Subscription and 

Sale’’) in accordance with Regulation S under the Securities Act (‘‘Regulation S’’), and may not be offered or sold within the United 

States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, 

the registration requirements of the Securities Act. 

The Notes will be in registered form in denominations of U.S.$100,000 and multiples of U.S.$1,000 in excess thereof. The Notes will 

be represented by a global registered certificate (the ‘‘Global Certificate’’) registered in the name of a nominee for, and deposited 

with, a common depositary for Euroclear Bank S.A./N.V. as operator of the Euroclear System (‘‘Euroclear’’) and Clearstream 

Banking, société anonyme (‘‘Clearstream, Luxembourg’’). Definitive registered certificates (‘‘Definitive Certificate’’) evidencing 

holdings of Notes will only be available in certain limited circumstances. See ‘‘Summary of Provisions Relating to the Notes in 

Global Form’’. 

Joint Lead Managers and Joint Bookrunners 

ABN AMRO Citi 

Co-Manager 

COMMERZBANK 

CORPORATES & MARKETS 

26 June 2007

CONTENTS 

IMPORTANT INFORMATION ABOUT THIS PROSPECTUS................................................... 3 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION ........................................ 5 

ENFORCEABILITY OF JUDGMENTS ............................................................................................. 7 

FORWARD-LOOKING STATEMENTS ............................................................................................ 8 

OVERVIEW OF ROLF .......................................................................................................................... 9 

OVERVIEW OF THE OFFERING...................................................................................................... 11 

RISK FACTORS ....................................................................................................................................... 17 

USE OF PROCEEDS............................................................................................................................... 30 

SELECTED CONSOLIDATED FINANCIAL INFORMATION .................................................. 31 

CAPITALISATION.................................................................................................................................. 35 

FINANCIAL REVIEW............................................................................................................................ 36 

BUSINESS DESCRIPTION.................................................................................................................... 48 

MANAGEMENT AND DIRECTORS................................................................................................. 66 

SHAREHOLDING................................................................................................................................... 70 

TRANSACTIONS WITH RELATED PARTIES .............................................................................. 71 

TERMS AND CONDITIONS OF THE NOTES ............................................................................... 72 

SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM............. 91 

SUBSCRIPTION AND SALE................................................................................................................ 93 

TAXATION ............................................................................................................................................... 96 

GENERAL INFORMATION ................................................................................................................ 100 

INDEX TO FINANCIAL STATEMENTS .......................................................................................... F-1 

2 

Page

IMPORTANT INFORMATION ABOUT THIS PROSPECTUS 

This Prospectus comprises a prospectus for the purpose of Article 5 of Directive 2003/71/EC (the 

‘‘Directive’’) and for the purpose of giving information with regard to the Issuer, Delance Limited (the 

‘‘Company’’) and its consolidated subsidiaries taken as a whole including the Guarantors and the Issuer 

(the ‘‘Group’’ or‘‘Rolf’’), the Notes and the Guarantees which according to the particular nature of the 

Issuer, the Guarantors, the Group, the Notes and the Guarantees is necessary to enable investors to make 

an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of 

the Issuer, the Guarantors and the Group. The Issuer and each Guarantor accepts responsibility for the 

information contained in this document. To the best of the knowledge and belief of the Issuer and each 

Guarantor (having taken all reasonable care to ensure that such is the case), the information contained in 

this document is in accordance with the facts and does not omit anything likely to affect the import of 

such information. 

No representation or warranty, express or implied, is made by any of the Managers (as defined in 

‘‘Subscription and Sale’’), the Trustee or any of their affiliates or any person acting on their behalf as to 

the accuracy or completeness of the information contained in this document, and none of such persons 

has attempted to verify such information. Each person receiving this Prospectus acknowledges that such 

person has not relied on the Managers, the Trustee or any of their affiliates or any person acting on their 

behalf in connection with its investigation of the accuracy or completeness of such information or its 

investment decision. Each person contemplating making an investment in the Notes must make its own 

investigation and analysis of the creditworthiness of the Issuer, the Guarantors and the Group and its own 

determination of the suitability of any such investment, with particular reference to its own investment 

objectives and experience, and any other factors which may be relevant to it in connection with such 

investment. 

Certain information in relation to the Russian car trading industry and in respect of Rolf’s competitors, as 

well as general data on the Russian economy, has been extracted from information and data publicly 

released by official sources and other sources which the Issuer believes to be reliable. Throughout this 

Prospectus, certain statistics from official sources and other sources have been set forth which the Issuer 

believes to be reliable. The Issuer and each Guarantor accept responsibility for accurately reproducing 

such information, data and statistics but accept no further responsibility in respect of such information, 

data and statistics. Such information, data and statistics may be approximations or estimates or use 

rounded numbers. 

This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer, the 

Guarantors or the Managers to subscribe or purchase any Notes. The distribution of this Prospectus and 

the offering or sale of the Notes in certain jurisdictions may be restricted by law. Persons into whose 

possession this Prospectus comes are required by the Issuer, the Guarantors and the Managers to inform 

themselves about and to observe any such restrictions. In particular, the Notes have not been approved or 

disapproved by the U.S. Securities and Exchange Commission and will not be registered under the 

Securities Act. Subject to certain exceptions, the Notes may not be offered, sold or delivered in the 

United States. For a description of certain further restrictions on offers and sales of Notes and 

distribution of this Prospectus, see the section captioned ‘‘Subscription and Sale’’. 

Neither the Issuer nor the Guarantors intend to provide any post issuance transaction information 

regarding the Notes. No person has been or is authorised in connection with the issue and offering of the 

Notes to provide any information or to make any representation not contained in this Prospectus and any 

information or representation not so contained must not relied upon as having been authorised by or on 

behalf of the Issuer, the Guarantors, the Trustee or the Managers. The delivery of this document at any 

time does not imply that the information contained in it is correct as at any time subsequent to its date. 

Without limiting the generality of the foregoing, the contents of the Rolf Group’s website as at the date 

hereof or as at any other date do not form part of this prospectus (and, in particular, are not incorporated 

by reference herein). 

Neither the delivery of this Prospectus nor the offering, sale or delivery of any Note shall in any 

circumstances create any implication that there has been no adverse change, or any event reasonably 

likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer, the 

Guarantors or the Group since the date of this Prospectus. 

In connection with the issue of the Notes, ABN AMRO (the ‘‘Stabilising Manager’’) or any person acting 

on behalf of the Stabilising Manager may over-allot Notes or effect transactions with a view to supporting 

3

the market price of the Notes at a level higher than that which might otherwise prevail. However, there is 

no assurance that the Stabilising Manager (or any persons acting on behalf of the Stabilising Manager(s)) 

will undertake stabilisation action. Any stabilisation action may begin on or after the date on which 

adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at 

any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days 

after the date of the allotment of the Notes. Any stabilisation action or over-allotment shall be conducted 

in accordance with all applicable laws and guidelines. 

None of the Issuer, the Guarantors or the Managers is providing prospective purchasers with any legal, 

business, tax or other advice in this Prospectus. Prospective purchasers should consult with their own 

advisers as needed to assist in making their investment decision and to advise whether they are legally 

permitted to purchase Notes. 

Prospective purchasers must comply with all laws that apply to them in any place in which they buy, offer 

or sell any Notes or possess this Prospectus. Any consents or approvals that are needed in order to 

purchase any Notes must be obtained. The Issuer, the Guarantors and the Managers are not responsible 

for compliance with these legal requirements. The appropriate characterisation of the Notes under 

various legal investment restrictions, and thus the ability of investors subject to these restrictions to 

purchase the Notes, is subject to significant interpretative uncertainties. No representation or warranty is 

made as to whether and the extent to which the Notes constitute a legal investment for investors whose 

investment authority is subject to legal restrictions. Such investors should consult their legal advisers 

regarding such matters. 

The Managers and their affiliates have performed and expect to perform in the future various financial 

advisory, investment banking and commercial banking services for the Issuer, the Guarantors and each of 

their affiliates. 

Copies of this document have been filed with and approved by IFSRA as required by the Prospectus 

Regulations. 

The contents of any websites referred to in this Prospectus do not form part of this Prospectus. 

4

PRESENTATION OF FINANCIAL AND OTHER INFORMATION 

The consolidated financial information of the Group set forth herein, as at and for the years ended 

31 December 2006 and 2005, has been derived from the Group’s audited consolidated financial 

statements for the years ended 31 December 2006 and 2005 (the ‘‘2006 Consolidated Financial 

Statements’’ and the ‘‘2005 Consolidated Financial Statements’’ and, collectively, the ‘‘Consolidated 

Financial Statements’’), in each case prepared in accordance with International Financial Reporting 

Standards as adopted by the European Union (‘‘EU’’) and International Financial Reporting Standards 

as issued by the International Accounting Standards Board (‘‘IASB’’) and the requirements of the 

Cyprus Companies Law, Cap. 113 (‘‘IFRS’’). The Consolidated Financial Statements are set forth 

elsewhere in this Prospectus. 

The audited financial statements of the Issuer for the year ended 31 December 2005 prepared in 

accordance with IFRS are set out in this Prospectus for the purpose of listing in compliance with the 

Prospectus Directive. 

Independent Auditors 

The consolidated financial statements of Delance Limited and its consolidated subsidiaries as at and for 

the years ended 31 December 2006 and 2005, included in this Prospectus, have been audited by 

PricewaterhouseCoopers Limited (‘‘PwC’’), independent auditors, located at Julia House Building, 

3 Themistocles Dervis Street, CY-1066 Nicosia, Cyprus. PwC is registered with the Institute of Certified 

Public Accountants in Cyprus (‘‘ICPAC’’). 

Classification of business divisions 

For IFRS reporting purposes, Rolf has identified two reporting segments – ‘‘distribution’’ and ‘‘retail and 

other’’. Spare parts for Mitsubishi and Hyundai are allocated to distribution since they are sold to the 

same dealers and are considered a group of related products closely derived from the sales of those 

vehicles. Spares sold, and maintenance services provided, are allocated to retail and are considered to be 

a group of related products since they are sold or provided at the same outlets, to the same customers who 

purchase the vehicles, and are derived from the sale of those vehicles. The logistics and financial services 

income streams do not presently meet the criteria for separate reportable segments as they are both 

insignificant in the context of the Group’s total activities, and they have been included in the segment to 

which they more closely relate, based on factors such as their nature and the customers to whom they are 

provided. 

Reclassifications 

In preparing the 2006 Consolidated Financial Statements, several reclassifications were made to the 

corresponding figures as at and for the year ended 31 December 2005: 

. A number of expense lines within the consolidated income statement have been amended to 

conform with the classifications of the year ended 31 December 2006, decreasing gross profit by 

U.S.$9,398 thousand but without changing operating profit. The largest component of this 

reclassification was U.S.$7,409 thousand of spare parts and other expenses relating to the logistics 

function, which are now classified with the spare parts and other expenses under vehicles, 

consumables and services rather than with logistics expenses. 

. In the consolidated balance sheet, U.S.$13,628 thousand was reclassified to current income tax and 

other taxes payable from provisions for liabilities and charges, without changing the total of current 

liabilities as at 31 December 2005. This conforms to the presentation in the year ended 

31 December 2006 in which the Group classifies both current and additional income tax liabilities in 

a single balance sheet line. Also U.S.$9,194 thousand was reclassified from prepayments for vehicles 

to a separate line in the balance sheet, for those vehicles where the risks and rewards of ownership 

had passed to the Group at the balance sheet date, without changing total current assets. 

. In the consolidated cash flow statement, the line in the financing section relating to the movement in 

financing for vehicles in transit was excluded, since it is considered that such transactions are purely 

operating items. This increased net cash from operating activities and decreased net cash from 

financing activities for the year ended 31 December 2005, each by U.S.$35,660 thousand. 

5

Currency 

In this Prospectus, the following currency terms are used: 

. ‘‘U.S. Dollar’’, ‘‘Dollar’’, ‘‘dollar’’, or ‘‘U.S.$’’ means the lawful currency of the United States of 

America; 

. ‘‘RUR’’, ‘‘RR’’, ‘‘RUB’’, ‘‘Rouble’’, or ‘‘rouble’’ means the lawful currency of the Russian 

Federation; and 

. ‘‘Euro’’, ‘‘EUR’’ and ‘‘C’’ mean the lawful currency of the member states of the EU that adopted 

the single currency in accordance with the Treaty of Rome, establishing the European Economic 

Community, as amended. 

Exchange rate information 

The functional currency of the Company and practically all the subsidiaries is the Rouble, as this is the 

currency of the primary economic environment in which the entities of the Group operate. The U.S. 

Dollar is the presentation currency selected by the Company for purposes of its consolidated financial 

reporting. Consequently, assets and liabilities for each balance sheet presented are translated into U.S. 

Dollars (if required) at the closing rate at the date of that balance sheet. Income and expenses are 

translated into U.S. Dollars (if required) using period average exchange rates. Translation differences 

resulting from the use of these exchange rates have been included as a separate component of equity. The 

table below sets forth, for the periods and dates indicated, certain information regarding the exchange 

rate between the Rouble and the U.S. Dollar, based on the official exchange rate quoted by the Central 

Bank of the Russian Federation (the ‘‘CBR’’ or the ‘‘Central Bank’’). Fluctuations in the exchange rate 

between the Rouble and the U.S Dollar in the past are not necessarily indicative of fluctuations that may 

occur in the future. 

High Low 

Period 

average (1) Period end 

RUB per U.S.$1.00 

Year ended 31 December 

2002.................................................................. 31.86 30.14 31.34 31.78 

2003.................................................................. 31.88 29.25 30.69 29.45 

2004.................................................................. 29.45 27.75 28.81 27.75 

2005.................................................................. 29.00 27.46 28.32 28.78 

2006.................................................................. 28.78 26.18 27.19 26.33 

2007 (through 31 May 2007)........................ 26.58 25.69 26.06 25.90 

(1) The average of the exchange rates on the last business day of each month for the relevant annual periods and 

on each business day for which the CBR quotes the Rouble to U.S. Dollar exchange rate for the relevant 

monthly period. 

Until recently, the Rouble was generally not convertible outside Russia. A market existed within Russia 

for the conversion of Roubles into other currencies, but the limited availability of other currencies in 

Russia may have inflated their value relative to the Rouble. From 1 July 2006, the CBR abolished existing 

restrictions on currency operations creating the conditions for the Rouble to become a freely convertible 

currency. At this point, however, it is not yet possible to determine whether, or when, an active 

international market in the Rouble will develop. No representation is made that the Rouble or U.S. 

Dollar amounts referred to herein could have been or could be converted into U.S. Dollars or Roubles, as 

the case may be, at these rates, at any particular rate or at all. 

Rounding 

Some numerical figures included in this Prospectus have been subject to rounding adjustments. 

Accordingly, numerical figures shown as totals in certain tables may not be an arithmetic aggregation of 

the figures that preceded them. 

Legal entities abbreviations 

In this Prospectus, ‘‘LLC’’ means a Limited Liability Company and ‘‘CJSC’’ means a Closed Joint Stock 

Company. 

6

ENFORCEABILITY OF JUDGMENTS 

A significant proportion of the assets of the Group are held by companies organised under the laws of 

Russia, and the Guarantors, other than the Company, are also organised under the laws of Russia. The 

majority of the directors and executive officers of such companies reside in Russia. As a result, it may not 

be possible for investors to effect service of process outside Russia upon such companies, such 

Guarantors or their directors or officers. Moreover, substantially all the assets of the Group, the 

Guarantors and their directors and officers are located in Russia, and it may not be possible for investors 

to enforce in Russia judgments rendered against them, including judgments predicated upon the civil 

liability provisions of the U.S. federal securities laws and English law. Russian courts will recognise 

judgments rendered in jurisdictions outside Russia only if Russia and the jurisdiction rendering such 

judgment have signed and ratified an international treaty providing for the recognition and enforcement 

of civil judgments. If there is such a treaty, Russian courts may nonetheless refuse to recognise and 

enforce a foreign court judgment on the grounds provided in such treaty and in Russian legislation in 

effect on the date on which such recognition and enforcement are sought. Furthermore, Russian law may 

be changed by, among other things, inserting further grounds preventing foreign court judgments from 

being recognised and enforced in Russia. No such treaty exists between Russia and the United Kingdom. 

The Notes and the Guarantees (which are constituted by and subject to the Trust Deed) are governed by 

English law. The Trust Deed provides that any dispute between the parties thereto may be finally settled 

by arbitration in accordance with the Rules of the LCIA, unless the Trustee elects, by notice in writing to 

a Guarantor or the Guarantors, as the case may be, pursuant to the Trust Deed, to have the dispute 

settled by proceedings brought in the courts of England. The seat of any arbitration will be in London, 

England. The United Kingdom and Russia are parties to the United Nations (New York) Convention 

(the ‘‘New York Convention’’) on the Recognition and Enforcement of Foreign Arbitral Awards. 

However, it may be difficult to enforce arbitral awards in the Russian Federation due to the relative 

inexperience of Russian courts in international commercial transactions and political resistance to the 

enforcement of awards against Russian companies in favour of foreign investors. 

7

FORWARD-LOOKING STATEMENTS 

This Prospectus contains ‘‘forward-looking statements’’ that relate to, among other things, the Group’s 

plans, objectives, goals, strategies, future operations and performance. These forward-looking statements 

may be found in various locations. Such forward-looking statements are characterised by words such as 

‘‘anticipates’’, ‘‘estimates’’, ‘‘expects’’, ‘‘believes’’, ‘‘intends’’, ‘‘plans’’, ‘‘may’’, ‘‘will’’, ‘‘should’’ and 

similar expressions but are not the exclusive means of identifying such statements. Such forward-looking 

statements involve known and unknown risks, uncertainties and other important factors that could cause 

circumstances or the Group’s actual results, performance or achievements to be materially different from 

any future circumstances, results, performance or achievements expressed or implied by such statements. 

Such forward-looking statements are inherently based on numerous assumptions regarding, among other 

things: 

. The performance of the Russian economy; 

. Any of the Group’s expansion, divestiture or acquisition plans; 

. The impact of the Group’s expansion on revenue potential, cost basis and margins; 

. The Group’s ability to remain competitive in its industry; 

. The effects of regulatory and fiscal developments and legal proceedings; 

. The Group’s debt and the impact of exchange rate fluctuations; and 

. The Group’s ability to meet obligations and develop and maintain additional sources of financing. 

The Group does not make any representation, warranty or prediction that the results anticipated by such 

forward-looking statements will be achieved, and such forward-looking statements represent, in each 

case, only one of many possible scenarios and should not be viewed as the most likely or standard 

scenario. 

Accordingly, prospective purchasers of the Notes should not place undue reliance on such forwardlooking 

statements. The important factors that could cause the Group’s actual results, performance or 

achievements to differ materially from those in these forward-looking statements include, but are not 

limited to, those discussed in ‘‘Risk Factors’’, ‘‘Selected Financial Review’’ and ‘‘Business Description’’. 

These forward-looking statements speak only as at the date of this Prospectus. The Issuer and the Group 

each expressly disclaim any obligation or undertaking to disseminate after the date of this Prospectus any 

updates or revisions to any forward-looking statements contained herein, whether as a result of any 

change in its expectation with regard thereto, any change in events, conditions or circumstances on which 

any such forward-looking statement is based or otherwise, except as otherwise required by applicable law 

or under the listing guidelines of the Stock Exchange. 

8

OVERVIEW OF ROLF 

Summary 

Rolf is a leading diversified car sales and services business in Russia. In 2006, Rolf sold over 130,000 cars 

in Russia to dealers and directly to customers. Originally established in Moscow in 1991, Rolf has grown 

over recent years in line with the growth of the market for imported foreign cars in Russia and currently 

operates through the five business divisions summarised below. See also ‘‘Presentation of Financial and 

Other Information’’ for explanation of the presentation of the financial information by reporting segment. 

Currently Rolf is a vertically-integrated group of companies consisting of Delance Limited, a Cypriot 

holding company, and its direct and indirect consolidated subsidiaries located primarily in Russia (see 

‘‘Business Description - Organisation Structure and Business Divisions’’). Rolf was established by a 

Russian entrepreneur Sergey Petrov along with several partners. At present, Sergey Petrov is the sole 

beneficiary of Rolf (see ‘‘Shareholding’’). 

For the year ended 31 December 2006, Rolf’s revenues and EBITDA were U.S.$2,728 million and 

U.S.$231 million respectively, compared with U.S.$1,987 million and U.S.$146 million for the year ended 

31 December 2005. 

Business Divisions 

Retail 

Rolf owns and operates 13 large car dealerships located on major thoroughfares in Moscow (and Moscow 

Region) and St. Petersburg, the cities which between them account for two-thirds of all imported cars 

sold in Russia, according to Rolf estimates. Through these dealerships, Rolf retails a diverse brand 

portfolio of cars including Mitsubishi, Hyundai, Ford, Audi, Mazda, Peugeot and Mercedes-Benz. Rolf 

has also made arrangements to sell Toyota and Lexus cars when it opens new dealerships in 2008. Each 

Rolf’s dealership typically retails between one and four brands of car in separate showrooms, and there 

are 21 showrooms in total across the 13 dealerships. The Rolf brand is displayed prominently in these 

dealerships giving Rolf brand awareness in its own right. 

In addition to the retail showrooms, each dealership also has a dedicated car service operation, providing 

repairs, service and bodywork through comprehensive facilities including up to 50 mechanical service 

bays in one dealership and paint and bodywork shops. 

Distribution 

Rolf is the exclusive importer and distributor of new Mitsubishi cars in Russia on behalf of Mitsubishi 

Motors Corporation. In its capacity as exclusive distributor for Mitsubishi Motors Corporation, Rolf 

manages the import of new cars into Russia, organises logistics for car warehousing and transportation, 

supervises brand promotion and designates official status to Mitsubishi dealerships in Russia. Rolf 

distributes Mitsubishi cars to 89 dealers in 63 cities across Russia. Of these 89 dealers, seven are owned by 

Rolf’s retail division and the remainder are independent. Rolf has an exclusive distribution contract with 

Mitsubishi Motors Corporation effective until 2009, and Rolf expects that it will be extended until 2012. 

However, the terms of the extension have not so far been agreed with Mitsubishi Motor Corporation (see 

‘‘Business Description - Operations - Distribution’’ and ‘‘Risk Factors - Rolf may lose its exclusive 

distribution contract with Mitsubishi Motors Corporation’’). Historically, Rolf also benefited from a 

distribution contract with Hyundai Motor Company. 

Spare parts, options and accessories 

Rolf is a leading distributor for car spare parts, options and accessories in Russia. Rolf has an exclusive 

distribution contract for Mitsubishi-branded original spare parts, options and accessories. Rolf has a 

number of non-exclusive contracts for the distribution of specialised branded parts, options and 

accessories, such as Nokian Tyres, Blaupunkt, iPod and Mobil Oil. 

Logistics 

Rolf’s logistics business involves the transportation, customs clearance and warehousing of new imported 

cars in Russia. This business was historically used only to transport cars for Rolf’s own Mitsubishi and 

Hyundai distribution networks. Since 2006, Rolf has entered into new logistics contracts with distributors 

for Volkswagen, Skoda and Mercedes-Benz cars in Russia. Rolf operates its logistics business using its 

own fleet of 172 Mercedes-Benz trucks and up to a further 400 trucks hired on a daily basis. 

9

Financial services 

Rolf through its financial services division LLC ROLF Pronto brokers insurance policies and consumer 

loans for Rolf’s customers. Rolf has agreements with six retail banks and eight insurance companies 

through which customers may obtain car loans and insurance policies. Rolf takes no credit or 

underwriting risk, is not involved in any of the credit or underwriting decisions and generates fee income 

from the provision of such brokerage services. 

Strategy 

Rolf’s key strategic goal is to consolidate and strengthen its position as a leading diversified car retailer, 

distributor and services provider in Russia. Rolf aims to expand its retail dealership network in Moscow 

and St. Petersburg by opening 12 new showrooms by 2011 to take advantage of expected continued strong 

growth in the foreign branded car market in Russia. Six of these showrooms are currently under 

development. Rolf also plans to grow volumes in its distribution business in line with the anticipated 

growth of the market in Russia for foreign imported cars. Rolf plans to grow the logistics division through 

new contracts made with third party car distributors and by investing in the truck fleet. In addition, the 

company aims to capitalise on growth in the car spare parts, options and accessories distribution market 

as demand increases, and also to expand its financial services brokerage business (see ‘‘Business 

Description – Business Strategy’’). 

10

OVERVIEW OF THE OFFERING 

Provisions of the Notes and the Guarantees 

Issuer l Colgrade Limited, a Cypriot company incorporated with limited 

liability under the laws of Cyprus, registered on 21 December 2004, 

registration certificate no. HE155490, at the following address: Julia 

House Building, 3 Themistocles Dervis Street, CY-1066 Nicosia, 

Cyprus. 

Telephone number + 00 357 22 555 000 

The Guarantors l Limited Liability Company ‘‘S. Petrov’’, a company incorporated 

under the laws of the Russian Federation, registered on 2 July 2001, 

registration certificate no. 726.284, at the following address: 

31/7 Altufievskoe Shosse, Moscow, 127410, Russian Federation. 

Telephone number +7 (495) 785 19 58 

l Limited Liability Company ‘‘ROLF Estate St Petersburg’’, a 

company incorporated under the laws of the Russian Federation, 

registered on 11 February 2005, registration certificate no. 

1057810067150, at the following address: 17/6 Vitebskii Prospekt, 

St. Petersburg, 196105, Russian Federation. 


l Limited Liability Company ‘‘ROLF Import’’ a company 

incorporated under the laws of the Russian Federation, registered 

on 12 November 2004, registration certificate no. 1047715058841, at 

the following address: 31/7 Altufievskoe Shosse, Moscow, 127410, 

Russian Federation. 


l Limited Liability Company ‘‘ROLF-VOSTOK’’, a company 


on 18 July 2003, registration certificate no. 1037715056543, at the 

following address: 31/7 Altufievskoe Shosse, Moscow, 127410, 



l Limited Liability Company ‘‘ROLF KHIMKI’’, a company 

l 


on 29 March 2004, registration certificate no. 1045009553577, at the 

following address: Property 21, Leningradskoe Shosse, Khimki, 

Khimki District, Moscow Region, 141400, Russian Federation. 


Limited Liability Company ‘‘Carlain’’, a company incorporated 

under the laws of the Russian Federation, registered on 2 November 

2000, registration certificate no. 125959, at the following address: 

17/6 Vitebskii Prospekt, St. Petersburg, 196105 Russian Federation. 


l Limited Liability Company ‘‘ROLF-YUG Co., Ltd’’, a company 

incorporated under the laws of the Russian Federation, registered on 

23 April 1998, registration certificate no. 059.242, at the following 

address: 27/1 Ulitsa Obrucheva, Moscow, 117630, Russian 

Federation. 


11

l Limited Liability Company ‘‘SP DIAMANT’’, a company 

l 


on 07 December 2004, registration certificate no. 1047715064869, at 




Limited Liability Company ‘‘AC-SEVER’’, a company incorporated 

under the laws of the Russian Federation, registered on 18 April 

2000, registration certificate no. 099.940, at the following address: 



l Limited Liability Company ‘‘ROLF PDC’’, a company incorporated 

under the laws of the Russian Federation, registered on 31 March 

2004, registration certificate no. 1047796207315, at the following 

address: 31/8 Altufievskoe Shosse, Moscow, 127410, Russian 

l 

Federation. 


Limited Liability Company ‘‘ROLF PDC ESTATE’’, a company 


31 March 2004, registration certificate no. 1047796206413, at the 


l 



Limited Liability Company ‘‘ROLF-City’’, a company incorporated 

under the laws of the Russian Federation, registered on 24 October 

2005, registration certificate no. 1057748744283, at the following 

address: 31/7 Altufievskoe Shosse, Moscow, 127410, Russian 

l 

Federation. 


Limited Liability Company ‘‘ROLF-ALTUFIEVO’’, a company 


6 December 2005, registration certificate no. 1507749401478, at the 


l 



Limited Liability Company ‘‘ROLF-Oktiabrskaya’’, a company 


on 6 May 2006, registration certificate no. 5067847004979, at the 

following address: 8/2 Oktiabrskaya Naberezhnaya, St.Petersburg, 

193091, Russian Federation. 


l Limited Liability Company ‘‘ROLF Lahta M’’, a company 



following address: 103 Ulitsa Savushkina, St. Petersburg, 197374, 



12

l Limited Liability Company ‘‘ROLF Lahta P’’, a company 



following address: 103 Ulitsa Savushkina, St. Petersburg, 197374, 



l Limited Liability Company ‘‘Zvezda Stolici’’, a company 






l Limited Liability Company ‘‘ROLF Pronto’’, a company 


on 23 December 2004, registration certificate no. 1047797022790, at 




l Closed Joint Stock Company ‘‘ROLF ESTATE’’, a company 


on 6 April 1999, registration certificate no. 001.161.665, at the 




l Closed Joint Stock Company ‘‘ROLF Holding’’, a company 


on 5 November 1998, registration certificate no. 001.103.637, at the 


l 



Closed Joint Stock Company ‘‘SP ROLF’’ a company incorporated 

under the laws of the Russian Federation, registered on 13 December 

1993, registration certificate no. 027.752, at the following address: 1 

Vishnevskogo Ulitsa, Moscow, 127434, Russian Federation. 


l Delance Limited a Cypriot company incorporated with limited 

liability under the laws of Cyprus, registered on 13 September 2004, 

registration certificate no. HE152052, at the following address Julia 

House Building, 3 Themistocles Dervis Street, CY-1066 Nicosia, 

Cyprus. 

Telephone number + 00 357 22 555 000 

As of 31 December 2006, the Guarantors accounted (i) for 82.95 per 

cent. of the Group’s consolidated total assets and for 69.35 per cent. 

of the Group’s consolidated total revenues and (ii) for 94.58 per cent. 

of the consolidated total assets and 100 per cent. of the consolidated 

total revenues of the Group excluding CJSC Carnet 2000 (‘‘Carnet 

2000’’), a company in which Rolf holds a 60 per cent. stake that 

historically benefited from a distribution contract with Hyundai 

Motor Company; such distribution contract is expected to end later 

this year (see ‘‘Business Description – Operations – Distribution’’); 

pursuant to Condition 18 of the Notes, other than in certain 

circumstances, for the purposes of Condition 5(n) of the Notes, the 

consolidated total revenue of the Group and the consolidated total 

13

assets of the Group shall each be calculated excluding Carnet 2000. 

Changes to Guarantors Pursuant to, as more fully described in, and subject to certain 

provisions set out in Condition 2(b), the Issuer may appoint 

additional Guarantors and/or release Guarantors from their 

obligations under the Notes and the Trust Deed 

Offering U.S.$250,000,000 8.25 per cent. Guaranteed Notes due 2010 in 

reliance on Regulation S under the Securities Act 

Trustee Citibank N.A., London Branch 

Principal Paying Agent and 

Transfer Agent 

Citibank N.A., London Branch 

Registrar Citibank N.A., London Branch 

Irish Paying Agent and Transfer 

Agent 

Citibank International PLC, Dublin Branch 

Issue Price of Notes 100 per cent. of the principal amount of Notes 

Issue Date 28 June 2007 

Maturity Date 28 June 2010 

Interest The Notes bear interest from 28 June 2007 at the rate of 

8.25 per cent. per annum payable semi-annually in arrear on 

28 June and 28 December in each year 

Status The Notes constitute unsecured and unsubordinated obligations of 

the Issuer and shall at all times rank pari passu and without 

preference among themselves, all as more fully described in ‘‘Terms 

and Conditions of the Notes – Status’’ 

Form The Notes will be issued in registered form in the denomination of 

U.S.$100,000 or higher integral multiples of U.S.$1,000 in excess 

thereof and will be represented by the Global Certificate. The Global 

Certificate will be exchangeable for Definitive Certificates in the 

limited circumstances specified in the Global Certificate 

Initial Delivery of Notes On or before the Issue Date, the Global Certificate will be deposited 

with Citibank, N.A., London Branch as a common depositary for 

Euroclear and Clearstream, Luxembourg. The Notes will be 

registered in the name of Citivic Nominees Limited as common 

nominee for such clearing systems 

The Guarantees The payment, when due, of all sums expressed to be payable by the 

Issuer under the Trust Deed and the Notes has the benefit of the 

unconditional and irrevocable guarantees of the Guarantors (see 

‘‘Terms and Conditions of the Notes – Guarantees and Status – 

Guarantees’’). The Guarantees constitute unsecured and 

unsubordinated obligations of each Guarantor 

Redemption at the Option of the 

Issuer 

The Issuer may redeem all, but not some only, of the Notes at any 

time at the Applicable Premium (as defined in Condition 7(b) 

together with interest accrued to the date fixed for redemption 

Tax Redemption The Issuer may redeem all, but not some only, of the Notes at their 

principal amount, together with interest accrued to the date of 

redemption, in the event that certain changes in taxation in Cyprus 

result in additional payments being required, as further described in 

‘‘Terms and Conditions of the Notes – Taxation’’ 

Withholding Tax All payments in respect of the Notes and the Guarantees by or on 

behalf of the Issuer and the Guarantors will be made free and clear 

of, and without deduction or withholding for or on account of, any 

present or future taxes, duties, assessments or governmental charges 

14

of whatever nature imposed, levied, collected, withheld or assessed 

by or on behalf of Cyprus or the Russian Federation or any political 

subdivision or any authority thereof or therein having the power to 

tax, other than as required by law. In such event, the sum payable by 

the Issuer, or as the case may be, the Guarantor or Guarantors will 

be required (subject to certain exceptions) to be increased to the 

extent necessary to ensure that the Noteholders receive the sum 

which they would have received had no such deduction or 

withholding been required. See ‘‘Terms and Conditions of the 

Notes – Taxation’’ 

Negative Pledge So long as any amount remains outstanding under the Notes, each of 

the Issuer and the Company shall not, and shall not permit any 

Subsidiary (as defined in the Notes) to, directly or indirectly, create, 

incur, assume or suffer to exist any Liens, other than Permitted Liens 

(as each such term is defined in the Notes), on any of its or their 

assets, now owned or hereafter acquired, or any income or profit 

therefrom, securing any other Indebtedness (as defined in the Notes), 

unless, at the same time or prior thereto, the Notes are secured 

equally and rateably with such other Indebtedness 

Certain Other Restrictions and 

Covenants 

The Notes will contain certain covenants made by the Issuer and the 

Guarantors, including in respect of the incurrence of indebtedness, 

transactions with affiliates, making restricted payments, maintenance 

of authorisations, maintenance of property, payment of taxes, 

maintenance of insurance, financial information, change of 

business, ranking of claims, maintenance of ratings and guarantors 

and mergers and disposals, all as fully described in the Notes and the 

Guarantees 

Events of Default For a description of certain events that will permit acceleration of the 

Notes, see ‘‘Terms and Conditions of the Notes – Events of Default’’. 

Upon acceleration of the Notes as a consequence of any such event, the 

Notes will become immediately due and repayable at their principal 

amount, together with interest accrued to the date of redemption. 

Use of Proceeds The net proceeds of the issue of the Notes by the Issuer are expected 

to be approximately U.S.$248 million after deduction of a 

Further Issues 

management and underwriting and selling concession and other 

expenses relating to the offering of the Notes. The net proceeds will 

be applied by the Issuer to repay its existing indebtedness under a 

U.S.$350 million credit facility agreement dated 20 December 2005, 

as amended and restated on 12 December 2006 provided to the Issuer 

by a syndicate of banks (see ‘‘Use of Proceeds’’) 

The Issuer may from time to time, without the consent of the 

Noteholders, create and issue further Notes on the same terms as 

existing Notes and such further Notes shall be consolidated and form 

a single series with such existing Notes 

Ratings The Notes are rated ‘‘Ba3’’ by Moody’s Investors Service, Inc. and 

‘‘BB-’’ by Standard and Poor’s Ratings Service. A rating is not a 

recommendation to buy, sell or hold securities and may be subject to 

revision, suspension or withdrawal at any time by the assigning rating 

organisation. Similar ratings on different types of notes do not 

necessarily mean the same thing. The ratings do not address the 

likelihood that the principal on the Notes will be prepaid or paid on a 

particular date before the legal final maturity date of the Notes. The 

ratings do not address the marketability of the Notes or any market 

price. Any change in the credit ratings of the Notes could adversely 

affect the price that a subsequent purchaser will be willing to pay for 

the Notes. The significance of each rating should be analysed 

independently from any other rating 

15

Listing Application has been made to IFSRA, as competent authority under 

the Prospectus Directive for this Prospectus to be approved. 

Governing Law 

Application has been made to the Irish Stock Exchange for the 

Notes to be admitted to the Official List and trading on its regulated 

market 

The Notes will be governed by English law. 

Selling Restrictions United Kingdom, United States, the Russian Federation, Cyprus, 

Hong Kong, Singapore and Italy. See ‘‘Subscription and Sale’’ 

Security Codes ISIN: XS0307754654 

Common Code: 030775465 

16

RISK FACTORS 

An investment in the Notes involves a high degree of risk. Potential investors should carefully consider the 

following information about these risks, together with the information contained in this Prospectus, before 

deciding to buy Notes. If any of the following risks actually occur, the Group’s business, financial condition 

or results of operations and, accordingly, the ability to service payment obligations under the Notes could 

be adversely affected. In that case, the value of the Notes could decline and potential investors could lose all 

or part of their investment. 

The Group has described the risks and uncertainties that it believes are material, but these risks and 

uncertainties may not be the only ones faced. Additional risks and uncertainties, including those which the 

Group currently does not know or has deemed immaterial, may also result in decreased revenues, increased 

expenses or other events that could result in a decline in the value of the Notes. 

Risks related to Rolf’s business and the car trading industry 

Rolf’s business margins may be adversely affected by manufacturers’ worldwide financial performance 

and/or the decline of manufacturers’ businesses 

Rolf’s distribution and retail businesses are dependent upon distribution and retail contracts agreed with 

particular car manufacturers and their respective distributors. Russia is a smaller part of the worldwide 

car market in comparison with Europe, the USA and certain Asian economies. Therefore the business 

activities and policies of major international car manufacturers in Russia may be affected by their 

financial performance in other car markets around the world. Adverse changes in the financial 

performance of the car industry as a whole or any particular manufacturer may cause one or a number of 

manufacturers to withdraw certain car models from the Russian market, or to exit the market completely. 

There can be no assurances that the manufacturers of cars sold by Rolf will not choose this course of 

action in the event that their worldwide financial performance deteriorates, even if their sales in Russia 

through Rolf’s retail business continue to be profitable. Further, major international car manufacturers 

may decide to reduce the margins currently retained by distributors and dealers, thereby reducing Rolf’s 

distribution or retail margins. A reduction in the supply of foreign imported cars from, the withdrawal of 

particular models of, or a total exit from the Russian car market by, a major car manufacturer with whom 

Rolf has a distribution or, as the case may be, dealer contract, as well as a general increase in 

manufacturer’s prices could adversely affect Rolf’s business, operating results, financial condition and 

prospects. 

The car trade market in which Rolf operates may be affected by shortage in supply from manufacturers 

Rolf’s distribution and retail businesses are expanding and are expected to continue to expand in future. 

However, expansion of the distribution and retail business lines is dependent upon receiving an adequate 

supply of new imported foreign cars from major international car manufacturers. Demand in Russia for 

imported foreign cars is high, and currently outstrips supply. In addition, the Russian car market 

competes with other car markets in Europe, the USA and Asia for the supply of cars from manufacturers. 

The supply of new imported cars is, and may be in the future, limited by manufacturers’ marketing 

policies, their production abilities and logistics bottlenecks. Accordingly, the Russian car market is 

characterised by undercapacity, with lengthy waiting times for new cars. In addition, international car 

manufacturers’ production may be disrupted by industrial action carried out by their workforce, leading 

to delays in the production of new cars. There can be no assurances that the supply of new imported 

foreign cars will increase uninterrupted at a sufficient rate in order to keep pace with demand in Russia or 

that competing demand from other markets will not affect the supply from manufacturers to the Russian 

market. Rolf’s ability to grow its distribution and retail businesses in line with increased demand may 

therefore be restricted by this lack of supply capacity. 

Rolf may lose its exclusive distribution contract with Mitsubishi Motors Corporation 

Rolf has the exclusive distribution agreement with Mitsubishi Motors Corporation for Russia (see – 

‘‘Business Description – Operations – Distribution’’). This agreement is due to expire in 2009. Whilst Rolf 

has had a commercial relationship with Mitsubishi Motors since 1991, there can be no assurances that 

Mitsubishi Motors Corporation will extend the exclusive distribution agreement with Rolf on the same or 

similar terms or that Mitsubishi Motors Corporation will not terminate this exclusivity agreement prior to 

2009, leaving Rolf with part of, or no share in, future distribution arrangements. This may have a negative 

material effect on Rolf’s business, as it may be difficult to agree similar distribution agreements with any 

other foreign car manufacturers, many of whom use wholly owned subsidiaries rather than third parties to 

17

distribute their cars. In addition, even if Rolf offsets the risk of the potential loss of profits following 

termination of the exclusive distribution agreement with Mitsubishi Motors Corporation by expanding 

other divisions of the business, there can be no assurance that such an expansion would generate 

comparable profits. Therefore an early termination of such distribution agreement or a failure to extend 

the exclusive distribution agreement with Mitsubishi Motors Corporation on similar terms could 

adversely affect Rolf’s business, results of operations, financial condition and prospects. 

Undercapacity resulting from logistics bottlenecks or import and customs restrictions 

Rolf’s distribution and retail businesses are dependent upon the import of foreign cars through sea ports 

in Finland. There are very few European ports which are (i) adequately equipped to keep large numbers 

of imported cars in storage (ii) operational during the winter time and (iii) located sufficiently close for 

transport to Moscow and St. Petersburg. The choice of sea and land methods of transport to supply the 

Russian automobile market is limited by a number of factors, including long distances, customs barriers, 

high transportation costs and shortage of railway cars designed for safe automobile transportation. 

In addition, if due to economic, environmental or any other reasons the Finnish government chose to 

impose restrictions or additional tariffs on the transit of cargo through its ports to Russia, this could have 

a negative material effect on Rolf’s business, results of operations, financial condition and prospects. If 

such restrictions or additional tariffs were imposed, Rolf may experience difficulty and delay in finding 

alternative import arrangements of an equivalent cost. Accordingly, this could affect Rolf’s ability to 

supply cars to its customers and could adversely affect Rolf’s business, operating results, financial 

conditions and prospects. 

Changes in consumer taste or of the reputation of a particular manufacturer, may adversely affect sales of 

cars by Rolf 

Sales of foreign cars in Russia are dependent on the ability of the manufacturers and the distributors to 

meet customer demand through adequate product offering, efficient marketing leading to the customers’ 

brand awareness and manufacturers’ pricing policy (see ‘‘– Risk Factors – Rolf’s business margins may be 

aversely affected by manufacturers’ worldwide financial performance and/or the decline of manufacturers’ 

businesses’’). Consumer preferences are difficult to predict and may change rapidly as the new models of 

vehicles are made available in the Russian market and a result of marketing activities of competing 

distributors and dealers of other brands. 

Particular brands distributed and sold by Rolf may experience a decline in popularity as a result of poor 

marketing, or the entry into the market of, or increased presence of, rival brands. In addition, there can 

be no assurances that particular brands distributed and/or retailed by Rolf will not suffer damage to their 

reputation as a consequence of adverse publicity concerning issues such as safety and reliability, or as a 

consequence of product liability claims made by customers (see ‘‘Risk Factors – Rolf faces the risk of 

product liability claims and associated adverse publicity’’). In such an event, demand for the cars 

distributed and/or retailed by Rolf could drop, adversely affecting Rolf’s business, operating results, 

financial condition and prospects. 

The markets in which Rolf operates are highly competitive and competitive pressures may reduce Rolf’s 

margins 

Competition in the markets for car distribution and retail, car servicing, the sale of spare parts, options 

and accessories and logistics is high. Rolf’s competitors include international and national car distributors 

and retailers, spare parts distributors, car servicers and providers of logistics services. Rolf’s long-term 

growth is dependent upon the impact of competition. Rolf faces competition in all aspects of its business 

operations, and there can be no assurance that Rolf will be able to compete effectively and economically 

with domestic and international competitors, some of which may have greater financial, distribution, 

technical, personnel, purchasing and marketing resources. Car distributors and retailers, car servicers, 

spare parts, options and accessories suppliers, and suppliers of logistics services generally compete on a 

variety of bases including: location, quality of dealerships and showrooms, quality and timely supply of 

cars, service, price, and brand promotion. Rolf’s ability to compete depends on its ability to maintain and 

remodel existing dealerships, tailor the range of cars it sells to consumers and successfully promote both 

its own brand and the brand of the cars it sells, as well as offer competitive prices and services. Rolf’s 

operating results will be significantly impacted if Rolf is required to engage in aggressive price 

competition with Rolf’s principal competitors. Accordingly, competitive pressures may reduce Rolf’s 

margins, and could have a material adverse effect on its business, results of operations, financial condition 

and prospects. 

18

Rolf faces the risk of product liability claims against manufacturers of the products it sells, and associated 

adverse publicity 

The sale of cars, spare parts, options and accessories manufactured by others entails an inherent risk of 

product liability claims, product recalls and associated adverse publicity. Such products may contain 

mechanical or design faults that may, in certain cases, result in injury or death if they are not identified 

and eliminated by the manufacturer in question. Even an inadvertent sale of faulty products may lead to 

product liability claims asserted against manufacturers and/or require product recalls. There can be no 

assurance that such claims will not be asserted against manufacturers in the future, or that such recalls 

will not be necessary. In addition, even if a product liability claim against a manufacturer is not successful 

or is not fully pursued, the negative publicity surrounding any assertion that the products Rolf sells 

caused injury or death could have a material adverse effect on demand for these products with existing 

and potential customers, and therefore on Rolf’s business, results of operations, financial condition and 

prospects. 

Rolf’s success depends on the expertise of its directors and senior management and on its ability to attract, 

retain and motivate qualified personnel 

Rolf believes its continued success largely depends on the collective abilities and efforts of its senior 

management (see ‘‘Management and Directors’’). Rolf is not insured against any financial loss that may 

be incurred in the event of the resignation or dismissal of its key managers. Any loss of several key 

personnel within a short space of time could have a material adverse effect on Rolf’s business, financial 

condition, results of operations and prospects. Additionally, Rolf’s future success will depend, in part, on 

its ability to continue to attract, retain and motivate qualified personnel. Competition in Russia for 

personnel with relevant expertise is intense due to the shortage of trained and sufficiently qualified 

individuals, particularly skilled managers, mechanics, salesmen, accounting personnel and information 

technology personnel. The failure by Rolf to manage its personnel needs successfully could have an 

adverse effect on its business, results of operations, financial condition and prospects. 

The expansion of Rolf’s retail business is dependent upon its ability to find appropriate real estate on 

commercially acceptable terms, protect its real property rights, construct new dealerships and find 

appropriate funding to do so 

Rolf’s ability to expand its retail business is dependent on identifying and obtaining title over appropriate 

land plots (either by way of leasing or purchasing such land plots) that are suitable for its needs on 

commercially reasonable terms, as well as constructing commercial property (including show-rooms and 

warehouses) in such sites in a timely and cost efficient manner. The market for property in Moscow and St 

Petersburg is highly competitive and, when economic conditions are favourable, competition for, and 

therefore the cost of, high-quality sites and premises may increase. To date, Rolf has relied on a team of 

experienced real estate specialists to identify and secure sites for dealerships. However, if Rolf fails to 

identify and secure sites for dealerships for any reason, including competition from third parties seeking 

similar sites and premises, its anticipated growth may be adversely affected. Even if Rolf procures the 

rights to suitable sites and premises, it may experience difficulty or delay in obtaining approvals from the 

municipal authorities required to undertake construction and to secure Rolf’s rights to the use of 

dealerships or to refit or refurbish those dealerships. Consequently, there can be no assurance that Rolf 

will successfully identify, lease and/or purchase suitable properties on acceptable terms or whenever 

required, and failure to do so could have an adverse effect on Rolf’s business, results of operations, 

financial condition and prospects. In addition, Rolf’s business requires significant levels of capital to 

finance its expansion. In order to continue expanding its business, Rolf will continue to need access to 

capital. To the extent that its own funds are insufficient, Rolf may need to raise additional funds through 

financings or curtail its growth. If Rolf cannot obtain adequate capital on favourable terms or at all, this 

could have a material adverse effect on its business, operating results, financial condition and prospects. 

Rolf may suffer a shortage of skilled contractors able to build new dealerships on time 

In Rolf’s operating and target markets, there is a shortage of skilled contractors able to build new 

dealerships on time, without cost over-runs and in compliance with Rolf’s quality and timing 

requirements. To date, Rolf has been able to obtain suitably qualified and skilled contractors through 

the use of tender processes. However, there can be no assurance that Rolf will be able to continue to find 

such contractors using such a process to allow it to build and deploy new dealerships on time and without 

cost over-runs. As a result, Rolf may not be able to meet its target expansion plans, and this could have an 

adverse negative effect on its business, results of operations, financial condition and prospects. 

19

Rolf may fail to fulfil the terms of its licences, permits, certificates and other authorisations, or fail to renew 

them on expiry, or there may be changes in licence requirements 

Rolf believes that it is properly licensed to carry on its business. Rolf’s licences, permits, certificates and 

other authorisations include certificates for imported cars, cross-border transportation licence and 

authorisations and permits in relation to acquisition or leasing of land plots and certain construction 

activities. Rolf’s licences, permits, certificates and other authorisations, together with the relevant 

Russian legislation, contain various requirements that must be complied with in order to keep such 

licences, permits, certificates and other authorisations valid. If Rolf fails to comply with the requirements 

of applicable Russian law, or fails to meet the terms of Rolf’s licences, permits, certificates or other 

authorisations, then licences, permits, certificates and other authorisations necessary for its operations 

may be suspended or terminated, which could have a negative material effect on Rolf’s business, results 

of operations, financial condition and prospects. Also, Rolf cannot be certain whether any new local or 

federal licence requirements will be introduced or that any given licence, permit, certificate or 

authorisation will be deemed sufficient by the competent governmental authorities for the operation of its 

business, nor can Rolf be certain that it will be able to obtain, in a timely fashion or at all, the necessary 

licences, permits, certificates and other authorisations necessary for the operation of its business. 

Accordingly, these factors may affect Rolf’s ability to obtain or renew necessary licences, permits, 

certificates and authorisations. If it is unable to obtain or renew them or is only able to do so with newly 

introduced material restrictions, this could have an adverse effect on Rolf’s business, results of 

operations, financial condition and prospects. 

The disposable income of Rolf’s target consumer market may be reduced 

Rolf’s target market primarily consists of consumers in Russia’s emerging middle class with enough 

disposable income to afford a foreign branded car, either for cash or by means of a consumer loan. Rolf 

believes that the number of consumers in this target group has increased over the last five years because 

of dynamic growth in real middle class income. However, consumer spending is dependent on general 

economic conditions and may be adversely affected in the event of economic instability or a reduction in 

the Russian GDP per capita. In periods of economic uncertainty, customers tend to reduce spending, 

especially on items that are of a more luxury nature such as cars, and as a consequence, Rolf’s results of 

operations, financial condition and prospects could suffer. In addition, even where the general level of 

customers’ income is not reduced, customers may prefer to apply a significant part of their income to 

satisfy other needs. For example, if the government’s policy or economic changes were to make 

residential property prices in Moscow and St Petersburg more affordable for customers, disposable 

income could be redirected from cars and other disposable goods to housing. As a result, Rolf’s 

distribution and retail businesses, results of operations, financial condition and prospects could be 

adversely affected. 

The Russian government may increase tariffs or regulatory requirements on imported cars 

Rolf’s distribution and retail businesses are effected by the level of regulation of import of foreign cars 

into Russia. The Russian government exercises considerable authority over the import of foreign goods. 

There can be no assurances that the Russian government will not increase tariffs on the import of foreign 

cars, which would either increase the cost of the car to the consumer, decrease the profitability to Rolf as 

it absorbed some of this or both. In addition, the Russian government may increase regulatory 

requirements on the import of foreign cars. These regulatory requirements could relate to standards, the 

issuance and renewal of permits and monitoring compliance with the terms thereof. Compliance with 

such increased regulatory requirements may be costly and time-consuming and may result in delays in the 

continuation of Rolf’s operations. Any such decisions, laws or requirements relating to the increase in 

tariffs on, or the imposition of regulatory requirements upon, imported cars may adversely affect Rolf’s 

ability to conduct its operations or to do so with the same degree of profitability. 

20

Risks Relating to Rolf’s Financial Condition and Regulatory Risks 

Rolf’s indebtedness or the enforcement of certain provisions of its financing arrangements could adversely 

affect Rolf’s operational and financial condition 

As at 31 December 2006, Rolf had U.S.$358 million of total borrowings, including U.S.$350 million 

indebtedness under a credit facility agreement dated 20 December 2005, as amended and restated on 

12 December 2006 (the ‘‘Secured Syndicated Loan Facility’’) secured by pledges and mortgages over 

assets of a number of entities of the Group (see ‘‘Business Description – Funding’’). 

Among other things, Rolf’s indebtedness could potentially (i) limit its ability to obtain additional 

financing, (ii) limit its flexibility in planning for, or reacting to, changes in the markets in which it 

competes, (iii) place it at a competitive disadvantage relative to its competitors with less indebtedness, 

(iv) lead to a partial or complete loss of control over its key subsidiaries or properties, (v) render it more 

vulnerable to general adverse economic and industry conditions, or (vi) require it to dedicate all or a 

substantial part of its cash flow to service its debt. 

Rolf’s ability to make payments on its indebtedness depends upon its ability to maintain its operating 

performance at a certain level, which is subject to general economic and market conditions and to 

financial, business and other factors, many of which Rolf cannot control. If Rolf’s cash flow from 

operating activities becomes insufficient, Rolf may take certain actions, including delaying or reducing 

capital or other expenditures in an attempt to restructure or refinance its indebtedness, selling its 

investment properties or other assets or seeking additional equity capital. Rolf may be unable to take any 

of these actions on favourable terms or in a timely manner. Furthermore, such actions may not be 

sufficient to allow Rolf to service its debt obligations in full and, in any event, may have a material 

adverse effect on its business. Rolf’s inability to service its debt through internally generated cash flow or 

such other sources of liquidity may put it in default of its obligations to its creditors. If Rolf defaults on its 

obligations to its creditors, certain enforcement provisions of its financing arrangements could be 

implemented, which may have a material adverse effect on Rolf’s business. 

Rolf’s management information system, as well as its system of internal controls, may be inadequate to 

support Rolf’s future growth 

Rolf’s management information system, financial reporting function and system of internal controls may 

be less developed in certain respects than those of automobile traders or other retailers in more 

developed markets and may not provide Rolf’s management with as much or as accurate information as 

those in more developed markets. In addition, Rolf may encounter difficulties in the ongoing process of 

implementing and enhancing its management information system. A failure by Rolf to maintain an 

adequate management information system, financial reporting function and system of internal controls 

may have a material adverse effect on Rolf’s business, financial condition, prospects and results of 

operations. 

A number of Rolf’s subsidiaries, including certain Guarantors, have negative net assets or net assets lower 

than the amount of their respective charter capitals and therefore may be subject to an order to reduce their 

charter capital or be liquidated 

Russian law requires a limited liability company or a joint stock company to reduce its charter capital if 

the value of its net assets according to stand-alone financial statements prepared under Russian 

Accounting Standards is lower than its charter capital as of the end of the second or any further financial 

year following the incorporation of such entity. If such entity fails to comply with this requirement within 

a reasonable period of time, a court may order its liquidation. Where the value of the net assets of a 

limited liability company or a joint stock company as of the end of the second or any further financial year 

following the incorporation is lower than the minimal statutory amount of the charter capital, a court may 

order its liquidation. 

As of the date of this Prospectus, a number of Rolf’s subsidiaries, including eleven Guarantors have, and/ 

or by the end of 2006 had, net assets lower than their respective charter capitals or even negative net 

assets. Whilst four of such Guarantors are entities established in 2006, seven of them, namely Limited 

Liability Company ‘‘ROLF Import’’, Limited Liability Company ‘‘ROLF-City’’, Limited Liability 

Company ‘‘ROLF-ALTUFIEVO’’, Limited Liability Company ‘‘ROLF PDC ESTATE’’, Limited 

Liability Company ‘‘AC-SEVER’’, Limited Liability Company ‘‘S.Petrov’’ and Closed Joint Stock 

Company ‘‘SP ROLF’’, were set up earlier than in 2006, and therefore they breach the Russian law 

requirement described above. There is a possibility that the Russian tax authorities, other authorities, 

and/or third parties could apply to order any of these subsidiaries, including any of the Guarantors, to 

reduce their charter capital, in which case the respective shareholders of such subsidiaries could be liable 

21

to make further capital contributions to remedy the irregularity, or be put into liquidation. Liquidation of 

any of these subsidiaries, including any of the Guarantors, will reduce the comfort derived from the 

Guarantees and could lead to interruptions of some of Rolf’s business lines, which could have a material 

adverse effect on Rolf’s business, financial condition and results of operations and will also constitute an 

Event of Default (as defined in the Notes). 

Rolf believes that the breach of law by a number of its subsidiaries as described above is not connected 

with the financial condition of the Group and is a technical matter resulting from the recent developments 

of the Group’s corporate structure and dynamic growth of the Group’s business operations. Rolf believes 

that the risk of liquidation of its certain subsidiaries on the grounds described above is residual. Rolf 

expects that the breach of law as described above will be removed in the course of 2007. 

Rolf bears the risk of currency fluctuations, in particular between the Rouble and the U.S. Dollar and 

between Rouble and Euro 

Although Rolf prices cars distributed to dealers or sold to retail customers in U.S. Dollars, it is required 

to effectively settle car sale transactions in Roubles. Rolf’s major expenses are denominated in 

U.S. Dollars and Euros and Rolf’s financial statements are presented in U.S. Dollars. Thus, Rolf is 

potentially subject to fluctuations of the U.S. Dollars against Rouble and Euro. There can be no 

assurance that Rolf will be able to match its expenses and revenues in Roubles and U.S. Dollars or Euros 

(as the case may be) or otherwise avoid or minimise the effect of exchange rate fluctuations between the 

U.S. Dollar and Rouble or Euro (as the case may be) in the future. However, given that the currency risk 

is of short-term nature, Rolf does not employ any specific hedging measures. Accordingly, such exchange 

rate fluctuations could have a material adverse effect on Rolf’s business, results of operations, financial 

condition and prospects. 

Risks Related to the Russian Federation 

Rolf is a Russian business, and virtually all of its assets are located in the Russian Federation. There are 

certain risks associated with an investment in the Russian Federation: 

Risks related to Investments in Emerging Markets 

Investors in emerging markets such as the Russian Federation should be aware that these markets are 

subject to greater risk than more developed markets, including in some cases significant legal, economic 

and political risks. Investors should also note that emerging economies such as the economy of the 

Russian Federation are subject to rapid change and that the information set out herein may become 

outdated relatively quickly. Accordingly, investors should exercise particular care in evaluating the risks 

involved and must decide for themselves whether, in light of those risks, their investment is appropriate. 

Generally, investment in emerging markets is only suitable for sophisticated investors who fully 

appreciate the significance of the risks involved, and investors are urged to consult with their own legal 

and financial advisors before making an investment in the Notes. 

A worsening of the political climate in the Russian Federation may have a material adverse effect on Rolf’s 

business, financial condition, results of operations and prospects 

Political conditions in the Russian Federation were highly volatile in the 1990s, as evidenced by the 

frequent conflicts among executive, legislative and judicial authorities which negatively impacted Russia’s 

business and investment climate. While Russia’s current President, Vladimir Putin has maintained the 

stability of the Russian federal government (the ‘‘Government’’) and introduced policies generally 

oriented towards the continuation of economic development and modernisation, there can be no 

assurances that there will be no material changes to Government policies or to economic regulation. The 

‘‘United Russia’’ party supporting President Putin has gained the majority of seats in the State Duma (the 

lower chamber of the Russian parliament). Furthermore, since 2005, the Russian sub-federal election 

system has been reformed. Currently the heads of sub-federal executive authorities are nominated by the 

President and appointed by the respective sub-federal legislature. However, Rolf’s business, financial 

condition, results of operations or prospects could be materially affected if political instability recurs or if 

the current Government’s policies are reversed or lose effectiveness. In particular, a new wave of political 

instability might be triggered by the forthcoming presidential election in 2008. 

In addition, ethnic, religious, historical and other divisions have, on occasion, given rise to tensions and, in 

certain cases, military conflict. Russian military and paramilitary forces have been engaged in the 

Chechen Republic in the recent past and continue to maintain a presence there. Russia has suffered a 

number of terrorist attacks, including suicide bombings, bombings of two domestic passenger flights and 

22

hostage-taking at a school in Beslan, Russia, resulting in significant loss of life and damage to property. In 

addition, in October 2005, terrorists conducted a co-ordinated series of attacks on police and other 

government buildings in Nalchik, Kabardino-Balkaria and low-level terrorist attacks have continued 

since then from time to time. Any future acts of terrorism or armed conflicts in the Russian Federation or 

internationally could have an adverse effect on the financial and commodity markets and the global 

economy in general and Rolf’s financial results in particular. 

Legislation to protect against nationalisation and expropriation may not be enforced in the event of a 

nationalisation or expropriation of Rolf’s assets 

Although the Russian government has enacted legislation to protect property against expropriation and 

nationalisation and to provide for fair compensation to be paid if such events were to occur, there can be 

no certainty that such protections will be enforced should Rolf’s property be expropriated or natonalised. 

This uncertainty is due to several factors, including the lack of state budgetary resources, the lack of an 

independent judicial system and sufficient mechanisms to enforce judgments, and corruption among 

Russian state officials. 

The concept of property rights is not well developed in the Russian Federation and there is little 

experience in enforcing legislation enacted to protect private property against nationalisation and 

expropriation. As a result, Rolf may not be able to obtain proper redress in the courts, and may not 

receive adequate compensation if, in the future, the Russian Government decides to nationalise or 

expropriate some or all of Rolf’s assets. While management considers that Rolf’s assets are not liable to 

be nationalised or expropriated, any expropriation or nationalisation of any of Rolf’s assets without fair 

compensation may have a material adverse effect on Rolf’s business, financial condition, results of 

operations and/or prospects. 

Economic Risks 

The Russian economy is less stable than those of most Western countries 

Since the dissolution of the Soviet Union in 1991, Russia’s society and economy have been undergoing a 

rapid transformation in the context of the Russian Government’s inconsistent attempts to transform the 

Russian Federation from a one-party state with a centrally-planned economy to a pluralist democracy 

with a market-oriented economy. This transformation has been marked by periods of significant 

instability, and the Russian economy at various times has experienced: 

. significant declines in gross domestic product; 

. hyperinflation; 

. an unstable currency; 

. high levels of state debt relative to gross domestic product; 

. a weak banking system providing limited liquidity to Russian enterprises; 

. high levels of loss-making enterprises that have continued to operate due to the lack of effective 

bankruptcy proceedings; 

. significant use of barter transactions and illiquid promissory notes to settle commercial transactions; 

. widespread tax evasion; 

. growth of black and grey market economies; 

. pervasive capital outflow; 

. high levels of corruption and the penetration of organised crime into the economy; 

. significant increases in unemployment and under-employment; and 

. the impoverishment of a large portion of the Russian population. 

The Russian economy has been subject to abrupt downturns. The events and aftermath of 17 August 1998 

– the Russian Government’s default on its short-term Rouble-denominated treasury bills and other 

Rouble-denominated securities, the abandonment by the CBR of the Rouble currency band and its 

efforts to maintain the Rouble/U.S. dollar rate within it and the temporary moratorium on certain hard 

currency payments to foreign counterparties – led to a severe devaluation of the Rouble, a sharp increase 

in the rate of inflation, a significant deterioration in the Russian banking system, significant defaults on 

hard currency obligations, a dramatic decline in the prices of Russian debt and equity securities, and an 

inability to raise funds on the international capital markets by Russian borrowers. 

23

From May to July 2004, following a general fall in confidence in the Russian banking system, the Russian 

interbank lending market became significantly constricted resulting in a decrease in liquidity. While the 

market has since recovered, Rolf’s management is unable to predict the effect that a future significant 

deterioration in the liquidity of, or significant volatility in, the Russian banking system could have on 

Rolf’s liquidity, ability to access the capital markets or on its financial position. 

There can be no assurance that recent positive trends in the Russian economy, such as an increase in the 

gross domestic product, a relatively stable Rouble, the reduced rate of inflation and the reduction in the 

levels of state debt, will continue or will not be abruptly reversed. Moreover, the strengthening of the 

Rouble in real terms relative to the U.S. dollar and the consequences of a relaxation in monetary policy, 

or other factors, could have an adverse effect on the Russian economy and/or Rolf’s business, financial 

condition, results of operations or prospects in the future. 

Although economic conditions in the Russian Federation have improved in the last few years, there is a 

lack of consensus as to the scope, content and pace of economic and political reform. No assurance can be 

given that reform policies will continue to be implemented and, if implemented, will be successful, that 

the Russian Federation will remain receptive to foreign investment, or that the economy of the Russian 

Federation will continue to improve. Any failure or reversal of the current policies of economic reform 

and stabilisation could have a material adverse effect on Rolf’s business, financial condition, results of 


Fluctuations in the global or Russian economies may have an adverse effect on Rolf’s ability to attract 

future capital as well as on its financial condition and prospects 

The Russian economy could be adversely affected by market downturns and economic slowdowns 

elsewhere in the world. As has happened in the past, financial problems outside the Russian Federation 

or an increase in the perceived risks associated with investing in emerging economies could dampen 

foreign investment in Russia and adversely affect the Russian economy. Additionally, because the 

Russian Federation produces and exports large volumes of oil and gas, the Russian economy is 

particularly sensitive to the price of oil and gas on the world market, and a decline in the price of oil and 

gas could have a significant negative impact on the Russian economy. 

These developments could severely limit Rolf’s access to capital and could adversely affect Rolf’s 

business, financial condition, results of operations or prospects. 

Recent terrorist activity inside and outside of the Russian Federation and the recent armed conflicts in 

the Middle East have had a significant effect on international and domestic finance and commodity 

markets. Any future acts of terrorism or armed conflicts in the Russian Federation or internationally 

could have an adverse effect on the financial and commodities markets and the global economy. As the 

Russian Federation produces and exports large amounts of crude oil and gas, any acts of terrorism or 

armed conflicts causing disruptions of Russian oil and gas exports could negatively affect the Russian 

economy and, thus, adversely affect Rolf’s business, financial condition, results of operations and/or 

prospects. 

If Russia were to return to heavy and sustained inflation, Rolf’s results of operations could be adversely 

affected 

According to Government estimates, the inflation rate (CPI) in the Russian Federation was 19 per cent. 

in 2001, 15 per cent. in 2002, 12 per cent. in 2003, just under 12 per cent. in 2004, 11 per cent. in 2005 and 

9 per cent. in 2006. Although the rate of inflation has been declining, any return to heavy and sustained 

inflation could lead to market instability, new financial crises, reductions in consumer purchasing power 

and erosion of consumer confidence. Certain of Rolf’s costs, such as construction costs, rent, salaries and 

utilities costs, are sensitive to rises in the general price level in Russia. In this situation, due to competitive 

pressures, Rolf may not be able to raise selling prices sufficiently to preserve its margins. Any one of these 

events could lead to decreased demand for Rolf’s services and, consequently, have an adverse effect on 

Rolf’s business, financial condition, results of operations and/or prospects. 

Changes to the currency control regime could have an adverse effect on Rolf’s business 

Federal Law No. 173 FZ ‘‘On Currency Regulation and Currency Control’’ published on 17 December 

2003 (‘‘Currency Control Law’’) introduced a new currency control regime. Most of the provisions of the 

Currency Control Law came into effect on 18 June 2004. Although the Currency Control Law has 

abolished a number of earlier applicable restrictions, there can be no assurance that any future changes to 

24

the Currency Control Law and the related regulations will not have a material adverse effect on Rolf’s 

business, financial condition, results of operations or prospects. 

The official data upon which prospective investors may base their investment decision may not be as 

reliable as equivalent data from official sources in more developed economies 

Official statistics and other data published by the CBR, Russian federal, regional and local governments, 

and federal agencies may be substantially less complete or researched and, consequently, less reliable 

than those published by comparable bodies in other jurisdictions. Accordingly, Rolf cannot assure 

prospective investors that the official sources from which Rolf has drawn some of the information set out 

elsewhere in this Prospectus are reliable or complete. Russian state entities may produce official statistics 

on bases different from those used by comparable bodies in other jurisdictions. Any discussion of matters 

relating to the Russian Federation herein may, therefore, be subject to uncertainty due to concerns about 

the completeness or reliability of available official and public information. 

Russia’s physical infrastructure is in very poor condition, which could disrupt normal business activity 

The physical infrastructure in the Russian Federation largely dates back to Soviet times and has not been 

adequately funded and maintained over the past decade. Particularly affected are the rail and road 

networks, power generation and transmission, communication systems and building stock. For example, 

during the winter of 2000/2001, electricity and heating shortages in the Russian Federation’s far eastern 

Primorye region seriously disrupted the local economy. In August 2000, a fire at the main 

communications tower in Moscow interrupted television and radio broadcasting for weeks. In May 

2005, an electricity blackout affected much of Moscow for one day, disrupting normal business activity. 

The state of the Russian Federation’s physical infrastructure negatively affects the Russian Federation’s 

national economy, disrupts the transportation of goods and supplies, imposes additional costs on business 

and can interrupt business operations. Further deterioration in the physical infrastructure could have a 

material adverse effect on Rolf, in particular, and on the value of investments in the Russian Federation, 

in general. 

Social Risks 

Crime and corruption could disrupt Rolf’s ability to conduct business and could adversely affect its 

business, financial condition, results of operations or prospects 

The political and economic changes in the Russian Federation since the early 1990s have resulted in 

reduced policing of society and increased lawlessness. The Russian and international press have reported 

high levels of organised criminal activity and corruption of officials in the Russian Federation and other 

countries of the former Soviet Union. Some commentators have also described instances in which state 

officials have engaged in selective investigations and prosecutions to further commercial interests of 

selected constituencies. Additionally, some commentators allege that the publication of biased reports in 

the Russian media in return for payments is widespread. Rolf’s business, financial condition, results of 

operations or prospects could be materially adversely affected by illegal activities, corruption or by claims 

alleging involvement in illegal activities. 

Social instability in the Russian Federation, together with difficult economic conditions, the failure of the 

state and main private enterprises to make full and timely payment of salaries on a regular basis and the 

failure of salaries and benefits generally to keep pace with the rapidly increasing cost of living have led in 

the past, and could lead in the future, to labour and social unrest and increased support for a renewal of 

centralised authority, increased nationalism, restrictions on foreign involvement in the economy, and 

increased violence. Any of these could adversely affect Rolf’s business, financial condition, results of 


Risks Relating to the Russian Legal System and Legislation 

Weaknesses relating to the Russian legal system and legislation create an uncertain environment for 

investment and business activity which could affect Rolf 

The Russian Federation is still developing an adequate legal framework required for the proper 

functioning of a market economy. Several fundamental Russian laws have only recently become effective. 

The recent nature of much of Russian legislation and the rapid evolution of the Russian legal system 

place the enforceability and underlying constitutionality of laws in doubt and result in ambiguities, 

inconsistencies and anomalies in their application. The following aspects of Russia’s legal system create 

25

uncertainty with respect to many of the legal and business decisions that Rolf’s management make. Many 

of these risks do not exist in countries with more developed legal systems: 

. since 1991, Soviet law has been largely, but not entirely, replaced by a new legal regime as 

established by the 1993 Federal Constitution, the Civil Code and by other federal laws, and by 

decrees, orders and regulations issued by the President, the Government and federal ministries 

which are, in turn, complemented by regional and local rules and regulations. There may be 

inconsistencies between such laws, presidential decrees, state resolutions and ministerial orders, and 

between local, regional and federal legislation and regulations; 

. decrees, resolutions and regulations may be adopted by state authorities and agencies in the absence 

of a sufficiently clear constitutional or legislative basis and with a high degree of discretion. There is 

a risk that the state may arbitrarily nullify or terminate contracts, withdraw licences, conduct sudden 

and unexpected tax audits, initiate criminal prosecutions and civil actions and use immaterial 

defects in accounting or share issues and registration as pretexts for court claims and other demands 

to liquidate companies or invalidate such issues and registrations and/or to void transactions; 

. substantial gaps in the regulatory structure may be created by the delay or absence of regulations 

implementing certain legislation; 

. there is a lack of judicial and administrative guidance on interpreting applicable rules and judicial 

decisions carry limited weight as precedents; 

. the Russian Federation has a judiciary with limited experience in interpreting and applying 

market-oriented legislation and which is vulnerable to economic and political influence; and 

. the Russian Federation has weak enforcement procedures for court judgments and there is no 

guarantee that a foreign investor will obtain effective redress in a Russian court. 

The independence of the judicial system and its immunity from economic, political and nationalistic 

influences in the Russian Federation remains largely untested. The court system is understaffed and 

under-funded. Judges and courts in the Russian Federation are generally inexperienced in the area of 

business and corporate law. In addition, most court decisions are not readily available to the public. The 

enforcement of court judgments can in practice be very difficult in the Russian Federation. All of these 

factors make judicial decisions in the Russian Federation difficult to predict and effective redress 

uncertain. Additionally, court claims are often used to further political aims. Rolf may be subject to these 

claims and may not be able to receive a fair hearing. Additionally, court judgments are not always 

enforced or followed by law enforcement agencies. 

Unlawful or arbitrary government action in Russia may have an adverse effect on Rolf’s business 

State authorities have a high degree of discretion in Russia and at times exercise their discretion 

arbitrarily, without conducting a hearing or giving prior notice, and sometimes illegally. Moreover, the 

state also has the power in certain circumstances, by regulation or act, to interfere with the performance 

of, nullify or terminate contracts. Unlawful or arbitrary state actions have included withdrawal of 

licences, sudden and unexpected tax audits, criminal prosecutions and civil actions. Federal and local 

government entities have also used immaterial defects in matters relating to financing documentation as 

pretexts for court claims and other demands to invalidate such activities and/or to void transactions, often 

for political purposes. Unlawful or arbitrary state action, if directed at Rolf, could have a material adverse 

effect on its business, financial condition, results of operations or prospects. 

Difficulty in enforcing Rolf’s rights in Russia may have an adverse effect on Rolf’s financial condition, 

results, operations and prospects 

The current status of the Russian legal system makes it uncertain whether Rolf would be able to enforce 

its rights in disputes with any of its contractual counterparties. Furthermore, the dispersion of regulatory 

power among a number of state agencies in the Russian Federation has resulted in inconsistent or 

contradictory regulations and unpredictable enforcement. The Government has rapidly introduced laws 

and regulations and has changed its legal structure in an effort to make the Russian economy more 

market-oriented, resulting in considerable legal confusion. No assurance can be given that local laws and 

regulations will become stable and more consistent in the future. Rolf’s ability to operate in the Russian 

Federation could be adversely affected by difficulties in protecting and enforcing its rights and by future 

changes to local laws and regulations. Further, its ability to protect and enforce such rights is dependent 

on the Russian courts, which are underdeveloped, inefficient and, in places, corrupt. Judicial precedents 

generally have no binding effect on subsequent decisions. 

26

Underdevelopment of the Russian taxation system 

The Russian Government has initiated reforms of the tax system that have resulted in some improvement 

in the tax climate. The cornerstone of this reform was a complete redrafting of the Russian Tax Code; this 

included a reduction of the corporate profits tax rate from 35 per cent., for most companies and 

43 per cent., for financial institutions, insurance and intermediary companies to 24 per cent., for all 

companies from 1 January 2002 and also allowed for a broader range of deductible expenses. 

Payroll-related taxes have been reduced substantially and for individuals who are tax residents in Russia 

the current personal income tax rate is 13 per cent. The general rate of VAT has been reduced to 

18 per cent., and certain minor taxes have been abolished, such as road users’ tax (abolished from 

1 January 2003) and sales tax (abolished from 1 January 2004). 

Russian tax laws, regulations and court practice are subject to frequent change, varying interpretation and 

inconsistent and selective enforcement. For example, there is a possibility that the current three-year 

statute of limitations for the assessment of taxes pursuant to a tax audit could be significantly extended. In 

accordance with the Constitution of the Russian Federation, laws which introduce new taxes or worsen a 

taxpayer’s position can not be applied retroactively. However, there have been several instances when 

such laws were introduced and applied retroactively. 

Despite the Russian Government’s taking steps to reduce the overall tax burden in recent years in line 

with its objectives, Russia’s largely ineffective tax collection system and continuing budgetary funding 

requirements may increase the likelihood that the Russian Federation will impose arbitrary or onerous 

taxes and penalties in the future, which could have a material adverse effect on Rolf’s business, financial 

condition, results of operations or prospects. Additionally, tax has been utilised as a tool for significant 

state intervention in certain key industries. 

In addition to the usual tax burden imposed on Russian taxpayers, these conditions complicate tax 

planning and related business decisions. Such uncertainties could possibly expose Rolf to significant fines 

and penalties and to potentially severe enforcement measures despite its best efforts at compliance, could 

result in a greater than expected tax burden and could have a material adverse effect on Rolf’s business, 

financial condition, results of operations or prospects. 

Transfer-pricing legislation became effective in the Russian Federation on 1 January 1999. This 

legislation allows the tax authorities to make transfer pricing adjustments and impose additional tax 

liabilities in respect of all ‘‘controlled’’ transactions, provided that the transaction price differs from the 

market price by more than 20 per cent. ‘‘Controlled’’ transactions include transactions with related 

parties, barter transactions, foreign trade transactions and transactions with unrelated parties with 

significant price fluctuations (i.e. if the price in respect of such transactions differs from the prices on 

similar transactions conducted within a short period of time by more than 20 per cent.). Transfer pricing 

adjustments are also applicable to the trading of securities and derivatives. There has been no formal 

guidance (although some court practice is already available) as to how these rules will be applied. 

Moreover, the Ministry of Finance of the Russian Federation is in the process of drafting proposed 

amendments to the transfer pricing legislation, which may come into force in 2007. Such amendments, if 

adopted, are expected to result in stricter transfer pricing rules. If the tax authorities were to impose 

significant additional tax liabilities as a result of transfer pricing adjustments, it could have a material 

adverse effect on business, financial condition, results of operations or prospects of Rolf. 

It is expected that Russian tax legislation will become more sophisticated, which may result in the 

introduction of additional revenue raising measures. Although it is unclear how these measures would 

operate, the introduction of such measures may affect Rolf’s overall tax efficiency and may result in 

significant additional taxes becoming payable. Rolf cannot offer prospective investors any assurance that 

additional tax exposures will not arise while the Notes are outstanding. Additional tax exposures could 

have a material adverse effect on Rolf’s business, its financial condition, results of operations or 

prospects. 

Risk Relating to the Notes and Trading Market 

Rolf does not produce stand-alone financial statements under IFRS for its subsidiaries, including the 

Guarantors. Therefore, Rolf is not able to present such information and has sought leave for an omission in 

relation to stand-alone financial statements of the Guarantors which are required to be submitted to IFSRA 

under Annex VI of the European Commission Regulation (EC) No 809/2004. 

Under Annex VI of the European Commission Regulation (EC) No 809/2004 (the ‘‘Prospectus 

Regulation’’) the guarantors under an issue of securities such as the Notes provide information about 

27

themselves of the same scope and nature as the issuer of the notes, including their stand-alone financial 

statements. However, Rolf does not produce stand-alone accounts under IFRS for its subsidiaries (other 

than the Issuer). 

Therefore, Rolf has applied to IFSRA for an exemption from its disclosure obligations. Under 

Article 8(2) of the Prospectus Directive IFSRA may grant a leave for an omission in relation to 

stand-alone financial statements of the Guarantors to be set out in this Prospectus. 

The Issuer’s ability to fulfil its obligations to make payments on the Notes are dependent on the Group 

The Issuer is the Group’s financial vehicle established primarily with a purpose to act as a borrower on 

behalf of the Group. The Issuer does not have its own assets or revenues sufficient to meet its obligations 

to pay redemption amounts and other amounts due under the Notes. The performance by the Issuer of its 

obligations under the Notes is, therefore, dependant upon receipt of sufficient funds from other 

companies of the Group or, alternatively, upon other funding sources. 

The lack of a public market for the Notes could reduce the value of the investment in the Notes 

If an active trading market for the Notes does not develop or is not maintained, the market price and 

liquidity of the Notes may be adversely affected. 

The market for securities issued by Russian issuers is influenced by economic and market conditions in 

other Eastern European countries and other emerging markets. Although the Russian market has 

stabilised since the devaluation of the Rouble in August 1998, there can be no assurance that events in 

Russia or other emerging markets will not cause a recurrence of such market volatility or that such 

volatility will not adversely affect the price of the Notes. 

Payments under the Guarantees may be subject to Russian withholding tax 

Payments under the Guarantees to a holder who is not a resident of Russia might, due to the lack of 

clarity in the law, be characterised as Russian source income that would be subject to a 20 per cent. 

withholding tax (if a holder is not an individual) or 30 per cent. withholding tax (if a holder is an 

individual) at source. This tax may be reduced under many double tax treaties to which Russia is a party, 

but obtaining advance relief or a refund may be extremely difficult, if not impossible. 

If such payments are subject to withholding tax, the Guarantors will be obligated (subject to certain 

exceptions) to pay additional amounts for every net payment made by it under the relevant Guarantee 

after deduction or withholding of any taxed is not less than the full amount then due and payable. 

Issuer may redeem the Notes if it is obliged to pay additional amounts 

The Issuer may at its option redeem the Notes if, as a result of any change in applicable tax legislation or 

interpretation, the Issuer becomes obliged to pay additional amounts in order that every net payment 

made after deduction or withholding for any Cypriot and Russian taxes is not less than the full amount 

then due and payable. If the Issuer redeems the Notes under such circumstances, the redemption price 

will be equal to 100 per cent. of the principal amount of the Notes plus any interest and additional 

amounts due. 

The tax gross-up provisions contained in the Terms and Conditions of the Notes and/or the Trust Deed, to 

the extent that the Guarantors are required to make payments under the Guarantees, may not be 

enforceable under Russian Law 

If payments made by the Issuer on the Notes, or by the Guarantors on the Guarantees, are subject to 

withholding, the Issuer or the Guarantors, as the case may be, will be required (subject to certain 

exceptions) to make additional payments to the Noteholders to ensure that they receive a net amount 

that is not less the amount they would have received in the absence of such withholding. There is some 

doubt as to whether such gross-up provisions are enforceable under Russian law against the Guarantors. 

If the Guarantors are prohibited from making payment of any additional amounts by a Russian court or 

other governmental authority, there is a risk that the gross-up for withholding tax may not take place and 

that payments made by the Guarantors under the Guarantees will be reduced by Russian income tax 

withheld by the Guarantor at a rate of 20 per cent., if the holder is not an individual or 30 per cent., if the 

holder is an individual. In the event that such payments are so reduced, holders of the Notes may not 

receive required payments in full of interest and principal in respect of the Notes which would constitute 

an Event of Default under the Notes. 

28

In certain circumstances, the Issuer’s agents may levy withholding tax on interest payments made in respect 

of the Notes 

On 3 June 2003, the Council of the European Union adopted a directive regarding the taxation of savings 

income in the form of interest payments within the European Community which requires tax authorities 

in a member state to share information concerning payments of interest (or other similar income) made 

by a paying agent within its jurisdiction to or for the benefit of an individual resident in another member 

state with the tax authorities of such member state. Ireland and certain other countries have the option to 

operate a withholding system for a transitional period whereby paying agents in such countries will be 

required to levy a withholding tax. See ‘‘Taxation – EU Directive on the Taxation of Savings Income’’. 

The Issuer currently has paying agents for the Notes in the United Kingdom and Ireland. Where any 

obligation to withhold amounts in respect of payments on the Notes to individuals arises as a result of this 

European directive, the Issuer and Guarantors will not have an obligation to pay additional amounts in 

respect of Notes presented for payment in a member state operating such a withholding system. 

Tax might be withheld on dispositions of the Notes, reducing their value 

If a non-resident holder sells the Notes to a Russian resident, there is a risk that the proceeds from such 

disposal may be subject to a withholding tax on any gain realised, subject to any available treaty relief. 

There is no assurance that advance treaty relief would be granted and obtaining a refund can be 

extremely difficult, if not impossible. Where proceeds from disposal of the Notes are received from a 

source within Russia by an individual non-resident holder, individual income tax could be charged at 

30 per cent. on the gain from such disposal (the gain generally being calculated as the gross proceeds, 

from such disposal less any available cost deduction which includes the purchase price of the Notes, 

provided that all supporting documents are available). The tax law is unclear as to whether the tax should 

be withheld from proceeds or paid by an individual non-resident holder based on a personal tax return. 

The individual income tax may be reduced or eliminated pursuant to the provisions of any applicable tax 

treaty. However, an advance relief will not be available and obtaining a refund should be done by 

submission of a personal tax return. 

Proceeds from the sale of Notes received by non-resident holders who are not individuals should not be 

subject to Russian taxation. However, it is not clear how the tax authorities will, in practice, apply 

Chapter 25 of the Russian Tax Code that became effective on 1 January 2002. For example, the tax 

authorities have recently confirmed that a portion of proceeds allocable to accrued interest may be 

subject to 20 per cent. withholding tax. Withholding tax on interest may be reduced or eliminated in 

accordance with the provisions of any applicable double taxation treaty. The imposition or possibility of 

this withholding tax could adversely affect the value of the Notes. 

It may be difficult to enforce foreign court judgments or arbitral awards 

The Russian Federation is not a party to any multilateral or bilateral treaties with most western 

jurisdictions for the mutual enforcement of court judgments. Consequently, should a judgment be 

obtained from a court in any of such jurisdictions, it is highly unlikely to be given direct effect in Russian 

courts. The Russian Federation (as successor to the Soviet Union) is a party to the 1958 New York 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Accordingly, the Trust 

Deed contains a provision allowing for arbitration of disputes. A foreign arbitral award obtained in a 

state which is party to that convention should be recognised and enforced by a Russian court (subject to 

the qualifications provided for in the convention and compliance with Russian civil procedure regulations 

and other procedures and requirements established by Russian legislation). Although the relatively new 

Arbitration Procedural Code of the Russian Federation is generally in conformity with the Convention 

and thus has not introduced any substantial changes in the grounds for refusal of recognition of foreign 

arbitral awards and court judgments which may be issued in relation to payments under the Notes, the 

Guarantees and the Trust Deed, in the event that Russian procedural legislation is further changed, it 

may introduce new grounds preventing foreign court judgments and arbitral awards from being 

recognised and enforced in Russia. In practice, reliance upon international treaties may meet with 

resistance or a lack of understanding on the part of a Russian court or other officials, thereby introducing 

delay and unpredictability into the process of enforcing any foreign judgment or any foreign arbitral 

award in the Russian Federation. It may also be difficult to enforce arbitral awards in the Russian 

Federation due to the relative inexperience of the Russian courts in international commercial 

transactions and political resistance to the enforcement of awards against Russian companies in favour 

of foreign investors. 

29

USE OF PROCEEDS 

The net proceeds of the issue of the Notes by the Issuer are expected to be approximately 

U.S.$248 million after deduction of a management and underwriting and selling concession and other 

expenses relating to the issue of the Notes. The Issuer currently has outstanding indebtedness under the 

U.S.$350 million Secured Syndicated Loan Facility dated 20 December 2005, as amended and restated on 

12 December 2006. The Secured Syndicated Loan Facility is provided to the Issuer by Raiffeisen 

Zentralbank Oesterreich Aktiengesellschaft (‘‘Raiffeisen’’) on behalf of a syndicate of international and 

Russian banks. 

The net proceeds of the issue of the Notes will be applied to repay partially the Secured Syndicated Loan 

Facility. 

The Issuer has also agreed in principle (pending signing and subject to the finalisation of documentation) 

with each of ZAO Citibank, ABN AMRO Bank ZAO and Commerzbank (Eurasija) SAO bilateral 

facility documentation in relation to facilities of approximately U.S.$205 million with maturities from one 

to three years (together the ‘‘Bilateral Facilities’’) and is also in negotiations to put in place further 

bilateral facilities with its Russian relationship banks. The Bilateral Facilities will also be applied in 

conjunction with the net proceeds of the issue of the Notes for repayment of the Secured Syndicated 

Loan Facility. If there is excess beyond the amount required for that purpose, the Bilateral Facilities and 

any facilities agreed with the Russian relationship banks will be applied to give Rolf liquidity to further its 

strategic objectives. (See ‘‘Business Description – Funding’’ and ‘‘Business Description – Strategic 

objectives’’). 

30

SELECTED CONSOLIDATED FINANCIAL INFORMATION 

The following tables present selected consolidated financial information as at and for the years ended 

31 December 2006 and 2005, which has been derived from Rolf’s Consolidated Financial Statements. 

Rolf’s Consolidated Financial Statements are prepared in accordance with IFRS. Rolf’s presentation 

currency is the U.S. Dollar and Rolf’s functional currency is the Rouble. 

The financial information set forth below should be read in conjunction with, and is qualified in its 

entirety by reference to, Rolf’s Consolidated Financial Statements and related notes thereto included 

elsewhere in this Prospectus as well as the sections of this Prospectus entitled ‘‘Presentation of Financial 

and Other Information’’, ‘‘Capitalisation’’ and ‘‘Financial Review’’. 

Consolidated Income Statement 

For the year ended 

31 December 

2006 2005 

(in thousands of 

U.S. Dollars) 

Revenue 

Vehicles....................................................................................................................... 2,400,516 1,786,799 

Spare parts, maintenance and other....................................................................... 327,125 200,557 

Total revenue............................................................................................................. 2,727,641 1,987,356 

Vehicles, consumables and services ....................................................................... (2,217,551) (1,657,938) 

Gross profit................................................................................................................. 510,090 329,418 

Logistics, insurance and advertising ....................................................................... (96,862) (79,609) 

Employee compensation and benefits.................................................................... (134,690) (66,536) 

Office costs, business travel and services .............................................................. (29,162) (17,542) 

Depreciation, amortisation and impairment ......................................................... (19,496) (10,365) 

Other operating expenses, net ................................................................................ (23,637) (16,328) 

Net foreign exchange losses from operations ....................................................... (10,681) (1,164) 

Operating profit......................................................................................................... 195,562 137,874 

Net finance costs........................................................................................................ (29,272) (19,782) 

Net foreign exchange gain/(loss) on cash and borrowings ................................. 16,157 (1,873) 

Profit before income tax .......................................................................................... 182,447 116,219 

Income tax expense .................................................................................................. (47,508) (41,907) 

Profit for the year ..................................................................................................... 134,939 74,312 

Profit is attributable to: 

Equity holders of the Company.............................................................................. 105,082 58,375 

Minority interest........................................................................................................ 29,857 15,937 

Profit for the year ..................................................................................................... 134,939 74,312 

31

Consolidated Balance Sheet 

As at 

31 December 

2006 2005 


U.S. Dollars) 

ASSETS 

Non-current assets 

Property, plant and equipment ............................................................................... 306,233 169,401 

Intangible assets ........................................................................................................ 6,216 1,928 

Deferred income tax asset ....................................................................................... 15,663 11,333 

Financial and other assets........................................................................................ 2,531 1,339 

Total non-current assets........................................................................................... 330,643 184,001 

Current assets 

Inventories.................................................................................................................. 186,248 115,753 

Vehicles in transit – prepayments .......................................................................... 8,630 9,194 

Vehicles in transit – financing ................................................................................. 77,669 82,747 

Trade and other receivables .................................................................................... 211,049 115,110 

Financial and other assets........................................................................................ 1,580 8,677 

Cash and cash equivalents ....................................................................................... 141,765 62,129 

Total current assets................................................................................................... 626,941 393,610 

TOTAL ASSETS ...................................................................................................... 957,584 577,611 

EQUITY 

Share capital............................................................................................................... 10 10 

Share premium .......................................................................................................... 40 40 

Retained earnings...................................................................................................... 227,831 144,801 

Other reserves............................................................................................................ 49,620 20,385 

Equity attributable to the Company’s equity holders ......................................... 277,501 165,236 

Minority interest........................................................................................................ 55,925 22,257 

TOTAL EQUITY..................................................................................................... 333,426 187,493 

LIABILITIES 

Non-current liabilities 

Borrowings ................................................................................................................. 240,490 23,492 

Non-current financial liabilities............................................................................... 20,931 10,659 

Deferred income tax liability .................................................................................. 17,473 12,124 

Provisions for liabilities and charges...................................................................... 6,288 12,149 

Total non-current liabilities ..................................................................................... 285,182 58,424 

Current liabilities 

Borrowings ................................................................................................................. 117,463 142,033 

Financing for vehicles in transit.............................................................................. 77,669 82,747 

Trade and other payables ........................................................................................ 78,831 33,409 

Advances from customers........................................................................................ 35,533 35,689 

Current income and other taxes payable .............................................................. 20,958 22,528 

Provisions for liabilities and charges...................................................................... 8,522 15,288 

Total current liabilities ............................................................................................. 338,976 331,694 

TOTAL LIABILITIES ............................................................................................ 624,158 390,118 

TOTAL LIABILITIES AND EQUITY............................................................... 957,584 577,611 

32

Consolidated Cash Flow Data 


31 December 

2006 2005 


U.S. Dollars) 

Operating cash flows before working capital changes......................................... 217,662 149,709 

Net cash from/(used in) operating activities......................................................... 4,259 72,901 

Net cash used in investing activities....................................................................... (104,793) (64,908) 

Net cash from financing activities........................................................................... 171,990 49,041 

Effect of exchange rate changes on cash and cash equivalents......................... 8,180 (2,008) 

Net increase in cash and cash equivalents ........................................................... 79,636 55,026 

Cash and cash equivalents at the beginning of the year..................................... 62,129 7,103 

Cash and cash equivalents at the end of the year .............................................. 141,765 62,129 

The following table sets out the calculation of EBITDA for the periods indicated: 


31 December 

2006 2005 


U.S. Dollars) 

Profit for the year ..................................................................................................... 

Add: 

134,939 74,312 

Income tax expense .................................................................................................. 47,508 41,907 

Net finance costs........................................................................................................ 29,272 19,782 

Depreciation, amortisation and impairment ......................................................... 19,496 10,365 

EBITDA (unaudited)............................................................................................... 231,215 146,366 

EBITDA equals net profit plus income tax expense, net finance costs and depreciation, amortisation and 

impairment expenses. Net finance costs include interest expense on borrowings and unwinding of 

discount on provisions offset by interest income and capitalisation of borrowing costs on assets under 

construction. 

The Group presents EBITDA because it is considered to be an important supplemental measure of the 

Group’s operating performance and it is frequently used by securities analysts, investors and other 

interested parties in the evaluation of companies in the Group’s industry. 

EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute 

for analysis of the Group’s operating results as reported under IFRS. Some of these limitations are as 

follows: 

. EBITDA does not reflect the impact of financing costs on the Group’s operating performance. This 

could be significant and could further increase if the Group incurs more debt. 

. EBITDA does not reflect the impact of income taxes on the Group’s operating performance. 

. EBITDA does not reflect the impact of depreciation and amortisation on the Group’s operating 

performance. The assets of the Group’s businesses which are being depreciated will have to be 

replaced in the future, and such depreciation expense may not equal the cost of replacing these 

assets in the future. By excluding this expense from EBITDA, EBITDA does not reflect Rolf’s 

future cash requirements for these replacements. 

. Other companies in the Group’s industry may calculate EBITDA differently or may use it for 

different purposes than the Group does, limiting its usefulness as a comparative measure. 

33

The Group compensates for these limitations by relying primarily on its IFRS operating results and using 

EBITDA only supplementally. 

EBITDA is a measure of the Group’s operating performance that is not required by, or presented in 

accordance with, IFRS and should not be considered as an alternative to net income, operating income or 

any other performance measures derived in accordance with IFRS or as an alternative to cash flow from 

operating activities or as a measure of the Group’s liquidity. In particular, EBITDA should not be 

considered as a measure of discretionary cash available to the Group to invest in the growth of its 

business. 

34

CAPITALISATION 

The following table shows Rolf’s capitalisation, including current debt, as at 31 December 2006 and as 

adjusted to reflect the issue of the Notes as if the proceeds from the Offering of the Notes had been 

received and utilised to partially repay the Secured Syndicated Loan Facility (see ‘‘Use of Proceeds’’). 

The capitalisation table as adjusted has been prepared for illustrative purposes only and because of its 

nature addresses a hypothetical situation and, therefore, does not represent Rolf’s actual financial 

position or results. This information should be read in conjunction with the sections of this Prospectus 

entitled ‘‘Selected Consolidated Financial Information’’, ‘‘Financial Review’’ and Rolf’s Consolidated 

Financial Statements included elsewhere in this Prospectus. 

As at 31 December 2006 

Historical 

As adjusted (*) 

(unaudited) 

(in thousands 

of U.S. Dollars) 

Borrowings 

Current borrowings .............................................................................................. 117,463 106,463 

Non-current borrowings ...................................................................................... 

Equity attributable to the Company’s equity holders 

240,490 251,490 

Share capital.......................................................................................................... 10 10 

Share premium ..................................................................................................... 40 40 

Retained earnings................................................................................................. 227,831 227,831 

Other reserves....................................................................................................... 49,620 49,620 

Total capitalisation and indebtedness (unaudited) ......................................... 635,454 635,454 

Note: 

* Adjusted to give effect to the issue of the Notes and the receipt and use of the proceeds from the Offering to 

partially repay the Secured Syndicated Loan Facility. The adjustment does not take into account management 

and underwriting and selling concession and other expenses incurred in connection with the Offering and 

admission to trading of the Notes. No adjustment has been made for any other changes subsequent to 


Rolf plans to repay the remaining portion of the outstanding debt under the Secured Syndicated Loan 

Facility by means of the proceeds to be received by Rolf under the Bilateral Facilities (see ‘‘Use of 

Proceeds’’) 

35

FINANCIAL REVIEW 

The following review should be read in conjunction with, and is qualified in its entirety by reference to, 

the Consolidated Financial Statements and the related notes included elsewhere in this Prospectus. This 

‘‘Financial Review’’ section contains forward-looking statements that involve risks and uncertainties. 

Rolf’s actual results could differ materially from those anticipated in the forward-looking statements as a 

result of numerous factors, including the risks discussed in the sections of this Prospectus entitled 

‘‘Forward-Looking Statements’’ and ‘‘Risk Factors’’, and elsewhere in this Prospectus. 

The financial information in this section ‘‘Financial Review’’ has been derived from the 2006 

Consolidated Financial Statements and the underlying accounting records. The 2005 financial data 

presented in the following discussion has been adjusted to take into account reclassifications made in the 

2006 Consolidated Financial Statements. See also ‘‘Presentation of Financial and Other Information – 

Classification of business divisions’’ for explanation of the presentation of the financial information by 

reporting segment and ‘‘Presentation of Financial and other Information – Reclassifications’’ for 

explanations of reclassifications made to 2005 Consolidated Financial Statements. 

For an understanding of the basis of preparation and significant accounting policies, critical accounting 

estimates and judgements in applying accounting policies, please see notes 2 and 3 of the 2006 

Consolidated Financial Statements. 

YEAR ENDED 31 DECEMBER 2006 COMPARED TO YEAR ENDED 31 DECEMBER 2005 

Sales 

Rolf’s sales are derived from the sale of vehicles, spare parts, options and accessories, vehicle 

maintenance and other products and services. 

The table below represents a revenue breakdown from sales to third parties for the years ended 

31 December 2006 and 2005. 


31 December 

2006 2005 


U.S. Dollars) 

Vehicles....................................................................................................................... 2,400,516 1,786,799 

Spare parts, maintenance and other....................................................................... 327,125 200,557 

Total revenue............................................................................................................. 2,727,641 1,987,356 

Total revenue of Rolf increased by 37.2 per cent. to U.S.$2,727,641 thousand for the year ended 

31 December 2006 from U.S.$1,987,356 thousand for the year ended 31 December 2005. This was mainly 

attributed to Rolf selling an increased volume of cars. In Russia in 2006 Rolf sold 132,607 new vehicles 

compared to 108,502 new vehicles sold in 2005. In 2006, Rolf also further expanded both its distribution 

networks for Mitsubishi and Hyundai vehicles across Russia and its owned retail dealerships in the cities 

of Moscow (and Moscow Region) and St. Petersburg. The increase in revenue from spare parts, 

maintenance and other was primarily due to the opening of new dealerships in 2006. This increased 

service capacity, which resulted in more revenue from maintenance. The general increase in the volume 

of cars sold by Rolf in recent years has resulted in more vehicles returning to Rolf dealers for 

maintenance, thereby further increasing growth in revenue from maintenance and spare parts. 

Vehicles 

Revenue from the sale of vehicles for the year ended 31 December 2006 increased by 34.3 per cent. to 

U.S.$2,400,516 thousand from U.S.$1,786,799 thousand for the year ended 31 December 2005. Rolf’s 

sales are made up of both third party sales by the distribution division and retail trade from dealerships 

owned by Rolf. The following table shows the total revenue from sales of vehicles by the distribution and 

retail divisions of Rolf for the years ended 31 December 2006 and 2005. 

36


31 December 

2006 2005 

(in thousands of U.S. Dollars) 

Retail sales of vehicles ................................................................................... 1,051,995 765,277 

Mitsubishi Distribution................................................................................... 1,187,861 931,422 

Hyundai Distribution...................................................................................... 795,378 610,037 

Intercompany sales.......................................................................................... (634,718) (519,937) 

Total consolidated sales of vehicles ............................................................. 2,400,516 1,786,799 

Intercompany sales represent trade between subsidiaries distributing Mitsubishi and Hyundai vehicles 

and dealerships owned by Rolf. 

Retail 

For the year ended 31 December 2006, the volume of sales of vehicles at Rolf dealerships increased by 

31.5 per cent. to 54,879 vehicles for the year ended 31 December 2006, compared to 41,738 vehicles for 

the year ended 31 December 2005. The following table gives details of the numbers of vehicles sold by 

Rolf through its retail division for the years ended 31 December 2006 and 2005. 

Brand 

Vehicles sold for the year 

ended 31 December 

2006 2005 

Mitsubishi ......................................................................................................... 25,344 21,904 

Hyundai ............................................................................................................ 10,446 8,835 

Ford ................................................................................................................... 12,019 6,468 

Mazda................................................................................................................ 5,964 3,476 

Audi................................................................................................................... 1,091 950 

Volvo................................................................................................................. –* 105 

Mercedes........................................................................................................... 11** – 

Peugeot ............................................................................................................. 4** – 

Total .................................................................................................................. 54,879 41,738 

Notes: 

* Rolf stopped retailing Volvo vehicles in April 2005. 

** In December 2006 Rolf launched sales of two new brands in its portfolio: Mercedes and Peugeot. In December 

2006 sales of these brands were 11 vehicles and 4 vehicles respectively. 

Vehicle sales in the retail dealerships were driven by general growth in the foreign branded car market in 

Russia. In addition, Rolf launched 5 new dealerships in 2006: 

Dealership 

Vehicle brand Month of launch 

ROLF Altufievo ................................................................. Hyundai December 2005 

ROLF-City .......................................................................... Mitsubishi, Hyundai April 2006 

ROLF-Oktiabrskaya .......................................................... Ford November 2006 

Zvezda Stolici ..................................................................... Mercedes December 2006 

ROLF Lahta P.................................................................... Peugeot December 2006 

Rolf sold 5,149 vehicles at these new dealerships in 2006. Sales of vehicles in dealerships open before 

1 January 2006 increased by 19.1 per cent. to 49,730 vehicles in 2006 from 41,738 vehicles in 2005. 

37

In 2006, Rolf was the largest retailer of Mitsubishi, Hyundai and Ford vehicles in Russia on the basis of 

vehicles sold. In the first quarter of 2007, Rolf also became the largest retailer of Mazda vehicles in Russia 

on the basis of vehicles sold. 

Retail sales of Mitsubishi vehicles increased by 15.7 per cent. to 25,344 vehicles in 2006, from 21,904 

vehicles in 2005. Rolf retail division’s share of total sales of Mitsubishi vehicles in Russia in 2006 was 

37.1 per cent. (compared to 40 per cent. in 2005), calculated on the basis of Rolf’s own sales data for sales 

by the distribution division to Rolf dealers and third party dealers. Retail sales of Hyundai vehicles 

increased by 18.2 per cent. to 10,446 in 2006 from 8,835 in 2005. Rolf retail division’s share of total sales of 

Hyundai imported vehicles in Russia in 2006 was 23.3 per cent. (compared to 20.7 per cent. in 2005), 

calculated on the basis of Rolf’s own sales data for sales by the distribution division to Rolf dealers and 

third party dealers. 

Retail sales of Ford vehicles increased by 85.8 per cent. to 12,019 vehicles in 2006 from 6,468 vehicles in 

2005. The high growth rate for Ford sales is the result of the marketing and pricing policy of Ford in 

Russia and is in line with the growth of total sales of Ford in Russia in 2006 (growth of 91.5 per cent. to 

115,985 vehicles in 2006 from 60,564 vehicles in 2005, according to figures from Business Monitor 

International). 

Rolf’s sales of Mazda vehicles increased by 71.6 per cent. to 5,964 vehicles in 2006 from 3,476 vehicles in 

2005. This is significantly above growth rates of total sales of Mazda vehicles in Russia (which increased 

by 52.9 per cent. to 32,290 vehicles in 2006 from 21,120 vehicles in 2005 according to Rolf’s own sales data 

and figures from Business Monitor International). In 2006, Rolf’s sales of Mazda vehicles approached 

20 per cent. of the total sales of Mazda vehicles in Russia, calculated on the basis of Rolf’s own sales data 

for retail sales and figures from Business Monitor International for total sales of Mazda in Russia. 

Sales at Rolf’s Audi dealership increased by 14.8 per cent. to 1,091 vehicles in 2006 from 950 vehicles 

in 2005. 

The average price of vehicles sold by Rolf’s retail dealerships increased by 4.9 per cent. to U.S.$19,080 for 

the year ended 2006 from U.S.$18,191 for the year ended 31 December 2005. This is the result of changes 

in the retail prices for vehicle models sold by Rolf and changes in the brand mix and model mix within 

each brand sold by Rolf. 

Distribution 

The number of vehicles sold by Rolf’s distribution division to both dealerships owned by Rolf and third 

party dealerships for the years ended 31 December 2006 and 2005 were: 

Vehicles sold for the year 

ended 31 December 

2006 2005 

Mitsubishi distribution.................................................................................... 68,842 55,148 

Hyundai distribution....................................................................................... 44,899 42,296 

Sales of Mitsubishi vehicles by the distribution division increased by 24.8 per cent. to 68,842 vehicles for 

the year ended 31 December 2006 from 55,148 vehicles for the year ended 31 December 2005. This was 

mainly due to continued rapid growth in the Russian vehicle market and the continuing trend in 

consumer preference for foreign vehicles. To a lesser extent this increase was driven by the further 

expansion of Rolf’s Mitsubishi distribution network across Russia. The average price of Mitsubishi 

vehicles distributed by Rolf in Russia increased by 2.2 per cent. to U.S.$17,255 in 2006 from U.S.$16,889 

in 2005, due to the changes in the model mix and an increase in the wholesale prices for some of the 

vehicle models. In 2006, sales of Mitsubishi vehicles by the distribution division represented a 

6.9 per cent. share of the market in Russia for foreign branded vehicles, according to Business Monitor 

International. 

Sales of Hyundai imported vehicles by the distribution division increased by 6.2 per cent. to 44,899 

vehicles in 2006 from 42,296 vehicles in 2005. This is significantly lower than the growth of the foreign 

vehicle market in Russia in 2006 and is mainly a consequence of the shortage of supply of Hyundai 

vehicles. The average wholesale price of Hyundai vehicles distributed by Rolf in Russia increased by 

22.8 per cent. to U.S.$17,715 in 2006 from U.S.$14,423 in 2005. In addition to general increases in 

38

wholesale prices for most of the models (which were driven by the manufacturer’s policy to position 

Hyundai vehicles in a more expensive category), there were also significant changes in the mix of vehicles 

sold in 2006 compared to 2005. Supply restrictions were much less severe for the SUV models, and as a 

result their share of total sales increased to 30.3 per cent. in 2006 from 16 per cent. in 2005, which drove 

the average price of Hyundai vehicles sold upwards. 

Spare parts, maintenance and other services 

Revenue from distribution of spare parts, maintenance and other services increased by 63.1 per cent. to 

U.S.$327,125 thousand for the year ended 31 December 2006 from U.S.$200,557 thousand for the year 

ended 31 December 2005. This is attributable to the growing market for such products and services in 

Russia and the expansion of Rolf’s business in this area. These additional sales include the sale of vehicle 

options and accessories, spare parts, technical servicing, logistics services and brokering customer loans 

and insurance policies. 

The following table gives details of revenues from third party sales by Rolf of spare parts, options and 

accessories; maintenance services; and other services, consisting of logistics and financial services, for the 

years ended 31 December 2006 and 2005: 


31 December 

2006 2005 

(in thousands of U.S. Dollars) 

Distribution of spare parts, options and accessories ................................. 92,383 41,959 

Maintenance services...................................................................................... 207,611 146,327 

Logistics ............................................................................................................ 13,893 3,254 

Financial services............................................................................................. 13,238 9,017 

Total spare parts, maintenance and other................................................... 327,125 200,557 

Distribution of spare parts, options and accessories 

Rolf was increasingly successful in its wholesale distribution of spare parts, options and accessories in 

2006 (see ‘‘Business Description – Operations – Spare parts, options and accessories distribution 

division’’), primarily to Mitsubishi and Hyundai dealers. Sales of spare parts, options and accessories to 

third party dealers increased by 120.2 per cent. to U.S.$92,383 thousand for the year ended 31 December 

2006 from U.S.$41,959 thousand for the year ended 31 December 2005. This growth was driven by a 

significant increase in the total number of Mitsubishi and Hyundai vehicles in Russia which required 

technical services and maintenance. From 1 January 2004 to 31 December 2006, there were 112,504 

Hyundai vehicles and 154,057 Mitsubishi vehicles sold through the dealer networks (both Rolf-owned 

dealers and other dealers which Rolf supplies). Many of these vehicles are now returning for servicing, 

which boosts the demand for spare parts. In addition, Rolf’s distribution division is working with its 

dealer networks to educate Mitsubishi and Hyundai dealers about the profit opportunities available from 

selling more options and accessories per each new vehicle sold. 

Maintenance services 

As an official service agent of each of the brands sold in the owned dealerships, Rolf is able to perform 

official technical maintenance of these vehicles, whether sold by Rolf or not. Customer demand for 

repairs and servicing with an authorised service provider is high and customers are willing to pay a 

premium for an official service. This includes warranty and insurance work, which together make up a 

significant proportion of the total service revenue (see ‘‘Business Description – Operations – Retail – 

Service business’’). Rolf increased its revenue from maintenance by 41.9 per cent. to U.S.$207,611 

thousand for the year ended 31 December 2006 from U.S.$146,327 thousand for the year ended 

31 December 2005 by introducing more service capacity in the dealerships that opened in 2006, as well as 

by increasing service pricing. 

Logistics 

In 2006, Rolf made a strategic decision to turn its logistics operations into a profit centre and converted it 

into a separate business division with the aim of providing logistics services to third party distributors, as 

well as to the distributors owned by Rolf (see ‘‘Business Description – Operations – Logistics’’). Up until 

39

then, Rolf’s logistics division provided services to the distribution division of Rolf and occasionally rented 

out its trucks to other distributors (primarily to deliver vehicles which Rolf’s retail dealerships would then 

sell). Such ad hoc third party operations produced revenue of U.S.$3,254 thousand for the year ended 

31 December 2005. In 2006, Rolf won its first one-year direct contract with a third party distributor by 

participating in the tender organised by the Mercedes distributor in Russia. This contract, as well as 

occasional services to other third parties (as in 2005), produced revenue of U.S.$13,893 thousand for the 

year ended 31 December 2006. Rolf is planning to further develop its third party logistics business and has 

won similar direct contracts for delivery of Volkswagen and Skoda vehicles, which commenced in January 

2007. 


Rolf Pronto is a finance broker wholly-owned by Rolf. In making financial arrangements, Rolf Pronto 

acts purely as a broker, taking a commission on each loan and insurance policy sold by its sales force (see 

‘‘Business Description – Operations – Financial services’’). Revenue from these operations increased by 

46.8 per cent. to U.S.$13,238 thousand for the year ended 31 December 2006 from U.S.$9,017 thousand 

for the year ended 31 December 2005. Such growth was driven by further development of consumer 

credit and insurance products in the Russian market, as well as by establishing relationships with more 

banks and insurance companies providing a wider variety of products available to customers at Rolf 

dealerships. 

Cost of vehicles, consumables and services and operating expenses 

Rolf’s cost of vehicles, consumables and services and operating expenses increased by 36.9 per cent. to 

U.S.$2,532,079 thousand for the year ended 31 December 2006 from U.S.$1,849,482 thousand for the year 

ended 31 December 2005. Operating expenses include logistics, insurance and advertising expenses, 

employee compensation and benefits, office costs, expenses for business travel and services, depreciation, 

amortisation and impairment, net foreign exchange losses from operations and other operating 

expenses, net. 

The table below sets out Rolf’s main cost of vehicles, consumables and services and operating expenses 

for the years ended 31 December 2006 and 2005. 


31 December 

2006 2005 


U.S. Dollars) 

Vehicles, consumables and services ....................................................................... 2,217,551 1,657,938 

Logistics, insurance and advertising ....................................................................... 96,862 79,609 

Employee compensation and benefits.................................................................... 134,690 66,536 

Office costs, business travel and services .............................................................. 29,162 17,542 

Depreciation, amortisation and impairment ......................................................... 19,496 10,365 

Other operating expenses, net ................................................................................ 23,637 16,328 

Net foreign exchange losses from operations ....................................................... 10,681 1,164 

Cost of vehicles, consumables and services and operating expenses................ 2,532,079 1,849,482 

Rolf’s cost of vehicles, consumables and services increased by 33.8 per cent. to U.S.$2,217,551 thousand 

for the year ended 31 December 2006 from U.S.$1,657,938 thousand for the year ended 31 December 

2005. This was due to the expansion of Rolf’s distribution and retail business. 

40

The table below provides a breakdown of costs of vehicles, consumables and services for the years ended 

31 December 2006 and 2005. 


31 December 

2006 2005 


U.S. Dollars) 

Vehicles purchased.................................................................................................... 2,108,944 1,533,534 

Change in inventories............................................................................................... (70,495) 4,860 

Cost of vehicles sold ................................................................................................. 2,038,449 1,538,394 

Incentives from manufacturers................................................................................ (10,678) (6,548) 

Spare parts and materials used ............................................................................... 187,438 107,844 

Warranty expense and customer relations ............................................................ (4,495) 9,787 

Other ........................................................................................................................... 6,837 8,461 

Total vehicles, consumables and services.............................................................. 2,217,551 1,657,938 

Rolf’s cost of vehicles sold increased by 32.5 per cent. to U.S.$2,038,449 thousand for the year ended 

31 December 2006 from U.S.$1,538,394 thousand for the year ended 31 December 2005, which is in line 

with the 34.3 per cent. increase in revenues from sale of vehicles (see ‘‘Financial Review – Year ended 

31 December 2006 compared to year ended 31 December 2005 – Vehicles’’). 

Incentives from manufacturers represent special incentives for achieving performance targets, either on 

the overall sales of a particular brand or other specific measurements that were agreed with the suppliers. 

These incentives also include special discounts under promotion programmes financed by the suppliers. 

Spare parts and materials used represent the cost of spare parts, options and accessories which were 

resold to third party dealers or consumed by Rolf’s retail dealerships in the course of providing 

maintenance services or installation of options for new vehicles. These costs increased by 73.8 per cent. to 

U.S.$187,438 thousand for the year ended 31 December 2006 from U.S.$107,844 thousand for the year 

ended 31 December 2005. This growth is broadly in line with the growth in revenues for the years ended 

31 December 2006 and 2005 from distribution of spare parts, options and accessories as well as with the 

growth in revenues from maintenance services. 

The cost of the warranty provisions taken for the year ended 31 December 2005 arose from an assessment 

by Rolf of the potential costs of giving extended warranties to purchasers of Mitsubishi and Hyundai 

vehicles. Warranty expense and customer relations represent changes in the warranty provision which is 

created by the distribution division of Rolf, as well as free services and gifts provided by Rolf for 

customer relations purposes. For the year ended 31 December 2005, the net increase in the warranty 

provision accounted for a charge of U.S.$9,787 thousand. In the process of preparing the 2006 

Consolidated Financial Statements, Rolf concluded that the previously estimated warranty provision was 

too conservative. The warranty provision was therefore reassessed and a deduction from operating 

expenses in the amount of U.S.$4,495 thousand is included in the 2006 income statement as a net result of 

such reassessment and the actual warranty expenses for the year. 

Other expenses include rental fees payable by Rolf in respect of land and warehouses, travel, training and 

telephone expenses. 

41

Logistics, insurance and advertising 

Logistics, insurance and advertising costs increased by 21.7 per cent. to U.S.$96,862 thousand for the year 

ended 31 December 2006 from U.S.$79,609 thousand for the year ended 31 December 2005. The table 

below details these costs for the years ended 31 December 2006 and 2005. 


31 December 

2006 2005 


U.S. Dollars) 

Transportation ........................................................................................................... 43,668 34,359 

Customs clearance, storage and related costs....................................................... 20,746 21,264 

Insurance .................................................................................................................... 3,736 5,637 

Advertising and promotion...................................................................................... 28,712 18,349 

Total logistics, insurance and advertising.............................................................. 96,862 79,609 

Transportation costs increased by 27.1 per cent. to U.S.$43,668 thousand for the year ended 31 December 

2006 from U.S.$34,359 thousand for the year ended 31 December 2005. This increase in logistics costs is in 

line with the number of vehicles transported by Rolf’s logistics division. 

A customs clearance fee is paid by Rolf to a customs broker on vehicles imported into Russia. Customs 

clearance, storage and related costs decreased by 2.4 per cent. to U.S.$20,746 thousand for the year ended 

31 December 2006 from U.S.$21,264 thousand for the year ended 31 December 2005. The level of the 

broker’s fee was reduced in 2006, which was the main reason for this decrease. 

Insurance expenses decreased by 33.7 per cent. to U.S.$3,736 thousand for the year ended 31 December 

2006 from U.S.$5,637 thousand for the year ended 31 December 2005. This was due to the improved 

ability of Rolf to manage its relationships with the insurance providers and obtain better terms from 

them. In addition, rates for insurance of cargo in Rolf’s logistics division were significantly lowered due to 

the ability of Rolf to demonstrate significant improvements in the statistics for damage rates during 

transportation of vehicles from Finland to Russia. 

Advertising and promotion expenses increased by 56.5 per cent to U.S.$28,712 thousand for the year 

ended 31 December 2006 from U.S.$18,349 thousand for the year ended 31 December 2005, mainly 

because of the promotional work required for the expansion of Rolf’s distribution and retail business. 

Advertising and promotion expenses were the equivalent of 1.1 per cent. of total revenue for the year 

ended 31 December 2006 compared to 0.9 per cent. of total revenue for the year ended 31 December 

2005, which is in line with the general target of Rolf to keep marketing costs at the level of around 

1 per cent. of total revenues. 

Employee compensation and benefits 

Total employee compensation and benefits increased by 102.4 per cent. to U.S.$134,690 thousand for the 

year ended 31 December 2006 from U.S.$66,536 thousand for the year ended 31 December 2005. The 

table below provides more details of such costs for the years ended 31 December 2006 and 2005. 


31 December 

2006 2005 


U.S. Dollars) 

Employee compensation and benefits.................................................................... 115,942 64,170 

Bonuses....................................................................................................................... 18,748 2,366 

Total employee compensation and benefits.......................................................... 134,690 66,536 

Employee compensation and benefits include statutory social security and pension contributions which 

increased by 45.0 per cent. to U.S.$13,821 thousand for the year ended 31 December 2006 from 

42

U.S.$9,532 thousand for the year ended 31 December 2005. The increase in employee costs is attributable 

to a 37.4 per cent. increase in the number of employees to 4,964 as at 31 December 2006 from 3,614 as at 

31 December 2005, to an average 12 per cent. increase in salaries for the year ended 31 December 2006 as 

a result of the annual salary review, as well as to the hiring of several senior managers, which increased 

the proportion of highly paid employees in the total salary expenses of Rolf. Bonuses include bonuses 

paid to the employees based on their individual performance during the year and were defined for each 

employee in the appraisal process at the year end. As a result of a new bonus scheme introduced in 2006, 

bonuses for the year ended 31 December 2006 includes the payment of U.S.$10,853 thousand under the 

special incentive scheme in place for a limited number of the senior managers, based on Rolf’s 

performance in 2006. 

Office costs, business travel and services 

Office costs, business travel and services increased by 66.2 per cent. to U.S.$29,162 thousand for the year 

ended 31 December 2006 from U.S.$17,542 thousand for the year ended 31 December 2005. The table 

below details the costs of office costs, business travel and services for the years ended 31 December 2006 

and 2005. 


31 December 

2006 2005 


U.S. Dollars) 

Professional services ................................................................................................. 9,244 4,971 

Audit fees ................................................................................................................... 682 400 

Directors’ remuneration........................................................................................... 104 1 

Repair and maintenance .......................................................................................... 3,922 2,524 

Rent and utilities....................................................................................................... 2,199 1,268 

Security ....................................................................................................................... 1,929 1,119 

Travel and motoring ................................................................................................. 2,706 1,820 

Recruitment and training......................................................................................... 1,463 1,373 

Other services ............................................................................................................ 3,317 1,533 

Other ........................................................................................................................... 3,596 2,533 

Total office costs, business travel and services..................................................... 29,162 17,542 

Professional services increased by 86.0 per cent. to U.S.$9,244 thousand for the year ended 31 December 

2006 from U.S.$4,971 thousand for the year ended 31 December 2005. This was mainly because of the 

fees paid in the course of raising the Secured Syndicated Loan Facility from a syndicate of banks. Funds 

under the Secured Syndicated Loan Facility were initially drawn down in the first quarter of 2006. 

The cost of rent and utilities increased by 73.4 per cent. to U.S.$2,199 thousand for the year ended 

31 December 2006 from U.S.$1,268 thousand for the year ended 31 December 2005. This was due to the 

increased number of dealer centres in operation in 2006 compared to 2005. 

Other expenses (repair and maintenance, security, travel and motoring, recruitment and training, other 

services, audit fees, directors’ remuneration and other) increased to U.S.$17,719 thousand for the year 

ended 31 December 2006 from U.S.$11,303 thousand for the year ended 31 December 2005, which was in 

line with the growth of Rolf’s business and were incurred to satisfy its business needs. 

Depreciation, amortisation and impairment 

Depreciation, amortisation and impairment increased by 88.1 per cent. to U.S.$19,496 thousand for the 

year ended 31 December 2006 from U.S.$10,365 thousand for the year ended 31 December 2005. Rolf 

performed an independent appraisal of its property portfolio as at 1 October 2006. The result of this 

revaluation was an increase in value for most of the properties in the amount of U.S.$11,933 thousand, 

which was recorded in the revaluation reserve. At the same time the value of three properties which were 

never previously revalued were decreased in value, and therefore a fair value adjustment of U.S.$5,794 

thousand was recorded in 2006 as part of the total depreciation, amortisation and impairment expense. 

Without the effect of this amount, depreciation and amortisation expense for the year ended 

31 December 2006 would have increased by 32.2 per cent. to U.S.$13,702 thousand from U.S.$10,365 

43

thousand for the year ended 31 December 2005. This was due to continuing investments in fixed assets 

and intangible assets during 2006. 

Other operating expenses, net 

Other operating expenses increased by 44.8 per cent. to U.S.$23,637 thousand for the year ended 

31 December 2006 from U.S.$16,328 thousand for the year ended 31 December 2005. 

The table below details the other operating expenses, net for the years ended 31 December 2006 and 2005. 


31 December 

2006 2005 


U.S. Dollars) 

Disposal of property, plant and equipment, net .................................................. 973 2,858 

Impairment of trade accounts receivable .............................................................. 1,051 1,455 

Bank and other commissions................................................................................... 9,425 4,233 

Charitable donations................................................................................................. 1,189 890 

Non-recoverable VAT and taxes other than on income .................................... 6,875 3,817 

Other ........................................................................................................................... 4,124 3,075 

Total other operating expenses, net....................................................................... 23,637 16,328 

Bank and other commissions increased by 122.7 per cent. to U.S.$9,425 thousand for the year ended 

31 December 2006 from U.S.$4,233 thousand for the year ended 31 December 2005, and represents fees 

and commissions paid to the banks under the Secured Syndicated Loan Facility as well as in the course of 

commercial relationships with the settlement banks in the course of normal trade. 

Non-recoverable VAT and taxes, other than on income, increased by 80.1 per cent. to U.S.$6,875 

thousand for the year ended 31 December 2006 from U.S.$3,817 thousand for the year ended 

31 December 2005. Included in these amounts is property tax, which increased by 58.3 per cent. to 

U.S.$1,946 thousand for the year ended 31 December 2006 from U.S.$1,229 thousand for the year ended 

31 December 2005, due to more property being used by Rolf in its operations for the year ended 

31 December 2006 compared to the year ended 31 December 2005. Other non-recoverable taxes 

increased by 90.5 per cent. to U.S.$4,929 thousand for the year ended 31 December 2006 from U.S.$2,588 

thousand for the year ended 31 December 2005, and mostly represents input VAT that cannot be offset 

against output VAT under the tax regulations of the Russian Federation. 

Impairment of trade accounts receivable decreased by 27.8 per cent. to U.S.$1,051 thousand for the year 

ended 31 December 2006 from U.S.$1,455 thousand for the year ended 31 December 2005. 

Other operating expenses include expenses in respect of property mortgages as required by the Secured 

Syndicated Loan Facility and due diligence expenses in relation to land purchases which were 

contemplated by Rolf. These expenses increased by 34.1 per cent. to U.S.$4,124 thousand for the year 

ended 31 December 2006 from U.S.$3,075 thousand for the year ended 31 December 2005. 

Charitable donations include donations made by Rolf to educational and social institutions and 

organisations as part of Rolf’s approach to social responsibility. 

Finance costs 

Interest expense on borrowings increased by 47.7 per cent. to U.S.$33,754 thousand for the year ended 

31 December 2006 from U.S.$22,852 thousand for the year ended 31 December 2005. This increase was 

the result of an increase in borrowing in order to finance the expansion of the business. 

Interest income increased to U.S.$2,412 thousand for the year ended 31 December 2006 from U.S.$1,436 

thousand for the year ended 31 December 2005, which was the result of improved management of 

liquidity by Rolf through obtaining better rates of interest from banks and using a tender process when 

Rolf has surplus cash resources to invest. Rolf has taken a conservative approach to its treasury activities 

and excess cash is usually put on short-term deposit accounts with major Russian and international banks. 

The table below details the finance costs for the years ended 31 December 2006 and 2005. 

44


31 December 

2006 2005 


U.S. Dollars) 

Interest expense on borrowings .............................................................................. 33,754 22,852 

Unwinding of discount on provisions..................................................................... 477 405 

Interest income .......................................................................................................... (2,412) (1,436) 

Borrowing costs on assets under construction at 8.6 per cent. 

(2005 – 9.5 per cent.) ................................................................................................ (2,547) (2,039) 

Net finance costs recognised in the income statement........................................ 29,272 19,782 

Foreign exchange 

Almost all of Rolf’s borrowings are denominated in U.S. Dollars and the majority of Rolf’s costs 

(including salaries) are U.S. Dollar denominated, but the functional currency of Rolf for the purpose of 

preparing financial statements in accordance with IFRS is the Rouble. For the year ended 31 December 

2006 there was a net foreign exchange loss from operations of U.S.$10,681 thousand and a net foreign 

exchange gain on cash and borrowing of U.S.$16,157 thousand, leaving a net position of a gain of 

U.S.$5,476 thousand, mostly due to the weakening of the U.S. Dollar against the Rouble in that year. For 

the year ended 31 December 2005 there was a net foreign exchange loss from operations of U.S.$1,164 

thousand, and a net foreign exchange loss on cash and borrowings of U.S.$1,873 thousand, leaving a net 

position of a loss of U.S.$3,037 thousand, mostly due to the strengthening of the U.S. Dollar against the 

Rouble in that year. 

Income tax expense 

The income tax expense increased by 13.4 per cent. to U.S.$47,508 thousand for the year ended 

31 December 2006 from U.S.$41,907 thousand for the year ended 31 December 2005. Rolf’s effective tax 

rate for the year ended 31 December 2006 was 26 per cent., compared to 36 per cent. for the year ended 

31 December 2005. This is because in the year ended 31 December 2005 Rolf’s estimates of these 

liabilities increased, therefore increasing the tax expense and the effective tax rate for that year. 

Conversely, in the year ended 31 December 2006, Rolf’s estimates of these liabilities decreased, therefore 

reducing the tax expense and the effective tax rate for that year. Also, due to the improved legal and 

accounting structuring of Rolf’s operations, the volume of non-deductible expenses decreased 

significantly in the year ended 31 December 2006 compared to the year ended 31 December 2005. 

The table below details the income tax expense for the years ended 31 December 2006 and 2005. 


31 December 

2006 2005 


U.S. Dollars) 

Current tax expense.................................................................................................. 50,266 45,479 

Deferred tax expense/(benefit) ............................................................................... (2,758) (3,572) 

Income tax expense for the year ............................................................................ 47,508 41,907 

Minority interest 

The minority interest represents the profits attributable to the minority shareholder in the Hyundai 

distribution business of Rolf. The only distributor of imported Hyundai vehicles in Russia is Carnet 2000. 

Rolf has a 60 per cent. controlling stake in its subsidiary Carnet 2000, and the remaining 40 per cent. is 

owned by a subsidiary of Mitsubishi Corporation, Mitsubishi Corporation Automotive (Europe) N.V.. 

The minority interest increased by 87.3 per cent. to U.S.$29,857 thousand for the year ended 

31 December 2006 compared to U.S.$15,937 thousand for the year ended 31 December 2005, due to the 

increase in profit from this operation. The distribution contract operated by Carnet 2000 is expected to 

end in 2007. 

45

Profit for the year 

For the reasons set forth above, profit for the year ended 31 December 2006 increased by 81.6 per cent. to 

U.S.$134,939 thousand from U.S.$74,312 thousand for the year ended 31 December 2005. 

Liquidity and Capital Resources 

Rolf’s liquidity needs principally arise from the need to finance the expansion and development of its 

existing business. In the period covered by this ‘‘Financial Review’’ section, Rolf met its liquidity needs 

primarily out of operating cash flows and long term borrowings. Rolf’s borrowings and cash flows for the 

years ended 31 December 2006 and 2005 are detailed below. 

As at 

31 December 

2006 2005 


U.S. Dollars) 

Term loans*................................................................................................................ 353,508 162,041 

Finance lease liabilities............................................................................................. 4,445 3,484 

Total borrowings ....................................................................................................... 357,953 165,525 

Less current portion.................................................................................................. (117,463) (142,033) 

Non-current borrowings ........................................................................................... 240,490 23,492 

The Group’s borrowings mature as follows: 

Borrowings due: – within 1 year............................................................................. 117,463 142,033 

– between 2 and 5 years............................................................. 240,490 15,452 

– after 5 years .............................................................................. – 8,040 

Total borrowings ....................................................................................................... 357,953 165,525 

*Including accrued interest. 

The borrower under the Secured Syndicated Loan Facility was Colgrade Limited, which then on-lent the 

funds directly to the operating companies of Rolf in Russia. The Secured Syndicated Loan Facility is 

guaranteed by Delance Limited and certain asset-owning and operating companies of Rolf. The Secured 

Syndicated Loan Facility of U.S.$350 million was originally made up of a U.S.$192 million term loan 

facility and a U.S.$158 million revolving credit facility. The revolving credit facility is fully drawn and is 

therefore similar in nature to a term loan. It is therefore included in ‘term loans’ in the Consolidated 

Financial Statements and in the table above. 

Working capital and long-term capital requirements 

Historically, Rolf has relied on cash flows from operating activities and, to a lesser extent, bank loans to 

finance its working capital and long-term capital requirements. Rolf plans to use the proceeds of the 

Offering largely to repay its current indebtedness under the Secured Syndicated Loan Facility (see ‘‘Use 

of Proceeds’’). Rolf’s future liquidity needs, including those required to implement capital expenditure in 

accordance with its business strategy, are expected to be financed by a combination of cash flows 

generated by the Company’s operating activities and external sources of financing including the Bilateral 

Facilities (see ‘‘Use of Proceeds’’ and ‘‘Business Description – Funding’’). 

Capital expenditure 

The Company primarily incurs capital expenditure to construct, expand or improve its facilities. For the 

year ended 31 December 2006, additions to property, plant and equipment amounted to U.S.$125,037 

thousand, compared to U.S.$72,211 thousand for the year ended 31 December 2005. The majority of 

capital expenditure for the years ended 31 December 2006 and 2005 was invested in land and buildings 

for new showrooms. 

46

Cash flows 

Operating cash flows before working capital changes increased by 45.4 per cent. to U.S.$217,662 thousand 

for the year ended 31 December 2006, from U.S.$149,709 thousand for the year ended 31 December 2005. 

The increase in operating cash flows before working capital changes resulted primarily from increased 

profit before income tax of U.S.$182,447 thousand for the year ended 31 December 2006, compared to 

U.S.$116,219 thousand for the year ended 31 December 2005, which was partially offset by an increased 

adjustment for provision for bonuses, taxes and warranties, a non-cash item. 

Net cash from operating activities was U.S.$4,259 thousand for the year ended 31 December 2006, 

compared to U.S.$72,901 thousand for the year ended 31 December 2005. This decrease was mainly due 

to a significant growth in Rolf’s trade and other receivables, excluding income taxes and increase in 

inventories. Increase in trade and other receivables, excluding income taxes for the year ended 

31 December 2006 compared to the year ended 31 December 2005 was primarily driven by the increase in 

prepayments for vehicles and VAT recoverable and other taxes prepaid. For the year ended 

31 December 2006 inventories increased by U.S.$70,495 thousand compared to the decrease of 

U.S.$4,860 thousand for the year ended 31 December 2005. The increase in inventories for the year ended 

31 December 2006 was primarily attributed to substantial purchases of vehicles driven by year end 

incentives offered by manufacturers. 

Net cash used in investing activities increased by 61.4 per cent. to U.S.$104,793 thousand for the year 

ended 31 December 2006 from U.S.$64,908 thousand for the year ended 31 December 2005. The increase 

in net cash used in investing activities resulted primarily from the purchase of land and construction of 

buildings for new showrooms. 

Net cash from financing activities was U.S.$171,990 thousand for the year ended 31 December 2006, 

compared to U.S.$49,041 thousand for the year ended 31 December 2005. The increase in net cash from 

financing activities resulted primarily from an increase in borrowings. 

47

BUSINESS DESCRIPTION 

OVERVIEW 

Rolf is a leading diversified car sales and services business in Russia. In 2006, Rolf sold over 130,000 cars 

in Russia to dealers and directly to customers. Originally established in Moscow in 1991, Rolf has grown 

over recent years in line with the growth of the market for imported foreign cars in Russia and currently 

operates through the five business divisions summarised below. See also ‘‘Presentation of Financial and 

Other Information’’ for explanation of the presentation of the financial information by reporting segment. 

Retail 

Rolf owns and operates 13 large car dealerships located on major thoroughfares in Moscow (and Moscow 

Region (‘‘Moscow Oblast’’)) and St. Petersburg, the cities which between them account for two-thirds of 

all imported cars sold in Russia, according to Rolf estimates. Through these dealerships, Rolf retails a 

diverse brand portfolio of cars including Mitsubishi, Hyundai, Ford, Audi, Mazda, Peugeot and 

Mercedes-Benz. Rolf has also made arrangements to sell Toyota and Lexus cars when it opens new 

dealerships in 2008. Each such dealership typically retails between one and four brands of car in separate 

showrooms, and there are 21 showrooms in total across the 13 dealerships. The Rolf brand is displayed 

prominently in these dealerships giving Rolf brand awareness in its own right. 

In addition to the retail showrooms, each dealership also has a dedicated car service operation, providing 

repairs, service and bodywork through comprehensive facilities including up to 50 mechanical service 

bays in one dealership and paint and bodywork shops. 

Distribution 

Rolf is the exclusive importer and distributor of new Mitsubishi cars in Russia on behalf of Mitsubishi 

Motors Corporation (‘‘Mitsubishi Motors’’). In its capacity as exclusive distributor for Mitsubishi Motors, 

Rolf manages the import of new cars into Russia, organises logistics for car warehousing and 

transportation, supervises brand promotion and designates official status to Mitsubishi dealerships in 

Russia. Rolf distributes Mitsubishi cars to 89 dealers in 63 cities across Russia. Of these 89 dealers, seven 

are owned by Rolf’s retail division and the remainder are independent. Rolf has an exclusive distribution 

contract with Mitsubishi Motors until 2009, and Rolf expects that it will be extended until 2012. However, 

the terms of the extension have not so far been agreed with Mitsubishi Motors (see ‘‘– Business 

Description – Operations – Distribution’’ and ‘‘– Risk Factors – Rolf may lose its exclusive distribution 

contract with Mitsubishi Motors Corporation’’). 

Rolf also currently has a 60 per cent. controlling stake in its subsidiary Carnet 2000 (with the remaining 

40 per cent. owned by a subsidiary of Mitsubishi Corporation), which holds the only distribution contract 

in Russia for new imported Hyundai cars with Hyundai Motor Company (‘‘Hyundai Motor’’). This 

distribution contract is expected to end later this year. It is understood that Hyundai Motor will set up a 

new distribution entity, in which Rolf has been offered a minority equity stake. 


Rolf is a leading distributor for car spare parts, options and accessories in Russia. Rolf has an exclusive 

distribution contract for Mitsubishi-branded original spare parts, options and accessories. Rolf has a 

number of non-exclusive contracts for the distribution of specialised branded parts, options and 

accessories, such as Nokian Tyres, Blaupunkt, iPod and Mobil Oil. 

Logistics 

Rolf’s logistics business involves the transportation, customs clearance and warehousing of new imported 

cars in Russia. This business was historically used only to transport cars for Rolf’s own Mitsubishi and 

Hyundai distribution networks. Since 2006, Rolf has entered into new logistics contracts with distributors 

for Volkswagen, Skoda and Mercedes-Benz cars in Russia. Rolf operates its logistics business using its 

own fleet of 172 Mercedes-Benz trucks and up to a further 300 trucks hired on a daily basis. 


Rolf’s financial services business, Rolf Pronto, brokers insurance policies and consumer loans for Rolf’s 

customers. Rolf Pronto has agreements with six retail banks and eight insurance companies through 

which customers may obtain car loans and insurance policies. Rolf Pronto takes no credit or underwriting 

48

isk, is not involved in any of the credit or underwriting decisions and generates fee income from the 

provision of such brokerage services. 

For the year ended 31 December 2006, Rolf’s revenues and EBITDA were U.S.$2,728 million and 

U.S.$231 million respectively, compared with U.S.$1,987 million and U.S.$146 million for the year ended 


History and development 

In August 1991, Mr. Sergey Petrov, the current sole beneficiary of Rolf (see ‘‘Shareholding’’), together 

with several partners established Rolf Co. Limited as a taxi and car rental business in Moscow. The 

business used only foreign cars and quickly gained a reputation for having a customer-friendly service. 

Within a few months of its establishment, Rolf Co. Limited was appointed as an official service agent for 

Mitsubishi Motors. In 1992, Rolf started sales of Mitsubishi cars in Russia and sold 109 new cars. 

In 1994, Rolf opened the first Mitsubishi showroom in Moscow, and in 1995 began its distribution 

business by distributing Mitsubishi cars to other dealers outside of Moscow on a non-exclusive basis. In 

1997, Rolf established its car import business with Hyundai Motor. In 1998, Rolf obtained exclusive 

distribution rights for Mitsubishi cars and spare parts in the European part of Russia, which were 

extended to the whole of Russia in 2003. 

In 1999, Rolf opened a leasing arm, CJSC Kelvin (‘‘Kelvin’’), and set up its first dealership in 

St. Petersburg for Mitsubishi cars. In 2000, Rolf agreed distribution rights with Hyundai Motor through a 

subsidiary called Carnet 2000, in which Rolf has a controlling 60 per cent. equity holding and a subsidiary 

of Mitsubishi Corporation (a separate entity from Mitsubishi Motors) has the remaining 40 per cent. 

equity holding (see ‘‘– Business Description – Overview’’). 

In 2001, Rolf opened dealerships selling Audi and Ford cars. In 2004, Rolf sold its leasing business 

through the sale of its interest in Kelvin and its original taxi and car rental business to Baring Vostok 

Capital Partners, a private equity fund, to support its investments in the key areas of distribution and 

retail operations, and spare parts, options and accessories distribution. In 2004, Rolf opened its first 

Mazda showroom at Rolf-Khimki in Moscow Oblast. In 2005, Rolf began brokering financial and 

insurance services through its subsidiary LLC ROLF Pronto (‘‘Rolf Pronto’’). In 2006, Rolf began 

offering logistics services to third parties through its subsidiary LLC ROLF Logistics (‘‘Rolf Logistics’’). 

In the same year, Rolf opened its first Mercedes and Peugeot dealerships, LLC Zvezda Stolici in Moscow 

and LLC Rolf Lahta P in St. Petersburg, respectively. 

In recent years Rolf has also refined its corporate structure, shareholding and management. In 2003, 

Sergey Petrov signed a contract to buy out the last minority shareholdings in Rolf and hired 

PricewaterhouseCoopers to advise on a restructuring of Rolf in order to create a transparent, vertically 

integrated group structure with a single holding company. As a result, in 2004 the Group’s holding 

company, Delance Limited, was registered in Cyprus and Sergey Petrov became its settlor and sole 

beneficiary through a family trust in Cyprus (see ‘‘Shareholding’’). At the same time, Sergey Petrov 

became Chairman of the Management Board and was replaced as CEO by Matt Donnelly. In 2005, Rolf 

entered into the U.S.$350 million Secured Syndicated Loan Facility with a syndicate of banks in order to 

finance expansion of the business. In September 2006, Sergey Petrov took the position of Honorary 

President and Nicholas Coulson was appointed as a Director of Delance Limited and as Chairman of 

Rolf’s Management Board. Nicholas Coulson resigned from both positions with effect from 5 June 2007. 

Sergey Petrov continues to provide strategic direction to Rolf (see ‘‘Management and Directors’’). 

COMPETITIVE STRENGTHS 

Premium retail business with a diversified brand portfolio 

Rolf believes that its well-chosen locations and high-quality premises provide a strong competitive 

advantage in Russia’s expanding foreign branded car market, which grew by 66 per cent. between 2005 

and 2006 (measured by number of cars sold), according to Business Monitor International (‘‘BMI’’). 

Rolf’s dealerships are strategically located on major thoroughfares in Moscow and St. Petersburg, having 

each cost between U.S.$15 million and U.S.$25 million to construct. In the terms of the car retail industry, 

Rolf’s dealerships are large in size and turnover and on average, in 2006, each showroom sold 

approximately 300 cars per month. Moscow and St. Petersburg are the country’s two most affluent cities 

and together they account for approximately two-thirds of the Russian market for foreign cars, according 

to Rolf estimates. In addition, sales of imported foreign car brands are growing more quickly in Russia 

than sales of Russian car brands, according to BMI. 

49

Rolf offers a wide range of brands and models covering the middle and upper tiers of the Russian market 

for imported cars produced by European, American and Asian manufacturers. Currently, Rolf retails 

seven car brands, European, American and Japanese, and arrangements have been made to launch sales 

of a further two brands in 2008. Rolf believes that the broad range of cars it sells attracts a wide number 

of consumers, reduces dependency on any one particular brand and provides for flexibility to adapt to 

changing consumer tastes. 

Strong distribution business with leading geographic coverage 

Rolf has agreed exclusive distribution rights with Mitsubishi Motors for all imported cars in Russia until 

2009. Rolf expects it will be able to extend this distribution agreement to 2012. However, the terms of the 

extension have not so far been agreed with Mitsubishi Motors (see ‘‘– Risk Factors – Rolf may lose its 

exclusive distribution contract with Mitsubishi Motors Corporation’’). In 2006, Mitsubishi Motors 

reclassified Russia as a stand-alone car market independent of Europe and established direct business and 

communication lines between Moscow and Tokyo. Mitsubishi was in 2006 the seventh most popular 

foreign car brand within Russia measured by number of cars sold, according to BMI. Over 

68,000 Mitsubishi cars were sold to 89 dealers in 63 cities across Russia in 2006 exclusively through 

Rolf’s distribution business, representing a 6.9 per cent. share of the market in Russia for foreign cars, 

according to BMI. 

Rolf’s distribution business has expanded rapidly in Russia’s major cities, and as the official distributor 

for Mitsubishi Rolf has ensured through carefully run tender processes that only high quality and reliable 

partners are chosen to operate retail dealerships carrying the brand. 

Higher margin recurring revenue stream from established repairs and servicing business 

Rolf provides high quality car servicing and repairs in its dealerships. It is an official service agent of each 

of the brands sold in its own dealerships and is able to ensure that high quality standards are consistently 

met. Car maintenance with an authorised service agent adds value to the vehicle in the secondary market. 

Official service status also means that the business is able to handle warranty and insurance work. 

Rolf believes that this business will benefit from the general increase in car usage in Russia and from the 

shortage of service capacity in Moscow and St. Petersburg. Rolf believes that its repairs and servicing 

businesses give it a competitive advantage because the services themselves generate higher percentage 

margins than pure car retail, and because competing retailers do not always offer these services, which 

generate profits even if the demand in Russia for new imported cars decreases. 

Strong management team 

Rolf’s management team has a detailed knowledge of the Russian car market. Rolf’s senior personnel 

combine extensive experience in Russia with experience in international companies with high business 

standards. For example, a non-Russian President and CEO was appointed in 2004 (see ‘‘Management 

and Directors’’). 

Modern employment practices 

Rolf uses modern employment practices, such as active promotion of corporate values and corporate 

culture as well as training staff at Rolf’s training facilities. In addition to high-quality training, Rolf 

provides its staff with social benefits and good salaries. Over 80 per cent. of Rolf’s managers were 

appointed internally and staff retention rates are high at over 80 per cent. This has helped to ensure a 

consistent supply of employees with the requisite skills for company growth. 

Strong brand recognition associated with high quality service 

Most of Rolf’s dealerships are branded ‘‘Rolf’’ in addition to the manufacturer’s branding. As a result, 

Rolf has developed strong brand recognition in its own right as a retailer as well as a reputation for 

delivering high quality customer service. According to marketing research organised by Trout & Partners 

(a leading international brand analyst) and implemented by Ramir Monitoring (a Russian research 

agency), Rolf is the leader among car retailer chains in Moscow in terms of public spontaneous awareness 

(75 per cent.) and aided awareness (94 per cent.). Rolf believes that brand recognition is a competitive 

advantage and has led to an increase in the use of its services and increasing customer loyalty. 

50

Established relationship with consumer finance and insurance providers 

Rolf has developed reliable relationships with consumer lenders and insurance providers in order that 

these associated services can be provided in support of and in addition to the selling of cars. These 

additional services are provided through Rolf Pronto, a finance broker wholly-owned by Rolf (see 

‘‘Operations – Financial Services’’). Rolf believes that its reliable relationship with financial services 

providers makes it competitive and flexible in meeting increased consumer demand for cars by facilitating 

attractive credit and insurance products to assist customers buying Rolf’s cars. In addition, the variety of 

products offered by Rolf on competitive terms in its car retail sites attracts customers and helps to build 

good relationships with them so that they return to Rolf for other products rather than visit Rolf’s 

competitors. 

Reliable reputation with manufacturers and distributors 

Rolf has a reliable reputation with manufacturers and distributors in all of its business divisions. For 

example, its logistics division, which for a long time served only the internal needs of Rolf, gained a strong 

reputation among other car distributors and car transporters. This helped to turn it into a separate 

business division providing logistics services to other market players, including Volkswagen, Skoda and 

Mercedes-Benz. Stable, long-term relationships with manufacturers and distributors are an important 

element in building the business. The relationship with Mitsubishi, Rolf’s most important distribution 

partner, dates back to 1991. Rolf’s relationships with Hyundai (since 1997), Ford and Audi (both 2001) 

and Mazda (2004) are similarly well-established. This is evidenced by the awards given to Rolf by major 

international manufacturers for Rolf’s business service. 

Rolf was named as ‘‘Best Distributor in Europe in 2005’’ and ‘‘Best Spare Parts Distributor in Europe in 

2004’’, by Mitsubishi Motors Europe. Hyundai named Rolf its ‘‘Worldwide Distributor of the Year’’ in 

2003 and Rolf also won ‘‘Hyundai Award for Excellence in Sales in 2004’’. Rolf was named the ‘‘Best 

Audi Dealer of Two Capitals’’ by Audi in 2005, ‘‘The World’s best Mazda dealer’’ by Mazda Motors in 

2006 and the ‘‘Best East Europe Hyundai dealer in 2005’’ by Hyundai Motor. 

BUSINESS STRATEGY 

Rolf’s key strategic goal is to consolidate and strengthen its position as a leading diversified car retailer, 

distributor and servicer in Russia. Rolf aims to expand its retail dealership network in Moscow and St. 

Petersburg by opening 12 new showrooms by 2011 to take advantage of expected continued strong 

growth in the foreign branded car market in Russia. Six of these showrooms are currently under 

development. Rolf also plans to grow volumes in its distribution business in line with the anticipated 

growth of the market in Russia for foreign imported cars. Rolf plans to grow the logistics division through 

new contracts made with third party car distributors and by investing in the truck fleet. In addition, the 

company aims to capitalise on growth in the car spare parts, options and accessories distribution market 

as demand increases, and also to expand its financial services brokerage business. 

Expansion of retail network 

Rolf is planning to grow its retail business to capture the expected market growth for foreign branded 

cars in Russia. Rolf intends to do this by constructing new dealerships in Moscow (including Moscow 

Oblast) and St Petersburg. Rolf plans to diversify further its range of brands sold by seeking agreements 

with manufacturers to sell additional brands through its network of dealerships. Expected growth in the 

number of cars sold will lead to an increase in demand for car servicing. Rolf plans to develop its servicing 

network in order to capture this increase in demand both by constructing service centres alongside new 

dealerships and also by constructing standalone service centres, ‘‘bodybarns’’. 

Growth of the distribution business 

Rolf plans to keep Mitsubishi as one of the bestselling brands in Russia (see ‘‘– Business Description – 

Operations – Distribution – Overview’’) by increasing volumes sold in the existing distribution network, 

driven by growth in the market. Rolf is planning a modest expansion in the network of approximately 

four or five new dealers per year and expects that it will renew the exclusive distribution agreement with 

Mitsubishi until 2012. However, the terms of the extension have not so far been agreed with Mitsubishi 

Motors (see ‘‘– Risk Factors – Rolf may lose its exclusive distribution contract with Mitsubishi Motors 

Corporation’’). 

51

Growth of the spare parts business 

Rolf intends to further capitalise on growth from the high margin spare parts, options and accessories 

distribution business operated through its subsidiary Rolf PDC as demand increases throughout the 

dealership network. Demand is expected to increase as a result of the growth in the number of foreign 

imported cars in Russia. The construction of a new spare parts warehouse will be completed in 2009 to 

meet the additional demand. 

Growth of logistics business 

Rolf plans to continue with its recent expansion of the business by looking to sign further new third party 

contracts for the delivery of new imported cars to distributors and dealers in Russia. In order to facilitate 

the growth of this business, Rolf is planning to expand its truck fleet by a further 275 trucks by the end 

of 2008. 


Rolf plans to grow its financial services business as the number of cars sold in its retail and distribution 

businesses increases, as the proportion of cars bought on credit increases as Russian consumers become 

more familiar with credit finance, and as Russian consumers increase their usage of insurance products. 

Other opportunities 

Rolf is currently carefully examining other opportunities to expand its business including the retailing of 

second hand cars through a new business called ‘‘BlueFish’’, and additional opportunities within its 

financial services business to meet consumer demand. 

ORGANISATIONAL STRUCTURE AND BUSINESS DIVISIONS 

Delance Limited, a company incorporated under the laws of Cyprus, is the Group’s holding company. 

Delance Limited was established during a reorganisation of the Group in 2004, in order to create a 

transparent group structure with a single holding company. Delance Limited holds the Group through 

several Cyprus- and UK-based subholding companies. While all operational subsidiaries are controlled 

by Delance Limited, Sergey Petrov still retains direct shareholdings in five of the Group companies. 

These shareholdings are stakes of 1 per cent. or less, with the exception of the 51 per cent. shareholding in 

CJSC Rolf Estate (‘‘Rolf Estate’’). However, under a management agreement entered into by the 

shareholders of Rolf Estate all executive power in Rolf Estate is retained by its 49 per cent. shareholder, 

CJSC ROLF Holding (‘‘Rolf Holding’’) (the Group’s management company (See ‘‘Management and 

Directors’’)). In addition, the Group has a controlling stake in its subsidiary Carnet 2000, the current 

vehicle for distributing Hyundai passenger cars, whose equity is held 60 per cent. by Rolf and the 

remaining 40 per cent. by Mitsubishi Corporation through MCAE. The Hyundai distribution 

arrangement is currently being revised and Rolf has been offered a reduced equity stake in the new 

Hyundai distribution business in which Hyundai Motor will have the controlling equity stake. 

52

The following chart describes the Group’s corporate structure as at 31 May 2007. 

100% 

MC Automobile (Europe) N.V. 

100% 

100% 20% 

100% 

Brookfield 

Trading Ltd (UK) 

Delance Ltd 

(Cyprus) 

Skanniola Int Ltd 

(BVI) 

HMCIS B.V. 

(Netherlands) 

Crownvision Ltd 

(Cyprus) 

100% 100% 100% 100% 

100% 

100% 

100% 

Linstock 

Ltd (Cyprus) 

Intercar Trading 

Ltd (UK) 

100% 

Panabel Ltd 

(Cyprus) 

Sinoco Ltd 

(Cyprus) 

Veldom Ltd 

(Cyprus) 

Bonaspec Ltd 

(Cyprus) 

Colgrade Ltd 

(Cyprus) 

Hyundai Motor 

CIS LLC 

50% 50% 

100% 

ROLF Oktiabrskaya 

LLC 

100% 

100% 

Narrilos 

Investments 

Limited 

ROLF ALTUFIEVO 

Rolf 

RPA Trading 

LLC 

100% 

100% 

ROLF Import 

LLC 

100% 

ROLF Lahta M 

LLC 

99.66% 

100% 

100% 

ROLF PDC 

LLC 

Carlain 

LLC 

100% 

ROLF Lahta P 

LLC 

Vnukovo Rent 

LLC 

S. Petrov 

LLC 

Carnet 2000 

CJSC 

60% 

40% 

53 

100% 

100% 

100% 

ROLF City 

LLC 

100% 

ROLF ESTATE 

SPB LLC 

ROLF PDC 

ESTATE LLC 

ROLF YUG 

LLC 

100% 

Zvezda Stolici 

LLC 

100% 

99% 

100% 

ROLF Management 

Company LLC 

HarusLLC 

76% 

100% 

ROLF-Neva 

LLC 

LLC SP 

Diamant 

ROLF Motors 

LLC 

100% 

99.66% 

ROLF VOSTOK 

LLC 

Phenix Motors 

CJSC 

ROLF ESTATE 

CJSC 

24% 

18% 

100% 

100% 

49% + management 

control 

ROLF Khimki 

LLC 

Roton-I 

LLC 

CJSC SP ROLF 

99.72% 

82% 

99.99% 

ROLF Holding 

CJSC 

0.136% 

ROLF Pronto 

LLC 

100% 

AC SEVER 

LLC 

0.01% 

100% 

100% 

99.66% 

0.34% 

RABS 

NOU 

ROLF Insurance 

LLC 

Rolf Logistic 

LLC

The Group is currently contemplating refining the Group’s present holding structure, as set out in the 

table above. The contemplated refining would be with the intention of streamlining operations by 

allocating one Cypriot subholding company for each of the Group’s business activities. The relevant 

Russian subsidiaries, where necessary, will be moved under the appropriate Cypriot subholding company. 

It is anticipated that the refining, if undertaken, would be completed by the end of 2008 and the structure 

of the Group after such refining would be as set out in the table below: 

Bonaspec Ltd / 

Veldom Ltd 

(Cyprus) 

S. Petrov 

LLC 

Rolf Estate 

CJSC 1 

Rolf Estate 

SPB LLC 

Narrilos 

Investments 

Ltd. 

Vnukovo 

Rent LLC 

Real Estate 

Skanniola Int 

Ltd. (BVI) 

Colgrade Ltd. 

(Cyprus) 

Group 

Finance 

1 The individual dealerships are identified below. 

Sergey 

Petrov 

Delance Ltd 

(Cyprus) 

Sinoco Ltd 

(Cyprus) 

Rolf Holding 

CJSC 

Rolf Import 

LLC 

Administration/ 

Mitsubishi 

Distribution 

Panabel Ltd 

(Cyprus) 

Individual 

Dealerships 1 

Rolf Pronto 

LLC 

Retail / 

Financial 

Services 

Crownvision Ltd 

(Cyprus) 

Rolf Logistics 

LLC 

Linstock Ltd 

(Cyprus) 

Rolf PDC 

LLC 

RPA Trading 

LLC 

Rolf PDC 

Estate LLC 

Logistics Spare Parts 

Hyundai 

Distribution JV 

Currently Being 

Restructured 

Hyundai 

Distribution 

The list of the Group’s subsidiaries, including the Guarantors 

The Group consists of Delance Limited and its following consolidated subsidiaries: 

n Bonaspec Limited 

n Veldom Limited 

n Sinoco Limited 

n Panabel Limited 

n Intercar Trading 

n Linstock Limited 

n Colgrade Limited 

n Brookfield Trading Limited 

n Crownvision Limited 

n Skanniola Limited 

n Narrilos Investments Limited 

n CJSC ROLF Holding 1 

n CJSC Rolf ESTATE 1 

n CJSC Phoenix Motors 

n LLC ROLF PDC ESTATE 1 

n LLC Vnukovo Rent 

n LLC ROLF Estate SPB 1 

n LLC ROLF Import 1 

n LLC RPA Trading 

n LLC ROLF Pronto 1 

n LLC ROLF PDC 

n LLC ROLF Insurance 

n LLC ROLF Logistics 

1 

n LLC S.Petrov 1 

n RABS NOU 

n LLC Harus 

n LLC ROLF Management Company 

n LLC ROLF-Neva 

n LLC Roton-I 

n LLC SP Diamant 1,2 

n LLC ROLF-YUG 1,2 

n LLC ROLF-VOSTOK 1,2 

n LLC ROLF KHIMKI 1,2 

n LLC Zvezda Stolici 1,2 

n LLC AC-Sever 1,2 

n LLC ROLF-City 1,2 

n LLC ROLF ALTUFIEVO 1,2 

n LLC ROLF Lahta M 1,2 

n LLC ROLF Lahta P 1,2 

n LLC Carlain 1,2 

n LLC ROLF-Oktiabrskaya 1,2 

n 

1, 2 

CJSC SP ROLF 

n Carnet 2000 3 

1 a Guarantor. 

2 Included within Individual Dealerships in table above 

3 Carnet 2000 is 60 per cent. owned by Rolf and 40 per cent. owned by a subsidiary of Mitsubishi Corporation 

54

As at 31 December 2006, the Guarantors accounted for 94.58 per cent. of the Group’s consolidated total 

assets (excluding Carnet 2000), and for 100 per cent. of the Group’s consolidated total revenues 

(excluding Carnet 2000). As at 31 December 2006, the Guarantors accounted for 82.95 per cent. of the 

Group’s consolidated total assets (including Carnet 2000), and for 69.35 per cent. of the Group’s 

consolidated total revenues (including Carnet 2000). 

The functions of Group’s key subsidiaries 

Within the Group structure, each company has its own role. The Group’s consolidated subsidiaries can be 

categorised as follows: 

Holding and subholding companies 

. Delance Limited is the top holding company of the Group. It holds the companies of the Group 

through a series of Cypriot and UK subholding companies including Bonaspec Limited (Cyprus), 

Veldom Limited (Cyprus), Sinoco Limited (Cyprus), Panabel Limited (Cyprus), Intercar Trading 

(UK) and Linstock Limited (Cyprus). 

Administration 

. Rolf Holding performs some of the management and shared service functions. 

. LLC Rolf Insurance buys insurance for the Group. 

Group finance companies 

. Colgrade Limited is the Group’s finance vehicle. Its main functions are raising funds for Rolf and 

allocating them among the respective operational subsidiaries of the Group. In particular, Colgrade 

Limited acted as the borrower under the Secured Syndicated Loan Facility (see ‘‘Use of Proceeds’’ 

and ‘‘Business Description – Funding – Loan agreements and credit facilities’’). 

Real estate companies 

. Rolf Estate is the main property owning company in the Group. 

. Real estate owning subsidiaries include: LLC Vnukovo Rent, LLC Rolf PDC Estate, 

. 

LLC S. Petrov, CJSC Phoenix Motors and LLC Rolf Estate SPB. 

Mitsubishi distribution 

LLC ROLF Import (‘‘Rolf Import’’) runs the Mitsubishi distribution role. 

Retail 

. Each of Rolf’s thirteen dealerships operates as a separate legal entity buying in their own name cars 

from Rolf Import, Carnet 2000 and non-affiliated car distributors and selling them to customers (see 

‘‘– Business Description – Retail – Overview). 


. Rolf Pronto is the agent for insurance and credit products sold to customers. 

Logistics 

. Rolf Logistics is the Group’s logistics operation and provides logistics services to Rolf Import, 

Carnet 2000 and other car distributors. 

Spare Parts 

. LLC Rolf PDC (‘‘Rolf PDC’’) operates the spare parts, options and accessories distribution 

business, buys spare parts, options and accessories from manufacturers and distributes them across 

Russia. 

. LLC RPA Trading exports Mitsubishi spare parts. 

Hyundai distribution 

. Carnet 2000 currently operates the Hyundai distribution business. Rolf’s business in the distribution 

of Hyundai cars is currently under revision by Hyundai Motor (see ‘‘Business Description – 

Distribution – Overview’’). 

55

OPERATIONS 

Retail 

Overview 

Rolf’s retail business is predominantly engaged in selling new cars to consumers, and the technical 

servicing and repair of cars. Rolf’s retail division currently operates thirteen purpose-built owned 

dealerships, of which nine are in Moscow and Moscow Oblast and four in St. Petersburg. The Moscow 

dealerships are CJSC SP ROLF, LLC SP Diamant, LLC ROLF-YUG, LLC ROLF-VOSTOCK, LLC 

ROLF KHIMKI, LLC Zvezda Stolici, LLC AC-SEVER, LLC ROLF-City and LLC ROLF 

ALTUFIEVO. The St. Petersburg dealerships are LLC ROLF Lahta M, LLC ROLF Lahta P, LLC 

Carlain and LLC ROLF-Oktiabrskaya. 

The average size of the owned dealerships is 6,206 square metres, and the average cost of constructing a 

dealership is U.S.$15 million to U.S.$25 million. Rolf Altufievo is the largest Hyundai dealership in 

Eastern Europe, according to Hyundai Motor, and Rolf’s dealerships are in general large in size for the 

car retail industry in Russia. In 2006, each owned dealership sold approximately 300 cars in a month. The 

sites are typically located on major thoroughfares in Moscow and St. Petersburg. 

The following maps show the locations of Rolf’s existing dealerships and dealerships under construction 

in Moscow and St. Petersburg as well as the brands of car offered at each showroom in such dealerships. 

Moscow St. Petersburg 

At its dealerships, Rolf provides customers with additional services for the fitting of car options and 

accessories, such as audio systems or heaters. The customers themselves can choose personalised options 

and accessories, and these are then installed on the premises by Rolf staff. Each Rolf dealership contains 

an on-site servicing centre and a spare parts warehouse so that cars sold by Rolf can be repaired. Rolf was 

also one of the first car retailers to provide other non-core on-site services to customers at its dealerships 

in order to enhance the retail experience, such as cafes, bank mini offices and agents for the sale of life 

insurance products. 

56

The following table gives details of the number of cars sold by Rolf through its retail network in the years 

ended 31 December 2004, 31 December 2005 and 31 December 2006: 

Brand 

Cars Sold 

(year ended 

31 December 

2004) 

Cars Sold 

(year ended 

31 December 

2005) 

Cars Sold 

(year ended 

31 December 

2006) 

Mitsubishi ............................................................................ 12,556 21,904 25,344 

Hyundai ............................................................................... 4,500 8,835 10,446 

Ford ...................................................................................... 3,948 6,468 12,019 

Mazda................................................................................... 330 3,476 5,964 

Audi...................................................................................... 677 950 1,091 

Volvo*.................................................................................. 239 105 – 

Mercedes-Benz** ............................................................... – – 11 

Peugeot** ............................................................................ – – 4 

Total ..................................................................................... 22,250 41,738 54,879 

*Rolf stopped retailing Volvo cars in April 2005. 

** In December 2006, Rolf launched sales of two new brands in its portfolio: Mercedes and Peugeot. In December 

2006, sales of these brands were 11 cars and 4 cars respectively. 

Dealership sites 

Overview 

The following table gives details of Rolf’s thirteen own existing dealerships: 

Name Location 

Year of 

opening 

Size 

(square 

metres) Brands sold 

SP ROLF.................... Moscow 1991 8,508 Mitsubishi, Ford 

SP DIAMANT .......... Moscow 1995 3,427 Mitsubishi 

ROLF-YUG............... Moscow 1999 8,680 Hyundai, Mitsubishi 

ROLF-VOSTOK....... Moscow 2004 3,781 Hyundai, Mitsubishi 

ROLF KHIMKI ........ Moscow 2004 12,654 Ford, Hyundai, Mazda, Mitsubishi 

Carlain......................... St. Petersburg 1999 5,281 Mitsubishi, Ford 

AC-SEVER................ Moscow 2001 5,232 Audi 

ROLF-City ................. Moscow 2006 5,829 Mitsubishi, Hyundai 

ROLF ALTUFIEVO Moscow 2006 7,135 Hyundai 

ROLF Lahta M ......... St. Petersburg 2007 5,835 Mazda 

ROLF Lahta P........... St. Petersburg 2006 4,220 Peugeot 

Zvezda Stolici ............ Moscow 2006 6,277 Mercedes-Benz 

ROLF-Oktiabrskaya . St. Petersburg 2006 3,818 Ford 

Site selection is critical for the success of a dealership. Therefore Rolf has established uniform procedures 

and standards for the roll-out of new dealerships. The main two internal criteria for the opening of a new 

dealership are that the area of the site must be at least 1.7 hectares and must be located next to a major 

thoroughfare. 

Process of setting up a new dealership 

The distributor of each brand controls the number and location of those dealerships for that brand to 

whom it distributes cars. Tenders are organised for the right to be the official retailer for a certain brand 

in a given city, or district thereof. As a well-established operator with a strong track record, Rolf is in a 

good position to secure dealership rights with major car manufacturers. Once a distributor has made 

known that there is an opportunity in a given area, it is up to Rolf to locate a site, present it to the 

distributor and, if a deal is agreed, organise the construction of the dealership. 

The search for and acquisition of the relevant sites is usually carried out by in-house project coordinators, 

assisted by external real-estate agencies and external lawyers. Rolf obtains long leases from the local 

57

authorities for its land, sometimes by purchasing companies that own rights to it, or buys freehold land. 

Every acquisition is subject to a thorough due diligence process to ensure that the rights to the land plot 

are valid and have been acquired without encumbrances. Rolf owns all of the buildings on its dealership 

sites, though a number of these buildings are currently held as security in the Secured Syndicated Loan 

Facility. It is anticipated that this security will soon be released when the Secured Syndicated Loan 

Facility is repaid (see ‘‘Use of Proceeds’’). 

Dealerships are usually constructed by reputable foreign building firms using imported materials. Rolf’s 

own managers oversee the project and employ professional consultants to ensure that the work is done to 

a professional standard. The typical set-up cost of a dealership site is from U.S.$15 million to 

U.S.$25 million, including research, construction and fit out costs. The typical payback period for existing 

sites is between 40 and 50 months. 

Sites recently developed, under construction or planned 

Rolf recently opened new dealerships in four locations over the period November 2006 to January 2007, 

including ROLF-Oktiabrskaya for sales of Ford on a centrally located plot in St. Petersburg, and ROLF 

Lahta M and ROLF Lahta P, for sales of Mazda and Peugeot respectively, on a busy highway in 

St. Petersburg. Rolf also opened Zvezda Stolici in Moscow, which was Rolf’s first site to sell Mercedes- 

Benz cars. 

Construction will start on two new dealerships in 2007 in Moscow and newly opened sites in 

St. Petersburg will be extended. In Moscow Oblast, a Toyota and Lexus dealership will be constructed on 

Kaluzhskoe Shosse, and a Peugeot dealership will be constructed on Kashirskoe Shosse. In 

St. Petersburg, ROLF-Oktiabrskaya is being extended to accommodate Mitsubishi and Hyundai 

showrooms, and ROLF Lahta M is being extended to accommodate a Mitsubishi showroom. Most of 

these new showrooms and dealerships are scheduled to open in 2008 and Rolf continues to search for 

appropriate locations to build new car dealerships in Moscow and St. Petersburg. 

Service business 

Rolf’s car services business has three main drivers: (a) customer repairs and servicing, (b) warranty 

claims, and (c) insurance repairs. 

Customer repairs and servicing 

Rolf is the official service supplier for the brands that it sells as an authorised dealer. Each Rolf 

dealership has a separate on-site repairs and servicing centre where cars sold by Rolf can be serviced by 

Rolf mechanics and supplied with official spare parts. Each Rolf repairs and servicing centre has a 

warehouse containing spare parts such as tyres, car bodywork parts and car paint, and servicing 

equipment such as electric ramps. In addition, Rolf keeps detailed computer records of the service history 

of each car it services or repairs. 

This provides Rolf’s customers with an incentive to use Rolf dealerships for servicing and repairs, because 

a servicing history with an authorised dealer normally adds value to a used car in the second hand market. 

As the number of cars in Russia sold by Rolf grows, so the pool of cars potentially needing to be serviced 

also grows. Customer demand for repairs and servicing with an authorised service provider is high and 

customers are willing to pay a premium for an official service. 

In addition to the existing servicing and repair centres at the dealerships, Rolf plans to open two 

stand-alone servicing and repair stations in Moscow and St. Petersburg in 2008. Rolf believes that it will 

benefit from an expansion of this line of business in the light of the increasing demand for high quality car 

servicing in Moscow and St. Petersburg. 

Warranty claims 

The manufacturers of the cars distributed by Rolf reimburse Rolf for the cost of customers’ warranty 

claims. Both Hyundai Motor and Mitsubishi Motors, for example, currently offer a three-year 

manufacturer’s warranty. Warranty claims are processed through official distributors, whereas nonwarranty 

claims are not (see ‘‘– Business Description – Distribution – Warranties’’). 

58

Insurance repairs 

As one of Russia’s major insurance repairers, Rolf receives a steady flow of business from cars repaired as 

a result of insurance claims. Rolf has contracts with a number of Russian insurance companies to repair 

cars for their policy holders. 

Distribution 

Overview 

Mitsubishi Motors 

Rolf has the exclusive contract for the distribution within the Russian Federation of cars manufactured by 

Mitsubishi Motors. The distribution contract with Mitsubishi Motors is currently an important part of 

Rolf’s business in terms of both volume and generated profits. Mitsubishi was the seventh most popular 

foreign car brand in 2006 within Russia in terms of units sold, according to BMI. In 2006, Rolf distributed 

over 68,000 Mitsubishi cars exclusively though its distribution business, representing a 6.9 per cent. share 

of the market in Russia for foreign cars, according to BMI. In 2006, Mitsubishi Motors reclassified Russia 

as a stand-alone car market independent of Europe and established direct communication lines between 

Moscow and Tokyo. Although the exclusive distribution contract with Mitsubishi currently expires in 

2009 (and either party can terminate the contract prior to its expiry by giving six months’ notice), Rolf 

expects that it will be extended until 2012 and, if it is extended, that Mitsubishi distribution will continue 

to be an important source of Rolf’s revenue. However, the terms of the extension have not been agreed 

so far with Mitsubishi Motors (see ‘‘– Risk Factors – Rolf may lose its exclusive distribution contract with 

Mitsubishi Motors Corporation’’). 

Hyundai Motor 

Rolf also currently has a 60 per cent. equity stake in its subsidiary Carnet 2000, the remaining 40 per cent. 

share owned by MCAE, a subsidiary of Mitsubishi Corporation, which holds the only distribution 

contract in Russia for imported Hyundai vehicles with Hyundai Motor. Rolf distributed over 44,000 

Hyundai cars through this company in 2006. This distribution agreement is expected to end later this year. 

Hyundai Motor will set up a new distribution business, in which Rolf has been offered a minority equity 

stake, with the majority equity stake to belong to Hyundai Motor. 

Process, financing, customs and terms of trade – Mitsubishi 

Since 1 April 2007, Mitsubishi-made cars allocated for distributing in the Russian market have been 

delivered by MCAE from manufacturing sites of Mitsubishi Motors to the ice-free port of Kotka in 

Finland (prior to 1 April 2007, this function was carried out by Mitsubishi International GmbH, another 

trading entity of the Mitsubishi Corporation). From here, Rolf Import offtakes them and imports them 

into Russia. Then the cars are distributed to both Rolf’s own dealerships and independent car dealers 

throughout Russia. Most of the cars are delivered to the independent dealers on consignment terms. 

Typically an advance partial prepayment is made by the independent dealer when the car is shipped to 

Finland. The balance is then paid by the independent dealer after the car is delivered by Rolf to the 

dealership. The maximum consignment period is 60 days after delivery to the dealer. In 2006, the average 

stock of cars owned by Rolf Import was sufficient for approximately 17 days of sales. The stock 

distributed by Rolf Import is kept either in warehouses in Finland, in independent distributors’ rented 

warehouses in Moscow or St. Petersburg, at independent dealers’ dealerships on consignment terms, or 

alternatively in transit. 

The relevant customs paperwork is collected by each Rolf driver from the warehouses in Kotka where the 

new imported cars are held in storage until paid for in full by Rolf. Once released from the warehouse in 

Kotka, the new imported cars are then driven to Vyborg on the Russian border where the customs 

paperwork is stamped by Russian customs officials and the imported cars sealed inside the Rolf trucks. 

The imported cars are then delivered to Russian federal customs warehouses in Moscow and 

St. Petersburg where, following inspection of the goods and payment of import duties by Rolf Import 

via bank transfer, the cars are cleared for passage to Rolf’s storage warehouses where they are kept 

pending delivery to dealerships. 

Mitsubishi Corporation, a major shareholder of the car manufacturer Mitsubishi Motors, finances 

purchases of Mitsubishi-built cars by Rolf Import from Mitsubishi Motors through MCAE. Rolf pays 

MCAE an upfront deposit of 10 per cent. of the value of the cars when it places the monthly production 

order for that particular batch, then has up to 60 days once the cars are delivered to Finland to pay the 

balance plus interest accrued over the period since the cars had been shipped. The cars are only released 

59

to Rolf Import from the warehouses in Finland when fully paid for by Rolf, and until such time legal title 

to the cars remains with MCAE. However, due to the terms of the contract Rolf believes that the 

majority of risks and rewards pass to Rolf at the time when the vehicles are shipped from the country 

where they are manufactured. 

Geographical spread 

Rolf distributes Mitsubishi and Hyundai cars to a network of dealers consisting of 89 Mitsubishi dealers 

and 75 Hyundai dealers in 66 cities across Russia, including seven dealerships with Mitsubishi showrooms 

and five dealerships with Hyundai showrooms owned by Rolf. The independent dealerships operate 

mainly in the major cities of European Russia, and the owned dealerships are located exclusively in 

Moscow (along with Moscow Oblast) and St. Petersburg. 

The following map shows the geographic coverage of Mitsubishi and Hyundai dealerships across Russia 

(including those owned by Rolf to which Rolf Import and Carnet 2000 distribute cars of these two 

brands). 

Warranties 

On Mitsubishi vehicles produced up to 31 December 2003, Rolf gave customers a two year warranty in 

excess of the one year provided by the manufacturer. Mitsubishi vehicles produced after 1 January 2004 

are covered by the manufacturer’s extended three year warranty, and the exposure of Rolf to warranty 

claims for Mitsubishi vehicles therefore ended on approximately 31 December 2006. 

On Hyundai vehicles sold up to the end of 2002, Rolf gave customers a warranty of three years in addition 

to the one year provided by the manufacturer, and thereafter, a warranty of two years in addition to the 

three years provided by the manufacturer. 

Spare parts, options and accessories distribution division 

Rolf is the exclusive distributor for Mitsubishi spare parts and accessories in Russia, which provides a 

complementary income stream to the core Mitsubishi car distribution income. The business is based on an 

exclusive agreement with Mitsubishi in respect of supplies to the Russian market. The adverse effect on 

the business of Rolf of grey imports is reduced by the specific nature of the Russian car market for which 

many European spare parts are not compatible. Rolf also has a number of non-exclusive contracts for the 

distribution of other specialised branded car parts, options and accessories, for example Mobil Oil, Pirelli, 

Nokian, Blaupunkt and iPod. 

60

Mitsubishi spare parts arrive in Russia either by land or by plane. They are cleared by Russian customs 

using the same procedure as for the import of new foreign cars (see ‘‘– Business Description – Distribution 

– Process, financing, customs and terms of trade – Mitsubishi’’). Once cleared by Russian federal customs, 

all the spare parts are transported to Rolf’s own central spare parts warehouse in Moscow. From here, 

they are transported to the dealers. 

Rolf plans to expand its spare parts, options and accessories distribution division. The spare parts 

business has been steadily growing and is already a significant contributor of cash flow generated by Rolf. 

The independent dealers are increasingly being trained on the value to their businesses of Rolf’s retail 

model of selling higher margin options and accessories as part of a package with new cars. In return this 

generates more demand for services and products provided by Rolf’s spare parts, options and accessories 

distributor. The majority of cars typically arrive without options and accessories such as audio systems 

and heaters. These options and accessories are offered to the customer and, if the customer chooses them, 

are installed at the dealership itself. 

In addition, Rolf is always looking to broaden the range of products it offers and is keen to develop the 

relationships it has with suppliers. For example, in 2007 Rolf began offering a new range of internal car 

entertainment products such as iPods designed for usage in cars and improved its choice of engine oil and 

screen wash. Rolf believes that with this flexible approach it is well placed to respond to increased 

consumer demand. 

Logistics 

Historically, Rolf’s logistics division served only Rolf’s own Mitsubishi and Hyundai distribution. 

However, in 2006 Rolf determined this business as a strategic objective and tested offering its logistics 

services to third party distributors. On the success of such testing, since then Rolf has signed contracts for 

logistics services with official distributors of Volkswagen, Mercedes-Benz and Skoda and has turned this 

division into a separate business line of Rolf. In addition, Rolf also provides transportation services for 

Ford, Mazda and Audi at their request. Rolf believes that, with the development of the Russian car 

market, with its long travelling distances and road conditions, the demand for logistics services for new 

and used cars will substantially increase. 

Currently, there is a lack of high quality logistics services in the Russian car market and Rolf plans to 

invest in its logistics business to capture market opportunities by increasing the number of transport 

vehicles and warehouses that it owns. Rolf uses a fleet of approximately 500 trucks for this, 172 of which 

are either owned (70 per cent.) or held on long-term leases (30 per cent.). The remainder are rented on a 

short-term basis. To increase its logistics capacity, Rolf plans to purchase 165 additional trucks in 2007 

and is looking to purchase land plots around Moscow and St. Petersburg for construction of car 

warehouses. This will almost double the size of Rolf’s own fleet from its current level. In addition, Rolf 

plans to buy a further 110 trucks in 2008. 

Financial Services 

Consumer loans 

Rolf has agreements with six Russian retail banks through which customers may obtain car loans for 

purchasing cars at Rolf’s dealerships. These additional services are provided through Rolf Pronto, a 

financial broker wholly owned by Rolf. In these arrangements, Rolf Pronto acts purely as a broker, 

earning a commission on the provision of each car loan. Rolf Pronto takes no credit risk on these car 

loans, and is not involved in any credit decisions. 

In 2006, Rolf Pronto expanded the financing business into the distribution division of Rolf through the 

provision of consumer finance products to independent dealers of Mitsubishi and Hyundai in major cities 

in Russia. In the year ended 31 December 2006, Rolf Pronto brokered approximately U.S.$240 million 

worth of credit for car loans. 

Although the commission for the provision of consumer loans generates a small percentage of Rolf’s 

profits, the margins in this business activity are relatively high. 

Insurance sales 

Rolf currently has agreements with eight Russian insurance companies to sell insurance policies to car 

purchasers in Rolf dealerships. In selling insurance policies, Rolf Pronto acts as an agent, earning a 

commission on each policy sold to customers. 

61

MARKET SHARE AND COMPETITION 

Macroeconomic environment in Russia 

Russia has experienced strong growth in both real and nominal GDP in recent years. In 2006, real GDP 

grew by 6.7 per cent. and nominal GDP grew by 20.1 per cent., according to the Federal State Statistics 

Service, Rosstat. Strong economic growth has led to higher spending power and this effect has been 

particularly notable in Moscow and St. Petersburg, which have a combined total population of 15 million 

inhabitants. Due to relatively low taxes in comparison with a number of European jurisdictions, Russians 

are able to convert a relatively high percentage of their gross salaries into disposable net income. 

Car market dynamics in Russia 

Rolf’s target consumers for foreign imported cars are typically relatively wealthy and live in Moscow and 

St. Petersburg, where two-thirds of foreign imported cars are sold, according to Rolf estimates. The 

typical price of a Rolf car is approximately U.S.$20,000 whereas a Russian branded car (except for an 

originally foreign branded car assembled in Russia) can be purchased for less than U.S.$5,000. A growing 

middle-class, an increase in female drivers and in the number of multi-car families combined with a 

growing importance of the perceived improved social status of owning a foreign branded car, are all 

helping to drive the demand for foreign imported cars in Russia. 

The Russian new car market grew by 9 per cent. between 2004 and 2005 and by 35 per cent. between 2005 

and 2006 (measured by number of cars sold), according to BMI, whilst other European car markets have 

either shrunk (for example, Great Britain and Italy) or stagnated (for example Belgium and France), 

according to the European Automobile Manufacturers Association (‘‘ACEA’’), and Datamonitor. 

According to ACEA, Russia is forecast to be the second largest new car market in Europe by 2010, 

second only to Germany. 

The Russian foreign branded car market grew by 50 per cent. between 2004 and 2005 and by 66 per cent. 

between 2005 and 2006 (measured by number of cars sold), according to BMI. New car sales in Russia 

(both Russian and foreign brands) are forecast to increase between 2006 and 2011, according to BMI. 

However, growth in new foreign car sales is forecast to outpace growth in new domestic car sales over the 

same period, according to BMI. This reflects the growing middle-class purchasing capacity and increased 

popularity of foreign branded cars in Russia. 

The market is characterised by high demand and shortage of supply. Excess demand for cars offered by 

Rolf was demonstrated in 2005 and 2006, when Rolf had more orders for Mitsubishi and Hyundai cars 

from dealers than the number of cars that Mitsubishi Motors and Hyundai Motor were able to supply 

respectively. 

Key competitors 

It is difficult to determine the market share of companies operating in the market for trading in imported 

cars since the majority of market players are privately owned companies with limited disclosure or are 

integrated into larger business groups with diversified commercial activities. 

Retail 

Rolf’s dealerships compete with other major car retail chains to win dealership rights and land plots in 

Moscow and St. Petersburg and they also compete with other retail dealerships to sell cars to the public. 

There are a number of auto retailers in Moscow and St. Petersburg of varying sizes and scope of 

operations. Many of them sell Russian brands or a mix of Russian brands and foreign brands. There are a 

limited number of car retailers competing with Rolf in the higher value foreign imported car market. Rolf 

considers its main competitors to be Nezavisimost Group, Major Holding, Avtomir, Income Auto, Atlant 

M and Business Car. All of these companies have brand portfolios different to Rolf. 

Distribution 

Rolf’s distribution business is in competition with the authorised distributors of other major foreign 

imported car brands (the majority of whom are affiliated with their respective manufacturers). It 

competes both in terms of marketing to the public but also in contracting a wider network of independent 

dealers to the franchise. The majority of new foreign imported car manufacturers are distributed in 

Russia by wholly owned distribution subsidiaries of the manufacturers. 

62


The spare parts options and accessories market is highly fragmented. Other than in the case of the 

exclusive Mitsubishi spare parts contract, the products that Rolf distributes compete with similar products 

distributed by other groups. 

Logistics 

Rolf’s logistics division competes with other providers of auto logistics in Russia. There are relatively few 

competitors but these include Gema and Avtologistika, who all compete to win contracts with 

distributors to transport cars. 

Financial Services 

Rolf Pronto has exclusivity on finance and insurance brokerage within Rolf’s car retail dealerships. 

Customers may either buy these products on-site through Rolf Pronto or they can make external 

arrangements directly with banks and insurance companies. 

MARKETING 

Rolf’s marketing strategy aims to increase customer loyalty, attract new customers within Rolf’s current 

markets and facilitate expansion of the lines of business that Rolf believes are vital for future growth. 

For some of the brands it sells, Rolf promotes its own brand alongside that of the manufacturers’, for 

example by attaching the ‘Rolf’ badge onto the back of a car next to the logo of the manufacturer. Rolf 

believes that this gives it a distinctive identity and promotes brand awareness amongst both current and 

potential future customers. 

In 2006, Rolf’s advertising and promotion expenditure represented approximately 1 per cent. of total 

revenue. Rolf’s marketing activities focus on a variety of media, including national and regional 

television, print, billboard advertising and the internet. In its distribution business, Rolf coordinates 

marketing and advertising activities for the distributed brands and these activities may be sponsored by 

the manufacturers, by the dealers or by the distributors themselves. For example, Rolf signed a 

sponsorship contract with the Russian Football Premier League for the 2006 Russian football season to 

promote Mitsubishi products. 

INFORMATION TECHNOLOGY 

Rolf has developed an integrated proprietary IT system that covers all major aspects of its business, 

including on-site systems, logistics systems, inventory and ordering management and other administrative 

systems. The system provides for the timely exchange of information between Rolf’s dealerships, 

independent dealers, distributors and manufacturers. The system enables management to plan and 

execute its operational needs, inform and question customers and suppliers, as well as to facilitate Rolf’s 

budgeting and accounting processes and standardise its operations across its dealerships. 

The IT system was developed by Rolf’s own team of IT specialists and external IT consultants (such as 

IBS – a leading Russian IT consultant) using custom-built and third-party software to ensure that it 

provides a safe, uninterrupted and secure platform. 

EMPLOYEES AND TRAINING 

Overview 

As at 31 December 2006, Rolf had 4,964 employees (compared to 3,614 as at 31 December 2005), 

including approximately 3,865 in retail, 174 staff engaged in distribution, 634 staff in other businesses and 

291 staff in the head office. The average age of employees was approximately 29 years; approximately 

36 per cent. of employees were 18 to 25 years old, 28 per cent. were 25 to 30 years old, 27 per cent. were 

30 to 40 years old and 8 per cent. were 40 to 50 years old. Approximately 28 per cent. were female and 

72 per cent. were male. Senior management and managers performing Group-related functions are 

employed by Rolf Holding. Operational employees are employed by the relevant operational subsidiary 

of Rolf. 

Training 

As at 31 January 2007, Rolf had six training centres, for training new staff as well as for conducting career 

development programmes for all levels of staff. Middle management and senior management also receive 

managerial training and coaching. Rolf believes that such training assists in reducing staff turnover and 

63

increases productivity. Rolf has staff retention levels of over 80 per cent., which is a particular strength in 

the Russian employment market. 

Rolf is committed to creating a strong corporate culture and encourages all employees to contribute to 

the improvement of the business. For example, Rolf publishes a corporate magazine ‘‘Rolf’’ (distributed 

among the employees and customers) and a corporate newspaper; holds regular meetings between 

mid-level managers to facilitate the exchange of best practices, and receives regular feedback from 

employees through independently designed questionnaires. 

Remuneration 

Rolf offers its employees competitive salaries and benefits. In 2006, the average monthly salary across 

Rolf was RUB 59,321 (U.S.$2,253), based on the exchange rate on 31 December 2006 (RUB 26.33 to 

U.S.$1.00). In 2005, the average monthly salary was RUB 48,207 (U.S.$1,675), based on the exchange rate 

as of 31 December 2005 (RUB 28.78 to U.S.$1.00). Pay is varied in line with performance to incentivise 

staff. 

Every employee is entitled to a salary (payable on a monthly basis), medical insurance during 

employment, 30 days of annual leave, and free meals at work. There is a system of annual bonuses in 

place, based on continual assessment of the performance of every employee in the company. All 

salespeople and heads of operational businesses have a significant variable component in their 

remuneration structure. Every year Rolf assesses its salaries for each job position and compares them to 

market rates, using large Russian consumer companies and subsidiaries of multinationals working in 

Russia as benchmarks. In 2007, Rolf will lead an industry-wide review of salaries, successfully obtaining 

the participation of many of its competitors, including other car retailers and other distributors of foreign 

cars. The full amount of remuneration payable to the employees is paid in strict compliance with 

applicable laws and regulations. 

Whilst currently there are no share or option plans within Rolf’s remuneration system, Rolf’s sole 

beneficiary intends to introduce an incentive scheme for key members of Rolf’s management team (see 

‘‘Shareholding’’). As an element of such scheme, key members of the management team will obtain 

minority equity interests in the Group. 

FUNDING 

Rolf has entered into various financial arrangements to fund its activities. The following sections set out 

the major financial arrangements of Rolf pursuant to which amounts remain outstanding. 

In early 2006, Rolf raised a syndicated loan facility of U.S.$350 million from a syndicate of six major 

Russian and international banks led by Raiffeisen under the Secured Syndicated Loan Facility in order to 

finance the expansion of the business. The Secured Syndicated Loan Facility was then syndicated to a 

further 9 banks. The borrower under the Secured Syndicated Loan Facility was Colgrade Limited, a 

subsidiary of the Group incorporated in Cyprus, which then on-lent the funds directly to the operating 

companies of the Group in Russia. The Secured Syndicated Loan Facility is guaranteed by Delance 

Limited and certain asset-owning and operating companies of the Group and secured by a variety of 

pledges and mortgages over assets of a number of the Group’s entities. The Secured Syndicated Loan 

Facility amount of U.S.$350 million was split between a U.S.$192 million term loan facility and a 

U.S.$158 million revolving credit facility. The revolving credit facility is fully drawn and is therefore 

similar in nature to a term loan. 

Further to the entry into the Secured Syndicated Loan Facility with Raiffeisen, Colgrade Limited 

executed an interest rate swap contract with ABN Amro hedging its exposure to risks relating to 

fluctuations of the floating interest rate under the Secured Syndicated Loan Facility in the amount up to 

U.S.$200 million. 

The net proceeds of the issue of the Notes will be applied to repay the Secured Syndicated Loan Facility. 

In addition, the Issuer has agreed in principle pending signing and subject to the finalisation of 

documentation the Bilateral Facilities with each of ZAO Citibank, ABN AMRO Bank ZAO and 

Commerzbank (Eurasija) SAO in relation to facilities of approximately U.S.$205 million and is also in 

negotiations to put in place further bilateral facilities with its Russian relationship banks. The Bilateral 

Facilities will also be available in conjunction with the net proceeds of the issue of the Notes, if necessary, 

for repayment of the Secured Syndicated Loan Facility. If not used for that purpose, the Bilateral 

Facilities and any facilities agreed with the Russian relationship banks will be applied to give Rolf 

64

liquidity to further its strategic objectives. (See ‘‘Use of Proceeds’’ and ‘‘Business Description – Strategic 

objectives’’). 

In addition, Rolf has a U.S.$25 million bilateral credit facility with Alfa Bank. This credit facility is used 

primarily for purchases made in the ordinary course of business. 

INSURANCE 

Rolf’s insurance policies cover all of its real estate, equipment and cars from the point of receipt to the 

point of delivery or sale. Rolf also maintains mandatory drivers’ third-party liability insurance as required 

by Russian law, mainly for its transportation fleet. Rolf’s insurance policies currently in force are 

provided by a number of major Russian and international insurance companies. 

LEGAL PROCEEDINGS 

Rolf is currently engaged in various minor disputes with the Russian tax authorities with respect to a tax 

claim in the amount of approximately U.S.$1.8 million. 

Rolf has not been involved in any legal, arbitration or governmental proceedings (including any such 

proceedings which are pending or threatened of which Management is aware) with any contractual 

parties or with any governmental agencies which may have, or have had in the past 12 months from the 

date of this Prospectus, a material effect on Rolf’s financial condition. 

INTELLECTUAL PROPERTY 

Under Russian law, the right to use a trademark is acquired upon the trademark’s registration with the 

Russian Federal Service for Intellectual Property, Patents and Trademarks (the ‘‘Russian Patent 

Agency’’). The ‘‘POJI I ’’ trademark (‘‘Rolf’’ in Cyrillic characters) was registered with the Russian 

Patent Agency with priority from 5 April 2007 (No. 323927) and the registration will expire on 

31 October 2016. Rolf has registered the domain name www.rolf.ru through a contract with ZAO 

Elvis-Telecom. Rolf has also registered an additional four trademarks: ‘‘ROLF’’, which is currently 

registered until 31 October 2016; ‘‘ROLF’’ (in transparent letters), which is currently registered until 

20 December 2012; ‘‘POJI I ’’ (in transparent letters) (‘‘Rolf’’ in Cyrillic characters) which is currently 

L 

registered until 8 July 2009; and ‘‘POJI I JIII3II H ’’ (‘‘Rolf Leasing’’ in Cyrillic characters) which is 

currently registered until 20 December 2012. 

65

MANAGEMENT AND DIRECTORS 

CORPORATE GOVERNANCE 

The Group is managed by a senior management team comprising of twelve members led by the President 

and CEO, Matt Donnelly. Four members of the senior management team are also members of the 

Management Board. The Management Board performs management functions with regard to the entire 

Group rather than any particular entity of the Group, and the members of the Management Board are 

responsible for the key business decisions of the Group. 

Management Board meetings take place monthly where the strategic development of Rolf is discussed 

and defined. The senior management team has formal meetings on a weekly basis where major 

operational decisions are made. 

As at the date of this prospectus, the Group is not aware of any potential conflicts of interests between the 

duties its directors owe, on the one hand, and their private interests or the duties owed by any of them to 

any other person, on the other. 

The following paragraphs briefly describe the position of Sergey Petrov and the members of both the 

Management Board and the senior management team of Rolf. 

Sergey Petrov (52) – Honorary President 

Sergey Petrov is the founder of Rolf and its sole beneficiary. He was Rolf’s President and CEO until 2004, 

when he was replaced by Matt Donnelly. He then occupied the post of Chairman until 2006, when he 

took the position of Honorary President. He continues to provide strategic direction to Rolf and remains 

in close contact with Group business and its key strategic partners. 

MANAGEMENT BOARD 

Matt Donnelly (42) – President and CEO 

Matt Donnelly has led Rolf as CEO since 2004. He joined Rolf as Finance Vice President in 2000 before 

becoming COO in 2003 where he was responsible for the operational business. His experience in Russia 

began in 1996 where he worked for four years at Pepsi International as a Regional Business Director. 

Prior to this, he worked for IBM, Worldcom and AJ Bekhor Stock Brokers. He is ACMA qualified. 

Andrei Gunin (31) – CFO 

Andrei Gunin joined Rolf in 2004 as Finance Director. In this position he was responsible for reporting, 

compliance and the management of corporate finance transactions. He assumed the CFO role in January 

2006. Previously, he worked at PricewaterhouseCoopers in St. Petersburg and Moscow for four years, and 

at the Russian media company Media Most. His qualifications include an MBA degree from Kellogg 

School of Management and he is ACCA qualified. 

Nick Hawkins (40) – COO 

Nick Hawkins joined Rolf as COO in 2006 and is responsible for its ongoing operational development, 

including new business initiatives. He has worked in Russia since 1995 and prior to his employment with 

Rolf, he was a Partner at PricewaterhouseCoopers in charge of its advisory practice in Central and 

Eastern Europe and was audit partner for Gazprom. At PricewaterhouseCoopers he advised Rolf on its 

ongoing strategic development for over two years. He is ACA qualified in the United Kingdom. 

Dmitry Rotkin (36) – Managing Director, Mitsubishi Distribution 

Dmitry Rotkin joined Rolf in 2001 from BMW Rusland Trading (the BMW distributor for the Russian 

market), where he had been a key account manager for two years. Dmitry Rotkin started his career at 

Unilever’s Russian office, working with key accounts and subsequently leading the company’s trade 

marketing activities. 

66

MEMBERS OF THE SENIOR MANAGEMENT TEAM 

Vardan Dashtoyan (37) – Managing Director, Rolf Retail 

Vardan Dashtoyan joined Rolf in 2002 as director of LLC AC-Sever, an Audi dealership, and was 

promoted to his current position after two years. He also leads Rolf Pronto, Rolf’s captive insurance and 

credit brokerage company. Prior to joining Rolf, he was a business development manager at Danone 

Russia. 

Roman Khapaev (40) – Managing Director, Hyundai Distribution 

Roman Khapaev joined Rolf in 2001 as Director of the car leasing business. Since 2002, he has been the 

Managing Director of the Hyundai distribution business of Rolf. Before joining Rolf, his career 

developed through eight years of sales jobs at Gillette and Unilever / Hindustan Lever India. 

Ian King (42) – Vice President for Development 

Ian King joined Rolf in 2005 to oversee the professional development and welfare of Rolf’s employees. 

He also leads the spare parts and accessories distribution business of Rolf. Prior to joining Rolf he ran a 

consultancy specialising in developing high performance sales teams. He previously held several senior 

sales positions within Pepsi, Kraft and Unilever working in the UK, the Middle East and Russia. 

Mikhail Penkin (42) – Director 

Mikhail Penkin joined Rolf in 2000 as chief accountant. Subsequently, for two years, he was the Director 

of LLC Rolf-Yug, the biggest stand-alone Mitsubishi dealership in the world. Following this role, he was 

in charge of all Ford operations at Rolf. He is currently responsible for expanding Rolf’s logistics 

operations. He is a Certified Professional Accountant, a Russian accountancy qualification. 

Kirill Rutberg (38) – Investment Director 

Kirill Rutberg joined Rolf in 2004 and is responsible for the planning, design and implementation of 

Rolf’s construction projects. Prior to employment with Rolf, he was a senior Project Manager at Savant 

(successor of Hanscomb), a British construction consultancy and project management company. He holds 

a Diploma in Quantity Surveying (College of Estate Management, Reading, UK), and is ACIOB 

qualified. 

Elena Kubanova (35) – HR Director 

Elena Kubanova joined Rolf as the Group HR Director in 2006. Prior to her employment at Rolf, she 

worked as a Human Resources Manager at Moneks Trading Company, an official franchisee of 

Mothercare, Body Shop and Next retailers in Russia. She holds a postgraduate degree in Law. 

Vlada Yavorskaya (49) – Head of Legal (General Counsel) 

Vlada Yavorskaya joined Rolf as Head of Legal in December 2006. Prior to her employment with Rolf, 

she was Senior Counsel at Wrigley (USA) Company and was responsible for Russia, CIS-countries, 

Baltics, Ukraine and the Middle East. Prior to Wrigley, she worked for International Legal Consultants 

(ILC) (Germany), at that time affiliated to Ernst & Young, where she was responsible for the company’s 

projects with Coca-Cola. 

Mikhail Mikhailov (32) – IT Director 

Mikhail Mikhailov joined Rolf in 2006 as IT Director. He is responsible for IT and IS management, 

including the development, implementation and supporting of infrastructure and information systems 

solutions. Prior to joining Rolf, he worked as the CIO at PIT Brewing Company (a member of the 

Heineken Group). His qualifications include CISA approval. 

The business address of each of the members of the Management Board is Rolf’s office at 


67

MANAGEMENT OF THE ISSUER 

Christos Kinasis and Maria Kyriacou are the directors of Colgrade Limited. Their business address is as 

follows: Julia House Building, 3 Themistocles Dervis Street, CY-1066 Nicosia, Cyprus. 

DIRECTORS OF THE GUARANTORS 

The following people take the position of the General Director in the below listed Guarantors: 

. Limited Liability Company ‘‘S. Petrov’’: Sergey A. Petrov; business address: 31/7 Altufievskoe 

Shosse, Moscow, 127410, Russian Federation. 

. Limited Liability Company ‘‘ROLF Estate St Petersburg’’: Shushanik G. Stepanyan; business 

address: 17/6 Vitebskii Prospekt, St. Petersburg, 196105 Russian Federation. 

. Limited Liability Company ‘‘ROLF Import’’: Dmitry A. Rotkin; business address: 31/ 

7 Altufievskoe Shosse, Moscow, 127410, Russian Federation. 

. Limited Liability Company ‘‘ROLF-VOSTOK’’: Mikhail A. Vyalsov; business address: 

24 Ryazanskiy Prospect, Moscow, 109428, Russian Federation. 

. Limited Liability Company ‘‘ROLF KHIMKI’’: Svetlana V. Vinogradova; business address: 

Property 21, Leningradskoe Shosse, Khimki, Khimki District, Moscow Region, 141400, Russian 

Federation. 

. Limited Liability Company ‘‘Carlain’’: Sergey V. Petrosyan; business address: 17/6 Vitebskii 

Prospekt, St. Petersburg, 196105 Russian Federation. 

. Limited Liability Company ‘‘ROLF-YUG Co., Ltd’’: Alexei V. Gulyaev; business address: 

27/1 Ulitsa Obrucheva, Moscow, 117630, Russian Federation. 

. Limited Liability Company ‘‘SP DIAMANT’’: Maria K. Malinskaya; business address: 


. Limited Liability Company ‘‘AC-SEVER’’: Tatiana A. Fornasova; business address: 63B 

Leningradskoye Shosse, Moscow, 125445, Russian Federation. 

. Limited Liability Company ‘‘ROLF PDC’’: Dmitry A. Rotkin; business address: 31/8 Altufievskoe 


. Limited Liability Company ‘‘ROLF PDC ESTATE’’: Dmitry A. Rotkin; business address: 


. Limited Liability Company ‘‘ROLF-City’’: Boris A. Mukhin; business address: 31 Yaroslavskoye 


. Limited Liability Company ‘‘ROLF-ALTUFIEVO’’: Maria K. Malinskaya; business address: 


. Limited Liability Company ‘‘ROLF-Oktiabrskaya’’: Maria L. Mironovskaya; business address: 

8/2 Oktiabrskaya Naberezhnaya, St. Petersburg, 193091, Russian Federation. 

. Limited Liability Company ‘‘ROLF Lahta M’’: Dmitry V. Parshikov; business address: 103 Ulitsa 

Savushkina, St. Petersburg, 197374, Russian Federation. 

. Limited Liability Company ‘‘ROLF Lahta P’’: Elena S. Smekalova; business address: 103 Ulitsa 

Savushkina, St. Petersburg, 197374, Russian Federation. 

. Limited Liability Company ‘‘Zvezda Stolici’’: Alexei P. Shashkin; business address: 127 Varshavskoye 


. Limited Liability Company ‘‘ROLF Pronto’’: Vardan R. Dashtoyan; business address: 


. Closed Joint Stock Company ‘‘ROLF ESTATE’’: management functions are delegated to Closed 

Joint Stock Company ‘‘ROLF Holding’’; business address: 31/7 Altufievskoe Shosse, Moscow, 

127410, Russian Federation. 

. Closed Joint Stock Company ‘‘ROLF Holding’’: Matt Donnelly address: 31/7 Altufievskoe Shosse, 

Moscow, 127410, Russian Federation. 

68

. Closed Joint Stock Company ‘‘SP ROLF’’: Yaroslav O. Popov; business address: 1 Vishnevskogo 

Ulitsa, Moscow, 127434, Russian Federation. 

The directors of Delance Limited are as follows: Matt Donnelly, Stavroulla Ioannou and Sophia 

Nicolaou; business address: Julia House Building, 3 Themistocles Dervis Street, CY-1066 Nicosia, 

Cyprus. 

As at the date of this prospectus, neither the Issuer nor any of the the Guarantors is aware of any 

potential conflicts of interests between the duties their directors owe, on the one hand, and their private 

interests or the duties owed by any of them to any other person, on the other. 

69

SHAREHOLDING 

Delance Ltd, a Cypriot private company limited by shares, is the parent company of the Group. As at 

31 December 2006, Delance Limited’s authorised, issued and fully paid-up share capital was U.S.$10,000 

comprised of 10,000 ordinary registered shares with a par value of U.S.$1 per share. Abacus (Nominees) 

Limited as trustee of the Sergey Petrov family trust has legal title to the entire share capital of Delance 

Limited, and Sergey Petrov is the sole beneficiary of these shares. Mr Petrov is a Russian national. 

Most operational subsidiaries are controlled by Delance Ltd, and Sergey Petrov still has direct 

shareholdings in some of the Group companies. All of Sergey Petrov’s shareholdings are minority stakes 

of less than one per cent., with the exception of a 51 per cent. holding in CJSC Rolf Estate. However, 

under a management agreement entered into by the shareholders of CJSC Rolf Estate all executive 

power in CJSC Rolf Estate rests with its 49 per cent. shareholder, CJSC Rolf Holding (the Group’s 

management company). In addition, one company set up for the purpose of distributing Hyundai cars, 

Carnet 2000, is owned 60 per cent. by the Group and the remaining 40 per cent. by MCAE. Rolf has been 

offered a minority equity stake in a new company that is due to replace Carnet 2000 as the distributor of 

Hyundai cars, with the controlling equity stake to be owned by Hyundai Motor. 

Sergey Petrov exercises control over the Group through being the sole beneficiary of the trust and 

thereafter through the representatives of Delance Limited and its direct subsidiaries in the respective 

management bodies of all structurally subordinate subsidiaries (see ‘‘Business Description – 

Organisational structure and business divisions’’). In addition, Sergey Petrov is the Honorary President 

of the Group. 

At the same time, Sergey Petrov has delegated all operational management of Rolf’s business to a 

professional management team (see ‘‘Management and Directors’’). Rolf’s subsidiaries incorporated 

largely in the Russian Federation and Cyprus are subject to a variety of Russian and Cypriot law 

requirements, restricting, in particular, the shareholders’ arbitrariness. 

70

TRANSACTIONS WITH RELATED PARTIES 

Parties are considered to be related if one party has the ability to control the other party, is under 

common control, or can exercise significant influence over the other party in making financial and 

operational decisions. In considering each possible related party relationship, attention is directed to the 

substance of relationships, not merely the legal form. 

Related parties may enter into transactions, which unrelated parties might not, and transactions between 

related parties may not be effected on the same terms, conditions and amounts as transactions between 

unrelated parties. 

Related parties of the Group are represented by entities controlled by the common ultimate shareholders 

of the Group, key management personnel and close members of their families, and entities controlled by 

any of the aforementioned individuals. 

Loans to beneficiaries of the ultimate controlling party 

As at 31 December 2006, the balance of loans to Mr. Sergey Petrov (the sole beneficiary of the ultimate 

controlling party) amounted to U.S.$1,580 thousand compared to U.S.$8,677 thousand as at 31 December 

2005. These loans are subject to ten per cent. annual interest, similar to the effective interest rate, and are 

due for repayment within 12 months from the relevant balance sheet date. Interest income on the loans 

was U.S.$1,293 thousand for the year ended 31 December 2006 and U.S.$563 thousand for the year ended 


Balances due from/(to) entities under common control 

As at 

31 December 

2006 2005 


U.S. Dollars) 

Available for sale investments in related companies .......................................... 1,468 1,339 

Expenses recharged................................................................................................... 65 – 

Term loans.................................................................................................................. (153) (1,271) 

Available for sale investments in related companies amounted to U.S.$1,468 thousand as at 31 December 

2006 compared to U.S.$1,339 thousand as at 31 December 2005. These investments were made in 

affiliated companies in which Sergey Petrov also owns shares in his personal name. 

Interest is payable on the term loans at 11 per cent. per year, and amounted to U.S.$127 thousand for the 

year ended 31 December 2006 as compared to U.S.$83 thousand for the year ended 31 December 2005. 

Key management personnel compensation 

Delance Limited directors’ fees amounted to U.S.$104 thousand for the year ended 31 December 2006 as 

compared to U.S.$1 thousand for the year ended 31 December 2005. For the years ended 31 December 

2006 and 2005 compensation of 14 other key management personnel consisted of fixed annual 

remuneration and a performance bonus depending on operating results. For the year ended 31 December 

2006, salaries, wages and short-term benefits including performance bonuses amounted to U.S.$25,255 

thousand as compared to U.S.$5,674 thousand for the year ended 31 December 2005. 

71

TERMS AND CONDITIONS OF THE NOTES 

The following is the text of the Terms and Conditions of the Notes which contains summaries of certain 

provisions of the Trust Deed and which (subject to completion and amendment) will be endorsed on each 

Note Certificate (as defined below) and will be attached and (subject to the provisions thereof) apply to the 

Global Note: 

The U.S.$250,000,000 8.25 per cent. Guaranteed Notes due 2010 (the ‘‘Notes’’, which expression includes 

any further Notes issued pursuant to Condition 16 and forming a single series therewith) of Colgrade 

Limited (the ‘‘Issuer’’) were authorised by a resolution of the Board of Directors of the Issuer dated 

25 June 2007, and the Guarantees (as defined below) of the Notes were authorised by resolutions of the 

General Meeting of Shareholders or, as the case may be, the Board of Directors of the Guarantors passed 

during the period commencing 22 June to 25 June 2007. The Notes are constituted by a trust deed dated 

28 June 2007 (the ‘‘Trust Deed’’) between the Issuer, the Guarantors and Citibank, N.A., London Branch 

(the ‘‘Trustee’’, which expression shall include all persons for the time being the trustee or trustees under 

the Trust Deed) as trustee for the Noteholders (as defined below). These terms and conditions include 

summaries of, and are subject to, the detailed provisions of the Trust Deed. The Issuer and the 

Guarantors have entered into an agency agreement dated 28 June 2007 (the ‘‘Agency Agreement’’) with 

the Trustee, Citibank, N.A., London Branch, as registrar (the ‘‘Registrar’’), and as principal paying agent 

(the ‘‘Principal Paying Agent’’) and transfer agent, and Citibank International PLC, Dublin Branch, as a 

paying agent in Ireland (together with the Principal Paying Agent, the ‘‘Paying Agents’’) and transfer 

agent (together with Citibank, N.A., London Branch), the ‘‘Transfer Agents’’). The Registrar, Paying 

Agents and Transfer Agents are together referred to herein as the ‘‘Agents’’. Copies of the Trust Deed 

and the Agency Agreement are available for inspection during normal business hours at the specified 

office of the Trustee, being at the date hereof Citigroup Centre, Canada Square, Canary Wharf, London 

E14 5LB, and at the specified offices of the Agents. The Noteholders are entitled to the benefit of, are 

bound by, and are deemed to have notice of, all the provisions of the Trust Deed and are deemed to have 

notice of those provisions of the Agency Agreement applicable to them. Capitalised terms used but not 

defined in these Terms and Conditions shall have the respective meanings given to them in the Trust 

Deed. 

1 Form and Denomination 

The Notes are in registered form, without interest coupons attached, in the denomination of 

U.S.$100,000 or higher integral multiples of U.S.$1,000 in excess thereof (‘‘authorised 

denominations’’). A certificate (each a ‘‘Certificate’’) will be issued to each Noteholder in respect 

of its registered holding or holdings of Notes. Each Certificate will be numbered serially with an 

identifying number which will be recorded in the register (the ‘‘Register’’) kept by the Registrar and 

a copy of which is held at the registered office of the Issuer. 

2 Guarantees and Status 

(a) Guarantees 

The Guarantors have in the Trust Deed unconditionally and irrevocably guaranteed the payment 

when due of all sums expressed to be payable by the Issuer under the Trust Deed and the Notes (the 

‘‘Guarantees’’, which term shall include any further guarantees given pursuant to Condition 2(b)). 

The Guarantors’ obligations in respect of the Guarantees are contained in the Trust Deed. 

The Guarantors have undertaken in the Trust Deed that so long as any of the Notes remains 

outstanding (as defined in the Trust Deed) it will not take any action for the liquidation or 

winding-up of the Issuer. 

(b) Release and Addition of Guarantors: The Issuer may from time to time, without the consent of the 

Trustee or the Noteholders, appoint additional Guarantors the shares of which must be held directly 

or indirectly by the Company. The Issuer shall give not less than 30 days’ prior notice to the Trustee 

and the Noteholders in accordance with Condition 17 of such appointment and will execute, and 

cause the additional Guarantors to execute, a deed supplemental to the Trust Deed to ensure that 

the Noteholders will have the benefit of a guarantee from such additional Guarantors on 

substantially the same terms as the Guarantees. The appointment of additional Guarantors 

pursuant to this Condition 2(b) shall be conditional upon receipt by the Trustee of a legal opinion, 

in form and substance satisfactory to the Trustee, of independent legal counsel of recognised 

standing as to the enforceability of the guarantee from such additional Guarantors. The Trustee 

72

shall be entitled to accept the legal opinion referred to in this sub-paragraph without further enquiry 

or liability to any Person as sufficient evidence of the matters certified therein. 

In addition, on giving not less than 30 days’ prior notice to the Trustee and the Noteholders in 

accordance with Condition 17, any Guarantor may be released from its obligations under the Notes 

and the Trust Deed, without the consent of the Trustee or the Noteholders, provided that (i) the 

covenant contained in Condition 5(i) is, immediately following such release of any Guarantor, 

complied with on a pro forma basis taking into account the release of such Guarantor pursuant to 

this Condition 2(b), (ii) the covenants contained in Condition 5(n) are, immediately following such 

release of any Guarantor, complied with on a pro forma basis taking into account the release of the 

Guarantor(s) pursuant to this Condition 2(b), (iii) no Event of Default or Potential Event of 

Default (as defined in the Trust Deed) would be in existence following such release and (iv) the 

Issuer procures delivery to the Trustee of an Officer’s Certificate of the Company certifying the 

facts and circumstances required under (i), (ii) and (iii) in the paragraph above, which the Trustee 

shall be entitled to accept without further enquiry or liability to any Person as sufficient evidence of 

the matters certified therein, 

(c) Status 

The Notes constitute (subject to Condition 4) unsecured and unsubordinated obligations of the 

Issuer and shall at all times rank pari passu and without any preference among themselves. The 

payment obligations of the Issuer under the Notes and of the Guarantors under the Guarantees 

shall, save for such exceptions as may arise by mandatory operation of law and subject to 

Condition 4, at all times rank at least equally with all other present and future unsecured and 

unsubordinated obligations of the Issuer and the Guarantors, respectively. 

3 Register, Title and Transfers 

(a) Register 

The Registrar shall maintain the Register in respect of the Notes in accordance with the provisions 

of the Agency Agreement, including, in particular, that the Register shall be maintained outside 

Cyprus. In these Conditions, the ‘‘holder’’ of a Note means the person in whose name such Note is 

for the time being registered in the Register (or, in the case of a joint holding, the first named 

thereof) and ‘‘Noteholder’’ shall be construed accordingly. 

(b) Title 

Title to the Notes will pass by and upon registration in the Register. The holder of each Note shall 

(except as otherwise required by a court of competent jurisdiction, public authority or applicable 

law) be treated as the absolute owner of such Note for all purposes (whether or not it is overdue and 

regardless of any notice of ownership, trust or any other interest therein, any writing on the 

Certificate relating thereto (other than the endorsed form of transfer) or any notice of any previous 

loss or theft of such Certificate) and no person shall be liable for so treating such holder. 

(c) Transfers 

Subject to Conditions 3(f) and 3(g) below, a Note may be transferred in whole or in part in an 

authorised denomination upon surrender of the relevant Certificate representing that Note, 

together with the form of transfer (including any certification as to compliance with restrictions on 

transfer included in such form of transfer endorsed thereon) in substantially the form contained in 

the Agency Agreement (the ‘‘Transfer Form’’), duly completed and executed, at the specified office 

of any Transfer Agent or of the Registrar, together with such evidence as such Transfer Agent or 

the Registrar may reasonably require to prove the title of the transferor and the authority of the 

persons who have executed the Transfer Form. Where not all the Notes represented by the 

surrendered Certificate are the subject of the transfer, a new Certificate in respect of the balance not 

transferred will be delivered by the Registrar to the transferor in accordance with Condition 3(d). 

Neither the part transferred nor the balance not transferred may be less than U.S$100,000. 

(d) Registration and delivery of Note Certificates 

Within five business days of the surrender of a Certificate in accordance with Condition 3(c) above, 

the Registrar shall register the transfer in question and deliver a new Certificate to each relevant 

holder at the specified office of the Registrar or (at the request of the relevant Noteholder) at the 

specified office of any Transfer Agent or (at the request and risk of such relevant holder) send it by 

73

uninsured first class mail (airmail if overseas) to the address specified for the purpose by such 

relevant holder. 

(e) No Charge 

The registration of the transfer of a Note shall be effected without charge to the holder or transferee 

thereof, but against such indemnity from the holder or transferee thereof as the Registrar may 

require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in 

connection with such transfer. 

(f) Closed periods 

Noteholders may not require the transfer of a Note to be registered during the period of 15 days 

ending on the due date for any payment of principal or interest in respect of such Note. 

(g) Regulations concerning Transfer and Registration 

All transfers of Notes and entries on the Register are subject to the detailed regulations concerning 

the transfer and registration of Notes set out in the Schedule to the Agency Agreement. The 

regulations may be changed by the Issuer and the Guarantors with the prior written approval of the 

Trustee, the Paying Agents the Transfer Agents and the Registrar. A copy of the current 

regulations will be sent by the Registrar free of charge to any Noteholder who so requests and will 

be available at the specified office of the Registrar in United Kingdom and at the specified office of 

the Transfer Agent in Ireland. 

4 Negative Pledge 

So long as any of the Notes remain outstanding, each of the Issuer and the Company shall not, and 

shall not permit any Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any 

Liens, other than Permitted Liens, on any of its or their assets, now owned or hereafter acquired, or 

any income or profits therefrom, securing any Indebtedness, unless, at the same time or prior 

thereto, the Notes are secured equally and rateably with such other Indebtedness. 

5 Covenants 

(a) Mergers 

So long as any of the Notes remain outstanding: 

(i) each of the Issuer and the Company shall not enter into any reorganisation (by way of a 

merger, accession, division, separation or transformation, or bases or procedures for 

reorganisation contemplated or as may be contemplated from time to time by Cypriot 

legislation, as these terms are construed by applicable Cypriot legislation); and 

(ii) each of the Issuer and the Company shall ensure that, without the prior written consent of the 

Trustee, no Subsidiary (i) enters into any reorganisation (whether by way of a merger, 

accession, division, separation or transformation as these terms are construed by applicable 

Russian or Cypriot legislation) or (ii) in the case of a Subsidiary incorporated in a jurisdiction 

other than Russia or Cyprus, participates in any type of corporate reconstruction or other 

analogous event (as determined under the legislation of the relevant jurisdiction), 

if, in the case of either (i) or (ii) above, any such reorganisation or other type of corporate 

reconstruction could reasonably be expected to result in a Material Adverse Effect. 

(a) Disposals 

So long as any of the Notes remain outstanding, except as otherwise permitted herein, the Issuer 

and the Company shall not, and shall ensure that no Subsidiary shall, sell, lease, transfer or 

otherwise dispose of by one or more transactions or series of transactions (whether related or not), 

the whole or any material part of its revenues or its assets (except for sales or other disposals of 

assets in the ordinary course of business, including, but not limited to, disposals under Product 

Delivery Contracts and payments of cash) the value of which exceeds the lower of 

(i) U.S.$100,000,000 and (ii) 10 per cent. of the consolidated gross assets of the Group, 

determined by reference to the balance sheet date for the Group’s most recent annual 

consolidated financial statements, unless the terms of such transaction or transactions are 

substantially no less favourable to the Issuer, the Company or the relevant Subsidiary, as the 

74

case may be, than those which would be obtained in a comparable arm’s length transaction. With 

respect to a sale or disposal of assets (other than a sale or disposal of assets, including securities, 

carried out in the ordinary course of the Issuer’s business) involving aggregate payments or value in 

excess of 15 per cent. of the gross assets of the Group, determined by reference to the balance sheet 

date for the Group’s most recent annual consolidated financial statements, the Company shall 

deliver to the Trustee a written opinion from an Independent Appraiser to the effect that such sale 

is fair, from a financial point of view, to the Issuer, the Company or the relevant Subsidiary, as the 

case may be. This Condition 5(b) does not apply to any transaction between (x) the Issuer or the 

Company and any Subsidiary (y) between the Issuer and the Company or (z) between any 

Subsidiaries. 

(c) Transaction with Affiliates 

So long as any of the Notes remain outstanding, none of the Issuer, the Company or any Subsidiary 

shall, directly or indirectly, conduct any business, enter into or permit to exist any transaction or 

series of related transactions (including, without limitation, the purchase, sale, transfer, assignment, 

lease, conveyance or exchange of any property or the rendering of any service) with, or for the 

benefit of, any Affiliate (an ‘‘Affiliate Transaction’’) including, without limitation, intercompany 

loans unless (i) the terms of such Affiliate Transaction are no less favourable to the Issuer, the 

Company or such Subsidiary, as the case may be, than those that could be obtained in a comparable 

arm’s-length transaction or series of related transactions with a Person that is not an Affiliate of the 

Issuer, the Company or such Subsidiary or (ii) such Affiliate Transaction is made pursuant to a 

contract or contracts existing on the date of issue of the Notes (excluding any amendments or 

modifications thereto after the date thereof). 

This Condition 5(c) shall not apply to (1) compensation or employee benefit arrangements with any 

officer or director of the Issuer, the Company or such Subsidiary arising out of any employment 

contract entered into in the ordinary course of business or (2) transactions between any of the 

Issuer, the Company or any Subsidiary or between any Subsidiaries. 

(d) Maintenance of Authorisations 


(i) except as permitted in Condition 5(a), the Issuer and the Company shall do or cause to be 

done all things necessary to preserve and keep in full force and effect the corporate existence, 

rights (by charter and statutory), licences and franchises of the Issuer, the Company and each 

Subsidiary; provided, however that the Issuer and the Company shall not be required to 

preserve the corporate existence of any such Subsidiary (other than the Issuer) or any such 

right, licence or franchise if the senior management body of the Group from time to time shall 

determine that the preservation thereof is no longer desirable in the conduct of the business of 

the Group and that the loss thereof is not disadvantageous in any material respect to the 

Noteholders or owners of beneficial interests therein and the Company has delivered to the 

Trustee as evidence of such determination a resolution in writing of such senior management 

body as to such determination certified by an Offficer’s Certificate of the Company. 

(ii) Each of the Issuer and the Company shall, and shall procure that each of its Subsidiaries shall, 

take all necessary action to obtain and do or cause to be done all things reasonably necessary, 

in the opinion of the Issuer, the Company or the relevant Subsidiary, to ensure the 

continuance of its business and intellectual property relating to its business unless such 

business is ceasing in accordance with Condition 5(d)(i) and the Issuer and the Company shall 

each take all necessary action to obtain, and do or cause to be done all things reasonably 

necessary to ensure the continuance of, all consents, licences, approvals and authorisations, 

and make or cause to be made all registrations, recordings and filings, which may at any time 

be required to be obtained or made in Cyprus for the execution, delivery or performance of 

the Notes or for the validity or enforceability thereof. 

(e) Maintenance of Property 

So long as any of the Notes remain outstanding, each of the Issuer and the Company shall, and shall 

ensure that each Subsidiary will, cause all property used in the conduct of its or their business to be 

maintained and kept in good condition, repair and working order and supplied with all necessary 

equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments 

75

and improvements thereof, all as, in the judgment of the Issuer or the Company, may be reasonably 

necessary so that the business carried on in connection therewith may be properly conducted at all 

times, provided that if the Issuer, the Company and/or the relevant Subsidiary can remedy any 

failure to comply with the above within 45 days or any failure relates to property with an aggregate 

value not exceeding U.S.$10,000,000 (or its equivalent in another currency), this covenant shall be 

deemed not to have been breached. 

(f) Payment of Taxes and Other Claims 


ensure that each of the Subsidiaries will, pay or discharge or cause to be paid or discharged, before 

the same shall become overdue and without incurring penalties, (a) all taxes, assessments and 

governmental charges levied or imposed upon, or upon the income, profits or property of the Issuer, 

the Company and the Subsidiaries and (b) all lawful claims for labour, materials and supplies which, 

if unpaid, might by law become a Lien (other than a Permitted Lien) upon the property of the 

Issuer, the Company or any Subsidiary; provided, however, that none of the Issuer, the Company 

nor any Subsidiary shall be required to pay or discharge or cause to be paid or discharged any such 

tax, assessment, charge or claim (i) whose amount, applicability or validity is being contested in 

good faith by appropriate proceedings and for which adequate reserves in accordance with IFRS or 

other appropriate provision has been made or (ii) whose amount, together with all such other 

unpaid or undischarged taxes, assessments, charges and claims, does not in the aggregate exceed 

U.S.$15,000,000. 

(g) Maintenance of Insurance 


ensure that each Material Subsidiary will, keep those of their properties which are of an insurable 

nature insured with insurers of good standing against loss or damage to the extent that property of 

similar character is usually so insured by corporations in the same jurisdictions similarly situated 

and owning like properties in the same jurisdictions. 

(h) Financial Information 


(i) the Issuer, failing which the Company, shall (A) deliver to the Trustee within six months after 

the end of each financial year and (B) make available to the Noteholders on the Company’s 

website (www.rolfgroup.com) within six months after the end of each financial year, copies of 

the Group’s audited consolidated financial statements for such financial year, prepared in 

accordance with IFRS applied consistently with the corresponding financial statements for the 

preceding period. The right of the Noteholders to access the financial statements on the 

Company’s website (www.rolfgroup.com) pursuant to (B) above is subject to any conditions 

the Company may impose on Noteholders (including, but not limited to, a requirement for 

Noteholders to obtain an appropriate password from the Company prior to accessing the 

relevant financial statements). 

(ii) the Issuer, failing which the Company, shall (A) deliver to the Trustee within four months 

after the end of the first half-year of each financial year and (B) make available to the 

Noteholders on the Company’s website (www.rolfgroup.com) within four months after the end 

of the first half-year of each financial year, copies of the Group’s unaudited unreviewed 

consolidated financial statements for that half-year, prepared in accordance with IFRS applied 

consistently with the corresponding financial statements for the preceding period. The right of 

the Noteholders to access the financial statements on the Company’s website 

(www.rolfgroup.com) pursuant to (B) above is subject to any conditions the Company may 

impose on Noteholders (including, but not limited to, a requirement for Noteholders to obtain 

an appropriate password from the Company prior to accessing the relevant financial 

statements). 

(iii) the Issuer, and the Company, shall deliver to the Trustee, without undue delay, such additional 

information regarding the financial position or the business of the Company and the 

Subsidiaries as the Trustee may reasonably request; and 

(iv) the Issuer, failing which the Company, shall deliver to the Trustee, with each set of financial 

statements delivered pursuant to paragraphs (i) and (ii) above and within 14 days of any 

76

equest by the Trustee, Officer’s Certificates of each of the Issuer and the Company in terms 

specified in the Trust Deed, certifying (a) which of the Issuer’s and the Company’s 

Subsidiaries are Material Subsidiaries and (b) to the effect that no Event of Default nor 

Potential Event of Default (as defined in the Trust Deed) has occurred or otherwise specifying 

details of the same. 

(i) Limitation on Indebtedness 

So long as any of the Notes remain outstanding, neither the Issuer nor the Company shall, nor shall 

each of the Issuer or the Company cause, or permit any of its Subsidiaries to, create, issue, incur, 

assume, guarantee or otherwise in any manner become directly or indirectly liable for the payment 

of or otherwise incur, contingently or otherwise, any Indebtedness, provided that the Issuer, the 

Company and any such Subsidiary may incur Indebtedness, in each case, if, (a) after such incurrence 

of Indebtedness, the ratio of (i) the Group’s Consolidated Net Indebtedness to (ii) the Group’s 

consolidated earnings before interest, taxation, depreciation and amortisation (as taken, in the case 

of (ii), from the most recent annual consolidated financial statements of the Group) is less than 

3.0:1.0; and (b) no Event of Default has occurred and is continuing. 

(j) Restricted Payments 

So long as any of the Notes remain outstanding, neither the Issuer nor the Company shall, and shall 

procure and ensure that each of its Subsidiaries will not, directly or indirectly: 

(i) declare or pay any dividend, in cash or otherwise, or make any other distribution (whether by 

way of redemption, acquisition or otherwise) in respect of its share capital (other than a 

dividend or other distribution payable to the Company or a Subsidiary of the Company); or 

(ii) voluntarily purchase, redeem or otherwise retire for value any Capital Stock or subordinated 

debt (other than (i) Capital Stock or subordinated debt held by the Issuer, the Company or a 

Subsidiary and (ii) Capital Stock purchased by the Issuer or the Company from any Person 

other than an Affiliate for re-sale to an Affiliate within 90 days of the date of purchase at a 

price at least equal to the price which the Issuer or, as the case may be, the Company paid for 

such Capital Stock), 

(any such action, a ‘‘Restricted Payment’’) if such Restricted Payments when aggregated with all 

other Restricted Payments previously made in respect of the then most recently completed financial 

reporting year exceed 50 per cent. of the Group’s consolidated net profit for the then most recently 

completed financial reporting year (calculated in accordance with IFRS). 

(k) Change of Business 

So long as any of the Notes remain outstanding, each of the Issuer and the Company shall procure 

that no material change is made to the general nature of the business of the Group from that carried 

on at the issue date of the Notes. 

(l) Ranking of Claims 

So long as any of the Notes remain outstanding, each of the Issuer and the Guarantors shall ensure 

that at all times the claims of the Trustee against the Issuer under the Notes and against the 

Guarantors under the Guarantees rank at least pari passu with the claims of all the other unsecured 

and unsubordinated creditors of the Issuer or the Guarantors, as the case may be, save for those 

claims that are preferred by any bankruptcy, insolvency, liquidation or similar laws of general 

application. 

(m) Maintenance of Rating 

So long as any of the Notes remain outstanding, each of the Issuer and the Company will take all 

commercially reasonable steps necessary to maintain a rating on the Notes from one of Moody’s, 

Standard and Poor’s or Fitch Ratings Ltd. 

(n) Guarantors 

So long as any of the Notes remain outstanding, each of the Issuer and the Company shall ensure 

that at all times the (a) consolidated total revenue of the Guarantors (calculated in accordance with 

IFRS), in aggregate, comprises 80 per cent. or more of the consolidated total revenue of the Group 

(calculated in accordance with IFRS) in each case for the period of the most recent two consecutive 

77

semi-annual periods ending prior to the date of determination for which financial statements have 

been delivered pursuant to Condition 5(h)(i) or (ii), as the case may be, and (b) consolidated total 

assets of the Guarantors (calculated in accordance with IFRS), in aggregate, comprises 80 per cent. 

or more of the consolidated total assets of the Group (calculated in accordance with IFRS) in each 

case as at the date of the most recent semi-annual balance sheet delivered pursuant to 

Condition 5(h)(i) or (ii), as the case may be. 

The Trustee shall be entitled to rely on the semi-annual certificates to be delivered to it pursuant to 

Condition 5(h) above and the Trust Deed and shall not have any obligation to monitor compliance 

with the provisions of this Condition 5. 

6 Interest 

The Notes bear interest from the Issue Date at the rate of 8.25 per cent. per annum, payable in 

equal instalments semi-annually in arrear on 28 June and 28 December in each year, commencing 

on 28 December 2007. Each Note will cease to bear interest from the due date for redemption 

unless, upon due presentation, payment of principal is improperly withheld or refused. In such event 

it shall continue to bear interest at such rate (both before and after judgment) until whichever is the 

earlier of (a) the day on which all sums due in respect of such Note up to that day are received by or 

on behalf of the relevant holder, and (b) the day seven days after the Trustee or the Principal 

Paying Agent has notified Noteholders of receipt of all sums due in respect of all the Notes up to 

that seventh day (except to the extent that there is failure in the subsequent payment to the relevant 

holders under these Terms and Conditions). If interest is required to be calculated for a period 

other than a semi-annual interest period, it will be calculated on the basis of a 360-day year 

consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days 

elapsed. 

7 Redemption and Purchase 

(a) Final redemption 

Unless previously redeemed, or purchased and cancelled, the Notes will be redeemed at their 

principal amount on 28 June 2010 (the ‘‘Maturity Date’’). 

(b) Redemption at the option of the Issuer 

The Issuer may, on giving not less than 30 nor more than 60 days’ notice to the Noteholders (which 

notice shall be irrevocable) and, for as long as the Notes are listed on the Irish Stock Exchange, to 

the Irish Stock Exchange, redeem the Notes, in whole but not in part only, at their principal amount 

thereof and the Applicable Premium together with interest accrued to the date fixed for 

redemption. All Notes in respect of which any such notice is given shall be redeemed on the date 

specified in such notice in accordance with this Condition. 

‘‘Applicable Premium’’ means, with respect to a Note on any redemption date, the excess of (i) the 

present value at such redemption date of the principal amount of the Note at maturity, plus all 

required interest payments that would otherwise be due to be paid on such Note during the period 

between the redemption date and the Maturity Date excluding accrued but unpaid interest at such 

redemption date, calculated using a discount rate equal to the Treasury Rate, at such redemption 

date plus 50 basis point, over (ii) the principal amount of the Note at maturity. 

‘‘Treasury Rate’’ means the yield to maturity at the time of computation of U.S. Treasury securities 

with a constant maturity most nearly equal to the period from the redemption date to the Maturity 

Date. The Issuer will obtain such yield to maturity from information compiled and published in the 

most recent Federal Reserve Statistical Release H.15(519) which has become publicly available at 

least two Business Days prior to the redemption date. If the Federal Reserve Statistical 

Release H.15(519) is no longer published, the Issuer will use any publicly available source or 

similar market data. If the period from the redemption date to the Maturity Date is not equal to the 

constant maturity of a U.S. Treasury security for which a weekly average yield is given, the Issuer 

will obtain the Treasury Rate by linear interpolation, calculated to the nearest one-twelfth of a year, 

from the weekly average yields of U.S. Treasury securities for which such yields are given. If the 

period from the redemption date to the Maturity Date is less than one year, the Issuer will use the 

weekly average yield on actually traded U.S. Treasury securities adjusted to a constant maturity of 

one year to make such calculation. 

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(c) Redemption for tax reasons 

The Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, on 

giving not less than 30 nor more than 60 days’ notice to the Noteholders (which notice shall be 

irrevocable) and, for as long as the Notes are listed on the Irish Stock Exchange, to the Irish Stock 

Exchange, at the principal amount thereof, together with interest accrued to the date fixed for 

redemption, if immediately prior to the giving of such notice the Issuer satisfies the Trustee (i) that 

it has or will become obliged to pay additional amounts as provided or referred to in Condition 9 as 

a result of any change in, or amendment to, the laws, treaties or regulations (including a decision of 

a court of competent jurisdiction) of Cyprus or any political subdivision or any authority thereof or 

therein having power to tax, or any change in the application or official interpretation of such, laws 

or regulations, which change or amendment becomes effective on or after the Issue Date and 

(ii) that such obligation cannot be avoided by the Issuer taking reasonable measures available to it; 

provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest 

date on which the Issuer would be obliged to pay such additional amounts were a payment in 

respect of the Notes then due. Prior to the publication of any notice of redemption pursuant to this 

Condition, the Issuer shall deliver to the Trustee an Officers’ Certificate of the Issuer stating that the 

Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the 

conditions precedent to the right of the Issuer so to redeem have occurred and the Trustee shall be 

entitled to accept such certificate as sufficient evidence of the satisfaction of such conditions 

precedent, in which event it shall be conclusive and binding on the Noteholders. All Notes in respect 

of which any such notice of redemption is given under this Condition shall be redeemed on the date 

specified in such notice in accordance with this Condition. 

(d) No other redemption 

The Issuer shall not be entitled to redeem the Notes otherwise than as provided in paragraphs (a), 

(b) and (c) above. 

(e) Purchase 

The Issuer, the Company and any of their respective Subsidiaries may at any time purchase Notes in 

the open market or otherwise at any price. 

(f) Cancellation 

All Notes redeemed or purchased by the Issuer pursuant to this Condition 7, shall be cancelled 

forthwith and may not be held or resold. Any Notes so cancelled may not be reissued. 

(g) Change in Control 

If a Put Event (as defined below) shall have occurred, the holder of a Note will have the option (the 

‘‘Put Option’’) to require the Issuer to redeem such Note on the Put Settlement Date (as defined 

below) at its principal amount together with accrued interest (if any) to the Put Settlement Date. 

Promptly, and in any event within 14 calendar days after the date of any Put Event, the Issuer shall 

deliver to the Trustee and the Noteholders, in accordance with Condition 17, a written notice (a 

‘‘Put Event Notice’’) in the form of an Officers’ Certificate, which notice shall be irrevocable, stating 

that a Put Event has occurred and stating the circumstances and relevant facts giving rise to such Put 

Event and the expiry of the Put Period. 

In order to exercise the Put Option, the holder of a Note must deliver no later than 30 days after the 

Put Event Notice is given (the ‘‘Put Period’’), to the specified office of the Principal Paying Agent or 

any Paying Agent, evidence satisfactory to the Paying Agent of such holder’s entitlement to such 

Note and a duly completed put option notice (a ‘‘Put Option Notice’’) specifying the principal 

amount of the Notes in respect of which the Put Option is exercised, in the form obtainable from the 

Principal Paying Agent or any Paying Agent. The Principal Paying Agent or the Paying Agent will 

provide such Noteholder with a non-transferable receipt. On the Business Day following the end of 

the Put Period, the relevant Paying Agent shall notify in writing the Issuer of the exercise of the Put 

Option specifying the aggregate principal amount of the Notes to be redeemed in accordance with 

the Put Option. Provided that the Notes that are the subject of any such Put Option Notice have 

been delivered to the Principal Paying Agent or a Paying Agent prior to the expiry of the Put 

Period, then the Issuer shall (as provided in Condition 7) redeem all such Notes on the date falling 

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five Business Days after the expiration of the Put Period (the ‘‘Put Settlement Date’’). No Put 

Option Notice, once delivered in accordance with this Condition 5, may be withdrawn. 

For the purposes of these Conditions, a ‘‘Change of Control’’ shall occur at any time that Sergey 

Petrov, or the trustees of any trust in respect of which he and his family beneficiaries, ceases to own 

or control (directly or indirectly) at least 50 per cent. plus one share of the issued and outstanding 

voting share capital of the Issuer or the Company. 

‘‘Put Event’’ means the occurrence of a Change of Control. 

8 Payments 

(a) Principal 

Payments of principal (whenever due) and interest due on redemption shall be made by the Paying 

Agents by U.S. dollar cheque drawn on a bank in New York City, or by transfer to a U.S. dollar 

account maintained by the payee with, a bank in New York City and shall only be made upon 

surrender (or, in the case of part payment only, endorsement) of the relevant Note Certificates at 

the specified office of any Paying Agent. 

(b) Interest 

Payments of interest (other than interest due on redemption) shall be made by the Paying Agents 

by U.S. dollar cheque drawn on a bank in New York City, or by transfer to a U.S. dollar account 

maintained by the payee with a bank in New York City, not later than the due date for such 

payment. 

(c) Payments subject to fiscal laws 

All payments in respect of the Notes are subject in all cases to any applicable fiscal or other laws and 

regulations, but without prejudice to the provisions of Condition 9. No commissions or expenses 

shall be charged to the Noteholders in respect of such payments. 

(d) Payments on business days 

If the due date for any payment of principal or interest under this Condition 8 is not a payment 

business day, each Noteholder shall not be entitled to payment of the amount due until the next 

following payment business day and shall not be entitled to any further interest or other payment in 

respect of any such delay. In this Condition, ‘‘payment business day’’ means any day on which banks 

are open for business in the place of the specified office of the relevant Paying Agent and, in the 

case of payment by transfer to a U.S. dollar account as referred to above, on which dealings in 

foreign currencies may be carried on both in New York City and in such other place. 

(e) Record date 

Each payment in respect of a Note will be made to the person shown as the holder in the Register at 

the opening of business (in the place of the Registrar’s specified office) on the fifteenth day before 

the due date for such payment. Any cheque will be mailed to the holder of the relevant Note at his 

address appearing in the Register. 

(f) Agents 

The initial Agents and their initial specified offices are listed below. The Issuer and the Guarantors, 

acting together, reserve the right to vary or terminate the appointment of all or any of the Agents at 

any time and appoint additional or other payment or transfer agents, provided that they will 

maintain (i) a Principal Paying Agent, (ii) Paying Agents and Transfer Agents having specified 

offices in at least two major European cities approved by the Trustee, including Citibank 

International PLC, Dublin Branch so long as the Notes are listed on the Irish Stock Exchange and 

the rules of the Irish Stock Exchange so require and (iii) a Paying Agent with a specified office in a 

European Union member state (if any) that will not be obliged to withhold or deduct tax pursuant 

to European Union Directive 2003/48/EC or any other Directive implementing the conclusions of 

the ECOFIN Council meeting of 26-27 November 2000. Notice of any such change will be provided 

as described in Condition 17 below. 

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9 Taxation 

All payments of principal and interest in respect of the Notes by the Issuer or under the Guarantees 

by the Guarantors shall be made free and clear of, and without withholding or deduction for, any 

taxes, duties, assessments or governmental charges of whatsoever nature imposed, levied, collected, 

withheld or assessed by or within Cyprus or the Russian Federation or any political subdivision or 

any authority thereof or therein having power to tax, unless such withholding or deduction is 

required by law. In that event, the Issuer or (as the case may be) the Guarantors shall increase the 

relevant payment so as to result in the receipt by the Noteholders of such amounts as would have 

been received by them if no such withholding or deduction had been required, except that no such 

additional amounts shall be payable in respect of any Note: 

(i) held by a holder which (a) is able to avoid such deduction or withholding by satisfying any 

statutory requirements or by making a declaration of non-residence or other claim for 

exemption to the relevant tax authority; or (b) is liable to such taxes, duties, assessments or 

governmental charges in respect of such Note or the Guarantees by reason of it having some 

connection with (as the case may be) Cyprus or the Russian Federation or any other political 

subdivision or authority thereof or therein other than the mere holding of such Note or the 

benefit of the Guarantees; or 

(ii) where (in the case of a payment of principal or interest on redemption) the relevant Certificate 

is surrendered for payment more than 30 days after the Relevant Date except to the extent 

that the relevant holder would have been entitled to such additional amounts if it had 

surrendered the relevant Certificate on the last day of such period of 30 days; or 

(iii) where such withholding or deduction is imposed on a payment to an individual and is required 

to be made pursuant to European Council Directive 2003/48/EC or any other Directive on the 

taxation of savings implementing the conclusions of the ECOFIN Council meeting of 

26-27 November 2000 on the taxation of savings income or any law implementing or 

complying with, or introduced in order to conform to, such Directive; or 

(iv) in respect of a Certificate presented for payment by or on behalf of a Noteholder who would 

have been able to avoid such withholding or deduction by presenting the relevant Certificate 

to another Paying Agent in a member state of the European Union. 

In these Conditions, ‘‘Relevant Date’’ means whichever is the later of (a) the date on which the 

payment in question first becomes due and (b) if the full amount payable has not been received in 

New York City by or for the account of the Principal Paying Agent or the Trustee on or prior to 

such due date, the date on which (the full amount having been so received) notice to that effect has 

been given to the Noteholders. 

Any reference in these Conditions to principal or interest shall be deemed to include any additional 

amounts in respect of principal or interest (as the case may be) which may be payable under this 

Condition. 

10 Events of Default 

The Trustee at its discretion may, and if so requested in writing by the holders of not less than 

one-quarter in principal amount of the Notes then outstanding or if so directed by an Extraordinary 

Resolution (subject in each case to being indemnified and/or secured to its satisfaction) shall, give 

notice to the Issuer that the Notes are, and they shall immediately become, due and repayable at 

their principal amount together with accrued interest if any of the following events occurs and is 

continuing (each, an ‘‘Event of Default’’): 

(i) The Issuer fails to pay any amount of principal or interest payable hereunder as and when such 

amount becomes payable, provided in the case of payments of interest such failure to pay 

continues for more than 5 business days. 

(ii) Any of the Issuer, the Company and/or any of the Guarantors fails to perform or observe any 

covenant or obligation expressed to be assumed herein or in the Trust Deed provided (a) in 

respect of the covenants and obligations contained in conditions 5(h)(i)(B) and 5(h)(ii)(B), 

such failure continues for more than 60 calendar days and (b) in respect of all other covenants 

and obligations expressed to be assumed by the Issuer, the Company and/or any of the 

Guarantors herein or in the Trust Deed, such failure continues for more than 20 calendar days. 

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(iii) Indebtedness of the Issuer, the Company or any Subsidiary is not paid after final maturity (and 

any applicable grace periods) and the total amount of such Indebtedness unpaid exceeds 

U.S.$10,000,000 (or its equivalent in other currencies) or Indebtedness of the Issuer, the 

Company or any Subsidiary becomes due and payable prior to its final maturity because of a 

default and the total amount of such Indebtedness that becomes so due and payable exceeds 

U.S.$10,000,000 (or its equivalent in other currencies). 

(iv) The occurrence of any of the following events: (i) the Issuer, the Company or any Material 

Subsidiary becomes insolvent or is unable to pay its debts generally as they fall due, (ii) one or 

more administrator(s) or a liquidator of the Issuer, the Company or any Material Subsidiary is 

appointed over the whole or substantially the whole in the opinion of the Trustee or any, in the 

opinion of the Trustee, material part of the undertaking, assets or revenues of the Issuer, the 

Company or any Material Subsidiary, (iii) the Issuer, the Company or any Material Subsidiary 

makes a general assignment to, or a general arrangement or general composition with or for 

the benefit of, all or substantially all of its creditors or declares a moratorium in respect of all 

or substantially all of its Indebtedness and guarantees, (iv) Issuer, the Company or any 

Material Subsidiary ceases or threatens to cease to carry on all or substantially all of its 

business, except for the purpose of and followed by a reconstruction, amalgamation, 

reorganisation, merger or consolidation of a Material Subsidiary, whereby the undertakings 

and assets of such Material Subsidiary are transferred to or otherwise vested in the Issuer, the 

Company or any Material Subsidiary or, (v) with respect to any Material Subsidiary that is 

incorporated in the Russian Federation, (a) any such Material Subsidiary seeks or consents to 

the introduction of proceedings for its liquidation or the appointment of a liquidation 

commission (likvidatsionnaya komissiya) or a similar officer of any of such Material 

Subsidiary; (b) the presentation or filing of a petition in respect of any of any such Material 

Subsidiary in any court, arbitration court or before any agency alleging, or for, the bankruptcy, 

insolvency, dissolution, liquidation (or any analogous proceedings) of any of such Material 

Subsidiary if such petition is accepted by the court and bankruptcy, insolvency, dissolution or 

liquidation proceedings are initiated by such competent court; (c) the institution of the 

supervision (nablyudeniye), financial rehabilitation (finansovoye ozdorovlenie), external 

management (vneshneye upravleniye), bankruptcy management (konkursnoye proizvodstvo) 

over any Material Subsidiary, (d) the entry by any Material Subsidiary into, or the agreeing by 

any Material Subsidiary to enter into, amicable settlement (mirovoe soglashenie) with its 

creditors, as such terms are defined in the Federal Law of Russia No. 127-FZ ‘‘On Insolvency 

(Bankruptcy)’’ dated 26 October 2002 (as amended or replaced from time to time); and/or 

(e) any judicial liquidation in respect of any Material Subsidiary. 

(v) The Issuer, the Company or any of its Material Subsidiaries is unable or admits inability to pay 

its debts as they fall due, generally suspends making payments on any of its debts or, by reason 

of actual or anticipated financial difficulties, commences negotiations with one or more of its 

creditors with a view to rescheduling any of its Indebtedness; and/or a moratorium is declared 

in respect of any Indebtedness of any of the Issuer, the Company or a Material Subsidiary. 

(vi) The failure by the Issuer, the Company or any Material Subsidiary to pay any final judgement 

in excess of U.S.$10,000,000 (or its equivalent in other currencies) which final judgment 

remains unpaid, and undischarged, and unwaived and unstayed for a period of more than 

45 consecutive days after such judgement becomes final and non-appealable, and, in the event 

such judgment is covered by insurance, an enforcement proceeding has been commenced by 

any creditor upon such judgement that is not promptly stayed. 

(vii) At any time it is or becomes unlawful for the Issuer, the Company or any Guarantor to 

perform or comply with any or all of their respective obligations to pay interest, principal or 

other amounts under, respectively, the Notes and the Guarantees or any of such payment 

obligations are not, or cease to be, legal, valid, binding and enforceable. 

(viii) The Issuer, the Company or any Guarantor repudiates the Notes or any Guarantee or the 

Notes or any Guarantee ceases to be in full force and effect (other than in accordance with the 

terms of the Notes). 

(ix) Any necessary regulation, decree, consent, approval, exemption, filing, licence, order, 

recording or registration or other authority at any time required to be taken, fulfilled or 

done in order (i) to enable the Issuer, the Company or any Guarantor lawfully to enter into, 

exercise their respective rights and perform and comply with their respective obligations 

82

under the Notes and the Guarantees, (ii) to ensure that those obligations are legally binding 

and enforceable and (iii) to make the Notes and the Guarantee admissible in evidence in the 

courts of England and Cyprus shall expire or be withheld, revoked or terminated or otherwise 

cease to remain in full force and effect or shall be modified in a manner in each case which 

materially adversely effects any rights or claims of the Trustee or successor thereof. 

(x) Any step is taken by any person with a view to the seizure, compulsory acquisition, 

expropriation or nationalisation of all or a in the opinion of the Trustee material part of the 

assets of the Issuer, the Company or any of its Material Subsidiaries. 

(xi) Any event occurs which under the laws of any relevant jurisdiction has an analogous effect to 

any of the events referred to in sub-Clauses (iv) or (v). 

(a) Notice of Default 

The Issuer and the Company shall deliver to the Trustee forthwith after the occurrence thereof, 

written notice in the form of an Officers’ Certificate of any Event of Default, its status and what 

action the Issuer and the Company is taking or proposes to take with respect thereto. 

(b) Rights Not Exclusive 

The rights provided for herein are cumulative and are not exclusive of any other rights, powers, 

privileges or remedies provided by law. 

11 Prescription 

Claims for the payment of principal and interest in respect of any Certificate shall be prescribed 

unless made within 10 years (for claims for the payment of principal) or five years (for claims for the 

payment of interest) of the appropriate Relevant Date. 

12 Replacement of Certificates 

If any Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified 

office of the Registrar, subject to all applicable laws and stock exchange requirements, upon 

payment by the claimant of the expenses incurred in connection with such replacement and on such 

terms as to evidence, security, indemnity and otherwise as the Issuer may reasonably require. 

Mutilated or defaced Certificates must be surrendered before replacements will be issued. 

13 Meetings of Noteholders, Modification and Waiver 

(a) Meetings of Noteholders 

The Trust Deed contains provisions for convening meetings of Noteholders to consider matters 

affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of 

any of these Terms and Conditions or any provisions of the Trust Deed. Such meetings shall be held 

in accordance with the provisions set out in the Trust Deed. Such a meeting may be convened by 

Noteholders holding not less than 10 per cent. in principal amount of the Notes for the time being 

outstanding. The quorum at any meeting convened to vote on an Extraordinary Resolution will be 

one or more persons holding or representing a clear majority in principal amount of the Notes for 

the time being outstanding, or at any adjourned meeting one or more persons being or representing 

Noteholders whatever the principal amount of the Notes held or represented, unless the business of 

such meeting includes consideration of proposals, inter alia, (i) to modify the Maturity Date or the 

dates on which interest is payable in respect of the Notes, (ii) to reduce or cancel the principal 

amount of, or interest on, the Notes, (iii) to change the currency of payment of the Notes, (iv) to 

modify the provisions concerning the quorum required at any meeting of Noteholders or the 

majority required to pass an Extraordinary Resolution, or (v) to modify or cancel any or all of the 

Guarantees, in which case the necessary quorum will be one or more persons holding or 

representing not less than 75 per cent., or at any adjourned meeting not less than 25 per cent., in 

principal amount of the Notes for the time being outstanding. Any Extraordinary Resolution duly 

passed shall be binding on Noteholders (whether or not they were present at the meeting at which 

such resolution was passed). 

(b) Modification and Waiver 

The Trustee may agree, without the consent of the Noteholders, to (i) any modification of any of the 

provisions of the Trust Deed or the Notes which, in the opinion of the Trustee, is of a formal, minor 

83

or technical nature or is made to correct a manifest error, and (ii) any other modification (except as 

mentioned in the Trust Deed), and any waiver or authorisation of any breach or proposed breach, of 

any of the provisions of the Notes or the Trust Deed which is in the opinion of the Trustee not 

materially prejudicial to the interests of the Noteholders. Any such modification, authorisation or 

waiver shall be binding on the Noteholders and, if the Trustee so requires, shall be notified to the 

Noteholders as soon as practicable. 

(c) Substitution 

The Trust Deed contains provisions permitting the Trustee to agree with the Issuer and the 

Guarantors, subject to such amendment of the Trust Deed and such other conditions as the Trustee 

may require, but without the consent of the Noteholders, to the substitution of certain other entities 

in place of the Issuer, or of any previous substituted company, as principal debtor under the Trust 

Deed and the Notes. Notice of any such substitution will be provided as described in Condition 17 

and, for as long as the Notes are listed on the Irish Stock Exchange, to the Irish Stock Exchange 

together with supplemental listing particulars in respect of such substitution. 

(d) Entitlement of the Trustee 

In connection with the exercise of its functions (including but not limited to those referred to in this 

Condition) the Trustee shall have regard to the interests of the Noteholders as a class and shall not 

have regard to the consequences of such exercise for individual Noteholders and the Trustee shall 

not be entitled to require, nor shall any Noteholder be entitled to claim, from the Issuer, the 

Guarantors, the Trustee or any other Person, any indemnification or payment in respect of any tax 

consequences of any such exercise upon individual Noteholders. 

14 Enforcement 

At any time after an Event of Default has occurred and is continuing, the Trustee may, at its 

discretion and without further notice, institute such proceedings against the Issuer and/or the 

Guarantors as it may think fit to enforce the terms of the Trust Deed and the Notes (whether by 

arbitration pursuant to the Trust Deed or by litigation), but it need not take any such proceedings 

unless (a) it shall have been so directed by an Extraordinary Resolution or so requested in writing 

by Noteholders holding at least one-quarter in principal amount of the Notes outstanding and (b) it 

shall have been indemnified and/or secured to its satisfaction. No Noteholder may proceed directly 

against the Issuer or any or all of the Guarantors unless the Trustee, having become bound so to 

proceed, fails to do so within a reasonable time and such failure is continuing. 

15 Indemnification and Removal of the Trustee 

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from 

responsibility. The Trustee is entitled to enter into business transactions with the Issuer, the 

Guarantors and any entity related to the Issuer or the Guarantors without accounting for any profit. 

The Trustee may rely without liability to Noteholders on any certificate or report prepared by 

Auditors, accountants or other persons pursuant to the Trust Deed, whether or not addressed to the 

Trustee and whether or not the Auditors’, accountants’ or other persons’ liability in respect thereof 

is limited by a monetary cap or otherwise. The Trust Deed provides that the Noteholders shall 

together have the power, exercisable by Extraordinary Resolution, to remove the Trustee (or any 

successor trustee or additional trustees) provided that the removal of the Trustee or any other 

trustee shall not become effective unless there remains a trustee in office after such removal. 

16 Further Issues 

The Issuer may from time to time, without the consent of the Noteholders, create and issue further 

securities having the same terms and conditions as the Notes in all respects (or in all respects except 

for the issue date and the first payment of interest) and so that such further issue shall be 

consolidated and form a single series with the outstanding Notes. References in these Terms and 

Conditions to the Notes include (unless the context requires otherwise) any other securities issued 

pursuant to this Condition. Any such other securities shall be constituted by a deed supplemental to 

the Trust Deed. 

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17 Notices 

Notices to the Noteholders shall be valid if sent to them by first class mail (airmail if overseas) at 

their respective addresses on the Register. Any such notice shall be deemed to have been given on 

the fourth day after the date of mailing. In addition, notices will be published (so long as the Notes 

are listed on the Irish Stock Exchange and the rules of that exchange so require) in a leading 

newspaper having general circulation in Ireland (which is expected to be the Irish Times). 

18 Carnet 2000 

None of these Conditions shall apply to either (a) Carnet 2000 or (b) the Company, the Issuer or 

any Subsidiary in respect of any transaction entered into between any of them and Carnet 2000, in 

each case as part of the termination and distribution of the residual value of the distribution 

business of which Carnet 2000 was the corporate vehicle and, for the purposes of Condition 5 (n), 

the consolidated total revenue of the Group and the consolidated total assets of the Group shall 

each be calculated excluding Carnet 2000; provided that, if Carnet 2000 remains a member of the 

Group and starts to conduct business as part of the Group other than as currently conducted 

(including as provider of warranty cover), than this Condition 18 shall cease to have any force or 

effect. 

19 Contracts (Rights of Third Parties) Act 1999 

No person shall have any right to enforce any term or condition of the Notes under the Contracts 

(Rights of Third Parties) Act 1999. 

20 Governing Law and Jurisdiction 

The Notes, the Trust Deed and the Guarantees are governed by and shall be construed in 

accordance with, the laws of England. In relation to any legal action or proceedings arising out of or 

in connection with the Trust Deed, the Guarantees or the Notes, the Issuer and the Guarantors have 

in the Trust Deed irrevocably submitted to the courts of England and in relation thereto have 

appointed an agent for service of process in England. 

Without prejudice to the foregoing provisions, the Issuer and the Guarantors have in the Trust 

Deed agreed that any disputes which may arise out of or in connection with the Trust Deed, the 

Guarantee or the Notes (including any questions regarding their existence, validity or termination) 

may be referred to and finally resolved by arbitration under the LCIA Rules, which rules are 

deemed to be incorporated by reference in the Trust Deed. 

21 Definitions 

In these Terms and Conditions, the following terms shall have the following meanings: 

‘‘Affiliate’’ of any specified Person means any other Person, directly or indirectly, controlling or 

controlled by or under direct or indirect common control with such specified Person. For the 

purpose of this definition, ‘‘control’’ when used with respect to any Person means the power to 

direct the management and policies of such Person, directly or indirectly, whether through the 

ownership of voting securities, by contract or otherwise; and the terms ‘‘controlling’’ and 

‘‘controlled’’ have meanings correlative to the foregoing; 

‘‘Agency’’ means any agency, authority, central bank, department, committee, government, 

legislature, minister, ministry, official or public or statutory person (whether autonomous or not); 

‘‘Approved Jurisdiction’’ means the United States of America, Russia and any member state of the 

European Union as constituted on the Issue Date; 

‘‘Auditors’’ means the auditors of the Group’s consolidated financial statements (prepared in 

accordance with IFRS) for the time being or, if they are unable or unwilling to carry out any action 

requested of them under this Agreement, such other internationally recognised firm of accountants 

appointed by the Company for such purpose; 

‘‘business day’’ means a day on which (i) the London Interbank Market is open for dealings between 

banks generally, and (ii) if on that day a payment is to be made hereunder, commercial banks 

generally are open for business in Cyprus, London and New York City; 

‘‘Capital Stock’’ means, with respect to any Person, any and all shares, interests, participations, 

rights to purchase, warrants, options, or other equivalents (however designated) of capital stock of a 

85

corporation and any and all equivalent ownership interests in a Person other than a corporation, in 

each case whether now outstanding or hereafter issued; 

‘‘Carnet 2000’’ means Closed Joint Stock Company Carnet 2000; 

‘‘Cash Equivalents’’ means: 

(a) any evidence of Indebtedness with a maturity of one year or less issued or directly and fully 

guaranteed or insured by an Approved Jurisdiction or any Agency or instrumentality thereof; 

provided that the full faith and credit of an Approved Jurisdiction (or similar concept under 

the laws of the relevant Approved Jurisdiction) is pledged in support thereof; and 

(b) commercial paper with a maturity of one year or less issued by a corporation organised under 

the laws of an Approved Jurisdiction and rated at all times at least the same rating as that of 

the unsecured, unsubordinated debt obligations of the Issuer or the Guarantor, whichever is 

higher, by Standard & Poor’s, Moody’s or Fitch Ratings Ltd. 

‘‘Company’’ means Delance Limited; 

‘‘Consolidated Net Indebtedness’’ means, as at any date of determination (and without duplication), 

all Indebtedness of the Group outstanding on such date, as would be shown on a consolidated 

balance sheet of the Group as at such date prepared in accordance with IFRS, less cash and Cash 

Equivalents as would be shown on a consolidated balance sheet of the Group as at such date 

prepared in accordance with IFRS; 

‘‘Group’’ means the Company and its Subsidiaries taken as a whole; 

‘‘guarantee’’ means any financial obligation, contingent or otherwise, of any Person directly or 

indirectly guaranteeing any Indebtedness or other obligation of any other Person and any 

obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or 

advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of 

such other Person (whether arising by virtue of partnership arrangements, or by agreement to 

keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial 

statement conditions or otherwise) or (b) entered into for purposes of assuring in any other manner 

the obligee of such Indebtedness or other obligation of the payment thereof or to protect such 

obligee against loss in respect thereof (in whole or in part); provided, however, that the term 

‘‘guarantee’’ will not include endorsements for collection or deposit in the ordinary course of 

business; and the term ‘‘guarantee’’ used as a verb has a corresponding meaning; 

‘‘Guarantors’’ means: Limited Liability Company ‘‘S. Petrov’’, Limited Liability Company ‘‘ROLF 

Estate St Petersburg’’, Limited Liability Company ‘‘ROLF Import’’, Limited Liability Company 

‘‘ROLF–VOSTOK’’, Limited Liability Company ‘‘ROLF KHIMKI’’, Limited Liability Company 

‘‘Carlain’’, Limited Liability Company ‘‘ROLF–YUG Co. Ltd’’, Limited Liability Company ‘‘SP 

DIAMANT’’, Limited Liability Company ‘‘AC-SEVER’’, Limited Liability Company ‘‘ROLF 

PDC’’, Limited Liability Company ‘‘ROLF PDC ESTATE’’, Limited Liability Company ‘‘ROLF- 

City’’, Limited Liability Company ‘‘ROLF–ALTUFIEVO’’, Limited Liability Company ‘‘ROLF– 

Oktiabrskaya’’, Limited Liability Company ‘‘ROLF Lahta M’’, Limited Liability Company ‘‘ROLF 

Lahta P’’, Limited Liability Company ‘‘Zvezda Stolici’’, Limited Liability Company ‘‘ROLF 

Pronto’’, Closed Joint Stock Company ‘‘ROLF ESTATE’’, Closed Joint Stock Company ‘‘ROLF 

Holding’’, Closed Joint Stock Company ‘‘SP ROLF’’ and the Company (unless and until any such 

entity may be released as a Guarantor pursuant to Condition 2(b)) and any additional Guarantors 

appointed pursuant to Condition 2(b); 

‘‘IFRS’’ means International Financial Reporting Standards, including International Accounting 

Standards and Interpretations issued by the International Accounting Standards Board, as adopted 

by the European Union; 

‘‘incur’’ means issue, assume, guarantee, incur or otherwise become liable for; provided, however, 

that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a 

Subsidiary (whether by merger, consolidation, acquisition or otherwise) or is merged into a 

Subsidiary will be deemed to be incurred or issued by the parent company or such Subsidiary (as the 

case may be) at the time such Person becomes a Subsidiary of such parent company or is so merged 

into such Subsidiary; 

’’Indebtedness’’ means any indebtedness, in respect of any Person for, or in respect of, moneys 

borrowed or raised including, without limitation, any amount raised by acceptance under any 

86

acceptance credit facility; any amount raised pursuant to any note purchase facility or the issue of 

bonds, notes, debentures, loan stock or any similar instrument; any amount raised pursuant to any 

issue of shares which are expressed to be redeemable; any amount raised under any other 

transaction (including any forward sale or purchase agreement) having the economic effect of a 

borrowing; and the amount of any liability in respect of any guarantee or indemnity for any of the 

items referred to above; 

‘‘Independent Appraiser’’ means any third party appraiser of international standing selected by the 

Issuer, provided, however, that such third party appraiser is not an Affiliate of the Issuer to the 

Company or any of their Subsidiaries; 

‘‘Issue Date’’ means 28 June 2007; 

‘‘Lien’’ means any mortgage, pledge, encumbrance, easement, restriction, covenant, right-of-way, 

servitude, lien, charge or other security interest or adverse claim of any kind (including, without 

limitation, anything analogous to any of the foregoing under the laws of any jurisdiction and any 

conditional sale or other title retention agreement or lease in the nature thereof); 

‘‘Material Adverse Effect’’ means a material adverse effect on: 

(a) the business, financial condition, results of operations or immediate prospects of the Group 

taken as a whole; 

(b) the Issuer’s or the Company’s ability to perform or comply with any of their respective 

obligations under the Notes or a Guarantor’s ability to perform or comply with its obligations 

under its Guarantee; or 

(c) the validity, legality or enforceability of the Notes or any Guarantee Agreement, or the rights 

or remedies of the Trustee hereunder or thereunder; 

‘‘Material Subsidiary’’ means, at any given time, 

(a) each Guarantor; 

(b) at any given time, any Subsidiary of the Company which: 

(i) has total revenue representing 10 per cent. or more of the consolidated total revenue of 

the Group; or 

(ii) has total assets representing 10 per cent. or more of the consolidated total assets of the 

Group, 

in each case calculated on a consolidated basis in accordance with IFRS, as consistently applied. 

Compliance with the conditions set out in paragraphs (b)(i) and (ii) above shall be determined by 

reference to the latest audited or unaudited consolidated annual or, as the case may be, audited or 

unaudited consolidated interim financial statements of the Group, provided however, that an 

Officers’ Certificate that a Subsidiary is or is not a Material Subsidiary, shall, in the absence of 

manifest error, be conclusive and binding on all parties. 

If a Subsidiary has been acquired since the date as at which the latest consolidated financial 

statements of the Group were prepared, the financial statements shall be deemed to be adjusted in 

order to take into account the acquisition of that Subsidiary on a pro-forma basis; 

‘‘Measurement Period’’ means the most recent financial year ending on 31 December for which 

consolidated financial statements of the Group (or the other relevant person in respect of which the 

particular calculation is to be made, as the case may be) prepared in accordance with IFRS are 

available. 

‘‘Merge’’ means consolidate with, merge with or into or sell, convey, transfer, lease or otherwise 

dispose of all or substantially all of the property or assets of one Person to another Person and 

‘‘Merged’’ and ‘‘Merger’’ shall have the correlative meaning; 

‘‘Moody’s’’ means Moody’s Investors Service, Inc.; 

‘‘Non-recourse Project Financing’’ means any financing of all or part of the costs of the acquisition, 

construction or development of any project if the Person or Persons providing such financing 

expressly agrees or, as the case may be, agree to limit their recourse to the project financed and the 

revenues derived from such project as the source of repayment for the moneys advanced; 

87

‘‘Noteholder’’ means the holder of a Note. 

‘‘Notes’’ means the U.S.$250,000,000 8.25 per cent. notes due 2010 proposed to be issued by the 

Issuer pursuant to the Trust Deed. 

‘‘Officer’’ means, with respect to any Person, any Managing Director, Director, General Director, 

the Chairman of the Board, the President, any Vice President, Deputy General Director, the Chief 

Financial Officer, the Controller, the Treasurer or the Secretary of such Person or any general 

partner or other person holding a corresponding or similar position of responsibility; 

‘‘Officers’ Certificate’’ means a certificate signed on behalf of the Issuer or the Company, as the case 

may be, by two Officers of the Issuer or the Company, as the case may be, at least one of whom shall 

be the principal executive officer, principal accounting officer or principal financial officer of the 

Issuer or the Company, as the case may be,; 

‘‘Permitted Liens’’ means: 

(a) Liens existing as at the issue date of these Notes, provided that any such Liens granted in 

connection with the Secured Syndicated Loan Facility are discharged within six months of the 

Issue Date; 

(b) Liens arising or created in connection with any Non-recourse Project Financing; 

(c) Liens granted in favour of the Company or any Subsidiary; 

(d) Liens on property acquired (or deemed to be acquired) under a financial lease, or claims 

arising from the use or loss of or damage to such property; provided that any such Lien secures 

Indebtedness only under such lease; 

(e) Liens securing Indebtedness of a Person existing at the time that such Person is merged into or 

consolidated with the Issuer or the Company or becomes a Subsidiary of the Issuer or the 

Company; provided that such Liens were not created in contemplation of such merger or 

consolidation or event and do not extend to any assets or property of the Issuer or the 

Company already existing or any Subsidiary other than those of the surviving Person and its 

subsidiaries or the Person acquired and its subsidiaries; 

(f) Liens already existing on assets or property acquired or to be acquired by the Issuer, the 

Company or any Subsidiary; provided that such Liens were not created in contemplation of 

such acquisition and do not extend to any other assets or property (other than proceeds of 

such acquired assets or property); 

(g) Liens granted upon or with regard to any property hereafter acquired by any member of the 

Group to secure the purchase price of such property or to secure Indebtedness incurred solely 

for the purpose of financing the acquisition of such property and transactional expenses 

related to such acquisition and repairs related to such property; provided that the maximum 

amount of Indebtedness thereafter secured by such Lien does not exceed the purchase price of 

such property (including transactional expenses) or the Indebtedness incurred solely for the 

purpose of financing the acquisition of such property; 

(h) any Liens arising by operations of law; 

(i) Liens for ad valorem, income or property taxes or assessments and similar charges which 

either are not delinquent or are being contested in good faith by appropriate proceedings for 

which the Issuer, the Company or any of their Subsidiaries has set aside in its books of account 

appropriate reserves; 

(j) easements, rights of way, restrictions (including zoning restrictions), reservations, permits, 

servitudes, minor defects or irregularities in title and other similar charges or encumbrances, 

and Liens arising under leases or subleases granted to others, in each case not interfering in 

any material respect with the business of the Group and existing, arising or incurred in the 

ordinary course of business; 

(k) statutory landlords’ Liens, (so long as such Liens do not secure obligations constituting 

Indebtedness for borrowed money and such Liens are incurred in the ordinary course of 

business), and (ii) Liens arising from any judgment, decree or other order which does not 

constitute an event of default under Condition 10 (vi); 

88

(l) any Lien in respect of obligations arising under hedging agreements so long as the related 

indebtedness is permitted to be incurred under these Conditions and any such hedging 

agreement is not speculative; 

(m) a right of set-off, right to combine accounts or any analogous right which any bank or other 

financial institution may have relating to any credit balance of any member of the Group; 

(n) any Lien created in connection with the raising of any Indebtedness for working capital 

purposes for a period of no more than 180 days, provided that the aggregate principal amount 

outstanding at any one time of such Indebtedness in respect of which any such lien pursuant to 

this paragraph (n) is created does not exceed U.S.$50 million; 

(o) any Lien or Liens on the property, income or assets of the Issuer, the Company or any 

Subsidiary securing the Indebtedness of the Issuer, the Company or any such Subsidiary 

incurred in an aggregate principal amount outstanding at any one time not exceed 10 per cent. 

of total assets of the Group (determined by reference to the then most recent publicly 

available annual or interim consolidated financial statements of the Group or such member of 

the Group prepared in accordance with IFRS). For the avoidance of doubt this paragraph (o) 

does not include any Lien created in accordance with paragraphs (a) to (n) above; and 

(p) any Liens arising out of the refinancing, extension, renewal or refunding of any Indebtedness 

secured by a Lien permitted by any of the above exceptions, provided that the Indebtedness 

thereafter secured by such Lien does not exceed the amount of the original Indebtedness and 

such Lien is not extended to cover any property not previously subject to such Lien. 

‘‘Person’’ means any individual, corporation, partnership, limited liability company, joint venture, 

association, joint-stock company, trust, unincorporated organisation, government, or any agency or 

political subdivision thereof or any other entity; 

‘‘Principal Paying Agent’’ means Citibank, N.A., London Branch or, if applicable, any successor 

principal paying agent for the Notes as may from time to time be appointed by the Issuer (or, 

following the giving of notice pursuant to Clause 2.4.1 of the Trust Deed, by the Trustee); 

‘‘Paying Agent’’ Citibank International PLC, Dublin Branch or, if applicable, any successor 

principal paying agent for the Notes as may from time to time be appointed by the Issuer (or, 

following the giving of notice pursuant to Clause 2.4.1 of the Trust Deed, by the Trustee); 

‘‘Product Delivery Contract’’ means any contract for the purchase or sale or delivery or 

transportation of passenger vehicles, automobile spare parts, options and other accessories, entered 

into from time to time between any of the Company’s Subsidiaries and any other person in the 

ordinary course of the Group’s business, that is customary in the automobile trading industry, 

including any distribution, dealership, supply, sale-and-purchase, delivery contracts or 

transportation and/or warehousing contracts related thereto. 

‘‘Secured Syndicated Loan Facility’’ means the U.S.$350 million syndicated loan facility dated 

20 December 2005 as amended and restated on 12 December 2006 between the Issuer and 

Raiffeisen Zentralbank Osterreich AG. 

‘‘Standard & Poor’s’’ means Standard and Poor’s Ratings Service, a division of The McGraw-Hill 

Companies, Inc. and its successors; 

‘‘Subsidiary’’ means (i), in the case of the Company, each Guarantor and (ii) in respect of any 

Person, any corporation, partnership, joint venture, association or other business entity, whether 

now existing or hereafter organised or acquired, (a) in the case of a corporation, of which at least 

50 per cent. of the total voting power of the voting stock is held by the Company or the Issuer and/or 

any of their respective Subsidiaries and the Company or the Issuer and/or any of their respective 

Subsidiaries has the power to direct the management, policies and affairs thereof; (b) in the case of a 

partnership, joint venture, association, or other business/entity, with respect to which the Company 

or the Issuer or any of their respective Subsidiaries has the power to direct or cause the direction of 

the management and policies of such entity by contract if (in the case of each of (a) or (b) above) in 

accordance with IFRS such entity would be consolidated with the Company or the Issuer for 

financial statement purposes. 

‘‘Taxes’’ means any taxes (including any penalty or interest payable in connection with any failure 

to pay or any delay in paying any of the same) which are now or hereafter imposed, levied, 

89

collected, withheld or assessed by the Russian Federation or Cyprus or any taxing authority thereof 

or therein; 

‘‘U.S. Dollars’’, ‘‘USD’’ and ‘‘U.S.$’’ denote the lawful currency of the United States of America; 

‘‘VAT’’ means value added tax and any other tax of a similar nature; and 

‘‘Voting Stock’’ of any Person as of any date means the Capital Stock of such Person that is at the 

time ordinarily entitled to vote in the election of the Board of Directors of such Person; 

There will appear at the foot of the Terms and Conditions endorsed on each Certificate the name 

and specified office of the Agents as set out at the end of this Prospectus. 

90

SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM 

The following is a summary of the provisions to be contained in the Trust Deed to constitute the Notes 

and in the Global Certificate which will apply to, and in some cases modify, the Terms and Conditions of 

the Notes while the Notes are represented by the Global Certificate. 

The Notes will be represented by a Global Certificate which will be registered in the name of Citivic 

Nominees Limited as nominee for, and deposited with, a common depositary for Euroclear and 

Clearstream, Luxembourg. 

Subject to receipt of funds from the Issuer, the Global Certificate will become exchangeable in whole but 

not in part (free of charge to the holder) for Definitive Certificates if (a) Euroclear or Clearstream, 

Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal 

holidays) or announces an intention permanently to cease business or (b) if the Issuer would suffer a 

material disadvantage in respect of the Notes as a result of a change in the laws or regulations (taxation or 

otherwise) of any jurisdiction referred to in Condition 8 which would not be suffered were the Notes in 

the form of Definitive Certificates. 

Whenever the Global Certificate is to be exchanged for Definitive Certificates, such Definitive 

Certificates will be issued in an aggregate principal amount equal to the principal amount of the Global 

Certificate following delivery by or on behalf of the registered holder of the Global Certificate, Euroclear 

and/or Clearstream, Luxembourg, to the Registrar of such information as required to complete and 

deliver such Definitive Certificates (including, but without limitation to, the names and addresses of the 

persons in whose names the Definitive Certificates are to be registered and the principal amount of each 

such person’s holding) against the surrender of the Global Certificate at the Specified Office of the 

Registrar or the Transfer Agent. Such exchange will be effected in accordance with the provisions of the 

Agency Agreement, the Trust Deed and the Global Certificate. 

In addition, the Global Certificate will contain a provision that modifies the Terms and Conditions of the 

Notes as they apply to the Notes evidenced by the Global Certificate. The following is a summary of this 

provision: 

Notices 

Notwithstanding Condition 17, so long as the Global Certificate is held by or on behalf of Euroclear, 

Clearstream, Luxembourg or any other clearing system (an ‘‘Alternative Clearing System’’), notices to 

Noteholders represented by the Global Certificate may be given by delivery of the relevant notice to 

Euroclear, Clearstream, Luxembourg or (as the case may be) such Alternative Clearing System. 

Payment 

Payments in respect of Notes represented by a Global Certificate will be made against presentation for 

endorsement and, if no further payment of principal or interest is to be made in respect of the Notes, 

against presentation and surrender of such Global Certificate to or to the order of the Registrar. Upon 

payment of any principal, the amount so paid shall be endorsed by or on behalf of the Registrar on behalf 

of the Issuer on the schedule to the Global Certificate. Payment while Notes are represented by a Global 

Certificate will be made in accordance with the procedures of Euroclear and Clearstream, Luxembourg 

or any Alternative Clearing System as appropriate. Condition 8(d) will apply to the Notes in definitive 

form only. 

Meetings 

The holder of each Global Certificate will be treated as being two persons for the purposes of any quorum 

requirements of, or the right to demand a poll at, a meeting of Noteholders and in any such meeting as 

having one vote in respect of each Note for which the relevant Global Certificate may be exchangeable. 

Trustee’s Powers 

In considering the interests of Noteholders whilst the relevant Global Certificate is held on behalf of a 

clearing system, the Trustee, to the extent it considers it appropriate to do so in the circumstances, may 

have regard to any information provided to it by such clearing system or its operator as to the identity 

(either individually or by category) of its accountholders with entitlements to such Global Certificate and 

may consider such interests as if such accountholders were the holders of such Global Certificate. 

91

Cancellation 

Cancellation of any Note required by the Terms and Conditions of the Notes to be cancelled will be 

effected by reduction in the principal amount of the applicable Global Certificate. 

92

SUBSCRIPTION AND SALE 

ABN AMRO Bank N.V. (‘‘ABN AMRO’’), Citigroup Global Markets Limited (‘‘Citi’’), and 

Commerzbank Aktiengesellschaft (together the ‘‘Managers’’) have, in a subscription agreement dated 

the date of this Prospectus (the ‘‘Subscription Agreement’’) and made between the Issuer, the 

Guarantors and the Managers upon the terms and subject to the conditions contained therein, jointly and 

severally agreed to subscribe and pay for the Notes at their issue price of 100 per cent. of their principal 

amount. The Managers are entitled to commissions and reimbursement of expenses pursuant to the 

Subscription Agreement and a fees and expenses side agreement between, inter alios, the Issuer and the 

Managers. The Managers are entitled in certain circumstances to be released and discharged from their 

obligations under the Subscription Agreement prior to the closing of the issue of the Notes. 

United States of America 

The Notes and the Guarantees have not been and will not be registered under the Securities Act and may 

not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except 

in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this 

paragraph have the meanings given to them by Regulation S. 

Each Manager has represented, warranted and undertaken that, except as permitted by the Subscription 

Agreement, it will not offer, sell or deliver the Notes (a) as part of their distribution at any time or (b) 

otherwise, until 40 days after the later of the commencement of the offering and the issue date of the 

Notes, within the United States or to, or for the account or benefit of, U.S. persons, and that it will have 

sent to each dealer to which it sells Notes during the distribution compliance period a confirmation or 

other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or 

for the account or benefit of, U.S. persons. 

In addition, until 40 days after commencement of the offering, an offer or sale of Notes within the United 

States by a dealer (whether or not participating in the offering) may violate the registration requirements 

of the Securities Act. 

United Kingdom 

Each Manager has represented, warranted and agreed that: 

(a) it has only communicated or caused to be communicated and will only communicate or cause to be 

communicated an invitation or inducement to engage in investment activity (within the meaning of 

Section 21 of the FSMA) received by it in connection with the issue or sale of the Bonds in 

circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or any Guarantor; 

and 

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything 

done by it in relation to the Bonds in, from or otherwise involving the United Kingdom. 

Cyprus 

Each Manager has represented, warranted and agreed that it will not be providing from or within Cyprus 

any ‘‘Investment Services’’ and ‘‘Non-Core Services’’ (as such terms are defined in the Investment Firms 

Law 148(I) of 2002, as amended (the ‘‘IFL’’)) in relation to the Notes, or will be otherwise providing 

Investment Services and Non-Core Services to residents or persons domiciled in Cyprus. Each Manager 

has represented, warranted and agreed that it will not be concluding in Cyprus any transaction relating to 

such Investment Services and Non-Core Services in contravention of the IFL and/or applicable 

regulations adopted pursuant thereto or in relation thereto. 

Russian Federation 

Each of the Managers has represented, warranted and agreed that the Notes will not be offered, 

transferred or sold as part of their initial distribution or at any time thereafter to or for the benefit of any 

persons (including legal entities) resident, incorporated, established or having their usual residence in the 

Russian Federation unless and to the extent otherwise permitted under Russian law; it being understood 

and agreed that the Managers may distribute the Prospectus to persons in the Russian Federation in a 

manner that does not constitute advertisement (as defined in Russian law) of the Notes and may sell the 

Notes to Russian persons in a manner that does not constitute ‘‘placement’’ or ‘‘public circulation’’ of the 

Notes in the Russian Federation (as defined in Russian law). 

93

Italy 

The offering of the Notes has not been registered with the Commissione Nazionale per la Società ela 

Borsa (‘‘CONSOB’’) (the Italian securities and exchange commission) pursuant to the Italian securities 

legislation and, accordingly each Manager has represented and agreed that it has not offered, sold or 

distributed any Notes nor distributed any copies of the Prospectus, and will not offer, sell or distribute the 

Notes nor distribute any copies of the Prospectus or any other document relating to the Notes in the 

Republic of Italy (‘‘Italy’’) in a public solicitation (sollecitazione all’investimento) within the meaning of 

Article 1, paragraph 1, letter (t) of Legislative Decree no. 58 of February 24, 1998 (the ‘‘Financial 

Services Act’’), unless an exemption applies. Accordingly, the Notes in Italy shall only be offered or sold: 

. to professional investors (operatori qualificati), as defined in Article 31, second paragraph of 

CONSOB Regulation No 11522 of July 1, 1998 (the ‘‘Professional Investors’’), as amended, or 

. in other circumstances which are exempted from the rules on public solicitations pursuant to Article 

100 of the Financial Services Act and Article 33, first paragraph, of CONSOB Regulation No 11971 

of May 14, 1999 (as amended). 

Moreover and subject to the foregoing, the Notes may not be offered, sold or delivered and neither the 

Prospectus nor any other material relating to the Notes may be distributed or made available in Italy 

unless such offer, sale or delivery of Notes or distribution or availability of copies of the Prospectus or any 

other material relating to the Notes in the Italy is made: 

. by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in 

accordance with the Financial Services Act and Legislative Decree No 385 of September 1, 1993 

(the ‘‘Italian Banking Act’’); and 

. in compliance with all relevant Italian securities, tax and exchange control and other applicable laws 

and regulations and any other applicable requirement or limitation which may be imposed from 

time to time by CONSOB or the Bank of Italy. 

Insofar as the requirements above are based on laws which are superseded at any time pursuant to the 

Prospectus Directive, such requirements shall be replaced by the applicable requirements under the 

Prospectus Directive or the relevant implementing provisions. 

Singapore 

Each Manager has acknowledged that the Prospectus has not been registered as a prospectus with the 

Monetary Authority of Singapore. Accordingly, each Manager has represented, warranted and agreed 

that it has not offered or sold any Notes or caused such Notes to be made the subject of an invitation for 

subscription or purchase and will not offer or sell such Notes or cause such Notes to be made the subject 

of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or 

distribute, the Prospectus or any other document or material in connection with the offer or sale, or 

invitation for subscription or purchase, of such Notes, whether directly or indirectly, to persons in 

Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, 

Chapter 289 of Singapore (the ‘‘SFA’’), (ii) to a relevant person pursuant to Section 275(1), or any person 

pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or 

(iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the 

SFA. 

Hong Kong 


(i) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any 

Notes other than (a) to ‘‘professional investors’’ as defined in the Securities and Futures Ordinance 

(Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances 

which do not result in the document being a ‘‘prospectus’’ as defined in the Companies Ordinance 

(Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that 

Ordinance; and 

(ii) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its 

possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, 

invitation or document relating to the Notes, which is directed at, or the contents of which are likely 

to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities 

laws of Hong Kong) other than with respect to the Notes which are or are intended to be disposed 

94

of only to persons outside Hong Kong or only to ‘‘professional investors’’ as defined in the 

Securities and Futures Ordinance and any rules made under that Ordinance. 

Ireland 


(i) it will not underwrite the issue of or place the Notes, otherwise than in conformity with the 

provisions of the Irish Investment Intermediaries Act 1995 (as amended), including, without 

limitation, Sections 9 and 23 thereof and any codes of conduct rules made under Section 37 thereof 

and the provisions of the Investor Compensation Act 1998; 

(ii) it will not underwrite the issue of, or place, the Notes, otherwise than in conformity with the 

provisions of the Irish Central Bank Acts 1942-1999 (as amended) and any codes of conduct rules 

made under Section 117(1) thereof; 

(iii) it will not underwrite the issue of, or place, or do anything in Ireland in respect of the Notes 

otherwise than in conformity with the provisions of the Irish Prospectus (Directive 2003/71/EC) 

Regulations 2005 and any rules issued under Section 51 of the Irish Investment Funds, Companies 

and Miscellaneous Provisions Act 2005, by the Financial Regulator; and 

(iv) it will not underwrite the issue of, place, or otherwise act in Ireland in respect of the Notes, 

otherwise than in conformity with the provisions of the Irish Market Abuse (Directive 2003/6/EC) 

Regulations 2005 and any rules issued under Section 34 of the Irish Investment Funds, Companies 

and Miscellaneous Provisions Act 2005 by the Financial Regulator. 

95

TAXATION 

The following is a general description of certain Cypriot, Russian and EU tax considerations relating to the 

Notes. It does not purport to be a complete analysis of all tax considerations relating to the Notes, whether 

in those countries or elsewhere. Prospective purchasers of the Notes should consult their own advisers as to 

which countries’ tax laws could be relevant to acquiring, holding and disposing of the Notes and receiving 

payments of interest, principal and/or other amounts under such Notes and the consequences of such 

actions under the tax laws of those countries. This summary is based upon the law as in effect on the date of 

this Prospectus and is subject to any change in law that may take effect after such date. 

CYPRUS 

The following is a general summary of certain tax aspects of the Notes under Cypriot law practice in force 

and applied as at the date of this Prospectus and does not purport to be a comprehensive description of all 

tax aspects relating to the Notes. This summary does not analyse the tax position of the Issuer and it does 

not constitute nor should it be construed as, tax or legal advice. Prospective investors should consult their 

tax and other professional advisers as to the specific tax consequences of acquiring, holding and disposing 

of the Notes and of receiving interest on the Notes. 

Introduction 

In accordance with the provisions of the Income Tax Law, Law 118(I)/2002 (as amended) (the ‘‘Income 

Tax Law’’) a person (natural or legal) is liable to tax on its worldwide income on the basis of residency. 

A person is resident in Cyprus for the purposes of the Income Tax Law where, in the case of a natural 

person, that person is present in Cyprus for a period (or periods in the aggregate) exceeding 183 days in 

the tax year and in the case of a company, its management and control is exercised in Cyprus. The tax 

year for the purposes of the Income Tax Law coincides with the calendar year. 

Interest Income 

Non-Cyprus tax residents 

Persons (natural and legal) who are not resident for tax purposes pursuant to the provisions of the 

Income Tax Law will not be liable to any charge to income tax or the special contribution for the defence 

of the Republic. Therefore, no withholding taxes apply on interest payments by the Issuer to non-Cyprus 

tax residents. 

Cyprus tax resident individuals 

Under the provisions of the Income Tax Laws, an individual who is tax resident in the Republic of Cyprus 

and who receives or is credited with interest, is exempt from income tax, but is subject to 10 per cent. 

withholding pursuant to the provisions of the Special Contribution for the Defence Fund of the Republic 

Laws, Law 117(I) of 2002 (as amended) (the ‘‘SCDF Law’’). 

Cyprus tax resident companies 

A resident company which receives or is credited with interest from the ordinary carrying on of its 

business or receives interest closely connected with the carrying on of its business is subject to tax under 

the Income Tax at the rate of 10% on the interest received and is not subject to the special contribution 

for the defence fund. A resident company, which receives or is credited with interest and the interest is 

not considered to be received from the ordinary carrying on of its business or is not closely connected 

with the carrying on of its business, is liable to income tax under the Income Tax Law on 50 per cent. of 

the interest received or credited, whilst the remaining 50 per cent. is exempt. In addition, the interest is 

subject to 10% withholding pursuant to the provisions of the SCDF Law. 

Capital Repayment 

Repayment of capital upon a redemption of the Notes will not be subject to any withholding taxes in 

Cyprus irrespective of whether or not the noteholder is a resident of Cyprus or not. 

Payments under the Guarantee by the Company 

Taxation of payments made by the Company under the Guarantee will depend on the residency status of 

the Noteholders and the nature of the payment (i.e. principal or interest under the Notes) in the same 

manner as described above regarding the payments by the Issuer under the Notes. 

96

Savings Directive 

Cyprus has enacted into Cyprus law EU Directive 2003/48/EC relating to the taxation of savings by virtue 

of the provisions of the Assessment and Collection of Taxes (Amendment) Law 146(I) of 2004. Pursuant 

to this law, the Cypriot Council of Ministers issued the Assessment and Collection of Tax (Provision of 

Information Regarding Interest Payments) Regulations of 2005 These regulations impose Savings 

Directive standards on economic operators making EU cross-broder savings interest payments to 

individuals resident in (i) other EU Member States, (ii) certain associated or dependant territories of a 

Member State, (iii) certain other states with whom the EU has concluded relevant agreements, such as 

automatic reporting to the tax authorities of the other Member State of (a) an individual’s identity and 

permanent address, (b) the name and address of the paying agent and (c) the bank account details. 

Noteholders will be deemed to have authorised the disclosure of such information to the relevant tax 

authorities by their subscription for the Notes. 

Stamp Duty 

Following the enactment of the Stamp Duty (Amendment) (No.2) Law 222(I) of 2002, section 4 of the 

Stamp Duty Law 19 of 1963 (as amended) provides that: 

‘‘(1) every instrument specified in the First Schedule shall be chargeable with duty of the amount 

specified in the said Schedule as the proper duty therefor respectively if it relates to any asset 

situated in the Republic or to matter or things which shall be performed or done in the Republic 

irrespective of the place where the document is made’’ 

On the basis of certain past rulings from the Commissioner of Stamp Duty, the issue of the Notes should 

not be liable to stamp duty where the Notes are issued to non-residents, the proceeds of the issue are kept 

outside Cyprus, the Notes are listed on a foreign stock exchange and the repayment obligations are 

effected from foreign funds. If the Notes are issued to residents of Cyprus, there may be a chargeability to 

stamp duty under section 4 of the Stamp Duty Law. 

The transfers of the Notes effected outside of Cyprus between non-residents of Cyprus should not attract 

stamp duty in Cyprus, provided that the transferor and the transferee are not tax residents of Cyprus. 

RUSSIAN FEDERATION 

The following is a summary of certain Russian tax considerations relevant to the purchase, ownership and 

disposition of Notes. The summary is based on the laws of Russia in effect on the date of these Listing 

Particulars. The summary does not seek to address the applicability of, and procedures in relation to, taxes 

levied by regions, municipalities or other non-federal level authorities of Russia, nor does the summary seek 

to address the availability of double tax treaty relief in respect of the Notes, and it should be noted that there 

may be practical difficulties involved in obtaining such double tax treaty relief. Prospective investors should 

consult their own tax advisers regarding the tax consequences of investing in the Notes in their own 

particular circumstances. No representation with respect to the Russian tax consequences to any particular 

holder is made hereby. 

General 

Many aspects of Russian tax law are subject to significant uncertainty. Further, the substantive provisions 

of Russian tax law applicable to financial instruments may be subject to more rapid and unpredictable 

change and inconsistency than in jurisdictions with more developed capital markets and tax systems. In 

this regard, the interpretation and application of such provisions will in practice rest substantially with 

local tax inspectorates. 

For the purposes of this summary, a ‘‘non-resident holder’’ means an individual that is not considered a 

tax resident in Russia under the Russian individual tax law when they earn income from Notes or a legal 

entity or organisation in each case not organised under Russian law which holds and disposes of the Notes 

other than through its permanent establishment (as defined under Russian tax law) in Russia. 

Taxation of the Notes 

Non-Resident Holders 

A non-resident holder will not be subject to any Russian taxes in respect of payments of interest and 

principal on the Notes received from the Issuer. 

97

A non-resident holder also generally should not be subject to any Russian taxes in respect of gain or other 

income realised on redemption, sale or other disposition of the Notes outside of Russia, provided that the 

proceeds of such disposition are not received from a source within Russia. 

In the event that proceeds from a disposition of Notes are received from a source within Russia, a 

nonresident holder that is a legal entity or organisation should not be subject to any Russian taxation in 

respect of such proceeds, although there is some residual uncertainty regarding the treatment of the 

portion of proceeds, if any, that is attributable to accrued interest subject to any available double tax 

treaty. Any proceeds of such sales proceeds attributable to accrued interest may potentially be subject to 

Russian withholding tax at the rate of 20 per cent., even if the disposal otherwise results in a capital loss. 

If proceeds from a disposal of the Notes are received from a source within Russia, a non-resident holder 

who is an individual will generally be subject to personal income tax at a rate of 30 per cent., on the gain 

from such disposal (the gain generally being calculated as the gross proceeds from such disposal less any 

available cost deduction which includes the purchase price of the Notes) subject to any available double 

tax treaty relief. In this regard, if the Notes are disposed of to a resident of Russia or to a non-resident of 

Russian with a tax registered presence in Russia, and proceeds from such disposal are received from a 

source within Russia, the gains on such a disposal are likely to be treated as Russian source income for 

Russian personal income tax purposes. In addition, there is a risk that the taxable base may be affected by 

changes in the exchange rates between the currency of acquisition of the Notes the currency of sale of the 

Notes and Roubles. There is some uncertainty regarding the treatment of the portion of proceeds (if any) 

attributable to accrued interest. Proceeds attributable to accrued interest may be taxed at a rate of 30 per 

cent. irrespective of any capital gain or loss on the disposal of the Notes. The tax may be withheld at 

source of payment or, if the tax is not withheld, then the non-resident may be liable to pay the tax. 

Where proceeds from the disposition of the Notes are received from a Russian source withholding tax or 

Interest or on capital gains (if applicable under Russian domestic tax law) may be reduced or eliminated 

in accordance with the provisions of an applicable double tax treaty. Advance treaty relief should be 

available for those eligible, subject to the requirements of the laws of the Russian Federation. In order for 

the nonresident holder, whether an individual, legal entity or organisation, to enjoy the benefits of an 

applicable double tax treaty, documentary evidence is required to confirm the applicability of the double 

tax treaty for which benefits are claimed. Currently, a non-resident holder which is a legal entity or 

organisation would need to provide to the payer a certificate of tax residence issued by the competent tax 

authority of the relevant treaty country. In addition, an individual must provide to the tax authorities 

appropriate documentary proof of tax payments made outside of Russian on income with respect to 

which treaty benefits are claimed. Because of uncertainties regarding the form and procedures for 

providing such documentary proof, individuals in practice may not be able to obtain advance relief on 

receipt of proceeds from a source within Russia and obtaining a refund can be extremely difficult. 

Non-resident holders who are individuals and non-resident holders that are legal entities or organisations 

should consult their own tax advisers with respect to the tax consequences on the disposal of the Notes 

and on the tax consequences of the receipt of proceeds from a source within Russia in respect of a 

disposal of the Notes. 

Resident Holders 

A holder of a Note who is not a non-resident holder is subject to all applicable Russian taxes in respect of 

gains from a disposition of the Notes and interest received on the Notes. 

Taxation of Payments under the Guarantee 

Payments of interest on the Notes under the Guarantee are likely to be characterised as Russian source 

income. Accordingly, such payments should be subject to withholding tax at a rate of 20 per cent. in the 

event that a payment under the Guarantee is made to a non-resident holder that is a legal entity or 

organisation and at a rate of 30 per cent. in the event that a payment under the Guarantee is made to an 

individual non-resident holder, subject to reduction or elimination under any applicable tax treaty. We 

cannot offer any assurance that such withholding tax would not be imposed upon the full payment under 

the Guarantee, including with respect to the principal amount of the Notes. 

VAT on Payments under the Guarantee 

Any payments under the Guarantee should not be subject to Russian VAT. 

98

EU DIRECTIVE ON THE TAXATION OF SAVINGS INCOME 

Under EC Council Directive 2003/48/EC each Member State is required to provide to the tax authorities 

of another Member State details of payments of interest or other similar income paid by a person within 

its jurisdiction to an individual resident in that other Member State. For a transitional period, however, 

Austria, Belgium and Luxembourg may instead apply a withholding system in relation to such payments, 

deducting tax at rates rising over the course of the transitional period to 35 per cent. The transitional 

period is to terminate at the end of the first full fiscal year following agreement by certain non-EU 

Countries to the exchange of information relating to such payments. 

A number of non-EU countries, and certain dependent or associated territories of certain Member States, 

have agreed to adopt similar measures (either provision of information or transitional withholding) in 

relation to payments made by a person within their jurisdictions to, or collected by such a person for, an 

individual resident in a Member State. In addition, the Member States have entered into reciprocal 

provision of information or transitional withholding arrangements with certain of those dependent or 

associated territories in relation to payments made by a person in a Member State to, or collected by such 

a person for, an individual resident in one or those territories. 

99

GENERAL INFORMATION 

1. The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The 

ISIN is XS0307754654 and the Common Code is 030775465. The address of Euroclear is 

1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium and the address of Clearstream, 

Luxembourg is 42 Avenue JF Kennedy L-1855 Luxembourg. 

2. It is expected that listing of the Notes and admission of the Notes to trading on the Irish Stock 

Exchange’s regulated market for listed securities will be granted on or before 28 June 2007, subject 

only to the issue of the Global Certificate. Prior to official listing and admission to trading, however, 

the Irish Stock Exchange will permit dealings in accordance with its guidelines. Transactions will 

normally be effected for delivery on the third working day after the day of the transaction. 

3. The Issuer and the Guarantors have obtained all necessary consents, approvals and authorisations 

in Russia and Cyprus in connection with the issue and performance of the Notes and the 

Guarantees relating to the Notes. The issue of the Notes has been authorised by a resolution of the 

Board of Directors of the Issuer dated 25 June 2007, the Guarantees have been authorised by 

resolutions of the Shareholders or the Board of Directors, as the case may be, of each Guarantor 

each dated between 22 June 2007 and 25 June 2007. 

4. Except as disclosed in this Prospectus, there has been no significant change in the financial or 

trading position of the Issuer, the Guarantors or the Group and no material adverse change in the 

financial position or prospects of the Issuer, the Guarantors or the Group since 31 December 2006. 

5. Where information in this Prospectus has been sourced from third parties this information has been 

accurately reproduced and as far as each of the Issuer and the Guarantors are aware and are able to 

ascertain from the information published by such third parties no facts have been omitted which 

would render the reproduced information inaccurate or misleading. The source of third party 

information is identified where used. 

6. None of the Issuer, the Guarantors or the Group is or has been involved in any legal or arbitration 

proceedings that may have, or have had during the 12 months preceding the date of this document, a 

significant effect on the financial position of the Issuer, the Guarantors or the Group, nor is the 

Issuer or the Guarantor aware that any such proceedings are pending or threatened. 

7. PwC has audited, and rendered an audit report on, the consolidated financial statements of Delance 

Limited for each of the years ended 31 December 2006 and 2005, and of the Issuer for the period 

from 21 December 2004 (the incorporation date) to 31 December 2005. 

8. Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in 

connection with the Notes and is not itself seeking admission of the Notes to the Official List of the Irish 

Stock Exchange or to trading on the Irish Stock Exchange for the purposes of the Prospectus Directive 

9. Though the Guarantors file stand-alone financial statements with regulatory authorities in 

accordance with the requirements of their country of incorporation, the Issuer and the 

10. 

Guarantors each consider that such financial statements do not provide significant additional 

information as compared to the consolidated financial statements of the Group. 

Until the maturity date or earlier repayment of the Notes, copies (and certified English translations 

where documents at issue are not in English) of the following documents may be inspected at and 

are available in physical form from the offices of the Principal Paying Agent in London and the Irish 

Paying Agent in Dublin during usual business hours on any business day (Saturdays, Sundays and 

public holidays excepted). 

. The memorandum and articles of association of the Issuer and of Delance Limited; 

. The charter of each of the Guarantors (other than Delance Limited); 

. The audited consolidated financial statements of Rolf as at and for the two years ended 

31 December 2006 and 2005; 

. The financial statements of the Issuer for the period from 21 December 2004 (incorporation 

date) to 31 December 2005; 

. The Subscription Agreement; and 

. The Trust Deed to constitute the Notes and the Guarantees which includes the form of the 

Global Certificate and the Definitive Certificates and the Agency Agreement. 

11. Once approved, the Prospectus will be published on the website of the IFSRA, www.ifsra.ie. 

12. The total expenses related to the admission to trading are EUR4,440. 

100

INDEX TO FINANCIAL STATEMENTS 

Consolidated Financial Statements of Rolf as at and for the year 

ended 31 December 2006................................................................................................................... F-3 

Consolidated Financial Statements of Rolf as at and for the year 

ended 31 December 2005................................................................................................................... F-35 

Financial Statements of Colgrade Limited for the period from 21 December 2004 

(incorporation date) to 31 December 2005..................................................................................... F-65 

F-1

[THIS PAGE INTENTIONALLY LEFT BLANK] 

F-2

Rolf Group 

International Financial Reporting Standards 

Consolidated Financial Statements and Independent 

Auditors’ Report 

31 December 2006 

F-3

Contents 

BOARD OF DIRECTORS AND OTHER OFFICERS ................................................................................................ 1 

REPORT OF THE BOARD OF DIRECTORS........................................................................................................ 2-3 

INDEPENDENT AUDITORS’ REPORT ................................................................................................................ 4-5 

FINANCIAL STATEMENTS 

Consolidated Balance Sheet ...................................................................................................................................6 

Consolidated Income Statement.............................................................................................................................. 7 

Consolidated Statement of Cash Flows ...................................................................................................................8 

Consolidated Statement of Changes in Equity..........................................................................................................9 

Notes to the Consolidated Financial Statements 

1 The Rolf Group and its Operations.............................................................................................................. 10 

2 Basis of Preparation and Significant Accounting Policies ............................................................................. 10 

3 Critical Accounting Estimates, and Judgements in Applying Accounting Policies .......................................... 15 

4 Adoption of New or Revised Standards and Interpretations, and New Accounting Pronouncements.............. 16 

5 Segment Reporting .................................................................................................................................... 17 

6 Balances and Transactions with Related Parties ......................................................................................... 18 

7 Property, Plant and Equipment ................................................................................................................... 19 

8 Intangible Assets........................................................................................................................................ 20 

9 Financial and Other Assets......................................................................................................................... 20 

10 Inventories ................................................................................................................................................. 21 

11 Trade and Other Receivables ..................................................................................................................... 21 

12 Cash and Cash Equivalents........................................................................................................................ 21 

13 Share Capital ............................................................................................................................................. 21 

14 Other Reserves.......................................................................................................................................... 22 

15 Bank, Borrowings, Non-current Financial Liabilities and Financing for Vehicles in Transit ............................. 22 

16 Current Income and Other Taxes Payable................................................................................................... 24 

17 Provisions for Liabilities and Charges.......................................................................................................... 24 

18 Trade and Other Payables.......................................................................................................................... 25 

19 Vehicles, Consumables and Services ......................................................................................................... 25 

20 Logistics, Insurance and Advertising ........................................................................................................... 25 

21 Employee Compensation and Benefits........................................................................................................ 25 

22 Office Costs, Business Travel and Services ................................................................................................ 25 

23 Other Operating Expenses, Net .................................................................................................................. 26 

24 Net Finance Costs...................................................................................................................................... 26 

25 Income Taxes ............................................................................................................................................ 26 

25 Income Taxes (Continued) ......................................................................................................................... 27 

26 Contingencies, Commitments and Operating Risks ..................................................................................... 28 

27 Financial Risk Management........................................................................................................................ 29 

28 Events After the Balance Sheet Date .......................................................................................................... 29 

F-4

Board of Directors and other officers 

Board of Directors 

Nicholas Coulson (appointed 15 September 2006) 

Sophia Nicolaou (appointed 13 September 2004) 

Stavroulla Ioannou (appointed 13 September 2004) 

Company Secretary 

Zet Secretarial Limited 

Elenion Building 

5 Themistocles Dervis Street 

CY-1591 Nicosia 

Cyprus 

Registered office 

Julia House Building 


P O Box 22612 


Cyprus 

F-5 

1

Report of the Board of Directors 

1 The Board of Directors presents its report together with the audited consolidated financial statements of 

Delance Limited and its subsidiary companies (“Rolf Group” or the “Group”) for the year ended 31 December 2006. 

Principal activity 

2 The principal activity of the Group, which is unchanged from last year, is selling vehicles and related 

services in the Russian Federation. The Group has an exclusive distribution contract with Mitsubishi Motors 

Corporation for importing cars into the Russian Federation until 2009, and is the sole distributor in Russia for 

imported vehicles produced by Hyundai Motor Company (Notes 1 and 28). 

Review of developments, position and performance of the Group’s business 

The financial position and performance of the Group as presented in the consolidated financial statements is 

considered satisfactory. During the year ended 31 December 2006, the Group achieved a gross profit margin of 

18.7% (2005: 16.6%) and a profit before income tax margin of 6.7% (2005: 5.8%). The Group is the largest importer 

and retailer of cars in the Russian Federation, and sales increased to 132,607 units in the year ended 31 December 

2006. By the end of 2006, there were 21 showrooms in operation and 6 more under construction. 

Principal risks and uncertainties 

3 Principal risks and uncertainties faced by the Group are the renewal of its main distributorship agreements 

for Mitsubishi and Hyundai brands on their expiry (Notes 1 and 28), and the uncertainties relating to the business and 

operating environment in the Russian Federation (Notes 2 and 27). 

Future developments 

4 The Directors believe that in 2007 the Group will continue to be profitable. 

Results 

5 The Group’s consolidated results for the year are set out on page 7. The Board of Directors recommended 

a dividend as detailed below and the remainder of the net profit for the year is retained. 

Dividends 

7 The Board of Directors on 18 December 2006 recommended an interim dividend of US$ 995 per share in 

respect of the year ended 31 December 2006 amounting to US$ 9,950,000. The dividends were paid on 19 

December 2006. 

Share capital 

8 There were no changes in the share capital of the Company during the year. 

F-6 

2

F-7

Independent Auditors’ Report 

To the Members of Delance Limited 

Report on the Consolidated Financial Statements 

2005 Cyprus Export 

Award for Services 

We have audited the consolidated financial statements of Delance Limited (the “Company”) and its 

subsidiaries (“Rolf Group” or the “Group”) on pages 6 to 29, which comprise the consolidated 

balance sheet as at 31 December 2006, and the consolidated income statement, consolidated 

statement of changes in equity and consolidated cash flow statement for the year then ended, and 

a summary of significant accounting policies and other explanatory notes. 

Board of Directors’ Responsibility for the Financial Statements 

The Company’s Board of Directors is responsible for the preparation and fair presentation of these 

consolidated financial statements in accordance with International Financial Reporting Standards 

as adopted by the European Union (EU) and International Financial Reporting Standards as issued 

by the International Accounting Standards Board (IASB) and the requirements of the Cyprus 

Companies Law,Cap. 113. This responsibility includes: designing, implementing and maintaining 

internal control relevant to the preparation and fair presentation of financial statements that are free 

from material misstatement, whether due to fraud or error; selecting and applying appropriate 

accounting policies; and making accounting estimates that are reasonable in the circumstances. 

Auditors’ Responsibility 

Our responsibility is to express an opinion on these consolidated financial statements based on our 

audit. We conducted our audit in accordance with International Standards on Auditing. Those 

Standards require that we comply with ethical requirements and plan and perform the audit to 

obtain reasonable assurance whether the financial statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and 

disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, 

including the assessment of the risks of material misstatement of the financial statements, whether 

due to fraud or error. In making those risk assessments, the auditor considers internal control 

relevant to the entity's preparation and fair presentation of the financial statements , in order to 

design audit procedures that are appropriate in the circumstances, but not for the purpose of 

expressing an opinion on the effectiveness of the entity's internal control. An audit also includes 

evaluating the appropriateness of accounting policies used and the reasonableness of accounting 

estimates made by the Board of Directors, as well as evaluating the overall presentation of the 

financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a 

basis for our audit opinion. 

Board Members: Phidias K Pilides (CEO), Dinos N Papadopoulos (Deputy CEO), Tassos I Televantides (Deputy CEO), Panikos N Tsiailis, Christakis Santis, Stephos D Stephanides, Costas L 

Hadjiconstantinou, George Foradaris, Costas M Nicolaides, Angelos M Loizou, Vasilis Hadjivassiliou, Androulla S Pittas, Savvas C Michail, Costas L Mavrocordatos, Christos M Themistocleous, 

Panicos Kaouris, Nicos A Neophytou, George M Loizou, Timothy D Osburne, Pantelis G Evangelou, Liakos M Theodorou, Stelios Constantinou, Tassos Procopiou, Andreas T Constantinides, Theo 

Parperis, Constantinos Constantinou, Petros C Petrakis, Philippos C Soseilos, Evgenios C Evgeniou, Christos Tsolakis, Nicos A Theodoulou, Nikos T Nikolaides, Cleo A Papadopoulou, Marios S 

Andreou, Nicos P Chimarides, Aram Tavitian, Constantinos Taliotis, Stavros A Kattamis, Yiangos A Kaponides, Tasos N Nolas, Chrysilios K Pelekanos 

Directors of Operations: Adrian Ioannou, Androulla Aristidou, Achilleas Chrysanthou, George Skapoullaros, Bambos A Charalambous, Chris Odysseos, Demetris V Psaltis, Constantinos L Kapsalis, 

Melina Pyrgou 

Offices: Nicosia, Limassol, Larnaca, Paphos PricewaterhouseCoopers Ltd is a private company, 

Registered in Cyprus (Reg. No. 143594) 

F-8 

PricewaterhouseCoopers Limited 

Julia House 



P O Box 21612 

CY-1591 Nicosia, Cyprus 

Telephone: + 357 - 22555000 

Facsimile: + 357 - 22555001 

www.pwc.com/cy 

4

F-9

F-10


Consolidated Income Statement 

In thousands of US dollars Note 2006 2005 

Revenue 

Vehicles 2,400,516 1,786,799 

Spare parts, maintenance and other 327,125 200,557 

Total revenue 2,727,641 1,987,356 

Vehicles, consumables and services 19 (2,217,551) (1,657,938) 

Gross profit 510,090 329,418 

Logistics, insurance and advertising 20 (96,862) (79,609) 

Employee compensation and benefits 21 (134,690) (66,536) 

Office costs, business travel and services 22 (29,162) (17,542) 

Depreciation, amortisation and impairment 7,8 (19,496) (10,365) 

Other operating expenses, net 23 (23,637) (16,328) 

Net foreign exchange losses from operations (10,681) (1,164) 

Operating profit 195,562 137,874 

Net finance costs 24 (29,272) (19,782) 

Net foreign exchange gain/(loss) on cash and borrowings 16,157 (1,873) 

Profit before income tax 182,447 116,219 

Income tax expense 25 (47,508) (41,907) 

Profit for the year 134,939 74,312 

Profit is attributable to: 

Equity holders of the Company 105,082 58,375 

Minority interest 29,857 15,937 

Profit for the year 134,939 74,312 

The accompanying notes on pages 10 to 29 are an integral part of these consolidated financial statements. 

F-11 

7


Consolidated Statement of Cash Flows 

In thousands of US dollars 

Cash flows from operating activities 

Note 2006 2005 

Profit before income tax 

Adjustments for: 

182,447 116,219 

Depreciation, amortisation and impairment 7,8 19,496 10,365 

Impairment of trade and other receivables 

Losses less gains on disposals of property, plant and 

23 1,051 1,455 

equipment 23 973 2,858 

Interest expense 24 29,272 19,782 

Provision for bonuses, taxes and warranties (15,577) (970) 

Operating cash flows before working capital changes 217,662 149,709 

Increase in trade and other receivables, excluding income 

taxes (101,542) (17,604) 

(Increase)/decrease in inventories (70,495) 4,860 

(Increase)/decrease in vehicles in transit - prepayments 564 (4,962) 

Increase in trade and other payables 33,478 6,727 

Increase/(decrease) in advances from customers (156) 8,678 

Increase/(decrease) in taxes payable, excluding income taxes (1,987) 3,829 

Cash generated from operations 77,574 151,237 

Income taxes paid (46,278) (57,082) 

Interest paid including capitalised (26,988) (21,254) 

Net cash from/(used in) operating activities 4,259 72,901 

Cash flows from investing activities 

Purchase of property, plant and equipment (108,761) (71,044) 

Proceeds from sale of property, plant and equipment 3,789 3,213 

Acquisition of intangible assets 8 (5,726) (2,234) 

Proceeds from financial and other assets 6,968 5,157 

Acquisition of financial and other assets (1,063) - 

Net cash used in investing activities (104,793) (64,908) 

Cash flows from financing activities 

Proceeds from borrowings 417,700 62,091 

Repayment of borrowings (233,332) (10,491) 

Dividends 13 (10,268) - 

Cash distributions to shareholders other than dividends 13 (2,110) (2,559) 

Net cash from financing activities 171,990 49,041 

Effect of exchange rate changes on cash and cash 

equivalents 8,180 (2,008) 

Net increase in cash and cash equivalents 79,636 55,026 

Cash and cash equivalents at the beginning of the year 

62,129 7,103 

Cash and cash equivalents at the end of the year 12 141,765 62,129 


F-12 

8


Consolidated Statement of Changes in Equity 


Attributable to equity holders of the 

Company 

Note Share Share Other Retained 

capital Premium reserves earnings 

The share premium reserve and other reserves are not available for distribution by way of dividend. 

Minority 

interest 


Total 

Total 

equity 

At 1 January 2005 10 40 26,649 88,544 115,243 7,094 122,337 

Property, plant and equipment: 

- Realised revaluation reserve 

14 - - (580) 580 - - - 

Currency translation differences 14 - - (5,823) - (5,823) (774) (6,597) 

Income tax recorded in equity 25 - 139 (139) - - - 

Net income recognised directly in 

equity - - (6,264) 441 (5,823) (774) (6,597) 

Profit for the year - - - 58,375 58,375 15,937 74,312 

Total recognised income for 2005 - - (6,264) 58,816 52,552 15,163 67,715 

Distributions 13 - - - (2,559) (2,559) - (2,559) 

At 31 December 2005 10 40 20,385 144,801 165,236 22,257 187,493 

Property, plant and 

equipment: 

- Revaluation 

- Realised revaluation 

14 - - 11,933 - 11,933 - 11,933 

reserve 

14 - - (716) 716 - - - 

Currency translation differences 

Income tax recorded in equity 

14 - - 20,809 - 20,809 3,811 24,620 

25 - - (2,791) (172) (2,963) - (2,963) 

Net income recognised 

directly in equity - - 29,235 544 29,779 3,811 33,590 

Profit for the year - - - 105,082 105,082 29,857 134,939 

Total recognised income for 2006 29,235 105,626 134,861 33,668 168,529 

Dividends 

13 - - - (10,268) (10,268) - (10,268) 

Distributions 13 - - - (12,328) (12,328) - (12,328) 

At 31 December 2006 10 40 49,620 227,831 277,501 55,925 333,426 

F-13 

9


Notes to the Consolidated Financial Statements � 31 December 2006 

1 The Rolf Group and its Operations 

These financial statements have been prepared for the year ended 31 December 2006 for Delance Limited (the 

“Company”) and its subsidiaries (together referred to as the “Group” or “Rolf Group”). The Company was incorporated 

in Cyprus on 13 September 2004, and has no corporate parent. The Group has been ultimately controlled by a trust 

acting in the interests of Mr Sergey Petrov since its formation. The companies previously owned by Mr. Petrov in his 

personal capacity, and which became subsidiaries of Delance Limited in the period from its incorporation to 

31 December 2004, have been consolidated in these financial statements as subsidiaries. Mr. Petrov retains a 51% 

interest in one subsidiary, which has been consolidated without minority interest since the Group has all the voting 

power and the power to govern its financial and operating policies, and act as its governing bodies under an 

agreement, and the Group also has the rights to any dividends declared and to purchase the shares at a bargain 

price. 

Principal activity. The Group’s principal business activity is the sale of cars and related services within the Russian 

Federation. The Group has an exclusive distribution contract with Mitsubishi Motors Corporation for importing cars 

into the Russian Federation until 2009, and is the sole distributor in Russia for imported vehicles produced by 

Hyundai Motor Company (Note 28). The Group sells these vehicles to customers through its own network of dealer 

centres, and through independent dealers throughout Russia. It also has non-exclusive purchasing arrangements 

with Ford, Mazda, Audi, Peugeot and Mercedes. The Group sold a total of 132,607 cars in the year ended 31 

December 2006 (year ended 31 December 2005 – 108,502 cars). 

Registered address and place of business. The Company’s registered address is Julia House Building, 3 

Themistocles Dervis Street, P.O. Box 22612, Nicosia CY-1066, Cyprus. The Group’s principal place of business is 31 

Altufievskoe Shosse, Building 7, Moscow, Russian Federation. 

2 Basis of Preparation and Significant Accounting Policies 

Basis of preparation. These consolidated financial statements have been prepared in accordance with International 

Financial Reporting Standards (“IFRS”) as adopted by the EU and International Financial Reporting Standards as 

issued by the IASB (“IASB”), and the requirements of the Cyprus Companies Law, Cap. 113. All IFRS issued by the 

IASB and effective at the time of preparing these consolidated financial statements have been adopted by the EU 

through the endorsement procedure established by the European Commission, with the exception of International 

Accounting Standard IAS 39 "Financial Instruments: Recognition and Measurement". Following recommendations 

from the Accounting Regulatory Committee, the Commission adopted the Regulations 2086/2004 and 1864/2005 

requiring the use of IAS 39, minus certain provisions on portfolio hedging of core deposits, by all listed companies 

from 1 January 2005. 

Since the Group is not affected by the provisions regarding portfolio hedging that are not required by the EUendorsed 

version of IAS 39, and since Management believes it is unlikely to be affected by them in the future, the 

accompanying consolidated financial statements comply with both International Financial Reporting Standards as 

adopted by the European Union and International Financial Reporting Standards issued by the IASB. Other 

standards which are mandatory for future accounting periods, and which have not been early adopted by the Group, 

are detailed in Note 4. 

In April 2007, the Board of Directors instructed Management to examine alternative financing strategies for the 

Group’s future development, including the potential listing of debt securities on a public exchange. This has resulted 

in the disclosure of information in accordance with IAS 14, “Segment Reporting” (Note 5). 

The consolidated financial statements have been prepared under the historical cost convention as modified by the 

revaluation of land and buildings on the basis of appraisals by an independent valuer and available for sale investments 

at fair value. The principal accounting policies applied in the preparation of these consolidated financial statements 

are set out below. These policies have been consistently applied to all the periods presented. All amounts in these 

financial statements are presented in thousands of United States dollars, unless otherwise stated. Management 

considers that this is the most useful currency for the users of the statements. 

Consolidated financial statements, business combinations and goodwill. Subsidiaries are all entities (including 

special purpose entities) over which the Group has the power to govern the financial and operating policies generally 

accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting 

rights that are presently exercisable or presently convertible are considered when assessing whether the Group 

controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group 

(acquisition date) and are de-consolidated from the date that control ceases. 

F-14 

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2 Basis of Preparation and Significant Accounting Policies (Continued) 

The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition 

is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at 

the date of exchange, plus costs directly attributable to the acquisition. The date of exchange is the acquisition date 

where a business combination is achieved in a single transaction, and is the date of each share purchase where a 

business combination is achieved in stages by successive share purchases. 

The excess of the cost of acquisition over the fair value of the net assets of the acquiree in each exchange 

transaction represents goodwill. The excess of the acquirer’s interest in the net fair value of the identifiable assets, 

liabilities and contingent liabilities acquired over cost (”negative goodwill”) is recognised immediately in profit or loss. 

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured 

at their fair values at the acquisition date, irrespective of the extent of any minority interest. 

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; 

unrealised losses are also eliminated unless the cost cannot be recovered. The Company and all of its subsidiaries 

use uniform accounting policies consistent with the Group’s policies. 

Minority interest is that part of the net results and of the net assets of a subsidiary, including the fair value 

adjustments, which is attributable to interests which are not owned, directly or indirectly, by the Group. Minority 

interest forms a separate component of the Group’s equity. The Group has chosen to account for transactions with 

minorities on the basis of the economic entity model, under which any differences between the purchase price of a 

change in the minority interest and its carrying value are recorded in equity. 

Property, plant and equipment. Property, plant and equipment are stated at cost, restated to the equivalent 

purchasing power of the Russian Rouble at 31 December 2002 for assets acquired prior to 1 January 2003, or 

revalued amounts, as described below, less accumulated depreciation and provision for impairment, where required. 

Cost includes borrowing costs incurred on specific or general funds borrowed to finance the construction of qualifying 

assets. 

Land and buildings are subject to revaluation on a regular basis, at intervals of not more than every three years. The 

frequency of revaluation depends upon the movements in the fair values of the land and buildings. Increases in the fair 

value arising on revaluation of land and buildings are credited to revaluation reserve in equity. Decreases in fair value 

that offset previous increases of the same asset are charged against revaluation reserve directly in equity; all other 

decreases are charged to the income statement. 

At the time of each revaluation, the balance of accumulated depreciation is reset to zero, and cost is restated to the 

revalued amount. The revaluation reserve in equity is transferred directly to retained earnings when the surplus is 

realised either on the retirement or disposal of the asset or as the asset is used by the Group; in the latter case, the 

amount of the surplus realised is the difference between depreciation based on the revalued carrying amount of the 

asset charged to the income statement and depreciation based on the asset’s original cost transferred from the 

revaluation reserve to retained earnings. 

Costs of minor repairs and maintenance are expensed when incurred. Costs of replacing major parts or components 

of property, plant and equipment are capitalised only when it is probable that future economic benefits associated will 

flow to the group and the cost of the item can be measured reliably, and the replaced part is derecognised. 

At each reporting date Management assesses whether there is any indication of impairment of property, plant and 

equipment. If any such indication exists, Management estimates the recoverable amount, which is determined as the 

higher of an asset’s fair value less costs to sell and its value in use. The carrying amount is reduced to the 

recoverable amount and the impairment loss is recognised in the income statement, unless it relates to an earlier 

revaluation in which case it is charged to the revaluation reserve. An impairment loss recognised for an asset in prior 

years is reversed if there has been a change in the estimates used to determine the asset’s value in use or fair value 

less costs to sell. 

Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit or 

loss in other operating expenses. 

Depreciation. Land is not depreciated. Depreciation on other items of property, plant and equipment is calculated 

using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated 

useful lives: 

Useful lives in years 

Buildings 40 

Plant and machinery 10 to 15 

Equipment and motor vehicles 3 to 10 

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11




The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the 

asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the 

end of its useful life. The residual value of an asset is nil if the Group expects to use the asset until the end of its 

physical life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance 

sheet date. 

Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all the risks and 

rewards incidental to ownership from the lessor to the Group, the total lease payments, including those on expected 

termination, are charged to profit or loss on a straight-line basis over the period of the lease. 

Finance lease liabilities. Where the Group is a lessee in a lease which transfers substantially all the risks and 

rewards incidental to ownership to the Group, the assets leased are capitalised in property, plant and equipment at 

the commencement of the lease at the lower of the fair value of the leased asset and the present value of the 

minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to 

achieve a constant rate on the finance balance outstanding. 

The corresponding rental obligations, net of future finance charges, are included in borrowings. The interest cost is 

charged to the income statement over the lease period using the effective interest method. Assets acquired under 

finance leases are depreciated over their useful life or the shorter lease term if the Group is not reasonably certain 

that it will obtain ownership by the end of the lease term. 

Intangible assets. All of the Group’s intangible assets have definite useful lives and primarily include capitalised 

computer software. 

Acquired computer software licenses, patents and trademarks are capitalised on the basis of the costs incurred to 

acquire and bring them to use. Payments made for new or acquired leases are capitalised. Intangible assets are 

amortised using the straight-line method over their useful lives: 

Useful life in years 

Software licences 3 

Accounting systems software 5 

Leases Shorter of the useful life or the lease period 

If there is an indicator of impairment at any balance sheet date, the carrying amount of intangible assets is written 

down to the higher of value in use and fair value less costs to sell. 

Classification of financial assets. The Group classifies its financial assets into the following measurement 

categories: trading, available-for-sale, held to maturity and loans and receivables. Loans and receivables are 

unquoted non-derivative financial assets with fixed or determinable payments. They are included in current assets 

unless their maturity date is more than 12 months after the balance sheet date, and are classified as trade and other 

receivables in the balance sheet. Available for sale financial assets are non-derivatives that are either designated in 

this category or not classified in any of the other categories. They are classified as non-current assets unless 

management intends to dispose of the investment within 12 months of the balance sheet date. 

Initial recognition of financial instruments. All financial assets and liabilities recognised in the financial statements 

are initially recorded at fair value plus transaction costs, except for those not carried at fair value through profit and 

loss, for which the transaction costs are expensed. Fair value at initial recognition is best evidenced by the 

transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and 

transaction price which can be evidenced by other observable current market transactions in the same instrument or 

by a valuation technique whose inputs include only data from observable markets. 

Derecognition of financial assets. The Group derecognises financial assets when (i) the assets are redeemed or 

the rights to cash flows from the assets have otherwise expired or (ii) the Group has transferred substantially all the 

risks and rewards of ownership of the assets or (iii) the Group has neither transferred nor retained substantially all 

risks and rewards of ownership but has not retained control. Control is retained if the counterparty does not have the 

practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional 

restrictions on the sale. 

Impairment of financial assets. At each reporting date, management assesses whether there is an indication of 

impairment of any financial assets. Impairment losses are recognised in profit or loss when incurred as a result of one 

or more events that occurred after the initial recognition of the financial asset. A significant or prolonged decline in the 

fair value of loans and receivables (see details of accounting policy for trade and other receivables) below its cost is 

an indicator that it is impaired. The impairment loss is recognised in profit or loss. If, in a subsequent period, the fair 

value of a loan or receivable increases, the impairment loss is reversed through current period’s profit or loss. 

F-16 

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Income taxes. Income taxes have been provided for in the consolidated financial statements in accordance with 

legislation enacted or substantively enacted by the balance sheet date. The income tax charge comprises current tax 

and deferred tax and is recognised in the consolidated income statement unless it relates to transactions that are 

recognised, in the same or a different period, directly in equity. Current tax is the amount expected to be paid to or 

recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes 

other than on income are recorded within operating expenses. 

Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary 

differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting 

purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary 

differences on initial recognition of an asset or a liability in a transaction other than a business combination if the 

transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not 

recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not 

deductible for tax purposes. 

Deferred tax balances are measured at tax rates enacted or substantively enacted at the balance sheet date which 

are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be 

utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group only if the 

requirements of IAS 12.74 (a) and (b) are met. Deferred tax assets for deductible temporary differences and tax loss 

carry forwards are recorded only to the extent that there are sufficient taxable temporary differences, or that it is 

probable that future taxable profit will be available, against which the deductions can be utilised. Deferred income tax 

is provided on post acquisition retained earnings of subsidiaries, except where the Group controls the subsidiary’s 

dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable 

future. 

Inventories. Inventories are recorded at the lower of actual cost and net realisable value. Net realisable value is the 

estimated selling price in the ordinary course of business, less selling expenses. 

Trade and other receivables. Trade and other receivables are carried at amortised cost using the effective interest 

method. A provision for impairment of receivables is established when there is objective evidence that the Group will 

not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is 

the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted 

at the original effective interest rate. The amount of the provision is recognised in the income statement. 

Cash and cash equivalents. Cash and cash equivalents includes cash in hand, deposits held at call with banks, and 

other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents 

are carried at amortised cost using the effective interest method. 

Share capital. Ordinary shares are classified as equity. Any excess of the fair value of consideration received over 

the par value of shares issued is presented in the notes as a share premium. 

Dividends. Dividends are recognised as a liability and deducted from equity at the balance sheet date only if they are 

declared on or before the balance sheet date. Dividends are disclosed when they are proposed before the balance 

sheet date or proposed or declared after the balance sheet date but before the financial statements are authorised for 

issue. 

Russian value added tax . Output value added tax is payable to tax authorities on the earlier of (a) collection of the 

receivables from customers or (b) delivery of the goods or services to customers. Input VAT is generally recoverable 

against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis. 

VAT related to sales and purchases is recognised in the balance sheet on a gross basis and disclosed separately as 

an asset and liability. 

Borrowings. Borrowings are carried at amortised cost using the effective interest method, and are classified as 

current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months after the 

balance sheet date. Interest costs on borrowings to finance the construction of property, plant and equipment are 

capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other 

borrowing costs are expensed. 

Trade and other payables. Trade payables are accrued when the counterparty has performed its obligations under 

the contract and are carried at amortised cost using the effective interest method. 

Provisions for liabilities and charges. Provisions for liabilities and charges are recognised when the Group has a 

present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will 

F-17 

13




be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are discounted at 

pre-tax rates reflecting current market assessments of the time value of money and the risks inherent in the liability. 

The Group accrues bonuses payable for the achievement of long-term and sustainable growth and results, which 

cover multiple periods. Management estimates the amount payable in respect of each period, and restates the 

accrued liability based on achievement of the targets as agreed periodically with the shareholders. 

The Group recognises the estimated liability to repair or replace vehicles sold still under warranty at the balance sheet 

date. This provision is calculated based on past history of the level of repairs and replacements per vehicle sold using 

statistics provided by the manufacturer of the vehicle, where available, as amended for the Group’s experience in its 

market. 

Foreign currency translation. The functional currency of each of the Group’s consolidated entities is the currency of 

the primary economic environment in which the entity operates. The functional currency of the Company and 

practically all the subsidiaries is the Russian rouble, and the Group’s presentation currency is the U. S. dollar (“US$”). 

Monetary assets and liabilities are translated into each entity’s functional currency at official exchange rates at the 

respective balance sheet dates. Foreign exchange gains and losses resulting from the settlement of the transactions 

and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official 

exchange rates are recognised in profit or loss. Translation at year-end rates does not apply to non-monetary items, 

including equity investments. 

Translation from functional to presentation currency. The results and financial position of each group entity (none of 

which have the functional currency of a hyperinflationary economy) are translated into the presentation currency as follows: 

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance 

sheet; 

(ii) income and expenses for each income statement presented are translated at average exchange rates (unless this 

average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, 

in which case income and expenses are translated at the dates of the transactions); and 

(iii) all resulting exchange differences are recognised as a separate component of equity. 

Revenue recognition. Revenues from sales of vehicles are recognised at the point of transfer of risks and rewards 

of ownership to the buyer, after the registration process has been completed. For sales to independent dealers on 

consignment, this is the transfer of ownership to the ultimate customer, and the dealer’s commission is recognised 

simultaneously as an expense. For direct sales to independent dealers, in which there is no commission payable, the 

point of transfer is when the dealer takes ownership. 

Sales of spare parts are recognised when title and risks have been transferred and maintenance services (including 

spares consumed and maintenance carried out under manufacturer’s warranty) are recognised when the services 

have been completed and the vehicle has been accepted by the customer. 

Sales are shown net of VAT and discounts. Interest income is recognised on a time-proportion basis using the 

effective interest method. 

Incentives receivable and payable which are based on quantities of cars purchased and sold are accounted for in the 

statement of income when the conditions applicable under the relevant scheme have been met, usually when the car 

has been sold to the buyer and no right of return exists. Incentives receivable are deducted from the cost of vehicles, 

consumables and services, and incentives payable are deducted from sales in the income statement. 

Employee benefits. Wages, salaries, contributions to the Russian Federation state pension and social insurance 

funds, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the 

associated services are rendered by the employees of the Group. 

Uncertain tax positions, additional taxes and contingencies. The Group's uncertain tax positions are reassessed 

by management at every balance sheet date. Liabilities are recorded for income tax positions that are determined by 

management as less likely than not to be sustained if challenged by tax authorities, based on the interpretation of tax 

laws that have been enacted or substantively enacted by the balance sheet date. 

Liabilities for additional taxes, penalties, interest and taxes other than on income are recognised based on 

management’s best estimate of the expenditure required to settle the obligations at the balance sheet date. 

Provisions for additional taxes, and related interest and penalties, are recognised when the Group has a present legal 

obligation, and a reliable estimate of the amount can be made. A provision is recognised for additional taxes and 

interest when they become payable according to law and for penalties at the time of filing of the related tax return. 

The provisions are maintained, and updated if necessary, for the period over which the respective tax positions 

remain subject to review by the tax and customs authorities, being 3 years from the year of filing. Upon expiry of the 

review period, the provisions are released and disclosed as a contingent liability until the accounting documentation 

maintenance period expires, being an additional 2 years (ie 5 years in total). 

F-18 

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Revaluation and currency translation reserves. Revaluation reserve for property, plant and equipment is 

transferred to retained earnings when realised through depreciation, impairment, sale or other disposal. Currency 

translation reserve is transferred to profit or loss when realised through disposal of a subsidiary by sale, liquidation, 

repayment of share capital or abandonment of all, or part of, that subsidiary. 

Business combinations under common control. Business combinations under common control are accounted for 

using the predecessor values method. The assets and liabilities of each subsidiary transferred under common control 

are recorded in the financial statements at their historical cost to the controlling shareholder (the Predecessor). Any 

difference between the total book value of net assets, including the Predecessor's goodwill, and the consideration 

paid is accounted for in the financial statements as an adjustment to equity. 

Segment reporting. A segment is a distinguishable component of the Group that is engaged either in providing 

products or services (business segment) or in providing products or services within a particular economic 

environment (geographical segment), which is subject to risks and rewards that are different from those of other 

segments. Segments with a majority of revenue earned from sales to external customers and whose revenue, result 

or assets are ten percent or more of all the segments are reported separately. 

Reclassification of corresponding figures. In preparing these financial statements, a number of expense lines 

within the consolidated income statement for the year ended 31 December 2005 have been amended to conform with 

the classifications of the current year, decreasing gross profit by US$ 9,398 but without changing operating profit. The 

largest component of this reclassification was $7,409 of spare parts and other expenses relating to the logistics 

function, now classified with the spare parts and other expenses under vehicles, consumables and services rather 

than with logistics expenses. 

In the consolidated balance sheet, US$ 13,628 was reclassified to current income tax and other taxes payable from 

provisions for liabilities and charges, without changing the total of current liabilities as at 31 December 2005. This 

conforms to the presentation in the current year in which the Group classifies both current and additional income tax 

liabilities in a single balance sheet line. Also $9,194 was reclassified from prepayments for vehicles to a separate line 

in the balance sheet, for those vehicles where the risks and rewards of ownership had passed to the Group at the 

balance sheet date, without changing total current assets. 

In the consolidated cash flow statement for the year ended 31 December 2005, the line in the financing section 

relating to the movement in financing for vehicles in transit has been excluded, since it is considered that such 

transactions are purely operating items. This increased net cash from operating activities and decreased net cash 

from financing activities, each by US$ 35,660. 

3 Critical Accounting Estimates, and Judgements in Applying Accounting Policies 

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next 

financial year. Estimates and judgements are continually evaluated and are based on management’s experience and 

other factors, including expectations of future events that are believed to be reasonable under the circumstances. 

Management also makes certain judgements, apart from those involving estimations, in the process of applying the 

accounting policies. Judgements that have the most significant effect on the amounts recognised in the financial 

statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities 

within the next financial year include: 

Valuation of buildings. Buildings are carried at mostly revalued amounts of US$ 147,422. Changes in the estimates 

used in the valuation would affect equity but would only affect profit for the year to the extent that a new valuation of a 

building was lower than its original cost. The market value of properties can change significantly and swiftly 

depending on changes in economic trends, decisions by the government authorities, and other factors. 

Estimated warranty provision. Warranty provisions are carried at US$ 6,917. An increase in the estimated costs 

per vehicle or the proportion of vehicles requiring warranty work would reduce profit before income tax for the year, 

and decreases in those estimates would increase profit before income tax for the year, by the same amount as the 

change in the provision. These financial statements do not include any provision for the warranty offered by the 

manufacturer of the vehicles sold as the Group does not provide that warranty to customers on its own behalf. The 

Group is obliged to provide certain types of warranty services which are stated in the contracts with customers on 

behalf of the manufacturer and is always compensated for those services by the manufacturer. 

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3 Critical Accounting Estimates, and Judgements in Applying Accounting Policies (Continued) 

Estimated income and deferred taxes. Group companies are subject to income tax mainly in the Russian 

Federation, where tax, currency and customs legislation is subject to varying interpretations. Significant judgement is 

frequently required in estimating liabilities and provisions for income taxes, additional taxes and deferred taxes, which 

are carried at a net total of US$ 9,532. 

Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent 

that there are sufficient taxable temporary differences, or that it is probable that future taxable profit will be available, 

against which the deductions can be utilised. In determining future taxable profits and the amount of tax benefits that 

are probable in the future, Management makes judgements and applies estimations based on expectations of future 

results that are believed to be reasonable under the circumstances. Increases in Management‘s estimates of the 

Group’s tax liabilities and decreases in estimates of future taxable profits would reduce profit for the year, and 

changes in those estimates in the opposite direction would increase profit for the year, in each case by the same 

amount as the change in the estimates. The Group has not recorded a deferred tax liability in respect of taxable 

temporary differences of US$ 54,597 (2005: US$ 33,771) associated with investments in subsidiaries as the Group is 

able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the 

foreseeable future. 

Vehicles in transit. Vehicles in transit are accounted for at the time when the risks and rewards of ownership have 

been transferred to the Group, usually at the time of shipment from the country of their manufacture. The Group 

acquires legal title to these vehicles only when full payment has been made. Financing for vehicles in transit is 

accounted for as a liability when the vehicles are in transit and the Group intends to take ownership of the vehicles on 

their delivery. Management has made the judgement that the Group acquires the risks and rewards of ownership at 

the point of shipment from the port in the country where the cars are manufactured. 

4 Adoption of New or Revised Standards and Interpretations, and New Accounting 

Pronouncements 

Listed below are those new or amended standards or interpretations, effective from 1 January 2006, which in the 

future could be relevant to the Group’s operations. The effect of adoption of the new or revised standards and 

interpretations on the Group’s financial position at 31 December 2006 and 31 December 2005 and on the results of 

its operations for the years then ended was not significant. 

IFRIC 4, Determining whether an Arrangement contains a Lease. 

IAS 39 (Amendments) � The Fair Value Option, Cash Flow Hedge Accounting of Forecast Intragroup 

Transactions, and Financial Guarantee Contracts. 

IAS 21 (Amendment) - Net Investment in a Foreign Operation. 

IAS 19 (Amendment) - Employee Benefits. 

IFRIC 5, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation 

Funds. 

IFRIC 6, Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic 

Equipment. 

The Group has not early adopted the following new standards and interpretations that are mandatory for the Group’s 

accounting periods beginning on or after 1 January 2007 or later periods. Management is currently evaluating the 

effects that they will have on the Group’s financial statements: 

IFRS 7 Financial Instruments: Disclosures and a complementary Amendment to IAS 1 Presentation of 

Financial Statements - Capital Disclosures (from 1 January 2007). 

IFRS 8, Operating Segments (annual periods beginning on or after 1 January 2009). * 

IAS 23 (revised) (annual periods beginning on or after 1 January 2009).* 

IFRIC 7, Applying the Restatement Approach under IAS 29 (from 1 January 2007). 

IFRIC 8, Scope of IFRS 2 (effective for periods beginning on or after 1 May 2006, that is from 1 January 2007). 

IFRIC 9, Reassessment of Embedded Derivatives (annual periods beginning on or after 1 June 2006). 

F-20 

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4 Adoption of New or Revised Standards and Interpretations, and New Accounting 

Pronouncements (Continued) 

IFRIC 10, Interim Financial Reporting and Impairment (annual periods beginning on or after 1 November 

2006). 

IFRIC 11, IFRS 2�Group and Treasury Share Transactions (effective for annual periods beginning on or after 

1 March 2007). 

IFRIC 12, Service Concession Arrangements (annual periods beginning on or after 1 January 2008).* 

(* not adopted by the European Union at the date of issuing these financial statements). 

5 Segment Reporting 

The Group’s primary format for reporting segment information is business segments and the secondary format is 

geographical segment, which is the Russian Federation. The Group is organised on the basis of two main business 

segments: 

• Distribution – representing the distribution of Mitsubishi and Hyundai (vehicles and spare parts) 

• Retail and other – representing retail of all vehicles, maintenance activities and other services 

Transactions between the business segments are on normal commercial terms and conditions. Internal charges 

between segments have been reflected in the performance of each business segment. Other operations of the Group 

mainly comprise logistics and commission income, neither of which are of a sufficient size to be reported separately. 

Unallocated costs represent corporate expenses. Segment assets consist primarily of property, plant and equipment, 

intangible assets, inventories, receivables and operating cash, and mainly exclude investments and income tax 

balances. Segment liabilities comprise operating liabilities and exclude items such as taxation and corporate 

borrowings. Capital expenditure comprises additions to property, plant and equipment and intangible assets. 

Impairment loss provisions relate only to those charges made against allocated assets. Segment information for the 

main reportable business segments of the Group for the years ended 31 December 2006 and 2005 is set out below: 


Distribution Retail and 

other 

Eliminations Group 

2006 

Sales – external 1,445,800 1,281,841 - 2,727,641 

Sales to other segments 720,567 19,141 (739,708) - 

Total revenue 2,166,367 1,300,982 (739,708) 2,727,641 

Segment result 218,529 45,768 - 264,297 

Unallocated expenses (68,735) 

Operating profit 195,562 

Net foreign exchange gain/(loss) on 

cash and borrowings 16,157 

Net finance costs (29,272) 

Profit before income tax 182,447 

Income tax expense (47,508) 

Profit for the year 134,939 

Segment assets 392,495 525,563 (32,616) 885,442 

Current and deferred tax assets 22,201 

Other unallocated assets 49,941 

Total assets 957,584 

Segment liabilities 82,230 75,061 (32,616) 124,675 

Current and deferred tax liability 31,744 

Other unallocated liabilities 467,739 

Total liabilities 624,158 

Capital expenditure 1,498 129,265 130,763 

Depreciation and amortisation (150) (19,346) (19,496) 

Other non-cash income/(expenses) 8,358 1,637 9,995 

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5 Segment Information (Continued) 

In thousands of US dollars Distribution Retail and other Eliminations Group 

2005 

Sales – external 1,069,501 917,855 1,987,356 

Sales to other segments 572,714 17,186 (589,900) - 

Total revenue 1,642,215 935,041 (589,900) 1,987,356 

Segment result 136,172 28,749 - 164,921 

Unallocated expenses (27,047) 

Operating profit 137,874 

Net foreign exchange gain/(loss) on 

cash and borrowings (1,873) 

Net finance costs (19,782) 

Profit before income tax 116,219 

Income tax expense (41,907) 

Profit for the year 74,312 

Segment assets 310,401 239,464 (13,961) 535,904 

Current and deferred tax assets 22,423 

Other unallocated assets 19,284 

Total assets 577,611 

Segment liabilities 80,373 32,819 (13,961) 99,231 

Current and deferred tax liability 25,967 

Other unallocated liabilities 264,920 

Total liabilities 390,118 

Capital expenditure 2,716 69,495 72,211 

Depreciation and amortisation (103) (10,263) (10,366) 

Other non-cash income/(expenses) (2,497) 1,607 (890) 

6 Balances and Transactions with Related Parties 

For the purposes of these financial statements, parties are considered to be related if one party has the ability to 

control the other party, is under common control, or can exercise significant influence over the other party in making 

financial and operational decisions. In considering each possible related party relationship, attention is directed to the 

substance of relationships, not merely the legal form. The Company’s ultimate controlling party is disclosed in Note 1. 

i Loans to beneficiaries of the ultimate controlling party: 

In thousands of US dollars 2006 2005 

Loans included in financial and other assets 9 1,580 8,677 

The above loans are subject to 10% annual interest, similar to the effective interest rate, and are due for repayment 

within 12 months from the balance sheet date. Interest income on the loans was US$ 1,293 for the year ended 31 

December 2006 (2005 – US$ 563). 

ii Balances due from/(to) entities under common control: 


Available for sale investments in related companies 9 1,468 1,339 

Expenses recharged 11 65 - 

Term loans 15 (153) (1,271) 

Interest is payable on the term loan at 11% per year, and amounted to US$ 127 in 2006 (2005 - US$ 83). 

F-22 

18



6 Balances and Transactions with Related Parties (Continued) 

iii Key management personnel compensation: 

Directors’ fees amounted to US$ 104 (2005 – US$ 1). Compensation of 14 other key management personnel (2005 – 

14 personnel) consists of fixed annual remuneration and a performance bonus depending on operating results, paid 

for their services in full time positions, as follows: 


Salaries, wages and short-term benefits including performance bonuses 25,255 5,674 

7 Property, Plant and Equipment 


Note Buildings Freehold 

Land 

Plant 

and 

machinery 

Equipment 

and motor 

vehicles 

Assets under 

construction 

Cost at 31 December 

2004 

Accumulated 

73,321 51 34,266 12,402 6,651 126,691 

depreciation 

Carrying amount at 

(985) (7,589) (1,837) - (10,411) 

31 December 2004 72,336 51 26,677 10,565 6,651 116,280 

Additions 5,371 4 3,627 1,746 61,463 72,211 

Capitalised borrowing 24 

- 

costs 

- 

- - 2,039 2,039 

Transfers 894 - 7,201 (7,201) (894) - 

Disposals - - (2,603) (2,056) (1,412) (6,071) 

Depreciation charge 

Translation to 

(2,130) - (7,071) (890) - (10,091) 

presentation currency (3,012) (2) (726) (371) (856) (4,967) 


31 December 2005 73,459 53 27,105 1,793 66,991 169,401 

Cost at 31 December 

2005 76,577 53 41,773 4,519 66,991 189,913 

Accumulated 

depreciation (3,118) - (14,668) (2,726) - (20,512) 


31 December 2005 73,459 53 27,105 1,793 66,991 169,401 

Additions 2,376 33,743 40,829 2,796 45,293 125,037 

Increases in fair value on 

revaluation 11,933 - - - - 11,933 

Decreases in fair value on 

revaluation (5,794) - - - - (5,794) 

Capitalised borrowing costs 24 - - - - 2,547 2,547 

Transfers 59,625 - - - (59,625) - 

Disposals - - (3,913) (99) (750) (4,762) 

Depreciation charge (3,260) - (7,956) (731) - (11,947) 

Translation to presentation 

currency 9,083 1,173 3,525 235 5,802 19,818 


31 December 2006 147,422 34,969 59,590 3,994 60,258 306,233 

Cost at 31 December 2006 160,198 34,969 81,248 7,582 60,258 344,255 

Accumulated depreciation (12,776) - (21,658) (3,588) - (38,022) 


31 December 2006 147,422 34,969 59,590 3,994 60,258 306,233 

F-23 

Total 

19



7 Property, Plant and Equipment (Continued) 

Included in plant and machinery are car transporters held under finance leases with a carrying value of US$ 9,698 

(31 December 2005 US$ 6,346). Minimum lease payments and other information related to the leases are disclosed 

in Note 15. Borrowing costs of US$ 2,547 (2005: US$ 2,039), arising on financing for the construction of new, or 

significantly renovated, dealer centres were capitalised during the year, at 8.6% (2005: 9.5%), representing the 

weighted average borrowing costs of the Group, applied to the balance after excluding prepayments, which were 

approximately half of the value of assets under construction at each balance sheet date. 

Buildings were revalued to market value at 1 October 2006, which resulted in an increase of US$ 11,933 on 

previously revalued buildings, credited to revaluation reserve, and a decrease of US$ 5,794 on buildings never 

previously revalued which is included in depreciation, amortisation and impairment in the consolidated income 

statement. The revaluation was performed based on the reports of independent appraisers, who hold a recognised 

and relevant professional qualification and who have recent experience in valuation of assets of similar location and 

category. The basis used for the appraisal was observable recent market transactions. The carrying amount that 

would have been recognised in the financial statements had the assets been carried at historical cost is US$ 119,108 

(31 December 2005 US$ 46,758). Land and buildings pledged against borrowings are disclosed in Note 15. The 

freehold land acquired during the year is situated in Moscow Region. 

8 Intangible Assets 


Note Leasehold 

interests 

Acquired 

software 

licences 

Other Total 

Carrying amount at 1 January 2005 - - - - 

Additions 610 1,462 162 2,234 

Amortisation charge - (187) (87) (274) 

Translation to presentation currency (10) (21) (1) (32) 

Carrying amount at 31 December 2005 600 1,254 74 1,928 

Cost at 31 December 2005 600 1,441 161 2,202 

Accumulated depreciation - (187) (87) (274) 


Additions - 5,228 498 5,726 

Amortisation charge (13) (1,403) (339) (1,755) 

Translation to presentation currency 55 249 13 317 


Cost at 31 December 2006 655 6,984 691 8,330 

Accumulated depreciation (13) (1,656) (445) (2,114) 


9 Financial and Other Assets 


Note 2006 2005 

Available for sale investments in related companies 6 1,468 1,339 

Other investments 1,063 - 

Total non-current financial and other assets 2,531 1,339 


Interest bearing loans to beneficiaries of the ultimate controlling 

2006 2005 

party, repayable within 12 months of the balance sheet date 6 1,580 8,677 

Total current financial and other assets 1,580 8,677 

F-24 

20



10 Inventories 


Vehicles at storage areas, Group warehouses and dealer centres 130,341 93,505 

Vehicles in transit at non-Group company dealer centres 15,289 - 

Spare parts for vehicles and maintenance in progress 36,968 20,221 

Other materials 3,650 2,027 

Total inventories 186,248 115,753 

Spare parts carried at US$ 36,968 are net of provisions of US$ 1,647 to reduce cost to net realisable value (2005: 

spare parts of US$ 20,221 are carried net of provisions of US$ 2,677). Pledged inventories are disclosed in note 15. 

11 Trade and Other Receivables 


Trade receivables 25,989 22,656 

VAT recoverable and other taxes prepaid 54,539 21,567 

Other receivables 17,819 6,896 

Current portion of receivable from sale of business 1,406 8,428 

Less impairment loss provision against trade receivables (1,890) (472) 

Trade and other receivables excluding prepayments 97,863 59,075 

Prepayments for vehicles 72,097 26,748 

Other prepayments 34,551 18,197 

Income tax prepayments 6,538 11,090 

Total trade and other receivables 211,049 115,110 

Trade and other receivables of US$ 89,062 (2005: US$ 55,510) net of impairment loss provisions are denominated in 

foreign currency, mainly in US dollars - 88 % (2005: 78%). 

12 Cash and Cash Equivalents 


RR denominated balances 20,369 10,003 

US$ denominated balances 25,410 9,764 

Euro denominated balances 589 84 

RR denominated term deposits (interest rate 2.5-3.5%) 55,792 18,370 

Euro denominated term deposits (interest rate 3.5%) 21,347 23,908 

US$ Denominated term deposits (interest rate 5.15%) 18,258 - 

Total cash and cash equivalents 141,765 62,129 

Term deposits have original maturities of less than 3 months. 

13 Share Capital 

Ordinary 

Share 

Total 


shares 

premium 

At 31 December 2006 and 2005 10 40 50 

Delance Limited was incorporated with a share capital of US$ 10, representing 10 thousand authorised and issued 

fully paid ordinary shares of US$ 1 each, issued in September 2004 at a premium of 4 times the nominal amount. No 

dividends were declared and paid during the year ended 31 December 2005. Dividends of US$ 9,950, or $995 per 

share (excluding withholding taxes), were declared and paid in the year ended 31 December 2006. 

Other items described as distributions in the statement of changes in equity of US$12,328 (year ended 31 December 

2005 – US$ 2,559) represent funds, assets or other benefits which were made available to the ultimate beneficial 

owner of Delance Limited, or liabilities assumed by the Group, of which US$ 10,272 were financed by an increase in 

non-current financial liabilities to previous minority shareholders (Note 15), and US$ 2,110 were in cash (2005 – all 

cash). The share premium reserve is not available for distribution by way of dividend. 

F-25 

21



14 Other Reserves 


Revaluation reserve for 

property, plant and 

equipment 

Cumulative currency 

translation reserve 

At 31 December 2004 17,616 9,033 26,649 

Realised revaluation reserve, net of tax (441) - (441) 

Currency translation (617) (5,206) (5,823) 

At 31 December 2005 16,558 3,827 20,385 

Revaluation, net of tax 8,970 - 8,970 

Realised revaluation reserve, net of tax (544) - (544) 

Currency translation 2,589 18,220 20,809 

At 31 December 2006 27,573 22,047 49,620 

Other reserves are not available for distribution by way of dividend. 

15 Bank, Borrowings, Non-current Financial Liabilities and Financing for Vehicles in Transit 


Term loans 353,508 162,041 

Finance lease liabilities 4,445 3,484 

Total borrowings 357,953 165,525 

Less current portion (117,463) (142,033) 

Non-current borrowings 240,490 23,492 

The Group’s borrowings mature as follows: 


Borrowings due: - within 1 year 117,463 142,033 

- between 2 and 5 years 240,490 15,452 

- after 5 years - 8,040 


The Group’s borrowings are denominated in currencies as follows: 


Borrowings denominated in: - US dollars 354,498 137,220 

- Euros 3,455 28,305 


The effective interest rates at the balance sheet date were as follows: 


31 December 2006 31 December 2005 

Interest 

rates 

US Dollars Euros Interest 

rates 

Total 

US 

Dollars Euros 

Term loans - US dollars 7.6-11% 353,508 - 8.75-11.25% 135,372 - 

Term loans - Euros - - 8-9.5% - 26,669 

Finance lease liabilities - US dollars 11.6-12.3% 990 - 9.5-11.4% 1,848 - 

Finance lease liabilities - Euros 8.6% - 3,455 8.5% - 1,636 

Total borrowings 354,498 3,455 137,220 28,305 

F-26 

22



15 Bank, Borrowings, Non-current Financial Liabilities and Financing for Vehicles in Transit 

(Continued) 

In early 2006, the Group signed a new term loan facility for a total of US$ 350,000, to be repaid over a period of three 

years and subject to interest at LIBOR plus 3.00% - 3.75%, for further expansion, refinancing of existing facilities and 

the improvement of existing dealerships. The balance at 31 December 2006 was US$ 353,355, including accrued 

interest. The Group is obliged to comply with a number of covenants under this facility and Management believes that 

the Group was in compliance with them as at and for the period ended 31 December 2006. The amounts borrowed 

are secured by mortgages on the Group’s dealer centres and underlying leases, and by pledges over the Group’s 

vehicles, equipment and spare parts inventories. These mortgages and pledges covered US$ 147,246 of property, 

plant and equipment and US$ 91,375 of inventories at 31 December 2006. At 31 December 2005, bank borrowings 

of US$ 105,717 were secured by pledges over property, plant and equipment of US$ 33,960 and inventories of US$ 

38,308. 

Minimum lease payments under finance leases and their present values are as follows: 

Due in 1 year Due between 2 Due after 

Total 


Minimum lease payments at 31 

and 5 years 

5 years 

December 2006 3,355 1,805 - 5,160 

Less future finance charges (400) (315) - (715) 

Present value of minimum 

lease payments at 

31 December 2006 2,955 1,490 - 4,445 


Due in 1 year Due between 2 

and 5 years 

Due after 

5 years 

Minimum lease payments at 31 

December 2005 2,090 1,686 - 3,776 

Less future finance charges (93) (199) - (292) 

Present value of minimum 

lease payments at 

31 December 2005 1,997 1,487 - 3,484 

Leased assets with the carrying amount disclosed in Note 7 are effectively pledged for finance lease liabilities as the 

rights to the leased asset revert to the lessor in the event of default. 

Financing for vehicles in transit 


Financing for vehicles in transit 77,669 82,747 

Financing for vehicles in transit represents revolving trade finance from a subsidiary of Mitsubishi Corporation, under 

which 90% of the purchase cost of each vehicle is paid by the Group up to 3 months after it is shipped from the 

country of production. The total unused facility available at 31 December 2006 was US$ 624,771 (2005 – US$ 

357,253) and the rate of interest during 2006 was from 8.8%-10.2% (year ended 31 December 2005 – from 6%-7%). 

Non-current financial liabilities 


Borrowings 20,931 10,659 

Total non-current financial liabilities 20,931 10,659 

Non-current financial liabilities are denominated in US$ and are subject to interest at the rate of 9% per year 

(31 December 2005 – 9% per year). The increase during the year relates to the transaction for US$ 10,272 disclosed 

in Note 13. 

F-27 

Total 

23



16 Current Income and Other Taxes Payable 


Value-added tax 4,332 7,451 

Property and other taxes 2,365 1,234 

Income tax 14,261 13,843 

Current Income and Other Taxes Payable 20,958 22,528 

17 Provisions for Liabilities and Charges 

Note Bonuses Taxes other 

than on 

Warranty Total 


income 

Carrying amount at 1 January 2006 2,688 9,474 15,275 27,437 

Additions (Notes 19 and 23) - 1,552 2,198 3,750 

Unwinding of discount (Note 24) - - 477 477 

Unused amounts reversed (Notes 21 and 23) (2,688) (3,933) - (6,621) 

Utilisation - - (2,306) (2,306) 

Change in estimate (Note 19) - - (9,827) (9,827) 

Translation to presentation currency - 800 1,100 1,900 

Carrying amount at 31 December 2006 - 7,893 6,917 14,810 

The above provisions have been classified as follows: 


Non-current provisions 6,288 12,149 

Current provisions 8,522 15,288 

Total provisions 14,810 27,437 

Warranty. On Mitsubishi vehicles produced up to 31 December 2003, Group companies gave customers a two year 

warranty in excess of the one year provided by the manufacturer. Mitsubishi vehicles produced after 1 January 2004 

are covered by the manufacturer’s extended three year warranty, and the exposure of Group companies to warranty 

claims for Mitsubishi vehicles therefore ended on approximately 31 December 2006. 

On Hyundai vehicles sold up to the end of 2002, Group companies gave customers a warranty of three years in 

addition to the one year provided by the manufacturer, and thereafter, a warranty of two years in addition to the three 

years provided by the manufacturer. 

A provision for these costs has been recognised based on the Group’s past experience of the level and average cost 

of repairs incurred under the manufacturer’s warranty schemes. The provisions are discounted at the rate of 8.6% per 

year (31 December 2005 – 9.5%) from the date when they are expected to be used to derive the carrying value in the 

consolidated balance sheet. 

Change in estimate after issuing interim statements for the 6 months ended 30 June 2006. 

The number of Hyundai vehicles sold up to the year ended 31 December 2003 was relatively small, and 2006 was 

the first year when statistics regarding a sufficient quantity of vehicles were available as to the likely costs to the 

Group of its extended warranty period, covering the fourth and fifth years after the vehicle was sold. Management 

therefore reassessed the warranty provision based on the improved quality of the cars since the manufacturer 

increased its warranty period in 2003 and the current track record of warranty claims incurred on those vehicles. The 

warranty provision has therefore been decreased by US$ 9,827 since the interim consolidated financial statements 

for the 6 months ended 30 June 2006 were issued, so that it more closely corresponds to the actual costs expected 

to be incurred by the Group based on the latest statistics available. 

F-28 

24



18 Trade and Other Payables 


Trade payables 20,888 11,302 

Accrued employee benefit costs 23,657 7,402 

Accrued liabilities and other creditors 34,286 14,705 

Total trade and other payables 78,831 33,409 

Trade payables, accrued liabilities and other creditors of US$ 25,477 (2005: US$ 9,481) are denominated in foreign 

currency, mainly 75 % in US$ (2005: 66% in Euro). 

19 Vehicles, Consumables and Services 


Vehicles purchased 2,108,944 1,533,534 

Change in inventories (70,495) 4,860 

Incentives from manufacturers (10,678) (6,548) 

Spare parts and materials used 187,438 107,844 

Warranty expense and customer relations (4,495) 9,787 

Other 6,837 8,461 

Total vehicles, consumables and services 2,217,551 1,657,938 

20 Logistics, Insurance and Advertising 


Transportation 43,668 34,359 

Customs clearance, storage and related costs 20,746 21,264 

Insurance 3,736 5,637 

Advertising and promotion 28,712 18,349 

Total logistics, insurance and advertising 96,862 79,609 

21 Employee Compensation and Benefits 


Employee compensation and benefits 115,942 64,170 

Bonuses 18,748 2,366 

Total employee compensation and benefits 134,690 66,536 

Employee compensation and benefits Include statutory social security and pension contributions of US$ 13,821 

(2005: US$ 9,532). 

22 Office Costs, Business Travel and Services 


Professional services 9,244 4,971 

Audit fees 682 400 

Director’s Remuneration 104 1 

Repair and maintenance 3,922 2,524 

Rent and utilities 2,199 1,268 

Security 1,929 1,119 

Travel and motoring 2,706 1,820 

Recruitment and training 1,463 1,373 

Other services 3,317 1,533 

Other 3,596 2,533 

Total office costs, business travel and services 29,162 17,542 

F-29 

25



23 Other Operating Expenses, Net 


Disposal of property, plant and equipment, net 973 2,858 

Impairment of trade accounts receivable 1,051 1,455 

Bank and other commissions 9,425 4,233 

Charitable donations 1,189 890 

Non-recoverable VAT and taxes other than on income 6,875 3,817 

Other 4,124 3,075 

Total other operating expenses, net 23,637 16,328 

24 Net Finance Costs 

In thousands of US dollars Note 2006 2005 

Interest expense on borrowings 33,754 22,852 

Unwinding of discount on provisions 17 477 405 

Interest income 

Borrowing costs on assets under construction at 8.6 % (2005 – 

(2,412) (1,436) 

9.5%) 7 (2,547) (2,039) 

Net finance costs recognised in the income statement 29,272 19,782 

25 Income Taxes 


Current tax expense 50,266 45,479 

Deferred tax expense/(benefit) (2,758) (3,572) 

Income tax expense for the year 47,508 41,907 

A reconciliation between the theoretical and the actual income tax expense is provided below. 


Profit before income tax 182,447 116,219 

Theoretical income tax expense at Russian statutory rate of 24% 

Tax effect of items which are not deductible or assessable for taxation 

purposes: 

43,787 27,892 

Change in additonal income tax provisions (Notes 2 and 16) (2,100) 4,157 

Non-deductible expenses 5,821 9,858 

Income tax expense for the year 47,508 41,907 

Non-deductible expenses mainly include any expenses without adequate supporting documentation, benefits to 

employees in excess of those specified in legislation, and certain repairs to vehicles. 

Differences between IFRS and Russian statutory taxation regulations give rise to temporary differences between the 

carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the 

movements in these temporary differences is detailed below and is recorded at the rate of 24% (2005: 24%). 


Net deferred tax asset/(liability) at 1 January (791) (4,253) 

Income statement (expense)/benefit 2,758 3,572 

Credited/(charged) directly to equity relating to revaluation reserve (2,963) 139 

Currency translation differences (814) (249) 

Net deferred tax liability at 31 December (1,810) (791) 

F-30 

26



25 Income Taxes (Continued) 


1 January 

2006 

Currency 

translation 

differences 

(Charged)/ 

credited to 

profit or loss 

31 December 

2006 

Tax effect of deductible temporary 

differences 

Accounts receivable 628 63 156 847 

Employee benefits 2,796 202 2,360 5,358 

Inventories 2,781 272 1,477 4,530 

Warranty provision 3,666 (286) (2,085) 1,295 

Other 1,462 166 2,005 3,633 

Recognised deferred tax asset 11,333 417 3,913 15,663 


1 January 

2006 

Currency 

translation 

differences 

(Charged) 

/ credited 

to profit 

or loss 

(Charged) / 

credited 

directly to 

equity 

31 

December 

2006 

Tax effect of taxable temporary differences 

Property, plant and equipment (2,722) (255) (56) - (3,033) 

Revaluation reserve (5,629) (524) 172 (2,963) (8,944) 

Inventories (2,953) (274) - - (3,227) 

Other (820) (178) (1,271) - (2,099) 

Recognised deferred tax liability (12,124) (1,231) (1,155) (2,963) (17,473) 


1 January 

2005 

Currency 

translation 

differences 

(Charged)/ 

credited to 

profit or loss 

31 December 

2005 

Tax effect of deductible temporary 

differences 

Accounts receivable 664 23 (59) 628 

Employee benefits 1,920 24 852 2,796 

Inventories 1,616 20 1,145 2,781 

Warranty provision 3,066 - 600 3,666 

Other - 18 1,444 1,462 

Recognised deferred tax asset 7,266 85 3,982 11,333 


1 January 

2005 

Currency 

translation 

differences 

(Charged) 

/ credited 

to profit 

or loss 

(Charged) / 

credited 

directly to 

equity 

31 

December 

2005 

Tax effect of taxable temporary differences 

Property, plant and equipment (2,257) (87) (378) - (2,722) 

Revaluation reserve (5,563) (205) - 139 (5,629) 

Inventories (2,316) (6) (631) - (2,953) 

Other (1,383) (36) 599 - (820) 

Recognised deferred tax liability (11,519) (334) (410) 139 (12,124) 

In the context of the Group’s current structure, tax losses and current tax assets of different Group companies may 

not be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes may 

accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when 

they relate to the same taxable entity. 

F-31 

27



26 Contingencies, Commitments and Operating Risks 

Legal proceedings. During the year, the Group was involved in a number of court proceedings (both as a plaintiff 

and a defendant) arising in the ordinary course of business. In the opinion of management, there are no current legal 

proceedings or other claims outstanding which could have a material effect on the result of operations or financial 

position of the Group and which have not been accrued or disclosed in the financial statements. 

Tax contingencies. Russian tax and customs legislation is subject to varying interpretations, and changes, which 

can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the 

Group may be challenged by the relevant authorities. 

The Russian tax authorities may be taking a more assertive position in their interpretation of the legislation and 

assessments, and it is possible that transactions and activities that have not been challenged in the past, including 

those relating to transfer pricing, may be challenged. The Supreme Arbitration Court issued guidance to lower courts 

on reviewing tax cases providing a systemic roadmap for anti-avoidance claims, and it is possible that this will 

significantly increase the level and frequency of tax authorities scrutiny. 

As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review 

by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain 

circumstances reviews may cover longer periods. 

Russian tax legislation does not provide definitive guidance in certain areas. From time to time, the Group adopts 

interpretations of such uncertain areas that reduce the overall tax rate of the Group. As noted above, such tax 

positions may come under heightened scrutiny as a result of recent developments in administrative and court 

practices; the impact of any challenge by the tax authorities cannot be reliably estimated; however, it may be 

significant to the financial condition and/or the overall operations of the Group. 

Management estimates that the Group has other possible obligations from exposure to other than remote tax risks of 

US$ 24,767 (2005: US$ 15,116). These exposures primarily relate to profits tax, VAT, and associated interest and 

penalties. Included in the above disclosed amount of possible obligations for uncertain tax positions are US$ 9,397 

(2005: US$ 1,991) for which inspection rights of tax authorities have expired, but which may be challenged by 

regulatory bodies under certain circumstances. In management’s estimate no losses are anticipated from these 

contingent liabilities. 

Contractual commitments and guarantees. At 31 December 2006 the Group has contractual capital commitments 

in respect of purchase or construction of property, plant and equipment totalling US$ 22,003 (2005: US$ 16,453). The 

properties on which the Group’s buildings are situated are in Moscow and St. Petersburg on land leased from the 

respective City Authorities under operating leases. Currently, private ownership of land is not common in those cities 

and in fact most land is held on a long-term leasehold basis (typically a 49 year lease with an option for a 49 year 

extension). The leases have varying terms and renewal rights, and an annual rent is payable to the city authorities 

based on indexation. 

The Group has future aggregate minimum lease payment commitments under these non-cancellable operating 

leases, based on the latest available annual rents, as follows: 

2006 2005 

Not later than one year 1,490 655 

Later than one year and not later than five years 5,176 2,467 

Later than five years 27,992 23,283 

34,658 26,405 

Operating environment of the Group. Whilst there have been improvements in economic trends in the Russian 

Federation, the country continues to display certain characteristics of an emerging market. These characteristics 

include, but are not limited to, the existence of a currency that is not freely convertible in most countries outside of the 

Russian Federation, restrictive currency controls, and relatively high inflation. The tax, currency and customs 

legislation within the Russian Federation is subject to varying interpretations, and changes, which can occur 

frequently. The future economic direction of the Russian Federation is largely dependent upon the effectiveness of 

economic, financial and monetary measures undertaken by the Government, together with tax, legal, regulatory, and 

political developments. 

F-32 

28



27 Financial Risk Management 

Credit risk. 

Financial assets which potentially subject Group companies to credit risk consist principally of trade receivables. The 

Group sells to retail customers on the basis of cash or bank transfer paid in advance. For wholesale dealers, 

ownership registration documents for vehicles are provided to them after a bank transfer has been received for the 

full price with the exception of test drive vehicles, which are sold on credit terms of up to 180 days for 80% of their 

price. The carrying amount of accounts receivable, net of provision for impairment of receivables, represents the 

maximum amount of credit risk. The Group has no significant concentrations of credit risk except for advances paid to 

Mitsubishi Motors Corporation (US$ 61,449) and Hyundai Motor Company (US$ 8,678). Although collection of 

receivables could be influenced by economic factors, Management believes that there is no significant risk of loss to 

the Group beyond the provision already recorded. 

Cash is placed in financial institutions which are considered at the time of deposit to have minimal risk of default. 

Foreign exchange risk. 

The Group imports vehicles into the Russian Federation and sells them based on prices denominated in US dollars, 

although the customers pay in RR at the rate of exchange applicable on the date of sale of the vehicle. The Group is 

financed by borrowings mainly in US dollars and is thus exposed to limited foreign exchange risk. Foreign currency 

denominated assets (Notes 11 and 12) and liabilities (Notes 15 and 18) give rise to foreign exchange exposure. 

The Group does not apply hedge accounting and has not entered into any hedging arrangements in respect of its 

foreign currency obligations. 

At 31 December 2006 the principal rates of exchange used for translating foreign currency balances were US$ 1 = 

26.3311 RR and Euro 1 = 34.6965 RR (2005: US$ 1 = RR 28.7825 and Euro 1 = RR 34.1850 ). 

Cash flow and fair value interest rate risk. 

The Group’s income and operating cash flows are dependent on changes in market interest rates. The Group is 

exposed to fair value interest rate risk through market value fluctuations of interest-bearing short-term and long-term 

borrowings, and the rates are disclosed in Note 15. The majority of interest rates on borrowings are variable and 

dependent on movements in US$ LIBOR rates. 

The Group manages its interest rate risk in respect of borrowings through a series of contracts with a bank that 

specify US dollar LIBOR rates ranging from 4.88% to 5.75% for periods from October 2006 until early 2008. If the 

actual LIBOR rate is outside this range, the Group will respectively pay or receive the difference in cost. No amounts 

were payable or receivable under these contracts for the year ended 31 December 2006. 

Fair values. 

Expected cash flows are discounted at current market rates available to the Group for similar financial instruments. 

The fair value of these financial assets did not materially differ from their carrying amount at 31 December 2006 and 

2005. At 31 December 2006 and 2005, the fair value of financial liabilities, which is estimated by discounting the 

future contractual cash flows at the current market interest rate available to the Group for similar financial instruments 

with the same remaining maturity, did not materially differ from the carrying amount of these financial liabilities. 

28 Events After the Balance Sheet Date 

Hyundai Motor Company and the Group agreed in February 2007 that their existing distributorship agreement for 

Russia (Note 1) will now end as soon as arrangements have been made to ensure uninterrupted service to 

customers, and that a new company, in which the Group has been invited to be a shareholder, will take over the 

distribution of Hyundai vehicles. External sales under the existing distribution agreement in the year ended 31 

December 2006 were approximately $650 million. The parties are presently in discussion as to the form of their future 

business relations. 

In April 2007, the Board of Directors instructed Management to examine alternative financing strategies for the 

Group’s future development, including the potential listing of debt securities on a public exchange. 

Independent Auditor’s Report on pages 4 and 5. 

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PRINCIPAL PAYING AGENT, TRANSFER 

AGENT AND REGISTRAR 

Citibank, N.A. London Branch 

Citigroup Centre 

Canada Square 

Canary Wharf 

London 

E14 5LB 

To the Managers and the Trustee 

as to English law 

Linklaters LLP 

One Silk Street 

London EC2Y 8HQ 


To the Issuer as to English law 

Freshfield Bruckhaus Deringer 

65 Fleet Street 

London EC4Y 1HS 


THE ISSUER 

Colgrade Limited 




Cyprus 

TRUSTEE 

Citibank N.A., London Branch 

Citigroup Centre 

Canada Square 

Canary Wharf 

London 

E14 5LB 

LEGAL ADVISERS 

To the Issuer as to Cypriot law 

Chrysses Demetriades & Co Law Office 

284 Arch Maharios III Avenue 

Fortuna Court, Block B 

2 nd Floor, 3105 Limassol 

Cyprus 

AUDITORS TO THE ISSUER 

AND DELANCE LIMITED 

PricewaterhouseCoopers Limited 




Cyprus 

IRISH 

PAYING AGENT AND TRANSFER AGENT 

Citibank International PLC, 

Dublin Branch 

1 North Wall Quay 

Dublin 1 

Ireland 

To the Managers and the Trustee 

as to Russian law 

Linklaters CIS 

Paveletskaya Sq. 2, bld 2 

115054 Moscow 

Russian Federation 

To the Issuer as to Russian law 

Freshfield Bruckhaus Deringer 

14/2 Kadashevskaya nab 

Moscow 119017 

Russian Federation

Rolf Group International Financial Reporting ... - Irish Stock Exchange

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