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

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
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