AFRB.L Regulatory News (AFRB)

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION

IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

9 August 2013

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

RESULTS FOR THE SIX MONTHS TO 30 JUNE 2013

AFI Development H1 2013 revenue doubles year-on-year

AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the first six months of 2013 ended 30 June 2013.

H1 2013 financial highlights

·; Revenues for the six months to 30 June 2013, including net proceeds from the sale of trading properties, doubled year-on-year to US$123.9 million

- Rental income up 16.5% year-on-year to US$68.5 million (excluding income generated from the disposed Four Winds project)

- AFIMALL City contribution at US$48.0 million (compared to US$42.0 in H1 2012)

·; Net profit reached US$43.3 million, compared to a net loss of US$240.6 million in H1 2012

·; Gross profit grew 31.1% year-on-year to US$42.1million

·; Gross value of portfolio of properties largely unchanged at US$2,460 million compared to US$2,502 million at the end of Q1 2013, despite the sale of parking spaces at AFIMALL to VTB Bank JSC

·; Cash and cash equivalents of US$161.4 million. US$16.68 invested into Properties under development

H1 2013 operational highlights

·; Sale of 643 parking spaces at AFIMALL City to VTB Bank JSC (first stage) was completed in Q2 2013, resulting in gross profit of US$24.7 million

·; AFIMALL City operations continue to improve

- Rental revenue up 14.3% year-on-year to US$48.0 million

- Gradual rise in occupancy levels; currently at 83%

·; Otradnoe project in the Moscow region to be marketed as "Odinbourg"

- Mortgage compliance accreditation from VTB Bank OJSC received

Commenting on today's announcement, Lev Leviev, Executive Chairman of AFI Development, said:

"We are very pleased with our results for the first six months of 2013 and look to the future with confidence. With our well thought out development portfolio, we expect to benefit from the continued strength of the Moscow real estate market. In particular, our "Odinbourg" project is expected to capitalise on the strong demand in the residential sector in the Moscow region, while our Tverskaya Plaza projects are well placed to benefit from the demand for high quality office space in central Moscow. By delivering high quality projects tailored to the needs of our residential and commercial customers, our aim is to continually deliver value to our shareholders."

H1 2013 Results Conference Call:

AFI Development will hold a conference call for analysts and investors to discuss its H1 2013 financial results on Monday, 12 August 2013, following the publication of the Company's financial results.

The details for the conference call are as follows:

Date: Monday, 12 August 2013

Time: 6pm Moscow (3pm BST)

Dial-in Tel: International: +44 (0)20 3003 2666

UK toll-free: 0808 109 0700

US toll-free: 1 866 966 5335

Russia toll-free: 8 10 8002 4902044

Password: AFI

Please dial in 5/10 minutes prior to the commencement time giving your name, company and stating that you are dialling into the AFI Development conference call quoting the reference AFI.

A replay facility will be available for 1 week following the call.

To access the recording, please dial +44 (0)20 8196 1998 and enter access code 7626023.

Prior to the conference call, the H1 2013 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 9 August 2013 by 9pm Moscow time (6pm BST).

- ends -

For further information, please contact:

AFI Development, Moscow +7 495 796 9988

Ilya Kutnov

Ekaterina Shubina

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Sandra NovakovShelly Chadda

About AFI Development

AFI Development is one of the leading real estate development companies operating in Russia. Established in 2001, AFI Development is a publicly traded subsidiary of Africa Israel Investments Ltd.

AFI Development is listed on the Main Market of the London Stock Exchange and aims to deliver shareholder value through a commitment to innovation and continuous project development, coupled with the highest standards of design, construction, and quality of customer service.

AFI Development focuses on developing and redeveloping high quality commercial and residential real estate assets across Russia, with Moscow being its main market. The Company's existing portfolio comprises commercial projects focused on offices, shopping centres, hotels and mixed-use properties, and residential projects. AFI Development's strategy is to sell the residential properties it develops and to either lease the commercial properties or sell them for a favourable return.

AFI Development is a leading force in urban regeneration, breathing new life into city squares and neighbourhoods and transforming congested and underdeveloped areas into thriving new communities. The Company's long-term, large-scale regeneration and city infrastructure projects establish the necessary groundwork for the successful launch of commercial and residential properties, providing a strong base for future.

Legal Disclaimer

Some of the information in these materials may contain projections or other forward-looking statements regarding future events, the future financial performance of the Company, its intentions, beliefs or current expectations and those of its officers, directors and employees concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and business. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might" or the negative of such terms or other similar expressions. These statements are only predictions and that actual events or results may differ materially. Unless otherwise required by applicable law, regulation or accounting standard, the Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Company, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia and market change in the industries the Company operates in, as well as many other risks specifically related to the Company and its operations. 

Chairman and Executive Director's Combined Statement

The Company has closed the first six months of 2013 with considerable growth in revenue and profits.

The first phase of the sale of 643 parking spaces at AFIMALL City to VTB Bank was completed during the second quarter, making a strong contribution to the quarter's results.

As was the case with the disposal of the Four Winds project, AFI Development once again stayed true to its strategy of disposing commercial assets for a favourable return, achieving significant profit to book value.

The operations of AFIMALL City continued to improve with steady growth in rental revenues and occupancy. The Company also made significant progress with projects in the development stage. Construction works at Otradnoe ("Odinbourg") and Kossinskaya are well underway. At the same time, the design stage is advancing at Tverskaya Plaza Ic, whilst pre-design works are progressing to plan at the Bolshaya Pochtovaya and Paveletskaya projects.  

Projects update

AFIMALL City

Occupancy levels at AFIMALL City continued to increase, reaching 83% at the end of Q2 2013. Several new tenants opened their shops in the centre during the second quarter, including Gant, New Balance, Lee Cooper and Aldo. Additional important leases with new tenants - such as H&M Home, InWear/Matinique, and Marc O'Polo - were also signed during the quarter. Furthermore, the American retail brand "Forever 21" has chosen AFIMALL City for its first Russian flagship store due to open in 2014.

Otradnoe - "Odinbourg"

During Q2 2013, AFI Development continued to develop the marketing programme for its Otradnoe project. As part of this process, a marketing name of Odinbourg was selected.

Whilst construction works at the site are progressing to plan, the project has also received accreditation by VTB Bank JSC, one the leading Russian lenders. This confirms that the project is compliant with the bank's requirements for mortgage lending and that the bank will be supporting the Company's marketing campaign.

Market Overview - General Moscow Real Estate

Macroeconomic environment

Whilst the first half of 2013 saw a significant slowdown in GDP growth compared to 2012, a reversal in this trend is widely expected during the second half of the year, with the IMF forecasting full-year GDP growth of 2.5% (against an EU-average of -0.3%). A positive trend in commodity prices, growing international demand, a slowdown in CPI and a favourable crop harvest forecast are to be among the drivers of the expected recovery.

Overall, Russian performance remains superior to large developed and neighbouring developing economies, whilst Russian GDP per capita remains the highest among the BRICS economies.

Whilst the consumer market remains strong, supported by a strong labour market and solid wage growth, inflation is accelerating to a likely 7% for 2013.

[Source: Retail Market Outlook Report, JLL; Cushman & Wakefield Report; Rosstat]

Moscow office market

Although the first half of 2013 saw a 36% increase year-on-year in terms of new office space delivery, the volume of new supply in the second quarter of the year was at a record low since Q3 2005 at just 6 office buildings.

As a result of a decrease in tenant needs for additional office space and a continued decline in absorption, vacancy rates increased during the 6-month period, from 12.19% in January to 13.44% in June 2013, resulting in an average rate for the period of 13.15%.

In Class A, the average rents grew from $850 in Q1 to $870 in Q2 2013. In Class B, the average rents remained stable at $500. Rental rates of prime office space were at a level of $1,200 per year. The general expectation is for rents to remain stable throughout 2013.

The current capitalisation rates in Moscow remain stable at 8.5% for prime office space.

[Source: 2013 Q2 Marketbeat, Cushman & Wakefield; Office Market Overview - Q2 2013, Jones Lang LaSalle]

Moscow retail market

Shopping centre attendance during the first half of the year remained at a high level, with the most successful centres enjoying an average daily footfall of 40,000-80,000. Retail trade turnover for the January-May period increased by 11.4% year-on-year in nominal terms, supported by an attractive consumer spending pattern and continued growth in real income. Retail growth in Russia is expected to remain among the highest in Europe, a trend a number of international retailers are hoping to capitalise on.

Despite the opening of three quality shopping centers during the second quarter, the level of available space in quality shopping centers reached a negligible amount of less than 1% (against 6% in most European cities). During Q2 2013, rental rates were stable across all sub-sectors (US$500 - 1,800 sq.m. pa and US$3,000 - 4,500 per sq.m. pa for the ground floor of retail gallery). Capitalisation rates in Moscow remained stable at 9% for prime retail space.

[Source: 2013 Q2 Marketbeat, Cushman & Wakefield; Moscow Retail Overview - Q2 2013, Jones Lang LaSalle]

Moscow residential market

In the residential segment, stable market development continued during the first half of 2013. Whilst the start of the year saw a slight increase in the supply of new properties, demand remained strong as evidenced by growth in the volume of mortgage transactions.

Whilst the average asking price per unit for primary business-class residential premises in Q2 2013 amounted to US$ 7,390 per sq. m (up 4% year-on-year), within the Central Business District of Moscow, these prices are currently in the region of US$ 11,000 - 13,000 US$ per sq. m.

Going forward, a short-term increase in the supply of apartments is expected. However, lower budget ('comfort class') properties are expected to make up a significant proportion of the new supply.

[IntermarkSavills Business class residential report; Cushman & Wakefield Report; Blackwood Q1 2013 Residential Real Estate Market Overview]

Outlook

The management expects sustained strong growth in the retail market to support the continued improvement in the operating indicators of our flagship project, AFIMALL City, throughout 2013. In addition to further improving the performance of the Mall, our focus will be on our portfolio of development projects. We expect to achieve significant progress in construction works at our Otradnoe and Kossinskaya projects during the second half of the year. At the same time, we will continue to work towards obtaining construction permits for our Tverskaya Plaza office developments, the mixed-use residential complex of Bolshaya Pochtovaya and the Paveletskaya residential complex.

Lev Leviev Mark Groysman

Executive Chairman of the Board Executive Director

ANNEX A 

30.6.13 - Very significant property disclosure

1. AFIMALL City

2. Ozerkovskaya III

3. Tverskaya Plaza IV

4. Tverskaya Plaza II

5. Bolshaya Pochtovaya

6. Kossinskaya

ANNEX B

30.6.13 - Very significant loans disclosure

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2013 to 30 June 2013

C O N T E N T S

Independent auditors' report on review of condensed consolidated interim financial information

Condensed consolidated income statement

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of changes in equity

Condensed consolidated statement of financial position

Condensed consolidated statement of cash flows

Notes to the condensed consolidated interim financial statements

Independent auditors' report on review of condensed consolidated interim financial information tothe members of AFI DEVELOPMENT PLC

Introduction

We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 30 June 2013 and the related condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the six-month period then ended and a summary of significant accounting policies and other explanatory notes (interim financial information). The Company's Board of Directors is responsible for the preparation and fair presentation of this interim financial information in accordance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting".

Marios G. Gregoriades CPA

Certified Public Accountant and Registered Auditor

For and on behalf of

KPMG Limited

Certified Public Accountants and Registered Auditors

14 Esperidon Street

1087 Nicosia, Cyprus

8 August 2013

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period from 1 January 2013 to 30 June 2013

The notes form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 January 2013 to 30 June 2013

 The notes form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period from 1 January 2013 to 30 June 2013

The notes form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2013

The condensed consolidated interim financial statements were approved by the Board of Directors on 8 August 2013.

The notes form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 January 2013 to 30 June 2013

The notes form an integral part of the condensed consolidated interim financial statements.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2013 to 30 June 2013

1. INCORPORATION AND PRINCIPAL ACTIVITY

AFI Development PLC (the "Company") was incorporated in Cyprus on 13 February 2001 as a limited liability company under the name Donkamill Holdings Limited. In April 2007 the Company was transformed into public company and changed its name to AFI Development PLC. The address of the Company's registered office is 165 Spyrou Araouzou Street, Lordos Waterfront Building, 5th floor, Flat/office 505, 3035 Limassol, Cyprus. The Company is a 64.88% subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). The remaining shareholding of "A" shares is held by a custodian bank in exchange for the GDRs issued and listed in the London Stock Exchange ("LSE"). On 5 July 2010 the Company issued by way of a bonus issue, 523,847,027 "B" shares, which were admitted to a premium listing on the Official List of the UK Listing Authority and to trading on the main market of LSE. On the same date, the ordinary shares of the Company were designated as "A" shares.

These condensed consolidated interim financial statements of the Company for the period from 1 January 2013 to 30 June 2013 comprise of the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities. The principal activity of the Group is real estate investment and development. 

The principal activity of the Company is the holding of investments in subsidiaries and joint ventures.

2. basis of preparation

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all of the information and disclosures required for a complete set of financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as and the for the year ended 31 December 2012. These interim financial statements were authorised for issue by the Company's Board of Directors on 8 August 2013.

Judgements and Estimates

In preparing these interim financial statements management is required to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 31 December 2012.

New standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2012, except for the adoption of new standards and interpretations effective as of 1 January 2013.The Group applies, for the first time, certain standards and amendments that require restatement of previous financial statements. These include IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 13 Fair Value Measurement and amendments to IAS 1 Presentation of Financial Statements. As required by IAS 34, the nature and the effect of these changes are disclosed below.

Several other new standards and amendments apply for the first time in 2013. However, they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group.

The nature and the impact of each new standard/amendment is described below:

IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1

The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time now have to be presented separately from items that will never be reclassified. The amendment affected presentation only and had no impact on the Group's financial position or performance.

IAS 1 Clarification of the requirement for comparative information (Amendment)

The amendment to IAS 1 clarifies the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional voluntarily comparative information does not need to be presented in a complete set of financial statements.

An opening statement of financial position must be presented when an entity applies an accounting policy retrospectively, makes retrospective restatements, or reclassifies items in its financial statements, provided any of those changes has a material effect on the statement of financial position at the beginning of the preceding period. The amendment clarifies that a third balance sheet does not have to be accompanied by comparative information in the related notes. Under IAS 34, the minimum items required for interim condensed financial statements do not include an opening statement of financial position.

IAS 34 Interim financial reporting and segment information for total assets and liabilities (Amendment)

The amendment clarifies the requirements in IAS 34 relating to segment information for total assets and liabilities for each reportable segment to enhance consistency with the requirements in IFRS 8 Operating Segments. Total assets and liabilities for a reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change in the total amount disclosed in the entity's previous annual consolidated financial statements for that reportable segment. The Group has been providing this disclosure already as total segment assets were reported to the chief operating decision maker (CODM).

IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements

IFRS 10 establishes a single control model that applies to all entities including special purpose entities. IFRS 10 replaces the parts of previously existing IAS 27 Consolidated and Separate Financial Statements that dealt with consolidated financial statements and SIC-12 Consolidation - Special Purpose Entities. IFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be met, including:

(a) an investor has power over an investee; (b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and (c) the investor has the ability to use its power over the investee to affect the amount of the investor's returns. IFRS 10 had no impact on the consolidation of investments held by the Group.

IFRS 11 Joint Arrangements and IAS 28 Investment in Associates and Joint Ventures

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities - Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture under IFRS 11 must be accounted for using the equity method.

The application of this new standard impacted the financial position of the Group by replacing proportionate consolidation of all the joint ventures of the Group, with the equity method of accounting. IFRS 11 is effective for annual periods beginning on or after 1 January 2013. The effect of IFRS 11 is described in more detail in note 11, which includes quantification of the effect on the financial statements.

IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application of IFRS 13 has not materially impacted the fair value measurements carried out by the Group. IFRS 13 also requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 Financial Instruments: Disclosures. Some of these disclosures are specifically required for financial instruments by IAS 34.16A(j), thereby affecting the interim condensed consolidated financial statements period. The Group provides these disclosures in note 24.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Functional and presentation currency

These consolidated financial statements are presented in United States Dollars which is the Company's functional currency. All financial information presented in United States Dollars has been rounded to the nearest thousand, except when otherwise indicated.

Foreign operations

Each entity of the Group determines its own functional currency and items included in the financial statements of each entity are measured using its functional currency. Where the functional currency of an entity of the Group is other than US Dollars, which is the presentation currency of the Group, then the financial statements of the entity are translated in accordance with IAS 21 'The effects of changes in foreign exchange rates.

The table below shows the exchange rates of Russian Roubles, which is the functional currency of the Russian subsidiaries of the Group, to the US Dollar which is the presentation currency of the Group:

Exchange rate % change % change

Russian Roubles quarter six months/

As of: for US$1 year

30 June 2013 32.7090 5.2 7.7

31 March 2013 31.0834 2.3

31 December 2012 30.3727 (5.7)

30 June 2012 32.8169 1.9

Average rate during:

Six-month period ended 30 June 2013 31.0169 1.5

Three-month period ended 31 March 2013 30.4142 1.3

Six-month period ended 30 June 2012 30.5666 7.5

3. significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2012, except for the adoption of new standards and interpretations effective as of 1 January 2013 as described in the previous note.

4. OPERATING SEGMENTS

The Group has 5 reportable segments, as described below, which are the Group's strategic business units. The following summary describes the operation in each of the Group's reportable segments:

·; Development Projects - Commercial projects: Include construction of commercial properties for future lease or sale.

·; Development Projects - Residential projects: Include construction and sale of residential properties.

·; Asset Management: Includes the operation of investment property for lease.

·; Hotel Operation: Includes the operation of Hotels.

·; Other - Land bank: Includes the investment and holding of property for future development.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group's management team. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis.

 Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items.

5. ADMINISTRATIVE EXPENSES

6. other expenses

7. FINANCE COST AND FINANCE INCOME

8. tAX EXPENSE

9. INVESTMENT PROPERTY

The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Group's investment property. The same applies for investment property under development in note 10 below. The last valuation took place on 30 June 2013. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above.

Acquisitions represent the impact of the acquisition of the 50% of joint venture Crown Investments LLC, thereafter owned at 100% and treated as a subsidiary. See note 11 for further details.

The decrease due to the effect of the foreign exchange rates is a result of the weakening of the rouble compared to the US Dollar by 7.7%, during the first half of 2013. The fair value adjustment gain is mostly related to this rouble weakening.

10. INVESTMENT PROPERTY UNDER DEVELOPMENT

The decrease due to the effect of the foreign exchange rates is a result of the rouble weakening compared to the US Dollar by 7.7% during the first half of 2013.

11. SHARE OF INVESTMENT IN JOINT VENTURES

The Group's joint ventures are comprised of the following:

50% interest in Nouana Limited with its subsidiary Tirel LLC, owner of a hotel in Kislovodsk. 50% interest in Craespon Management Ltd with its subsidiary Sanatorium Plaza LLC that operates the aforementioned hotel.

The Group owned a 50% interest in Westec Four Winds Ltdand its subsidiary Dulverton Ltd, owner of investment property in Moscow, which was disposed early January 2013, see notes 18 and 23.

The Group also owned a 50% interest in Crown Investments LLC, owner of investment and trading properties in Moscow. On 12 February 2013 the Group acquired the remaining 50% shareholding, deemed as acquisition of assets and liabilities.

The above mentioned acquisition of the 50% shareholding in the previously joint venture Crown Investments LLC had the following effect on the Group's assets and liabilities:

Change in accounting policy

Under IAS 31 Interests in Joint Ventures (prior to the transition to IFRS 11), the Group's interest in these joint ventures was classified as a jointly controlled entity and the Group's share of the assets, liabilities, revenue, income and expenses were proportionately consolidated in the consolidated financial statements. Upon adoption of IFRS 11, the Group has determined its interest to be a joint venture and it is required to be accounted for using the equity method. The effect of applying IFRS 11 is as follows:

There is no material impact on the interim condensed consolidated statement of cash flows or the basic and diluted Earnings per share.

12. PROPERTY, PLANT AND EQUIPMENT

13. LOANS RECEIVABLE

Terms and loan repayment schedule

Terms and conditions of outstanding loans were as follows:

Due to the reason that the Group acquired, during the period, the remaining 50% of the assets and liabilities of the joint venture Crown Investments LLC any loan balance with other Group entities are now eliminated in full upon consolidation. See note 11 for more details.

14. TRADING PROPERTIES