AFRB.L Regulatory News (AFRB)

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24 November 2015

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

RESULTS FOR THE NINE MONTHS TO 30 SEPTEMBER 2015

Continued focus on efficiency results in return to profitability in Q3 2015

AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the nine months ended 30 September 2015.

9M 2015 financial highlights

· Revenue for 9M 2015, including proceeds from the sale of trading properties, reached US$72.2 million:

- Rental and hotel operating income declined 35% year-on-year to US$71.4 million, reflecting the difficult macroeconomic environment

- AFIMALL City contribution stood at US$54.7 million (9M 2014: US$82.7 million), down 34% year-on-year

· Gross profit declined by only 13% year-on-year to US$34.8 million (9M 2014: US$39.8 million), reflecting our focus on profitability and rigorous cost control

· Net loss for 9M 2015 was US$ 20.7 million, against a profit of US$27.9 million in 9M 2014, largely due to valuation losses in Q2 2015

- Q3 2015 was profitable, with net profit of US$12.5 million for the quarter

· Total gross value of portfolio of properties decreased marginally to US$1.97 billion at the end of Q3 2015, compared to US$1.98 billion at the end of Q2 2015

· Cash, cash equivalents and marketable securities as of 30 September 2015 were at US$62.5 million

9M 2015 operational highlights

· AFIMALL City recorded revenue of US$54.7 million for 9M 2015:

- NOI was US$41.0 million for the nine months, compared to US$64.2 million in 9M 2014

- Average monthly footfall in September 2015 was 17% higher than that in September 2014

· Over 95% of apartments at Odinburg Building 1 have been pre-sold (780 sale contracts signed as of 23 November 2015 in Buildings 1 and 2)

· The main construction stage of the Paveletskaya II project is ready to be started in December 2015, pre-sales of apartments are also planned to start in December

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

"The real estate market across Russia remains under pressure from continued challenging macroeconomic conditions and lack of visibility with respect to future economic recovery. In such an environment, we maintain our cautious approach focused on improving our profitability, enhancing operational efficiency of existing projects and preparing selected new projects for development. We are pleased to report a return to profitability in the third quarter of 2015 and hope to build on this positive development going forward."

9M 2015 results conference call:

AFI Development will hold a conference call for analysts and investors to discuss its 9M 2015 financial results on Wednesday, 25 November 2015, following the publication of the Company's financial results.

The details for the conference call are as follows:

Date: Wednesday, 25 November 2015

Time: 2pm GMT (5pm Moscow)

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 start time giving your name, company and stating that you are dialling into the AFI Development conference call quoting the reference AFI.

Prior to the conference call, the 9M 2015 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 25 November 2015 by 11am GMT (2pm Moscow time).

- ends -

For further information, please contact:

AFI Development, Moscow +7 495 796 9988

Ilya Kutnov

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Sandra NovakovMarina Zakharova de Calero

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. 

Executive Chairman's statement

Our operating environment during Q3 2015 remained challenging, characterised by reduced consumer spending, higher inflation and continued currency volatility. This resulted in decreasing revenues in our yielding properties, including AFIMALL City. At the same time, we continued to improve the profitability of our operations, focusing on operational efficiency, active development of existing projects (most notably Odinburg) and preparing new projects for construction.

The third quarter was profitable for the Company with net profit of US$12.5 million recorded for the quarter. However, largely due to valuation losses in Q2 2015, we recorded a net loss of US$20.7 million for 9M 2015. Gross profit for 9M 2015 reached US$34.8 million (9M 2014: US$39.8 million). 

The third quarter saw a gradual stabilisation in the retail market with rental rates broadly unchanged compared to the previous quarter and fewer retailers suspending expansion plans. This wider trend is reflected in the operating performance of AFIMALL City, which saw an increase in footfall and signed notable lease agreements with new tenants. However, the Mall's revenue contribution remains below levels seen in the same period last year at US$54.7 million (9M 2014: US$82.7 million) due to continuing pressures in the general economy.

At the same time, we continue active development of residential projects. Pre-sales at Building 1 of Odinburg are nearly complete and construction of Building 2 is on track for completion. Main construction stage and marketing of Paveletskaya Phase II are due to start in December 2015 whilst the start of construction at Bolshaya Pochtovaya is planned for the second half of 2016.

Projects update

AFIMALL City

Amidst difficult conditions in the retail environment in Russia, AFIMALL City continues to demonstrate a positive trend in footfall: the Mall's average monthly footfall improved by 17% in September 2015 compared to September 2014.

A number of new tenants opened their outlets in AFIMALL City, including the US bakery café Upside Down Cake and Portuguese accessories brand Parfois. Additionally, AFIMALL City signed a lease agreement with one of the leading Russian children's goods brand Detsky Mir, who will lease about 900 sq.m. with a planned opening in December this year.

Odinburg

During Q3 2015, the works at Building 1 of the first phase of Odinburg were focused on the final fit-out, engineering systems installations and landscaping. The Company is on track to deliver the apartments in Building 1 to customers in December 2015.

The construction works at Building 2 continue to plan.

As of the date of publication of this report, more than 95% of apartments in Building 1 have been pre-sold with sales of Building 2 also progressing to plan (780 contracts for sales of apartments signed in both buildings at the date of this report's publication).

We continue to introduce new marketing initiatives to stimulate sales of apartments at Odinburg. In the third quarter we introduced a "trade-in" programme, where our brokers help potential buyers to dispose of their existing apartments to serve as partial payment towards the acquisition of a new apartment at Odinburg. In addition to mortgage programmes, AFI Development offers various financing options to its customers, including instalment payment plans, offered in partnership with VTB-Leasing.

Aquamarine III (Ozerkovskaya III)

AFI Development continues to market office space in the property to potential buyers and tenants.

Paveletskaya Phase II

The main construction stage of our Paveletskaya II residential project is scheduled for launch in December 2015. Pre-sales of apartments are to start simultaneously with the start of construction. The project will be marketed as AFI Residence Paveletskaya. The preliminary construction works started already in Q3 2015, which justified re-classification of the project from Investment properties under development category to Trading properties under construction category of assets on the balance sheet as of 30 September 2015.

The new business-class residential complex will be built on a land plot of 5.5 Ha and will feature several buildings of various height with a total GBA of 151,373 thousand sq.m. AFI Residence Paveletskaya will include a sports complex and commercial areas. The project is to be constructed in three phases. 

Bolshaya Pochtovaya

The design works and preparations for construction at Bolshaya Pochtovaya continue. The Company plans to start construction of the project in H2 2016.

Botanic Garden

In light of the changing residential market environment, AFI Development is reviewing the planning and designs of the project.

Subsequent event

In November 2015 the Company received a notice from VTB Bank on decision of the bank to postpone the applicability of covenants in the loan agreement of Krown Investments Limited ("Krown") for the Ozerkovskaya III project. According to the decision, the Loan-To-Value covenant (currently applicable from Q1 2015 onwards) and the Debt Service Coverage Ratio covenant (currently applicable from Q4 2015 onwards), shall be both applicable starting from Q2 2017 onwards. AFI Development subsidiary owning and operating AFIMALL City, Bellgate Construction Limited, will provide a surety for the full amount of the loan of Krown, and AFIMALL City premises will be mortgaged in a secondary mortgage as additional collateral for the loan by Krown. This decision by the Bank will become legally binding with execution of addendum to the loan agreement and related documents.

ANNEX A 

30.9.2015 - Very significant property disclosure

1. AFIMALL City

* Average rent is presented by main lease agreements, without temporary rent discounts provided to some tenants

ANNEX B

30.9.2015 - Very significant loans disclosure

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2015 to 30 September 2015

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2015 to 30 September 2015

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 to the members of AFI DEVELOPMENT PLC

Introduction

We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 30 September 2015, the condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the nine-month period then ended and notes to the interim financial information ('the condensed consolidated interim financial information'). The Company's Board of Directors is responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this condensed consolidated 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 condensed consolidated interim financial information as at 30 September 2015 is not prepared, in all material respects, in accordance with IAS 34 "Interim Financial Reporting".

Maria H. Zavrou, FCCA

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

23 November 2015

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period from 1 January 2015 to 30 September 2015

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 2015 to 30 September 2015

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period from 1 January 2015 to 30 September 2015

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2015

The condensed consolidated interim financial statements were approved by the Board of Directors on 23 November 2015.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 January 2015 to 30 September 2015

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2015 to 30 September 2015

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 ("interim financial statements") of the Company as at and for the nine months ended 30 September 2015 comprise 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 interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all of the information required for a complete set of IFRS 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 at and for the year ended 31 December 2014.

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 year to date

As of: for US$1

30 September 2015 66.2367 19.29 17.74

30 June 2015 55.5240 (1.30)

31 March 2015 58.4643 3.92

31 December 2014 56.2584 71.89

30 September 2014 39.3866 17.12 20.34

Average rate during:

Nine-month period ended 30 September 2015 59.2777

Nine-month period ended 30 September 2014 35.3878

Three-month period ended 30 September 2015 62.9784

Three-month period ended 30 September 2014 36.1909

3. use of judgements and estimates

In preparing these interim financial statements, management has made 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.

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 that applied to the consolidated financial statements as at and for the year ended 31 December 2014.

a. Measurement of fair values

The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Group Audit Committee.

When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

4. significant accounting policies

The accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2014.

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 2014, except for the adoption of new standards and interpretations effective as of 1 January 2015.

Several new standards and amendments apply for the first time in 2015. However, they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group.

Standards, amendments to standards, and interpretations issued but not yet endorsed by the EU

IFRS 15 - "Revenue from Contracts with Customers". The new standard provides a unified application that regulates the accounting treatment of revenue arising from contracts with customers. This standard supersedes IAS 18 "Revenue" and IAS 11 "Construction Contracts" and the accompanying interpretations thereof. The core principle of the standard is the recognition of revenue from the transfer of goods or services to customers in an amount that represents the economic benefits that the entity expects to receive in return for them. As such, the standard stipulates that the recognition of revenue will occur when the entity transfers the goods and/or services to the customer and the customer obtains control of those goods or services.

The standard is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted under IFRS. However since not endorsed by the EU yet, early adoption is not permitted by the Group.

5. 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 property for future lease.

· Development Projects - Residential projects: Include construction and selling 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.

Payables to related parties

Include an amount of US$28 thousand (31/12/14: US$1,465 thousand) payable to Danya Cebus Rus LLC, related party of the Group, for contracts signed in relation to the construction of Group's project.

22. ADVANCES FROM CUSTOMERS

The Group has continued its pre-sale in "Odinburg" residential project. During the nine month period the Group has sold 188 properties and received additional down payments from customers.

23. FINANCIAL INSTRUMENTS

Carrying amounts and fair values

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels and the fair value hierarchy for financial instruments measured at fair value. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.