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

22 May 2015

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

RESULTS FOR THE THREE MONTHS TO 31 MARCH 2015 

Stable operational results despite economic uncertainty

AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the three months ended 31 March 2015.

Q1 2015 financial highlights

· Rental income and income from hotel operations declined to US$24.4 million (from US$36.7 in Q1 2014) as a result of the difficult macroeconomic environment and Russian rouble depreciation

- AFIMALL City contribution at US$19.1 million, compared to US$28.0 million in Q1 2014

· Gross profit up 78% to US$11.2 million compared to US$6.3 million in Q1 2014

· Net profit for the quarter amounted to US$6.0 million compared to US$24.3 in Q1 2014

· Cash, cash equivalents and marketable securities of US$74.7 million

Q1 2015 operational highlights

· AFIMALL City recorded revenue of US$19.1 million for Q1 2015:

- NOI was US$13.7 million for the quarter, compared to US$16.8 million in Q1 2014

- Occupancy levels at 83% of total leasable area (no change compared to end of Q1 2014)

· Sales of apartments continue at Odinburg with 627 sale contracts signed (as of 21 May 2015)

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

"Although a weaker rouble and the general economic downturn in Russia have caused a decline in our revenues, AFI Development has continued to demonstrate stable operational results during the first quarter of 2015. Given the recent oil price recovery and encouraging macroeconomic developments since the start of the second quarter, we are cautiously optimistic for the remainder of 2015."

Q1 2015 Results Conference Call:

AFI Development will hold a conference call for analysts and investors to discuss its Q1 2015 financial results on Tuesday, 26 May 2015, following the publication of the Company's financial results.

The details for the conference call are as follows:

Date: Tuesday, 26 May 2015

Time: 15:00 BST (17:00 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 commencement 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 Q1 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 26 May 2015 by 12am BST (2pm Moscow).

- 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, the Company 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's and Executive Director's Combined Statement

The difficult macroeconomic situation prevalent in Russia during 2014 has continued into the first quarter of 2015, with a noticeable effect on the real estate sector and, consequently, our first quarter results.

The weakening of the rouble during the quarter has negatively influenced rental revenue in dollar terms from properties leased under rouble-denominated rental agreements. At the same time, the profitability remained strong, with gross profit at US$11.2 for the quarter, an increase of 78% versus Q1 2014.

We continue to closely monitor developments in our macroeconomic environment and the real estate sector. We are encouraged by the gradual strengthening of the rouble recorded since the start of Q2 2015, driven mainly by the recovery in oil prices and sharply reduced imports, and the Central Bank's recent decision to reduce the key lending rate to 12.5%. These factors have led us to believe that the economic slowdown will be both less profound and shorter than initially expected.

Projects update

AFIMALL City

During the first quarter of 2015 AFIMALL City experienced a slight decrease in occupancy levels due to some rotation of tenants. However, a number of new tenants have entered the Mall, most notably in the restaurant category. An Italian chain 'Maccheroni', a vegetarian café chain 'Zelen'. Eco-territory', Mediterranean cuisine-focused 'Galata' and popular Russian restaurant chain 'Chaihona № 1' all opened their outlets in the Mall. The lease agreement with the 'Chaihona № 1' lounge-café is of particular significance as this tenant will become one of the largest restaurants at AFIMALL, occupying more than 700 sq. m of space.

In addition, to make family visits to AFIMALL City more convenient, we have opened a 140 sq. m children care outlet during Q1 2015, where parents can leave their children to play under supervision while shopping at AFIMALL.

Odinburg

In Q1 2015 the construction of Building 2 of Korona, the first phase of the overall development, commenced and apartment pre-sales are currently underway. At the same time, sales of apartments in Building 1 are nearly complete.

In response to the more difficult macroeconomic environment in Russia, we increased our marketing efforts during the first quarter. In order to facilitate mortgage-financed purchases, we launched a joint initiative with Sberbank, the largest Russian bank, under which AFI Development provides a special discount to mortgage-financed purchasers. In addition, a special discount is provided to the military, which, in combination with the state subsidy for military housing, makes acquisitions of apartments at Odinburg particularly attractive to this category of clients.

As of the date of publication of this report, 627 contracts for sales of apartments have been signed.

Aquamarine III (Ozerkovskaya III)

The Company continues to market office space in the complex to potential buyers and tenants.

Tverskaya Plaza Ic

AFI Development plans to start construction of this project as soon as debt financing on favourable terms has been secured and the market environment becomes more supportive.

Paveletskaya Phase II

With the planning stage now finalised, the Company is preparing to launch construction, subject to further improvement in the market situation. We are currently developing a marketing programme to start apartment pre-sales in due course.

Bolshaya Pochtovaya

AFI Development continues to develop project designs and aims to obtain a construction permit for this development during 2015.

ANNEX A 

31.3.2015 - Very significant property disclosure

1. AFIMALL City

ANNEX B 

31.3.2015 - Very significant loans disclosure

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2015 to 31 March 2015

C O N T E N T S

Page

Independent auditors' report on review of condensed consolidated interim financial information 1

Condensed consolidated income statement 2

Condensed consolidated statement of comprehensive income 3

Condensed consolidated statement of changes in equity 4

Condensed consolidated statement of financial position 5

Condensed consolidated statement of cash flows 6

Notes to the condensed consolidated interim financial statements 7 - 21

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 31 March 2015, the condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the three-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 31 March 2015 is not prepared, in all material respects, in accordance with IAS 34 "Interim Financial Reporting".

Maria H. Zavrou, FCCA

Certified Public Accountant and Register Auditor

For and on behalf of

KPMG Limited

Certified Public Accountants and Registered Auditors

14 Esperidon Street

1087 Nicosia, Cyprus

22 May 2015

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period from 1 January 2015 to 31 March 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 31 March 2015

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period from 1 January 2015 to 31 March 2015

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2015

The condensed consolidated interim financial statements were approved by the Board of Directors on 22 May 2015.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 January 2015 to 31 March 2015

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2015 to 31 March 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% (31/12/2014: 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 three months ended 31 March 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

Russian Roubles

As of: for US$1 Change

%

31 March 2015 58.4643 3.9

31 December 2014 56.2584 71.9

31 March 2014 35.6871 9.0

Average rate during:

Three-month period ended 31 March 2015 62.1919 77.9

Three-month period ended 31 March 2014 34.9591 14.9

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).

a. Measurement of fair values (continued)

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.

Reconciliation of reportable segment profit or loss:

6. REVENUE AND OPERATING EXPENSES

The decrease of revenue and operating expenses in comparison with first quarter of 2014 of 33% and 48% respectively is mainly due to the change of the average rate of Rouble from first quarter of 2014 to first quarter of 2015. In addition the Company has offered temporary rent discounts to the tenants of the investment properties and in parallel has implemented a cost saving optimisation program. For more information on foreign exchange rates used refer to note 2 above.

7. ADMINISTRATIVE EXPENSES

8. other expenses

9. FINANCE COST AND FINANCE INCOME

During the current period the Company has derecognised the investment in subsidiary Stroycapital LLC since it lost the control of its operations. There was no other profit or loss effect apart from an amount of US$830 thousand translation reserve which was reclassified as a realised translation gain in the finance income.

10. tAX (BENEFIT)/EXPENSE

11. INVESTMENT PROPERTY

Reconciliation of carrying amount

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 3.9%, during the first quarter of 2015. The fair value adjustment gain in investments property was a result of this rouble weakening. The Company assessed that the fair value of the properties has not materially changed since 31 December 2014 as there were no significant changes in the macro-economic conditions in Russia. The same applies for investment property under development. See note 12 below.

12. 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 3.9% during the first quarter of 2015, as described in note 11 above.

13. PROPERTY, PLANT AND EQUIPMENT

14. TRADING PROPERTIES

Trading properties comprise of unsold apartments and parking places.

15. TRADING PROPERTIES UNDER CONSTRUCTION

Trading properties under construction comprise the "Odinburg" project, which involves primarily the construction of residential properties.

16. TRADE AND OTHER RECEIVABLES

Trade receivables, net

Trade receivables are presented net of an accumulated provision for doubtful debts of US$13,393 thousand (2014: US$12,753 thousand).

17. CASH AND CASH EQUIVALENTS

18. SHARE CAPITAL AND RESERVES

(ii) Employee share option plan

There were no changes as to the employee share option plan during the three-month period ended 31 March 2015.

(iii) Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to the Group presentation currency and the foreign exchange differences on loans designated as loans to an investee company which are accounted for as part of the investor's investment (IAS21.15) as their repayment is not planned or likely to occur in the foreseeable future. These foreign exchange differences are recognised directly to Translation Reserve.

(iv) Retained earnings

Retained earnings are available for distribution at each reporting date. No dividends were proposed, declared or paid during the three-month period ended 31 March 2015.

19. LOANS AND BORROWINGS

There were no material changes to loans during the quarter ended 31 March 2015 apart from the following:

The two year loan from VTB Bank which was received on 25 January 2013, with a maturity on 24 January 2015, by the Group's subsidiary Krown Investments LLC ("Krown") was reclassified to non-current liabilities. InJanuary 2015, prior to maturity, the subsidiary signed an addendum to the loan facility agreement with VTB Bank OJSC ("the Bank), extending the term of the loan to 26 January 2018. In addition to extending the term of the loan, the new addendum amended the payment schedule, interest rate conditions and introduced new covenants. The payment schedule anticipates repayments of the principal starting from the 4th quarter of 2015, while the new covenants include a "Debt Service Coverage Ratio" of 1.2 also applicable as from the 4th quarter of 2015 and a "Loan to Value ratio" of 65% applicable from January 2015. In line with the addendum, on 26th January 2015 Krown paid US$10 million to the Bank, being a partial repayment of the outstanding loan amount, thus reducing the total to US$195 million. Approximately 90% of the principal is to be paid at maturity.

20. TRADE AND OTHER PAYABLES

Payables to related parties

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

21. 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.

22. CONTINGENCIES

There are no any contingent liabilities as at 31 March 2015.

23. FINANCIAL RISK MANAGEMENT

The Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 December 2014.

Russian business and economic environment

The Group's operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation.

The Russian economy continued to be in a state of stagnation. The economic growth rate showed a 2.2% decrease in the first quarter of 2015 compared to a decrease of 0.4% in the fourth quarter of 2014. International sanctions and oil prices continue to affect the economy with a predicted growth between minus 2.5% to 3.8% for 2015 fiscal year. The rouble stabilised and slightly recovered between March and May 2015 reaching the 50 rouble to a dollar mark in mid-May, supported by a recovery in oil prices, seasonal factors and a lighter debt repayment schedule.

The interim financial statements reflect management's assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment.

24. RELATED PARTIES

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director (whether executive or otherwise) of that entity. The person is a member of the key management personnel of the entity or its Parent (includes the immediate, intermediate or Ultimate Parent). Key management is not limited to Directors; other members of the management team also may be key management.

25. SUBSEQUENT EVENTS

There were no material events that took place after the three month period end and until the date of the approval of these financial statements by the Board of Directors on 22 May 2015.