AFI Development Plc - Announcement of Q3 Results

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION

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

20 November 2018

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

UNAUDITED RESULTS FOR THE NINE MONTHS TO 30 SEPTEMBER 2018 

Continuous growth strongly supported by contribution from residential segment

AFI Development, a leading real estate company focused on developing property in Russia, today announces its unaudited financial results for the nine months ended 30 September 2018.

9M 2018 financial highlights[1]

9M 2018 operational highlights

Commenting on today's announcement, David Tahan, Chairman of AFI Development, said:

"We are pleased to report that AFI Development has continued to deliver growth in revenue and profits, driven by the performance of our four ongoing residential projects - Odinburg, AFI Residence Paveletskaya, Bolshaya Pochtovaya and Botanic Garden. As we look ahead to the full year, we remain alert the issues posed by a weaker Russian rouble which could impact the value of our property portfolio and the threat of additional US sanctions. However, we believe that with our high-calibre projects, we are well placed to maintain the positive momentum in our performance into the final quarter."

9M 2018 Results Conference Call:

AFI Development will hold a conference call for analysts and investors to discuss its 9M 2018 financial results on Wednesday, 21 November 2018.

Details for the conference call are as follows:

Please dial in 5-10 minutes prior to the start time.

Prior to the conference call, the 9M 2018 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 21 November 2018 by 10am GMT (1pm Moscow time).

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For further information, please contact:

AFI Development, +7 495 796 9988

Ilya Kutnov, Corporate Affairs/Investments Director (Responsible for arranging the release of this announcement)

Citigate Dewe Rogerson, London +44 20 7638 9571

Sandra Novakov

Lucy Eyles

This announcement contains inside information.

About AFI Development

Established in 2001, AFI Development is one of the leading real estate development companies operating in Russia.

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 the 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 statement

In the third quarter of 2018, a weaker rouble increased inflationary expectations, which in turn caused the Russian Central Bank to raise its key lending rate by 25 basis points to 7.5% in September 2018. Furthermore, with some stabilisation in the Russian economy, the threat of new US sanctions remains a risk for consideration by all companies operating in Russia.

AFI Development continues to report growth in revenue and profits, mainly driven by our four ongoing residential projects. Our residential sales contributed $112.4 million in revenue, reflecting both changes in our recognition of revenue now that we report in accordance with IFRS 15 and the delivery of apartments to customers in Phase I of AFI Residence Paveletskaya. Rental and hotel operating income also increased to US$93.9 million for the nine-month period, a 10% year-on-year increase, with AFIMALL City remaining the main contributor.

Our gross profit for 9M 2018 increased 63% year-on-year to US$72.1 million, reflecting stronger residential revenue and higher profitability of our residential projects in Moscow (relative to Odinburg in the Moscow region, which accounted for all of our recognised residential sales revenue in 2017).

We recorded a net profit of US$96.6 million for the nine-month period. This is a significant increase compared to 9M 2017 (US$0.6 million), largely driven by valuation and foreign exchange gains.

We remain cautiously optimistic regarding the market environment for both our residential and commercial projects. We believe that with our high-quality, competitive projects, we are well placed to generate robust revenues and profits in the coming years.

Projects update

AFIMALL City

The continued improvement in the performance of AFIMALL City is reflected in the 8% year-on-year increase in revenue to US$64.7 million for the nine-month period, and a 13% year-on-year increase in NOI to US$50.3 million. Occupancy at the end of Q3 was 92%.

Odinburg

At the Odinburg residential development, the construction of Building 3 (phase II) has commenced. Building 3 (Phase 1) and Building 6 (Phase II) are under construction and currently being marketed to customers. Building 6 is scheduled for delivery in Q1 2019.

As of 7 November 2018, 685 apartments (96% of total) were sold in Building 2, 420 (46% of total) in Building 3 (Phase I) and 161 (83% of total) in Building 6.

AFI Residence Paveletskaya

The delivery of Phase I apartments to customers is now complete. Meanwhile, construction work and the marketing of apartments and special units in Phase II continue to plan, with Phase II scheduled for delivery in Q1 2019. As of 7 November 2018, 503 contracts for pre-sales of both apartments and "special units" have been signed (79% of Phase I and Phase II combined).

Bolshaya Pochtovaya

During the nine-month period ended 30 September 2018, the construction and marketing of the project progressed according to plan and as of 7 November 2018, 191 apartments (47% of Phase I and Phase II combined) had been pre-sold to customers.

Botanic Garden

Construction work and pre-sales are also progressing at Botanic Garden. As of 7 November 2018, 224 apartments (28% of Phase I) have been pre-sold to customers.

Aquamarine III Business Centre (Ozerkovskaya III)

In Q1 2018, the Company successfully completed the disposal of Buildings 2 and 4 to one of the leading Russian banks for circa US$135 million. AFI Development currently owns one remaining building in the complex (GBA 18,805 sq.m, including underground parking), which is leased to Deutsche Bank, Brown-Forman and other tenants.

Subsequent events

1. On 14 November 2018, the Company converted its existing US dollar denominated loans, provided by Bank VTB PJSC at the Plaza Spa Kislovodsk and Plaza Spa Zheleznovodsk projects, into euros at a flat interest rate of 4.2% per annum. The three loans (two at Plaza Spa Kislovodsk and one at Plaza Spa Zheleznovodsk) will have a combined principal of approximately EUR39 million, the outstanding dollar denominated interest has been paid at the date of conversion. The main terms of the loans, except for currency and interest rate, remain unchanged.

2. On 19 November 2018, the Board of Directors of AFI Development accepted the resignation of Mr Mark Groysman from the position of Executive Director, effective 1 December 2018. Mr Groysman's services on the Board were planned as an interim measure and his resignation follows a new appointment to the Board. Mr. Groysman will continue to serve as the Chief Executive Officer ('CEO') of AFI RUS LLC. At the same meeting, the Board appointed Mr Avraham Novogrocki to replace Mr Groysman with such appointment being effective from 1 December 2018.

Mr Novogrocki previously served on the Company's Board between 2012 and 2016. Mr Novogrocki was, until September 2018, CEO of Africa Israel Investments Ltd, a company listed on the Tel-Aviv Stock Exchange in Israel. Prior to assuming the CEO role at Africa Israel Investments Ltd, Mr Novogrocki served as CEO of its subsidiaries, namely Africa Israel Industries Ltd (from 2008 to 2012) and Packer Steel Industries Ltd (from 2007 to 2012), as well as Deputy CEO and CFO of Africa Israel Industries Ltd. Mr Novogrocki holds an MBA and a BA in Economics and Business Administration from the Bar-Ilan University, Israel.

NOT REVIEWED BY AUDITORS

SUMMARY OF FINANCIAL RESULTS

For the period from 1 January 2018 to 30 September 2018

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the period from 1 January 2018 to 30 September 2018

The unaudited summary of financial results was approved by the Board of Directors on 19 November 2018.

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 September 2018

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 January 2018 to 30 September 2018

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

For the period from 1 January 2018 to 30 September 2018

NOTES TO THE UNAUDITED SUMMARY OF FINANCIAL RESULTS

For the period from 1 January 2018 to 30 September 2018

1. SUMMARY OF OPERATION

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. As of 7 September 2016 the Company is a 64.88% subsidiary of Flotonic Limited, a private holding company registered in Cyprus, 100% owned by Mr Lev Leviev. Prior to that, the Company was a 64.88% subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed on 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.

This summary of financial results comprises the Company and its subsidiaries (together referred to as the "Group"). The principal activity of the Group is real estate investment and development.

The summary of financial results was not audited. The amounts are based on the Group's financial information, which is prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU") and the Group's accounting policy, while the disclosures and presentation are not in compliance with IFRSs, specifically with IAS 34 "Interim Financial Reporting" and IAS 1 "Presentation of Financial Statements".

Exchange rates

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

Russian Rubles % change % change

As of: for US$1 nine months year

30 September 2018 65.5906 13.1 13.9

31 December 2017 57.6002 (5.0)

30 September 2017 58.0169 (4.4)

Average rate during:

Nine-month period ended 30 September 2018 61.4358 5.3

Nine-month period ended 30 September 2017 58.3344 (14.7)

2. REVENUE

\* The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018.

3. ADMINISTRATIVE EXPENSES

4. OPERATING EXPENSES

5. FINANCE COST AND FINANCE INCOME

6. TAX EXPENSE / (BENEFIT)

7. INVESTMENT PROPERTY

Reconciliation of carrying amount

The fair value adjustment in investment property is mainly related to the weakening of the Russian Rouble to the US Dollar by 13.9% during the nine months of 2018.

The Company assessed that the fair value of the properties has not materially changed since 31 December 2017, when a valuation by external appraisers took place, as there were no significant changes in the macroeconomic conditions in Russia. The same applies for investment property under development. See note 8 below.

8. INVESTMENT PROPERTY UNDER DEVELOPMENT

The fair value adjustment in investment property under development is mainly related to the weakening of the Russian Rouble to the US Dollar by 13.9% during the nine months of 2018.

The Company assessed that the fair value of the properties has not materially changed since 31 December 2017, when a valuation by external appraisers took place, as there were no significant changes in the macroeconomic conditions in Russia.

9. PROPERTY, PLANT AND EQUIPMENT

10. TRADING PROPERTIES

Trading properties comprise unsold apartments and parking spaces. The transfer from trading properties under construction represents the completion of the construction of a number of flats, offices and parking places of "AFI Residence Paveletskaya" project during the nine months period of 2018, and of "Odinburg" project during the year 2017.

The amount recognised to cost of sales of trading properties represents the sale of completed flats or parking places recognised at a point in time. For the year ended 31 December 2017 this amount represents the amount transferred to the income statements upon transferring of the rights to the buyers according to the signed acts of transfer in accordance with the previous accounting policy as per IAS18.

11. TRADING PROPERTIES UNDER CONSTRUCTION

\* The Group has adopted IFRS 15 Revenue from Contracts with Customers as from 1 January 2018.

Trading properties under construction comprise "Odinburg", "AFI Residence Paveletskaya", "Botanic Garden" and "Bolshaya Pochtovaya" projects that involve primarily the construction of residential properties.

The amount recognised to cost of sales of trading properties, represents the cost incurred to date for the construction of the apartments and flats which were sold but not yet completed based on the new standard IFRS 15 adopted as from 1 January 2018.

12. TRADE AND OTHER RECEIVABLES

Trade receivables net

Trade receivables are presented net of an accumulated provision for doubtful debts and unrecognised revenue of US$8,125 thousand (31/12/2017: US$10,522 thousand).

13. CASH AND CASH EQUIVALENTS

14. LOANS AND BORROWINGS

The following changes to the loans took place during the nine-month period ended 30 September 2018:

A new loan facility was acquired by one of the Group's subsidiaries, Bellgate Construction Ltd ("Bellgate"), based on a loan agreement signed on the 28 December 2017. This new loan facility was used to refinance the previous loan from VTB Bank JSC ("VTB") signed on 22 June 2012 with a maturity date in April 2018 and was also used to repay the remainder amount of US$83 million, of Ozerkovskaya III loan which expired in January 2018. Bellgate received the new loan in five tranches, during January and February 2018, in Euros and in Russian Rubles. The blended interest rate on the new loan is circa 5.6% (assuming current EUR/RUR exchange rate and current Russian Central Bank key lending rate). The interest and the principal of the new loan are to be paid quarterly, while the term of the loan is 5 years.

In January 2018, the Company's subsidiary MKPK PJSC (the owner of the AFI Residence Paveletskaya Project) received a loan from VTB Bank PJSC in the amount of RUR711 million to refinance the previously incurred costs for the construction of the project. The loan bears floating interest rate of the Russian Central Bank key lending rate + 1.5%. The principal on the loan is payable monthly, while the interest is payable quarterly. The loan was fully repaid in June 2018.

15. TRADE AND OTHER PAYABLES

Provision represents the estimated cost of construction of common use areas of the Odinburg project such as hospital and school which is an obligation of the Group to build and make available for use by the residents.

16. SUBSEQUENT EVENTS

On 14 November 2018 the Company converted its existing US dollar denominated loans provided by Bank VTB PJSC at the Plaza Spa Kislovodsk and Plaza Spa Zheleznovodsk projects into euros, at a flat interest rate of 4.2% per annum. The three loans (two at Plaza Spa Kislovodsk and one at Plaza Spa Zheleznovodsk) will have a combined principal of about EUR39 million, the outstanding dollar denominated interest has been paid at the date of conversion. The main terms of the loans, except for currency and interest rate, did not change.

On 19 November 2018 the Board of Directors of AFI Development accepted the resignation of Mr Mark Groysman from the position of executive director effective 1 December 2018. Mr Groysman's services on the Board were planned as an interim measure and his resignation follows a new appointment to the Board. Mr. Groysman will continue to serve as the chief executive officer of AFI RUS LLC. At the same meeting, the Board appointed Mr Avraham Novogrocki as a non-executive director to replace Mr Groysman with such appointment being effective as from 1 December 2018.

Mr Novogrocki previously served on the Company's Board between 2012 and 2016. Mr Novogrocki was, until September 2018, CEO of Africa Israel Investments Ltd (a company listed on the Tel-Aviv Stock Exchange, Israel). Prior to assuming the CEO role at Africa Israel Investments Ltd, Mr Novogrocki served as CEO of its subsidiaries, namely Africa Israel Industries Ltd. (from 2008 to 2012) and Packer Steel Industries Ltd. (from 2007 to 2012), as well as Deputy CEO and CFO of Africa Israel Industries Ltd. Mr Novogrocki holds a MBA and a BA in Economics and Business Administration from the Bar-Ilan University, Israel.