Results for the nine months to 30 September 2019

 THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

26 November 2019 

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

RESULTS FOR THE NINE MONTHS TO 30 SEPTEMBER 2019 

Pace of residential sales affected by challenging market conditions

AFI Development, a leading real estate company focused on developing property in Russia, today announces its financial results for the six months ended 30 September 2019.

9M 2019 financial highlights

9M 2019 operational highlights

Commenting on today's announcement, Eli Avrahampour, Chairman of AFI Development, said:

"I report that, despite a slowdown in residential sales in the third quarter, we delivered another solid set of results for the first nine months of 2019.

The positive momentum in our revenues and gross profit is largely attributable to the recognition of residential pre-sales and the stable performance of the yielding portfolio.

Looking ahead, the pace of sales across our residential portfolio remains subject to volatile market conditions with continuing uncertainty around the outlook for the Russian economy and, in turn, its real estate sector."

9M 2019 Results Conference Call:

AFI Development will hold a conference call for analysts and investors to discuss its 9M 2019 financial results on Wednesday, 27 November 2019.

Details for the conference call are as follows:

To take part in the conference call, please dial in approximately 5 minutes before the start of the event.

Prior to the conference call, the 9M 2019 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 27 November 2019 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

While our 9M 2019 performance is satisfactory in general, the pace of our residential sales in the third quarter was somewhat slower than in the half of the year. Our residential revenue in Q3 2019 was US$39.8 million, compared to US$62.5 million in Q1 and US$54.1 million in Q2. We explain this mainly by increasing competition in the residential sector.

Sales at our Odinburg and Botanic Garden projects, in particular, were affected by more intense competition in their respective locations. However, bringing the development of our key residential projects (Odinburg, AFI Residence Paveletskaya, Bolshaya Pochtovaya and Botanic Garden) near completion allowed us to recognise revenues of US$254.4 million and a gross profit of US$138.1 million.

Rental and hotel operating income was broadly unchanged year-on-year at US$94.9 million (9M 2018: US$93.9 million).

Projects update

AFIMALL City

Occupancy at the end of the third quarter increased marginally to 91% with the NOI for the 9M 2019 period at US$52.1 million.

Odinburg

At the Odinburg residential development, Building 6 (Phase II) was state-commissioned in May 2019 and the delivery of its presold apartments to customers is now complete. Construction works remain underway at Building 3 (Phase I) and Building 3 (Phase II). As of 18 November 2019, the number of signed sale contracts stood at 810 (88% of total) in Building 3 (Phase I), 150 (11% of total) in Building 3 (Phase II) and 217 (97% of total) in Building 6.

AFI Residence Paveletskaya

Phase II of the development was state-commissioned in May 2019 and the transfer of apartments to customers is now complete. The focus in construction and presale of apartments is now on Phase III of the development. As of 18 November 2019, 625 contracts for the sales and presales of apartments and "special units" had been signed (78% of Phase I, Phase II and Phase III combined).

Bolshaya Pochtovaya

The presales and marketing are ongoing in all three phases of the project. As of 18 November 2019, 347 apartments (55% of Phases I, II and III combined) had been pre-sold to customers.

Botanic Garden

In September 2019 the Company successfully state-commissioned Phase I of the development, and transfer of pre-sold apartments to customers is ongoing. As of 18 November 2019, 434 apartments (54% of Phase I) had been pre-sold to customers.

Cash Offers by Flotonic Limited for AFI Development

Cash offers for AFI Development by its controlling shareholder, Flotonic Limited, were announced on 25 October 2019 and the offer document was published on 19 November 2019. For details please refer to the offer document which can be located on the Company's website at https://www.afi-development.com/en/

SUMMARY OF FINANCIAL RESULTS

For the period from 1 January 2019 to 30 September 2019

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the period from 1 January 2019 to 30 September 2019

The unaudited summary of financial results was approved by the Board of Directors on 25 November 2019.

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 September 2019

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 January 2019 to 30 September 2019

NOTES TO THE UNAUDITED SUMMARY OF FINANCIAL RESULTS

For the period from 1 January 2019 to 30 September 2019

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:

2. REVENUE

3. OPERATING EXPENSES

4. ADMINISTRATIVE EXPENSES

5. FINANCE COST AND FINANCE INCOME

* In the current period the Group presented significant financial component from contracts with customers in the amount of US$10,486 in the finance cost. In prior period significant finance component expense was capitalised in the trading properties under development and was then transferred to cost of sales in the period it was accrued as costs to fulfil the contract.

6. TAX EXPENSE / (BENEFIT)

7. INVESTMENT PROPERTY

The fair value adjustment in investment property is mainly related to the strengthening of the Russian Rouble to the US Dollar by 7.3% during the nine months of 2019.

The disposal during the nine-month period of 2019 represents the sale of the last remaining office building of the Aquamarine III Business Centre owned by Krown Investments LLC to one of the leading Russian banks for a total consideration of 4.4 billion Russian roubles, equivalent to US$68.7 million, net of applicable VAT, realising a profit before tax of US$10,220 thousand.

The Company assessed that the fair value of the properties has not materially changed since 30 June 2019, 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 is mainly related to the strengthening of the Russian Rouble to the US Dollar by 7.3% during the nine months of 2019.

The Company assessed that the fair value of the properties has not materially changed since 30 June 2019, 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 apartments, offices and parking places of "AFI Residence Paveletskaya" project (Phase 1 and 2 delivered during 2018-2019) and "Odinburg" project (Building 6 delivered during 2019).

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 apartments which were sold but not yet completed based on the 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$5,461 thousand (31/12/2018: US$7,686 thousand).

Receivables from contracts with customers 

Receivables from contracts with customers represent receivables from customers for residential

units sold were the revenue recognised over time is higher than the amount paid by customers, up to the reporting date.

Long-term trade and other receivables

Long-term prepayments represent prepaid amount to a third party developer to construct and

transfer to the Group a non-residential building.

13. CASH AND CASH EQUIVALENTS

14. OTHER INVESTMENTS

By 30 September 2019 Other investments comprised US$11,396 thousand, whereas US$5,353 thousand were invested in long-term equity instruments and US$6,043 were invested in short-term easily convertible into cash instruments. Listed debt securities have been matured in February 2019.

15. LOANS AND BORROWINGS

The outstanding loans at 30 September 2019 were as follows:

1) A secured loan from VTB Bank JSC («VTB») acquired by one of the Group's subsidiaries, Bellgate Constructions Ltd («Bellgate»), based on a loan agreement signed on the 28 December 2017. This loan was used to refinance the previous loan and Ozerkovskaya III loan from VTB. Bellgate received the loan in five tranches, during January and February 2018, in Euros and Russian Rubles. The blended interest rate on the loan is circa 5.54% per annum (assuming EUR/RUR exchange rate and Russian Central Bank key lending rate as at 30.09.2019). The interest and the principal of the loan are to be paid quarterly, while the term of the loan is 5 years. In June 2019 Bellgate made a partial early repayment of the loan of EUR60 million (equivalent to US$68 million).

2) Secured loans from VTB acquired by Group's subsidiaries, Sanatorium Plaza Kislovodsk and Sanatorium PlazaSPA Zheleznovodsk (Sanatoriums), based on loan agreements signed on the 12 October 2018. The loans were used to refinance the previous loans of Sanatoriums from VTB (which were received to finance the acquisition of the additional 50% stake in the Sanatorium Plaza Kislovodsk and to repay intra group loans). Sanatoriums received the loans in Euros. The interest rate on the loans is 4.2% per annum. The interest and the principal of the loans are to be paid quarterly with a balloon payment of circa 60% at maturity, while the terms of the loans are up to 4 years. In May 2019 the Group made a partial early repayment of the loan of EUR35 million (equivalent to US$39 million).

The financial covenants in the loan agreements remained the same as described in the last annual consolidated financial statements. The Group has complied with the loan covenants during nine months ended 30 September 2019.

15. TRADE AND OTHER PAYABLES