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AFI Development PLC

17 March 2015

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION

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

17 March 2015

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014

SOLID OPERATIONAL RESULTS OFFSET BY VALUATION LOSSES

AFI Development, a leading real estate company focused on developing property in Russia, has today announced its preliminary audited financial results for the year ended 31 December 2014.

Financial highlights:

· Despite a severe rouble depreciation against the dollar, rental income and income from hotel operations decreased marginally by 2% year-on-year to US$141.4 million (compared to US$144.5 million for 2013)

- AFIMALL City contribution amounted to US$107.0 million (compared to US$103.9 million for 2013), a 3% increase year-on-year despite a difficult macroeconomic environment

· In 2014 AFI Development incurred a net loss of US$287.3 million, compared to a net profit of US$103.9 in 2013, mainly due to valuation losses of US$220.7 million in Q4 2014;

· Gross profit for 2014 was US$49.9 million, compared to US$76.3 million in 2013 (the 2013 results were largely affected by the completion of a disposal transaction of parking spaces at AFIMALL City to VTB Bank JSC)

· Cash position remains strong at US$93.3 million in cash, cash equivalents and marketable securities as at 31 December 2014, compared to US$203.3 million as at 31 December 2013

· Gross Asset Value reduced to US$2.0 billion as at 31 December 2014 (compared to US$2.4 billion as at 31 December 2013), due to sharp valuation decreases across the portfolio owing to deteriorating macroeconomic conditions

Operational highlights:

· AFIMALL City operations continued to demonstrate positive dynamics with revenues rising 3% year-on-year to US$107.0 million

- NOI was US$83.0 million for the year, representing growth of 20% year-on-year

- Occupancy levels at 85% of total leasable area

· Sales of apartments continue at Odinburg with 594 sale contracts signed (as of 16 March 2015)

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

"There is no doubt that 2014 has been a challenging year for AFI Development and the Russian market as a whole. Macroeconomic headwinds and difficult geopolitical situation have inevitably affected demand for real estate assets across the country, including our core market of Moscow. Our results reflect the negative adjustments to the valuation of our portfolio caused by macroeconomic trends and the deteriorating risk profile of the country as a whole. Operationally, however, our results remain solid driven by our unwavering commitment to the highest standards of design, construction and quality of customer service. Although we remain confident in the long-term opportunities in our market, we expect operating conditions to remain challenging throughout 2015."

FY 2014 Results Conference Call

AFI Development will hold a conference call for analysts and investors to discuss its full year 2014 results, following their publication.

The details for the conference call are as follows:


Date:	Wednesday, 18 March 2015

Time:	15:00 GMT (18:00 Moscow)



Dial-in Tel:	International: UK toll free: US toll-free: Russia toll-free:	+44 (0) 20 3003 2666 0808 109 0700 1 866 966 5335 8 10 8002 4902044

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.

For further information, please contact:

AFI Development +7 495 796 9988

Ilya Kutnov

Ekaterina Shubina

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Sandra Novakov

Shelly 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.

Forward-looking Statements

This document and the documents following may contain certain "forward-looking statements" with respect to the Company's financial condition, results of operations and business, and certain of the Company's plans and objectives with respect to these items.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", "due", "could", "may", "should", "expects", "believes", "intends", "plans", "targets", "goal" or "estimates." By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.

There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies and markets in which the Company operates; changes in the regulatory and competition frameworks in which the Company operates; changes in the markets from which the Company raises finance; the impact of legal or other proceedings against or which affect the Company; and changes in interest and exchange rates.

Any written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to the Company or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. The Company does not intend to update any forward-looking statements.

Chairman and Executive Director's Joint Statement

The year 2014 was marked by a serious deterioration of macroeconomic conditions in Russia. There were international sanctions against Russian state-controlled and private companies, including major banks. At the same time, the price of Urals crude oil, the main Russian export commodity, has declined more than twofold over the year. The combination of these factors caused significant depreciation of the Russian rouble versus the US dollar, an increase in inflation and a negative GDP growth rate forecast for 2015[1]. Additionally, the Russian Central Bank decided in December 2014 to increase its key lending rate from 10.5% to 17% (reduced to 15% in January 2015 and to 14% in March 2015), causing a sharp rise in rouble borrowing costs to levels unviable for most corporate and private borrowers.

These developments have started to affect the real estate market in Russia and its capital Moscow, which is the key market for AFI Development. Towards the end of 2014, the vacancy rate in class A office buildings increased to 28.4%, while across A and B class office space it reached 16.7%[2]. Whilst growth in vacancy rates in the retail segment was less pronounced (6% by the end of 2014), analysts note a 20% decrease in average shopping centre rents in dollar terms[3]. Following severe rouble depreciation, office and retail tenants started to experience difficulties in paying dollar-denominated rents, causing many market analysts to forecast a "de-dollarisation" trend across the Moscow commercial real estate market.

The main effect of the difficult market environment on our financial results was significant downward revision of portfolio values in the fourth quarter of 2014. The value of our portfolio of properties was reduced from US$2.4 billion at the end of 2013 to US$2.0 billion at the end of 2014. The significant devaluation of the rouble in relation to the dollar during the fourth quarter caused a decrease in net operating income projections. At the same time, the recent downgrades of the Russian Federation sovereign credit rating by Standard & Poor's and Moody's triggered an increase in the risk-free rate and a corresponding increase in the discount rate employed in DCF valuation models.

The difficult current macroeconomic environment has also caused AFI Development to change some of its development plans. For example, we have decided to postpone the development of Kossinskaya as an apparel and fashion wholesale trade centre due to uncertain levels of potential demand. For other projects currently in the active development stage, such as Tverskaya Plaza Ic, we are looking to obtain debt financing at favourable terms and for the market environment to improve before moving forward. At the same time, development continues to plan at our residential project Odinburg, where we are close to completing our first building, whith apartment pre-sales ongoing.

Our key yielding project, AFIMALL City, currently valued at US$1 billion, continued to improve its operational performance during the year. Sustained strong growth in occupancy levels and the ability to attract new, high quality tenants reflect the high popularity achieved by the Mall. With increasing ease of access due to continued improvements in transport links and the overall development of the "Moscow City" district, AFIMALL City's attractiveness is expected to show further growth in the years to come.

We are pleased to report that, despite difficult market conditions, our rental income for 2014 is down by only 2%. This is driven by the strong performance of AFIMALL City. However, mainly as a result of a valuation loss of US$220.7 million in Q4 2014, we incurred a net loss of US$286.4 million for the year.

Looking to 2015, we remain cautious regarding the outlook for our key market segments. Based on negative expectations with respect to economic growth in Russia and continued lack of geopolitical stability, we expect demand for real estate assets across the capital to decline throughout the year. We continue to monitor market trends and to adapt our strategy to ensure our efforts are focused on the most attractive developments, whilst ensuring our yielding assets maintain their solid operational performance.

Valuation

As at 31 December 2014, based on the Cushman & Wakefield LLC ("C&W") independent appraisers'report, the value of AFI Development's portfolio of investment properties stood at US$1.37 billion, while the value of the portfolio of investment property under development stood at US$0.4 billion.

Consequently, the total value of the Company's assets, mainly based on independent valuation as of 31 December 2014, was US$2.0 billion, compared to US$2.4 million as at 31 December 2013.

The main reasons behind the decrease in the portfolio valuation were as follows:

1. Devaluation of the national currency during the year and a difficult macroeconomic situation driven by imposed economic sanctions

2. As a result of the slowdown in the national economy and increase in country risks, capitalisation and discount rates and projection of future cash flows within the portfolio valuation were revised by C&W individually for each project

For additional information, please refer to the "Portfolio Valuation" section in the Management Discussion and Analysis (the "MD&A").

Liquidity

We completed 2014 with a strong liquidity position of approximately US$93.3 million of cash, cash equivalents and marketable securities on our balance sheet and a debt[4] to equity level of 53%. This strong position reflects the Company's ability to successfully balance liquidity requirements from a number of sources.

Our financing strategy aims to maximise the amount of debt financing for projects under construction while maintaining healthy loan-to-value levels. After delivery and commissioning, we aim to refinance the properties at more favourable terms, including longer amortisation periods, lower interest rates and higher principal balloon payments. Property rights and shares of property holding companies are mainly used as collateral for the debt. We strongly prefer, whenever possible, to use non-recourse project level financing.

For additional information, please refer to the "Liquidity" section of the MD&A.

Key developments since financial year end

In January 2015, the Company subsidiary, Krown Investments LLC ("Krown") signed an addendum to the loan facility agreement with VTB Bank OJSC ("the Bank), extending the term of the loan to 26 January 2018. Krown, which owns the Aquamarine III (Ozerkovskaya III) office complex, had an existing loan from the Bank maturing on 26 January 2015, of which US$ 205 million was outstanding. In addition to extending the term of the loan, the new addendum amended the payment schedule and interest rate conditions of the loan agreement and introduced new covenants. The payment schedule anticipates repayments of the principal starting from Q4 2015, while the new covenants include a Debt Service Coverage Ratio of 1.2 applicable from Q4 2015 and a Loan to Value ratio of 65%. In line with the addendum, on 26th January 2015 Krown paid US$10 million to the Bank as partial repayment of the outstanding loan amount, thus reducing the total to US$195 million. About 90% of the principal is to be paid at maturity.

Portfolio Update

AFIMALL City

During 2014, AFIMALL City reported a strong increase in occupancy levels, reaching 85% vs 76% in December 2013. During its three years of full operation AFIMALL has become one of the most popular shopping centres located in central Moscow, with a quality tenant mix and comfortable leisure, dining and entertainment zones.

Many international retailers chose AFIMALL for their first Russian shops. Forever 21, H&M Home, Crate&Barrel Laura Ashley, and Mirko Botticelli all opened their AFIMALL outlets during 2014. Additionally, the "Fizika" fitness chain opened its two-level club at AFIMALL in 2014, attracting additional visitors to the Mall.

Regarding the claim, filed in August 2014 by the Prosecution Office of the Moscow Central District on fire safety issues, AFI Development confirms that the works requested by the State Fire Safety Control Authorities have been completed by the specified deadlines, following which the Prosecution Office withdrew its claim in February 2015.

AQUAMARINE III (OZERKOVSKAYA III)

Following the disposal of Building 1 to diamond miner Alrosa, AFI Development retains title to the remaining three buildings of the complex, which have a combined GBA of 61,772 sq.m. and GLA of 46,247 sq.m. The Company is currently in negotiations with potential buyers and tenants.

HOTELS

AFI Development's hospitality portfolio, which consists of one Moscow city hotel (Aquamarine) and two resorts in the Caucasus mineral waters region (Plaza Spa Kislovodsk and Plaza Spa Zheleznovodsk), has produced solid results in 2014, taking into account the difficult macroeconomic environment.

TVERSKAYA PLAZA Ic

Following the registration of a 10-year land lease agreement, the Company has successfully finalised the development concept of this Class A office complex, received the necessary construction permit and completed all pre-construction works. AFI Developments plans to start construction of this project as soon as it has secured debt financing on favourable terms and the market situation improves.

KOSSINSKAYA - EXPOLON

In November 2014, AFI Development's Board of Directors decided to place on hold and reconsider further implementation of the development concept of Kossinskaya as an apparel and fashion wholesale trade centre named "Expolon", in light of the current economic situation in Russia.

ODINBURG

Construction works of Phase 1 ("Korona") of this development are currently underway. The first building within this phase is close to completion, with final facade works taking place. Construction of the second building began in December 2014. Sales of apartments are progressing in line with the market situation. As of the date of publication of this report, 594 contracts for sales of apartments have been signed.

PAVELETSKAYA PHASE II

During 2014, AFI Development finalised the planning stage of the project. The Company intends to start pre-construction works during H2 2015, subject to improvement in the market situation.

BOLSHAYA POCHTOVAYA

AFI Development is currently developing the design of the project and aims to obtain a construction permit during 2015.

BOTANIC GARDEN

In December 2014, AFI Development restored the Botanic Garden project on its balance sheet, following liquidation of former primary investor, Novoe Koltso Moskvy OJSC ("NKM"), as risks related to the bankruptcy of NKM were removed. The Company has completed the planning of the residential complex and received the Moscow construction authorities' approval for the project. In addition, the necessary construction permit was obtained in December 2014.

Market Overview - General Moscow Real Estate

Macroeconomic environment

During the second half of 2014, Russia was faced with difficult market conditions including decreasing oil prices and growing risk perceptions of the country, leading to a 43% depreciation of the rouble against the US dollar during Q4 alone. Economic growth is widely expected to suffer further during 2015.

Towards the end of 2014, a weak rouble put pressure on inflation, which reached 11.4% year-on-year in December 2014. As a result of this anticipated increase in inflation, consumers aggressively purchased goods which allowed retail sales to remain firm in Q4 2014 at 5.3%. However, looking ahead to 2015, this trend is not anticipated to continue and a 4% contraction in retail sales over 2014 levels is expected.

During 2014, the share of foreign investors in Russian real estate decreased to 24%, compared to 45% in 2013, with local investors largely dominating the market. This trend is expected to continue during 2015 with local players having more comfort in the market than others; however, foreign investors could be attracted back to the market given the lower cost of debt financing if risk appetites allow.

[Source: Russian Investment Market, Q4 2014, JLL; Cushman & Wakefield Report, Marketbeat: Russia; Economist Intelligence Unit Report]

Moscow office market

The overall volume of project completions in 2014 increased by 58% to 1.4m sq.m., representing the highest levels in five years, with over 50% meeting Class A requirements, amounting to the highest ever volume on record.

Driven by the considerable volume of new supply as well a decreasing demand, the average vacancy rate for class A and B combined further increased to 16.7% from 13.7% a year earlier, with vacancy rates in Class A buildings growing at a particularly fast rate to 28.4%, from 18.2% in 2013.

Prime rents ranged from USD750-900 per sq.m. per annum, while Class A rents ranged between US$450 and US$650 and Class B+ rents ranged between US$275-450 per sq. m. per annum. The rouble devaluation during Q4 2014 made companies look for alternatives to US dollar denominated rental rates and de-dollarisation of the Moscow office market is expected to be the main trend in 2015 as rents remain under pressure and are expected to be 10-15% lower.

Looking to 2015, it is expected that about 1 million sq.m. of new office space will be supplied, with the Moscow City area accounting for approximately 25% of that figure. That said, many developers have not yet revised construction plans based on current challenges within the market and it is expected that the pipeline could be reduced further.

[Source: Moscow Office Market View Q4 2014, JLL; Marketbeat Russia, Office Snapshot Q4 2014, Cushman & Wakefield]

Moscow Retail Market

14 shopping centres, including Europe's biggest mall, AviaPark, opened in Moscow during the year. It is expected that during 2015, completions will reach 1.9 million sq.m. as shopping centre supply in Moscow increases by 500,000 sq.m., largely due to a significant number of completions that were expected in 2014 being pushed to 2015.

By the end of 2014, average vacancy rates in Moscow's shopping centres had risen to highs of 6% due to the current economic climate. It is expected that rates will continue to rise to approximately 8% during 2015 as a result of lower retailer demand stemming from the weakening purchasing power of consumers.

Shopping centre rents in Moscow decreased by 20% during 2014 with average rents in the range of USD400-1,450 (per sq.m. per annum) and prime rates ranging between USD2,400 and USD4,500 (per sq.m. per annum). Rental rates are expected to continue to face pressure in 2015 as a result of increasing competition between shopping centres and demands for discounts from retailers. That said, desirable shopping centres will remain in demand with rents not anticipated to shrink significantly.

Looking ahead to 2015, retail sales in Russia are expected to contract by 4% as a result of increased cost of imported goods due to self-imposed sanctions and a devalued rouble negatively affecting consumer purchasing power.

[Source: Marketbeat Russia, Retail Snapshot Q4 2014, Cushman & Wakefield; Retail Market Overview Q4-2014- Shopping Centres, JLL]

Moscow and Moscow Region Residential Market

Moscow - During 2014, approximately 3.3 million sq.m. of residential space was delivered in Moscow, including circa 1.6 million sq.m commissioned in "new Moscow" and about the same area commissioned in "old Moscow". The focus of development activity is gradually shifting to "new Moscow" territories.

The analysis of the structure of the multi-storey residential market reveals business class as the most popular segment among developers, accounting for 49.9% of the supply volume during 2014. Comfort class comes second with 33.3% in the total volume. Premium class occupies 14.3% coming third. Economy class proved to be the least popular with only 3.3% of the whole volume of construction.

In 2014 the average weighted price on the primary residential market of "old" Moscow grew by 13.4% in Russian rouble terms as compared to 2013, to 217,910 RUR per sq m (excluding premium class and apartments). Prices in US dollar terms, however, dropped by 34% to 3,870 USD per sq.m. This is explained by the significant Russian rouble depreciation versus the US dollar during the year, which could not be counterbalanced by growth in the price of housing..

Moscow region - During 2014, there were 982 new buildings commissioned in the Moscow region (representing circa 8.255 million sq.m., an increase of 11.5% over 2013)

The average price per sq.m. in the Moscow region amounted to RUR 81 550 (circa US$1,462). By the year end, comfort class apartments reached RUR83 750 per sq.m. (circa US$ 1,475), whilst business class apartments were priced at RUR189 450 per sq.m. (circa US$3,337).The average price per sq.m. in the Odintsovo region was RUR 96,800 (circa US$1,705).

[Source: Report by Blackwood End of 2014, IntermarkSavills, Rosstat]

Board of Directors

The Directors of AFI Development as at the date of this announcement are as set out below:

Mr. Lev Leviev, Executive Chairman of the Board

Mr. Mark Groysman, Executive Director

Mr. Avraham Novogrocki, Non-Executive Director

Mr. Christakis Klerides, Senior Non-Executive Independent Director

Mr. Moshe Amit, Non-Executive Independent Director;

Mr. John Robert Camber Porter, Non-Executive Independent Director

Mr. Panayiotis Demetriou, Non-Executive Independent Director


Lev Leviev Executive Chairman of the Board	Mark Groysman Executive Director

17 March 2015

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Overview

As at 31 December 2014, the Company's portfolio consisted of 8 investment properties, 7 investment properties under development, 1 trading property under development, 1 inventory of real estate and 4 hotel projects. The portfolio comprises commercial projects focused on offices, shopping centres, hotels, mixed-use properties and residential projects in prime locations in Moscow. The total value of the Company's assets, based predominantly on independent valuation as of 31 December 2014, was US$2.0 billion[5]. About 68% of the assets book value is attributed to yielding properties.

Revenues for 2014 decreased by 29% year-on-year to US$144.1 million mainly due to the fact that the 2013 revenue was largely influenced by completion of the disposal transaction of 643 parking places to VTB Bank JSC in Q1 2013. AFI Development recorded a 35% year-on-year decrease in gross profit to US$49.9 million due to the same reason. Cash, cash equivalents and marketable securities decreased by 54% to US$93.3 million as at 31 December 2014 due to financing of construction works, performed in 2014, by own capital.

In 2014 AFI Development incurred net loss of US$287.3 million, compared to net profit of US$103.9 in 2013, mainly due to valuation loss of US$220.7 million in Q4 2014

Key Factors Affecting our Financial Results

Our results have been affected, and are expected to be affected in the future, by a variety of factors, including, but not limited to, the following:

Macroeconomic Factors

Our properties and projects are mainly located in Russia. As a result, Russian macroeconomic trends and country-specific risks significantly influence our performance.

The following table sets out certain macroeconomic information for Russia as of and for the dates indicated:


	Year ended 31 December 2014	Year ended 31 December 2013
Real Gross Domestic Product growth	0.5%	1.3%
Consumer prices	11.4%	6.5%

Source: The Economist Intelligence Unit. Rosstat

Company Specific Factors

The following factors affected our performance in 2014:

· In the beginning of 2014 the Company started active sales of apartments at Odinburg, which had a positive impact on the cash flows.

· In Q4 2014 the gross value of the Company portfolio of properties decreased from circa US$2.5 billion recorded at end-September 2014 to circa US$2.0 billion at year-end. The Company recorded a net valuation loss on investment properties, investment properties under development and inventory of real estate during Q4 2014 of circa US$210 million before taxes. The equity decreased in Q4 2014 in the amount of circa US$390 million. The decrease in portfolio value and the valuation loss and impairment were caused by negative developments in the macroeconomic environment in Russia, which resulted in several negative factors influencing valuation models across the portfolio of properties.

Key Portfolio Updates

YIELDING ASSETS

AFIMALL City

AFIMALL City is a major retail scheme located in the high-rise business district of Moscow, "Moscow-City". With a total GBA of nearly 283,182[6] sq.m. (including parking), and GLA of nearly 107,000 sq.m., the project has a shopping gallery of nearly 400 shops and an 11-screen movie theatre with a number of additional outstanding leisure facilities. AFIMALL City is one of Europe's largest and most ambitious retail developments in recent years. The Mall introduces a new standard of quality to the Russian retail sector and offers visitors a combined shopping, dining and entertainment experience unmatched in any other retail development in Moscow.

During 2014, AFIMALL City reported a strong increase in occupancy level, reaching 85% in December 2014 vs 76% in December 2013. During its three years of full operation AFIMALL has become one of the most popular shopping centres located in central Moscow with a quality tenant mix and comfortable leisure, dining and entertainment zones.

In the course of the year, AFIMALL became the leading Moscow shopping centre, selected by new-to-Russia brands for their first Russian shops. Forever 21, H&M Home, Crate&Barrel Laura Ashley, Mirko Botticelli all opened their AFIMALL outlets during 2014. Additionally, the "Fizika" fitness chain opened its two-level club at AFIMALL in 2014, attracting additional visitors to the Mall.

The new metro station "Delovoy Tsentr" was opened in January 2014, which, similar to "Vistavochnaya" station, provides direct access to AFIMALL. Over the next year, this station is planned to become the main connecting point for a new line which will link the densely populated residential districts Ramenky, Horoshevskiy, Savyolovsky and Maryina Roscha.

By 2017, transport infrastructure in the business district is expected to significantly improve, which will result in better accessibility and higher attractiveness of "Moscow City" amongst corporate tenants and office employees. The development environment of "Moscow City" continues to be a strong driver for the future traffic growth of AFIMALL City. AFIMALL is surrounded by completed office towers and projects under construction. According to CBRE, during 2013-2014 three new building have been completed, including Mercury City, Stalnaya Vershina (ex-Eurasia Tower) and OKO, adding almost 200, 000 sq.m. of space.

Notwithstanding that construction of surrounding buildings is still ongoing, AFIMALL is easy to reach from different directions: from office towers "Federation", "Naberezhnaya Tower" and "Capital City", as well as from Novotel, "Evolution" tower and the neighbouring ExpoCentre. In 2014, the management of AFIMALL launched a new navigation system, which helps visitors quickly and simply find their way to nearby parking or shops.

According to independent appraisers Cushman & Wakefield, the market value of AFIMALL City as of 31 December 2014 was US$1,000 million.

OZERKOVSKAYA III

Ozerkovskaya (Aquamarine) III is an office complex forming part of the "Aquamarine" mixed-use development, located on the Ozerkovskaya embankment in the very heart of the historical Zamoskvorechie district of Moscow. The project consists of three Class A buildings of 46,247 sq.m. of combined lettable space[7] and common underground parking for 446 cars . The project creates very attractive working conditions through state-of-the-art architecture, innovative design and efficient use of space. Due to these characteristics, "Aquamarine III" sets new standards for quality and an aspirational environment among Moscow's commercial developments.

AFI Development is in negotiations with potential buyers and tenants regarding selling or leasing the project either in full or in parts.

According to independent appraisers Cushman & Wakefield, the market value of the remaining buildings of the Complex as of 31 December 2014 was US$300 million.

HOTELS

The Company's portfolio includes three hospitality projects, one located in Moscow and the remaining two located in the Caucasus Mineral Waters region.

AQUAMARINE HOTEL

The Aquamarine Hotel is a modern, 4 star hotel located in the heart of Moscow. It is part of the company's mixed-use Aquamarine development, which also houses an A-class office centre Aquamarine III and completed elite residential complex Aquamarine II.

The Hotel provides high level services and offers 159 spacious rooms, a fitness-centre, spa-centre, bar, restaurant, and conference rooms. It is located in the Zamoskvorechie district which is a 20 minute walk from both the Kremlin and the Tretyakov Gallery and a 5 minute walk from the Novokuznetskaya and Tretyakovskaya metro stations. The Hotel has added to the infrastructure of the historical district and is convenient for both business travellers and tourists.

The hotel's performance in 2014 was negatively affected by the slowdown in international business activity in Moscow, more intense competition and rouble depreciation versus the dollar.

The balance sheet value of the project as of 31 December 2014 was US$17.3 million.

PLAZA SPA HOTEL ZHELEZNOVODSK

Plaza Spa Zheleznovodsk is a sanatorium project which was launched in the summer of 2012 and is located in the Zheleznovodsk, in the Caucasus mineral waters region. The hotel comprises 134 guest rooms on 9,526 sq.m. of gross buildable area. The spa provides diagnostic assessment and treatment of urological diseases.

During 2014 the hotel demonstrated growing occupancy, which reached an average of 69% for the year. The hotel benefited from the current trend of growing domestic tourism in Russia.

The balance sheet value of the project as of 31 December 2014 was US$12.2 million.

PLAZA SPA KISLOVODSK

The Plaza Spa is located in the city centre of Kislovodsk, in the Caucasus mineral waters region. The facility was put into operation in 2008 after a full reconstruction and now has a total of 275 rooms spread over 25,000 sq.m.

Today, the Plaza Spa Kislovodsk is a popular spa hotel which has established new standards of quality and hospitality for the entire region. It offers an extensive range of medical services focused on the treatment of cardiac diseases. Diagnostic and treatment equipment is continually updated and the staff regularly attend training sessions for new methods of treatment to aid rehabilitation of patients.

The balance sheet value of the Company share in the project (50%) as of 31 December 2014 was US$14.4 million.

DEVELOPMENT PROJECTS

Tverskaya Plaza Ic

Tverskaya Plaza Ic is a Class A office complex located in the cultural and business quarter of the Tverskoy sub-district. The complex is located within a 4-minute walk of Belorusskaya metro station, which serves as the main transport hub linking the city centre with one of Moscow's main airports - Sheremetievo International Airport. The project has a GBA of 61,810 sq.m. (including underground parking of approximately 467 parking spaces) and an estimated GLA of 37,035 sq.m.

Following the registration of a 10-year land lease agreement, the Company successfully finalised the development concept, received the necessary construction permit and completed all pre-construction works. AFI Developments plans to start construction of this project as soon as it has secured debt financing on favourable terms and the market situation improves.

Based on an independent valuation of the Company's portfolio by Cushman & Wakefield as of 31 December 2014, the fair value of Tverskaya Plaza Ic is US$87.7 million.

Tverskaya Plaza IV

Plaza IV is a Class A office complex with supporting ground level retail zones, located at 11, Gruzinky Val. The project has a GBA of 108,000 sq.m. (including underground parking) and an estimated GLA of 61,350 sq.m.

During 2014, the Company progressed with securing the land lease agreement with Moscow authorities.

Based on an independent valuation of the Company portfolio by Cushman & Wakefield as of 31 December 2014, the fair value of Plaza IV was US$107.1 million.

KOSSINSKAYA

Kossinskaya is mixed-use building totalling 111, 700 sqm with nine aboveground floors and a single underground level. The property was constructed in 2005. In November 2014, AFI Development's Board of Directors decided to place on hold and reconsider further implementation of the development concept of Kossinskaya as apparel and fashion wholesale trade centre "Expolon", in light of the current economic situation in Russia.

Based on an independent valuation of the Company portfolio by Cushman & Wakefield as of 31 December 2014, the fair value of Kossinskaya is US$ 53.7 million.

ODINBURG

In October 2013, AFI Development began construction at "Odinburg", one of the Company's largest residential projects with a total area of over 33 hectares located 11 km west of Moscow in the town Odintsovo.

The development is planned to include multi-functional infrastructure comprising of two schools, two kindergartens, a medical centre and other facilities.

The project involves construction of a multi-storey residential micro district consisting of two phases:

• Phase I - Construction of a 22-section residential building named Korona (Crown) and of the infrastructure for the kindergartens and schools. This will have a total sellable area of 145,059 sq.m. (2,652 apartments);

• Phase II - Construction of 8 residential buildings and of infrastructure for the kindergartens, schools and outdoor multi-level parking. This will have a total sellable area of of 307,931sq.m of 319,775 sq.m. (6,487 apartments). Each phase includes commercial premises on the ground floor that are planned to be sold to end users.

The construction works of Phase 1 ("Korona") are underway. Construction of the first building within this development is near completion, with final facade works taking place. The construction of the second building began in December 2014. Initial sales of apartments are progressing in line with the market situation. As of the date of publication of this report, 594 contracts for sales of apartments have been signed.

The balance sheet value of the project as of 31 December 2014 was US$133.0 million.

PAVELETSKAYA II

Paveletskaya Phase II is planned as a modern residential complex located on the Paveletskaya Embankment close to Moscow City centre. The project is located in the Danilovsky Subdistrict (the south administrative district of Moscow) and can be easily accessed by private or public transport.

Following the decision of the town-planning land committee ("GZK") and the land plot master-plan ("GPZU") GBA of the project is to comprise 151,373 sq.m., which includes 48,180 sq.m of residential area, circa 26,115 sq.m. of commercial area and 1760 units of underground parking.

During the 2014, AFI Development finalised the planning stage of the project. The Company intends to start pre-construction works during H2 2015.

Based on an independent valuation of the Company portfolio by Cushman & Wakefield as of 31 December 2014, the fair value of Paveletskaya Phase II is US$67.4 million.

BOLSHAYA POCHTOVAYA

Bolshaya Pochtovaya is a mixed-use project with predominantly residential use. It is located in an attractive neighbourhood in the central administrative district of Moscow. The area benefits from a developed infrastructure: transport, shops and cultural/leisure amenities as well as a nearby river which significantly enhances the views from the project. It boasts a GBA of 170,350 sq.m. on a land area of 5.65 hectares.

The development plan for the property anticipates construction of 170,350 sq.m. GBA, which includes 56,952 sq.m. of residential area, 34,208 sq.m. of commercial area and 1,771 underground spaces. Currently, the Company is developing the design of the project and plans to receive the construction permit in 2015.

Based on an independent valuation of the Company portfolio by Cushman & Wakefield as of 31 December 2014, the fair value of Bolshaya Pochtovaya is US$108.3 million.

BOTANIC GARDEN

Botanic Garden is a residential project, located in the North-Eastern Administrative District of Moscow, approximately 8 km from the Third Transportation Ring, near the major transportation route of the district Prospect Mira, within walking distance from Botanicheskuiy Sad and Sviblovo metro stations. The future residential complex has a land plot of 3.2 Ha and a gross building (GBA) of 255,025 sq.m. (including "city share"): 107,501 sqm of residential area, 5,149 sqm of commercial premises and 1,334 underground and above ground parking lots.

In December 2014 AFI Development restored the Botanic Garden project on its books, following liquidation of former primary investor, Novoe Koltso Moskvy OJSC ("NKM"), as risks related to the bankruptcy of NKM were removed. The Company has completed the planning of the residential complex, while the project received the approval of the Moscow construction authorities. A construction permit was received in December 2014.

Based on an independent valuation of the Company portfolio by Cushman & Wakefield as of 31 December 2014, the fair value of Botanic Garden is US$20.1 million.

LAND BANK

In addition to multiple yielding properties and projects under development, AFI Development also has a land bank which consists of projects that are not currently under development.

By retaining full flexibility regarding future development of these projects, the Company remains well placed to benefit from further recovery in the regional real estate markets. Given its strong track record in bringing projects to completion, this represents a significant competitive advantage for AFI Development.

AFI Development's strategy with respect to its land bank is to activate projects only upon securing necessary financing and having full confidence in the demand levels of prospective tenants or buyers.

Key Events Subsequent to 31 December 2014

Following the year-end the following key events occurred:

Disposals and Acquisitions

During 2014, the Company made the following disposal:

In March 2014 AFI Development disposed of its 100% share in Keyiri Trade & Invest Limited with its Russian subsidiary Favorit LLC, holding rights to the St Petersburg project for US$1,400 thousand. The disposal followed the decision not to develop the project. The resulting profit on sale amounting to US$61 thousand was recognised in the income statement of Q1 2014.

During 2014, the Company made the following acquisition:

In July 2014 our subsidiary, MTOK JSC, acquired an office building with total area of 720 sq.m. on Sadovaya Samotechnaya street in central Moscow, for a total consideration of RUR 86.75 million (circa US$1.9 million). The building was acquired from Novoe Koltso Moskvy JSC (former "primary investor" in the Botanic Garden Project, "NKM") as part of its bankruptcy proceedings. The purpose of the acquisition was to accelerate the liquidation of NKM.

Presentation of Financial Information

Our consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU"), which were in effect at the time of preparing our consolidated financial statements, and the requirements of the Companies Law of Cyprus, Cap. 113. IFRS differs in various material respects from US GAAP and UK GAAP.

Financial policies and practices

Revenue Recognition

The key elements of our revenue recognition policies are as follows:

· Rental income. We recognise rental income from investment properties leased out under operating leases in our statement of comprehensive income on a straight line basis over the term of the lease. Rental income also includes income from hotels operations.

Hotel operation income

Income from hotel operations comprises of accommodation, treatments and other services offered at the hotels operated by the group and sales of food and beverages and are recognised upon offering of the service and the acceptance by the client.

· Sales of trading properties. We recognise revenue from the sale of trading properties in our statement of comprehensive income when the risks and rewards of ownership of the property are transferred to the buyer. When we receive down payments in connection with the sale of trading property that is under construction, we record this figure in the current liabilities on our balance sheet at the time of sale.

Operating expenses

Operating expenses consist mainly of employee wages, social benefits and property operating expenses, including property tax, which are directly attributable to revenues. We recognise as expenses in our statement of comprehensive income the costs of those employees who have provided construction consulting and construction management services with respect to our investment and trading property. We also recognise property operating costs (including outsourced building maintenance), utilities, security and other tenant services related to our properties that generate rental income, as expenses on our statement of comprehensive income.

Administrative expenses

Our administrative expenses comprise primarily of general and administrative expenses such as, audit and consulting, marketing costs, charity, travelling and entertainment, office equipment as well as depreciation expenses related to our office use motor vehicles, bad debt provisions and other provisions.

Profit on disposal of investment in subsidiaries

We recognise profit or loss from the sale of interests in our subsidiaries when the risks and rewards of ownership are transferred to the buyer in the transaction.

Revaluation of investment property

An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and categories of properties being valued, values the Company's investment property portfolio every six months. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation in a transaction between a willing buyer and a willing seller after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion. The difference between revalued fair value of investment property and its book value is recognised as gain or loss in the statement of comprehensive income.

Operating profit before net finance costs

Operating profit before net finance costs is calculated by adding revenue, other income, profit on disposal of investment in subsidiaries and valuation gains on investment property, and subtracting operating expenses, administrative expenses and other expenses.

Finance income

Our finance income comprises net foreign exchange gain, if any, and interest income. We recognise foreign exchange gains and losses, principally in connection with US Dollar or other foreign currency denominated payables and receivables of our Russian subsidiaries, whose functional currency is the Russian Rouble. Our interest income is derived primarily from interest on our bank deposits and interest on loans to our joint ventures.

Finance expenses

Our finance expense comprises net foreign exchange loss, if any, and interest expense on outstanding loans less interest capitalised. We recognise foreign exchange gains and losses principally in connection with US Dollar denominated payables and receivables of our Russian subsidiaries, whose functional currency is the Russian Rouble. We capitalise our interest expense with respect to our development projects that are under construction, for which amounts are not reflected as expenses in our statement of comprehensive income. When funds are borrowed specifically for a particular project, we capitalize all actual borrowing costs related to the project less income earned on the temporary investment of such borrowings and when funding for a project is obtained from our general funds, we capitalise only funding costs related to the particular project based on the weighted average of the borrowing costs applicable to our general funds.

Foreign currency gain or loss on financial assets and financial liabilities is reported on a net basis as either finance income or finance expense depending on whether foreign currency movements are in a net gain or net loss position.

Income tax expense

Income taxes are calculated based on tax legislation applicable to the country of residence of each of our subsidiaries and, as a company based and organised in Cyprus, we are subject to income tax in Cyprus. We and our Cypriot subsidiaries are currently subject to a statutory corporate income tax rate of 12.5% in Cyprus. Our Russian subsidiaries were subject to corporate income tax at a rate of 20%.

Capitalisation of Costs for Properties under Development

We capitalise all costs directly related to the purchase and construction of properties being developed as both investment properties and trading properties, including costs to acquire land rights and premises, design costs, permit costs, costs of general contractors, costs relating to the lease of the underlying land and the majority of our employee costs related to such projects.

In addition, we capitalise financing costs related to development projects only during the period of construction of the projects. We do not, however, commence the capitalising of financing costs related to expenditures on a project until construction on each project begins. Since the Company's adoption of IAS 40 from 1 January 2009, upon completion of construction works, property classified as investment property under development (which are those properties that are being constructed or developed for future use to earn rental income or for capital appreciation) is appraised to market value and reclassified as an investment property and any gain or loss on appraisal is recognised in our statement of comprehensive income. Trading properties, which include those projects where we intend to sell the entire project as a whole or in part (this principally includes our residential development projects), are represented on our balance sheet at the lower of cost and net realizable value, which is the estimated selling price in the ordinary course of business, less the estimated costs of completion and sale.

Exchange Rates

Our consolidated financial statements are presented in US Dollars, which is our functional currency. The functional currency of our Russian subsidiaries and joint ventures and one Cyprus company is the Russian Rouble. The balance sheets of our Russian subsidiaries are translated into US Dollars in accordance with IAS 21, whereby assets and liabilities are translated into US Dollars at the rate of exchange prevailing at the balance sheet date and income and expense items are translated into US Dollars at the average exchange rate for the period. If the volatility of the exchange rates is high for a given year or period the Company uses the average rate for shorter periods i.e. quarters or months for income and expense items. All resulting foreign currency exchange rate differences are recognised directly in our shareholders' equity under the line item "translation reserve." When a foreign operation is sold, the cumulative amount of the exchange differences deferred in the separate component of equity relating to that foreign operation is recognised in our statement of comprehensive income when the gain or loss on disposal of the foreign operation is recognised. The monetary assets and liabilities of our Russian subsidiaries that are denominated in currencies other than Russian Roubles are initially recorded by our subsidiaries at the exchange rate between the Russian Rouble and such foreign currency prevailing at such date. Such monetary assets and liabilities are then retranslated into Russian Roubles at the exchange rate prevailing at each subsequent balance sheet date. We recognise the resulting exchange rate differences between the dates at which such assets or liabilities were originally recorded and at subsequent balance sheet dates as foreign exchange losses and gains in our statement of comprehensive income. In particular, during the period under review, we have recognised foreign exchange rate gains and losses in connection with US Dollar denominated payables and receivables of our Russian subsidiaries.

Recovery of VAT

We pay VAT to the Russian authorities with respect to construction costs and expenses incurred in connection with our projects, which, according to Russian tax law, can be recovered upon completion of construction. Under a revised Russian VAT legislation, VAT can also be claimed during the period of construction provided that all required documentation is presented to the VAT authorities. We have accordingly included recoverable VAT as an asset on our balance sheet, the size of which we expect will slightly decrease as the development of our projects advances and necessary documents will be obtained.

Deferred Taxation

As we continue to advance the development of our projects, we also expect to record higher deferred tax liabilities and assets. Under Russian tax law, we are not allowed to capitalise certain of the costs in relation to the design, construction and financing of projects that we capitalise for the purposes of our consolidated financial statements under IFRS. As a result, our tax bases in the related assets may be lower than our accounting bases for IFRS purposes, which would result in deferred tax liabilities. However, the recognition of such costs as expenses may result in accumulated tax losses for Russian tax purposes that we may be able to carry forward against estimated future profits, resulting in deferred tax assets. We expect these deferred tax liabilities and assets to grow as our major projects reach more advanced stages. However, such tax losses may only be carried forward to offset gains for a ten-year period under Russian tax law and they may only be utilised in the Russian subsidiary/branch in which such tax losses were generated.

Fair Value Calculation

Our future results of operations may be affected by our measurement of the fair value of our investment properties and changes in the fair value of such properties. Upon completion of construction, the projects that we have classified as investment property under development are reassessed at fair value and reclassified as investment property, and any gain or loss as a result of reassessment is recognised in our statement of comprehensive income.

Any change in fair value of the investment property under development is thereafter recognised as a gain or loss in the statement of comprehensive income. Accordingly, fair value measurements of investment properties under development may significantly affect results of operations even if the Company does not dispose of such assets.

Results of Operations

Description of Statement of comprehensive income Line Items

Summary of statement of comprehensive income for 2014 and 2013


US$ million	For the year ended 31 December 2014	For the year ended 31 December 2013	Change 2014 / 2013
Revenue
Construction consulting/management services	0.2	0.2	-	-
Rental income	141.4	144.6	(3.1)	(2.2)%
Sale of residential	2.4	57.5	(55.1)	(95.8)%
	144.1	202.3	(58.2)	(28.8)%
Expenses
Other income	3.5	6.4	(2.9)	(45.1)%
Operating expenses	(62.5)	(76.5)	14.0	18.3%
Administrative expenses	(22.3)	(16.9)	(5.4)	(31.9)%
including Bad debt provisions and write-offs	(4.6)	0.9	(5.5)	(593.5)%
Cost of sales of residential	(1.6)	(32.6)	31.0	95.0%
Other expenses	(6.8)	(5.5)	(1.3)	(23.8)%
	(89.7)	(125.1)	35.4	28.3%
Share of the after tax (loss)/profit of joint ventures	(4.5)	(0.8)	(3.7)	(457.6)%

Gross profit	49.9	76.3	(26.4)	(34.6)%

Profit on disposal of investments in subsidiaries	0.1	32.3	(32.2)	(99.6)%
Profit on disposal of investment property	-	27.8	(27.8)	-

Valuation gain/(loss) on properties	(85.9)	106.2	(192.1)	(180.8)%
Impairment loss on inventory of real estate	(8.9)	(2.2)	(6.7)	(306.7)%

Results from operating activities	(44.7)	240.5	(285.2)	(118.6)%

Finance income	7.0	21.0	(13.9)	(66.5)%
Finance expense	(60.8)	(66.9)	6.1	9.1%
FX Gain/( Loss)	(224.8)	(28.9)	(195.9)	(676.7)%
Translation reserve reclassification due to disposal of subsidiary	-	(30.3)	30.3	-
Net finance income/(costs)	(278.6)	(105.2)	(173.4)	(164.9)%

Profit before income tax	(323.3)	135.3	(458.7)	(338.9)%

Income tax expense	36.0	(31.4)	67.4	214.9%

Profit from continuing operations	(287.3)	103.9	(391.2)	(376.4)%

Revenue - General Overview

To date, we have derived revenues from three sources: rental income, sale of residential properties and construction consulting and construction management fees.

Rental income

We derive rental income from our investment properties and hotels that we acquired or developed in the past.


US$ million	For the year ended 31 December 2014	For the year ended 31 December 2013	Change 2014/2013
US$ million	%%
Investment property
AFIMALL City	107.0	104.1	2.9	2.8%
H2O office building	2.1	2.6	(0.5)	(19.9)%
Berezhkovskya office building	4.3	5.4	(1.1)	(20.7)%
Paveletskaya I	4.0	5.0	(1.0)	(20.3)%
Premises at Bolshaya Pochtovaya	5.1	5.7	(0.6)	(10.3)%
Premises at Plaza IV (Gruzinsky Val)	0.1	0.2	(0.1)	(48.7)%
Premises at Tverskaya Zastava Square	3.4	3.9	(0.6)	(14.5)%
Ozerkovskaya (Aquamarine) III	0.1	-	0.1	n/a
Other land bank assets	0.1	0.0	0.1	498.7%
Hotels
Aquamarine hotel	7.2	9.8	(2.6)	(26.2)%
Plaza Spa Hotel (Zheleznovodsk)	8.0	7.9	0.1	1.3%

Total	141.4	144.7	(3.3)	(2.3)%

Sale of residential


US$ million	For the year ended 31 December 2014	For the year ended 31 December 2013	Change 2014/2013
US$ million	%%
Revenue
AFI MALL Parking	-	54.5	(54.5)	(100)%
Ozerkovskaya II	2.4	1.7	0.8	45.2%
4 Winds residential	-	1.4	(1.4)	(100)%
Total	2.4	57.5	(55.1)	(95.8)%

On 3 June 2013 the Company completed the first stage of the sale of 643 parking spaces of AFIMALL City to VTB Bank and therefore recognised revenue of US$54.5 million in the income statement. During 2014 the Company sold 2 residential apartments and 14 parking lots in the Ozerkovskaya II project.

Operating expenses. Our operating expenses decreased by US$14.0 million, from US$76.5 million in 2013 to US$62.5 million in 2014. The year-on-year decrease of 18.3% is attributable to decreased property tax charge, decrease in brokerage expense and rouble devaluation versus the dollar.

Administrative expenses. Our administrative expenses increased by US$5.4 million or 31.9% year-on-year, from US$16.9 million in 2013 to US$22.3 million in 2014. The increase is attributable to increase in bad debt provision from US$0.9 of reverse in 2013 to US$4.6 of additional charge in 2014.

Profit on sale of investment properties. In December 2013, the Company successfully completed the sale of Building 1 in the Aquamarine III office complex (also known as Ozerkovskaya III) to Russian diamonds miner and producer "Alrosa" JSC. The total profit on disposal was US$27.8 million, including the consideration paid in cash and amounted to US$91.5 million.

Profit on sale/disposal of properties/investment. In March 2014 AFI Development disposed of its 100% share in Keyiri Trade & Invest Limited with its Russian subsidiary Favorit LLC, holding rights to the St Petersburg project for US$1,400 thousand. The disposal followed the decision not to develop the project. The resulting profit on sale amounting to US$61 thousand was recognised in the income statement of Q1 2014. For additional information, please refer to "Disposals and acquisitions" section above.

Net valuation gain/(losses) on properties. Net result of investment property valuation decreased from a gain of US$106.2 million in 2013 to a loss of US$85.9 million in 2014. For additional information, please refer to "Portfolio Valuation" section below.

Finance income. Our finance income decreased by US$13.9 million or 66.5% year-on-year, from US$21.0 million in 2013 to US$7.0 million in 2014. The decrease was a result of loans write-off in 2013.

Finance expense. Our finance expense decreased by US$6.1 million or 9.1% year-on-year, from US$66.9 million in 2013 to US$60.8 million in 2014. The decrease followed full repayment of the Sberbank loan at our Plaza Spa Zheleznovodsk project in 2013 and partial repayment of the principal of the VTB bank loan as per the agreed loan facility at AFIMALL City project. In addition in Q1 2014 the Company fully repaid the fourth instalment (RUR 1,333 million) to the City of Moscow for the acquisition of the parking area under the AFIMALL City which cancelled discounting charges on long-term portion of the liability.

FX Gain/(Loss). We recorded a foreign exchange loss of US$224.8 million in 2014, against a loss of US$28.9 million in 2013. This was a result of Russian Rouble depreciation versus the US Dollar during 2014.

Income tax expense. Our current tax expense decreased to US$0.6 million compared to US$8.9 million in 2013 mainly due to tax obligations incurred as a result of sale of the office building in Ozerkovskaya III in 2013.

Profit/Loss for the year. Due to the factors described above, we recorded a US$287.3 million net loss for 2014 compared to net gain of US$103.9 million for 2013.

Liquidity and Capital Resources

Cash flows

Summary of cash flows for 2014 and 2013


US$ thousand	For the year ended 31 December 2014	For the year ended 31 December 2013
Net cash from operating activities	64,494	19,095
Net cash from/(used in) investing activities	(116,540)	(203,106)
Net cash from/(used in) financing activities	(42,183)	198,974
Effect of exchange rate fluctuations	(12,345)	3,518
Net increase/(decrease) in cash and cash equivalents	(106,574)	18,481
Cash and cash equivalents at 1 January	193,330	174,849
Cash and cash equivalents at 31 December*	86,756	193,330

* Note: the cash and cash equivalents do not include US$6.5 million (2013: US$10.0 million) fair value of marketable securities.

Net cash from operating activities

Net cash from operating activities increased to US$64.5 million in 2014, from US$19.1 million in 2013. The increase is attributable to advances received from customers for the sale of residential properties at the Odinburg project.

Net cash from investing activities

Net cash outflow from investing activities amounted to US$116.5 million is attributable to payments for construction and acquisition of investment property and investment property under development mainly.

Net cash used in financing activities

Net cash from financing activities decreased to a negative US$42.2 million in 2014 from a positive US$199.0 million in 2013 due to the fact that in 2013 there was increased debt financing and the new loan facility of US$220 million obtained by Krown Investments LLC.

Capital Resources

Capital Requirements

We require capital to finance capital expenditures, consisting of cash outlays for capital investments in active real estate development projects; repayment of debt; changes in working capital; and general corporate activities.

Real estate development is a capital-intensive business, and we expect to have significant ongoing liquidity and capital requirements in order to finance our active development projects.

For the foreseeable future, we expect that we will continue to rely on our financing activities to support our investing and operating activities. We also expect that our capital expenditures in connection with the development of real estate properties will comprise the majority of our cash outflows for the foreseeable future.

We completed 2014 with a strong liquidity position of approximately US$93.3 million cash, cash equivalents and marketable securities on our balance sheet and a debt[8] to equity level of 53%. This strong position reflects the Company's ability to successfully balance liquidity requirements from a number of sources.

Our financing strategy aims to maximize the amount of debt financing for projects under construction while maintaining healthy loan-to-value levels. After delivery and commissioning we aim to refinance the properties at more favourable terms, including longer amortisation periods, lower interest rates and higher principal balloon payments. Property rights and shares of property holding companies are mainly used as collateral for the debt. We strongly prefer, whenever possible, to use non-recourse project level financing.

As of December 31, 2014 our debt portfolio was as follows:


Project	Lending bank	Max debt limit	Principal balance as of Dec-31, 2014	Available (US$ mn)	Nominal Interest rate	Currency	Maturity
(US$ mn)	(US$ mn)	(dd.mm.yy)
AFIMALL City	VTB Bank JSC	502.1(21 billion rub)*	184.7	0	9.5%	RUR	01.04.2018
296.4	3-month LIBOR + 5.02%	US$
Krown Investments LLC	VTB Bank JSC	220.0	205.0	0	3-month LIBOR + 5.7%	US$	26.01.2015*

* In January 2015 the loan was refinanced by VTB Bank JSC, please refer to Note 41 to the Consolidated Financial Statement

The total balance of Debt financing reached US$686.4 million as at 31 of December 2014, including US$686.1 million of Principal Debt and US$0.3 million of Accrued Interest with Average Interest Rate 6.88% per annum as at 31.12.2014 (6.97% respectively as at 31.12.2013) (for more details see note 28 to our consolidated financial statements).

As at 31 December 2014, our loans and borrowings were payable as follows:


US$ thousand	As at 31 December 2014	As at 31 December 2013
Less than one year	231,684	27,027
Between one and five years	455,097	778,909
Total	686,781	805,936

Portfolio Valuation

As at 31 December 2014, based on the Cushman & Wakefield LLC ("C&W") independent appraisers' report, the value of AFI Development's portfolio of investment properties stood at US$1.38 billion, while the value of the portfolio of investment property under development stood at US$0.4 billion.

Consequently, the total value of the Company's assets, based predominantly on independent valuation as of 31 December 2014, was US$2.0 billion, compared to US$2.4 million as at 31 December 2013.


	Property4	Valuation 31/12/2014, US Dollars	Valuation 31/12/2013, US Dollars	Change in valuation, %	Balance sheet value 31/12/2014, US Dollars	Balance sheet value 31/12/2013, US Dollars
Investment property
1	H2O	12,100,000	17,300,000	-30%	12,100,000	17,300,000
2	Ozerkovskaya Phase III	300,000,000	323,700,000	-7%	300,000,000	323,700,000
3	Berezhkovskaya1	15,762,000	28,490,000	-45%	21,300,000	38,500,000
4	AFIMALL City	1,000,000,000	1,160,000,000	-14%	1,000,000,000	1,160,000,000
5	Paveletskaya I3	19,338,150	29,354,320	-34%	19,500,000	29,600,000
6	Plaza II	15,200,000	31,900,000	-52%	15,200,000	31,900,000
7	Plaza Ib	5,400,000	8,800,000	-39%	5,400,000	8,800,000
8	Sadovaya -Samotechnaya	1,916,234	0	n/a	1,916,234	0
	Total	1,369,716,384	1,599,544,320	-17%	1,375,416,234	1,609,800,000
Investment property under development
9	Plaza Ic	87,700,000	110,600,000	-21%	87,700,000	110,600,000
10	Plaza IIa	3,600,000	12,400,000	-71%	3,600,000	12,400,000
11	Plaza IV2	101,753,623	159,980,000	-36%	107,109,076	168,400,000
12	Paveletskaya Phase II3	66,840,580	91,930,590	-27%	67,400,000	92,700,000
13	Kossinskaya	53,700,000	106,700,000	-50%	53,700,000	106,700,000
14	Bolshaya Pochtovaya	108,300,000	139,400,000	-22%	108,300,000	139,400,000
	Total	421,894,203	621,010,590	-32%	427,809,076	630,200,000
Trading property & Trading property under development
15	Odinburg	n/a	n/a	-	133,035,537	127,212,941
16	Four Winds Residential	n/a	n/a	-	624,284	1,104,444
17	Ozerkovskaya II	n/a	n/a	-	2,355,115	5,304,038
	Total	n/a	n/a		136,014,935	133,621,424
Inventory of real estate
18	Botanic Garden5	18,100,000	n/a	-	20,111,111	n/a
	Total	18,100,000	n/a	-	20,111,111	n/a
Land Bank Properties
19	Ruza	n/a	n/a	-	3,665,000	3,665,000
20	St. Petersburg	n/a	1,400,000	-100%	n/a	1,400,000
21	Boryspol (Ukraine)	0	0	-	0	0
	Total	0	1,400,000	-100%	3,665,000	5,065,000
Hotels
22	Aquamarine Hotel	n/a	n/a	-	17,343,063	30,855,838
23	Plaza Spa Hotel in Kislovodsk 4	n/a	n/a	-	14,414,050	24,829,575
24	Kalinina Hotel in Zheleznovodsk	n/a	n/a	-	12,249,094	22,417,076
25	Park Plaza hotel developments in Kislovodsk	n/a	n/a	-	4,241,520	7,276,236
26	Versailles project in Kislovodsk	n/a	n/a	-	0	7,122,840
	Total	n/a	n/a	-	48,247,727	92,501,565
	Grand Total	1,809,710,587	2,221,954,910	-19%	2,011,264,083	2,471,187,989

Principal Risks and Uncertainties Affecting the Company

This section presents information about the Company's exposure to each of the risks listed below, the Group's objectives, policies and processes for measuring and managing risks.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework and is responsible for developing and monitoring the Company's risk management policies.

The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Company's Audit Committee oversees how management monitors compliance with the Company's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Company's Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee and the whole Board of Directors. The Board of Directors requests the management to take corrective actions as necessary and make follow up reports to the Audit Committee and to the Board on addressing deficiencies found.

Credit risk

Credit risk is the risk of financial loss to AFI Development if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company's receivables from customers and investment securities.

Trade and other receivables

Financial assets that are potentially subject to credit risk consist principally of trade and other receivables. The carrying amount of trade and other receivables represents the maximum amount exposed to credit risk. Credit risk arises from cash and cash equivalents as well as credit exposures with respect to rental customers, including outstanding receivables. The Company has policies in place to ensure that, where possible, rental contracts are made with customers with an appropriate credit history. Cash transactions are limited to high-credit-quality financial institutions. The utilisation of credit limits is regularly monitored.

AFI Development has no other significant concentrations of credit risk, although collection of receivables could be influenced by economic factors.

Investments

The Company limits its exposure to credit risk by investing only in liquid securities and only with counterparties that have a high credit rating. Management actively monitors credit ratings and given that the Group only has invested in securities with high credit ratings, management does not expect any existing counterparty to fail to meet its obligations, except as disclosed in note 33 to the Company's Audited Financial Statements for year 2014.

Guarantees

The Company's policy is to provide financial guarantees only to wholly-owned subsidiaries in exceptional cases. In negotiations with lending banks the Company is aiming to avoid recourse to AFI Development on loans taken by subsidiaries. As at 31 December 2014, there were two outstanding guarantees: one for the amount of US$1 million in favour of VTB Bank JSC under a loan facility agreement of Bellgate Construction Limited (AFIMALL City) and the second one for the amount of US$205 million in favour of VTB Bank JSC under a loan facility agreement of Krown Investments LLC (Ozerkovskaya III).

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. AFI Development's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Company aims to maintain flexibility in its funding requirements by keeping cash and committed credit lines available.

AFI Development's liquidity position is monitored on a daily basis by the management, which takes necessary actions if required. The Company structures its assets and liabilities in such a way that liquidity risk is minimised.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the available returns for shareholders. We are exposed to market risks from changes in both foreign currency exchange rates and interest rates. We do not use financial instruments, such as foreign exchange forward contracts, foreign currency options and forward rate agreements, to manage these market risks. To date, we have not utilised any derivative or other financial instruments for trading purposes.

Interest rate risk

We are subject to market risk deriving from changes in interest rates, which may affect the cost of our current floating rate indebtedness and future financing. As of 31 December 2014, 27% of our financial liabilities were fixed rate. For more detail see note 33 to our consolidated financial statements.

Currency risk

The Company is exposed to currency risk on future commercial transactions, recognised monetary assets and liabilities and net investments in foreign operations that are denominated in a currency other than the respective functional currencies of AFI Development's entities, primarily the US Dollar and Russian Rouble.

Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.

The Company's objective is to manage operational risk so as to balance the need to avoid financial losses and damage to the Group's reputation with overall cost effectiveness.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk. Compliance with Company standards is supported by a programme of periodic reviews undertaken by way of internal audits. The results of the internal audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and the Board of Directors.

Critical Accounting Policies

Critical accounting policies are those policies that require the application of our management's most challenging, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies involve judgments and uncertainties that are sufficiently sensitive to result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies are those described below.

A detailed description of certain of the main accounting policies we use in preparing our consolidated financial statements is set forth in notes 3 and 5 to our consolidated financial statements.

Estimates regarding fair value

We make estimates and assumptions regarding the fair value of our investment properties that have a significant risk of causing a material adjustment to the amounts of assets and liabilities on our balance sheet. In particular, our investment properties under development (which currently comprise the majority of our projects) are remeasured at fair value upon completion of construction and the gain or loss on remeasurement is recognised in our income statement, as appropriate. In forming an opinion on fair value, we consider information from a variety of sources including, among others, the current prices in an active market, third party valuations and internal management estimates.

The principal assumptions underlying our estimates of fair value are those related to the receipt of contractual rentals, expected future market rentals, void/vacancy periods, maintenance requirements and discount rates that we deem appropriate. We regularly compare these valuations to our actual market yield data and actual transactions and those reported by the market. We determine expected future market rents on the basis of current market rents for similar properties in the same location and condition. For further details, please refer to Note 3 to our consolidated financial statements.

Impairment of financial assets

We recognise impairment losses with respect to financial assets, including loans receivable and trade and other receivables, in our income statement if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. We test significant financial assets for impairment on an individual basis and assess our remaining financial assets collectively in groups that share similar credit characteristics. Impairment losses with respect to financial assets are calculated as the difference between the asset's carrying amount and the present value of the estimated future cash flows of the asset discounted at the original effective interest rate of that asset.

Estimating the discounted present value of the estimated future cash flows of a financial asset is inherently uncertain and requires us both to make an estimate of the expected future cash flows from the asset and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Changes in one or more of these estimates can lead us to either recognizing or avoiding impairment charges

Impairment of non-financial assets

We recognise impairment loss with respect to non-financial assets, including investment property under development and trading properties under construction, if the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, we discount estimated future cash flows of the asset to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The carrying amounts of impaired non-financial assets are reduced to their estimated recoverable amount either directly or through the use of an allowance account and we include the amount of such loss in our income statement for the period.

We assess at each reporting date whether there is any indication that a non-financial asset may be impaired. If any such indication exists, we then estimate the recoverable amount of the asset. Estimating the value in use requires us to make an estimate of the expected future cash flows from the asset and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The development of the value in use amount requires us to estimate the life of the asset, its expected cash flows over that life and the appropriate discount rate, which is primarily based on our weighted average cost of capital, itself subject to additional estimates and assumptions. Changes in one or all of these assumptions can lead to us either recognizing or avoiding impairment charges

Deferred income taxes

We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves a jurisdiction-by-jurisdiction estimation of actual current tax exposure and the assessment of the temporary differences resulting from differing treatment of items, such as capitalization of expenses, among others, for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must assess, in the course of our tax planning process, our ability and the ability of our subsidiaries to obtain the benefit of deferred tax assets based on expected future taxable profit and available tax planning strategies. If, in our management's judgment, the deferred tax assets recorded will not be recovered, a valuation allowance is recorded to reduce the deferred tax asset.

Significant management judgment is required in determining our provision for income taxes, deferred tax assets, deferred tax liabilities and valuation allowances to reflect the potential inability to fully recover deferred tax assets. In our consolidated financial statements the analysis is based on the estimates of taxable income in the jurisdictions in which we operate and the period over which the deferred tax assets and liabilities will be recoverable.

If actual results differ from these estimates, or we adjust these estimates in future periods, we may need to establish an additional valuation allowance which could adversely affect our financial position and results of operations.

Share-based payment transactions

The fair value of employee share options is measured using a binomial lattice model. The fair value of share appreciation rights is measured using the Black-Scholes formula. Measurement inputs include share price on the measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historic experience and general option holder behaviour), expected dividends and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

Related Party transactions

There were no related party transactions (as defined in UK Listing Rules) in the financial year ended 31 December 2014 or in the period since 31 December 2014.

AFI DEVELOPMENT PLC

Annex A to the MD&A

Below is additional information regarding the Company's business and portfolio. Terms not expressly defined herein shall have the meaning ascribed thereto in the MD&A.

Real Estate Development

General Information on this Area of Activities

AFI Development PLC and its subsidiaries ("the Group") plans, develops and constructs residential units held for sale. The Company's revenues from real estate development in Russia derive, mainly, from the development, renovation and sale of residential units and/or properties designated for residential purposes, alone or together with partners in joint ventures.

Products and Services of the Company's group

A. General - the projects the Group plans and constructs in CIS are mostly zoned for mixed uses and/or commercial use, while some also include residential units intended for sale. The following tables present the Group's projects including, among others, construction for residential purposes. The Company is focusing on the construction and completion of a number of projects and it will decide on the construction of additional projects out of its inventory of projects based on the situation prevailing in the market. With respect to these projects, the Company will formulate a business plan including a forecast relating to the project budget and its completion date (and obviously relating to additional project components) when a decision to begin its construction is made. Therefore, the tables do not include any forecasts in connection with these projects.

It is noted that based on Russian law, upon completion of the construction of projects, the owner of the building (the construction of which was completed) is permitted to receive lease (including long-term lease), generally for 49 years, or ownership rights for the state or municipality-owned land on which the said building stands and that is needed for purposes of its use. In order to realize the ownership or lease right as stated, the owner of the building must submit a request to the relevant authority including the required documents, and within about one month from the submission date of the said request, the relevant authority will make a decision regarding provision of the lease or ownership rights. It is noted that under the new long‑term lease agreement to be signed between the parties, the lessee of the land (who up until now had been merely the owner of the building) to pay the City lease fees (generally on a quarterly basis). Should the owner acquire ownership right to the land, it becomes payer of the land tax calculated based on the cadastral value of the land plots.

B. Set forth below information on residential projects under development as December 31, 2014:

(1) "Number of residential units sold" - based on signed contracts only[9]

The information in the table below regarding expected completion date of the project is forward looking information which is based on Company's information as at the date of this report. It may be that due to reasons which are external to the Company, the project will not be completed on these dates.

Location	No. of units under construction as at Dec. 31, 2014 cumulatively[10]	Additional commercial area under construction - sold	Additional commercial area under construction - unsold	Average sqm per unit (for gross construction)	Costs actually paid (consolidated)	Average completion rate of the project[11]	Anticipated completion date[12]	No. of units sold as at			No. of units in inventory as at December 31		No. of units sold after Dec. 31, 2014 and until March 15, 2015
31.12.14	31.12.13	31.12.12	31.12.14	31.12.13
---	---	---	---	---	---	---	---	---	---	---	---	---	---
Odinburg, Odintsovo, Moscow Region Phase 1 Stage 1	1,512	-	3,916	54	133,036	13%	December 2015/ December 2016	562	104		161	619	32
Phase 1 Stage 2

According to the investment agreement, the project should contain 453,000 sq.m. of residential areas after completion and social amenities (such as a school, and a kindergarten, both of which will be constructed in two stages, a healthcare center, etc.). As at the date of this Periodic Report, the property company has received approval for the planning and design documents and a building permit in effect until May 30, 2017, regarding the first two stages of the first phase of the construction of one residential building in the project containing 2,652 housing units, pursuant to the revised project documents.

It should be noted that in the investment agreement in respect of Odinburg, the Property Company is required to build a school and a kindergarten by the middle of 2010. Since the projects were frozen before that date due to the financial crisis, the Property Company did not keep to said original scheduled timetable in connection with the construction of said facilities, so that it has been in breach of the agreement since the middle of 2010. In July 2011, the municipal authority of the Odintsovo region sent a letter to the Property Company concerning the Property Company's failure to abide by the timetable determined in the investment agreement and notified the Property Company that it was considering terminating the investment agreement. The Property Company replied to the letter and thus negotiations began with the municipal authority of the Odintsovo region. As a result of said negotiations, additional developments began in the project, specifically the grant of a building permit to the Property Company. It should also be noted that the Property Company is engaged in negotiations to extend the investment agreement and the lease agreements in connection with the 38 plots of the project, to make the period of their validity consistent with that of the building permit.

Under the investment agreement (from 2004) between the building department of Moscow region, the Odintsovo municipal authority and the Property Company holding the project as previously stated, Property Company will be entitled to receive 94% of the residential areas in the project with the addition of an area of 13,400 sqm of apartments, while the Odintsovo municipal authority will be entitled to receive the remaining area (including the facilities for public use). Property Company will be entitled to 90% of the total non-residential areas. Moreover, the holding company has an option (the period of which is not defined in said investment agreement) to purchase the municipal authority's share in the areas allocated for residences as previously stated (in whole or in part) at a price to be agreed between the parties. Under the investment agreement, the project company is not entitled to sell apartments in the project until the municipal authority has taken delivery of the part of the residential area allocated to it under the agreement. The Company and the municipal authorities are currently negotiating amendments to a number of provisions in the Investment Agreement with the aim of allowing said sales to be made at an earlier date.

Notably, there are 38 lease agreements with said holding company in respect of an area of 317,000 sqm required for the construction of the project. These agreements were signed in 2009 for the period until May 25, 2014 after the legal proceedings were completed (mainly technical) that the Property Company initiated against the Odintsovo municipal authority to enforce its rights to enter into these agreements. As for the ownership of the land, it should be noted that the ownership is only of a reduced area (8,400 sqm) required for the construction of the project.

Average price RUR per square meter on company projects as December 31, 2014:


Project Name	1.1.2015 - 15.3.2015	2014	2013
Odinburg - Phase 1, Stage 1	102,172	91,360	80,574

Expected information (000'$)[13]:

The information in the table regarding total expected income, total expected costs, gross profit and its ratio is based on assumptions, forecast and/or business plans of the Company, of which there is no certainty of full realisation. It should be clarified that the estimation of the expected income is based on sale prices in the project and the expected cost (except of the land cost which is known in total or partially) is based mainly on signed contracts with constructors and advisors. Total expected income, total expected costs, gross profit and its ratio may differ from the information in the table in case that the Company's forecast or its business plan is not realised, fully or partially.

Project Location	Anticipated revenues (consolidated)[14]				Costs actually paid (consolidated)	Expected costs (consolidated)[15]		completion rate based on the cash flow of the project	Expected gross profit (consolidated)	Expected gross profit margin	Net Cash flow on project completion
Prepayments until Dec. 31, 2014	Future debt balances for units sold	Inventory at selling prices as at Dec. 31, 2014	Total expected revenue	Costs to pay until end of inventory	Total expected costs
---	---	---	---	---	---	---	---	---	---	---	---
Odinburg, Odintsovo, Moscow Region Phase 1, Stage 1 Phase 1, Stage 2	54,683	6,721	116,682	178,086	133,036	902,321	1,035,357	13%	5,351	3%	3,313

Sensitivity Analysis

Following is a sensitivity analysis of gross profit of projects in which units sold are less than half of the inventory


Odinburg - Phase 1, Stage 1+2
Costs/Sales	90%	95%	98%	100%	103%	105%	110%
90%	4,816	13,720	18,172	22,624	27,076	31,529	40,433
95%	(3,821)	5,083	9,535	13,987	18,440	22,892	31,796
98%	(8,140)	765	5,217	9,669	14,121	18,573	27,478
100%	(12,458)	(3,554)	899	5,351	9,803	14,255	23,159
103%	(16,776)	(7,872)	(3,420)	1,032	5,484	9,937	18,841
105%	(21,095)	(12,190)	(7,738)	(3,286)	1,166	5,618	14,523
110%	(29,731)	(20,827)	(16,375)	(11,923)	(7,471)	(3,019)	5,886

Following are the details of projects not yet started (excluding contingent projects and excluding land reserves as detail below) as at December 31, 2014:

Project, Location	Company share	Rights Acquisition Date	Units according to valid City Building Plan	Units according to Company Plan	Primary additional, retail or office area (GBA, sqm)	Type of acquired rights	Cost of land in books as at December 31, 2014 (consolidated)	Total cost of the project (including land) (consolidated)[16]	Anticipated gross profit margin[17]	Anticipated gross profit margin(%)	Anticipated year of commencing construction[18]	Anticipated duration of construction in years	Statutory Status
Current	Planned
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Phase 1 (Stage 3+4) and Phase 2	100%	2006	7,627	7,627	37,644	Land lease, City Building Plan	N/A	1,035,357	32,961	4%	2016	7	Land lease	Land lease

Including City Share of circa 6% of Residential area*

Land bank designated for Residence as at December 31, 2014:


Project	Location	Company Share	Purchase Date	Land Area, Ha	Number of units according to valid City Building Plan	Additional units planned	Type of rights	Historic cost	Land cost at 31.12.14 (book value)	Total estimated project cost (including historic cost)	Legal rights status
Botanic Garden	11-13 Serebryakova lane, Moscow	90%	2007	3.2	1,372	-	Land lease, Investment agreement with the City	161,477	20,100	405,408	Construction permit

C. Set forth below are the details in connection with projects the Company has executed in CIS, which include residential areas, and which were completed as at December 31, 2013:

(1) As at the date of this statement, the Company's group has completed the projects Four Winds Residential and Ozerkovskaya Phase II. The Company's group has sold the majority of residential units in the both of the residential complexes.

(2) As at December 31, 2013, the Company's group held (indirectly) property rights in 1 residential unit in the Four Winds Residential project and in 3 residential units in the Ozerkovskaya Phase II project.

Customers

In its residential real estate development activities in Russia, the Group targets mainly private customers with a high socio‑economic background. For the Odinburg project the target customers are of medium to low socio-economic background.

Marketing and Distribution

In this area of activities, the Group markets its projects through independent agents as well as by own marketing and sales workforce.

Income Yielding Properties in Russia and the CIS

General Information regarding the Activity Segment

The Company's group plans, develops and constructs commercial properties held for rent. The Group's revenues from its activities in the field of lettable properties in Russia derive mainly from the development, re‑development and sale of commercial properties, alone or together with partners in joint ventures, as well as from rent of the group's lettable properties. In addition, in the past the Company's group had insignificant revenues from management of projects not owned by it.

General Economic Parameters Regarding the Russian Market:


Macro-economic parameters:	31.12.14	31.12.13	31.12.12
Gross domestic product (US$ billion) [19]	2,057	2,096	2,017
Per capita product (PPP)[20]	24,764	24,297	23,699
Rate of growth in domestic product in Real GDP[21]	0.5%	1.3%	3.4%
Rate of growth in per capita product	1.9%	2.5%	5.6%
Rate of inflation (end period)[22]	11.4%	6.5%	6.6%
Rate of return of long-term local government bonds	6.3%	8.1%	7.6%
Rating of long-term government bonds	BBB- (S&P)	BBB (S&P)	BBB (S&P)
Rate of exchange of the local currency in relation to the dollar on the last day of the year	56.3	32.7	30.4

Products and Services

The following tables present information in connection with the Group's projects included in its property portfolio. Certain information presented in the tables includes estimates and forecasts relating to projects in advanced stages of development, that is, the concept or design stages. Such information is "forward looking information" based on the existing data and facts in the Company's possession as of the date of this statement. It is hereby clarified that the estimates and forecasts in connection with each of the Group's projects may change in the future.

1. Summary of Aggregate Results of the Investment Properties Activity made by the Group in the CIS (sums are in US dollars unless otherwise specified):

(a) Breakdown of the lettable property areas based on regions and uses as at 31.12.14 (sq.m.)


Region	Uses	Offices	Retail	Parking facilities	Total	Percentage of the areas
Russia	Consolidated	87,482	107,208	62,789	257,479	100%
	Company share	84,693	107,208	62,789	254,690	100%
Total	Consolidated	87,482	107,208	62,789	257,479	100%
	Company share	84,693	107,208	62,789	254,690	100%
Percentage of the total area	Consolidated	34%	42%	24%	100%
Company share	33%	42%	25%	100%

(b) Breakdown of the lettable property areas based on regions and uses as at 31.12.13 (sq.m.)


Region	Uses	Offices	Retail	Parking facilities	Total	Percentage of the areas
Russia	Consolidated	87,490	107,208	62,789	257,487	100%
	Company share	84,701	107,208	62,789	254,698	100%
Total	Consolidated	87,490	107,208	62,789	257,487	100%
	Company share	84,701	107,208	62,789	254,698	100%
Percentage of the total area	Consolidated	34%	42%	24%	100%
Company share	33%	42%	25%	100%


Region	Uses	Offices	Retail	Other*	Total in USD '000	Percentage of the total value of the properties
Russia	Consolidated	373,500	1,000,000	1,900	1,375,400	100%
USD '000	company share	367,790	1,000,000	1,900	1,369,690	100%
Total	Consolidated	373,500	1,000,000	1,900	1,375,400	100%
USD '000	company share	367,790	1,000,000	1,900	1,369,690	100%
Percentage of the total value of the properties	Consolidated	27%	73%	0%	100%
company share	27%	73%	0%	100%

* Includes Sadovaya-Samotechnaya

(d) Breakdown of the lettable property value based on regions and uses as at 31.12.13


Region	Uses	Offices	Retail	Total in USD '000	Percentage of the total value of the properties
Russia	Consolidated	449,800	1,160,000	1,609,800	100%
USD '000	Company share	439,530	1,160,000	1,599,530	100%
Total	Consolidated	449,800	1,160,000	1,609,800	100%
USD '000	Company share	439,530	1,160,000	1,599,530	100%
Percentage of the total value of the properties	Consolidated	28%	72%	100%
Company share	27%	73%	100%

(e) Breakdown of the group's yielding real estate in the CIS NOI based on regions and uses for the year ended 31.12.14


Region	Uses	Offices	Retail	Total in USD '000	Percentage of the total NOI of the properties
Russia USD '000	Consolidated	10,355	82,956	93,311	100%
company share	9,467	82,956	92,422	100%
Total USD '000 USD '000	Consolidated	10,355	82,956	93,311	100%
Company share	9,467	82,956	92,422	100%
Percentage of the total value of the properties	Consolidated	11%	89%	100%
Company share	10%	90%	100%

(f) Breakdown of the group's yielding real estate in the CIS NOI based on regions and uses for the year ended 31.12.13


Region	Uses	Offices	Retail	Total in USD '000	Percentage of the total NOI of the properties
Russia	Consolidated	11,477	69,020	80,497	100%
USD '000	Company share	10,343	69,020	79,363	100%
Total	Consolidated	11,477	69,020	80,497	100%
USD '000	Company share	10,343	69,020	79,363	100%
Percentage of the total value of the properties	Consolidated	14%	86%	100%
Company share	13%	87%	100%

(h) Breakdown of the revaluation income (losses) based on regions and uses for the year ended 31.12.14


Region	Uses	Offices	Retail	Other*	Total in USD '000	Percentage of the total revaluation income
Russia USD '000	Consolidated	8,892	101,281	609	110,782	100%
Company share	12,422	101,281	609	114,312	100%
Total USD '000 USD '000	Consolidated	8,892	101,281	609	110,782	100%
Company share	12,422	101,281	609	114,312	100%
Percentage of the total value of the properties	Consolidated	8.0%	91%	1%	100%
Company share	11%	89%	1%	100%

* Includes Sadovaya-Samotechnaya

(i) Breakdown of the revaluation income (losses) based on regions and uses for the year ended 31.12.13


Region	Uses	Offices	Retail	Total in USD '000	Percentage of the total revaluation income
Russia USD '000	Consolidated	164	41,398	41,563	100%
Company share	1,050	41,398	42,449	100%
Total USD '000 USD '000	Consolidated	164	41,398	41,563	100%
Company share	1,050	41,398	42,449	100%
Percentage of the total value of the properties	Consolidated	0,4%	100%	100%
Company share	2%	98%	100%

(k) Breakdown of the actual average rent per sq.m. per year in the functional currency


	For the year ended*
Uses	Offices		Retail		Parking facilities
Regions	31.12.14	31.12.13	31.12.14	31.12.13	31.12.14	31.12.13
Russia - USD/sq.m/annum	281**	465**	1,147	1,231	5,616	6,000

* The main difference in rates is related to significant devaluation of the rouble at year end ** Not including Ozerkovskaya III project

(l) Range of annual rent per square meter offices in USD


	Minimum	Maximum
2014	173	597
2013	313	973
2012	307	1,604

(m) Breakdown of the average occupancy rates


Uses			In %
			Offices	Retail*
Regions	As at 31.12.14	As at 31.12.13	Year 2014	Year 2013	As at 31.12.14	As at 31.12.13	Year 2014	Year 2013
Russia	87%**	85%**	87%**	84%**	85%	79%	83%	76%

* Presented in relation to total lettable areas

** Not Including Ozerkovskaya III project and Sadovaya-Samotechnaya

(n) Number of properties based on regions and uses


	As at
Uses	Offices***		Retail
Regions	31.12.14	31.12.13	31.12.14	31.12.13
Russia	5	5	1	1

*** Not including Ozerkovskaya III project and Sadovaya-Samotechnaya

(o) Breakdown of the actual average rates of return (based on year-end value) for regions and uses


	For the year ended on (in %)
Uses	Offices****		Retail
Regions	31.12.14	31.12.13	31.12.14	31.12.13
Russia	8%	9%	8%	6%

**** Not Including Ozerkovskaya III project and Sadovaya-Samotechnaya

(p) Expected revenues in respect of signed lease agreements


	Assuming tenant option not exercised			Assuming tenant option are exercised
Period of Recognition of Revenue	Revenues from fixed components* ($ '000)	Number of agreements completed	Area of related agreements (sq.m. '000)	Revenues from fixed components ($ '000)	Number of agreements completed	Area of related agreements (sq.m. '000)
Quarter 1/15	33,557	494	126,310	33,557	494	126,310
Quarter 2/15	31,603	428	119,507	31,603	428	119,507
Quarter 3/15	29,617	358	95,263	29,617	358	95,263
Quarter 4/15	27,725	300	85,267	27,725	300	85,267
2016	69,165	264	80,912	69,165	264	80,912
2017	44,294	129	58,474	44,294	129	58,474
2018	32,221	73	50,460	32,221	73	50,460
Thereafter	74,232	54	42,121	74,232	54	42,121
Total	342,414	2,100	658,312	342,414	2,100	658,312

* Does not include revenue from parking

2. Summary of aggregate assets designated for development of income yielding properties

(a) Investment projects under development


		Period (year ended on)
Region	Parameters	31.12.2014	31.12.2013	31.12.2012

Russia- Office	Number of properties under construction at end of the period	3	3[23]	4
Total areas under construction (planned) at end of the period (in sq.m. '000)	180,310	169,700	281,470
Total costs invested in current period (consolidated) (USD '000)	18,367	2,011	7,784
The amount at which the properties are presented in the financial statements at the end of the period (consolidated) (USD '000)	198,409	291,400	409,300
Total balance of the Construction budget in the succeeding period (consolidated) (estimate as at the end of the period) (USD '000)	73,803	94,667	109,229
Total balance of the estimated construction budget for completion of the construction work (consolidated) (estimate as at the end of the period) (USD '000)	246,134	352,077	408,574
Rate of the built-up area regarding which lease agreements have been signed (%)	-	-	-
Russia - Retail and other	Number of properties under construction at end of the period	3	3[24]	1
Total areas under construction (planned) at end of the period (in sq.m. '000)	433,493	433,493	170,350
Total costs invested in current period (consolidated) (USD '000)	65,941	14,685	1,649
The amount at which the properties are presented in the financial statements at the end of the period (consolidated) (USD '000)	229,400	338,800	141,300
Total balance of the Construction budget in the succeeding period (consolidated) (estimate as at the end of the period) (USD '000)	197,467	253,089	127,359
Total balance of the estimated construction budget for completion of the construction work (consolidated) (estimate as at the end of the period) (USD '000)	448,495	633,678	318,419
Rate of the built-up area regarding which lease agreements have been signed (%)	-	-	-

(b) Data on land of the company in the CIS designated for the construction of yielding property


Area	Parameters	Period (year ending on)
		31.12.2014*	31.12.2013
Russia	The amount at which the land is presented in the financial statements at the end of the period (consolidated) (functional currency)	3,665	5,065
	Total area of the land at the end of the period (sq.m. '000)	3,870,000	3,893,332
	Total construction rights in land according to approved building plans, by uses (USD thousand)	-	-

* The change is due to disposal of the St.Petersburg project

3. Significant Investment Properties - Tverskaya Plaza II


				Information Item											Additional Data Required by Regulation 8B(I) (as applicable)
Property name and characteristics			Year	Book value at end of the period (consolidated) $ '000	Fair value at end of the period (consolidated) (in the functional currency)	Rental income in the period (consolidated) (in the functional currency)	Actual NOI in the period of the report - consolidated - in the functional currency	Yield (%)	Adjusted yield (%)	Yield on Cost (%)	Loan/Property value (LTV)	Revaluation (consolidate) $ '000	Occupancy rate for the end of period	Average rent $/sq.m/annum	Identity of the appraiser (name and experience)	Valuation model used by the appraiser	Additional assumptions serving as the basis for the valuation (discount rate, number of comparable properties, average price per sq.m. of the comparable properties)
Tverskaya Plaza II	Region	Russia	2014	15,200	15,200	2,432	1,825	12,0%	12,0%	2.4%	-	(12,326)	82%	404	Cushman&Wakefield	DCF	Cap Rate -13% Discount rate -19%, Average market rate (after contracts re newal) Office -$400; Retail-$1000
2013	31,900	31,900	2,953	2,320	7.3%	7.3%	3%	-	(4,036)	96%	575	Cushman&Wakefield	DCF	Cap Rate -11.5% Discount rate -16%, Average market rate (after contracts re newal) Office -$550; Retail-$1500
Note functional currency	US$	2012	31,500	31,500	2,541	1,952	6.2%	6.2%	2.5%	-	(42,619)	90%	493	Cushman&Wakefield	DCF	Cap Rate -11.5% Discount rate -16%, %, Average market rate (after contracts re newal) Office -$550; Retail-$1500
Main use	Office	2011	76,900	76,900	1,993	1,504	2%	2%	2%	-	2,403	90%	441	JLL	DCF	Was valuated as development project, 25% developer fee, Cap Rate -9%, Discount Rate -15.1%, USD180mn development costs, , %, Average market rate Office -$875; Retail-$650
Original cost / original construction cost (in the functional currency)	76,675
Company's share (%)	100%
Area (sq.m.) -GLA	5,856.26

4. Significant Investment Properties - Ozerkovskaya III


				Information Item											Additional Data Required by Regulation 8B(I) (as applicable)
Property name and characteristics			Year	Book value at end of the period (consolidated) $ '000	Fair value at end of the period (consolidated) (in the functional currency)	Rental income in the period (consolidated) (in the functional currency)	Actual NOI in the period of the report - consolidated - in the functional currency	Yield (%)	Adjusted yield (%)	Yield on Cost (%)	Loan/Property value (LTV)	Revaluation (consolidate) $ '000	Occupancy rate for the end of period	Average rent $/sq.m/annum	Identity of the appraiser (name and experience)	Valuation model used by the appraiser	Additional assumptions serving as the basis for the valuation (discount rate, number of comparable properties, average price per sq.m. of the comparable properties)
Ozerkovskaya III	Region	Russia	2014	300,000	300,000	110	(2,162)	N/A	N/A	N/A	68%	32,873	1%	792	Cushman&Wakefield	DCF	Cap Rate -10% Discount rate -14,5%, Average market rate Office -$650-800; Retail-$460
2013	323,700	323,700	-	-	-	-	-	63%	7,289	-	-	Cushman&Wakefield	DCF	Cap Rate -10% Discount rate -14%, Average market rate Office -$750-900; Retail-$500
Note functional currency	US$	2012	194,550	194,550	-	-	-	-	-	-	2,723	-	-	Cushman&Wakefield	DCF	Cap Rate -10% Discount rate -14%, Average market rate Office -$750; Retail-$500
Main use	Office	2011	177,600	177,600	-	-	-	-	-	32%	17,989	-	-	JLL	DCF	Cap Rate -9.5% Discount rate - 9.8% Average market rate Office -$850; Retail-$450
Original cost / original construction cost (in the functional currency)	305,142
Company's share (%)	100%
Area (sq.m.) -GLA	46,247

5. Information Regarding a Very Substantial Investment Property - AFIMALL City

(a) Presentation of property:


	Detail as at December 31, 2014
Name of the property:	AFIMALL City
Location of the property:	2 Presnenskaya emb., Moscow
Areas of the property broken down by use:	GBA (gross building area) - 166,072 sq.m (GBA together with the underground parking - 283,182 sq.m) GLA (gross leasable area) - 107,208 sq.m Gross Leasable Retail Area - 96,800 sq.m Areas leased as of December 31,2014 - 90,871 sq.m 2,075 underground parking units[25]
Structure of holdings in the property (description of holding through investee companies, including the rates of holdings therein and the rates of their holdings in the property):	The Company holds the asset through a wholly-owned Cypriot subsidiary, Bellgate Construction Ltd
Effective share of the Company in the property (if the property is held by an investee company - multiplication of the company's share in the investee company by the share of the investee company in the property):	The Company holds 100% in Bellgate Construction Ltd which bears 100% of construction expenses and has 100% in AFIMALL CITY
State the names of the partners in the property (if the partners hold more than 25% of the rights in the property or if the partners are related parties as defined in this Directive)*:	Not relevant
Acquisition date of the land (if relevant):	2005/2012[26]
Detail of the legal rights in the property (ownership, lease, etc.)	Ownership of AFIMALL City and the underground parking Lease rights to the underlying land plot
Status of registration of the legal rights[27]:	Registered
Significant unused building rights	None
Special matters (significant non‑conforming construction, ground contamination, etc.):	Certain premises of the AFIMALL City with total area of 5,829.71 sq.m and of the underground parking with the total area of 16,318.3 sq.m are located beyond the boundaries of the land plot co-leased by Bellgate Construction Ltd. Bellgate Construction Ltd. will have to procure lease rights to the land underlying such premises.
Method of presentation in the financial statements [consolidation / proportionate consolidation / equity method]:	Consolidation

(b) Significant Data:


(Data based on 100%. AFI Dev. Share - 100%) Property classified as investment real estate in March 2011	Q4 2014	Q3 2014	Q2 2014	Q1 2014	2013		On property purchase date
Fair value at end of period (USD'000)	1,000,000	1,160,000	1,160,000	1,160,000	1,160,000	Purchase/construction cost (USD '000)	600,585
Valuation profit or loss (USD '000)	(3,655)	88,473	(35,442)	51,904	41,398
If property valued by rise-fall (cancellation of fall) in value for period (USD '000)	N/A	N/A	N/A	N/A	N/A	Purchase date	July 2005
Average occupancy rate (%)[28]	85%	82%	82%	83%	76%
Actual rented areas (m2)	90,871	87,599	87,760	87,710	81,170
Total revenue (USD '000)	24,291	26,033	28,689	27,955	104,075
Average rent per meter (annual)	1,147	1,201	1,202	1,224	1,231
Average rent per meter in contracts signed in period (USD '000)	1,035	1,667	1,286	673	915
NOI for period (USD '000)	18,641	25,007	22,501	16,807	69,020
NOI adjusted for period (USD '000)	18,641	25,007	22,501	16,807	69,020
Actual return rate (%)	8.3%	7.4%	6.8%	5.8%	5.9%
Adjusted return rate (%)	8.3%	7.4%	6.8%	5.8%	5.9%
Number of tenants at end of period[29]	288	289	291	294	280
Average revenue per sq.m. (annual)	1,069	1,189	1,308	1,261	1,282


(Data based on 100%, AFI Development's share in the property - 100%)	2014	2013	2012
in USD '000
Revenue:
From rent - fixed	95,253	92,237	74,079
From rent - variable	5,936	7,623	5,841
From management fees	-	-	-
From parking garage operation	5,780	4,214	974
Miscellaneous	-	-	518
Total revenue:	106,968	104,074	81,412
Costs:
Management, maintenance and operation	24,012	35,054	33,166
Depreciation (if recorded)			-
Miscellaneous costs			-
Total costs:	24,012	35,054	33,166
Profit			-
NOI	82,956	69,020	48,246

(d) Major Tenants in the Property:

(Data based on 100%. Share of company in the property - 100%)	Share in leased property area (%)	Is the tenant an anchor tenant?	Is the tenant expected to be responsible for more than 20% of the revenue from the property?	Industry to which the tenant belongs	Description of the lettable property
Entry date of tenants as agreed in the agreement	Lease term (years)	Options to extend (years)	Indexation (annual)	Detail of guarantees (if any)	Indicate special conditions
---	---	---	---	---	---	---	---	---	---	---
Tenant 1	7.1%	yes	no	cinema	Centre Opening Date	10	no	5%	Security Deposit	no
Tenant 2	4.5%	yes	no	entertainment	08.10.2013	2	no	Step Rent	Security Deposit	no
Tenant 3	3.2%	yes	no	entertainment	Centre Opening Date	10	no	5%	Security Deposit	no
Tenant 4	2.6%	yes	no	furniture & home décor	27.12.2013	10	no	Step Rent	Security Deposit	no
Tenant 5	2.5%	yes	no	fashion	Centre Opening Date	10	no	5%	Security Deposit	no
Tenant 6	2.3%	yes	no	fashion	Centre Opening Date	5	no	5%	Security Deposit	no
Tenant 7	2.1%	yes	no	fashion	Centre Opening Date	10	no	5%	Bank Guarantee	no
Tenant 8	1.8%	yes	no	fashion	Centre Opening Date	5	no	-	Bank Guarantee	no
Tenant 9	1.7%	yes	no	fashion	Centre Opening Date	5	no	Step Rent	Security Deposit	no
Tenant 10	1.5%	yes	no	fashion	Centre Opening Date	5	no	5%	Security Deposit	no
Tenant 11	1.6%	yes	no	fashion	Centre Opening Date	10	no	7.5%	Security Deposit	no
Tenant 12	1.4%	yes	no	supermarket	Centre Opening Date	10	no	4%	Bank Guarantee	no
Total major tenants	32.3%

(e) Projected Revenues in respect of Signed Lease Agreements:


Data based on 100%. Share of company in the property -100% (USD '000)	For the year ending in 2015	For the year ending in 2016	For the year ending in 2017	For the year ending in 2018	For the year ending in 2019 and onwards
Fixed components	112,550	68,568	43,792	32,144	74,161
Variable components (estimate)	N/A	N/A	N/A	N/A	N/A
Total	112,550	68,568	43,792	32,144	74,161

(f) Planned Improvements and Changes for the Property:


Details:
Nature of improvement	Fit-out of entrance, sewerage improvements
Additional areas added	-
Statutory situation	-
Budget (USD '000)	900
Rate of the areas with respect to which rental agreements have been signed out of the additional areas	-
Expected addition to 2014 NOI (USD '000)	-
Execution status	Design stage

(g) Specific Financing:


Specific Financing			Credit facility:
Balances in the statement of financial position	31.12.2014 (USD '000)	Presented as short-term loans:	26,000
Presented as long-term loans:	455,059
31.12.2013 (USD '000)	Presented as short-term loans:	26,000
Presented as long-term loans:	573,914
Fair value as at 31.12.2014 (end of the report year) (USD '000)			1,000,000
Original credit facility date			June 22, 2012[30]
Original credit facility amount (USD '000)			Up to approx. 502,105.48 (RUR 21,000 million)
Effective interest rate as at 31.12.2014 (%)			9.5% in RUR; 3M Libor + 5.02% in USD
Repayment dates principal and interest			Quarterly Interest; Repayment of the Principal Debt will start on 31 March, 2014 with the following Repayment Schedule:$6.5 million quarterly in 2014, 2015, 2016 ). Final Repayment Date is 01, April, 2018.
Main financial conditions			Banking accept for any disposal of Project' premises exceeding 10% of total Borrower' Assets. Liquidation Value of the Property under the Mortgage should be higher than amount of the outstanding Principal Debt and Interest payments accrued for the six months period. Bellgate Construction Limited (the Borrower) should have minimum quarterly Revenues, ranging from RUR 651,000,000 in Q3 2012 to RUR 1,139,000,000 in Q1 2018. Penalty: 0.5% per annum extra charge to the Interest Rate applicable under the Loan Facility Agreement- applicable only for the Quarter when the aforesaid Revenue threshold has not been achieved.
Other financial conditions			N/A
State whether main conditions or financial covenants have been violated as at the end of the report year			The Company is in line with all financial Covenants
Is it non-recourse			Yes, except the Surety Agreement between the Company and the Bank. The Guarantee is limited by the amount of USD 1 million.

(h) Liens and other Significant Legal Restrictions in the Property:


Type		Details	Amount secured by the lien (at the end of the report year) 31.12.2014 (USD/RUR)
Liens	First priority	On 22 June, 2012 Bellgate Constructions Limited and the Bank of the VTB Group (the "Bank") entered into a Loan Facility Agreement for a total Principal Debt amount of to RUR 21,000 million (approx. USD 689 million). The total amount of the current Loan Facility Debt as at 31, December, 2014 is approx. USD 481 million. The Loan Facility Agreement is secured by: (i) the Pledge of 100% AFID' shares in Bellgate Constructions Limited capital; (ii) Surety Agreement between the Company and the Bank for USD 1 million; (iii) Mortgage of AFIMALL City' premises; (iv) Mortgage of the underground AFIMALL City' premises (Parking) (and the Land lease rights; (v) Mortgage of the Aquamarine Hotel' premises; Surety Agreement between Semprex LLC (the Company subsidiary owning the Aquamarine Hotel) and the Bank.	Up to RUR 21,000 million (approx.. USD 502.11 million)

(i) Details with respect to the Valuation:


(Data based on 100%)		31.12.2014	31.12.2013	31.12.2012
Value determined (USD '000)		1,000,000	1,160,000	1,160,000
Identity of appraiser		Cushman & Wakefield	Cushman & Wakefield	Cushman & Wakefield
Is the appraiser independent?		Yes	Yes	Yes
Is there an indemnification agreement?		Yes	Yes	Yes
Effective date of the valuation (the date to which the valuation relates)		31.12.2014	31.12.2013	31.12.12
Valuation model (comparison / income / other / cost)		DCF	DCF	DCF
Main details used for purposes of the valuation (to be provided specifically based on the valuation provided) (the list is illustrative only):
If the valuation is by the Sales Comparison Approach	Gross leasable area used in the calculation (sq.m.)	N/A	N/A	N/A
Sale price per sq.m. of leasable area used in the calculation (USD)	N/A	N/A	N/A
Range of prices per sq.m. of leasable area of comparable properties used in the calculation (USD)	N/A	N/A	N/A
Number of comparable properties (#) used in the calculation	N/A	N/A	N/A
Regarding the main relevant properties used for comparison indicate: the name/identity of the property, location, area	N/A	N/A	N/A
Net rate of return reflecting the property's current NOI (current NOI divided by value of the property)	N/A	N/A	N/A


Other main parameters (annual rent growth rate)	2,5% (starting 2017)	2.5%	2.5%
If the valuation is by the Sales Income Approach	Gross leasable area used in the calculation (sq.m.)	107,208	107,208	107,208
Occupancy rate in the year + 1 (%)	87%	80%	70%
Occupancy rate in the year + 2 (%)	93%	90%	75%
--
Representative occupancy rate out of the leasable area for purposes of valuation (%)	97%	97%	97%
Average annual rent per sq.m. leased for purposes of valuation in the year + 1	1,085	1,253	1,304
Average annual rent per sq.m. leased for purposes of valuation in the year + 2	1,140	1,323	1,386

Representative average annual rent per sq.m. leased for purposes of valuation (USD)	1,282	1,428	1,421
Representative NOI for purposes of valuation (USD'000)	133,730	149,016	156,950
Average periodic expenses for maintenance of the existing situation (USD'000)[31]	133	9,364	12,194
Capitalisation rate / rate of return / multiplier used for purposes of the valuation (%)	Capitalisation - 10.0% Discount rate - 17%	Capitalisation - 10.0% Discount rate - 15%	Capitalisation - 10.0% Discount rate - 15%
Time until deemed realisation	5 years	5 years	5 years
Multiplier / reversionary rate	N/A	N/A	N/A
Other main parameters	N/A	N/A	N/A

Sensitivity analysis for value (based on the method chosen):
Occupancy rates	Increase of 2% (abs)	22,800	23,892	30,774
Decrease of 2% (abs)	(17,984)	(20,461)	(30,693)
Capitalisation rates	Increase of 1% (abs)	(50,576)	(61,431)	(70,581)
Decrease of 1% (abs)	60,691	73,717	86,266
Average rent per meter	Increase of 5% (rel)	33,457	42,921	45,338
Decrease of 5% (rel)	(33,457)	(42,921)	(45,338)
Increase of 10% (rel)	66,915
Decrease of 10% (rel)	(66,915)

6. Information Regarding Investment Property under Development - Bolshaya Pochtovaya


Valuation information and underlying assumptions			% of the asset's areas for which binding lease agreements were signed at end of the period	Completion % at end of the period (technical/ financial)	Financial information
Additional assumptions serving as the basis for the valuation (discount rate, number of comparable properties, average price per sq.m. of the comparable properties)	Valuation model used by the appraiser	Identity of the appraiser (name and experience)	Appraisal and valuation information			Cumulative cost at end of the period land, construction, other $ '000		Annual information for the asset	Name of the property and its characteristics
Revaluation $ '000	Book value at end of the period (consolidated) $ '000	Fair value at end of the period (consolidated) $ '000
Cap Rate - 11% Discount rate - 22% Average market sale price for apartments - 5,000 USD/sq.m; Retail - 4,000 USD/sq.m;	DCF	Cushman&Wakefield	0%	43%	(39,873)	108,300	108,300	226,127	2014	Pochtovaya	Property name
Cap Rate -10% -Discount rate - 19% Average market sale price for apartments -6,000 USD/sq.m; Retail -5,000 USD/sq.m	DCF	Cushman&Wakefield	0%	39%	(834)	139,400	139,400	204,344	2013
24, 30, 34 Bolshaya Pochtovaya.Str. Moscow, Russia	Proper ty location
USD	Functional currency
Leasehold to 4 land plots intended to be used for the project were acquired by the holding company in 2007 and 2012	Date of project /project's land pot acquisition
Cap Rate -10% Discount rate - 19% Average market sale price for apartments -6,000 USD/sq.m; Retail -5,000 USD/sq.m	DCF	Cushman&Wakefield	0%	39%	(74,603)	141,300	141,300	204,477	2012	99.7%	Company share
Full consolidation	Method of representation in the consolidated financial statements
Jul-17	Estimated date of construction completion
Cap Rate -11.5% -Discount rate - 19% Developer profit - 25% Average market sale price for apartments -4,800 USD/sq.m;	DCF	JLL	0%	38%	871	213,200	213,200	202,828	2011	Residential - 56,952 Retail - 6,200 Office - 28,008	Project's planned areas (by use)
451,923	Total estimated cost (land, construction, other) (in 000'USD)

7. Information Regarding Investment Property under Development - Kossinskaya


Valuation information and underlying assumptions			% of the asset's areas for which binding lease agreements were signed at end of the period	Completion % at end of the period (technical/ financial)	Financial information
Additional assumptions serving as the basis for the valuation (discount rate, number of comparable properties, average price per sq.m. of the comparable properties)	Valuation model used by the appraiser	Identity of the appraiser (name and experience)	Appraisal and valuation information			Cumulative cost at end of the period land, construction, other $ '000		Annual information for the asset	Name of the property and its characteristics
Revaluation $ '000	Book value at end of the period (consolidated) $ '000	Fair value at end of the period (consolidated) $ '000
Cap Rate- 13% Discount rate - 20% Average market rent retail-$300; office-$200;	DCF	Cushman&Wakefield	0%	88%	(62,094)	53,700	53,700	260,930	2014	Kossinskaya	Property name
Cap Rate- 12% Discount rate - 17% Average market rent retail-$375; office-$250;	DCF	Cushman&Wakefield	0%	79%	(6,697)	106,700	106,700	234,198	2013
9-21 Kossinskaya st., ,Moscow, Russia	Property location
USD	Functional currency
Leasehold to two land plots acquired in 2006 and 2009	Date of project /project's land pot acquisition
Cap Rate- 12% Discount rate - 17%Average market rent retail-$450; office-$250;	DCF	Cushman&Wakefield	0%	74%	(45,330)	102,700	102,700	221,883	2012	100.0%	Company's share
Full consolidation	Method of representation in the consolidated financial statements
Sept-15	Estimated date of construction completion
Cap Rate- 12.25% Discount rate - 14.2% retail-$500; office-$225;	DCF	JLL	0%	74%	971	146,120	146,120	220,899	2011	Retail - 52,997 Office - 8,476 Hotel - 3,527 Warehouse - 5,000	Asset's planned areas (by usage)
304,729	Total estimated cost (land, construction, other) (in 000'USD)

8. Information Regarding Investment Property under Development - Plaza IV


Valuation information and underlying assumptions			% of the asset's areas for which binding lease agreements were signed at end of the period	Completion % at end of the period (technical/ financial)	Financial information
Additional assumptions serving as the basis for the valuation (discount rate, number of comparable properties, average price per sq.m. of the comparable properties)	Valuation model used by the appraiser	Identity of the appraiser (name and experience)	Appraisal and valuation information			Cumulative cost at end of the period land, construction, other $ '000		Annual information for the asset	Name of the property and its characteristics
Revaluation $ '000	Book value at end of the period (consolidated) $ '000	Fair value at end of the period (consolidated) $ '000
Cap Rate- 9,5% Discount rate - 24% Average market rent retail-$1000; office-$700;	DCF	Cushman&Wakefield	0%	36%	(60,219)	107,109	107,109	126,776	2014	Plaza IV	Property name
Cap Rate- 9% Discount rate - 20% Average market rent retail-$1500; office-$875;	DCF	Cushman&Wakefield	0%	36%	356	168,400	168,400	126,500	2013
11 Gruzinskiy Val, Moscow	Property location
USD	Functional currency
2006-2008, 2012	Date of project /project's land pot acquisition
Cap Rate- 9% Discount rate - 20% Average market rent retail-$1500; office-$875;	DCF	Cushman&Wakefield	0%	36%	2,886	168,000	168,000	126,203	2012	95%	Company's share
Full consolidation	Method of representation in the consolidated financial statements
Jan-18	Estimated date of construction completion
Cap Rate- 9.5% Discount rate - 14.1% Average market rent office-$875	DCF	JLL	0%	36%	53,978	164,632	164,632	125,897	2011	Office - 58,650 sqm Retail - 2,700 sqm	Project's planned areas (by usage)
267,210	Total estimated cost (land, construction, other) (in 000'USD)

Human Resources - Employees

The following table details the number of employees in the Group's real estate operations in Russia, broken down by the business sectors in which they are employed:


	Number of Employees as at:
31.12.14	31.12.13	31.12.12
Management	6	5	6
Financial	33	32	31
Marketing and sales	19	7	6
Business development, including project management division	74	63	55
Legal	10	9	9
Administrative	36	42	42
Total	178	159	149

Total amount of 178 employees does not include:

· 52 employees, who currently work at the AFIMALL City project

· 126 of employees in Semprex LLC (vs 129 members in 2013), owning and operating the Aquamarine Hotel

· 284 employees in the Plaza SPA Zheleznovodsk project

· 456 employees in the Plaza SPA Kislovodsk project

Financing

As of December 31, 2014 Group's debt portfolio was as follows:


Project	Lending bank	Max debt limit	Principal balance as of Dec-31, 2014	Available (US$ mn)	Nominal Interest rate	Currency	Maturity
(US$ mn)	(US$ mn)	(dd.mm.yy)
AFIMALL City	VTB Bank JSC	502.11(RUR21 billion)*	184.7	0	9.5%	RUR	01.04.2018
296.4	3-month LIBOR + 5.02%	US$
Krown Investments LLC	VTB Bank JSC	220.0	205.0	0	3-month LIBOR + 5.7%	US$	26.01.2015*

* In January 2015 the loan was refinanced by VTB Bank JSC, please refer to Note 41 to the Consolidated Financial Statement

Annex B to the Management Discussion and Analysis

Below is additional information regarding the Company's very significant loans. Terms not expressly defined herein shall have the meaning ascribed thereto in the MD&A.


Balance as of 31.12.2014	Lender type: Bank, Institutional etc.	Indexation/ currency exposure & interest rate	Liens and material legal restrictions on the property	Covenants	Cross default mechanism	Any other covenants or restriction that might increase the cost of debt	In-case it is a credit line facility - what are the terms&conditions for draw downs	The methods/way that the covenant is calculated	Covenant calculation results	The date of Q4 2014 financial statement were reported	The date that the lender is checking the borrower is line with the covenants
USD 296,385,605 and RUR 10,391,546,950(USD 184,711,029). Total amount in USD as of 31.12.2014 is USD 481,096,634	Specific project financed by VTB Bank JSC	RUR/USD loan provided in five tranches totalling RUR 21 billion. Each tranche can be drown down either in US Dollars or in Rubles (at Company's discretion). The loan facility has differentiated interest rates which are currency dependent: 9.5% for loans drawn down in Russian rubles and 3 months LIBOR + 5.02% for loans drawn down in US dollars. The interest on the loans is payable on a quarterly basis, throughout the term of the credit line. The principal is due to be fully repaid in April 2018. The RUR interest rate may be unilaterally increased by the lending bank, should one of the interest indicators stipulated by the Russian Central Bank and specified in the loan agreement be increased; the interest rate will be increased by the amount of the interest indicator increase.	1. Liens over all the Bellgate's shares 2. AFI Development PLC company guarantee, limited to USD 1,000,000 3. Mortgage over 100% of the premises of AFIMALL City 4. Mortgage over the premises in the Parking owned by Bellgate, upon registration of Bellgate's rights to land plot under the Parking 5. Permission to debit Bellgate's account held in the lending bank 6. Additional mortgage over the premises of the "Aquamarine" Hotel in Moscow, to be removed in case Bellgate (the borrower) redeems USD 20 million of the principal 7. Additional guarantee by Semprex LLC, a Russian Company - an indirect subsidiary of AFI Development Plc, to be removed in case Bellgate (the borrower) redeems USD 20 million of the principal	(1) Bellgate'(the Borrower) should have minumum quarterly revenues, ranging from RUR 651,000,000 in Q3 2012 to RUR 1,139,000,000 in Q1 2018. Penalty: 0.5% per annum extra charge to the interest rate applicable under the loan agreement- applicable only for the quarter when the aforesaid revenue threshold was not achieved; (2) Liquidation Value of the property should be higher than sum of the outstanding principal and six months interest.	N/A	N/A	The loan is given in five tranches: 1st tranche drawn down on 29 June 2012, 2nd tranche drawn down on 3 August 2012 on the amount USD 69, 385,604.64 (RUR 2,252,000,000), 3rd tranche of RUR 1,300,000,000 drawn down on 01.02.2013, 4th tranche of RUR 1,333,333,333.33 drawn down on 28.02.2013 , 5th tranche of RUR 1,333,333,333.34 drawn down on 28.02.2014.	(1) The total of revenue, including VAT , calculated quarterly; (2) The Liquidation Value is determined by an external valuer appointed by the Bank.	(1) The minimum quarterly revenue for Q4 2014 was 961 millions Roubles ; (2) Liquidation Value determined by an external valuer appointed by the Bank is USD 681,5 million/RUR 36,9 bln (VAT not included)	17 March 2015	(1) Borrowers revenues are checked quarterly; (2) Liquidation value is checked twice a year, on December and on August.

Note: During February 2014 the Company has financed the 4th installment of consideration for acquisition of underground car park at AFIMALL City by additional drawdown of RUR1.33 billion (US$37.5 million).

AFI DEVELOPMENT PLC

CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2014

C O N T E N T S

Board of Directors and Professional Advisers

Board of Directors' Report

Directors' Responsibility Statement

Independent Auditors' Report

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

BOARD OF DIRECTORS AND PROFESSIONAL ADVISERS

Board of Directors Lev Leviev - Chairman

Mark Groysman

Moshe Amit

Avraham Noach Novogrocki

Christakis Klerides

John Robert Camber Porter

Panayiotis Demetriou

Secretary Fuamari Secretarial Limited

Independent Auditors KPMG Limited

Bankers Joint Stock Company VTB Bank

Joint Stock Commercial Savings Bank of the Russian Federation (SBERBANK)

Raiffeisen Bank International AG

Registered Office Spyrou Araouzou 165,

Lordos Waterfront Building,

3035 Limassol,

Cyprus

BOARD OF DIRECTORS' REPORT

The Board of Directors of AFI Development Plc (the "Company") presents to the members its annual report together with the audited consolidated financial statements of the Company for the year ended 31 December 2014.

PRINCIPAL ACTIVITIES

The principal activities of the Group, which remained unchanged from last year, are real estate investment and development. The principal activity of the Company is the holding of investments in subsidiaries.

EXAMINATION OF THE DEVELOPMENT, POSITION AND PERFORMANCE OF THE ACTIVITIES OF THE GROUP

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.

As at 31 December 2014, the Company's portfolio consisted of 8 investment properties, 7 investment properties under development, 1 trading property under development, 1 property as inventory of real estate and 4 hotel projects. The portfolio comprises commercial projects focused on offices, shopping centres, hotels, mixed-use properties and residential projects in prime locations in Moscow.

FINANCIAL RESULTS

The Group's results are set out in the consolidated income statement on page 8. The loss of the Group for the year before taxation amounted to US$323,343 thousand (2013: profit US$135,331 thousand). The loss after taxation attributable to the Group's shareholders amounted to US$281,020 thousand (2013: profit

US$103,074 thousand).

BOARD OF DIRECTORS' REPORT

DIVIDENDS

The Board of Directors does not recommend the payment of a dividend and the loss for the year is transferred to retained earnings.

MAIN RISKS AND UNCERTAINTIES

The most significant risks faced by the Group and the steps taken to manage these risks are described in note 33 of the consolidated financial statements.

FUTURE DEVELOPMENTS

The Group is one of the leading real estate development companies operating in Russia. It focuses on developing and redeveloping high quality commercial and residential real estate assets in Moscow and the Moscow Region. The strategy during the reporting period and for the future periods is to sell the residential properties that the Group develops and to either lease the commercial properties that the Group develops or sell them if the Group is able to achieve a favourable return.

SHARE CAPITAL

There were no changes to the share capital of the Company during the year. As at the year end the share capital of the company comprised:

· 523,847,027 "A" shares of US$0.001 and,

· 523,847,027 "B" shares of US$0.001

All "A" shares are on deposit with BNY (Nominees) Limited and each "A" share is represented by one GDR listed on the London Stock Exchange ("LSE").

All "B" shares were admitted to a premium listing of the Official list of the UK Listing Authority and to trading on the main market of LSE.

BRANCHES

The Group operates six branches and/or representative offices of Cypriot, BVI and Luxembourg entities in the Russian Federation. These are Bellgate Construction Ltd branch, which operates AFIMALL City project, Amerone Ltd branch, Bugis Finance branch and Triumvirate I S.a r.I branch operating investment properties and Bastet Estates Ltd branch and Falgaro Investments Ltd branch acting as sale agents for residential properties.

BOARD OF DIRECTORS' REPORT

BOARD OF DIRECTORS

The members of the Board of Directors as at 31 December 2014 and at the date of this report are shown on page 1. The directors' date of appointment and resignation, if applicable, is indicated on page 1. The term of those that have not resigned will expire on the date of the next annual general meeting of the shareholders but all of them are eligible for re-election. There were no significant changes in the assignment of responsibilities of the Board of Directors during the year.

POST BALANCE SHEET EVENTS

Events which took place after the reporting date and which have a bearing on the understanding of the financial statements are described in note 41 of the consolidated financial statements.

INDEPENDENT AUDITORS

The independent auditors, KPMG Limited, have expressed their willingness to continue offering their services. A resolution reappointing the auditors and giving authority to the Board of Directors to fix their remuneration will be proposed at the Annual General Meeting.

By order of the Board

Fuamari Secretarial Limited

Secretary

Nicosia, 16 March 2015

DIRECTORS' RESPONSIBILITY STATEMENT

Each of the directors, whose names are listed below confirm that, to the best of their knowledge:

· the consolidated financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole; and

· the adoption of a going concern basis for the preparation of the financial statements continues to be appropriate based on the foregoing and having reviewed the forecast financial position of the Group; and

· the Board of Directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties that they face.

The Directors of the Company as at the date of this announcement are as set out below:

The Board of Directors

Executive directors

Lev Leviev - Chairman .............................................................

Mark Groysman .............................................................

Non-executive director

Avraham Noach Novogrocki .............................................................

Non-executive independent directors

Moshe Amit .............................................................

Christakis Klerides .............................................................

John Robert Camber Porter .............................................................

Panayiotis Demetriou .............................................................

Independent Auditors' Report

To the Members of AFI Development Plc

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of AFI Development Plc ("the Company") and its subsidiaries (together with the Company, the "Group"), which comprise the consolidated statement of financial position as at 31 December 2014, and the consolidated statements of income statement, comprehensive income and changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Board of Directors' Responsibility for the consolidated Financial Statements

The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2014, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU and the requirements of the Cyprus Companies Law, Cap. 113.

Report on Other Legal Requirements

Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 and 2013, we report the following:

· We have obtained all the information and explanations we considered necessary for the purposes of our audit.

· In our opinion, proper books of account have been kept by the Company, so far as appears from our examination of these books.

· The consolidated financial statements are in agreement with the books of account.

· In our opinion and to the best of the information available to us and according to the explanations given to us, the consolidated financial statements give the information required by the Cyprus Companies Law, Cap. 113, in the manner so required.

· In our opinion, the information given in the report of the Board of Directors is consistent with the consolidated financial statements.

Other Matter

This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Section 34 of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 and 2013 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.

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

16 March 2015

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2014


		2014	2013
	Note	US$ '000	US$ '000

Revenue	7	144,088	202,261

Other income	8	3,507	6,409

Operating expenses	9	(62,510)	(76,517)
Carrying value of trading properties sold	22	(1,632)	(32,623)
Administrative expenses	10	(22,303)	(16,911)
Other expenses	11	(6,773)	(5,480)
Total expenses		(93,218)	(131,531)

Share of the after tax loss of joint ventures	17	(4,451)	(798)

Gross Profit		49,926	76,341

Profit on disposal of investment in subsidiaries/joint ventures	35	114	32,278

Profit on disposal of investment property	15	-	27,835

Valuation (loss)/profit on properties	15,16	(85,884)	106,234
Impairment loss on inventory of real estate	20	(8,892)	(2,186)
Net valuation loss on properties		(94,776)	104,048

Results from operating activities		(44,736)	240,502

Finance income		7,026	20,961
Finance costs		(285,633)	(126,132)
Net finance costs	12	(278,607)	(105,171)

(Loss)/Profit before tax		(323,343)	135,331
Tax benefit/(expense)	13	36,048	(31,386)

(Loss)/Profit for the year		(287,295)	103,945

(Loss)/Profit attributable to:
Owners of the Company		(281,020)	103,074
Non-controlling interests		(6,275)	871
		(287,295)	103,945

Earnings per share
Basic and diluted earnings per share (cent)	14	(26.82)	9.84

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2014


	2014	2013
	US$ '000	US$ '000

(Loss)/Profit for the year	(287,295)	103,945

Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss
Realised translation difference on disposal of subsidiaries/joint ventures transferred to income statement	(130)	30,042
Foreign currency translation differences for foreign operations	(164,659)	(35,960)
Other comprehensive income for the year	(164,789)	(5,918)

Total comprehensive income for the year	(452,084)	98,027


Total comprehensive income attributable to:
Owners of the Company	(445,446)	97,230
Non-controlling interests	(6,638)	797
	(452,084)	98,027

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2014


	Attributable to owners of the Company					Non-controlling interests	Total equity
	Share	Share	Translation	Retained
	capital	premium	reserve	earnings	Total
	US$ '000	US$ '000	US$ '000	US$ '000	US$ '000	US$ '000	US$ '000


Balance at 1 January 2013	1,048	1,763,409	(144,610)	9,661	1,629,508	(2,976)	1,626,532

Total comprehensive income
Profit for the year	-	-	-	103,074	103,074	871	103,945
Other comprehensive income	-	-	(5,844)	-	(5,844)	(74)	(5,918)
Total comprehensive income	-	-	(5,844)	103,074	97,230	797	98,027

Transactions with owners of the Company Contributions and distributions
Share option expense	-	-	-	4,920	4,920	-	4,920

Balance at 31 December 2013	1,048	1,763,409	(150,454)	117,655	1,731,658	(2,179)	1,729,479

Balance at 1 January 2014	1,048	1,763,409	(150,454)	117,655	1,731,658	(2,179)	1,729,479

Total comprehensive income
Loss for the year	-	-	-	(281,020)	(281,020)	(6,275)	(287,295)
Other comprehensive income	-	-	(164,426)	-	(164,426)	(363)	(164,789)
Total comprehensive income	-	-	(164,426)	(281,020)	(445,446)	(6,638)	(452,084)

Transactions with owners of the Company Contributions and distributions
Share option expense	-	-	-	4,383	4,383	-	4,383

Balance at 31 December 2014	1,048	1,763,409	(314,880)	(158,982)	1,290,595	(8,817)	1,281,778

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014


		2014	2013
	Note	US$ '000	US$ '000
Assets
Investment property	15	1,375,416	1,609,800
Investment property under development	16	431,474	635,266
Share of investment in joint ventures	17	-	5,555
Property, plant and equipment	18	35,101	69,735
Long-term loans receivable	19	18,071	21,652
Inventory of real estate	20	20,111	-
VAT recoverable	21	42	430
Non-current assets		1,880,215	2,342,438

Trading properties	22	2,979	6,409
Trading properties under construction	23	133,036	127,213
Other investments	24	6,499	9,982
Inventory		615	574
Short-term loans receivable	19	1	774
Trade and other receivables	25	38,961	106,425
Current tax assets	13	1,307	-
Cash and cash equivalents	26	86,756	193,330
Current assets		270,154	444,707

Total assets		2,150,369	2,787,145

Equity
Share capital	27	1,048	1,048
Share premium	27	1,763,409	1,763,409
Translation reserve	27	(314,880)	(150,454)
Accumulated losses/retained earnings	27	(158,982)	117,655
Equity attributable to owners of the Company		1,290,595	1,731,658
Non-controlling interests	36	(8,817)	(2,179)
Total equity		1,281,778	1,729,479

Liabilities
Long-term loans and borrowings	28	455,097	778,909
Deferred tax liabilities	29	102,621	125,260
Deferred income	32	12,966	22,048
Non-current liabilities		570,684	926,217

Short-term loans and borrowings	28	231,684	27,027
Trade and other payables	30	28,216	100,248
Advances from customers	31	38,007	107
Current tax liabilities	13	-	4,067
Current liabilities		297,907	131,449

Total liabilities		868,591	1,057,666

Total equity and liabilities		2,150,369	2,787,145

The consolidated financial statements were approved by the Board of Directors on 16 March 2015.

........................ ...............................

Lev Leviev Mark Groysman

Chairman Director

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2014


		2014	2013
	Note	US$'000	US$'000
#### Cash flows from operating activities
(Loss)/profit for the year		(287,295)	103,945
Adjustments for:
Depreciation	18	1,595	1,874
Net finance costs	12	278,143	103,823
Share option expense		4,383	4,920
Decrease/(increase) in fair value of properties	15,16,20	94,776	(104,048)
Share of loss in joint ventures	17	4,451	798
Profit on disposal of investment in subsidiaries/joint ventures	35	(114)	(32,278)
Profit on disposal of investment property	15	-	(27,835)
Profit on sale of property, plant and equipment		(42)	(16)
Goodwill written off		-	153
Tax (benefit)/expense	13	(36,048)	31,386
		59,849	82,722
Change in trade and other receivables		24,300	(21,011)
Change in inventory		(323)	4
Change in trading properties and trading properties under construction		(51,073)	12,632
Change in advances and amounts payable to builders of trading properties under construction		(6,213)	-
Changes in advances from customers		54,744	-
Change in trade and other payables		(16,003)	(57,336)
Change in VAT recoverable		(201)	-
Change in deferred income		164	3,429
Cash generated from operating activities		65,244	20,440
Taxes paid		(750)	(1,345)

Net cash from operating activities		64,494	19,095

Cash flows from investing activities
Net cash inflow from the disposal of subsidiaries	35	1,400	3,382
Net cash outflow for the acquisition of assets and liabilities	17	-	(202,462)
Proceeds from sale of other investments		2,150	-
Proceeds from sale of investment property	15	-	91,329
Proceeds from sale of property, plant and equipment		141	334
Interest received		5,941	3,391
Change in advances and amounts payable to builders		(24,502)	(8,788)
Payments for construction of investment property under development	15,16	(54,813)	(32,946)
Payments for the acquisition/renovation of investment property	30	(43,800)	(43,544)
Change in VAT recoverable		3,472	(1,781)
Acquisition of property, plant and equipment	18	(593)	(1,807)
Acquisition of other investments	24	(1,916)	(10,000)
Taxes paid on disposal of investment property		(4,005)	-
Payments for loan receivable		(591)	(214)
Proceeds from repayment of loans receivable		576	-

Net cash used in investing activities		(116,540)	(203,106)

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

For the year ended 31 December 2014


		2014	2013
	Note	US$'000	US$'000
Cash flows from financing activities
Proceeds from loans and borrowings	28	36,986	306,854
Repayment of loans and borrowings		(26,000)	(34,130)
Repayment of a loan from a related party		-	(14,354)
Interest paid		(53,169)	(59,396)

Net cash (used in)/from financing activities		(42,183)	198,974

Effect of exchange rate fluctuations		(12,345)	3,518

Net (decrease)/increase in cash and cash equivalents		(106,574)	18,481
Cash and cash equivalents at 1 January		193,330	174,849

Cash and cash equivalents at 31 December	26	86,756	193,330

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% (31/12/2013: 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.

The consolidated financial statements of the Company as at and for the year ended 31 December 2014 comprise the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities") 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 as presented in note 34 "Group Entities".

2. BASIS OF PREPARATION

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and the requirements of the Companies Law of Cyprus, Cap. 113.

The consolidated financial statements were authorised for issue by the Board of Directors on 16 March 2015.

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis as modified, up to 31 December 2003, by the provisions of IAS 29 "Reporting in Hyperinflationary Economies" which provides for the restatement of non-monetary assets and liabilities to account for the inflation. The historical cost basis is also modified in regard to investment property, investment property under development and other investments which are presented at fair value.

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.

3. Use of judgements and estimates

In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

Judgements

Information about judgements made in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes:

· Note 17 - classification of the joint arrangements;

· Note 37 - lease classification;

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 December 2014 is included in the following notes:

· Note 18 - valuation of land and buildings and buildings under construction

· Note 22 - valuation of trading properties

· Note 23 - valuation of trading properties under construction

· Note 13 - provision for tax liabilities

· Note 25 - recoverability of receivables

· Note 31 - utilisation of tax losses

· Note 39 - recognition and measurement of contingencies

Measurement of fair values

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities

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's 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 fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirely 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.

Further information about the assumptions made in measuring fair values is included in the following notes:

· Note 15 - investment property

· Note 16 - investment property under development

· Note 24 - other investments

· Note 27 - share-based payment arrangements

· Note 33 - financial instruments

4. CHANGES IN ACCOUNTING POLICIES

Several new standards and amendments apply for the first time in 2014. However, they do not impact the annual consolidated financial statements of the Group except for the changes below.

The Group has adopted the following amendments to a standard and new interpretation with a date of initial application of 1 January 2014.

· IAS 32 (Amendments) ''Offsetting Financial Assets and Financial Liabilities'' (effective for annual periods beginning on or after 1 January 2014).

The nature and effects of the changes are explained below.

Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities

The Group has applied the amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities for the first time in the current year. The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of 'currently has a legally enforceable right of set-off' and 'simultaneous realisation and settlement'.

The amendments have been applied retrospectively.

The Group has assessed whether certain of its financial assets and financial liabilities qualify for offset based on the criteria set out in the amendments and concluded that the application of the amendments has had no impact on the amounts recognised in the Group's consolidated financial statements.

5. SIGNIFICANT ACCOUNTING POLICIES

Except for the changes explained in Note 4, the Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements.

Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

Non-controlling interests (NCI)

NCI are measured at their proportionate share of the acquiree's identifiable net assets at the date of acquisition. Subsequently the Group attributes profit or loss and each components of Other Comprehensive Income (OCI) to the NCI even if this results in a deficit balance. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Loss of control

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary and any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest in the former subsidiary is measured at fair value when control is lost.

Interests in equity-accounted investees

The Group's interests in equity-accounted investees, comprise interests in joint ventures.

A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in joint ventures are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and OCI of equity-accounted investees, until the date on which joint control ceases.

Transactions eliminated on consolidation

Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Foreign currency

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are generally recognised in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated.

Foreign operations

The assets and liabilities of foreign operations are translated into US Dollars at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into US Dollars at the exchange rates at the dates of the transactions or average rate for the year for practical reasons. If the volatility of the exchange rates is high for a given year or period the Group uses the average rate for shorter periods i.e. quarters or months for income and expense items.

Foreign currency differences are recognised in OCI and accumulated in the translation reserve, except to the extent that the translation difference is allocated to NCI.

When a foreign operation is disposed of in its entirety or partially such that control or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to NCI. When the Group disposes of only part of joint venture while retaining joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, then foreign currency differences arising from such item form part of the net investment in a foreign operation. Accordingly, such differences are recognised in OCI, and accumulated in the translation reserve.

The table below shows the exchange rates of Russian Roubles which is the functional currency of the Russian subsidiaries of the Group:

Exchange rate

Russian Roubles

As of: % Change for US$1

31 December 2014 56.2584 71.9

31 December 2013 32.7292 7.8

Average rate during:

Three-month period ended 31 December 2014 47.4243 34.0

Nine-month period ended 30 September 2014 35.3878 11.1

Year ended 31 December 2013 31.8480 2.4

Financial Instruments

The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss and loans and receivables.

The Group classifies non-derivative financial liabilities into the other financial liabilities category.

Non-derivative financial assets and financial liabilities-Recognition and derecognition

The Group initially recognises loans and receivables on the date when they are originated. All other financial assets and financial liabilities are initially recognised on the trade date.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset or liability.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realised the asset and settle the liability simultaneously.

Non-derivative financial assets-measurement

Financial assets at fair value through profit or loss

A financial asset is classified as at fair value through profit or loss if it is classified as held for trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, including any interest or dividend income are recognised in profit or loss.

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash at bank, cash in hand and deposits on demand.

Loans and receivables

These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method.

Non derivative financial liabilities-measurement

Non-derivative financial liabilities are initially recognised at fair value less any direct attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.

Share capital

Ordinary shares

Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognised as a deduction from equity.

Investment Property

Investment property is initially measured at cost and subsequently at fair value with any change therein recognised in profit or loss.

Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.

When the use of a property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassified accordingly. Any gain arising on this remeasurement is recognised in profit or loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognised in OCI and presented in the revaluation reserve. Any loss is recognised in profit or loss.

When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

When the Group begins to redevelop an existing property for continued use as investment property, the property remains an investment property, which is measured based on fair value model, and is not reclassified as property plant and equipment during the redevelopment.

Investment property under development

Property that is being constructed or developed for future use as investment property is classified as investment property under development and accounted for at fair value until construction or development is complete, at which time it is reclassified as investment property.

Certain development assets within the Group's portfolio that are in very early stages of development process were categorised as "land bank" without ascribing current market value to them. Any value ascribed to such land bank projects other that their cost, would result in a gain or loss to be recognised in profit or loss. This approach was adopted due to abnormal market volatility and will be reviewed in the future once market conditions are more stable.

All costs directly related with the purchase and construction of a property, land lease payments, and all subsequent capital expenditure for the development qualifying as acquisition costs are capitalised.

Capitalisation of financing costs

Financing costs are capitalised if they are directly attributable to the acquisition or production of a qualifying asset. Capitalisation of financing costs commences when the activities to prepare the asset are in process and expenditures and financing costs are being incurred. Capitalisation of financing costs may continue until the assets are substantially ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds, to the average rate. The capitalised financing cost is limited to the amount of borrowing cost actually incurred.

Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalise borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

All hotels are treated as property, plant and equipment due to the Group's significant influence on their management.

If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.

Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss.

Subsequent expenditure

Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.

Depreciation

Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

Items of property, plant and equipment are depreciated from the date that they are available for use, or in respect of self-constructed assets, from the date that the asset is completed and ready for use.

The annual depreciation rates for the current and comparative periods are as follows:

Buildings 1-2%

Office equipment 10-33⅓%

Motor vehicles 33⅓%

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Intangible assets and goodwill

Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in profit or loss.

Goodwill is measured at cost less accumulated impairment losses. In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss is allocated to the carrying amount of the equity-accounted investee as a whole.

Trading Properties

Trading Properties are measured at the lower of cost and net realisable value. Cost includes expenditure incurred in acquiring the properties and bringing them to their existing condition. In the case of constructed trading properties, cost includes an appropriate share of direct and financing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses.

Trading properties under construction

Trading properties under construction are defined as projects in which the Group participates as a contractor or as a promoter, and which include construction work with the intention to sell the entire building as a whole or parts thereof. Each project represents one building or a group of buildings.

A group of buildings is considered one project when the buildings at the same building site are being constructed according to one building plan and under one building license, and are offered for sale at the same time. Trading properties include cost of land or of rights to the land that constitutes the relative portion of the area, on which the construction work on projects is performed, plus the cost of the work executed on the projects as well as other costs allocated thereto, less the cumulative amounts recognised in profit or loss as cost of trading properties sold up to the end of the reported period.

Direct costs and expenses are charged to projects on a specific basis, whereas borrowing costs are allocated among the projects based on the relative proportion of the costs. Non-specific borrowing costs are capitalised to such qualifying asset, or portion thereof which was not financed with specific credit, by weighted-average rate of the borrowing cost up to the amount of borrowing cost actually incurred. Where the estimated expenses for a building project indicate that a loss is expected, an appropriate provision is set up. Buildings that are under construction are classified as trading properties under construction on the statement of financial position.

Inventory of real estate

Land for future development of trading properties is classified as "Inventory of real estate" as non-current asset when it is not expected to develop and sell the properties within the Group's normal operating cycle. It is presented at the lower of cost or net realisable value.

Deferred income

Income received in advance is classified under non-current and current liabilities as deferred income and comprise rental income received for future periods and amounts received in advance for the sale of trading properties, for which recognition of revenue has not yet commenced.

Impairment

Non-derivative financial assets

Financial assets not classified as at fair value through profit or loss, including an interest in equity-accounted investee are assessed at each reporting date to determine whether there is objective evidence of impairment.

Objective evidence that financial assets are impaired includes:

· default or delinquency by a debtor;

· restructuring of an amount due to the Group on terms that the Group would not consider otherwise;

· indications that a debtor or issuer will enter bankruptcy;

· adverse changes in the payment status of borrowers or issuers;

· the disappearance of an active market for a security; or

· observable date indicating that there is a measureable decrease in expected cash flows from a group of financial assets.

Financial assets measured at amortised cost

The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risks characteristics.

In assessing collective impairment, the Group uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends.

An impairment loss is calculated as the difference between an asset's carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an even occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss.

Equity-accounted investees

An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognised in profit or loss, and is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

Non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than investment property, investment property under development, VAT recoverable, inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets.

The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount and recognised in profit or loss.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised.

Assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for sale or held if it is highly probable that they will be recovered primarily through sale rather than through continuing use.

Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rate basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets or investment property which continue to be measured in accordance with the Group's other accounting policies. Impairment losses on initial classification as held-for sale or held-for distribution and subsequent gains and losses on remeasurement are recognised in profit or loss.

Once classified as held for sale, intangible assets, and property, plant and equipment are no longer amortised or depreciated and any equity-accounted investee is no longer equity accounted.

Employee benefits

Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Share-based payment transactions

The grant-date fair value of equity-settled share-based payment options granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of share appreciation rights. Any changes in the liability are recognised in profit or loss.

Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

Revenue

Sale of trading properties

Revenue from sale of trading properties is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer.

Construction Management fee

Revenue from construction management is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

Investment Property Rental income

Rental income from investment property is recognised as revenue on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

Hotel operation income

Gross Profit

Gross profit is the result of the Group's operations and comprises revenue and other revenue net of all cost for trading properties sold and operating, administrative and other expenses, recognised in profit or loss during the year.

Finance income and finance costs

Finance income include interest income on funds invested and net gain on financial assets at fair value through profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method.

Finance costs include interest expense on borrowings, unwinding of the discount on provisions and deferred consideration, net loss on financial assets at fair value through profit or loss and impairment losses recognised on financial assets.

Borrowing costs are recognised in profit or loss using the effective interest method, net of interest capitalised.

Foreign currency gain or loss on financial assets and financial liabilities is reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

Income tax

Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in OCI.

Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognised for temporary differences on the initial recognition of assets or liabilities that affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose the carrying amount of investment property measured at fair value is presumed to be recovered through sale and the Group has not rebutted this presumption.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

The provision for taxation either current or deferred is based on the tax rate applicable to the country of residence of each subsidiary.

Discontinued operations

A discontinued operation is a component of the Group's business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

· represents a separate major line of business or geographical area of operations;

· is part of a singly co-ordinated plan to dispose of a separate major line of business or geographic are of operations; or

· is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held for sale.

When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is re-presented as if the operation had been discontinued from the start of the comparative year.

Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to the owners of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to the owners of the Company and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All segments results are reviewed regularly by the Group's management to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Adoption of new and revised International Financial Reporting Standards and Interpretations

As from 1 January 2014, the Group adopted all changes to International Financial Reporting Standards (IFRSs) as adopted by the EU which are relevant to its operations.

(ii) Standards and Interpretations adopted by the EU

The following Standards, Amendments to Standards and Interpretations have been issued but are not yet effective for annual periods beginning on 1 January 2014. Those which may be relevant to the Company are set out below. The Company does not plan to adopt these Standards early.

· IAS 19 (Amendments) ''Defined Benefit Plans: Employee Contributions'' (effective for annual periods beginning on or after 1 July 2014).

· Improvements to IFRSs 2010-2012 (effective for annual periods beginning on or after 1 July 2014).

· Improvements to IFRSs 2011-2013 (effective for annual periods beginning on or after 1 July 2014).

(iii) Standards and Interpretations not adopted by the EU

· IFRS 14 ''Regulatory Deferral Accounts'' (effective for annual periods beginning on or after 1 January 2016).

· IFRS 10, IFRS 12 and IAS 28 (Amendments): Investment Entities: Applying the Consolidation Exception (effective for annual periods beginning on or after 1 January 2016).

· IFRS 11 'Accounting for acquisitions of interests in Joint Operations''' (Amendments) (effective for annual periods beginning on or after 1 January 2016).

· IAS 1 (Amendments): Disclosure Initiative (effective for annual periods beginning on or after 1 January 2016).

· IFRS 10 and IAS 28 (Amendments): Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective for annual periods beginning on or after 1 January 2016).

· IAS 27 (Amendments) ''Equity method in separate financial statements'' (effective for annual periods beginning on or after 1 January 2016).

· IAS 16 and IAS 41 (Amendments): ''Bearer plants'' (effective for annual periods beginning on or after 1 January 2016).

· IAS 16 and IAS 38 (Amendments) ''Clarification of acceptable methods of depreciation and amortisation'' (effective for annual periods beginning on or after 1 January 2016).

· Annual Improvements to IFRSs 2012-2014 Cycle (effective the latest as from the commencement date of its first annual period beginning on or after 1 January 2016).

· IFRS 15 ''Revenue from contracts with customers'' (effective for annual periods beginning on or after 1 January 2017).

· IFRS 9 ''Financial Instruments'' (effective for annual periods beginning on or after 1 January 2018).

The Board of Directors expects that the adoption of the above financial reporting standards in future periods will not have a significant effect on the financial statements of the Company except of:

· The adoption of IFRS 15 which could affect the consolidated financial statements.

The extent of the impact has not been determined.

6. OPERATING SEGMENT

The Group has five reportable segments, as described below, which are the Group's strategic business units. The strategic business units offer different types of real estate products and services and are managed separately because they require different marketing strategies as they address different types of clients. For each strategic business unit the Group's management reviews internal management reports on at least monthly basis. 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 managementreports 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.


Development projects		Asset management	Hotel Operation	Other - land bank	Total
Commercial projects	Residential projects


	2014	2013	2014	2013	2014	2013	2014	2013	2014	2013	2014	2013
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000

External revenues	117	54,494	2,512	3,049	117,348	111,942	15,288	17,749	8,823	15,027	144,088	202,261
Inter-segment revenue	1	1	4	1	-	-	15	18	410	469	430	489

Profit on disposal of investment property	-	-	-	-	-	27,835	-	-	-	-	-	27,835

Interest revenue	1,278	3	70	6	313	397	762	722	4,603	4,729	7,026	5,857

Interest expense	(44)	(45)	(60)	(201)	(56,428)	(65,088)	(153)	(1,402)	(4,153)	(166)	(60,838)	(66,902)

Depreciation	-	(17)	(49)	(7)	(269)	(438)	(1,149)	(1,286)	(128)	(144)	(1,595)	(1,892)
Reportable segment (loss)/profit before tax	(4,676)	25,662	2,236	(2,113)	(220,037)	6,418	8,627	3,350	(2,730)	(14,338)	(216,580)	18,979

Other material non-cash items:
Net valuation (loss)/gains on properties	(129,467)	82,012	(8,892)	(2,186)	123,278	45,415	-	-	(79,695)	(21,193)	(94,776)	104,048
Reportable segment assets	208,923	318,962	175,444	178,199	1,362,157	1,582,780	27,471	53,938	250,735	390,957	2,024,730	2,524,836
Reportable segment liabilities	4,607	-	38,348	-	808,615	1,011,865	-	-	1,323	4,163	852,893	1,016,028

Note:

Development projects: investment projects under construction, including construction of residential properties.

Asset management: yielding property management (all commercial properties).

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


	2014	2013
	US$'000	US$'000
Revenues
Total revenue for reportable segments	144,518	202,750
Elimination of inter-segment revenue	(430)	(489)
Consolidated revenue	144,088	202,261


Profit or loss
Total profit or loss for reportable segments	(216,580)	18,979
Other profit or loss	(7,650	(19,176)
Share of the after tax loss of joint ventures	(4,451)	(798)
Profit on disposal of investment in joint venture/subsidiaries	114	32,278
Valuation (loss)/gain on properties	(85,884)	106,234
Impairment loss on inventory of real estate	(8,892)	(2,186)
Consolidated (loss)/profit before tax	(323,343)	135,331


Assets
Total assets for reportable segments	2,024,730	2,524,836
Other unallocated amounts	125,639	262,309
Consolidated total assets	2,150,369	2,787,145


Liabilities
Total liabilities for reportable segments	852,893	1,016,028
Other unallocated amounts	15,698	41,638
Consolidated total liabilities	868,591	1,057,666


	Reportable segment totals	Adjustments	Consolidated totals
	US$'000	US$'000	US$'000

Other material items 2014
Interest revenue	7,026	-	7,026
Interest expense	(60,838)	5,198	(55,640)
Net valuation loss on properties	(94,776)	-	(94,776)


	Reportable segment totals	Adjustments	Consolidated totals
	US$'000	US$'000	US$'000
Other material items 2013

Interest revenue	5,857	15,104	20,961
Interest expense	(66,902)	6,525	(60,377)
Net valuation gain on properties	104,048	-	104,048

Geographical segments

Geographically the Group operates only in Russia and has no significant revenue or assets in other countries or geographical areas. Therefore no geographical segment reporting is presented.

Major customer

There was no concentration of revenue from any single customer in any of the segments.

7. REVENUE


	2014	2013
	US$ '000	US$ '000

Investment property rental income	126,152	126,965
Sales of trading properties (note 22)	2,411	57,540
Hotel operation income	15,287	17,738
Construction consulting/management fees	238	18
	144,088	202,261

8. OTHER INCOME


	2014	2013
Other income consists of:	US$ '000	US$ '000

Penalties charged to tenants	1,219	2,198
Reimbursement of depositary fees	1,500	-
Profit on sale of property, plant and equipment	42	57
Sundries	746	4,154
	3,507	6,409

9. OPERATING EXPENSES


	2014	2013
	US$ '000	US$ '000

Maintenance, utility and security expenses	24,140	25,422
Agency and brokerage fees	825	4,552
Advertising expenses	4,462	4,186
Salaries and wages	17,553	19,398
Consultancy fees	994	1,516
Depreciation	1,412	1,721
Insurance	717	799
Rent	2,408	3,086
Property and other taxes	9,899	15,750
Other operating expenses	100	87
	62,510	76,517

10. ADMINISTRATIVE EXPENSES


	2014	2013
	US$ '000	US$ '000

Consultancy fees	1,835	2,149
Legal fees	1,273	998
Auditors' remuneration	784	805
Valuation expenses	161	174
Directors' remuneration	2,024	1,497
Salaries and wages	16	6
Depreciation	183	155
Insurance	247	280
Provision for Doubtful Debts	4,568	(926)
Share option expense	4,383	4,920
Donations	4,834	4,527
Other administrative expense	1,995	2,326
	22,303	16,911

11. OTHER EXPENSES


	2014	2013
	US$ '000	US$ '000

Prior years' VAT non recoverable (note 21)	600	1,564
Compensation paid for fire damages	-	811
Legal claim	1,453	-
Sundries	4,720	3,105
	6,773	5,480

12. FINANCE INCOME AND FINANCE COSTS


	2014	2013
	US$ '000	US$ '000

Interest income	7,026	5,858
Loans payable written off	-	15,103
Finance income	7,026	20,961

Interest expense on loans and borrowings	(4)	(156)
Interest expense on bank loans	(55,636)	(60,221)
Net change in fair value of financial assets	(3,263)	(18)
Translation reserve reclassified upon disposal of joint venture (note 35)	-	(30,288)
Other finance costs	(1,936)	(6,508)
Net foreign exchange loss	(224,794)	(28,941)
Finance costs	(285,633)	(126,132)

Net finance costs	(278,607)	(105,171)

The net foreign exchange loss recognised during 2014 is a result of the strengthening of the US Dollar to the Russian Rouble by 72%, during 2014. The recognised loss is mainly attributable to the US Dollar denominated loans held by Russian subsidiaries or branches where the functional currency is the Russian Rouble.

Subject to the provisions of IAS23 "Borrowing costs" in 2014 the Group did not capitalise any amount (2013: Nil) of financing costs to the projects that are in construction phase.

Loans payable written off during 2013 represent short term loans and borrowings of a Group's subsidiary, which were written off, during the first quarter of 2013 based on the understanding that neither legal nor implied obligations are no longer valid regarding these liabilities.

13. TAX EXPENSE


	2014	2013
	US$ '000	US$ '000
Current tax expense
Current year	508	8,666
Adjustment for prior years	107	245
	615	8,911
Deferred tax (benefit)/expense
Origination and reversal of temporary differences	(36,663)	22,475

Total tax (benefit)/expense	(36,048)	31,386

The provision for taxation either current or deferred is based on the tax rates applicable to the country of residence of each Group entity. Cypriot entities are subject to 12.5% corporate rate whereas Russian subsidiaries are subject to 20% corporate rate.


		2014		2013
	%	US$ '000	%	US$ '000

(Loss)/profit for the year after tax		(287,295)		103,945
Total tax (benefit)/expense		(36,048)		31,386
(Loss)/profit before tax		(323,343)		135,331

Tax using the Company's domestic tax rate	(12.5)	(40,418)	12.5	16,916
Effect of tax rates in foreign jurisdictions	(8.6)	(27,691)	7.5	10,246
Tax exempt income	(4.1)	(13,235)	(6.3)	(8,570)
Non-deductible expenses	5.9	18,968	8.2	11,047
Change in estimates related to prior years	-	107	0.2	241
Current year losses for which no deferred tax asset recognised	8.1	26,221	1.1	1,506
	(11.2)	(36,048)	23.2	31,386

The current tax assets of US$1,307 thousand as at 31 December 2014, represents the net amount of income tax overpayment in respect of current and prior periods. The current tax liabilities of US$4,067 thousand as at 31 December 2013, represents the net amount of income tax payable in respect of year ended 31 December 2013 and prior periods net of payments made up to the year end.

14. EARNINGS PER SHARE


	2014	2013
Basic earnings per share	US$ '000	US$ '000

(Loss)/profit attributable to ordinary shareholders	(281,020)	103,074

Weighted average number of ordinary shares	Shares in thousands	Shares in thousands


Weighted average number of shares	1,047,694	1,047,694


Earnings per share (cent)	(26.82)	9.84

Diluted earnings per share are not presented as the assumed conversion of the employee share options outstanding would have an anti-dilutive effect i.e. increase in earnings per share.

15. INVESTMENT PROPERTY

Reconciliation of carrying amount


	2014	2013
	US$ '000	US$ '000

Balance 1 January	1,609,800	1,292,300
Reclassification from investment property under development	-	1,852
Reclassification to trading properties (note 22)	(432)	-
Acquisitions	-	388,254
Disposal of investment property	-	(61,397)
Renovations/additional cost	6,814	13,186
Fair value adjustment	110,782	42,455
Effect of movement in foreign exchange rates	(351,548)	(66,850)
Balance 31 December	1,375,416	1,609,800

The investment property was revalued by independent appraisers on 31 December 2014. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above.

The decrease due to the effect of the foreign exchange rates is a result of the strengthening of the US Dollar to the Russian Rouble by 72%, during 2014. The fair value adjustment gain is mostly related to this rouble weakening.

Acquisitions during 2013 represent the effect of the acquisition of the 100% of the previously 50% owned joint venture Krown Investments LLC, which was thereafter treated as a subsidiary.

The disposal of investment property during 2013 represents Building 1 of the Ozerkovskaya (Aquamarine) phase III office complex in Moscow, which was disposed on 20 December 2013. Under the transaction, Krown Investments LLC, the subsidiary holding the rights to Ozerkovskaya (Aquamarine) phase III, sold premises of the first building in the Complex and part of underground premises with gross area of 10,985.8 sq.m. a terrace of 418.9 sq.m. and approximately a 15.8% share in the title to common areas of the Complex, which total 3,728.6 sq.m. (total transacted area corresponds to approximately 11,994 sq.m.), to a Russian state controlled corporation. The consideration received amounted to Russian rouble equivalent of US$91.5 million and applicable Russian VAT resulting in a profit of US$27.8 million before taxes.

b) Measurement of fair value

Fair value hierarchy

The fair value of investment property was determined by external, registered independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The independent valuers provide the fair value of the Group's investment property portfolio every six months. The same applies for investment property under development in note 16 below.

The fair value measurement for investment property of US$1,375,416 thousand (2013: US$1,609,800 thousand) has been categorised as a level 3 fair value based on the inputs to the valuation technique used.

Level 3 fair value

The table presented in reconciliation of carrying amount in 15(a) above shows the reconciliation from the opening balances to the closing balances for level 3 fair values, since all fair values of investment properties of the Group, are categorised as level 3.

Valuation technique and significant unobservable inputs

The following table shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used.


Valuation technique	Significant unobservable inputs	Inter-relationship between key unobservable inputs and fair value measurement

Discounted cash flows: The valuation model considers the present value of net cash flows to be generated from each property, taking into account rental rates and expected rental growth rate, occupancy rate and void periods together reflected in vacancy rates, construction cost, opening and completion dates, lease incentive costs such rent free periods, taxes* and other costs not paid by tenants. The expected net cash flows are discounted using the risk-adjusted discount rates plus the final year stream is discounted with an all-risk Yield. Among other factors, discount rate estimation considers type of property offered (retail, commercial, office) quality of building and its location, tenant credit quality and lease terms.	· Average Rental rates per sq.m.: Office class A $650, class B $250-$350, Retail $185-$8,790 · Expected market rental growth office 0-3% average, retail 0-2.5% average · Vacancy rate (class A 0-2% class B 4-13% ) · Risk-adjusted discount rates (14.5%-19%) · All-Risk Yield 10%-15.5%	The estimated fair value would increase/(decrease) if: · Average rental rates were higher/(lower) · Expected market rental growth were higher/(lower) · Void periods were shorter/(longer) · The vacancy rates were lower/(higher) · The risk-adjusted discount rate were lower (higher) · All-risk yields were lower/(higher)

Investment properties at fair value are categorised in the following:


	2014	2013
	US$ '000	US$ '000

Retail properties	1,000,000	1,160,000
Office space properties	375,416	449,800
	1,375,416	1,609,800

Fair value sensitivity Analysis

Presented below is the effect on the fair value of the main investment property project, of an increase/(decrease) in the below inputs at the reporting date. This analysis assumes that all other variables remain constant.


AFI Mall City
Capitalization Rates	Increase of 1 %	Rate used in fair value calculation as at 31/12/2014 10%	Decrease of 1%
Fair value (US$ '000)	949,424	1,000,000	1,060,691

Average rental rates per sq.m	Decrease of 5%	Rate used in fair value calculation as at 31/12/2014 US$1,147 sq.m.	Increase of 5%
Fair value (US$ '000)	966,543	1,000,000	1,033,457
	Decrease of 10%		Increase of 10%
	933,085	1,000,000	1,066,915

Occupancy rates	Decrease of 2%	Rate used in fair value calculation as at 31/12/2014 97%	Increase of 2%
Fair value (US$ '000)	982,016	1,000,000	1,022,800

16. INVESTMENT PROPERTY UNDER DEVELOPMENT


	2014	2013
Reconciliation of carrying amount	US$ '000	US$ '000

Balance 1 January	635,266	567,737
Construction costs	83,820	17,050
Disposal	(1,400)	-
Acquisition	-	846
Transfer to investment property	-	(1,852)
Fair value adjustment	(196,666)	63,779
Effect of movements in foreign exchange rates	(89,546)	(12,294)
Balance 31 December	431,474	635,266

During the period the Company disposed its 100% share in Keyiri Trade & Invest Limited with its Russian subsidiary Favorit LLC, holding rights to the St Petersburg project, of a book value of US$1,400 thousand. For further details refer to note 35.

The investment property under development was revalued by independent appraisers on 31 December 2014. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above. The decrease due to the effect of the foreign exchange rates is a result of the strengthening of the US Dollar to the Russian Rouble by 72%, during 2014.

The Fair value adjustment loss is a result of the overall economic deterioration of the Russian economy which caused an increase of interest rates by the Central Bank of Russia, decrease in the Russian Rouble value which affected the valuation parameters and assumptions used in the valuation of the investment property under development.

In November 2013 the Company's subsidiary MKPK JSC and the Moscow city authorities signed an addendum to the land lease agreement for "Paveletskaya Phase II" project, amending the permitted use of land from industrial to the construction of commercial and residential premises. The addendum is in line with the previous decisions of the Moscow city authorities on development rights of the Company in this project. However the addendum provides the level of certainty required to change the fair value of the project to market value. The market value of the project determined by Cushman & Wakefield, the Company's independent appraisers, was US$92.6 million, as of 30 September 2013, as opposed to book value of US$11.6 million. The resulting US$81 million gross valuation gain (US$64.8 million net of taxation) was recognised in profit or loss on 30 September 2013.

According to the article dated 29 October 2013 and published on the official web-site of the Moscow Government, the Construction Department of Moscow Government has made decision to start an active phase of redevelopment at Tverskaya Zastava Square in 2014 (and the first stage of redevelopment will focus on construction of an additional overhead road across the railway lines), whereas the date of completion of these works remains unclear, which will incur significant delay and, thus, pose high uncertainty with the timeline of the subject Plaza IIa project. Based on these facts, the Company recognised a decrease in the fair value of the property of US$13.3 million. The valuation was also determined by the Company's independent appraisers and the fair value loss was recorded in profit or loss on 30 September 2013.

The fair value measurement for investment property under development of US$431,474 thousand (2013: US$633,213 thousand) has been categorised as a level 3 fair value based on the inputs to the valuation technique used.

Level 3 fair value

The table presented above is the reconciliation from the opening balances to the closing balances for level 3 fair values, since all fair values of investment properties under development of the Group, are categorised as level 3.

Valuation technique and significant unobservable inputs

The valuation technique used in measuring the fair value of investment property under development, the significant unobservable inputs used, as well as the Inter-relationship between key unobservable inputs and fair value measurement are discussed in note 15 above. In addition, the following inputs for investment property under development.


Geographical	Fair	Discount	Rate of return for
location	value	rate	representative year
	US$ '000	%	%

Russia	431,474	20-29	9.5-13

17. SHARE OF INVESTMENT IN JOINT VENTURES


	2014	2013
	US$ '000	US$ '000

Balance 1 January	5,555	82,414
Share of loss (net of share of tax)	(4,091)	(798)
Acquisition of 100% of assets and liabilities of joint venture	-	(75,599)
Effect of movements in exchange rates	(1,464)	(462)
Balance 31 December	-	5,555

The Group's joint ventures comprise 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.

During the period the Group's joint ventures incurred significant losses, as a result the Group's share of loss has exceeded its interest in these joint ventures. Therefore the Group discontinued recognising its share of further losses. The Group will resume recognising its share of future profits from the joint ventures only after its share of the future profits equals the share of losses not recognised.

During 2013 the Group owned a 50% interest in Westec Four Winds Ltd and its subsidiary Dulverton Ltd, owner of investment property in Moscow, which was disposed early January 2013, see note 35.

During 2013 the Group also owned a 50% interest in Krown 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 following table summarises the financial information of the joint ventures as included in their own financial statement, adjusted for fair value adjustments at acquisition. The table also reconciles the summarised financial information to the Group's interest in joint ventures:


	2014	2013
	US$ '000	US$ '000
Percentage ownership interest	50%	50%

Non-Current assets	18,365	31,699
Current assets	11,622	9,488
Non-Current liabilities	(39,010)	(36,191)
Current liabilities	(1,843)	(11,324)
Net liabilities (100%)	(10,866)	(6,328)
Group's share of net liabilities (50%)	(5,433)	(3,164)
Fair value adjustments at acquisition	5,072	8,719
Interest in joint ventures	(361)	5,555
Restriction of share of loss	361	-
Carrying amount of interest in joint ventures	-	5,555

Revenue	39,126	28,161
Expenses	(48,030)	29,758)
Loss and total comprehensive income (100%)	(8,904)	(1,597)
Group's share of profit and total comprehensive income (50%)	(4,452)	(798)

Dividends received by the Group	-	-

18. PROPERTY, PLANT AND EQUIPMENT


	Buildings under construction		Land & Buildings	Office Equipment	Motor Vehicles	Total
		US$ '000	US$ '000	US$ '000	US$ '000	US$ '000
Cost
Balance at 1 January 2014		14,400	56,709	3,847	1,710	76,666
Additions		-	83	240	270	593
Disposals		-	(439)	(177)	(76)	(692)
Effect of movement in foreign exchange rates		(10,158)	(24,209)	(1,342)	(780)	(36,489)
Balance at 31 December 2014		4,242	32,144	2,568	1,124	40,078

Accumulated depreciation
Balance at 1 January 2014		-	2,617	2,908	1,406	6,931
Charge for the year		-	1,114	354	127	1,595
Disposals		-	(355)	(170)	(69)	(594)
Effect of movement in foreign exchange rates		-	(1,345)	(1,000)	(610)	(2,955)
Balance at 31 December 2014		-	2,031	2,092	854	4,977

Carrying amount
At 31 December 2014		4,242	30,113	476	270	35,101


	Buildings under construction		Land & Buildings	Office Equipment	Motor Vehicles	Total
		US$ '000	US$ '000	US$ '000	US$ '000	US$ '000
Cost
Balance at 1 January 2013		16,527	60,605	3,942	1,944	83,018
Additions		159	1,267	258	123	1,807
Disposals		(8)	(669)	(9)	(197)	(883)
Effect of movement in foreign exchange rates		(2,278)	(4,494)	(344)	(160)	(7,276)
Balance at 31 December 2013		14,400	56,709	3,847	1,710	76,666

Accumulated depreciation
Balance at 1 January 2013		-	2,221	2,625	1,617	6,463
Charge for the year		-	1,210	534	130	1,874
Disposals		-	(666)	(1)	(205)	(872)
Effect of movement in foreign exchange rates		-	(148)	(250)	(136)	(534)
Balance at 31 December 2013		-	2,617	2,908	1,406	6,931

Carrying amount
At 31 December 2013		14,400	54,092	939	304	69,735

19. LOANS RECEIVABLE


	2014	2013
	US$ '000	US$ '000
Long-term loans
Loans to joint ventures (note 40)	17,962	21,438
Loans to non-related companies	109	214
	18,071	21,652
Short-term loans
Loans to non-related companies	1	774

Terms and loan repayment schedule

Terms and conditions of outstanding loans were as follows:


	Currency	Nominal	Year of	2014	2013
		interest rate	maturity	US$ '000	US$ '000

Unsecured loans to joint ventures	USD	11.5%	2016	12,134	11,787
	RUR	14.4%	2016	5,828	9,651
Unsecured loans to non-related companies	RUR	-	2016	89	214
	RUR	8.8%	2016	20	34
	USD	2.5%	2014	-	740
	RUR	0.1%	on demand	1	-
				18,072	22,426

20. INVENTORY OF REAL ESTATE

As previously announced, in August 2012 AFI Development wrote-off its rights to the project "Botanic Gardens" following initiation of bankruptcy proceedings against the "main investor" under the investment contract, Novoe Koltso Moskvy OJSC ("NKM"), while continuing its efforts to secure development rights to the project.

On 5 February and 21 February 2013, the Company reported that, as a result of negotiations with the Moscow city authorities, the Company's development rights to the project have been recognised through an addendum to the investment contract for the project. According to this addendum, NKM shall not have any claims to the investments made by AFI Development in the Botanic Garden project and the Group's subsidiary, Nordservice LLC, became the only investor under the investment contract.

In May 2014, the Company made further progress towards restoring the Botanic Garden project on its balance sheet. As a creditor of NKM and a participant in its bankruptcy proceedings, Nordservice LLC purchased additional rights of claim against NKM for US$5.6 million and up to 30 September 2014 total costs amounted to US$17.5 million which were also impaired to profit or loss.

On 18 December 2014, all risks related to the bankruptcy of NKM have been removed and the Company has restored the project in its balance sheet. The inventory of real estate was revalued by independent appraisers on 31 December 2014 at US$20 million and up to year end additional costs of approximately US$10 million were incurred by Nordservice LLC. The net effect was the recognition of an impairment loss of $9 million in profit or loss for the year.

21. VAT RECOVERABLE

Represents VAT paid on construction costs and expenses which according to the Russian VAT law can be recovered upon completion of the construction. Part of this VAT is expected to be recovered after more than 12 months from the balance sheet date. Due to the uncertainties in the Russian tax and VAT law, the management has assessed the recoverability of this VAT and has provided for any amounts that their recoverability was deemed doubtful or questionable (see note 11). Under Russian VAT legislation, VAT can also be claimed during the period of construction provided that all required documentation is presented to the VAT authorities. The Group was successful in recovering VAT during the year, and it is estimated that part of the VAT recoverable as at the year-end will be recovered within the next 12 months, which is classified as trade and other receivables, note 25.

22. TRADING PROPERTIES


	2014	2013
	US$ '000	US$ '000

Balance 1 January	6,409	3,597
Acquisition	-	6,944
Reclassification from investment property (note 15)	432	-
Reclassification from trading properties under construction	-	29,772
Disposals	(1,632)	(32,623)
Effect of movements in exchange rates	(2,230)	(1,281)
Balance 31 December	2,979	6,409

Trading properties comprise unsold apartments and parking spaces. During the period the Group has sold a number of the remaining apartments and parking places and their cost was transferred to profit or loss.

The reclassification from trading properties under construction during 2013 represents the completion of the construction of the 643 parking places units which were disposed upon transferring of the rights to the buyer VTB Bank according to the agreement described below:

In November 2012 Bellgate Constructions Limited ("Bellgate"), the Company's subsidiary owning and operating AFIMALL City, entered into an agreement to dispose approximately 643 parking spaces to VTB Bank JSC. The transaction was structured in two stages. The first stage entailed a sale-purchase transaction between Bellgate and VTB Bank JSC of 21,354 sq.m. of parking space. During the second stage 9,247 sq.m. owned (at completion) by VTB Bank JSC will be exchanged for 7,847 sq. m. owned by Bellgate. The first stage of the transaction was completed on 3 June 2013 with the transfer of the rights to the buyer, who became liable for the risks associated with ownership and can utilize the space and is free to sell to another party and therefore revenue of US$54,492 thousand and a corresponding cost of the disposed properties of US$29,772 thousand were recognised in the income statement during second quarter of 2013.

23. TRADING PROPERTIES UNDER CONSTRUCTION


	2014	2013
	US$ '000	US$ '000

Balance 1 January	127,213	141,787
Transfer to trading properties	-	(29,772)
Construction costs	35,874	17,805
Effect of movements in exchange rates	(30,051)	(2,607)
Balance 31 December	133,036	127,213

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

The 643 parking places underneath AFIMALL City were completed during the year 2013, reclassified to trading properties and disposed according to the agreement with VTB Bank JSC described in note 22 above.

24. OTHER INVESTMENTS

The amount represents investment in marketable interest bearing debt securities classified at fair value through profit or loss.

25. TRADE AND OTHER RECEIVABLES


	2014	2013
	US$ '000	US$ '000

Advances to builders	20,200	40,241
Amounts receivable from related parties (note 40)	387	12,999
Trade receivables net	6,014	9,659
Other receivables	3,540	26,515
VAT recoverable (note 21)	7,141	15,711
Tax receivable	1,679	1,300
	38,961	106,425

Trade receivables net

Trade receivables are presented net of an accumulated provision for doubtful debts of US$12,753 thousand (2013: US$12,658 thousand).

26. CASH AND CASH EQUIVALENTS


	2014	2013
Cash and cash equivalents consist of:	US$ '000	US$ '000

Cash at banks	86,504	193,027
Cash in hand	252	303
	86,756	193,330

27. SHARE CAPITAL AND RESERVES


	2014	2013
Share capital	US$ '000	US$ '000

Authorised
2,000,000,000 shares of US$0.001 each	2,000	2,000

Issued and fully paid
523,847,027 A ordinary shares of US$0.001 each 523,847,027 B ordinary shares of US$0.001 each	524 524	524 524
	1,048	1,048

There were no changes to the authorised or the issued share capital of the Company during the year ended 31 December 2014.

Share premium

It represents the share premium on the issue of shares on 31 December 2006 for the conversion of the shareholders' loans to capital US$421,325 thousand. It also includes the share premium on the issued shares which were represented by GDRs listed in the LSE in 2007. It was the result of the difference between the offering price, US$14, and the nominal value of the shares, US$0.001, after deduction of all listing expenses. An amount of US$1,399,900 thousand less US$57,292 thousand transaction costs was recognised during the year 2007. On 5 July 2010 an amount of US$524 thousand was capitalised as a result of a bonus issue.

Employee Share option plan

The Company has established an employee share option plan operated by the Board of Directors, which is responsible for granting options and administrating the employee share option plan. Eligible are employees and directors, excluding independent directors, of the Company. The employees share option plan is discretionary and options will be granted only when the Board so determines at an exercise price derived from the closing middle market price preceding the date of grant. No payment will be required for the grant of the options. In any 10 year period not more than 10 per cent of the issued ordinary share capital may be issued or be issuable under the employee share option plan.

As of 31 December 2014 the following options were outstanding.

· During 2007 and 2008 options over GDRs with an exercise price of US$7 which have already vested, one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remained in employment until the vesting date. The vesting was not subject to any performance conditions. On 31 December 2014 1,017,240 options, 0.1% of the issued share capital, were outstanding which have already vested and have a contractual life of ten years from the date of grant.

· On 21 May 2012, the Board of Directors approved the grant of additional options to Company's employees. Options over 16,763,104 B shares, 1.6% of the issued share capital, were granted with an exercise price equal to US$0.7208, vesting one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date. The vesting is not subject to any performance conditions. Their contractual life is five years from the date of grant. During 2013 1,571,541 options were cancelled, 15,191,563 valid options remain out of which 5,063,854 options have already vested.

· On 22 November 2012, the Board of Directors approved the grant of additional options to the Company's executive chairman. Options over 31,430,822 B shares, 3% of the issued share capital, were granted with an exercise price equal to US$0.5667, vesting one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date. The vesting is not subject to any performance conditions. Their contractual life is five years from the date of grant. 10,476,971 options have vested during the period.

If a participant ceases to be employed his options will normally lapse subject to certain exceptions. In the event of a takeover, reorganisation or winding up vested options may be exercised or exchanged for new equivalent options where appropriate. Shares/GDRs issued under the plan will rank equally with all other shares at the time of issue. The Board of Directors may satisfy, (with the consent of the participant), an option by paying the participant in cash or other assets the gain as an alternative of issuing and transferring the shares/GDRs.

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.

Retained earnings

The amount at each reporting date is available for distribution. No dividends were proposed, declared or paid during the year ended 31 December 2014.

28. LOANS AND BORROWINGS


	2014		2013
	US$ '000		US$ '000
Non-current liabilities
Secured bank loans	455,097	778,909

Current liabilities
Secured bank loans	231,297	26,367
Unsecured loans from other non-related companies	387	660
	231,684	27,027

The outstanding loans on 31 December 2014 comprise of two loans as follows:

VTB loan to Bellgate

A secured loan from VTB Bank JSC ("the Bank") signed on 22 June 2012 by one of the Group's subsidiary, Bellgate Construction Ltd ("Bellgate"). On 29 June 2012 a drawdown of the first tranche of a new loan facility agreement was effected. On 3 August 2012 a drawdown of the second tranche, of US$69,386 thousand (RUR 2,252 million). During the year the Group received the third and the fourth tranche, of total approx. US$86,854 million (RUR 2,633 million). This new loan facility agreement offers a credit line totalling RUR 21 billion, which can be drawn down in 5 tranches, each with a designated purpose: the majority of the funds are designated to refinance existing loans previously issued by the Bank. The remaining funds are designated for the refinancing of construction costs related to the AFIMALL City parking and for the financing of the outstanding payments constituting part of the consideration for the acquisition of the parking.

The Company has discretion over the currency of each tranche, which can be drawn down either in US dollars or in Russian roubles. The loan facility has differentiated interest rates which are currency dependent: 9.5% for loans drawn down in Russian roubles and 3 months LIBOR plus 6.7% for loans drawn down in US dollars. The interest on the loans is payable on a quarterly basis, throughout the term of the credit line. Bellgate has undertaken to make equal quarterly payments of US$6.5 million from 2014 to 2016, on account of the principal of the loans, while it has been agreed that the remainder of the loan will mature in April 2018.

The terms of the loan facility agreement are substantially similar to those of the loan facility agreement entered into in February 2012 with the Bank in relation to the financing of the acquisition of the AFIMALL City parking. However, certain conditions of the new loan facility will differ from the aforementioned loan, including the following:

a) The guarantee of AFI Development Plc over the obligations of Bellgate under the loan facility agreement will be in the amount of US$1 million, the nominal value of Bellgate's shares;

b) Additional mortgage over the premises of "Aquamarine" Hotel will be registered in favour of the Bank. This shall be removed in the case that Bellgate redeems US$20 million of principal;

c) Additional guarantee will be provided to the Bank by Semprex LLC, a Russian company which is an indirect subsidiary of AFI Development Plc, and owner of the "Aquamarine" Hotel. This shall be removed in the case that Bellgate redeems US$20 million of principal;

d) The turnover covenant has been changed from monthly bank accounts turnovers of not less than RUR 200 million to quarterly revenues (including VAT) exceeding agreed thresholds, determined as amounts gradually increasing from RUR 651 million for Q3 2012 to the amount of RUR1,139 million for Q1 2018. The penalty for not meeting the covenant is changed from 1% additional interest for the next month to 0.5% additional interest for the next quarter.

The loan facility agreement contains other generally acceptable terms, such as the borrower undertaking to maintain the aggregate value of the pledged assets, securing the loan facility, providing the lender with periodic reporting and similar common conditions.

On 17 August 2013 Bellgate Constructions Limited signed an addendum to the current Loan Facility Agreement with the Bank. According to the new terms under the above mentioned addendum the applicable interest rate to the US Dollar denominated loan facility has been decreased from 3-month LIBOR plus 6.7% p.a. to 3-month LIBOR plus 5.02% p.a. The change was effective upon the registration date of the mortgage agreements, on 3 September 2013.

VTB Loan to Krown

On 25 January 2013 Krown Investments LLC ("Krown"), a 100% subsidiary, acquired a new secured loan from VTB Bank JSC ("the Bank") for refinancing the repayment of borrowings due to related parties. This loan agreement offers a credit line of US$220 million, which was drawn down during the first quarter of 2013. The agreed interest is three-month LIBOR plus 5.7% p.a., payable every quarter. The loan repayment date is in 731 days from the date of signing the loan agreement. Securities provided to the Bank are on the 100% of the shares of Krown and on properties/buildings of Aquamarine Phase III. A decrease in the market value of the pledged buildings by more than 15% will enable the bank to demand repayment of the loan before the agreed maturity date. In case of disposal of the pledged building, at least 70% of sale proceeds should be directed to the Bank for the repayment of the loan. An amount of US$15 million was repaid during 2013 out of the proceeds from sale of Building 1 of the Ozerkovskaya (Aquamarine) phase III as disclosed in note 15. . The outstanding loan amount as at 31 December 2014 amounted to US$205 million, including interest, which was reclassified as current liability as the repayment date falls within the next twelve months, 26 January 2015. After the balance sheet date the Company has refinanced the loan, see note 41 for more information.

Terms and debt repayment schedule

Terms and conditions of outstanding loans were as follows:


	Currency	Nominal	Year of	2014	2013
		interest rate	maturity	US$ '000	US$ '000

Secured loan from VTB Bank to Bellgate	RUR	9.5%	2018	184,711	290,529
Secured loan from VTB Bank to Bellgate	USD	3m USD LIBOR+ 5.02%	2018	296,386	309,386
Secured loan from VTB Bank to Krown	USD	3m USD LIBOR+ 5.7%	2015	205,297	205,361
Other	RUR	3-12%	on demand	387	660
				686,781	805,936


	2014	2013
The loans and borrowings are payable as follows:	US$ '000	US$ '000

Less than one year	231,684	27,027
Between one and five years	455,097	778,909
More than five years	-	-
	686,781	805,936

As of 31 December 2014 the Group is in compliance with all loan covenants.

29. DEFERRED TAX ASSETS AND LIABILITIES


Deferred tax (assets) and liabilities are attributable to the following:	2014	2013
	US$ '000	US$ '000

Investment property	157,429	138,666
Investment property under development	25,065	50,427
Property, plant and equipment	(1,028)	(4,151)
Trading properties	1,507	(348)
Trading properties under construction	(420)	(3,341)
Trade and other receivables	(5,204)	(4,177)
Trade and other payables	(372)	(2,230)
Short-term loans and borrowings	(5)	2,869
Other items	(21)	846
Tax losses carried forward	(74,330)	(53,301)
Deferred tax liability	102,621	125,260

30. TRADE AND OTHER PAYABLES


	2014	2013
	US$ '000	US$ '000

Trade payables	8,654	11,175
Payables to related parties (note 40)	2,264	4,088
Amount payable to builders	7,626	9,556
VAT and other taxes payable	7,373	28,260
Amount payable for the acquisition of properties	-	39,967
Other payables	2,299	7,202
	28,216	100,248

The above are payable within one year and bear no interest.

Payables to related parties

Include an amount of US$1,465 thousand (31/12/13: US$3,282 thousand) payable to Danya Cebus Rus LLC, related party of the Group, for contracts signed in relation to the construction of Group's projects.

Amount payable for the acquisition of properties

Represented the third instalment of an amount payable to the City of Moscow, for the acquisition of the parking area under the AFIMALL City. The amount was payable in three yearly installments starting from February 2012 and with the last falling due in February 2014. In February 2014 the company paid the third and last installment of RUR 1,333 million.

31. ADVANCES FROM CUSTOMERS

Represent advances received from customers for the sale of residential properties at "Odinburg" project.

32. DEFERRED INCOME

Represents rental income received in advance, which corresponds to periods after the reporting date.

33. FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT

Accounting classifications 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. 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.


	Carrying amount						Fair value
Non-current assets	Current assets
Loans Receivable	Trade and other receivables	Other investments, Including derivatives	Cash and cash equivalents	Loans receivable	Total	Level 1	Level 2	Level 3	Total
31 December 2014	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Financial assets measured at fair value
Investment in listed debt securities	-	-	6,499	-	-	6,499	6,499	-	-	6,499
Financial assets not measured at fair value
Loans receivable	18,071	-	-	-	1	18,072
Trade and other receivables	-	30,141	-	-	-	30,141
Cash and cash equivalents	-	-	-	86,756	-	86,756
	18,071	30,141		86,756	1	134,969
31 December 2013
Financial assets measured at fair value
Investment in listed debt securities	-	-	9,982	-	-	9,982	9,982	-	-	9,982
Financial assets not measured at fair value
Loans receivable	21,652	-	-	-	774	22,426
Trade and other receivables	-	89,414	-	-	-	89,414
Cash and cash equivalents	-	-	-	193,330	-	193,330
	21,652	89,414		193,330	774	305,170


	Carrying amount				Fair value
	Non-current liabilities	Current liabilities
	Interest bearing loans and borrowings	Trade and other payables	Interest bearing loans and borrowings	Total	Level 1	Level 2	Level 3	Total
31 December 2014	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Financial liabilities not measured at fair value
Interest bearing loans and borrowings	(455,097)	-	(231,684)	(686,781)		(735,004)		(735,004)
Trade and other payables	-	(20,843)	-	(20,843)
	(455,097)	(20,843)	(231,684)	(707,624)
31 December 2013
Financial liabilities not measured at fair value
Interest bearing loans and borrowings	(778,909)	-	(27,027)	(805,936)		(834,466)		(834,466)
Trade and other payables	-	(71,988)	-	(71,988)
	(778,909)	(71,988)	(27,027)	(877,924)

Financial risk management

The Group has exposure to the following risks arising from financial instruments:

· credit risk

· liquidity risk

· market risk

· operational risk

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework and is responsible for developing and monitoring the Group's risk management policies.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee overseas how management monitors compliance with the Group's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and cash deposited with banks.

The carrying amount of financial assets represents the maximum credit exposure.

Trade and other receivables

Financial assets which are potentially subject to credit risk consist principally of trade and other receivables as well as credit exposures with respect to rental customers and buyers of residential properties including outstanding receivables. The carrying amount of trade and other receivable represents the maximum amount exposed to credit risk. There is no concentration of credit risk to any single customer in any of the Group's segments. Geographically there is no concentration of credit risk. The Group has policies in place to ensure that, where possible rental contracts are made with customers with an appropriate credit history.

Impairment

At 31 December 2014, the ageing of trade and other receivable that were not impaired was as follows:


	2014	2013
	US$ '000	US$ '000
Neither past due nor impaired	3,005	3,071
Past due 1-30 days	1,190	3,689
Past due 31-90 days	2,529	6,914
Past due 91-120 days	23,416	75,738
	30,140	89,412

Management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk, including underlying customers'

The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows:


	Individual impairments	Collective impairments
	US$ '000	US$ '000
Balance at 1 January 2013	440	13,144
Impairment loss recognised	(341)	894
Amounts written off	-	(1,479)
Balance at 31 December 2013	99	12,559
Impairment loss recognised	(26)	4,595
Exchange difference effect	(19)	(4,455)
Balance at 31 December 2014	54	12,699

Cash and cash equivalents

Credit risk arises from cash and cash equivalents. Cash transactions are limited to high-credit-quality financial institutions. The utilisation of credit limits is regularly monitored.

The Group has no other significant concentrations of credit risk. Although collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Group.

Investments

The Group limits its exposure to credit risk by investing only in liquid securities and only with counterparties that have a high credit rating. Management actively monitors credit ratings and given that the Group only has invested in securities with high credit ratings, management does not expect any counterparty to fail to meet its obligations.

Guarantees

The Company's policy is to provide financial guarantees only to wholly-owned subsidiaries in exceptional cases. In negotiations with lending banks the Company is aiming to avoid recourse to AFI Development on loans taken by subsidiaries. As at 31 December 2014, there were two outstanding guarantees: one of AFI Development Plc for the amount of US$1 million in favour of VTB Bank under a loan facility agreement of Bellgate Construction Limited and another one of AFI Development Plc for the amount of US$205 million in favour of VTB Bank JSC under a loan facility agreement of Krown Investments LLC (project Aquamarine III).

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in its funding requirements by keeping cash and committed credit lines available.

The Group's liquidity position is monitored by the management which take necessary actions if required. The Group structures its assets and liabilities in such a way that liquidity risk is minimised.

The Group maintains the following lines of credit as at 31 December 2014:

· A secure bank loan facility from VTB Bank JSC for RUR 21billion, with the majority of the funds designated for refinancing existing loans and the rest for the financing of the acquisition and construction AFIMALL City parking. The line was fully used up to the end of February 2014.

· A secure bank loan facility from VTB Bank JSC for US$205 million, acquired for refinancing the construction costs for Ozerkovskaya III project.

The following are the remaining contractual maturities of financial liabilities at the reporting date, including estimated interest payments and excluding the impact of netting agreements:


31 December 2014	Carrying	Contractual	6 months	6-12
	Amount	Cash flow	or less	months	1-2 years	2-5 years
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000

Secured bank loans	686,394	(785,535)	(235,311)	(28,991)	(56,541)	(464,692)
Unsecured loans	387	(401)	-	(401)	-	-
Trade and other payables	20,843	(20,843)	(20,843)	-	-	-


31 December 2013	Carrying		Contractual		6 months		6-12
	Amount		Cash flow		or less		months		1-2 years		2-5 years
	US$'000		US$'000		US$'000		US$'000		US$'000		US$'000

Secured bank loans	805,276	(981,298)		(40,277)		(39,813)		(272,115)		(629,093)
Unsecured loans	660	(677)		-		(677)		-		-
Trade and other payables	71,988	(71,988)		(71,988)		-		-		-

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Currency risk

The Group is exposed to currency risk on future commercial transactions, recognised monetary assets and liabilities and net investments in foreign operations that are denominated in a currency other than the respective functional currencies of Group entities, primarily the United States Dollars and Russian Roubles. The currencies in which these transactions primarily are denominated are Russian Roubles, United States Dollars, Euro and Ukrainian Hryvnia.

Sensitivity analysis

The following shows the magnitude of changes in respect of a number of major factors influencing the Group's profit before taxes. The assessment has been made on the year-end figures.

A 10% strengthening of the United States Dollar against the following currencies at 31 December 2014 would have increased/(decreased) equity and profit for the year by the amounts shown below.

This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2013.


	Equity	Profit for the year
	US$ '000	US$ '000
31 December 2014
Russian Roubles	(6,588)	(45,125)
Ukrainian Hryvnia	(3,492)	-
Euro	-	(118)

31 December 2013
Russian Roubles	(8,460)	(51,049)
Ukrainian Hryvnia	(2,297)	3
Euro	-	142

A 10% weakening of the United States Dollar against the above currencies at 31 December 2014 would have the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

Interest rate risk

Profile

At the reporting date the interest rate profile of the Group's interest-bearing financial instruments is as follows:


	Carrying amount
	2014	2013
	US$ '000	US$ '000
Fixed rate instruments
Financial assets	24,482	32,194
Financial liabilities	(177,843)	(291,189)
	(153,361)	(258,995)
Variable rate instruments
Financial assets	-	34
Financial liabilities	(508,934)	(514,747)
	(508,934)	(514,713)

Cash flow sensitivity analysis for variable rate instruments

An increase of 100 basis points in interest rates at the reporting date would have increased/ (decreased) equity and profit for the year by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2013.


	Equity	Profit for the year
	US$ '000	US$ '000
31 December 2014
Variable rate instruments	-	(5,014)

31 December 2013
Variable rate instruments	-	(5,147)

A decrease of 100 basis points in interest rates at the reporting date would have the equal but opposite effect on the above instruments to the amounts shown above, on the basis that all other variables remain constant.

Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.

The Group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group's reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

· requirements for appropriate segregation of duties, including the independent authorisation of transactions

· requirements for the reconciliation and monitoring of transactions

· compliance with regulatory and other legal requirements

· documentation of controls and procedures

· requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified

· requirements for the reporting of operational losses and proposed remedial action

· development of contingency plans

· training and professional development

· ethical and business standards

· risk mitigation, including insurance where this is effective

Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Group.

Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

There were no changes in the Group's approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

The Company is committed to delivering the highest standards in boardroom practice and financial transparency through:

· clear and open communication with investors;

· maintaining accurate quarterly financial records which transparently and honestly reflect the financial position of its business; and

· endeavouring to maximise shareholder returns.

A full programme of investor relations activity ensures appropriate contact with institutional and private shareholders, with regular meetings, presentations and disclosure of important information. Great care is taken to provide suitably detailed information on the Group's activities and results to enable various stakeholders to understand the performance and prospects of the Group.

Russian Business 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 recent conflict in Ukraine and related events has increased the perceived risks of doing business in the Russian Federation. The imposition of economic sanctions on Russian individuals and legal entities by the European Union, the United States of America, Japan, Canada, Australia and others, as well as retaliatory sanctions imposed by the Russian government, has resulted in increased economic uncertainty including more volatile equity markets, a depreciation of the Russian Rubble, a reduction in both local and foreign direct investment inflows and a significant tightening in the availability of credit. In particular, some Russian entities may be experiencing difficulties in accessing international equity and debt markets and may become increasingly dependent on Russian state banks to finance their operations. The longer term effects of recently implemented sanctions, as well as the threat of additional future sanctions, are difficult to determine.

The consolidated 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.

Changes in property tax law

Russian Federal Law No. 307-FZ dated 2 November 2013 introduced changes in property tax calculation for office and retail premises and properties owned by foreign legal entities that do not operate in Russia via representative offices. The law entered into force on 1 January 2014. Prior to 2014, the property tax was calculated at 2.2% of the property book value posted on the owner's balance sheet. From 2014 the cadastral values for given premises (excluding underlying land) will be set as the basis for property tax payments. The tax rate will be determined by local (regional) authorities under Federal laws. The Moscow Government announced final tax schedule for properties in Moscow as follows: 0.9% (2014), 1.2% (2015), 1.5% (2016), 1.8% (2017), 2.0% (2018).

34. GROUP ENTITIES

Ultimate controlling party: Lev Leviev Israel

Ultimate holding company: Africa Israel Investments Limited Israel

Holding company: Africa Israel Investments Limited Israel

Significant Subsidiaries Ownership interest Country of incorporation

2014 2013

1. OOO AFI RUS 100 100 Russian Federation

2. OOO Avtostoyanka Tverskaya Zastava 100 100 Russian Federation

3. OOO Krown Investments 100 100 Russian Federation

4. OAO Moskovskiy Kartonazhno-poligraphiche

skiy Kombinat (MKPK) 99.17 99.17 Russian Federation

5. Bellgate Constructions Limited 100 100 Cyprus

6. OOO Regionalnoe AgroProizvodstvennoe

Objedinenie (RAPO) 100 100 Russian Federation

7. OOO Aristeya 100 100 Russian Federation

8. Scotson Limited 100 100 Cyprus

7. ZAO Nedra Publishing 90.17 90.17 Russian Federation

8. OOO Titon 100 100 Russian Federation

9. ZAO MTOK 99.71 99.71 Russian Federation

10. OOO Eitan K 100 100 Russian Federation

11. OOO Semprex 100 100 Russian Federation

12. OOO Zheldoruslugi 95 95 Russian Federation

13. OOO Bizar 74 74 Russian Federation

13. AFI D Finance SA 100 100 British Virgin Islands

35. DISPOSAL OF INVESTMENTS IN JOINT VENTURES/SUBSIDIARIES


	2014	2013
	US$ '000	US$ '000
The profit on disposal of subsidiaries consists of:
Profit on disposal of non-significant subsidiaries	114	190
Profit on disposal of Westec Four Winds Ltd	-	32,088
	114	32,278

2014

During the year the Company disposed its 100% share in Keyiri Trade & Invest Limited with its Russian subsidiary Favorit LLC, holding rights to the St Petersburg project, of a book value of US$1,400 thousand. The selling price of the disposal was $1,400 thousand. The resulting profit on disposal amounting to US$114 thousand was recognised in the income statement.

The above disposals had the following effect on the Group's assets and liabilities:


	31/12/14
	US$ '000

Investment property under development	(1,400)
Trade and other receivables	(14)
Current tax asset	(2)
Deferred tax assets	(1)
Trade and other payables	1
Net identifiable assets	(1,416)

Consideration received in cash/ Net cash inflow from the disposal of Non-significant subsidiaries	1,400

2013

The selling price of the disposal of Westec Four Winds Ltd was US$103,380 thousand. The resulting profit on sale amounting to US$32,088 thousand and a translation reserve of US$30,288 thousand was reclassified as a realised exchange loss in financing expenses of the income statement of first quarter 2013.

36. NON-CONTROLLING INTERESTS

There were no individually significant subsidiaries which have material NCI.

37. OPERATING LEASES

Leases as lessee

Non-cancellable operating lease rentals are payable as follows:


	2014	2013
	US$ '000	US$ '000

Less than a year	6,688	15,980
Between one and five years	26,327	21,676
More than five years	40,213	60,167
	73,228	97,823

Amount recognised as an expense during the year	2,298	3,086

The ownership of land in the Russian Federation is rare and especially within Moscow region, in which all of the property with only a few exceptions, is owned by the City of Moscow. The majority of land is occupied by private entities pursuant to lease agreements between occupants, of the building located on the land, and the City of Moscow. The Group has several long-term operating leases for land. These leases are entered into with the intention and right to develop the land and carry out construction. Typically they run for an initial period of one to five years which is the period of development and upon completion of development the developer has the right to renew for a long term period of usually up to 49 years. Under both leases the lessee is required to make periodic lease payments, generally on a quarterly basis to the City of Moscow.

There is also the option of long term land lease prior to commencement of construction which the developer can acquire with a lump sum payment that is determined from time to time by the City of Moscow and is based on the size of the land, its location and the proximity to amenities. The Group has two such land rights and they run for period of 49 years.

Leases as lessor

The Group leases out investment property under operating leases. The future minimum lease payments under non-cancellable leases are as follows:


	2014	2013
	US$ '000	US$ '000

Less than a year	122,501	125,244
Between one and five years	169,227	204,548
More than five years	51,603	46,928
	343,331	376,720

Amount recognised as income during the year	122,226	126,814

38. CAPITAL COMMITMENTS

Up to 31 December 2014 the Group has entered into a number of contracts for the construction of investment or trading properties:


Project name	Commitment
	2014	2013
	US$ '000	US$ '000

Odinburg	16,081	53,058
Kosinskaya	1,560	20,253
TVZ Plaza IC	2,600	12,776
Serebryakova	7,243	7,332
Pavaletskaya II	4,311	3,733
TVZ Plaza IV	140	3,592
TVZ Plaza II	1,080	1,297
Bolshaya Pochtovaya	474	334
	33,489	102,375

39. CONTINGENCIES

There were not any contingent liabilities as at 31 December 2014.

40. RELATED PARTIES


Outstanding balances with related parties	2014	2013
	US$ '000	US$ '000
Assets
Amounts receivable from joint ventures	20	16
Amounts receivable from ultimate holding company	203	203
Amounts receivable from other related companies	164	12,780
Long term loan receivable from joint ventures	17,962	21,438

Liabilities
Amounts payable to joint ventures	131	170
Amounts payable to ultimate holding company	433	435
Amounts payable to other related companies	1,700	3,483
Deferred income from related company	156	266

All outstanding balances with these parties are priced at an arm's length basis and are to be settled in cash. None of the balances is secured.


Transactions with the key management personnel	2014	2013
	US$ '000	US$ '000
Key management personnel compensation comprised:
Short-term employee benefits	5,311	4,401
Share option scheme expense	4,383	4,920

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.


Other related party transactions	2014	2013
	US$ '000	US$ '000
Revenue
Joint venture - consulting services	238	-
Joint venture - rental income	-	2
Joint venture - other income	-	11
Joint venture - interest income	1,920	2,523
Related company - rental income	1,519	1,358


Expenses
Ultimate holding company - administrative expenses	766	433
Joint venture - operating expenses	177	193
Joint venture - administrative expenses	-	9
Other related companies - administrative expenses	-	6


Other related party transactions	2014	2013
	US$ '000	US$ '000
Construction services capitalised
Related company - construction services	13,728	9,076

41. SUBSEQUENT EVENTS

Subsequent to 31 December 2014 there were no events that took place which have a bearing on the understanding of these financial statements except of the following:

In January 2015, the Company's subsidiary, Krown Investments LLC ("Krown") signed an addendum to the loan facility agreement with VTB Bank OJSC ("the Bank), extending the term of the loan to 26 January 2018. Krown, which owns the Aquamarine III (Ozerkovskaya III) office complex, had an existing loan from the Bank maturing on 26 January 2015, of which US$ 205 million was outstanding. In addition to extending the term of the loan, the new addendum amended the payment schedule and interest rate conditions of the loan agreement 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 as partial repayment of the outstanding loan amount, thus reducing the total to US$195 million. About 90% of the principal is to be paid at maturity.

[1] The Economist Intelligence Unit forecasts Russian real GDP growth for 2015 at -3.5%; consumer price inflation for 2014 is estimated at 11.9% (EIU Russia Country Report February 2014).

[2] Cushman&Wakefield Market Beat report 2014.

[3] Cushman&Wakefield, Retail Snapshot Q4 2014.

[4] Debt includes all loans and borrowings. For further details please see note 28 to the Financial Statements.

[5] According to the IFRS rules, Investment property and Investment property under development are presented on a fair value basis, Trading property and Property, plant and equipment are presented on a cost basis.

[6] This is the area after the disposal of part of the parking space to "VTB Bank" JSC.

[7] After the disposal of Building 1 to Alrosa in 2013.

[8] Debt includes all loans and borrowings. For further details please see note 28 to the Financial Statements.

1Valuation figures represent Company's share (74%)

2 Valuation figures represent Company's share (95%)

3 Valuation figures represent Company's share (99%)

4 The project portfolio includes 50% owned joint ventures, which are accounted by equity method

5 Valuation figures represent Company's share (90%)

[9] According to common market practice in Russia and to applicable Russian laws, preliminary sales of apartments during construction are done in the form of "contracts of participation in construction", which are executed between the developer and purchaser of an apartment. These contracts are registered with state authorities and enter into legal force after this state registration. However the Company considers that signed contracts have high probability of registration and entering into legal force and reports "units sold" as the number of contracts signed with the apartments purchasers.

[10] Including City Share

[11] Average completion rate is calculated based on the completion rate of the dollar budget in rouble terms. Therefore, FX fluctuations influence the percentage of completion.

[12] The information is forward-looking information based on the data available to the Group on the date of this Periodic Report. Due to factors beyond the Group's control, the project may not be completed on the date shown in the table.

13 The inventory figures include only Stage 1 apartments

[13] All information presented in the table corresponds to Phase 1 of the project

[14] Expected revenues detailed hereinafter include revenues from the sale of commercial areas.

[15] Expected costs detailed hereinafter include costs in respect of the construction of commercial areas.

[16] Total cost of project include cost of Phase 1, Stage 1 and Phase 1, Stage 2 and historical cost

[17] The gross profit margin is calculated based on expected revenues. It is difficult for the Group to project gross profit since the profit margin is dependent on factors some of which are not in the Group's control. Accordingly, the information given here is forward-looking information and there is no certainty that it will be realized. In this context it should be clarified that the expected revenues were estimated based on the selling prices of the Group's proximate projects and expected costs (apart from the cost of the land which is known in full or in part) were estimated based on signed contracting contracts and/or expenses the Group has paid out in proximate projects. It should also be clarified that the cash flow was not discounted over the life of the project.

[18] Relates to the beginning of the execution of the Stage 3 of Phase 1.

[19] Source: IMF Statistics

[20] Source: IMF statistics

[21] Source: The Economist Intelligence Unit

[22] Source: Rosstat

[23] Decrease in the amount of properties due to reclassification of Kossinskaya from office to retail properties

[24] Increase in the amount of properties due to reclassification of Kossinskaya and addition of Paveletskaya II project (which was previously refered as land)

[25] In November 2012 Bellgate Construction Limited ("Bellgate"), the Company subsidiary owning and operating AFIMALL City, disposed of approximately 643 parking lots to VTB Bank JSC, which is using this parking space for its office headquarters located next to AFIMALL City. The transaction is structured in two stages. The first stage entailed a sale-purchase transaction between Bellgate and VTB Bank on 21,354 sq.m. of parking space. During the second stage 9,247 sq.m. owned (at completion) by VTB Bank will be exchanged for 7,847 sq. m. owned by Bellgate. The first stage of the transaction was completed in June 2013.

[26] Construction of AFIMALL City was carried out based on an investment agreement of 2005 executed between the City of Moscow and Bellgate. GUP of the City of Moscow "Tsentr City" was engaged in the project by the City of Moscow as a project management company and held lease rights to the land plot underlying the construction site of AFIMALL City under the lease agreement executed in 2005. In July 2012, Bellgate became a co-tenant of the land plot underlying, inter alia, AFIMALL City and the underground parking under a land plot lease agreement with multiple tenants executed with the City of Moscow. Under Russian law, a lease agreement with multiple tenants (co-tenants) is executed when there are several owners/users of different real estate objects located on the same land plot.

[27] It is noted that long-term lease agreements entered into for a period of one year or more as well as ownership rights are registered with the Real Estate Register. Accordingly, ownership rights of Bellgate to the properties of AFIMALL City and the underground parking are registered with the Real Estate Register. Bellgate is a co-tenant of the land plot underlying the AFIMALL City and the underground parking, and the lease agreement is registered in the Real Estate Register.

[28] As of 31.12.13 and onwards the occupancy data is presented as a percentage of the total GLA (gross leasable area) - 107,208 sq.m.

[29] Stores under operation except kiosks and terminals

[30] The first draw down of the credit facility was made by the holding company on June 29, 2012.

[31] Calculated based on average unrecoverable operational expenses till the date of assumed disposal of the property

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR EAADXFAFSEFF

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Frontier Development PLC

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AFI DEVELOPMENT PLC

Annex A to the MD&A

Below is additional information regarding the Company's business and portfolio. Terms not expressly defined herein shall have the meaning ascribed thereto in the MD&A.

Real Estate Development

General Information on this Area of Activities

Products and Services of the Company's group

Customers

Marketing and Distribution

Income Yielding Properties in Russia and the CIS

Human Resources - Employees

The following table details the number of employees in the Group's real estate operations in Russia, broken down by the business sectors in which they are employed:

Total amount of 178 employees does not include:

C O N T E N T S

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

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