Rose : TRADING UPDATE AND POTENTIAL DELISTING

Thursday 20 November 2014

Rose Group Limited

(AIM: RGI)

TRADING UPDATE AND POTENTIAL DELISTING

Rose Group Limited ("Rose Group" or the "Company"), the AIM listed developer of quality residential properties in Moscow and surrounding areas, today announces the following update to the market.

Highlights:

Potential Delisting

§ The Group has been informed by its major shareholder that it intends to seek a cancellation of the Company's ordinary shares to trading on AIM.

Operational

§ Microgorod «V Lesu»:

-     « V Lesu» sales remained healthy with advance sales of 183apartments (Q3 2013: 130);

-     The Company recorded 1,380m RUR (US $38m) cash inflows (2013: 984m RUR) from pre-sales (not currently recorded as revenue) during the quarter, an increase of 40% over Q3 2013;

-     Phase 1 sale prices continued to increase, reaching an average of 134,800  RUR  per square meter, a 10% increase over 2013;

-     In total, 97% of available apartments in Phase 1 have been pre-sold and 39% of apartments in Phase 2;

-     School and Kindergarten opened on-time on 1 September;

-     Ownership of 982 apartments was transferred; and

-     Construction is on schedule across the development.

§ Tsvetnoy Central Market:

-     Footfall for 9 months increased 23%;

-     Rose Group's revenues from the store for the 9 months to 30 September grew by 32% to 708m RUR (US$20m) (9M 2013: 534m RUR); and

-     Tsvetnoy's operating profit  for the 9 months to 30 September increased to 129m RUR (US$3.6m), (9M 2013: 51m RUR loss) reflecting a strong performance during Q3 2014, traditionally the slowest trading period in retail. 

Potential Delisting

Representatives of Direct Finance, the beneficial holder of 73.4% of the shares of Rose Group, have informed the Directors of Rose Group ("Directors") of their desire to seek a cancellation of the admission of the Company's ordinary shares to trading on AIM (the "Cancellation"). Further, the Directors have been informed by representatives of Direct Finance that documents have been lodged with its nominee holder requesting the issue of a formal notice ("Requisition Notice") requisitioning an Extraordinary General Meeting ("EGM") of the Company to propose the Cancellation. Our understanding is that the nominee holder is completing its necessary operational checks prior to acting on the instructions. Therefore, there is no certainty as to when, or indeed if, the Company will receive the Requisition Notice.  Once the Requisition Notice is received by the Company, the Directors will assess its validity and, if appropriate, convene an EGM to propose a resolution to approve the Cancellation. The Directors have been told that in the event of the Cancellation, no offer will be made to minority shareholders by Direct Finance. Given that Direct Finance holds nearly 75% of the voting rights, a resolution proposed by it will almost certainly pass.  A further update will be provided to shareholders in due course. 

Microgorod «V Lesu » ("V Lesu ")

Rose Group offers a premium economy residential product at its V Lesu development. Against a period of weaker economic growth which began in 2013, the Company's strategy has been to avoid a discounting policy that would damage the integrity of the product and lead to substantially lower margins. Rose Group is pleased to report that sales remained healthy through the traditionally slow Q3 at V Lesu, with advance sales of 183 apartments versus 130 in Q3 2013.  Year to date, Rose Group has pre-sold 494 apartments compared to 363 in the same period of 2013.  Since beginning construction in 2011, 1,135 flats totaling 76,013m2 have been sold in Phase 1, representing 97% of the total apartments available for sale. In Phase 2, 590 apartments totaling 39,456m2 have been sold to date, representing 39% of the total. For Q3 2014, the average selling price in Phase 1 was 134,800 RUR per square meter, while in Phase 2 it was 119,800 RUR per square meter (2013: 122,900 RUR and 92,300 RUR per square meter respectively). 

The Company had 1,380m RUR (US$38m) cash inflows from pre-sales (not currently recorded as revenue) during the quarter versus 984m RUR during Q3 2013.  This brings the cash inflow figure for the first nine months of the year to 4,228m RUR (US$ 119m) (9M 2013: 2,845m RUR).

Keys were handed over to 387 owners of Phase 1 apartments at V Lesu during Q3. By the end of the period, the Company had transferred ownership of 982 apartments in Phase 1 and recognized 7,377m RUR (US$208m) revenue for 2014. 

On 1 September, Rose Group proudly opened a new state-of-the-art school for 1,100 students and kindergarten for 180 children at Microgorod «V Lesu».

Sales and delivery in Phase 1 are expected to be completed by the year-end.  Construction remains on track in Phase 2 with the first buildings expected to be under roof before winter to allow initial fit-out works to be undertaken.

Tsvetnoy Central Market ("Tsvetnoy")

Tsvetnoy continued to move from strength to strength during the quarter, solidifying its position as a unique concept department store on the Russian market. Despite an overall slowdown in retail spending in Russia, Tsvetnoy's footfall increased 23% year-on-year to 1.7 million visitors. Management attributes this growth to a successful strategy of improved market positioning and exceptionally strong promotional events, both in high-end and mass-market fashion.

In Q3 2014 Tsvetnoy hosted several events which helped to increase traffic and store turnover, such as the Vogue Fashion Night Out and the Hercules & Love Affair live concert.

Overall store turnover for the first three quarters of 2014 was 2,354m RUR (9M 2013: 2,259m RUR), driven partly by increases in turnover of non-food items, which grew by 23% as compared to the same period in 2013 . Revenue recognized by Tsvetnoy, which is recorded in the income statement on a net basis for tenant commissions and on a gross basis for direct sales of own inventories, increased 32% to 708m  RUR (9M 2013: 534m Million RUR), reflecting brand mix changes, especially in own-bought goods, such as the introduction of new brands like Marni and Valentino.

Finances

Revenues for apartment sales are recorded upon transfer of the keys to new residents. The 982 apartments delivered during the nine month period drove revenue recognized for V Lesu to 7,377m RUR (9M 2013: nil). This produced a gross profit of 1,801m RUR on the transfer of these apartments, at a gross margin of 24%. 

Tsvetnoy recorded 708m RUR in revenue during the period (9M 2013: 534m RUR), with increases of 28% and 41% for concession revenue and the store's own goods, respectively.  Property operating costs at Tsvetnoy fell 11% to 415m RUR (9M 2013: 464m RUR).  Thanks to overall business and marketing activity, Tsvetnoy swung to an operating profit of 129m RUR from a loss of 51m RUR during 9M 2013. 

Total Group revenue rose to 8,086m RUR (9M 2013: 534m RUR).  General and Administrative expenses declined 27% to 239m RUR (9M 2013: 329m RUR), leading to a group operating profit of 1,669m RUR (9M 2013: 589m RUR loss).  Net profit for the period was 294m RUR (9M 2013: 849m RUR loss).   

Rose Group's balance sheet remained strong.  As of 30 September, the company had 787m RUR cash (31 Dec 2013: 864m RUR) and debt had fallen to 5,973m RUR from 6,111m RUR at year-end.  Delivery of apartments reduced total assets by 2,973m RUR to 27,089m RUR (FY 2013: 30,063m RUR). As of 30 September 2014, Rose Group had not yet drawn upon the Sberbank facility announced in April 2014.

Enquiries:

About Rose Group

Rose Group Limited has been successfully creating new markets in Moscow real estate since 1993.  The Company's innovative drive played a key role in the transformation of Moscow's Golden Mile in the 1990s, when new landmark buildings were constructed that set the benchmark for modern living and working spaces in the rapidly changing Russian capital. Today the Company is focused on serving Moscow's growing middle class professionals by building aspirational, design led, residential communities. Its pioneering Microgorod « V Lesu» project has set new standards for the Moscow residential sector by offering homebuyers a well configured development, with good facilities and apartments finished to a high quality. In addition to its distinctive residential properties, RGI developed, owns and operates Tsvetnoy Central Market, Moscow's first iconic department store on Tsvetnoy Boulevard. The Company is listed on the LSE's AIM market and has significant land holdings in central Moscow.