FIRST HALF 2013 RESULTS KARDAN N.V.

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1 PRESS RELEASE Amsterdam/Tel Aviv, August 28, 2013 Number of pages: 18 FIRST HALF 2013 RESULTS KARDAN N.V. Kardan is reporting a loss of EUR 19 million over the second quarter 2013 for its equity holders and consequently a loss of nearly EUR 41 million for H The main reasons for these losses are devaluations which have been recognized in the Central and (South) Eastern European real estate company GTC SA, of which we own 28%, and the sizeable foreign exchange loss which we reported on in Q1 of this year. Notwithstanding the net loss for H1 2013, we have seen improvements in operating results throughout the group. A strong focus on our core markets, cost efficiency measures and targeted risk management has resulted in a positive turnaround for our water infrastructure and banking activities. In the residential real estate sector, Kardan Land China has seen a significant pick up in the sale of apartments in H1of 2013 compared to the first half of last year. The results of the retail center Chengdu continue to grow and the development of the construction of Europark Dalian is on track, as is the progress of signing contracts with anchor tenants for the retail center which is planned to be completed by the end of Tahal Projects is reaping the fruits of the reorganization and is showing strong revenue growth and healthy margins. Tahal Assets, which mainly comprises the Kardan Water activities in China, was able to compensate its slower revenue development (following less construction activities) by stringent cost measures. Our banking and retail lending business has managed to improve the quality of its portfolios and take increasing deposits whilst simultaneously merging some of its business units to create synergetic effects; all leading to much improved operating results. GTC SA faced sluggish consumer sentiment, particularly in the South Eastern European countries, which has impacted the valuation of their retail assets in those countries. Excluding the devaluations, GTC SA reported sound operating results. Although the operating results of the group are improving, Kardan continues to strongly focus on the generation of cash predominantly by repayment of shareholder loans by some of the Company s subsidiaries and by selling assets in order to be able to repay our Debenture holders in the short to medium term. We are currently engaged in negotiations, both directly as through our subsidiaries, to accomplish this, Shouky Oren, CEO of Kardan, stated. Highlights segments H1 2013: Real Estate Asia Significant increase in delivery of apartments in Q2 (864) versus Q1 (110) (H1 2013: 974 versus H1 2012: 1,113) High number of apartments sold in Q2 (521) and Q (575) Substantial increase y-o-y: H (1,096) versus H1 2012( 217) Revaluation gain on retail center Europark Dalian EUR 3.9 million profit in Q leads to EUR 6.4 mn profit in H (H1 2012: EUR 4.0 mn) Real Estate Europe Deconsolidation of GTC SA as of Q GTC SA: Sound operating results but continued devaluations in challenging South Eastern European markets GTC SA (100%) H1 2013: loss of EUR 65.1 mn for equity holders (H1 2012: EUR 8.2 mn loss) Real Estate Europe: EUR 15.7 mn loss attributable to Kardan (H1 2012: EUR 4.7 mn loss) Water Infrastructure, Assets Lower revenues primarily due to accounting effect of less construction activities Improved gross profit margin to 47% (H1 2012: 41%) EUR 1 mn profit in Q leads to EUR 2.8 mn profit in H (H1 2012: loss of EUR 0.8 mn) Water Infrastructure, Projects Continuing markedly higher revenues (Q2 / Q1 2013: up by 25%, H y-o-y up by 50%) Strong improvement of gross profit margin (H1 2013: 14%, H1 2012: 6%) Gain on sale of real estate asset in Tel Aviv recognized in Q EUR 4.3 mn profit (H1 2012: EUR 5.0 mn loss) Kardan N.V. Press Release H1 and Q Results Page 1

2 Banking and Retail Lending Substantially higher revenues due to increasing new origination of loans Strong decreasing trend of provisioning One-off gain on recovery payment on former investment in Serbia Impairment of the investment in Avis Ukraine in Q on pending sale H EUR 4.4 mn loss (H1 2012: EUR 14.2 mn loss) The financial statements of GTC SA, the Central and (South) Eastern European real estate developer in which Kardan holds a 28% stake, are no longer consolidated in the results of Kardan (see note 6 in the Financial Statements), but is accounted for as an associated company based on the Equity method. In addition, as of January 1, 2013, following the adoption of IFRS 11(Joint Arrangements), all the joint ventures which were previously proportionally consolidated in the financial results, are also presented as Equity earnings / (losses) in joint ventures and associated companies. The comparative results have been adjusted to conform to these changes. The adoption of IFRS 11 affects the presentation of results of Real Estate Asia in particular. The H condensed interim consolidated income statement split into the different segments of Kardan N.V. is shown in the table below. Condensed Interim Consolidated Income Statement Kardan N.V. For the three months ended June 30, 2013 (in EUR millions) Real Estate Infrastructure Banking and Retail Other Total Total Asia Europe Assets Projects lending Q Q Total revenues Total expenses Profit (loss) from operation before fair value adjustments, disposal of assets and financial expenses (1.7) (0.7) (1.1) 0.3 (5.6) Profit (loss) from fair value adjustments, disposal of assets and investments, equity earnings (loss) 5.8 (11.0) 0.4 (0.5) (3.3) - (8.6) (1.5) Result from operations before finance expenses 4.1 (11.0) (4.0) (1.1) (8.3) (7.1) Financing income (expenses), net (0.2) - (0.5) (0.8) (0.7) (3.0) (5.2) 1.2 Profit (Loss) before income tax 3.9 (11.0) (4.7) (4.1) (13.5) (5.9) Income tax (expenses)/benefit - - (0.5) (1.6) - (2.9) (5.0) (1.4) Profit (Loss) from continuing operations 3.9 (11.0) 0.9 (0.6) (4.7) (7.0) (18.5) (7.3) Profit (Loss) from discontinued operations (21.9) Profit (Loss) for the period 3.9 (11.0) 0.9 (0.6) (4.7) (7.0) (18.5) (29.2) Attributable to: Non-controlling interest - - (0.1) (17.6) Net result for the segment 3.9 (11.0) 1.0 (0.7) (4.7) (7.0) (18.5) (11.6) Profit (Loss) for the period 3.9 (11.0) 0.9 (0.6) (4.7) (7.0) (18.5) (29.2) Kardan N.V. Press Release H1 and Q Results Page 2

3 For the six months ended June 30, 2013 (in EUR millions) Real Estate Infrastructure Bankin g and Retail Other Total Total Total Asia Europe Assets Projects lending HY HY FY 2012* Total revenues Total expenses Profit (loss) from operation before fair value adjustments, disposal of assets and financial expenses (2.5) (1.3) (2.4) (1.0) (18.0) (25.1) Profit (loss) from fair value adjustments, disposal of assets and investments, equity earnings (loss) (1.9) Result from operations before finance expenses (3.2) (2.4) 34.8 (16.1) (15.7) Financing income (expenses), net (0.4) (1.4) (1.0) (28.2) (29.7) (8.1) 9.7 Profit (Loss) before income tax (4.2) (30.6) 5.1 (24.2) (6.0) Income tax (expenses)/benefit (0.4) - (1.1) (4.3) (0.2) (3.6) (9.6) 0.9 (0.9) Profit (Loss) from continuing operations (4.4) (34.2) (4.5) (23.3) (6.9) Profit (Loss) from discontinued operations - (56.5) (56.5) (18.8) (131.9) Profit (Loss) for the period 6.4 (35.6) (4.4) (34.2) (61.0) (42.1) (138.8) Attributable to: Non-controlling interest - (19.9) (0.5) (20.2) (16.5) (106.1) Net result for the segment 6.4 (15.7) (4.4) (34.2) (40.8) (25.6) (32.7) Profit (Loss) for the period 6.4 (35.6) (4.4) (34.2) (61.0) (42.1) (138.8) Overall summarized review of H If developments are specifically attributable to Q2 2013, these are mentioned separately. Real Estate Asia reported a result from continuing operations of EUR 6.4 mn profit (H1 2012: EUR 4.0 mn profit) on better equity earnings reflecting the results of the residential activities in joint venture and the result of the 50% in retail center Chengdu and a revaluation profit on the development progress of the retail project in Dalian. A significant pick up in sale of apartments occurred in H1 of 2013 (y-o-y), which will impact the revenue line when the apartments are handed over to the buyers (approximately 12 to 24 months from the sale). The financial statements of GTC SA within Real Estate Europe have been deconsolidated in Q The reported contribution to the result of continuing operations in H primarily reflects the accounting effect (provisional bargain gain) of the deconsolidation mitigated by the loss reported by GTC SA for Q To evaluate Real Estate Europe fully, the loss from discontinued operations, which combines a fair value loss with the first quarter 2013 results of GTC SA, needs to be taken into account also. GTC SA (100%) recorded a loss of EUR 65.1 mn attributable to equity holders in the first half of 2013, primarily due to negative revaluations of approximately EUR 70 mn. For a more detailed analysis of the GTC SA results see page 9. Kardan N.V. Press Release H1 and Q Results Page 3

4 Water Infrastructure Assets contributed EUR 2.3 mn profit from continuing operations (H1 2012: EUR 1.3 mn loss) on better margins and tight cost control. Following significant increase in revenues (50% y-o-y), continued cost efficiency and a gain on the sale of a real estate asset in Tel Aviv, Water Infrastructure Projects reported a profit from continuing operations of EUR 4.5 mn (H1 2012: loss of EUR 4.9 mn). Revenues in the Banking and Retail Lending segment improved significantly on a better origination and quality of portfolios resulting from an improved branch network efficiency and better risk management, as well as a decreasing trend in provisioning (which is deducted from revenues). In Q a one off gain due to a recovery of an investment was recognized, which was more than off-set by an impairment on the investment in Avis Ukraine (Q2 2013) with respect to the pending sale. Banking and Retail Lending contributed a loss from continuing operations of EUR 4.4 mn in H1 2013, markedly better than the negative contribution of EUR 14.7 mn in the comparative period last year. Included in Other are the expenses and finance costs of the holding companies Kardan N.V. and GTC Real Estate Holding B.V. (GTC RE). In H1 2013, a net loss related to foreign exchange differences (Israeli Shekel versus Euro) of EUR 14 mn was reported, primarily relating to Q Consequently, the negative contribution of Other expenses amounted to EUR 34.2 mn in the first half of 2013 (H1 2012: EUR 4.9 mn negative contribution). Currently, the Company is mostly exposed to the Chinese RMB on its assets side and to the NIS on its liabilities side. Changes in the NIS exchange rate mostly impact the income statement while changes in RMB mostly impact the equity directly. The loss from discontinued operations in H is fully attributable to the deconsolidation of the financial statements of GTC SA from the results of Kardan and includes two elements: 1) the Company s share in the results of GTC SA in the reporting period and 2) the loss relating to the deconsolidation. The net result of H for equity holders of Kardan N.V. amounted to a loss of EUR 40.8 mn (H1 2012: loss of EUR 25.6 mn). Equity Kardan N.V. balance sheet (company only, in EUR millions) June 30, 2013 December 31, 2012 Total Assets Total Equity * Equity/Total assets (%) 24% 26% (*) Restated to reflect the retrospective impact of adopting IFRS 11 (Joint Arrangements) and the effect of a reclassification regarding GTC Investments out of held for sale. Shareholder s equity of Kardan N.V. decreased from EUR mn as of December 31, 2012 to EUR mn as of June 30, 2013, mainly due to the loss in the period. The impact of the loss was mitigated by positive equity movements related to foreign exchange rate translations. Covenants In May 2013, GTC RE BV came to an agreement with a lending bank and received a waiver with respect to loan covenants. For additional information on covenants and the waiver see note 7 to the Financial Statements. Highlights per segment: The result from operations before finance expenses of each segment is presented in note 3 of the condensed interim consolidated financial statements called "Segment result". In this press release, additional segment information is provided for information purposes. Kardan N.V. Press Release H1 and Q Results Page 4

5 REAL ESTATE Kardan is active in development and management of Real Estate through two segments: 1) Asia, which includes its 100% subsidiary Kardan Land China, and 2) Europe, which includes GTC SA, of which it holds 28%. Real Estate Asia General developments China and Kardan Land China China reported 7.6% y-o-y GDP growth in the first half of 2013 (Q1 2013: 7.7% y-o-y). Both imports and exports declined, with a larger decline in exports. The inflation rate rose from 2.1% in March to 2.7% in June of this year. In the mean time, both urban and rural resident s income rose steadily, mainly driven by a y-o-y growth of 8.7% of wage income. The Chinese government aims to stabilize the economy by increasing domestic consumption in order to be less dependent on export. In H1 2013, retail sales of consumer goods increased by 13.3% y-o-y. Kardan Land China ( KLC ) has selected its locations carefully, aiming for cities with above country average GDP growth and a strong and growing middle class and increasing domestic consumption. The Chinese real estate market continued to grow in H The central government s efforts to cool the property market through, among others, capital gains taxes on the profit of the sale of real estate property, seems as yet not to have had its intended effect. Competition in the real estate market is increasing though, leading to more aggressive marketing efforts. Renewals are starting to take place for the shopping center Galleria Chengdu (opened in November 2010): as of June 2013, KLC signed 16 new lease contracts and renewals, totaling over 2,000 sqm. Galleria Chengdu is fully occupied. After balance sheet date, KLC announced that the Swedish retailer H&M will open its largest store in Northeast China in Europark Dalian, resulting in a pre-lease of approximately 15% for the shopping center which is planned to be completed by the end of Results Real Estate Asia For the six months ended June 30 For the three months ended June 30 In EUR million Full Year Management fee and other revenues Other expenses, net Gross profit SG&A expenses Adjustment to fair value (impairment) of investment 10.4 properties Equity earnings (losses) (0.6) 9.7 Result from operations before finance expenses (1.5) 15.4 Financing income (expenses), net (0.2) Income tax (expenses) / benefit (0.4) (1.6) Profit (loss) from continuing operations Net profit (loss) Attributable to: Equity holders (Kardan N.V.) Kardan N.V. Press Release H1 and Q Results Page 5

6 Additional information Real Estate Asia 2013 (30.06) 2012* (31.12) Balance sheet (in EUR millions) Share of investment in JVs Investment Property Under Construction Inventory Cash & short term investments Total Assets Loans and Borrowings Advance payments from buyers Total Equity *restated according to IFRS 11 Jointly controlled ventures: Operational Information Residential H H Q Q FY 2012 Revenue Residential (in EUR millions) Gross profit residential (in EUR millions) Apartments sold* in period 1,096** ,194** Apartments delivered in period *** 974 1, ,272 Total apartments sold, not yet delivered 4,159**** 4,219 4,159**** 4,219 4,037 Jointly controlled ventures: Operational Information Retail (in EUR millions) Revenue Retail (50% rental Chengdu, 100% service fees) Gross profit Retail * Apartments are considered to be sold once the contract has been signed and a minimal deposit of currently 30% of the sale price has been made. The apartment is reserved until 30% or more has been received by KLC. On average, the remainder of the price is deposited within approximately two months after the contract has been signed. In H1 2013, 22% of mentioned sold apartments were reserved (Q1 2013: 11%) ** This number relates to all residential apartments, including the Europark project (Dalian) *** Reflects number of apartments 100%; Kardan Land China holds 50% **** Entails approximately EUR 32 mn gross profit (Kardan Land China share) Revenues In line with IFRS 11, KLC reports the results of its residential activities as well as the results of the 50% stake in retail center Chengdu as Equity in net earnings of joint ventures. Consequently, reported revenues relate to management and service recharge revenues only. Total revenues increased y-o-y mainly due to an increase for tenants of the service management fees with respect to the retail center in Chengdu (as of ). Sales & Marketing, and General & Administrative expenses (SG&A) Marketing efforts for Europark Dalian started in the second half of 2012, resulting in an increase of dedicated staff and consequently a y-o-y increase in SG&A expenses in H of approximately EUR 0.7 mn. Sales and marketing expenses with respect to the joint venture assets (Chengdu and the residential apartments excluding Dalian) are included in the Equity earnings. Adjustment to fair value of investment properties The positive adjustment to fair value in H relates fully to the Europark Dalian retail center, of which the development is progressing according to expectation (completion by end of 2014). Equity earnings / (losses) This line item relates to the share of profit / (loss) of the joint venture companies (i.e. Chengdu and the residential projects excluding the Dalian project, as this is fully held by KLC). Residential In Q KLC delivered 864 apartments, a significant increase from the 110 delivered in the first quarter. Total residential revenue for the first six months of 2013 (from 974 apartments compared to 1,113 apartments in H1 2012; revenue is recognized when apartments are handed over), showed only a slight 2% y-o-y revenue decrease due to a different mix of apartments. The H gross profit margin on residential activities increased to 32% (H1 2012: 23%) on lower cost of sales. Kardan N.V. Press Release H1 and Q Results Page 6

7 Retail Rental income from the 50% stake in Chengdu combined with 100% service management fees increased in H y-o-y by 20% largely on the back of higher tenant turnover, higher service management fees from tenants and an increase in the base rent. Following good cost control, the gross profit margin on the rental retail activities (Chengdu) increased from 47% in H to 64% in H Financing Income/expenses, net The decrease (y-o-y) of net financing income in H is mainly due to a foreign currency gain (RMB compared to the Euro) which contributed EUR 1.2 mn to the net financing result whereas in H this currency effect was twice as high. Income tax (expenses) / benefit A deferred tax charge on the valuation gain on the retail center of Europark Dalian is the main reason for the income tax expense in H Additional Information Investment property under Construction, which is fully related to the Europark Dalian project, increased by 25% (from December 31, 2012) as the result of additional investment, positive valuation and the positive impact of translation of the RMB into the Euro. The increase of Loans and borrowings compared to the balance as at year end 2012 primarily relates to the use of a construction loan for Europark Dalian. Advance Payments from Buyers as at June 30, 2013, relating to the Europark Dalian project only, increased substantially in comparison to year end As indicated under the Other operational information residential table above, advance payment for an apartment is usually paid in two phases: 30% of the price at signing of the contract and the remainder within on average two months thereafter (depending on whether the buyer takes a mortgage for the purchase). If at signing the buyer pays less than the required 30%, the apartment is kept in reserve until the threshold of 30% has been met. In line with the equity method applicable to the Real Estate Asia segment results presentation, advance payments from the other (joint venture) residential projects are presented as part of the total amount Share of Investments in associated companies in the balance sheet. The main reason for the increase in the accumulated profits in the different Joint Ventures is an appreciation of the RMB versus the Euro during H KLC aligns the pace of construction to match the market conditions and to keep the percentage of completed unsold apartments in the inventory low (June 30, 2013: 4%). The inventory of Joint Venture apartments is reported under Share of Investments in Joint Ventures. Real Estate Europe General developments Central and Eastern Europe (CEE) and highlights GTC SA In general, the macroeconomic development of the Central and Eastern European (CEE) countries is strongly linked to the situation in Western Europe. High unemployment and still weak consumer and business confidence continue to negatively impact the recovery of the real economies of many Western European countries. In Poland, the economy is showing signs of slow recovery, as GDP grew by 0.8% y-o-y in Q The unemployment rate improved slightly to 13.2% at the end of June 2013 (March 31, 2013: 14.3%) - a factor suggesting that the a rebound of the economy could be registered in the second half of this year- but still affects internal demand and private consumption. Inflation, however, decreased by 0.2% (y-o-y) in the first half year of 2013 influencing retail sales which went up by 1.8% y-o-y in June The Polish market continues to be perceived as the key destination for real estate investment in the CEE region. The affluence level of Warsaw s inhabitants exceeds the national average by 61% and the density of shopping malls is still the least saturated amongst Polish agglomerations, offering two key conditions for the planned development of the two shopping malls that GTC SA has in the pipeline to be completed in 2015 and GDP growth in Q in Romania decelerated to 1.2% (y-o-y) from 2.1% (y-o-y) in Q After balance sheet date, the National Bank of Romania cut the interest rate by 50bp due to a stronger expected disinflation, stagnating consumption and declining private lending. The real estate market in Romania has been affected by the lagging business and consumer sentiment. Kardan N.V. Press Release H1 and Q Results Page 7

8 Bulgaria reported (y-o-y) GDP growth in the first half of 2013 of 0.2%. Private consumption during the first half of 2013 showed a slight increase mainly on the back of lower inflation (accumulated inflation rate in H was negative at (0.7%) y-o-y), despite a still weak labor market. The political situation in the country is not yet stable, which has a negative influence on consumer sentiment. In the real estate sector, supply exceeds demand, which, combined with the slow pace of growth in consumer purchasing power proves a challenging environment for real estate companies. Results Real Estate Europe Real Estate Europe comprises GTC SA which operates in Central and (South) Eastern Europe. As of the first quarter of 2013 the financial statements of GTC SA (in which Kardan holds a 28% stake) are no longer consolidated in the results of Kardan. The effect of the deconsolidation is presented in the table below. For the six months For the three months ended June 30, ended June 30, Full Year in EUR million Equity earnings / (losses) 20.9 (1.5) (11.0) (1.0) (6.2) Result from operations before financing expenses 20.9 (1.5) (11.0) (1.0) (6.2) Profit (loss) from continuing operations 20.9 (1.5) (11.0) (1.0) (6.2) Net profit (loss) from discontinued operations (56.5) (19.3) - (22.4) (132.4) Net profit (loss) (35.6) (20.8) (11.0) (23.4) (138.6) Attributable to: Non-controlling interest holders (19.9) (16.1) - (17.4) (105.5) Equity holders (Kardan N.V.) (15.7) (4.7) (11.0) (6.0) (33.1) (35.6) (20.8) (11.0) (23.4) (138.6) Real Estate Europe: Equity in net earnings of associated companies and joint ventures Equity earnings includes a) the bargain gain in the amount of EUR 31.9 mn which was recognized as a result of the provisional purchase price allocation that is associated with the deconsolidation of GTC SA in Q and b) the reported loss of GTC SA in Q For further details see Note 6 in the Financial Statements. Net profit (loss) from discontinued operations This includes two amounts: 1) the Company s share in the results of GTC SA in Q and 2) the loss relating to the deconsolidation in the amount of EUR 30.2 mn, which also includes the reclassification of equity reserves related to GTC SA to the income statement. GTC SA To clarify the operational results of GTC SA, the condensed income statement of GTC SA is presented below (adjusted for the accounting policy of Kardan N.V.): Kardan N.V. Press Release H1 and Q Results Page 8

9 GTC SA (100%) H1 13 H1 12 Q2 13 Q2 12 FY 2012 (in EUR millions) Rental and service revenue Cost of rental operations Rental margin 71% 73% 72% 73% 70% Residential sales revenue Cost of residential sales Gross profit from operations SG&A expenses Other income /(expenses) (2) (2.2) (1.1) (1.7) (4.1) Profit (loss) from revaluation of Invest. Property and impairment (70) (9.9) (44.5) (12.3) (114.6) Operating profit (loss) (38.5) 20.1 (30.6) 2.7 (56.8) Financial income (expenses), net (24.2) (30.3) (11.1) (14.6) (61.2) Share of profit (loss) of associates (1.8) (4.2) (2.2) (4.1) (8.0) Profit (loss) before tax (64.5) (14.4) (43.9) (16) (126.0) Tax (9.9) (4) (4.3) (5.5) (6.0) Profit (loss) for the period (74.4) (18.4) (48.2) (21.5) (132.1) Attributable to: Equity holders (65.1) (8.2) (42.3) (14.5) (96.0) Minority interest (9.3) (10.2) (5.9) (7) (36.1) Additional information GTC SA 2013 (30.06) 2012 (31.12) Balance sheet (in EUR millions) Inventory & residential land bank Investment property 1, ,485.8 Assets held for sale Cash & short term investments Investment in associates and joint ventures Total Assets 1, ,087.4 Total bank debts and financial liabilities 1, ,124.9 Total Equity Other Loan to Value* 56% 53% Completed commercial space(sqm)** 575, ,221 Value Income generating assets (EUR mn)** 1,276 1,308 Average occupancy 91% 91% Average yield completed assets 8.3% 8.3% * LTV = Loans net of cash and deposits / Investment Property, inventory and assets held for sale ** Excludes Czech Republic and Ukraine, excludes assets held for sale Rental & Service Revenue & Rental margin Rental and service revenues decreased y-o-y in H by 7% due to the sale of Platinium Business Park in Warsaw in Q as well as a softening of rental rates particularly in the office segment in Poland and Hungary. Cost of rental operations did not decrease (in H compared to H1 2012) as a result of one off write offs of bad debts and increased fit-out costs related to tenant replacement. Consequently, the rental margin decreased to 71% in H (H1 2012: 73%). Average occupancy of completed properties at GTC SA remained stable at 91% at the end of H compared to year end Revenues from sale of residential properties decreased, mostly due to a decrease in available inventory and softer demand in various markets. Kardan N.V. Press Release H1 and Q Results Page 9

10 SG&A expenses Selling and marketing expenses decreased significantly following less sale and leasing activities. General and administration expenses nearly halved, on the basis of continued cost cutting and changes in the provisioning for the stock based program. Excluding the provisioning for the stock based program, administrative expenses decreased by 21% (y-o-y) in H Profit (loss) from revaluation of investment property and impairment The net devaluation of investment properties and impairment of residential properties in H of EUR 70 mn (Q1 2013: EUR 25.5 mn, Q2: EUR 44.5 mn) is mainly attributable to assets in Romania following a change of zoning of land on which GTC SA was planning to develop Galleria Bucharest, a decrease in expected rental rates in the retail sector in Romania, Bulgaria and Croatia, an expansion of yield in the office sector in Bucharest (Romania), a decrease in rental rates on new leases in the office segment in Poland and Hungary and a moderate shift in yields in Poland. Financial expenses, net Financial expenses (net) decreased primarily due to a decrease in interest on financial liabilities following a decrease in the debt level due to repayment of bonds and loans (total repayment of long term borrowings and bonds in H1 2013: EUR 130 mn). Income tax These expenses largely relate to the operations in Poland and a foreign exchange impact on deferred taxes. Net profit / (loss) attributable to Equity holders The contribution to the equity holders of GTC SA amounted to a loss of EUR 65.1 mn (H1 2012: loss of EUR 8.2 mn). Additional Information GTC SA As a consequence of the reported loss in H and due to other equity movements, total equity of GTC SA decreased to EUR 673 mn (from EUR 741 mn as at year-end 2012). At the balance sheet date, the loan to assets value ratio was 56% (December 31, 2012: 53%), primarily due to the devaluation of assets. As at June 30, 2013, the short term loans (including derivatives) amounted to EUR 240 mn of which EUR 105 mn relating to bonds (including hedges) which need to be redeemed in April GTC SA is listed on the Warsaw Stock Exchange. For full details on the GTC SA first half 2013 results, which were published on August 20, 2013, reference is also made to the company website: WATER INFRASTRUCTURE Tahal Group International B.V. ( TGI ), Kardan s water infrastructure company, focuses on developing water assets (e.g. wastewater, water treatment and water supply plants) and on executing water related projects worldwide. Tahal Assets is mainly active in China but also in Turkey, whilst Tahal Projects is mostly involved in projects in Africa, Central and Eastern Europe, Latin America and in other regions and countries, such as Israel. General developments water infrastructure and Tahal Throughout the world, it is recognized that access to clean or treated water is a prerequisite for social and economic development. Funding of projects to create such access is, however, a challenge, particularly in the current global uncertain macroeconomic circumstances. As availability of funding for the execution of projects is crucial for Tahal Projects, organizing the relevant funding is part of their tender offers. In Africa for instance, Tahal Projects is mainly active in water irrigation and drink water system projects. In Israel, Tahal Projects for example is working on the large Pumped Storage project, which entails building an electricity generating facility. In China, where Tahal Assets is mainly active, the Government acknowledges that the growing water problem, namely that as much as 70% of Chinese rivers and lakes are polluted, needs immediate attention and action. The government has therefore, among others, embraced a Public Private Partnership policy making it possible for (non-) Chinese companies to initiate and execute infrastructure projects. Pollution is not the only problem though; water is also very scarce in China, threatening food security and consequently political stability. Kardan Water (KWIG), subsidiary of Tahal Assets, is therefore also moving into water supply facilities, such as the facility in DazHou which has a total designed capacity of 100,000 m3/day. Kardan N.V. Press Release H1 and Q Results Page 10

11 Results Infrastructure Assets* For the six months For the three months Full year ended June 30 ended June 30 in EUR million * Contract revenues Contract cost Gross profit SG&A expenses Equity earnings / (losses) Gain on disposal of assets and other income Result from operations before financing expenses Financing income (expenses) net (0.4) (3.5) (0.5) (3.1) (4.4) Income tax (expenses) / benefit (1.1) (1.4) (0.5) (0.6) (2.0) Profit (loss) from continuing operations 2.3 (1.3) 0.9 (2.0) 0.3 Net profit (loss) 2.3 (1.3) 0.9 (2.0) 0.3 Attributable to: Non-controlling interest holders (0.5) (0.5) (0.1) (0.2) (0.7) Equity holders (Kardan N.V.) 2.8 (0.8) 1.0 (1.8) 1.0 (*) Finance expenses of Tahal Group International have been allocated to Tahal Assets Additional Information Assets 2013 (30.06) 2012 (31.12) Balance sheet (in EUR millions) Cash & short term investments Total Assets Net Debt (excl shareholder loans)** Equity* Equity*/ Assets 59% 59% * Group equity including shareholder loan ** Bank loans net of cash and cash equivalents Revenues The revenue of Tahal Assets is mainly generated by Kardan Water in China. It is noted that as of Q1 2013, the joint venture activities which Tahal Assets has in Turkey are reported according to the Equity method, in line with IFRS 11. The comparative results have been adjusted to conform to these changes. Tahal Assets recorded less revenue in H than in H1 last year mainly due to construction activities in the first half of last year which accounted for EUR 5.3 mn revenue (construction and expansion activities result in revenue). In addition, due to expansion of facilities which took place in the first half of 2013, some plants could not be operated full fledge. Gross Profit The gross profit margin increased to 47% in H from 41% in the same period last year, following a substantial decrease in the cost of sales relating to the absence of construction activities in H Sales & Marketing, and General & Administrative expenses (SG&A) SG&A expenses decreased y-o-y by 23% in the first half of 2013, mainly following substantial cost savings at the Tahal Assets Management level (decrease of head count). Equity earnings This relates to the joint venture activities that Tahal Assets has in Turkey. Financing income (expenses), net The substantial y-o-y decrease compared to the expenses in H can largely be explained by a positive impact of the valuation of the warrant and call option related to a loan which was provided by a private equity investor in 2010, as well as by foreign currency income. Kardan N.V. Press Release H1 and Q Results Page 11

12 Results Infrastructure Projects* For the six months For the three months Full Year ended June 30 ended June 30 in EUR million Contract revenues Contract cost Gross profit SG&A expenses Equity earnings / (losses) (0.1) - (0.1) Gain on disposal of assets and other income (0.4) - (1.1) Result from operations before financing expenses 10.2 (4.7) 1.8 (2.8) (6.2) Financing income (expenses), net (1.4) (0.3) (0.8) (0.6) (2.0) Income tax (expenses) / benefits (4.3) 0.1 (1.6) Profit (loss) from continuing operations 4.5 (4.9) (0.6) (3.3) (7.3) Net profit (loss) 4.5 (4.9) (0.6) (3.3) (7.3) Attributable to: Non-controlling interest holders Equity holders (Kardan N.V.) 4.3 (5.0) (0.7) (3.3) (7.4) (*) General and Administrative expenses of Tahal Group International have been allocated to Tahal Projects Additional Information Projects 2013 (30.06) 2012 (31.12) Balance sheet (in EUR millions) Cash & cash equivalents Total Assets Net debt (excl. shareholder loans)** (6.0) (17.4) Equity* Equity* / Assets 23% 25% Other (in USD million) Backlog * Group equity including shareholder loan ** Bank loans net of cash and cash equivalents Revenues Revenues in H increased significantly by 50% y-o-y primarily as the result of new projects mainly in Africa and which started later in 2012 and in the beginning of this year, particularly noticeable in strong revenue in Q2 (25% higher than in Q1) of this year. Only when the first down payment of a new project has been received does Tahal Projects recognize the full value of the project into its backlog. Revenue starts to be recognized on these projects according to the relevant agreements, which is generally after the first invoice has been sent or the first agreed upon phase of the project has been completed. Gross profit The gross profit margin improved in H to 14% (H1 2012: 6%) resulting from higher revenues, tight cost control and less provisioning than was necessary in H In addition, some large projects showed improved profitability as the result of intense project management. Sales & Marketing, and General & Administrative expenses (SG&A) The effect of the major reorganization which was initiated at the end of 2011 to, among other things, bring down costs at Tahal is shown by a continued trend of decreasing SG&A expenses (H % less than in H1 2012). Kardan N.V. Press Release H1 and Q Results Page 12

13 Gain (loss) on disposal of assets and other income The gain of EUR 8.3 mn net relates primarily to the sale of Tahal s rights in a leased real estate asset in Tel Aviv, Israel. Financing income /(expenses) net Financing expenses in H were higher than in the same period last year mainly due to negative foreign currency effects as well as to an increased use of credit facilities (in H1 last year there were substantial advance payments). Income tax (expenses) / benefit The substantial increase in tax expenses in the first half of 2013 compared to H is largely attributable to the sale of the real estate asset in Tel Aviv as mentioned above. Additional information Tahal Projects Contracts which were added to the portfolio in the first half year 2013 include projects in Europe and in some other regions. These new agreements amounted to USD 48 mn (projects are generally US dollar denominated), but as more revenue was booked on the existing backlog position during the first half year of 2013 the backlog position as at end of June 30, 2013 was USD 384 mn, which is lower than at the end of year 2012 (USD 411 mn). BANKING AND RETAIL LENDING Kardan operates in the financial services sector through its 100% holding in Kardan Financial Services (KFS), which owns 100% of TBIF (banking and retail lending), in Bulgaria and Romania. In addition, KFS is active in Ukraine with leasing activities through its 67% holding in Avis Ukraine. In line with IFRS 11 Joint Arrangements, the results of Avis and two other small entities are presented according to the equity method. In May 2012, TBIF closed the sale of its 50% in the Russian Sovcombank to its co-shareholder in the bank. General developments Bulgaria and Romania and TBIF The main problems in Romania still remain: hardly any public sector investments, poor EU fund absorption and a cumbersome fiscal system topped by high social security contributions. However, in H1 2013, GDP growth (y-o-y) arrived at 1%, and for the full year a GDP growth of 1.8% is expected. Inflation grew to 5.4% y-o-y, but is expected to slow down in the second half of the year. Bank deleveraging is one of the problems for the economy as a whole and for domestic demand in particular. Just recently the National Bank of Romania cut the monetary policy interest rate by 50bp to counter stronger than expected disinflation, the quasi-stagnation of consumption and declining private lending. TBIF obtained a branch license for TBI Bank in Romania in the last quarter of 2012 and its operations commenced in 2013, among others by implementing a direct sales force which by end of June 2013 encompassed 300 active agents. GDP growth in H for Bulgaria was 0.2% y-o-y. Private consumption during the first half of 2013 showed a slight increase mainly on the back of lower inflation, despite a still weak labor market. The political situation in the country is not yet stable, which is also negatively influencing consumer sentiment. The financial sector in Bulgaria remains stable and well capitalized though and has a high liquidity due to the lack of credit demand combined with continued deposit growth. Lending activity is not expected to improve much in the second half of the year. Retail banks are therefore focusing on deposits to maintain their client base. Several promotional campaigns by TBI bank resulted in additional business, albeit that the SME (small and medium sized enterprise) business continued to be slow. Kardan N.V. Press Release H1 and Q Results Page 13

14 Results Banking & Retail Lending For the six months ended June 30 For the three months ended June 30 Full Year in EUR million Banking and retail lending activities Other revenues Total revenues Costs of banking and lending activities Other expenses, net Gross profit (0.5) (10.2) (0.2) (0.9) (12.6) SG&A expenses Equity earnings / (losses) (3.4) 0.4 (3.7) Gain (loss) on disposal of assets and other income 1.5 (0.1) 0.4 (0.1) (1.2) Impairment losses on goodwill (0.5) (0.4) (3.8) Result from operations before financing expenses (3.2) (11.0) (4.0) (1.5) (18.2) Financing income (expenses), net (1.0) (3.8) (0.7) (1.6) (3.1) Income tax (expenses) / benefits (0.2) (0.1) - Profit (loss) from continuing operations (4.4) (14.7) (4.7) (3.2) (21.3) Net profit (loss) from discontinued operations Net profit (loss) (4.4) (14.2) (4.7) (2.7) (20.8) Attributable to: Equity holders (Kardan N.V.) (4.4) (14.2) (4.7) (2.7) (20.8) Additional Information KFS Banking & Retail Lending 2013 (30.06) 2012 (31.12) Balance sheet (in EUR millions) Net loan portfolio Cash Total Assets Deposits Total Equity Other Provisions 33% 34% Revenues The banking and retail lending activities recorded significantly higher revenues in the first half of 2013 than in the corresponding period last year on better origination and quality of portfolios resulting from an improved branch network efficiency and targeted risk management (and consequentially less provisions deducted from revenues). Gross profit Gross result in H1 2013, although still negative, was substantially better than the negative gross result in H This can be explained by higher revenues, albeit with higher costs of banking and lending activities in line with intensified business generation. Equity earnings These relate to the leasing activities of Avis Ukraine, of which Kardan Financial Services holds 67%, as well as to the mortgage activities operations in Bulgaria (of which 50% is owned). The equity earnings result reflects better operational results of Avis Ukraine which were off-set by an impairment on the investment in Avis Kardan N.V. Press Release H1 and Q Results Page 14

15 Ukraine pending its announced sale. The consideration for the Transaction is to be USD 8.6 mn, and also includes a guarantee for the repayment, of a loan of approximately USD 5 mn granted by TBIF to Avis Ukraine. The sale is still conditional on certain approvals. Gain on disposal of assets and other income Other income in H primarily relates to a one off recovery payment relating to a former investment in Serbia which was reported in Q Financing income (expenses), net KFS has taken significant measures to pay down debt, using among others the proceeds of the sale of Sovcombank which was completed in Q2 of Consequently, financing expenses have decreased markedly. Additional Information As at June 30, 2013, the total portfolio of KFS was equal to the situation as at December 31, 2012, as the result of a small improvement in origination (particularly in Q in Romania) and less need for provisioning, offset slightly by repayments. The strong growth in deposit taking by TBI bank in Bulgaria continued during the first half of As at the end of June, a 58% increase of deposits was reported (to EUR 106 mn) in comparison to end of December 2012, split evenly over corporate and retail deposits. In Romania, where deposit taking was initiated in the second quarter of 2013, EUR 5 mn was reported, primarily in retail deposits. Other Expenses General and administration expenses For the six months ended June 30 For the three months ended June 30 Full Year in EUR million Financing income (expenses), net (28.2) (3.2) (3.0) Income tax (expenses) / benefit (3.6) 1.9 (2.9) (0.9) 1.8 Net profit (loss) (34.2) (4.9) (7.0) (0.9) 13.5 Attributable to: Non-controlling interest holders Equity holders (Kardan N.V.) (34.2) (4.9) (7.0) (0.9) 13.5 General The results under Profit (loss) from continuing operations relate to the holding and finance expenses of Kardan N.V. and its direct subsidiary GTC Real Estate Holding BV (GTC RE). General and Administrative expenses These expenses decreased in the first half of 2013 substantially in comparison to the same period last year, following a decrease in management at Kardan holding and a reduction in other professional service costs. Financing income (expenses), net In H1 2013, the financing expenses were substantially negatively impacted by a revaluation loss (EUR 14 mn) related to foreign exchange differences, with regard to the debentures, resulting from the strengthening of the Israeli Shekel (NIS) versus the Euro. Currently, the company equity is mostly exposed to the Chinese RMB on its assets side and to NIS on its liabilities side. Changes in the NIS exchange rate mostly impact the income statement while changes in RMB mostly impact the equity directly. Income tax The income tax expense relates to deferred and current tax on hedge instruments. Kardan N.V. Press Release H1 and Q Results Page 15

16 OUTLOOK 2013 Kardan N.V. Management attention in 2013 continues to be fully focused on the cash flow, bringing down the debt position of Kardan N.V. and of its intermediate holding companies in general and repayment of the upcoming dues for the debentures in particular. The Company is currently busy to generate cash predominantly by repayment of shareholder loans by some of the Company s subsidiaries and by selling assets in order to be able to repay our Debenture holders in the short to medium term. We are currently engaged in negotiations, both directly and through our subsidiaries, to accomplish this. In addition, ongoing attention is given to consistent improvement of operations and of their debt servicing capacity. A cash flow forecast for the coming two years can be found in the Directors Report on page 13. Real Estate Asia Kardan Land China expects to deliver approximately 2,200 apartments during 2013, similar to the number delivered in The sale of residential apartments is dependent on the economy in China, which appears to be stabilizing, as well as on measures which the Chinese government may take to control the real estate market, in particular the speculation in this market. Kardan Land China aims to continue the positive trend of sale of apartments as has been reported during the first half year of With respect to the Europark Dalian project, Kardan Land China expects to have signed lease agreements with retailers for approximately 25% by year end Completion of the mall is planned for the end of The strategic focus of Kardan Land China continues to be on developing mixed-use projects in Tier 2 and Tier 3 cities. Real Estate Europe As of Q the results of GTC SA (of which Kardan holds 28%) are no longer consolidated but accounted for as an associated company based on the Equity method. GTC SA management aims to continue to decrease the leverage of GTC SA (Loan to Value: 56% as at June 30, 2013), mainly through the sale of assets which should generate free cash of in total EUR 120 mn by the end of 2014 and will be utilized to repay its liabilities (including bonds and project loans). In addition GTC SA is focusing on active asset management and further operational improvement and reducing general expenses as well as on development of carefully selected assets. Water infrastructure Assets Kardan Water is planning to start the construction of two expansions in two of its current plants in China (25,000 m3/day and 40,000 m3/day) in H2 2013, to increase the total designed capacity of the combined Kardan Water facilities to 695,000 m3/day by the end of The operation of the two expansions is expected to start in The construction of the expansions should have a positive impact on the revenue line of Kardan Water in the second half of Water Infrastructure Projects In the Project segment the spectrum of activities is more focused on Engineering, Procurement and Construction Projects (EPC) projects in frontier countries, as well as on design and engineering activities in Israel. Revenues and profitability are expected to continue to increase from existing and recently signed projects (y-o-y). The backlog (in USD) is expected to show stability during Banking and Retail Lending TBIF aims to further increase loan origination and to finance this by raising deposits. Furthermore, TBIF continues to effect synergies of business consolidation. TBIF expects to report a positive operating result in H2 2013, in continuing difficult market circumstances. This report also contains information regarding market developments which are based on external party research which was published in the following reports. Macro-economic reports National Bureau of Statistics, China International Monetary Fund, World Economic Outlook (July 2013) European Commission; Economic Forecast Spring 2013 World Bank; Global Economic Prospects, Less volatile, but slower growth, June 2013 Ministry of Treasury of Poland ( Macroeconomic Analysis, May 2013 Kardan N.V. Press Release H1 and Q Results Page 16

17 Real Estate: Jones Lang LaSalle: City Reports Q Jones Lang LaSalle: Pulse, Poland Retail Market Q Colliers International: Poland Research & Forecast Report Mid-Year 2013 CBRE: MarketView, Warsaw Retail, H National Bureau of Statistics, China Water Infrastructure McKinsey Quarterly: Infrastructure productivity: how to save USD 1 trillion a year, January 2013 South China Morning Post; China s deadly water problem, March 2013 Financial Services Bulgarian National Bank, Economic Review Summaries Ministry of Finance Bulgaria, Recent economic developments, June 2013 Unicredit; EEMEA Macro Flashes 2012 / 2013 Kardan N.V. is not responsible for the nature or correctness of data presented in this section regarding market developments or projections. Analyst & Investor Call An analyst and investor call will be held on Wednesday August 28, 2013, at CET. To take part in the call, please use the following dial-in number: Dial in number NL: +31 (0) Conference ID: Dial in number UK: Conference ID: The Investor Relations presentation will be published on the corporate site, approximately one hour after publication of this release. Please confirm your attendance to eventmanagement@citigateff.nl. DISCLAIMER This press release contains forward-looking statements and information, for example concerning the financial condition, results of operations, businesses and potential exposure to market risks of Kardan N.V. and its group companies (jointly Kardan Group ). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements (including forward looking statements as defined in the Israeli Securities Law). Forward-looking statements are statements of future expectations that are based on management s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. These forward-looking statements are identified by the use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, objectives, outlook, probably, project, will, seek, target, risks, goals, should and similar terms and phrases. A variety of factors, many of which are beyond Kardan Group s control, affect our operations, performance, business strategy and results and could cause the actual results, performance or achievements of Kardan Group to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. For Kardan Group, particular uncertainties arise, amongst others but not limited to and not in any order of importance, (i) from dependence on external financing with the risk that insufficient access to capital threatens its capacity to grow, execute its business model, and generate future financial returns (ii) from concentration of its business in Central Eastern Europe and China as a result of which Kardan Group is strongly exposed to these particular markets (iii) from risks related to the financial markets as a result of Kardan N.V. s listings on NYSE Euronext Amsterdam and the Tel Aviv Stock Exchange and (iv) from it being a decentralized organization with a large number of separate entities spread over different geographic areas in emerging markets, so that Kardan Group is exposed to the risk of fraudulent activities or illegal acts perpetrated by managers, employees, customers, suppliers or third parties which expose the organization to fines, sanctions and loss of customers, profits and reputation etc. and may adversely impact Kardan Group s ability to achieve its objectives and (v) from any of the risk factors specified in Kardan N.V. s Annual Report and in the related Periodic Report (published by Kardan N.V. in Israel) published in April, and which is also available at the Kardan website. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the relevant forward-looking statement as expected, anticipated, intended, planned, believed, sought, estimated or projected. Kardan N.V. does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated. Kardan N.V. Press Release H1 and Q Results Page 17

18 About Kardan Kardan identifies and develops assets in promising emerging markets, mainly in the CEE, CIS and China. Its activities are mainly focused on three sectors that benefit from the rising middle class: Real Estate, Water Infrastructure and Retail Lending. Company headquarters are in the Netherlands. Kardan aims at holding controlling interests in its investments and, through the development of local business platforms, is actively involved in the definition and implementation of their strategy. Total assets as of June 30, 2013 amounted to EUR 1.1 billion; revenues totaled EUR 90 mn in the first half of Kardan is listed on NYSE Euronext Amsterdam and the Tel Aviv Stock Exchange. The Director s Report including the financial reports, drawn up in accordance with the Dutch and Israeli regulations, are presented in a separate document and form an integral part of this release. For further information please contact: Caroline Vogelzang Director Investor Relations +31 (0) Vogelzang@kardan.nl This press release contains regulated information (gereglementeerde informatie) as defined in the Dutch Act on Financial Supervision (Wet op het financieel toezicht) Kardan N.V. Press Release H1 and Q Results Page 18