KARDAN CONTINUES GROWTH IN FIRST HALF 2008 WITH 17% INCREASE IN TOTAL ASSETS TO EUR 5 BILLION

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1 PRESS RELEASE Amsterdam/Tel Aviv, 28 August 2008 Number of pages: 14 KARDAN CONTINUES GROWTH IN FIRST HALF 2008 WITH 17% INCREASE IN TOTAL ASSETS TO EUR 5 BILLION Net profit in first half year down to EUR 16 million due to lower investment results Further expansion in Chinese real estate market offering a platform for solid growth Increased scope of insurance activities in Ukraine Significant projects acquired in water infrastructure assets in Africa Key figures Kardan N.V. Company only 30 June Dec 2007 Change Total Assets (x EUR million) of which invested in: Real Estate (GTC) Financial Services (KFS) (15) Infrastructure (Tahal) Other Business Shareholders equity (x EUR million) Solvency Ratio 46% 49% Net Debt (x EUR million) Breakdown of the net profit For Equity Holders of Kardan N.V. (x EUR million) 2 H H Change Real Estate 19 (6) Financial Services Banking and retail lending 1 4 Financial Services Insurance and Pension (6) 20 Infrastructure - Projects - 2 Infrastructure - Assets (3) (2) Other Business 2 1 Corporate activities 3 15 Total net profit attributable to equity holders (52) Profit per share (EUR) (52) 1 The definition of Net Debt as presented in this press release is broadened to include interest bearing loans, borrowings and (convertible) debentures, less cash and cash equivalents and interest bearing receivables. 2 The table shows the contribution of each of the businesses to the results of Kardan. As profits attributable to minority shareholders have already been deducted, these figures do not represent the full net profit realized in each segment.

2 Page 2 of 14 Mr. Ickovics, Chairman of the Management Board of Kardan N.V. commented on the developments over the first half of 2008: After an exceptionally strong year with numerous transactions and acquisitions, we further invested in selected opportunities. The results during the first half of 2008 were lower than in the comparable period of last year. This is caused by expenses incurred to increase our penetration in the Russian insurance market and the expenses to set up the Assets activity in the Infrastructure division. Furthermore, the balance of capital gains and the revaluation of financial instruments was lower than last year. All in all, we are satisfied with the development of the results so far. We have only seen a limited impact from the current economic turmoil, and our strong investment base gives us confidence for value creation on the longer term. Group Value International investment company Kardan N.V. (Kardan), operating in fast growing markets, mainly invests in three sectors: Financial Services, Real Estate and Infrastructure (mainly water related). During the first half year of 2008, the Financial Services and Real Estate operations further expanded their activities. This was realised from existing resources as a result of a careful funding policy. The Real Estate segment entered into new markets and significantly increased its investments in China. The Financial Services division acquired a controlling stake in a Ukrainian insurance company. The Infrastructure division made new investments in water infrastructural assets in China and turn key projects in Africa. The infrastructure investment in China fits the strategic decision taken during 2006 to focus on assets under development, instead of solely advising and building water infrastructure projects. These investments were supported by funding from Kardan. As a result of the expansion of activities in all three divisions, total assets increased on both consolidated as well as company only level. Total consolidated assets grew by 17% (EUR 0.7 billion) compared to year end 2007 and amounted to EUR 5 billion at 30 June The increase in the asset base of the divisions strengthened the position in the respective markets of the divisions, coherent with Group strategy to create local platforms focussing on long term value for its shareholders rather than maximize short term results. Kardan N.V. Company only Total assets of Kardan (stand alone) grew by 11% during the first half of 2008, from EUR 0.7 billion at year-end 2007 to EUR 0.8 billion per 30 June Investments in Real Estate and Infrastructure increased by 11% and 12% respectively, while the assets in Financial Services declined by 15% due to the loss over the first half of 2008 in that segments. As at 30 June 2008, shareholders equity of Kardan increased to EUR 359 million, compared to EUR 343 million at year-end This increase was the result of the profit for the period (EUR 16 million) and direct movements in equity (EUR 18 million), less the dividend distribution of EUR 18 million. Kardan s solvency ratio stood at 46%, which is almost the same level as per year-end 2007 (49%). As a result of the financial transactions and investments, the net debt position per 30 June 2008 increased to EUR 199 million (year-end 2007: EUR 174 million). Net profit attributable to equity holders over the first half year of 2008 amounted to EUR 16.0 million, a decrease of EUR 18.0 million compared to the first half of The contribution of the property revaluations in the Real Estate segment increased by EUR 2 million to EUR 18 million compared to the same period last year, while the contribution of Financial Services decreased by EUR 9 million due to costs relating to the penetration in new markets. The contribution of the Infrastructure segment also decreased from break-even to a EUR 3 million loss, due to start up costs of new projects. The revaluation of the convertible debentures resulted in a EUR 23 million decrease of the financial expenses compared to the same period last year. However, the 2007 first half figures included a capital gain of EUR 20 million from the transaction with Wiener Stadtische in the Financial Services division, and a profit of EUR 9 million from the dilution of Kardan s stake in Kardan Israel. 2

3 Page 3 of 14 Net profit attributable to equity holders of EUR 16 million represents a basic net result per share of EUR 0.20, compared to a basic net profit per share of EUR 0.42 for the first half of Due to the nature of the activities of Kardan as an investment company, the impact of revaluations of investment properties, equities and option components on the results per each reporting period is significant. However, these results are part of Kardan s ordinary business and create value over time, but can cause considerable fluctuations in the results from quarter to quarter due to differences in timing and size of each project as well as changes in market prices of shares. The following table shows Kardan s performance over the last four years and indicates its continuous growth Average H Net profit attributable to equity holders of Kardan N.V. (EUR million) Return on average equity for equity holders of Kardan N.V Net profit of Kardan Group (EUR million) Return on average equity Kardan Group Profit per share (EUR) Second Quarter In the second quarter of 2008 net profit attributable to equity holders decreased to EUR 3 million compared to EUR 39 million in Q In 2007 Kardan realized a gain of EUR 20 million on the sale of a part of the pension and insurance activities to Wiener Stadtische and a gain of EUR 9 million from the dilution of its stake in Kardan Israel. Contribution from Operations Real Estate (primarily GTC RE): The profit before financial expenses and tax of the Real Estate activities decreased by 21% to EUR 90 million (H1 2007: EUR 114 million). This is mainly caused by lower income from revaluations of investment property (EUR 31 million less compared to the first half 2007), which was partly offset by higher rental income (an increase of EUR 8 million) due to the completion of several properties generating rental income... Financial expenses decreased from EUR 41 million to EUR 2 million due to revaluation and conversion of the convertible debentures issued by the parent company of the real estate division. The tax burden decreased by EUR 6 million to EUR 17 million. As a consequence, net profit for the first half of 2008 increased by 48% to EUR 68 million (first half 2007: EUR 46 million). As Kardan holds 65% of GTC RE, the results are fully consolidated. After deduction of the net profit attributable to minority holders, the profit GTC RE contributed to Kardan amounts to EUR 19 million, compared to a loss of EUR 6 million in the first half of The increase in profit contribution to Kardan is sharper than the increase in total profit, as some profit elements are fully attributable to the shareholders of GTC RE and not to the minority shareholders. Financial Services (KFS): 3 The Financial Service activities of Kardan are divided into a Banking and Retail Lending segment (TBIF) and an Insurance and Pension segment (TBIH). Kardan s share in the net profit of TBIF decreased from EUR 4 million in the first half of 2007 to EUR 1 million in the first half of The main reasons for the decrease are higher finance expenses from new loans extended by Israel 3 These figures do not represent 100% of the segment, but the impact on Kardan, as part of these activities are proportionately consolidated 3

4 Page 4 of 14 Discount Bank, via KFS, to fund investments and expansion of activities. TBIF also realized a capital gain in The contribution from the acquisition of VABank in Ukraine in 2007 was positive. TBIH suffered a loss in the first half of Kardan s share in the loss amounted to EUR 6 million. This was mainly caused by the loss of the operations in Russia, due to the relatively high costs to penetrate the market. Furthermore, there was an increase in financial expenses from loans issued in 2007 for the acquisition of companies in Turkey, Russia, Ukraine, Macedonia and Kosovo. Last year Kardan s share in the results was a profit of EUR 20 million, which included a capital gain of EUR 20 million from the Wiener Stadtische transaction. Infrastructure (Tahal): The infrastructure activities, which are mainly related to water, realised a net loss of EUR 3 million over the first half of 2008 (H1 2007: breakeven). As Tahal is a 100% subsidiary, this equals to the contribution to Kardan. During 2006 a strategic decision was taken to invest in ownership of water infrastructure assets under development. The development of this Asset activity is satisfactory and Tahal made investments in China, Turkey and Israel. Due to the expenses needed to set up the organisation and the new investments, and the financial expenses, the new investments contribution to profits is negative. Other business: The other business includes the activities of two divisions of Kardan Israel: Automotive and Consumer goods and Communication and Technology. Kardan s share in the net profit of these divisions amounted to EUR 2 million (H1 2007: EUR 1 million).the main contributor to the profit was UMI, which imports and distributes General Motors vehicles into Israel, while the Communication and Technology activities showed a loss over the period. Corporate activities: The corporate activities include mainly financial results from lending and borrowing and general expenses and resulted in a net profit of EUR 3 million (H1 2007: EUR 15 million). The difference mainly derives from a profit resulting from the dilution in Kardan s stake of Kardan Israel in 2007 which amounted to EUR 9 million. Outlook Kardan has grown as an important player in the emerging markets. Currently, the activities in the emerging markets are experiencing a limited impact from the current economic turmoil. The political developments in Russia had no impact so far, although it is too early to asses if and to what extent Kardan s investments in Russia could be impacted in the future. Aside from these influences, the long term trend is positive and it is expected that these markets will continue their economic development. Kardan has a strong track record of operating in challenging environments while looking at long term value creation, and is well positioned to benefit from these long term trends. The investment pace over 2008 however will be slower than during 2007, in which Kardan had a record number of transactions. 4

5 Page 5 of 14 About Kardan Kardan is an international investment company based in Amsterdam with a focus on three sectors: Real Estate, Financial Services and Infrastructure. The company is primarily active in emerging markets in Central and Eastern Europe and China, where it conducts most of its activities. Kardan holds controlling interests in its main businesses and is actively involved in the definition and implementation of their strategy. Kardan has a consistent track record of creating long-term shareholder value through active management of investments in the group companies and by leveraging on its business experience, financial resources and local and international network. Total assets per June 30, 2008 amounted to EUR 5.0 billion, with revenues of EUR 329 million in the first half of 2008 (first six months 2007: EUR 275 million). The number of employees engaged by the group is approximately 13,500 as of 31 December Kardan is listed on NYSE Euronext Amsterdam and the Tel-Aviv Stock Exchange. The condensed interim financial statements according to IFRS will be published on the website of Kardan at Enclosed: - Segmental information - Condensed P&L - Condensed Segment Reporting - Condensed Balance sheet For further information please contact: Jan Slootweg Management Board member Kardan NV Office +31 (0)

6 Page 6 of 14 SEGMENTAL INFORMATION Real Estate (mainly GTC RE) GTC RE is active in Central and Eastern Europe through GTC SA, in Western Europe through GTC Investments B.V., in China through GTC Real Estate China Ltd. and has begun activities in India. Via Kardan Real Estate and Enterprise Ltd., Kardan is active in Israel. Kardan currently holds (directly and indirectly) a 65% stake in GTC RE, which holds a 46% stake in GTC SA. The shares of GTC RE are listed on the Tel Aviv Stock Exchange. The results of GTC RE and Kardan Real Estate are fully consolidated by Kardan and the figures represented below therefore represent 100% of the activity. Markets The main markets for GTC RE are the CEE/CIS countries and China. Despite the turmoil in the financial markets, the real estate market environment in CEE in general is still positive, especially in the upper segment in which the GTC RE subsidiaries generally operate. Yields are slightly increasing due to the current uncertainty. In China, the GDP-growth is slowing down somewhat in line with the government measures to ease the inflation. These trends do not have a significant impact on the real estate market, in second and third tier cities where GTC RE is active, where demand is still strong as a result of a growing middle class population. Portfolio development In the CEE/CIS countries the pipeline of portfolio projects under development includes approximately 2 million sqm of net office, retail and residential space (GTC SA share) and in China, GTC RE s stake is approximately 1.3 million sqm. As per 30 June 2007 it stood at 1.6 million sqm and 0.7 million sqm respectively. This translates into a growth of 43% which demonstrates that Kardan s real estate subsidiaries are well positioned to benefit from the opportunities in emerging markets. During the first half of 2008, GTC RE has been very active in China. After the purchase of two land plots in the city of Changzhou for a consideration of EUR 34 million, GTC China won a tender for the acquisition of a land plot in the city of Shenyang in February of this year. The consideration for this plot amounted to EUR 35 million. The projects are mixed use, mainly residential, including commercial space. Construction of both projects is expected to start during the second half of this year and is estimated to take five (Changzhou) and four (Shenyang) years. After the period under review, GTC China has further extended its real estate operations to Hangzhou, its fifth city of operations. Through its subsidiary GTC SA, GTC RE further increased its investment pace in Central and Eastern Europe. In April, GTC SA entered the Russian market as its 10th country of operation in the region, through the purchase of a 50% stake in a project for office development in a district of St. Petersburg. The project is expected to generate approximately EUR 53 million of net rental income upon its full completion in In July 2008, an agreement was signed to acquire shares in a company active in the Ukraine and Russia, signaling the first transaction on the Ukrainian real estate market. 6

7 Page 7 of 14 Financial Overview (x EUR million) H H Change Q Q Change Revenues (2) (43) Result from operations (21) (68) (before financial expenses and tax) GTC RE 30 June Dec 2007 Change 30 June 2007 Change Total consolidated assets 2,652 2, , Consolidated Equity Solvency Net Debt (company only) Results Revenues in the real estate segment were at the same level as during the first half of 2007 with EUR 135 million (H1 2007: EUR 138 million). Total revaluation gains in the first half of 2008 decreased by EUR 31 million from EUR 102 million in the first half of 2007 to EUR 71 million in the first half of The decrease in revaluation gains of investment properties was partially compensated by an increase in rental revenues and an increase from residential activities due to delivery of appartments (EUR 9 million). and the contribution of EUR 12 million from an acquisition by Kardan Israel during the second half of The lease commencement in newly completed buildings as well as the increase of rental income in existing shopping centers and office buildings contributed to the increase in rental revenues. The result from operations (result before financial expenses and tax) decreased by 21% to EUR 90 million for H Financial expenses decreased by EUR 39 million to EUR 2 million. This decrease is mainly due to the revaluation of the equity component of convertibles, as GTC RE funds itself partly through convertible debentures. According to IFRS the equity element in the convertibles needs to be revalued, and varies with the stock price. In the first half of 2008, this resulted in a profit as the share price decreased, while due to an increase in the share price during the first half of 2007 this resulted in a cost (i.e the liability of GTC RE versus the bond investors increased). Furthermore, the majority of the investors in the convertible bonds, including Kardan, took the opportunity to convert their loans during the second half of As a result of the above, the result before income tax amounted to EUR 87 million, compared to EUR 67 million over the first half Balance sheet and funding The total assets increased as a result of the increase in inventory, real estate under construction and revaluation of investment properties by 18% compared to the end of last year and 45% compared to 30 June Equity increased in line with the increase in total assets. The increase in equity comes from retaining profits and conversion of the convertible debentures into equity. As a result, the solvency ratio stood at 37%, almost equal to the solvency ratio per 31 December 2007 (40%). GTC RE and its subsidiaries currently have sufficient funds available to finance the current pipeline projects, and retain access to the debt markets by not growing too fast at the expense of increasing further leverage. 7

8 Page 8 of 14 Restructuring In order to simplify Kardan group structure and further increase transparency, Kardan is in the process of investigating the possibilities to merge GTC RE into Kardan, as announced in April this year. If this merger is to take place, it will create a larger holding company and strengthen the equity position and the value of the combined entity. The process is taking longer than expected, due to the many legal issues, amongst others resulting from the dual listing of Kardan, and is not likely to be finalized before the end of the year. Israeli Real Estate Activities At the end of the first quarter, Kardan announced its intention to merge the activities of its Israeli real estate subsidiary Kardan Real Estate Ltd. (Kardan RE) with Delek Real Estate (DRE) to create one of the largest residential property developers in Israel. The combination will have a land bank for the development of approximately 7,000 housing units of which 1,600 are already under construction. Upon completion of the transaction, Kardan RE will be jointly held by Kardan Israel (60%) and DRE (40%). The completion of the transaction is subject to certain conditions precedent. Financial Services Kardan Financial Services (KFS) is the holding company of TBIF, Banking and Retail Lending, and TBIH, Insurance and Pensions. Kardan holds a direct stake of 80% in KFS, which in turn holds 90% and 40% in TBIF and TBIH respectively. The figures presented below represent Kardan s share. Markets KFS is active in the CEE/CIS markets. Until now, these markets have not suffered significantly from the credit crunch. It is currently too soon to assess whether the activities will experience any impact from the current tension between Russia and Georgia. The growth rates of the financial services sector in the emerging markets are very high. Portfolio Development 4 In Banking and Retail Lending, the lending portfolio increased by 20% from 31 December 2007 to EUR 1.4 billion per 30 June The insurance companies noted an increase of the insurance premiums income: from EUR 74 million in the first half of 2007 to EUR 211 million in the same period of this year. The pension activity experienced a healthy growth as well. The assets under management grew from EUR 743 million as per 31 December 2007 to EUR 794 million at the end of June 2008 and the number of members increased in the same period from 1.71 to 1.77 million. The growth mentioned was realised organically as well as through acquisitions. The main acquisition in 2008 was the purchase of 62% of Ukrainian Insurance Group (UIG), a Ukrainian non life insurance company for a total consideration of approximately EUR 31 million. In banking and lending, the stake in the Russian banking and consumer finance operations was increased from 50% to 60% and the AVIS Ukraine transaction was finalized, purchasing, with a partner, 90% of a company that operates a car rental and operational lease business in Ukraine under the AVIS brand. 4 The developments of the portfolio of the financial services activities represent the full portfolio (100% of the activities) and does not take into account the percentage of consolidation 8

9 Page 9 of 14 Financial Overview KFS EUR million 30 June Dec 2007 Change 30 June 2007 Change Total consolidated assets 1,667 1, , Consolidated Equity (6) Solvency Net Debt (company only) (33) The increase in assets was realised through organic and acquisitive growth. TBIF benefited from the transaction with the Israeli Discount Bank, taking a share of 11% in KFS, concluded at year-end Part of the transaction was a loan of EUR 225 million granted to TBIF via KFS, to extend its lending operations. KFS equity decreased in the first half of 2008 due to the loss in the Insurance activities and a decrease of the reserves. TBIF (Banking & Lending) (x EUR million) H H Change Q Q Change Revenues Results from operations 3 6 (54) 3 5 (40) (before financial expenses and tax) Revenues of banking and lending activities in the first half 2008 increased by 71% compared to the first half of 2007 to EUR 56 million, due to organic growth and the acquisition of Sovcombank during The result from operations (result before financial expenses and tax) decreased by EUR 3 million to EUR 3 million. The first half 2007 results included a capital gain of EUR 2 million. TBIH (Insurance & Pensions) 5 (x EUR million) H H Change Q Q Change Revenues Result from operations (3) (before financial expenses and tax) Revenues over the first half of 2008 increased from organic growth of the businesses as well as from acquisitions of insurance operations throughout 2007 and the acquisition of UIG in February The result from operations (result before financial expenses and tax) decreased and showed a loss of EUR 3 million. The results in the first half of 2007 included a capital gain of EUR 20 million from the sale of part of TBIH assets to Wiener Stadtische, which now owns 60% of TBIH. The cooperation with Wiener Stadtische allows TBIH to further expand its activities. The result from operations were under pressure during the first half of 2008 due to the high commissions payable to brokers in Russia for the increase of the insurance policies, as anticipated. 5 Proportionally consolidated, the figures represent Kardan s 40% share 9

10 Page 10 of 14 Infrastructure Tahal is 100% owned by Kardan. The largest part of Tahal s activities is directly related to water and sewage systems. As part of the focus on the ownership and development of infrastructure assets, Kardan has split the reporting of Tahal into Projects (activities relating to design and turnkey projects) and Assets (activities relating to the development, management and ownership of assets). Markets As the world population is rapidly growing, the importance of access to water is increasing. Only 2.5% of water is drinkable of which only 0.74% is accessible. Already today many people in emerging countries do not have access to fresh water. This provides many opportunities for Tahal. Portfolio Development The backlog for Tahal projects as per 30 June 2008 did not change significantly compared to the end of last year. In February of this year, Tahal signed an agreement with the national water company of Angola regarding the development of a water supply infrastructure project, including the design of the distribution system and the installation of 400 km of PVC pipes and 140 fountains. However, this project will only be included in the backlog once the first payments are received. Furthermore, two tenders were won after the period under review for turn key projects in two countries located in Africa. The projects size are approximately EUR 165 million and the execution of the projects will take around 3 to 5 years. The portfolio of the Tahal asset activity was expanded during the first half 2008 with an investment (88.15% of the shares) in Tianjin Huanke Water Development Co ltd., a Chinese company specialized in water supply and waste water treatment. Financial Overview Tahal International EUR million 30 June Dec 2007 Change June Change Total consolidated assets Consolidated Equity and shareholder loans Solvency Cash (company only) The solvency of Tahal includes shareholders loans. As per 30 June 2008, Kardan lend an amount of EUR 75 to Tahal. These loans are provided to support the growth of the business. Projects (x EUR million) H H Change Q Q Change Revenues Result from operations (before financial expenses and tax) The 2008 first half revenues increased by 26% compared to the same period last year due to the acquisition of a Polish construction firm and a large project in Russia during the second half of

11 Page 11 of 14 The result from operations (result before financial expenses and tax) were slightly positive and declined slightly from the same period last year due to lower profits on projects in Romania and Venezuela. Furthermore, some of the projects in Africa started later than anticipated, resulting in an overcapacity in staff. Assets (x EUR million) H H Q Q Revenues Result from operations (before financial expenses and tax) The focus on asset ownership generated revenues of EUR 17 million during the first half of 2008, while there were almost no activities in the Assets sector during the first half year of The main revenues were generated by Milgam, the Israeli company that was bought in the third quarter of 2007, and the investments in China. The result from operations (result before financial expenses and tax) is break-even: the contribution from operations was offset by the costs related to the set up of the Assets activity. With growing revenues, the results are expected to turn positive. Other business Revenues from other operations (Automotive & Consumer Goods and Communication & Technologies) amounted to EUR 15 million in the first half year of 2008, the same level as in the first half of Other operations contributed EUR 4 million to the result from operations (H1 2007: EUR 4 million). Kardan s other operations are held through its 71% subsidiary Kardan Israel. Kardan Israel s net debt position amounted to EUR 26 million as of 30 June

12 Page 12 of 14 Condensed Profit & Loss account (x EUR 1,000,000) H H Revenues Expenses Results from operations Unallocated expenses (5) (6) Financing result (5) (35) Income / loss before taxes Taxes on income (19) (25) Income / loss after taxes Minority interest Net income (loss) ====================== 12

13 Page 13 of 14 Segment Information (x EUR 1,000,000) REVENUES H H Financial Services - Banking and Retail Lending Financial Services - Insurance and Pensions Real Estate Infrastructure - Projects Infrastructure - Assets 17 1 Other investments Corporate activities 1 9 Adjustments TOTAL REVENUES ======== ======== RESULTS FROM OPERATIONS Financial Services - Banking and Retail Lending 3 6 Financial Services - Insurance and Pensions (3) 20 Real Estate Infrastructure - Projects - 1 Infrastructure - Assets - 1 Other investments 4 4 Corporate activities TOTAL RESULTS FROM OPERATIONS ======== ======== 13

14 Page 14 of 14 Condensed Balance Sheet (x EUR 1,000,000) 30 June Dec unaudited audited ASSETS Non-current assets Current assets Cash and cash equivalents =============== ============= LIABILITIES AND EQUITY Shareholders' equity Minority interest Non-current liabilities Current liabilities =============== ============= 14