Interim Results

RNS Number : 5063E
Carpathian PLC
29 September 2008
 



Date:                     29 September 2008

On behalf of:          Carpathian PLC

Embargoed until:    0700hrs



Carpathian PLC

('Carpathian' or the 'Company')

Unaudited Interim results for the six months ended 30th June 2008

Carpathian PLC (AIM: CPT), the retail commercial property investment company established to invest in Central and Eastern Europe, today announces its interim results for the six months ended 30 June 2008.

Financial Highlights

  • Net rental and related income increased to £16.39 million (6 months to 30 June 2007: £11.11 million) - up 47.5%

  • Net profit before tax for the period increased to £8.44 million (6 months to 30 June 2007: £7.16 million) - up 17.9%

  • Profit for the period is £5.91 million (6 months to 30 June 2007: £5.98 million) - down 1.2%

  • Earnings per share 3.7 pence - (6 months to 30 June 2007: 3.7 pence)

  • Interim Dividend of 2 pence per share (for the six months to 30 June 2007: 3.33 pence) and new total dividend objective of 5 pence per share for the year*

  • Net Asset Value per share is 133.8 pence (30 June 2007: 112.4) - up 19%

  • **Adjusted Net Asset Value per share is 147.8 pence (30 June 2007: 119.7) - up 23.5%

  • Severed final links with Dawnay, Day Group, successful change of Company name and transfer of PanTerra into a new company now named Carpathian Asset Management 


*This should not be construed as a profit forecast

**Adjusted NAV excludes goodwill and deferred tax on property valuations


A briefing for analysts will be held at 11:00hrs today at Numis Securities, The London Stock Exchange Building10 Paternoster SquareLondon EC4M 7LT

Commenting on the results, Rupert Cottrell, Chairman of Carpathian PLC, said: 

'I am pleased to report that the Company remains in a stable position with a geographically diverse portfolio now spread across seven countries. The impact of the globally contracting credit markets appears so far to be having less effect in the CEE region than in Western Europe with both consumer markets and property markets less exposed than in Western countries. 

'The Board declares its intention to provide greater transparency and liquidity to its shareholders by gaining permission to enter the main market of the London Stock Exchange and change its presentational currency to Euros before the end of the year, subject to shareholder approval.

'Carpathian continues to be one of the few opportunities for investors to gain access to such a diversified spread of risk throughout the larger Central and Eastern European region and the long term strategy of the Company remains to provide our shareholders with strong annual dividends through its income and capital growth.'

-Ends-


Enquiries:

Carpathian PLC

Via Redleaf Communications

Rupert Cottrell 


Carpathian Asset Management

0203 178 2892

Paul Rogers 

Balazs Csepregi


Numis Securities Limited

020 7260 1000

Nominated Advisor:

Nick Westlake 

Nick Harland

Corporate Broking:

Charles Farquhar


Redleaf Communications

020 7822 0200

Emma Kane 

Adam Leviton 

Henry Columbine

carpathian@redleafpr.com



Notes to Editors:

  • Carpathian PLC ('Carpathian') was created in 2005 for the purpose of investing in Central and Eastern European commercial real estate.

  • Its primary focus is on shopping centres, supermarkets and retail warehousing in several target countries in Central and Eastern Europe including Croatia, the Czech Republic, Hungary, Bulgaria, Poland, Romania, Slovakia and the Baltics.
  • Its principal objective is to provide shareholders with a regular and significant dividend income, derived from rental income. In addition, there is potential for capital appreciation from the sale, redevelopment and refinancing of its properties.
  • It listed on AIM in July 2005 and has acquired a substantial property portfolio of approximately £650 million (approximately 810 million).

  • Carpathian Asset Management Limited is the Property Investment Advisor to Carpathian. It is responsible for identifying acquisition targets, managing transactions and portfolios within Central and Eastern Europe.


 

  Chairman's Statement

As I indicated in our last Annual Report published in May, the global economy and especially the financial and property markets of US and Western Europe continue to show unprecedented turbulence which is expected to continue throughout 2009. 

This inflationary and growth pressure in Western Europe is likely to slow the prospects of Central and Eastern Europe ('CEE') in 2009. However, the forecasted Real GDP growth in CEE of 4.3% for 2009 will still substantially exceed the Eurozone average of 1.2% for 2009 (Source: International Monetary Fund). Our view is that the domestic consumer and retail markets of CEE countries have further potential to grow compared to their Western European competitors. While some countries could underperform within the CEE, the Company has the flexibility to further diversify.

In our view the CEE property markets' relative size and its attractive performance to date has meant that yields and property valuations have not changed as dramatically compared with Western Europe.

While these macro trends require our constant attention we also had to focus on the relationship that Dawnay Day International ('DDI') had with our advisors, Dawnay Day PanTerra ('PanTerra'). DDI was not able to provide satisfactory guarantees as to the liquidity and future of PanTerra, as a result, the Board of Carpathian and the minority shareholders of PanTerra bought from the Administrators this business in its entirety. I am pleased to report that the former PanTerra team was successfully transferred into a new company now named Carpathian Asset Management and this initiative was achieved within twenty days. The Board and I feel confident that this new vehicle will be more economical and stable for our shareholders.

You will know the Company has changed its name to Carpathian PLC; with the purchase of the management company and the resignation of Peter Klimt, we have severed all ties and have no further operational or financial relationships with Dawnay, Day Group.

Financial Results

During the first half of the year, the Company made good progress increasing its net rental and related income by 47.5% and net profit before tax by 17.9% as compared with results of the six months to 30 June 2007. As a result, the earnings per share achieved for the period is 3.7 pence based on a 40% increase in the weighted average number of shares of approximately 229 million from 162 million. 

Dividends

During this period of global uncertainty over the future of financial markets, we are determined to concentrate additional resources on the management of liabilities, liquidity and risk as a priority. Given today's uncertainties and the Interfruct default, the Board has decided to rebase its dividend policy and declares a 2p per share interim dividend from the 3.7 pence earnings per share for the period with a final dividend expected to be not less than 3p making a total of 5p for the year*. The Board and I consider this as a prudent move in this most uncertain of times. The interim dividend will be paid on 7 November 2008 to all Shareholders on the register at the close of 8 October 2008. 

Property Portfolio

At the end of August this year, we received the disappointing news that our largest tenant, Interfruct, a cash and carry retailer, was in default by virtue of non payment. Last year these properties contributed approximately £1.36 million or 8% of the total Company profit after tax. We took swift steps to commence a restructuring of the mortgage debt and appointed Cushman and Wakefield to restructure the underlying property portfolio. Our priority is to minimize the loss of income to our shareholders. You will be notified immediately of any further developments.

Overall, the rest of the investment portfolio provided a very stable income, with rent collections above 95% to date and vacancy rate below 6%. 

We have also made good progress on our developments, especially in Riga (Latvia), Arad and Cluj Napoca (Romania). In Riga, we secured construction financing of £51.2 million in April this year and pre-lettings are over 50%. In Arad, a construction facility of £50 million was signed in August, with pre lettings around 40%, while in Cluj Napoca pre lettings are also around 50%. 

At the property portfolio level, the Company's focus remains unchanged to deliver income and capital growth through realisations and active implementation of asset management and development plans. In total we have secured new debt in the total amount of £133.6 million this year and are also in active negotiations with banks to refinance debt of £64.7 million (including Interfruct) expiring before year-end. The investment portfolio has an overall debt level of 63% which is well below valuation thresholds set by the individual financing banks.  

Outlook

It gives me great pleasure to announce that we feel sufficiently established to provide greater transparency and liquidity by gaining permission to enter the main market of the London Stock Exchange and change the Company's presentational currency to Euros before the end of year 2008, subject to shareholder approval. During this time we also plan to appoint two further non-executive directors to complement the Board's present composition with further expertise in the field of property and accountancy. 

The Company's success relies upon a continued focus on delivering a stable property portfolio performance, thorough management of liabilities and liquidity particularly under these present market conditions. The Board and I are confident that the underlying portfolio has the right characteristics to deliver attractive income and value over the coming years. With the new ownership structure of our experienced property advisory team, a more stable and economic platform has been created to the benefit of our shareholders. 

Finally I would like to thank you, our shareholders, for being so supportive over a time of much change. Also I thank everybody in Carpathian Asset Management for their loyalty and total dedication to Carpathian PLC. 


Rupert Cottrell

Chairman



*This should not be construed as a profit forecast



  Property Investment Advisor's Report (6 months period ending Property Portfolio)

Transactions during the period

Acquisitions

By the end of 2007, the Company achieved its stated aim substantially to invest or commit its equity ahead of its target date of December 2008. As a result, the Company has not conducted any significant acquisitions in 2008. 

As scheduled, the Company invested the previously committed £0.4 million to purchase the final phase of the suburban Warsaw retail project, Marina Mokotow.

Overall a cost of approximately £0.4 million has been recognized as abortive project costs over the period for potential smaller transactions, where the Company either withdrew from negotiations during the due diligence process or has stopped the process pending an improvement of terms.

Sales

In 2008 the Company had intended to start its regular activity of asset trading to realise value for its shareholders. The advent of the global credit crunch has caused the Company to refine this strategy and to be highly selective in identifying assets that demonstrate the greatest liquidity or unlocking of relative equity performance opportunities. 

As a result, two investments have been placed on the market for sale: 

The first, Varyada Shopping Centre, Karlovy VaryCzech Republic has received strong responses from a number of investors. Due diligence is currently being undertaken by the selected bidder. 

The second, Babilonas Shopping Centre, in PanevezysLithuania is in early stages of marketing.

Off market approaches are currently being received from investors and such enquiries will be, as a matter of course, pursued to explore potential pricing and sale benefits.

Debt financing

During the period, we have also completed three debt-financing transactions, out of which one is an investment loan, while the remaining two are construction facilities.

The first was completed in Croatia in March 2008, following the agreement to the Agrokor supermarket sale and lease back. At the very end of 2007, the anticipated debt facility was subsequently signed with Erste Bank of Austria. This loan was for £32.4 million, for a term of 3 years.

The second financing completed in June 2008 was for the construction of the Galleria Patollo, in RigaLatvia in the amount of £51.2 million and first instalment drawn down since from Nordea bank. This facility was used to refinance an existing smaller Hansabank loan and will cover all future remaining construction and running costs necessary for the current phase of the project.

The third financing completed in July 2008 for the construction of the Atrium Shopping Centre, in AradRomania was agreed and signed with MKB of Hungary in August, 2008. This facility is for approximately £50 million and covers a refinance of the development site loan plus all future project costs. 

Also during the period, the final tranche of debt was drawn down in respect of the Marina Mokotow asset. This was a further amount of £1.7 million plus a VAT facility of £0.56 million.

Asset management and development activities

Noteworthy events during the period include:

In the Osowa Centre, GdanskPoland, the reconfiguration of the mall has been completed on schedule and the new units have been handed over to the new tenants. It is anticipated that the units will be trading by 1 November 2008. The net rental increase will be approximately £62,000  p.a. at a capital cost of £290,000. Meanwhile 26 existing leases were due to expire in 2008 out of which 25 have already been settled with either the existing or replacement retailers.

On another investment property, the Company has allocated approximately £1.9 million to the potential acquisition of a strategic adjoining ownership property. Subject to successful negotiations, the closing of this transaction would be before the end of the year. 

The refurbishment of Sopron PlazaSopronHungarya ten year old building, is planned for 2009. A project manager has been appointed and works are anticipated to commence in early 2009. The refurbished centre is expected to draw new retailers and customers and the completion of works is expected to be in early 2010. Additional demand for retail space has been identified in excess of 200 sq m. CBA, the anchor food retailer in the shopping centre renewed its lease for an additional 10 years and has also expanded its operations by approximately 800 sq m or above 20% of its present floor area. Additionally, this tenant is expected to launch its second CBA Premier brand unit in Hungary in Sopron Plaza.  

The first CBA Premier branded store in Hungary opened in June in Savaria PlazaSzombathely, with 2,000 sq m floor space. It is trading well above expectations with a turnover of over £400,000 per month. As a result, pedestrian flows increased by 300%, two new retailers signed new five year leases with further interest from other retailers in excess of 400 sq m.

In Pecs Plaza (PecsHungary), the present supermarket's lease (Match) expiries next year and CBA expressed interest to open its Premier brand on siteIn addition, there is retailer demand to occupy space on five year leases.

After the period end in August 2008 the Company decided to terminate its lease agreements with Interfruct, a cash and carry retailer, the largest tenant of the Company due to default by non payment of two months rent, following  discussions with SCD Holding, the parent company. There were 21 retail and 2 warehouse units leased to Interfruct, which can be found in almost all major cities of Hungary. The properties are mostly located on arterial roads at the edge of cities in the main commercial zones or popular shopping destinations across the country.

The annualised rent roll of Interfruct was approximately £5.36 million representing approximately 14% of the annualised rent roll of the Company. In 2007, these properties contributed approximately £1.36 million or 8% of the total Company profit after tax. The Company has taken swift steps to restructure its mortgage debt provided by Anglo Irish Asset Finance and engaged Cushman and Wakefield to review the best possible future of the portfolio whether it is in the form of sale or re-letting. 

The Company's priority is to minimize the loss of income within the period of approximately 11 months covered by the tenant's on demand bank guarantee. The £5.1 million bank guarantee provided by one of Interfruct's financing banks has been partly drawn and the drawdown notice for the remaining approximately €4 million of the bank guarantee has been served upon the bank very recently. The Company will provide updates immediately of any further development on any matters relating to Interfruct as they arise.

Apart from meeting the requirements to draw on the construction facility for the Galleria Patolo in RigaLatviapre-leasing is progressing very well of which 52% of the GLA has now been signed up. Brands secured so far include Esprit, Marc O'polo, Diesel, Jules, Daniel Hechter, Initimissimi and Escada ChildrenHeads of terms have been agreed for a further 13% and advanced negotiations are in hand with a food store which would take lettings to 70%. 

In 
Arad, Romania, the main construction of the 29,000 sq m GLA retail and entertainment centre in Arad commenced in September 2008 with the appointment of the main general contractor, Arcadom. Lease commitments total approximately 40% of GLA including among others multinational companies such as Cinema City, Billa, Leonardo, Kenvelo, Deichmann, Reserved and Cropp Town which together with units committed or in negotiation bring the total to 60% GLA. 

In Cluj NapocaRomania, this 33,000 sq m GLA city centre located scheme is progressing well with 30% of the retail space secured and with heads of terms bringing the total agreed to 50%. Negotiations are progressing for the hotel together with an encouraging level of interest being shown for the office element driven by the success of the City in attracting expanding high quality international businesses.

Difficult market conditions are being widely experienced by developers in Romania reconciling the recent impact of substantial construction cost inflation against the current reduced investment market liquidity and its potential effect on future investment exit value. The Company is not immune to these issues and is mitigating risk wherever possible through:

  • pressing to a significant stage of pre-leasing before commencement

  • signing full debt requirement bank facilities before commencement

  • reviewing all design and cost factors to reduce total cost

  • appointing leading general contractors in the local market under fixed or capped cost contract terms 


The projects in Baia Mare and Satu Mare are subject to ongoing design, cost and pre-leasing discussions before committing to the final form.

 Portfolio Summary

The total lettable area of the investment portfolio is 392,486 sq mThe portfolio's vacancy rate is approximately 6% which includes strategic vacancies, before taking into account the Interfruct termination representing 24% of total GLA.  

The weighted average lease length of the investment portfolio is 3.8 years. 

Rent collections of the investment portfolio (excluding Interfruct) were above 95% (to 30 June 2008), which we consider very positive.

In respect of the existing investment portfolio, a total potential developable area has been identified in excess of 80,000 sq m. The phased realisation of this potential is expected to be subject to approvals and planning permits from local authorities which is expected to take place within the next 1-3 years.

Below is a detailed breakdown of the properties and projects owned by the Company showing acquisition costs, valuations and yields for 2007 by the independent valuer DTZ.

Investment properties

Country

Property

Gross lettable area (sqm)

No. of units

Purchase Price 

(£m)

Value *

(£m)

Bank loan

(£m)

LTV

Croatia

Agrokor Portfolio: 6 properties

30,221

6

40.7

45.1

31.7

70%

Croatia Total


30,221

6

40.7

45.1

31.7


Czech Republic

Varyada Shopping Centre

18,437

80

26.8

41.2

28.2

68%

Czech Republic

MID portfolio : 2 properties

25,948

26

28.8

32.7

26.2

80%

Czech Republic Total


44,385

106

55.6

73.9

54.4


Hungary

Antana Logistic Park

36,997

75

14.2

17.9

9.5

53%

Hungary

Plaza Portfolio: 4 properties

47,559

254

44.4

63.5

34.5

54%

Hungary

Ericsson Office Building Complex

8,972

-

11.5

13.2

9.0

68%

Hungary

Interfruct Portfolio: 23 properties

94,668

23

55.8

67.7

46.2

68%

Hungary

MID Portfolio: 2 properties

19,392

9

20.8

23.7

19.1

80%

Hungary Total


207,588

361

146.7

186.0

118.3


Latvia

Blaumana 12

-

-

8.5

10.1

5.9

59%

Latvia Total


-

-

8.5

10.1

5.9


Lithuania

Babilonas Shopping Centre

21,458

120

23.0

28.0

18.7

67%

Lithuania Total


21,458

120

23.0

28.1

18.7


Poland

Geant Portfolio: 4 properties

26,908

173

42.3

66.2

36.2

55%

Poland

Promenada Shopping Centre

50,663

228

94.5

132.4

85.4

65%

Poland

Biedronka Supermarket

1,220

3

0.8

1.3

-

-

Poland

Marina Mokotow

2,554

31

6.9

8.1

5.9

73%

Poland Total


81,345

435

144.5

208.0

127.5


Romania

Macromall Shopping Centre

7,489

64

13.1

14.6

-

-

Romania Total


7,489

64

13.1

14.6

-


Grand Total


392,486

1,092

432.1

565.8

356.5

63%


*DTZ valuation at December 2007 with additions during the period at cost converted at the exchange rate prevailing on 30 June 2008.

Development properties

Country

Location

Property

Purchase Price (£m)

Value * 

(£m)

Bank loan

(£m)

LTV

Romania

Arad

Construction site with permits

9.3

11.2

3.5

31%

Romania

Baia Mare

Development site with permits

12.0

14.5

-

-

Romania

Cluj Napoca

Development site with permits

9.7

12.7

6.4

50%

Romania

Satu Mare

Development site with permits

7.0

8.1

-

-

Romania Total

 

 

38.0

46.5

9.9

21%


The Company's investment in the Galleria Patollo, Riga , Latvia shopping centre development is not shown here, as it is not consolidated in the balance sheet as a development property at this stage but represented as a loan of approximately £26 million provided to the joint venture company at the end of the period.

* Valuation at purchase and capitalised costs, converted at the exchange rate prevailing on 30 June 2008.

Financials

The net rental and related income for the period at £16.39 million was up on the same period last year by 47.5% largely due to additional acquisitions completed in the second half of 2007.

Net profit for the period has also increased by 17.9% to £ 8.44 million, however the overall profit for the period of the Group was £ 5.91 million, slightly less than the £ 5.98 million for June 2007. The principal reason for this was the reported tax amount in the statement, which includes an unrealised amount of £1.8 million. The effective tax rate of the Group is approximately 8.5%. 

In addition, the administrative expenses are higher than last year's as a result of acquisitions in CroatiaHungary and Czech Republic during the last quarter of 2007 and longer than expected implementation of cost saving initiatives and additional one off costs. Investment properties of the portfolio will be revalued as part of the planned move to the Official List by external, independent property valuers.

The Basic EPS for the period remained at 3.7 on an increased weighted average number of shares in issue of 229,363,349 for the period from 162,425,595 for the 6 months to 30 June 2007.

The net asset value ('NAV') per share of the Group has increased by 19% and 8% respectively to 133.8 pence from 112.4 pence as at 31 June 2007 and 123.9 as at 31 December 2007. The adjusted NAV per share of the Group has increased to 147.8 pence from 119.7 pence as at 31 June 2007 and 136.7 pence as at 31 December 2007. The adjusted NAV excludes goodwill and deferred tax liabilities on the property valuations.

Overall the Group's borrowing facilities were £366.4 million, of which, £64,7 million is expiring before the year end of 2008. Each of the facilities are denominated in Euros, and secured against individual assets or portfolio with no cross default provisions amongst them. Interest rate swaps are in place for each of these facilities to provide a hedge against any interest rate movement.

Portfolio debt

The Company has recently entered into a due diligence phase instructing lawyers after a thorough negotiations of heads of terms to complete the restructuring of its present short term financing liabilities to a new 3 year term structure with one of its main lenders. In addition, it is reviewing alternative options with other banks to address the individual property level financing requirements before the end of the year combined with the cash assets available to the Company.

The portfolio's properties are financed by the following banks: Anglo Irish Bank plc, Barclays, Erste Bank, Hypo International, MKB and Nordea. Please find below a detailed breakdown of each facility.

Each of the facilities listed below are independent of each other and there is no cross collaterisation in place between them:

Country

Property

Payable within

1 year

(£m)

Payable after 

1 year

(£m)

Loan expiry

Swap rate

Margin

 (on 3M EURIBOR)

Croatia

Agrokor Portfolio:

6 properties

-

31.7

Mar 2011

3.84%

1.80%

Czech Republic

Varyada Shopping Centre*

0.3 

27.9

Mar 2010


3.57%


1.70%

Czech Republic

MID Portfolio :

2 properties

-

26.2

Aug 2010

4.41%

1.05%

Hungary

Antana Logistic Park

9.5

-

Oct 2008

2.89%

1.50%

Hungary

Plaza Portfolio:

4 properties

1.3

33.2

Mar 2015

-

1.75% and an average fixed rate of 2.86%

Hungary

Ericsson Office Building Complex*

9.0

-

Sep 2008

-

1.60%

Hungary

Interfruct Portfolio:

23 properties

46.2

-

Nov 2008

3.92%

1.75%

Hungary

MID Portfolio :

2 properties

-

19.1

Aug 2010

4.41%

1.05%

Latvia

Blaumana 12

-

5.9

Feb 2017

-

1.55%

Lithuania

Babilonas Shopping Centre

-

18.7

Oct 2009

3.85%

1.65%

Poland

Geant Portfolio:

4 properties

1.2

35.0

Aug 2010

2.99%

Average of 1.75%

Poland

Promenada Shopping Centre

85.4

-

May 2009

3.57%

1.60%

Poland

Marina Mokotow

0.1

5.8

Oct 2012

4.55%

1.70%

Romania

Developments - Arad

3.5

-

Mar 2009

-

1.90%

Romania

Developments - Cluj Napoca

6.4

-

Mar 2009

-

1.90%

Grand Total


162.9

203.5






Macro outlook

The CEE region continues to grow faster than the EU average with 2009 estimated Eurozone GDP growth reaching no more than 1.6%, versus the 2009 estimated CEE Region GDP growth of 5.3%.

The majority of leases in the portfolio are linked to one of a number of Euro Consumer Price Indices which are currently demonstrating a year on year average increase of 4.4% (Source: Eurostat July 2008).

Globally contracting credit markets appear so far to be having less effect in the CEE region than in Western Europe, with both consumer markets and property markets less exposed than in Western countries. 

A Jones Lang LaSalle (JLL) report states that: '... strong economic fundamentals and buoyant occupier markets have slightly mitigated the credit crunch's effects, the CEE-3 capitals of PragueWarsaw, and Budapest are not immune and have all seen yield decompressions of approximately 50 bps.' 

'Current volatility in the capital markets should provide a greater case for pension funds and insurance companies to diversify and seek out the safe haven that real estate can offer. In addition, if markets stagnate or deteriorate office markets are likely to suffer to a greater extent with retail offering a more defensive play.'

(Source: JLL H1 2008 CEE Retail Investment Overview)

Commercial property debt continues to be available for small lot sizes up to circa €50m, at gearing levels of up to circa 65%. Large lot sizes of over €100m have a very restricted market, requiring debt syndication, but in relative terms it is felt that the banks see the CEE as reasonably insulated from most of their over leveraging problems and as an economy that is still fundamentally growth orientated.

Transaction volumes throughout the market are markedly down due to the impact on liquidity arising from the reduced debt availability. Significant buyers currently are mostly German open ended funds, Austrian, American and Spanish funds and property companies, quoted UK investors, and asset managers. The Company is also of aware of ongoing interest in the region of new capital sources such as Australian and Middle Eastern Sovereign funds seeking diversification.

The JLL report also states: 'Transactions concluded to date across Poland, Czech Republic, Slovakia and Hungary represent only 10% (retail sector) and 25% (all sectors) respectively of property volumes transacted in 2007.' 

(Source: JLL H1 2008 CEE Retail Investment Overview)



Strategy

The Company continues to be one of the few opportunities for investors to gain access to such a diversified portfolio of income yielding properties and development projects spread throughout the larger CEE region.

The long term strategy of the Board of the Company remains as a generator of strong regular dividends from net rental income surpluses with profits being generated through trading and development.

In the short term, during this period of global economic re-assessment, the Company requires its property advisor, to focus increasingly upon the management of portfolio and property level liabilities and risk exposures to maintain a prudent liquidity level.

Therefore, whilst still generating a positive dividend yield, the Company will over the next year or so concentrate on the enhancement of assets and income generation and management of debt on conservative assumptions to protect NAV and cash balances.

This means that there will be an increasing concentration of resources to asset management and that all portfolio debt arrangements will continue to be under review and subject to ongoing negotiation with a view to maintaining the current cautious gearing levels based on workable covenant terms available.

Potential asset sales will continue to be actively monitored for pricing advantages relative to alternative market opportunities that are available to Carpathian PLC. Interest has also been shown by investors in potential joint ventures on the existing portfolio assets, and developments which will be explored by the Company. It is considered that the environment over the foreseeable period is likely to give rise to opportunistic one-off new investment transactions. Carpathian should place itself to be able to actively take advantage of such opportunities.

Therefore, once a sufficient level of market stability is reached, the reinvestment of capital released via future sales will be reviewed in the context of all market opportunities and directed to the buying back of shares, or the purchase of further property investments, dependent upon the respective economic benefits to the Company at the time.



Note: All amounts represented here were translated from Euros for consistency at an exchange rate of 1.25 Euro/£ unless otherwise stated.

  

UNAUDITED CONSOLIDATED INCOME STATEMENT

30-Jun-08

30-Jun-07

31-Dec-07

For the six months ended 30 June 2008

 




GROUP

Note

 £'000 

£'000 

£'000 

Gross rental income


  19,321 

  13,146

27,051

Service charge income


  5,584 

  4,825

9,635 

Service charge expense


( 6,516)

(5,606)

(10,886)

Property operating expenses


( 2,549)

(1,621)

(3,401)

Other property income


  549 

367

  1,895 

Net rental and related income


  16,389 

  11,111

  24,294






Changes in fair value of investment property

2

  -  

  -  

  15,983 



 

 

Changes in fair value of financial assets and liabilities

14

  (841) 

1,409



 

 

 

Net foreign exchange (loss) / gain

 

( 1,194)

  1,186 

( 6,971)



 

 

 

Administrative expenses

 

( 3,103)

( 1,561)

( 4,685)






Net operating profit before net financing income 

  12,106 

9,895 

  30,030 

Financial income


  6,101 

  4,888 

  7,375 

Financial expense


( 9,771)

( 7,624)

( 15,528)

Net financing expense

3

( 3,670)

( 2,736)

( 8,153)



 

 

 

Net profit before tax


  8,436 

  7,159 

  21,877 



 

 

 

Tax

 

( 2,524)

( 1,182)

( 6,947)



 

 

 

PROFIT FOR THE PERIOD

 

5,912 

  5,977 

  14,930 






Attributable to:

 

 

 

 

Equity holders of the Company

 

  8,581 

  5,977 

  16,202 

Minority Interest

 

( 2,669)

  -  

( 1,272)




Basic and diluted earnings per share for profit attributable

 

 

to the equity holders of the Company during the period 

 

 

(expressed as pence per share)










Basic earnings per share

4

  3.7

3.7

  8.3 

Diluted earnings per share

4

3.7

  3.6

  7.3 









  

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

For the six months ended 30 June 2008

 

 

 

 

GROUP 

Note

 Share Capital
 £'000 

 Share Premium 
£'000 

 Minority Interest 
£'000 

 Translation Reserve £'000 

 Retained Earnings
£'000 

 Total
£'000 

 

 

 

 

 

 

 

 

Balance as at 1 January 2007

 1,454 

125,556 

5,546 

( 3,467)

42,472 

  171,561 

Profit for the period

 

  -  

  -  

  -  

  -  

14,930 

  14,930 

Dividends paid and declared

 

  -  

  -  

-

  -  

( 18,342)

( 18,342)

Purchase of minority shareholders' interest

 

  -  

  -  

(688)  

  -  

-  

(688)

Minority interest through acquisitions

 

  -  

  -  

  87

  -  

-

87

Carried interest allocation to minority shareholders




( 1,272)

-  

  1,272 

-  

Issue of share capital


833 

99,167 

-  

-  

-  

100,000 

Costs of issue


-  

( 3,315)

-  

-  

-  

( 3,315)

Exercise of share-based option


594 

  -  

  -  

-  

600 

Share premium release


-  

( 44,891)

  -  

  -  

  44,891 

  -  

Translation into presentation currency 


  -  

  -  

  -  

23,127 

  -  

23,127 

Balance as at 
31 December 2007


2,293 

177,111 

3,673 

19,660 

85,223 

287,960 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as at 1 January 2008

  2,293 

  177,111 

  3,673 

  19,660 

  85,223 

  287,960 

Profit for the period

 

  -  

  -  

  -  

  -  

  5,912 

  5,912 

Dividends paid and declared

8

  -  

  -  

  -  

  -  

( 7,661)

( 7,661)

Carried interest allocation to minority shareholders


  -  

  -  

  (2,669)  

-

  2,669  

-

Translation into presentation currency


  - 

  - 

  -  

  21,702  

  -  

  21,702 

Balance as at 
30 June 2008

 

  2,293 

  177,111 

  1,004 

  41,362 

  86,143 

  307,913 











  

UNAUDITED CONSOLIDATED BALANCE SHEET

30-Jun-08

30-Jun-07

31-Dec-07

For the six months ended 30 June 2008

 




GROUP

 Note 

 £'000 

 £'000 

 £'000 

ASSETS

 

 

 

 

Non current assets

 

 

 

 

Investment property

 

565,756 

371,148 

523,112 

Development property


46,437 

-  

41,428 

Goodwill

 

27,983 

18,139 

25,576 

Intangible assets


23 

-  

13 

Costs relating to future acquisitions

 

263 

266 

291 

Other Investments

 

5,890 

4,970 

5,477 

Loans receivable


26,085 

1,685 

14,846 

Deferred income tax assets


2,380 

937 

1,027 

 

 

674,817 

397,145 

611,770 

Current assets

 

 

 

 

Trade and other receivables

 

14,665 

6,809 

12,776 

Loans receivable


-  

-  

20 

Cash and cash equivalents

 

66,490 

164,623 

62,103 

Financial assets

 

8,597 

4,814 

4,762 

 

 

89,752 

176,246 

79,661 

TOTAL ASSETS

 

764,569 

573,391 

691,431 











EQUITY

 

 

 

 

Issued capital

5

2,293 

2,293 

2,293 

Share premium

5

177,111 

222,013 

177,111 

Retained earnings

 

86,143 

37,740 

85,223 

Translation reserve/(deficit)

 

41,362 

( 4,225)

19,660 

Total equity attributable to equity holders of the parent

306,909 

257,821 

284,287 






Minority interest

 

1,004 

4,856 

3,673 

TOTAL EQUITY

 

307,913 

262,677 

287,960 











LIABILITIES

 

 

 

 

Non-current liabilities

 

 

 

 

Bank loans

 

203,523 

213,529 

233,382 

Deferred income tax liabilities

 

63,656 

35,801 

56,333 

 

 

267,179 

249,330 

289,715 

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

17,277 

11,290 

27,884 

Bank loans

6

162,858 

42,651 

77,055 

Provisions

 

1,681 

729 

647 

Dividends payable

 

7,661 

4,868 

7,638 

Financial liabilities

 

-  

1,846 

532 

 

 

  189,477 

  61,384 

  113,756 

TOTAL LIABILITIES

 

  456,656 

  310,714 

  403,471 

TOTAL EQUITY AND LIABILITIES

 

764,569 

573,391 

691,431 








UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

30-Jun-08

30-Jun-07

31-Dec-07

For the six months ended 30 June 2008

 





 Note 

 £'000 

 £'000 

 £'000 

Cash flows from operating activities

 

 

 

 

Cash generated from / (used in) operations

7

  2,302 

12,678 

( 13,730)

Income taxes paid

 

( 526)

( 1,168)

( 1,830)

Net cash generated from / (used in) operating activities

 

  1,776 

11,510 

( 15,560)






Cash flows from investing activities

 

 

 

 

Capital expenditure on investment properties

 

( 3,148)

( 2,259)

( 8,870)

Capital expenditure on development properties

 

( 1,831)

  -  

( 8,354)

Capital expenditure on future developments

 

( 114)

  -  

( 337)

Capital expenditure on intangible assets

 

( 10)

  -  

( 13)

Loan advances to unconsolidated entities

 

( 11,239)

( 4,970)

( 14,866)

Investment in unconsolidated entities

 

  -  

( 1,685)

( 5,419)

Interest received

 

1,211 

2,273 

5,733 

Acquisition of subsidiaries


( 476)

( 1,094)

( 41,987)

Acquisition of minority interest in subsidiaries


  -  

( 987)

( 1,035)

Net cash used in investing activities

 

( 15,607)

( 8,722)

( 75,148)






Cash flows from financing activities

 

 

 

 

Proceeds on issue of shares, net of issuance costs

 

 - 

97,296 

97,285 

New bank loans raised

 

34,074 

28,668 

53,019 

Interest paid


( 8,896)

( 6,279)

( 13,796)

Repayments of borrowings


( 2,636)

( 27,354)

( 50,219)

Dividends paid

 

( 7,638)

( 5,841)

( 10,704)

Net generated from financing activities

 14,904 

86,490 

75,585 





Net increase / (decrease) in cash and cash equivalents

1,073 

89,278 

( 15,123)

Cash and cash equivalents at the beginning of the period

62,103 

75,131 

  75,131 

Exchange gains on cash and cash equivalents

  3,314 

214 

2,095 

Cash and cash equivalents at the end of the period

66,490 

164,623 

62,103 






  Notes to the Unaudited Consolidated financial statements

1 General information

Carpathian PLC (the 'Company') (formerly Dawnay, Day Carpathian PLC) is a company domiciled and incorporated in the Isle of Man on 2 June 2005 for the purpose of investing in the retail property market in Central and Eastern Europe.

The Interim Report of Carpathian PLC for the six months ended 30 June 2008, comprises the Company and its subsidiaries (together referred to as the 'Group').

The Company's registered address is IOMA House, Hope Street, Douglas, Isle of Man.

The Company was admitted to the AIM of the London Stock Exchange and commenced trading its shares on 26 July 2005. The Company raised approximately £140m at listing and a further £100m in May 2007 (before admission costs).

The functional currency of the consolidated financial statements is the Euro as it is the currency of the primary economic environment in which the Group operates. The consolidated financial statements are presented in Pounds Sterling (presentation currency) for the convenience of readers. The translation between the functional and presentation currency is in accordance with the Group's accounting policies.

 

2 Significant accounting policies

The Interim Report for the six months ended 30 June 2008 is unaudited and has been prepared based on the accounting polices set out in the statutory accounts for the year ended 31 December 2007.

The Group's policy is to fair value investment properties annually at 31 December, as a result no fair value adjustments have been recognised in the income statement for the six months ended 30 June 2008.

 

3 Net financing income 

 

 

30-Jun-08

30-Jun-07

31-Dec-07

 

 




 

 

 £'000 

 £'000 

 £'000 

GROUP





Interest income from financial institutions

 

1,223 

2,254 

5,907 

Interest income from related party

 

1,486 

358 

589 

Fair value adjustment of interest rate swaps


3,392 

2,276 

879 

Financial income

 

  6,101 

  4,888 

  7,375 

Net interest expenses on bank borrowings

 

( 9,479)

( 7,130)

( 14,814)

Finance costs amortised

131

-

(116)

Unwinding of unrealised direct issue costs of borrowings

( 423)

( 494)

( 598)

Net financing expense

 

( 3,670)

( 2,736)

( 8,153)







4 Earning per share

Basic earning per share

The calculation of basic earnings per share at 30 June 2008 was based on the profit attributable to ordinary shareholders of £8,580,651 and a weighted average number of ordinary shares outstanding during the six month period ended 30 June 2008 of 229,363,349, calculated as follows:

 

 

30-Jun-08

30-Jun-07

31-Dec-07

GROUP

 




Profit attributable to ordinary shareholders

 

 £'000 

 £'000 

 £'000 

Profit for the period

 

5,912 

5,977 

14,930 

Minority interest

 

2,669 

-  

1,272 

Profit attributable to ordinary shareholders

 

8,581 

5,977 

16,202 






Weighted average number of ordinary shares 

 

 

 






1 January

 

  229,363,349 

  145,430,015 

  145,430,015 

Effect of shares issued on 23 February 2007

 

-  

420,994 

511,233 

Effect of shares issued on 18 May 2007

 

-  

16,574,586 

50,228,311 

Weighted average number of ordinary shares

 

229,363,349 

162,425,595 

196,169,559 





Basic earnings per share 

3.7p 

3.7p 

  8.3p 






Diluted earning per share

The calculation of diluted earnings per share at 30 June 2008 was based on the diluted profit attributable to ordinary shareholders of £8,580,651 and a weighted average number of ordinary shares outstanding during the period ended 30 June 2008 of 229,363,349, calculated as follows:

Profit attributable to ordinary shareholders (diluted)

 £'000 

 £'000 

 £'000 






Profit for the period

 

  5,912 

  5,977 

  14,930 

Minority interest

 

2,669  

-

1,272

Share options dilutive effect




(1,741)

Profit attributable to ordinary shareholders

 

8,581 

5,977 

14,461 






Weighted average number of ordinary shares for the purposes of diluted earnings per share

 

 

 

 






Weighted average number of ordinary shares

 

  229,363,349 

  162,425,595 

  196,169,559 

Effect of dilutive potential ordinary shares: share options

-  

2,570,355  

1,536,294 

Weighted average number of ordinary shares (diluted)

229,363,349 

164,995,950 

  197,705,853 





Diluted earnings per share 

  3.7p 

  3.6p 

  7.3p 






  Share capital and share premium

AUTHORISED:

 

Number of ordinary shares of 
1 p each 

 £'000 


At 31 December 2007 and 30 June 2008

350,000,000 

  3,500 







ISSUED:

 

Number of ordinary shares issued and fully paid 

Share capital 

£'000

Share premium £'000 

Ordinary shares of 1p each


 

   

Balance at 31 December 2007 and 30 June 2008

229,363,349

2,293

177,111






6 Bank Loans

Bank loans repayable within twelve months of the Balance Sheet date are secured on various Group investment properties, including Promenada Shopping Centre (£85.4 million), Interfruct Portfolio (£46.2 million), Antana Logistic Park (£9.5 million), Ericsson Office Complex (£9.0 million) and two of the Group's developments in Romania (£9.9 million). The remainder represents repayment instalments due in respect of long term facilities.   7 Notes to the Cash Flow Statement

 

 

30-Jun-08

30-Jun-07

31-Dec-07

GROUP

 




Cash generated from operations

 

 £'000 

 £'000 

 £'000 






Profit for the period

 

5,912 

5,977 

14,930 

Adjustments for:

 

 

 

 

Increase in fair value of interest rate swaps

 

( 3,406)

( 2,276)

( 1,632)

Increase in fair value of financial liabilities

 

( 561)

  841 

( 656)

Unwinding of unrealised direct issue costs of borrowings

  424 

  494 

  598 

Net other finance income

 

6,639 

4,518 

8,433 

Increase in fair value of investment property 

 

-  

-  

  ( 15,983)

Costs relating to future acquisitions written off

 

76 

-  

439 

Reversal of investment in subsidiaries

 

-  

-  

30 

Provisions


1,083 

-  

( 82)

Income tax expense


2,524 

1,183 

6,947 

Unrealised foreign exchange gain/(loss)


1,194 

 ( 1,186)

6,971 






Operating cash flows before movements in working capital

  13,884 

  9,551 

  19,995 

(Increase) / decrease in receivables

 

( 276)

  3,897

  760 

Decrease in payables

 

( 11,306)

( 770)

( 34,485)

Cash generated from / (used in) operations

 

2,302 

12,678 

( 13,730)







8 Dividends

 

 

 

30-Jun-08

31-Dec-07

 

 

 



 

 

 

 £'000 

 £'000 






First interim dividend

 

 

  -  

  4,868 

Second interim dividend

 

 

  -  

  7,638 

Final dividend

 

 

7,661 

  5,836  

 

 

 

  7,661 

  18,342 







On 21 May the Directors declared a final dividend of 3.34 pence per share for the year ended 31 December 2007. The dividend was paid on 3 July 2008.


9 Events after the balance sheet date

On 29 August 2008 the Company changed its name from Dawnay, Day Carpathian PLC to Carpathian PLC.

On 25 July the Company acquired 50% of the issued share capital of Carpathian Asset Management Ltd for a consideration of £0.15m. The Company has appointed Carpathian Asset Management Ltd as its property and development advisor, following the termination of the appointment of its previous manager. As part of the arrangements, the Company acquired various management assets and three subsidiaries of Carpathian Asset Management Ltd. In addition, the employment contracts of certain employees of the previous manager were transferred to Carpathian Asset Management Ltd.

The Company issued 2,784,826 shares at £1.02 per share on 16 July 2008.

On 23 July 2008 P R Klimt resigned as a director of the Company.

The Company appointed KPMG Audit LLC as its auditors on 12 August 2008.

On 13 August 2008 the Group secured a construction finance facility of approximately £50 million to fund its Arad development in Romania.

On 22 August 2008 the Group terminated all 23 of its leases with Interfruct Kft, as a consequence of default by non payment of rent. The tenant's bank guarantee amounting to approximately £5.1 million, equivalent to 11 months' rent, has since become payable. A number of actions are being actively explored.



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