OREANDA-NEWS  On 17 November was announced, that OJSC RTM (RTS: RTMC) published its IFSR-compliant interim consolidated financial statements for the first half of 2008 and announced its short-term plans.

OJSC RTM's key financial highlights for the first half of 2008:

Revenue from investment property reached USD  36.3 mln., showing a 45.5% increase as compared to the first half of 2007;

Operating margin less net gain from fair value adjustments on investment property increased by 42.8% and amounted to USD 29.9 mln. as compared to  USD 20.9 in the first half of 2007 ;

Profit before taxation amounted to USD 49.9 mln.; net income amounted to USD 34.7 mln.;

Equity attributable to the shareholders of the parent company grew by 11.6% as compared to the same period in 2007 and reached USD 429.0 mln;

Balance sheet total stands at USD 1.1 bln., a 25.8% increase as compared to the same period in 2007;

Net financial debt grew by 59.3% as compared to the same period in 2007 and amounted to USD 482.3 mln. Cash and cash equivalents amounted to USD 41 mln.;

The share of the long-term debt in the financial debt structure increased from 64.3% as of December 31, 2007 to 68.1% as of June 30, 2008;

Market value of the OJSC RTM  investment portfolio as of June 30, 2008, estimated by Colliers International, amounted to USD 983.4 mln., which is a 32.4% increase compared to the previous appraisal;

Net Asset Value grew by 14.4% as compared to the same period in 2007 and amounted to USD 538.4 mln., or USD 3.8 per share;

OJSC RTM's short-term strategy:

Regarding the market conditions including industry-wide difficulties with fund raising and current debt refinancing, and adequately evaluating the company resources and opportunities, OJSC RTM is intended to focus on taking steps that will help the company to overcome the period of instability and continue its dynamic evolution.

The RTM Group inter alia is planning:

to reconsider its priorities in implementation of the current investment portfolio;

to implement the plan of property sale and restructure credit relations with the banks;

to reduce current and investment costs.

Review of Priorities in Current Investment Portfolio Implementation

The RTM Group's investment portfolio, according to the Colliers International valuation report as of 30.06.2008, consists of 56 properties at different stages of development. 47 projects are held as investments bringing the company stable cash flow, 9 projects are in the course of development or held for development. 

Under the current circumstances, the RTM Group is intended to temporally suspend investing in projects at early development stages (properties in Samara, Bryansk, Odintsovo and Saint-Petersburg (Kushlevka district)) and focus on efficiency increase of shopping centers held as investments and completing development of several  investment projects, which are at final development stages (shopping and entertainment center in Saint-Petersburg (near Kuptchino metro station) and Lipetsk (in Tereshkovoy str.)). Development of shopping and entertainment centers in Odintsovo and Saint-Petersburg (Kushelevka district) will be continued by the RTM Group only in case the company receives financing from the co-investors.

Property Sale Plan Implementation and Debt Restructuring

The main strategy of the company was to sell some properties which are not properly aligned with the company's business strategy and have low potential of market value growth in 2008-2009. Highly appreciating the quality of its real estate and taking into consideration the current unfavorable market conditions, the RTM Group is intended to perform the scheduled sale of its properties, providing acceptable profitability rate. Currently a number of properties are prepared for sale, comprising about 16% of the portfolio in terms of total area, or about 45% of properties held as investments in terms of total area. The cumulative value of properties for sale in 2008 — Q1, 2009, may amount to USD 92-300 mln. Revenues from properties sale will be  used primarily to reduce the credit portfolio.

Net financial debt of OJSC RTM as of June 30, 2008, according to IFSR-compliant financial report, amounted to USD 482.3 mln. Net financial debt to the value of the investment portfolio (according to the Colliers International valuation report as of June 30, 2008) amounted to 49%, which was an acceptable ratio for a development company at active investment stage. However, under the current circumstances this indicator must be reduced, especially, considering the necessity to repay short-term liabilities and growing value of financing.

The company plans to perform a substantial restructuring of the credit portfolio, aimed at reducing interest costs and increasing financial stability. Currently, the company considers the sale of properties as the main source of credit repayment. To escape cash deficiencies, the company holds negotiations with creditors regarding possible restructuring/prolongation of the debt burden. Also, to optimize interest burden on credit portfolio, the RTM Group holds negotiations with a number of creditors regarding their participation in particular projects as co-investors.

Cost Reduction

Following the market practice, the RTM Group performs a substantial cost reduction. The Group stopped its recruitment and is currently optimizing the substantial amount of its personnel. Beyond that, as the company suspended some of its investment activities, it is intended to reduce the next year budget.

Strategy implementation

The new strategy of the RTM Group is aimed at raising financial stability and reliability of the Group regarding the new economic environment, cushioning of risks as well as focusing on the most promising fields of development. The above mentioned measures are of short-term nature.

Financial statements for OJSC RTM are available at:  http://www.rtmd.ru/eng/investors/financial_reports/.