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Engel East Europe NV (KBE)

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Tuesday 28 March, 2006

Engel East Europe NV

Final Results

Engel East Europe N.V.
28 March 2006

28 March 2006

                             Engel East Europe N.V.


        Maiden Preliminary Results for the period ended 31 December 2005

            Pipeline of over 11,000 residential units in CEE region



Engel East Europe N.V. ('Engel' or 'the Company'), the AIM-listed Central and
Eastern European residential property developer (EEE:L), today announces its
maiden preliminary audited results.



Highlights

•         Net assets increased to €43.7 million (2004: €3.0 million)

•         Revenues increased by 36% to €10.6 million (2004: €7.8 million)

•         Gross profit rose 70% to €3.2 million (2004: €1.9 million)

•         Gross margin rose to 30% (2004: 24%)

•         Net profit before tax of €2.0 million

•         Net Profit after tax of €1.7 million

•         Net cash position of €42.1 million (2004: €4.6 million)

•         Sales, profits, cash and EPS all ahead of expectations

•         Agreement with Heitman Group to invest up to €26.4 million in Engel
          projects

•         Current pipeline rose to more than 11,000 units, with projected sales
          of more than €1 billion

•         The Directors intend to pay a dividend of €0.6 million, subject to the
          approval of shareholders at the Company's Annual General Meeting

Since period end:

•         Successful bid to develop a substantial and prestigious project on the
          Danube in Belgrade with approximately 600 residential units, marina 
          and commercial areas with projected sales of €160 million

•         Agreement to purchase approximately 54,000 sqm of land in Poland to
          develop about 300 residential units with projected sales of 
          approximately €41 million

•         Agreement to purchase approximately 3,400 sqm of land in Bulgaria to
          develop 50 residential units with projected sales of approximately 
          €7million

•         Currently in negotiations to purchase more land in the CEE Region for
          the development of thousands of additional residential units



Jacob Engel, founder and Executive Chairman, said:



'We are pleased to announce our first set of results since listing on AIM in
December last year.  We have delivered an excellent set of results for the year
with sales, profits, cash and EPS all ahead of expectations.  The projects
pipeline rose to over 11,000 units. In the future we will continue to focus on
further expanding of our business, both in current countries as well as in new
emerging markets, by identifying and securing further residential real estate
development opportunities in the highly attractive CEE region.'



For further information, please contact:


Citigate Dewe Rogerson                                    +44 (0)20 7638 9571

Sally Marshak/George Cazenove/Hannah Seward


Notes to Editors



Engel East Europe is an international residential property developer
incorporated in The Netherlands.  The Company operates in Central and Eastern
Europe (the 'CEE Region') and has various developments in Hungary, the Czech
Republic, Poland, Bulgaria and Serbia & Montenegro as well as operations in
Germany and Canada.  Engel is currently involved in the development of
approximately 11,000 residential units and is in negotiations to purchase land
for the development of thousands of additional units throughout the CEE Region.

Engel East Europe was admitted to Aim on 15 December 2005, following a placing
of 27.8 million new ordinary shares, which raised gross proceeds of £30 million.
Based on the placing price of 108p per ordinary share, the market
capitalisation of Engel East Europe on commencement of dealings was
approximately £95 million.  The Company's current market capitalisation is
approximately £120 million.  Dawnay, Day Corporate Finance Limited is Nominated
Adviser to the Company and KBC Peel Hunt Ltd is the broker.



Financial Summary


                                                            2005          2004
                                                            TEUR          TEUR
                                                          ('000)        ('000)

Revenues                                                  10,574         7,752
Cost of revenues                                         (7,386)       (5,880)
Gross profit                                               3,188         1,872
As a % of Revenues                                         30.1%         24.1%
Other operating income                                        36         3,830
Other operating expenses                                       0       (1,197)
Selling, general and administrative expenses               (588)       (1,277)
Operating profit before financing costs                    2,636         3,228
As a % of Revenues                                         24.9%         41.6%
Finance Income                                               395           657
Finance Expenses                                         (1,191)         (938)
Net Financing Costs                                          796           281
Share in profit (loss) of associate                          155          (11)
Profit (loss) before tax                                   1,995         2,936
As a % of Revenues                                         18.9%         37.9%
Income taxes (tax benefit)                                   288          (24)
Profit for the year                                        1,707         2,960

Attributable to:
Equity holders of the parent                               1,781         2,793
Minority interest                                           (74)           167
                                                           1,707         2,960
Earnings per share (€)                                     0.029         0.047



Overview of Financial Results

Revenues for the year to 31 December 2005 were €10.6 million up 36% on the prior
year (2004: €7.8 million).  This is mostly attributable to the completion and
sale in February 2005 of all 273 residential units in our Juharlieget, District
IV, Budapest project in Hungary.

Gross profit for the period was €3.2 million, (2004: €1.9 million). The increase
is  attributable to the rise in revenues over 2004 as well as a rise in the
gross margin to 30.1% from 24.1% in 2004. This was due to the results of the
Budapest project completing ahead of expectations and to a small part of the
second transaction with Heitman Fund.

Operating profit before financing costs in 2005 was €2.6 million, well ahead of
analyst expectations of €2.3 million, although a decline year-on-year of 18%
(2004: €3.2 million). The decline reflects the exceptional level of income in
2004 from the first investment by the Heitman Fund in a few projects, amounting
to €3.8 million gross.

Net financing costs amounted to €0.8 million in 2005 compared to €0.3 million in
2004.  This rise reflects growth in the company's activities and exchange rate
differences.

Net profit before tax of €2.0 million for 2005 was ahead of analyst expectations
of €1.2 million, although lower than 2004 (€2.9 million).  The decrease is
primarily related to the results of the JV1 with Heitman Fund in 2004 while the
effect of JV2 is expected to be reflected mainly in 2006 reports.

The tax expense in 2005 was €0.3 million, reflecting a low average tax rate of
14.4%, compared to a minor tax benefit in 2004.

Profit for the year amounted to €1.7 million in 2005, above the analyst's
expectations, compared to €3.0 million in 2004 and again reflected the decrease
in operating income in 2005 as explained above.

Basic earnings per share for 2005 are €0.029 per share and are ahead of analyst
expectations.



Balance Sheet and Cash Flow

The balance sheet as at 31 December 2005 showed net assets of €43.7 million
compared to net assets of €3.0 million at the end of December 2004.  This rise
primarily results from the Company's net proceeds of €39.6 million from its
share offering and listing on AIM in December 2005.



Debt stood at €30.9 million at the end of 2005 comprising bank debt and loans
from related parties.

The Company's net cash position increased from €4.6 million as at the end of
December 2004 to €42.1 million as at the end of December 2005. This reflects
primarily the net proceeds of €39.6 million from the share offering in December
2005, partially offset by an increase in inventory and a decrease in accounts
payable during the year.



Business Review 2005



Operations



During the year, Engel was involved in the development of approximately 10,000
residential units in the Czech Republic, Hungary, Poland, Bulgaria, Germany and
Canada.  The projects were in various stages of development.  In addition, Engel
is negotiating to purchase land for the development of thousands of additional
units throughout the CEE region during the year and has already secured an
additional 3 projects in Bulgaria, Poland and Serbia, a new country for Engel -
see developments in 2006.  Details of these activities by country are as
follows:



Hungary

Engel completed and sold all 273 residential units in its Juharlieget, District
IV, Budapest project in March 2005.  The Company has also commenced its Sun
Palace, District III, Budapest project, occupying 14,868m2 of land, comprising
550 residential units, located on the Budapest Danube Bank.



The Group's largest project in Hungary is the Raba Site in Gyor, occupying
approximately 430,000m2 and located on the small Danube bank approximately 100km
west of Budapest and close to the Austrian border.  The project will include an
entire neighbourhood consisting of approximately 5,000 residential units.



Poland

The Company also has two projects in Poland located in Lesna Polana, Zabki,
Warsaw OS and in Emilii Plater, Warsaw.  The first project comprises 39,114m2 of
land and will comprise768 units.  The second project occupies 1,813m2 of
undeveloped land and is located in one of the most prestigious streets in
Central Warsaw. The project will comprise 68 units.




Czech Republic

Engel has five developments in Prague.  The Prokopsky dvur project, comprising
72 residential units, was completed and fully sold.  Similarly the Barrandovsky
dvur project, consisting of 124 residential units was also completed and fully
sold.  The third project, Rezidence Petrohradska, Vrsovice, on the outskirts of
the city centre, with 57 residential units, 2 shops was completed in 2005 and
all units but 2 were sold. The Company's Cervenemu Vrchu, Vokovice project
located in the prestigious Prague 6 area of the city will comprise 161
residential units. Lastly, the Safranka, Stodulky project lies on 66,136m2 of
land in the Prague 5 area, and will comprise 525 apartments and 24 semi-detached
houses.



Bulgaria

Engel purchased seven projects in Sofia in 2005.  These include Kambanite on
9,720m2 of land acquired in 2005 and will comprise a secure, gated community of
approximately 20 luxury houses. The Ovcha Koupel project, located on the
outskirts of Sofia, comprises 50 apartments and the Tsar Boris project will
comprise 165 apartments located on the south-westerly outskirts of Sofia. The
Malinova Dolina project on the southern outskirts of Sofia covers 19,877m2 and
will comprise 281 apartments.

The final three projects comprise Monastirski Livadi, Gorna Banya 1 and Gorna
Banya 2.  Monastirski Livadi covers 4,888m2 and will comprise 90 apartments.
Gorna Banya 1 covers 10,760m2 with plans to develop 540 apartments. The Company
also signed a memorandum of understanding to purchase an adjacent plot of land,
Gorna Banya 2, to develop an additional 450 units.



Canada

Engel has three projects under development in Montreal following an opportunity
to purchase land at an attractive price in 2004.  However, in the future, the
Company intends to focus purely on European emerging markets.  The first
project, Trianon sur le Golf, will comprise a multi-residential development
offering a total of 165 units. The second project, Le Chagall, will comprise two
towers of 17 storeys each and offering a total of 198 units. The third project,
Le Quartier Parisien, will comprise a multi-residential development of 632
residential units.



Germany

Engel has one project in Germany, Rassnitz, situated in the countryside between
Halle and Leipzig, occupying 156,000m2 of land and will comprise 216 houses.





Partners

Engel signed an agreement on 30 December 2005 with an affiliate of the Heitman
Group, an American-based group of real estate investment funds, to invest in a
number of the Company's residential developments, including current projects as
well as future projects yet to be acquired.  Heitman's investments in the
projects will total up to €26.4 million while Engel's estimated share in the
profits of the projects will vary between 50 and 60 per cent depending on the
financial results of each transaction.  In addition the Company will manage the
development of the projects for a fee equal to 5% of the costs.  Another
affiliate of the Heitman Group already cooperates with the Company in
residential real estate projects in Central & Eastern Europe. The company
already cooperate with partners as an affiliate of Lehman Brothers and with
affiliate of Volksbank.





Developments in 2006

We are pleased to report that we have already added several new projects to our
portfolio in 2006.  These include a substantial and prestigious project in
Belgrade, where Engel won a bidding round run by the Municipality of Belgrade in
February to purchase a development site in the city on the banks of the Danube
of 25,700m2.  The Company intends to develop approximately 600 residential units
and a marina as well as commercial areas with total projected sales of
approximately €160 million.

Engel also signed an agreement in January 2006 to purchase 54,000m2 of land in
Warsaw, Poland.  The Company intends to develop approximately 300 residential
units with projected sales of approximately €41 million.

In January 2006 the Company also agreed to purchase an additional 3,400m2 of
land in Bulgaria to develop 50 residential units with projected sales of
approximately €7m.

Engel is also in negotiations to purchase additional projects in the CEE Region
for the development of several thousands further residential units.

The Company's current project pipeline amounts to more than 11,000 units in
seven countries, with projected sales of more than €1 billion.



Strategy

Engel East Europe continues to look for opportunities in emerging European
markets and the Company's principal objectives are to continue expanding its
business activities in these markets.  Engel East Europe employs the following
strategies to achieve these objectives:



•         Fixing costs and minimising risk in real estate development;



  • Exploiting the management team's experience to identify potential
    development sites with relatively low land costs and high profit margins,
    primarily in or within commuting distance of major population centres;



  • Adoption of flexible phased development plans, where the number of
    residential units in each phase is adjusted to the level of demand;



  • Employing mainly general contractors to construct its development projects
    on fixed price, ''turn-key'' contracts.  The majority of the sales work and
    the architectural work are provided by third party companies.  This
    minimizes overheads by enabling the Company to maintain a relatively small
    number of employees.  The Company's streamline operations enable it to
    adjust quickly to changing market conditions;



  • Aiming to acquire land mostly once it has been zoned for residential use
    or subject to zoning;



  • Using established first class local sales agents, with local know-how, to
    sell our residential units;



  • Agreements with certain vendors, pursuant to which Engel East Europe
    undertakes to pay for the land through an agreed percentage of future
    project proceeds, instead of cash payment, thus substantially reducing the
    Company's development risks; and



  • The Company partners with large, international, financial institutions,
    such as the Heitman Fund and an entity of Lehman Brothers group.





Outlook

The Company expects the CEE Region to continue to offer attractive development
opportunities for residential real estate due to the on-going rapid rise in
disposable incomes. This results in high growth in demand for modern and good
quality housing. Other factors which make the CEE Region attractive for
development are low land and/or construction costs relative to developed
countries, a fast-growing housing mortgage market, with relatively low interest
rates, the existence of a substantial amount of Communist-era housing, which is
typically of low quality, as well as higher rates of increase in house prices
than local rates of inflation. Taking into consideration additional relevant
macroeconomics factors such as the projected annual growth in the GDP and the
residential units per 1,000 of population built per year in those countries, the
management is confident that there continue to be significant residential
development opportunities in these markets. Combining its management experience,
knowledge and expertise, Engel, as a leader in the CEE Region, will continue to
identify and secure the most attractive opportunities for real estate
development throughout the region.



Consolidated Income Statement

 
                                                                      For the year ended 31 December
                                                                        2005                   2004
                                                                                  Audited
                                                                                  T E U R

Revenues                                                                  10,574                  7,752

Cost of sales                                                            (7,386)                (5,880)
                                                                         
Gross profit                                                               3,188                  1,872
                                                                           
Other operating income                                                        36                  3,830
                                                                                                  
Other operating expenses                                                     -                  (1,197)
                                                                             
Selling, general and administrative expenses                               (588)                (1,277)
                                                                           
Operating profit before financing costs                                    2,636                  3,228
                                                                           
Finance income                                                               395                    657
                                                                             
Finance expenses                                                         (1,191)                  (938)
                                                                         
Net financing costs                                                        (796)                  (281)

Share in profit (loss) of associate                                          155                   (11)
                                                                             
Profit before tax                                                          1,995                  2,936
                                                                           
Income taxes (Tax benefit)                                                   288                   (24)

Profit for the year                                                        1,707                  2,960
                                                                                                  

Attributable to:

Equity holders of the parent                                               1,781                  2,793
                                                                                                  
Minority interest                                                           (74)                    167

                                                                           1,707                  2,960

Earnings per share (EUR)                                                   0.029                  0.047




Consolidated Balance Sheets



   
                                                                                   31 December
                                                                           2005                   2004
                                                                                     Audited
                                                                                     T E U R

Assets
Current assets
Cash and cash equivalents                                                 42,103                   4,638
Restricted bank deposits                                                   5,132                   1,827
Trade accounts receivable                                                     63                     262
Other accounts receivable and prepayments                                  2,617                     522
Loans to related parties and others                                        2,448                     771
Inventories of housing units                                              32,663                  16,690
                                                                          85,026                  24,710
Non-current assets
Property and equipment                                                       118                      29
Deferred tax assets                                                          274                     709
Investment in associate                                                       77                     286
                                                                             469                   1,024
Total assets                                                              85,495                  25,734

Liabilities and  equity
Current liabilities
Interest-bearing loans from banks                                         11,312                   5,029
Loans and amounts due to related parties and other                        19,538                   4,099
Trade accounts payable                                                     2,330                     935
Income tax payable                                                            94                     363
Other accounts payable                                                     8,520                  12,299
Total liabilities                                                         41,794                  22,725
Net assets                                                                43,701                   3,009

Equity
Share capital                                                                878                      20
Share premium                                                             39,298                      -
Retained earnings                                                          3,842                   2,641
Translation reserve                                                        (325)                    (76)
Equity attributable to equity holders of the parent                       43,693                2,585
Minority interest                                                              8                     424
Total equity                                                              43,701                   3,009
Total liabilities and equity                                              85,495                  25,734


Consolidated Statements of Cash Flows

 
                                                                                 For the year ended 31 December
                                                                                   2005                  2004
                                                                                            Audited
                                                                                            T E U R

Cash used in operating activities
Net profit for the year                                                             1,707                2,960

Adjustment necessary to reflect cash flows from
operating activities:

Depreciation                                                                           19                   12
Unrealised foreign exchange losses (gains)                                          (127)                   89
Finance expenses, net                                                                 923                (536)
Income taxes                                                                           97                  643
Company's share in losses (profits) of associate                                    (155)                   11
Gain on sale of  subsidiary                                                          (36)              (3,830)
Increase in inventory                                                             (7,466)              (3,462)
Deferred taxes                                                                         49                 (54)
(Increase) decrease in trade accounts receivable                                      174                 (74)
Decrease in other accounts receivable                                             (2,068)                (531)
Increase (decrease) in trade accounts payable                                       1,335              (2,433)
Increase (decrease) in other accounts payable                                     (6,413)                5,809
Cash used in operations:
Interest received                                                                     466                  521
Interest paid                                                                       (400)                (144)
Income taxes paid                                                                   (382)                (403)
Net cash used in operating activities                                            (12,277)              (1,422)

Cash from (used in) investing activities
Purchase of property and equipment                                                  (117)                 (15)
Acquisition of subsidiaries, net of cash acquired (see Note 29)                       671                  -
Proceeds from sale of building held for sale                                            -                2,270
Loan repaid by (granted to)  associate                                                364                (137)
Short term loans granted to related parties, net                                  (1,751)                (915)
Restricted cash                                                                   (3,481)                  883
Disposal of subsidiary, net of cash disposed of                                         -                (755)
(see Note 28)
Net cash from (used in) investing activities                                      (4,314)                1,331
                                                                                  

Consolidated Statements of Cash Flows

                                                                             For the year ended 31 December
                                                                                 2005                 2004
                                                                                       A u d i t e d
                                                                                          T E U R


Cash from financing activities
Issue of share capital (see Note 26.g.3)                                          39,576                     -
Short term loans from (repaid to) banks, net                                       6,768               (1,612)
Short term loans received from related parties, net                                8,521                 1,734
Dividend paid to minority shareholders                                             (362)                     -
Net cash from financing activities                                                54,503                   122

Increase in cash and cash equivalents during the year                             37,912                    31
                                                                                  
Effect of exchange rate changes on cash                                            (447)                   (3)

Cash and cash equivalents at the beginning of the year                             4,638                 4,610

Cash and cash equivalents at the end of the year                                  42,103                 4,638


Notes to the consolidated financial information


1.      Basis of Accounting and Presentation of Financial Information

The financial information contained in this announcement does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. However,
the financial statements contained in this announcement are extracted from the
audited statutory accounts for the financial year ended 31 December 2005, which
will be delivered to the Registrar of Companies.

The Group has prepared its financial statements under IFRS.



2.      AGM

Details of the Annual General meeting will be given in due course.


                      This information is provided by RNS
            The company news service from the London Stock Exchange