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Engel East Europe NV (KBE)

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Monday 21 August, 2006

Engel East Europe NV

Interim Results

Engel East Europe N.V.
21 August 2006

21 August 2006

                             Engel East Europe N.V.

          Maiden Interim Results for the six months ended 30 June 2006

               Pipeline of approximately 12,000 residential units

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


•         Net assets increased to €54.5 million (31/12/2005: €43.7 million)

•         Revenues increased by 147% to €23.2 million (1-6/2005: €9.4 million)

•         Gross profit rose 496% to €13.7 million (1-6/2005: €2.3 million)

•         Net profit before tax of €12.1 million

•         Net profit after tax of €11.7 million

•         Net cash in hand of €36.1 million

•         Completion of an investment of €22.4 million by the JV partner, the
          Heitman Group ('Heitman')

•         Current pipeline of approximately 12,000 residential units, with
          projected sales of more than €1.2 billion

•         Interim dividend of €0.021 (gross) per share to be paid

In H1 2006, Engel has:

•         Successfully bid to develop a substantial and prestigious Marina
Dorcol project on the Danube in Belgrade with approximately 600 residential
units, commercial centre, offices, a marina and shops. The company estimates
that the project will have sales of €160 million

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

•         Signed an agreement to purchase approximately 7,170 sqm of land in
Budapest, Hungary to develop approximately 230 residential units with projected
sales of approximately €23 million

•         Signed an agreement to purchase approximately 6,000 sqm of land in
Prague, Czech Republic to develop approximately 120 residential units with
projected sales of approximately €21 million

Since the period end, Engel has:

•         Signed a Memorandum of Understanding (MOU)* for 2 large-scale projects
in Romania

•         Signed an MOU* for an equity investment of €11.9 million in Marina
Dorcol, the 95% owned subsidiary of Engel, for the project in Belgrade, Serbia

•         Signed an agreement to purchase approximately 23,000 sqm of land in
Bucharest, Romania to develop approximately 550 residential units with projected
sales of approximately €60 million

•         Is currently in negotiations to purchase more land in the CEE Region
for the development of additional projects with a scope of thousands of
residential units

* Memorandum of Understanding - a final and binding agreement will be signed in
the future, subject to success of the due diligence process and/or other

Jacob Engel, founder and Executive Chairman, said:

'We are delighted to announce a strong set of results for the first half of 2006
with profits and EPS well ahead of expectations.

Furthermore, Engel has signed some excellent and exciting deals in Serbia and
Romania, new countries entered since floatation, as well in the countries we are
already active in and there are other projects in the pipeline which we expect
to sign during the second half of the year. As a result of these new deals,
Engel's pipeline has risen to approximately 12,000. In the second half of 2006,
we will continue to focus on growing our business, both in countries where we
currently operate as well as in new emerging markets.'

For further information, please contact:

Engel East Europe N.V.
Nir Netzer - Finance Director                       +972 (0)9 970 7024

Dawnay Day Corporate Finance Ltd - Nominated Advisor
Gerald Raingold / Sandy Jamieson                    +44 (0) 20 7509 4570

Citigate Dewe Rogerson
Sally Marshak / George Cazenove / Hannah Seward     +44 (0)20 7638 9571

Notes to Editors

Engel East Europe is an international residential property developer
incorporated in The Netherlands.  The Company operates in Central and Eastern
Europe and has various developments in Hungary, the Czech Republic, Poland,
Bulgaria, Serbia and Romania, as well as operations in Germany and Canada.
Engel is currently involved in the development of approximately 12,000
residential units and is in negotiations to purchase land for the development of
additional projects 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 £104.8 million.

Dawnay Day Corporate Finance Limited is Nominated Adviser to the Company and KBC
Peel Hunt Ltd is the broker.

Financial Summary for the first six months ended 30 June (Unaudited)

                                                                    For the six month period ended
                                                                                  30 June
                                                                            2006            2005
                                                                              Thousands  Euro
Revenues                                                                  23,165           9,390
Cost of revenues                                                        ( 9,451)        ( 7,093)
Gross profit                                                              13,714           2,297
As a % of Revenues                                                        59.20%          24.46%
Selling, general and administrative expenses                              ( 639)          ( 431)
Operating profit before financing costs                                   13,075           1,866
As a % of Revenues                                                        56.44%          19.87%
Foreign exchange gains (losses)                                          (1,087)             263
Other financial income                                                       970             222
Other financial expenses                                                   (854)           (521)
Net Financing Costs                                                        (971)            (36)
Share in profit (loss) of associate                                           18           ( 23)
Profit (loss) before tax                                                  12,122           1,807
As a % of Revenues                                                        52.33%          19.24%
Income taxes (tax benefit)                                                ( 376)          ( 330)
Profit for the year                                                       11,746           1,477

Attributable to:
Equity holders of the parent                                              11,810           1,546
Minority interest                                                          ( 64)           ( 69)
                                                                          11,746           1,477
                                                                                         E U R O
Basic and diluted earnings per share (€)                                   0.134           0.026

Overview of Financial Results

Revenues for the 6 months period to 30 June 2006 were €23.2 million up 147% on
the prior first half (1-6/2005: €9.4 million).  This is attributable to the
completion of phase 1 of Budapest - Sun Palace, completion of 1st part of Warsaw
- Zabki Project and the equity investment in accordance with Heitman JVII.

Gross profit for the period was €13.7 million, (1-6/2005: €2.3 million). The
increase is attributable mostly to revenue from the Sun Palace 1st phase in
Budapest, as well as for the results of the second transaction with Heitman

Net financing costs amounted to €1 million in the period compared to almost nil
in 1-6/2006.  This rise reflects growth in the company's activities but mostly
exchange rate differences.

Net profit before tax was €12.1 million for the six month period ended 30 June
2006, reflecting an increase of 572% on the first half of last year (1-6/2005:
€1.8 million). The increase is primarily as a result of phase 1 of Budapest -
Sun Palace results and of the JVII with Heitman Fund.

The tax expense in 1-6/2006 was €0.4 million, compared to €0.3 million in the
first half of 2005.

Profit for the first 6 months of 2006 amounted to €11.7 million, compared to
€1.5 million in H1 2005, in line with the increases in revenues and operating
income in 2006, as explained above.

Basic and diluted earnings per share for the period are €0.134 per share (€0.026
in 1-6/2005). The diluted amount reflects the options granted to senior
employees in the Group.

An interim dividend will be paid for the first time of €0.021 (gross) per share
amounting to €1.9 million (gross) in total, which will be paid net of
withholding tax on 3 November 2006 (dividend payment date) to shareholders on
the register on 6 October 2006 (record date). Dividends to UK shareholders will
be subject to a 15% rate of withholding tax upon confirmation of  UK residency
of the shareholders from its tax authorities, otherwise the dividends will be
subject to a 25% rate of withholding tax.

Balance Sheet and Cash Flow

Debt stood at €20.5 million on 30 June 2006 (31/12/2005 - €30.9 million)
comprising loans from related parties which were substantially decreased over
the period and bank debt.

The Company's net cash in hand decreased from €47.2 million as at 31 December
2005, to €36.1 million as at 30 June 2006. This reflects investment in new and
existing projects, repayment of loans to shareholders and a decrease in accounts
payable during the period, which was offset by the increase in the cash of the

Business Review H1-2006


Engel signed an agreement on 29 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 frame is €26.4 million while Engel's estimated share in
the profits of the projects will vary between 50% and 60% depending on the
financial results of the JV.  In addition the Company will manage the
development of the projects for a fee equal to 5% of the projects' costs.
Another affiliate of the Heitman Group already cooperates with the Company in
residential projects in Central & Eastern Europe.


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:

  • Creating value for the company by adding strategic partners to invest
    equity into the projects;

  • 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 the development projects
    on fixed price, ''turn-key'' contracts.  Third party companies provide the
    majority of the sales and architectural work.  This minimises overheads by
    enabling the Company to maintain a relatively small number of employees.
    The Company's streamlined operations enable it to adjust quickly to changing
    market conditions;

  • Aiming to acquire land 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.

The Markets

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 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

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.

Sales prices in many of the markets in which Engel operates have increased
recently and the units' sales-rate in the majority of the projects in Eastern
Europe is in line with our expectations.


The JVs mechanism, which creates value at the early stages of the projects, has
become an integral part of the company's business. The recent agreements and
MOUs, signed with prestigious funds, demonstrate the trust that the
international institutional investment entities have for our Company, its
business model and its management.

We are confident that our scope of activity will increase substantially in the
near future, having recently entered into new projects, markets and countries.

Consolidated Income Statement  

                                                                       For the six month period ended  For the year  
                                                                                      30 June          31 December  
                                                                                 2006         2005            2005      
                                                                            Unaudited    Unaudited         Audited    
                                                                                  Thousands Euro                        
      Revenues                                                                 23,165        9,390          10,574 
      Cost of revenues                                                        (9,451)     *(7,093)        *(7,350) 
      Gross profit                                                             13,714        2,297           3,224 
      Selling, general and administrative expenses                              (639)        (431)           (588) 
      Operating profit                                                         13,075        1,866           2,636 
      Foreign exchange gains (losses)                                         (1,087)         *263          *(124) 
      Other financial income                                                      970         *222            *395 
      Other financial expenses                                                  (854)       *(521)        *(1,067) 
      Net financing costs                                                       (971)         (36)           (796) 
      Share in profit (loss) of associate                                          18         (23)             155 
      Profit before tax                                                        12,122        1,807           1,995 
      Income taxes                                                              (376)        (330)           (288) 
      Profit for the period                                                    11,746        1,477           1,707 
      Attributable to:                                                                                             
      Equity holders of the parent                                             11,810        1,546           1,781 
      Minority interest                                                          (64)         (69)            (74) 
                                                                               11,746        1,477          1,707  
      Earnings per share:                                                                                          
      Basic earnings per share (Euro)                                          0.134        0.026            0.029 
      Diluted earnings per share (Euro)                                        0.134        0.026            0.029 
* Reclassified. 

Consolidated Balance Sheets  

                                                                         30 June      30 June    31 December  
                                                                            2006         2005           2005     
                                                                       Unaudited    Unaudited        Audited    
                                                                                   Thousands Euro                
          Current assets                                                                                     
          Cash and cash equivalents                                       28,861        3,333         42,103 
          Restricted bank deposits and cash in escrow                      7,225        3,943          5,132 
          Trade accounts receivable                                        4,645          206             63 
          Other accounts receivable                                        1,919          770          2,617 
          Loans and amounts to related parties and other                   3,251          473          2,448 
          Inventories of housing units                                    36,616       17,560         32,663 
                                                                          82,517       26,285         85,026 
          Non-current assets                                                                                 
          Property and equipment                                             295           60            118 
          Deferred tax assets                                                208          587            274 
          Investment in associate                                             50          304             77 
                                                                             553          951            469 
          Total assets                                                    83,070       27,236         85,495 
          LIABILITIES AND SHAREHOLDERS' EQUITY                                                               
          Current liabilities                                                                                
          Interest-bearing loans from banks                                8,124        8,695         11,312 
          Loans and amounts due to related parties and other              12,335        8,335         19,538 
          Trade accounts payable                                           2,373          878          2,330 
          Other accounts payable                                           5,073        4,832          8,520 
          Income tax payable                                                 639          136             94 
          Total liabilities                                               28,544       22,876         41,794 
          Net assets                                                      54,526        4,360         43,701 
          Share capital                                                      878          20             878 
          Share premium                                                   39,298            -         39,298 
          Capital reserves                                                 (338)            -              - 
          Retained earnings                                               15,055        4,187          3,842 
          Translation reserve                                              (490)           20          (325) 
          Equity attributable to equity holders of the parent             54,403        4,227         43,693 
          Minority interest                                                  123          133              8 
          Total equity                                                    54,526        4,360         43,701 
          Total liabilities and equity                                    83,070       27,236         85,495 

Consolidated Statements of Cash Flows  

                                                                             For the six month period   For the year  
                                                                                        ended                  ended    
                                                                                       30 June           31 December  
                                                                                    2006         2005           2005    
                                                                               Unaudited    Unaudited        Audited    
                                                                                            Thousands Euro              
  Cash from (used in) operating activities:                                                                           
  Net profit for the period                                                       11,746        1,477           1,707 
  Adjustments necessary to reflect cash flows                                                                         
  from operating activities:                                                                                          
  Depreciation                                                                        21            3              19 
  Unrealised foreign exchange losses (gains)                                         837            -           (127) 
  Finance expenses (income), net                                                     971        (147)             923 
  Income taxes, net                                                                  235         (73)              97 
  Company's share in loss (profits) of associate                                    (18)           23           (155) 
  Capital loss on sale of property and equipment                                       -            6               - 
  Gain on sale of subsidiary                                                           -            -            (36) 
  Share based payment                                                                  2            -               - 
  Increase in inventory                                                          (4,076)        (354)         (7,466) 
  Deferred taxes                                                                     610         (30)              49 
  (Increase) decrease in trade accounts receivable                               (4,582)           64             174 
  Decrease in other accounts receivable                                            (818)        (130)         (2,068) 
  Increase (decrease) in trade accounts payable                                       52         (86)           1,335 
  Decrease in other accounts payable                                             (2,806)      (7,753)         (6,413) 
  Cash from (used in) operations:                                                                                     
  Interest received                                                                  197          294             466 
  Interest paid                                                                    (363)         (75)           (400) 
  Income taxes paid                                                                (374)        (260)           (382) 
  Net cash from (used in) operating activities                                     1,634      (7,041)        (12,277) 
  Cash from (used in) investing activities                                                                            
  Purchase of property and equipment                                               (198)         (34)           (117) 
  Proceeds from sale of property and equipment                                         -            6               - 
  Acquisition of subsidiaries, net of cash acquired                                (155)            -             671 
  Loan granted to associate                                                            -         (11)             364 
  Short term loans granted to (repaid by) related parties,                       (1,374)          322         (1,751) 
  Restricted cash                                                                (2,112)      (2,060)         (3,481) 
  Net cash used in investing activities                                          (3,839)      (1,777)         (4,314) 

Consolidated Statements of Cash Flows (continues)  

                                                                               For the six month period      For the    
                                                                                        ended                  ended    
                                                                                      30 June            31 December  
                                                                                   2006          2005           2005    
                                                                              Unaudited     Unaudited        Audited    
                                                                                            Thousands Euro              
  Cash from (used in) financing activities                                                                            
  Issue of share capital                                                               -            -          39,576 
  Short term loans from (repaid to) banks, net                                   (3,145)        3,625           6,768 
  Short term loans received from (repaid to) related                             (7,136)        4,109           8,521 
  parties, net                                                                                                        
  Dividend paid to minority shareholders                                               -        (229)           (362) 
  Dividend paid to shareholders                                                    (597)            -               - 
  Net cash from (used for) financing activities                                 (10,878)        7,505          54,503 
  Increase (decrease) in cash and cash equivalents during                       (13,083)      (1,313)          37,912 
  the period                                                                                                          
  Effect of exchange rate changes on cash                                          (159)            8           (447) 
  Cash and cash equivalents at the beginning of the period                        42,103        4,638           4,638 
  Cash and cash equivalents at the end of the period                              28,861        3,333          42,103 

Notes to the consolidated financial information

1. Basis of preparation of the interim financial statements

The interim financial information set out herein does not constitute full
financial Statements.  The financial statements comprise the unaudited results
of the Group for the 6 months ended 30 June 2006.  The unaudited Group results
have been prepared under the historical cost convention (as modified by the
revaluation of certain properties), in accordance with international accounting
standards, and on the basis of the accounting policies set out in the Admission
Document dated 15 December 2005.

The comparative results for the six months ended 30 June 2005 have not been
audited.  The financial information for the year ended 31 December 2005 has been
extracted from Group's Annual Report and Accounts for that period.  The
independent auditors' report in the Annual Report for the year ended 31 December
2005 was unqualified.

2. Earnings per share

The calculation of basic earnings per share is calculated by reference to the
profits after taxation divided by the weighted average number of ordinary shares
in issue during the period of 87.78 million, 60 million for the period of six
month ended 30 June 2005 and 61.2 million for the period of twelve month ended
31 December 2005.

The fully diluted earnings have been further adjusted by the dilutive
outstanding share options and warrants resulting in a weighted average number of
shares of 87.82 million for the period of six month ended 30 June 2006 and the
same number of shares as been taken into account for the basic as for the rest
of the comparative periods

3. Dividend

The interim dividend will be paid on 3 November 2006 (dividend payment date (to
shareholders on the register on 6 October 2006 (dividend record date). Dividends
to UK shareholders will be subject to a 15% rate of withholding tax upon
confirmation of UK residency of the institutional shareholders from its tax
authorities, otherwise the dividends will be subject to a 25% rate of
withholding tax.

4. The Interim Report

This Interim Report for the six months ended 30 June 2006 was approved by the
directors on 21 August 2006 and will be sent to all registered shareholders
during September 2006.  A copy can be obtained by the public from Holender
Ventures B.V., Rapenburgerstraat 204, 1011 MN, Amsterdam, the Netherlands.


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