Final Results

24th Mar 2009 12:20



Engel East Europe N.V

Results for the year ended 31 December 2008

TUESDAY, 24 March 2009 - Engel East Europe N.V. ('Engel' or 'the Company') the AIM-listed Central and Eastern European property developer (EEE:L), announces results for the year ended 31 December 2008.

Financial summary

Year ended (figures in €'000)	31 Dec 2008	31 Dec 2007
Net assets	33,599	44,813
NAV/share (€)	0.38	0.51
Revenues	24,203	16,396
Revaluation of investment property	2,076	2,295
Write-down of inventory	(1,153)	(3,858)
Gross Profit	4,915	3,157
Operating loss	(390)	(2,106)
Net financing costs	8,703	2,037
Loss before tax	(9,092)	(4,170)
Loss after tax	(9,579)	(4,763)
Loss per share (€)	(0.109)	(0.054)

"Despite the challenging environment, by focusing on key countries and carefully managing our resources, we expect to be able to maintain development activity and sales in 2009." 

 Sam Salman, Chairman, Engel East Europe 

Enquiries:

Engel East Europe N.V.
Sam Salman	Tel: +1 (646) 214 2000
Samuel Hibel	Tel: +972 (9) 970 7004
Libertas Capital Corporate Finance Limited	Tel: +44 (0) 20 7569 9650
Sandy Jamieson
Bankside Consultants	Tel: +44 (0) 20 7367 8888
Simon Bloomfield or Andy Harris

Chairman's Statement

The second half of the year ended 31 December 2008 witnessed the biggest financial crisis in living memory which was followed by a rescue, led by the world's leading economic powers, of the global banking system.

As indicated in the Company's trading update of 2 December 2008, this created major challenges for the economies and property markets of Central and Eastern Europe, where construction lending and availability of mortgage finance have been curtailed, with a negative impact on Engel's development activities and financial performance for the year.

This difficult market environment caused delays in construction by the Company with the reduced level of development activity reflected in a total of 958 units under construction at 31 December 2008 compared to 1,513 units at 31 December 2007.

The Company also reduced the number of new projects, starting construction of 226 units during 2008 compared to 677 units during 2007.

The decline in property markets in the second half resulted in lower average selling prices, a lack of land sales which, historically, have achieved high margins and, in 2007, accounted for 15 per cent of total turnover. As a result, gross margins in 2008 fell to 16.5 per cent compared to 28.8 per cent in 2007.  

Nevertheless, as a result of increasing the number of units sold and handed over to 505 in 2008 from 354 in 2007, Engel achieved 47.6 per cent growth in revenues for 2008 to €24.2 million (2007: €16.4 million).

The 55.7 per cent increase in gross profit to €4.9 million for the year resulted from write-downs, mainly in respect of discontinued projects, being reduced to €1.2 million compared to €3.9 million in 2007. 

The loss before tax of €9.1 million (2007: €4.2 million) reflects an increase in interest on debt and a foreign exchange loss of €3.1 million (2007: €0.4 million profit).

 

The delays in construction and slower sales experienced during 2008 led to an increase in net debt which, at 31 December 2008, was €41 million (31 December 2007: €20.7 million).

In the light of the challenging business environment, the Board has decided to focus activities and resources on projects in the Czech Republic, Hungary, Poland and Serbia. Activities in Bulgaria and Romania will be limited to existing projects. In Romania, construction of new projects may start when market conditions permit new developments.  

At 31 December 2008, the Company had seven projects for 958 units under construction in Hungary, the Czech  Republic,  Poland and Bulgaria. During 2009, the Company expects to complete approximately 862 units and to start construction on a further 458 units, with all units being part of projects with joint venture partners. The Company is seeking to raise project loans for the financing of these units and construction will begin once funding has been secured.

In view of the challenging market environment and the need to focus the Company's financial resources on selected projects, the Board does not propose that a dividend be paid.

Despite the challenging environment, by focusing on key countries and carefully managing our resources, we expect  to maintain development activity and sales in 2009.

Chief Financial Officer Review

General

A combination of the slow down in sales and the reduction in the availability of bank credit had a substantial impact on the level of development activity by Engel during 2008. Although the Company purchased a plot in Warsaw during the first half of the year, the shortage of finance severely curtailed investment in new projects in the second half.

At 31 December 2008, the Company had a total of €57.8 million in interest bearing bank loans of which €43.4 million mature within a year. €11.5 million is secured by the indirect parent company (Engel Resources and Development Ltd). The remaining €31.9 million consists of non-recourse loans to individual project companies with the financial exposure for the Company, in each case, being limited to the value of the specific security pledged. The Company has given no security in respect of the bank loans provided to its subsidiary companies and jointly controlled entities. The Board believes that most of the projects concerned will generate sufficient cash to meet their obligations. In the case of certain loans totalling €16.3 million (mostly relating to projects where construction has not yet started), it is unlikely that sufficient cash will be generated to repay all the amounts that fall due in 2009 and the Company is discussing various options, including extension of loans, with the banks concerned. 

Poland

Estimated GDP growth in 2008 was 4.8 per cent and the rate of inflation was 4.1 per cent. Forecast GDP growth is 1.2 per cent for  2009.

At the end of 2008 the Company had two projects (Emilli Plater and Wilanow 1) under construction for a total of 178 units and an estimated value of €36 million. The Emilii Plater project is part of the Arces joint venture (50 per cent owned by the Company) and the Wilanow 1 project is part of the Enman joint venture (40 per cent owned by the Company), the joint venture partner being Heitman in both cases.

Phase 2 of the Zabky project (part of the Arces joint venture), for a total of 178 units, was completed during the last quarter of 2008. Most of the units were sold for a total of €5.6 million with the Company's share being recognised in 2008 revenues.

In February 2008, the Company acquired 41,387 square metres of land, close to the Wistula River and Wilanow Palace  Gardens in Warsaw, for €4.5 million with a view to developing a commercial centre.

In addition the Company owns a plot of land in Krakow for about 300 residential units.

Serbia

GDP growth in Serbia in 2008 was 6.1 per cent and the rate of inflation was 10.8 per cent with GDP forecast to grow by 4 per cent in 2009.

The Marina Dorcol project in Belgrade, which will include five apartment buildings, a retail complex and hotel, is the Company's largest project with an estimated sales value of €204 million. In May 2008, the Company signed a revised 99-year lease, replacing two previous agreements, on approximately 4.07 hectares of land for this project. Having invested a total of €8.4 million in the project in 2007, the Company invested a further €2.8 million during 2008.

Czech Republic

Estimated GDP growth in 2008 was 3.5 per cent  and the rate of inflation was 6 per cent. Forecast GDP growth of 0.5 per cent for  2009.

Despite the negative economic environment, the unemployment rate is low, at 4.4 per cent, and is expected to rise to just 5 per cent in 2010. 

In Prague, the Company has two projects under construction for a total of 255 units with an estimated sales value of €42 million (50 per cent owned by the Company)

By the end of 2007, the Company acquired land in the Troja district in Prague, for a total of €4.5 million, with the purpose of developing a high end project for a total of 102 residential units.

The Company expects to start construction on 3 additional projects (Phase 4 of Safranka, Velaslavin and Troja) for a total of 409 units.

All projects in the Czech Republic are part of either the Arces or Enman joint ventures.

Romania

GDP growth in 2008 was 7.1 per cent and the rate of inflation was 6.3 per cent, with forecast GDP growth of 3 per cent for 2009.

Subject to a recovery in Romania's real estate market during 2009, the Company plans to start construction of 162 units, with an estimated sales value of €17 million, at the project in the Sisest area of Bucharest. Work on the remaining 261 units is expected to start in 2010 upon successful completion of Phase 1. This project is part of the Enman joint venture (40 per cent owned by the Company).

The Company has decided to sell its land holdings, with a total book value of €6.5 million, in the Pipera district of Bucharest and in Brigadiru (a southern suburb of Bucharest). The company's share in the land in Pipera is 40 per cent.

Following the decision during 2008 to discontinue the MOU negotiations announced in July 2006, there was a write down of inventory of approximately €0.3 million in 2008. 

Bulgaria

GDP growth in 2008 was of 6.8 per cent and the rate of inflation was 7.4 per cent, with forecast GDP growth of 3 per cent for 2009.

 

In Bulgaria, the Company had one project under construction in Sofia for a total of 55 units with an estimated sales value of €3.5 million. During the year 2008 the Company also completed at the Zar Boris and Panorama projects for a total of 210 units with an estimated sales value of €15.4 million. The Panorama project forms part of the Enman joint venture.

On 23 July 2008, the Company decided not to proceed with the Gorna-Banya project, also part of the Enman joint venture, for 430 residential units in Sofia. The Company's share of costs incurred by the project, of approximately €0.2 million, were written off in 2008.

Hungary

GDP growth in 2008 was 0.6 per cent and the rate of inflation was 6.1 per cent, with GDP expected to contract by 3 per cent in 2009.

Heitman is a Joint Venture partner for all projects in Hungary. At the end of 2008, Engel had 470 units under construction worth approximately €35 million. During 2008, the Company finished the construction of 291 units (Phase 2 of the Sun Palace project), including a gym and swimming pool which were classified as investment property during the first half of the year. 

Inventory write down

In Canada, as a result of a revaluation of the land for sale, there was an additional write-down of inventory in 2008 of approximately €0.2 million. 

During 2008, as a result of discontinuing the Laromet project in Romania and Gorna Banya project in Bulgaria, the Company wrote down inventory with a total value of €0.5 million.  

In addition, as a result of decrease in market value of the remaining units at the Gyor project in Hungary, the Company wrote down inventory by a further €0.5 million.

Financial Review

Total revenue for the year ended 31 December 2008 of was €24 million compared to €16 million in 2007, reflecting sales of housing units.

The gross margin on the sale of housing units and land, including management fees, was €4 million in 2008 compared to €4.7 million in 2007. The lower gross margin of 16.5 per cent for 2008 (2007: 28.8 per cent) followed a decline in property markets in the second half resulting in lower average selling prices and a lack of land sales which, historically, have achieved high margins. In 2007, 15 per cent of total turnover was derived from the sale of land.

Total gross profit for 2008 was €4.9 million (2007: €3.2 million) reflecting a lower total write-down of inventory of €1.2 million for 2008 compared to €3.9 million in 2007. The write-down for 2008 relates to land to be sold in Canada and to projects in Hungary, Romania, and Bulgaria, where the Board expects that sales proceeds will be lower than book value.

Selling, general and administrative expenses of €5.3 million (2007: €5.3 million) include a one-off provision of €1.2 million for 2008 in respect of legal charges (2007: €1.1 million). 

Net financing costs increased to €8.7 million (2007: €2 million). This is reflects a total foreign exchange loss of €3.1 million (2007: €0.4 million profit) and an increase in bank debt during the year.  

As a result of an increase in total finance expenses, the loss before tax for the year increased to €9.1 million (2007: €4.2 million).

Inventories of housing units at 31 December 2008 were up to €75.4 million from €71.1 million at 31 December 2007.

Net bank debt (liabilities to the bank offset by restricted bank deposits and cash in escrow and cash and cash equivalents) was €41 million at 31 December 2008 compared to net debt of €20.7 million at 31 December 2007. 

Engel East Europe N.V.

Consolidated balance sheet

		31 December
		2008	2007
	Note	Thousands Euro
ASSETS
Current assets
Cash and cash equivalents	2	6,628	11,030
Restricted bank deposits and cash in escrow	3	10,122	12,287
Trade accounts receivable	4	1,495	1,117
Prepayments and other accounts	5	2,306	2,939
Loans to related parties	6	6,537	8,064
Income tax receivable		143	354
Inventories of housing units	7	75,389	71,120
Total current assets		102,620	106,911
Non-current assets
Investment property	8	31,665	27,936
Property and equipment	9	208	414
Deferred tax assets	10	1,460	1,425
Investment in associate	12	-	24
Total non-current assets		33,333	29,799
Total assets		135,953	136,710
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Interest-bearing loans from banks	13	57,815	43,979
Current portion of finance lease liability	14	2,006	1,634
Loans and amounts due to related parties and joint venture partners	15	5,854	4,749
Trade accounts payable		5,005	5,684
Other liabilities	16	14,710	18,123
Provisions	17	2,188	1,079
Income tax payable		590	630
Total current liabilities		88,168	75,878
Non-current liabilities
Finance lease liability	14	13,184	14,549
Deferred tax liabilities	10	1,002	1,470
Total non-current liabilities		14,186	16,019
Equity
Share capital	18	878	878
Share premium	18	39,298	39,298
Capital reserves		(334)	(328)
Retained earnings		(4,829)	4,579
Accumulated translation adjustment		(1,480)	149
Equity attributable to equity holders of the parent		33,533	44,576
Minority interest		66	237
Total equity		33,599	44,813
Total liabilities and equity		135,953	136,710

						10 March 2009
Sam Salman		Samuel Hibel		Terry Roydon
Chairman		CFO		Chairman of the Audit Committee

 

The notes are an integral part of these consolidated financial statements.

 

 Engel East Europe N.V.

Consolidated income statement

		For the year ended 31 December
		2008	2007
	Note	Thousands Euro
Revenues	19	24,203	16,396
Change in fair value of investment property	8	2,076	2,295
Write down of inventory	20	(1,153)	(3,858)
Cost of sales	21	(20,211)	(11,676)
Gross profit		4,915	3,157
Selling, general and administrative expenses	22	(5,305)	(5,263)
Operating loss		(390)	(2,106)
Foreign exchange gains (losses)		(3,058)	350
Other financial income		1,202	2,761
Other financial expenses		(6,847)	(5,148)
Net finance expenses	23	(8,703)	(2,037)
Share in profit (loss) of associate	12	1	(27)
Loss before tax		(9,092)	(4,170)
Income taxes	24	(487)	(593)
Loss for the year		(9,579)	(4,763)
Attributable to:
Equity holders of the parent		(9,408)	(4,927)
Minority interest		(171)	164
		(9,579)	(4,763)
Loss per share:
Basic loss per share (Euro)	25	(0.109)	(0.054)
Diluted loss per share (Euro)	25	(0.109)	(0.054)

 

The notes are an integral part of these consolidated financial statements.

 

 

 

 

 

 

Engel East Europe N.V.

Consolidated statement of changes in shareholders' equity

		Attributable to equity holders of the Company
		Share capital	Share premium	Capital reserve	Translation reserve	Retained earnings	Total	Minority interest		Total equity
	Note	Thousands Euro
Balance at 1 January 2007		878	39,298	(326)	(241)	14,158	53,767	73		53,840
Foreign currency translation adjustment		-	-	-	390	-	390	-		390
Loss for the year		-	-	-	-	(4,927)	(4,927)	164		(4,763)
Total recognised income and expense							(4,537)	164		(4,373)
Dividends payable to shareholders	18	-	-	-	-	(4,652)	(4,652)	-		(4,652)
Share based payments		-	-	(2)	-	-	(2)	-		(2)
Balance at 31 December 2007		878	39,298	(328)	149	4,579	44,576	237		44,813
Balance at 1 January 2008		878	39,298	(328)	149	4,579	44,576	237		44,813
Foreign currency translation adjustment		-	-	-	(1,629)	-	(1,629)	-		(1,629)
Loss for the year		-	-	-	-	(9,408)	(9,408)	(171)		(9,579)
Total recognised income and expense							(11,037)	(171)		(11,208)
Share based payments		-	-	(6)	-	-	(6)	-		(6)
Balance at 31 December 2008		878	39,298	(334)	(1,480)	(4,829)	33,533	66		33,599

*Dividends - The following dividend were declared and paid by the Group:
For the year ended 31 December		2008	2007
€0.053 per qualifying ordinary share	18	-	4,652
		-	4,652

 

The notes are an integral part of these consolidated financial statements.

 

 

 

 

 

Engel East Europe N.V.

Consolidated statement of cash flows

		For the year ended 31 December
		2008	2007
	Note	Thousands Euro
Cash flows from operating activities:
Loss for the year		(9,579)	(4,763)
Adjustments for:
Depreciation		102	108
Gain from sale of property and equipment		(10)	-
Net finance expenses	23	8,703	2,037
Income taxes	24	487	593
Share in losses (profits) of associate		(1)	27
Gain from sale of subsidiaries		-	(53)
Dividend from associate		27	-
Share based payment		(6)	(2)
Change in fair value of investment property	8	(2,076)	(2,295)
Increase in inventory		(10,714)	(29,555)
Write down of inventory	20	1,153	3,858
Decrease (increase) in trade accounts receivable		(526)	69
Increase in provisions		1,237	1,079
Increase in other accounts receivable		(58)	(1,169)
Decrease in trade accounts payable		73	3,044
Decrease (increase) in other liabilities		(1,015)	10,598
Cash from (used in) operations:
Interest received		701	609
Interest paid		(3,027)	(1,082)
Income taxes paid		(825)	(185)
Net cash used in operating activities		(15,354)	(17,082)

The notes are an integral part of these consolidated financial statements.

 

 Engel East Europe N.V.

Consolidated statement of cash flows (continued)

		For the year ended 31 December
		2008	2007
	Note	Thousands Euro
Cash flows from investing activities:
Acquisition of property and equipment		(50)	(184)
Disposal of subsidiaries	30	-	4,485
Acquisition of investment property		(4,495)	-
Proceeds from sales of property and equipment		164	-
Short term loans granted to related parties		(1,175)	(5,358)
Short term loans repaid by related parties		2,735	155
Restricted bank deposits and cash in escrow		642	(5,775)
Net cash used in investing activities		(2,179)	(6,677)
Cash flows from financing activities:
Interest-bearing loans received from banks		29,432	39,340
Interest-bearing loans repaid to banks		(15,007)	(7,791)
Loans received from related parties and other		1,642	2,091
Loans repaid to related parties and other		(208)	(6,011)
Payment of finance lease liability		(1,269)	(5,096)
Dividend paid to shareholders	18	-	(4,652)
Net cash from financing activities		14,590	17,881
Net decrease in cash and cash equivalents		(2,943)	(5,878)
Effect of exchange rate fluctuations on cash held		(1,459)	131
Cash and cash equivalents at 1 January		11,030	16,777
Cash and cash equivalents at 31 December		6,628	11,030

The notes are an integral part of these consolidated financial statements.

 

 

 

 

 

Independent Auditors' Report 

To the directors of Engel East Europe N.V.

We have audited the accompanying 2008 consolidated financial statements of Engel East Europe N.V. (hereinafter referred to as "the Group"), which comprise the consolidated balance sheet as at 31 December 2008 and the consolidated income statement, consolidated statement of changes in shareholders' equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the EU. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2008, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

10 March 2009

KPMG Hungária Kft.

Istvan HenyePartner

 

 Engel East Europe N.V.

Notes to the consolidated financial statements

For the year ended 31 December 2008

NOTE 1 -   REPORTING ENTITY

Engel East Europe N.V. (the "Company") is a Company domiciled in The Netherlands. The Company owns subsidiary companies and has jointly controlled entities mainly in Central and Eastern Europe which purchase, develop, hold and sell real estate assets.

The Company has been listed on the Alternative Investment Market ("AIM") of the London Stock Exchange, United Kingdom since 15 December 2005.

The consolidated financial statements of the Company as at 31 December 2008 and for the year then ended comprise the Company and its subsidiaries and the Group's interests in associates and jointly controlled entities (collectively, the "Group").

 

The main shareholder of the Company is Engel General Developers Ltd. (incorporated in Israel), which owns, as of 31 December 2008, 68.35 % of the Company's shares. 

On 1 March 2007 Azorim Investment, Development and Construction Ltd. (incorporated in Israel and listed in Tel-Aviv stock exchange), whose ultimate parent is Boymelgreen Capital Ltd. (incorporated in Israel) acquired a controlling interest in Engel General Developers Ltd. 

The financial statements were authorised for issue by the directors on 10 March 2009.

Copies of these consolidated financial statements of the Group are available upon request from the Company's registered office at Rapenburgerstraat 204, 1011 MN Amsterdam, The Netherlands.

NOTE 2 - CASH AND CASH EQUIVALENTS

		31 December
		2008	2007
		Thousands Euro
Bank balances		5,676	9,091
Bank deposits		939	1,897
Petty cash		13	42
Total		6,628	11,030

NOTE 3 - RESTRICTED BANK DEPOSITS AND CASH IN ESCROW

		31 December
		2008	2007
		Thousands Euro
Restricted bank deposits:
In Hungarian Forint		6,424	7,117
In Bulgarian Lev		760	-
In Canadian Dollar		1	8
In Polish Zloty		2,937	4,119
Total restricted bank deposits		10,122	11,244
Cash in escrow		-	1,043
Total		10,122	12,287

The Group pledged all restricted bank deposits to secure banking facilities granted to the Group.

Cash in escrow represents advances due to land owners for the purchase of land and held in an escrow account until the finalization of the land purchase (i.e. legal title passes to the Group). 

NOTE 4 - TRADE ACCOUNTS RECEIVABLE

		31 December
		2008	2007
		Thousands Euro
Denominated in:
In Hungarian Forint		1,247	760
In Bulgarian Lev		-	210
In Czech Korona		233	143
In Polish Zloty		15	4
Total		1,495	1,117

The balances represent receivables from customers for the sale of housing units. No amounts were overdue and no impairments losses were recorded with respect to trade receivables at 31 December 2008 or 2007.

NOTE 5 - PREPAYMENTS AND OTHER ACCOUNTS

	31 December
	2008	2007
	Thousands Euro
Advances to suppliers	144	413
VAT recoverable	1,706	2,259
Prepaid expenses	302	111
Other	154	156
Total	2,306	2,939

NOTE 6 - LOANS TO RELATED PARTIES 

		31 December
	Interest rate	2008	2007
	%	Thousands Euro
Loans provided to jointly controlled entities:
Fixed rate loan	15%	2,146	2,114
Fixed rate loan	8%	1,555	-
Non bearing interest loans	-	2,273	2,592
Floating rate loans	Mainly: 3m Euribor+1%	563	3,358
Total		6,537	8,064

 

The loans are denominated in Euro; no repayment date has been set. Repayment is expected from the proceeds of the sale of the related projects financed by the loans.

  NOTE 7 - INVENTORIES OF HOUSING UNITS

	31 December
	2008	2007
	Thousands Euro
Housing units under construction	55,526	49,232
Land designated for residential project and for sale	24,235	25,469
Completed housing units for sale	154	277
	79,915	74,978
Write-down of inventory (see note 20)	(4,526)	(3,858)
Total	75,389	71,120

Including capitalization of borrowing costs in the amount of:

260

-

 

The Group has pledged inventories having a carrying amount of EUR 61,436 thousands to secure banking facilities granted to the Group (on 31 December 2007: EUR 55,218 thousands).

The amount of inventory that is carried at net realisable value is EUR 9,147 thousands.

NOTE 8 - INVESTMENT PROPERTY

Movements of the investment property balances were as follows:

	2008			2007
	Land	Rented property	Total	Land	Rented property	Total
	Thousands Euro
Balance at 1 January	27,936	-	27,936	24,227	-	24,227
Acquisitions	4,843	-	4,843	1,816	-	1,816
Reclassified from inventory	-	1,080	1,080	(402)	-	(402)
Translations adjustments	(4,181)	(89)	(4,270)	-	-	-
Change in fair value	1,839	237	2,076	2,295	-	2,295
Balance at 31 December	30,437	1,228	31,665	27,936	-	27,936

a. Investment property comprises a number of properties as follow: 

	31 December
	2008	2007
	Thousands Euro
Property located in Hungary	1,228	-
Property located in Serbia	24,100	27,936
Property located in Poland	6,337	-
Total	31,665	27,936

The property located in Hungary is rented for a period of 10 years (see note 27.m). The yield applied to the net annual rental to determine the fair value of this property for which current prices in an active market are unavailable is 8%, from the 10th and ahead the valuer applied yield of 10%.

The Group holds two additional plots which are held for purposes of commercial development (in Serbia and in Poland).  The Group decided to treat these assets as investment property because the Group's intention is to hold the properties for long term period, for capital appreciation or rental. 

In estimating the property value in Serbia using the residual method, the valuer estimated an expected selling price of the completed development based on external evidence such as current prices for similar developed properties in a similar location and condition adjusted for future price changes. The cost of development was also estimated based on construction projections by the Group and market estimates of construction costs taking into consideration a developer's profit of 30%. Under the residual method the fair value of the land is calculated as the difference between the estimated selling price of the development and the estimated cost of construction of the commercial structures less the developer's profit.

The fair value of the property in Poland was determined on the basis of transactions recently executed in the market involving similar properties and similar locations to the property owned by the Group.

b. Information regarding land ownership rights for investment property:  

		31 December
	End of lease	2008	2007
	period (in years)	Thousands Euro
Owned property	-	7,565	-
Leased property	97	24,100	27,936
Total		31,665	27,936

c. Amounts recognised in the consolidated income statement due to the investment property:

	For the year ended 31 December
	2008	2007
	Thousands Euro
Rent income	52	-
Operating expenses	*30	-
Change in fair value of investment property	2,076	2,295

* Related to the property which generates rental income.

NOTE 9 - PROPERTY AND EQUIPMENT

	Vehicles	Furniture, office equipment and other assets	Total
	Thousands Euro
Cost
Balance at 1 January 2007	191	288	479
Additions	-	184	184
Balance at 31 December 2007	191	472	663
Additions	-	50	50
Disposals	(191)	(89)	(280)
Balance at 31 December 2008	-	433	433
Accumulated depreciation
Balance at 1 January 2007	26	115	141
Depreciation for the year	26	82	108
Balance at 31 December 2007	52	197	249
Depreciation for the year	11	91	102
Disposals	(63)	(63)	(126)
Balance at 31 December 2008	-	225	225
Net book value at 31 December 2008	-	208	208
Net book value at 31 December 2007	139	275	414

  NOTE 10 - DEFERRED TAX ASSETS AND LIABILITIES

The following are the deferred tax assets and liabilities recognized by the Group before off sets, and the movements thereon, during the current and prior reporting periods.

	Balance 1 January 2007	Recognized in profit or loss	Translation adjustments	Balance 31 December 2007	Recognized in profit or loss	Translation adjustments	Balance 31 December 2008
	Thousands Euro
Losses carry forward	390	(39)	14	365	313	(57)	621
Inventory	-	552	143	695	377	(125)	947
Loans and borrowings	47	7	3	57	211	(43)	225
Investment property	(2,380)	(416)	2	(2,794)	(558)	477	(2,875)
Accounts receivable	(161)	206	(1)	44	(37)	1	8
Advances from customers	(217)	75	(4)	(146)	(161)	51	(256)
Finance lease liability	2,006	(340)	(11)	1,655	49	(178)	1,526
Provisions	-	80	(1)	79	206	(23)	262
Total	(315)	125	145	(45)	400	103	458

The following table sets out the Group's deferred tax assets and liabilities, net of off sets: 

		31 December
		2008	2007
		Thousands Euro
Deferred tax assets (non-current assets)		1,460	1,425
Deferred tax liabilities (non-current liabilities)		(1,002)	(1,470)
Net deferred taxes		458	(45)

 

Deferred tax assets and liabilities have been offset where a legal right of off set exists.

The total tax losses in the amount of EUR 621 thousands will expire in the following years: EUR 97 thousands will expire in 2011; EUR 80 thousands will expire in 2012; EUR 138 thousands will expire in 2013; EUR 95 thousands will expire in 2017; EUR 211 thousands will expire in 2018.

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of tax losses amounting to EUR 8,085 thousands as at 31 December 2008 (2007: EUR 7,381 thousands).

Deferred tax assets have not been recognised in respect of losses where it is not probable that future taxable profit will be available against which the Group can utilise the benefits from the losses.

NOTE 11 - SUBSIDIARIES AND JOINT VENTURES

As at 31 December 2008, the Company holds interests in the following companies: 

Jointly controlled entities:

a. Arces International B.V. ("Arces") - holding company, Amsterdam, The Netherlands. The Company and Heitman Financial UK LLC ("the Heitman Fund") each hold 50% of Arces' shares. Arces is considered a jointly controlled entity.

Arces holds the following subsidiaries, each of which is wholly owned by Arces:

1. Engel Park Kft. ("Park") - built residential project in Budapest, Hungary.

2. Engel Sun Palace Kft. ("Sun Palace") - is building a mix-use project with a majority of residential in Budapest, Hungary.

3. Engel Projekt Kft. ("Projekt") - is building a residential project in Gyor, Hungary.

4. Palace Engel Dejvice s.r.o. ("Dejvice") - through its wholly owned subsidiary Palace Engel Safranka s.r.o. ("Safranka") - is building a residential project in Prague, Czech Republic.

5. Palace Engel Estate s.r.o. ("Vokovice") - is building a residential project in Prague, Czech Republic.

6. Palace Engel I S.p. Z.o.o. ("Zabky") - is building a residential project in Warsaw, Poland.

7. Engel Apartmenty Emilii Plater S.p. Z.o.o. ("Emilii Plater") - is building a residential  project  in Warsaw, Poland.

8. Engel HÁZ Ingatlanfejlesztő Kft. ("Haz") - own and rent out the gym and pool in the project  Sun Palace, Budapest, Hungary (see note 27.m)

The following amounts are included in the Group's financial statements as a result of the proportionate consolidation of Arces:

	31 December
	2008	2007
	Thousands Euro
Current assets	51,409	48,763
Non-current assets	837	914
Current liabilities	(45,792)	(41,764)
	For the year ended 31 December
	2008	2007
	Thousands Euro
Income	15,609	13,654
Expenses	(17,523)	(13,823)

 

The Group's proportionate share of non-current assets of Arces includes the relevant proportion of an investment in an associate, accounted for using the equity method (see note 12).

b. Enman B.V. ("Enman") - holding company, Amsterdam, The Netherlands. The Company and an investment fund HEPP III Luxembourg Master S.a.r.l. ("HEPP III") each hold 50% of Enman's shares and the Company is entitled to 40% of Enman's future distributions. 

Enman is considered a jointly controlled entity:

Enman holds the following subsidiaries, , each of which is wholly owned by Enman:

1. E.G. Company EOOD. ("E.G Company") - (see note 27.j).

2. E.G. Project EOOD. ("E.G Project") - (see note 27.h).

3. E.G. Panorama EOOD. ("Panorama") - is building a residential project in Sofia, Bulgaria (see note 27.k).

4. E.G. Malinova Dolina EOOD. ("Malinova Dolina") - (see note 27.i).

5. E.G. Gorna Banya EOOD ("Gorna Banya") - (see note 27.l).

6. Palace Engel Wilanow 1 Sp.z o.o. ("Wilanow") - is building a residential project in Warsaw, Poland.

7. Engel Ingatlan Kft. ("Ingatlan") - is building a residential project in  Budapest, Hungary.

8. Palace Engel Mokotow Sp.z o.o. ("Mokotow").

9. Palace Engel Veleslavin a.s. ("Veleslavin") and Palace Engel Villa s.r.o. - plan to build a residential project in Prague, Czech Republic.

10. Engel Lylia s.r.l ("Lylia") - plans to build a residential project in Bucharest, Romania.

11. Engel Crizantema s.r.l ("Crizantema") - through its wholly owned subsidiary, Engel Tulip s.r.l ("Tulip") plans to build a residential project in Bucharest, Romania.

12. Troja Gardens s.r.o ("Koncern") - plans to build a residential project in Prague, Czech Republic (see note 27.e).

The following amounts are included in the Group's financial statements as a result of the proportionate consolidation of Enman:

	31 December
	2008	2007
	Thousands Euro
Current assets	20,724	19,434
Non-current assets	252	2
Current liabilities	(12,136)	(9,871)
	For the year ended 31 December
	2008	2007
	Thousands Euro
Income	2,584	2,726
Expenses	(4,231)	(3,453)

c. ECG Trust Canada Holding Trust ("ECG") - 95% interest subsidiary - a holding trust (see note 27.o).

ECG holds 20% interest in future distributions of jointly controlled entity:

Montreal Residential Holdings Master Limited Partnership ("MLP"). 

The remaining 80% in future distributions is owned by Lehman Brothers Real Estate Partners II ("Lehman Brothers").

MLP holds the following subsidiaries:

1. Le Quartier Quebec LP - 99.99% in the partnership rights - owns land in Montreal, Canada.

2. Trianon Sur Le Golf Quebec LP - 99.99% in the partnership rights - owns land in Montreal, Canada.

3. Le Chagall Quebec LP - 99.99% in the partnership rights - owns land in Montreal, Canada.

4. Le Quartier-Parisien Inc. - 99.99% in the share capital - beneficial title holder company, Canada

5. Trianon Sur Le Golf Inc. - 99.99% in the share capital - beneficial title holder company, Canada.

6. Le Chagall Inc. - 99.99% in the share capital - beneficial title holder company, Canada.

Subsidiaries:

d. Palace Engel s.r.o. ("Prokopsky") - 64% interest subsidiary - built a residential project in Prague, Czech Republic.

e. Palace Engel Development s.r.o. ("Barandov") - 64% interest subsidiary- built a residential project in Prague, Czech Republic.

f. Engel Management s.r.o. ("Management") - a wholly owned subsidiary - management company, Czech Republic.

g. Burlington Hungary Kft. ("Burlington") - a wholly owned subsidiary - management company, Hungary.

h. Turlington Kft. ("Turlington") - a wholly owned subsidiary - management company, Hungary.

i. Engel Management S.p. Z.o.o - wholly owned by Burlington (see g. above) - management company, Poland.

j. Puribul EOOD. ("Puribul") - a wholly owned subsidiary - is building a residential project in Sofia, Bulgaria.

k. Nisim EOOD. ("Nissim") - a wholly owned subsidiary - is building a residential project in Sofia, Bulgaria.

l. Engel Marina Dorcol Ltd. ("Marina Dorcol") - 95% interest subsidiary - plans to build mix-use project with a majority of residential in Belgrade, Serbia (see notes 27.c and 27.d).

m. E.G. Management EOOD. ("E.G. Management") - a wholly owned subsidiary - management company, Bulgaria.

n. Engel Orchidea s.r.l ("Orchidea") - a wholly owned subsidiary, Romania (see note 27.g).

o. Engel Rose s.r.l ("Rose") - a wholly owned subsidiary - plans to build a residential project in Bucharest, Romania (see note 27.f).

p. Davero Invest s.r.l ("Davero") - a wholly owned subsidiary - management company, Romania.

q. Eurobul Ltd. ("Eurobul") - a wholly owned subsidiary - administration services company, Israel.

r. Engel Yzum Bnia Vebizua Shnaym (94) Ltd. - 77.3% interest subsidiary in the share capital - (see note 27.n).

s. Palace Engel Troja a. s. ("Troja") - a wholly owned subsidiary, Czech Republic.

t. 6212-964 Canada Inc. ("Canada Inc.") - a wholly owned subsidiary - management company,  Canada (inactive) (see note 27.o).

u. 9152-8372 Quebec Inc. ("Quebec Inc.") - a wholly owned subsidiary - management company, Canada (see note 27.o).

v. Palace Engel III Sp z.o.o ("Krakow ") - a wholly owned subsidiary - plans to build a residential project in Krakow, Poland (see note 27.b).

w. Wilanow 1 Developments sp.zoo ("Wilanow 2") - a wholly owned subsidiary - plans to build a mix-use project in Warsaw, Poland (see note 27.a).

x. Engel Marina Dorcol B.V. - a wholly owned subsidiary, The Netherlands.

y. Engel Marina Dorcol C.V. - a wholly owned subsidiary, The Netherlands.

NOTE 12 - INVESTMENT IN ASSOCIATE

a. Arces, a jointly-controlled entity, owns a 40% associate interest in the share capital of Palace Engel Vrsovice s.r.o. ("Vrsovice"). The additional 45% and 15% are held by a former manager in the Group and a company owned by the Company's former CEO, respectively. Vrsovice, through its wholly owned subsidiary (Agentura Novy Domov 2000, spol s.r.o) built and sold units in a residential project in Prague, Czech Republic.

b. Composition of investment in associate:

	31 December
	2008	2007
	Thousands Euro
Cost of investment	2	2
Share of profits since date of acquisition	162	161
Dividend received since date of acquisition	(164)	(139)
Carrying value of interest in associate	-	24

c. Summarised financial information in respect of the associate is set out below:

	31 December
	2008	2007
	Thousands Euro
Total assets	48	128
Total liabilities	(48)	(18)
Net assets	-	110
Group's proportionate share of the associate's net assets	-	22

	For the year ended 31 December
	2008	2007
	Thousands Euro
Net profit (loss) for the year	5	(135)
Group's proportionate share of the associate's net profit (loss) for the year	1	(27)

NOTE 13 - INTEREST-BEARING LOANS FROM BANKS

				31 December
			Year of	2008	2007
	Currency	Interest rate	maturity*	Thousands Euro
Secured bank loan	Euro	3m Euribor +1.5%	-	-	2,686
Secured bank loan	HUF	3m Bubor +2.97% -  60 % of  AKK**	2009	1,997	5,329
Secured bank loan	HUF	50 % of  AKK** + 1.8 %	2009	1,458	1,520
Secured bank loan	HUF	50 % of  AKK** + 1.8 %	2009	5,257	3,274
Secured bank loan	HUF	1m Bubor + 1.8%	2009	798	356
Secured bank loan	HUF	3m Euribor + 1.5%	-	-	489
Secured bank loan	HUF	110 % of  AKK**  + 1.65 %	2010	5,468	3,193
Secured bank loan	CZK	3m PRIBOR + 2.25%	2010	6,109	1,360
Secured bank loan	CZK	3m PRIBOR + 2.25%	2010	7,160	1,995
Secured bank loan	Euro	3m Euribor + 3.25%	2009	1,399	1,090
Secured bank loan	Euro	3m Euribor + 2.5%	2009	2,912	1,786
Secured bank loan	Euro	3m Euribor + 2.75%	2009	1,052	1,055
Secured bank loan	Euro	3m Euribor + 5%	2009	1,096	1,101
Secured bank loan	Euro	3m Euribor + 10.5%	-	-	1,500
Secured bank loan ***	Euro	3m Euribor + 1.5%	On demand	6,897	6,840
Secured bank loan ***	Euro	3m Euribor + 3%	On demand	4,611	-
Secured bank loan	PLN	1y Wibor + 1.6%	2009	1,242	2,433
Secured bank loan	PLN	3m Wibor + 1.5%	2009	5,166	7,086
Secured bank loan	PLN	3m Wibor + 1.5%	2009	4,573	886
Secured bank loan	Euro	3m Euribor + 2.5%	2009	428	-
Secured bank loan	PLN	3m Wibor + 1.35%	2010	192	-
Total interest-bearing loans from banks				57,815	43,979

* Represents the latest possible year of maturity.

** AKK - the appropriate latest 3 month's average yield for the one year Hungarian Treasury bill.

*** These loans are secured by guarantees provided by an indirect parent company of the Company.

The Group finances its projects primarily with commercial bank lines of credit. The loans are expected to be settled in the Group's normal operating cycle and therefore are classified as current liabilities, in some cases the loans repayments date may need to be extended.

All of the secured bank loans have been provided to individual subsidiary and joint controlled entities and each loan has been granted in respect of a specific project. In each case, the security for the loan is a first ranking lien on the assets of the project company. The first ranking liens include liens on rights over land and the projects for which the loans were taken; liens on rights, including by way of assignment of rights, pursuant to the agreements to which the Company is a party (including establishment contracts and lease, operating and management agreements). Further, loans that these companies have received from their shareholders and/or every existing or future right of the holders of the rights in those companies are subordinated to the loans received from the banks. In addition, in most cases payments to the shareholders from subsidiaries and jointly controlled entities (including dividend payments but excluding amounts in respect of project management) are not allowed, until the bank loan has been repaid.

The Company has given no security in respect of the bank loans provided to its subsidiary companies and jointly controlled entities.

At the end of 2008, the Group was in breach of repayment in the amount of EUR 1,399 thousands in regard of one of the loans related to a project in Bulgaria. The Group is currently in discussions with the lending bank to renegotiate the terms (including repayment date) of the loan.

NOTE 14 - FINANCE LEASE LIABILITY

		31 December
		2008	2007
		Thousands Euro
Non-current liabilities
Finance lease liability		13,184	14,549
Current liabilities
Current portion of finance lease liability		2,006	1,634

 

 

Terms and conditions of outstanding financial lease liabilities were as follows:

				31 December
				2008		2007
				Thousands Euro
		Nominal	Year of	Face	Carrying	Face	Carrying
	Currency	interest rate	maturity	value	amount	value	amount
Finance lease  liability	CSD	7.25%	2008-2105	45,998	15,190	-	-
Finance lease  liability	CSD	8.0%	2007-2105	-	-	50,933	16,183

 

The financial lease liability relates to a project in Serbia where the Group is obliged to pay monthly rent for land for 99 years. The Group has elected to classify this property interest held under an operating lease as an investment property and therefore has accounted for it as if it were held under a finance lease. 

 

On 5 May 2008, the Group signed a new lease agreement, with a new payment schedule - see also note 27.c.

 

Repayments under the term of the finance lease as follows:

	Minimum lease Payments	Interest	Principal	Minimum lease Payments	Interest	Principal
	*2008			2007
	Thousands Euro
Less than one year	2,083	77	2,006	1,692	58	1,634
Between one and five years	11,390	1,745	9,645	13,870	2,598	11,272
More than five years	33,028	29,489	3,539	35,371	32,094	3,277
Total	46,501	31,311	15,190	50,933	34,750	16,183

* According to the new lease agreement which signed on 5 May 2008.

The value of the finance lease and its payments are adjusted on a monthly basis to the local index of retail prices in Belgrade, Serbia.

The increases of the local index of retail prices in Belgrade, Serbia in 2008 and 2007 were 5.6% and 9.3% respectively.

NOTE 15 - LOANS AND AMOUNTS DUE TO RELATED PARTIES AND JOINT VENTURE PARTNERS

		31 December
		2008	2007
	Currency	Thousands Euro
Payable to related parties:
Engel General Developers Ltd. (1)	Euro	677	74
Jointly controlled entities (2)	Euro	142	288
Payable to joint venture partners and other:
Heitman Fund (3)	Euro	2,972	1,957
Minority shareholders of subsidiaries (4)	Euro	8	47
Lehman Brothers (5)	CAD	2,055	2,383
Total		5,854	4,749

 

No repayment dates have been set with regard to the above loans and advances. All are expected to be settled from proceeds generated from sales of the development projects to which they relate. As such, they are classified as current liabilities.

(1) The loans received from Engel General Developers Ltd. and bear interest of 6% per annum.

(2) Bears interest of 3 month Euribor + 1% per annum.

(3) The balance is comprises of two loans: 

- EUR 1,936 thousands - bears interest of 15% per annum.

- EUR 1,036 thousands - bears interest of 8% per annum.

(4) Bears interest of 3 month Pribor+2.5% per annum.

(5) The loan bears no interest.

NOTE 16 - OTHER LIABILITIES

	31 December
	2008	2007
	Thousands Euro
Advances from customers	10,820	15,563
VAT payable	658	-
Provision for expected costs of completion of housing units	1,448	(*)616
Retention from constructors	1,265	(*)1,170
Accruals	35	189
Payroll and related expenses	272	456
Other	212	129
Total	14,710	18,123

(*) Reclassified

NOTE 17 - PROVISIONS

	2008	2007
	Thousands Euro
Balance at 1 January	1,079	-
Provisions during the year	1,237	1,079
Translation adjustment	(128)	-
Balance at 31 December	2,188	1,079

a. During 2007, two legal claims were filed against Engel Sun Palace Kft. , a 100% owned subsidiary of Arces:

1. On 3 April 2007 the subsidiary was sued by a former constructor. The constructor sued for return of the entire bank guarantee which was forfeited to the subsidiary, in amount of HUF 1,475 million (approximately EUR 5.6 million).

2. On 27 July 2007 the subsidiary received a notice claiming an amount of HUF 145 million (approximately EUR 549 thousands). Due to the bank the claim relates to an alleged breach of the original bank loan agreement.

Provision for these claims was recognised by the Group in its 2007 financial statements.

b. The Jointly controlled entities in Canada and the Company's parent company are in the legal proceeding with a minority shareholder (5%) who was employed as technical manager in the Canadian projects and was dismissed by the Company. The amount of the claim CAD 13 million (approximately EUR 7.6 million).

According to the court decision, disposal of assets in Canada (see note 13.c) will require the approval of the court.

 

Provision for this claim was recognised by the Group in its 2007 financial statements.

c. During 2008 the former constructor of Engel Palace Engel I Sp z.o.o ("Zabky") a 100% owned subsidiary of Arces, has filed a claim against the subsidiary for an amount of PLN 3.3 million (approximately EUR 789 thousands).

d. During 2008 the one of the constructors of Engel Projekt Kft. ("Gyor") a 100% owned subsidiary of Arces, has filed a claim against the subsidiary, for an amount of HUF 170 million (approximately EUR 642 thousands).

e. By the end of 2008, the Company and the Company's parent company were sued for brokerage fee and legal services in the amount of NIS 10 million (approximately EUR 1.9 million) for the plot in Gyor, Hungary.

f. The Company has estimated provisions in respect of these legal claims, based on the management estimations after consulting legal advice received.

During 2008 an amount of EUR 1,237 thousands was added to provisions and is included in the 2008 financial statements as an expense at the statement of profit and loss under "Selling, general and administrative expenses".

NOTE 18 - EQUITY

	31 December
	2007 and 2008
	Thousands Euro
Authorised:
120,000,000 ordinary shares of par value EUR 0.01 each	1,200
Issued and fully paid:
At the beginning of the year (87,777,777 ordinary shares)	878
At the end of the year (87,777,777 ordinary shares)	878

 

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets.

 

On 15 December 2005 the Company initially offered its shares in the AIM stock exchange market in London ("the IPO"). The proceeds from the IPO were 30,000,000 British Pounds and 27,777,778 shares were issued, accordingly EUR 39,298 thousands were recorded as share premium.

 

Dividends

 

Dividends are declared based on the retained earnings presented in the Company's consolidated financial statements prepared in accordance with The Netherlands Civil Code and not from the retained earnings presented in these consolidated financial statements.

 

On 29 March 2007, a gross dividend of EUR 0.053 per share (total amount of EUR 4.6 million) was paid.

NOTE 19 - REVENUES

	For the year ended 31 December
	2008	2007
	Thousands Euro
Sale of housing units	22,949	13,035
Sale of land	-	2,542
Project management fees	1,125	704
Rent	90	48
Other	39	67
Total	24,203	16,396

NOTE 20 - INVENTORY WRITE-DOWN

	For the year ended 31 December
	2008	2007
	Thousands Euro
Gorna-Banya - Bulgaria (see note 27.l)	182	-
Orchidea - Romania (see note 27.g)	259	-
Gyor - Hungary	466	-
Rasnitz - Germany (see note 27.n)	-	2,728
Canada (see note 27.o)	246	1,049
Other	-	81
Total	1,153	3,858

NOTE 21 - COST OF SALES

	For the year ended 31 December
	2008	2007
	Thousands Euro
Cost of housing units	18,178	(*)8,980
Cost of sold land	-	(*)1,350
Payroll and related expenses	753	482
Depreciation and amortization	185	173
Professional services	245	101
Maintenance	493	445
Other	357	145
Total	20,211	11,676

(*) Reclassified

  NOTE 22 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

	For the year ended 31 December
	2008	2007
	Thousands Euro
Selling	444	858
Payroll and related expenses	1,156	1,185
Professional services	1,662	1,473
Depreciation	36	48
Travel and accommodation	330	287
Provisions for legal claims (see note 17)	1,237	1,079
Maintenance	434	256
Other	6	77
Total	5,305	5,263

NOTE 23 - NET FINANCE EXPENSES

		For the year ended 31 December
		2008	2007
		Thousands Euro
Finance income:
Interest earned from bank deposits		804	660
Interest on loans from related parties		398	171
Interest due to new finance lease		-	1,930
Total		1,202	2,761
Finance expenses:
Interest on bank loans		4,397	1,989
Interest on loans from related parties		651	172
Interest on loans from others		14	34
Adjustment of finance lease for inflation		929	(*)1,839
Interest on finance lease		1,116	1,114
Finance expenses		7,107	5,148
Less capitalized borrowing costs during the year		(260)	-
Total		6,847	5,148
Foreign exchange (gains) losses		3,058	(*)(350)
Net financing expense recognized in profit or loss		8,703	2,037

(*) Reclassified

  NOTE 24 - INCOME TAXES

	For the year ended 31 December
	2008	2007
	Thousands Euro
Current tax	685	598
Net deferred tax	(400)	(125)
Prior year taxes	202	120
Total income tax expense recognised in the income statement	487	593

Reconciliation of statutory to effective tax rate:

	For the year ended 31 December
	2008	2007
	Thousands Euro
Loss before tax	(9,092)	(4,170)
Statutory income tax rate in the Netherlands	25.5%	25.5%
Theoretical tax expense (benefits)	(2,318)	(1,063)
Changes in tax burden as a result of:
Differences in tax rates	966	(186)
Current year losses for which no deferred asset was recognised	1,072	1,675
Changes in unrecognised temporary differences	480	-
Prior year's taxes	202	120
Other differences, net	85	47
Income taxes	487	593

The main tax laws to which the Group companies are subject in their countries of residence are as follows:

a. The Netherlands

1. The maximum corporation tax rate that may be imposed on the Dutch Group's income is 25.5% in 2008 (2007: maximum rate of 25.5 %).

2. Profits for tax purposes do not include dividends and capital gains that fall within the scope of the participation exemption (Article 13 of the 1969 Corporate Income Tax Act). In order to be eligible for the participation exemption, generally speaking, the following conditions should be met:

a. The Dutch resident taxpayer must own a shareholding of 5 per cent or more of the nominal paid-in share capital of the subsidiary;

b. The subsidiary must have a capital divided into shares; and

c. The subsidiary does not qualify as a 'passive and low taxed' subsidiary, which condition will be met if one of the following sub-conditions is met:

i. the assets of the subsidiary, directly or indirectly, consist for less than 50 per cent of 'free passive investments' (asset test), generally speaking only excess portfolio assets that are not committed to or maintained for the company's business;

ii. the subsidiary is subject to a profit tax that results in a levy that equals at least 10 per cent of the taxable profits determined according to Dutch tax law (tax burden test); or 

iii. the subsidiary can be qualified as a 'real estate participation'  (real estate test). Generally speaking, the balance sheet of the subsidiary should, on a consolidated basis, comprise of more than 90% of real estate in order to qualify for the real estate test.

Capital losses are, under certain conditions, only deductible upon liquidation of the subsidiary. 

b. Hungary

The corporation tax rate of the subsidiaries incorporated in Hungary is 16% in 2008 (2007: 16%). From 2007 capital gains can be considered exempted income provided that certain criteria are fulfilled. A special solidarity tax is levied on companies starting 1 September, 2006, which is 4% of the accounting profit modified by certain items such as dividends received and donations. Dividends, interest and royalty paid out are not subject to withholding tax. Losses in the first three years of operation can be carried forward without limitation. Losses arising afterwards can be carried forward indefinitely, subject to certain limitations. Losses incurred before 2005 can be carried forward for five years, subject to certain limitations.

c. Czech Republic

The corporation tax rate of the subsidiaries incorporated in the Czech Republic is 21% in 2008 (2007: 21%). Capital gain could be taxed at 10% under certain circumstances Tax losses can be carried forward up to five years to offset future taxable income (previously seven years). Dividends paid out of net income are subject to a withholding tax of 15%, subject to the relevant double taxation treaty or EU regulations.

 d. Poland

The corporation tax of the subsidiaries incorporated in Poland (including capital gains) is 19% in 2008 (2007: 19%).Tax losses can be carried forward for the period of five years and only 50% of a loss can be offset in any one year. Dividends paid out of net income are subject to a withholding tax of 19%, subject to the relevant double taxation treaty or EU regulations.

e. Canada

The federal corporate tax rate of the subsidiaries incorporated in Canada (including capital gains) is 19.5% in 2008 (2007: 22.12%). The combined corporate and provincial tax rate is 30.9%. Non-capital tax losses can be carried back three years and carried forward up to 20 years for losses arising in 2006 and later, 10 years for losses arising in taxation years ending after 22 March, 2004 and before 2006, 7 years for losses arising in taxation years ending before 23 March, 2004. Capital tax losses can be carried back three years and carried forward indefinitely against other capital gains. Dividends paid out of net income are subject to a withholding tax of 15% (2007: 15%), subject to the relevant double taxation treaty.

f. Bulgaria

The corporation tax rate of the subsidiaries incorporated in the Bulgaria (including capital gains) is 10% in 2008 (2007: 10%). Tax losses can be carried forward up to five years to offset future taxable income. Dividends paid out of net income are subject to a withholding tax of 5 %, subject to the relevant double taxation treaty and EU regulations.

g. Romania

The corporation tax of the subsidiaries incorporated in Romania (including capital gains) is 16% in 2008 (2007: 16%). Tax losses can be carried forward and offset against taxable income of the five years following the accounting year in which they were incurred. Dividends paid out of net income are subject to a withholding tax of 16%, subject to the relevant double taxation treaty or EU regulations.

h. Serbia

Corporate income tax is levied at a rate of 10% in 2008 (2007: 10%). The same rate also applies to capital gains. Capital gains are taxable together with other income, but only if derived from the sale of immovable property, intellectual property rights, participations in companies and securities. Losses may be carried forward for 10 years. No carry-back of losses is permitted. Dividends paid outside the country are subject to a withholding tax of 20 % subject to the relevant double taxation treaty.

NOTE 25 - LOSS PER SHARE

The calculation of basic loss per share attributable to the ordinary equity holders of the Company is based on the following data:

	For the year ended 31 December
	2008	2007
	Thousands Euro
Loss attributable to ordinary shareholders
Loss for the purposes of basic and diluted losses per share profit for the year attributable to equity holders of the Company	(9,579)	(4,763)

	31 December
	2007 and 2008
Weighted average number of ordinary shares  (In thousands of shares)
Issued ordinary shares at 1 January	87,778
Changes during the year	-
Weighted average number of ordinary and diluted shares  at 31 December	87,778

* There are no dilutive factors.

NOTE 26 - FINANCIAL INSTRUMENTS

Liquidity risk

The table below summarizes the maturity profile of the Group's financial liabilities at 31 December 2008 and 2007 based on contractual undiscounted payments.

	Year ended 31 December 2008
	1	1-2	2-5	Above 5	Total	Carrying
	year	years	years	years	amount	amount
	Thousands Euro
Interest-bearing loans from banks	43,445	16,262	-	-	59,707	57,815
Loans and amounts due to related parties and others	5,854	-	-	-	5,854	5,854
Trade accounts payable	5,005	-	-	-	5,005	5,005
Other liabilities	2,442	-	-	-	2,442	2,442
Finance lease liability	2,083	10,669	1,089	32,660	46,501	15,190
Total	58,829	26,931	1,089	32,660	119,509	86,306

	Year ended 31 December 2007
	1	1-2	2-5	Above 5	Total	Carrying
	year	years	years	years	amount	amount
	Thousands Euro
Interest-bearing loans from banks	17,049	31,486	-	-	48,535	43,979
Loans and amounts due to related parties and others	4,749	-	-	-	4,749	4,749
Trade accounts payable	5,684	-	-	-	5,684	5,684
Other liabilities	1,944	-	-	-	1,944	1,944
Finance lease liability	1,692	5,999	7,871	35,371	50,933	16,183
Total	31,118	37,485	7,871	35,371	111.845	72,539

b. Currency and inflation risk

The tables below summarise the foreign exchange exposure on the net monetary position of each currency that is denominated in a currency other than the functional currency, expressed in the Group's presentation currency:

	Functional currency
	Serbian Dinar	Hungarian Forint	Polish Zloty	Czech Crown	Romanian Lei	Other
	Year ended 31 December 2008
	Thousands Euro
Euro - net exposure	(14,322)	(4,624)	(4,787)	(5,312)	(8,342)	476

	Year ended 31 December 2007
	Thousands Euro
Euro - net exposure	(11,249)	(4,879)	(4,635)	(4,217)	(7,278)	(97)

 

Additionally the Company has exposure to the changes in the local index of retail in Belgrade, Serbia due to finance lease liability amounted to EUR 15,190 thousands as at 31 December 2008 (EUR 16,183 thousands as at 31 December 2007).

 

Sensitivity analysis:

The following table demonstrates the post-tax impact of:

15% strengthening of the Euro with Serbian Dinar, Hungarian Forint and Polish Zloty, 

10% strengthening of the Euro with Czech Crown, Romanian Lei, other and 

5% strengthening of the Serbian index.

With all other variables held constant (the impact on the Group's equity is the same).

	Increase in currency rate/		Effect on post-tax profit
			For the year ended 31 December
	Serbian index	2008		2007
Euro vs. DIN, HUF and PLN	15%	(3,070)		(2,667)
Euro vs. CZK, RON and other	10%	(1,086)		(951)
Serbian index	5%	(684)		(728)

 

A 10%-15% weakening of the Euro and/or 5% weakening of Serbian index at 31 December would have had the equal but opposite effect on the post-tax profit to the amount shown above on the basis that all other variables remain constant

 

c. Interest rate risk

 

The following table sets out the carrying amount of the Group's financial instruments that are exposed to interest rate risk:

	31 December
	2008	2007
	Thousands Euro
Fixed rate
Financial assets
Cash and cash equivalents	6,628	11,030
Loans to related parties and other	5,974	4,706
Total financial assets	12,602	15,736
Financial liabilities
Loans and amounts due to related parties and other	5,027	4,340
Finance lease liability	15,190	16,183
Total financial liabilities	20,217	20,523
Floating rate
Financial assets
Restricted bank deposits and cash in escrow	10,122	12,287
Loans to related parties and other	563	3,358
Total financial assets	10,685	15,645
Financial liabilities
Interest-bearing loans from banks	57,815	43,979
Loans and amounts due to related parties and other	827	409
Total financial liabilities	58,642	44,388

 

Interest on financial instruments classified as floating rate is reprised at intervals of less than six months. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. 

 

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group's profit before tax (through the impact on floating rate borrowings). There is no impact on the Group's equity, except of the profit and loss.

		Effect on profit before tax
		For the year ended 31 December
	Increase in	2008	2007
	basis points	Thousands Euro
Variable rate interest of other currencies denominated financial instruments	50	(197)	(108)
Variable rate interest of HUF denominated financial instruments	350	(299)	(247)

 

A decrease in 50 and 350 basis points at 31 December would have had the equal but opposite effect to the amount shown above on the basis that all other variables remain constant.

 

Fair values versus carrying amounts

 

The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:

	31 December
	2008		2007
	Carrying	Fair	Carrying	Fair
	amount	value	amount	value
	Thousands Euro
Financial assets
Cash and cash equivalents	6,628	6,628	11,030	11,030
Restricted bank deposits and cash in escrow	10,122	10,122	12,287	12,287
Trade accounts receivable	1,495	1,495	1,117	1,117
Fixed rate loans to related parties and other	5,974	5,974	5,416	5,416
Floating rate loans to related parties and other	563	563	2,648	2,648
Total financial assets	24,782	24,782	32,498	32,498
Financial liabilities
Floating rate interest-bearing loans from banks	57,815	55,040	43,979	43,979
Trade accounts payable	5,005	5,005	5,684	5,684
Fixed rate loans due to related parties and other	5,027	5,027	4,340	4,340
Floating rate loans due to related parties and other	827	827	409	409
Finance lease liability	15,190	14,224	16,183	16,183
Total financial liabilities	83,864	80,123	70,595	70,595

NOTE 27 - SIGNIFICANT ACQUISITIONS, SALES AND JOINT VENTURES

Poland

a. In 2007, the Group purchased land for a new development project of approximately 300 residential units in a central district of Krakow, Poland. 

The total purchase price of approximately EUR 6.9 million was paid in 2007.

The Group intends to develop a residential project of approximately 12,500 sqm on the acquired plots which have a total land area of 9,763 sqm.

b. On 18 February 2008 the Company, through a subsidiary, purchased 41,387 sqm of land in the Wilanow district of Warsaw, Poland.

The Group intends to develop the site, which is located close to the Wistula River and Wilanow Palace gardens, into a commercial centre. The total purchase price of the site was approximately EUR 4.5 million. 

The Company classified the asset as investment property. As a result the Company recorded the difference between carrying amount of the investment property and its fair value as of 31 December 2008, amounting to approximately EUR 2,650 thousands, as a gain at the statement of profit and loss.

Serbia

c. The Group entered into a revised lease contract with the municipality of Belgrade on 11 December 2007 with respect to its property interest in Belgrade, Serbia. Under the revised agreement, the present value of the new lease payments is 16.7% lower than the previous present value; the decrease arises mainly from a deferral of payments. These changes caused income recognition of EUR 1.9 million due to re-measurement of the finance lease liability. 

As a result of a win of a tender of an additional 1.5 hectares plot within the Marina Dorcol project area, the Group signed a new lease agreement under which it will be required to pay a total amount of approximately EUR 3.5 million; an amount of EUR 0.4 million of this was paid in February 2008 with the balance due over the next four years.

d. On 5 May 2008 the Group signed a revised lease agreement with the municipality of Belgrade for a 99-year lease on approximately 4.07 hectares of land in Marina Dorcol. The new agreement replaces two previously signed agreements.

Czech Republic

e. On 29 August 2006 the Group signed an agreement for the purchase of additional land in Prague, Czech Republic, for the development of approximately 100 residential units (see note 11.s and note 11.b.12). 

In December 2007, the Group purchased the land for approximately EUR 4.8 million. 

The Group intends to develop a residential project with a total area of approximately 9,000 sqm on the acquired land. 

Romania

f. On 16 February 2007 the Group signed a final contract for the purchase of land for a new development project of approximately 1,160 residential units in a south suburb of Bucharest, Romania. The total purchase price of the land was EUR 1.937 million. The land was registered on the name Engel Rose on 19 February 2007.

The Group entitled to develop a residential project of approximately 116,000 sqm on the acquired plots with a total land area of 77,500 sqm

g. During 2008, following its decision to discontinue negotiations in respect of the MOU announced on 24 July 2006 for a project in Romania, the Group wrote down inventory in the amount of approximately EUR 259 thousands.

Bulgaria

h. In 2007, Enman sold the land owned E.G. Project EOOD in Sofia, Bulgaria. 

The total sale price for the land was EUR 1.6 million.

i. In 2007 Enman sold the land owned E.G. Malinova Dolina EOOD in Sofia, Bulgaria. 

The total sale price for the land was EUR 3.2 million.

j. In 2007 Enman sold the land owned of E.G. Company EOOD in Sofia, Bulgaria. 

The total sale price for the land was EUR 1.65 million.

k. On 29 November 2007 the Group signed a preliminary agreement for the sale of the project of E.G. Panorama EOOD in Sofia, Bulgaria. During March 2008 the agreement was cancelled.

l. On 23 July 2008 the Group decided not to proceed with the Gorna-Banya project to develop 430 residential units in Sofia, Bulgaria (the "Project"). 

The Company's share of the costs incurred by the Project to date is approximately EUR 182 thousands which was written down in 2008 (see note 20).

Hungary

m. On 30 October 2007 the Group signed a long lease agreement with "World Class Klub Kft." to operate the gym  nd pool complex which is being built by Engel Sun Palace Kft, a 100% owned subsidiary of Arces, in  udapest, Hungary.

The agreement comes into force in 2008 when the company completed the construction of the gym.

The Company has reclassified the Gym and Pool complex, from inventory to investment property due to commencement of long term operating lease to third party. As a result the Company recorded the difference between carrying amount of the investment property and its fair value as of 31 December 2008, amounting to approximately EUR 237 thousands as a gain in the statement of profit and loss.

Germany

n. On 6 December 2005, the Company acquired a 77.3% beneficial interest in Engel Yzum Bnia Vebitzua Shnaym (94) Ltd. which owns land in the city of Raznitz, Germany.

During 2007, the Company reviewed the project and decided not to continue developing it. Accordingly the value of the project was written down by EUR 2.7 million.

Canada

o. On 29 November 2005, the Company acquired a 95% beneficial interest in ECG Trust. The Trust owns 3 residential development plots in Montreal, Canada.

The Group has decided not to continue to develop the projects in Montreal - Canada which it manages through a joint venture with Lehman Brothers. The Group's share in the joint venture's future distributions is 20%.

As a result of this decision, the book value of the 3 plots located in Montreal was decreased to its net realizable value. The total effect on the Group was a write-down of inventory in the amount of EUR 1,049 thousands in 2007.

In addition, provisions for future expenses, related to this discontinued activity, were recognised by the Group in its 2007 financial statements (see also note 20).

During 2008 the Group received an updated valuation of the plots, which resulted in the additional write-down of inventory in the amount of EUR 248 thousands.

NOTE 28 - OPERATING LEASE

The operating lease rentals are payable as follows:

	31 December
	2008	2007
	Thousands Euro
Less than one year	4,002	968
Between one and five years	3,541	7,643
More than five years	8,511	9,204
Total	16,054	17,816

The Company leases a plot in Serbia (see note 27.d) which will be used for commercial and residential  developing. The lease runs for a period of 99 years, with an option to renew the lease after that date. The lease payments are adjusted for changes in the retail price index in Belgrade, Serbia.

During 2008 an amount of EUR 932 thousands has been capitalised to housing units under construction in respect of operating lease payments (at 31 December 2007 an amount of EUR 2,184 thousands).

The lease of the portion which will be used for commercial development is treated as a finance lease.

The lease of the portion which will be used for development and sale of residential units is an operating lease

  NOTE 29 - RELATED PARTIES

The main shareholder of the Company is Engel General Developers Ltd. (incorporated in Israel), which owns, as of 31 December 2008, 68.35 % of the Company's shares. 

On 1 March 2007 Azorim investment, Development and Construction Ltd. (incorporated in Israel), whose ultimate partner is Boymelgreen Capital Ltd. (incorporated in Israel) acquired a controlling interest in the Group. 

During 2008, Azorim investment, Development and Construction Ltd. acquired additional 1.4% of the Company shares.

Related party transactions

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

As of 31 December 2008, the Company has 5 directors (31 December 2007: 6 directors)

The annual salary cost of the directors in 2008 amounted to EUR 571 thousands (in 2007: EUR 821 thousands).

Bank loans in the amount of EUR 11,508 thousands (31 December 2007: EUR 6,840 thousands) are secured by guarantees provided by Engel Recourses and Developments Ltd. an indirect parent company of the Company (see also note 15)

Transactions with directors and senior employees

During 2008, the Company sold 2 vehicles to its former Chairman and former CEO for a total consideration of EUR 116 thousands.These transactions caused to the Company a gain of EUR 10 thousands.

On 16 May 2008 the Company established a share option programme for its Chief Executive Officer (CEO) to purchase shares of the Company. In accordance with the programme, during the years 2008-2011 options are exercisable at the market price of the shares at the date of grant plus 10%.

On 12 August 2008 the CEO of the Company resigned his position as director and CEO. The resignation was approved by the board of directors on 13 August 2008. As part of the resignation agreement, the CEO waived his rights to receive share options under the programme. 

Trading transactions

The following trading transactions and balances with related parties are included in the financial statements:

	For the year ended 31 December
	2008	2007
	Thousands Euro
Income statements
Gain from sale of property and equipment	(10)	-
Interest to parent (Engel General Developers Ltd.)	109	-
Interest on loans to jointly controlled entities	(398)	(171)
Total	(299)	(171)
	31 December
	2008	2007
	Thousands Euro
Balance sheet
Loans to jointly controlled entities (see note 6)	6,537	8,064
Amounts due to parent (Engel General Developers Ltd.) (see note 15)	(677)	(74)
Other related parties (see note 15)	(142)	(288)
Total	5,718	7,702

NOTE 30 - DISPOSAL OF SUBSIDIARY

On 19 April 2007 Enman acquired all of the shares in Engel Lylia s.r.l and Engel Crizantema s.r.l from the Company (see notes 27.i and 27.j) for an amount less than EUR 2 thousands in cash and also repaid all loans made by the Company to these entities.

The disposal had the following effect on the Company's assets and liabilities:

	Engel Lylia s.r.l	Engel Crizantema s.r.l	Total
	Thousands Euro
Inventories of housing units	(3,201)	(2,880)	(6,081)
Trade accounts receivable	(38)	(29)	(67)
Cash and cash equivalents	(18)	(27)	(45)
Interest-bearing loans from banks	-	1,584	1,584
Trade and other payables	132	-	132
Net identifiable assets and liabilities	(3,125)	(1,352)	(4,477)
Gain on disposal	(53)	-	(53)
Received consideration satisfied in cash	(3,178)	(1,352)	(4,530)
Cash disposal	18	27	45
Net cash inflow	(3,160)	(1,325)	(4,485)

 

  NOTE 31 - SEGMENT REPORTING

The Group comprises the following main business segments:

1. Residential- the residential segment includes purchasing, developing and selling real estate assets mainly in Central and Eastern Europe.

2. Commercial - The commercial segment includes the activity related to investment property in Serbia  (see note 11.l), Poland (see note 11.w) and Hungary (see note 11.a.8).

The Group considers the Central and Eastern Europe to be one geographic region therefore no geographical segment  information has been prepared.

The Company also has assets in Germany and in Canada. Due to the fact that the management of the Company decided not to develop in these countries, no information on these geographical regions has been provided under this note.

	Residential		Commercial		Consolidated
	2008	2007	2008	2007	2008	2007
	Thousands Euro
Revenues from external customers
Sale of housing units and lands	22,949	15,577	-	-	22,949	15,577
Management fees	1,125	704	-	-	1,125	704
Rent	38	48	52	-	90	48
Other	39	67	-	-	39	67
Change in fair value of investment property	-	-	2,076	2,295	2,076	2,295
Total revenues from external customers	24,151	16,396	2,128	2,295	26,279	18,691
Inter-segment revenue	-	-	-	-	-	-
Total revenues	24,151	16,396	2,128	2,295	26,279	18,691
Segment result	(2,488)	(4,401)	2,098	2,295	(390)	(2,106)
Net financing costs	-	-	-	-	(8,703)	(2,037)
Share in profit (loss) of associate	1	(27)	-	-	1	(27)
Income taxes					(487)	(593)
Loss for the year					(9,579)	(4,763)
Segment assets	94,599	94,894	31,665	27,936	126,264	122,830
Investment in associates	-	51	-	-	-	51
Unallocated assets					9,689	13,829
Total assets					135,953	136,710
Segment liabilities	37,683	41,699	-	-	37,683	41,699
Unallocated liabilities					65,671	50,198
Total liabilities					102,354	91,897
Capital expenditure	50	184	4,495	-	4,545	184
Depreciation	102	117	-	-	102	117

ENDFR SEAFFLSUSEID

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Kimberly Enterprises