Half Yearly Report

Engel East Europe N.V.

Results for the six months period ended 30 June 2011

18 August 2011 - Engel East Europe N.V. ('Engel' or 'the Company') the AIM-listed Central and Eastern European property developer (EEE: L), announces results for the six months period ended 30 June 2011.

Financial Summary

 (*) Restated implementation of new IFRS standard.

Although the markets remain tough, in certain jurisdictions the government's financial support and subsidies for the development and acquisition of small apartments. In general in the countries we operate in, we are noticing a modest but cautious and steady return of the banks in providing small to medium size mortgage funding to borrowers that can demonstrate a stable and ongoing income.

 Gad Raveh, CEO of Engel East Europe N.V.

Enquiries:

Management Statement 

There have been no material events or transactions by the Group during the reporting period impacting the Group's financial position which remains weak.

 The Company believes that following the acquisition of a controlling interest in Engel Recourses and Development Ltd. by GBES Ltd, the financial position of the Group will improve and the Company will be able to continue to develop its assets and to expand to new horizons.

Financial Position

Given the current conditions in the real estate market in the countries where the Group operates, management has considered project by project whether the Group will be able to generate sufficient cash flow from sales of housing units and other assets, including investment properties, in order to repay its financial obligations as these fall due. 

In respect of project loans totaling EUR 12,247 thousands (which are in breach of repayment as of 30 June 2011 - see also note 9 in the condensed consolidated interim financial statements), management considers it is unlikely that the projects will generate sufficient cash inflows to repay all obligations which fall due within one year. The Group is discussing possible solutions with the financing banks, including extension of the loans, as well as potential sales of the projects.

At 30 June 2011, the Group has current liabilities totaling EUR 49,746 thousands, which exceeds its current assets amounting to EUR 44,044 thousands.

Whilst in the past financing banks have agreed to prolong existing loan facilities, there is no assurance that these banks will be prepared to extend existing loan facilities beyond currently committed maturity dates. In the event that a bank is not willing to extend a project loan, it has the option to call in its security. In most cases these loans are secured by the underlying project company's assets only. Loans granted by the financing banks to the projects are non-recourse loans, except for:

·; The bank loans which finance the project in Gyor Hungary (an Arces subsidiary, which is in liquidation) in the amount of EUR 12,648 thousands (the Company's share is EUR 6,324 thousands), are additionally guaranteed by Arces International B.V., a jointly controlled entity. The Company has disputed the validity of this guarantee with the bank.

·; ENMAN B.V, a jointly controlled entity, has provided guarantees for interest payments and costs overruns, to the bank which finances the "Ingatlan" project in Budapest, Hungary.

In all other cases, the exposure is limited to the value of the specific securities pledged in each project.

As of 30 June 2011, the Group is in breach of certain bank loan agreements totaling EUR 12,247 thousands.

As of the date of the approval of the condensed consolidated interim financial statements, the financial condition of the Company remains weak and it is not able to meet its obligations to its employees and service providers as they fall due.

Management believes that the above mentioned conditions indicate the existence of material uncertainties which cast significant doubt on the Company's ability to continue as a going concern.

In order to manage its financial situation the Company has requested Engel Resources and Development Ltd., the parent company of the Company's immediate parent company, Engel General Developers Ltd., ("ERD") to provide additional financial assistance to fund the Company's immediate liabilities.

During the reporting period ERD provided several bridge loans in the total amount of approximately EUR 0.9 million. After the reporting period the Company received additional loans from ERD in the total amount of EUR 0.55 million.

The management is also examining other solutions to fund the Company's immediate liabilities and to resolve its financial situation.

Trading Performance

During the period, the total number of units sold and handed over was 24 (6 months ended 30 June 2010: 122).

The revenues decreased by 82 per cent to €1.9 million (6 months ended 30 June 2010: €10.2 million).

Approximately 42 per cent of the loss before tax for the period is attributable to the financial costs of the Marina Dorcol project in Serbia.

Outlook

Further to the announcement issued on 13 July 2011 regarding the approval of the district court in Israel of the purchase of Engel Recourses and Development Ltd. by GBES Ltd., the Company future plans are to continue to develop and improve the Company's current projects portfolio.

The Company plans to continue to focus on investing in the stable markets of The Czech Republic and Poland.