MANAGEMENT REPORT General information At a joint meeting held at 14 March 2008, the Management Board and the Supervisory Board of AS Järvevana adopted a resolution to restructure the Company and separate operating activities from the criminal proceedings related to the land swap. The Company's management estimates that the restructuring of the Company is the best way to ensure its sustainable development and protect the interests of shareholders and employees in the long-lasting criminal proceedings related to the land swap. On 15 April 2008, the management of AS Järvevana presented the Company's restructuring plan (http://www.baltic.omxgroup.com/market/?pg=details& instrument=EE3100003559&list=2&tab=news&news_id=222602), according to which AS Merko Ehitus was split up/demerged so that AS Merko Ehitus, e.g. assets (other than liquid assets in the amount of 250 million kroons), liabilities and contracts as well as the business name was separated and transferred to the new company being set up. Pursuant to the division plan (http://www.merko.ee/upload/File/Restruktu reerimise%20dokumendid/AS%20Merko%20Ehitus%20jagunemiskava%20ENG.pdf), upon the division, AS Järvevana transferred to AS Merko Ehitus the entire set of assets related to the economic activities of the building company, including all concluded building, subcontracting and supply contracts; the equipment, machinery and employees; all professional know-how and cash-flows without interrupting the continuing economic activities and finding a way for a rapid acquittal in the criminal case no 05913000055 that would consider the interests of the shareholders remained as the sole activity of the company (http://www.baltic.omxnordicexchange.com/market/?pg=news&news_id=226059). On 3 June 2008 the Annual General Meeting (http://www.baltic.omxnordic exchange.com/market/?pg=news&news_id=226094) approved the division of the company to into the limited companies new Merko Ehitus (registry code 11520257) and Järvevana (registry code 10068022). On 1 August 2008, the registration department of Harju County Court made an entry in the Commercial Register registering the division of AS Merko Ehitus (registry code 10068022, with the new business name ‘Aktsiaselts Järvevana') into the limited companies Merko Ehitus (registry code 11520257) and Järvevana (registry code 10068022). Business operations The company was formed after the division of AS Järvevana which resulted in the assigning and surrendering of the entire set of assets connected to the business activities of the construction company including the concluded construction contracts, subcontracts and supply contracts, machines, equipment and employees, all the professional knowhow and cash flows from the uninterrupted and continuing business activities to AS Merko Ehitus, except the liabilities arising from the criminal case no 05913000055, including the payable compensations for damages, fines and other claims, legal costs and the cover funds for the potential liabilities arising from the criminal case in the amount of 250 million Estonian kroons of liquid assets. The company is not currently active. The only real revenue of the company is the financial profit received from the allocation of the company's liquid assets. During 01.08.2008-30.09.2008, AS Järvevana's financial profit was 1 421 433 million kroons. As at 30.09.2008, the company had one employee - the CEO Toomas Annus. The company's financial results for 2008 the 9 months include also the financial figures of the company for the 7 months preceding the division of AS Järvevana. On 24 October 2008, after looking through the documents concerning the suspicions, the representative of AS Järvevana submitted a number of applications to the Public Prosecutor's Office including the application requesting the termination of the criminal case since adequate proof for the carrying out of incriminating actions and the execution of multiple breaches of substantive and procedural laws during the execution of the procedural acts could not be found in the documents presented. By the submission date of the report the Public Prosecutor's Office had not resolved the application of AS Järvevana. INCOME STATEMENT 9M 2008 consolidated, in thousand EEK and EUR EEK EUR 9M 2008 9M 2007 9M 2008 9M 2007 Revenue 2 798 466 3 863 605 178 855 246 929 Cost of goods sold (2 273 798) (3 388 412) (145 322) (216 559) GROSS PROFIT 524 668 475 193 33 533 30 370 Marketing expenses (21 143) (20 244) (1 351) (1 294) Administrative and gen. expenses (122 199) (124 180) (7 810) (7 937) Other operating income 6 781 5 345 433 342 Other operating expenses (7 773) (4 338) (497) (277) OPERATING PROFIT 380 334 331 776 24 308 21 204 Financial income and expenses from stocks of associate companies and joint ventures 1 282 61 486 82 3 930 Interest expense (8 734) (14 355) (558) (917) Foreign exchange gain (5 875) (3 179) (375) (203) Other financial income 14 325 9 295 916 594 Other financial expenses (1 308) (70) (84) (4) Total financial income and expenses (310) 53 177 (19) 3 400 PROFIT BEFORE TAX 380 024 384 953 24 289 24 604 Corporate income tax expense (41 100) (18 346) (2 627) (1 173) NET PROFIT FOR FINANCIAL YEAR 338 924 366 607 21 662 23 431 incl. net profit attributable to equity holders of the parent company 334 709 358 024 21 392 22 882 minority interest 4 215 8 583 270 549 Earnings per share for profit attributable to the equity holders of the parent company (basic and diluted, in EEK and EUR) 18,91 20,23 1,21 1,29 INCOME STATEMENT III quarter 2008 consolidated, unaudited in thousand EEK and EUR EEK EUR IIIq 2008 IIIq 2007 IIIq 2008 IIIq 2007 Revenue 426 162 1 367 855 27 237 87 422 Cost of goods sold (360 550) (1 198 290) (23 043) (76 585) GROSS PROFIT 65 612 169 565 4 194 10 837 Marketing expenses (3 652) (7 788) (233) (498) Administrative and general expenses(21 180) (42 725) (1 354) (2 731) Other operating income 852 2 856 54 183 Other operating expenses (173) (1 393) (11) (89) OPERATING PROFIT 41 459 120 515 2 650 7 702 Financial income and expenses from stocks of associate companies and joint ventures 80 8 711 5 557 Interest expense (1 055) (7 827) (67) (500) Foreign exchange gain (5) (3 317) (0) (212) Other financial income 5 801 4 225 370 270 Other financial expenses (10) (68) (1) (4) Total financial income and expenses 4 811 1 724 307 111 PROFIT BEFORE TAX 46 270 122 239 2 957 7 813 Corporate income tax expense (477) (3 267) (30) (209) NET PROFIT FOR FINANCIAL YEAR 45 793 118 972 2 927 7 604 incl. net profit attributable to equity holders of the parent company 44 531 116 023 2 846 7 416 minority interest 1 262 2 949 81 188 Earnings per share for profit attributable to the equity holders of the parent company (basic and diluted, in EEK and EUR) 2,52 6,55 0,16 0,42 BALANCE SHEET AS OF 30.09.2008 consolidated, in thousand EEK and EUR EEK EUR 30.09.2008 31.12.2007 30.09.2008 31.12.2007 ASSETS Current assets Cash and cash equivalents 25 611 205 564 1 637 13 138 Trade and other receivables 225 672 1 201 942 14 423 76 818 Inventories - 2 025 426 - 129 448 Total current assets 251 283 3 432 932 16 060 219 404 Non-current assets Long-term financial investments - 290 852 - 18 589 Investment property - 7 361 - 470 Property, plant and equipment - 172 912 - 11 051 Intangible assets - 12 574 - 804 Total non-current assets - 483 699 - 30 914 TOTAL ASSETS 251 283 3 916 631 16 060 250 318 LIABILITIES AND OWNERS' EQUITY Current liabilities Borrowings - 304 879 - 19 485 Trade and other payables 149 1 032 210 9 65 970 Government grants - 1 498 - 96 Short-term provisions 17 500 73 212 1 119 4 680 Total current liabilities 17 649 1 411 799 1 128 90 231 Non-current liabilities Long-term borrowings - 397 713 - 25 418 Long-term payables to suppliers - 11 091 - 709 Long-term suppliers advance payments - 46 332 - 2 961 Total non-current liabilities - 455 136 - 29 088 Total liabilities 17 649 1 866 935 1 128 119 319 Equity Minority interest - 33 939 - 2 169 Equity attributable to equity holders of the parent company Share capital 177 000 177 000 11 312 11 312 Statutory reserve capital 17 700 17 700 1 131 1 131 Currency translation adjustment - (5 085) - (325) Retained earnings 38 934 1 826 142 2 489 116 712 Total equity attributable to equity holders of the parent company 233 634 2 015 757 14 932 128 830 Total equity 233 634 2 049 696 14 932 130 999 TOTAL LIABILITIES AND EQUITY 251 283 3 916 631 16 060 250 318 Toomas Annus Member of Board +372 6 805 220 merko@merko.ee