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 01.08.2008-31.12.2008, AS Järvevana's financial profit was 3.7 million kroons. As at 31.12.2008, the company had one employee - the CEO Toomas Annus. The company's financial results for 2008 include also the financial figures of the company for the 7 months preceding the division of AS Järvevana. On 24 October 2008, after having reviewed the materials concerning the suspicion, the criminal defence counsel of AS Järvevana submitted a number of applications to the Public Prosecutor's Office, including an application requesting the termination of the criminal proceedings since the materials concerning the suspicion did not contain adequate evidence that an incriminating act had been committed and due to the numerous instances on which the substantive and the procedural law had been broken in the course of carrying out the procedural acts. The Public Prosecutor's Office did not accede to the application submitted by the counsel with the regulations issued on 10.12.2008 and 18.12.2008. Since the regulations did not comply with the procedural law and since the Public Prosecutor's Office failed to form an opinion on various requests without having any basis for doing so, the counsel filed a complaint to the Chief Public Prosecutor who did not review the complaint with a regulation issued on 20.01.2009. The counsel filed a complaint to a preliminary investigation judge of the Harju County Court concerning the breaking of the procedural law but the preliminary investigation judge has not adjudicated the complaint by the time this report is made public. In addition, by the time this report is made public, the Public Prosecutor's Office has neither issued a statement of charges nor submitted it to the court. At present it is impossible to predict the schedule of the legislative proceedings. INCOME STATEMENT 12M 2008 consolidated, in thousand EEK and EUR EEK EUR 12M 2008 12M 2007 12M 2008 12M 2007 Revenue 2 798 466 5 510 760 178 854 352 202 Cost of goods sold (2 273 798) (4 731 752) (145 322) (302 415) GROSS PROFIT 524 668 779 008 33 532 49 787 Marketing expenses (21 143) (32 472) (1 351) (2 075) Administrative and gen. expenses (123 699) (213 806) (7 906) (13 665) Other operating income 6 781 6 424 434 411 Other operating expenses (7 773) (18 109) (497) (1 157) OPERATING PROFIT 378 834 521 045 24 212 33 301 Financial income and expenses from stocks of associate companies and joint ventures 1 282 76 440 82 4 885 Interest expense (8 734) (16 948) (558) (1 083) Foreign exchange gain (5 875) (809) (375) (52) Other financial income 16 618 11 016 1 062 704 Other financial expenses (1 308) (5) (84) (0) Total financial income and expenses 1 983 69 694 127 4 454 PROFIT BEFORE TAX 380 817 590 739 24 339 37 755 Corporate income tax expense (41 100) (30 830) (2 627) (1 970) NET PROFIT FOR FINANCIAL YEAR 339 717 559 909 21 712 35 785 incl. net profit attributable to equity holders of the parent company 335 502 545 049 21 442 34 835 minority interest 4 215 14 860 270 950 Earnings per share for profit attributable to the equity holders of the parent company (basic and diluted, in EEK and EUR) 18,95 30,79 1,21 1,97 INCOME STATEMENT IV quarter 2008 consolidated, unaudited in thousand EEK and EUR EEK EUR IVq 2008 IVq 2007 IVq 2008 IVq 2007 Revenue - 1 647 155 - 105 272 Cost of goods sold - (1 343 339) - (85 855) GROSS PROFIT - 303 816 - 19 417 Marketing expenses - (12 228) - (782) Administrative and general expenses (1 499) (89 626) (96) (5 728) Other operating income - 1 263 - 81 Other operating expenses - (13 956) - (892) OPERATING PROFIT (1 499) 189 269 (96) 12 096 Financial income and expenses from stocks of associate companies and joint ventures - 14 953 - 956 Interest expense - 2 593 - 166 Foreign exchange gain - 2 371 - 152 Other financial income 2 293 1 722 147 110 Other financial expenses (1) (64) (0) (4) Total financial income and expenses 2 292 16 517 147 1 056 PROFIT BEFORE TAX 793 205 786 51 13 152 Corporate income tax expense - (12 484) - (798) NET PROFIT FOR FINANCIAL YEAR 793 193 302 51 12 354 incl. net profit attributable to equity holders of the parent company 793 187 025 51 11 953 minority interest - 6 277 - 401 Earnings per share for profit attributable to the equity holders of the parent company (basic and diluted, in EEK and EUR) 0,04 10,57 0,00 1,00 BALANCE SHEET AS OF 31.12.2008 consolidated, in thousand EEK and EUR EEK EUR 31.12.2008 31.12.2007 31.12.2008 31.12.2007 ASSETS Current assets Cash and cash equivalents 26 242 205 564 1 677 13 138 Trade and other receivables 225 927 1 201 942 14 439 76 818 Inventories - 2 025 426 - 129 448 Total current assets 252 169 3 432 932 16 116 219 404 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 252 169 3 916 631 16 116 250 318 LIABILITIES AND OWNERS' EQUITY Current liabilities Borrowings - 304 879 - 19 485 Trade and other payables 242 1 032 210 16 65 970 Government grants - 1 498 - 96 Short-term provisions 17 500 73 212 1 118 4 680 Total current liabilities 17 742 1 411 799 1 134 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 17 742 1 866 935 1 134 119 319 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 39 727 1 826 142 2 539 116 712 Total equity attributable to equity holders of the parent company 234 427 2 015 757 14 982 128 830 Total equity 234 427 2 049 696 14 982 130 999 TOTAL LIABILITIES AND EQUITY 252 169 3 916 631 16 116 250 318 Toomas Annus Member of Board +372 6 805 220 tallinn@merko.ee