ARCO VARA AS - NASDAQ OMX Baltic

In order to improve risk management in the Group, a risk forecast and asset management unit was
established under the Financial Service of the Group in 2005. The main substantial changes in the
Group's risk evaluation and management were conditioned by the halt in EURIBOR decrease on the
loan market. During the EURIBOR decrease, long-term investment projects were partially financed by
short-term loans. This incurred temporary open positions upon project liquidity management (temporal
differences between cash inflows and cash outflows). Now that the EURIBOR is rising, the time of a
project completion and financing terms will be matched. The Group has also, for the first time in its
history, concluded interest rate swap agreements in order to fix the floating interest rates of long-term
liabilities, and thus hedge the interest risks involved.
Liquidity risk
Investment Committee of the Group
Investment decisions
Investment plan
Investment budget
Treasury
Asset & liabilities management
Cash flow management
Risk management
Financial Service of the Group
Liquidity risk arises from the potential change in the financial position, reducing the Group's ability to
generate sufficient positive cash flows for settlment the obligations assumed in time.
Above all, the following factors have an effect on the Group's liquidity risk:
• The ability of the Group companies to independently generate positive net cash flows; and the
seasonality of these cash flows;
• the terms of receipt/payment of assets/liabilities;
• marketability of long-term assets;
Accounting
Bookkeeping
Reporting
• volume and speed of real estate development activities;
• volume and speed of acquisitions of new investment property;
• financing proportions.
Liquidity management in the Financial Service is based on a strategy which is adjusted in accordance
with the changes in the Group's investment plan. Any such changes are approved by the Investment
Committee consisting of the Parent’s Supervisory Board and Management Board members.
Short-term liquidity management is based, above all, on the annual budgets approved for the Group
companies. The purpose of short-term liquidity management is to guarantee sufficient availability of
highly liquid assets (i.e. cash and cash equivalents, quickly disposable real estate). Short-term liquidity
management is mostly conducted through the cash pool account of the Group companies.
Long-term liquidity management is effected, above all, by the decision of the Investment Committee.
The purpose of long-term liquidity management is to match the time of cash flows from investing and
financing activities, and to find a suitable financing proportion.
F-128
Supervisory Boards of the
Group companies
Annual budgets