ARCO VARA AS - NASDAQ OMX Baltic

The amount of cash and cash equivalents required for ensuring sustainability of the usual business
activities of the Group companies (i.e. short-term liquidity) depends on the season, and amounts to 10-
30 mln kroons.
As regards long-term projects, the Group makes sure that the term and amount of cash flow from
investing activities would not significantly differ from the term and amount of cash flow from
financing activities. As a rule, the Group does not accept investment projects where the required equity
financing exceeds 30% of the total cost of the project.
The maturity of financial assets and financial liabilities as of 31.12.2005:
ASSETS
< 1 year 1-5 years >5 years Total
Cash and cash equivalents 143 985 0 0 143 985
Receivables 96 370 10 559 6 408 113 337
Financial investments into securities 0 3 003 0 3 003
Total assets
LIABILITIES
240 355 13 562 6 408 260 325
Borrowings 316 853 332 322 60 024 709 199
Payables 117 742 11 113 0 128 855
Total liabilities 434 595 343 435 60 024 838 054
As a result of reclassification of real estate from inventories into investment property (see also Note
22), the Group's current ratio was less than 1 at the end of the year. Quickly disposable assets worth at
least 300 000 thousand kroons have been recorded under non-current assets (long-term financial
investments, investment property, PPE and intangible assets) in accordance with the purpose of their
acquisition. If we take into account the above liquid non-current assets, the actual current solvency of
the Group has significantly improved from last year. As a result of the activities undertaken for
matching the duration of the above projects and the terms of financing, liquidity improvement is also
starting to be reflected in the financial ratios calculated on the basis of the balance sheet.
The EURIBOR decrease of previous years favoured short-term loans. In 2006, the Group aims at
bringing the terms of repayment of the loans to be refinanced and new loans into accordance with the
duration of the investment projects (an average of 3-5 years). See also "Interest risk" below.
Currency risk
Currency risk involves the potential losses arising from unfavourable changes in currency exchange
rates with respect to the Estonian kroon. On the Group's home markets (Estonia, Latvia and
Lithuania), local currencies have been fixed against the euro. In order to hedge the currency risk of the
Group companies, a majority of the transactions is made and contracts concluded in euros, or
currencies tied with the euro. The main currency risk therefore has to do with the risk that, with the
adoption of the euro, the exchange rates between local currencies and the euro will be significantly
changed compared to the current rates. Considering the low probability of devaluation of local
currencies, and the share of the Baltic countries in the Group's activities, the exposure to the currency
risk is thus considered modest.
The Group launched its operations in Ukraine in 2005. The Ukrainian hryvnia (UAH) has not been
fixed against the euro. Unlike on the home market, operations in Ukraine therefore result in open
currency positions. Any currency risk arising from open positions is hedged with euro-based
transactions between countries, as well as local standardisation of the terms of receipt and payment.
Consequently, and considering that the share of Ukrainian-based activities is very small in the Group,
the Group estimates the present need for hedging currency risks, as well as the risks arising from
currency exchange rate fluctuations, to be small.
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