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A N N U A L R E P O R T

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CEO comments 4

Board of Directors report 6

Consolidated Financial Statements 11

Company Financial Statements 15

Notes to the financial reports 20

Signature by the Board of directors 45

Auditors report 46

Corporate Governance and Internal Control Report 48

EOS share 58

Summons to the Annual General Meeting 60

Definitions 62

Financial Calendar 62

Contacts 62

List of content

Note:

”EOS AB” or “the Company” refers to EnergyO Solutions AB, the pa-

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CEO comments

Dear shareholders

the first year of operations for EOS Russia was an eventful one. EOS Russia was successfully listed on First North, a marketplace operated by OMX Nordic Exchange Stockholm (OMX), and raised MUSD 423* in capital through several placements. The company began operations in May 2007.

We chose to set-up EOS Russia as an investment company with a listing of its shares in order to offer an accessible, liquid and transparent way to invest in the ongoing reform of the Russian power sector. During the year we have strengthened the organization in many aspects. We now intend to seek admission to OMX Nordic Exchange Stock- holm during 2008, a decision which we believe will further increase the liquidity in EOS’ shares. We will also continue to provide the market with a clear valuation benchmark by publishing our net asset value on a frequent basis.

Our head office is located in Stockholm and houses the CEO, the CFO, the head of risk and compliance and investor relations. We opened our Cyprus office in Limassol during the fall, which is where we conduct all our investment activities and all trading in Russian power utility shares.

Lauri Sillantaka, our head of research is employed in Cyprus and in addition we recruited a trader during the year to execute all investment decisions.

The reform of the Russian electricity industry moves ahead at a fast pace and we see the climate for investments becoming increasingly attractive. The rapid growth in the Russian economy since the ruble devaluation in 1998 has led to a high increase in demand for electricity consump- tion, whereas the industry has seen little investment. As a consequence, Russia experienced the first shortages of electricity in 2006-2007 and with continued economic growth and demand for electricity, the shortage of electricity capacity risks becoming a bottle-neck for the Russian economy.

To create an attractive climate for private investments, the government initiated the reform of the electricity industry already in 2000. The restructuring of UES (Unified Energy Systems of Russia), the state-controlled utility holding company, and the introduction of wholesale prices of electricity are important parts of the reform.

We believe that the ongoing industry restructuring and gradual price liberalization creates an opportunity for a revaluation of our assets. We have already seen an increase in wholesale electricity prices and as electricity prices continue to be liberalized, we expect these increases to continue and reach levels where new investments become profitable.

Starting out from a low price level we are confident that Rus- sian industry, which consumes more than 70% of the elec-

tricity in Russia, will be able to absorb these price increases.

In its current form UES would not have been able to finance the massive investments required for the coming decades. Hence in order to channel private investments into the sector, the government is on track to break up UES. UES has majority shareholdings in most utility companies in Russia controlling around 75% of the total industry capacity within generation, distribution, supply and repair and has full control over the grid. The break-up of UES is scheduled for July 2008 and shareholders will receive proportional holdings in the underlying assets.

Currently, the subsidiaries of UES are trading at higher valuations than UES and the break-up is expected to result in a release of hidden values and a revaluation of EOS assets.

Furthermore the underlying assets have lower valuations than emerging market peers, especially in certain sub-sec- tors, such as distribution.

Strategic interest in electricity generation companies in Russia is high and we believe that there is hidden value which can be extracted through in-depth industry knowl- edge. In this regard, we believe that we possess industry expertise which is hard to replicate: Seppo Remes, our Chair- man of the Board, is a long-standing member of the Board of Directors of UES and is also on the board of a number of spun-off utility companies. He brings unique sector experience and a wide contact network to the table. Our head of research, Lauri Sillantaka, previously head of research and top-ranked utility analyst at Troika Dialog investment bank, brings a wealth of capital markets and utility sector knowl- edge as well as strong valuation expertise.

Electricity sector investments are vital for the continued growth of the Russian economy. Throughout 2007, major international players have acquired stakes in various electricity generation companies in Russia. Italian utility Enel gained majority control of OGK-5 and Finland’s Fortum recently acquired a stake in TGK-10, signifying the value that strategic investors see in the sector. This trend is set to continue in 2008 and onwards, and EOS will actively participate in the reorganization of the sector. We believe that UES is the cheapest entry into the sector and therefore our investment portfolio is more than 90% invested into UES.

2008 promises to be an exciting year for both EOS and the Russian utility sector, where the most important milestone is the break-up of UES. While the world economy is in an uncertain phase, the Russian electricity sector offers strong investment opportunities which we have a unique position to benefit from.

Sven Thorngren, CEO

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Board of Directors report

The shares in the company are issued and traded in SEK and the Group investments are in USD or RUB. EOS Ltd has preference shares and ordinary shares. The ordinary shares are held by EOS AB. The preference shares are solely held, indirectly or directly, by the founders.

The ongoing reform of the electricity market in Russia is set to be finalized in 2011. Therefore it will be decided at the annual shareholder’s meeting in 2013 whether EOS Russia shall continue its operations according EOS AB‘s Articles of Association.

The board of directors and CEO hereby submit this annual report and consolidated annual accounts for the financial year 2007 for EnergyO Solutions Russia AB (publ), corporate identity number 556694-7684.

”EOS AB” or “the Company” refers to EnergyO Solutions AB, the parent company. “EOS Ltd” refers to EnergyO Solu- tions Russia (Cyprus) Limited, the subsidiary of EOS AB.

“EOS Russia” or “the Group” refers to EOS AB and EOS Ltd.

EOS Russia

EOS Russia was founded in May 2007 in order to capitalize on investment opportunities arising as a result of the dereg- ulation, restructuring and privatization of the Russian electricity industry. A comprehensive reform program is gradu- ally being implemented until 2011, affecting all elements of the sector: structure, ownership and electricity pricing. The reason for the reform is the considerable investment need that has emerged as a result of rapidly increasing electricity demand. EOS Russia utelises the expertise, experience and network that the founders possess to identifiy investment opportunities within the power sector.

Strategic focus for 2008

Continue growing the capital base by means of additio-

•

nal cash issues and issues in kind and hence become a larger shareholder in UES (Unified Energy Systems of Russia) up until its break-up in 2008.

Through EOS Russia’ management expertise, benefit

•

from the opportunities offered by the valuation ineffi- ciencies among the Russian utility universe and create an attractive portfolio.

Finance investments, primarily with equity, while bene-

•

fiting additionally from the break-up of UES by allowing up to 40% of the portfolio to be debt financed.

Group structure

EOS AB is the Group’s parent company and is headquar- tered in Stockholm, Sweden. The board of EOS AB consists of six members. The CEO, the CFO, Investor Relations and the Head of Risk and Compliance are based at the head- quarters of EOS Russia.

EOS Ltd is a subsidiary of EOS AB and is located in Limassol, Cyprus. The Board of Directors of EOS Ltd consists of six members. The Head of Research and a trader are based on Cyprus.

Operations began on May 8, 2007 and EOS AB was listed on First North of OMX Nordic Exchange Stockholm (OMX) on June 25, 2007.

EOS AB

CEO, CFO, IR, Risk & Compliance

EOS Ltd Head of Research & Trader

Investment portfolio

Board

100% of ordinary shares

Preference shares owned by founders

Board Listed on First North

Operational structure and management

The board of EOS AB is responsible for the group’s overall operations and the management team of EOS Russia has overall responsibility for ongoing operations, financial control, performance, monitoring and information issues.

EOS AB raises capital for EOS Russia via new share issues and also provides the group with corporate and administra- tive functions such as financial reporting, marketing and investor relations. The Board of EOS AB sets the scope for investments and leveraging for EOS Russia.

EOS Ltd makes all investment decisions within the framework set by the parent. All investments are conducted entirely by the subsidiary, which holds the complete investment portfolio of EOS Russia. This means that the board of EOS Ltd, will, based on recommendations from the Head of Research, make decisions about sale and purchase of Russian shares within the electricity sector. The execution of decisions made by the board of EOS Ltd will be carried out by the trader, or, either a director or employee on the mandate of the board of EOS Ltd.

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EOS Russia’s financial performance

EOS Russia recorded a net profit from investing activities of SEK 186 million for the full year, stemming from an increase in value of the underlying securities. Operating costs were SEK -61.2 million for the full year.

Net financial items amounted to SEK -18.4 million for the full year. Net financial items for the full year include interest income of SEK 1.0 million and interest expenses totaling SEK -9.9 million. The remaining part is made up of results from hedging activities.

The net profit for EOS Russia amounted to SEK 107 million for the full year (SEK 4.97 per average number of shares outstanding).

EOS Russia’s net asset value at December 31, 2007 was SEK 2,807 million. Net asset value was negatively impacted by exchange rate translation differences of SEK -114 million.

The average number of employees during 2007 was 4.

Since operations began on May 8, 2007 no comparative figures are available.

EOS AB

The company’s operating result was SEK -13.9 million in 2007. Operating costs amounted to SEK -23.7 million and net financial items amounted to SEK 14.0 million for the full year. The net income for the period was SEK 0.1 million.

The total number of shares outstanding at 31 December 2007 was 28,162,734 (1 share, 1 vote).

Average amount of outstanding shares during the period was 21,464,951.

In total EOS AB raised SEK 2,879 million in share issues during 2007.

EOS AB did not have any business activities in 2006 and was at this time a so called shelf-company.

Significant events during 2007 and after the balance sheet closing date

May

In May EOS AB initially raised a total of SEK 1.3 bn (USD 199* million) through a private placement, where a number of institutional investors participated.

June

On June 15 EOS AB announced a directed share issue to two funds managed by the Canadian company Mackenzie Cundill. The directed issue of 1,462,500 shares raised SEK 158 million (USD 22* million) for EOS AB.

EOS AB was listed on First North, a marketplace operated by OMX, on 25 June. In connection with the listing a total of SEK 651 million (USD 92* million) was raised,

before issue costs. A total of 6,000,000 shares were issued within the framework of the acquisition offer, which meant that the Board took the opportunity to fully capitalize on the possibility of issuing a maximum of 2,000,000 extra shares in connection with the listing. After the offer, the number of shareholders in EOS AB amounted to over 2,000.

Nordic institutions made up approximately 39% of the ownership, non-Nordic institutions 49% and the Swedish general public 12%.

July

On July 2 UES announced the results from its Annual Gen- eral Meeting held June 26, 2007 in Zelenograd, Moscow.

EOS AB’s Chairman of the Board, Seppo Remes, was re- elected as a member of the Board of Directors of UES .

On July 6 EOS AB announced a new directed share issue aimed at FIM Securities, part of the Glitnir Group. The issue covered 2,160,206 shares, and raised SEK 235 million for EOS Russia (USD 35* million).

In addition, EOS AB also on July 6 announced a share issue in kind of 582,522 shares, aimed at an institutional investor. The new issue provided EOS with a portfolio of Rus- sian utility stocks worth SEK 63.5 million (USD 9* million).

On July 9 EOS AB announced that Lauri Sillantaka, Head of Research at EOS Russia was ranked as the best utilities analyst in Russia according Thomson Extel’s “Focus Russia Survey 2007”.

August

On August 30 EOS Russia published its interim report for the first half-year 2007, announcing that net asset value as per June 30 amounted to SEK 2,081 million, with a group result of SEK 17 million and net income per share of SEK 1.54. The total value of investments in UES shares per June 30 was SEK 1,766 million.

September

On September 5 EOS AB announced that it had been allotted shares in the generation companies OGK-5 and TGK-5 as UES allotted shares in two of its subsidiaries to shareholders.

On September 22, the board of directors of EOS AB resolved on a decision in principle regarding an objective to apply for listing of EOS AB’s shares on OMX (Nordic List) within 12 months.

On September 26 EOS AB announced two directed share issues towards clients of Troika dialog of SEK 486 million (USD 75* million). The first issue was an issue in kind and the second an issue in cash.

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November

On November 21 EOS Russia published its third quarter report, announcing that net asset value increased by SEK 34 million compared to June 30 to a total of SEK 2,115 million at the end of the period, with a net asset value per share of SEK 91.54.

December

On December 20 EOS AB summoned shareholders to an Extraordinary shareholders meeting. The board of directors proposed to change the articles of association and the limitations on share capital from a minimum of SEK 123,000,000 and maximum of SEK 492,000,000 to a minimum of SEK 281,627,340 and maximum of SEK 1,126,509,360, and that the number of shares in EOS AB be changed from a minimum of 12,300,000 and maximum of 49,200,000 to a minimum of 28,162,734 and maximum of 112,650,936. In addition, the board proposed a resolution regarding the authorization of the board to make decisions on new shares issues.

After the balance sheet date

On January 24, 2008 the extraordinary shareholders’ meeting resolved, in accordance with the board’s proposal to adopt the proposed change to the articles of association whereby the limitations on share capital and number of shares in EOS AB were changed. The board was also au- thorized, up until the next annual general meeting, on one or several occasions, and with or without deviation from the shareholders’ right of first refusal, to make decisions on new share issues within the given framework of the articles of associations.

Shareholder structure

At the end of 2007, EOS AB had 28,162,734 shares outstanding. The majority of EOS AB´ shares are held by institutional investors and a large proportion of the shares are owned by individuals or legal entities domiciled outside of Sweden.

Covenants

EOS Ltd has issued 180 preference shares that are owned, directly or indirectly, by the founders, Sven Thorngren, Lauri Sillantaka and Seppo Remes. In case one, or several shareholders (other than the preference shareholders, their affiliates, or their designated individuals) acting jointly, acquire more than one third of the shares or votes in EOS AB and implement significant changes to the investment strategy or the cost structure of EOS Russia or successfully support a resolution to liquidate EOS AB prior to 2013, the preference shareholders have a right to request that EOS

AB purchases the preference shares from the preference shareholders at a sum of;

The nominal value of the relevant preference shares;

an amount equal to any right to dividend accrued on the relevant preference shares but which has not yet been paid out; an amount equal to the relevant preference share’s pro rata portion of:

if a positive number, nil point five (0.5) per cent of the a.

net asset value as reflected in the last quarterly report preceding the date of the change of control event minus the average operational expenses per quarter calculated on the basis of the last four (4) quarterly reports preceding the date of the change of control event; multiplied by the number of quarters remaining between the date of b.

the change of control event and December 31, 2012, Five per cent of (i) the appreciation of the market capitalisation as from 1 January of the year during which the change of control event occurred up to the date immediately preceding the day of the change of control event; plus (ii) an assumed appreciation of the market capitalisation by twenty per cent per annum as from the date of the change of control event up until December 31, 2012; and five per cent of the appreciation of the net asset value from January 1, 2008 up to December 31, 2012. For the purpose of this provi- sion, the net asset value as per December 31, 2012, shall be deemed to be the higher of (in either case increased with twenty per cent per annum as from the date of the change of control event up until December 31, 2012)

the net asset value as reflected in the most recent quar- a.

terly report preceding the day of the change in control event; and

the value of the shares in the parent company as set b.

out in a completed public tender offer made by the acquirer(s)

Risk and risk management

The board of directors of EOS AB is ultimately responsible for management of risks to which EOS Russia is exposed.

EOS Russia’s investment strategy is implemented by EOS Ltd, based on Cyprus, through which our investments are made and owned. EOS Ltd makes all investment decisions within the framework set by the parent. This means that the board of EOS Ltd, will, based on recommendations from the Head of Research, make decisions about sale and purchase of Russian shares within the electricity sector. The execution of decisions made by the board of EOS Ltd will be carried out by the trader, or, either a director or employee on the mandate of the board of EOS Ltd.

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EOS Russia has assessed its risk exposure with the objective to:

Identify key risks

•

Ensure that management has controls in place

•

Allocate unecessary staff resources to risk management

•

The major risks were defined to be financial risk and country and sector specific risk. The financial risk includes price risks, interest rate risk, liquidity risk and credit risk.

Through the chosen investment strategy EOS Russia has a high exposure to country-specific risk factors for Russia, such as for example political, economiclegal and legal risks.

In addition, EOS Russia is exposed to risks associated only investing in the Russian electricity sector. The investment strategy also means an initial high exposure to UES. While these risks are high for EOS Russia, they are also part of its business concept.

EOS Russia depends on the continued services and performance of our founders, management and other key personnel.

Through its operations, the Group is exposed to various types of financial risks, which are assessed and monitored by EOS Russia on a daily basis, see Note 19. Price risk is the risk that the fair value of or future cash flow from a financial instrument will vary due to changes in market prices. In EOS Russia’s operations share-price risk (other price risk) and exchange-rate risk are the most important price risks.

Share-price risk is the risk that the fair value of our future cash flows from a share will vary due to changes in market prices. Share-price risk is a central risk in the Group’s operations, since these consist of making investments in various forms of shares and share-based derivatives in the Russian stock market with a specific focus on the Russian electricity sector. Share prices of shares held in the portfolio will fluctuate. This risk is part of EOS Russia’s business concept and will not be hedged.

Exchange-rate risk is the risk that exchange-rate fluctuations may have a negative impact on our income statement, balance sheet and/or cash-flow.

EOS Russia’s exchange-rate risks largely derive from translation exposure that arises from recalculation of a foreign subsidiary’s assets and liabilities (USD) to EOS AB’s functional currency (SEK), known as recalculation exposure. EOS Russia also has certain limited exposure in the Russian ruble (RUB) in respect of those shares that are priced and traded in RUB. Translation-related exposure is not hedged.

Interest rate risk is the risk that the fair value or future cash flows from a financial instrument will vary due to changes in market interest rates and for EOS Russia’s operations, the interest rate risk arises when surplus liquidity is

rate risk also arises when EOS Russia finances operations by leveraging the stock portfolio. These interest rate risks are generally low, because the holding period is generally short in respect of investments in interest-bearing securities and is very short in respect of temporary leveraging of the stock portfolio.

Liquidity risk is the risk that EOS Russia will be affected negatively by inefficient handling and control of cash and payment flows, in part because investments only can be converted to liquid funds with certain loss of value or time.

EOS Russia primary source of liquidity consists of the proceeds that we have received in connection with previous share issues.

Credit risk is the risk that a party to a financial instrument cannot fulfill an obligation and thereby causes a financial loss for the counterparty. Credit risk can arise if EOS Russia enters into derivative agreements and in certain cases if EOS Russia invests temporary liquidity surpluses in interest-bearing securities. In EOS AB, credit risks mainly arise in connection with short-term lending to the subsidiary and with other current receivables from subsidiaries.

Accordingly, due to the focus of the operations, the credit risk that arises is limited.

Investment portfolio in securities

During the period May-October 2007 EOS Russia raised a total of approximately SEK 2,879 million or MUSD (432*) in several placements. On the balance sheet date EOS Russia’s investment portfolio consisted of approximately 81% shares or depositary receipts in UES. The remaining 19% consisted of holdings in wholesale generation companies (OGKs), territorial generation companies (TGKs) and other types of companies within the Russian electricity industry. For more information about the portfolio structure, please see note 19.

UES is a holding company, which together with its subsidiaries is the largest power company in Russia. UES principal business is the generation, transmission, distribution and supply of electricity in Russia. In 2007, it generated approximately 70% of electricity output and approximately 33% of heat output in Russia. As of December 31, 2006, UES had approximately 72.1% of the installed electric capacity in Russia and, as of December 31, 2007, approximately 33% of Russia’s total installed heat capacity. It also owns approximately 96% of the total length of Russia’s electric transmission lines.

UES today has direct and indirect ownership as well as in most cases control of the regional and other individual power plants in Russia (OGKs and TGKs). The Federal Grid company, which owns and operates Russia’s high-voltage network is currently a wholly-owned subsidiary of UES.

The key strategic goals and objectives pursued by UES in

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Russian electricity sector, are to attract massive investment in the electricity industry and create the conditions for raising private capital, to create a competitive market for electricity, to increase the efficiency of power utilities, to allow end-users to select an electricity supplier, to expand the market share of UES’ entities on the heat and electricity markets, to develop and implement a fair and transparent system of regulation for power grid companies, and to improve its own and its subsidiaries’ corporate governance system.

The restructuring of UES will be finalized mid-2008 when all companies of the intended final sector structure will be spun off from UES, consisting of OGKs, a Russian hydro company (RusHydro), TGKs, Inter-regional distribution companies (MRSKs), the Holding MRSK, the Federal Grid Company, InterRAO and the Far Eastern Power Company.

According to the reform concept of the Russian electricity industry, generation, sales/retail and repair and service companies are to be privatized and operate in open and competitive markets. In contrast, the state is to increase its control over transmission and distribution.

Proposal for resolution at the annual general meeting 2008 regarding guidelines for remuneration and other terms of employment for the group management The board of directors proposes that the annual general meeting resolves on guidelines for remuneration and other terms of employment for the chief executive officer and other members of management for the time up until the next annual general meeting, which provide that the management shall be offered remuneration and other terms of employment in line with market practice. The total remuneration may consist of the following components: (i) fixed remuneration; (ii) variable remuneration; and (iii) sever- ance pay following the company’s liquidation. No pension benefits shall be paid and no share related program shall be adopted. As regards the variable remuneration (bonus), this may amount to not more than 100 per cent of the fixed salary.

The board of directors may, in special circumstances and for specific individuals, decide to deviate from the guidelines.

Outlook

EOS Russia invests in the Russian electricity industry that currently is undergoing a reform process. The restructuring of the electricity sector, of which the restructuring of UES is a vital part, is aiming at a liberalization of generation and supply until 2011, whereas transmission and distribution will remain regulated monopolies.

The reformation process affects the structure, ownership and electricity pricing within the sector.

The main goals are to:

increase the efficiency of the existing energy companies

•

create an attractive climate for private investments

•

By mid 2008 UES will be broken up into different companies, and its underlying subsidiaries will be distributed to UES’ shareholders. EOS Russia believes that the companies will receive a greater and fairer valuation as separated entities compared with what they receive in the current holding structure of UES.

Dividends

EOS Russia’s main objective is to generate shareholder value by investing in Russian electricity sector assets until 2012. EOS Russia plans to reinvest capital gains. According to EOS AB’s Balance Sheet, the funds available for distribution by the Annual General Meeting amounts to SEK 2,533,175 thousand, of which SEK 68 thousand is net profit for the year. The board of directors and the CEO of EOS AB proposes that no dividends be distributed and that all funds available for distribution be carried forward of which share premium reserve is SEK 2,533,107 thousand.

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Consolidated Income Statement

May 8 - December 31

In thousands of SEK Note 2007

Net change in fair value of securities 185,873

Dividends 507

Net profit – Investing activities 2 186,381

Employee benefit expenses 4 -4,369

Depreciation of property, plant and equipment 11 -12

Other expenses 5,6,7 -56,785

Result from operating activities 125,214

Finance income 8 1,022

Finance expenses 8 -19,457

Profit before income tax 106,779

Income tax expense 8 -103

Profit for the period 106,676

Attributable to:

Equity holders of the Company 106,676

Earnings per share 10

basic (SEK) 4.97

diluted (SEK) 4.97

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Consolidated Balance Sheet

As at December 31

Assets

Property, plant and equipment 11 4,665

Total non-current assets 4,665

Income tax receivables 25

Prepaid expenses and accrued income 12 2,756

Other receivables 2,173

Shares and participations 13 2,967,710

Cash and cash equivalents 19,376

Total current assets 2,992,040

Total assets 2,996,705

Equity 14

Share capital 281,627

Other contributed equity 2,533,105

Reserves -114,122

Retained earnings 106,676

Equity attributable to equity holders of EOS AB 2,807,287

Total equity 2,807,287

Liabilities

Provisions 15 27,402

Total non-current liabilities 27,402

Loans and borrowings 16 121,227

Trade and other payables 2,883

Other liabilities 17 21,900

Accrued expenses and deferred income 18 16,005

Total current liabilities 162,016

Total liabilities 189,418

Total equity and liabilities 2,996,705

See note 15 for information about current liabilities and pledged assets.

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Consolidated Statement of Changes in Equity

Attributable to equity holders of the Company

In thousands of SEK Note Sharecapital Other contri-

buted equity

Translation reserve

Retained earnings

Total equity

Balance May 8 2007 14 100 - - - 100

Translation gains/

losses on consolidation - - -114,122 - -114,122

Total change in equity not recognised in the Income Statement, excl. transactions

with and distribution to owners 0 0 -114,122 0 -114,122

Profit for the period - - - 106,676 106,676

Total change in equity, excl. transactions

with and distributions to equity owners 0 0 -114,122 106,676 -7,446

New share issue 281,527 2,602,635 - - 2,884,162

Share issue costs - -69,530 - - -69,530

Balance at December 31 2007 281,627 2,533,105 -114,122 106,676 2,807,287

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Consolidated Statement of Cash Flows

For the year ended December 31

22 Cash flows from operating activities

Profit before income tax 106,779

Adjustments for:

Net change in fair value of securities -201,619

Depreciation 12

Other 27,402

Income tax paid -100

Net cash from operating activities before changes in working capital -67,525

Cash flow from changes in working capital

Increase (-)/Decrease (+) in operating receivables -5,051

Increase (+)/Decrease (-) in operating liabilities 41,065

Net cash from operating activities -31,510

Cash flows from investing activities

Acquisition of property, plant and equipment -4,798

Acquisition of investments* -3,597,818

Proceeds from sale of investments 1,509,901

Net cash from investing activities -2,092,715

Cash flows from financing activities

Borrowings 124,799

Proceeds from issue of new shares* 2,018,740

Net cash from financing activities 2,143,539

Net increase in cash and cash equivalents 19,314

Cash and cash equivalents at January 1 100

Effect of exchange rate fluctuations on cash held -38

Cash and cash equivalent at December 31 19,376

*Total share issues amounted to SEK 2,814,632 thousand, including issues in kind of SEK 795,892 thousand, net of SEK 69,530 thousand share issue cost.

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Company Income Statement

In thousands of SEK Note 2007 2006

Other income 3 9,750 -

Other external expenses 6,7 -6,567 -

Employee benefit expenses 4 -3,576 -

Depreciation of property, plant and equipment 11 -12 -

Other expenses 5 -13,535 -

Results from operating activities -13,940 0

Results from financial items

Income from participations in Group companies 8 13,522 -

Other interest income and similar income 8 559 -

Interest expense and similar charges 8 -47 -

Profit before income tax 95 0

Income tax expense 9 -27 -

Profit for the period 68 0

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Company Balance Sheet

Assets

Non-current assets

Property, plant and equipment 10 583 -

Financial assets

Participation in Group companies 21 2,803,205 -

Other deposits 481 -

Total non-current assets 2,804,269 0

Current assets Short-term receivables

Receivables from Group companies 9,750 -

Income tax receivables 25 -

Other receivables 911 -

Prepaid expenses and accrued income 12 351 -

Total short-term receivables 11,037 0

Cash and bank 18,026 100

Total current assets 29,063 100

Total assets 2,833,331 100

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Company Balance Sheet

Equity and liabilities

Equity 14

Restricted equity

Share capital, 28,162,734 shares 281,627 100

Unrestricted equity

Share premium reserve 2,533,107 -

Retained earnings 0 -

Profit for the period 68 0

Total equity 2,814,802 100

Current liabilities

Accounts payable 2,883 -

Other liabilities 17 562 -

Accrued expenses and prepaid income 18 15,084 -

Total current liabilities 18,529 0

Total equity and liabilities 2,833,331 100

Pledged assets - -

Contingent liabilities - -

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Summary of Changes in Company Equity

Restricted equity Unrestricted equity Total equity

In thousands of SEK Share Capital Share

premium reserve

Retained earnings

Equity at January 1, 2006 100 - - 100

Profit for the period - - - -

Equity at December 31, 2006 100 - 0 100

Restricted equity Unrestricted equity Total equity

In thousands of SEK Share Capital Share

premium reserve

Retained earnings

Equity at January 1, 2007 100 - 0 100

Profit for the period - - 68 68

New share issue 281,527 2,602,637 - 2,884,164

Share issue costs - -69,530 - -69,530

Equity at December 31, 2007 281,627 2,533,107 68 2,814,802

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Company Statement of Cash Flows

22 Cash flows from operating activities

Profit before income tax 95 0

Adjustments for:

Depreciation 12 -

Income tax paid -23 -

Net cash from operating activities before changes in working capital 84 0

Cash flows from changes in working capital

Increase (-)/Decrease (+) in operating receivables -11,521 -

Increase (+)/Decrease (-) in operating liabilities 18,529 -

Net cash from operating activities 7,091 0

Cash flows from investing activities

Acquisition of property, plant and equipment -595 -

Investment in shares in subsidiaries and other investment* -2,007,313 -

Net cash used in investing activities -2,007,908 0

Cash from financing activities

Proceeds from issue of new shares* 2,018,742 -

Net cash from financing activities 2,018,742 0

Net increase in cash and bank 17,926 0

Cash and bank at January 1 100 100

Cash and bank at December 31 18,026 100

*Total share issue amounted to SEK 2,814,632 thousand including issue in kind SEK 795,892 thousand, net of SEK 69,530 thousand share issue costs.

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Notes to the financial statements

Note 1 Accounting policies

Accordance with accounting standards and legal requirements

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretations announced by the Inter- national Financial Reporting Interpretations Committee (IFRIC), as approved by the EC Commission for application within the EU. In addition, the Swedish Financial Account- ing Standards Council’s standard RR 30:06, Supplementary Accounting Regulations for Groups is applied.

The Company applies the same accounting principles as the Group, except in the cases stated below in the section

“Company accounting principles”. The deviations that occur between the accounting policies of the Company and the Group is attributable to limitations to apply IFRS in EOS AB due to the Annual Accounts Act, in certain cases for tax reasons. The Annual Report and consolidated accounts were approved for publication by the Board of Directors on March 28, 2008. The Group’s income statement and balance sheet and EOS AB’s income statement and balance sheet are subject to approval by the Annual General Meeting on April 22, 2008.

The basis of measurement for establishing the financial reports of the Company and the Group Assets and liabilities are measured at historical cost, except for some financial assets and liabilities measured at fair value. Financial assets and liabilities measured at fair value are derivatives, shares and participations.

Functional currency and reporting currency The Company’s reporting currency is Swedish kronor , which is also the reporting currency of the Group. This means that the financial statements are presented in Swed- ish kronor. Unless otherwise indicated, all amounts are rounded off to the nearest thousand SEK. By rounding the numbers in tables, totals may not always equal the sum of the included rounded numbers.

Assessments and estimates in the financial statements

Preparation of the financial reports in accordance with IFRS requires that the Group management makes assessments and estimates and also makes assumptions that affect the application of the accounting policies and the recognised

amounts of assets, liabilities, revenue and expenses. The actual outcome may deviate from these assessments and estimates.

The assessments and assumptions are reviewed regularly.

Changes in estimates are reported in the period when the change is made if the change only affects this period, or in the period when the change is made and future periods if the change affects the period in question and future periods.

(i) Significant assessments in applying the Group’s accounting principles

The assessments made by Group management in applying the Group’s accounting principles that have the most significant influence on the financial statements are as follows:

The instruments that have the legal form of preference

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shares and that are issued by subsidiaries and related payment do not comprise equity instruments, instead their financial implication is as a liability where the related payments consequently are allocated expenses in the income statement and are not treated as dividends.

The preference share payments that relate to the group’s

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net assets do not represent payments on derivatives.

The payments that relate to EOS Ltd’s net assets do not

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represent payments on derivatives.

Part of EOS Russia’s investment portfolio comprises sha-

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res that, according to the assessment of Group management, do not have prices quoted on an active market.

In the evaluation of preference share related remunera-

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tion, no consideration is given to valuation consequences of future share issues. Valuation only takes into account issues completed on the balance-sheet date.

(ii) Important sources of uncertainty in estimates The important sources of uncertainty in estimates made that carry a significant risk of a material adjustment to the carrying amounts of assets and liabilities in the next financial year are as follows:

Estimates of the fair value of shares and participations

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that are not listed on an active market

The calculation of liabilities, provisions and the related

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expenses for share-related remuneration. This uncertainty is primarily related to uncertainty in the assumption on volatility that is dependent on, for example, the structure of the future asset portfolio.

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Estimates used in the calculation of provisions for

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certain remuneration to preference shareholders are dependent on the trend in the Group’s net assets, which in turn is dependent on such factors as the trend in the value of the underlying share.

New IFRS and interpretations not yet applied A number of new standards, changes in standards and statements of interpretation issued by the IASB and IFRIC apply from 2008 or later. These have not been applied in the preparation of these financial statements and EOS Russia does not foresee future early application.

The revised IAS 1 Presentation of Financial Statements, will be effective from 2009. An assessment into the effect that this standard will have on EOS Russia’s financial statements has not yet been performed.

IFRS 8 Operating Segments, effective from 2009, defines what an operating segment is and specifies which dis- closures are to be made about segments in the financial statements. EOS Russia is assessed as having one operating segment and the introduction of the standard will have no effect on EOS Russia’s financial statements.

IFRIC 11 IFRS 2: Group and Treasury Share Transactions explains how a transaction settled with equity instruments shall be classified in the entity that receives the services of employees. The interpretation is applicable from 2008. This statement is assessed as having no future effect on EOS Rus- sia’s financial statements.

Other new or changed standards and interpretations that are assessed as having no future effect on the financial statements of EOS Russia follow: Revised IFRS 3 Busi- ness Combinations and IAS 27 Consolidated and Separate Financial Statements (effective from 2010). Revised IAS 23 Borrowing Costs (effective from 2009), IFRIC 12 Service Concession Arrangements (effective from 2008), IFRIC 13 Customer Loyalty Programmes (effective from 2009) and IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective from 2008).

Segment reporting

A segment is part of the Group that is identifiable in accounting terms which either provides goods or services (business activities) or goods or services in a certain economic environment (geographic area), which is exposed to risks and opportunities that is distinct from other segments.

EOS Russia has not identified any parts that are identifiable in accounting terms regarding business activities or geographic area and accordingly no segment reporting has been prepared.

Basis of consolidation

The consolidated financial statements comprise EOS AB, and its subsidiaries. A subsidiary is a company which EOS AB controls. Control gives an indirect or direct right to shape a company’s financial and operational strategies with the purpose of obtaining financial advantages.

Subsidiaries are included in the consolidated financial statements using the purchase method. According to the purchase method, the acquisition is considered a transaction by which the group indirectly acquires the assets of the subsidiary and assumes its liabilities and contingent liabilities. An acquisition analysis in connection with the acquisition establishes both the cost of acquisition and the fair value of acquired identifiable assets and liabilities and contingent liabilities assumed. The cost of acquisition consists of the fair value of assets transferred, liabilities incurred or assumed and for equity instruments issued as consideration for acquired net assets, plus any transaction costs directly attributable to the acquisition.

Where the cost exceeds the net fair value of acquired identifiable assets and liabilities, the difference is accounted for as goodwill. When the difference is negative, it is directly recognised in the income statement. A subsidiary is included in the consolidated financial statements from the time of acquisition until the date on which control ceases.

Inter-company assets, liabilities, income, expenses and unrealised profits and losses arising from inter-company transactions between group companies are eliminated in their entirety.

EOS Russia is not involved in any entities that are to be classified as associated companies, joint ventures or special purpose entities.

Foreign currency transactions

Transactions in foreign currency are translated to the functional currency at the rate of exchange on the transaction date. Monetary assets and liabilities in foreign currency are translated to the functional currency at the exchange rate on the reporting date. Foreign currency differences that arise from translations are recognised in profit or loss. Non- monetary assets and liabilities recognised at historical cost are translated at the exchange rate on the transaction date.

Non-monetary assets and liabilities reported at fair value are translated to the functional currency at the rate prevailing on the date of the determination of fair value.

Foreign operations

Assets and liabilities in foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated from their functional currency to the reporting

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currency of the Group (Swedish kronor), at the exchange rate at the reporting date. Income and expenses of foreign operations are translated to Swedish kronor at an average exchange rate comprising an approximation of exchange rates prevailing at each transaction date. Translation differences that arise from currency translation of foreign operations are recognised directly in equity as translation reserve.

Change in value of securities

Changes in value of securities, which are reported as revenue in operating income, consist of both realised and unrealised changes in value of securities in the portfolio management. Realised changes in value refer to the difference between settlement received and the value at the beginning of the period. Unrealised changes refer to the changes in the value of the securities reported in EOS Rus- sia’s balance sheet on the balance sheet date. This item also includes the changes in value of equity options.

Operating leases

The Group has only one operating lease agreement.

Costs regarding operating lease agreements are recognised straight-line in the income statement over the leasing period.

Finance income and expenses

Finance income comprises interest income on temporary excess liquidity that is invested in fixed-income securities and that in the accounts is classified as financial assets available for sale. Finance income also includes gains from the divestment of such items and gains in the change in value of currency futures used for financial hedging of the price of shares. For more information, see the “Financial instruments” section of the accounting principles.

Finance expenses comprise interest expenses on loans, losses in the change in value of currency futures used for financial hedging of the price of shares and impairment of financial assets.

Exchange rate gains and losses are reported at net amount.

Taxes

Income tax expense comprise current and deferred taxes.

Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is tax that is to be paid or received for the current year by applying the tax rates enacted or substantively enacted at the reporting date. Current tax also includes adjustments to current tax attributable to previous periods.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between amounts used in financial reporting and taxation. The valuation of deferred tax is based on how underlying assets or liabilities are estimated to be accounted for or regulated. Deferred tax is measured by applying tax rates or tax regulations enacted at the reporting date. Deferred tax assets related to deductible temporary differences and loss carry-forwards are only reported to the extent that it is likely that they will be utilised. The value of deferred tax assets is reduced when it is no longer deemed likely that they can be utilised.

Financial instruments

Categories of financial instruments and measurements When a financial asset or financial liability is recognised initially, EOS Russia measures it at its fair value plus, in the case of financial assets and liabilities not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability. For financial instruments measured at fair value through profit and loss, transaction costs are recognised directly as expenses when they are incurred.

(i) Financial instruments held for trading

Investments in equity instruments are classified as held for trading and are measured at fair value (without any deductions for future transaction costs) with changes in fair values recognised in the income statement. Being the main activity of EOS Russia, the change in value of and dividends received from these securities are recognised as revenue in operating income.

Stand-alone and any potential embedded derivatives that are not closely related to the host contract also belong to the category financial instruments held for trading and are measured at fair value through the income statement.

Derivatives utilised for financial hedging consist of equity options and currency futures. The change in value of equity options is reported in “Net change in value of securities.”

Changes in the value of currency futures are reported in “Fi- nance income” and “Finance expenses”, since these futures are utilised to hedge financing.

(ii) Financial assets available for sale

In cases when the Group is temporarily over-funded await- ing the appropriate opportunity for additional investments, the liquidity surplus is invested in interest rate bearing financial instruments and the investments for measurement and recognition purposes, belong to the category financial assets available for sale, since the Group has no intention