City Service SE — Interim / Quarterly Report 2016

Aug 31, 2016

CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE, 2016 (UNAUDITED)

City Service SE

CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE, 2016 (UNAUDITED)

Beginning of the reporting period 1 January 2016 End of the reporting period 30 June 2016

Business name City Service SE Registration number 12827710

Legal address Narva mnt. 5, 10117 Tallinn, the Republic of Estonia Telephone +370 5 239 49 00 Fax +370 5 239 48 48 E-mail info@cityservice.eu Website http://www.cityservice.eu Auditor Ernst & Young Baltic AS

DECLARATION OF THE MANAGEMENT 4
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 5
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 9
CONSOLIDATED STATEMENT OF CASH FLOWS 10
NOTES TO THE FINANCIAL STATEMENTS 11
1. GENERAL INFORMATION 11
1.1. ACTIVITIES 11
1.2. SHARE CAPITAL OF THE COMPANY 11
1.3. SHAREHOLDERS OF THE COMPANY 12
1.4. CITY SERVICE GROUP 13
1.5. COMPANY'S SUPERVISORY BOARD 17
1.6. GROUP'S MANAGEMENT 18
1.7. ACTIVITY AND SEGMENT INFORMATION 20
2. ACCOUNTING POLICIES 22
3. GOODWILL 22
4. OTHER INTANGIBLE ASSETS 25
5. PROPERTY, PLAND AND EQUIPMENT 26
6. TRADE RECEIVABLES 27
7. BORROWINGS 27
8. COST OF SALES 28
9. GENERAL AND ADMINISTRATIVE EXPENSES 28
10. OTHER OPERATING INCOME (EXPENSES) 29
11. FINANCE INCOME AND (EXPENSES) 29
12. DIVIDENDS PER SHARE 29
13. RELATED PARTY TRANSACTIONS 30
14. SUBSEQUENT EVENTS 31

Declaration of the management

City Service SE Management Board member hereby confirms that to the best of his knowledge, the interim consolidated financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, and the half-year management report gives a true and fair view of activity results, assets, liabilities, financial position, profit or loss and cash flow of City Service SE and the Group as well. To his knowledge, there are no concealed essential facts herein which may influence the value of the shares.

Member of the Board -RQDV-DQXNơQDV

31 August 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Notes	As of 30 June 2016	As of 31 December 2015
Assets
NON-CURRENT ASSETS
Goodwill	3	12,849	9,391
Other intangible assets	4	18,740	19,045
Property, plant and equipment	5	17,966	18,575
Investment property		455	479
Investments into associates		238	238
Non-current receivables	6	16,944	17,384
Deferred income tax asset		5,441	5,155
Total non-current assets		72,633	70,267
CURRENT ASSETS
Inventories		1,711	1,510
Prepayments		1,895	1,495
Trade receivables	6	36,696	40,823
Receivables from related parties	13	219	106
Other receivables and current assets		5,870	5,160
Cash and cash equivalents		19,134	16,858
Total current assets		65,525	65,952
Total assets		138,158	136,219

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (cont'd)

	Notes	As of 30	As of 31
		June 2016	December 2015
Equity and liabilities
Equity attributable to equity holders of the Company
Share capital		9,483	9,483
Reserves and share premium		21,067	21,067
Other reserves		37	(226)
Retained earnings (deficit)		38,360	39,811
		68,947	70,135
Non-controlling interests		348	434
TOTAL EQUITY		69,295	70,569
Liabilities
Non-current liabilities
Non-current borrowings	7	15,057	13,055
Financial lease obligations		1,824	1,661
Deferred income tax liabilities		2,719	2,755
Non-current payables		617	857
TOTAL NON-CURRENT LIABILITIES		20,217	18,328
Current liabilities
Current portion of non-current borrowings	7	2,413	3,738
Current portion of financial lease obligations		690	1,067
Short-term loans	7	2,834	2,739
Trade payables		15,208	15,717
Payables to related parties	13	994	818
Advances received		9,170	7,981
Other current liabilities		17,337	15,262
TOTAL CURRENT LIABILITIES		48,646	47,322
Total liabilities		68,863	65,650
Total equity and liabilities		138,158	136,219

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (for the period 1 January – 30 June)

	Notes	2016 1st half	2015 1st half
Continued operations
Sales	1.7	83,865	83,739
Cost of sales	8	(68,530)	(66,998)
Gross profit (loss)		15,335	16,741
General and administrative expenses	9	(13,231)	(14,303)
Other operating income, net	10	327	459
Profit (loss) from operations		2,431	2,897
Finance income	11	481	2,349
Finance expenses	11	(707)	(419)
Share profit of associates		-	55
Profit (loss) before tax		2,205	4,882
Income tax		(553)	(910)
Net profit (loss) from continued operations		1,652	3,972
Discontinued operations
Net profit (loss) from discontinued operations		-	(118)
Net profit (loss)		1,652	3,854
Other comprehensive income
Exchange differences on translation of foreign operations		233	23
Total comprehensive income		1,885	3,877
Attributable to:
The shareholders of the Company		1,740	3,893
Non-controlling interests		(88)	(39)
		1,652	3,854
Total comprehensive income attributable to:
The shareholders of the Company		1,973	3,916
Non-controlling interests		(88)	(39)
		1,885	3,877
Basic and diluted earnings per share (EUR)
From continued operations		0.06	0.13
From discontinued operations		-	(0.00)

STATEMENTS OF COMPREHENSIVE INCOME (for the period 1 April – 30 June)

	2016 Q2	2015 Q2
Continued operations
Sales	41,130	41,214
Cost of sales	(33,791)	(32,414)
Gross profit (loss)	7,339	8,800
General and administrative expenses	(6,849)	(8,240)
Other operating income, net	298	197
Profit (loss) from operations	788	757
Finance income	97	46
Finance expenses	(549)	(162)
Profit (loss) before tax	336	641
Income tax	(114)	(65)
Net profit (loss) from continued operations	222	576
Discontinued operations
Net profit from discontinued operations	-	61
Net profit	222	637

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	No tes	Share capital	Share premium	Foreign currency translation reserve	Other reserves	Retained earnings	Discon tinued operations	Total	Non controlling interest	Total
Balance as of 1 January 2015		9,155	21,383	(914)	2,656	32,671	(343)	64,608	600	65,208
Net profit		-	-	-	-	3,893	-	3,893	(39)	3,854
Other comprehensive income		-	-	23	-	-	-	23	-	23
Total comprehensive income		-	-	23	-	3,893	-	3,916	(39)	3,877
Dividends declared	12	-	-	-	-	(948)	-	(948)	-	(948)
Effect of euro adoption to share capital		12	-	-	-	(12)	-	-	-	-
Reserves of a disposal group classified as held for sale		-	-	(162)	-	-	162	-	-	-
Balance as of 30 June 2015		9,167	21,383	(1,053)	2,656	35,604	(181)	67,576	561	68,137

Balance as of 1 January 2016		9,483	21,067	(2,882)	2,656	39,811	-	70,135	434	70,569
Net profit		-	-	-	-	1,740	-	1,740	(88)	1,652
Other comprehensive income		-	-	233	-	-	-	233	-	233
Total comprehensive income		-	-	233	-	1,740	-	1,973	(88)	1,885
Dividends declared	12	-	-	-	-	(3,161)	-	(3,161)	-	(3,161)
Acquisition of non controlling interest		-	-	-	-	-	-	-	2	2
Transfer to legal reserve		-	-	-	30	(30)	-	-	-	-
Balance as of 30 June 2016		9,483	21,067	(2,649)	2,686	38,360	-	68,947	348	69,295

CONSOLIDATED STATEMENT OF CASH FLOWS

	Notes	2016 1st half	2015 1st half *
Cash flows from (to) operating activities
Net profit from continued operations		1,652	3,972
Net (loss) from discontinued operations		-	(118)
Adjustments for non-cash items:
Income tax expenses		553	1,031
Depreciation and amortisation	4,5	2,113	1,991
Impairment and discounting of accounts receivable		687	856
Impairment of intangible assets		-	(347)
(Gain) on disposal of property, plant and equipment	10	(30)	(210)
(Gain) from sale of investments		-	(1,435)
Other financial activity, net		245	(518)
		5,220	5,222
Changes in working capital:
(Increase) in inventories		(160)	(357)
Decrease (increase) in receivables and other current assets		3,672	(344)
(Increase) in prepayments		(385)	(935)
(Decrease) in trade payables and payables to related parties		(1,015)	(4,647)
Income tax (paid)		(1,068)	(1,264)
Increase in advances received and other current liabilities		3,225	2,098
Net cash flows from (to) operating activities		9,489	(227)
Cash flows from (to) investing activities
(Acquisition) of non-current assets (except investments)	4,5	(885)	(1,280)
Proceeds from sale of non-current assets		52	356
(Acquisition) of investments in subsidiaries (net of cash
acquired in the Group)		(3,476)	(1,169)
Disposal of investments in subsidiaries and associates		-	3,498
Dividends and interest received		423	449
Net cash flows from (to) investing activities		(3,886)	1,854
Cash flows from (to) financing activities
Dividends (paid)
Proceeds (repayment) of loans		(3,161)	(948)
(Repayment) of financial lease liabilities		774	(484)
Interest (paid)		(712)	(530)
Net cash flows from (to) financial activities		(326)	(481)
Net increase (decrease) in cash and cash equivalents		(3,425)	(2,443)
Foreign exchange difference		2,178	(816)
Cash and cash equivalents at the beginning of the period		98	118
(continued operations)		16,858	13,362
Cash and cash equivalents at the beginning of the period
(discontinued operations)		-	57
Cash and cash equivalents at the end of the period
(continued operations)		19,134	12,650
Cash and cash equivalents at the end of the period
(discontinued operations)		-	71

* Group cash flows for 2015 comprise total consolidated Group, including discontinued operations.

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

City Service SE (hereinafter – "the Company") is a public limited liability company registered in the Republic of Estonia on 2 April 2015, which after conversion has taken over a public limited liability company City Service AS rights and liabilities.

The Company controls corporate group, engaged in provision of facility management and integrated utility services in Western, Central and Eastern Europe. The City Service group is the market leader in facility management and integrated utility services in the Baltic States. It provides services in whole Lithuania, Poland, Spain, Latvia, In the city of St. Petersburg in Russian Federation.

City Service group provides facility management; maintenance and repair of engineering systems; management and renovation of energy resources; technical and energy audit of buildings; maintenance and cleaning of territories and premises; marketplaces administration; security services.

The most important buildings segments, administered by the City Service group are: residential apartment buildings; commercial buildings; public buildings; industrial buildings. The total area of buildings under the management of the Group is 41.5 million sq. m. at present.

During this year City Service group carried on implementing confirmed strategy and was further looking for growth opportunities in Central and Western Europe. Extensive negotiations with potential foreign companies regarding their acquisition, reorganization and implementation according to the Group's business model and standards were carried out.

The Group's areas of activity are relatively stable (core activities include: commercial and residential property administration and cleaning services) and tend not to fluctuate materially throughout the year unless significant acquisitions or divestments of certain subsidiaries occur during the reporting period.

1.2. SHARE CAPITAL OF THE COMPANY

The share capital of the Company is EUR 9,483 thousand as of 30 June 2016. It is divided into 31,610 thousand ordinary shares with the nominal value of EUR 0.30 each. All shares of the Company are paid up.

The Company does not have any other classes of shares than ordinary shares mentioned above, there are no any restrictions of share rights or special control rights for the shareholders settled in the Articles of Association of the Company. No shares of the Company are held by itself or its subsidiaries. No convertible securities, exchangeable securities or securities with warrants are outstanding; likewise, there are no outstanding acquisition rights or undertakings to increase share capital.

As of 30 June 2016 all 31,610 thousand ordinary shares of the Company are included into the Parallel Market of Warsaw Stock Exchange (ISIN Code of the shares is EE3100126368). Trading Code of the shares on Warsaw Stock Exchange is CTS.

1.3. SHAREHOLDERS OF THE COMPANY

On 30 June 2016 the total number of shareholders of the Company was 316.

Company's shares distribution among shareholders who have more than 5% shares of the Company as of 30 June 2016 was the following:

	Number of shares held	Owned percentage of the share capital and votes, %
ICOR UAB, legal entity code 300021944, address: Konstitucijos av. 7, Vilnius, Lithuania	26,813,293	84.83 %
Other private and institutional shareholders	4,796,707	15.17 %
TOTAL	31,610,000	100 %

1.4. CITY SERVICE GROUP

On 30 June 2016 the City Service group consists of City Service SE and the following subsidiaries (hereinafter referred to as "the Group"):

Company	Region	Share of the stock held by the Group as of 30 June 2016	Share of the stock held by the Group as of 30 June 2015	Main activities
UAB Alytaus būstas	Lithuania	100%	-	Administration of dwelling-houses
UAB Alytaus namų valda	Lithuania	76%	-	Dormant
UAB Antakalnio būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Apkaba	Lithuania	-	100%	Administration of dwelling-houses
UAB Aukštaitijos būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Baltijos būsto priežiūra	Lithuania	100%	100%	Dormant
UAB Baltijos NT valdymas	Lithuania	100%	100%	Real estate management
UAB Baltijos transporto valdymas	Lithuania	100%	100%	Asset management
UAB Baltijos turto valdymas	Lithuania	100%	100%	Dormant
UAB Dainavos būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Danės būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Economus	Lithuania	100%	100%	Administration of buildings
UAB Justiniškių būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Jūros būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Birštono būstas	Lithuania	100%	100%	Dormant
UAB Karoliniškių būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Karoliniškių turgus	Lithuania	100%	100%	Marketplace administration services
UAB Kauno centro būstas	Lithuania	100%	99.33%	Administration of dwelling-houses
UAB Konarskio turgelis	Lithuania	100%	100%	Marketplace administration services
UAB Lazdynų butų ūkis	Lithuania	100%	100%	Administration of dwelling-houses
UAB Lazdynų būstas	Lithuania	100%	100%	Dormant
UAB Mano aplinka	Lithuania	100%	100%	Maintenance and cleaning of territories and premises
UAB Mano aplinka plius	Lithuania	100%	100%	Maintenance and cleaning of territories and premises
UAB Mano Būstas	Lithuania	100%	100%	Commercial real estate management and building maintenance
UAB Mano Sauga	Lithuania	99.27%	99.27%	Security services

UAB Mano sauga LT	Lithuania	100%	100%	Security services
UAB Namų priežiūros centras	Lithuania	100%	100%	Administration of dwelling-houses
UAB Naujamiesčio būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Naujosios Vilnios turgavietė	Lithuania	100%	-	Marketplace administration services
UAB Nemuno būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Nemuno būsto priežiūra	Lithuania	-	100%	Dormant
UAB Pastatų priežiūra	Lithuania	100%	100%	Building maintenance
UAB Pašilaičių būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Pempininkų būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Pietinis būstas	Lithuania	100%	-	Administration of dwelling-houses
UAB Radviliškio būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Skolos LT	Lithuania	100%	100%	Debt collection services
UAB Šiaulių būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Šiaulių butų ūkis	Lithuania	-	100%	Administration of dwelling-houses
UAB Šilutės būstas	Lithuania	99.84%	99.84%	Administration of dwelling-houses
UAB Vėtrungės būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Vilkpėdės būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Vilniaus turgus	Lithuania	100%	100%	Dormant
UAB Vingio būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Viršuliškių būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Žardės būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Žirmūnų būstas	Lithuania	100%	100%	Administration of dwelling-houses
Administraciones SantaPola S.L.	Spain	100%	100%	Administration of dwelling-houses
Administracion Urbana y Rural Chorro, S.L.U.	Spain	100%	100%	Administration of dwelling-houses
Afimen administración de finques, S.L.U.	Spain	100%	100%	Administration of dwelling-houses
Concentra Servicios y Mantenimiento, S.A.	Spain	100%	100%	Commercial real estate management and building maintenance
Elche administracion de fincas, S.L.U.	Spain	100%	100%	Administration of dwelling-houses
SIA City Service	Latvia	100%	100%	Dormant
SIA Namu serviss APSE
	Latvia	100%	100%	Administration of dwelling-houses

Atrium 21 sp. z o.o.	Poland	100%	-	Administration of dwelling-houses
City Service Poland sp. z o.o.	Poland	100%	100%	Dormant
City Service Polska sp. z o.o.	Poland	100%	100%	Country holding company
City Service Grupa Techniczna sp. z o.o.	Poland	100%	100%	Building maintenance
Concierge - Zarządzanie Nieruchomościami sp. z o.o.	Poland	100%	-	Administration of dwelling-houses
Dom Best sp. z o. o.	Poland	100%	-	Administration of dwelling-houses
EnergiaOK sp. z o.o.	Poland	100%	100%	Sale of electricity
Famix sp. z o.o.	Poland	100%	-	Administration of dwelling-houses
Gerente - Serwis Nieruchomości sp. z o.o.	Poland	100%	-	Commercial real estate management and building maintenance
Grupa Techniczna 24 sp. z o.o.	Poland	100%	-	Dormant
Home Rent sp. z o.o.	Poland	50%	-	Administration of dwelling-houses
Hoone - Usługi Budowlane sp. z o.o.	Poland	100%	-	Construction and engineering
Parama Blue sp. z o.o.	Poland	100%	-	Dormant
Parama Group sp. z o.o.	Poland	100%	-	Holding company
Parama Red sp. z o.o.	Poland	100%	-	Dormant
Parama Yellow sp. z o.o.	Poland	100%	-	Dormant
Parama White sp. z o.o.	Poland	100%	-	Dormant
Progresline sp. z o.o.	Poland	100%	100%	Administration of dwelling-houses
Santer Zarządzanie Nieruchomościami sp. z o.o.	Poland	100%	-	Administration of dwelling-houses
Skydas - Przeglądy Budowlane sp. z o.o.	Poland	100%	-	Construction and engineering
Zespół Zarządców Nieruchomości sp. z o.o.	Poland	100%	100%	Administration of dwelling-houses
OAO Cити Сервис / ОАО City service	St. Petersburg	100%	100%	Administration of dwelling-houses
ЗAO Cити Сервис / ZAO City service	St. Petersburg	100%	100%	Administration of dwelling-houses
OAO Специализи-рованное ремонтно-наладочное	St. Petersburg	100%	100%	Construction and engineering
ООО МН Групп	St. Petersburg	100%	-	Dormant
ООО Жилкомсервис № 3 Фрунзенского района	St. Petersburg	80%	80%	Administration of dwelling-houses
ООО Чистый дом	St. Petersburg	100%	100%	Maintenance and cleaning of territories

ООО Подъемные механизмы	St. Petersburg	100%	99%	Elevator installing & tech. support
-------------------------	-------------------	------	-----	-------------------------------------

The Group's investment in an associate as of 30 June 2016 included an investment in Marijampolės butų ūkis UAB (34% of the share capital).

Discontinued operations	Region	Share of the stock held by the Group as of 30 June 2016	Share of the stock held by the Group as of 30 June 2015	Main activities
OOO Управляющая компания -1	Stavropol	-	76%	Administration of dwelling houses
OOO ПРОМИНТЕР - управление проектами	Stavropol	-	100%	Administration of dwelling houses
OOO Управляющая компания -2	Stavropol	-	76%	Administration of dwelling houses
OOO Управляющая компания -3	Stavropol	-	76%	Administration of dwelling houses
OOO Управляющая компания -4	Stavropol	-	76%	Administration of dwelling houses
OOO Управляющая компания -5	Stavropol	-	76%	Administration of dwelling houses
OOO УК -5	Stavropol	-	100%	Administration of dwelling houses
OOO Управляющая компания -6 (legal entity code 2635085674)	Stavropol	-	76%	Administration of dwelling houses
OOO Управляющая компания -6 (legal entity code 2635105070)	Stavropol	-	100%	Administration of dwelling houses
OOO Жилищная Управляющая компания № 6	Stavropol	-	100%	Administration of dwelling houses
OOO Управляющая компания – 8	Stavropol	-	100%	Administration of dwelling houses

1.5. COMPANY'S SUPERVISORY BOARD

As of 30 June 2016, the Supervisory Board of the Company comprises of the following persons:

Name and surname	Position	Start of term	End of term
Andrius Janukonis	Chairman of the Supervisory Board	April 8, 2015	April 9, 2019
Gintautas Jaugielavičius	Member of the Supervisory Board	April 8, 2015	April 9, 2019
Artūras Gudelis	Member of the Supervisory Board	June 29, 2015	April 9, 2019

The Supervisory Board members do not control any shares of the Company.

Andrius Janukonis

Andrius Janukonis (b. 1971) is the Chairman of the Supervisory Board of City Service SE (since 2009 until 2015 the Chairman of the Board). He holds a Master's degree in Law. He works as a consultant for ICOR UAB and is the chairman of the board of ICOR UAB (since 2004).

Gintautas Jaugielavičius

Gintautas Jaugielavičius (b. 1971) is a Member of the Supervisory Board of City Service SE (since 2005 until 2015 a Member of the Board). He holds a Bachelor's degree in Economics. At present, he works as a consultant for ICOR UAB and is a member of the board of ICOR UAB (since 2004).

Artūras Gudelis

Artūras Gudelis (b. 1977) is a Member of the Supervisory Board of City Service SE (since 2015). He holds Bachelor degree in economics and Master in business management.

1.6. GROUP'S MANAGEMENT

As of 30 June 2016 and as of date of submission of this report, the key managers of the Company and of the Group are as follows:

Name and surname	Position within the Company	Start of employment
Jonas Janukėnas	A Member of the Management Board (CEO)	2007
Vytautas Turonis	Executive Manager for Lithuania	2004
Edvinas Paulauskas	Executive Manager	2005
Tomas Kleiva	Financial Director	2006
Anna Górecka – Kolasa	Head of the Group companies, operating in Poland	2013
Fernando López Abril	General Manager of the Group company, operating in Spain	2013
Vytautas Junevičius	Chairman of the Board of group companies in St. Petersburg	2006
Jonas Šimkevičius	Member of the Board of Group company, operating in Latvia	2005

They do not control any shares of the Company.

Jonas Janukėnas

Jonas Janukėnas (b. 1976) is a Member of the Board of City Service SE (since 2015) acting as a CEO of the Group. Since 2013 Mr Janukėnas was the General Manager, since 2007 - Financial and Administrative Manager. Mr Janukėnas is also the Chairman of the Board at Mano Būstas UAB (since July, 2012). He holds a Master's degree in Business Administration. Prior to coming to work at the Company, he worked as the Financial Manager of UAB Litesko (2001 – 2007) and Senior Auditor and Risk Management Consultant at the Vilnius division of Andersen (1998 – 2001).

At present, the main task of the Member of the Management Board is to head the Group and take charge of planning and coordination of important development projects in Poland, Spain, as well as other markets in Eastern and Western Europe.

Vytautas Turonis

Vytautas Turonis (b. 1972) is the General Manager at Mano Būstas and works as the Executive Manager for Lithuania at City Service SE. He holds a Bachelor's degree in International Business. Previously he worked as the Marketing Manager of UAB Specialus Autotransportas (2003 – 2004). He started to work in the Company as the Market Development Department Manager (2004 – 2008).

Vytautas Turonis is responsible for the Group's activities throughout Lithuania.

Edvinas Paulauskas (b. 1976) is the Executive Manager at City Service SE and Mano Būstas UAB. Previously he worked as the Commercial director (since 2008). Edvinas Paulauskas started working in the Company as the Project Manager (2005 – 2006). He holds a Bachelor's degree in Environment Engineering.

Edvinas Paulauskas is responsible for the Group's activities in the commercial and exploitation departments as well as in the innovation and energy efficiency chapter throughout Lithuania and foreign markets.

1.6. GROUP'S MANAGEMENT (cont'd)

Tomas Kleiva

Tomas Kleiva (b. 1979) is the Financial Director of City Service SE (since 2016). Prior to that, T. Kleiva was Financial Director and Executive Manager of the Group's subsidiaries operating in St. Petersburg (2009 – 2016). He started to work in the Group as a Project Manager (2006 – 2009). T. Kleiva has a Master's degree in environmental engineering.

Tomas Kleiva is responsible for the activity of the Group's financial departments.

Anna Górecka – Kolasa

Anna Górecka - Kolasa (b. 1975) is the Head of the company City Service Grupa Techniczna sp. z o.o., operating in Poland. A. Górecka – Kolasa has been working for the Group since 2013, prior to that she hold positions of Management and Control Director, Chief Analysis Specialist and Deputy Accountant General (2004 – 2013). A. Górecka-Kolasa has a higher education in the area of management and marketing.

A. Górecka-Kolasa is responsible for the Group's activities in Poland.

Fernando López Abril

Fernando López Abril (b. 1969) is Director General of the company Concentra Servicios y Mantenimiento. Previously (in 2010 – 2012) he held the position of the company's Business Development Director. Before joining the Group company, F. López Abril was employed as Commercial Director of the company AMS-ALDESA (2007 – 2010), worked as a regional manager for the company CESPA-FERROVIAL (2004 – 2007) and held position of Director of Technological Systems and Nuclear Services Department at the company BORG Service (1999 – 2004). F. López Abril holds the Master of Science degree in agricultural engineering.

F. López Abril is responsible for the Group's activities in Spain.

Jonas Šimkevičius

Jonas Šimkevičius (b. 1980) is a Member of the Board of the company Riga City Service. operating in Latvia. Previously J. Šimkevičius worked for the company as a Project Manager. (2005 – 2007) and before that he held different positions in the companies Limatika (2004 – 2005) and Ranga IV (2002 – 2004). J. Šimkevičius has a Bachelor's degree in constructions. engineering.

J. Šimkevičius is responsible for the Group's activities in Latvia.

Vytautas Junevičius

Vytautas Junevičius (b. 1965) has been the Chairman of the Board for the City Service Group companies, operating in St. Petersburg, since 2014. Mr. Junevičius commenced his activities in the Group as the Head of Kaunas subsidiary (2007 – 2014). V. Junevičius has a Bachelor's degree in management.

V. Junevičius is responsible for the Group's activities in St. Petersburg.

1.7. ACTIVITY AND SEGMENT INFORMATION

Information on main Group's geographical segments:

2016 1st half	Baltic states	St. Petersburg	Poland	Spain	Stavropol, discontinued operations	Total
Revenue: Total revenue	35,343	16,604	12,946	18,972	-	83,865 83,865
Segment results Unallocated expenses	4,148	(196)*	81**	(1,160)	-	2,873 (442)
Profit from operations						2,431
Net financial income Profit before income						(226)
tax						2,205
Income tax expenses Net profit for the						(553)
year						1,652
Other segment information
Capital expenditure	758	11	480	188	-	1,437

* Includes EUR 620 thousand negative effect of regulatory changes to resale of utilities.

** Includes EUR 216 thousand costs related with acquisition of new subsidiaries as well as EUR 243 thousand loss arising from development of technical services activities.

2015 1st half	Baltic states	St. Petersburg	Poland	Spain	Stavropol, discontinued operations	Total
Revenue: Total revenue	32,449	17,382	12,929	20,979	7,881	91,620 91,620
Segment results	3,062	117	315***	(99)****	(344)	3,051
Unallocated expenses						(498)
Profit from operations						2,553
Net financial income						2,332
Profit before income tax						4,885
Income tax expenses						(1,031)
Net profit for the year						3,854
Other segment information
Capital expenditure	1,052	73	564	140	-	1,829

*** Includes EUR 196 thousand loss, arising from start of technical services activities.

**** Includes EUR 249 thousand redundancy costs.

1.7. ACTIVITY AND SEGMENT INFORMATION (cont'd)

Information on main Group's geographical segments:

	Baltic states	St. Petersburg	Poland	Spain	Stavropol, discontinued operations	Total
Sales to external customers 2016 1st half 2015 1st half	35,343 32,449	16,604 17,382	12,946 12,929	18,972 20,979	- 7,881	83,865 91,620

	Baltic states	St. Petersburg	Poland	Spain	Total
Segment non-current assets
As of 30 June 2016 As of 30 June 2015	46,610 48,567	2,811 2,421	16,563 12,943	6,649 5,317	72,633 69,248

Main activity indicators for the Group (continued operations):

	2016 1st half	2015 1st half	Change (%)
Area of residential apartment buildings under administration (million square meters)	27.8	24.3	14.4%
Area of public, commercial building and atypical properties under administration (million square meters)	13.7	10.6	29.2%
Number of employees	5,382	5,452	(1.3%)
Sales for the period	83,865	83,739	0.2%
Sales (main activity)*	73,524	72,563	1.3%
Gross margin*	20.9%	23.1%	(9.7%)
EBITDA margin*	6.2%	6.7%	(7.7%)
EBIT margin*	3.3%	4.0%	(17.2%)
Net margin*	2.2%	3.5%***	(35.7%)
Number of shares (thousand)	31,610	31,610	0.0%
Return on equity	2.4%	5.7%	(58.2%)
Return on assets	1.2%	2.8%	(57.3%)
Financial Net Debt to equity**	1.7%	12.4%	(86.4%)

* Calculated by reducing sales for the resale of utility services.

** Interest bearing debt (net of cash balance) to Shareholders' equity.

*** Excluding result on sale of AWT Holding shares of EUR 1,435 thousand.

2. ACCOUNTING POLICIES

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.

In the Interim Financial Statements same accounting policies and methods of computation are followed as compared with the most recent annual financial statements.

Interim Financial Statements are prepared in compliance with International Accounting Standard (IAS) 34 Interim financial reporting.

These Interim Financial Statements were authorised for issue on 31 August 2016 by responsible persons listed in the confirmation, which is attached to the Interim Financial Statements.

1. GOODWILL

COST:

Balance as of 1 January 2015	9,388
Additions	106
Exchange differences	(19)
Balance as of 31 December 2015	9,475
Acquisitions of subsidiaries	3,436
Exchange differences	22
Balance as of 30 June 2016	12,933
IMPAIRMENT
Balance as of 1 January 2015	84
Balance as of 31 December 2015	84
Balance as of 30 June 2016	84
Net book value as of 30 June 2016	12,849
Net book value as of 31 December 2015	9,391

3. GOODWILL (cont'd)

During reporting period the Company acquired Parama Group* and Dom Best sp. z o.o. At the acquisition of these subsidiaries a provisional goodwill of EUR 3,436 thousand has been accounted for. The goodwill appears due to expected synergies, which are expected to be derived from vertical expansion of business. The fair values of the identifiable assets and liabilities of Parama Group* and Dom Best sp. z o.o. at the date of acquisition were:

Fair value of assets, liabilities and contingent liabilities of acquired subsidiaries	Parama Group*	Dom Best sp. z o. o.
At the date of acquisition	1 April	2 June
Intangible assets	19	3
Property, plant and equipment	7	6
Deferred tax asset	10	-
Trade receivables	142	12
Other current assets	243	21
Total assets	421	42
Trade payables	117	-
Other current liabilities	26	29
Total liabilities	143	29

Total identifiable net assets at fair value	278	13
attributable to equity holders of the parent	276	13
attributable to non-controlling interests	2	-

Purchase consideration	Parama Group*	Dom Best sp. z o. o.
At the date of acquisition	1 April	2 June
Fair value of acquired assets, liabilities and contingent liabilities attributable to the Group	276	13
Non-controlling interests	2	-
Goodwill	2,903	533
Total purchase consideration	3,181	546
Cash acquired	232	19
Total purchase consideration, net of cash acquired	2,949	527

At the date of the acquisition, the fair value of the trade receivables was EUR 154 thousand. The gross amount of trade receivables was EUR 206 thousand. The difference between the fair value and the gross amount is allowance for doubtful trade receivables.

* Parama Group owns these subsidiaries: Atrium 21 sp. z o.o., Concierge - Zarządzanie Nieruchomościami sp. z o.o., Gerente - Serwis Nieruchomości sp. z o.o., Home Rent sp. z o.o., Hoone - Usługi Budowlane sp. z o.o., Parama Blue sp. z o.o., Parama Red sp. z o.o., Parama Yellow sp. z o.o., Parama White sp. z o.o., Skydas - Przeglądy Budowlane sp. z o.o.

3. GOODWILL (cont'd)

Investments and other changes during the six months of the year 2016

On 6 January 2016 implementing the tender offer, UAB ICOR acquired 5,877,675 shares of the Company. After the transaction, UAB ICOR owns 26,813,293 ordinary shares of the Company, which provides 84.83% of the authorized capital and voting rights.

On 9 February 2016 reorganization of UAB Žaidas was finished. Method of reorganisation was separation. After separation of property, rights and responsibilities, two new companies UAB Alytaus būstas and UAB Alytaus namų valda were established. After reorganization the name of UAB Žaidas was changed into UAB Kauno centro būstas.

On April 2016 the Company, through its Polish subsidiary, acquired the company Parama Group sp. z o.o. engaged in administration of residential and commercial property as well as technical services for the related properties. Parama Group is a market leader in Warsaw region.

On 1 April 2016 reorganization of the companies UAB Šiaulių namų valda and UAB Apkaba was completed. After the process of reorganization UAB Apkaba was incorporated into UAB Šiaulių namų valda with all the assets, rights and obligations. UAB Apkaba ceased operations and was deregistered. After reorganization UAB Šiaulių namų valda name was changed to UAB Pietinis būstas, director and other contact details did not change.

On 30 April 2016 the Company's shares were delisted from trading on AB Nasdaq Vilnius. The shares of the Company will continue to be listed and traded on the Warsaw Stock Exchange.

On 5 May 2016 reorganization of the companies UAB Žirmūnų būstas and UAB Nemuno būsto priežiūra was completed. After the process of reorganization UAB Nemuno būsto priežiūra was incorporated into UAB Žirmūnų būstas with all the assets, rights and obligations. UAB Nemuno būsto priežiūra ceased operations and was deregistered. After reorganization UAB Žirmūnų būstas director and other contact details did not change.

On 23 May 2016 the Ordinary General Meeting of the Shareholders of the Company has been held. The shareholders approved the set of consolidated annual financial statements of the Company for 2015, distributed the Company's profit for the year 2015 and decided to grant a right to the Company to acquire own shares.

On 2 June 2016 the Company, through its Polish subsidiary, acquired Dom Best sp. z o.o., which manages residential facilities in Poland.

4. OTHER INTANGIBLE ASSETS

Movement of other intangible assets in 2016 1st half and 2015 is presented below:

COST:
Balance as of 1 January 2015	19,501
Additions arising from acquisitions of subsidiaries	2,915
Additions	654
Disposals	(1)
Exchange differences	(265)
Retirements	(6)
Reclassifications	161
Balance as of 31 December 2015	22,959
Additions arising from acquisitions of subsidiaries	21
Additions	260
Exchange differences	(79)
Reclassifications	9
Balance as of 30 June 2016	23,170
ACCUMULATED AMORTISATION:
Balance as of 1 January 2015	2,898
Charge for the year	1,089
Exchange differences	(67)
Retirements	(6)
Balance as of 31 December 2015	3,914
Charge for the period	583
Exchange differences	(67)
Balance as of 30 June 2016	4,430
Net book value as of 30 June 2016	18,740
Net book value as of 31 December 2015	19,045

5. PROPERTY, PLAND AND EQUIPMENT

Movement of fixed assets in 2016 1st half and 2015 is presented below:

	Buildings	Vehicles	Other property, plant and equipment	Constru ction in progress*	Total
COST:
Balance as of 1 January 2015	10,647	5,620	8,993	47	25,307
Additions arising from acquisitions of subsidiaries	225	1	4	-	230
Additions	261	1,454	1,454	425	3,594
Disposals	(1,787)	(85)	(52)	-	(1,924)
Exchange differences	28	(99)	(57)	-	(128)
Retirements	-	(23)	(78)	-	(101)
Reclassifications	124	(1)	149	(433)	(161)
Balance as of 31 December 2015	9,498	6,867	10,413	39	26,817
Additions arising from acquisitions of subsidiaries	-	-	12	-	12
Additions	56	419	528	174	1,177
Disposals	(15)	(59)	(21)	-	(95)
Exchange differences	(74)	27	(204)	(2)	(253)
Retirements	-	-	(24)	-	(24)
Reclassifications	2	-	25	(36)	(9)
Balance as of 30 June 2016	9,467	7,254	10,729	175	27,625
ACCUMULATED DEPRECIATION:
Balance as of 1 January 2015	1,768	2,474	1,680	-	5,922
Charge for the year	448	1,106	1,438	-	2,992
Disposals	(358)	(56)	(45)	-	(459)
Exchange differences	1	(63)	(65)	-	(127)
Retirements	-	(15)	(71)	-	(86)
Balance as of 31 December 2015	1,859	3,446	2,937	-	8,242
Charge for the period	189	585	732	-	1,506
Disposals	(8)	(56)	(12)	-	(76)
Exchange differences	-	31	(22)	-	9
Retirements	-	-	(22)	-	(22)
Balance as of 30 June 2016	2,040	4,006	3,613	-	9,659
Net book value as of 30 June 2016	7,427	3,248	7,116	175	17,966
Net book value as of 31 December 2015	7,639	3,421	7,476	39	18,575

* Includes prepayments for tangible and intangible assets.

6. TRADE RECEIVABLES

Trade receivables of the Group as of 30 June 2016 and 31 December 2015 were as follows:

	Balance as of 30 June 2016	Balance as of 31 December 2015
Trade receivables, gross	44,906	47,675
Less: allowance for doubtful trade receivables	(8,210)	(6,852)
Trade receivables, net	36,696	40,823

Trade receivables and other receivables generally have 30 - 90 days payment terms.

Non-current receivables mainly comprise of long-term part of receivables from public customers and long-term part of receivables for residential buildings' repair works performed.

1. BORROWINGS

Borrowings of the Group and the Company as of 30 June 2016 and 31 December 2015 were as follows:

Creditor	Currency	Balance as of 30 June 2016	Balance as of 31 December 2015
SHORT TERM LOANS
Bank loans	EUR	2,834	2,681
Bank loans	PLN	-	58
SHORT TERM LOANS BALANCE		2,834	2,739
LONG TERM LOANS
Bank loans	EUR	17,470	16,793
Minus: long term loans of the current year		(2,413)	(3,738)
LONG TERM LOANS BALANCE		15,057	13,055

For the loans and overdraft the Company and its subsidiaries have pledged to the bank real estate and bank accounts of the Company and its subsidiaries in Lithuania. Shares of UAB Mano Būstas are pledged to Nordea Bank as well.

8. COST OF SALES (continued operations)

	2016 1st half	2015 1st half
Services of subcontractors and materials used	38,713	36,720
Wages and salaries and social security	29,235	29,492
Depreciation	582	591
Cost of goods sold	-	195
Total cost of sales	68,530	66,998

9. GENERAL AND ADMINISTRATIVE EXPENSES (continued operations)

	st half 2016 1	st half 2015 1
Wages and salaries and social security	6,466	7,007
Depreciation and amortisation	1,507	1,373
Allowance for and write-off of receivables	639	839
Rent of premises and other assets	616	426
Consulting and similar expenses	592	583
Commissions for collection of payments	369	325
Computer software maintenance	263	260
Advertising	248	272
Consulting and tax expenses related with acquisitions and reorganisation	234	117
Taxes other than income tax	222	348
Transportation	180	215
Insurance	179	165
Fuel expenses	158	258
Communication expenses	157	155
Representational costs	138	141
Business trips and training	129	180
Utilities	125	93
Bank payments	64	85
Charity and support	33	16
Other	912	1,445
Total general and administrative expenses	13,231	14,303

10. OTHER OPERATING INCOME (EXPENSES), NET (continued operations)

	2016 1st half	2015 1st half
Income from rent	103	87
Gain (loss) on disposal of property, plant and equipment	30	210
Depreciation of rented assets	(24)	-
Other income, net	218	162
Total other operating activity	327	459

11. FINANCE INCOME AND (EXPENSES), NET (continued operations)

	2016 1st half	2015 1st half
Interest income	418	563
Foreign currency exchange gain	-	337
Gain on sale of investments	-	1,435
Other financial income	63	14
Total finance income	481	2,349
Interest (expenses)	(330)	(405)
Foreign currency exchange (loss)	(377)	-
Other financial (expenses)	-	(14)
Total finance (expenses)	(707)	(419)
Financial activity, net	(226)	1,930

12. DIVIDENDS PER SHARE

	2016 1st half	2015 1st half
Approved dividends	3,161	948
Number of shares (in thousand)	31,610	31,610
Approved dividends per share	0.10	0.03

13. RELATED PARTY TRANSACTIONS

The parties are considered related when one party has the possibility to control the other one or have significant influence over the other party in making financial and operating decisions. The related parties of the Group and the Company are considered the following:

• − Global energy consulting OU (Estonia)– the ultimate shareholder of the Company since 2013;
• − UAB Lag&d controlled by the same ultimate parent;
• − UAB ICOR the shareholder of the Company;
• − Subsidiaries of UAB ICOR (same ultimate controlling shareholder);
• − Subsidiaries of City Service SE (for the list of the subsidiaries, see also Note 1);
• − Mr J. Janukėnas, V. Turonis, E. Paulauskas, V. Junevičius, J. Šimkevičius, A. Górecka Kolasa, F. López Abril, T. Kleiva (Management of the Group companies);

Transactions with related parties include sales and purchases of goods and services in the ordinary course of business, and acquisitions and disposals of property, plant and equipment. Property, plant and equipment to related parties during the six months of 2016 were sold in accordance of arm's length principle.

The sales price for the intercompany subsidiary purchase and sale transactions are established by the management and shareholders of the UAB ICOR and/or Global energy consulting OU and City Service SE considering the results of independent valuations, if any, undertaken for the purposes of the transfer pricing regulations – which may not always be at their fair value.

There are no guarantees or pledges given or received in respect of the related party payables and receivables. Related party receivables and payables are expected to be settled in cash or set-off against payables / receivables to / from a respective related party.

st half 2016 1	Purchases	Sales	Receivables and prepayments	Payables (long and short-term)
UAB ICOR Subsidiaries of UAB ICOR:	257	5	-	760
AB Axis Industries	228	236	52	145
Other subsidiaries of UAB Lag&d	104	256	167	89
Total	589	497	219	994

14. SUBSEQUENT EVENTS

On 1 August 2016 the Company, through its Lithuanian subsidiary, established two new companies UAB Šilalės būstas and UAB Neries būstas.

On 8 August 2016 the Company, through its Polish subsidiary, acquired company TED sp. z o.o., which manages residential facilities in Poland. At the moment of issuance of these financial statements Group's management was not able to obtain reliable financial information of the newly acquired company and evaluate fair value of net assets as at the acquistion.

On 8 August 2016 the Company, through its Lithuanian subsidiary, acquired company UAB Toirenta, which provides bio toilets rent and sewage disposal services in Lithuania. At the moment of issuance of these financial statements Group's management was not able to obtain reliable financial information of the newly acquired company and evaluate fair value of net assets as at the acquistion.

City Service SE

Narva mnt. 5, 10117, Tallinn, the Republic of Estonia; address in Lithuania: Gynėjų str. 16, LT – 01109 Vilnius, Phone (+370 5) 2394900, fax (+370 5) 2394848, E-mail. info@cityservice.eu www.cityservice.eu

Consolidated interim financial statements for the six months period ended 30 June, 2016

Interim consolidated report for the six months of 2016

City Service SE

INTERIM CONSOLIDATED REPORT FOR THE SIX MONTHS OF 2016

Beginning of the reporting period	1 January 2016
End of the reporting period	30 June 2016
Business name	City Service SE
Registration number	12827710
Legal address	Narva mnt. 5, 10117 Tallinn, the Republic of Estonia
Telephone	+370 5 239 49 00
Fax	+370 5 239 48 48
E-mail	info@cityservice.eu
Website	http://www.cityservice.eu
Auditor	Ernst & Young Baltic AS

Contents

1.		ABOUT THE COMPAN Y	4
	1.1. C	ity Service Group	4
	1.2. S	tructure of the Group	5
2.		INTER IM MANA GEMENT REPORT	6
	2.1. M	ain areas of activity	6
		2.1.1. A partment buildings administration	6
		2.1.2. C ommercial facility management	8
		2.1.3. T erritories maintenance and cleaning	10
		2.1.4. O ther services	11
	2.2.	Improving efficiency of activities	12
	2.3.	The most significant investments and events	13
	2.4.	The main risks and ambiguities	14
	2.5. T	he main financial ratios concerning the reporting period	15
	2.6. S	ignificant related party transactions	15

1. ABOUT THE COMPANY

1.1. CITY SERVICE GROUP

City Service SE (hereinafter – "the Company") is a public limited liability company registered in the Republic of Estonia.

The Company controls corporate group, engaged in provision of facility management and integrated utility services in Western, Central and Eastern Europe. The City Service group is the market leader in facility management and integrated utility services in the Baltic States. It provides services in whole Lithuania, Poland, Spain, Latvia, in St. Petersburg city in Russian Federation.

The Group companies' principal areas of activities:

1.2. Structure of the Group

City Service SE
latvia			Lithuania		poland	St. Petersbu rg	spain
100% SIA City Service	100% UAB Alytaus būstas	100% UAB Economus	99.27% UAB Mano Sauga	100% UAB Šiaulių būstas	100% City Service Poland sp. z. o.o.	100% OAO Cити Сервис / ОАО City service	100% Administra ciones SantaPola S.L.
100% SIA Namu serviss APSE	76% UAB Alytaus namų valda	100% UAB Justiniškių būstas	100% UAB Mano sauga LT	99.84% UAB Šilutės būstas	100% City Service Polska sp. z o.o.	100% ЗAO Cити Сервис / ZAO City service	100% Administracion Urbana y Rural Chorro, S.L.U.
100% SIA Riga City Service	100% UAB Antakalnio būstas	100% UAB Jūros būstas	100% UAB Namų priežiūros centras	100% UAB Vėtrungės būstas	100% City Service Grupa Technicz na sp. z o.o.	100% OAO Специализи рованное ремон- тно-наладочное управление	100% Afimen administración de finques, S.L.U.
	100% UAB Aukštaitijos būstas	100% UAB Kauno centro būstas	100% UAB Naujamiesčio būstas	100% UAB Vilkpėdės būstas	100% Dom Best sp. z o. o.	100% ООО МН Групп	100% Concentra Servicios y Man tenimiento, S.A.
	100% UAB Baltijos būsto priežiūra	100% UAB Karoliniškių būstas	100% UAB Naujosios Vilnios turgavietė	100% UAB Vilniaus turgus	100% EnergiaOK sp. z o.o.	80% ООО Жилкомсервис № 3 Фрун- зенского района	100% Elche administracion de fincas, S.L.U.
	100% UAB Baltijos NT valdymas	100% UAB Karoliniškių turgus	100% UAB Nemuno būstas	100% UAB Vingio būstas	100% Grupa Techniczna 24 sp. z o.o.	100% ООО Чистый дом
	100% UAB Baltijos pastatų valdymas	100% UAB Konarskio turgelis	100% UAB Pastatų priežiūra	100% UAB Viršuliškių būstas	100% Famix sp. z o.o.	100% ООО Подъемные механизмы
	100% UAB Baltijos transporto valdymas	100% UAB Lazdynų butų ūkis	100% UAB Pašilaičių būstas	100% UAB Žardės būstas	100% Parama Group sp z. o. o. *
	100% UAB Baltijos turto valdymas	100% UAB Lazdynų būstas	100% UAB Pempininkų būstas	100% UAB Žirmūnų būstas	100% Progresline sp. z o.o.
	100% UAB Birštono būstas	100% UAB Mano aplinka	100% UAB Pietinis būstas		100% SANTER Zarządzanie Nie­ ruchomościami sp. z o.o.
	100% UAB Dainavos būstas	100% UAB Mano aplinka plius	100% UAB Radviliškio būstas		100% Zespół Zarządców Nieruchomości sp. z o.o.
	100% UAB Danės būstas	100% UAB Mano Būstas	100% UAB Skolos LT	*List of companies is provided in the Consolidated interim financial statements for the six months period ended 30 June 2016, Note 3, page 23.

2. INTERIM MANAGEMENT REPORT

2.1. Main areas of activity

2.1.1. Apartment buildings administration

The Group companies provide apartment buildings administration services, i.e. perform all necessary activities in order to preserve collectively used objects and use them according to their purpose. The companies also perform continuous technical maintenance.

The companies undertake supporting the mechanical endurance of principal building structures, eliminating small defects, preventive actions and adjusting the commonly used engineering equipment, ensuring safe use, eliminating emergencies, preventive actions and adjusting heating and hot water supply systems and preparing for the heating season.

The Group provides apartment buildings administration and maintenance services in Lithuania, Poland, Latvia, Spain and the city of St. Petersburg.

In Lithuania the Group companies increased the area of maintained buildings by signing new contracts with the building owners. During the first half-year the area of maintained apartment buildings increased by 20 thousand square meters. The largest expansion was performed in Vilnius. At present the total area of maintained buildings reaches 9.6 million sq. m.

In Poland the Group acquired two companies, engaged in provision of apartment buildings maintenance services in Warsaw and Szczecin – Parama Group and Dom Best. The total area of the buildings, administered by these companies, is 1.9 million sq. m. After the acquisition the total area of the administered apartment buildings in Poland grew by approximately 20 percent and at present reaches 12.7 million square meters.

Currently Group's management views residential buildings administration market in Poland as one of the primary markets to expand the operations via new acquisitions.

In Spain active development was continued in the apartment buildings administration market in the first half of the year. The Group company Santa Pola started providing its services in Yecla and Guadalajara regions. After signing new contracts the total area of maintained apartment buildings increased by 220 thousand sq. m. and at present reaches 1.9 million sq. m.

The Group expects to continue dynamic expansion in the residential buildings administration market in Spain via the new acquisitions as the Group's management views it as one of the primary expansion destination.

In Latvia, during the first half of the year, the total area under management increased by 8 thousand sq. m. Additionally, environment restoration projects were commenced for 10 buildings. Agreements are expected to be signed with 6 more buildings, the total area of which is 12 thousand sq. m. The Group company will continue to implement active expansion measures.

At present the area of apartment buildings under management amounts to 279 thousand sq. m.

During the first half of 2016 subsidiaries operating in St. Petersburg maintained the same level of activity comparing with the year-end. The target for the second half of the year is to sign maintenance contracts with two new apartment buildings, after which the total area of maintained buildings is expected to grow by 20 thousand sq. m. At present area under management amounts to 3.3 million sq. m.

2.1.2. Commercial facility management

The Group companies provide commercial facility management services, ensuring reliable functioning of buildings' systems and lower maintenance costs.

The companies undertake buildings' maintenance from the engineering equipment, management and saving of energy resources to cleaning and security of indoor facilities.

The Group companies provide commercial facility management services in Lithuania, Latvia, Poland and Spain.

In Lithuania the range of customers was expanded – 32 contracts were signed. The total area of maintained facilities amounted to almost 3.5 million sq. m.

Complex facility management services were commenced to be provided to shopping and leisure centre Panorama, production facilities cleaning services - to Philip Morris Lietuva. Also the Group company started providing telecommunication cable ducts system inspection services for the telecommunication company TEO, building maintenance services – to newly built section of the shopping valley Nordika.

In Spain the Group company started providing engineering systems maintenance services to The National Police Corps premises, located in Madrid region, the travel agency Agencia Española and the University of Alcala. Complex facility management services were commenced to be provided to the electric utility company Iberdrola, located in Barcelona.

Currently, commercial property administration market experiences unfavorable conditions due to the fierce competition and inflexible labor regulations. Such reasons led to negative effect on operating result.

At present the area under management amounts to 6.4 million sq. m.

In Latvia during the first half of the year, the range of commercial segment customers was expanded. A new complex facility management and maintenance contract was signed with the sports clubs operator Lemon Gym. Engineering systems maintenance services were commenced to be provided to one of Latvia's largest concert halls - Lielais Dzintars in Liepaja.

Engineering systems maintenance services were commenced to be provided to the construction materials sales centre Depo Diy and two more shopping centres RIMI.

In 2016 the total area of maintained buildings reached almost 0.9 million sq. m.

In Poland the Group company continued to extend the range of its commercial segment as well as public sector customers. During the first half-year the company signed the contract with Victoria Business Centre and Galeria Manhattan and commenced maintaining the production facilities Łucznik.

The total area of maintained commercial objects reaches 2.9 million sq. m.

2.1.3. Territories maintenance and cleaning

The Group companies provide full range of territories maintenance and cleaning services: perform cleaning inside premises and outside the buildings, maintain private territories and public spaces in cities and towns. Furthermore, scope of services provided includes: removal of snow, sand and fallen leaves, grass cutting and other special purpose cleaning works. Cleaning and territories maintenance services are provided in Lithuania, Latvia, Spain and the city of St. Petersburg.

In Lithuania the Group company provides cleaning and territories maintenance services in Vilnius, Kaunas, Klaipėda, Šiauliai, Biržai, Alytus, Šilutė, Rokiškis and Radviliškis. It ensures cleanliness both in apartment buildings and commercial facilities and also in public spaces in the cities and towns.

This year new contracts were signed with State Enterprise Vilniaus Pilių Direkcija, Public Enterprise Vilniaus Parkai and Lithuanian Academy of Music and Theatre.

In Rokiškis the Group company commenced maintaining the town's rain sewage and lighting systems.

The company continuously expands the range of its services and invests into procurement of new equipment – during the first half of 2016 different equipment was purchased for the amount of EUR 80 thousand.

In Latvia the Group companies provide cleaning and territories maintenance services to apartment buildings, shopping centres, offices and sports clubs.

In Spain the Group company mostly provides inside premises cleaning services to commercial and stateowned facilities. The Group company concluded inside premises cleaning services contracts with National Police Corps regarding its premises in Navarro region and Social insurance institution in Cadiz region. Cleaning services were also commenced to be provided to the offices and shops of the publishing company Grupo Planeta.

Currently, premises cleaning market experiences unfavorable conditions due to the fierce competition and inflexible labor regulations. Such reasons led to negative effect on operating result.

in St. Petersburg the Group company provides territories maintenance and cleaning services to apartment buildings.

2.1.4. Other services

Apart from their principal activities, the Group companies in Lithuania, Poland, Latvia and the city of St. Petersburg provide the services of security, debt recovery and maintenance of children's playgrounds, engage in renovation of buildings, production and supply of thermal energy, installation of boiler rooms, retail trade of electric energy and provide the service of administering charges for utility services.

In Lithuania the Group companies provide security services to 3,500 customers, performed renovation of 21 buildings and maintain 523 children's playgrounds.

The Group Company, operating in Latvia, provides assistance in preparation of documents for implementation of renovation projects for 33 buildings.

In Poland the Group companies engage in production and supply of thermal energy, installation of boiler rooms and retail of electric energy.

IN St. Petersburg the Group company provides the service of administering the charges for utility services to 341 apartment buildings.

2.2. Improving efficiency of activities

The efficient business processes management methodology LEAN was continued to be implemented throughout the Group. Projects were implemented in all regions, where the Group executes its activities, first and foremost – in Lithuania, Spain and St. Petersburg.

In Lithuania in the first half of the year most attention was dedicated to ensure the sustainability of results of implemented projects and dissemination of decisions, encouraging sharing and use of good practice throughout the Group. Periodical LEAN project days were organized, the employees were involved into the educational LEAN games and discussions of books in the Book Club. Employees of different levels were further involved into setting of targets, tuned with the Group's strategies, annual action plans were drawn and results follow-up indicators were set. The employees' involvement into the continuous development activities in Lithuania reached 11 per cent.

In St. Petersburg the optimization of departments performance was continued. It had positive impact on sales of additional services. All divisions and units introduced indicators and 100 per cent of top level management participated in the competence measurement process.

In Spain Group companies continue to implement improvements in their activity processes. All the top level managers and majority of employees are involved in the processes. In 2016 significant attention will be dedicated to increase employees' competences.

In Poland the activity optimization solutions are also continued to be implemented. Thanks to LEAN, the development plans are actively performed, all the top level managers and about 80 percent of administration employees are involved in the continuous improvement activities. The region displays significant potential, therefore special attention will be dedicated for the improvement of efficiency.

In Latvia the LEAN methodology was developed through A3 projects, involving more and more employees into the processes.

The LEAN culture became one of the key competitive advantages for the Group therefore in the second half of 2016 the activity improvement processes will further be implemented in all of the Group companies.

2.3. The most significant Investments and Events

January

On 6 January 2016 implementing the tender offer, UAB ICOR acquired 5,877,675 shares of the Company. After the transaction, UAB ICOR owns 26,813,293 ordinary shares of the Company, which provides 84.83% of the authorized capital and voting rights.

February

On 9 February 2016 reorganization of UAB Žaidas was finished. Method of reorganisation was separation. After separation of property, rights and responsibilities, two new companies UAB Alytaus būstas and UAB Alytaus namų valda were established. After reorganization the name of UAB Žaidas was changed into UAB Kauno centro būstas.

april

On April 2016 the Company, through its Polish subsidiary, acquired the company Parama Group sp. z o.o (consisting of 11 companies). Engaged in administration of residential and commercial property as well as technical services for the related properties. Parama Group is a residential buildings administration market leader in Warsaw region.

On 1 April 2016 reorganization of the companies UAB Šiaulių namų valda and UAB Apkaba was completed. After the process of reorganization UAB Apkaba was incorporated into UAB Šiaulių namų valda with all the assets, rights and obligations. UAB Apkaba ceased operations and was deregistered. After reorganization UAB Šiaulių namų valda name was changed to UAB Pietinis būstas, director and other contact details did not change.

On 30 April 2016 the Company's shares were delisted from trading on AB Nasdaq Vilnius. The shares of the Company will continue to be listed and traded on the Warsaw Stock Exchange.

May

On 5 May 2016 reorganization of the companies UAB Žirmūnų būstas and UAB Nemuno būsto priežiūra was completed. After the process of reorganization UAB Nemuno būsto priežiūra was incorporated into UAB Žirmūnų būstas with all the assets, rights and obligations. UAB Nemuno būsto priežiūra ceased operations and was deregistered. After reorganization UAB Žirmūnų būstas director and other contact details did not change.

On 23 May 2016 the Ordinary General Meeting of the Shareholders of the Company has been held. The shareholders approved the set of consolidated annual financial statements of the Company for 2015, distributed the Company's profit for the year 2015 and decided to grant right to the Company to acquire own shares.

june

On 2 June 2016 the Company, through its Polish subsidiary, acquired Dom Best sp. z o.o., which manages residential facilities in Poland.

2.4. THE MAIN RISKS AND AMBIGUITIES

In 2016 the market was stable, prices and purchasing power did not decline, in comparison with 2015. Due to heavy competition in facility management market the Group had to concentrate on further efficiency of its activities. Building administration tariffs did not change significantly in a course of the year.

The risks remain similar to last year's: inflation, customers' ability to pay, competition-influenced stricter demands from commercial and residential clients, supply of qualified personnel in the market.

The scope of residential apartment building administration and maintenance services, the essential requirements for service providers, and the tariff calculation procedure are set and regulated in detail by the national and local authorities. Local authorities are empowered to set maximum tariffs for such services, together with the relevant inspectorates they control the proper implementation by service providers of the administration and maintenance requirements set out in legislation, and have a right to impose sanctions for failure to comply with the set requirements. Any claims concerning the services provided may be presented to the authorities or service providers by individual owners as well. Taking into account the aforementioned, additional risk factors in the field of apartment building administration and maintenance include any possible amendments to the enforced legislation, the frequency of adoption of such amendments, resolutions passed by central or local authorities and the results of controls carried out by various inspectorates and local authorities. Timely and correct indexation of the set maximum tariffs is also a risk factor which has an impact on the Group's activities in the field of residential apartment building administration and maintenance.

There were no material changes in the legal regulation of the area of administration and maintenance of apartment buildings in the first half of 2016, and neither there were any decisions providing for significant additional obligations for service providers; supervising institutions did not identify any major deficiencies in the provision of the services or inconsistencies with the legislative requirements.

Credit risk

The Group's procedures are in force to ensure on a permanent basis that sales are made to customers with an appropriate credit history and do not exceed an acceptable credit exposure limit. There are no individual customers exceeding 10% of segment sales.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset. Therefore, the management considers that its maximum exposure is reflected by the amount of trade and other receivables, net of allowance for doubtful accounts recognised at the date of the statement of financial position.

Interest rate risk

The major part of the Group's and the Company's borrowings (loans and financial lease obligations) are subject to variable rates, related to EUR LIBOR, EURIBOR, EONIA and WIBOR, which create an interest rate risk. There are no financial instruments designated to manage the exposure to the interest rate risk outstanding as of 30 June 2016 and 2015.

2.5. THE MAIN FINANCIAL RATIOS CONCERNING THE REPORTING PERIOD

The main financial ratios concerning the reporting period are provided in the Consolidated interim financial statements for the six months period ended 30 June 2016, Note 1.7, page 21.

2.6. SIGNIFICANT RELATED PARTY TRANSACTIONS

Significant related party transactions are provided in the Consolidated interim financial statements for the six months period ended 30 June 2016, Note 13, page 30.