interim report january – september 2016 · interim report january – september 2016 key events...

East Capital Explorer AB

Corporate ID no. 556693-7404Box 7214, 103 88 Stockholm, Sweden

Tel: +46 8 505 97 700

[email protected]

Key figures

30 Sep 2016 31 Dec 2015

NAV per shareEUR 8.73 EUR 9.00

SEK 84 SEK 82

Closing price per share

EUR 5.97 EUR 5.54

SEK 57.50 SEK 50.75

Total NAV EUR 228m EUR 254m

Market cap EUR 168m EUR 158m

2016 2015

Net resultJul-Sep EUR -2.0m EUR -10.8m

Jan-Sep EUR -9.5m EUR 6.0m

Earnings

per share

Jul-Sep EUR -0.08 EUR -0.38

Jan-Sep EUR -0.35 EUR 0.20

1 EUR = 9.63 SEK on 30 Sep 2016. Source: Reuters

Interim Report

January – September 2016

Key events during the quarter

» Net Asset Value (NAV) per share, adjusted for share

buybacks, was EUR 8.73, -0.1% during the quarter. TotalNAV was EUR 228m. Excluding items affectingcomparability, NAV per share increased by 0.8% duringthe quarter

» Real Estate increased by 2.5% and Private Equity by 0.4%

in Q3. Public Equity decreased by 1.2%

» The sale of Starman has been delayed due to legal

proceedings and our current estimate is to close thetransaction around the turn of the year

» 891,059 shares, corresponding to 3.2% of outstanding

shares, were repurchased during the quarter

» EUR 12.5m of the holding in East Capital Frontier

Markets Fund and EUR 7.2m in East Capital Deep ValueFund was sold during Q3

» EUR 4.8m was invested in Baltic Property Fund III in

conjunction with its acquisition of Hilton Tallinn Park

» The results include EUR -2.0m related to the acquisition

of the remaining shares in the holding company ECEXHolding SA, hitherto co-owned with East Capital, as wellas other previously announced commitments

» An in-house investment organisation with four new

employees was created

Key events after the quarter

» During 11 October - 16 November the Company

repurchased 243,655 own shares, corresponding to 0.9%of outstanding shares

» Fund holdings totalling EUR 7.0m were sold after the end

of Q3; EUR 2.0m in Frontier Markets Fund and EUR5.0m in Deep Value Fund

» In November, the Nomination Committee announced

that it will propose Göran Bronner as a new BoardMember at an EGM expected to be held around the endof January

» The Company will construct a third office tower with a

GLA of 13,000 sqm adjacent to 3 Burės in Vilnius. A long-term rental agreement was signed with Swedbank for70% of the area

”The

streamlining

continues and

our Baltic real

estate exposure

grows further(Mia Jurke, CEO)

East Capital Explorer AB Interim Report January – September 2016

2

Mia Jurke, CEO

We saw no dramatic changes in the markets, nor inour portfolio companies during the third quarter.

The growth forecasts for the three Balticeconomies, our largest investment region, havebeen slightly revised downwards. The countries are

nevertheless expected to grow at balanced levelsbetween 1.5 and 2.5 percent this year, mainly drivenby private consumption. Since the end of June, we

have increased our exposure to the Baltic real estatemarket further through the second draw down inEast Capital Baltic Fund III in July. In October, we

decided to start the construction of the third officetower in the 3 Burės property that we acquired in the spring of 2014. This means that our investments

in both the Baltics and the real estate segment willcontinue to increase, completely in line with ourstrategy. In Russia, there are positive signs of aturnaround. Inflation fell to 6.1 percent in October

2016 compared to 15.6 percent a year earlier and,since the beginning of the year, the rouble hasstrengthened 13.4 percent against the euro.

Consumption increased during the third quarter forthe first time since the end of 2014, which is goodnews not least for our holding Melon Fashion

Group.

The sale of Starman, which was expected to closeduring the third quarter, was further postponed as

a partial award by an arbitration panel confirmedthat the pre-emption right of the minorityshareholder is still valid. In other words, the

substantial cash injection that the sale entails willbe further delayed. The buyback program, whichwas initiated in May, has proceeded financed by

divestments of funds with public equity exposure.During the third quarter, a further 3.2 percent ofoutstanding shares were repurchased,

corresponding to EUR 5.9m.

In August, East Capital Explorer acquired the

control shares in the formerly jointly ownedholding company in Luxembourg from EastCapital, thereby giving us sole control of both theportfolio and the company structure. This enables

us to streamline the corporate structure, which willeventually increase both cost efficiency andtransparency in the company.

Our work on reducing our operating costscontinues. In the quarter we added four new

employees to our in-house investmentorganisation, thereby replacing the formermanagement fees that were based on assets under

management. Our underlying operating expenseswere consequently reduced by 43 percentcompared to the third quarter 2015, and we

maintain our objective to half our overall operatingcosts.

NAV and share development

NAV per share in EUR was almost unchanged

during the period, adjusted for repurchased shares

(however +2.4 percent in SEK). Excluding items

affecting comparability, NAV per share increased

also in EUR, by 0.8 percent. The total NAV however

decreased, primarily as a result of the ongoing

repurchases. The NAV was also charged with costs

related to the acquisition of the control shares in

ECEX Holding and certain other commitments, a

total of EUR 2.0m included in the results. The

strongest segment was once again Real Estate,

which now represents almost a third of the NAV.

The Public Equity segment showed a slight

decrease driven by negative results in the East

Capital Deep Value Fund holding.

The share price decreased slightly during the

quarter, ending at -3.0 percent in SEK. The price

has however recovered since the quarter end, and

year-to-date the share is up by 25.2 percent,

adjusted for dividend.

The streamlining continuesIncreased exposure towards Baltic real estate while divestments of public equity funds continue. The

reorganisation is on track and operating expenses were reduced by 43% in the third quarter

ECEX NAV and share price vs. MSCI Emerging Markets Europe, 3 years(SEK)

50

70

90

110

130

150

MSCI EM Europe ECEX share price ECEX NAV

Change in NAV during the third quarter 2016, EURm

227.6

-0.30.1

-5.9

-1.7-2.0

0.4 0.21.1 1.0

0.40.5 -1.7235.6


3

25.2%share price increase(SEK) year-to-date

“Melon Fashion Groupgrew by 6.5% in total,with a like-for-likegrowth of 3.7%”

“We see goodopportunities in theBaltic real estatemarket”

Portfolio development and activity

The exposure to the Baltic real estate marketincreased further during the quarter. In July, EUR

4.8m was invested in East Capital Baltic PropertyIII in connection to the fund’s acquisition of HiltonTallinn Park Hotel in August. Furthermore, after

the end of the quarter, we decided to commenceconstruction of a third tower in our property3 Burės on the adjacent land plot that was part of

the acquisition in 2014. The third tower, which isexpected to be finished within two years, will havea leasable area of 13,000 sqm, of which almost 70

percent is already leased out through an agreementwith Swedbank. The building will therebyguarantee a stable cash flow immediately after

completion, with an expected return on equity ofaround 15 percent. The new building alsostrengthens our offering in the 3 Burės property

that will become the largest A class office complexin the Baltics. The total project investment isestimated at EUR 25m, of which EUR 9m will be an

equity investment by East Capital Explorer, thebulk of which will be invested during the secondconstruction year.

Among our other investments, there were no majorchanges. Despite continuingly weak store traffic,

Melon Fashion Group reported a total sales growthof 6.5 percent and a like-for-like growth of 3.7percent. The company is now focusing on rollingout the new store concepts, which are showing

stronger sales, and on improving customerofferings and profitability. However, MFG’sprofitability in the quarter fell somewhat as a result

of negative currency components and higher headoffice costs.

During the quarter, divestments of funds withpublic equity holdings continued. In total, EUR19.7m in East Capital Frontier Markets Fund and

East Capital Deep Value fund was divested, whichmeans that the share of the portfolio with exposuretowards the stock market is now down to a fourth.

After the end of the quarter further divestmentshave been made.

Outlook

The decision to repurchase shares as long as the

NAV discount is above 20 percent remains. InOctober we entered a so-called safe harbouragreement in order to uphold the repurchases until

year-end. Up until now, we have repurchased 8.3percent of our outstanding shares. We have, as wecommunicated earlier this spring, an intention to

cancel the repurchased shares in case we get closeto 10 percent, which is the mandate we were givenby the AGM in June, in order to keep the

repurchases going. East Capital Explorer will host

an EGM around the end of January for the electionof the proposed fifth Board member Göran

Bronner. At the same time, a proposal will be putforward to cancel treasury shares.

Despite many and long delays, we currently expectto close the Starman deal around the turn of theyear, which will mean that we will have a strong

position for investments in the time to come. Asbefore, we see good opportunities in the Baltic realestate market. Focus will be on the construction of

the third office tower in the 3 Burės property, and in parallel we are also examining other interestinginvestment opportunities.

Mia JurkeCEO, East Capital Explorer


4

East Capital Explorer’s strategy builds on four cornerstones: growth in Eastern Europe, domestic consumption, companies

with strong outlook and a long-term active ownership. The preferred way of investing is through direct investments. EastCapital Explorer’s focus for new investments is within the Private Equity and Real Estate segments, where the company can,

in a more direct way, contribute its expertise and create value.

Net Asset Value (NAV)

Value30 Sep 2016

EURmNAV/share

EUR % of NAV

Value30 Jun 2016

EURm

Value31 Dec 2015

EURm

Value changeJan-Sep 2016

%¹

Value changeJul-Sep 2016

%¹

Private Equity

Melon Fashion Group 26.4 1.01 11.6 26.7 26.5 1.2 0.5

Trev-2 Group 6.2 0.24 2.7 6.2 6.2 0.0 0.0Total Private Equity 32.6 1.25 14.3 32.9 32.7 0.9 0.4

Real Estate

3 Burės 30.1 1.16 13.2 29.1 27.6 8.0 3.5

East Capital Baltic Property Fund II 27.7 1.06 12.2 27.3 26.8 6.8 1.6

East Capital Baltic Property Fund III 8.3 0.32 3.7 3.4 3.3 3.3 1.6Total Real Estate 66.2 2.54 29.1 59.8 57.7 6.9 2.5

Public Equity

East Capital Deep Value Fund 31.3 1.20 13.7 40.1 40.3 -4.6 -4.1

Komercijalna Banka Skopje 9.1 0.35 4.0 8.0 8.6 10.8 13.8Total Public Equity 40.4 1.55 17.7 48.1 48.9 -1.9 -1.2

Short-term Investments

Starman³ 81.3 3.12 35.7 81.3 71.8 13.2 0.0

East Capital Frontier Markets Fund 11.7 0.45 5.1 24.0 31.1 0.5 0.8

Other short-term Investments⁴ 1.1 0.04 0.5 1.1 1.4 -18.6 3.1

Short-term Investments 94.1 3.61 41.3 106.4 104.3 9.0 0.2

Cash and cash equivalents 4.1 0.16 1.8 4.0 10.5

Total Short-term Investments 98.2 3.77 43.1 110.4 114.8

Total Portfolio 237.4 9.11 104.3 251.2 254.2

Other assets and liabilities net -9.7 -0.37 -4.3 -15.7 -0.6

Net Asset Value (NAV) 227.6 8.73 100.0 235.6 253.6 -3.0 -0.1²

1 The value change calculation is adjusted for investments, divestments and distributions during the relevant period. i.e. it is the percentage change between: the fair value plus any proceeds

from dividends or divestments during the period, divided by the opening value plus any added investment during the period

2 NAV per share development

3 Due to the ongoing sale of Starman, the asset has been reclassified from Private Equity at year-end 2015, to Short-term investments in Q1 2016

4 Includes East Capital Bering Ukraine Fund Class R

The number of shares used in NAV/share 30 Sep 2016 is 26,065,818 and is adjusted for repurchased shares held by the company (Note 6).

1 EUR = 9.63 SEK on 30 Sep 2016. Source: Reuters

Note that certain numerical information may not add up due to rounding

Our portfolio


5

10 largest holdings in East Capital Explorer’s portfolio on a see-through basis (sum of direct and indirect holdings)1

30 September 2016Value in

portfolio,mEURCompany % of NAV Perf. Q3, % Country Sector

East Capital Explorer’sinvestment vehicle

Starman 81.3 35.7 0,0 Estonia Telecom Direct Investment (held for sale)

3 Burės 30.1 13.2 3,5 Lithuania Real Estate Direct Investment

Melon Fashion Group 26.4 11.6 0,5 Russia Cons. Disc. Direct Investment

Komercijalna Banka Skopje 11.5 5.0 13,8 Macedonia Financials Direct InvestmentEast Capital Deep Value Fund

Gedimino 9 6.4 2.8 1,5 Lithuania Real Estate East Capital Baltic Property Fund II

Trev-2 Group 6.2 2.7 0,0 Estonia Industrials Direct Investment

Tanassilma Logistics 6.1 2.7 2,1 Estonia Real Estate East Capital Baltic Property Fund II

Mustamäe Keskus 5.1 2.3 2,4 Estonia Real Estate East Capital Baltic Property Fund II

Hilton Hotel 4.9 2.1 0,0 Estonia Real Estate East Capital Baltic Property Fund III

Metro Plaza 4.6 2.0 2,8 Estonia Real Estate East Capital Baltic Property Fund II

Total 182.6 80.2

1 As if East Capital Explorer had owned its pro-rata share of all the underlying securities in the different funds it has invested in

Sector breakdown, %

A Telecom 37 (34)

B Real Estate 30 (24)

C Consumer Discretionary 14 (17)

D Financials 11 (13)

E Industrials 3 (4)

F Utilities 2 (1)

G Consumer Staples 1 (4)

H Energy 0 (2)

I Materials 1 (1)

J Health Care 0 (0)

K Information Technology 0 (0)

Geographic breakdown, %

A Baltics 67 (54)

B Russia 12 (19)

C Balkans 10 (12)

D Other countries 11 (15)

Segment breakdown, %

A Private Equity 14 (14*)

B Real Estate 29 (20)

C Public Equity 18 (19)

D Short-term investments, cash,

other assets and liabilities

43 (47*)

*Starman reclassified to short-term asset for comparability

K KJ JI IH HG

G

FF

EE

D

D

C

C

B

B

A A

0%

20%

40%

60%

80%

100%

Q3 2015 Q3 2016

D D

CC

B

B

A

A

0%

20%

40%

60%

80%

100%

Q3 2015 Q3 2016

DD

C

C

BB

A A

0%

20%

40%

60%

80%

100%

Q3 2015 Q3 2016

*Comparative numbers in parentheses refer to the corresponding

period 2015


6

Melon Fashion Group

Russian fashion retailer Melon Fashion Group (MFG) is wellpositioned with a broad target group under three strong brands:Zarina, befree and Love Republic. MFG benefits from theconsolidation in the fragmented Russian fashion industry and long-term consumption growth.

East Capital Explorer’s holding in the company 36%

% of NAV 12%

RUBm 2016Jan-Sep

2015Jan-Sep

2016Jul-Sep

2015Jul-Sep

Sales 9,301 9,078 3,362 3,156

Gross profit 4,162 3,970 1,531 1,475

EBITDA 51 363 148 296

Net profit -199 10 38 158

Sales growth (%) 2.5 14.6 6.5 1.9

Gross margin (%) 44.7 43.7 45.5 46.8

EBITDA margin (%) 0.5 4.0 4.4 9.4

Net debt (neg = net cash) -320 4 -320 4

Balance sheet total 4,601 4,536 4,601 4,536

Number of stores (end-quarter) 577 641 577 641

Like-for-like sales growth (%) 0.6 3.5 3.7 -3.4

• MFG’s total sales increased by 6.5% in Q3, lifted by positive 3.7% like-for-like growth and stronger sales in newly opened stores, despite nosigns of relief in terms of store traffic numbers

• Gross margin declined to 45.5% (46.8%) in Q3 due to slightly weakerrouble and higher share of franchise sales. On a year-to-date basis thegross margin improved to 44.7% (43.7%) on the back of lowerreduction levels despite the weak rouble

• Reported Q3 EBITDA weakened to RUB 148m (296m), correspondingto an EBITDA margin of 4.4% (9.4%). EBITDA was negatively affectedby currency as well as administrative expenses

• On a 9M basis the EBITDA decreased to RUB 51m (363m)corresponding to a margin of 0.5% (4.0%). However, adjusted fornon-cash revaluation of financial derivatives, the underlying 9MEBITDA improved from RUB 133m for the first nine months 2015 toRUB 246m in 2016

• MFG’s current focus lies on a continued efficient roll-out of the newstore formats financed by own operations, integration of newcompetence in the brand teams, and continuous fine-tuning ofassortment in pursuit of higher full price sell-through ratio

• During the quarter the store count was reduced to 577 with no changein total selling area, as a result of store size increase of newly openedand relocated stores

• The underlying RUB based valuation was kept unchanged. The fairvalue was adjusted for dividend pay-out equivalent to EUR 0.5m forECEX’ holding (total RUB 100m), as well as for a marginal translationeffect from RUB to EUR of 0.2%

Learn more about Melon Fashion Group on: www.melonfashion.ru

Trev-2 Group

Trev-2 Group, one of the largest infrastructure construction andmaintenance companies in Estonia, was acquired as a restructuringcase and has under East Capital Explorer’s ownership concentratedits operational focus on two core areas: road construction and roadmaintenance.


% of NAV 3%

EURm 2016Jan-Sep

2015Jan-Sep

2016Jul-Sep

2015Jul-Sep

Sales 41.4 41.5 23.9 24.3

EBITDA 2.5 2.2 2.4 2.7

Operating profit 1.0 0.1 2.0 2.0

Net profit 0.7 0.0 1.9 2.1

Sales growth (%) -0.2 -30.6 -1.6 -14.2

EBITDA margin (%) 6.0 5.3 10.0 11.1

Operating margin (%) 2.4 0.2 8.4 8.2

Net debt 5.5 6.7 5.5 6.7

Balance sheet total 37.7 42.9 37.7 42.9

• In the third quarter, business activity was high at Trev-2 Group.Revenues for the quarter amounted to EUR 23.9m (EUR 24.3m) andEBITDA to EUR 2.4m (EUR 2.7m), both of which decreased comparedto the third quarter 2015

• Year-to-date EBITDA increased by 12.3% on flat revenues on the backof a slight gross margin improvement and a reduction in overheadexpenses, as a result of recent efficiency measures. Despite a stablenine months’ period for Trev-2, market visibility remains limited andthe competitive climate challenging for Estonian road builders

• Trev-2’s capex requirement is currently low and, as a consequence,cash flow from investment activities was positive during the first ninemonths of the year. The liquidity situation is good, with bank debtbeing reduced in the third quarter. A dividend of EUR 0.8m has beenapproved and EUR 0.3m is set to be distributed to ECEX before year-end

• On 30 September, net debt amounted to EUR 5.5m, corresponding to2.6x EBITDA for the last twelve months

• The fair value of the holding in Trev-2 Group was kept unchanged atEUR 6.2m

Learn more about Trev-2 Group on: www.trev2.ee

Private EquityThe Private Equity segment represents 14 (14) percent of total Net Asset Value. East Capital Explorer primarily

looks for non-cyclical, consumer-oriented companies with high growth and/or cash flow potential. More detailed

financial information regarding the Private Equity holdings is available on www.eastcapitalexplorer.com under

Investors/Reports and Presentations.


7

3 Burės

3 Burės is one of Vilnius’ most modern and well located A Class office

properties. The two buildings, with low vacancy rates and highinterest from potential tenants, generate stable cash flows withpotential ahead for increasing rents. At the same time, the country’s

stable and growing economy supports continued low financing costsand the potential for long term value appreciation. The constructionof a third building will be completed in 2018.


% of NAV 13%

RUBm 2016Jan-Sep

2015Jan-Sep

2016Jul-Sep

2015Jul-Sep

Net rental revenue* 3.4 3.3 1.1 1.1

Net operating income 3.2 3.0 1.2 1.0

Vacancy rate (%, end-quarter) 2.2 2.0 2.2 2.0

Avg. rent (€/sqm, end-quarter) 12.6 12.8 12.6 12.8* Rental income only, excluding income from communal services

• The current tenant mix in the business centre is stable. Vacancy in theoffice complex during third quarter increased slightly to 2.2% (2.0%)

as 220 sqm of area was released after reaching lease maturity

• The operating income includes an extraordinary income of EUR 0.2m

related to compensation for termination of lease agreement. Theterminated lease agreement temporarily affected the average rent

level that was marginally reduced from EUR 12.7 per sqm/month inthe second quarter to EUR 12.6 in the third quarter 2016

• Following a secured lease agreement with Swedbank for 70% of theleasable area in the planned third office tower, East Capital Explorer

decided to commence the construction. The two-year constructionworks will commence during the fourth quarter 2016, and the buildingis expected to be completed by the end of 2018. Negotiations are being

held with potential tenants covering the bulk of the remaining leasablearea in the new tower. ECEX’ equity investment is estimated toamount to approximately EUR 9m of the total investment of

approximately EUR 25m over the two-year construction period

• During the third quarter 2016, the fair value of 3Burės increased by

3.5% as a result of positive operating results

Learn more about 3 Burės on: www.3bures.lt

East Capital Baltic Property Fund II

The fund invests in and manages properties with well-established

tenants and sustainable rental terms in the Baltic capitals. Focus isprimarily on well-located shopping centres and retail properties, aswell as logistics and office properties with stable revenues and

potential for improvements. The fund is fully-invested.

East Capital Explorer’s share of the Fund 49%

% of NAV 12%

Q3 2016 YTD 2016 Since May 12

Performance of the holding, EUR 1.6% 6.8% 42.9%

Properties in

the portfolioWeight of

mkt value, %Contr,

%*Location Type

Mustamäe Keskus 21 18 Tallinn Retail

GO9 21 10 Vilnius Retail

Tänassilma Logistics 20 45 Tallinn Logistics

Metro Plaza 16 27 Tallinn Office

Deglava Prisma 11 -19 Riga Retail

Rimi Logistics 10 19 Tallinn Logistics

* Contribution; Share of quarterly change in NAV from property operating result

• The fair value of East Capital Explorer’s holding in East Capital Baltic

Property Fund II increased by 1.6% during the third quarter.Operating profit from Tänassilma Logistics contributed the most to

the quarterly increase, while Deglava Prisma decreased the quarterlyperformance

• The Deglava Prisma property remained closed after a deformation wasdetected in the construction elements at the beginning of June. The

cause has however been detected, necessary technical design has beenprepared and building permits have been received. The repair worksare expected to be finalized by the end of November and the permit of

use in the beginning of December. The NAV includes a reserve forextraordinary expenses that is estimated to cover the repair works

• Rent income for Deglava Prisma has been stopped from June and thelease agreement has been terminated, which might impact the year-

end valuation of the property

• In Mustamäe Keskus shopping center, which was opened in February

2016, the management is in close contact with all tenants andcoordinating marketing and other activities to achieve a solid market

position for the shopping centre. Footfall has stabilized and shopturnovers are satisfactory

Real EstateThe Real Estate segment represents 29 (20) percent of total Net Asset Value. The Real Estate investments in the

Baltic capitals are characterised by strong cash flows, sustainable rents and low vacancies. Yields are 7-9 percent,

2-3 percentage points higher than in the Nordic capitals, with attractive financing terms. More detailed financial

information regarding 3 Burės is available on www.eastcapitalexplorer.com under Investors/Reports and

Presentations, and regarding East Capital Baltic Property Fund II and III, on www.eastcapital.com.


8

East Capital Baltic Property Fund III

The fund was launched in 2015 and will invest in and managecommercial properties with well-established tenants and sustainable

rental terms in the Baltic capitals. Focus is primarily on retail, office,logistics and industrial properties in prime locations with stableincome and enhancement or value-added potential


% of NAV 4%

Q3 2016 YTD 2016 Since Aug 15


• The net asset value of East Capital Explorer’s holding in the fund

increased by 1.6% during the third quarter. The NAV increase is basedon operational profits from the two investments in the fund and alsoincludes costs related to the acquisition of the Hilton property in

August 2016

• Vesse Retail Park, the first acquisition in the Fund, is operating as

planned with full occupancy and average rent of EUR 9.4/sqm/month

• In Vesse property, the facade of the grocery store will be improvedthrough a joint investment by the landlord and Maksimarket.

Concurrently, the lease agreement is extended until 2027 and thetenant will receive a rent discount for coming 12 months

• In August, the fund completed its second investment by acquiringHilton Tallinn Park Hotel, the first Hilton hotel in the Baltics. The

property also includes Olympic flagship casino. ECEX invested EUR4.8m in the fund’s second drawdown in conjunction with the Hiltonacquisition

East Capital Explorer AB Interim Report January - September 2016

9

Komercijalna Banka Skopje

Komercijalna Banka Skopje (KBS), listed on the Macedonian stock

exchange, is Macedonia’s largest bank by assets and capital. The lowvaluation compared to other banks in the region makes it a potentialcandidate for strategic investors.


% of NAV (direct inv. and through EC Deep Value Fund) 5%

MKDm 2016Jan-Sep

2015Jan-Sep

2016Jul-Sep

2015Jul-Sep

Net interest income 2,195 2,162 717 750

Net interest margin (%) 3.7 3.7 3.7 3.7

Total operating income 3,128 3,057 998 1,031

Operating expenses 1,255 1,272 411 403

Cost Income ratio (%) * 37.6 39.2 41.2 39.1

Profit before tax and provisions 1,878 1,786 587 628

Net profit 526 317 325 498

* Excluding one-offs

• KBS reported a nine month net profit of MKD 526m (EUR 8.6m),

slightly exceeding the bank’s profit for the full year 2015. Since the loan

portfolio looks well provisioned, this interim profit bodes well for thefull year result. KBS is targeting just under 10% ROE for the full year

• Although the nine month results are encouraging, third quarter figuresin isolation are weaker. Net interest income for Q3 2016 was down

4.4% year-on-year, causing total operating income to drop by 3.2%,while operating expenses were 1.9% higher than Q3 2015

• The deposit withdrawals which affected all Macedonian banks duringthis spring’s period of political tensions have now been more or less

fully reversed. Total deposits are at almost the same level as this timelast year. Liquidity throughout the year has remained at more thanadequate levels, despite the deposit volatility

Learn more about Komercijalna Banka Skopje on: www.kb.com.mk

East Capital Deep Value Fund

The fund offers exposure to conservative market valuations of small

and mid-cap companies with proven business models, strong revenuegeneration and high revaluation potential where the fund managerscan take an active role in corporate governance of the portfolio

companies.


% of NAV 14%

Q3 2016 YTD 2016 Since Dec 14

Performance of the holding, EUR -4.1% -4.6% -0.6%

Largest holdings in the Fund on 30 September 2016

CompanyWeight,

%Perf,

%Contr,

%* Country Sector

B92 12.2 -27.6 -4.5 Serbia Cons. Disc.

Caucasus Energy &Infrastructure

9.3 -2.0 -0.2 Georgia Utilities

Bank Sankt-Peterburg 8.5 18.5 1.7 Russia Financials

Komercijalna Banka Skopje 6.8 14.0 0.7 Macedonia Financials

Reinsurance Co Sava 5.4 -2.8 -0.2 Slovenia Financials

Impact 5.4 -5.2 -0.3 Romania Real Estate

Chagala Group 3.4 -50.6 -2.9 Kazakhstan Cons. Disc.

Telekom Srpske 3.1 -15.7 -0.5 Bosnia Telecom

Pif Big 2.8 -0.4 0.0 Bosnia Financials

Cantik 2.8 -1.2 0.0 Ukraine Real Estate

All figures in performance during the third quarter 2016

* Contribution to the portfolio performance

10 largest holdings

(% of fund)Unlisted holdings

(% of fund)Total number of holdings

60 17 87

• The value of East Capital Explorer’s holding in the fund fell by 4.1% inthe third quarter. While the fund has no official benchmarks, this wasbelow MSCI Emerging Markets Europe which increased by 3.4% andMSCI Russia which gained 7.8%

• Our largest contributor to return was Bank of St Petersburg at 18.5%on the back of improving sentiment for Russia as inflation fell to 6.4%in September and key interest rate was cut to 10.0%

• The biggest detractor to return was Serbian media company B92, whichwas revalued downwards by 27.6% following an external valuation andweaker market outlook

• The Kazakh real estate company Chagala Group fell by 50.6% after asharp rise in the previous quarter, when the company announced ashare issue that was cancelled in the third quarter, prompting the shareto retract

• Going forward the fund’s focus is on exits for companies where fairvalue can be realised. The outlook remains fairly positive on theeconomies in Eastern Europe, particularly Russia which a return toGDP growth is expected in 2017

Public EquityThe Public Equity segment represents 18 (19) percent of total Net Asset Value. Investments in this segment offer

exposure to companies in sectors driven by domestic growth such as retail, consumer goods, finance, and real

estate. The listed portfolio comprises assets that can be used as a financing source for further investments in the

Private Equity and Real Estate segments.

East Capital Explorer AB Interim Report January - September 2016

10

Starman (held for sale)

Starman, the only truly pan-Baltic cable TV and broadband providerin Estonia and Lithuania, has a loyal customer base and strong non-cyclical cash flows. With its leading market position and superior

product offering, Starman is well positioned to lead the marketconsolidation and benefit from the increasing broadband penetration.


% of NAV 36%

EURm 2016Jan-Sep

2015Jan-Sep

2016Jul-Sep

2015Jul-Sep

Sales 43.0 38.0 14.4 13.2

- of which Cgates 14.0 10.7 4.7 4.0

EBITDA 18.3 18.1 5.7 6.2

- of which Cgates 5.3 4.6 1.7 1.7

Net profit 0.7 3.5 -0.2 1.1

Sales growth (%) 13.3 52.4 9.1 58.0

EBITDA margin (%) 42.6 47.6 39.8 47.0

Net debt 77,4 73.1 77,4 73.1

Balance sheet total 174.4 165.6 174.4 165.6

Number of RGU’s (’000) 560 502 560 502

- of which Cgates 257 201 257 201

Avg. ARPU, combined (EUR/m) 13.9 13.1 13.9 13.1

NOTE: Cgates consolidated as of 1 Feb 2015RGU: Revenue generating units, ARPU: Average revenue per user

• The sale of ECEX’ 63% interest in Starman to Providence Equity,

originally announced in March 2016, was further delayed following a

partial award by an arbitration panel. The award means that Polaris, aminority shareholder in Starman, can acquire ECEX’ stake at the sameterms as stipulated in the agreement with Providence Equity. The

transaction is expected to close around the turn of the year

• Operationally, the third quarter saw an improvement compared to the

weaker previous months, with customer intake being strong by the endof the quarter in both markets, Estonia in particular

• Comparable revenues grew year-on-year in both Estonia and Lithuania

in the third quarter and during the first nine months. ComparableEBITDA for the third quarter was lower that of last year due to higheroperating expenses and costs related to strong customer intake

• In August, the company made an add-on acquisition of TPG, a regional

cable TV operator in Lithuania with presence in the cities Panevezysand Ukmerge, as part of its in-market consolidation strategy. Theacquisition adds approximately 30,000 RGUs and makes Cgates the

market leader in Panevezys, the fifth largest city in Lithuania

• On 30 September, net debt amounted to EUR 77.4m, corresponding to

3.1x EBITDA for the last twelve months

• The fair value of the holding in Starman was kept unchanged at EUR81.3m, which is the estimated cash consideration at closing

Learn more about Starman on: www.starman.ee

East Capital Frontier Markets Fund

East Capital Frontier Markets Fund is a daily traded UCITS fund witha global focus on young and growing markets. To combine high growth,attractive valuations and risk-adjusted returns, the fund seeks to investin a wide spectrum of countries, sectors and companies. A significant

share is invested in off-index countries, the ”next frontiers”.


% of NAV 5%

Q3 2016 YTD 2016 Since Dec 14


Largest holdings in the Fund on 30 September 2016

CompanyWeight,

%Perf,

%Contr,

%* Country Sector

Banco Macro 5.3 2.0 0.1 Argentina Financials

National Bank Of Kuwait 4.9 -1.2 -0.1 Kuwait Financials

Viet Nam Dairy Products 4.3 21.0 0.7 Vietnam Cons. Stap.

United Bank 4.2 11.9 0.5 Pakistan Financials

Grupo Supervielle Sa 3.4 13.6 0.3 Argentina Financials

Habib Bank 3.0 11.5 0.3 Pakistan Financials

FPT Corp 2.9 15.0 0.4 Vietnam IT

Zavarovalnica Triglav 2.7 -0.4 -0.1 Slovenia Financials

Safaricom 2.7 17.7 0.4 Kenya Telecom

Brd 2.7 15.0 0.3 Romania Financials

All figures in performance during the third quarter 2016

* Contribution to the portfolio performance

10 largest holdings

(% of fund)Unlisted holdings

(% of fund)Total number of holdings

36 0 126

• The value of the holding in East Capital Frontier Markets Fund gained

0.8% while the MSCI Frontier Markets index gained 1.4% during thethird quarter

• Vietnam was the best contributor during the third quarter following the

long-awaited removal of the 49% foreign ownership limit. Topweighted Vietnamese holdings Vinamilk (Viet Nam Dairy Products)gained 21% and FPT Corporation 15%

• The largest active overweight position Grupo Supervielle in Argentina

increased by 13.6% as President Macri’s ambitious economic reformscontinued to give positive momentum

Short-term investmentsShort-term investments include assets that are expected to be divested. The largest short-term investment is

Starman, which is held for sale and corresponds to 36 percent of NAV. East Capital Frontier Markets Fund

corresponds to 5 percent of NAV. East Capital Bering Ukraine Fund Class R, which increased by 3 percent in the

third quarter, corresponds to 0.5 percent of East Capital Explorer’s NAV and is not specified below.

East Capital Explorer AB Interim Report 1 January – 30 September 2016

11

The investment activities of East Capital Explorer AB (publ) (theCompany) are managed in the operating subsidiaries Humarito Ltd,

East Capital Explorer Investments AB and ECEX Holdings SA(formerly East Capital Explorer Investments SA), which manages theinvestment portfolio. Transactions in the operating subsidiaries are

referred to as the investment activities in this report.Presentation currency is euro (EUR).

Results for the third quarter 2016

The net result for the third quarter was EUR -2.0m (EUR -10.8m),including value changes of shares in subsidiaries of EUR -1.7m (EUR

-10.4m), corresponding to earnings per share of EUR -0.08 (EUR-0.38).

In Q3 2016, a dividend was received from Melon Fashion Group of

EUR 0.5m. Together with fair value adjustments in 3 Burės of EUR 1.0m, Komercijalna Banka Skopje of EUR 1.1m and in East CapitalBaltic Property Fund II of EUR 0.4m and East Capital Deep Value

Fund of EUR -1.7m, and expenses amounting to EUR -3.0m (ofwhich -2.0m refers to items affecting comparability), these were themain contributors to the change in value of shares in subsidiaries in

the Income statement for the period.In the investment activities, shares in East Capital Frontier

Markets Fund were sold for a total amount of EUR 12.5m, and in

East Capital Deep Value Fund for a total amount of EUR 7.2m.Further, the second drawdown was made in East Capital BalticProperty Fund III for an amount of EUR 4.8m.

On 19 August 2016, the Company purchased the remaining sharesin the previously jointly owned Luxemburg based company ECEXHoldings SA from East Capital, for an amount of EUR 2.0m that alsoincludes other previously announced commitments such as brand

and non-compete clause.The result for the period includes income of EUR 0.4m (EUR

0.0m) from repayment of charged management fees in the funds,

and expenses of EUR -0.7m (EUR -0.4m), all of which refer to theParent company.

Comparative numbers in parenthesis refer to the third quarter of 2015.

Results for the period Jan-Sep 2016

The net result for the first nine months was EUR -9.5m (EUR 6.0m),

including value changes of shares in subsidiaries of EUR -6.5m (EUR7.1m), corresponding to earnings per share of EUR -0.35 (EUR0.20).

The value of the holding in Starman was appreciated to EUR81.3m in accordance with the sale purchase agreement,corresponding to an increase of EUR 9.5m. The exit gain, based on

the upfront consideration, will result in a carried interest to EastCapital of approximately EUR -6.5m which is treated as a liability inECEX Holdings SA’s balance sheet.

Melon Fashion Group was depreciated by EUR -0.2m. Theunderlying asset in rouble was impaired by EUR -2.8m due to lowersales forecasts, while the translation from rouble to euro had a

positive effect of EUR 3.1m. Furthermore, a dividend was receivedfrom Melon Fashion Group of EUR 0.5m, from East Capital BalticProperty Fund II of EUR 0.9m and from Komercijalna Banka Skopjeof EUR 0.4m. Together with fair value adjustments in 3 Burės of

EUR 2.2m, East Capital Baltic Property Fund II of EUR 1.0m,Komercijalna Banka Skopje of EUR 0.5m and in East Capital DeepValue Fund of EUR -1.9m, and expenses amounting to EUR -13.0m

(of which -10.3m refers to items affecting comparability), these werethe main contributors to the change in value of shares in subsidiariesin the Income statement for the period. Please see Note 2 Segment

Reporting for more information.In the investment activities, the shares in East Capital Frontier

Markets Fund were sold for a total of EUR 19.6m and in East Capital

Deep Value Fund for a total amount of EUR 7.2m. Further, the

second drawdown was made in East Capital Baltic Property Fund IIIfor of EUR 4.8m, and a smaller add-on investment was made in 3

Burės of EUR 0.25m. On 19 August 2016, the Company purchased the remaining shares

in the previously jointly owned Luxemburg based company ECEX

Holdings SA from East Capital, for an amount of EUR 2.0m that alsoincludes other previously announced commitments such as brandand non-compete clause.

The result for the period includes income of EUR 0.4m (EUR0.0m) from repayment of charged management fees in the funds,and expenses of EUR -3.4m (EUR -1.3m), all of which refer to the

Parent company.

Comparative numbers in parenthesis refer to January-September 2015.

Financial Position and Cash Flow Jan-Sep 2016

The Company’s equity ratio was 99.4 percent (99.8 percent).The cash flow presented below only relates to transactions in the

Parent Company. During the period January-September 2016, theCompany received repayment of shareholder’s contributions of EUR20.7m (EUR 17.5m) from ECEX Holdings SA. In June, an ordinary

dividend for 2015 of SEK 0.80 per share, corresponding to EUR 0.09per share, was distributed to shareholders. The dividend amountedto a total of EUR 2.3m. During the period 20 May – 26 August 2016,

East Capital Explorer repurchased a total of 2,095,745 shares, for anamount equivalent to EUR 14.1m.

Cash and cash equivalent at the end of the period amounted toEUR 1.6m (EUR 1.9m), all of which refer to the Parent Company.

At the end of the period, cash, cash equivalents and other short-terminvestments in the investment activities amounted to EUR 98.2m(EUR 43.0m). Please refer to the breakdown of values in subsidiaries

on pages 16-18 for more details regarding the investment activities.

Comparative numbers in parenthesis refer to 31 December 2015.

Commitments

On 10 July 2015, East Capital Explorer announced a commitment toinvest EUR 20m in total in East Capital Baltic Property Fund III. Ofthis, EUR 8.1m has been drawn down by the fund and the remaining

commitment amounts to EUR 11.9m.

Business Environment and Market

The quarter started with the British EU referendum at the end ofJune and a high level of uncertainty in global markets. East Capital

Explorer’s focus markets, the Baltics, Balkans and Russia, were noexceptions. Looking at the second quarter, GDP growth rate for allthe Baltic economies decreased somewhat to 1.9 percent in

Lithuania, 2 percent in Latvia and 0.8 percent in Estonia. Theslowdown in Lithuania is however most likely temporary, as credit-growth among businesses and households remains strong. In Latvia,

the main reason for the decline was lower investments while energyproduction weighed on the Estonian economy. The Baltic stockmarkets however showed stable returns in the third quarter as the

Tallinn stock market rose by 2.1 percent, the Riga stock market by14.2 percent and the Vilnius stock market by 6.4 percent.

In Russia, the economic situation has now stabilised as the

previous inflation shock is over and consumer behaviour hasadjusted. Following this, the Russian stock market gained 7.4percent (MSCI Russia) in the third quarter. However, consumption

growth is now around zero, which puts continued pressure onconsumer-oriented companies but we nevertheless see signs ofrecovery.

In the Balkans, East Capital Explorer’s third largest market,investments are returning as the global sentiment towards emergingand frontier markets is improving. The stock markets in Eastern

Results


12

European Emerging markets rose by 3.4 percent (MSCI EM Europe)in the third quarter.

The overall economic development in East Capital Explorer’s

investment region is thereby varied, and considerable uncertaintiesremain from a financial perspective. Global monetary policy as wellas currencies and interest rates are likely to continue to affect the

company’s markets. East Capital Explorer’s investments maytherefore face increased risks for exit options, but on the other handpolicy changes also create new investment opportunities.

Other information

Risks and uncertainties

The dominant risk in East Capital Explorer’s operations iscommercial risk in the form of exposure to specific sectors,geographic regions or individual holdings and financial risk in theform of market risk, equity price risk, foreign exchange risk and

interest rate risk. A more detailed description of East CapitalExplorer’s material risks and uncertainties is provided in theCompany’s Annual Report 2015 on pages 44-46. An assessment for

the coming months is provided in the Business Environment andMarket section above.

In addition, through the business activities of the holdings, i.e.

their offerings of products and services, within the respective sectors,the investments are also exposed to legal/regulatory risk andpolitical risk, for example political decisions on public sector

expenditures and industry regulations.

Fees

At an Extraordinary General Meeting on 9 May 2016, theshareholders approved the Board’s proposal regarding a jointtermination of the Investment Agreement between East Capital

Explorer and East Capital. Following the EGM decision, allmanagement fee payments to East Capital were halted, with theexception of the real estate funds East Capital Baltic Property Fund

II and East Capital Baltic Property Fund III. For further informationabout the termination of the Investment Agreement, please see Note5 Related parties.

To calculate all management and performance fees paid by EastCapital Explorer to East Capital, fees originated in funds are added tothe fees in the investment activities. During the first nine months of

2016, management fees to East Capital amounted to EUR -1.8m(EUR -3.7m). Performance fees amounted to EUR -7.4m (EUR0.0m). The performance fees are related to the upcoming sale of

Starman, EUR -6.5m (treated as a liability), and accrued profitsharing of 3 Burės, EUR -0.9m.

The management fee for East Capital Baltic Property Fund II is

1.75% and the rebated management fee for East Capital BalticProperty Fund III is 1.25%. The performance fee for these funds is20%, on the premise that a threshold value increase of 7-8 percentper year has been achieved.

Organisational and investment structure

East Capital Explorer AB (publ) is a Swedish investment company

listed on Nasdaq Stockholm. East Capital Explorer’s businessconcept is to maximise risk-adjusted shareholder return by offeringshareholders a liquid exposure to a unique investment portfolio of

primarily unlisted companies and properties in Eastern Europe.East Capital Explorer’s strategy is to invest in sectors and

companies that have the most to gain from the long-term trends in

its investment universe. Strong domestic demand is a key driver forgrowth in Eastern Europe and this is the main investment theme.East Capital Explorer targets fast growing sectors such as retail,

consumer goods, financials and real estate. The investment portfoliois actively managed to optimize the long-term value. All investmentsare considered carefully from a risk-reward perspective. Risks are

managed on the basis of a number of methods and tools, amongothers, through emphasis on corporate governance, including

material and relevant environmental and social factors. Activeownership also involves board representation and close relationswith the companies in which East Capital Explorer invests.

For further information about the organizational and investmentstructure of the Company, please see the Company’s web sitewww.eastcapitalexplorer.com under the section, ‘Corporate

Governance’.

The CEO certifies that the interim report presents a true and fairview of the Company's and the Group’s operations, financial positionand profits and describes the significant risks and uncertainties

facing the Company and the Group.

Stockholm, 17 November 2016

Mia Jurke

Chief Executive Officer

Contact information

Mia Jurke, CEO, +46 8 505 885 32Lena Krauss, CFO and Head of Investor Relations, +46 8 505 885 94

East Capital Explorer ABKungsgatan 35, Box 7214SE-103 88 Stockholm, Sweden

Tel: +46 8 505 977 00www.eastcapitalexplorer.com

Financial calendar

• Year-end Report 2016 – 13 February 2017

• Annual Report 2016 available in April 2017• Interim Report Q1 2017 – 9 May 2017• Annual General Meeting 2017 – 15 May 2017

• Interim Report Q2 2017 – 30 August 2017• Interim Report Q3 2017 – 9 November 2017

Subscribe to financial reports and press releases directly to youre-mail on: www.eastcapitalexplorer.com or by sending an email to

[email protected].

The information in this interim report is the information which East

Capital Explorer AB is required to disclose under the EU MarketAbuse Regulation and the Securities Markets Act. It was releasedfor publication at 08:00 a.m. CET on 17 November 2016.


13

To the Board of East Capital Explorer AB (publ)Corporate identity number 556693-7404

Introduction

We have reviewed the summary interim financial information(interim report) of East Capital Explorer AB (publ) as of 30September 2016 and the nine-month period then ended except for

the portfolio reporting on pages 5-10. The Board of Directors and theManaging Director are responsible for the preparation andpresentation of this interim report in accordance with IAS 34 and the

Annual Accounts Act. Our responsibility is to express a conclusion onthis interim report based on our review.

Scope of the Review

We conducted our review in accordance with the Standard on reviewengagements (ISRE) 2410 Review of Interim Financial Information

Performed by the Independent Auditor of the Entity. A review ofinterim financial information consists of making inquiries, primarilyof persons responsible for financial and accounting matters, andapplying analytical and other review procedures. A review is

substantially less in scope than an audit conducted in accordancewith International Standards on Auditing and other generallyaccepted auditing practices. The procedures performed in a review

do not enable us to obtain a level of assurance that would make usaware of all significant matters that might be identified in an audit.Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes

us to believe that the interim report is not prepared, in all materialrespects, for the Group in accordance with IAS 34 and the AnnualAccounts Act, and for the Parent Company in accordance with the

Annual Accounts Act.

Stockholm, 17 November 2016KPMG AB

Anders MalmebyAuthorised Public Accountant

This review report is a translation of the original review report inSwedish.

Review Report

East Capital Explorer AB Year-end Report 1 January - 30 September 2016

2016 2015 2016 2015Note Jan-Sep Jan-Sep Jul-Sep Jul-Sep2 -6,469 7,073 -1,650 -10,404

360 - 360 --1,100 -603 -461 -188-664 -657 -233 -239

-1,604 - 0 --9,478 5,814 -1,984 -10,830

22 192 22 66-73 0 -62 6

-9,528 6,005 -2,024 -10,759

- - - --9,528 6,005 -2,024 -10,759

Earnings per share, EUR-0.35 0.20 -0.08 -0.38

No dilutive effects during the periods

2016 2015 2015Note 30 Sep 31 Dec 30 Sep

Assets

Shares in subsidiaries 3, 4 204,594 252,140 250,217Loans to group companies 4 20,900 - -Total non-current assets 225,494 252,140 250,217

Accrued interest income 4 1,499 - -Accrued income and prepaid expenses 369 14 3Cash and cash equivalent 1,581 1,918 2,435Total current assets 3,450 1,932 2,438

Total assets 228,943 254,071 252,655

Equity

Share capital1 3,655 3,654 3,654Other contributed capital/Share premium reserve2 302,532 318,920 319,539Retained earnings2 -69,014 -76,282 -76,901Net profit/loss for the period2 -9,528 7,268 6,005Total equity 227,646 253,561 252,298

Current liabilities

Other liabilities 94 256 88Accrued expenses and prepaid income 1,203 254 268Total current liabilities 1,297 510 357

Total equity and liabilities 228,943 254,071 252,655

1 Restricted capital2 Unrestricted capital

Profit/loss before tax

EUR Thousands

Income StatementEUR Thousands

Changes in fair value of subsidiaries

Other operating expenses

Operating profit/loss

Financial incomeFinancial expenses

Staff expensesOther income

Items affecting comparability1

2 Net Profit/Loss for the period corresponds to Total Comprehensive income

TaxNET PROFIT/LOSS FOR THE PERIOD

2

1 Advisory costs related to the termination of the Investment Agreement with East Capital

Balance Sheet

- Attributable to shareholders of the Parent Company

14


Statement of Changes in EquityEUR Thousands

Share capital

Other contributed

capital/Share premium reserve

Retained earnings incl. profit/loss for

the year

Total equity shareholders

in Parent company

Opening equity 1 January 2016 3,654 318,920 -69,014 253,561

Net profit/loss for the period - - -9,528 -9,528Total comprehensive income - - -9,528 -9,528

Bonus issue 1 -1 - -

Dividend to shareholders - -2,335 - -2,335

Share buy-back - -14,052 - -14,052

3,655 302,532 -78,542 227,646

EUR Thousands

Share capital

Other contributed

capital/Share premium reserve

Retained earnings incl. profit/loss for

the year

Total equity shareholders

in Parent company

Opening equity 1 January 2015 3,650 333,945 -76,282 261,314

Net profit/loss for the period - - 6,005 6,005Total comprehensive income - - 6,005 6,005Bonus issue 4 -4 - -Redemption program - -13,170 - -13,170

Share buy-back - -1,851 - -1,8513,654 319,539 -70,277 252,298

Statement of Cash Flow

2016 2015 2016 2015Jan-Sep Jan-Sep Jul-Sep Jul-Sep

Operating activities

Operating profit/loss -9,478 5,814 -1,984 -10,830Changes in fair value of subsidiaries 6,469 -7,073 1,650 10,404

-3,009 -1,259 -334 -426

Cash flow from changes in working capital

Increase (-)/decrease(+) in other current receivables -355 14 -363 4Increase (+)/decrease(-) in other current payables 787 -47 698 32

-2,578 -1,293 1 -390

Investing activities

20,700 17,500 6,700 5,500-2,000 - -2,000 -18,700 17,500 4,700 5,500

Financing activities

Redemption program - -13,170 - -13,170Dividend to shareholders -2,335 - - -Share buy-back -14,052 -1,851 -5,926 -834

-16,387 -15,021 -5,926 -14,004

Cash flow for the period -264 1,186 -1,226 -8,894

1,918 1,057 2,868 11,258Exchange rate differences in cash and cash equivalents -73 192 -62 71

1,581 2,435 1,581 2,435

Repayment of shareholder contributions

Cash and cash equivalent/cash and bank at the end of the period

Cash flow from financing activities

Cash flow from current operations before changes in working capital

Cash flow from investing activities

Cash flow from operating activities

Closing equity 30 September 2015

Aquisition of remaining shares in ECEX Holdings SA

EUR Thousands

Cash and cash equivalent at the beginning of the period

Closing equity 30 September 2016

15


Note 1 Accounting Principles

Note 2 Segment Reporting

EUR thousands1 Jan – 30 Sep 2016 UnallocatedChanges in value of portfolio -163 3,444 -1,341 9,346 - 11,287Received dividends 474 854 416 - - 1,743Other operating expenses (incl. management fees) -240 -172 -61 -1,835 -344 -2,652Items affecting comparability1 - -935 - -6,513 -9,400 -16,848Changes in value of subsidiaries 71 3,191 -986 998 -9,744 -6,469

Other income - 17 266 78 - 360Staff expenses - - - - -1,100 -1,100Other operating expenses - - - - -664 -664Items affecting comparability2 - - - - -1,604 -1,604Operating profit/loss 71 3,207 -720 1,076 -13,113 -9,478

Financial income - 22 - - - 22Financial expense - - - - -73 -73Profit/loss before tax 71 3,229 -720 1,076 -13,185 -9,529

Assets 32,582 66,204 40,356 98,220 -8,419 228,943

EUR thousands1 Jan – 30 Sep 2015, restated3 UnallocatedChanges in value of portfolio -7,742 2,715 1,335 13,058 - 9,366Other operating expenses (incl. management fees) -1,526 -317 -110 - -340 -2,293Changes in value of subsidiaries -9,267 2,398 1,225 13,058 -340 7,073

Staff expenses - - - - -603 -603Other operating expenses - - - - -657 -657Operating profit/loss 543 2,398 1,225 3,248 -1,600 5,813

Financial income - - - - 192 192Financial expense - - - - 0 0Profit/loss before tax 543 2,398 1,225 3,248 -1,408 6,005

Assets 35,774 51,335 48,269 117,340 -63 252,655

This interim report has been prepared in accordance with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) 34Interim Financial Reporting and applicable provisions in the Swedish Annual Accounts Act (Årsredovisningslagen). The interim report for the Company has beenprepared in accordance with the Swedish Financial Reporting Board's standard RFR 2 and the Swedish Annual Accounts Act Chapter 9, Interim report. The parts ofIFRSs and RFR 2 that are currently relevant for East Capital Explorer AB lead to the same accounting. The two sets of financial statements are therefore presentedtogether as a common single set of accounts.

The accounting policies applied in these interim financial statements are the same as those applied in the financial statements as at and for the year ended 31December 2015.

Private Equity

Private Equity

Short-term investments Total

East Capital Explorer AB classifies the Company’s various segments based on the nature of the investments. Management monitors the holdings on the basis of fairvalue, and all holdings are reported at fair value through profit or loss. The value change of holdings held by the subsidiaries has been allocated to value changes,dividends received and other operating expenses that are directly attributable to the underlying investments in private equity, real estate, public equity and short-term investments. All other revenues and expenses are classified as unallocated in the table below.

Real Estate Public EquityShort-term investments Total

Real Estate Public Equity

3 Due the ongoing sale of Starman, the asset has been reclassified from Private Equity at year-end 2015, to Short-term investments in Q1 2016. The comparative period has been restated in order to reflect the reclassification.

¹ Costs related to the transition and termination agreement with East Capital (Real Estate and Unallocated), and to the upcoming sale of Starman (Short-term investments). Please refer to Note 5 Related parties

² Advisory costs related to the termination of the Investment Agreement with East Capital

16


Note 3 Entities with ownership interests over 50 percent

Bertrange, Luxembourg 100,000 10,745 100%Stockholm, Sweden 11,000 9,229 100%

Humarito Limited Nicosia, Cyprus 2,000 184,620 100% Baltic Cable Holding OÜ Tallinn, Estonia 2,502 - 100% Starman AS Tallinn, Estonia 10,758 81,300 63%

UAB Portarera1 Vilnius, Lithuania 300 30,127 100%

UAB Solverta1 Vilnius, Lithuania 100 - 100%

UAB Verslina1 Vilnius, Lithuania 100 - 100%

Note 4 Financial instruments

Calculation of fair value

Shares in subsidiaries/financial instruments

Country 30 Sep 2016 31 Dec 2015 30 Sep 2016 31 Dec 2015ECEX Holdings SA (formerly East Capital Explorer Investments SA) Bertrange, Luxembourg 10,745 252,140 100 100East Capital Explorer Investments AB Stockholm, Sweden 9,229 - 100 -

Humarito Nicosia, Cyprus 184,620 - 100 -

UAB Portarera (loan) Vilnius, Lithuania 20,900 - 100 -

ECEX Holdings SA (formerly East Capital Explorer Investments SA)

As of 19 August 2016, East Capital Explorer AB owns 100% (4.0%) of the votes in ECEX Holdings SA. On 20 September 2016, ECEX Holdings SA entered intoliquidation and the shares in the subsidiaries Humarito Ltd and East Capital Explorer Investments AB, including loans to group companies and accrued interest,were transferred to the Parent Company East Capital Explorer AB.

Non consolidated entities 30 Sep 2016

• Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level of input that issignificant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. Ifa fair value measurement uses observable inputs requiring significant adjustment based on unobservable inputs, such measurement is a level 3 measurement.Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the financial asset orliability.

In the Parent company, financial instruments consist of shares in subsidiaries of EUR 204.6m, loans to group companies of EUR 20.9m and cash and cash equivalentof EUR 1.6m. The carrying amount of these assets constitutes the fair value on the balance sheet date.

Financial instruments not measured at fair value through profit and lossFor receivables and payables, the carrying amount is assessed to reflect fair value since the remaining maturity is generally short. This is also the case for cash andcash equivalent.

The following summarises the main methods and assumptions applied in determining the fair values of the financial instruments in the balance sheet. Please refer tothe Annual Report 2015 for more details on valuation policies used by East Capital Explorer AB.

Fair value hierarchy

The fair value hierarchy has the following levels:

• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

For a better understanding of the business, the information regarding financial instruments below is presented on a see-through basis as the fair value of the holdingsin the subsidiaries. Shares and participations in the investment activities as well as the Company’s holdings in subsidiaries are all valued at fair value.

The following entities, in which the ownership interest is over 50%, are not consolidated due to the consolidation exception for investment entities.

CountryNumber of

sharesBook value,

EURtOwnership

capital

East Capital Explorer Investments AB

Book value, EURt Share of capital, %

Shares in subsidiaries including loans to group companies

1 The operations in UAB Portarera, UAB Solverta and UAB Verslina have been aggregated as they are consolidated as 3 Burės

• Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is,derived from prices).

17


EUR Thousands

30 September 2016

Breakdown of values in subsidiaries including loans to group companies TotalOpening balance 1 January 2016 104,584 57,718 48,894 32,450 8,593 -98 252,140

- -1,477 - - - - -1,477Reclassifications -71,839 - - 71,839 - - 0Purchases/additions - 5,020 - - -5,020 - 0Divestments/Reductions - - -7,197 -19,563 26,760 - 0Other - - - - -8,808 -8,691 -17,499Repaid shareholders contributions - - - - -20,700 - -20,700Dividend received - - - - 1,743 - 1,743

-163 3,444 -1,341 9,346 - - 11,28732,582 64,705 40,356 94,072 2,567 -8,789 225,494

EUR Thousands31 December 2015

Breakdown of values in subsidiaries TotalOpening balance 1 January 2015 85,028 48,620 70,442 52,188 4,557 -191 260,644

Reclassifications -1,997 - -16,110 18,107 - - -Purchases/additions 22,514 3,325 - - -25,839 - -Divestments/Reductions - - -7,397 -42,060 49,458 - -Other - - - - -2,900 93 -2,807Repaid shareholders contributions - - - - -17,500 - -17,500Dividend received - - - - 817 - 817

-961 5,773 1,959 4,215 - - 10,986104,584 57,718 48,894 32,450 8,593 -98 252,140

Holding ClassValuation method Valuation assumptions

Melon Fashion Group Private Equity DCF Long-term growth 4%, Long term operating margin 8%, WACC 19%Trev-2 Group Private Equity DCF Long-term growth 2%, Long term operating margin 7%, WACC 7-11%3 Burės Real Estate DCF WACC 8-11%, Exit yield 7-8%

East Capital Baltic Property Fund II Real Estate DCF WACC 8-9%, Exit yield 7-9%East Capital Baltic Property Fund III Real Estate Acquisition value1

1 First investment made in December 2015

Effect in EUR thousands30 September 2016Sensitivity analysis Increase DecreaseLong term growth rate (0.5% movement) 954 -879Weighted average cost of capital (WACC) (0.5% movement) -1,125 1,210Long term operating margin (0.5% movement) 1,682 -1,682

Effect in EUR thousands30 September 2016Sensitivity analysis Increase DecreaseWeighted average cost of capital (WACC) (0.5% movement) -1,004 1,026Exit yield (0.5% movement) -2,447 2,809

Private Equity Public Equity

Movement of acrrued interest income to Parent company

Closing balance 30 September 2016

For the fair values of Private Equity investments and Real Estate (3 Burės and East Capital Baltic Property Fund II) - reasonably possible changes at the reportingdate to one of the significant unobservable inputs, holding other inputs constant, would have the following effects:

The East Capital Explorer portfolio is presented on page 4 in this report, including information on fair value changes during the period. More information on theportfolio holdings can be found on pages 5 to 10 in this report.

Short-term investments consist of holdings which are expected to be divested within a year. The holding in Starman, East Capital Frontier Markets Fund and EastCapital Bering Ukraine Fund R are classified as short-term investments.

Other assets and liabilities,

net

Other assets and liabilities,

net

Real Estate Public Equity

Cash and bank

Profit or loss

Private Equity consists of the holdings in Melon Fashion Group (MFG) and Trev-2 Group. Real Estate consists of holdings in 3 Burės, East Capital Baltic PropertyFund II and East Capital Baltic Property Fund III. These holdings are valued internally or externally normally at year-end, and the fair value of the holdings isassessed on a quarterly basis.

Public Equity consists of funds with a majority of public holdings managed by East Capital. The holding in Komercijalna Banka Skopje, which is publicly traded, isalso included in Public Equity. Holdings in Public Equity are valued at fair value according to the valuation principles described on the previous page.

Discounted Cash Flow model (DCF), weighted average cost of capital (WACC)

As the holdings in the subsidiaries are presented on a see through basis, the tables below reflect the fair value hierarchy in the investment activities. The values of theshares in subsidiaries, including loans to group companies, are directly and indirectly made up by the following assets:

Changes in fair value recognised net in profit/loss

Changes in fair value recognised net in profit/lossClosing balance 31 December 2015

Real EstateShort-term investments

Private Equity

Short-term investments Cash and bank

Profit or loss

Private Equity

Real Estate

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EUR thousands

30 September 2016

Private Equity - - 32,582 32,582Real Estate - - 66,204 66,204Public Equity 40,356 - - 40,356Short-term investments 11,654 81,300 1,118 94,072Total 52,010 81,300 99,904 233,215

EUR thousands31 December 2015

Private Equity - - 104,584 104,584Real Estate - - 57,718 57,718Public Equity 48,894 - - 48,894Short-term investments 31,077 - 1,373 32,450Total 79,970 - 163,675 243,645

EUR thousands

30 September 2016Real Estate

Opening balance 2016 104,584 57,718 1,373 163,675

Transfers out of level 31 -71,839 - - -71,839Purchases/additions - 5,020 - 5,020Changes in fair value recognised net in profit/loss -163 3,466 -255 3,048

32,582 66,204 1,118 99,904

EUR thousands31 December 2015

Real EstateOpening balance 2015 85,028 48,620 1 133,649

Reclassifications -1,997 - 1,997 -Purchase/additions 22,514 3,325 - 25,839Changes in fair value recognised net in profit/loss -961 5,773 -625 4,187

104,584 57,718 1,373 163,675

Risks and uncertainties

Risk factors ChangeFx EUR/RUB +/- 10%Fx EUR/USD +/- 5%Equity price +/- 10%

Level 2

Level 2

For information about risks, uncertainties and information about the business environments and markets in which East Capital Explorer invests, please see page 11.For a summary of the methods and assumptions used to determine fair value of the portfolio holdings please see Note 4 and in more detail on page 71 in the AnnualReport of 2015. The effect of fluctuations in the major parameters on the value of the portfolio holdings is presented in the table below:

30 September 2016

Changes in financial assets and liabilities in Level 3Short-term Investments Total

Short-term Investments Total

1 The following investments are classified in: Level 1 - East Capital Deep Value Fund, East Capital Frontier Markets Fund and Komercijalna Banka SkopjeLevel 2 - StarmanLevel 3 - East Capital Baltic Property Fund II, East Capital Baltic Property Fund III, East Capital Bering Ukraine Fund Class R, 3 Burės, MFG and Trev-2 Group

Effect on net profit/loss for the period

EUR 3,048 thousands (EUR 4,187 thousands) of changes in fair value recognised net in profit/loss relate to investments still held at the end of the period.

Closing balance 30 September 2016

2,6372,20323,172

Shares and participations in investment activities at fair value through profit or loss

Shares and participations in investment activities at fair value through profit or loss1

Changes in financial assets and liabilities in Level 3 Private Equity

Private Equity

Sensitivity analysis for market risks (EUR Thousands)

The following table analyses, within the fair value hierarchy, the investments in the investment activities measured at fair value:

Level 1 Level 3 Total balance

Closing balance 31 December 2015

Level 1 Level 3 Total balance

1 Starman have been moved from level 3 to level 2 due to the upcoming divestment; the unobservable input is not a significant part of the value of the holding.

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Note 5 Related parties

Note 6 Repurchase of shares and dividend

Note 7 Events occurring after the end of the quarter

East Capital Explorer’s dividend policy states that at least 50 percent of dividends received from portfolio holdings shall be distributed to shareholders. With anordinary dividend as a base, share redemptions and repurchases can also be used from time to time to enhance shareholder value. At the Annual General Meeting2016, it was resolved to pay an ordinary dividend for 2015 of SEK 0.80 per share, corresponding to EUR 0.09 per share. Payment to shareholders was made in June2016.

Shares in East Capital Deep Value Fund were sold for an amount equivalent to EUR 5.0m and in East Capital Frontier Markets Fund for an amount equivalent toEUR 2.0m.

On 30 September 2016, East Capital Explorer AB had a related party relationship with its subsidiaries, Board members and employees.

East Capital Explorer AB’s management, Board members and their close relatives and related companies control 22.6 percent of voting rights in the Company.

At an Extraordinary General Meeting on 9 May 2016, East Capital Explorer’s shareholders approved the Board’s proposal to terminate the Investment Agreementbetween East Capital Explorer and East Capital. Consequently, no management fees to East Capital have been paid following the EGM, with the exception of the realestate funds East Capital Baltic Property Fund II and East Capital Baltic Property Fund III. Management fees paid to East Capital Asset Management SA for the firstnine months of 2016 amounted to EUR 1.8m (EUR 3.7m).

On 10 November 2016, the Nomination Committee of East Capital Explorer resolved to nominate Göran Bronner as new Member of the Board of Directors, to beproposed at an Extraordinary General Meeting around the end of January 2017. The proposal means that the Board will be increased by one member in addition tothe four members appointed at the AGM in June 2016; Lars O Grönstedt (Chairman), Peter Elam Håkansson, Liselotte Hjorth and Nadya Wells.

On 21 October 2016, the Company signed, through 3 Burės, a long-term lease contract with Swedbank for premises covering approximately 70 percent of a new officebuilding to be constructed in central Vilnius. The new building will be built on the land plot adjacent to the existing 3 Burės office complex, both of which werepurchased by the Company in 2014. The Company will invest up to EUR 9m over a two-year construction period, which will commence in the fourth quarter 2016.

The Company repurchased a total of 243,655 shares during the period 11 October through 16 November 2016, corresponding to 0.87 percent of the Company'soutstanding shares, at an average price of SEK 60.49 per share.

The total number of shares outstanding in East Capital Explorer as of 30 September 2016 amounted to 28,161,563. Adjusted for repurchased shares in 2016, thenumber of shares amounted to 26,065,818. The weighted average number of shares outstanding for the reporting period was 27,425,098, adjusted for therepurchased shares. In June 2016 the Company reduced its share capital by cancelling the 315,229 shares that were repurchased during 2015.

On 20 May 2016, the Company launched a buyback program. The buybacks will be carried out for as long as the Company’s shares trade at a discount of more than20 percent to its most recently published NAV. Going forward, the Board has announced its intention to call an EGM in order to cancel the Company’s treasuryshares if the buyback mandate’s 10 percent of outstanding shares threshold is reached. The Company repurchased a total of 2,095,745 shares during the period 20May through 26 August 2016, corresponding to 7.44 percent of the Company's outstanding shares, at an average price of SEK 62.78 per share.

On 20 September 2016, ECEX Holdings SA entered into liquidation and the shares in the subsidiaries Humarito Ltd and East Capital Explorer Investments AB,including loans to group companies and accrued interest, were transferred to the Parent Company East Capital Explorer AB. The transaction had no impact on theNet Asset Value.

On 7 October 2016, the members of the Nomination Committee were appointed based on the ownership structure as of 31 August 2016. The Nomination Committee,convened by Lars O Grönstedt, comprises Magnus Lekander representing East Capital, David Bliss representing Lazard Asset Management and Mathias Svenssonrepresenting Keel Capital. The Committee also comprises Lars O Grönstedt as Chairman of the Board of Directors of East Capital Explorer.

Comparative numbers in parenthesis refer to January-September 2015.

Following the decision to terminate the investment agreement, East Capital Explorer and East Capital have signed a Transition and Termination Agreementregarding services and other undertakings until 31 December 2017. According to this agreement, a total of EUR 10.3m will be paid to East Capital as compensation for services, undertakings and shares. The cash payment will be in installments according to the following; EUR 7.5m in Q3 2016, EUR 0.9m in Q4 2016 and EUR 2.0min Q4 2017. EUR 8.3m of this was included in the Q2 results, and another EUR 2.0m is included in the Q3 2016 results. Furthermore, a reserve of EUR 6.5m relatingto performance fees for the upcoming sale of Starman was booked in Q1 2016 and will be paid upon closing of the transaction. Please see Note 2 Segment reportingand company press releases.

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Note 8 Key Figures

Key figures 9m 6m 3m 12m 9m 6m 3m 12m2016 2016 2016 2015 2015 2015 2015 2014

Net asset value (NAV), EUR m 228 236 253 254 252 264 279 261Equity ratio, % 99.4 99.7 99.8 99.8 99.9 95.1 99.8 99.8Market capitalisation, SEK m 1,619 1,669 1,545 1,445 1,481 1,495 1,692 1,273Market capitalisation, EUR m 168 177 169 158 158 162 183 134Number of outstanding shares, m 26.1 27.0 28.2 28.2 28.2 28.3 29.9 29.9Number of outstanding shares including repurchased shares, m 28.2 28.2 28.5 28.5 28.5 28.5 29.9 29.9Weighted average number of shares, m 27.4 28.0 28.2 29.3 29.7 30.5 30.6 31.8Number of employees 9 5 4 4 4 4 4 4

Key figures per share 9m 6m 3m 12m 9m 6m 3m 12m2016 2016 2016 2015 2015 2015 2015 2014

Earnings per share, EUR -0.35 -0.27 -0.01 0.25 0.20 0.55 0.52 -1.06Dividend per share, EUR - - - 0.09 - - - -NAV, SEK 84 82 83 82 84 86 87 83NAV, EUR 8.73 8.74 9.00 9.00 8.96 9.32 9.35 8.73Share price, SEK1 57.50 59.25 54.25 50.75 52.00 52.50 56.50 42.50Share price, EUR1 5.97 6.29 5.87 5.54 5.55 5.68 6.10 4.49

SEK/EUR 9.63 9.41 9.24 9.16 9.36 9.25 9.26 9.47

1 Not adjusted for share redemptions

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