Eastnine — Annual Report 2016

Feb 13, 2017

Year-end Report 2016

Key figures

" Visible positive results from our actions (Mia Jurke, CEO)

		31 Dec 2016	31 Dec 2015
NAV per share		EUR 9.67	EUR 9.00
		SEK 93	SEK 82
		EUR 6.97	EUR 5.54
Closing price per share		SEK 66.75	SEK 50.75
Total NAV		EUR 248m	EUR 254m
Market cap		EUR 196m	EUR 158m
		2016	2015
Net result	Oct-Dec	EUR 22.8m	EUR 1.3m
	Jan-Dec	EUR 13.3m	EUR 7.3m
Earnings	Oct-Dec	EUR 0.88	EUR 0.04
per share	Jan-Dec	EUR 0.49	EUR 0.25

1 EUR = 9.58 SEK on 31 Dec 2016. Source: Reuters

Key events during the fourth quarter

• » Net Asset Value (NAV) per share, adjusted for share buybacks, was EUR 9.67, an increase of 10.7% during the quarter and 7.4% during the full year. Total NAV was EUR 248m
• » The Real Estate segment increased by 1.3% during Q4 and Private Equity by 50.0% after a 62.6% appreciation of Melon Fashion Group, while Public Equity increased by 9.9%
• » The sale of Starman was completed for a total cash consideration of EUR 83.6m, implying an exit gain of EUR 37.5m and a gross IRR of 24%. Following the transaction the carried interest liability to East Capital of EUR 6.7m was settled
• » The construction of a third office tower adjacent to 3 Burės in Vilnius was started. The building will have a GLA of 13,000 sqm, of which 70% is covered by a longterm rental agreement with Swedbank
• » EUR 2.0m of the holding in East Capital Global Frontier Markets Fund and EUR 5.0m in East Capital Deep Value Fund was sold during Q4
• » 461,355 shares, equivalent to 1.6% of outstanding shares, were repurchased during the quarter, whereby the full year's buybacks added up to a total of 9.1% of outstanding shares

Key events after the quarter

• » The Board will propose an ordinary dividend for 2016 of SEK 0.90, or EUR 0.09, per share
• » An EGM in January voted in favour of electing Göran Bronner as a new Board Member and cancelling 2,500,000 own shares
• » During 1 January 10 February the Company repurchased 148,900 own shares, corresponding to 0.58% of outstanding shares
• » Fund holdings totalling EUR 2.1m were sold after the end of the quarter

Clearly visible results from our actions

Costs under control, strong cash position after successful sale of Starman, good portfolio development and continued focus on the Baltic real estate sector

Mia Jurke, CEO

After a year characterized by change, we are now starting to see the positive effects of our actions. The previously high cost level has been dramatically reduced, just as we promised. By terminating the investment agreement with East Capital, and moving the investment management in-house, we have, after just over six months, reduced our comparable operating costs by all of 40 percent. The efforts will continue in 2017 and we expect our cost levels to decrease even further once all measures have been implemented. We also promised to take vigorous measures to deal with the NAV discount that our share has been troubled by. In May, we therefore launched a buyback program tied to the discount. Until the end of December, we had repurchased over 9 percent of our outstanding shares, and we can note that the discount has almost halved compared to a year ago.

During the year, a major portfolio restructuring has taken place. By selling Starman, we realized a substantial value increase, corresponding to a gross IRR of 24 percent. The transaction, which was completed in December, means that we now, after around three years, have made an exit gain of EUR 37.5m, and that we hence have a very strong cash position. After the transaction, and thanks to a strong development during the year, the Real Estate segment is now the largest segment in the portfolio. With our strategy to own properties in prime locations, with stable lease agreements and predictable cash flows, we are confident that our ability to deliver attractive risk-adjusted return going forward is very good. The yield is significantly higher, two to three percentage points higher than in, for instance, Stockholm. At the same time, the financing terms are as attractive as here, which makes the investment case highly attractive. During the fourth quarter, we initiated the development of a third skyscraper in the 3 Burės property, on the land plot that we acquired together with the existing towers in 2014. 70 percent of the new building, that will comprise 13,000 sqm on 23 floors, is already leased to Swedbank. The building will thereby generate good returns as soon as it is completed, which is expected by the end of 2018.

Russian fashion retailer Melon Fashion Group (MFG) is, after two challenging years, seeing a more favourable environment with a significant strengthening of the rouble and improved macroeconomic climate. Most of all, we are very impressed by the cost cutting measures that MFG has implemented during the last two years and that have improved gross margins considerably. The SG&A (Selling, General and Administrative Expenses), that two years ago corresponded to 55 percent of sales, is now down to a level of around 43 percent. This means that the company is now clearly better positioned than it was two years ago when the sharp depreciation of the rouble started.

Change in NAV during the fourth quarter 2016, EURm

"Operating costs reduced by 40%"

33.2%

share price increase and NAV discount almost halved

"A future with eyes set on further investments in the Baltic real estate sector"

The Russian economy seems to have bottomed out, the oil price has recovered and inflation is at its lowest level since the Soviet time. With a stronger exchange rate, consumer confidence is set to return again, which will benefit MFG going forward. The combination of these factors resulted in a value appreciation of MFG of 63 percent. For the most part, the increase is attributable to lower risk premium and a translation effect on the back of the stronger rouble, but also partly due to improved margins. This is a notable write-up. However, the value is still 25 percent lower than in 2014, before the rouble collapse and economic contraction, as well as the successful cost base adjustment that MFG has achieved.

We have, as part of our ongoing streamlining of the portfolio, continued to phase out funds with public holdings. During 2016 we divested shares in East Capital Global Frontier Markets Fund and East Capital Deep Value Fund for a total of EUR 33.8m. As a result, our remaining holdings in these funds correspond to less than a fifth of the total portfolio.

Finally, we're happy to note that the share price increased by 33.2 percent during the year, adjusted for dividend. In other words, it was a good year for the company and for our shareholders. Of course we have more to do. But I feel that we are well positioned for the future. A future that we are entering with a very strong cash position and with eyes set on further investments in the Baltic real estate sector. We will come back later during the spring with more information regarding our plans for the future.

Dividend proposal and EGM

As a final note, the Board will propose a dividend of SEK 0.90 per share, a 12.5 percent increase compared to last year. This corresponds to slightly more than the dividends we received from the portfolio in 2016, but it reflects our belief that we will continue to see further growing cash flow generation from the portfolio holdings going forward, not least with the clear focus that we now have on real estate investments in the Baltics.

After year-end, we held an extraordinary general meeting which elected Göran Bronner as a fifth Board member and cancelled the shares that had been repurchased until mid-December.

Mia Jurke CEO, East Capital Explorer

Shareholder distribution, % of market cap

Our portfolio

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. East Capital 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)
	Value			Value	Value	Value change	Value change
	31 Dec 2016 EURm	NAV/share EUR	% of NAV	30 Sep 2016 EURm	31 Dec 2015 EURm	Jan-Dec 2016 %¹	Oct-Dec 2016 %¹
Private Equity
Melon Fashion Group	42.9	1.67	17.3	26.4	26.5	63.4	62.6
Trev-2 Group	5.7	0.22	2.3	6.2	6.2	-3.6	-3.6
Total Private Equity	48.6	1.90	19.6	32.6	32.7	50.7	50.0
Real Estate
3 Burės	30.4	1.19	12.3	30.1	27.6	9.1	1.0
East Capital Baltic Property Fund II	27.8	1.09	11.2	27.7	26.8	7.1	0.3
East Capital Baltic Property Fund III	8.8	0.35	3.6	8.3	3.3	9.4	5.9
Total Real Estate	67.1	2.62	27.1	66.2	57.7	8.3	1.3
Public Equity
East Capital Deep Value Fund	28.7	1.12	11.6	31.3	40.3	1.4	7.7
Komercijalna Banka Skopje	10.7	0.42	4.3	9.1	8.6	29.4	17.5
Total Public Equity	39.4	1.54	15.9	40.4	48.9	6.3	9.9
Short-term Investments
East Capital Frontier Markets Fund	10.2	0.40	4.1	11.7	31.1	2.5	5.4
Other short-term Investments3	1.5	0.06	0.6	82.4	73.2	16.2	3.2
Short-term Investments	11.7	0.46	4.7	94.1	104.3	12.1	3.5
Cash and cash equivalents	83.5	3.26	33.7	4.1	10.5
Total Short-term Investments	95.2	3.72	38.5	98.2	114.8
Total Portfolio	250.2	9.77	101.1	237.4	254.2
Other assets and liabilities net	-2.7	-0.11	-1.1	-9.7	-0.6
Net Asset Value (NAV)	247.6	9.67	100.0	227.6	253.6	7.4²	10.7²

¹The 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

²NAV per share development

³Includes East Capital Bering Ukraine Fund Class R

The number of shares used in NAV/share 31 Dec 2016 is 25,604,463 and is adjusted for repurchased shares held by the company (Note 6).

1 EUR = 9.58 SEK on 31 Dec 2016. Source: Reuters

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

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

31 December 2016
Company	Value in portfolio, mEUR	% of NAV	Perf. Q4, % Country	Sector	East Capital Explorer's investment vehicle
Melon Fashion Group	42.9	17.3	62.6 Russia	Cons. Disc.	Direct Investment
3 Burės	30.4	12.3	1.0 Lithuania	Real Estate	Direct Investment
Komercijalna Banka Skopje	13.0	5.3	17.5 Macedonia	Financials	Direct Investment East Capital Deep Value Fund
Tänassilma Logistics	6.9	2.8	13.8 Estonia	Real Estate	East Capital Baltic Property Fund II
GO9	6.8	2.7	1.5 Lithuania	Real Estate	East Capital Baltic Property Fund II
Trev-2 Group	5.7	2.3	-3.6 Estonia	Industrials	Direct Investment
Mustamäe Keskus	5.6	2.3	2.1 Estonia	Real Estate	East Capital Baltic Property Fund II
Metro Plaza	5.1	2.1	2.4 Estonia	Real Estate	East Capital Baltic Property Fund II
Hilton Tallinn Park	4.8	2.0	0.0 Estonia	Real Estate	East Capital Baltic Property Fund III
Vesse Retail Centre	4.0	1.6	2.8 Estonia	Real Estate	East Capital Baltic Property Fund III

Total 125.3 50.6

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

B	Real Estate	28 (24)
C	Consumer	20 (17)
D	Financials	11 (14)
E	Industrials	5 (8)
F	Other	1 (1)
G	Cash	34 (4)

A	Baltics	45 (57)
B	Russia	28 (16)
C	Balkans	14 (13)
D	Other countries	12 (14)

A	Private Equity	20 (13)
B	Real Estate	27 (22)
C	Public Equity	16 (19)
D	Short-term investments,	38 (47)
	cash,
	other assets and liabilities

*Comparative numbers in parentheses refer to the corresponding period 2015

Private Equity

The Private Equity segment represents 20 (13) 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.

Melon Fashion Group

Russian fashion retailer Melon Fashion Group (MFG) is well positioned with a broad target group under three strong brands: Zarina, befree and Love Republic. MFG benefits from the consolidation in the fragmented Russian fashion industry and longterm consumption growth.

East Capital Explorer's holding in the company	36%
% of NAV	17%

2016 Jan-Dec	2015 Jan-Dec	2016 Oct-Dec	2015 Oct-Dec
12,474	12,563	3,172	3,485
5,926	5,775	1,763	1,805
610	798	560	435
106	273	306	263
-0.7	14.6	-9.0	1.9
47.5	46.0	55.6	51.8
4.9	6.4	17.7	12.5
-574	-387	-574	-387
4,891	4,946	4,891	4,946
558	642	558	642
-2.2	3.9	-9.4	5.2

• The nascent recovery in the Russian economy is supported by a drop in the geopolitical risk due to a higher probability of sanctions lift, as well as by decreasing inflation, higher oil prices and upward pointing industrial production indicators
• Q4 sales decreased by 9.0% y-o-y. The decrease is a result of double digit traffic contraction in December, hitting most discretionary retailers, and a 4% reduction of avg. selling area which was partially offset by better sales of newly opened stores
• MFG delivered a significant improvement in the gross margin that reached 55.6% in Q4 2016 from 51.8% in Q4 2015. On a full-year basis, gross profit improved to 47.5% from 46.0% 2015
• A higher gross margin and a stable cost ratio resulted in better profitability, with Q4 EBITDA increasing by 29% y-o-y and EBITDA margin reaching 17.7% compared to 12.5% in Q4 last year (18.0% vs 12.1% adjusted for FX and hedge revaluation). Due to adverse impact of the currency hedge contracts, full-year EBITDA margin contracted to 4.9% in 2016 from 6.4% in 2015 (adjusted for hedge and FX: 6.6% in 2016 vs 4.4% in 2015)
• On a full-year basis, the number of stores was reduced to 558 from 642, as 108 retail stores were closed, 17 new were opened and 25 were relocated. Despite this, the total selling area did not decrease to the same extent due to a larger store format of new openings and relocations. For 2017, MFG expects double digit growth in total selling area
• The underlying RUB based valuation increased by 47.8%, of which 2/3 is explained by lower market risk and interest rates, resulting in a lower discount rate in the valuation (WACC 16.5% vs prev. 18.7%). Improved margins explain 1/3 of the fair value increase. Due to the strengthened rouble, fair value in euro increased by 62.6% to EUR 42.9m

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

* Financial figures for MFG are preliminary and are thus subject to change

Trev-2 Group

Trev-2 Group, one of the largest infrastructure construction and maintenance companies in Estonia, was acquired as a restructuring case and has under East Capital Explorer's ownership concentrated its operational focus on two core areas: road construction and road maintenance.

East Capital Explorer's holding in the company				38%
% of NAV				2%
EURm	2016	2015	2016	2015
	Jan-Dec	Jan-Dec	Oct-Dec	Oct-Dec
Sales	53.9	51.4	12.5	9.9
EBITDA	2.8	1.8	0.2	-0.4
Operating profit	0.8	-1.0	-0.2	-1.1
Net profit	0.5	-1.2	-0.2	-1.1
Sales growth (%)	5.0	-22.6	26.9	-35.3
EBITDA margin (%)	5.1	3.6	1.9	-4.1
Operating margin (%)	1.5	-1.9	-1.6	-11.2
Net debt (neg = net cash)	-0.8	1.8	-0.8	1.8
Balance sheet total	31.7	33.7	31.7	33.7

• Trev-2 Group ended the year as expected, with revenues for the full year amounting to EUR 53.9m (EUR 51.4m), which is in line with the volumes of last year. While profitability in the core road construction projects remained under pressure from intense competition, the company grew its more profitable mining operations and cut overhead costs by a quarter compared to the previous year. As a result, full year EBITDA increased to EUR 2.8m from EUR 1.8m in 2015, and the EBITDA margin consequently strengthened from 3.6% to 5.1%

• For the up-coming season, visibility is very low with tendering taking place in the spring. However, fixed road maintenance contracts and mining operations provide more predictable income, at the same time as the efficiency measures have reduced the operating risk in the company
• On 31 December 2016, Trev-2 Group had a net cash position of EUR 0.8m (2015: net debt of EUR 1.8m). The strong year-end cash position is mainly due to seasonal effect
• In December, ECEX received a dividend of EUR 0.3m, corresponding to a 5% dividend yield for ECEX
• The fair value of the holding in Trev-2 Group was reduced to EUR 5.7m, due to the dividend paid as well as a more limited adjustment of the underlying valuation

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

Real Estate

The Real Estate segment represents 27 (22) 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.

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 high interest from potential tenants, generate stable cash flows with potential ahead for increasing rents. At the same time, the country's stable and growing economy supports continued low financing costs and the potential for long term value appreciation. The construction of a third building will be completed in 2018.

East Capital Explorer's holding in the property				100%
% of NAV				12%
RUBm	2016 Jan-Dec	2015 Jan-Dec	2016 Oct-Dec	2015 Oct-Dec
Existing building:
Net rental revenue*	4.4	4.4	1.1	1.1
Net operating income	3.9	3.6	0.7	0.6
Property value	60.9	59.7	60.9	59.7
Loan-to-value ratio (%, end-quarter)	56.4	60.6	56.4	60.6
Vacancy rate (%, end-quarter)	3.3	0.7	3.3	0.7
Avg. rent (€/sqm, end-quarter)	12.5	12.6	12.5	12.6
Development project:
Property value * Rental income only, excluding income from communal services	5.9	4.6	5.9	4.6

• Vacancy in the business centre during the fourth quarter increased slightly to 3.3% as 340 sqm of area was released after reaching lease maturity
• A dental and dermatology clinic was opened in the centre in November 2016 with much positive attention from the tenants, media and public
• The construction works of the third tower, which will comprise 13,000 sqm and 23 floors, started in Q4 2016 with expected completion by year-end 2018. A long-term lease contract with Swedbank for premises covering approx. 70% of the new office area has been signed. The new building will be built on the land plot adjacent to the existing 3 Burės office complex, both of which were purchased by ECEX in 2014. Final stages of negotiations are being held with a potential tenant for the remaining 30% of the leasable area. ECEX' equity investment is estimated to amount to EUR 9m of the total estimated investment of approx. EUR 25m over the two-year construction period. During 2016, ECEX' investment totalled EUR 0.25m
• An external valuation of the properties, including the development property, was conducted, resulting in a value contribution of +3.5% on NAV, with another +2.2% contribution from the properties' operating results in Q4 2016. A tax reserve referring to unrealised value gains in 2015 and 2016 of EUR 1.4m had a negative NAV contribution of -4.7%, resulting in a total fair value increase in 3 Burės of 1.0% during Q4 2016

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 is primarily on well-located shopping centres and retail properties, as well 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	11%

		Q4 2016		YTD 2016 Since May 12
Performance of the holding, EUR		0.3%	7.1%		43.4%
Properties in the portfolio	Weight of mkt value, %	Contr,	%* Location	Type
Mustamäe Keskus	20		16 Tallinn	Retail
GO9	24		10 Vilnius	Retail
Tänassilma Logistics	25		40 Tallinn	Logistics
Metro Plaza	18		20 Tallinn	Office
Deglava Prisma	3		-2 Riga	Retail
Rimi Logistics	10		16 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 slightly by 0.3% during the fourth quarter. The significant write-down in the Deglava property (-75%) was partly compensated by an upward revaluation of all other properties and a positive operating result corresponding to a value contribution of +2.5% on NAV
• The Deglava property in Riga remained closed during the quarter. The permit for construction works was received early December 2016 and the repair works are being finalized in January 2017. The lease agreement with Prisma has been cancelled by the lessee. The management team is working on a concept change of the building to allow a multitenant centre and has started negotiations with potential new tenants
• The year-end NAV includes, besides the expected revaluation loss of the Deglava property, cost accruals for extraordinary expenses to cover construction, legal costs and the potential claims. The NAV does not include any possible recovery from responsible parties involved in the construction of the property or from their insurers
• Tänassilma Logistics with its stable operations and solid cash flow continues to be the highest contributor to the funds growth
• Several new leases were signed in the Metro Plaza office building in the fourth quarter which will commence during the first quarter of 2017 after the premises have been prepared for tenants. The building will reach close to zero vacancy after that

East Capital Baltic Property Fund III

The fund was launched in 2015 and will invest in and manage commercial 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 stable income and enhancement or value-added potential

East Capital Explorer's share of the Fund			27%
% of NAV			4%
	Q4 2016		YTD 2016 Since Aug 15
Performance of the holding, EUR	5.9%	9.4%	9.1%

• The net asset value of East Capital Explorer's holding in the fund increased by 5.9% during the fourth quarter. The NAV increase is based on operational profits from the two investments in the fund as well as a positive revaluation of Vesse Retail Centre at year-end
• In Vesse Retail Centre, the facade of the hypermarket building was renovated during second half of 2016 as a joint investment by the landlord and the grocery tenant COOP Eesti. The rebranding of the grocery store from Maksimarket to COOP also included a store interior upgrade by the tenant
• The lease agreement with the grocery anchor COOP was extended until 2027. A rent discount will be offered until December 2017 as a compensation for the investments
• Hilton Tallinn Park has been positively welcomed by locals and tourists after its opening the 1st of June 2016. The official hotel results for 7 months of 2016 will be made available after the quarterly report of Olympic Entertainment Group has been published on Nasdaq Baltic stock exchange

Public Equity

The Public Equity segment represents 16 (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.

Komercijalna Banka Skopje

Komercijalna Banka Skopje (KBS), listed on the Macedonian stock exchange, is Macedonia's largest bank by assets and capital. The low valuation compared to other banks in the region makes it a potential candidate for strategic investors.

East Capital Explorer's holding in the company	10%
% of NAV (direct inv. and through EC Deep Value Fund)	5%

MKDm	2016 Jan-Dec	2015 Jan-Dec	2016 Oct-Dec	2015 Oct-Dec
Net interest income	2,888	2,909	693	747
Net interest margin (%)	3.6	3.7	3.5	3.7
Total operating income	4,171	4,168	1,043	1,111
Operating expenses	1,712	1,715	457	444
Cost Income ratio (%) *	36.5	37.6	37.0	39.9
Profit before tax and provisions	2,459	2,453	587	667
Net profit	779	525	253	208

* Excluding one-offs

• KBS reported full-year 2016 net profit of MKD 779m (EUR 12.7m), a 48% increase from the previous year, but slightly short of the bank's target
• Full year pre-tax, pre-provision income was more or less in line with 2015. Provisions for loan impairment caused a decline in Q4 2016 compared to Q4 2015. Management has been working hard on some bad loans, but the result hereof has yet not been realised
• Core income statistics remained very satisfactory net interest income (NIM) was 3.6% for the year, and the cost income ratio well under 40%. Fee and commission income declined by 3%, mostly due to aggressive pricing by competitors. Liquidity is ample, which is positive considering the continuing political uncertainties in Macedonia, and capital adequacy is robust at 15.2%
• Balance sheet growth continued to be weak at 3.7% for the year with shrinking gross loans, reflecting a deficit of creditworthy corporate borrowers in the market. In the short term, the Bank's best strategy for improving profits is to reduce cost of risk
• The KBS share continued to strengthen and East Capital Explorer's holding increased in value by 17.5% in Q4 and by 29.4% for the fullyear 2016

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 revenue generation and high revaluation potential where the fund managers can take an active role in corporate governance of the portfolio companies.

	74%
% of NAV	12%

	Q4 2016		YTD 2016 Since Dec 14
Performance of the holding, EUR	7.7%	1.4%	4.6%

Largest holdings in the Fund on 31 December 2016

	Weight,	Perf,	Contr,
Company	%	%		%* Country	Sector
B92	12.9	0.0		-0.1 Serbia	Cons. Disc.
Bank Sankt-Peterburg	11.2	24.1		2.3 Russia	Financials
Caucasus Energy & Infrastructure	9.3	-8.9		-0.7 Georgia	Utilities
Komercijalna Banka Skopje	8.3	17.5		1.1 Macedonia	Financials
Impact	5.6	-1.8		-0.1 Romania	Real Estate
Reinsurance Co Sava	5.4	-5.5		-0.3 Slovenia	Financials
Telekom Srpske	3.3	0.0		0.0 Bosnia	Telecom
Bank Tsentrkredit	2.5	18.8		0.4 Kazakhstan	Financials
Pif Big	2.4	-18.9		-0.6 Bosnia	Financials
Steppe Cement	2.4	-1.1		0.0 Kazakhstan	Materials
All figures in performance during the fourth quarter 2016

* Contribution to the portfolio performance

	_________

10 largest holdings (% of fund)	Unlisted holdings (% of fund)	Total number of holdings
63	15	81

• The value of East Capital Explorer's holding in the fund increased by 7.7% in the fourth quarter. While the fund has no official benchmarks, this was below MSCI Emerging Markets Europe 10-40 which increased by 16.6% and MSCI Russia 10-40 which gained 25.9%
• The largest contributor to return was Bank of St Petersburg at 24.1% primarily driven by improving Russian sentiment and stronger rouble, which strengthened to 60.7 against the USD following stronger oil prices
• The largest negative contributor was Georgian Caucasus Energy & Infrastructure, purely on a devaluation of the Georgian currency lari, which weakened 8.9% against the EUR while the valuation in lari remained unchanged. Several Balkan holdings were slightly down in the period, despite strong macro numbers

Short-term investments

Short-term investments include assets that are expected to be divested. The largest short-term investment is East Capital Global Frontier Markets Fund, corresponding to 4 percent of NAV. East Capital Bering Ukraine Fund Class R, which increased by 30 percent in the fourth quarter, corresponds to 0.6 percent of East Capital Explorer's NAV and is not specified below.

East Capital Global Frontier Markets Fund

East Capital Global Frontier Markets Fund is a daily traded UCITS fund with a global focus on young and growing markets. To combine high growth, attractive valuations and risk-adjusted returns, the fund seeks to invest in a wide spectrum of countries, sectors and companies. A significant share is invested in off-index countries, the "next frontiers".

East Capital Explorer's share of the Fund	29%
% of NAV	4%

	Q4 2016		YTD 2016 Since dec 14
Performance of the holding, EUR	5.4%	2.5%	4.4%

Largest holdings in the Fund on 31 December 2016

Company	Weight, %	Perf, %	Contr,	%* Country	Sector
United Bank	5.4	26.4		1.1 Pakistan	Financials
National Bank Of Kuwait	5.3	16.1		0.8 Kuwait	Financials
Banco Macro B Adr	4.8	-10.6		-0.6 Argentina	Financials
Habib Bank	4.2	32.6		1.0 Pakistan	Financials
Viet Nam Dairy Products	3.8	-3.6		-0.1 Vietnam	Cons. Stap.
FPT Corp	3.1	-3.7		-0.1 Vietnam	IT
Safaricom	3.0	1.7		0.0 Kenya	Telecom
Grupo Supervielle Sa-Adr	2.9	-6.2		-0.2 Argentina	Financials
Adecoagro	2.8	-1.7		-0.1 Argentina	Cons. Stap.
Square Pharmaceuticals	2.7	10.2		0.2 Bangladesh	Health Care

All figures in performance during the fourth quarter 2016

* Contribution to the portfolio performance

10 largest holdings (% of fund)	Unlisted holdings (% of fund)	Total number of holdings
38	0	57

• The value of the holding in East Capital Global Frontier Markets Fund gained 5.4% while the MSCI Frontier Markets index gained 7.5% during the fourth quarter
• Pakistan, which gained another 23.7% in the final quarter and ended the year with an impressive 45.4% return, was the best contributor during the fourth quarter. The overall economic growth in Pakistan is expected to reach 5% in 2017. Two of the fund's key active Pakistani positions, United Bank and Habib Bank, outperformed index as they gained 26.4% and 32.6%, respectively
• Several previous challenges for the asset class, such as the fiscal rebalancing, currency adjustments and outflows have overall eased, if some are not entirely over for specific markets

Results

The investment activities of East Capital Explorer AB (publ) (the Company) 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 the investment portfolio. Transactions in the operating subsidiaries are referred to as the investment activities in this report.

Presentation currency is euro (EUR).

Results for the fourth quarter 2016

The net result for the fourth quarter was EUR 22.8m (EUR 1.3m), including value changes of shares in subsidiaries of EUR 23.4m (EUR 1.9m), corresponding to earnings per share of EUR 0.88 (EUR 0.04).

In Q4 2016, the Company completed the sale of Starman for a total cash consideration of EUR 83.6m. The cash consideration prompted a settlement of the carried interest liability to East Capital of approx. EUR 6.7m which was paid by year-end. The net positive effect on the Q4 result from the transaction was approx. EUR 2.1m, as a result of higher net proceeds compared to previous book values.

Melon Fashion Group was appreciated by EUR 16.5m in total. The underlying asset in rouble was appreciated by EUR 12.6m mainly due to generally decreased market risk in Russia, which results in a lower weighted average cost of capital (WACC), as well as improved gross margin levels, while the translation from rouble to euro had a positive effect of EUR 3.9m.

In Q4 2016, a dividend was received from Trev-2 Group of EUR 0.3m, while the fair value of the holding in Trev-2 Group was depreciated by EUR 0.5m. Together with fair value adjustments in 3 Burės of EUR 0.3m, Komercijalna Banka Skopje of EUR 1.6m, in East Capital Baltic Property Fund III of EUR 0.5m, East Capital Deep Value Fund of EUR 2.4m and East Capital Global Frontier Markets Fund of EUR 0.6m, these were the main 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 Global Frontier Markets Fund were sold for a total amount of EUR 2.0m, and in East Capital Deep Value Fund for a total amount of EUR 5.0m.

The result for the period includes income of EUR 0.3m (EUR 0.0m) mainly from repayment of charged management fees in funds, and expenses of EUR 1.1m (EUR 0.7m), all of which refer to the Parent company. Net financial income and expenses was EUR +0.2m (EUR +0.0m).

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

Results for the period Jan-Dec 2016

The net result for year 2016 was EUR 13.3m (EUR 7.3m), including value changes of shares in subsidiaries of EUR 16,69m (EUR 9.0m), corresponding to earnings per share of EUR 0.49 (EUR 0.25).

In Q4 2016, the sale of Starman was completed for a total cash consideration of EUR 83.6m; an increase of EUR 11.8m during the year. The cash consideration prompted a carried interest to East Capital of approx. EUR 6.7m which was paid by year-end.

Melon Fashion Group was appreciated by EUR 16.3m in total. The underlying asset in rouble was appreciated by EUR 8.2m due to generally decreased market risk in Russia, which results in a lower weighted average cost of capital (WACC), as well as improved gross margin levels, while the translation from rouble to euro had a positive effect of EUR 8.1m. Furthermore, a dividend was received from Melon Fashion Group of EUR 0.5m, East Capital Baltic Property Fund II of EUR 0.9m, Komercijalna Banka Skopje of EUR 0.4m and from Trev-2 Group of EUR 0.3m. Together with fair value adjustments in 3 Burės of EUR 2.5m, East Capital Baltic Property Fund II of EUR 1.1m, East Capital Baltic Property Fund III of EUR 0.8m, Komercijalna Banka Skopje of EUR 2.1m and in East Capital Global Frontier Markets Fund of EUR 0.8m, and expenses amounting to EUR 13.7m (of which 10.3m refers to items affecting comparability), these were the main contributors to the change in value of shares in subsidiaries in the Income statement for the period. Please see Note 2 Segment Reporting for more information.

In the investment activities, the shares in East Capital Global Frontier Markets Fund were sold for a total of EUR 21.6m and in East Capital Deep Value Fund for a total amount of EUR 12.2m. Further, the second drawdown was made in East Capital Baltic Property Fund III for 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 also includes other previously announced commitments such as brand and non-compete clause.

The result for the period includes income of EUR 0.7m (EUR 0.0m) mainly from repayment of charged management fees in the funds, and expenses of EUR 4.5m (EUR 1.9m), all of which refer to the Parent company. Net financial income and expenses was +0.1m (EUR +0.2m).

Comparative numbers in parenthesis refer to January-December 2015.

Financial Position and Cash Flow Jan-Dec 2016

The Company's equity ratio was 99.3 percent (99.8 percent).

The cash flow presented below only relates to transactions in the Parent Company. During the period January-December 2016, the Company received repayment of shareholder's contributions of EUR 52.7m (EUR 17.5m) in total. In June, an ordinary dividend for 2015 of SEK 0.80 per share, corresponding to EUR 0.09 per share, was distributed to shareholders. The dividend amounted to a total of EUR 2.3m. During the period 20 May – 31 December 2016, East Capital Explorer repurchased a total of 2,557,100 shares, for an amount equivalent to EUR 17.0m.

Cash and cash equivalent at the end of the period amounted to EUR 30.3m (EUR 1.9m), all of which refer to the Parent Company.

At the end of the period, cash, cash equivalents and other short-term investments in the investment activities amounted to EUR 95.2m (EUR 43.0m). Please refer to the breakdown of values in subsidiaries on pages 15-17 for more details regarding the investment activities.

Comparative numbers in parenthesis refer to 31 December 2015.

Commitments

On 10 July 2015, the Company announced a commitment to invest EUR 20m in total in East Capital Baltic Property Fund III. Of this, EUR 8.1m has been drawn down by the fund and the remaining commitment amounts to EUR 11.9m.

On 21 October 2016, the Company committed to finance up to EUR 9m in successive instalments over the coming two years, in a 23-floor office complex in Vilnius. The new building will be built on the land plot adjacent to the existing 3 Burės office complex and the new investment will be included in the 3 Burės holding.

Business Environment and Market

Most markets in East Capital Explorer's investment universe had a positive performance in 2016, despite initial worries over the British EU referendum and the US presidential election. The OPEC countries managed to agree on cutting production rates which strengthened the oil prices that stabilised significantly in 2016 compared to the past few years' high volatility. Russia gained from both the stronger oil price and from the election of President Trump who, together with the new Foreign Secretary Tillerson, is expected to drive a more Russia friendly agenda than previous US Presidents. On the other hand, the market became somewhat more cautious towards the Baltic countries following the US election, as President Trump's initial comments on NATO raised worries about the Baltics.

Looking at the third quarter, GDP growth rate decreased somewhat to 1.7 percent in Lithuania and 0.3 percent in Latvia, while increasing in Estonia to 1.3 percent. However, consumption in the Baltics is still robust with retail sales growing 5-8 percent in November. The Baltic stock markets showed stable returns in the fourth quarter as the Tallinn stock market rose by as much as 7.4 percent, the Riga stock market by 3.5 percent and the Vilnius stock market by 2.7 percent.

In Russia, the economic situation has continued to stabilise. Inflation decreased to 5.4 percent in December, the lowest level in post-Soviet times and significantly below the consensus expectations of 8.3% a year ago. The rouble strengthened further, +10 percent against the euro during the quarter, which is expected to drive inflation down even more and to lead to more interest rate cuts. Following this, the Russian stock market gained 24.6 percent (MSCI Russia) in EUR in the fourth quarter.

In the Balkans, East Capital Explorer's third largest market, investments are returning as the global sentiment towards emerging and frontier markets is improving. The stock markets in Eastern European Emerging markets rose by 5.8 percent (MSCI EM Europe) in EUR in the fourth quarter.

The overall economic development in East Capital Explorer's investment region is thereby varied, and uncertainties remain from a financial perspective. Global monetary policy as well as currencies and interest rates are likely to continue to affect the company's markets. East Capital Explorer's investments may therefore face increased risks for exit options, but on the other hand policy changes also create new investment opportunities.

Other information

Risks and uncertainties

The dominant risk in East Capital Explorer's operations is commercial risk in the form of exposure to specific sectors, geographic regions or individual holdings and financial risk in the form of market risk, equity price risk, foreign exchange risk and interest rate risk. A more detailed description of East Capital Explorer's material risks and uncertainties is provided in the Company's Annual Report 2015 on pages 44-46. An assessment for the coming months is provided in the Business Environment and Market 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 and political risk, for example political decisions on public sector expenditures and industry regulations.

Fees

At an Extraordinary General Meeting on 9 May 2016, the shareholders approved the Board's proposal regarding a joint termination of the Investment Agreement between East Capital Explorer and East Capital. Following the EGM decision, all management fee payments to East Capital were halted, with the exception of the real estate funds East Capital Baltic Property Fund II and East Capital Baltic Property Fund III. For further information about the termination of the Investment Agreement, please see Note 5 Related parties.

To calculate all management fees and carried interest paid by East Capital Explorer to East Capital, fees originated in funds are added to the fees in the investment activities. During 2016, management fees to East Capital amounted to EUR 2.0m (EUR 4.8m) and carried interest amounted to EUR 7.6m (EUR 0.0m). The carried interest is related to the sale of Starman, EUR 6.7m, and accrued profit sharing 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 Baltic Property Fund III is 1.25%. The carried interest for these funds is 20%, on the premise that a threshold value increase of 7-8% per 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 business concept is to maximise risk-adjusted shareholder return by offering shareholders 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 for growth 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 portfolio is actively managed to optimize the long-term value. All investments are considered carefully from a risk-reward perspective. Risks are managed on the basis of a number of methods and tools, among others, through emphasis on corporate governance, including material and relevant environmental and social factors. Active ownership also involves board representation and close relations with the companies in which East Capital Explorer invests.

For further information about the organizational and investment structure of the Company, please see the Company's web site www.eastcapitalexplorer.com under the section, 'Corporate Governance'.

The CEO certifies that the year-end report presents a true and fair view of the Company's and the Group's operations, financial position and profits and describes the significant risks and uncertainties facing the Company and the Group.

Stockholm, 13 February 2017

Mia Jurke Chief Executive Officer

Contact information

Mia Jurke, CEO, +46 8 505 885 32 Lena Krauss, CFO, +46 8 505 885 94

East Capital Explorer AB Kungsgatan 35, Box 7214 SE-103 88 Stockholm, Sweden Tel: +46 8 505 977 00 www.eastcapitalexplorer.com

Financial calendar

• 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 your e-mail on: www.eastcapitalexplorer.com or by sending an email to info@eastcapitalexplorer.com.

The information in this year-end report is the information which East Capital Explorer AB is required to disclose under the EU Market Abuse Regulation and the Securities Markets Act. It was released for publication at 08:00 a.m. CET on 13 February 2017.

Income Statement

EUR Thousands
		2016	2015	2016	2015
	Note	Jan-Dec	Jan-Dec	Oct-Dec	Oct-Dec
Changes in fair value of subsidiaries	2	16,931	8,996	23,400	1,923
Other income		691	-	331	-
Staff expenses		-1,894	-998	-794	-395
Other operating expenses		-963	-919	-298	-263
Items affecting comparability1		-1,604	-	-	-
Operating profit/loss		13,161	7,079	22,638	-10,830
Financial income		203	189	181	-2
Financial expenses		-61	0	12	6
Profit/loss before tax		13,303	7,268	22,831	1,263
Tax		-	-	-	-
NET PROFIT/LOSS FOR THE PERIOD2		13,303	7,268	22,831	1,263
Earnings per share, EUR
- Attributable to shareholders of the Parent Company		0.49	0.25	0.88	0.04
No dilutive effects during the periods

1 Advisory costs related to the termination of the Investment Agreement with East Capital 2 Net Profit/Loss for the period corresponds to Total Comprehensive income

Balance Sheet

EUR Thousands
		2016	2015
	Note	31 Dec	31 Dec
Assets
Shares in subsidiaries	3, 4	195,993	252,140
Loans to group companies	4	20,900	-
Total non-current assets		216,893	252,140
Other short-term receivables		2	-
Accrued interest income	4	1,680	-
Accrued income and prepaid expenses		427	14
Cash and cash equivalent		30,338	1,918
Total current assets		32,447	1,932
Total assets		249,340	254,071
Equity
Share capital1		3,655	3,654
Other contributed capital/Share premium reserve2		299,613	318,920
Retained earnings2		-69,014	-76,282
Net profit/loss for the period2		13,303	7,268
Total equity		247,558	253,561
Current liabilities

Other liabilities	334	256
Accrued expenses and prepaid income	1,449	254
Total current liabilities	1,783	510
Total equity and liabilities	249,340	254,071

1 Restricted capital

2 Unrestricted capital

Statement of Changes in Equity

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 2016	3,654	318,920	-69,014	253,561
Net profit/loss for the period	-	-	13,303	13,303
Total comprehensive income	-	-	13,303	13,303
Bonus issue	1	-1	-	-
Dividend to shareholders	-	-2,335	-	-2,335
Share buy-back	-	-16,971	-	-16,971
Closing equity 31 December 2016	3,655	299,613	-55,711	247,558

EUR Thousands		Other
		contributed	Retained	Total equity
		capital/Share	earnings incl.	shareholders
		premium	profit/loss for	in Parent
	Share capital	reserve	the year	company
Opening equity 1 January 2015	3,650	333,945	-76,282	261,314
Net profit/loss for the period	-	-	7,268	7,268
Total comprehensive income	-	-	7,268	7,268
Bonus issue	4	-4	-	-
Redemption program	-	-13,170	-	-13,170
Share buy-back	-	-1,851	-	-1,851
Closing equity 31 December 2015	3,654	318,920	-69,014	253,561

Statement of Cash Flow

EUR Thousands
	2016	2015	2016	2015
	Jan-Dec	Jan-Dec	Oct-Dec	Oct-Dec
Operating activities
Operating profit/loss	13,161	7,079	22,638	1,265
Changes in fair value of subsidiaries	-16,931	-8,996	-23,400	-1,923
Cash flow from current operations before changes in working capital	-3,770	-1,917	-761	-658
Cash flow from changes in working capital
Increase (-)/decrease(+) in other current receivables	-414	3	-59	-11
Increase (+)/decrease(-) in other current payables	1,272	106	486	154
Cash flow from operating activities	-2,912	-1,808	-335	-515
Investing activities
Repayment of shareholder contributions	52,700	17,500	32,000	-
Aquisition of remaining shares in ECEX Holdings SA	-2,000	-	-	-
Cash flow from investing activities	50,700	17,500	32,000	-
Financing activities
Redemption program	-	-13,170	-	-
Dividend to shareholders	-2,335	-	-	-
Share buy-back	-16,971	-1,851	-2,919	-
Cash flow from financing activities	-19,306	-15,021	-2,919	-
Cash flow for the period	28,482	671	28,746	-515
Cash and cash equivalent at the beginning of the period	1,918	1,057	1,581	2,435
Exchange rate differences in cash and cash equivalents	-61	189	12	-2
Cash and cash equivalent/cash and bank at the end of the period	30,338	1,917	30,338	1,917

Note 1 Accounting Principles

This interim report has been prepared in accordance with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) 34 Interim Financial Reporting and applicable provisions in the Swedish Annual Accounts Act (Årsredovisningslagen). The interim report for the Company has been prepared in accordance with the Swedish Financial Reporting Board's standard RFR 2 and the Swedish Annual Accounts Act Chapter 9, Interim report. The parts of IFRSs 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 presented together 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 31 December 2015.

Note 2 Segment Reporting

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 fair value, 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 shortterm investments. All other revenues and expenses are classified as unallocated in the table below.

EUR thousands	Private			Short-term
1 Jan – 31 Dec 2016	Equity		Real Estate Public Equity	investments	Unallocated	Total
Changes in value of portfolio	15,840	4,134	2,654	12,626	-	35,254
Received dividends	759	854	416	-	-	2,029
Other operating expenses (incl. management fees)	-240	-172	-61	-2,416	-447	-3,336
Items affecting comparability1	-	-935	-	-6,682	-9,400	-17,017
Changes in value of subsidiaries	16,359	3,881	3,009	3,528	-9,847	16,931
Other income	-	27	406	144	115	691
Staff expenses	-	-	-	-	-1,894	-1,894
Other operating expenses	-	-	-	-	-963	-963
Items affecting comparability2	-	-	-	-	-1,604	-1,604
Operating profit/loss	16,359	3,907	3,415	3,672	-14,193	13,161
Financial income	-	203	-	-	-	203
Financial expense	-	-	-	-	-61	-61
Profit/loss before tax	16,359	4,110	3,415	3,672	-14,254	13,303
Assets	48,585	67,075	39,356	95,231	-906	249,340

EUR thousands	Private			Short-term
1 Jan – 31 Dec 2015, restated3	Equity	Real Estate	Public Equity	investments	Unallocated	Total
Changes in value of portfolio	-10,771	5,773	1,959	14,025	-	10,986
Received dividends	817	-	-	-	-	817
Other operating expenses (incl. management fees)	-870	-424	-147	-1,188	-179	-2,807
Changes in value of subsidiaries	-10,824	5,349	1,813	12,837	-179	8,995
Staff expenses	-	-	-	-	-998	-998
Other operating expenses	-	-	-	-	-919	-919
Operating profit/loss	-10,824	5,349	1,813	12,837	-2,096	7,078
Financial income	-	-	-	-	189	189
Financial expense	-	-	-	-	0	0
Profit/loss before tax	-10,824	5,349	1,813	12,837	-1,907	7,267
Assets	32,745	57,718	48,894	114,799	-84	254,071

¹ Costs related to the transition and termination agreement with East Capital (Real Estate and Unallocated), and to the 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

3 Due to the divestment of Starman, the asset was 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.

Note 3 Entities with ownership interests over 50 percent

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

		Number of	Book value,	Ownership
Non consolidated entities 31 Dec 2016	Country	shares	EURt	capital
ECEX Holdings SA (formerly East Capital Explorer Investments SA)	Bertrange, Luxembourg	100,000	11,864	100%
East Capital Explorer Investments AB	Stockholm, Sweden	11,000	10,808	100%
Humarito Limited	Nicosia, Cyprus	2,000	173,321	100%
Baltic Cable Holding OÜ	Tallinn, Estonia	2,502	83,450	100%
UAB Portarera1	Vilnius, Lithuania	300	30,419	100%
UAB Solverta1	Vilnius, Lithuania	100	-	100%
UAB Verslina1	Vilnius, Lithuania	100	-	100%

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

Note 4 Financial instruments

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 holdings in the subsidiaries. Shares and participations in the investment activities as well as the Company's holdings in subsidiaries are all valued at fair value.

Financial instruments not measured at fair value through profit and loss

For 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 and cash equivalent.

Calculation of fair value

The following summarises the main methods and assumptions applied in determining the fair values of the financial instruments in the balance sheet. Please refer to the 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.
• 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).

• 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 is significant 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. If a 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 or liability.

Shares in subsidiaries/financial instruments

In the Parent company, financial instruments consist of shares in subsidiaries of EUR 196.0m, loans to group companies of EUR 20.9m and cash and cash equivalent of EUR 30.3m. The carrying amount of these assets constitutes the fair value on the balance sheet date.

			Book value, EURt	Share of capital, %
Shares in subsidiaries including loans to group companies	Country	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015
ECEX Holdings SA (formerly East Capital Explorer Investments SA)	Bertrange, Luxembourg	11,864	252,140	100	100
East Capital Explorer Investments AB	Stockholm, Sweden	10,808	-	100	-
Humarito	Nicosia, Cyprus	173,321	-	100	-
UAB Portarera (loan)	Vilnius, Lithuania	20,900	-	100	-

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 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.

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 the shares in subsidiaries, including loans to group companies, are directly and indirectly made up by the following assets:

EUR Thousands
31 December 2016						Other assets
Breakdown of values in subsidiaries including	Private		Public	Short-term		and liabilities,
loans to group companies	Equity	Real Estate	Equity		investments Cash and bank	net	Total
Opening balance 1 January 2016	104,584	57,718	48,894	32,450	8,593	-98	252,140
Movement of acrrued interest income to Parent company	-	-1,477	-	-	-	-	-1,477
Reclassifications	-71,839	-	-	71,839	-	-	0
Purchases/additions	-	5,020	-	-	-5,020	-	0
Divestments/Reductions	-	-	-12,192	-105,224	117,416	-	0
Other	-	-	-	-	-17,116	-1,236	-18,352
Repaid shareholders contributions	-	-	-	-	-52,700	-	-52,700
Dividend received	-	-	-	-	2,029	-	2,029
Changes in fair value recognised net in profit/loss	15,840	4,134	2,654	12,626	-	-	35,254
Closing balance 31 December 2016	48,585	65,395	39,356	11,691	53,201	-1,334	216,893

EUR Thousands						Other assets
31 December 2015	Private		Public	Short-term		and liabilities,
Breakdown of values in subsidiaries	Equity	Real Estate	Equity		investments Cash and bank	net	Total
Opening 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	-2,807
Repaid shareholders contributions	-	-	-		- -17,500	-	-17,500
Dividend received	-	-	-		- 817	-	817
Changes in fair value recognised net in profit/loss	-961	5,773	1,959	4,215	-	-	10,986
Closing balance 31 December 2015	104,584	57,718	48,894	32,450	8,593	-98	252,140

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 Property Fund 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 is assessed 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, is also included in Public Equity. Holdings in Public Equity are valued at fair value according to the valuation principles described on the previous page.

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

		Valuation
Holding	Class	method	Valuation assumptions
Melon Fashion Group	Private Equity	DCF	Long-term growth 5%, Long term operating margin 12%, WACC 17%
Trev-2 Group	Private Equity	DCF	Long-term growth 2%, Long term operating margin 7%, WACC 7-11%
3 Burės	Real Estate	DCF	WACC 7-8%, Exit yield 7%
East Capital Baltic Property Fund II	Real Estate	DCF	WACC 8-10%, Exit yield 7-8%
East Capital Baltic Property Fund III	Real Estate	DCF	WACC 9%, Exit yield 8%

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

For the fair values of Private Equity investments and Real Estate - reasonably possible changes at the reporting date to one of the significant unobservable inputs, holding other inputs constant, would have the following effects:

Effect in EUR thousands	Private Equity
31 December 2016	Profit or loss
Sensitivity analysis	Increase	Decrease
Long term growth rate (0.5% movement)	1,951	-1,787
Weighted average cost of capital (WACC) (0.5% movement)	-2,356	2,575
Long term operating margin (0.5% movement)	2,089	-2,093

Effect in EUR thousands	Real Estate
31 December 2016	Profit or loss
Sensitivity analysis	Increase	Decrease
Weighted average cost of capital (WACC) (0.5% movement)	-2,051	2,134
Exit yield (0.5% movement)	-3,778	4,351

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 the portfolio holdings can be found on pages 5 to 10 in this report.

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

Total	49,592	117,114	166,706
Short-term investments	10,236	1,455	11,691
Public Equity	39,356	-	39,356
Real Estate	-	67,075	67,075
Private Equity	-	48,585	48,585
Shares and participations in investment activities at fair value through profit or loss1	Level 1		Level 3 Total balance
31 December 2016
EUR thousands

EUR thousands
31 December 2015
Shares and participations in investment activities at fair value through profit or loss	Level 1		Level 3 Total balance
Private Equity	-	104,584	104,584
Real Estate	-	57,718	57,718
Public Equity	48,894	-	48,894
Short-term investments	31,077	1,373	32,450
Total	79,970	163,675	243,645

¹The following investments are classified in:

Level 1 - East Capital Deep Value Fund, East Capital Global Frontier Markets Fund and Komercijalna Banka Skopje

Level 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

Equity	Real Estate	Investments	Total
104,584	57,718	1,373	163,675
-71,839		-	-71,839
-	5,020	-	5,020
15,840	4,337	82	20,258
48,585	67,075	1,455	117,114
	Private		Short-term -

EUR thousands
31 December 2015	Private		Short-term
Changes in financial assets and liabilities in Level 3	Equity	Real Estate	Investments	Total
Opening balance 2015	85,028	48,620	1	133,649
Reclassifications	-1,997	-	1,997	-
Purchase/additions	22,514	3,325	-	25,839
Changes in fair value recognised net in profit/loss	-961	5,773	-625	4,187
Closing balance 31 December 2015	104,584	57,718	1,373	163,675

1 Starman was moved from level 3 to level 2 before the divestment was finalised; the unobservable input was not a significant part of the value of the holding.

EUR 20,258 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.

Risks and uncertainties

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 Annual Report of 2015. The effect of fluctuations in the major parameters on the value of the portfolio holdings is presented in the table below:

Sensitivity analysis for market risks (EUR Thousands)

31 December 2016		Effect on net
Risk factors	Change	profit/loss for the period
Fx EUR/RUB	+/- 10%	4,288
Fx EUR/USD	+/- 5%	2,019
Equity price	+/- 10%	16,503

Note 5 Related parties

On 31 December 2016, East Capital Explorer AB had a related party relationship with its subsidiaries, Board members and employees.

At an Extraordinary General Meeting on 9 May 2016, East Capital Explorer's shareholders approved the Board's proposal to terminate the Investment Agreement between East Capital Explorer and East Capital. Consequently, no management fees to East Capital have been paid following the EGM, with the exception of the real estate funds East Capital Baltic Property Fund II and East Capital Baltic Property Fund III. Management fees paid to East Capital Asset Management SA during 2016 amounted to EUR 2.0m (EUR 4.8m).

Following the decision to terminate the investment agreement, East Capital Explorer and East Capital have signed a Transition and Termination Agreement regarding 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 0.8m in Q4 2016 and EUR 2.0m in Q4 2017. EUR 8.3m of this was included in the Q2 results, and another EUR 2.0m was included in the Q3 2016 results. Furthermore, a reserve of EUR 6.5m relating to carried interest for the sale of Starman was booked in Q1 2016. The carried interest, which was paid after closing of the transaction in Q4 2016, amounted to EUR 6.7m. The increase of EUR 0.2m, was due to higher cash consideration from the transaction. Please see Note 2 Segment reporting and company press releases.

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 the Net Asset Value.

East Capital Explorer AB's management, Board members and their close relatives and related companies control 21.7 percent of voting rights in the Company.

Comparative numbers in parenthesis refer to January-December 2015.

Note 6 Repurchase of shares and dividend

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 than 20 percent to its most recently published NAV in SEK. The Company have a mandate repurchase up to 10 percent of outstanding shares. The Company repurchased a total of 2,557,100 shares during the period 20 May through 31 December 2016, corresponding to 9.08 percent of the Company's outstanding shares, at an average price of SEK 62.62 per share.

The total number of shares outstanding in East Capital Explorer as of 31 December 2016 amounted to 28,161,563. Adjusted for repurchased shares in 2016, the number of shares amounted to 25,604,463. The weighted average number of shares outstanding for the reporting period was 27,026,616, adjusted for the repurchased shares. In June 2016 the Company reduced its share capital by cancelling the 315,229 shares that were repurchased during 2015.

East Capital Explorer's dividend policy states that at least 50 percent of dividends received from portfolio holdings shall be distributed to shareholders. With an ordinary dividend as a base, share redemptions and repurchases can also be used from time to time to enhance shareholder value. At the Annual General Meeting 2016, 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 June 2016.

East Capital Explorer will propose to the Annual General Meeting 2017 to pay an ordinary dividend for 2016 of SEK 0.90 per share, corresponding to EUR 0.09 per share.

Note 7 Events occurring after the end of the quarter

Shares in East Capital Deep Value Fund were sold for an amount equivalent to EUR 2.1m.

The Company repurchased a total of 148,900 shares during the period 9 January through 10 February 2017, corresponding to 0.58 percent of the Company's outstanding shares, at an average price of SEK 66.68 per share.

At an Extraordinary General Meeting on 23 January 2017, East Capital Explorer's shareholders approved the Nomination Committee's proposal to elect Göran Bronner as Director of the Board. The Meeting also approved the Board of Directors' proposal to reduce the share capital by cancelling of 2,500,000 previously repurchased shares and to increase the share capital by way of a bonus issue.

On 31 January 2017, the cancelling of 2,500,000 repurchased shares was executed.

Note 8 Key Figures

12m	9m	6m	3m	12m	9m	6m	3m
2016	2016	2016	2016	2015	2015	2015	2015
248	228	236	253	254	252	264	279
99.3	99.4	99.7	99.8	99.8	99.9	95.1	99.8
1,880	1,619	1,669	1,545	1,445	1,481	1,495	1,692
196	168	177	169	158	158	162	183
25.6	26.1	27.0	28.2	28.2	28.2	28.3	29.9
28.2	28.2	28.2	28.5	28.5	28.5	28.5	29.9
27.0	27.4	28.0	28.2	29.3	29.7	30.5	30.6
9	9	5	4	4	4	4	4
12m	9m	6m	3m	12m	9m	6m	3m
2016	2016	2016	2016	2015	2015	2015	2015
0.49	-0.35	-0.27	-0.01	0.25	0.20	0.55	0.52
0.09	-			0.09			-
93	84	82	83	82	84	86	87
9.67	8.73	8.74	9.00	9.00	8.96	9.32	9.35
66.75	57.50	59.25	54.25	50.75	52.00	52.50	56.50
6.97	5.97	6.29	5.87	5.54	5.55	5.68	6.10
9.58	9.63	9.41	9.24	9.16	9.36	9.25	9.26
			-		-		- -

1 Proposed dividend for 2016, 0.90 SEK per share corresponding to 0.09 EUR per share

2 Not adjusted for share redemptions or dividend