Interim Report 1 January - 30 June 2009
- Net asset value per share on 30 June 2009 amounted to EUR 8.22 (EUR 10.15). The total net asset value amounted to EUR 292m (EUR 368m), which is a change of 12.6% (-0.5%) during the quarter and a change of 10.1% (-6.6%) during the reporting period
- For the reporting period, the net profit amounted to EUR 39.4m (EUR -30.7m), including EUR 45.9m (EUR -34.0m) in unrealised change in value of investments. Earnings per share amounted to EUR 1.11 (EUR -0.85)
- Net profit for the second quarter amounted to EUR 43.6m (EUR -2.5m), including EUR 50.4m (EUR -3.0m) in unrealised change in value of investments. Earnings per share amounted to EUR 1.23 (EUR -0.07)
- During the quarter, East Capital Explorer invested an additional EUR 10m in newly issued shares in East Capital Bering Central Asia Fund and an additional EUR 5m in newly issued shares in East Capital Bering New Europe Fund
- In May 2009, East Capital Explorer allocated EUR 15m to investments in a portfolio of USD or EUR denominated liquid bonds in order to create more attractive returns on cash while remaining liquid for future investments
- Net asset value per share on 31 July 2009 amounted to EUR 8.31 (SEK 85.84). Cash and deposits per the same date amounted to EUR 110.1m (SEK 1,137.3m) corresponding to EUR 3.10 (SEK 32.02) per share
CEO COMMENTS ON THE SECOND QUARTER
Most of our markets recorded strong gains during the second quarter, whereas the numbers from the real economy continued to be quite poor. June saw a bit of profit taking, but July and August so far have been quite strong again, partly due to better than expected reports from companies and continued bullish sentiment. Russia has clearly benefitted from the rising oil price. The RTS2 index has increased over 100% since the lows recorded in early March, but it is still down 65% from its peak in 2008. RTS index, which started to recover somewhat earlier than RTS2, is now up more than 100% from the lows recorded in late January, but still down 57% from the highs in 2008. So, although we have seen a strong rally, we have to remember that this has come from low levels, and in Eastern Europe markets are nowhere near the pre-crisis levels and valuations remain attractive.
Russia's GDP was down nearly 11% in the second quarter. The Baltics, with declines in the high teens, remain the worst performers in the region along with Ukraine. Poland has managed to stay in the positive territory even during the toughest months. It now seems that many analysts believe that the second quarter was the low-point of the business cycle, although few are ready to rule out further negative surprises. However, whereas until recently most institutions were busy correcting their economic forecasts downwards, we have recently seen the opposite trend.
Sentiment has strengthened markedly, resulting in partial reopening of credit markets and equity offerings for some Eastern European companies. Globally, the change in sentiment is evident in the crux of the discussion shifting from the crisis management topics to the post-crisis clean-up topics, e.g. Âexit strategies for central banks and expected timing of interest rate hikes.
Our NAV increased by 12.6% during the second quarter, taking the total gain in 2009 to 10.1%. Since inception, our NAV is down 24.8% in EUR terms and 10.9% in SEK terms.
The second quarter was quite an active period for us in terms of making new investments: all in all, the proportion of cash in our NAV has decreased from 66% at the end of first quarter to about 50% at the end of July, as the funds were actively capitalizing on opportunities in the market during the quarter. Some of the Bering funds have underperformed their benchmark indices. The reasons for this are that the indices are not always proper benchmarks, those funds have a relatively higher proportion of small cap and private equity holdings.
In May, we announced our plan to invest part of our liquid assets in relatively low risk bonds. This has now been done and we expect the bond portfolio, worth about EUR 15m, to enhance the returns that we are able to earn on our large cash position until we are fully invested.
Investment activities in the East Capital Special Opportunities Fund, to which East Capital Explorer committed EUR 35m, have commenced and at the time of this report, about one quarter of the fund has been invested. The relatively small size of this fund and the focus of the investment team to capitalize on a select number of interesting investments should enable this fund to get off to a good start.
In May we also decided to increase our investments into two of the East Capital Bering funds: East Capital Bering New Europe and East Capital Bering Central Asia, with EUR 5m and EUR 10m, respectively. Most of this money has now been put to work by the fund managers and we have benefitted from the positive market performance.
Melon Fashion Group's performance has been satisfactory, although the summer months have been somewhat more challenging. At the same time the Russian non-food retail market has seen a significant decline. Comparable store sales at Melon Fashion Group were up 10% in the second quarter in RUR terms (a decrease of -8% in EUR terms). By the end of the quarter, MFG had 224 shops, a net increase of 27 shops during the quarter.
In the East Capital Russian Property Fund, where no investments have been made to date, the investment team is focused on utilizing our competitive advantages in this market situation. A number of bids are currently out and we expect the first deal to happen during this year.
The East Capital Power Utilities Fund, our largest investment to date, had a good quarter. Active portfolio management has paid off and the fund is up over 80% so far this year.
It is encouraging that sentiment has improved and some normalcy has returned. Eastern Europe on the whole has not been so severely hit by the financial crisis as some feared a few months ago. But we are yet to see clear signs of a broader recovery and return to growth. At East Capital Explorer, we will continue to cautiously invest as valuations are attractive and we intend to make the most of this opportunity.
Gert Tiivas, CEO
The full Interim Report is available in the attached PDF-file and on the website www.eastcapitalexplorer.com.
TELEPHONE CONFERENCE
The report will be presented and commented at a telephone conference with Gert Tiivas, CEO and Pia Tell Svensson, CFO.
Date: Today, Thursday 20 August 2009
Time: 10.00 AM CET
Telephone details: +46 (0)8 505 598 53 (Sweden) or +44 (0)203 043 24 36 (UK).
Please dial-in a few minutes before the conference starts. A presentation for the telephone conference will be made available on www.eastcapitalexplorer.com before the telephone conference.
The telephone conference will be webcasted simultaneously and can be viewed on www.eastcapitalexplorer.com. The webcast will also be recorded and made available on the website after the telephone conference.
Contact information:
Gert Tiivas, CEO East Capital Explorer +46 8 505 977 30
Louise Hedberg, Head of Communications/IR East Capital Explorer +46 8 505 977 20
Financial reporting calendar - East Capital Explorer:
- Monthly Net Asset Value report on the fifth working day after the end of each month
- Interim Report 1 January - 30 September 2009 on 12 November 2009
About East Capital Explorer - East Capital Explorer AB is a Swedish company, created with the specific aim of bringing unique investment opportunities in Eastern Europe to a broader investor base. The company invests mainly in East Capital's private equity and semi-public equity funds that provide exposure to companies not otherwise accessible via the local stock exchanges in Eastern Europe. East Capital Explorer targets fast growing sectors such as the power utilities, financial, retail and consumer goods and real estate sectors. East Capital Explorer has appointed East Capital to manage its investment activities. Since 9 November 2007, East Capital Explorer is listed on NASDAQ OMX Stockholm, Mid Cap.
The information in this interim report is that which East Capital Explorer AB is required to disclose under Sweden's Securities Market Act.
It was released for publication at 08:20 a.m. CET on 20 August 2009.