Interim report 1 January - 30 September 2008

Report

Press release

Interim report 1 January - 30 September 2008

  • Net asset value per share on 30 September 2008 amounted to EUR 8.77 (corresponding to SEK 85.86) which is a change of -13.6% during the third quarter and a change of -19.3% year-to-date. Cash and deposits per the same date amounted to EUR 195.6m (SEK 1,915m) corresponding to EUR 5.39 (SEK 52.77) per share
  • For the reporting period 1 January - 30 September, the net loss amounted to EUR -90.8m (corresponding to SEK -889.0m), and earnings per share amounted to EUR -2.08 (corresponding to SEK -20.40). Net loss for the reporting period includes EUR -96.2m (corresponding to SEK -942.1m) in unrealised change in value of investments
  • Net loss for the third quarter amounted to EUR -67.5m (corresponding to SEK -660.7m) and earnings per share amounted to EUR -1.51 (corresponding to SEK -14.80). Net loss for the third quarter includes EUR -69.6m (corresponding to SEK 681.8m) in unrealised change in value of investments
  • During the third quarter, East Capital Explorer made no new investments or commitments
  • After the reporting period, on 28 October 2008, East Capital Explorer decided to make a direct investment of approximately EUR 10m (corresponding to approximately SEK 100m) in the fast growing unlisted Russian fashion retailer MFG (OAO Melon Fashion Group)
  • Net asset value per share on 31 October 2008 amounted to EUR 7.99 (SEK 78.94). Cash and deposits per the same date amounted to EUR 191.2m (SEK 1,889m) corresponding to EUR 5.27 (SEK 52.07) per share

CEO COMMENTS ON THE THIRD QUARTER

The third quarter 2008 will be remembered for the significant worsening of the global financial crisis. Several large financial institutions had to be rescued or went under, the turbulence quickly spread outside of the United States and more signs of the economic slowdown appeared. As to our markets in Eastern Europe it became clear that no market, even those that are fundamentally quite sound, is isolated from the turbulence affecting the world. In addition, falling commodity prices as well as certain corporate and political events caused growing investor concerns about Russia. The Russian index RTS, which reached its all-time high only as recently as mid-May, was at the time of this report down more than 70% from the peak.

Obviously, this turbulence has also affected our results. The net asset value decreased 13.6% during the third quarter and on 31 October our net asset value had decreased 26.5% since the beginning of the year. But given the performance of most public markets, which in our region are down by 40-75% during 2008, our net asset value has been less volatile, thanks largely to our significant cash position.

The economic slowdown and tighter credit will continue to impact our region. Most analysts have lowered their growth forecasts for Eastern Europe for 2008, 2009 and 2010 by several percentage points. Also, as to Russia in particular, it will need to restore investor confidence if it wants its market to be more than a proxy of the oil price. This brings some opportunities to investors: the Russian market, now trading at a P/E of around 4, has not traded at these levels since 2004, whereas the country has grown a lot stronger since then. Once focus returns to fundamentals and measures have been taken to reduce the perceived political risk, Russia will offer many opportunities at attractive valuations. The signs so far are encouraging. The Russian authorities have announced liquidity boosting measures and other reforms which are quite substantial in their scope and nature. Also, for the longer term, this crisis provides an excellent opportunity for Russia to push ahead with much needed structural reforms such as diversifying the economy from being too reliant on oil and gas, prioritizing public infrastructure investments, starting pension reforms to create domestic long term investors and increasing the efficiency and quality of the public sector.

Going forward, it is very difficult to predict an end to volatility in the short term. The coordinated interest rate cuts by the world's central banks as well as strong intervention by many governments have restored some degree of confidence and stability. In addition to the Russia-specific measures described above, there are other encouraging signs in our region. Hungary has recently received liquidity support from the European Central Bank and a large loan package from the IMF, EU and World Bank. In October, it was decided that Ukraine also would receive a loan from the IMF. The programs to recapitalize and provide liquidity for banks in many Western European countries will hopefully mean that their subsidiaries in Eastern Europe get the support they need in tough markets. We also believe that the economic slowdown, decreasing commodity prices and significant reduction in the availability of credit will reduce inflationary pressures and correct the current account deficits in the countries which were overheating. For example this is happening very quickly in the Baltic States, which, although a very small part of our portfolio, have been of concern recently.

On the investment side we remained extremely cautious during the third quarter and did not make any new investments or commitments. Also the MEUR 40 that we committed in June to the Russian Property Fund has not yet been drawn-down and is still fully placed in deposits. After the reporting period we announced our first direct investment. We will invest approximately EUR 10m (corresponding to approximately SEK 100m) in the fast growing unlisted Russian fashion retailer MFG (OAO Melon Fashion Group). MFG is a good example of an Eastern European company that has a strong track record, sound strategy, capable management and excellent growth prospects. The long term Russian consumption story continues and MFG is well-positioned to capitalize on this. Our investment in MFG is right in line with our strategy to get exposure to retail and consumer related sectors and we are convinced that this investment will create long-term attractive returns for our shareholders.

We are still convinced that these markets will provide very interesting opportunities for us as a financially strong player with access to an experienced investment management team. Although valuations in public markets have corrected very quickly, the impact is only gradually reaching the private equity and real estate markets. As we said in our previous report, the state of the markets and the availability of good investment opportunities at the right valuations will impact the speed of our deployment of capital. So far this year, our strong cash position has been the best way to offset the effects of turbulent markets. We continue to monitor the market development very closely and will only pursue opportunities which we truly believe will create long-term attractive returns.

The full interim report is available on our website www.eastcapitalexplorer.com and as a pdf-file below.

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 13 November 2008
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 the same day.

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
  • Year-end report on 18 February 2008
  • Annual report 2008 available in the week of 6 April 2009
  • AGM in Stockholm on 27 April 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.

This information is disclosed in accordance with the Securities Markets Act, the Financial Instruments Trading Act or demands made in the exchange rules.