15 June 2022
Reconstruction Capital II Limited
Annual Report and Audited Financial Statements
for the year ended 31 December 2021
Reconstruction Capital II Limited ("RC2", the "Company" or the "Group"), a closed-end investment company incorporated in the Cayman Islands admitted to trading on the AIM market of the London Stock Exchange, today announces its results for the year ended 31 December 2021.
Copies of the Company's annual report will today be posted to shareholders. The annual report is also available to view on the Company's website http://www.reconstructioncapital2.com.
Financial highlights
• The audited net asset value as at 31 December 2021 was €0.1971 per share (€0.1586 per share as at 31 December 2020), a 24.27% increase over the year;
• The Directors do not recommend the payment of a dividend.
Operational highlights
Private Equity Programme
At the end of December 2021, the investments held under the Private Equity Programme had a total fair value of €26.24m, 29.5% above the 2020 valuation of €20.25m. The valuations of Policolor, Mamaia and Telecredit were all performed by independent valuers in 2021 (in 2020, the valuation of Telecredit was based on its audited net asset value). The valuations of the Company's investments in Reconstruction Capital Plc ("RC") and The Romanian Investment Fund Limited ("RIF") were also based on their audited net asset values, but these were in turn based on the same valuation of their main underlying asset, Policolor SA, as adopted by the Company.
In spite of the ongoing COVID pandemic and inflationary headwinds, Policolor managed to generate a 23.7% year-on-year increase in sales, from €64.1m in 2020 to €79.3m in 2021, overperforming its budget by 12.5%. Helped in particular by the strong performance from its resins and chemicals businesses, Policolor more than doubled its recurring EBITDA from €2.1m in 2020 to €4.3m in 2021. The Policolor Group continues to implement a turnaround plan which aims for an increased and more efficient production capacity, a leaner and more efficient organisation structure, improved internal planning and reporting systems, and lower logistics costs.
Mamaia's 2021 revenues of €2.9m were 6.3% above budget, and 65% above the prior year, due to the positive effect of higher low season sales, and the relaxation of pandemic restrictions over the summer when the hotel benefited from a rebound in demand from Romanian tourists. The hotel also made use of pandemic related state aid, helping it achieve EBITDA of €0.35m, almost in line with the budgeted €0.36m, and compared to an EBITDA loss of €-0.33m in 2020.
Operating in an economy still affected by the COVID pandemic where commercial banks continued to show a lower risk appetite for financing small and medium sized enterprises, Telecredit deployed €19m in financing products in 2021. This generated an operating profit before depreciation and amortization of €0.39m, 5.6% above the annual budget and significantly above the breakeven achieved in 2020.
Related parties' interests
As at 31 December 2021, Mr Florescu held 39,030,555 shares, Portadrix Investments Limited (which is wholly-owned by The Florescu Family Trust) held 42,726,319 shares, and New Europe Capital SRL (which is the adviser to the Company and is 84% owned by Portadrix Investments Limited) held 105,985 shares. Mr Florescu and interests related to him own in aggregate 81,862,859 shares representing 60.26% of the current issued share capital of the Company.
For further information, please contact:
Reconstruction Capital II Limited Cornelia Oancea / Luca Nicolae Tel: +40 21 3167680
Grant Thornton UK LLP (Nominated Adviser)
Philip Secrett / George Grainger
Tel: +44 (0) 20 7383 5100
finnCap Limited (Broker) William Marle / Giles Rolls Tel: +44 20 7220 0500
ADVISER'S REPORT
For the year ended 31 December 2021
On 31 December 2021, Reconstruction Capital II Limited ("RC2" or the "Company") had a total audited net asset value ("NAV") of €26.8m, or €0.1971 per share. The NAV per share increased by 24.27% over the course of the year.
Private Equity Programme
At the end of December 2021, the investments held under the Private Equity Programme had a total fair value of €26.24m, 29.5% above the 2020 valuation of €20.25m. The valuations of Policolor, Mamaia and Telecredit were all performed by independent valuers in 2021 (in 2020, the valuation of Telecredit was based on its audited net asset value). The valuations of the Company's investments in Reconstruction Capital Plc ("RC") and The Romanian Investment Fund Limited ("RIF") were also based on their audited net asset values, but these were in turn based on the same valuation of their main underlying asset, Policolor SA, as adopted by the Company.
| 2021 EUR |
| 2020 EUR |
Policolor S.A | 17,000,000 |
| 13,960,000 |
Mamaia Hotel Resorts SRL ("Mamaia") | 4,076,986 |
| 3,440,548 |
Telecredit IFN S.A. ("Telecredit") | 1,895,500 |
| 624,545 |
The Romanian Investment Fund Limited | 1,719,419 |
| 1,256,983 |
Reconstruction Capital Plc | 1,544,540 |
| 972,485 |
| 26,236,445 |
| 20,254,561 |
The above valuations are based on assumptions that applied as of 31 December 2021.
In spite of the ongoing COVID pandemic and inflationary headwinds, Policolor managed to generate a 23.7% year-on-year increase in sales, from €64.1m in 2020 to €79.3m in 2021, overperforming its budget by 12.5%. Helped in particular by the strong performance from its resins and chemicals businesses, Policolor more than doubled its recurring EBITDA from €2.1m in 2020 to €4.3m in 2021. The Policolor Group continues to implement a turnaround plan which aims for an increased and more efficient production capacity, a leaner and more efficient organisation structure, improved internal planning and reporting systems, and lower logistics costs.
Mamaia's 2021 revenues of €2.9m were 6.3% above budget, and 65% above the prior year, due to the positive effect of higher low season sales, and the relaxation of pandemic restrictions over the summer when the hotel benefited from a rebound in demand from Romanian tourists. The hotel also made use of pandemic related state aid, helping it achieve EBITDA of €0.35m, almost in line with the budgeted €0.36m, and compared to an EBITDA loss of €-0.33m in 2020.
Operating in an economy still affected by the COVID pandemic where commercial banks continued to show a lower risk appetite for financing small and medium sized enterprises, Telecredit deployed €19m in financing products in 2021. This generated an operating profit before depreciation and amortization of €0.39m, 5.6% above the annual budget and significantly above the breakeven achieved in 2020.
Apart from the shareholdings in RC and RIF, the other private equity investments are held through two Cyprus-based wholly-owned subsidiaries, RC2 (Cyprus) Limited and Glasro Holdings Limited, which are not consolidated in the present financial statements, in accordance with IFRS. The Assets at Fair Value shown in the present financial statements, which amount to €26.97m, reflects the valuations of the underlying private equity holdings outlined in the above table, plus loan receivables from investee companies of €0.59m, cash and cash equivalents of €0.06m, and a net €0.08m of sundry financial assets and liabilities, held by these intermediary holding companies.
Economic Overview
Both the Romanian and Bulgarian economies reported an increase in GDP in 2021 of 5.9% and 4.2%, respectively, as measures imposed due to the COVID pandemic were relaxed and economic activity resumed. Inflationary pressures have been building up, reaching 8.2% in Romania and 7.8% in Bulgaria at the end of 2021. The European Commission has nonetheless forecast that growth would continue in 2022 at 4.2% in Romania and 3.7% in Bulgaria. However, these forecasts were made prior to the Russian invasion of Ukraine which is already having a long-term, negative impact, in particular on consumer confidence and energy prices.
INVESTMENT POLICY
Investment Objective and Policy of the Company
At a general shareholder meeting on 21 February 2018, the investment objective of the Company was changed so that it now aims to achieve capital appreciation and/or to generate investment income returns through the acquisition of real estate assets in Romania, including the development of such assets, and/or the acquisition of significant or controlling stakes in companies established in, or operating predominantly in Romania, primarily in the real estate sector. Any new private equity investment in companies operating in sectors other than real estate is limited to 25% of the Company's total assets at the time of effecting the investment. However, the Company may continue to make follow-on investments in existing portfolio companies (which include Policolor SA, Mamaia Resort Hotels SRL and Telecredit SA IFN) without any such limitation.
Gearing
The Company may borrow up to a maximum level of 30% of its gross assets (as defined in its articles).
Distribution Policy
The Company's investment objective is focused principally on the provision of capital growth. For further details of the Company's distribution policy, please refer to the Admission Document on the Company's website.
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
|
| 2021 EUR |
| 2020 EUR |
Investment income |
|
|
|
|
Fair value loss on financial assets at fair value through profit or loss |
|
2,774,875 |
|
(1,752,486) |
Interest income |
| 3,197,478 |
| 4,280,442 |
Net investment income/(loss) |
| 5,972,353 |
| 2,527,956 |
Expenses |
|
|
|
|
Operating expenses |
| (725,459) |
| (660,299) |
Net financial (expense)/income |
| (11,595) |
| (16,286) |
Total expenses |
| (737,054) |
| (676,585) |
Profit/(loss) for the year |
| 5,235,299 |
| 1,851,371 |
Other comprehensive income |
| - |
| - |
Total comprehensive income/(loss) for the year attributable to owners |
|
5,235,299 |
|
1,851,371 |
Gain/(loss) Per Share |
|
|
|
|
Basic and diluted gain/(loss) per share |
| 0.0385 |
| 0.0136 |
STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
ASSETS |
| 2021 EUR |
| 2020 EUR |
Non-current assets Financial assets at fair value through profit or loss |
|
26,971,821 |
|
21,999,552 |
Total non-current assets |
| 26,971,821 |
| 21,999,552 |
Current assets Trade and other receivables |
|
6,027 |
|
13,600 |
Cash and cash equivalents |
| 11,301 |
| 33,073 |
Total current assets |
| 17,328 |
| 46,673 |
TOTAL ASSETS |
| 26,989,149 |
| 22,046,225 |
LIABILITIES |
|
|
|
|
Current liabilities Trade and other payables |
|
205,685 |
|
91,782 |
Borrowings |
| - |
| 406,278 |
Total current liabilities |
| 205,685 |
| 498,060 |
TOTAL LIABILITIES |
| 205,685 |
| 498,060 |
NET ASSETS |
| 26,783,464 |
| 21,548,165 |
EQUITY AND RESERVES |
|
|
|
|
Share capital |
| 1,358,569 |
| 1,358,569 |
Share premium |
| 109,206,779 |
| 109,206,779 |
Accumulated deficit |
| (83,781,884) |
| (89,017,183) |
TOTAL EQUITY |
| 26,783,464 |
| 21,548,165 |
Net Asset Value per share |
|
|
|
|
Basic and diluted net asset value per share |
| 0.1971 |
| 0.1586 |
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
|
Share capital |
| Share premium |
| Accumulated deficit |
|
Total |
EUR |
| EUR |
| EUR |
| EUR | |
Balance at 1 January 2020 | 1,358,569 |
| 109,206,779 |
| (90,868,554) |
| 19,696,794 |
Profit for the year Other comprehensive income | - - |
| - - |
| 1,851,371 |
| 1,851,371 |
Total comprehensive loss for the |
- |
|
- |
|
1,851,371 |
|
1,851,371 |
Repurchase and cancellation of |
- |
|
- |
|
- |
|
- |
Transactions with owners | - |
| - |
| - |
| - |
Balance at 31 December 2020 | 1,358,569 |
| 109,206,779 |
| (89,017,183) |
| 21,548,165 |
Profit for the year Other comprehensive income |
- - |
|
- - |
|
5,235,299 |
|
5,235,299 |
Total comprehensive income for the year |
- |
|
- |
|
5,235,299 |
|
5,235,299 |
Balance at 31 December 2021 | 1,358,569 |
| 109,206,779 |
| (83,781,884) |
| 26,783,464 |
STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
|
| 2021 EUR |
| 2020 EUR |
Cash flows from operating activities |
|
|
|
|
Profit/(loss) for the year |
| 5,235,299 |
| 1,851,371 |
Adjustments for: |
|
|
|
|
Fair value loss on financial assets at fair value through profit or loss |
|
(2,774,875) |
|
1,752,486 |
Interest income |
| (3,197,478) |
| (4,280,442) |
Interest expense |
| 11,035 |
| 6,278 |
Net (loss)/gain on foreign exchange |
| (44) |
| 8 |
Net cash outflow before changes in working capital |
| (726,063) |
| (670,299) |
Decrease in trade and other receivables |
| 7,573 |
| 3,073 |
Increase/(decrease) in trade and other payables |
| 113,902 |
| 54,420 |
Purchase of financial assets |
| (210,000) |
| - |
Repayments of financial assets |
| 1,210,085 |
| 180,000 |
Net cash generated from/(used in) operating activities |
| 395,497 |
| (432,806) |
Cash flows from financing activities |
|
|
|
|
Proceeds from borrowings |
| 250,000 |
| 400,000 |
Payments to purchase own shares |
| (650,000) |
| - |
Redemptions of B shares |
| (17,313) |
| - |
Net cash generated from/(used in) financing activities |
| (417,313) |
| 400,000 |
Net decrease in cash and cash equivalents before currency adjustment |
|
(21,816) |
|
(32,806) |
Effects of exchange rate differences on cash and cash equivalents |
|
44 |
|
(8) |
Net decrease in cash and cash equivalents after currency adjustment |
|
(21,772) |
|
(32,814) |
Cash and cash equivalents at the beginning of the year |
| 33,073 |
| 65,887 |
Cash and cash equivalents at the end of the year |
| 11,301 |
| 33,073 |
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