RNS Number : 8906O
Reconstruction Capital II Ltd
15 June 2022
 

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

 

 

 

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
year

 

-

 

 

-

 

 

1,851,371

 

 

1,851,371

Repurchase and cancellation of
own shares

 

-

 

 

-

 

 

-

 

 

-

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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