TIDMRC2
RNS Number : 3580C
Reconstruction Capital II Ltd
14 June 2019
14 June 2019
Reconstruction Capital II Limited (the "Company")
Annual Report and Audited Financial Statements
for the year ended 31 December 2018
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 2018.
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 2018 was
EUR0.2238 per share (EUR0.2504 per share as at 31 December 2017), a
10.62% decrease over the year;
-- The Directors do not recommend the payment of a dividend.
Operational highlights
Private Equity Programme
During the year, the Company acquired shares in two
Romanian-focused investment companies, Reconstruction Capital Plc
("RC") and The Romanian Investment Fund Ltd (RIF) for consideration
of EUR1.73m and EUR1.84m, respectively. RC's only investment is a
69.2% shareholding in RIF, whose main underlying asset is a 60%
shareholding in Policolor S.A. ("Policolor"), in which the Company
already owns the balance of 40%. The main objective of the
acquisitions was to provide the Company with greater control over
the exit process from Policolor.
At the end of December 2018, the investments held under the
Private Equity Programme had a total fair value of EUR27.8m, which
was slightly higher than the 2017 valuation of EUR27.7m.
The fall in the valuation of Policolor reflects a weakening of
its operating performance. On a more positive note, the company
managed to bring forward the completion of the sale of part of its
land, generating proceeds of EUR6.2m in 2018 which, under the
original sales contract, were due to be received in the summer of
2019. In August, Policolor started the construction of its new
factory where it is due to relocate its Bucharest production in
2019, and in December it closed down operations at its existing
Bucharest site, in order to prepare the remaining land for delivery
to the buyers of the site in the summer of 2019, which should
generate further proceeds of EUR4.2m. Over the year, the Policolor
group's indebtedness fell from EUR15.5m to EUR13.1m, and the
company also paid EUR0.97m of dividends to its shareholders. In
April 2018 the Policolor Board appointed a new CEO with a view to
improving the operating performance of the Group.
The Mamaia hotel continues to face increased competition from
"Airbnb"-style lets, and new hotel developments, coupled with
operating costs inflation, and this is reflected in its lower
valuation. The hotel has undertaken an investment plan of EUR1m to
upgrade its accommodation and facilities which is being funded by a
bank loan.
The prospects for the consumer loans market were adversely
impacted by new prudential regulations capping the indebtedness of
individuals which were announced by the National Bank of Romania in
the second half of 2018 and came into effect on 1 January 2019.
This is reflected in Telecredit's revised valuation of EUR0.84m. A
revised business model for Telecredit has been developed aimed at
supplementing its consumer loan business with financial products
targeting small and medium-sized businesses, such as factoring
facilities and micro loans.
Trading Programme
RC2 (Cyprus) Limited sold its residual listed equities portfolio
held under the Trading Programme in the first quarter of 2018,
generating cash proceeds of EUR0.187m.
For further information, please contact:
Reconstruction Capital II Limited
Cornelia Oancea / Anca Moraru
Tel: +40 21 3167680
Grant Thornton UK LLP (Nominated Adviser)
Philip Secrett
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 2018
On 31 December 2018, Reconstruction Capital II Limited ("RC2" or
the "Company") had a total audited net asset value ("NAV") of
EUR31.405m, or EUR0.2238 per share. During the course of 2018, RC2
bought back for cancellation 4,613,641 of its own Ordinary shares,
bringing the total number of Ordinary shares in issue at year end
to 140,332,376. The NAV per share fell by 10.62% over the course of
the year.
Private Equity Programme
During the year, the Company acquired shares in two
Romanian-focused investment companies, Reconstruction Capital Plc
("RC") and The Romanian Investment Fund Ltd (RIF) for consideration
of EUR1.73m and EUR1.84m, respectively. RC's only investment is a
69.2% shareholding in RIF, whose main underlying asset is a 60%
shareholding in Policolor S.A. ("Policolor"), in which the Company
already owns the balance of 40%. The main objective of the
acquisitions was to provide the Company with greater control over
the exit process from Policolor.
At the end of December 2018, the investments held under the
Private Equity Programme had a total fair value of EUR27.8m, which
was slightly higher than the 2017 valuation of EUR27.7m. The
valuations of Policolor and Mamaia were performed by independent
valuers, whilst the valuation of Telecredit IFN SA was based on its
audited net asset value. The valuations of RC and 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.
Valuations
2018 2017
EUR EUR
Reconstruction Capital Plc 2,242,600 -
The Romanian Investment Fund Limited 2,147,229 -
Policolor S.A. 18,320,000 20,600,000
Mamaia Hotel Resorts SRL ("Mamaia") 4,228,219 4,404,658
Telecredit IFN S.A. ("Telecredit") 849,514 2,664,000
-------------------------------- ----------
27,787,562 27,668,658
-------------------------------- ----------
The fall in the valuation of Policolor reflects a weakening of
its operating performance. On a more positive note, the company
managed to bring forward the completion of the sale of part of its
land, generating proceeds of EUR6.2m in 2018 which, under the
original sales contract, were due to be received in the summer of
2019. In August, Policolor started the construction of its new
factory where it is due to relocate its Bucharest production in
2019, and in December it closed down operations at its existing
Bucharest site, in order to prepare the remaining land for delivery
to the buyers of the site in the summer of 2019, which should
generate further proceeds of EUR4.2m. Over the year, the Policolor
group's indebtedness fell from EUR15.5m to EUR13.1m, and the
company also paid EUR0.97m of dividends to its shareholders. In
April 2018 the Policolor Board appointed a new CEO with a view to
improving the operating performance of the Group.
The Mamaia hotel continues to face increased competition from
"Airbnb"-style lets, and new hotel developments, coupled with
operating costs inflation, and this is reflected in its lower
valuation. The hotel has undertaken an investment plan of EUR1m to
upgrade its accommodation and facilities which is being funded by a
bank loan.
The prospects for the consumer loans market were adversely
impacted by new prudential regulations capping the indebtedness of
individuals which were announced by the National Bank of Romania in
the second half of 2018 and came into effect on 1 January 2019.
This is reflected in Telecredit's revised valuation of EUR0.84m. A
revised business model for Telecredit has been developed aimed at
supplementing its consumer loan business with financial products
targeting small and medium-sized businesses, such as factoring
facilities and micro loans.
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 EUR30.6m, reflect the
valuations of the underlying private equity holdings outlined in
the above table, plus cash balances of EUR2.7m, and EUR0.1m of
sundry financial assets and liabilities of these intermediary
holding companies.
Trading Programme
RC2 (Cyprus) Limited sold its residual listed equities portfolio
held under the Trading Programme in the first quarter of 2018,
generating cash proceeds of EUR0.187m.
Economic Overview
Both the Romanian and Bulgarian economies continued to report
increases in GDP during 2018 of 4.1% (2017: +7.0%) and 3.1% (2017:
+3.6%), respectively, and are expected to continue to grow during
2019. Romania's 2018 GDP growth, which was the highest in the EU
for the second year running, continued to be mainly driven by
increased private consumption. The IMF is forecasting a slowdown in
GDP growth to 3.4% in 2019 due to the effect of inflation on
disposable incomes.
Events after the Reporting Period
On 23 January 2019 the Company announced that it had purchased
for cancellation 1,710,611 Ordinary shares for EUR0.16 each, and in
a separate transaction a further 2,364,852 Ordinary shares for
EUR0.16 each. After these cancellations the Company has 136,256,913
Ordinary shares in issue.
INVESTMENT POLICY
Change of 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 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 2018
2018 2017
EUR EUR
Investment income
Fair value loss on financial assets at fair value through
profit or loss (7,436,971) (10,981,533)
Recovery of previously written off receivable 9,000 189,000
Interest income 4,341,794 4,334,820
Dividend income - 7,619,610
Other income 10 -
Net investment (loss)/gain (3,086,167) 1,161,897
Expenses
Operating expenses (1,031,186) (1,619,749)
Financial expenses (886) (188)
Total expenses (1,032,072) (1,619,937)
Loss for the year (4,118,239) (458,040)
Other comprehensive income - -
Total comprehensive income for the year attributable
to owners (4,118,239) (458,040)
Loss Per Share
Basic and diluted loss per share (0.0285) (0.0031)
STATEMENT OF FINANCIAL POSITION
As at 31 December 2018
2018 2017
EUR EUR
ASSETS
Non-current assets
Financial assets at fair value through profit or loss 30,614,632 30,143,162
Total non-current assets 30,614,632 30,143,162
Current assets
Trade and other receivables 21,011 136,439
Cash and cash equivalents 1,480,305 6,439,763
Total current assets 1,501,316 6,576,202
TOTAL ASSETS 32,115,948 36,719,364
LIABILITIES
Current liabilities
Trade and other payables 710,726 430,510
Total current liabilities 710,726 430,510
TOTAL LIABILITIES 710,726 430,510
NET ASSETS 31,405,222 36,288,854
EQUITY AND RESERVES
Share capital 1,403,324 1,449,460
Share premium 109,862,098 110,581,355
Accumulated deficit (79,860,200) (75,741,961)
TOTAL EQUITY 31,405,222 36,288,854
Net Asset Value per share
Basic and diluted net asset value per share 0.2238 0.2504
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018
Share Accumulated
Share capital premium deficit Total
EUR EUR EUR EUR
Balance at 1 January 2017 1,476,223 127,991,989 (75,283,921) 54,184,291
Loss for the year - - (458,040) (458,040)
Other comprehensive income - - - -
Total comprehensive income
for
the year - - (458,040) (458,040)
Issue and redemption of B
shares - (16,997,375) - (16,997,375)
Repurchase and cancellation
of
own shares (26,763) (413,259) - (440,022)
Transactions with owners (26,763) (17,410,634) - (17,437,397)
Balance at 31 December 2017 1,449,460 110,581,355 (75,741,961) 36,288,854
Loss for the year - - (4,118,239) (4,118,239)
Other comprehensive income - - - -
Total comprehensive income
for
the year - - (4,118,239) (4,118,239)
Repurchase and cancellation
of
own shares (46,136) (719,257) - (765,393)
Transactions with owners (46,136) (719,257) - (765,393)
Balance at 31 December 2018 1,403,324 109,862,098 (79,860,200) 31,405,222
CASH FLOW STATEMENT
For the year ended 31 December 2018
2018 2017
EUR EUR
Cash flows from operating activities
Loss for the year (4,118,239) (458,040)
Adjustments for:
Fair value loss on financial assets at fair value through
profit or loss 7,436,971 10,981,533
Reversal of loan impairment (9,000) (189,000)
Interest income (4,341,794) (4,334,820)
Dividend income - (7,619,610)
Net loss on foreign exchange 886 188
Net cash outflow before changes in working capital (1,031,176) (1,619,749)
Decrease in trade and other receivables 115,427 7,352
(Decrease)/increase in trade and other payables (180,513) 138,108
Purchase of financial assets (3,433,045) (370,000)
Disposals and repayments of financial assets 9,000 63,000
Dividends received - 7,500,000
Net cash (used in)/ generated by operating activities (4,520,307) 5,718,711
Cash flows from financing activities
Payments to purchase own shares (416,810) (440,022)
Redemptions of B shares (21,455) (16,842,979)
Net cash flow used in financing activities (438,265) (17,283,001)
Net decrease in cash and cash equivalents before
currency adjustment (4,958,572) (11,564,290)
Effects of exchange rate differences on cash and cash
equivalents (886) (188)
Net decrease in cash and cash equivalents after
currency adjustment (4,959,458) (11,564,478)
Cash and cash equivalents at the beginning of the year 6,439,763 18,004,241
Cash and cash equivalents at the end of the year 1,480,305 6,439,763
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BDGDLUBBBGCS
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