REG - Reconstruction CapII - Annual Report and Audited Financial Statements
09/06/2023 12:15
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RNS Number : 2559C Reconstruction Capital II Ltd 09 June 2023
9 June 2023
Reconstruction Capital II Limited
Annual Report and Audited Financial Statements
for the year ended 31 December 2022
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 2022.
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 (http://www.reconstructioncapital2.com/)
. (http://www.reconstructioncapital2.com/)
Financial highlights
• The audited net asset value as at 31 December 2022 was €0.1757 per
share (€0.1971 per share as at 31 December 2021), a 10.9% decrease
over the year;
• The Directors do not recommend the payment of a dividend.
Operational highlights
Private Equity Programme
At the end of December 2022, the investments held under the Private Equity
Programme had a total fair value of €23.97m, 8.6% below the 2021 valuation
of €26.24m. The valuations of Policolor, Mamaia and Telecredit were all
performed by independent valuers. 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 2022, the outbreak of war across the border in Ukraine triggered a global
energy and food crisis, adding fuel to inflationary pressures which were
already building up as the world transited out of Covid-induced economic
repression, resulting in rising interest rates, and disrupted supply chains,
and the erosion of the purchasing power of households and businesses. Mainly
due to these difficult circumstances, Policolor fell short of its budgeted
targets, whilst Mamaia and Telecredit were able to shrug off the economic
headwinds and beat their budgets. The changes in the valuations above reflect
future expectations for these businesses, in the light of their trading
performance in 2022.
Based on unaudited figures for 2022, the Policolor Group managed to generate a
7.4% year-on-year increase in sales, from € 79.4m in 2021 to € 85.3m in
2022, helped by the resins division whose sales were 24.1% above 2021.
However, the Group's gross margin shrank from 28.8% in 2021 to 24.5%, mainly
due to the Coatings division not having the pricing power to enable it to
implement price increases sufficiently quickly to compensate for the steep
increase in raw material and energy prices. Mainly due to this, in spite of
significant cost savings in administration and logistics costs, the Group's
recurring EBITDA of €2.6m was 37.6% lower year-on-year and 56.2% below
budget.
Based on unaudited figures for 2022, Mamaia Resort Hotels achieved record
results, with operating revenues of € 4.0m, 29.5% above budget and 32.4%
above 2021, driven by a higher occupancy rate as the Hotel managed to secure
more group occupancy contracts in the off-season. The Hotel's EBITDA was €
0.7m, 77.3% above budget and 72.1% higher year-on-year.
Based on unaudited figures for 2022, Telecredit had another high-growth year.
In 2022, the Company
deployed € 28.5m in financing products to small and medium-sized
enterprises, generating Operating profit before depreciation and interest
expenses of € 0.7m, 78% higher than 2021 and 48% above budget.
Related parties' interests
As at 31 December 2022, 39,030,555 of the Company's shares were held by Ion
Florescu, 42,726,319 shares were owned by Portadrix Investments Limited, which
is wholly-owned by The Florescu Family Trust, and 105,985 shares were owned by
New Europe Capital SRL, which is the adviser to the Company and is 84% owned
by Ion Florescu. 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 2022
On 31 December 2022, Reconstruction Capital II Limited ("RC2" or the
"Company") had a total audited net asset value ("NAV") of €23.8m, or
€0.1757 per share. The NAV per share fell by 10.9% over the course of the
year.
Private Equity Programme
At the end of December 2022, the investments held under the Private Equity
Programme had a total fair value of €23.97m, 8.6% below the 2021 valuation
of €26.24m. The valuations of Policolor, Mamaia and Telecredit were all
performed by independent valuers. 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.
2022 2021
EUR EUR
Policolor S.A 14,080,000 17,000,000
Mamaia Hotel Resorts SRL ("Mamaia") 4,814,247 4,076,986
Telecredit IFN S.A. ("Telecredit") 3,255,500 1,895,500
The Romanian Investment Fund Limited 1,180,103 1,719,419
Reconstruction Capital Plc 644,777 1,544,540
23,974,627 26,236,445
The above valuations are based on assumptions that applied as of 31 December
2022.
In 2022, the outbreak of war across the border in Ukraine triggered a global
energy and food crisis, adding fuel to inflationary pressures which were
already building up as the world transited out of Covid-induced economic
repression, resulting in rising interest rates, and disrupted supply chains,
and the erosion of the purchasing power of households and businesses. Mainly
due to these difficult circumstances, Policolor fell short of its budgeted
targets, whilst Mamaia and Telecredit were able to shrug off the economic
headwinds and beat their budgets. The changes in the valuations above reflect
future expectations for these businesses, in the light of their trading
performance in 2022.
Based on unaudited figures for 2022, the Policolor Group managed to generate a
7.4% year-on-year increase in sales, from € 79.4m in 2021 to € 85.3m in
2022, helped by the resins division whose sales were 24.1% above 2021.
However, the Group's gross margin shrank from 28.8% in 2021 to 24.5%, mainly
due to the Coatings division not having the pricing power to enable it to
implement price increases sufficiently quickly to compensate for the steep
increase in raw material and energy prices. Mainly due to this, in spite of
significant cost savings in administration and logistics costs, the Group's
recurring EBITDA of €2.6m was 37.6% lower year-on-year and 56.2% below
budget.
Based on unaudited figures for 2022, Mamaia Resort Hotels achieved record
results, with operating revenues of € 4.0m, 29.5% above budget and 32.4%
above 2021, driven by a higher occupancy rate as the Hotel managed to secure
more group occupancy contracts in the off-season. The Hotel's EBITDA was €
0.7m, 77.3% above budget and 72.1% higher year-on-year.
Based on unaudited figures for 2022, Telecredit had another high-growth year.
In 2022, the Company
deployed € 28.5m in financing products to small and medium-sized
enterprises, generating Operating profit before depreciation and interest
expenses of € 0.7m, 78% higher than 2021 and 48% above budget.
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 €24.10m,
reflects the valuations of the underlying private equity holdings outlined in
the above table, plus cash and cash equivalents of €0.14m, and net sundry
liabilities of €-0.01m, held by these intermediary holding companies.
Economic Overview
Both the Romanian and Bulgarian economies reported an increase in GDP in 2022
of 4.8% and 3.4%, respectively, despite the Russian invasion of Ukraine. The
invasion added fuel to already rising prices, with
inflation reaching 16.4% in Romania and 16.9% in Bulgaria at the end of 2022.
In spite of the economic headwinds, the European Commission has forecast
economic growth of 2.5% in Romania and 1.4% in
Bulgaria in 2023.
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 2022
2022 2021
EUR EUR
Investment income
Fair value loss on financial assets at fair value through
profit or loss (2,615,823) 2,774,875
Interest income 518,085 3,197,478
Net investment income/(loss) (2,097,738) 5,972,353
Expenses
Operating expenses (844,981) (725,459)
Net financial (expense)/income (871) (11,595)
Total expenses (845,852) (737,054)
Profit/(loss) for the year (2,943,590) 5,235,299
Other comprehensive income - -
Total comprehensive income/(loss) for the year attributable to owners
(2,943,590) 5,235,299
Gain/(loss) Per Share
Basic and diluted gain/(loss) per share (0.0217) 0.0385
STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
2022 2021
EUR EUR
ASSETS
Non-current assets
Financial assets at fair value through profit or loss 24,104,083 26,971,821
Total non-current assets 24,104,083 26,971,821
Current assets
Trade and other receivables 15,492 6,027
Cash and cash equivalents 73,337 11,301
Total current assets 88,829 17,328
TOTAL ASSETS 24,192,912 26,989,149
LIABILITIES
Current liabilities
Trade and other payables 124,485 205,685
Total current liabilities 124,485 205,685
Non-current liabilities
Borrowings 250,833 -
TOTAL LIABILITIES 375,318 205,685
NET ASSETS 23,817,594 26,783,464
EQUITY AND RESERVES
Share capital 1,355,784 1,358,569
Share premium 109,187,284 109,206,779
Accumulated deficit (86,725,474) (83,781,884)
TOTAL EQUITY 23,817,594 26,783,464
Net Asset Value per share
Basic and diluted net asset value per share 0.1757 0.1971
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Share Accumulated
Share capital premium deficit Total
EUR EUR EUR EUR
Balance at 1 January 2021 1,358,569 109,206,779 (89,235,299) 21,548,165
Profit for the year - - 5,235,299 5,235,299
Other comprehensive income - -
Total comprehensive loss 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
Loss for the year - - (2,943,590) (2,943,590)
Total comprehensive loss - - (2,943,590) (2,943,590)
for the year
Repurchase and cancellation of own shares
(2,785) (19,495) - (22,280)
Transactions with owners (2,785) (19,495) (22,280)
Balance at 31 December 2022 1,355,784 109,187,284 (86,725,474) 23,817,594
STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
2022 2021
EUR EUR
Cash flows from operating activities
Profit/(loss) for the year (2,943,590) 5,235,299
Adjustments for:
Fair value loss on financial assets at fair value through profit or loss
2,615,823 (2,774,875)
Interest income (518,085) (3,197,478)
Interest expense 833 11,035
Net (loss)/gain on foreign exchange 6 (44)
Net cash outflow before changes in working capital (845,013) (726,063)
(Increase)/decrease in trade and other receivables (9,465) 7,573
(Decrease)/increase in trade and other payables (81,200) 113,902
Purchase of financial assets - (210,000)
Repayments of financial assets 770,000 1,210,085
Net cash generated from/(used in) operating activities (165,678) 395,497
Cash flows from financing activities
Proceeds from borrowings 250,000 250,000
Repayments of loans - (650,000)
Interest paid - (17,313)
Payments to purchase own shares (22,280) -
Net cash generated from/(used in) financing activities 227,720 (417,313)
Net decrease in cash and cash equivalents before currency adjustment
62,042 (21,816)
Effects of exchange rate differences on cash and cash equivalents
(6) 44
Net decrease in cash and cash equivalents after currency adjustment
62,036 (21,772)
Cash and cash equivalents at the beginning of the year 11,301 33,073
Cash and cash equivalents at the end of the year 73,337 11,301
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