Reconstruction CapII - Annual Financial Report

Reconstruction Capital II

07/06/2021 12:29

RNS Number : 0538B

Reconstruction Capital II Ltd

07 June 2021

 

7 June 2021

Reconstruction Capital II Limited

Annual Report and Audited Financial Statements

 for the year ended 31 December 2020

 

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 2020.

 

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 2020 was €0.1586 per share (€0.1450 per share as   at 31 December 2019), a 9.38% increase over the year;

•    The Directors do not recommend the payment of a dividend.

 

Operational highlights 

Private Equity Programme

 

At the end of December 2020, the investments held under the Private Equity Programme had a total fair value of €20.25m, which was 14.3% more than the 2019 valuation of €17.7m. 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 Reconstruction Capital Plc and the Romanian Investment Fund Ltd 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. The valuations are based on assumptions that applied as of 31 December 2020. 

 

Policolor proved relatively resilient to the effects of the COVID pandemic, and its improved performance and prospects is reflected in the increased valuation of the business. In spite of the pandemic, the Policolor Group achieved a 5.5% year-on-year increase in sales to €64.08m, and recorded recurring EBITDA of €2.41m (compared to just €0.98m in 2019). The relocation of production to the new plants in Bucharest and Ruse was completed during the year as was the sale of the land at Theodor Pallady. A new Group CEO was appointed in September. She has initiated a turnaround plan focussed mainly on the Romanian business, including a more streamlined organisational structure and more efficient logistics.

 

The Mamaia hotel was closed for the redecoration of its public areas and facades during the first five months of the year. Its 2020 revenues of €1.8m were 12.6% below the revised budget prepared in May to reflect the estimated impact of the Covid-19 pandemic, and 40% below 2019, due to Covid-19 related restrictions. These included limits on the use of the restaurant, a ban on conferences and other corporate events as well as a country-wide lockdown in the spring, whose knock-on effect was a delay to the start of the season which only took off in July as opposed to June in previous years.

 

Telecredit deployed €11m in factoring products to small and medium sized businesses in 2020, generating EBITDA of €0.09m, compared to an expected loss of €-0.17m in its revised budget prepared in May to reflect the impact of the Covid-19 pandemic. The Company tightened its lending criteria as well as increased its levels of provisioning during the year. This resulted in the book value of its SME portfolio shrinking from €2.3m to €1.9m over the year.

 

Related parties' interests

 

As at 31 December 2020, 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.  Following this revision in the shareholdings, Mr Florescu and interests related to him own in aggregate 81,862,859 shares (previously notified as 81,391,311 shares) representing 60.26% of the current issued share capital of the Company.

 

http://www.rns-pdf.londonstockexchange.com/rns/0538B_1-2021-6-7.pdf

 

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 2020

 

On 31 December 2020, Reconstruction Capital II Limited ("RC2" or the "Company") had a total audited net asset value ("NAV") of €21.5m, or €0.1586 per share. The NAV per share increased by 9.38% over the course of the year.

 

Private Equity Programme

 

At the end of December 2020, the investments held under the Private Equity Programme had a total fair value of €20.25m, 14.3% above than the 2019 valuation of €17.7m. 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 the Company's investments in Reconstruction Capital Plc and The Romanian Investment Fund Limited 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.

 

 

 

2020
EUR
2019
EUR
Policolor S.A
13,960,000
12,000,000
Mamaia HotelResorts SRL("Mamaia")
3,440,548
3,371,233
TelecreditIFNS.A.("Telecredit")
624,545
804,859
TheRomanianInvestment FundLimited
1,256,983
992,643
ReconstructionCapitalPlc
972,485
555,738
20,254,561
17,724,473

 

The above valuations are based on assumptions that applied as of 31 December 2020.

 

Policolor proved relatively resilient to the effects of the COVID pandemic, and its improved performance and prospects is reflected in the increased valuation of the business. In spite of the pandemic, the Policolor Group achieved a 5.5% year-on-year increase in sales to €64.08m, and recorded recurring EBITDA of €2.41m (compared to just €0.98m in 2019). The relocation of production to the new plants in Bucharest and Ruse was completed during the year as was the sale of the land at Theodor Pallady. A new Group CEO was appointed in September. She has initiated a turnaround plan focussed mainly on the Romanian business, including a more streamlined organisational structure and more efficient logistics.

 

The Mamaia hotel was closed for the redecoration of its public areas and facades during the first five months of the year. Its 2020 revenues of €1.8m were 12.6% below the revised budget prepared in May to reflect the estimated impact of the Covid-19 pandemic, and 40% below 2019, due to Covid-19 related restrictions. These included limits on the use of the restaurant, a ban on conferences and other corporate events as well as a country-wide lockdown in the spring, whose knock-on effect was a delay to the start of the season which only took off in July as opposed to June in previous years.

 

Telecredit deployed €11m in factoring products to small and medium sized businesses in 2020, generating EBITDA of €0.09m, compared to an expected loss of €-0.17m in its revised budget prepared in May to reflect the impact of the Covid-19 pandemic. The Company tightened its lending criteria as well as increased its levels of provisioning during the year. This resulted in the book value of its SME portfolio shrinking from €2.3m to €1.9m over the year.

 

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 amounts to €22.0m, reflects the valuations of the underlying private equity holdings outlined in the above table, plus loan receivables of €1.5m, cash and cash equivalents of €0.1m, and a net €0.1m of sundry financial assets and liabilities, held by these intermediary holding companies.

Economic Overview

 

Due to the COVID pandemic which resulted in governments taking various measures such as lockdowns which restricted economic activity, the Romanian and Bulgarian economies reported decreased GDP in 2020, of 3.9% and 4.2% respectively. However, both countries are expected to recover during 2021, with the European Commission forecasting annual GDP increases in 2021 of 3.8% for Romania, and 2.7% for Bulgaria. The speed of the recovery will be dependent on the roll out of the Covid-19 vaccination programmes, allowing Covid related restrictions to be eased, and a combination of fiscal policies and successful deployment of the EU "Next Generation" funds, with Romania set to receive €33.5bn and Bulgaria €29bn over 2021-2027.

 

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 2020

2020
EUR
2019
EUR
Investmentincome
Fairvaluelossonfinancialassetsatfairvaluethrough
profitorloss
(1,752,486)
(14,482,512)
Interest income
4,280,442
4,319,475
Netinvestmentincome/(loss)
2,527,956
(10,163,037)
Expenses
Operatingexpenses
(660,299)
(845,572)
Netfinancial(expense)/income
(16,286)
255
Totalexpenses
(676,585)
(845,317)
Profit/(loss)fortheyear
1,851,371
(11,008,354)
Othercomprehensive income
-
-
Totalcomprehensiveincome/(loss)fortheyearattributable to owners
1,851,371
(11,008,354)
Gain/(loss)PerShare
Basicanddilutedgain/(loss)pershare
0.0136
(0.0806)

 

 

 

 

 

 

STATEMENT OF FINANCIAL POSITION

 

As at 31 December 2020

ASSETS
2020
EUR
2019
EUR
Non-current assets
Financialassetsatfairvaluethroughprofitorloss
21,999,552
19,651,596
Total non-currentassets
21,999,552
19,651,596
Currentassets
Tradeandotherreceivables
13,600
16,673
Cashandcashequivalents
33,073
65,887
Totalcurrentassets
46,673
82,560
TOTALASSETS
22,046,225
19,734,156
LIABILITIES
Currentliabilities
Tradeandotherpayables
91,782
37,362
Borrowings
406,278
-
Totalcurrentliabilities
498,060
37,362
TOTALLIABILITIES
498,060
37,362
NETASSETS
21,548,165
19,696,794
EQUITYANDRESERVES
Sharecapital
1,358,569
1,358,569
Share premium
109,206,779
109,206,779
Accumulated deficit
(89,017,183)
(90,868,554)
TOTAL EQUITY
21,548,165
19,696,794
NetAssetValuepershare
Basicanddilutednetassetvaluepershare
0.1586
0.1450

 

 

 

 

 

STATEMENT OF CHANGES IN EQUITY

 

For the year ended 31 December 2020

 

 

 

 

Sharecapital
Share
premium
Accumulated
deficit
Total
EUR
EUR
EUR
EUR
Balance at 1 January 2019
1,403,324
109,862,098
(79,860,200)
31,405,222
Lossfortheyear
Othercomprehensiveincome
-
-
-
-
(11,008,354)
-
(11,008,354)
-
Totalcomprehensivelossforthe year
-
-
(11,008,354)
(11,008,354)
Repurchaseandcancellationof ownshares
(44,755)
(655,319)
-
(700,074)
Transactionswithowners
(44,755)
(655,319)
-
(700,074)
Balanceat31December2019
1,358,569
109,206,779
(90,868,554)
19,696,794
Profitfortheyear
Othercomprehensiveincome
-
-
-
-
1,851,371
-
1,851,371
-
Totalcomprehensiveincomefortheyear
-
-
1,851,371
1,851,371
Balanceat31December2020
1,358,569
109,206,779
(89,017,183)
21,548,165

 

STATEMENT OF CASH FLOWS

 

For the year ended 31 December 2020

 

 

 

2020
EUR
2019
EUR
Cashflowsfromoperatingactivities
Profit/(loss)fortheyear
1,851,371
(11,008,354)
Adjustmentsfor:
Fairvaluelossonfinancialassetsatfairvaluethroughprofitor loss
1,752,486
14,482,512
Interest income
(4,280,442)
(4,319,475)
Interestexpense
6,278
-
Net(loss)/gainonforeignexchange
8
(255)
Netcashoutflowbeforechangesinworkingcapital
(670,299)
(845,572)
Decreaseintradeandotherreceivables
3,073
4,338
Increase/(decrease)intradeandotherpayables
54,420
(58,233)
Purchaseoffinancialassets
-
(133,603)
Repaymentsoffinancialassets
180,000
800,000
Netcashusedinoperatingactivities
(432,806)
(233,070)
Cashflowsfromfinancingactivities
Proceedsfromborrowings
400,000
-
Paymentsto purchase own shares
-
(1,048,662)
Redemptions ofB shares
-
(132,941)
Netcashgeneratedfrom/(usedin)financingactivities
400,000
(1,181,603)
Netdecreaseincashandcashequivalentsbeforecurrency adjustment
(32,806)
(1,414,673)
Effectsofexchangeratedifferencesoncashandcashequivalents
(8)
255
Netdecreaseincashandcashequivalentsaftercurrency adjustment
(32,814)
(1,414,418)
Cashandcashequivalentsatthebeginningoftheyear
65,887
1,480,305
Cashandcashequivalentsattheendoftheyear
33,073
65,887

 

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