TIDMRC2
RNS Number : 0578S
Reconstruction Capital II Ltd
20 June 2018
20 June 2018
Reconstruction Capital II Limited (the "Company")
Annual Report and Audited Financial Statements
for the year ended 31 December 2017
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 2017.
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 2017 was
EUR0.2504 per share (EUR0.3670 per share as at 31 December 2016), a
31.77% decrease over the year;
-- The decrease is mainly the result of RC2 returning EUR17.4m to its shareholders;
-- The Directors do not recommend the payment of a dividend.
Operational highlights
Private Equity Programme
In March, RC2 disposed of its stake in Top Factoring SRL and the
related portfolio of non-performing loans held by RC2's wholly
owned subsidiary, Glasro Holdings Ltd (together, the "Top Factoring
Group"). The sale was completed in April. The total consideration
received amounted to EUR12.8m, net of various closing adjustments.
Glasro Holdings Limited distributed EUR7.5m of its exit proceeds to
RC2 in the form of dividends and used EUR2.85m to make an
investment in Telecredit IFN S.A., a Romanian non-banking financial
institution that provides consumer loans to individuals. Glasro
owns 80% of Telecredit, with the balance of 20% being owned by
RC2's former partner in Top Factoring SRL and his family.
At the end of December, the investments held under the Private
Equity Programme had a total fair value of EUR27.7m, which was
significantly less than the 2016 valuation of EUR36.0m, primarily
related to the Top Factoring Group's disposal.
Trading Programme
RC2 (Cyprus) Limited continued to sell down its residual listed
equities portfolio held under the Trading Programme, generating
cash proceeds of EUR0.08m over the year. At the end of 2017, the
residual Trading Programme portfolio was worth EUR0.09m compared to
EUR0.15m at the end of the prior year. All the investments held
under the Trading Programme were in Romanian equities.
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 2017
During 2017, Reconstruction Capital II Limited ("RC2") issued
16,997,375 B shares at a nominal value of EUR1 per share as a bonus
to existing ordinary shareholders, redeemable at the option of RC2,
and subsequently redeemed all of those shares, thereby returning
EUR17.0m to its shareholders using the bulk of the Albalact S.A.
disposal proceeds which had been generated over the prior year. In
addition, RC2 bought back 2.6m of its own shares for cancellation
in 2017, at a further cost of EUR 0.4m. In total, EUR17.4m was
returned to RC2's shareholders and explains the bulk of the
EUR17.9m fall in the overall NAV of RC2 over the year. Mainly due
to the issuance and subsequent cancellation of the new class B
Class shares, the NAV per ordinary share fell from EUR0.3670 to
EUR0.2504 over the year.
In March, RC2 disposed of its stake in Top Factoring SRL and the
related portfolio of non-performing loans held by RC2's wholly
owned subsidiary, Glasro Holdings Ltd (together, the "Top Factoring
Group"). The sale was completed in April. The total consideration
received amounted to EUR12.8m, net of various closing adjustments.
Glasro Holdings Limited distributed EUR7.5m of its exit proceeds to
RC2 in the form of dividends and used EUR2.85m to make an
investment in Telecredit IFN S.A., a Romanian non-banking financial
institution that provides consumer loans to individuals. Glasro
owns 80% of Telecredit, with the balance of 20% being owned by
RC2's former partner in Top Factoring SRL and his family.
The disposal boosted RC2's cash reserves which had fallen to
EUR1.1m after the redemption of the B shares. By the end of 2017,
RC2 had cash and cash equivalents of approximately EUR6.4m whilst
liabilities amounted to EUR0.4m, of which EUR0.15m represents
outstanding B share redemptions and EUR0.28m represents sundry
other liabilities.
Private Equity Programme
At the end of December, the investments held under the Private
Equity Programme had a total fair value of EUR27.7m, which was
significantly less than the 2016 valuation of EUR36.0m, primarily
related to the Top Factoring Group's disposal. The results of the
annual independent valuation process of its remaining private
equity investments are presented in the table below:
Valuations
2017 2016
EUR EUR
Policolor S.A. 20,600,000 20,640,000
Top Factoring Group - 11,284,423
Telecredit IFN S.A. 2,664,000 -
Mamaia Hotel Resorts SRL 4,404,658 4,079,921
27,668,658 36,004,344
The 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. Consequently, the financial
assets at fair value through profit or loss shown in the present
financial statements, which amount to EUR30.1m, reflect the
valuations of the underlying private equity holdings outlined in
the above table, as well as the cash balances of EUR1.3m and
EUR0.1m of sundry financial assets and liabilities of these
intermediary holding companies, including shares held under the
Trading Programme as summarised below.
Trading Programme
RC2 (Cyprus) Limited continued to sell down its residual listed
equities portfolio held under the Trading Programme, generating
cash proceeds of EUR0.08m over the year. At the end of 2017, the
residual Trading Programme portfolio was worth EUR0.09m compared to
EUR0.15m at the end of the prior year. All the investments held
under the Trading Programme were in Romanian equities.
Economic Overview
Romania's GDP increased by 7% year-on-year in 2017, mainly
triggered by higher private consumption. According to its latest
forecast published in February, the EU Commission expects Romania's
GDP growth to slow down to 4.5% in 2018, as rising inflation erodes
disposable income, tempering domestic demand. Bulgaria's GDP is
estimated to have grown by 3.6% in 2017, whilst the EU Commission
forecasts it will grow by 3.7% in 2018, also based on strong
domestic demand.
Events after the Reporting Period
At a general shareholder meeting on 21 February 2018, the
investment objective of RC2 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 investments in companies operating
in sectors other than real estate would be limited to 25% of RC2's
total assets at the time of effecting the investment. However, RC2
may continue to make follow-on investments in existing portfolio
companies without any such limitation. The same shareholder meeting
decided that the next continuation vote will be held in 2023 and
that RC2 can acquire 22% of the issued share capital of
Reconstruction Capital Plc for EUR1.6m and 10% of the issued share
capital of the Romanian Investment Fund Limited for EUR1.7m, two
Romanian-focused investment funds whose main underlying asset is a
60% shareholding in Policolor S.A. in which RC2 already owns the
balance of 40%. The main objective of the acquisition, which will
give RC2 a further 15.36% indirect shareholding in Policolor S.A.,
is to provide RC2 with greater control over the exit process from
this asset. Only a part of the above-mentioned acquisition has been
settled to date, amounting to EUR1.2m, with the rest being delayed
by technical settlement issues which are in the course of being
resolved with the vendors.
INVESTMENT POLICY
Private Equity Programme
Under the Private Equity Programme, the Company takes
significant or controlling stakes in companies operating primarily
in Romania, Serbia, Bulgaria and neighbouring countries (the
"Target Region"). The Company invests in investee companies where
it believes New Europe Capital SRL (the "Adviser") can add value by
implementing operational and/or financial restructuring over a 3 to
5 year horizon. The Company only makes an investment under the
Private Equity Programme if its Adviser believes there is a clear
exit strategy available, such as trade sale, break up and
subsequent disposal of different divisions or assets, or flotation
on a stock exchange.
Trading Programme
Under the Trading Programme, the Company aims to generate short
and medium term returns by investing such portion of its assets as
determined by the Directors from time to time in listed equities
and fixed income securities, including convertible and other
mezzanine instruments, issued by entities in the Target Region. The
Trading Programme differs from the Private Equity Programme in the
key respect that the Company will typically not take significant or
controlling stakes in investee companies and will typically hold
investments for shorter periods of time than investments made under
the Private Equity Programme.
Value Creation
Under its Private Equity Programme, the Adviser is involved at
board level in the investee entity to seek to implement operational
and financial changes to enhance returns. As part of the Company's
pre-acquisition due diligence, the Adviser seeks to identify
specific actions that it believes will create value in the target
investee post acquisition and, where appropriate, seek to work with
third party professionals to develop, in combination with the
proposed management team of the target, a value creation plan with
clear and identifiable short and medium term targets. These plans
are likely to address different parts of the business and are
tailored to reflect the specific challenges of the relevant target
investee. The Adviser believes that the investment strategies under
the Private Equity and Trading Programme can achieve returns which
are different than the returns of the relevant market indices.
Investing Restrictions and Cross-Holdings
The Directors and the Adviser have sought to ensure that the
portfolio of investments is sufficiently diversified to spread the
risks of those investments. The Investment Strategy does not
restrict the Company from investing in other closed-ended funds
operating in the Target Region. In line with the Company's
investment policy, the Directors do not normally authorise any
investment in a single investee that is greater than 20% of the
Company's net asset value at the time of effecting the investment
and in no circumstances will it approve an investment in a single
investee that is greater than 25% of the Company's net asset value
at the time of effecting the investment.
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. The same shareholder meeting decided that the next
continuation vote will be held in 2023 and that the Company can
acquire 22% of the issued share capital of Reconstruction Capital
Plc for EUR1.6m and 10% of the issued share capital of the Romanian
Investment Fund Limited for EUR1.7m.
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 2017
2017 2016
EUR EUR
Investment income
Fair value (loss)/gain on
financial assets at fair
value
through profit or loss (10,981,533) 4,699,325
Recovery of previously written
off receivable 189,000 -
Interest income 4,334,820 5,854,313
Dividend income 7,619,610 2,000,000
Other income - 11,347
Net investment income 1,161,897 12,564,985
Expenses
Operating expenses (1,619,749) (1,230,810)
Financial expenses (188) (775,195)
Total expenses (1,619,937) (2,006,005)
(Loss)/profit for the year (458,040) 10,558,980
Other comprehensive income - -
Total comprehensive (loss)/income
for the year
attributable to owners (458,040) 10,558,980
Earnings Per Share
Basic and diluted earnings
per share (0.0031) 0.0971
STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
2017 2016
EUR EUR
ASSETS
Non-current assets
Financial assets at fair
value through profit or
loss 30,143,162 36,300,265
Total non-current assets 30,143,162 36,300,265
Current assets
Trade and other receivables 136,439 17,791
Cash and cash equivalents 6,439,763 18,004,241
Total current assets 6,576,202 18,022,032
TOTAL ASSETS 36,719,364 54,322,297
LIABILITIES
Current liabilities
Trade and other payables 430,510 138,006
Total current liabilities 430,510 138,006
TOTAL LIABILITIES 430,510 138,006
NET ASSETS 36,288,854 54,184,291
EQUITY AND RESERVES
Share capital 1,449,460 1,476,223
Share premium 110,581,355 127,991,989
Retained deficit (75,741,961) (75,283,921)
TOTAL EQUITY 36,288,854 54,184,291
Net Asset Value per share
Basic and diluted net asset
value per share 0.2504 0.3670
CASH FLOW STATEMENT
For the year ended 31 December 2017
2017 2016
EUR EUR
Cash flows from operating activities
(Loss)/profit for the year (458,040) 10,558,980
Adjustments for:
Fair value loss/(gain) on financial
assets at fair value through
profit or loss 10,981,533 (4,699,325)
Reversal of loan impairment (189,000) -
Interest income (4,334,820) (5,854,313)
Financial expenses - 775,152
Dividend income (7,619,610) (2,000,000)
Net loss on foreign exchange 188 43
Net cash outflow before changes
in working capital (1,619,749) (1,219,463)
Decrease in trade and other receivables 7,352 19,671
Increase in trade and other payables 138,108 14,945
Purchase of financial assets (370,000) (2,710)
Disposals and repayments of financial
assets 63,000 20,410,000
Dividends received 7,500,000 2,000,000
Net cash generated by operating
activities 5,718,711 21,222,443
Cash flows from financing activities
Payments to purchase own shares (440,022) (3,439,849)
Redemptions of B shares (16,842,979) -
Loans received from subsidiaries - 200,000
Repayment of loans from subsidiaries - (240,000)
Interest paid - (8,029)
Net cash flow generated from
financing activities (17,283,001) (3,487,878)
Net increase in cash and cash
equivalents before currency
adjustment (11,564,290) 17,734,565
Effects of exchange rate differences
on cash and cash equivalents (188) (43)
Net increase in cash and cash
equivalents after currency
adjustment (11,564,478) 17,734,522
Cash and cash equivalents at
the beginning of the year 18,004,241 269,719
Cash and cash equivalents at
the end of the year 6,439,763 18,004,241
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
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BLGDLUDDBGIG
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