TIDMRC2
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 .
Financial highlights
-- The audited net asset value as at 31 December 2022 was
EUR0.1757 per share (EUR0.1971 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 EUR23.97m, 8.6%
below the 2021 valuation of EUR26.24m. 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 EUR 79.4m
in 2021 to EUR 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 EUR2.6m 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 EUR 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 EUR 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 EUR 28.5m in financing products to small and
medium-sized enterprises, generating Operating profit before
depreciation and interest expenses of EUR 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
EUR23.8m, or EUR0.1757 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 EUR23.97m, 8.6%
below the 2021 valuation of EUR26.24m. 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 EUR 79.4m
in 2021 to EUR 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 EUR2.6m 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 EUR 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 EUR 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 EUR 28.5m in financing products to small and
medium-sized enterprises, generating Operating profit before
depreciation and interest expenses of EUR 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 EUR24.10m, reflects the
valuations of the underlying private equity holdings outlined in
the above table, plus cash and cash equivalents of EUR0.14m, and
net sundry liabilities of EUR-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 - -
Other comprehensive income - - 5,235,299 5,235,299
---------------- ----------- ------------ --------------
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
for the year - - (2,943,590) (2,943,590)
---------------- ----------- ------------ --------------
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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