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You are here: Announcement

Thursday 30 June, 2011


RNS Number : 4446J
Reconstruction Capital II Ltd
30 June 2011
 



Reconstruction Capital II Limited (the "Company")

 

30 June 2011

 

Annual Report and Audited Consolidated Financial Statements

for the year ended 31 December 2010

 

 

Reconstruction Capital II Ltd ("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 2010.

 

Financial highlights

 

·    The audited net asset value as at 31 December 2010 was EUR 93.5m, representing EUR 0.9348 per share (EUR 86.7m or EUR 0.8666 per share as at 31 December 2009);

 

·    As at 31 December 2010 the Company's market capitalisation was approximately EUR 61m, with a closing price of EUR 0.61 per share;

 

·    Total investment income of EUR 12.5m for the year (EUR 11.0 m in 2009)

 

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

 

Operational highlights

 

The Private Equity Programme

 

·    In April 2010, in exchange for releasing certain claims against EPH's other shareholders, RC2's shareholding in EPH increased from 21.3% to 42.0% for no extra consideration.

 

·    In March 2010, RC2 acquired an 11.1% shareholding in Klas DOO ("Klas"), the holding company for EPH's Bakeries business, for EUR 2.7m.

 

·    In June 2010, RC2 acquired 3.9% of the share capital of Agri Point Ltd ("Agri Point"), another subsidiary of EPH, for EUR 1.6m and a further 5.5% in December 2010 for EUR 2.2m. The Agripoint shareholding, which was governed by a put and call agreement with EPH, was sold back to EPH at year end for EUR 3.8m, in order to enable the disposal of this business to a third party. 

 

·    In November 2010, RC2 acquired a 49.9% shareholding in East Point Metals Ltd ("EPM"), the copper processing subsidiary of EPH, for a total consideration of EUR 2.3m.

 

The Trading Programme

 

During the year, RC2 exited a number of its Romanian equity positions held under the Trading Programme, thereby generating EUR 5.4m of cash proceeds. At year-end, its listed equities held under the Trading Programme had a total market value of EUR 3.7 million. 99.3% of this was held in Romanian equities, while the balance of 0.7% was held in Serbian equities.

 

The financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted in the European Union.

The financial information set out in the announcement does not constitute the Company's audited financial statements for the years ended 31 December 2010 or 2009. The financial information for the year ended 31 December 2009 is derived from the audited financial statements for that year.

The audit of the financial statements for the year ended 31 December 2010 is complete. The auditors reported on those accounts; their report was unqualified and did not include references to any matters to which the auditors drew attention to by way of emphasis without qualifying their report.

 

The annual report and financial statements will be posted to shareholders today and published on its web site (www.reconstructioncapital2.com).

 

For further information, please contact:

 

Reconstruction Capital II Limited

Ion Florescu / Ivanka Ivanova

Tel: +44 (0) 20 7244 0088

 

Grant Thornton Corporate Finance (Nominated Adviser)

Philip Secrett / David Hignell

Tel: +44 (0) 20 7383 5100

 

LCF Edmond de Rothschild Securities (Broker)

Hiroshi Funaki / Johnny Hewitson

Tel: +44 (0) 20 7845 5960


INVESTMENT MANAGER AND INVESTMENT ADVISORS' REPORT

 

During the year, Reconstruction Capital II Limited ("RC2" or the "Company") did not make any new investments under its Private Equity Programme, but increased its shareholding in East Point Holdings Limited ("EPH") from 21.3% to 42.0% by exchanging certain claims it had against other shareholders in this company for additional shares.  In addition, RC2 exited a number of positions held under its Trading Programme, thereby generating EUR 5.4m in cash. 

 

As at 31 December 2010, RC2 had an audited net asset value ("NAV") per share of EUR 0.9348, representing an increase of 7.87% over the year, mainly as a result of RC2's increased shareholding in EPH.

 

RC2's audited NAV per share compares to an unaudited published NAV per share of EUR 1.0264 at the end of 2010. The difference of EUR 0.0916 per share is mainly the result of the effects of the consolidation of Mamaia Resort Hotels SRL and Top Factoring SRL in the audited accounts.  Both these investments are booked at fair value when computing RC2's unaudited published NAV per share.

 

Private Equity Programme

 

In April 2010, in exchange for releasing certain claims against EPH's other shareholders, RC2's shareholding in EPH increased from 21.3% to 42.0% for no extra consideration. In March 2010, RC2 acquired an 11.1% shareholding in Klas DOO ("Klas"), the holding company for EPH's Bakeries business, for EUR 2.7m. In June 2010, RC2 acquired 3.9% of the share capital of Agri Point Ltd ("Agri Point"), another subsidiary of EPH, for EUR 1.6m and a further 5.5% in December 2010 for EUR 2.2m. The Agripoint shareholding, which was governed by a put and call agreement with EPH, was sold back to EPH at year end for EUR 3.8m, in order to enable the disposal of this business to a third party.  In November 2010, RC2 acquired a 49.9% shareholding in East Point Metals Ltd ("EPM"), the copper processing subsidiary of EPH, for a total consideration of EUR 2.3m.

 

Trading Programme

 

During the year, RC2 exited a number of its Romanian equity positions held under the Trading Programme, thereby generating EUR 5.4m of cash proceeds. At year-end, its listed equities held under the Trading Programme had a total market value of EUR 3.7 million. 99.3% of this was held in Romanian equities, while the balance of 0.7% was held in Serbian equities.



INVESTMENT MANAGER AND INVESTMENT ADVISORS' REPORT (Continued)

 

 

Outlook

 

In 2010, Romania, Serbia and Bulgaria, the three countries where RC2 has investments, took strong measures to improve their public sector balances, and Romania in particular had to apply severe fiscal tightening measures, including cutting public sector wages by 25% and increasing the VAT level from 19% to 24% over the summer of 2010, while Serbia implemented a freeze on public sector pensions and wages.  Whilst painful in the short term, these measures should help lay the foundations for future economic growth. After a difficult 2010, the economic environment in RC2's three main countries of operation has started to show encouraging signs of improvement in 2011. The economic pattern has been helped by rising exports and increased industrial production, while in return, the trade deficits have improved significantly.

 

In 2011, RC2 is focussing on the ongoing financial and operational restructuring of EPH and its remaining operating subsidiaries (Agripoint and EDDSG, EPH's River Shipping Business, having been sold at the end of 2010), as well as on growing and preparing for sale the Fund's Romanian Private Equity investments.

 

New Europe Capital Ltd

New Europe Capital S.R.L.

New Europe Capital DOO

 

 



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 its Investment Advisers 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 Investment Advisers believe there is a clear exit strategy available, such as trade sale, break up and subsequent disposal of different divisions or assets, or a 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 Investment Manager is responsible for identifying and executing investments and divestments under the Trading Programme. 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 Investment Advisers are involved at board level in the investee company to seek to implement operational and financial changes to enhance returns. As part of the Company's pre-acquisition due diligence, the Investment Advisers seek to identify specific actions that they believe will create value in the target investee company 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 company. Both the Investment Advisers and the Investment Manager believe 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, the Investment Advisers and the Investment Manager will take steps 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 Board will not normally authorise any investment in a single investee company that is greater than 20 per cent 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 company that is greater than 25 per cent of the Company's net asset value at the time of effecting the investment.

 

Gearing

The Company may borrow up to a maximum level of 30 per cent 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.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2010

 




31-Dec-10

31-Dec-09









EUR

EUR






Revenue



4,631,539

3,083,961

Total Revenue



4,631,539

3,083,961






Investment income





Gain on investments at fair value





through profit or loss



11,954,421

10,379,006

Interest income



18,237

73,311

Dividend income



4,082

293,312

Other income



503,154

279,591

Total investment income



12,479,894

11,025,220






Expenses





Operating expenses



10,955,345

8,924,356

Total operating expenses



10,955,345

8,924,356






Profit before taxation



6,156,088

5,184,825

Income tax expense



491,582

(1,545,772)

Net profit for the year



6,647,670

3,639,053






Other comprehensive income





Exchange differences on translating foreign operations


87,787

 (806,210)

Total comprehensive income for the year



6,735,457

2,832,843











Net profit for the year attributable to:





  - Equity holders of the parent



6,731,609

3,731,544

  - Non-controlling interest



(83,939)

 (92,491)




6,647,670

3,639,053






Total comprehensive income attributable to:





  - Equity holders of the parent



6,819,396

2,925,334

  - Non-controlling interest



(83,939)

(92,491)




6,735,457

2,832,843











Basic and diluted earnings per share



0.0673

0.0373

 

 

 



 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2010

 




31-Dec-10

31-Dec-09

 Assets



EUR

EUR

Non-current assets





Property, plant and equipment



11,588,403

13,795,880

Financial assets at fair value through

profit or loss



83,387,381

61,977,165

Goodwill



1,257,153

1,257,153

Total non-current assets



96,232,937

77,030,198






Current assets





Financial assets at fair value through profit or loss



3,711,882

13,551,893

Inventories



181,000

27,000

Trade and other receivables



6,607,316

1,273,793

Cash and cash equivalents



812,543

5,017,459

Total current assets



11,312,741

19,870,145






Total assets



107,545,678

96,900,343






Liabilities





Current liabilities





Trade and other payables



2,380,538

1,273,241

Loans and borrowings



2,924,754

 -

Corporation tax payable



9,925

49,943

Total current liabilities



5,315,217

1,323,184






Non-current liabilities





Deferred tax



621,000

1,180,000

Loans and borrowings



1,290,000

638,146

Total non-current liabilities



1,911,000

1,818,146






Total liabilities



7,226,217

3,141,330






Total net assets



100,319,461

93,759,013






 



 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2010 (continued)

 




31-Dec-10

31-Dec-09




EUR

EUR

Capital and reserves attributable to equity holders





Share capital



1,000,000

1,000,000

Share premium reserve



121,900,310

121,900,310

Retained deficit



(26,548,471)

 (33,280,080)

Foreign exchange reserve



(2,876,569)

 (2,964,356)

Total equity and reserves



93,475,270

86,655,874






Non-Controlling Interest



6,844,191

7,103,139

Total equity



100,319,461

93,759,013






 

The financial statements were approved by the Board of Directors and authorised for issue on 29 June 2011

 

 

 

 

Ion Florescu (Director)

 

 



 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS OF

31 DECEMBER 2010

 


Share
Capital

Share
Premium

Foreign

exchange

reserve

Retained

(Deficit)/
Earnings

Sub-total

Non-

controlling

Interest

Total


EUR

EUR

EUR

EUR

EUR

EUR

EUR









Balance at 1 January 2009

1,000,000

121,900,310

 (2,158,146)

 (37,011,624)

83,730,540

7,695,820

91,426,360









Profit for the year

-

-

-

3,731,544

3,731,544

(92,491)

3,639,053

Other comprehensive income

-

-

(806,210)

-

(806,210)

-

(806,210)

Total comprehensive income for the year

 -

 -

 (806,210)

3,731,544

2,925,334

 (92,491)

2,832,843

Dividends paid to non-controlling interests

 -

 -

 -

 -

 -

 (500,190)

 (500,190)

Balance at 31 December 2009

1,000,000

121,900,310

 (2,964,356)

 (33,280,080)

86,655,874

7,103,139

93,759,013









Profit for the year

-

-

-

6,731,609

6,731,609

(83,939)

6,647,670

Other comprehensive income

-

-

87,787


87,787

-

87,787

Total comprehensive income for the year

-

-

87,787

6,731,609

6,819,396

(83,939)

6,735,457

Dividends paid to non-controlling interests

-

-

-

-

-

(175,009)

(175,009)

Balance at 31 December 2010

1,000,000

121,900,310

(2,876,569)

(26,548,471)

93,475,270

6,844,191

100,319,461

 

 

Share premium is stated net of share issue costs

 

 

 

 

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED

31 DECEMBER 2010

 



31-Dec-10


31-Dec-09



EUR


EUR

Cash flows from operating activities





Net profit before tax


6,156,088


5,184,825

Adjustments for:





Depreciation and amortisation


210,991


203,109

Impairment


2,738,000


2,181,000

FX translation of fixed assets


180,527


-

(Gain) on financial assets at FVTPL


(11,954,421)


(10,379,006)

Profit on sale of financial asset


50,670


-

Gain on foreign exchange


87,787


169,559

Interest income


(18,237)


 (73,311)

Dividend income


(4,082)


 (293,312)

Net cash outflow before changes in working capital

(2,552,677)


 (3,007,136)






(Increase) in trade and other receivables


(5,382,625)


 (422,338)

Increase /(decrease) in trade and other payables


1,140,946


 (39,481)

(Increase)/ decrease in inventories


(154,000)


53,000

Interest received


18,957


79,912

Dividend received


52,466


291,015

Payments for purchase of financial assets


(229,995)


 (405,890)

Net proceeds from sale of financial assets


5,467,342


4,761,660

Net cash generated by operating activities


(1,639,586)


1,310,742






Income tax paid


(107,439)


 (515,229)






Cash flows from investing activities





Sale of property, plant and equipment


167,741


31,192

Purchase of property, plant and equipment


(1,086,963)


 (314,438)

Purchase of financial assets


(8,671,500)


 (1,439,700)

Sale of financial assets


3,764,880


-



(7,572,867)


 (927,433)






Cash flows from financing activities





Dividends paid to non-controlling interests


(175,009)


 (500,191)

Proceeds from loan


4,527,329


-

Payments of loan


(984,369)


18,717

Decrease in cash and cash equivalents


(4,204,916)


 (1,408,907)






Cash at beginning of year


5,017,459


6,426,366

Cash at end of year


812,543


5,017,459

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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