Interim Results
Reconstruction Capital II Ltd
28 September 2007
RECONSTRUCTION CAPITAL II LIMITED
INTERIM UNAUDITED FINANCIAL STATEMENTS
For the period 1 January 2007 to 30 June 2007
INVESTMENT MANAGER AND ADVISER REPORT
On 30th June 2007, Reconstruction Capital II Limited ('RC2' or the 'Company')
had a total net asset value excluding minority interest of EUR 93.6 million or
EUR 1.4398 per share, a 49.6% year-on-year increase, the combined result of a
596.5% increase in EUR terms of Albalact's share price as well as an overall
increase in the market prices of shares held under the Trading Programme (+84.6%
above cost at the end of June). On 30th June 2007, 35.3% of RC2's net assets
consisted of listed equities, 23.2% was held in private equity positions, 7.1%
was held in fixed income securities and the remaining 34.4% was held in cash.
As explained in note 3, the net asset figures and the results presented in the
interim financial statements are not fully compliant with IFRS.
The Company operates two investment programmes, a Private Equity Programme which
is focused on acquiring and disposing of significant or controlling stakes in
companies, and a Trading Programme which focuses on portfolio investments in
listed equities and fixed income securities.
Under the Trading Programme, the Investment Manager had invested approximately
EUR 18.0 million in listed equities by the end of June 2007, which had a total
market value of EUR 33.1 million. Of this, 78.7% was held in Romanian equities
while the balance of 21.3% was held in Bulgarian equities. As at 30th June 2007,
the increase in value over cost of the equity holdings held under the Trading
Programme (+ 84.6%) is significantly better than the overall performance of the
Romanian EUR denominated index since RC2 started investing at the end of January
2006 (+37.9%). At the end of June 2007, RC2's listed equities portfolio was
divided amongst companies operating in the following industries: financial
services (62.6%), building materials (13.2%), engineering (12.7%), industrials
(5.4%), utilities (3.5%), oil&gas (1.8%) and others (0.8%).
Under the Private Equity Programme, the Company effected two new private equity
investments of EUR 3 million in the first half of 2007: it acquired a 92.3%
shareholding in Top Factoring, a Romanian receivables collection business, and a
33.3% shareholding in the Romar Group, a Romanian private medical services
business. A 13.4% shareholding in the dairy company Albalact, the first
investment made by RC2 under the Private Equity Programme, was valued at EUR
15.8 million at the end of June 2007. In the first half of 2007, RC2 sold a 3.4%
stake in Albalact for EUR 3.8 million (279.0% above cost).
The Investment Manager and Investment Adviser intend to start investing in
Serbia in the second half of 2007 and are continuing to identify a number of
interesting potential investments in Romania and Bulgaria.
New Europe Capital Ltd New Europe Capital SRL
INDEPENDENT REVIEW REPORT TO RECONSTRUCTION CAPITAL II LTD
Introduction
We have been instructed by the company to review the financial information for
the period ended 30 June 2007 which comprise the consolidated income statement,
consolidated balance sheet, consolidated statement of changes in equity,
consolidated cash flow statement and the related notes and we have read the
other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
Our report has been prepared in accordance with the terms of our engagement to
assist the company in meeting the requirements of the rules of the London Stock
Exchange for companies trading securities on the Alternative Investment Market
and for no other purpose. No person is entitled to rely on this report unless
such a person is a person entitled to rely upon this report by virtue of and for
the purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we hereby expressly
disclaim any and all such liability.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the rules of the
London Stock Exchange for companies trading securities on the Alternative
Investment Market which require that the half-yearly report be presented and
prepared in a form consistent with that which will be adopted in the company's
annual accounts having regard to the accounting standards applicable to such
annual accounts.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and based thereon, assessing
whether the accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards on Auditing (UK and Ireland) and therefore provides a
lower level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information.
Review conclusion
The company has a investment that is designated at fair value through the profit
and loss account that is stated on the balance sheet at a cost of €3,000,000. In
accordance with IAS 39, this investment should be stated at fair value. As
disclosed in note 3, due to the short time scale between the acquisition of the
associate and the date of these interim financial statements, the directors were
unable to obtain full information on the financial position of the investment at
30 June 2007. Consequently, the investment has not been accounted for at fair
value and has been included in the financial statements at cost.
On the basis of our review, with the exception of the matter described in the
preceeding paragraph, we are not aware of any material modifications that should
be made to the financial information as presented for the six months ended 30
June 2007.
BDO STOY HAYWARD LLP
Chartered Accountants
London
CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED 30 June 2007
30-Jun-07 30-Jun-06 31-Dec-06
Unaudited Unaudited Audited
Notes EUR EUR EUR
Investment income
Gain/(losses) on investments at
fair value through the profit
and loss
account 4 27,376,303 (869,116) 6,852,945
Interest income 1,045,858 573,099 1,378,959
Dividend income 260,212 - 95,175
Other income 127,138 - 280,162
-------- -------- --------
Total investment income 28,809,511 (296,017) 8,607,241
Expenses
Operating expenses 5 4,779,448 713,925 1,960,436
-------- -------- --------
Total operating expenses 4,779,448 713,925 1,960,436
Profit/(loss) before tax 24,030,063 (1,009,942) 6,646,805
Income Tax expense 177,969 - 118,214
-------- -------- --------
Profit/(loss) after tax 23,852,094 (1,009,942) 6,528,591
Attributable to:
- Equity holders of the parent 23,609,302 (1,009,942) 6,106,568
- Minority interest 242,792 - 422,023
-------- -------- --------
23,852,094 (1,009,942) 6,528,591
-------- -------- --------
Basic and diluted earnings
/(loss) per share 9 0.3667 (0.0321) 0.2092
CONSOLIDATED BALANCE SHEET AS OF 30 June 2007
30-Jun-07 30-Jun-06 31-Dec-06
Unaudited Unaudited Audited
Assets Notes EUR EUR EUR
Non-Current Assets
Property, plant and equipment 53,024 - 3,210
Investment in associate at cost 3 3,000,000 -
Goodwill 7 1,257,153 -
-------- -------- --------
Total non-current assets 4,310,177 - 3,210
Current Assets
Financial assets at fair value
through the profit and loss
account 6 55,428,643 11,472,545 29,268,814
Trade and other receivables 1,119,073 113,802 547,498
Cash and cash equivalents 38,121,456 52,425,848 41,404,822
-------- -------- --------
Total current assets 94,669,172 64,012,195 71,221,134
Total Assets 98,979,349 64,012,195 71,224,344
Liabilities
Current Liabilities
Trade and other payables 4,593,814 1,411,783 665,790
-------- -------- --------
Total Current Liabilities 4,593,814 1,411,783 665,790
Total Net Assets 94,385,535 62,600,412 70,558,554
Capital and reserves
attributable to equity holders
Share capital 650,394 650,393 650,394
Share premium reserve 63,280,208 62,959,961 63,280,208
Retained earnings 29,715,870 -1,009,942 6,106,568
-------- -------- --------
Total equity and reserves 93,646,472 62,600,412 70,037,170
Minority Interest 739,063 - 521,384
94,385,535 62,600,412
Total Equity 70,558,554
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS OF 30 JUNE 2007
Share Share Retained Minority Total
Notes Capital Premium Earnings Interest
EUR EUR EUR EUR EUR
Balance at beginning of period - - - - -
Net loss for the period - - (1,009,942) - (1,009,942)
Issue of share
capital 650,393 62,959,961 - - 63,610,354
------- -------- --------- ------- --------
Balance at 30 June 2006 650,393 62,959,961 (1,009,942) - 62,600,412
Net profit for the period and
total recognised income for the
period - - 7,116,510 422,023 7,538,533
Issue of Share Capital 1 320,247 - - 320,248
Minority interest arising
on acquisition - - - 99,361 99,361
------- -------- --------- ------- --------
Balance at 31 Dec 2006 650,394 63,280,208 6,106,568 521,384 70,558,554
Net profit for the period and
total recognised income for the
period - - 23,609,302 242,792 23,852,094
Minority interest arising
on acquisition 145,915 145,915
Dividends - - - (171,028) (171,028)
------- -------- --------- ------- --------
Balance at 30 June 2007 650,394 63,280,208 29,715,870 739,063 94,385,535
The share premium is stated net of historic share issue cost of EUR 1,382,649.
CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED 30 June 2007
30-Jun-07 30-Jun-06 31-Dec-06
Unaudited Unaudited Audited
EUR EUR EUR
Cash flows from operating activities
Net Profit / (loss)before tax 24,030,063 (1,009,942) 6,646,805
Adjustments for:
Depreciation 1,542 - 5,307
Gain on financial assets at fair value
through profit or loss (21,441,033) 643,519 (6,036,097)
Gain on foreign exchange (1,111,256) - (726,504)
Interest income (1,323,755) - (1,378,959)
Dividend income (263,002) - (95,175)
--------- -------- --------
Net cash outflow before
changes in working capital (107,441) (366,423) (1,584,623)
Increase/ (decrease) in
trade and other receivables 1,329,975 (113,802) (487,695)
Increase in trade and
other payables 3,670,459 1,411,783 494,340
Interest received 1,323,755 - 1,378,959
Dividend received 263,002 - 95,175
Purchase of financial assets (18,456,640) (12,323,712) (24,761,107)
Proceeds from sale of
financial assets 13,737,844 207,648 1,526,428
--------- -------- --------
Net cash used in
operating activities 1,760,954 (11,184,506) (23,338,523)
Income tax paid - - (60,762)
Cash flows from investing activities
Purchase of property,
plant and equipment (24,791) - (2,345)
Acquisition of associate (3,000,000) -
Acquisition of subsidiary
(net of cash acquired) (2,960,458) 149,346
--------- -------- --------
(3,113,039) (11,184,506) (23,252,284)
Cash flows from financing activities
Proceeds from shares issued 63,610,354 63,930,602
Dividends paid to
minority interest (170,327) - -
--------- -------- --------
Net cash lows from financing (170,327) 63,610,354 63,930,602
Gain on foreign exchange 1,111,256 - 726,504
Increase in cash and
cash equivalents (3,283,366) 52,425,848 41,404,822
Cash at 1 January 2007 41,404,822 - -
Cash at 30 June 2007 38,121,456 52,425,848 41,404,822
NOTES TO THE INTERIM UNAUDITED FINANCIAL STATEMENTS
1. Establishment
Reconstruction Capital II Limited was incorporated on 17 October 2005 in the
Cayman Islands as a closed ended company created to invest in private and listed
equity and fixed income securities, including convertible and other mezzanine
instruments, primarily in Romania and Bulgaria. The Company was listed on AIM on
23 December 2005 and commenced investing activities on 27 January 2006.These
financial statements show the results of the Group for the first six months of
2007.
The Company intends to generate returns for its Shareholders through two primary
routes: to achieve medium and long term capital appreciation through the
investment in and subsequent disposal of significant or controlling stakes in
companies, both listed and private, established and/or operating primarily in
Romania and Bulgaria (the Private Equity Programme), and to make portfolio
investments in listed equities and fixed income securities, including
convertible and other mezzanine instruments, issued primarily by Romanian and
Bulgarian entities (the Trading Programme).
The main focus of the Company is investments in Romania and Bulgaria. However,
the Company reserves the right to make investments into neighbouring countries,
notably Ukraine, Serbia, Montenegro, Moldova, Croatia, Albania and the Former
Yugoslav Republic of Macedonia. It is currently anticipated that in the medium
term the Company will invest approximately 70 per cent of its assets in Romania
and approximately 30 per cent of its assets in Bulgaria and neighbouring
countries
2. Basis of Preparation
The interim results were approved by the directors on 27 September 2007. The
interim results have been prepared in accordance with International Financial
Reporting standards (IFRS) as adopted for use in the European Union and are not
audited but have been subjected to a limited review by the auditors of
Reconstruction Capital II Limited. As permitted, the unaudited interim financial
statements have not been prepared in accordance with IAS 34 'Interim Financial
Reporting'.
3. Acquisitions
On 24 May 2007 Reconstruction Capital II (Cyprus) Ltd, a 100% subsidiary of
Reconstruction Capital II Ltd, acquired 92.31 % of Top Factoring, a receivables
collection company, incorporated in Romania. As such the investment is
consolidated in accordance with IFRS3 Business combinations.
On 19 June 2007 Reconstruction Capital II Ltd acquired 33.33% of the Romar Group
('Romar') . Romar is one of the largest providers of private health care
services in Romania and is the market leader in the provision of occupational
health services. It includes the following five operating entities: Centrul
Medical Romar (operating 12 clinics and two laboratories in Bucharest), Romar
Diagnostic Center (operating 2 clinics), Medimar Diagnostic (operating a clinic
in Iasi and a laboratory), Romar Clinic (operating a clinic and laboratory in
Constanta) and SGL Management & Consulting (which owns and rents out medical
equipment to Medimar Diagnostic and Romar Clinic).
Due to the short time scale between the acquisition and the date the interim
Financial Statements were prepared the Company was unable to include full
information on the financial position of Romar as at 30 June 2007. Consequently,
the investment has been included in the Financial Statements at cost instead of
at fair value.
4. Gain on investments at fair value through the profit and loss account
30-Jun-07 30-Jun-06 31-Dec-06
Unaudited Unaudited Audited
EUR EUR EUR
Realised investment income 4,181,028 14,719 90,344
Unrealised gain on investments 21,441,033 (870,062) 6,036,097
Realised loss on foreign exchange - (2,410)
Unrealised gain on foreign exchange 1,754,242 (11,363) 726,504
--------- --------- --------
27,376,303 (869,116) 6,852,945
5. Operating Expenses
30-Jun-07 30-Jun-06 31-Dec-06
Unaudited Unaudited Audited
EUR EUR EUR
Investment Management / Advisory fee 760,862 424,811 1,179,403
Performance fee accrual 3,648,019 - 267,716
Administration fees 49,575 32,922 72,637
Custodian fees 56,608 41,537 111,584
Audit fees 19,726 20,712 40,877
Directors' fees 61,643 51,781 123,150
Other fees 183,015 142,162 165,069
-------- -------- --------
4,779,448 713,925 1,960,436
6. Financial assets
30-Jun-07 30-Jun-06 31-Dec-06
Unaudited Unaudited Audited
EUR EUR EUR
Investments at fair value through profit and loss
Listed equity securities 48,883,671 11,472,545 23,421,490
Listed debt securities 6,544,972 - 5,847,324
--------- -------- --------
Total investments at fair value
through 55,428,643 11,472,545 29,268,814
profit or loss
30-Jun-07 30-Jun-06 30-Jun-06
Unaudited Unaudited Audited
EUR EUR EUR
Cost 27,205,050 12,116,064 23,232,717
Unrealised gain on investments 28,223,593 (643,519) 6,036,097
--------- -------- --------
Fair value of the investments 55,428,643 11,472,545 29,268,814
7. Acquisition during the period
On 24 May 2007, Reconstruction Capital II (Cyprus) Ltd acquired 92.31% of the
voting shares in Top Factoring SRL, for a total cash consideration of EUR
3,000,273. As a result, goodwill of EUR 1,257,153 has arisen. The Company's
principal activity is receivables collection.
Details of the provisional fair value of the net assets acquired, purchase
consideration and goodwill are as follows:
Provisional fair values at acquisition EUR
Property, plant and equipment 26,568
Trade and other receivables 1,901,546
Cash and cash equivalents 39,815
---------
Trade and other payables 79,596
---------
1,888,333
Group share 92.31% 1,743,120
---------
Consideration paid Cash 3,000,273
---------
Goodwill 1,257,153
---------
The acquisition of Top Factoring did not contribute materially to the results of
the group.
8. Net Asset Value
30-Jun-07 30-Jun-06 31-Dec-06
Unaudited Unaudited Audited
EUR EUR EUR
Net Assets (excluding minority
interest) 93,646,472 62,600,412 70,037,170
Number of shares at balance sheet dates 65,039,425 65,039,425 65,039,425
Net Asset Value per share 1.4398 0.9625 1.0768
9. Earnings Per Share
Earnings per share are calculated on the net increase in shareholders' funds of
EUR 23,736,361 and using the weighted average number of ordinary shares in issue
during the period of 65,039,425.
30-Jun-07 30-Jun-06 31-Dec-06
Unaudited Unaudited Audited
EUR EUR EUR
Numerator
Profit for the period 23,852,094 (1,009,942) 6,106,568
--------- -------- --------
Earnings used in EPS 23,852,094 (1,009,942) 6,106,568
--------- -------- --------
Denominator
Weighted average number of shares
used in basic and diluted EPS 65,039,425 31,455,354 29,195,002
--------- -------- --------
EPS 0.3667 (0.0321) 0.2092
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