Interim Results

Reconstruction Capital II Ltd 31 August 2006 31 August 2006 RECONSTRUCTION CAPITAL II LIMITED INTERIM UNAUDITED FINANCIAL STATEMENTS For the period 19 December 2005 to 30 June 2006 Investment Manager and Adviser Report Reconstruction Capital II Limited ('RC2' or the 'Fund') was incorporated on 17th October 2005 and started operations on 19th December 2005 when a total of EUR 23.4 million was raised from investors. On 23rd December 2005, RC2's shares were admitted to trading on the London Stock Exchange's AIM market (AIM) and on 15th May 2006 a further net amount of EUR 40.2 million was raised from investors. The period under review was the first for which interim accounts are being prepared. The Fund's NAV was relatively stable during the period. The Fund operates two investment programmes, a Private Equity Programme and a Trading Programme. It is intended that the volume of investments be balanced equally between the two programmes during the Fund's first year of operations. Under the Trading Programme, the Investment Manager has invested approximately EUR 12.2m, representing over half the funds raised in December 2005 and just under 20% of all funds raised to date. The majority of investments under the Trading Programme were made in the second half of June 2006, when the Investment Manager took advantage of price falls on the local markets, having taken a very cautious approach earlier on. In retrospect, this has proved a wise approach. Under the Private Equity Programme, the Investment Adviser has analysed a large number of investment opportunities, and made several indicative offers to prospective vendors during the period. Of these, one has been accepted, subject to contract, two are still being discussed with the prospective vendors, and the others have lapsed. The Investment Adviser is currently analysing a number of other potential investments. Although in its early stages, the most encouraging aspect of the Private Equity Programme is the number of companies the Investment Adviser has identified with capital requirements of under EUR 15m which are not actively searching for financing. This has given the Investment Adviser the opportunity to focus on these deals, and to assign a lower level of priority to more competitive auction-type situations. The Investment Adviser is targeting to close at least three private equity deals before the end of the year. The Romanian and Bulgarian economies have continued to grow healthily over the period under review, with strong improvements in overall GDP, industrial output and inflation. In Romania, inflation was 2.7% over the first six-months of 2006, compared to 4.1% during the same period last year. In June 2006 the country experienced year-on-year GDP growth of 7% and year-on-year growth in industrial output of 6.7%. In Bulgaria, at the end of the first quarter, GDP was 5.6% higher than a year before, while industrial output had undergone 6.7% year-on-year growth by May 2006. Inflation was 2.9% over the first semester of 2006 compared to 1.2% during the same period in 2005. The Investment Manager and Investment Adviser are confident that with the two main economies in which the Fund invests continuing to show such strong growth rates and proving to be relatively immune to the shocks affecting other emerging markets, and with the date for EU accession rapidly approaching, the investment climate remains very favourable for both RC2's Trading and its Private Equity Programmes. New Europe Capital Ltd New Europe Capital SRL Independent review report to Reconstruction Capital II Limited Introduction We have been instructed by the company to review the financial information for the period ended 30 June 2006 on pages 5 to 12. 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 for use in the United Kingdom by auditors of fully listed companies. A review consists principally of making enquiries of 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 On the basis of our review 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 2006. BDO STOY HAYWARD LLP Chartered Accountants London August 2006 INCOME STATEMENT For the period to 30 June 2006 2006 Notes EUR Investment loss 4 (296,017) Operating expenses 5 (713,925) --------- Loss for the period before and after taxation (1,009,942) Attributable to equity shareholders of the company (1,009,942) Loss per share (cents) - basic and diluted 6 (0.0321) ========= As this is the first period of accounts for the company there are no comparative figures. BALANCE SHEET 30 June 2006 2006 Notes EUR Current assets - Trade and other receivables 7 113,802 - Investments in transferable securities 8 11,472,545 - Cash and cash equivalents 52,425,848 --------- Total assets 64,012,195 Liabilities Current liabilities - Trade and other payables 9 (1,411,783) --------- 10 62,600,412 ========= Capital & reserves attributable to equity holders of the company - Share capital 650,393 - Share premium reserve 62,959,961 - Retained deficit (1,009,942) --------- Total equity 62,600,412 ========= As this is the first period of accounts for the company there are no comparative figures. CASHFLOW STATEMENT For the period to 30 June 2006 2006 EUR Operating activities Net loss from ordinary activities (1,009,942) Adjustments for: Net unrealised loss on investments 643,519 Operating loss before changes in --------- working capital (366,423) --------- Increase in trade and other receivables (113,802) Increase in trade and other payables 1,411,783 --------- Cash generated from operations 931,558 Investing activities Purchase of securities (12,323,712) Proceeds from sales of securities 207,648 --------- (12,116,064) Financing activities Net proceeds from issue of ordinary shares 63,610,354 --------- --------- Increase in cash and cash equivalents 52,425,848 --------- STATEMENT OF CHANGES IN EQUITY For the period to 30 June 2006 Share Share Retained Total Capital Premium Earnings EUR EUR EUR EUR Balance at start of period - - - - Transferred to 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 ======= ======= ======= ======= The share premium is stated net of share issue costs of EUR 1,119,605. Notes to the Interim Unaudited Financial Statements 1.Establishment Reconstruction Capital II Limited was incorporated on 17 October 2005 as a closed ended Cayman Islands 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 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 will be 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 31 August 2006. The interim results have been prepared in accordance with International Financial Reporting standards (IFRS) and are not audited but have been subjected to a limited review, in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board, by the auditors of Reconstruction Capital II Limited 3. Significant accounting policies The significant accounting policies adopted by the Company are as follows; (a) Revenue recognition Unrealised gains and losses arising from changes in the fair value of securities and realised gains and losses arising on the sale of securities are recognised in the income statement as they arise. Realised gains and losses are recognised in the income statement using average weighted cost. Interest receivable is recognized in the income statement on an accruals basis (b) Investments in transferable securities Investments in transferable securities are initially recognised at cost and subsequently re-measured at fair value. Securities listed on a stock exchange or traded on any other regulated market will be valued at the last available price on such exchange or market or, if no such price is available, at the mean of the bid and asked price on such day. If there is no such price or such market price is not representative of the fair market value of any such security, then the security will be valued in a manner determined by the Directors to reflect its fair value in accordance with the guidelines of the European Venture Capital Association from time to time in force. If a security is listed on several stock exchanges or markets, the last available price on the stock exchange or market which constitutes the main market for such security will be used. Where the securities are not listed on any stock exchange they shall be valued in such manner as the Directors in good faith deem appropriate to reflect their fair market value, in accordance with the guidelines of the European Venture Capital Association from time to time in force. (c) Foreign currency Assets and liabilities arising in foreign currencies have been translated into Euro at rates of exchange prevailing at the balance sheet date. Transactions in foreign currencies are translated into Euro at the exchange rates prevailing at the dates of the transactions. Exchange differences arising on transactions during the year have been recognised in the income statement. 4. Investment loss 2006 EUR Net realised gain on investments 14,719 Net realised loss on foreign exchange (2,410) Net unrealised loss on investments (643,519) Net unrealised loss on foreign exchange (11,363) Interest receivable 346,556 --------- Investment loss (296,017) --------- 5. Operating expenses 2006 EUR Administrative expenses - Investment Management fees (424,811) - Administration fees (32,922) - Custody fees (41,537) - Directors' fees (51,781) --------- (551,051) --------- Other expenses - Audit fees (20,712) - Legal fees (44,696) - Listing fees (6,798) - Other fees (90,668) --------- (162,874) --------- Total operating expenses (713,925) --------- 6. Loss per share The loss per share is calculated on the loss for the period of EUR 1,009,942 and using the weighted average number of ordinary shares in issue during the period of 31,455,354. There are no potentially dilutive shares in issue. 7. Trade and other receivables 2006 EUR -------- Interest Income Receivable 113,802 ======== 8. Investments in transferable securities 2006 EUR Cost 12,116,064 Unrealised loss on Investments (643,519) ------------ Market Value of Investments 11,472,545 ============ 9. Trade and other payables 2006 EUR - Investment Management Fees (157,515) - Administration Fees (19,614) - Custody Fees (41,537) - Directors' Fees (51,781) - Audit Fees (20,712) - Other Fees (8,158) - Payable on trades (1,112,466) -------- (1,411,783) ======== 10. Net asset value 2006 EUR NET ASSET VALUE As at 30 June 2006 62,600,412 NUMBER OF ORDINARY SHARES IN ISSUE As at 30 June 2006 65,039,425 NET ASSET VALUE PER SHARE As at 30 June 2006 0.9625 11. Dividends There were no dividends declared or paid during the period. This information is provided by RNS The company news service from the London Stock Exchange

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