RC2.L Regulatory News (RC2)

29 Jun 2007 15:07

Reconstruction Capital II Ltd29 June 2007 29th June 2007 Reconstruction Capital II Limited (the "Company") Annual Report and Accounts Reconstruction Capital II Limited (AIM: RC2) is pleased to announce its resultsfor the year ended 31 December 2006. Extracts from the financial statements are given below and full versions areavailable from the offices of New Europe Capital Limited, 33 Marloes Road,London W8 6LG, United Kingdom (tel: +44 (20) 7244 0088). The annual report has been posted to the Company's shareholders. For further information: Ion FlorescuReconstruction Capital II LimitedTel: +44 7767 477192 Philip Secrett / Fiona OwenGrant Thornton Corporate FinanceTel: +44 20 7383 5100 INVESTMENT MANAGER AND INVESTMENT ADVISER REPORT Reconstruction Capital II Limited ("RC2" or the "Company") was incorporated on17th October 2005 and started operations on 19th December 2005 when a total ofEUR 23.4 million was raised from investors, net of expenses. On 23rd December2005, RC2's shares were admitted to trading on the London Stock Exchange's AIMmarket and on 17th May 2006 a further EUR 40.5 million was raised frominvestors, net of expenses. This is the first financial year for which accountsare being presented. For 2006, the Company reports a net profit excluding minority interest of EUR6.1 million, primarily generated by a gain on investments of EUR 6.9 million andinterest income of EUR 1.4 million. At the end of the year, the Company's totalnet asset value excluding minority interest was EUR 70.0 million, equivalent toa net asset value per share of EUR 1.0768. This compares favourably to a netasset value per share of EUR 0.9565 when the Company's shares were admitted totrade on the AIM market at the end of 2005. In 2006, the economies of Romania and Bulgaria, the two principal countries inwhich the Company invests, experienced strong growth and generally healthymacro-economic indicators. The year culminated in both countries joining the EUon the 1st January 2007. Internal growth in the two countries was drivenprimarily by an internal boom in consumption and construction, fuelled byincreasing living standards and the increased availability of consumer andmortgage financing. Romania in particular experienced an improving macroeconomic climate with a 7.7%increase in GDP over the year (compared to 4.1% in 2005), whilst yearlyinflation stood at 4.9% in December 2006, compared to 8.6% in 2005. Growth inRomanian GDP was driven by 19.4% growth in the construction sector, a 7.8%increase in the manufacturing sector, and a 7.3% increase in the servicessector. In Bulgaria, GDP increased by 6.1% year-on-year compared to 6.2% in 2005and the growth in the Bulgarian CPI index was 6.5% in 2006, unchanged from 2005. The one dark spot on the horizon for both countries remains the current accountdeficit, which stood at 10.3% of GDP for Romania and 15.8% of GDP for Bulgariaover 2006. Nevertheless to a certain extent this is a result of the strongconfidence of international investors in the two economies, which resulted inFDI flows of EUR 9.1bn in Romania and of EUR 4.0bn Bulgaria. In Romania, wherethe local currency is not pegged to the euro, this led to a currencyappreciation against the single currency of 8.0% in 2006. The Company operates two investment programmes, a Private Equity Programme whichis focused on acquiring and disposing of significant or controlling stakes incompanies, and a Trading Programme which focuses on portfolio investments inlisted equities and fixed income securities. Under the Trading Programme, the Investment Manager invested approximately EUR13.4 million in listed equities over the year, which had a total market value ofEUR 17.6 million at the end of 2006. Of this, 79.7% was held in Romanianequities and the balance of 20.3% was invested in Bulgarian equities. As at 31stDecember 2006, the increase in value over cost of the equity holdings held underthe Trading Programme (+ 31.0%) is significantly higher than the overallperformance of the Romanian EUR denominated index since RC2 started investing atthe end of January 2006 (+4.9%). As of 31 December 2006, RC2's listed equities portfolio was divided amongstcompanies operating in the following industries: financial services (63.1%),building materials (6.9%), oil and gas (21.6%), utilities (7.5%) and industrials(0.9%). In addition, as at end-December 2006, RC2's local currency fixed incomeholdings amounted to EUR 5.8 million. Under the Private Equity Programme, RC2's first private equity investment wasfinalized in November 2006, when the Company increased its shareholding inAlbalact S.A. ("Albalact") to 16.4% and the Investment Adviser agreed to take aseat on Albalact's board of directors (previously the Fund had had a smallershareholding in this company held under its Trading Programme). Albalact isRomania's leading independent fresh dairy products company. With strong brandson the local market, a powerful milk collection system which covers one of thebest dairy regions of the country, and a new production facility underconstruction, Albalact has proven to be one of the most dynamic players in itssector. Annual sales growth has averaged 65.7% over the past 3 years and the2006 net profit was 98% above the previous year. Although it is a quotedcompany, the shareholding in Albalact has been categorized as part of thePrivate Equity Programme by the Board due to the size of the investment, RC2'spresence on the company's board, and the likely mid-term horizon for thisinvestment. The value of RC2's Albalact holding, based on the market price ofAlbalact shares as at 31st December 2006, was EUR 5.82 million. As of 31st December 2006, the value of RC2's equity holdings, includingAlbalact, was EUR 23.4m or 33.4% above cost. On 31st December 2006, RC2's assetswere broken down as follows: a total of EUR 17.6 million was held in listedequities (24.9% of total net asset value); EUR 5.8 million was held in Albalact,a private equity position (8.2% of total net asset value); EUR 5.8 million wasinvested in Romanian fixed income instruments (8.2 % of total net asset value);EUR 20.8 million (29.4% of total net asset value) in EUR-denominated depositsand the equivalent of EUR 15.6 million (22.1% of total net asset value) inRON-denominated deposits. The balance of EUR 5.0 million was held in cash.Overall, the Company's net asset value per share increased by 12.6% during theperiod under review from EUR 0.9565 to EUR 1.0768. OUTLOOK The Investment Manager and Investment Adviser remain confident that growth rateswill continue to be strong in the two economies of Romania and Bulgaria and thatthe investment climate will remain favourable for both RC2's Trading and itsPrivate Equity Programme. The Investment Manager and Adviser intend to make further investments under bothRC2's Trading and Private Equity Programmes during 2007. In this respect, in thefirst half of 2007 the Company completed a EUR 3 million investment in aRomanian receivables collection company, as well as a EUR 3 million investmentin one of Romania's leading private medical services providers. New Europe Capital Ltd New Europe Capital SRL CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2006 31-Dec-06 EURInvestment incomeGain on investments at fair valuethrough the profit and loss account 6,852,945Interest income 1,378,959Dividend income 95,175Other income 280,162 ---------Total investment income 8,607,241 ExpensesOperating expenses 1,960,436 ---------Total operating expenses 1,960,436 Profit before taxation 6,646,805Income Tax expense 118,214 ---------Net Profit for the period 6,528,591 --------- Attributable to: - Equity holders of the parent 6,106,568 - Minority interest 422,023 --------- 6,528,591 --------- Basic and diluted earnings per share 0.2092 CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2006 31-Dec-06 Assets EURNon-Current Assets Property, plant and equipment 3,210 Total non-current assets 3,210 Current AssetsFinancial assets at fair value through the profit and loss account 29,268,814 Trade and other receivables 547,498 Cash and cash equivalents 41,404,822 Total current assets 71,221,134 Total Assets 71,224,344 LiabilitiesCurrent LiabilitiesTrade and other payables 665,790 Total Current Liabilities 665,790 Total Net Assets 70,558,554 Capital and reserves attributable to equity holders Share capital 650,394 Share premium reserve 63,280,208 Retained earnings 6,106,568 Total equity and reserves 70,037,170 Minority Interest 521,384 Total Equity 70,558,554 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS OF 31 DECEMBER 2006 Share Share Retained Minority Total Interest Capital Premium Earnings EUR EUR EUR EUR EUR Balance at beginning of period - - - - -Net profit for theperiod and totalrecognised incomefor the period - - 6,528,591 (422,023) 6,106,568Issue of ShareCapital 650,394 63,280,208 - - 63,930,602 ------- -------- -------- ------- --------Balance at 31 Dec2006 650,394 63,280,208 6,528,591 (422,023) 70,037,170 The share premium is stated net of share issue costs of EUR 1,382,694. CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2006 31-Dec-06 EURCash flows from operating activitiesNet Profit before tax 6,646,805Adjustments for:Depreciation 5,307Gain on financial assets at fair value through profit or loss (6,036,097)Gain on foreign exchange (726,504)Interest income (1,378,959)Dividend income (95,175) -----------Net cash out outflow before changes in working capital (1,584,623)Increase in trade and other receivables (487,695)Increase in trade and other payables 494,340Interest received 1,378,959Dividend received 95,175Purchase of financial assets (24,761,107)Proceeds from sale of financial assets 1,526,428 -----------Net cash used in operating activities (23,338,523) Income tax paid (60,762) Cash flows from investing activitiesPurchase of property, plant and equipment (2,345)Acquisition of subsidiary net of cash acquired 149,346 ----------- (23,252,284) Cash flows from financing activitiesProceeds from shares issued 63,930,602 ----------- Gain on foreign exchange 726,504Increase in cash and cash equivalents 41,404,822 This information is provided by RNS The company news service from the London Stock Exchange