RC2.L Regulatory News (RC2)

28 Sep 2007 17:27

Reconstruction Capital II Ltd28 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 orEUR 1.4398 per share, a 49.6% year-on-year increase, the combined result of a596.5% increase in EUR terms of Albalact's share price as well as an overallincrease 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 assetsconsisted 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 theinterim financial statements are not fully compliant with IFRS. 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 had invested approximatelyEUR 18.0 million in listed equities by the end of June 2007, which had a totalmarket value of EUR 33.1 million. Of this, 78.7% was held in Romanian equitieswhile 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 TradingProgramme (+ 84.6%) is significantly better than the overall performance of theRomanian EUR denominated index since RC2 started investing at the end of January2006 (+37.9%). At the end of June 2007, RC2's listed equities portfolio wasdivided amongst companies operating in the following industries: financialservices (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 equityinvestments 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 a33.3% shareholding in the Romar Group, a Romanian private medical servicesbusiness. A 13.4% shareholding in the dairy company Albalact, the firstinvestment made by RC2 under the Private Equity Programme, was valued at EUR15.8 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 inSerbia in the second half of 2007 and are continuing to identify a number ofinteresting 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 forthe 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 theother information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. Our report has been prepared in accordance with the terms of our engagement toassist the company in meeting the requirements of the rules of the London StockExchange for companies trading securities on the Alternative Investment Marketand for no other purpose. No person is entitled to rely on this report unlesssuch a person is a person entitled to rely upon this report by virtue of and forthe purpose of our terms of engagement or has been expressly authorised to do soby our prior written consent. Save as above, we do not accept responsibility forthis report to any other person or for any other purpose and we hereby expresslydisclaim any and all such liability. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the rules of theLondon Stock Exchange for companies trading securities on the AlternativeInvestment Market which require that the half-yearly report be presented andprepared in a form consistent with that which will be adopted in the company'sannual accounts having regard to the accounting standards applicable to suchannual accounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data and based thereon, assessingwhether the accounting policies and presentation have been consistently appliedunless otherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly we do not express an auditopinion on the financial information. Review conclusion The company has a investment that is designated at fair value through the profitand loss account that is stated on the balance sheet at a cost of €3,000,000. Inaccordance with IAS 39, this investment should be stated at fair value. Asdisclosed in note 3, due to the short time scale between the acquisition of theassociate and the date of these interim financial statements, the directors wereunable to obtain full information on the financial position of the investment at30 June 2007. Consequently, the investment has not been accounted for at fairvalue and has been included in the financial statements at cost. On the basis of our review, with the exception of the matter described in thepreceeding paragraph, we are not aware of any material modifications that shouldbe made to the financial information as presented for the six months ended 30June 2007. BDO STOY HAYWARD LLPChartered AccountantsLondon 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 EURInvestment incomeGain/(losses) on investments atfair value through the profitand lossaccount 4 27,376,303 (869,116) 6,852,945Interest income 1,045,858 573,099 1,378,959Dividend income 260,212 - 95,175Other income 127,138 - 280,162 -------- -------- --------Total investment income 28,809,511 (296,017) 8,607,241 ExpensesOperating 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) 6,646,805Income 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 AuditedAssets Notes EUR EUR EURNon-Current AssetsProperty, plant and equipment 53,024 - 3,210Investment in associate at cost 3 3,000,000 -Goodwill 7 1,257,153 - -------- -------- --------Total non-current assets 4,310,177 - 3,210 Current AssetsFinancial assets at fair valuethrough the profit and lossaccount 6 55,428,643 11,472,545 29,268,814Trade and other receivables 1,119,073 113,802 547,498Cash 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 LiabilitiesCurrent LiabilitiesTrade 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 reservesattributable to equity holdersShare capital 650,394 650,393 650,394Share premium reserve 63,280,208 62,959,961 63,280,208Retained 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 sharecapital 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 andtotal recognised income for theperiod - - 7,116,510 422,023 7,538,533Issue of Share Capital 1 320,247 - - 320,248Minority interest arisingon 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 andtotal recognised income for theperiod - - 23,609,302 242,792 23,852,094Minority interest arisingon acquisition 145,915 145,915Dividends - - - (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 EURCash flows from operating activitiesNet Profit / (loss)before tax 24,030,063 (1,009,942) 6,646,805Adjustments for:Depreciation 1,542 - 5,307Gain on financial assets at fair valuethrough 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 beforechanges in working capital (107,441) (366,423) (1,584,623)Increase/ (decrease) intrade and other receivables 1,329,975 (113,802) (487,695)Increase in trade andother payables 3,670,459 1,411,783 494,340Interest received 1,323,755 - 1,378,959Dividend received 263,002 - 95,175Purchase of financial assets (18,456,640) (12,323,712) (24,761,107)Proceeds from sale offinancial assets 13,737,844 207,648 1,526,428 --------- -------- --------Net cash used inoperating activities 1,760,954 (11,184,506) (23,338,523) Income tax paid - - (60,762) Cash flows from investing activitiesPurchase 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 activitiesProceeds from shares issued 63,610,354 63,930,602Dividends paid tominority interest (170,327) - - --------- -------- --------Net cash lows from financing (170,327) 63,610,354 63,930,602 Gain on foreign exchange 1,111,256 - 726,504Increase in cash andcash 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 theCayman Islands as a closed ended company created to invest in private and listedequity and fixed income securities, including convertible and other mezzanineinstruments, primarily in Romania and Bulgaria. The Company was listed on AIM on23 December 2005 and commenced investing activities on 27 January 2006.Thesefinancial statements show the results of the Group for the first six months of2007. The Company intends to generate returns for its Shareholders through two primaryroutes: to achieve medium and long term capital appreciation through theinvestment in and subsequent disposal of significant or controlling stakes incompanies, both listed and private, established and/or operating primarily inRomania and Bulgaria (the Private Equity Programme), and to make portfolioinvestments in listed equities and fixed income securities, includingconvertible and other mezzanine instruments, issued primarily by Romanian andBulgarian 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 FormerYugoslav Republic of Macedonia. It is currently anticipated that in the mediumterm the Company will invest approximately 70 per cent of its assets in Romaniaand approximately 30 per cent of its assets in Bulgaria and neighbouringcountries 2. Basis of Preparation The interim results were approved by the directors on 27 September 2007. Theinterim results have been prepared in accordance with International FinancialReporting standards (IFRS) as adopted for use in the European Union and are notaudited but have been subjected to a limited review by the auditors ofReconstruction Capital II Limited. As permitted, the unaudited interim financialstatements have not been prepared in accordance with IAS 34 "Interim FinancialReporting". 3. Acquisitions On 24 May 2007 Reconstruction Capital II (Cyprus) Ltd, a 100% subsidiary ofReconstruction Capital II Ltd, acquired 92.31 % of Top Factoring, a receivablescollection company, incorporated in Romania. As such the investment isconsolidated 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 careservices in Romania and is the market leader in the provision of occupationalhealth services. It includes the following five operating entities: CentrulMedical Romar (operating 12 clinics and two laboratories in Bucharest), RomarDiagnostic Center (operating 2 clinics), Medimar Diagnostic (operating a clinicin Iasi and a laboratory), Romar Clinic (operating a clinic and laboratory inConstanta) and SGL Management & Consulting (which owns and rents out medicalequipment to Medimar Diagnostic and Romar Clinic). Due to the short time scale between the acquisition and the date the interimFinancial Statements were prepared the Company was unable to include fullinformation on the financial position of Romar as at 30 June 2007. Consequently,the investment has been included in the Financial Statements at cost instead ofat 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 EURRealised investment income 4,181,028 14,719 90,344Unrealised gain on investments 21,441,033 (870,062) 6,036,097Realised 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 1,179,403Performance fee accrual 3,648,019 - 267,716Administration fees 49,575 32,922 72,637Custodian fees 56,608 41,537 111,584Audit fees 19,726 20,712 40,877Directors' fees 61,643 51,781 123,150Other 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 EURInvestments at fair value through profit and lossListed equity securities 48,883,671 11,472,545 23,421,490Listed debt securities 6,544,972 - 5,847,324 --------- -------- --------Total investments at fair valuethrough 55,428,643 11,472,545 29,268,814profit or loss 30-Jun-07 30-Jun-06 30-Jun-06 Unaudited Unaudited Audited EUR EUR EUR Cost 27,205,050 12,116,064 23,232,717Unrealised 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 thevoting shares in Top Factoring SRL, for a total cash consideration of EUR3,000,273. As a result, goodwill of EUR 1,257,153 has arisen. The Company'sprincipal activity is receivables collection. Details of the provisional fair value of the net assets acquired, purchaseconsideration and goodwill are as follows: Provisional fair values at acquisition EUR Property, plant and equipment 26,568Trade and other receivables 1,901,546Cash 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 ofthe group. 8. Net Asset Value 30-Jun-07 30-Jun-06 31-Dec-06 Unaudited Unaudited Audited EUR EUR EUR Net Assets (excluding minorityinterest) 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 ofEUR 23,736,361 and using the weighted average number of ordinary shares in issueduring the period of 65,039,425. 30-Jun-07 30-Jun-06 31-Dec-06 Unaudited Unaudited Audited EUR EUR EURNumeratorProfit 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 --------- -------- --------DenominatorWeighted average number of sharesused in basic and diluted EPS 65,039,425 31,455,354 29,195,002 --------- -------- --------EPS 0.3667 (0.0321) 0.2092 This information is provided by RNS The company news service from the London Stock Exchange