RC2.L Regulatory News (RC2)

ADVISER'S REPORT

For the six months ended 30 June 2020

On 30 June 2020, Reconstruction Capital II Limited ("RC2") had a total unaudited net asset value ("NAV") of

€19.5m or €0.1428 per share, which represents a 1.52% fall since the beginning of the year.

The Romanian and Bulgarian governments took timely measures to contain the spread of COVID-19 when the numbers of cases and fatalities were still relatively low compared to Western Europe. Although these measures, which were stricter in Romania, seemed to have suppressed the pandemic, once the restrictions in both countries were gradually lifted in mid-May, the number of cases has been rising to worrying levels with Romania and Bulgaria posting two of the highest rates of new cases in South-East Europe. At the end of July, Romania and Bulgaria were reporting 100 and 70 COVID-19 active cases per 100,000 inhabitants, respectively, compared to 22 and 19 active cases at the end of May.

The Policolor Group's January-June 2020 sales results were up 3.4% year-on-year at € 31.2m, albeit 13.9% below budget. Sales of coatings were badly affected by the COVID-19 pandemic and related lockdown restrictions during April, but sales of both coatings and resins have since recovered, making up some of the lost ground. Over the first half of 2020, the Policolor Group generated a recurring EBITDA (excluding revenues and expenses allocated to the real estate division) of € 2m, in line with the budget, helped by production efficiencies and operating cost savings.

Both Mamaia and Telecredit's operations have been badly affected by the COVID-19 pandemic, and both management teams have prepared revised budgets to reflect the estimated impact of the pandemic on their respective businesses this year.

Following the finalization of the second phase of the renovation works on its public areas, and due to the Romanian authorities re-allowing open air restaurants to operate, the Mamaia hotel re-opened at the beginning of June. However, it is still not allowed to use its indoor restaurants, and is forced to restrict its food and beverage service to its outdoor terrace, where social distancing rules limit the number of customers. Management's revised 2020 budget for the Hotel envisages total revenues of € 2.0m instead of an originally planned € 3.2m, and a net loss of € -0.24m instead of an original estimated net profit of € 0.18m. In April, RC2 provided a € 0.3m loan to the Hotel to help finalize its planned renovation works. The loan was fully drawn by the end of May.

Telecredit deployed € 3.7m in financing products to small and medium sized enterprises in the first semester, generating an Operating Loss before Depreciation of € 0.2m due to increased provisions expenses, reflecting the difficulties small and medium-sized companies are currently facing due to the pandemic. The revised 2020 budget prepared by management anticipates a net loss of € 0.39m compared to an original estimated net profit of € 0.06m, due to lower financing volumes generating lower interest revenues (€ 0.8m as opposed to an initial

€ 1m) and significantly higher provisions on SME lending (€ 0.2m as opposed to an initial € 0.1m). The company reimbursed €0.3m of the €1.5m loan RC2 provided to Telecredit in the second half of 2019.

As at 30 June 2020, RC2 had cash and cash equivalents of approximately €10,000 while its subsidiary, RC2 (Cyprus) Ltd, had cash and cash equivalents of €68,000. Additionally, RC2 (Cyprus) Ltd had loan receivables from Telecredit and Mamaia Resort Hotels of € 1.5m. As at 30 June 2020, RC2 had sundry liabilities of

€137,000.

New Europe Capital SRL

Investment Income

30 June 2020

EUR

Unaudited

30 June 2019

EUR

Unaudited

30 December 2019

EUR

Audited

Fair value loss on financial assets at fair value through profit or loss

(2,113,199)

(2,162,241)

(14,482,512)

Interest Income

2,131,097

2,151,033

4,319,475

Net Investment profit/loss

17,898

(11,208)

(10,163,037)

Expenses

Operating expenses

(315,688)

(443,456)

(845,572)

Financial income

-

255

255

Total expenses

(315,688)

(443,201)

(845,317)

Loss for the period/year

(297,790)

(454,409)

(11,008,354)

Other comprehensive income

-

-

-

Total comprehensive loss for the period/year attributable to owners

(297,790)

(454,409)

(11,008,354)

Earnings Per Share attributable to the owners of the Company

Basic and diluted earnings per share

(0.0022)

(0.0033)

(0.0806)

30 June

2020

EUR

30 June

2019

EUR

31 December

2019

EUR

Unaudited

Unaudited

Audited

ASSETS

Non-current assets

Financial assets at fair value through profit or loss

19,509,494

30,293,424

19,651,596

Total non-current assets

19,509,494

30,293,424

19,651,596

Current assets

Trade and other receivables

13,585

14,299

16,673

Cash and cash equivalents

10,200

100,964

65,887

Total current assets

23,785

115,263

82,560

TOTAL ASSETS

19,533,279

30,408,687

19,734,156

LIABILITIES

Current liabilities

Trade and other payables

134,275

109,949

37,362

TOTAL LIABILITIES

134,275

109,949

37,362

NET ASSETS

19,399,004

30,298,738

19,696,794

EQUITY ATTRIBUTABLE TO OWNERS

Share capital

1,358,569

1,362,569

1,358,569

Share premium

109,206,779

109,250,778

109,206,779

Accumulated deficit

(91,166,344)

(80,314,609)

(90,868,554)

TOTAL EQUITY

19,399,004

30,298,738

19,696,794

Net Asset Value per share

Basic and diluted net asset value per share

0.1428

0.2224

0.1450

STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2020

Retained

Share

(deficit)/

Share capital premium EUR EUR

earnings EUR

Total EUR

Balance at 1 January 2019 1,403,324 109,862,098

(79,860,200)

31,405,222

Loss for the period - -

Other comprehensive income - -

(454,409)

-

(454,409)

-

Total comprehensive loss for the period - -

(454,409)

(454,409)

Repurchase and cancellation of own shares (40,755) (611,320)

-

(652,075)

Transactions with owners (40,755) (611,320)

-

(652,075)

Balance at 30 June 2019 1,362,569 109,250,778

(80,314,609)

30,298,738

Loss for the period - -

Other comprehensive income - -

(10,553,945)

-

(10,553,945)

-

Total comprehensive loss for the period - -

(10,553,945)

(10,553,945)

Repurchase and cancellation of own shares (4,000) (44,000)

-

(48,000)

Transactions with owners (4,000) (44,000)

-

(48,000)

Balance at 31 December 2019 1,358,569 109,206,779

(90,868,554)

19,696,794

Loss for the period - -

Other comprehensive income - -

(297,790)

-

(297,790)

-

Total comprehensive loss for the period - -

(297,790)

(297,790)

Repurchase and cancellation of own shares - -

-

-

Transactions with owners - -

-

-

Balance at 30 June 2020 1,358,569 109,206,779

(91,166,344)

19,399,004

30 June

2020

EUR

30 June

2019

EUR

31 December

2019

EUR

Unaudited

Unaudited

Audited

Cash flows from operating activities

Loss before taxation

(297,790)

(454,409)

(11,008,354)

Adjustments for:

Fair value loss on financial assets at fair value

through profit or loss

2,113,199

2,162,241

14,482,512

Interest income

(2,131,097)

(2,151,033)

(4,319,475)

Net gain on foreign exchange

-

(255)

(255)

Net cash outflow before changes in working capital

(315,688)

(443,456)

(845,572)

Decrease in trade and other receivables

3,088

6,712

4,338

Increase/(decrease) in trade and other payables

96,913

14,348

(58,233)

Purchase of financial assets

-

(133,602)

(133,603)

Disposals and repayments of financial assets

160,000

310,000

800,000

Net cash used in operating activities

(55,687)

(245,998)

(233,070)

Cash flows from financing activities

Payments to purchase own shares

-

(1,000,657)

(1,048,662)

Redemptions of B shares

-

(132,941)

(132,941)

Net cash flow used in financing activities

-

(1,133,598)

(1,181,603)

Net decrease in cash and cash equivalents before currency adjustment

(55,687)

(1,379,596)

(1,414,673)

Effects of exchange rate differences on cash and

cash equivalents

-

255

255

Net decrease in cash and cash equivalents after currency adjustment

(55,687)

(1,379,341)

(1,414,418)

Cash and cash equivalents at the beginning of the

period/year

65,887

1,480,305

1,480,305

Cash and cash equivalents at the end of the period/year

10,200

100,964

65,887