OGMS April 2016 Activity Report 2016 / Budget 2016 - SIF M. Activity program 2016...OGMS April 2016...

OGMS April 2016 – Activity Report 2016 / Budget 2016

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1. MACROECONOMIC VIEW

In developed countries (SUA, Euro area) economic increase consolidated, supported by a

gradual revival of internal demand, which emerging economies decelerated based on

decrease of raw materials price, slowing down of economic growth in China, interest rate

increase expectations in the USA and (geo)politic conflicts (ex. Ukraine-Russia, Middle

East).

For year 2016, FMI is expecting a continuation of global economic increase improvement,

due to the acceleration of the growth rate in the euro area, and stabilization of emerging

economies (based on the return of economic growth in Brazil and Russia, after the 2015

severe contraction).

The economy of the Euro zone will be supported by the monetary policy of CEB, the

reduction of fiscal austerity, the low petrol price and weak euro. In the USA, Fed will

continue the process of gradually normalizing the monetary policy started in December

2015, in the context of maintaining a steady economic growth rhythm.

In China, rebalancing the economy from the investment area towards the

services/consumption area could generate volatility both on the macroeconomic level and

on the level of financial markets.

FMI forecast regarding GDI, interest rate, petrol price (World economic outlook 0ct.2015):

OGMS

April 25/26

Item 7

A. 2016 ACTIVITY PROGRAM

Approval of the Activity Program and

of the 2016 Budget


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The main risks for 2016 refer to: (a) deterioration of geopolitical tensions, (b) deterioration

of economic indicators in China, and (c) a rapid increase of interest rate towards Fed.

In USA economic increase in 2016 will be supported by consumption, stimulated by a low

price of petrol and the consolidation of the employment market which will cause an

acceleration of wage dynamics.

ROMANIA

In 2015 GDI increase was supported by internal consumption and exports of goods and

services. Romania’s economic increase has been supported by all activity sectors: industry,

services and constructions.

The low unemployment rate and increase of wages lead to an accelerated increase of private

consumption, the main determinant of GDI increase in 2014 and 2015. Private consumption

is estimated to remain the main economic growth generator, supported by VAT reduction,

increase of wages in the public sector and increase of minimum wage.

In year 2015, following the low level of recent years, investments have shown signs of revival.

The low interest rates and favourable fiscal conditions are support factors for this purpose.

The interest rate for lei and currency credits have reached historic minimum values,

supporting the population and companies in debt and stimulating crediting revival.

According to Country Report “Romania 2015” of the European Commission, economic

increase will remain strong in 2016 due to internal consumption and the stabilization of the

labour market. From the end of the crisis, Romania’s GDI has been supported by the gradual

come-back of internal demand and exports. Consumption is encouraged by expectations

regarding wage increase, the reduction of VAT in June 2015 and January 2016, a more

favourable perspective of the labour market and low inflation. Private investments are

expected to continue, supported by low crediting costs, exemption of invested profit tax, the

perspectives of economic growth. Exports are expected to continue growing in 2016, but at

a slower pace, while imports will grow based on the increase of internal demand.

National Forecast Committee: GDP estimation for 2016 is 746.6 billion RON, the

increase being of 4.1% in comparison to year 2015.

Specifications Total Industry Agriculture Construction Services

GDI increase [%] 4,1 5,2 3,0 5,5 3,3


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World Bank: GDI increase of 3,9% (Global Economic Prospects January 2016)

International Monetary Fund: GDI increase of 3.9% (World Economic Outlook Oct.

2015) estimates for 2016 an economic increase of 4%.

European Committee: Increase 4,1% (Autumn 2015 forecasts)

Var.%

(billion RON) Current prices %GDP 2012 2013 2014 2015 2016 2017

GDI 666.6 100 0.6 3.5 2.8 3.5 4.1 3.6

Private consumption 418.1 62.7 1.2 0.7 6.2 4.3 6.7 4.4

Public consumption 94.5 14.2 0.4 -4.6 5.0 1.9 2.9 2.8

Imports (goods and services) 273.6 41.0 -1.8 8.8 7.4 8.1 8.3 7.5

Exports (goods and services) 274.2 39.7 1.0 19.7 8.1 6.2 5.0 5.6

Unemployment rate 6.8 7.1 6.8 6.7 6.6 6.5

Governmental debt 37.4 38.0 39.9 39.4 40.9 42.8

European Commission estimate a decrease of exports in 2016 that will be exceeded by

imports. Exports decrease will be caused by persistent economic problems in the Euro zone

and increase of internal consumption.

For year 2016 we expect that the high volatility of the share markets will continue under the

condition of the intensification of risk factors: (A) slowing down of Chinese economy

development; (b) accelerated increase of interest rates in the USA; (c) refugee crisis and

geopolitical tensions in the Middle East, (d) continuation of petrol price decrease and

amplification of deflationist pressures.

On European level, we expect that the European share markets register a better performance

than that of the American ones in 2016. Profit margins in the USA are bordering historic

maximum levels while in Europe companies’ profits are just at the beginning of the increase

cycle. Under these circumstances, European shares seem to be more attractive than the

American, on average term.

There are premises that the Romanian capital market will be supported by internal demands

and the low interest environment. The perspective of important listings in 2016 is relatively

low, the exception being Hidroelectrica, which is still in insolvency.

The utilities sectors continues to offer high yields on dividend, but the short-term

perspectives of companies in the petrol and gas sectors is negatively influenced by the

decrease of law materials price.

Forecasts of the National Forecast Committee regarding the evolution of the main BVB

indexes:

(points) 2015 2016 VaR% 2017 VaR%

BET index 7,453 8,021 8 8,681 8

BET –FI index 31,020 31,994 3 32,881 3

BET –XT index 669 691 3 712 3

BET-NG index 675 689 2 726 5

2. “KEY” ELEMENTS OF 2016 ACTIVITY PROGRAM

« Key» elements in the multiannual Investment Strategy presented and approved by the

General Meetings in years 2013 -2015, based on an assignment of resources to insure the


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sustainable development of SIF Moldova activity and satisfaction of shareholders’ interests

both on the short and on the long term.

The solid /sustained investment policy is based on the long term increase of managed

assets value, a basic elements for the consolidation of investors’ trust.

Capital operations (continuation of the share buyback program within the maximum

limit of 1% of share capital for the benefits plans for the purpose of engaging the

management and employees in the increase of efficiency of the management act and in

agreement with legal AFIA/FIA regulations)

Predictable dividend policy which remunerates invested capital at a rate that is higher

to yields offered by monetary investments, is meant to satisfy the short-term interests of

shareholders. At the same time, the existence of low yields on the monetary market

favours investments, an essential element in the development of an economic growth

trend.

If 2015 was the year in which investment policies extended in the private equity area, 2016

will be under the sign of continuity, both from the perspective of the development of initiated

projects and from the perspective of new projects identifications.

Strategies defined for assets portfolio :

increase for the Majority Holdings portfolio – “private equity” type approach from

existent majority holdings (real estate, agriculture, hotel)

Recalibration for CORE portfolio – listed portfolio that offers liquidity to SIF Moldova,

being the main income and source generator for new investments.

Restructure for the SELL portfolio – continuation of the restructure/sale of the “historic”

share portfolio.

Portfolio percentage in total assets value

Assets structure and investment policy

In 2016, the managers’ strategy provides for the management of resources assets for the

purpose of obtaining average and long term income, managed by specialized structures.

Investment opportunities are selected depending on their long-term increase potential of

the assets value and implicitly of the activity sector, in parallel with the implementation of a

strict control of potential risks.

Investment activity is carried out abiding by the prudential and legal exposure limits,

according to macroeconomic trends.

CORE68.99%Majority

Holdings 11.73%

SELL8,007%

Other assets11,268%

End of 2015


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In 2016 as well, private equity investments will target the real-estate, hotel and agriculture

sectors, given the average and long-term increase potential of these sectors. in the real estate

sector we will approach the residential development of some key properties in SIF Moldova

portfolio. Extension/consolidation opportunities both in the hotel and agricultural field will

be analysed, targeting professional management under high profitability conditions and sale

at higher prices.

The exposure on the energy and utilities sector will be maintained as these can provide

constant and predictable liquidities.

The financial-banking sector, which in 2015 has indicated real stabilization through the

restart of crediting, remains in the attention of SIF Moldova that has already assigned

important resources in a solid bank, under continuous development after the absorption of

another bank and the acquirement of performing assets held by a bank in difficulty.

The restructure process for SIF Moldova Group will continue in 2016 for the purpose of

raising the efficiency of the activity, through new approaches, that would lead to the

improvement of the financial performance of the managed projects portfolio.

2.1. Majority Holdings Portfolio (MH)

SIF Moldova set itself, through the 2014-

2018 Strategy, to make investments with

a “private equity” approach in sectors with

increase potential, on which investors

(especially the international one) cannot

easily invest, selected so as to generate a

long-time NAV yield.

The development of this portfolio aims to abide by the following set of conditions:

abidance by the prudential limits of the investment policy, as defined by specific

regulations

notification of shareholders through statements according to the principles taken on

through SIF Moldova Group’s corporate governance.

Investment strategy will focus on business with average and long-term demand and

professional managers, low risk/reward ratio, financial support of on-going projects.

Investment will insure value generation through attractive yields, in comparison to other

investment options.

The condition to accept an investment is that the internal return rate (IRR) be above

the financing cost of the investment to be made (WACC). In year 2015 we invested in projects

with IRR between 15.1 and 32%, above the minimum target imposed by the strategy of 15%.

Our investment efforts in 2016 will also focus on reaching a target IRR of at least 15%.

Risk analysis also includes the project sensitivity analysis. The sensitivity analysis set

determines the way in which performance indicators are evolving (e.g. IRR) depending on

5.59%

11.73%

2014 2015

MH Portfolio Evolution(% in total asset value)


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the variation of specific indicators. To improve IRR we went for a mixture of resources

including credits and share contributions. We intend to continue this approach in 2016 as

well.

2016 Investment Budget will be assigned on the main 2 Portfolios (“Majority

Holding” and “Core”) with the possibility of adjustment, depending on the

opportunities offered by the market.

The yield/risk benchmarks of each investment will be careful monitored through internal

procedural structures.

Real estate sector

The investment project of the sector involves the building and operation in association of

Veranda Mall Center in Bucharest, Obor-Colentina area (Real Estate). The investment is one

from the proximity malls category, located in a highly populated area with good commercial

traffic.

According to Eurostat report on 3rd February 2016, in Romania, in December of 2015, retail

volume increase with 14.3% in comparison to December 2014, this being the largest increase

in the EU. The average increase on the EU level was of 2% for the analysed period.

For year 2016 we are focusing mainly on the development of a residential project in

Bucharest, including 6 apartment Blocks: "Baba Novac Residence" through a company from

SIF Moldova Group. We consider that the come-back of the market has already been mainly

achieved, and along with the constant demand for average price and average size apartments

qualify this sector for investment.

In order to implement this residential project SIF Moldova has subscribed in January 2016

the amount of 4.950.000 RON, the paid up amount being of 1.534.500 RON. The amounts

will finance the preliminary operations within the investment project, namely the drawing

up of a feasibility study, the market study drawn up by a real estate consultant, contracting

of works/operations, approvals, demolition and technical execution project.

According to Eurostat report published in 20th January 2016, House prices index increased

by 3.1% in the EU in the 3rd quarter of 2015 in comparison to the 3rd quarter 2014. In

Romania, this indicator increased by 3% in the analysed period.

Hotel sector

Research mainly focused on Romanian hotel market, namely on areas located in mountain

resort with important tourist traffic or financial and business centres. In 2015 SIF Moldova

has subscribed to the increase of the share capital of Opportunity Capital SA the amount of

19.476.248 RON of which it paid 15.471.248 RON, for the purpose of financing an

investment in the hotel sector of Cluj.

The tourism sector has increase potential in the following years in the context of the

economic increase and increase of population’s income.


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In a report published Eurostat on 26.01.2016 it is shown that Romania has the largest

number of tourist night accommodations in 2015 of 15.9% from the EU (average increase in

the EU has been of 3.2%). In 2016 we will continue to develop the projects implemented in

2015 (investments for upgrading/extension, etc.).

Agricultural sector

Research objective is the selection of projects from the agricultural field that would lead to

the achievement of return and capital consolidation indicators. The purchase of a blueberry

farm by Agrointens Company, targeted the generation of income through specialized,

professional management and the later sale at higher prices.

The advantages of blueberry culture are based on the long exploitation period (40 to 50

years), high tolerance to diseases and pests, rising external demand, as well as high

production yield. The investment in the intensive blueberry culture was based on the average

and long-term valuation potential of this type of culture. In 2015 SIF Moldova has

participated to the increase of the share capital of Agribusiness Capital with the amount of

10.453.259 RON. The results of the 2015 harvesting campaign have confirmed financial

forecasts (income achieved on 30.09.2015: 3.083.367 lei namely a net profit of 1.182.717

lei). Agrointens management estimates reaching a EBITDA of 3 million RON in 3 years,

namely reaching an annual yield of 30%. Development and extension projects of agricultural

cultures are analysed.

The management of the Majority Holdings Portfolio is carried out through:

a) the promotion of efficient management teams, with proven experience, able to

implement and develop the projects approved.

b) negotiation of some competitive performance criteria, with the management teams.

c) permanent analysis of performance and development measures for the activity

promoted by the management teams.

d) budget analysis and verification; analysis and verification of forecast costs and

income in agreement with the business plans

e) investment processes monitoring

2.2 CORE Portfolio

(Weight in total assets value)

The evolution of Banca Transilvania (TLV) share has confirmed the estimations /

expectations of SIF Moldova, the issuer significantly contributing to the increase of net

assets. For the purpose of abiding by legal and prudential limits, SIF Moldova has

implemented an internal mechanism for the management of exposure subject to title quote

TLV39.33%

BIO2.45%

FP3.21%

SNP4.04%

SIF41.93%

SIF53.15%

SNG1.67%

TGN4.80%

TEL1.92%

Other Core Securities

2.52%

Other assets31.005%

ARS3.96%

“CORE” Portfolio

December 2015


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fluctuation. During the crisis, LTV has been the most dynamic large bank, gaining 5

percentage points at its market quote in comparison to 2008, from 5.4% to over 10%, being

less affected by risk costs, than its competitors.

Banca Transilvania (TLV) exposure will maintain in 2016, due to the share increase

potential, based on the development ability and high specific indicators.

(weight in total assets value)

The energetic-utilities sector, the main generator of dividends has a total asset weight on

31.12.2015 of 16.80% (31.12.2014: 27.55%). The decrease of sector weight has been mainly

determined by the decrease of SNP quotation, as an effect of the reduction of oil price and

profit market on FP issuer.

The constant and consistent dividend flux of the sector is an anchor of SIF Moldova financial

strategy. Therefore, we aim to maintain the exposure in the energetic sector, in case

fundamental indicators remain attractive.

The share sale/listing programs of the companies from the energy sector run by the

Romanian state or Fondul Proprietatea will be analysed for the purpose of capitalizing

investment opportunities. These participations, along with Banca Transilvania holdings,

represent the solid core of the portfolio, able to support the performance of net assets from

the increase of quotations and dividends.

(Weight in total assets)

TLV39.33%

BRD0.27%

BVB0.67%

EXIM0.22%

SIF41.93%

SIF53.15%

SIF30.84%

Other Securities0.32

Other Sectors42.008%

Other assets11.25%

OTHER ASSETS11.25%

COTE0.55%

FP3.21%

SNP4.04%

SNG1.67%

TGN4.81%

TEL1.92%

Other Securities0.60%

OTHER SECTORS71.95%

Financial sector

exposure - Dec 2015

Energy sector

exposure - Dec 2015


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2.3 “SELL” PORTFOLIO

The weight of SELL portfolio decreased in 2015 from 8.46% to 8.007%.

(Weight in total assets)

In case of SELL portfolio comprised of illiquid companies, which have exhausted their

increase potential, we aim, according to possibilities, to sell the participations or transfer

them to Asset Invest SA Company (SIF Moldova holding 100%).

The sale of the companies in SELL Portfolio is advisable even if accounting losses are

registered, if a liquidities surplus can be obtained for the investment program and

management costs are reduced.

3 2016 Investment Budget Forecast

2016 Activity program will abide by the implementation principles in previous years,

regarding:

the management of the 3 defined portfolios (MH, CORE and SELL),

continuation of the development strategy for the majority holdings

capitalization of the CORE and SELL participations, depending on the market

opportunities and resource needs

abidance by legal conditions, namely:

20% limit applicable to assets lest debts based on IFRS;

20% limit of total assets of the closed company;

The management of liquidities plays an important role in achieving an optimum structure

to insure the capitalization of investment opportunities, payment of dividends to the

shareholders, resources necessary for the company to carry out its activity.

4 Dividend policy

The dividends that SIF Moldova has offered in recent years have largely exceeded the yields

offered by bank deposits, which are on a descending trend, due to the monetary relaxation

policy adopted by RNB.

Therefore, in the context of the capital market volatility, the Board of Directors aims to find

an optimum balance between the need to insure the resources for the support of investment

projects to be developed in 2016, the short-term expectations of shareholders, namely the

distribution of dividends, and the long-term expectations, that is NAV increase and

implicitly increase of the price.


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2016 ACTIVITY PROGRAM OBJECTIVES

INVESTMENT PROGRAM 247 million lei

NET PROFIT 95 million lei

The size of the investment program will comply with the limits provided by law (art. 241

paragraph (1) of Law 297/2004, art. 188 of Regulation 15/2004)

The company’s functioning based on the principle of activity continuity, harmonization of

short-term and long-term objectives, in the context of the internal and external market, have

led to the foundation of the 2016 Revenues and Expenditures Budget start from the analysis

of budgetary execution up to 31.12.2015, through the approach of main work hypothesis,

such as:

achievement of the objectives set through the activity program;

influence of the application of IFRS accounting base;

elimination of events for which repeatability is not certain in 2016;

anticipated taxes and levies are calculated according to fiscal regulation, on the date

the budget is drawn up;

No influences for which no certain anticipatory information exist, have been

estimated;

the principle of concordance with the staff policy – in order to determine the

motivation and adhesion to the strategic objectives targeted;

the influence of value adjustments/provisions has not been forecast, given the low

predictability degree;

influence of the value adjustments/ provisions is to be presented and analysed at the

end of the financial year.

Total revenue proposed to be achieved in 2016 – have the following basic assumption:

income from financial assets

estimation of a net profit distribution rate as dividends, by the company

where SIF Moldova has holdings. The estimated dividends are presented

at gross value.

interest income

the forecast evolution of 2016 cash flows and forecast interest rates have

been taken into account. Estimates may substantially differ depending on

the evolution of the money market and the investment demand, linked to

the evolution of the capital markets.

income from disposed financial investments

forecasts targeted titles that can be sold in the context of reaching the

restructure objectives of the portfolio and evolution of the capital market.

current activities revenues– consisting mainly of :

estimated income from the lease of real property ;

income from the reversal of provisions for benefit plan participation,

distributed.

B. 2016 REVENUES AND EXPENDITURES BUDGET


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revenue from provisions – cannot be accurately estimated since the debts they

refer to (AVAS and unpaid dividends) are in litigation.

The total expenditure, budgeted to be achieved in 2016 - has the following basic

assumptions:

expenses from disposed financial investments - represent the equivalent

costs of sold securities, calculated based on the average weighted cost method;

other financial expenses - represent the equivalent of transactions

commissions, bank services expenses;

provision expenses - cannot be estimated in advance, as the evaluation of

receivables and short-term financial investments are recording during the financial

year;

current activity expenses - with the following structure:

expense with the allowance based on management and administration

contracts –have been calculated based on the provisions of the contracts

entered for the entire mandate (2013-2017) and the proposals for the

amendment of the Articles of Incorporation regarding the remuneration

limitations for managers and directors.

staff expenses - the estimation of the wage bill for 2016 has been based on the

tariff wages according to the function roll valid on 01.01.2015 and the forecast

influences of the reorganisation process, according to AFIA legislation

provisions.

Expenses with staff and managers regarding the participation to the profit

achieved in 2015 – does not influence the net profit achieved in 2016 as these

are reversed to income at the time of the payment;

Expenses with the participation to the benefit plan reduce in 2016 in

comparison to 2015 by about 25%;

expenses regarding external supply - consist mainly in expenses regarding

commissions and fees: the commission paid to ASF, Depository Company,

Shareholders’ Register, BVB, audit of financial records and audit of the IT

system.

expenses with tangible and intangible assets depreciation.

provisions for the establishment of 2016 benefits plan participation – for

employees are set according to the clauses of management and administration

contracts approved by the General Meetings on 05.04.2013 and 10.02.2015.

The level of these expenses will be influenced by the forecast performance

indicators achieved in 2016, and will be approved by the General Meeting of

Shareholders on 2017.


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2016 Revenues and Expenditures Budget

Forecast for

2015 Achieved in RAS 2015

Difference IFRS approach

Achieved IFRS 2015

Forecast 2016

% %

1 2 4 5 7 8=5/1 9=7/1

A. Total revenues 267,391,131 304,623,585 -15,288,045 289,335,540 308,870,112 108 116

B. Financial revenues 235,022,422 258,358,229 6,431,728 264,789,957 300,693,966 113 128

- revenue from financial investment (dividends)

25,000,000 24,118,972 3,594,902 27,713,874 114,462,462 111 458

- revenue from receivables (banking interest + bonus)

1,000,000 1,563,181 0 1,563,181 975,000 156 98

- revenues from ceded financial investments

208,522,422 212,613,118 2,520,778 215,133,896 182,409,517 103 87

- revenues from exchange rate differences

0 42,131 0 42,131 0 - -

- revenue from provisions 0 2,152,178 (29,172) 2,123,006 0

- other financial revenue 500,000 17,868,649 345,220 18,213,869 2,846,987 3643 569

C. Revenues from current operations

32,368,709 46,265,356 (21,719,773) 24,545,583 8,176,146 76 25

- revenue from rents and similar

744,000 783,996 0 783,996 800,000 105 108

- revenue from provisions 9,824,709 10,190,153 0 10,190,153 7,376,146 104 75

- other revenue from current activity

21,800,000 35,291,207 (21,719,773) 13,571,434 0 62 -

D. Total expenses 135,513,895 168,130,300 (1,330,748) 166,799,552 207,707,655 123 153

E. Financial expenses 92,699,969 130,745,094 (320,469) 130,424,625 166,331,797 141 179

- expenses from ceded financial investments

91,549,969 95,922,393 0 95,922,393 165,801,797 105 181

- expenses related to commissions for transactions

800,000 458,768 0 458,768 500,000 57 63

- expenses from exchange rate differences

0 69,600 0 69,600 0 - -

- expenses with banking services

50,000 28,559 0 28,559 30,000 57 60

- expenses with provisions

0 14,939,930 (320,469) 14,619,461 0 - -

- Other financial expenses

300,000 19,325,844 0 19,325,844 0 6442 -

F. Expenses from current activities

42,813,926 37,385,206 (1,010,280) 36,374,926 41,375,858 85 97

G. Gross profit 131,877,236 136,493,285 (13,957,297) 122,535,988 101,162,457 93 77

H. Net profit 111,092,385 115,366,494 (15,026,167) 100,340,327 95,439,334 90 86

***

Draft decisions

Approves the 2016 Activity Report, in agreement with the 2014-2018 Investment Policy

Statement (OGMS Decision no. 8/15.04.2014), and with the mandate awarded to the Board of

Directors for the drafting of 2016 Activity Program, based on the benchmarks presented in EGMS

on 13.01.2016 (EGMS decision no. 6, 7/13.01.2016).

Approves the 2016 Revenue and Expenditures Budget

total revenue 308.870.112 RON

total expenditures 207.707.655 RON

gross profit 101.162.457 RON

net profit 95.439.334 RON

President CEO

Costel Ceocea, PhD Internal Control

Michaela Puscas

OGMS April 2016 Activity Report 2016 / Budget 2016 - SIF M. Activity program 2016...OGMS April 2016...

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