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OGMS April 2016 – Activity Report 2016 / Budget 2016
1
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
OGMS April 2016 – Activity Report 2016 / Budget 2016
2
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
OGMS April 2016 – Activity Report 2016 / Budget 2016
3
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
OGMS April 2016 – Activity Report 2016 / Budget 2016
4
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
OGMS April 2016 – Activity Report 2016 / Budget 2016
5
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)
OGMS April 2016 – Activity Report 2016 / Budget 2016
6
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.
OGMS April 2016 – Activity Report 2016 / Budget 2016
7
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
OGMS April 2016 – Activity Report 2016 / Budget 2016
8
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
OGMS April 2016 – Activity Report 2016 / Budget 2016
9
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.
OGMS April 2016 – Activity Report 2016 / Budget 2016
10
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
OGMS April 2016 – Activity Report 2016 / Budget 2016
11
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.
OGMS April 2016 – Activity Report 2016 / Budget 2016
12
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