SOCIETATEA DE INVESTITII FINANCIARE MUNTENIA SA ADMINISTRATOR S REPORT FOR FINANCIAL YEAR Report prepared by Societatea de Administrare a Investițiilor Muntenia Invest S.A. pursuant to the provisions of Law no. 297/2004, National Securities Commission Regulation no. 1/2006
TABLE OF CONTENTS 1 SUMMARY OF FINANCIAL POSITION...5 2 ACHIEVEMENT OF STRATEGIC OBJECTIVES...6 3 PORTFOLIO MANAGED...9 3.1 EVOLUTION OF THE TOTAL ASSETS VALUE AND THE NET ASSET VALUE... 9 3.2 PORTFOLIO MACROSTRUCTURE... 12 3.3 PORTFOLIO RESTRUCTURING INVESTMENT POLICY... 14 3.4 PORTFOLIO YIELD... 15 4 SHARES SUB-PORTOFOLIO... 16 4.1 SHARES SUB-PORTFOLIO VALUE EVOLUTION ACCORDING TO NSC/FSA REGULATIONS... 16 4.2 SHARES SUB-PORTFOLIO ACCORDING TO THE SIZE OF STAKES OWNED... 21 4.3 LARGEST STAKES MANAGEMENT... 22 4.4 INVESTMENTS, DEINVESTMENTS, OTHER RELEVANT INFORMATION... 27 5 BONDS SUB-PORTFOLIO... 32 6 HIGH LIQUIDITY DEGREE ASSETS PORTFOLIO... 33 6.1 BANK DEPOSITS... 35 7 RISK MANAGEMENT... 36 7.1 LIMITABLE APPLICABLE RISKS... 37 7.2 UNCONTROLLABLE RISKS... 39 7.3 MAINTAINING PORTFOLIO ASSETS CATEGORIES WITHIN THE LEGAL HOLDING LIMITS (NSC REGULATION NO. 15/2004, ART. 188)... 40 8 LEGAL PROCEEDINGS - PORTOFOLIO... 43 9 SIF MUNTENIA SHARES. RELATIONSHIP WITH THE SHAREHOLDERS... 45 1
9.1 INVESTORS INFORMATION... 47 9.2 CORPORATE GOVERNANCE... 47 9.3 SHAREHOLDING STRUCTURE... 48 9.4 SHAREHOLDERS GENERAL MEETINGS... 48 9.5 TRADING OF SHARES ISSUED BY SIF MUNTENIA... 49 9.6 DIVIDENDS... 51 10 FINANCIAL ACCOUNTING STATEMENTS... 52 10.1 SITUATION OF ASSETS, LIABILITIES AND EQUITY... 54 10.2 PROFIT AND LOSS ACCOUNT... 55 10.3 CASH FLOW... 56 10.4 REVENUES AND EXPENSES BUDGET EXECUTION... 57 10.5 INDICATORS... 58 10.6 PROFIT DISTRIBUTION. PROPOSED DIVIDENDS... 59 11 MMANAGEMENT OF THE ADMINISTRATION COMPANY... 60 12 INFORMATION REGARDING OTHER IMPORTANT EVENTS THAT OCCURRED AFTER THE END OF THE FINANCIAL YEAR... 61 13 MAIN STRATEGIC OBJECTIVES FOR 2014... 61 2
investments with a perspective Company Name Societatea de Investiții Financiare Muntenia S.A. Headquarters 16, Splaiul Unirii, Bucharest, sector 4 Sole Registration Code 3168735 Commerce Registry Code Subscribed and paid share capital J40/27499/1992 80,703,652 lei Outstanding shares 807,036,515 Characteristics of the shares Face value Regulated Market Main object of activity Shareholding structure Common, nominative, indivisible, dematerialized 0.1 lei Bucharest Stock Exchange, I st Tier, SIF4 ticker Openly attracting financial resources from natural/legal persons with a purpose to investing them according to the legislation in force related to the capital market and to the NSC Regulations. CAEN Code 6499 - Other financial service activities, except insurance and pension funding n.e.c 100% private Free capitalization 100% Depository and custody services Shares and shareholders registry BRD Groupe Societe Generale Depozitarul Central S.A. Financial auditor KPMG Audit S.R.L. Contact Romania, Bucharest, 16 Splaiul Unirii, 040035 Tel: +4021-3873210; +4021-3873208 Fax: +4021-3873265; +4021-3873209 www.sifmuntenia.ro e-mail: relatii@sifmuntenia.ro; sai@munteniainvest.ro 3
Pursuant to the Establishment Deed of SIF MUNTENIA SA, as approved by the General Shareholders Meeting as of 1997 and approved by NSC by Decision no. 1039/02.05.2006, the administration of SIF MUNTENIA was assigned to Societatea de Administrare a Investiţiilor MUNTENIA INVEST SA (SAI Muntenia Invest). Authoriesd by NSC Decision no. D6924/17.07.1997 Reauthorised by NSC Decision no. 110/13.01.2004 Registered in the NSC Registry under no. PJR05SAIR/400006 Address: 16 Splaiul Unirii, Sector 4, 040035 Bucharest, Romania Tel: 021-387.32.10 Fax: 021-387.32.09 During 01.01. 31.12., SAI MUNTENIA INVEST ran the administration activity of SIF MUNTENIA pursuant to the provisions of the administration contract and the SIF Muntenia Administration Programme for the year, as approved by the General Shareholders Meeting as of 25 th April. Main activity SIF Muntenia is a legal Romanian person, established as a joint stock company with full privately owned capital. The operation of the company is regulated both by ordinary and special Romanian legislation, applicable to financial investment companies, and by its establishment deed. SIF Muntenia was established as a joint stock company in November 1996 by restructuring and transformation of Muntenia IV Private Ownership Fund, pursuant to Law no. 133/1996 for the transformation of Private Ownership Funds into financial investments companies. SIF Muntenia is a closed financial investments company. Its main assets are financial instruments, so qualified according to NSC/FSA regulations. SIF Muntenia has not been subject to any merger operation since its establishment up to date. During SIF Muntenia did not perform any significant reorganization of its activity. During, the acquisitions and sales of assets performed by SIF Muntenia were related to the sale-purchase of shares. This Report presents hereinbelow details about these transactions. 4
1 SUMMARY OF FINANCIAL POSITION EVOLUTION OF ASSETS (NSC/FSA)-lei 2011 2012 CERTIFIED TOTAL ASSETS 1,333,203,524 1,225,402,795 1,234,915,663 NAV 1,237,619,869 1,061,013,700 1,061,223,623 DIVIDENDS - lei 2011 2012 * GROSS DIVIDEND PER SHARE 0.0810 0.134 0 0.138 DISTRIBUTION FROM RESERVES PER SHARE 0,122 SHARES- lei 2011 2012 CLOSING PRICE AT THE END OF PERIOD 0.5710 0.770 0.8820 AVERAGE PRICE PER SIF4 SHARE 0.6595 0.7152 0.7609 ACCOUNTING ASSETS AND LIABILITIES - lei 2011 2012 TOTAL ASSETS 1,322,734,209 944,308,458 883,153,195 OWN CAPITAL 1,137,521,392 767,683,574 697,681,793 TOTAL LIABILITIES 95,621,170 164,389,094 173,626,859 REVENUES AND EXPENSES - lei 2011 2012 TOTAL REVENUES 196,907,499 290,348,050 232,125,030 TOTAL EXPENSES 113,740,132 114,649,256 81,054,877 GROSS PROFIT 83,167,367 175,698,794 151,070,153 NET PROFIT 65,336,350 127,263,625 131,099,046 PERFORMANCE INDICATORS 2011 2012 ROE = Net Profit/equity 5.74% 16.58% 18.79% ROA = Net Profit/Total accounting assets 4.94% 13.48% 14.84% ROVAN= Net Profit/NAV 5.28% 11.99% 12.35% NAV PER SHARE (lei) 1.5335 1.3147 1.315 CERTIFIED TOTAL ASSETS = Total assets value calculated according to NSC/FSA regulations and certified by the depository. The value is calculated on the last business day of the reference period. Thus, the certified assets for the year was calculated on the 31 st December, while the certified total assets for the year 2012 on 31 st December 2012. NAV= net assets value, calculated according to NSC/FSA regulations, certified by the depository = Total assets -Liabilities NAV PER SHARE= net assets value per share, calculated according to NSC/FSA regulations and certified by the depository = NAV/number of shares. Total accounting assets = total of fixed assets, current assets and prepaid expenses from the accounting balance sheet * Administrator s proposals for setting the dividend, which will be submitted for the shareholders approval. Details can be found in the PROFIT DISTRIBUTION chapter 5
investments with a perspective 2 ACHIEVEMENT OF STRATEGIC OBJECTIVES The strategic objectives comprised by the Strategic Administration Programme and the Revenues and Expenses Budget for the year were presented to and submitted for the shareholders approval in the OGSM as of 26 April and approved pursuant to resolution no. 3. The priority strategic objectives were set with caution, considering the macroeconmic environment forecasted for. At the same time, the approval of a gross dividend per share of 0.134 lei, in the OGSM as of 26 April, required to adopt a more prudent strategy related to liquidities administration necessary for implementing the investment programs. Thus, even if dividends amounting to 72.49 milion lei were distributed, opportunities were identified which allowed a restructuring of the portfolio according to the priority strategic objectives and continuing the investments in a more moderate manner. OBJECTIVE: Continuation and enlarging the investment programme based on the resources obtained from the sale of BCR and Erste shares, according to the profit distribution achieved in 2012, respectively allocation on dividends / investment sources. Focus on investments in Romania, where the price of the fixed and financial assets is reduced. Investments in infrastructure, agriculture, energy, industry and productive sectors that create added value and labor force. Participation to privatization programmes to be developed during, under profitable conditions, change of shares with AVAS. Further reducing the dependency from the financial sector participation results, continuing to restructure the assets contained by this portfolio in order to increase the assets quality. 6
The balanced fund structure was maintained, the portfolio is liquid enough to distribute dividends also for the proposed investment plan, the acquisition of financial investments (shares and bonds) amounting to 183.36 milion lei in (as compared to 51.23 milion lei in 2012). The total assets registered an increase with 9.5 milion lei as compared to 2012, and the net assets registered an increase with 209,923 lei, due to the distribution of important gross dividends (72.49 milion lei, representing 5.89% of the total assets as registered at the end of the year 2012). The portfolio restructuring was continued, in the sense of reducing the value and quota of the financial sector shares sub-portfolio and the company s participations increase in the energy sector, chemistry/medicine sector, mining/oil and gas, construction materials, medical services. SIF Muntenia participated to all privatizations performed through Bucharest Stock Exchange and the greatest part of the investments made during was in liquid shares, listed on Bucharest Stock Exchange. Maintaining an adequate liquidity level of the portfolio for investments, dividends and other needs. Reducing the liquidity level of the portfolio which, as of 31.12.2012, reached a very high level, through investments. Liquidity level of the portfolio, calculated as a percentage of the Total assets, was reduced from 21.13% at the end of the year 2012, down to 13.85% at the end of the year, by investing the liquidities in excess in other financial instruments, especialy in listed shares. Dividend policy. Defining and aiming at a predictable dividend policy. Providing a dividend yield of 1-2 percent higher than inflation (real positive), as compared to the yearly average market value of SIF Muntenia share as of the year for which the dividend is calculated. The gross result achieved in, amounting to 151,070,153 lei, represents an increase with 46.2% as compared to the target gross profit of the Revenues and Expenses Budget approved for. The net profit obtained in was of 131,099,046 lei, with 3.01% higher than the net profit obtained in 2012. The net profit volume obtained in ensures the premises for complying with the dividend policy approved by the shareholders, even under the appreciation of the market value of SIF Muntenia share in as compared to 2012. 7
ECONOMIC ENVIRONMENT Romanian economy had a better year in, exceeding initial expectations. GDP growth (signal estimate of INSSE) was 3.5%. Economic activity was further supported by exports, but also by a slight improvement in domestic demand due to higher household consumption. Meanwhile, on the supply side, the main contributions were made by good agricultural year and industrial production. Other positive developments - the lowest inflation rate since 1989 (1.55% in December /dec 2012), the current account deficit of around 2% of GDP (fiscal consolidation), increased attraction of European structural and cohesion funds (from about 9.7% in 2012 to 27% in ), increased prices for the shares listed on the stock market. The stock market has experienced probably the best year in the past five years, with some initial public offerings (IPO) to record levels leading to the long-awaited emergence of new large issuers, the relative stability of the exchange rate and reduced interest rates bank loans. Even if Romania had a good background, domestic consumption has not fully recovered, still appeared numerous insolvencies of companies, there was still legal and fiscal instability. SIGNIFICANT EVENTS THAT INFLUENCED SIF MUNTENIA S ACTIVITY IN Changing the calculation method of SIF MUNTENIA net assets value after applying NSC s Executive Order no. 23/20.12.2012. Details can be found in EVOLUTION OF TOTAL ASSETS VALUE AND NET ASSETS chapter. Changing of one of the accounting policies. According to Resolution no. 2 as of 7 July 2012, the GSM of SIF Muntenia approved changing the accounting policy referring to the registration of assets value adjustments, which started to be applied as of 1 January. Details can be found in ACCOUNTING FINANCIAL STATEMENT chapter. Commercial companies whose shares are admitted for trading on a regulated market apply International Financial Reporting Standards (IFRS) for the financial statements starting with the closing of 2012 financial year, with effects over the net result of their activities during the year 2012, so over the volume of dividends which SIF Muntenia received during the year. 8
investments with a perspective 3 PORTFOLIO MANAGED Portfolio management activity falls within the specific legal framework, which adapts to the provisions of European directives. It was taken into account complying with the principles of specific prudential financial investments promoted by SIF Muntenia, whether they are required by law or regulatory body NSC / FSA, whether they resulted from the administrator s practical experience in the field. The Administrator managed SIF Muntenia according to an active investment strategy, based on an appropriate use of the potential of domestic and international financial markets, pursuing the security, quality, liquidity and profitability of assets. 3.1 EVOLUTION OF THE TOTAL ASSETS VALUE AND THE NET ASSET VALUE The net asset value was calculated in accordance with Regulation no. 15/2004 issued by NSC regulations NSC/FSA (Executive Orders 9/2010, 21/2010, 23/2012) and was then certified by the depository of SIF Muntenia assets, Banca Română pentru Dezvoltare (BRD) GSG. NSC issued Executive Order 23/20.12.2012 regarding the valuation of OPC assets authorized/approved by NSC until the amendation of NSC Regulation No. 15/2004. The calculation method of the net asset value of SIF Muntenia was amended within the legal term, the rules used for the valuation of the financial instruments within the SIF Muntenia portfolio were announced to its shareholders, and all reporting referring to the method of calculation of the assets used this new set of rules, starting with the net asset value calculated as of 28 Febryary. Net asset monthly values have been published for the shareholders information on the website www.sifmuntenia.ro and reported according to legal provisions to NSC/FSA and Bucharest Stock Exchange (BSE), no later than 15 calendar days as of the end of reported month. Recalculated values are used in this Report for the total Assets value, net assets value and liabilities of the year 2011 and 2012, which include the accounting elements of final financial statements for the respective periods, (audited financial statements). The recalculated values have been certified by the depository of SIF Muntenia. 9
Total Assets (TA), Net Assets (NAV) and NAV per Share during the last 3 years. [LEI] 2011 2012 T1 S1 T3 TOTAL ASSETS 1,333,203,524 1,225,402,795 1,314,859,957 1,240,637,562 1,249,518,637 1,234,915,663 TOTAL LIABILITIES 95,583,655 164,389,095 132,748,070 219,016,434 175,334,986 173,692,040 NET ASSET VALUE 1,237,619,869 1,061,013,700 1,182,111,887 1,021,621,127 1,074,183,651 1,061,223,623 NAV per SHARE 1.5335 1.3147 1.4648 1.2659 1.3310 1.3150 Percentage and value comparisons Q1 vs 2012 H1 vs 2012 Q3 vs 2012 vs 2012 % Variation TA 7.30% 1.24% 1.97% 0.78% TA Value variation 89,457,162 15,234,767 24,115,842 9,512,868 % Variation NAV 11.41% -3.71% 1.24% 0.02% NAV Value variation 121,098,187-39,392,573 13,169,951 209,923 NAV per Share value Variation 0.1501-0.0488 0.0163 0.0003 % Variation NAV per SHARE 11.41% -3.71% 1.24% 0.02% 2012 T1 S1 T3 ForEX EURO/RON 4.4287 4.4154 4.4588 4.4604 4.4847 Total Asset in EUR 276,695,824 297,789,545 278,244,721 280,136,005 275,361,933 Net Asset in EUR 239,576,783 267,724,756 229,124,681 240,826,753 236,632,021 Liabilities registered as of 31.12. are with 9.3 milion lei higher than the ones registered as of 31.12.2012 and most of it represent dividends/amounts resulted from distributions of the unclaimed reserves (148,046,198 lei, representing 85% of the total liabilities). As compared to 31.12.2012, the total assets increased with 9,512,868 lei (+0.78%), and the Net Asset increased with 209,923 lei (+0.02%). The Total Assets as of the end of the year plus gross dividends distributed in to SIF Muntenia shareholders (72,489,084 lei) is with 6.69% higher than the Total Assets as of the end of the year 2012. 10
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3.2 PORTFOLIO MACROSTRUCTURE The main types of assets that compose SIF Muntenia portfolio are: Listed shares on regulated capital markets Liquid assets = Availabilities + Bank deposits + funds units Unlisted shares 12
3.2.1 ASSETS ALLOCATION. REBALANCING Within the strategic programme for the year, as submitted for the shareholders approval within the OGSM as of 26 April, for SIF Muntenia, the target strategic allocation of assets 1 and their rebalancing 2 was defined as follows. Reducing portfolio liquidity level by investing up to a level of 10-15% Mainly bank deposits Further increase of Listed Shares sub-portfolio within the Shares sub-portfolio Portfolio structure at the beginning of Maintaining the quota of the Shares sub-portfolio within a range of 75-85% of the total assets 1 The technique of chosing and combining the assets of a portfolio with a purpose to complying with long term objectives and obligations 2 Portfolio rebalancing A significant change in the portfolio compozition (acc. to GEO no. 32/2012, chapter I article 16 13
3.3 PORTFOLIO RESTRUCTURING INVESTMENT POLICY The investment policy complied with prudential rules as imposed by laws and regulations in force. Investment restrictions governed by NSC provide for the category Other Undertakings for Collective Investment (OUCI), a diversified investment policy, investment opportunities in all asset classes listed in NSC Regulation no. 15/2004, art. 82 and 83 of Ordinance nr.32/2012 by comprising certain exposure conditions. The guiding lines of the investment policy followed by SIF Muntenia in were presented to the shareholders in the Strategic Programme approved for the year. These guiding lines added up to a greater investment effort, which was permitted both by the high liquidity degree of the portfolio at the beginning of the period and by the identification of interesting investment opportunities. Details will be further presented within the chapters dedicated to the sub-portfolios presentation. 14
3.4 PORTFOLIO YIELD Yields registered in are not directly comparable to the ones registered in 2011 or 2012 due to changes both in the method of calculation the assets (following the modifications of NSC/FSA regulations) and in certain accounting policies of SIF Muntenia. Evolution of main performance indicators during the last three years 2011 2012 Net asset gross yield Gross profit/ NAV at the end of period (%) 6.72% 16.56% 14.24% Return on equity Profit before interest payment and profit tax / 7.311 22.887 21.653 equity (%) Net asset net yield Net profit/ NAV at the end of period 5.28% 11.99% 12.35% ROE Net profit/equity at the end of period (%) 5.74% 16.58% 18.79% Accounting ROA Net profit /Total accounting asset at the end of 4.94% 13.48% 14.84% period (%) Result per share Net profit / number of issued shares 0.0810 0.1577 0.1624 15
investments with a perspective 4 SHARES SUB-PORTOFOLIO OBJECTIVES IN MANAGING THE SHARES SUB-PORTFOLIO Restructuring the exposure on financial banking sector participations Participation to privatizations of state owned companies on Bucharest Stock Exchange Short and medium term investments/ disinvestments in listed companies Increase of the holdings in companies listed on regulated markets, with high trading liquidity Further sustaining the financing and restructuring programmes started in companies held both as major and minor shareholder 4.1 SHARES SUB-PORTFOLIO VALUE EVOLUTION ACCORDING TO NSC/FSA REGULATIONS After applying Executive Order no. 23/20.12.2012 of the NSC, which aimed at establishing a unified/harmonized framework in terms of OPC (collective investment bodies) asset valuation authorized/approved by NSC until amending NSC Regulation No. 15/2004, changes occurred in the method of assesing and valuation of financial instruments portfolio and reflection in SIF Muntenia total assets and net assets value. The main modifications were: For shares listed on BSE and RASDAQ, regularly traded, the value per share of a participation, which before was calculated by SIF Muntenia as the average price of the last 3 trading months on the main market, was replaced by the closing price on the last trading day of the period. Replacing the position listed and not traded during the last 90 days with listed and not traded during the last 30 days as of 28 February (positions underlined in the two tables below). 16
Discounting of NAV value of unlisted companies according to the old method of calculation was cancelled. Financial statements used for the calculation of the value according to NSC regulations are not half yearly (the most recent ones), but the most recent annual financial statements. Evolution of Shares sub-portfolio NAV in [LEI] 2012 Q1 H1 Q3 Listed shares 756,709,709 844,118,558 781,133,128 785,536,736 842,133,988 Unlisted shares 181,490,508 211,650,915 208,759,792 193,870,700 192,418,794 Total 938,200,217 1,055,769,473 989,892,920 979,407,436 1,034,552,782 Percentage and value comparisons Q1 vs 2012 H1 vs 2012 Q3 vs 2012 vs 2012 Listed shares, value variation 87,408,849 24,423,419 28,827,027 85,424,279 Listed shares, percentage variation 11.55% 3.23% 3.81% 11.29% Unlisted shares, value variation 30,160,407 27,269,285 12,380,192,0 10,928,286 Unlisted shares, percentage variation 16.62% 15.03% 6.82% 6.02% Total Shares, value variation 117,569,256 51,692,703 41,207,219 96,352,565 Total Shares, percentage variation 12.53% 5.51% 4.39% 10.27% Both listed on regulated markets and unlisted shares sub-portfolios increased as percentage and in value as well. Evolution of net asset value of Shares sub-portfolio during the last three years (million lei) 1.200 1.000 800 181 180 180 212 212 210 209 194 192 194 192 192 192 600 400 200 757 785 893 844 854 838 781 805 777 786 918 930 842 0 Dec 13 Nov 13 Oct 13 Sep 13 Aug 13 Jul 13 Jun 13 May 13 Apr 13 Mar 13 Feb 13 Jan 13 Dec 12 Listed shares Unlisted shares 17
Percentage of Shares sub-portfolio in Total Assets Percentage of listed/unlisted shares in Shares sub-portfolio Total number of commercial companies where SIF Muntenia hold participations decreased fro 201 as of 31.12.2012 to 197 as of 31.12.. Following the introduction of the company Transilvania Leasing (BSE TSLA) on the ATS segment of BSE market in July, a new position appeared in the Shares sub-portfolio, namely BSE/ATS listed ). Positions listed and not traded during the last 90/30 days appeared following the legal modifications are not directly comparable (highlighted in grey in the two tables below) 18
Value evolution of main components of Shares sub-portfolio LEI 2012 Q1 H1 Q3 Listed shares 756,709,709 844,118,558 781,133,128 785,536,736 842,133,988 Listed on BSE 300,490,880 349,243,699 315,818,060 330,634,720 440,232,448 Listed on foreign markets/eu member 186,379,967 194,346,256 177,307,556 163,931,840 132,624,853 state Listed on RASDAQ 183,140,798 228,886,254 199,895,312 100,361,907 205,867,558 Listed on SIBEX 1,655,673 1,489,063 1,091,980 992,708 943,073 Listed on BSE/ATS 10,199,872 7,649,904 Listed on BSE and never traded 5,515 12,098 12,098 10,045 10,045 Listed and not traded during the last 85,036,876 90 days Listed and not traded during the last 70,141,188 87,008,122 179,405,644 54,806,107 30 days Unlisted shares 181,490,508 211,650,915 208,759,792 193,870,700 192,418,794 Unlisted and traded on BSE 115,198 169,594 179,179 152,294 151,447 closed 181,375,310 211,481,321 208,580,613 193,718,406 192,267,347 Total 938,200,217 1,055,769,473 989,892,920 979,407,436 1,034,552,782 Percentage and value comparisons, end of vs end of 2012 Value variation Percentage variation Listed shares 85,424,279 11.29% - listed on BSE 139,741,568 46.50% - Listed on foreign markets/eu member state -53,755,114-28.84% - Listed on RASDAQ 22,726,761 12.41% - Listed on SIBEX -712,600-43.04% - Listed on BSE/ATS 7,649,904 - Listed on BSE and never traded 4,530 82.15% - Listed and not traded during the last 90 days - Listed and not traded during the last 30 days Unlisted shares 10,928,286 6.02% - Unlisted and traded on BSE 36,250 31.47% - closed 10,892,036 6.01% Total 96,352,565 10.27% In, the increased liquidity of Shares sub-portfolio can be also observed in the percentage and value increase of the shares with higher liquidity degree (listed on BSE+international markets) in the Total Assets of SIF Muntenia, as presented in the table below. 19
Evolution of the sub-components value of Shares sub-portfolio during the last three years (million lei) 1.200 1.000 800 295 181 180 180 211 211 210 209 193 192 194 192 192 192 unlisted unlisted but traded BSE listed BSE, not traded last 30 days 600 400 158 186 206 218 194 208 218 177 200 171 164 180 180 133 listed BSE, not traded last 90 days listed BSE, not traded ever listed BSE/ATS listed SIBEX 200 380 300 310 359 349 321 333 316 329 320 331 430 443 440 listed RASDAQ international, listed EU 0 listed BSE Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 Apr-13 Mar-13 Feb-13 Jan-13 Dec-12 Dec-11 20
4.2 SHARES SUB-PORTFOLIO ACCORDING TO THE SIZE OF STAKES OWNED Even since the establishment of SIF Muntenia, the Shares sub-portfolio has registered an asymmetric/fragmented structure respectively a small number of companies have had a high percentage in the Total Assets and, more over, there are still many residual participations, with a small contribution both in the Total Assets and in other revenues, TOP 20 TOP 10 TOP 3 797.41 mil lei 65.47% 668.75 mil lei 54.154% 467.12 mil lei 37.83 % which come from SIF Muntenia initial portfolio. In, this assimetry was somehow reduced, mainly following the investment process. If at the end of 2012 a number of 13 participations used to represent each of them more than 1% of the Total Assets of SIF Muntenia (56.58% total), at the end of there were 15 participations each of them higher than 1% of the Total Assets, (total 59.93 %). Percentage held by SIF Muntenia in the share capital of the companies within its portfolio, at the end of the year Percentage held by SIF Muntenia SA 31.12. Number of companies Net asset value lei % of shares subportfolio total NAV <=5% 70 452,531,592 43.74 5-33% 103 359,502,833 34.75 33-50% 7 34,560,097 3.34 >50% 17 187,958,259 18.17 4.2.1 TOP 10 PARTICIPATIONS IN THE SHARES SUB-PORTFOLIO AS OF 31.12. Name Value mil lei % in TA % held by SIF BANCA ROMANA PENTRU DEZVOLTARE 230.21 18.64 Banking 3.670 ERSTE GROUP BANK AG 127.86 10.35 Banking 0.262 BIOFARM BUCURESTI 109.05 8.83 Manufacture of 32.981 pharmaceutical preparations AVICOLA BUCURESTI 40.47 3.28 Farming of poultry 99.465 FIROS BUCURESTI 35.01 2.835 Construction materials 99.14 METAV BUCURESTI 33.29 2.69 Real estate 27.777 VOLUTHEMA PROPERTY DEVELOPER 32.23 2.61 Real estate 69.111 ROMAERO SA BUCURESTI 25.51 2.06 Manufacture of aircrafts 25.851 UNIREA SHOPPING CENTER 17.87 1.45 Commercial complex 10.003 STICLOVAL VALENII DE MUNTE 17.25 1.40 Mining industry 34.933 TOTAL 668.75 54.154 21
4.3 LARGEST STAKES MANAGEMENT Large holdings/stakes of SIF Muntenia, as defined by the approved management programme for were the BRD- GSG and Erste Bank Group. According to the Management Programme for, it was considered, generally, on a multiannual timeframe, a decrease of these exposures in order to diminish the risk by diversification, with the possibility to temporarily exceed the exposure in order to exploit some trading opportunities. Towards the end of the year, SIF Muntenia became a shareholder of Biofarm SA București, which is considered as well as part of the large holdings category, according to the criteria used in the management of the shares subportfolio. In, cumulated exposure on BRD and Erste Bank Group decreased from 32.985% of the total assets of SIF Muntenia (404.19 milion lei) to 28.995% of the total assets (358.07 milione lei), following an non linear evolution (in order to exploit some trading opportunities) of holdings throughout the year. At the end of the year, cumulated large holdings of SIF Muntenia (BRD, Erste, Biofarm) represented 37.826% of total assets of SIF Muntenia (467.12 mil lei). Within the Shares sub-portfolio, the large holdings exposure (BRD, Erste, Biofarm) in presented in the two tables below. Both shares issued by BRD as well as those issued by Erste Bank Group had good evolution in, both in the European and national context (by comparing issuers with similar activity). The chart below presents both the quotations of the shares issued by Erste Bank Group (EBS), Banca Romana pentru Dezvoltare (BRD), compared with the index STOXX Europe Sup/Nc Banks Total Return Net Index EUR (STX: XX:SX7BR). 22
BANCA ROMÂNĂ PENTRU DEZVOLTARE GSG. Banca Romana pentru Dezvoltare was the main listed participation from SIF Muntenia portfolio at 31.12.. The percentage held by SIF Muntenia to this company decreased from 4.147% at the begining of the year down to 3.67% at the end of the year. BRD did not distribute dividends in. From the strategical point of view, BRD is important for its main shareholders, despite the poor performance of the financial and banking market in Romania in the last years, taking into consideration the scale of the operations of Societe Generale in Central and Eastern Europe, the solid integration of the subsidiary in the group and the support granted in the past. BRD registered a loss for the second consecutive year, ending the last year with a loss of 385 milion lei, mainly due the increasing the provisions from Q4 21013. The net banking income decreased from 6.9% in comparison with 2012 and the net commissions income decreased with 4.7%. BRD has a good level of equity appropriation, respectively 14.3%, significantly higher to the minimum requirements in Romania. Considering the decrease of the guarantees value and increase the proportion of the exposure in insolvency, the bank has consolidated the level of covering with provisions the bad loans (form 51.9% in 21012 up to 68.9% at the end of ), effort translated by a high risk cost in the loan portofio for SMEs" 10 9,5 9 8,5 8 7,5 In SIF Muntenia performed both sale and purchase transactions with BRD shares. The timing of transactions with BRD shares and the trading prices are presented in the chart below. 7 Jan Apr Jul Oct Avg price Purchases by SIF Sales by SIF 23
ERSTE BANK GROUP Erste shares are listed on several stock exchanges, with high liquidity transactions. The bank activity is carried mainly in Central and Eastern Europe, Russia. Through the quotation of Erste Bank share, the Shares sub-portfolio exposure on EUR/RON exchange rate highly increased. The percentage held by SIF Muntenia to this company decreased from 0.513% at the beginning of the year down to 0.262% at the end of the year, with a non-linear trend. In order to have the necessary funds for the restitution of capital participation issued by the Austrian state, at the end of Q1 Erste performed a private placement for a share capital increase amounting to 660.6 milion euro, by a share issuing to existing shareholders and new investors at a price of 18.75 euro per share. The decision to buy back the participation will consolidate the bank s ability to generate equity and to improve its solvability rate. The shares received in July following the participation to the share capital increase performed by Erste Bank Group (a private placement for a share capital increase amounting to 660.6 milion euro, by a share issuing to existing shareholders and new investors at a price of 18.75 euro per share) were sold during the same month, the number of EBS shares held by SIF Muntenia at the end of July being the same as the one held at the end of June. The dividends received by SIF Muntenia were in value of EUR 607,669.8, representing net dividends, resulted by applying to the gross dividend of EUR 810,226.4 a tax rate of 25%, according to the Austrian legislation. For the amount of EUR 40,511.32 a foreign tax credit was received (according to the Convention between Romania and Austria for the avoidance of double taxation), recovered by deduction from the income tax of SIF Muntenia. The reimbursement of the amount of EUR 162,045.28, representing taxes, was requested. 28 26 24 22 20 18 Jan Feb Apr May Jul Sep Oct Dec The operations with EBS shares (sale transactions at the Vienna Stock Exchange and participation to the share capital increase) and the prices are presented in the chart below. Avg price Sales by SIF Capital increase price 24
The net profit announced for was EUR 61 MN, eight times lower than the previous year. In the first 9 months of the year, Erste has accumulated a profit of EUR 430 milion, which means that in Q4 it registered a loss of EUR 369 milion, mainly due to the devaluation of the goodwill of BCR with EUR 283 mn, as a result of the requirements regarding capital adequacy and as a result of the taxes on the financial transactions in Austria, Hungary and Slovacia (EUR 311 milion). The proposed dividend for approving from the profit of is EUR 0.2 per share (lower with 50% that the last year). BIOFARM SA BUCUREȘTI The percentage held by SIF Muntenia to this company increased from 1.014% at the beginning of the year up to 32.981% at the end of the year. The shares issued by BIOFARM SA București are listed on the Bucharest Stock Exchange, 1 st Tier, ticker BIO. In October, SIF Muntenia acquired a stake of 350,000,000 shares issued by Biofarm at an average value of 0.305 lei per share. Biofarm product portfolio is based on generic medicines and food supplements (more than 200 manufactured products, covering 61 therapeutic area). Biofarm exports to Moldavian Republic, Russia, Ucraine, Azerbaijan, Belarus, Georgia, Serbia, Kazahstan and Hungary. In 2012 the company businesses cumulated 104.97 milion lei, higher with 12.3% than the level reached in 2011 and the profit increased with 47.9% up to 21.03 milion lei. In, Biofarm registered a profit of 25.6 milion lei (not audited preliminary report, published by BSE) more with 21.9% as compared to 2012, in revenues from sales of 117.5 milion lei. Indebtedness is reduced and solvency indicators are at the levels of comfort. Biofarm will double the production capacity and will enter new therapy areas, once relocated in new premises, which is under development, and will focus on exports development. After relocation, the production capacity shall be almost double. Only the factory warehouses have been finalized and are operational. In 2014 and 2015 the production hall shall be furnished with new equipment and with old ones, from the old factory. The investment in this project is of about 13-14 milion EUR from own equity, of which 7 milion EUR have already been invested. 25
4.3.1 LIST OF COMMERCIAL COMPANIES WHERE SIF MUNTENIA HOLD POSITIONS OF CONTROL AS OF 31.12. Considering the provisions of Law no. 297/2004 on capital market, related to group of companies, subsidiaries, and control, the table below presents the companies where SIF Muntenia exercises a position of control. As of 31.12., SIF Muntenia was holding a majority or controlling position in 19 commercial companies, but it was effectively controlling only 12 of them. None of these companies was owning SIF Muntenia shares as of 31.12.. No. crt. Name Net asset value % of total assets Field of activity % held by SIF 1 AVICOLA SA BUCURESTI 40,469,037 3.277 Farming of poultry 99.47 2 FIROS S.A BUCURESTI 35,007,898 2.835 Construction materials industry 99.14 3 MUNTENIA MEDICAL COMPETENCES SA 11,490,556 0.930 Medical clinic 98.82 4 MINDO SA DOROHOI 13,435,150 1.088 Construction materials 98.02 5 SEMROM MUNTENIA SA BUCURESTI 11,066,295 0.896 6 SEMROM OLTENIA SA CRAIOVA 4,248,150 0.344 7 UNISEM SA BUCURESTI 6,821,985 0.552 industry Wholesale of cereals and seeds Wholesale of cereals and seeds Wholesale of cereals and seeds 8 VOLUTHEMA PROPERTY DEVELOPER SA 32,226,724 2.610 Real estate 69.11 9 BUCUR SA BUCURESTI 8,357,678 0.677 Wholesale and retail trade 67.98 10 CASA DE BUCOVINA-CLUB DE MUNTE S.A. 10,406,726 0.843 Tourism 66.87 11 FONDUL ROMAN DE Financial, banking and 14,428,061 1.168 GARANTARE A CREDITELOR insurance services 53.60 12 GECSATHERM SA 9,993,235 0.809 Construction materials industry 49.82 Note. Although as of 31.12. SIF Muntenia was holding a participation quota of 92.1578% of the share capital of the company CI-CO SA, the refuseof CI-CO s Administrators to convene the GSM upon the request of SIF Muntenia s Administrator did now allow the major shareholder to exercise control over this company. At 31.12., CI-CO SA held 70,700 SIF Muntenia shares. 89.42 88.49 76.96 26
4.4 INVESTMENTS, DEINVESTMENTS, OTHER RELEVANT INFORMATION SHARES SUB-PORTFOLIO CASH FLOW CASH INFLOWS CASH OUTFLOWS FROM THE SALE OF LISTED SHARES 197,313,436 FROM THE SALE OF UNLISTED SHARES 1,771,383 DIVIDENDS RECEIVED 11,003,651 FOR THE AQUISITION OF LISTED SHARES 146,662,574 FOR SHARE CAPITAL INCREASES 35,623,323 SHARES SUB-PORTFOLIO REVENUES FROM TRADING WITH LISTED SHARES 144,309,911 FROM TRADING WITH UNLISTED SHARES 1,694,651 REVENUES FROM DIVIDENDS 11,955,948 NET BALANCE FROM SHORT TERM FINANCIAL INVESTMENTS VALUATION 1,765,700 The revenues from the sale of shares, amounting to 149,600,312 lei, are with 36% higher than REB and the revenues from dividends are with 32% higher that the forecasts of the REB for. 27
Management Programme, about the participations in the financial sector. Restructuring options in this sub-portfolio will take into account, in addition to the general situation and prospects of the sector, also the situation of the issuer or the group to which it belongs, the performance of their risk management systems (for the banks by the loan portfolio quality ). Management of large exposures/holdings - Erste Bank Group and BRD-GSG. It will be consider, in general, in a multiannual timeframe, to reduce these exposures in order to decrease the risk through diversification, with the possibility of temporary exceeding exposures to exploit trading opportunities. The situation in the Romanian banking system continued to deteriorate in the first nine months of with a bad loans growth rate similar with the first nine months of 2012. At the same time, the growth of bad loans was accentuated by the decrease of credit balances. Banking system ended the year (estimates) with a cumulative profit of 497 million lei (first cumulative profit after three consecutive years of losses) while the 23 banks reported profits for and 17 banks had losses. Deleveraging process has continued. Romanian banking system's total assets decreased in with only 3 billion lei, from 365-362 billion considering that only the first half they were down to 355 billion lei. 70% 65% 60% 55% 50% 45% 40% 35% 30% 57,381% 54,110% 59,523% 61,271% 58,750% 56,015% 51,246% 50,129% 47,821% Share of financial and banking sector in the shares sub-portfolio 2009 2010 2011 T1 2012 S1 2012 T3 2012 2012 T1 S1 47,567% T3 39,886% Under these circumstances, the exposure on banking system was continued, mainly by reducing the exposure on BRD and Erste Bank, with the restructuring of stakes in companies active in this sector. Also as part of the restructuring process of the participations in the financial sector, we can mention the acquisition of listed shares of Bucharest Stock Exchange, listed company and main market operator and SSIF Broker SA Cluj, as well as the sale of a residual participation in Raiffeisen Bank România. 28
Management Programme Increasing the participation quota to companies listed on regulated markets, with trading liquidity; Participation to privatisations within the energy sector. Sector diversifiation within the Shares sub-portfolio, reducing the percentage of the financial sector, increasing the qouta of the energy, infrastructure, industry, agriculture sectors. Identiying some solid companies, consumer noncyclical which shall offer rather constant dividends during crisis (defensive act direction) focusing on energy field. In Romania, domestic energy consumption decreased by 5% in for the second consecutive year. Thus, Romania exported last year an amount of energy of 4.7 TWh, equivalent to 8.5% of the total national consumption, while energy imports were only 2.7 TWh, or 4.8% of consumption total. However, there are a number of representative companies of strategic importance and high proportion in the production and distribution of energy (electricity, oil and gas) that, in, there were opportunities for both investing and necessary financing sources. Romgaz Medias and OMV Petrom are the largest gas producers in the country, together covering over 98% of domestic production. The two companies annually produce about 11 billion cubic meters of gas and provides about three quarters of gas consumption in the entire country. Although the core business of Petrom - crude oil mining - would lead to conisdering it as part of the mining industry, it is noted that cogeneration power plant owned Petrom Brazi provided about 6% of the national electricity consumption in the third quarter. The participation held by SIF Muntenia in Fondul Proprietatea was treated in terms of administration as an indirect participation in the energy sector. In, amid the emergence of opportunities to invest directly in companies active in this sector and due to higher quotations of FP shares, the participation to Fondul Proprietatea was liquidated. In Q2, 10,000 shares Transgaz SA Medias (TGN) were purchased from the market, and in the SPO Transgaz 35,550 TRANSGAZ shares were purchased. In the third quarter of, SIF Muntenia subscribed to the Nuclearelectrica IPO (SNN) in the large investor tranche, which was closed successfully. Following the offer, SIF Muntenia received 321,420 shares at a price of 11.2 lei, representing 0.13% of the capital of the issuer. In November, 8.759 million shares in OMV Petrom (SNP) were bought by participating in the SPO by which EBRD has liquidated its stake, SIF Muntenia thus reaching 0.023% of Petrom share capital at the end of. In addition, during the fourth quarter of, SIF Muntenia subscribed 375,000 shares to SNGN Romgaz (SNG) IPO, totaling 14,928,780 lei (of which 75,000 shares were sold immediately for an amount of 2,625,752 lei). As of 31.12., SIF Muntenia holds 0.078% of the share capital of Romgaz. Although its main business places it in the mining industry, we consider ROMGAZ a strategic company for Romanian energy system and the administration of these holdings was subsumed within the Management Program objectives applicable to the energy sector. 29
Management Programme Identification of solid companies, especially in the category "Consumer Cyclical," where shares can be purchased at the minimum points of the economic cycle, to be set up as reserves after the start of the new cycle of economic growth (direction of offensive action). A powerful sector in Romania is the production of drugs. In, a significant participation to Biofarm SA Bucuresti was acquired (details in chapter Management of large holdings) through an investment of 107 million lei and the participation to Antibiotice Iasi was increased. The real estate investments field participations were purchased in Globalworth Real Estate Investment Limited (GWI). Globalworth Real Estate Investment Limited (GWI) has fulfilled the procedure for admission to the AIM market of the London Stock Exchange in July. SIF Muntenia participated in the IPO, bringing its stake holding up to 1.866% of the issuer by purchasing 200,000 common shares at a price of 5 euros each. A small number of GWI shares have been marked for profit in August and September (6,000 shares at an average price of 7,033 euros). Globalworth Real Estate is a real estate investment vehicle (commercial real estate assets leased predominantly to multinational corporations and financial institutions) aimed at investments in Romania, South East Europe and Central and Eastern Europe, with focus on the Romanian market. Management Programme Further supporting the financing and restructuring programs initiated in owned companies, both as a majority shareholder and as a minority shareholder. Investment programmes initiated on previous years were continued, in companies where SIF Muntenia is a major shareholder, in the agriculture / farming of animals, building materials and medical services sectors. FIROS SA BUCUREȘTI. TURNAROUND. HORIZONTAL DIVERSIFICATION Since 2010, the main activity of Firos changed in the production of building materials (premixed adhesives and mortars) through new investment. In, SIF Muntenia investment was completed and the company started the EPS production line which diversifies the company offer of building materials.. http://www.firos.ro 30
MINDO SA DOROHOI. HORIZONTAL DIVERSIFICATION Investment completed. In 2012 a section for the production of EPS was built here, which diversifies the products offered by the company. MINDO developed in a division of dry mortars and adhesives branded MINDOPLAST 1 http://www.mindo.ro MUNTENIA MEDICAL COMPETENCES SA PITESTI. GREENFIELD Muntenia Medical Competences owns Pitesti first regional hospital that provides integrated care for patients at European standards in one location, from consultations and laboratory tests to high-performance imaging and day care. In continued the development for the equipment at European standards of the operating rooms and adapting to local market demands. http://www.munteniahospital.ro/ 31
5 BONDS SUB-PORTFOLIO Opportunities to purchase new bonds in were very low, the only new investment in was in bonds issued by Banca Transilvania (corporate unlisted) amounting to EUR 249,299.40. Evolution of net asset value, lei 2012 W1 H1 Q3 Listed bonds 220,716 189,300 157,905 126,656 95,355 - municipal bonds 220,716 189,300 157,905 126,656 95,355 Unlisted bonds 12,358,773 12,526,581 13,982,954 14,217,269 9,799,532 - corporate bonds 12,358,773 12,526,581 13,982,954 14,217,269 9,799,532 TOTAL 12,579,489 12,715,881 14,140,859 14,343,925 9,894,887 Value, percentage comparisons Q1 vs 2012 H1 vs 2012 Q3 vs 2012 vs 2012 listed, value -31,416-62,811-94,060-125,361 listed, % -14.23% -28.46% -42.62% -56.80% unlisted, value 167,808 1,624,181 1,858,496-2,559,240 unlisted, % 1.36% 13.1% 15.04% -20.7% total, value 136,392 1,561,370 1,764,436-2,684,601 total, % -12.88% -15.32% -27.58% -77.51% BONDS SUB-PORTFOLIO REVENUES AMOUNTED TO 854,193 LEI (98.5% AS COMPARED TO BER) 32
6 HIGH LIQUIDITY DEGREE ASSETS PORTFOLIO Assuring financial liquidity for SIF Muntenia meets the requirements for portfolio structure provided by SIF Muntenia declaration of mission that of a diversified balances fund and, at the same time, allows SIF Muntenia pay to its shareholders important amounts distributed as dividends each year and to make available the cash needed for the investment policy. High degree liquidity assets Cash and bank deposits Participation titles to OPCVM Revenues from interests 6,893,274 Cash inflows from deposits and FOREX differences 6,879,768 Payments for new acquisitions 5,199,013 Revenues from redemptions 3,209,453 Evolution of net asset value 2012 Q1 H1 Q3 Cash 1,197,818 15,373,417 2,395,016 8,190,994 19,816,090 Units of OPCVM* 40,237,333 41,807,025 43,812,972 44,318,608 51,031,385 Bank deposits 217,464,473 171,651,180 170,659,426 188,012,860 100,166,613 Total 258,899,624 228,831,622 216,867,414 240,522,462 171,014,088 OPCVM =Undertakings for Collective Investment, UCITS and non-ucits Value and percentage comparisons Q1 vs 2012 H1 vs 2012 Q3 vs 2012 vs 2012 Cash, value 14,175,599 1,197,198 6,993,177 18,618,272 Cash, % 1183.45% 99.95% 583.83% 1554.35% Participation titles to OPCVM, value 1,569,692 3,575,640 4,081,276 10,794,052 Participation titles to OPCVM, % 3.90% 8.89% 10.14% 26.83% Bank deposits, value -45,813,294-46,805,048-29,451,614-117,297,860 Bank deposits, % -21.07% -21.52% -13.54% -53.94% Total, value -30,068,002-42,032,211-18,377,161-87,885,536 Total. % -14.47% -16.23% -7.10% -33.95% 33
300 250 200 150 100 217 172 171 188 100 50 0 42 51 40 44 44 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Cash OPCVM units Bank deposits OBJECTIVE Maintaining an adequate level of liquidity of the portfolio for investments, dividends and other needs. Decreasing the liquidity value of the portfolio, which, as at 31.12.2012, reached a very high level, by investments. The share of financial liquidity within the portfolio, calculated as the sum of the amounts from cash and available bank deposits relative to the Total assets of SIF Muntenia, was between 21.13% at the beginning of the year and 13.85% at the end, as shown in the following chart. For further details on the amounts used for investments please see chapter 4.4. 34
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 6.1 BANK DEPOSITS The main elements of the management policy related to SIF Muntenia bank deposits were: Investments in short-term bank deposits which ensure a high degree of flexibility in order to minimize the risk to fluctuations in bank interest rates; Negotiate interests after a rigorous prior market information on interest and exchange rate; Provide a dispersion of investments in accordance with prudential requirements Term deposits were mainly for one, two or three months, placed at several banks, so that to diversify exposure and maintain SIF Muntenia portfolio within prudential limits set by NSC regulations. Deposits in lei prevailed, although there were deposits in euro as well most of it representing the proceeds from the sale of Erste Bank shares), but euro deposits had more a buffer character. 10 9 8 7 6 5 4 3 2 1 0 The average interest rate on deposits made in lei by SIF Muntenia during was in most cases superior both to 1 month ROBID and ROBOR and to inflation rate. The downward trend of interest rates on bank deposits which occurred during affected a little SIF Muntenia and investments in bank deposits; so from an overall average interest rate of deposits at the beginning of the year of 5.75% it was reached a level of 4.62% at the end - but the decreases were smaller than those of short-term interbank interest rates. ROBID ROBOR dob SIF Exposure on banks complied with prudential limits, the exposure as of 31.12. being presented in the graph below 35
investments with a perspective There is nothing so disastrous as a rational investment policy in an irrational world John Maynard Keynes 7 RISK MANAGEMENT Risk management comprises all activities aimed at identifying, measuring, monitoring and controlling risks so as to ensure compliance with the general principles of risk policy. Effective risk management is considered vital in order to achieve strategic objectives and provide quality benefits to shareholders on an ongoing basis. In this context, significant risk management strategy provides a framework for identifying, assessing, monitoring and controlling these risks, in order to keep them at acceptable levels according to the risk appetite and the ability to cover (absorb) these risks. Risk Management chapter is divided into three subsections. 1. Limitable applicable risks According to the risk profile of SIF Muntenia, the Managing Company identified a series of applicable risks, whose level it intends to reduce/limit, using a number of techniques, instruments and measures which are to be found within the specific internal regulations. Strategies and specific risk management policies aim primarily at covering certain types of risks, as further detailed. 2. Uncontrollable risks Are those risks that can not be "internally controlled". It includes general economic conditions, legislative risk, adverse events (lawsuits, natural disasters, etc.) 3. Maintaining portfolio assets categories within the holding limits 36
7.1 LIMITABLE APPLICABLE RISKS Politicy related to counterparty risk Counterparty risk - the risk to lose (for the managed entity/sif Muntenia) arising from the posibility that a counterparty to a transaction would not fulfill its obligations before the final settlement of the transaction's cash flow; Management company carries no transactions with a counterparty without assessing its creditworthiness and without properly taking into account the counterparty risk before and at the time of settlement. Creditworthiness of each third party to a transaction is valued by the Directions which underlies proposals for investment / disinvestment. The Management Company has not performed transactions with derivative financial instruments. Policy related to market risk Market risk - risk of loss (for the managed entity) arising from the fluctuation of the market value of the positions in the portfolio (for the managed entity), which arises from the fluctuations which can be attributed to changing market variables such as interest rates, exchange rates, stock or commodities prices or creditworthiness of an issuer. The Management Company has adequate and effective processes and techniques for measuring the market risk at any time. Foreign exchange risk SIF Muntenia may invest in financial instruments and enter into transactions denominated in foreign currencies. It is therefore exposed to the risk that fluctuations in exchange rates can have an adverse effect on the value of net assets denominated in foreign currecy. At 31 December, the principal balance in foreign currency was represented by interests in shares in Erste Bank Group and Globalworth Real Estate Investments Limited. There were currency risk exposures to unlisted corporate bonds, some units of AOPC/OPCVM (Undertakings for Collective Investment, UCITS and non-ucits). At 31.12., the balance of bank accounts denominated in foreign currency was insignificant. Foreign currency exposure of SIF Muntenia portfolio as of 31.12. Currency Value in currency RON equivalent % of NA Stocks traded on a regulated market of an EU member EUR 29,572,736,78 132,624,853 10,74 state Unlisted corporate bonds EUR 2,185,103,22 9,799,532 0.794 Units of AOPC/OPCVM EUR 2,282,585,69 10,236,712 0.829 Current accounts and cash EUR 4542,3 20370,85 0,002 GBP 1 5.38 0,000 USD 247,2 804,66 0,000 TOTAL RON 152,682,278 12.37 Interest rate risk is defined as the sensitivity of SIF Muntenia financial situation to changes in interest rates. Interest rate risk management aims at maintaining exposures to interest rate risk within the limits authorized by management objectives of the Highly liquid assets sub-portfolio. Given the preference for liquidity (liquidity preference theory) which 37
is a guideline of managing this sub-portfolio, investments are short-term ones, without the need at this time for sophisticated risk management tools that are specific to bond funds. Price risk is defined for SIF Muntenia portfolio, as from adverse developments in the price or volatility of assets forming part of the portfolio, which corresponds to potential losses due to changes in asset prices or volatility. The value of securities may fluctuate due to changes on the capital market caused by factors specific to an issuer, an industry, a country or region, or factors influencing the capital market as a whole, national or international. Even through prudent diversification of securities held in the portfolio, general market risk component can not be fought - (systematic risk). This is the most important source of risk and variability in the value of the portfolio. After the "resetting" of financial markets since the second half of 2008, it was necessary for SIF Muntenia to record adjustments for impairment of participations, in some cases which negatively affected the profit and loss account (up to 2012) or shareholders' equity (in ). Part of adjustments to impairment previously recorded was reversed in 2012 and. Policy related to operational risk Operational risk is the risk of loss (for the maaged entity) arising from inadequate internal processes and human errors and deficiencies in the Company's systems or from external events, and includes: - Legal and documentation risk; - The risk arising from trading procedures, settlement and appraisal performed on behalf of the entity managed. The management company has implemented a number of control techniques and tools for each category of risk event in order to minimize operational risk. Policy related to liquidity risk Liquidity risk is the risk that a position from the managed entity's portfolio not to be able to be sold, liquidated or closed at limited cost in a reasonably short time. According to internal assessment methodology and taking into account the provisions of Article 235, para. (3) and Article 185, para. (1) d of NSC Regulation no. 15/2004 according to which SIF Muntenia SA is classified as A.O.P.C. (other collective investment) with a diversified policy, at any time without having to respect the provisions of art. 2, para. (1), letter b) of Government Ordinance no. 32/2012, liquidity risk is insignificant for SIF Muntenia. To limit/avoid liquidity risk, the management company has adopted and will adopt a permanent policy on prudential cash outflows especially during payment of dividends to SIF Muntenia shareholders and provide a high level of asset liquidity portfolio according to strategic objectives approved. About 15% of the total assets of SIF Muntenia is represented by shares that are not listed on regulated capital markets. In addition, another part of listed shares held in portfolio, listed on BSE, especially RASDAQ, have low transactions 38
value, and can be considered quite illiquid. Keeping a portion of 10-15% of the portfolio in highly liquid assets ensured sufficient sources of funding to cover current obligations, dividends distributed and investment program. 7.2 UNCONTROLLABLE RISKS Systematic risk 3 risk that certain events should occur affecting succesively commercial companies, markets and banking systems (georgraphical area may be national, regional or internations). From a financial perspective, for example the probability of payment and settlement system to stop working as a result of disturbing factors such as payment failure by a participant that could cause difficulties to others, through a domino effect, triggering a chain reaction and the occurrence of a financial crisis 4. Legislative risk The operation of SIF Muntenia is regulated by both primary legislation as well as by secondary one, such as Government Decisions and FSA regulations. Legislative risk may influence the value of the portfolio companies (i.e. take over of OPCOM exchange from Transelectrica, tax on special constructions) 3 Details European Committee recommendation for Systematic Risk related to intermediary objectives and macroprudential policy instruments. https://www.esrb.europa.eu/pub/pdf/recommendations//esrb 1.ro.pdf?74f2277d05477c1655e351ea23ca c322 4 Global Risks 2014. World Economic Forum http://www3.weforum.org/docs/wef_globalrisks_report_2014.pdf#page=4&zoom=auto,0,590 39
7.3 MAINTAINING PORTFOLIO ASSETS CATEGORIES WITHIN THE LEGAL HOLDING LIMITS (NSC REGULATION NO. 15/2004, ART. 188) SIF Muntenia assets were maintained throughout the year within prudential holding limits permitted by Law. 297/2004 and art. 188 of NSC Regulation No. 15/2004 regarding the exposure conditions of the AOPC with diversified investment policy. Values of holdings and total asset values referred to further in this chapter are calculated according to NSC/ASF regulations. Shares and monetary market instruments not admitted to trading <20% of total assets 18,5 18 17,5 Evolution of indicator in 17 16,5 16 15,5 15 14,5 15,82 15,48 16,24 17,05 17,11 17,28 17,95 16,72 16,55 16,65 16,000 15,88 16,38 14 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Shares and monetary market instruments not admitted to trading Value as of 31/12/ Unlisted shares (closed) 192,267,346.07 Unlisted shares (unlisted but traded on BSE) 151,447.48 Unlisted corporate bonds 9,799,532.41 Total shares and monetary market instruments, not admitted to trading 202,218,325.96 BCR stake value 0.48 SIF MUNTENIA Total assets as of 31/12/ 1,234,915,662.89 Percentage of shares and monetary market instruments, not admitted to trading, excluding BCR, of SIF Muntenia total assets, acc. to. NSC no.15/2004 16.38 40
Shares and monetary market instruments issued by the same issuer <10% of total assets, The limit of 10% may be increased up to maximum 40%, under the condition that the total value of the shares and monetary market instruments held by the company at each of the issuers where it holds participations of more than 40% not to exceed 80% of its total assets value (art. 188 letter b of Regulation no. 15/2004) At the end of 2012, its stake in BRD-GSG represent 17.775% of the total assets of SIF Muntenia and at the end of this represented 18.67% of the total assets based on the increased price of the share on BSE, although SIF Munetia participation at BRD share capital was reduced from 4.147% at the beginning of the year down to 3.67% at the end of the year. According to art. 275 para. (2) of NSC Regulation no.15/2004, BRD-GSG is not included in the calculation related to the holding limits stipulated under art. 188 para.b). At the end of 2012, SIF Muntenia exposure on Erste Group Bank was of 15.2% of its total assets. At the end of, the exposure on Erste Bank decreased to 10.35% of SIF Muntenia total assets. Financial instruments issued by entities of the same group <50% of total assets At the end of the year 2012, the most important exposure of SIF Muntenia portfolio was on BRD group 19.22% od total assets. The exposure on Erste Bank was reduced to 15.21%. At the end of the year, the exposure on BRD group was reduced to 18.64%, and the exposure on Erste group to 10.39%. Current accounts and cash values <10% of total assets The current accounts and cash values never exceeded 10% of total assets. As of 31.12., the current accounts and casf, amounting to 19,816,090 lei, represented 1.60% of SIF Munteia total assets. Indicator evolution in 41
Bank deposits made at the same bank <30% of total assets At the end of. The total value of SIF Muntenia bank deposits represent 8.11% of SIF Muntenia total assets. The total value of bank deposits never exceeded 30% of total assets. Units of AOPC (Other Undertakings for Collective Investment) <50% of total assets At the end of, the total value of the units of AOPC represented 4.13% of SIF Muntenia total assets. 5% 4% 4% 3,284% 3,309% 3,089% 3,180% 3,129% 3,388% 3,531% 3,507% 3,505% 3,547% 3,612% 3,912% 4,132% 3% 3% 2% 2% 1% 1% 0% Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Other limitations, not applicable: SIF Muntenia is not exposed to third party risk in a transaction with financial instruments outside financial markets. SIF Muntenia is not exposed to global risk towards derivate financial instruments. 42
investments with a perspective 8 LEGAL PROCEEDINGS - PORTOFOLIO S.A.I. Muntenia Invest, the administrator of SIF Muntenia, in exercising its powers under the provisions of art. 55 of Law no. 297/2004 and the provisions of the administration contract concluded between SAI Muntenia Invest and SIF Muntenia, defends the exercise and exploitation of SIF Muntenia s rights. For this purpose, the legal services activity is provided by legal counsels and by lawyers. The legal proceedings where SIF Muntenia is involved can be classified into the following categories: a. Civil law suits in which SIF Muntenia is a defendant usually based on Law no. 10/2001. They concern the claims of properties owned by companies that are or have been in the portfolio of SIF Muntenia and as ancillary, the requirement of considering of absolute nullity certain shares sale purchase agreements (issued by companies owning the properties claimed) between SIF Muntenia SA, as seller and other persons as buyers. b. Civil law suits in which SIF Muntenia is guarantor (in most of the cases together with AVAS Authority for State Assets Recovery) - although applications are erroneous, by persons who may not have locus standi in such a case, there were situations in which the court admitted at first case, such a request. Until now there is no final and irrevocable sentence by which SIF Muntenia is liable to pay damages. We consider that such a situation is unlikely, being against Romanian and communitary legislation. c. Civil law suits in which SIf Muntenia is a third party debtor. SIF Muntenia was sued as third party debtor in the files having as object forced execution of NSC as civil responsible party in the penal file related to FNI (National Investment Fund) compensations. There were two types of legal proceedings: enforcement appeals made by NSC and validation requests against garnishment of SIF Muntenia as third party. In one of the cases the garnishment validation was admitted, with the consequent formation of a foreclosure case in which SIF Muntenia was executed for 43
the amount of 1,162,608.49 lei. * SIF Muntenia has lodged appeals, which are currently pending at the courts of law on various stages of settlement. Event subsequent to 31.12. * On 11.02.2014, Bucharest Court of Law admitted the appeal made by SIF Muntenia and rejected the garnishment validation as unfounded. SAI Muntenia Invest is further pursuing to recover the amount garnished. d. Other litigations in which SIF Muntenia SA has the quality of defendant or civil responsible person civil suits related to SIF Muntenia s quality of shareholder in several companies (eg. CI-CO SA, pending penal proceeding dated from 1999). e. Legal proceedings in which SIF MUNTENIA SA has the quality of claimant represents the most important part of the legal department and have as object the annulment of shareholders general assemblies resolutions of several companies within the SIF Muntenia portfolio, by which the shareholders have taken illegal decisions whose enforceability brings harms SIF MUntenia s interests. Among the files for which special law offices assistance was required, we mention: File no. 10629/P/2010 regarding penal complaint made by SIF MUNTENIA, before the Prosecutor's Office attached to the Bucharest Court of Law on SC Restaurante Elements. File no. 72303/3/2011 regarding SC CI CO SA, having as object, among others, money laundry offence, before Bucharest Court of Law I st penal section. File no. 3715/120/, having as object the annulment of SC PAVCOM SA SGM Resolution. 44
investments with a perspective 9 SIF MUNTENIA SHARES. RELATIONSHIP WITH THE SHAREHOLDERS The share capital subscribed and fully paid up is RON 80,703,515.5, divided in 807,036,515 common shares, with a face value of RON 0.1/share. The main characteristics of the shares issued by SIF Muntenia All shares are ordinary shares, being subscribed and fully paid. All shares have nominal value of RON 0.1/share. The number of authorised shares is equal with the number of issued shares In there were no changes in the number of shares issued According to the in force legislation, it forbidden the acquisition of shares which conduct to a holding of more than 5% of the share capital or of the voting right, according to the Law no. 297/2004 regarding the capital market, modified by the Law no. 11/2012. Where a shareholder will own shares representing more of 5% of the share capital, it will not have voting right on the shares owned more than specified percentage, but has the right to receive dividends for such shares. Until 31.12., the company did not approved any programme and did not acquired own shares. SIF Muntenia did not issue bonds and/or other debt securities (debentures). The whole activity is financed only through own funds. Since its establishment, SIF Muntenia did not acquire and did not hold at any time its own shares. The shares issued by SIF Muntenia are quoted on the Bucharest Stock Exchange, 1 st Tier, investment companies sector, in accordance with the provisions of the BSE decision no. 200/1999 and are traded on this market since 01.11.1999. Central Depository, the company authorised by the NSC, keeps the evidence of the shares and shareholders of SIF Muntenia. DESCRIPTION OF ANY CHANGES ON THE RIGHTS OF THE HOLDERS OF SHARES ISSUED BY THE COMPANY In, until 20.12., the Establishment deed of SIF Muntenia changed in accordance with the provisions of Law no. 11/2012, law amending the Law no. 297/2004 regarding the capital market, and approved by the NSC by the 45
endorsement 15/29.03.2012 was valid. The establishment deed is published on the company s website, www.sifmuntenia.ro. On 23.12., SIF Muntenia informed the shareholders that the company s Establishment Deed amended by Civil Sentence no. 2519/27.03. issued by the Bucharest Court, Section VI Civil case no. 5116/3/, has been published starting with 24.12. on the company s website www.sifmuntenia.ro. The Establishment Deed in the form amended has been approved by the ASF Financial Instruments and Investments Sector through the endorsement no. 59/20.12.. CHANGES AFFECTING THE MANAGEMENT OF THE COMPANY On 15.02. SIF Banat Crisana has notified NSC and Bucharest Stock Exchange regarding its intention to acquire control position in SAI Muntenia Invest SA. On 27.06. the decision no. 27/20.06. issued by the Competition Council was communicated by the Competition Council and released by the SIF Banat Crisana (according with the provisions of art. 46 alin 2 of the Competition Law no. 21/1996 and according to the provision of the Regulation regarding the economic concentration) of non-objection on economic concentration realized by acquisition by SIF Banat Crisana of the control over SAI Muntenia Invest SA and, indirectly, to SIF Muntenia SA. On 20.05. SAI Muntenia Invest SA notified the termination of Mr. Petre Pavel Szel s Administator mandate and appointment of Mr. Sorin Boldi as Administrator and Mr. Gabriel Filimon s appointment as President and General Manager. On 17.07., FSA informed about the approval of SIF Banat Crișana request to acquire a qualifying holding representing 99,96% of the share capital and total voting rights of SAI Muntenia Invest SA. On 19.08., SAI Muntenia Invest SA informed that the OSGM of SAI Muntenia Invest SA appointed Mr. Gheorghe Dănuț Porumb as President of the Board of Administrators of SAI Muntenia Invest SA, for a 4 year mandate. On 26.08., SIF Banat Crișana notified its intention to transfer to SIF Moldova its rights and obligations arising from the acquisition of a shares stake of 49.96% of the share capital of SAI Muntenia Invest. The transfer shall be finalized upon the Competition Council Decision and the endorsement of Financial Supervision Authority. Event subsequent to 31.12. On 07.02.2014, SAI Muntenia Invest SA informed its investors on the modification of the company s authorization for investment management following the modification of the company s management, by the appointment of Mr. Porumb Gheorghe Dănuț as Director person in charge with the actual management 46
9.1 INVESTORS INFORMATION Transparency, reporting and investors information obligations have been complied with and supplied by press releases delivered through national financial profile newspapers, by publication of periodical and continuous information reports supplied electronically both on the Company s website www.sifmuntenia.ro, as well as on the electronic system of the capital market where SIF Muntenia s shares are listed, by NSC/FSA information notices by classical and electronic means reporting, by running a written and electronic correspondence with the shareholders. Institutional obligations of dissemination and reporting in relation to capital market institutions: Periodical reporting to NSC/FSA and BSE; Current reporting and/or communiques to NSC/FSA and continuous to BSE; Monthly reporting to NSC/FSA according to Instrution no. 1/2007 of NSC; Monthly reporting to NBR/NSC according to EU Regulation no. 958/2007. Information obligations in relation to shareholders were made by mail, telephone information through a dedicated shareholders relationship service, organized by SAI Muntenia Invest. Written and electronic correspondence with shareholders targeted information on the payment of dividends, share transfer by inheritance updaing shareholders data, tax rules for both residents and non-residents, details about the financial reports, etc. 9.2 CORPORATE GOVERNANCE SIF Muntenia s Administrator decided to adhere to the rules and corporate governance of BSE Corporate Governance Code. The website www.sifmuntenia.ro comprises complete information regarding the corporate governance policy of SIF Muntenia: Members list of Shareholders Representatives Council; Members list of the Board of dministrators and Executive Management of SIF Muntenia s Administrator; Updated Establishment Deed of SIF Muntenia; Apply or Explain Declaration; Corporate Governance Regulation of SIF Muntenia. 47
9.3 SHAREHOLDING STRUCTURE Syntetic shareholding structure of SIF Muntenia, data received from Central Depository Shareholders resident natural persons Shareholders nonresident natural persons Shareholders resident legal persons Shareholders nonresident legal persons NUmber 31-12-12 31-12-13 Shares % owned of Number Shares owned % owned of owned total shares total shares 6,000,741 565,509,527 70.07% 5,989,080 581,886,389 72.1% 1,642 3,525,402 0.44% 1,709 3,628,124 0.4% 248 99,258,021 12.30% 216 105,311,064 13.0% 54 138,743,565 17.19% 41 116,210,938 14.4% 9.4 SHAREHOLDERS GENERAL MEETINGS 5 March Publication of the convening notice of the ordinary shareholders general meeting as of 25/26 April for approving the financial statements and establishing the dividend for the year 2012. Reference date: 5 th April 19 March Registration of the request for supplementation of the agenda of the OSGM as of 25/26 April. 26 March Publication of the convening notice, supplemented with the requests as of 19 March for the OSGM as of 25/26 April. 48
25/26 April Ordinary Shareholders General Meeting of Societatea de Investiţii Financiare Muntenia S.A. convened according to law by publication in the Romanian Official Gazette, Part IV, no. 1234 as of 06.03. and Bursa newspaper no. 43 as of 06.03., supplemented by the publication in the Romanian Official Gazzette, Part IV, no. 1640 as of 27.03. and Bursa newspaper no. 58, as of the same date, was legally held on the second convocation, on 26.04., being present, represented or voting by correspondence shareholders owning a number of 187,879,482 shares, representing 23.28% of the Company s total share capital. The financial statements for the financial year 2012 were approved, the dividend to be distributed in being established and a new Shareholders Representatives Council being appointed. By resolution no. 8 of the OSGM as of 25 April, it was approved the appointment of the following members of the Shareholders Representatives Council of SIF Muntenia SA, for a period of 4 years, starting wth their appointment date, with the majority of votes, as follows: Nicolae Mergeani, Andrei Diaconescu, Alina Ruxandra Albu, Adrian Victor Prodan, Aurelian Zaheu, Marius Pantea, Adrian Andrici, Catalin Mancas, Stefan Dragos Gioga, Marcel Gheorghe, Daniel Pandele. Starting with 26 April, Ms. Alina Alexandra Albu is appointed as President, and Mr. Daniel Pandele appointed as Vice-President of the Shareholders Representatives Council of SIF Muntenia SA. 9.5 TRADING OF SHARES ISSUED BY SIF MUNTENIA NSC Registry PJR09SIIR/400005 BVB: SIF4 Blooomberg: BBGID: BBG000BMN7T6 Bloomberg: SIF4:RO Trading of shares issued by SIF Muntenia in, summary REGS ODDS DEAL TOTAL Number of trades 16,455 8,337 40 24,832 Number of traded shares 100,879,000 585,250 78,488,000 179,952,250 Total value (lei) 77,530,137 444,971 57,851,372 135,826,479 % of total number of shares 12.5% 0.1% 9.7% 22.3% 1,2 1 0,8 0,6 0,4 0,2 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5 4 3 2 1 0 Volume mlns Avg price 49
Price variation of SIF Muntenia shares, as compared to BET-FI variation Net asset discount during the last year Share performance 2009 2010 2011 2012 Closing price in lei 0.71 0.644 0.571 0.77 0.882 NAV per Share in lei 1.8235 1.7489 1.5335 1.3189 1.3150 Net asset discount % 61.1% 63.2% 62.8% 41.6% 33% Market capitalization mn lei 573.00 519.73 460.82 621.42 711.81 3 months 26,2% 6 months 28,6% 1 year 14,5% 50