Fondul Proprietatea SA (FP) Earnings Call Transcript & Summary

Welcome to the Fondul Q1 2022 Results Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Marius Dan, Deputy CEO, Corporate Strategy.

Thank you and good afternoon, good morning, and welcome, everyone, to our conference call to discuss the first quarter results and the April 2022 net asset value development. I'm Marius, CEO of Franklin Templeton International Services, Bucharest Branch is fund manager of Fondul Proprietatea; [ Roberta ], financial reporting analyst, and are pleased to host today's call. The first quarter 2022 results report can be found on the Fund's website in the financial results section of the presentation that we will be discussing was also sent out earlier today. The slides are available on our website at www.fondulproprietatea under Investor Relations call section. After the presentation, we will have a 30-minute Q&A session. And as a reminder, the call is being recorded. A recording will be made available on the fund's website right after the call. That being the agenda, I turn to Johan to start off with the presentation.

Thanks, Marius, and hello to everyone. I'll start with slide 2 of the presentation, where we show the key facts about the Fund. At the end of April, the Fund's NAV was RON 15.96 billion or $3.4 billion and the NAV per share reached RON 2.5772 per share or $0.551 per share. It's worth mentioning that this is a record high in terms of NAV per share and the highest in terms of total NAV since March 2012, taking into consideration that we've distributed over RON 13 billion to shareholders between 2013 and 2021. During the Fund's annual shareholder meeting on April 20 this year, shareholders approved the distribution of RON 0.125 per share, which implies a dividend yield based on the 13 of May, the closing share price of [ RON 0.0604 ]. On the right-hand side, you can see the evolution of Fund's adjusted share price and the discount premiums to Fund listing in January 2011. So the Friday's close, the Fund was trading at a discount of 11.8% for the shares and 17.3% for the GDRs. Moving on to slide 3, we present the fund shareholder structure at 30 April, '22. In April few of the Fund's shareholders submitted a new ownership disclosures. According to the disclosures sent by the Ministry of Finance on the 1 of April and then group on 11 of April, the Ministry of Finance holds 5.97% of the total voting rights and in group 11.24%. Now moving on to slide 4. We show a summary of the net asset value, share price and GDR performance since 2011 and the evolution of the Fund's average annual discount on the Bucharest and London Stock Exchanges. The NAV total return in the first quarter of '22 was 3.7%. The total return from the local shares was 9.2%, while the total return for the CDRs was 6.5%. And year-to-date, the NAV total return was 19.4%. The total return from local shares was 6.6% and the total return from CDRs was 0.1%. Now on slide 5, we show the contributors to the Fund's NAV performance in the first quarter of the year. No surprises there. The top performer was Hidroelectrica following the update of the company's valuation report with an adjustment to the lack of marketability as estimated by KPMG Romania, which is based on the company's shareholder approval in the 31 of March shareholder meeting approving the listing on the stock exchange. The [ tractor's ] main bottom performers during the first few months with listed companies Petrom, Alro and Romaero. Overall performance for the NAV was positive 3.7%. Of course, the Funds will continue to closely monitor the evolution of our financial markets. And of course, the specific industries, the [indiscernible] operating for each NAV reporting date and if necessary, an update of the multiple analysis will be prepared and the valuation of the unlisted holdings will be updated accordingly. In the next section, we will give an update on the Fund's portfolio. Moving on to slide 7, which shows the portfolio structure as of the end of April, 87% in unlisted companies, 6% in listed equities and 7% in net cash and receivables. The net cash and receivable position as of 3 April, '22 was $236 million. Please note that the gross dividend per share of RON0.125 per share approved by shareholders in 20 April is reflected in the April '22 NAV as a liability. On slide 8, we present the top 10 portfolio companies as at 30 April, '22, representing almost 92% of the Fund's NAV with Hidroelectrica representing just over 71% of the Fund's net asset value. On slide 9, we're providing some updates specifically on Hidroelectrica. According to the management, in the first 3 quarters of the year, the company has registered -- the company compared to the same period of 2021, an increase of 65.7% in turnover to RON 2.35 billion, an increase of 52% in EBITDA to RON 1.6 billion and a 70% increase in net profit of very close to RON 1.3 billion. During the period, total electricity sold was 3.35 terawatt hours which was a decline of 29% year-on-year. out of which the electricity sold on [indiscernible] production was 3.2 terawatt hours down 30% year-on-year. And this is due to worsening hydrology, out in the first quarter of the year. The average -- as we realized selling price for electricity was RON655 per megawatt hour, an increase of 134% year-on-year. At the end of March '22, the company's cash and equivalents stood at around RON 4.85 billion. As mentioned earlier, on the 31 March shareholder meeting, the company's shareholders approved the initiation of listing on the Bucharest Stock Exchange following a public offering of the shares held by Fondul Proprietatea. The approval allows Fund to explore together with advisor to be appointed as part of the process, a wide array of options with regards to potential realization of all part of its holding in Hidroelectrica. Moving on to slide 10, we present the main updates on OMV Petrom, the Fund's second largest holding. First quarter of the year, total revenues increased by 45% compared to the first quarter of 2021, and this is bought by higher pricing volumes of petroleum products and operating result was 243% higher compared to the first quarter of 2021. Other highlights on this slide is, of course, the draft law that was published and is currently in parliament under a fast track procedure with the aim of having it passed in the second quarter of this year and hopefully, has seen Petrom's final investment decision sometime early next year. If favorable, if the final investment decision is favorable, OMV Petrom is also the operator of the Neptun Deep project. And then, of course, also worth noting that [indiscernible] signed on the 3 of May, the contract for the acquisition of the ExxonMobil Romania shares, in other words, 50% of the stake in Neptun Deep project. Now moving on to slide 11. We present some big updates on ENEL Energie. And the key message here is following several the energy regulator orders approved in March 2022. There was an adjustment in the gas distribution tariffs for Energie, an increase of 7.3% to the tariffs approved in 2021. Also, for the ENEL distribution companies, regulated distribution tariffs were adjusted, an average increase of 7.9% starting with January '22 versus January 2021 and increase of 21.7%, starting with April '22 versus January 2022. On slide 12, we also show key financials for the Fund's top 10 portfolio holdings, including the 2021 figures approved or pending shareholder's approval. Now moving on to the corporate action section, I'd like to pass on to Marius for his comments.

Thanks, Johan. On slide 14, we outlined the Fund distributions since we started managing the Fund for 2022, the total estimated distribution as of the 13 of May is around RON 821 million. The amount includes the buybacks executed during the 13th buyback program, for which the daily repurchases have been put on hold on -- starting with the 11th of March following the submission for approval with the FSA of the tender offer documentation. And the daily buybacks are restricted until the tender offer is closed. The 2022 amount also includes the estimation for the RON12.5 per share gross dividend, which has been approved by shareholders and which will start on 27th of June with the Fund's shareholders that are registered with the trade registry as of the 3rd of June. The total distributions made since 2010, will reach over RON 16 billion or around $4.2 billion. On slide 15, we outlined the latest updates for the Fund's buyback program during the Annual Shareholder Meeting, which was held on the 20th of April, the Fund shareholders approved the cancellation of the shares bought back last year and the process is currently ongoing. Will notify the market and this has been completed. Moving on to slide 16. We present the main details of the 10th tender offer, which was approved by the local regulator, the Romanian FSA last week, 325 million shares in the form of shares DDRs out of the total of 800 million shares, which have been approved by shareholders to be repurchased during the current buyback program. The purchase price is RON 2.19 per share and the dollar equivalent of RON109.5 per share for each GDR repurchase. One important note on the pricing of the tender versus the current share price and the NAV, 30th of April NAV of RON2.57782 is ex-dividend, whereas the share price is not and will not be ex-dividend until the 2nd of June this year, which means that the current headline discount to NAV is smaller than the actual discount and the timing of the tender offer is even more important. If we were to adjust Friday's share price with the value of the dividend, then the current discount to NAV is around 24.5%. The subscription from 18th of May to the 24th of June 2022 for the tender offer period allocation method, of course, as always, pro rata and then you have the intermediaries and the dealer managers and the tender agent. On slide 17, we include the details of the Fund's annual net dividend and dividend payout ratio for the top 10 portfolio companies as of the end of April, based on the numbers already approved or submitted for shareholders' approval by the portfolio companies. The total amount for the top 10 holdings is the RON 658 million and Hidroelectrica accounts for 85% of the total regular dividend. On slide 18, we show the summary of the total dividend income received from the portfolio companies in the last 10 years. The total dividends regular and specialty be received this year so far is around RON 857.2 million. That includes the special dividend of over RON 199 million from Hidroelectrica, and that brings Hidroelectrica's contribution to the total dividend income for the fund to 89%. Moving to slides 19 to 23 as mentioned on our previous call, we were considering to organize our Annual Investor Day in Bucharest and the feedback that we have received from our shareholders and prospective investors have been very positive. Therefore, I'd like to take this opportunity today to invite you to Bucharest 14th and through the 16th of September. Please mark your calendars and make sure that you sign up as soon as possible after the registration open in order for us to be able to make all the necessary arrangements. The agenda of the event is included in the slides. We will have a site visit to Hidroelectrica and [indiscernible] power plant on the 14th of September, an impressive asset. Keynote features and panel discussions during the first half of the day on September 15 and then one-on-one and group meetings afterwards and on the 16th of September. That being said, I'd like to turn it to [ Roberta ] financial reporting analyst to comment on the Fund financial results. Roberta?

Thank you, Marius. The statement of financial position presented on slide 25 shows the 55th increase in the balance of cash and cash equivalents, including bank accounts, then deposit, treasury bills and government bonds compared with balances at the end of last year due to the cash inflow from the partial disposal of the Fund's holding in OMV Petrom, we generated a cash inflow of around RON 978 million and the cash received on the 1st February 2022 from the Ministry of Finance, the statement of TMP shares held by Romanian State in Fondul Proprietatea of around RON 189 million. The cash outflow related to the special dividend distribution paid to the shareholders in February 2022 depend increasing cash and cash equivalents around RON 320 million. The net increase of equity investment balance of around RON 821 million compared to it for 21 December, 2021 was mainly due to the increase in the value of Hidroelectrica holdings as a result of the updated the discount for the lack of marketability using the valuation report for this holding based on the estimation prepared by KPMG Romania considering the shareholders' approval for the listing of the company on the stock exchange. The value of listed portfolio decreased during the fourth quarter of 2022. The most significant increase is being recorded by OMV Petrom's share price which decreased by 5.8 percentage with a total impact on funded portfolio of around RON 49 million. Other liabilities balance decreased by 78.2 percentage compared to 31 December, 2021 due to the payment in February 2022 on the special dividend distribution approved by the shareholders on 15 December, 2021. On the next slide, slide 26, we are presenting the statement of comprehensive income, where it can be noted, where Fondul Proprietatea recorded a net profit for the fourth quarter of 2022 of RON 826 million, which was mainly generated by the realized gain from the change in the fair value of the holding in Hidroelectrica, an amount of RON 883.5 million and by the realized recorded in relation with the receivable regarding the unpaid share capital from the Romanian State of RON 189 million and by the loss of RON 157 million recorded in relation with the partial disposal of the investment in OMV Petrom. I now turn to you, Marius. Thank you.

Thank you, Roberta. At this point, we would like to open it up for any questions.

[Operator Instructions] Your first question comes from the line of Iuliana Ciopraga from WOOD & Company.

Two questions from my side. Regarding Hidroelectrica results for the first quarter, when I look at the windfall tax that was paid, it seems rather low given the average price realized in the first quarter. Can you comment a bit on this? I mean they paid 300 something million, it's less than what would be, if we apply the formula 80% of average price minus 450 multiplied with the volume? And secondly, what has been driving the latest increase in valuation for [indiscernible]. Can you give us any sort of color on that?

Iuliana, there a couple of quick points here. So the reason why the windfall tax is relatively low is in the determination of the average price, the purchase price of electricity is deducted. And also in the supply business and the sell-to-consumers, the internal transit price is considered not the full end price. So there is internal adjustments that explained in the calculation of the windfall tax, and we are -- the numbers in the financial statements and then the quarter report published.

Sorry, I missed what was divested from the calculation.

The input -- the budget price of the electricity. The production costs.

Budget applies draw equity as well. I mean this is only from the ordinance 27, which came into 14 March. Did these changes apply directly, I mean, what they allow to develop this cost already in the first quarter.

That's our interpretation and that's how the numbers were calculated, yes. But maybe we can confirm that and maybe get back to you later in the call.