Fondul Proprietatea SA (FP) Earnings Call Transcript & Summary

Hello. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Fondul Proprietatea Q1 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]. Marius Dan, Deputy Chief Executive Officer, Corporate Strategy, you may begin.

Thank you. Good afternoon, and welcome, everyone, to our conference call to discuss the first quarter 2023 results of Fondul Proprietatea as well as the April 2023 net asset value development. Johan Meyer, CEO of Franklin Templeton, Bucharest Branch and Fund Manager of Fondul Proprietatea; Calin Metes, Deputy CEO; Catalin Cadaru, Financial Reporting Manager, and I are pleased to host today's call. The first quarter 2023 quarterly reports can be found on the Fund site in the financial results section and the presentation that we will be discussing is available on our website at www.fondulproprietatea.ro in the Investor Relations Call section. After the presentation, we will have a 30-minute Q&A session. As a reminder, the call is being recorded. The recording will be available on the Fondul's website after the call. With that being the agenda, I'll now turn to Calin to start off with the presentation, Calin?

Thank you, Marius. Good afternoon, everyone. I would like to start with Slide 2 of the presentation, where we highlight the key facts about the Funds. At the end of April, the Funds NAV was roughly RON 14.31 billion, that means around $3.2 billion, and NAV per share reached RON 2.65. On the right-hand side, you can see the evolution of the funds adjusted share price and discount premium Fund's was listed in January 2011. As of yesterday's close, the fund was trading at a discount of roughly 21% for the shares and 19.7% for the GDRs. On Slide 3, we present the Fondul's shareholder structure as of 30th of April 2023. There are no major changes since our last results conference call in February 2023. The cancellation of shares bought back during 2022 was approved during the 2023 Annual Shareholders Meeting. On Slide 4, we show a summary of the NAV, share price and GDR performance since 2011 and the evolution of the Fondul's, average annual discount on the Bucharest Stock Exchange and London Stock Exchange. The NAV total return in the first quarter of this year was 0.5%, and the total return for the local shares was 3.2%, while the total return for GDR was 6.5%. For the first 4 months of this year, the NAV total return was 5.1%. The total return for the local shares was 2%, while the total return for GDRs was 6.5%. On Slide 5, we show the contribution to the Fondul's NAV performance for the first quarter. As you can see on Slide 5, the NAV per share increased by 0.5% as a result of the tender offer that was finalized in March and the share price evolution according with the Bucharest Stock Exchange. As you can see, the main contribution -- the main contributors in the first quarter of this year were Alro, Mecon and IOR. The bottom performer for the quarter was Romaero, this is a small holding in the Fund's portfolio. The Fund will continue to closely monitor the evolution of financial markets and that of the specific industries of the unlisted holding operating and if necessary, an update of the multiple analysis would be prepared and the valuation of unlisted holdings will be updated accordingly. In the next session, we would like to give an update on Fund's portfolio. On Slide 7, we show the portfolio structure as of end of April. As such, 93% of the NAV in unlisted companies, 1.2% in the listed equities and 5.8% is net cash and receivables. Net cash and receivables position as of end of April stood at approximately $186 million. On Slide 8, we present the main portfolio companies at the end of 30th of April 2023, which represents 92% of the Fund's NAV. While Hidroelectrica is the biggest holding, representing approximately 76% of the Fund's NAV. On the next slide, on Slide 9 and 10, we present some updates on the largest holding of the Funds in Hidroelectrica. In Slide 9, we show the financial and operating figures -- operational figures for the first quarter of this year. According to the management, the company registered in comparison to the first quarter of last year, revenues of RON 3.4 billion, which was up 37% compared to the first quarter of last year. An operating result of RON 2 billion, up 33%. EBITDA of RON 2.2 billion, up 34%. Net profit was also up 34%, RON 1.7 billion. Also, the total electricity sold was up 45% to 4.8 terawatt hour, while electricity sold out of own production was up 38% to 4.4 terawatt hour. The average realized electricity selling price was flat compared to last -- to the first quarter of last year at approximately RON 656 per megawatt hour. According to the management over the first 3 months of this year, the company registered total cost with the windfall tax of RON 230 million, which is 32% lower compared to last year. The turbinated water cost was up by 48% to RON 164 million due to the higher production level registered by the company. At the end of March of 2023, the cash and cash equivalent position of the company stood at approximately RON 4.9 billion. The total interest-bearing debt amounted to RON 474 million compared to RON 555 million of -- compared to this amount which was last year. So the interest-bearing debt was lower this year compared to the last year. It's important to note that also the company approved the dividend payout for this year. It was a 90% payout out of the net profit. So the total distributable profit for this year, which the company -- which the rest out to pay is around RON 3.91 billion, out of which Fondul Proprietatea will cash in RON 780 million. This is to be paid in -- on the 15th of June to Fondul. Also, shareholders approved the payment of special divisions, Hidroelectrica in the total amount of RON 435 million. So Fondul Proprietatea will cash in around RON 87 million. This amount will be paid at the end of September. On the corporate governance front, this is Slide 10. Please note that on the 28th of March 2023, the shareholders appointed the new Supervisory Board with a 4-year mandate. Out of the 7 Board appointments, Mr. George Niculescu, Mr. Silviu Avram and Mr. George Toniuc were acting for the first time as board members on the Supervisory Board while Mr. Mihai Mihalache, Ms. Carmen Radu, Mr. Karoly Borbely and Mr. Daniel Naftali have been reappointed. Subsequently, on 21 April 2023, the shareholders approved the revocation of Mr. George Niculescu from the Supervisory Board of Hidroelectrica, following the termination of his mandate contract through mutual agreement. Mr. Niculescu was appointed by decision of the Romanian Parliament as President of the ANRE starting with 23 April 2023. Following a court case initiated in 2020 by an employee of the company, in April 2022 the Bucharest Court annulled the recruitment procedure and the selection process that was carried out by the company during 10 April and 4 June 2019, for the selection of the 5 members of the Directorate. According to the decision, the company is obliged to issue a new decision for a new recruitment process. The appeal filed by Hidroelectrica was rejected by the Bucharest Court of Appeal in a ruling issued in March of this year. Starting with 7 April 2023, all 5 members of the Directorate who are Mr. Bogdan Badea, Mr. Andrei Gerea, Mr. Marian Bratu, Mr. Razvan Pataliu and Mr. Cristian Vladoianu were reappointed on an interim basis for a 4-months period. Regarding the company's IPO, we and Hidroelectrica continues to prepare for an IPO during 2023. As you all know, the Romanian state has committed in PNRR for the listing of Hidroelectrica by the end of June of this year. On Slide 11, we present the 2022 figures for Bucharest airports. On the financial side, we see an increase of 73% of the operating revenues compared to last year. So operating revenues reached almost RON 1 billion. The operating results recorded a level of almost RON 345 million, which is significantly higher compared to the results of last year of 2021 when there were only RON 41 million. Net income was also 8x higher compared to previous year to a RON 304 million. These good results were 'as a result of the increased traffic in the airport, which reached the record high levels in the first quarter of this year of 3.1 million passengers. This is over 3% higher than pre-COVID levels in Q1 2019 and 54% higher year-on-year. On Slide 12, here, we present some updates on ENEL, as we already announced to the market, the Fund and the Greek Company Public Power Corporation has concluded on 19th April of this year an agreement for the sale of all the equity stakes held by the Fund in E-Distributie Muntenia, Enel Energie Muntenia, E-Distributie Dobrogea, E-Distributie Banat and Enel Energie initiated for a total consideration of RON 650 million. The completion of the sale under the SPA is subject, among others to the closing of a transaction between Enel and BPC. Based on the information provided by Enel and BPC, they expect the transaction to be closed in the third quarter of this year. On Slide 13, we present some updates on Enel and Engie. We have a few orders -- several orders issued by ANRE energy regulator approving the new tariffs for this year, both for the distribution and for electricity companies. The gas distribution tariffs for Engie are on average -- or 57% higher compared to last year. While for the E-Distributie companies for the Enel distribution companies, the tariffs -- the distribution tariffs have increased on average by roughly 12% this year compared to last year. On Slide 14, we show the 2022 figures for constant support. The revenues have increased by 15% year-on-year and have reached RON 450 million. Operating profit was RON 132 million, down from RON 141 million of last year. Net profit was also 12% down to RON 115 million. On the corporate governance front, all 4 members have interim mandates. So -- and the selection for the 4-year mandate provides for the Board members has not yet been initiated. Regarding Salrom's results on Slide 15. The operating revenue increased by 32% to almost RON 500 million. Operating profit was RON 134 million, almost double compared to last year, while net income was also doubled to RON 121 million. On the corporate governance front, in January of this year, the shareholders approved the relaunch of the selection process for Board members based on Ordinance 109 with the selection procedure being conducted at the level of the Ministry of Economy. Regarding the company's IPO, the Fund continues to engage with the majority shareholder and the company in relation to preparation for a potential IPO in the context of the protracted process for the appointment of the company's directors under the corporate governance rules applicable to state owned entities. On Slide 16, we show key financials for the Fund, the largest holdings, including 2022 figures approved or which are pending shareholders' approval. Now we are moving on to the next section of the presentation to Corporate Actions section, and I would like to invite Marius to comment on that.

Thank you, Calin. If we look on Slide 18, where we outlined the Fund's distribution since we started managing Fondul Proprietatea, the 2023 amounts that you see on the slide are based on the buybacks that have been executing so far that they will buy back. The tender offer as well as the dividend distribution, which was approved by the shareholders during the 21 April Annual General Shareholders' Meeting and the number of paid shares, excluding treasury shares as of 11th of May. At this point, the daily buybacks or the daily execution of the 14th buyback program, which started on the 3rd of January is currently suspended. The amounts that were referenced earlier, including the dividends that we will be receiving from Hidroelectrica, the regular as well as the special dividend and the proceeds from the annual transaction are not reflected on this slide. The total distributions that we have made since 2010, including the current -- the amount spent for 2023 have reached over RON 18.1 billion, which is approximately $4.7 billion. And as mentioned earlier, there will be more to come in 2023. On Slide 19, we outlined the latest update on the fund's buyback program. The 14th buyback program started on the 3rd of January 2023. And during the last shareholder meeting -- the Annual Shareholder Meeting from the 21st of April, upon shareholders approved the cancellation of shares that were bought back last year. And that process is currently ongoing. If we move on to Slide 20, we show the main details of the tender offer that has been successfully completed, the offer ended on 13th of March. We were able to acquire 225 million shares in the form of global shares as well as GDRs. And the share price has gone RON 2.19. That share price for the tender offer is important because in case there will be any other tender offer for the remainder of the year based on Romanian regulations, we are not able to offer a share price that is lower than the maximum share price paid over the last 12 months, and this is RON 2.19 per share. Moving on to Slide 21. We include the details on the Fund's annual net dividends and dividend payout ratios for the largest portfolio companies as of the end of April, based on the numbers that -- and the decisions that is already taken by the shareholders of our underlying portfolio companies. The total amount for 2023 is RON 727 million and that is the Hidroelectrica annual regular dividend and if you move on Slide 22, you will see the special dividend, which was referenced by calling earlier, which brings the total dividend income in 2023 based on the results of the underlying portfolio companies in 2022 to approximately RON 868.4 million. And of course, there, we do expect this number to increase based on the additional shareholder decisions that will be taken in the coming weeks. Moving on to Slide 23. This is where we show the upcoming Investor Relations events for Fondul Proprietatea and we do hope to see as many of you as possible in the coming months. The Fund financial results for the period are included on Slide 25 and 26, and I would like to invite Catalin Cadaru as the financial reporting to comment.

Thank you, Marius. On Slide 25, we can see the segment of financial position at the end of March. The decrease in the liquid assets by approximately 61% was due to the outflows from the buyback program and mainly to the settlement of the tender offer that was mentioned previously. The decrease in the equity investment portfolio for the first quarter of 2023 was generated by a reclassification of the Enel Holdings, following the signing of related SPA with BPC. So these holdings are presented separately on the statement of financial position. Moving to the next slide, Slide 26. Fund ended Q1 with a loss of approximately RON 11 million. The main income was represented by the income, further the interest income coming from the deposits placed with banks. And during the quarter, there were no significant updates to the valuation of unlisted holdings in the portfolio. Therefore, the results for the first quarter are not affected by these elements, while the dividend income, as mentioned earlier, is mainly approved and booked during the second quarter. Thank you, Marius.

Thank you, Catalin. At this point, we would like to open it up for any questions that you have. And I will start with the first question, which is online, from Deepinder. Thank you for the question, Deepinder. I noticed that the NAV change year-to-date until April 30, shown on Page 4 of the presentation is plus 5.1%, but the NAV change in first quarter shown on Page 5 is only 0.5%. What has been the driver of the approximate 4.5% increase in the NAV in the month of April, so 5.1% less 0.5%. Catalin, would you like to comment?

Sure. So the NAV clearly was affected by several factors, the most important of which being the dividend approved by shareholders on 28th, which were booked as a receivable. Subsequently, the valuation was updated for the company. However, the valuation decrease was not as high as a dividend because other factors were taken into account. Another factor that impacted the NAV was the dividend approved by the fund shareholders also in April. So the NAV at the end of the April is a dividend.

Thank you, Catalin. The next question also from Deepinder. Any updates on the standards from the Hidro listings? And I'll invite Johan to comment.