Fondul Proprietatea SA (FP) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fondul Proprietatea First Half 2025 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Dan, Portfolio Manager. Dan, please go ahead.

Thank you. Good afternoon, and welcome, everyone, to our conference call to discuss H1 2025 results and the July 2025 NAV developments. Calin Metes, Portfolio Manager; Irina Costea, Fund Administration and Oversight Manager and myself are pleased to host today's call. The H1 results report can be found on the Fund's website in the Financial Results section and the presentation that will be discussed is available on our website in the Investor Relations call section. After the presentation, we will have a 30-minute Q&A session. As a reminder, this conference call is being recorded, and the recording will be available on the fund's website after the call. That being, the agenda, I'd like to start with Slide 2 of the presentation, where we highlight the key facts about the fund. At the end of July, the fund's NAV was RON 2.13 billion and the NAV per share reached RON 0.7039 per share. On the right-hand side, you can see the evolution of the fund's adjusted share price and discount since the fund's listing in January 2011. As of yesterday's close, the fund was trading at a discount of 40.4% for the shares. On Slide 3, we present the Fund's shareholder structure as of 31st of July 2025 with no major changes since our last results conference call in January 2025. On Slide 4, we show a summary of the NAV, share price and the GDR performance since 2011 and the evolution of the fund's average discount to BVB and LSE. Please note that the effective cancellation of trading and delisting of the GDRs from the specialist fund segment of the main market on LSE took place on April 25, 2025. Fondul Proprietatea did not hold any GDRs at the listing date. The NAV per share total return in H1 was 5.6%, while total return for the local share was 27.6%. For the first 7 months of 2025, the NAV per share total return was 6.5%, while the total return for the local share was 46.6%. On Slide 6, we show the portfolio structure as at end of July. 82.7% are in unlisted companies, 6.4% in listed equities and 10.9% in net cash and receivables. Net cash and receivable position as of 31st of July was approximately $52 million. On Slide 7, we present the main portfolio companies as of 31st of July, representing 85.9% of the fund's NAV. On Slide 8, we present H1 2025 figures for Bucharest Airports. On the financial side, operating revenues increased by 25% compared to the similar period of previous year to RON 764.8 million. Operating result reached RON 394.4 million (sic) [ RON 392.4 million ] from RON 302.5 million in H1 2024. Traffic continued to rise by a steady 9% reaching 8.5 million passengers. This trend was the main positive driver for the improved operational profitability, which was up by nearly 30% year-on-year. For 2025, the management envisages a 5% increase in traffic to RON 16.8 million. GSM regarding the share capital increase on July 2025, the Ministry of Transport approved within the GSM Resolution #8 from 8 July 2025 to reinitiate the valuation process for the share capital increase with the value of lands at Baneasa Airport. The fund has challenged this GSM decision in court before Ilfov Tribunal. At the publication date of this report, the first hearing date has not been set. On the corporate governance front, as you know, the Board of members were appointed on July 2024 for a 4-year period and Fondul has challenged the legality of this appointment in court due to irregularities in the selection process. Also the litigation regarding the annulment of the GSM resolution will be judged on the merits in the next hearing set for 29th of October 2025. Notably, at the same time, the Board of the company is running an active process for the selection of the CEO and CFO positions. The latest recruitment announcement for the 2 positions was published at the beginning of June this year. On Slide 6, we show H1 figures for Constanta Ports. On the financial side, operating revenues decreased by 11% to RON 238.8 million, while operating profit was RON 76.2 million, down from RON 227.5 million in H1. Net income was RON 87.5 million. Well, these results were driven by lower traffic, which reached 31.1 million tonnes, down 23% year-on-year on the context of a continued drop of volumes into Ukraine. Operating profit, as you have already seen, dropped significantly year-on-year. But bear in mind, we have to adjust for the one-off reversal of provision in H1 2024 of RON 112.9 million. Even with this adjustment, operating profit declined by RON 33.5 million year-on-year. As we said now, net profit stands at RON 87.5 million versus a budgeted number of RON 101.5 million for the full year. On the corporate governance front, unfortunately, all Board members still have an interim mandate, and there is an ongoing selection process for 4-year Board members. That it's a live process, and we expect this to be finalized in the coming months. There is also -- we also are flagging on the presentation the developments about Giurgiulesti Port in the Republic of Moldova. So during the shareholders' meeting held in June 2025, the Ministry of Transport approved the company to submit a binding offer for the potential purchase of ICS Danube Logistics, basically the company operating Giurgiulesti Port in Moldova Republic. Previously, during the GSM held on 15th of May, the Ministry of Transport approved the company to procure external legal services to support a potential share capital increase of up to $100 million. However, until the publication date of this report, there have been no further GSM decisions taken regarding either to finalize the purchase of Danube Logistics or in connection to any financing to a share capital increase. On Slide 10, Salrom. On the financial side, operating revenues decreased by 2% to RON 236.2 million. Operating profit was down RON 12.9 million from RON 66.1 million in H1, while net income was down 75% year-on-year to RON 15.6 million. So basically, the significant decrease of profitability is related to the loss of long-term assets and inventory due to the floodings at Praid Salt mine. Net profit, as I said, declining to RON 15.6 million in H1. However, bear in mind that based on the provision of certain government decisions and orders, the company could have recourse to State Aid to recover some of the losses it suffered. Also, we want to provide a bit more detail on flooding of Praid Salt mine. So basically, this happened in early May 2025, the intense rains in Harghita County led to significant water infiltration in Praid Salt mine underground galleries. Salrom made the immediate decision to suspend all mining and tourist activity starting 5th of May. In response to the emergency, the company mobilized its technical teams and coordinated closely with local and regional authorities. Together, they implemented a series of urgent intervention at mitigating the effect of the flooding. These included the construction of draining system and the redirection of surface water flows to reduce hydrostatic pressure on the affected areas. In June -- however, in June 2025, Salrom informed its shareholders that the dam built underground by Salrom employees gave way and under the pressure of the water, the water entered beneath. So basically, Telegy mining sector could not be saved from the water intrusion. The underground stocks were compromised and the equipment and machinery can no longer be recovered. So for the time being, the Praid Salt mine and both mining and tourist activity are stopped. On the corporate governance front, on July 22, Simona Ochian and Valeriu Ionita resigned from the position of the Board members in Salrom. So basically, at the date of the report, only 3 out of the 5 positions of the Board of Directors are filled. As regards the IPO, of course, the fund continues to engage with the majority shareholder and the company in relation to prepare a potential IPO. And of course, we have to take into account also recent developments. On Slide 11, we show key financials for the fund's largest holdings, including the 2024 figures approved by shareholders. Moving on to corporate action section, I'd like to invite Calin to comment. Calin, over to you.

Thanks, Daniel. On Slide 13, we outlined the fund distribution since we started managing the fund. The 2025 amounts are estimations we make. Based on the buybacks executed so far, the dividend distribution approved by the shareholders during the April annual GSM and the number of paid shares, excluding treasury shares as of 18th of July. The daily execution of the 15 buyback program is currently suspended due to the ongoing tender offer process. Please note that the fund submitted with the FSA an application for the approval of a tender offer under which it intends to repurchase from its shareholders up to 80 million shares. Total distributions made since 2010, including the amounts for 2025 reached RON 29.1 billion, which is approximately $7.1 billion. On Slide 14, we outlined the latest updates on the fund's buyback programs. The 15 buyback program was completed in October 2024. During the 2nd of December 2024 GSM, the fund's shareholders approved the cancellation of shares bought back last year. The process was finalized on 13th of August 2025. And starting with this date, the new value of the fund subscribed and paid up shares capital is approximately 1.66 billion shares being divided into approximately 3.2 billion shares, each having a face value of RON 0.52 per share. The 15 buyback program was approved by shareholders during the 2nd of December 2024 shareholders meeting. On next slide, we include details on the fund's annual net dividends and dividend payout ratios for the largest portfolio companies as of end of July based on the figures approved by shareholders. Total amount for top holdings is approximately RON 155 million for the dividends approved this year from the profits of last year. On the following slide, on Slide 16, we show a summary of the total dividend income received from the portfolio companies in the last 10 years. Total dividends approved received this year amount, as I mentioned before, to approximately 155 million shares. On Slide 17, we include the financial calendar for Fondul Proprietatea, including the shareholders' meeting on the 29th of September, which is presented in the following slides. So on the Slide 18, we have first the agenda of the Extraordinary General Shareholders' Meeting. The only point on the agenda of this meeting refers to the approval of several amendments to the Constitutive Act of Fondul Proprietatea. Regarding the ordinary General Shareholders' Meeting, we have more details in the 3 slides #18, 19 and 20. The main topics are a number of points which have been added at the request of a group of shareholders holding more than 5% of the share capital. And these points refer to the approval of the cancellation of the current AIFM and sole director selection process. Then the approval of the commencement of the new process by the Board of nominees for the selection of an alternative investment fund manager and sole director of FP. Then we have the approval of mandating the Board of nominees with the preparation of a detailed comparative report on the first 3 offers resulting from the new selection process, presentation of the report to the shareholders and submission for their vote of the candidates corresponding to the first 3 selected offers. And also another point added by the group of shareholders refer to the approval of the distribution of dividends in a gross aggregate amount equal to RON 37.2 million from FP's 2024 unallocated retained earnings, meaning a gross dividend per share of approximately RON 0.0122. Next on the meeting -- on the agenda of the shareholders' meeting is the approval of subject to item 1 and/or 2 of the OGM agenda not being approved. We have 4, let's say, sub points here. One is the appointment of IRE AIFM HUB S.a R.L. as sole Director of Fondul Proprietatea that acts also as AIFM of Fondul Proprietatea for a duration of 4 years starting with 1st of April. If appointed, the candidate will perform its mandate under an advisory model with Impetum Management S.R.L., a Romanian advisory firm as the adviser to the candidate for such purpose. Second is the objectives proposed for the new alternative investment fund manager. Third is the main remuneration conditions proposed for the new AIFM, which are structured in 2 phases. And fourth are the terms of along with the execution of the management agreement between Fondul Proprietatea and the candidate. These 4 items that I just mentioned were added on the agenda at the request of the Board of nominees. Following these points, we have on the agenda, the approval of the appointment of the new sole director of FP that will act as the alternative investment fund manager for a mandate of 4 years, starting with 1st of April 2026. Then we have the approval of the renewal of the mandate of Franklin Templeton International Services S.à r.l. as sole Director of FP that also acts as AIFM of FP starting with 1st of April 2026, subject to neither point 6 nor point -- sorry, neither point 5 nor point 6 of the OGM agenda being approved by shareholders. The renewal of the mandate of FTIS is conditional upon FTIS and FP executing a management agreement covering the new mandate before the 1st of April 2026. Also on the agenda on the 29th of September, we have the appointment for a period of 3 years of 1 member of the Board of nominees of Fondul Proprietatea. Then we also have the appointment of Ernst & Young as the financial auditor of Fondul Proprietatea for the period starting for a period of 3 years from 1st of September 2026 to 31st of August 2029. Also, the cost for the auditing services is EUR 130,295 per year plus the inflation adjustment. Now moving forward to the fund's financial results for the period. This will be presented in the next few slides, and I would like to invite my colleague, Irina Costea to comment. Irina?

Thank you, Calin. On Slide 22, statement of financial position. The liquid assets of the fund at the end of June included current accounts and term deposits with banks. The distribution bank accounts are presented separately as they can only be used for payments to shareholders for the ongoing distributions performed by fund. The dividend receivables at the end of June are mostly related to the amounts from Aeroporto Bucharest and Salrom. Most of these amounts have been collected by the end of July. The net decrease in equity investments of RON 7.3 million during the first semester was mainly generated by the valuation updated at the end of June. Moving to Slide 23, the statement of comprehensive income. Fondul registered an unaudited profit for the 6 months ended 30th of June 2025 of RON 140.6 million, which was mainly driven by the dividend income. The gross dividend income was generated from Aeroporto Bucharest, RON 103 million and Salrom RON 52 million. The loss from equity investment at fair value to profit or loss during the first semester was as a result of the valuation of the process in June for the largest unlisted holdings in the fund portfolio with Aeroporto Bucharest an increase of RON 29.4 million and Salrom, a decrease in valuation of RON 36.9 million. With this, I would like to thank you and Daniel.

Thank you, Irina. At this point, I'd like to open it up for questions.

[Operator Instructions] We have no phone questions at this time. Are there any web questions? We have no web questions at this time. I will now turn the conference back over to Dan for closing remarks.

I think we have one question in the queue. [ Peter ], we see your message. You want to type something, but we cannot see the question. Maybe if you can submit the question, yes. We cannot see the exact question. Thank you, [ Peter ]. Now we can see your question. So your question, I am reading for everybody to hear. In the proposed structure with IRE being the alternative investment fund manager, you asked for provider legal, since all the management will be done by the local adviser. Thank you, [ Peter ], for this question. As you know, the selection process itself was carried out by the Board of Nominees. Franklin Templeton as the current fund manager, hasn't been involved in the process, and we kept -- and the Board has kept the selection process totally separate from Franklin Templeton. So of course, at this point, shareholders have to rely on the analysis made by the Board of Nominees. Okay. I do not see any other questions. If this is the case, then thank you again, everyone, for the time today. For any additional questions, please do not hesitate to contact us. Okay. I see additional questions coming from [ Peter ]. The second question regards Salrom. This year, it paid RON 50 million dividend. With the event of this year flooding, what can we expect this year? Well, this is a very good question. At this moment, I think it's very early to say. As we said, they reported half 1 results, which are much weaker compared to the same results last year because they incurred losses on expenses, everything that is related to the loss of equipment and inventory. As management said, there is a procedure they could claim to recover these losses. As many other operating -- economic operators in the area they can claim losses from the government of this natural -- of this event. But I think we are following closely the financial situation of Salrom being such an important asset in our portfolio. But really, it's really early to have any guidance or expectation about the dividend. Next question is when do we expect volume at Constanta Ports to recover? Well, the strong increase in volume was strongly related to Ukraine. And what we are seeing now is rather a normalization of the situation rather than a real -- than a significant drop compared to average. That said, we are constantly discussing with management on these aspects. And we do hope that once also there is a stability at the level of company management, Board appointed for 4-year a new CEO, we can discuss more substantially on the strategy. And of course, as you know, in our view, Constanta Ports is one of the assets that could qualify for IPO in the next future. And this aspect we constantly remind the government. Okay. I do not see more questions coming. So in this context, again, thank everyone for the time today. And if there are any additional questions, please do not hesitate to contact us.

And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.