Welcome
Welcome to the 2012 Annual Report
Company Information
The Company
S.C. Fondul Proprietatea S.A. (“the Fund” or “Fondul Proprietatea”) was incorporated on 28 December 2005 as a joint stock company operating as a closed-end investment company.
The Fund is registered with the Bucharest Trade Registry, under the number J40/21901/2005 and has the sole registration code 18253260.
The Fund’s Investment Objective is long-term capital appreciation via investment primarily in Romanian equities with strict adherence to the principles of value investing.
The Sole Administrator of the Fund is Franklin Templeton Investment Management Limited United Kingdom, Bucharest Branch (“FTIML” or “Fund Manager”), effective since 29 September 2010.
Since 25 January 2011 the Fund’s shares have been listed on the Bucharest Stock Exchange.
The following table shows a summary of the financial position of the Fund
Source: Franklin Templeton Investment Management Limited United Kingdom, Bucharest Branch and BSE.
Notes:
(a) Prepared on the basis of Romanian Accounting Regulations
(b) Prepared on the basis of CNVM Regulations
(c) Calculated with dividend reinvested
(d) The difference in change (%) between total NAV and NAV per share is accounted for by the change in paid capital during 2012 and by the change in NAV per share computation methodology starting 31 December 2012 (Treasury shares acquired through buybacks are excluded from the number of shares used in the computation of NAV per share).
Shareholder Structure (as at 31 December 2012)
Source: Franklin Templeton Investment Management Limited United Kingdom, Bucharest Branch and BSE.
Contact Details
Address: 78 - 80 Buzeşti Street (7th floor),District 1,
Cod Poştal 011017, Bucureşti, România.
Web: www.fondulproprietatea.ro
E-mail: investor.relations@fondulproprietatea.ro
Telefon: +40 21 200 9600
Fax: +40 21 200 9631/32
Letter to Shareholders
Dear Shareholders,
Reflecting on 20 2012, it was a year of strong performance for Fondul Proprietatea and its shareholders in terms of Net Asset Value (“NAV”), despite various challenges along the way. In the second year of our mandate as Fund Manager and Sole Administrator of the Fund, we have continued to focus on protecting and increasing the value of the underlying holdings of the Fund through our active management approach and close supervision of the portfolio companies, with a constant focus on driving for the implementation of critical value-enhancing corporate strategies.
The total return on the NAV per share of the Fund was +8.9% in 2012. The Fund reported a total NAV of RON 14.98 billion and a NAV per share of RON 1.1371 as at 31 December 2012.
Source: FTIML
The overall upwards trend of the Fund’s NAV performance in 2012, despite the insolvency of Hidroelectrica, was correlated with the overall conditions on the Bucharest Stock Exchange (“BVB”), which positively impacted the valuation of the listed holdings in the Fund’s portfolio. In 2012, the Bucharest Stock Exchange generally performed better than the largest markets in Central Europe in local currency terms, as shown in the table below:
We provide details on the portfolio management on a monthly basis via Factsheets and also in the Quarterly Reports. We encourage you to read the full details given in the section “Analysis of the Portfolio of the Fund”.
The Fund’s 2012 audited net profit was RON 567.0 million, an increase of RON 23.2 million compared to the net profit for 2011 of RON 543.8 million. As a result, we intend to recommend to shareholders a gross dividend of RON 0.04089 per share arising from 2012 profits, based on the dividend policy stated in the Fund’s listing prospectus. Subject to shareholder approval, the distribution of dividends is expected to start in June 2013.
Key Events and Activities In 2012
Some of the key objectives achieved in 2012 included:
Continued efforts to promote the Fund and raise its visibility in the key financial centres in the USA, Europe, and the Middle East;
Shareholder approval for key corporate actions:
Second Buyback programme to repurchase 7.9% of the existing shares in the Fund;
Secondary listing of the Fund on the Warsaw Stock Exchange to attract additional demand for the Fund’s shares from investors not active on the Romanian market (e.g. Polish pension funds with AUM of USD 100 billion);
Distribution of RON 508 million dividend for financial year 2011;
Successfully changing the NAV valuation methodology to allow companies in insolvency and reorganisation to be valued based on an independent valuation rather than at nil and to exclude treasury shares from the number of shares used in NAV per share computation. These changes allowed us to overcome the existing limitations in the Romanian legislation in force, which would otherwise have restricted the Fund’s ability to distribute dividends for financial year 2012.
Two Year Anniversary of Listing on the Bucharest Stock Exchange
On 25 January 2011 the Fund was listed on the Bucharest Stock Exchange. Two years after the listing, the Fund remains the most actively traded company on the BSE:
6.16 billion shares were traded on the Bucharest Stock Exchange in 2012, equivalent to 46% of the Fund’s paid share capital. In Q4 2012, 1.16 billion shares were traded on the BVB, compared to 1.84 billion in Q3, 1.36 billion in Q2 and 1.80 billion shares in Q1.
The value of the trades with Fondul Proprietatea shares exceeded RON 3.2 billion (EUR 726 million) in 2012. The total trading value since the listing exceeds RON 8.34 billion (EUR 1.88 billion).
In the second year of listing, the Fund continued to be the most liquid stock on the BVB, with an average daily trading volume of 55% of the total daily turnover on the BVB.
The Fund continued to attract demand from foreign institutional investors: their ownership increased from 42% at the end of 2011 to over 54% by the end of 2012. Since the listing, the Fund has attracted over EUR 750 million investment from foreign institutional investors.
Investor Relations Update
In 2012, the Fund Manager continued to raise the Fund’s profile and visibility among a much broader international institutional investor base and to update the current shareholders on the latest developments of the Fund and its underlying holdings. Over the course of the year, we organised 10 road-shows in 19 financials centres in Europe, Middle East, and the USA to meet with potential investors as well as current shareholders. In addition to the road-shows, we presented the equity story of Fondul Proprietatea in individual meetings with investment analysts and portfolio managers during 10 global and regional emerging and frontier market conferences in the UK, USA, Austria, Poland, and the Czech Republic.
In addition, we organised in Bucharest over 30 individual meetings with foreign investors visiting Romania, as well as conference calls to present the Fund’s annual, semi-annual, and quarterly results. Overall, in 2012, the Fund Manager held 240 individual and group meetings and 79 conference calls with institutional investors.
As part of our ongoing efforts to promote the Fund, we organised Analyst and Investor Days events in April and November 2012. Around 100 Romanian and foreign analysts and institutional investors participated in our events at which they met our team, as well as the management of the largest portfolio holdings, and had the opportunity to learn about the latest developments of the Fund and the portfolio companies, and also to visit a number of key assets: OMV Petrom’s refinery and gas fired power-plant in Ploiesti; Hidroelectrica’s Iron Gates power-plant on the Danube; CE Oltenia’s power plant in Craiova; Nuclearelectrica’s reactors in Cenavoda; and Salrom’s salt mine in Slanic Prahova. The events featured presentations from the Fund Manager, the Government of Romania, the US Embassy, the International Monetary Fund, the National Bank of Romania, the Romanian Privatisation Agency, the National Securities Commission, the Bucharest Stock Exchange, as well as the following portfolio companies: OMV Petrom, Hidroelectrica, Romgaz, Nuclearelectrica, CE Oltenia, ENEL Distributie Muntenia, GDF Suez, Transgaz, E.ON Romania and Bucharest Airports. In addition to these two events, we held our second Romanian Institutional Investor Days in Bucharest in July, where we met the local pension and mutual funds, and in October our first Analyst Day, an event focused on the analysts covering Fondul Proprietatea.
We continued to strive to increase transparency and disclosure about the Fund’s underlying holdings and to provide timely information about any material developments about the Fund. The Fund’s website was redesigned in early 2012 to allow for quick access to all relevant information about the Fund and its portfolio to facilitate a deeper understanding of the intrinsic value of the Fund’s management strategy and activity. For the latest investor reports, press releases, detailed financial statements, annual reports and auditors’ reports for the largest companies, we invite you to visit our website at www.fondulproprietatea.ro. To promptly receive by e-mail the latest news about Fondul Proprietatea, you can register at the following address: http://www.fondulproprietatea.ro/news-and-press-centre/email-subscription.
Communication between the Fund Manager and investors remains a top priority as we aim to ensure that investors are informed about the latest developments and obtain their feedback as we continue to focus on maximising shareholder value.
Secondary Listing Update
On 27 June 2012, the Fund’s shareholders approved the details regarding the secondary listing of the Fund on the Warsaw Stock Exchange. As underlined in our previous reports, in order to achieve a successful secondary listing, the shares have to be fully fungible across the two markets, and this requires the establishment of a direct or indirect link between the depositary systems of the two markets. The establishment of the link between the two national depositories requires some changes to the National Securities Commission (“CNVM”) regulations. Given the delayed publication of these proposed changes, in November 2012 the Fund’s shareholders approved an extension of the deadline for the completion of the secondary listing until 30 June 2013.
In December 2012, CNVM published the drafts of the necessary amendments to the current regulation for public consultation, and following final approval of these changes, the Romanian and Polish National Securities Depositories will be able to establish a link to facilitate the Fund’s listing in Warsaw.
It is important to note that timing of the establishment of the link is outside of the control of the Fund, however the Fund Manager and the Consortium (J.P. Morgan and UniCredit Group as co-managers and KBC Securities as co-advisor) are committed to working with all the stakeholders to ensure the successful completion of the secondary listing in Warsaw as soon as possible.
Share Cancellation and Buyback Programme
The Fund’s shareholders approved in the Annual Shareholder Meeting on 25 April 2012 the decrease of the share capital of the Fund through the cancellation of the 240.3 million shares repurchased by the Fund in 2011, during the first Buyback programme.
At the same shareholder meeting, shareholders approved a second Buyback programme and authorised the Fund Manager to repurchase up to 1.1 billion shares or 7.9% of the Fund’s share capital within 18 months from the publication of the shareholders’ resolution in the Official Gazette.
As at 31 December 2012, the registration of the two shareholder decisions regarding the cancellation of the repurchased shares and the commencement of the new Buyback programme were blocked by litigations started by a shareholder of the Fund, and the effects of these decisions are currently suspended. The cancellation of the repurchased shares will take effect 60 days from the date of publication of the Extraordinary General Meeting of Shareholders (“EGM”) decision in the Official Gazette. However, following the amendments to the NAV calculation methodology published by CNVM in December 2012 which included the exclusion of treasury shares from the NAV per share calculation, the positive effect on the Fund’s NAV per share (of RON 0.0204 per share) as a result of the first Buyback programme was reflected in the 31 December 2012 NAV.
The Fund Manager is ready to start the second Buyback programme as soon as the EGM decision is published in the Official Gazette. The Bucharest Court is scheduled to issue its final decision on 1 March 2013 in the case regarding the blocking of the registration of the EGM decision with the Trade Register.
Outlook for 2013
Romania’s economic prospects are particularly encouraging, as the country has seen steady improvements in the past few years. The country is now in a good position to outpace the EU in 2013, in terms of economic growth. Unfortunately the general mood about the economy among the public at large is still negative, despite the economic recovery, which started in 2011 and continued in 2012.
Numbers clearly show that the country’s macroeconomic situation is very sound. Romania has low public debt to GDP (33.3%) compared to the Czech Republic (41.2%), Poland (56.3%) or Hungary (80.6%), and well below the EU average of 82.5%. The country also has large foreign reserves and has managed to keep the budget deficit and the current account deficit under control. The solid fundamentals are also reflected by the credit default swap (CDS) market, where, as of 21 January 2013, the Romanian spread was only 190 compared to 383 for Portugal, 276 for Hungary, 251 for Spain and 228 for Italy. Romania also has an edge over regional peers due to its relatively low taxation levels.
With these numbers in mind, we do expect to see a positive shift in the country’s economy in the next 12 months. In the past two years, the economy was mainly driven by exports (although growth in this area slowed down in 2012 due to Eurozone problems) and industrial production. However, these drivers may no longer support the economy in 2013 and should be replaced by domestic retail consumption and investments.
We have already seen a recovery of retail consumption in 2012 from the very depressed levels that followed the austerity measures of 2009 and 2010. This recovery should be further supported by wage increases (including the recent ones in the public sector), as well as by the low unemployment (7.3% at the end of the third quarter of 2012), which should translate into an improving sentiment in the market.
In turn, investments should be fuelled by a higher absorption of EU infrastructure funding, as more and more public tenders for highways and railways construction are successfully completed in accordance with EU standards.
However, the path to a further progress is not risk-free. Romania’s agreement with the IMF, the World Bank and the European Commission ends this year and the country must also return over EUR 5 billion to these financial institutions in 2013 alone. There are talks of a new standby agreement, which we believe would benefit Romania greatly, for three reasons:
1) such an agreement represents a safety net that would protect the country from any increase in international financial risks (which may otherwise drive budget financing costs up);
2) it will ensure that more necessary reforms are undertaken in key sectors, including energy and transportation; and
3) the IMF has proved itself as an agent for positive change and instils confidence among investors that reforms will be carried through.
The Government’s commitment to implement reforms will be another crucial element in Romania’s continued development. Privatisations and the implementation of corporate governance standards have stalled for a year (no major privatisations concluded, while very few companies appointed independent boards and professional managers) and the country cannot afford to miss another opportunity to record progress in this area. Bringing large state-owned companies to the market would also help to develop the local stock exchange, which is still too small for a country this size. Nevertheless, we are optimistic that plans in this area will be easier to implement in 2013.
From a political perspective, the strife connected to the election year affected the country and its economy in 2012, but now Romania has a government with a comfortable parliamentary majority behind it, which should enable them to focus on reforms. The one risk we see in this area is precisely this impressive parliamentary support, which could reduce the pressure on the Government to implement needed reforms.
Many still see a risk in the possibility of a breakup of the Eurozone. However, we don’t see that happening this year or any time soon for that matter. On the contrary, we believe the worst is behind and the Eurozone countries are on the right path to resume growth.
Overall, we see Romania growing by more than 1% this year, while the RON should strengthen against the Euro. If Romania’s solid fundamentals are coupled with the Government’s willingness to implement reform, we believe it has the potential to become one of the leaders of economic growth within the European Union.
Maximizing Shareholder Value in 2013
As we look to create more value for the Fund’s shareholders, we will continue to focus on listings of the larger SOEs, implementing professional management to enhance the profitability of these assets to ensure growing dividend income for the Fund, and ensuring that companies in the Fund’s portfolio are compliant with the new corporate governance code.
We will strive to overcome the challenges that have delayed implementation of key value-enhancing corporate actions, such as the share Buyback and the secondary listing on the WSE that should allow the Fund’s NAV to be better reflected in the Fund’s share price. We will also continue to promote the Fund and the Romanian capital market to current and prospective investors.
We are confident that our active, bottom-up investment process will allow us to deliver the best long-term results for our shareholders and we look forward to the opportunities ahead for Fondul Proprietatea.
Portfolio
Portfolio Structure as at 31 December 2012
By Sector Equity Investments - Listed vs Unlisted
Top 20 Portfolio companies as at 31 December 2012
Dividends
History
Gross distributions (RON) / share Total Distribution (RON mn)
Note:
(1) Estimated gross dividend per share for 2012 based on the distributable profits of RON 538.6 mn.
Dividend Policy
The net profit of Fondul Proprietatea (after the allocation to legal reserve) is distributed according to the decision of the general meeting of the shareholders and to the legal provisions in force. The payment of dividends to the shareholders is made by Fondul Proprietatea, according to the law.
The dividends are distributed to shareholders proportional with the number of paid shares held.
Financials
Balance Sheet
Income Statement
Other expenses from current activity
Downloads
We have gathered together for you all of the downloads from this report
Full 2012 Annual Report
Company Information
Administrator’s Letter to Shareholders
Analysis of the Activity of the Fund
Market for Securities Issued By the Fund
Corporate Governance of the Fund
Financial Statements Analysis
Significant Post Balance Sheet Events
Annexes
Annex 1 - Financial Statements as at 31 December 2012, prepared in Accordance with the National Securities Commission (“CNVM”) Regulation 4/2011 regarding accounting regulations compliant with EEC Directive IV applicable to the entities authorized, regulated and monitored by the National Securities Commission, approved by CNVM Order no. 13/2011 and with CNVM Instruction 1/2013 regarding the preparation and submission of annual financial statements, applicable to the entities authorized, regulated and monitored by the CNVM (“Romanian Accounting Regulations”)
Annex 2 - Statement of Assets and Obligations of Fondul Proprietatea as at 31 December 2012, prepared in accordance with CNVM Regulation 4/2010 (Annex no.4)
Annex 3 - Separate Financial Statements for the year ended 31 December 2012, prepared in accordance with International Financial Reporting Standards (“IFRS”)
Annex 4 - Statement of Persons Responsible
Annex 5 - Changes in the Constitutive Act of Fondul Proprietatea during 2012
Annex 6 - Major contract concluded by Fondul Proprietatea during 2012
Annex 7 - Documents of Resignation / Lay Off for the Members of the Board of Nominees of Fondul Proprietatea during 2012
Annex 8 - Corporate Governance Statement “Comply or Explain” for year 2012