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OGMS 2014 – Activity program. Investment policy. BVC.
1
AGA - O
04/05 apr 2013
A.1. RETROSPECTIVE 2013
World economy radiography at the end of 2013
Amid slow economical recovery registered in majority of G7 economies and especially in the
emerging countries, the world economical growth sis estimated as being situated in the
interval 2,3% (IMF) - 2,8% (OECD).
During 2013, European Union faced a series of major challenges who forced the
European decision makers to act to counter-balance and reduce the monetary shocks but
especially the tax ones. In 2013 the gap increased between the countries from the centre of
the Union and those from periphery as regards to macro indicators. In order to deal with the
financial turmoil registered in large economies such as Spain, Italy or France, ECB had to
adopt measures of financial relaxation similar with those of FED, but excessively using the
monetary levers. But, a negative growth rate of GDP (-0,4%) questioned the real overcome of
the crisis of the enire Union.
EU inflation rate (1961-2013) EU economical growth (1961-2013)
Source: European Commission (Eurostat) and European
Central Bank calculations based on Eurostat
OGMS
14/15.04.2014
pct 7
To approve the Declaration for investment policy
2014-2018 and the Activity program for 2014; to
approve the income and expenses budget for 2014.
A. MACROECONOMIC PREMISES
OGMS 2014 – Activity program. Investment policy. BVC.
2
International capital market in 2013:
Amid QE3 and considering that the
performances of banking instruments were
not attractive for investors (due to the
extremely low benchmark interest rate
applied by the central banks), the capital
infusion in the economy was largely reflected
in the capital market. Under the pressure of
investors, both American and European
market registered an important increase of
main markets indexes. The Asian markets
(excepting the Japanese one) closed 2013 fall.
The best performing market proved to be that
in Buenos Aires where the Merval index
appreciated by the end of 2013 with no less
than almost 85%. It was followed by the
Japanese index Nikkei 225 (+52,42%) and the
American index Nasdaq Composite with an
appreciation of 34,2%.
Romania 2013:
In 2013, GDP had increased in comparison
with 2012, by +3,5%1. The unanticipated
economical increase was determined by the
record growth of industrial production,
exports, agriculture together with the
absorption of European funds.
Source: Own calculation based on Eurostat data
- Industrial production (excluding construction sector), increased in 2013 by+7%; - Private consumption was fuelled by the
high offer of agricultural and food products;
agriculture – direct grants for agriculture
registered a real year by year increase, from
2011 - 100 Euro/ hectaree, Source: Own
calculation based on NBR data
2012 – 119 Euro/ hectaree, 2013 - 139 Euro/ hectaree;
- exports - increased from 41,9 mld.€to 45,7 mld.€, by +9% in the first 11 months of 2013 - imports increased only increased by +1%, to 50,9 mld.€;
The evolution of main
stockexchange indexes in 2013
var.% YoY
United States
Dow Jones Industria Average 23,59%
Dow Jones Compozite Average 24,17%
S&P 500 26,39%
Nasdaq Compozite 34,20%
Ibovespa -17,65%
Merval Buenos Aires 82,57%
EUROPE
DAX 22,80%
FTSE 100 11,97%
CAC 40 15,05%
ASIA
Hang Seng Index -0,02%
Nikkei 225 52,42%
KOSPI Compozite Index -0,97%
SSE Composite Index -7,07%
Composite Index -1.66%
-10.0
-5.0
0.0
5.0
10.0
Evolutia PIB in Romania in perioada
2000-2013 (%, yoy)
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Rata inflatiei vs. rata de dobanda de politica monetara, Romania, 2011-2013
Upper bound
Lower bound
Dobana de politica monetara
inflatia
OGMS 2014 – Activity program. Investment policy. BVC.
3
- trade balance remained negative, but with better indicators, comeback from -8,7 % (2012) to -5,2 billion.€;
- there was a corresponding adjustment of the monetary policy behaviour in 2013; Tax
discipline adopted created the conditions for a stable macroeconomic framework and led
to deficit correction
Romania: 2013 capital market
Euphoria from the international markets was transmitted to Romanian investors as well,
stimulated, on one hand, by
legislative changes on key
institutions of Bucharest stock
market and, on the other hand, by
the above expectations quarterly
results registered by the
Romanian economy. This last
element sparked the interest of
foreign investors who felt the
growth potential of Romanian
shares traded with significant discounts. By the end of the year, BET index registered an
improvement of almost 22%, being followed by BET-FI and BET-XT.
Sources: Own calculation based on date provided by NBR, INS. AOR, Romanian Government
A.2. PERSPECTIVES FOR 2014 Macroeconomic outlook 2014
the acceleration of economical cycle:
Source: OECD Economic Outlook:
- OECD: world increase from 2,7% (2013) to 3,6% (2014), the engine being USA,
representing 40% of the world economy
- After the double recession (2008-2009 and 2011-2013) the EU economy should register
an improvement from 0,5% (2013) to 1,5% (2014) considering the budget ary austerity
pe and a relative stability of the consumption prices
Romania: Evolutia principalilor indici bursieri in 2013
Indice Final 2013 Variatii % YoY Min 2013 Max 2013
BET 6.4934 21,78% 5.199 6.500
BET-C 3.344 16,25% 2.789 3.349
BET-FI 31.292 19,88% 23.080 31.333
BET-NG 667 2,65% 715 311
BET-XT 600 19,64% 469 600
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
2012 2013 2014 2015
WORLD
OECD
non-OECD
SUA
zona EURO
Japonia
China
crestere mondiala
OGMS 2014 – Activity program. Investment policy. BVC.
4
- The deceleration of the improvement rhythm in the emerging countries, especially due to
the slowing down of the economical expansion China with a controlled increase in the
margin 7%-7,5%
- Monetary and financial conditions remain adequate to the situation:
o To continue the policies of capital infusion form central banks;
o USA: unemployment rate <6,5% at the end of Q3 2013 => FED will not haste to
close QE=> continue inflation control, maintained at 1,5% (below the 2% target);
o EU: ECB continues the monetary relaxation policy to avoid the deflation risk which
is estimated to probable to appear at 15% => the systemic stress in countries like in
Portugal, Spain, Italy remains a variable that requires a careful and permanent
control ;
o China: BCC will apply a neutral or slightly restrictive policy to support the
economical growth.
EU
In accordance with the projections of ECB experts, the corporate investments will be slightly
accelerated in 2014. In the projects horizon for 2014-2015, it is anticipated that the dynamics
of corporate investments is supported by a series of factors such as:
o Gradual consolidation of internal and external demand, the very low level of
interest rates.
o Reducing uncertainties, the need to modernize the capital stock after several years
of modest investment,
o Reducing unfavourable effects associated to credit offer and the relative consolidation of
profit margins, considering the improvement of economical activity.
In 2014, 2015, the GDP rhythm of improvement is projected to intensify. It is estimated that
exports outside of Euro zone will improve and will be accelerated in 2014 and 2015,
reflecting the consolidation of external demand outside the Euro zone.
As well, it is expected for the internal demand to be supported, in time, by the diminishing of
constraints on credit offers. In addition, during projection horizon, the activity will be
supported at an increasingly higher extent by the unfavourable effect of gradual
consolidation of external demand on exports.
Romania:
Annual inflation projection on IPC prices and the corresponding uncertainty
interval
T2
2013 T3
2013 T4
2013 T1
2014 T2
2014 T3
2014 T4
2014 T1
2015 T2
2015 T3
2015 T4
2015
Target
2,5
2,5
2,5
Effective/ Prognosis* (%)
5,4 1,9 1,6 0,9 1,4 3,0 3,5 3,2 3,1 3,3 3,2
Uncertainty interval (%)
- - - ±0,6 ±1,0 ±1,4 ±1,8 ±1,8 ±1,9 ±2,0 ±2,0
*End of period Source: INS, NBR calculation
OGMS 2014 – Activity program. Investment policy. BVC.
5
Annual inflation of fuel prices
GDP deviation
Economical growth:
For 2014: - European Commission estimated for Romania a GDP
increase in 2014 of 2,1%, placing our country on fifth place
among European countries (estimated European average:
1,4%).
- IMF estimated the real GDP increase of 2,2% due to a
firm internal demand, a solid political support, a better
absorption of EU funds, as well as an improvement of trust in
Romanian economy
- Considering current achievement, meaning:
Inflation reached a historic low after 1989: 1,55% in December 2013 (January
2014: 1,06%). It is expected for the trend to maintain in the first half of 2014, in order
to aim, in second semester to comeback to the superior limit of inflation rate
considered by NBR.
Unemployment registers a rate of 7,1%, Romania being below the European limit,
together with countries with a much better performing economies such as
Netherlands, Denmark, Austria, Czech Republic.
Direct grants for agriculture had a real increase year by year, to 139
Euro/hectare in 2013 and 153 Euro in 2014. In 2015 the tendency will continue and
the results are obvious as regards to the revival of agriculture. For the first time in
20 years, Romania exported more agricultural products than it imported, with an
excedent of 300 million Euro in 11 months
The net average salary earnings increased to 1760 lei in December 2013
T2
2013 T3
2013 T4
2013 T1
2014 T2
2014 T3
2014 T4
2014 T1
2015 T2
2015 T3
2015 T4
2015
Effective/ Prognosis * (%)
1,0 -2,1 -0,4 0,2 4,3 3,7 5,4 3,8 2,2 2,8 2,1
* End of period Source: INS, NBR calculation
T2
2013 T3
2013 T4
2013 T1
2014 T2
2014 T3
2014 T4
2014 T1
2015 T2
2015 T3
2015 T4
2015
Estimated/ Prognosis (%)
-2,0 -2,0 -2,0 -2,0 -2,0 -2,0 -2,0 -1,8 -1,7 -1,6 -1,5
Source: NBR calculation
Crestere % GDP 2013 2014 2015
USA 1.7 2.6 2.4
OECD 1.2 2.2 2.2
Global 2 2.7 2.8
Romania 4.05 2.3 2.9 Source: The Economist Intelligence Unit
OGMS 2014 – Activity program. Investment policy. BVC.
6
For the first time in the Romanian history the issuance of government bonds in
US dollars with a maturity of over 30 years was made
Direct foreign investments – after a constant fall in 2008 - 2011, in 2012 had a
certain blockage, and in 2013 exceeded the level from 2011.
For the Stock Exchange the year 2013 is the best after the recession, the profits
grew by 37%. Private investors consider Romania, after Warsaw, as the capital
market with the fastest development
Exports - 49,6 billion Euro from exports. Exports increased by 10%, imports
increased by 1%, but the commercial trade remains negative.
Commercial deficit in nominal terms decreased with almost 4 billion Euro.
Drastic decrease of the budgetary deficit from minus 9% from 2009 to 2,5% in 2013.”
Current account deficit is expected to maintain in 2014 between 1 and 1,5% from
GDP , contributing to the strengthening of Romania’s external position.
Budgetary deficit. Authorities approved for 2014 a consistent budget with a
deficit target of 2,2% from GDP. The possible delay for the application of excise to
fuel will be compensated by frozing the governmental expenses. As well, the
authorities intend to continue tax adjustment in 2015 as well to reach the medium
term budgetary objective, so as Romania to maintain with a structural deficit of 1%
from GDP considering the growth of co financing projects supported by EU.
Monetary policy continues to be relaxed which was translated through a
successive decrease of monetary policies rates of and those of minimum mandatory
reserve both in foreign currency and in lei , presently being of 3,75% respectively
12% and 18%. This aspect, combined with the warranty governmental programs,
should encourage the activity of offering credits in lei. Without putting pressure on
assets’ quality, the banking sector continues to maintain its capital at prudent
liquidity and provision levels. Following the exercise of stress testing of the solvency
of banking sector, for the period Q3 2013 – Q2 2015, the results generally show its
sustained capacity of dealing with possible negatively significant macroeconomic
shocks , considering the conservation of an adequate level of the solvency indicator.
In the same time, the degree of covering non-performing loans with IFRS provisions
and prudential filters maintains a t comfortable level (89,5 %, in August 2013), being
among the highest levels in comparison with the countries in the region.
Relying on IPO Romgaz success, the program on listing other state companies
remains as planned. As well, the reform of the regulation system in energy and
transportation sectors will continue, as well as the regulation process for the prices
of gas and electricity in accordance with the logbooks previously agreed on,
The target of adhering to the Euro zone is now 2019, other objective aimed at until then
being to improve the real convergence. In this area, Romania meets the targets for 11 of the
12 criteria of the chart.
Economical estimates for Romania 2014 (year of presidential and Euro parliamentary
elections):
In the context in which this year could be another year of transformations for the local
capital market, Romania could go beyond the status of frontier market (according to MSCI
index) to that of emerging market.
OGMS 2014 – Activity program. Investment policy. BVC.
7
- Premises for economical growth:
o The gross domestic product in the years 2014-2017 will increase by an average
yearly rate of 2.5% with structural improvements.
- European Funds:
o Romanian Government: In the new scheme of European funds, for the period
2014 -2020 , Government relies on an absorption rate of 80% for all these
years. ( Romania was allocated over39,8 billion Euro). In accordance with the
opinion of UniCredit Tiriac Bank experts the improvement of European funds
absorption (appreciation pressures), being compensated by the process of
financial disintermediation and the volatility of foreign capital.
- Change of the export strategy => the closing of the operation of reconnecting Romania to
its traditional markets: Russian Federation, China and the countries from the Persian
Gulf=> the exit from the European market’s restrictions, where Romania predominantly
exports, to very low profit margins. This reorientation decided by the Government will
generate numerous investment projects =>growth of budgetary income =>
unemployment decrease.
- Continue the operation of transforming Romania in an energy hub (at least on certain
segments)
o => related investments (the construction of the submarine cable to Turkey, the
start of gas and oil exploitation in Black Sea)
o => oppositions from certain countries => retaliation measures against
Romania such as the MCV report
- Currency exchange:
o Exchange rate: 4,35 - 4,65 lei/Euro
CNP: average listing of 4,45 lei/Euro
ING Bank: evolution in the interval 4,40 4,45 lei/Euro.
Deloitte Consultancy: average rate of exchange of aproximately 4,5
lei/Euro with volatility in the interval: 4,4-4,6 lei/Euro BCR: wide
fluctuations in the interval 4,35 – 4,65 lei/Euro with a final value of
4,48 lei/Euro
GarantiBank: depreciation to 4,55 in 2014 due to short term of capital
flow, determined by international events.
UniCredit Tiriac Bank: stable evoltution of the echange rate
Banca Romaneasca: linear evolution in the interval 4,43-4,57.(final
2014: approximately 4,53lei/Euro).
Our opinion for the end of the year (in
normal conditions) is placed around the
value of 4,65 lei/Euro, the fluctuation
interval being between 4,4285 – 4,6550
lei/Euro. Assuming internal or external
political turmoil, the national currency
might fluctuate around the maximum of
4.6289 lei/Euro reached in 23.07.2013,
testing a new historic high that could be
placed in the interval 4,88 – 5,04
lei/Euro.
OGMS 2014 – Activity program. Investment policy. BVC.
8
European Commission estimates for Romania GDP increase in 2014 by 2,1%, placing our
country on fifth place among the European countries (estimated European average: 1,4%). A
leverage to counter attack the decrease of consumption is that advanced by NBR -according
with the experts’ expectations, it will apply at least two decreases of the reference rate of
interest => prices of credits in lei will come down => the acceleration of consumption
Potential risks:
The volatility of external capital flows, considering the transborder disintermediation
process in the banking system
The fluctuation of investor’s appetite to take risks
The decisions of main world banks.
2014 forecasts for the main economical sectors:
Energy sector
- World: Production/Export at a global level will be strongly influenced by the revolution
of shale gas in the United States => advantage of American refineries against the
European ones.
- Romania:
o Stabilization of energy and natural gas consumption
o Liberalization on gas market (on the segment of industrial consumers => income
increase of such companies).
o Introduction of tax on special constructions will have a negative influence on
companies’ profitability = > possible exits of Proprietatea Fund from these
companies = > influence on BSE listing
o BSE boost by listing state companies scheduled for 2014: Hidroelectrica, Electrica
Furnizare, Complexul Energetic Oltenia.
Pharmaceutical sector
- World:
o diminishing the growth rhythm
o a possible positive influence of „Obamacare” program comng into force
- Romania
o Aligning to the European development fund
o Forecasts are generally optimistic
o Specific problems: payment of claw back tax blocking of debt recovery.
Raw meterials and materials
- World:
o decrease of industrial demand in China => unfavourable predictions = > negative
impact on industrial metal price
o relaxation of the USA ‘s fiscal monetary policy USA will lead to the improvement of
financial instruments performance => increased pressure on the prices of precious
metals.
OGMS 2014 – Activity program. Investment policy. BVC.
9
Banking sector
- World:
o Reforms in the banks operational activity growth of registered profits => positive
influence
o Powerful influences resulted from:
FED decisions on monetary policy
capital requirements of the Basel 3 Agreement.
strong competition (including from non-banking players).
- EU – Create common reporting standards => Banking union
Investment funds:
- World:
o Funds investing in assets in area/ sectors with growing potential will obtain
performances above the average of banking investments => attract interest of
investors
- Romania:
o To investment funds listed, shareholders will rely on reducing the discount between
price and VUAN and on a favourable evolution of portfolios.
o There is perspective for legislative change on ownership thresholds
o Private equity funds:
Considering the functioning mechanism of private equity funds their
activity will be closely related to foreign investors’ trust in in country’s
development potential.
Agriculture
- Romania:
o Liberalization of agricultural land market => their price increase
o Positive growth potential mainly due to the interest of investors in (investment
funds) in buying and croping land in Romania from the perspective of bio type of
crops, which bring very high income from the products obtained.
OGMS 2014 – Activity program. Investment policy. BVC.
10
Activity program for 2014 ensures the continuity of strategies applied until present time,
having as objective the increased efficiency of asset management.
In the process of portfolio optimization, we stress on the necessity of review the exposure
limits in agreement with complying with the prudential procedures and legal
requirements, in the same time with the tendencies from the macroeconomic environment.
The tactical and strategic allocation of assets relies on top–down analysis, highlighting the
sectorial potential, depending on the contribution to economical growth, dynamics
registered and perspectives identified in long term governmental plans. The performance
of certain sectors, such as industry and agriculture (which, for the first time in 20 years,
managed to export a larger amount of food products than imported), highlights a high long
term potential, in the perspective of achieving the plans of governmental measures.
The long term vision focuses in a centre the results of the application of investment policies
considering: continue the investment strategies in the financial banking sector with
orientation on local market, the growth of the energy-utilities sector, the orientation
towards the agricultural sector, industrial, real-estate, pharmaceutical.
This centre ensures constant dividend flow, the cash flow for other investments, aiming at
capitalizing the opportunities/volatility specific to certain moments in the market,
associated with individual specific facets, dictated by the: liquidity level, affiliation to a
strategic filed of activity, type of management and its performance level, the application of
Corporate governance principles, financial-economical situation: development
perspectives, profit realization and dividend distribution.
As a general line, we diversify assets accordingly, such as to avoid excessive dependency to
a certain asset or issuer.
In the same time, we will consider a concentration process leading to a decrease in the
number of equities and the increase of exposure/issuer, such as to directly influence
portfolio in a positive manner.
To develop the performance potential of portfolio, we suggest an approach of projects with
private capital that can be materialized, developing business opportunities by creating
investment vehicles specialized especially on real estate, agro business, listing these
companies to Bucharest Stock Exchange.
We intend to create specialized companies in which SIF Moldova the control position, as
well as listing them to BSE, investing in companies that manage investments, financial
investment companies, brokerage companies.
B. ACTIVITY PROGRAM2014
OGMS 2014 – Activity program. Investment policy. BVC.
11
Within the activity of managing assets are complied with the investment principles
imposed by the legal stipulations, the internal regulations assumed with the scope to apply
a coherent management policy of assets in prudential conditions.
In the process of reorganization and dynamic
replacement of assets, we aim at a portfolio
mainly consisting of shares.
The orientation towards the category of
listed/traded shares, mainly of those on the
Romanian market is favoured by the
generalized policy of central banks to
maintain/ diminish interest rates, to continue
granting (at a smaller scale) liquidity support
and especially the new measures promoted in complex monetary policies. In perspective,
the year 2014 could be decisive in supporting world recovery, reason for which a plus of
optimism is being seen, but managed with maximum of prudency from the point of view of
risks associated and volatility estimated.
As regards to the history subportfolio of
closed companies, we continue the
process of reorganization aiming at
diminishing the exposure on unlisted
companies with no growth potential, in
parallel with obtaining liquidities for
supporting investment programmes and
improving the performance-risk indicators.
We consider an active management
consisting of a direct involvement of SIF Moldova, as a shareholder, in the management
activity of the companies.
Starting 2013, for the optimization of administration process of actives found in distress,
there were surrendered to the social capital of companies controlled by SIF, by creating
Asset Invest SA, shares owned at closed companies, in bankruptcy or administrative
liquidation, as well as actives set by Casa SA, having as effect the application of cohesive
management policies as well as the decrease of operational costs.
The activity program 2014 includes the opportunity to develop new businesses by creating
special investment vehicles, individually or in partnership.
Sector, we mainly aim at the industries with a contra cyclic character present on the
Romania’s National Development Plan, for which there are European funds and which are
supported by international financial institutions.
Without excluding the sector of reusable energies, we reconsider our strategy due to the
instability of legislative framework regulating the application of the support scheme for the
E-SRE producers through green certificates.
0%
50%
100%
Dec-10 Dec-11 Dec-12 Dec-13
Titluri cotate
-10%
0%
10%
20%
30%
40%
Dec-10 Dec-11 Dec-12 Dec-13
Tiltluri necotate
OGMS 2014 – Activity program. Investment policy. BVC.
12
A major interest is represented by the private equity segment, which perspective, in the
European landscape constantly and safely improves. Thus, SIF Moldova aims at creating
certain centralized administration structures for the companies who own majority shares,
depending on the nature of their activity. Uniform management techniques will be
implemented (that could be assimilated with the holding type ones), rationalization
measures will be adopted for using resources and optimizing costs, to grow the managed
value, profitability and performance of capital invested. Our intention is to list these
companies to the Bucharest Stock Exchange.
For the fields with potential and which can become opportunities that add value o
managed assets, such as real estate, agribusiness, we consider new projects, including
on companies from SIF Moldova portfolio, that might represent the subjects for certain
investment programs allowing performance growth of these issuers.
Considering the signals that the real estate sector has started to show, we intend to
apply new strategies, including for companies from SIF Moldova’s portfolio, hat might
represent the subjects for certain investment programs. We consider that the revival of the
real estate sector in a medium term could relaunch the construction materials sector
which, at the Bucharest Stock Exchange, is defined by low liquidity. The management
activity will consider the separation of activity lines, from the level of companies owning
relevant assets, for their better management.
We’ll aim at development opportunities in the agriculture sector, with a substantial
potential of appreciation for medium and long term, considering:
- The sector, as part of EU offers the safety of a legal framework which is safe and
predictable
- Romania’s geographical position, towards the EU countries, but the Arab ones as
well, found in a phase of accelerated growth of population and consumption (The
The convenient geographical positioning towards the transportation routs to the
Black Sea, a good infrastructure around Constanta harbour and along the Danube)
- Appreciation potential of the agricultural land in Romania in comparison with
other countries, that are now low largely due to the high attrition percentage
generating a low productivity/ha;
- Confirmation given by the acquisition rhythm of foreign investors who managed to
own data 8% of the total cultivable
area of Romania
- Soil’s success rate - Romania has one
of the important agricultural resources
in CEE (Central and Eastern Europe),
due to the black soil (chernozem)
which is very fertile.
- Price of agricultural land lower than in
majority of European countries.
Adjustment of exposures on banking sector
will continue the individualizing process and will conclusively epend on the capacity of
each bank to recommence the credit process and to reduce the level of non-performing
0%
20%
40%
60%
80%
Dec-10 Dec-11 Dec-12
Sector bancar
OGMS 2014 – Activity program. Investment policy. BVC.
13
credits, in the context of the new stipulations of
Basel 3 Agreement, economical trends and the
influences of monetary policy decisions.
We consider the consolidation of holdings in the
energy sector considering that listing
programs of government investments will
be made by offering investment opportunities
with good potential, with a medium maturity
horizon.
Still, we will carefully dimension our holdings considering:
- New tax on special constructions in force with the implementation of GEO no.
102/2013 on changing and completing Law no. 571/2003, that will partially affect
the profitability of companies;
- Renegotiation of royalties with the Romanian government;
- Possible liquidities made by Proprietatea fund in such companies;
- Quality of assets and the management of companies in question.
In its activity, SIF Moldova is exposed to risks associated to financial instruments traded
on capital market.
SIF Moldova defined a solid and orderly approach on investment and operational risk
management.
In grounding investment decisions we give an important role to identifying and evaluating
potential risks, with a permanent monitoring of portolio rebalancing on profitability-risk
criteria.
In order to create a solid application for making decisions and to encourage the proactive
management, in SIF Moldova a software solution for the optimization of the profitability-
risk report was implemented.
To achive the investment policy a series of risk strategies are approached:
in selecting the assets it is aimed at reaching objectives set through the risk
management strategy, , namely:
o performance objective: shares are the assets adding important value and that
are more tolerant to risk;
o time objective: on long term, strategy recommends structured conservative
portfolios oriented to minimal risks, bringing constant capital increase;
o liquidity objective: assets with a trade volume that allows entering and
exiting the market easily ;
o performance-risk objective: assets with profit potential, can involve an
additional risk.
Selection of assets from an already existing portfolio with the purpose of building
subportfolio’s, as well as new portfolios, is made by taking several parameters into
account:
o by balancing allowable existing risk and expected profit in a certain period
of time;
o by balancing earnings from price variation and dividends;
o by correlating expected performance with the expected risk and with the time
factor;
0%
10%
20%
30%
Dec-10 Dec-11 Dec-12
Sector energetic
OGMS 2014 – Activity program. Investment policy. BVC.
14
o by correlating high risk financial instruments - creating alfa, with those of
medium risk- which are in the market trend;
o by correlating the changes in the economic environment in general, with
those of the sector in which the investment is made.
Risk management also includes the operational risk, as well as the self evaluation process
by approaching in an organized manner the identification and analysis of risks, as well as
the adoption of measures necessary for reducing them.
Through the self evaluation process the processes considered critical from operational
point of view are identified and an adequate level of control and responsibility inside the
company is maintained. In order to carry with the risk management activity internal
working procedures are developed, on managing and monitoring market risk, liquidity and
operational risks.
Approaches/ possible proposals considering existing restrictions
In the documented activity directions and options analyzed, it is considered the possibility
of initiating certain actions that involve the adoption of decisions by the shareholders , la
at EGMS competency level:
1. In the process of optimization the managed asset portfolio in the conditions of: (a)
identifying investment opportunities in agreement with the defined principles of
investment policy and (b) maintaining a medium risk profile, considering the proposal
on approving exceeding the threshold of 20% from the fixed assets, excepting the
liabilities for the acquisition, alienation, trade or incorporation in warranty of
certain assets from the category of fixed assets from the financial year 2014. (in
accordance with. art.241 paragraph.(1) in Law no.297/2004 n capital market).
2. In the context in which the activity program for 2014 includes the
incorporation/participation to certain specialized investment vehicles on fields of
activity (eg: agriculture, real estate, opportunistic, etc.) in conjunction with restriction
from: (a) current/ possible situation on the existence/application of statutory
limitations on the competent authority for approval (GMS/BD) and (b) the legislative
restrictions on alienation limit of certain actives during a financial year (maximum 20%
of total assets excepting liabilities), we consider the proposal to approve by GMS the
incorporation/participation of/to SPVs. From the perspective of shareholder’s
position, SIF Moldova will ensure the compliance of high transparency standards in the
activity of these entities, including by listing them on a stock market.
3. In the conditions of SIF Moldova communicating the intention to take over holdings to
a company of investment management (49,96% of the social capital of SAI Muntenia
Invest SA) and considering current restrictions from the Article of Incorporation, we
consider (if the situation requires that) to submit this investment for shareholders’
approval.
In the activity report of the Board of Directors the highlights of the „Strategic Plan for
Developement of SAI Muntenia Invest SA” are detailed. The acquisition of holdings
issued by SAI Muntenia Invest represents a portfolio investment, and the medium/long
term financial objective of this investment is represented by the income growth by a
better management of SAI Muntenia Invest SA. The acquisition is in total accordance
with the investment objectives of SIF Moldova SA, consisting in managing the financial
OGMS 2014 – Activity program. Investment policy. BVC.
15
instruments (h labelled by the NSC/FSA regulations) with the purpose to ensure value
is created by diversification, as well as preserving and increasing the capital on a
medium/long term.
The decision of the Board of SIF Moldova is in line with the investment policy
benchmarks approved by the shareholders, to streamline its core business and diversify
its investment targets, maintaining a medium risk profile. The Board decision was
disclosed to the market through the current report of August 23, 2013.
SIF Moldova has notified the FSA and the Competition Council of the intention to
acquire a qualifying holding in SAI Muntenia Invest SA. Steps taken in the relation with
the FSA aimed to clarify some interpretative aspects of the articles of association (there
were conducted workshops and reasoned arguments were sustained). In relation to the
approaches taken towards the Competition Council it has been concluded that the
project is not subject to authorization (the transaction is not an economic
concentration).
In response to the steps taken, the FSA informs us by letter no VPI/2337.1/11.03.2014,
that SIF Moldova request for approving the acquisition of a qualifying holding of
49.96% of the share capital and total voting rights of SAI Muntenia Invest SA can be
solved after the removal of the provisions of Article 14 paragraph 1 of the Articles of
Association of SIF Moldova, a situation that is in the competence of the EGMS of SIF
Moldova.
4. In the dividend policy, it is considered the possibility to submit for approval a
program for the recovery of own shares, operation with tax benefits for shareholders ,
in comparison with dividend payment. In this case, BD appointing will be required on
adopting necessary decisions for concluding shareholders’ decision (the characteristics
of the recovery program). In case these proposals are approved, the operation will be
run by informing/consulting shareholders in advance. (Topic was not included in the
agenda of EGMS from 04/05.04.2013, meeting during which the quorum statutory
conditions were not met).
General restrictions
These strategic projects will be started in case, following the analysis of the economic and
investment context for 2014, the Board of Directors decides on the opportunity to present
the topics specified to shareholders, in a GMS. A eventual/ possible EGMS meeting will be
carried in case there are reasonable estimations on meeting the quorum and adopting
decisions.
(eg: the possible change of the legal condition for SIFs EGMS taking place Approval of
amendments to GEO 32/2012, legislative process in progress).
Dividend policy
Dividend policy will reflect the context of the economical environment and will consider a
target performance in line with the market evolution. We aim at improving the investment
effort, as a source as a source for the future performance and we aim at having a balanced
report between the dividend policy and that of ensuring resources for the investment
programs.
OGMS 2014 – Activity program. Investment policy. BVC.
16
Objectives of the 2014 investment program
The committed objectives for 2014 are set within the limits of caution, in accordance with
the legal stipulations and FSA stipulations, aiming at tactical changes coming from both
the capitalization of investment experience and from the evolution of economical
environment.
In context in which the economical climate of the capital market is in favour of certain
investment/disinvestment, we forecast that these indicator will be outperformed.
17
I. SCOPE OF DECLARATION FOR INVESTMENT POLICIES
The Declaration for investment policies defines the general activity framework, depending
on the long term investment objectives, setting the methods of implementation of
strategies adequate to the economical cycle, in conditions of caution.
The main objective aims at improving the company’s performance indicators and to
maintain investors’ trust, in the high potential of the SIF2 share. Performances aimed
together with the objective to diminish discount, represents the main aim for SIF Moldova
management.
The Declaration for investment policy meets the legal and statutory framework
requirements. It will be revised, any time when necessary and will be subject to the
approval of General Meeting of Shareholders.
II. ROLES AND RESPONSIBILITIES
The implementation process of the investment decision
The investmemt strategy is approved by the General Meeting of Shareholders – the
management authority of SIF Moldova, adopting decisions based on projects proposed by
the Board of Directors and/or shareholders.
At its turn, the investment strategy is first of all approved by the Board of Directors in the
spirit of its attributions, as recorded and endorsed by the FSA, in the sense of the
regulations stipulated in the applicable legal framework.
Having a permanent consultative role, independent to the SIF Moldova executive
management, subordinated to the Board of Directors, the investment policies Committee –
the experts analyze the investment strategies and elaborate recommendations. The
Committee assists the Board of Directors in fulfilling its responsibilities in the field of
elaborating strategies and investment policies, of monitoring the compliance with the
decisions on applying the investment policies, the analysis of the performance of financial
instruments portfolio and risk management.
Board of Directors establishes the main investment strategic directions, is informed by
the executive management on the progress of activities carried out between its periodical
meetings.
The Investment Policies – Strategies Committee, is a permanent consultative
committee independent of the SIF Moldova executive management, subordinated to the
Board of Directors.
The Investment Policies – Strategies Committee has to include at least 2 members from
the non-executive managers.
C. DECLARATION FOR INVESTMENT POLICIES 2014-2018
18
The executive management of the company is ensured, in accordance with the
stipulations of the Incorporation Article and regulations in place, by the Director General,
respectively the deputy Director General, is appointed by the Board of Directors. The
executive management is empowered to manage and coordinate the daily investment
activity f the company and is invested with the competency to bind the company.
President acting as Director General directly manages the company’s activities în in
accordance with the general objectives established by the GMS and executes the decisions
of the Board of Directors.
Vice-president acting as deputy Director General, coordinates daily the investment
activities.
Investment department has as main objective the elaboration of strategies on global
and dynamic allocation of classes of assets (shares, fixed income instruments, other
instruments of the capital market) and is subordinated to the Vice-president Deputy
Director General.
In accordance with the specific attributions and responsibilities, the investment activity
is aligned to the procedural framework approved by the directors, sets the working method
for the elaboration, the approval and the monitoring of investment strategy, of
investment/disinvestment programs, of processing information on biannual/annual
financial results of the companies in portfolio in order to analyze the share portfolio, toput
shares in qualitative categories and to submit investment /disinvestment proposals.
Internal Audit department ensures the supervision of compliance with the legislation
on the capital market in force, as well as with the regulations and internal procedures.
III. INVESTMENT ONJECTIVES
The investment objective of SIF Moldova is to increase the value of assets through
investments mainly on securities having as support Romanian shares
The applied policies include adequate techniques to achieve the following:
To continuously optimize and reorganize the structure of assets by the
harmonization of the proportions of sector exposures, in the context adequate to
the economical sector;
To continue the investment strategies in the financial banking-sector aiming at the
local market;
To create specialised companies, where SIF Moldova has the control position and to
list them to BSE. Their main purpose is to centrally manage opportunities with high
potential, on groups of companies grouped on area of activity. Direct involvement in
management activity aims at applying uniform techniques, customized, aiming at
reducing operating costs şi and increasing income, thus increasing the value of
managed portfolio;
To be oriented towards investments in which we can actively determine the
economical and financial policies;
19
To invest in investment management companies, brokerage companies, financial
investment companies – for which the legal regulations in force cleared the holding
restrictions;
To significantly reduce the percentage in the total of managed assets for the
companies that registered the decrease/lack of financial performances and with no
come back perspectives;
To support the initiatives having as purpose the improvement of the attractiveness
of the Romanian capital market, with a direct effect on the managed portfolio.
To reach the objectives the following are considered:
The clarity of annual activity programs and the manner in which they contribute to
reaching the investment objectives;
The active management by direct involvement in the activity of companies in
portfolio in order to increase their value;
Permanent monitoring of improving the visibility and liquidity levels of the assets
managed in the economical environment. In this respect, we intend to list certain
key holdings and capital operations are not excluded, in order to lead to
performance improvement;
Obtaining the shareholders; approval in the General Meetings, to put in practice
certain programs to increase the social capital of SIF Moldova, to improve the value
of managed assets, by creating sources adequate to strategy objectives or programs
for the recovery of shares issued by SIF Moldova, to determine, in the absence of
adequate investment opportunities to the appreciation of performance in SIF2
investment, using the cash available in the process of decreasing the discount
between VUAN and market price;
Constructive communication and interaction with shareholders. Running
investment activities complying with the principles defined in the Corporate
Governance Code supports the premises for SIF Moldova obtaining performance
and the harmonization of the interests of all parties involved in the relationship
with the company;
identifying SIF Moldova’s advantages by configuration of resources from the
competitive environment, thus defining the uniqueness of the company and
differentiating it;
implementation of measures that contribute to the improvement of the climate
specific to the capital market:
o directly, by participating to the listing program,
o active involvement in the process of improving the legislative framework, an
important factor in the development of the capital market.
The asset evaluation is made in accordance with the regulations in force issued by the
Financial Supervisory Authority and the internal rules of SIF Moldova.
IV. INVESTMENT LIMITS
The investment policy will be achieved by complying with the prudential limits of
investment stipulated by the legal regulations and the provisions of law.
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V. INVESTMENT RISKS
SIF Moldova managers are responsible for achieving a balance between risk and expected
profit. In this respect, there are applied the necessary measures and processes for
monitoring the operational and investment risks, as well as for answering quickly to any
unexpected situation.
The principles of risk management aim at processes of managing them actively, applying
specific procedures to identify, evaluate, measure and control to obtain a reasonable
assurance that a constant balance between risk and expected profit will be achieved.
The risk management information system implemented ensures the needed support in the
process of grounding the investment decision.
VI. DIVIDEND POLICY
Dividend policy will permanently reflect the context of the economical environment and
will consider a target performance in line with the market evolution. We aim at improving
the investment effort as a source for future performance and we desire to obtain a balanced
report between the dividend policy and that of ensuring resources for investment
programs.
VII. LIQUIDITY
The optimum liquidity level needs to be maintained to ensure:
capital expenses necessary for current investment activities;
necessary funds to pay the dividends and/or to recover the shares (as appropriate);
Exploitation and tax expenses.
VIII. CONSTRAINTS
SIF Moldova will make investments in the assets classes mentioned in the legislative body
applicable and operations allowed by the legal regulations and the provisions of law.
IX. OTHER RELEVANT INFORMATION
The investment policy is rigorously monitored by the Board of Directors and authorities
specialized in audit, in accordance with the legal regulations. Based on conclusions and
opinions formed, the Board of Directors will revise and complete the declaration for
investment policy anytime important changes arise in the capital market.
The results of investment operations are communicated periodically/precise (as
appropriate) to shareholders, in accordance with the legal reporting requirements.
21
Company’s operating based on the principle of activity continuity, the harmonization of
short term objectives with the long term objectives, in the context of internal and external
financial market determined the grounding of the Budget of Income and expenses - 2014
to start from the analysis of the budgetary execution until 31.12.2013, by approaching
main working assumptions, as it follows:
To ensure an increase of the net profit by 10% against the 2013 profit;
To eliminate the events that are not certain to repeat in 2014;
Taxes anticipated are calculated in accordance with the fiscal regulations at the date
of budget draft;
No influences were estimated on which there are no certain anticipation
information;
The agreement principle with the personnel policy – to determine the motivation
and alignment to the strategic objectives aimed at.
Total income proposed to be achieved in 2014 have as main grounding assumptions:
Income from financial assets
Estimating a distribution rate of net profit as dividends by the companies
where SIF Moldova owns holdings.
Income from interests – the forecasted evolution of cash flow for 2013 was
considered and the forecasted interest rates. Estimations can be substantially
different, depending on the evolution of the monetary market, as well as on the
necessary for investment, correlated with the evolution of capital market.
Income ceased financial investments – represent the main source for
realizing financial income and implicitly profit.
Income from current activities – mainly consists of:
Estimated income from renting available real estate;
income from reversing provision made for participating to benefits plan,
distributed;
income from prescribed dividends.
Income from provisions – cannot be estimated accurately as the liabilities
referred at (litigations with AAAS) are in litigation, not being able to forecast with
certainty the moment of recovery, in case of in favour solution in trial.
Total expenses, to be achieved in 2014 - have as main grounding assumptions:
expenses from ceased financial investments - represent the equivalent of
the costs of sold titles, calculated through the method of the weighted average cost;
other financial expenses - represent the equivalent of commissions from
transactions, currency exchange variations, expenses with banking services;
expenses with provisions - cannot be estimated in advance, as the evaluation
of liabilities and financial investments on short term, is recorded during a fiscal
year;
expenses from current activity - mainly consist of:
expenses with the personnel - Expenses with the basic wages for 2014,
considered the basic pays registered in the last function chart on 31.12.2013
(including vacancies);
D. INCOME AND EXPENSES BUDGET FOR 2014
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expenses with management contracts - were calculated in accordance with
the stipulations of contracts valid when provisioning .
expenses with the personnel and managers on participating to the profit for
2013- does not influence the net profit proportion for 2014, as they are
considered as income, in the moment of payment;
expenses on external work - mainly consist of expenses commissions and
fees to support the patrimony activity meaning: the commission paid to
NSC , Depositary Society, Shareholders Register, BSE, auditing financial
situations and auditing of the information system. These expenses
elements have as calculation basis the proportion of net asset au and are
determined by the estimation of the evolution with a growing trend of teh
capital market;
provisions - consist of creating the funds for participation to benefit plans
for 2014, for the employees in accordance with the labour contract
specifications as for the managers in accordance with the approval of the
General Meeting of Shareholders.
Realized 2013 Provided 2014 %
1 2 3=2/1
A. Total revenue 272,018,721 241,118,675 89
B. Financial revenue 238,557,697 223,800,000 94
· Revenue from financial investments (dividends) 25,917,789 25,000,000 96
· Revenue from receivables (banking interest + bonds) 3,319,267 1,500,000 45
· Revenue from ceded financial investments 203,007,957 195,500,000 96
· Revenue from exchange rate differences 3,329,549 1,500,000 45
· Revenue from provisions 1,294,907 0 0
· Other financial revenue 1,688,228 300,000 18
C. Revenue from operations 33,461,024 17,318,675 52
· Revenue from rents and associated 1,652,966 950,000 57
· Revenue from provisions 25,268,406 7,368,675 29
· Other revenue from operations 6,539,652 9,000,000 138
D. Total expenses 170,671,490 105,222,968 62
E. Financial expenses 136,848,090 63,450,000 46
· Expenses related to ceded financial investments 131,355,516 60,000,000 46
· Expenses related to commissions for transactions 405,508 700,000 173
· Expenses related to exchange rate diff. 3,494,371 2,400,000 69
· Expenses with banking services 48,141 50,000 104
- Expenses with provisions 1,215,008 0 0
· Other financial expenses 329,546 300,000 91
F. Expenses with operations 33,823,400 41,772,968 124
G. Gross profit 101,347,231 135,895,707 134
H. Taxable profit 65,724,427 113,078,636 172
I. Profit tax 10,466,908 18,092,582 173
J. Net profit 90,880,323 117,803,125 130
DECISION DRAFT
Resolution 8 Approves the Investment Policy Statement 2014-2018 and the Activity
Program for 2014.
23
Resolution 9 Approves the income and expenses budget for 2014.
• total income 241,118,675 lei
• total expenses 105,222,968 lei
• gross profit 135,895,707 lei
• net profit 117,803,125 lei
Costel Ceocea, PhD
President and CEO