Transilvania Investments Alliance S A : H1 2023 Financial Results (conference August 16, 2023 – call trascript)

Conference call, 16.08.2023, 2:00 pm

Good afternoon! Welcome to the Transilvania Investments Conference for the presentation of the financial results recorded as at 30 June 2023. Today's conference will be held by Stela Corpacian, Executive Vice-Presidentand Theo-DorianBuftea, Executive-VicePresident.

The presentation is available on our website, under Investor relations/Presentations and will run on the monitor during this presentation. After the presentation, we will start a Q&A session, where you are invited to ask questions about the information presented to the Board members.

Please be informed that this conference will be recorded, with the audio recording to be posted on our company's website, in order to provide all stakeholders with access to the information we are going to present today. Moreover, please be informed that the personal data you have provided upon registration for this event will be processed pursuant to the company's policy regarding personal data processing, which is also available on the company's website.

That being said, I am going to ask Theo to start the presentation and make the opening remarks.

Thank you, Mihaela! Good afternoon, ladies and gentlemen! Before getting into the structure of this presentation, I am going to make a brief analysis of Romania's macroeconomic evolution. The figures for the gross domestic product, i.e. GDP, for the second quarter of 2023 have been published today. As we could see, year-over-year the value is 1.1%, which shows a significant contraction compared to the previous period and to analysts' expectations. However, we believe that Romania will go through the so- called soft-landing process. We can see that the matter of recession is not currently on the cards, but, most certainly, the Q2 results are not necessarily in line with expectations. The industrial production figures for June have also been published, they also show some negative figures, not very encouraging for the coming period, but we believe that Romanian economy is quite resilient and, consequently, looking at the results posted by various companies, since this is a financial reporting period, things do not necessarily look bleak. A troubling sign might be the international oil price dynamics, which could put additional inflationary pressures and, consequently, affect consumption. I would also like to say a few words about the consumer price index.

Finally, after more than 6 months, the last time was in March, if I'm not mistaken, the year-over-year consumer price index is below 10%, so it's back to a figure, 9.44% to be more exact, for July 2023. We expect the relatively accelerated downward trend in inflation to continue. This does not mean that the Central Bank will start lowering interest rates. We expect this to happen more likely in the second half of 2024. Consequently, I believe that Romanian economy, as I said earlier, seems to be quite resilient to shocks, which are mostly external. Private consumption is still quite high, so we don't see, if you like, a very significant negative impact. Perhaps, the main problem, and this is what the current government is trying to adjust, the main issue is the budget deficit and the trade deficit, but to a lesser extent. Efforts are being made to adjust this deficit so that we stay in line with the targets committed in the programme towards the European Union and in the NRRP programme, but I think that on the macro side, of course, at the end of the presentation I will be available for any questions or you can always interrupt us if you have any questions.

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I think we should move on to the actual presentation and I'm going to give the floor to my colleague, Mrs Stela Corpacian, more specifically on page 3, the financial position and performance as at 30 June 2023. Thank you!

Thank you, Theo! Good afternoon! We will start with a summary of the results achieved in H1, which will be detailed throughout this presentation.

In H1, Transilvania Investments recorded a net profit amounting to RON 52 million, down by 23% as compared to the net profit recorded in H1 2022, but it is worth mentioning that in 2022 the profit was influenced by an exceptional event, namely the collection of special dividends distributed by BRD Groupe Societe Generale, amounting to RON 60 million. Disregarding this exceptional item, the net profit in 2023 would be significantly higher than last year. As at 30 June 2023, the company's net operating income totalled RON 66 million, down by 18% as compared to the amount recorded as at 30 June 2022, for the same reasons I mentioned above, and 35% higher as compared to the amount provided for in the revenue and expenditure budget for H1 2023.

The operational expenses at the reporting date amount to RON 14 million, which are in line with those recorded in H1 2022, and with a net positive evolution of 35%, i.e. lower than those foreseen in the revenue and expenditure budget for H1 2023.

The total assets held by Transilvania Investments, as at 30 June 2023, amount to RON 1,492,000,000, increasing by RON 59 million, i.e. by 4% as compared to the same period of the previous year, and total liabilities at the end of the first half of 2023 amount to RON 80 million, higher by RON 1.89 million, i.e. by 2%, as compared to the same period of the previous year.

If we look at slide 6, we can see that this increase in total assets compared to the end of the previous year is mainly due to the increase by RON 22 million in financial assets measured at fair value through profit or loss, as compared to the end of last year, and of financial assets measured at fair value through other comprehensive income by RON 18 million. The increase in liabilities is mainly due to the increase in financial liabilities, especially where we have recorded dividends payable, amounting to RON 25 million at the end of the previous year and 36.7 million at the end of H1 2023.

Coming back to slide 5, we can see that the net asset value as at 30 June 2023 amounted to RON 1,412,000,000, i.e. RON 0.66 per share, higher by 4.21% as compared to net asset value as at 30 June 2022 and higher by 4.03% as compared to the value recorded as at 31 December 2022.

The closing price of the TRANSI share at BSE as at 30 June 2023 is RON 0.2830 per share, higher by 18% as compared to the price on 30 June 2022 and higher by 2.54% as compared to the closing price as at 30 December 2022.

We also note a positive trend of the trading discount of TRANSI shares as at 30 June 2023, i.e. falling by 5%, reaching 57%, compared to 30 June 2022. The financial instruments portfolio value as at 30 June 2023 is RON 1,396 million, higher by 2% compared to the value as at 30 June 2022, i.e. higher by 3.60% compared to the value as at 30 December 2022.

We will now go into more detail to understand these developments and what led to these, I would say, positive developments in the first half of the year.

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We will start by explaining the accounting principles applied by the company. The financial statements have been prepared in accordance with the IFRS, namely according to IFRS 10, the company being classified as an investment entity does not consolidate its subsidiaries, but measures them at fair value through profit or loss.

Transilvania Investments classifies its portfolio into 2 subcategories.

Let's talk about classification for a moment. On slide 7, considering the FVTPL sub-portfolio where, as you can see, compared to 31 December 2022, we have a positive evolution of RON 588,000,000 compared to RON 564,000,000, mainly due to the shares listed on Bucharest Stock Exchange where, as you can see, there is a positive variation of almost RON 50 million, which is not applicable for companies listed on the AeRO market. Also, for unlisted shares, variations are relatively insignificant, and the same can be said for unlisted fund units. We have a change in government securities from the transactions we have made, through buying and selling certain securities respectively, which we will detail in Part 2 of the presentation.

With regards to the FVTOCI sub-portfolio, likewise, the variations here are less significant. The difference is, obviously positive, amounting to RON 6 million, particularly from shares listed on Bucharest Stock Exchange.

Moving on to slide 8, we will overview the financial results of the company in terms of profit and loss. We note that total net income went down compared to the first half of last year from RON 80 million to RON 66 million. This decrease is due, as mentioned above, to the significant decrease in dividend income, from RON 89 million to RON 26 million, since last year we recorded this exceptional income from special dividends from BRD, amounting to RON 60 million.

However, the structure of dividend income should be considered here. If in the previous year, out of the RON 80 million, 97% was dividend income from holdings in which Transilvania Investments is a minority shareholder, in the first half of 2023, 54%, i.e. more than half of the dividend income comes from our subsidiaries, i.e. RON 14,000,000, of which the largest are the income from ARO, FEPER and Transilvania Leasing, and dividend income from other companies, amounting to RON 12 million or 46%.

There is also a positive development in the net gain from financial assets measured at fair value through profit and loss, the most significant positive fair value adjustment being recorded for the issuer Turism, Hoteluri și Restaurante Marea Neagră, increase amounting to RON 33 million, which, in our opinion, is due to the change in the company's business model, and the increase of RON 10 million for the company Turism Felix.

The largest negative adjustment is the effect of the ex-dividend correction recorded during the first 6 months by Aro Palace, amounting to RON 7 million.

Under Expenses we see that these are in line with those recorded in the previous year, but we see an increase in staff benefits, due to the reversal of the provision recorded last year, amounting to RON 4 million, and a positive effect is noted in the gain from reversal of the provision for litigation, amounting to RON 1 million.

Overall, these items resulted in a lower profit as compared to the first half of 2022, decreasing from RON 67 million to RON 52 million.

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A positive development is seen in the increased gain from the valuation of financial assets measured at fair value through other comprehensive income, from a loss of RON 96 million, last year, to a gain of RON 33 million, gain mainly due to the increase in OMV holding amounting to RON 19.8 million Bucharest Stock Exchange holding in amount of RON 10 million and Banca Transilvania, amounting to RON 8 million.

This positive effect is offset by a negative effect from the decrease in Evergent shareholding of RON 3.3 million.

Together with these other elements of the comprehensive income, the total comprehensive income for the year amounts to RON 85 million, a significantly higher comprehensive income compared to the first half of last year, namely a loss of RON 27 million.

If we turn to the next slide and compare the results recorded with those in the revenue and expenditure budget, we see positive developments compared to the budget. In terms of dividend income and interest income, these are in line with the budgeted amounts, but the gain on financial assets measured at fair value is double than the budgeted amount and this is also the positive effect, in particular recorded by the company Turism, Hotel și Restaurante Marea Neagră, as mentioned above, due to changes in its business model, since it decided to stop operating the hotels and to rent them out, an effect that had a positive result for 2023, i.e. the total income in the first half of the year amounting to RON 66 million, which is higher than RON 49 million as included in the budget.

The expenses are in line with the budget, except for stock option plan expenses, which are lower than budgeted and, respectively, due to this positive effect of stock option plan expenses, the total expenses amount to 21 million, lower by RON 8 million than budgeted.

The positive effects on both revenues and expenses resulted in a practically double profit before tax as compared to the budgeted amount of RON 28 million, the actual profit being RON 52 million.

In conclusion, the net profit for the first half of 2023 is significantly higher than budgeted and if we eliminate exceptional items- the dividends distributed by BRD - it is also significantly higher than that recorded in the first half of 2022. As mentioned above, we should note the positive effect of dividends from subsidiaries, which shows that the strategy implemented by Transilvania Investments is starting to bear fruit.

I'm going to give the floor to my colleague, Theo-Dorian Buftea.

Thanks, Stela! We'll move on to slides 10 and 11. However, my colleague made a slight overview of slide

10. I would say that the share price ranged from a low of 0.2583 to a high of 0.3012 in 139 trading sessions related to the first half of 2023, with an average daily trading volume of 220,000 shares per session. As mentioned earlier referring to slide 11, the trading discount has been reduced by 5%, i.e. from 62%, which happened in June 2022, to 57% at the end of June 2023.

Turning to slide 12, more specifically, we also note a reduction in the trading discount by reference to the top 10 holdings in the portfolio, including cash and cash equivalents, i.e. to a level of 42%, which continues to be a significant discount.

Let me now turn to chapter 2, Transilvania Investments portfolio, in which we show, using graphs, the dynamics of the portfolio structure by financial instruments. Clearly, the significant part is made up of

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listed shares, comprising 88% of the entire portfolio, followed by unlisted shares and equity interests, as well as government securities, obviously followed by equity holdings and fund units.

In terms of business sectors, Transilvania Investments Alliance continues to focus on the banking sector, followed by the tourism sector, leisure, and my colleague already mentioned a few names earlier, followed, of course, by financial services and real estate. The total financial instruments portfolio amounts to almost RON 1.4 billion, or RON 1,396,024,014.

Returning to slide 15 with the top 10 shareholdings as at 30 June 2023, to follow-up what I said in the previous slide, the two banks continue to occupy a significant share of the total assets of Transilvania Investments, more specifically Banca Transilvania, with 14.69%, followed by BRD Groupe Societe Generale, with 12.62%.

As far as the tourism sector is concerned, we have Tourism Felix, with 9.07% weight in total assets, where we have a shareholding of over 93%, followed by Tourism, Hoteluri și Restaurante Marea Neagră, with a weight of total assets is 8.4% and a 78.8% shareholding, followed by the energy sector, OMV Petrom, with a 6.37% weight in total assets, followed by FEPER, Evergent, Casa Albă Independența, Bucharest Stock Exchange, also Tourism Covasna where our shareholding is 92.94%.

The top 10 holdings in total shareholdings comprise 64.88% and we stand at 93.56% in the total of financial instruments portfolio.

We can move to the next slide. On slide 16, with regards to the components of Transilvania Investments' portfolio, we see that the total asset value compared to December, but also compared to March 2023 is increasing, also due to the positive evolution of the stock market. We also note a return of focus on cash and cash equivalents. We are talking about the end of the first half of 2023, where we have RON 58.8 million compared to the end of the first quarter of the year, amounting to RON 17.2 million.

It is also important to note an increase in the financial instruments portfolio that includes cash, where we note a steady increase, both compared to the end of December 2022 and the first quarter of 2023, currently amounting to RON 1,454,800,000 at the end of the first half of 2023.

Turning to slide 17, in terms of the financial instrument portfolio variation, which comprises of fair value plus cash plus attached receivables, we see that the main contribution is made by shares, as it should be, given the structure of our portfolio, followed by equity holdings and the evolution of government securities. As I said, shares generated a positive net cash of RON 90.3 million, followed by equity holdings, with RON 8.2 million, as shown in the graph, and government securities, with RON 3.6 million.

In terms of the breakdown by sector, more specifically, on slide 18, we note, obviously, a positive evolution mainly due to the travel and leisure area or sector, with 41.1 million, followed by the energy sector, due in particular to OMV Petrom, with 27.1 million, and financial services, 15.5 million, and last but not least, of course, due to our focus on banks, with 12.8 million.

Let me turn to slide 20, with respect to the share sub-portfolio variation, as positive performance we have THR Marea Neagra, followed by OMV Petrom, as well as Bucharest Stock Exchange, with significant positive variations. I could add here Turism Felix and Banca Transilvania. There are also some negative variations: Concas, as a result of the sale, and others, however relatively marginal.

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