Transilvania Investments Alliance S A : Presentation Audited 2022 Financial Results (conference May 2, 2023) – call transcript

Greetings!

Welcome to the Transilvania Investments Conference for the 2022 financial results presentation!

The conference will be held by Theo Buftea, Executive Vice-President, and Stela Corpacian, Executive Vice-President.

The informative materials provided during the presentation will be made available on our website, transilvaniainvestments.ro., in the Investor Relations - Presentations section. And, as you can see, it will also be screened during the conference.

After the presentation of the financial results, we will initiate a Q&A session. We would also like to inform you of the fact that this conference will be recorded, with the audio recording to be posted on the company's website, in order to provide access to information for all stakeholders. Furthermore, the personal data you have provided throughout the conference registration process will be processed pursuant to the company's policy regarding personal data processing, available on the company's website.

That being said, I hereby invite Theo to start the presentation.

Theo-Buftea -First of all, greetings!

By observing the presentation layout as showcased on slide no. 2, we will begin with a brief presentation of the macro-economic context, a few macro information concerning Romania's economic perspectives for both this year, and, if you will, for the following years as well.

As you can see and as I believe I have already mentioned for the people taking part in the General Meetings of Shareholders, we can see that Romania's economy is resilient, appearing much healthier compared to both the neighboring economies, and the mature markets. Given these circumstances, we foresee an actual increase of the gross domestic product both for this year, obviously a smaller increase than was probably expected six months ago, but I do not believe we're facing any danger of a recession. With this economic growth actually expected to accelerate from 2.3% in 2023 to 4%, as indicated by the poll drafted by Bloomberg based on data and estimations of analysts who believe they should be posting these estimates within Bloomberg.

Moreover, we expect a drastic decrease in the inflation rate as a result of a disinflationary process, given that the peaks have been reached and given that we believe this process to continue at a rapid pace for the years to come. Therefore, we project an inflation of 10.3%, although, as things currently stand, I believe we can take into account a single digit inflation, likely to veer towards 9, if not 8%, with the disinflationary process expected to be accelerated in the immediately upcoming period.

In terms of the unemployment rate, no information truly stands out. We continue to note a relatively high employment rate with a rather intense demand. This being an aspect that is not only noticeable in Romania, but also at a European level, and at the level of other developed countries. Moreover, we expect the competition deficit to record a slight dip. The same principle applies to the budgetary deficit, which will probably be subject to a decreased level of pressure. Given this context, and especially the context of disinflationary pressures, we can observe a decrease in interest rates both by the Central Bank, probably starting with next year, as this year the rates are expected to stabilize at the current level, as well as in terms of the 2-year and 10-

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year government bond yields, respectively. Also, there is not much we can say about the currency rate. It is stable. This year it will probably not exceed the psychological level of 5 RON per 1 EUR.

Moving on to the evolution of the exchange rate, we can see that the EUR/RON is the most stable currency in the region, of course, only taking into account the assessed poll. Basically, it features a constant curve ranging between 4.93 and 4.96 compared to the Hungarian Forint (HUF), which recorded a significant depreciation due to a highly inflationist process and to the significant increase in interest rates. While, as a result of its initial depreciation caused by the outbreak of the Russian-Ukrainian conflict, we can see the Polish Zlot (PLN) is currently recording an appreciation, but I believe that in unitary terms, if you will, during the last year it has remained somewhat constant, retaining the same tendencies that have also been retained by the RON, tendency that has been retained, I apologize.

In terms of 10-year government bonds and the 10-year government security yields, it is obvious that a premium is added to the RON ones compared to EUR bonds. Evidently, we take into account the same 10-year period so as to compare things that are comparable and similar in nature. While the differential respectively shows that for any person who desires to make a swap and an investment in EUR, the investment is much more effectively done in EUR compared to the one done in the local currency.

We will move forward to a comparative assessment between the government bond yields in Romania vs. Hungary and, on the very next page, Romania vs. Poland. The period in question is 10 years. Basically, in this category Hungary continues to trail Romania in terms of yield, or rather Hungarian bonds are traded with a higher yield compared to Romanian government bonds, due to the unpredictability of the currency exchange rate and to the significant budgetary deficit compared to that of Romania. Moving on to the next page, presentation slide no. 8, the 10-year government bonds issued in RON, again, we're talking about the same comparison with Poland, with the period in question also being 10 years, show a somewhat constant trend, and I believe the average value is around 130-140 base points, give or take. And, if you will, this reflects the slightly higher unpredictability level of Romania compared to the Polish economy, and, as a result, a higher premium being demanded by the investors from this perspective. Page 9 provides a comparison of the relation between the monetary policy interest rate and the actual interest rate, in other words, the inflation-adjusted interest rate and, as you can see, for Romania and Poland, and this, by the way, added to the consistency of the exchange rate, and even the consistency of the premium paid for bonds, shows that, in terms of the actual interest rates, they record a negative value, between -7 and -8 or, more specifically, between - 7.5 and -8. Obviously, the difference is made by Hungary, where the fiscal approach is different and, if you like, where the social approach is different as well. And that put a lot of pressure on the inflation rates and on the interest rate implicitly. And, as you can observe. its value is almost twice the value to the interest rate recorded in Poland and Romania. Despite this, the actual interest rate continues to record elevated negative values.

On page 10, we tried to provide a comparative assessment of the bonds, of the interest curves, I apologize, between the three countries subject to the analysis, which obviously shows that these curves are flat or almost flat in the case of Romania and Poland. In the case of Romania there is a slight long-term premium present compared to the short-term one, while in the case of Hungary the curve is reversed. This means that the investors' perception in the medium- and long-term is that Hungary's economy will recover. But for now, due to its fiscal-budgetary

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unpredictability, things are not looking very good, and I may also add that this fact is also due to the current account deficit. Therefore, we believe that, compared to Hungary, Romania's situation clearly looks better. A slight premium may occur here compared to Poland, but it is not that significant. I am referring to the premiums that we discussed, the risk premium that we discussed on the previous slides.

Page 11 of the presentation provides comparative assessment of the evolution of government bonds and it is obvious, picking up on what I said earlier, that the Hungarian Forint bonds are higher, with them accepting or being forced to accept a higher premium from issuers in order to continue to finance their budgetary deficit. Having said that, I will bring the first part of the presentation, i.e. the macro part, to a conclusion and I will yield the floor for my colleague to provide her input on the result, the assessment and the summary of the outcomes recorded at the end of the previous year, 2022. Thank you.

Stela Corpacian - Thank you, Theo. First of all, we are glad to be here together and have this discussion. A good communication with investors relies on three pillars: convergence, certainty and dialogue. That is why we want to be close to our investors and communicate in a transparent manner. I will review the main achievements of 2022. First of all, the rebranding process, where we came up with a new brand identity, the launching of the TRANSI stock exchange symbol and the rebuilding of the website. This process is accompanied by a commitment to our investors, the commitment to implement corporate and sustainable governance, as well as to implement the transformations we talked about in our strategy. We have also come up with a new organizational structure, a new organizational chart, we have filled in our team roster, both at management level, as well as in terms of configuring the new departments within the structure of the new organizational chart. Especially the Business Development Department, which will implement the transformations proposed in the strategy. And, likewise, the efforts to expand the existing departments, such as the Portfolio Management Department and the IT Department. Furthermore, we have implemented a new performance indicator system which enables the assessment of both management and team members.

We have also implemented the Stock Option Plans program planned for both 2021 and 2022, through the buy-back of shares, as well as the commissioning of the Bucharest branch office. On the business side of things, the new Business Development Department, the main strategic directions were established in the four sectors, such as tourism, real estate, industry, venture capital and private equity, and we initiated the projects at our subsidiaries level. We also completed the tourism strategy, which was approved by the Supervisory Board.

On the trading side of things, a new instrument was set up, the processes and systems necessary for the purchase of government securities were set up, the investment committee was operationalized, the portfolio was rebalanced and a new short-term portfolio was created. In terms of the subsidiaries and associated companies in portfolio, we initiated the restructuring project which, in particular, implies the decrease of minority exposures that fall within the investment strategy, as well as the improvement of subsidiary transparency and adequate governance, which primarily came to fruition through the improvement of the reporting system and of the degree of detail of the information provided by the subsidiary.

In terms of corporate governance, we have implemented an effective system of communication with the investors, which translates to the maintenance of the Vektor index and

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to promotional events, public communication and also to the improvement of the appropriate internal audit mechanisms, to the updating of fund documents and the review of the Articles of Incorporation. We also worked on improving the organizational culture aimed at improving the proactivity and degree of employee involvement in the decision-making process. Investments were made in professional training, a special budget was created for the implementation of professional training programs, and a significant budget was allocated in this regard for 2023. Given that a new financial auditor was appointed this year, i.e. the Mazars company, the internal auditor appointed is KPMG. Moreover, an ambitious project to implement the new IT infrastructure was put into place, by modernizing the communication systems and improving cyber security and improving governance. A significant budget was allocated in this regard.

If we were to assess the financial position, we can see that there have been no significant changes in terms of structure. Assets decreased insignificantly from 1,491 million to 1,426 million mainly due to the decrease in financial instruments. In terms of liabilities, the structure remained constant. In order to detail the variation of the portfolio, I will provide an explanation for the main variations that led to this decrease in the financial instrument portfolio. In particular, the most significant decrease occurred in the bank share portfolio, as well as for the industrial goods and services portfolio. With the travel and leisure portfolio recording an increase, while the fund units recorded a decrease.

Looking at the profit and loss situation, we can see that we recorded a profit of 63 million, down from the previous year's profit of 96 million, with net income amounting to 91 million, mainly due to dividend income, where the most significant positions are dividends recorded from banks, such as dividends from BRD, of 60 million, and from BT, 12 million, as well as dividends from OMV, amounting to 15 million. More significant dividends were also recorded from the subsidiaries, such as ARO with 3.6 million, and Şantierul Naval Orşova with 3 million. We also recorded loss of 34 million assets measured at fair value through the profit and loss account.

The biggest loss resulting from a holding amounts to 28 million for Turism Felix, while the biggest gain is recording from our holding in the hospitality industry. In terms of expenses, we recorded a decrease of such expenses from 32 million to 28 million, with the structure thereof remaining relatively constant. The largest decrease was recorded in personnel expenses. While an insignificant increase was recorded in other operating expenses, mainly due to the new projects started and associated with the consultancy fees. With regards to the loss resulting from the reevaluation of financial assets at fair value through other comprehensive income, we recorded a loss of 88 million, which led to a negative total comprehensive income of 20 million.

The management of the company proposed the distribution of the profit of 63 million, 30 million in the form of dividends and 33 million distributed to other reserves. The proposed date for the payment of such dividends being June 23, 2023, recording a yield of 4.9% by reference to the average share trading price.

I will yield the floor to my colleague, Theo, to continue the presentation.

Theo Buftea - By taking a look at the evolution of the share price, because this is obviously extremely important for the investors, we note that during the year 2022 the Transi shares showed a negative evolution, with the closing price being 20% lower than the closing price of the previous year, i.e. 2021. However, things look completely different at the beginning of this year. As you know, TRANSI shares have seen a significant increase. Today, even as we speak, the share

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price is somewhere around 0.3010, and we believe that there is an optimistic outlook for positive development, as a result, if you will, of the good work that we have done so far, and that I'm sure we will continue to do from now on. Also, if we were to assess the situation for 2022, the evolution of the trading discount has increased to the level of 56%, which, as a result of the evolution of the share price for this year, we find that it has improved and, as mentioned earlier, we are optimistic about recording an even better improvement on the current level for years to come. In terms of the trading discount assessment, as mentioned before, I am referring to page 29.

I'm going to allow myself to move on to the next chapter, i.e. the Transilvania Investment portfolio. as you can see from the pie chart, on the left side, we have a graphic representation. Obviously, our main focus was on the banking area, followed, if you will, by the traditional sector of the institution, namely travel and leisure, and obviously continuing with the real estate sector and the financial services sector. In addition, please take a look at the right side of the presentation. The right side of the presentation features the addition of government bonds for the previous year, as an additional development. But obviously the weighting factor in the listed shares, namely 88%, followed by the non-listed share sector, as well as the government bond section.

I will move forward to page 33 to the top 10 holdings. As my colleague said earlier, and as I have mentioned before, the most significant holdings in terms of percentage of the total assets or the most important assets, if you will, are the two local financial institutions listed on the Bucharest Stock Exchange, namely Banca Transilvania and BRD - Groupe Société Générale, followed by the tourism sector, as I mentioned earlier, namely the hospitality industry, the Black Sea, as well and the energy sector, OMV Petrom, and Turism Felix. For now, our focus is solely on locally listed shares. Apart from the fixed income instruments that I mentioned earlier. As a summary, the next page shows the investments made in 2022, placements were made in shares in the financial sector, namely Banca Transilvania or Transilvania Leasing and Credit IFN, as well as in SNP, OMV Petrom, Holde Agri Invest as an alternative investment in another sector that we deem to be a worthwhile project for the future, as well as in the tourism sector.

We also purchased government bonds, as I mentioned before, both in RON and in EUR. Given the very high inflation context, we believed it a very, very good investment, and so far we've been proven right. Government bond yields continued to fall as a result of the disinflationary process, providing benefits to the fund. We have also placed amounts in equity securities within the private equity fund CEECAT Fund II with exposure to emerging European companies, as well as in fund units such as BT Maxim or FIAIR Fond Privat Comercial, these two funds having a primary exposure on local equities. At the same time, we also purchased own shares, as my colleague discussed and introduced earlier, within the Stock Option Plan program.

Let's move on to the next page, page 36. Here is an overview of the main disinvestments that Transilvania Investments Alliance has made both in terms of the short-term portfolio and in terms of the long-term portfolio. We will begin with the short-term portfolio. Disinvestments were made from BRD - Groupe Société Générale, the Bucharest Stock Exchange, GoCab Software or Digi Communications, as well as from Banca Transilvania or OMV PETROM. We have also taken some steps to restructure the portfolio so as to enable us to focus on the sectors that we deem crucial and where we intend to have our primary focus. That is why we capitalized on shares in companies such as Gastronom, Armax Gaz, AROBS, BRD - Groupe Société Générale,

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