SIF Muntenia : Annual Report of the Administrator SAI Muntenia Invest SA on SIF Muntenia SA’s activity in 2023

ANNUAL REPORT

OF THE MANAGER SAI MUNTENIA INVEST SA

REGARDING THE ACTIVITY OF SIF MUNTENIA SA

IN 2023

Report date: 31.12.2023

This report is a translation from its Romanian version. In case of any difference between the Romanian and the

English versions, the Romanian version shall prevail.

ABBREVIATIONS

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THE APPLICABLE LEGISLATION

The Annual Report of SIF Muntenia SA has been prepared in accordance with:

• Directive no. 2011/61/EU on Alternative Investment Fund managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) no. 1060/2009 and (EU) no. 1095/2010 (Directive 2011/61/EU);
• Directive 2013/34/EU on annual financial statements, consolidated financial statements and related reports of certain types of undertakings (Directive 2013/34/EU);
• Directive 2004/39/EC on markets in financial instruments (Directive 2004/39/EC);
• Regulation (EU) 231/2013 supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (Regulation 231/2013);
• Regulation (EU) 2088/2019 of the European Parliament and of the Council of 27 November 2019 on sustainability - related disclosures in the financial services sector (Regulation 2088/2019);
• Regulation (EU) no. 2365/2015 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) no. 648/2012 (Regulation 2365/2015);
• Regulation (EU) no. 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding the statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC (Regulation 537/2014);
• Regulation (EU) no. 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and the Regulation (EU) no. 236/2012 (Regulation 909/2014);
• Commission Regulation (EC) no. 1287/2006 of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards record-keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to transactions and definitions of terms for the purposes of that Directive (Regulation 1287/2006);
• Law no. 243/2019 on the regulation of alternative investment funds and amending and supplementing certain legislative acts (Law no. 243/2019);
• Law no. 24/2017 on issuers of financial instruments and market operations (Law no. 24/2017);
• Law no. 74/2015 on alternative investment fund managers (Law no. 74/2015);
• Law no. 126/2018 on markets in financial instruments (Law no. 126/2018);
• Law no. 31/1990 on companies (Law no. 31/1990);
• Law no. 129/2019 for the prevention and combating of money laundering and terrorist financing, and for the amendment and supplementing of various legislative acts, with the subsequent amendments and additions (Law no. 129/2019);
• FSA Regulation no. 9/2014 on the authorisation and operation of investment management companies, undertakings for collective investment in transferable securities and depositaries of undertakings for collective investment in transferable securities (Regulation no. 9/2014);
• FSA Regulation no. 7/2020 on the authorisation and operation of alternative investment funds (Regulation no. 7/2020);
• FSA Regulation no. 5/2018 on issuers of financial instruments and market operations (Regulation no. 5/2018);
• FSA Regulation no. 10/2015 on the management of alternative investment funds (Regulation no. 10/2015);
• FSA Regulation no. 2/2016 on the application of corporate governance principles by entities authorised, regulated and supervised by the Financial Supervisory Authority (Regulation no. 2/2016);
• FSA Regulation no. 1/2019 regarding the assessment and approval of the members of management structures and of persons holding key functions within entities regulated by the FSA (Regulation 1/2019);
• FSA Regulation no. 13/2019 on the establishment of measures in the field of anti-money laundering and countering the financing of terrorism through the financial sectors supervised by the Financial Supervisory Authority (Regulation 13/2019);

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• FSA Regulation no. 18/2022 amending and supplementing FSA Regulation no. 13/2019 on the establishment of measures in the field of anti-money laundering and countering the financing of terrorism through the financial sectors supervised by the Financial Supervisory Authority (Regulation 18/2022);
• FSA Rule no. 39/2015 for the approval of Accounting Regulations in compliance with International Financial Reporting Standards, applicable to entities authorised, regulated and supervised by the FSA in the Financial Instrument and Investment Sector (Rule no. 39/2015);
• FSA Rule no. 13/2019 on the uniform framework for the conduct of the statutory audit of entities authorised, regulated and supervised by the FSA (Rule 13/2019);
• FSA Rule no. 39/2020 on the application of the ESMA Guidelines on liquidity stress testing in UCITSs and AIFs (Rule 39/2020);

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1 GENERAL

SIF Muntenia SA is a Romanian legal entity, established as a joint stock company with fully private capital. The operation of SIF Muntenia SA is regulated by the provisions of ordinary and special Romanian laws applicable to the capital market in Romania. SIF Muntenia is enrolled with the register of the Financial Supervisory Authority in section 9 - Alternative Investment Funds, Subsection I - Alternative Investment Funds intended for Retail Investors established in Romania (AIFRI) under no. PJR09FIAIR/400005 (SIF Muntenia was authorised as an AIFRI on 09 July 2021 under the FSA authorisation no. 151/09.07.20211).

During the reporting period, the Company was managed by SAI Muntenia Invest SA, certified as an Alternative Investment Fund Manager (AIFM) with number PJR07 1AFIAI/400005, under the Management Contract in force, approved by Company shareholders within the SOGM of 23 April 2020 and endorsed by FSA by way of Opinion no. 165/22.07.2020 and also in accordance with the applicable laws. The Company Depositary is BRD Groupe Société Générale SA.

The Company's priority strategic objectives are, as approved by the SOGM of 27.04.2023, the following:

• Continuing the process of restructuring the portfolio and managing it effectively, so as to ensure a long-term sustainable growth;
• Continuing the investment process, focusing on investment in Romania and in listed shares.

The differentiated approach adopted by the Company for each of its shareholdings aims at fully benefitting from an aggregate return, generated by dividend income and capital gain.

In 2023 there were no reorganisations, mergers or divisions of the Company.

The acquisitions and disposals of assets carried out by the Company, in 2023, refer to transactions of sale and purchase of securities. Details of these transactions are set out below in Chapter 4 of this Report.

During the period ended 31 December 2023, the Company continued meeting the conditions to be an investment entity. There were no changes in the criteria of classification as an investment entity.

In applying the Company investment policy, the Manager neither carries out securities financing transactions (SFTs), nor does it use total return swap instruments, as defined in Regulation (EU) no. 2015/2365.

1https://bvb.ro/infocont/infocont21/SIF4_20210709150751_Raport-Anexa-RO.pdf

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2 THE ECONOMIC FRAMEWORK

THE INTERNATIONAL ECONOMIC FRAMEWORK2

Throughout 2023, the global economy proved to be surprisingly resilient to the overlapping shocks of recent years, with steadily declining inflation and persistent economic growth. Large economies managed to cope with the fastest rise in interest rates in 40 years, allaying fears of a strong constraint on the economic activity and, thus, an excessive rise in unemployment rates. Global inflation has also been tamed without triggering a recession. In this context, the ECB (European Central Bank) believes that a 'soft landing' of inflation is becoming increasingly likely.

However, growth of the global economy in 2023 was modest, and international trade growth was exceptionally slow against the background of a weakened industrial manufacturing sector and weak demand. According to winter estimates from the International Monetary Fund (IMF), the world economy grew by 3.1% y/y in 2023, below the 3.4% y/y level of 2022. Growth was supported by the performance well above expectation of the US during the second half of the year and the recovery of the Chinese economy, albeit at a slower pace than expected.

According to estimates, growth of trade in goods shrank in 2023, while global trade in services outpaced annual GDP growth, with a strong recovery for tourism and international travel, which reached 90% of pre-pandemic levels.

The expansion of the conflict in the Middle East through the recent attacks on cargo ships transiting the Red Sea have disrupted maritime trade routes. Major shipping companies have suspended the passage of ships through the Suez Canal and have diverted them around Africa via the Cape of Good Hope, which brings about an increase in transport costs and can act as an obstacle to global trade.

Average prices of most goods declined in 2023 amid moderation in demand, while remaining more than 40% above pre- pandemic levels. Oil prices were volatile throughout 2023, including under the impact of the conflict in the Middle East, but by the end of the year they had dropped by 10%. Moreover, natural gas and coal prices fell considerably as a result of lower energy demand in European countries, and metal prices fell by about 10% amid the more modest demand from major economies, particularly China, which accounts for 60% of the global metal consumption.

In 2023, the European Union economy had a slower evolution than the previous estimates. The European economic context was still marked by Russia's military aggression against Ukraine, its effects becoming more and more visible. According to the latest available data3, the Gross Domestic Product (GDP) grew by a mere 0.5% in 2023 compared to the previous year in both the European Union and the euro area, after a technical recession (two consecutive quarters of GDP contraction) was narrowly avoided in the second half of last year. European economic growth was slowed down primarily by the erosion of household purchasing power, a sharp monetary tightening and a drop in external demand. An important aspect to mention in the context of the decline in purchasing power is Russia's membership in OPEC (Organization of the Petroleum Exporting Countries) and its ability to influence prices in this position. Furthermore, the war in the Middle East and the recent involvement of the Houthi rebels have generated another upward pressure on prices, impacting the European economy.

THE NATIONAL ECONOMIC FRAMEWORK

In Romania, according to data presented by the Ministry of Finance4, the execution of the general consolidated budget in late 2023 recorded a deficit of RON 89.90 billion. Expressed as a percentage of the Gross Domestic Product, the budget deficit decreased by 0.08 percentage points, from 5.76% of GDP in 2022 to 5.68% of GDP in 2023. Revenues of the general consolidated budget increased by 13.3% compared to those recorded in 2022, while expenses increased in nominal terms by 13.0% compared to the previous year.

As shown in the latest report on economic forecasts for Romania published by the European Commission5, economic growth for 2023 is estimated at 1.8%, i.e. 0.4 percentage points lower than previous forecasts. Economic activity slowed

1. https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/winter-2024-economic-forecast-delayed-rebound-growth-amid-faster-easing-inflation_en;https://www.imf.org/-/media/Files/Publications/WEO/2024/Update/January/English/text.ashx;
   https://bit.ly/GEP-Jan-2024
2. https://ec.europa.eu/eurostat/documents/2995521/18404141/2-30012024-AP-EN.pdf/90da3cfd-0c61-d735-3d27-2597bd170e28
3. https://mfinante.gov.ro/static/10/Mfp/buletin/executii/nota_bgc31122023.pdf
4. https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/romania/economic-forecast-romania_en

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down in the context of weak external demand and domestic demand constrained by high inflation and weak private loan growth. Gross capital formation recorded strong growth, boosted by EU-funded investment in public infrastructure, which offset the slowdown in private consumption and decline in inventories, while the negative contribution of net exports diminished. After a weak third quarter, data and analyses for the final months of 2023 suggest that the economy has regained some momentum on the back of retail sales, services to the population and the solid construction sector.

Annual inflation rate dropped to 6.61%6 in December of 2023, from 6.72% during the previous month, on account of the continued slowdown in the increase of processed food and energy prices, which managed to outweigh the negative impact of the significant re-increase in annual fuel price dynamics, driven by a base effect.

Throughout 2023, the annual inflation rate decreased by 9.76 percentage points (from 16.38% in December of 2022), mainly as a result of declines in processed food and energy price dynamics. Moreover, a modest disinflationary action was also exerted by LFO and fuel segments, while opposite influences, but of small magnitude, came from the subcomponents of non-food goods and market services of the core inflation.

The NBR maintained the monetary policy interest rate at 7% throughout 2023, after being raised from 6.75% during the first month of the year. Moreover, interest rates on credit (Lombard) and deposit facilities remained unchanged after the increase of January of 2023, remaining at 8.00% p.a. and 6.00% p.a., respectively.

The recent monetary policy stance of the NBR aimed to bring the annual inflation rate back in line with the stationary target of 2.5% ±1 percentage point. Based on the latest analyses, it is estimated that the upper limit of the target range will be reached by the end of 2025 (i.e. 3.5%), while the projected value for the end of the current year is 4.7%.

As for the number of start-ups, the data of the National Trade Register7 show that, in Romania, in 2023, there were 147,026 new registrations, down by 3.78% from 2022. On the other hand, the number of companies that suspended their activity in 2023 was 16,335, up by 4.04% from the previous year, and companies in insolvency were 6,650, a number similar to the previous year (2022: 6,649 companies).

THE CAPITAL MARKET

In order to outline the international context regarding equity markets, below we present the annual dynamics at the end of 2023 of some representative indices. In the US, the S&P 500 grew by 24.23%, while in the UK, the FTSE 100 appreciated by 3.78%. Across the euro area, the German DAX index saw a positive performance of 20.31%, while the MSCI Emerging Markets index experienced an appreciation of 7.04%.

The reference index of the domestic capital market - BET - increased by 31.79%8 as at 31 December 2023 compared to the end of 2022, and the BET-TR index (including both the evolution of the prices of the most traded companies on the BVB regulated market and the dividends offered by them) increased by 39.93%. The BET-TR index ranked first in the region in terms of performance.

In 2023, the largest initial public offering (IPO) in Europe was carried out on the Bucharest Stock Exchange, amounting to RON 9.28 billion (EUR 1.87 billion) with the listing of 20% of Hidroelectrica.

The number of investors reached 178,545 by the end of December9, up by 34.27% compared to December of 2022 (2022: 132,972 investors), with most new investors attracted in Q2 (+18,000 investors), during the Hidroelectrica IPO discount period. They made 1.98 million transactions10 across all markets in 2023, including 1.46 million transactions in shares on the Main Market.

The total amount of the transactions on both BVB markets and for all types of financial instruments carried out in 2023 exceeded RON 38 billion (2022: approximately RON 24 billion), of which RON 37.45 billion were transactions on the main market (2022: RON 23.17 billion).

1. https://www.bnr.ro/page.aspx?prid=23842
2. https://www.onrc.ro/index.php/ro/
3. https://www.bvb.ro/press/2024/Raport_Preliminar_2023.zip
4. https://www.fond-fci.ro/docs/Comunicate/Comunicat%20de%20presa%20%20decembrie%202023.pdf
5. https://bvb.ro/press/2024/BVB_Raport%20lunar%20decembrie%202023.pdf

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The chart below shows the developments of the equity market, within the main segment, during the 12 months of 2023.

DEVELOPMENTS OF THE EQUITY MARKET WITHIN THE MAIN SEGMENT OF BVB

Chart no. 2.1 Transactions in shares in 2023, the main segment

Source: data taken from BVB, processed by SAI Muntenia Invest SA

In a report11 of 13.05.2022 published by ESMA, the European supervisory and regulatory authority recommends that all participants in the European capital market take into account the impact of Russia's military aggression against Ukraine and, if applicable, disclose the impact of such event in their financial statements or management reports. SIF Muntenia has no stakes in Russian companies and no company in its portfolio has been punished following sanctions against Russia. Likewise, the effects of the current situation are not expected to have a major impact, exceeding the impact generated by the economic context, on the financial statements of SIF Muntenia.

However, we specify that Russia's military aggression against Ukraine had a strong impact on the entire Romanian economy. Among the major effects of the war on the territory of Ukraine felt in the Romanian economy in 2023, we mention the pressure of exports of goods from Ukraine and the increased price of oil.

Moreover, it is expected that the group of economies that supports Russia's approach will continue to exert pressure, aiming for a reset of power relations at the international level, something that will also materialize in the reorganization of the financial markets. The state of economic peace is under tremendous pressure, and as Russia has shifted to a war economy, the European economy will begin to follow suit. Therefore, Russia's military aggression against Ukraine continues to generate major uncertainties and risks regarding the economic prospects for Romania, but also for the European Union and even at the global level.

11https://www.esma.europa.eu/search/site/public%20statement

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