Transilvania Investments Alliance S A : 2023 Financial Results (conference April 26, 2024 – call transcript)

Conference call, 2023 Financial Results, 26.04.2024, 12:00 pm

Good afternoon! Welcome to the Transilvania Investments Alliance conference for the presentation of the financial results recorded by the company in the year 2023. Today's conference will be held by Răzvan Raţ, Executive Vice-President and member of the Executive Board, Bogdan Ceuca, Head of Trading Department and Diana Vereș, Head of Financial Department. The presentation material is available on the company's website, under Investor Relations/Presentations, and will also be viewed during the presentation. After the presentation, we will have a Q&A session to which you are invited. Please be informed that this conference will be recorded, with the audio recording to be posted on our company's website. Moreover, please note that the personal data you have provided upon registration to this conference will be processed pursuant to the company's policy regarding personal data processing. That being said, we can start. Răzvan, please...

Răzvan Raț: Good afternoon! First, I would like to thank everyone who joined. Thank you for attending this meeting and for your time! The most important thing would be to confirm whether you can hear us. OK. The presentation has also been posted on our website and it will comprise of two parts, two chapters, the first chapter being about indicators and the second about strategic goals.

I'm going to start with the first part, namely indicators, summaries, results recorded in the year 2023 and here I'm looking at the net asset value and net asset value per share. During 2020 - 2023, the Fund's assets increased by over 48%, from RON 1.17 billion to RON 1.73 billion. The increase in the assets value is the result of multiple factors: implementing the Company's strategies, as well as investment programs and projects. As you can see in the chart, we had a higher increase from 2022 towards 2023, where we can notice +27% in terms of the net asset value. Both the rebalancing of sector exposures and the restructuring of some historical holdings led to the increase of the managed portfolio quality, both through the strategy to which we committed for 2020-2024, as well as through the strategy approved during the General Meeting held this week. We aim at increasing liquidity in our portfolio and focus on investments that would bring added-value return on investment for investors. The Net Asset Value per Share recorded at the end of 2023 a record value, amounting RON 0.8019.

In terms of company income and profit, the income achieved in 2023 is worth RON 282 million and the profit before tax reached RON 252 million. As you can see in the chart, in 2023, most of the income, namely 54%, was achieved from valuation of assets measured at fair value, 35% is dividend income and the remaining 11% comes from bank interests, government securities and other income. At the same time, this is the best result achieved by the Company in the last five years.

As for the shareholder remuneration part, after a 2-year consolidation period (and here we look at 2020 and 2021), starting with 2022 the shareholders are remunerated through dividends, and starting with 2023 they are also remunerated through dividend and complementary instruments, namely the buy-back program for shares which shall be cancelled and followed by the reduction of the share capital, at the same time. In 2023, a buy-back program of 12 million shares was approved for the reduction of share capital, and for a stock-option plan, a program of 8 million shares. In 2024, the shareholders approved the

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buy-back of 24 million shares, with the purpose of reducing the share capital and the buy-back of 10 million shares, with the purpose of being distributed under a stock-option plan.

With regards to the dividend approved for 2023, it amounts to RON 0.015 per share which provides a return of 5.15% considering the average trading price of shares throughout 2023 and a 14-15% dividend payout ratio of the net profit, at the same time, aligned with the remuneration and shareholder payout policies.

For the financial statements, I'm going to kindly ask my colleague, Diana, to continue.

Diana Vereș: Certainly! According to the statement of financial position as at 31 December 2023, the first indicator drawing our attention is total assets, for which we notice an increase from RON 1.426 billion to RON 1.824 billion, namely approximately 28%. This increase was mainly supported from the increase of assets measured at fair value through profit or loss, from RON 646 million to RON 811 million, as well as from the increase of the financial assets measured at fair value through other comprehensive income, from RON 669 million to RON 875 million, approximately 31%. Government securities continue to be in the spotlight; therefore our share has increased from RON 31 million to RON 52 million at the end of 2023. Therefore, we can refer to an asset appreciation on the entire asset section on 31 December 2023, as compared to the end of 2022. In terms of liabilities, the biggest increase is noticed in the deferred tax, as a consequence to what I previously mentioned, the increase in value of assets measured at fair value through other comprehensive income. Financial liabilities have been reduced, as compared to 2022, from RON 26 million to RON 15 million. Out of these 15 million, the most important share is held by the dividend line, corresponding to the year 2022, yet uncollected by the shareholders, namely RON 10 million. Also, as a consequence of these rising indicators we note that for the equity there in a significant increase from RON 1,358 billion to RON 1.732 billion.

The statement of profit or loss and other comprehensive income as at 31 December 2023 shows the highest profit registered recently, as my colleague mentioned, namely a profit amounting RON 237 million. With regards to net income, we bring to your attention that for dividend income, as compared to 2022, we have a relative decrease, from RON 107 million to RON 98 million. However, we should also indicate that on 31 December 2022, out of the RON 107.8 million obtained as dividend income, approximately RON 60 million is the special dividend granted by BRD that year. Please note that the dividend income collected in 2023, amounting to RON 98 million, covers approximately RON 29 million dividends collected from the Fund subsidiaries, increasing as compared to only RON 10 million which were collected in the previous year. The highest increase in income is in assets measured at fair value through profit or loss, amounting to RON 153 million as compared to a loss of RON 34 million in the previous year. This increase was mainly supported by the market growth, in general, but also by the result of revaluation of assets at fair value for equity interests held by our subsidiaries, result which improved because of improving the results of our subsidiaries by applying management policies implemented by the Executive Board in these subsidiaries.

Expenses are mostly on the same level as the expenses of the previous year, and within Other comprehensive income we notice an increase from a loss of - RON 88 million to RON 169.7 million for gains from revaluation of financial assets measured at fair value through other comprehensive income, a consequence of what I have already explained in the balance sheet section.

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In terms of cash flow, we started the year with RON 47 million. On 31 December 2023, cash and cash equivalents amounted to RON 60 million. The main movements in the cash flow were recorded in sale of equity investments, and here, out of the RON 210 million, a significant share is related to the sale of the COMCM subsidiary. The dividend collected amounted to RON 98 million and, for proceeds, we have purchases of equity investments and government securities amounting to RON 228 million, as well as current payments and for dividends.

Răzvan Raț: Let's move on to the evolution of TRANSI shares in 2023. We started from a minimum closing price of RON 0.27 per share and we closed the year with RON 0.3280 per share. We had a trading volume of 66 million shares, which means an average trading volume of approximately 0.27 million shares per trading session. Considering the evolution of shares on the market, during 2023, we notice a positive evolution, the closing price compared to the price recorded on the last trading day in the previous year being 18.1% higher. We also pay great attention to market liquidity, as you've noticed, as of this year, we also started using the services of a market maker, to help us with the liquidity, namely to increase our trading volume during the trading sessions.

The evolution of TRANSI shares' trading discount in the last 12 months. At the beginning of this presentation I was talking about net asset value, about increasing net assets. We have a high increase in NAV as compared to 2022 until the end of 2023. Unfortunately, in terms of prices for TRANSI shares traded on the market, we cannot see the same increase. The NAV increased more than the price of shares on the market. This is why the discount was 56% in December 2022, and at the end of 2023 the trading discount compared to the market price was 59%. However, by increasing liquidity and market making services, with increased transparency, we also aim at reducing the trading discount.

In terms of analysing the trading discount we can see that, by considering the top 10 holdings in our portfolio, the discount amounts to 46% as compared to the market price. In top 10 holdings I included cash, cash equivalent in our accounts and compared to the total net assets we have a discount of 59%. The market capitalisation amounted to RON 704.5 million.

With regards to the portfolio evolution in 2023, I'm going to hand it over to my colleague, Bogdan.

Bogdan Ceuca: Thank you, Răzvan! The portfolio evolution in 2023. The total assets value increased by 27.9%, and the net asset value increased by 27.6% compared to the values recorded in 2022. The value of the financial instruments portfolio increased by 29.1% compared to 2022.

Considering the total asset value, from RON 1,426.1 million we increased up to RON 1,824 million. I would like to point out the number of companies in portfolio. At the end of 2022 we had 86 companies, as compared to 72 at the end of 2023. This actually is a reduction in number as you will see further on, in our slides. This is also a reduction as compared to 2022 and 2021. Moving downwards, on the last row, for cash we have RON 47.2 million, at the end of 2022, while at the end of 2023 the cash was higher, namely RON 60.2 million.

In terms of the portfolio, considering the structure at the end of 2023, the highest share is held in the banking sector, 34%, followed by travel and leisure with 23%, real estate 15% and, ranking fourth, financial services 11%. If it were to consider the top 5, we have energy with 9%.

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With regards to types of financial instruments, listed shares cover 82% of our portfolio, government securities 3%, fund units 1%, therefore the sum of liquid assets amounts to 86% of our portfolio, unlisted shares 10% and equity holdings, namely an investment in private equity, 4%.

The total value of the financial instrument portfolio amounts to RON 1,739 million.

Moving on to slide 15, the number of issuers in portfolio has been gradually reduced. If, at the end of 2021, we had over 100 issuers in portfolio, in 2022 there were 93 and 80 in 2023.

Considering the portfolio structure by the fair value ratio, the shareholdings where Transilvania Investments has over 50% in the share capital amounts to 39%. Another high share, of 58%, lies in our investments in the share capital of companies, where we hold up to 10%. All the other holdings amount to 2% or 1%.

Moving on to top 10 holdings: Banca Transilvania 16.9%, BRD - GROUPE SOCIÉTÉ GÉNÉRALE 13.7%, TURISM FELIX 7.5%, OMV PETROM 6.6%, HOTELURI RESTAURANTE SUD 5.1%. The top 10 holdings amount approximately to 67%. The total value of assets under management is around RON 1,824 million at the end of 2023.

Let's move on to the portfolio variation by financial instruments, what actually boosted us throughout the previous year, what actually increased. Shares recorded the highest gain and led the net assets to RON

1.8 billion. The investments in shares generated a positive net cash impact amounting to RON 421.7 million, followed by equity holdings RON 28.8 million, government securities RON 4.5 million and fund units RON 4.1 million.

Slide 18. If we look at sectors, to see what positive adjustments we had in the portfolio, the banking sectors boosted us with RON 168.5 million, followed by real estate, RON 125.3 million, the travel sector with RON 64.2 million, the most share of this sector is represented by our subsidiaries, the energy sector, with RON 57.7 million, and financial services, with RON 55.2 million.

Slide 19. Concerning investments, I would like to point out that the amounts which we have invested resulted from the sales conducted throughout the same year. We have a total portfolio turnover of 25% by reference to the net asset value. We traded a total of RON 450 million. The highest investments being in Banca Transilvania, Transilvania Leasing si Credit IFN, in energy, Hidroelectrica, and also a very significant investment, in Turism Felix, where we increased our holding to over 90%, namely 93%, purchasing the stake in question in a public tender. Also, we purchased government securities. At the beginning of 2023 we had an exposure on government securities particularly with long maturities. We marked some of the positions in the first part of the year, since the curve flattened. Later on, in the second part of 2023, after Hidroelectrica was listed, the entire capital market heated up and increases started on the BET index, overall. We increased exposure on shares in the second half of the year and manage to get increases in shares.

On the next slide, as I already indicated, sales covered about the same amount as investments, RON 224 million, EUR 1.2 million. In terms of sold shares, or issuers, we have COMCM, Șantierul Naval Orșova and Concas. We marked profit in the case of BRD-Groupe Société Générale, OMV Petrom and Fondul Proprietatea. We bet on Petrom and Fondul Proprietatea and it was a winning stake. For Petrom we collected dividends two times, with a special dividend collected in the second half of the year. For Fondul Proprietatea we had 90% payout of capitalisation. After Hidroelectrica was listed, we had two very

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profitable investments generating the cash flow. Further on, Răzvan will talk about strategic goals. Răzvan, please!

Răzvan Raț: With regards to strategic goals, we refer to the strategy approved for the interval 2020-2024 and, within the General Meeting of the Shareholders of 2022, 5 strategic lines for business development were approved, namely tourism, real estate, industry, active trading, venture capital or private equity. Starting this year, with the new strategy, there was one change, namely only four strategic lines remain: tourism, real estate, active trading and private equity. In the area of tourism, our goal is to make sure that, in the sub-portfolio operating in the travel sector, we aim at having a transformation-consolidation of the model and business, for illustration purposes, in view of increasing performance for companies in this sector. We can consider including contracting specialised services for operation or operation under certain international brands. Compared to 2023, they were partially implemented. In the Brașov area, Capitol Hotel becomes Mercure Center Brașov and, as of 2024, meaning this year, renovation works will be started. Aro Hotel will become, as a premiere for Romania, Hyatt Regency Aro Palace Brașov. In Felix, in the summer of 2023, the new Aqua Park in 1 Mai was opened, after an investment of over EUR 14 million and the shareholder position was consolidated in Turism Felix, as Bogdan also pointed out earlier, from 63% to 93% by the acquisition of stakes. In (THR) Marea Neagră, a change of the business model was implemented, namely by renting assets. Therefore, we managed a capitalisation of Transilvania Investment holdings. In 2023 the estimated profit amounted to RON 34.5 million, as compared to the loss recorded in 2022.

In the real estate area, real estate portfolios were efficiently operated, and certain projects were initiated or accelerated, in case of on-going projects: Brașov - Trasilvania Investments Real Estate: We increased the occupancy rate, reaching over 90% occupancy for renting spaces, and the financial result for the financial year 2023 is increasing by 87%, compared to 2022, namely a net profit of RON 1.4 million. For the company International Trade Center, a premises and infrastructure upgrading program was implemented, as well. Therefore, its occupancy rate was increased, the financial result for 2023 being positive, amounting to RON 719 thousand.

In Sibiu, Independența S.A. continued by upgrading and renting its premises. The activity was transformed, by reintegrating the former production halls into the economic circuit. After upgrading of existing spaces and infrastructure has allowed carrying out different storage and production activities. Currently, a project to build 4 new halls, on 10 hectares of currently unoccupied land, is being implemented.

However, to reach all our goals and continue our development, new management and administration teams have been recruited, to meet the forecasted expectations.

For trading, Bogdan, please take over.

Bogdan Ceuca: The strategies implemented through the programs for issuers with high liquidity led to the share portfolio rebalancing whilst maintaining the average risk profile attached to the managed portfolio. The total volume of trades carried out during 2021-2023 at the Bucharest Stock Exchange exceeded RON 962 million. Here we want to show that we are active within the strategies and managed portfolios.

With regards to exposure to the Banks sector: at the end of 2020, it was mainly represented by the issuer BRD, which represented 25% of our total assets. Currently, we have expanded the banks sector, therefore in addition to BRD, we now have Banca Transilvania in the portfolio, as well. The stake held in BRD

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decreased to 14% of our total assets, while Banca Transilvania accounted for 17%. In addition to these issuers, we included other issuers in our portfolio, such as an investment in a private equity fund and increased our holding in Petrom. We are active on several shares, and we try to focus on the regulated market.

Coming back to the volume of trades carried out in 2023, it covers around 25% of the net assets value. If we also consider historical holdings, we notice that we have some transactions there or that we cover more than 25% of our portfolio. In addition to shares, we brought a new trading line, namely government securities, which currently covers 3% of our portfolio. In the first part of 2023, we got exposure on government securities with longer maturity, 10 years. As previously indicated, the curve flattened mid- year and we marked very good profits. Also, towards the end of the year, we closed exposure on government securities with long maturities of 7, 8 or 9 years. Also, on ROMANIs, so not only RONGBs, we marked some profits and we increased the weight of shares in the portfolio. In terms of government securities, at the end of 2023, their value goes up to RON 52.3 million and the fund unit portfolio amounts to RON 20.4 million.

The total amount resulting from the restructuring of the historical portfolio is RON 149 million. This shows that we are concerned into balancing the portfolio and restructuring whenever we deem it to be necessary.

Moving on, to private equity, we have an investment covering around 3-4% of the net asset value. This is a fund managed by a private equity team, called CEECAT Fund. We had the opportunity of investing along with the European Bank for Reconstruction and Development, together with the European Investment Fund or other regional pension funds. We made this investment in 2022, and up to date, we invested EUR

9.3 million in this fund. The investment market value amounts to EUR 14.1 million, thus providing a 51% return on investment. The fund has exposure on SMEs from Emerging Europe, where there are similar conditions for economic growth. To give a couple of examples of investments areas for this fund, we were very satisfied to discover some companies that do not exist on the listed market. Therefore, we could have exposure on a class of assets that are less volatile than, for instance, the shares, and which can provide a good risk-return yield on a long-term. We have a patient capital and a long-term for investments, so this type of asset is suitable to reach our investment goals and to bring lower volatility. A couple of examples of companies that we were surprised to find in a private equity investment: a company that produces and assembles satellite subsystems and whole satellites, both hardware and software, from Bulgaria., a fintech, a payment processing company from Turkey, a company producing bio-packaging, a Romanian company producing construction materials, just to give a few examples.

Răzvan Raț: In terms of portfolio management, we focus on our majority holdings. A set of operational indicators was established, which were monitored and analysed quarterly. In view of monitoring, several unitary policies and procedures were implemented within the companies, which were also approved by the General Meetings of Shareholders. For most of the companies where Transilvania Investments is the majority shareholder, we recruited or aimed at recruiting new management and administration teams.

In terms of risk management, the risk management policy seeks the implementation by the Executive Board and the Supervisory Board of appropriate measures in relation to the nature, size and complexity of the activities carried out. The risk profile is a medium one according to the business strategy approved by the General Meeting of Shareholders.

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Regarding investor relations, I believe we were quite active. We want to be much more active in relation to investors, to be significantly more transparent, to bring more information to the investors, but considering the interval 2021-2023, the actions carried out and maintained by the company resulted in a

9.5 points Vektor score out of 10 possible points, increasing from 7 points, which I believe was achieved in 2020. Thus, Transilvania Investments' sustained effort to implement the best corporate governance practices is reconfirmed, as well as the interest the company attaches to the communication with investors through reports and events dedicated to them. Every year, we organize the Investor Day to which all of you and all stakeholders are invited to attend.

On the occasion of annual or interim financial reports, annual or quarterly, the Company organizes conferences with investors and analysts to present the financial statements, as the current one.

In the area of professional training, we are interested in the part related to the team, our colleagues whom we work with, and we also consider training. In the past, we had a component on professional training and professional development of the team. Here, I'm looking at continuous professional training and professional development. These elements are part of the general development strategy of the Company and aim to develop professional skills and increase individual and collective performance of the team.

During 2021-2023, Transilvania Investments team was enriched with new human resources, by approximately 30%.

In the area of consultancy and audit, for the projects carried out by Transilvania Investments, as well as for maintaining a robust internal control system, the company contracted consulting and audit services, provided by the most prestigious companies in the field, such as Deloitte, PricewaterhouseCoopers (PwC), Mazars or KPMG.

I would like to thank you for your presence. If you have any recommendation, questions or suggestions or anything else, please do not hesitate to do so.

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