Good day and welcome to the Fondul Proprietatea 2023 Preliminary Annual Results Conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. You may submit written questions via the webcast or phone questions by dialing star one on your telephone keypad. To withdraw your question on the phone, dial star one again. Finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Marius Dan, Deputy CEO Corporate Strategy, to begin the conference. Marius, over to you.
Thank you. Good afternoon and welcome everyone to our conference call to discuss the 2023 Preliminary Annual Results and the January 2024 NAV developments. Johan Meyer, CEO of Franklin Templeton Romania, Portfolio Manager of Fondul Proprietatea, Cătălin Cădaru, Head of Financial Reporting, and I are pleased to host today's call. The 2023 Preliminary Annual Results Report can be found on the fund's website in the Financial Results section, and the presentation that we will be discussing is available on our website at www.fondulproprietatea.ro in the Investor Relations call section. After the presentation, we will have a 30-minute Q&A session. As a reminder, once again, the conference call is being recorded, and the recording will be available on the fund's website after the conference call. That being the agenda, I would like to start with slide two of the presentation where we highlight the key facts about the fund.
At the end of January 2024, the fund's NAV was around $2.35 billion and $510 million, and the NAV per share increased to $0.6601 or $0.1436. On the right-hand side, you can see the evolution of the fund's adjusted share price and the discount or premium since the fund's listing in January 2011. As of yesterday's close, the fund was trading at a discount of 23.34% for the shares and a little bit over 21% for the GDRs. Turning to slide three, we present the fund's shareholder structure as of end of January 2024 with no significant changes since our last results conference call in November 2023.
On slide four, we show a summary of the net asset value, the share price, and the GDR performance of the fund since 2011, and the evolution of the fund's average annual discount on the Bucharest Stock Exchange and on the London Stock Exchange. The net asset value total return in 2023 was a decrease of 2.4%. The total return for the local shares was 45%, while the total return for the GDRs was 35%. For the first month of 2024, the net asset value total return was a small decrease of 0.1%. Total return for the local shares was 1%, while the total return for the GDRs on the back of a stronger dollar was 2.6%. In the next section, I would like to turn to Johan to give an update on the fund's portfolio. Johan?
Then it's 5.2% in listed and 5.4% in net cash and receivables. Its cash position at the end of January was $27.5 million. Moving on to slide seven, we show the main portfolio companies as at the end of January, representing 88% of the fund's NAV. On slide eight, we also show the main outcomes of Hidroelectrica's IPO, all the transaction details, the key highlights, and the timeline. So following the IPO and the exercise of the overall lot and option, the fund sold its entire stake of 19.94% in the company. The transaction was backed by strong local and international long-only demand, and the book was multiple times oversubscribed throughout the price range, so that allowed the deal to price at the upper half of the range at RON 104 per share.
Now, moving on to slide nine, we show the RON 1.9 billion IPO being the largest in Romania ever, the third largest in history on a Central Eastern European exchange, as well as the largest IPO in Europe during 2023. Moving on to slide 10, we present the 2023 preliminary figures for Bucharest Airports. On the financial side, operating revenues increased 20% compared to 2022 to RON 1.2 billion, and the operating result reached RON 477 million from RON 344.7 million in 2022. The net income has reached record high levels for 2023 at RON 404 million, an increase of 33% year-on-year. The main driver for the improved profitability was the higher passenger traffic, which recovered to pre-COVID levels, reaching 14.7 million passengers per year, up 17% on the previous year.
Regarding the litigation, the decision in the appeal against the share capital increase is expected today, and of course, we'll communicate the outcome of this as soon as we are able to. On the corporate governance front, all board members at Bucharest Airports have interim mandates, and the selection process has started and is expected to be finalized in the coming months. Moving on to slide 11, we show the 2023 preliminary figures for Constanța Port. On the financial side, operating revenues up by 14% year-over-year to RON 548.7 million, operating profit up RON 135.6 million from RON 131.5 million in 2022, and the net income was RON 125.9 million, up 10% compared to the previous year. Traffic reached 92.5 million tons in 2023, an increase of 22.4% year-over-year, driven by traffic of mostly Ukrainian merchandise, which doubled year-over-year to approximately 25 million tons.
Higher traffic drove an improvement in the operating profitability, which the management currently estimates at RON 136 million. Moving on to corporate governance, again, all board members have interim mandates, and in this case, the selection process for the full mandates has not yet commenced. Now, moving on to Salrom's 2023 preliminary results on slide 12, the operating revenues increased by 7% year-on-year to RON 529.7 million. The operating profit was RON 135 million, up from RON 134 million in 2022, and the net income was RON 128 million, up 6% compared to the previous year.
Here on the corporate governance front, following the finalizations of the selection procedure for the board members based on Emergency Ordinance 109 of 2011 by the Ministry of Economy, shareholders appointed during the 23rd February shareholder meeting board members for a period of four years, with Fondul Proprietatea appointing two out of the five members on the board. Regarding the company's IPO, as always, the fund continues to engage with the majority shareholder and the company in relation to preparations for a potential listing. Moving on to the corporate action section, I would like to hand the floor back to Marius.
Thank you, Johan. Moving to slide 14, we outline the fund's distribution since we started managing Fondul Proprietatea. The 2023 amounts are based on the buybacks executed, the finalized tender offers, and the dividend distributions approved by the fund's shareholders during the April annual shareholder meeting and the August ordinary meeting, and the number of paid shares including treasury shares as of 31 December. The total distributions that we have made since 2010, including the significant amounts for 2023, have reached RON 28.5 billion, approximately $6.9 billion. Moving to slide 15 of the presentation, we outline the latest updates on the fund's buyback programs.
The 15th buyback was approved by shareholders during the February shareholder meeting and may start after the publication of the EGM resolution in the Official Gazette and should end on 31st of December 2024, while the cancellation of the shares that we bought back last year will be put on the agenda of the April 2024 annual shareholder meeting for shareholders to approve the cancellation. On slide 16, we include the details of the fund's annual net dividends and dividend payout ratios for what are now the largest portfolio companies as of the end of January, and these are based on the figures that were approved by shareholders, and we'll update the fund's shareholders on the dividends proposals for FY 2023.
Moving to slide 17, we present the main resolutions of the February 2024 shareholder meeting in which we received approval for the share buyback program to repurchase RON 1 billion. Shares during the 2024 financial year, and the buyback should be performed at a price that cannot be lower than RON 0.2 per share or higher than RON 1 per share. The approval of the sale of Fondul Proprietatea of our participation in the share capital of Engie and item number three was not approved, and this referred to a higher limit of non-current assets. This doesn't in any way impact our desire to continue with transactions from the fund's portfolio. We would just need shareholder approval on an individual basis.
Moving to slides 18 and 19 regarding the shareholder meeting agenda for March 26th, the main points are the approval of the terms along with the execution of the management agreement for one-year duration starting 1st of April 2024 until end of March 2025, the approval of the remuneration policy of Fondul Proprietatea for 1st of April 2024 until end of the mandate, the approval of the 2024 Budget of Fondul Proprietatea, and also the appointment of two board members and the board of nominees of Fondul Proprietatea following the expiration of the mandates of Nick Paris and Ömer Tetik. The full list of candidates is available on the fund's website. In addition, for the upcoming shareholder meeting, we've also received proposals Ministry of Finance in Romania as a shareholder owning more than 5% of the fund.
What the ministry has introduced on the agenda refers to an alternative to item one of the ordinary meeting, the approval of the terms of the management agreement with a change in the base fee rate of 1.35% subject to the item one of the OGM agenda not being approved. This is an alternative level of the base fee compared to the one that was proposed in the investment management agreement. Alternative to item number two of the OGM convening notice, the approval of the remuneration policy reflecting a change in the base commission so that it's 1.35%, again, subject to item two of the OGM agenda not being approved by the OGM.
And the approval of the strategy of the fund applicable for the next mandate, so from 1st of April 2024 to 31st of March 2025, so that it includes the preservation of the current portfolio that is managed by us. This was also an item added Ministry of Finance. moving forward, on slide 20, we include the financial calendar for Fondul Proprietatea. That being said, I would like to turn it over to my colleague Cătălin Cadaru, head of financial reporting, to comment on the fund's financial results. Cătălin?
Thank you, Marius. We are discussing now the preliminary results of Fondul Proprietatea for 2023. The final audited financial statements of the fund will be available on the website by the end of March 2024 as part of the documentation for the convening notice of the annual GSM. In these preliminary financial statements, the fund holding in Bucharest Airports has been valued on a similar basis as prior reports published on the website during the year 2023. If we move to the next slide, the statement of financial position, the most important developments relate to the Hidroelectrica IPO, Enel companies' disposals, and the dividends collected by funds from various portfolio companies. The cash generated by this event was used in distributions. There were two dividend distributions during the year and also for the implementation of the buyback programs, including the tender offers settled in March and December 2023.
If we move to the next slide, we see the preliminary results. Fondul ended the period with a loss of approximately RON 896 million, unaudited loss, and this was mainly generated by the valuation of Hidroelectrica. The holding was valued as IPO proceeds just before the transaction occurred, and the difference was generated by the valuation that was booked at the end of last year. The main dividends collected by Fondul during the year came from Hidroelectrica, Salrom, and Bucharest Airports. Last thing to note is a significant increase in the interest income during 2023, and this income was generated by the short-term instruments. Fondul placed the cash between the IPO settlement date and the actual distribution date to shareholders at the end of February. Thank you.
Thank you, Cătălin. At this point, we would like to open it up for your questions.
Thank you. We are now opening the floor for questions. You may submit your questions via the webcast Q&A box, or if you were listening via the phone, by pressing star one to raise your hand and enter the queue. Again, please submit your questions via the webcast Q&A box, or if you were listening via the phones, by pressing star one to raise your hand and enter the queue. We will begin with phone questions, and your first question comes from the line of Deepinder Bhatia from Bayard Asset Management. Your line is open. Deepinder, your line is open.
Hi. Sorry. I hope you can hear me now. Marius and Johan, congratulations on another strong result for the full year 2023. This is great. I noticed with a little disappointment that you only appreciated the share price 999.9%. So really, you haven't been working hard enough. With that little bit of side humor on the side, I just wanted to move to a couple of questions to understand the degree of flexibility that you have. I think you explained it as you went along, recognizing that this is going to be a question coming up. But could you please explain a little bit more clearly? If you decide that you want to do a transaction, for example, in Bucharest Airports, what exactly are the restrictions you currently have? What are the permissions you need?
How do we understand the 20% of assets rule versus also the proposal that all assets be preserved up to the end of the 2025 period? Could you please help us just understand how you will have any flexibility to participate in any transactions that may be beneficial to shareholders given the way votes have evolved? Thank you.
Hi, Deepinder. Thanks for the question and those encouraging comments. Yeah, we need to work a little bit harder. That's clear. Look, on the question around the degree of flexibility, what it really comes down to is for any potential transactions with the larger assets in the portfolio. So if we're talking, for example, about Salrom or Bucharest Airports, if there were to be an IPO, there would have to be a Fondul shareholder meeting approving the sale of that asset, similar in a way to what we had previously with Hidroelectrica. Important to note, it doesn't prevent us from engaging with the company, with advisors, and so on in order to pursue a potential transaction. It's only when it comes to the approval phase that we will need another layer of shareholder approval.
Of course, if we can prove that it is in the interest of shareholders, we trust that shareholders would recognize this and vote accordingly. So that's on the flexibility point. And then, yeah, looking at the potential transactions that we've been talking about Salrom for a long period of time, and I think the appointment of the board there is an important step in the right direction. So hope to be making more progress there going forward. Now, moving on to the question around the preservation of assets. Look, I think it's important to point out that that's for the 2024 to 2025 mandate that's not yet been voted by shareholders. We are reaching out Ministry of Finance for clarification on the meeting points that they submitted. But again, it will be pending this clarification.
It will be up to shareholders to decide how they would want the manager to treat the portfolio during this upcoming one-year mandate. Obviously, we would want to be in a position or we would prefer to be in a position where we have the flexibility to pursue transactions and act in the best interest of all our shareholders. I think that's an important consideration when it comes to the vote.
Understood. Thank you very much. I have a follow-up question, but I'm going to hold that till others have had a chance. Thank you.
Thank you. Your next question comes from the line of Iuliana Ciopraga from WOOD & Company. Your line is open.
Hi. Good afternoon. Actually, regarding this preservation, would it influence in any way the dividends or the buybacks? Preservation seems to be quite a strong word. And also, can you pay dividends from 2023 results if you could clarify this point? And also, if you could update us on the litigation at Bucharest Airports, I think you're waiting for a decision to come out today. That's all on my side.
Sorry, Iuliana, I missed that last bit of the question on Bucharest Airports.
Yes. On Bucharest Airports, yes. So I was wondering if you received any notification on the results.
No. So the very short answer there is no. We haven't received any news yet. As I mentioned during my earlier remarks, as soon as we have something, we'll communicate that to the market. On your other questions regarding the preservation, again, this is something that is to be confirmed Ministry of Finance that presented the point. I'm not going to try and interpret here what they're trying to achieve. As I said, we are reaching out to them, and it's up to them to provide the clarification. If they provide the clarification, we will publish it on our website. On the dividends, we're in the loss for last year. Cătălin reliably informs me that's going to be difficult to do.
Yeah. So in addition to the clarification Ministry of Finance, we are still looking at the audited financial statements and ways to cover the losses. So once that will be clarified, all these points will be clarified, we will communicate the decision to everybody.
This is a final call. For any further phone questions, if you have any follow-up questions by the phone, please press star one now. You have a follow-up question from Deepinder Bhatia from Bayard Asset Management. Your line is open.
Great. Thanks. This is my last question. This is to do with the expenses and the resources that you need to run the fund between now and the end of the current mandate period, March 31st, 2025. I do recollect that back a couple of quarters ago when the planning process was in place, there was a budgeted amount that was set aside. I just want to know how that is evolving in terms of costs and expenses that need to likely be borne under different circumstances, meaning if you are just running the asset as is versus running the asset with high legal or other consultant expenses that may pertain to any transaction that comes up.
Could you just give us an idea of whether that flight plan on the asset you had set aside that you need under different scenarios is adequate and complete and no additional is required and nothing is coming back into the fund either? If you could just give a little bit of color on that, that would be great. Thank you.
Yes. Thank you. So as you've seen for the GSM schedule for 26 of March, the budget for 2024 is also part of that documentation. If you look at the line items there, you can see what are the regular operating costs of Fondul, meaning regular advisors, regulatory bodies. You can separately see the fees that are related to buyback programs. You can also separately see the fees that are related to Franklin Templeton. The budget was prepared in accordance with our proposal of the mandate agreement. So that should give you a strong indication about the expenses. Of course, all the actual expenses will be influenced by the vote of the shareholders pending the clarifications received Ministry of Finance. but at this point, there is no other additional information other than what's already published on the website.
Great. Thank you very much.
You have a further follow-up question from Iuliana Ciopraga from WOOD & Company. Your line is open.
Hi. Just a brief question regarding Constanța Port. Looking at what they report for 2023 and how you value it in your portfolio, it looks to be valued at a PE somewhere around 13 for 2023 versus Bucharest Airports, which is valued somewhere around 10. And I mean, a good part of the profitability, I guess, comes from these exports from Ukraine, so it seems to be kind of an exceptional profit these years. Why are you valuing it at this level? They're not allowed to pay so much in dividends. I was wondering if there's any reason why you value it at this level. That's all. Thank you.
So Iuliana, as a reminder, the valuation is performed by an external valuator that takes into consideration the current situation and the prospects of the company. So that needs to be taken into consideration along with the discount rates that are applied. And as you pointed out, the restriction on paying dividends, it's capped at 25% of net profit. So that is lower than with the other state companies. But of course, this is factored into the valuation that is performed by KPMG.
Oh, so only a lot of cash, basically.
Yeah. Exactly. Exactly.
There's only a lot of cash on the balance. Oh, okay. Okay. Thank you.
Yeah. Yeah. Yeah. And then on the increased volumes, as it comes from a lot of it is coming from Ukraine. So look, this is not a situation that is going to reverse in the short term. These logistics businesses are investing in developing capacity and shipping channels and transport channels for the longer term. So we fully anticipate this being part of Constanța Port's operations for the medium to longer term.
Thank you.
You have a further question from Deepinder Bhatia. Your line is open.
Thank you. Sorry, I thought that was my last one, but perhaps this one would be. So I know that you've had your internal view that the case regarding the capital increase in the case of Bucharest Airport is one that would eventually be in your favor. That's the way we've understood your stance, your approach to the litigation. We'll, of course, know the result hopefully very soon. But I just wanted to understand that if the court decision is in your favor, is there some piece of valuation that the auditors may have held back on awaiting for this case to be decided that would then perhaps be layered on by them?
Or, given that the stance that has been taken so far by management and your advisors has been that this is a case that should be in your favor in any case, that the valuation is full and complete as if this rights issue has no bearing, or no bearing, I don't mean something that collapses the valuation to nothing, but even has any discount at all. So, is there some discount that's sitting there that can be dissipated if the ruling is in your favor in the very, very near future? Or is there no discount at all given the stance that management has had that this case is meant to be one that should be decided in your favor truly and favorably?
Yes. So let me give a bit more information. So the valuation so far, including the one included in the preliminary result, has been based on our assessment of the litigation, the legal argumentations that we have, and also the intended course of actions, meaning that as long as a process will be held which is based on a reasonable valuation of the land, Fondul would contribute cash to preserve the stake. This all actually happened during 2019. So basically, these two components are important drivers, and we have been seeing this output as a binary. So either Fondul is in a position to contribute and maintain the holding, or it's not, and then it gets diluted. And the valuation has been reflecting these assumptions.
Right. So the valuation has to pick one of the two. Obviously, it would have picked up as if it's a win for you based on your legal argument and logic. So that's the valuation you're sitting at on case one, which is that there would be a reasonable valuation and a reasonable contribution of capital which was already completed in 2019. So that's the valuation we're sitting at right now. There is no additional discount that needs to be dissipated if the case is in your favor.
Specifically for this, there is no additional discount. So there are all the other regular discounts that are included. But of course, based on the ruling, so it really depends on the argumentation. So even if we win, it really depends on the actual reasons for which Fondul will actually win because that will determine subsequent course of action. So other scenarios and avenues may be opened. But of course, it's too early to comment on those, and we'll assess them as soon as they are known. And the valuation may be adjusted accordingly if needed. But at this point, we need to learn the details behind any decision the court will make.
Got it. Thank you very much. I have a question on the valuation of Bucharest and the comparables, but I don't think this is the call for that. I'll take that offline just to understand what the last set of valuations and comparables were used. That should also wait till the court decision is out, which is imminent. I will reach out offline for that if I may. Thank you.
Of course. Thank you for that.
There are no further phone questions, so I will hand over to the management team for written questions.
Thank you. We have a couple of questions on the platform. The first question comes from Florian Mayerhofer at the City of London. How will the Engie proceeds be used? We have approved the 15th buyback program, and our intention is to continue to follow the discount control mechanism policy that we have in place. Of course, as Johan mentioned earlier, we do have the proposal Ministry of Finance regarding the conservation of the portfolio, but that has to be approved by shareholders to come into effect. If it's rejected by shareholders, our full intention is to continue using the proceeds from Engie for share buybacks and the discount control mechanism. We have another question from Cristian Petre at NN. Can you clarify on the distributions? As long as you have losses, you cannot make distributions. Cătălin, I will pass this on to you.
Yes. So if we talk about so distributions can be made in basically three ways, right? Dividends, return of capital, and dividends. And the buyback, sorry. So for the dividends, the company's law talks about dividends distributed out of the profits. The profits can relate to prior year, and Fondul is in a loss position currently, or they can relate to previous periods, which translates to retained earnings. It's important to see what happens on the Bucharest Airports litigation because that could potentially directly affect the loss, and the accounting loss needs to be covered by various other equity elements. So there are scenarios where Fondul will not have sufficient equity elements to make dividend distributions.
In terms of return of capital, there are specific provisions in the FSA regulations stating that you are not allowed to make return of capital if you have accounting losses for the past three years. Of course, the buybacks are what Marius and Johan already covered. We are looking at all the options. There are certain legal restrictions to each of them, as I explained, but we will only be able to make conclusions once we have this information available. There is too much unpredictability and unknown factors as of today.
There are no further written questions or phone questions. I would like to hand back over to Marius for closing remarks.
In this case, if there are no further questions, we would like to thank again everyone for your time today. For any additional questions, please feel free to reach out to us, and we will keep you updated on the developments regarding the Bucharest Airport. Thank you.