OGMS To approve the Declaration for investment policy AGA ... SITE ENG/7. SIF2 OGMS Apr 14,15 2014 - Activity...OGMS 2014 – Activity program. Investment policy. BVC. 6 For the first

OGMS 2014 – Activity program. Investment policy. BVC.

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AGA - O

04/05 apr 2013

A.1. RETROSPECTIVE 2013

World economy radiography at the end of 2013

Amid slow economical recovery registered in majority of G7 economies and especially in the

emerging countries, the world economical growth sis estimated as being situated in the

interval 2,3% (IMF) - 2,8% (OECD).

During 2013, European Union faced a series of major challenges who forced the

European decision makers to act to counter-balance and reduce the monetary shocks but

especially the tax ones. In 2013 the gap increased between the countries from the centre of

the Union and those from periphery as regards to macro indicators. In order to deal with the

financial turmoil registered in large economies such as Spain, Italy or France, ECB had to

adopt measures of financial relaxation similar with those of FED, but excessively using the

monetary levers. But, a negative growth rate of GDP (-0,4%) questioned the real overcome of

the crisis of the enire Union.

EU inflation rate (1961-2013) EU economical growth (1961-2013)

Source: European Commission (Eurostat) and European

Central Bank calculations based on Eurostat

OGMS

14/15.04.2014

pct 7

To approve the Declaration for investment policy

2014-2018 and the Activity program for 2014; to

approve the income and expenses budget for 2014.

A. MACROECONOMIC PREMISES


2

International capital market in 2013:

Amid QE3 and considering that the

performances of banking instruments were

not attractive for investors (due to the

extremely low benchmark interest rate

applied by the central banks), the capital

infusion in the economy was largely reflected

in the capital market. Under the pressure of

investors, both American and European

market registered an important increase of

main markets indexes. The Asian markets

(excepting the Japanese one) closed 2013 fall.

The best performing market proved to be that

in Buenos Aires where the Merval index

appreciated by the end of 2013 with no less

than almost 85%. It was followed by the

Japanese index Nikkei 225 (+52,42%) and the

American index Nasdaq Composite with an

appreciation of 34,2%.

Romania 2013:

In 2013, GDP had increased in comparison

with 2012, by +3,5%1. The unanticipated

economical increase was determined by the

record growth of industrial production,

exports, agriculture together with the

absorption of European funds.

Source: Own calculation based on Eurostat data

- Industrial production (excluding construction sector), increased in 2013 by+7%; - Private consumption was fuelled by the

high offer of agricultural and food products;

agriculture – direct grants for agriculture

registered a real year by year increase, from

2011 - 100 Euro/ hectaree, Source: Own

calculation based on NBR data

2012 – 119 Euro/ hectaree, 2013 - 139 Euro/ hectaree;

- exports - increased from 41,9 mld.€to 45,7 mld.€, by +9% in the first 11 months of 2013 - imports increased only increased by +1%, to 50,9 mld.€;

The evolution of main

stockexchange indexes in 2013

var.% YoY

United States

Dow Jones Industria Average 23,59%

Dow Jones Compozite Average 24,17%

S&P 500 26,39%

Nasdaq Compozite 34,20%

Ibovespa -17,65%

Merval Buenos Aires 82,57%

EUROPE

DAX 22,80%

FTSE 100 11,97%

CAC 40 15,05%

ASIA

Hang Seng Index -0,02%

Nikkei 225 52,42%

KOSPI Compozite Index -0,97%

SSE Composite Index -7,07%

Composite Index -1.66%

-10.0

-5.0

0.0

5.0

10.0

Evolutia PIB in Romania in perioada

2000-2013 (%, yoy)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Rata inflatiei vs. rata de dobanda de politica monetara, Romania, 2011-2013

Upper bound

Lower bound

Dobana de politica monetara

inflatia


3

- trade balance remained negative, but with better indicators, comeback from -8,7 % (2012) to -5,2 billion.€;

- there was a corresponding adjustment of the monetary policy behaviour in 2013; Tax

discipline adopted created the conditions for a stable macroeconomic framework and led

to deficit correction

Romania: 2013 capital market

Euphoria from the international markets was transmitted to Romanian investors as well,

stimulated, on one hand, by

legislative changes on key

institutions of Bucharest stock

market and, on the other hand, by

the above expectations quarterly

results registered by the

Romanian economy. This last

element sparked the interest of

foreign investors who felt the

growth potential of Romanian

shares traded with significant discounts. By the end of the year, BET index registered an

improvement of almost 22%, being followed by BET-FI and BET-XT.

Sources: Own calculation based on date provided by NBR, INS. AOR, Romanian Government

A.2. PERSPECTIVES FOR 2014 Macroeconomic outlook 2014

the acceleration of economical cycle:

Source: OECD Economic Outlook:

- OECD: world increase from 2,7% (2013) to 3,6% (2014), the engine being USA,

representing 40% of the world economy

- After the double recession (2008-2009 and 2011-2013) the EU economy should register

an improvement from 0,5% (2013) to 1,5% (2014) considering the budget ary austerity

pe and a relative stability of the consumption prices

Romania: Evolutia principalilor indici bursieri in 2013

Indice Final 2013 Variatii % YoY Min 2013 Max 2013

BET 6.4934 21,78% 5.199 6.500

BET-C 3.344 16,25% 2.789 3.349

BET-FI 31.292 19,88% 23.080 31.333

BET-NG 667 2,65% 715 311

BET-XT 600 19,64% 469 600

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

2012 2013 2014 2015

WORLD

OECD

non-OECD

SUA

zona EURO

Japonia

China

crestere mondiala


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- The deceleration of the improvement rhythm in the emerging countries, especially due to

the slowing down of the economical expansion China with a controlled increase in the

margin 7%-7,5%

- Monetary and financial conditions remain adequate to the situation:

o To continue the policies of capital infusion form central banks;

o USA: unemployment rate <6,5% at the end of Q3 2013 => FED will not haste to

close QE=> continue inflation control, maintained at 1,5% (below the 2% target);

o EU: ECB continues the monetary relaxation policy to avoid the deflation risk which

is estimated to probable to appear at 15% => the systemic stress in countries like in

Portugal, Spain, Italy remains a variable that requires a careful and permanent

control ;

o China: BCC will apply a neutral or slightly restrictive policy to support the

economical growth.

EU

In accordance with the projections of ECB experts, the corporate investments will be slightly

accelerated in 2014. In the projects horizon for 2014-2015, it is anticipated that the dynamics

of corporate investments is supported by a series of factors such as:

o Gradual consolidation of internal and external demand, the very low level of

interest rates.

o Reducing uncertainties, the need to modernize the capital stock after several years

of modest investment,

o Reducing unfavourable effects associated to credit offer and the relative consolidation of

profit margins, considering the improvement of economical activity.

In 2014, 2015, the GDP rhythm of improvement is projected to intensify. It is estimated that

exports outside of Euro zone will improve and will be accelerated in 2014 and 2015,

reflecting the consolidation of external demand outside the Euro zone.

As well, it is expected for the internal demand to be supported, in time, by the diminishing of

constraints on credit offers. In addition, during projection horizon, the activity will be

supported at an increasingly higher extent by the unfavourable effect of gradual

consolidation of external demand on exports.

Romania:

Annual inflation projection on IPC prices and the corresponding uncertainty

interval

T2

2013 T3

2013 T4

2013 T1

2014 T2

2014 T3

2014 T4

2014 T1

2015 T2

2015 T3

2015 T4

2015

Target

2,5

2,5

2,5

Effective/ Prognosis* (%)

5,4 1,9 1,6 0,9 1,4 3,0 3,5 3,2 3,1 3,3 3,2

Uncertainty interval (%)

- - - ±0,6 ±1,0 ±1,4 ±1,8 ±1,8 ±1,9 ±2,0 ±2,0

*End of period Source: INS, NBR calculation


5

Annual inflation of fuel prices

GDP deviation

Economical growth:

For 2014: - European Commission estimated for Romania a GDP

increase in 2014 of 2,1%, placing our country on fifth place

among European countries (estimated European average:

1,4%).

- IMF estimated the real GDP increase of 2,2% due to a

firm internal demand, a solid political support, a better

absorption of EU funds, as well as an improvement of trust in

Romanian economy

- Considering current achievement, meaning:

Inflation reached a historic low after 1989: 1,55% in December 2013 (January

2014: 1,06%). It is expected for the trend to maintain in the first half of 2014, in order

to aim, in second semester to comeback to the superior limit of inflation rate

considered by NBR.

Unemployment registers a rate of 7,1%, Romania being below the European limit,

together with countries with a much better performing economies such as

Netherlands, Denmark, Austria, Czech Republic.

Direct grants for agriculture had a real increase year by year, to 139

Euro/hectare in 2013 and 153 Euro in 2014. In 2015 the tendency will continue and

the results are obvious as regards to the revival of agriculture. For the first time in

20 years, Romania exported more agricultural products than it imported, with an

excedent of 300 million Euro in 11 months

The net average salary earnings increased to 1760 lei in December 2013

T2

2013 T3

2013 T4

2013 T1

2014 T2

2014 T3

2014 T4

2014 T1

2015 T2

2015 T3

2015 T4

2015

Effective/ Prognosis * (%)

1,0 -2,1 -0,4 0,2 4,3 3,7 5,4 3,8 2,2 2,8 2,1

* End of period Source: INS, NBR calculation

T2

2013 T3

2013 T4

2013 T1

2014 T2

2014 T3

2014 T4

2014 T1

2015 T2

2015 T3

2015 T4

2015

Estimated/ Prognosis (%)

-2,0 -2,0 -2,0 -2,0 -2,0 -2,0 -2,0 -1,8 -1,7 -1,6 -1,5

Source: NBR calculation

Crestere % GDP 2013 2014 2015

USA 1.7 2.6 2.4

OECD 1.2 2.2 2.2

Global 2 2.7 2.8

Romania 4.05 2.3 2.9 Source: The Economist Intelligence Unit


6

For the first time in the Romanian history the issuance of government bonds in

US dollars with a maturity of over 30 years was made

Direct foreign investments – after a constant fall in 2008 - 2011, in 2012 had a

certain blockage, and in 2013 exceeded the level from 2011.

For the Stock Exchange the year 2013 is the best after the recession, the profits

grew by 37%. Private investors consider Romania, after Warsaw, as the capital

market with the fastest development

Exports - 49,6 billion Euro from exports. Exports increased by 10%, imports

increased by 1%, but the commercial trade remains negative.

Commercial deficit in nominal terms decreased with almost 4 billion Euro.

Drastic decrease of the budgetary deficit from minus 9% from 2009 to 2,5% in 2013.”

Current account deficit is expected to maintain in 2014 between 1 and 1,5% from

GDP , contributing to the strengthening of Romania’s external position.

Budgetary deficit. Authorities approved for 2014 a consistent budget with a

deficit target of 2,2% from GDP. The possible delay for the application of excise to

fuel will be compensated by frozing the governmental expenses. As well, the

authorities intend to continue tax adjustment in 2015 as well to reach the medium

term budgetary objective, so as Romania to maintain with a structural deficit of 1%

from GDP considering the growth of co financing projects supported by EU.

Monetary policy continues to be relaxed which was translated through a

successive decrease of monetary policies rates of and those of minimum mandatory

reserve both in foreign currency and in lei , presently being of 3,75% respectively

12% and 18%. This aspect, combined with the warranty governmental programs,

should encourage the activity of offering credits in lei. Without putting pressure on

assets’ quality, the banking sector continues to maintain its capital at prudent

liquidity and provision levels. Following the exercise of stress testing of the solvency

of banking sector, for the period Q3 2013 – Q2 2015, the results generally show its

sustained capacity of dealing with possible negatively significant macroeconomic

shocks , considering the conservation of an adequate level of the solvency indicator.

In the same time, the degree of covering non-performing loans with IFRS provisions

and prudential filters maintains a t comfortable level (89,5 %, in August 2013), being

among the highest levels in comparison with the countries in the region.

Relying on IPO Romgaz success, the program on listing other state companies

remains as planned. As well, the reform of the regulation system in energy and

transportation sectors will continue, as well as the regulation process for the prices

of gas and electricity in accordance with the logbooks previously agreed on,

The target of adhering to the Euro zone is now 2019, other objective aimed at until then

being to improve the real convergence. In this area, Romania meets the targets for 11 of the

12 criteria of the chart.

Economical estimates for Romania 2014 (year of presidential and Euro parliamentary

elections):

In the context in which this year could be another year of transformations for the local

capital market, Romania could go beyond the status of frontier market (according to MSCI

index) to that of emerging market.


7

- Premises for economical growth:

o The gross domestic product in the years 2014-2017 will increase by an average

yearly rate of 2.5% with structural improvements.

- European Funds:

o Romanian Government: In the new scheme of European funds, for the period

2014 -2020 , Government relies on an absorption rate of 80% for all these

years. ( Romania was allocated over39,8 billion Euro). In accordance with the

opinion of UniCredit Tiriac Bank experts the improvement of European funds

absorption (appreciation pressures), being compensated by the process of

financial disintermediation and the volatility of foreign capital.

- Change of the export strategy => the closing of the operation of reconnecting Romania to

its traditional markets: Russian Federation, China and the countries from the Persian

Gulf=> the exit from the European market’s restrictions, where Romania predominantly

exports, to very low profit margins. This reorientation decided by the Government will

generate numerous investment projects =>growth of budgetary income =>

unemployment decrease.

- Continue the operation of transforming Romania in an energy hub (at least on certain

segments)

o => related investments (the construction of the submarine cable to Turkey, the

start of gas and oil exploitation in Black Sea)

o => oppositions from certain countries => retaliation measures against

Romania such as the MCV report

- Currency exchange:

o Exchange rate: 4,35 - 4,65 lei/Euro

CNP: average listing of 4,45 lei/Euro

ING Bank: evolution in the interval 4,40 4,45 lei/Euro.

Deloitte Consultancy: average rate of exchange of aproximately 4,5

lei/Euro with volatility in the interval: 4,4-4,6 lei/Euro BCR: wide

fluctuations in the interval 4,35 – 4,65 lei/Euro with a final value of

4,48 lei/Euro

GarantiBank: depreciation to 4,55 in 2014 due to short term of capital

flow, determined by international events.

UniCredit Tiriac Bank: stable evoltution of the echange rate

Banca Romaneasca: linear evolution in the interval 4,43-4,57.(final

2014: approximately 4,53lei/Euro).

Our opinion for the end of the year (in

normal conditions) is placed around the

value of 4,65 lei/Euro, the fluctuation

interval being between 4,4285 – 4,6550

lei/Euro. Assuming internal or external

political turmoil, the national currency

might fluctuate around the maximum of

4.6289 lei/Euro reached in 23.07.2013,

testing a new historic high that could be

placed in the interval 4,88 – 5,04

lei/Euro.


8

European Commission estimates for Romania GDP increase in 2014 by 2,1%, placing our

country on fifth place among the European countries (estimated European average: 1,4%). A

leverage to counter attack the decrease of consumption is that advanced by NBR -according

with the experts’ expectations, it will apply at least two decreases of the reference rate of

interest => prices of credits in lei will come down => the acceleration of consumption

Potential risks:

The volatility of external capital flows, considering the transborder disintermediation

process in the banking system

The fluctuation of investor’s appetite to take risks

The decisions of main world banks.

2014 forecasts for the main economical sectors:

Energy sector

- World: Production/Export at a global level will be strongly influenced by the revolution

of shale gas in the United States => advantage of American refineries against the

European ones.

- Romania:

o Stabilization of energy and natural gas consumption

o Liberalization on gas market (on the segment of industrial consumers => income

increase of such companies).

o Introduction of tax on special constructions will have a negative influence on

companies’ profitability = > possible exits of Proprietatea Fund from these

companies = > influence on BSE listing

o BSE boost by listing state companies scheduled for 2014: Hidroelectrica, Electrica

Furnizare, Complexul Energetic Oltenia.

Pharmaceutical sector

- World:

o diminishing the growth rhythm

o a possible positive influence of „Obamacare” program comng into force

- Romania

o Aligning to the European development fund

o Forecasts are generally optimistic

o Specific problems: payment of claw back tax blocking of debt recovery.

Raw meterials and materials

- World:

o decrease of industrial demand in China => unfavourable predictions = > negative

impact on industrial metal price

o relaxation of the USA ‘s fiscal monetary policy USA will lead to the improvement of

financial instruments performance => increased pressure on the prices of precious

metals.


9

Banking sector

- World:

o Reforms in the banks operational activity growth of registered profits => positive

influence

o Powerful influences resulted from:

FED decisions on monetary policy

capital requirements of the Basel 3 Agreement.

strong competition (including from non-banking players).

- EU – Create common reporting standards => Banking union

Investment funds:

- World:

o Funds investing in assets in area/ sectors with growing potential will obtain

performances above the average of banking investments => attract interest of

investors

- Romania:

o To investment funds listed, shareholders will rely on reducing the discount between

price and VUAN and on a favourable evolution of portfolios.

o There is perspective for legislative change on ownership thresholds

o Private equity funds:

Considering the functioning mechanism of private equity funds their

activity will be closely related to foreign investors’ trust in in country’s

development potential.

Agriculture

- Romania:

o Liberalization of agricultural land market => their price increase

o Positive growth potential mainly due to the interest of investors in (investment

funds) in buying and croping land in Romania from the perspective of bio type of

crops, which bring very high income from the products obtained.


10

Activity program for 2014 ensures the continuity of strategies applied until present time,

having as objective the increased efficiency of asset management.

In the process of portfolio optimization, we stress on the necessity of review the exposure

limits in agreement with complying with the prudential procedures and legal

requirements, in the same time with the tendencies from the macroeconomic environment.

The tactical and strategic allocation of assets relies on top–down analysis, highlighting the

sectorial potential, depending on the contribution to economical growth, dynamics

registered and perspectives identified in long term governmental plans. The performance

of certain sectors, such as industry and agriculture (which, for the first time in 20 years,

managed to export a larger amount of food products than imported), highlights a high long

term potential, in the perspective of achieving the plans of governmental measures.

The long term vision focuses in a centre the results of the application of investment policies

considering: continue the investment strategies in the financial banking sector with

orientation on local market, the growth of the energy-utilities sector, the orientation

towards the agricultural sector, industrial, real-estate, pharmaceutical.

This centre ensures constant dividend flow, the cash flow for other investments, aiming at

capitalizing the opportunities/volatility specific to certain moments in the market,

associated with individual specific facets, dictated by the: liquidity level, affiliation to a

strategic filed of activity, type of management and its performance level, the application of

Corporate governance principles, financial-economical situation: development

perspectives, profit realization and dividend distribution.

As a general line, we diversify assets accordingly, such as to avoid excessive dependency to

a certain asset or issuer.

In the same time, we will consider a concentration process leading to a decrease in the

number of equities and the increase of exposure/issuer, such as to directly influence

portfolio in a positive manner.

To develop the performance potential of portfolio, we suggest an approach of projects with

private capital that can be materialized, developing business opportunities by creating

investment vehicles specialized especially on real estate, agro business, listing these

companies to Bucharest Stock Exchange.

We intend to create specialized companies in which SIF Moldova the control position, as

well as listing them to BSE, investing in companies that manage investments, financial

investment companies, brokerage companies.

B. ACTIVITY PROGRAM2014


11

Within the activity of managing assets are complied with the investment principles

imposed by the legal stipulations, the internal regulations assumed with the scope to apply

a coherent management policy of assets in prudential conditions.

In the process of reorganization and dynamic

replacement of assets, we aim at a portfolio

mainly consisting of shares.

The orientation towards the category of

listed/traded shares, mainly of those on the

Romanian market is favoured by the

generalized policy of central banks to

maintain/ diminish interest rates, to continue

granting (at a smaller scale) liquidity support

and especially the new measures promoted in complex monetary policies. In perspective,

the year 2014 could be decisive in supporting world recovery, reason for which a plus of

optimism is being seen, but managed with maximum of prudency from the point of view of

risks associated and volatility estimated.

As regards to the history subportfolio of

closed companies, we continue the

process of reorganization aiming at

diminishing the exposure on unlisted

companies with no growth potential, in

parallel with obtaining liquidities for

supporting investment programmes and

improving the performance-risk indicators.

We consider an active management

consisting of a direct involvement of SIF Moldova, as a shareholder, in the management

activity of the companies.

Starting 2013, for the optimization of administration process of actives found in distress,

there were surrendered to the social capital of companies controlled by SIF, by creating

Asset Invest SA, shares owned at closed companies, in bankruptcy or administrative

liquidation, as well as actives set by Casa SA, having as effect the application of cohesive

management policies as well as the decrease of operational costs.

The activity program 2014 includes the opportunity to develop new businesses by creating

special investment vehicles, individually or in partnership.

Sector, we mainly aim at the industries with a contra cyclic character present on the

Romania’s National Development Plan, for which there are European funds and which are

supported by international financial institutions.

Without excluding the sector of reusable energies, we reconsider our strategy due to the

instability of legislative framework regulating the application of the support scheme for the

E-SRE producers through green certificates.

0%

50%

100%

Dec-10 Dec-11 Dec-12 Dec-13

Titluri cotate

-10%

0%

10%

20%

30%

40%

Dec-10 Dec-11 Dec-12 Dec-13

Tiltluri necotate


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A major interest is represented by the private equity segment, which perspective, in the

European landscape constantly and safely improves. Thus, SIF Moldova aims at creating

certain centralized administration structures for the companies who own majority shares,

depending on the nature of their activity. Uniform management techniques will be

implemented (that could be assimilated with the holding type ones), rationalization

measures will be adopted for using resources and optimizing costs, to grow the managed

value, profitability and performance of capital invested. Our intention is to list these

companies to the Bucharest Stock Exchange.

For the fields with potential and which can become opportunities that add value o

managed assets, such as real estate, agribusiness, we consider new projects, including

on companies from SIF Moldova portfolio, that might represent the subjects for certain

investment programs allowing performance growth of these issuers.

Considering the signals that the real estate sector has started to show, we intend to

apply new strategies, including for companies from SIF Moldova’s portfolio, hat might

represent the subjects for certain investment programs. We consider that the revival of the

real estate sector in a medium term could relaunch the construction materials sector

which, at the Bucharest Stock Exchange, is defined by low liquidity. The management

activity will consider the separation of activity lines, from the level of companies owning

relevant assets, for their better management.

We’ll aim at development opportunities in the agriculture sector, with a substantial

potential of appreciation for medium and long term, considering:

- The sector, as part of EU offers the safety of a legal framework which is safe and

predictable

- Romania’s geographical position, towards the EU countries, but the Arab ones as

well, found in a phase of accelerated growth of population and consumption (The

The convenient geographical positioning towards the transportation routs to the

Black Sea, a good infrastructure around Constanta harbour and along the Danube)

- Appreciation potential of the agricultural land in Romania in comparison with

other countries, that are now low largely due to the high attrition percentage

generating a low productivity/ha;

- Confirmation given by the acquisition rhythm of foreign investors who managed to

own data 8% of the total cultivable

area of Romania

- Soil’s success rate - Romania has one

of the important agricultural resources

in CEE (Central and Eastern Europe),

due to the black soil (chernozem)

which is very fertile.

- Price of agricultural land lower than in

majority of European countries.

Adjustment of exposures on banking sector

will continue the individualizing process and will conclusively epend on the capacity of

each bank to recommence the credit process and to reduce the level of non-performing

0%

20%

40%

60%

80%

Dec-10 Dec-11 Dec-12

Sector bancar


13

credits, in the context of the new stipulations of

Basel 3 Agreement, economical trends and the

influences of monetary policy decisions.

We consider the consolidation of holdings in the

energy sector considering that listing

programs of government investments will

be made by offering investment opportunities

with good potential, with a medium maturity

horizon.

Still, we will carefully dimension our holdings considering:

- New tax on special constructions in force with the implementation of GEO no.

102/2013 on changing and completing Law no. 571/2003, that will partially affect

the profitability of companies;

- Renegotiation of royalties with the Romanian government;

- Possible liquidities made by Proprietatea fund in such companies;

- Quality of assets and the management of companies in question.

In its activity, SIF Moldova is exposed to risks associated to financial instruments traded

on capital market.

SIF Moldova defined a solid and orderly approach on investment and operational risk

management.

In grounding investment decisions we give an important role to identifying and evaluating

potential risks, with a permanent monitoring of portolio rebalancing on profitability-risk

criteria.

In order to create a solid application for making decisions and to encourage the proactive

management, in SIF Moldova a software solution for the optimization of the profitability-

risk report was implemented.

To achive the investment policy a series of risk strategies are approached:

in selecting the assets it is aimed at reaching objectives set through the risk

management strategy, , namely:

o performance objective: shares are the assets adding important value and that

are more tolerant to risk;

o time objective: on long term, strategy recommends structured conservative

portfolios oriented to minimal risks, bringing constant capital increase;

o liquidity objective: assets with a trade volume that allows entering and

exiting the market easily ;

o performance-risk objective: assets with profit potential, can involve an

additional risk.

Selection of assets from an already existing portfolio with the purpose of building

subportfolio’s, as well as new portfolios, is made by taking several parameters into

account:

o by balancing allowable existing risk and expected profit in a certain period

of time;

o by balancing earnings from price variation and dividends;

o by correlating expected performance with the expected risk and with the time

factor;

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30%

Dec-10 Dec-11 Dec-12

Sector energetic


14

o by correlating high risk financial instruments - creating alfa, with those of

medium risk- which are in the market trend;

o by correlating the changes in the economic environment in general, with

those of the sector in which the investment is made.

Risk management also includes the operational risk, as well as the self evaluation process

by approaching in an organized manner the identification and analysis of risks, as well as

the adoption of measures necessary for reducing them.

Through the self evaluation process the processes considered critical from operational

point of view are identified and an adequate level of control and responsibility inside the

company is maintained. In order to carry with the risk management activity internal

working procedures are developed, on managing and monitoring market risk, liquidity and

operational risks.

Approaches/ possible proposals considering existing restrictions

In the documented activity directions and options analyzed, it is considered the possibility

of initiating certain actions that involve the adoption of decisions by the shareholders , la

at EGMS competency level:

1. In the process of optimization the managed asset portfolio in the conditions of: (a)

identifying investment opportunities in agreement with the defined principles of

investment policy and (b) maintaining a medium risk profile, considering the proposal

on approving exceeding the threshold of 20% from the fixed assets, excepting the

liabilities for the acquisition, alienation, trade or incorporation in warranty of

certain assets from the category of fixed assets from the financial year 2014. (in

accordance with. art.241 paragraph.(1) in Law no.297/2004 n capital market).

2. In the context in which the activity program for 2014 includes the

incorporation/participation to certain specialized investment vehicles on fields of

activity (eg: agriculture, real estate, opportunistic, etc.) in conjunction with restriction

from: (a) current/ possible situation on the existence/application of statutory

limitations on the competent authority for approval (GMS/BD) and (b) the legislative

restrictions on alienation limit of certain actives during a financial year (maximum 20%

of total assets excepting liabilities), we consider the proposal to approve by GMS the

incorporation/participation of/to SPVs. From the perspective of shareholder’s

position, SIF Moldova will ensure the compliance of high transparency standards in the

activity of these entities, including by listing them on a stock market.

3. In the conditions of SIF Moldova communicating the intention to take over holdings to

a company of investment management (49,96% of the social capital of SAI Muntenia

Invest SA) and considering current restrictions from the Article of Incorporation, we

consider (if the situation requires that) to submit this investment for shareholders’

approval.

In the activity report of the Board of Directors the highlights of the „Strategic Plan for

Developement of SAI Muntenia Invest SA” are detailed. The acquisition of holdings

issued by SAI Muntenia Invest represents a portfolio investment, and the medium/long

term financial objective of this investment is represented by the income growth by a

better management of SAI Muntenia Invest SA. The acquisition is in total accordance

with the investment objectives of SIF Moldova SA, consisting in managing the financial


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instruments (h labelled by the NSC/FSA regulations) with the purpose to ensure value

is created by diversification, as well as preserving and increasing the capital on a

medium/long term.

The decision of the Board of SIF Moldova is in line with the investment policy

benchmarks approved by the shareholders, to streamline its core business and diversify

its investment targets, maintaining a medium risk profile. The Board decision was

disclosed to the market through the current report of August 23, 2013.

SIF Moldova has notified the FSA and the Competition Council of the intention to

acquire a qualifying holding in SAI Muntenia Invest SA. Steps taken in the relation with

the FSA aimed to clarify some interpretative aspects of the articles of association (there

were conducted workshops and reasoned arguments were sustained). In relation to the

approaches taken towards the Competition Council it has been concluded that the

project is not subject to authorization (the transaction is not an economic

concentration).

In response to the steps taken, the FSA informs us by letter no VPI/2337.1/11.03.2014,

that SIF Moldova request for approving the acquisition of a qualifying holding of

49.96% of the share capital and total voting rights of SAI Muntenia Invest SA can be

solved after the removal of the provisions of Article 14 paragraph 1 of the Articles of

Association of SIF Moldova, a situation that is in the competence of the EGMS of SIF

Moldova.

4. In the dividend policy, it is considered the possibility to submit for approval a

program for the recovery of own shares, operation with tax benefits for shareholders ,

in comparison with dividend payment. In this case, BD appointing will be required on

adopting necessary decisions for concluding shareholders’ decision (the characteristics

of the recovery program). In case these proposals are approved, the operation will be

run by informing/consulting shareholders in advance. (Topic was not included in the

agenda of EGMS from 04/05.04.2013, meeting during which the quorum statutory

conditions were not met).

General restrictions

These strategic projects will be started in case, following the analysis of the economic and

investment context for 2014, the Board of Directors decides on the opportunity to present

the topics specified to shareholders, in a GMS. A eventual/ possible EGMS meeting will be

carried in case there are reasonable estimations on meeting the quorum and adopting

decisions.

(eg: the possible change of the legal condition for SIFs EGMS taking place Approval of

amendments to GEO 32/2012, legislative process in progress).

Dividend policy

Dividend policy will reflect the context of the economical environment and will consider a

target performance in line with the market evolution. We aim at improving the investment

effort, as a source as a source for the future performance and we aim at having a balanced

report between the dividend policy and that of ensuring resources for the investment

programs.


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Objectives of the 2014 investment program

The committed objectives for 2014 are set within the limits of caution, in accordance with

the legal stipulations and FSA stipulations, aiming at tactical changes coming from both

the capitalization of investment experience and from the evolution of economical

environment.

In context in which the economical climate of the capital market is in favour of certain

investment/disinvestment, we forecast that these indicator will be outperformed.

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I. SCOPE OF DECLARATION FOR INVESTMENT POLICIES

The Declaration for investment policies defines the general activity framework, depending

on the long term investment objectives, setting the methods of implementation of

strategies adequate to the economical cycle, in conditions of caution.

The main objective aims at improving the company’s performance indicators and to

maintain investors’ trust, in the high potential of the SIF2 share. Performances aimed

together with the objective to diminish discount, represents the main aim for SIF Moldova

management.

The Declaration for investment policy meets the legal and statutory framework

requirements. It will be revised, any time when necessary and will be subject to the

approval of General Meeting of Shareholders.

II. ROLES AND RESPONSIBILITIES

The implementation process of the investment decision

The investmemt strategy is approved by the General Meeting of Shareholders – the

management authority of SIF Moldova, adopting decisions based on projects proposed by

the Board of Directors and/or shareholders.

At its turn, the investment strategy is first of all approved by the Board of Directors in the

spirit of its attributions, as recorded and endorsed by the FSA, in the sense of the

regulations stipulated in the applicable legal framework.

Having a permanent consultative role, independent to the SIF Moldova executive

management, subordinated to the Board of Directors, the investment policies Committee –

the experts analyze the investment strategies and elaborate recommendations. The

Committee assists the Board of Directors in fulfilling its responsibilities in the field of

elaborating strategies and investment policies, of monitoring the compliance with the

decisions on applying the investment policies, the analysis of the performance of financial

instruments portfolio and risk management.

Board of Directors establishes the main investment strategic directions, is informed by

the executive management on the progress of activities carried out between its periodical

meetings.

The Investment Policies – Strategies Committee, is a permanent consultative

committee independent of the SIF Moldova executive management, subordinated to the

Board of Directors.

The Investment Policies – Strategies Committee has to include at least 2 members from

the non-executive managers.

C. DECLARATION FOR INVESTMENT POLICIES 2014-2018

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The executive management of the company is ensured, in accordance with the

stipulations of the Incorporation Article and regulations in place, by the Director General,

respectively the deputy Director General, is appointed by the Board of Directors. The

executive management is empowered to manage and coordinate the daily investment

activity f the company and is invested with the competency to bind the company.

President acting as Director General directly manages the company’s activities în in

accordance with the general objectives established by the GMS and executes the decisions

of the Board of Directors.

Vice-president acting as deputy Director General, coordinates daily the investment

activities.

Investment department has as main objective the elaboration of strategies on global

and dynamic allocation of classes of assets (shares, fixed income instruments, other

instruments of the capital market) and is subordinated to the Vice-president Deputy

Director General.

In accordance with the specific attributions and responsibilities, the investment activity

is aligned to the procedural framework approved by the directors, sets the working method

for the elaboration, the approval and the monitoring of investment strategy, of

investment/disinvestment programs, of processing information on biannual/annual

financial results of the companies in portfolio in order to analyze the share portfolio, toput

shares in qualitative categories and to submit investment /disinvestment proposals.

Internal Audit department ensures the supervision of compliance with the legislation

on the capital market in force, as well as with the regulations and internal procedures.

III. INVESTMENT ONJECTIVES

The investment objective of SIF Moldova is to increase the value of assets through

investments mainly on securities having as support Romanian shares

The applied policies include adequate techniques to achieve the following:

To continuously optimize and reorganize the structure of assets by the

harmonization of the proportions of sector exposures, in the context adequate to

the economical sector;

To continue the investment strategies in the financial banking-sector aiming at the

local market;

To create specialised companies, where SIF Moldova has the control position and to

list them to BSE. Their main purpose is to centrally manage opportunities with high

potential, on groups of companies grouped on area of activity. Direct involvement in

management activity aims at applying uniform techniques, customized, aiming at

reducing operating costs şi and increasing income, thus increasing the value of

managed portfolio;

To be oriented towards investments in which we can actively determine the

economical and financial policies;

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To invest in investment management companies, brokerage companies, financial

investment companies – for which the legal regulations in force cleared the holding

restrictions;

To significantly reduce the percentage in the total of managed assets for the

companies that registered the decrease/lack of financial performances and with no

come back perspectives;

To support the initiatives having as purpose the improvement of the attractiveness

of the Romanian capital market, with a direct effect on the managed portfolio.

To reach the objectives the following are considered:

The clarity of annual activity programs and the manner in which they contribute to

reaching the investment objectives;

The active management by direct involvement in the activity of companies in

portfolio in order to increase their value;

Permanent monitoring of improving the visibility and liquidity levels of the assets

managed in the economical environment. In this respect, we intend to list certain

key holdings and capital operations are not excluded, in order to lead to

performance improvement;

Obtaining the shareholders; approval in the General Meetings, to put in practice

certain programs to increase the social capital of SIF Moldova, to improve the value

of managed assets, by creating sources adequate to strategy objectives or programs

for the recovery of shares issued by SIF Moldova, to determine, in the absence of

adequate investment opportunities to the appreciation of performance in SIF2

investment, using the cash available in the process of decreasing the discount

between VUAN and market price;

Constructive communication and interaction with shareholders. Running

investment activities complying with the principles defined in the Corporate

Governance Code supports the premises for SIF Moldova obtaining performance

and the harmonization of the interests of all parties involved in the relationship

with the company;

identifying SIF Moldova’s advantages by configuration of resources from the

competitive environment, thus defining the uniqueness of the company and

differentiating it;

implementation of measures that contribute to the improvement of the climate

specific to the capital market:

o directly, by participating to the listing program,

o active involvement in the process of improving the legislative framework, an

important factor in the development of the capital market.

The asset evaluation is made in accordance with the regulations in force issued by the

Financial Supervisory Authority and the internal rules of SIF Moldova.

IV. INVESTMENT LIMITS

The investment policy will be achieved by complying with the prudential limits of

investment stipulated by the legal regulations and the provisions of law.

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V. INVESTMENT RISKS

SIF Moldova managers are responsible for achieving a balance between risk and expected

profit. In this respect, there are applied the necessary measures and processes for

monitoring the operational and investment risks, as well as for answering quickly to any

unexpected situation.

The principles of risk management aim at processes of managing them actively, applying

specific procedures to identify, evaluate, measure and control to obtain a reasonable

assurance that a constant balance between risk and expected profit will be achieved.

The risk management information system implemented ensures the needed support in the

process of grounding the investment decision.

VI. DIVIDEND POLICY

Dividend policy will permanently reflect the context of the economical environment and

will consider a target performance in line with the market evolution. We aim at improving

the investment effort as a source for future performance and we desire to obtain a balanced

report between the dividend policy and that of ensuring resources for investment

programs.

VII. LIQUIDITY

The optimum liquidity level needs to be maintained to ensure:

capital expenses necessary for current investment activities;

necessary funds to pay the dividends and/or to recover the shares (as appropriate);

Exploitation and tax expenses.

VIII. CONSTRAINTS

SIF Moldova will make investments in the assets classes mentioned in the legislative body

applicable and operations allowed by the legal regulations and the provisions of law.

IX. OTHER RELEVANT INFORMATION

The investment policy is rigorously monitored by the Board of Directors and authorities

specialized in audit, in accordance with the legal regulations. Based on conclusions and

opinions formed, the Board of Directors will revise and complete the declaration for

investment policy anytime important changes arise in the capital market.

The results of investment operations are communicated periodically/precise (as

appropriate) to shareholders, in accordance with the legal reporting requirements.

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Company’s operating based on the principle of activity continuity, the harmonization of

short term objectives with the long term objectives, in the context of internal and external

financial market determined the grounding of the Budget of Income and expenses - 2014

to start from the analysis of the budgetary execution until 31.12.2013, by approaching

main working assumptions, as it follows:

To ensure an increase of the net profit by 10% against the 2013 profit;

To eliminate the events that are not certain to repeat in 2014;

Taxes anticipated are calculated in accordance with the fiscal regulations at the date

of budget draft;

No influences were estimated on which there are no certain anticipation

information;

The agreement principle with the personnel policy – to determine the motivation

and alignment to the strategic objectives aimed at.

Total income proposed to be achieved in 2014 have as main grounding assumptions:

Income from financial assets

Estimating a distribution rate of net profit as dividends by the companies

where SIF Moldova owns holdings.

Income from interests – the forecasted evolution of cash flow for 2013 was

considered and the forecasted interest rates. Estimations can be substantially

different, depending on the evolution of the monetary market, as well as on the

necessary for investment, correlated with the evolution of capital market.

Income ceased financial investments – represent the main source for

realizing financial income and implicitly profit.

Income from current activities – mainly consists of:

Estimated income from renting available real estate;

income from reversing provision made for participating to benefits plan,

distributed;

income from prescribed dividends.

Income from provisions – cannot be estimated accurately as the liabilities

referred at (litigations with AAAS) are in litigation, not being able to forecast with

certainty the moment of recovery, in case of in favour solution in trial.

Total expenses, to be achieved in 2014 - have as main grounding assumptions:

expenses from ceased financial investments - represent the equivalent of

the costs of sold titles, calculated through the method of the weighted average cost;

other financial expenses - represent the equivalent of commissions from

transactions, currency exchange variations, expenses with banking services;

expenses with provisions - cannot be estimated in advance, as the evaluation

of liabilities and financial investments on short term, is recorded during a fiscal

year;

expenses from current activity - mainly consist of:

expenses with the personnel - Expenses with the basic wages for 2014,

considered the basic pays registered in the last function chart on 31.12.2013

(including vacancies);

D. INCOME AND EXPENSES BUDGET FOR 2014

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expenses with management contracts - were calculated in accordance with

the stipulations of contracts valid when provisioning .

expenses with the personnel and managers on participating to the profit for

2013- does not influence the net profit proportion for 2014, as they are

considered as income, in the moment of payment;

expenses on external work - mainly consist of expenses commissions and

fees to support the patrimony activity meaning: the commission paid to

NSC , Depositary Society, Shareholders Register, BSE, auditing financial

situations and auditing of the information system. These expenses

elements have as calculation basis the proportion of net asset au and are

determined by the estimation of the evolution with a growing trend of teh

capital market;

provisions - consist of creating the funds for participation to benefit plans

for 2014, for the employees in accordance with the labour contract

specifications as for the managers in accordance with the approval of the

General Meeting of Shareholders.

Realized 2013 Provided 2014 %

1 2 3=2/1

A. Total revenue 272,018,721 241,118,675 89

B. Financial revenue 238,557,697 223,800,000 94

· Revenue from financial investments (dividends) 25,917,789 25,000,000 96

· Revenue from receivables (banking interest + bonds) 3,319,267 1,500,000 45

· Revenue from ceded financial investments 203,007,957 195,500,000 96

· Revenue from exchange rate differences 3,329,549 1,500,000 45

· Revenue from provisions 1,294,907 0 0

· Other financial revenue 1,688,228 300,000 18

C. Revenue from operations 33,461,024 17,318,675 52

· Revenue from rents and associated 1,652,966 950,000 57

· Revenue from provisions 25,268,406 7,368,675 29

· Other revenue from operations 6,539,652 9,000,000 138

D. Total expenses 170,671,490 105,222,968 62

E. Financial expenses 136,848,090 63,450,000 46

· Expenses related to ceded financial investments 131,355,516 60,000,000 46

· Expenses related to commissions for transactions 405,508 700,000 173

· Expenses related to exchange rate diff. 3,494,371 2,400,000 69

· Expenses with banking services 48,141 50,000 104

- Expenses with provisions 1,215,008 0 0

· Other financial expenses 329,546 300,000 91

F. Expenses with operations 33,823,400 41,772,968 124

G. Gross profit 101,347,231 135,895,707 134

H. Taxable profit 65,724,427 113,078,636 172

I. Profit tax 10,466,908 18,092,582 173

J. Net profit 90,880,323 117,803,125 130

DECISION DRAFT

Resolution 8 Approves the Investment Policy Statement 2014-2018 and the Activity

Program for 2014.

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Resolution 9 Approves the income and expenses budget for 2014.

• total income 241,118,675 lei

• total expenses 105,222,968 lei

• gross profit 135,895,707 lei

• net profit 117,803,125 lei

Costel Ceocea, PhD

President and CEO

Documents

OGMS To approve the Declaration for investment policy AGA ... SITE ENG/7. SIF2 OGMS Apr 14,15 2014 - Activity...OGMS 2014 – Activity program. Investment policy. BVC. 6 For the first