News 16. 9. 2023

Annual Report – Management of Assets of RS and SSH for 2022 submitted to Parliament

Ljubljana, 16 September 2023 – Slovenian Sovereign Holding (SSH) has prepared the Annual Report – Management of Assets of RS and SSH for 2022, pursuant to Article 67 of ZSDH-1, which requires SSH to monitor the performance of state-owned companies. 

The business environment in 2022 faced many intricate risks. The global economy, notably in Europe, faced considerable tightening last year. The war in Ukraine caused disruptions in the supply of energy, food, and raw materials, which, along with demand-side pressures, led to high inflation and rising financing costs. This has resulted in increased uncertainty and deteriorating economic prospects, also impacting the operations of Slovenian Sovereign Holding (SSH), particularly energy companies under its management. To address this issue, SSH strengthened its asset management activities pursued in portfolio companies, especially in the energy sector, where challenging market conditions, particularly in the electricity trading, caused liquidity shortages for some companies. By injecting additional capital from the Republic of Slovenia into HSE, d.o.o., SSH provided stability for the HSE Group during a challenging financial caused by various negative factors, including historically low river levels and the temporary shutdown  of operations at the TEŠ Power Plant due to coal excavation issues at Premogovnik Velenje. These challenges were compounded by the overall volatility in the energy markets. As of the end of September 2023, HSE had successfully repaid EUR 242 million of additional capital it received. It anticipates returning an extra sum, ranging from EUR 60 to 100 million by the end of the year, if its positive business performance continues.

Asset Management

The return on equity (ROE) for the entire portfolio of capital assets under management decreased considerably in 2022 as compared to 2021, primarily due to poor results from energy companies; ROE amounted to 2.8% which is 2.2 percentage points lower than planned in the AAMP for 2022 (5.0%). Other asset management pillars showed improved performance compared to the previous year, with ROE for companies excluding the Energy pillar, specifically, those from the pillars of “Transport”, “Finance”, “Economy and Tourism” ̶ reaching 7.4%. This exceeded the planned rate for these asset groups by 2.4 percentage points (5.0%).

In 2022, dividend payments by the companies in the SSH's management portfolio totalled EUR 190.7 million, of which RS (and ZPIZ) received EUR 130.7 million and SSH received EUR 60.0 million, a total increase of 4.3% over the planned amount (EUR 182.8 million).

In 2023, the sum of dividends paid (for FY 2022) is expected to amount to EUR 175.5 million, which is above the level planned in the Annual Asset Management Plan for 2023 which was estimated to amount to EUR 162.6 million. The companies from the Finance pillar will contribute the highest share of dividends, specifically, 40.9%, and are followed by the companies from the Tourism and Economy pillar with 31.9%; the Transport pillar will contribute 18.5% of total dividend income, and the share of dividend income contributed by the Energy pillar will be 8.8%. The top six dividend payers are set to distribute over 86% of the total dividend pay-outs.

At the end of 2022, the total book value of equity stakes in the SSH's managed portfolio of assets amounted to EUR 11.2 billion, which is an increase of 8.7% compared to the end of 2021 (EUR 10.3 billion). The increase in value is partly due to the growth of the capital of companies as a result of their business results, partly due to capital increases carried out in 2022 (HSE and SŽ), and partly due to the acquisition of new investments (increase in the stake in Sava, assuming asset-management control of DRI and SiDG), acquisition of companies with RS’s capital assets as a result of the merger with BAMC ( such as Istrabenz Turizem, Thermana, Farme Ihan, Mladinska knjiga, MLM, Salomon).

Following the merger with BAMC, SSH gained two new activities: claims management and tangible assets management. The aim in managing these assets is to increase their value through appropriate management activities and to achieve the proceeds planned. At the end of 2022, the fair value of financial claims acquired through the merger was EUR 225.2 million, while the book value of tangible assets, mostly consisting of real estate, was EUR 103.0 million, with an estimated market value of EUR 161.4 million.

Enhanced development of corporate governance

Throughout the year, SSH consistently pursued enhancements across its operations and within portfolio companies by supplementing the Code of Governance, SSH Recommendations and Expectations, and formulating the Annual Asset Management Plan. Numerous recommendations and expectations encompass the companies' sustainable business practices, which SSH has further reinforced with additional measures in comprehensive changes made to its core documents in 2023. Changes also include more demanding criteria for selecting members of the supervisory boards of the most important portfolio companies. By the end of 2023, SSH will entirely revise the Corporate Governance Code for SOEs.

The established systemic framework for corporate governance at SSH is complemented with educational events for executive officers and for members of companies' supervisory boards. Experts in various areas also organize professional meetings on topics relating to compliance, integrity, and internal auditing. SSH treats compliance and integrity as vital and is thus striving to establish a dedicated function in an appropriate form within all SOEs, in accordance with the provisions of the Corporate Governance Code for SOEs and SSH Recommendations and Expectations. A visible and responsible function indeed leads to a shift toward a more strategic and inclusive approach by companies towards compliance and integrity. Additionally, the internal audit service must also be a crucial governance pillar in all companies, as it plays several vital roles which contribute to the efficiency, transparency, and compliance of business processes, ultimately having a direct impact on business performance.

Challenging economic conditions, reduced levels of economic activity, consequences of natural disasters, and other factors affect and will continue to affect the operations of some portfolio companies in 2023 and beyond. As a result, both 2023 and 2024 will be demanding years from a governance perspective.

SDH remains firmly committed to continuously improving corporate governance and business performance within portfolio companies.  In this regard, SSH will strive to ensure that portfolio companies are well prepared for the future, which includes their fitness in the areas of green transition, resilience to climate change, and major business trends.

 

Annual Report

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