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Annual Report - Management of Capital Assets of RS and SSH in 2018 Submitted to Parliament

Ljubljana, 25 October 2019 – Pursuant to Article 67 of ZSDH-1, which has imposed the task of monitoring business performance of SOEs on Slovenian Sovereign Holding, the Annual Report - Management of Capital Assets of RS and SSH in 2018 has been prepared. The Report shows that with a favourable economic environment, good asset management results continued to be recorded in 2018.

At the level of the portfolio, recording a 6.5% ROE, 2017 was the most successful year since the introduction of the centralised system of asset management. In 2018, n spite of a modified portfolio's structure (the sale of 65% equity stake in NLB), 6.2% ROE was achieved; this is higher than the goal set in the Annual Asset Management Plan (AAMP) which was set at 6.1%.

SSH supports long-term development of portfolio companies and encourages successfulness and efficiency of their operations. By means of its decisions made at the General Meetings of Shareholders of SOEs, SSH pursues a responsible approach to Dividend Policy in terms of advocating a suitable balance between dividend yield and development needs of companies. Companies managed by SSH made a decision to pay out dividends for FY 2018 (paid out in 2019) in the amount of EUR 250.4 million which will be received by RS[1] and SSH. This amount exceeds the sum planned in AAMP which stands at EUR 242.6 million. Dividend pay-outs for FY 2018 are comparable to those received in 2017 as the comparison should exclude some high pay-outs received in 2017 as a consequence of one-off and extraordinary events (such as, for example, the dividend pay-out by NLB in the amount of EUR 270.6 million and additional dividends paid out by Telekom Slovenije, d. d.).

The target value of the return on equity ratio and the dividend revenue, the two main economic and financial criteria for measuring SSH's performance, will reflect changes in the structure of asset portfolio under management in the future.

Successfully closed sales process of banks (NLB, d. d., and Abanka, d. d.) will have a negative impact on the future target value of ROE and on dividend revenue received by the RS's budget. The fact is that both banks, NLB and Abanka, comprised almost one fifth of the value of the RS's portfolio and had a significant impact on the calculation of ratios for the total portfolio. In recent years, both banks paid out above average and high dividends and achieved high ROE indicators. The structure of the portfolio will significantly change with the two above mentioned sales and will turn in favour of assets defined as strategic which already hold the greatest portion of the SSH's portfolio (75.9%). The priority objective of strategic assets is the attainment of strategic goals of the Republic of Slovenia; this is why these companies will not be able to compensate for the decline in ROE and for lower dividend revenue to be received as a consequence of closed sales. It is worth pointing out that in case of some of the largest strategic assets, SSH has almost no influence on their revenue (Dars, electricity distribution companies, partially Pošta Slovenije, etc.). Their revenue is determined by regulations adopted by RS and the impact of SSH on their operating results is limited mainly to the supervision over their costs of operation.

Sales processes in 2018 marked by the sale of NLB shares and preparatory activities for the sale of Abanka shares

In 2018, the majority of activities carried out by SSH in connection with the sale of capital assets included the sale of a 65-percentage stake of RS in Nova Ljubljanska banka d.d. (NLB) which was closed through an IPO in November 2018. In June 2019, SSH successfully closed the sale of a 10-percent equity stake minus 1 share of NLB, by way of an accelerated bookbuild. Following the completion of the privatisation process, the Republic of Slovenia remains the largest individual shareholder of NLB, holding a 25-percentage ownership stake and one share.

In 2018, SSH intensively pursued activities for the sale of a 100-percentage ownership stake of RS in Abanka, d. d. (Abanka). In June 2019, the Sale and Purchase Agreement was concluded with Nova KBM, d. d.

SSH's endeavours for sustainable operations

One of more important priorities followed by SSH in the future will focus on the increased endeavours for companies under SSH management to consider the sustainable development when preparing their business strategies and business plans and models. SSH intends to further improve cases of good practice in corporate governance, especially in the Corporate Governance Code and in Recommendations;  these are expected to be observed and gradually realised by companies under SSH’s management.

Appendix: Annual Report - Management of Capital Assets of RS and SSH in 2018