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Annual Report - Management of Capital Assets of RS and SSH in 2017 submitted to Parliament

Ljubljana, 19 October 2018 - SSH, the Company – Slovenian Sovereign Holding Pursuant to Article 67 of ZSDH-1, which has imposed the task of monitoring business performance of SOEs, the Annual Report - Management of Capital Assets of RS and SSH in 2017 has been prepared by Slovenian Sovereign Holding (SSH) and submitted to the Parliament. The data show that the total value of capital assets owned by RS and SSH and the total return on equity (ROE) as well as the amount of dividend pay-outs have increased.

The attainment of better business results is first initiated by way of setting clear and ambitious goals of strategic and/or economic and financial nature. These are prepared annually by SSH for the majority of companies with capital assets held by RS and SSH which is then reflected in better systemic organisation of corporate governance as well as in results itself which, for the first time, have attained 6.5% net return on equity (ROE) of assets in RS and SSH portfolios. This result has been attained despite the fact that the RS's portfolio includes two thirds of strategic assets whose priority is the attainment of strategic goals, that is, the realisation of important social interest which are often overshadowed by the goal of attaining high return on equity.

Similarly, the total value of capital assets directly owned by RS and SSH has increased, amounting to EUR 10.9 billion as of 31 December 2017 as compared to EUR 10.4 billion at the end of 2016).

SSH supports the development and efficiency of operations of its portfolio companies, and, by means of its decisions made at General Meetings of Shareholders of companies, pursues a responsible approach to Dividend Policy in terms of advocating a suitable balance between dividend yield and development needs of companies. The total of EUR 266.8 million of "regular" dividends arising from the ownership of SSH and RS capital assets were collected for FY 2017. If "additional" dividends by Telekom Slovenija and Nova Ljubljanska banka (NLB), considered as one-off events, are taken into account, the total amount of all dividends collected amounts to a record-hitting sum of EUR 487.3 million (EUR 259,7 million for FY 2016). As there were several one-off events recorded in this year, so high dividend pay-outs are not to be expected in the future.

Closed sale processes and sale processes in progress

In 2017, two important transactions were closed, involving companies with RS and SSH capital assets, specifically the sales of shares of Paloma d. d., and of Cimos d. d. SSH took part in activities connected with the process of transforming the legal organizational status of Geoplin, d. o. o., as a result of which, on the basis of the Equity Swap Agreement, Petrol, d. d., became a majority owner of Geoplin d. o. o. and RS a majority owner of Plinhold d.o.o. (which holds a 100%‑ownership stake in Plinovodi d. o. o.), while RS kept a 25.01% stake in Geoplin d. o. o.

At the time of submitting this Annual Report to the Parliament, the processes for the sale of NLB and Abanka are in progress.

The main focus in the future will continue to be placed on the quality of management of RS and SSH assets, and on attaining goals set.

SSH is highly active in implementing its most important mission, i.e., the professional, active and independent management of capital assets owned by the Republic of Slovenia and SSH. The goal in respect of asset management includes efficient implementation of processes of sale in accordance with the adopted Annual Asset Management Plan, in addition to the realisation of financial, strategic and other goals associated with the capital asset management which have been set for each individual asset. In the future, expectations and target return on equity ratios will have to be adapted to a modified structure of asset portfolio under management.

Key factors for future business performance are the formulation of clear directions by the state in regard to individual sectors of economy which will also be reflected in a stable, predictable and development-oriented Dividend Policy. Additionally, continuous improvement in corporate governance practice at all levels by increasing the compliance of companies' operations with the provisions of SSH Corporate Governance Code and SSH Recommendations and Expectations is important. After few years it has been shown that providing for a centralised management of capital assets and professional and financial independence of the asset manager brings results which why it is reasonable to keep centralised system in the future, and continue to improve it. Constant focus will be need on increasing of the best qualified and motivated candidates for taking up the positions of Supervisory Board members, having the knowledge also in the fields of digitalisation, business models transformation and organisation.

From the onset of SSH's formation, many goals have been reached and a lot of work has been carried out, as is also acknowledged by some international organisations. However, we still need to face several challenges, especially in the fields of tourism, in energy sector and in logistics, whereby constructive engagement by all stakeholders and decision-makers will be needed to successfully attain goals set.

Appendix: Annual Report - Management of Capital Assets of RS and SSH in 2017 (English version will be available in November 2018)