Annual Report – Management of Capital Assets of RS and SSH for 2019 submitted to Parliament
Ljubljana, 23 October 2020 - Slovenian Sovereign Holding (SSH) has prepared the Annual Report - Management of Capital Assets of RS and SSH for 2019 pursuant to Article 67 of ZSDH-1 which has imposed on SSH the task of monitoring business performance of SOEs. Successful performance of the portfolio companies, favourable economic environment and active asset management have contributed to the RS and SSH’s portfolio generating good performance results for 2019 as a result of which the target values set in Annual Asset Management Plan (AAMP) have been exceeded. The last year’s report reveals that the return on equity (ROE) achieved by the SSH’s portfolio is the highest ever recorded.
Performance results which companies from the portfolio managed by SSH generated in 2019 show that return on equity (ROE) of companies owned by the Republic of Slovenia (RS) and SSH amounted to a high 6.9% and exceeded the target value of 6.2% set in the Annual Asset Management Plan. The above mentioned goal which was set at the same value as for 2018, has been exceeded in spite of significant changes to the structure of the portfolio under SSH’s management. As a matter of fact, following the sale of banks, the Financial Sector Pillar of the SSH’s portfolio of assets has decreased significantly whereas the proportion of strategic assets has increased; as a rule, strategic assets achieve lower ROE values as their main goal is realising national strategic objectives (as at 30 June 2020, the portfolio of assets under SSH’s management accounted for a solid 81% of strategic assets). The dividend income for FY 2019 will be known at the end of 2020 when it becomes clear whether insurance companies from the SSH’s portfolio will pay out dividends for 2019 and what their amount will be.
Enterprises included in the asset portfolio managed by SSH are a particularly important employer in Slovenia as more than 71 thousand employees were employed with these companies (corporations and financial institutions) in 2019. On average, the added value per employee working for companies included in the SSH’s portfolio of assets amounted to EUR 61K which is by 30% higher than the average amount achieved by all Slovenian enterprises in 2019.
The results of many enterprises from the SSH’s portfolio which have been generated in the second half of 2020 already show the economicimpact of the COVID-19 crisis which means that dividends expected for 2021 will be lower and that portfolio’s ROE for 2020 will be lower too. The industries which have been hit the most by the crisis include manufacturing, transport and logistics and tourism, some other industries, on the other hand, have been hit to a lesser extent.
Regardless, it is during these hard time that these companies have shown their efficiency as companies managing critical infrastructure and companies rendering some important public services have ensured that the operation of infrastructure has been smooth and constant and that services rendered have been provided at the greatest possible extent. On account of measures for mitigating the effects of the coronavirus crisis and due to some statutory measures (for example, changes to the legislative act regulating network charges for electricity distribution system), electricity distribution companies have recorded increased outflows in this period of time, while some other companies have suffered from substantial decrease in sales, so the performance results of companies classified as strategic assets will be significantly lower in 2020 as compared to the same period in 2019.
The recent most important processes for the sale of capital assets were completed successfully
The last high-scale process for the sale of RS’s capital assets was successfully completed in February 2020. After SSH, acting on behalf of and for the account of RS, signed the Agreement for the Sale and Purchase of Shares in Abanka (100% RS’s stake in Abanka) in June 2019, all conditions precedent arising from this Agreement were satisfied in February 2020. The Republic of Slovenia received the proceeds from this sale in the amount of EUR 444.2 million and transferred its Abanka shares (100% ownership interest) to the buyer by virtue of which the sale process, in which several bidders compete, was successfully closed. In June 2019, Slovenian Sovereign Holding also successfully closed the sale of a 10%-equity stake minus one share of NLB. In this sale process, which was organised as an accelerated bookbuilding, the Republic of Slovenia received EUR 109.5 million.
More than 10 processes for the sale of more important capital assets have been completed since 2013. Together with some smaller capital assets, the total contractual value of the purchase price for RS’s and SSH’s capital assets amounted to EUR 1,657.5 million. No significant sale processes have been envisaged for 2020.
Strengthening sustainable business with recommendations for SOEs
Good quality corporate governance of SOEs, which represent an important part of the Slovenian economy, contributes immensely to a more sustainable and competitive economy as it assists in having companies adopt strategic measures which are necessary for developing new technologies, strengthening their business models and improving their efficiency. This consequently improves their risk management practices, increases their competitiveness, and gives them the opportunity to generate new jobs and promote innovation. Slovenian Sovereign Holding endorsed this attitude in July 2020 by adopting additional recommendations for sustainable business with the aim to encourage portfolio companies in undertaking economic, social and environmental transformation of their business strategies and models.
Coronavirus crisis affects some strategic companies facing substantial investments aimed at achieving sustainable development goals
The energy transition demands huge investments to be placed in the next decade both in the renewable energy resources and, considering the increased electricity consumption in the future, in more advanced and strong electricity grid in order to enable a reliable and good quality distribution of electricity. Although the SSH’s Dividend Policy for energy companies has been aligned with the Slovenia’s development needs, this will not be enough. High investments aimed at green transformation will also be needed in transport companies since this sector generates a large share of greenhouse gas emissions, and by investing in this industry, Slovenia is getting closer to the standards required by modern infrastructure.
Because of the above stated reasons and considering their fundamental objectives, dividend income generated by strategic companies from the two sectors mentioned above will not be able to solve Slovenia’s demographic challenges. The best way these companies can contribute to the general well-being of Slovenia is by effectively and efficiently transform their operations in the direction of sustainable business,by increasing their productivity and added value with strengthened innovation and by efficiently implementing their vision.
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