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BVB Directors' Consolidated Report for 2018 BVB Directors’ Consolidated Report for 2018 WorldReginfo - 10cb5d95-c4af-4b8d-a456-f55c0f75327a Table of contents Message from the BVB Chairman 3 Executive summary 5 Financial highlights 7 BVB Group information 8 Main events 10 Projects and accomplishments 12 Analysis of financial results for 2018 17 Other information 21 Corporate Governance 24 Annex 1 – Statement with regard to BVB’s compliance with the Corporate Governance Code 39 Annex 2 – Annual Environmental & Social Report 45 Statement 52 Contact us 53 Find out more about the Bucharest Stock Exchange 53 Note The report herein presents the annual consolidated financial results of the Bucharest Stock Exchange, prepared in accordance with the International Financial Reporting Standards as adopted by the European Union, and in compliance with the rules and regulations of the Financial Supervisory Authority (FSA). The financial results as at 31 December 2018 are audited. The financial ratios presented in the executive management commentary which are expressed in million RON are rounded to the nearest integer and may result in small reconciliation differences. The information presented in the report herein are compliant with the FSA Rule no. 39/2015 for the approval of accounting regulations compliant with the International Financial Reporting Standards, applicable to entities regulated, authorized and/or supervised by the FSA, within the Financial Instruments and Investments Sector, as well as with the FSA Regulation no. 5/2018 on issuers of financial instruments and market operations (the information presented herein is equivalent to that required by Annex no. 15). In order to comply with the requirements of FSA Rule no. 39/2015, the BVB Board of Governors, the parent company of BVB Group, has the obligation to prepare the consolidated directors’ report that presents the development and performance as well as the financial position of the entities included in the consolidation process. BVB shall not prepare a directors report for the parent company and shall include all relevant information in the consolidated directors’ report, in accordance with art. 30, par. (4) of the FSA Rule no. 39/2015. Bucharest Stock Exchange BVB Directors’ Consolidated Report for 2018 2 WorldReginfo - 10cb5d95-c4af-4b8d-a456-f55c0f75327a Message from the BVB Chairman The capital market, in general, and the Bucharest Stock Exchange (BVB), in particular, play a pivotal role when it comes to generating the so much needed wealth every economy and country wants to have. We, at BVB, are constantly pursuing this effort to develop one of the greatest financing platform for the Romanian economy. We started 2018 with enthusiasm and we had all the right reasons to feel so. A new company came to the market mid-February. It was the first company from the Republic of Moldova that went public on our stock exchange. The IPO of Purcari Wineries, a leading CEE wine producer, was well received, with retail investors oversubscribing more than four times over, despite heavy turbulence on global markets. While the number of listings of new shares slowed down in 2018 as compared to the prior year, the segment for corporate bonds kept a very good dynamic. Significant corporate bond issues took place last year, for example: Globalworth EUR 550 million, Banca Transilvania EUR 285 million, International Investment Bank RON 300 million and EUR 80 million. The AeRO market saw its activity revamped by its issuers in the corporate bonds sector, as the listed companies continued to extensively use the capital market as the financing arm for their businesses and some even consider moving in the Main Market as they got more accustomed to capital market regulations and grasp the benefits of being a public company. The local Clearing Counterparty (CCP) proposed by BVB is a key project to further develop the market infrastructure and improve liquidity. This project also provides a solution to correctly, quickly and safely cope with the counterparty risk, which investors need so much. Of course, the CCP project alone cannot work miracles and it would be unrealistic to assume liquidity improves overnight. That is why we continue the financial education projects, we keep on evangelizing capital markets to novices, students, professionals, employees and entrepreneurs via our Fluent in Finance seminars and workshops around the country jointly with the Ministry for Business Environment, the Forums for Individual Investors and make capital markets attractive and easy to comprehend by our 7/24 Capital online shows using an out-of-the-box approach. In two years, over 1.5 million minutes of financial education were watched online on the BVB channels. Our flagship project Made in Romania continues and promotes local businesses. During the two editions of Made in Romania, BVB interacted with over 300 Romanian entrepreneurial companies, from a multitude of sectors of the economy. Made in Romania is a continuous program, an ecosystem, where entrepreneurs, investors, consultants and all other actors in the business environment have the opportunity to meet and learn from each other so that their businesses and, implicitly, the Romanian economy develop in a sustainable way. All the good things do not happen by chance or overnight. We are reaping the fruits of the seeds we are constantly planting each year. We embarked on hundreds of meetings locally and internationally and act as the promotors of the listed companies in front of the investment community. The international roadshows and events organized or attended by us helped the issuers listed on BVB display in a better light their attractiveness, appeal and high potential. The Romanian capital market has thus become one of the best ambassadors for Romania abroad and we will continue doing this no matter what. As a result of continuous efforts and improvements, we have received international recognition. The global index provider MSCI upgraded Romania’s accessibility criteria on 3 notes: market regulation, information flow and trading, as it reads its Global Market Accessibility Review from June last year. A few months later, FTSE Russell released its Annual Country Classification Review, according to which Romania was maintained on the Watch List of countries for possible reclassification from Frontier to Secondary Emerging market. As far as the evolution of the market was concerned, the Romanian capital market led the growth pace in the European Union by the end of the first 11 months by double-digit returns for investors. The situation dramatically Bucharest Stock Exchange BVB Directors’ Consolidated Report for 2018 3 WorldReginfo - 10cb5d95-c4af-4b8d-a456-f55c0f75327a changed mid-December, following the public information regarding additional taxation in banking, energy and telecom sectors, as well as changes in the Pillar II pension system. The Bucharest Stock Exchange ended last year in the red following a nearly 5 percent drop. Only the total return indices BET-TR, which also include the dividends, managed to stay on the plus side at end of the year, with around +4%, that might be consider a remarkable performance having considered the local market conditions in December. For a better understanding of capital markets, BVB has publicly expressed openness and availability to dialogue and communication and has repeatedly warned that investors need legislative predictability in order to fairly evaluate the market opportunities the stock market has to offer. If we continue to do what we did in the last years, better things will be in store for the Romanian capital market and our efforts will turn into fruition. Collaboration, cohesion and coherence are the three C`s our market needs the most. As 2018 was the year of the centenary for Romania, I express my profound consideration that this year we will lay the foundation to build a consolidated and stronger capital market to perform outstandingly for the next 100 years, bringing wealth and supporting entrepreneurs to develop their businesses using capital market instruments for the benefit of Romania. Lucian-Claudiu Anghel BVB Chairman Bucharest Stock Exchange BVB Directors’ Consolidated Report for 2018 4 WorldReginfo - 10cb5d95-c4af-4b8d-a456-f55c0f75327a Executive summary RON 12.23 bn, Until mid-December 2018, the Bucharest Stock Exchange (BVB) was one of the best +2% performing markets in the region, but closed 2018 with a 4.77% drop in the BET index, the main index of the local capital market, which includes the most traded 15 companies. The Total trading strong downward trend was triggered on December 19, 2018, when information on additional value, growth charges on the banking, energy and telecommunications sectors and on the modification of compared with Pillar II appeared, followed by the BET benchmark decrease by 11.21 %, the entire growth recorded until then in 2018 by the local capital market being vanished in one single day. 2017 Between the values existing before that date, namely December 18, and the last trading (all markets, offers session in 2018, namely December 31, the main stock market index recorded a decrease by included) 12%. At the end of last year, only the two total return indices, which include also the dividends, managed to maintain in positive territory. The BET-TR index, which also includes dividends RON 45.27 mn, distributed by the BET member companies, recorded the largest advance by 4.3%. +5% The equity daily average trading value rose last year by 5% in the RON equivalent and Average daily exceeded RON 45 mn (around EUR 10 mn) during the year 2018, when the total traded value trading value, with all types of financial instruments increased by 2%, exceeding RON 14 bn (about EUR 3 growth compared bn). with 2017 The stock market capitalization of Romanian companies was EUR 18 bn at the end of last year, while the capitalization of all listed companies on BVB regulated market was EUR 30 bn (regulated shares in the last trading session of 2018.
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