Báo Cáo Tài Chính Masan - 2011
Báo Cáo Tài Chính Masan - 2011
Báo Cáo Tài Chính Masan - 2011
Commitment to value
2011 Annual report
" We are commit ted to unlockin Vietnam 's value for our shareholders."
Contents
CHAIRMANS LETTER CEO MESSAGE MASAN GROUP MASAN CONSUMER TECHCOMBANK MASAN RESOURCES MANAGEMENT REPORT FINANCIAL REPORT
Contents
4 8 12 24 36 50 69 81 163
Chairmans letter
chairmans letter
DEAR SHAREHOLDERS,
J.P. Morgan and Standard Chartered arranged a US$108 million loan facility for Masan Consumer; Masan Consumer acquired a majority stake in Vinacaf Bien Hoa, Vietnams best selling instant coffee brand, in our first major step into the beverage sector; Masan Resources began construction, spending approximately US$70 million during the year and commencing earthworks and concrete works; Standard Chartered provided a US$80 million loan facility to Masan Resources, international validation of the advancement of our Nui Phao project; Techcombank hired Simon Morris as CEO, a seasoned banking executive with over 30 years of industry experience and a track record of building market leaders for Standard Chartered in various emerging markets; T echcombank was named as Vietnams Best Bank in 2011 by FinanceAsia and Best Domestic Bank in Vietnam 2011 by The Asset; and In February and March 2012, we raised approximately US$185 million, a significant portion of which came from our existing investors, the Richard Chandler Corporation and Mount Kellett. Financially, we experienced growth in all of our businesses. Driven by increased market share in our key categories, our net sales, including Vinacafe, grew from VND6,888 billion in 2010 to VND8,310 billion in 2011, representing a 20.6% increase. Normalized to remove the impact of goodwill and adjusted to reflect our yearend economic interest percentage of our businesses over the comparable periods, our pro forma net profit after tax increased from VND2,025 in 2010 to VND3,280 billion in 2011, representing a 62.0% increase. Net profits after tax as of December 31, 2011 for Masan Consumer and Techcombank were VND2,254 billion and VND3,154 billion, respectively, representing increases of 79.9% and 52.2% from 2010. In a challenging capital raising environment,
Over the past several years, in a challenging economic climate, Masan Group continued to double up on talent and capital and invest in our businesses. In 2011, our efforts began to bear fruit today we have a best-in-class business building platform with three underlying operating market leaders in their respective sectors, namely Masan Consumer, Techcombank and Masan Resources, and a cash war chest of over US$650 million for our existing businesses and M&A. Our performance has been validated by the returns we have generated for our shareholders. Since listing on the Ho Chi Minh Exchange in 2009, we have managed to outperform the benchmark index every year. In 2011, the price of our shares increased by 16%, versus a 28% decline by the VN-Index. Today, we are the largest private sector1 company in Vietnam by market capitalization. As in the years preceding, 2011 was a difficult time for Vietnams economy. The country continued to experience concerns over high inflation, currency depreciation and a negative sovereign credit outlook. Vietnams private sector also experienced headwinds with higher financing costs, limited access to growth capital and lower growth. In this environment, Masan Group was able to outperform on multiple fronts. A few milestones from the beginning of 2011 until the date of this letter include: Masan Food was transformed into Masan Consumer to leverage our food platform into a broader consumer focus; KKR, a leading global private equity firm invested US$159 million in Masan Consumer, validating our transition into a broader consumer platform;
1. Market capitalization as of December 31, 2011 on a fully diluted basis; private sector defined as companies with no major state ownership or origins as a state-owned enterprise.
4 | Masan Group
Chairmans letter
we successfully raised a significant amount of new capital on a consolidated basis from reputable foreign firms, such as KKR, J.P. Morgan and Standard Chartered. More significantly, our existing partners, such as the Richard Chandler Corporation and Mount Kellett, increased their investment in Masan in our first quarter of 2012 capital raising excercise. 2011 was also a building year during which we invested in our business platforms. Operationally, we have expanded and enhanced our management teams at the group level and at our subsidiaries with new hires from prominent MNCs. Our businesses have continued expanding their reach to service our customers. Masan Consumer increased our already market-leading consumer distribution network from 141,470 points of sale in 2010 to 163,594 points of sale in 2011. Similarly, Techcombank has grown our branch network and ATM network from 282 to 307 and 1,021 to 1,205, respectively, from 2010 against 2011. We have also commenced earthworks and construction of our processing plant for the Nui Phao project, and the number of workers on site has increased from roughly 200 to approximately 1,500. While the macro-economic situation in Vietnam and the rest of the world remains uncertain, we remain committed to Vietnams underlying structural consumption and resources story. Vietnam is an underpenetrated market with significant untapped potential, giving us much reason for optimism. In addition, Masan Group is well positioned to capture an outsized share of Vietnams growth as a market leader of scale with an unrivaled platform for building businesses. With our can do attitude and a focus on doing a few things and doing them right, Masan Group expects our existing businesses to continue to achieve 30-50% growth in net profit in 2012. With the Nui Phao project expected to come into production in 2013, we are moving towards our goal of achieving US$1 billion in consolidated EBITDA within three to four years.
I would like to express my gratitude to our valued customers, employees, partners and other stakeholders for their tremendous support over the past year. I am very proud that Masan is a dynamic environment where people from different backgrounds can come together, innovate and succeed. We have established a scalable and sustainable platform for business building in emerging markets that we believe will generate strong and sustainable shareholder returns. Lastly, the Board and I would like to welcome Masan Groups newest partners. We look forward to working together with all our stakeholders to achieve a successful 2012. Yours sincerely,
Balance sheet as of December 31, 2011 Cash and cash equivalents (VND billion) 3 Total debt (VND billion) 4 Book value of equity (VND billion)
2. Pro forma are our unaudited financial numbers based on our audited results with adjustments made to reflect normalized earnings. These adjustments include (a) adding back the amortization of goodwill from the transfer of ownership in Techcombank for the financial year 2010 and 2011, assuming Masan Group held a 30.6% interest in Techcombank from January 1, 2010, (b) assuming Masan Consumer held a 50.2% interest in Vinacaf Bien Hoa JSC since January 1, 2010 and adding back the amortization of goodwill and intangible assets from the acquisition of Vinacaf Bien Hoa JSC for the financial year 2011, (c) excluding the negative goodwill from the acquisition of the Nui Phao project for the financial year 2010. Net profit is before removing minority interest. 3. Cash and cash equivalents include cash and cash equivalents, and short-term investments. 4. Total debt equals short-term and long-term financial borrowings excluding promissory notes. The promissory notes of VND2,856 billion will be extinguished in the event the options to purchase primary shares in Masan Group are exercised with payments in the form of said promissory notes in lieu of cash. The options were given as part of the Nui Phao acquisition and are currently in the money as of December 31, 2011. Masan Group has the right to force convert the said options as of December 31, 2011.
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CEO MESSAGE
CEO MESSAGE
As I finish my fourth year with Masan and prepare for the next, I think about the values that have driven our company and allowed us to get to where we are today. Reflecting on the journey, I observe that what defines Masan is a certain set of core beliefs. Vietnam is a long-term structural story with continued macro volatility associated with emerging markets. Masan wants to build leading sustainable businesses that tap Vietnams potential while navigating through the volatility. Through this come our core beliefs. Masan believes in Vietnams consumption and resources potential, two underpenetrated and untapped sectors. Masan also believes that scale is the key to competing with both multinationals and state-owned enterprises. To achieve scale, we continue to invest in operating platforms and talent to win in a sustainable and meaningful way. Lastly, we believe in focusing on cash flow generating businesses, raising long-term capital through strategic partners and stringent capital allocation. Executing on these beliefs requires a commitment to transformation and strong discipline. Our track record shows that we have continuously and tirelessly transformed ourselves, growing from a sauce company into a leading private sector group with three market-leading platforms in financial services, consumer goods and resources with a significant amount of cash to invest in organic and inorganic growth. We have demonstrated this commitment to transformation during a very challenging time in Vietnam, when doubling up on talent and investing in operating platforms such as new products, brands, facilities and distribution were not at the forefront of peoples minds.
At the same time, we have been disciplined about what we dont do. Over the past several years, we have not participated in real estate speculation, asset trading, minority investments and investing in equities, none of which fits our focus on sustainable and cash flow generating business building. We have been selective about the deals we execute and have invested only in our existing businesses. As our size increases, the opportunities and challenges will become much bigger. However, we will stick to our commitment to building market-leading businesses in the financial services, consumer and resources sectors. To do this, we will continue to focus on transformation and discipline. This is our commitment to value.
Madhur Maini is the Chief Executive Officer of Masan Group and a member of the Board of Directors of Masan Group, Masan Consumer, Techcombank and Nui Phao. Madhur has a dual degree in Applied Science and Finance from the University of Pennsylvania, U.S.A.
8 | Masan Group
section title
Invest in our existing sectors Broaden our consumer portfolio organically and inorganically Develop the Nui Phao project to begin production in early 2013 Subject to market conditions, conduct an overseas listing
Generate over US$1 billion in EBITDA on a consolidated basis Achieve market leadership positions in all of our sectors Unlock Vietnam 's value for our shareholders Be the number one home for talent in Vietnam
10 | Masan Group
We are one of Vietnams largest private sector companies focused on building market-leading businesses that capitalize on Vietnams structural consumption and resources stories. We have a track record of actively building, acquiring and managing largescale operating platforms, including Masan Consumer, Techcombank and Masan Resources. We are committed to being Vietnams local private sector champion in terms of scale, profitability and shareholder return and being the countrys growth partner and employer of choice.
27.0% 19.1%
" We are commit ted to focus and discipline to build leadin businesses."
Madhur Maini
CEO of Masan Group
68%
20%
65%
50%
15%
0%
2009
2010
2011
2009
2010
2011
Mar-12
MC
TCB
MR
Net income Pro forma (VND bn) ROE Note: Calculation excludes goodwill and is normalized by applying the current ownership percentages of our businesses since 2009.
Cash balance (VND bn) Note: Cash and cash equivalents include short-term investments. Figure as of March 12, 2012 was not audited. Note: (*) represents our economic interest which includes equity-linked instruments and forward purchase agreements, and takes into account primary capital raisings at the operating business levels.
300%
200%
100%
0% Nov-09 MSN Source: Bloomberg Feb-10 VN index May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12
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Masan Group
consolidation. To be a consolidator, we intend to accelerate our growth with acquisitions while growing our existing businesses. We only do control transactions of businesses we believe can become market leaders.
WHO WE ARE
We have raised over US$1 billion in cash capital over the past three years."
expanding workforce is expected to drive consumer spending over the next 10 to 15 years. Moreover, based on real GDP per capita and adjusted for purchasing power parity, income levels have increased sixfold in the past 20 years, from US$560 in 1988 to approximately US$3,354 today, leading to a doubling in the size of the middle class over the past five years. This rising affluence accounts for the expansion in financial services and in basic sectors such as food and beverage, which will continue to account for more than 50% of total consumption.
Who We Are
Masan Group is one of Vietnams largest private sector companies and has a track record of actively building, acquiring and managing market-leading businesses in several of the fastest growing areas of Vietnams economy. Today, our businesses include Masan Consumer, Techcombank and Masan Resources leading, largescale operating platforms in the consumer products, financial services and resources sectors, respectively. We are committed to being Vietnams local private sector champion in terms of scale, profitability and shareholder return and to becoming the countrys growth partner and employer of choice. In order to achieve these objectives, we operate in sectors where a local private sector company can be a market leader and where we can develop scale through focus and consolidation.
Building Scale
Being a market leader of size allows us to successfully compete in an economy with a fragmented local private sector and where competition from multinational companies and state-owned enterprises is intense. As Vietnams largest private sector group in terms of market capitalization, Masan has greater access to capital and professional talent, and the scale to invest in building systems and operating platforms. We build scale through focus and
14 | Masan Group
Our businesses are led by four CEOs with over 70 years of multinational experience in emerging markets."
unexplored. Agriculture, forestry and fisheries, which constituted 22% of Vietnams 2011 GDP, will benefit from rising domestic consumption, new export markets and institutional support from government and trade groups. Finally, oil and gas are anticipated in almost 50 fields and prospects, with reserves of approximately 4.5 billion barrels of oil and 23 trillion cubic feet of gas. All three areas are also expected to grow as downstream sectors and related infrastructure are developed.
Vietnam has recently experienced macroeconomic challenges, including high inflation and currency depreciation as it focused on GDP growth. Additionally, the private sector, while growing strongly, remains fragmented as demonstrated by turnover rates and market share. Private sector companies are further challenged by constrained availability of long-term capital, lack of professional expertise and competition from larger multinationals. Masan Group manages these risks and addresses Vietnams private sector constraints by building scale and creating leading operating platforms to weather financial cycles, and by consolidating and growing market share.
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Masan Group
PROFESSIONAL MANAGEMENT TEAM The Best Person for Each Job The Masan Way
We operate according to the Masan Way, a unique partnership model where different stakeholders within Masan Group collaborate as equals and play to their strengths to execute on scalable business building. Our various stakeholders contribute the following expertise: Risk Management and Capital Allocation a private equity platform with an appreciation for focus, risk management and optimized capital allocation in order to develop scalable business platforms; Local Access and Execution capabilities that allow us to source and execute on opportunities while effectively managing local risks; and Professional Management seasoned local and expatriate professionals who are best-in-class operators, augmented with reputable strategic partners. United by a shared entrepreneurial spirit and mutual respect, these groups work together to create our execution platform. We believe this is a unique approach to succeeding in emerging and frontier markets. At the holding company level, Masan Group is comprised of young, global, proven and
flexible professionals who can execute on diverse projects that we believe create the most transformation and add the most value. These areas include (i) relationship management, (ii) transformational initiatives, such as capital raising, M&A and executive recruitment and (iii) risk management, which include business information and monitoring, compliance, controls and cash management. Nguyen Thieu Nam Deputy Chief Executive Officer, Member of the Board of Directors and Management Board Thieu Nam is responsible for local relationships and local execution. Thieu Nam was formerly with Da My JSC. He graduated from Vietnam University of Commerce, Hanoi, Vietnam. Michael H. Nguyen Executive Vice President Michael leads our execution platform and is responsible for resource allocation. Michael was formerly with J.P. Morgan. He graduated from Harvard University, Massachusetts, U.S.A. Tran Quang Chuc Executive Vice President, Chief Legal Counsel Chuc leads our legal and compliance team. Chuc was formerly with Allens Arthur Robinson and YKVN Lawyers. He graduated from University of Melbourne, Australia and Hanoi Law School, Vietnam.
Eric Chan Hong Wai Executive Vice President, Chief Financial Officer1 and Member of the Management Board Eric is responsible for management information, subsidiary monitoring, controls and finance and accounting. Eric was formerly with PricewaterhouseCoopers and Ernst & Young. He graduated from Sunway University College, Malaysia. Nguyen Bich Ha Nguyen Executive Vice President Nguyen is responsible for local execution. Nguyen was formerly with Binh Duong Department of Planning & Investment. He graduated from University of Economics, Ho Chi Minh City, Vietnam. Preetinder S. Panjrath Executive Vice President Preetinder is responsible for evaluating M&A opportunities. Preetinder was formerly with Deutsche Bank and Oracle. He graduated from INSEAD, France and Thapar Institute of Engineering and Technology, Punjab, India. Samresh Kumar Executive Vice President Samresh is responsible for prioritizing our execution initiatives and executing transactions. Samresh was formerly with SUN Group and Accenture. He graduated from Indian Institute of Management, Calcutta and Indian Institute of Technology, Delhi, India.
1. Official appointment as Chief Financial Officer pending resolution by the Board of Directors.
Masan Group
Danny Le Senior Vice President Danny is responsible for deal execution and investor relations. Danny was formerly with Morgan Stanley. He graduated from Bowdoin College, Maine, U.S.A. Scott Tan Senior Vice President Scott is responsible for branding, public relations (PR), executive recruiting and CEO initiatives. Scott was formerly a founding partner of a global boutique executive search firm based out of Singapore, Hong Kong and Tokyo. He graduated from University of Malaya, Malaysia. Hanh N. Huynh Senior Vice President Hanh is responsible for branding, PR, executive recruiting and CEO initiatives. Hanh was formerly with AllianceBernstein. She graduated from University of San Francisco, U.S.A. Paritosh Gupta Vice President Paritosh is responsible for monitoring and executing for Masan Resources, where he has been seconded as CFO. Paritosh was formerly with Lehman Brothers. He graduated from Indian Institute of Management, Bangalore and Indian Institute of Technology, Bombay, India.
Ta Thi Thuy Trang Vice President, Chief Accountant and Member of the Management Board Trang was formerly with OV Container Line and TUV SUD PSB Vietnam Co. She graduated from University of Economics, Ho Chi Minh City, Vietnam. Nguyen Thao Anh Vice President Thao Anh was formerly with KPMG Corporate Finance in Singapore. She graduated from Nanyang Business School, Singapore. Parag Agarwal Vice President Parag was formerly with Avigo Capital Partners. He graduated from Symbiosis University and University of Kolkata, India. Nischay Saraf Vice President Nischay was formerly with PricewaterhouseCoopers. He graduated from Bangalore University, India. Nikhilesh Goel Senior Associate Nikhilesh was formerly with Avigo Capital Partners, Oracle and Tata Consultancy Services. He graduated from Delhi University, India and Nagpur University, India.
Huynh Tran Vy Senior Associate Vy was formerly with Blackhorse Asset Management. He graduated from National University of Singapore and University of North Carolina, U.S.A. Salil Rajadhyaksha, CFA Senior Associate Salil was formerly with Linklaters and Trilegal. He graduated from University of Mumbai, India. Sabrina K. Nguyen Senior Associate Sabrina was formerly with White & Case. She graduated from Georgetown University McDonough School of Business and Georgetown University Law School, U.S.A. Le Thanh Tung Senior Associate Tung was formerly with Baker & McKenzie and Luat Viet. He graduated from University Panthon-Assas, Paris, France and Vietnam National University, Hanoi. Dang Ngoc Ca Senior Associate, and Member of the Supervisory Board Ca was formerly with Allens Arthur Robinson and Luat Viet. He graduated from Ho Chi Minh City University of Law, Vietnam.
Punendu Sharma Senior Associate Punendu was formerly with Proctor & Gamble. He graduated from ESCP Europe, Paris, France and Indian Institute of Technology, Delhi. Nguyen Dang Hieu Senior Associate Hieu was formerly with BNP Paribas and TIM Investment Consulting. He graduated from National University of Singapore, Singapore. Sophie Khau Senior Associate Sophie was formerly with BNP Paribas and AXA Private Equity. She graduated from HEC Paris, France. Doan Thi My Duyen Senior Associate Duyen was formerly with KPMG, Vietnam. She graduated from University of Economics, Ho Chi Minh City, Vietnam. Tran Cam Van Senior Associate Van was formerly with Citigroup and PricewaterhouseCoopers. She graduated from University of Maine, U.S.A. Doreen Hoang Associate Doreen was formerly with Jefferies & Company, Silicon Valley. She graduated from Stanford University, U.S.A.
Nguyen Thi Hong Van Associate Van was formerly with Asset Management Consulting AG. She graduated from French Vietnamese Center for Management Education (CFVG) and Banking University, Vietnam. Do Thi Hoang Yen Senior Analyst Yen was formerly with Ho Chi Minh City Housing Management and Trading Company. She graduated from Ho Chi Minh City University of Law, Vietnam. Dao Thi Mai Hoa Senior Analyst Hoa was formerly with Savills Vietnam. She graduated from National University of Singapore, Singapore. Dang Van Duc Senior Analyst Duc was formerly with Auditing and Accounting Services Company. He graduated from University of Economics, Ho Chi Minh City, Vietnam. Nguyen Trung An Senior Analyst An was formerly with Truong Thanh Furniture Corporation. He graduated from Dalat University, Vietnam and the University of Economics, Ho Chi Minh City, Vietnam.
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Masan Group
Dragon Capital
Dragon Capital Group is an investment group with exclusive focus on Vietnam. Established in 1994, Dragon Capital manages assets of over US$1.3 billion on behalf of private and public institutions from around the globe.
Our partners are reputable global firms whom we value as a key part of our business model. They provide us with strategic advice, access to opportunities and long-term capital for growth.
At all levels of our organization, we have some of the most reputable names as stakeholders, including HSBC, KKR, TPG, Mount Kellet t, J.P. Morgan and the IFC."
TPG Growth
TPG Growth is the middle market and growth equity investment platform of TPG, the global private investment firm. With more than US$2.5 billion under management, TPG Growth targets investments in a broad range of industries and geographies, utilizing leveraged buyout, growth equity and private investment in public equity structures. The firm is backed by the resources of TPG, which has more than US$48 billion of assets under management. TPG Growth has offices in the United States, China and India.
BankInvest
The BankInvest Group was founded in Denmark in 1969 and is one of the largest asset managers in Scandinavia with US$30 billion under management, of which US$6 billion has been invested in emerging markets. In 2006, BankInvest launched the Private Equity New Markets (PENM) fund and currently has two funds with capital of approximately US$240 million. Through PENM, BankInvest provides capital and business know-how and focuses on mediumsized companies with high growth opportunities.
Masan Consumer is one of Vietnams largest local diversified FMCG companies. We manufacture and distribute a range of food and beverage products, including soya sauce, fish sauce, chili sauce, instant noodles, instant coffee and instant cereals. We commenced operations in 2000 and have subsequently grown our product portfolio, domestic sales and distribution channels to establish a leading position in Vietnamese branded consumer food and beverage market. Our key brands include Chin-su, Nam Ngu, Tam Thai Tu, Rong Viet, Omachi, Oh Ngon, Tien Vua, Kokomi, Vinacaf and De men.
NUMBER OF SALESpeople
1,465
126,389
144,470
163,594
" Our commitment starts and ends with the happiness and health of our consumers."
Truong Cong Thang
CEO of Masan Consumer
4,979 1,314
1,381 2,173
2009 Salespeople
2010
2011
2010
2011
Gross margin
MARKET SHARE
Soya sauce
78%
Fish sauce
76%
45%
Instant coffee
40%
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masan consumer
MASAN CONSUMER
Masan Consumer is one of Vietnams largest consumer product companies with leading market share positions in the condiment, convenience food and instant coffee categories. We have grown our product portfolio, domestic sales and distribution channels since 2000 and are now a leader in Vietnams branded consumer food market in both the premium and mass-market segments. Our key brands include Chin-su (soya, fish and chili sauces), Tam Thai Tu (soya sauce), Nam Ngu (fish sauce), Rong Viet (chili sauce), Omachi, Tien Vua, Oh Ngon, Kokomi (instant noodles), Vinacaf (coffee) and De Men (instant cereal). With a reputation for quality, we are well-placed to expand our presence in other high-growth food and beverage categories. Our business has grown considerably over the past several years, with particular success in the condiments and instant noodles segments. Our revenue and net profit have grown from VND571 billion and VND29 billion in 2006 to VND7,057 billion and VND2,254 billion in 2011, respectively, representing respective compounded annual growth rates of 65.4% and 139.1%. At Masan Consumer, our vision is to be: Vietnams leading consumer company by sales, profitability and brand recognition; The destination for top talent and recognized as the best workplace in Vietnam; and The symbol for quality and a source of pride among Vietnamese. Building upon our success in the food industry, we also plan to diversify our operations into other fast moving consumer goods. To this end, in March 2011, we changed our name from Masan Food to Masan Consumer. In late 2011, we acquired a controlling stake in Vinacaf Bien Hoa (Vinacafe), a market leader in instant coffee, in order to enter the beverage market1.
We are number one in market share in the fish sauce, soya sauce and instant coffee categories."
STRATEGY
Masan Consumer strives to be Vietnams leading consumer company by focusing on several key strategic areas.
Sector Strategy
Masan Consumer deploys a strategic framework in deciding where to play. We target food and beverage categories where the market opportunity is large and there is a potential market size of at least US$500 million. We look for markets where we have the ability to build a premium brand and generate high margins. We also
1. Our acquisition of a controlling stake in Vinacaf Bien Hoa occurred in October 2011 and integration is currently underway. Unless stated otherwise, the description of our operations in the Annual Report does not include Vinacafes assets and platform.
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masan consumer
target markets that are dominated by state-owned enterprises or are fragmented, and where there is a clear path to consolidation. Finally, we look for opportunities where we can create value by product localization through focusing on local taste and health.
Fish Sauce The Vietnamese fish sauce market contains many small, unbranded local producers whose products are typically sold at low price points in traditional open food markets found all over the country. As the populations disposable income continues to increase, the market is expected to shift towards branded fish sauce consumption, especially in urbanized areas. We believe that the market offers room for further penetration, as Vietnams consumption per capita is lower than that of other Southeast Asian fish sauce consuming nations. We also see demand for quality products increasing after a series of recent food safety scandals. Moreover, Vietnamese consumers are using fish sauce in new ways and are looking for new value-added product offerings such as ready-mixed fish sauce. Soya Sauce Due to the popularity of fish sauce, soya sauce is still a relatively small market in Vietnam, but it is undergoing rapid expansion and market penetration is expected to grow. The market is shifting from unknown brands towards well-known and premium brands, in part due to improved buying power and concerns about product safety. In 2007, the market was hit by the discovery of cancer-causing 3-MCPD in many low- and mid-tier products. Masans Chin-su and Tam Thai Tu were two of only three major soya sauce brands that met the governments safety requirements and were able to capitalize on the opportunity to gain significant market share. Growth of retail channels such as hypermarkets, supermarkets, convenience stores and independent small grocers in rural areas is expected to improve the distribution of soya sauce and increase customer reach. Chili Sauce Until recently, chili sauce was primarily utilized as a dipping agent in Vietnam, but it is increasingly becoming a cooking aid, which is expected to drive growth. The market has also seen a shift in consumer behavior from the use of fresh chili to branded chili sauce due to widespread availability, stronger demand for convenience
Exceptional Execution
Our success in capturing market share rests on exceptional execution. We strive to come to market with a differentiated product, launching with a strong marketing effort in order to create a premium brand. We leverage our extensive distribution platform and premium brand equity to penetrate mass market segments. We also employ and incentivize a world-class, experienced management team by making them stakeholders in the business.
and increased concerns about food safety. The introduction of chili sauce in quick service restaurants such as KFC, Lotteria and Pizza Hut has influenced consumer tastes, driving chili sauce consumption, as have aggressive advertising and innovative packaging. The entry of fortified chili sauce and new flavors is expected to continue to stimulate consumer interest in branded chili sauce. Instant Noodles On a per capita basis, Vietnams instant noodles consumption is estimated to be the third highest in the Asia Pacific region, trailing only South Korea and Indonesia. The popularity of instant noodles in the cup/bowl format is likely to increase as young Vietnamese professionals demand ease of preparation. Consumers will increasingly shift to premium products whose higher price points will boost the overall market size. To combat the traditional
Financial Discipline
Masan Consumer has a disciplined financial strategy with several facets. We aim to achieve at least 30% in gross margins, which allow us to maintain our strong marketing strategy and reinvest in acquiring and consolidating business platforms to achieve a sustainable leadership position. We deploy low capital expenditure, which means having an asset light entry strategy for new categories in order to focus on generating at least 25% ROE. We maintain a conservative balance sheet with leverage below three times our debt/EBITDA ratio in order to adhere to the standards of at least a BBB credit rating. We also use a cash on delivery model, enabling us to optimize our working capital position and help fund our growth.
Focus on Growth
We are focused on growing this platform to enable us to become a market leader. In our existing categories, this effort involves shifting consumers to premium brands and changing consumer behavior towards higher consumption. We also enter into highgrowth adjacent categories by leveraging our premium brand halo and robust operating platform. Finally, we enter into attractive new categories that fit our sector strategy through inorganic growth.
Our consumer distribution network directly reaches approximately 164,000 points of sale."
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companies are focusing more on marketing, innovation and improving product quality. As a result, new products with a stronger taste are flourishing and have increased consumer interest. The Vietnamese coffee market is expected to continue to grow thanks to increasing market penetration, modernization of distribution channels, product innovation and shifts in consumer behavior towards coffee due to aggressive advertising and innovative packaging.
Research and Development - Life Science Our in-house research and development team, Masan Consumer Life Science is comprised of approximately 50 employees tasked with improving the range and quality of our products. Masan Life Science Center is one of the most advanced R&D centers in Vietnam. The Life Science division has developed seven new formulas to date that did not previously exist in the seasoning processing industry and has the capability to launch approximately 30 new products each year. Masan Consumers ability to innovate is evidenced by numerous successful developments, which include low-salt Chin-su sauce, no-urea Nam Ngu sauce, Tien Vua noodles with zero trans-fat oil, and Omachi noodles mixed with spaghetti sauce.
working with suppliers who under-perform by missing deliveries, supplying materials of inconsistent quality or that do not conform to specifications, or unexpectedly increasing prices.
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Vinacafe
Vinacafe, our recently acquired subsidiary, manufactures and sells roasted ground coffee, instant coffee, instant milk coffee and instant cereal. The Vinacaf brand has been developed as an umbrella brand for both instant and roasted ground coffee. Our instant coffee is a market leader in Vietnam with approximate market share of 40%. Our instant cereal is sold under the De Men brand. Vinacafe has a production facility located in Bien Hoa 1 Industrial Zone with the capacity to produce over 1,300 metric tons of instant coffee per annum. We are building a new factory in Dong Nai within the Long Thanh Industrial Zone. Expected to go into operation by the end of 2012, this state-of-the-art facility is designed to dramatically increase our total capacity up to 4,500 metric tons per annum combined and significantly reduce the cost of inputs. Unless stated otherwise, the business description of Masan Consumer does not include Vinacafes assets and operations.
market segment. These two new products are expected to be the driver for Masan Consumer in 2012, helping us to consolidate our market share in the fish sauce and instant noodles categories.
Market Share
Masan Consumer continued to maintain its leadership position in the fish sauce and soya sauce segments with 76% and 78% market share, respectively. We also grew our market share to 16% in the instant noodles segment. With Vinacafe, we are the leading player in instant coffee in Vietnam, with a retail value share of 40% in 2010.
Distribution Network
We continued to deepen our distribution platform in 2011. We finished the year selling directly into approximately 164,000 points of sale, compared to 141,000 as of December 31, 2010. The sales force also increased to 1,628 as of December 31, 2011 compared to 1,525 at the end of 2010.
Production
In 2011, the first of our automatic fish sauce lines was brought into operation. With two full shifts the line has a capacity of 8 million liters per month. We also commissioned two additional automatic lines. As of early 2012, we have three automatic fish sauce lines in operation with a combined capacity of 24 million liters per month. We have also brought our waste water treatment plant into operation, which meets international standards and discharges class-A standard wastewater.
Product Initiatives
In 2011, we continued to improve the brand equity and quality of our existing products. To enhance the brand equity of Chin-su, we re-launched the Chin-su brand across the product portfolio with the same look and feel in its glass bottle packaging and label. We also began using a fermentation method to produce higher-grade soya sauce and enhanced the taste of our fish sauce with a new product formulation. We also developed several new products. With the launch of Nam Ngu III, we expect our company to continue to move consumers from unbranded to branded fish sauce, particularly in the rural areas. Leveraging the success of our Omachi brand, which has a market share of 45% in the super premium segment, we launched Kokomi with a view to replicate the same success in the mass
New Hires
To strengthen our management team, Masan Consumer hired a Marketing Director, a Chief Customer Officer (Sales) and a Supply Chain Director. Please see the Management Team section for their experience and backgrounds.
32 | Masan Group
Masan Consumer
Le Thi Nga Vice President, Head of Masan Life Science Nga has over 10 years of experience in food sciences. She graduated from Moscow Technological Institute of Food Industry, Russia. Pham Dinh Toai Vice President, Chief Financial Officer Toai had over 20 years of experience in finance before joining Masan Consumer. He was formerly the Finance and Accounting Operations Director for Unilever Vietnam. He graduated from University of Accounting and Finance and University of Technical Education, Ho Chi Minh City, Vietnam. Nguyen Thi Thu Ha Supply Chain Director Ha has 14 years of experience in supply chain management at Tan Hiep Phat, Unilever, Effem Foods, Novartis Pharma and Procter & Gamble. She graduated from University of Economics, Ho Chi Minh City, Vietnam. Pham Hong Son Senior Vice President, Chief Product Supply Capabilities Development Officer Son has over 10 years of production and manufacturing experience at Masan Consumer and is the General Director of Masan Industrial, our primary manufacturing facility located in Binh Duong province. He was formerly a lecturer at Hanoi University of Technology. He has a Doctorate in engineering from Kansai University, Japan.
Vu Quoc Tuan Chief Manufacturing Officer Tuan has 15 years of experience in production and supply chain management at Unilever Vietnam and Malaysia, and Kimberly Clark South Asia. He graduated from Polytechnic University in Bratislava, Slovakia and Asia Institute of Technology, Thailand. Truong Hoang Long Human Resources Director Long has over 14 years of experience with companies that include Maersk, Mead Johnson and Unilever. He graduated from Solvay Business School of Belgium and Ho Chi Minh Open University, Vietnam.
Partners
KKR Established in 1976, Kohlberg Kravis Roberts & Co. (KKR) is a leading global alternative asset manager. KKR sponsors and manages funds that make investments in private equity, fixed income and other assets in North America, Europe, Asia and the Middle East. Throughout its history, it has brought a long-term investment approach, working in partnership with the management teams of its portfolio companies and investing for future competitiveness and growth. KKR has offices in New York, Menlo Park, San Francisco, Houston, Washington D.C, London, Paris, Hong Kong, Beijing, Tokyo, Seoul, Sydney, Mumbai and Dubai. House Foods Founded in 1913 and listed on the Tokyo and Osaka Stock Exchanges since 1971, House Foods stable of products includes curry, seasonings, spices, packaged foods, pre-cooked foods, drinks, snacks and other products. It has offices, manufacturing facilities and research and development centers across Japan, China and Taiwan, as well as centers in the United Kingdom and the United States.
Over 90% of Masan Consumer's senior management team come from renowned MNCs."
34 | Masan Group
section title
We are currently one of the largest joint-stock commercial banks (JSCBs) in Vietnam by total assets with a leading retail deposit and SME lending franchise. Techcombank is led by a seasoned management team from leading multinational and local financial institutions and is supported by our strategic partner, HSBC. Techcombank has successfully ridden the wave of financial liberalization and the ensuing rapid growth of the financial service sector in Vietnam in the past 19 years to become among the largest and most profitable banks in the country.
26.9%
24.8%
28.9% 30.2%
33.6%
31.5%
" At our core, we are in the business of trust and we earn it by put ting our clients first."
Simon Morris
CEO of Techcombank
88,648 62,562
3.8%
3.9%
3.8%
2009
2010
2011
2009 ROAE
2010 ROAA
2011
2009
2010
2011
Deposit from customers (VND bn) Loan to customers (VND bn) Loan to deposit* Source: TCBs management Note: * Deposit includes certificates of deposit from customers
number of branches
307 282 188
number of atms
1,205 1,021
565 1.6%
2.4%
8.0%
8.0%
9.0%
2009
2010
2011
2009
2010
2011
2010
2011
36 | Masan Group
Techcombank
Techcombank
Techcombank is currently one of the largest JSCBs in Vietnam in terms of total assets, loans, deposits and net income. We have built industry-leading franchises in retail deposits, SME and retail lending. In the 19 years since our establishment, we have developed a diversified range of financial products and services to cater to the financial needs of Vietnams 50 million strong labor force and 305,000 private enterprises. Techcombank has successfully ridden the wave of financial liberalization and the ensuring rapid growth of the financial service sector in Vietnam to become among the largest and most profitable banks in the country. At Techcombank, our vision is to be: The bank of choice for SME and affluent/mass affluent retail customers in Vietnam, providing a full range of financial products and services through personalized customer-centric relationships; The premier retail liability franchise in Vietnam; An institution that delivers strong returns for our shareholders via business execution and rigorous corporate governance and risk management practices; A great working environment where our employees have the platform to develop, contribute and build successful careers; and The best bank and a leading business in Vietnam by 2014.
STRATEGY
Techcombank aims to extend our franchise as a leading bank and further strengthen our market position by executing on several strategic pillars.
38 | Masan Group
Techcombank
Techcombank serves 2.3 million retail and 66,000 SME and corporate customers."
The quality of banking sector assets and risk controls remains a concern and Techcombank stands out for our strengths in many areas that are weaknesses for the banking sector overall, such as our liquid balance sheet, strong deposit franchise and robust risk controls, which we believe will enable us to capitalize on the sector opportunity.
customer services. We have developed electronic banking channels, such as Internet and mobile phone banking, established a 24/7 customer service center and offer door-to-door service for SME and Priority Banking for Personal Financial Services (PFS) customers.
40 | Masan Group
Techcombank
standards. Where loan size and simplicity permit, we have sought to improve the efficacy and efficiency of our credit approval process through use of credit scoring models. To further shield ourselves against loan losses, we obtain significant collateral for most loans to customers, for loans to certain interbank borrowers and for certain bonds purchased by the Treasury Division. We enjoy a high degree of collateral coverage, with total collateral value of VND167,167 billion as of December 31, 2011 versus total net loans of VND62,562 billion and total interestearning assets of VND155,009 billion. This level of collateral cover provides us with a significant additional buffer against loan loss. We conduct our own stringent appraisal of the assets offered as collateral for secured loans, typically applying a discount to benchmark values to arrive at an appraised value, which provides us with an additional buffer against illiquidity of the asset or changing market conditions. Ongoing Portfolio Monitoring We have developed a framework to identify, monitor and report potential credit risks from disbursed loans and other outstanding credit exposures. Responsibility for ongoing monitoring of an individual loan is allocated to the branch or the appropriate body at the regional or head office depending on a variety of factors, including the size and quality or classification of the loan. In 2010, we improved our loan portfolio monitoring by implementing an early warning system that aims to identify performing loans at risk of becoming NPLs. Market Risk Management We were one of the first banks in Vietnam to establish a separate unit for monitoring and managing risks associated with market fluctuations. The Risk Management Division contains a Market Risk Management Department that is distinct from the Treasury Department and conducts round-the-clock monitoring of our foreign exchange, money market, securities and commodity exposures. In 2003, we became the first bank in Vietnam to successfully deploy a market risk monitoring system, which has been continually extended and improved.
Asset and Liability Risk Management We are keenly aware of the risks associated with asset and liability mismatches in terms of interest rates, maturity and currency, especially given the growth in the size and diversity of our funding and lending portfolios over the last several years. To address risks associated with asset-liability mismatches, we control the size, structure and P&L of assets and liabilities and develop contingency plans to ensure adequate access to funding. We also identify and analyze risks for specific assets and liabilities, set optimal ratios and limits for each component of the balance sheet and perform stress tests to measure our exposure to asset-liability mismatches to maintain sound liquidity. Finally we perform checks that all activities conform to our overall risk management framework. Operation Risk Management We consider operational risk to be the responsibility of each employee and cultivate awareness of operational risks as part of our culture. Our Risk Management Division and Operational Risk Management Department build key risk indicators to support line managers in the early identification of operational risks and collection of data on loss events. Our segregation of front and back-office functions also provides a system of internal controls designed to improve transparency and mitigate operational risks. Our Audit Control & Compliance Department, which reports to the Supervisory Board and the Board of Directors, also minimizes our operational risks. This department conducts regular reviews of each department and branchs compliance with Vietnamese banking regulations and our internal policies and procedures. Our Legal & Compliance Division provides legal and compliance advice to senior management, oversees legal and compliance functions and litigation matters, and sees that potential risks are properly identified and reported to management. Our Operational Risk Management Department identifies, evaluates and suggests criteria to manage operational risks associated with technology, such as backup for IT systems, monitoring of IT projects, delivering warning messages through the IT system and training staff on information security.
Techcombank 's loan-to-deposit ratio of 4.3% is one of the lowest in the market, reflecting its conservative lending practices."
(including monitoring of existing loans for deterioration and support for loan restructuring efforts and bad debt recovery), Market Risk Management, Operational Risk Management, Collateral Assessment and Management and Risk Strategy, including risk management policy, portfolio management and modeling development. Credit Approval and Collateral Our SME, PFS, Corporate Banking and Treasury Divisions each have their own credit approval processes. The credit processes for each division are designed with the aim of combining appropriate level of rigor in the credit approval process with timely and responsive decision-making and customer service. The process for each division is tailored to the risk profile and service requirements of its customers and product portfolio. All divisions approval teams are separate from the teams that focus on credit origination and marketing, giving us greater independence to apply our credit
42 | Masan Group
Techcombank
percentage of satisfied customers and number of customers considering our products. The percentage of our customers willing to recommend our products to their friends and relatives was also high. SME SME customers are currently the mainstay of our lending business and a significant component of our loan book. As of December 31, 2011, loans to limited liability companies, joint stock companies and private enterprises represented a combined 59% of loans to customers, with the SME division accounting for the vast majority of these loans. On the deposit side, corporate lenders (mostly from the SME Division) accounted for 35% of customer deposits. We believe that SME banking is an attractive business line due to the rapid growth of Vietnams private sector, and due to its high level of productivity and efficiency compared to that of large SOEs. We also believe that SMEs offer a more attractive risk/return profile compared to SOEs and other large corporate borrowers and have high levels of available collateral. We believe that as a group, SMEs have less of a tendency to require rollovers or de facto restructurings than larger corporates. We segment our SME customers into Micro SMEs (MSMEs) with annual revenue of less than US$1 million, SMEs with annual revenue of US$1-10 million and Middle Market Enterprises (MMEs) with annual revenue of US$10-50 million. We tailor our products and loan application processes to fit the requirements of each category. Corporate Banking Our Corporate Banking Division focuses on enterprises with annual revenue greater than US$50 million, particularly those in Vietnams private sector. We offer these customers loan products similar to those offered to SME customers as well as project financing and syndicated loans. We also offer these enterprises liability products similar to those offered by the SME Banking Division.
Transaction Banking Transaction banking is a significant and fast-growing source of fee income for us. This trend is expected to continue as Vietnams international trade grows, its payment system develops and companies cash management becomes more sophisticated. In 2010, we created a specialized Transaction Banking Division to focus on developing, marketing and aiding the Corporate Banking and SME Divisions to sell transaction banking products. Key transaction banking products include letters of credit, bank guarantees, cash management and payroll, domestic and international payment services, and cash handling and collection.
We also launched a comprehensive strategic co-operation program between Techcombank and Mercedes Benz Vietnam, which sees the two companies cooperating to provide unique tailor-made product packages to each others customers. With Mercedes financial support program, Techcombank will provide special car loan packages to Mercedes customers, develop Mercedes cards, take part in the companys golf competitions and offer other benefits with Techcombanks partnership. In 2011, Techcombank also launched a long-term commitment loyalty program, which is the first comprehensive customer care program in Vietnams banking sector. For each transaction, loyal customers who use our credit cards, deposits and personal current accounts will accumulate points to be exchanged for valuable gifts, such as Vespa scooters, iPads, LCD televisions and mobile phones. We plan to expand the program to other banking services in the future.
44 | Masan Group
Technology Upgrade
In 2011, we continued to focus on our technological systems with an upgrade of our T24 core banking system. This included an upgrade of system hardware with new architecture, a database conversion from Jbase into Oracle and a system re-structuring by Multi-book.
Recognition
Techcombank was recognized with several awards in 2011, including: Vietnams Best Bank in 2011 from FinanceAsia magazine; Best Cash Management Bank in Vietnam in 2011 from FinanceAsia magazine; Best Trade Finance Bank in Vietnam in Vietnam in 2011 from FinanceAsia magazine; Best Retail Bank in Vietnam in 2011 from Asian Banking & Finance magazine; and Best Domestic Bank in Vietnam in 2011 from The Asset magazine.
46 | Masan Group
Techcombank
Dang Tuyet Dung Head of Personal Financial Services Dung has over 17 years of experience in banking, including 15 years with Citibank, Vietnam. She graduated from National Economics University, Hanoi, Vietnam. Phan Thanh Son Head of Markets Son has 13 years of experience in banking and was formerly with Citibank Vietnam and Tien Phong Bank. He graduated from National Economics University, Hanoi, Vietnam Nguyen Cong Thanh Head of Corporate Banking Thanh has over 11 years of experience in banking and investment. Thanh was formerly with Natixis Bank, ABN-AMRO Bank and Temasek Holdings. He graduated from University of Economics, Ho Chi Minh City, Vietnam. Bach Thuy Ha Head of Transaction Banking Ha has over 17 years of experience in banking. Ha was formerly with Citibank Vietnam and Deutsche Bank. She graduated from University of Technology, Sydney, Australia and Leuven University, Belgium. Do Diem Hong Head of Financial Institutions Hong was formerly with J.P. Morgan Chase in Vietnam. She graduated from FranceVietnam Management Training Center (CFVG).
Nguyen Canh Vinh Head of Sales & Distribution Vinh joined Techcombank in 1994 and has held various senior positions with Techcombank. He graduated from Latrobe University, Australia. Phung Quang Hung Head of IT & Operations Hung has over 16 years of experience in banking and was formerly with ABN-AMRO in Vietnam. He graduated from University of Washington State, U.S.A. Truong Gia Tu Deputy Head of Risk Management Tu has over 19 years of experience in banking and was formerly with Calyon and HSBC. He graduated from National University, Hanoi, Vietnam. Cu Anh Tuan Head of Finance & Planning Tuan has over 16 years in accounting and finance and was formerly with State Capital Investment Corporation and Fujitsu. He graduated from Swinburne University of Technology, Melbourne, Australia. Le Xuan Vu Head of Strategy & Corporate Development Vu joined Techcombank in 1997 and has held various senior positions. He graduated from North Central University, U.S.A.
Le Phuong Phuong Head of Marketing Phuong has 12 years of experience in marketing and PR. She was formerly with ANZ Vietnam and Navigos Group. She graduated from Southern Columbia University, U.S.A. Tran Thi Diep Anh Head of Human Resources Diep Anh has 11 years of experience as a HR professional and was formerly with Cargill. She graduated from Hanoi Foreign Languages University and University of Transport and Communications, Vietnam.
Partner
HSBC The HSBC Group is one of the largest banking and financial services organizations in the world and the largest foreign bank in Vietnam in terms of investment capital, network, product range, staff and customer base. In September 2008, HSBC became the first foreign bank to obtain official approval from the State Bank of Vietnam to set up a wholly foreign-owned bank in Vietnam.
48 | Masan Group
Masan Resources is one of the largest private sector natural resource companies in Vietnam, currently developing the worldclass Nui Phao polymetallic project in northern Vietnam. Nui Phao will be a globally significant producer of tungsten, fluorspar and bismuth - niche industrial minerals that are large enough to establish a private sector leader that can generate cash flows to consolidate the sector. With Nui Phao as our flagship, we aim to acquire, develop and explore other assets to build Vietnams premier private sector resources company.
" As a national asset of significant scale, Nui Phao deserves a world class mining and processing operation."
Dominic Heaton
CEO of Masan Resources
VALUE OF RESERVES
FINANCING ARRANGED
80 203 383
6.5
Sep-10
9.6
Dec-11
100
Mount Kellett
Local Financing
Standard Chartered
Total
Note: Value of reserve is in US$ billion. Approximate values based on total mineral content in proven and probable reserves based on Tungsten APT prices from Metal Bulletin, Acid-grade fluorspar prices from Industrial Minerals, Bismuth prices from Metal Bulletin, and Copper prices from LME.
2%
Jul-10
95%
Dec-11
200
Sep-10
1,500
Dec-11
Note: Land discussed excludes Sector 6, the buffer zone not required until 5 years into the project.
50 | Masan Group
Masan Resources
Masan Resources
Masan Resources is one of the largest private sector natural resources companies in Vietnam, currently developing the worldclass Nui Phao polymetallic project in northern Vietnam. Our current focus is to develop the Nui Phao on schedule and within budget. Once in production, Nui Phao will be among the worlds largest producers of tungsten, fluorspar and bismuth and is expected to generate approximately US$400-500 million in revenue and approximately US$250-300 million in EBITDA annually. Over the life of the project, Nui Phao is expected to generate around US$6 billion in revenue and over US$3 billion in EBITDA (based on prices, design cost and recoveries as of December 2011). Masan Resources is looking to become Vietnams private sector resources champion by acquiring, exploring and developing resource assets of scale. Vietnam is endowed with significant resources across a variety of metals and minerals. These resources are largely undeveloped and, outside of state ownership, their market is highly fragmented. We believe that with our experienced management team, local access, strong execution capabilities, international partners and capital raising abilities, we have developed the right platform to consolidate these assets and build Masan Resources into the leading mineral mining company in Vietnam.
We have increased the number of workers on site at Nui Phao by approximately 7.5 times, to 1,500 people, since the construction ramp-up."
regulatory requirements. Our government and community ties ensure we achieve swift execution onsite. We aim to put our access to capital and cash flows to use in acquiring and developing assets with high potential. We believe in injecting the required capital not only to complete development of brownfield assets, but also to scale up operations, which helps to optimize productivity over the long term. We minimize macroeconomic risk by hedging against commodity price fluctuations with Masan Resources diversified basket of metals and minerals. Our financial risk is low because of our access to Masan Groups stable capital flows and investor networks, while our operational risk is mitigated by our access to Masan Groups trading partners, customers and professional management expertise.
STRATEGY
Our execution strategy for building our business is focused on three key areas: leveraging local relationships to access and execute on opportunities, using our access to capital and cash flows to acquire and develop quality assets, and de-risking projects through the Masan platform. We believe that leveraging local networks helps us to be first on scene and obtain preferential access to quality assets. Our expertise working within Vietnams regulatory landscape helps us to work effectively with central and local governments and navigate
52 | Masan Group
Masan Resources
FOCUS AREAS DRIVING OUR OUTPERFORMANCE Nui Phao Projects Strategic Advantage
Nui Phao represents the ideal platform to build Masan Resources into Vietnams leading private-sector resource company. Unique Asset of Scale Nui Phao is a unique mine with one of the worlds largest deposits of tungsten, fluorspar and bismuth, as well as deposits of copper with traces of gold. When in full production, Nui Phao is expected to generate US$400 to US$500 million in revenue and approximately US$250-300 million in EBITDA annually1. The Right Commodities A distributed revenue base lends the project stability in a volatile environment for commodities. In addition, given the concentration of supply for tungsten, fluorspar and bismuth and the prospects for copper linked to emerging markets growth, the view on future prices for these commodities is favorable. Low Cost of Operations
reduces both the risk for Masan Group in developing this project and the time to revenue generation. Since acquisition, Masan Resources has additionally invested over US$100 million to further advance the project, with production set to begin in early 2013. Infrastructure Availability The project is spread over an area of 9.21km2 in the Dai Tu District of the Thai Nguyen Province, only 80 km from Hanoi and about 180 km and 240 km from the Hai Phong and Quang Ninh ports, respectively. Basic infrastructure including roads, rail lines and access to power and water are in place, allowing for a shorter project development timeline. Nui Phao Resources2 Classification Measured Indicated Total Measured + Indicated Inferred Tonnes 25,450,000 39,560,000 65,010,000 32,400,000 WO3 % 0.27 0.16 0.20 0.15
As an open-pit mine with a low strip ratio, Nui Phao will be one of the worlds lowest cost producers of tungsten. Cash costs on a tungsten basis are projected to be negative, which will help the project withstand commodity price fluctuations. The project will produce ammonium paratungstate, acid-grade fluorspar, bismuth and copper concentrate (containing some payable gold). The products will be separated from the ore using a combination of conventional froth flotation and gravity separation processes. Significant Progress Over US$130 million had already been invested into the project prior to Masan Groups acquisition, with resources and reserves established, a feasibility study completed and a substantial amount of long lead-time equipment already on site. This significantly
Source: The Mineral Resource estimate stated above have been compiled under the direction of Cube Consulting Pty Ltds Chris Black, who is qualified for such reporting as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code).This Mineral Resources estimate has been compiled in accordance with the JORC Code.
NUI PHAO RESERVES3 Classification Proven Probable Total Proven + Probable Tonnes 25,200,000 27,350,000 52,540,000 WO3 % 0.26 0.17 0.21 CaF2 % 8.31 7.71 8.00 Bi % 0.12 0.08 0.10 Cu % 0.25 0.17 0.21 Au g/t 0.27 0.18 0.22
Source: The Ore Reserves estimate stated above have been compiled under the direction of Cube Consulting Pty Ltds Quinton de Klerk, who is qualified for such reporting as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code).This Ore Reserves estimate has been compiled in accordance with the JORC Code.
2. As of September 2011, 0.1% WO3 equivalent cut-off 1. Using commodity prices as of December 2011 3. As of November 2011, 0.1% WO3 equivalent cut-off
54 | Masan Group
Construction
We are working at the rassroots level to provide vocational training employment and economic restoration to affected members of the community. To date, over 2,100 people have received assistance from such programs."
2011 TRACK RECORD
Since taking over Nui Phao, Masan Group has focused on critical areas for de-risking the project and aiding successful development. We have achieved several important milestones. In 2010, we were focused on the fundamental building blocks for realizing the project, namely, achieving regulatory requirements for the project, arranging financing to ensure project development, re-building the team and accelerating compensation and resettlement. In 2011, we have built on this success and have focused on accelerating project development.
Earthworks and concrete works contractors were appointed. Earthworks, the first step towards construction, were started in July 2011, and concrete works commenced on schedule.
Team
The team was fully built out during the year. As of December 31, 2011, Nui Phao had 277 permanent employees on its rolls, with over 1,500 people working together on site to complete the project.
Financing
In February 2012, Masan Thai Nguyen Resources signed an agreement for a two-year, US$80 million loan from Standard Chartered Bank. This loan reaffirms the international quality of the project.
Design
Jacobs Engineering was hired early in the year to provide engineering design and procurement services and has made significantly progress on both the design and the procurement of critical equipment for the project.
56 | Masan Group
Masan Resources
O ther electrical and electronic applications - Tungsten has many other electrical and electronic applications, such as its use in circuit boards and in the production of electrical contacts and electrodes. C hemical and other applications - Tungsten also has a range of chemical and niche applications in the glass, ceramics, paint and petroleum industries. global primary tungsten demand by end-use sector in 2010
Mill products 14% Steel/ Alloys 23% Other 8% Hard metals 55%
Global Supply China dominates the worlds production of primary tungsten with over 85% of tungsten production in 2010 (estimated), as well as over 65% of identified tungsten reserves (source: U.S. Geological Survey). In recent years, China has implemented production and export quotas as domestic requirements for tungsten continue to increase. The country is looking to move up the value chain by shifting from providing tungsten raw material to selling finished tungsten products to consumers globally. In November 2010, China announced an export quota for 2011 of 15,700 metric tons of tungsten, up from 14,300 metric tons in 2010. A recent report by the European Union names tungsten one of the critical raw elements for Europe given the metals economic importance and concentration of supply sources.
500 450 400 350 300 250 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
Source: Metal Bulletin Note: Tungsten is priced in 10 kilograms lots, known as metric ton units (mtu). Tungsten APT price is in US$/mtu.
WORLD PRODUCTION AND RESERVES OF PRIMARY TUNGSTEN (IN METRIC TONS OF TUNGSTEN) Country Production 2009 China Russia Bolivia Austria
Source: Roskill estimates Note: Mill products includes, but is not limited to, lamp filaments and other electrical and electronic applications
Production 2010E 52,000 2,500 1,100 1,000 950 300 Withheld 3,300 61,000
% of World Production 2010E 85.2% 4.1% 1.8% 1.6% 1.6% 0.5% NA 5.4% 100.0%
Reserves*
58 | Masan Group
Masan Resources
Fluorspar
Fluorspar is a mineral composed of calcium fluoride (CaF2). Fluorspar specimens are broadly classified into one of two industrial grades based on purity: acid grade fluorspar contains more than 97% CaF2 and metallurgical grade fluorspar contains less than 97% CaF2. Acid grade and metallurgical grade fluorspar are used in a variety of applications. Acid grade fluorspar is the primary industrial source of fluorine in the world. It is mainly used to manufacture the following products: Hydrofluoric acid (HF) - HF is used in a diverse set of industries. - Approximately 60% of HF is used as a feedstock for manufacturing a host of fluorocarbons such as CFCs, HCFCs and HFCs. These fluorocarbons are primarily used as refrigerants in air conditioners and as foam blowing agents/propellants in the manufacture of polymers. - HF is also used as a catalyst in petroleum alkylation, as a cleaning and etching agent in the semiconductor industry, and in the pickling of stainless steel. Aluminum fluoride and synthetic cryolite - These are both critical raw materials in the electrolytic extraction of aluminum. Metallurgical grade fluorspar is most commonly used as a flux in steel manufacturing, iron foundries and ferroalloy practices. As a source of fluorine, fluorspar is virtually irreplaceable since there are no other known abundant sources of the element.
Global Supply China and Mexico together account for over 70% of world fluorspar production. Approximately 70-75% of the fluorspar produced around the world is acid grade, with the rest being metallurgical grade. Both China and Mexico produce both grades. World resources of fluorspar are reasonably widely spread, with South Africa and Mongolia also having sizeable reserves. A recent report by the European Union names fluorspar one of the 14 critical raw materials for Europe given the minerals economic importance and concentration of supply sources. Historical fluorspar price since acquisition
600 500 400 300 200 100 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
WORLD PRODUCTION AND RESERVES OF FLUORSPAR (IN 000 METRIC TONNES) Country Production 2009 China Mexico Mongolia Russia South Africa Spain Namibia Morocco Brazil Kazakhstan Kenya Others World Total (rounded)
Source: USGS (*) Measured as 100% calcium fluoride
Production 2010E 3,000 1,000 450 220 130 120 110 80 65 65 30 170 5,400
% of World Production 2010E 55.6% 18.5% 8.3% 4.1% 2.4% 2.2% 2.0% 1.5% 1.2% 1.2% 0.6% 3.1% 100.0%
Reserves*
60 | Masan Group
Masan Resources
Bismuth
Bismuth is a brittle white metal with many unique properties: It has one of the lowest melting points among metals; It expands on freezing; It has very low thermal and electrical conductivity; and It is non-toxic. Bismuth is used across a wide range of applications that capitalize on its particular properties: F ree-machining steel and free-machining aluminum - Owing to bismuths low melting point, adding it to steel or aluminum increases the metals machinability by reducing power required and wear on tools. L ow melting-point alloys - With its low melting point and tendency to expand upon solidification, bismuth is used in low-melting-point alloys that have applications in solder wires, safety fuses and molded products that require the reproduction of fine detail. Pharmaceutical products - Bismuth is used in a variety of pharmaceutical and cosmetic products such as antacids. Bismuths properties are similar to those of lead, except that it is non-toxic, making it a suitable and safer substitute. Growth in the usage of bismuth has been boosted as countries around the world clamp down on lead usage for various applications: I n plumbing fixtures and brass, to avoid toxicity from lead from the pipes leaching into the water; As an additive to zinc alloys during galvanization; As an additive to steel to improve machinability; and In shots, bullets and sinkers.
Global Supply There are very few standalone bismuth mines, bismuth is usually found in association with other metals such as lead, tungsten, copper, silver, gold and zinc. Most commercially produced bismuth is a byproduct of processing these metals, particularly lead. Therefore, a more accurate measure of bismuth production is refinery production rather than mine production. Due to this reason, the growth in lead production also determines, to a substantial extent, the growth in bismuth production. China dominates both the worlds bismuth supply and its reserves, with 80% of refinery production and 75% of world reserves in 2009.
WORLD REFINERY PRODUCTION AND RESERVES OF BISMUTH (IN METRIC TONS) Country Production 2009 China Mexico Belgium Peru Japan Canada Kazakhstan Others 12,300 854 800 600 423 150 125 150 15,000 Production 2010 13,000 850 800 600 420 150 125 55 16,000 % of World Production 2010 81.3% 5.3% 5.0% 3.8% 2.6% 0.9% 0.8% 0.3% 100.0% 240,000 10,000 NA 11,000 NA 5,000 5,000 49,000 320,000 Reserves
62 | Masan Group
Masan Resources
Copper
Copper is a reddish, orange-ish or brownish metal, depending on its level of oxidation. It is one of the most extensively used metals in the world owing to its unique properties: It is amongst the most malleable and ductile of the metals; I t has the second highest thermal and electrical conductivity of all the elements (bested only by silver); and It is highly resistant to corrosion. Copper is used in a variety of applications, including: Electrical products - The primary use of copper globally is in the production of power cables and other electrical products such as generators, motors and transformers, which are used in the power generation and transmission industry, and in machinery. B uilding construction - The second-largest use of copper and its alloys (such as brass and bronze) is in the building construction industry. It is used for roofing and plumbing, especially in water pipes, taps, valves and fittings, because of the corrosion-resistant quality and malleability of the metal. Electronic product manufacturing - The high electrical and thermal conductivity of copper also means it is used extensively in the electronics industry. Industrial machinery production - Owing to their durability, machinability, and ability to be cast with high precision and tolerances, copper alloys are ideal for making products such as gears, bearings and turbine blades.
Several of the above applications of copper are brought together in vehicles, where copper is an essential component in the motors, wiring, radiators, connectors, brakes and bearings. About 98% of all copper is used in the form of pure metal or in alloys, with the remaining 2% being diverted for the production of compounds. Global Supply The supply of copper is widely distributed globally. Chile produces over 30% of the worlds primary copper. However, the rest of the production is spread across a host of countries that includes Peru, China, the United States and Australia. In addition, about one-third of the worlds copper consumption is sourced through recycling. Historical copper price since acquisition
11,000 10,000 9,000 8,000 7,000 6,000 Sep-10 Source: Bloomberg Note: Copper price is in US$/mt Dec-10 Mar-11 Jun-11 Sep-11
World mine production and reserves of copper (in 000 metric tonnes) Country Production 2009 Chile Peru China USA Australia Indonesia Zambia Russia Canada Poland Kazakhstan Mexico Others World Total (rounded)
Source: USGS
Production 2010E 5,520 1,285 1,150 1,120 900 840 770 750 480 430 400 230 2,300 16,200
% of World Production 2010E 34.1% 7.9% 7.1% 6.9% 5.6% 5.2% 4.8% 4.6% 3.0% 2.7% 2.5% 1.5% 14.2% 100.0%
Reserves
5,390 1,275 995 1,180 854 996 697 725 491 439 390 238 2,190 15,900
150,000 90,000 30,000 35,000 80,000 30,000 20,000 30,000 8,000 26,000 18,000 38,000 80,000 630,000
64 | Masan Group
Masan Resources
Vu Hong First Deputy General Director/Director of External Relations Hong has over 30 years of experience and has worked with the World Bank, mainly in South East Asia on infrastructure and development products. He graduated from Hanoi Water Resources University and the University of Roorkee, India. Craig Bradshaw Operations Director Craig has close to 20 years of experience in the commercial and administrative verticals of mining. He was formerly Senior Commercial Manager for Lane Xang Minerals Ltd.s Sepon Mine. He graduated from the University of Southern Queensland, Australia. Dale Smith Construction Director Dale has over 23 years of experience in the mining industry with over 10 years of experience in project development. He was formerly Project Director at the Sepon Project, owned by Lane Xang Minerals Limited, a subsidiary of Minerals and Metals Group, Laos. He graduated from University of Queensland, Australia. Russell Griffin Director of Sales & Marketing Russell has considerable experience developing markets for new mines and expansions in Australia and Southeast Asia with companies including OZ Minerals. He graduated from the University of South Australia.
Richard Kitchener Mine and Geology Manager Richard has over 20 years in mining operations in Vietnam, Laos, China, Armenia, Kyrgyzstan, the United Kingdom and Australia. He was formerly with Swan Gold Mining and Ban Phuc Nickel Mines. He graduated from Camborne Schools of Mines, England. Les Adrian Environment Manager Les has over 20 years of experience assessing environmental impact and developing environmental, health and safety management plans for mining projects with companies such as Cameco Corporation and Bisha Mining. He graduated from University of Regina, Saskatchewan, Canada and the Saskatchewan Institute of Applied Sciences. Morgan Carroll Health, Safety and Security Manager Morgan has 14 years of experience in occupational risk, health and safety management. He was formerly with Sepon Gold and Copper Mine in Laos and Barricks North Mara Gold Mine in Tanzania. Morgan holds a host of certifications in the health and safety field and graduated from the University of Cape Town, South Africa. Dang Ngoc Ngoan Human Resources and Administration Manager Ngoan has seven years in human resources. He graduated from Hue University of Sciences, Vietnam, and has completed significant additional training in the field of Human Resources Management.
Nick Green Deputy Construction Manager Nick has over 13 years of experience delivering construction solutions in Australia, Tasmania, Laos, Indonesia, Papua New Guinea and Ghana. He graduated from the University of Tasmania, Australia and is currently working towards a Masters degree in Project Management at Queensland University of Technology, Australia. Luke ONeill Project Controls Manager Luke has eight years of experience in construction and building design and was formerly with Sepon Copper Expansion in Laos. He graduated from Holmesglen Vocational Training in Melbourne, Australia. Wilson Soon Deputy Chief Financial Officer Wilson has over six years of experience as an auditor at PricewaterhouseCoopers and KPMG. He graduated from London School of Economics, U.K. and is a member of the Association of Chartered Certified Accountants. Nguyen Thi Hai Yen Accounting Manager Yen has 16 years of accounting experience. She graduated from Hanoi National Economic University, Vietnam and Hanoi Foreign Trade University, Vietnam.
Partners
INVESTOR Mount Kellett Mount Kellett Capital Management L.P. is a multi-strategy investment firm focused on global special situation and opportunistic private investing. Mount Kellett closed its first fund, MKCP I, in December 2009 with approximately US$3 billion in aggregate capital commitments and currently has over US$4.1 billion in assets under management. Mount Kellett invests across North America, Asia and Europe. In 2010, Mount Kellett invested US$100 million in Masan Resources for a 20% share ownership. OFFTAKERS CMC Cometals CMC Cometals is a subsidiary of Commercial Metals Company which manufactures, recycles and markets steel, metals and related products around the world. The CMC Cometals division markets and distributes worldwide millions of tons per year of ores and minerals, refractories, and chemicals that are key inputs for the steel, aluminum, chemical, and aerospace industries. Commercial Metals Company is listed on the NYSE under the symbol CMC.
Nui Phao has an offtake agreement with CMC Cometals for the fluorspar to be produced by the project. 5N Plus 5N Plus is a leading producer of specialty metal and chemical products. 5N Plus deploys a range of proprietary and proven technologies to manufacture products that are used in a number of advanced pharmaceutical, electronic and industrial applications. Nui Phao has an offtake agreement with Sidech, a subsidiary of 5N Plus, the worlds only specialist producer of bismuth. TECHNICAL SERVICES Jacobs Engineering Group Jacobs Engineering Group Inc. is one of the worlds largest and most diverse providers of professional technical services. With 2010 revenues of nearly US$10 billion, the company offers full-spectrum support to industrial, commercial and government clients across multiple markets. Services include scientific and specialty consulting as well as services catering to all aspects of engineering, construction, operations and maintenance. Jacobs has over 60 years operating experience in the Asia Pacific region and is currently providing engineering and procurement services for the Nui Phao project.
66 | Masan Group
MANAGEMENT REPORT
68 | Masan Group
MaNAGEMENT RePORT
OVERVIEW
2011 was again a challenging year for Vietnam. The country endured inflation that reached 18.6%, which increased the cost of capital for businesses and dampened consumer sentiments. In addition, the financial sector suffered from illiquidity, rising NPLs, and underperforming securities and real estate markets. In this environment, Masan Group succeeded in raising significant capital, executing on merger and acquisition (M&A) transactions, building out our operations and businesses, and delivering growth in our financial results. Since the beginning of 2011 and until the date of this report, we have raised over half a billion US dollars from reputable investors and partners such as the KKR, J.P. Morgan, Standard Chartered, Mount Kellett, and the Richard Chandler Corporation. We have acquired a majority stake in Vietnams largest instant coffee maker, commenced construction activities at our Nui Phao project, and grown our earnings on a pro forma basis by 62.0% from 2010, to VND3,280 billion. This result was largely supported by better results from Masan Consumer and Techcombank. The market acknowledged our achievements, with our share price significantly outperforming the VNIndex during this period. As of December 31, 2011, our market capitalization was approximately US$2.4 billion, making us the largest private sector company listed in Vietnam1. In 2011, we transformed Masan Food into Masan Consumer to leverage our platform into other consumer categories. This strategy was validated by a US$159 million investment by KKR, who acquired a 10% equity stake in Masan Consumer, and a subsequent syndicated loan arranged by J.P. Morgan and Standard Chartered. In October 2011, Masan Consumer acquired a 50.2% stake in Vinacafe, our first step into the beverage sector. Financially, Masan Consumer generated net sales of VND7,057 billion in 2011, a 26.3% increase from 2010. Net profit after tax was VND2,254 billion, a 79.9% increase from 2010. On a pro forma basis, which normalizes our financial results by incorporating Vinacafes
results from January 1, 2010, and adding back the amortization of goodwill and intangible assets from the acquisition of Vinacafe for the financial year 2011, Masan Consumer generated net sales of VND8,310 billion and earnings of VND2,466 billion. The growth was driven by increased sales in each of our existing product lines as a result of our continued efforts to penetrate rural markets and by the introduction of new product categories and variants. 2011 was particularly challenging for the banking sector where we witnessed illiquidity and rising NPLs. However, Techcombank outperformed, continuing to invest in expanding its branch and ATM network and increasing its market share. Techcombank generated net interest income of VND5,298 billion in 2011, a 66.4% increase from 2010. Profit before tax was VND4,221 billion, a 53.9% increase from 2010. Net profit after tax was VND3,154 billion, a 52.2% increase from 2010. Techcombanks growth was primarily driven by a 19.9% increase in loans to customers, to VND63,451 billion, and 10.1% increase in customer deposits, to VND88,648 billion. The banking sector in Vietnam is going through a consolidation phase and we expect larger banks with a more established liability franchise and strong risk management practices such as ours to continue to outperform. Masan Resources achieved several significant milestones in the development of the Nui Phao project in 2011. We hired Jacob Engineering, who have progressed the design and procurement of critical equipment for the project. In July 2011, we commenced construction with concrete work starting soon thereafter. In addition, we completed approximately 95% of the compensation and resettlement process for the land required immediately for construction. In terms of financing, we closed our transaction with Mount Kellett, who invested US$100 million for a 20% equity stake, and we have begun drawing down on our local banking facilities. In March 2012, Masan Thai Nguyen Resources, a subsidiary of Masan Resources, raised US$80 million in a loan from Standard Chartered. The recent loan validates the progress of the Nui Phao
project and is a bridge for future international financing for Masan Resources. The Nui Phao project is on track to begin production by the first quarter of 2013 with full ramp-up by the end of that year. Altogether, 2011 brought a validation of our sectorial and execution strategy. Today we have developed three market-leading operating platforms: Masan Consumer in branded consumer products, Techcombank in financial services, and Masan Resources in minerals and mining. With our leading businesses and financial flexibility, we believe our current operating businesses are well positioned to deliver earnings growth of 3050% in 2012. As a whole, Masan Group is well prepared to consolidate our position as Vietnam's premier private sector group in the coming years through a combination of organic growth and M&A.
exports, but it would also have a follow-on effect on consumer and business spending in Vietnam, inhibiting economic growth. Vietnam will continue to be vulnerable to movements in international commodity prices. Global fuel prices are expected to remain at a relatively high level throughout the forecast period. Strong demandside pressure and the depreciation of the Vietnamese dong against the US dollar are expected to make it more expensive to import goods, pushing up overall prices for goods and services.
BUSINESS ENVIRONMENT
Our operations are focused on Vietnam and our performance and the quality of our assets depend substantially on the Vietnamese economy. The economic environment in Vietnam may be significantly impacted by a variety of external factors, including economic developments throughout Asia and globally. Macroeconomic factors that may have an impact on performance include personal expenditure and consumption, demand for products and services, debt service burden of consumers or businesses and general availability of credit, as well as factors such as the spread of disease, large-scale acts of war, terrorism or any other adverse social, geographic or political incidents. In 2012, Vietnams economy is expected to continue expanding at a rapid pace, despite concerns regarding inflation, currency depreciation and the banking sectors NPLs. Internationally, there is a risk that the global economic recovery will be weaker than is currently expected. Not only would this damage
1. Market capitalization as of December 31, 2011 (for Masan Group, 546 million basic shares outstanding assuming TPG convertible bond are converted); VND/US$ exchange rate of 21,000; private sector company defined as a company with no major state ownership or legacy as a state-owned enterprise
70 | Masan Group
Management Report
through shares and we consolidate this percentage of the company as a subsidiary on our financial statement. The remaining economic interest is held in the form of a call option to purchase 15% of Masan Resources from a minority shareholder and is not recorded on our balance sheet in accordance with Vietnam Accounting Standards (VAS). Events that affect Masan Resources business, financial condition, results of operations and prospects will directly affect our business, financial condition, results of operations and prospects. Risk factors that may affect our businesses and financial results include regulatory, business, competition and operational risks as well as other factors that may be beyond our control. Masan Groups subsidiaries and associates operate in industries that face significant competition and our marketleading positions may be challenged if our competitors make significant strides to capture market share. Masan Consumer competes mainly on the basis of brand image, pricing, distribution network and product mix. The entrance of established foreign brands and companies has heightened the competitiveness of the basic foods market in Vietnam. Competition may cause competitors to significantly increase their advertising expenditures and promotional activities or to engage in irrational or predatory pricing behavior. Masan Consumer may be required to make substantially greater investments in research and development, as well as promotions and marketing. Such expenditures may lower our profit margins and thereby adversely affect our results of operations. Techcombank may face tougher competition from both local and foreign financial institutions as a result of Vietnam joining the World Trade Organization in 2007. The State Bank of Vietnam also allows foreign banks to operate in Vietnam through local branches. As the State Bank of Vietnam continues liberalizing the banking sector, Techcombank may also face greater competition from other
local banks, which may result in a material adverse effect on our business, financial condition, results of operations and prospects. It is expected that when Masan Resources commences operations of its Nui Phao project, a substantial portion of its revenues will be derived from exports. The company will compete with global producers of tungsten, fluorspar, bismuth, and copper, including producers from China, in the world mineral markets, primarily on the basis of quality, price, transportation cost and reliability of supply. There can be no assurance that Nui Phaos competitors will not seek to sell higher-grade minerals, significantly reduce their prices to gain market share, discover more readily accessible mine sites or have a more reliable supply. Masan Group is dependent on a continued ability to recruit or retain appropriately skilled personnel for its key management positions Although Masan Group is not dependent on any one member of our respective Boards of Directors, Supervisory Boards, Management Boards or senior management teams, our success depends to a significant extent on their skills, capabilities and efforts, as well as our ability to recruit and retain them and other appropriately skilled personnel. Due to intense competition in Vietnam, we face a continuing challenge in recruiting and retaining a sufficient number of skilled professionals. A loss of key personnel may have a material adverse effect on its business, financial condition, results of operations and prospects. Masan Groups business outlook is directly tied to the economic prospects of Vietnam Our business outlook is directly tied to the economic prospects of Vietnam. Thus, if Vietnam should experience an economic recession, this will materially impact us.
CONSOLIDATED INCOME STATEMENT 2011 Audited VND million Total Revenue Less Sales Deductions Net sales Cost of Goods Sold Gross profit Selling, General & Administrative Expenses Financial Income Financial Expenses Net Operating Profit Other Profit / (Expense) Share of Profit in an Associate Profit Before Tax Tax Net Profit(*)
(*) Net profit is before removing minority interest.
2010 Audited VND million 5,689,498 (103,211) 5,586,287 (3,194,617) 2,391,670 (1,164,997) 1,620,919 (270,277) 2,577,315 8,208 160,598 2,746,121 (116,904) 2,629,217
2011 Pro forma VND million 8,492,379 (182,580) 8,309,799 (4,934,726) 3,375,073 (1,538,839) 1,213,380 (352,144) 2,697,470 11,970 965,368 3,674,808 (394,535) 3,280,273
2010 Pro forma VND million 6,991,410 (103,459) 6,887,951 (4,223,462) 2,664,489 (1,289,880) 409,028 (281,895) 1,501,742 22,327 634,470 2,158,539 (133,603) 2,024,936
7,239,003 (182,154) 7,056,849 (3,997,834) 3,059,015 (1,416,523) 1,185,206 (347,725) 2,479,973 (4,134) 392,733 2,868,572 (372,564) 2,496,008
72 | Masan Group
Management Report
CONSOLIDATED BALANCE SHEET December 31, 2011 Audited CURRENT ASSETS Cash and cash equivalents Short-term Investments Net Operating Receivables Other Receivables Inventories Other Current Assets LONG TERM ASSETS Fixed Assets Tangible Fixed Assets Leasing Fixed Asset Intangible Fixed Asset Construction in Progress Long-term Investments Other Long-term Assets TOTAL ASSETS 12,541,434 9,573,593 1,222,500 192,531 710,786 612,845 229,179 21,031,185 11,287,505 879,199 983,239 9,425,067 9,321,085 422,595 33,572,619 December 31, 2010 Audited 4,626,838 3,394,575 490,000 63,420 250,789 290,200 137,854 16,502,700 8,261,999 561,229 11,686 72,564 7,616,520 8,099,909 140,792
CONSOLIDATED BALANCE SHEET December 31, 2011 Audited VND million CURRENT LIABILITIES Short-term Debt Current Account Payables Advance from Customers Tax Payables Payroll Payables Accured Expense Other Payables LONG TERM LIABILITIES(*) (**) Long-term Debt Other Long-term Liabilities TOTAL LIABILITIES EQUITY 21,129,538 Chartered Capital Capital Surplus Other Capital Differences in Forex Revaluation Other Reserves Retained Earnings MINORITY INTEREST TOTAL RESOURCES 3,625,783 2,032,397 422,772 7,994 291,359 12,618 824,384 34,259 8,391,804 7,409,781 982,023 12,017,587 15,875,652 5,152,723 2,166,136 10,462,804 (16,066) (6,569,981) 4,680,036 5,679,380 33,572,619 December 31, 2010 Audited VND million 3,224,917 1,124,674 443,583 7,997 152,842 5,395 502,838 987,588 5,756,133 5,000,560 755,573 8,981,050 10,623,685 5,152,723 2,166,136 9,651,713 3,189 (9,062,082) 2,712,006 1,524,803 21,129,538
(*) Excluding promissory notes, our total debt of short-term and long-term financial borrowings would be VND6,586 billion. The promissory notes of VND2,856 billion will be extinguished in the event the options to purchase primary shares in Masan Group are exercised with payments in the form of said promissory notes in lieu of cash. The options were given as part of the Nui Phao acquisition and are currently in the money as of December 31, 2011. Masan Group has the right to force convert the said options as of December 31, 2011. (**) Our total debt would be significantly lower if we were to exclude convertible instruments that are in the money.
74 | Masan Group
Management Report
Selling Expenses
Selling expenses in 2011 were VND1,010 billion compared to VND951 billion in 2010. Selling expenses as a percent of net sales decreased from 17.0% in 2010 to 14.3% in 2011. This was due to Masan Consumers focus on managing expenses and the aforementioned Fit to Compete program.
2011. In March 2011, Masan Resources closed its equity transaction with Mount Kellett, raising approximately US$100 million in return for a 20% equity interest. In events subsequent to 2011, Masan Group raised approximately US$185 million in the first quarter of 2012, and Masan Resources raised US$80 million from a loan arranged by Standard Chartered. Altogether, on a consolidated basis, we have built a significant cash position to invest in our existing businesses and fund new opportunities.
Fixed Assets
As at December 31, 2011, fixed assets amounted to VND11,288 billion, increasing by 36.6% from VND8,262 billion as at December 31, 2010. The increase was mainly derived from the acquisition of Vinacafe, expansion of Masan Consumers sauce and instant noodles factories, and increased capital expenditures for the Nui Phao project. During the year, Masan Consumer acquired a 50.2% stake of Vinacafe, which increased our intangible assets by VND930 billion.
Financial Income
Financial income decreased by 26.9% from VND1,621 billion in 2010 to VND1,185 billion in 2011. The decrease was primarily due to the recognition of negative goodwill amounting to VND1,240 billion in relation to the acquisition of Nui Phao through Masan Resources in 2010. Such decline was partially offset by an increase in net interest income from our larger cash balance. If we were to exclude the negative goodwill in 2010, financial income increased from VND381 billion in 2010 to VND1,185 billion in 2011.
Investments in Associate
Investments in associate increased by 15.1% to VND9,321 billion as at December 31, 2011 from VND8,100 billion as at December 31, 2010. Masan Group increased its economic interest in Techcombank to 30.8% on January 10, 2011 from 28.9% on December 31, 2010 through the purchase of 2,834,402 convertible bonds issued by Techcombank from other bondholders. Our economic interest in Techcombank is currently 30.6% due to Techcombanks issuance of new shares for ESOP.
Financial Expenses
Financial expenses increased by 28.7% to VND348 billion in 2011, from VND270 billion in 2010, driven mainly by an increase in interest expense to banks.
76 | Masan Group
Management Report
Total Assets
Total assets increased by 58.9% from VND21,130 billion as at December 31, 2010 to VND33,573 billion as at December 31, 2011, resulting from our capital raising activities, the consolidation of Vinacafes balance sheet after the acquisition, increase in investment in the associate, and our earnings.
Minority Interest
Minority interest as at December 31, 2011 increased to VND5,679 billion from VND1,525 billion as at December 31, 2010, mainly due to minority investments made in our subsidiaries by KKR and Mount Kellett and the acquisition of Vinacafe.
Borrowings
As at December 31, 2011, short-term and long-term borrowings increased by 54.2% to VND9,442 billion, representing 28.1% of total assets. Much of the increase in borrowings occurred at Masan Consumer, including the US$108 million syndicated loan arranged by J.P. Morgan. In addition, Masan Resources, through the Nui Phao project, began drawing down on its banking facilities to fund construction. Excluding the promissory notes, our short-term and long-term borrowings amounted to VND6,586 billion. The promissory notes of VND2,856 billion will be extinguished in the event the options to purchase primary shares in Masan Group are exercised with payments in the form of said promissory notes in lieu of cash. The options were given as part of the Nui Phao acquisition and are currently in the money as at December 31, 2011. We have the right to force convert the said options as at December 31, 2011 based on the terms of the options. Our total debt would be significantly lower if we were to exclude convertible instruments that are currently in the money.
Financial Income
Pro forma financial income increased by 196.6% from VND409 billion in 2010 to VND1,213 billion in 2011, mainly derived from income from bank deposits as a result of our higher cash balance.
Owners Equity
Owners equity as at December 31, 2011 was VND15,876 billion, as compared to VND10,624 billion as at December 31, 2010, representing a 49.4% increase year over year. The increase in owners equity was mainly derived from our earnings, equitylinked instruments issued to increase our economic interest in Techcombank and equity investments made in our subsidiaries.
78 | Masan Group
section title
Financial REPORT
80 | Masan Group
The Financial Report was reviewed by our auditor, KPMG. In this secction, Board of Management refers to our Board of Directors. This section was prepared in British English, while other sections were prepared using American English.
CORPORATE INFORMATION
Business Registration Certificate No 0303576603 20 October 2010
The Companys Business Registration Certificate has been amended several times, the most recent of which is dated 20 October 2010. The Certificate and its amendments were issued by the Ministry of Planning and Investment. The initial Business Registration Certificate No. 4103002877 was dated 18 November 2004. Board of Management Dr. Nguyen Dang Quang Mr. Ho Hung Anh Ms. Nguyen Hoang Yen Mr. Nguyen Thieu Nam Mr. Madhur Maini Mr. Lars Kjaer Registered Office Suite 802, Central Plaza 17 Le Duan Street Ben Nghe Ward, District 1 Ho Chi Minh City Vietnam Auditors KPMG Limited Vietnam Chairman Vice chairman Member Member Member Member
82 | Masan Group
Audit opinion
In our opinion, the separate and consolidated financial statements give a true and fair view of the financial positions of the Company and the Group, respectively, as of 31 December 2011 and the results of their operations and their cash flows for the year then ended in accordance with Vietnamese Accounting Standards, the Vietnamese Accounting System and the relevant statutory requirements.
KPMG Limited Vietnam Investment Certificate No: 011043000345 Audit Report No: 11-01-753
_________________________________ Nguyen Dang Quang Chairman Ho Chi Minh City, Vietnam 30 March 2012
_________________________________ ________________________________ Chang Hung Chun Tran Dinh Vinh CPA No. 0863/KTV CPA No. 0339/KTV Deputy General Director Ho Chi Minh City, 30 March 2012
84 | Masan Group
BALANCE SHEETS
At 31 December 2011
Code
Note
Group 31/12/2011 VND million 31/12/2010 VND million 4,626,838 3,394,575 1,155,118 2,239,457 490,000 314,209 64,125 83,966 166,823 (705) 290,200 296,547 (6,347) 137,854 10,131 118,872 2 8,849
Company 31/12/2011 VND million 2,291,494 1,510,736 23,284 1,487,452 373,000 387,496 57,977 329,519 20,262 1,391 17,739 1,132 31/12/2010 VND million 1,636,159 1,037,261 1,037,261 592,463 4,692 587,771 6,435 262 5,877 296 Other long-term assets Long-term prepayments Deferred tax assets Other long-term assets Goodwill TOTAL ASSETS Accounts receivable long-term Other receivables Fixed assets Tangible fixed assets Cost Accumulated depreciation Finance lease tangible fixed assets Cost Accumulated depreciation Intangible fixed assets Cost Accumulated amortisation Construction in progress Long-term investments Investments in subsidiaries Investments in an associate Long-term assets
Code
Note
Group 31/12/2011 VND million 31/12/2010 VND million 16,502,700 8,261,999 561,229 777,268 (216,039) 11,686 16,871 (5,185) 72,564 85,882 (13,318) 7,616,520 8,099,909 8,099,909 140,792 70,771 49,154 17,295 3,572 21,129,538
Company 31/12/2011 VND million 22,289,000 2,762,294 2,762,294 19,201 14,317 16,519 (2,202) 1,316 1,451 (135) 3,568 19,490,421 10,557,997 8,932,424 17,084 7,400 9,684 24,580,494 31/12/2010 VND million 18,672,990 2,039 251 269 (18) 219 234 (15) 1,569 18,661,978 10,557,997 8,103,981 8,973 8,730 243 20,309,149
ASSETS Current assets Cash and cash equivalents Cash Cash equivalents Short-term investments Accounts receivable Accounts receivable - trade Prepayments to suppliers Other receivables Allowance for doubtful debts Inventories Inventories Allowance for inventories Other current assets Short-term prepayments Deductible value added tax Taxes and other receivables from State Treasury Other current assets 100 110 111 112 120 130 131 132 135 139 140 141 149 150 151 152 154 158 7 12 6 5 12,541,434 9,573,593 175,717 9,397,876 1,222,500 903,317 193,615 363,633 347,153 (1,084) 612,845 625,746 (12,901) 229,179 129,695 55,418 103 43,963 200 210 218 220 221 222 223 224 225 226 227 228 229 230 250 251 252 260 261 262 268 269 270 15 13 14 11 12 10 9 8 6 21,031,185 11,287,505 879,199 1,196,701 (317,502) 983,239 1,021,469 (38,230) 9,425,067 9,321,085 9,321,085 422,595 88,066 24,798 32,626 277,105 33,572,619
The accompanying notes are an integral part of these financial statements 86 | Masan Group
The accompanying notes are an integral part of these financial statements 2011 Annual Report | 87
BALANCE SHEETS
At 31 December 2011 (continued)
STATEMENTS OF INCOME
For the year ended 31 December 2011
Code
Note
Group 31/12/2011 VND million 31/12/2010 VND million 8,981,050 3,224,917 1,124,674 443,583 7,997 152,842 5,395 502,838 987,588 5,756,133 5,000,560 751,021 4,552 10,623,685 10,623,685 5,152,723 2,166,136 9,651,713 3,189 (9,062,082) 2,712,006 1,524,803 21,129,538 Approved by:
Company 31/12/2011 VND million 6,821,280 3,237,125 2,630,000 523 5,193 339,697 261,712 3,584,155 256,195 3,327,960 17,759,214 17,759,214 5,152,723 2,166,136 10,462,804 (22,449) 24,580,494 31/12/2010 VND million 3,138,393 1,180,433 20,728 1,360 27 175,667 982,651 1,957,960 1,957,960 17,170,756 17,170,756 5,152,723 2,166,136 9,651,713 200,184 20,309,149 Income tax expense current Income tax (expense)/benefit deferred Net profit/(loss) (carried forward to next page) Profit/(loss) before tax Share of profit in an associate Results of other activities Other income Other expenses Gross profit Financial income Financial expenses Selling expenses General and administration expenses Net operating profit/(loss) Cost of sales Net sales Less sales deductions Total revenue
Code
Group 2010 VND million 5,689,498 (103,211) 5,586,287 (3,194,617) 2,391,670 1,620,919 (270,277) (951,265) (213,732) 2,577,315
Company 2011 VND million 645,584 (717,657) (150,487) (222,560) 2010 VND million 255,443 (169,015) (62,291) 24,137
RESOURCES LIABILITIES Current liabilities Short-term borrowings and liabilities Accounts payable trade Advances from customers Taxes payable to State Treasury Payables to employees Accrued expenses Other payables Long-term borrowings and liabilities Other long-term liabilities Long-term borrowings and liabilities Deferred tax liabilities Provision for severance allowance EQUITY Owners equity Share capital Capital surplus Other capital Foreign exchange differences Other reserves Retained profits MINORITY INTERESTS TOTAL RESOURCES Prepared by: 300 310 311 312 313 314 315 316 319 330 333 334 335 336 400 410 411 412 413 416 418 420 439 440 12 22 22 23 19 20 14 21 18 19 17 16 12,017,587 3,625,783 2,032,397 422,772 7,994 291,359 12,618 824,384 34,259 8,391,804 7,409,781 973,459 8,564 15,875,652 15,875,652 5,152,723 2,166,136 10,462,804 (16,066) (6,569,981) 4,680,036 5,679,380 33,572,619 01 02 10 11 20 21 22 24 25 26 27 24 24 24 25 7,239,003 (182,154) 7,056,849 (3,997,834) 3,059,015 1,185,206 (347,725) (1,010,149) (406,374) 2,479,973 40 31 32 41 50 51 52 31 31 28 29 30 22,169 (26,303) 392,733 2,868,572 (247,114) (125,450) 19,370 (11,162) 160,598 2,746,121 (140,638) 23,734 (73) (222,633) 24,137 -
60
2,496,008
2,629,217
(222,633)
24,137
The accompanying notes are an integral part of these financial statements 2011 Annual Report | 89
STATEMENTS OF INCOME
For the year ended 31 December 2011 (continued)
Code
Note
Group: Foreign exchange differences VND million Bonus and welfare funds VND million Equity attributable to equity holders of Company VND million
Net profit/(loss) (brought forward from previous page) Attributable to: Minority interests Equity holders of the Company Earnings per share Basic earnings per share in VND Diluted earnings per share in VND 70 70 34 34 61 62
2,496,008
522,859 1,973,149
346,178 2,283,039
Balance at 1 January 2010 Increase in minority interests from acquiring Nui Phao Mining Co., Ltd. Acquisition of minority interests in subsidiaries Issuance of equity instruments Increase in minority interests from share capital issued by a subsidiary
4,853,998
1,421,817
(1,947,256)
(1,178)
434,707
4,762,088
307,451
5,069,539
2,909 2,523
4,635 4,243
1,927,839
1,927,839
9,651,713
(7,101,647) -
(7,101,647) 9,651,713
(1,109,679) -
(8,211,326) 9,651,713
298,725 -
744,319 -
(13,179) -
2,283,039
53,179 346,178
Prepared by:
Approved by:
Share capital issued Net profit for the year Appropriation to bonus and welfare funds
(5,740) -
(2,414) (2,148)
13 (975)
(2,401) (3,123)
Utilisation of bonus and welfare funds Reclassification to current liabilities Foreign exchange differences in a subsidiary Balance at 31 December 2010
5,152,723
2,166,136
9,651,713
3,189 3,189
(9,062,082)
2,712,006
3,189 10,623,685
797 1,524,803
3,986 12,148,488
The accompanying notes are an integral part of these financial statements 90 | Masan Group
The accompanying notes are an integral part of these financial statements 2011 Annual Report | 91
Company Share capital Total VND million Balance at 1 January 2010 Share capital issued VND million 4,853,998 298,725 5,152,723 5,152,723 Capital surplus VND million 1,421,817 744,319 2,166,136 2,166,136 Other capital VND million 9,651,713 9,651,713 811,091 10,462,804 Retained profits VND million 176,047 24,137 200,184 (222,633) (22,449) Total VND million 6,451,862 1,043,044 24,137 9,651,713 17,170,756 (222,633) 811,091 17,759,214
5,152,723 -
2,166,136 -
9,651,713 811,091
3,189 -
(9,062,082) -
2,712,006 -
10,623,685 811,091
1,524,803 -
12,148,488 811,091
Net profit for the year Issuance of equity instruments Balance at 31 December 2010
800,370
800,370
Net loss for the year Issuance of equity instruments (Note 12)
(19,255) -
2,492,101 -
1,973,149 (5,119)
Prepared by:
Approved by:
5,152,723
2,166,136
10,462,804
(16,066)
(6,569,981)
4,680,036
15,875,652
5,679,380
21,555,032
The accompanying notes are an integral part of these financial statements 92 | Masan Group
The accompanying notes are an integral part of these financial statements 2011 Annual Report | 93
Code
Note
Code
Note
CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for Depreciation and amortisation Allowances and provisions Net unrealised foreign exchange differences Loss on disposal of fixed assets and other long-term assets Interest income Interest expense Negative goodwill Share of profit in an associate Operating profit/(loss) before changes in working capital Change in receivables and other assets Change in inventories Change in payables and other liabilities Interest paid Corporate income tax paid Other payments for operating activities Net cash generated from/(used in) operating activities 02 03 04 05 05 06 07 07 08 09 10 11 13 14 16 20 142,120 86,870 (16,689) 5,210 (1,124,958) 316,251 (392,733) 1,884,643 (35,172) (173,878) 74,423 1,750,016 (149,650) (148,616) (11,304) 1,440,446 104,599 11,032 (1,203) 547 (357,405) 233,629 (1,239,714) (160,598) 1,337,008 (44,579) (98,509) 343,745 1,537,665 (105,384) (92,865) (2,414) 1,337,002 5,112 (18,184) (602,109) 701,046 (136,768) (136,272) 23,508 (249,532) (59,020) (308,552) 1,038 (1,203) (237,919) 147,634 (66,313) (480,918) 34,709 (512,522) (19,715) (532,237) 01 2,868,572 2,746,121 (222,633) 24,137
CASH FLOWS FROM INVESTING ACTIVITIES Payments for additions to fixed assets and other long-term assets Proceeds from disposals of fixed assets and other long-term assets Collections on loans to Viet Capital Securities Joint Stock Company Loans provided to subsidiary Collections on loans to subsidiary Loans provided to related parties Collections on loans to related parties Placements of term deposit to banks Withdrawal of term deposit received Payment for investments in associate Net cash (used in)/generated from acquisition of subsidiary Payments for investments in subsidiaries and other entities Payments for investments in bonds Proceeds for investments in bonds Proceeds from sales of other long-term investment Receipts of interest Net cash used in investing activities
21 22 23 23 23 23 23 24 24 25 25 25 25 25 26 27 30 4
(2,208,260) 2,406 (715,000) 715,000 (46,504,552) 46,145,052 (1,000,000) (808,828) (800,000) 427,000 994,340 (3,752,842)
(851,009) 3,394 50,000 (806,200) 806,200 (6,211,858) 6,447,858 (596,449) 4,515 (1,000,000) 128,539 251,981 (1,773,029)
The accompanying notes are an integral part of these financial statements 94 | Masan Group
The accompanying notes are an integral part of these financial statements 2011 Annual Report | 95
Code
Note
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from shares issued Proceeds from minority interest capital contribution to subsidiaries Proceeds from short-term and long-term borrowings Payments to settle debts Payments of borrowing fees Net cash generated from financing activities Net cash flows during the year Cash and cash equivalents at the beginning of the year Effect of exchange rate fluctuation on cash and cash equivalents Cash and cash equivalents at the end of the year 31 31 33 34 36 40 50 60 61 70 5 5,329,180 5,215,862 (2,092,857) 8,452,185 6,139,789 3,394,575 39,229 9,573,593 1,057,621 40,000 3,322,805 (1,688,018) (9,735) 2,722,673 2,286,646 1,123,616 (15,687) 3,394,575 4,000,000 4,000,000 455,291 1,037,261 18,184 1,510,736 1,057,621 1,344,850 (9,735) 2,392,736 688,683 364,265 (15,687) 1,037,261 Ta Thi Thuy Trang Chief Accountant Cost of investment acquired by issuing debts Cost of investments acquired by issuing equity instruments Loan transaction cost deducted against loan proceeds Disposal of fixed assets by setting off against trade payables
811,091 164,944 -
Prepared by:
Approved by:
The accompanying notes are an integral part of these financial statements 96 | Masan Group
The accompanying notes are an integral part of these financial statements 2011 Annual Report | 97
These notes form an integral part of and should be read in conjunction with the accompanying financial statements.
1. REPORTING ENTITY
Ma San Group Corporation (the Company) is a joint stock company incorporated in Vietnam. The principal activity of the Company is in investment holding. The consolidated financial statements comprise the Company and its subsidiaries (together referred to as the Group) and the Groups interest in an associate. The principal activities of the subsidiaries are described as follows:
Business combination where the same group of shareholders (the Controlling Shareholders) control the combining companies before and after the business combination meets the definition of business combination under common control because there is a continuation of the risks and benefits to the Controlling Shareholders. Such common control business combination is specifically excluded from the scope of Vietnamese Accounting Standard 11 Business Combination and in selecting its accounting policy with respect to such transaction, the Group has considered Vietnamese Accounting Standard 01 Framework and Vietnamese Accounting Standard 21 Presentation of Financial Statements. Based on these standards, the Group has adopted the merger (carry-over) basis of accounting. The assets and liabilities of the combining companies are consolidated using the existing book values from the Controlling Shareholders perspective. Any difference between the cost of acquisition and net assets acquired is treated as a deemed distribution to or contribution from shareholders and recorded directly in equity. The consolidated income statements, consolidated statements of changes in equity and consolidated cash flow statements include the results of operations of the combining companies as if the group structure had been in existence from the Controlling Shareholders perspective throughout the entire periods presented (or where the companies were incorporated at a date later than the beginning of the earliest period presented, for the period from the date of incorporation to the end of the relevant reporting periods).
(*) Gerbera Consultant Company Limited and Dahlia Company Limited are not owned by the Company but the Company has been assigned 100% of the voting rights and all economic benefits relating to the ownership in these companies. As such, the Company has control of these companies.
98 | Masan Group
c. Adoption of Circular No. 210/2009/TT-BTC of the Ministry of Finance on presentation and disclosures of financial instruments
Effective from 1 January 2011, the Group adopted the requirements of Circular No. 210/2009/TT-BTC of the Ministry of Finance on presentation and disclosures of financial instruments (Circular 210) prospectively. The adoption of Circular 210 did not have a material effect on the measurement or presentation of financial instruments in the financial statements. The financial statements disclosures specified in Circular 210 are not required for corresponding figures due to the prospective application. Fair value measurement and disclosures According to Circular 210, the Group and the Company discloses the fair value of financial assets and financial liabilities as compared to their carrying values in Note 36. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction on the measurement date. When available, the Group and the Company measure the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arms length basis.
h. Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis and includes all costs incurred in bringing the inventories to their present location and condition. Cost in the case of finished goods and work in progress includes raw materials, direct labour and attributable manufacturing overheads. Net realisable value is the estimated selling price of inventory items, less the estimated costs of completion and selling expenses. The Group apply the perpetual method of accounting for inventory.
f. Investments
Investments in term deposits and debt instruments; investments in equity instruments of entities over which the Group has no control or significant influence in the consolidated financial statements; and investments in all equity instruments in the separate financial statements are stated at cost. Allowance is made for reductions in investment values which in the opinion of the management are not temporary. The allowance is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the allowance was recognised. An allowance is reversed only to the extent that the investments carrying amount does not exceed the carrying amount that has been determined if no allowance had been recognised.
2. Summary of significant accounting policies (CONTINUED) j. Finance lease tangible fixed assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Tangible fixed assets acquired by way of finance leases are stated at an amount equal to the lower of fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation. Depreciation on leased assets is computed on a straight-line basis over the estimated useful lives of items of the leased assets. The estimated useful lives of leased assets are consistent with the useful lives of tangible fixed assets as described in accounting policy 2(i).
m. Long-term prepayments
Land use rights are stated at cost less accumulated amortisation. The initial cost of a land use right comprises its purchase price and any directly attributable costs incurred in conjunction with securing the land use right. Amortisation is computed on a straight-line basis over their useful lives ranging from 40 to 47 years. (ii) Software Cost of acquisition of new software, which is not an integral part of the related hardware, is capitalised and treated as an intangible asset. Software is amortised on a straight-line basis over four and five years. (iii) Brand name Cost of acquisition of brand name is capitalised and treated as an intangible asset. Brand name is amortised on a straight-line basis over five years. The fair value of brand name acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of the brand name being owned. The fair value of brand name acquired in a business combination is recognised as an intangible asset and is amortised on a straight-line basis over ten years. (iv) Customer relationships Customer relationships that are acquired by the Group on the acquisition of subsidiary is capitalised and presented as an intangible asset. The fair value of customer relationships acquired in a business combination is determined using the multi-period excess earnings method, whereby the subject assets are valued after deducting a fair return on all other assets that are part of creating the related cash flows. The fair value of customer relationship is amortised on a straight line basis over five years. Loan origination costs are incurred in conjunction with the arrangement of long-term borrowings and are amortised on a straight-line basic over the tenure of the borrowings. Prepaid land costs comprise prepaid land lease rentals and other costs incurred in conjunction with securing the use of leased land. These costs are recognised in the statement of income on a straight-line basis over the term of the lease from 47 to 50 years. (iii) Tools and supplies and printing axles Tools and supplies and printing axles are stated at cost and amortised over their useful lives ranging from six months to two years. (iv) Borrowing fees (i) Pre-operating expenses Pre-operating expenses are recorded in the statement of income, except for establishment costs and expenditures on training, advertising and promotional activities incurred from the incorporation date to the commercial operation date. These expenses are recognised as longterm prepayments, initially stated at cost, and are amortised on a straight line basis over three years staring from the date of commercial operation. (ii) Prepaid land costs
n. Goodwill
Goodwill arises on acquisition of subsidiaries and associate in non-common control acquisition. Goodwill is measured at cost less accumulated amortisation. Goodwill is amortised on a straight-line basis over ten years. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying value of the investment.
r. Equity
(i) Share capital and capital surplus Ordinary share capital is classified as equity. The excess of proceeds contributed over the par value of shares issued is recorded as capital surplus. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from capital surplus. (ii) Other capital Agreements to issue a fixed number of shares in the future are recognised based on their fair values at the dates of the agreements under other capital if there are no other settlement alternatives. (iii) Other reserves
p. Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Equity movements resulting from common-control business combination and acquisition of/disposal to minority interests are recorded in Other Reserves in equity.
s. Revenue q. Taxation
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the statement of income except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Revenue from the sale of goods is recognised in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due or the possible return of goods.
2. Summary of significant accounting policies (CONTINUED) t. Financial income and financial expenses
(i) Financial income Financial income comprises interest income from deposits and loans, negative goodwill and foreign exchange gains. Interest income is recognised as it accrues in the statement of income. (ii) Financial expenses Financial expenses comprise interest expenses on borrowings and foreign exchange losses. Borrowing costs are recognised as an expense in the year in which they are incurred, except where the borrowing costs relate to borrowings in respect of the construction of tangible fixed assets, in which case the borrowing costs incurred during the period of construction are capitalised as part of the cost of the fixed assets concerned.
The Group also invested in and has significant influence in a joint stock bank and the Groups Board of Management considers Financial Services as a separate business segment.
w. Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Groups primary format for segment reporting is based on business segments.
x. Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
Segment assets and liabilities exclude deferred tax assets and liabilities, respectively. Geographical segments
4. Business combination
On 17 October 2011 and 4 November 2011, a subsidiary, Ma San Consumer Corporation acquired 13,320,000 shares and 35,261 shares of VinaCafe Bien Hoa Joint Stock Company (Vinacafe), respectively, for a total consideration of VND1,069,096 million, excluding transaction costs. Such acquisitions resulted in Ma San Consumer Corporation and the Group having 50.25% and 38.4% effective ownership in Vinacafe at 31 December 2011, respectively.
31/12/2010 31/12/2011 VND million 31,278,587 2,294,032 33,572,619 5,886,690 6,130,897 12,017,587
Cash and cash equivalent at 31 December 2011 of the Group and the Company included amounts denominated in currencies other than VND amounting to VND2,334,375 million (31/12/2010: VND532,095 million) and VND199,750 million (31/12/2010: VND527,493 million), respectively.
6. ACCOUNTS RECEIVABLE
As at 31 December 2011, certain trade receivables of the Group were pledged with banks as security for loans granted to subsidiaries (see Note 16). Other receivables comprised: Group 31/12/2011 VND million Non-trade receivables from related companies Accrued interest receivable from: Deposits Investments in bonds Services receivable Others 44,022 13,757 44,566 12,409 347,153 38,159 19,041 166,823 4,931 13,757 44,566 329,519 521 540 587,771 232,399 31/12/2010 VND million 109,623 Company 31/12/2011 VND million 266,265 31/12/2010 VND million 586,710
Goodwill recognised on the acquisition is attributable mainly to synergies which management expect to realise by integrating Vinacafe into the Groups existing business. The profit of Vinacafe after the acquisition was VND25,706 million. The revenue and profit of Vinacafe prior to the acquisition was VND1,252,950 million and VND185,407 million, respectively.
The non-trade amounts due from Ma San Corporation represented financial income with respect to accrued interest on convertible instrument. Ma San Corporation undertakes the risks and obligations to subscribe to and pay for the shares under the convertible instrument in the event the lender of the convertible instruments chooses not to convert prior to maturity (see Note 20(c)). At 31 December 2011, the non-trade long-term loans due from other related companies of the Company amounting to VND2,762,294 million consist of: (a) An unsecured long-term loan amounting to VND2,000,000 million due from a subsidiary. The loan bears an interest rate of up to 16% per annum and is repayable within eight years in equal instalments starting from thirty months since the first drawn down date;
The Group and the Company believe that, apart from the amount provided for above, no further allowance for doubtful debts is necessary in respect of the outstanding trade, other receivables and investments as of 31 December 2011. The ageing analysis of the trade and other receivables prior to allowance is as follows: Group 31/12/2011 Gross VND million Not past due Past due 0 30 days Past due 31 180 days Past due over 180 days 480,085 47,526 11,247 1,910 540,768 Impairment losses VND million (1,084) (1,084) Company 31/12/2011 Gross VND million 329,519 329,519 Impairment losses VND million -
(b) Facility fees of 15% per annum amounting to VND121,755 million on an unsecured loan facility made available to a subsidiary of USD108 million, which has not been drawn down by the subsidiary as at 31 December 2011. The facility fee is repayable in 2014; and (c) An unsecured funding agreement between the Company and its subsidiaries for a principal amount of VND487,500 million. The loans are interest free and will be repayable on the maturity date in 2014.
The Group and the Companys exposure to credit risk in relation to receivables is influenced mainly by the individual characteristics of each customer or counter party. In response to the risk, the Group generally transact with customers on cash on delivery terms. For instances where customers are granted credit terms, management has established a credit policy under which each customer is analysed individually for creditworthiness before credit terms are offered. The carrying amount of the trade and other receivables represents the maximum credit exposure. The Group and the Company establishes allowance for doubtful debt that represents its estimate of incurred losses in respect of trade and other receivables.
7. Inventories
Group 31/12/2011 VND million Goods in transit Raw materials Tools and supplies Work in progress Finished goods Allowance for inventories 31,028 409,748 1,152 64,939 118,879 625,746 (12,901) 612,845 31/12/2010 VND million 40,210 143,566 392 54,965 57,414 296,547 (6,347) 290,200 Company 31/12/2011 VND million 31/12/2010 VND million -
Movements in the allowance for inventories during the year were as follows:
Opening balance Increase in allowance during the year Allowance utilised during the year Closing balance
As at 31 December 2011, certain inventories of the Group were pledged with banks as security for loans granted to a subsidiary (see Note 16).
Included in the cost of tangible fixed assets were assets costing VND39,221 million which were fully depreciated as of 31 December 2011 (31/12/2010: VND17,205 million), but which are still in active use. The carrying amount of tangible fixed assets retired from active use and held for disposal amounted to VND23,946 million as of 31 December 2011 (31/12/2010: VND11,365 million). The carrying amount of temporarily idle equipment in tangible fixed assets amounted to VND7,914 million as of 31 December 2011 (31/12/2010: VND28,107 million).
Certain production equipment were leased by Masan Industrial Corporation under various finance lease agreements with Vietcombank Finance Lease Company, Ho Chi Minh City Branch. During the year, Masan Industrial Corporation acquired these fixed assets under finance leases and accordingly, reclassified them to tangible fixed assets.
At 31 December 2011, land use rights with a carrying value of VND55,088 million (31/12/2010: VND39,859 million) were pledged with banks as security for loans granted to the subsidiaries.
During the year, borrowing costs capitalised into construction in progress amounted to VND198,437 million (2010: VND3,463 million).
12. Investments
Group 31/12/2011 VND million Long-term investments Investments in subsidiaries Investment in an associate (a) 9,321,085 9,321,085 Short-term investments Short-term investments in bonds (b) Term deposits to banks (b) 373,000 849,500 1,222,500 490,000 490,000 373,000 373,000 8,099,909 8,099,909 10,557,997 8,932,424 19,490,421 10,557,997 8,103,981 18,661,978 31/12/2010 VND million Company 31/12/2011 VND million 31/12/2010 VND million
Details of the Companys investments in subsidiaries are as follows: 31/12/2011 VND million Ma San Consumer Corporation Hoa Bang Lang Consultant Company Limited Orchid Consultant Company Limited Ma San Horizon Corporation 8,400,824 516,600 441,200 1,199,373 10,557,997 31/12/2010 VND million
Masan Industrial Corporation Viet Tien Food Technology Joint Stock Company Ma San HD Joint Stock Company 8,400,824 516,600 441,200 1,199,373 10,557,997 Minh Viet Packaging Joint Stock Company VinaCafe Bien Hoa Joint Stock Company Ma San Horizon Corporation Ma San Resources Corporation Ma San Thai Nguyen Resources Company Limited Thai Nguyen Trading and Investment Company Limited Nui Phao Mining Company Limited Ma San PQ Corporation
b. Short-term investments
Term deposits to banks represent deposits with original terms to maturity of more than three months from their transaction dates. The term deposits are denominated in Vietnam Dong and earned interest at 14% per annum during the year (2010: 11%). The short-term investments in bonds represent investment in three non-convertible bonds which were unsecured, bore interest at 15% per annum and mature within a year. The Group has the intention and ability to hold the investment in debt instruments to their maturity. The carrying amount of the deposits and debt instruments represent the maximum credit exposure. At 31 December 2011, the fair value of the short-term investments approximate their carrying values.
In addition, MSC issued shares to certain employees, resulting in the following effects: VND million Shares issued at par not subscribed by the Group Net assets diluted Difference recorded in other reserves 26,143 (95,632) (69,489)
c. Transactions in subsidiaries
(i) Transactions with non-controlling interests in Ma San Consumer Corporation On 7 April 2011, an investor subscribed for new shares issued by Ma San Consumer Corporation (MSC) equivalent to 10% of its outstanding shares after such issuance for VND3,327,552 million.
Company Borrowing fees VND million Opening balance Additions Amortisation for the year Closing balance 8,730 (2,010) 6,720 Website fees VND million 1,478 (798) 680 Total VND million 8,730 1,478 (2,808) 7,400
(iii) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Group 31/12/2011 VND million Other accruals Tax losses 58,760 58,760 31/12/2010 VND million 205 7,150 7,355 Company 31/12/2011 VND million 53,630 53,630 31/12/2010 VND million 893 893
Year of expiry
Tax losses available Group VND million Company VND million 3,572 210,948 214,520
Currency
15. Goodwill
Group VND million Cost Opening balance Addition through business combination Closing balance Accumulated amortisation Opening balance Amortisation for the year Closing balance Net book value Opening balance Closing balance 3,572 277,105 2,382 5,241 7,623 5,954 278,774 284,728
Short-term borrowings Secured bank loans Secured bank loans Unsecured bank loans Unsecured bank loans Unsecured loan from a subsidiary Unsecured loan from majority vendors Unsecured loan from majority vendors Unsecured loan from parent company VND USD VND USD VND VND USD VND 15.2%-18.7% 6.5% 15.7%-18% 5.30% - 7.0% 15% - 18% 15% 15% 815,822 1,536 481,370 1,298,728 724,255 37,049 72,206 16,134 1,977 27,003 205,679 1,084,303 2,000,000 2,000,000 -
The short-term interest expenses payable to a subsidiary were unsecured and payable on maturity of the loan. Other long-term payables to a subsidiary amounting to VND256,195 million comprise of interest expenses and facility fees, which were unsecured and payable on maturity of the loan and facility agreement.
b. Promissory notes c. Convertible bonds and loans issued to: TPG International Finance Corporation Jade Dragon (Mauritius) Limited
(b)
VND
2016-2017
2,855,764
Terms and conditions of outstanding long-term borrowings and liabilities are as follows: Interest rate per annum Year of maturity d. Finance lease liabilities Group 31/12/2011 VND million a. Long-term borrowings (a) Secured bank loans Secured bank loans Unsecured bank loans Unsecured bank loans Unsecured loan from a subsidiary VND USD VND USD VND 9.6%-20% 3.72%-3.83% 18% 6.80% 18% 2016 3,329,726 222,233 2,000,000 2,000,000 2012-2016 2014 2016 2014 1,080,302 2,249,424 147,480 13,990 45,815 14,948 31/12/2010 VND million Company 31/12/2011 VND million 31/12/2010 VND million Finance lease liabilities Finance lease liabilities VND USD 12% 7% 2011-2013 2011-2013 804 4,170 4,974 -
Currency
(a) As at 31 December 2011, long-term borrowings comprised of: i. VND loans amounting to VND430,302 million were secured over fixed assets with a carrying amount of VND310,560 million (31/12/2010: VND177,237 million). ii. VND loan amounting to VND650,000 million was secured over future assets and exploitation rights relating to Nui Phao mine and 68,521,729 shares held by the Company in Techcombank, with maximum facility of VND2,376,900 million. iii. USD loan amounting to VND2,249,424 million bear interest at LIBOR plus 3.5% per annum during the first year, LIBOR plus 7% per annum during the second year and LIBOR plus 10% per annum during the third year after draw down. The outstanding balance at 31 December 2011 is repayable in one instalment on the termination date. The Group has the option to extend the loan after twelve, eighteen, twenty four and thirty months upon payment of an extension fee amounting to VND56,797 million for each extension. The facility is available for thirty-six months.
As at 31 December 2011, the Group has an undrawn USD90 million facility with a syndicate of local banks. The facility is secured by 69,321,837 shares held by the Company in Techcombank. As at 31 December 2011, long-term borrowings of the Company comprised an unsecured VND loan from a subsidiary amounting to VND2,000,000 million which was unsecured and bore interest at 18% per annum. The loan matures in 5 years from the drawdown date, which occurred on 17 August 2011. The principal and interest are payable on the date of maturity. (b) Promissory notes are payable on 23 September 2016 and 23 September 2017 for VND237,980 million and VND2,617,784 million, respectively, in relation to the acquisition of Nui Phao Mining Company Limited (NPV) from a foreign investor and its affiliates (collectively, the majority vendor) in 2010. These promissory notes were issued as consideration for the acquisition of NPV. In addition to the promissory notes above, the Group has issued several instruments as part of the cost of acquisition. Below are the financial details and key commercial terms of the instruments issued. These instruments have not been recognised in the financial statements. i. Company primary share option - the Company granted the majority vendor an option to purchase VND1,962,320 million worth of the Company shares at a price of VND65,915 per share, equalling 29,770,465 shares of the Company. The option can be exercised in cash or by extinguishing the promissory notes, at the discretion of the majority vendor. The majority vendor shall have the right to exercise the option for the period commencing on the third anniversary following 23 September 2010 until the fifth anniversary. The Company is able to require conversion anytime after the Companys share price reaches VND65,915 for 15 consecutive days, upon which the Company can either pay the promissory notes issued to the majority vendor or require the majority vendor to exercise the option. ii. MR ownership adjustment - the Group has entered into an agreement with the majority vendor in which the Group will give the majority vendor up to 12% (31/12/2010: 15%) of its interest in MR if the prices of tungsten-related products or commodities increase above the agreed set of ranges. In return, the majority vendor will give the Group up to 4% (31/12/2010: 5%) of its interest in MR if the prices of tungsten-related products or commodities decrease below the agreed set of ranges. The option can be exercised at no cost during the 15 days following the availability of NPVs audited financial statements for the year after the year that NPV produces more than 300,000 metric ton units of contained tungsten trioxide. Any potential adjustment in the shareholding of MR will be included in the call option and put options as described below, without any adjustments to the cost of the exercise prices of such options. iii. MR call and put options the majority vendor has granted the Group a call option to purchase 100% of its shares in MR in cash within three years of the option date, which will increase its economic interest in MR from 65% to 80%. The exercise prices are defined on a quarterly basis over the three year period and ranged from VND1,164,320 million to VND1,710,000 million. In return, the Company has granted the majority vendor a put option to put 100% of its shares in MR for the primary shares of the Company based on a valuation of VND1,710,000 million during the period of one month after the lapse of the above three year period at VND65,915 per share.
(c.3) This loan represents a USD-denominated convertible loan, with a principal amount of USD30 million. Among others, the agreement provides the following: i. The interest rate of this loan has two portions: nominal interest rate and deferred interest rate. Deferred interest is not payable if the loan is converted. During the period from 15 December 2010 to 14 December 2012 the nominal interest rate and deferred interest rate are 2% per annum and 6% per annum respectively. During the period from 15 December 2012 to 14 December 2013 the nominal interest rate and deferred interest rate are 4% per annum and 4% per annum respectively. During the period from 15 December 2013 to 14 December 2015 the nominal interest rate and deferred interest rate are 6% per annum and 2% per annum respectively. The loan matures on 14 December 2015. The nominal interest rate is compounded daily and the deferred interest rate is compounded annually. ii. The loan may be converted into shares by the lender at any time after two years from 15 December 2010 to the loans maturity date. iii. The conversion price was determined at VND65,000 per share. iv. The Group also separately entered into an arrangement with Ma San Corporation which undertakes the risks and obligations to subscribe to and pay a cash consideration of USD30 million plus the deferred interest for 9,000,000 shares under the convertible loan in the event that the lender does not exercise the conversion option.
515,272,269 -
5,152,723 2,166,136
515,272,269 -
5,152,723 2,166,136
All ordinary shares have a par value of VND10,000. Each share is entitled to one vote at meetings of the Company. Shareholders are entitled to receive dividends as declared from time to time. All ordinary shares are ranked equally with regard to the Companys residual assets. In respect of shares bought back by the Company, all rights are suspended until those shares are reissued.
Group 2011 VND million Current tax expense Current year Under provision in prior years 242,683 4,431 247,114 Deferred tax expenses/(income) Origination and reversal of temporary differences 125,450 125,450 2010 VND million Income tax expense 372,564 (22,914) (820) (23,734) 116,904 140,060 578 140,638 2010 VND million
Group The Company has an obligation to pay the government corporate income tax at the rate of 25% of taxable profits. 2011 % Profit before tax Tax at the Companys income tax rate Effect of different tax rates in subsidiaries Non-deductible expenses Tax exempt income Deferred tax assets not recognised Tax losses utilised previously not recognised Under provision in prior years 25.00% (11.80%) 1.37% (3.42%) 1.84% (0.15%) 0.15% 12,99% Tax exempt income represents the tax effects on negative goodwill and share of profit of associate. VND million 2,868,572 717,143 (338,558) 39,313 (98,183) 52,739 (4,321) 4,431 372,564 25.00% (8.48%) 0.48% (12.75%) 0.21% (0.22%) 0.02% 4,26% % 2010 VND million 2,746,121 686,531 (232,757) 13,109 (350,078) 5,647 (6,126) 578 116,904 The Companys subsidiaries enjoy various tax incentives which provide some subsidiaries with further tax exemptions and reductions. d. Tax contingencies The taxation laws and their application in Vietnam are subject to interpretation and change over time as well as from one tax office to another. The final tax position may be subject to review and investigation by a number of authorities, who are enabled by law to impose severe fines, penalties and interest charges. These facts may create tax risks in Vietnam that are substantially more significant than in other countries. Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation, including on transfer pricing requirements and computation of corporate income tax. However, the relevant authorities may have differing interpretations and the effects could be significant.
Company 2011 % (Loss)/profit before tax Tax at the Companys income tax rate Non-deductible expenses Tax loss utilised previously not recognised Deferred tax asset not recognised (25.00%) 1.31% 23.69% VND million (222,633) (55,658) 2,921 52,737 25.00% 0.38% (25.38%) % 2010 VND million 24,137 6,034 92 (6,126) -
33. COMMITMENTS
a. Capital expenditure As at 31 December 2011, the following outstanding capital commitments have been approved but not provided for in the balance sheet: Group 31/12/2011 VND million Approved and contracted Approved but not contracted 1,577,637 235,345 1,812,982 b. Leases The future minimum lease payments under non-cancellable operating leases were: Group 31/12/2011 VND million Within one year Within two to five years More than five years 62,198 103,647 34,450 200,295 31/12/2010 VND million 36,057 49,274 35,653 120,984 Company 31/12/2011 VND million 23,619 35,738 59,357 31/12/2010 VND million 1,570 870 2,440 31/12/2010 VND million 78,881 639,581 718,462 Company 31/12/2011 VND million 31/12/2010 VND million
(ii) Weighted average number of ordinary shares Issued ordinary shares at the beginning of the year Effect of shares issued for cash Effect of share issued solely after the passage of time Effect of equity instruments issued for the acquisition of additional interest in an associate Weighted average number of ordinary shares at the end of the year 515,272,269 152,579,160 10,518,256 678,369,685 485,399,820 7,146,282 492,546,102 2011 2010
b. Diluted earnings per share The calculation of diluted earnings per share for year ended 31 December 2011 was based on profit attributable to shareholders and a weighted average number of ordinary shares outstanding after adjustment for the effect of all dilutive potential ordinary shares arising on convertible bonds and options. (i) Net profit attributable to ordinary shareholders (diluted) 2011 VND million 2010 VND million 2,283,039 2,283,039
Net profit attributable to ordinary shareholders (basic) Share of profit attributed to minority shareholders, net of tax Net profit attributable to shareholders (diluted)
The diluted net profit attributable to shareholders took into account of share of net profit attributed to minority shareholders.
b. Liquidity risk Liquidity risk is the risk that the Group and the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Groups and the Companys approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Groups reputation. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. As at 31 December 2011, the financial liabilities with fixed or determinable payments have the following contractual maturities including the estimated interest payments:
At 31 December 2011, the subsidiary of the Company also has a commitment to issue 324,268 shares to employees for services rendered from April to December 2011, which has been included in the above total shares. Prior to listing, the Company entered into option agreements with management which allow for conversion based on a percentage of shares on a fully diluted basis. These option agreements were approved by the shareholders of the Company on 9 October 2009. The exercise dates are within 3 and 6 years from the agreement date. The exercise price depends on the market share price at VND10,000 or VND23,463 per share. As of 31 December 2011, the exercise price would have been VND23,463. The options were issued prior to listing and there is no service condition attached to the options. The number of option shares at 31 December 2011 was 37,128,838 (31 December 2010: 36,588,111) shares.
Company Carrying amount VND million Short-term borrowings and liabilities Accounts payable trade Accrued expenses Other payables Long-term borrowings and liabilities Long-term bonds issued 2,000,000 523 339,697 261,712 2,256,195 1,957,960 6,816,087 Contractual cash flows VND million (2,344,942) (523) (339,697) (261,712) (4,697,271) (2,133,346) (9,777,491) Within 1 year VND million (2,344,942) (523) (339,697) (261,712) (993,611) (3,940,485) 1 2 years VND million (452,506) (452,506) 2 5 years VND million (4,697,271) (687,229) (5,384,500) More than 5 years VND million -
Group USD Cash and cash equivalents Accounts receivable Other monetary assets Accounts payable Short-term borrowings and liabilities Long-term borrowings and liabilities Accrued expenses 110,370,528 6,800,480 1,414,721 (1,717,403) (73,755) (108,000,000) (4,752,148) 4,042,423 AUD (183,397) (673,223) (856,620)
Company EUR 1,284,391 1,392,000 (1,093,544) 1,582,847 USD 9,590,493 6,036,164 1,398,500 (6,036,164) (2,565,697) 8,423,296
It is not expected that the cash flows included in the Group and Companys maturity analysis could occur significantly earlier, or at significantly different amounts.
Below is an analysis of the possible impact on the net profit of the Group and net loss of the Company as at 31 December 2011 by a strengthening of the following currencies after taking into account the current level of exchange rates and the historical volatility as well as market expectations as at 31 December 2011. This analysis assumes that all other variables, in particular interest rates, remain constant. Group Increase/(decrease) in net profit as at 31/12/2011 VND million USD (10%) AUD (3%) EUR (1%) 21,824 (487) 381 21,718 Company Decrease in net loss as at 31/12/2011 VND million 13,158 13,158
The opposite movement of the currencies would have the equal but opposite effect to the net profit/(loss) of the Group and the Company as at 31 December 2011, respectively. Interest rate risk The Groups exposure to changes in interest rates relates primarily to floating rate interest-bearing financial assets and financial liabilities. Interest rate risk is managed by the Group on an on-going basis with the primary objective of limiting the extent to which interest expense could be affected by an adverse movement in interest rates. The Group does not hedge its exposure to changes in interest rates on interest-bearing borrowings.
31 December 2011
Note
Fair value VND million 373,000 329,519 2,445,120 1,510,304 518,057 5,176,000 (2,000,000) (2,115,646) (2,275,330) (601,932) (157,718) (30,759) (7,181,385)
Short-term investments Trade and other receivables Other receivables long-term Cash and cash equivalents Derivative assets
12 6 6 5
373,000 373,000
31 December 2011
Note
Fair value VND million 1,222,500 539,684 9,570,789 518,057 11,851,030 (1,298,728) (3,369,322) (1,200,602) (2,275,330) (1,294,033) (30,759) (9,468,774)
Short-term borrowings and liabilities Long-term borrowings and liabilities Convertible bonds/loans Trade and other payables (*) Other long-term liabilities Derivative liabilities
16 20 20 19
Short-term investments Trade and other receivables Cash and cash equivalents Derivative assets
12 6 5
1,222,500 1,222,500
Short-term borrowings and liabilities Long-term borrowings and liabilities Promissory notes Convertible bonds/loans Trade and other payables (*) Derivative liabilities
16 20 20 20
(*) Trade and other payables comprise of accounts payable-trade, payables to employees, accrued expenses and other payables.
(*) Trade and other payables comprise of accounts payable-trade, payables to employees, accrued expenses and other payables.
Prepared by:
Approved by:
section title
CORPORATE OVERVIEW
Our companys legal name is Ma San Group Corporation and was incorporated in November 2004 under the name Ma San Shipping Corporation. We officially changed our name to Ma San Group Corporation in August 2009 and successfully listed on the Ho Chi Minh Stock Exchange on November 5, 2009. While the listed entity was formally incorporated in 2004, Masan, through our majority shareholder and our underlying operating businesses and their predecessor companies, has been in existence as a business group for over 15 years. We are a holding company, with controlling stakes in Masan Consumer and Masan Resources representing an economic interest of 76.5% and 65%, respectively, as of December 31, 2011. We have an economic interest, through shares and mandatory convertible subordinated debt, in Techcombank of 30.6% as of December 31, 2011.
Management Board The Management Boards prime responsibilities include strategic management, resource allocation at the senior management level, financial accounting and controls, capital management, governance, and internal control. Business Development The Business Development team is responsible for transaction execution, business analytics, relationship management, and subsidiary management. Finance & Accounting, Legal and Administration
Finance & Accounting, Legal and Administration are departments responsible for financial reporting, legal and regulatory compliance, and managing the administrative functions of the Company. Senior professionals from the Finance & Accounting and Legal departments play pivotal roles in transaction execution and post-deal follow up.
Board of Directors
Supervisory Board Board Responsibility and Delegation of Authority The Board of Directors has two executive members, and four non-executive members. The Board of Directors is chaired by the Chairman, a non-executive members. The roles of the Chairman and Chief Executive Officer are separate. During the year, there were no changes in the structure of the Board of Directors. Finance & Accounting, Legal & Administration Members of the Board of Directors include: Dr. Nguyen Dang Quang, Chairman;
Chief Executive Officer Deputy Chief Executive Officer Chief Financial Officer1 Chief Accountant
Business Development
Mr. Ho Hung Anh, Vice Chairman; Mr. Madhur Maini, member; Mr. Nguyen Thieu Nam, member; Ms. Nguyen Hoang Yen, member; and Mr. Lars Kjaer, member.
The Board of Directors (the Board) is elected by shareholders to oversee the activities of the Company. Members of the Board of Directors meet regularly to discuss strategic decisions raised by the Management Board. Details on the responsibilities of the Board are presented in the Board of Directors section. Supervisory Board The Supervisory Board oversees the activities of the Board of Directors and the Management Board.
1. Official appointment as Chief Financial Officer pending upcoming resolution by the Board of Directors.
The Chairman plays an important leadership role and is involved in: Chairing meetings of the Board and providing effective leadership to it; Maintaining dialogue with the Chief Executive Office and providing appropriate strategic input; Monitoring the performance of the Board; and B eing a respected ambassador for the Group, including chairing meetings of shareholders, managing community issues and interacting with key stakeholders. The Board is responsible for charting the direction, strategies and financial objectives of the Group and monitoring the progress in relation to such matters. It does not form committees under itself. Non-executive members regularly communicate with the management of the Group to understand the progress and performance of the operations. Board Meetings The Board regularly meets to discuss the direction, strategy and progress of the business. Typically, the topics at the Board meetings include: Reports on major projects and current business issues; Reports on financial performance; Specific business proposals; and Minutes from the previous meeting and outstanding issues. Activities of the Board In 2011 the Boards activities mainly included discussion and approval of the following items: Setting up the Companys representative office in Singapore; Raising capital; and Deciding business development plan and annual budget. There were no separate meetings of non-executive Board members. Activities of the Board involved all members.
Management Board
The Management Board is responsible for implementing the Companys business development plan and business performance reporting. The Chief Executive Officer chairs the Management Board. Currently, the Management Board is comprised of the two most senior executives at Masan Group, the Chief Executive Officer and the Deputy Chief Executive Officer, and the two most senior members of the Finance & Accounting team. Members of the Management Board include: Mr. Madhur Maini, Chief Executive Officer; Mr. Nguyen Thieu Nam, Deputy Chief Executive Officer; Mr. Eric Chan Hong Wai, Chief Financial Officer 2; and Ms. Ta Thi Thuy Trang, Chief Accountant. Background of members of the Management Board are provided in Masan Groups Professional Management Team section, excluding the Chief Executive Officer, whose background can be found in the CEO Message section.
Supervisory Board
Members of the Supervisory Board were appointed at the General Meeting of Shareholders. The Supervisory Board is composed of the following members: Mr. Nguyen Quynh Lam Head of the Supervisory Board. Lam has more than 20 years of experience in managerial and accounting positions. He was formerly with Da My JSC and La Giang Commerce JSC. He graduated from University of Mining and Geology, Hanoi, Vietnam. Ms. Nguyen Thu Hien Member. Hien has more than 20 years of experience in the banking and finance industry. She was formerly with Incombank and Masan Consumer. She graduated from University of Economics, Baku City, Union of Soviet Socialist Republics. Mr. Dang Ngoc Ca Member. Please refer to Masan Groups Professional Management Team section. ACTIVITIES OF THE SUPERVISORY BOARD
2. Official appointment as Chief Financial Officer pending upcoming resolution by the Board of Directors.
SHAREHOLDER INFORMATION
The Supervisory Board oversees activities of the Board and the Management Board in compliance with the Companys Charter, the Internal Corporate Governance Regulations of the Company and relevant laws. Particularly, the Supervisory Board participates in regular and extraordinary meetings of the Board and shareholders meetings. As of December 31, 2011, Masan Groups charter capital is VND5,152,722,690,000. December 31, 2011 in shares Significant shareholders Ma San Corporation Sunflower Construction Company Limited BI Private Equity New Markets II K/S State Founding shareholders Nguyen Dang Quang Ho Hung Anh Foreign significant shareholders BI Private Equity New Markets II K/S 50,011,218 9.7058% 54,684,328 10.6127% 10 19,768,269 0.0000% 3.8365% 10 21,768,269 0.0000% 4.2246% 250,421,247 99,817,804 50,011,218 0 48.5998 % 19.3719% 9.7058% 0 250,421,247 99,817,804 54,684,328 0 48.5998% 19.3719% 10.6127% 0 in % in shares December 31, 2010 in %
Remuneration of the Board, the Supervisory Board, and the Management Board
The Group is developing policies on remuneration for members of the Board and the Supervisory Board. Remuneration of the Management Board comprises a fixed component as well as a variable component.
MASAN CORPORATION Masan Corporation was incorporated on September 13, 2000. Its registered activities cover market research and commercial promotion, investment, management and technology transfer consulting, establishment and management of investment projects, office leasing and real estate business. SUNFLOWER CONSTRUCTION COMPANY LIMITED Sunflower Construction Company Limited was incorporated on August 10, 2009. Its registered activities cover civil work construction, construction and mining materials, equipment and machinery trading, goods consignee agent, market research, commercial promotion, management and investment consulting (excluding financial and accounting consulting). BI PRIVATE EQUITY NEW MARKETS II K/S (BANKINVEST) Further information on BankInvest is provided in Masan Groups Partners section.
FOUNDING SHAREHOLDERS Nguyen Dang Quang was Chairman of Masan Group and Ho Hung Anh was Vice Chairman of Masan Group as of December 31, 2011. As of the date of this report, they are still in their positions. SIGNIFICANT FOREIGN SHAREHOLDERS Masan Groups only significant foreign institutional shareholder was BankInvest. Further information on BankInvest is provided in Masan Groups Partners section.
Trading/Transfer date Oct 19 - Nov 19, 2011 Nov 15, 2011 Nov 16, 2011 Oct 4, 2011 Sep 30 - Oct 5, 2011 December 31, 2010 0.0000% 4.2246% 0.1160% 0.4096% 4.2268% 0.0000% Increase/ Decrease 0.0000% -0.3882% 0.0000% -0.3882% 0.0000% 0.0000% Charter capital (VND billion) Share price Sep 19, 2011 May 4-13, 2011 Feb 8 - Mar 8, 2011 Jan 4, 2011
Internal shareholders Major shareholders BI Private Equity New Markets II K/S Nguyen Thieu Nam Nguyen Quynh Lam BI Private Equity New Markets II K/S Ho Hung Anh BI Private Equity New Markets II K/S BI Private Equity New Markets II K/S BI Private Equity New Markets II K/S Favor Sea Holdings Limited
Number of shares bought 500,000 N/A N/A N/A N/A N/A N/A N/A N/A
Number of shares sold NA 2,000,000 2,000,000 500,000 2,000,000 4,000,000 216,000 457,110 3,000
EQUITY INFORMATION
As of December 31, 2011 5,153 90,500 158,000 73,500 515,272,269 515,272,269 0 0 0 4 630
52-week high share price (VND) 52-week low share price (VND) Number of shares issued (share) Number of ordinary shares (share) Number of preference shares (share) Number of treasury shares (share) Dividend yield (%) Number of convertible bonds (bond) Principle amount of convertible bond (VND billion)
GLOSSARY OF TERMS
ATM Automatic Teller Machine BankInvest BankInvest Group The Board The Board of Directors CAR Capital Adequacy Ratio C&R Compensation and Resettlement Dragon Capital Dragon Capital Group and the funds and entities it manages ESOP Employee Share Ownership Plan EMV Europay, MasterCard and VISA House Foods House Foods Corporation Inc. HSBC The Hong Kong and Shanghai Banking Corporation IFC International Finance Corporation IFRS International Financial Reporting Standards M&A Mergers and Acquisitions Masan a term referring to Masan Group, inclusive of Masan Consumer, Masan Resources, Techcombank and their subsidiaries Masan Consumer Ma San Consumer Corporation, renamed from Masan Food Masan Food Ma San Food Corporation Masan Group or the Group Ma San Group Corporation Masan Horizon Ma San Horizon Corporation Masan Resources Ma San Resources Corporation Masan Thai Nguyen Resources Ma San Thai Nguyen Resources Company Limited MIS Management Information System MNC Multinational Company Mount Kellett Mount Kellett Capital Management L.P. Nui Phao Nui Phao Mining Limited Company, restructured from Nui Phao Mining Join Venture Company Ltd as the result of the Nui Phao acquisition NPL Non-performing Loan P&L Profit and loss R&D Research and Development ROA Return On Assets ROAA Return On Average Assets ROAE Return On Average Equity ROE Return On Equity SBV State Bank of Vietnam SG&A Selling, General and Administration expenses SME Small and Medium Sized Enterprises SOE State-owned Enterprise Techcombank, or the Bank Vietnamese Technological and Commercial Joint Stock Bank The Board The Board of Directors TPG Texas Pacific Group US$ United States Dollar USGS U.S. Geological Survey Vinacafe Vinacaf Bien Hoa Joint Stock Company Vinacaf Coffee brand owned by Vinacaf Bien Hoa Joint Stock Company VND Vietnam Dong
CONTACTS Masan Group Address : 8th Floor, Central Plaza 17 Le Duan, District 1 Ho Chi Minh City, Vietnam Tel : (84) 8 6256 3862 Fax : (84) 8 3827 4115 Website : www.masangroup.com Masan Consumer Address : 12th Floor, Kumho Asiana Plaza Saigon 39 Le Duan, District 1 Ho Chi Minh City, Vietnam Tel : (84) 8 6255 5660 Fax : (84) 8 3810 9463 Website : www.masanconsumer.com www.masangroup.com/masanconsumer Techcombank
Address : 72 Ba Trieu, Hoan Kiem District Hanoi, Vietnam Tel : (84) 4 3944 6368 Fax : (84) 4 3944 6384 Website : www.techcombank.com.vn www.masangroup.com/techcombank
Masan Resources
Address : 8th Floor, Central Plaza 17 Le Duan, District 1 Ho Chi Minh City, Vietnam Tel : (84) 8 6256 3862 Fax : (84) 8 3827 4115 Website : www.masanresources.com