ANNUAL REPORT 2012 VIETNAM EQUITY HOLDING Table of Contents
02 Company Overview 03 Chairman’s Statement 04 Financial Highlights 07 Equity Market Overview 10 Top Portfolio Holdings 20 Board of Directors 24 Report of the Board of Directors 26 Independent Auditors’ Report 27 Statement of Financial Position 28 Statement of Comprehensive Income 29 Statement of Changes in Equity 30 Statement of Cash Flows 31 Notes to Financial Statements
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 01 Company Overview
ABOUT THE COMPANY CORPORATE INFORMATION Structure Cayman Islands registered Vietnam Equity Holding (“VEH” or the “Company”) is an exempted closed-end investment company company incorporated in the Cayman Islands on August 9, 2007. Incorporation Date August 9, 2007 Its shares are currently listed on the Stuttgart Stock Exchange; Total Net Asset Value €45.3mn (as of 31 December 2012) they were previously listed on the Frankfurt Stock Exchange Duration 5 years; extended by shareholder vote between 2007-2012. The Company is managed by Saigon Asset for 3 years on October 3, 2012 Management Corporation (“SAM” or the “Investment Manager”), an Listed Stuttgart Stock Exchange exempted company incorporated under the laws of the Cayman NAV Frequency Monthly Islands. For more information please visit www.saigonam.com Management Fee 2% of NAV Performance Fee 20% of gains over 8% hurdle rate with a high water mark INVESTMENT OBJECTIVES Investment Manager Saigon Asset Management Auditor Grant Thornton (Vietnam) Company The principal investment objective of VEH is to seek capital Ltd. appreciation of its assets by making equity investments in Legal Counsel Reed Smith & Appleby companies with significant exposure to Vietnam. Specifically, Administrator Deutsche Bank (Cayman) Ltd. the Company has invested in and will continue to invest in Custodian Deutsche Bank AG (Ho Chi Minh City equity of listed and private companies, over-the-counter (“OTC”) Branch, Vietnam) companies, and/or in debt securities. The Company seeks to invest in a diversified and balanced portfolio that will achieve TRADING above average returns at an acceptable level of risk, give rise Market Stuttgart Stock Exchange to long-term and short-term returns, and be capable of yielding Clearing/Settlement Euroclear or Clearstream recurring earnings and/or capital gains. ISIN KYG936251043 German Securities Code A0M12V Bloomberg Symbol 3MS:GR Reuters Symbol 3MS.DE Designated Sponsor/ 886 AG (www.886ag.de) Market Maker Edmond de Rothschild Securities (www.lcfr.co.uk) Numis Securities Ltd. (www.numiscorp.com) Enquiries [email protected]
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 02 VEH Chairman’s Statement Dear Shareholders, We are pleased to present the 2012 annual report of Vietnam Equity Holding (“the Company”).
Over the year, the Company’s Net Asset Value (NAV) per share macroeconomic situation as well as continued foreign inflows into increased 15.4% to €2.10 from €1.82 at the end of 2011. Over the stock market should support the continued rally of the VNI and the same period, the Vietnam Index (VNI) gained 16.8% in EUR result in the appreciation of the Company’s NAV. terms (17.7% in VND terms). Since inception, the Company’s NAV has decreased 10.4% in EUR terms, outperforming the VNI which Although volume of the Company’s shares remained low, the share has decreased 63.1% in EUR terms over the same period. price increased 25.0% throughout the year, leading to a relatively minimal narrowing of the share price discount to NAV to 38.0% Vietnam experienced an improvement in several macroeconomic from 42.8% at the end of 2011. Following the approval of the indicators in 2012 stemming from the tightening of monetary share buyback program at the Extraordinary General Meeting policies and reforms enacted in 2011, resulting in a significant (EGM) in June 2012, the Company began repurchasing its own slowing of inflation, the first trade surplus since the early 1990’s, shares in July and accumulated a total of 156,200 shares by the a much more stable currency that held its value throughout the end of the year. year, and much higher foreign exchange reserves to help the State Bank of Vietnam support the Vietnam Dong. Due to these On December 15th, 2012, the Frankfurt Stock Exchange (FSE) improvements, the VNI performed well despite the fact that restructured its listing options and closed the First Quotation the health of the banking system was worsening and that the Board, the trading board where the Company was listed throughout polices and reforms enacted in 2011 caused domestic demand to the previous five years. The Company applied to, and was granted weaken and GDP growth to slow to “only” 5.03% from 5.89% in a listing on, the Stuttgart Stock Exchange on April 3rd, 2013. The the previous year. Company has the same trading codes as it did when it was listed in Frankfurt and it opened at a bid price of €1.47. The government continues to focus on restructuring the banking system through a series of bank consolidations and by creating At the Extraordinary General Meeting for the Continuation Vote an asset management company run by the central bank to held on October 3rd, 2012, the shareholders voted to approve remove the nonperforming loans from bank balance sheets. the Board’s proposal to extend the life of the Company for an Ideally, these actions will strengthen the financial system in additional three years with the commitment from the Board that Vietnam and will set the stage for future growth of the economy. it would put forth a proposal to open-end the Company at the subsequent Annual General Meeting. The Board and the Investment The VNI performed well during 2012 primarily due to heavy Manager have completed drafts of the documents required to foreign inflows into Vietnam’s stock markets which generally make the conversion to open-end format and we are confident that favoured large caps, particularly those stocks held by ETFs. you will be satisfied and that the new company documents are in Domestic investors were active during the rally at the beginning keeping with our original proposal. of the year and this propelled the valuations of the Company’s small and mid-cap holdings upwards, but these investors quickly Vietnam’s outlook continues to improve as government actions lost interest and did not rejoin the market through the rest of are helping the country attain economic stability. We anticipate the year. economic growth in 2013 to continue to be low, around 5.0%-5.5%. However, we believe that it is trending upwards and that the Just as the year was ending, another rally started to form period of declining growth is behind us, as such, we are confident and strengthened during the first quarter of 2013 with the VNI that the Company is well positioned to benefit from the improving gaining 21.5% by the end of the quarter. Though this gain was conditions. largely attributed to foreign investors’ buying activities and gains in large cap companies (a continuation of the pattern from the prior year), the Board and the Investment Manager remain convinced in the viability of the Company’s strategy of investing Dr. Lee G. Lam in high-quality small and mid-cap growth stocks. The improving Chairman & Independent Non-executive Director
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 03 Financial Highlights
2012 Snapshot C B
2012 Net Asset Value: A Listed Investments 94% €45,268,238 B Unlisted Investments 3% C Cash & Other Assets 2% A 100.0%
NAV PER SHARE FLUCTUATION LISTED INVESTMENTS UNLISTED INVESTMENTS CASH AND OTHER ASSETS DURING 2012: VALUED AT: VALUED AT: VALUED AT:
€1.82 > €2.10 €42,702,853 €1,441,164 €1,124,221
FINANCIAL DATA As of Dec 31, 2012 As of Dec 31, 2011 % Change
VEH Net Asset Value €45,268,238 €39,509,486 14.6%
Outstanding Shares 21,589,310 21,745,510 -0.7%
Net Asset Value per Share €2.10 €1.82 15.4%
Share Price €1.30 €1.04 25.0%
Share Price Premium/Discount to NAV 38.0% 42.8%
CAPITAL STRUCTURE Ordinary Shares Share Capital
Outstanding shares number as of November 30, 2007 (Inception) 21,745,510 €43,491,020
Outstanding shares number as of December 31, 2009 21,745,510 €43,491,020
Outstanding shares number as of December 31, 2010 21,745,510 €43,491,020
Outstanding shares number as of December 31, 2011 21,745,510 €43,491,020
Outstanding shares number as of December 31, 2012 21,589,310 €43,280,047
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 4 Financial Highlights
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 5 Financial Highlights
TOP PORTFOLIO HOLDINGS Type Sector % of NAV
Vinamilk Corporation (VNM) Listed Food & Beverage 25.7%
FPT Corporation (FPT) Listed Technology 12.9%
Phu Nhuan Jewelry JSC (PNJ) Listed Luxury Goods 6.9%
Dabaco Group JSC (DBC) Listed Agricultural Products 6.0%
Development Investment Construction Corporation (DIG) Listed Real Estate & Infrastructure 5.3%
Japan Vietnam Medical Instrument JSC (JVC) Listed Pharmaceuticals 4.5%
Elcom Corporation (ELC) Listed Technology 4.4%
PetroVietnam Fertilizer & Chemicals Corporation (DPM) Listed Chemicals 3.9%
PetroVietnam Drilling & Well Services JSC (PVD) Listed Oil & Gas Services 3.7%
Bank for Foreign Trade of Vietnam “Vietcombank” (VCB) Listed Financial 3.4%
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 6 Annual Reports 2012
Equity Market Overview Equity Market Overview
During 2012, Vietnam’s government continued other currencies or to purchase gold bullion. These efforts on the path towards economic stabilization succeeded in maintaining the stability of the banking system while that it started in the previous year. the SBV conducted reviews to ascertain its health. It is generally observed that one of the most positive changes during the year was the SBV’s significantly increased involvement in the oversight At the expense of economic growth, many macroeconomic and control of the banking system. indicators improved during the year including inflation, the trade balance and confidence in the currency, among others. The Vietnam Index (“VNI”) started the year in a downward trend These improvements are mostly due to the stabilization efforts with both domestic and foreign investors shunning the stock undertaken in 2011 and continued to a certain extent during market. However, as inflation subsequently slowed, investor 2012. Vietnam’s government took further actions during 2012 perception improved. The belief that an easing of monetary policy to strengthen of the economy, but for the most part, many would allow economic activity to recover led to an increase in restructuring efforts that have been announced have not yet been buying support for equities. implemented. While the actions taken over the past two years and the structural reforms that have been proposed indicate a brighter economic future for Vietnam, implementation of those After falling to a low of 332.28 on January 9th, reforms is the key to future sustainable economic growth. the VNI began a rally that would last until May.
Acting to address rapidly rising inflation caused by excessive The full effect of the restrictions on credit became apparent at the credit growth in previous years, the government enacted end of the first quarter when economic growth was announced at Resolution 11 during 2011 which restricted lending to the a very low 4.0% on a quarterly basis (4.75% on a yearly basis). “non-productive sectors” of real estate and stock market In tandem with this import growth was already subdued, thus margin lending, in conjunction with the State Bank of Vietnam supporting the value of the Vietnam Dong which in turn allowed (“SBV”) increasing policy interest rates from 10% to 15%. These the SBV to significantly increase its foreign exchange reserves. To measures, along with several others, slowed inflation through stimulate growth, the SBV began to loosen its monetary policy by the cutting of credit growth, though the lack of new credit in the cutting interest rates; the first cut of 100 basis points occurred in economy also caused domestic demand and imports to shrink. March 2012 and four more cuts of the same magnitude continued As a result, 2012 began with inflation in a downward trend due on a monthly basis until June 2012, totalling 500 basis points of to these restrictions on credit and the shrinkage in domestic cuts. demand. However, these policy interest rate cuts took some time to feed Inflation in 2012 through to credit growth. Though the cuts made loans slightly 20 2.50
18 more affordable for borrowers (with low growth and reduced 2.00 16 corporate earnings, loans offered with interest rates at 11%-15%
14 1.50 were still considered to be expensive), credit growth remained 12 anaemic and it became clear that the problem was at the bank 10 1.00
8 level. Banks significantly curtailed their lending activities due to 0.50 6 the fact that nonperforming loans (“NPLs”) were increasing. As a 4 0.00 result, there was very little credit growth during the first half of 2 the year. 0 -0.50 2 2 2 2 2 2 2 2 2 Jul. 12 Oct. 1 Apr. 1 Jan. 12 Jun. 1 Feb. 1 Sep. 1 Dec. 12 Nov. 1 Aug. 1 Mar. 1 May. 1 CPI YoY CPIMoM By mid-year, the focus of the market and the government shifted to the bank NPLs. Attempting to settle rumours that banks were At the beginning of the year, the SBV and other ministries were understating their NPL ratios, the SBV announced in June 2012 engaged in stabilizing the banking system by ensuring their that 8.6% of total credit was nonperforming (more than double ability to meet any withdrawals by depositors. The SBV limited the figures the banks were reporting, but possibly still below the its actions to those judged to be emergencies and elsewhere actual amount) and that it was considering measures for dealing limited the ability of the public to convert Vietnam Dong into
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 8 Equity Market Overview
with the bad loans. The SBV adopted the idea of setting up a the international markets. Given these factors, the rally may not bad debt asset management company in 2013 to buy the NPLs continue as strongly throughout 2013 unless continuous progress from the banks. This would facilitate the removal of NPLs from is made on the implementation of proposed reforms. However, bank balance sheets, thus improving the health of the banks, and continued interest from foreign investors would be likely to entice enabling them to increase lending. domestic investors to broaden the base of support to equity prices and generate improved trading volumes. In contrast to the low growth and low first quarter corporate Vietnam Index 2012 earnings being announced, the VNI reached a peak of 492.44 on May 8th before retracing until July 2012. The announcement 500.00 480.00 of a $1.3 billion stimulus package in the form of tax breaks 460.00 and deferments was aimed at helping small and medium-sized 440.00 enterprises and proved to be a catalyst for a rally. However, 420.00 fragile investor confidence was undermined with the arrest of 400.00 380.00 a founder of Asia Commercial Bank (Vietnam’s largest private 360.00 bank) on August 21st on charges of “economic violations”. This 340.00 sent the VNI to below the psychological barrier of 400 and it 320.00 remained trading in a narrow band until December, 2012. 300.00 Jul. 12 Oct. 1 2 Apr. 1 2 Jun. 1 2 Sep. 1 2 Jan. 1 2 Dec. 1 Nov. 1 2 Dec. 1 2 Aug. 1 2 Mar. 1 2 May. 1 2 If 2012 was seen as the year of stabilization, 2013 is hoped to be the year of reforms and GDP growth of 5.03% for 2012 was not particularly encouraging restructuring, particularly in reference to the role and but there were a number of macro positives. Inflation remained power of the state-owned enterprises (“SOEs”). It is encouraging low at 6.81%, credit growth picked up in the second half of the that there appears to be a consensus that continuing to year to end up 8.91% YoY, the currency remained stable and that favour generally uncompetitive SOE companies is holding back the country registered its first trade surplus since the early 1990’s. the private sector, economic growth and contributing to the instability. At the end of 2012, the government announced that it The VNI ended with a respectable gain of 16.8% in EUR terms on was drafting a plan to restructure and “equitize” (selling stakes the back of these mixed results, though below its May high of in SOEs to private investors) many of the largest SOE groups 40.7% YTD in EUR terms that briefly made it the best performing and that it would reveal this plan to the public in June 2013. market in Asia. Undeniably, progress has been made towards More importantly, the government disclosed that at the National the stabilization of the economy; future changes are slated to be Assembly meeting in Q2 2013 it will be proposing to amend the made to its structure to provide for a reacceleration of economic constitution to remove language that stipulates SOEs “assume a growth. The economy is not expected to grow by more than 5.5% leading role” in the economy thereby removing the legal basis for in 2013, but prospects for the future do appear to be on a more bestowing preferential treatment upon them. solid footing. In our opinion, the delivery of structural reforms will create the foundation for sustained improvements in both the For the equity market, several factors helped buoy confidence economy and the nation’s stock markets. amongst investors and spark a rally in the VNI that would Inflation in 2012 last through the first quarter of 2013. These included the stabilization of international equity markets that allowed foreign investors to become bullish on emerging and frontier markets, a final policy rate cut in December of 100 basis points, the release of improved credit and GDP growth statistics, and improved optimism that planned reforms would occur quickly and would support economic growth in 2013. Interestingly, this rally is mainly focused on large cap equities and is mainly supported by foreign investors, making it more susceptible to disruptions in
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 9 Top Portfolio Holdings
VINAMILK CORPORATION (VNM)
OVERVIEW Vinamilk is the leading dairy product manufacturer in Vietnam with 50% market share and it continues to expand its supply Sector / Asset Type Food & Beverage Listed capacity. Vinamilk continues to benefit from increasing milk Year Acquired 2008 consumption per capita in Vietnam and the region due to Book Value €11.6mn
expanding incomes, a growing middle class, and growing % of NAV 25.7% health awareness that accompanies this growth. In 2011, milk
consumption in Vietnam reached 15 litres per capita, whereas FINANCIAL HIGHLIGHTS 2012 2011
in China it has reached 28 litres per capita, demonstrating Revenue €969.5mn €795.1mn continued growth potential. Vinamilk’s revenues have lately also Gross Profit €331.3mn €242.2mn been strongly supported by exports of its products to 23 nations Gross Margin 34.2% 30.5% in 2012. Vinamilk’s growing customer base, distribution network, Net Profit €212.4mn €155.1mn established brand name and strong management team ensures that it will continue to be one of the strongest companies in Net Margin 21.9% 19.5% Vietnam in the mid to long term. Adjusted EPS (VND) 6,978 5,058 Dividend Yield 4% 7% Highlights of 2012
Vinamilk continued to perform well during 2012 despite slow economic growth. The company registered 23% increase in revenues attributed to a 6% across-the-board price increase at the beginning of the year and 17% increase in sales volume, of which domestic sales increased 21% and exports increased 34%. Vinamilk is expected to continue to do well in 2013 as sales are expected to increase by approximately 15% due to continued volume growth and another 6% price increase that occurred in February 2013, also supporting its gross margin. Much attention has also been given to Vinamilk’s share price, having been relatively stable through the first half of the year, investors became bullish on Vinamilk’s shares following the announcement of a share bonus, resulting in the share price increasing approximately 54% during 2012.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 10 Top Portfolio Holdings
FPT CORPORATION (FPT)
OVERVIEW FPT is the leading technology company in Vietnam with four core businesses in IT & Mobile Phone Distribution, Systems Sector / Asset Type Technology Listed Integration, Telecommunications, and Software Outsourcing. Year Acquired 2009 The company has built a strong record of achieving more than Book Value €5.8mn
20% net earnings growth per annum and its highly respected % of NAV 12.9% management team continues to refocus core business lines to
achieve higher margins. Lately it has been growing its Software FINANCIAL HIGHLIGHTS 2012 2011
and Telecommunications capabilities and by expanding into new Revenue €897.7mn €932.7mn markets including the USA, Europe, and Japan through channel Gross Profit €171.3mn €182.3mn partners. FPT is also planning to expand its retail network from Gross Margin 19.1% 19.5% 60 stores at the end of 2012 to 150 stores nationwide by 2014 Net Profit €72.5mn €76.4mn in order to increase its retail sales as well as provide customer service centres for other business lines such as Telecom and IT Net Margin 8.1% 8.2% services. Adjusted EPS (VND) 5,624 6,227 Dividend Yield 6% 5%
Highlights of 2012
FPT was mainly affected by slow GDP growth due to the current macroeconomic situation. Low domestic demand resulted in decreased sales in the Distribution segment as consumers spent less on electronics such as mobile phones. Additionally, the government’s reduced spending and the banking sector’s focus on restructuring rather than improving their systems delayed several Systems Integration projects. However, the company posted good growth in its Telecom, Software, and Education segments due to an increase in subscribers to its internet service (as well as expansion of service to eight more provinces), increased demand for software outsourcing particularly from Japan and the USA, and more demand for vocational training at FPT Universities. FPT’s revenues and margins are expected to recover in 2013 due to increased sales from these higher margin segments.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 11 Top Portfolio Holdings
PHU NHUAN JEWELRY JSC (PNJ)
OVERVIEW Phu Nhuan Jewelry is the largest privately owned jewellery manufacturer and trader in Vietnam and the second largest Sector / Asset Type Luxury Goods Listed jewellery company after the state-owned Saigon Jewelry Year Acquired 2009 Company (SJC). It has the only mass production jewellery Book Value €3.1mn
factory in the country, currently operates 167 outlets, and has % of NAV 6.9% over 3,000 distributors. To attract customers from every segment
of the market, the company has three product lines: PNJ Gold FINANCIAL HIGHLIGHTS 2012 2011
designed for mass appeal, PNJ Silver for the youth market, and Revenue €245.2mn €660.5mn Cao Fine for high-end customers. To ensure a constant stream Gross Profit €21.8mn €27.1mn of supply and future revenue, the company opened a new factory Gross Margin 8.9% 4.1% in the Ho Chi Minh City area in 2012, significantly increasing Net Profit €9.3mn €9.5mn supply capacity, while the company also opened 13 new stores during the year to expand its retail presence. With increasing Net Margin 3.8% 1.4% disposable incomes throughout the emerging middle class, this Adjusted EPS (VND) 3,553 3,571 company is destined to continue to grow sustainably. Dividend Yield 7% 7%
Highlights of 2012
As gold bar trading was a major component of PNJ’s revenues, the nationalization of the production and tight restrictions put on the trade of gold during 2012 resulted in PNJ’s revenues declining 63%. However, the positive news is that the company’s core business of jewellery production, which has higher margins than gold production and trading, continued to increase despite low domestic demand throughout the economy. PNJ also recorded extraordinary financial gains through the divestment of its fuel distribution subsidiary. As PNJ was granted a license at the end of 2012 to trade gold bars, its revenues are expected to increase in the coming year. Concurrently, however, PNJ’s margins are expected to narrow as gold trading generally has very low margins.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 12 Top Portfolio Holdings
DABACO GROUP JSC (DBC)
OVERVIEW Dabaco (DBC) is the largest domestic animal feed producer in Vietnam with 20% market share in the North and 3% market Sector / Asset Type Agricultural Products Listed share nationwide. Though it faces strong competition from Year Acquired 2011 foreign companies, current supply of animal feed satisfies only Book Value €2.3mn
60% of domestic demand, presenting an opportunity for Dabaco % of NAV 6% to increase its market share by building up its brand name
and the quality of its products. Additionally, to increase its FINANCIAL HIGHLIGHTS 2012 2011
bargaining power, the company is aiming to develop a value Revenue €174.3mn €144.0mn chain surrounding animal feed products including breeding and Gross Profit €20.7mn €16.5mn husbandry services, processing, and distribution. Gross Margin 11.9% 11.5%
Net Profit €9.1mn €8.1mn Highlights of 2012 Net Margin 5.2% 5.6% Adjusted EPS (VND) 5,221 5,322
DBC’s revenues were strongly supported by the sale of a large Dividend Yield 7% 16% parcel of land in the Bac Ninh province, east of the city of Hanoi. Due to the slow economy and decreasing food prices, demand for animal feed was reduced, though sales continued to increase during the year by approximately 10%. The trend of decreasing food prices continued during early 2013 and is expected to impact recurring revenue while revenue from real estate sales is not expected to be as strong, possibly resulting in declining net profits and margins in 2013.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 13 Top Portfolio Holdings
DEVELOPMENT INVESTMENT CONSTRUCTION JSC (DIG)
OVERVIEW DIG is a leading real estate developer with 1,900 hectares of Sector / Asset Type Real Estate & Infrastructure Listed cleared land located in areas that have significant potential for Year Acquired 2007 upside gains including satellite cities and industrial areas in Book Value €2.4mn Southern Vietnam. The company specializes in the development of large-scale projects and new townships including the 6ha % of NAV 5.3% Dai Phuoc eco-tourism project located approximately 20km from central Ho Chi Minh City, the An Son Hill Villas project in the Da FINANCIAL HIGHLIGHTS 2012 2011 Lat area, and Lake Side Apartments in coastal Vung Tau province. Revenue €28.1mn €28.3mn
Gross Profit €6.7mn €8.6mn
Gross Margin 23.8% 30.3% Highlights of 2012 Net Profit €0.2mn €4.3mn
Net Margin 0.8% 15.1% The slowdown of the real estate market caused DIG’s sales of Adjusted EPS (VND) 385 981 real estate units to drop considerably during 2012. The company Dividend Yield 5% 11% has coped with the slow real estate market by delaying capital deployment to several projects that are under construction, it managed to extend its bank loans by three years, and it lowered the selling prices of one of its projects. On the other hand, DIG’s construction business and some other services that it provides managed to post increasing revenues. In 2013, DIG’s real estate sales are expected to rebound, supporting net profits and margins.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 14 Top Portfolio Holdings
JAPAN VIETNAM MEDICAL INSTRUMENT JSC (JVC)
OVERVIEW JVC is Vietnam’s largest distributor of medical equipment Sector / Asset Type Health Care Listed from well-known international manufacturers such as Hitachi, Year Acquired 2011 CareStream, FujiFilm, Toray, Nemoto, etc. The company Book Value €2.0mn distributes medical products to over 170 hospitals nationwide, accounting for between 30-40% market share in X-Ray, CT % of NAV 4.5% scanners, and MRI distributions and 90% market share in other medical materials. Growing health awareness among Vietnamese FINANCIAL HIGHLIGHTS 2012 2011 and large investments to upgrade the health care system by the Revenue €27.8mn €22.3mn
Vietnamese government present opportunities for this well-run Gross Profit €10.9mn €8.6mn
company to continue to grow in future years. Gross Margin 39.4% 38.8%
Net Profit €6.2mn €5.0mn
Net Margin 22.3% 22.3% Highlights of 2012 Adjusted EPS (VND) 4,802 4,920
Dividend Yield 8% 14% Due to reduced government spending during the year, several projects that JVC was meant to provide equipment to were delayed, resulting in revenues and net profits being slightly below 2012 targets. Despite this, the company posted decent growth during the year with both revenues and margins increasing. The company is now planning on manufacturing some of its own high-value medical products such as X-Ray equipment with technology bought from Hitachi-Japan helping JVC compete at lower price segments. In the coming year, sales are forecasted to continue to grow due to increasing need for medical equipment in hospitals throughout Vietnam.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 15 Top Portfolio Holdings
ELCOM CORPORATION (ELC)
OVERVIEW Elcom is a technology company that distributes telecommunications equipment and develops and provides Sector / Asset Type Technology Listed mobile phone network management software and billing systems Year Acquired 2010 to important mobile service providers such as Vinaphone, Book Value €2.0mn
Mobifone, and Viettel. Recognizing that higher margins are % of NAV 4.4% made in delivering software solutions and technical services,
the management has been focusing on developing value-added FINANCIAL HIGHLIGHTS 2012 2011
services (“VAS”) to sell to Vietnamese mobile service providers. Revenue €17.5mn €17.7mn Elcom’s committed and capable management team has shown Gross Profit €6.6mn €7.7mn great initiative in developing profitable business activities. Gross Margin 37.5% 43.5%
Net Profit €4.2mn €4.2mn Highlights of 2012 Net Margin 24.2% 23.7% Adjusted EPS (VND) 3,173 3,129
Elcom experienced a slight decrease in revenues during 2012 Dividend Yield 7% 7% due to a fall in servicing activities which had accounted for 60% of revenues in 2011. On the other hand, sales of hardware increased 81% from sales to the Ministry of Defense and revenue sharing contracts with mobile service provider Vinaphone. Revenues from servicing activities are expected to rebound in 2013 due to initiation of servicing contracts with the Ministry of Defense and other parties; this rebound is expected to support revenues and improve margins.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 16 Top Portfolio Holdings
PetroVietnam Fertilizer & Chemicals Corporation (DPM)
OVERVIEW DPM is Vietnam’s largest domestic fertilizer producer, supplying Sector / Asset Type Chemicals Listed approximately 40% of all urea fertilizer. The company produces and imports fertilizer for domestic agriculture use, but has also Year Acquired 2008 developed export channels for when domestic supply exceeds Book Value €1.8mn
demand. The company benefits from having a strong well-known % of NAV 3.9% brand name and a nationwide distribution network of 10 stores,
57 agencies, and 2,970 wholesalers. FINANCIAL HIGHLIGHTS 2012 2011
Revenue €486.3mn €339.2mn
Gross Profit €157.8mn €148.4mn Highlights of 2012 Gross Margin 32.5% 43.7%
Net Profit €112.0mn €115.5mn During the year, DPM increased its price for urea fertilizer by 6% Net Margin 23% 34% and expanded its production volume at its main factory by 13% while also benefiting from expanding production volume from the Adjusted EPS (VND) 7,991 8,221 new Dam Ca Mau (DCM) factory. However, during the year the Dividend Yield 13% 15% Prime Minister requested that DPM and DCM become separate entities which will naturally result in increased competition domestically. Additionally, with vastly increased urea production, Vietnam has become a net exporter of urea fertilizer, leading to greater competition for export channels. Nevertheless, DPM continues to release solid financials and the elimination of the distribution of low-margin DCM urea fertilizer is actually forecasted to support DPM’s margins in 2013.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 17 Top Portfolio Holdings
PetroVietnam Drilling & Well Services JSC (PVD)
OVERVIEW PetroVietnam Drilling is the only listed drilling and well Sector / Asset Type Oil & Gas Services Listed maintenance company in Vietnam. PVD is a subsidiary of Year Acquired 2008 PetroVietnam, Vietnam’s state-owned and sole provider of oil Book Value €1.7mn and gas resources as well as the nation’s second largest energy producer. As such, PVD provides oilrigs and well maintenance % of NAV 3.7% services to foreign oil & gas contractors and to PetroVietnam which is ramping up its exploration and production activities FINANCIAL HIGHLIGHTS 2012 2011 with plans to drill approximately 600 wells in the next 10 Revenue €435.4mn €338.6mn
years. The company has been focusing on expanding its fleet Gross Profit €97.9mn €75.6mn
since increased demand for oil in the region has made it almost Gross Margin 22.5% 22.3% impossible to secure rigs from elsewhere to sublease in Vietnam. Net Profit €52.8mn €39.4mn
Net Margin 12.1% 11.6%
Highlights of 2012 Adjusted EPS (VND) 5,409 4,439 Dividend Yield 3% 5%
PVD’s revenues grew strongly during 2012 due to rising demand for drilling related services from oil & gas contractors and higher revenues on rentals due to the higher rental rate that is charged for the Tender Assisted Rig which commenced operations in Q1 2012. PVD entered into a joint venture agreement with Falcon Energy Group of Singapore to invest a total of US$226.7mn in new drilling rigs over the next 20 years with 50% ownership in each. Revenues will increase as these new rigs commence operations over the coming years while in the near-term, continued high demand for drilling rigs in Asia will push up rental rates for the rigs that PVD already owns and leases out.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 18 Top Portfolio Holdings
Bank for Foreign Trade of Vietnam “Vietcombank” (VCB)
OVERVIEW Vietcombank is the 4th largest bank in terms of assets, the Sector / Asset Type Financials Listed 4th largest bank in terms of outstanding loans, the 5th largest Year Acquired 2007 bank in terms of branch coverage with more than 200 branches Book Value €1.5mn nationwide, and the top bank in terms of ATM coverage with 1,700 ATMs at the end of 2012. Vietcombank is widely perceived % of NAV 3.4% as the best state-owned commercial bank as it is a market leader in the wholesale lending business and international FINANCIAL HIGHLIGHTS 2012 2011 payment services with 23% market share. Gross Income €551.5mn €546.7mn
Net Income €161.6mn €155.0mn
Adjusted EPS (VND) 1,626 2,131 Highlights of 2012 Dividend Yield 4% 6%
As one of the strongest state-owned commercial banks, Vietcombank was granted permission by the State Bank of Vietnam to grow its total loans by 15% during 2012, higher than the total banking industry which grew loans by 8.9%. Nonperforming loans at VCB increased slightly to 2.3% of total loans from 2.0% at the end of 2011, however the bank had provisioned aggressively against losses on those loans in 2011 and continued to keep high reserves to provision against future losses. Net interest income fell during the year due to declining net interest margin (declining interest rates), but this is expected to rebound as total credit in the banking system is forecasted to grow by 12% in 2013, driven by lower interest rates.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 19 Annual Reports 2012
Board of Directors Board of Directors
Dr. Lee G. Lam Mr. Howard Golden Chairman Independent Non-Executive Director Independent Non-Executive Director
Chairman – Indochina, Myanmar, Thailand (formerly Chairman – Hong Chairman Kong), Senior Advisor - Asia The Worldwide Opportunity Fund (WWOF). Macquarie Capital (Hong Kong) Limited. Partner Former Vice Chairman, COO and Managing Director of Investment Terra Partners Group, an investment management company with Banking Division, Bank of China International Holdings. $135 million AUM.
Former President and CEO, Vice Chairman Chairman Chia Tai Enterprises International Ltd. (CP Lotus Corporation). Romanian Investment Fund and Reconstruction Capital II. Former Executive Director Singapore Technologies Telemedia. Former Chairman Kazakhstan Investment Fund. Former President and CEO Millicom International Cellular Asia Pacific. Former Chairman of the Supervisory Board Slovak RIF, the largest Slovak closed-end fund, the Slovak Restitution Investment Fund. Former Vice President / Managing Partner, Greater China A.T. Kearney. Former Board Member Beta Vietnam Fund and Framlington Bulgaria Fund. Former General Manager Cable & Wireless/Hong Kong Telecom. Lectured on closed-end funds in London and Prague and at various business schools (Harvard University, University of BSc in sciences and mathematics, MSc in systems science, MBA from the University of Ottawa in Canada, post-graduate diploma Chicago). in public administration from Carleton University in Canada, post- graduate diploma in English and Hong Kong Law and LLB Quoted as an expert in capital markets and corporate governance (Hons) in law from Manchester Metropolitan University in the in The Economist, The Financial Times, The New York Times, The UK, LLM in law from the University of Wolverhampton in the UK, International Herald Tribune, Newsweek, Prague Business Journal, PCLL in law from the City University of Hong Kong, Certificate in and Business Central Europe. Professional Accountancy from the Chinese University of Hong Kong SCS, and PhD from the University of Hong Kong. Practiced law in Chicago, New York and Israel. BA, JD, and MBA from University of Wisconsin. Board Member East-West Center Foundation. Fluent in English and Hebrew, knowledgeable in Czech. Fellow of the Hong Kong Institute of Directors and Fellow of the Hong Kong Institute of Arbitrators.
Member of the General Council and the Corporate Governance Committee of the Chamber of Hong Kong Listed Companies.
Vice President Hong Kong Real Estate Association.
Founding Board Member and the Honorary Treasurer Hong Kong-Vietnam Chamber of Commerce.
Board Member Australian Chamber of Commerce in Hong Kong.
Fluent in English, Chinese (Mandarin, Cantonese, and Chiu Chow) and Vietnamese.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 21 Board of Directors
Dr. Kathryn Vagneur Mr. Louis Nguyen Independent Non-Executive Director Executive Director
Director Current Chairman and CEO Durant, a private investment fund. Saigon Asset Management.
Director & Chairman, Audit & Risk Committee Former Managing Director The Foresters Friendly Society, a British mutual insurance VinaCapital, a fund management company based in Ho Chi Minh company. City, Vietnam.
Trustee and Finance & Performance Committee Former Founding General Partner The Royal United Services Institute, the defense and security IDG Ventures Vietnam, a fund management company based Ho Chi think tank. Minh City, Vietnam.
Former Chief Operating Officer Former Vice President Tribune Capital Partners, investment management of a media Intelligent Capital, a mergers and acquisitions firm based in San sector focused venture fund. Francisco, California.
Former Director Former Venture Partner and Senior Associate PricewaterhouseCoopers in London, consulting to the financial Osprey Ventures, a venture capital firm based in Menlo Park, services sector, developed investment banking strategies, California. evaluated acquisitions including deal structure, forensic due diligence and restructuring strategies. Contributor to the redesign Held management positions in finance and manufacturing of PwC’s audit methodology used globally. operations at NEC and Apple Computers in California.
Founder Audit and management consulting experience at KPMG in San Vagneur & Firth, Certified Public Accountants, Colorado. Jose, California. Developed courses in strategy implementation and management control, corporate governance and internal governance at London Member of the board of directors of various listed and private Business School and Edinburgh Business School. companies based in Vietnam.
Built a financial decision model for US Department of Justice BS in Accounting, San Jose State University, California. while at Carnegie-Mellon University. Fluent in English and Vietnamese. PhD in Management, London Business School. Certified Public Accountant (US)
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 22 Annual Reports 2012
Financial Statements and Independent Auditors’ Report YEAR ENDED 31 DECEMBER 2012 Report of the Board of Directors The Board of Directors submits its report together with the audited financial statements of Vietnam Equity Holding (“the Company”) for the year ended 31 December 2012.
The Company Vietnam Equity Holding was incorporated in the Cayman Islands as a company with limited liability. The registered office of the Company is at Deutsche Bank (Cayman) Limited at Boundary Hall, Cricket Square, PO Box 1984, Grand Cayman KY1-1104, Cayman Islands.
Principal activities The principal activity of the Company is to invest in a diversified and balanced portfolio that should achieve above average returns at an acceptable level of risk, give rise to long-term and short-term returns, and be capable of yielding recurrent earnings and/or capital gains.
Result of operations The results of the Company’s operations for the year ended 31 December 2012 and the state of its affairs as at that date are set out in the financial statements on pages 27 to 47.
Board of Directors The members of the Board of Directors during the year and up to the date of this report were:
Board of Directors: Appointed on
Lee G Lam Chairman and Independent Non-executive 9 November 2007
Director
Howard Golden Independent Non-executive Director 9 November 2007
Louis T Nguyen Executive Director 9 August 2007
Kathryn Vagneur Independent Non-executive Director 8 February 2010
There being no provision in the company’s articles of association to the contrary, all Directors shall remain in office for the ensuing year.
Auditors The accompanying financial statements for the year ended 31 December 2012 have been audited by Grant Thornton (Vietnam) Ltd and they have expressed their willingness to accept their re-appointment subject to their reacceptance policies and procedures.
Directors’ interest in the Company As at 31 December 2012, the interest of Directors in the underlying shares of the Company are as follows:
Number of shares Percentage of issued capital Louis T Nguyen 25,000 0.12%
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 24 Report of the Board of Directors
Board of Directors’ responsibilities in respect of the financial statements The Board of Directors is responsible for ensuring that the financial statements are properly drawn up so as to give a true and fair view of the financial position of the Company as at 31 December 2012 and of the results of its operations and its cash flow for the year then ended in accordance with the International Financial Reporting Standards. When preparing the financial statements, the Board of Directors is required to:
(i) adopt appropriate accounting policies which are supported by reasonable and prudent judgements and estimates and then apply them consistently;
(ii) comply with the disclosure requirements of International Financial Reporting Standards or, if there have been any departures in the interest of true and fair presentation, ensure that these have been appropriately disclosed, explained and quantified in the financial statements;
(iii) maintain adequate accounting records and an effective system of internal control;
(iv) prepare the financial statements on a going concern basis unless it is inappropriate to assume that the Company will continue its operations in the foreseeable future; and
(v) control and effectively direct the Company in all material decisions affecting its operations and performance and ascertain that such decisions and/or instructions have been properly reflected in the financial statements.
The Board of Directors is also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Board of Directors confirms that the Company has complied with the above requirements in preparing the financial statements.
Statement by the Board of Directors In the opinion of the Board of Directors, the accompanying statement of financial position, statements of comprehensive income, changes in equity and cash flows together with the notes thereto, have been properly drawn up and give a true and fair view of the financial position of the Company as at 31 December 2012 and the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards.
On behalf of the Board of Directors
Lee G Lam Chairman and Independent Non-executive Director Ho Chi Minh City, Vietnam Date: 12 April 2013
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 25 Independent auditors’ report
on the financial statements of Vietnam Equity Holding for the year ended 31 December 2012 No: HCM/13/019 Grant Thornton (Vietnam) Ltd T +84 (8) 3910 9100 28th Floor, Saigon Trade Center F +84 (8) 3914 3748 37 Ton Duc Thang Street, www.gt.com.vn District 1, Ho Chi Minh City Vietnam
To the Shareholders of Vietnam Equity Holding We have audited the accompanying financial statements of Vietnam Equity Holding (“the Company”) which comprise the statement of financial position as at 31 December 2012, and the related statements of comprehensive income, changes in shareholders’ equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes.
Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the accompanying financial statements give a true and fair view of the financial position of Vietnam Equity Holding as at 31 December 2012, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 26 Statement of Financial Position
Notes 31 December 2012 31 December 2011
EUR EUR
ASSETS
Current assets
Financial assets at fair value through profit or loss 6 44,144,017 35,301,917
Other receivables 7 314,469 234,997
Other current assets - 5,475
Cash and cash equivalents 8 910,146 4,077,860
Total assets 45,368,632 39,620,249
EQUITY AND LIABILITIES
EQUITY
Share capital 9 43,491,020 43,491,020
Share premium 7,881,004 7,881,004
Treasury shares 9 (210,973) -
Accumulated losses (5,892,813) (11,862,538)
Total equity 45,268,238 39,509,486
LIABILITIES
Current
Other payables 10 100,394 110,763
Total liabilities 100,394 110,763
Total equity and liabilities 45,368,632 39,620,249
Net asset per share (EUR per share) 16 2.097 1.817
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 27 Statement of Comprehensive Income
Notes For the year ended For the year ended
31 December 2012 31 December 2011
EUR EUR
Net changes in fair value of financial asset at fair value
through profit or loss 11 4,934,227 (4,764,504)
General and administration expenses 12 (1,249,749) (1,016,575)
Loss from operations 3,684,478 (5,781,079)
Finance income 13 2,719,476 1,832,995
Finance expenses 14 (434,229) (2,520,530)
Profit (loss) before tax 5,969,725 (6,468,614)
Corporate income tax 15 - -
Net income/(loss) 5,969,725 (6,468,614)
Other comprehensive income - -
Total comprehensive income/(loss) for the year 5,969,725 (6,468,614)
Attributable to shareholders 5,969,725 (6,468,614)
Earnings/(loss) per share – basic and diluted (EUR per share) 16 0.27 (0.30)
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 28 Statement of Changes in Equity
Share Share (Accumulated losses) Total Equity
capital premium Treasury shares
EUR EUR EUR EUR EUR
Balance, 1 January 2011 43,491,020 7,881,004 - (5,393,924) 45,978,100
Net loss - - - (6,468,614) (6,468,614)
Balance, 31 December 2011 43,491,020 7,881,004 - (11,862,538) 39,509,486
Balance, 1 January 2012 43,491,020 7,881,004 - (11,862,538) 39,509,486
Treasury shares - - (210,973) - (210,973)
Net income - - - 5,969,725 5,969,725
Balance, 31 December 2012 43,491,020 7,881,004 (210,973) (5,892,813) 45,268,238
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 29 Statement of Cash Flows
Note Year ended Year ended
31 December 2012 31 December 2011
EUR EUR
Operating activities
Income/(loss) before tax 5,969,725 (6,468,614)
Adjustments for:
Net changes in fair value of financial assets through profit or loss
(exclusive of foreign exchange gain (loss)) 11 (4,358,964) 3,911,429
Loss from foreign currency translations 434,192 1,198,082
(Gain)/loss from disposal of investments (652,541) 2,130,364
Interest income 13 (132,142) (195,494)
Dividend income 13 (2,474,566) (1,637,501)
Operating loss before adjustments to working capital (1,214,296) (1,061,734)
Changes in other receivables 3,124 817,677
Changes in other payables (10,369) 10,217
Net cash flow used in operating activities (1,221,541) (233,840)
Investing activities
Acquisition of financial assets (8,677,997) (8,502,590)
Proceeds from disposal of financial assets 4,421,846 10,327,013
Interest received 153,231 195,494
Dividends received 2,374,005 1,637,501
Net cash generated from (used in) investing activities (1,728,915) 3,657,418
Financing activities
Acquisition of treasury shares (210,973) -
Net cash flow used in financing activities (210,973) -
Net change in cash and cash equivalents for the year (3,161,429) 3,423,578
Effects of fluctuations in foreign exchange rates (6,284) (23,919)
Cash and cash equivalents at beginning of the year 4,077,859 678,201
Cash and cash equivalents at the end of the year 910,146 4,077,860
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 30 Notes to the Financial Statements
1. GENERAL INFORMATION Vietnam Equity Holding was incorporated in the Cayman Islands as a limited liability company. The registered office of the Company is at Deutsche Bank (Cayman) Limited at Boundary Hall, Cricket Square, PO Box 1984, Grand Cayman KY1-1104, Cayman Islands. Its shares were listed on German stock exchanges (Frankfurt and XETRA).
The investment objective of the Company is to achieve capital appreciation by making equity investments in companies with significant interests in Vietnam. Specifically, the Company intends to invest in equity securities of state owned enterprises, private companies, over-the-counter (“OTC”) companies, and listed companies and in debt securities. The Company aims to invest in a diversified and balanced portfolio that should achieve above average returns at an acceptable level of risk, give rise to long-term and short-term returns, and be capable of yielding recurrent earnings and/or capital gains.
The Company does not have a fixed life but the Board considers it is desirable that Shareholders have the opportunity to review the future of the Company at appropriate intervals. Accordingly, the Board convened an extraordinary general meeting (“EGM”) of the Company on 3 October 2012 where an Ordinary Resolution was proposed that the Company continue as presently constituted. The resolution was passed by the shareholders and the Company will continue its operations as presently constituted and the Board has made a commitment to the shareholders that it will submit a proposal at the upcoming AGM in 2013 to begin a process of converting the Company into open ended format in 2014.
In addition, another Ordinary Resolution was proposed in the EGM on 3 October 2012 that the Company continue the current share buy-back program, that the Board be authorised to use €1,000,000 (one million Euros) to repurchase the Company’s own shares at a discount rate as the Board thinks fit and at its discretion through the stock market and in private transactions within the bid/ask spread in accordance with applicable laws and regulations, for an additional 6 months beyond its current ending date of 21 December 2012 for holding as treasury shares or cancellation at the Board’s discretion. The resolution was passed by the shareholders.
The financial statements for the year ended 31 December 2012 were authorised for issue by the Company’s Board of Directors on 12 April 2013.
2. STATEMENT OF COMPLIANCE WITH IFRS AND ADOPTION OF NEW AND AMENDED STANDARDS AND INTERPRETATIONS
2.1. Statement of compliance with IFRS The consolidated financial statements (the “financial statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
2.2. Changes in accounting policies
2.2.1. Adoption of “Presentation of Items of Other Comprehensive Income” (Amendment to IAS 1) The Company has early adopted ‘Presentation of Items of Other Comprehensive Income’ (Amendments to IAS 1). The Amendments to IAS 1 are effective for annual periods beginning on or after 1 July 2012 and require entities to group items presented in other comprehensive income (OCI) into those that, in accordance with other IFRS, will not be reclassified subsequently to profit or loss and those that will be reclassified subsequently to profit or loss when specific conditions are met. The existing option to present items of OCI either before tax or net of tax remains unchanged; however, if the items are presented before tax, then the Amendments to IAS 1 require the tax related to each of the two groups of OCI to be shown separately. In addition, the amendments to IAS 1 do not materially impact on the Company’s financial statements.
2.2.2. Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Company At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Company (except for the Amendments to IAS 1 noted above in 2.2.1).
Management anticipates that all of the pronouncements will be adopted in the Company’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Company’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s consolidated financial statements.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 31 Notes to the Financial Statements
IFRS 9 Financial Instruments (effective from 1 January 2015) The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety. The replacement standard (IFRS 9) is being issued in phases. To date, the chapters dealing with recognition, classification, measurement and de-recognition of financial assets and liabilities have been issued. These chapters are effective for annual periods beginning 1 January 2015. Further chapters dealing with impairment methodology and hedge accounting are still being developed.
Management have yet to assess the impact that this amendment is likely to have on the financial statements of the Company. However, they do not expect to implement the amendments until all chapters of IFRS 9 have been published and they can comprehensively assess the impact of all changes.
Consolidation Standards A package of consolidation standards are effective for annual periods beginning or after 1 January 2013. Information on these new standards is presented below. The Company’s management have yet to assess the impact of these new and revised standards on the Company’s consolidated financial statements.
IFRS 10 Consolidated Financial Statements (IFRS 10) IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements (IAS 27) and SIC 12 Consolidation – Special Purpose Entities. It revised the definition of control together with accompanying guidance to identify an interest in a subsidiary. However, the requirements and mechanics of consolidation and the accounting for any non-controlling interests and changes in control remain the same.
IFRS 11 Joint Arrangements (IFRS 11) IFRS 11 supersedes IAS 31 Interests in Joint Ventures (IAS 31). It aligns more closely the accounting by the investors with their rights and obligations relating to the joint arrangement. In addition, IAS 31’s option of using proportionate consolidation for joint ventures has been eliminated. IFRS 11 now requires the use of the equity accounting method, which is currently used for investments in associates.
IFRS 12 Disclosure of Interests in Other Entities (IFRS 12) IFRS 12 integrates and makes consistent the disclosure requirements for various types of investments, including unconsolidated structured entities. It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities.
Transition guidance for IFRS 10, 11, 12 Subsequent to issuing the new standards the IASB made some changes to the transitional provisions in IFRS 10, IFRS 11 and IFRS 12. The guidance confirms that the entity is not required to apply IFRS 10 retrospectively in certain circumstances and clarifies the requirements to present adjusted comparatives. The guidance also makes changes to IFRS 11 and IFRS 12 which provide similar relief from the presentation or adjustment of comparative information for periods prior to the immediately preceding period. Further, it provides additional relief by removing the requirement to present comparatives for the disclosures relating to unconsolidated structured entities for any period before the first annual period for which IFRS 12 is applied.
The new guidance is also effective for annual periods on or after 1 January 2013.
Consequential amendments to IAS 27 and IAS 28 Investments in Associatesand Joint Ventures (IAS 28) IAS 27 now only deals with separate financial statements. IAS 28 brings investments in joint ventures into its scope. However, IAS 28’s equity accounting methodology remains unchanged.
IFRS 13 Fair Value Measurement (IFRS 13) IFRS 13 does not affect which items are required to be fair-valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It is applicable for annual periods beginning on or after 1 January 2013. The Company’s management have yet to assess the impact of this new standard.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 32 Notes to the Financial Statements
Offsetting Financial Assets and Financial Liabilities The IAS 1 Amendments require an entity to group items presented in other comprehensive income into those that, in accordance with other IFRSs: (a) will not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions are met. It is applicable for annual periods beginning on or after 1 July 2012. The Company’s management expects this will change the current presentation of items in other comprehensive income; however, it will not affect the measurement or recognition of such items.
The Amendments to IAS 32 add application guidance to address inconsistencies in applying IAS 32’s criteria for offsetting financial assets and financial liabilities in the following two areas:
• the meaning of ‘currently has a legally enforceable right of set-off’ • that some gross settlement systems may be considered equivalent to net settlement.
The Amendments are effective for annual periods beginning on or after 1 January 2014 and are required to be applied retrospectively. Management does not anticipate a material impact on the Company’s IFRS 7 financial statements from these Amendments.
Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) Qualitative and quantitative disclosures have been added to IFRS 7 Financial Instruments: Disclosures’ (IFRS 7) relating to gross and net amounts of recognised financial instruments that are (a) set off in the statement of financial position and (b) subject to enforceable master netting arrangements and similar agreements, even if not set off in the statement of financial position. The Amendments are effective for annual reporting periods beginning on or after 1 January 2013 and interim periods within those annual periods. The required disclosures should be provided retrospectively. Management does not anticipate a material impact on the Company’s financial statements from these Amendments.
Annual Improvements 2009-2011 (the Annual Improvements) The Annual Improvements 2009-2011 (the Annual Improvements) made several minor amendments to a number of IFRSs. The amendments relevant to the Company are summarised below:
Clarification of the requirements for opening statement of financial position: • clarifies that the appropriate date for the opening statement of financial position is the beginning of the preceding period (related notes are no longer required to be presented) • addresses comparative requirements for the opening statement of financial position when an entity changes accounting policies or makes retrospective restatements or reclassifications, in accordance with IAS 8.
Clarification of the requirements for comparative information provided beyond minimum requirements: • clarifies that additional financial statement information need not be presented in the form of a complete set of financial statements for periods beyond the minimum requirements • requires that any additional information presented should be presented in accordance with IFRS and the entity should present comparative information in the related notes for that additional information.
Tax effect of distribution to holders of equity instruments: • addresses a perceived inconsistency between IAS 12 ‘Income Taxes’ (IAS 12) and IAS 32 ‘Financial Instruments: Presentation’ (IAS 32) with regards to recognising the consequences of income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction. • clarifies that the intention of IAS 32 is to follow the requirements in IAS 12 for accounting for income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction.
Segment information for total assets and liabilities: • Clarifies that the total assets and liabilities for a particular reportable segment are required to be disclosed if, and only if: (i) a measure of total assets or of total liabilities (or both) is regularly provided to the chief operation decision maker, (ii) there has been a material change from those measures disclosed in the last annual financial statements for that reportable segment.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 33 Notes to the Financial Statements
The annual improvements noted above are effective for annual periods beginning on or after 1 January 2013. Management does not anticipate a material impact on the Company’s financial statements from these Amendments.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1. Overall considerations The significant accounting policies that have been used in the preparation of these financial statements are summarised below.
The financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below.
3.2. Basis of presentation The financial statements are presented in accordance with IAS 1 Presentation of Financial Statements. The Company has elected to present the ‘Statement of comprehensive income’ in one statement: the ‘Statement of comprehensive income’.
3.3. Functional and presentation currency The financial statements are presented in Euro (EUR) (“the presentation currency”) which is also the functional currency of the Company.
3.4. Foreign currency translation Transactions arising in currencies other than the functional currency of the Company are translated at exchange rates in effect on the transaction dates. Monetary assets and liabilities denominated in currencies other than the functional currency are translated at the prevailing exchange rates at the end of the reporting period. Translation gains and losses and expenses relating to foreign exchange transactions are recorded in the statement of comprehensive income.
3.5. Financial assets Financial assets, other than hedging instruments, are divided into the following categories: loans and receivables; financial assets at fair value through profit or loss; available-for-sale financial assets; and held-to-maturity investments.
Management determines the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired. Management re-evaluates this designation at each reporting date.
All financial assets are recognised when, and only when, the Company becomes a party to the contractual provisions of the instrument. When financial assets are recognised initially, they are measured at fair value or in the case of investments not at a fair value through profit or loss, directly attributable transaction costs. After initial recognition, the Company measures financial assets and derivatives that are assets, at their fair values, without any deductions for transaction costs it may incur on sale of other disposal.
De-recognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. At the end of each reporting period, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exits, any impairment loss is determined and recognised based on the classification of the financial assets.
The Company’s financial assets consist of the following categories:
Receivables All receivables are non-derivative financial assets with fixed or determinable pay¬ments that are not quoted in an active market. After initial recognition these are measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in the statement of income. All of the Company’s receivables fall into this category of financial instruments. Discounting, however, is omitted where the effect of discounting is immaterial.
Significant receivables are considered for impairment on a case-by-case basis when they are overdue at the reporting date or when objective evidence is received that a specific counterparty will default.
Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets that are either classified as held for trading or are designated by the entity to be carried at fair value through profit or loss upon initial recognition. By definition, all derivative financial instruments that do
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 34 Notes to the Financial Statements
not qualify for hedge accounting fall into this category. Other financial assets at fair value through profit or loss held by the Company include listed and unlisted securities.
Any gain or loss arising from derivative financial instruments is based on changes in fair value, which is determined by direct reference to active market transactions or using industry standard valuation techniques where no active market exists.
3.6. Income taxes Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods that are unpaid at the end of the reporting period. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the statement of comprehensive income.
Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the financial statements with their respective tax bases. In addition, tax losses available to be carried forward as well as other income tax credits to the Company are assessed for recognition as deferred tax assets.
Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss.
Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Most changes in deferred tax assets or liabilities are recognised as a component of tax expense in the statement of income. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to other comprehensive income are charged or credited directly to other comprehensive income.
3.7. Cash and cash equivalents Cash and cash equivalents include cash at bank and in hand as well as short term highly liquid investments such as money market instruments and bank deposits with an original maturity term of not more than three months.
3.8. Equity Share capital represents the nominal value of shares that have been issued. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.
No gain or loss shall be recognised in profit or loss on the repurchase of the Company’s shares for cancellation. Consideration paid or received shall be recognised directly in equity. The difference between the consideration paid for the repurchase and original share issues prices will be recognised in the share premium account. Equity shares repurchased for holding in treasury is recognised in a separate component of equity.
Retained earnings include all current and prior period results as disclosed in the statement of changes in equity.
3.9. Financial liabilities The Company’s financial liabilities include trade and other payables and other liabilities.
Financial liabilities are recognised when the Company becomes a party to the contractual agreements of the instrument. All interest related charges are recognised as an expense in finance costs in the statement of comprehensive income.
Payables are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest rate method.
A financial liability is de-recognised when the obligation under the liability is discharged or cancelled or expires.
3.10. Provisions Provisions are recognised when present obligations will probably lead to an outflow of economic resources from the Company that can be reliably estimated. A present obligation arises from the presence of a legal or constructive obligation that has resulted from past events.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 35 Notes to the Financial Statements
Provisions are not re-cognised for future operating losses.
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the end of the reporting period, including the risks and uncertainties associated with the present obligation. Where there are a num¬ber of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Long term pro¬vi¬sions are discounted to their present values, where the time value of money is material.
All provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate by the Company’s Management.
3.11. Related parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Parties are considered to be related to the Company if: 1. directly or indirectly, a party controls, is controlled by, or is under common control with the Company; has an interest in the Company that gives it significant influence over the Company; or has joint control over the Company; 2. a party is a jointly-controlled entity; 3. a party is an associate; 4. a party is a member of the key management personnel of the Company; or 5. a close member of the family of any individual referred to in (1) and (4).
3.12. Segment reporting An operating segment is a component of the Company: 1. that engages in investment activities from which it may earn revenues and incur expenses; 2. whose operating results are based on internal management reporting information that is regularly reviewed by the Investment Manager to make decisions about resources to be allocated to the segment and assess its performance; and 3. for which discrete financial information is available.
3.13. Earnings (loss) per share and net asset value per share The Company presents basic earnings (loss) per share for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
Net asset value (NAV) per share is calculated by dividing the net asset value attributable to ordinary shareholders of the Company by the number of outstanding ordinary shares as at the end of the reporting period. Net asset value is determined as total assets less total liabilities.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS When preparing the financial statements Management undertakes a number of judgements, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the judgements, estimates and assumptions made by Management, and will seldom equal the estimated results. Information about significant judgements, estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses are discussed below.
Impairment of other receivables The Company’s Management determines the provision for impairment of other receivables on a regular basis. This estimate is based on the credit history of its debtors and prevailing market conditions.
In the process of an impairment review, the Company’s Management makes assumptions about future cash flow and discount rates associated with market risk and asset specific risk factors. The actual results of the impairment assessment to the Company’s assets may vary and may
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 36 Notes to the Financial Statements
cause significant adjustments to the Company’s assets within the next financial year.
Fair value of financial instruments Listed securities are valued at their closing bid prices as of the last official close of the applicable exchange on the relevant valuation day. Securities traded on a securities exchange for which there has been no sale that day will be valued at the closing bid price on the relevant valuation day.
Investments in unlisted securities for which an active OTC market exists are stated at fair value based upon price quotations received from at least three independent brokers.
Other unlisted securities, for which no active OTC market exists, are valued at fair value using a valuation technique determined by the Company and in accordance with International Financial Reporting Standards.
5. SEGMENT REPORTING In identifying its operating segments, Management generally follows the Company’s sectors of investment which are based on internal management reporting information for the Investment Manager’s management, monitoring of investments and decision making. The operating segments by investment portfolio include Real Estate &Infrastructure, Chemicals, Pharmaceuticals, Technology, Food & Beverage, Oil & Gas, Financial Services, Luxury Goods, Plastic and Other investments. All of the investment portfolios are in Vietnam.
Each of the operating segments are managed and monitored separately by the Investment Manager as each requires different resources and approaches. The Investment Manager assesses segment profit or loss using a measure of operating profit or loss from the investment assets. Although IFRS 8 requires measurement of segmental profit or loss, the majority of expenses are common to all segments therefore cannot be individually allocated. There have been no changes from prior periods in the measurement methods used to determine reported segment profit or loss.
Segment information can be analysed as follows for the reporting periods under review:
5. Segment reporting (continued)
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 37 Notes to the Financial Statements
STATEMENT OF FINANCIAL POSITION 31 December 2012
Real Estate & Chemicals Pharmaceuticals Technology Food & Oil & Gas Financial Luxury Goods Plastic Rubber Other Cash Other Total
Infrastructure Beverage Services investments Assets
Total assets Financial assets at fair value through profit or loss 4,750,894 3,427,737 230,322 7,823,433 12,711,868 1,688,202 2,665,112 3,114,205 496,423 1,220,579 6,015,242 - - 44,144,017
Other assets ------314,469 314,469
Cash and cash ------910,146 - 910,146 equivalents 4,750,894 3,427,737 230,322 7,823,433 12,711,868 1,688,202 2,665,112 3,114,205 496,423 1,220,579 6,015,242 910,146 314,469 45,368,632
STATEMENT OF COMPREHENSIVE INCOME Year ended 31 December 2012
Real Estate & Chemicals Pharmaceuticals Technology Food & Oil & Gas Financial Luxury Goods Utilities Rubber Other Cash Other Total
Infrastructure Beverage Services investments Assets
Net changes in fair value of financial assets at fair value through profit or loss 24,183 641,715 416,401 (610,806) 3,465,677 193,581 262,140 99,007 (1,146,153) 563,903 1,024,579 - - 4,934,227
Financial income - 306,658 249,359 24,405 526,610 438,102 68,549 247,199 118,483 36,974 - 458,227 - - 2,474,566 Dividend income
Foreign exchange (64,750) (37,799) 62,907 (60,464) (92,242) (10,715) (90,369) (21,616) (11,775) 8,591 (30,082) - - (348,314) losses Administration - (1,249,749) (1,249,749) expenses Financial income- 89,349 - 42,793 132,142 Interest income Foreign exchange gain - - 26,853 26,853
266,091 853,275 503,713 (144,660) 3,811,537 251,415 418,970 195,874 (1,120,954) 572,494 1,542,073 - (1,180,103) 5,969,725
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 38 Notes to the Financial Statements
STATEMENT OF FINANCIAL POSITION 31 December 2011
Real Estate & Chemicals Pharmaceuticals Technology Food & Oil & Gas Financial Luxury Goods Plastic Other Cash Other Total
Infrastructure Beverage Services investments
Total assets Financial assets at fair value through profit or loss 3,583,998 1,185,730 2,708,922 8,494,704 7,684,209 1,505,336 2,311,025 3,036,814 1,654,351 3,136,828 - - 35,301,917
Other assets ------240,472 240,472
Cash and cash ------4,077,860 - 4,077,860 equivalents 3,583,998 1,185,730 2,708,922 8,494,704 7,684,209 1,505,336 2,311,025 3,036,814 1,654,351 3,136,828 4,077,860 240,472 39,620,249
STATEMENT OF COMPREHENSIVE INCOME Year ended 31 December 2011
Real Estate & Chemicals Pharmaceuticals Technology Food & Oil & Gas Financial Luxury Goods Plastic Other Cash Other Total
Infrastructure Beverage Services investments
Net changes in fair
value of financial assets at fair value
profit or loss (4,938,052) (1,307,456) 568,922 (2,045,228) 3,007,207 (897,761) 455,911 347,496 110,290 (65,833) - - (4,764,504)
Financial income - 70,891 148,935 245,330 257,955 113,490 86,344 404,622 258,614 - 51,320 - - 1,637,501 Dividend income
Foreign exchange gain (298,408) (284,588) (214,704) (280,477) (300,905) (101,756) (902,320) (113,876) 65,916 141,106 - - (2,290,012) (loss) Administration ------(1,016,575) (1,016,575) expenses Financial income------103,780 - 91,714 195,494 Interest income
Financial expenses------(45,159) (45,159) Interest expense
Foreign exchange loss ------(23,919) (161,440) (185,359)
(5,165,569) (1,443,109) 599,548 (2,067,750) 2,819,792 (913,173) (41,787) 492,234 176,206 230,373 (23,919) (1,131,460) (6,468,614)
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 39 Notes to the Financial Statements
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 31 December 2012 31 December 2011 EUR EUR Financial assets at fair value through profit or loss Ordinary shares – listed 42,702,853 33,510,848 Ordinary shares – unlisted 1,441,164 1,791,069 44,144,017 35,301,917
7. OTHER RECEIVABLES 31 December 2012 31 December 2011 EUR EUR Interest receivable 86,750 107,839 Other receivables 227,719 127,158 314,469 234,997
8. CASH AND CASH EQUIVALENTS 31 December 2012 31 December 2011 EUR EUR Cash in banks 545,130 153,481 Cash equivalents 365,017 3,924,379 910,146 4,077,860
Cash equivalents represent bank deposits with maturity terms of not more than three months. The deposit is in Vietnam Dong at the overnight interest at of 3.15% per annum.
9. SHARE CAPITAL The Details of issued sharesare as follows: 31 December 2012 31 December 2011 Ordinary shares Treasury shares Ordinary shares Treasury shares Authorised Shares Shares Shares Shares Ordinary shares of EUR2.00 each 50,000,000 - 50,000,000 -
Issued and fully paid: Opening balance 21,745,510 - 21,745,510 - Shares repurchased as treasury shares (156,200) 156,200 - - Closing balance 21,589,310 156,200 21,745,510 -
31 December 2012 31 December 2011 Of which: EUR EUR Share capital 43,491,020 43,491,020 Treasury shares (210,973) - 43,280,047 43,491,020
The Company repurchased 156,200 of its own shares and kept as treasury shares as at 31 December 2012, at an average price of EUR 1.3507 per share which was approved at the Extraordinary General Meeting dated 21 June 2012.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 40 Notes to the Financial Statements
10. OTHER PAYABLES 31 December 2012 31 December 2011 EUR EUR Payables to related party (see Note 17) 75,071 66,901 Other payables 25,323 43,862 100,394 110,763
11. NET CHANGES IN FAIR VALUE OF FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Year ended Year ended 31 December 2012 31 December 2011 EUR EUR Net change in fair value of investments 4,358,964 (3,911,429) Gain/(loss) from disposal of investments 575,263 (853,075) 4,934,227 (4,764,504)
12. GENERAL AND ADMINISTRATION EXPENSES Year ended Year ended 31 December 2012 31 December 2011 EUR EUR Management fees (Note 17) 893,093 772,384 Director fees (Note 17) 46,588 44,184 Professional fees 531 58,926 General administration expenses 63,187 58,377 Other expenses 246,350 82,704 1,249,749 1,016,575
13. FINANCE INCOME Year ended Year ended 31 December 2012 31 December 2011 EUR EUR Interest income 89,349 166,990 Dividend income 2,474,566 1,637,501 Interest from bank deposit 42,793 28,504 Realised gain from foreign exchange differences 112,768 - 2,719,476 1,832,995
14. FINANCE EXPENSES Year ended Year ended 31 December 2012 31 December 2011 EUR EUR Realised loss from foreign exchange differences - 1,465,308 Unrealised loss from foreign exchange differences 434,229 1,010,063 Interest expense - 45,159 434,229 2,520,530
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 41 Notes to the Financial Statements
15. CORPORATE INCOME TAX The Company is domiciled in the Cayman Islands. Under the current laws of the Cayman Islands, there is no income, state, corporation, capital gains or other taxes payable by the Company.
Although the Company is incorporated in the Cayman Islands where it is exempted from tax, the Company’s activities are primarily focused on Vietnam. In accordance with the prevailing tax regulations in Vietnam, if an entity was treated as having a permanent establishment, or as otherwise being engaged in a trade or business in Vietnam, the income attributable to or effectively connected with such permanent establishment or trade or business may be subject to tax in Vietnam. As at the date of this report the following information is uncertain:
• Whether the Company is considered as having a permanent establishment in Vietnam; and • The amount of tax that may be payable, if the income is subject to tax.
The implementation and enforcement of tax regulations in Vietnam can vary depending on numerous factors, such as the interpretation of the tax rules by the specific tax authority involved. The administration of laws and regulations by the local or provincial tax departments may be subject to considerable discretion, and in many areas, the legal framework is vague, contradictory and subject to conflicting interpretation. The Company’s Directors believe that it is unlikely that the Company incorporated in the Cayman Islands will be exposed to tax liabilities in Vietnam, and in the worse case, if tax is imposed on income arising in Vietnam it would not be applied retrospectively.
16. EARNINGS/ (LOSS) PER SHARE • Basic Basic earnings (loss) per share is calculated by dividing the profit (loss) attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the year.
31 December 2012 31 December 2011 Earnings/(Loss) attributable to owners of the Company 5,969,725 (6,468,614) Weighted average number of ordinary shares outstanding 21,719,134 21,745,510 Basic earnings/(loss) per share (EUR per share) 0.27 (0.30)
• Diluted Diluted earnings (loss) per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has no category of potentially dilutive ordinary shares. Therefore, diluted earnings per share are equal to basic earnings per share.
Net asset value per share Net asset value (NAV) per share is calculated by dividing the net asset value attributable to ordinary shareholders of the Company by the number of outstanding ordinary shares as at the end of the reporting period. Net asset value is determined as total assets less total liabilities and non-controlling interest.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 42 Notes to the Financial Statements
17. RELATED PARTY TRANSACTIONS Management fees The Company is managed by Saigon Asset Management (the “Investment Manager”), a company formed under the Law of the Cayman Islands. Under the Investment Management Agreementdated 1 October 2007 between the Company and Investment Manager (the “Management Agreement”), the Investment Manager is entitled to receive a management fee based on the net asset value of the Company, payable monthly in arrears, at an annual rate of 2%.
Total management fees for the year amounted to EUR893,093 (2011: EUR772,384). As at the reporting date, the unpaid management fees amounts to EUR75,071 (2011: EUR66,901).
Performance fees In accordance with the Management Agreement, the Investment Manager is also entitled to receive a performance fee equal to 20% of the annual increase in Net Asset Value over an annualised compounding hurdle rate of 8%.
Total performance fee is nil for the period because the Company’s performance did not meet the above requirement.
Directors’ fees The aggregate directors’ fees payable to the Directors of the Company for the current year amounts to EUR46,588 (2011: EUR44,184).
18. RISK MANAGEMENT OBJECTIVES AND POLICIES The Company invests in listed and unlisted equity instruments with the objective of achieving capital appreciation and providing investors with an attractive level of investment income from dividends.
The Company is exposed to a variety of financial risks: market risk (including currency risk, interest rate risk, and price risk); credit risk; and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance. The Company’s risk management is coordinated by its Investment Manager who manages the distribution of the assets to achieve the investment objectives. The most significant financial risks to which the Company is exposed are described below:
Foreign currency risk The Company invests in financial instruments and enters into transactions denominated in currencies other than its reporting currency of Euro. Therefore, the Company is exposed to risks that the exchange rate of its currency relative to other currencies may change and have an adverse effect on the value of the Company’s assets or liabilities denominated in currencies other than Euro.
The Company may enter into arrangements to hedge currency risks if such arrangements become desirable and practicable in the future in the interest of efficient portfolio management.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 43 Notes to the Financial Statements
The Company’s exposure to fluctuations in foreign currency exchange rates at the end of the reporting period was as follows:
Short-term exposure Long-term exposure VND USD VND USD EUR EUR EUR EUR 31 December 2012 Financial assets 45,234,589 - - - Net exposure 45,234,589 - - -
31 December 2011 Financial assets 35,536,914 - - - Net exposure 35,536,914 - - -
Sensitivity analysis to a reasonably possible change in exchange rates
A 1% weakening of the VND against EUR at the end of the year ended 31 December 2012 (31 December 2011: 5%) would have impacted net loss of the Company’s equity by the amount shown below. This percentage has been determined based on the average market volatility in exchange rates in the previous twelve months. This sensitivity analysis assumes that all other variables remain constant.
31 December 2012 31 December 2011 EUR EUR 1% devaluation of the Vietnam Dong (2011: 5%) (452,346) (1,776,846)
A 1% strengthening of the VND against EUR would have had the equal but opposite effect to the amount shown above, on the basis that all other variables remain constant.
Price risk Price risk is the risk that the value of the instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As the majority of the Company’s financial instruments are carried at fair value with fair value changes recognised in the statement of comprehensive income, all changes in market conditions will directly affect net investment income.
The Company’s equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Investment Manager provides the Company with investment recommendations that are consistent with the Company’s objectives. The Investment Manager’s recommendations are approved by an Investment Committee before investment decisions are implemented.
All securities investments present a risk of loss of capital. The Investment Manager manages this risk through the careful selection of securities and other financial instruments within specified limits and by holding a diversified portfolio of listed and unlisted instruments. In addition, the performance of investments held by the Company is monitored by the Investment Manager and reviewed by the Board of Directors on a weekly basis.
The Company invests in listed and unlisted equity securities and is exposed to market price risk of these securities. If the prices of the securities would have increased or decreased by 20%, the impact on Statement of Comprehensive Income would have increased or decreased by EUR8.8 million (2011: EUR7.0 million).
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 44 Notes to the Financial Statements
Cash flow and fair value interest rate risks The majority of the Company’s financial assets are non-interest bearing. The Company currently has no financial liabilities with floating interest rates. As a result, the Company is not exposed to cash flow interest rate risk. Any excess cash and cash equivalents are invested at short-term market based interest rates.
Credit risk analysis Credit risk is the risk that counterpartyfails to discharge an obligation to the Company. The Company is exposed to this risk for various financial instruments for example investment in listed shares, unlisted shares, placing deposits. The Company’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, as summarised below:
31 December 2012 31 December 2011 EUR EUR Classes of financial assets – carrying amounts Ordinary shares – listed and unlisted 44,144,017 35,301,917 Other receivables 314,469 234,997 Other current assets - 5,475 Cash and cash equivalents 910,146 4,077,860
The Company continuously monitors defaults of customers and other counterparties, identified either individually or by group and incorporates this information into its credit risk controls. The Company’s policy is to deal with creditworthy counterparties.
The Company’s management considers that all the above financial assets that are not impaired or past due for each of the reporting dates under review are of good credit quality.
The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.
The Company has no other significant concentrations of credit risk.
In accordance with the Company’s policy, the Investment Manager continuously monitors the Company’s credit position on a daily and monthly basis.
Liquidity risk analysis Liquidity risk is defined as the risk that the Company may not be able to settle or meet its obligations on time or at a reasonable price. The Company adopts its risk management guidelines which are designed to minimise its liquidity risk through:
• Monitoring its exposure to illiquid or thinly traded investments and financial instruments, and • Applying limits to ensure there is no concentration of liquidity risk with a particular counterpartyor market.
The Company also regularly monitors current and expected liquidity requirements to ensure thatthe Company maintains sufficient reserves of cash to meet its liquidity requirements in the shortand longer term.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 45 Notes to the Financial Statements
Capital management The Company’s capital management objectives are:
• To ensure the Company’s ability to continue as a going concern; • To provide investors with an attractive level of investment income; and • To preserve a potential capital growth level.
The Company considers the capital to be managed as equal to the net assets attributable to the holders of ordinary shares. The Company has engaged the Investment Manager to allocate the net assets in such a way so as to generate investment returns that are commensurate with the investment objectives outlined in the Company’s Placing Memorandum.
19. FAIR VALUE HIERARCHY The Company adopted the amendments to IFRS 7 Improving Disclosures about Financial Instruments effective from 1 January 2009. These amendments require the Company to present certain information about financial instruments measured at fair value in the financial statements. The following table presents financial assets measured at fair value in the Statement of Financial Position in accordance with the fair value hierarchy. This hierarchy places the Company’s financial assets into two levels based on the significance of input. Level 1: quoted prices in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level within which the financial assets are classified is determined based on the lowest level of significant input to the fair value measurement. The financial assets measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows:
As at 31 December 2012 Level 1 Level 2 Level 3 Total EUR EUR EUR EUR Assets Financial assets at fair value through Statement of Income Financial assets in Vietnam Ordinary shares-Listed 42,702,853 - - 42,702,853 Ordinary shares-unlisted - - 326,584 326,584 Convertible bonds - 1,114,580 - 1,114,580 42,702,853 1,114,580 326,584 44,144,017
As at 31 December 2011 Level 1 Level 2 Level 3 Total EUR EUR EUR EUR Assets Financial assets at fair value through Statement of income Financial assets in Vietnam Ordinary shares-Listed 33,510,848 - - 33,510,848 Ordinary shares-unlisted - - 594,958 594,958 Convertible bonds - 1,196,111 - 1,196,111 33,510,848 1,196,111 594,958 35,301,917
There have been no significant transfers between Level 1 and Level 2.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 46 Notes to the Financial Statements
Reconciliation of fair value measurement in Level 3 of the fair value hierarchy
The following table provides a reconciliation of the movement between opening and closing balances of Level 3 financial instruments, measured at fair value using a valuation technique with significant unobservable inputs:
Designated at Fair value through profit and loss Year ended Year ended 31 December 2012 31 December 2011 EUR EUR Opening balance 594,958 2,225,483 Total losses recognised in profit and loss (268,374) (1,630,525) Closing balance 326,584 594,958
The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting period as disclosed in Note 4.
20. SUBSEQUENT EVENTS As of 28 February 2013, the aggregate fair value of the Company’s Investments in securities has increased to EUR47,988,485 from the aggregate fair value of EUR44,144,017 as of 31 December 2012. The details are as follows:
31 December 28 February Movement 2012 2013 Price Foreign exchange Total EUR EUR EUR EUR EUR
Financial assets at fair value through profit or loss:
Level 1 - Listed shares 42,702,853 46,447,940 3,544,632 200,453 3,745,085 Level 2 – Convertible bonds 1,114,580 1,212,427 92,616 5,232 97,848 Level 3 – Unlisted shares (*) 326,584 328,118 - 1,533 1,533 44,144,017 47,988,485 3,637,248 207,219 3,844,466
(*) There is no indicator that these unlisted shares are impaired subsequently, except for the gain on foreign exchange difference.
21. AUTHORISATION OF FINANCIAL STATEMENTS The financial statements were authorised for issue by the Directors on 12 April 2013.
VIETNAM EQUITY HOLDING 2012 ANNUAL REPORT 47