ANNUAL REPORT 2019 4 5 CONTENTS 8 CHAIRWOMAN’S MESSAGE 10 PNJ HIGHLIGHTS 2019 26 HISTORY OF FOUNDATION DEVELOPMENT 28 BRANDS AND SERVICES 36 ORGANIZATION CHART 38 BOARD OF DIRECTORS 56 SUPERVISORY BOA.
ANNUAL REPORT 2019 CONTENTS CHAIRWOMAN’S MESSAGE 10 PNJ-HIGHLIGHTS 2019 26 HISTORY OF FOUNDATION-DEVELOPMENT 28 BRANDS AND SERVICES 36 ORGANIZATION CHART 38 BOARD OF DIRECTORS 56 SUPERVISORY BOARD 60 BOARD OF MANAGEMENT 66 SUSTAINABLE DEVELOPMENT STRATEGY 78 HIT REFRESH, BREAK OUT AND REACH BEYOND 98 FINANCIAL STATEMENTS PHU NHUAN JEWELRY JOINT STOCK COMPANY Security code: PNJ • Abbreviations: PNJ English name: Phu Nhuan Jewelry Joint Stock Company Charter capital : VND 2.252.935.850.000 Business industry: Producing and trading jewelries, gold, silver, gems, fashion accessories, souvenirs, watches, gold bars • Inspection services of diamonds, gems, precious metals • Real estate Head Office: 170E Phan Dang Luu, Ward 3, Phu Nhuan District, Ho Chi Minh City Tel: (08) 3995 1703 | Fax: (08) 3995 1702 | Email: pnj@pnj.com.vn Website: www.pnj.com.vn | Business registration certificate: No 0300521758 | Tax code: 0300521758 VISION MISSION To become a leading jewelry manufacturer and PNJ brings pride to customers by its retailer in Asia, sustaining its No position in exquisite and transcending jewelry the middle and high-end jewelry market products share in Vietnam CORE VALUES INTEGRITY QUALITY RESPONSIBILITY INNOVATION COHESION Sustainable development philosophy Integrate the customer and society benefits into the Company’s interests CHAIRWOMAN’S MESSAGE Dear valued shareholders, customers, partners However, the breakthrough momentum set up in the past year is only a stepping stone for PNJ to continue making more efforts to overcome the rapid changes of the economy and social technological trends to ensure the sustainable and rapid growth rate, leading position in Vietnamese and Asian jewelry industry For that reason, in 2020, PNJ Board of Directors has given the slogan "Hit Refresh, break out and reach beyond" in the spirit of pioneering the way of thinking, how-to-do innovation, and mindset innovation PNJ would refresh the positive energy in each member to transform strongly, form a new motivation to promote the evolution of a digital business and continue to reach a higher position together Thereby, the Board of Directors has seriously prepared carefully, focused on investment, ensuring PNJ has always been ready to the best for the future with strategically focal points for the period 2020-2022: - Grow steadily with focus on maintaining the leading position in tier markets and speeding up development in tier and tier markets - Continue to develop the production capacity, supply chain management, strategic management, marketing, to create a comprehensive strength of the business - Continue to enrich human resources, brand resources, customer resources, etc to strongly increase resources - Continue to prepare human resources with sufficient knowledge, experience in analyzing and using data in business activities to reach fast and strongly in the era of retail 4.0 and all employees of PNJ, After restless efforts to consolidate and promote internal strengths, overcome many obstacles and difficulties of a volatile 2019, PNJ has established a series of imprints, especially the event of occupying the position of the most outstanding jewelry retailer in Asia Thereby, PNJ has made an important contribution to raising the position and prestige of Vietnam's jewelry industry, promoting international co-operations and taking an important step in the process of increasing its deep and wide influence on the international jewelry market This result has proven PNJ’s intrinsic strength; the strategic vision and the close instructions of Board of Management and Board of Directors; the unanimity and determination of all employees; the support and absolute belief of shareholders, partners and customers At the same time, it has affirmed the ability of enterprises to flexibly and effectively cope with the complex context of geopolitical fluctuations that negatively affected financial and retail markets towards consumption trends deeplyaffected by the Industrial Revolution 4.0 and digitalization trend in life The company has also proven its competitiveness in the gold and jewelry market of Vietnam while of joining more new businesses, both domestically and internationally In particular, PNJ has shown great creative capacity, overcoming the initial difficulties in ERP golive stage, optimizing the management of resources, creating an integrated power and a solid foundation to become a professional retailer With that source of integrated power, in 2019, PNJ continuously achieved many successes, continuing to affirm its dominant position in Vietnam's jewelry industry Compound annual growth rate (CAGR) of 22%/year for the period of 2016 - 2019, and doubled after years Particularly in 2019, net revenue reached 17,000 billion, increasing 17% compared to 2018 Simultaneously, gross profit margin was successfully maintained at 20.4%, increasing sharply compared to 19.1% in 2018, and profit before tax successfully conquered the milestone of VND 1,500 billion The chain of retail stores was constantly developed, reaching 346 stores in 52/63 provinces and cities Regarding an impressive chain of achievements, PNJ has been recognized and honored by many domestic and international organizations through a series of awards: JNA - The Best Jewelry Retailer In Asia, HR Asia - Best Places to Work in Asia, Anphabe Top Vietnam 100 Best Places to Work, VBCSD - Top 10 Out of 100 Sustainable Development Businesses in Vietnam, Forbes Vietnam - Top 40 Most Valuable Brands In Vietnam, Ministry of Industry – National Brand , and many other prestigious awards On behalf of the Board of Directors, I would like to express my sincere thanks to all valued shareholders, customers, partners and all employees who have always given PNJ the trust, love and whole-hearted contribution to the development of the company ty We strongly believe that with the great determination of the company's employees, the right strategies and the foundations we have built, PNJ would continue to promote drastically its internal strength and conquer many great exploits in 2020 Best regards ON BEHALF OF THE BOARD OF DIRECTORS CHAIRWOMAN OF THE BOARD OF DIRECTORS CAO THI NGOC DUNG OUTSTANDING NUMBERS 12 OUTSTANDING AWARDS 14 BECOMING AN OUTSTANDING JEWELRY RETAILER OF ASIA 17 A HANDSHAKE WITH WALT DISNEY, EXPANDING AFFECTING ON THE INTERNATIONAL JEWELRY MARKET 18 OPTIMIZING RETAIL NETWORK AND PNJ NEXT MARK 19 GO LIVE ERP - EFFECTIVE STEPS FOR RESOURCE MANAGEMENT 20 MARKETING BREAKING STEP FROM TRUE LOVE INSPIRATION 21 PNJ PRODUCED A NATIONAL GIFT TO PRESENT TO THE PRESIDENT OF NORTH KOREA 22 BIG WINNING IN GOLD HAND COMPETITION OF JEWELRY INDUSTRY 23 BECOMING A PIONEER AND TYPICAL MODEL OF ASIAN SUSTAINABLE DEVELOPMENT 24 10 11 PNJ - OUTSTANDING NUMBERS ANNUAL REPORT 2019 GROSS PROFIT: 3,460 NET REVENUE: 17,000 BILLION VND 1,190 NET PROFIT: BILLION VND BILLION VND THE MOST OUTSTANDING RETAILER in Asia PROFIT MARGIN: OUTSTANDING NUMBERS BRAND VALUE: 78.6 PROFIT MARGIN: MILLION USD CSR EXPENDITURE: 12 11.7 BILLION VND TRUST HOUSE: 300 HOUSES 13 20.4% 346 STORES OUTSTANDING AWARDS ANNUAL REPORT 2019 06th TIME IN A ROW TO BE THE MOST OUTSTANDING RETAILER IN ASIA HONORED AS NATIONAL BRAND MADAM CAO THI NGOC DUNG • TOP 50 MOST INFLUENTIAL WOMEN IN VIETNAM TOP 50 VIETNAMESE 4TH TIME IN A ROW TO BE AWARDED TOP OUT OF 100 ORGANIZATION WITH ATTRACTIVE SUSTAINABLE DEVELOPMENT EMPLOYER BRAND BUSINESSES IN VIETNAM 10 TOP100 VIETNAM BEST PLACES TO WORK MADAM CAO THI NGOC DUNG • LIFETIME ACHIEVEMENT FOR THE JEWELRY INDUSTRY IN ASIA 23 CONSECUTIVE YEARS TO WIN THE TITLE OF VIETNAMESE HIGH-QUALITY GOODS VIETNAM’S 50 BEST-PERFORMING COMPANIES 14 VIETNAM'S 50 BEST LISTED COMPANIES MR LE TRI THONG • RED STAR AWARD TOP 10 MOST OUTSTANDING YOUNG ENTREPRENEURS 15 PNJ-HIGHLIGHTS 2019 ANNUAL REPORT 2019 BECOMING AN OUTSTANDING JEWELRY RETAILER OF ASIA The JNA Awards ceremoney honoring the best businesses and individuals in the Asian jewelry industry taking place in Hong Kong last year has become a milestone marking the beginning of a new development stage of the Vietnamese jewelry industry when PNJ was honored as the Recipient of Jewelry Retailer in Asia With this event, Vietnamese jewelry industry has officially stepped to the top of the continent JNA Board of organizers conducted a thorough review, referenced information from various sources and conducted a field trip to the retail system, jewelry factory, as well as met and discussed directly with PNJ leaders in all aspects, from strategies, action programs, business size, competitive advantages, supply management capabilities, inventory to action programs to increase experience and values that customers have received from business After analyzing the data, Madam Letitia Chow, Chairman of JNA Awards, stated: “The enterprise has made Vietnam well-known globally and was dubbed Tiffany of Vietnam Moreover, PNJ has stepped up innovation and set high standards in the industry by establishing PNJLab Inspection Company This is an important step to increase consumers understanding and further to protect consumers.” from Hong Kong, China, Thailand, India, to be awarded by JNA Awards Judges including leading prestigious experts in jewelry, fashion and the World Gold Council in Asia to be the best retailer in Asia (along with Luk Fook Holdings - HK) This is an indispensable result for PNJ's long-term efforts to conquer goals Over the last 31 years, the Asian jewelry industry has witnessed a district-level gold and silver shop, with a starting capital of 7.4 taels of gold and a modest human resource of 20 people, to become an Asia's leading jewelry group with a total assets of over 8,600 billion VND, the market capitalization (2018) exceeding US $ billion and a workforce of more than 6,000 people The jewelries made by PNJ have been distributed directly to millions of customers through 346 retail stores, e-commerce channels and indirectly through more than 3,000 wholesale customers nationwide, as well as have been exported to 13 countries and territories Currently, PNJ's multi-channel retail network from independent shops, integrated models of modern trade centers, supermarkets, E-com, etc has been completed, combined with the process of products restructuring, launching 800 - 1000 design sets each year to help domestic and international customers quickly access and get the best experiences, satisfying and stimulating consumer needs of customers With the results collected, PNJ has surpassed many famous and big brandnames in the jewelry industry of continents 16 17 PNJ-HIGHLIGHTS 2019 ANNUAL REPORT 2019 OPTIMIZING RETAIL NETWORK and A HANDSHAKE WITH WALT DISNEY EXPANDING INTERNATIONAL CO-OPERATION This important event took place after years of careful preparation, right after PNJ had signed a cooperation agreement for the 4th consecutive year with Swarovski, the world's leading jewelry corporation been only workable when all parties had got involved in the production process, creating product value chains such as PNJ Jewelry Production and Trading Company Limited (PNJP), outsourcing, packaging printing, POSM publications partners all meet the standards required by Disney, all products have inspection certificates to certify not to be dangerous or harmful to consumers The handshake between the dominance of Vietnam jewelry industry - PNJ and global entertainment brand Walt Disney has officially brought Vietnam's jewelry industry to a new development stage This is the result of serious work, reviewing each stage from photos to every product details of both parties to meet the extremely rigorous cooperation criteria This step has By fulfilling all criteria from Disney, PNJ has proven its manufacturing ability, world-class production and prestige, as well as brand value in the global market 18 PNJ NEXT MARK The process of expanding PNJ's retail network has conducted in parallel with research activities, optimizing efficiency through data collection, behavior analysis, customer re-segmentation and business model evolution business These parallel actions have boosted PNJ's growth momentum, as well as preparing the foundation for a new period of long-term growth Simulatneously, this process has also highlighted a unique feature on the panorama of Vietnam's No jewelry business - PNJ Next model PNJ Next is a "special product", born from the transformation of PNJ distribution network to create a modern interactive space and interaction method to minimize the distance with customers, bringing new experiences, uniqueness, more intuitiveness compared to the traditional model This model combines with E-com to complete omni chanel, increase customer access speed and increase sales success rate, aiming to form a professional retailer Additionally, during this period, PNJ has continued to reposition its business strategy, boosting the evolution of its business model from the model of "Manufacturing and selling" to "Professional and value-added retail", at the same time, constantly evolving capabilities to complete long-term growth models In parallel, PNJ has been proceeding to re-segment customers according to the new "psychology" perspective based on the "unstructured" information system instead of the "demographic" segment to produce new designs, serving specifically to each customer group with increasing segmentation These actions have brought positive outcomes By the end of 2019, PNJ jewelry retail network reached 346 stores, increasing 58% compared to 2016 Simultaneously, PNJ Next appeared in Ho Chi Minh City, Da Nang, Hanoi respectively and PNJ Watch network increased to 26 stores The number of wholesale customers has reached more than 3,000 and the products have been exported through 13 countries and territories Net revenue in 2019 reached VND 17,000 billion, profit after tax reached more than VND 1,190 billion, increasing of 17% and 24% respectively compared to 2018, marking the first time of the net profit to exceed VND trillion This transformation has also contributed significantly to PNJ becoming the No retailer in Asian jewelry industry 19 FINANCIAL STATEMENTS ANNUAL REPORT 2019 CONSOLIDATED CASH FLOW STATEMENT (Indirect method) Code ASSETS Note Form B 03 – DN/HN NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2019 FOR THE YEAR ENDED 31 DECEMBER 2019 2018 Form B 09 – DN/HN I CASH FLOWS FROM OPERATING ACTIVITIES Net accounting profit before tax 01 1.506.712.385.551 1.205.550.273.121 Depreciation and amortisation 02 61.066.130.585 42.101.648.087 Reversal of provisions 03 (3.414.537.000) - Unrealised foreign exchange gains 04 (1.242.529.054) (169.041.343) Profits from investing activities 05 (1.456.968.019) (7.406.944.577) Interest expense 06 115.367.610.418 61.109.042.390 08 1.677.032.092.481 1.301.184.977.678 Adjustments for: Operating profit before changes in working capital Decrease/(increase) in receivables 09 12.888.586.942 (86.037.746.014) Increase in inventories 10 (2.062.274.428.226) (1.566.186.716.366) Increase in payables 11 199.226.464.534 412.203.203.546 Increase in prepaid expenses 12 (62.082.212.310) (44.784.289.702) Interest paid 14 (114.016.876.155) (60.443.657.529) BIT paid 15 (291.572.199.831) (231.958.086.112) Other payments on operating activities 17 (20.293.123.341) (26.117.591.079) Net cash outflows from operating activities 20 (661.091.695.906) (302.139.905.578) Purchases of fixed assets and other long-term assets 21 (223.765.922.597) (336.378.415.370) Proceeds from disposals of fixed assets 22 1.774.979.478 1.075.665.048 Proceeds from collection of short-term investments held-to-maturity 24 - 160.065.000.000 GENERAL INFORMATION Phu Nhuan Jewelry Joint Stock Company (“the Company”) is a joint stock company established in SR Vietnam in accordance with the Business Registration Certificate No 0300521758 which was inially issued by the Department of Planning and Investment of Ho Chi Minh City on January 2004 and the 30th latest amendment dated 31 December 2019 On 23 March 2009, the Company’s shares were officially listed in the Ho Chi Minh City Stock Exchange (“HOSE”) in accordance with the Decision No 129/UBCK-ĐKNY issued by the General Director of HOSE on 26 December 2008 The principal activities of the Company are to manufacture and to trade gold, silver, jewelry and gemstones, and to import and export jewelry in gold, silver and gemstones The normal business cycle of the Company and its subsidiaries (“the Group”) is 12 months As at 31 December 2019, the Company had subsidiaries, details are as follows: Place of incorporation and operation II CASH FLOWS FROM INVESTING ACTIVITIES Interest received 27 163.983.543 6.331.279.529 Net cash outflows from investing activities 30 (221.826.959.576) (168.906.470.793) III CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of shares and capital contribution 31 68.932.500.000 97.273.160.000 Payments for share repurchases 32 (2.094.000.000) - Proceeds from borrowings 33 5.435.682.129.077 4.320.772.043.080 Repayments of borrowings 34 (4.387.362.004.881) (3.647.003.259.254) Dividends paid 36 (343.875.424.770) (268.371.812.300) Net cash inflows from financing activities 40 771.283.199.426 502.670.131.526 Net increase in cash in the year 50 Cash at beginning of year 60 Effect of foreign exchange differences 61 Cash at end of year 70 3 (111.635.456.056) 31.623.755.155 206.721.179.629 175.208.552.187 138.715.435 (111.127.713) 95.224.439.008 206.721.179.629 DUONG QUANG HAI Chief Accountant 106 LE TrI ThOng General Director 27 February 2020 31.12.2018 % of % of % of % of ownership voting right ownership voting right % % % % The principal activities CAO Fashion Company Limited Ho Chi Minh City 100 100 100 100 Trading of jewellery products PNJ Laboratory Company Limited Ho Chi Minh City 100 100 100 100 Jewelry inspection and consultancy services PNJ Jewelry Production and Trading Company Limited Ho Chi Minh City 100 100 100 100 Jewelery manufacturing and trading Customer Era Company Limited Ho Chi Minh City 100 100 100 100 Retailing As at 31 December 2019, the Company had 53 branches (as at 31 December 2018: 52 branches) located in various provinces and cities in Vietnam As at 31 December 2019, the Group had 6,570 employees (as at 31 December 2018: 6,018 employees) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 NGUYEN THANH DAT Preparer 31.12.2019 Basis of preparation of consolidated financial statements The consolidated financial statements have been prepared in accordance with Vietnamese Accounting Standards, the Vietnamese Corporate Accounting System and applicable regulations on preparation and presentation of consolidated financial statements The consolidated financial statements 107 have been prepared under the historical cost convention The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries FINANCIAL STATEMENTS and jurisdictions other than Vietnam The accounting principles and practices utilised in Vietnam may differ from those generally accepted in countries and jurisdictions other than Vietnam 2.2 The consolidated financial statements in the Vietnamese language are the official statutory consolidated financial statements of the Group The consolidated financial statements in the English language have been translated from the Vietnamese version Fiscal year The Group’s fiscal year is from January to 31 December 2.3 Currency The consolidated financial statements are measured and presented in Vietnamese Dong (“VND”) The Company and its subsidiaries determine their accounting currencies based on the currencies which are mainly used in sales of goods and rendering of services, which have a significant impact on selling prices of goods and services, which are normally used to list selling prices and receive payments; which are mainly used in purchases of goods or services, 2.4 Additionally, the Company and its subsidiaries also use these currencies to raise financial resources (such as via issuance of shares or bonds) and/or regularly collect these currencies from business operations and savings Exchange rates Transactions arising in foreign currencies are translated at exchange rates ruling at the transaction dates Foreign exchange differences arising from these transactions are recognised in the consolidated income statement Monetary assets and liabilities denominated in foreign currencies at the consolidated balance sheet date are respectively translated at the buying and selling 2.5 which have a significant impact on costs of labor, materials and other production or operating costs and normally used as payments for those costs exchange rates at the consolidated balance sheet date of the commercial bank where the Group regularly trades Foreign currencies deposited in banks at the consolidated balance sheet date are translated at the buying exchange rate of the commercial bank where the Group opens its foreign currency accounts Foreign exchange differences arising from these translations are recognised in the consolidated income statement Basis of consolidation Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies in order to gain future benefits from their activities generally accompanying a shareholding of more than one half of the voting rights The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity Subsidiaries are fully consolidated from the date on which control is transferred to the Group They are de-consolidated from the date that control ceases Inter-company transactions, balances and unrealised gains and losses on transactions between group companies are eliminated Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group ANNUAL REPORT 2019 2.6 Cash Cash comprise cash on hand, cash at bank, and cash in transit 2.7 Receivables Receivables represent trade receivables from customers arising from sales of goods and rendering of services or non-trade receivables from others and are stated at cost Provision for doubtful debts is made for each outstanding amount based on overdue days in payment according to the initial payment commitment (exclusive of the payment rescheduling between parties), or based on the expected loss that may arise Bad debts are 2.8 The Group applies the perpetual method for inventories Provision is made, where necessary, for obsolete, slowmoving and defective inventory items The difference between the provision of this period and the provision of the previous period are recognised as an increase or decrease of cost of goods sold in the year Investments in equity of other entities Investments in other entities is investment in equity instruments of other entity without controlling rights or co-controlling rights, or without significant influence over the investee This investment is initially recorded at cost Subsequently, the Board of Management reviews all outstanding investments to determine the amount of provision to recognise at the year end Provision for investments in other entities is made when there is a diminution in value of the investments at the year end Regarding investments in listed shares 2.10 Receivables are classified into long-term and shortterm receivables on the consolidated balance sheet based on the remaining period from the consolidated balance sheet date to the maturity date Inventories Inventories are stated at the lower of cost and net realisable value Cost is determined by the weighted average method and includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition In the case of manufactured products, cost includes all direct expenditure and production overheads based on normal levels of operating activity Net realisable value is the estimated selling price in the normal course of business, less the estimated costs of completion and selling expenses 2.9 written off when identified or those whose fair value can be determined reliably, the provision for diminution in value is made when cost is higher than market value For other investments, provision for diminution in value is made when the investees make losses, except when the loss is anticipated by the Board of Management before the date of investment Changes in the provision balance during the accounting fiscal year are recorded as an increase or decrease in financial expenses A reversal, if any, is made only to the extent the investment is restored to its riginal cost FIXED ASSETS Tangible and intangible fixed assets Fixed assets are stated at historical cost less accumulated depreciation or amortisation Historical cost includes 108 109 FINANCIAL STATEMENTS ANNUAL REPORT 2019 any expenditure that is directly attributable to the acquisition of the fixed assets bringing them to a suitable condition for their intended use Expenditure incurred subsequently which has resulted in an increase in the future economic benefits expected to be obtained from the use of fixed assets, can be capitalised as an additional historical cost Otherwise, they are charged to the consolidated income statement when incurred • Other payables are non-trade payables, and payables not relating to purchases of goods and services Depreciation and amortisation 2.14 Fixed assets are depreciated and amortised using the straight-line method so as to write off the historical cost of the fixed assets over their estimated useful lives The estimated useful lives of of each asset class are as follows: Buildings and structures - 25 years Machinery and equipment - 15 years Motor vehicles - 10 years Office equipment - 10 years Software - years Land use rights with indefinite term are recorded in historical cost and are not amortised Payables are classified into long-term and short-term payables on the consolidated balance sheet based on remaining period from the consolidated balance sheet date to the maturity date Borrowing costs Borrowings include borrowings from banks and individuals Borrowings are classified into long-term and short-term borrowings on the consolidated balance sheet based on remaining period from the balance sheet date to the maturity date Borrowing costs that are directly attributable to the construction or production of any qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use In respect of general-purpose borrowings, a portion of which used for the purpose of construction or production of any qualifying assets, the Company determines the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the weighted average expenditure on that assets The capitalisation rate is the weighted average of the interest rates applicable to the Company’s borrowings that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset Other borrowing costs are recognised in the consolidated income statement when incurred Disposals 2.15 Gains or losses on disposals are determined by comparing net disposal proceeds with the carrying amount of the fixed assets and are recognised as income or expense in the consolidated income statement Accrued expenses include liabilities for goods and services received in the period but not yet paid for due to pending invoice or insufficient records and documents Accrued expenses are recorded as expenses in the reporting period Construction in progress 2.16 Construction in progress represents the cost of assets in the course of construction for production, rental or administrative purposes, or for purposes not yet determined including construction costs; costs of tools and equipments; project management expenditures; construction consulting 2.11 expenditures; and capitalised borrowing costs for qualifying assets in accordance with the Group’s accounting policies Depreciation of these assets, on the same basis as other fixed assets, commences when the assets are ready for their intended use Prepaid expenses Prepaid expenses include short-term and long-term prepayments on the consolidated balance sheet Prepaid expenses are recorded at historical cost and allocated on the straight-line basis over estimated useful lives 2.13 Payables Classifications of payables are based on their nature as follows: • Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated Provision is not recognised for future operating losses Provisions are measured at the expenditures expected to be required to settle the obligation If the time value of money Leased assets Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases Payments made under operating leases are charged to the consolidated income statement on a straight-line basis over the term of the lease 2.12 Accrued expenses 2.17 Provision for severance allowances In accordance with Vietnamese labour laws, employees of the Group who have worked regularly for full 12 months or longer, are entitled to a severance allowance The working period used for the calculation of severance allowance is the period during which the employee actually works for the Group less the period during which the employee participates the unemployment insurance scheme in accordance with the labour regulations and the working period for which the employee has received severance allowance from the Group Trade accounts payable are trade payables arising from purchase of goods and services 110 is material, provision will be measured at the present value using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation The increase in the provision due to passage of time is recognised as a financial expense Changes in the provision balance during the accounting fiscal year are recorded as an increase or decrease in operating expenses 111 The severance allowance is accrued at the end of the reporting period, on the basis that a half of an average monthly salary per each working year The average monthly salary used for calculating the severance allowance is the employee contract's average salary for the year prior to the consolidated balance sheet date This allowance will be paid as a lump sum when the employees terminate their labour contracts in according with current regulations FINANCIAL STATEMENTS 2.18 Capital and reserves (b) Revenue from rendering of services: Contributed capital of the shareholders is recorded according to the actual amount contributed and is recorded according to the par value of the shares Share premium is the difference between the par value and the issue price of shares and the difference between the repurchase price and re-issuing price of treasury shares 2.19 ANNUAL REPORT 2019 Treasury shares are shares issued by the Company and bought-back by itself, but these are not cancelled and may be re-issued in accordance with the Law on securities Undistributed earnings record the Group’s results profit after BIT at the reporting date Appropriation of profit Profit after BIT could be distribute to shareholders after approval at General Meeting of Shareholders, and after appropriation to other funds in accordance with the Group’s charter and Vietnamese regulations Dividends of the Group are recognised as a liability in the Group’s consolidated financial statements in the period in which the dividends are approved by the Company’s General Meeting of Shareholders Revenue from rendering of services is recognised in the consolidated income statement when the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided Revenue from rendering of services is only recognised when all four (4) following conditions are satisfied: (c) Interest income: Interest income is recognised on an earned basis (d) Dividend income: Income from dividend is recognised when the Group has established the receiving right from investees 2.21 The Group’s funds are as below: Sales deductions Investment and development fund is appropriated from profit after BIT of the Group and subject to shareholders’ approval at the General Meeting of Shareholders The fund is set aside for the use in the Group’s expansion of its operation or indepth investments Sales deductions include sales returns and sale allowances Sales deductions incurred in the same period of the related revenue from sales of products, goods and rendering of services are recorded as deduction of revenue of that period (b) Bonus and welfare fund 2.22 (a) Investment and development fund Bonus and welfare fund is appropriated from the Group's profit after BIT and subject to shareholders' approval at the General Meeting of Shareholders This fund is presented as a liability on the consolidated balance sheet The fund is set aside for the purpose of pecuniary rewarding and encouragement, common benefits and improvement of the employees’ benefits 2.20 Revenue recognition • The amount of revenue can be measured reliably; • It is probable that the economic benefits associated with the transaction will flow to the Group; • The percentage of completion of the transaction at the consolidated balance sheet date can be measured reliably; • The costs incurred for the transaction and the costs to complete the transaction can be measured reliably Sales deductions for sales of products, goods or rendering of services which are sold in the period but are incurred after the consolidated balance sheet date but before the issuance of the consolidated financial statements are recorded as deduction of revenue of the year Cost of goods sold and services rendered Cost of goods sold and services rendered are cost of finished goods, merchandises, materials sold or services rendered during the year, and recorded on the basis of matching with revenue and on a prudence basis 2.23 Financial expenses Finance expenses are expenses incurred in the year for financial activities including expenses or losses relating to financial investment activities; expenses of borrowing; and losses from foreign exchange differences (a) Revenue from sales of goods: Revenue from sale of goods is recognised in the consolidated income statement when all five (5) following conditions are satisfied: • The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • The amount of revenue can be measured reliably; • It is probable that the economic benefits associated with the transaction will flow to the Group; and • The costs incurred or to be incurred in respect of the transaction can be measured reliably No revenue is recognised if there are significant 112 uncertainties regarding recovery of the consideration due or the possible return of goods Revenue is recognised in according with principle of “substance over form” principle and allocated to each sales obligation In cases where the Group gives promotional goods to customers associated with their purchases, the Group allocates the total considerations received between goods sold and promotional goods 2.24 Selling expenses Selling expenses represent expenses that are incurred in the process of selling products, goods, and providing services, which mainly include publicity, display, promotions, advertising expenses, warranty charges of goods and products, maintenance charges, packaging, and transportation 2.25 General and administration expenses General and administration expenses represent expenses for administrative purposes which mainly include salary expenses of administrative staffs; social insurance, medical insurance, labour union fees, unemployment insurance of administrative staff, expenses of office materials, tools and supplies, depreciation and armotisation of fixed assets used for administration, land rental, outside services and other cash expenses The cost of promotional goods is recognised as cost of sales in the consolidated income statement 113 FINANCIAL STATEMENTS 2.26 Current and deferred income tax 2.29 Income taxes include all income taxes which are based on taxable profits including profits generated from production and trading activities in other countries with which the Socialist Republic of Vietnam has not signed any double taxation agreement Income tax expense comprises current tax expense and deferred tax expense Current income tax is the amount of income taxes payable or recoverable in respect of the current year taxable profits at the current year tax rates Current and deferred tax should be recognised as an income or an expense and included in the profit or loss of the period, except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different period, directly in equity Deferred income tax is provided in full, using the liability method, on temporary differences arising between the 2.27 tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements 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 occurrence affects neither the accounting nor the taxable profit or loss Deferred income tax is determined at the tax rates that are expected to apply to the financial year when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted by the consolidated balance sheet date Segment reporting A segment is a component which can be consolidated by the Group engaged in providing products or services (business segment); or providing products or services within a particular economic environment (geographical segment) Each segment is subject to risks and returns that are different from those of other segments A reportable segment is the Group’s business segment or the Group’s geographical segment Segment reporting is prepared and presented in accordance with accounting policies applied to the preparation and presentation of the Group’s consolidated financial statements in order to help users of financial statements understand and evaluate the Group’s operations in a comprehensive way CASH AND CASH EQUIVALENTS Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised 2019 2018 Cash on hand 54.073.143.734 96.206.858.391 Cash at bank 26.186.708.725 102.660.788.350 Cash in transit 14.964.586.549 7.853.532.888 95.224.439.008 206.721.179.629 SHORT-TERM TRADE ACCOUNTS RECEIVABLE Related parties Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the Group, including holding companies, subsidiaries and fellow subsidiaries are related parties of the Group Associates and individuals owning, directly or indirectly, an interest in the voting power of the Group that gives them significant influence over the enterprise, key management personnel, 2.28 ANNUAL REPORT 2019 including the Board of Management of the Group and close members of the family of these individuals and companies associated with these individuals also constitute related parties In considering the related party relationship, the Group considers the substance of the relationship not merely the legal form Accounting estimates 2019 2018 FH Trautz GmBh 6.700.060.929 5.954.125.254 DC&D Co 2.524.617.369 3.820.943.012 39.068.198.418 47.888.992.177 48.292.876.716 57.664.060.443 Others As at 31 December 2019 and 31 December 2018, there was no balance of short-term trade accounts receivable that was past due or not past due but doubtful SHORT-TERM PREPAYMENTS TO SUPPLIERS The preparation of consolidated financial statements in conformity with Vietnamese Accounting Standards, the Vietnamese Corporate Accounting System and applicable regulations on preparation and presentation of consolidated financial statements requires the Board of Management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the financial year • Estimated useful life of fixed assets (Note 9); • Provision for long-term investment (Note 11); • Recognition of deferred tax assets (Note 21) Such estimates and assumptions are continually evaluated They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances 2019 2018 Hong Chi Vietnam Co., Ltd 7.656.607.870 861.919.850 Hong Chi Vietnam Co., Ltd 7.077.840.000 - Highway Furniture and Construction Corporation 7.115.103.418 - Highway Furniture and Construction Corporation 6.268.883.940 3.482.713.300 PT Kinara Gilang Semesta - 11.920.440.928 PT Lotus Lingga Pratama - 3.637.229.106 5.340.173.000 - 41.408.847.115 38.079.376.018 74.867.455.343 57.981.679.202 Gia Khang Construction Real Estate Corporation Others 114 115 FINANCIAL STATEMENTS ANNUAL REPORT 2019 OTHER RECEIVABLES (b) Long-term 2019 (a) Short-term - Advances to employee - Others 2018 VND VND 4.511.880.018 29.038.158.837 776.061.010 10.120.849.501 5.287.941.028 39.159.008.338 70.721.623.109 57.498.444.869 (b) Long-term - Rent deposits 2019 2018 VND VND Tools and supplies 78.917.021.001 55.351.914.816 Office and store renovation 65.357.101.566 38.119.567.939 Store rental 9.616.517.091 2.772.280.000 Signboard rental 1.950.362.470 2.380.714.864 Others 2.477.978.353 1.054.252.739 158.318.980.481 99.678.730.358 FIXED ASSETS INVENTORIES (a) FIXED ASSETS 2019 2018 VND VND - 174.543.310.840 392.983.496.033 87.899.638.302 Tools and supplies 36.238.354.990 44.576.286.366 Tools and supplies 345.059.347.568 1.011.126.019.888 Finished goods 321.648.108.427 397.322.929.019 5.934.491.064.198 3.252.677.758.575 Transfers from construction in progress (Note 10) 7.030.420.371.216 4.968.145.942.990 Disposals Goods in transit Raw materials Merchandise As at 31 December 2019, the total inventories of VND1,906,047,683,991 (as at 31 December 2018: VND881,870,304,928) were pledged as collaterals for short-term borrowings from a commercial bank (Note 18(a)) Buildings and structures As at January 2019 New purchases As at 31 December 2019 Office equipment Total VND VND VND VND VND 138.832.225.224 222.250.195.475 31.354.518.807 61.741.484.434 454.178.423.940 - 29.194.705.266 4.367.010.900 16.740.388.556 50.302.104.722 9.504.055.967 - - 26.642.569.496 36.146.625.463 - (4.664.948.397) - (1.143.506.386) (5.808.454.783) 148.336.281.191 246.779.952.344 35.721.529.707 103.980.936.100 534.818.699.342 37.447.624.901 141.306.977.817 15.235.556.831 34.227.694.545 228.217.854.094 6.561.830.172 27.300.895.916 3.991.890.322 10.245.454.266 48.100.070.676 - (4.552.099.722) - (774.360.059) (5.326.459.781) 44.009.455.073 164.055.774.011 19.227.447.153 43.698.788.752 270.991.464.989 Accumulated depreciation Charge for the year Disposals (a) Short-term Machinery and equipment Historical cost As at January 2019 PREPAID EXPENSES Machinery and equipment As at 31 December 2019 2019 2018 VND VND Tools and supplies 18.831.589.613 36.385.614.710 As at January 2019 101.384.600.323 80.943.217.658 16.118.961.976 27.513.789.889 225.960.569.846 Operating lease 29.117.340.897 17.859.143.517 As at 31 December 2019 104.326.826.118 82.724.178.333 16.494.082.554 60.282.147.348 263.827.234.353 IT expenses 8.345.505.585 - Employee's uniform 7.490.805.371 6.453.705.433 515.780.770 2.500.842.774 Repairs and maintenance 4.120.310.721 3.273.294.102 Others 3.212.045.938 1.718.816.172 71.633.378.895 68.191.416.708 Signboard rental 116 Net book value As at 31 December 2019, tangible fixed assets of the Group with the carrying amount of VND62,243,913,329 (as at 31 December 2018: VND89,122,920,263) were pledged with banks as collaterals for borrowings from commercial banks (Note 18) As at 31 December 2018, the historical cost of fully depreciated fixed assets but still in use was VND117,242,727,759 (as at 31 December 2018: VND89,920,251,433) 117 FINANCIAL STATEMENTS ANNUAL REPORT 2019 11 INVESTMENT IN OTHER ENTITY (b) Intangible fixed assets Land use rights Software VND Total VND 2019 VND Historical cost As at January 2019 459.177.157.290 40.760.250.583 499.937.407.873 - 24.407.045.683 24.407.045.683 83.510.429.449 71.765.000.000 155.275.429.449 542.687.586.739 136.932.296.266 679.619.883.005 As at January 2019 - 6.610.702.975 6.610.702.975 Charge for the year - 12.966.059.909 12.966.059.909 As at 31 December 2019 - 19.576.762.884 19.576.762.884 New purchases Transfers from construction in progress (Note 10) As at 31 December 2019 Accumulated amortisation Dong A Commercial Joint Stock Bank (*) 2018 Cost Provision Cost Provision VND VND VND VND 395.271.613.400 (395.271.613.400) 395.271.613.400 As at 31 December 2019 and 31 December 2018, the Company has not determined the fair value of these investments to disclose on the financial statements because they not have listed prices (*) As at 31 December 2019 and 31 December 2018, Dong A Joint Stock Commercial Bank was still under special control of the State Bank of Vietnam and its shares have not been eligibly transferable Therefore, the Board of Management has decided to recognise full provision for diminution in value of this investment as at the consolidated balance sheet date 12 SHORT-TERM TRADE ACCOUNTS PAYABLE As at 31 December 2019 2019 As at January 2019 459.177.157.290 34.149.547.608 493.326.704.898 As at 31 December 2019 542.687.586.739 117.355.533.382 660.043.120.121 (395.271.613.400) Finesse Impex Limited Shrenuj Fareast Co., Ltd 2018 VND VND 264.376.245.789 - - 123.175.663.382 As at 31 December 2019, the historical cost of land use rights of the Group amounting to VND49,837,617,572 (as at 31 December 2018: VND49,837,617,572) were pledged with bank as collaterals for long-term borrowings from commercial banks (Note 18) Forte Jewellery (HK) Co., Ltd 154.975.866.651 43.363.695.805 Quang Vinh Nguyen Co., Ltd 12.140.499.777 4.441.946.777 As at 31 December 2019, the historical cost of fully amortised software but still in use was VND7,078,250,583 (as at 31 December 2018: VND252,034,613) Others 259.315.572.978 171.695.619.232 690.808.185.195 342.676.925.196 10 CONSTRUCTION IN PROGRESS As at 31 December 2019 and 31 December 2018, there was no balance of short-term trade accounts payable that was past due 2019 2018 VND VND - 9.468.078.966 26.137.767.250 - 2019 2018 - 56.023.422.424 VND VND 2.319.631.184 5.331.179.764 - 9.187.651.900 28.457.398.434 70.822.681.154 7.332.500 6.670.599.888 - 3.963.768.008 Beginning of year 70.822.681.154 9.665.078.966 95.345.719.869 62.976.524.425 Beginning of year 149.056.772.192 61.157.602.188 95.353.052.369 82.798.544.221 Transfer to tangible fixed assets (Note (9(a)) (36.146.625.463) - (155.275.429.449) - 28.457.398.434 70.822.681.154 Store in Vincom Thanh Hoa Center Land use right in Di An - Binh Duong ERP's project Others Movements in the construction in progress during the year are as follows: Transfer to intangible fixed assets (Note (9(b)) End of year 118 13 SHORT-TERM ADVANCES FROM CUSTOMERS DHG Pharmaceutical Joint Stock Company Dry Cell and Storage Battery Joint Stock Company AIA Vietnam Company Limited Others 119 FINANCIAL STATEMENTS ANNUAL REPORT 2019 14 TAXES AND OTHER PAYABLES TO THE STATE Value added tax ("VAT") 17 OTHER SHORT-TERM PAYABLES 2019 2018 VND VND 2019 2018 VND VND Materials payable to outside processing service 11.149.343.956 190.391.602.529 Bonus for the Board of Management and Board of Directors 20.528.793.837 9.792.723.602 10.616.635.500 14.296.566.119 52.394.562.292 40.456.009.619 128.390.517.466 104.295.533.760 Personal income tax ("PIT") 7.327.960.887 4.230.081.499 Union trade Others 4.569.630.533 4.597.683.218 Personal income tax paid on behalf of the shareholders 4.531.133.392 4.531.133.392 192.682.671.178 153.579.308.096 Dividends payable (Note 24) 6.004.841.375 4.744.192.345 16.426.991.936 13.873.344.973 69.257.739.996 237.629.562.960 BIT Others Movements in taxes and other payables to the State during the year are as follows: Payable during the year 1.1.2019 Payment during the year 31.12.2019 VND VND VND VND VAT 40.456.009.619 423.849.470.470 (411.910.917.797) 52.394.562.292 BIT 104.295.533.760 315.667.183.537 (291.572.199.831) 128.390.517.466 PIT 4.230.081.499 70.770.774.154 (67.672.894.766) 7.327.960.887 Others 4.597.683.218 9.064.963.030 (9.093.015.715) 4.569.630.533 153.579.308.096 819.352.391.191 (780.249.028.109) 192.682.671.178 18 BORROWINGS (a) Short-term 1.1.2019 Bank loans (*) Increase Decrease 31.12.2019 VND VND VND VND Vietnam Joint Stock Commercial Bank for Industry and Trade 463.805.280.193 1.367.594.336.230 (932.406.563.908) 898.993.052.515 15 PAYABLE TO EMPLOYEES Joint Stock Company Bank for Foreign trade of Vietnam 324.383.851.657 990.037.176.198 (823.993.823.378) 490.427.204.477 As at 31 December 2019, payable to employees include accrual for the 13th month salary and performance bonus payable to employees Joint Stock Commercial Bank for Investment & Development of VN 134.955.725.869 598.015.371.280 (432.971.097.149) 300.000.000.000 Petrolimex Group Commercial Joint Stock Bank 113.601.407.000 882.686.447.335 (697.394.454.855) 298.893.399.480 Southeast Asia Joint Stock Commercial Bank 198.496.310.000 644.429.835.000 (642.926.145.000) 200.000.000.000 Military Commercial Joint Stock Bank 72.711.731.023 290.889.785.657 (263.630.187.680) 99.971.329.000 Shinhan Bank Vietnam Limited 29.000.000.000 306.690.000.000 (238.690.000.000) 97.000.000.000 CTBC Bank Company Limited Ho Chi Minh Branch 86.519.590.000 214.852.323.946 (208.572.367.626) 92.799.546.320 Vietnam Bank for Agriculture and Rural Development (Note 18(b)) 3.700.000.000 3.700.000.000 (3.700.000.000) 3.700.000.000 131.308.602.284 140.486.853.431 (142.677.365.285) 129.118.090.430 1.558.482.498.026 5.439.382.129.077 (4.386.962.004.881) 2.610.902.622.222 16 SHORT-TERM ACCRUED EXPENSES 2019 2018 VND VND 33.745.133.406 4.057.105.404 Interest expense 4.558.477.275 3.207.743.012 Other 7.574.020.007 3.569.092.179 45.877.630.688 10.833.940.595 Advertising and marketing Individual loans (**) 120 121 FINANCIAL STATEMENTS ANNUAL REPORT 2019 19 BONUS AND WELFARE FUND (*) Details of short-term bank loans are as follows: Bank 31.12.2019 Interest Bank (per annum) VND Vietnam Joint Stock Commercial Bank for Industry and Trade Collateral %/year 898.993.052.515 Từ 05/1/2020 - 06/9/2020 Từ 6,8 - Inventories Vietnam Joint Stock Commercial Bank for Industry and Trade 490.427.204.477 Từ 03/1/2020 - 04/8/2020 6,6 Land use right, buildings and inventories Joint Stock Commercial Bank for Investment & Development of VN 300.000.000.000 Từ 15/2/2020 - 04/6/2020 6,5 Inventories Petrolimex Group Commercial Joint Stock Bank 298.893.399.480 Từ 29/1/2020 - 11/3/2020 Unsecured 200.000.000.000 Từ 09/1/2020 - 13/3/2020 6,5 Land use right, buildings and inventories Military Commercial Joint Stock Bank 99.971.329.000 Từ 02/3/2020 - 30/4/2020 6,5 Unsecured Shinhan Bank Vietnam Limited 97.000.000.000 Từ 01/1/2020 - 06/9/2020 6,38 - 6,4 Unsecured CTBC Bank Company Limited Hochiminh Branch 92.799.546.320 Từ 25/1/2020 - 22/4/2020 5,9 - 6,3 Inventories Southeast Asia Joint Stock Commercial Bank 2019 2018 VND VND Beginning of year 62.979.954.425 52.433.491.799 Appropriation during the year (Note 23) 47.996.000.000 36.664.053.705 (20.293.123.341) (26.117.591.079) 90.682.831.084 62.979.954.425 Utilisation during the year End of year 20 LONG-TERM PROVISION FOR OTHER LIABILITY The balance represents provision for severance allowance to employees 21 DEFERRED INCOME TAX ASSETS Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same taxation authority The offset amounts were as follows: 2019 2.478.084.531.792 (**) Individual loans represent unsecured loans from the Group’s employees with original maturity of 12 months and bear interest at the interest rate of 3% - 8% per annum The land use rights at No 52A-52B Nguyen Van Troi Street, Phu Nhuan District, Ho Chi Minh City; No 195A Phan Dang Luu Street, Phu Nhuan District, Ho Chi Minh City; No 577 Nguyen Kiem Street, Phu Nhuan District, Ho Chi Minh City and No 174 Le Thanh Ton Street, District 1, Ho Chi Minh City with total carrying amount of VND63,592,666,838 were held by East Asia Commercial Joint Stock Bank as at 31 December 2018 as collaterals for borrowings from that bank VND Deferred tax assets: 2018 VND (Trình bày lại – Thuyết minh 40) Deferred tax assets to be recovered after more than 12 months Deferred tax assets to be recovered within 12 months 79.740.521.880 79.740.521.880 8.491.058.187 5.611.302.958 88.231.580.067 85.351.824.838 The gross movements in the deferred income tax, taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows: (b) Long-term 2019 1.1.2019 Decrease Increase 31.12.2019 VND 2018 VND (Trình bày lại – Thuyết minh 40) Bank loan (*) Individual loans VND VND VND VND 7.400.000.000 - (3.700.000.000) 3.700.000.000 400.000.000 - (400.000.000) - 7.800.000.000 - (4.100.000.000) 3.700.000.000 Beginning of year Consolidated income statement credit (Note 33) End of year (*) Long-term bank loans represent loan from Vietnam Bank for Agriculture and Rural Development under loan contract No 902-LAV2016005156 dated 22 November 2016 to purchase the fixed assets The term is 60 months from the first drawdown dated 26 December 2016 This loan bears interest at the interest rate 9.5% per annum and is secured by tangible fixed assets and land use right of the Group (Note 9) 122 123 85.351.824.838 81.493.342.104 2.879.755.229 3.858.482.734 88.231.580.067 85.351.824.838 FINANCIAL STATEMENTS ANNUAL REPORT 2019 Details of deferred tax assets: (c) Movement of share capital 2019 VND VND (Trình bày lại – Thuyết minh 40) Deductible temporary differences 88.231.580.067 85.351.824.838 The deferred income tax assets are mainly derived from accruals, provision for long-term investments and provision for severance allowances The Group applied tax rate of 20% in the year for determining deferred tax assets VND As at January 2018 As at January 2018 108.101.325 1.081.013.250.000 58.900.948 589.009.480.000 As at 31 December 2018 New shares issued 167.002.273 1.670.022.730.000 58.290.603 582.906.030.000 (104.700) (1.047.000.000) 225.188.176 2.251.881.760.000 Treasury share As at 31 December 2019 Par value per share: VND10,000 per share 22 OWNERS’ CAPITAL 23 MOVEMENTS IN OWNERS’ EQUITY (a) Number of ordiary shares 2019 2018 VND VND Number of shares registered 225.293.585 167.002.982 Number of shares issued 225.293.585 167.002.982 (105.409) (709) 225.188.176 167.002.273 Number of shares repurchased Number of existing shares in circulation (b) Details of owners’ shareholding Ordinary shares % Ordinary shares Undistributed earnings Total VND VND VND (7.090.000) 220.087.556.918 850.740.825.086 3.028.602.914.462 - - - (540.372.900.000) - 48.636.580.000 48.636.580.000 - - - 97.273.160.000 Net profit for the year - - - - 959.923.347.147 959.923.347.147 Dividends appropriation - - - - (270.239.940.000) (270.239.940.000) - - - 45.000.000.000 (45.000.000.000) - - - - - (36.664.053.705) (36.664.053.705) - - - - (33.822.000.000) (33.822.000.000) 1.670.029.820.000 925.397.862.458 (7.090.000) 265.087.556.918 884.565.278.528 3.745.073.427.904 556.649.780.000 - - - (556.649.780.000) - 26.256.250.000 42.676.250.000 - - - 68.932.500.000 Owners’ capital Share premium Treasury shares VND VND VND 1.081.020.340.000 876.761.282.458 Dividend paid by shares (Note 24) 540.372.900.000 Issuance of ordinary shares under Employee Stock Ownership Plan to Employees (**) As at January 2018 Appropriation to investment & development fund 2018 2019 % Appropriation to bonus and welfare fund (Note 19) Mrs Cao Thi Ngoc Dung 203.264.180.000 9,03 151.000.640.000 9,04 VinaCapital Fund Management Joint Stock Company (*) Appropriation to bonus for the Board of Directors and the Board of Management 181.331.380.000 8,05 145.998.480.000 8,74 Mrs Truong Ngoc Phuong (**) As at 31 December 2018 155.997.900.000 6,93 152.393.080.000 9,13 Dividend paid by shares (Note 24) (*) 1.712.342.390.000 76,04 1.220.637.620.000 73,09 Others Ordinary shares Number of shares 2018 Investment & development fund (1.054.090.000) (0) (7.090.000) (0) Issuance of ordinary shares under Employee Stock Ownership Plan to Employees (**) 2.251.881.760.000 100 1.670.022.730.000 100 Net profit for the year - - - - 1.193.924.957.243 1.193.924.957.243 Dividends appropriation (*) - - - - (345.136.073.800) (345.136.073.800) (*) As at 31 December 2019 and 31 December 2018, VinaCapital Fund Management Joint Stock Company is the Representative for a group of investors Share repurchased - - (2.094.000.000) - - (2.094.000.000) - - - - (47.996.000.000) (47.996.000.000) (**) As at 31 December 2019 and 31 December 2018, Ms Truong Ngoc Phuong is the representative of a group of foreign investors Appropriation to investment & development fund (*) - - - 47.996.000.000 (47.996.000.000) - Appropriation to bonus for the Board of Directors and the Board of Management (*) - - - - (35.439.000.000) (35.439.000.000) 2.252.935.850.000 968.074.112.458 (2.101.090.000) 313.083.556.918 1.045.273.381.971 4.577.265.811.347 Treasury shares Appropriation to bonus and welfare fund (Note 19) (*) As at 31 December 2019 124 125 FINANCIAL STATEMENTS ANNUAL REPORT 2019 (*) According to Resolution of the Shareholders No 278/2019/NQ-DHDCD-CTY dated 20 April 2019, the Shareholders have approved the appropriation of net profit for the year ended 31 December 2018 as follows: (*) In 2019, the Company had dividend paid by shares in accordance with Resolution of the Shareholders No 278/2019/NQ-DHDCD-CTY dated 20 April 2019 Therefore, the basic earnings per share of the fiscal year 2018 were recalculated as follows: • Stock dividends: VND556,649,780,000; • Investment and development fund: VND47,996,000,000; • Dividends payable in cash: VND167,002,273,000; • Bonus and welfare fund: VND47,996,000,000, and; • Bonus for the Board of Directors and Board of Management: VND35,439,000,000 For the year ended 31.12.2018 As previously reported (**) According to Resolution of the Shareholders No 278/2019/NQ-DHDCD-CTY dated 20 April 2019, Resolution of the Board of Directors No 563/2019/NQ-HĐQT-CTY dated 23 September 2019, Resolution of the Board of Directors No 624/2019/NQ-HĐQT-CTY dated 28 October 2019 and Resolution of the Board of Directors No 746/2019/NQ-HĐQT-CTY dated 16 December 2019, the Company issued 2,225,625 ordinary shares to members of the Board of Directors, Board of Management, and key leaders of the Group at par value VND20,000 per share In addition, the Group also issued 400,000 ordinary shares to Mr Robert Alan Willett, member of the Board of Directors at the price of VND61,050 per share (***) The Company has advanced the 2019 dividends of VND178,133,800,800 to its shareholders in accordance with the Resolution of the Board of Directors No 373/NQ-HDQT-CTY dated July 2019 As recalculated Net profit attributable to Shareholders (VND) 959.923.347.147 959.923.347.147 Less amount allocated to bonus and welfare funds (VND) (70.486.053.705) (70.486.053.705) 889.437.293.442 889.437.293.442 Weighted average number of ordinary shares in issue (shares) 137.235.593 55.664.978 192.900.571 6.481 4.611 Basic earnings per share (VND) 24 DIVIDENDS Adjustments (b) Diluted earnings per share 2019 2018 VND VND 4.744.192.345 2.876.064.645 901.785.853.800 810.612.840.000 Dividends paid by shares (Note 23) (556.649.780.000) (540.372.900.000) Dividends paid in cash (343.875.424.770) (268.371.812.300) 6.004.841.375 4.744.192.345 Beginning of year Dividends payable during the year End of year Diluted earnings per share is calculated by dividing the net profit attributable to Shareholders, which already subtracted the bonus and welfare fund, by the weighted average number of ordinary shares outstanding during the year and the ordinary shares expected to be issued The Group has no diluted earnings per share during the year and at the reporting date Therefore, the diluted earnings per share is equal to the basic earnings per share 26 OFF BALANCE SHEET ITEMS (a) Included in cash were balances held in foreign currencies of: 25 EARNINGS PER SHARE 2019 2018 United States Dollar – USD 92.878 1.007.866 Euro – EUR 5.901 56.723 British Pound - GBP 1.625 - 970 - Australia Dollar – AUD 27.330 56.723 Singapore Dollar – SGD 174 174 (a) Basic earnings per share Basic earnings per share is calculated by dividing the net profit attributable to shareholders after deducting the bonus and welfare fund by the weighted average number of ordinary shares outstanding during the year, excluding ordinary shares repurchased by the Group and held as treasury shares: Hong Kong Dollar – HKD Net profit attributable to Shareholders (VND) Less amount allocated to bonus & welfare fund (VND) (Note 23) Weighted average number of ordinary shares in issue (shares) Basic earnings per share (VND) 126 2019 2018 VND VND 1.193.924.957.243 959.923.347.147 (83.435.000.000) (70.486.053.705) 1.110.489.957.243 889.437.293.442 226.830.176 192.900.571 4.896 4.611 (b) The future minimum lease payments under non-cancellable operating leases were VND1,284,911,526,029 and VND697.287.818.238 for year ended 31 December 2019 and 31 December 2018, respectively (Note 36) 127 FINANCIAL STATEMENTS ANNUAL REPORT 2019 27 NET REVENUE FROM SALES OF GOODS AND RENDERING SERVICES 30 FINANCIAL EXPENSES 2019 2018 VND VND Revenue Revenue from sales of gold, silver and jewelry 2019 2018 VND VND Interest expense 115.367.610.418 61.109.042.390 Interest expense 16.957.712.435 4.904.032.297 1.352.795.644 332.789.524 133.678.118.497 66.345.864.211 17.021.086.914.743 14.626.502.345.584 Revenue from sales of accessories 74.094.543.466 27.304.685.008 Revenue from rendering of services 49.069.988.423 24.992.575.206 17.144.251.446.632 14.678.799.605.798 Sales deductions (138.747.009.690) (103.171.892.875) 2019 2018 Sales allowances (4.823.356.419) (4.491.968.073) VND VND (143.570.366.109) (107.663.860.948) Staff costs 653.073.707.061 550.869.671.123 17.000.681.080.523 14.571.135.744.850 Rental 243.219.168.957 154.885.874.960 Advertising and marketing 146.451.795.516 134.119.367.395 Tools and supplies 112.174.354.037 105.816.184.897 11.750.396.311 8.908.607.278 112.132.295.311 75.089.747.405 83.005.836.314 140.379.616.368 1.361.807.553.507 1.170.069.069.426 Others 31 SELLING EXPENSES Sales deductions Net revenue from sales of goods and rendering of services 28 COST OF GOODS SOLD AND SERVICES RENDERED Depreciation and amortisation 2019 2018 VND VND 13.477.510.306.465 11.767.150.002.670 Cost of accessories sold 52.048.357.537 18.633.836.655 Cost of services rendered 10.408.924.260 6.268.344.066 13.539.967.588.262 11.792.052.183.391 Cost of gold, silver and jewelry sold Outside services Others 32 GENERAL AND ADMINISTRATION EXPENSES 2019 2018 VND VND 332.507.725.623 253.755.888.964 Tools and supplies 15.703.473.853 12.144.426.640 Depreciation and amortisation 25.057.807.877 8.854.593.230 608.762.839 316.215.160 29 FINANCIAL INCOME Staff costs Interest income Realised foreign exchange gains Net gain from foreign currency translation at year-end Others 128 2019 2018 VND VND 163.983.543 6.331.279.529 15.227.671.175 297.889.012 Outside services 45.740.979.104 14.096.815.386 1.242.529.054 169.041.343 Others 56.212.948.634 56.700.214.560 185.836.962 47.817.207 475.831.697.930 345.868.153.940 16.820.020.734 6.846.027.091 Fee charges 129 FINANCIAL STATEMENTS ANNUAL REPORT 2019 33 BIT 35 RELATED PARTY DISCLOSURES The BIT on the Group’s accounting profit before tax differs from the theoretical amount that would arise using the applicable tax rate as follows: Related party transaction During the year, the following major transaction were carried out with related parties: 2019 2018 VND VND 1.506.712.385.551 1.205.550.273.121 1.562.785.325.757 1.219.979.640.903 Accounting loss before tax (56.072.940.206) (14.429.367.782) Tax calculated at a rate of 20% 312.557.065.151 243.995.928.181 2.050.518.127 1.630.997.793 (1.820.154.970) - 312.787.428.308 245.626.925.974 Net accounting profit before tax Including: Accounting profit before tax Effect of: Expenses not deductible for tax purposes Others BIT charge (*) (Credited)/charged to income statement: BIT – current BIT – deferred (Note 21) 315.667.183.537 249.485.408.708 (2.879.755.229) (3.858.482.734) 312.787.428.308 245.626.925.974 (*) The BIT charge for the year is based on estimated taxable income and is subject to review and possible adjustments by the tax authorities Compensation of key management Gross salaries and other benefits 2019 2018 VND VND 62.508.652.917 35.981.403.981 36 COMMITMENTS (a) Commitments under operating lease The future minimum stores lease payments under non-cancellable operating leases were as follows: 2019 2018 VND VND Within one year 230.886.854.351 142.843.036.792 Between one and five years 659.220.215.715 352.788.934.763 Over five years 394.804.455.963 201.655.846.683 1.284.911.526.029 697.287.818.238 Total minimum payments (b) Capital commitments Capital expenditure contracted for at the consolidated balance sheet date but not recognised in the consolidated financial statements was as follows: 34 COST OF OPERATION BY FACTOR 2019 2018 VND VND 11.326.214.866.824 13.584.631.616.545 1.203.404.487.813 1.050.084.767.861 130.348.291.206 117.960.611.537 61.066.130.585 42.101.648.087 Outside services 574.223.574.865 387.750.563.424 Others 372.676.932.560 427.528.663.646 13.667.934.283.853 15.610.057.871.100 Raw materials Staff costs Tools and supplies Depreciation and amortisation 130 ERP’s project 131 2019 2018 VND VND - 26.093.720.312 FINANCIAL STATEMENTS 37 SEGMENT REPORTING Geographical segment The Group has performed all manufacturing and trading activities of gold, silver, jewelry, gemstones and services in Vietnam only Therefore, the Group does not present the Geography segments Business activity segment Manufacturing and trading gold, silver, jewelry and gemstones is the principal activities of the Group to generate revenue and earn profit for the Group, whereas, other income accounts for a small portion in total revenue of the Group, therefore, the Board of Management assumed that the Group is in one business activity segment, only The consolidated financial statements were approved by the Board of Management on 27 February 2020 Nguyen Thanh Dat Preparer Duong Quang Hai Chief Accountant Le Tri Thong General Director ABBREVIATIONS 01 ANNUAL GENERAL MEETING OF SHAREHOLDERS 02 BOARD OF DIRECTORS 132 AMS BOD 03 BOARD OF MANAGEMENT BOM 04 SUPERVISORY BOARD SB 05 GENERAL DIRECTOR CEO 133 PHU NHUAN JEWELRY JOINT STOCK COMPANY 170E Phan Dang Luu St., Ward 3, Phu Nhuan District, HCMC • www.pnj.com.vn 134 ... 237 /2019/ NQ-HĐQT-CTY 26/03 /2019 Establishing Ha Nam PNJ branch 08 250 /2019/ NQ-HĐQT-CTY 02/04 /2019 Sanctioning the entire document of the 24th Annual General Meeting of Shareholders 2019 09 263 /2019/ NQ-HĐQT-CTY... RESOLUTION/DECISION NO DATE 01 277 /2019/ BB-ĐHĐCĐ-CTY 21/04 /2019 Minutes of the 24th Annual General Meeting of Shareholders - 2019 02 278 /2019/ NQ-ĐHĐCĐ-CTY 21/04 /2019 Resolution of the 24th Annual General Meeting... 515 /2019/ NQ-HĐQT-CTY 30/08 /2019 Approving limits and bank loans 26 563 /2019/ NQ-HĐQT-CTY 23/09 /2019 Approving the implementation of ESOP 2019 share issuance plan 27 565 /2019/ NQ-HĐQT-CTY 23/09/2019