FINANCIAL REPORTING AND ANALYSIS (FRA) of Gemadept Corporation (GMD) Phân tích báo cáo tài chính công ty GMD Mục lục: I. Introduction about the firm.3II. Environment and strategy analysis.41. Macroenvironmental analysis41.1. Political.41.2. Economics.41.3. Sociocultural.51.4. Technology.51.5. Legal.51.6. Environmental.62. Industry analysis62.1. Barriers to market entry.62.2. Purchasing ability.62.3. Alternative products.72.4. Strength of the supplier.72.5. Level of competition73. Business Strategy analysis.83.1. Business strategy.83.2. Business strategy evaluation.8III. Interpret financial result through Income statement91. Horizontal and trend analysis.92. Commonsize analysis.14IV. Interpret changes and structure of Assets and Capital on the Balance sheet.151. Assets152. Liabilities and Equity.18V. Cash flow statement analysis.221. Interpret cash flow statement in 2019.222. Interpret cash flow statement in 2020.233. Interpret cash flow statement in 2021.25VI. Financial ratio analysis.271. Activity Ratios272. Liquidity Ratios293. Solvency Ratios304. Profitability Ratios324.1. Return on sale324.2. Return on investment34VII. Summary34VII. References36
FINANCIAL REPORTING AND ANALYSIS TOPIC: Analysis of financial statements for the period of 2019-2021 of Gemadept Corporation TABLE OF CONTENT I Introduction about the firm II Environment and strategy analysis Macro-environmental analysis .4 1.1 Political 1.2 Economics 1.3 Sociocultural 1.4 Technology 1.5 Legal 1.6 Environmental Industry analysis 2.1 Barriers to market entry 2.2 Purchasing ability .6 2.3 Alternative products 2.4 Strength of the supplier 2.5 Level of competition .7 Business Strategy analysis 3.1 Business strategy 3.2 Business strategy evaluation III Interpret financial result through Income statement Horizontal and trend analysis Common-size analysis 14 IV Interpret changes and structure of Assets and Capital on the Balance sheet 15 Assets 15 Liabilities and Equity 18 V Cash flow statement analysis .22 Interpret cash flow statement in 2019 22 Interpret cash flow statement in 2020 23 Interpret cash flow statement in 2021 25 VI Financial ratio analysis 27 Activity Ratios 27 Liquidity Ratios 29 Solvency Ratios 30 Profitability Ratios 32 4.1 Return on sale 32 4.2 Return on investment 34 VII Summary .34 VII References 36 I Introduction about the firm Gemadept Joint Stock Company - GMD (established in 1990) mainly operates in the field of port operation and logistics GMD owns a system of ports and logistics infrastructure stretching from North to South and neighboring countries (Singapore, Hong Kong, China, Cambodia ) GMD has a chain of ports in operation and continues to develop the leading Gemalink deep-water seaport In the field of Logistics, GMD has a system of Distribution Centers covering many key economic regions, with a total area of hundreds of thousands of square meters After more than 30 years of operation, GMD has achieved memorable milestones such as: Image 1: Memorable milestones of GMD Image 2: GMD’s business sectors With the scale of dozens of subsidiaries and joint ventures, especially with significant contributions to the country's economy, Gemadept has been honored in the Top 50 Logistics Enterprises in Vietnam for many consecutive years effective business enterprises, Top 50 best-listed enterprises in Vietnam voted by Forbes, etc… Image 3: GMD’s business lines and services II Environment and strategy analysis Macro-environmental analysis 1.1 Political The skirmish between Russia - Ukraine: Political-military tensions drag the price of oil up, thereby increase sea freight rates and increase wharf charges If enterprises in the port industry have a fleet of ships and have stored fuel to operate the fleet, are likely to benefit from the increased freight rates But if raw materials in stock are limited, they will face difficulties in terms of costs of doing business, but this is only a short-term impact 1.2 Economics Import - Export activities still maintain growth momentum: In 2021, COVID-19 continued to have complicated developments However, according to updated data for the first two months of 2022, the total import - export value of Vietnam reached 109.62 billion USD, an increase of 14.2%, compared to the same period in 2021 In 2022, exports are expected to break through and set new records The development of import - export brings advantages to GMD because its key areas of activity are Seaports and Logistics serving transshipment, import - export goods FDI capital and FTAs: In 2021, FDI inflows from 106 countries and territories did invest in Vietnam As of January 2022, there are 15 FTAs in effect and agreements are under negotiation, which will support Vietnam's export orders, lead to growth in goods traffic through seaports, these will be the driving forces to further promote the positive signs of import and export 1.3 Sociocultural Booming logistics for e-commerce: The e-commerce market grows rapidly, placing a great demand on logistics infrastructure with the characteristics of using larger warehouse space and logistics compared to traditional trade channels Especially in the period of Covid-19, consumers have been changing their shopping habits The scale of freight transport by road, sea, air and rail are large for companies in the logistics industry to seize development opportunities Logistics human resources development: With the formation of the Vietnam Logistics Human Resource Growth Association and the Vietnam Student Logistics Club, the development of logistics human resources has reached the next level Up until now, logistics training has been provided by around 50 universities, more than 60 colleges, and a few short-term training institutions 1.4 Technology The previous 3years have seen significant development in the use of technology in logistics, as evidenced by a surge in local application solutions, particularly the creation of a holistic solution with system integration and artificial intelligence application First, IT will be used in road transport to optimize vehicle capacity, regulate routes, timetables, and time, and improve truck occupancy rates Second, last-mile delivery, rapid delivery, and e-commerce warehouse automation systems are all available Third, several significant manufacturing companies have used lean production and efficient operation concepts by combining operating systems with automation Fourth, a number of domestic retailers are implementing a combination of information systems - automation - artificial intelligence in supply chain management from purchasing to distribution to consumers 1.5 Legal Logistics services have been formalized under the 2005 Commercial Law, the Transportation Law, and decrees, all of which have helped to create ideal conditions for their development In 2021, the Vietnam Association of Maritime Agents and Brokers proposed to adjust service prices at seaports, protecting the interests of domestic businesses, because the price of container handling services in Vietnam is the lowest in the world (equal to 80 percent of Cambodia, 70 percent of Malaysia, 61 percent of Indonesia, 46 percent of Singapore) Increasing the loading and unloading price will enhance income for businesses in the Seaport-Logistics industry, allowing them to reinvest 1.6 Environmental During the pandemic, road transport services are experiencing certain challenges: the number of cross-border road transport has reduced dramatically, drivers must be segregated to ensure safety, or drivers or vehicles must be changed Tractor is one of the most challenging obstacles to overcome In the first half of 2020, the shipping and port industries will face challenges owing to a lack of staff as well as a drop in trade volume Shipping services, on the other hand, have been less affected by the COVID-19 outbreak than other modes of transportation and have experienced some development Aviation had the biggest reduction of all means of transportation, since it was affected the hardest by travel restrictions between nations as the COVID-19 epidemic unfolded However, the aviation sector is expected to rebound in 2022, as countries reopen their economies and stimulate tourism and trade Due to a significant drop in passenger and freight traffic, the COVID-19 outbreak has had a significant impact on the rail transport service business While vehicle transport is clogged at the border gate due to the stringent quarantine, the railway has a clear advantage in terms of cost and time Because the task of epidemic prevention and quarantine for drivers and accompanying workers on cargo ships is more simpler than on the road, the danger of infection is reduced Industry analysis 2.1 Barriers to market entry The seaport segment needs a large financial resource as well as a network of partners to build and operate a business well, this will be the biggest obstacle for a company that wants to enter this industry Meanwhile, the Logistics segment is an open market with many new business, cooperation and operation models with fast development The Government has always prioritized and supported the logistics industry, invested in large traffic works and the international gateway port system, creating momentum for many businesses to start up in this field 2.2 Purchasing ability Customers of the Seaport - Logistics service industry are domestic individuals and groups with domestic and foreign transportation needs and units; Individuals who have demand for shipping agents, marine brokers, transport agents and freight forwarders With a large number of suppliers, the buyer can get similar products and services from other suppliers, so the buyer will be less dependent on a particular supplier At that time, the power of buyers will be greater Furthermore, with many alternative providers available, the customer's switching costs are lower At that time, the bargaining power of customers will be stronger It can be seen that in the seaport - Logistic service industry, the position of customers is highly appreciated 2.3 Alternative products "Green logistics" is progressively displacing traditional logistics as a key priority for firms seeking to establish long-term value and gain competitive advantages Businesses must pay attention to the usage of production methods such as equipment, technology for environmental protection, and packaging with environmentally friendly materials Rather of concentrating on how these principles influence their operations, many logistics businesses are increasingly building new service business models tied to sustainability Because of this pressure, GMD has aggressively pushed the role of a responsible enterprise to the community in the last 1-2 years with many green energy projects such as the SCSC Air Cargo Terminal and the Mekong Logistics Refrigeration Center They actively contribute to environmental protection while lowering operating and exploitation costs, resulting in a greener, and more efficient integrated supply chain 2.4 Strength of the supplier Currently, there are around 4,000 - 4,500 direct logistics businesses and up to 30,000 linked businesses functioning countrywide, with over 20 businesses working in the sector of transportation - seaports Companies that provide marine services are becoming more competitive The number of service businesses has exploded, and the transportation sector has matured to some extent According to data on the functioning of Vietnam's logistics business, indigenous firms account for 25% of the market, while international logistics enterprises account for the remaining 75% This is a concerning figure for Vietnamese businesses since foreign firms account for a substantial portion of the market, weakening indigenous providers 2.5 Level of competition Seaport - Logistics is a strongly competitive business in Vietnam, with both domestic and international companies competing for market share At the moment, however, the amount of competitiveness is determined by each cluster of ports The group of ports located deep downstream in the Hai Phong Port cluster confront a somewhat strong rivalry environment, owing to rapidly expanding supply as many new ports come online in a short period of time However, because most ports in the Cai Mep - Thi Vai area are already at full design capacity, competition for major port clusters remains limited Business Strategy analysis 3.1 Business strategy Regarding the key business field, Seaports - Logistics, the company has set a goal to continue to invest, and expand the integrated ecosystem of ports and logistics, aiming to triple the volume of production and profit before tax by 2025 Continue to seek investment opportunities to develop concentric fields including river ports, ICDs, wharves, logistics centers, air cargo ports, industrial parks, etc to promote green-oriented growth and development lasting For the real estate sector, GMD currently has two notable projects One is the Saigon Gem project, located in District 1, Ho Chi Minh City Ho Chi Minh City with an area of 3,640m2 The second is a 6,715m2 project located on Lane Xang Boulevard in Laos, currently in the process of constructing the foundation and tunnel GMD is still looking for potential partners and investors to be able to divest at a favorable time and condition, to focus maximum resources on core activities, and it is expected that the transfer can be done in 2022 For the rubber segment, in recent years, GMD has minimized new plantings, focusing only on maintaining the previously planted orchards In 2022, GMD wishes to further accelerate the work with partners and hopes this year can announce official information about this project's partners 3.2 Business strategy evaluation Regarding the core business of Seaport - Logistics, GMD quickly sought a "bigger opportunity" in the target of the Master Plan for Development of Vietnam's seaport system in the period of 2021 - 2030 GMD has a chain of ports, including super deep-water ports Gemalink - the leading scale in the country GMD's growth plan is quite impressive In the upcoming 2021-2025 period, the company has set a target of times higher output and profit before tax in 2025 compared to 2020, so the average annual growth is 24% when Vietnam's expected 5-year average GDP is at 6.5 - 7% For the real estate sector, if GMD has a specific vision and strategy and knows how to take advantage of opportunities, that will be an advantage When the market is quiet and foreign investors withdraw, GMD can commit to dominating the investment market and develop real estate projects like how GMD built CJ Building However, businesses also need to have the right consideration, limit "muckiness" in the real estate field to be affected by land fevers, real estate bubbles leading to damage in the past like GMD used to invest in securities in the period 2006 - 2007 For the rubber segment, making investments outside the industry with rubber products is currently considered a risky job for GMD GMD has implemented the project for more than 11 years and has had periods of stagnation According to the notes to the consolidated financial statements for 2020 and Q4/2021, the annual cost of the rubber plantation project is about 55 billion but no profit has been recorded It can be seen that the investment strategy in the rubber segment has not brought many benefits to the business up to now In early 2022, the rubber market records positive changes, GMD should take advantage of opportunities to take new steps in the rubber plantation project III Interpret financial result through Income statement Horizontal and trend analysis Net revenue: In 2019, GMD's revenue was 2,642 billion thanks to (1) the total volume of container throughput increased by 11% YoY as the throughput of Nam Dinh Vu port increased by 225% YoY, compensating for the decrease in volume at ports Nam Hai and Nam Hai Dinh Vu 20% and 10% YoY respectively, and (2) Floor handling fee at Hai Phong port area increased by 10% GMD 2020's revenue mostly comes from port operations and partly comes from logistics and office leasing Along with the impact of the epidemic, an increase in competition and a decrease in cargo throughput at Hai Phong port cluster, GMD's results were not very positive this year, recording a revenue of 2,605 billion, a decrease of 2,605 billion decreased slightly (-1.5% YoY) due to competitive pressure at Nam Dinh Vu port In 2021, GMD brings in 3,205.9 billion in net revenue, an increase of 23% YoY Of which, revenue from port operations will reach 2,762.4 billion, accounting for 86.2% of the total turnover; the remaining 442.5 billion (accounting for 13.8%) is logistics revenue, which increased sharply by 26.1% over the same period last year thanks to the increasing demand for logistics for cold goods and other office leasing Cost of goods sold: In 2020, there is a sharp increase because some indicators such as the cost of raw materials, labor costs, and costs for logistics services all increased not too much compared to 2019, fluctuating around 1% In contrast, port operating costs and other costs had a slight decrease, leading to an increase in COGS in 2020 compared to 2019 only 1.59% In 2021, the economy got used to the impact of the pandemic, GMD stepped up operations, typically the labor cost increased by 19.4% YoY, the port operating cost increased by 31.3% YoY, leading to the COGS in an increase of 26.44% YoY Image 22: Cash flow from investing activities 2019 GMD continued to spend another 379 billion to invest in means of transport, purchased machinery and equipment and construct works, showing that the business was still in the process of expanding its operation scale At the same time, GMD liquidated a number of non-essential assets such as management equipment and tools that were no longer in use For investments in debt instruments and equity instruments in other entities, expenditures were larger than receipts, leading to negative net cash flow from investing activities of 376,608 billion, down 63% compared with the same period last year, mainly due to the decrease of 91.98 % compared to the same period last year This showed that GMD's outside capital investment activities were not effective Image 23: Cash flow of financing activities 2019 The company issued shares in 2018, but did not issue any more until 2019 The net cash flow from financing activities in 2019 was mainly influenced by the cash flow of the enterprise to pay principal and pay dividends to investors This shows that businesses tend to repay more capital than call for new capital This was also consistent with the development in business activities of enterprises in 2019 Interpret cash flow statement in 2020 In 2020, businesses tended to generate cash, net cash flow reached 242 billion, an increase of 18 times compared to 2019 The main activity of generating money was still the main business activity and used money mainly for financing activities In 2020, GMD's cash flow became suitable for the business model in the maturity stage since cash flow from Operating and Investing were positive while Financing was negative 23 Image 24: Cash flow of operating activities 2020 In 2020, GMD received money from receivables higher than last year from GMD Hai Phong Co., Ltd., "K" Line Logistics Company Limited - GMD, OOCL Logistic (Vietnam) Co., Ltd However, cash outflow to pay payables also increased, which was the main reason leading to the net cash flow in business activities of the enterprise reaching only 655,364 billion (-38% of YoY) but still larger compared with net income and helped support Investment and Finance Because of the impact of COVID19, the number of enterprises' inventories decreased A partial decrease in the provision of shipping services lead to the sale of raw materials and the liquidation of spare parts, specifically raw materials decreased from 36,852 billion to 28, 285 billion (-23% compared to the beginning of the period); spare parts decreased by 2.9% compared to the beginning of the period Image 25: Cash flow from investing activities of 2020 The expansion scale of investment activities decreased compared to 2019 when the money spent on purchasing fixed assets and other long-term assets decreased (-43.27% YoY), businesses also sold 21,602 billion of fixed assets and other long-term assets This could be explained in 2020, due to the heavy impact of the Covid-19 pandemic, business activities must be narrowed, so businesses should limit the purchase of new assets as well as sell off other unused assets In this year, GMD decreased capital contribution (-89% YoY) but also increased the purchase of debt instruments from other companies (+182% YoY), showing that the business was changing in investment strategy, strongly reducing stock buying activities as shown in the Income Statement analysis 24 Image 26: Cash flow from financing activities of 2020 In 2020, there were some changes in financial investment activities, with the scale of debt activities (+9.2% YoY), debt repayment (+6.32% YoY) and dividend payments (26.15% YoY) Most notably, in 2020, GMD issued ESPP shares to supplement working capital to serve the company's production activities, and at the same time enhance the roles and responsibilities of officials and employees to strive together, shared with the company Although the enterprise has mobilized capital contribution through shares, the net cash flow was negative, so it was possible that the enterprise is returning capital Interpret cash flow statement in 2021 In 2021, GMD tended to generate cash due to positive year net cash flows Similar to previous years, the main cash-generating activities of the enterprise were still in operating activities, the main activities using money continued to be financing and investment activities Net cash flow from operating activities reached 964.817 billion, enough to cover investing and financing activities Image 27: Cash flow from operating activities 2021 In 2021, profit from business activities before adjustment by NWC increased (as analyzed in III) GMD reduced the expenses for other business activities by 47% YoY and postponed the time of paying payables to Saigon Cargo Services Company, GMD Logistics Co, etc Moreover, the interest expenses declined by 14% as the size of long-term bank loans decreased from 1,137 billion to 1,061 billion (-6.4% YoY) Receivables decreased sharply although the business situation of GMD was still good, possibly due to the change in trade credit, not allowing customers to owe too much service fee In addition, the company continued to liquidate some unused inventory and collected 8,456 billion Since 25 then, net cash flow from operating activities reached 964.817 billion (+47.18% YoY), which is closer to pre-pandemic level, showing a positive sign of GMD's recovery Image 28: Cash flow from investing activities 2021 Signs of business recovery were also reflected in GMD's spending 586,166 billion (+172% of YoY) to buy new machinery, equipment and means of transport and liquidate some business management equipment that no longer used and collected 42,063 billion Besides investing in fixed assets, GMD also actively invested in buying debt instruments from other companies, the divestment activities and investment in other corporate stocks in 2021 decreased This showed that GMD did focus more on investments in their main operating activities when the economy gradually recovers in the context of the "new normal" instead of investing capital outside Image 29: Cash flow from financing activities 2021 In 2021, GMD did not issue stocks because of the large ESOP issuance in 2020 Proceeds from borrowings increased by 68.9% YoY due to the increase in loans and finance lease liabilities during the year, especially short-term finance leases and loans The increase in borrowings and finance leases resulted in an increase in principal and finance lease payments by 38.04% during the year At the same time, the profit dividend returned to owners increased due to the stock issuance last year Cash flow statement in 2019 - 2020 In conclusion, during the three-year research period, GMD's net cash flow had many fluctuations, but the general trend was: cash-generating activities were operating activities and cash-using activities were financing activities Net cash flow from operating activities was always greater than net income and is enough to finance investing and financing activities 26 GMD's net cash flow in 2019 was low but it was better than net cash flow - 660 billion in 2018 Cash flow generated from operating activities reached 1.057 billion, the highest in years, showing that the revenue quality of GMDin 2019 was good In 2020, under the impact of the pandemic, the net cash flow was negative, the company tended to use cash Cash flow from operating activities dropped sharply to only 655 billion, because GMD spent a lot of money on other activities and other expenses Besides, the cash flow from investment activities was positive, showing that GMD was limited in investment and expansion operation During the year, GMD also issued ESPP stock to support working capital during the difficult economic period In 2021, the company had a good recovery when the cash flow from business activities reached 964 billion, gradually recovering compared to the pre-pandemic level Cash flow of investment activities was negative, showing the trend of re-investing in fixed assets to serve business activities Financial activities also recorded an increase in money from loans, showing that the business has started to expand and develop again GMD's 3-year cash flow statement clearly shows the impact of the pandemic on the cash flow of the enterprise, however, GMD also proves that the enterprise is able to maintain the quality of the revenue when net cash flow from operations was always positive and greater than net income The enterprise also actively changed its investment strategy and financing activities to cope with the pandemic situation and stated the position of a leading enterprise in the industry VI Financial ratio analysis Activity Ratios Image 30: Activities Ratios 27 GMD's working capital turnover in the period of 2019-2021 is not positive, ranging from -6.67 to -5.06 For some companies, working capital can be near zero or negative In these cases, this ratio is unable of being interpreted In these cases, this ratio is unable of being interpreted Fixed assets turnover for the period 2019-2021 is stable between 0.78x and 1.02x In 2020, this index increased 0.02 times due to a revenue decrease of 1.41%, average fixed assets increased by about 71.6 billion due to higher fixed assets by 6.04% YoY (analyzed in IV/1) Although revenue decreased compared to average fixed assets, it did not account for much, so this ratio still increased slightly Fixed assets turnover 2021 continues to increase 0.22 times as revenue this year has increased to 22.71% YoY (analyzed in III) Overall, GMD's fixed assets turnover is still growing steadily, and the higher it is, the more effective GMD is in using fixed assets in generating revenue Total assets turnover remained stable In 2019-2020, the index stayed flat at 0.26 times By 2021, fixed assets turnover will increase slightly by 0.05 times YoY due to a strong revenue increase of 22.71% YoY (analyzed in Part III) Average total assets also increased to about 307 billion YoY due to the increased proportion of current assets and non-current assets leading to an increase of total assets in 2021 by approximately 903 billion YoY (analyzed in IV) Overall, this metric reflects that GMD is doing better, and a higher number indicates that the business is generating more revenue per dollar of assets Image 31: Activities Ratios 28 Inventory: Inventory turnover decreased slightly in 2020 and increased sharply in 2021 to 29.14 times Along with that, DOH tends to increase slightly in 2020 and decrease in 2021 due to the fact that in 2020, GMD's raw materials and materials decreased sharply by 30.19%; Inventories of fuel and materials on board increased sharply by 35.77% and the provision for inventory increased to billion In 2021, GMD's inventory will improve when this company has increased its stock of raw materials to 38 billion; fuel inventory onboard has decreased to 5.4 billion; business in progress decreased 45.9% YoY; goods and finished products 69.6%; and reverse the provision of 4.2 billion Receivables: Receivables turnover ratio in years keeps an increasing trend from 6.76 times in 2019 to 8.23 times in 2021 In contrast, DSO in 2021 tends to decrease gradually to 44 days, a difference of 10 days compared to 2019 When the Receivables turnover ratio increases while the DSO decreases, this indicates that the company can collect cash from customers fastly and the company's credit and collection procedures may be efficient as described in IV/1 Payables: Similar to Receivables, Payables turnover also tends to increase: In 2021, this indicator is 5.59 times, an increase of 1.64 times compared to 2019 Similarly, the number of days of payables tends to decrease This partly shows that the business is not making full use of available credit facilities On the contrary, this also shows that businesses are less likely to experience trouble making payments on time or exploitation of lenient supplier terms Liquidity Ratios Image 32: Liquidity Ratios Although there is a slight decrease, in years, the current ratio tends to increase because the Current Assets item grows stronger than the Current liability with 1.14 times in 29 2021 and 1.25 times in 2020 Therefore, the current and quick ratio tends to increase in 2020 and decrease in 2021 because the corresponding items in Current liabilities decrease in 2020 and if there is an increase in 2021, the increase will not be significant This also shows that the company's ability to meet the short-term obligation in 2021 is at a good level and somewhat improved after years but not as good as the previous year Short-term receivables can be considered "powerful" assets that dominate most of the short-term solvency of this enterprise Unlike some enterprises in the port service industry, GMD has a relatively high scale of short-term receivables in the asset structure GMD's short-term debt solvency is low (