Foreign Exchange Risk Management in Vietnam: A Case Study of Petroman Ltd.

TR NG IH CM TP H CHÍ MINH UNIVERSITÉ LIBRE DE BRUXELLES HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL MBAVB2 Nguyen Trung Nam Foreign Exchange Risk Management in Vietnam: A Case Study of Petroman Ltd MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION (PART-TIME) Tutor’s Name: Dr Nguyen Minh Kieu Ho Chi Minh City (2012) Page iii of ix DECLARATION I hereby declare that I am the sole author of this thesis, and this thesis is the result of my own and original work and effort and that it has not been submitted anywhere for any award Only the sources cited have been used in this thesis Parts that are direct quotes or paraphrases are identified as such Signature: _ Nguyen Trung Nam Page iv of ix ACKNOWLEDGEMENTS First and foremost, I owe my deepest gratitude to Dr Nguyen Minh Kieu for the consistent instruction and guidance through the work, without which this thesis would not have been realisable I also would like to take this opportunity to express my sincere thanks to my mentor, Ms Ho Thi Dieu Hang, for her provision of useful information and assistance during my research In addition, I’m grateful to all the lecturers of the MVB2 - Solvay Business School who have furnished knowledge and inspiration for my study and research I also owe thanks to my beloved wife, who keeps encouraging my study, and my colleagues and friends, who have supported me in many different ways so that I could finish this time-consuming work Page v of ix TUTOR’S COMMENTS Page vi of ix TABLE OF CONTENT ABBREVIATIONS VIII TABLES AND FIGURES INDEX IX CHAPTER I - INTRODUCTION I PROBLEM STATEMENT II OBJECTIVES AND RESEARCH QUESTIONS III RESEARCH METHODS IV LIMITATION AND CONTRIBUTION OF THE RESEARCH CHAPTER II LITERATURE REVIEW I OVERVIEW II DEFINING EXCHANGE RATE RISKS III TYPES OF EXCHANGE RISK Translation Exchange Risk Transaction exchange risk Economic/strategic exchange rate risk IV EXCHANGE RISK MEASUREMENT AND MANAGEMENT Translation risk Transaction risk 10 Economic risk 12 Exchange risk management organization and process in SMEs 13 CHAPTER III I II RESEARCH METHODS 16 MAIN APPROACH AND SCOPE OF RESEARCH 16 METHODS USED 16 Desk research 16 Quantitative Research 17 Qualitative Research 17 Other approaches 18 Data collection 18 CHAPTER IV I FINDINGS AND ANALYSIS 19 COMPANY BACKGROUND 19 Organisation structure 19 Business lines and performance 19 Pricing structure and strategy 21 II PETROMAN LTD EXCHANGE RISK EXPOSURE 21 Translation exchange risk 22 Transaction exchange risk 22 Economic exchange risk 27 Measurement of Petroman Ltd Risk Exposure 32 III PETROMAN S EXCHANGE RISK MANAGEMENT SYSTEM 35 Decision Making Process and Organisation 36 P E -rate Risk Management Activities 38 Critical Evaluation of the Existing System 44 Page vii of ix IV SUMMARY OF FINDINGS AND CRITICAL COMMENTS 48 Summary of Findings 48 Pitfalls of the existing ex-rate risk management system 50 CHAPTER V CONCLUSIONS & RECOMMENDATIONS 52 I II CONCLUSIONS 52 RECOMMENDATIONS ON TRANSACTION RISK MANAGEMENT 53 Improving connection amongst the functional departments/management 53 Credibility of the inputs and forecast 54 Expanding benchmarking operation 55 The combination of qualitative and quantitative approaches 56 III RECOMMENDATIONS ON ECONOMIC RISKS MANAGEMENT 57 Reducing dependency in foreign supplies 57 Diversifying the clients range and business activities 58 Changing the operation unit establishment of a foreign-based entity 60 BIBLIOGRAPHY APPENDIX GUIDING QUESTIONS FOR INTERVIEW WITH PETROMAN APPENDIX USD/VND AND GBP/VND EX-RATES DEVELOPMENT (2007 - 2012) APPENDIX PETROMAN S FOR-EX GAIN-LOSS (2010-2012) APPENDIX PETROMAN S GBP VND EX-RATE EXPOSURE VALUE AT RISK (2007-2010) 12 APPENDIX PETROMAN INCOME STATEMENTS (2010-2012) 14 Page viii of ix ABBREVIATIONS COGS Cost of goods sale EBT Earning before tax Expat Expatriate [engineer] Ex-rate Exchange rate F&A Financial & accounting [department] For-ex Foreign exchange GBP British Pound Sterling JPY Japanese Yen MNCs Multinational corporations NOP Net Operating Profit PIT Personal income tax SME(s) Small and Medium Enterprise(s) USD United States dollar VAS Vietnamese Accounting Standards VND Vietnamese Dong Page ix of ix TABLES AND FIGURES INDEX Figure - Typical ex-rate risk management process 15 Figure – Petroman Ltd Organisation Chart 19 Figure - Petroman’s performance 20 Figure - Petroman’s pricing structure 21 Figure - Petroman' loans & supplier credits in USD 24 Figure - Forex buying/selling activities of Petroman 25 Figure – Black (parallel) market ex-rate vs official ex-rate 2008 26 Figure - Supply Chain Structure of Petroman 27 Figure - Petroman’s Cashflows Diagram 28 Figure 10 - Ex-rates movement 2007-2012 30 Figure 11 - Petroman's balance of foreign currencies (2007-2012) 31 Figure 12 - Petroman's exrate gains/losses (2010-2012) 34 Figure 13 - Types of exrate gains/losses 34 Figure 14 - Relationship between the ex-rates movement and NOP (2010-2011) 35 Figure 15 - Petroman's ex-rate risk management process 38 Table - Petroman’s revenue currency structure 23 Table - Petroman's Swap transactions 2011 40 Table - Major banks’ for-ex/derivative services 55 Page of 60 CHAPTER I - INTRODUCTION I PROBLEM STATEMENT In the first months of 2008, for the first time in the Vietnamese banking history lots of commercial banks refused to buy the USD due to its depreciation against VND, other banks only accepted to buy in the USD at the price of between VND 15,300-15,500 against the published USD/VND exchange rate of 15,865 Shortly thereafter, USD suddenly became extremely scarce and the USD in the black market increased by over 13 percent in May 2008 and 16 percent in August 2008, which was said to extremely distort the profits of many Vietnamese enterprises (Hong 2008) Thanks to selling USD at higher prices, an exporter, Gilimex, reported in its 4th quarter profit after tax increase of 49.5% compared to the previous quarter On the contrary, enterprises having loans in USD or import business such as SHC, Cang Doan Xa JSC, or Tan Binh Cultural JSC suffered serious losses due to buying USD at extra costs (VNEconomy, L di n nh ng ―cú s c‖ r i ro t giá (Exchange Rate Exposure Shocks shows up) 2009) The 2009 financial report of many companies listed on HOSE and HAX such as PLC, ONE, DDM and VIP shows that exchange rates had caused exceptional income or losses to their business results (VNEconomy, R i Ro T giá Gây Khó Doanh Nghi p Niêm Y t (Exchange Rates Risks Causes Trouble to Listed Companies) 2010) These are typical examples of how exchange rate movements become a major source of uncertainty for Vietnamese companies involving international activities such as import or export of goods and services The SMEs account for 90-95 percent of total enterprises in Vietnam (GSO, 2009) In the context of further liberalisation of the economy in Vietnam, many Vietnamese SMEs1 have and will involve in trans-border activities in which the for-ex rates risk (which most of them have been unfamiliar with) may become In this thesis, SME is defined as enterprises which have less than 300 staff or chartered capital of less than VND 10 billion (~USD 600,000) as per the Decree No 90/2001/N -CP dated 23 November 2001 issued by Vietnamese Government regarding assistance to SMEs Page of 60 vital to their business This problem provides the rationale for the study in this thesis, which is to review the exchange risks management practice of these SMEs This thesis will identify and measure the for-ex risks and review the corporate exchange risk management practice of a single Vietnamese SME, Petroman Ltd,2 operating in the oil and gas manpower services industry With its core business of providing [expatriates] manpower agency services, it was said by the management that Petroman Ltd’s business has been effected heavily by exchange rates volatility during the past three years Therefore to understand, measure and eliminate the exchange rates risks is a critical task for the management II OBJECTIVES AND RESEARCH QUESTIONS This thesis aims to identify the exchange risk exposure associated with business activities of a non-financial firm, Petroman Ltd and to examine the exchange risk management process in the firm For this purpose, the author sets out four objectives to be achieved in the thesis: (i) to identify the types and nature of exchange risks associated with Petroman Ltd’s business activities; (ii) to review and evaluate the current performance of the firm in measuring and eliminating or limiting such risks; (iii) to suggest a number of solutions to improve Petroman Ltd’s exchange risk management system based on theoretical literature and actual situation and business environment of the firm To obtain the above objectives, several questions of the problem will be identified and resolved Firstly, what types of exchange risks are affecting the business performance of Petroman Ltd? Secondly, what have the management of Petroman Ltd done to measure and mitigate these risks and are they successful? The last question is how could Petroman Ltd management improve their exchange rate This is a fictitious name to ensure the anonymity of the real company Page of 14 VNEconomy ―L di n nh ng ―cú s c‖ r i ro t giá (Exchange Rate Exposure Shocks shows up).‖ VN Economy, 30 March 2009 — ―R i Ro T giá Gây Khó Doanh Nghi p Niêm Y t (Exchange Rates Risks Causes Trouble to Listed Companies).‖ VN Economy, September 2010 Yazid, Ahmad Shukri, and Mohd Shaladdin Muda ―The Role of Foreign Exchange Risk Management in Malaysia.‖ The Irish Journal of Management 26, no (2006): 45-63 Page of 14 APPENDIX GUIDING QUESTIONS FOR INTERVIEW WITH PETROMAN A GUIDING QUESTIONS FOR INTERVIEW WITH PETROMAN’S MANAGING DIRECTOR What is the cost structure of your services and your contract strategies with regard to payment currency? Are you aware of the exchange rates risk and what have you done to mitigate such risks? Have you ever attempted to measure the exchange rates losses/gains? When there is an exceptional exchange rates change, how is it reported internally and how you respond to such change? Do you have an exchange risk management system in place and how it is organised? Have you ever used / you have any plan to use derivative products to hedge exchange rates risk in your firm? Explain Have you ever used / you have any plan to use operational measures (such as negotiating contract terms, payment terms, strategic sourcing) to mitigate exchange rates risk in your firm? Explain How you evaluate the exchange risk management system from 2007now? Did you made major changes in the reporting/reviewing and decision making system with regard to exchange risks management? How you get supports from functional departments and how they cooperate with each other regarding the ex-rate management activities? B GUIDING QUESTIONS FOR INTERVIEW WITH PETROMAN’S FINANCE MANAGER Do your firm have contracts with clients/contractors/partners using foreign currencies? What’re your cash-flow arrangements under these contracts and in practice? Page of 14 Do you usually need to buy and sell exchanges during your normal operation? If yes, which currencies and volumes? How does exchange rates fluctuation effect your cashflow? Do you have any tools to measure and/or mitigate such effect? Do you have a person/team in charge of handling exchange issues? Which banks is Petroman working with? Which services are you using from those banks? Do those banks having relationship with Petroman have derivative products regarding hedging exchange rates risk? Do you understand how the products work and have you used/suggested the management to use such products for Petroman? What is the role of F&A department in the ex-rate management activities of Petroman? How you assess and report the result of such activities? Do you usually get inputs and/or provide information/support to other functional departments regarding the ex-rate management activities? Explain C GUIDING QUESTIONS FOR INTERVIEW WITH PETROMAN’S SALES/CONTRACT MANAGER How you enter into contracts with foreign contractors/clients? What is the average term of these contracts? What is the structure of the payment terms (including the payment currency) of these contracts? Who decide them and based on which criteria? Are you aware of the exchange rates risk during your preparation of tenders/negotiation of contracts with Clients? Have you ever attempted to measure the exchange rates losses/gains? When there is an exceptional exchange rates change, how is it reported internally and what is your role in responding to such change? Page of 14 Are your contracts reviewed on periodical basis and these reviews include the exchange rates effect? What is the role of the sales/contract department in the ex-rate management activities of Petroman? How you assess and report the result of such activities? Do you usually get inputs and/or provide information/support to other functional departments regarding the ex-rate management activities? Explain D GUIDING QUESTIONS FOR INTERVIEW WITH PETROMAN’S ADMIN MANAGER What is the role of admin-logistic department in the ex-rate management activities of Petroman? How you assess and report the result of such activities? Do you usually get inputs and/or provide information/support to other functional departments regarding the ex-rate management activities? Explain Page of 14 APPENDIX USD/VND AND GBP/VND EX-RATES DEVELOPMENT (2007 - 2012) Date Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 USD/VND 1st 16,061 16,037 16,001 16,027 16,048 16,095 16,136 15,155 16,241 16,097 16,078 16,045 16,030 15,971 15,928 16,120 16,130 16,255 16,847 16,790 16,630 16,620 16,840 16,840 17,486 17,487 17,481 17,790 17,784 17,787 17,802 17,816 17,825 17,842 17,861 18,492 18,479 GBP/VND 1st 31,661 31,680 31,625 31,747 32,157 32,065 32,630 33,006 32,924 33,154 33,663 33,137 32,231 31,290 31,652 32,288 32,133 35,014 33,828 33,546 30,211 29,733 27,582 27,582 25,462 25,619 25,279 25,581 26,971 29,434 30,267 30,900 30,025 29,537 30,743 31,827 30,212 USD/VND 10th 16,065 15,977 16,015 16,035 16,060 16,112 16,136 16,199 16,245 16,079 16,066 16,036 15,985 15,968 15,862 16,117 16,155 16,623 16,843 16,660 16,610 16,620 16,950 16,950 17,483 17,486 17,485 17,785 17,784 17,794 17,805 17,812 17,831 17,851 17,873 18,479 18,479 GBP/VND 10th 31,263.00 31,417.00 31,129.00 31,886.00 32,012.00 31,953.00 33,006.00 33,005.00 33,225.00 32,922.00 33,726.00 32,895.60 31,562.79 31,567.31 31,577.98 32,040.91 31,866.68 35,640.65 33,588.77 32,031.50 29,314.67 28,354.97 26,269.85 26,269.85 26,555.89 25,545.63 24,651.88 26,346.53 27,752.15 30,456.22 29,912.36 30,379.14 30,553.08 29,121.63 31,684.33 31,139.75 30,142.40 Page of 14 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 18,479 19,100 19,100 19,000 19,000 19,095 19,100 19,500 19,500 19,500 19,500 19,500 19,500 20,875 20,915 20,720 20,650 20,610 20,615 20,834 20,834 21,011 21,011 21,036 21,036 20,860 20,860 20,930 20,890 20,910 29,853 29,387 29,260 29,009 27,596 28,690 30,388 30,152 31,056 32,936 33,670 32,215 33,265 34,895 33,812 34,663 34,166 33,150 34,087 34,185 33,096 34,681 33,624 32,954 33,328 33,381 33,480 34,032 32,271 32,896 19,100 19,100 19,070 19,050 19,000 19,095 19,100 19,500 19,500 19,500 19,500 19,500 19,500 20,875 20,920 20,620 20,600 20,610 20,824 20,834 20,875 21,011 21,011 21,036 20,880 20,870 20,870 20,870 20,960 20,885 30,083.19 28,943.96 29,562.55 28,737.02 28,083.02 28,951.38 30,429.58 30,181.68 31,685.39 33,517.39 32,938.43 32,775.42 34,179.09 33,959.96 34,771.78 33,919.57 33,886.67 32,784.62 34,058.80 33,247.37 34,022.95 34,403.46 33,158.00 32,614.00 33,105.00 32,844.00 33,360.00 33,844.00 32,627.00 32,513.00 Page of 14 APPENDIX No Date 1/20/2010 1/29/2010 2/26/2010 3/27/2010 3/31/2010 3/31/2010 3/31/2010 3/31/2010 5/31/2010 10 6/7/2010 11 6/29/2010 12 6/29/2010 13 6/30/2010 14 15 7/1/2010 7/6/2010 16 7/29/2010 17 7/30/2010 18 8/10/2010 19 8/31/2010 20 8/31/2010 21 9/1/2010 22 9/9/2010 PETROMAN’S FOR-EX GAIN-LOSS (2010-2012) Description selling USD $140.000USD * ( 18.479 - 18.263) Payment of inv 53960 (02/12/09) (18.486-18.479)*228.988 Payment of inv 53965, 53966 dated 30/12/09 ( 1847918465)*60.039,86 Payment of inv 53975.76,77 dated 02/02/10 ( 18479-19100)*80.212,36 Payment of inv 53983 dated 24/02/10 ( 18800-19100)* 121 Payment of inv 53984 dated 25/02/10 ( 18800-19100)*16.894,87 Payment of inv 53981 dated 05/02/10 ( 1847919100)*280.036,61 Payment of inv 53974 dated 26/01/10 ( 18469-19100)*4183,10 Gain 60,340,000 1,602,916 840,558 36,491 5,068,461 173,902,734 2,639,662 1,978,020 348,468 1,809,000 1,710,000 Payment of T5.10 Macus salary Payment of inv 97327 dated 10/06/2010 $ 282.140,63*(1902019095) Payment of inv 97323 dated 7/6/2010 $32023,17 * (1902019095) Payment of inv 97331 dated 28/06 ($34.306,23 *(19050-19095) Payment of T6.10 Macus and John salary Payment of supplier debt PVMTC ( 19095-19100)*362.869,83 Payment of T8.10 Macus and John salary Payment of T7.10 Macus and John salary Payment of inv 97340 dated 05/08 (19100-19500) * 342.098) Payment of inv 07339 dated 04/08/2010 ( 1910019500)*32.263,01 Payment of inv 53998 dated 30/03/10 ( 19100-19500) *3624,5 1,884,410 21,160,547 Receiving USD Receiving USD Paying USD Receiving USD Selling USD Selling USD Paying USD Receiving USD 2,401,737 1,543,780 4,378,920 1,814,349 3,748,550 4,419,019 136,839,200 12,905,204 23 9/9/2010 24 9/30/2010 Payment of T8.10 John Kelly salary 2,243,600 12/31/2010 Payment of T10-11.10 John Kelly salary 6,043,816 25 Type Selling USD (swap) Receiving USD Receiving USD Receiving USD Receiving USD Receiving USD 49,811,875 Payment of T4.10 Macus salary Payment of inv 97309, 97310 dated 04/05/2010 ( 1899019100)*34.846,81 Sellingn 27000USD ( 1894019007> interbank ex-rate) Sellingn 30.000USD ( 1895019007 > interbank ex-rate) Loss 1,449,800 Receiving USD Receiving USD Receiving USD Receiving USD Paying USD Paying USD Receiving USD Receiving USD Receiving USD Paying USD Paying USD Net gainloss 60,340,000 (1,602,916) 840,558 49,811,875 36,491 5,068,461 173,902,734 2,639,662 (1,978,020) 348,468 (1,809,000) (1,710,000) (1,884,410) 21,160,547 2,401,737 1,543,780 (4,378,920) 1,814,349 (3,748,550) (4,419,019) 136,839,200 12,905,204 1,449,800 (2,243,600) (6,043,816) Page 10 of 14 No Date 26 12/31/2010 Payment to EGS 1/31/2011 Payment of supplier debt Megatex 2/23/2011 Received payment of inv 97393 (37989,18*(20890-19500)) 52,804,960 2/28/2011 Sellingn 100.000USD *(2089019610) 128,000,000 3/29/2011 3/31/2011 4/5/2011 4/5/2011 4/9/2011 4/9/2011 10 4/21/2011 11 5/5/2011 12 5/19/2011 13 5/30/2011 14 5/30/2011 15 5/31/2011 Description Gain 681,519 27,687,303 Loan payment EPLG Accrued ex-rate gain receivable payment Received payment of inv 81852 ( 342.255,33 * (20920-20880) Payment suppliers SPE T01T06/2010 ( 36000USD) Payment suppliers SPE T07T08/2010 (14500USD) Payment suppliers SPE T09-T12 ( 18500USD) Receiving payment from BP, inv 81856; 81857 & 81857 ( 15870,99*19500); 32504,62*20875)- 20930) Receiving payment from PVMTC, inv 81870 (414,329.33)*(2091020700) Receiving payment from BP, inv 81861 (16,567.99)*(20895-20850) 44,253,505 52,844,290 13,690,213 94,506,000 34,524,500 36,870,500 24,483,269 745,559 79,361,091 45,584,482 5/31/2011 17 6/2/2011 18 6/3/2011 Loan payment SPE no 04-EPIS 111,103,879 19 6/3/2011 Loan payment EPLG no 04-EPIS 64,139,770 20 6/8/2011 Loan payment EPLG no 04-EPIS 81,188,783 21 6/29/2011 Receiving payment inv 0025 ( 366.343,88)*(20610-20630) 22 6/30/2011 Receiving payment inv 97396 23 6/30/2011 Loan payment EPLG no 04-EPIS 24 8/2/2011 25 8/10/2011 26 8/23/2011 14,068,614 1,798,000 7,326,877 464,556,403 300,330,552 4,572,208 725,504 927,446 Receiving USD Receiving USD Paying USD Receiving USD Paying USD 7,539,555 16 Receiving payment from PVMTC inv 33 (457,220.83 ) * (2061020620) Payment of house rental for Terry Holland ( 6364.34 *(20615-20729) Receiving payment from EGS inv 0041 (4333.86) * (20824-20610) Type Paying USD Paying USD Receiving USD Selling USD (swap) Paying USD Receiving USD Receiving USD Paying USD Paying USD Paying USD Receiving USD 87,009,159 Loan payment EPLG Receiving payment from PVMTC, inv 02 (410,531.66)*20710-20610) Loan payment No 11771 2nd repayment ( 28451,15)*(2092520660) Receiving payment from BP, inv 81866 ( 49,363.56)*(20895-20610) Repayment of loan dated 15/05/2011 (14.500)*(20770-20646) Loss Receiving USD Paying USD Paying USD Paying USD Paying USD Receiving USD Receiving USD Paying USD Receiving USD Paying USD Receiving USD Net gainloss (681,519) (27,687,303) 52,804,960 128,000,000 (44,253,505) 52,844,290 13,690,213 (94,506,000) (34,524,500) (36,870,500) 24,483,269 (87,009,159) (745,559) (79,361,091) (45,584,482) 7,539,555 (14,068,614) 1,798,000 (111,103,879) (64,139,770) (81,188,783) 7,326,877 464,556,403 (300,330,552) (4,572,208) (725,504) 927,446 Page 11 of 14 No Date 27 8/29/2011 10/4/2011 10/13/2011 10/20/2011 11/1/2011 12/14/2011 12/21/2011 12/26/2011 1/10/2012 1/11/2012 2/8/2012 Description Receiving payment from PVMTC inv 0045 ( 476,691.44) * (2083420610) Payment suppliers EPLG T11 & T12/2010 ( 40650(20834-18932) Payment supplier EPConsult LTD inv No 001,002 ( 45510(2088520824)+410(20885-20834) SWAP selling 35500 USD (2094020698) Receiving payment from PVMTC inv 59 ( 484343.83 *( 2080320628)) Payment supplier EPConsults T11/2011 (13500 usd *(2081920803) Sellingn 5,100 USD (21021-20819) Receiving payment from PVMTC inv 0077 (491.414,38 usd x(2082820803)) Sellingn 35000 USD 10/01/2012 ( 35000 *(2103620818)) Sellingn 10,000 USD (2103620818)) Loan payment EPLG T12/2011 (20828-20827)*20,000 usd Total By year 2010 2011 2012 Ex-rate Gain 471,102,866 970,213,646 9,830,000 Gain Loss 106,778,883 77,316,300 Type Receiving USD Paying USD Net gainloss 106,778,883 (77,316,300) 2,797,020 Paying USD 8,591,000 Selling USD (swap) 8,591,000 Receiving USD 84,760,170 84,760,170 Paying USD 216,000 1,030,200 Receiving USD 12,285,360 7,630,000 Selling USD Selling USD Paying USD 2,180,000 20,000 1,451,146,512 Ex-rate Loss 30,499,770 1,104,203,709 (216,000) Selling USD 1,030,200 12,285,360 2,797,020 1,134,703,479 Net Gain/Loss 440,603,096 (133,990,063) 9,830,000 7,630,000 2,180,000 20,000 316,443,033 Page 12 of 14 APPENDIX PETROMAN’S GBP/VND EX-RATE EXPOSURE – VALUE AT RISK (2007-2010) Date Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Ex-rate on the 1st Ex-rate on the 10th 31,661 31,680 31,625 31,747 32,157 32,065 32,630 33,006 32,924 33,154 33,663 33,137 32,231 31,290 31,652 32,288 32,133 35,014 33,828 33,546 30,211 29,733 27,582 27,582 25,462 25,619 25,279 25,581 26,971 29,434 30,267 30,900 30,025 29,537 30,743 31,263 31,417 31,129 31,886 32,012 31,953 33,006 33,005 33,225 32,922 33,726 32,896 31,563 31,567 31,578 32,041 31,867 35,641 33,589 32,032 29,315 28,355 26,270 26,270 26,556 25,546 24,652 26,347 27,752 30,456 29,912 30,379 30,553 29,122 31,684 Volatility in value (398.00) (263.00) (496.00) 139.00 (145.00) (112.00) 376.00 (1.00) 301.00 (232.00) 63.00 (241.40) (668.36) 277.52 (74.09) (247.03) (266.67) 626.70 (238.93) (1,514.19) (896.02) (1,378.22) (1,311.86) (1,311.86) 1,093.53 (73.37) (627.36) 765.33 781.02 1,022.17 (354.41) (520.46) 528.31 (415.48) 941.82 Volatility in percentage -1.26% -0.83% -1.57% 0.44% -0.45% -0.35% 1.15% 0.00% 0.91% -0.70% 0.19% -0.73% -2.07% 0.89% -0.23% -0.77% -0.83% 1.79% -0.71% -4.51% -2.97% -4.64% -4.76% -4.76% 4.29% -0.29% -2.48% 2.99% 2.90% 3.47% -1.17% -1.68% 1.76% -1.41% 3.06% Est gain/loss (VND) (7,960,000) (5,260,000) (9,920,000) 2,780,000 (2,900,000) (2,240,000) 7,520,000 (20,000) 6,020,000 (4,640,000) 1,260,000 (4,828,000) (13,367,200) 5,550,400 (1,481,800) (4,940,600) (5,333,400) 12,534,000 (4,778,600) (30,283,800) (17,920,400) (27,564,400) (26,237,200) (26,237,200) 21,870,600 (1,467,400) (12,547,200) 15,306,600 15,620,400 20,443,400 (7,088,200) (10,409,200) 10,566,200 (8,309,600) 18,836,400 Page 13 of 14 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 31,827 30,212 29,853 29,387 29,260 29,009 27,596 28,690 30,388 30,152 31,056 32,936 33,670 31,140 30,142 30,083 28,944 29,563 28,737 28,083 28,951 30,430 30,182 31,685 33,517 32,938 (686.91) (70.03) 230.47 (443.20) 302.96 (272.10) 486.93 261.33 41.14 29.19 629.31 580.93 (731.42) Max gain: VND 30,283,800 (Aug 08) Average gain: VND 9,993,121 Max loss: VND 21,870,600 (Jan 09) Average loss: VND 9,477,660 -2.16% (13,738,200) -0.23% (1,400,600) 0.77% 4,609,400 -1.51% (8,864,000) 1.04% 6,059,200 -0.94% (5,442,000) 1.76% 9,738,600 0.91% 5,226,600 0.14% 822,800 0.10% 583,800 2.03% 12,586,200 1.76% 11,618,600 -2.17% (14,628,400) Assumptions:  Invoicing client (BP) on the 1st day and payment of salary on the 10th day  Average salary payment: GBP 20,000/month Page 14 of 14 APPENDIX PETROMAN INCOME STATEMENTS (2010-2012) (See attachment) Page of PETROMAN INCOME STATEMENT FOR THE YEAR 2010 ITEMS Sales Revenue Goods service Deductions Net sales Goods service Costs of goods sold Goods service Gross profit/ (loss) Goods service Financial income Foreign exchange gain income from financial Financial expenses In which: Loan interest expenses Foreign exchange loss 10 11 12 13 14 15 16 Selling expenses Enterprise management cost Net operating profit/(loss) Other income Other expenses Other profit/(loss) Profit/(loss) before tax Corporate income tax Profit/(loss) after tax MONTH Jan Feb 10,751,101,377 Mar 9,737,651,686 354,538,229 10,396,563,148 Apr 11,948,953,086 May 9,314,148,589 Jun 10,549,184,050 Jul 12,173,506,308 Aug 11,718,415,012 Sep 14,734,616,222 Oct 12,934,999,282 Nov 15,405,799,815 TOTAL Dec 15,037,682,287 13,509,690,133 49,973,802 9,737,651,686 11,898,979,284 147,815,747,847 404,512,031 9,314,148,589 10,549,184,050 12,173,506,308 11,718,415,012 14,734,616,222 12,934,999,282 15,405,799,815 15,037,682,287 13,509,690,133 147,411,235,816 10,751,101,377 9,737,651,686 11,948,953,086 9,314,148,589 10,549,184,050 12,173,506,308 11,718,415,012 14,734,616,222 12,934,999,282 15,405,799,815 15,037,682,287 13,509,690,133 354,538,229 - 49,973,802 - - - - - - - - - 404,512,031 10,396,563,148 9,737,651,686 11,898,979,284 9,314,148,589 10,549,184,050 12,173,506,308 11,718,415,012 14,734,616,222 12,934,999,282 15,405,799,815 15,037,682,287 13,509,690,133 147,411,235,816 10,080,703,355 9,381,257,853 11,598,048,920 9,061,888,562 10,246,521,408 11,821,335,454 11,369,099,804 14,310,699,755 12,617,739,524 14,869,635,496 14,483,250,045 13,142,348,410 142,982,528,586 281,167,733 39,953,520 9,799,535,622 9,381,257,853 11,558,095,400 670,398,022 356,393,833 350,904,166 73,370,496 - 10,020,282 597,027,526 356,393,833 62,651,603 1,910,139 11,821,335,454 11,369,099,804 14,310,699,755 12,617,739,524 14,869,635,496 14,483,250,045 13,142,348,410 142,661,407,333 252,260,027 302,662,642 352,170,854 349,315,208 423,916,467 317,259,758 536,164,319 554,432,242 367,341,723 4,833,219,261 - - - - - - - - - 83,390,778 340,883,884 252,260,027 302,662,642 352,170,854 349,315,208 423,916,467 317,259,758 536,164,319 554,432,242 367,341,723 4,749,828,483 234,289,930 1,647,536 1,625,602 1,611,641 26,740,538 3,764,756 154,427,383 1,970,405 2,234,921 2,003,776 494,878,230 840,558 231,459,223 2,311,603 1,069,581 2,830,707 1,297,290 969,679 969,679 321,121,253 10,246,521,408 60,340,000 2,900,206 26,367,132 26,367,132 9,061,888,562 1,647,536 838,036 838,036 1,602,916 75,372,784 6,554,250 147,815,747,847 1,625,602 2,708,201 1,263,173 25,106,064 1,814,349 151,194,204 348,468 1,634,474 1,950,407 3,233,179 6,095,515 4,913,822 8,657,738 2,660,750 730,181 692,105 534,902 490,169 417,150 1,978,020 5,403,410 4,378,920 8,167,569 2,243,600 2,003,776 1,970,405 2,234,921 322,920 250,380 322,920 250,380 20,856,883 295,437,265 239,235,360 56,201,905 272,145,304 79,976,340 5,793,678 6,942,806 7,548,042 3,553,633 52,794,405 68,780,519 258,865,767 414,322,021 449,649,090 394,291,140 363,951,079 341,512,335 (74,183,083) (82,060,799) (28,062,060) 36,294,793 186,998,791 105,050 214,500 107,250 - 302,832 1,838 11,584,744 - 18,548,133 - 381,953,542 253,004,132 188,623,448 234,571,870 298,145,311 162,156,595 312,458,044 (50,869,462) 329,585,753 26,865,725 1,547,100 6,655,719 3,000 322,930,034 26,862,725 1,547,100 724,702,537 189,019,320 314,005,144 - - - 724,702,537 189,019,320 314,005,144 39,822,366 35,771,470 2,148,908 39,822,366 (11,047,096) (11,047,096) 105,023 - 2,148,908 37,920,378 37,920,378 (74,183,083) (74,183,083) 105,023 (81,955,776) (81,955,776) 2,306,133 258,924,929 358,842,683 444,452,439 4,000,231,315 189,393,149 (372,850,338) (197,782) 212,662 (28,259,842) 36,507,455 175,521,297 189,393,149 - - - 36,507,455 175,521,297 189,393,149 (28,259,842) (11,477,494) 8,180,951 352,121,644 11,797,050 401,772,503 9,300,678 474,021,347 - (372,850,338) (372,850,338) 716,819,603 400,501,675 1,098,773,145 211,297,825 887,475,320 Page of PETROMAN INCOME STATEMENT FOR THE YEAR 2011 ITEMS Sales Revenue Jan 13,438,190,886 Feb 12,491,050,772 Mar 16,167,942,418 Apr 13,834,141,973 May 13,043,348,655 MONTH Jun Jul 15,701,123,601 16,841,760,186 TOTAL Aug 17,321,819,766 Sep 17,195,051,529 Oct 17,516,149,834 11 17,992,687,137 12 16,769,541,261 - Goods service Deductions Net sales Goods service Costs of goods sold 13,438,190,886 12,491,050,772 16,167,942,418 13,834,141,973 13,043,348,655 15,701,123,601 16,841,760,186 17,321,819,766 17,195,051,529 17,516,149,834 17,992,687,137 16,769,541,261 Gross profit/ (loss) Goods service Financial income 12,491,050,772 16,167,942,418 13,834,141,973 13,043,348,655 15,701,123,601 16,841,760,186 17,321,819,766 17,195,051,529 17,516,149,834 17,992,687,137 16,769,541,261 - - - - - - - - - - - - - 13,438,190,886 12,491,050,772 16,167,942,418 13,834,141,973 13,043,348,655 15,701,123,601 16,841,760,186 17,321,819,766 17,195,051,529 17,516,149,834 17,992,687,137 16,769,541,261 188,312,808,018 12,949,760,767 12,073,118,374 15,554,218,122 13,358,905,448 12,571,831,236 15,083,977,504 16,112,127,179 16,611,167,443 16,583,915,608 16,824,010,792 17,234,850,091 16,094,968,894 181,052,851,458 Financial expenses 12,073,118,374 15,554,218,122 13,358,905,448 12,571,831,236 15,083,977,504 16,112,127,179 16,611,167,443 16,583,915,608 16,824,010,792 17,234,850,091 16,094,968,894 181,052,851,458 488,430,119 417,932,398 613,724,296 475,236,525 471,517,419 617,146,097 729,633,007 710,652,323 611,135,921 692,139,042 757,837,046 674,572,367 7,259,956,560 - - - - - - - - - - - - - 488,430,119 417,932,398 613,724,296 475,236,525 471,517,419 617,146,097 729,633,007 710,652,323 611,135,921 692,139,042 757,837,046 674,572,367 7,259,956,560 1,605,870 181,593,994 130,447,233 38,439,486 8,543,294 398,233,301 400,325 108,698,862 640,415 12,200,013 87,157,322 16,065,692 984,025,807 1,605,870 27,687,303 10 11 12 13 14 15 Selling expenses Enterprise management cost Net operating profit/(loss) Other income 180,804,960 129,350,173 38,173,482 7,539,555 397,175,397 789,034 1,097,060 266,004 1,003,739 1,057,904 30,855,403 30,855,403 In which: Loan interest expenses Foreign exchange loss 27,687,303 125,253,506 174,526,205 233,907,555 Other profit/(loss) Corporate income tax 16 Profit/(loss) after tax 741,067,806 81,000,000 8,625,205 7,138,650 184,304,822 44,253,506 165,901,000 226,768,905 556,762,984 107,706,329 400,325 5,178,082 5,178,082 992,533 10,296,893 4,999,181 640,415 273,712,500 11,388,020 84,760,870 13,315,560 811,993 2,396,452 2,750,132 77,316,300 273,712,500 5,297,712 22,948,611 22,948,611 77,316,300 299,344,090 970,214,346 13,811,461 2,022,094,254 299,128,090 917,890,544 216,000 1,104,203,710 11,626,595 36,281,310 5,366,667 7,438,242 19,675,758 13,072,303 8,820,304 18,802,127 32,096,666 12,314,758 8,555,758 11,232,122 185,282,610 205,714,126 216,953,655 423,283,237 368,672,703 342,920,408 486,619,661 443,832,109 520,769,235 478,036,267 490,769,766 229,924,101 451,935,525 4,659,430,793 245,007,965 315,436,024 190,268,119 (36,961,139) (116,443,008) (225,380,372) 272,202,837 269,482,930 (172,069,097) 123,938,231 583,565,898 (71,873,678) 1,377,174,710 107,250 107,855 114,812 115,088 113,740 226,600 228,162 1,256,761 Other expenses Profit/(loss) before tax 188,312,808,018 12,949,760,767 Foreign exchange gain income from financial 188,312,808,018 13,438,190,886 Goods service 188,312,808,018 107,250 107,855 114,812 245,115,215 315,543,879 190,382,931 - - - 245,115,215 315,543,879 190,382,931 115,088 (36,846,051) (36,846,051) 113,740 (116,329,268) (116,329,268) 1,013,507 1,100,000 430,210 2,786,971 (1,773,464) (1,030,161) - 228,162 (1,100,000) - - (430,210) (226,410,533) 272,202,837 269,711,092 (173,169,097) 123,938,231 583,565,898 (72,303,888) - - - - 272,202,837 269,711,092 123,938,231 583,565,898 (226,410,533) (173,169,097) (72,303,888) 1,375,401,246 240,695,218 1,375,401,246 Page of PETROMAN INCOME STATEMENT FOR THE YEAR 2012 ITEMS Sales Revenue Jan 16,232,535,309 MONTH Feb Mar 17,482,637,036 17,963,196,991 Apr 16,969,316,282 Goods service Deductions Net sales Goods service Costs of goods sold 16,232,535,309 17,482,637,036 17,963,196,991 16,969,316,282 service Gross profit/ (loss) Goods service Financial income Foreign exchange gain income from financial Financial expenses In which: Loan interest expenses 10 11 12 13 14 15 Net operating profit/(loss) 17,963,196,991 16,969,316,282 Corporate income tax 16 Profit/(loss) after tax 205,943,056,854 68,647,685,618 205,943,056,854 - - - - - 17,482,637,036 17,963,196,991 16,969,316,282 68,647,685,618 205,943,056,854 15,778,644,050 16,967,233,333 17,529,241,314 16,495,625,702 66,770,744,399 200,312,233,197 - - 15,778,644,050 16,967,233,333 17,529,241,314 16,495,625,702 66,770,744,399 200,312,233,197 453,891,259 515,403,703 433,955,677 473,690,580 1,876,941,219 5,630,823,657 - - - - - - 453,891,259 515,403,703 433,955,677 473,690,580 1,876,941,219 5,630,823,657 13,873,364 3,459,136 612,461 778,458 18,723,419 56,170,257 9,830,000 29,490,000 9,810,000 4,063,364 81,774,863 81,774,863 20,000 3,439,136 84,456,756 84,456,756 612,461 81,774,863 81,774,863 778,458 2,396,678 2,396,678 8,893,419 26,680,257 250,403,160 751,209,480 250,403,160 751,209,480 - - 603,636 6,620,000 12,460,545 19,684,181 59,052,543 223,866,007 272,847,510 263,289,698 293,337,939 1,053,341,154 3,160,023,462 162,123,753 160,954,937 82,883,577 166,273,876 572,236,143 1,716,708,429 - - - - - - - - - - 162,123,753 160,954,937 82,883,577 166,273,876 572,236,143 1,716,708,429 Other expenses Profit/(loss) before tax 68,647,685,618 - Other income Other profit/(loss) 205,943,056,854 16,232,535,309 Selling expenses Enterprise management cost 68,647,685,618 17,482,637,036 Foreign exchange loss TOTAL (Expected) 16,232,535,309 Goods TOTAL (Jan-Apr) - - - - 143,059,036 429,177,107 162,123,753 160,954,937 82,883,577 166,273,876 429,177,107 1,287,531,322