(TIỂU LUẬN) FINANCIAL STATEMENT MANAGEMENT REPORT OF HOA PHAT GROUP JOINT STOCK COMPANY

FOREIGN TRADE UNIVERSITY FACULTY OF BUSINESS ENGLISH *** FINANCIAL STATEMENT & MANAGEMENT REPORT OF HOA PHAT GROUP JOINT STOCK COMPANY Group: FINEAS – HOA TO THE PHAT Instructor: Le Thanh Thuy, M.D Class: TAN410(GD1-HK1-2021).2 Hanoi, October 2021 TABLE OF CONTENTS General information about Hoa Phat Group Joint Stock Company 1.1 Company overview 1.2 Shares and shareholders information 1.3 Corporate structure 1.4 Products and Services Market analysis 2.1 The market in general 2.1.1 Global steel market 2.1.2 Vietnam steel market 2.1.3 Steel demand forecast 2.2 The industry 2.2.1 Opportunities 2.2.2 Challenges Consolidated financial statements 3.1 Balance sheet 3.2 Income statement 10 3.3 Statement of Cash flow 11 Financial Analysis 12 4.1 Trend Analysis 12 4.1.1 Profitability Ratios 13 4.1.1.1 Gross Profit Margin, Operating Profit Margin & Net Profit Margin 13 4.1.1.2 Return on Asset & Return on Equity 14 4.1.2 Liquidity Ratios 15 4.1.3 Debt Ratios 17 4.1.3.1 Debt to total assets ratio and Debt to equity ratio 17 4.1.3.2 Times Interest Earned 18 4.1.4 Asset Activity Ratios 18 4.1.4.1 Inventory Turnover 18 4.1.4.2 Total Asset Turnover 20 4.2 Industry Analysis 21 4.2.1 Profitability Ratios 21 4.2.2 Liquidity Ratios 23 4.2.3 Debt Ratios 24 4.2.4 Asset Activity Ratios 25 4.2.4.1 Inventory Turnover 25 4.2.4.2 Total Asset Turnover 26 Development strategy 27 5.1 Well–managed inventory and keeping track of the price of raw material 27 5.2 Be cautious with the serious change of the Covid-19 pandemic in 2021 28 5.3 Investing digital technology in business administration 29 LIST OF FIGURES Figure 1.1 Hoa Phat Group’s shareholder structure Figure 1.2 Hoa Phat Group’s corporate structure Figure 2.1 Vietnam steel production and use in the period 2018 – 2020 Figure 4.1 Hoa Phat’s Profitability Ratios, 2018 – 2020 13 Figure 4.2 Hoa Phat’s ROA & ROE, 2018 – 2020 15 Figure 4.3 Hoa Phat’s Liquidity Ratios, 2018 – 2020 16 Figure 4.4 Hoa Phat’s Debt Ratios, 2018 – 2020 17 Figure 4.5 Hoa Phat’s Times Interest Earned, 2018 – 2020 18 Figure 4.6 Hoa Phat’s Inventory Turnover, 2018 – 2020 19 Figure 4.7 Hoa Phat’s Total Asset Turnover, 2018 – 2020 20 Figure 4.8 Hoa Phat Cross-Sectional Analysis of ROA & ROE, 2018 – 2020 23 LIST OF TABLES Table 4.1 Hoa Phat Cross-Sectional Analysis of Profitability Ratios, 2018 – 2020 21 Table 4.2 Hoa Phat Cross-Sectional Analysis of Liquidity Ratios, 2018 – 2020 23 Table 4.3 Hoa Phat Cross-Sectional Analysis of Debt Ratios, 2018 – 2020 24 Table 4.4 Hoa Phat Cross-Sectional Analysis of Inventory Turnover, 2018 – 2020 25 Table 4.5 Hoa Phat Cross-Sectional Analysis of Total Asset Turnover, 2018 – 2020 26 Table 5.1 The amount of inventory of steel industry by the end of 2020 27 1 General information about Hoa Phat Group Joint Stock Company 1.1 Company overview Hoa Phat is the leading industrial manufacturing group in Vietnam Originating as a construction machine and equipment trading company in August 1992, Hoa Phat has gradually expanded its business to trading and production of Furniture (1995), Steel Pipe (1996), Construction Steel (2000), Refrigeration (2001), Real Estate (2001), Agriculture (2015) and Steel Sheet (2016) In 2007, Hoa Phat transformed into operation under the model of a Group, in which Hoa Phat Group Joint Stock Company works as a Parent company with its member companies Currently, steel production is the core, accounting for over 80% of total revenue and profit of the Group Hoa Phat Group is the largest manufacturer of construction steel and steel pipes in Vietnam with market shares of 33.8% and 30.19% respectively, as of March 2021 The core value of Hoa Phat Group is the philosophy of Harmony for Joint Development With the vision to become an industrial manufacturer with top quality and core area of steel, Hoa Phat always provides leading products which contribute to improving living conditions and gain customers’ trust For many successive years, Hoa Phat was recognized as a National Brand, one of the Top 50 largest and most effective enterprises in Vietnam; Top 10 largest private companies in Vietnam, Top 50 most valuable brands in Vietnam 1.2 Shares and shareholders information Hoa Phat Group Joint Stock Company was officially listed on the Ho Chi Minh’s Stock Exchange (HOSE) in November 2007 The group's accounting period begins on January and ends on December 31 HPG’s independent auditor is KPMG in 2018, 2019 and 2020 As of September 20, 2021, the total number of HPG's shares is 3,313,282,659 The largest shareholders are Mr Long Tran and his wife, with a combined 32.5% stake Foreign ownership stands at 37% 25.20% 7.30% 56.80% 4.80% 5.90% Tran Dinh Long Vu Thi Hien Deutsche Bank AG Dragon Capital Other Ownership Figure 1.1 Hoa Phat Group’s shareholder structure 1.3 Corporate structure Currently, Mr Tran Dinh Long is chairman of the group and orients business strategy for each subsidiary Mr Long plays an important role in Hoa Phat, as he makes all the major decisions of the company Figure 1.2 Hoa Phat Group’s corporate structure 1.4 Products and Services Hoa Phat Group’s operations are comprised of five segments which are iron and steel, steel pipes and galvanized steel, other industrial production, agriculture and real estate The Company manufactures steel and cast iron in various forms, such as sheets, bars, rolls and pipes, as well as steel-making materials and steel drawing machinery Under its industrial segment, it manufactures and trades construction and mining vehicles and equipment, along with household appliances, refrigerators and home and office furniture Under its agriculture segment, the Company is engaged in pig and poultry farming and meat processing, as well as animal feeds, fertilizers and agricultural supplies manufacturing Under its real estate segment, it develops and constructs residential and office buildings for lease and for sale Market analysis 2.1 The market in general 2.1.1 Global steel market Steel is a critical industry worldwide, and steel products are a heavily traded commodity However, a recent slowdown in global growth has impacted steel demand in all the steel-consuming industries, providing particularly challenging market conditions for steel producers 2018 was a period of relative growth for the steel industry, with higher global demand, higher levels of production, and an overall increase in the global capacity utilization rate (compared to 2017) Steel demand benefited from the broad and favorable global economic momentum affecting both the developed and developing world at the same time 2019 was a difficult year for the steel industry Steel production growth turned negative in all regions, with the exception of Asia and the Middle East The global steel demand declined as a result of the ongoing slump in Europe’s manufacturing sector However, the downturn in industrial activities does not only affect Europe but has reached a global scale, reflecting growing trade tensions and uncertainty – which increasingly hamper business investment In 2020, the steel industry around the world grappled with the effects of the COVID-19 outbreak Steel production declined drastically but unevenly across the globe during the first half of 2020 Fortunately, the demand and production shocks caused by the COVID pandemic began to abate in the second half of 2020 This was due to a surprisingly robust recovery in China, with a growth of 9.1% According to the World Steel Association, China’s share of global crude steel production increased from 53.3% in 2019 to 56.7% in 2020 Steel use in China also expanded while it contracted in the rest of the world It demonstrates that the demand-supply dynamics in the steel industry are strongly influenced by China and its economy Structural changes in a post-pandemic world will bring about shifts in steel demand shape Steel companies have seen great opportunities from rapid developments through digitization and automation, infrastructure initiatives, reorganization of urban centers, and energy transformation to increase output That is the reason why steel prices rise or stay flat despite the increase in steel production, showing that current demand is growing faster than the production rate of countries around the world 2.1.2 Vietnam steel market With strong growth in recent years, Vietnam's steel industry has played an increasingly important role in the region’s steel market and improved its position in the world steel market Vietnam steel production and consumption in the past years is presented in the following chart: Million tonnes Vietnam Steel Production & Consumption in the period 2018 - 2020 26 25 24 23 22 21 20 19 Production Consumption 2018 24.2 21.8 2019 25.2 23.2 2020 25.9 23.4 Figure 2.1 Vietnam steel production and use in the period 2018 – 2020 During the period of 2018 - 2019, Vietnam’s steel industry generally achieved good growth in the context of fierce competition in both domestic and international steel markets The rapid growth of Vietnam's steel exports caused many importing countries to apply trade remedies to protect their domestic production Besides, Vietnam still faced other difficulties such as the difference between domestic demand and production capacity, the decline in the real estate market, and the influence of international trade tensions In 2020, Vietnam was one of the few countries with high and growing steel production and consumption While the COVID-19 epidemic was negatively impacting the world economy, Vietnam's steel industry still recorded positive numbers According to the Vietnam Steel Association, Vietnam took the leading position of Southeast Asia in steel production and ranked 14th in the top 50 largest crude steel manufacturing countries globally Regarding imports, Vietnam ranked 6th among the world's largest steel importers Vietnam's steel market recovery momentum is mainly driven by the Chinese market, the world's largest steel producer and consumer China's steel output cuts to reduce carbon emissions give Vietnam an opportunity to make high profits by sharply increasing steel production for export When it comes to price, the domestic steel prices remained at high levels but were quite stable in general The main reason is that Vietnam's steel market has high stability as a result of its high growth rate and concentration with large enterprises holding the majority of the market share 2.1.3 Steel demand forecast On the whole, effective vaccination campaigns of countries, as well as public investment policies to stimulate the economy taking place around the world, have increased global steel demand In particular, the US, China, and EU with large stimulus packages have pushed steel manufacturers to maximize their capacity According to the World Steel Association, steel demand is expected to continue growing, but growth rates will moderate in tandem with a slowing global economy With regard to Vietnam’s steel demand, it is projected in the next years to continue to show stable growth since the Vietnamese economy is growing rapidly and the government is actively investing in the construction of infrastructure and housing The burgeoning urban population will drive rising demand for urban housing Although increasing trade restrictions stemming from the global spread of protectionism, rising electricity rates, and the slowing real estate market in Vietnam will have negative impacts on steel demand, the Vietnamese steel industry will continue to grow considering its current low per capita steel consumption and stable FDI inflows 2.2 The industry 2.2.1 Opportunities First, the EVFTA Agreement has supported the export of many groups of products to the EU market, in which iron is one of the items with special interest According to the commitments in the EVFTA, the EU import tax rates from Vietnam have mostly been reduced to 0% Second, the Ministry of Industry and Trade proposes to build a Vietnamese-brand steel manufacturer that is commensurate with the scale in the region as well as in the world; encourage new investors to invest in iron and steel production complexes in coastal areas, with deepwater ports (ensure the supply of HRC steel for domestic consumption) Third, Vietnam has a great opportunity to attract foreign direct investment (FDI) thanks to its effective control of the pandemic, and low labor costs Once new FDI enterprises and capital enter Vietnam, the demand for investment in factories and industrial zones will increase, generating higher demand for construction steel and presenting the steel industry with opportunities to promote sales 2.2.2 Challenges Along with the high growth in export turnover, Vietnam's export firms are increasingly likely to become the subject of investigations and trade remedies In recent years, Vietnamese steel products have been continuously involved in trade remedy lawsuits in export markets 17 assets of Hoa Phat because the company took on more short-term debt and then used them for short-term financial investment, one item of current assets 4.1.3 Debt Ratios 4.1.3.1 Debt to total assets ratio and Debt to equity ratio Figure 4.4 Hoa Phat’s Debt Ratios, 2018 – 2020 Both the debt to total assets ratio and the debt to total equity ratio have a tendency to rise significantly from 2018 to 2020 because the company sharply increased debt to invest in the construction of the Dung Quat iron and steel complex This is completely normal for a company that is looking to extend the production cycle to a larger scale In addition, when taking on more debt, the company also increased its equity by 18% in 2019 and 24% in 2020 to create a more balance in capital structure, helping the debt to equity ratio stay at a safe level, always less than 1, which means that the company's assets were still primarily financed by equity rather than debt In 2020, although all four Dung Quat blast furnaces had been in operation since the end of the year, the debt continued to increase sharply by 47.6% compared to 2019, making debt to equity in 2020 also increase significantly This came from main reasons Firstly, the company still needed investment capital for its other projects Secondly, the company utilized the treasury operation, which means that it invested in short-term capital like a bank to increase profits for the company Specifically, the company took advantage of its high creditworthiness to borrow at low-interest rates, and 18 then used that amount of debt to invest in other financial institutes with higher interest rates This activity made short-term debts in 2020 more than twice that of 2019 The increased current debts made items of cash & cash equivalents and short-term financial investment go up Therefore, the net debt to equity in 2020 is only 0.54 times, which means that only 54% of the company's equity was being financed by debt 4.1.3.2 Times Interest Earned Figure 4.5 Hoa Phat’s Times Interest Earned, 2018 – 2020 Times interest earned tended to decrease in the period from 2018 to 2020 due to the sharp increase in interest expenses in 2019 when furnace No and No came into operation, and in 2020, when Furnace No and No No comes into operation When the entire Dung Quat iron and steel complex came into operation and officially went into commercial exploitation, the interest expense was no longer capitalized but recognized as a financial expense in the Income Statement However, Hoa Phat will not face significant obstacles or pressure when paying interest because HPG's profit and revenue both increased markedly compared to the previous year In the long term, Hoa Phat's main business profit will continue to increase thanks to the huge capacity of the Dung Quat iron and steel complex 4.1.4 Asset Activity Ratios 4.1.4.1 Inventory Turnover 19 Figure 4.6 Hoa Phat ’s Inventory Turnover, 2018 – 2020 According to the chart, inventory turnover ratios tended to decrease significantly from 2018 to 2019 and almost remained the same until 2020 Namely, inventory accounted for 56% of total goods on December 31, 2018; 64% on December 31, 2019; and 46% on December 31, 2020 Therefore, it can be seen that the enterprise's inventory management efficiency tended to go down in the period of 2018-2019 and the business' sales activities in 2020 were coming back to control in 2020 The significant decrease in the inventory turnover ratio in the period of 20182019 was due to the sudden increase in inventory scale (an increase of 60.01%) while sales and service revenue increased by 44.6% This gap is especially due to the large amount of raw material required to meet the expanding capacity at Dung Quat Complex in the second phase Inventory turnover in 2019 decreased significantly compared to 2018, equivalent to the average ratio in the last years This ratio gradually stabilized in 2020 after Dung Quat Complex project completed the first phase and went into commercial operation, resulting in a significant decrease in the proportion of average inventory In the financial statement for the first quarter of 2020, the enterprise explained that the increase in inventory was also due to an increase in finished products and raw materials It is not difficult to recognize the increase in inventories of steel manufacturing 20 and trading enterprises when steel demand and prices are forecasted to continue to increase in the near future after Vietnam's economy recovers after the pandemic Another factor is the outbreak of the Covid-19 epidemic in the 2018-2019 period, which greatly affected international import and export as well as domestic transportation to steel distributors and consumers In 2020, when the research on vaccines against Covid-19 was developed by scientists, the world adapted to the epidemic Thus, this ratio is almost stable and decreases very little 4.1.4.2 Total Asset Turnover Figure 4.7 Hoa Phat’s Total Asset Turnover, 2018 – 2020 Because it is also directly affected by two factors of Revenue and Total Assets, Hoa Phat's Total Asset Turnover ratio in the period of 2018 - 2020 has similar developments as the Profitability Index In 2019, the increase in Total Assets and Capital (specifically, the increase in these two factors was explained in the Profitability Ratios section) caused Hoa Phat's Average Total Asset to record a sudden increase of 27.1 % compared to that in 2018, while Net Revenue only increased by 12.3% This gap between the two factors is the cause of the obvious decrease in Total Asset Turnover in just year In 2020, the Total Asset Turnover ratio recovered again and reached 77%, up 6% from the previous year This is due to the fact that the first phase of Dung Quat Complex was officially put into operation at the end of 2019 and Hoa Phat gradually implemented 21 the second phase of the plan in 2020, resulting in an increase in steel output The increasing output caused the sharp increase in consumption demand for steel as well as steel prices in 2020, contributing largely to the company's revenue growth rate of 29.1% The recovery of Total Asset Turnover in just year has shown that Hoa Phat's decision to invest in fixed assets, specifically Dung Quat Complex, is correct and the company is gradually improving its efficiency in property management activities 4.2 Industry Analysis To evaluate Hoa Phat's performance in the period of 2018 - 2020, the analysis team used industry averages of 3rd party analysts and data of the company's main competitors compiled by students themselves 4.2.1 Profitability Ratios Table 4.1 Hoa Phat Cross-Sectional Analysis of Profitability Ratios, 2018 – 2020 2018 Profitability Ratios HPG Industry 2019 2020 HPG Industry HPG Industry Gross profit margin 20.90% 10.11% 17.57% 8.77% 20.98% 4.41% Operating profit 9.00% 6.50% 15.76% 5.78% 19.47% 3.67% Net profit margin 15.40% 4.41% 11.90% 3.67% 14.99% 5.82% ROE 23.48% 10.16% 17.03% 9.20% 25.14% 17.00% ROA 13.06% 8.36% 3.89% 11.53% margin 4.61% 6.95% 22 Although Hoa Phat's financial ratios were relatively fluctuating in 2019-2020, the firm kept them at a higher level than the industry average In 2019, Hoa Phat's Net Profit Margin Ratio was lower than in 2018 This was owing to a sharp increase in iron ore prices In the second quarter of 2019, the average iron ore price reached 100 USD/ton, about 30 USD/ton higher than in the same period in 2018 As a result of rising input costs, the gross profit margin grew from 78 percent to 81 percent Hoa Phat boosted inventory reserves in 2019 to take advantage of financial leverage when input material prices climbed Thus, the bank loan interest rate in 2019 increased compared to 2018, while marketing and administrative expenses did not fluctuate strongly, causing Operating Profit Margin and Net Profit Margin to decrease compared to the same period in 2018 Both Hoa Phat and industry profitability ratios increased in 2020 Hoa Phat's revenue from sales and service provision increased by 29.6 percent compared to 2019, while Gross Profit Margin decreased compared to 2019, and was nearly equivalent to 2018, showing a decrease in input material costs One VND of revenue in 2020 generates 0.21 VND of net profit (while 2019 was 0.188) In the setting of the Covid-19 outbreak, which hurt the economy, Hoa Phat employed stringent cost management and took advantage of the closed production process from upstream Furthermore, the Hoa Phat Dung Quat Complex Project greatly contributed to revenue growth and a higher profit margin than many steel businesses in the sector In 2020, the whole industry's ROE and ROA improved dramatically, and Hoa Phat outperformed other enterprises Hoa Phat's ROE was 22.8 percent, a considerable increase from 15.9 percent in 2019 and 21.2 percent in 2018 In addition, the firm‘s ROA increased from 7.4 percent in 2019 to 10.3 percent in 2020 While assets climbed by 29.2%, ROA improved over the same period in 2019, owing primarily to a significant increase in profit after tax This ratio is expected to improve in the future, as investment assets are used effectively 23 Figure 4.8 Hoa Phat Cross-Sectional Analysis of ROA & ROE, 2018 – 2020 4.2.2 Liquidity Ratios Table 4.2 Hoa Phat Cross-Sectional Analysis of Liquidity Ratios, 2018 – 2020 2018 2019 2020 Current Quick Current Quick Current Quick Ratio ratio Ratio ratio Ratio ratio HPG 1.12 0.49 1.13 0.41 1.09 0.59 HSG 0.85 0.33 0.84 0.32 0.39 NKG 1.05 0.43 1.02 0.43 1.1 0.52 VGS 1.28 0.8 1.29 0.89 1.4 0.9 Industry 1.08 0.51 1.07 0.51 1.15 0.6 The industry norm for the current ratio was below the value HPG had in 2018 and 2019, showing that HPG had a comparatively high liquidity position However, in 2020, HPG’s current ratios are lower than the industry average This comes from the fact that the domestic steel market experienced recovered production in the second half of 2020, along with steady growth in disbursing public investment capital This led to an increase 24 in steel demand and the revenue of many steel enterprises, thereby helping them cover some amounts of current debts Another reason is that in 2020, HPG had treasury activities and the company borrowed a lot of current debt and then brought it to invest in banks in order to make a profit from the spread in interest Therefore, the current ratio of HPG is less than the industry average is not a big problem The quick ratio of HPG stayed near the industry norm throughout the period from 2018 to 2020 This means that when inventory is subtracted from total current assets, HPG’s liquidity looked steady 4.2.3 Debt Ratios Table 4.3 Hoa Phat Cross-Sectional Analysis of Debt Ratios, 2018 – 2020 2018 2019 2020 Debt to Debt to Debt to Debt to Debt to Debt to Total Assets Equity Total Assets Equity Total Assets Equity HPG 31% 60% 36% 77% 41% 91% HSG 64% 278% 56% 177% 46% 124% NKG 54% 148% 38% 103% 39% 94% VGS 33% 74% 37% 94% 23% 53% Industry 46% 140% 42% 113% 37% 91% In general, in the period of 2018-2019, the debt to total asset ratio and the debt to total equity of HPG was consistently lower than the industry norm It is notable that in that period, HPG increased sharply its total debt by 43% while the percentage of debt increase of VGS is not as high as HPG and even NKG and HSG reduced their debt In contrast, in 2020, the debt to asset ratio of HPG is lower than the industry norm It is not a negative sign for HPG It is because, at that time, steel companies improved their debts, which reduced their debt to asset ratios Also, in 2020, HPG continued to take on more debt to serve its treasury activities Compared to the steel industry, this debt level of HPG 25 is fairly good because HPG is a steel giant in Vietnam with many projects to expand its business for its further development Another interesting thing is that the company raises its equity along with the increase in its debt in order to maintain its debt ratios at a safe level 4.2.4 Asset Activity Ratios 4.2.4.1 Inventory Turnover Table 4.4 Hoa Phat Cross-Sectional Analysis of Inventory Turnover, 2018 – 2020 2018 2019 2020 HPG 3.42 3.13 3.12 HSG 3.94 4.45 4.55 NKG 4.31 4.72 4.31 VGS 13.31 16.61 14.54 Industry 6.25 7.23 6.63 Comparison 54.72% 43.29% 47.05% With the current steel production capacity of more than 11 million tons, the consumption capacity in 2020 was more than 5.5 million tons, excluding imported steel The inventory caused businesses in the domestic steel industry to face a difficult situation The large inventory stagnation is due to the big gap between supply and demand, the stagnation of the estate market in recent years, resulting in an increase in inventories of many enterprises in the industry The slow consumption of manufactured goods is caused by the impact of the Covid-19 pandemic, the sharp increase in iron ore prices, and production costs The inventory turnover ratio remained at a quite low level (the average is 6.7 times in years) and these difficulties in the short term are difficult to completely remove 26 Industry leaders such as HPG, HSG had positive cash flow thanks to high cash flow from sales, which compensated for the increase in inventory value, so the turnover ratio was at a stable low level (the ratio accounts for 48.35% of the average ratio in the last years) In contrast, many companies in the lower group had negative operating cash flows such as NKG and VGS, so there was a sharp increase in inventory value in case steel prices continue to increase in the near future HPG has a lower inventory turnover ratio than the average one in the industry This gap is mainly due to small and emerging steel companies' very high ratios Their accumulation of inventory in large quantities caused this situation Namely, VGS has an average 3-year inventory turnover ratio which is 4.5 times higher than that of HPG However, this ratio has two sides and is different in every industry If the ratio is too low, the enterprise has weak inventory management and cannot export goods Otherwise, if it is too high, the business will not meet the demand and lose customers when the market has an increase in supply HPG's average inventory turnover ratio in years which is at 3.2 shows that it is stable, the inventory management is always monitored and operated effectively 4.2.4.2 Total Asset Turnover Table 4.5 Hoa Phat Cross-Sectional Analysis of Total Asset Turnover, 2018 – 2020 2018 2019 2020 HPG 0.85 0.71 0.77 HSG 1.61 1.46 1.57 NKG 1.62 1.50 1.46 VGS 4.39 4.30 3.85 Industry 2.12 1.99 1.91 Hoa Phat Total Asset Turnover is low because Total Asset is higher than other companies, mainly because of Dung Quat Complex In 2017, Hoa Phat started 27 implementing the complex project, and in the period from the end of 2019 to the middle of 2020, the new complex can come into operation 100% Thanks to the large production volume, the complex has immediately improved the net revenue for Hoa Phat significantly from 55.8 trillion in 2018 to 90.1 trillion in 2020, however, because it has only just started After being put into operation at total capacity for a short period, Hoa Phat's net revenue could not make up for the total assets due to the very high value of the complex, which is the reason why Hoa Phat's Total Asset Turnover ratio is lower than competitors and the industry average In principle, Hoa Phat's Total Asset Turnover ratio is lower than the industry average, which partly shows that the enterprise has not used its assets effectively, but this is not a cause for concern because this only happens in the short term Hoa Phat's profitability ratios in 2018 - 2020, especially ROA, are higher than the industry average by 2.94%, 2.08%, and 1.69%, respectively In addition, Net revenue in 2020 increased by 29.4% compared to 2019, while Total Assets growth was only 22.8%, which is a sign that Hoa Phat's Total Asset Turnover ratio is gradually improving Development strategy 5.1 Well–managed inventory and keeping track of the price of raw material Table 5.1 The amount of inventory of steel industry by the end of 2020 (Unit: Thousand tonnes) Material Inventory by the end of 2020 Raw steel 232 Construction steel 340 Galvanized 229 Steel pipe 67 In 2020, economic activities faced many difficulties because of the outbreak of the COVID-19 epidemic, so steel consumption was lower and lower, contributing to higher inventories Hoa Phat's representative said the cause was the complicated development of the COVID-19 epidemic in Ho Chi Minh City and the southern 28 provinces as well as the rainy season has begun, affecting demand Due to the specific requirements in operation, these blast furnaces must operate continuously 24/7, so Hoa Phat's inventory increased the most among large enterprises Currently, the large amount of inventory will be a two-edged knife to Hoa Phat If steel prices continue to increase, businesses will continue to gain profits In the opposite case, corporate profits go down and have to restructure inventory Therefore, Hoa Phat should launch a new technological system called BRAVO to manage inventory more effectively Besides, exporting steel and having other ways to prevent steel from natural effects will be the most priority of Hoa Phat in 2021 5.2 Be cautious with the serious change of the Covid-19 pandemic in 2021 The outbreak of the COVID-19 epidemic in many localities caused a decrease in the demand for construction, along with the preparation for the rainy season, making it difficult for domestic steel consumption With Hoa Phat, the company’s galvanized sheet and steel pipe products also saw a strong increase The leader of Hoa Phat Steel Products Joint Stock Company said that the export volume of steel pipes and coated steel sheets has increased recently mainly due to the recovery in demand in the US and Europe after the pandemic Although the company has found a way to develop, Covid-19 pandemic is still spreading in Vietnam and can break at any time Therefore, Hoa Phat should have a plan for the future, in case of the worst situation In the short term, the company remains to produce the average number of products, not too high or low, guaranteeing that they can meet the local demand even though in the context of Covid 19 If this pandemic lasts longer than we expect, the company should consider investing in other fields to gain profit such as medical equipment, vaccines… Besides, the company needs to focus on exporting our products to foreign markets, especially countries that can control the pandemic such as America, Japan, China, etc In addition, when manufacturing is slow, it is the ideal time for training our human resources, raising the average academic level of our employees in terms of knowledge and skills Considering human resources to be the core value of success, Hoa Phat 29 consistently focuses on training knowledge and skills for employees Subsidiaries regularly hold training courses, closely coordinate with universities, colleges, vocational schools in mechanical engineering to attract skilled workers satisfying requirements for business development Development policies in terms of both quality and quantity are always implemented equally Hoa Phat Group has deployed a rating system to standardize the human resource system on a group scale to be applied on a step-by-step basis in the calculation and payment of salaries to motivate employees 5.3 Investing digital technology in business administration Over the last ten years, Hoa Phat Group has applied administration solutions and production, sale, and accounting management software, especially Bravo This tool is now upgraded to a master administration solution integrated with many functions relatively suitable with Hoa Phat Almost all affiliated companies of the Group have used this software With this solution, the monitoring and management of production, business, and accounting activities have been smoothly carried out in the entire Group Boards of Directors, Chief Accountants, and Heads of Sales Departments of affiliated companies can easily review and make reports at the request of the Group’s Leaders This solution also can optimize the work efficiency of employees, provide exact data, and resolve financial problems especially the management of cash flow, production, inventory, and so on At Hoa Phat Dung Quat Steel Integrated Complex, Hoa Phat invested in the construction of two buildings with a total value of more than 100 billion dongs, one of which functioned as an iron and steel quality analysis area and the other as a mechanical and physical testing area The iron and steel quality analysis area is to check the quality of fluid cast iron and slag generated by blast furnaces and the quality of steel in all segments of production including desulfurization, conversion, refining, degassing, and casting This is the modest automatic sampling system in the world Although factories are 1.5 to 1.7km far from the analysis area, it takes only 30 to 70 seconds to bring samples to the analysis area through modern sample conduits using compressed air Then ABB robot (Switzerland) will receive samples and transfer them to analyzers then transmit 30 results to senders through an automatic system The maximum time to transmit results for steel sample, cast iron sample, and slag sample is minutes 30 seconds, minutes, and 7-10 minutes, respectively Through sample analysis using robots, Hoa Phat will easily diversify steel grades and provide the market with high-quality products REFERENCES Hoa Phat Group Joint Stock Company, Annual Report 2018 – 2020 Hoa Sen Group Joint Stock Company, Financial Statements 2018 – 2020 Nam Kim Steel Joint Stock Company, Financial Statements 2018 – 2020 Vietnam Germany Steel Pipe Joint Stock Company, Financial Statements 2018 – 2020 Baoviet Securities: Hoa Phat Group Joint Stock Company: Vietnam Steel Association: World Steel Association: An Binh Securities (2021) Báo cáo phân tích CTCP Tập đồn Hịa Phát (HPG) Available at: 10 BIDV Securities (2021) Báo cáo cập nhật doanh nghiệp HPG Available at: 11 KB Securities (2020) Tập đoàn Hòa Phát (HPG) – Người khổng lồ thép Available at: 12 Phu Hung Securities (2020) Công ty Cổ phần Tập đồn Hịa Phát Available at: 13 (2021) Cú lội ngược dòng ngành thép giới Available at: 14 (2020) Phân tích BCTC Cơng ty cổ phần Tập đồn Hịa Phát (HPG) Available at: ... robots, Hoa Phat will easily diversify steel grades and provide the market with high-quality products REFERENCES Hoa Phat Group Joint Stock Company, Annual Report 2018 – 2020 Hoa Sen Group Joint Stock. .. Joint Stock Company, Financial Statements 2018 – 2020 Nam Kim Steel Joint Stock Company, Financial Statements 2018 – 2020 Vietnam Germany Steel Pipe Joint Stock Company, Financial Statements 2018... and Steel Sheet (2016) In 2007, Hoa Phat transformed into operation under the model of a Group, in which Hoa Phat Group Joint Stock Company works as a Parent company with its member companies